Japan earthquake
Reinsurance 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 highlights
Net premiums written

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

200,000

100,000

190,000

194,628
182,895

92,99692,2482012

2013

90,000180,000
170,000

80,000160,000
150,000

70,000140,000
0
Fiscal Year

0
2012

2013

Fiscal YearNet 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

50.0
40.0

39.2%

4,000

40
2,996

3,000

30.0

30

2,000

20.0

1,000

10.0

20
13

18.7%

2

50
4,152

7

0

0.0

0

Japan Earthquake Reinsurance Co., Ltd. Annual Report 2014
Fiscal Year

2012

2013

10

Fiscal Year
2012
2013
Net unrealized gains on available-for-sale securitiesof earthquake insurance
Net unrealized gains on available-for-sale securities

Net premiums written

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

200,000

100,000

194,628

190,000

92,996

182,895

92,24890,000180,000
170,000

80,000160,000
Assumed net premiums written

150,000(Yen in millions)
140,000

Net premiums written

70,000(Yen in millions)

200,000
0

194,628

Fiscal Year
190,0002012
182,895

2013

92,9962012

Fiscal Year2013
92,24890,000180,000

Net unrealized gains on available-for-sale
80,000 securities of earthquake insurance
and net unrealized gains on available-for-sale securities

170,000
160,000

100,000
0

Net loss ratio

150,000(Yen in millions)

70,0005,000

50.0
140,000
0
40.0
Fiscal Year

50
4,152

39.2%
2012

2013

0
4,000
Fiscal Year

2012

2,996

2013

40

30.0

3,000

20.0

2,000 Net unrealized gains on available-for-sale20
securities of
13earthquake insurance
and net unrealized gains on available-for-sale securities
1,000
10
7

Net loss ratio

10.0

18.7%

30

(Yen in millions)

5,000
0

50.0
0.0
Fiscal Year
40.0

2012
39.2%

2013

30.0

50
0

Fiscal Year4,1522012
2013
4,000 Net unrealized gains on available-for-sale securities 40
of earthquake insurance
2,996
3,000 Net unrealized gains on available-for-sale securities 30

2,000
Total assets and net assets
Breakdown of total assets
Non-consolidated
solvency-margin ratio 13
18.7%
1,000(Yen in millions)7

20.0(Yen 10.0
in millions)

20
10

Items
FY2012FY2013
Others4,000
800,000
14,634 13,617
00.0 amount of non-consolidated solvency-margin(A) Total
357.9 billion yen
381.9 billion yen 0
Deposits
23,892
Fiscal Year
2012
2013
FiscalYear
2013577,305(B) Total
amount447.22012billion yen
221.4
billion yen
3,000
600,000
536,808of non-consolidated risk
Net unrealized gains on available-for-sale securities
Non-consolidated solvency-margin ratioof earthquake
insurance
160.0%
344.9%
Call loans(A) / {1/2x(B)} x 100

400,000

1,633

1,544

2,000

Total assets and net assets
200,000

1,000(Yen in millions)

4,000
0

800,000
0
Fiscal Year
600,0002012

Total assets
536,808

400,000

1,633

2013
577,305
Net assets

1,544

Net unrealized gains on available-for-sale securities
Breakdown of securities
Securities
Breakdown of total assets
525,161
Foreignsecurities(Yen in millions)
Call loans Others

14,634 13,617 Corporate bonds

Deposits

3,000

141,522

4,904

23,8922,000

Government
bonds

378,735

Breakdown of securities
Securities

200,000

1,000

0

0

525,161

Foreignsecurities

141,522
Fiscal Year

2012

2013

Total assets

Net assets

Corporate bonds

4,904

Government
bonds

378,735

Japan Earthquake Reinsurance Co., Ltd. Annual Report 20143

Organization(As of April 1, 2014)
General meeting of shareholders

Board of auditors
Board of directors

Board of managing directors

Compliance committee

Risk management committee

Task force against earthquake disaster

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

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.

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, 2014)
Shareholder

4Japan Earthquake Reinsurance Co., Ltd. Annual Report 2014

Board Members (full-time)(As of July 1, 2014)
Post

Name

Chairman(representative director)

Shozo Wakabayashi

President(representative director)

Masamichi Irie

Managing director(representative director)

Tadashi Baba

Managing director(representative director)

Hiroyuki Fushimi

Corporate auditor

Takashi Shikama

PREPARATION TO THE ANTICIPATEDLARGE SCALE EARTHQUAKEOur most important mission is to support prompt insurance payouts by non-life insurancecompanies and to promptly and steadily make reinsurance payouts. To achieve this, we haveestablished a standing Task Force against Earthquake Disaster consisting of full-time directors and managers, and it carries out exercises and develops a system on a regular basis
every year to deal with great disasters. We also manage and operate our assets that are accumulated for reinsurance payouts by paying the utmost attention to liquidity (cashability)
and safety so that reinsurance payouts are made without delay in the face of major disasters.
Specific responses are as follows.

Task Force against Earthquake Disaster and its activities
We have established the Task Force for Earthquake Disasters as a standing in-house organization. The task force carries out exercises, including emergency responses and drills for reinsurance payouts, in accordance with an annual plan in preparation for the occurrence of aninland earthquake that may strike the Tokyo metropolitan area. It also develops and examines
a disaster response manual among other activities.
Following the completion of improvements to the system infrastructure, so that it will withstand an inland earthquake in the Tokyo metropolitan area, in fiscal 2013 the task force
carried out drills for effectively using the system infrastructure in response to assumed emergency situations.
Assuming that our head office is affected by a disaster, we have established a temporary officein Saitama City that will be used as a base for performing important operations.

Japan Earthquake Reinsurance Co., Ltd. Annual Report 2014

5

Disaster response drill for continuing business at home
Assuming a disaster outside working hours, for example on a holiday, we conducted drills for
performing urgent tasks from home, using remote access. The purpose of the drills is confirming procedures for safety confirmation and the creation of an earthquake task force andensuring prompt arrangements for reinsurance payment based on approximate projections,an important task when a big earthquake occurs.
We will make preparations for ensuring that we can perform our tasks if we are affected by adisaster by addressing challenges that we have discovered through the drills and conducting
additional drills.
Setting up a temporary office in Saitama City
In the building of the Kita-Kanto branch of the General Insurance Association of Japan, we
have secured a space that we can access should our head office be unusable due to a disaster.
In this way we can continue to perform urgent, important tasks.
The office is fully equipped with terminals necessary for performing our duties and otherequipment and enables us to continue operations in the same system environment as that athead office, using remote access.

Operation based on highly liquid assets
Should an inland earthquake in the Tokyo metropolitan area strike, 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 price volatility risks at the timeof realization, we hold mainly short- and medium-term securities.

Preparations for disasters
We have installed in head office an earthquake alert system provided from the Japan
Meteorological Agency to ensure the safety of visitors, officers and employees. We have also
taken the initiative to improve the earthquake resistance of its headquarters by securely fixing
office facilities and equipment. In accordance with the part of the Tokyo metropolitan ordinancerelated to measures for dealing with commuters who can’t get home, we are maintaining thenecessary amount of food, water, daily commodities, and other items so that employees canstay in the office if a disaster strikes during working hours.

6Japan Earthquake Reinsurance Co., Ltd. Annual Report 2014

System infrastructure in anticipation of aninland earthquake in the Tokyo metropolitan
area
To ensure business continuity in case of the feared inland earthquake in the Tokyo metropolitan area, in March 2013 JER renovated all of its important systems and moved systems
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 assurance doubly
sure, JER has set up a backup system at its data center in Okinawa, which is unlikely to beaffected by an earthquake at the same time as Tokyo, and has built a system for data synchronization between Tokyo and Okinawa using a communications line.
Moreover, JER has made terminals thin clients and has concentrated data on the virtual platform to reduce the risk of loss of data and information leakage. Meanwhile, JER has introduced a remote access system where users outside the company can access the company’ssystem via the Internet. The remote access system has enabled employees to use the same
system as usual if they have access to the Internet, even if the transportation network is
disrupted by an inland earthquake in the Tokyo metropolitan area, making it impossible for
employees to come to the office.
We will continue to strengthen our business continuity plan (BCP) 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 20147

Corporate governanceWe 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

Audit

Board ofmanaging directors
Submission/Report

Audit

Compliancecommittee

Board ofauditors

Cooperation
Appointments
and dismissals Accounting
auditors

Submission/Report
Executive division
In-house audit

Risk management
committee

In-house audit division

Task force against
earthquake disaster

In-house audit

Accounting audit

Committee-based operation
We have established a Compliance Committee and a Risk Management Committee 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 theconstruction of compliance and risk management systems. Preparing for a major earthquake
calamity, we are provided with a Task Force against Earthquake 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
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 receive accounting audits by PricewaterhouseCoopers Arata in accordance with theCompanies 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. Thisis done by conducting an audit to examine and evaluate the execution of plans and activities
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.

8

Japan Earthquake Reinsurance Co., Ltd. Annual Report 2014

In fiscal 2014, based on the “In-House Audit Policy and Plan” adopted by resolution of theBoard of Directors, we will prioritize the evaluation of our voluntary inspections using the
Financial Services Agency’s insurance inspection manual checklist and a follow-up of system
audits through third parties carried out in fiscal 2013. We will also conduct regular audits of theinternal 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
We have developed a structure in which risk management is appropriately carried out toensure 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 andour annual risk management policies. We have also established a company-wide Risk Management Committee, and are managing risks in an integrated manner by fully understanding ourrisk management situation.
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.

Japan Earthquake Reinsurance Co., Ltd. Annual Report 2014

9

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.
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.

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Japan Earthquake Reinsurance Co., Ltd. Annual Report 2014