JAPAN EARTHQUAKEREINSURANCE CO., LTD.

Financial highlights
Although assumed net premiums written and net premiums written in fiscal 2008 increased
from the previous year, total assets increased steadily to 1,015 billion yen at the end of March
2009. 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

40,00020

20,000100Year 2004

2005

2006

2007

0Year2008

2004

2005

2006

20072008Breakdown of total assets(as of March 31, 2008)

Total assets(Unit: million yen)

(Unit: million yen)

Other securities

Others61,934Government bond

412,278

9,456

1,000,000

Foreign securities

800,000

369,151

600,000

Others61,934

Total
1,015,053

400,000
Total of securities

953,118

200,000
0Year 200418

Corporate bond

2005

2006

2007

2008

Japan Earthquake Reinsurance Co., Ltd. Annual Report 2009

159,650

Municipal bond2,581

(Unit: Million yen)

Fiscal YearNet premiums written

2004

2005

2006

2007

2008

58,19871,132

67,98164,04067,126

Loss ratio

28.7%37.9%

3.7%

21.0%

16.0%

Underwriting income

61,99591,001

72,451

67,32070,546

98

23143

16200

Ordinary profit
Net income
Solvency-margin ratio
Total shareholders’ equity
Total assets
Net unrealized gains on other securities
Net unrealized gains on other securities ofearthquake insurance

1036

△164

12

182.2%

160.2%

175.3%

185.4%

159.1%

1,587

1,605

1,600

1,614

1,617

804,333

838,555

908,963955,968

1,015,053

11

△55

15

65,458△9,054△4,540

1,722

3,063

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 200919

Top 10 shareholders(As of March 31, 2009)
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.

61

3.1

The Kyoei Fire & Marine Insurance Co., Ltd.

34

1.7

ShareholderOrganization(As of April 1, 2009)

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 2009

Audit dept.

Directors (full-time)(As of June 30, 2009)
Post

NameChairman(representative director)

Shozo Wakabayashi

President(representative director)

Hideo Suzuki

Managing 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 2008, to improve the level of response by officers and employees in emergencies, wepracticed an operation drill involving newly introduced safety confirmation and informationtransmission systems, training in initial actions in the event of being caught out of doors, andtraining in coming to the office and returning home on foot.

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 200921

Corporate governance
In-house governance system
Appointments
and dismissals

General meetingof shareholders

Appointments
and dismissals

Board ofdirectors

Board ofmanaging directors

Audit

Audit

Board ofauditors

Compliance committee

Executive division

Comprehensive
risk management
committee

In-house audit division

Cooperation
Appointments
and dismissals

Accounting
auditors

Submission/Report

Submission/Report

Earthquake disastertask force

In-house audit

In-house audit

Accounting audit

Committee-based operation
We have established a Compliance Committee and a Comprehensive 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 the construction of compliance and risk management systems. Preparing for anatural calamity, the Company is provided with a task force against natural disasters to facilitate
the payment 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.

Audit and inspection systems
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 auditing
Apart from the audit conducted by corporate auditors under the Companies Act, the Audit
Department 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.
In fiscal 2009, we decided based on the “In-House Audit Policy And Plan” adopted by22

Japan Earthquake Reinsurance Co., Ltd. Annual Report 2009

resolution of the Board of Directors to focus on the audits of new businesses, accounting
system developments, and responses to 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
consolidated the risk management system to reinforce the risk control function.
Dealing with assets management risks
The investment assets have amounted to approximately 1 trillion 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 managementof risks involved in the management of assets is carried out according to the annual 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 200923