JAPAN EARTHQUAKEREINSURANCE CO., LTD.

FINANCIAL HIGHLIGHTS
Although net premiums written declined in fiscal 2006, they have been trending higher in recent years, accompanying the increase in the number of earthquake insurance policyholders.
We invest assets under management in bonds with high credit ratings and 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 2002

2003

2004

2005

0Year 2002

2006

2003

2004

2005

2006

Breakdown of total assets(as of March 31, 2006)

Total assets(Unit: million yen)

(Unit: million yen)

Other securities

OthersGovernment bond

57,223411,7538,869

1,000,000

Foreign securities

800,000

213,950

600,000

Others57,223

Total
908,963

400,000

Total of securities

851,739200,000
0Year 2002

Corporate bond

2003

2004

2005

2006

212,777
Municipal bond

4,390

18

Japan Earthquake Reinsurance Co., Ltd. Annual Report 2007

(Unit: Million yen)

Fiscal YearNet premiums written
Loss ratio
Underwriting income
Ordinary profit

2002

2003

2004

2005

2006

47,56650,89658,19871,132

67,981

0.7%

20.5%28.7%

37.9%

3.7%

51,89754,67861,99591,001

72,451

303

18498

23143

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

10171036△16176.3%

184.3%

182.2%

160.2%

175.3%

1,577

1,579

1,587

1,605

1,600

726,458

761,594

804,333

838,555

908,96325

1411△5511,825

7,000

5,458

△9,054△4,540Net 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 200719TOP 10 SHAREHOLDERS(As of March 31, 2007)
No. of shares owned(1,000 shares)

Shareholder

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

ORGANIZATION(As of April 1, 2007)

General meeting of shareholders
Board of auditors
Board of directors

Board of managing directors

Compliance committee
In-house auditing committee
Comprehensive risk management committee

Earthquake disaster task force

Reinsurance administration dept.

20

Financial dept.

Japan Earthquake Reinsurance Co., Ltd. Annual Report 2007

Controller dept.

DIRECTORS (FULL-TIME)(As of June 29, 2007)
Post

NameChairman(representative director)

Shozo Wakabayashi

President(representative director)

Akihiko MoriManaging director(representative director)

Tatsuro Yoshida

Managing director(representative director)

Masayuki Hashimoto

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 an annual plan, is the first responder according to the plan, sets up a task force headquarters andpays reinsurance claims, keeping an emergency manual for use in the event of an assumed
major earthquake. In fiscal 2006, all directors and employees carried out a drill that involved
walking to and from work.
We have been making improvements to our payment system based on the simulation of damages suffered by Tokyo in the event of a destructive inland earthquake, prepared by the Central
Disaster Prevention Council of Japan and an external research institution. In fiscal 2007, wewill review the payment system centered on the funding plan, by referring to the results of aquestionnaire “Developments in the Bond Market after the Occurrence of Major Earthquake
Disaster” sent in March 2007 to bond market participants at banks and securities firms.

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, high-rating securities, and basically we are prepared to cash almost all of ourassets within four days. To reduce cost-related risks at the time of realization, we hold mainly
medium-term securities.
Japan Earthquake Reinsurance Co., Ltd. Annual Report 200721

CORPORATE GOVERNANCE
In-house governance system
In-house auditing
committee
General meetingof shareholders

Board ofdirectors

Board ofmanaging directors

Board ofauditors

Compliance committee

Comprehensive riskmanagement committee
Task force against
earthquake disasters

Committees system based operation
Our corporate governance depends on the committees system under the control of the Board ofManaging Directors. Consisting of three committees—an in-house auditing committee, 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 of insurance claims and maintain the funding plan forpayment, 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 auditing
In addition to auditing conducted by auditors based on the Companies Law, we are equippedwith an in-house auditing committee. In-house auditing puts emphasis on how major issues
are handled by each division as well as on the compliance and risk control systems.Internal
control conditions including office work are subject to auditing this year, with an emphasis on
the inspection of the development of a new operating system.

22

Japan Earthquake Reinsurance Co., Ltd. Annual Report 2007

Risk management system
It is becoming increasingly important to understand and control the complicated and diversifying risks that surround us, such as ongoing financial liberalization and the increasing sophistication of financial technology, to ensure the safety and soundness of management.
As specific measures to respond to this situation, we have been endeavoring to maintain anddevelop our risk control system by establishing a comprehensive risk control committee tosupervise risk management and reinforce the functions of comprehensive risk control. This
helps us understand risks exactly and control them properly. Developments on this matter areregularly reported to the Board of Directors and the Board of Managing Directors.
Dealing with assets management risks
The investment assets have amounted to approximately 900 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 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 200723