ANNUAL REPORT
2013
Introduction to Earthquake Reinsurance in Japan

Japan Earthquake Reinsurance Co., Ltd.

Contents

1

Message from the President

2Japan Earthquake Reinsurance Co., Ltd.

10

Topics12

Earthquake Insurance in Japan

20

Reinsurance of Earthquake Insurance

24

Response to the Great East Japan Earthquake

31

Statistics

34

Financial Section

51

Corporate Data

Corporate data (as of March 31, 2013)
Established:

May 30, 1966

Capital:1 billion yen

Total assets:

536.8 billion yen

No. of employees:

27

Address:

Hulic Kobuna-cho Building,
8-1, Nihonbashi-kobuna-cho,
Chuo-ku, Tokyo Japan 103-0024

Phone:

03-3664-6078

URL:

http://www.nihonjishin.co.jp/

Message fromthe President

Chairman:Shozo Wakabayashi

President:

Masamichi Irie

We would like to take this opportunity to express our sincere gratitude for the continued support fromall our stakeholders.
Japan Earthquake Reinsurance Co., Ltd. (JER) was founded in 1966 as the only company in Japan
permitted to exclusively handle reinsurance for earthquake insurance covering dwelling risks. Since then,we have not only endeavored to promptly make earthquake reinsurance payouts, but also to pay close
attention to managing the assets that have been deposited for future earthquake reinsurance payouts,
focusing primarily on liquidity and safety.
Due to the effects of monetary easing and various economic policies, the Japanese economy has beenstaging a gradual recovery. In earthquake insurance, given the increasing interest in such insurance
since the 2011 Great East Japan Earthquake, our number of in-force contracts is now over 15 million,
and our household earthquake insurance coverage ratio stands at 27.8% (on a provisional basis), bothof which are now at record levels. The number of in-force contracts and the household earthquake
insurance coverage ratio have more than tripled since the time of the Great Hanshin-Awaji Earthquake in
1995.
In this environment, under our third medium-term business plan, which commenced last year, in light of
our experience from the 2011 Great East Japan Earthquake we have steadily implemented procedures—
mainly in response to massive earthquakes or consecutive earthquakes—and reviewed and developed astructure that will allow our operations to continue even if our headquarters is stricken by a disaster.
In particular, to ensure the continuity of our operations if our headquarters is afflicted by a disaster,
we have comprehensively upgraded our system infrastructure in preparation for the possibility of an
imminent inland earthquake striking the Tokyo metropolitan area, and have begun the full operation of
the system.
Meanwhile, to strengthen our earthquake insurance system, the government has revised the ratio of
public and private burdens in its fiscal 2013 budget. With this initiative, we believe that the credibility ofthe earthquake insurance system has been reinforced further.
This year marks the 90th anniversary of the Great Kanto Earthquake. Carved into the monument
commemorating this earthquake is the warning, “Always be prepared for unexpected earthquakes.”
So we must make every effort to always be prepared to respond to an inland earthquake in the Tokyo
metropolitan area, a massive Nankai Trough earthquake, or any other earthquakes that are expected totake place in the future.
We are committed to our mission to become a company that is completely trusted by our stakeholders
by continuing to take a proactive role in enhancing and improving the earthquake insurance system.
We have prepared this annual report 2013 to provide our stakeholders with insight into the current
situation and activities of JER. We welcome your comments and opinions.

July 2013

Masamichi Irie
President
Japan Earthquake Reinsurance Co., Ltd.

Japan Earthquake Reinsurance Co., Ltd. Annual Report 20131

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)

182,895

190,000(Yen in millions)

100,000
92,996

180,000
170,000

168,676

90,00083,671160,000

80,000150,000
140,000

70,000130,000
0
Fiscal Year

0
2011

2012

Fiscal Year

2011

2012

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)

300.0

282.9%

10,000

100

7,500

75

250.0
200.0
150.0

5,000

4,630

50

4,152

100.0
2,500

50.0

2

39.2%

0.0

16

13

0

0

Japan Earthquake Reinsurance Co., Ltd. Annual Report 2013
Fiscal Year

2011

2012

25

Fiscal Year
2011
2012
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)

182,895

190,000(Yen in millions)

100,000
92,996

180,000
168,676

170,000

90,00083,671160,000

80,000150,000
Assumed net premiums written

140,000(Yen in millions)
130,000

182,895

190,000
0
Fiscal Year
180,000

2011

170,000

Fiscal Year92,9962012

2011

90,00083,671
Net unrealized gains on available-for-sale
80,000 securities of earthquake insurance
and net unrealized gains on available-for-sale securities

160,000
150,000(Yen in millions)

100,0000

2012

168,676

Net premiums written

70,000Net loss ratio

140,000(Yen in millions)

70,00010,000282.9%

300.0
130,0000
250.0
Fiscal Year
200.0

2011

2012

100

0
7,500Fiscal Year

2011

75

2012

4,630
50
4,152
Net unrealized gains on available-for-salesecurities of earthquake insuranceandnet unrealized gains on available-for-sale securities
25
2,500
16
13

150.0

5,000

100.0

Net loss ratio

50.0
300.0
0.0

282.9%

39.2%

Fiscal Year
250.0

2011

2012

(Yen in millions)

10,000
0

100
0

200.0

Fiscal Year
2011
2012
Net
unrealized
gains
onavailable-for-salesecurities 75
7,500
of earthquake insurance

150.0

5,000

100.0

Total assets and net assets
Breakdown of total assets
Non-consolidated solvency-margin ratio
2,500
16
13

(Yen 50.0
in millions)(Yen in millions)

Items

39.2%
4,000
800,000
0.0 amount of non-consolidated solvency-margin(A) Total
Fiscal Year
(B) Total
amount2011
of non-consolidated 2012
risk
600,000

536,808

509,498 solvency-margin ratio
Non-consolidated(A) / {1/2x(B)} x 100

400,000

1,633

1,631

200,000

2,000

1,000

(Yen in millions)

4,000
0

800,000
0
Fiscal Year

2011

2012

Total assets
509,498

Net assets
536,808

400,000

1,631

1,633

FY2011

025

FY2012

Call loans Others

336.7 billion yen
357.9 billion yen 0
21,137
12,753
Deposits
FiscalYear
2012557.22011
billion yen
447.2
billion yen
25,938Net unrealized gains on available-for-sale securities
3,000
of earthquake
insurance
120.8%
160.0%

Total assets and net assets

600,000

Net unrealized gains on available-for-sale securities
4,630
50
4,152

Net unrealized gains on available-for-sale securities
Breakdown of securities
Securities
Breakdown of total assets
476,979
Foreignsecurities(Yen in millions)
Call loans Others

21,137 12,753 Corporate bonds

Deposits

3,000

128,842

20,06525,938Government
bonds

328,071

2,000
Breakdown of securities
Securities

200,000

1,000

0

0

476,979

Foreignsecurities

128,842
Fiscal Year

2011

2012

Total assets

Net assets

Corporate bonds

20,065Government
bonds

328,071

Note: The figures for fiscal 2011 have been corrected by a retrospective restatement.

Japan Earthquake Reinsurance Co., Ltd. Annual Report 20133

Organization(As of April 1, 2013)
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.

Controller andplanning 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, 2013)
Shareholder

4Japan Earthquake Reinsurance Co., Ltd. Annual Report 2013

Board Members (full-time)(As of July 1, 2013)
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
Task Force against Earthquake Disaster has been established as a standing in-house organization. The committee carries out exercises, including emergency responses and drills forreinsurance payouts, in accordance with an annual plan in preparation for the occurrence ofan inland earthquake that strikes the Tokyo metropolitan area, and it develops and examines
a disaster response manual among other activities.
During fiscal 2012, we took the steps described below to prepare for the inland earthquakethat is expected to strike the Tokyo metropolitan area in the future from the perspective ofour business continuity plan (BCP). Aiming to fulfill our mission, we focused in particular on
system-related measures to ensure that our operations will continue even if our offices aredamaged in a disaster by transferring our critical systems to our state-of-the-art data centerin Tokyo, which has superior earthquake resistance. We have also significantly reduced the riskof simultaneous damage from disasters by installing a backup system in Okinawa. Moreover,by installing a system that can be accessed externally over the Internet, we have created an
operating environment in which employees can continue to work without having to go to theiroffices.
Japan Earthquake Reinsurance Co., Ltd. Annual Report 20135

In addition, we carried out disaster response drills that were attended by all officers and employees in preparation for an inland earthquake in the Tokyo metropolitan area, similar to thedrill carried out in the previous year.
First disaster response drill
From the perspective of our BCP, we have upgraded our emergency safety confirmation system as an internal communications tool. In our previous safety confirmation system, ouremployees had to individually access the system to report that they were safe. However, wehave significantly improved the usability of our new safety confirmation system, as it willautomatically send a request to all officers and employees to report on their status if a largescale disaster takes place. We gave a presentation on how to use the system on July 13 and18, 2012, and our officers and employees set up a network to access the system through theirmobile devices. Moreover, to become familiar with this tool, we conducted safety confirmation
drills on September 1, 2012 and March 10, 2013, using the system’s training function.
Second disaster response drill
On March 11, 2013, the second anniversary of the 2011 Great East Japan Earthquake, we
held an informational session on the section of the Tokyo metropolitan ordinance related tomeasures for dealing with commuters who can’t get home, which was enforced in April 2013by the Tokyo Metropolitan Government, and learned more about these measures. We also
revised our special disaster countermeasure manual (for regular home use) by taking into
account the issues that were pointed out by external consultants, and all our officers and employees were fully notified of this revision.
Drills on traveling home by footTo ensure that our officers and employees can get home safely in a disaster, we held drills
from October to December 2012 on traveling home by foot.

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 its 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 2013

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
The overall management and operations are subject to inspection by the Financial Services
Agency under the Insurance Business Act and inspection by the Ministry of Finance 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. 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.
Japan Earthquake Reinsurance Co., Ltd. Annual Report 20137

In fiscal 2013, based on the “In-House Audit Policy and Plan” adopted by resolution of theBoard of Directors, we will concentrate on audits of our readiness to respond to risks thatmust be managed following the establishment of our Integrated Risk Management Rules andthe installation of BCP facilities in the event of disasters. We will also conduct system audits
through third parties, including a backup system we developed in accordance with the mediumterm plan for our information systems in response to the inland earthquake that is expected to
strike the Tokyo metropolitan area. We will also 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
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.
8Japan Earthquake Reinsurance Co., Ltd. Annual Report 2013

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.
Japan Earthquake Reinsurance Co., Ltd. Annual Report 20139

topics

Completed Upgrade of the JER Data Processing
System
JER drew up and implemented a Medium-Term Information System Plan (for fiscal 2012–2014) aimed at creating conditions that will allow it to keep operating with high accuracy,even if a quake occurs with an epicenter beneath Tokyo. In fiscal 2012, JER installed a data
center on Okinawa, which is not very likely to experience a disaster at the same time, alongwith a backup system, and built a system that synchronizes data between Tokyo and Okinawa
over telecommunications lines. At the same time, JER completed the installation of a remote
access system and groupware that will enable its employees to access the data center system
directly from their homes or other locations in the event of an accident at JER’s head office.
Through these mechanisms, JER aims to establish an operational management system thatallows people in remote areas to work together.

Remote Access(Home)

Remote Access（Out of the office）

Head Office (Tokyo)

Temporary OfficeThin Client

ActiveInternet
StandbyWAN

ActiveFirewall
Active/Standby
Activeee/Stand/StandnnddbyInternet

Standby

ActiveFiirrew
Firewallwaal
allStandby

L3Switch

Virtual Platform (Backup)

L3Switch

Virtual Platform (Main)

Data Synchronization

10

Surveillance

Surveillance

Okinawa Data CenterTokyo Data Center

Japan Earthquake Reinsurance Co., Ltd. Annual Report 2013

Project Team for the Earthquake Insurance System
After the Great East Japan Earthquake, various opinions on the salability of an Earthquake(EQ) Insurance System were obtained from stakeholders. In addition, an improvement in theresilience of the EQ Insurance System was required, given concerns over the occurrence of aTokyo Inland earthquake or massive earthquakes along the Nankai Trough, etc. in the future,as the risk reserve was depleted by huge claims payments of more than 1.2 trillion yen. In
response to these agendas, the government‘s Ministry of Finance created a new project team
to conduct a review of the Japanese EQ Insurance System in April 2012. Thirteen members
from the academic community (including an economist, an insurance law jurist, a seismologist, and a disaster prevention expert), consumer representatives, and members of the Houseof Representatives, etc., joined the team. JER also joined the project team, with industry
members such as the GIAJ acting as observers. Based on discussions in the 12 meetings held
since April 23, the project team published a report on November 30, 2012.
The Ministry of Finance’s official website:
http://www.mof.go.jp/about_mof/councils/jisinpt/report/index.htm

Japan Earthquake Reinsurance Co., Ltd. Annual Report 201311

EARTHQUAKE INSURANCE
IN japan

Establishing the earthquake
insurance system
Japan is well known for its frequent earthquakes. Traditionally, the thinking has been that itis difficult to provide insurance coverage for damage caused by earthquakes. One reason forthis is that nobody can be sure when an earthquake will strike. Another reason is that there isa risk that a major earthquake could cause tremendous damage. Earthquake insurance wasfor many years the subject of a great deal of research and discussion, to little avail. Despite
this, there was considerable public demand for a system of earthquake insurance on dwellingrisks* to enable victims of an earthquake who have lost their homes or property to rebuild theirlife. Responding to this demand, the non-life insurance business continued to study ways tobuild such a system.
The Niigata Earthquake of June 1964 prompted efforts to establish the system. The government and the non-life insurance industry conducted a detailed examination of the earthquake insurance system, ultimately leading to the Law concerning Earthquake Insurance.
The system for earthquake insurance on dwelling risks was built based on this law and Japan
Earthquake Reinsurance Co., Ltd. (JER) was established. We play a key role in taking on full
responsibility with the reinsurance of earthquake insurance contracts entered into by non-life
insurance companies.

Mechanism of the earthquake
insurance system
Earthquake insurance is arranged as an optional rider to fire insurance which covers buildings
for residential use and/or personal property. Earthquake insurance cannot be purchased on its
own. If you conclude a fire insurance contract without earthquake insurance, you are required
to seal the earthquake insurance check column of the fire insurance contract application form.
If you have entered into a fire insurance contract without earthquake insurance, you will beable to purchase earthquake insurance while your fire insurance contract is valid. In someareas, however, if an announcement warning of an earthquake has been made, you may not
be able to purchase earthquake insurance.

	Non-life insurance is divided into two groups: insurance in the household risks field taken out by individuals to covervarious risks in the home, and insurance in the corporate risks field taken out by companies to cover various company’s
risks. The same distinction applies to earthquake insurance. Insurance taken out by individuals is called earthquake
insurance on dwelling risks, and the other insurance is called as earthquake insurance for companies.
		The Law concerning Earthquake Insurance targets at earthquake insurance on dwelling risks.
*

12Japan Earthquake Reinsurance Co., Ltd. Annual Report 2013

Insurance Coverage
Loss of or damage to buildings for residential use and/or personal property through fire,
destruction, burial or flooding caused directly or indirectly by any earthquake or volcanic eruption, or resulting tsunami (hereinafter referred to as an earthquake, etc.).
Fire insurance* does not cover
1. any losses caused by fire (including the spread thereof, and expanded loss) resulting
from an earthquake, etc., and2. any fire that has spread because of an earthquake, etc. Earthquake insurance is needed
to compensate for these kinds of losses.

Insurable interests
Buildings for residential use and/or personal property
None of the following is insurable:
A building used as a plant or office, and not used for dwelling purposes, precious metals,
gems or antiques valued at 300,000 yen or more per piece, currency, securities (checks, sharecertificates, gift certificates), certificates of deposit, revenue stamps, postal stamps, automobiles and certain other items.

Term insured
Short-term, one year and long-term (two to five years)

Amount insured
The policyholder is required to set the amount insured under earthquake insurance within arange of 30-50% of the amount of insurance provided by his/her fire insurance. However, theamount insured is limited to a maximum of 50 million yen for a building** and 10 million yen
for personal property.

*
Fire insurance		Ordinary fire insurance, long-term comprehensive insurance, deposit life comprehensive insurance, dwelling fire
insurance, householders’ comprehensive insurance, storekeepers’ comprehensive insurance and certain other types of
insurance.
**	
The amount insured of a condominium building such as apartment building is limited to 50 million yen, totaling
exclusive areas and common areas.

Japan Earthquake Reinsurance Co., Ltd. Annual Report 201313

Payment of insurance claims
Insurance claims are paid according to the policyholder’s earthquake insurance to cover total,
half or partial loss of the policyholder’s residential building and/or personal property.
Insurable objects

Residential buildings,
personal property

Degree of loss

Amount of insurance claim paid

Total loss

100% of amount insured (up to the current price* of theinsurable objects)

Half loss

50% of amount insured (up to 50% of the current price of theinsurable objects)

Partial loss

5% of amount insured (up to 5% of the current price of theinsurable objects)

Authorization criteria of losses
Total loss, half loss or partial loss applies to any of the following cases:
Residential building

Personal property

Amount of loss of major
structural parts

Area of floor burnt down or
washed away (partial loss
applies when the residentialbuilding is flooded above
floor level)

Degree of loss of or damage
to the personal property

Total loss

50% or more of the current
price of the residentialbuilding

70% or more of the total
floor area of the residentialbuilding

80% or more of the current
price of the personal
property

Half loss

From 20% to less than 50%of the current price of theresidential building

From 20% to less than 70%of the total floor area of theresidential building

From 30% to less than 80%of the current price of thepersonal property

From 3% to less than 20%of the current price of theresidential building

The residential building wasdamaged but not totally orhalf lost although it was
flooded above the floor levelor above 45 cm or higher
from the ground level.

From 10% to less than 30%of the current price of thepersonal property

Degree of loss

Partial loss

Cases when no insurance claim is payable:• Loss or damage due to willful acts or gross negligence or violation of law• Loss or theft of the objects of the insurance• Loss or damage due to war or insurrection• Loss or damage occurring ten days or more after the earthquake• Loss or damage caused only to gates, walls, fences, and other parts that are not major
structural parts.

*
Current price		The current price is such that the amount of depreciation according to the service year is deducted from the price ofa new building.

14

Japan Earthquake Reinsurance Co., Ltd. Annual Report 2013

Limit of total amount of insurance claims to be paid
Limit of total amount of insurance claims to be paid* is limited to 6,200 billion yen as revisedin April 6, 2012 per earthquake, etc.. (On the same day, the liability limits of JER, non-life insurance companies and the government, as well as the methods of determining the burden of
liabilities, were revised. Please refer to page 22 for the details.) In the event the total amountof insurance claims payable exceeds the limit, law allows insurance claims per contract to be
reduced.

Premium rate
The premium rate for earthquake insurance is calculated by the Non-Life Insurance Rating
Organization of Japan** on the basis of the Law concerning Non-Life Insurance Rating Organizations. The basic rate of insurance premiums consists of a risk premium rate applicableto or appropriate for the future payment of insurance claims and a loading premium rate applicable to or appropriate for non-life insurance company expenses and agency commissions.

Premium rate = Risk premium rate + Loading rate
The Headquarters for Earthquake Research Promotion***, a government organization, published the Probabilistic Seismic Hazard Maps. The risk premium rate is calculated based on
the latest revised damage projection method to cover all earthquakes (number of epicenters:
about 730,000 epicenter model) used in the preparation of the maps that are assumed tohave the potential to cause damage in the future.
The premium rate actually applied is calculated by multiplying the basic rate of the insurance
premium that is set according to the structure of the residential building and the residentialbuilding to accommodate personal property that are subject to insurance and the building
location, by a discount rate set according to the earthquake-resistance capability (for which
certain confirmation documents are required).

*
Limit of total amount of insurance claims to be paid		The Law concerning Earthquake Insurance stipulates that the limit to the total insurance claims payable by thegovernment and private insurance company per earthquake, etc.. For details, see page 22 Insurance liabilities held by
JER, non-life insurance companies and the government.
**
Non-Life Insurance Rating Organization of Japan		An organization established in accordance with the Law concerning Non-Life Insurance Rating Organizations, whichaims to provide a fair basis premium rate applicable to non-life insurance.
***
The Headquarters for Earthquake Research Promotion
		Following on the lessons learned from the Great Hanshin-Awaji Earthquake Disaster, the Special Measure Law on
Earthquake Disaster Prevention was enacted to develop a system to facilitate research and study on earthquakes, andbased on this Law, the Headquarters for Earthquake Research Promotion was founded in July 1995. In March 2005,
the Headquarters for Earthquake Research Promotion published two kinds of maps as the National Seismic Hazard
Maps for Japan: the Probabilistic Seismic Hazard Map and the Scenario Earthquake Shaking Map.
		The Probabilistic Seismic Hazard Map was revised in July 2010.

Japan Earthquake Reinsurance Co., Ltd. Annual Report 201315

Basic rate (applicable to buildings and personal property)
The basic rate is set according to the structure of the residential building and the residentialbuilding to accommodate personal property that are subject to insurance and the building
location.

Annual insurance premium (per insurance year)/amount insured (thousand yen of earthquake insurance)(Unit: yen)

NonWooden
wooden

n

0.5

1.00

Prefecture

0.65

Iwate-ken, Akita-ken,
Yamagata-ken, Fukushimaken, Tochigi-ken, Gunma-ken,
Toyama-ken, Ishikawa-ken,
Fukui-ken, Tottori-ken,
Shimane-ken, Yamaguchiken, Fukuoka-ken, Saga-ken,
Nagasaki-ken, Kumamotoken, Kagoshima-ken

n

0.65

1.27

0.84

Hokkaido, Aomori-ken,
Miyagi-ken, Niigata-ken,
Nagano-ken, Gifu-ken, Shigaken, Kyoto-fu, Hyogo-ken,Nara-ken, Okayama-ken,
Hiroshima-ken, Oita-ken,
Miyazaki-ken, Okinawa-ken

n

0.65

1.56

0.84

Kagawa-ken

n

0.91

1.18

Ibaraki-ken, Yamanashi-ken,Ehime-ken

n
n

1.05
0.91

1.88
2.15

1.36

Saitama-ken, Osaka-fu

1.18

Tokushima-ken, Kochi-ken

3.06

n
1.69

n

16

With costeasingmeasures

Japan Earthquake Reinsurance Co., Ltd. Annual Report 2013

2.19
3.13

Chiba-ken, Aichi-ken, Mie-ken,
Wakayama-ken
Tokyo-to, Kanagawa-ken,
Shizuoka-ken

Discount rate
Either discount rate will apply to the foregoing basic premiums rate when the building andpersonal property come under any of the following:• Discounts cannot be claimed more than once.
(a) Seismic isolated building* discountWhen the building is a seismic isolated building constructed in accordance with related
laws and accommodated personal property
Discount rate30%(b) Earthquake-resistance class** discount rate
When the building corresponds to the earthquake-resistance class as provided for by law
and accommodated personal property
Earthquake-resistance class
Discount rate

1

2

3

10%

20%

30%

*
Seismic isolated building		A seismic isolated building is a building that is assessed to be a seismic isolated building in accordance with the related
indicators in the Japanese Housing Performance Designation Standards under the Housing Quality Guarantee Law.
**
Earthquake-resistance class		The earthquake-resistance class of a residential building is an indicator of earthquake resistance as stipulated in theJapanese Housing Performance Designation Standards based on the Housing Quality Guarantee Law. It is also used toevaluate a building for earthquake resistance as provided for in the assessment guidelines for earthquake-resistancediagnosis based on the earthquake-resistance class (as to the body of the building) established by the Ministry ofLand, Infrastructure and Transport. A description of the classes is as follows.

		 Earthquake-Resistance Class 3
		A class suggesting that the building will not topple or collapse against a force that is 1.5 times stronger than theforce of an earthquake (as provided for in Paragraph 3, Article 88, Enforcement Order of the Construction StandardAct) that occurs very rarely (once every some hundred years)
		 Earthquake-Resistance Class 2
		Class suggesting that the building will not topple or collapse against a force 1.25 times stronger than the force of anearthquake that occurs very rarely		 Earthquake-Resistance Class 1
		Class suggesting that the building will not topple or collapse against that force of earthquake that occurs very rarely

Japan Earthquake Reinsurance Co., Ltd. Annual Report 201317

(c) Earthquake-resistance diagnosis discountWhen the building was assessed as having an earthquake-resistance capacity* equivalent
to that stipulated by related laws as a result of an earthquake-resistance diagnosis or anearthquake-resistance refurbishment, and accommodated personal property
Discount rate

10%(d) Building age discount rate
When the building was constructed during or after June 1981 and accommodated personal property
Discount rate

10%Premium rate of a long-term contract
Premium rate of a long-term contract (a two-to-five year contract with special conditions forpremiums) is calculated as follows:

Contract period

2 years

3 years

4 years

5 years

Coefficient

1.90

2.75

3.60

4.45

*
Earthquake-resistance capacity		Earthquake-resistance capacity is a seismic capacity that conforms to the current earthquake-resistance standards set
out in the Building Standards Law.

18

Japan Earthquake Reinsurance Co., Ltd. Annual Report 2013

An example of insurance premiums calculated
A wooden residential building constructed in January 2000 in Hyogo-ken:
Fire insurance (principal contract) amount insured: Building 20 million yen; personal property
6 million yen
1. Setting the amount insured of earthquake insurance: In this case, the proportion insured(*) will be 50%.
Residential building: 20 million yen x 50% = 10 million yen
Personal property: 6 million yen x 50% = 3 million yen
2. Confirming the premium rate applicable: Hyogo-ken, wooden → 1.27
3. Confirming the discount rate applicable: Building constructed in and after June 1981
→ 10%

Earthquake insurance premiumon residential building

Earthquake insurance premiumon personal property

Earthquake
amount insured=

10,000Earthquake insurance
premium rate

x

1.27

x

(100%

(1,000 yen)

3,000

Earthquake insurance
premium ratex

(1,000 yen)

–

10%)

=

11,400 (yen)=3,420 (yen)

1.14

Earthquake
amount insured=

Discount rate

1.27

x

Discount rate

(100%

–

10%)

1.14

*
Proportion Insured		The insured earthquake amount as a percentage of the insured fire amount. The insured earthquake amountshould be 30-50% of the insured fire amount.

Income tax credit system for earthquake insurance
In the tax system revision in fiscal 2006, the old income tax credit for non-life insurance wasrevised, and an income tax credit for earthquake insurance was established to support selfhelp efforts of the public in preparation for earthquake damages. As the revision enables
deductions of up to 50,000 yen and 25,000 yen from the gross income, etc. for the purposesof income tax and the local inhabitant tax, respectively, the purchase of an earthquake insurance policy became easier.

Japan Earthquake Reinsurance Co., Ltd. Annual Report 2013

19

Reinsurance of earthquake
INSURANCE

Mechanism of reinsurance
In the event that a major earthquake happens, it can result in large payouts of insurance claim
by insurance companies. Because there is a certain limit, however, to the ability of these companies to make payments, the government shares insurance responsibility with them throughreinsurance.
JER reinsures the earthquake insurance contracts underwritten by non-life insurance companies to take on full liability, which we homogenize before we pass on the risk proportionally tothe non-life insurance companies and the government by retrocession according to the limit
indemnity. We take up the remaining indemnity.

Mechanism of payment of
insurance claims
The policyholder claims insurance money to the non-life insurance company when the policyholder suffers a certain loss or damage as a result of an earthquake, etc., and the company
will pay insurance claim to the policyholder.
The non-insurance company which paid an insurance claim to the policyholder will claim thefull amount from JER through reinsurance. JER will pay the reinsurance claim in full to thenon-life insurance company.
This means that the amount of reinsurance claim paid by JER is the same as the amount of
the insurance claim paid to the policyholder by the non-life insurance company.
When a major earthquake occurs, a non-life insurance company must make a large amountof money ready so that it can pay a large number of insurance claims. To avoid problems inpaying insurance claims, the government has set forth a ministerial ordinance that covers
the payment of reinsurance claims pertaining to earthquake insurance based on a roughestimate, and promptly pays reinsurance claims based on a rough estimate (makes aprovisional payment) through JER.

20

Japan Earthquake Reinsurance Co., Ltd. Annual Report 2013

Flowchart of reinsurance
To enable the government, non-life insurance companies and JER to share insurance liabilities
in an equitable manner, it is necessary to first collect and standardize evenly the risks non-life
insurance companies underwrote, and then distribute them to the relevant organizations. It
is also necessary to receive insurance premiums (reinsurance and retrocession premiums) as
compensation for taking on insurance liabilities. To collect, evenly standardize and distributerisks and to give and take insurance premiums (reinsurance and retrocession premiums),
reinsurance transactions are conducted, centered on JER.
JER first reinsures earthquake insurance contracts that were underwritten by non-life insurance companies, and then divides the risks evenly. After excluding the risks held by JER, JER
implements retrocession against the government and non-life insurance companies in accordance with the burden of risks taken on by each organization.

Policyholders
Direct insurance

Application of insurance contracts (Insurance premiums)

Non-life insurance companies
Treaty A
Reinsurance(Collection andequalization of risks)

100% reinsurance(Reinsurance premiums)

Treaty A:
Earthquake Reinsurance Treaty (A)Non-life insurance companies <=> JER
Non-life insurance companies are required to conclude areinsurance contract with JER on all liabilities of earthquake
insurance contracts underwritten by them in accordance with the
Act on Earthquake Insurance, and JER is obliged to take up thefull liability for this earthquake insurance without fail. In otherwords, non-life insurance companies are not allowed to selectcertain earthquake insurance contracts underwritten by themand enter into reinsurance contract. Meanwhile, JER cannot turndown an application for a reinsurance contract to cover the
insurance liabilities taken up by non-life insurance companies inaccordance with the Act on Earthquake Insurance.

JER (Japan Earthquake Reinsurance Co., Limited)
Retrocession(Distribution of risks)

Retaining of risks

Treaty C

Treaty B

Retrocession

Retrocession(Retrocession
premiums)(Retrocession
premiums)

Government(Earthquake reinsurance special account)

JER
Non-life insurance companies

Treaty C:
Excess of loss reinsurance
JER <=> Government

Treaty B:
Earthquake Reinsurance Treaty (B)JER <=> Non-life insurance companies

JER has entered into an excess of loss
reinsurance with the government inaccordance with the Act on Earthquake
Insurance. JER retrocedes to the government
part of the insurance liability taken up under
Treaty A. The government’s indemnity limit ofreinsurance is determined with the approvalof the Diet every year.

It has been determined that a certain part ofliabilities underwritten under Treaty A is to be
retroceded to non-life insurance companies.
The proportion of underwriting by each non-life
insurance company is determined mainly inaccordance with the outstanding balance ofrisks reserves for earthquake insurance.

Japan Earthquake Reinsurance Co., Ltd. Annual Report 201321

Insurance liabilities held by JER,
non-life insurance companies andthe government
The limit of the total amount of insurance claims to be paid per earthquake, etc. is set inadvance. This system is designed so that, even in the event of an earthquake as devastating
as the Great Kanto Earthquake, insurance claims can be paid without problems. The current
limit of total amount of insurance claims to be paid is set at 6.2 trillion yen. This is the reinsurance scheme that shows how JER, non-life insurance companies and the government shareand limit insurance liabilities within the limit of the total amount of insurance claims to be
paid per earthquake.
Reinsurance scheme (applicable to earthquake, etc. thattake place after May 16, 2013)
Small

Amount of damage per earthquake, etc.

Large

(Payable insurance claims)
Up to
85 billion yen

Up to144.2 billion yen

Up to348.8 billion yen

131.9 billion

Up to approx.
1,538.9 billion yen

50%

Approx. 99.6%

5,827.6 billion

85 billion
29.6
billion1st layer
JER

6.2 trillion yen

50%
4.8 billion

102.3 billion

Approx. 0.4%

3rd layer

2nd layer
Non-life insurance companies

18.8 billion

The government

Liability limit
JER
Non-life insurance companies
The government

206.1 billion yen
34.4 billion yen
5,959.5 billion yen

JER pays insurance claims up to 85 billion yen (1st layer) per earthquake, etc. The governmentand others (non-life insurance companies and JER) share equally insurance claims for the
portion exceeding 85 billion yen, up to 348.8 billion yen (2nd layer). The government pays amajority of insurance claims (approximately 99.6%) for the portion exceeding 348.8 billion
yen (3rd layer). In portions of insurance claims to be paid by non-life insurance companies in
the 2nd and 3rd layers, the first part represents insurance claims to be paid by non-insurancecompanies and the second part by JER.
In this way, in cases where insurance claims per earthquake, etc. exceed a certain amount,excess liabilities are shared by the relevant organizations. This is called the excess of the loss
reinsurance.

22

Japan Earthquake Reinsurance Co., Ltd. Annual Report 2013

Examples of insurance claims to be paid by JER, non-life
insurance companies and the government
Suppose that insurance claims amounting to 2 trillion yen for losses or damages associatedwith a single earthquake are to be paid. JER, non-life insurance companies and the government will pay each in the following amount:(Unit: billion yen)

Portion up to 85
billion yen

Portion over85 billion yen,
and up to348.8 billion yen

85.0

131.9

About 6.7

About 223.6

—

131.9

About 1,644.5

About 1,776.4

85.0

263.8

1,651.2

2,000.0

Claims paid

A person of burden

Non-life insurancecompanies
The government
Total

Portion over
348.8 billion yen,
and up to
2,000 billion yen

Total

The balance of risk reserves at JER and non-life insurancecompanies and the government liability reserves at the endof fiscal 20 1 2JER and non-life insurance companies save the risk premium of insurance premiums paid bypolicyholders as earthquake insurance risk reserves for the possible payment of earthquake
insurance claims while the government saves government reserves in the earthquake insurance special account under law. Additionally, it is necessary for all investment profits fromthese accumulated liability reserves to also be accumulated as liability reserves. In the eventthat an earthquake occurs and causes losses or damages, each of JER, non-life insurancecompanies and the government pays an insurance claim according to each liability as stipulated in the reinsurance scheme by withdrawing from reserves.
JER
Non-life insurance companies
The government
Total

352.8 billion yen
68.7 billion yen
962.3 billion yen
1,383.8 billion yen

Note 1:	The risk reserves by the non-life insurance companies include the amount equivalent to deferred tax assets due
to tax effect accounting.
2: Government reserves will be finalized when the settlement for fiscal 2012 is approved by the Diet.

Japan Earthquake Reinsurance Co., Ltd. Annual Report 201323

Response to
the Great East Japan earthquake

At 2:46 p.m. on March 11, 2011, the largest earthquake in recorded Japanese history, with amagnitude of 9.0 on the Richter scale, struck off the coast of Sanriku, causing unprecedented
damage to the Tohoku and Kanto regions, with violent tremors and a massive tsunami. The
Japan Meteorological Agency named this earthquake, “The 2011 off the Pacific coast of
Tohoku Earthquake,” while the Japanese government decided to collectively call the disaster“The Great East Japan Earthquake,” which referred to the damage caused by the earthquake,the subsequent tsunami, and aftershocks.
Responding to this devastating disaster, the non-life insurance industry and the Japanese
government were united to take initiatives to promptly and steadily make insurance payouts
to support the reconstruction of the lives of policyholders.
Summary of the Great East Japan Earthquake
Outlook of the Earthquake(i) Date and Time: Friday, March 11, 2011, 14:46 JST (05:46 UTC)(ii) Hypocenter:
Sanriku-oki (N38.1, E142.5)
Distribution of seismic intensity: Estimated distribution of seismic intensity(iii) Depth:
24 km(iv) Magnitude:
9.0(v) JMA Seismic Intensity:
The intensity of 7 was recorded in Kurihara
City, Miyagi Prefecture, and the intensity of a
6-upper was recorded in 34 cities and towns
in four prefectures of Miyagi, Fukushima,
Ibaraki and Tochigi, in addition to a wide areaof Japan from Hokkaido to Kyushu, mainly inthe eastern part of Japan, where the intensityof between a 6-lower and 1 was recorded.
(vi) Number of aftershocks:
Seismic intensity
The number of aftershocks so far (as at noon,
7
6-upperMarch 8, 2012) is as follows.
6-lower

24

Maximum seismic intensity

No. ofaftershocks

6-upper26-lower2

5-upper

105-lower

33

4

184

5-upper
5-lower4321

Sources: “Monthly Report on Earthquakes and Volcanoes in Japan, March 2011” of the Japan
Meteorological Agency

Japan Earthquake Reinsurance Co., Ltd. Annual Report 2013

Summary of damage (as of March 11, 2013)(i) Casualties:
Death:
18,493 people
Missing:
2,683 people
Injured:6,217 people(ii) Residential damage:
Total collapse:
128,801 houses
Half collapse:
269,675 houses
Partially collapse: 756,814 houses* Prepared by JER based on “Monthly Report on Earthquakes and Volcanoes in Japan, March 2011” of theJapan Meteorological Agency and “The 2011 off the Pacific coast of Tohoku Earthquake (the Great East
Japan Earthquake) (No. 147)” of the Fire and Disaster Management Agency

Initiatives taken in the wake of the Great East Japan
Earthquake
1. Initiatives taken by the non-life insurance industry
To carry out the social mission of earthquake insurance, “Contribute to establishing a stableliving for the victims,” the General Insurance Association of Japan (the “GIAJ”) establishedan “Earthquake Insurance Central Command,” and the non-life insurance industry unitedacross all member companies to take the initiatives described below. As a result, as of May
31, 2012, the overall non-life insurance industry paid earthquake insurance of approximately
1,234.5 billion yen.
(1) Enhancement of information provision to customers
The GIAJ prepared posters (approximately 80,000 sheets) and leaflets (approximately 546,000
copies) that presented inquiry addresses and telephone numbers of non-life insurancecompanies, and presented and distributed them mainly to municipal government offices andevacuation centers. It also published a list of inquiry addresses of member companies in 18
newspapers, while it broadcast 500 radio commercial messages about the inquiry addressesof the GIAJ, and released advertising (on 12 regional television stations in affected areas)
to encourage policyholders to make earthquake insurance claims. Moreover, it introduced
special measures to the no-entry zone and other areas in the wake of the accident at the
Fukushima Daiichi Nuclear Power Plant, and published payments of earthquake insurance in
two newspapers in Fukushima Prefecture.
(2) Strengthening support for customers who are unsure about their insurance companies
The GIAJ established an “the Center for Searching Earthquake Insurance Contracts” forcustomers who were unsure about which insurers their earthquake insurance and other nonlife insurance contracts were concluded with because they had lost their insurance policies,
due to the disaster and other reasons. It helped confirm customers’ non-life insurancecompanies through the specially designated free telephone services and the web page. In
the same manner, each member company also dealt with inquiries from customers who were
unsure about their insurance companies.

Japan Earthquake Reinsurance Co., Ltd. Annual Report 201325

(3) Prompt insurance payouts by streamlining loss confirmation procedures and survey ofearthquake insurance
Because the tsunami and fires caused losses across large areas of the coastal regions in
Iwate, Miyagi and Fukushima prefectures, non-life insurance companies carried out a joint
loss survey, in what was an industry’s first. Non-life insurance companies identified areas
with the same level of losses through the joint survey, and identified areas that had sustained
devastating damage from the disaster as “total loss areas” using aerial and satellite
photography as well as tours of the areas themselves. As a result, by waiving the need for
onsite inspections, member companies promptly paid total earthquake insurance claims forearthquake insurance contracts in total loss areas. To facilitate claims by customers, the GIAJ
also published the total loss area on its website.
(4) Simpler procedures for earthquake insurance claims
In conducting an earthquake loss survey on wooden buildings and on furniture in suchbuildings, in addition to onsite inspections, non-life insurance companies adopted a loss
inspection in which, provided certain requirements are met, onsite inspections are waived andthe loss is inspected based on photos taken by customers and other self-reported documents.
They also conducted inspections based on self-reported documents for claims in the no-entry
zone and other areas where entries were limited in the wake of the accident at the Fukushima
Daiichi Nuclear Power Plant.
(5) Donation of the relief money
To help support people in the areas affected by the Great East Japan Earthquake, the GIAJ
received donations from 26 member companies and donated relief money of 1 billion yen to
the Japanese Red Cross Society.
2. Initiatives taken by JER
JER’s mission and role in the face of major disasters
Our mission in the face of major disasters is to financially facilitate prompt insurance
payouts by non-life insurance companies through “reinsurance payouts” to support the earlyreconstruction of the lives of policyholders in the afflicted areas.

JER

Reinsurance
payoutNon-life
insurancecompanies

Insurance
payoutFinancial backup

26

Japan Earthquake Reinsurance Co., Ltd. Annual Report 2013

Early

Policyholders, reconstruction
etc.

of a steady living

Prompt reinsurance payment
To promptly make reinsurance payouts to non-life insurance companies, we established an
Earthquake Disaster Countermeasures Headquarters on the day the Great East Japan Earthquake
took place, and took steps to promptly secure funds and make reinsurance payouts based on
approximate projections, in cooperation with non-life insurance companies and the government.
As a result, we made reinsurance payouts of approximately 1,243.9 billion yen for approximately
760,000 policies(Note) by the end of March 2013.
(Note) The figures do not include reinsurance payouts related to aftershocks and other earthquakes.

Securing funds promptly
Preparation of approximately 322.4 billion yen in cash by selling assets within 20
days of the occurrence of the earthquake (March 31, 2011).
Receipt of reinsurance payouts of approximately 426.8 billion yen (based on
approximate projections) from the government within 73 days of the occurrenceof the earthquake (May 23, 2011).
Because the earthquake insurance system is a system whose income and expenditures aredesigned to be balanced out after a long period of time, all premiums received, after deducting
necessary expenses, are individually set aside as reserves by non-life insurance companies and thegovernment.
Insurance claims paid to policyholders affected by the earthquake were funded from these reserves.
To promptly secure funds for reinsurance payouts to non-life insurance companies, we quickly
started to sell our reserve assets from the first business day after the occurrence of the earthquake.
At the same time, cooperating with the government, we flexibly requested the government’s
reinsurance payouts and implemented procedures for receiving the payments.

Sales ofprivate assets

Receipt of thegovernment’s
reinsurance
payouts

Funds forinsurance
payouts

Reinsurance payouts based on approximate projections
Provision of funds of approximately 968.6 billion yen to non-life insurancecompanies within 75 days of the earthquake (May 25, 2011).
To facilitate prompt insurance payouts by non-life insurance companies to policyholders, we madereinsurance payouts based on approximate projections for the first time since the establishment ofJapan’s earthquake insurance system.
Payments based on approximate projections is a system in which estimated reinsurance payouts
based on rough projections on the amount of damage incurred by the relevant earthquake. The
system is designed to make it possible to provide in advance the funds necessary for insurance
payouts to non-life insurance companies before they actually pay insurance claims to policyholders
who are afflicted by an earthquake.

Japan Earthquake Reinsurance Co., Ltd. Annual Report 201327

Status of the burden of liabilities associated with theGreat East Japan Earthquake
The reinsurance scheme for the Great East Japan Earthquake and the share of liabilities forthe damage from the earthquake between non-life insurance companies and the government
are as follows:
Reinsurance scheme at the time when the Great East Japan Earthquake took place(from April 1, 2009 to May 1, 2011)
Payable reinsurance claim(excluding those of aftershocks)(as at the end of March 2013)
Approximately 1,243.9 billion yen(Payable insurance claims)
Up to1,925 billion yen

Up to
115 billion yen

905 billion

5.5 trillion yen

50%

115
billion95%

3,396.25 billion
905 billion

50%
178.75 billion(Liability)

Non-life insurance companies Approximately 679.4 billion yen
The government

Approximately 564.4 billion yen

Liability limit

28

Non-life insurance companies (including JER)
The government

1,198.75 billion yen
4,301.25 billion yen

Total

5,500.00 billion yen

Japan Earthquake Reinsurance Co., Ltd. Annual Report 20135%

Modification of the reinsurance scheme after theGreat East Japan Earthquake
Reserves of non-life insurance companies noticeably decreased with the burden of liabilities
after the Great East Japan Earthquake. As a result, to reinforce the continuity and the stabilityof the scheme to deal with large-scale earthquakes in the future, the reinsurance scheme wasrevised on May 2, 2011, as shown below.
Reinsurance scheme after the Great East Japan Earthquake took place(from May 2, 2011 to April 5, 2012)(Payable insurance claims)
Up to
115 billion yen

Up to871 billion yen

378 billion

50%

115
billion378 billion

5.5 trillion yen

4,397.55 billion

95%

231.45 billion

5%

50%

Liability limit
Non-life insurance companies (including JER)
The government

724.45 billion yen
4,775.55 billion yen

Total

5,500.00 billion yen

Note: Please refer to page 22 for information on the mechanism of reinsurance and the latest reinsurance scheme.

Status of reinsurance payments associated with theGreat East Japan Earthquake(As of March 31, 2013)
By prefectures
RegionTohokuHokkaido
Aomori
Iwate
Miyagi
Akita
Yamagata
Fukushima
Subtotal

No. of policies

Reinsurance claims (million yen)

1,204
7,912
26,254
243,724
2,109
3,662
74,977
358,638

1,354
5,072
57,389555,569
1,190
2,933
158,063780,219

Japan Earthquake Reinsurance Co., Ltd. Annual Report 201329

Region
IbarakiTochigi
Gunma
Saitama
Chiba
Kanto,
Tokyo
Koshinetsu,
Kanagawa
Shizuoka
Niigata
Yamanashi
NaganoShizuoka
Subtotal
Other prefectures
Total

No. of policies

Reinsurance claims (million yen)

105,129
37,601
8,519
35,89392,542
96,531
21,881
1,460
3,686
354
976
404,572378
764,792

155,145
43,8397,489
27,945
112,632
91,047
18,942
1,300
2,422
487
735
461,987343
1,243,904

Note 1: The number of policies represents the number of insurance policies of earthquake insurance contracts, underwhich insurance claims were paid.
2: The figures do not include reinsurance payouts related to aftershocks.

By properties and loss categories
Tohoku region
Buildings

Total loss
Half loss
Partial loss
Total

Personal property

Total

No. ofproperties

Reinsurance
claims(million yen)

No. ofproperties

Reinsurance
claims(million yen)

No. ofproperties

Reinsurance
claims(million yen)

22,82264,465191,258
278,545

206,120
301,433
101,019
608,572

13,13575,48046,112
134,727

43,283
120,715
7,647
171,646

35,957
139,945
237,370
413,272

249,404
422,148
108,666
780,219

Non-Tohoku region
Buildings

Total loss
Half loss
Partial loss
Total

Personal property

No. ofproperties

Reinsurance
claims(million yen)

No. ofproperties

4,981
33,112297,895
335,988

46,549158,324
177,966
382,839

683
34,312
95,911130,906

Reinsurance
claims(million yen)
2,218
60,83917,78780,845Total
No. ofproperties

Reinsurance
claims(million yen)

5,664
67,424
393,806
466,894

48,768219,163
195,753
463,685

Note 1: The number of properties represents the number of properties (by building and personal property) under theearthquake insurance contracts, whose insurance claims were paid.
2: The figures do not include reinsurance payouts related to aftershocks.

30

Japan Earthquake Reinsurance Co., Ltd. Annual Report 2013

statistics

Reinsurance claims paid in fiscal 201 2
Reinsurance claims paid in fiscal 2012 amounted to 55.8 billion yen, including earthquake reinsurance claims paid to cover the 2011 off the Pacific coast of Tohoku Earthquake. In termsof numbers, 64,412 claims were paid (on the basis of insurance policies). See below for major
claims paid per earthquake.
Earthquake(Region name)

Magnitude

No. ofpolicies

Reinsurance
claims paid
(million yen)March 11, 2011

9.0

53,971

48,553

April 7, 2011

7.2

2,630

1,797

March 14, 2012

6.1

1,620

1,235

December 7, 2012

7.3

1,235

720

March 15, 2011

6.4

544

547

Date of occurrence

1. The 2011 off the Pacificcoast of Tohoku
2. Miyagi-ken-oki
3. Chiba-ken Toho-oki
4. Sanriku-oki
5. Shizuoka-ken Tobu
Other earthquakes

—

—

4,412

3,029

Total

—

—

64,412

55,883The percentage of households purchasing earthquake
insurance in areas at risk of major earthquakes

Earthquake(Region name)Great Kanto

No. ofhouseholds(A)(1,000households)

No. ofcontracts(B)(1,000contracts)

Amountinsured(million yen)

24,242

7,680

65,412,916

Percentage
of households withinsurance(B/A) (%)
31.7

Probability that an
earthquake could
occur within the next
30 years
Nearly 0%–2%Tokyo metropolitan

17,121

5,574

46,844,817

32.6

About 70%

Nankai trough41,506

12,219104,283,353

29.4

60%–70%Note 1: The figures were prepared by JER by focusing on the main prefectures affected by earthquakes based on thelatest loss estimates prepared by the Non-Life Insurance Rating Organization of Japan.
2: The probability that an earthquake could occur within the next 30 years is based on the 2013 version of the
National Seismic Hazard Maps for Japan of the Headquarters for Earthquake Research Promotion of theJapanese government. The probability of an earthquake with an epicenter directly below metropolitan Tokyo
refers to an earthquake with magnitude of about 7 that could occur in southern Kanto.

Japan Earthquake Reinsurance Co., Ltd. Annual Report 201331

Top 20 earthquakes as to reinsurance claims paid
See the table below for the top 20 earthquakes with respect to reinsurance claims paid since
the earthquake insurance was established.
(As of March 31, 2013)
Earthquake(Region name)Date of occurrence

Magnitude

No. of policies

Reinsurance claims
paid (million yen)

1. The 2011 off the Pacificcoast of Tohoku

March 11, 2011

9.0

764,792

1,243,904

2. Hyogo-ken Nanbu

January 17, 1995

7.3

65,42778,346

3. Miyagi-ken-oki

April 7, 2011

7.2

30,75032,185

4. Fukuoka-ken Seiho-oki

March 20, 2005

7.0

22,031

16,943

5. Geiyo

March 24, 2001

6.7

24,45016,9406. Niigata-ken Chuetsu

October 23, 2004

6.8

12,607

14,897

7. Niigata-ken Chuetsu-oki

July 16, 2007

6.8

7,861

8,246

8. Fukuoka-ken Seiho-oki

April 20, 2005

5.8

11,335

6,428

September 26, 2003

8.0

10,552

5,990

10. Iwate-Miyagi Nairiku

June 14, 2008

7.2

8,276

5,545

11. Suruga-wan

August 11, 2009

6.5

9,423

5,093

12. Shizuoka-ken Tobu

March 15, 2011

6.4

4,935

4,270

13. Iwate-ken Engan Hokubu

July 24, 2008

6.8

7,754

3,972

14. Fukushima-ken Hamadori

April 11, 2011

7.0

2,316

3,624

15. Nagano-ken Chubu

June 30, 2011

5.4

2,882

3,246

16. Tottori-ken Seibu

October 6, 2000

7.3

4,078

2,868

17. Noto Hanto

March 25, 2007

6.9

3,303

2,729

18. Miyagi-ken Hokubu

July 26, 2003

6.4

2,543

2,172

19. Miyagi-ken-oki

May 26, 2003

7.1

2,970

1,918

20. Miyagi-ken-oki

August 16, 2005

7.2

2,793

1,551

9. Tokachi-oki

Note 1: After the 2011 Great East Japan Earthquake, in accordance with our reinsurance scheme at the time, the government paid 564,452 million yen and private non-life insurance companies paid 679,452 million yen.
2: After the Hyogo-ken Nanbu Earthquake in 1995, in accordance with our reinsurance scheme at the time, thegovernment paid 6,173 million yen and private non-life insurance companies paid 72,173 million yen.

32

Japan Earthquake Reinsurance Co., Ltd. Annual Report 2013

Below are the epicenters and magnitudes of the top 20 earthquakes for which we paid reinsurance claims in the past. The number attached to the name of the earthquake is in order ofpayment amount.
As a reference, the epicenter area and the probability that an earthquake with a magnitude
of about 7 in southern Kanto, the Nankai Trough earthquake could occur within the next 30
years announced by the Headquarters for Earthquake Research Promotion of the government
are also included.

9. Tokachi-oki (M8.0)

13. Iwate-ken Engan Hokubu (M6.8)
10. Iwate-Miyagi Nairiku (M7.2)
6. Niigata-ken Chuetsu (M6.8)
19. Miyagi-ken-oki (M7.1)
7. Niigata-ken Chuetsu-oki (M6.8)

20. Miyagi-ken-oki (M7.2)
1. The 2011 off the Pacificcoast of Tohoku (M9.0)

17. Noto Hanto (M6.9)
15. Nagano-ken Chubu (M5.4)

3. Miyagi-ken-oki (M7.2)
18. Miyagi-ken Hokubu (M6.4)

11. Surugawan (M6.5)

14. Fukushima-ken Hamadori (M7.0)
16. Tottori-ken Seibu (M7.3)

Earthquake of about M7 in the southern Kanto(about M6.7 – 7.2) About 70%

5. Geiyo (M6.7)

12. Shizuoka-ken Tobu (M6.4)

2. Hyogo-ken Nanbu (M7.3)

Nankai trough earthquake(about M8 – 9) About 60 – 70%

4. Fukuoka-ken Seiho-oki (M7.0)
8. Fukuoka-ken Seiho-oki (M5.8)

Japan Earthquake Reinsurance Co., Ltd. Annual Report 201333

Financial Section

Financial Review
Indicators Showing the Main Results over the Last Five Fiscal Years
Summary of Operations
Accounting Concepts
1. Financial statements
2. Details of assets and liabilities
3. Income and loss details
4. Information about fair values, etc.

34

Japan Earthquake Reinsurance Co., Ltd. Annual Report 2013

Financial review
Business development, results, etc.
During fiscal 2012, the Japanese economy showed signs of a gradual recovery, mainly reflecting the demand
for reconstruction projects in the aftermath of the 2011 Great East Japan Earthquake. However, the Japanese
economy still continued to face uncertain conditions, given the slowdown in the global economy due to the European debt problem, the drop in exports resulting from the worsening relationship between Japan and China,
and other negative factors. Despite this environment, with the recent recovery in the US economy, along with theweaker yen and higher stock prices reflecting expectations for positive developments as a result of the monetaryeasing policy in Japan, the economy began to show signs of bottoming out.
Both premiums as well as the number of earthquake insurance policies continued to increase during the fiscal
year under review, just as they did in the previous fiscal year, due to the growing interest in earthquake insurance
as security against earthquakes. Meanwhile, the amount of earthquake insurance payouts declined significantly
from the previous fiscal year, as insurance payouts for the 2011 Great East Japan Earthquake peaked.
Regarding asset management, earnings from investments have declined markedly year on year, reflecting theincreasing redemption of bonds with high yields amid the trend of declining interest rates.
In this environment, during fiscal 2012, the first year of our third medium-term business plan, in light of ourexperience from the 2011 Great East Japan Earthquake we have steadily implemented measures—mainly in response to massive earthquakes or consecutive earthquakes—and have reviewed and developed a structure thatwill allow our operations to continue even if our headquarters is stricken by a disaster. In particular, to ensure thecontinuity of our operations if our headquarters is afflicted by a disaster, we have comprehensively upgraded oursystem infrastructure in preparation for the imminent inland earthquake expected to strike the Tokyo metropolitan area, and the system is now fully operational.
Summary of earthquake insurance results① Net premiums written and net claims paid
In the fiscal year under review, due to the increase in
the number of earthquake insurance contracts, net
premiums written amounted to 92.9 billion yen (up11.1% year on year).
Meanwhile, net claims paid came to 31.6 billion yen(down 83.9% year on year), mainly reflecting the effectsof the 2011 Great East Japan Earthquake.
② Risk reserves and underwriting reserves
Risk reserves added amounted to 48.0 billion yen (up9.4% year on year), which is the total of net premiums
written of 45.0 billion yen, given by deducting assumed
reinsurance commissions from net premiums written,
and a profit of 3.0 billion yen from investments.
Risk reserves at the end of the fiscal year under review were 352.8 billion yen (up 6.4% year on year),reflecting the reversal of the provision for outstanding
claims of 9.9 billion yen to risk reserves and drawing
from risk reserves in the past year of net claims paidof 31.6 billion yen, loss adjustment expenses of 4.8
billion yen, and advertising and publicity expenses of
0.2 billion yen.
Underwriting reserves at the end of the fiscal year under review totaled 461.4 billion yen (up 7.1% year onyear), after adding unearned premium reserves andrepayment reserves to the risk reserves.
In fiscal 2011, the amount of risk reserves provided
fell short of the 0.2 billion yen that should have been
provided, due to excessive income tax payments. As
a result, in the fiscal under review, we claimed for acorrection and issued a restatement by increasing thebalance of risk reserves and accounts receivable at the
beginning of the term by 0.2 billion yen based on theestimated refund.
③ Risk reserves of direct insurance companies
The risk reserves of direct insurance companies re-corded as entrusted reserves were 68.7 billion yen for
the fiscal year under review (up 9.5% year on year),obtained by adding net premiums written and profit
from investments of 6.6 billion yen (down 59.9% year
on year), reversing the publicity expenses of 0.7 billion yen.
Outline of investments
Medium- to long-term domestic interest rates trended lower due to the escalation of the European debt
problem and the delayed recovery of the US economy.
Long-term interest rates declined sharply in the second half of the fiscal year under review, given growing
expectations for a stronger monetary easing policy after the new administration that was instated in December asked the Bank of Japan to increase its monetaryeasing.
The yen fell noticeably against both the dollar and theeuro, reflecting the deterioration of Japan’s current account balance and expectations for the Bank of Japan
to commence a significant monetary easing policy. As
a result, the yen has depreciated approximately 12 yen
against the dollar and approximately 11 yen against
the euro from its rates at the end of the previous fiscal year.
In these circumstances, we invested in assets with the
top priority placed on safety and liquidity, followed byprofitability. As a result, pre-tax profits from investments amounted to 3.3 billion yen in the business account and 0.6 billion yen in the entrusted reserves account. Consequently, investment assets at the end of
the year under review stood at 524.0 billion yen.
Profit and loss for the fiscal year under review(Capital account)
Net income was 4 million yen after calculating interestand dividend income in the capital account and otheritems.

Japan Earthquake Reinsurance Co., Ltd. Annual Report 201335

Indicators showing the main resultsover the last five fiscal years(Yen in millions)Fiscal Year

Division

2008

2009

2010

2011

2012

Net premiums written
Percentage change over the previous term

67,126
4.8%

72,225
7.6%

71,532(1.0%)

83,671
17.0%

92,996
11.1%

Ordinary income
Percentage change over the previous term

84,993
4.6%

99,46417.0%

175,903
76.9%

286,81263.1%

110,370(61.5%)

Ordinary expenses
Percentage change over the previous term

84,792
4.3%

98,512
16.2%

174,91377.6%

286,723
63.9%

110,176(61.6%)

Ordinary profit
Percentage change over the previous term

200
1,108.8%

951
374.2%

990
4.1%

89
(91.0%)

193
117.5%Net income (loss)
Percentage change over the previous term

12
184.1%

5(58.9%)

3(30.2%)(5)(239.9%)

4
–

1,000
2 mil. shares

1,000
2 mil. shares

1,000
2 mil. shares

1,000
2 mil. shares

1,000
2 mil. shares

Common stock
Sum of shares issued
Net assets

1,617

1,633

1,634

1,631

1,633

Total assets

1,015,053

1,092,272

1,154,108

509,498

536,808

Underwriting reserves
Percentage change over the previous term

545,255
5.8%

585,820
7.4%

515,981(11.9%)

430,700(16.5%)

461,480
7.1%

Of the balance, risk reserves
Percentage change over the previous term

460,0816.0%

496,708
8.0%

424,401(14.6%)

331,499(21.9%)

352,830
6.4%

Loans
Percentage change over the previous term

–
–

–
–

–
–

–
–

–
–

Securities
Percentage change over the previous term

953,118
6.4%

1,006,947
5.6%

805,223(20.0%)

448,120(44.3%)

476,979
6.4%

Non-consolidated solvency-margin ratio

159.1%

161.6%

124.7%

120.8%

160.0%

Dividend propensity

–

–

–

–

–

No. of employees

28

26

25

26

27

Notes:
1. T
 o achieve the stricter application of risk measurement and meet other goals, laws and regulations associated with the calculation of the non-consolidated solvency-margin ratio have been revised since the end of fiscal 2011 (March 31, 2012). Order to specify divisions, provided for in Paragraph
2, Article 132, Insurance Business Law, our solvency-margin ratio is not supposed to be used as a criterion to enable the administrative authorities
to trigger an order for improvement. For details, see page 40 Conditions of non-consolidated solvency margin ratio.
2. T he figures for fiscal 2011 have been corrected by a retrospective restatement. The details are given in Note 8 for the balance sheet (page 42).

Summary of operations
Item: earthquake

q Indicators relating to insurance underwriting
1. Net premiums written(Yen in millions)

Division

Fiscal Year

2010

2011

2012

Premiums written

152,182

171,223

185,568

Return premiums

2,324

2,504

2,642

Assumed net premiums
written (A)149,634

168,676

182,895

Reinsurance premiums
ceded (B)78,10285,00589,899Net premiums written (A-B)

71,532

83,671

92,996

Notes:
1. R
 eturn premiums: Return premiums of receiving reinsurance.
2. A ssumed net premiums: Produced by deducting return premiums
from premiums written.
3. N
 et premiums written: Produced by deducting the reinsurance premiums ceded from the assumed net premiums written.

36

2. R
 ate of premiums written by domestic and overseas contracts
Division

Fiscal Year

2010

2011

2012

100%

100%

100%

Fiscal Year

2010

2011

2012

Assumed net claims paid (A)1,033

1,240,600

55,883–

1,043,975

24,276

1,033

196,625

31,607

Domestic contract

3. Net claims paid
(Yen in millions)

Division

Reinsurance claims
recovered (B)Net claims paid (A-B)

Notes:
1. A
 ssumed net claims paid: Produced by deducting surrender value
from ceded insurance claims paid.
2. N
 et claims paid: Produced by deducting reinsurance claims recoveredby ceded contract from assumed net claims paid.

Japan Earthquake Reinsurance Co., Ltd. Annual Report 2013

4. Net loss ratio, net expense ratio and their combined ratio(Yen in millions)

Division

Fiscal YearNet loss ratio

2010

2011

2012
2010

2011

2012

15

14

13

725
38,141

Rate of top fivereinsurers’ ceded
insurance premiums

81.9%

81.8%

81.9%

282.9%

39.2%

31,74035,67738,867 Insurance related operating,general and administrative
expenses503

551 Commissions and brokeragefees

31,23635,126Net expense ratio

44.4%

42.6%

41.8%

Combined ratio

46.2%

325.5%

81.0%

Notes:
1. Net loss ratio: (Net claims paid + loss adjustment expenses) / net
premiums written
2. Net expense ratio: (Commissions and brokerage fees + Insurance-related operating and general administrative expenses) / net premiums
written
3.	Combined ratio: Net loss ratio + net expense ratio

5. Rate of damage occurrence, the expenses ratio andrate of sum total before ceded insurance deduction
Not applicable
6. Changes in ordinary income or loss against a risein the loss rate
There are no changes in ordinary income or loss
in earthquake insurance because increases ininsurance payments are set off through the reversalof underwriting reserves in accordance of theprinciple of no loss and no profit.

Division

Fiscal Year

No. of reinsurersthat ceded insurance
contracts

1.8%

Underwriting expenses

8. No. of reinsurers that ceded insurance contracts andtop five reinsurers for ceded reinsurance premiums

Note:
The number of reinsurers that ceded insurance contracts is the number
who ceded treaty reinsurance contracts of 10 million or more yen.

9. Ratio of ceded insurance premiums by rating
Not applicable
10. Contractor dividend
Not applicable
11. Conditions at the end of the current fiscal year
(runoff result) of outstanding claims (estimatedamount) at the beginning of the term
Not applicable to earthquake insurance.
12. Amount of estimated final damages associatedwith the elapse of a period from the occurrenceof accidents
Not applicable to earthquake insurance.

7. Underwriting profit(Yen in millions)

Division

Fiscal Year

2010

2011

2012

Underwriting income

148,490

272,503106,333

Underwriting expenses

105,420

147,002271,872

Operating and generaladministrative expenses

503

551

725

Other income and expenses

(984)

(79)

(186)

–

–

–

Underwriting profit

Notes:
1. T he above operating, general and administrative expenses are thoserelating to the underwriting of insurances mentioned in the operating, general and administrative expenses in a statement of profits andlosses.
2. Other income and expenses are those equivalent to corporate taxes
mentioned in a statement of earthquake insurance profits and losses.
3. The figures for fiscal 2011 have been corrected by a retrospective restatement.

Japan Earthquake Reinsurance Co., Ltd. Annual Report 201337

w Investments
1. Investments policy	Because we have to pay a substantial amount ofclaims promptly in the event of a natural disastersuch as a major earthquake, we put in principle
the highest priority on safety and liquidity followedby profitability to increase risk reserves. The risk
management division is engaged in monitoring andcontrolling risks of all kinds, independently of thetransactions execution division.

3. A mount of interest and dividend received andinvestment assets yield (income yield)(Yen in millions)FiscalYear

2010
Yield (%)

Division

As of the end of
fiscal 2011

Percentage
distribution(%)

Division

Percentage
distribution(%)

Yield (%)

169

0.45

83

0.69

32

0.18

20

0.06

46

0.05

8

0.05

Monetaryreceivablesbought

–

–

–

–

–

–

50

0.40

–

–

–

–

15,734

1.55

6,983

1.43

4,549

0.96

Buildings

As of the end of
fiscal 2012

Yield (%)

Call loans

Securities(Yen in millions)

As of the end of
fiscal 2010

Year

2012

Deposits

Money trusts

2. Total assets and investments assets

2011

Total

–

–

–

–

–

–

15,975

1.46

7,113

1.20

4,589

0.90

Note:
Investment assets yield (income yield): indicator showing the result of investment assets from a point of income (interest and dividend income)(which has been disclosed)
The numerator is composed of interest and dividend income from investment assets while the denominator is an acquisition cost based assets.

Percentage
distribution(%)

Deposits

10,4090.9

17,1903.4

25,9384.8

Call loans

319,58627.7

30,105

5.9

21,137

3.9

Monetaryreceivablebought

–

–

–

–

–

–

Numerator = Interest and dividend income (including the amount equivalent to interest and dividend income of profit (or loss) from monetarytrust operation)
Denominator = Acquisition cost or depreciation based average balance

Money trusts

–

–

–

–

–

–

Securities

805,22369.8

448,12088.0

476,979

88.9

Buildings

37

0.0

35

0.0

33

0.0

Total ofinvestments 1,135,256
assets98.4

495,45097.3

524,088

97.6

Total assets 1,154,108

100.0

509,498

100.0

536,808

100.0

Note:
The figures for fiscal 2011 have been corrected by a retrospective restatement.

4. Asset management yield (realized yield)(Yen in millions)

Division

Amount ofnumerator

Deposits

169

2010
Amount ofdenominator
37,41283

2011
Amount ofdenominator
12,07432

2012
Amount ofdenominator
17,636

Call loans

20

35,1010.06

46

94,2170.05

818,067

–

–

–

–

–

–

–

–

–

(218)

12,604(1.73)

–

–

–

–

–

–

15,676

1,011,852

1.55

9,127

488,267

1.87

4,548

473,767

0.96

6,121

589,258

1.04

3,253

273,696

1.19

1,711

325,550

0.53

–

–

–

–

–

–

–

–

–

Foreign securities

9,898

419,477

2.36

5,874

214,570

2.74

2,837

148,217

1.91

Other securities

(343)

3,116

(11.01)

–

–

–

–

–

–

–

–

–

–

–

–

–

–

–

Fiscal Year

Monetary receivables bought
Money trusts
Securities
Public and corporate bonds
StocksLoans

Yield onworking
assets (%)
0.45

Amount ofnumerator

Yield onworking
assets (%)
0.69

Amount ofnumerator

Yield onworking
assets (%)
0.18
0.05

Buildings

–

40

–

–

37

–

–

35

–

Derivatives

17,035

–

–

8,358

–

–

(2,836)––

Others(19,572)––(10,599)

–

–

2,783

–

–

Total

13,112

1,097,011

1.20

7,016

594,596

1.18

4,536

509,507

0.89

Notes:
1. A
 sset management yield (realized yield): indicator to show the result of managing of assets from the point of contribution to the current profit andloss. The numerator is realized profit and loss while the denominator is an acquisition cost based assets.
Numerator = profit from asset management + investment income on savings premiums – expenses of assets management
Denominator = acquisition cost or writing-off cost based average balance
2. Profit and loss from derivatives principally involve foreign exchange forward contracts with the remainder primarily involving currency exchange of foreign
currency-denominated bonds. JER deals in foreign exchange forward contracts and other transactions for the purpose of hedging risks associated with foreign
currency-denominated bonds.

38

Japan Earthquake Reinsurance Co., Ltd. Annual Report 2013

5. Market-price based overall yield (for reference)(Yen in millions)

Division

Amount ofnumerator

Deposits

169

2010
Amount ofdenominator
37,41283

2011
Amount ofdenominator
12,07432

2012
Amount ofdenominator
17,636

Call loans

20

35,1010.06

46

94,2170.05

818,067

0.05

–

–

–

–

–

–

–

–

–

Money trusts(160)

12,546(1.28)

–

–

–

–

–

–

Securities

7,870

1,028,090

0.77

5,349

496,699

1.08

4,067

478,421

0.85

3,563

595,176

0.60

1,821

277,057

0.66

1,666

327,480

0.51

–

–

–

–

–

–

–

–

–

4,385

430,061

1.02

3,527

219,641

1.61

2,401

150,940

1.59

Fiscal Year

Monetary receivables bought

Public and corporate bonds
StocksForeign securities
Other securities

Yield onworking
assets (%)
0.45

Amount ofnumerator

Yield onworking
assets (%)
0.69

Amount ofnumerator

Yield onworking
assets (%)
0.18

(78)

2,852

(2.77)

–

–

–

–

–

–

Loans

–

–

–

–

–

–

–

–

–

Buildings

–

40

–

–

37

–

–

35

–

Derivatives

17,035

–

–

8,358

–

–

(2,836)––

Others(19,572)––(10,599)

–

–

2,783

–

–

Total

5,364

1,113,191

0.48

3,237

603,029

0.54

4,055

514,160

0.79

Notes:
1. M arket-price based overall yield: indicator showing the efficiency of operation on a market price basis. The numerator reflects realized profit and loss
and fluctuations in market price appraisal while the denominator is market-price based assets.
Numerator = (income from operated assets management + investment income on savings premium – expenses for assets management) + (after-tax
unrealized gain for the year – after-tax unrealized gain for previous year)* + fluctuation in deferred hedge profit and loss
Denominator = acquisition cost or write-off based average balance + after-tax unrealized gain for previous year of other securities + profit and loss
for the previous year related to securities for transaction* Based on the amount before tax effect deduction
2. P rofit and loss from derivatives principally involve foreign exchange forward contracts with the remainder primarily involving currency exchange of foreign
currency-denominated bonds. JER deals in foreign exchange forward contracts and other transactions for the purpose of hedging risks associated with foreign
currency-denominated bonds.

6. B alance, percentage distribution and yield of Foreign Loans & Investments(Yen in millions)



Year

As of the end of fiscal 2010

As of the end of fiscal 2011

As of the end of fiscal 2012

Percentage
distribution(%)

Percentage
distribution(%)

Percentage
distribution(%)

Division
Foreign currency denominatedForeign public and corporate bonds

152,723

48.4

55,43535.1

36,34728.2

162,901

51.6

102,638

64.9

92,49471.8

315,624100.0

158,073

100.0

128,842100.0

Yen denominatedForeign public and corporate bonds
Total
Yield on foreign loans & investments
Investment assets yield (income yield)

2.41%

2.19%

1.91%

Assets management (realized yield)

2.36%

2.74%

1.91%

Market-price based overall yield (for reference)

1.02%

1.61%

1.59%

Note:
Of the yield on foreign loans & investments, the investment assets yield was calculated in the same manner as 3., Amount of interest and dividend
received and yield on investment assets (income yield) in connection with the assets involving foreign investments.

Japan Earthquake Reinsurance Co., Ltd. Annual Report 201339

e Conditions of non-consolidated solvencymargin ratio(Yen in millions)



Year

As of theend offiscal 2011

As of theend offiscal 2012

336,786

357,917

1,615

1,619

Price fluctuation reserves

6

5

Risk reserves––

331,499352,830

–

–

3,390

3,184

Unrealized gain and loss included landholdings––

Surplus such as premium reserves––

Funding instruments with a debt-like nature––

Surplus such as premium reserves andfunding instruments with a debt-like naturethat are not included in the margin––

Items deductible

–

–

275

277

Division
Total amount of non-consolidated solvencymargin
Common stock, etc.

Catastrophe reserves
Reserves for ordinary bad debts
Unrealized gain / loss on available-for-salesecurities (excluded deductions for Tax(A) Consequences)

OthersTotal amount of non-consolidated risk√(R1 + R2)2 + (R3 + R4)2 + R5 + R6

(B)

557,215447,267

General underwriting risk (RI)––

Underwriting risk in third-area insurance
(R2)

–

–

Anticipated rate of return risk (R3)
Investment risk (R4)

(C)

–

–

9,839

10,497

Management risk (R5)10,925

8,769

Catastrophe risk (R6)

536,450

428,000

Non-consolidated solvency-margin ratio[(A) / { (B) x 1 / 2 }] x 100

120.8%

160.0%

Notes:
1. The amounts and figures above are calculated based on the provisionsof Article 86 and Article 87 of the Enforcement Rules of the Insurance
Business Act and the Ministry of Finance Official Notification No. 50
in 1996.
2. The figures for fiscal 2011 have been corrected by a retrospective restatement.

Non-consolidated solvency-margin ratio
The non-life insurance companies deposit reserves incase that they pay insurance money for any insurance
accident that occurred or refund depository insurance
at maturity. It is also necessary for them to maintaina satisfactory ability to make payments or solvency
even in case of unusual, unforeseeable risk, including
a huge disaster or sharp drop in price of such assets
as owned by them.
The rate of “Non-life insurance company’s ability tomake payments by owned assets and reserves (A in theabove table) over any risk unforeseeable (B in the abovetable)” is indicated as the non-consolidated solvencymargin ratio (C in the above table) which is calculated
according to the pertinent rules, including the Insurance Business Law.

40

[Unforeseeable risk] (Total of risks): Sum of 1–5
1. G eneral underwriting risk: risk associated with aninsurance accident rate that is higher than normallypredictable (other than the risk associated with ahuge disaster).
2. A
 nticipated ratio of return risk: the risk that may
arise for saving-type insurance if the actual yieldfrom operations is lower than it was when calculating depository insurance premiums.
3. Investment risk: management risk that might arise
when the value of assets owned including securities
changes in an unforeseeable manner.
4. M anagement risk: risk that might arise on business
management in an unforeseeable manner, otherthan 1–3 and 5.
5. C
 atastrophe risk: risk that might arise with a hugedisaster (such as the Great Kanto Earthquake)
which is normally unforeseeable.
Capability of payment by non-life insurance company
owned capital and reserves (total amount of non-consolidated solvency-margin) is the total of capital owned
by a non-life insurance company, various reserves (pricefluctuation reserve, catastrophe reserve, etc.), part of latent profit from land, and so on.
The solvency-margin ratio is one of the indicators used
when the administrative authorities check insurancecompanies to determine the soundness of management
for supervisory purposes. When the rate is 200% or
more, the insurance company is deemed satisfactory interms of its ability to make insurance and other payouts.
◎ JER has entered into a reinsurance contract with thegovernment of Japan for earthquake insurance in accordance with Law concerning Earthquake Insurance.
The law stipulates in addition that the government takes
responsibility for support and for lending funds for thepayment of insurance money. Because this is a form ofspecial business, JER’s solvency-margin ratio is not usable as a figure to enable the administrative authorities
to trigger an order for improvement, irrespective of theabove solvency-margin ratio, as provided for in Paragraph 4, Article 3, Order to specify the division statedin Paragraph 2, Article 132, Insurance Business Law.
Note: The article is as follows.
[In the event that an insurance company has entered into a reinsurance
contract with the government as stated in Paragraph 1, Article 3, Law
concerning Earthquake Insurance (law No. 73, 1966), any order to be issued according to the listed division in Section 1 of the Article applicableto the insurance company shall be issued in accordance with the list of
inapplicable division.]

Japan Earthquake Reinsurance Co., Ltd. Annual Report 2013

ACCOUNTING CONCEPTS(NET ASSETS)

q Financial statements(Yen in millions)2011(As of March
31, 2012)

2012(As of March
31, 2013)

Item

AmountAmountCommon stock

1,000

1,000

620

625



Fiscal Year

1. Balance sheets(ASSETS)

(Yen in millions)2011(As of March
31, 2012)

2012(As of March
31, 2013)

Item

AmountAmount Other legal reserve of retained earnings

Cash and deposits
Deposits

17,19017,19025,93825,938  Special reserves

1717  Special price fluctuation reserves3939  Retained earnings brought forward

563

567



Fiscal Year

Call loans

30,105

21,137

Securities
Government bonds
Corporate bonds
Foreign securities

448,120
248,634
41,411
158,073

476,979
328,071
20,065
128,842

Tangible fixed assets
Buildings Other tangible fixed assets

43
35
8

117
33
84

Intangible fixed assets
Software Other intangible fixed assets

175
175
0

232
231
1

13,787
9,671
394
1,563
52
26
2,051
28

12,316
9,962
223
1,155
50
287
608
28

Other assets Reinsurance balance receivable
Accounts receivable
Uncollected income
Deposits
Suspense payments
Derivatives
Cash collateral paid for financial instruments
Deferred tax assets
Total assets

75

86

509,498

536,808

Note:
The figures for fiscal 2011 have been corrected by a retrospective restatement.

(LIABILITIES)
(Yen in millions)Fiscal Year

Item

2011
(As of March
31, 2012)

2012(As of March
31, 2013)

AmountAmountUnderwriting funds
Outstanding claims
Underwriting reserves

445,595
14,895
430,700

466,407
4,927
461,480

Entrusted reserves

49,06555,127

Other liabilities
Reinsurance balance payable
Corporate taxes payable
Deposits payable
Accrued amounts payable
Derivatives

8,429
6,406
127
4
758
1,130

9,325
6,250
175
5
240
2,653

Reserve for retirement benefits

104

120

Reserve for directors’ retirement benefits

15

14

Reserve for bonus payments

19

21

Reserves under the special law
Reserve for price fluctuation

6
6

5
5

4,630

4,152

507,866

535,175

Net unrealized gains on available-for-salesecurities of earthquake insurance
Total liabilities

Note:
The figures for fiscal 2011 have been corrected by a retrospective restatement.

Retained earnings Legal reserve of retained earnings

Treasury Stock
Total shareholders’ equity
 et unrealized gains on available-for-saleNsecurities Total valuation and translation adjustments
Total net assets
Total liabilities and net assets

1

1

619

624

(5)

(5)

1,615

1,619

16

13

16

13

1,631

1,633

509,498

536,808

Note:
The figures for fiscal 2011 have been corrected by a retrospective restatement.

Notes for fiscal 2012
1. A
 ppraisal standards and method of securities, andmethod of indication(1) O f available-for-sale securities, those to which
the market price is applicable is appraised according to the market price at term end.
(2) O f available-for-sale securities, those to which
the market price is not applicable is appraised
based on cost or write-off cost price using themoving-average method.
(3) W ith respect to the unrealized gain of assets
corresponding to the underwriting reserves andentrusted reserves of earthquake insurance, theamount before tax effect deduction is shown as
an Net unrealized gains on other securities ofearthquake insurance in Liabilities, according to
the pertinent Enforcement Rules of Insurance
Business Act. For other unrealized gains, theamount after tax effect deduction is processed
entirely according to the direct capital injection
method and indicated in Shareholders’ Equity.
The calculation of the sales price is based on
the moving average method.
2. T he appraisal of derivatives is done on the basis ofmarket price.
3. A lthough depreciation of tangible fixed assets is calculated using the declining balance method, buildings (excluding equipment attached to buildings)
that were acquired on and after April 1, 1998 weredepreciated using the straight-line method.

Japan Earthquake Reinsurance Co., Ltd. Annual Report 201341

Changes in accounting policies, which are almost
indistinguishable from changes in accounting estimates:
In accordance with the revision of the Corporate Tax
Act of Japan, starting in the fiscal year under review, we have changed our depreciation method forthe property, plant and equipment we have acquiredsince April 1, 2012 to the method under the revised
act. The effect of this change on our financial statements is immaterial.
4. Softwarefor in-house use that is recorded as an intangible fixed asset is amortized using the straightline method over the usable life (five years).
5. T he conversion of foreign currency assets and liabilities
into Japanese currency is processed according to theaccounting standards for foreign currency transactions.
6. W
 riting standards of reserves(1) Reserve for bad debts
		Reserve for bad debts is written as follows
against losses from bad debts in accordancewith the self-appraisal standard of assets anddepreciation and reserve standards.
		In connection with claims against debtors who
have gone bankrupt legally and formally, including bankruptcy, special liquidation or disposition by suspension of business at a clearing
house, or debtors who are effectively bankrupt,
the rest of any of the claims deducting an estimated amount of disposable mortgage and adeductible amount by guarantee was appropriated for such reserves.
		In connection with the other claims, the rateof bad debts calculated according to past bad
debts and other factors is multiplied by theamount of claims to appropriate for reserves.
		In addition, all claims are written after the finance department appraises the assets, andthe result is audited by the management department independent of the finance department to appropriate the appraisal for reserves.
		There are no assets in the current term that are
to be appropriated for reserves and no reserveis required.
(2) Reserve for retirement benefits		For employees’ retirement and severance benefits, reserve is appropriated according to theretirement allowance liabilities at the end of
the term and the estimated amount of pension

42

assets. The retirement allowance liabilities iscalculated using a simple method on the basisof the allowance to be supplied at the end of
the term for any employee who retires for his/her own reasons.
(3) Reserve for directors’ retirement benefits		For reserve for directors’ retirement benefits, thebenefits to be paid at the end of the term arerecorded according to the relevant in-house rules.
(4) Reserve for bonus payments
		Reserve for bonus payments is calculated according to the standards for the estimated bonuses payable as of the end of the fiscal year
under review.
(5) Reserve for price fluctuation
		To prepare for a loss from price changes ofshares and others, reserve is appropriated according to Article 115, Insurance Business Law.
7. C
 hanges to presentation method
Cash collateral paid for financial instruments
submitted that were included under Other assets(sub-account) of Other assets in the previous fiscal year were independently presented in the fiscal
year under review by applying the appended form
for the Ordinance for Enforcement of the Insurance
Business Act (MOF Ordinance No. 5, 1996), which
was revised in accordance with the Cabinet Office
Ordinance for Partial Revision of the Ordinance for
Enforcement of the Banking Act, etc. (Cabinet Office Ordinance No. 11, March 28, 2013). Cash collateral paid for financial instruments submitted thatwere included under Other assets (sub-account) in
the previous fiscal year amounted to 28 million yen.
8. E rror correction
In the balance sheet for the previous fiscal year, theamount of Risk reserves, an item in Underwriting
reserves, was recorded as 223 million yen short of
the amount that should have been provided, due
to excessive income tax payments. The tax refund
related to interim payments was also recorded as
short the same amount in accounts receivable. As
a result, we claimed for a correction and issued arestatement by recording the estimated refund inaccounts receivable for the beginning of the term
and increasing the balance of underwriting reservesby 223 million yen.
There was no effect on retained earnings due to thecorrection.

Japan Earthquake Reinsurance Co., Ltd. Annual Report 2013

9. F
 inancial instruments and fair values of financial
instruments(1) S ituation of financial instruments
We carry out asset management in preparation forthe payment of reinsurance claims, primarily considering soundness—namely, low price fluctuation
risks, credit risks, and liquidity risks—and also
taking profitability into account.
As a result, our financial assets consist primarilyof domestic and foreign, high-rated, medium-termbonds. We regularly obtain and manage information on fair values and credit information in association with each risk.
Trading in derivatives principally involves foreignexchange forward contracts used to hedge therisks arising from possible changes in exchange
rates for bonds in foreign currencies and is kept
within the scope of actual demand.
(2) F air values of financial instruments
The table below shows the balance sheet amounts
and fair values of financial instruments and thedifferences between them as of March 31, 2013.
(Yen in millions)

Balancesheet
amountFair value

Difference(i) Cash and deposits

25,93825,938–(ii) Call loans

21,137

21,137–(iii) Securities
Available-for-sale securities

476,979

476,979–(2,044)(2,044)–(iv) Derivatives** Derivatives recorded in other assets and other liabilities.
Net claims and debts derived from derivatives represent the net amounts, and items
whose net balance becomes debts are stated in brackets.

Note: Methods for calculating the fair values of financial instruments(i) Cash and deposits
Fair values of cash and deposits are deemed equal to their carrying
values as their fair values and carrying values are similar.
(ii) Call loans
Call loans are settled in the short term, and their fair values are
therefore deemed equal to their carrying values.
(iii) Securities
In principle, the fair values of securities are based on their market
prices, which are reference prices in the trading statistics of theJapan Securities Dealers Association or market prices obtained
from outside vendors or brokers.
(iv) Derivatives
The fair values of derivatives are determined by prices offered bycorrespondent financial institutions.

premiums written and profit from operating theassets.
12. T he accumulated depreciation of tangible fixed assets is 162 million yen.
13. S ee below for a breakdown of outstanding claims.
(Yen in millions)

Outstanding claims (before the deduction ofoutstanding reinsurance claims)

7,672

Outstanding reinsurance claims related to theabove claims

2,744

Net outstanding claims

4,927

14. T
 otal deferred tax assets amount to 96 million yen,while total deferred tax liabilities come to 6 million yen. The amount deducted from deferred tax
assets as a valuation reserve is 4 million yen. The
breakdown of deferred tax assets reveals unpaid
business taxes of 26 million yen, unpaid special
local corporate tax of 19 million yen, reserve forretirement benefits of 37 million yen and reserve
for bonus payments of 7 million yen. The deferred
tax liabilities result primarily from unrealized gainsof 6 million yen on securities.
15. N
 et assets per share are 821.18 yen. The basis forthis calculation is that net assets are 1,633 million yen, net assets accrued from ordinary sharesare 1,633 million yen and the number of ordinary
shares at the end of the term is 1.988 million.
16. N
 o events that could significantly affect assets orincome or loss for the next fiscal years and beyond
have taken place since the last day of the fiscal
year under review.
17. E ach amount is rounded down to the nearest whole
unit.

10. T
 axes are included when preparing accounts for
consumption tax and other items.
11. R
 isk reserves contained in Underwriting reserves
have been deposited based on instructions for the
calculation of underwriting reserves by accumulating the amounts that result from subtracting anamount equivalent to corporate taxes from the net

Japan Earthquake Reinsurance Co., Ltd. Annual Report 201343

2. Statements of income(Yen in millions)

Fiscal Year

2011

2012

(from April 1, 2011
to March 31, 2012)(from April 1, 2012
to March 31, 2013)

Item

AmountOrdinary income

Notes for fiscal 2012
1. S ee below for a breakdown of net premiums written.
(Yen in millions)

Premiums written:

182,895

AmountReinsurance premiums ceded:

89,899286,812110,370

Net premiums written:

92,996

Underwriting income

272,503106,333   Net premiums written

83,671

92,996  Investment income on savings
premiums

3,528

3,369

  Reversal of outstanding claims

100,0239,967   Reversal of underwriting reserves

85,280–Investment income

14,3094,031   Interest and dividend income

7,113

4,589

   Gains on sales of securities

2,364

–

   Gains on derivatives

8,358

–

   Foreign exchange gains

–

2,809

   Other investment income

1

1(3,528)(3,369)–5  Transfer of profit from Investment
income on savings premiums
Other ordinary income
Ordinary expenses

2. S
 ee below for a breakdown of net claims paid.
(Yen in millions)

Claims paid:

55,883Claims recovered:

24,276

Net claims paid:

31,6073. S ee below for a breakdown of the provision of outstanding claims (figures in parentheses are the reversal of outstanding claims).
(Yen in millions)

Provision of outstanding claims(before the deduction of outstanding
reinsurance claims)(18,694)

286,723

110,176

271,872

105,420

Provision of outstanding reinsurance claims
related to the above claims(8,726)   Net claims paid

196,625

31,607

Net provision of outstanding claims(9,967)   Loss adjustment expenses

40,121

4,892  Commissions and brokerage fees

35,12638,141   Provision of underwriting reserves–

30,77910,821

2,865

220

0

–

2,836

10,553

–

48

27

1,074

1,273

2,954

617

Underwriting expenses

Investment expenses   Losses on sales of securities  Losses on derivatives   Foreign exchange losses   Other investment expenses Operating, general and administrative
expenses
Other ordinary expenses   Interest paid

2,954

617

Ordinary profit

89

193

Extraordinary income–0

Reversal of price fluctuation reserves
Extraordinary losses
Losses on disposal fixed assets
Provision of price fluctuation reserves

–

0

0

0

0

0

0

–

Income before taxes

88

194

Income taxes – current

97

199

Income taxes – deferred

(3)

(9)

Total income taxes

93

189

Net income (loss)

(5)

4

Note:
The figures for fiscal 2011 have been corrected by a retrospective restatement.

4. T he interest and dividend income are given below
by category:(Yen in millions)

Deposits:

32

Call loans:

8Interest on cash collateral andother financial instruments submitted:

0

Securities:

4,549

Total:

4,589

5. P aper profit/loss involved in the gains on derivatives
is a loss of 2,044 million yen.
6. Net
income per share is 2.14 yen.
T
 he basis for this calculation is such that net income is 4 million yen, net income accrued from ordinary shares is 4 million yen and the term average
No. of ordinary shares amount to 1.988 million.
7. T he legal effective tax rate at the end of the termis 33.33%, and the corporate tax burden after applying the tax effect is 97.81%. The difference is
explained by the following breakdown: the nondeductible amount of the taxable provision of risk
reserves is 101.10%, the amount of the write-off
carried from publicity expenses related to risk reserves is (36.92%).
8. E
 ach amount is rounded down to the nearest whole
unit.

44

Japan Earthquake Reinsurance Co., Ltd. Annual Report 2013

3. Statements of cash flow
(Yen in millions)

Fiscal Year

Item

2011

2012

(from April 1, 2011
to March 31, 2012)(from April 1, 2012
to March 31, 2013)

AmountAmountNotes
1. R elationship of cash and cash equivalents at theend of the year with the amounts mentioned in therelevant balance sheet item.
(Yen in millions)

Cash flow from operating activities
Net income before income taxes
Depreciation

312

194

(As of March
31, 2012)(As of March
31, 2013)
25,938

95

104

Increase (decrease) in outstanding
claims(100,023)(9,967)

Increase (decrease) in underwriting
reserves(85,280)

30,779Deposits of a depository periodof three months or longer(15,500)(11,000)

Increase (decrease) in entrusted
reserves(451,185)

6,061

Securities other than cash equivalent(448,120)(476,979)

Increase (decrease) in reserve forretirement benefits215

31,79536,075

Increase (decrease) in reserve fordirectors’ retirement benefits

(0)

(1)

Increase (decrease) in reserve forbonus payments

1

1

Increase (decrease) in reserve forprice fluctuation0(0)Interest and dividend income(7,113)(4,589)Losses (gains) on investment insecurities(2,143)0Foreign exchange losses (gains)(2,262)(8,518)Losses (gains) on tangible fixed
assets00Decrease (increase) in other assets(other than investment and financial
activities related)

2,119

(380)

Increase (decrease) in other liabilities(other than investment and financial
activities related)

534

Cash and deposits

17,190Call loans

30,105

21,137

Securities

448,120476,979

Cash and cash equivalents

2. C ash flow in investing activities includes cash flowfrom the investment assets operations in the insurance business.
4. Statement of Changes in Shareholders’ Equity(Yen in millions)

Fiscal Year

Item

2011

2012

(from April 1,
2011
to March 31,
2012)(from April 1,
2012
to March 31,
2013)

AmountAmountShareholder’s equity
Common stock(673)

Balance at the beginning of the period

1,000

1,000
–

Changes during the period

Others(3,955)2,974

Issuance of new stocks–    Subtotal(648,897)

16,001

Total changes

–

–

9,331

5,342

1,000

1,000

1

1
–

Interest and dividends received
Income taxes paid

Balance at the end of the period
Retained earnings

(828)

(160)

(640,394)

21,182(8,000)4,500

Changes during the period

Purchase of securities(237,033)(559,847)

Dividends of surplus–

Proceeds from sales and redemptionof securities

594,644538,680

Total changes

–

–

1

1

17

17

Net cash provided by operating activities
Net decrease (increase) in deposits

Others91–    Total investment assets activities

349,702(16,666)    Total operating activities and    investment assets activities(290,691)

4,516

Acquisition of tangible fixed assets

(4)

(87)

Others(4)(148)

Net cash provided by investing activities

Legal reserve of retained earnings
Balance at the beginning of the period

Cash flow from investing activities

349,693(16,902)

Cash flow in financing activities–– ffect of exchange rate changes on cashEand cash equivalents––

 et increase (decrease) in cash andNcash equivalents(290,700)

4,280

Cash and cash equivalents at the
beginning of the year

322,495

31,795

Cash and cash equivalents at the endof the year

31,79536,075

Balance at the end of the period
Other legal reserve of retained earnings
Special reserves
Balance at the beginning of the period
Changes during the period
Total changes
Balance at the end of the period

–
17

39

39

Special price fluctuation reserves
Balance at the beginning of the period
Changes during the period
Total changes
Balance at the end of the period

–

–

39

39

568

563

Retained earnings brought forward
Balance at the beginning of the periodNote:
The figures for fiscal 2011 have been corrected by a retrospective restatement.

–
17

Changes during the period
Dividends of surplus––

Net income (loss)(5)

4

Total changes
Balance at the end of the period

(5)

4

563

567

Japan Earthquake Reinsurance Co., Ltd. Annual Report 2013

45

(Yen in millions)

Fiscal Year

Item

2011

2012

(from April 1,
2011
to March 31,
2012)(from April 1,
2012
to March 31,
2013)

AmountAmount625

620

Notes:
1. M
 atters related to the types and total number of stocks outstanding and thetypes and number of treasury stock(Stock)Balance asof the endof fiscal
2011

Increase in
fiscal 2012

Decrease in
fiscal 2012

Balance asof the endof fiscal
2012

Ordinarystock

2,000,000––

2,000,000

Total

2,000,000––

2,000,000

Ordinarystock

11,400––11,400Total

11,400––11,400Total retained earnings
Balance at the beginning of the period
Changes during the period

Issuedstock

Dividends of surplus––

Net income (loss)(5)

4

Total changes

(5)

4

620

625

(5)

(5)

2. M
 atters related to stock options or own stock options
Not applicable

Disposal of treasury stock––

Total changes

–

–

3. M
 atters related to dividends
Not applicable

(5)

(5)

1,620

1,615

Balance at the end of the period
Treasury stock
Balance at the beginning of the period
Changes during the period

Balance at the end of the period
Total shareholders’ equity
Balance at the beginning of the period
Changes during the period

Treasurystock

5. Dividend per stock and total assets per employee(Yen in millions)
Division

2010

2011

2012

Issuance of new stocks––

Dividend per stock

Dividends of surplus––

Net income (loss) per stock

Net income (loss)(5)

4

Dividend propensity

–

–

–

Disposal of treasury stock––

Net assets per stock

821.81 yen

820.30 yen

821.18 yen

Total assets per employee

46,164

19,596

19,881

Total changes

(5)

4

1,615

1,619

14

16

Net changes other than shareholders’equity2(2)

Total changes

2

(2)

16

13

14

16

2

(2)

Balance at the end of the period
Valuation and translation adjustments
Net unrealized gains on available-for-salesecurities
Balance at the beginning of the period
Changes during the period

Balance at the end of the period

Balance at the beginning of the period
Changes during the period
Net changes other than shareholders’equityTotal changes

2

(2)

16

13

1,634

1,631

Issuance of new stocks––

Dividends of surplus––

Net income (loss)(5)

4

Disposal of treasury stock

Balance at the end of the period
Total net assets
Balance at the beginning of the period
Changes during the period––

Net changes other than shareholders’equity2(2)

Total changes

(3)

1

1,631

1,633

Balance at the end of the period

–

–

–

1.80 yen(2.52 yen)

2.14 yen

Notes:
1. N
 et income per share comes from net income / term average No. of stocks
2. T he number of treasury stock is deducted from producing information per stock
3. T he total assets per employee come from the total assets at the end of
the term / No. of employees at the end of the term.
4. T he figures for fiscal 2011 have been corrected by a retrospective restatement.

Total valuation and translation
adjustments

46

Fiscal Year

Japan Earthquake Reinsurance Co., Ltd. Annual Report 2013

5. Balance Current Maturity of securities by categoryw Details of assets and liabilities

As of the end of fiscal 2011
1.	Deposits(Yen in millions)
DivisionYear

As of the endof fiscal 2010

As of the endof fiscal 2011

As of the endof fiscal 2012

Deposits

10,40917,19025,938

Ordinary deposits

2,909

1,690

8,908

Time deposits

7,500

15,50017,0302.	Average balance and trading amount of commodity
securities
Not applicable
3.	Balance of securities by category and percentage
distribution(Yen in millions)



Year

As of the end of
fiscal 2010
Percentage
distribution(%)

Division
Government
bonds

As of the end of
fiscal 2011

414,095

As of the end of
fiscal 2012

Percentage
distribution(%)

51.4 248,634

Percentage
distribution(%)

55.5 328,071


5 over
up to
7
years

(Yen in millions)

7 over
up to
10
years

Division

Up to
1 year

1 overup to
3 years

3 overup to
5 years

Government
bonds

150,938

32,44323,374 16,351 24,495

Municipal
bonds

–

–

–

–

Corporatebonds

21,647

18,153

104

1,506

–

–

–

–

Foreignsecurities

45,19764,21936,307 12,350–– 158,073

Othersecurities

–

–

–

–

–

–

–

Loan
receivablein securities

–

–

–

–

–

–

–

59,786 30,208 24,495

1,031

448,120

StocksTotal

217,783 114,815

As of the end of fiscal 2012

68.8
Division–

Total

1,031 248,634
–

–

–

–

41,411–––
5 over
up to
7
years

Over
10
years

(Yen in millions)

7 over
up to
10
years

Up to
1 year

1 overup to
3 years

3 overup to
5 years

210,396

26,39245,992 27,203 18,085

Over
10
years

Total

Municipal
bonds

–

–

–

–

–

–

Corporatebonds

75,503

9.4

41,411

9.2

20,065

4.2

–

–

–

–

–

–

35.3 128,842

27.0

Municipal
bonds

–

–

–

–

–

–

–

Corporatebonds

17,655

2,410

–

–

–

–

20,065––

StocksForeignsecurities

315,624

39.2 158,073

Government
bonds

Other
securities

–

–

–

–

–

–

Loan
receivable insecurities

–

–

–

–

–

–

–

–

Foreignsecurities

39,581

48,224805,223100.0

448,120100.0

476,979

100.0

Other
securities–

Loan
receivablein securities

Total

Stocks

4. Yield on securities held(%)


Division

Fiscal Year

2010

2011

2012

0.95

0.83

0.53

–

–

–

2.41

2.19

1.91

–

–

–

1.55

1.43

0.96

1.04

1.19

0.53

–

–

–

Foreign securities

2.36

2.74

1.91

Other securities(11.01)

–

–

1.55

1.87

0.96

0.60

0.66

0.51

–

–

–

Foreign securities

1.02

1.61

1.59

Other securities(2.77)

–

–

Total

0.77

1.08

0.85

Total

– 328,071–––

28,613 12,422–– 128,842

–

–

–

–

–

–

–

–

–

–

–

–

–

267,633

77,02774,605 39,626 18,085–

476,979

Investment assets yield (income yield)
Public & corporate bonds
StocksForeign securities
Other securities
Total

Assets management yield (realized yield)
Public & corporate bonds
Stocks

Total

Market-price based overall yield (for reference)
Public & corporate bonds
Stocks

6.	Amount of stocks held by type of business
There are no stocks.
7.	Loans
There are no notes with the following items; amountof stocks held by type of business, balance current
maturity of loan by remaining life, balance ofloans by type of collateral secured, balance andpercentage distribution of loan by designated use,balance of loan by industry and its ratio to the total,and balance of amortization of loans.
8.	Risk management credits
Not applicable

Note:
Public & corporate bonds include government bonds, municipal bonds, andcorporate bonds.

Japan Earthquake Reinsurance Co., Ltd. Annual Report 201347

9.	Present conditions of loans involving trust withcontact for replacement of losses
Not applicable

16. Detailed listing of liability reserves

10. Self-appraisal of assets
We categorize assets in accordance with the level ofrisk associated with collection and the level of riskof a loss in the value by carrying out self-appraisal
and individually examining holding assets. There
were no category assets (II through IV categories)
as at the end of March 2013.

Balance asof the end of
fiscal 2010

11. Tangible fixed assets by category(Yen in millions)
DivisionYear

As of the endof fiscal 2010Land

As of the endof fiscal 2011––

As of the endof fiscal 2012–

for underwriting

–

–

–

for investment

–

–

–

Buildings

37

35

33

for underwriting

37

35

33

for investment

–

–

–

–

–

–

–

–

–

Construction in progressfor underwriting
for investment

–

–

–

Total of property

37

35

33

for underwriting

37

35

33

for investment

–

–

–

Other tangible fixed assets

14

8

84

Total

52

43

117

12. Unearned claims paid
Not applicable
13. Special accountNot applicable(Yen in millions)Year As of the endof fiscal 2010

As of the endof fiscal 2011

As of the endof fiscal 2012

Outstanding claims

114,918

14,895

4,927

Underwriting reserves

515,981430,700

461,480

Risk reserves

424,401

331,499352,830

Unearned premium
reserves

90,054

97,686

107,140

Repayment reserves

1,524

1,514

1,509

630,899445,595

466,407

Total(Yen in millions)
Division

–

–

–

–

Reserve for individual bad debts

–

–

–

–

Reserve for specificforeign securities

–

–

–

–

Reserve for retirement benefits

102

18

15

104

Reserve for directors’ retirement
benefits

15

4

4

15

Reserve for bonus
payments

17

19

17

19

Reserve for pricefluctuation
Total

5

0

–

6

141

41

37

146

As of the end of Fiscal 2012
(Yen in millions)
Division

Balance asof the end of
fiscal 2011

Balance
Decrease
as of the end of
in fiscal 2012fiscal 2012

Increase in
fiscal 2012

Reserve for ordinary
bad debts

–

–

–

–

Reserve for individual bad debts

–

–

–

–

Reserve for specificforeign securities

–

–

–

–

Reserve for retirement benefits

104

20

4

120

Reserve for directors’ retirement
benefits

15

4

5

14

Reserve for bonus
payments

19

21

19

21

Reserve for pricefluctuation

6

–

0

5

146

45

30

161

17. Detailed listing of shareholders’ equity
Please refer to the statement of changes in shareholders’ equity on page 45.

Note:
The figures for fiscal 2011 have been corrected by a retrospective restatement.

15. Level of underwriting reserves
There is no target contact.

48

Balance
Decrease
as of the end of
in fiscal 2011
fiscal 2011

Increase in
fiscal 2011

Reserve for ordinary
bad debts

Total

14.	Underwriting fundsDivision

As of the end of Fiscal 2011

Japan Earthquake Reinsurance Co., Ltd. Annual Report 2013

7. D
 epreciation expenses by category

e Income and loss details

As of the end of Fiscal 2011

1. Gains on sales of securities by category(Yen in millions)(Yen in millions)

Division

Fiscal Year

2010

2011

2012

Type of asset

Acquisition
cost

Government bonds

1,092

1,116

–

Foreign securities

408

1,247

–

Tangible fixed assets

1,501

2,364

–

Buildings

Total

for
underwriting

2. Losses on sales of securities by category(Yen in millions)

Division

Fiscal Year

Government bonds

2010

2011

920

Foreign securities
Total

2012

2

65

35

65.0

101

2

65

35

65.0

for
investment

–

–

–

–

–

Others

97

10

89

8

91.6

Total

199

13

155

43

78.1

–

638

75

0

Software

411

82

236

175

57.3

1,558

220

0

Other
intangible
fixed assets

0

0

0

0

95.6

Total

412

82

236

175

57.4

Grand total

611

95

391

219

64.1

(Yen in millions)Type of asset

5. Losses on disposal of fixed assets(Yen in millions)2010

Intangible fixed assets

As of the end of Fiscal 2012

4. Gains on disposal of fixed assets
Not applicable

Fiscal Year

101

145

3. Losses on valuation of securities
Not applicable

Division

Rate of
Deprecia- Aggregated Balance as
aggregatedtion indeprecia- the end ofdepreciafiscal 2011
tions
fiscal 2011
tions %

2011

2012

Tangible fixed assets
Buildings

Land

–

–

–

Buildings–––

Other tangible fixed assets

–

0

0

Total

–

0

0

6. Business expenses (inclusive of loss adjustment)

Rate of
Deprecia- Aggregated Balance as
Acquisition
aggregatedtion indeprecia- the end of
cost
depreciafiscal 2012tions
fiscal 2012
tions %
101

2

68

33

66.9

for
underwriting

101

2

68

33

66.9

for
investment

–

–

–

–

–

Others

179

10

94

84

52.9

Total

280

12

162

117

58.0

Intangible fixed assets(Yen in millions)

Software

558

91

327

231

58.7

2012

1

0

0

1

12.2

Personnel expenses

350

11,636

1,031

Other
intangible
fixed assets

Non personnel expenses

702

29,330

4,881

Total

560

91

328

232

58.5

Taxes

196

228

252

Grand total

841

104

490

350

58.3

Commissions and brokeragefees

31,23635,12638,141

Total

32,48576,32244,307

Division

Fiscal Year

2010

2011

Note:
Business expenses are the total of loss adjustment expense, operating,general and administrative expenses, commissions and brokerage fees
as shown in the income statement.

Japan Earthquake Reinsurance Co., Ltd. Annual Report 201349

3. Money trust
Not applicabler Information about fair values, etc.
1. Matters related to financial instruments
For matters related to the status of financial instruments and matters related to the fair values of financial instruments, please refer to Note 9 on thebalance sheet (page 43).

4. Derivative transactions(i) Derivative transactions to which hedge accounting is
not applied(a) Currency related
At the end of fiscal 2011
(Yen in millions)

2. Securities(i) Securities held for trading purposes
Not applicable

Contract amount

Over-the-counter transactions(ii) Securities to be held to maturity
Not applicable Forward foreign exchange contracts   Short positions    US dollar(iii) Available-for-sale securities
At the end of fiscal 2011
Division

Securities withacquisition costhigher than thatposted on thebalance sheet

Securities withacquisition cost
not higher thanthat posted on thebalance sheet

Type
Public &corporatebonds

Acquisitioncost    Euro(Yen in millions)Book value

194,534

196,554––

93,178

94,842

1,663

–

–

–

Subtotal

287,712291,396

3,683

Public &corporatebonds

93,58293,491

(90)

–

–

–

73,13563,231(9,903)

OthersStocksForeignsecurities
Others

Total

–

–

–

166,717

156,723(9,994)454,430

448,120(6,310)At the end of fiscal 2012

Securities withacquisition costhigher than thatposted on thebalance sheet

Securities withacquisition cost
not higher thanthat posted on thebalance sheet

Type
Public &corporatebonds(Yen in millions)

Acquisition
cost

Book value

199,878

201,819

1,941

–

–

–

98,536

101,028

2,492

StocksForeignsecurities
Others–Subtotal

298,414302,848

4,433

Public &corporatebonds

146,373

146,317(56)

Stocks–––30,46327,813(2,649)–––176,837

174,131(2,705)475,251476,979

1,727

Others

Total

(15)
979

963

963

Total

At the end of fiscal 2012

(Yen in millions)Contract amount

Appraisal
profit andloss

Marketprice

1 year or
longerones

Over-the-counter transactions Forward foreign exchange contracts   Short positions    US dollar

1,644

–

(328)

(328)

    Euro

30,272921(1,687)(1,687)(2,016)(2,016)

Total

Notes:
1. Currency related derivative transactions other than the above areomitted as there is no applicable item.
2. Calculating a market price: Foreign exchange rates depend on futuresquotations.

(b) Credit related
At the end of fiscal 2011

(Yen in millions)Contract amountType–

Subtotal(15)979

Difference–

Foreignsecurities

–
8,600

2,020

–

Subtotal

Division

Difference

394
53,410Type

StocksForeignsecurities

Appraisal
profit andloss

Marketprice

1 year or
longerones

Type

1 year or
longerones

Marketprice

Appraisal
profit and
loss

3,952

(42)

(42)

(42)

(42)

Over-the-counter transactions
Long position in credit
derivative transactions

3,952

Total

At the end of fiscal 2012

(Yen in millions)Contract amountType

1 year or
longerones

Marketprice

Appraisal
profit and
loss

–

(28)

(28)

(28)

(28)

Over-the-counter transactions
Long position in credit
derivative transactions
Total

4,346

Note:
Calculating a market price: Based on values presented by relationshipfinancial institution.

(iv) Available-for-sale securities sold at the term
(Yen in millions)Fiscal 201150

Fiscal 2012

Type

Sales
price

Total ofprofit on
sale

Total ofloss on
sale

Sales
price

Total ofprofit on
sale

Total ofloss on
sale

Total

273,998

2,364

220

100

–

0

(ii) Derivative transactions to which hedge accounting
is applied
Not applicable

Japan Earthquake Reinsurance Co., Ltd. Annual Report 2013

Contents

1

Message from the President

2Japan Earthquake Reinsurance Co., Ltd.

10

Topics12

Earthquake Insurance in Japan

20

Reinsurance of Earthquake Insurance

24

Response to the Great East Japan Earthquake

31

Statistics

34

Financial Section

51

Corporate Data

Corporate data (as of March 31, 2013)
Established:

May 30, 1966

Capital:1 billion yen

Total assets:

536.8 billion yen

No. of employees:

27

Address:

Hulic Kobuna-cho Building,
8-1, Nihonbashi-kobuna-cho,
Chuo-ku, Tokyo Japan 103-0024

Phone:

03-3664-6078

URL:

http://www.nihonjishin.co.jp/

ANNUAL REPORT
2013
Introduction to Earthquake Reinsurance in Japan

Japan Earthquake Reinsurance Co., Ltd.