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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 20-F



| |  | (Mark One)
| |  | ----------

|  |  |                                                                                               
|- |  | ----------------------------------------------------------------------------------------------
|o |  | REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE
SECURITIES EXCHANGE ACT OF 1934

OR

|  |  |                                                                                                                              
|- |  | -----------------------------------------------------------------------------------------------------------------------------
|x |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended March 31, 2004

OR

|  |  |                                                                                                                                                             
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------
|o |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________________ to ________________

Commission file number: 0-31376

Kabushiki Kaisha Millea Holdings

(Exact name of Registrant as specified in its charter)


Millea Holdings, Inc.

(Translation of Registrant's name into English)


Japan
(Jurisdiction of incorporation or organization)

Otemachi First Square,
West 10F, 5-1, Otemachi 1-chome,
Chiyoda-ku, Tokyo 100-0004, Japan
(Address of principal executive offices)



| |  | Securities registered or to be registered pursuant to Section 12(b) of the Act:
| |  | -------------------------------------------------------------------------------

None



| |  | Securities registered or to be registered pursuant to Section 12(g) of the Act:
| |  | -------------------------------------------------------------------------------

Common Stock
American Depositary Shares represented by American Depositary Receipts



| |  | Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
| |  | ------------------------------------------------------------------------------------------

Common Stock



| |  | Indicate the number of outstanding shares of each of the issuer's classes of capital or common stock as of the close of the period covered by the annual report.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------

Common Stock: 1,788,056 shares at March 31, 2004



| |  | Indicate by check mark whether the
registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

x Yes       o No



| |  | Indicate by check mark which financial statement item the registrant has elected to follow.
| |  | -------------------------------------------------------------------------------------------

o Item 17       x Item 18



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TABLE OF CONTENTS PageForward-Looking Statements
    
    
    3Selected Financial Data
    
    
    4Risk Factors
    
    
    6Exchange Rates
    
    
    12Market Price Information
    
    
    13Dividend Policy
    
    
    14Major Shareholders
    
    
    14Business
    
    
    16Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    40Directors and Corporate Auditors
    
    
    73The Japanese Insurance Industry
    
    
    76Regulation
    
    
    78Description of Common Stock
    
    
    82Taxation
    
    
    88Controls and Procedures
    
    
    91Code of Ethics
    
    
    91Principal Accountant Fees and Services
    
    
    91Exemptions from Certain Nasdaq Corporate Governance Rules
    
    
    92Where You Can Find More Information
    
    
    94Index to Financial Statements
    
    
    F-1List of ExhibitsCross Reference Index for Form 20-FSignaturesEX-1.1 ARTICLES OF INCORPORATION OF MILLEA HOLDINGS, INC.EX-1.2 SHARE HANDLING REGULATIONSEX-7 A STATEMENT EXPLAINING HOW RATIOS IN THE ANNUAL REPORT WERE CALCULATEDEX-8 SUBSIDIARIES OF MILLEA HOLDINGS, INC.EX-12 CERTIFICATIONS required by Rule 13a-14(a)EX-13 CERTIFICATION required by Rule 13a-14(b)
  We were formed on April 2, 2002 as the holding company for The Tokio
Marine and Fire Insurance Company, Limited and The Nichido Fire and Marine
Insurance Company, Limited in a statutory share transfer under Japanese law. In
connection with our formation and the completion of the statutory share
transfer:  
    
    Tokio Marine and Nichido Fire became our wholly owned subsidiaries;
    
    Tokio Marine de-registered its shares of common stock and American
depositary shares from registration under Section 12(g) of the U.S.
Securities Exchange Act of 1934, as amended, or the Exchange Act, and
terminated its ongoing reporting obligations under Section 12(g) and
Section 15(d) of the Exchange Act; and
    
    Our shares of common stock and American depositary shares were
registered under Section 12(g) of the Exchange Act (Commission file
number 0-31376). For a more detailed description of the background to our formation, you
should refer to Business  Group Overview  Formation of Millea Holdings in
this annual report. As used in this annual report, references to Millea Holdings, we, us
and our are either to (1) Millea Holdings, Inc., (2) Millea Holdings, Inc.
and its direct and indirect subsidiaries, including Tokio Marine, Nichido Fire
and Tokio Marine & Nichido Life, or (3) Tokio Marine, Nichido Fire and/or other
operating subsidiaries of Millea Holdings, Inc., as the context may require;
references to Tokio Marine are to The Tokio Marine and Fire Insurance
Company, Limited; references to Nichido Fire are to The Nichido Fire and
Marine Insurance Company, Limited; and references to Tokio Marine & Nichido
Life are to Tokio Marine & Nichido Life Insurance Co., Ltd. Unless the context
otherwise requires, references in this annual report to the business or
financial results of Tokio Marine refer to those of Tokio Marine and its
consolidated subsidiaries, references to the business or financial results of
Nichido Fire refer to those of Nichido Fire and its consolidated subsidiaries
and references to the business or financial results of Tokio Marine & Nichido Life refer to
those of Tokio Marine & Nichido Life. 2




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As used in this annual report, dollar or $ means the lawful currency
of the United States of America, and yen or ¥ means the lawful currency of
Japan. As used in this annual report, U.S. GAAP means accounting principles
generally accepted in the United States of America, and Japanese GAAP means
accounting principles generally accepted in Japan. In tables appearing in this annual report, figures may not add up to
totals due to rounding. 
 FORWARD-LOOKING STATEMENTS This annual report contains forward-looking statements that are based on
our current expectations, intentions, assumptions, estimates and projections
about our businesses, operations, strategies and plans, about the insurance
industry, and about capital markets around the world. Generally, these
forward-looking statements can be identified by the use of forward-looking
terminology such as may, will, expect, anticipate, estimate, plan,
intend or similar words. These statements discuss future expectations,
identify strategies, contain projections of results of operations or financial
condition, or state other forward-looking information. These forward-looking
statements are subject to various risks and uncertainties. Known and unknown
risks, uncertainties and other factors could cause the actual results to differ
materially from those contained in any forward-looking statement. We cannot
promise that the expectations expressed in these forward-looking statements
will turn out to be correct. Our actual results could be materially different
from and worse than our stated expectations. Important risks and factors that
could cause actual results to be materially different from those expectations
are set forth in Risk Factors and elsewhere in this annual report. 3




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SELECTED FINANCIAL DATA The following selected consolidated financial data of Millea Holdings and
its subsidiaries as of and for each of the five years ended March 31, 2004 are
derived from the audited U.S. GAAP consolidated financial statements of Millea
Holdings for those periods. You should read the information below in
conjunction with the U.S. GAAP consolidated financial statements of Millea
Holdings, including the related notes, included elsewhere in this annual
report. As of and for the year ended March 31,2004(1)
    
    2003(1)
    
    2002(1)
    
    2001(1)
    
    2000(1)(yen in millions, except share numbers, per share data and percentages)Statement of income data:Net premiums written
    
    ¥
    1,945,246
    
    
    ¥
    1,898,557
    
    
    ¥
    1,381,483
    
    
    ¥
    1,323,907
    
    
    ¥
    1,297,984Premiums earned
    
    
    1,860,203
    
    
    
    1,760,968
    
    
    
    1,342,962
    
    
    
    1,310,739
    
    
    
    1,281,548Life premiums
    
    
    247,800
    
    
    
    262,486
    
    
    
    209,208
    
    
    
    162,905
    
    
    
    130,128Net investment income
    
    
    126,173
    
    
    
    108,311
    
    
    
    104,681
    
    
    
    127,852
    
    
    
    143,686Total operating income
    
    
    2,193,566
    
    
    
    2,178,454
    
    
    
    1,648,512
    
    
    
    1,657,638
    
    
    
    1,578,225Total operating costs and expenses
    
    
    2,041,299
    
    
    
    1,977,146
    
    
    
    1,539,844
    
    
    
    1,524,604
    
    
    
    1,459,136Income before extraordinary items
and cumulative effect of
accounting changes
    
    
    102,882
    
    
    
    129,694
    
    
    
    75,252
    
    
    
    88,675
    
    
    
    81,815Extraordinary items(2)
    
    
    
    
    
    
    248,323
    
    
    
    
    
    
    
    
    
    
    
    Cumulative effect of accounting
changes, net of tax(3)
    
    
    
    
    
    
    
    
    
    
    85,465
    
    
    
    
    
    
    
    Net income
    
    
    102,882
    
    
    
    378,017
    
    
    
    160,717
    
    
    
    88,675
    
    
    
    81,815Balance sheet data:Total investments
    
    ¥
    9,393,222
    
    
    ¥
    8,345,203
    
    
    ¥
    6,628,825
    
    
    ¥
    6,817,944
    
    
    ¥
    6,778,995Total assets
    
    
    12,200,373
    
    
    
    10,893,363
    
    
    
    8,559,177
    
    
    
    8,216,741
    
    
    
    8,174,325Total stockholders equity
    
    
    3,408,351
    
    
    
    2,824,316
    
    
    
    2,509,694
    
    
    
    2,586,544
    
    
    
    2,661,770Common stock
    
    
    150,000
    
    
    
    150,000
    
    
    
    101,995
    
    
    
    101,995
    
    
    
    101,995Number of shares issued
(in thousands)
    
    
    1,857
    .05
    
    
    1,857
    .05
    
    
    1,549,692
    
    
    
    1,549,692
    
    
    
    1,549,692Number of shares held as treasury
stock (in thousands)
    
    
    68
    .99
    
    
    7
    .90(4)
    
    
    
    
    
    
    
    
    
    
    Per share data(5):Net income  basic and diluted
    
    ¥
    56,457
    
    
    ¥
    203,558
    
    
    ¥
    103,709
    
    
    ¥
    57,221
    
    
    ¥
    52,794Cash
dividends declared(6)
    
    ¥
    11,000
    
    
    ¥
    10,000
    
    
    ¥
    8,500
    
    
    ¥
    8,500
    
    
    ¥
    8,500$
    100
    .52
    
    $
    83
    .42
    
    $
    70
    .92
    
    $
    68
    .15
    
    $
    80
    .08Key ratios(7):Net loss ratio
    
    
    56
    .4%
    
    
    54
    .2%
    
    
    54
    .9%
    
    
    59
    .5%
    
    
    58
    .0%Combined loss and expense ratios
    
    
    92
    .6%
    
    
    91
    .7%
    
    
    94
    .3%
    
    
    99
    .8%
    
    
    98
    .8%
   (1)
    
    Our U.S. GAAP consolidated financial statements for the fiscal years
ended March 31, 2004 and 2003, from which some of the data in this table
are derived, reflect the inclusion in those financial statements of the
results of operations and financial position of Nichido Fire and its
consolidated subsidiaries from and after the date of our formation on
April 2, 2002. Accordingly, the amounts shown in this table for the fiscal
years ended March 31, 2004 and 2003 are not directly comparable to the
amounts shown for prior fiscal years. See Managements Discussion and
Analysis of Financial Condition and Results of Operations  Overview 
Business Combination.(2)
    
    Extraordinary items represent unallocated negative goodwill arising from
the business combination with Nichido Fire. See Managements Discussion
and Analysis of Financial Condition and Results of Operations  Overview 
Business Combination. 4




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(3)
    
    In accordance with the adoption of Statement of Financial Accounting
Standards No. 133, Accounting for Derivative Instruments and Hedging
Activities, as amended, we recognized Cumulative effect of accounting
changes, net of tax for the fiscal year ended March 31, 2002. See note
1(h) to our consolidated financial statements.(4)
    
    Includes shares held by our subsidiaries as of March 31, 2003.(5)
    
    In connection with our formation, each 1,000 shares of Tokio Marine
common stock were exchanged for one share of our common stock. See
Business  Group Overview  Formation of Millea Holdings. To facilitate
comparability of the per share data from year to year, the per share data
for the years ended March 31, 2003 and 2004 are calculated based on 1.00
of our shares, while the per share data for the years ended March 31,
2002, 2001 and 2000 are calculated based on 1,000 of Tokio Marines
shares. The per share data are calculated using the weighted average
number of shares outstanding for the period.(6)
    
    The U.S. dollar amounts represent translations of the Japanese yen
amounts at the noon buying rates for Japanese yen per $1.00 in New York
City for cable transfers in foreign currencies as certified for customs
purposes by the Federal Reserve Bank of New York in effect on the
respective dividend payment dates.(7)
    
    The key ratios relate to property and casualty insurance only. The net
loss ratio is calculated by dividing the losses incurred by the premiums
earned. The combined ratio is the sum of the ratio of loss and loss
adjustment expenses incurred to premiums earned and the ratio of
underwriting and administrative expenses incurred to premiums written. A
combined ratio under 100% represents an underwriting profit and over 100%
represents an underwriting loss. 5




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RISK FACTORS If you own our securities, you should carefully consider the risks
described below. Our business, operating results and financial condition could
be materially adversely affected by any of these risks. In addition, this annual report contains forward-looking statements that
involve risks and uncertainties. Our actual results could differ materially
from those anticipated in these forward-looking statements as a result of
certain factors, including the risks described below and elsewhere in this
annual report. Risks Relating to Our Business Weak economic conditions in Japan may adversely affect our financial condition
and results of operations. We derive most of our insurance underwriting revenues from Japan. In
addition, a substantial majority of the investments in our investment portfolio
are invested in Japanese equity securities, bonds and loans. Accordingly, our
financial condition and results of operations are very dependent on economic
conditions in Japan. The Japanese economy has experienced a significant downturn since the
early 1990s. The Nikkei Stock Average, which is one of the major benchmarks for
equity prices in Japan, reached its lowest level in twenty years in April,
2003. While economic conditions improved in the year ended March 31, 2004 and
equity prices have risen since late April 2003, the Japanese economy remains
unstable and there continues to be uncertainty surrounding the economic
environment. Despite the Japanese governments announced plans to implement fiscal
recovery programs and other measures aimed at improving the economy, the
current economic climate in Japan may not improve significantly in the near
future. Any weakness in the Japanese economy could have a significant impact on
our financial condition and results of operations. A decline in the Japanese stock market, and other economic factors, may
adversely affect our results of operations and financial condition. We invest our policyholders premiums in a portfolio of assets, including
Japanese stocks. As of March 31, 2004, equity securities available for sale
represented approximately 36.8% of the value of our total investments other
than investments in related parties. The market values of these equity
securities are inherently volatile and, despite an increase in equity prices in
Japan since late April 2003, have generally been declining in recent years. We
intend to hold our equity investments for the long term, but we may incur
losses on our equity securities portfolio if the Japanese stock market again
experiences declines or if other economic factors cause the value of our equity
securities to decline. A decrease in the market value of these equity
securities could have a significant negative impact on our financial condition
and results of operations. Fluctuations in interest rates may adversely affect our results of operations. We are subject to interest rate risk due to our investments in fixed
income instruments and derivatives as well as deposit-type insurance and
long-term insurance liabilities. As of March 31, 2004, fixed income instruments
represented approximately 46.4% of the value of our total investments other
than investments in related parties. An increase in interest rates decreases
the value of our fixed income portfolio and thereby adversely affects our
financial condition. An increase in interest rates also decreases the value of
our interest rate derivatives positions and thereby adversely affects our
results of operations. However, even though the current value of our fixed income portfolios and
derivatives positions would decrease with an increase in interest rates, such
decrease would be expected to be more than offset by a decrease in the value of
our deposit-type insurance and long-term insurance liabilities. On the other
hand, a decrease in interest rates may adversely affect our financial position
because the amount of increase in the current value of our liabilities would be
expected to exceed the amount of increase in the current value of our fixed
income portfolio and derivatives positions. 6




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Despite our hedging and other risk management activities to limit our
exposure to changes in interest rates, we still maintain exposure to interest
rate risk. See Managements Discussion and Analysis of Financial Condition and
Result of Operations  Quantitative and Qualitative Disclosures about Market
Risk. Defaults in our fixed income and loan portfolios may adversely affect our
results of operations and financial condition. Issuers of fixed income instruments and loan borrowers have defaulted and
may continue to default on principal and interest payments with respect to
fixed income instruments and loans we hold. Economic sluggishness, a decline of
equity market prices or real estate prices in Japan, an increase in the number
of insolvency procedures in Japan or a combination of these events or other
factors may increase defaults by issuers or borrowers. A continuation of, or an
increase in, defaults may require us to record losses on our fixed income and
loan portfolios. Our foreign assets and liabilities are exposed to foreign currency
fluctuations. We are holding assets and liabilities denominated in foreign currencies
such as the U.S. dollar, the euro and the pound sterling. A decrease in the
fair value of assets or an increase in the fair value of liabilities as a
result of foreign currency fluctuations could adversely affect our financial
position. Fluctuations in foreign exchange rates also create foreign currency
translation gains or losses. Japan is prone to natural disasters that can result in substantial claims under
non-life insurance policies. Japan is subject to earthquakes, typhoons, windstorms, volcanic eruptions
and other types of natural disasters, the frequency and severity of which are
inherently unpredictable. Over the past several years, changing weather
patterns and climatic conditions, such as global warming, have added to the
unpredictability and frequency of natural disasters in certain parts of the
world and created additional uncertainty as to future trends and exposures.
These natural disasters can have a serious impact on property and casualty
insurers, depending on the frequency, nature and scope of the disaster, the
amount of insurance coverage that the insurer has written in respect of the
disaster, the amount of claims for losses, the timing of claims, and the extent
to which the insurers liability is covered by reinsurance. In order to
mitigate the effect of disasters, we set our premium rates at levels which we
believe are adequate to accommodate the effect of disasters, and cede certain
of the relevant risks to reinsurers under reinsurance policies. However, the
occurrence of a natural disaster the severity of which we did not predict, or
for which we were not adequately reinsured, could significantly affect our
financial position and results of operations. In addition, Japan has been hit
by more severe typhoons in the first six months of this current fiscal year
than in the same period in the previous years and therefore our financial
position and results of operations for the year ending March 31, 2005 could be
significantly affected. We may be required to augment our reserves in case of unforeseen losses. The insurance business is unlike manufacturing and most other business in
that, at the time of a sale, when the insurance policy is written and the
premium is paid, the cost of sale or the payment of a claim for a loss under
the insurance policy is not yet conclusively determined. Losses may occur whose
type or magnitude was not foreseen by the insurance company or the insurance
industry generally at the time the insurance policies were written. If this
type of deficiency arises with respect to our insurance liability reserves, we
would have to augment our reserves or otherwise incur a charge to earnings,
which in turn could have a material adverse effect on our results of
operations. Historically, Japanese insurance companies have not experienced
these unforeseen losses, unlike insurance companies in other countries. For
example, the U.S. insurance industry experienced significant losses with
respect to unexpected claims resulting from the harmful effects of asbestos
use. Our loss reserves could substantially increase if similar claims are made
against our insurance policies for risks which we did not anticipate. Disasters such as typhoons and earthquakes that affect broad areas could
result in an unexpected increase of claims for loss under insurance policies
and increase our demand for liquidity. As a result, we may be forced to raise
capital at a higher interest rate or sell assets at a lower price than we
otherwise would, which could adversely affect our financial condition. 7




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Our financial results may be materially adversely affected by unpredictable
events. Our business, results of operations and financial condition may be
materially adversely affected by unpredictable events and their continuous
effects. Unpredictable events include single or multiple man-made or natural
events that, among other things, cause unexpectedly large market price
movements, increases in claims or deterioration of economic conditions of
certain countries, such as the terrorist attack on the United States on
September 11, 2001 and the outbreak of Severe Acute Respiratory Syndrome, or
SARS, in Asia in 2003. We are subject to risks associated with reinsurance. Like many other non-life insurance companies, each of Tokio Marine and
Nichido Fire uses reinsurance to provide greater capacity to write larger
policies, and to control its exposure to extraordinary losses or catastrophes.
Reinsurance is a form of insurance that insurance companies buy for their own
protection. An insurance company, referred to as a reinsured, reduces its
possible maximum loss on risks by giving, or ceding, a portion of its liability
to another insurance company, referred to as a reinsurer. Reinsurance is
subject to prevailing market conditions, both in terms of price, which could
affect our profitability, and in terms of availability, which could affect our
ability to offer insurance. In addition, we are subject to credit risk with
respect to our ability to recover amounts due from our reinsurers, as the
ceding of reinsurance does not relieve us of our liability as the direct
insurer to policyholders. Deregulation, consolidation and the entry of new competitors has intensified
competition in the Japanese insurance industry. Japans current Insurance Business Law was adopted in May 1995 and enacted
in April 1996. The changes from the old Insurance Business Law include
provisions designed to deregulate and increase competition in the life and
non-life insurance businesses in Japan, including a provision permitting life
insurance companies and non-life insurance companies to enter each others
business through subsidiaries. In January 2001, the entry of life and non-life
insurance companies through subsidiaries into the third sector insurance
business, such as personal accident, sickness and nursing-care insurance, was
fully allowed. Further deregulation in July 2001 allowed life and non-life
insurance companies to enter the third sector insurance business directly.
Also, an amendment to the Law Concerning the Non-Life Insurance Rating
Organization in 1998 has intensified competition in the non-life insurance
industry in Japan by allowing companies to set their own premium rates. These
measures are expected to further increase competition. This liberalization has also resulted in increased consolidation among
non-life insurance companies and the formation of business alliances among
non-life and life insurance companies. These groupings currently offer similar
insurance products and increasingly seek to compete on the basis of lower
premium rates. See Business  Competition. In addition, we face intensified competition in premium rates resulting
from the entry into the Japanese insurance market by foreign insurance
companies and by companies who currently engage in non-insurance business
activities. These foreign insurance companies include some with global
operations. These new entrants into the Japanese non-life insurance market are
making efforts to expand their market share in areas by offering low premium
rates and using direct marketing channels instead of traditional Japanese
insurance agency channels. Our business may be adversely affected by negative developments with respect to
other Japanese financial institutions. Many Japanese financial institutions, including banks, non-bank lending
and credit institutions, and insurance companies, have experienced severe asset
quality and other financial problems in recent years. Any re-emergence of these
problems may lead to severe liquidity and solvency problems for affected
financial institutions, which could result in their being liquidated or
restructured. Financial difficulties of financial institutions could adversely
affect us because as of March 31, 2004, a significant portion of our
investments (other than those in related parties) was in banks and other
financial institutions. 8




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We may not succeed in executing our growth strategies outside of Japan. To date, we have derived most of our insurance underwriting revenues from
Japan. However, our strategy includes expanding our businesses in markets
outside of Japan, in particular by targeting non-Japanese customers in local
Asian insurance markets. By operating and expanding our insurance businesses internationally, we
will be exposed to operating risks that do not exist or are less significant in
Japan. For example, in many of these markets, we will face barriers to entry in
the form of protective regulations or long-standing relationships between
potential customers and local insurance companies. Each of the following additional factors, among others, could affect our
future international operations:  
    
    The impact of economic slowdown in economies outside Japan, such as
those experienced by many southeast Asian countries in the late 1990s;
    
    Unexpected changes in or delays resulting from regulatory requirements;
    
    Exchange controls;
    
    Restrictions on foreign investment or the repatriation of profits or invested capital;
    
    Changes in the tax system or rate of taxation; and
    
    Social, political and economic risks. These and other factors could adversely affect our business, financial
condition and results of operations. We may not succeed in executing our growth strategies in other businesses. As part of our growth strategy, we intend to expand our domestic life
insurance business as one of our core businesses. We also intend to develop
other businesses, such as asset management, health care and senior citizen
related businesses. We may not succeed in competing in these competitive
markets, particularly against companies with well-established operations. In
addition, we may be required to make significant investments, and devote
substantial management and other resources, in order to expand these
businesses. If we are unable to compete successfully in these businesses, our
results of operations and financial condition may be adversely affected. The merger of Tokio Marine and Nichido Fire may not create the expected
integration benefits. We have announced our plan to merge our principal subsidiaries Tokio
Marine and Nichido Fire in October 2004. We are exposed to the following
merger-related risks:  
    
    The expected benefits and synergies of the merger may not be
achieved fully or at all;
    
    A delay in the preparation for the merger or in the integration of
operating processes may adversely affect our business operations; and
    
    Unpredictable events may significantly raise the cost of the
merger. These risks and other merger-related risks may adversely affect our
business, financial position and results of operations. A downgrade in the financial strength ratings of our operating subsidiaries
could limit our ability to market products, increase the number of policies
being surrendered and hurt our relationships with customers and trading
counterparties. Financial strength ratings, which are intended to measure an insurers
ability to meet policyholder obligations, are an important factor affecting
public confidence in most of our products and, as a result, our
competitiveness. A downgrade, or potential downgrade, of the financial strength ratings of
our operating subsidiaries, including Tokio Marine, Nichido Fire and Tokio
Marine & Nichido Life, may limit our ability to sell our insurance and annuity
products, adversely affect our reinsurance business and adversely affect the
terms and conditions of the business we conduct with trading counterparties. 9




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Inadequate or failed processes or systems, human factors or external events may
adversely affect our financial results. Operational risk is inherent in our business and can manifest itself in
various ways, including business interruptions, information systems
malfunctions or failures, regulatory breaches, human errors, employee
misconduct and external fraud. These events can potentially result in financial
loss or harm to our reputation, or otherwise hinder our operational
effectiveness. Our management attempts to control this risk and keep
operational risk at appropriate levels. Notwithstanding these control measures,
operational risk is part of the business environment in which we operate and we
may incur losses from time to time due to operational risk. Changes in existing, or new, Japanese regulations may materially impact our
business, results of operations and financial condition. Our insurance business is subject to detailed, comprehensive regulation
and supervision in Japan. Changes in existing, or new, insurance laws and
regulations are unpredictable and beyond our control and may affect the way we
conduct our business and the products we may offer in Japan. These changes in
existing or new insurance laws and regulations may be more restrictive or may
result in higher costs than current requirements. Changes in mortality experienced by our life insurance and annuity
policyholders could significantly affect our results of operations. The determination of liabilities and premiums for our life insurance and
annuity businesses is based on models which involve numerous assumptions and
subjective judgments as to mortality and morbidity. There can be no assurance
that ultimate actual experience on these products will not differ from
managements estimates. If the actual mortality and morbidity experience
differs from managements estimates, our business, results of operations and
financial condition could be materially adversely affected. Litigation and regulatory investigations may adversely affect our financial
results. We face risks of litigation and regulatory investigation and actions in
connection with our operations. Lawsuits, including regulatory actions, may
seek recovery of very large, indeterminate amounts or limit our operations, and
their existence and magnitude may remain unknown for substantial periods of
time. A substantial legal liability or a significant regulatory action could
have a material adverse effect on our business, results of operations and
financial condition. It may not be possible for investors to effect service of process within the
United States upon us or our directors, executive officers or corporate
auditors, or to enforce against us or those persons judgments obtained in U.S.
courts predicated upon the civil liability provisions of the federal securities
laws of the United States. We are a joint stock corporation organized under the laws of Japan. All of
our directors, executive officers and corporate auditors reside outside of the
United States. Many of our and their assets are located in Japan and elsewhere
outside the United States. It may not be possible, therefore, for U.S.
investors to effect service of process within the United States upon us or
these persons or to enforce against us or these persons judgments obtained in
the U.S. courts predicated upon the civil liability provisions of the federal
securities laws of the United States. We believe that there is doubt as to the
enforceability in Japan, in original actions or in actions to enforce judgments
of U.S. courts, of liabilities predicated solely upon the federal securities
laws of the United States. 10




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##### Table of Contents



Since we are a holding company, our ability to pay operating and financing
expenses and dividends depends on the financial performance of our principal
operating subsidiaries. Our ability to pay dividends also depends on our own
dividend-paying capacity. As a holding company, our ability to pay operating and financing expenses
and dividends depends primarily on the receipt of sufficient funds from our
principal operating subsidiaries. Statutory provisions regulate our operating
subsidiaries ability to pay dividends. If our operating subsidiaries are
unable to pay dividends to us in a timely manner, and in amounts sufficient to
pay our operating and financing expenses, to declare and pay dividends and to
meet our other obligations, we may not be able to pay dividends or we may need
to seek other sources of liquidity. Under the Commercial Code of Japan, we cannot declare or pay dividends
unless we meet specified financial criteria on a parent-only basis.
Generally, we will be permitted to pay dividends only if we have retained
earnings on a non-consolidated balance sheet basis as of the end of the
preceding fiscal year (determined in accordance with Japanese GAAP). Risks Relating to Owning Our American Depositary Shares Foreign exchange rate fluctuations may affect the U.S. dollar value of our
American depositary shares and dividends payable to holders of our American
depositary shares. Market prices for our American depositary shares may fall if the value of
the yen declines against the U.S. dollar. In addition, the U.S. dollar amount
of cash dividends and other cash payments made to holders of our American
depositary shares would be reduced if the value of the yen declines against the
U.S. dollar. A holder of American depositary shares has fewer rights than a shareholder and
must act through the depositary to exercise those rights. The rights of shareholders under Japanese law to take various actions,
including voting their shares, receiving dividends and distributions, bringing
derivative actions, examining a companys accounting books and records, and
exercising dissenters rights, are available only to holders of record on a
companys register of shareholders. Because the depositary, through its
custodian agent, is the registered holder of the shares represented by our
American depositary shares, only the depositary is able to exercise those
rights in connection with the deposited shares. The depositary will make
efforts to vote the shares represented by our American depositary shares as
instructed by the holders of those American depositary shares and will pay to
those holders the dividends and distributions collected from us. However, a
holder of American depositary shares will not be able directly to bring a
derivative action, examine our accounting books and exercise dissenters rights
through the depositary unless the depositary specifically undertakes to
exercise those rights and is indemnified to its satisfaction by the holder of
American depositary shares for doing so. There are restrictions on the withdrawal of certificated shares from our
depositary receipts facility. Each
of our American depositary shares represents the right to receive .005 of one share of our common stock. Although we maintain a book-entry
fractional share register, a holder of American depositary shares must
surrender for cancellation depositary receipts evidencing 200 American
depositary shares or any integral multiple thereof in order to withdraw whole
shares of our common stock in certificated form. Each depositary receipt
evidencing our American depositary shares bears a legend to that effect. In
addition, although we have implemented procedures to permit us to repurchase
fractional share interests, holders of American depositary shares receiving
fractional shares of our common stock will need to combine those interests in
order to trade whole shares of our common stock on the Tokyo Stock Exchange or
the Osaka Securities Exchange. 11




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##### Table of Contents



EXCHANGE RATES Fluctuations in exchange rates between the Japanese yen and the U.S.
dollar and other currencies affect the U.S. dollar and other currency
equivalents of the yen price of our shares. These fluctuations also affect the
U.S. dollar amounts received on conversion of any cash dividends. The following
table shows noon buying rates for Japanese yen per $1.00 in New York City for
cable transfers in foreign currencies as certified for customs purposes by the
Federal Reserve Bank of New York for each period indicated: Average(1)Year ended March 31:2000
    
    ¥
    110.022001
    
    
    111.652002
    
    
    125.642003
    
    
    121.102004
    
    
    112.75
 High
    
    LowMonth:March 2004
    
    ¥
    104.18
    
    
    ¥
    112.12April 2004
    
    
    103.70
    
    
    
    110.37May 2004
    
    
    108.50
    
    
    
    114.30June 2004
    
    
    107.10
    
    
    
    111.27July 2004
    
    
    108.21
    
    
    
    111.88August 2004
    
    
    109.00
    
    
    
    111.53September
(through September 15) 2004
    
    
    109.22
    
    
    
    110.47
   (1)
    
    Average rate for each fiscal year is calculated by using the average of
the exchange rates on the last day of each month during that year. The noon buying rate for Japanese yen on September 15, 2004 was $1.00 =
¥110.34. 12




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##### Table of Contents



MARKET PRICE INFORMATION Our common stock is listed in Japan on the First Section of Tokyo Stock
Exchange, Inc., or the Tokyo Stock Exchange, and on the First Section of Osaka
Securities Exchange Co., Ltd., or the Osaka Securities Exchange. Trading of our
shares on these exchanges began on April 1, 2002. American depositary shares, or ADSs, representing shares of our common
stock are currently traded in the United States on the Nasdaq National Market
under the symbol MLEA. Trading of our ADSs on the Nasdaq National Market
commenced on April 2, 2002. Each ADS represents .005 of one share of our common
stock. As of March 31, 2004, outstanding ADSs represented 4.6% of our
outstanding shares. The following table sets forth, for the periods indicated, the reported
high and low sales price per share of our common stock on the First Section of
the Tokyo Stock Exchange, as well as the high and low sales price per ADS
quoted on the Nasdaq National Market. The table also includes high and low
market price quotations from the Tokyo Stock Exchange, translated in each case
into U.S. dollars per ADS at the Federal Reserve Bank of New Yorks noon buying
rate on the relevant date. Price per share on the
    
    Translated into U.S.
    
    Price per ADS on theTokyo Stock Exchange
    
    dollars per ADS(1)
    
    Nasdaq National MarketHigh
    
    Low
    
    High
    
    Low
    
    High
    
    Low(yen)
    
    (US$)
    
    (US$)Year ended March 31, 2003
    
    ¥
    1,140,000
    
    
    ¥
    706,000
    
    
    $
    45.71
    
    
    $
    30.15
    
    
    $
    44.50
    
    
    $
    29.76First fiscal quarter
    
    
    1,140,000
    
    
    
    910,000
    
    
    
    45.71
    
    
    
    34.45
    
    
    
    44.50
    
    
    
    35.00Second fiscal quarter
    
    
    1,050,000
    
    
    
    900,000
    
    
    
    44.68
    
    
    
    37.89
    
    
    
    43.98
    
    
    
    37.84Third fiscal quarter
    
    
    985,000
    
    
    
    836,000
    
    
    
    40.13
    
    
    
    34.76
    
    
    
    39.68
    
    
    
    34.51Fourth fiscal quarter
    
    
    898,000
    
    
    
    706,000
    
    
    
    37.49
    
    
    
    30.15
    
    
    
    37.33
    
    
    
    29.76Year ended March 31, 2004
    
    ¥
    1,710,000
    
    
    ¥
    725,000
    
    
    $
    81.03
    
    
    $
    30.66
    
    
    $
    80.05
    
    
    $
    30.75First fiscal quarter
    
    
    943,000
    
    
    
    725,000
    
    
    
    40.11
    
    
    
    30.66
    
    
    
    39.93
    
    
    
    30.75Second fiscal quarter
    
    
    1,440,000
    
    
    
    924,000
    
    
    
    62.07
    
    
    
    38.68
    
    
    
    62.00
    
    
    
    39.60Third fiscal quarter
    
    
    1,490,000
    
    
    
    1,160,000
    
    
    
    68.17
    
    
    
    53.18
    
    
    
    67.40
    
    
    
    54.04Fourth fiscal quarter
    
    
    1,710,000
    
    
    
    1,290,000
    
    
    
    81.03
    
    
    
    61.08
    
    
    
    80.05
    
    
    
    60.78Year ending March 31, 2005First fiscal quarter
    
    
    1,730,000
    
    
    
    1,280,000
    
    
    
    82.74
    
    
    
    56.09
    
    
    
    83.00
    
    
    
    55.81MonthMarch 2004
    
    ¥
    1,710,000
    
    
    ¥
    1,400,000
    
    
    $
    81.03
    
    
    ¥
    63.17
    
    
    ¥
    80.05
    
    
    ¥
    63.50April 2004
    
    
    1,730,000
    
    
    
    1,500,000
    
    
    
    82.74
    
    
    
    69.12
    
    
    
    83.00
    
    
    
    70.05May 2004
    
    
    1,600,000
    
    
    
    1,280,000
    
    
    
    71.24
    
    
    
    56.09
    
    
    
    73.50
    
    
    
    55.81June 2004
    
    
    1,640,000
    
    
    
    1,450,000
    
    
    
    74.48
    
    
    
    65.64
    
    
    
    74.99
    
    
    
    64.85July 2004
    
    
    1,690,000
    
    
    
    1,530,000
    
    
    
    76.75
    
    
    
    70.58
    
    
    
    77.01
    
    
    
    70.63August 2004
    
    
    1,640,000
    
    
    
    1,440,000
    
    
    
    73.82
    
    
    
    65.08
    
    
    
    74.12
    
    
    
    65.80September
(through September 15) 2004
    
    
    1,540,000
    
    
    
    1,470,000
    
    
    
    70.24
    
    
    
    67.23
    
    
    
    70.87
    
    
    
    66.88
   (1)
    
    U.S. dollar amounts have been translated from yen at the Federal Reserve
Bank of New Yorks noon-buying rate as of the relevant high and low
quotation date or the last available date prior thereto. The closing price of our shares of common stock on the Tokyo Stock
Exchange as of September 15, 2004 was ¥1,480,000. The above prices for our ADSs are based on inter-dealer prices reported by
Nasdaq and do not include retail mark-ups, retail mark-downs or commissions. 13




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##### Table of Contents



DIVIDEND POLICY In June 2004, we declared cash dividends on shares of our common stock in
the amount of ¥11,000 per share and paid ¥19,669 million in respect of our fiscal year ended March 31, 2004. In June
2003, we declared cash dividends on shares of our common stock in the amount of
¥10,000 per share and paid ¥18,491 million (excluding
the amount of dividends for shares held by a subsidiary) in respect of our fiscal year ended March 31, 2003. As a holding company, our ability to pay dividends in the future will
depend primarily on our receipt of sufficient funds from our two principal
operating subsidiaries, Tokio Marine and Nichido Fire. In addition, under the
Commercial Code of Japan, we cannot declare or pay dividends unless we meet
specified financial criteria on a parent-only basis. Generally, we will be
permitted to pay dividends only if we have retained earnings on a
non-consolidated balance sheet basis as of the end of the preceding fiscal year
(determined in accordance with Japanese GAAP). See Risk Factors  Risks
Relating to Our Business and Description of Common Stock  Dividends. When apportioning profits in respect of any given fiscal year, we expect
to pay stable dividends on our common stock, subject to having retained
earnings and to providing sufficient capital to meet our business needs. 
 MAJOR SHAREHOLDERS Our ten largest shareholders of record as of March 31, 2004, expressed as
a percentage of the total number of our shares then outstanding, were as
follows: Number of
    
    Percentage ofwhole shares
    
    total sharesShareholder
    
    held
    
    outstanding(1)The Master Trust Bank of Japan, Ltd. (Trust Account)
    
    
    132,147
    
    
    
    7.4
    %Japan Trustee Services Bank, Ltd. (Trust Account)
    
    
    95,771
    
    
    
    5.4
    %State Street Bank and Trust Company
    
    
    83,175
    
    
    
    4.7
    %Nats Cumco(2)
    
    
    83,096
    
    
    
    4.6
    %The Bank of Tokyo-Mitsubishi, Ltd.
    
    
    54,239
    
    
    
    3.0
    %The Chase Manhattan Bank N.A. London
    
    
    41,127
    
    
    
    2.3
    %Meiji Yasuda Life Insurance Company
    
    
    39,187
    
    
    
    2.2
    %Mellon Bank Treaty Clients Omnibus
    
    
    31,121
    
    
    
    1.7
    %Trust & Custody Services Bank, Ltd.(3)
    
    
    28,148
    
    
    
    1.6
    %Northern Trust Co. (AVFC) sub-account USL
    
    
    27,998
    
    
    
    1.6
    %Total
    
    
    616,009
    
    
    
    34.5
    %
   (1)
    
    The number of total shares outstanding equals the number of total issued
shares minus the number of treasury shares. As of March 31, 2004, there
were 1,788,056 shares of our common stock outstanding.(2)
    
    Nats Cumco is the corporate nominee holder of common stock deposited for
the issuance of ADSs.(3)
    
    As trustee for Mizuho Trusts retirement benefits trust account for
Mitsubishi Heavy Industries, Ltd. None of our shareholders listed above has voting rights that are different
from voting rights of our other shareholders. As of March 31, 2004, we had 95,743 shareholders of record, of which
95,064 were Japanese record holders. As of the same date, 66.8% of our
outstanding shares were owned by Japanese record holders. We are not aware of any arrangements that may result in a change of
control of us. 14




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##### Table of Contents



The identities of shareholders in companies listed on a Japanese stock
exchange, as well as their shareholdings, must be publicly reported in Japan
under the following circumstances:  
    
    Reporting by Shareholders. As explained in Regulation  Reporting of
Substantial Shareholdings, any person who becomes a beneficial owner of
more than 5% of the total issued shares of a company listed on a Japanese
stock exchange must file a public report concerning their shareholdings
with the related local finance bureau.  
    
    We received copies of reports filed on May 14, 2004
with the Kanto Finance Bureau by Mitsubishi Tokyo Financial
Group, Inc. on behalf of The Bank of Tokyo Mitsubishi, Ltd., The
Mitsubishi Trust and Banking Corporation, Mitsubishi Securities
Co., Ltd., Tokyo-Mitsubishi International plc, Mitsubishi Trust
Asset Management Co., Ltd. and Tokyo-Mitsubishi Asset Management
Co., Ltd. indicating that these entities beneficially owned an
aggregate of 110,480 shares as of April 30, 2004, representing
5.95% of the total issued shares and 6.20% of the total shares
outstanding as of April 30, 2004.  
    
    We received copies of reports filed on July 15, 2004
with the Kanto Finance Bureau by Barclays Global Investors Japan
Trust & Banking Co., Ltd., Barclays Global Investors Japan
Limited, Barclays Global Investors, N.A., Barclays Global Fund
Advisors, Barclays Global Investors Limited, Barclays Global
Investors Australia Limited, Barclays Life Assurance Company
Limited and Barclays Capital Securities Ltd. indicating that
these entities beneficially owned an aggregate of 107,802 shares
as of June 30, 2004, representing 5.81% of the total issued
 shares and 6.07% of the total shares outstanding as of June 30,
2004.  
    
    Reporting by Listed Companies.Under the Securities and Exchange Law, any
company whose shares are listed on a Japanese stock exchange must publicly
report information about its major shareholders. We are required to make
this disclosure, which generally includes information about a companys
ten largest shareholders of record, as of each March 31 and September 30. 15




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BUSINESS Group Overview We were formed on April 2, 2002 as the holding company, a joint stock
corporation organized under the laws of Japan, for Tokio Marine and Nichido
Fire. Since being formed, we have spun off various subsidiaries of Tokio
Marine and Nichido Fire, so that those subsidiaries are directly owned by us.
See  Subsidiaries and Affiliates. Tokio Marine is the oldest and largest property and casualty insurance
company in Japan. It underwrites the full range of property and casualty
insurance coverage available in Japan, including voluntary automobile,
compulsory automobile liability, fire and allied lines, personal accident,
cargo and transit, and hull insurance. Tokio Marine underwrites some lines of
property and casualty insurance coverage overseas. It also accepts and cedes
reinsurance for certain lines of property and casualty insurance coverage. Tokio Marine was originally founded in 1879. In 1944, it was consolidated
with The Meiji Fire and Marine Insurance Company, Limited and The Mitsubishi
Marine and Fire Insurance Company, Limited and was incorporated as a joint
stock corporation (kabushiki kaisha) under the Commercial Code of Japan. Nichido Fire was founded in 1914. Its original core focus was to offer
insurance coverage to individuals and households located in regional markets
throughout Japan, primarily through its own direct marketing channels. Nichido Fire now underwrites the full range of property and casualty
insurance coverage available in Japan, including voluntary automobile,
compulsory automobile liability, fire and allied lines, and personal accident
insurance. It also accepts and cedes reinsurance for certain lines of property
and casualty insurance coverage. Formation of Millea Holdings We were formed as the holding company for Tokio Marine and Nichido Fire
through a statutory share transfer that became effective on April 2, 2002. Upon
our formation and the effectiveness of the statutory share transfer:  
    
    Issued and outstanding shares of Tokio Marine common stock were
exchanged for shares of our common stock in the ratio of 1,000 Tokio
Marine shares for 1.00 of our shares;  
    
    Issued and outstanding shares of Nichido Fire common stock were
exchanged for shares of our common stock in the ratio of 1,000 Nichido
Fire shares for 0.69 of our shares;  
    
    Shareholders of Tokio Marine and Nichido Fire whose names appeared in
the registers of shareholders of the two companies as of March 31,
2002 were allotted our shares in amounts based on the ratios described
above, and these amounts (including fractional shares of our common
stock representing any multiple of .01 of one share) were reflected in
our registers of shares and fractional shares; and  
    
    Fractional shares of our common stock representing less than .01 of
one share that would otherwise have been allotted to former
shareholders of Tokio Marine and Nichido Fire were instead cashed out
by us. After the statutory share transfer became effective, former Tokio Marine
shareholders held approximately 83% of the outstanding shares of our common
stock and former Nichido Fire shareholders held approximately 17%. Recent Developments Proposed Merger of Tokio Marine and Nichido Fire On March 28, 2003, we, Tokio Marine and Nichido Fire jointly announced the
proposed merger of Tokio Marine and Nichido Fire. The merger agreement was
executed on May 21, 2004 and was approved by us in Tokio Marines and Nichido
Fires respective annual shareholders meetings on June 25, 2004. The merger is
scheduled to be completed on October 1, 2004. The English-language name of the
new combined entity will be Tokio Marine & Nichido Fire Insurance Co., Ltd.,
referred to as Tokio Marine & Nichido. Tokio Marine will be the surviving
company. 16




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##### Table of Contents



The objectives of the merger are to maximize our corporate value by
creating synergies, promoting a growth strategy which combines the strengths of
both companies and increasing efficiency through a larger scale of business,
and to further reduce costs. The primary business mission of Tokio Marine &
Nichido will be to provide customers with the highest quality products and
services. In order to achieve this objective, we intend to establish three
in-house companies that will focus on personal, commercial and automobile
manufacturer/dealer insurance operations. We aim to enhance the expertise and
flexibility in each sales channel and market by establishing the in-house
company system and intend to thereby maximize the strength of each business.
Based on this strategy, we intend to further increase customer satisfaction. We have successfully completed the first two stages of a three stage
integration process. In the first stage, from April 2003 to September 2003, we
have determined Tokio Marine & Nichidos business process and systems
requirements. In the second stage, from October 2003 to March 2004, we have
conformed the operational procedures of Tokio Marine and Nichido Fire. We are
currently in the third and final stage of the integration process, which
includes, among others, the testing of the integrated operational procedures.
We understand that the integration of the operations of the two companies,
including the integration of their products, back offices and systems, carries
significant management risks and we therefore have focused and continue to
focus on the management of these integration risks. Merger of Tokio Marine Life and Nichido Life On October 1, 2003, we merged our subsidiaries Tokio Marine Life and
Nichido Life. The English-language name of the new combined entity is Tokio
Marine & Nichido Life Insurance Co., Ltd. Tokio Marine Life was the surviving
company. Acquisition of Skandia Life Insurance Company (Japan) Limited On February 2, 2004, we acquired all outstanding shares of Skandia Life
Insurance Company (Japan) Limited, or Skandia Japan, for the aggregate purchase
price of ¥20 billion from Skandia Insurance Company Ltd. (publ.). Skandia Japan
was subsequently re-named Tokio Marine & Nichido Financial Life Insurance Co.,
Ltd., or Tokio Marine & Nichido Financial Life. Tokio Marine & Nichido
Financial Life is primarily engaged in the variable insurance businesses,
including variable life insurance, variable universal life insurance and
variable annuities. Commencement of operations of Sino Life Insurance Company Ltd. In
July 2003, we invested RMB1.1 billion in Sino Life Insurance
Company Ltd., or Sino Life, resulting in a 24.9% interest in Sino Life. Sino
Life has commenced life insurance operations in Shanghai in November 2003 and
plans to operate in the Peoples Republic of China primarily in major cities
such as Beijing, Nanjing and Hangzhou. Cooperation with The Nisshin Fire and Marine Insurance Company, Limited Pursuant to an agreement reached in March 2003, we have entered into a
strategic alliance with The Nisshin Fire and Marine Insurance Company, Limited,
or Nisshin Fire. This alliance includes cooperation in the marketing for Tokio
Marine & Nichido Lifes products and joint proposals by Tokio Marine and
Nisshin Fire to Nisshin Fires corporate clients and automobile dealer agents.
We intend to acquire approximately one-third of the total outstanding shares of
Nisshin Fire by March 31, 2005 and to further strengthen our cooperation with
Nisshin Fire. Objects and Purposes Our objects and purposes, as stated in article 2 of our articles of
incorporation, are to engage in the following businesses as an insurance
holding company:  
    
    Management of non-life insurance companies;
    
    Management of life insurance companies;
    
    Management of specialized securities companies; 17




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##### Table of Contents




    
    Management of foreign companies engaged in the insurance business;
    
    Management of any other company which is or may become our subsidiary in accordance with the provisions of the Insurance
Business Law of Japan; and
    
    Any other business pertaining to the foregoing listed businesses. Corporate Philosophy In November 2003, we adopted as our corporate philosophy the following: Millea Group Corporate Philosophy The Millea Group is committed to the continuous enhancement
of corporate value, with customer trust at the base of all
of its activities.  
    
    By providing customers with the highest quality
products and services, we will spread safety and
security to all around us.
    
    For fulfilling our responsibility to
shareholders, we will pursue global development of
sound, growing and profitable businesses.
    
    For promoting the creativity of each and every
employee, we will foster a corporate culture which
encourages free and open communications.
    
    While demonstrating responsible management as a
good corporate citizen, we will make a positive
contribution to society. Principal Executive Offices Our principal executive offices are located at Otemachi First Square, West
10F, 5-1, Otemachi 1-chome, Chiyoda-ku, Tokyo 100-0004, Japan, and our
telephone number is 81-3-6212-3333. Business Goals and Strategies In November 2003, we announced our current medium- and long-term business
strategy. By implementing our strategy for each business segment, we aim to
create the optimum business portfolio and to maximize our corporate value. Domestic Property and Casualty Insurance Business Our principal revenue base is our domestic property and casualty insurance
business. We view the smooth merger of Tokio Marine and Nichido Fire as a
critically important task for a continuous increase of profitability and growth
potential. We intend to complete the integration process shortly after the
merger and realize merger-related synergies under the new medium-term plan. We
aim to increase the revenues of this business by strengthening our underwriting
operations with a Customer First policy at the base of all business
activities and further improving efficiencies by:  
    
    Establishing an in-house company system where separate in-house
companies focus on the personal, the commercial and the automobile
manufacturer/dealer insurance markets. By combining products, services
and administration systems that reflect the needs and characteristics
of each market, we intend to implement a growth strategy.
    
    Seeking to increase sales of third sector products, which we believe
is a market with significant growth potential, and to increase
over-the-counter sales of insurance products through banks. 18




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##### Table of Contents




    
    Enhancing sales of comprehensive insurance products that cover a
variety of risks for individuals and corporate customers such as TAP
Navi, Shimpai Gomuyo Navi, Super Insurance and Super Business
Insurance. See  Property and Casualty Insurance.
    
    Restructuring our sales network and seeking to build a more efficient
and higher quality sales network by expanding the number of
large-scale agents and making direct capital investment in some of our
agents.
    
    Seeking to provide customers with high quality claims services by
pursuing an innovative business model guided by the three principles
of sincerity, professionalism and open communication. Domestic Life Insurance Business We plan to expand our domestic life insurance business as one of our core
businesses. We aim to strengthen our life insurance subsidiaries and seek
revenue growth in this business by:  
    
    Enhancing the efficiencies in the business operations and management of our life insurance business. We merged our
life insurance subsidiaries Tokio Marine Life and Nichido Fire Life in October 2003 and renamed the entity Tokio
Marine & Nichido Life.
    
    Strengthening the cooperation between our life insurance business and our property and casualty insurance business.
    
    Strengthening our variable annuities business through our new subsidiary, Tokio Marine & Nichido Financial Life,
which we acquired from Skandia in February 2004.
    
    Introducing new products, such as the Anshin Dollar Annuity, which was launched in January 2004. See Other
Businesses  Life Insurance Business.
    
    Shifting more of our management resources to the life insurance business and seeking to implement the following
growth strategies:  
    
    Strengthen cross-marketing;
    
    Expand our sales channels dedicated exclusively to the distribution of life insurance; and
    
    Promote sales through banks. Overseas Insurance Business (Including Overseas Reinsurance Business) To diversify geographically and realize stable revenue growth, we aim to
expand our overseas insurance business by focusing on the Asian local insurance
market, which we believe has high growth potential and profitability. In April
2003, we transferred our Asian insurance operations to our directly held
subsidiary, Millea Asia Pte. Ltd., or Millea Asia. Millea Asia is in charge of
planning our business growth strategy in the Asian region (excluding Japan),
including through mergers, acquisitions and business tie-ups, such as the
acquisition of a 24.9% interest in Sino Life in July 2003, and managing our
local Asian subsidiaries. It intends to aggressively pursue the expansion of
the business with a focus on what we believe are growing areas, such as China,
Taiwan, Thailand, Malaysia and India. In connection with our overseas reinsurance business, we also intend to
diversify natural disaster risk and underwrite reinsurance of catastrophe risk
through Tokio Millenium Re Ltd. in order to achieve stable revenue growth by
globally diversifying our underwriting risk. Asset Management and Other Businesses We intend to expand our asset management business and other businesses,
which we believe to have significant potential for synergies with our insurance
business. 19




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##### Table of Contents



Asset Management Business Utilizing the expertise acquired in the investment operations of our
insurance companies, we intend to pursue the following measures to further
increase our assets and to increase revenue:  
    
    In the retail market, we aim to establish an investment trust/defined contribution business.
    
    In the wholesale market, we plan to actively launch new products in alternative investment areas such as private equity to
expand our product line-up.
    
    We intend to expand our asset management operations globally through Tokio Marine Asset Management Co., Ltd. Other Businesses We plan to selectively expand our insurance-related businesses such as
health care and senior citizen-related businesses, the risk consulting business
and comprehensive human resource-related services, as well as other existing
related businesses, where we believe opportunities for growth exist. Property and Casualty Insurance Property and Casualty Insurance Lines We engage primarily in underwriting voluntary automobile, compulsory automobile
liability, fire and allied lines (including earthquake), personal accident,
cargo and transit, hull and other lines of property and casualty insurance
through Tokio Marine and Nichido Fire, principally in Japan. The following
table, prepared on a U.S. GAAP basis, shows a breakdown of our direct premiums
written by our principal lines of insurance for each of the periods indicated: Year ended March 31,2004(1)
    
    2003(1)
    
    2002(1)(yen in millions)Voluntary Automobile
    
    ¥
    887,750
    
    
    ¥
    909,341
    
    
    ¥
    708,532Compulsory Automobile Liability(2)
    
    
    311,124
    
    
    
    308,641
    
    
    
    193,557Fire and Allied Lines(3)
    
    
    299,481
    
    
    
    290,189
    
    
    
    198,155Personal Accident
    
    
    153,849
    
    
    
    157,434
    
    
    
    125,183Cargo and Transit
    
    
    71,678
    
    
    
    67,660
    
    
    
    59,964Hull
    
    
    19,599
    
    
    
    19,173
    
    
    
    19,451Other(4)
    
    
    235,074
    
    
    
    235,025
    
    
    
    204,773Total
    
    ¥
    1,978,555
    
    
    ¥
    1,987,463
    
    
    ¥
    1,509,615
   (1)
    
    Our U.S. GAAP consolidated financial statements for the fiscal years
ended March 31, 2004 and 2003, from which some of the data in this table
are derived, reflect the inclusion in those financial statements of the
results of operations and financial position of Nichido Fire and its
consolidated subsidiaries from and after the date of our formation on
April 2, 2002. Accordingly, the amounts shown in this table for the fiscal
years ended March 31, 2004 and 2003 are not directly comparable to the
amounts shown for the fiscal year ended March 31, 2002. See Managements
Discussion and Analysis of Financial Condition and Results of Operations 
Overview  Business Combination.(2)
    
    Japanese law requires that all automobiles be covered by compulsory
automobile liability insurance. See note 1 to our consolidated financial
statements.(3)
    
    Includes earthquake insurance.(4)
    
    Major Other lines of insurance are liability, aviation, workers
compensation, movables comprehensive, machinery breakdown, contractors
all-risk, and credit and guarantee insurance and surety bonds. The following table, prepared on a U.S. GAAP basis, shows a breakdown of
each key component of our property and casualty insurance premiums written for
the year ended March 31, 2004: 20




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##### Table of Contents



Directpremiums
    
    Reinsurancepremiums
    
    Reinsurancepremiums
    
    Net premiums written(1)written
    
    assumed
    
    ceded
    
    Amount
    
    %(yen in millions, except percentages)Voluntary Automobile
    
    ¥
    887,750
    
    
    ¥
    6,556
    
    
    ¥
    15,807
    
    
    ¥
    878,499
    
    
    
    45.16
    %Compulsory Automobile Liability(2)
    
    
    311,124
    
    
    
    264,757
    
    
    
    242,241
    
    
    
    333,640
    
    
    
    17.15
    %Fire and Allied Lines(3)
    
    
    299,481
    
    
    
    37,697
    
    
    
    66,683
    
    
    
    270,495
    
    
    
    13.91
    %Personal Accident
    
    
    153,849
    
    
    
    2,518
    
    
    
    4,305
    
    
    
    152,062
    
    
    
    7.82
    %Cargo and Transit
    
    
    71,678
    
    
    
    2,461
    
    
    
    8,141
    
    
    
    65,998
    
    
    
    3.39
    %Hull
    
    
    19,599
    
    
    
    9,748
    
    
    
    14,863
    
    
    
    14,484
    
    
    
    0.74
    %Other(4)
    
    
    235,074
    
    
    
    50,482
    
    
    
    55,488
    
    
    
    230,068
    
    
    
    11.83
    %Total
    
    ¥
    1,978,555
    
    
    ¥
    374,219
    
    
    ¥
    407,528
    
    
    ¥
    1,945,246
    
    
    
    100.00
    %
   (1)
    
    Net premiums written = direct premiums written + reinsurance premiums
assumed  reinsurance premiums ceded.(2)
    
    Japanese law requires that all automobiles be covered by compulsory
automobile liability insurance. See note 1 to our consolidated financial
statements.(3)
    
    Includes earthquake insurance.(4)
    
    Major Other lines of insurance are liability, aviation, workers
compensation, movables comprehensive, machinery breakdown, contractors
all-risk, credit and guarantee insurance, and surety bonds. Voluntary Automobile Automobile ownership in Japan has grown over the years and there is
currently no other country in the world, except the United States, where a
greater number of automobiles is owned. According to statistics published by
the Japanese Automobile Inspection and Registration Association, as of April
30, 2004, approximately 77 million automobiles were owned in Japan. In line
with high level of automobile ownership, the number of automobile accidents and
the number of persons injured or killed in automobile accidents have remained
at high levels despite various social efforts to reduce the number of
accidents. To further the public policy of reducing losses from automobile
accidents, the Automobile Liability Security Law provides for owner-operators
tort liabilities that are more strict than those under the Japanese Civil
Codes general tort theory. Over the years, the average amount of damages
awarded by Japanese courts in liability claim cases stemming from automobile
accidents has increased, as has the publics awareness of the risks involved in
automobile ownership. According to data gathered by The General Insurance
Association of Japan, the industry-wide aggregate amount of direct premiums
written for voluntary automobile insurance in Japan rose from ¥2,762.3 billion
for the year ended March 31, 1992 to ¥3,688.9 billion for the year ended March
31, 1998 and has since been generally stable. According to data gathered by The
General Insurance Association of Japan, the industry-wide aggregate amount of
direct premiums written for voluntary automobile insurance in Japan for the
year ended March 31, 2004 was ¥3,544 billion (exclusive of premiums for the
savings portion). Until 1998, automobile insurance in Japan generally consisted of one or
more of the following principal types of coverage:  
    
    Bodily Injury Liability covers a policyholders liability for bodily
injuries to others resulting from the ownership, use or maintenance of
an automobile. Compulsory automobile liability insurance (discussed
below) also covers bodily injury liability; however the compulsory
insurance will not pay above a certain maximum amount determined by
Japanese law. This bodily injury liability coverage supplements the
compulsory insurance scheme by paying the amount of liability in
excess of the maximum amount covered by compulsory insurance. The
per-person insured amount under this coverage is generally unlimited.
    
    Property Damage Liability covers liability for property damage
resulting from the ownership, use or maintenance of an automobile
included in the policy. One type of damage typically covered by this
policy is damage to anothers vehicle as a result of a collision.
    
    Passengers Bodily Injury covers bodily injuries of drivers and
passengers resulting from collisions or other accidents. Like the
self-incurred accident coverage, a fixed amount, without regard to the
actual amount of damage, is payable according to a pre-set payment
table. 21




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##### Table of Contents




    
    Physical Damage covers physical damage to automobiles resulting from
collisions, thefts or other accidents. In 1998, Tokio Marine introduced into the Japanese market an innovative
voluntary automobile insurance product called the Tokio Automobile Policy, or
TAP. TAP, represented a breakthrough from the pre-liberalized days of
standardized premiums and services in Japan. Our objective in developing TAP
was to create an indemnity product that met a wide range of customer
requirements. TAPs most notable feature is the offering of bodily injury
indemnity insurance. If a policyholder is injured in an automobile accident, a
full settlement is paid to the injured policyholder, regardless of who was at
fault. Together with broader coverage in connection with any physical damage to
automobiles, TAP offers wide compensation coverage that was not previously
available under conventional automobile insurance policies. TAP has proven to
be an extremely successful product, and we have continuously improved on it. In
2000, Tokio Marine integrated all of its automobile insurance products into
TAP, so that all of the features of a TAP policy were available to its
automobile insurance policyholders. In 2000, Nichido Fire launched Shimpai Gomuyo, a comprehensive
automobile insurance product with bodily injury indemnity coverage similar to
TAP. In 2001, Nichido Fire integrated all of its automobile insurance products
into Shimpai Gomuyo. In August 2003, we launched a risk-differentiated automobile product to
strengthen price-competitiveness and to meet a wide variety of customer needs.
Tokio Marines TAP Navi and Nichido Fires Shimpai Gomuyo Navi offer
insurance coverage for a premium based on characteristics of each customer such
as usage of insured automobile, status of the drivers license in the public
classification scheme and age. These products will be integrated and offered
under the name TAP Navi starting October 1, 2004. Compulsory Automobile Liability Under the Automobile Liability Security Law, all automobiles operated on
public roads in Japan (with certain minor exceptions) are required to be
covered by compulsory automobile liability insurance, or CALI, which covers
liability for bodily injuries. This type of insurance coverage is required in
order to register an automobile and for periodic automobile inspections.
Generally, if an automobile is not registered, it cannot legally be operated in
Japan. Compulsory automobile liability insurance is designed to serve public
policy by ensuring that people injured in automobile accidents receive a
minimum payment for their injuries from those who are legally responsible. In
light of this public policy, licensed non-life insurance companies in Japan
cannot refuse to issue compulsory automobile liability policies except in
limited cases. Under these compulsory insurance policies, the maximum amount of coverage
for accidents resulting in death is limited to ¥30 million per person, and the
maximum amount of coverage for accidents resulting in permanent disability is
limited to ¥40 million per person. The maximum amount for accidents resulting
in other injuries is ¥1.2 million per person. Individuals who wish to purchase
coverage beyond these maximum amounts may purchase automobile insurance with a
bodily injury liability coverage on a voluntary basis (as described above). In
order to reduce inconveniences caused by being covered by compulsory and
voluntary policies, an insured can submit claims for indemnity under both the
compulsory and voluntary policies to the insurance company that wrote the
voluntary policy. Prior to April 1, 2002, 60% of all CALI insurance written was
required by statute to be reinsured with the government. Since April 1, 2002,
all CALI premium portfolios are reinsured with the CALI Reinsurance Pool in
which all insurers operating CALI business participate. Fire and Allied Lines Fire and allied lines insurance is one of the traditional lines of
insurance we write. Fire and allied lines insurance (excluding earthquake
insurance, which is described below) generally covers dwelling houses, shops,
offices, factories and warehouses and their contents against loss or damage
caused by fire, flood, storms, lightning, explosion, theft and other risks. In
addition, some policies cover personal accident, third-party liability and loss
of income caused by these kinds of events. Some of the products offered under
this insurance line are deposit-type insurance. This type of insurance is written for individual customers to safeguard
their personal financial security and for business customers to protect their
on-going business operations. This type of insurance also provides mortgage
lenders, whether residential or commercial, with protection against loss or
damage to mortgaged properties. While the demand for this type of insurance has been steady, its relative share
of our overall business has declined as voluntary automobile and compulsory
automobile liability insurance and personal accident insurance have grown at a
faster pace, due mainly to the rapid motorization of Japanese society. 22




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##### Table of Contents



Under fire and allied lines insurance, insurers may be required to make
indemnity payments of a huge aggregate amount in the event of a disastrously
large windstorm, flood or other catastrophe. The following table shows
information concerning major windstorms and floods in Japan that occurred
during the last thirty years. Buildings
    
    BuildingsWindstorms and floods
    
    Date
    
    damaged
    
    floodedTyphoon No. 17 and accompanying weather front
    
    September 1976
    
    
    11,193
    
    
    
    442,317Typhoon No. 20
    
    October 1979
    
    
    7,523
    
    
    
    37,450Downpour, July 1982
    
    July 1982
    
    
    851
    
    
    
    52,165Typhoon No. 10 and accompanying weather front
    
    August 1982
    
    
    5,312
    
    
    
    113,902Typhoon No. 8 and accompanying weather front.
    
    September 1982
    
    
    651
    
    
    
    136,308Downpour, July 1983
    
    July 1983
    
    
    3,669
    
    
    
    17,141Typhoon No. 10
    
    August 1986
    
    
    2,683
    
    
    
    105,072Typhoon No. 19
    
    September 1991
    
    
    170,447
    
    
    
    22,965Downpour, August 1993
    
    August 1993
    
    
    824
    
    
    
    21,987Typhoon No. 18
    
    September 1999
    
    
    47,150
    
    
    
    23,218Hailstorm, May 2000
    
    May 2000
    
    
    24,692
    
    
    
    43Downpour, September 2000
    
    September 2000
    
    
    312
    
    
    
    71,291
   Source: Non-Life Insurance in Japan Fact Book 2002-2003, The Marine and Fire
Insurance Association of Japan. We paid insurance claims of ¥123.2 billion under fire and allied lines
insurance with respect to Typhoon No. 19, which occurred in September 1991.
This is the largest amount we paid during the last thirty years for a single
catastrophic event. Prior to this thirty-year period, particularly when public
and non-public measures against disasters were underdeveloped, Japan had
experienced typhoons and windstorms that caused heavier damage than those
listed in the above table. For example, the Isewan Typhoon of 1959 resulted in
over 800,000 damaged buildings and over 300,000 flooded buildings. Earthquake Japan is subject to earthquakes. Earthquake risk, however, is not easily
underwritten by non-life insurance companies in Japan. This is because the loss
that may result from one earthquake could be disastrously large and because the
lack of adequate statistical data makes the actuarial analysis ineffective. In
1966, the Japanese government enacted the Law Concerning Earthquake Insurance,
which implemented a government-sponsored earthquake insurance program for
dwellings and their contents. The program incorporates a partial reinsurance
arrangement with the government and limits the maximum insured amount. We write earthquake insurance under the Law Concerning Earthquake
Insurance as an extension of fire insurance coverage for dwellings and their
contents. The insured amount for earthquake coverage under these policies does
not exceed a range of 30% to 50% of the insured amount for fire insurance
coverage, up to a maximum amount of ¥50 million for the dwelling and ¥10
million for its contents. These maximum amounts are all prescribed by law. For
the year ended March 31, 2004, our direct premiums written for earthquake
insurance policies under the Law Concerning Earthquake Insurance represented
9.2% of our direct premiums written for fire and allied lines. Under the Law Concerning Earthquake Insurance, the aggregate amount of
indemnity payable by all insurers to all policyholders for any one occurrence
is limited to ¥4,500 billion. The earthquake risks written by direct insurers,
including us, are wholly reinsured with the Japan Earthquake Reinsurance
Company Limited, or JER, a private reinsurer in Japan owned by major Japanese
non-life insurance companies, including us. This portfolio is protected by (1)
an excess of loss reinsurance cover arranged between JER and the Japanese
government and (2) another excess of loss reinsurance cover arranged among JER,
Toa Reinsurance Company, Limited, or Toa, which is another private reinsurer in
Japan, and the original direct insurers, including us, which participate in
this insurance cover through retrocession agreements with JER. The maximum
amount to be paid by JER for any one occurrence, net of the amount covered by reassurance ceded, is ¥380.0 billion. The maximum
amount to be paid by the Japanese government for any one occurrence is ¥3,752.7
billion. The maximum aggregate amount to be paid by the original direct
insurers and Toa for any occurrence according to the share specified under the
retrocession agreements is ¥367.3 billion. Our share of that amount is
approximately 29.5%. The Law Concerning Earthquake Insurance requires that, if
there are special needs, such as insufficient existing funds for the payment of
indemnity under earthquake insurance policies, the Japanese government will
make efforts to arrange for, or to facilitate, financings by non-life insurance
companies for these payments. 23




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##### Table of Contents



We also write earthquake insurance for buildings and structures other than
dwellings as an extension of fire insurance coverage on a private basis. This
earthquake insurance is not entitled to the reinsurance arrangements under the
Law Concerning Earthquake Insurance, and a substantial part of the risk
associated with these policies is reinsured by reinsurers. Personal Accident We write personal accident insurance for individual customers primarily
through our agents in Japan. Generally, such insurance covers the insureds
personal injuries caused by certain types of accidents that are set forth in
the policy. Typically, a fixed amount, regardless of the actual damages sustained, is
paid according to a pre-set payment table. We offer a variety of personal
accident insurance products, including:  
    
    General Personal Accident covers the insured against a broad range of accidents resulting in personal injuries. A fixed
amount of indemnity is paid according to the type of injuries (e.g., death, permanent disability or hospitalization).
    
    Income Indemnity covers against the loss of income caused by an injury or illness.
    
    Overseas Travelers Personal Accident covers against accidents during travel and, if the policyholder has elected a
special policy condition, against illness during travel.
    
    Traffic Accident covers the insured against collisions with, or accidents occurring on, automobiles, trains, planes,
ships and other types of vehicles. Cargo and Transit Marine cargo insurance covers goods aboard vessels against risks during
international transportation or risks during transportation in coastal seas.
The terms of international cargo insurance are generally governed by the
Institute Cargo Clauses of the former Institute of London Underwriters,
currently the International Underwriting Association. This line of insurance is
unique in that it provides coverage against acts of war. Approximately 80% of
insurance premiums of our marine cargo insurance is from international cargo.
Japanese manufacturers and trading companies are our major clients for
international cargo insurance. The marine cargo insurance business is generally conducted directly by our
personnel and not by insurance agents. Insurance premiums written are affected
primarily by levels of Japanese import and export trading activity. Inland transit insurance is usually purchased by the owners of goods to
cover physical damage to those goods when they are transported by rail, truck
or domestic air transport and when the goods are stored on land incidental to
transit. Carriers of the goods, on the other hand, purchase inland transit
liability insurance to cover their legal and contractual liabilities that may
arise from handling the goods. Hull Hull insurance is one of our traditional lines of insurance. Hull
insurance covers ocean-going and coastal vessels against loss or damage caused
by sinking, stranding, grounding, fire, collision and other maritime accidents.
The coverage includes damage to the hull, loss of earnings and liability to
others for damages. Hull war risk insurance covers vessels against loss or damage resulting from acts of
war. Hull insurance is available not only to vessels in operation but also to
vessels under construction for damages caused during the construction period. 24




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##### Table of Contents



Our primary customers in this line are Japanese shipping companies, which
operate Japan flag vessels or flag of convenience vessels, as well as
Japanese shipbuilders. The marketing for these customers is generally conducted
by our personnel directly and not by insurance agents or brokers. Our revenues
in hull insurance are influenced by the number of vessels that are operated by
Japanese shipping companies directly and by foreign shipping companies closely
associated with Japanese shipping companies, as well as by the number of
vessels being built by Japanese shipbuilders. These are in turn influenced by
overall worldwide economic conditions and a number of global competitive
factors affecting the respective industries of our customers. A significant portion of our hull insurance premiums received is
denominated in currencies other than the Japanese yen, primarily the U.S.
dollar. Because accidents involving vessels can result in large losses, we
properly reinsure these risks with Japanese and overseas reinsurers. Other Lines Other types of property and casualty insurance we write include liability
insurance, aviation insurance, workers compensation insurance, movables
comprehensive insurance, contractors all-risk insurance, e-risk insurance,
nuclear insurance, weather insurance, event cancellation and abandonment
insurance, credit and guarantee insurance, and surety bonds. Liability
insurance is written primarily for business customers and includes product
liability insurance, directors and officers liability insurance and umbrella
liability insurance. Movables comprehensive insurance covers damages resulting
from loss, theft or destruction of various types of movable property. Deposit-Type Insurance Products Deposit-type insurance products combine a long-term insurance policy with
a savings feature. We and other non-life insurance companies in Japan are
permitted to attach a savings feature to almost all personal lines of insurance
other than compulsory automobile liability insurance. The premium for the
insurance portion is accounted for as premium written, and the premium for the
savings portion is accounted for as investment deposits by policyholders. For
the year ended March 31, 2004, premiums written arising from deposit-type
policies accounted for 1.8% of our direct premiums written for property and
casualty insurance. These policies, which have terms ranging from two to 64 years, provide for
the repayment at maturity of the savings-related portion of the premiums
together with interest calculated on that amount at a specified rate. The
policyholder knows of the maturity value of the savings-related portion of the
policy when he or she takes out the policy. Additional payments may also be
made depending upon our investment performance during the term of the policy
and other factors. Our repayment of the savings-related portion of the premiums
and the payment of interest are conditioned on the policy remaining in effect
until maturity. Consequently, where a claim for a total loss terminates the
policy, we are released from our obligations to make payments to the
policyholder. A total loss occurs in only a small number of cases each year.
The policyholder can terminate the deposit-type insurance contract before the
maturity date by paying us a pre-determined commission. The contractual rate of interest credited to the policy varies by product
and length of policy and is established at the beginning of the policy. We
cannot change the committed interest rate during the policy term, unless under
extraordinary circumstances where policy terms are changed pursuant to the
Insurance Business Law. Committed interest rates on newly issued policies
ranged from 0.06% to 1.60% for the year ended March 31, 2004, 0.10% to 1.60%
for the year ended March 31, 2003 and from 0.10% to 2.00% for the year ended
March 31, 2002. The savings-related portion of the premiums received under deposit-type
insurance is invested primarily in securities other than equity securities. The
investment return may exceed or fall short of the committed interest depending
on, among other factors, the expected rate of interest, the market interest
rates of these securities and the extent to which the terms of these securities
match the terms of the deposit-type insurance policies. We adjust
from time to time the committed interest offered on new deposit-type insurance
policies to reflect changes in the market levels of interest rates. 25




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##### Table of Contents



Launch of Cho Hoken and Cho Business Insurance Tokio Marine and Nichido Fire launched Cho Hoken, meaning Super
Insurance, a jointly developed product, during the fiscal year ended March 31,
2003. Cho Hoken, which we believe is an innovative product in the Japanese
market, integrates property and casualty and life insurance coverage for
individual customers. We intend to offer opportunities for lifetime security to
our customers through the marketing of this product, which is a new business
approach to the Japanese insurance market. For corporate customers, we released
Cho Business Insurance, a comprehensive policy for business activities, which
was also jointly developed by Tokio Marine and Nichido Fire, during the fiscal
year ended March 31, 2003. Cho Business Insurance offers comprehensive coverage
for various risks faced by small and medium-sized corporations, including fire,
business interruption, general liability and personal accident of employees. Premium Rates A premium under an insurance policy corresponds to the sales price of
that insurance product. There are two components of a premium: the pure
premium, which represents the cost of claims payment, and the loading, which
represents the agent commissions and certain other costs to the insurer. The
pure premium is determined by multiplying the amount insured by the applicable
premium rate, which represents the probability that the loss covered by the
insurance policy will occur. The premium rate is calculated by a formula which,
on the basis of the law of large numbers, purports to reflect the statistical
likelihood that the loss will occur. The law of large numbers is a
mathematical premise that states that the greater the number of exposures, (1)
the more accurate the prediction, (2) the less the deviation of the actual
losses from the expected losses and (3) the greater the credibility of the
prediction. Out of a large group of policyholders, an insurance company can
fairly accurately predict the number of policyholders who will suffer a loss.
The Law Concerning Non-Life Insurance Rating Organizations requires that
premium rates be reasonable and appropriate in accordance with the
mathematical principles of insurance, and that they not be unfairly
discriminatory. Prior to July 1, 1998, premium rates for certain lines of non-life
insurance were established by the rating organization that dealt with that
particular line of insurance, such as the Automobile Insurance Rating
Organization and the Property and Casualty Insurance Rating Organization.
Almost all non-life insurance companies, including us, participate in the
activities of these rating organizations, although we are not required to do
so. As discussed in Regulation, the 1998 amendment to the Law Concerning
Non-Life Insurance Rating Organizations abolished this arrangement. Since July
1998, the rating organizations have served in an advisory capacity to the
non-life insurance companies. They calculate advisory or reference risk
premium rates, prepare standard forms of insurance contracts and collect a
wide range of insurance-related data. As a result of this liberalization,
non-life insurance companies may set their own premium rates for their
products. This has had the effect of intensifying the competition in the
industry. For some lines of insurance, however, such as earthquake insurance
and compulsory automobile liability insurance, non-life insurance companies are
obligated to use standardized rates. Reinsurance In order to reduce our maximum potential net loss and to maximize the
return on our retained risk portfolio, we cede and hedge a portion of our
insurance risks to other insurers, reinsurers and investors by way of
reinsurance and risk financing tools. The benefits of reinsurance include the stabilization of profits by
reducing fluctuations of loss ratios arising from large or multiple claims, the
procurement of greater capacities to write larger risks and the control over
exposure to extraordinary losses or catastrophes. We cede to reinsurers a portion of the risks we underwrite for property
and casualty insurance. We pay reinsurance premiums to the reinsurers based
upon the risks that are subject to reinsurance. Although a reinsurer is liable
to us to the extent of the risks assumed, we remain liable as the direct
insurer to policyholders on all these risks. 26




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##### Table of Contents



We cede reinsurance to various reinsurers around the world. These
reinsurers are selected primarily for their financial security. We believe that
no material amounts are uncollectible from our current reinsurers. We utilize a variety of reinsurance arrangements, which are classified
into two basic types: proportional reinsurance and excess-of-loss reinsurance.  
    
    Proportional reinsurance. This type of reinsurance involves reinsurers
sharing a proportional part of the original premiums and losses under
the reinsurance cession assumed. This type of reinsurance is used as a
means to limit a loss amount on an individual-risk basis. In
proportional reinsurance, the reinsurer customarily pays the ceding
company a ceding commission, which is generally based upon the ceding
companys cost of acquiring the business ceded and may also include
the ceding companys margin. In most cases, this type of reinsurance
is arranged in the form of a reinsurance treaty, where the ceding
company is automatically authorized to cede any business under a set
of terms and conditions previously agreed upon without obtaining a
separate prior consent to each cession from the reinsurers. If the
underwriting capacity provided by such a treaty is not sufficient, the
ceding company would have to arrange for facultative reinsurance,
whereby a separate prior consent would have to be obtained from each
reinsurer.
    
    Excess-of-loss reinsurance. This type of reinsurance indemnifies the
ceding company against a specified level of loss on underlying
insurance policies in excess of a specified agreed amount.
Excess-of-loss reinsurance is usually arranged in layers to secure
greater capacity with more competitive pricing by offering various
levels of risk exposure with different terms for reinsurers with
different preferences. This type of reinsurance is commonly used as a
means to protect against the occurrence of catastrophes, such as
earthquakes and windstorms, by capping the total accumulated amount of
losses from the retention on each individual risk after recovery of
losses from proportional reinsurance. We manage our insurance risk portfolio in a manner similar to the concept
of Value at Risk used in managing risks in the financial markets. We take a
mathematical approach in calculating the optimal retention for most lines of
risks. Under this approach, potential fluctuations of underwriting results are
estimated in terms of risks and returns. The actual amount of risk retained is
determined by taking the amount of internal reserves into consideration,
together with the outcome of the risk and return analysis. Based on these
methods, we believe it adequately controls our exposure per risk and per
occurrence. We assume reinsurance from direct insurers and professional reinsurers as
an additional source of income. The premiums we assumed from foreign insurers
and reinsurers are generally in foreign currencies, in particular U.S. dollars. In November 1997, Tokio Marine obtained a ten-year coverage from the
capital markets for up to $90 million of specified Tokyo-area earthquake risks
through a bond offering by Parametric Re Ltd., a special purpose reinsurance
company in the Cayman Islands. The Parametric Re transaction represented the
first participation in a catastrophe bond by a Japanese insurance company,
and was intended to provide us with a long-term, stable and fully
collateralized supplemental source of catastrophe coverage through the capital
markets. The Parametric Re transaction is indicative of our interest in
utilizing traditional and non-traditional resources to respond to the changing
needs of clients and the increasing deregulation in the markets. One of the most important targets of our global risk management through
reinsurance is to increase our capital efficiency. We have been purchasing
traditional reinsurance to reduce our exposure to natural catastrophe risk in
Japan, where most of our natural catastrophe risk is concentrated. Additionally, Tokio Marine developed a new risk management method by
establishing a natural catastrophe risk exchange with other premier insurers
and reinsurers including State Farm Automobile Mutual and Swiss Re. This
exchange allows its participants to diversify their respective risk portfolios
and thereby to improve their capital efficiency. We cede domestic risk and
assume overseas risk through this exchange. We execute these transactions
(other than transactions with State Farm Automobile Mutual) through Tokio
Millennium Agency Ltd., which was launched in May 2003 as a wholly owned
subsidiary of Tokio Millennium Re Ltd. In addition to the natural catastrophe exchange, Tokio Millennium Re and
Tokio Marine Global Re assume reinsurance to further diversify our risk
portfolio. Tokio Millennium Re specializes in natural catastrophe reinsurance and the alternative risk transfer business. Tokio Marine
Global Re assumes traditional reinsurance mainly in South East Asia. 27




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##### Table of Contents



The following table, prepared on a U.S. GAAP basis, shows our reinsurance
premiums assumed and ceded, and retention ratio, for each of the periods
indicated: Year ended March 31,2004(1)
    
    2003(1)
    
    2002(1)(yen in millions, except percentages)Direct premiums written
    
    ¥
    1,978,555
    
    
    ¥
    1,987,463
    
    
    ¥
    1,509,615Reinsurance premiums assumed
    
    
    374,219
    
    
    
    325,347
    
    
    
    138,362Reinsurance premiums ceded
    
    
    (407,528
    )
    
    
    (414,253
    )
    
    
    (266,494
    )Net premiums written
    
    ¥
    1,945,246
    
    
    ¥
    1,898,577
    
    
    ¥
    1,381,483Retention ratio(2)
    
    
    82
    .7%
    
    
    82
    .1%
    
    
    83
    .8%
   (1)
    
    Our U.S. GAAP consolidated financial statements for the fiscal years
ended March 31, 2004 and 2003, from which some of the data in this table
are derived, reflect the inclusion in those financial statements of the
results of operations and financial position of Nichido Fire and its
consolidated subsidiaries from and after the date of our formation on
April 2, 2002. Accordingly, the amounts shown in this table for the fiscal
years ended March 31, 2004 and 2003 are not directly comparable to the
amounts shown for the fiscal year ended March 31, 2002. See Managements
Discussion and Analysis of Financial Condition and Results of Operations 
Overview  Business Combination.(2)
    
    The retention ratio is calculated by dividing the net premiums written by
the total of direct premiums written and reinsurance premiums assumed. Property and Casualty Losses and Reserves Loss and Expense Ratios The following table, prepared on a U.S. GAAP basis, shows information with
respect to our loss and expense ratios for our principal lines of property and
casualty insurance for each of the periods indicated: Year ended March 31,2004(1)
    
    2003(1)
    
    2002(1)(yen in millions, except percentages)Voluntary Automobile:Net premiums written
    
    ¥
    878,499
    
    
    ¥
    898,119
    
    
    ¥
    700,890Net premiums earned
    
    
    884,201
    
    
    
    902,491
    
    
    
    703,395Net loss incurred
    
    
    509,682
    
    
    
    510,457
    
    
    
    391,358Net loss ratio(2)
    
    
    57
    .6%
    
    
    56
    .6%
    
    
    55
    .6%Compulsory Automobile Liability:Net premiums written
    
    ¥
    333,640
    
    
    ¥
    280,883
    
    
    ¥
    114,903Net premiums earned
    
    
    262,082
    
    
    
    174,074
    
    
    
    109,964Net loss incurred
    
    
    207,483
    
    
    
    129,482
    
    
    
    71,895Net loss ratio(2)
    
    
    79
    .2%
    
    
    74
    .4%
    
    
    65
    .4%Fire and Allied Lines:Net premiums written
    
    ¥
    270,495
    
    
    ¥
    258,981
    
    
    ¥
    177,635Net premiums earned
    
    
    244,777
    
    
    
    239,318
    
    
    
    162,627Net loss incurred
    
    
    85,335
    
    
    
    84,363
    
    
    
    64,706Net loss ratio(2)
    
    
    34
    .9%
    
    
    35
    .3%
    
    
    39
    .8%Personal Accident:Net premiums written
    
    ¥
    152,062
    
    
    ¥
    155,077
    
    
    ¥
    121,227Net premiums earned
    
    
    151,954
    
    
    
    155,603
    
    
    
    123,976Net loss incurred
    
    
    61,290
    
    
    
    66,604
    
    
    
    53,740Net loss ratio(2)
    
    
    40
    .3%
    
    
    42
    .8%
    
    
    43
    .3%
 28




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##### Table of Contents



Year ended March 31,2004(1)
    
    2003(1)
    
    2002(1)(yen in millions, except percentages)Cargo and Transit:Net premiums written
    
    ¥
    65,998
    
    
    ¥
    62,373
    
    
    ¥
    55,293Net premiums earned
    
    
    65,869
    
    
    
    62,017
    
    
    
    53,864Net loss incurred
    
    
    30,877
    
    
    
    28,939
    
    
    
    27,854Net loss ratio(2)
    
    
    46
    .9%
    
    
    46
    .7%
    
    
    51
    .7%Hull:Net premiums written
    
    ¥
    14,484
    
    
    ¥
    14,200
    
    
    ¥
    14,200Net premiums earned
    
    
    14,309
    
    
    
    14,477
    
    
    
    13,709Net loss incurred
    
    
    9,932
    
    
    
    13,050
    
    
    
    9,327Net loss ratio(2)
    
    
    69
    .4%
    
    
    90
    .1%
    
    
    68
    .0%Other:Net premiums written
    
    ¥
    230,068
    
    
    ¥
    228,924
    
    
    ¥
    197,335Net premiums earned
    
    
    237,011
    
    
    
    212,988
    
    
    
    175,427Net loss incurred
    
    
    143,919
    
    
    
    120,786
    
    
    
    117,885Net loss ratio(2)
    
    
    60
    .7%
    
    
    56
    .7%
    
    
    67
    .2%Total:Net premiums written
    
    ¥
    1,945,246
    
    
    ¥
    1,898,557
    
    
    ¥
    1,381,483Net premiums earned
    
    
    1,860,203
    
    
    
    1,760,968
    
    
    
    1,342,962Net loss incurred
    
    
    1,048,518
    
    
    
    953,681
    
    
    
    736,765Net loss ratio(2)
    
    
    56
    .4%
    
    
    54
    .2%
    
    
    54
    .9%Net loss adjustment expenses incurred  unallocated
    
    ¥
    77,389
    
    
    ¥
    76,412
    
    
    ¥
    61,449Ratio of losses and loss adjustment expenses
incurred to net premiums earned(A)
    
    
    60
    .5%
    
    
    58
    .5%
    
    
    59
    .4%Underwriting and administrative expenses incurred
    
    ¥
    623,819
    
    
    ¥
    630,005
    
    
    ¥
    482,590Ratio of underwriting and administrative expenses
incurred to net premiums written(3)(B)
    
    
    32
    .1%
    
    
    33
    .2%
    
    
    34
    .9%Combined loss and expense ratios(4)
    
    
    92
    .6%
    
    
    91
    .7%
    
    
    94
    .3%Net premiums/direct premiums written ratio
    
    
    98
    .3%
    
    
    95
    .5%
    
    
    91
    .5%
   (1)
    
    Our U.S. GAAP consolidated financial statements for the fiscal years
ended March 31, 2004 and 2003, from which some of the data in this table
are derived, reflect the inclusion in those financial statements of the
results of operations and financial position of Nichido Fire and its
consolidated subsidiaries from and after the date of our formation on
April 2, 2002. Accordingly, the amounts shown in this table for the fiscal
years ended March 31, 2004 and 2003 are not directly comparable to the
amounts shown for the fiscal year ended March 31, 2002. See Managements
Discussion and Analysis of Financial Condition and Results of Operations 
Overview  Business Combination.(2)
    
    Ratio of (x) net loss incurred to (y) net premiums earned.(3)
    
    These data are for our property and casualty business only.(4)
    
    Sum of (A) and (B). Property and Casualty Reserves When claims are made by or against a policyholder, any amounts that we pay
or expect to pay to the policyholder are referred to as losses, and the costs
of investigating, resolving and processing those claims are referred to as loss
adjustment expenses. We establish reserves for losses and loss adjustment
expenses for claims under property and casualty insurance policies and
reinsurance policies. We establish these reserves each year for each principal
line of property and casualty insurance. In accordance with U.S. GAAP, we do
not establish specific loss or loss adjustment expense reserves until an event
that causes a loss has occurred. 29




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##### Table of Contents



Loss and loss adjustment expenses fall into two categories:  
    
    Reserves for reported claims. These reserves are based on our
estimates of future payments that will be made in respect of claims,
including expenses related to those claims. These estimates are made
on a case-by-case basis and are based on the facts and circumstances
available at the time the reserves are established. These estimates reflect the informed judgment of the claims personnel based on general
insurance reserving practices and knowledge of the nature and value of a
specific type of claim. These reserves are periodically adjusted in the
ordinary course of settlement and represent the estimated ultimate costs
necessary to bring all the pending reported claims to final settlement.
Consideration is given to historic trends and disposition patterns and loss
payments, pending levels of unpaid claims and types of coverage.
    
    Reserves for incurred but not reported claims.These
reserves are established to recognize the estimated
cost of losses that have occurred but as to which we
do not yet have notice. These reserves, like reserves
for reported claims, are established to recognize the
estimated costs, including expenses, necessary to
bring claims arising out of losses to final
settlement. Since nothing is known about the
occurrence of the losses, we rely on our past
experience to estimate our liability in respect of
incurred but not reported claims. These reserves are
estimates that involve actuarial and statistical
projections of the expected cost of the ultimate
settlement and administration of claims. The analyses
are based on facts and circumstances known at the
time, predictions of future events, estimates of
future inflation and other demographic and economic
factors. Late reported claim trends, claim severity,
exposure growth and future inflation are some of the
factors used in projecting reserve requirements for
incurred but not reported claims. These reserves are
reviewed and revised periodically as additional
information becomes available and actual claims are
reported. We factor in the following loss development information, among others,
when establishing reserves for incurred but not reported losses:  
    
    For fire and allied lines insurance: (1) substantially all losses are
paid or recognized within one year from the casualty date and (2)
substantially all underwriting risk is assumed in Japan.
    
    For liability and workers compensation insurance: (1) approximately
90% of losses are recognized within two years from the casualty date
and (2) for underwriting risk assumed outside Japan, we make reserves
based on reports from actuaries in the relevant countries.
    
    For automobile, personal accident, cargo and transit, hull and all
other insurance: (1) except for physical damage claims under
automobile insurance, substantially all losses are paid or recognized
within two years from the casualty date, (2) for physical damage
claims under automobile insurance, approximately 90% of all losses are
paid or recognized within one year and (3) substantially all
underwriting risk is assumed in Japan. The ultimate cost of losses and loss adjustment expenses is subject to a
number of highly variable circumstances. From when a claim is reported to when
it is finally settled, a change in circumstances may require established
reserves to be adjusted either upwards or downwards. Items such as changes in
the legal environment, results of litigation, changes in medical costs, costs
of automobile and home repair materials and labor rates can substantially
impact claim costs. These factors can cause actual developments to vary from
expectations, and in some cases materially. Claim reserve adjustments are
periodically reviewed and updated, using the most current information available
to management, and any adjustments resulting from changes in reserve estimates
are reflected in current results of operations. We believe, based on information currently available to us, that our
property and casualty reserves are adequate. However, the establishment of loss
reserves is an inherently uncertain process. Accordingly, ultimate losses may
differ from our initial estimates. 30




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##### Table of Contents



Reconciliation of Beginning and Ending Reserves The following table, prepared on a U.S. GAAP basis, is a summary
reconciliation of our beginning and ending reserves for property and casualty
insurance, including the effect of reinsurance ceded, for each of the periods
indicated: Year ended March 31,2004(1)
    
    2003(1)
    
    2002(1)(yen in millions)Balance at beginning of year
    
    ¥
    1,131,884
    
    
    ¥
    875,463
    
    
    ¥
    854,952Less reinsurance recoverables
    
    
    342,132
    
    
    
    247,861
    
    
    
    255,696Net balance at beginning of year
    
    
    789,752
    
    
    
    627,602
    
    
    
    599,256Adjustment in connection with the acquisition
    
    
    
    
    
    
    141,940
    
    
    
    Incurred related to:Current year insured events
    
    
    1,116,582
    
    
    
    1,029,655
    
    
    
    802,061Prior years insured events
    
    
    9,325
    
    
    
    438
    
    
    
    (3,847
    )Total incurred
    
    
    1,125,907
    
    
    
    1,030,093
    
    
    
    798,214Paid related to:Current year insured events
    
    
    588,432
    
    
    
    590,791
    
    
    
    481,710Prior years insured events
    
    
    446,825
    
    
    
    417,105
    
    
    
    288,158Total paid
    
    
    1,035,257
    
    
    
    1,007,896
    
    
    
    769,868Foreign currency translation adjustments
    
    
    (1,473
    )
    
    
    (1,987
    )
    
    
    Net balance at end of year
    
    
    878,928
    
    
    
    789,752
    
    
    
    627,602Plus reinsurance recoverable
    
    
    342,217
    
    
    
    342,132
    
    
    
    247,861Balance at end of year
    
    ¥
    1,221,146
    
    
    ¥
    1,131,884
    
    
    ¥
    875,463
   (1)
    
    Our U.S. GAAP consolidated financial statements for the fiscal years
ended March 31, 2004 and 2003, from which some of the data in this table
are derived, reflect the inclusion in those financial statements of the
results of operations and financial position of Nichido Fire and its
consolidated subsidiaries from and after the date of our formation on
April 2, 2002. Accordingly, the amounts shown in this table for the fiscal
years ended March 31, 2004 and 2003 are not directly comparable to the
amounts shown for the fiscal year ended March 31, 2002. See Managements
Discussion and Analysis of Financial Condition and Results of Operations 
Overview  Business Combination. Prior year claims and expenses incurred, as reflected in the preceding
table, resulted principally from re-estimating and settling claims established
in earlier accident years in amounts that differed from expectations. Operations Sales and Marketing In addition to our head offices, which are located in Tokyo, Tokio Marine
had 67 branches and 313 sub-branches located throughout Japan, and Nichido Fire
had 37 branches and 221 sub-branches located throughout Japan, as of March 31,
2004. Branches and sub-branches carry out ordinary insurance activities, such
as loss adjustment and claim settlement, in specified geographical areas or for
certain categories of industries, all at their own discretion within authorized
limits. Certain activities in the branches are under the control of Tokio
Marine and Nichido Fires head office in Tokyo, including all reinsurance
business and transactions involving amounts which exceed the branches
authorized limits. Non-life insurance in Japan is sold primarily through a network of full-
and part-time insurance agents. As of March 31, 2004, Tokio Marine had 51,154
insurance agents throughout Japan. As of the same date, Nichido Fire had 21,856
insurance agents apart from 1,205 employees of its direct sales staff. These
agents include corporations and individuals. In addition to the traditional agency system used to sell insurance
products, since April 2001, as a result of insurance industry deregulation,
Japanese commercial banks have been permitted to sell certain insurance
products of their affiliated insurance companies at their branch offices. We
utilize commercial banks, with their national and regional networks of
branches, as a distribution channel for our products.

Agents have historically been
compensated on a commission basis, with rates varying according to the type of
insurance and the qualifications of the agents. We recently introduced a new
compensation system that uses individual performance criteria to a greater
extent in determining compensation for agents. Insurance agents in Japan are
required to be registered with the Financial Services Agency, or the FSA. 31




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Our agents in Japan are authorized to write substantially all lines of
insurance. Approximately 93% of our total direct premiums written (including
deposits received) in the year ended March 31, 2004 originated through our
agents. Through our underwriting agents, subsidiaries and affiliates, we sell
insurance in 39 countries and territories overseas, including the United
States, where we sell insurance in all 50 states. Approximately 4% of our
direct premiums written for the year ended March 31, 2004 originated from
policies written outside of Japan. Tokio Marine and Nichido Fire adopted an on-line agency system in 1991 and
continuously expanded this system, which allows for greater efficiency in the
contract process by allowing agents to directly input and access contract data.
As of March 31, 2004, this on-line system was available for approximately
230,000 users on a combined basis. The number of contracts whose terms were
directly input by Tokio Marines and Nichido Fires agents using this system
was approximately 12 million in the year ended March 31, 2004. We have made efforts in developing the on-line systems for agents to
increase work efficiency and strengthen sales capabilities at both insurance
companies and agents. During the fiscal year ended March 31, 2003, Tokio Marine
and Nichido Fire began to develop Millea Partners Net, a new on-line system
for agents utilizing broadband communications. As of March 31, 2004, Millea
Partners Net was used by approximately 26,000 agents of Tokio Marine with an
aggregate of 76,000 users and 10,500 agents of Nichido Fire with an aggregate
of 15,500 users. Claims Processing Claims of policyholders are accepted for processing either by insurance
agents or directly by us at our branch offices. There is great customer demand
for quick claims processing at a nearby office. In view of the intensifying
competition among various sectors in the insurance and other financial markets
in Japan, we have focused on expediting claims processing in order to satisfy
customer needs. We handle calls from our policyholders involved in accidents
throughout Japan from our toll-free line 24 hours a day. In August 2003, we
launched a new service which includes giving advice immediately after an
accident, making initial contact to hospitals and repair yards and offering
expert assistance with car troubles and health problems. By offering such
services over the telephone, we aim to mitigate our customers anxiety at the
outset of an accident. For policyholders of our overseas travel accident
insurance, we have facilities to respond to phone calls from policyholders
traveling anywhere in the world and provide appropriate services to these
customers. As of July 1, 2004, there were 217 claims handling offices for Tokio
Marine and 132 claims handling offices for Nichido Fire throughout Japan,
including their branch offices, that engage in claims processing work. Nichido Fire Operational
Reform Order On August 20, 2004, Nichido Fire received an operational reform order from
the FSA in connection with inappropriate conduct involving one of Nichido
Fires direct sales staff. In response to the reform order, Nichido Fire has
submitted an operational reform plan to the FSA. Nichido Fire has started to
implement reforms based on the plan, and after the merger, Tokio Marine &
Nichido intends to continue the efforts to address the issues
presented in the FSA operational reform order. Life Insurance Business Following an amendment to the Insurance Business Law, which permitted
non-life and life insurance companies to enter one anothers markets through
subsidiaries, Tokio Marine established The Tokio Marine Life Insurance Company,
Limited, or Tokio Marine Life, in August 1996 to carry out its life insurance
business. In addition, Nichido Fire established The Nichido Life Insurance Co.,
Ltd., or Nichido Life, in 1996. Since these two subsidiaries were established,
our life insurance business has experienced rapid growth. The number of
existing policies exceeded one million during the year ended March 31, 2003. In
April 2003, we made Tokio Marine Life and Nichido Life our direct subsidiaries
and merged the two subsidiaries on October 1, 2003. The surviving entity was
named Tokio Marine & Nichido Life Insurance Co., Ltd., or Tokio Marine &
Nichido Life. We are focusing our sales efforts on lapse-supported type life insurance
products, such as Nagawari, which is described below. We seek to position
these products to compete with existing life insurance companies by offering
competitive premium rates. Currently, our main products include comprehensive
lifetime insurance, fixed term insurance and pension insurance. 32




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##### Table of Contents



We see product innovation as a core element of our strategy and work to
develop new products that will satisfy our customers needs. For example, Tokio
Marine Lifes Nagawari is a lapse-supported
whole-life insurance product which allows us to offer lower premiums by making use of high
surrender charge. In 1998, Tokio Marine Life launched Mittsu-no-Anshin, or
Triple Coverage, a new type of comprehensive whole-life insurance combining
coverage for hospitalization, nursing care and death benefits, won an
innovative-product award in February 1998 from the Nihon Keizai Shimbun, the
Japanese daily business journal. In 1999, Tokio Marine Life launched Nagawari
Mittsu-no-Anshin, a product which combines the characteristics of the two
previously released products. In 2002, Tokio Marine Life revised its Household
Income Coverage insurance, a fixed term insurance product which covers
household income by monthly payment of insurance money for a reasonable
premium. In January 2004, we launched Anshin Dollar Annuity, a U.S. dollar
denominated annuity, in the Japanese market through Tokio Marine & Nichido
Life. In
February 2004, we acquired Skandia Japan, which was primarily engaged in
the variable insurance and individual variable annuity businesses, and
subsequently positioned it as our directly held subsidiary, Tokio Marine &
Nichido Financial Life. We intend to further strengthen our variable annuity
business by leveraging the expertise and existing infrastructure of Skandia
Japan and utilizing synergies with our existing businesses. We utilize our property and casualty insurance businesss nationwide
network of insurance agents to sell life insurance products. We rely largely on
our property and casualty insurance business agents for marketing and sales. We
plan to further strengthen cross-selling of life and non-life insurance
products. To achieve this, in 2002, we started utilizing promoters, who are
sales support personnel to assist insurance agents in marketing life insurance
products. We also increased the number of Life Partners, our direct sales
staff for life insurance. We also aim to further strengthen other distribution
channels such as agents specializing in life products and sales through banks. Since we began operations, we have steadily expanded our life insurance
business, actively introducing and marketing innovative products. Our total
insurance-in-force as of March 31, 2004 was ¥13.8 trillion, compared to ¥11.9
trillion as of March 31, 2003. Third Sector Insurance Business In the Japanese insurance industry, the third sector refers to insurance
products and services that do not fall within the traditional life and non-life
insurance areas, such as personal accident, medical and cancer insurance, and
insurance covering expenses for nursing care. Since the deregulation in January
2001 and further in July 2001, we have been offering through our life insurance
as well as property and casualty subsidiaries cancer and medical insurance
products. In 2003, Tokio Marine Life released Medical Mini, a medical
insurance product featuring simplified terms and conditions at an affordable
price, thereby continuing to expand its business in this area. Overseas Operations Our overseas business dates back to 1880, when Tokio Marine started
offering insurance products in the United Kingdom, France and the United
States. As of March 31, 2004, we maintained branch offices in the United States
and China and overseas offices in 29 other countries, territories and
jurisdictions. We issue insurance policies in 39 countries and territories outside of
Japan. A substantial portion of these policies is for overseas subsidiaries and
affiliates of our corporate customers in Japan. Most of our overseas
underwriting business is conducted by Tokio Marine as well as by the following
principal subsidiaries and affiliates:  
    
    Asia and Oceania The Tokio Marine and Fire Insurance Company (Hong
Kong) Limited and The Tokio Marine and Fire Insurance Company
(Singapore) Pte. Limited and Tokio Marine Management (Australasia)
Pty. Ltd.
    
    The Americas Tokio Marine Management, Inc., First Insurance Company
of Hawaii, Ltd., Tokio Marine Compañia de Seguros, S.A. de C.V., Tokio
Marine Brasil Seguradora S.A. and Tokio Millennium Re Ltd.
    
    Europe, the Middle East and Africa Tokio Marine Europe Insurance
Limited and Tokio Marine Global Re Limited. One of our objectives is to expand the profitability and size of our
international operations simultaneously on a coordinated basis, with particular
emphasis on Asia. 33




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##### Table of Contents



In December 2002, we launched Millea Asia Pte. Ltd. as an intermediate
holding company in Singapore to facilitate the growth of our Asian insurance
business. We transferred the Asian insurance management operations of Tokio
Marine to the new company in April 2003. Millea Asia is in charge of planning
our business growth strategy, pursuing business tie-ups and merger and
acquisitions opportunities, and managing our local subsidiaries in the Asian
region (excluding Japan). In December 2002, Millea Asia invested in Newa
Insurance Co., Ltd., a property and casualty insurance company in Taiwan. In
July 2003, Millea Asia, together with Tokio Marine, acquired a 24.9% interest
in Sino Life Insurance Co., Ltd., a life insurer in China. Investments We invest in a portfolio of assets using funds which represent either (1)
our general funds, including that portion of net premiums written that have not
been disbursed as claims payments or (2) that portion of deposit premiums by
policyholders under deposit-type insurance that are not due for refund to the
policyholders. Our principal investment objectives are: first, to maintain the high
quality of our investment assets in order to strengthen our claim payment
capabilities; second, to maintain sufficient liquidity to timely meet the
requirements of indemnity payments and payments of maturity refunds and
dividends; and third, subject to satisfying the first two objectives, to obtain
the highest possible return on our investments. We also seek to maintain and
enhance our business relationships with major corporate customers in Japan by
investing in the equity securities of those customers on a long-term basis. We engage in asset-liability management with respect to long-term assets
and liabilities, seeking a stable present net asset value by controlling
interest rate risk. We also seek to increase profit by investing flexibly in
various assets that we believe will produce profits commensurate with the
associated risks. The Japanese governments regulations concerning non-life insurance
companies specify the types of assets in which they can invest, and also set
upper limits on various kinds of investments based on a percentage of the book
value of total assets. For example, investment in domestic stocks is limited to
30% of the book value of total assets, real estate to 20%, and assets in
foreign currency to 30%. Under special circumstances, the FSA may approve
investments in excess of these limits. Our investment portfolio consists primarily of Japanese and foreign equity
securities, Japanese and foreign bonds and loans to Japanese companies. The
following table, prepared on a U.S. GAAP basis, shows our investments as of
each date indicated: As of March 31,2004(1)
    
    2003(1)
    
    2002(1)(yen in millions)Investments  other than investments in related parties:Securities held to maturity, at amortized cost
    
    ¥
    1,109,861
    
    
    ¥
    883,336
    
    
    ¥
    470,188Securities available for sale:Fixed maturities, at fair value
    
    
    3,209,582
    
    
    
    3,421,624
    
    
    
    2,002,069Equity securities, at fair value
    
    
    3,457,374
    
    
    
    2,534,221
    
    
    
    2,693,591Trading securities, at fair value
    
    
    48,513
    
    
    
    25,936
    
    
    
    Mortgage loans on real estate
    
    
    129,076
    
    
    
    148,655
    
    
    
    144,323Investment real estate
    
    
    104,110
    
    
    
    82,886
    
    
    
    96,967Policy loans
    
    
    33,610
    
    
    
    29,171
    
    
    
    20,615Other long-term investments
    
    
    419,199
    
    
    
    559,004
    
    
    
    535,666Short-term investments
    
    
    881,897
    
    
    
    660,370
    
    
    
    665,406Total investments
    
    ¥
    9,393,222
    
    
    ¥
    8,345,203
    
    
    ¥
    6,628,825
   (1)
    
    Our U.S. GAAP consolidated financial statements for the fiscal years
ended March 31, 2004 and 2003, from which some of the data in this table
are derived, reflect the inclusion in those financial statements of the
results of operations and financial position of Nichido Fire and its
consolidated subsidiaries from and after the date of our formation on
April 2, 2002. Accordingly, the amounts shown in this table for the fiscal
years ended March 31, 2004 and 2003 are not directly comparable to the amounts shown for the fiscal year ended March 31, 2002.
See Managements Discussion and Analysis of Financial Condition and Results
of Operations  Overview  Business Combination. 34




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##### Table of Contents



Securities Available for Sale The following table, prepared on a U.S. GAAP basis, shows our investments
in securities available for sale by type (other than in related parties) as of
each date indicated: As of March 31,2004(1)
    
    2003(1)
    
    2002(1)(yen in millions)Japanese fixed maturities
    
    ¥
    2,747,031
    
    
    ¥
    2,865,672
    
    
    ¥
    1,576,596Foreign fixed maturities
    
    
    462,551
    
    
    
    555,952
    
    
    
    425,473Total fixed maturities
    
    
    3,209,582
    
    
    
    3,421,624
    
    
    
    2,002,069Japanese equity securities
    
    
    3,301,699
    
    
    
    2,343,710
    
    
    
    2,515,023Foreign equity securities
    
    
    155,675
    
    
    
    190,511
    
    
    
    178,568Total equity securities
    
    
    3,457,374
    
    
    
    2,534,221
    
    
    
    2,693,591Total securities available for sale
    
    ¥
    6,666,956
    
    
    ¥
    5,955,845
    
    
    ¥
    4,695,660
   (1)
    
    Our U.S. GAAP consolidated financial statements for the fiscal years
ended March 31, 2004 and 2003, from which some of the data in this table
are derived, reflect the inclusion in those financial statements of the
results of operations and financial position of Nichido Fire and its
consolidated subsidiaries from and after the date of our formation on
April 2, 2002. Accordingly, the amounts shown in this table for the fiscal
years ended March 31, 2004 and 2003 are not directly comparable to the
amounts shown for the fiscal year ended March 31, 2002. See Managements
Discussion and Analysis of Financial Condition and Results of Operations 
Overview  Business Combination. Japanese bonds. We invest in Japanese government bonds, local government
bonds and corporate bonds, which generally yield higher returns on investment,
yet are nearly as liquid, when compared with deposits and savings or call
loans. We purchase Japanese bonds primarily to meet future obligations arising
from insurance and investment contracts. Foreign bonds. We invest in government and corporate bonds of foreign
issuers with a view toward generating interest income which is generally higher
as compared with investments in Japanese bonds under recent market conditions.
We also invest with a view toward maintaining a certain degree of liquidity in
our assets in the event of a major natural disaster in Japan that temporarily
incapacitates the Japanese financial and monetary system and necessitates
indemnity payments under our policies. We manage and control foreign exchange
exposures within certain parameters, primarily by using forward exchange
contracts and currency options. Japanese equities. As part of our investment activities, we invest in
equity securities of Japanese companies, primarily in equity securities listed
on the Tokyo Stock Exchange, consistent with our overall investment objectives.
We also seek to maintain and enhance our business relationships with major
corporate customers in Japan by investing in the equity securities of those
customers on a long-term basis. 35




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##### Table of Contents



Loans The following table, prepared on a U.S. GAAP basis, shows our investments
in loans (other than those to related parties) as of each date indicated: As of March 31,2004(1)
    
    2003(1)
    
    2002(1)(yen in millions)Mortgage loans on real estate
    
    ¥
    129,076
    
    
    ¥
    148,655
    
    
    ¥
    144,323Mortgage loans on vessels and facilities(2)
    
    
    20,356
    
    
    
    22,125
    
    
    
    25,061Collateral and bank-guaranteed loans(2)
    
    
    18,542
    
    
    
    22,096
    
    
    
    29,800Unsecured loans(2)
    
    
    357,504
    
    
    
    440,997
    
    
    
    404,419Policy loans
    
    
    33,610
    
    
    
    29,171
    
    
    
    20,615Total
    
    ¥
    559,088
    
    
    ¥
    663,044
    
    
    ¥
    624,218
   (1)
    
    Our U.S. GAAP consolidated financial statements for the fiscal years
ended March 31, 2004 and 2003, from which some of the data in this table
are derived, reflect the inclusion in those financial statements of the
results of operations and financial position of Nichido Fire and its
consolidated subsidiaries from and after the date of our formation on
April 2, 2002. Accordingly, the amounts shown in this table for the fiscal
years ended March 31, 2004 and 2003 are not directly comparable to the
amounts shown for the fiscal year ended March 31, 2002. See Managements
Discussion and Analysis of Financial Condition and Results of Operations 
Overview  Business Combination.(2)
    
    Included in other long-term investments in our balance sheet prepared
in accordance with U.S. GAAP. Most of our loans are to corporate borrowers in Japan. Since the financial
needs of major corporate borrowers are at a low level under present economic
conditions, and because these borrowers tend to look more to capital markets in
raising funds, the aggregate amount of our loans outstanding has declined over
the last few years. In addition, we liquidated a portion of our loans in order
to improve our risk/return profile. The increase in loans outstanding as of
March 31, 2003, when compared with loans outstanding as of March 31, 2002
results solely from the inclusion of Nichido Fire. Short-Term Investments The following table, prepared on a U.S. GAAP basis, shows our short-term
investments by type as of each date indicated: As of March 31,2004(1)
    
    2003(1)
    
    2002(1)(yen in millions)Call loans
    
    ¥
    587,092
    
    
    ¥
    440,093
    
    
    ¥
    403,700Commercial paper
    
    
    21,599
    
    
    
    599
    
    
    
    61,472Deposits and other invested cash
    
    
    273,206
    
    
    
    219,678
    
    
    
    200,234Total
    
    ¥
    881,897
    
    
    ¥
    660,370
    
    
    ¥
    665,406
   (1)
    
    Our U.S. GAAP consolidated financial statements for the fiscal year ended
March 31, 2003, from which some of the data in this table are derived,
reflect the inclusion of Nichido Fire and its consolidated subsidiaries
from and after the date of our formation on April 2, 2002. Accordingly,
the amounts shown in this table for the fiscal years ended March 31, 2003
are not directly comparable to the amounts shown for the fiscal year ended
March 31, 2002. See Managements Discussion and Analysis of Financial
Condition and Results of Operations  Overview  Business Combination. Call loans are short-term loans, with maturities generally ranging from
overnight to three weeks, that are made to banks, securities companies and
money market dealers. We invest in call loans in order to maintain necessary
liquidity in our investment portfolio while seeking to generate returns based
on interest rates that reflect current market conditions. 36




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##### Table of Contents



Investment Results The following table, prepared on a U.S. GAAP basis, shows our investment
results for each of the periods indicated: Year ended March 31,2004(1)
    
    2003(1)
    
    2002(1)(yen in millions)Investment income:Interest on fixed maturities
    
    ¥
    73,683
    
    
    ¥
    65,762
    
    
    ¥
    51,913Dividends from equity securities
    
    
    36,692
    
    
    
    32,785
    
    
    
    29,409Interest on mortgage loans on real estate
    
    
    3,286
    
    
    
    3,715
    
    
    
    4,219Rent from investment real estate
    
    
    12,501
    
    
    
    12,817
    
    
    
    12,907Interest on policy loans
    
    
    1,280
    
    
    
    1,156
    
    
    
    830Interest on other long-term investments
    
    
    9,339
    
    
    
    11,475
    
    
    
    11,802Interest on short-term investments
    
    
    4,313
    
    
    
    5,677
    
    
    
    4,113Others
    
    
    1,850
    
    
    
    1,715
    
    
    
    7,987Gross investment income
    
    
    142,944
    
    
    
    135,102
    
    
    
    123,180Less investment expenses
    
    
    16,771
    
    
    
    26,791
    
    
    
    18,499Net investment income
    
    
    126,173
    
    
    
    108,311
    
    
    
    104,681Realized gains (losses) on investments:Fixed maturities
    
    
    (8,399
    )
    
    
    11,553
    
    
    
    8,244Equity securities
    
    
    4,645
    
    
    
    (37,957
    )
    
    
    (11,900
    )Other investments
    
    
    (101
    )
    
    
    (3,471
    )
    
    
    2,636Realized losses on investments
    
    
    (3,855
    )
    
    
    (29,875
    )
    
    
    (1,020
    )Gains (losses) on derivatives:Interest rate swaps
    
    
    (45,775
    )
    
    
    68,011
    
    
    
    28,204Foreign exchange contracts
    
    
    7,458
    
    
    
    11,688
    
    
    
    (25,231
    )Credit default swaps
    
    
    6,797
    
    
    
    (3,996
    )
    
    
    (9,662
    )Other
    
    
    (5,235
    )
    
    
    861
    
    
    
    (630
    )Gains (losses) on derivatives
    
    
    (36,755
    )
    
    
    76,564
    
    
    
    (7,319
    )Total net investment income,
realized losses on
investments and gains
(losses) on derivatives
    
    ¥
    85,563
    
    
    ¥
    155,000
    
    
    ¥
    96,342
   (1)
    
    Our U.S. GAAP consolidated financial statements for the fiscal years
ended March 31, 2004 and 2003, from which some of the data in this table
are derived, reflect the inclusion in those financial statements of the
results of operations and financial position of Nichido Fire and its
consolidated subsidiaries from and after the date of our formation on
April 2, 2002. Accordingly, the amounts shown in this table for the fiscal
years ended March 31, 2004 and 2003 are not directly comparable to the
amounts shown for the fiscal year ended March 31, 2002. See Managements
Discussion and Analysis of Financial Condition and Results of Operations 
Overview  Business Combination. Subsidiaries and Affiliates Significant Subsidiaries The following were our significant subsidiaries as of March 31, 2004, all
of which were wholly owned and incorporated in Japan, except as otherwise
noted: The Tokio Marine and Fire Insurance Company, Limited, The Nichido Fire
and Marine Insurance Company, Limited, Tokio Marine & Nichido Life Insurance
Co., Ltd., Tokio Marine & Nichido Financial Life Insurance Co., Ltd. (formerly
known as Skandia Life Insurance Company (Japan) Limited), The Tokio Marine &
Nichido Career Service Company, Limited, Tokio Marine Europe Insurance Limited
(incorporated in the United Kingdom), The Tokio Marine and Fire Insurance
Company (Hong Kong) Limited (incorporated in Hong Kong, China), Trans Pacific
Insurance Company (incorporated in New York, U.S.A.), Tokio Millennium Re Ltd
(incorporated in the Bermudas), Tokio Marine Global Re Limited (incorporated in
Ireland), Tokio Marine Asset Management Company, Limited (97.5% owned), Millea
Asia Pte. Ltd. (incorporated in Singapore), The Tokio Marine and Fire Insurance
Company (Singapore) Pte. Limited (90% owned) (incorporated in Singapore), Tokio
Marine Brasil Seguradora S.A. (91.3% owned) (incorporated in Brazil), Nichido
Investment (Luxembourg) S.A. (incorporated in Luxembourg and
liquidated as of May 24, 2004) and Tokio Marine
Financial Solutions Ltd. (incorporated in the Cayman Islands). 37




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Relationships with the Mitsubishi Group Tokio Marine is a member of the Mitsubishi Group, which has evolved over a
period of more than 100 years. The Mitsubishi Group relationship, which is
similar to that of other major Japanese corporate groups, is one of cooperation
in areas of common interest within a group of companies, each operating
independently under its own separate management. Currently there are about 30
Mitsubishi Group companies engaged in a broad range of activities, including
manufacturing, trading, natural resources, transportation, real estate,
banking, securities and life and non-life insurance. We believe that we write a
substantial majority of the non-life insurance for Mitsubishi Group companies. Competition There is strong competition in the Japanese non-life insurance industry.
We expect that, as deregulation of the insurance business continues,
competition will intensify at all levels. Competition within the non-life insurance industry involves, among other
things, expansion of an agency network through the training of new insurance
agents, investment in information technology systems and the development and
marketing of new insurance products and related services. We expect competition
in premium rates and commissions to increase for our property and casualty
lines of business as a result of the continuing deregulation of the non-life
insurance industry. We believe that it is important to continue to compete on
the basis of the quality of services associated with our insurance products,
such as the giving of advice on risk management matters to business customers
and extended-hour services for automobile insurance claims processing, rather
than on premium rates being reduced. Recent consolidation and alliances among non-life and life insurance
companies in Japan have increased competition within the industry. We represent
one of the five major non-life insurer groupings that have emerged in the
Japanese insurance industry. The others are: the Sompo Japan insurance group
(formed by Yasuda Fire and Marine Insurance and others); the Mitsui Sumitomo
insurance group (formed by Mitsui Marine and Fire Insurance and Sumitomo Marine
and Fire Insurance); the Aioi insurance group (formed by Chiyoda Fire and
Marine Insurance and Daitokyo Fire and Marine Insurance); and the Nipponkoa
insurance group (formed by Nippon Fire and Marine Insurance and Koa Fire and
Marine Insurance and others). There have also been alliances between non-life
and life insurers, such as Sompo Japan with Dai-Ichi Mutual Life and Nipponkoa
Insurance with Taiyo Life. Major insurance companies with global operations, have already entered the
Japanese insurance market. We believe that the current strategy of these global
insurance companies focuses on marketing methods and products that are not yet
popular in Japan, such as direct marketing to individual customers and
risk-segmented automobile insurance. While it is probable that over time some
foreign insurers will succeed in increasing their sales of products that are
already popular with consumers in Japan, such as voluntary automobile
insurance, through direct marketing, the market share of foreign companies is
currently fairly limited. Some of the foreign insurers have already exited from
the Japanese insurance market. We do not feel these companies pose a threat to
our market position but we are closely monitoring the situation and will
respond if necessary. Many of Japans life insurance companies have established non-life
insurance subsidiaries as permitted under the 1995 amendments to the Insurance
Business Law. Although these non-life insurance subsidiaries have yet to make
significant inroads into the non-life insurance market, we continue to monitor
the activities of these subsidiaries and their parent companies closely. Life insurance providers in Japan can be classified into three categories:
traditional life insurers, new entrants, such as the foreign life insurers and
Japanese non-life insurers, including Tokio Marine & Nichido Life and the
postal life insurance system. The ten largest traditional life insurers
continue to underwrite the large majority of privately underwritten life
insurance in Japan. As discussed in the non-life insurance industry section,
life insurance subsidiaries of non-life companies were established in 1996 and
thereafter as a result of the deregulation of insurance businesses in Japan.
The postal life insurance system, a public insurance system managed
by Japan Post, is a distinctive element of the Japanese life insurance
market. Postal life insurance products are offered through the network of post
offices located throughout Japan. 38




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##### Table of Contents



Properties We lease real property in Tokyo for use in our operations at the holding
company level. The floor space for our office is approximately 19,800 square
feet. Tokio Marine owns and leases real property for use in its operations.
Approximately 85% of the 6,300,272 square feet of real property that Tokio
Marine uses in its Japanese operations is owned. Tokio Marine owns two large
buildings (25 stories and 15 stories) in Marunouchi, Tokyos central business
district. 63% of the total space in these two buildings (1,241,280 square feet)
is used by Tokio Marine and its subsidiaries; the rest is held for lease to
tenants. Tokio Marine also owns and utilizes approximately 670,000 square feet of
floor space for its data center located in a suburb of Tokyo. In this center,
Tokio Marine utilizes five sets of leased computers with a total capacity of
3,480 million instructions per second, or MIPS. In addition, Tokio Marine has a
data center located in a suburb of Osaka. This center has total floor space of
approximately 260,000 square feet and is equipped with three sets of leased
computers with a total capacity of 370 MIPS. The Osaka center serves as a
backup center in case of a disaster in the Tokyo area. The Osaka center
operates in conjunction with the Tokyo center to share the data processing load
of Tokio Marine. Nichido Fire also owns and leases real property for use in its operations.
Approximately 48% of the 2,824,606 square feet of real property that Nichido
Fire uses in its Japanese operations is owned. Employees As of March 31, 2004, We had 19,779 employees on a consolidated basis, of
which 18,125 employees were in the property and casualty insurance business, 1,237 were in
the life insurance business and 417 were in the other businesses, compared with
20,221 employees on a consolidated basis as of March 31, 2003, of which 19,151
employees were in the property and casualty insurance business, 944 were in the life
insurance business and 126 were in the other businesses. As of March 31, 2002,
prior to our formation, Tokio Marine had, on a consolidated basis,
approximately 14,200 employees and Nichido Fire had, on a consolidated basis,
approximately 6,600 employees. A majority of Tokio Marine, Nichido Fire and
Tokio Marine & Nichido Life employees are members of their respective labor
unions, which negotiate with the respective companies concerning remuneration
and working conditions. We consider our labor relations to be good. Legal Proceedings Neither we nor any of our operating subsidiaries is a party to any
material pending legal proceedings other than routine litigation incidental to
our business. In addition, we are not aware of any litigation that is
reasonably likely to have a material adverse effect on our financial position
or results of operations. 39




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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS You should read the following discussion and analysis in conjunction with
our U.S. GAAP consolidated financial statements included in this annual report,
together with the related notes. The following discussion is based on those
U.S. GAAP consolidated financial statements. Our fiscal year end is March 31. Our U.S. GAAP consolidated financial statements for the fiscal years ended
March 31, 2004 and 2003 reflect the inclusion in those financial statements of
the results of operations and financial position of Nichido Fire and its
consolidated subsidiaries from and after the date of our formation on April 2,
2002. Consistent with U.S. GAAP and with Exchange Act requirements regarding
the presentation of our financial statements, our U.S. GAAP consolidated
financial statements for the fiscal year ended March 31, 2002 has not been
restated to include the results of operations and financial position of Nichido
Fire and its consolidated subsidiaries for that fiscal year. Accordingly, our
U.S. GAAP financial statements for the years ended March 31, 2004 and 2003 are
not directly comparable to our financial statements for the year ended March
31, 2002. See  Overview  Business Combination and  Results of Operations
 Year Ended March 31, 2003 Compared to Year Ended March 31, 2002. Overview We are principally engaged in the insurance business in Japan and in
overseas markets. We offer property and casualty insurance products as well as
life insurance products. In the year ended March 31, 2004, our property and casualty insurance
business generated 88.2% of our operating income and 88.4% of our net income.
The remainder was generated by our life insurance business. Our operating income consists of premiums from our property and casualty
insurance policies, life premiums, net
investment income and gains (losses) on derivatives minus realized losses on
investments. We earn most of our premiums from our operations in Japan. Our
operating costs and expenses consist primarily of losses and claims under our
property and casualty insurance policies, policy benefits and losses under our
life insurance policies and policy acquisition costs. In connection with our formation and the business combination of Tokio
Marine and Nichido Fire, we began to include Nichido Fires operating results
and financial position in our consolidated financial statements in year ended
March 31, 2003, which significantly affected our financial statements. See 
Business Combination. In addition to the inclusion of Nichido Fire, we believe that our results
of operations and financial condition over the past three fiscal years have
been influenced by the following major trends:  
    
    Significant fluctuations in the value of Japanese equities, in
particular a significant increase in Japanese equity prices in the
year ended March 31, 2004, or fiscal 2004, subsequent to a significant
decrease in Japanese equity prices in the years ended March 31, 2003
and 2002, or fiscal 2003 and 2002, which have resulted in significant
fluctuations in our realized and unrealized gains (losses) on
investments;
    
    Significant fluctuations in long-term interest rates in Japan, in
particular a significant increase in long-term interest rates in Japan
in fiscal 2004, subsequent to a significant decrease in long-term
interest rates in Japan in fiscal 2003, which have resulted in
significant fluctuations in our gains (losses) on derivatives, our
unrealized gains (losses) on investments and the value of our
investment deposits by policyholders and other long-term insurance
liabilities;
    
    Increased competition in the property and casualty insurance business,
including price competition which requires us to offer competitive
products at competitive rates;
    
    Slowing demographic growth and an aging population in Japan, which
limit the overall growth potential of the individual insurance market
in Japan while providing growth opportunities for insurance products
that respond to the needs of the elderly, such as third sector
insurance; 40




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##### Table of Contents




    
    Limited growth in the number of automobiles in Japan, which affects
the growth potential for automobile insurance in Japan; and
    
    Improving economic activity in Japan, as Japans real gross domestic
product grew by 3.3% in fiscal 2004 and by 1.6% in fiscal 2003, after
having decreased by 1.2% in fiscal 2002. The following is a discussion of our results of operations in fiscal 2004
compared to fiscal 2003. For a detailed discussion of changes in our results of
operations, see  Results of Operations.  
    
    Total operating income increased in fiscal 2004 by ¥15,112 million, or
0.7%, to ¥2,193,566 million, reflecting primarily an increase in net
premiums written for property and casualty insurance and a decrease in
realized losses on investments that was partially offset by a decrease
in life premiums and an increase in losses on derivatives.
    
    Total operating cost and expenses increased in fiscal 2004 by ¥64,153
million, or 3.2%, to ¥2,041,299 million, reflecting primarily an
increase in losses, claims and loss adjustment expenses in our
property and casualty insurance business, partially offset by a decrease in policy
benefits and losses for life and policy acquisition costs.
    
    As a result, income before extraordinary items and cumulative effect
of accounting changes decreased by ¥26,812 million, or 20.7%, to
¥102,882 million. The main reason for this decrease was an
increase in losses on derivatives that are primarily utilized in our economical
hedging activities for asset liability management, partially offset by
improvement in underwriting results.
    
    Net income decreased in fiscal 2004 by ¥275,135 million, or 72.8%, to
¥102,882 million. In fiscal 2003, net income included extraordinary
items amounting to ¥248,323 million, which was unallocated negative
goodwill arising from the business combination with Nichido Fire. The following is a discussion of our results of operations in fiscal 2003
compared to fiscal 2002. For a detailed discussion of changes in our results of
operations see  Results of Operations.  
    
    Total operating income increased in fiscal 2003 by ¥529,942 million,
or 32.1%, to ¥2,178,454 million. The inclusion of Nichido Fires
results of operations in our consolidated statement of income in
fiscal 2003 accounted for an increase of 20.9% in our operating income
when compared to fiscal 2002. The remaining increase was mainly due to
an increase in net premiums written for property and casualty
insurance and life premiums and an increase in gains on derivatives.
    
    Total operating cost and expenses increased in fiscal 2003 by ¥437,302
million, or 28.4%, to ¥1,977,146 million. The inclusion of Nichido
Fires results of operations in our consolidated statement of income
in fiscal 2003 accounted for an increase of 25.3% in our operating
cost and expenses. The remaining increase was primarily attributable
to increases in policy benefits and losses for life, losses and claims
incurred and provided for and policy acquisition costs, partially
offset by a decrease in income credited to investment deposits by
policyholders.
    
    As a result, income before extraordinary items and cumulative effect
of accounting changes increased by ¥54,442 million, or 72.3%, to
¥129,694 million. The inclusion of Nichido Fires results of
operations in our consolidated statement of income in fiscal 2003
accounted for a decrease of 38.4% in our income before extraordinary
items and cumulative effect of accounting changes. The main reason for
the remaining increase was an improvement in underwriting results and
an increase in gains on derivatives that are primarily utilized in our
economical hedging activities for asset liability management.
    
    Net income increased in fiscal 2003 by ¥217,300 million, or 135.2%, to
¥378,017 million. In fiscal 2003, net income included extraordinary
items amounting to ¥248,323 million, which was unallocated negative
goodwill arising from the business combination with Nichido Fire. In
fiscal 2002, net income included cumulative effect of accounting
changes, net of tax amounting to ¥85,465 million due to the adoption
of SFAS No. 133, as amended, as of April 1, 2002. 41




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##### Table of Contents



We plan to merge our subsidiaries Tokio Marine and Nichido Fire on October
1, 2004. We view the successful completion of the merger between Tokio Marine
and Nichido Fire as a critically important task for a continuous increase of
profitability and growth potential. The objectives of the merger are to
maximize our corporate value by creating synergies, promoting a growth strategy
which combines the strengths of both companies and increasing efficiency
through a larger scale of business, and to reduce further costs. See Business
 Recent Developments  Proposed Merger of Tokio Marine and Nichido Fire. Economic Conditions Our financial condition and results of operations are generally affected
by economic conditions in Japan and, to a lesser extent, other parts of the
world in which we conduct business. While the Japanese economy has faced a number of volatile and challenging
economic trends and conditions over the last decade, it has experienced signs
of recovery during the year ended March 31, 2004. Japans economic condition
has been characterized by:  
    
    Improving economic activity, as the Japanese real gross domestic
product decreased by 1.2% in the year ended March 31, 2002 but grew by
1.6% in the year ended March 31, 2003 and grew by 3.3% in the year
ended March 31, 2004;
    
    Increasing total levels of outstanding Japanese government debt,
reaching a historical high at 44.6% of the governments total revenue
for the year ended March 31, 2004. Ratings of Japanese government
bonds by the major rating agencies remained stable, and one
international ratings agency changed the outlook for Japanese
government debt from neutral to positive subsequent to March 31, 2004;
    
    Continuing high levels of corporate bankruptcy filings, despite a
decrease of 18.3% from the previous year from 18,928 to 15,466 cases
filed in the year ended March 31, 2004. Total liabilities of these
insolvent companies for the year ended March 31, 2004 totaled ¥10,300
billion, a decrease of 22.6% from ¥13,310 billion in the previous
year;
    
    A very low interest rate environment, with the Bank of Japan
maintaining a policy of near zero interest rates since March 2001;
    
    Declining real estate values, with government-appraised land prices
declining an average of 5.7% for residential areas and 7.4% for
commercial areas in calendar year 2003, which represented the
thirteenth straight year of decline;
    
    Improving equity markets, with the Nikkei Stock Average, which is an
average of 225 stocks listed on the Tokyo Stock Exchange, increasing
46.9% to 11,715.39 during the year ended March 31, 2004, after
declining 27.6% to 7,972.71 during the year ended March 31, 2003 and
declining 15.2% to 11,024.94 during the year ended March 29, 2002.
Subsequent to March 31, 2004, the Nikkei Stock Average declined to
11,158.58 on September 15, 2004; and
    
    Significant exchange rate movements, as the value of the yen against
the U.S. dollar fluctuated from a high of ¥104.18 to a low of
¥120.55 in the year ended March 31, 2004, from a high of ¥115.71 to a low of
¥133.40 in the year ended March 31, 2003, and from a high of ¥115.89
to a low of ¥134.77 in the year ended March 31, 2002. As of September
15, 2004, the U.S. dollar exchange rate was ¥ 110.34. The U.S. economy was able to achieve positive growth during the year ended
March 31, 2004, but experienced uncertainty against the backdrop of the war in
Iraq and concerns regarding unemployment. The U.S. Federal Reserve increased
interest rates in July, August and September 2004, bringing the federal fund rates to
1.75% as of September 21, 2004. U.S. equity indices increased, with both the
Nasdaq Composite Index and the Dow Jones Industrial Average showing increases
in the year ended March 31, 2004. Subsequent to March 31, 2004, the Nasdaq
Composite Index decreased from 1,994.22 on March 31, 2004 to
1,896.52 on September
15, 2004 and the Dow Jones Industrial Average decreased from 10,357.70 on
March 31, 2004 to 10,231.36 on September 15, 2004. The European economy was weak throughout the year ended March 31, 2004 and
experienced little growth. In the year ended March 31, 2004, economic growth in Asia outside of China
was weak. 42




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##### Table of Contents



Business Combination We were formed as the holding company for Tokio Marine and Nichido Fire on
April 2, 2002. See Business  Formation of Millea Holdings. For U.S. GAAP consolidated financial statement reporting purposes, our
formation was treated as a business combination of Tokio Marine and Nichido
Fire. We accounted for this business combination using the purchase method of
accounting, pursuant to which Tokio Marine was treated as having acquired
Nichido Fire. Under the purchase method of accounting, we generated ¥317.8 billion of
negative goodwill in connection with the business combination, representing the
amount by which the net assets of Nichido Fire acquired by Tokio Marine
exceeded the deemed purchase price for those net assets. For U.S. GAAP
financial reporting purposes, we were required to allocate a portion of that
negative goodwill to various long-term assets acquired from Nichido Fire. We
were also required to recognize as an extraordinary gain the unallocated
portion of that negative goodwill. This extraordinary gain, which amounted to
¥248.3 billion, is reflected in our net income for the year ended March 31,
2003. Our U.S. GAAP consolidated financial statements as of and for the years
ended March 31, 2004 and 2003 reflect the inclusion of the operating results
and financial position of Nichido Fire and its consolidated subsidiaries from
the date of our formation on April 2, 2002. See   Results of Operations. As
described above, those financial statements also reflect the effects of
accounting for the business combination by the purchase method. Accordingly,
our U.S. GAAP consolidated financial statements as of and for the years ended
March 31, 2004 and 2003 are not directly comparable to our U.S. GAAP
consolidated financial statements for the year ended March 31, 2002. Critical Accounting Policies The accounting policies that we follow when preparing U.S. GAAP
consolidated financial statements are fundamental to understanding our
financial condition and results of operations. Many of these accounting
policies require management to make difficult, complex or subjective judgments
regarding the valuation of assets and liabilities. Our significant accounting policies are summarized in the notes to our
U.S. GAAP consolidated financial statements included in this annual
report. The following is a summary of our critical accounting policies. Impairment of Securities Available for Sale Under U.S. GAAP, we are required to recognize an impairment loss for
other than temporary declines in the fair value of equity and fixed maturity
securities available for sale. Determinations of whether a decline is other
than temporary often involve estimating the outcome of future events.
Management judgment is required in determining whether existing factors
indicate that an impairment loss should be recognized at any balance sheet
date. These judgments are based on subjective as well as objective factors. The Japanese stock market has experienced significant downturns and
volatility during recent years. In view of the diversity and volume of our
shareholdings, the declining but volatile equity markets make it difficult to
determine whether the declines in the fair value of equity securities available
for sale are other than temporary. Among the factors that management considers when determining whether
declines in the value of equity securities below their costs are other than
temporary is the likelihood that those declines will be reversed. For
marketable equity securities, management evaluates each of the securities and
considers a variety of facts, including (a) whether the value of the securities
continued to be below cost for more than 12 months, (b) whether the value of
the securities continued to be more than 20% below cost during any six-month
period and (c) whether there has been a decline in value to below 30% of cost
as measured at the end of any fiscal year. For non-marketable equity securities
and fixed maturity securities, management considers whether sharp declines in
value over a short period of time reflect fundamental
valuation issues such as the deterioration of the issuers
financial position and credit rating. 43




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##### Table of Contents



After considering these and other factors, we write down individual
securities to fair value when management determines that a decline in fair
value below the cost of those securities is other than temporary. Valuation Allowances for Loan Losses The valuation allowances for loan losses represent managements estimate
of probable losses in our loan portfolios. The evaluation process involves a
number of estimates and judgments. The allowance is based on two principles of
accounting:  
    
    SFAS No. 114, Accounting by Creditors for Impairment of a Loan,
and SFAS No. 118, Accounting by Creditors for Impairment of a Loan 
Income Recognition and Disclosures, which require that losses be
accrued based on the difference between the loan balance and the
present value of future cash flows or values that are observable in the
secondary market; and
    
    SFAS No. 5, Accounting for Contingencies, which requires that
losses be accrued when they are probable of occurring and
quantitatively estimable. We record specific allowances for loan losses when we determine that an
individual borrower is not able to keep current with payments on its loans. We
also record unallocated valuation allowances, or general allowances, for loan
losses to reflect loss contingencies underlying individual loan portfolios.
Based on our past experience, it is probable that a certain percentage of our
loans are impaired at any balance sheet date even if there is no specific loss
information for individual loans. We calculate the amount of the general
allowance for any period by taking the aggregate loan amount for each credit
category and multiplying it by the average of each categorys overall loan loss
ratio in the past three years, and then subtracting the amount of specific
allowances for that period. The amount of the general allowance has varied from
year to year due in part to fluctuations in the historical loan loss ratios. Valuation of Financial Instruments with No Available Market Prices Certain assets and liabilities, including fixed maturity securities
available for sale and financial derivatives, are reflected at their estimated
fair values in our U.S. GAAP financial statements. As of March 31, 2004, 7.9%
of the equity securities available for sale, virtually all financial
derivatives and a small portion of the fixed maturity securities available for
sale that we held in our investment portfolio were not listed or quoted,
meaning there were no available market prices for these financial instruments. For financial instruments with no available market prices, we determine
fair values for the substantial majority of our portfolios based upon
externally verifiable model inputs and quoted prices, such as exchange-traded
prices and broker-dealer quotations of other comparable instruments, and use
market interest rates in determining discount factors. All financial models,
which are used solely for pricing each financial instrument, must be validated
and periodically reviewed by qualified personnel independent of the division
that created the model. We determine fair values of equity securities with no available market
price based upon various factors, including stockholders equity per share. The fair value of derivatives is determined based upon liquid market
prices evidenced by exchange-traded prices, broker-dealer quotations or prices
of other transactions with similarly rated counterparties. If available, quoted
market prices provide the best indication of fair value. If quoted market
prices are not available for derivatives, we discount expected cash flows using
market interest rates commensurate with the credit quality and maturity of the
investment. Alternatively, we may use model pricing to determine an appropriate
fair value (for example, option pricing models). In determining fair values, we
consider various factors, including time value, volatility factors and the
values of underlying options, warrants and derivatives. Fair value estimates are made at a specific point in time, based upon
relevant market information and information about the financial instruments.
These estimates are subjective in nature and involve uncertainties
and matters of significant judgment, and changes in assumptions made could
significantly affect these estimates. Accordingly, fair values for these
financial instruments cannot be determined with precision. 44




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##### Table of Contents



Amortization of Deferred Policy Acquisition Costs We defer certain costs incurred in acquiring new business to the extent
such costs are deemed recoverable from future profits. These costs are
principally external sales agents commissions, in-house sales agents
salaries, other compensation and other underwriting costs. For property and
casualty insurance products, we defer and amortize (i.e., expense) these costs
over the period in which the related premiums written are earned. For
traditional life insurance products, we generally defer and amortize these
costs over the premium paying period of the policy. For investment contracts,
we defer and amortize these costs with interest, in relation to the incidence
of estimated gross profits to be realized over the estimated lives of the
contracts. We review our deferred policy acquisition costs periodically to
determine if they are likely to be offset by future premium revenue
recognition. If any of these deferred costs are not considered recoverable, we
expense those costs in the current year. Insurance Reserves Our insurance reserves represent estimates of future payouts that we will
make in respect of property and casualty and life insurance claims, including
expenses relating to those claims. For property and casualty insurance reserves, these estimates are made on
a case-by-case basis, based on the facts known to us at the time reserves are
established. We periodically adjust these estimates to recognize the estimated
ultimate cost of a claim. In addition, we establish reserves in our property
and casualty business to recognize the estimated cost of losses that have
occurred but about which we do not yet have notice. When actual claims
experience differs from our previous estimates, the resulting difference will
be reflected in our reported results for the period of the change in the
estimate. See Business  Property and Casualty Insurance  Property and
Casualty Losses and Reserves  Property and Casualty Reserves. For life insurance reserves, these estimates are made using long-term
actuarial assumptions of future investment yields, mortality, morbidity, policy
terminations and expenses. These assumptions include provisions for adverse
deviations and generally vary by such characteristics as type of coverage, year
of issue and policy duration. Future investment yield assumptions are
determined at the time the policy is issued based upon prevailing investment
yields as well as estimated reinvestment yields. Mortality, morbidity and
policy termination assumptions are based on our experience and industry
experience prevailing at the time the policies are issued. Expense assumptions
are based on our experience and include expenses to be incurred beyond the
premium-paying period. The establishment of our insurance reserves is an inherently uncertain
process, involving assumptions as to factors such as court decisions; changes
in laws, social, economic and demographic trends, inflation and other factors
affecting claim costs; and, in our life insurance business, assumptions
regarding mortality and morbidity trends. Accounting for Deposit-Type Insurance Products We allocate premiums for the indemnity and investment portions of
deposit-type insurance products at the inception of the policy. The premium for
the indemnity portion is calculated the same way that the premium for a
traditional indemnity policy with no savings portion is calculated. The premium
for the savings portion represents the present value of the lump-sum or annuity
refund, discounted using the committed interest rate and the total loss
termination rate. Total loss termination occurs when a full payout is made for
the indemnity portion of the contract, in which case the policy terminates
without any maturity refund being paid to the policyholder. The weighted
average annual frequency of our total loss terminations for the three-year
period ended March 31, 2004 was approximately 0.05%. Premiums for the savings portion of the contract are accounted for as an
increase to the liability for refunds captioned investment deposits by
policyholders. At the end of each fiscal year, the present value of future
payments of maturity refunds of contracts in force, net of the present value of
the savings portion of future premiums, is accounted for as investment
deposits by policy holders. The present value of future cash
flows is calculated using the committed interest rate and the total loss
termination rate, which are both set at the inception of the contracts. 45




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##### Table of Contents



Policy acquisition costs are not charged to the savings portion of the
contracts. Costs associated with policy acquisition of deposit-type products
are charged to the insurance portion and amortized over the contract period.
This is based on the observation that there is no substantial difference in the
level of policy acquisition costs depending on whether the savings feature is
incorporated. Initial Adoption of Accounting Policies Beginning with the year ended March 31, 2004, we adopted new accounting
policies in our U.S. GAAP consolidated financial statements in connection with
our acquisition of Skandia Japan for the year ended March 31, 2004:  
    
    Separate account assets and liabilities.Beginning with the year
ended March 31, 2004, we began to present assets and liabilities that
represent funds for which investment income and investment gains and
losses accrue directly to policyholders who bear the investment risk,
except for minimum guarantees, with respect to such funds as separate
items captioned separate account assets and separate account
liabilities. We recognized separate account assets and liabilities in
the amount of ¥162,715 million, respectively, at March 31, 2004.
    
    Goodwill and present value of future profits.As of March 31, 2004,
we began to present goodwill and present value of future profits as
separate line items on our balance sheet. Goodwill represents the
excess of a purchase price paid over the fair value of the net assets
of an acquired entity. We recognized goodwill in the amount of ¥9,934
million at March 31, 2004. Present value of future profit represents
the present value of profits embedded in acquired long-term life
insurance contracts and is determined based on the net present value of
future cash flows expected to result from the contracts in force at the
date of acquisition. We recognized present value of future profit in
the amount of ¥14,744 million at March 31, 2004. Goodwill and present
value of future profit are tested for impairment annually and also when
a certain triggering event requires such test. Present value of future
profit is amortized to match estimated gross profits from the policies
acquired. Securities Available for Sale At March 31, 2004 and 2003, the fair value of our fixed maturity
securities available for sale was ¥3,210 billion and ¥3,422 billion,
respectively, and the fair value of our equity securities available for sale
was ¥3,457 billion and ¥2,534 billion, respectively. Changes in the fair value
of our securities available for sale can have a significant impact on our
results of operations, as we are required to recognize losses for declines in
fair value below cost that we determine to be other than temporary in nature.
See  Critical Accounting Policies  Impairment of Securities Available for
Sale. For fixed maturity securities available for sale, we use quoted market
values to determine fair value. If quoted market values are not available, we
instead use quoted market values for similar securities. For equity securities
available for sale, which include common stock and non-redeemable preferred
stock, we primarily use quoted market prices to determine fair value. As of
March 31, 2004 and 2003, approximately 87% and 82%, respectively, of our equity
securities available for sale were listed on Japanese or foreign stock
exchanges. The following table shows the fair value of our securities available for
sale, broken down by security rating, as of March 31, 2004: Fair value% of TotalFixed maturity
    
    Equity
    
    
    
    
    
    securitiessecurities
    
    securities(1)
    
    Total securities
    
    available for sale(yen in millions)Investment grade
    
    ¥
    3,052,685
    
    
    ¥
    2,621,362
    
    
    ¥
    5,674,047
    
    
    
    85.1
    %Non-investment grade
    
    
    5,798
    
    
    
    111,301
    
    
    
    117,099
    
    
    
    1.8Not rated
    
    
    151,099
    
    
    
    724,711
    
    
    
    875,810
    
    
    
    13.1Total securities available for sale
    
    ¥
    3,209,582
    
    
    ¥
    3,457,374
    
    
    ¥
    6,666,956
    
    
    
    100.0
    %
   (1)
    
    We classify equity securities based upon the issuers long-term bond
rating. 46




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##### Table of Contents



The following table shows the fair value of our securities available for
sale, broken down by security rating, as of March 31, 2003: Fair value% of TotalFixed maturity
    
    Equity
    
    
    
    
    
    securitiessecurities
    
    securities(1)
    
    Total securities
    
    available for sale(yen in millions)Investment grade
    
    ¥
    3,128,580
    
    
    ¥
    1,853,773
    
    
    ¥
    4,982,353
    
    
    
    83.6
    %Non-investment grade
    
    
    11,648
    
    
    
    69,856
    
    
    
    81,504
    
    
    
    1.4Not rated
    
    
    281,396
    
    
    
    610,592
    
    
    
    891,988
    
    
    
    15.0Total securities available for sale
    
    ¥
    3,421,624
    
    
    ¥
    2,534,221
    
    
    ¥
    5,955,845
    
    
    
    100.0
    %
   (1)
    
    We classify equity securities based upon the issuers long-term bond
rating. The following table shows gross unrealized losses on our securities
available for sale, broken down by security rating, as of March 31, 2004: Gross unrealized loss% of TotalFixed maturity
    
    Equity
    
    
    
    
    
    securitiessecurities
    
    securities(1)
    
    Total securities
    
    available for sale(yen in millions)Investment grade
    
    ¥
    (42,852
    )
    
    ¥
    (340
    )
    
    ¥
    (43,192
    )
    
    
    80.9
    %Non-investment grade
    
    
    
    
    
    
    (122
    )
    
    
    (122
    )
    
    
    0.2Not rated
    
    
    (134
    )
    
    
    (9,963
    )
    
    
    (10,097
    )
    
    
    18.9Total securities available for sale
    
    ¥
    (42,986
    )
    
    ¥
    (10,425
    )
    
    ¥
    (53,411
    )
    
    
    100.0
    %
   (1)
    
    We classify equity securities based upon the issuers long-term bond
rating. The following table shows gross unrealized losses on our securities
available for sale, broken down by security rating, as of March 31, 2003: Gross unrealized loss% of TotalFixed maturity
    
    Equity
    
    
    
    
    
    securitiessecurities
    
    securities(1)
    
    Total securities
    
    available for sale(yen in millions)Investment grade
    
    ¥
    (6,050
    )
    
    ¥
    (89,229
    )
    
    ¥
    (95,279
    )
    
    
    82.1
    %Non-investment grade
    
    
    (34
    )
    
    
    (5,482
    )
    
    
    (5,516
    )
    
    
    4.8Not rated
    
    
    (23
    )
    
    
    (15,218
    )
    
    
    (15,241
    )
    
    
    13.1Total securities available for sale
    
    ¥
    (6,107
    )
    
    ¥
    (109,929
    )
    
    ¥
    (116,036
    )
    
    
    100.0
    %
   (1)
    
    We classify equity securities based upon the issuers long-term bond
rating. The following table shows gross unrealized gains on our securities
available for sale, broken down by security rating, as of March 31, 2004: Gross unrealized loss% of TotalFixed maturity
    
    Equity
    
    
    
    
    
    securitiessecurities
    
    securities(1)
    
    Total securities
    
    available for sale(yen in millions)Investment grade
    
    ¥
    50,638
    
    
    ¥
    1,451,819
    
    
    ¥
    1,502,457
    
    
    
    82.1
    %Non-investment grade
    
    
    5
    
    
    
    49,342
    
    
    
    49,347
    
    
    
    2.7Not rated
    
    
    4,143
    
    
    
    274,181
    
    
    
    278,324
    
    
    
    15.2Total securities available for sale
    
    ¥
    54,786
    
    
    ¥
    1,775,342
    
    
    ¥
    1,830,128
    
    
    
    100.0
    %
   (1)
    
    We classify equity securities based upon the issuers long-term bond
rating. 47




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##### Table of Contents



The following table shows gross unrealized gains on our securities
available for sale, broken down by security rating, as of March 31, 2003: Gross unrealized gain% of TotalFixed maturity
    
    Equity
    
    
    
    
    
    securitiessecurities
    
    securities(1)
    
    Total securities
    
    available for sale(yen in millions)Investment grade
    
    ¥
    183,429
    
    
    ¥
    685,117
    
    
    ¥
    868,546
    
    
    
    86.6
    %Non-investment grade
    
    
    110
    
    
    
    8,319
    
    
    
    8,429
    
    
    
    0.8Not rated
    
    
    18,632
    
    
    
    107,902
    
    
    
    126,534
    
    
    
    12.6Total securities available for sale
    
    ¥
    202,171
    
    
    ¥
    801,338
    
    
    ¥
    1,003,509
    
    
    
    100.0
    %
   (1)
    
    We classify equity securities based upon the issuers long-term bond
rating. The following table shows the amounts and the periods of time for which
securities available for sale have been in an unrealized loss position as of
March 31, 2004: Gross unrealized lossFixed maturity
    
    Equitysecurities
    
    securities
    
    Total securities(yen in millions)Three months or less
    
    ¥
    (2,413
    )
    
    ¥
    (4,318
    )
    
    ¥
    (6,731
    )Three months to six months
    
    
    (1,947
    )
    
    
    (1,637
    )
    
    
    (3,584
    )Six months to nine months
    
    
    (15,183
    )
    
    
    (812
    )
    
    
    (15,995
    )Nine months to one year
    
    
    (20,799
    )
    
    
    (1,915
    )
    
    
    (22,714
    )Over one year
    
    
    (2,644
    )
    
    
    (1,743
    )
    
    
    (4,387
    )Total
    
    ¥
    (42,986
    )
    
    ¥
    (10,425
    )
    
    ¥
    (53,411
    )
 The following table shows the amounts and the periods of time for which
securities available for sale have been in an unrealized loss position as of
March 31, 2003: Gross unrealized lossFixed maturity
    
    Equitysecurities
    
    securities
    
    Total securities(yen in millions)Three months or less
    
    ¥
    (1,283
    )
    
    ¥
    (86,750
    )
    
    ¥
    (88,033
    )Three months to six months
    
    
    (1,045
    )
    
    
    (6,917
    )
    
    
    (7,962
    )Six months to nine months
    
    
    (12
    )
    
    
    (4,776
    )
    
    
    (4,788
    )Nine months to one year
    
    
    (2,176
    )
    
    
    (10,363
    )
    
    
    (12,539
    )Over one year
    
    
    (1,591
    )
    
    
    (1,123
    )
    
    
    (2,714
    )Total
    
    ¥
    (6,107
    )
    
    ¥
    (109,929
    )
    
    ¥
    (116,036
    )
 The following table shows the amounts and the periods of time for which
fixed maturity securities available for sale have been in an unrealized loss
position as of March 31, 2004, broken down by security rating, as of that date: Gross unrealized lossTotalNon-investment
    
    
    
    
    
    fixed maturityInvestment grade
    
    grade
    
    Not rated
    
    securities(yen in millions)Three months or less
    
    ¥
    (2,363
    )
    
    ¥
    
    
    
    ¥
    (50
    )
    
    ¥
    (2,413
    )Three months to six months
    
    
    (1,944
    )
    
    
    
    
    
    
    (3
    )
    
    
    (1,947
    )Six months to nine months
    
    
    (15,148
    )
    
    
    
    
    
    
    (35
    )
    
    
    (15,183
    )Nine months to one year
    
    
    (20,754
    )
    
    
    
    
    
    
    (45
    )
    
    
    (20,799
    )Over one year
    
    
    (2,643
    )
    
    
    
    
    
    
    (1
    )
    
    
    (2,644
    )Total
    
    ¥
    (42,852
    )
    
    ¥
    
    
    
    ¥
    (134
    )
    
    ¥
    (42,986
    )
 48




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##### Table of Contents



The following table shows the amounts and the periods of time for which
fixed maturity securities available for sale have been in an unrealized loss
position as of March 31, 2003, broken down by security rating, as of that date: Gross unrealized lossTotalNon-investment
    
    
    
    
    
    fixed maturityInvestment grade
    
    grade
    
    Not rated
    
    securities(yen in millions)Three months or less
    
    ¥
    (1,246
    )
    
    ¥
    (29
    )
    
    ¥
    (8
    )
    
    ¥
    (1,283
    )Three months to six months
    
    
    (1,031
    )
    
    
    
    
    
    
    (14
    )
    
    
    (1,045
    )Six months to nine months
    
    
    (12
    )
    
    
    
    
    
    
    
    
    
    
    (12
    )Nine months to one year
    
    
    (2,171
    )
    
    
    (5
    )
    
    
    
    
    
    
    (2,176
    )Over one year
    
    
    (1,590
    )
    
    
    
    
    
    
    (1)
    
    
    
    (1,591
    )Total
    
    ¥
    (6,050
    )
    
    ¥
    (34
    )
    
    ¥
    (23
    )
    
    ¥
    (6,107
    )
 The following table shows gross unrealized losses on and the fair value of
fixed maturity securities available for sale that were in an unrealized loss
position as of March 31, 2004 by contractual maturities at that date: Gross unrealized loss
    
    Fair value(yen in millions)Due in one year or less
    
    ¥
    (66
    )
    
    ¥
    106,107Due after one year through five years
    
    
    (6,101
    )
    
    
    600,570Due after five years through ten years
    
    
    (6,258
    )
    
    
    186,876Due after ten years
    
    
    (30,561
    )
    
    
    387,687Total
    
    ¥
    (42,986
    )
    
    ¥
    1,281,240
 The following table shows gross unrealized losses on and the fair value of
fixed maturity securities available for sale that were in an unrealized loss
position as of March 31, 2003 by contractual maturities at that date: Gross unrealized loss
    
    Fair value(yen in millions)Due in one year or less
    
    ¥
    (2,173
    )
    
    ¥
    255,732Due after one year through five years
    
    
    (3,660
    )
    
    
    284,458Due after five years through ten years
    
    
    (217
    )
    
    
    26,649Due after ten years
    
    
    (57
    )
    
    
    2,590Total
    
    ¥
    (6,107
    )
    
    ¥
    569,429
 The following table shows gross unrealized losses on our securities
available for sale as of each of the dates indicated: As of March 31,2004
    
    2003
    
    2002(yen in millions)Equity securities
    
    ¥
    (10,425
    )
    
    ¥
    (109,929
    )
    
    ¥
    (16,308
    )Fixed maturity securities
    
    
    (42,986
    )
    
    
    (6,107
    )
    
    
    (429
    )Total gross unrealized losses
    
    ¥
    (53,411
    )
    
    ¥
    (116,036
    )
    
    ¥
    (16,737
    )
 49




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##### Table of Contents



Set forth below is certain other information relating to our portfolio of
securities available for sale as of March 31, 2004 and 2003:  
    
    Investment concentration. As of March 31, 2004, we held
investments, mainly equity securities, in Toyota Motor Corporation and
its affiliates that were valued at ¥394.4 billion, representing
approximately 12% of our consolidated stockholders equity as of that
date. No other investment in a single company including its affiliates
exceeded 10% of our consolidated stockholders equity as of that date.
As of March 31, 2003, we held investments, mainly equity securities, in
Toyota Motor Corporation and its affiliates that were valued at ¥290.2
billion, representing approximately 10% of our consolidated
stockholders equity as of that date. No other investment in a single
company including its affiliates exceeded 10% of our consolidated
stockholders equity as of that date.
    
    Concentration of gross unrealized losses. As of March 31, 2004,
Japanese government bonds accounted for 61.6% of our total gross
unrealized losses on securities available for sale as of that date. The
unrealized losses on these investments amounted to ¥32,904 million as
compared to a cost basis of ¥973,615 million. As of March 31, 2004, two
of our investments in equity securities of Japanese issuers accounted
for 3.5% of our total gross unrealized losses on securities available
for sale as of that date. The unrealized losses on these investments
amounted to ¥1,248 million and ¥603 million, respectively, as compared
to a cost basis of ¥16,000 million and ¥2,650 million, respectively. As
of March 31, 2003, two of our investments in equity securities of
Japanese issuers accounted for 37.9% of our total gross unrealized
losses on securities available for sale as of that date. The unrealized
losses on these investments amounted to ¥33,852 million and ¥10,069
million, respectively, as compared to a cost basis of ¥124,251 million
and ¥61,869 million, respectively. Based on our evaluation in accordance with our critical accounting policy
Impairment of Securities Available for Sale, including the evaluation of the
fact that the period of time during which the securities described above were
in a continuous loss position was less than twelve months, we did not record
any impairment loss for such securities for the
years ended March 31, 2004 and
2003, respectively.
    
    Maturity profile. As of March 31, 2004, we held ¥875.9 billion of
fixed maturity securities available for sale (measured at fair value)
with an original term to maturity of ten years or longer and ¥2,333.7
billion of fixed maturity securities available for sale (measured at
fair value) with an original term to maturity of less than ten years.
As of March 31, 2003, we held ¥900.3 billion of fixed maturity
securities available for sale (measured at fair value) with an original
term to maturity of ten years or longer and ¥2,521.4 billion of fixed
maturity securities available for sale (measured at fair value) with an
original term to maturity of less than ten years. Fixed maturity
securities with longer maturities are more sensitive to interest rate
fluctuations than securities with shorter maturities.
    
    Non-traded securities. As of March 31, 2004, we held ¥336.4 billion
of non-traded fixed maturity and equity securities. As of March 31,
2003, we held ¥308.1 billion of non-traded fixed maturity and equity
securities. We monitor various information relating to the fair value
of non-traded securities, including the net asset values and the credit
rating of each issuer. In addition, during the years ended March 31, 2004 and 2003, we did not
record any material loss in connection with sales of securities that were in an
unrealized loss position at March 31, 2003 or 2002, respectively. Hedging for Deposit-Type Insurance and Life Insurance Policies We enter into interest rate swaps principally as a means of managing our
interest rate risk under deposit-type insurance policies and life insurance
policies. In managing this interest rate risk, we periodically measure the fair
value of substantially all of our related assets and liabilities, including
those in respect of these derivative positions. 50




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##### Table of Contents



Since these derivative positions do not qualify for hedge accounting
treatment under Statement of Financial Accounting Standard No. 133, or SFAS No.
133, we must recognize as gains or losses in our statement of income any
changes in the fair value of these derivative positions. We may not, on the
other hand, recognize gains or losses for any change in the fair value of our
other related assets and liabilities. Accordingly, the gains or losses that we
recognize in respect of these derivative positions in our statement of income,
and the fair value of these derivative positions as reflected in our balance
sheet and related notes to our financial statements, do not provide a
comprehensive view of our financial exposure with respect to deposit-type
insurance policies and life insurance policies. As of March 31, 2004, our net unrealized losses in respect of investment
deposits by policyholders totaled ¥207 billion. Of this amount, ¥230 billion of
unrealized losses were derived from deposit-type insurance policies issued by
Tokio Marine. As of the same date, we had unrealized gains of approximately ¥24
billion on fixed maturity securities held for purposes of managing Tokio
Marines interest rate risk in respect of deposit-type insurance policies. If
low market interest rates continue in Japan, we expect that these unrealized
gains (or some portion of them) will be available to offset future losses in
respect of investment deposits by policyholders, however, our results of
operations in future fiscal years could be adversely affected by our net
financial exposure in respect of deposit-type insurance policies. Results of Operations The following table, prepared on a U.S. GAAP basis, shows selected
statement of income information for us for each of the periods indicated: Year ended March 31,2004(1)
    
    2003(1)
    
    2002(1)(yen in millions)Operating income:Property and casualty:Net premiums written
    
    ¥
    1,945,246
    
    
    ¥
    1,898,557
    
    
    ¥
    1,381,483Less increase in unearned premiums
    
    
    85,043
    
    
    
    137,589
    
    
    
    38,521Premiums earned
    
    
    1,860,203
    
    
    
    1,760,968
    
    
    
    1,342,962Life premiums
    
    
    247,800
    
    
    
    262,486
    
    
    
    209,208Net investment income
    
    
    126,173
    
    
    
    108,311
    
    
    
    104,681Realized gains (losses) on investments
    
    
    (3,855
    )
    
    
    (29,875
    )
    
    
    (1,020
    )Gains (losses) on derivatives
    
    
    (36,755
    )
    
    
    76,564
    
    
    
    (7,319
    )Total operating income
    
    
    2,193,566
    
    
    
    2,178,454
    
    
    
    1,648,512Operating costs and expenses:Losses, claims and loss adjustment expenses:Losses and claims incurred and provided for
    
    
    1,048,518
    
    
    
    953,681
    
    
    
    736,765Related adjustment expenses
    
    
    77,389
    
    
    
    76,412
    
    
    
    61,449Total losses, claims and loss
adjustment expenses
    
    
    1,125,907
    
    
    
    1,030,093
    
    
    
    798,214Policy benefits and losses for life
    
    
    197,903
    
    
    
    223,316
    
    
    
    175,016Income credited to investment deposits by
policyholders
    
    
    58,414
    
    
    
    56,011
    
    
    
    57,507Policy acquisition costs
    
    
    558,978
    
    
    
    571,058
    
    
    
    437,012Other operating expenses
    
    
    100,097
    
    
    
    96,668
    
    
    
    72,095Total operating costs and expenses
    
    
    2,041,299
    
    
    
    1,977,146
    
    
    
    1,539,844Income before income tax expense, extraordinary
items and cumulative effect of accounting changes
    
    
    152,267
    
    
    
    201,308
    
    
    
    108,668Income tax expense (benefit):Current
    
    
    50,015
    
    
    
    92,935
    
    
    
    53,960Deferred
    
    
    (630
    )
    
    
    (21,321
    )
    
    
    (20,544
    )Total income tax expense (benefit)
    
    
    49,385
    
    
    
    71,614
    
    
    
    33,416
 51




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##### Table of Contents



Year ended March 31,2004(1)
    
    2003(1)
    
    2002(1)(yen in millions)Income before extraordinary items and cumulative
effect of accounting changes
    
    
    102,882
    
    
    
    129,694
    
    
    
    75,252Extraordinary items
    
    
    
    
    
    
    248,323
    
    
    
    Cumulative effect of accounting changes, net of tax
    
    
    
    
    
    
    
    
    
    
    85,465Net income
    
    ¥
    102,882
    
    
    ¥
    378,017
    
    
    ¥
    160,717
   (1)
    
    Our U.S. GAAP consolidated financial statements for the fiscal years
ended March 31, 2004 and 2003, from which some of the data in this table
are derived, reflect the inclusion in those financial statements of the
results of operations and financial position of Nichido Fire and its
consolidated subsidiaries from and after the date of our formation on
April 2, 2002. Accordingly, the amounts shown in this table for the fiscal
years ended March 31, 2004 and 2003 are not directly comparable to the
amounts shown for the fiscal year ended March 31, 2002. See
  Overview 
Business Combination. Year Ended March 31, 2004 Compared to Year Ended March 31, 2003 Our direct premiums written for property and casualty insurance for the
fiscal year ended March 31, 2004, or fiscal 2004, were ¥1,978,555 million, a
decrease of 0.4% from ¥1,987,463 million in the fiscal year ended March 31,
2003, or fiscal 2003. Net premiums written for property and casualty insurance,
which represent direct premiums written plus assumed reinsurance premiums minus
ceded reinsurance premiums, were ¥1,945,246 million in fiscal 2004, an increase
of 2.5% from ¥1,898,557 million in fiscal 2003. The increase was mainly due to
an increase in compulsory automobile liability insurance premiums, reflecting
the abolition of the government reinsurance scheme in fiscal 2003. See
Business  Property and Casualty Insurance  Compulsory Automobile Liability. Property and casualty insurance premiums are recognized as earned on a pro
rata basis over the terms of the policies. Unearned premiums represent the
portion of premiums written which relate to the unexpired terms of coverage.
After deducting the increase in unearned premiums of ¥85,043 million for fiscal
2004, premiums earned in fiscal 2004 were ¥1,860,203 million, an increase of
5.6% from fiscal 2003. The increase was mainly due to an increase in compulsory
automobile liability insurance premiums, reflecting the abolition of the
government reinsurance scheme in fiscal 2003. Life premiums, which represent direct premiums earned plus assumed
reinsurance premiums minus ceded reinsurance premiums, were ¥247,800 million in
fiscal 2004, a decrease of 5.6% from fiscal 2003. The decrease primarily
reflected a decrease in the number of single premium contracts written. Under a
single premium contract, the policyholder pays the entire premium due under the
contract in a single bullet payment at the time the contract is entered into. Losses and claims incurred and provided for, or net loss incurred, for all
property and casualty insurance in fiscal 2004 amounted to ¥1,048,518 million,
an increase of ¥94,837 million, or 9.9%, from fiscal 2003. The ratio of the
total amount of net loss incurred to net premiums earned  the
net loss ratio 
was 56.4% in fiscal 2004, an increase from 54.2% in fiscal 2003. This increase
was due primarily to an increase in the loss ratio of voluntary automobile
insurance, compulsory automobile insurance and other insurance. Principal property and casualty insurance lines fared as follows:  
    
    Voluntary Automobile Insurance. Net premiums written for voluntary
automobile insurance, the largest line of our property and casualty
insurance business, decreased by 2.2% in fiscal 2004 to ¥878,499
million. This decrease was primarily due to discounts in premium rates
granted upon the renewal of policies that did not experience any loss
in the prior period. The net loss ratio increased from 56.6% in fiscal
2003 to 57.6% in fiscal 2004, mainly due to the decrease in premiums
earned.
    
    Compulsory Automobile Liability Insurance. Net premiums written for
compulsory automobile insurance increased by 18.8% in fiscal 2004 to
¥333,640 million. This increase was primarily due to the abolition of
the government reinsurance scheme in fiscal 2003. See
Business 
Property and Casualty Insurance  Compulsory Automobile Liability. The
net loss ratio increased from 74.4% in fiscal 2003 to 79.2% in fiscal 2004. This was primarily due to the fact that the abolition of the
governmental reinsurance scheme increased both losses incurred and
premiums earned by substantially the same amount. 52




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##### Table of Contents




    
    Fire and Allied Lines Insurance. Net premiums written for fire and
allied lines insurance increased by 4.4% in fiscal 2004 to ¥270,495
million. This increase was mainly due to expanding sales that reflected
the introduction of new products. The net loss ratio decreased from
35.3% in fiscal 2003 to 34.9% in fiscal 2004, primarily due to the
increase in premiums earned.
    
    Personal Accident Insurance. Net premiums written for personal
accident insurance decreased by 1.9% in fiscal 2004 to ¥152,062
million. This decrease was mainly due to decreasing sales of overseas
travelers personal accident insurance, affected by the outbreak of
Severe Acute Respiratory Syndrome, or SARS, in Asia, partly offset by
expanding sales of medical and cancer insurance. The net loss ratio
decreased from 42.8% in fiscal 2003 to 40.3% in fiscal 2004, mainly due
to expanding sales of medical and cancer insurance, which has a
relatively low loss ratio when compared with other personal accident
insurance products.
    
    Cargo and Transit Insurance. Net premiums written for cargo and
transit insurance increased by 5.8% in fiscal 2004 to ¥65,998 million.
This increase mainly reflected the high levels of Japanese import and
export trading activity as well as an increase in premium rates for war
insurance coverage. The net loss ratio increased from 46.7% in fiscal
2003 to 46.9% in fiscal 2004, mainly due to an increase in large
claims.
    
    Hull Insurance. Net premiums written for hull insurance increased
slightly by 2.0% in fiscal 2004 to ¥14,484 million. The net loss ratio
decreased from 90.1% in fiscal 2003 to 69.4% in fiscal 2004, mainly due
to the absence of large claims, which had occurred in fiscal 2003.
    
    Other Insurance. Net premiums written for all other types of
property and casualty insurance, including liability insurance,
workers compensation insurance, guarantee insurance, movable
comprehensive insurance, aviation and miscellaneous pecuniary loss
insurance, increased by 0.5% in fiscal 2004 to ¥230,068 million. This
increase was mainly due to an increase in liability insurance premiums,
partly offset by a decrease in workers compensation, guarantee and
movables comprehensive insurance premiums. The net loss ratio increased
from 56.7% in fiscal 2003 to 60.7% in fiscal 2004, mainly due to an
increase in large claims. Total operating costs and expenses, which represents the sum of losses,
claims and loss adjustment expenses, policy benefits and losses for life,
income credited to investment deposits by policyholders, policy acquisition
costs and other operating expenses, amounted to ¥2,041,299 million in fiscal
2004, an increase of 3.2% from fiscal 2003. This increase was primarily
attributable to increases in losses and claims incurred and provided for,
partially offset by a decrease in policy benefits and losses for life and
policy acquisition costs. Loss adjustment expenses in fiscal 2004 were ¥77,389 million, an increase
of 1.3% from fiscal 2003. The ratio of losses, claims and loss adjustment
expenses incurred to net premiums earned for all classes of property and
casualty insurance was 60.5% in fiscal 2004, an increase from 58.5% in fiscal
2003. Policy benefits and losses for life decreased by 11.4% in fiscal 2004 to
¥197,903 million. This decrease primarily reflected an improvement in
underwriting results and a decrease in life premiums. Future policy benefits and losses include provisions for future policy
benefits for life contracts and for unpaid life policy claims. The liabilities
for future policy benefits are computed by a net level premium method using
estimated future investment yields, withdrawals and recognized morbidity and
mortality tables. For limited-payment contracts, which provide insurance
coverage over a contract period that extends beyond the period in which
premiums are collected, gross premiums in excess of the net premiums are
deferred and recognized in income during the periods when the insurance is in
force or when future benefit payments are expected to become due. Unpaid policy
claims represent the estimated liability for reported and unreported losses on
life policies on an undiscounted basis. We believe that our estimated
provisions for future policy benefits and for losses at March 31, 2004 are
adequate to cover our life insurance liability. However, our ultimate liability
may vary from these estimates. 53




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##### Table of Contents



Income credited to investment deposits by policyholders increased by 4.3%
in fiscal 2004 to ¥58,414 million. This increase was primarily due to the
expansion of the life annuity business. We incurred policy acquisition costs in fiscal 2004 of ¥558,978 million, a
decrease of 2.1% from fiscal 2003. This decrease primarily reflected our
efforts to reduce expenses. Other operating expenses increased by 3.5% in fiscal 2004 to ¥100,097
million. This increase was primarily due to an increase in expenses relating to
the planned merger of Tokio Marine and Nichido Fire. Net investment income in fiscal 2004 was ¥126,173 million, an increase of
¥17,862 million, or 16.5%, from fiscal 2003. This increase primarily reflected
an increase in interest earned on fixed maturities and a decrease in
impairments on loans. Realized losses on investments decreased to ¥3,855 million in fiscal 2004
from ¥29,875 million in fiscal 2003. The decrease in losses primarily reflected
a decrease in impairments of equity securities reflecting the recovery of the
Japanese equity market, partly offset by the decrease in realized gains on
sales of equity securities. Losses on derivatives in fiscal 2004 were ¥36,755 million, as compared to
gains of ¥76,564 million in fiscal 2003. These losses primarily reflected
losses of ¥45,775 million on interest swap agreements, partially offset by
gains from foreign exchange contracts in the amount of ¥7,458 million and gains
on credit default swaps in the amount of ¥6,797 million. We utilize interest
rate swaps in our economical hedging activities for our asset liability
management and foreign exchange contracts to economically hedge our foreign
currency exposure. Income before income tax expense, extraordinary items and cumulative
effect of accounting changes decreased to ¥152,267 million in fiscal 2004 from
¥201,308 million in fiscal 2003, a decrease of 24.4%. Income tax expense for fiscal 2004 was ¥49,385 million, a decrease of
31.0% compared to fiscal 2003. The effective tax rate decreased to 32.4% in
fiscal 2004 from 35.6% in fiscal 2003. This decrease in the effective tax rate
reflected an increase in income earned in low income tax rate countries. Income before extraordinary items and cumulative effect of accounting
changes decreased to ¥102,882 million in fiscal 2004 from ¥129,694 million in
fiscal 2003, a decrease of 20.7%. We did not recognize any extraordinary items in fiscal 2004. We recognized
extraordinary items of ¥248,323 million in fiscal 2003 with respect to
unallocated negative goodwill arising from the business combination with
Nichido Fire. There were no accounting changes that resulted in any cumulative effect of
accounting changes in fiscal 2004 and 2003. As a result of the foregoing, our net income decreased to ¥102,882 million
in fiscal 2004 from ¥378,017 million in fiscal 2003, a decrease of 72.8%. This
decrease was mainly due to the decrease of income from extraordinary items. In
fiscal 2003, we have recognized income from extraordinary items, unallocated
negative goodwill arising from the business combination of Tokio Marine and
Nichido Fire, in the amount of ¥248,323 million. The remaining decrease was due
to a decrease in income before extraordinary items and cumulative effect of
accounting changes. Year Ended March 31, 2003 Compared to Year Ended March 31, 2002 Our consolidated statement of income for the fiscal year ended March 31,
2003, or fiscal 2003, reflected the inclusion of the results of operations of
Nichido Fire and its consolidated subsidiaries from and after the date of our
formation on April 2, 2002. Consistent with U.S. GAAP and with Exchange Act
requirements regarding the presentation of our financial statements, our
consolidated statement of income for the fiscal year ended March 31, 2002, or
fiscal 2002, has not been restated to reflect the inclusion of Nichido Fire and
its consolidated subsidiaries. Accordingly, our results of operations for
fiscal 2003 are not directly comparable to our results of operations for fiscal
2002. The following discussion provides certain information regarding the
magnitude of the impact of the inclusion of Nichido Fire and its consolidated
subsidiaries in our consolidated statement of income for the year ended March 31, 2003. 54




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##### Table of Contents



Our direct premiums written for property and casualty insurance for fiscal
2003 were ¥1,987,463 million, an increase of 31.7% from ¥1,509,615 million in
fiscal 2002. The inclusion of Nichido Fires results of operations in our
consolidated statement of income in fiscal 2003 accounted for an increase of
28.1% in our direct premiums written compared to fiscal 2002. Net premiums
written for property and casualty insurance, which represent direct premiums
written plus assumed reinsurance premiums minus ceded reinsurance premiums,
were ¥1,898,557 million in fiscal 2003, an increase of 37.4% from ¥1,381,483
million in fiscal 2002. The inclusion of Nichido Fires results of operations
in our consolidated statement of income in fiscal 2003 accounted for an
increase of 28.7% in our net premiums written compared to fiscal 2002. The
remaining increase was mainly due to a decrease in premiums ceded to the
government for compulsory automobile liability insurance, reflecting the
abolition of the government reinsurance scheme. Property and casualty insurance premiums are recognized as earned on a pro
rata basis over the terms of the policies. Unearned premiums represent the
portion of premiums written which relate to the unexpired terms of coverage.
After deducting the increase in unearned premiums of ¥137,589 million for
fiscal 2003, premiums earned in fiscal 2003 were ¥1,760,968 million, an
increase of 31.1% from fiscal 2002. The inclusion of Nichido Fires results of
operations in our consolidated statement of income in fiscal 2003 accounted for
an increase of 27.7% in our premiums earned compared to fiscal 2002. The
remaining increase was primarily attributable to an increase in net premiums
written in fiscal 2003 compared to fiscal 2002. Life premiums, which represent direct premiums earned plus assumed
reinsurance premiums minus ceded reinsurance premiums, were ¥262,486 million in
fiscal 2003, an increase of 25.5% from fiscal 2002. The inclusion of Nichido
Fires results of operations in our consolidated statement of income in fiscal
2003 accounted for an increase of 16.3% in our life premiums compared to fiscal
2002. The remaining increase primarily reflected a steady expansion of our life
insurance business. Losses and claims incurred and provided for, or net loss incurred, for all
property and casualty insurance in fiscal 2003 amounted to ¥953,681 million, an
increase of ¥216,916 million, or 29.4%, from fiscal 2002. The inclusion of
Nichido Fires results of operations in our consolidated statement of income in
fiscal 2003 accounted for an increase of 27.5% in our net loss incurred
compared to fiscal 2002. The ratio of the total amount of net loss incurred to
net premiums earned  the net loss ratio  was 54.2% in fiscal 2003, a decrease
from 54.9% in fiscal 2002. This decrease was due primarily to a decrease in
unpaid losses, claims and loss adjustment expenses resulting from foreign
currency gains attributable to the appreciation of the yen, as well as to our
efforts to improve underwriting results. Principal property and casualty insurance lines fared as follows:  
    
    Voluntary Automobile Insurance. Net premiums written for voluntary
automobile insurance, the largest line of our property and casualty
insurance business, increased by 28.1% in fiscal 2003 to ¥898,119
million. The inclusion of Nichido Fires results of operations in our
consolidated statement of income in fiscal 2003 accounted for an
increase of 29.3% in our net premiums written compared to fiscal 2002.
This increase was partially offset primarily due to the discount in
premium rates granted upon the renewal of policies that did not
experience any loss in the prior period. The net loss ratio increased
from 55.6% in fiscal 2002 to 56.6% in fiscal 2003, mainly due to the
high loss ratio in our overseas business in fiscal 2003 and the
inclusion of Nichido Fires results of operations in our consolidated
statement of income in fiscal 2003.
    
    Compulsory Automobile Liability Insurance. Net premiums written for
compulsory automobile insurance increased by 144.5% in fiscal 2003 to
¥280,883 million. The inclusion of Nichido Fires results of operations
in our consolidated statement of income in fiscal 2003 accounted for an
increase of 56.5% in our net premiums written compared to fiscal 2002.
The remaining increase was mainly due to a decrease in premiums ceded
to the government, reflecting the abolition of the government
reinsurance scheme. The net loss ratio increased from 65.4% in fiscal
2002 to 74.4% in fiscal 2003, mainly due to the abolition of the
government reinsurance scheme.
    
    Fire and Allied Lines Insurance. Net premiums written for fire and
allied lines insurance amounted to ¥258,981 million in fiscal 2003, an
increase of 45.8% from fiscal 2002. The inclusion of Nichido Fires
results of operations in our consolidated statement of income in fiscal
2003 accounted for an increase of 40.8% in our net premiums written compared to fiscal 2002. The remaining
increase was mainly due to expanding sales of these insurance products
through banks. The net loss ratio decreased from 39.8% in fiscal 2002 to
35.3% in fiscal 2003, reflecting the foreign currency gains attributable
to the appreciation of the yen, and also reflecting the terrorist attacks
in the United States in fiscal 2002, which pushed up the loss ratio in
fiscal 2002. 55




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##### Table of Contents




    
    Personal Accident Insurance. Net premiums written for personal
accident insurance increased by 27.9% in fiscal 2003 to ¥155,077
million. The inclusion of Nichido Fires results of operations in our
consolidated statement of income in fiscal 2003 accounted for an
increase of 25.4% in our net premiums written compared to fiscal 2002.
The remaining increase was mainly due to expanding sales of so-called
third sector insurance products, which include cancer insurance and
medical insurance products. The net loss ratio decreased from 43.3% in
fiscal 2002 to 42.8% in fiscal 2003.
    
    Cargo and Transit Insurance. Net premiums written for cargo and
transit insurance increased by 12.8% in fiscal 2003 to ¥62,373 million.
The inclusion of Nichido Fires results of operations in our
consolidated statement of income in fiscal 2003 accounted for an
increase of 4.2% in our net premiums written compared to fiscal 2002.
The remaining increase mainly reflected an increase in premium rates
for war insurance coverage. The net loss ratio decreased from 51.7% in
fiscal 2002 to 46.7% in fiscal 2003, mainly due to our efforts to
improve underwriting results.
    
    Hull Insurance. Net premiums written for hull insurance amounted to
¥14,200 million in fiscal 2003, unchanged from fiscal 2002. The net
loss ratio increased from 68.0% in fiscal 2002 to 90.1% in fiscal 2003,
mainly due to an increase in large claims.
    
    Other Insurance. Net premiums written for all other types of
property and casualty insurance, including liability insurance,
workers compensation insurance, guarantee insurance, movable
comprehensive insurance, aviation and miscellaneous pecuniary loss
insurance, increased by 16.0% in fiscal 2003 to ¥228,924 million. The
inclusion of Nichido Fires results of operations in our consolidated
statement of income in fiscal 2003 accounted for an increase of 10.1%
in our net premiums written compared to fiscal 2002. The remaining
increase was mainly due to an increase in premium rates reflecting the
hard insurance market. The net loss ratio decreased from 67.2% in
fiscal 2002 to 56.7% in fiscal 2003, mainly due to the increase in
premium rates and the foreign currency gains attributable to the
appreciation of the yen. Total operating costs and expenses, which represents the sum of losses,
claims and loss adjustment expenses, policy benefits and losses for life,
income credited to investment deposits by policyholders, policy acquisition
costs and other operating expenses, amounted to ¥1,977,146 million in fiscal
2003, an increase of 28.4% from fiscal 2002. The inclusion of Nichido Fires
results of operations in our consolidated statement of income in fiscal 2003
accounted for an increase of 25.3% in our total operating costs and expenses
compared to fiscal 2002. The remaining increase was primarily attributable to
increases in policy benefits and losses for life, losses and claims incurred
and provided for and policy acquisition costs, partially offset by a decrease
in income credited to investment deposits by policyholders. Loss adjustment expenses in fiscal 2003 were ¥76,412 million, an increase
of 24.4% from fiscal 2002. The inclusion of Nichido Fires results of
operations in our consolidated statement of income in fiscal 2003 accounted for
an increase of 26.6% in our loss adjustment expenses compared to fiscal 2002.
The ratio of losses, claims and loss adjustment expenses incurred to net
premiums earned for all classes of property and casualty insurance was 58.5% in
fiscal 2003, a decrease from 59.4% in fiscal 2002. Policy benefits and losses for life increased by 27.6% in fiscal 2003 to
¥223,316 million. The inclusion of Nichido Fires results of operations in our
consolidated statement of income in fiscal 2003 accounted for an increase of
16.8% in our policy benefits and losses for life compared to fiscal 2002. The
remaining increase primarily reflected a steady expansion of our life insurance
business. Future policy benefits and losses include provisions for future policy
benefits for life contracts and for unpaid life policy claims. The liabilities
for future policy benefits are computed by a net level premium method using
estimated future investment yields, withdrawals and recognized morbidity and
mortality tables. For limited-payment contracts, which provide insurance coverage over a contract period that
extends beyond the period in which premiums are collected, gross premiums in
excess of the net premiums are deferred and recognized in income during the
periods when the insurance is in force or when future benefit payments are
expected to become due. Unpaid policy claims represent the estimated liability
for reported and unreported losses on life policies on an undiscounted basis.
We believe that our estimated provisions for future policy benefits and for
losses at March 31, 2003 are adequate to cover our life insurance liability.
However, our ultimate liability may vary from these estimates. 56




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Income credited to investment deposits by policyholders decreased by 2.6%
in fiscal 2003 to ¥56,011 million. This decrease was primarily due to a decline
in the average committed interest rate and the decrease in the number of
investment contracts in force, which was partially offset by the inclusion of
Nichido Fires results of operations in our consolidated statement of income in
fiscal 2003. The inclusion of Nichido Fire accounted for an increase in income
credited to investment deposits by policyholders of 4.9% in fiscal 2003
compared to fiscal 2002. Excluding Nichido Fire, income credited to investment
deposits by policyholders would have decreased by 7.5% in fiscal 2003. We incurred policy acquisition costs in fiscal 2003 of ¥571,058 million,
an increase of 30.7% from fiscal 2002. The inclusion of Nichido Fires results
of operations in our consolidated statement of income in fiscal 2003 accounted
for an increase of 27.4% in our policy acquisition costs compared to fiscal
2002. The remaining increase primarily reflected an increase in the number of
life insurance policies written and an increase in net premiums written for
property and casualty insurance. Other operating expenses increased by 34.1% in fiscal 2003 to ¥96,668
million. The inclusion of Nichido Fires results of operations in our
consolidated statement of income in fiscal 2003 accounted for an increase of
25.2% in our other operating expenses compared to fiscal 2002. Net investment income in fiscal 2003 was ¥108,311 million, an increase of
¥3,630 million, or 3.5%, from fiscal 2002. The inclusion of Nichido Fires
results of operations in our consolidated statement of income in fiscal 2003
accounted for an increase of 19.2% in our net investment income compared to
fiscal 2002. This increase was partially offset primarily by a decrease in net
investment income reflecting the low Japanese interest rate environment. Realized losses on investments increased to ¥29,875 million in fiscal 2003
from ¥1,020 million in fiscal 2002. The inclusion of Nichido Fires results of
operations in our consolidated statement of income in fiscal 2003 accounted for
an increase of ¥81,346 million in our realized losses on investments compared
to fiscal 2002. This increase was partially offset by realized gains of ¥93,690
million from contributing ¥92,127 million of Tokio Marines equity securities,
measured at cost, to an exchange traded fund. Gains on derivatives in fiscal 2003 were ¥76,564 million, as compared to
losses of ¥7,319 million in fiscal 2002, reflecting gains of ¥11,688 million
for foreign exchange contracts principally to economically hedge our foreign
currency exposures and ¥68,011 million for interest rate swap agreements to
economically hedge our interest rate risk exposures. Nichido Fire recognized
losses on derivatives of ¥429 million in fiscal 2003. Income before income tax expense, extraordinary items and cumulative
effect of accounting changes increased to ¥201,308 million in fiscal 2003 from
¥108,668 million in fiscal 2002, an increase of 85.3%. Excluding Nichido Fire,
income before income tax expense, extraordinary items and cumulative effect of
accounting changes would have increased by 126.0% in fiscal 2003. Income tax expense for fiscal 2003 was ¥71,614 million, an increase of
114.3% compared to fiscal 2002. Excluding Nichido Fires results of operations
from our consolidated statement of income in fiscal 2003, income tax expense
would have increased by 160.4%. The effective tax rate increased from 30.8% in
fiscal 2002 to 35.6% in fiscal 2003. This increase in the effective tax rate
reflected the decrease in dividends received which are deductible in our
taxable income calculation. Income before extraordinary items and cumulative effect of accounting
changes increased to ¥129,694 million in fiscal 2003 from ¥75,252 million in
fiscal 2002, an increase of 72.3%. The inclusion of Nichido Fires results of
operations in our consolidated statement of income in fiscal 2003 accounted for
a decrease of 38.4% in our income before extraordinary items and cumulative
effect of accounting changes compared to fiscal 2002. 57




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Extraordinary items of ¥248,323 million were recognized in fiscal 2003
with respect to unallocated negative goodwill arising from the business
combination with Nichido Fire. We recognized no extraordinary items in fiscal
2002. There were no accounting changes in fiscal 2003 that resulted in any
cumulative effect of accounting changes in fiscal 2003. The cumulative effect
of accounting changes, net of tax, in fiscal 2002 amounted to ¥85,465 million
due to the adoption of SFAS No. 133, as amended, as of April 1, 2002. As a result of the foregoing, our net income, which includes extraordinary
items of ¥248,323 million, increased to ¥378,017 million in fiscal 2003 from
¥160,717 million in fiscal 2002, an increase of 135.2%. Credit Losses and Non-Performing Loans The continuing weak economic environment in Japan during the 1990s and the
beginning of this decade have resulted in the deterioration of the financial
conditions of Japanese corporate and individual borrowers and a high number of
bankruptcy filings. A substantial portion of the affected credit extended by
Japanese financial institutions is secured by real estate as collateral. The
deterioration in credit and the continuing decline in the value of real estate
have led to a substantial increase in the amount of non-performing loans in
Japanese financial institutions portfolios. Under these circumstances,
Japanese non-life insurers, including Tokio Marine and Nichido Fire, have seen
their non-performing loans increase, although not as much as other types of
financial institutions. The main reason for this is that Japanese non-life
insurers are required to maintain high levels of liquidity compared with other
types of financial institutions, in order to be able to make claims payments,
which has meant that they have diversified their investment portfolios. The following table, prepared on a U.S. GAAP basis, shows our recorded
investment in impaired loans and specific valuation allowances as of each of
the dates indicated: As of March 31,2004(1)
    
    2003(1)
    
    2002(1)(yen in millions)Recorded investment in impaired loans:Mortgage loans on real estate
    
    ¥
    13,408
    
    
    ¥
    31,483
    
    
    ¥
    16,726Collateral and bank guaranteed loans
    
    
    7
    
    
    
    11,360
    
    
    
    Unsecured loans
    
    
    17,808
    
    
    
    23,153
    
    
    
    30,564Total
    
    ¥
    31,223
    
    
    ¥
    65,996
    
    
    ¥
    47,290Specific valuation allowances:Mortgage loans on real estate
    
    ¥
    6,110
    
    
    ¥
    12,862
    
    
    ¥
    8,264Collateral and bank guaranteed loans
    
    
    7
    
    
    
    4,865
    
    
    
    Unsecured loans
    
    
    9,807
    
    
    
    12,378
    
    
    
    15,806Total
    
    ¥
    15,924
    
    
    ¥
    30,105
    
    
    ¥
    24,070
   (1)
    
    Our U.S. GAAP consolidated financial statements for the fiscal years
ended March 31, 2004 and 2003, from which some of the data in this table
are derived, reflect the inclusion in those financial statements of the
results of operations and financial position of Nichido Fire and its
consolidated subsidiaries from and after the date of our formation on
April 2, 2002. Accordingly, the amounts shown in this table for the fiscal
years ended March 31, 2004 and 2003 are not directly comparable to the
amounts shown for the fiscal year ended March 31, 2002. See
 Overview  Business Combination. In addition to the valuation allowances reflected in the table above, we
have made additional allowances for other loans based on past loss experience
and current economic conditions. These additional allowances were ¥3,808
million at March 31, 2004. 58




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Cash Flows Year Ended March 31, 2004 Compared to Year Ended March 31, 2003 Net cash provided by operating activities was ¥380,647 million in fiscal
2004, compared to ¥440,365 million in fiscal 2003. This decrease was primarily
attributable to a decrease in net income, a decrease in payable for current
income taxes and a decrease in other liabilities, partially offset by absence
of extraordinary items, a decrease in derivatives assets and liabilities (net)
and an increase in losses, claims and loss adjustment expense reserve net of
ceded reinsurance. Net cash used in investing activities was ¥253,397 million in fiscal 2004,
compared to ¥391,219 million in fiscal 2003. This decrease was principally due
to an increase in proceeds from the sale of fixed maturity securities, a
decrease in the cost of fixed maturity and equity securities purchased,
partially offset by a decrease in the results from short-term investments. Net cash used in financing activities was ¥34,828 million in fiscal 2004,
compared to ¥31,755 million in fiscal 2003. This increase was mainly
attributable to an increase in cash used for the purchase of treasury stock,
partially offset by an increase in cash received under securities lending
transactions and a decrease in net cash used in investment deposits by
policyholders. The operating, investing and financing activities described above resulted
in net cash at March 31, 2004 of ¥432,874 million, compared to ¥339,978 million
at March 31, 2003, representing an increase of ¥92,896 million. Year Ended March 31, 2003 Compared to Year Ended March 31, 2002 Our cash flow statements for fiscal 2003 reflected the inclusion of the
results of operations and financial position of Nichido Fire and its
consolidated subsidiaries from and after the date of our formation on April 2,
2002. Accordingly, our cash flow statements for fiscal 2003 are not directly
comparable to our cash flow statements for fiscal 2002. Net cash provided by operating activities was ¥440,365 million in fiscal
2003, compared to ¥346,885 million in fiscal 2002. This increase was primarily
attributable to an increase in net income and unearned premiums net of ceded
insurance. Net cash used in investing activities was ¥391,219 million in fiscal 2003,
compared to ¥19,518 million in fiscal 2002. This increase was principally due
to an increase in the cost of fixed maturity securities purchased, partially
offset by an increase in proceeds from fixed maturity securities sold and
redeemed as well as equity securities sold. Net cash used in financing activities was ¥31,755 million in fiscal 2003,
compared to ¥117,787 million in fiscal 2002. This decrease was mainly
attributable to an increase in cash flows from investment deposits funded by
policyholders and yields on these deposits, as well as the proceeds from
issuance of debt, which was partially offset by an increase in withdrawals of
investment deposits by policyholders. The operating, investing and financing activities described above resulted
in net cash at March 31, 2003 of ¥339,978 million, compared to ¥322,302 million
at March 31, 2002, representing an increase of ¥17,676 million. Recent Accounting Pronouncements In June 2001, the FASB issued SFAS No. 143, Accounting for Asset
Retirement Obligations. This statement addresses financial accounting and
reporting for obligations associated with the retirement of tangible long-lived
assets and the associated retirement costs. We adopted SFAS No. 143 on April 1,
2003. The adoption of SFAS No. 143 did not have a material effect on our
financial position and results of operations for the year ended March 31, 2004. 59




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In November 2002, the FASB issued Interpretation No. 45, Guarantors
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others, or FIN 45. FIN 45 requires that upon
issuance of certain types of guarantees, a guarantor must recognize a liability
for the fair value of an obligation assumed under a guaranty. FIN 45 also requires additional
disclosures by a guarantor in its financial statements about the obligations
associated with guarantees issued. The recognition provisions of FIN 45 were
effective for any guarantees issued or modified after December 31, 2002. The
adoption of FIN 45 did not have a material effect on our financial statements.
The disclosure requirements were effective for financial statements for the
periods ending after December 15, 2002. We adopted the disclosure requirements
effective on March 31, 2003. See note 14 to our consolidated financial
statements. In January 2003, the FASB issued Interpretation No. 46, Consolidation of
Variable Interest Entities  an Interpretation of ARB No. 51, or FIN 46. FIN
46 clarifies when an enterprise should consolidate an entity that meets the
definition of a Variable Interest Entity, or VIE, if that enterprise has a
variable interest that will absorb a majority of the VIEs expected losses,
receive a majority of the VIEs expected residual returns, or
both. A VIE is an entity in which equity investors do not have the characteristics of a
controlling financial interest or do not have sufficient equity at risk for the
entity to finance its activities without additional subordinated financial
support from other parties, and may include many types of special purpose
entities. In December 2003, FASB issued a revision to Interpretation No. 46, or
FIN 46R. FIN 46R retains many of the basic concepts introduced in FIN 46, but
it also introduces a new scope exception for a certain type of entities that
qualify as business as defined in FIN 46R, revises the method of calculating
the expected losses and residual returns for determination of a primary
beneficiary and includes new guidance for assessing variable interests. We
adopted FIN 46 for VIEs created after January 31, 2003. We will adopt FIN 46R
for all VIEs effective April 1, 2004. We do not see the adoption of FIN 46R to
have a material effect on our financial position or results of operations. See
note 3 to our consolidated financial statements. In July 2003, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued Statement of Position 03-1,
Accounting and Reporting by Insurance Enterprises for Certain Nontraditional
Long-Duration Contracts and for Separate Accounts, or SOP 03-1. SOP 03-1
provides guidance on accounting and reporting by insurance enterprises for
certain nontraditional contracts with long duration and for separate accounts.
A provision of SOP 03-1 requires the establishment of reserves in addition to
the account balance for contracts containing certain features that provide
guaranteed death or other insurance benefits and guaranteed income benefits.
SOP 03-1 is effective for financial statements for fiscal years beginning after
December 15, 2003. SOP 03-1 is not applied retroactively to financial
statements for prior years, and initial application should be as of the
beginning of an entitys fiscal year. We will adopt SOP 03-1 effective April 1,
2004. We are currently evaluating the impact of adopting SOP 03-1. In November 2003, the Emerging Issues Task Force, or the EITF, reached a
consensus on EITF Issue No. 03-01, The Meaning of Other-Than-Temporary
Impairment and its Application to Certain Investments, or EITF 03-01, that
certain quantitative and qualitative disclosures are required for equity and
fixed maturity securities that are impaired at the balance sheet date but for
which an other-than-temporary impairment has not been recognized. The guidance
requires companies to disclose, by investment category, the aggregate amount of
unrealized losses and the related fair value of investments with unrealized
losses for securities that have been in an unrealized loss position for less
than 12 months and separately for those that have been in an unrealized loss
position for over 12 months. In March 2004, the EITF reached a consensus also
on the additional accounting guidance for other-than-temporary impairments and
its application to debt and equity investments. We have adopted these
disclosure requirements beginning with our consolidated financial statements as
of and for the year ended March 31, 2004. See note 3 to our consolidated
financial statements. In December 2003, the FASB revised SFAS No. 132, Employers Disclosures
about Pensions and Other Postretirement Benefits to require additional
disclosures relating to pension plans and other postretirement benefit plans.
In addition to the existing disclosure requirements for pensions and
postretirement benefits, disclosures relating to pension plan assets,
obligations, cash flows and net periodic benefit costs are required beginning
with the fiscal year ending after December 15, 2003. Additional disclosures
pertaining to benefit payments are required for fiscal years ending after June
30, 2004. We have adopted these disclosure requirements beginning with our
consolidated financial statements as of and for the year ended March 31, 2004.
See note 10 to our consolidated financial statements. 60




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In January 2003, the EITF released Issue No. 03-02, Accounting for the
Transfer to the Japanese Government of the Substitutional Portion of Employee
Pension Fund Liabilities, or EITF 03-02. EITF 03-02 addresses financial
accounting and reporting for a transfer to the Japanese government of a portion
of a companys pension plan which substitutes for the welfare pension plan administered by the Japanese
government. We will adopt EITF 03-02 on transferring the substitutional portion
of our pension plan in fiscal 2006 or later. The effect on our consolidated
financial statements of the transfer has not yet been determined. See note 10
to our consolidated financial statements. Effects of Inflation Our assets are generally not significantly affected by inflation, since a
substantial portion of those assets is highly liquid. However, inflation may
result in increases in our expenses, which may not be readily recoverable in
the prices of services offered. If inflation results in rising interest rates
and has other adverse effects on the capital markets and on the value of
financial instruments, our financial position and profitability may be
adversely affected. Exposure to Currency Fluctuations We conduct a portion of our business in currencies other than the yen,
primarily the U.S. dollar. This business includes operations of hull and marine
cargo insurance and certain reinsurance, as well as investments in financial
products denominated in foreign currencies. If our exposure to currency
fluctuations is not properly managed, we would be exposed to risk arising from
fluctuations in exchange rates on assets and liabilities denominated in foreign
currencies. We seek to manage this exposure primarily by using forward exchange
contracts, currency options and other derivatives. We also seek to control
currency exposure by holding offsetting foreign currency positions in order to
reduce the risk of loss from currency fluctuations. Use of Derivative Financial Instruments We use a variety of derivative financial instruments in the normal course
of our business to reduce our exposure to fluctuations in foreign exchange,
interest rates and market values in our equity portfolios. These instruments
include foreign exchange contracts, foreign exchange forwards and futures,
currency swaps and currency option contracts, interest rate swap and swaption
agreements, equity index futures contracts, equity index option contracts and
bond futures contracts. Integrated Risk Management We have adopted an integrated risk management system to measure, monitor
and control risks inherent in our businesses. We use this system to establish
acceptable levels of measurable risks for each fiscal year and to ensure the
sufficiency of our shareholders equity in light of those risks. These risk
amounts are monitored to ensure they are maintained within permissible ranges
based on our economic capital model, and reported to our senior management on a
periodic basis. As part of our integrated risk management system, our subsidiaries also
conduct risk management based on our integrated risk management policy. Tokio
Marine, Nichido Fire and Tokio Marine & Nichido Life quantify market risk and
asset-liability management risk, which are discussed in detail below under
Quantitative and Qualitative Disclosures About Market Risk. We also identify
and monitor the following risks:  
    
    Property and casualty insurance riskRisk of loss arising from fluctuations in the loss ratio and operating
expense ratio expected at the time of calculating premiums.
    
    Life insurance riskRisk of loss arising from fluctuations in the mortality rate and
operating expense rate expected at the time of calculating premiums.
    
    Credit riskRisk of loss arising from a decline in the value of our assets (including
off-balance-sheet assets), or the total loss of these assets, as a result
of deterioration in the obligors financial condition. 61




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
    
    Real estate risk  Risk of loss arising from a decline in income from rentals or in the
value of our real estate as a result of deterioration in the real estate
market.  
    
    Liquidity risk  Risk of loss arising from being forced to dispose of assets at a
significant discount to prevailing market prices because of a shortage of
funds, market disruptions or other unexpected events.  
    
    Operational risk  Risk of loss resulting from inadequate or failed internal processes and systems or from external events. Quantitative and Qualitative Disclosures About Market Risk Property and Casualty Insurance Business We
conduct our property and casualty insurance business primarily through Tokio Marine
and Nichido Fire and their respective subsidiaries. A substantial portion of
the investments relating to our property and casualty insurance business are made at the
Tokio Marine and Nichido Fire parent company level. Tokio Marines and Nichido
Fires subsidiaries conduct market risk management with respect to their own
investments, and report the status of their market risk situations to Tokio
Marine and Nichido Fire on a regular basis. Except as otherwise noted, the
following discussion relates to market risk management of Tokio Marine and
Nichido Fire only (and not their subsidiaries). Market Risk Generally Our
property and casualty insurance business accumulates assets primarily because it
receives premiums for underwriting insurance policies in advance of being
required to make payments for claims under those policies as well as deposits
for deposit-type insurance policies. Our property and casualty insurance business funds the
benefits it provides under insurance policies with gains and income generated
by its investment portfolio assets. These investments are subject to market
risk. The following is a discussion of our property and casualty insurance business primary
market risk exposures and how those exposures were managed as of March 31,
2004. Investment Objectives Tokio Marine and Nichido Fire invest premiums and deposits received from
policyholders in various investments. Their principal investment objectives are
to maximize their net asset value and maintain sufficient liquidity in their
investment assets to meet insurance payment obligations while controlling risk
within an acceptable range. They also seek to safeguard the interests of
policyholders and shareholders. Market Risk Measurement Tokio Marines and Nichido Fires primary market risk exposures are to
potential changes in interest rates and equity prices, as well as foreign
exchange rates. Tokio Marine and Nichido Fire define interest rate risk as the risk of
loss in the fair values of interest rate sensitive instruments caused by
changes in market interest rates. Tokio Marine and Nichido Fire are exposed to
interest rate risk due to their investments in fixed income instruments,
particularly bonds, loans and other long-term investments. In addition, they
are exposed to interest rate risk due to interest rate sensitive obligations
and liabilities, including deposit-type insurance and long-term insurance
policies. See  Assets to meet future obligations. Tokio Marine and Nichido
Fire risk a loss because both the market value of fixed income instruments and
the present value of their obligations and liabilities may vary when market
interest rates fluctuate. Between March 31, 2004 and March 31, 2003, interest
rate risk of Tokio Marines deposit-type insurance account decreased primarily
due to the increased utilization of interest rate swap arrangements and long
term bonds for hedging purposes. Interest rate risk of Tokio Marines general
policy account portfolio also decreased owing to a change in the interest rate
risk sensitivity curve primarily due to changes in the level of interest rates
between March 31, 2004 and March 31, 2003. There was no significant change in
Nichido Fires interest rate risk between March 31, 2004 and March 31, 2003. 62




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Tokio Marine and Nichido Fire have a risk of loss due to equity prices
because the value of their equity securities may decline. Most of Tokio
Marines and Nichido Fires equity investments are intended to be held for the
long term. Tokio Marines and Nichido Fires equity holdings are primarily in
the Japanese market. Between March 31, 2004 and March 31, 2003, the level of
Tokio Marines and Nichido Fires equity price risk increased as a result of
increases in Japanese equity prices. Foreign exchange rate risk is the risk of a loss in the fair values of
instruments denominated in a currency other than Tokio Marines and Nichido
Fires functional currency, which is the yen, due to fluctuations of foreign
exchange rates. Tokio Marine and Nichido Fire are exposed to foreign exchange
rate risk because some of their assets are denominated in a currency other than
the yen. If the value of a foreign currency declines relative to the yen, the
fair value of assets denominated in that foreign currency would also decline.
Tokio Marines and Nichido Fires primary exposures for foreign exchange rate
risk are the U.S. dollar, euro and pound sterling. Between March 31, 2004 and
March 31, 2003, there was no significant change in Tokio Marines and Nichido
Fires foreign exchange rate risk. Tokio Marine and Nichido Fire do not hold physical or derivative commodity
positions. We do not anticipate significant changes in the composition of Tokio
Marines and Nichido Fires primary market risk exposures or in how those
exposures are managed in future reporting periods. Market Risk Management and Risk Exposure Estimates As risks associated with managing assets and liabilities are becoming
increasingly diversified and complex, we seek to continue to enhance the risk
management systems of our property and casualty insurance business and to adopt more
sophisticated methods to manage their various risks. Tokio Marines and Nichido
Fires financial risk management departments, which are independent of their
asset management divisions, are responsible for overseeing their market risk
management process. This process includes establishing appropriate controls,
policies and procedures relating to market risks; ensuring appropriate senior
management oversight of market risk-taking and risk controlling activities; and
analyzing, monitoring and reporting market risks. Tokio Marine Tokio Marine divides its assets under management into the following three
categories for investment and risk management purposes, with investment and
risk management policies tailored to each category:  
    
    Assets to meet future obligations;
    
    Risk assets; and
    
    Other assets. Assets to meet future obligations. Assets to meet future obligations are
intended to provide reserves for insurance policies, including deposit-type
insurance and long-term insurance policies. To ensure that Tokio Marine can
make required payments on those policies at maturity without regard to interest
rate fluctuations, both the assets and the liabilities must be managed
effectively. This is called asset-liability management. Tokio Marine has been
developing an advanced asset-liability management system and believes that it
maintains a well-controlled portfolio that includes various bonds, loans and
interest rate swap transactions used for hedging purposes. In addition, to enhance its asset-liability management capabilities with
respect to deposit-type insurance policies, Tokio Marine groups investment
deposit contracts primarily by type and duration of insurance policies. Each
month, Tokio Marine measures interest rate sensitivity for the assets and
liabilities in each of these groups. Based upon these measurements, Tokio
Marine utilizes interest rate swaps in an effort to control the interest rate
sensitivity in the assets and the liabilities in each group of investment
deposits. At March 31, 2004, Tokio Marine
had ¥3.1 trillion notional amount of interest rate swaps outstanding
primarily to hedge its exposure in respect of deposit-type insurance policies. 63




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In Tokio Marines sensitivity analysis model, a hypothetical change in
market rates is selected that Tokio Marine expects to reflect reasonably
possible near-term changes in those rates. For these purposes, Tokio Marine
defines near-term to mean a period of up to one year from the date of its
most recent consolidated financial statements. Actual results may differ from
the hypothetical change in market rates assumed in the following discussion,
especially since this sensitivity analysis does not reflect the results of any
actions that Tokio Marine would take to mitigate these hypothetical losses in
fair value. The following tables show the effect of hypothetical changes in interest
rates on the present value of the surplus in Tokio Marines (parent company
only) asset-liability portfolio, measured as the difference between the present
value of its assets and that of its liabilities (before taxes and future policy
dividends) as of March 31, 2004 and March 31, 2003. The information presented
in the following tables was prepared for risk management purposes and does not
present the effect of actual changes in interest rates that have occurred in
the past or may occur in the future on the financial condition, results of
operations or corporate value of Tokio Marine. As of March 31, 2004Yield curve shift(1)-1%
    
    ±0%
    
    1%
    
    +2%(yen in billions)General Policy Account
    
    ¥
    (5.7
    )
    
    ¥
    0.0
    
    
    ¥
    (6.2
    )
    
    ¥
    (15.5
    )Deposit-Type Insurance Account
    
    
    (15.7
    )
    
    
    0.0
    
    
    
    13.9
    
    
    
    24.5Asset-Liability Portfolio (Tokio Marine non-consolidated)
    
    ¥
    (21.3
    )
    
    ¥
    0.0
    
    
    ¥
    7.7
    
    
    ¥
    9.0
 As of March 31, 2003Yield curve shift(1)-1%
    
    ±0%
    
    1%
    
    +2%(yen in billions)General Policy Account
    
    
    (30.1
    )
    
    ¥
    0.0
    
    
    ¥
    2.4
    
    
    ¥
    (4.9
    )Deposit-Type Insurance Account
    
    
    (33.1
    )
    
    
    0.0
    
    
    
    29.2
    
    
    
    51.5Asset-Liability Portfolio (Tokio Marine non-consolidated)
    
    ¥
    (63.2
    )
    
    ¥
    0.0
    
    
    ¥
    31.6
    
    
    ¥
    46.6
   (1)
    
    Based on the then-prevailing yield curve for Japanese government bonds on
each of the dates indicated. Assets to meet future obligations are exposed to credit risk and liquidity
risk. Credit risk increase when bonds and loans in a portfolio suffer
significant defaults. In addition to using a corporate rating system, Tokio
Marine manages credit risk with its Value-at-Credit Risk model, which Tokio
Marine developed to estimate credit risk. We believe this model has enhanced
Tokio Marines ability to manage its credit risk portfolio. Tokio Marine
manages liquidity risk by aiming to maintain various ways to raise funds
quickly for the prompt payment of insurance claims and to ensure sufficient
liquidity. Risk assets. Risk assets are those investments which purely pursue high
profitability compared to risk amount. Tokio Marines risk assets include
bonds, stocks, derivatives and foreign currency positions in the currencies of
industrialized nations. Each month, Tokio Marine measures the risks that result from its risk
asset portfolio utilizing the expected shortfall method, at a 99% confidence
level over a one-year period. Under this method, Tokio Marine estimates the
expected loss in the fair value of its risk portfolio based on the occurrence
of losses that are outside of the 99% confidence interval, as compared to the
value-at-risk of that portfolio, which is estimated based on the occurrence of
a loss at the 99% confidence level. Like the value-at-risk, the expected
shortfall method takes into account market factors to which the market value of
the portfolio position is exposed (interest rates, equity prices and foreign
exchange rates), the sensitivity of the position to changes in those market
factors, and the volatilities and correlation of those factors. This method
also makes assumptions about market behavior. Assuming a normal distribution,
the expected shortfall for the risk assets portfolio, at a 99% confidence
level, is calculated based on an adverse market movement that exceeds the
standard deviation by a factor of 2.67, while the value-at-risk for the risk
assets portfolio,
at a 99% confidence level, is calculated based on an adverse market
movement that exceeds the standard deviation by a factor of 2.33. 64




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##### Table of Contents



The following tables present the expected shortfall for Tokio Marines
risk asset portfolio for the years ended March 31, 2004 and March 31, 2003,
calculated over a one-year period. In our annual report for the year ended
March 31, 2003, we presented the expected shortfall calculated over a one-month
period. To facilitate a period-to-period comparison, we have recalculated the
figures for the year ended March 31, 2003 over a one-year period. This change
does not constitute any change to our risk management method and is a change in
the method of presentation only. Year ended March 31, 2004Expected shortfall for risk assets portfolio(1)Risk category
    
    Average
    
    High
    
    Low
    
    As of March 31, 2002(yen in billions)Interest rate
    
    ¥
    7.0
    
    
    ¥
    9.9
    
    
    ¥
    3.5
    
    
    ¥
    9.9Foreign exchange
    
    
    13.2
    
    
    
    21.4
    
    
    
    10.1
    
    
    
    21.4Equities
    
    
    49.7
    
    
    
    56.0
    
    
    
    44.0
    
    
    
    47.0
 Year ended March 31, 2003Expected shortfall for risk assets portfolio(1)Risk category
    
    Average
    
    High
    
    Low
    
    As of March 31, 2003(yen in billions)Interest rate
    
    ¥
    4.1
    
    
    ¥
    8.3
    
    
    ¥
    0.5
    
    
    ¥
    0.5Foreign exchange
    
    
    9.8
    
    
    
    14.5
    
    
    
    0.6
    
    
    
    11.3Equities
    
    
    37.8
    
    
    
    39.7
    
    
    
    36.2
    
    
    
    36.2
   (1)
    
    Calculated over a one-year period and based on a 99% confidence level. Other assets. Other assets are those held mainly for the purpose of
operating the property and casualty insurance business. The profitability of these assets is
determined in an integrated manner with the profitability of insurance
operations. At March 31, 2004, the market value of Tokio Marines Japanese equity
securities in this portfolio was ¥2,677.1 billion, which accounted for 41.9% of
Tokio Marines total investments across all portfolios. Consequently, Tokio
Marines net asset value tends to fluctuate considerably in accordance with
price movements in the domestic stock market. We estimated that a ten percent downward movement in the level of the
Nikkei Stock Average would have caused a loss in the fair value of Tokio
Marines other assets of ¥235.6 billion and ¥183.0 billion as of March 31, 2004
and March 31, 2003. Nichido Fire Nichido Fires material market risk exposures in its investment portfolio
relate to interest rates, equity prices and foreign exchange rates. Nichido
Fire does not have a material trading portfolio. Nichido Fire uses a risk modeling technique known as sensitivity
analysis to analyze the implications of changes in market conditions on
investments it holds. Nichido Fire defines sensitivity analysis as the
measurement of potential loss in future earnings, fair values or cash flows of
market sensitive instruments resulting from one or more selected hypothetical
changes in interest rates and other market rates or prices over a selected
period of time. In Nichido Fires sensitivity analysis model, a hypothetical change in
market rates is selected that Nichido Fire expects to reflect reasonably
possible near-term changes in those rates. For these purposes, Nichido Fire
defines near-term to mean a period of up to one year from the date of its
most recent consolidated financial statements. Actual results may differ from
the hypothetical change in market rates assumed in the following discussion,
especially since this sensitivity analysis does not reflect the results of any
actions that Nichido Fire would take to mitigate these hypothetical losses in
fair value. Interest rate risk. The following tables show the effect of hypothetical
interest rate fluctuations on the present value of the surplus in Nichido
Fires (parent company only) asset-liability portfolio, measured as the
difference between the present value of its assets and that of its liabilities
(before taxes and future policy dividends) as of March 31, 2004 and March 31,
2003. The information presented in the following tables was prepared for risk
management purposes and does not present the effect of actual changes in
interest rates that have occurred in the past or may occur in the future on the
financial condition, results of operations or corporate value of Nichido Fire. 65




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##### Table of Contents



As of March 31, 2004Yield curve shift(1)-1%
    
    ±0%
    
    1%
    
    +2%(yen in billions)General Policy Account
    
    ¥
    (7.8
    )
    
    ¥
    0.0
    
    
    ¥
    6.7
    
    
    ¥
    12.1Deposit-Type Insurance Account
    
    
    (5.9
    )
    
    
    0.0
    
    
    
    8.6
    
    
    
    15.9Asset-Liability Portfolio (Nichido Fire non-consolidated)
    
    ¥
    (13.7
    )
    
    ¥
    0.0
    
    
    ¥
    15.3
    
    
    ¥
    28.0
 As of March 31, 2003Yield curve shift(1)-1%
    
    ±0%
    
    1%
    
    +2%(yen in billions)General Policy Account
    
    ¥
    (3.3
    )
    
    ¥
    0.0
    
    
    ¥
    3.5
    
    
    ¥
    6.4Deposit-Type Insurance Account
    
    
    (7.1
    )
    
    
    0.0
    
    
    
    12.8
    
    
    
    23.5Asset-Liability Portfolio (Nichido Fire non-consolidated)
    
    ¥
    (10.4
    )
    
    ¥
    0.0
    
    
    ¥
    16.3
    
    
    ¥
    29.9
   (1)
    
    Based on the then-prevailing yield curve for Japanese government bonds on
each of the dates indicated. Equity price and foreign exchange rate risks. A ten percent uniform upward
and downward movement in stock prices is assumed for calculating the fair value
sensitivity of equity securities held by Nichido Fire. Foreign exchange rate
risk is estimated by assuming a ten percent increase and decrease in all
non-yen exchange rates against the yen. Consequently, the fair value
sensitivity shown below illustrates the effect on fair values if,
simultaneously and uniformly, all non-yen currencies gained or lost ten percent
of their value relative to the yen. Actual results may differ from the
hypothetical change in market rates assumed in the following discussion,
especially since this sensitivity analysis does not reflect the results of any
actions that Nichido Fire would take to mitigate these hypothetical losses in
fair value. The following table shows the sensitivity of Nichido Fires investments to
hypothetical changes in equity prices and foreign exchange values, by category
of market risk, as of March 31, 2004 and March 31, 2003. The information
presented in the following tables was prepared for risk management purposes and
does not present the effect of actual changes in foreign exchange rates or
stock prices that have occurred in the past or may occur in the future on the
financial condition, results of operations or corporate value of Nichido Fire. As of March 31, 2004Percentage changeRisk category
    
    -10%
    
    ±0%
    
    +10%(yen in billions)Equities(1)
    
    ¥
    (55.3
    )
    
    ¥
    0.0
    
    
    ¥
    55.3Foreign exchange(2)
    
    
    (4.8
    )
    
    
    0.0
    
    
    
    4.8
 As of March 31, 2003Risk category
    
    Percentage change-10%
    
    ±0%
    
    +10%(yen in billions)Equities(1)
    
    ¥
    (41.8
    )
    
    ¥
    0.0
    
    
    ¥
    41.8Foreign exchange(2)
    
    
    (20.4
    )
    
    
    0.0
    
    
    
    20.4
   (1)
    
    For equity price risk, a ten percent uniform upward or downward movement
in the benchmark Nikkei Stock Average as of March 31, 2004 (¥11,715) and
March 31, 2003 (¥7,972) was assumed for calculating the market value of
Nichido Fires portfolio. 66




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##### Table of Contents



(2)
    
    For foreign exchange risk assets, a ten percent upward or downward change
in foreign currencies against the yen as of March 31, 2004 and March 31,
2003 was assumed for calculating the market value of Nichido Fires
portfolio. Life Insurance Business We operate our life insurance business primarily through our subsidiary
Tokio Marine & Nichido Life, which was formed in October 2003 as the result of
the merger of Tokio Marine Life and Nichido Life. See Business  Life
Insurance Business. The integration of the risk management functions of Tokio
Marine Life and Nichido Life was completed in October 2003. Information
presented as of a date or for a period ended prior to October 2003 was prepared
for comparison purposes only and presents a combination of Tokio Marine Lifes
and Nichido Lifes historic data. Market Risk Generally Tokio Marine & Nichido Life accumulates assets primarily because it
receives premiums for underwriting insurance policies in advance of being
required to make payments for claims under those policies. Tokio Marine &
Nichido Life funds the benefits it provides under insurance policies with gains
and income generated by its investment portfolio assets. These investments are
subject to market risk but are strictly managed under Tokio Marine & Nichido
Lifes asset-liability management system. The following is a discussion of
Tokio Marine & Nichido Lifes primary market risk exposures and how those
exposures were managed as of March 31, 2004. Investment Objectives Tokio Marine & Nichido Life invests premiums and deposits received from
policyholders in various investments. Its principal investment objective is to
effectively control the effect of interest rate fluctuation on the surplus,
measured as the difference between the present value of its assets and that of
its liabilities, and maintain stable net investment income. Market Risk Measurement Tokio Marine & Nichido Lifes primary market risk exposures are to
potential changes in interest rates. Tokio Marine & Nichido Life defines interest rate risk as the risk of loss
in the fair values of interest rate sensitive instruments caused by changes in
market interest rates. Tokio Marine & Nichido Life is exposed to interest rate
risk due to its investments in fixed income instruments, particularly bonds,
policy loans and other long-term investments. In addition, Tokio Marine &
Nichido Life is exposed to interest rate risk due to interest rate sensitive
obligations and liabilities. See  Assets to meet future obligations. Tokio
Marine & Nichido Life risks a loss because both the market value of fixed
income instruments and the present value of its obligations and liabilities may
vary when market interest rates fluctuate. Between March 31, 2004 and March 31,
2003, Tokio Marine & Nichido Lifes interest rate risk decreased primarily due
to the increased utilization of interest rate swap arrangements in its
asset-liability management which has significantly reduced Tokio Marine &
Nichido Lifes exposure to fluctuations in the interest rate environment. Tokio Marine & Nichido Lifes investments in equities expose it to changes
in equity prices. However, Tokio Marine & Nichido Lifes investment in equity
securities is small and its exposure to equity price risk is therefore not
material. Foreign exchange rate risk is the risk of a loss in the fair values of
instruments denominated in a currency other than Tokio Marine & Nichido Lifes
functional currency, which is the yen, due to fluctuations of foreign exchange
rates. Tokio Marine & Nichido Life is exposed to foreign exchange rate risk
because some of its assets are denominated in a currency other than the yen. If
the value of a foreign currency declines relative to the yen, the fair value of
assets denominated in that foreign currency would also decline. Tokio Marine &
Nichido Lifes primary exposures for foreign exchange rate risk are the U.S.
dollar. However, Tokio Marine & Nichido Lifes asset-liability
management seeks to maintain foreign currency denominated assets that
approximately correspond to its foreign currency denominated liabilities. As a
result, any change in foreign exchange rates that would affect the value of
Tokio Marine & Nichido Lifes foreign currency denominated assets would be
expected to have an approximately offsetting effect on the value of Tokio
Marine & Nichido Lifes foreign currency denominated liabilities. Therefore,
Tokio Marine & Nichido Life does not have material exposure to foreign exchange
rate risk. 67




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##### Table of Contents



Tokio Marine & Nichido Life does not hold physical or derivative commodity
positions. We do not anticipate significant changes in the composition of Tokio
Marine & Nichido Lifes primary market risk exposures or in how those exposures
are managed in future reporting periods. Market Risk Management and Risk Exposure Estimates As risks associated with managing assets and liabilities are becoming
increasingly diversified and complex, Tokio Marine & Nichido Life continues to
seek to enhance its risk management systems and to adopt more sophisticated
methods to manage its various risks. Its risk management section, which is
independent of Tokio Marine & Nichido Lifes asset management sections, is
responsible for overseeing Tokio Marine & Nichido Lifes market risk management
process. This process includes establishing appropriate controls, policies and
procedures relating to market risk; ensuring appropriate senior management
oversight of market risk-taking and risk controlling activities; and analyzing,
monitoring and reporting market risk. Tokio Marine & Nichido Life divides its assets under management into the
following two categories for investment and risk management purposes, with
investment and risk management policies tailored to each category:  
    
    Assets to meet future obligations; and  
    
    Other assets. Tokio Marine & Nichido Life does not have a material trading portfolio. Assets to meet future obligations.Assets to meet future obligations are
intended to provide reserves for insurance policies. To ensure that Tokio
Marine & Nichido Life can make required payments on those policies at maturity
without regard to interest rate fluctuations, both the assets and the
liabilities must be managed effectively. This is called the asset-liability
management. Tokio Marine & Nichido Life has been developing an advanced
asset-liability management system and believes that it maintains a
well-controlled portfolio that includes various bonds and interest rate swap
transactions used for hedging purposes. To enhance its asset-liability management capabilities with respect to
insurance policies, Tokio Marine & Nichido Life groups life insurance and
investment contracts primarily by type and duration of insurance policies. Each
month, Tokio Marine & Nichido Life measures interest rate sensitivity for the
assets and liabilities in each of these groups. Based upon these measurements,
Tokio Marine & Nichido Life utilizes interest rate swaps in an effort to
control the interest rate sensitivity in the assets and the liabilities in each
group of insurance policies. At March 31, 2004, Tokio Marine & Nichido Life had
¥0.2 trillion notional amount of interest rate swaps outstanding. In Tokio Marine & Nichido Lifes sensitivity analysis model, a
hypothetical change in market rates is selected that Tokio Marine & Nichido
Life expects to reflect reasonably possible near-term changes in those rates.
For these purposes, Tokio Marine & Nichido Life defines near-term to mean a
period of up to one year from the date of its most recent consolidated
financial statements. Actual results may differ from the hypothetical change in
market rates assumed in the following discussion, especially since this
sensitivity analysis does not reflect the results of any actions that Tokio
Marine & Nichido Life would take to mitigate these hypothetical losses in fair
value. Tokio Marine & Nichido Lifes exposure to credit risk with respect to its
investment securities which are categorized as assets to meet future
obligations is not significant as it invests primarily in government bonds and
government-guaranteed bonds and does not invest in corporate bonds. Tokio Maine
& Nichido Life is exposed to credit risk in the form of counterparty risk in
connection with its interest rate swap transactions. Tokio Marine & Nichido
Life manages credit risk that arises from its interest rate swap transactions
by entering into collateral arrangements through credit support annexes and
manages its collateral on a daily basis. 68




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##### Table of Contents



The following tables show the effect of hypothetical changes in interest
rates on the present value of the surplus in Tokio Marine & Nichido Lifes
asset-liability portfolio, measured as the difference between the present value
of its assets and that of its liabilities (before taxes and future policy
dividends) as of March 31, 2004 and March 31, 2003. The information presented
in the following tables was prepared for risk management purposes and is not
indicative of the effect of actual changes in interest rates that have occurred
in the past or may occur in the future on the financial condition, results of
operations or corporate value of Tokio Marine & Nichido Life. As of March 31, 2004Yield curve shift(1)-1%
    
    ±0%
    
    1%
    
    +2%(yen in billions)Asset-Liability Portfolio
    
    ¥
    (32.3
    )
    
    ¥
    0.0
    
    
    ¥
    15.4
    
    
    ¥
    20.7
 As of March 31, 2003Yield curve shift(1)(2)-1%
    
    ±0%
    
    1%
    
    +2%(yen in billions)Asset-Liability Portfolio
    
    ¥
    (165.4
    )
    
    ¥
    0.0
    
    
    ¥
    112.2
    
    
    ¥
    182.1
   (1)
    
    Based on the then-prevailing yield curve for Japanese government bonds on
each of the dates indicated and excludes assets in foreign currencies
which are not material.(2)
    
    The information as of March 31, 2003 represents the arithmetical sum of
the effect of hypothetical changes in interest rates on the present value
of the surplus in each of Tokio Marine Lifes and Nichido Fire Lifes
asset-liability portfolios as of March 31, 2003. Between March 31, 2004 and March 31, 2003, Tokio Marine & Nichido Lifes
interest rate risk decreased primarily due to the increased utilization of
interest rate swap arrangements in its asset-liability management which has
significantly reduced Tokio Marine & Nichdo Lifes exposure to fluctuations in
the interest rate environment. Other assets. Assets under this category are primarily policy loans and
equity investments. The outstanding aggregate amount of policy loans as of
March 31, 2004 was ¥19.1 billion. Policy loans are secured by policy
liabilities and investment deposits under the respective policies. At March 31,
2004, the market value of Japanese equity securities in this portfolio was ¥3.3
billion, which accounted for 0.2% of the aggregate value Tokio Marine & Nichido
Lifes total investments across all portfolios. Consequently, the effect of
price movements in the domestic stock market on Tokio Marine & Nichido Lifes
investment assets is not significant. Limitations of Market Risk Management Certain of the statements contained in this discussion of our market risks
may constitute forward looking statements. These statements inherently are
subject to a variety of risks and uncertainties that could cause actual results
to differ materially from those set forth in those statements. These risks and
uncertainties include, among other things:  
    
    Changes in the composition of our financial instruments that are
subject to market risk, including as a result of ordinary financing and
investment decisions or as a result of changes in strategy or
regulation;  
    
    Changes in the volatility of particular instruments or groups of
instruments, including, without limitation, as a result of economic
developments in Japan or elsewhere, or changing political conditions,
or the increasing liquidity of international securities markets;  
    
    Deviations of the actual behavior of particular markets from those
that are indicated by statistical models used by Tokio Marine, Nichido
Fire and Tokio Marine & Nichido Life; and  
    
    Deviations of actual loss experience from the results that might be
indicated by statistical analysis. 69




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##### Table of Contents



Liquidity and Capital Resources Liquidity In the insurance industry, liquidity generally refers to the ability of an
enterprise to generate adequate amounts of cash from its normal operations,
including its investment portfolio, in order to meet its financial commitments,
which are principally obligations under its insurance or reinsurance contracts. The liquidity of a property and casualty insurers operations is generally
affected by the frequency and severity of losses under its policies, as well as
by the persistency of its products. Future catastrophic events, the timing and
effect of which are inherently unpredictable, may also increase liquidity
requirements for a property and casualty insurers operations. The liquidity of a life insurers operations is generally affected by
trends in actual mortality experience relative to the assumptions with respect
thereto included in the pricing of its life insurance policies, by the extent
to which minimum returns or crediting rates are provided in connection with its
life insurance products, and by the level of surrenders and withdrawals. Our principal sources of liquidity include insurance premiums and deposit
premiums received, investment income and cash provided from maturing or
liquidated investments and funds that we may raise from time to time by issuing
debt or equity securities. In addition, our investments held in liquid
securities represent potential sources of liquidity. As a holding company, we currently conduct all of our operations through
our direct and indirect subsidiaries, including Tokio Marine and Nichido Fire.
Virtually all of our consolidated assets are held by, and all of our
consolidated earnings and cash flows are attributable to, our direct and
indirect subsidiaries. As a result, our liquidity and ability to pay expenses
and meet obligations at the holding company level, as well as our ability to
pay cash dividends on our shares, are dependent upon our ability to receive
dividends from our subsidiaries. While we expect that our subsidiaries will
contribute cash to us from time to time, their ability to do so is governed not
only by their profitability but also by a number of different regulations that
are subject to change. See Risk Factors  Risks Relating to Our Business. We are not aware of any developments which would materially increase our
demand for liquidity. Capital Resources Our capital requirements consist principally of capital expenditures and
debt repayment. We made capital expenditures of ¥17.6 billion in the year ended March 31,
2004, ¥11.5 billion in the year ended March 31, 2003 and ¥3.7 billion in the
year ended March 31, 2002, in each case primarily for real estate for
operational and lease purposes and for information technology systems
development and equipment. At March 31, 2004, we had commitments in the amount
of ¥10.1 billion for capital expenditure. Our debt outstanding amounted to ¥213,446 million as of March 31, 2004, of
which the current portion amounted to ¥15,016 million. Debt outstanding at
March 31, 2004 was comprised of the following: Due
    
    (yen in millions)Loans, 0.02% to 3.99%
    
    
    2005-2016
    
    
    ¥
    13,627Equity linked notes, 2.20% to 28.00%
    
    
    2005
    
    
    
    1,716Equity linked notes, zero coupon
    
    
    2006-2007
    
    
    
    6,192Fixed rate notes, 0.01% to 0.96%
    
    
    2005-2010
    
    
    
    27,024Floating rate notes, 0.06%
    
    
    2005
    
    
    
    2,000Credit linked notes, 1.99% to 11.18%
    
    
    2007
    
    
    
    22,644Unsecured bonds, 1.47% to 2.78%
    
    
    2006-2021
    
    
    
    135,843Other notes
    
    
    2034
    
    
    
    4,400Total debt outstanding
    
    
    
    
    
    ¥
    213,446
 70




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##### Table of Contents



These borrowings were made primarily for general corporate purposes, and
there were no restrictions on the use of proceeds from these borrowings. We also maintain investment deposits by policyholders, which are
liabilities that must be returned to the policyholders under long-term
insurance coverage unless there has been a substantial settlement under the
policy. Investment deposits by policyholders amounted to ¥2,704,861 million at
March 31, 2004. It is our policy to fund our capital requirements principally from cash
flow from operating activities and external sources, such as issuances of
debentures. In the future, we intend to explore funding opportunities from
diversified external sources within the framework of applicable regulations. At the holding company level, we intend to finance our capital
requirements, investments and working capital needs primarily with a
combination of dividends and advances from our subsidiaries and access to the
international and domestic capital markets. We believe that dividends and
advances provided by our subsidiaries, together with the proceeds from any
capital markets offerings, will provide sufficient funds to meet our operating
and capital requirements and to implement our corporate strategy. Effective as of August 19, 2003, we reduced our statutory additional paid
in capital in the amount of ¥500 billion pursuant to Article 289, section 2 of
the Japanese Commercial Code and transferred that amount to our other capital
surplus. This transfer enables us, among other things, to repurchase our own
shares of common stock. At our general shareholders meeting on June 29, 2004,
our shareholders approved a change to our Articles of Incorporation, entitling
our board of directors to approve share buybacks. During the period beginning
on July 1, 2004 and ending on September 3, 2004, we have repurchased 17,347
shares for an aggregate purchase price of approximately ¥27,400 million. At our
general shareholders meeting on June 27, 2003, our shareholders approved a
share buyback of up to 120,000 shares of our common stock with an aggregate
value of no more than ¥100 billion, pursuant to which we repurchased 75,646
shares for an aggregate purchase price of approximately ¥100 billion during the
period from July 1, 2003 to May 21, 2004. Off-Balance Sheet Arrangements We issue guarantees in various transactions to enhance the credit standing
of our customers and third parties. These guarantees represent irrevocable
assurances that we will make payment in the event that the primary obligor of
the guaranteed obligation fails to fulfill its obligation to third parties. We
are obliged to make payment when the primary obligor fails to make payments
that become due under the guaranteed obligation in accordance with the
contractual terms. Our maximum exposure under these guarantees as of March 31,
2004 was approximately ¥2,117 million. At March 31, 2004, we did not recognize
any liabilities for these remote loss contingencies. In some cases, the
obligations that we guarantee are secured by the guaranteed parties operating
assets. In the event that we assume the guaranteed parties obligation, we
would acquire the right to the collateral. 71




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##### Table of Contents



Contractual Obligations The table below sets forth the maturities of our contractual cash
obligations as of March 31, 2004: Payments due by periodTotal
    
    Less than 1 year
    
    1-3 years
    
    3-5 years
    
    After 5 years(yen in millions)Contractual obligations:Investment deposits by
policyholders(1)
    
    ¥
    3,149,544
    
    
    ¥
    293,332
    
    
    ¥
    546,512
    
    
    ¥
    478,881
    
    
    ¥
    1,830,819Debt outstanding
    
    
    213,446
    
    
    
    15,016
    
    
    
    82,199
    
    
    
    6,875
    
    
    
    109,356Capital lease obligation
    
    
    6,115
    
    
    
    3,326
    
    
    
    2,789
    
    
    
    0
    
    
    
    0Purchase Obligation
    
    
    10,136
    
    
    
    7,562
    
    
    
    2,574
    
    
    
    0
    
    
    
    0Total contractual
cash
obligations(2)
    
    ¥
    3,379,241
    
    
    ¥
    319,236
    
    
    ¥
    634,074
    
    
    ¥
    485,756
    
    
    ¥
    1,940,175
  (1)
    
    Investment contracts that have no contractual maturity were excluded from
this table. The carrying amount of our investment deposit by policyholders
under contracts that have no contractual maturity was ¥118,026 million at
March 31, 2004.(2)
    
    The total amount of expected future pension payments is not included in
the above table as such amount is not currently determinable. We expect to
contribute approximately ¥15,894 million to our pension plans for the year
ending March 31, 2005. See note 10 to our consolidated financial
statements. 72




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DIRECTORS AND CORPORATE AUDITORS Personal Data Our current directors were elected to their respective positions with us
at the 2004 ordinary general meeting of our shareholders. The term of office
for each of our directors will expire at the close of the ordinary general
meeting of shareholders convened in 2005. The term of office for three of our
corporate auditors, Mr. Kikuchi, Mr. Hanaoka and Mr. Miki, were elected at the
2003 general meeting of our shareholders and their term will expire at the
close of the ordinary meeting of shareholders to be convened in 2007. Two of
our corporate auditors, Mr. Noji and Ms. Inoguchi, were elected at the 2004
ordinary general meeting of our shareholders and their term will expire at the
close of the ordinary meeting of shareholders to be convened in 2008. As of
June 29, 2004, we increased the size of our board of directors from 11
directors to 13 directors and the size of our board of corporate auditors from
4 corporate auditors to 5 corporate auditors. The following table shows information about our directors and corporate
auditors as of August 31, 2004: Number of sharesowned as ofName
    
    Position
    
    Date of birth
    
    August 31, 2004Tomio Higuchi
    
    Chairman and Representative Director
    
    October 22, 1942
    
    
    37.53Kunio Ishihara
    
    President and Representative Director
    
    October 17, 1943
    
    
    55.84Katsuo Handa
    
    Executive Vice President and Representative Director
    
    June 29, 1944
    
    
    28.33Yasuo Yaoita
    
    Managing Director (Representative Director)
    
    November 13, 1947
    
    
    32.47Tomohiro Kotani
    
    Managing Director (Representative Director)
    
    August 28, 1944
    
    
    11.21Shoji Ueno
    
    Director
    
    February 5, 1944
    
    
    35.02Yasuo Tago
    
    Director
    
    January 13, 1944
    
    
    18.59Minoru Makihara
    
    Director
    
    January 12, 1930
    
    
    22.00Masamitsu Sakurai
    
    Director
    
    January 8, 1942
    
    
    Haruo Shimada
    
    Director
    
    February 21, 1943
    
    
    Toshiro Yagi
    
    Director
    
    November 1, 1947
    
    
    21.61Sukeaki Ohta
    
    Director
    
    February 27, 1943
    
    
    39.92Yoichiro Iwama
    
    Director
    
    September 15, 1943
    
    
    34.00Takehisa Kikuchi
    
    Standing Corporate Auditor
    
    December 5, 1941
    
    
    67.49Yukiteru Noji
    
    Standing Corporate Auditor
    
    May 4, 1942
    
    
    13.93Iwao Hanaoka
    
    Corporate Auditor
    
    January 5, 1934
    
    
    9.07Shigemitsu Miki
    
    Corporate Auditor
    
    April 4, 1935
    
    
    Kuniko Inoguchi
    
    Corporate Auditor
    
    May 3, 1952
    
    
    
 Tomio Higuchijoined Nichido Fire in 1965. He became a director of Nichido
Fire in 1993, a managing director in 1995, a senior managing director in 1998,
vice president in 2000 and president and senior general manager of marketing
and sales promotion headquarters in 2001. He has served as chairman of our
board of directors since April 2002. He also serves as president of Nichido
Fire. Kunio Ishiharajoined Tokio Marine in 1966. He became a director of Tokio
Marine in 1995, a managing director in 1998, a senior managing director in 2000
and president in 2001. He has served as our president since April 2002. He also
serves as president of Tokio Marine. Katsuo Handajoined Tokio Marine in 1968. He became a director of Tokio
Marine in 1995, a managing director in 1998 and a senior managing director in
2001. He has served as our executive vice president since June 2003. Yasuo Yaoitajoined Tokio Marine in 1970. He became a director of Tokio
Marine in 2000. He has served as our managing director since April 2002. Tomohiro Kotanijoined Nichido Fire in 1969. He became a director of
Nichido Fire in June 2001. He has served as one of our managing directors since
June 2004. 73




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Shoji Uenojoined Tokio Marine in 1967. He became a director of Tokio
Marine in 1993, a managing director in 1996, a senior managing director in 1999
and an executive vice president in 2001. He has served as one of our directors
since April 2002. He also serves as an executive vice president of Tokio Marine
and as president of The Tokio Marine Research Institute. Yasuo Tagojoined Nichido Fire in 1966. He became a director of Nichido
Fire in 1996, a managing director in June 1998, a senior managing director in
2002 and an executive vice president in 2003. He has served as one of our
directors since April 2002. He also serves as an executive vice president of
Nichido Fire. Minoru Makiharajoined Mitsubishi Corporation in 1956. He became president
of Mitsubishi Corporation in 1992 and chairman of its board of directors in
1998, and he has served as senior corporate advisor since April 2004. He served
as a director of Tokio Marine from 1993 through 2002. He has served as one of
our directors since April 2002. Masamitsu Sakuraijoined Ricoh Company, Ltd. In 1966. He became a director
of Ricoh Company, Ltd. In 1992 and has served as its president since 1996. He
has served as one of our directors since April 2002. Haruo Shimadajoined the faculty of economics at Keio University as a
research assistant in 1967. He became an associate professor in 1975 and has
been a professor since 1982. He has served as one of our directors since April
2002. Toshiro Yagijoined Tokio Marine in 1971. He became a director of Tokio
Marine in 2001 and a managing director in 2003. He has served as one of our
directors since June 2003. He also serves as a managing director of Tokio
Marine. Sukeaki Ohtajoined Tokio Marine in 1965. He became a director of Tokio
Marine in 1993, a managing director in 1995, a senior managing director in 1998
and served in such function until June 2000. Mr. Ohta became the president of
Tokio Marine Life in June 2000 and the president of Tokio Marine & Nichido Life
in October 2003. He has served as one of our directors since June 2004. He also
serves as president of Tokio Marine & Nichido Life. Yoichiro Iwamajoined Tokio Marine in 1967. He became a director of Tokio
Marine in 1996 and a managing director in 1998. He has served has a one of our
directors since June 2004. He also serves as a managing director of Tokio
Marine. Takehisa Kikuchijoined Tokio Marine in 1964. He became a director of
Tokio Marine in 1992, a managing director in 1995 and a senior managing
director in 1998. He has served as one of our standing corporate auditors since
April 2002. He has also served as a corporate auditor of Tokio Marine since
June 2002. Yukiteru Nojijoined Nichido Fire in 1965. He became a director of Nichido
Fire in 1995 and a managing director in 1998. Mr. Noji served as one of our
managing directors from June 2003 through June 2004. He has served as one of
our standing corporate auditors since June 2004. Iwao Hanaokabecame an attorney-at-law and joined Kaneko Law Office
(currently Kaneko Iwamatsu Law Office) in 1959. He served as a corporate
auditor of Nichido Fire from 2000 through 2002. He has served as one of our
corporate auditors since April 2002. Shigemitsu Mikijoined The Mitsubishi Bank, Ltd. In 1958. He became a
director of The Mitsubishi Bank, Ltd. in 1986 and president of The Bank of
Tokyo-Mitsubishi, Ltd. in 2000 and has served as chairman of its board of
directors since June 2004. He served as a corporate auditor of Tokio Marine
from 2000 through 2002. He has served as one of our corporate auditors since
April 2002. He also serves as chairman of The Bank of Tokyo-Mitsubishi, Ltd. Kuniko Inoguchijoined the faculty of foreign studies at Sophia University
as assistant in 1980. She became a full-time lecturer, faculty of law, Sophia
University in 1980, associate professor in 1981 and professor in 1990. She also
served as ambassador extraordinary and plenipotentiary to the United Nations
Conference on Disarmament from 2002 through 2004. She has served as one of our
corporate auditors since June 2004. 74




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There are no family relationships between any of our directors and
corporate auditors. None of our directors or corporate auditors has any service
contract with us or any of our subsidiaries that provides for benefits upon
termination of service as a director or corporate auditor. Compensation and Benefits The aggregate compensation, including bonuses, that was paid by Millea and
its subsidiaries during the year ended March 31, 2004 to our directors and
corporate auditors was ¥400 million and ¥68 million, respectively. The total
amount that we set aside or accrued during the year ended March 31, 2004 to
provide pension, retirement or similar benefits to our directors and corporate
auditors was ¥162 million and ¥4 million, respectively. Under the Commercial Code of Japan and local practice, we may make
severance payments to retired directors or corporate auditors with shareholder
approval when our management proposes such payments based on resolutions of our
board of directors. Pursuant to a shareholder approval, the amount of such
payments to retired directors is determined by a resolution of the board of
directors and the amount of such payments to retired corporate auditors is
determined by our board of corporate auditors upon consultation among
themselves. Board Practices Our board of directors has the authority to determine the fundamental
policy for the administration of the boards affairs and supervises the
execution by the directors of their duties. Our articles of incorporation
provide for not more than fifteen directors. Directors are elected at general
meetings of shareholders, and the normal term of office of directors is one
year, although they may serve any number of consecutive terms. Our board of
directors elects from among its members one or more representative directors,
who have the authority individually to represent us. From among its members,
the board of directors also elects a chairman, a president and one or more
executive vice presidents, senior managing directors and managing directors. The Commercial Code of Japan provides that a director may not vote on an
agenda item in which he or she has a special interest. There is no compulsory
retirement age for directors. There is no requirement that a director hold
shares in order to qualify him or her as a director. Our articles of incorporation provide for not more than six corporate
auditors, one or more of whom may serve as a standing (or full-time) corporate
auditor. Corporate auditors are elected at general meetings of shareholders.
The normal term of office of a corporate auditor is four years. Corporate
auditors may serve any number of consecutive terms. The corporate auditors form
the board of corporate auditors. Corporate auditors are under a statutory duty
to review the administration of our affairs by the directors, examine the
financial statements and business reports to be submitted by the board of
directors to the general meetings of shareholders and report their opinions
thereon to the shareholders. Corporate auditors are required to attend meetings
of the board of directors and are entitled to express their opinions, but they
are not entitled to vote. Corporate auditors also have a statutory duty to
provide their report to the board of corporate auditors, which is required to
submit its auditing report to the directors. The board of corporate auditors
also determines matters relating to the duties of the corporate auditors, such
as auditors policy and methods of investigation of our affairs. We currently
do not have an audit committee or a remuneration committee. Audit Committee Financial Expert Our board of corporate auditors has determined that Takehisa Kikuchi, a
standing corporate auditor, is an audit committee financial expert, within
the meaning of the current rules of the US Securities and Exchange Commission. 75




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THE JAPANESE INSURANCE INDUSTRY The Non-Life Insurance Industry History Tokio Marine, originally founded in 1879, was the first Japanese private
non-life insurance company. Following the enactment of the Insurance Business
Law in 1900, Japanese non-life insurance business prospered, mainly as a result
of the rapid expansion of the Japanese economy during World War I. However,
this period was followed by a recession, the great earthquake in Tokyo in 1923
and the financial crisis of 1929, which resulted in Japanese non-life insurance
companies incurring substantial losses. This led them to reorganize and form
various cartels and co-operative associations. During World War II, under the
guidance of the Japanese government, the industry was again reorganized and the
number of companies was reduced from 48 in 1940 to 16 in 1945. By the end of World War II, Japanese non-life insurance companies had lost
almost all overseas business and incurred substantial deficits. Nevertheless,
Japanese non-life insurance business grew rapidly as the Japanese economy
expanded since the late 1950s. In the 1980s, non-life insurance business grew
significantly due to sales of automobile insurance and sales to individuals of
insurance policies with a refund at maturity, which was seen as an attractive
form of investment. In recent years, moderate non-life insurance business
growth has been achieved mainly due to the steady growth of sales of automobile
insurance. The growth of automobile insurance business, from both voluntary and (with
the introduction in 1955 of the Automobile Liability Security Law) compulsory
automobile liability insurance, contributed significantly to the growth of
non-life insurance business after World War II. This not only resulted in a
substantial volume of business for the non-life insurance industry but also, by
introducing individuals to various insurance policies, provided new
opportunities for the industrys future expansion. In recent years, growth in
automobile insurance business has slowed down while deregulation of the
industry has led to diversification of the Japanese non-life insurance
companies other business activities. Until 1996, non-life insurance companies were prohibited from engaging in
the life insurance business under Japanese law. However, under the new
Insurance Business Law which was enacted on April 1, 1996, non-life insurance
companies are allowed to establish subsidiaries to engage in the life insurance
business and life insurance companies are allowed to establish subsidiaries to
engage in non-life insurance business. Tokio Marine and Nichido Fire
consequently entered the life insurance industry by each establishing its life
insurance subsidiary in 1996. Life and non-life insurance companies were mutually allowed to enter the
so-called third sector insurance business through subsidiaries beginning in
January 2001 and directly beginning in July 2001. The third sector refers to
insurance products and services that do not fall within the traditional life
and non-life insurance areas, such as personal, accident, medical and cancer
insurance and insurance covering expenses for nursing care. Deregulation of
this segment of the insurance industry in Japan is expected to expand the size
of the market by raising awareness of consumers to availability of these
products. Industry Background The growth of non-life insurance business is closely related, among other
things, to the growth in the construction and automobile industries and the
volume of foreign trade, as well as to the emergence of new kinds of risk
resulting from social and economic development, and the increasing public
awareness of insurance and liability compensation. In addition, insurance
policies with a refund at maturity marketed to individuals became attractive
vehicles for personal investment in Japan. Premium income from personal
insurance business now accounts for about three-quarters of the industrys
total non-life premium income. According to the Financial Services Agency, as of January 1, 2004, there
were 54 licensed non-life insurance companies conducting non-life insurance
business in Japan. 76




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Life Insurance Industry Life insurance providers in Japan can be classified into three categories:
traditional life insurers, new entrants, such as the foreign life insurers and
Japanese non-life insurers, including Tokio Marine & Nichido Life and the
postal life insurance system. The ten largest traditional life insurers
continue to underwrite the large majority of privately underwritten life
insurance in Japan. As discussed in the non-life insurance industry section,
life insurance subsidiaries of non-life companies were established in 1996 and
thereafter as a result of the deregulation of insurance businesses in Japan.
The postal life insurance system, a public insurance system managed
by Japan Post, is a distinctive element of the Japanese life insurance
market. Postal life insurance products are offered through the network of post
offices located throughout Japan. The life insurance business in Japan can generally be classified into four
principal product lines: individual insurance, individual annuities, group
insurance and group annuities. Individual insurance is the largest product line
in the Japanese life insurance industry in terms of policy amount. The market
for life insurance products in Japan, as a whole, has decreased in size in
recent years. The prolonged period of economic weakness in Japan which has led
Japanese consumers to reduce spending generally, combined with the failure of a
number of life insurance companies which has led to a loss of confidence in
life insurance companies generally, are thought to be contributing factors for
the decreased demand for life insurance products. However, some of the new
entrants in the market have enjoyed steady growth amid the weak economy in
Japan. According to the Financial Services Agency, as of April 2, 2004, there
were 40 licensed life insurance companies conducting life insurance business in
Japan. 77




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REGULATION Insurance Industry Regulations General Regulatory Scheme The Japanese insurance market is regulated by the Insurance Business Law,
as amended from time to time, as well as by cabinet orders, ministerial
ordinances and various rules and regulations made by the FSA and relevant
ministries. Under the Insurance Business Law, all insurance companies must be
either joint stock corporations or mutual companies, and they must each obtain
a license from the Prime Minister. There are two kinds of licenses related to
insurance businesses: one for life insurance businesses and another for
non-life insurance businesses. The same entity cannot obtain both of these
licenses, although a consolidated entity may contemporaneously hold interests
in a life insurance company and a non-life insurance company. The Insurance
Business Law also contains detailed provisions regarding, among other things,
accounting principles and restrictions relating to the investment of insurance
companies funds. The Insurance Business Law provides for the registration of
insurance agents and insurance brokers with the relevant local finance bureau
and regulates their soliciting activities. Foreign insurance companies that
intend to conduct insurance business in Japan are also subject to the Insurance
Business Law and are required to obtain a license from the Prime Minister. The FSA supervises and exercises broad regulatory powers over the
insurance companies and their business operations, including the authority to
grant or, under certain conditions, revoke the operating license of a business.
Certain methods of operations, general policy conditions and the basis of
calculation of premiums and reserves for unexpired risks must be approved by
the FSA. The FSA may, at any time, require insurance companies to submit
reports and other documents and may carry out inspections at the companies
offices. The FSAs practice is to inspect and audit the business operations of
insurance companies regularly. Insurance Holding Company Regulations Under the Insurance Business Law of Japan, an insurance holding company is
prohibited from carrying on business other than the administration of the
management of its subsidiaries and other incidental business. An insurance
holding company may have as its subsidiaries life and non-life insurance
companies, banks (including trust banks and long-term credit banks), securities
companies and foreign subsidiaries engaged in the insurance, banking or
securities business. In addition, an insurance holding company may have as its
subsidiaries companies engaged in businesses relating or incidental to the
businesses of the companies mentioned above, such as credit card companies,
leasing companies and investment advisory companies. The provisions of the Act
Concerning Prohibition of Private Monopolization and Maintenance of Fair Trade,
or the Anti-Monopoly Law, that prohibit an insurance company from holding more
than 10% of another companys voting rights without the prior approval of the
Fair Trade Commission, do not apply to an insurance holding company. The FSA supervises insurance holding companies under the Insurance
Business Law. The FSA may, at any time, require an insurance holding company or
its subsidiaries to submit reports and other documents and may carry out
inspections at the companies offices if the FSA deems such action necessary to
secure the sound and appropriate operation of the business of the subsidiary
insurance companies. In addition, if a bank or a securities company is a
subsidiary of an insurance holding company, the insurance holding company is
also subject to supervision by the FSA under either the Banking Law or the
Securities Exchange Law, as applicable. Limitations on Investments for Insurance Companies The Insurance Business Law, ministerial ordinances and the regulations
thereunder specify the types of investments that Japanese insurance companies
may make and the percentage of their total assets (calculated on the basis of
Japanese accounting principles) which can be invested in each type of
investment. Under these provisions, Tokio Marines and Nichido Fires
investment portfolios must, in general, be held in the form of securities, real
estate, monetary claims, gold bullion, loans, loaned securities, investments in
partnerships, cash on deposit, money trusts, monetary claims trusts, securities
trusts, real estate trusts, financial derivatives, or other investments
enumerated in the Insurance Business Law Enforcement Regulations. Investments
in stocks and assets denominated in foreign currencies are each limited to 30%
of total assets. The aggregate investment in real estate is limited to 20% of
total assets, and investments in claims, loans and loaned securities are
limited to 10% of total assets. In 1998, a limit on investments in any one company (including its affiliates)
was set at 10% of total assets. Loans to and guarantees in favor of any one
company (including its affiliates) are limited to 3% of total assets. 78




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Under the Anti-Monopoly Law, no insurance company can acquire or hold more
than 10% of the total outstanding stock of any other company in Japan without
obtaining the prior approval of the Fair Trade Commission, except in certain
circumstances. Additionally, the Insurance Business Law prohibits an insurance
company from acquiring or holding more than 10% of the total outstanding stock
of any other company in Japan except of other life or non-life insurance
companies, banks, securities companies, foreign insurance companies, foreign
banks, foreign securities companies, companies which exclusively operate
businesses that provide support to the insurance company and its subsidiaries
or finance-related businesses enumerated in the Insurance Business Law,
companies that cultivate certain new business fields defined in the Insurance
Business Law Enforcement Regulations, and holding companies that exclusively
hold the foregoing companies. Limitations on Dividend Distributions for Insurance Companies The Insurance Business Law prescribes certain financial requirements that
must be met before an insurance company can distribute dividends to its
shareholders. Until the aggregate amount of additional paid-in capital and
legal reserve is equal to the amount of stated capital of an insurance company,
the insurance company must credit to its legal reserve an amount equivalent to
at least one-fifth of the amount to be appropriated from the profit for each
fiscal period and an amount equal to one-fifth of the cash distribution each
time a distribution of money as an interim dividend is made pursuant to the
Commercial Code. Under the Commercial Code, a company is permitted to
distribute profits by way of year-end dividends out of the excess of its net
assets over the aggregate of:  (1)
    
    its stated capital;(2)
    
    its additional paid-in capital;(3)
    
    its accumulated legal reserve;(4)
    
    the legal reserve to be set aside in respect of the fiscal period
concerned; and(5)
    
    other matters specified in the Insurance Business Law Enforcement
Regulations. In the case of interim dividends, the net assets are calculated by
reference to the non-consolidated balance sheet as of the end of the preceding
fiscal year, as adjusted to reflect (A) any subsequent payment by way of
appropriation of retained earnings and the related transfer to legal reserve,
(B) any subsequent transfer of retained earnings to stated capital and (C) if
we have been authorized by a resolution of an ordinary general meeting of
shareholders or of the board of directors, to purchase shares, the total amount
of the purchase price of such shares to be paid by us; provided that (x) if we
reduce our stated capital, additional paid-in capital or accumulated legal
reserve after the end of the preceding fiscal year, the amounts so reduced,
less the amount paid to shareholders upon such reduction and certain other
amounts, and (y) such other amounts as are set out in the Insurance Business
Law Enforcement Regulations, will be added to the amount distributable as
interim dividends as described above. Interim dividends may not be paid where
there is a risk that at the end of the financial year net assets might be less
than the aggregate of the amounts referred to in (1) through (5) above. For
more information on share repurchases, see Description of
Common Stock  Repurchase by Millea Holdings of Shares. Recent Changes to Insurance Laws A number of measures have been implemented under the Insurance Business
Law over the past several years in order to provide greater protections to
policyholders. Under amendments to the Insurance Business Law passed in 1998,
an early warning measure was introduced. This early warning measure is based on
a insurance companys solvency margin ratio. When the solvency margin ratio of
a insurance company falls below a certain prescribed ratio, regulators can
require that the insurance company take certain actions, such as reducing
certain business operations or refraining from making certain investments. Also
in 1998, the Non-Life Insurance Policyholders Protection Corporation and the
Life Insurance Policyholders Protection Corporation were established to provide
assistance to policyholders in the event a non-life or life insurance company
becomes insolvent. All insurance companies operating in Japan, including
foreign insurers, are obligated to become members of these organizations. 79




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These organizations aid policyholders by rendering financial assistance to
an insurance company that assumes the affected policies, by assuming the
policies itself or through other methods stipulated in the Insurance Business
Law. Other amendments to the Insurance Business Law passed in 1998 permitted
insurance companies to enter the banking business through their subsidiaries
from October 1999 and permitted banks to enter the insurance businesses through
their subsidiaries from October 2000. These 1998 amendments also abolished the
requirements that insurance companies obtain approvals from the Financial
Services Agency for certain changes to methods of operations, general policy
conditions or the basis of calculations of premiums and reserves for unexpired
risks from those previously approved by the FSA. A notification requirement was
introduced instead. Amendments to the Law Concerning the Non-Life Insurance Rating
Organizations were also passed in 1998. These amendments abolished the
requirement that non-life insurance companies use the premium rates established
by the rating organizations. Today, with the exception of earthquake insurance
and compulsory automobile liability insurance, non-life insurance companies may
set their own premium rates for insurance policies. These recent changes in insurance industry-related laws have contributed
to increased competition among insurance companies. In April 2001, the Consumer Contracts Law and the Law on Sales of
Financial Products were enacted, which regulate soliciting and selling
activities of insurance products. Recent amendments to the Insurance Business
Law which became effective in April 2000 allow insurance companies to sell some
of their products (including credit insurance provided in connection with
housing loans made by banks) through banks branch offices. The most recent amendments to the Insurance Business Law enacted on August
24, 2003 allow insurance companies which may find it difficult to continue
operating their insurance businesses to change the terms of their insurance
policies, including reducing insurance payments. This is subject to obtaining
approval from the FSA and shareholders of the insurance company, implementing
procedures to protect the interests of policyholders and other conditions and
procedures prescribed in the Insurance Business Law. Foreign Exchange Regulations General Description The Foreign Exchange and Foreign Trade Law of Japan, frequently referred
to as the Foreign Exchange Law, and the cabinet orders and ministerial
ordinances thereunder govern the issuance of shares by companies and the
acquisition and holding of shares by non-residents of Japan and foreign
investors, as defined by the Foreign Exchange Law. Non-residents of Japan are:  (1)
    
    individuals who do not reside in Japan; and(2)
    
    corporations whose principal offices are not located in Japan. Generally, branches and offices of non-resident corporations which are
located in Japan are regarded as residents of Japan while branches and offices
of Japanese corporations located outside Japan are regarded as non-residents of
Japan. Foreign investors are:  (1)
    
    individual not resident in Japan;(2)
    
    corporations organized under the laws of foreign countries or whose
principal offices are located outside Japan; and(3)
    
    corporations organized in Japan not less than 50% of the issued
 shares of which are directly or indirectly held by (1) and/or (2), or a
majority of the officers (or officers having the power of
representation) of which are non-resident individuals. 80




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Dividends and Proceeds of Sale Under the Foreign Exchange Law, dividends paid on, and the proceeds of
sales in Japan of, shares held by non-residents of Japan may, in general, be
converted into any foreign currency and repatriated abroad. Acquisition of Shares Under the Foreign Exchange Law, in general, a non-resident who acquires
shares from a resident of Japan is not subject to any prior filing requirement,
although the Minister of Finance of Japan may require a prior approval for any
such acquisition in certain limited circumstances. If a foreign investor acquires shares of a listed company and, together
with parties who have a special relationship with that foreign investor, holds
10% or more of the issued shares of the company as a result of the acquisition,
the foreign investor must file a report of the acquisition with the Minister of
Finance and any other competent Minister within 15 days from and including the
date of such acquisition. In certain limited circumstances, however, a prior
notification of such acquisition must be filed with the Minister of Finance and
any other competent Minister, who may then modify or prohibit the proposed
acquisition. The acquisition of shares of Millea Holdings by non-residents by
way of a stock split is not subject to any notification or reporting
requirements. Reporting of Substantial Shareholdings Under the Securities and Exchange Law of Japan, if any person becomes,
beneficially and solely or jointly, a holder of more than 5% of the total
issued shares of a public company, that shareholder must file a report
concerning the shareholders shareholdings with the relevant local finance
bureau within five business days. If there is any subsequent change of 1% or
more in the above shareholding, the shareholder must file a similar report. For
these purposes, the total number of issued shares and the number of shares held
by the shareholder include shares to be issued on the exercise of warrants to
subscribe for new shares or on the conversion of bonds or debentures with
warrants to subscribe for new shares. The shareholder also must file a copy of
the relevant report with the issuer of the shares and the stock exchanges on
which the shares are listed. Under the Insurance Business Law, a shareholder of an insurance company or
insurance holding company that holds more than 5% of the total voting rights of
the insurance company or insurance holding company is required to file a report
of its holdings with the Prime Minister within five days after the acquisition
of the shares and other reports concerning the changes in the reported matters
(including any increase or decrease of more than 1% in the shareholding ratio).
In addition, a shareholder of an insurance company that holds 20% or more (in
some cases, 15%) of the total voting rights of the insurance company is
required to obtain the approval of the FSA in advance of acquiring that
percentage of shares. Furthermore, a shareholder of an insurance company
approved by the FSA is required to report to the FSA if its shareholding ratio
exceeds 50%. 81




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DESCRIPTION OF COMMON STOCK The following information relates to shares of our common stock, including
summaries of certain provisions of our articles of incorporation, the
Commercial Code of Japan relating to joint stock corporations (known in
Japanese as kabushiki kaisha ) and certain relevant regulations under the
Insurance Business Law. Shares and Share Capital Our authorized share capital is 7,000,000 shares of common stock, of which
1,857,048.75 shares were issued as of March 31, 2004. Since recent amendments
to the Commercial Code of Japan have abolished the concept of par value, the
stock issued by us does not have any par value. We acquired 63,931.89 shares of our own stock for approximately ¥81,727
million during the year ended March 31, 2004. Under the Commercial Code, we may
transfer these shares by resolution of the board of directors. However, we
cannot transfer these shares at a specially favorable price, as described in
  Voting Rights below. Under the Commercial Code, the transfer of shares is effected by delivery
of share certificates, but, in order to assert shareholders rights against us,
the transferee must have his or her name and address registered on our register
of shareholders. Shareholders are required to file their names, addresses and
seal impressions with The Mitsubishi Trust and Banking Corporation, the
transfer agent for our common stock. Foreign shareholders may file a specimen
signature in lieu of a seal impression. Non-resident shareholders are required
to appoint a standing proxy in Japan or file a mailing address in Japan.
Japanese securities firms and commercial banks customarily offer the service of
standing proxy, and render related services on payment of their standard fee. The central clearing system of share certificates under the Law Concerning
Central Clearing of Share Certificates and Other Securities in Japan applies to
our common stock. Under this system, shareholders may deposit certificates for
shares with the Japan Securities Depositary Center, Inc., the sole depositary
under the central clearing system, through institutions which have accounts
with the Japan Securities Depositary Center. These institutions are normally
securities companies. The shares deposited with the Japan Securities Depositary Center will be
registered in the Japan Securities Depositary Centers name in our register of
shareholders. With information provided by the Japan Securities Depositary
Center and by the institutions that have accounts with the Japan Securities
Depositary Center, we prepare a register of beneficial shareholders that lists
the names of those who beneficially own the deposited shares. This register of
beneficial shareholders is updated on pre-established record dates and on
other dates when it is necessary to determine who owns the shares and can thus
exercise rights relating to those shares. Delivery of share certificates is not
required to transfer deposited shares between accounts at an institution or
between accounts at the Japan Securities Depositary Center. In general, the beneficial shareholders of deposited shares registered in
the register of beneficial shareholders are entitled to the same rights and
benefits with respect to those shares as the holders of shares registered in
the register of shareholders. The registered beneficial shareholders may
exercise the rights attached to the beneficially owned shares, such as voting
and receiving dividends (if any) and convocation notices of shareholders
meetings directly from us. The shares held by a person as a registered
shareholder and those held by the same person as a registered beneficial
shareholder are aggregated for these purposes. New shares issued with respect to deposited shares, including those issued
upon a stock split, automatically become deposited shares. Beneficial
shareholders may at any time withdraw their shares from deposit and receive
share certificates. Dividends Following approval at a general shareholders meeting, dividends are
distributed to shareholders (or pledgees) appearing in the register of
shareholders and to the holders of fractional shares appearing on the register
of fractional shares as of the close of business on March 31 of the relevant
year. Dividends are distributed in cash. Our articles of
incorporation provide that we are relieved of the obligation to pay any
dividends that are unclaimed for five years after the payment date. 82




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The Commercial Code provides that, until the aggregate amount of our legal
reserve and additional paid-in capital is at least one-quarter of our stated
capital, we may not make any distribution of profits by way of annual cash
dividends or interim dividends unless we set aside in our legal reserve an
amount equal to at least one-tenth of any amount that we pay out as an
appropriation of retained earnings, including any payment by way of annual
dividends and bonuses to directors and corporate auditors, or equal to
one-tenth of any interim dividend. The Commercial Code permits us to distribute
profits by way of dividends out of the excess of our net assets, on a
non-consolidated basis, over the aggregate of:  (1)
    
    our stated capital;(2)
    
    our additional paid-in capital;(3)
    
    our accumulated legal reserve;(4)
    
    the legal reserve to be set aside in respect of the dividends
concerned and proposed payment by way of appropriation of retained
earnings; and(5)
    
    other matters specified in the Commercial Code Enforcement
Regulations. In the case of interim dividends, the net assets are calculated by
reference to the non-consolidated balance sheet as of the end of the preceding
fiscal year, as adjusted to reflect (A) any subsequent payment by way of
appropriation of retained earnings and the related transfer to legal reserve,
(B) any subsequent transfer of retained earnings to stated capital and (C) if
we have been authorized by a resolution of an ordinary general meeting of
shareholders or of the board of directors, to purchase shares, the total amount
of the purchase price of such shares to be paid by us; provided that (x) if we
reduce our stated capital, additional paid-in capital or accumulated legal
reserve after the end of the preceding fiscal year, the amounts so reduced,
less the amount paid to shareholders upon such reduction and certain other
amounts, and (y) such other amounts as are set out in the Commercial Code
Enforcement Regulations, will be added to the amount distributable as interim
dividends as described above. Interim dividends may not be paid where there is
a risk that at the end of the financial year net assets might be less than the
aggregate of the amounts referred to in (1) through (5) above. For more
information on share repurchases, see Description of Common Stock  Repurchase
by Millea Holdings of Shares. We may, by resolution of the board of directors, pay interim dividends in
cash to the shareholders (or pledgees) on the register of shareholders and to
the holders of fractional shares appearing on the register of fractional shares
as of the close of business on September 30 of each year. The amounts of capital and other items discussed in this section are in
accordance with Japanese GAAP. The Commercial Code does not provide for stock dividends. However, the
Commercial Code does provide that our shareholders may, by resolution, transfer
any amount which is distributable as dividends to stated capital, and the board
of directors may, by resolution, issue additional shares by way of a stock
split; thus, the same effect as a stock dividend can be achieved. In Japan, the ex-dividend date and the record date used to determine the
shareholders who will receive a dividend, if paid, are determined before the
date the company decides the amount of the dividends, if any, to be paid. For information as to Japanese taxes on dividends, see Taxation. Stock Splits (Free Share Distributions) Under the Commercial Code, our board of directors is permitted to declare
a stock split without needing to ensure there is a minimum net asset value per
share (based on our most recent non-consolidated balance sheet) following the
stock split. In addition, in connection with any stock split, our board of
directors may increase our authorized number of shares to account for the stock
split, and amend our articles of incorporation accordingly,
without the need for shareholder approval. For example, if each share
becomes three shares by way of a stock split, we can increase our authorized
number of shares by up to three times the existing number and do not need to
obtain shareholder approval for that increase. 83




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Fractional Shares The holder of any fractional share constituting one one-hundredth of one
share of our common stock or any integral multiple thereof is registered in the
register of fractional shares. Any fractional interest representing less than
one one-hundredth of one share will not be registered, but entitles the holder
to receive cash in lieu of that fractional interest. Certificates are not be
issued for fractional shares and fractional shares do not carry voting rights.
Our articles of incorporation provide that any registered holder of fractional
shares has the right to receive dividends and interim dividends. A holder of fractional shares may at any time require us to purchase its
shares. These shares will be purchased at (a) the closing price of the shares
reported by the Tokyo Stock Exchange on the day when the request to purchase is
made or (b) if no sale takes place on the Tokyo Stock Exchange on that day,
then the price at which sale of shares is effected on the Tokyo Stock Exchange
immediately thereafter. In such case, we will request payment of an amount
equal to the brokerage commission applicable to the shares purchased pursuant
to our share handling regulations. However, because holders of ADSs
representing less than one share are not able to withdraw the underlying shares
from deposit, these holders will not be able to exercise this right as a
practical matter. Our articles of incorporation also provide that a holder of fractional
shares may require us to sell any fractional shares we may have to the holder
so that the holder can raise its fractional ownership to a whole share. These
shares will be sold at (a) the closing price of the shares reported by the
Tokyo Stock Exchange on the day when the request to sell becomes effective or
(b) if no sale has taken place on the Tokyo Stock Exchange on that day, then
the price at which sale of shares is effected on the Tokyo Stock Exchange
immediately thereafter. In connection with a sale, we will request payment of
an amount equal to the brokerage commission applicable to the shares sold
pursuant to our share handling regulations. However, because holders of ADSs
representing less than one share are not able to withdraw the underlying shares
from deposit, these holders will not be able to exercise this right as a
practical matter. Voting Rights A shareholder is entitled to one vote per share, subject to the
limitations on voting rights set forth in this section and in  Fractional
Shares. Except as otherwise provided by law or by our articles of
incorporation, a resolution can be adopted at a shareholders meeting by the
holders of a majority of the shares having voting rights present at the
meeting. Shareholders may exercise their voting rights by voting card or proxy,
provided that the person acting as proxy is a shareholder of us with voting
rights and is present at the meeting. The Commercial Code and our articles of
incorporation provide that the quorum for election of directors and corporate
auditors shall not be less than one-third of the total number of outstanding
shares having voting rights. Our articles of incorporation provide that our
shareholders are not entitled to cumulative voting in the election of
directors. Under the Commercial Code, cumulative voting is not applicable to
the election of corporate auditors. A corporate shareholder, more than one-quarter of whose shares with voting
rights will be directly or indirectly owned by us, may not exercise its voting
rights in respect of our shares. We have no voting rights with respect to the
shares of our common stock we own. The Commercial Code and our articles of incorporation provide that a
quorum of not less than one-third of outstanding shares with voting rights must
be present at a shareholders meeting to approve any material corporate action
such as:  
    
    The reduction of our stated capital;
    
    The removal of a director or corporate auditor;
    
    The establishment of a 100% parent-subsidiary relationship by way
of a share exchange or share transfer;
    
    Our dissolution, merger or corporate split;
    
    The transfer of the whole or an important part of the business; 84




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
    
    The taking over of the whole business of any other company;
    
    The issuance of new shares at a specially favorable price (or any
issuance of warrants to subscribe for new shares with specially
favorable conditions, or bonds or debentures with warrants to
subscribe for new shares with specially favorable conditions) to
persons other than shareholders; and
    
    The discharge of certain directors or corporate auditors
liabilities that are owed to us. The quorum necessary to adopt any of the resolutions listed above at a
shareholders meeting was reduced from a majority to not less than one-third of
outstanding shares with voting rights by the amendment of our articles of
incorporation in 2003. At least two-thirds of the shares having voting rights represented at the
meeting must be voted to approve these actions. In addition, the Insurance
Business Law requires the approval of the FSA for certain transfers of our
business, or certain takeovers of whole or important parts of other businesses,
or for certain corporate splits. General Meetings of Shareholders The ordinary general meeting of our shareholders is held in Tokyo, Japan
within three months after the close of each fiscal year. Notice of a
shareholders meeting stating the place, time and purpose of the meeting and a
summary of the matters to be acted upon must be sent to each shareholder having
voting rights (or, in the case of a non-resident shareholder, to his mailing
address or proxy in Japan) at least two weeks prior to the date set for the
meeting. In addition, we may hold an extraordinary general meeting of
shareholders whenever necessary by giving at least two weeks advance notice to
shareholders, as well as giving prior public notice concerning the record date
for establishing which shareholders are entitled to exercise rights at the
meeting. Under the Commercial Code, any shareholder holding at least 300 shares or
1% of the total number of shares having voting rights for six months or more
may propose a matter to be considered at a general meeting of shareholders by
submitting a written request to a representative director at least eight weeks
prior to the date set for such meeting. Liquidation Rights In the event of our liquidation, the assets remaining after payment of all
taxes, liquidation expenses and debts will be distributed among the
shareholders in proportion to the respective number of shares which they hold. Issue of Additional Shares of Common Stock and Pre-Emptive Rights Holders of our shares have no pre-emptive rights. Authorized but unissued
shares may be issued at any time and upon any terms, subject to the limitations
as to the issuance of new shares at a specially favorable price mentioned
above in  Voting Rights. However, if the board of directors resolves to give
shareholders subscription rights to new shares, the subscription rights must be
given on uniform terms to all shareholders who own shares on a designated
record date. At least two weeks prior to this record date, public notice of the
record date must be made. Each of the shareholders to whom subscription rights
are given must also be given at least two weeks prior notice of the date on
which the subscription rights expire. Under the Commercial Code, we may issue
warrants to subscribe for new shares (hereafter referred to as subscription
warrants) as warrants on their own or attached to bonds or debentures to any
persons by resolution of the board of directors. Holders of our shares of
common stock have no pre-emptive rights under our articles of incorporation
when we issue warrants to subscribe for new shares. However, the board of
directors may resolve to give shareholders subscription rights in connection
with a particular issue of warrants to subscribe for new shares. In the case of
an issue of warrants to subscribe for new shares, public or individual notice
must be given to each of the shareholders at least two weeks prior to the date
of payment (or issue of the warrants if warrants are issued without
consideration). Rights to subscribe for new shares may be transferable or non-transferable
by resolution of the board of directors. Also, the board of directors may
provide that the transfer of subscription warrants shall require the approval
of the board of directors. Whether we will make rights to subscribe for new
shares or subscription warrants generally transferable in any future rights
offering will depend upon the circumstances at the time of the offering. 85




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Actions Necessary to Change the Rights of Shareholders The Commercial Code of Japan prescribes most of the basic rights of a
shareholder of a Japanese company, including the right to vote and the right to
receive dividends upon a resolution of a general meeting of shareholders. These
rights cannot be changed by the articles of incorporation. Those rights which
may be changed by the articles of incorporation may only be changed by an
amendment to the articles of incorporation. Under the Commercial Code of Japan
and our articles of incorporation, amendments to a companys articles of
incorporation require, in principle, the affirmative vote of more than
two-thirds of the voting rights present at a shareholders meeting of which
shareholders holding not less than one-third of the outstanding shares having
voting rights are present. Dilution It is possible that, in the future, market conditions and other factors
might make rights to subscribe for new shares, subscription warrants or bonds
or debentures with subscription warrants to shareholders desirable at a price
substantially below their then current market price. In this case, shareholders
who do not exercise and are unable otherwise to realize the full value of their
subscription rights will suffer dilution of their equity interest in us. Reports to Shareholders We will furnish to shareholders notices of shareholders meetings, annual
business reports, including financial statements, all of which will be in
Japanese. We will distribute English translations of them to ADS holders. In
addition, we will send an English-language annual report to Citibank, N.A., the
depositary for the ADSs, for distribution to ADS holders. Record Date Under our articles of incorporation, the close of business on March 31 is
the record date for the determination of shareholders having rights at annual
shareholders meetings and shareholders eligible to receive our year-end
dividend, if paid. The close of business on September 30 is the record date for
our interim dividends, if paid. In addition, after giving at least two weeks
prior public notice, our board of directors may, by resolution at any time, set
a record date in order to determine shareholders who are entitled to certain
rights pertaining to the common stock. Repurchase by Millea Holdings of Shares Under the Commercial Code, we may acquire our own shares for any purpose,
subject to the authorization of shareholders at an ordinary general
shareholders meeting, or if our articles of incorporation so provide, by
resolution of our board of directors. In accordance with the recent amendment
to the Commercial Code, we amended our articles of incorporation at the
ordinary general meeting of shareholders held on June 29, 2004 to authorize us
to acquire our shares for any purpose by resolution of our board of directors.
An acquisition by us of our own shares is subject to the restriction that the
aggregate amount of the purchase price must not exceed the amount of retained
earnings available for annual dividend payments, less the sum of any amount
paid or to be paid by way of appropriation of retained earnings and any
transfer of retained earnings to stated capital. A resolution approved at our ordinary general meeting of shareholders held
on June 27, 2003 authorized us to acquire up to 120,000 shares (representing
approximately 6.5% of shares issued and outstanding) with an aggregate purchase
price of ¥100 billion prior to the closing of our ordinary general meeting of
shareholders to be held in 2004. We purchased 75,646 shares with an aggregate
purchase price of approximately ¥100.0 billion in accordance with this
resolution. In the case of shares listed on a Japanese stock exchange or traded in the
over-the-counter market, the acquisition must be made through the market or by
way of a tender offer by the close of the following ordinary
general shareholders meeting, unless acquisition of the shares from a
specified person is authorized by a special shareholders resolution. None of our subsidiaries can acquire our common stock, except as permitted
by the Commercial Code. Any shares of our common stock that are acquired by our
subsidiaries under one of these permitted exceptions, including shares that were acquired by Tokio Marine and Nichido Fire in connection
with the transactions relating to our formation, must be sold or otherwise
transferred to a third party within a reasonable period thereafter. 86




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Liability to Further Calls or Assessments All shares of our common stock are fully paid and non-assessable. Limitations on Owning or Voting Shares by Foreign Shareholders No provision of applicable law or of our articles of incorporation imposes
any foreign ownership limitations with respect to our shares or any limitations
on the rights of non-Japanese persons or entities to vote our shares. Transfer Agent The Mitsubishi Trust and Banking Corporation is the transfer agent for our
common stock. As the transfer agent, it keeps the registers of our shareholders
and our fractional shareholders at its office at 4-5, Marunouchi 1-chome,
Chiyoda-ku, Tokyo 100-8212, Japan and makes transfers relating to record
ownership upon presentation of the certificates representing the transferred
shares. 87




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TAXATION Japanese Taxation The discussion of Japanese taxation set forth below is intended only as a
summary and does not purport to be a complete analysis or discussion of all the
potential Japanese tax consequences that may be relevant to the ownership of
our common stock or ADSs by a person who is not a resident of Japan. A non-resident of Japan or a non-Japanese corporation is generally subject
to Japanese withholding tax on cash dividends. Stock splits generally are not
subject to Japanese withholding tax since they are characterized merely as an
increase in the number of shares (as opposed to an increase in the value of the
shares) from a Japanese tax perspective. Due to the 2001 Japanese tax
legislation, which became effective April 1, 2001, a conversion of retained
earnings or legal earned reserve into stated capital is not deemed a dividend
payment to shareholders for Japanese tax purposes and therefore such a
conversion does not trigger Japanese withholding taxation. Pursuant to the Convention Between the Government of the United States of
America and the Government of Japan for the Avoidance of Double Taxation and
the Prevention of Fiscal Evasion with Respect to Taxes on Income, or the
Treaty, dividend payments made by a Japanese corporation to a U.S. resident or
corporation, provided the recipient of the dividend does not have a permanent
establishment in Japan and the shares with respect to which such dividends are
paid are effectively connected with such permanent establishment, will be
subject to withholding tax at rate of: (1) 10% for dividends declared on or
after July 1, 2004 for portfolio investors who are qualified U.S. residents
eligible for benefits of the Treaty; and (2) 0% (i.e., no withholding) for
dividends declared on or after July 1, 2004 for pension funds which are
qualified U.S. residents eligible for benefits of the Treaty, provided the
dividends are not derived from the carrying on of a business, directly or
indirectly, by such pension funds. However, dividends declared before July 1,
2004 will still be subject to withholding at the previous United States and
Japan treaty rate of 15%. For Japanese tax purposes, the treaty rate generally
supersedes the tax rate under domestic tax law. However, due to the so-called
preservation doctrine under Article 4(2) of the Treaty, and/or due to Article
3-2 of the Special Measurement Law for the Income Tax Law, Corporation Tax Law
and Local Taxes Law with respect to the Implementation of Tax Treaties, if the
tax rate under domestic tax law is lower than the applicable treaty rate, the
domestic tax rate applies. As discussed below, the domestic tax rate on
dividends paid by Millea Holdings to certain shareholders on or after January
1, 2004 but before March 31, 2008 is 7%, and therefore this lower domestic rate
will apply with respect to withholding on dividends paid to certain U.S.
shareholders during such period. The amount of withholding tax imposed on dividends payable to the holders
of our common stock or ADSs who reside in a country other than the United
States is dependent upon the provisions of such treaties or agreements as may
exist between such country and Japan. In the absence of any applicable treaty
or agreement reducing the maximum rate of withholding tax, the standard rate of
Japanese withholding tax applicable to dividends paid by Japanese corporations
to non-residents of Japan or non-Japanese corporations is generally 20%.
However, with respect to dividends paid on listed shares issued by a Japanese
corporation (such as our common stock) to any corporate or individual
shareholders (including those shareholders who are non-Japanese corporations or
Japanese non-resident individuals), except for any individual shareholder who
holds 5% or more of the outstanding total of the shares issued by the relevant
Japanese corporation, the aforementioned standard 20% withholding tax rate is
reduced to (1) 7% for dividends due and payable on or after January 1, 2004 but
on or before March 31, 2008, and (2) 15% for dividends due and payable on or
after April 1, 2008. Non-residents of Japan or non-Japanese corporations that hold common stock
or ADSs and are entitled under an applicable tax treaty to a reduced rate of
Japanese withholding tax on dividends lower than the tax rate under the
domestic tax law, are required to submit, through Millea Holdings to the
relevant tax authority prior to the time the dividend is paid, an Application
Form for the Income Tax Convention regarding Relief from Japanese Income Tax on
Dividends. A standing proxy for a non-resident of Japan or a non-Japanese
corporation that holds common stock or ADSs may be used in order that Millea
Holdings can submit such application on such holders behalf. Non-residents of
Japan or non-Japanese corporations that hold common stock or ADSs who do not
submit such application in advance of the applicable dividend payment will be
entitled to claim a refund from the relevant Japanese tax authorities of
withholding taxes withheld in excess of the rate set forth in the applicable
tax treaty. 88




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Gains derived from the sale outside Japan of our common stock or ADSs by a
non-resident of Japan or a non-Japanese corporation, or from the sale of our
common stock within Japan by a non-resident of Japan as an occasional
transaction or by a non-Japanese corporation not having a permanent
establishment in Japan, are generally not subject to Japanese income or
corporation taxes. Japanese inheritance and gift taxes at progressive rates may
apply to an individual who has acquired our common stock or ADSs as a
distributee, legatee or donee. United States Taxation The following is a discussion of material U.S. federal income tax
consequences of owning and disposing of our common stock or ADSs by U.S.
holders (as defined below). The discussion applies only if a U.S. holder holds
our common stock or ADSs as capital assets for U.S. federal income tax purposes
and it does not describe all of the tax consequences that may be relevant to
holders subject to special rules, such as:  
    
    certain financial institutions;
    
    insurance companies;
    
    dealers and traders in securities or foreign currencies;
    
    persons holding our common stock or ADSs as part of a hedge, straddle or conversion transaction;
    
    persons whose functional currency for U.S. federal income tax purposes is not the U.S. dollar;
    
    partnerships or other entities classified as partnerships for U.S. federal income tax purposes;
    
    persons liable for the alternative minimum tax;
    
    tax-exempt organizations;
    
    persons holding our common stock or ADSs that own or are deemed to
own more than ten percent of any class of Millea Holdings stock; or
    
    persons who acquired our common stock or ADSs pursuant to the
exercise of any employee stock option or otherwise as compensation. This discussion is based on the Internal Revenue Code of 1986, as amended,
or the Code, administrative pronouncements, judicial decisions, final,
temporary and proposed Treasury regulations and the Treaty, all as currently in
effect. These laws are subject to change, possibly on a retroactive basis. It
is also based in part on representations by the depositary and assumes that
each obligation under the deposit agreement and any related agreement will be
performed in accordance with its terms. U.S. holders should consult their own
tax advisors concerning the U.S. federal, state, local and foreign tax
consequences of owning and disposing of our common stock or ADSs in their
particular circumstances. A U.S. holder is a beneficial owner of our common stock or ADSs that is,
for U.S. federal income tax purposes, (1) a citizen or resident of the United
States; (2) a corporation, or other entity taxable as a corporation, created or
organized in or under the laws of the United States or any political
subdivision thereof; or (3) an estate or trust the income of which is subject
to U.S. federal income taxation regardless of its source. In general, a U.S. holder of ADSs will be treated as the holder of the
underlying common stock represented by those ADSs for U.S. federal income tax
purposes. Accordingly, no gain or loss will be recognized if a U.S. holder
exchanges ADSs for the underlying common stock represented by those ADSs. The U.S. Treasury has expressed concerns that parties to whom ADSs are
pre-released may be taking actions that are inconsistent with the claiming of
foreign tax credits for U.S. holders of ADSs. Such actions would also be
inconsistent with the claiming of the reduced rate of tax, described below,
applicable to dividends received by certain non-corporate U.S. holders.
Accordingly, the analysis of the creditability of Japanese taxes and the
availability of the reduced tax rate for dividends received by certain
non-corporate U.S. holders, each described below, could be affected by actions
taken by parties to whom ADSs are pre-released. 89




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This discussion assumes that Millea Holdings is not, and will not become,
a passive foreign investment company (as discussed below). Taxation of distributions Distributions paid on our common stock or ADSs, other than certain pro
rata distributions of common stock, will be treated as dividends to the extent
paid out of current or accumulated earnings and profits (as determined under
U.S. federal income tax principles). Subject to applicable limitations,
dividends paid to non-corporate U.S. holders in taxable years beginning before
January 1, 2009 will be taxable at a maximum rate of 15%. Non-corporate U.S.
holders should consult their own tax advisors to determine whether they are
subject to any special rules that limit their ability to be taxed at this
favorable rate. The amount of a dividend will include any amounts withheld by
us or our paying agent in respect of Japanese taxes. The amount of the dividend
will be treated as foreign source dividend income to a U.S. holder and will not
be eligible for the dividends received deduction generally allowed to U.S.
corporations under the Code. Such dividends will generally constitute passive
income or, for certain holders, financial services income for foreign tax
credit purposes. Dividends paid in yen will be included in a U.S. holders income in a U.S.
dollar amount calculated by reference to the exchange rate in effect on the
date the dividends are received by such U.S. holder in the case of a U.S.
holder of our common stock or by the depositary for the ADSs in the case of a
U.S. holder of ADSs, regardless of whether the payment is in fact converted
into U.S. dollars. If the dividend is converted into U.S. dollars on the date
of receipt, a U.S. holder generally should not be required to recognize foreign
currency gain or loss in respect of the dividend income. A U.S. holder may have
foreign currency gain or loss if the dividend is not converted into U.S.
dollars on the date of its receipt. Japanese taxes withheld from cash dividends on our common stock or ADSs at
a rate not exceeding the rate provided in the Treaty will be creditable against
a U.S. holders U.S. federal income tax liability, subject to applicable
restrictions and limitations that may vary depending upon such holders
circumstances. Instead of claiming a credit, a U.S. holder may elect to deduct
such otherwise creditable Japanese taxes in computing such holders taxable
income, subject to generally applicable limitations under U.S. law. U.S.
holders should consult their own tax advisors to determine whether they are
subject to any special rules that limit their ability to make effective use of
foreign tax credits. Sale and other disposition of our common stock or ADSs For U.S. federal income tax purposes, gain or loss a U.S. holder realizes
on the sale or other disposition of our common stock or ADSs will be capital
gain or loss, and will be long-term capital gain or loss if the holder held the
common stock or ADSs for more than one year. The amount of the U.S. holders
gain or loss will be equal to the difference between the holders tax basis in
our common stock or ADSs disposed of and the amount realized on the
disposition. Such gain or loss will generally be U.S. source gain or loss for
foreign tax credit purposes. Passive foreign investment company rules Special adverse U.S. federal income tax rules apply if a U.S. holder owns
stock or ADSs of a company in any taxable year during which the company is
treated as a passive foreign investment company, or a PFIC. Based upon certain estimates of our management and the nature of the
business activities conducted by the Millea Holdings corporate group, we
believe that we were not a PFIC for the taxable year ended March 31, 2004 and
we do not expect to be a PFIC in the foreseeable future. However, since the
determination of whether we are a PFIC is based on the composition of our
income and assets and the value of our assets from time to time, there can be
no assurance that we will not be considered a PFIC for any taxable year. In general, if we were treated as a PFIC for any taxable year during which
a U.S. holder owned our common stock or ADSs, gain recognized by the U.S.
holder on a sale or other disposition of our common stock or ADSs would be
allocated ratably over the U.S. holders holding period therefor. The amounts
allocated to the taxable year of the sale or other disposition and to any
taxable year before we became a PFIC would be taxed as ordinary income. The
amount allocated to each other taxable year would be subject to tax at the
highest rate in effect for individuals or corporations, as appropriate, and an
interest charge would be imposed on the amount allocated to such taxable year. 90




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Further, any distribution in respect of our common stock or ADSs in excess
of 125% of the average of the annual distributions on such securities received
by the U.S. holder during the preceding three years or the U.S. holders
holding period, whichever is shorter, would be subject to taxation as described
above. Under certain circumstances, a mark-to-market election may be available
to a U.S. holder, which generally could result in different U.S. federal income
tax consequences to such holder. In addition, if we were to be treated as a PFIC in a taxable year in which
we pay a dividend or the prior taxable year, the 15% dividend rate discussed
above with respect to payment of dividends to non-corporate U.S. holders would
not apply. Information reporting and backup withholding Payment of dividends and sales proceeds that are made within the United
States or through certain U.S.-related financial intermediaries generally are
subject to information reporting and to backup withholding unless (1) the
holder is a corporation or other exempt recipient or (2) in the case of backup
withholding, the U.S. holder provides a correct taxpayer identification number
and certifies that no loss of exemption from backup withholding has occurred. The amount of any backup withholding from a payment to a U.S. holder will
be allowed as a credit against its U.S. federal income tax liability and may
entitle it to a refund, provided that the required information is furnished to
the Internal Revenue Service. 
 CONTROLS AND PROCEDURES As of March 31, 2004, we, under the supervision and with the participation
of our management, including our principal executive officer and principal
financial officer, performed an evaluation of the effectiveness of our
disclosure controls and procedures. Our management necessarily applied its
judgment in assessing the costs and benefits of those controls and procedures,
which by their nature can provide only reasonable assurance regarding
managements control objectives. Based on this evaluation, our principal
executive officer and principal financial officer concluded that our disclosure
controls and procedures are effective at the reasonable assurance level for
gathering, analyzing and disclosing the information we are required to disclose
in the reports we file under the Securities Exchange Act of 1934, within the
time periods specified in the SECs rules and forms. There have been no changes in our internal controls over financial
reporting that occurred during the period covered by this annual report that
have materially affected, or are reasonably likely to materially affect, our
internal controls over financial reporting. 
 CODE OF ETHICS We have adopted a code of ethics that applies to our principal executive
officer, principal financial officer, principal accounting officer or
controller, or persons performing similar functions. Our code of ethics is
available through our website at http://www.millea.co.jp. 
 PRINCIPAL ACCOUNTANT FEES AND SERVICES Audit Fees For the year ended March 31, 2004, ChuoAoyama PricewaterhouseCoopers
(including its Japanese and overseas affiliates), our auditors for Japanese
domestic purposes and United States securities law reporting purposes for the
year ended March 31, 2004, billed us ¥185.6
 million for audit fees. For the year ended
March 31, 2003, ChuoAoyama PricewaterhouseCoopers (including its Japanese and
overseas affiliates), our auditors for Japanese domestic purposes for the year
ended March 31, 2003, billed us ¥98.7 million for audit fees. For the year ended March 31,
2003, KPMG AZUSA & Co. (including its Japanese and overseas affiliates), our
auditors for United States securities law reporting purposes for the year ended
March 31, 2003, billed us ¥93.3 million for audit fees. 91




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Audit Related Fees In the year ended March 31, 2004, ChuoAoyama PricewaterhouseCoopers
(including its Japanese and overseas affiliates) billed us
¥17.3 million for audit-related
services, including advisory services relating to internal
controls and procedures. In the year ended March
31, 2003, ChuoAoyama PricewaterhouseCoopers (including its Japanese and
overseas affiliates) billed us ¥10.7 million for
audit-related services, including due diligence services. In the year ended
March 31, 2003, KPMG AZUSA & Co. (including its Japanese and overseas
affiliates) billed us ¥0.6 million for audit-related services. Tax Fees In the year ended March 31, 2004, ChuoAoyama PricewaterhouseCoopers
(including its Japanese and overseas affiliates) billed us
¥37.1 million for tax services,
including tax-related advice and the preparation of tax returns. In the year
ended March 31, 2003, ChuoAoyama PricewaterhouseCoopers (including its Japanese
and overseas affiliates) billed us ¥10.0 million for tax fees, including tax-related
advice and the preparation of tax returns. In the year ended March 31, 2003,
KPMG AZUSA & Co. (including its Japanese and overseas
affiliates) billed us ¥9.9 million
for tax fees, including tax-related advice and the preparation of tax returns. All Other Fees In the year ended March 31, 2004, ChuoAoyama PricewaterhouseCoopers
(including its Japanese and overseas affiliates) billed us
¥44.6 million for other
products and services, including advisory services in connection with a scheme of
arrangement in the United Kingdom. In the year ended March 31, 2003, ChuoAoyama
PricewaterhouseCoopers (including its Japanese and overseas affiliates) billed
us ¥58.6 million for other products and services, including advisory services in
connection with a scheme of arrangement in the United Kingdom. In the year
ended March 31, 2003, KPMG AZUSA & Co. (including its Japanese and overseas
affiliates) billed us ¥1.5 million for other products and services, including
consultation regarding accounting matters. Pre-Approval Policies and Procedures Our board of directors, together with our board of corporate auditors, has
adopted Pre-Approval Policies and Procedures for Audit and Non-Audit
Services.
These policies require that engagements of our independent accountants
for audit and permitted non-audit services be pre-approved by our board
of directors and board of corporate auditors in accordance with the
prescribed procedures and standards, based on review of explanative
summaries of each type of services. Engagements for certain non-audit
services are prohibited under these policies. Engagements for
non-audit services that are not specifically prohibited and do not
violate the auditor independence requirements of the Sarbanes-Oxley
Act of 2002 and the related rules may be permitted under special
circumstances. In the year
ended March 31, 2004, 1.4% of the total amount of fees paid by us to ChuoAoyama
PricewaterhouseCoopers was approved by our board of directors and board of corporate auditors under the de minimis
exception under paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X under the
Exchange Act. 
 EXEMPTIONS FROM CERTAIN NASDAQ CORPORATE GOVERNANCE RULES Nasdaq rules provide that Nasdaq may grant exemptions from the Nasdaq
corporate governance standards to a foreign issuer when those standards are
contrary to a law, rule or regulation of any public authority exercising
jurisdiction over such issuer or contrary to generally accepted business
practices in the issuers country of domicile, except to the extent that such
exemptions would be contrary to the U.S. federal securities laws. We received
from Nasdaq exemptions from certain Nasdaq corporate governance standards.
These exemptions and the practices we follow are described below:  
    
    We are exempt from Nasdaqs requirement that there be independent
directors on the board of directors. Currently, for a foreign issuer,
Nasdaq requires that there be two independent directors on its board of
directors. For large Japanese companies, including us, which employ a
corporate governance system based on a board of corporate auditors,
Japans company law has no independence requirement with respect to
directors. As discussed above, the task of overseeing management and
accounting firms is assigned to the corporate auditors, who are
separate from the companys management. Large Japanese companies,
including us, are required to have at least one outside corporate
auditor who must meet independence requirements under Japans company
law. An outside corporate auditor is defined as a corporate auditor who
has not served as a director, manager or any other employee of the
company or any of its subsidiaries for the last five years prior to the
appointment. Currently, we have three outside corporate auditors.
Starting on the date of our ordinary meeting of shareholders relating
to the fiscal year ending March 31, 2006, at least 50% of our corporate
auditors will be required to be outside corporate auditors. Also,
starting on the same date, the independence requirements for outside corporate auditors
will be strengthened by extending the five-year period referred to above
to any time prior to the appointment. 92




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
    
    We are exempt from Nasdaqs requirement to establish an audit
committee of the board of directors. Currently, for a foreign issuer,
Nasdaq requires that a majority of such an audit committees members be
independent directors. Like a majority of Japanese companies, we employ
the corporate auditor system as described above. Under this system, the
board of corporate auditors is a legally separate and independent body
from the board of directors. The functions of the board of corporate
auditors are comparable to those of independent directors, including
those who are members of the audit committee, of a U.S. company: to
monitor the performance of the directors, and to review and express
opinion on the method of auditing by the companys accounting firm and
on such accounting firms audit reports, for the protection of the
companys shareholders. Large Japanese companies, including us, are
required to have at least three corporate auditors. Currently, we have
five corporate auditors. In addition, our corporate auditors serve a
longer term than our directors. See Directors and Corporate Auditors 
Board Practices.
    
    We are exempt from the requirement to distribute copies of our
annual report to our shareholders prior to our annual meeting of
shareholders. In accordance with Japanese law, we distribute a
convocation notice to our shareholders prior to each annual meeting of
shareholders. This convocation notice includes the results of the most
recent fiscal year. We distribute a translation of the convocation
notice to our ADS holders.
    
    We are exempt from the requirement to provide for a quorum for any
shareholders meeting. As permitted by the Commercial Code of Japan,
the articles of incorporation of virtually all major Japanese
companies, including ours, exclude a quorum requirement for general
meetings of shareholders with respect to all matters to which no
special provision of the Commercial Code of Japan apply.
    
    We are exempt from the requirement to solicit proxies and to
provide proxy statements for all meetings to shareholders. In common
with most other major companies in Japan, we allow each holder of
 shares of our common stock to cast its vote in writing, instead of
soliciting proxies.
    
    We are exempt from the requirement that our code of conduct shall
cover all our employees to the extent that these employees are employed
by indirectly held subsidiaries. Under Japanese law and practice, we
are not in a position to force our indirectly held subsidiaries to
adopt such code. Starting on July 31, 2005, when the requirements of Rule 10A-3 under the
U.S. Securities Exchange Act of 1934 relating to listed company audit
committees become applicable to foreign private issuers, we expect to rely on
an exemption under that rule which is available to foreign private issuers with
a board of corporate auditors meeting certain criteria. We expect to make a
disclosure regarding such reliance in our annual reports on Form 20-F for the
fiscal year ending March 31, 2005 and thereafter. 93




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WHERE YOU CAN FIND MORE INFORMATION We are subject to the information requirements of the Securities and
Exchange Act of 1934. In accordance with those requirements, we file with the
SEC annual reports on Form 20-F within six months of our fiscal year end, and
provide to the SEC other material information on Form 6-K. You may read and
copy any document that we file with the SEC at the SECs public reference room
at 450 Fifth Street, N.W., Washington, D.C. 20549. Please call the SEC at
1-800-732-0330 for further information on the operation of its public reference
room. You may also view any document that we file with the SEC in electronic
format by accessing the SECs home page (http://www.sec.gov). Prior to our formation in April 2002, Tokio Marine and Nichido Fire filed
a registration statement on Form F-4 with the SEC under the Securities Act of
1933 (registration number 333-14152 with respect to Tokio Marine and
registration number 333-14152-01 with respect to Nichido Fire) covering shares
of our common stock to be issued to Tokio Marine and Nichido Fire shareholders
in connection with our formation. Tokio Marine and Nichido Fire also filed a
related registration statement on Form F-6 with the SEC to register the
American depositary shares representing our shares (registration number
333-14154 with respect to Tokio Marine and registration number 333-14154-01
with respect to Nichido Fire). You should refer to these registration
statements and their exhibits and schedules, which are also available at the
SECs public reference room identified above, if you would like to find out
more about our formation or our American depositary shares. 94




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INDEX TO FINANCIAL STATEMENTS Millea Holdings, Inc. Consolidated Financial Statements:
    
    PageReport of Independent Registered Public Accounting Firm
    
    
    F-2Report of Independent Registered Public Accounting Firm
    
    
    F-3Consolidated Balance Sheets as of March 31, 2004 and 2003
    
    
    F-4Consolidated Statements of Income for the Years Ended March 31, 2004, 2003 and 2002
    
    
    F-6Consolidated Statements of Stockholders Equity for the Years Ended March 31, 2004, 2003 and 2002
    
    
    F-7Consolidated Statements of Cash Flows for the Years Ended March 31, 2004, 2003 and 2002
    
    
    F-8Consolidated Statements of Comprehensive Income for the Years Ended March 31, 2004, 2003 and 2002
    
    
    F-10Notes to Consolidated Financial Statements
    
    
    F-11
  INDEX TO SCHEDULES ScheduleNumber
    
    
    
    PageI
    
    Summary of Investments  Other than Investments in Related Parties as of March 31, 2004 and 2003
    
    
    F-43III
    
    Supplementary Insurance Information for the Years Ended March 31, 2004, 2003 and 2002
    
    
    F-47IV
    
    Reinsurance for the Years Ended March 31, 2004, 2003 and 2002
    
    
    F-48V
    
    Valuation and Qualifying Accounts for the Years Ended March 31, 2004, 2003 and 2002
    
    
    F-49
 Schedules other than those listed above are omitted for the reason that
they are not required or are not applicable. Columns omitted from schedules
filed have been omitted because the information is not applicable. F-1




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Report of Independent Registered Public Accounting Firm To the Board of Directors and Stockholders of
Millea Holdings, Inc.: In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of income, of comprehensive income, of stockholders
equity and of cash flows present fairly, in all material respects, the
financial position of Millea Holdings, Inc. and its subsidiaries (the
Company) at March 31, 2004, and the results of their operations and their cash
flows for the year ended March 31, 2004 in conformity with accounting
principles generally accepted in the United States of America. In addition, in
our opinion, the financial statement schedules for the year ended March 31,
2004 listed in the accompanying index present fairly, in all material respects,
the information set forth therein when read in conjunction with the related
consolidated financial statements. These financial statements and financial
statement schedules are the responsibility of the Companys management. Our
responsibility is to express an opinion on these financial statements and
financial statement schedules based on our audits. We conducted our audit of
these statements in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion. /s/ ChuoAoyama PricewaterhouseCoopers Tokyo, Japan
August 3, 2004 F-2




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Report of Independent Registered Public Accounting Firm The Board of Directors and Stockholders
Millea Holdings, Inc.: We have audited the accompanying consolidated financial statements of
Millea Holdings, Inc. and subsidiaries as of and for each of the years in the
two-year period ended March 31, 2003 as listed in the accompanying index. In
connection with our audits, we also have audited the financial statement
schedules as listed in the accompanying index. These consolidated financial
statements and financial statement schedules are the responsibility of the
Companys management. Our responsibility is to express an opinion on these
consolidated financial statements and financial statement schedules based on
our audits. We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Millea
Holdings, Inc. and subsidiaries as of March 31, 2003, and the results of their
operations and their cash flows for each of the years in the two-year period
ended March 31, 2003, in conformity with accounting principles generally
accepted in the United States of America. Also in our opinion, the related financial statement schedules, when
considered in relation to the basic consolidated financial statements taken as
a whole, present fairly, in all material respects, the information set forth
therein. As discussed in note 1(h) of the notes to the consolidated financial
statements, the Company changed its method of accounting for derivative
instruments and hedging activities in the year ended March 31, 2002. /s/ KPMG AZSA & Co. Tokyo, Japan
September 4, 2003 F-3




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MILLEA HOLDINGS, INC.
AND SUBSIDIARIES 
 Consolidated Balance Sheets March 31, 2004 and 2003 (Yen in millions)Assets
    
    2004
    
    2003Investments  other than investments in related parties (notes 3):Securities held to maturity:Fixed maturities, at amortized cost (fair value ¥1,088,552
million in 2004;¥1,028,732 million in 2003)
    
    ¥
    1,109,861
    
    
    
    883,336Securities available for sale:Fixed maturities, at fair value (amortized cost ¥3,197,782
million in 2004;¥3,225,560 million in 2003)
    
    
    3,209,582
    
    
    
    3,421,624Equity securities, at fair value (cost ¥1,692,457 million in
2004;¥1,842,812 million in 2003)
    
    
    3,457,374
    
    
    
    2,534,221Trading securities:Fixed maturities, at fair value (cost ¥36,258 million in 2004;
¥26,076 million in 2003)
    
    
    35,619
    
    
    
    25,936Equity securities, at fair value (cost ¥11,418 million in 2004)
    
    
    12,894
    
    
    
    Mortgage loans on real estate
    
    
    129,076
    
    
    
    148,655Investment real estate
    
    
    104,110
    
    
    
    82,886Policy loans
    
    
    33,610
    
    
    
    29,171Other long-term investments
    
    
    419,199
    
    
    
    559,004Short-term investments
    
    
    881,897
    
    
    
    660,370Total investments
    
    
    9,393,222
    
    
    
    8,345,203Cash and cash equivalents
    
    
    432,874
    
    
    
    339,978Premiums receivable and agents balances
    
    
    185,498
    
    
    
    176,010Reinsurance recoverable on losses (notes 4 and 8)
    
    
    447,111
    
    
    
    450,345Prepaid reinsurance premiums (note 4)
    
    
    318,432
    
    
    
    300,847Deferred policy acquisition costs (note 5)
    
    
    453,403
    
    
    
    422,480Property and equipment, net of depreciation (note 6)
    
    
    193,068
    
    
    
    204,078Derivative assets (note 15)
    
    
    225,822
    
    
    
    341,279Separate account assets
    
    
    162,715
    
    
    
    Goodwill
    
    
    9,934
    
    
    
    Present value of future profit
    
    
    14,744
    
    
    
    Other assets
    
    
    363,550
    
    
    
    313,143Total assets
    
    ¥
    12,200,373
    
    
    
    10,893,363
 (Continued) See accompanying notes to consolidated financial statements. F-4




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MILLEA HOLDINGS, INC.
AND SUBSIDIARIES Consolidated Balance Sheets  (Continued) March 31, 2004 and 2003 (Yen in millions)Liabilities
and Stockholders Equity
    
    2004
    
    2003Liabilities:Policy liabilities and accruals:Losses, claims and loss adjustment expenses (note 8)
    
    ¥
    1,221,146
    
    
    
    1,131,884Unearned premiums
    
    
    1,878,824
    
    
    
    1,761,155Future policy benefits and losses
    
    
    853,804
    
    
    
    713,418Total policy liabilities and accruals
    
    
    3,953,774
    
    
    
    3,606,457Investment deposits by policyholders
    
    
    2,704,861
    
    
    
    2,716,526Income tax liability (note 9)
    
    
    709,224
    
    
    
    437,560Retirement and severance benefits (note 10)
    
    
    292,054
    
    
    
    324,003Ceded reinsurance balances payable
    
    
    109,923
    
    
    
    113,370Debt outstanding (note 11)
    
    
    213,446
    
    
    
    177,880Derivative liabilities (note 15)
    
    
    156,467
    
    
    
    203,011Cash received under securities lending transactions
    
    
    272,791
    
    
    
    248,214Separate account liabilities
    
    
    162,715
    
    
    
    Other liabilities (note 11)
    
    
    216,767
    
    
    
    242,026Total liabilities
    
    
    8,792,022
    
    
    
    8,069,047Commitments and contingent liabilities (notes 4 and 14)Stockholders equity:Common stock: 7,000,000 shares authorized in 2004 and 2003,
1,857,048.75 shares issued in 2004 and 2003
    
    
    150,000
    
    
    
    150,000Additional paid-in capital
    
    
    343,155
    
    
    
    343,413Retained earnings (notes 13)
    
    
    2,299,338
    
    
    
    2,214,947Accumulated other comprehensive income:Unrealized appreciation of securities
    
    
    796,304
    
    
    
    227,198Foreign currency translation adjustments
    
    
    (26,433
    )
    
    
    (15,254
    )Minimum pension liability adjustments (note 10)
    
    
    (67,305
    )
    
    
    (88,326
    )Total accumulated other comprehensive income
    
    
    702,566
    
    
    
    123,618Treasury stock, at cost 68,992 and 7,903 shares in 2004 and 2003, respectively
    
    
    (86,708
    )
    
    
    (7,662
    )Total stockholders equity
    
    
    3,408,351
    
    
    
    2,824,316Total liabilities and stockholders equity
    
    ¥
    12,200,373
    
    
    
    10,893,363
 See accompanying notes to consolidated financial statements. F-5




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MILLEA HOLDINGS, INC.
AND SUBSIDIARIES 
 Consolidated Statements of Income Years ended March 31, 2004, 2003 and 2002 (Yen in millions,except per share amounts)2004
    
    2003
    
    2002Operating income:Property and casualty:Net premiums written (note 4)
    
    ¥
    1,945,246
    
    
    
    1,898,557
    
    
    
    1,381,483Less increase in unearned premiums
    
    
    85,043
    
    
    
    137,589
    
    
    
    38,521Premiums earned (note 4)
    
    
    1,860,203
    
    
    
    1,760,968
    
    
    
    1,342,962Life premiums (note 4)
    
    
    247,800
    
    
    
    262,486
    
    
    
    209,208Net investment income (note 3)
    
    
    126,173
    
    
    
    108,311
    
    
    
    104,681Realized losses on investments (notes 3)
    
    
    (3,855
    )
    
    
    (29,875
    )
    
    
    (1,020
    )(Losses) gains on derivatives
    
    
    (36,755
    )
    
    
    76,564
    
    
    
    (7,319
    )Total operating income
    
    
    2,193,566
    
    
    
    2,178,454
    
    
    
    1,648,512Operating costs and expenses:Losses, claims and loss adjustment expenses (notes 4 and 8):Losses and claims incurred and provided for
    
    
    1,048,518
    
    
    
    953,681
    
    
    
    736,765Related adjustment expenses
    
    
    77,389
    
    
    
    76,412
    
    
    
    61,449Total losses, claims and loss adjustment expenses
    
    
    1,125,907
    
    
    
    1,030,093
    
    
    
    798,214Policy benefits and losses for life
    
    
    197,903
    
    
    
    223,316
    
    
    
    175,016Income credited to investment deposits by policyholders
    
    
    58,414
    
    
    
    56,011
    
    
    
    57,507Policy acquisition costs (note 5)
    
    
    558,978
    
    
    
    571,058
    
    
    
    437,012Other operating expenses
    
    
    100,097
    
    
    
    96,668
    
    
    
    72,095Total operating costs and expenses
    
    
    2,041,299
    
    
    
    1,977,146
    
    
    
    1,539,844Income before income tax expense, extraordinary items
and cumulative effect of accounting changes
    
    
    152,267
    
    
    
    201,308
    
    
    
    108,668Income tax expense (benefit) (note 9):Current
    
    
    50,015
    
    
    
    92,935
    
    
    
    53,960Deferred
    
    
    (630
    )
    
    
    (21,321
    )
    
    
    (20,544
    )49,385
    
    
    
    71,614
    
    
    
    33,416Income before extraordinary items and
cumulative effect of accounting changes
    
    
    102,882
    
    
    
    129,694
    
    
    
    75,252Extraordinary items (note 2)
    
    
    
    
    
    
    248,323
    
    
    
    Cumulative effect of accounting changes, net of tax (note 1(h))
    
    
    
    
    
    
    
    
    
    
    85,465Net income
    
    ¥
    102,882
    
    
    
    378,017
    
    
    
    160,717Amounts per Share of common stock:Basic and diluted:Income before extraordinary items and cumulative
effect of accounting changes
    
    ¥
    56,457
    
    
    
    69,839
    
    
    
    48.559Extraordinary items
    
    
    
    
    
    
    133,719
    
    
    
    Cumulative effect of accounting changes, net of tax
    
    
    
    
    
    
    
    
    
    
    55.150Net income
    
    ¥
    56,457
    
    
    
    203,558
    
    
    
    103.709Cash dividends declared
    
    ¥
    11,000
    
    
    
    10,000
    
    
    
    8.50Weighted average and diluted common shares in thousands
    
    
    1,822
    
    
    
    1,857
    
    
    
    1,549,692
 Millea Holdings consolidated financial statement for the year ended March 31,
2002 represents the financial result of Tokio Marine, as predecessor to Millea
Holdings. See accompanying notes to consolidated financial statements. F-6




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MILLEA HOLDINGS, INC.
AND SUBSIDIARIES 
 Consolidated Statements of Stockholders Equity Years ended March 31, 2004, 2003 and 2002 (Yen in millions)2004
    
    2003
    
    2002Common stock:Balance at beginning of year
    
    ¥
    150,000
    
    
    
    101,995
    
    
    
    101,995Adjustment in connection with the acquisition
    
    
    
    
    
    
    48,005
    
    
    
    Balance at end of year
    
    
    150,000
    
    
    
    150,000
    
    
    
    101,995Additional paid-in capital:Balance at beginning of year
    
    
    343,413
    
    
    
    52,917
    
    
    
    52,917Excess of cost of shares transferred over the amount of
common stock in connection with the acquisition
    
    
    
    
    
    
    289,780
    
    
    
    (Losses) gains on sales of treasury stock
    
    
    (258
    )
    
    
    716
    
    
    
    Balance at end of year
    
    
    343,155
    
    
    
    343,413
    
    
    
    52,917Retained earnings:Balance at beginning of year
    
    
    2,214,947
    
    
    
    1,853,312
    
    
    
    1,705,767Net income for year
    
    
    102,882
    
    
    
    378,017
    
    
    
    160,717Dividends paid (note 13)
    
    
    (18,491
    )
    
    
    (16,382
    )
    
    
    (13,172
    )Balance at end of year
    
    
    2,299,338
    
    
    
    2,214,947
    
    
    
    1,853,312Accumulated other comprehensive income:Unrealized appreciation of securities:Balance at beginning of year
    
    
    227,198
    
    
    
    553,640
    
    
    
    765,179Change during year
    
    
    569,106
    
    
    
    (326,442
    )
    
    
    (211,539
    )Balance at end of year
    
    
    796,304
    
    
    
    227,198
    
    
    
    553,640Foreign currency translation adjustments:Balance at beginning of year
    
    
    (15,254
    )
    
    
    (4,549
    )
    
    
    (21,666
    )Change during year
    
    
    (11,179
    )
    
    
    (10,705
    )
    
    
    17,117Balance at end of year
    
    
    (26,433
    )
    
    
    (15,254
    )
    
    
    (4,549
    )Minimum pension liability adjustments (note 10):Balance at beginning of year
    
    
    (88,326
    )
    
    
    (47,621
    )
    
    
    (17,648
    )Change during year
    
    
    21,021
    
    
    
    (40,705
    )
    
    
    (29,973
    )Balance at end of year
    
    
    (67,305
    )
    
    
    (88,326
    )
    
    
    (47,621
    )Accumulated other comprehensive income
at end of year
    
    
    702,566
    
    
    
    123,618
    
    
    
    501,470Treasury stock:Balance at beginning of year
    
    
    (7,662
    )
    
    
    
    
    
    
    Change during year
    
    
    (79,046
    )
    
    
    (7,662
    )
    
    
    Balance at end of year
    
    
    (86,708
    )
    
    
    (7,662
    )
    
    
    Total stockholders equity
    
    ¥
    3,408,351
    
    
    
    2,824,316
    
    
    
    2,509,694
 Millea Holdings consolidated financial statement for the year ended March 31,
2002 represents the financial result of Tokio Marine, as predecessor to Millea
Holdings. See accompanying notes to consolidated financial statements. F-7




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##### Table of Contents



MILLEA HOLDINGS, INC.
AND SUBSIDIARIES 
 Consolidated Statements of Cash Flows Years ended March 31, 2004, 2003 and 2002 (Yen in millions)2004
    
    2003
    
    2002Cash flows from operating activities:Net income
    
    ¥
    102,882
    
    
    
    378,017
    
    
    
    160,717Adjustments to reconcile net income to net cash provided
by operating activities:Increase in losses, claims and loss adjustment
expense reserve, net of ceded reinsurance
    
    
    92,555
    
    
    
    21,090
    
    
    
    28,346Increase in unearned premiums, net of ceded reinsurance
    
    
    100,084
    
    
    
    136,405
    
    
    
    38,411Increase in future policy benefits for life
    
    
    133,451
    
    
    
    169,982
    
    
    
    139,926(Increase) decrease in premiums receivables and agents
balances, net of ceded reinsurance
    
    
    (13,152
    )
    
    
    18,202
    
    
    
    5,094(Decrease) increase in payable for current income taxes
    
    
    (59,475
    )
    
    
    1,126
    
    
    
    38,494Increase in receivable for current income taxes
    
    
    (28,732
    )
    
    
    (20,843
    )
    
    
    (92
    )Deferred income taxes
    
    
    (503
    )
    
    
    (22,796
    )
    
    
    27,489Provision for retirement and severance benefits
    
    
    2,938
    
    
    
    (6,045
    )
    
    
    12,893Increase in deferred policy acquisition costs
    
    
    (30,923
    )
    
    
    (21,094
    )
    
    
    (24,338
    )Depreciation
    
    
    19,116
    
    
    
    15,076
    
    
    
    15,530Extraordinary items  unallocated negative goodwill (note 2)
    
    
    
    
    
    
    (248,323
    )
    
    
    Cumulative effect of accounting changes (note 1(h))
    
    
    
    
    
    
    
    
    
    
    (133,498
    )Changes in trading securities, at fair value
    
    
    (8,065
    )
    
    
    (24,574
    )
    
    
    Changes in derivative assets and liabilities  net
    
    
    68,913
    
    
    
    (24,748
    )
    
    
    19,978Increase in other liabilities
    
    
    5,707
    
    
    
    62,255
    
    
    
    7,689Other  net
    
    
    (4,149
    )
    
    
    6,635
    
    
    
    10,246Net cash provided by operating activities
    
    
    380,647
    
    
    
    440,365
    
    
    
    346,885Cash flows from investing activities:Proceeds from investments sold or matured:Fixed maturities held to maturity redeemed
    
    
    2,471
    
    
    
    661
    
    
    
    456Fixed maturities available for sale sold
    
    
    870,571
    
    
    
    542,909
    
    
    
    335,280Fixed maturities available for sale redeemed
    
    
    724,003
    
    
    
    729,396
    
    
    
    436,296Equity securities available for sale
    
    
    228,913
    
    
    
    421,892
    
    
    
    94,796Mortgage loans on real estate
    
    
    52,679
    
    
    
    37,393
    
    
    
    35,953Investment real estate
    
    
    5,272
    
    
    
    12,025
    
    
    
    16,306Policy loans
    
    
    21,759
    
    
    
    25,606
    
    
    
    22,403Other long-term investments
    
    
    247,498
    
    
    
    400,245
    
    
    
    211,793
 F-8




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##### Table of Contents



MILLEA HOLDINGS, INC.
AND SUBSIDIARIES Consolidated Statements of
Cash Flows  (Continued) Years ended March 31, 2004, 2003 and 2002 (Yen in millions)2004
    
    2003
    
    2002Cost of investments purchased:Fixed maturities held to maturity
    
    ¥
    (231,315
    )
    
    
    (405,856
    )
    
    
    (128,167
    )Fixed maturities available for sale
    
    
    (1,593,176
    )
    
    
    (1,881,085
    )
    
    
    (996,999
    )Equity securities available for sale
    
    
    (75,562
    )
    
    
    (207,260
    )
    
    
    (185,518
    )Mortgage loans on real estate
    
    
    (26,335
    )
    
    
    (25,924
    )
    
    
    (14,981
    )Investment real estate
    
    
    (23,594
    )
    
    
    (951
    )
    
    
    (1,972
    )Policy loans
    
    
    (25,282
    )
    
    
    (28,696
    )
    
    
    (23,906
    )Other long-term investments
    
    
    (142,211
    )
    
    
    (256,205
    )
    
    
    (107,670
    )Short-term investments  net
    
    
    (225,535
    )
    
    
    26,662
    
    
    
    138,025Securities and indebtedness of related parties
    
    
    (17,566
    )
    
    
    2,497
    
    
    
    6,671Property and equipment
    
    
    (8,628
    )
    
    
    (13,208
    )
    
    
    (7,496
    )(Decrease) increase in cash received under securities lending
transactions
    
    
    (19,397
    )
    
    
    74,812
    
    
    
    149,212Cash and cash equivalents acquired in connection with
noncash business combination
    
    
    
    
    
    
    153,868
    
    
    
    Cash paid on acquisition, net of cash and cash equivalents
acquired
    
    
    (17,962
    )
    
    
    
    
    
    
    Net cash used in investing activities
    
    
    (253,397
    )
    
    
    (391,219
    )
    
    
    (19,518
    )Cash flows from financing activities:Investment deposits funded by policyholders and yields
therefrom
    
    
    423,363
    
    
    
    499,110
    
    
    
    290,046Withdrawals of investment deposits by policyholders
    
    
    (435,028
    )
    
    
    (549,433
    )
    
    
    (394,661
    )Proceeds from issuance of debt
    
    
    68,746
    
    
    
    55,900
    
    
    
    Repayment of debt
    
    
    (33,039
    )
    
    
    (14,004
    )
    
    
    Increase in cash received under securities lending transactions
    
    
    43,974
    
    
    
    
    
    
    
    Dividends to stockholders
    
    
    (18,491
    )
    
    
    (16,382
    )
    
    
    (13,172
    )Increase in treasury stock
    
    
    (79,304
    )
    
    
    (6,946
    )
    
    
    Other
    
    
    (5,049
    )
    
    
    
    
    
    
    Net cash used in financing activities
    
    
    (34,828
    )
    
    
    (31,755
    )
    
    
    (117,787
    )Effect of exchange rate changes on cash and cash equivalents
    
    
    474
    
    
    
    285
    
    
    
    291Net change in cash and cash equivalents
    
    
    92,896
    
    
    
    17,676
    
    
    
    209,871Cash and cash equivalents at beginning of year
    
    
    339,978
    
    
    
    322,302
    
    
    
    112,431Cash and cash equivalents at end of year
    
    ¥
    432,874
    
    
    
    339,978
    
    
    
    322,302Supplemental information of cash flows:Cash paid during the year for:Interest
    
    ¥
    2,885
    
    
    
    2,508
    
    
    
    2,075Income taxes
    
    ¥
    113,521
    
    
    
    73,196
    
    
    
    15,466Noncash investing and financing activities (note 2):Fair value of assets acquired
    
    ¥
    
    
    
    
    2,108,703
    
    
    
    Liabilities assumed
    
    
    
    
    
    
    (1,606,945
    )
    
    
    Negative goodwill
    
    
    
    
    
    
    (317,841
    )
    
    
    Fair value of shares issued for acquisition
    
    
    
    
    
    
    (337,785
    )
    
    
    Cash and cash equivalents acquired in connection
with noncash business combination
    
    ¥
    
    
    
    
    (153,868
    )
    
    
    
 Millea Holdings consolidated financial statement for the year ended March 31,
2002 represents the financial result of Tokio Marine, as predecessor to Millea
Holdings. See accompanying notes to consolidated financial statements. F-9




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##### Table of Contents



MILLEA HOLDINGS, INC.
AND SUBSIDIARIES 
 Consolidated Statements of Comprehensive Income Years ended March 31, 2004, 2003 and 2002 (Yen in millions)2004
    
    2003
    
    2002Net income
    
    ¥
    102,882
    
    
    
    378,017
    
    
    
    160,717Other comprehensive income (loss), net of tax:Unrealized appreciation of securities:Unrealized holding gains (losses)
    
    
    574,678
    
    
    
    (216,114
    )
    
    
    (197,773
    )Less: reclassification adjustments for gains
included in net income
    
    
    (5,572
    )
    
    
    (110,328
    )
    
    
    (13,766
    )569,106
    
    
    
    (326,442
    )
    
    
    (211,539
    )Foreign currency translation adjustments:Foreign currency translation adjustments
    
    
    (11,866
    )
    
    
    (10,181
    )
    
    
    17,117Less: reclassification adjustments for losses (gains)
included in net income
    
    
    687
    
    
    
    (524
    )
    
    
    (11,179
    )
    
    
    (10,705
    )
    
    
    17,117Minimum pension liability adjustments
    
    
    21,021
    
    
    
    (40,705
    )
    
    
    (29,973
    )Other comprehensive income (loss)
    
    
    578,948
    
    
    
    (377,852
    )
    
    
    (224,395
    )Comprehensive income (loss)
    
    ¥
    681,830
    
    
    
    165
    
    
    
    (63,678
    )
 Millea Holdings consolidated financial statement for the year ended March 31,
2002 represents the financial result of Tokio Marine, as predecessor to Millea
Holdings. See accompanying notes to consolidated financial statements. F-10




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##### Table of Contents



MILLEA HOLDINGS, INC.
AND SUBSIDIARIES 
 Notes to Consolidated Financial Statements March 31, 2004, 2003 and 2002  1.
    
    Basis of Presentation and Significant Accounting Policies (a) Description of Business
Millea Holdings, Inc. (Millea Holdings), incorporated in Japan, is a holding
company engaged in property and casualty and life insurance operations.
Through its subsidiaries, Millea Holdings writes marine, fire and casualty,
automobile and allied lines of insurance principally covering risks located in
Japan and hull and cargo risks for Japanese business and sells a variety of
life insurance products mainly in the Japanese market. Millea Holdings was established on April 2, 2002 as a result of the
business combination of The Tokio Marine and Fire Insurance Company, Limited
(Tokio Marine) with The Nichido Fire and Marine Insurance Company, Limited
(Nichido Fire), by which both Tokio Marine and Nichido Fire have become
wholly owned subsidiaries of Millea Holdings in a statutory share exchange
under Japanese law. Millea Holdings is a successor registrant of Tokio Marine
to the United States Securities and Exchange Commission. See note 2 Business
Combination for further detail. (b) Basis of Presentation
The consolidated financial statements of Millea Holdings and its
subsidiaries (collectively referred to as the Company) are presented herein
in accordance with accounting principles generally accepted in the United
States of America (U.S. GAAP), which differ in certain respects from Japanese
accounting principles (Japanese GAAP). Millea Holdings consolidated
financial statement for the year ended March 31, 2002 represents the financial
result of Tokio Marine, as predecessor to Millea Holdings. Certain reclassifications have been made to the prior years consolidated
financial statements to conform to the 2004 presentation. (c) Principles of Consolidation
The accompanying consolidated financial statements include all significant
majority-owned subsidiaries and variable interest entities created after
January 31, 2003 to which Millea Holdings and its subsidiaries are the
primary beneficiary. Certain subsidiaries results were reported in the
consolidated financial statements using December 31 year-ends. All
significant intercompany accounts and transactions have been eliminated in
consolidation. All significant affiliates are accounted for by the equity
method. At March 31, 2004 and 2003, investments in related parties which
were presented as other assets amounted to ¥29,341 million and ¥11,775
million, respectively. (d) Use of Estimates
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial statements in
conformity with U.S. GAAP. Actual results could differ from these estimates. (e) Investments  Other than Investments in Related Parties
Fixed maturities held to maturity, which the Company has the positive intent
and ability to hold to maturity, are stated at amortized cost. Declines
in fair value below amortized cost that are determined to be other than
temporary are charged to earnings. Fixed maturities available for sale are stated at fair value. When quoted
market value is not available, quoted market value for similar securities is
utilized instead. Declines in fair value below amortized cost that are
determined to be other than temporary are charged to earnings. Equity securities available for sale, which include common and
nonredeemable preferred stocks, are stated at their fair value based primarily
on quoted market prices. Stocks listed on Japanese or foreign stock exchanges
represent approximately 87% and 82% of the investment in stocks at March 31,
2004 and 2003, respectively. Declines in fair value below cost that are
determined to be other than temporary are charged to earnings. F-11




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##### Table of Contents



Trading securities are held to meet short-term investment objectives.
These securities are recorded on a trade date basis and carried at current
market values. Unrealized gains and losses are recognized in earnings. Mortgage loans on real estate and other loans which are included in other
long-term investments are principally carried at the unpaid balance of the
principal amount, net of unamortized premium or discount and valuation
allowances. Changes in the valuation allowances are included in net investment
income. Commercial loans identified as impaired are placed on a cash basis
when it is determined that the payment of interest or principal is doubtful of
collection except when the loan is well secured and in the process of
collection. Accrued interest on impaired loans is reversed and charged against
current earnings, and interest is thereafter included in earnings only to the
extent actually received in cash. When there is doubt regarding the ultimate
collectibility of principal, all cash receipts are thereafter applied to reduce
the recorded investment in the loan. Impaired commercial loans are written
down to the extent that principal is judged to be uncollectible. Impaired
collateral-dependent loans where repayment is expected to be provided solely by
the underlying collateral and there are no other available and reliable sources
of repayment are written down to the lower of cost or collateral value.
Cash-basis loans are returned to an accrual status when all contractual
principal and interest amounts are reasonably assured of repayment and there is
a sustained period of repayment performance in accordance with the contractual
terms. Policy loans are made to policyholders of long-term insurance with refund
at maturity. Those long-term insurance products include long-term
comprehensive insurance and long-term family personal traffic accident
insurance. The maximum amount of loans is limited to 90% of return premiums on
the policies. Policy loans are carried at cost. Short-term investments are carried at costs or amortized costs that
approximate fair value, and generally include call loans and other investments
maturing within one year. The cost of securities sold is determined on the weighted moving-average
basis. Gains and losses incurred on the sale or impairment of investments are
included in realized gains and losses in the consolidated statements of income.
Unrealized appreciation or depreciation, net of taxes, in the value of
securities available for sale is accounted for as a component of accumulated
other comprehensive income. (f) Investment Real Estate, Property and Equipment
Investment real estate, property and equipment are stated at cost less
accumulated depreciation on buildings and furniture and fixtures.
Depreciation is computed principally by the declining-balance method based
on estimated useful lives. The estimated useful lives of buildings based
on construction method and equipment range as follows: Reinforced concrete
    
    38 to 50 yearsBrick and block
    
    41 yearsWood
    
    24 yearsWood and mortar
    
    22 yearsSteel
    
    11 to 34 yearsBuilding equipment
    
    3 to 18 yearsFurniture and fixtures
    
    2 to 15 years
 Maintenance and repairs are charged against income as incurred.
Improvements are capitalized to property and equipment. The cost and accumulated depreciation with respect to assets retired or
otherwise disposed of are eliminated from the asset and related accumulated
depreciation accounts. Any resulting profit or loss is credited or charged to
income. (g) Cash Equivalents
Cash equivalents include cash deposited in demand deposits at banks. F-12




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##### Table of Contents



(h) Derivatives
In June 1998, U.S. Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No.133, Accounting for
Derivative Instruments and Hedging Activities. SFAS No.133 was subsequently
amended by SFAS No.138, Accounting for Certain Derivative Instruments and
Certain Hedging Activities, an amendment of SFAS No.133. SFAS No.133, as amended, establishes accounting and reporting standards
for derivative instruments, including derivative instruments embedded in other
contracts, and hedging activities. SFAS No.133, as amended, requires that all
derivatives be recorded on the consolidated balance sheet at their respective
fair values. The Company adopted SFAS No.133, as amended, on April 1, 2001.
All changes in the fair value of derivatives are recognized currently in
earnings as gains (losses) on derivatives from the year ended March 31, 2002. In accordance with the transition provisions of SFAS No.133, as amended,
the Company recorded a net-of-tax cumulative-effect-type adjustment of ¥85,465
million to increase net income on April 1, 2001. Of this adjustment, ¥93,907
million was attributable to the increase in the fair value of interest rate
swaps used in the Companys asset liability management process, partly offset
by a net decrease in fair value for other outstanding derivative instruments on
April 1, 2001. The Company occasionally purchases a financial instrument that contains a
derivative instrument that is embedded in the financial instrument. The
Company bifurcates an embedded derivative where: (1) the economic
characteristics of the embedded instrument are not clearly and closely related
to those of the remaining components of the financial instrument; and (2) a
separate instrument with the same terms as the embedded instrument meets the
definition of a derivative under SFAS No.133, as amended. When bifurcated, the
embedded derivative is carried at fair value, and changes in its fair value are
included currently in earnings. (i) Premium Revenues
Property and casualty insurance premiums are recognized as earned on a pro rata
basis over the terms of the policies. Unearned premiums represent the
portion of premiums written relating to the unexpired terms of coverage. Life premiums for long-duration contracts are recognized when due from
policyholders. Life premiums for short-duration contracts are recognized over
the period to which the premiums relate on a pro rata basis. Premiums are stated net of amounts ceded to reinsurers. (j) Policy Acquisition Costs
Costs that vary with and are primarily related to the acquisition of insurance
policies are deferred to the extent such costs are deemed recoverable from
future profits. These costs are principally external sales agents
commissions, in-house sales agents salaries, other compensation and other
underwriting costs. Deferred policy acquisition costs are reviewed to
determine if they are recoverable from future income and, if not recoverable,
are charged to expense. Policy acquisition costs for property and casualty insurance products are
deferred and amortized over the period in which the related premiums written
are earned. Policy acquisition costs for traditional life insurance products
are generally deferred and amortized over the premium paying period of the
policy. Policy acquisition costs related to investment contracts are deferred
and amortized, with interest, in relation to the incidence of estimated gross
profits to be realized over the estimated lives of the contracts. (k) Separate Account Assets and Liabilities
Separate accounts represent funds for which investment income and investment
gains and losses accrue directly to the policyholders who bear the investment
risk except for minimum guarantees. Each account has specific investment
objectives, and the assets are carried at fair value. Separate accounts
liabilities represent the policyholders claims to the related assets and are
carried at fair value. F-13




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##### Table of Contents



(l) Losses, Claims and Loss Adjustment Expenses
The net liabilities stated for reported and estimated property and casualty
losses and claims and for related loss adjustment expenses are based upon
the accumulation of (1) case estimates for losses and related loss
adjustment expenses reported prior to the close of the accounting period
on the direct business written by the Company and (2) estimates received
from ceding reinsurers. The loss adjustment expenses represent
administrative expenses in connection with settling or disposing of
claims, which include out-of-pocket expenses as well as allocated
personnel cost. Provision has been made for unreported losses and for
loss adjustment expenses not identified with specific claims based upon
past experience. These liabilities are adjusted regularly based on
experience. The Company believes that the liabilities for unpaid losses
and loss adjustment expenses at March 31, 2004 and 2003 are adequate to
cover the ultimate net cost of losses and claims incurred to those dates.
However, the liabilities are necessarily based on estimates and management
makes no representation that the ultimate liability may not exceed or fall
short of such estimates. (m) Future Policy Benefits and Losses
Future policy benefits and losses include provisions for future policy benefits
for life contracts and for unpaid life policy claims. The liabilities for future policy benefits are computed by a net level
premium method using estimated future investment yields ranging from
approximately 0.9% to 3.3%, withdrawals and recognized morbidity and mortality
tables. Those assumptions for all policy are based on our own experience.
For limited-payment contracts, which provide insurance coverage over a contract
period that extends beyond the period in which premiums are collected, gross
premiums in excess of the net premium are deferred and recognized in income in
a constant relationship with insurance in force or with the amount of expected
future benefit payments. Unpaid policy claims represent the estimated liability for reported and
unreported losses on life policies on an undiscounted basis. The Company believes that the estimated liabilities for future policy
benefits and for losses at March 31, 2004 and 2003 are adequate to cover the
life insurance liability. However, the ultimate liability may vary from such
estimates. (n) Investment Deposits by Policyholders
The Company sells certain property and casualty and life insurance products
that do not subject the Company to significant risks arising from policyholder
mortality or morbidity. These contracts are referred to as investment
contracts. For investment contracts the Company records associated liabilities
under investment deposits by policyholders. Specifically, the Company sells certain long-term property and casualty
insurance policies, such as long-term comprehensive insurance, long-term family
personal traffic accident insurance, and etc. which include a savings feature
in addition to the insurance coverage provided under the policy. These
policies are issued for periods of two to sixty-four years. The key terms of such policies (deposit-type insurance), which include
contractual rates of interest, are fixed at the inception of the policy and
remain in effect during the policy period. At inception, policyholders can
choose to pay premiums on the policy either in a lump-sum or in annual,
semi-annual or monthly installments. The policy allows policyholders to later
change the mode for payment with the Companys approval. In addition, the
policy allows policyholders during the payment phase to change the allocation
of annuity payments he or she receives if certain conditions established by the
Company are met. In practice, these options are rarely used by policyholders.
Policyholders can terminate the contract before the maturity date with a
payment of a pre-determined commission to the Company. Premiums for insurance and savings portions of the contract are allocated
at inception. The premium for the insurance portion is calculated the same way
that the premium for a traditional indemnity policy with no savings portion is
calculated. The premium for the savings portion represents the present value
of the lump-sum or annuity refund for a fixed period, discounted using the
committed interest rate and the total loss termination rate, which are both
set at the inception of the contracts. Total loss termination is an
exceptional event that takes place when a full payout is made for the insurance
portion of the policy, and in this case, the contract terminates without any
maturity refund being paid to the policyholder. The weighted average annual
frequency of total loss termination is approximately 0.05%. F-14




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##### Table of Contents



In the case of a total loss, deposit premiums under the contract are
designed to be used for maturity refunds on the other policies for which a total loss has not occurred. These
deposit premiums are not used to fund indemnity claims in the case of a total
loss. All payments made to the policyholder in a total loss situation are
funded by using liabilities established for the insurance portion of the
contract. The premium for the insurance portion is recognized as revenue over the
period of the contract, generally in proportion to the amount of insurance
protection provided. The premium for the savings portion of the contract is
accounted for as an increase to liabilities for refunds captioned investment
deposits by policyholders. At the end of each fiscal year, the present value
of future payments of maturity refunds of contracts in force less the present
value of the savings portion of future premiums is accounted for as refund
provisions. Policy acquisition costs are not charged to the savings portion of the
contract. Costs associated with policy acquisition of deposit-type policies
are charged to the insurance portion and amortized over the contractual period.
The possibility of a premium deficiency, relevant only to the insurance
portion, is monitored through combined loss and expense ratio. The Company did
not recognize any premium deficiency for such policies for the years ended
March 31, 2004, 2003 and 2002. Income credited to investment deposits by policyholders represents
interest accrued or paid for investment contracts. Any investment income
attributable to policyholders in respect of investment contracts are presented
on a gross basis and included in Net investment income, Realized losses on
investments and (Losses) gains on derivatives in the consolidated statements
of income. See note 12 for fair value information of investment deposits by
policyholders. (o) Reinsurance
Amounts recoverable from reinsurers are estimated in a manner consistent with
the claim liability associated with the reinsured business. The Company
evaluates and monitors the financial condition of its reinsurers under
voluntary reinsurance arrangements to minimize its exposure to significant
losses from reinsurers insolvencies. (p) Compulsory Automobile Liability Insurance
Japanese law provides that all automobiles are to be covered by specified
amounts of liability insurance for personal injury and that insurance
companies are to accept such coverage on a non-profit basis. In
compliance with this law, which came into effect on April 1, 1966, the
Company has not reflected any profit or loss from underwriting such
compulsory automobile liability insurance in financial statements prepared
for distribution to stockholders under the Japanese Commercial Code. In
the accompanying consolidated financial statements, which are presented in
accordance with U.S. GAAP, gains or losses from underwriting compulsory
automobile liability insurance have been credited or charged to income. (q) Foreign Currency Translation
Assets and liabilities of the subsidiaries located outside Japan are translated
into Japanese yen at the rates of exchange in effect at the balance sheet
date. Revenues and expenses of the subsidiaries are translated at
weighted average exchange rates during the year. Gains and losses
resulting from translation of financial statements are excluded from the
consolidated statements of income and are accumulated as foreign currency
translation adjustments in stockholders equity. (Losses) gains resulting from foreign currency transactions in the amount
of ¥(5,720) million in 2004, ¥(4,016) million in 2003 and ¥5,288 million in
2002 were charged or credited to income. (r) Impairment of Long-Lived Assets
Effective April 1, 2002, the Company adopted SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets, which supersedes SFAS No.
121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of. As required by SFAS No. 144,
long-lived assets and certain identifiable intangibles are reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of
assets to be held and used is measured by a comparison of the carrying
amount of an asset to estimated undiscounted future cash flows expected to
be generated by the asset. If such assets are considered to be impaired,
the amount of impairment to be recognized is the amount by which the
carrying amount of the assets exceeds the fair value of the assets. F-15




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(s) Earnings per Share
Basic and diluted earnings per share are computed by dividing net income
available to common stockholders by the weighted-average number of shares of
common stock outstanding for respective period. (t) Goodwill and Present Value of Future Profit
Goodwill represents the excess of purchase price over fair value of the net
assets of acquired entity. Goodwill and present value of future profit are
tested for impairment annually or when a certain triggering event requires such
test. When fair value of net assets acquired exceeds their cost, the difference
is called negative goodwill. All the acquired assets are then subject to pro
rata reduction, except for financial assets other than investments accounted
for by the equity method, deferred taxes, assets to be disposed of by sale,
prepaid assets relating to pension and other postretirement benefit plans, and
any other current assets. If all eligible assets are reduced to zero and
amount of negative goodwill still remains, the remaining unallocated negative
goodwill is recognized immediately as an extraordinary gain. Present value of future profit represents the present value of profits
embedded in acquired long term (life) insurance contracts and is determined
based on the net present value of future cash flows expected to result from the
contracts in force at the date of acquisition. Present value of future profit
is amortized to match estimated gross profits from the policies acquired. (u) Income taxes
Income taxes are accounted for under the asset and liability method. Deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and operating
loss and tax credit carry forwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income for the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.
Valuation allowances are established when there is uncertainty that such assets
would be realized. (v) New Accounting Standards
In June 2001, the FASB issued SFAS No.143, Accounting for Asset Retirement
Obligations. This statement addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and
the associated retirement costs. The Company adopted SFAS No.143 on April 1,
2003. The adoption of SFAS No.143 did not have a material effect on its
financial position and results of operations for the year ended March 31, 2004. In November 2002, the FASB issued Interpretation No.45, Guarantors
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others (FIN 45). FIN 45 requires that upon
issuance of certain types of guarantees, a guarantor must recognize a liability
for the fair value of an obligation assumed under a guaranty. FIN 45 also
requires additional disclosures by a guarantor in its financial statements
about the obligations associated with guarantees issued. The recognition
provisions of FIN 45 were effective for any guarantees issued or modified after
December 31, 2002. The adoption of FIN 45 did not have a material effect on
the Companys financial statements. The disclosure requirements were effective
for financial statements for the periods ending after December 15, 2002. The
Company adopted the disclosure requirements effective on March 31, 2003. See
note 14 for further information. In January 2003, the FASB issued Interpretation No.46, Consolidation of
Variable Interest Entities  an Interpretation of ARB No. 51 (FIN 46). FIN
46 clarifies when an enterprise should consolidate an entity that meets the
definition of a Variable Interest Entity (VIE) if that enterprise has a
variable interest that will absorb a majority of the VIEs expected losses,
receive a majority of the VIEs expected residual returns, or both.
A VIE is an entity in which equity investors do not have the characteristics of a
controlling financial interest or do not have sufficient equity at risk for the
entity to finance its activities without additional subordinated financial
support from other parties, and may include many types of special purpose
entities. In December 2003, FASB issued a revision to Interpretation No.46
(FIN 46R). FIN 46R retains many of the basic concepts introduced in FIN 46,
however it also introduces a new scope exception for a certain type of entities
that qualified as business as defined in FIN 46R, revises the method of
calculating expected losses and residual returns for determination of a primary
beneficiary and includes new guidance for assessing variable interests.The Company adopted FIN 46 for VIEs created after
January 31, 2003. The Company will adopt FIN 46R for all VIEs as of April 1,
2004. The Company does not see the adoption of FIN 46R to have a material
effect on its financial position or results of operations. See note 3 for
further information. F-16




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##### Table of Contents



In July 2003, the Accounting Standards Executive Committee (AcSEC) of
the American Institute of Certified Public Accountants (AICPA) issued
Statement of Position 03-1, Accounting and Reporting by Insurance Enterprises
for Certain Nontraditional Long-Duration Contracts and for Separate Accounts
(SOP 03-1). SOP 03-1 provides guidance on accounting and reporting by
insurance enterprises for certain nontraditional long-duration contracts and
for separate accounts. A provision of SOP 03-1 requires the establishment of
reserves in addition to the account balance for contracts containing certain
features that provide guaranteed death or other insurance benefits and
guaranteed income benefits. SOP 03-1 is effective for financial statements for
fiscal years beginning after December 15, 2003. SOP 03-1 is not applied
retroactively to prior years financial statements, and initial application
should be as of the beginning of an entitys fiscal year. The Company will
adopt SOP 03-1 effective April 1, 2004. The Company is currently evaluating
the impact of adopting SOP 03-1. In November 2003, the Emerging Issues Task Force (EITF) reached a
consensus on EITF Issue No. 03-01, The Meaning of Other-Than-Temporary
Impairment and its Application to Certain Investments (EITF 03-01) that
certain quantitative and qualitative disclosures are required for equity and
fixed maturity securities that are impaired at the balance sheet date but for
which an other-than-temporary impairment has not been recognized. The guidance
requires companies to disclose the aggregate amount of unrealized losses and
the related fair value of investments with unrealized losses for securities
that have been in an unrealized loss position for less than 12 months and
separately for those that have been in an unrealized loss position for over 12
months, by investment category. In March 2004, the EITF also reached a
consensus on the additional accounting guidance for other-than-temporary
impairments and its application to debt and equity investments. The Company
has adopted the disclosure requirements in these financial statements. See
note 3 for further information. In December 2003, the FASB revised SFAS No.132, Employers Disclosures
about Pensions and Other Postretirement Benefits to require additional
disclosures related to pension plans and other postretirement benefit plans.
While retaining the existing disclosure requirements for pensions and
postretirement benefits, additional disclosures are required related to pension
plan assets, obligations, cash flows and net periodic benefit costs, beginning
with fiscal years ending after December 15, 2003. Additional disclosures
pertaining to benefit payments are required for fiscal years ending after June
30, 2004. The Company has implemented the revised disclosures required for
fiscal years ending at March 31, 2004 in these financial statements. See note
10 for further information. In January 2003, the EITF released Issue No.03-02, Accounting for the
Transfer to the Japanese Government of the Substitutional Portion of Employee
Pension Fund Liabilities (EITF 03-02). EITF 03-02 addresses financial
accounting and reporting for a transfer to the Japanese government of a portion
of a companys pension plan which substitutes for the welfare pension plan
administered by the Japanese government. The Company will adopt EITF 03-02 on
transferring the substitutional portion of its pension plan in fiscal 2006 or
later. The effect on the Companys consolidated financial statements of the
transfer has not yet been determined. See note 10 for further information.  2.
    
    Business Combination On April 2, 2002, Tokio Marine completed its business combination with Nichido
Fire by way of the creation of a holding company, Millea Holdings, by which
each of the companies has become a wholly owned subsidiary of Millea Holdings
in a statutory share exchange under Japanese law. Nichido Fire, incorporated in Japan, is a property and casualty insurer
which writes marine, fire and casualty, automobile and allied lines of
insurance principally covering risks located in Japan and hull and cargo risks
for Japanese business. Under the holding company structure, Tokio Marine and
Nichido Fire have been integrating their respective products, information
technology systems, property and casualty claims investigation functions and
sales office functions to realize the potential synergies available from
integration of their property and casualty insurance businesses. The combination was accounted for by the purchase method in a manner that
Tokio Marine had acquired Nichido Fire. The results of operations of Nichido
Fire as well as those of Tokio Marine have been included in the financial statements of the Company for the years ended March 31,
2004 and 2003. F-17




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##### Table of Contents



In connection with the share exchange, holders of Tokio Marine shares
received 1.00 share of Millea Holdings common stock for each 1,000 shares of
Tokio Marine common stock they held, and holders of Nichido Fire shares
received 0.69 of one share of Millea Holdings common stock for each 1,000
shares of Nichido Fire common stock they held. Upon the share exchange, Millea
Holdings issued 307,356.26 common stock shares, representing approximately 17%
of the voting interests of the holding company, to the stockholders of Nichido
Fire. The value of common stock issued to the stockholders of Nichido Fire was
¥337,785 million, based on the share exchange ratio determined by the
respective share values of Tokio Marine and Nichido Fire on September 28, 2001. The allocation of the purchase price is summarized as follows: (Yen in millions)Investments
    
    ¥
    1,661,867Other assets
    
    
    600,704Assets acquired
    
    
    2,262,571Policy liabilities and accruals
    
    
    709,655Investment deposits by policyholders
    
    
    635,015Other liabilities
    
    
    262,275Liabilities assumed
    
    
    1,606,945Net assets acquired
    
    
    655,626Total purchase price
    
    
    337,785Negative goodwill
    
    ¥
    317,841
 Unallocated negative goodwill arising from the combination was recognized
as extraordinary gain in the results of operations of the Company for the year
ended March 31, 2003 as follows: (Yen in millions)Income before extraordinary items and cumulative effect
of accounting changes
    
    ¥
    129,694Extraordinary items  unallocated negative goodwill
    
    
    248,323Net income
    
    ¥
    378,017
 F-18




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##### Table of Contents



The following sets forth results of operations for the year ended March
31, 2002 on a pro forma basis combining those of Nichido Fire. The unaudited
pro forma condensed combined statement of income gives effect to the
combination as if it had occurred at beginning of the year ended March 31,
2002. The unaudited pro forma condensed combined statement of income does not
reflect the transaction costs that have been incurred, nor does it reflect any
realized or anticipated synergies or cost savings. Also, it does not reflect
unallocated negative goodwill. (Yen in millions,except per share amount)2002(Unaudited)Pro forma statement of income data:Total operating income
    
    ¥
    2,013,935Income before cumulative effect of accounting changes
    
    
    54,471Net income
    
    
    139,936Earning per Share  Basic and Diluted:Income before cumulative effect of accounting changes
    
    
    29Net income
    
    
    75
  3.
    
    Investments The following summarizes the Companys investments in fixed maturities held to
maturity at March 31, 2004 and 2003: (Yen in millions)Gross
    
    Grossunrealized
    
    unrealized
    
    FairAmortized cost
    
    gains
    
    losses
    
    value2004:Bonds and notes:Other government and government
agencies and authorities
    
    ¥
    1,095,608
    
    
    
    22,945
    
    
    
    (44,810
    )
    
    
    1,073,743Other corporate bonds
    
    
    14,253
    
    
    
    556
    
    
    
    
    
    
    
    14,809Total fixed maturities held to maturity
    
    ¥
    1,109,861
    
    
    
    23,501
    
    
    
    (44,810
    )
    
    
    1,088,5522003:Bonds and notes:Other government and government
agencies and authorities
    
    ¥
    866,971
    
    
    
    144,512
    
    
    
    
    
    
    
    1,011,483Other corporate bonds
    
    
    16,365
    
    
    
    884
    
    
    
    
    
    
    
    17,249Total fixed maturities held to maturity
    
    ¥
    883,336
    
    
    
    145,396
    
    
    
    
    
    
    
    1,028,732
 F-19




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##### Table of Contents



The following summarizes the Companys investments in fixed maturities
available for sale at March 31, 2004 and 2003: (Yen in millions)Gross
    
    GrossAmortized
    
    unrealized
    
    unrealized
    
    Faircost
    
    gains
    
    losses
    
    value2004:Bonds and notes:U.S. government and government
agencies and authorities
    
    ¥
    113,778
    
    
    
    2,130
    
    
    
    (734
    )
    
    
    115,174U.S. states, municipalities and
political subdivisions
    
    
    1,055
    
    
    
    47
    
    
    
    
    
    
    
    1,102Other government and government
agencies and authorities
    
    
    2,071,900
    
    
    
    32,290
    
    
    
    (38,051
    )
    
    
    2,066,139Other municipalities and political
subdivisions
    
    
    171,977
    
    
    
    5,383
    
    
    
    (247
    )
    
    
    177,113Public utilities
    
    
    60,172
    
    
    
    901
    
    
    
    (281
    )
    
    
    60,792Convertibles and bonds with warrants attached
    
    
    42,929
    
    
    
    2,830
    
    
    
    (75
    )
    
    
    45,684Mortgage-backed securities
    
    
    22,893
    
    
    
    273
    
    
    
    (850
    )
    
    
    22,316Other corporate bonds
    
    
    713,078
    
    
    
    10,932
    
    
    
    (2,748
    )
    
    
    721,262Total fixed maturities available for sale
    
    ¥
    3,197,782
    
    
    
    54,786
    
    
    
    (42,986
    )
    
    
    3,209,5822003:Bonds and notes:U.S. government and government
agencies and authorities
    
    ¥
    129,949
    
    
    
    5,827
    
    
    
    (1,252
    )
    
    
    134,524U.S. states, municipalities and
political subdivisions
    
    
    44
    
    
    
    20
    
    
    
    
    
    
    
    64Other government and government
agencies and authorities
    
    
    1,935,175
    
    
    
    142,252
    
    
    
    (4,124
    )
    
    
    2,073,303Other municipalities and political
subdivisions
    
    
    244,826
    
    
    
    19,601
    
    
    
    (109
    )
    
    
    264,318Public utilities
    
    
    88,322
    
    
    
    4,649
    
    
    
    (5
    )
    
    
    92,966Convertibles and bonds with warrants attached
    
    
    70,622
    
    
    
    6,724
    
    
    
    (26
    )
    
    
    77,320Mortgage-backed securities
    
    
    19,859
    
    
    
    1,048
    
    
    
    (38
    )
    
    
    20,869Other corporate bonds
    
    
    736,763
    
    
    
    22,050
    
    
    
    (553
    )
    
    
    758,260Total fixed maturities available for sale
    
    ¥
    3,225,560
    
    
    
    202,171
    
    
    
    (6,107
    )
    
    
    3,421,624
 The amortized cost and fair value of fixed maturities by contractual
maturity at March 31, 2004 are as follows. Actual maturities will differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties. (Yen in millions)Amortized
    
    Faircost
    
    valueFixed maturities held to maturity:Due in one year or less
    
    ¥
    2,841
    
    
    
    2,853Due after one year through five years
    
    
    15,523
    
    
    
    16,330Due after five years through ten years
    
    
    54,421
    
    
    
    53,007Due after ten years
    
    
    1,037,076
    
    
    
    1,016,362¥
    1,109,861
    
    
    
    1,088,552
 F-20




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##### Table of Contents



(Yen in millions)Amortized
    
    Faircost
    
    valueFixed maturities available for sale:Due in one year or less
    
    ¥
    782,773
    
    
    
    786,819Due after one year through five years
    
    
    999,903
    
    
    
    1,008,913Due after five years through ten years
    
    
    535,620
    
    
    
    537,924Due after ten years
    
    
    869,482
    
    
    
    865,824With no contractual maturity
    
    
    10,004
    
    
    
    10,102¥
    3,197,782
    
    
    
    3,209,582
 Proceeds from sales of investments in fixed maturities available for sale
prior to their scheduled maturity dates were ¥870,571 million, ¥542,909 million
and ¥335,280 million for the years ended March 31, 2004, 2003 and 2002,
respectively. Gross gains of ¥14,465 million and gross losses of ¥14,966
million in 2004, gross gains of ¥9,849 million and gross losses of ¥5,046
million in 2003 and gross gains of ¥12,247 million and gross losses of
¥3,181 million in 2002 were realized on those sales. With respect to marketable equity securities available for sale, gross
unrealized gains were ¥1,775,342 million and gross unrealized losses were
¥10,425 million at March 31, 2004, and gross unrealized gains were ¥801,338
million and gross unrealized losses were ¥109,929 million at March 31, 2003. Proceeds from sales of investments in equity securities available for sale
were ¥228,913 million, ¥421,892 million and ¥94,796 million for the years ended
March 31, 2004, 2003 and 2002, respectively. Gross gains of ¥35,438 million
and gross losses of ¥2,809 million in 2004, gross gains of ¥110,562 million and
gross losses of ¥29,918 million in 2003, and gross gains of ¥39,329 million and
gross losses of ¥2,269 million in 2002 were realized on those sales. In the normal course of business, investment securities the Company owns
were pledged to collateralize securities lending transactions and derivative
transactions, and for other purposes. The carrying value of investment securities pledged to counterparties
through certain transactions, mainly securities lending transactions, where
they have the right to sell or repledge the securities are as follows: (Yen in millions)2004
    
    2003Fixed maturities available for sale
    
    ¥
    276,197
    
    
    
    245,541Equities securities available for sale
    
    
    19,043
    
    
    
    37,127¥
    295,240
    
    
    
    282,668
 At March 31, 2004 and 2003, the carrying values of investment securities
pledged, except for the above table, are as follows. Bonds carried at ¥45,632 million at March 31, 2004 and ¥53,138 million at
March 31, 2003 were pledged as collateral primarily to reinsurance companies. Bonds carried at ¥150,603 million at March 31, 2004 and ¥172,513 million
at March 31, 2003 were used as collateral for the Bank of Japans instant gross
settlement system for transactions of checking accounts and Japanese government
bonds. Bonds carried at ¥101,640 million at March 31, 2004 and ¥109,102 million
at March 31, 2003 were deposited primarily with United States and other foreign
government authorities as required by law. Bonds carried at ¥10,319 million at March 31, 2004 were pledged as
collateral for credit support annex for derivative transactions entered into by
the Company. Bonds carried at ¥4,952 million at March 31, 2004 and ¥15,726 million at
March 31, 2003 were pledged as collateral for letters of credit. Bonds carried at ¥1,889 million at March 31, 2004 and ¥1,874 million at
March 31, 2003 were pledged as collateral for the Life Insurance Policyholders
Protection Corporation of Japan, a corporation established to protect
policyholders from losses in case of bankruptcies of life insurance companies. Equity securities carried at ¥68,948 million at March 31, 2004, and
¥44,000 million at March 31, 2003 were deposited with securities brokers
primarily as collateral for futures transactions entered into by the Company. F-21




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##### Table of Contents



Equity securities carried at ¥6,783 million at March 31, 2004 and ¥6,790
million at March 31, 2003 were deposited with United States government
authorities as required by law. The Company accepts collateral that can be sold or pledged. The primary
sources of this collateral are securities financing transactions. The fair
value of this collateral was approximately ¥30,720 million and ¥61,937 million
at March 31, 2004 and 2003, respectively, of which no securities had been
either sold or repledged for the years ended March 31, 2004 and 2003. The Company provides equity investments in VIEs that are designed to limit
the Companys risk exposure within invested amount as an alternative to direct
real estate investment. As for VIEs created after January 31, 2003, the Company determined that it
is a primary beneficiary for a VIE and consolidated that VIE for the year ended
March 31, 2004. The VIE borrows non-recourse loans from financial
institutions, and as of March 31, 2004, ¥14,491 million of investment real
estate are pledged as collateral for the non-recourse loans. The lenders of
the non-recourse loans have no recourse to other assets of the Company. As for VIEs acquired before February 1, 2003, the Companys investments
amounted to ¥23,476 million at March 31, 2004 and ¥42,711 million at March 31,
2003. The Companys risk exposure is limited to the amount of these
investments. Mortgage loans on real estate are primarily mortgage loans on commercial
buildings. Accumulated depreciation of investment real estate amounted to ¥85,000
million and ¥79,538 million at March 31, 2004 and 2003, respectively. Depreciation of investment real estate included in net investment income
amounted to ¥3,880 million, ¥3,650 million and ¥4,187 million for the years
ended March 31, 2004, 2003 and 2002, respectively. Other long-term investments include: (Yen in millions)2004
    
    2003Mortgage loans on vessels and facilities
    
    ¥
    20,356
    
    
    
    22,125Collateral and bank-guaranteed loans
    
    
    18,542
    
    
    
    22,096Unsecured loans
    
    
    357,504
    
    
    
    440,997Money trust
    
    
    22,797
    
    
    
    73,786¥
    419,199
    
    
    
    559,004
 Mortgage loans on vessels and facilities are generally joint loans in
which other financial institutions participate. The Company participates in
the hull insurance on these vessels. Collateral loans are made to commercial enterprises and are secured
principally by listed stocks and/or bonds of Japanese corporations. Certain of
these loans are made jointly with other insurance companies. Bank-guaranteed loans are made to commercial enterprises. Unsecured loans within authorized limits are made on a selective basis to
corporate borrowers. These loans are generally term loans, which had
contractual maturities ranging from 2004 through 2038 at March 31, 2004.
Interest rates of these loans varied from 0.05% to 10.00% at March 31, 2004,
and from 0.04% to 12.00% at March 31, 2003. Money trust is a type of portfolio investment in which trust banks are
entrusted with investments in securities or other financial instruments. Short-term investments consist primarily of call loans and other
investments maturing within one year. Short-term investments amounting to ¥921
million at March 31, 2004 and ¥1,243 million at March 31, 2003 were deposited
with the United States government authorities and other foreign government
authorities as required by law. F-22




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##### Table of Contents



Details of net investment income were as follows: (Yen in millions)2004
    
    2003
    
    2002Fixed maturities
    
    ¥
    73,683
    
    
    
    65,762
    
    
    
    51,913Equity securities
    
    
    36,692
    
    
    
    32,785
    
    
    
    29,409Mortgage loans on real estate
    
    
    3,286
    
    
    
    3,715
    
    
    
    4,219Investment real estate
    
    
    12,501
    
    
    
    12,817
    
    
    
    12,907Policy loans
    
    
    1,280
    
    
    
    1,156
    
    
    
    830Other long-term investments
    
    
    9,339
    
    
    
    11,475
    
    
    
    11,802Short-term investments
    
    
    4,313
    
    
    
    5,677
    
    
    
    4,113Other
    
    
    1,850
    
    
    
    1,715
    
    
    
    7,987Gross investment income
    
    
    142,944
    
    
    
    135,102
    
    
    
    123,180Less investment expenses
    
    
    16,771
    
    
    
    26,791
    
    
    
    18,499Net investment income
    
    ¥
    126,173
    
    
    
    108,311
    
    
    
    104,681
 At March 31, 2004 and 2003, accrued investment income, included in other
assets, amounted to ¥21,225 million and ¥22,030 million, respectively. Net realized and change in unrealized gains or losses on fixed maturities,
equity securities and other investments for the years ended March 31, 2004,
2003 and 2002 were as follows: (Yen in millions)Fixed
    
    Equity
    
    Other
    
    Net gainsmaturities
    
    securities
    
    investments
    
    (losses)2004:Realized
    
    ¥
    (8,399
    )
    
    
    4,645
    
    
    
    (101
    )
    
    
    (3,855
    )Change in unrealized
    
    
    (184,264
    )
    
    
    1,073,508
    
    
    
    412
    
    
    
    889,656Total
    
    ¥
    (192,663
    )
    
    
    1,078,153
    
    
    
    311
    
    
    
    885,8012003:Realized
    
    ¥
    11,553
    
    
    
    (37,957
    )
    
    
    (3,471
    )
    
    
    (29,875
    )Change in unrealized
    
    
    120,915
    
    
    
    (635,620
    )
    
    
    (1,026
    )
    
    
    (515,731
    )Total
    
    ¥
    132,468
    
    
    
    (673,577
    )
    
    
    (4,497
    )
    
    
    (545,606
    )2002:Realized
    
    ¥
    8,244
    
    
    
    (11,900
    )
    
    
    2,636
    
    
    
    (1,020
    )Change in unrealized
    
    
    (38,293
    )
    
    
    (290,162
    )
    
    
    (3,764
    )
    
    
    (332,219
    )Total
    
    ¥
    (30,049
    )
    
    
    (302,062
    )
    
    
    (1,128
    )
    
    
    (333,239
    )
 The following table shows gross unrealized losses and fair value of
investments-other than investments in related parties with unrealized losses
that are not deemed to be other-than-temporary impaired, aggregated by
investment category and length of time that individual securities have been in
a continuous unrealized loss position, at March 31, 2004: (Yen in millions)Less than 12 months
    
    More than 12 months
    
    TotalUnrealized
    
    
    
    
    
    Unrealized
    
    
    
    
    
    UnrealizedFair value
    
    losses
    
    Fair value
    
    losses
    
    Fair value
    
    lossesFixed maturities (*)
    
    ¥
    1,619,245
    
    
    
    (85,152
    )
    
    
    189,632
    
    
    
    (2,644
    )
    
    
    1,808,877
    
    
    
    (87,796
    )Equity securities
    
    
    101,521
    
    
    
    (8,682
    )
    
    
    16,461
    
    
    
    (1,743
    )
    
    
    117,982
    
    
    
    (10,425
    )Total
    
    ¥
    1,720,766
    
    
    
    (93,834
    )
    
    
    206,093
    
    
    
    (4,387
    )
    
    
    1,926,859
    
    
    
    (98,221
    )
 (*) Primarily relates to the Other government and governmental agencies
and authorities category. F-23




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##### Table of Contents



Determinations of whether a decline is other than temporary often involve
estimating the outcome of future events. Management judgment is required in
determining whether factors exist that indicate that an impairment loss should
be recognized at any balance sheet date. These judgments are based on
subjective as well as objective factors. Among the factors that management considers when determining whether
declines in the value of equity securities below their costs are other than
temporary is the likelihood that those declines will be reversed. For
marketable equity securities, management evaluates each of the securities and
considers a variety of facts, including (a) whether the value of the securities
continued to be below cost for more than 12 months, (b) whether the value of
the securities continued to be more than 20% below cost during any six-month
period and (c) whether there has been a decline in value to below 30% of cost
as measured at the end of any fiscal year. For non-marketable equity securities and fixed maturity securities,
management considers whether sharp declines in value over a short period of
time reflect fundamental valuation issues such as credit deterioration of the
issuer. After considering these and other factors, we write down individual
securities to fair value when management determines that a decline in fair
value below the cost of those securities is other than temporary. The Company recognized impairment losses on investment securities  other
than investments in related parties in the amount of ¥33,930 million, ¥119,108
million and ¥58,159 million for the years ended March 31, 2004, 2003 and 2002,
respectively. Trading gains (losses) for the years ended March 31, 2004 and 2003 that
relate to trading securities still held at March 31, 2004 and 2003 amounted to
¥837 million and ¥(140) million, respectively. The Company recognized impairment losses on certain of its investment real
estate in the amount of ¥3,159 million and ¥5,034 million for the years ended
March 31, 2004 and 2003. Considering the decline of Japanese real estate
market, tests for impairment were performed as of March 31, 2004 for any
significant assets where the Company observed possible decline in the fair
value below the carrying amount of the asset. For those assets, the Company
recognized impairment losses for the amount by which the carrying amount
exceeded the fair value estimated primarily based on recent transactions
involving sales of similar assets and charged them to realized gains (losses)
on other investments for the years ended March 31, 2004 and 2003 in the
property and casualty segment. On April 1, 2000, the Company transferred certain of its fixed maturities
available for sale to the held to maturity category. This transfer was based
on the Companys review of investment policies to match the duration of
securities portfolio with certain life insurance liabilities with relatively
long duration. The related unrealized gains on these securities at the time of
transfer in the amount of ¥9,088 million are being amortized from accumulated
other comprehensive income into investment income over the remaining terms of
the securities. Unamortized amounts of those unrealized gains were ¥7,026
million and ¥7,719 million at March 31, 2004 and 2003, respectively. Securities available for sale are carried in the consolidated financial
statements at fair value. Changes in unrealized gains and losses, net of
taxes, on securities available for sale shown above are included in other
comprehensive income. The Companys investments in Toyota Motor Corporation and its affiliates
amounting to ¥394,361 million and ¥290,199 million at March 31, 2004 and 2003,
respectively, exceeded 10% of stockholders equity. F-24




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##### Table of Contents



The recorded investments in impaired loans and related specific valuation
allowances, which were established for all impaired loans, at March 31, 2004
and 2003 were as follows: (Yen in millions)Total
    
    Valuationrecorded
    
    allowancesinvestment
    
     specific2004:Mortgage loans on real estate
    
    ¥
    13,408
    
    
    
    6,110Collateral and bank-guaranteed loans
    
    
    7
    
    
    
    7Unsecured loans
    
    
    17,808
    
    
    
    9,807¥
    31,223
    
    
    
    15,9242003:Mortgage loans on real estate
    
    ¥
    31,483
    
    
    
    12,862Collateral and bank-guaranteed loans
    
    
    11,360
    
    
    
    4,865Unsecured loans
    
    
    23,153
    
    
    
    12,378¥
    65,996
    
    
    
    30,105
 In addition, based on the Companys past experience that it is probable
that a certain percentage of its loans not covered by specific valuation
allowances are impaired at the balance sheet date even in the absence of
specific loss information, the Company established unallocated valuation
allowances in order to incorporate loss contingencies underlying the loan
portfolio comprehensively. In determining the amount of required allowances,
the Company classifies loans into three categories based on their current
credit quality, and applies historical loan loss ratios for these respective
categories. The outstanding unallocated valuation allowances were ¥3,808
million and ¥6,730 million at March 31, 2004 and 2003, respectively. The activity in valuation allowances for the years ended March 31, 2004,
2003 and 2002 is as follows: (Yen in millions)2004
    
    2003
    
    2002Balance at beginning of year
    
    ¥
    36,835
    
    
    
    32,745
    
    
    
    38,919Adjustment in connection
with the acquisition (note 2)
    
    
    
    
    
    
    9,129
    
    
    
    Charges to income
    
    
    (9,415
    )
    
    
    1,091
    
    
    
    (502
    )Principal charge-offs
    
    
    (7,688
    )
    
    
    (6,130
    )
    
    
    (5,672
    )Balance at end of year
    
    ¥
    19,732
    
    
    
    36,835
    
    
    
    32,745
 During the years ended March 31, 2004, 2003 and 2002, the average recorded
investment in impaired loans amounted to ¥48,610 million, ¥63,674 million and
¥55,512 million, respectively, and interest income recognized and received in
cash on those loans amounted to ¥873 million, ¥1,309 million and ¥747 million,
respectively. At March 31, 2004 and 2003, the amount of loans that were
non-income producing during the preceding twelve months amounted to ¥3,251
million and ¥3,493 million, respectively. The Company manages its investments to limit credit risks by diversifying
its portfolio among various investment types and industry sectors. The Company
monitors creditworthiness of counterparties to all financial instruments by
using controls that include credit approvals, limits and other monitory
procedures. Collateral often includes pledges of assets, such as stocks and
other assets and guarantees. F-25




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##### Table of Contents



4.
    
    Reinsurance In the ordinary course of business, the Company cedes risks to other insurers
and reinsurers. Reinsurance enables the Company to reduce its exposure to
large losses in all aspects of its insurance business, although it does not
relieve the Company of its obligations as direct insurer of the risks
reinsured. Prepaid reinsurance premiums represent the portion of premiums ceded to
reinsurers applicable to the unexpired terms of the reinsurance contracts in
force. Reinsurance recoverable on losses represents estimates of amounts that
will be recovered from reinsurers on reported and unreported losses and claims
and loss adjustment expenses. The Company is exposed to contingent liability with respect to reinsurance
which would become an actual liability to the extent that any reinsurers failed
to meet its obligations to the Company. Because of the large amount of funds
held by the Company under reinsurance treaties and the Companys favorable
historical results with the reinsurers involved, no material amounts were
considered uncollectible and no material provisions were made for this
contingency. The effect of ceded reinsurance on the consolidated statements of income
for the years ended March 31, 2004, 2003 and 2002 is as follows: (Yen in millions)2004
    
    2003
    
    2002Property and casualty:Premiums written:Direct
    
    ¥
    1,978,555
    
    
    
    1,987,463
    
    
    
    1,509,615Assumed
    
    
    374,219
    
    
    
    325,347
    
    
    
    138,362Ceded
    
    
    (407,528
    )
    
    
    (414,253
    )
    
    
    (266,494
    )Net premiums written
    
    ¥
    1,945,246
    
    
    
    1,898,557
    
    
    
    1,381,483Premiums earned:Direct
    
    ¥
    1,952,151
    
    
    
    1,952,534
    
    
    
    1,436,884Assumed
    
    
    297,597
    
    
    
    190,135
    
    
    
    128,786Ceded
    
    
    (389,545
    )
    
    
    (381,701
    )
    
    
    (222,708
    )Premiums earned
    
    ¥
    1,860,203
    
    
    
    1,760,968
    
    
    
    1,342,962Losses, claims incurred:Direct
    
    ¥
    1,100,584
    
    
    
    1,064,457
    
    
    
    838,246Assumed
    
    
    242,720
    
    
    
    174,561
    
    
    
    110,858Ceded
    
    
    (294,786
    )
    
    
    (285,337
    )
    
    
    (212,339
    )Losses, claims incurred
    
    ¥
    1,048,518
    
    
    
    953,681
    
    
    
    736,765Life:Premiums earned:Direct
    
    ¥
    248,719
    
    
    
    263,361
    
    
    
    209,469Assumed
    
    
    
    
    
    
    0
    
    
    
    0Ceded
    
    
    (919
    )
    
    
    (875
    )
    
    
    (261
    )Premiums earned
    
    ¥
    247,800
    
    
    
    262,486
    
    
    
    209,208
 F-26




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##### Table of Contents



5.
    
    Deferred Policy Acquisition Costs The following sets forth the policy acquisition costs deferred for amortization
against future income and the related amortization charged to income for
property and casualty and life insurance operations: (Yen in millions)2004
    
    2003
    
    2002Property and casualty:Deferred at beginning of year
    
    ¥
    323,865
    
    
    
    221,914
    
    
    
    214,019Adjustment in connection with the acquisition (note 2)
    
    
    
    
    
    
    99,663
    
    
    
    Incurred during year:
    
    
    543,373
    
    
    
    546,766
    
    
    
    426,874867,238
    
    
    
    868,343
    
    
    
    640,893Foreign currency translation adjustments
    
    
    (234
    )
    
    
    (331
    )
    
    
    Deferred at end of year
    
    
    328,411
    
    
    
    323,865
    
    
    
    221,914Policy acquisition costs
    
    
    538,593
    
    
    
    544,147
    
    
    
    418,979Life:Deferred at beginning of year
    
    
    98,615
    
    
    
    79,809
    
    
    
    63,366Incurred during year
    
    
    46,762
    
    
    
    45,717
    
    
    
    34,476145,377
    
    
    
    125,526
    
    
    
    97,842Deferred at end of year
    
    
    124,992
    
    
    
    98,615
    
    
    
    79,809Policy acquisition costs
    
    
    20,385
    
    
    
    26,911
    
    
    
    18,033Total policy acquisition costs
    
    ¥
    558,978
    
    
    
    571,058
    
    
    
    437,012
  6.
    
    Property and Equipment A summary of property and equipment is as follows: (Yen in millions)2004
    
    2003Land
    
    ¥
    83,960
    
    
    
    88,778Buildings
    
    
    222,299
    
    
    
    225,200Furniture and equipment
    
    
    63,746
    
    
    
    67,372Construction in progress
    
    
    5,925
    
    
    
    6,404Total at cost
    
    
    375,930
    
    
    
    387,754Less accumulated depreciation
    
    
    182,862
    
    
    
    183,676Net property and equipment
    
    ¥
    193,068
    
    
    
    204,078
 Depreciation of property and equipment included in other operating
expenses amounted to ¥15,236 million, ¥11,426 million and ¥11,343 million for
the years ended March 31, 2004, 2003 and 2002, respectively. F-27




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##### Table of Contents



7.
    
    Goodwill and Present Value of Future Profit In February 2, 2004, the Company acquired Skandia Life Insurance Co. (Japan)
Limited (Skandia Japan) based in Tokyo, Japan, for a cost of ¥20,339 million
which was paid in cash. Skandia Japans main product is variable annuity. Goodwill of ¥9,934 million and present value of future profit (PVFP) of
¥14,744 million was recognized on the balance sheet as of March 31, 2004. The following table shows the estimated future amortization of the PVFP
balance during each of the next five years: (Yen in millions)2005
    
    ¥
    2,4642006
    
    
    2,5322007
    
    
    2,3572008
    
    
    2,1562009
    
    
    1,933Thereafter
    
    
    3,302Total PVFP
    
    ¥
    14,744
 The Goodwill and intangible assets were assigned to life insurance
segment.  8.
    
    Liability for Unpaid Losses and Claims and Loss Adjustment Expenses The table below is a reconciliation of beginning and ending property and
casualty insurance balances for unpaid losses and claims and loss adjustment
expenses for the years ended March 31, 2004, 2003 and 2002: (Yen in millions)2004
    
    2003
    
    2002Balance at beginning of year
    
    ¥
    1,131,884
    
    
    
    875,463
    
    
    
    854,952Less reinsurance recoverables
    
    
    342,132
    
    
    
    247,861
    
    
    
    255,696Net balance at beginning of year
    
    
    789,752
    
    
    
    627,602
    
    
    
    599,256Adjustment in connection with the
acquisition (note 2)
    
    
    
    
    
    
    141,940
    
    
    
    Incurred related to:Current year
    
    
    1,116,582
    
    
    
    1,029,655
    
    
    
    802,061Prior years
    
    
    9,325
    
    
    
    438
    
    
    
    (3,847
    )Total incurred
    
    
    1,125,907
    
    
    
    1,030,093
    
    
    
    798,214Paid related to:Current year
    
    
    588,432
    
    
    
    590,791
    
    
    
    481,710Prior years
    
    
    446,825
    
    
    
    417,105
    
    
    
    288,158Total paid
    
    
    1,035,257
    
    
    
    1,007,896
    
    
    
    769,868Foreign currency translation adjustments
    
    
    (1,473
    )
    
    
    (1,987
    )
    
    
    Net balance at end of year
    
    
    878,928
    
    
    
    789,752
    
    
    
    627,602Plus reinsurance recoverables
    
    
    342,217
    
    
    
    342,132
    
    
    
    247,861Balance at end of year
    
    ¥
    1,221,146
    
    
    
    1,131,884
    
    
    
    875,463
 Prior year claims and expenses incurred in the preceding table resulted
principally from settling claims established in earlier accident years for
amounts that differed from expectations. F-28




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##### Table of Contents



The reinsurance recoverables referred to above are reconciled to the
balance sheet carrying amounts as follows: (Yen in millions)2004
    
    2003Property and casualty:Unpaid losses
    
    ¥
    342,217
    
    
    
    342,132Paid losses
    
    
    104,528
    
    
    
    107,885Life
    
    
    366
    
    
    
    328Total reinsurance recoverable on losses
    
    ¥
    447,111
    
    
    
    450,345
 In prior years, the Company issued insurance policies and assumed reinsurance
for cover related to environmental pollution and asbestos exposure. The
Company has received and continues to receive notices of potential claims
asserting environmental pollution and asbestos losses under those insurance
policies. Significant factors which affect the trends that influence the
Companys ability to estimate future losses for these types of claims are the
inconsistent court resolutions and the judicial interpretations which broaden
the intent of the policies and scope of coverage. Due to this uncertainty, it
is not possible to determine the future development of environmental pollution
and asbestos claims with the same degree of reliability as with other types of
claims. The Company believes insurance claim reserves under insurance and
reinsurance contracts related to environmental pollution and asbestos claims to
be adequate, and the amount is less than 5% of its total insurance claim
reserves at March 31, 2004.  9.
    
    Income Taxes Total income taxes for the years ended March 31, 2004, 2003 and 2002 were
allocated as follows: (Yen in millions)2004
    
    2003
    
    2002Income before extraordinary items and
cumulative effect of accounting changes
    
    ¥
    49,385
    
    
    
    71,614
    
    
    
    33,416Cumulative effect of accounting changes
    
    
    
    
    
    
    
    
    
    
    48,033Other comprehensive income:Unrealized appreciation (depreciation) of
securities during the year
    
    
    320,315
    
    
    
    (188,667
    )
    
    
    (118,901
    )Minimum pension liability adjustments
    
    
    11,779
    
    
    
    (22,613
    )
    
    
    (16,860
    )¥
    381,479
    
    
    
    (139,666
    )
    
    
    (54,312
    )
 The Company is subject to a number of taxes based on income, which in the
aggregate resulted in a normal tax rate of approximately 36% in 2004, 2003 and
2002. The effective tax rates of the Company for the years ended March 31, 2004,
2003 and 2002 differ from the Japanese normal income tax rates for the
following reasons: 2004
    
    2003
    
    2002Japanese normal income tax rate
    
    
    36.0
    %
    
    
    36.0
    %
    
    
    36.0
    %Tax credit for dividends received
    
    
    (3.8
    )
    
    
    (3.0
    )
    
    
    (7.1
    )Expenses not deductible for tax purposes
    
    
    1.5
    
    
    
    0.9
    
    
    
    1.2Other
    
    
    (1.3
    )
    
    
    1.7
    
    
    
    0.7Effective tax rate
    
    
    32.4
    %
    
    
    35.6
    %
    
    
    30.8
    %
 F-29




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##### Table of Contents



The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at March 31,
2004 and 2003 are presented below: (Yen in millions)2004
    
    2003Deferred tax assets:Net unpaid and unreported losses
    
    ¥
    107,303
    
    
    
    84,817Future policy benefits and losses
    
    
    11,342
    
    
    
    13,501Retirement and severance benefits
    
    
    52,331
    
    
    
    47,689Minimum pension liability adjustments
    
    
    38,929
    
    
    
    50,707Valuation allowance for credit losses
    
    
    5,701
    
    
    
    12,743Property, equipment and other assets
    
    
    47,816
    
    
    
    49,910Derivatives
    
    
    37,868
    
    
    
    33,995Operating loss carryforwards for tax purposes
    
    
    3,997
    
    
    
    10,311Other
    
    
    37,938
    
    
    
    33,036Valuation allowance
    
    
    (833
    )
    
    
    Total deferred tax assets
    
    
    342,392
    
    
    
    336,709Deferred tax liabilities:Net unearned premiums
    
    
    (80,200
    )
    
    
    (47,552
    )Deferred policy acquisition costs
    
    
    (162,425
    )
    
    
    (151,996
    )Fair value adjustments to securities recognized in income
    
    
    (74,306
    )
    
    
    (88,828
    )Derivatives
    
    
    (71,431
    )
    
    
    (89,134
    )Other
    
    
    (17,878
    )
    
    
    (12,225
    )Total deferred tax liabilities
    
    
    (406,240
    )
    
    
    (389,735
    )Net deferred tax liabilities before deferred taxes on
unrealized appreciation of securities
    
    
    (63,848
    )
    
    
    (53,026
    )Deferred taxes on unrealized appreciation of securities
    
    
    (641,352
    )
    
    
    (321,037
    )Net deferred tax liabilities
    
    
    (705,200
    )
    
    
    (374,063
    )Income taxes currently payable
    
    
    (4,024
    )
    
    
    (63,497
    )Income tax liability
    
    ¥
    (709,224
    )
    
    
    (437,560
    )
 Operating loss carryforwards for tax purposes of consolidated subsidiaries
at March 31, 2004 amounted to ¥3,164 million, net of valuation allowance, and
are available through 2009 to offset against future taxable income of such
subsidiaries. The valuation allowance relates to operating loss carryforwards for tax
purposes in Skandia Japan acquired by the Company in the year ended March 31,
2004. Management believes that it is more likely than not that the Company
will realize the benefit of the deferred tax assets. While there are no
assurances that this benefit will be realized, the Company expects sufficient
taxable income in the future, based on its historical record and expected
future results to realize the benefit of the deferred tax assets.  10.
    
    Retirement and Severance Benefits Employees of the Company are covered by the defined retirement and severance
benefit plans. Primary plans are described below. The Company has a funded pension plan covering substantially all employees
who meet age and service requirements. The plan covers a portion of the
welfare pension plan administered by the Japanese government. In accordance with SFAS No. 87, Employers Accounting for Pensions, the
net periodic benefit cost of the funded pension plan is calculated using the
projected unit credit actuarial cost method. The Company also has an unfunded lump-sum payment retirement plan covering
substantially all employees. Under the plan, employees are entitled to
lump-sum payments based on points, which are accumulated each year by the
employees rank, length of service and certain other factors, upon retirement
or termination of employment for reasons other than dismissal for cause.
Directors and statutory auditors are F-30




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##### Table of Contents



covered by a separate plan. It is not the
policy of management to fund the retirement and severance benefits described
above. In accordance with EITF 88-1 Determination of Vested Benefit Obligation
for a Defined Benefit Pension Plan, for its unfunded plans, the Company
records the actuarial present value of the vested benefits to which the
employee is entitled if the employee separates immediately as projected benefit
obligation. The Company uses a March 31 measurement date of its plans.
Reconciliations of beginning and ending balances of the benefit obligations and
the fair value of the plan assets are as follows: (Yen in millions)2004
    
    2003Change in benefit obligation:Benefit obligation at beginning of year
    
    ¥
    532,931
    
    
    
    430,950Adjustment in connection with the acquisition (note 2)
    
    
    38
    
    
    
    40,690Service cost
    
    
    23,964
    
    
    
    19,148Interest cost
    
    
    7,829
    
    
    
    10,874Plan participants contributions
    
    
    2,758
    
    
    
    2,593Amendments
    
    
    2,909
    
    
    
    (24,793
    )Actuarial gain (loss)
    
    
    (29,179
    )
    
    
    75,182Benefits paid
    
    
    (22,998
    )
    
    
    (21,710
    )Foreign currency translation adjustments
    
    
    6
    
    
    
    (3
    )Benefit obligation at end of year
    
    ¥
    518,258
    
    
    
    532,931Change in plan assets:Fair value of plan assets at beginning of year
    
    ¥
    175,559
    
    
    
    144,710Adjustment in connection with the acquisition (note 2)
    
    
    
    
    
    
    7,599Actual return on plan assets
    
    
    5,711
    
    
    
    1,443Employer contributions
    
    
    20,683
    
    
    
    24,146Plan participants contributions
    
    
    2,758
    
    
    
    2,593Benefits paid
    
    
    (5,378
    )
    
    
    (4,932
    )Fair value of plan assets at end of year
    
    ¥
    199,333
    
    
    
    175,559Funded status
    
    ¥
    (318,925
    )
    
    
    (357,372
    )Unrecognized net actuarial loss
    
    
    152,748
    
    
    
    196,049Unrecognized prior service cost
    
    
    7,620
    
    
    
    5,742Net amount recognized
    
    ¥
    (158,557
    )
    
    
    (155,581
    )Amounts recognized in the balance sheets consist of:Accrued benefit liability
    
    ¥
    (292,054
    )
    
    
    (324,003
    )Intangible asset
    
    
    25,362
    
    
    
    27,567Accumulated other comprehensive income
    
    
    108,135
    
    
    
    140,855Net amount recognized
    
    ¥
    (158,557
    )
    
    
    (155,581
    )
 The accumulated benefit obligation for all the defined retirement and
severance benefit plans was ¥488,954 million at March 31, 2004, and ¥499,345
million at March 31, 2003. In all the plans, projected benefit obligation and
accumulated benefit obligation exceeded its plan assets. Weighted-average actuarial assumptions used to determine benefit
obligation at March 31, 2004 and 2003 are as follows: 2004
    
    2003Discount rate
    
    
    2.0
    %
    
    
    1.5
    %Rate of salary increase
    
    
    0.7-1.7
    %
    
    
    0.6-1.7
    %
 F-31




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##### Table of Contents



The components of net periodic benefit cost for the years ended March 31,
2004, 2003 and 2002 are as follows: (Yen in millions)2004
    
    2003
    
    2002Components of net periodic benefit cost:Service cost
    
    ¥
    23,964
    
    
    
    19,148
    
    
    
    15,494Interest cost
    
    
    7,829
    
    
    
    10,874
    
    
    
    11,389Expected return on plan assets
    
    
    (3,250
    )
    
    
    (3,108
    )
    
    
    (3,192
    )Amortization of prior service cost
    
    
    1,031
    
    
    
    805
    
    
    
    2,397Recognized actuarial loss
    
    
    11,663
    
    
    
    7,162
    
    
    
    4,398Net periodic benefit cost
    
    ¥
    41,237
    
    
    
    34,881
    
    
    
    30,486
 Unrecognized net actuarial loss in excess of 10% of the greater of the
projected benefit obligation or the fair value of plan assets are amortized
over the average remaining service period of active participants expected to
receive benefits under the plan. The prior service cost is amortized on a
straight-line basis over the average remaining service period of active
participants at the date of the amendment. Weighted-average actuarial assumptions used to determine net periodic
benefit cost for the years ended March 31, 2004, 2003 and 2002 are as follows: 2004
    
    2003
    
    2002Discount rate
    
    
    1.5
    %
    
    
    2.5
    %
    
    
    3.0
    %Rate of salary increase
    
    
    0.6-1.7
    %
    
    
    1.8
    %
    
    
    1.7
    %Expected long-term return on plan assets
    
    
    1.8-2.0
    %
    
    
    1.3-2.0
    %
    
    
    2.3
    %
 The expected long-term rate of return on plan assets reflects the average
rate of earnings expected on plan assets. This assumption is reviewed
annually giving consideration to plan asset allocation, historical returns on
plan assets and other relevant market data. The Companys pension plan assets are mainly invested with the long-term
objective of earning sufficient amounts to cover expected benefit obligation,
within the risk it can take. The asset allocation by major asset class of
the Companys pension plan at March 31, 2004 and 2003, and the target
allocation percentage for 2005 are as follows: (% of Totalplan assets)
    
    (Yen in millions)2005 (target)
    
    2004
    
    2003Fixed maturities
    
    
    45
    %
    
    ¥
    74,153
    
    
    
    57,268Equity securities
    
    
    15
    
    
    
    36,387
    
    
    
    22,949Other
    
    
    40
    
    
    
    88,793
    
    
    
    95,342Total plan assets
    
    
    100
    %
    
    ¥
    199,333
    
    
    
    175,559
 Other shown in the above table mainly consists of investment trusts with
minimum interest rate guarantee. The Company expects to contribute ¥15,894 million to its pension plan in
2005. The Japanese government issued a new law concerning defined benefit plans
in June 2001. This law allows a company, at its own discretion, to transfer to
the government a portion of its pension plan which substitutes for the welfare
pension plan administered by the government. In order to transfer the
substitutional portion, a company must first make an application to the
government for an exemption from the obligation to pay benefits for future
employee service. After obtaining the first approval, a company must make a
final application for separation of the benefit obligation related to past
employee services. After obtaining the final approval, a company will transfer
the benefit obligation related to past employee services as well as the related
government-specified portion of its plan assets. A company accounts for the
entire separation process upon completion of the transfer of the benefit
obligation and related plan assets in a single settlement transaction, in accordance with the provisions of EITF
03-02, Accounting for the Transfer to the Japanese Government of the
Substitutional Portion of Employee Pension Fund Liabilities. Under this
approach, the difference between the benefit obligation settled and the related
plan assets transferred to the government, determined pursuant to the
government formula, is accounted for and disclosed separately as a government
subsidy. F-32




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##### Table of Contents



In June 2004, Tokio Marine, a wholly owned subsidiary of the Company,
obtained the first approval from the government. The transfer is expected to be
completed in fiscal 2006 or later. The effect on the Companys consolidated
statements of the transfer has not yet been determined.  11.
    
    Debt Outstanding Debt outstanding at March 31, 2004 and 2003 comprised the following: (Yen in millions)Due
    
    2004
    
    2003Loans, 0.02% to 3.99%
    
    2005-2016
    
    ¥
    13,627
    
    
    
    4,673Equity linked notes, 2.20% to 28.00%
    
    2005
    
    
    1,716
    
    
    
    4,331Equity linked notes, zero coupon
    
    2006-2007
    
    
    6,192
    
    
    
    Fixed rate notes, 0.01% to 0.96%
    
    2005-2010
    
    
    27,024
    
    
    
    5,000Floating rate notes, 0.06%
    
    2005
    
    
    2,000
    
    
    
    2,000Credit linked notes, 1.99% to 11.18%
    
    2007
    
    
    22,644
    
    
    
    25,373Unsecured bonds, 1.47% to 2.78%
    
    2006-2021
    
    
    135,843
    
    
    
    135,984Other notes
    
    2034
    
    
    4,400
    
    
    
    519Total debt outstanding
    
    
    
    ¥
    213,446
    
    
    
    177,880
 The proceeds of these debts were used primarily for general corporate
purposes. Maturities of debt outstanding at March 31, 2004 are as follows: (Yen in millions)2005
    
    ¥
    15,0162006
    
    
    45,4342007
    
    
    36,7652008
    
    
    1,8242009
    
    
    5,051Thereafter
    
    
    109,356Total debt outstanding
    
    ¥
    213,446
 The Company leases certain property and equipment under noncancelable
lease agreements. At March 31, 2004 and 2003, obligations under capital leases
which were presented as other liabilities amounted to
¥6,115 million and
¥8,006 million. Of this amount, the obligations due within one year amounted
to ¥3,326 million at March 31, 2004. F-33




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##### Table of Contents



12.
    
    Fair Values of Financial Instruments SFAS No. 107, Disclosures about Fair Value of Financial Instruments requires
disclosure of estimated fair value for all financial instruments. See note 15
for discussion of fair value of derivative financial instruments. The carrying
amounts and the fair values of the Companys nonderivative financial
instruments at March 31, 2004 and 2003 are as follows: (Yen in millions)2004
    
    2003Carrying
    
    
    
    
    
    Carryingamount
    
    Fair value
    
    amount
    
    Fair valuePolicy loans
    
    ¥
    33,610
    
    
    
    33,610
    
    
    
    29,171
    
    
    
    29,171Mortgage loans on real estate
    
    
    129,076
    
    
    
    130,040
    
    
    
    148,655
    
    
    
    152,379Mortgage loans on vessels and
facilities
    
    
    20,356
    
    
    
    19,989
    
    
    
    22,125
    
    
    
    21,637Collateral and bank-guaranteed loans
    
    
    18,542
    
    
    
    22,868
    
    
    
    22,096
    
    
    
    24,190Unsecured loans
    
    
    357,504
    
    
    
    363,411
    
    
    
    440,997
    
    
    
    449,412Money trust
    
    
    22,797
    
    
    
    22,797
    
    
    
    73,786
    
    
    
    73,786Short-term investments
    
    
    881,897
    
    
    
    881,897
    
    
    
    660,370
    
    
    
    660,370Investment deposits by policyholders
    
    
    (2,704,861
    )
    
    
    (2,911,532
    )
    
    
    (2,716,526
    )
    
    
    (3,094,290
    )Debt outstanding
    
    
    (213,446
    )
    
    
    (220,370
    )
    
    
    (177,880
    )
    
    
    (189,307
    )
 The following methods and assumptions were used by the Company in
estimating the fair values of its nonderivative financial instruments: Cash and cash equivalents, accrued investment income (included in other
assets), premiums receivable and agents balances, reinsurance recoverable on
losses and ceded reinsurance balances payable
The carrying amounts approximate fair values due to the short maturity of
these instruments. Fixed maturities and equity securities
The carrying amounts and fair values of fixed maturities and equity securities
are disclosed in note 3. Policy loans
The carrying amounts of floating-rate policy loans approximate their fair
values as the interest rates charged on those instruments are designed so that
they would be adjusted periodically to reflect changes in overall market
interest rates. Mortgage loans on real estate, other long-term investments and short-term investments
The fair values for these financial instruments are estimated based on the
quoted market prices for these or similar instruments. For financial
instruments for which quoted market prices are not available, fair values are
estimated using discounted cash flow analysis and interest rates currently
being offered for similar loans to borrowers with similar credit ratings or for
similar deposits. Investment deposits by policyholders
The fair values of investment deposits by policyholders were estimated using
discounted cash flow calculations based on market interest rates currently
prevailing for similar contracts with similar maturities. The cash flows used
in fair value calculation were based on the best estimate assumptions of lapse
rates and other factors. F-34




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##### Table of Contents



Debt outstanding
The fair values for debt outstanding are estimated using their market prices.
For debt outstanding on which quoted market prices are not available, the fair
values are estimated using discounted cash flow analysis, based on the
Companys current borrowing rate for similar types of borrowings. Limitations
Fair value estimates are made at a specific point in time, based on relevant
market information and information about the financial instruments. These
estimates are subjective in nature and involve uncertainties and matters of
significant judgment and therefore cannot be determined with precision.
Changes in assumptions could significantly affect the estimates.  13.
    
    Statutory Capital and Dividend Availability Millea Holdings is subject to regulatory restrictions on the amount of
dividends distributable to its stockholders. The amount of retained earnings
available for dividends is based on the amount recorded on the Millea Holdings
non-consolidated statutory books of account in accordance with Japanese GAAP.
Millea Holdings had retained earnings in the amount of ¥168,245 million, net of
treasury stock in the amount of ¥86,707 million, and capital surplus in the
amount of ¥500,005 million as of March 31, 2004. The adjustments included in
the accompanying consolidated financial statements to have them conform with
U.S. GAAP, but not recorded in the books of account, have no effect on the
determination of the amount available for dividends. Provision has not been made in the accompanying consolidated balance sheet
as of March 31, 2004 for dividends subsequently proposed to and approved by
Millea Holdings stockholders in the aggregate amount of ¥19,668 million at the
ordinary general meeting of stockholders held on June 29, 2004. Millea Holdings stockholders approved repurchase of its own shares
pursuant to Article 210 of the Commercial Code of Japan on June 27, 2003, as
follows: (a) aggregate number of shares authorized for repurchase is up to
120,000 shares, (b) total value of shares authorized for repurchase is up to
¥100,000 million, (c) Millea Holdings is authorized to repurchase its stock
until the closing of the ordinary general meeting of stockholders for the
fiscal year ended March 31, 2004. Under this repurchase program, Millea
Holdings repurchased 75,646 shares at a cost of ¥100,000 million by June 29,
2004. The stockholders approved to insert a new Article in the Articles of
Incorporation of Millea Holdings stating that Millea Holdings may, by
resolution of the Board of Directors, repurchase its own shares pursuant to
Article 211-3, paragraph 1, item 2 of the Commercial Code of Japan, at the
ordinary general meeting of stockholders held on June 29, 2004. At June 29, 2004, the Board of Directors approved repurchase of its own
shares pursuant to Article 211-3, paragraph 1, item 2 of the Commercial Code of
Japan, as follows: (a) aggregate number of shares to be repurchase is up to
9,000 shares (approximately 0.5% of the share outstanding), (b) aggregate value
of shares to be repurchased is up to ¥13,000 million, (c) repurchase would be
made from July 1, 2004 through July 30, 2004. Under this repurchase program,
Millea Holdings repurchased 8,051 shares at a cost of ¥13,000 million by July
30, 2004. At July 9, 2004, Millea Holdings cancelled 70,000 shares held by it as
treasury stock, by the approval of the Board of Directors, pursuant to Article
212 of the Commercial Code of Japan. Number of issued shares including
treasury stock after the cancellation is 1,787,048.75 shares. At August 2, 2004, the Board of Directors approved repurchase of its own
shares pursuant to Article 211-3, paragraph 1, item 2 of the Commercial Code of
Japan, as follows: (a) aggregate number of shares to be repurchase is up to
11,000 shares (approximately 0.6% of the share outstanding), (b) aggregate
value of shares to be repurchased is up to ¥15,000 million, (c) repurchase
would be made from August 3, 2004 through September 3, 2004. The insurance subsidiaries of Millea Holdings incorporated in Japan are
required to maintain adequate solvency margins by the Japanese regulatory
authorities. At March 31, 2004, these subsidiaries had sufficient capital
surplus in their respective statutory stockholders equity to satisfy the
solvency margin requirements. In the parent company only financial statements prepared in conformity
with Japanese GAAP, Millea Holdings reported net income of ¥230,871 million in
2004, ¥49,605 million in 2003 and ¥39,182 million
in 2002, and stockholders
equity of ¥ 2,329,735 million at March 31, 2004 and ¥2,206,053 million at March
31, 2003. F-35




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##### Table of Contents



The amounts of statutory net income (loss) for the years ended March 31,
2004, 2003 and 2002, and stockholders equity at March 31, 2004 and 2003 of the
consolidated insurance subsidiaries were as follows: (Yen in millions)2004
    
    2003
    
    2002Statutory net income (loss):Property and casualty
    
    ¥
    123,969
    
    
    
    112,615
    
    
    
    12,703Life
    
    
    0
    
    
    
    (966
    )
    
    
    1Statutory stockholders equity:Property and casualty
    
    
    2,329,686
    
    
    
    2,006,678Life
    
    
    37,362
    
    
    
    46,160
  14.
    
    Commitments and Contingent Liabilities At March 31, 2004 and 2003, commitments outstanding for the purchase of
property and equipment approximated ¥10,136 million and ¥14,547 million,
respectively. At March 31, 2004 and 2003, commitments outstanding for loan
commitments were ¥11,198 million and ¥8,707 million, respectively. The Company occupies certain offices and other facilities and uses certain
equipment under cancelable lease arrangements. Rental expenses for the years
ended March 31, 2004, 2003 and 2002 aggregated ¥15,302 million, ¥14,694 million
and ¥17,427 million, respectively. The Company enters into credit default swap transactions to earn
investment returns. The maximum potential amount of future payments represents
the notional amounts that could be lost under the credit default swaps if there
were a total default by the guaranteed parties, without consideration of
possible recoveries under recourse provisions or from collateral held or
pledged. At March 31, 2004, the Companys maximum potential amount of future
payments under the credit default swaps was approximately ¥1,981,668 million.
At March 31, 2004 and 2003, the carrying amount of the liabilities related to
these credit default swaps was ¥167 million and ¥16,356 million, respectively.
Other property will be available to the Company to cover losses, or, the
Company will cover losses, net of some collateral, however, the value of such
property or collateral has not been determined. See also note 15 for discussion on credit default swaps. Guarantees are used in various transactions to enhance the credit standing
of the Companys customers and third parties. They represent irrevocable
assurances that the Company will make payment in the event that the customer
fails to fulfill its obligation arising from guarantees of the indebtedness of
third parties, the corporate loans and bonds, etc., to third parties. The
Company is obliged to pay the outstanding liabilities when the guaranteed
parties fail to pay principal and/or interest in accordance with the
contractual terms. The maximum exposure under these guarantees as of March 31,
2004 was approximately ¥2,117 million. At March 31, 2004, the Company did not
recognize any liabilities for these remote loss contingencies. In some cases,
those liabilities are secured by the guaranteed parties operating assets.
Once the Company assumes the guaranteed parties obligation, the Company
acquires the right of the collateral. In the ordinary course of business, the Company is involved in various
legal proceedings. Although there can be no assurances, as of March 31, 2004,
the Company believes, based on information currently available, that the
ultimate resolution of these legal proceedings would not be likely to have a
material adverse effect on its results of operations, financial condition or
liquidity. See note 8 for the information of contingent liabilities associated with
environmental pollution and asbestos exposure. F-36




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##### Table of Contents



15.
    
    Derivative Financial Instruments The Company utilizes derivative financial instruments in its normal course of
business (a) to manage interest rate risk, (b) to manage foreign exchange risk
and (c) for other purposes. Although some types of these derivatives
economically hedge the Companys risk exposure, they do not qualify for hedge
accounting under SFAS No.133. All derivatives are recognized on the
consolidated balance sheets at fair value as derivative assets or derivative
liabilities, with the changes in fair value recognized currently in earnings
as gains (losses) on derivatives. (a) Derivatives used for interest rate risk management
The Company uses interest rate swaps to manage interest rate exposures arising
from mismatches between assets and liabilities (including duration mismatches).
The Companys insurance liabilities that bear credited interest rates, mainly
those relating to deposit-type insurance and life insurance, are exposed to the
risk of declines in interest rates. The Companys strategy is to match the
interest rate characteristics and duration of those liabilities with those of
invested assets through its asset liability management, including the use of
interest rate swaps. An interest rate swap is an agreement, generally, to
exchange fixed and floating rate interest payments without exchange of the
underlying principal. (b) Derivatives used for foreign exchange risk management
The Company is exposed to foreign currency exposures arising mainly from
foreign currency fixed maturity investments and foreign currency
receivables/payables in relation to hull and marine cargo insurance and certain
reinsurance. The Company uses foreign exchange derivatives, such as foreign
exchange forwards and cross-currency swaps, to effectively manage those foreign
currency exposures. A foreign exchange forward is an agreement to exchange
different currencies at a specific future date. A cross-currency swap is an
agreement to exchange coupon payments in one currency for coupon payments in
another currency, where the principal amount of each currency is generally
exchanged at the beginning and end of the term. (c) Derivatives used for other purposes
The Company enters into credit default swaps as an alternative to credit
insurance it provides. A credit default swap is a contract that provides the
buyer with protection against the risk of a default by the reference entity in
return for periodic payments to the seller. The Company uses bond futures, equity index futures and other instruments
to manage market risks. The Company uses foreign exchange forwards, bond futures, equity index
options, equity index futures and other instruments to earn investment returns. F-37




---



##### Table of Contents



The carrying amounts and the fair values of the Companys derivative
financial instruments at March 31, 2004 and 2003 are as follows: (Yen in millions)Assets
    
    Liabilities2004:Interest rate swaps
    
    ¥
    203,143
    
    
    
    (123,266
    )Foreign exchange forwards
    
    
    1,959
    
    
    
    (197
    )Currency swaps
    
    
    13,430
    
    
    
    (18,806
    )Credit default swaps
    
    
    4,383
    
    
    
    (10,772
    )Bond futures
    
    
    226
    
    
    
    (136
    )Equity index options
    
    
    188
    
    
    
    (144
    )Equity index futures
    
    
    63
    
    
    
    (1,089
    )Other
    
    
    2,430
    
    
    
    (2,057
    )Total derivatives
    
    ¥
    225,822
    
    
    
    (156,467
    )2003:Interest rate swaps
    
    ¥
    315,171
    
    
    
    (162,019
    )Foreign exchange forwards
    
    
    177
    
    
    
    (2,127
    )Currency swaps
    
    
    14,881
    
    
    
    (15,329
    )Credit default swaps
    
    
    9,563
    
    
    
    (23,050
    )Bond futures
    
    
    26
    
    
    
    (56
    )Equity index futures
    
    
    633
    
    
    
    Other
    
    
    828
    
    
    
    (430
    )Total derivatives
    
    ¥
    341,279
    
    
    
    (203,011
    )
 The following methods and assumptions were used by the Company in
estimating the fair values of its derivative financial instruments: Interest rate swaps
The fair values of interest rate swaps are based on the estimated present
values the Company would receive or pay to terminate agreements, taking into
consideration current interest rates and the current creditworthiness of the
counterparties. Foreign exchange forwards and currency swaps
The fair values of foreign exchange derivatives including forwards and currency
swaps are estimated by obtaining current market quotes from banks. Credit default swaps
The fair values of credit default swaps are estimated by obtaining current
market quotes from counterparties, if available. If quoted market prices are
not available, as is the case primarily with credit default swaps on pools of
multiple reference assets, then the fair value is based upon estimates
calculated by the Companys internal model reflecting prevailing market
conditions and certain other factors relating to the structure of the
transaction. Equity index futures and options, and bond futures
The fair values of equity index futures, equity index options and bond futures
are based on the official market quotes. Limitations
Fair value estimates are made at a specific point in time, based on relevant
market information and information about the financial instruments. These
estimates are subjective in nature and involve uncertainties and
matters of significant judgment and therefore cannot be determined with precision.
Changes in assumptions could significantly affect the estimates. F-38




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##### Table of Contents



16.
    
    Business Segments The Company is organized according to products and services which it offers.
This structure is considered in the identification of its two reportable
segments. These segments and their respective operations are as follows: Property and casualty
Property and casualty segment writes marine, fire and casualty, automobile and
allied lines of insurance principally covering risks located in Japan and hull
and cargo risks for Japanese businesses. The Company evaluates the results of
this segment based upon premium income and underwriting results. Life
Life insurance segment primarily assumes whole-life insurance and medical
insurance. The Company evaluates the results of this segment based upon sum
assured and net income. F-39




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##### Table of Contents



The accounting policies of the business segments are the same as those
described in the notes to consolidated financial statements. The effects of
the elimination of certain intersegment transactions are included in the
Property and casualty segment result. There is no revenue derived from
transactions with a single major external customer amounting to 10% or more of
the Companys revenue for the years ended March 31, 2004, 2003 and 2002. The
following are income and asset data for the Companys business segments for the
years ended March 31, 2004, 2003 and 2002: (Yen in millions)Property andcasualty
    
    Life
    
    Consolidated2004:Operating income:Property and casualty:Net premiums written
    
    ¥
    1,945,246
    
    
    
    
    
    
    
    1,945,246Less increase in unearned premiums
    
    
    85,043
    
    
    
    
    
    
    
    85,043Premiums earned
    
    
    1,860,203
    
    
    
    
    
    
    
    1,860,203Life premiums
    
    
    
    
    
    
    247,800
    
    
    
    247,800Net investment income
    
    
    103,097
    
    
    
    23,076
    
    
    
    126,173Realized (losses) gains on investments
    
    
    (5,707
    )
    
    
    1,852
    
    
    
    (3,855
    )Losses on derivatives
    
    
    (22,378
    )
    
    
    (14,377
    )
    
    
    (36,755
    )Total operating income
    
    
    1,935,215
    
    
    
    258,351
    
    
    
    2,193,566Operating costs and expenses:Losses, claims and loss adjustment expenses
    
    
    1,125,907
    
    
    
    
    
    
    
    1,125,907Policy benefits and losses for life
    
    
    
    
    
    
    197,903
    
    
    
    197,903Income credited to investment deposits by policyholders
    
    
    52,159
    
    
    
    6,255
    
    
    
    58,414Policy acquisition costs
    
    
    538,593
    
    
    
    20,385
    
    
    
    558,978Other operating expenses
    
    
    85,225
    
    
    
    14,872
    
    
    
    100,097Total operating costs and expenses
    
    
    1,801,884
    
    
    
    239,415
    
    
    
    2,041,299Income before income tax expense
    
    
    133,331
    
    
    
    18,936
    
    
    
    152,267Income tax expense (benefit):Current
    
    
    46,437
    
    
    
    3,578
    
    
    
    50,015Deferred
    
    
    (4,017
    )
    
    
    3,387
    
    
    
    (630
    )42,420
    
    
    
    6,965
    
    
    
    49,385Net income
    
    ¥
    90,911
    
    
    
    11,971
    
    
    
    102,882Total investments
    
    ¥
    7,953,067
    
    
    
    1,440,155
    
    
    
    9,393,222Total assets
    
    ¥
    10,388,135
    
    
    
    1,812,238
    
    
    
    12,200,373
 F-40




---



##### Table of Contents



(Yen in millions)Property andcasualty
    
    Life
    
    Consolidated2003:Operating income:Property and casualty:Net premiums written
    
    ¥
    1,898,557
    
    
    
    
    
    
    
    1,898,557Less increase in unearned premiums
    
    
    137,589
    
    
    
    
    
    
    
    137,589Premiums earned
    
    
    1,760,968
    
    
    
    
    
    
    
    1,760,968Life premiums
    
    
    
    
    
    
    262,486
    
    
    
    262,486Net investment income
    
    
    93,129
    
    
    
    15,182
    
    
    
    108,311Realized losses on investments
    
    
    (28,310
    )
    
    
    (1,565
    )
    
    
    (29,875
    )Gains on derivatives
    
    
    55,044
    
    
    
    21,520
    
    
    
    76,564Total operating income
    
    
    1,880,831
    
    
    
    297,623
    
    
    
    2,178,454Operating costs and expenses:Losses, claims and loss adjustment expenses
    
    
    1,030,093
    
    
    
    
    
    
    
    1,030,093Policy benefits and losses for life
    
    
    
    
    
    
    223,316
    
    
    
    223,316Income credited to investment deposits by policyholders
    
    
    54,111
    
    
    
    1,900
    
    
    
    56,011Policy acquisition costs
    
    
    544,147
    
    
    
    26,911
    
    
    
    571,058Other operating expenses
    
    
    85,859
    
    
    
    10,809
    
    
    
    96,668Total operating costs and expenses
    
    
    1,714,210
    
    
    
    262,936
    
    
    
    1,977,146Income before income tax expense and
extraordinary items
    
    
    166,621
    
    
    
    34,687
    
    
    
    201,308Income tax expense (benefit):Current
    
    
    83,022
    
    
    
    9,913
    
    
    
    92,935Deferred
    
    
    (25,237
    )
    
    
    3,916
    
    
    
    (21,321
    )57,785
    
    
    
    13,829
    
    
    
    71,614Income before extraordinary items
    
    
    108,836
    
    
    
    20,858
    
    
    
    129,694Extraordinary items
    
    
    248,323
    
    
    
    
    
    
    
    248,323Net income
    
    ¥
    357,159
    
    
    
    20,858
    
    
    
    378,017Total investments
    
    ¥
    7,119,333
    
    
    
    1,225,870
    
    
    
    8,345,203Total assets
    
    ¥
    9,513,060
    
    
    
    1,380,303
    
    
    
    10,893,363
 F-41




---



##### Table of Contents



(Yen in millions)Property andcasualty
    
    Life
    
    Consolidated2002:Operating income:Property and casualty:Net premiums written
    
    ¥
    1,381,483
    
    
    
    
    
    
    
    1,381,483Less increase in unearned premiums
    
    
    38,521
    
    
    
    
    
    
    
    38,521Premiums earned
    
    
    1,342,962
    
    
    
    
    
    
    
    1,342,962Life premiums
    
    
    
    
    
    
    209,208
    
    
    
    209,208Net investment income
    
    
    94,386
    
    
    
    10,295
    
    
    
    104,681Realized (losses) gains on investments
    
    
    (1,384
    )
    
    
    364
    
    
    
    (1,020
    )(Losses) gains on derivatives
    
    
    (20,847
    )
    
    
    13,528
    
    
    
    (7,319
    )Total operating income
    
    
    1,415,117
    
    
    
    233,395
    
    
    
    1,648,512Operating costs and expenses:Losses, claims and loss adjustment expenses
    
    
    798,214
    
    
    
    
    
    
    
    798,214Policy benefits and losses for life
    
    
    
    
    
    
    175,016
    
    
    
    175,016Income credited to investment deposits by policyholders
    
    
    56,422
    
    
    
    1,085
    
    
    
    57,507Policy acquisition costs
    
    
    418,979
    
    
    
    18,033
    
    
    
    437,012Other operating expenses
    
    
    63,751
    
    
    
    8,344
    
    
    
    72,095Total operating costs and expenses
    
    
    1,337,366
    
    
    
    202,478
    
    
    
    1,539,844Income before income tax expense and cumulative effect of
accounting changes
    
    
    77,751
    
    
    
    30,917
    
    
    
    108,668Income tax expense (benefit):Current
    
    
    50,070
    
    
    
    3,890
    
    
    
    53,960Deferred
    
    
    (27,806
    )
    
    
    7,262
    
    
    
    (20,544
    )22,264
    
    
    
    11,152
    
    
    
    33,416Income before cumulative effect of accounting changes
    
    
    55,487
    
    
    
    19,765
    
    
    
    75,252Cumulative effect of accounting changes, net of tax
    
    
    56,727
    
    
    
    28,738
    
    
    
    85,465Net income
    
    ¥
    112,214
    
    
    
    48,503
    
    
    
    160,717Total investments
    
    ¥
    6,068,201
    
    
    
    560,624
    
    
    
    6,628,825Total assets
    
    ¥
    7,823,947
    
    
    
    735,230
    
    
    
    8,559,177
 F-42




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##### Table of Contents



Schedule I MILLEA HOLDINGS, INC.
AND SUBSIDIARIES 
 Summary of Investments  Other than Investments in Related Parties March 31, 2004 (Yen in millions)Amount at whichshown in theType of investment
    
    Cost
    
    Value
    
    balance sheetSecurities held to maturity:Fixed maturities:Bonds and notes:Government and government agencies and
authorities:Other
    
    ¥
    1,095,608
    
    
    
    1,073,743
    
    
    
    1,095,608All other corporate bonds
    
    
    14,253
    
    
    
    14,809
    
    
    
    14,253Total fixed maturities held to maturity
    
    
    1,109,861
    
    
    
    1,088,552
    
    
    
    1,109,861Securities available for sale:Fixed maturities:Bonds and notes:Government and government agencies and
authorities:United States
    
    
    113,778
    
    
    
    115,174
    
    
    
    115,174Other
    
    
    2,071,900
    
    
    
    2,066,139
    
    
    
    2,066,1392,185,678
    
    
    
    2,181,313
    
    
    
    2,181,313States, municipalities and political subdivisions:United States
    
    
    1,055
    
    
    
    1,102
    
    
    
    1,102Other
    
    
    171,977
    
    
    
    177,113
    
    
    
    177,113173,032
    
    
    
    178,215
    
    
    
    178,215Public utilities
    
    
    60,172
    
    
    
    60,792
    
    
    
    60,792Convertibles and bonds with warrants attached
    
    
    42,929
    
    
    
    45,684
    
    
    
    45,684Mortgage-backed securities
    
    
    22,893
    
    
    
    22,316
    
    
    
    22,316All other corporate bonds
    
    
    659,978
    
    
    
    668,162
    
    
    
    668,162Total bonds and notes
    
    
    3,144,682
    
    
    
    3,156,482
    
    
    
    3,156,482Redeemable preferred stock
    
    
    53,100
    
    
    
    53,100
    
    
    
    53,100Total fixed maturities available for sale
    
    
    3,197,782
    
    
    
    3,209,582
    
    
    
    3,209,582Equity securities:Common stocks:Public utilities
    
    
    41,214
    
    
    
    77,356
    
    
    
    77,356Banks, trust and insurance companies
    
    
    310,431
    
    
    
    487,624
    
    
    
    487,624Industrial, miscellaneous and all other
    
    
    1,303,644
    
    
    
    2,857,418
    
    
    
    2,857,418Total common stocks
    
    
    1,655,289
    
    
    
    3,422,398
    
    
    
    3,422,398Nonredeemable preferred stocks
    
    
    37,168
    
    
    
    34,976
    
    
    
    34,976Total equity securities available for sale
    
    
    1,692,457
    
    
    
    3,457,374
    
    
    
    3,457,374Total securities available for sale
    
    
    4,890,239
    
    
    
    6,666,956
    
    
    
    6,666,956
 (Continued) F-43




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##### Table of Contents



Schedule I MILLEA HOLDINGS, INC.
AND SUBSIDIARIES Summary of Investments  Other than Investments in Related Parties March 31, 2004 (Yen in millions)Amount at whichshown in theType of investment
    
    Cost
    
    Value
    
    balance sheetTrading securities:Fixed maturities
    
    
    36,258
    
    
    
    35,619
    
    
    
    35,619Equity securities
    
    
    11,418
    
    
    
    12,894
    
    
    
    12,894Total trading securities
    
    
    47,676
    
    
    
    48,513
    
    
    
    48,5136,047,776
    
    
    
    7,804,021
    
    
    
    7,825,330Mortgage loans on real estate
    
    
    129,076
    
    
    
    
    
    
    
    129,076Investment real estate
    
    
    104,110
    
    
    
    
    
    
    
    104,110Policy loans
    
    
    33,610
    
    
    
    
    
    
    
    33,610Other long-term investments
    
    
    419,138
    
    
    
    
    
    
    
    419,199Short-term investments
    
    
    881,897
    
    
    
    
    
    
    
    881,897Total investments
    
    ¥
    7,615,607
    
    
    
    
    
    
    
    9,393,222
 (Continued) F-44




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##### Table of Contents



Schedule I MILLEA HOLDINGS, INC.
AND SUBSIDIARIES Summary of Investments  Other than Investments in Related Parties March 31, 2003 (Yen in millions)Amount at whichshown in theType of investment
    
    Cost
    
    Value
    
    balance sheetSecurities held to maturity:Fixed maturities:Bonds and notes:Government and government agencies and
authorities:Other
    
    ¥
    866,971
    
    
    
    1,011,483
    
    
    
    866,971All other corporate bonds
    
    
    16,365
    
    
    
    17,249
    
    
    
    16,365Total fixed maturities held to maturity
    
    
    883,336
    
    
    
    1,028,732
    
    
    
    883,336Securities available for sale:Fixed maturities:Bonds and notes:Government and government agencies and
authorities:United States
    
    
    129,949
    
    
    
    134,524
    
    
    
    134,524Other
    
    
    1,935,175
    
    
    
    2,073,303
    
    
    
    2,073,3032,065,124
    
    
    
    2,207,827
    
    
    
    2,207,827States, municipalities and political subdivisions:United States
    
    
    44
    
    
    
    64
    
    
    
    64Other
    
    
    244,826
    
    
    
    264,318
    
    
    
    264,318244,870
    
    
    
    264,382
    
    
    
    264,382Public utilities
    
    
    88,322
    
    
    
    92,966
    
    
    
    92,966Convertibles and bonds with warrants attached
    
    
    70,622
    
    
    
    77,320
    
    
    
    77,320Mortgage-backed securities
    
    
    19,859
    
    
    
    20,869
    
    
    
    20,869All other corporate bonds
    
    
    683,663
    
    
    
    705,160
    
    
    
    705,160Total bonds and notes
    
    
    3,172,460
    
    
    
    3,368,524
    
    
    
    3,368,524Redeemable preferred stock
    
    
    53,100
    
    
    
    53,100
    
    
    
    53,100Total fixed maturities available for sale
    
    
    3,225,560
    
    
    
    3,421,624
    
    
    
    3,421,624Equity securities:Common stocks:Public utilities
    
    
    42,994
    
    
    
    62,389
    
    
    
    62,389Banks, trust and insurance companies
    
    
    296,261
    
    
    
    293,903
    
    
    
    293,903Industrial, miscellaneous and all other
    
    
    1,414,698
    
    
    
    2,089,070
    
    
    
    2,089,070Total common stocks
    
    
    1,753,953
    
    
    
    2,445,362
    
    
    
    2,445,362Nonredeemable preferred stocks
    
    
    88,859
    
    
    
    88,859
    
    
    
    88,859Total equity securities available for sale
    
    
    1,842,812
    
    
    
    2,534,221
    
    
    
    2,534,221Total securities available for sale
    
    
    5,068,372
    
    
    
    5,955,845
    
    
    
    5,955,845
 (Continued) F-45




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##### Table of Contents



Schedule I MILLEA HOLDINGS, INC.
AND SUBSIDIARIES Summary of Investments  Other than Investments in Related Parties March 31, 2003 (Yen in millions)Amount at whichshown in theType of investment
    
    Cost
    
    Value
    
    balance sheetTrading fixed maturities
    
    
    26,076
    
    
    
    25,936
    
    
    
    25,9365,977,784
    
    
    
    7,010,513
    
    
    
    6,865,117Mortgage loans on real estate
    
    
    148,655
    
    
    
    
    
    
    
    148,655Investment real estate
    
    
    82,886
    
    
    
    
    
    
    
    82,886Policy loans
    
    
    29,171
    
    
    
    
    
    
    
    29,171Other long-term investments
    
    
    559,355
    
    
    
    
    
    
    
    559,004Short-term investments
    
    
    660,370
    
    
    
    
    
    
    
    660,370Total investments
    
    ¥
    7,458,221
    
    
    
    
    
    
    
    8,345,203
 See accompanying report of independent registered public accounting firm. F-46




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##### Table of Contents



Schedule III MILLEA HOLDINGS, INC.
AND SUBSIDIARIES 
 Supplementary Insurance Information Years ended March 31, 2004, 2003 and 2002 Property and casualty: (Yen in millions)Losses,
    
    
    
    
    
    
    
    
    
    Claims,claims and
    
    
    
    
    
    
    
    
    
    losses andloss
    
    Unearned
    
    Premium
    
    settlement
    
    Premiumsexpenses
    
    premiums
    
    revenue
    
    expenses
    
    writtenYear ended:March 31, 2004
    
    ¥
    1,221,146
    
    
    
    1,878,636
    
    
    
    1,860,203
    
    
    
    1,125,907
    
    
    
    1,945,246March 31, 2003
    
    
    1,131,884
    
    
    
    1,760,981
    
    
    
    1,760,968
    
    
    
    1,030,093
    
    
    
    1,898,557March 31, 2002
    
    
    875,463
    
    
    
    1,177,506
    
    
    
    1,342,962
    
    
    
    798,214
    
    
    
    1,381,483
 Life: (Yen in millions)Future policy
    
    
    
    
    
    
    
    
    
    Benefits, claims,benefits, losses,
    
    
    
    
    
    
    
    
    
    losses andclaims and
    
    Unearned
    
    Premium
    
    settlementloss expenses
    
    premiums
    
    revenue
    
    expensesYear ended:March 31, 2004
    
    ¥
    853,804
    
    
    
    188
    
    
    
    247,800
    
    
    
    197,903March 31, 2003
    
    
    713,418
    
    
    
    174
    
    
    
    262,486
    
    
    
    223,316March 31, 2002
    
    
    462,597
    
    
    
    6
    
    
    
    209,208
    
    
    
    175,016
 See accompanying report of independent registered public accounting firm. F-47




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##### Table of Contents



Schedule IV MILLEA HOLDINGS, INC.
AND SUBSIDIARIES 
 Reinsurance Years ended March 31, 2004, 2003 and 2002 (Yen in millions)PercentageCeded
    
    Assumed
    
    
    
    
    
    of amountGross
    
    to other
    
    from other
    
    
    
    
    
    assumedamount
    
    companies
    
    companies
    
    Net amount
    
    to netYear ended March 31, 2004:Life insurance in force
    
    ¥
    14,186,071
    
    
    
    395,884
    
    
    
    
    
    
    
    13,790,187
    
    
    
    0.0
    %Premiums:Life insurance
    
    ¥
    248,719
    
    
    
    919
    
    
    
    
    
    
    
    247,800
    
    
    
    0.0
    %Property and casualty insurance
    
    
    1,952,151
    
    
    
    389,545
    
    
    
    297,597
    
    
    
    1,860,203
    
    
    
    16.0
    %Total premiums
    
    ¥
    2,200,870
    
    
    
    390,464
    
    
    
    297,597
    
    
    
    2,108,003
    
    
    
    14.1
    %Year ended March 31, 2003:Life insurance in force
    
    ¥
    12,122,086
    
    
    
    200,220
    
    
    
    
    
    
    
    11,921,866
    
    
    
    0.0
    %Premiums:Life insurance
    
    ¥
    263,361
    
    
    
    875
    
    
    
    0
    
    
    
    262,486
    
    
    
    0.0
    %Property and casualty insurance
    
    
    1,952,534
    
    
    
    381,701
    
    
    
    190,135
    
    
    
    1,760,968
    
    
    
    10.8
    %Total premiums
    
    ¥
    2,215,895
    
    
    
    382,576
    
    
    
    190,135
    
    
    
    2,023,454
    
    
    
    9.4
    %Year ended March 31, 2002:Life insurance in force
    
    ¥
    9,037,201
    
    
    
    86,058
    
    
    
    
    
    
    
    8,951,143
    
    
    
    0.0
    %Premiums:Life insurance
    
    ¥
    209,469
    
    
    
    261
    
    
    
    0
    
    
    
    209,208
    
    
    
    0.0
    %Property and casualty insurance
    
    
    1,436,884
    
    
    
    222,708
    
    
    
    128,786
    
    
    
    1,342,962
    
    
    
    9.6
    %Total premiums
    
    ¥
    1,646,353
    
    
    
    222,969
    
    
    
    128,786
    
    
    
    1,552,170
    
    
    
    8.3
    %
 See accompanying report of independent registered public accounting firm. F-48




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##### Table of Contents



Schedule V MILLEA HOLDINGS, INC.
AND SUBSIDIARIES 
 Valuation and Qualifying Accounts Years ended March 31, 2004, 2003 and 2002 (Yen in millions)AdditionsBalance at
    
    Assumed by
    
    Charged to
    
    Chargedbeginning
    
    business
    
    costs and
    
    to other
    
    
    
    
    
    Balance atDescription
    
    of year
    
    combination
    
    expenses
    
    accounts
    
    Deductions
    
    end of yearYear ended March 31, 2004:Applied against asset accounts:Accumulated depreciation
 investment real estate
    
    ¥
    79,538
    
    
    
    
    
    
    
    3,880
    
    
    
    3,731
    
    
    
    2,149
    
    
    
    85,000Valuation allowance  loans:Specific allowance
    
    
    30,105
    
    
    
    
    
    
    
    (6,493
    )
    
    
    
    
    
    
    7,688
    
    
    
    15,924General allowance
    
    
    6,730
    
    
    
    
    
    
    
    (2,922
    )
    
    
    
    
    
    
    
    
    
    
    3,808Allowance for doubtful accounts
    
    
    8,197
    
    
    
    
    
    
    
    (175
    )
    
    
    
    
    
    
    312
    
    
    
    7,710Accumulated depreciation
 property and equipment
    
    
    183,676
    
    
    
    143
    
    
    
    15,236
    
    
    
    (3,731
    )
    
    
    12,462
    
    
    
    182,862Year ended March 31, 2003:Applied against asset accounts:Accumulated depreciation
 investment real estate
    
    ¥
    83,155
    
    
    
    
    
    
    
    3,650
    
    
    
    2,646
    
    
    
    9,913
    
    
    
    79,538Valuation allowance  loans:Specific allowance
    
    
    24,070
    
    
    
    4,896
    
    
    
    7,269
    
    
    
    
    
    
    
    6,130
    
    
    
    30,105General allowance
    
    
    8,675
    
    
    
    4,233
    
    
    
    (6,178
    )
    
    
    
    
    
    
    
    
    
    
    6,730Allowance for doubtful accounts
    
    
    4,681
    
    
    
    2,541
    
    
    
    975
    
    
    
    
    
    
    
    
    
    
    
    8,197Accumulated depreciation
 property and equipment
    
    
    162,768
    
    
    
    
    
    
    
    11,426
    
    
    
    13,393
    
    
    
    3,911
    
    
    
    183,676Year ended March 31, 2002:Applied against asset accounts:Accumulated depreciation
 investment real estate
    
    ¥
    83,249
    
    
    
    
    
    
    
    4,187
    
    
    
    2,954
    
    
    
    7,235
    
    
    
    83,155Valuation allowance  loans:Specific allowance
    
    
    25,526
    
    
    
    
    
    
    
    4,216
    
    
    
    
    
    
    
    5,672
    
    
    
    24,070General allowance
    
    
    13,393
    
    
    
    
    
    
    
    (4,718
    )
    
    
    
    
    
    
    
    
    
    
    8,675Allowance for doubtful accounts
    
    
    4,695
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14
    
    
    
    4,681Accumulated depreciation
 property and equipment
    
    
    157,612
    
    
    
    
    
    
    
    11,343
    
    
    
    (2,954
    )
    
    
    3,233
    
    
    
    162,768
 See accompanying report of independent registered public accounting firm. F-49




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##### Table of Contents



LIST OF EXHIBITS Millea Holdings is filing the following exhibits (or incorporating them by
reference) as part of this annual report: Exhibit Number
    
    Description1.1
    
    English translation of the articles of incorporation of Millea Holdings, Inc.1.2
    
    English translation of the share handling regulations of Millea Holdings, Inc.2(a)
    
    English translation of the specimen stock certificate of Millea Holdings, Inc., incorporated by reference from the annual report on Form 20-F/A (Commission file number 0-31376) filed on September 27, 2002.7
    
    A statement explaining in reasonable detail how ratios in the Annual Report were calculated.8
    
    List of subsidiaries of Millea Holdings, Inc.12
    
    Certifications required by Rule 13a-14(a) (17 CFR 240.13a-14(a)) or Rule 15d-14(a) (17 CFR 240.15d-14(a)) under the Securities Exchange Act of 1934, as amended.13
    
    Certification required by Rule 13a-14(b) (17 CFR 240.13a-14(b)) or Rule 15d-14(b) (17 CFR 240.15d-14(b)) under the Securities Exchange Act of 1934, as amended, and by Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. 1350).
 We have not included as exhibits certain instruments with respect to our
long-term debt. The total amount of long-term debt securities of us or our
subsidiaries authorized under any instrument does not exceed 10% of our total
assets. We hereby agree to furnish to the SEC, upon its request, a copy of any
instrument defining the rights of holders of long-term debt of us or of our
subsidiaries for which consolidated or unconsolidated financial states are
required to be filed.




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##### Table of Contents



CROSS REFERENCE INDEX FOR FORM 20-F Part I
    
    PageItem 1.
    
    
    
    Identity of Directors, Senior Management and AdvisersNot required because this Form 20-F is filed as an annual reportItem 2.
    
    
    
    Offer Statistics and Expected TimetableNot required because this Form 20-F is filed as an annual reportItem 3.
    
    
    
    Key Information3.A.
    
    Selected Financial DataSelected Financial Data
    
    
    43.B.
    
    Capitalization and IndebtednessNot required because this Form 20-F is filed as an annual report3.C.
    
    Reasons for the Offer and Use of ProceedsNot required because this Form 20-F is filed as an annual report3.D.
    
    Risk FactorsRisk Factors
    
    
    6Item 4.
    
    
    
    Information on the Company4.A.
    
    History and Development of the CompanyBusiness  Group Overview
    
    
    164.B.
    
    Business OverviewBusiness
    
    
    16The Japanese Insurance Industry
    
    
    76Regulation
    
    
    784.C.
    
    Organizational StructureMajor Shareholders
    
    
    14Business  Group Overview
    
    
    164.D.
    
    Property, Plants and EquipmentBusiness  Properties
    
    
    39Item 5.
    
    
    
    Operating and Financial Review and Prospects5.A.
    
    Operating ResultsManagements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    405.B.
    
    Liquidity and Capital ResourcesManagements Discussion and
Analysis of Financial Condition and Results of Operations  Liquidity and Capital Resources
    
    
    705.C.
    
    Research and Development, Patents and Licenses, etc.None5.D.
    
    Trend InformationManagements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    405.E.
    
    Off-Balance Sheet ArrangementsManagements Discussion and
Analysis of Financial Condition and Results of Operations  Off-Balance Sheet Arrangements
    
    
    715.F.
    
    Tabular Disclosure of Contractual ObligationsManagements Discussion and
Analysis of Financial Condition and Results of Operations  Contractual Obligations
    
    
    72Item 6.
    
    
    
    Directors, Senior Management and Employees6.A.
    
    Directors and Senior ManagementDirectors and Corporate Auditors  Personal Data
    
    
    736.B.
    
    CompensationDirectors and Corporate Auditors  Compensation and Benefits
    
    
    75




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##### Table of Contents



Part I
    
    Page6.C.
    
    Board PracticesDirectors and Corporate Auditors  Board Practices
    
    
    756.D.
    
    EmployeesBusiness  Employees
    
    
    396.E.
    
    Share OwnershipDirectors and Corporate Auditors  Personal Data
    
    
    73Item 7.
    
    
    
    Major Shareholders and Related Party Transactions7.A.
    
    Major ShareholdersMajor Shareholders
    
    
    147.B.
    
    Related Party TransactionsNone7.C.
    
    Interests of Experts and CounselNot required because this Form 20-F is filed as an annual reportItem 8.
    
    
    
    Financial Information8.A.
    
    Consolidated Statements and Other Financial InformationDividend Policy
    
    
    14Index to Financial Statements
    
    
    F-1Index to Schedules
    
    
    F-18.B.
    
    Significant ChangesNoneItem 9.
    
    
    
    The Offer and Listing9.A.
    
    Offer and Listing DetailsMarket Price Information
    
    
    139.B.
    
    Plan of DistributionNot required because this Form 20-F is filed as an annual report9.C.
    
    MarketsMarket Price Information
    
    
    139.D.
    
    Selling ShareholdersNot required because this Form 20-F is filed as an annual report9.E.
    
    DilutionNot required because this Form 20-F is filed as an annual report9.F.
    
    Expenses of the IssueNot required because this Form 20-F is filed as an annual reportItem 10.
    
    
    
    Additional Information10.A.
    
    Share CapitalNot required because this Form 20-F is filed as an annual report10.B.
    
    Memorandum and Articles of AssociationBusiness
    
    
    16Directors and Corporate Auditors  Board Practices
    
    
    75Description of Common Stock
    
    
    8210.C.
    
    Material ContractsNone10.D.
    
    Exchange ControlsRegulation  Foreign Exchange Regulations
    
    
    8010.E.
    
    TaxationTaxation
    
    
    8810.F.
    
    Dividends and Paying AgentsNot required because this Form 20-F is filed as an annual report10.G.
    
    Statement by ExpertsNot required because this Form 20-F is filed as an annual report10.H.
    
    Documents on DisplayWhere You Can Find More Information
    
    
    9410.I.
    
    Subsidiary InformationNot required because this Form 20-F is filed as an annual report




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##### Table of Contents



Part I
    
    PageItem 11.
    
    
    
    Quantitative and Qualitative Disclosures About Market RiskManagements Discussion and Analysis of Financial Condition and Results of Operations  Quantitative and Qualitative Disclosures About Market Risk
    
    
    62Item 12.
    
    
    
    Description of Securities Other than Equity SecuritiesNot required because this Form 20-F is filed as an annual reportPart IIItem 13.
    
    
    
    Defaults, Dividend Arrearages and DelinquenciesNoneItem 14.
    
    
    
    Material Modifications to the Rights of Security Holders and Use of ProceedsNoneItem 15.
    
    
    
    Controls and ProceduresControls and Procedures
    
    
    91Item 16.
    
    
    
    ReservedNot applicableItem 16A.
    
    
    
    Audit Committee Financial ExpertDirectors and Corporate Auditors  Audit Committee Financial Expert
    
    
    75Item 16B.
    
    
    
    Code of EthicsCode of Ethics
    
    
    91Item 16C.
    
    
    
    Principal Accountant Fees and ServicesPrincipal Accountant Fees and Services
    
    
    91Item 16D.
    
    
    
    Exemptions from Listing Standards for Auditing CommitteesNot required because this annual report does not cover a fiscal year ending on or after July 31, 2005Item 16E.
    
    
    
    Repurchases of Equity SecuritiesNot required because this annual report does not cover a fiscal year ending on or after December 14, 2004Part IIIItem 17.
    
    
    
    Financial StatementsNot applicableItem 18.
    
    
    
    Financial StatementsIndex to Financial Statements
    
    
    F-1Index to Schedules
    
    
    F-1Item 19.
    
    
    
    ExhibitsList of Exhibits




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##### Table of Contents






SIGNATURES

The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.

|                         |  |                       |                    |                                                     |  | 
|------------------------ |  | --------------------- | ------------------ | --------------------------------------------------- |  | 
|                         |  | MILLEA HOLDINGS, INC.
|                         |  | (Registrant)          |                    |                                                     | 
|                         |  |                       |                    |                                                     |  | 
|                         |  |                       |                    |                                                     |  | 
|                         |  | By:                   | /s/ KUNIO ISHIHARA
|                         |  |                       |                   
|                         |  |                       | Name:              | Kunio Ishihara                                      |  | 
|                         |  |                       | Title:             | President and
Director(Principal Executive Officer) |  | 
|                         |  |                       |                    |                                                     |  | 
|Date: September 28, 2004 |  |                       |                    |                                                     |  | 





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##### Table of Contents



EXHIBIT INDEX Exhibit Number
    
    Description1.1
    
    English translation of the articles of incorporation of Millea Holdings, Inc.1.2
    
    English translation of the share handling regulations of Millea Holdings, Inc.2(a)
    
    English translation of the specimen stock certificate of Millea Holdings, Inc.,
incorporated by reference from the annual report on Form 20-F/A (Commission file number
0-31376) filed on September 27, 2002.7
    
    A statement explaining in reasonable detail how ratios in the Annual Report were calculated.8
    
    List of subsidiaries of Millea Holdings, Inc.12
    
    Certifications required by Rule 13a-14(a) (17 CFR 240.13a-14(a)) or Rule 15d-14(a) (17 CFR
240.15d-14(a)) under the Securities Exchange Act of 1934, as amended.13
    
    Certification required by Rule 13a-14(b) (17 CFR 240.13a-14(b)) or Rule 15d-14(b) (17 CFR
240.15d-14(b)) under the Securities Exchange Act of 1934, as amended, and by Section 1350
of Chapter 63 of Title 18 of the United States Code (18 U.S.C. 1350).