Tokio Marine Group Corporate Philosophy

Transcription

1 Annual Report T O K I O M A R I N E H O L D I N G S

2 T O K I O M A R I N E H O L D I N G S Profile Tokio Marine Holdings, Inc. is a holding company for the Tokio Marine Group, which undertakes the domestic non-life insurance, domestic life insurance, international insurance and financial and general businesses. In keeping with its corporate philosophy of customer trust as the foundation of all its activities, the Tokio Marine Group implements thorough compliance in all areas of its business operations. By undertaking its operations through a holding company structure, the Tokio Marine Group strives to utilize the unique characteristics and strengths of each company while working to maximize corporate value. In the near term, difficult conditions are expected to persist in the Company s business environment due to worsening global economic circumstances triggered by turmoil in financial markets. While taking into consideration this severe business environment, we will continue to place emphasis on firmly meeting the expectations and needs of customers and other stakeholders as the cornerstone of our operations and will promote our growth strategies on a global level as the starting point for raising quality. Tokio Marine Group Corporate Philosophy With customer trust as the foundation for all its activities, Tokio Marine Group continually strives to raise corporate value. Through the provision of the highest quality products and services, Tokio Marine Group aims to deliver safety and security to all our customers. By developing sound, profitable and growing businesses throughout the world, Tokio Marine Group will fulfill its mandate to shareholders. Tokio Marine Group will continue to build an open and dynamic corporate culture that enables each and every employee to demonstrate his or her creative potential. Acting as a good corporate citizen through fair and responsible management, Tokio Marine Group will broadly contribute to the development of society. Forward-Looking Statements All forward-looking information is based on current information and assumptions available to Tokio Marine Holdings at the time of the preparation of this report and is subject to a range of inherent risks and uncertainties. Readers should note that actual results may vary materially from those estimated, anticipated, expected or projected in this report and no assurances can be given that any such forward-looking information will prove to have been accurate.

3 A N N U A L R E P O R T Contents Financial Highlights (Consolidated) 2 Tokio Marine at a Glance 4 Tokio Marine Holdings, Inc. Annual Report 2010 Topics 6 Message and Special Feature Message from the President 12 Special Feature: Corporate Strategy 22 Overview of Business: Business Results and Projections Tokio Marine Holdings (Consolidated Basis) 26 Domestic Non-Life Insurance Business 30 Domestic Life Insurance Business 38 International Insurance Business 42 Financial & General Businesses 47 Asset Management Strategies 48 Overview of Major Tokio Marine Group Companies 50 Management Framework Basic Stance on Corporate Governance 54 Internal Controls 58 Compliance 61 Internal Audits 62 Risk Management 63 Corporate Social Responsibility (CSR) Corporate Social Responsibility (CSR) 70 Reducing Environmental Impacts from Business Activities 71 Protection of the Global Environment 73 Contribution to Local Communities and Society 74 Disclosure and Investor Relations 75 Financial Data Change in Key Business Indicators (Consolidated Basis) 78 Financial Statements of Tokio Marine Holdings and Its Consolidated Subsidiaries 79 Solvency Margin Ratio 137 Interest-Rate Sensitivity of ALM Surplus Value 141 Embedded Value 142 Statutory Reserve 148 Corporate Data Corporate Data 150 Facilities 156 History of the Tokio Marine Group 160 Worldwide Network of the Tokio Marine Group 162 Financial Data Corporate Data Message/Strategy Results/Projections Management Framework CSR 1

4 Financial Highlights (Consolidated) FY2002 FY2003 FY2004 Financial indicators Ordinary income (billions of yen) 2, , ,899.4 Net premiums written (billions of yen) 1, , ,925.0 Life insurance premiums (billions of yen) Ordinary profit (billions of yen) Net income (billions of yen) Total assets (billions of yen) 9, , ,624.4 Net assets (billions of yen) 1, , ,305.2 Return on equity (ROE) (%) Net assets per share (BPS) *1 (yen) 1,952 2,585 2,681 Key business indicators Adjusted earnings *2 (billions of yen) Adjusted capital (billions of yen) 2, , ,217.9 Adjusted ROE *2 (%) Adjusted BPS (yen) 2,830 3,590 3,740 Stock information Share price *3 (yen) 1,472 3,240 3,120 Market capitalization *3 (billions of yen) 1, , ,683.2 Issued shares (shares) 1,857, ,857, ,727, Return to shareholders Distribution to shareholders total (billions of yen) Dividends (billions of yen) Share repurchases *4 (billions of yen) Dividends per share *5 (yen) Ordinary income Net premiums written Net income (Billions of yen) (Billions of yen) (Billions of yen) 5,000 2, ,000 2, ,000 1, ,000 1, , Tokio Marine Holdings, Inc. Annual Report 2010

5 2010 FY2005 FY2006 FY2007 FY2008 FY2009 3, , , , , , , , , , , (15.1) , , , , , , , , , , ,820 4,128 3,195 2,067 2, ) , , , , , ) 5.8 5,040 5,570 4,490 3,260 4,010 4,660 4,360 3,680 2,395 2,633 3, , , , , ,687, ,524, ,524, ,524, ,524, (projection) *6 (projection) Adjusted earnings Adjusted capital/adjusted BPS Dividend per share/dividends (Billions of yen) (Billions of yen) Adjusted capital Adjusted BPS (Yen) (Yen) Dividends per share Dividends (Billions of yen) 200 5,000 6, ,000 4, ,000 3, ,000 2, ,000 1, Financial Data Corporate Data Message/Strategy Results/Projections Management Framework CSR 3

6 Tokio Marine at a Glance Business Domains of the Tokio Marine Group and Major Group Companies (As of July 1, 2010) [Risk consulting business] Tokio Marine & Nichido Risk Consulting Co., Ltd. Tokio Marine & Nichido Fire Insurance Co., Ltd. Nisshin Fire & Marine Insurance Co., Ltd. E. design Insurance Co., Ltd. Tokio Marine Millea SAST Insurance Co., Ltd. Domestic Non-Life Insurance Business [Comprehensive personnel services business] Tokio Marine & Nichido Career Service Co., Ltd. [Facility management business] Tokio Marine & Nichido Facilities, Inc. [Total healthcare consulting business] Tokio Marine & Nichido Medical Service Co., Ltd. [Senior citizen-related business] Tokio Marine Nichido Samuel Co., Ltd. Tokio Marine Nichido Better Life Service Co., Ltd. Domestic Life Insurance Business Tokio Marine & Nichido Life Insurance Co., Ltd. Tokio Marine & Nichido Financial Life Insurance Co., Ltd. and others [Assistance business] Millea Mondial Co., Ltd. [Insurance agent business] Tokio Marine & Nichido Anshin Consulting Co., Ltd. and others International Insurance Business General Business Financial Business [Investment advisory and investment trust services] Tokio Marine Asset Management Co., Ltd. [Private equity investment services] Tokio Marine Capital Co., Ltd. [Derivatives and securities services] Tokio Marine Financial Solutions Ltd. [Real estate investment advisory services] Tokio Marine Property Investment Management, Inc. and others Overseas offices: Located in 432 cities in 38 countries and regions (as of March 31, 2010) Philadelphia Insurance Companies Tokio Marine Management, Inc. Tokio Marine Seguradora S.A. Tokio Marine Europe Insurance Limited Tokio Marine Asia Pte. Ltd. The Tokio Marine & Nichido Fire Insurance Company (China) Limited Tokio Millennium Re Ltd. Tokio Marine Global Ltd. Kiln Group Limited and others Tokio Marine Group s Credit Ratings (As of July 16, 2010) Rating agency Type Tokio Marine Holdings Tokio Marine & Nichido Nisshin Fire Tokio Marine & Nichido Life Tokio Marine & Nichido Financial Life S&P Financial Strength Rating AA / Negative A+ / Stable AA / Negative Moody s Insurance Financial Strength Aa2 / Stable A.M. Best Financial Strength Rating A++ / Stable Rating and Investment Issuer Rating AA+ / Stable AA / Stable Information (R&I) Insurance Claims Paying Ability AA+ / Stable AA+ / Stable Japan Credit Rating Long-term Senior Debts Rating AAA / Stable AAA / Stable Agency (JCR) Ability to Pay Insurance Claims AAA / Stable Fitch Ratings Insurer Financial Strength Rating AA- / Stable 4 Tokio Marine Holdings, Inc. Annual Report 2010

7 Adjusted earnings in the Group s core domestic non-life insurance business have declined to a level that accounts for just around 30% of the Group s total adjusted earnings due to the significant impact of the sluggish domestic economy in the wake of the global financial crisis triggered by the Lehman Shock. However, by executing the following strategies, we aim to achieve a recovery in profitability, even within a harsh market environment. Improve profitability through product renovations and rate revisions for core products. Execute the Business Renovation Project to reform business processes, enhance efficiency and increase contacts with customers. (Tokio Marine & Nichido) Strengthen our sales foundation through a qualitative and quantitative upgrading and expansion of agencies. Promote market development through strategic products and services including Super Insurance (Cho-Hoken) that combines non-life and life insurance through consulting. (Tokio Marine & Nichido) The Tokio Marine Group entered the life insurance business in 1996 when the insurance business was liberalized. Although embedded value (EV) in the variable annuity businesses declined in fiscal 2008 owing to the effects of the global financial crisis, the domestic life insurance business has grown into a stable business that contributes around 20% to 30% of the Group s adjusted earnings. In the domestic life insurance business, we will promote continuous growth with enhanced profitability through the introduction of products matched to customer needs and marketing in collaboration with the non-life insurance business. Handle Super Insurance third-sector products and introduce new third-sector products and services. (Tokio Marine & Nichido Life) Maintain a risk-restrictive sales stance in response to the market environment and introduce products that lower risk. (Tokio Marine & Nichido Financial Life) Since 2000, we have proactively expanded our business primarily in the reinsurance business and in emerging markets. In 2008, we implemented large-scale M&A activities in Europe and the United States as well. In fiscal 2009, the international insurance business accounted for over 40% of the Group s adjusted earnings. The international insurance business will continue to deploy sound and dynamic growth strategies on a global basis and strive to fuel the growth of the entire Group. Enhance profitability by maintaining underwriting discipline that responds appropriately to changes in market conditions, including the rate environment Expand both non-life and life insurance products and distribution networks in emerging markets Continuously respond to the needs of customers in Japanese related business In the financial business, we will carry out businesses with high capital efficiency, centering on the asset management business, and aim to contribute to growth in earnings. In the general business, we will provide customers with products and services related to safety and security and create new added value for insurance. (Billions of yen) Domestic Non-Life Insurance Business Domestic Life Insurance Business International Insurance Business Financial & General Businesses Adjusted Earnings Domestic Non-Life Insurance Business Domestic Life Insurance Business International Insurance Business Financial & General Businesses (Projection) (FY) Adjusted earnings (Billions of yen) % (FY) (Projection) Adjusted earnings Composition of projected adjusted earnings for FY % (FY) (Projection) Adjusted earnings Composition of projected adjusted earnings for FY % (FY) (Projection) Adjusted earnings Composition of projected adjusted earnings for FY Approx % (FY) (Projection) Tokio Marine Holdings, Inc. Annual Report 2010 (Billions of yen) (Billions of yen) (Billions of yen) Composition of projected adjusted earnings for FY2010 Financial Data Corporate Data Message/Strategy Results/Projections Management Framework CSR 5

8 Topics Domestic Non-Life Insurance Business Products for Individuals Offered under the Common Brand Total Assist Tokio Marine & Nichido Fire Insurance Co., Ltd. ( Tokio Marine & Nichido ) offers products under the Total Assist brand. This brand is based on the concept of offering total protection for customer lifestyles not just providing compensation for accidents but also in areas ranging from accident and crime prevention to ensuring security after accidents and protecting customer s daily lives. Automobile Insurance With the aim of providing products that can be easily understood by customers and agents, we have unified our lineup of automobile insurance for individuals under the name Total Assist Automobile Insurance. In line with these efforts, we developed 3+3 (san tasu san), which combines our 3 basic types of compensation that are the absolute minimum needed by individual customers with 3 basic riders that consolidate attractive types of compensation for which there are high customer needs. This product has become the standard automobile insurance product that we recommend to our customers. Establishment of Selecting Assistance for Transporting Your Car (Rider) We established Selecting Assistance for Transporting Your Car (Rider), which provides compensation for the various costs incurred when a car needs to be transported by a tow truck after becoming inoperable due to a breakdown or accident. Beginning with compensation for the expenses and the provision of an essential rental car, customers can select the types of compensation they need from the After the Accident menu of compensation. Brochure of Total Assist Automobile Insurance Fire Insurance In fire insurance for individuals, we consolidated our many types of existing products, including Individual Asset Comprehensive Insurance, Householder s Comprehensive Insurance and Householder s Fire Insurance, into Total Assist Home Insurance. In addition to enhanced compensation, Total Assist Home Insurance provides assistance services that protect customers from accidents and everyday troubles. These services include providing customers with support if they lose their key or if there is water leakage in their home and offers measures to prevent the recurrence of a fire or theft. Brochure of Total Assist Home Insurance 6 Tokio Marine Holdings, Inc. Annual Report 2010

9 Policies in Force Surpass 500,000 for All-In-One Life and Non-Life Insurance Super Insurance (Comprehensive Insurance) As of the end of March 2010, the number of policies in force surpassed 500,000 for All-In-One Life and Non-Life Insurance Super Insurance (Comprehensive Insurance), which was launched by Tokio Marine & Nichido in June Super Insurance provides customized compensation in accordance with the needs of each customer by combining life and non-life insurance and offering comprehensive consulting. Super Insurance was developed based on the concept of a product that provides total compensation in accordance with a customer s life plan and changes in their family composition and at each stage of their life, and is the first all-in-one life and non-life insurance product in Japan. To the present, this product has continued to become increasingly popular among customers. In October 2010, to further raise the popularity of this line of products, we plan to simplify our products, revamp our consulting systems, expand the product lineup of life insurance products offered by Tokio Marine & Nichido Life Insurance Co., Ltd. ( Tokio Marine & Nichido Life ) and renew various explanation tools to provide ideal insurance products that cover all necessary areas without wasteful Home-related compensation Bodily compensation (life insurance) Vehicle-related compensation Compensation related to personal belongings, indemnification and expenses Bodily compensation (fixed amount for injury/income compensation) Tokio Marine Holdings, Inc. Annual Report 2010 Super Insurance solidly protects customers and their families from various risks coverage and correctly ascertain the overall risks surrounding families. By making such revisions, we expect to significantly expand the number of agents handling Super Insurance on a constant basis, and in fiscal 2010, we aim to achieve a year-onyear increase of over 140% for new contracts for Super Insurance. Number of Defined Contribution Pension Plans for Individuals (401K) Surpass 60,000 In 2001, Tokio Marine & Nichido entered the defined contribution pension plan (401k) business and currently manages corporate defined contribution pension plans for 2,002 companies, which ranks us as the top company in Japan as of the end of August For individual defined contribution pension plans, Tokio Marine & Nichido became the first insurance entity in Japan in which the number of pension plans under management surpassed 60,000 (as of September 8, 2010). Over 5,000 companies are using our Nenkin Hakase guaranteed interest-rate savings-type casualty insurance, a specialized 401k product offered by Tokio Marine & Nichido. One-third of the companies that have adopted corporate defined contribution pension plans have chosen this product (5,117 companies as of the end of August 2010). As a result of the aforementioned initiatives, the outstanding balance of assets in defined contribution pension plans surpassed billion yen as of the end of July Looking ahead, we will continue our customer-oriented stance as we offer customers safety and security. Brochures of Pension Plans for Individuals (401K) Financial Data Corporate Data Message/Strategy Results/Projections Management Framework CSR 7

10 Topics Domestic Life Insurance Business Sales of New Medical Insurance and Cancer Insurance Products (Development of Products that Protect Customers) In October 2009, Tokio Marine & Nichido Life launched sales of Anshin Medical Advance Pack 60 (medical insurance) and Cancer Treatment Support Insurance Cancer Advanced Pack (cancer insurance). Based on the results of a survey of healthcare practitioners, we learned that advanced medical care and anti-cancer drug treatments place a large economic burden on patients and therefore developed these products to provide concentrated coverage in these two areas*. This is the first product in the life insurance industry that covers the monthly amount of anti-cancer drug treatments. Tokio Marine & Nichido Life will continue to offer products that truly protect customers to meet customer needs and respond to the actual state of medical care. *July 2009 survey by Tokio Marine & Nichido Life Brochure of Anshin Medical Advance Pack 60 Brochure of Cancer Treatment Support Insurance Cancer Advanced Pack International Insurance Business Joint-Venture Insurance Company Established in India In November 2009, the Company formed an agreement with Edelweiss Capital Limited (ECL), a prominent Indian financial services company, to establish Edelweiss Tokio Life Insurance Company Limited as a joint venture life insurance company in India. The new company aims to commence operations in spring With the establishment of this joint venture, Tokio Marine will become the only Japanese insurance group to engage in both the non-life insurance and life insurance businesses in India s insurance market. India has achieved rapid economic development in recent years. Utilizing the Company s wide-ranging know-how cultivated in the insurance business in Japan and overseas in addition to ECL s brand capabilities, Edelweiss Tokio Life Insurance will provide highquality products and services matched to customer needs. 8 Tokio Marine Holdings, Inc. Annual Report 2010

11 Full-Fledged Operation of Takaful Business in the Middle East Tokio Marine insurance joint ventures, Nile Family Takaful Company and Nile General Takaful Company, established for undertaking the Takaful (Islamic insurance) business in Egypt, began operations in January Also, in April 2010, we signed a memorandum of understanding with Alinma Bank, one of the largest banks in the Middle East in terms of capital, to establish Tokio Marine Saudi Arabia Limited (tentative name) as a joint venture composite insurance company for life and nonlife insurance in Saudi Arabia. The Company entered the Takaful business ahead of the world s other insurance groups and will provide Takaful products suited to Islamic religious principles. Through Takaful business in various regions, we aim to be chosen for our quality by customers also in Islamic countries, which comprise approximately one-fourth of the global population, as we strive to sustain our growth. Opening of a Branch Office in Guandong of Our Chinese Subsidiary In July 2010, The Tokio Marine & Nichido Fire Insurance Company (China) Limited, the Group s non-life insurance subsidiary in China, opened its second branch, the Guandong Branch after the Shanghai Branch. By opening the Guandong Branch, we will be able to provide even high-quality and faster services to customers who set up operations in Guandong Province. Sales Alliance for Life Insurance in Malaysia In July 2010, Tokio Marine Life Insurance Malaysia Bhd. (TMLM), the Group s life insurance subsidiary in Malaysia, formed an agreement with RHB Bank Berhad (RHB), one of the largest Malaysian commercial banks, to collaborate in the sales of life insurance. Under the alliance, RHB will sell TMLM life insurance products on an exclusive basis via channels that include its branch network. Through the alliance, TMLM aspires to become one of the top five life insurance companies in Malaysia with more than a 6% market share in To date, the Tokio Marine Group has expanded its life and non-life insurance businesses in Malaysia by acquiring Asia General Holdings Ltd. and taking over the general insurance operations of local insurance company PanGlobal Insurance Bhd. Through this recent agreement, we expect to further strengthen our insurance business operations in Malaysia. The Company aims to vigorously develop its insurance business in Asia, where high growth is expected, and aims for the continued growth of the Group over the medium and long terms. Tokio Marine Holdings, Inc. Annual Report 2010 Financial Data Corporate Data Message/Strategy Results/Projections Management Framework CSR 9

12 Topics New Growth Strategies for International Reinsurance Business and Large Commercial Property Insurance Business in Europe and the United States From January 2011, the Company will pursue business expansion drawing on its strengths, namely, its high credit rating and solid brand. This is aimed at further expanding our earnings in the international insurance business. (1) New growth strategies for international reinsurance business a. Unify our global brand for international reinsurance business We will unify the Tokio Marine Group s reinsurance brand as Tokio Millennium Re Ltd. (TMR). Along with this, we will rename Tokio Marine Global Ltd. as Tokio Millennium Re (UK) Limited. b. Establish new hubs for international reinsurance business We will open TMR branches in Switzerland and Australia as we strive to diversify risk regionally and further expand earnings in international reinsurance business. * The above new growth strategies are subject to approval by relevant authorities. (2) Expand our large commercial property insurance business in Europe and the United States We will expand our large commercial property business both in the United States and in London. The products will be offered by the U.S. branch of Tokio Marine & Nichido and Tokio Marine Kiln Syndicate 1880 (Lloyd s syndicate wholly owned by the Tokio Marine Group) in the United States and in London, respectively. 10 Tokio Marine Holdings, Inc. Annual Report 2010

13 Tokio Marine Holdings, Inc. Annual Report 2010 Message and Special Feature Message from the President 12 Special Feature: Corporate Strategy 22 Financial Data Corporate Data Message/Strategy Results/Projections Management Framework CSR 11

14 Message from the President To Our Shareholders The wave of global financial and economic turmoil and change in the aftermath of the Lehman Shock in September 2008 caused both contraction and sluggishness in economic and corporate activities in Japan and a disruption and downturn in financial markets worldwide. Not surprisingly, this sharply hampered the business activities of the Tokio Marine Group up to the first half of the fiscal year ended March 31, 2010 (fiscal 2009). Subsequently, the Japanese economy has seen evidence of a gradual recovery, buoyed by economic stimulus measures created by various governments and growth in emerging countries. Nevertheless, ongoing weakness in domestic demand is being compounded by such demographic trends as the aging of society, declining birthrates and a shrinking of Japan s population. Moreover, since the start of fiscal 2010, a number of destabilizing factors have also affected the economic environment surrounding the Tokio Marine Group s international business activities, most notably the uncertain financial situation in Europe resulting from the financial crisis in Greece as well as the deceleration of the U.S. economy, the steep appreciation of the yen, and a decline in stock prices worldwide. Shuzo Sumi President Facing an era characterized by this type of dramatic global economic and financial upheaval, in fiscal 2009 the Tokio Marine Group launched our mid-term corporate strategy Innovation and Execution Under this strategy, we are resolutely and swiftly executing major changes covering all aspects of our corporate activities. These far-reaching efforts encompass our business fields, products and services as well as personnel, infrastructures, the corporate management system and improvement of capital efficiency while maintaining its soundness. Although we once again faced a harsh economic climate in fiscal 2009, our reforms began to steadily yield positive results, as evidenced by net income of billion yen and adjusted earnings of billion yen. This marks the highest level of net income since the establishment of Tokio Marine Holdings, Inc. in fiscal 12 Tokio Marine Holdings, Inc. Annual Report 2010

15 2002. As a result of the steady recovery in our business results in fiscal 2009, we increased cash dividends per share by 2 yen to 50 yen. Among noteworthy reforms is the transformation of our business portfolio. The Company, with its established 131-year history, has achieved steady growth centered on the domestic non-life insurance business. In fiscal 2007, the domestic non-life insurance business accounted for approximately 70% of our adjusted earnings in fiscal 2007, while the domestic life insurance business contributed 10% and the international insurance business 20% of our overall profit. As these figures illustrate, our profit structure was heavily dependent upon the Japanese domestic market. Moving forward to fiscal 2009, our profit structure has changed dramatically in just two years, as the domestic non-life insurance business now accounts for a mere 26% of profit while the domestic life insurance business makes up 30% and the international insurance business 44%. As demonstrated by these figures, we are transforming ourselves into a global company that is not reliant only on Japan and has generated approximately half of its profits internationally. The scope of this makeover of our business portfolio has even largely exceeded what I envisioned when we drew up our mid-term corporate strategy, namely, that the international business makes up around 30% of profit. Furthermore, it is irrefutable proof that our challenging initiatives, including the M&A activities involving Philadelphia Consolidated Holding Corp. ( PHLY ) and Kiln Group ( Kiln ), are now steadily bearing fruit. I recognize that my greatest task and mission is to grow the domestic life insurance and international insurance businesses, while achieving robust development of the Group s core domestic non-life insurance business, even within the current unfavorable business environment. The overarching aim is to realize continuous growth for the entire Group. There are hosts of challenging issues in both the global and Japanese economies as well as in the environments surrounding the financial and insurance industry. Even so, there are always companies capable of achieving growth in any given business environment. The Tokio Marine Group possesses an abundance of resources that include a wide-ranging customer base; intermediaries who are well-versed in products and services and who provide helpful consultation, placing top priority on customer reassurance; highly disciplined employees who possess expertise and are devoted to undertaking reforms; sophisticated and cutting-edge agency IT systems and networks; and sound capital. Fully deploying these strengths, the Group will continue to boldly and speedily execute the major reforms currently being implemented. By doing so, I am confident that we can build ourselves into a truly global corporate group Change in Composition of Adjusted Earnings by Business Domains between Fiscal 2007 and Fiscal 2009 Domestic Life Insurance Business 10% Financial & General Businesses International Insurance Business 20% Fiscal 2007 Results Domestic Non-Life Insurance Business 70% International Insurance Business 44% Financial & General Businesses Fiscal 2009 Results Domestic Non-Life Insurance Business 26% Domestic Life Insurance Business 30% Tokio Marine Holdings, Inc. Annual Report 2010 Financial Data Corporate Data Message/Strategy Results/Projections Management Framework CSR 13

16 Message from the President capable of continually increasing corporate value through global diversification of our business portfolio, as well as by persevering amid challenging business conditions. 1. Looking Back at Fiscal 2009 Achievements and Issues the global financial crisis that occurred in the previous fiscal year. Although there seems to be some positive signs of an economic upturn, the Japanese economy was still unable to achieve a self-sustaining recovery. I believe that the Group has emerged from the unprecedented difficulties that characterized a truly exceptional fiscal year and is now recovering and moving back toward a growth track. In fiscal 2009, the Group s adjusted earnings amounted to billion yen, a sharp improvement of billion yen from negative adjusted earnings of 52.5 billion yen recorded in the previous fiscal year. We attained either clear-cut recoveries or smooth growth in profits in the Group s three main business domains, namely, the domestic non-life insurance business, domestic life insurance business and international insurance business. Fiscal 2009 began with the lingering effects of Next, I would like to review the overall performance results in each business field and to clarify the achievements and issues in each business. Domestic Non-Life Insurance Business Adjusted earnings in the domestic non-life insurance business in fiscal 2009 amounted to 46.2 billion yen, a significant improvement of 41.1 billion yen from the previous fiscal year. Tokio Marine & Nichido Fire Fiscal 2009 Group Adjusted Earnings (Billions of yen) Business Domains FY2007 Results FY2008 Results FY2009 Results Change Domestic non-life insurance Tokio Marine & Nichido Nisshin Fire (0.8) (10.7) Other (1.1) (8.6) (7.5) Domestic life insurance 15.1 (57.2) Tokio Marine & Nichido Life 29.1 (6.0) Tokio Marine & Nichido Financial Life (14.4) (50.2) Other 0.4 (0.9) International insurance Non-life insurance PHLY North America Central and South America (2.6) (3.6) (6.1) (2.5) Europe Asia 3.0 (0.5) Reinsurance Kiln Life insurance 6.5 (0.7) Financial & General businesses (1.0) (21.1) (9.4) 11.7 Group total (52.5) Adjusted ROE (Group total) 3.5% (1.7%) 5.8% 14 Tokio Marine Holdings, Inc. Annual Report 2010

17 Insurance Co., Ltd. ( Tokio Marine & Nichido ) and Nisshin Fire & Marine Insurance Co., Ltd. ( Nisshin Fire ), our principal business companies, posted steep earnings increases of 37.7 billion yen and 10.9 billion yen, respectively. The principal factors underlying these gains were the reduction of the cost of running the business, and enhanced operational efficiency, as well as an improvement in investment income due to a reversal effect of securities and asset-backed securities (ABS) valuation losses recorded in the previous fiscal year, due to turmoil in financial markets. Despite the improved results, adjusted earnings in the domestic non-life insurance business in fiscal 2009 still only reached around 50% of the amount (99.4 billion yen) recorded in fiscal 2007, and I do not regard this as a satisfactory level. Accordingly, we must now address two particularly key issues. First, net premiums written, which correspond to net sales, are continuing to trend downward, although the sluggish economy and the revision to compulsory automobile liability insurance (CALI) rates have also had large impact. Second, the combined ratio, which adds the business expense ratio to the loss ratio, was 97.9% (Tokio Marine & Nichido s private insurance basis, excluding CALI), which is high compared with previous levels as well as on an absolute basis. It is therefore essential that we improve our top line (net premiums written) and combined ratio. Domestic Life Insurance Business In fiscal 2009, adjusted earnings (amount of increase in embedded value (EV)) in the domestic life insurance business amounted to 52.0 billion yen, a drastic improvement of billion yen compared with negative adjusted earnings 57.2 billion yen in the previous fiscal year. Tokio Marine & Nichido Life Insurance Co., Ltd. ( Tokio Marine & Nichido Life ) and Tokio Marine & Nichido Financial Life Insurance Co., Ltd. ( Tokio Marine & Nichido Financial Life ) recorded increases of 38.2 billion yen and 69.4 billion yen, respectively. Tokio Marine & Nichido Life achieved steady growth by increasing the value of new policies by strengthening distribution channels and products to accurately respond to customer needs, posting favorable results in new policies for third-sector and other innovative products, and reducing expenses. Tokio Marine & Nichido Financial Life posted a decline in the balance of new policies because it adopted a risk-restrictive stance for sales of variable annuities in response to instability in financial markets. However, the company posted a large increase in EV by recording a rise in future insurance-related revenues owing to an improvement in the investment environment. As described above, although the domestic life insurance business is facing issues in terms of operation scale and the constraining effects of financial markets, I believe we are achieving steady growth or improvements amid a severe market environment. International Insurance Business For the past 10 years, Tokio Marine Group has expanded its global operations by developing its reinsurance business and strengthening its presence in Asia and other emerging markets, and by executing M&A strategies in the European and U.S. markets, which form the core of the world insurance market. These efforts are now generating significant positive results. Adjusted earnings in the international insurance business in fiscal 2009 amounted to 76.5 billion yen, a steep 55.7 billion yen increase from the previous fiscal year. This figure not only represents an all-time high in earnings in our international insurance business but also highlights the large growth we have achieved in this business, which now accounts for 44% of total Group adjusted earnings. The main factors underlying profit growth in the international insurance business are as follows. Tokio Marine Holdings, Inc. Annual Report 2010 Financial Data Corporate Data Message/Strategy Results/Projections Management Framework CSR 15

18 Message from the President The results of PHLY, which joined the Group in fiscal 2008, were included in the Group s consolidated results in fiscal Even within the harsh property & casualty insurance market in the United States, PHLY attained a high level of adjusted earnings (28.5 billion yen) by recording high growth (year-on-year growth of 10.7%) and achieving a favorable combined ratio (85.8%). Kiln, a leading Lloyd s player that joined the Group in fiscal 2008, continued its highly disciplined underwriting approach with its emphasis on profitability and worked to secure the acquisition of new accounts. As a result, it maintained an excellent combined ratio of 77.6%, benefiting in part from benign of catastrophe losses, and recorded a profit of 10.5 billion yen (year-on-year increase of 3.6 billion yen). Reinsurance business (excluding the Kiln) operated by Tokio Millenium Re Ltd., established in Bermuda in 2000, and Tokio Marine Global Ltd., established in London in 2005, secured adjusted earnings of 21.9 billion yen, an increase of 8.9 billion yen in fiscal This gain is attributable to strong underwriting discipline as well as an improved pricing environment. The increase in EV of life insurance companies in Asia amounted to 7.8 billion yen (compared with an 8.5 billion yen increase in the previous fiscal year) owing to improvements in financial markets. In addition, most of our other non-life primary entities also recorded increases in profits. Our adjusted earnings performance in fiscal 2009 was also the result of factors unique to fiscal 2009, including benign natural catastrophe activity when compared with an average year. Even when these factors (estimated to be approximately 23.5 billion yen) are excluded, adjusted earnings in the international insurance business were 53.0 billion yen, representing an increase of 32.2 billion yen over the previous year. This clearly demonstrates that the international insurance business has significantly expanded so that it has the ability to contribute to profit growth and stability of the entire Tokio Marine Group. Tokio Marine Group s Business Strategies Domestic Non-Life Enhance profitability by product renovation and rate revisions for major products and achieve further growth by strengthening the sales force and exploiting growth markets (Tokio Marine & Nichido). Asset Management Enhance profit growth within the range of risk tolerance reflecting the characteristics of insurance liabilities of each group company under the global risk management structure. Domestic Life Sustain growth with profitability improvements by offering new products via sales channels in close cooperation between life and non-life agents (Tokio Marine & Nichido Life). Improve business efficiency emphasizing risk control (Tokio Marine & Nichido Financial Life). Enterprise Risk Management (ERM) Control the desired balance between maintaining financial soundness and enhancing profitability (capital efficiency). International Enhance profitability by maintaining disciplined underwriting under the current softening market cycle and pursue global business expansion to achieve medium- to long-term profit growth. Capital Management and Return to Shareholders Maintain a robust capital base while delivering returns to shareholders with stable dividends and flexible share repurchases. 16 Tokio Marine Holdings, Inc. Annual Report 2010

19 Financial & General Businesses The Tokio Marine Group is involved in the asset management business that includes the consigned management of public and corporate pension plans and the establishment and management of investment trusts. The Group also engages in general businesses that include risk consulting, care of the elderly and health related business. In the financial and general businesses, we recorded negative adjusted earnings of 9.4 billion yen, despite an improvement of 11.7 billion yen compared with the previous fiscal year. Negative adjusted earnings in fiscal 2009 were mainly due to the reduction in risk for derivative transactions by Tokio Marine Financial Solutions Ltd., a financial company, in response to instability in the financial market environment, as well as the recording of extraordinary losses, including an impairment of nursing care facilities by Tokio Marine Nichido Samuel Co., Ltd., which engages mainly in elderly care-related businesses. 2. Tokio Marine Group s Business Strategies I have summarized the business performances and discussed the achievements and issues in each business. Next, I would like to explain our corresponding business strategies. Even though a self-sustaining expansion of the domestic market of the non-life and life insurance is unlikely, the Tokio Marine Group aims to continually increase corporate value both by achieving sustainable growth even within a sluggish market environment and by raising capital efficiency. Therefore, we must maintain the soundness of our capital, optimally and flexibly allocate capital in each of our business domains, and speedily and resolutely execute each of our growth strategies. There are excellent companies that can achieve growth in any business environment and the Tokio Marine Group aspires to be one such company. Specifically, we will restore profitability and achieve a recovery in the Group s core domestic nonlife insurance business as well as to strengthen and further accelerate growth in the domestic life insurance and international insurance businesses. Shown below are the strategies for each business domain, as well as the supporting investment, risk management and capital strategies. Domestic Non-Life Insurance The present market environment of the domestic non-life insurance industry is characterized by a contraction of the market, demonstrated by the decline in the number of vehicles owned, and conversely, changes in the competitive environment as a result of the formation of two other major domestic non-life insurance groups through consolidation. Amid this harsh environment, one urgent issue in the domestic non-life business will be to improve our combined ratio*, which has risen to nearly 98% (private insurance basis). In working toward this objective, we will address each element comprising the combined ratio s numerator and denominator. We expect business expenses, which is the numerator, to edge up slightly in fiscal 2010, due mainly to investments for future-oriented IT systems covering such areas as the Business Renovation Project and product and rate revisions. Nevertheless, we intend to progress further with company-wide initiatives for enhancing efficiency and reducing expenses and aim for medium- and long-term improvements in business expenses. On the other hand, we are implementing the following measures for premiums written, which is the denominator, as we strive to improve profitability and attain growth in premiums written. In consideration of a revision of the advisory rate by the Non-Life Insurance Rating Organization of Japan, we are steadily revising rates for automobile and personal accident insurance, for which Tokio Marine Holdings, Inc. Annual Report 2010 Financial Data Corporate Data Message/Strategy Results/Projections Management Framework CSR 17

20 Message from the President claims payments have been trending upward. We will complete these rate revisions in fiscal 2010 and maintain proper rate levels. In working to achieve growth through the expanded support of our customers, we will fully utilize our new agency IT network and systems ( TNet ), provide customers with product and services through more customer-friendly business processes and strengthen customer contacts. Concurrently, we will more deeply penetrate the personal lines market by renovating our lineup of Super Insurance ( Cho-Hoken in Japanese) while strengthening our ability to provide solutions in the commercial market and cultivating public sector and other growth markets, which have large potential for further development. Handled by Tokio Marine & Nichido, Super Insurance represents an especially distinctive departure from traditional insurance products. Ranging from such non-life products as automobile, fire, personal accident and liability indemnity to medical, cancer and other third-sector insurance and life insurance, this unique line of products provides compensation tailored specifically to the needs of each household based on prior consultation by agents with customers to ensure only the necessary coverage with no wasteful overlap. In fiscal 2009, Super Insurance registered 26% (about 59.3 billion yen) growth on a premium income basis. By renewing our products and systems, in fiscal 2010 we intend to enhance consulting functions, improve the ease of handling of these products and significantly expand the number of agents selling Super Insurance to attain further growth (we are aiming for year-on-year increase of 36%, or 80.9 billion yen on a premium income basis). The non-life insurance industry underwent a series of reorganizations in April 2010 that saw the creation of two new major insurance groups. Although competition is likely to enter a new phase in the future, Tokio Marine & Nichido has positioned itself solidly by implementing measures to reform the structure of its entire business processes as well as completing the renewal of our product range and IT system infrastructure even prior to the financial crisis. Training and other preparations for fully utilizing our new infrastructure are virtually complete and we are now at a stage where we have the potential both to increase our volume of sales activities and generate improved results. Along with Super Insurance, we Principal Products and Rate Revisions/Business Strategy of Tokio Marine & Nichido Automobile insurance Super Insurance Personal accident insurance Fire insurance FY2009 FY2010 FY2011 July: Rate revision and product renovation January: Rate revision (overseas traveler s insurance) January: Product renovation July: Rate revision and product renovation July: Rate revision October: Product renovation October: Rate revision Materialize profitability on a full-year basis Mid-term Corporate Strategy Innovation and Execution 2011 Qualitative Vision A growing corporation that is selected by customers for its high quality Product and service strategy Renovation of major products and rate revision Improve profitability Multi-access Develop new customer contact points Distribution strategy Strengthen sales networks Increase the number of agents and improve business quality Business Renovation Project Realize further business efficiency Increase agent contacts with customers Marketing strategy Personal markets Penetration with revised Super Insurance Commercial markets Solution-based marketing Public-sector and other growth markets Cultivating untapped markets 18 Tokio Marine Holdings, Inc. Annual Report 2010

21 will provide customers with products and services that are supported by quality and will aim for self-sustaining growth even in markets expecting little growth. * The combined ratio is a figure that expresses claims paid and expenses (numerator) versus premium income (denominator) and is an indicator of efficiency on a revenue and expenditure basis. Domestic Life Insurance Business In the domestic life insurance market, the overall balance of individual insurance in-force is trending downward against a background of declining birthrates and the aging of society. Nevertheless, Tokio Marine & Nichido Life aims to increase both its top line and enhance profitability by expanding its portfolio of third-sector products such as medical care and cancer insurance. In particular, Tokio Marine & Nichido Life will further strengthen its integrated life and non-life approach utilizing synergies as a group. Specifically, it will promote third-sector products that utilize Super Insurance, expand agents capable of providing total consulting-based sales of life and non-life insurance, bolster collaborative sales with non-life insurance agents and achieve growth that is accompanied by Business Strategy of Tokio Marine & Nichido Life Top line growth with profitability improvements Product & service strategy Improve attractiveness of products by assuming third-sector risks of Super Insurance (From August 2010) Launch new products and supplemental customer service programs to meet longevity risks (From November 2010) Promote major renewals of 10-year third-sector policies by offering products to meet customer needs (From January 2011) Renovation of operating process Pursue higher business efficiency profits. Along with these measures, it will work to reduce business expenses by extensively reviewing business processes and steadily executing costreduction measures as well as raising efficiency. Tokio Marine & Nichido Financial Life will continue taking a risk-restrictive stance taking into consideration instabilities in financial markets. At the same time, the company will develop new products to reduce market fluctuation risk by automatically changing asset allocation in accordance with the market environment. In tandem, Tokio Marine & Nichido Financial Life will further strengthen measures for reducing business expenses. International Insurance Business The Tokio Marine Group carries out its international insurance business with two principle aims. The first is to pursue growth opportunities globally that will drive the further expansion of the overall Group. The second is to build a business portfolio with global diversification and to help stabilize the Group s insurance underwriting results. International operations date back over 130 years to the time of the Group s founding in Since 2000, Tokio Marine has been gradually making Channel strategy Non-life agents Strengthen integrated approach through life and non-life group network Increase the number of agents selling both life and non-life products with consulting skills Life Partners Expand Life Partner channel Promote sales partnering with non-life agents Life professionals/bancassurance Strengthen sales via strategic and effective channel support Execution of cost reduction measures Sustain profitable growth Tokio Marine Holdings, Inc. Annual Report 2010 Financial Data Corporate Data Message/Strategy Results/Projections Management Framework CSR 19

22 Message from the President steady controlled advances into the reinsurance business, emerging country markets and European and U.S. markets in order to build a solid global business foundation. We anticipate that the results of these efforts will come to fruition in the near future. In our international insurance business, we will continue promoting the development of our global business in working toward medium- to long-term profit growth. Specifically, in our reinsurance business and large commercial line of business, we will respond appropriately to changes in market conditions, including the rate environment. In softening markets, we will maintain disciplined underwriting and increase profitability. For life, personal and midcommercial lines of business, we will strive for profit growth over the medium to long term, and diversify our products and sales networks in emerging markets, which are achieving significant growth. As shown in the illustration below, we aim to achieve growth in a diversity of businesses, including non-life and life insurance and the Takaful (Islamic insurance) businesses in tandem with market growth in Asia and the Middle East. 3. ERM, Capital Strategy and Returns to Shareholders The Tokio Marine Group is implementing Enterprise Risk Management (ERM) through which Tokio Marine quantitatively and sophisticatedly measures risk in its diverse business portfolio, maintains adequate capital to cover this risk and strives to maintain financial soundness while enhancing capital efficiency. To maintain the soundness of its capital, the Group maintains net asset value for responding to measured risk capital (99.95% VaR), the standard for an S&P AA rating. Additionally, the Group maintains a capital buffer (800.0 billion yen at the end of March 2010) to be reserved for future changes in the financial and economic environments and for new business investments, including M&A. In addition, in Strategy in Major Emerging Markets India China Non-life Joint venture non-life insurance company (IFFCO-TOKIO General Insurance Co. Ltd.: commenced operation in 2001) is expected to grow 10% in premiums mainly by utilizing a domestic network of 221 sub-branches. Life Joint venture life insurance company (Edelweiss Tokio Life Insurance Company Limited) is expected to open in spring Premiums are expected to reach billion yen in 10 years by taking advantage of rapid market growth. Non-life Opened a Guangdong Branch of our subsidiary incorporated in November Plan further expansion of branch in Chiangsu province and Beijing. Projected premium growth of FY2010 is 25%. Life Joint venture life insurance company (Sino Life Insurance Company Ltd.: commenced operation in 2003) is expected to double the premium in FY2010 driven by launch of new products, expansion of nationwide sales network (end of FY2009: 393 sub-branches, end of FY2010: 250 new sub-branches in addition), and expansion of expand bank sales network. Non-life Life Takaful Brazil Middle East Takaful Commenced operation in Egypt in January Plan to open composite insurance company mainly dealing in Takaful products in Saudi Arabia during FY2010. Will enhance our access to Islamic market, which accounts for approximately one-fourth of the total world population. 20 Tokio Marine Holdings, Inc. Annual Report 2010 Non-life Business expanded greatly by acquiring a local company (the current TMSR) in 2005 in addition to the existing subsidiary (Tokio Marine Brasil Seguradora S.A.). Plan to enhance growth potential and profitability through initiatives such as new system development.

23 order to enhance capital efficiency, Tokio Marine is building a well-balanced business portfolio. Also, while obtaining the understanding of our corporate customers, we plan to accelerate the sale of our business-related equities that constitute a certain proportion of risk capital. In fiscal 2009, we sold approximately 95.0 billion yen worth of businessrelated equities. In fiscal 2010, we plan to sell an even larger amount of these equities as we further reduce our business-related equities within our total assets. The Tokio Marine Group returns profits to shareholders employing two methods: dividends to shareholders and share repurchases. Regarding dividends, our overriding policy is to maintain stable dividends. Rather than basing dividends on our consolidated business results for any single fiscal year, we aim for a target payout ratio of 40%-50% of average core adjusted earnings while striving to raise dividends over the medium and long terms. In keeping with this policy, the Tokio Marine Group did not reduce its dividends in fiscal 2008, when core earnings were negative, while in fiscal 2009, a year in which numerous Japanese companies decided not to raise dividends, we increased cash dividends per share by 2 yen to 50 yen. Since 2003, we have continuously carried out share repurchases in amounts ranging from 50.0 billion yen to billion yen. However, we temporarily suspended share repurchases in the second half of fiscal 2008 taking into consideration the instability of financial markets in the wake of the Lehman Shock. Because the financial and economic environments have now settled slightly, we have resumed share repurchases, with an initial repurchase amount of 25.0 billion yen planned in the first half of fiscal In Conclusion Through its non-life and life insurance businesses, financial and other general businesses, the Tokio Marine Group responds widely to the needs of the broad range of its customers for safety and security while also making extensive contributions to society as a whole. In doing so, the Tokio Marine Group strives to achieve continuous growth in harmony with the many societies where we have established our businesses. The Tokio Marine Group has extended the range of its activities across the globe, and as a good corporate citizen, the Group contributes to the protection of the earth s environment and to local communities and society as a whole while also thoroughly emphasizing respect for human rights and compliance, including undertaking initiatives for wide-ranging disclosure of our corporate activities. The Tokio Marine Group works to protect the global environment in particular, and in doing so, takes a variety of approaches to reduce the impact of its business activities on the earth s environment. Tokio Marine & Nichido, a core company in the Group, is taking the lead in working to reduce environmental impacts. Thanks in part to the CO2 absorption effects from its mangrove plantation project in fiscal 2009, Tokio Marine & Nichido achieved carbon neutrality, whereby CO2 absorption exceeds or equals CO2 emissions. The Tokio Marine Group aims to attain carbon neutrality on a global basis by the end of fiscal As I have explained, the Tokio Marine Group must tackle a number of tasks. I believe the Group is firmly positioned to surmount these challenges, supported by its wide-ranging customer base, business partners, human resources, infrastructures and sound capital. The Tokio Marine Group aims to become a truly global company that can make broadranging contributions to society and continuously achieve growth. Tokio Marine Holdings, Inc. Annual Report 2010 Financial Data Corporate Data Message/Strategy Results/Projections Management Framework CSR 21

24 Special Feature Corporate Strategy Corporate Strategy of Tokio Marine Holdings Since fiscal 2009, the Tokio Marine Group has implemented Innovation and Execution 2011, a three-year mid-term group corporate strategy. Through this strategy, in order to continue growing amid challenging business conditions, the Tokio Marine Group aims to build a secure position from which it can enhance its competitiveness on a global basis while providing products, services and business processes through group companies that are selected by customers for their quality. Mid-Term Corporate Strategy Innovation and Execution Outline In accordance with the mid-term corporate strategy Innovation and Execution 2011, the Tokio Marine Group will aim to be a global corporate group maintaining growth by offering quality that customers select and seek to maximize corporate value through two core strategies detailed below. Mid-Term Vision (image targeted for 2011) A global corporate group maintaining growth by offering quality that customers select Targeted adjusted earnings: 220 billion yen, adjusted ROE: 6% or higher Framework for mid-term corporate strategy (1) Maintaining sustainable earnings growth through improvement of quality (2) Enhancing our global management structure Competitive strategies of the domestic insurance business Competitive strategies of the international insurance business Asset management Supporting the overall strategy Risk-based management (ERM*) Other group-wide strategies Capital strategies Long-Term Vision (image targeted by 2015) Top-tier global insurance group *ERM: Enterprise Risk Management. See page 63 for details. Quality encompasses all of the business activities of the Tokio Marine Group, extending to quality of products and services (convenience and ease of understanding), quality of business processes (accuracy and speed), and financial quality (financial soundness). Improving quality is essential to achieving sustainable earnings growth. 22 Tokio Marine Holdings, Inc. Annual Report 2010

25 The Expansion and Growth Cycle through Improvements of Quality Increase in customer value 2010 Improvement of quality (1) Maintaining Sustainable Earnings Growth through Improvement of Quality Increase in the New investment Increase in Increase in number of in products In order for the Tokio Marine Group to grow in a sustainable employee value social value loyal customers and services manner, we expect it will be necessary for all of the Group companies to innovate through the growth cycle illustrated to Improvement in the right. We will endeavor to enhance stakeholder value in a profitability and sustainable manner according to this cycle. capital efficiency Increase in shareholder value (2) Enhancing Our Global Management Structure We intend to build and enhance our global management structure to provide all stakeholders with high value regardless of their country or their regional location and to more flexibly utilize management resources available within the Group on a global basis. In light of the fact that accounting standards and supervisory regulations covering the insurance business have been undergoing a process of revision, one of the activities we intend to place a particular focus on is building the infrastructure needed for enhancing our Risk-Based Management (ERM). 2. Quantitative Vision (Numerical Targets) The Tokio Marine Group aims to achieve adjusted earnings of 220 billion yen and adjusted ROE of 6% or higher by the end of its mid-term corporate strategy in fiscal Plans call for the core domestic non-life insurance business to generate the largest portion of adjusted earnings, and for the expansion of both the international insurance business and domestic life insurance business. The Tokio Marine Group will concentrate on building a business portfolio that strikes a balance among all operations. (Billions of yen) Business Domains FY2008 Results FY2009 Results FY2010 FY2011 Targets Projections (quantitative vision) Domestic non-life insurance business Tokio Marine & Nichido Nisshin Fire (10.7) Other (1.1) (8.6) (4.0) (5.0) Domestic life insurance business (57.2) Tokio Marine & Nichido Life (6.0) Tokio Marine & Nichido Financial Life and others (51.2) 19.8 (1.0) 5.0 International insurance business Non-life insurance business Direct insurance Reinsurance Life insurance business (0.7) Financial & General businesses (21.1) (9.4) Group total (52.5) Group total adjusted ROE (1.7%) 5.8% 4.3% 6.0% or higher Note: Earnings and ROE are based on adjusted earnings from the perspective of accurately ascertaining and striving to expand corporate value. The total for the International insurance business excludes corporate expenses not allocated to any itemized categories. Adjusted earnings Financial Data Corporate Data Message/Strategy Results/Projections Management Framework CSR 23

26 Corporate Strategy 3. Adjusted Earnings and Adjusted ROE The Tokio Marine Group uses adjusted earnings, as defined below, as an indicator for business planning and return to shareholders. Adjusted earnings clarify profit/loss attributable to the current reporting period, eliminating the effects of various reserves exclusive to the Japanese non-life insurance business as well as deducting gains/losses which are not necessarily attributable to the current period only. Examples include gains/losses on sale or valuation of assets. In terms of accounting for earnings that are recognized on a deferred basis, such as those seen in the life insurance business, current profit is replaced by the increase in embedded value (EV) during the period in order to recognize the achievements of business performance and investments. Adjusted ROE Adjusted earnings Adjusted capital (average balance basis) Adjusted earnings: Total adjusted earnings of each business ((1) - (3) below) (1) Property and casualty insurance business *1 Adjusted earnings Net income Provision for catastrophe reserves *2 Provision for reserve for price fluctuations *2 Gains/losses on sale or evaluation of ALM bonds and interest rate swaps *3 Gains/losses on sale or evaluation of securities and properties Other extraordinary profits/losses, valuation allowances and others (2) Life insurance business *4 Adjusted earnings Increase in embedded value (EV) during the current fiscal year *5 Capital transactions including capital increases (3) Other businesses Net income determined following financial accounting principles Adjusted capital: Total adjusted capital of each business ((1) - (3) below) (1) Property and casualty insurance business *1 Adjusted capital Capital determined Catastrophe reserves, etc *1 Reserves for price fluctuations *1 (3) Other businesses Net assets determined following financial accounting principles (2) Life insurance business *4 Adjusted capital Embedded value (EV) *5 Notes: *1 After tax *2 Reversals are subtracted. *3 ALM: Asset Liability Management. Excluded as compensation for fluctuations in the market value of ALM liabilities. *4 Calculations are based on (3) criteria above for life insurance companies in certain overseas regions. *5 Embedded value: An indexed value in which the net present value of profits to be gained from policies in-force is added to the net asset value 24 Tokio Marine Holdings, Inc. Annual Report 2010

27 Tokio Marine Holdings, Inc. Annual Report 2010 Overview of Business Business Results and Projections Tokio Marine Holdings (Consolidated Basis) 26 Summary of Consolidated Business Results in Fiscal 2009 Fiscal 2010 Consolidated Projections Domestic Non-Life Insurance Business 30 Tokio Marine & Nichido Fiscal 2009 Results Fiscal 2010 Projections Nisshin Fire Fiscal 2009 Results Fiscal 2010 Projections Domestic Life Insurance Business 38 Tokio Marine & Nichido Life Fiscal 2009 Results Fiscal 2010 Projections Tokio Marine & Nichido Financial Life Fiscal 2009 Results Fiscal 2010 Projections International Insurance Business 42 Fiscal 2009 Results Philadelphia Insurance Companies Kiln Group Reinsurance Business Fiscal 2010 Projections Philadelphia Insurance Companies Kiln Group Reinsurance Business Financial & General Businesses 47 Fiscal 2009 Results Fiscal 2010 Projections (Explanation of the Tokio Marine Group Financial Business) Asset Management Strategies 48 Overview of Major Tokio Marine Group Companies 50 Financial Data Corporate Data Message/Strategy Results/Projections Management Framework CSR 25

28 Tokio Marine Holdings (Consolidated Basis) Summary of Consolidated Business Results in Fiscal 2009 In fiscal 2009, the Tokio Marine Group posted consolidated ordinary income of 3,570.8 billion yen (up 67.7 billion yen year on year), ordinary profit of billion yen (up billion yen) and net income of billion yen (up billion yen). (Billions of yen) FY2008 FY2009 Results YoY Results Change YoY Ordinary income 3,503.1 (5.6%) 3, % Underwriting income 3,130.0 (5.5%) 2,968.1 (161.9) (5.2%) Net premiums written 2,134.2 (4.9%) 2, % Deposited premiums from policyholders (16.9%) (27.8) (16.8%) Life insurance premiums (5.4%) (281.2) (37.7%) Reversal of outstanding claims 7.9 (7.9) (100.0%) Investment income (10.4%) % Interest and dividends (16.7%) (30.6) (12.9%) Gains on sales of securities % % Gains on derivatives % (64.6) (100.0%) Gains on separate account Other ordinary income % 66.2 (0.0) (0.1%) Ordinary expenses 3,518.2 (0.4%) 3,367.3 (150.8) (4.3%) Underwriting expenses 2,232.9 (16.8%) 2, % Net claims paid 1, % 1, % Agency commissions and brokerage (0.5%) % Life insurance claims % % Provision for outstanding claims (100.0%) Provision for underwriting reserves 21.4 (95.2%) % Investment expenses % 66.1 (660.5) (90.9%) Losses on sales of securities % 11.7 (21.5) (64.7%) Impairment losses on securities % 28.7 (133.4) (82.3%) Losses on derivatives Losses on separate account % (440.6) (100.0%) Operating and general administrative expenses % % Other ordinary expenses % 21.8 (16.9) (43.7%) Ordinary profit (loss) (15.1) (108.4%) Extraordinary gains % 5.1 (78.6) (93.9%) Extraordinary losses 21.6 (39.2%) % Income before income taxes 46.9 (73.1%) % Total income taxes 24.8 (61.4%) % Minority interest (1.0) (166.2%) Net income 23.1 (78.7%) % 26 Tokio Marine Holdings, Inc. Annual Report 2010

29 Ordinary income Despite declines at two domestic non-life insurance companies (Tokio Marine & Nichido and Nisshin Fire) due to such factors as the effects of the sluggish economy and a downward revision in compulsory automobile liability insurance (CALI) rates in April 2008, net premiums written increased billion yen (up 7.4%) over the previous fiscal year, mainly because the results of Philadelphia Insurance Companies (PHLY) were included in consolidated results. Life insurance premiums decreased billion yen (down 37.7% year on year) due mainly to a risk-restrictive stance for sales of variable annuities adopted by Tokio Marine & Nichido Financial Life taking into consideration the environment in financial markets. Investment income increased billion yen (up 74.9% year on year) from the previous fiscal year due mainly to an increase in gains on separate accounts at Tokio Marine & Nichido Financial Life along with a recovery in the domestic stock market. As a result of the above factors, ordinary income increased 67.7 billion yen (up 1.9% year on year). Ordinary profit and net income Ordinary profit and net income improved sharply, increasing billion yen and billion yen, respectively, from the previous fiscal year. These increases were due mainly to a reduction in business expenses, increased profits at overseas subsidiaries owing to a fewer number of natural disasters, a rise in investment gains at two domestic non-life insurance companies and Asian non-life and life insurance companies due to an improvement in conditions in stock markets, and the effects of newly consolidating the results of PHLY. Net Income Analysis (Factors for changes from fiscal 2008) (Billions of yen) 1,200 1, Impairment losses on securities decreased FY2008 Net income Net premiums written increased Investment gains on separate accounts increased* (Financial Life) Adjusted earnings Other investment expenses decreased Loss on sale of securities decreased Burden of increasing underwriting reserves decreased (excluding Financial Life) Burden of increasing underwriting reserves increased* (Financial Life) Life insurance premiums decreased* Gains/losses on derivatives decreased Net claims paid increased 71.1 Operating and 70.4 general administrative 39.1 expenses increased Burden of increasing price fluctuation reserve increased *On the statements of income, the increase in investment gains on separate accounts of Financial Life is offset by the increased burden of increasing underwriting reserves of Financial Life and the decrease in life insurance premiums (mainly Financial Life), and therefore basically has a neutral effect on profit and loss. Interest and dividends income decreased Deposit premiums from policyholders decreased In fiscal 2009, the Tokio Marine Group s total adjusted earnings rose billion yen to billion yen. Total income taxes increased Other FY2009 Net income Tokio Marine Holdings, Inc. Annual Report 2010 Financial Data Corporate Data Message/Strategy Results/Projections Management Framework CSR 27

30 Tokio Marine Holdings (Consolidated Basis) Fiscal 2010 Consolidated Projections Note: The projections of business results in this report are made at the beginning of the fiscal year at the time of the settlement of accounts for fiscal Therefore, there is a possibility that the Group could revise these projections due to changes in the business environment. Tokio Marine Holdings forecasts consolidated ordinary income of 3,360.0 billion yen (down billion yen year on year), ordinary profit of billion (down 23.4 billion yen) and net income of billion yen (down 13.4 billion yen). Tokio Marine Holdings (Consolidated) (Billions of yen) FY2009 FY2010 Results Projections Change YoY Ordinary income 3, ,360.0 (210.8) (5.9%) Net premiums written 2, , % Life insurance premiums % Ordinary profit (loss) (23.4) (11.5%) Net income (13.4) (10.4%) Ordinary income Net premiums written is expected to increase 44.2 billion yen (up 1.9%) from the previous fiscal year due to the income-increasing effects of product renovations and rate revisions as well as increases in the international insurance business. Life insurance premiums is projected to increase 58.1 billion yen (up 12.5% year on year) due to an expected recovery to a certain level in sales of variable annuities at Tokio Marine & Nichido Financial Life. Ordinary income is projected to decline billion yen (down 5.9% year on year) based on the assumption that there will be no investment gains on the separate accounts of Tokio Marine & Nichido Financial Life such as were recorded in fiscal Ordinary profit and net income Despite an expected increase in earnings by Tokio Marine & Nichido, ordinary profit is projected to decline 23.4 billion yen (down 11.5% year on year) and net income is projected to decline 13.4 billion yen (down 10.4%). These projected decreases are due to expectations of an average number of natural disasters, which were at a low level in fiscal 2009, in our international insurance business, as well as to a reversal to an increase in income from investment income at Asian non-life and life insurance companies recorded in fiscal Tokio Marine Holdings, Inc. Annual Report 2010

31 2010 Adjusted earnings The Tokio Marine Group s total adjusted earnings in fiscal 2010 are projected to decline 29.4 billion yen to billion yen. By business category, adjusted earnings are projected to decrease 3.2 billion yen to 43.0 billion yen in the domestic non-life insurance business; decrease 20.0 billion yen to 32.0 billion yen in the domestic life insurance business; decrease 16.5 billion yen to 60.0 billion yen in the international insurance business; and improve 10.4 billion yen to 1.0 billion yen in the financial & general businesses. Fiscal 2010 Adjusted Earnings Projections (Billions of yen) Business Domains FY2007 FY2008 FY2009 FY2010 Results Results Results Projections Change Domestic non-life insurance (3.2) Tokio Marine & Nichido (9.6) Nisshin Fire (0.8) (10.7) Other (1.1) (8.6) (4.0) 4.6 Domestic life insurance 15.1 (57.2) (20.0) Tokio Marine & Nichido Life 29.1 (6.0) Tokio Marine & Nichido Financial Life (14.4) (50.2) 19.2 (1.0) (20.2) Other 0.4 (0.9) (0.5) International insurance (16.5) Non-life insurance (10.7) PHLY (4.5) North America (4.3) Central and South America (2.6) (3.6) (6.1) (1.0) 5.1 Europe (0.1) Asia 3.0 (0.5) Reinsurance (3 Companies) (4.9) Kiln (2.5) Life insurance 6.5 (0.7) (5.8) Financial & General businesses (1.0) (21.1) (9.4) Group total (52.5) (29.4) Adjusted ROE (Group total) 3.5% (1.7%) 5.8% 4.3% (1.5%) Gains/losses Gains/losses Other Net income of on sale or Provision for Provision for on sale or extraordinary Adjusted Tokio Marine evaluation of catastrophe price fluctuation evaluation of profits/losses earnings of & Nichido for ALM bonds reserves, etc., reserves, accounting and interest securities and and valuation Tokio Marine & net of taxes net of taxes properties held, reserves, etc., Nichido purposes rate swaps, net of taxes net of taxes net of taxes billion yen billion yen billion yen billion yen billion yen billion yen billion yen Financial Data Corporate Data Message/Strategy Results/Projections Management Framework CSR 29

32 Domestic Non-Life Insurance Business In the following section, we explain the fiscal 2009 business results and the fiscal 2010 projections for Tokio Marine & Nichido and Nisshin Fire, our principal companies engaged in the domestic non-life insurance business. Tokio Marine & Nichido Fiscal 2009 Results Net premiums written by Tokio Marine & Nichido amounted to 1,736.0 billion yen (down 77.3 billion yen year on year). However, profits rose sharply, with ordinary profit amounting to billion yen (up 77.7 billion yen) and net income totaling 94.4 billion yen (up 23.3 billion yen). (Billions of yen) FY2008 FY2009 Results YoY Results Change YoY Ordinary income 2,367.1 (1.4%) 2,257.6 (109.4) (4.6%) Underwriting income 2, % 2,113.7 (67.9) (3.1%) Net premiums written 1,813.4 (5.2%) 1,736.0 (77.3) (4.3%) Deposit premiums from policyholders (17.7%) (26.5) (16.9%) Reversal of outstanding claims (4.2) (15.7%) Reversal of underwriting reserves % Investment income (17.9%) (39.4) (22.5%) Interest and dividends (22.2%) (49.8) (31.5%) Transfer of investment income on deposit premiums (68.3) (63.7) 4.6 Gains on sales of securities % % Gains on derivatives 12.9 (26.5%) 11.4 (1.4) (11.4%) Other ordinary income 9.6 (16.8%) 7.6 (2.0) (21.0%) Ordinary expenses 2, % 2,110.2 (187.1) (8.1%) Underwriting expenses 1,793.8 (2.8%) 1,746.2 (47.5) (2.7%) Net claims paid 1, % 1,096.4 (48.4) (4.2%) Loss adjustment expenses % % Agency commissions and brokerage % (9.5) (3.0%) Maturity refunds to policyholders (6.9%) % Investment expenses % 35.8 (109.9) (75.4%) Losses on sales of securities % 4.3 (22.1) (83.4%) Impairment losses on securities % 24.8 (41.3) (62.4%) Other investment expenses ,635.8% 1.2 (35.3) (96.5%) Operating and general administrative expenses % (26.8) (7.8%) Other ordinary expenses % 12.0 (2.7) (18.4%) Ordinary profit 69.6 (62.2%) % Extraordinary gains % 3.8 (62.8) (94.3%) Extraordinary losses 9.4 (76.3%) % Income before income taxes (26.7%) % Total income taxes % 38.9 (16.7) (30.1%) Net income 71.1 (42.2%) % 30 Tokio Marine Holdings, Inc. Annual Report 2010

33 (Billions of yen) FY2008 FY2009 Based on YoY Based on Based on Results YoY all lines Results all lines Change all lines Underwriting profit % % Loss ratio* 62.8% 67.4% 62.2% 67.9% (0.6%) 0.4% Expense ratio* 36.6% 34.6% 35.6% 34.0% (0.9%) (0.6%) Combined ratio* 99.4% 102.1% 97.9% 101.9% (1.5%) (0.2%) Investment income (losses) 29.9 (83.0%) % Solvency margin ratio 696.8% 852.6% 155.8% *Private insurance basis ratio excluding earthquake insurance and CALI. Underwriting profit Net premiums written declined 77.3 billion yen (down 4.3%) from the previous fiscal year due mainly to the effects of a rate revision for CALI and a decline in premiums for automobile, fire and marine insurance along with the slowdown of the economy. Underwriting profit increased 7.9 billion yen due mainly to a reduction in business expenses. Investment income Despite a decline in income from interest and dividends due to worsening corporate earnings, investment income rose a sharp 70.5 billion yen mainly because of impairment losses on securities and asset-backed securities (ABS) recorded in the previous year resulting from the financial crisis, as well as an increase in gains on sales of securities. Extraordinary gains and losses Extraordinary gains decreased (down 62.8 billion yen year on year) due mainly to such factors as a reversal of the price fluctuation reserve in line with impairment losses in fiscal 2008, while extraordinary losses increased (up 8.3 billion yen) due in part to an increase in impairment losses. Overall, the extraordinary gains/losses declined 71.1 billion yen compared with fiscal Net income As a result of the preceding factors, net income increased 23.3 billion yen from the previous fiscal year. Loss ratio* Although automobile physical damage insurance payments increased as a result of rising repair costs and snowfalls, the loss ratio in fiscal 2009 improved 0.6 percentage point to 62.2% compared with in fiscal 2008 due to a lower number of major fire and other accidents. Expense ratio* The expense ratio in fiscal 2009 improved 0.9 percentage point to 35.6% due to a significant reduction in expenses (a reduction of 23.7 billion yen) owing to decreased costs related to the Business Renovation Project and company-wide efforts to cut expenses. Combined ratio* The combined ratio improved 1.5 percentage points to 97.9% as both the loss ratio and expense ratio improved. *Private insurance basis Adjusted earnings Adjusted earnings by Tokio Marine & Nichido amounted to 54.6 billion yen (up 37.7 billion yen year on year) due to a reduction in expenses and a decrease in major accidents. Tokio Marine Holdings, Inc. Annual Report 2010 Financial Data Corporate Data Message/Strategy Results/Projections Management Framework CSR 31

34 Domestic Non-Life Insurance Business Fiscal 2010 Projections In fiscal 2010, Tokio Marine & Nichido is projected to record a 1.0% increase in net premiums written to 1,753.0 billion yen, a 3.8% increase in ordinary profit to billion yen and a 10.1% increase in net income to billion yen. (Billions of yen) FY2009 FY2010 Results Projections Change YoY Underwriting profit (61.7) (75.5%) Net premiums written 1, , % Reversal of outstanding claims 22.7 (0.6) (23.3) (102.6%) Reversal of catastrophe loss reserves 26.3 (13.3) (39.7) (150.7%) Investment income (losses) % Interest and dividends % Gains and losses on sales of securities % Ordinary profit % Extraordinary gains and losses (14.0) (10.0) 4.0 (28.6%) Net income % FY2009 FY2010 Based on all lines Based on all lines Change Based on all lines Results Projections Loss ratio 62.2% 67.9% 61.6% 67.2% (0.6%) (0.7%) YoY Expense ratio 35.6% 34.0% 36.1% 34.6% 0.5% 0.5% Combined ratio 97.9% 101.9% 97.7% 101.7% (0.1%) (0.2%) *Private insurance basis Underwriting profit Net premiums written is projected to increase 1.0% (up 16.9 billion yen year on year) from fiscal 2009 due to increases in revenue from product renovations and rate revisions in automobile insurance and from Super Insurance. Underwriting profit is projected to decrease 61.7 billion yen due to the following factors: The number of natural disasters and major accidents is expected to be the same as in an average year. An increase in expenses, including an increase in IT-related costs An increase in net provisions due to a lower draw down resulting from a decrease in the balance of catastrophe loss reserves in automobile insurance A decline in the provision for reserves for foreign-currency-denominated outstanding claims that resulted from the stronger yen in fiscal 2009 is not anticipated. Investment income Investment income is projected to increase 62.3 billion due mainly to the following factors: An increase in interest and dividend income, mainly because of increased dividends from overseas subsidiaries A reversal effect of valuation losses on securities in fiscal 2009 An increase in gains on sales of securities Net income Net income is expected to increase 9.5 billion yen due to a rise in investment income. 32 Tokio Marine Holdings, Inc. Annual Report 2010

35 Loss ratio* Although the number of fires and other major accidents is expected to be in line with those occurring in a normal year, the loss ratio is projected to improve 0.6 percentage point to 61.6% compared with fiscal 2009 due to the expected effect of product revisions in automobile and fire insurance. Expense ratio* The expense ratio is expected to rise 0.5 percentage point to 36.1% as a result of increased expenses, including an increase in IT-related costs. Combined ratio* As a result, the combined ratio is expected to improve 0.1 percentage point to 97.7%. *Private insurance basis Adjusted earnings In fiscal 2010, although we are expecting favorable results from rate revisions in automobile insurance, we also anticipate that the number of major accidents will be in line with those occurring in a normal year. As a result, we forecast that Tokio Marine & Nichido will record adjusted earnings of 45.0 billion yen, a decrease of 9.6 billion yen from the previous fiscal year. Tokio Marine Holdings, Inc. Annual Report 2010 Financial Data Corporate Data Message/Strategy Results/Projections Management Framework CSR 33

36 Domestic Non-Life Insurance Business Nisshin Fire Fiscal 2009 Results In fiscal 2009, net premiums written by Nisshin Fire amounted to billion yen, a decrease of 3.0% (down 4.0 billion yen) from the previous fiscal year. However, ordinary profit amounted to 6.4 billion yen, an improvement of 22.6 billion yen from an ordinary loss, due to an improvement in investment income. Additionally, extraordinary gains/ losses of 0.9 billion yen were recorded, and net income amounted to 4.2 billion, an improvement of 14.5 billion yen. (Billions of yen) FY2008 FY2009 Results YoY Results Change YoY Ordinary income (1.7%) % Underwriting income % (2.7) (1.7%) Net premiums written (4.1%) (4.0) (3.0%) Deposit premiums from policyholders 9.2 (1.8%) 7.9 (1.3) (14.2%) Reversal of outstanding claims 1.3 (1.3) (100.0%) Reversal of underwriting reserves % % Investment income 7.2 (33.7%) % Interest and dividends 5.9 (20.8%) 5.7 (0.2) (3.9%) Gains on sales of securities 3.1 (51.8%) % Gains on derivatives % 0.1 (0.6) (85.1%) Transfer of investment income on deposit premiums (2.6) (2.7) (0.0) Other ordinary income 0.1 (11.7%) % Ordinary expenses % (21.5) (11.8%) Underwriting expenses (2.0%) % Net claims paid 77.8 (2.3%) % Loss adjustment expenses 7.2 (0.5%) % Agency commissions and brokerage 24.5 (0.5%) 24.4 (0.1) (0.6%) Maturity refunds to policyholders % % Provision for outstanding claims (100.0%) Investment expenses % 2.0 (21.9) (91.3%) Losses on sales of securities % 0.4 (1.3) (74.2%) Impairment losses on securities % 1.0 (11.9) (91.7%) Other investment expenses % % Operating and general administrative expenses 28.2 (1.0%) 27.8 (0.3) (1.2%) Other ordinary expenses % 0.2 (2.0) (87.6%) Ordinary profit (loss) (16.1) (716.9%) Extraordinary gains % 1.3 (2.7) (67.1%) Extraordinary losses 0.1 (77.6%) % Income before income taxes (12.1) (485.0%) Total income taxes (1.8) (255.2%) Net income (10.3) (625.6%) Tokio Marine Holdings, Inc. Annual Report 2010

37 (Billions of yen) FY2008 FY2009 Based on YoY Based on Based on Results YoY all lines Results all lines Change all lines Underwriting profit 3.2 (1.9) (5.1) (160.2%) Loss ratio* 58.6% 62.6% 60.3% 64.6% 1.7% 2.0% Expense ratio* 40.3% 38.4% 40.7% 39.2% 0.4% 0.8% Combined ratio* 98.9% 101.0% 101.0% 103.8% 2.1% 2.8% Investment income (losses) (16.7) (464.9%) Solvency margin ratio 737.9% 747.7% 9.8% *Private insurance basis ratio excluding earthquake insurance and CALI. Underwriting profit Net premiums written decreased 4.0 billion yen (down 3.0% year on year), with declines centering on CALI and fire insurance. Underwriting profit decreased 5.1 billion yen due to an increase in incurred losses resulting from such natural disasters as Typhoon No. 18 as well as an increase in the number of automobile accidents covered by automobile physical damage insurance. Investment income Investment income increased 25.6 billion yen due to a reversal of impairment losses and redemption losses on securities that resulted from the financial crisis in fiscal 2008, and owing to an increase of gains on sales of securities. Extraordinary gains/losses Despite recording a gain on the sale of fixed assets, extraordinary gains/losses declined 3.0 billion yen to 0.9 billion due to the reversal effect of releasing price fluctuation reserves in fiscal Net income Net income increased 14.5 billion yen, as an improvement in investment income exceeded a decline in underwriting profit. Loss ratio* The loss ratio rose 1.7 percentage points to 60.3% due to a decline in premium income. Expense ratio* The expense ratio increased by 0.4 percentage point to 40.7% reflecting the decline of premium income despite a reduction in business expenses. Combined ratio* As a result of the above factors, the combined ratio increased 2.1 percentage points to 101.0%. *Private insurance basis Adjusted earnings Adjusted earnings of Nisshin Fire in fiscal 2009 improved 10.9 billion yen to 0.2 billion yen. Tokio Marine Holdings, Inc. Annual Report 2010 Financial Data Corporate Data Message/Strategy Results/Projections Management Framework CSR 35

38 Domestic Non-Life Insurance Business Fiscal 2010 Projections In fiscal 2010, Nisshin Fire is projected to record a 1.8% increase in net premiums written to billion yen, a 19.0% decrease in ordinary profit to 5.2 billion yen and a 29.9% decrease in net income to 3.0 billion. (Billions of yen) FY2009 FY2010 Results Projections Change YoY Underwriting profit (1.9) Net premiums written % Reversal of outstanding claims (1.5) Reversal of catastrophe loss reserves 1.0 (0.4) (1.5) (143.2%) Investment income (losses) (3.7) (42.5%) Interest and dividends (0.6) (10.6%) Gains and losses on sales of securities (3.7) (59.9%) Ordinary profit (1.2) (19.0%) Extraordinary gains (losses) 0.9 (0.1) (1.1) (112.6%) Net income (1.2) (29.9%) FY2009 FY2010 Based on Based on Based on Results all lines Projections all lines Change all lines YoY Loss ratio* 60.3% 64.6% 60.0% 64.1% (0.3%) (0.5%) Expense ratio* 40.7% 39.2% 39.6% 38.3% (1.1%) (0.9%) Combined ratio* 101.0% 103.8% 99.6% 102.4% (1.4%) (1.4%) *Private insurance basis ratio excluding earthquake insurance and CALI. Underwriting profit Net premiums written is projected to increase 1.8% (up 2.4 billion yen year on year) from fiscal 2009 mainly due to the expected effects of a rate revision for automobile insurance. Underwriting profit is expected to improve 2.6 billion yen, due mainly to a decline in the provision for reserves for claims (an improvement of 3.0 billion yen). Investment income Investment income is projected to decline 3.7 billion yen due mainly to a decrease in gains on sales of securities. Net income Net income is expected to decline 1.2 billion yen from the previous fiscal year as the decline in investment income exceeds the increase in underwriting profit. Loss ratio* Despite an expected increase in claims centering on fire and automobile insurance, the loss ratio is projected to improve 0.3 percentage point to 60.0% due to expected growth in premium income. 36 Tokio Marine Holdings, Inc. Annual Report 2010

39 Expense ratio* The expense ratio is expected to improve 1.1 percentage points to 39.6% due to a decline in business expenses resulting from the optimization of staff allocation and lower retirement benefit expenses in addition to an increase in premium income. Combined ratio* As a result, the combined ratio is projected to improve 1.4 percentage points to 99.6%. *Private insurance basis Adjusted earnings Adjusted earnings for Nisshin Fire is projected to improve 1.8 billion yen from the previous fiscal year to 2.0 billion yen. Tokio Marine Holdings, Inc. Annual Report 2010 Financial Data Corporate Data Message/Strategy Results/Projections Management Framework CSR 37

40 Domestic Life Insurance Business Here we will explain the fiscal 2009 business results and the fiscal 2010 projections for Tokio Marine & Nichido Life and Tokio Marine & Nichido Financial Life. Tokio Marine & Nichido Life Fiscal 2009 Results Insurance premiums and other rose 19.6 billion yen to billion yen in line with steady growth in policies in force while ordinary profit increased 1.3 billion yen to 6.8 billion yen. Tokio Marine & Nichido Life continued to set aside additional amounts into the underwriting reserve, seeking to meet the standard underwriting reserve required under the Insurance Business Law of Japan. As a result, net income amounted to 0.0 billion yen. (Billions of yen) FY2008 FY2009 Results YoY Results Change YoY Ordinary income % % Insurance premiums and other % % Insurance premiums % % Investment income % % Interest and dividends % % Other ordinary income 3.2 (11.9%) % Ordinary expenses % % Insurance claims and other % % Insurance claims % % Benefits % % Surrender benefits % % Provision for underwriting reserves and other % (0.8) (0.4%) Provision for underwriting reserves % (1.5) (0.7%) Investment expenses 7.2 (83.9%) % Foreign exchange losses 3.9 (90.8%) % Operating expenses % % Other ordinary expenses % % Ordinary profit 5.5 (7.8%) % Extraordinary losses % % Provision for reserve for dividends to policyholders 4.5 (15.4%) % Income before income taxes % % Total income taxes % % Net income % % Core operating profit % % Solvency margin ratio 2,613.4% 2,584.3% (29.1%) 38 Tokio Marine Holdings, Inc. Annual Report 2010

41 2010 Core operating profit Core operating profit amounted to 5.1 billion yen, up 4.5 billion yen year on year, due to an improvement in the expense ratio. An additional provision of 19.1 billion yen for accumulation of standard underwriting reserve was made. Core operating profit before the additional provision increased 12.6 billion yen to 24.3 billion yen. Solvency margin ratio The company continued to maintain its solvency margin ratio at a high level of 2,584.3% (down 29.1 percentage points compared with at the end of fiscal 2008) and preserved excellent soundness of operations. Adjusted earnings Embedded value (EV) at the end of fiscal 2009 was billion yen and adjusted earnings (change in EV excluding capital increase) amounted to 32.2 billion yen. This was due to favorable growth in new policies, an improvement in expense efficiency and because a loss from changes in interest rates and preconditions in fiscal 2008 turned into a profit in fiscal (The increase in EV excluding changes in interest rates, preconditions and capital increases was 28.2 billion yen.) Fiscal 2010 Projections Annualized premiums (ANP) of new policies is expected to increase 2.0% year on year to 51.0 billion yen along with efforts to attain top line growth accompanied by an improvement of profitability. (An increase of 5.1% for ANP of both new and renewed policies.) ANP of in-force policies are expected to increase 2.6% year on year to billion yen. Net income is expected to be 2.0 billion yen after achieving the accumulation of standard underwriting reserve in fiscal 2010 by improving the efficiency of expenses in addition to achieving stable earnings supported by growth of in-force policies. (Billions of yen) FY2006 FY2007 FY2008 FY2009 FY2010 Projections EV as at the end of the fiscal year Change in EV excluding capital increase (6.0) Change in EV* ANP of new policies ANP of in-force policies *Excluding the effects of changes in interest rates, preconditions and capital increases Annualized Premiums EV New policies In-force policies EV as at the end of the fiscal year (Billions of yen) (Billions of yen) (Billions of yen) FY2006 FY2007 FY2008 FY2009 FY2010 FY2006 FY2007 FY2008 FY2009 FY2010 FY2006 FY2007 FY2008 FY2009 FY2010 Projection Projection Projection Adjusted earnings EV at the end of fiscal 2010 is expected to be billion yen. Adjusted earnings (change in EV) is projected to increase 0.8 billion yen to 33.0 billion yen. Financial Data Corporate Data Message/Strategy Results/Projections Management Framework CSR 39

42 Domestic Life Insurance Business Tokio Marine & Nichido Financial Life Fiscal 2009 Results Tokio Marine & Nichido Financial Life recorded 2,783.5 billion yen in the amount of in-force policies, an increase of billion yen from March 31, 2009, although the amount of new policies decreased 60.8% from a year earlier to billion yen. Ordinary loss and net loss amounted to 1.3 billion yen, a deterioration of 11.4 billion yen, respectively, from ordinary profit and net income recorded in the previous fiscal year. FY2008 FY2009 (Billions of yen) Results YoY Results Change YoY Ordinary income % (83.8) (14.8%) Insurance premiums and other (12.8%) (269.9) (59.7%) Insurance premiums (13.1%) (271.0) (60.1%) Investment income % ,175.2% Gains on separate account Other ordinary income ,494.6% 2.1 (106.1) (98.0%) Reversal of underwriting reserves (106.4) (100.0%) Ordinary expenses % (72.4) (13.0%) Insurance claims and other 83.5 (4.0%) % Insurance claims % % Surrender benefits 33.2 (36.7%) % Reinsurance premiums % % Provision for underwriting reserves and other (100.0%) Provision for underwriting reserves (100.0%) Investment expenses % 3.3 (437.4) (99.2%) Losses on separate account % (440.6) (100.0%) Operating expenses 30.1 (12.3%) 15.1 (15.0) (50.0%) Other ordinary expenses 3.0 (13.0%) 1.3 (1.6) (56.1%) Ordinary profit (loss) 10.0 (1.3) (11.4) (112.9%) Extraordinary gains % 0.0 (0.0) (92.8%) Extraordinary losses 0.0 (60.7%) % Income before income taxes 10.0 (1.3) (11.4) Total income taxes % % Net income (loss) 10.0 (1.3) (11.4) (113.5%) Core operating profit (0.8) Solvency margin ratio 1,057.5% 1,275.3% 217.8% Insurance premiums Insurance premiums in fiscal 2009 decreased billion yen year on year. This decline was attributable to a contraction in the variable annuities market following the Lehman Shock and because the company has adopted a sales stance that focuses on risk control and profitability. 40 Tokio Marine Holdings, Inc. Annual Report 2010

43 2010 Net income Tokio Marine & Nichido Financial Life recorded a net loss of 1.3 billion yen in fiscal 2009, an 11.4 billion yen deterioration from net income recorded in the previous fiscal year. Despite the income-increasing effect of an improved investment environment, core products launched in fiscal 2009 were those with no initial expenses (no-load) and the sales cost burden for the first year of these policies was thus largely reflected in the net loss. Solvency margin ratio The solvency margin ratio improved points from the end of fiscal 2008 to 1,275.3%. This improvement was attributable to a decrease in reinsurance risk owing to an improvement in the investment environment. Adjusted earnings EV at the end of fiscal 2009 was 63.3 billion yen and adjusted earnings (the change in EV excluding capital increase) increased to 19.2 billion yen. This increase was due mainly to an expected increase of future income from insurance-related expenses as a result of the improved investment environment and the recording of a 23.4 billion yen differential between the assumptions and actual investment results. Fiscal 2010 Projections Single-payment premiums of variable annuities is expected to be 270 billion yen, an increase of 95.7 billion yen. Despite emphasis on risk control and a continuation of the risk-restrictive stance on variable annuities sales adopted in fiscal 2009, this projected increase is expected to result from sales of products that lower the minimum guarantee risks. (Billions of yen) FY2006 FY2007 FY2008 FY2009 FY2010 Projections EV as at the end of the fiscal year Change in EV excluding capital increase 17.7 (14.4) (50.2) 19.2 (1.0) Change in EV* (6.2) (2.2) (1.0) *Excluding the effects of changes in interest rates, preconditions and capital increases Single-Payment Premiums of EV as at the End of the Fiscal Year Variable Annuities Business size Income (Billions of yen) (Billions of yen) Capital increase 1, FY2006 FY2007 FY2008 FY2009 FY2010 FY2006 FY2007 FY2008 FY2009 FY2010 Projection Projection Adjusted earnings EV at the end of fiscal 2010 is expected to be 62.3 billion yen and adjusted earnings (change in EV) is expected to decrease 1.0 billion yen. This is because of the assumption of a reversal of the incomeincreasing effect (+20.2 billion yen) resulting from the improvement in the investment environment in fiscal Financial Data Corporate Data Message/Strategy Results/Projections Management Framework CSR 41

44 International Insurance Business A summary of results in the international insurance business in fiscal 2009 is as follows. Fiscal 2009 Results Net premiums written Net premiums written increased billion yen (up 50.0% year on year) to billion yen due mainly to the addition of Philadelphia Insurance Companies (PHLY) to the scope of consolidation. Adjusted earnings Adjusted earnings sharply surpassed those of the previous fiscal year, reaching 76.5 billion yen (up 55.6 billion yen, or 267%, year on year). This was due to favorable underwriting results by PHLY, Kiln and the reinsurance business, improved profitability at non-life primary entities and to the following factors (totaling 23.5 billion yen) peculiar to fiscal Benign natural catastrophe losses less than projections Investment income of life insurance largely exceeding the plan (due mainly to growth in EV of Asian life insurers driven by the rise in Asian equity markets) Favorable development of loss reserves from prior years (Billions of yen) Net premiums written Adjusted earnings FY2008 FY2009 FY2010 FY2008 FY2009 FY2010 Results Results YoY Projections YoY Results Results YoY Projections YoY FX Rate USD GBP PHLY % (16%) North America (10%) 34.0 (1%) % 4.0 (52%) Non-Life Primary Reinsurance South & Central America % 82.0 (1%) (3.6) (6.1) (1.0) Europe & Middle East % 18.0 (5%) % 1.0 (14%) Asia % % (1.3) % Primary Total % % ,014% 34.0 (9%) Reinsurance Companies (3 companies) % % % 17.0 (23%) Kiln % % % 8.0 (24%) Reinsurance Total % % % 25.0 (23%) Total Non-Life % % % 59.0 (15%) Life (55%) % (0.7) (74%) Total of Non-Life and Life % % % 61.0 (21%) Head Office Expense (1.6) (1.0) (1.0) Total of Non-Life and Life (after excluding Head Office Expense) % 60.0 (22%) *FX rate: FY08 Results (As of Dec. 31, 2008), FY09 Results (As of Dec. 31, 2009), FY10 Projections (As of March 31, 2010) 42 Tokio Marine Holdings, Inc. Annual Report 2010

45 PHLY Net premiums written Net premiums written rose a sharp 10.7% from the previous fiscal year to billion yen even though the U.S. nonlife insurance (property and casualty) market declined 5.9%*. Adjusted earnings Achieved the favorable level of combined ratio (85.8%), versus a combined ratio of 101.2%* for the U.S. non-life insurance (property and casualty) market average, and attained a high level of adjusted earnings amounted to 28.5 billion yen, partially attributable to strong underwriting discipline and favorable development of prior year loss reserves. Adjusted earnings amounted to approximately 22.5 billion yen when excluding factors peculiar to fiscal 2009 such as favorable development of prior year loss reserves. *Source: A.M. Best Fiscal 2009 Results in USD (USD in millions) FY2008 FY2009 Results Results Change YoY Net premiums written 1,695 1, % Underwriting profit * (1%) Investment income (losses) % Net income % Adjusted earnings 309 Loss ratio *1*2 55.0% 56.2% +1.2p Expense ratio *1*2 29.0% 29.6% +0.6p Combined ratio *1 84.1% 85.8% +1.8p *1 One-time merger-related expenses are excluded. *2 Denominator is net premiums earned. Kiln Net premiums written Net premiums written increased sharply to 76.0 billion yen (up 33.4 billion yen, or 78%, year on year) due to an increase in new policies and improved rate levels accompanying the hardening of the market as well as the effects of foreign exchange rates (weakening of the pound from the previous year). Adjusted earnings Achieved the excellent level of combined ratio (77.6%) and recorded adjusted earnings of 10.5 billion yen (up 3.6 billion yen, or 52%, year on year) driven by strong underwriting discipline and benign catastrophe loss compared with in an average year. Adjusted earnings with normalized catastrophe loss was approximately 6.0 billion yen. Tokio Marine Holdings, Inc. Annual Report 2010 Financial Data Corporate Data Message/Strategy Results/Projections Management Framework CSR 43

46 International Insurance Business Fiscal 2009 Results in GBP (GBP in millions) FY2008 FY2009 Results Results Change YoY Net premiums written % Underwriting profit ,490% Investment income (losses) (65%) Net income % Adjusted earnings % Loss ratio *1 63.3% 47.7% -15.6p Expense ratio *1 34.6% 30.0% -4.6p Combined ratio 97.9% 77.6% -20.3p *1 Denominator is net premiums earned. Reinsurance Business (excluding Kiln) Net premiums written Net premiums written amounted to 56.9 billion yen (up 6.0 billion yen, or 12%, year on year). This rise was due to an increase in new policies and an improvement in rate levels accompanying a hardening of the market. Adjusted earnings Adjusted earnings surged to 21.9 billion yen (up 8.9 billion yen, or 69%, year on year) due to solid underwriting performance, driven by strong underwriting discipline and benign catastrophe loss compared with in an average year. Tokio Millennium Re Ltd. (TMR) and Tokio Marine Global Ltd. recorded all-time-high profits. Adjusted earnings with normalized catastrophe loss was approximately 16.0 billion yen. Fiscal 2010 Projections The Tokio Marine Group makes the following assumptions regarding the operating environment for respective primary entities in the international insurance business in fiscal 2010 and forecasts total adjusted earnings of 60.0 billion yen. In non-life (primary) insurance, the soft market in the rate environment is expected to continue in 2010 in view of the fact that there are no signs of a firming of the market in U.S. and European commercial lines due to a decline in demand for insurance caused by the economic downturn and increased supply due to a recovery in the capital levels of each insurer. In the reinsurance business, because of benign catastrophe losses and favorable results in the overall market in 2009, and because market turmoil has subsided, reinsurance companies capital position recovered and markets will soften in all lines. In the life insurance business (Asia), sales of investment-type products, which slumped in fiscal 2009 due to the economic downturn, are expected to rise as the economy recovers. 44 Tokio Marine Holdings, Inc. Annual Report 2010

47 Net premiums written Total net premiums written in fiscal 2010 is projected to rise 9% (up 50.9 billion yen year on year) to billion yen, driven mainly by PHLY, Kiln, reinsurance and Asian life and non-life insurance. Adjusted earnings Adjusted earnings is projected to decrease 16.5 billion yen to 60.0 billion yen. Compared with fiscal 2009, adjusted earnings of 53.0 billion yen that exclude the income-increasing factors peculiar to fiscal 2009, totaling approximately 23.5 billion yen (as a result of benign natural catastrophe losses and increased EV of life insurers in Asia due to rising stock markets), actual adjusted earnings is expected to increase 7.0 billion yen. Three-Year Business Performance PHLY Net premiums written (Billions of yen) FY2008 FY2009 FY2010 Projection Adjusted earnings (Billions of yen) Special factors in FY09 approx billion yen* FY2008 FY2009 FY2010 Projection Tokio Marine Holdings, Inc. Annual Report 2010 *Special factors in FY09: natural disasters was less than assumptions, investment income of life insurance largely exceeded assumptions, reversal of claims reserves from prior years Net premiums written Despite the forecast of negative growth for the entire U.S. property and casualty (non-life) insurance market, net premiums written is projected to increase 10.1 billion yen (up 6% year on year) to billion yen, driven by strong marketing utilizing multiple sales channels. Adjusted earnings The company is projected to maintain its combined ratio at a favorable level around 90% and is expected to record adjusted earnings of 24.0 billion yen (down 4.5 billion yen, or 16%, year on year). However, when excluding factors peculiar to fiscal 2009, adjusted earnings is projected to steadily grow 7%. Financial Data Corporate Data Message/Strategy Results/Projections Management Framework CSR 45

48 International Insurance Business Fiscal 2010 Projections in USD (USD in millions) FY10 Projections Change YoY Net premiums written 1,968 +5% Adjusted earnings 261 (16%) Kiln Although the market is expected to soften, in fiscal 2010 Kiln aims for continuous growth by maintaining disciplined underwriting and further utilizing the Tokio Marine Group s wholly owned Lloyd s Syndicate 1880 established in fiscal Net premiums written Net premiums written is projected to increase 10.0 billion yen (up 13% year on year) to 86.0 billion yen due to an increase in the share in selected accounts, acquisition of new accounts and expanding business of Lloyd s Syndicate Adjusted earnings Adjusted earnings is projected to be 8.0 billion yen (down 2.5 billion yen, or 24%, year on year). Assuming that the number of natural disasters in fiscal 2009 was at the same level as in an average year, adjusted earnings is expected to grow 38%. Fiscal 2010 Projections in GBP (GBP in millions) FY10 Projections Change YoY Net premiums written % Adjusted earnings 57 (21%) Reinsurance business (excluding Kiln) We aim for continuous growth by maintaining underwriting policy with emphasis on the bottom line supported by solid risk management, and by increasing new business by taking advantage of our core strength (high credit rating and brand). Net premiums written Net premiums written is projected to rise 6.0 billion yen (up 11% year on year) to 63.0 billion yen. Although cyclical improvement of the market is unlikely, we expect premium growth, mainly driven by development in selected accounts, and acquisition of new accounts. This expected increase will be supported by the commencement of new business in the United States by TMR. Adjusted earnings Adjusted earnings is projected to be 17.0 billion yen (down 4.9 billion yen, or 23%, year on year). Assuming that the number of natural disasters in fiscal 2009 was at the same level as in an average year, adjusted earnings is projected to grow a steady 8%. 46 Tokio Marine Holdings, Inc. Annual Report 2010

49 Financial & General Businesses Fiscal 2009 Results In the financial and general businesses, although adjusted earnings improved by 11.7 billion yen from the previous fiscal year, it resulted in a deficit of 9.4 billion yen. The main factors of the result were the losses by Tokio Marine Nichido Samuel Co., Ltd. (a senior citizen-related business, extraordinary loss regarding impairment of nursing care facilities) and Tokio Marine Financial Solutions Ltd. (a securities company, loss regarding reducing its risk exposure toward market difficulties). Fiscal 2010 Projections Adjusted earnings in the financial and general businesses in fiscal 2010 is projected to improve by 10.4 billion yen to 1.0 billion yen due to the reversal of income-reducing factors in the previous fiscal year. In the financial business, we anticipate a severe business environment to continue, and investors, mainly domestic investors risk appetites toward investments remain sluggish. Nevertheless, we continuously strive to increase the assets under management by providing products that match the needs of investors. Tokio Marine Group Financial Business 1. Financial business strategy In the financial business, we focus on high ROE asset management business, and thus contribute to an improvement of the Group s business portfolio and an earnings growth. 2. Financial business affiliates Tokio Marine Asset Management Co., Ltd., established in 1985, has a total of approximately 5 trillion yen (end of fiscal 2009) in assets under management from its investment advisory and investment trust businesses and is a core company in the Group s financial business. Financial business affiliates Assets under management (end of fiscal 2009, yen in billions) Tokio Marine Asset Management Co., Ltd. 4,991.9 Tokio Marine Property Investment Management, Inc Description of business Carries out investment advisory business for public pension plans and corporate pension plans, and the investment trust services business that includes managing and providing instructions for investment trusts. Manages real estate investment funds for its institutional investor clients and supports corporate real estate (CRE) strategies of its corporate clients. Tokio Marine Capital Co., Ltd Manages private equity funds for its institutional investor clients. 3. Assets under management The assets under management of financial business affiliates in the Tokio Marine Group is steadily increasing. In particular, Tokio Marine Asset Management has been supported by numerous clients and has achieved substantial growth in assets under management based on its investment philosophy of Proprietary, thorough research forms the foundation of our investments. 4. Fiscal 2010 initiatives The investment management of Asian stocks at the Singapore subsidiary of Tokio Marine Asset Management has earned high acclaim, which includes winning the AsianInvestor Investment Performance Award for the second consecutive year. In the current fiscal year, Tokio Marine Asset Management will offer Asia-related products as publicly offered investment trusts in the Japanese market. In addition, the company will strengthen its sales structure for targeting overseas investors by cooperating closely with its subsidiaries in London and the United States, while striving to develop products matched to the global asset management needs of Japanese investors. Historical Assets Under Management (Trillion yen) FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 Projection Tokio Marine Holdings, Inc. Annual Report 2010 Financial Data Corporate Data Message/Strategy Results/Projections Management Framework CSR 47

50 Asset Management Strategies 1. Summary of the Group s Asset Management Activities in Fiscal 2009 During the fiscal year ended March 31, 2010, the Tokio Marine Group meticulously carried out risk management to maintain a sound financial base. In addition, to meet payment obligations such as insurance claims and maturity refunds, the Tokio Marine Group continued its efforts to strengthen its asset liability management (ALM). Additionally, to ensure the financial security and liquidity of its assets, we implemented a policy of increasing bond holdings in our asset portfolio. The Tokio Marine Group recorded impairment losses on securities of 28.7 billion yen, a decline of billion yen from the previous fiscal year, due to a recovery in securities and financial markets. Impairment losses relating to credit default swaps (CDS) improved 24.4 billion yen to 10.2 billion yen and impairment losses relating to asset-backed securities (ABS) included in other investment expenses amounted to 0.01 billion yen, an improvement of 38.4 billion yen from the previous fiscal year. 2. Group Asset Management Strategy Each operating entity executes investment operation under the group-wide fundamental principle of asset management as a global insurance group, considering local environments in the insurance business and financial markets. The Group s fundament principles of its Group asset management strategy are as follows. Maintain liquidity as a major principle required of an insurance company. Execute ALM investments in principle for assets to support long-term insurance liabilities. Improve profitability within the range of risk tolerance in line with the characteristics of insurance liabilities, financial bases and investment environments at each Group company. Asset Composition of Tokio Marine Holdings (Consolidated) (As of March 31, 2010) Cash and deposits 3% Other securities 13% Domestic equities 16% Other 13% Loans 3% Monetary receivables bought 8% Total Assets 17.2trillion yen Foreign securities 10% Domestic bonds 34% Domestic bonds Mainly ALM bonds in Tokio Marine & Nichido and Tokio Marine & Nichido Life Foreign securities Mainly bonds of local countries in foreign insurance group companies Domestic equities Mainly business-related equities in Tokio Marine & Nichido Other securities Mainly assets in separate accounts in Tokio Marine & Nichido Financial Life 48 Tokio Marine Holdings, Inc. Annual Report 2010

51 3. Tokio Marine & Nichido s Asset Management Policies in Fiscal 2010 The fiscal 2010 asset management policies of Tokio Marine & Nichido, a core Group company, are as follows. Tokio Marine & Nichido Balance Sheet (As of March 31, 2010) Fiscal 2010 asset management policy Total assets: 9.7trillion yen Expect a modest recovery in financial markets while emerging countries lead the growth of world economy Maintain a risk scenario of another turmoil of world financial markets triggered by deepening public financial problems including Europe Saving type Assets for ALM insurance 38% liability Manage the portfolio under the basic principle of increase net asset value in the Investment in bonds medium-to-long term and earn a stable return each fiscal year and loans, etc. 9% Alternative investments 4% Business-related equities General Ensure liquidity while diversifying bond investments portfolio to achieve stable profit 27% account/ growth Net assets Carefully choose alternative investment opportunities utilizing the company access to global investments Investments in subsidiaries and affiliates Accelerate reduction of business-related equities 8% In the execution of ALM, properly control interest risk and minimize the impact of changes in interest rates Others 14% Note: Others include real estate (mainly for own use), noninvestment assets, etc. Tokio Marine Holdings, Inc. Annual Report 2010 Financial Data Corporate Data Message/Strategy Results/Projections Management Framework CSR 49

52 Overview of Major Tokio Marine Group Companies The Tokio Marine Group consists of Tokio Marine Holdings and 236 subsidiaries and 25 affiliated companies that carry out operations globally. The Group has established bases in Japan and 38 countries and regions around the world and engages in a wide range of non-life insurance, life insurance and financial and general businesses in a wide range of areas. International Insurance Business Companies Philadelphia Insurance Companies Philadelphia Insurance Companies ( PHLY ) is a property and casualty insurance group in the United States which joined the Tokio Marine Group in December 2008 (Head Office: Bala Cynwyd, PA, U.S.A. (near Philadelphia)). The company has achieved high growth and profitability since its establishment in 1962 by leveraging its strengths such as outstanding product development capability, disciplined operation and superior marketing expertise utilizing its multiple sales Corporate headquarters of PHLY channels. PHLY aims to further expand its business by utilizing the strengths of the Tokio Marine Group. Kiln Group Kiln Group ( Kiln ) is a leading insurance and reinsurance group in the Lloyd s of London market which joined the Tokio Marine Group in March 2008 (Head Office: London, UK). The company is not only one of the largest in underwriting capacity in the Lloyd s market but also reputable for its superiority in underwriting expertise and has achieved a steady growth of profit. Kiln aims to further expand in the Lloyd s market by integrating the capital strengths of the Tokio Marine Group. The Lloyd s Building Vancouver San Francisco Los Angeles Chicago Mexico City Nashville Atlantata Toronto New York Bala Cynwyd Hamilton (Bermuda) 50 Reinsurance Business (excluding Kiln) Taking advantage of our high credit rating and capacity which are strengths of the Tokio Marine Group, we have expanded our reinsurance business by establishing reinsurance business subsidiaries in Bermuda in 2000 and in London in From January 2011, we will unify the Tokio Marine Group s reinsurance brand as Tokio Millennium Re ( TMR ) and open new TMR branches in Switzerland and Australia. We plan to actively carry out this business to achieve further growth. Emerging Markets In a wide range of regions and countries such as Asia, Brazil and the Middle East, the Tokio Marine Group engages in diverse businesses, including the life insurance and Takaful (Islamic insurance) businesses in addition to the non-life insurance business, and is growing these businesses in step with the expansion of markets in each country. Tokio Marine is striving to further develop its business in these markets. These efforts include an agreement reached in November 2009 to establish a joint venture life insurance company in India. Additionally, in January 2010 we began undertaking the Takaful business in Egypt, and in April 2010, we signed a memorandum of agreement to establish a joint venture composite insurance company for life and non-life insurance in Saudi Arabia. Overseas offices: Located in 432 cities in 38 countries and regions Expatriate staff: 182 Local staff: Approx. 15,600 (As of the end of March 2010) Tokio Marine Holdings, Inc. Annual Report 2010 Tokio Millennium Re Ltd. Tokio Marine Centre in Singapore Financial and General Business Companies Sao Paulo Tokio Marine Asset Management Co., Ltd. Tokio Marine Asset Management Co., Ltd. ( Tokio Marine Asset Management ) provides highquality investment services through various operations such as investments of public pensions, establishment of and investment in mutual funds tailored to the needs of individual customers and provision of mutual funds for 401k style defined-contribution pension plans. The company has its subsidiaries and representative offices in New York, London, Singapore and Shanghai to respond to investment needs globally. With its consistent investment policy centered on thorough research and analysis, Tokio Marine Asset Management will continue its efforts to be a company that maintains a high level of customer satisfaction. Tokio Marine & Nichido Risk Consulting Co., Ltd. Tokio Marine & Nichido Risk Consulting Co., Ltd. ( Tokio Marine & Nichido Risk Consulting ) works together with members of the Tokio Marine Group, including Tokio Marine & Nichido, in addition to specialized institutions and alliance partners to provide customers with optimal solutions to diversified risks inherent in their business. In order to accurately and swiftly address the continuously diversifying and complex risks of businesses and organizations, Tokio Marine & Nichido Risk Consulting is committed to offering risk consulting services evolving together with the today s needs.

53 Non-Life Insurance Business Companies (Domestic) Tokio Marine & Nichido Fire Insurance Co., Ltd. In October 2004, Tokio Marine & Nichido Fire Insurance Co., Ltd. ( Tokio Marine & Nichido ) was founded as a leading company in the domestic non-life insurance industry, formed through the merger of The Tokio Marine and Fire Insurance Co., Ltd. and The Nichido Fire and Marine Insurance Co., Ltd., with their histories of 125 and 90 years, respectively. Tokio Marine & Nichido has unrivaled strengths in the areas of product and service development and risk consulting backed by sound financial strength and a high level of specialized expertise, as well as its superior distribution network of agents, claims settlement service network and worldwide network. The company properly manages its business from the customer s point of view, aiming to be chosen for is quality while striving for steady growth. Established: August 1, 1879 Capital: billion yen Total assets: 9,708.0 billion yen Number of employees: 16,742 Al Khobar London St. Petersburg Moscow Amsterdam Cairo Manama Jeddah (As of March 31, 2010) New Delhi Riyadh Mumbai Singapore Tianjin Beijing Nanjing Suzhou Chengdu Hangzhou Kuala Lumpu mpur Jakarta Seoul Dalian Tokyo Shanghai Shenzhen Taipei Hong Kong Ban ng gkok Manila Ho Chi Minh City Melbourn rne Life Insurance Business Companies (Domestic) Tokio Marine & Nichido Life Insurance Co., Ltd. Since commencing operations in 1996 based on its basic philosophy of being a customer-oriented life insurance business, Tokio Marine & Nichido Life Insurance Co., Ltd. ( Tokio Marine & Nichido Life ) has provided innovative life insurance products that suit customers needs through its strong sales channels of agents and Life Partners, resulting in its considerably remarkable growth hardly seen among competitors. Tokio Marine & Nichido Life seeks to become the insurer most trusted by customers and agents in Japan by appropriately responding to diversifying customers needs and working to implement further innovations in its business model. Established: August 6, 1996 Capital: 55.0 billion yen Total assets: 3,305.6 billion yen Number of employees: 2,179 (As of March 31, 2010) Nisshin Fire & Marine Insurance Co., Ltd. With an emphasis on the domestic retail market, Nisshin Fire & Marine Insurance Co., Ltd. ( Nisshin Fire ), a non-life insurer, carries out its marketing activities firmly rooted in local communities. Aiming to be a leading player as a customer-oriented company in the non-life insurance industry, the company endeavors to enhance its business quality by reviewing every business activity from a customer perspective. Nisshin Fire will continue to deliver customer-oriented security and compensation with the goal of becoming the most trusted retail non-life insurance company. Established: June 10, 1908 Capital: 20.3 billion yen Total assets: billion yen Number of employees: 2,615 Sydney Guam Auckla land Tokio Marine & Nichido Financial Life Insurance Co., Ltd. As a life insurance company specializing in variable annuities insurance and variable insurance, Tokio Marine & Nichido Financial Life Insurance Co., Ltd. ( Tokio Marine & Nichido Financial Life ) plays a vital role in the Tokio Marine Group, seeking to achieve its vision expressed in its corporate philosophy of providing the safety and security necessary in order to contribute to the continuing economic aspirations of an affluent and comfortable society. Established: August 13, 1996 Capital: 48.0 billion yen Total assets: 2,321.0 billion yen Number of employees: 337 (As of March 31, 2010) Honolulu Principle Group Bases ThinkPark Tower (Tokyo) (As of March 31, 2010) Tokio Marine Holdings, Inc. Annual Report 2010 Financial Data Corporate Data Message/Strategy Results/Projections Management Framework CSR 51

54 52 Tokio Marine Holdings, Inc. Annual Report 2010

55 Tokio Marine Holdings, Inc. Annual Report 2010 Management Framework Basic Stance on Corporate Governance 54 Internal Controls 58 Compliance 61 Internal Audits 62 Risk Management 63 Financial Data Corporate Data Message/Strategy Results/Projections Management Framework CSR 53

56 Basic Stance on Corporate Governance Tokio Marine Holdings, Inc. (the Company ), in line with the Tokio Marine Group Corporate Philosophy, is committed to the continuous enhancement of the Group s corporate value by fulfilling its responsibilities to shareholders, customers, society, employees and other stakeholders. For this purpose, the Company hereby maintains a sound and transparent corporate governance system and, as a holding company, aims to exercise appropriate control over the Tokio Marine Group companies. The Company has established its Corporate Governance Policies and is working to build and strengthen its governance structure in accordance with these policies. The Corporate Governance Policies of the Company shall be reviewed and amended as necessary to adapt to changes in the business environment. Corporate Governance Policies I. Management Organization 1. The Board of Directors (1) Responsibilities of the Board of Directors and Its Members The Board of Directors is responsible for decisions on important matters relating to the execution of the Company s business, supervising the performance of individual directors and establishing an effective internal control system. In addition, as the Board of Directors of a holding company, it is responsible for determining medium- to long-term business strategies and various basic business policies, beginning with basic policies for internal controls, for the Tokio Marine Group. Each director shall endeavor to enable the Board of Directors to fulfill these responsibilities and functions. (2) Composition of the Board of Directors The number of directors shall generally be approximately 10 members, of whom, as a general rule, at least three members shall be outside directors. (3) Directors Term of Office Directors shall be appointed for a term of office of one year and may be re-appointed. 2. Corporate Auditors and the Board of Corporate Auditors (1) Responsibilities of Corporate Auditors and the Board of Corporate Auditors Corporate auditors, as an independent body entrusted by shareholders, shall audit the performance of directors, with the aim to ensure sound and fair management and accountability. Corporate auditors shall endeavor to conduct a high quality audit in accordance with the regulations of the Board of Corporate Auditors, auditing standards, auditing policies and auditing plans determined by the Board of Corporate Auditors. (2) Composition of the Board of Corporate Auditors The number of corporate auditors shall, in principle, be around five. As a general rule, a majority of the corporate auditors shall be outside corporate auditors. 3. Nomination Committee and Compensation Committee (1) Responsibilities of the Nomination and Compensation Committees The Company shall have a Nomination Committee and a Compensation Committee to serve as advisory bodies to its Board of Directors. The Nomination Committee shall deliberate on the following matters and report to the Board of Directors: The appointment and dismissal of directors (including non-members of the board) and corporate auditors of the Company and its principal business subsidiaries*; and The criteria for the appointment of directors (including non-members of the board) and corporate auditors of the Company and its principal business subsidiaries The Compensation Committee shall deliberate on the following matters and report to the Board of Directors: Evaluation of the performance of directors (including non-members of the board) of the Company and its principal business subsidiaries; and The compensation system for directors (including non-members of the board) and corporate auditors of the Company and its principal business subsidiaries *The term business subsidiary refers to companies in which the Company directly holds a majority of the voting rights. 54 Tokio Marine Holdings, Inc. Annual Report 2010

57 (2) Composition of Nomination and Compensation Committees The Nomination Committee and the Compensation Committee shall, in principle, each consist of approximately five members. As a general rule, a majority of the members of each committee shall be selected from outside of the Company, and the chairman of each committee shall be one of the outside members. II. Compensation System for Directors and Corporate Auditors of the Tokio Marine Group (1) Policies for Determining Compensation The following items serve as basic policies in determining the compensation for directors and corporate auditors for the Company and its principal business subsidiaries. Transparency, fairness and objectivity shall be ensured for compensation for directors and corporate auditors. Incentives for enhancing business results shall be strengthened by introducing a compensation system that is based on business results. We shall introduce a compensation system based on the degree of attainment of prescribed Company performance indices in accordance with management strategies in addition to a compensation system based on the Company s stock price as well share returns with shareholders to fulfill our accountability. We shall thoroughly implement a performance- and ability-based compensation system through an evaluation process that objectively evaluates individual performances of directors and corporate auditors in terms of attainment of management targets. (2) Compensation of Directors and Corporate Auditors of the Company Compensation for full-time directors (including non-members of the board) consists of three elements: fixed compensation; bonuses related to the business performance of the Company and the performance of the individual; and stock options. Compensation for corporate auditors and part-time directors consists of two elements: fixed compensation and stock options. (3) Compensation of Directors and Corporate Auditors of Principal Business Subsidiaries The compensation system for directors (including non-members of the board) and corporate auditors of the Company s principal business subsidiaries shall generally be identical to that applied to directors (including nonmembers of the board) and corporate auditors of the Company. III. Corporate Governance of Subsidiaries (1) Governance System In the Group s various basic policies for internal controls, the Company shall prescribe basic terms for the management of the business subsidiaries as well as for compliance, risk management and internal auditing of the Tokio Marine Group. The Company shall manage its subsidiaries through the establishment and operation of a governance system based on these basic terms. (2) Evaluation of Business Results of the Business Subsidiaries The Company shall evaluate the business results of each business subsidiary of the Tokio Marine Group on an annual basis, comparing actual results with business results indices determined based on management strategies. The results of such evaluations shall be considered in the determination of the compensation for the directors (including non-members of the board) and corporate auditors of each business subsidiary. Adopted on May 27, 2005 Revised on June 28, 2010 The Board of Directors of Tokio Marine Holdings, Inc. Tokio Marine Holdings, Inc. Annual Report 2010 Financial Data Corporate Data Message/Strategy Results/Projections Management Framework CSR 55

58 Basic Stance on Corporate Governance For its corporate governance structure, the Company has adopted Selection of outside directors and joint monitoring by independent outside directors, the board of statutory auditors and the officers in charge of internal audits and internal controls, which is one of three types of corporate governance models considered appropriate for assuring the trust of shareholders and investors in the Report by the Financial System Council s Study Group on the Internationalization of Japanese Financial and Capital Markets (released on June 17, 2009). This system fulfills management s accountability. To strive to further raise transparency in the process for the selection of directors and corporate auditors and for determining compensation for directors and corporate auditors of the Company and its principal subsidiaries, the Company has set up the Nomination Committee and the Compensation Committee and has determined that this is presently the most appropriate system. General Meeting of Shareholders Appointment/removal Appointment/removal Appointment/removal Coordination Corporate Auditors (Board of Corporate Auditors) Audit Board of Directors (Directors) Nomination Committee Approval on appointment/ removal Evaluating the appropriateness of accounting audit Coordination Audit Supervision/ monitoring Compensation Committee Independent auditors Management Meeting Internal Control Committee Accounting audit Internal audit section Internal audit Planning and administrative sections Operating subsidiaries 56 Tokio Marine Holdings, Inc. Annual Report 2010

59 Chairman of the Board President Executive Vice Presidents Senior Managing Director Managing Director Directors Directors and Corporate Auditors (As of July 1, 2010) Standing Corporate Auditors Corporate Auditors (Representative director) (Representative director) (Representative director) (Outside director) (Outside director) (Outside director) (Outside corporate auditor) (Outside corporate auditor) (Outside corporate auditor) Kunio Ishihara Shuzo Sumi Daisaku Honda Hiroshi Amemiya Shin-Ichiro Okada Masashi Oba Minoru Makihara Hiroshi Miyajima Kunio Ito Akio Mimura Toshifumi Kitazawa Toshiro Yagi Tetsuo Kamioka Shigemitsu Miki Hiroshi Fukuda Yuko Kawamoto Hiroshi Amemiya Akio Mimura Yuko Kawamoto Minoru Makihara Shuzo Sumi Shigemitsu Miki Kunio Ishihara Kunio Ito Daisaku Honda Hiroshi Fukuda Toshiro Yagi Shin-Ichiro Okada Toshifumi Kitazawa Masashi Oba 2010 Hiroshi Miyajima Tetsuo Kamioka Financial Data Corporate Data Message/Strategy Results/Projections Management Framework CSR 57

60 Internal Controls In accordance with the Companies Act of Japan and the Enforcement Regulations of the Companies Act of Japan, the Company has formulated its Basic Policies for Internal Controls. Under the Basic Policies for Internal Controls, as a holding company, the Company prescribes the specific shape of various structures, beginning with a structure for overseeing the execution of proper business operations by each Group company, as well as for compliance, risk management, internal auditing, information storage and auditors audits. In accordance with these basic policies, the Company appropriately builds and operates internal controls. The Company has set up the Internal Control Committee. This committee formulates various types of policies and measures for matters concerning the establishment and operation of internal controls, including compliance and risk management, deliberates on the state of implementation and improvements, and reports the results to the Board of Directors. Basic Policies for Internal Controls 1. System for Ensuring Proper Operations within the Tokio Marine Group (1) Based upon the Tokio Marine Group Corporate Philosophy, the Company, as the holding company presiding over the businesses of the Group, by establishing both the Group s basic policies for the administration of Group companies and a system of reporting to the Board of Directors, shall develop the Company s management system for all the Group companies. a. The Company shall administer the business of Group companies under its direct management ( Subsidiaries and Others ) by concluding business management agreements with them and through other means. 1) The Company shall provide Subsidiaries and Others with the Group s basic policies that form the fundamentals of the Group s management strategies and the Company s management. 2) Business strategies, business projects and other important plans by Subsidiaries and Others shall be subject to the Company s prior approval. 3) Subsidiaries and Others shall report to the Company their initiatives based on the Group s basic policies and the progress of their business plans. b. The business management of Group companies other than Subsidiaries and Others shall, in principle, be made through Subsidiaries and Others. (2) The Company shall establish the Group s basic policies for internal controls over financial reporting and develop systems for ensuring the appropriateness and reliability of financial reporting. (3) The Company shall establish the Group s basic policies for management of intragroup transactions and develop systems for such transactions. 2. System for Ensuring the Execution of Professional Duties in accordance with Applicable Laws, Regulations and the Articles of Incorporation (1) The Company shall establish the Group s basic policies for compliance and develop compliance systems. a. The Company shall establish a department supervising compliance. b. The Company shall formulate the Group Code of Conduct and ensure that all directors and employees of the Group respect such code of conduct and give top priority to compliance in all phases of the Group s business activities. c. The Company shall have Subsidiaries and Others prepare compliance manuals and widely promote compliance within the Group by means of training on laws, regulations, internal rules and other matters which all directors and employees of the Group must respect. d. The Company shall establish reporting rules in the event of a violation of laws, regulations or internal rules within any of the Subsidiaries and Others and, in addition to usual reporting routes, set up hotlines (an internal whistle-blower system) to an internal and external organization and while keeping all directors and employees of the Group well informed as to the use of the system. (2) The Company shall establish the Group s basic policies for the protection of customers interests and maintain a customer-oriented policy in all phases of business in order to maintain a system for the protection of customers interests. (3) The Company shall establish the Group s basic policies for information security management and develop such systems. 58 Tokio Marine Holdings, Inc. Annual Report 2010

61 (4) The Company shall establish the Group s basic policies against antisocial factions and groups, and in association with lawyers, police and other professionals, maintain its systems against such antisocial factions and groups, and respond to them in an organized and uncompromising manner by severing relationships with them and refusing unfair demands. (5) The Company shall establish an internal audit department separate and independent of other departments, establish the Group s basic policies for internal audits of the Group and maintain systems for efficient and effective internal audits within the Company and Group companies. 3. System for Risk Management (1) The Company shall establish the Group s basic policies for risk management and maintain risk management systems. a. The Company shall establish a department supervising risk management. b. The Company shall perform risk management by following the basic processes of risk identification, evaluation and control, contingency planning and assessment of outcomes through risk monitoring and reporting. c. The Company shall have each of the Subsidiaries and Others perform risk management appropriate to its type of business and its risk characteristics. (2) The Company shall establish the Group s basic policies for integrated risk management and perform quantitative risk management across the entire Group to maintain credit ratings and prevent bankruptcies. (3) The Company shall establish the Group s basic policies for crisis management and maintain systems for crisis management. 4. System for Ensuring Efficient Execution of Professional Duties (1) The Company shall formulate a medium-term management plan and an annual plan (including numerical targets, etc.) for the Group. (2) The Company shall establish rules regarding the exercise of authority and construct an appropriate organizational structure for achieving its business purposes in order to realize efficient execution of operations through a proper division of responsibilities and a chain of command. (3) The Company shall formulate rules for and establish a Management Meeting, composed of directors, executive officers and other relevant persons, that shall discuss and report on important management issues. (4) The Company shall establish an Internal Control Committee, which shall formulate various basic policies and other measures concerning the Group s internal control systems, evaluate their progress, discuss how to improve them and promote their development. (5) The Company shall establish the Group s basic policies for personnel matters with a view to enhancing productivity and corporate value through comprehensive efforts to enhance employees satisfaction and pride in their work and promoting fair and transparent personnel management linked with proper performance evaluation. 5. System for Preserving and Managing Information concerning the Execution of Directors Duties The Company shall establish rules for the preservation of documents and other materials. The minutes of important meetings and documents containing material information regarding the execution of duties by the directors and the executive officers shall be preserved and managed appropriately in accordance with such rules. 6. Matters concerning Support Personnel to the Corporate Auditors and Their Independence from the Directors (1) The Company shall establish the Corporate Auditor s Office under the direct control of the corporate auditors for the purpose of supporting them in the performance of their duties. Upon request of the corporate auditors, the Company shall assign full-time employees having sufficient knowledge and ability to support the corporate auditors. (2) Employees assigned to the Corporate Auditor s Office shall perform duties ordered by the corporate auditors and other work necessary for proceeding with audits, and such employees shall have the right to collect information necessary for auditing purposes. (3) Performance evaluations, personnel transfers and disciplinary action concerning such employees shall be made with the approval of the standing corporate auditors. Tokio Marine Holdings, Inc. Annual Report 2010 Financial Data Corporate Data Message/Strategy Results/Projections Management Framework CSR 59

62 Internal Controls 7. System of Reporting to the Corporate Auditors (1) Directors and employees shall regularly report to the corporate auditors on management, financial condition, compliance, risk management, internal audits and other matters, and in the event that they detect a material violation of laws, regulations or internal rules, or a fact likely to cause considerable damage to the Company, they shall immediately report thereof to the corporate auditors. (2) Directors and employees shall regularly report to the corporate auditors on matters such as how the hotlines (the internal whistle-blower system) are used and important reports and consultations made. 8. Other Systems for Ensuring Effective Audits by the Corporate Auditors (1) The corporate auditors shall attend meetings of the Board of Directors, have the right to attend Management Meetings and other important meetings and committees, and express their opinions. (2) The corporate auditors shall have the right to inspect at any time the minutes of important meetings and other important documents relating to decisions approved by the directors and the executive officers. (3) Directors and employees shall, at any time upon the request of the corporate auditors, explain matters concerning the execution of their duties. (4) The Internal Audit Department shall strengthen its coordination with the corporate auditors by assisting in the audit process and through other means. Adopted on May 2, 2006 Revised on April 1, 2010 The Board of Directors of Tokio Marine Holdings, Inc. 60 Tokio Marine Holdings, Inc. Annual Report 2010

63 Compliance The Tokio Marine Group defines compliance as observing applicable laws, rules and regulations and internal regulations and conducting fair and equitable business activities within social norms and thoroughly implements compliance in this manner. Additionally, the Company has formulated the Tokio Marine Group Code of Conduct that incorporates matters that directors, executive officers and employees should comply with from the perspective of compliance. To thoroughly implement compliance as a Group, Tokio Marine has formulated the Tokio Marine Group Basic Policies for Compliance, which prescribes the role of the Company, its subsidiaries and others and the basic rationale regarding the implementation of compliance, and also prepares measures and policies for the entire Group. We are building a structure for exhaustive Groupwide compliance that ensures periodic monitoring of the state of compliance within the Group in addition to receiving reports on important matters, discussing and making decisions on these matters via the Board of Directors, Management Meeting and the Internal Control Committee, and when necessary, providing guidance and advice about the activities of subsidiaries. Subsidiaries and others shall build compliance structures suited to their respective businesses in accordance with the Tokio Marine Group Basic Policies for Compliance. At the same time, when these companies have subsidiaries under their own control, they will monitor the compliance structures of these subsidiaries. The Company s subsidiaries and others are establishing structures enabling organized responses for compliance by assigning compliance officers and persons in charge to each branch depending on the circumstances at subsidiaries and others, while establishing specialist departments for controlling internal compliance and compliance committees that establish policies and measures for compliance as well as check on the state of compliance implementation. Board of Directors Management Meeting Reporting/Prior approval Board of Directors Compliance Department Tokio Marine Holdings Corporate Auditors Group member companies Compliance Committee Board of Corporate Auditors Internal Control Committee Internal Control Department/ Business Divisions Indication of fundamental policies, guidance, supervision, administration, monitoring Corporate Auditors (Board of Corporate Auditors) Internal audit Hotline System (Internal Whistle-Blower System) The Tokio Marine Group has installed hotlines as a system for handling reports and consultation from employees and the management of the Group member companies in the event a compliance-related issue has arisen or there is a likelihood of such an issue coming to the fore. An external hotline is also established at an external law office so that the persons making such reports are able to select the hotline most convenient for them. The Group keeps personal information on individuals making such reports strictly confidential and ensures that such individuals are not put in an disadvantageous position. Tokio Marine Holdings, Inc. Annual Report 2010 Financial Data Corporate Data Message/Strategy Results/Projections Management Framework CSR 61

64 Internal Audits Within the Tokio Marine Group, internal audits are executed based on the aim that in order to play an effective role in achieving the Group s management targets, internal audits covering the full scope of operations performed in its business should not simply detect and point out problems in the internal office processes but also assess the internal controls and propose measures for improvements. Within Tokio Marine Holdings and its insurance subsidiaries, each company has its own internal audit department, which performs appropriate internal audits on key components of the internal controls, risk management and compliance, in accordance with the type and level of risks. The Internal Audit Department of Tokio Marine Holdings directly carries out auditing and monitoring of the internal controls of those subsidiaries that do not have their own internal audit department. The results of these audits are reported to the relevant person in charge at the Internal Audit Department of Tokio Marine Holdings and the Board of Directors of each member company of the Group. If any serious problem is found in the audit results, it is reported to the Board of Directors of Tokio Marine Holdings as well. Unified Framework of Internal Audits within the Tokio Marine Group A set of unified Basic Policies for Internal Audits and Internal Audit Rules are applied to all internal audits that are performed by internal audit departments of the Group companies in order to ensure consistent internal auditing within the Tokio Marine Group. In addition, priority issues and checking points on internal audits are defined every year and internal audit plans of the Group companies require the prior approval of Tokio Marine Holdings. Through these approaches, Tokio Marine Holdings endeavors to enhance the consistency of internal auditing throughout the Group. Joint Audits In order to raise the effectiveness of internal audits, there are also cases where the internal audit departments of each subsidiary work together. 62 Tokio Marine Holdings, Inc. Annual Report 2010

65 Risk Management 1. Overall Profile of Risk-Based Management (ERM: Enterprise Risk Management) Maintain financial soundness Achieve adequate balance between net asset value and risk capital based on the internal risk capital model with AA calibration. The Tokio Marine Group strives to maintain soundness and raise the profitability (capital efficiency) of the Group by strengthening its Risk-Based Management (ERM). Properly identifying and managing risk is necessary to maintain financial soundness and improve profitability (capital efficiency) in undertaking risk-based management. 2. Maintaining Financial Soundness Strengthening ERM Improve profitability (capital efficiency) Establish a highly diverse business portfolio in terms of geography and lines of business for stabilizing Group profits and improve return on risk capital. (1) Risk Management System of the Tokio Marine Group The Company formulates the basic policies concerning risk management for the entire Tokio Marine Group as well as ascertains the state of risk for the Group. Subsidiaries and others manage risk on their own initiative in accordance with these basic policies. Among the various risks, the Company recognizes that insurance underwriting risks and investment risks (market risks, credit risks and real estate investment risks) are risks (core risks) that must be managed in sources of earnings and the Company therefore actively manages these risks. The Company also identifies office work risks, system risks and other risks pertaining to the Group s business activities and strives to prevent the occurrence of or reduce these risks as it works to execute proper risk management and ensure stable business operations. Tokio Marine Holdings, Inc. Annual Report 2010 Financial Data Corporate Data Message/Strategy Results/Projections Management Framework CSR 63

66 Risk Management Board of Directors Tokio Marine Holdings Corporate Auditors Board of Corporate Auditors Management Meeting Internal Control Committee Risk Management Department/Business Divisions Core risk Associated risk Other risk Reputational risk Legal risk Information leakage risk System risk Office work risk Liquidity risk Real estate investment risk Credit risk Market risk Insurance underwriting risk Reporting, prior approval Indication of policies, guidance/ supervision/administration/monitoring Subsidiaries and others 1) Role of Tokio Marine Holdings Tokio Marine Holdings promotes the establishment and enhancement of the risk management system for the entire Group in accordance with the Tokio Marine Group s basic policies for risk management. The Company also manages quantitative risks for the Group (Refer to (3) Integrated Risk Management) in order to retain credit ratings and prevent bankruptcies. 2) Role of Subsidiaries Operating subsidiaries and others actively conduct their own risk management by developing their own risk management policies in line with the Basic Policy for Risk Management for the Tokio Marine Group. 64 Tokio Marine Holdings, Inc. Annual Report 2010

67 (2) Basic Policies for Risk Management The Tokio Marine Group has developed the basic policies for risk management described below. Tokio Marine Holdings, its subsidiaries and others manage risks in line with these basic policies. 1) Basic Policy for Risk Management The Basic Policy for Risk Management for the Tokio Marine Group sets forth the organizations responsible for risk management, definition of risks, organizations and guidelines for risk management that subsidiaries and others shall establish, and the issues that must be reported. Subsidiaries and others conduct risk management based on this policy. 2) Basic Policy for Integrated Risk Management The Tokio Marine Group has developed the Basic Policy for Integrated Risk Management, which establishes the fundamental matters concerning the quantitative risk management of the entire Group, definition of risk amount and returns, and the process for evaluation and monitoring of capital allocation plans. 3) Basic Policy for Crisis Management The Tokio Marine Group has developed the Basic Policy for Crisis Management for the entire Group; this policy clarifies the chain of command in the event of an emergency as well as policies related to the measures to minimize losses and recover ordinary business operations and the crisis management systems that should be established by subsidiaries and others. Subsidiaries and others establish risk management systems based on this policy. (3) Integrated Risk Management Through integrated risk management, the Company quantitatively ascertains and properly manages risk to ensure that any risk that emerges is within the scope of net asset value. Net asset value mentioned here refers to net asset value to absorb losses if any risk emerges. It consists of adding various types of reserves such as the catastrophe loss reserve as well as the value of in-force life insurance policies to consolidated net asset value on the balance sheet and subtracting goodwill. 1) Risk quantification The Tokio Marine Group quantifies potential losses on all risks that could arise within the given time horizons and that could exceed the given probability levels. The risk quantification method used is a risk indicator called value at risk (VaR). With the aim of maintaining an AA rating, the Company quantitatively measures risk, setting a probability level of 99.95% in consideration of past probabilities of bankruptcies for AA ratings. 2) Determination of allowable risk parameters Integrated risk management aims to maintain ratings and prevent bankruptcies by keeping risk volume within the prescribed allowable parameters. The allowable risk parameter for the Tokio Marine Group as a whole has been defined in terms of an upper limit on the entire quantity of risk. While considering the level of net asset value, we determine this allowable risk quantity semiannually, and properly manage operations so that risk quantity does not exceed this limit. 3) Evaluation and monitoring of capital allocation plans Tokio Marine Holdings ensures that the expected risk volume is within the allowable risk parameters set out in the Group capital allocation plan. In other words, the Risk Management Department, which has an internal control function, checks and examines the capital allocation plans to make sure that they are appropriate in terms of net asset value. Moreover, the status of the risk volume is periodically reviewed. Tokio Marine Holdings, Inc. Annual Report 2010 Financial Data Corporate Data Message/Strategy Results/Projections Management Framework CSR 65

68 Risk Management 4) State of net asset value and risk capital (as of the end of March 2010) Regarding the status of the Tokio Marine Group s net asset value and risk capital as measured by the above processes, at the end of March 2010, net asset value stood at 3,500.0 billion yen, risk capital was 2,700.0 billion yen and the capital buffer was billion yen. The Company maintained adequate net asset value for maintaining an AA rating. Capital buffer is the differential amount between net asset value and risk capital and serves as the capital reserve for responding to future changes in the financial and economic environments and for implementing new M&A strategies. Net asset value 3,500 billion yen Capital buffer 800 billion yen Risk capital 2,700 billion yen (4) Strengthening Enterprise Risk Management (ERM) The changes in the environment surrounding the Tokio Marine Group as well as the diversification of the Tokio Marine Group s business portfolio have also been accompanied by a diversification in the Group s risk. By strengthening its risk management structure, the Company is handling this new risk while continually upgrading and refining its risk quantification methods. The Tokio Marine Group s approach to enterprise risk management (ERM) has also been acclaimed by external organizations. The ratings agency Standard & Poor s (S&P) evaluates the ERM systems of insurance companies as part of its credit rating determination process. Regarding this evaluation of ERM systems, Tokio Marine & Nichido Fire Insurance Co., Ltd., a subsidiary of the Company, was the only Japanese insurance company (non-consolidated basis) to receive a Strong evaluation. This Strong evaluation is the second-highest evaluation. Only around 15% of insurance companies around the world for which S&P evaluates have attained a rating of Strong or above. 66 Tokio Marine Holdings, Inc. Annual Report 2010

69 3. Improve Profitability (Capital Efficiency) (1) Business Portfolio Management and Capital Allocation System To continuously expand earnings (adjusted earnings), raise the Group s capital efficiency (adjusted return on equity (ROE)) and maximize corporate value, the Group carries out a relative evaluation of each business and prioritizes the allocation of management resources (business portfolio management). It is achieved by using risk/return indicators for each business and applying a scoring indicator covering market growth potential and profitability, competitive advantages and expected effects of strategies, and taking other qualitative factors into consideration. Allocated management resources include funds, human resources and risk capital. By allocating these resources to business units and new businesses with even higher profitability and growth potential, we aim to improve the profitability and growth potential of our business portfolio. Following the prioritizing of management resources to each business field through business portfolio management, we determine a concrete risk capital allocation plan for each business. We call the structure for allocating risk capital the risk capital allocation system. Risk capital referred to here is not the amount of statutory capital but is identified as pseudo-capital based on a risk volume calculated as a uniform gauge of all types of risk. The capital allocation system and integrated risk management are intricately related and based on the same risk evaluation methods. The Company maintains financial soundness through integrated risk management while the introduction of a decision-making process based on the quantitative analysis method enables us to select business units with deeper insights and to utilize limited capital more effectively. (2) Integrated and Comprehensive Discussions as Our Group Corporate Finance We evaluate business plans under our business portfolio management and allocate capital based on these evaluations under our capital allocation system. Therefore, business plans and capital allocation are closely related. Additionally, because the execution of business plans also requires funds and risk capital, it is also necessary to ensure sufficient coordination with Group Corporate Finance, under which funds and risk capital are handled. Aside from business portfolio management and the capital allocation system, the Tokio Marine Group also includes cash management, debt finance and shareholder returns as the Group Corporate Finance. All of these are organically linked and discussed at the Management Meeting and the Board of Directors. Integrated and Comprehensive Considerations as the Group Corporate Finance Share repurchases Business investment Cash management Equity offering Dividend policy Debt finance Business Portfolio Management Business strategies/plans Management resource allocation (includes capital allocation system) Tokio Marine Holdings, Inc. Annual Report 2010 Financial Data Corporate Data Message/Strategy Results/Projections Management Framework CSR 67

70 Risk Management 4. Approach in Fiscal 2010 (1) Capital Control As previously mentioned, to maintain its AA rating, the Tokio Marine Group is currently securing adequate capital and maintaining its strong financial base. The Group also continuously pursues an appropriate balance between maintaining financial soundness and increasing profitability (capital efficiency). The Company suspended the repurchase of its own shares in November 2008 due to the effects of the financial crisis. However, in consideration of current financial and economic circumstances and its fiscal 2010 business plans (including business investments), the Company resumed the repurchase of its own shares in the first half of fiscal 2010, with an upper limit of 25.0 billion yen. We will continue to closely monitor trends in the financial and economic environments and make appropriate responses upon giving sufficient attention to maintaining a level of capital commensurate with risk. (2) Risk Control We will control risk at the same level as in fiscal 2009 for risk in insurance underwriting, which is a main source of profit (core risk). For investment risk, we will utilize the lessons learned from the financial crisis and upgrade and expand our highly liquid bond portfolio while also diversifying and strictly selecting investments with the aim of accumulating stable profits in view of opportunities arising from a recovery in financial markets. We intend to increase sales of business-related equity holdings over the level of fiscal 2009 and plan to reduce the market risk of business-related equity. For matching assets to long-term insurance liabilities, we will continue to operate strict surplus ALM* in both non-life insurance and life insurance and will work to minimize the effects of changes in interest rates on market value surpluses (embedded value (EV) for life insurance companies). In the variable annuity business, taking current circumstances into consideration, we will continue to adopt a risk-restrictive sales stance. Although the temporary crisis situation has passed, we will continue to closely watch trends in the financial and economic environments and make considerations and even implement measures swiftly to reduce risk in times of abrupt changes. *Surplus ALM: Comprehensive management method of assets and liabilities through controlling interest rate sensitivity with the aim of stably increasing market value surpluses, which is the difference between the market value of assets and the market value of liabilities (3) Development and Refinement of Risk Models and Other Infrastructures We plan to continually develop more-sophisticated internal risk models, including a risk capital (integrated risk) model, within the Tokio Marine Group. We will also continue to develop various types of modeling infrastructures including upgrading databases and developing modules for fair value measurement of liabilities with a view to preparing for the adoption of International Financial Reporting Standards. 68 Tokio Marine Holdings, Inc. Annual Report 2010

71 Tokio Marine Holdings, Inc. Annual Report 2010 Corporate Social Responsibility (CSR) Corporate Social Responsibility (CSR) 70 Reducing Environmental Impacts from Business Activities 71 Protection of the Global Environment 73 Contribution to Local Communities and Society 74 Disclosure and Investor Relations 75 Financial Data Corporate Data Message/Strategy Results/Projections Management Framework CSR 69

72 Corporate Social Responsibility (CSR) Tokio Marine Group CSR Charter The Tokio Marine Group considers that the execution of its Corporate Philosophy is equal to the fulfillment of CSR. The Group s goal is to increase the value it provides every stakeholder and, as a result, to increase its corporate value, which is the sum total of the value it provides all stakeholders, through the implementation of CSR practices. It has established the Tokio Marine Group CSR Charter as a set of behavioral guidelines for implementation of such CSR practices. Tokio Marine Group CSR Charter The Tokio Marine Group is committed to fulfilling its corporate social responsibilities (CSR) by implementing its Corporate Philosophy to achieve sustainable growth together with the development of society, in accordance with the following principles: Products and Services We aim to provide society with products and services to meet the needs for safety and security. Respect for Human Rights and Dignity We respect and actively promote the recognition of human rights for all people. We strive to ensure an energetic working environment that is both safe and healthy and to promote training and education of our employees. We respect the right to privacy and strive to enforce this right through the management of personal information. Protection of the Global Environment Acknowledging that the protection of the global environment is an important responsibility for all corporate entities, we respect harmony with and improvement of the global environment in all of our activities. Contribution to Communities and Societies As a member of various communities and societies, we respect the diversity of cultures and customs in different countries and regions, and we aim to contribute actively to society in response to the needs of the current era. Compliance While striving to maintain high ethical standards at all times, we will pursue strict compliance in all aspects of our business activities. Communication We intend to disclose information in a timely and appropriate manner and to promote dialogue with all our stakeholders to ensure effective corporate management. Participation in the United Nations Global Compact In recognition of the fact that the concepts behind and details of the 10 principles for behavior in connection with human rights, labor practices, the environment, and anticorruption advocated in the United Nations Global Compact coincide with the Tokio Marine Group s approach to CSR initiatives and its CSR Charter, Tokio Marine Holdings has participated since 2005 in the United Nations Global Compact. CSR Promotion Structure The Tokio Marine Group has established the CSR Board chaired by the president of Tokio Marine Holdings with members consisting of the presidents of each of the Group s companies. The Board formulates fundamental CSR policies and plans for the entire Group in addition to monitoring the progress of such initiatives. Each Group company promotes its own CSR activities in line with the policies and plans formulated by the Board. Additionally, Tokio Marine Holdings has established a CSR Section to coordinate CSR efforts across the Group and provide CSR support to each of the Group companies. Tokio Marine Group CSR Promotion Structure Tokio Marine Holdings Board of Directors (Management Meeting) CSR Board Corporate Planning Dept CSR Section Tokio Marine Group Companies Board of Directors CSR Promotion Officer Workplace 70 Tokio Marine Holdings, Inc. Annual Report 2010

73 Reducing Environmental Impacts from Business Activities Aiming to reduce CO2 emissions and become carbon neutral Overall Profile of Our Environmental Management The Tokio Marine Group implements the Plan-Do-Check-Act (PDCA) cycle through environmental management systems (EMS)* at all principal Group companies as it strives to reduce environmental impacts from its business activities. Additionally, we expanded the scope of coverage for the environmental impact data to Group companies, and have now achieved approximately 100% coverage on a consolidated basis. *Tokio Marine & Nichido (head office)/tokio Marine & Nichido Facilities (head office): Obtained ISO certification Tokio Marine & Nichido (excluding the head office) and other Group companies: Group s unique EMS Concept for Reducing Environmental Impacts The Tokio Marine Group s primary environmental impacts are CO2 emissions (electricity and gasoline) and paper usage (various types of pamphlets). We have positioned initiatives for reducing environmental impacts as one of our Key CSR Issues and are implementing countermeasures based on the following strategic concepts. 1) Reduce: Use energy-efficient buildings and facilities and achieve reductions and cut back on energy usage. 2) Switch: Switch to natural energy. 3) Offset: Remove CO2 through mangrove planting and retirement of carbon credits (emissions credits). The entire Tokio Marine Group (Japan/overseas) is promoting various measures for reducing environmental impacts and aims to become carbon neutral by the end of fiscal A carbon neutral state means that CO2 emitted in the course of a company s business activities is equivalent to the volume of CO2 removed and reduced by way of mangrove planting, use of natural energy and retirement of carbon credits by such a company. Mangrove Planting for CO2 Removal From 1999, Tokio Marine & Nichido began undertaking the Mangrove Planting Project in Southeast Asia under the concept insurance that covers the earth s future. As of fiscal 2009 (year ended March 2010), a total of 6,293 hectares of mangroves had been planted. Mangrove forests help prevent and reduce global warming by absorbing and stabilizing large amounts of CO2. Therefore, we are incorporating the removal of CO2 through mangrove planting as one initiative for becoming carbon neutral. This is a cutting-edge and unique initiative in Japan and overseas. General Carbon Offset CO2 Emissions Retirement of Emission Credits Renewable Energy Tokio Marine Group s Carbon Offset CO2 Emissions Mangroves Renewable Energy Tokio Marine Holdings, Inc. Annual Report 2010 Retirement of Emission Credits Financial Data Corporate Data Message/Strategy Results/Projections Management Framework CSR 71

74 Reducing Environmental Impacts from Business Activities Environmental Impact Data Tokio Marine Group Total CO2 emissions by the Tokio Marine Group in fiscal 2009 amounted to 85,701 tons, including 68,411 tons in Japan and 17,290 tons overseas. For fiscal 2010, the Group has set a reduction target of 7% from the previous fiscal year. Scope 1 Direct Gas, others 4,442 tons (domestic: 4,063 tons, overseas: 379 tons) Scope 2 Indirect Electricity, others 62,961 tons (domestic: 49,446 tons, overseas: 13,515 tons) Scope 3 Other Business travel (Use of gasoline-powered cars and air travel) 18,298 tons (domestic: 14,902, overseas: 3,396 tons) *The subject, activities and CO2 emission, removal volumes and retirement of emission credits are pursuant to ISO and the Calculation, Reporting and Publication System for Greenhouse Gas Emissions based on the Act on Promotion of Global Warming Countermeasures. *Figures for travel are attainable only for Tokio Marine Holdings, Tokio Marine & Nichido and Tokio Marine Asia (Singapore) Pte. Ltd. Paper usage 12,241 tons (Japan: 11,841 tons, overseas: 400 tons) Tokio Marine & Nichido In fiscal 2007, Tokio Marine & Nichido set a medium-term target of attaining a 6% reduction in CO2 emissions by fiscal 2012 compared with the fiscal 2006 level and is currently progressing with CO2 reduction measures. In fiscal 2009, CO2 emissions amounted to 49,307 tons. At the end of fiscal 2009, Tokio Marine & Nichido became carbon neutral in its domestic operations. *Calculations for CO2 emissions, CO2 removal through mangrove planting, use of renewable energy and CO2 reduction through retirement of emission credits are verified by the company and Ernst & Young ShinNihon Sustainability Institute Co., Ltd., a third party. CO2 emissions 49,307 tons CO2 removal 49,561 tons CO2 emissions 49,307 tons CO2 removal 49,561 tons Scope 1 Direct Gas, others 2,447 tons Scope 2 Indirect Electricity, others 37,148 tons Scope 3 Other Business travel (Use of gasoline-powered cars and air travel) 9,712 tons CO2 removal through mangrove planting Retirement of carbon credits (emission credits) Use of renewable energy (green electricity) 44,000 tons 5,000 tons 561 tons 72 Tokio Marine Holdings, Inc. Annual Report 2010

75 Protection of the Global Environment The business activities of the Tokio Marine Group involve the consumption of various types of energy. In order to minimize the environmental burden of such activities, the Group is committed to promoting recycling and conserving resources by going paperless. Mangrove Planting Project Tokio Marine & Nichido s Mangrove Planting Project was initiated in 1999 in seven countries across Southeast Asia, India and the South Pacific s Fiji Island. As of the end of March 2010, the project had planted 6,293 hectares of new forest in these regions. Mangrove trees in these regions are not only essential in helping prevent global warming by absorbing large volumes of CO2 but also serve as bulwarks against tsunamis and other natural disasters. In addition, by providing fishery and forestry resources essential to local livelihoods, mangrove trees contribute to stabilizing and improving the local living environment, as well as to achieving environmental sustainability on a global scale. Green Lessons: The Mangrove Story Staged Nationwide Tokio Marine Group has developed an educational program, Green Lessons: The Mangrove Story, to raise awareness of environmental issues among elementary school children in Japan. The program is led by Group employees and agents who bring lessons to elementary schools or self-contained classrooms throughout Japan. Children learn about how the planting of mangrove trees contributes to ecosystem preservation and the prevention of global warming. Approximately 23,000 school children at around 330 schools across Japan have received these lessons through the program. Working to Reduce Environmental Burden in Offices Around the world, the companies of the Tokio Marine Group are working to reduce the use of paper and electricity by taking such measures as promoting the use of energy-saving office equipment and facilities as well as holding paperless meetings. For example, as an initiative for raising the environmental awareness of each employee, U.S.-based Tokio Marine Management, Inc. distributes drinking mugs to all employees to reduce the use of paper cups at its office. Children s Environmental Award Lesson in progress at Kochi City Yokohama Shinmachi Elementary School. Together with the Asahi Shimbun Company, Tokio Marine & Nichido has been implementing the Children s Environmental Award since 2008 as one initiative for raising the environmental awareness of elementary school children, who will lead the next generation. In fiscal 2009, we solicited illustrations and essays about the environment from elementary school children and received 4,734 works from throughout Japan. The award winners and their guardians were invited to join the Iriomote Island Eco Experience Tour, through which they learned about various global problems within a natural environment. Activities included exploring Japan s largest mangrove forest, picking up garbage that had washed ashore and separating this garbage according to country of origin, as well as directly coming into contact with fish, shells and small animals together with specialist instructors. Tokio Marine Holdings, Inc. Annual Report 2010 Financial Data Corporate Data Message/Strategy Results/Projections Management Framework CSR 73

76 Contribution to Local Communities and Society The business activities of the Tokio Marine Group are founded on the support of people of local communities, including customers and agents. In each region around the world, the companies of the Tokio Marine Group carry out social contribution activities focused on safety and security, protection of the global environment and growth of young people. Movement to Protect Customers from Cancer The companies of the Tokio Marine Group, centering on Tokio Marine & Nichido Life, support the Pink-Ribbon Movement, a campaign that communicates the importance of the early detection of breast cancer, through the nonprofit organization J.POSH (Japan Breast Cancer Pink-Ribbon Movement). The Group also carries out educational activities on cancer prevention that include the holding of seminars and street campaigns across Japan. Also, as of the end of March 2010, the Tokio Marine Group collaborated with local public entities and regional financial institutions in 35 prefectures and six cities across Japan to provide community residents with education on cancer and raise cancer examination rates. In addition, the Tokio Marine Group concurs with the initiatives advocated and undertaken by the Iwate Hospice Association, a citizen s organization that supports cancer patients and their families. In October 2009, the Tokio Marine Group donated 1,042 terry cloth caps handmade by numerous employees to the Iwate Hospice Association for use by patients undergoing anti-cancer drug treatment. Supporting Assistance Activities for Children Orphaned by Traffic Accidents In recognition of the numerous families forced to bear psychological, physical and financial burdens as a result of traffic accidents, Nisshin Fire donated a portion of income from VAP (an indemnity rider for vulnerable road users), a new comprehensive automobile insurance product, to the non-profit organization Association for Assistance to Children Orphaned by Traffic Accidents. In the future as well, by promoting such initiatives through our main businesses, we will proactively undertake activities to contribute to local communities and society. Asia CSR Day The nine Tokio Marine Group companies, beginning with Tokio Marine Asia Pte. Ltd (Singapore), in five Asian countries and regions* held Asia CSR Day events. Based on the common theme of supporting disadvantaged children, these events involved the undertaking of CSR activities across the Asia region on August 8, On CSR Day, employees in each region visited orphaned children with disabilities and children battling serious diseases and supported approximately 400 children through donations and volunteer activities. * Singapore, Malaysia, Indonesia, Thailand and Hong Kong Assistance for Natural Disasters around the World Group employees together with children who received support in Malaysia Through support organizations in each respective country, the Tokio Marine Group donated relief funds for the Haiti earthquake in January This donation included 12.5 million yen collected from employees of the Company and its domestic group companies and agents in addition to 100,000 U.S. dollars (approximately 9 million yen) gathered from the U.S.-based Philadelphia Insurance Companies and their employees. In response to flood damage in Jeddah, Saudi Arabia, in November 2009, employees of nearby bases, including in Saudi Arabia and Dubai, worked in cooperation and implemented various support activities that included purchasing and delivering relief supplies to stricken areas. Delivery of emergency provisions in Jeddah 74 Tokio Marine Holdings, Inc. Annual Report 2010

77 Disclosure and Investor Relations We make every effort to disclose information about the Tokio Marine Group s current financial condition and future business development in a fair and understandable manner that facilitates precise and expeditious understanding for our investors and financial analysts. * Investor relations (IR) refers to activities in which a company provides shareholders and investors with the information necessary for making judgments regarding their investments. Disclosure Policy of the Tokio Marine Group We aim to disclose meaningful information regarding the Tokio Marine Group that enhances management transparency and fairness in connection with our corporate social responsibility (CSR). 1. Disclosure Policy It is our policy to disclose information expeditiously in accordance with the Rules on the Timely Disclosure of Corporate Information by Issuers of Listed Securities and the Like stipulated by the Tokyo Stock Exchange. We strive for the timely, accurate and fair disclosure of other information that is relevant to our customers, shareholders and investors, insurance agents and employees as well as society at large. 2. Methods of Disclosure Disclosure pursuant to stock exchange rules, regulations and other requirements is made through the Timely Disclosure network, or TDnet, of the Tokyo Stock Exchange as well as the press and other appropriate means. We subsequently post the disclosed information on our website. Other disclosure is made in an appropriate manner based on the content of the relevant information. 3. Additional Information Disclosure made based on this Disclosure Policy is intended to inform the public regarding the Tokio Marine Group s activities accurately, expeditiously and fairly and is not intended to constitute an investment solicitation. IR Activities Adopted on November 30, 2004 Revised on July 5, 2007 Revised on July 1, 2008 Since its establishment in 2002, Tokio Marine Holdings has worked to provide shareholders and investors with timely, accurate information and to promote active dialogue with shareholders and investors. Opinions and suggestions received from shareholders and investors via various types of briefing sessions and one-on-one meetings are indispensable for realizing sound and highly transparent corporate governance. We truly value each opinion, and Group employees will work in concert to reflect these opinions in future operations. Summary of Fiscal 2009 IR Activities A summary of IR activities implemented by the Company in fiscal 2009 is as follows. The Company works to provide explanations using a diversity of formats in accordance with the nature of the needs and interests of domestic and overseas shareholders and investors. In the future as well, we will undertake diverse IR initiatives. Information briefings for individual investors Tokio Marine Holdings, Inc. Annual Report 2010 Financial Data Corporate Data Message/Strategy Results/Projections Management Framework CSR 75

78 Disclosure and Investor Relations IR Activities for Individual Investors Activities for Institutional Investors Information briefings for individual investors 1 time Approximately 380 participants Securities company investment seminars 12 times Approximately 1,100 participants Large meetings* 1 2 times Approximately 270 participants Small meetings * 2 9 times 54 companies Individual meetings 200 companies Quarterly results conference calls in Japan 4 times (Japanese) 311 companies Overseas investor meetings 8 times 147 companies visited *1 Large meetings are briefing sessions with several dozen participants. *2 Small meetings are briefing sessions with between several and a dozen participants. Promoting Inclusion in Socially Responsible Investing (SRI)* Funds and Indexes Socially Responsible Investing (SRI), which evaluates companies from the perspective of sustainability in economic, environmental and social areas, has been attracting attention. Tokio Marine Holdings has earned high acclaim from domestic and overseas SRI evaluation institutions and is being included in SRI funds and domestic and overseas indexes. In fiscal 2009, Tokio Marine ranked first among 626 listed companies in the Corporate Integrity and Transparency Survey by Integrex Inc., a leading Japanese research institution specializing in integrity-based SRI. To ensure that we can continue earning such high acclaim, we will work to realize sound and highly transparent management. * An investment method that aims for stable profits, SRI evaluates companies from social, ethical and environmental perspectives such as compliance with laws, contributions to the community and responses to global warming in addition to applying investment standards using traditional financial analysis. Tokio Marine Holdings Website Disclosure of Information via Our Website Tokio Marine Holdings proactively discloses information on its website with regard to financial information, Group structure, management strategies and CSR activities. Through our website, we are striving to promote visible IR that familiarizes people with the Group and gives them a sense of trust. In addition, Tokio Marine Holdings provides webcasts of important IR events such as business results briefings, information briefings for investors and business plan presentations, and also offers videos such as interviews with the president. Tokio Marine Holdings ranked first in the insurance industry in the IR Site Ranking 2010 by Gomez Consulting Co., Ltd. Group Company Websites Refer to the following websites regarding the information disclosure of each insurance company in the Tokio Marine Group. Tokio Marine & Nichido Fire Insurance Co., Ltd. Nisshin Fire & Marine Insurance Co., Ltd. (Japanese only) E. design Insurance Co., Ltd. (Japanese only) Tokio Marine Millea SAST Insurance Co., Ltd. (Japanese only) Tokio Marine & Nichido Life Insurance Co., Ltd. (Japanese only) Tokio Marine & Nichido Financial Life Insurance Co., Ltd. (Japanese only) 76 Tokio Marine Holdings, Inc. Annual Report 2010

79 2010 Financial Data Change in Key Business Indicators (Consolidated Basis) 78 Financial Statements of Tokio Marine Holdings and Its Consolidated Subsidiaries 79 Solvency Margin Ratio 137 Interest-Rate Sensitivity of ALM Surplus Value 141 Embedded Value 142 Statutory Reserve 148 Financial Data Corporate Data Message/Strategy Results/Projections Management Framework CSR 77

80 Change in Key Business Indicators (Consolidated Basis) (Yen in millions if not indicated specifically) 2010 (April 1, 2009 March 31, 2010) 2009 (April 1, 2008 March 31, 2009) 2008 (April 1, 2007 March 31, 2008) 2007 (April 1, 2006 March 31, 2007) 2006 (April 1, 2005 March 31, 2006) Ordinary income 3,570,803 3,503,102 3,710,066 4,218,557 3,399,984 Net premiums written 2,292,911 2,134,243 2,245,135 2,148,683 1,978,664 Ordinary profit 203,413 (15,128) 179, , ,563 Net income 128,418 23, ,766 93,014 89,960 Net assets 2,184,795 1,639,514 2,579,339 3,410,707 3,209,849 Total assets 17,265,868 15,247,223 17,283,242 17,226,952 14,260,020 Net assets per share (Yen) 2, , , , ,910, Net income per share-basic (Yen) , Net income per share-diluted (Yen) , Capital ratio (%) Return on equity: ROE (%) Price-to-earnings ratio: PER (Ratio) Net cash provided by operating activities 371, , ,143 1,367, ,584 Net cash provided by/used in investing activities 170,771 (1,693,745) (433,857) (986,389) (1,082,442) Net cash used in/provided by financing activities (159,974) 104,189 (66,404) (51,018) (45,030) Cash and cash equivalents at end of year 1,268, ,551 1,988,696 1,670,006 1,277,127 Number of employees 29,578 28,063 24,959 23,280 19,761 Notes: 1. For calculating net assets, the Company has adopted Accounting Standard for Presentation of Net Assets in the Balance Sheet (Accounting Standards Board of Japan, hereinafter ASBJ Statement No.5, and Guidance on Accounting Standard for Presentation of Net Assets in the Balance Sheet (ASBJ Guidance No. 8) for the fiscal year ended March 31, On September 30, 2006, the Company conducted a share split in the ratio of 500:1. 3. Number of employees is head-count of staff currently at work. 78 Tokio Marine Holdings, Inc. Annual Report 2010

81 Financial Information 1. Preparation of Consolidated Financial Statements The accompanying consolidated financial statements have been prepared in accordance with the Regulations Concerning Terminology, Formats and Preparation Methods of Consolidated Financial Statements (Ministry of Finance Ordinance No. 28, 1976, hereinafter the Consolidated Statements Regulations ). The consolidated financial statements have been also prepared in conformity with the Enforcement Regulations for the Insurance Business Law (Ministry of Finance Ordinance No. 5, 1996, hereinafter the Insurance Law Enforcement Regulations ), as stipulated under Articles 46 and 68 of the Consolidated Statements Regulations. The consolidated financial statements for the fiscal year ended March 31, 2009 were prepared in accordance with the Consolidated Statements Regulations and the Insurance Law Enforcement Regulations effective for the fiscal year The consolidated financial statements for the fiscal year ended March 31, 2010 have been prepared in accordance with the Consolidated Statements Regulations and the Insurance Law Enforcement Regulations effective for the fiscal year The Company and its domestic consolidated subsidiaries maintain their accounts and records in accordance with the provisions set forth in the Corporation Law of Japan and the Financial Instruments and Exchange Act of Japan, and in conformity with accounting principles generally accepted in Japan, which are different in certain respects as to application and disclosure requirements of International Financial Reporting Standards. Amounts less than 1 million have been omitted in the consolidated financial statements. As a result, the total thereto do not necessarily agree with the sum of the individual account balances. 2. Auditors Certification Pursuant to Article 193-2, Paragraph 1 of the Financial Instruments and Exchange Act of Japan, Tokio Marine Holdings consolidated financial statements for the fiscal years ended March 31, 2009 and March 31, 2010 have been audited and certified by PricewaterhouseCoopers Aarata. 3. Conscious steps to achieve appropriateness of the consolidated financial statements The Company takes conscious steps to achieve appropriateness of the consolidated financial statements. For example, the Company is a member of the Financial Accounting Standards Foundation, participates in the seminars associated with the accounting and audit firms, and subscribes to accounting specialized books in order to improve the structure which enables the Company to appropriately understand the accounting standards and to coordinate with the changes in accounting procedures. Tokio Marine Holdings, Inc. Annual Report 2010 Financial Data Corporate Data Message/Strategy Results/Projections Management Framework CSR 79

82 Financial Information Financial Statements of Tokio Marine Holdings and its Consolidated Subsidiaries 1 Consolidated Financial Statements (1) Consolidated Balance Sheet (Yen in millions except %) As of March 31, 2010 As of March 31, 2009 Increase/ Notes No. Amount Composition ratio (%) Amount Composition ratio (%) Decrease by Comparison Assets Cash and bank deposits *4 452, , (9,394) Call loans 116, , (236,065) Receivables under resale agreement 150, , (151,923) Receivables under security borrowing transactions 22, , (24,645) Monetary receivables bought 1,339, , ,615 Money trusts 11, , ,089 Securities *2*4*6 12,617, ,695, ,922,722 Loans *3*7 547, , (63,387) Tangible fixed assets *1 324, , (14,051) Land *4 152, ,238 (8,677) Buildings *4 141, ,607 (1,523) Construction in progress 7,944 10,658 (2,713) Other 22,771 23,909 (1,138) Intangible fixed assets 380, , (47,687) Software 5,858 4,341 1,517 Goodwill 274, ,577 (15,973) Other 99, ,012 (33,232) Other assets *10 1,152, ,241, (89,132) Deferred tax assets 81, , (137,122) Customers liabilities under acceptances and guarantees 92, , (9,348) Valuation allowance for bad debts (25,389) (0.15) (20,368) (0.13) (5,021) Total assets 17,265, ,247, ,018,645 Liabilities Insurance liabilities 11,744, ,253, ,273 Outstanding claims *4 1,222,169 1,192,416 29,753 Underwriting reserves *4 10,522,486 10,060, ,519 Corporate bonds 178, , (121,101) Other liabilities 2,571, ,536, ,034,727 Payables under security lending transactions 1,580, , ,829 Other liabilities *4 991, ,417 54,897 Retirement benefit obligations 160, , ,546 Retirement benefit obligations for directors and corporate auditors (75) Provision for employees bonus 24, , ,680 Provision for demolition of fixed assets 1, , (1,755) Reserve under the special law 61, , ,951 Price fluctuation reserve 61,401 56,449 4,951 Deferred tax liabilities 113, , ,590 Negative goodwill 131, , (13,124) Acceptances and guarantees 92, , (9,348) Total liabilities 15,081, ,607, ,473,364 Net assets Shareholders equity Share capital 150, , Retained earnings 1,098, ,006, ,512 Treasury share (59,481) (0.34) (59,663) (0.39) 181 Total shareholders equity 1,188, ,097, ,694 Valuation and translation adjustments Unrealized gains on securities, net of taxes 1,037, , ,062 Deferred gains/losses on hedge transactions 12, , (5,096) Foreign currency translation adjustments (69,825) (0.40) (95,297) (0.63) 25,471 Total valuation and translation adjustments 980, , ,437 Share acquisition rights 1, Non-controlling interest 14, , ,895 Total net assets 2,184, ,639, ,280 Total liabilities and net assets 17,265, ,247, ,018,645 The accompanying notes are an integral part of the consolidated financial statements. 80 Tokio Marine Holdings, Inc. Annual Report 2010

83 (2) Consolidated Statement of Income (Yen in millions except %) As of March 31, 2010 As of March 31, 2009 (April 1, 2009 (April 1, 2008 Increase/ March 31, 2010) March 31, 2009) Decrease by Comparison Notes No. Amount Ratio (%) Amount Ratio (%) Tokio Marine Holdings, Inc. Annual Report 2010 Ordinary income 3,570, ,503, ,701 Underwriting income 2,968, ,130, (161,926) Net premiums written 2,292,911 2,134, ,668 Deposited premiums from policyholders 138, ,255 (27,868) Investment income on deposit premiums 66,502 71,021 (4,518) Life insurance premiums 464, ,083 (281,284) Reversal of outstanding claims 7,915 (7,915) Other underwriting income 5,550 4, Investment income 536, , ,721 Interest and dividends 206, ,622 (30,663) Gains on money trusts 1, ,181 Gains on trading securities 8,316 8,316 Gains on sales of securities 79,144 71,693 7,451 Gains on redemption of securities 2, ,140 Gains on derivatives 64,639 (64,639) Gains on separate account 298, ,893 Other investment income 5,731 3,209 2,522 Transfer of investment income on deposit premiums (66,502) (71,021) 4,518 Other ordinary income 66, , (94) Amortization of negative goodwill 10,264 10,604 (339) Equity in earnings of affiliates 2,752 2,752 Other ordinary income 53,250 55,757 (2,506) Ordinary expenses 3,367, ,518, (150,840) Underwriting expenses 2,734, ,232, ,133 Net claims paid 1,345,770 1,306,574 39,196 Loss adjustment expenses *1 94,841 87,634 7,206 Agency commissions and brokerage *1 464, ,153 22,796 Maturity refunds to policyholders 278, ,180 7,548 Dividends to policyholders Life insurance claims 104,130 90,935 13,194 Provision for outstanding claims 9,152 9,152 Provision for underwriting reserves 429,750 21, ,307 Other underwriting expenses 6,111 12,663 (6,552) (Continued on following page) Financial Data Corporate Data Message/Strategy Results/Projections Management Framework CSR 81

84 Financial Information As of March 31, 2010 (April 1, 2009 March 31, 2010) As of March 31, 2009 (April 1, 2008 March 31, 2009) Notes No. Amount Ratio (%) Amount Ratio (%) (Yen in millions except %) Increase/ Decrease by Comparison Investment expenses 66, , (660,537) Losses on money trusts 2,619 (2,619) Losses on trading securities 1,130 (1,130) Losses on sales of securities 11,777 33,365 (21,587) Impairment losses on securities 28, ,205 (133,475) Losses on redemption of securities 5,705 18,120 (12,414) Losses on derivatives 6,476 6,476 Losses on separate account 440,628 (440,628) Other investment expenses 13,433 68,591 (55,157) Operating and general administrative expenses *1 553, , ,781 Other ordinary expenses 21, , (16,931) Interest paid 7,173 13,470 (6,296) Increase in valuation allowance for bad debts 5,727 5, Losses on bad debts (267) Equity in losses of affiliates *2 5,085 (5,085) Amortization of deferred assets under Article 113 of the Insurance Business Law Other ordinary expenses 8,340 14,190 (5,849) Deferred expenses under Article 113 of the Insurance Business Law (8,286) (0.23) (8,286) Ordinary profit 203, (15,128) (0.43) 218,541 Extraordinary gains 5, , (78,618) Gains on sales of fixed assets 4,226 3,146 1,080 Reversal of reserve under the special law 65,540 (65,540) Reversal of price fluctuation reserve 65,540 (65,540) Other extraordinary gains * ,074 (14,158) Extraordinary losses 27, , ,733 Losses on disposal of fixed assets 3,414 2, Impairment losses on fixed assets *4 13,487 7,313 6,173 Losses on changes in equity of affiliates Provision under the special law 4,951 4,951 Provision for price fluctuation 4,951 4,951 Other extraordinary losses *5 5,336 11,952 (6,616) Income before income taxes 181, , ,190 Income taxes-current 67, , ,073 Income taxes for prior period 8, ,947 Income taxes-deferred (25,834) (0.72) (12,577) (0.36) (13,257) Total income taxes 50, , ,764 Non-controlling interest 2, (1,028) (0.03) 3,149 Net income 128, , ,276 The accompanying notes are an integral part of the consolidated financial statements. 82 Tokio Marine Holdings, Inc. Annual Report 2010

85 (3) Consolidated Statement of Changes in Shareholders Equity (Yen in millions) Year ended Year ended Increase/ March 31, 2010 March 31, 2009 Decrease by (April 1, 2009 (April 1, 2008 Comparison March 31, 2010) March 31, 2009) Tokio Marine Holdings, Inc. Annual Report 2010 Shareholders equity Share capital Beginning balance 150, ,000 Changes during the year Total changes during the year Ending balance 150, ,000 Retained earnings Beginning balance 1,006,891 1,010,521 (3,630) Changes in accounting policies applied to foreign subsidiaries 13,306 (13,306) Changes during the year Dividends (37,804) (43,168) 5,363 Net income 128,418 23, ,276 Disposition of treasury shares (42) (138) 95 Changes in the scope of consolidation 1,900 (1,900) Changes in the scope of equity method 1,997 (1,997) Others (Note) 941 (670) 1,612 Total changes during the year 91,512 (16,936) 108,449 Ending balance 1,098,403 1,006,891 91,512 Treasury shares Beginning balance (59,663) (9,792) (49,871) Changes during the year Repurchase of treasury shares (97) (50,302) 50,204 Disposition of treasury shares (151) Total changes during the year 181 (49,871) 50,052 Ending balance (59,481) (59,663) 181 Total shareholders equity Beginning balance 1,097,227 1,150,728 (53,501) Changes in accounting policies applied to foreign subsidiaries 13,306 (13,306) Changes during the year Dividends (37,804) (43,168) 5,363 Net income 128,418 23, ,276 Repurchase of treasury shares (97) (50,302) 50,204 Disposition of treasury shares (56) Changes in the scope of consolidation 1,900 (1,900) Changes in the scope of equity method 1,997 (1,997) Others (Note) 941 (670) 1,612 Total changes during the year 91,694 (66,807) 158,502 Ending balance 1,188,921 1,097,227 91,694 (Continued on following page) Financial Data Corporate Data Message/Strategy Results/Projections Management Framework CSR 83

86 Financial Information Year ended March 31, 2010 (April 1, 2009 March 31, 2010) Year ended March 31, 2009 (April 1, 2008 March 31, 2009) (Yen in millions) Increase/ Decrease by Comparison Valuation and translation adjustments Unrealized gains on securities, net of tax Beginning balance 608,106 1,402,487 (794,381) Changes during the year Net changes in items other than shareholders equity 429,062 (794,381) 1,223,443 Total changes during the year 429,062 (794,381) 1,223,443 Ending balance 1,037, , ,062 Deferred gains and losses on hedge transactions Beginning balance 17,796 11,952 5,844 Changes during the year Net changes in items other than shareholders equity (5,096) 5,844 (10,940) Total changes during the year (5,096) 5,844 (10,940) Ending balance 12,700 17,796 (5,096) Foreign currency translation adjustments Beginning balance (95,297) (1,673) (93,623) Changes during the year Net changes in items other than shareholders equity 25,471 (93,623) 119,094 Total changes during the year 25,471 (93,623) 119,094 Ending balance (69,825) (95,297) 25,471 Share acquisition rights Beginning balance Changes during the year Net changes in items other than shareholders equity Total changes during the year Ending balance 1, Non-controlling interest Beginning balance 10,832 15,224 (4,392) Changes during the year Net changes in items other than shareholders equity 3,895 (4,392) 8,288 Total changes during the year 3,895 (4,392) 8,288 Ending balance 14,727 10,832 3,895 Total net assets Beginning balance 1,639,514 2,579,339 (939,824) Changes in accounting policies applied to foreign subsidiaries 13,306 (13,306) Changes during the year Dividends (37,804) (43,168) 5,363 Net income 128,418 23, ,276 Repurchase of treasury shares (97) (50,302) 50,204 Disposition of treasury shares (56) Changes in the scope of consolidation 1,900 (1,900) Changes in the scope of equity method 1,997 (1,997) Others (Note) 941 (670) 1,612 Net changes in items other than shareholders equity 453,586 (886,323) 1,339,909 Total changes during the year 545,280 (953,131) 1,498,411 Ending balance 2,184,795 1,639, ,280 Note: Others for the fiscal year ended March 31, 2010 are: (i) reversal of valuation allowance of the deferred tax assets in accordance with accounting standards adopted by foreign subsidiaries, and (ii) valuation differences of assets in accordance with local accounting standards adopted by foreign equity method affiliates. Others for the fiscal year ended March 31, 2009 is the valuation differences of assets in accordance with accounting standards in foreign countries where equity method affiliates are located. The accompanying notes are an integral part of the consolidated financial statements. 84 Tokio Marine Holdings, Inc. Annual Report 2010

87 (4) Consolidated Statement of Cash Flows (Yen in millions) Notes No. Year ended March 31, 2010 (April 1, 2009 March 31, 2010) Year ended March 31, 2009 (April 1, 2008 March 31, 2009) Increase/ Decrease by Comparison I Cash flows from operating activities Income before income taxes 181,127 46, ,190 Depreciation 57,025 20,833 36,191 Impairment losses on fixed assets 13,487 7,313 6,173 Amortization of goodwill 16,581 8,774 7,807 Amortization of negative goodwill (10,264) (10,604) 339 Increase in outstanding claims 8,704 9,600 (895) Increase in underwriting reserves 426,983 18, ,325 Increase in valuation allowance for bad debts 4,617 4,716 (99) Increase in retirement benefit obligations 11,543 10,338 1,204 Increase (decrease) in retirement benefit obligations for directors and corporate auditors 2 (309) 311 Increase (decrease) in provision for employees bonus 4,360 (3,913) 8,274 (Decrease) in provision for demolition of fixed assets (1,755) (414) (1,341) Increase (decrease) in price fluctuation reserve 4,951 (65,540) 70,492 Interest and dividends (206,959) (237,622) 30,663 Net (gains)/losses on securities (39,091) 147,003 (186,095) Interest expenses 7,173 13,470 (6,296) Foreign exchange losses/(gains) 13,460 (7,905) 21,365 (Gains) on tangible fixed assets (840) (356) (483) Equity in (gains)/losses on affiliates (2,752) 5,085 (7,838) Investment (gains)/losses on separate accounts (298,893) 440,628 (739,522) Decrease/(increase) in other assets (other than investing and financing activities) 3,390 (112,584) 115,974 (Decrease)/increase in other liabilities (other than investing and financing activities) (42,036) 56,108 (98,144) Others (1,478) 47,807 (49,286) Subtotal 149, ,025 (248,688) Interest and dividends received 208, ,161 (39,549) Interest paid (7,901) (13,407) 5,505 Income taxes paid/recovered 18,753 (110,907) 129,661 Others 2,762 6,093 (3,330) Net cash provided by operating activities 371, ,964 (156,402) II Cash flows from investing activities Net decrease/(increase) in deposits 117,902 (213,128) 331,030 Purchases of monetary receivables bought (757,838) (655,583) (102,255) Proceeds from sales and redemption of monetary receivables bought 490, ,063 (413,868) Increase in money trusts (9,500) (2,000) (7,500) Decrease in money trusts 7,629 29,896 (22,267) Purchases of securities (3,732,858) (3,868,685) 135,826 Proceeds from sales and redemption of securities 3,084,138 3,440,526 (356,388) Loans made (188,755) (203,602) 14,846 Proceeds from collection of loans 252, ,320 (17,774) Change in cash collateral under security lending transactions 921,011 (911,077) 1,832,088 Others 874 (3,709) 4,583 II (a) Subtotal 185,345 (1,212,977) 1,398,322 (I+II (a)) 556,907 (685,012) 1,241,919 Purchases of tangible fixed assets (26,374) (22,632) (3,741) Proceeds from sales of tangible fixed assets 11,988 10,527 1,461 Payments related to acquisition of consolidated subsidiaries *3 (467,160) 467,160 Payments to acquire equity of subsidiaries (188) (1,502) 1,314 Net cash provided by/(used in) investing activities 170,771 (1,693,745) 1,864,516 Message/Strategy Results/Projections Management Framework CSR Financial Data Corporate Data (Continued on following page) Tokio Marine Holdings, Inc. Annual Report

88 Financial Information Notes No. Year ended March 31, 2010 (April 1, 2009 March 31, 2010) Year ended March 31, 2009 (April 1, 2008 March 31, 2009) Increase/ Decrease by Comparison III Cash flows from financing activities Proceeds from borrowing 5, ,053 (255,258) Repayments of borrowing (88,379) (19,554) (68,825) Proceeds from issuance of short-term corporate bonds 127,941 (127,941) Redemption of short-term corporate bonds (228,000) 228,000 Proceeds from issuance of corporate bonds ,125 (21,463) Redemption of corporate bonds (121,826) (59,113) (62,713) Redemption of commercial paper (16,654) 16,654 Change in cash collateral under security lending transactions 83, ,151 (27,686) Repurchases of treasury share (97) (50,302) 50,204 Dividends paid (37,742) (43,113) 5,371 Dividends paid to non-controlling interest (117) (107) (10) Proceeds from paid-up share capital from non-controlling interest 974 1,049 (74) Others (2,705) (2,284) (421) Net cash (used in) provided by financing activities (159,974) 104,189 (264,164) IV Effect of exchange rate changes on cash and cash equivalents 8,974 (49,513) 58,487 V Net increase (decrease) in cash and cash equivalents 391,333 (1,111,103) 1,502,437 VI Cash and cash equivalents at beginning of year 877,551 1,988,696 (1,111,144) VII Increase in cash and cash equivalents due to newly consolidated subsidiaries 287 (287) VIII Decrease in cash and cash equivalents due to exclusion from consolidation (328) 328 IX Cash and cash equivalents at end of year *1 1,268, , ,333 The accompanying notes are an integral part of the consolidated financial statements. (Yen in millions) 86 Tokio Marine Holdings, Inc. Annual Report 2010

89 Basis of Presentation and Significant Accounting Policies Year ended March 31, 2010 (April 1, 2009 March 31, 2010) 1. Scope of consolidation (1) Number of consolidated companies: 59 companies For details of Tokio Marine Holdings consolidated subsidiaries, please refer to Tokio Marine Holdings and its Subsidiaries in Corporate Data. Waterloo Partners Ltd and one other company are excluded from the consolidation beginning with the fiscal year ended March 31, 2010 because these companies have been dissolved. (2) Names of major non-consolidated subsidiaries (No change) Year ended March 31, 2009 (April 1, 2008 March 31, 2009) 1. Scope of consolidation (1) Number of consolidated companies: 61 companies For details of Tokio Marine Holdings consolidated subsidiaries, please refer to Tokio Marine Holdings and its Subsidiaries in Corporate Data. Philadelphia Consolidated Holding Corp., Philadelphia Indemnity Insurance Company and 12 other companies are included in the consolidation from the fiscal year ended March 31, 2009 as these entities became subsidiaries of the Company through the acquisition of shares, newly founded or for other reasons. Vetra Finance Corporation and one other company are excluded from the consolidation in the fiscal year ended March 31, 2009 as Vetra ceased to operate its bond investment business and redeemed the unsecured subordinated debts. Kiln Ltd and Kiln Reinsurance Ltd are excluded from the consolidation in the fiscal year ended March 31, 2009 as these companies have been dissolved. Asia General Asset Bhd. and one other company are excluded from the consolidation in the fiscal year ended March 31, 2009 because procedures to dissolve these two companies have commenced. In the fiscal year ended March 31, 2009, TM Asia Insurance Singapore Ltd. changed its name to Tokio Marine Insurance Singapore Ltd., effective July 1, 2008; Real Seguros S.A. changed its name to Tokio Marine Seguradora S.A. effective August 20, 2008; and Kiln (UK) Holdings Limited changed its name to Kiln Group Limited effective January 19, (2) Names of major non-consolidated subsidiaries Tokio Marine & Nichido Adjusting Service Co., Ltd. and Tokio Marine Capital Co., Ltd. are non-consolidated subsidiaries of the Company. Each non-consolidated subsidiary is small in scale in terms of total assets, sales, net income or loss for the period and retained earnings. As such non-consolidated subsidiaries are not considered to materially affect any reasonable determination as to the Group s financial condition and results of operations, these companies are excluded from the consolidation. Tokio Marine Holdings, Inc. Annual Report 2010 Financial Data Corporate Data Message/Strategy Results/Projections Management Framework CSR 87

90 Financial Information Year ended March 31, 2010 (April 1, 2009 March 31, 2010) 2. Application of the equity method (1) Number of affiliates accounted for by the equity method: 5 companies (Names of major affiliates accounted for by the equity method) Sino Life Insurance Co., Ltd. IDL Holding ApS and two other companies are no longer affiliates accounted for by the equity method because all of their shares previously held by the Company through subsidiaries were sold during the fiscal year ended March 31, Year ended March 31, 2009 (April 1, 2008 March 31, 2009) 2. Application of the equity method (1) Number of affiliates accounted for by the equity method: 8 companies (Names of major affiliates accounted for by the equity method) Sino Life Insurance Co., Ltd. IBEX Insurance Service Limited is accounted for by the equity method for the fiscal year ended March 31, 2009 because it became an affiliate company through an acquisition of ownership interests. International Marine Insurance Managers SA (Pty) Ltd ( IMIM ) is no longer an affiliate accounted for by the equity method as the Company increased its ownership interests and IMIM became a consolidated company in the fiscal year ended March 31, Tianan Insurance Company Limited ( Tianan ) is no longer an affiliate accounted for by the equity method as the Company s equity interest has been diluted as a result of Tianan s issuance of new shares to third parties during the fiscal year ended March 31, Real Tokio Marine Vida e Previdência S.A. is no longer an affiliate accounted for by the equity method as all the shares previously held by the Company through a subsidiary were sold during the fiscal year ended March 31, (2) (No change) (2) The non-consolidated subsidiaries (Tokio Marine & Nichido Adjusting Service Co., Ltd., Tokio Marine Capital Co., Ltd., etc.) and other affiliates (IFFCO-TOKIO general insurance Co. Ltd., etc.) have not been accounted for by the equity method because these companies have had a minor effect on the Company s consolidated net income or loss for the current period as well as retained earnings, on a consolidated basis, respectively. (3) (No change) (3) The Company owns 30.1% of the total voting rights of Japan Earthquake Reinsurance Co., Ltd. through Tokio Marine & Nichido and Nisshin Fire. However, the Company does not consider Japan Earthquake Reinsurance Co., Ltd. to be its affiliate since it believes that it can not exert a significant influence on any policy making decisions of Japan Earthquake Reinsurance s operations given the highly public nature of the company. (4) (No change) (4) With regard to any company accounted for by the equity method that has a different closing date from that of the consolidated financial statements, the financial statements of that company for its fiscal year are used for presentation in the consolidated financial results. 3. Balance sheet date of consolidated subsidiaries There are one domestic subsidiary and 49 overseas subsidiaries whose balance sheet dates are December 31. Their financial statements are used for the preparation of the consolidated financial statements on the basis of their respective balance sheet dates due to the difference between the balance sheet dates of the subsidiaries and that of the consolidated financial statements is no more than three months. Appropriate adjustments for the consolidation are made for material transactions that occur during the periods from their respective balance sheet dates to the consolidated balance sheet date. 4. Accounting policies (1) Valuation of securities a. (No change) 3. Balance sheet date of consolidated subsidiaries There are one domestic subsidiary and 51 overseas subsidiaries whose balance sheet dates are December 31. Their financial statements are used for the preparation of the consolidated financial statements on the basis of their respective balance sheet dates due to the difference between the balance sheet dates of the subsidiaries and that of the consolidated financial statements is no more than three months. Appropriate adjustments for the consolidation are made for material transactions that occur during the periods from their respective balance sheet dates to the consolidated balance sheet date. 4. Accounting policies (1) Valuation of securities a. Trading securities are valued by the mark-to-market method, with the costs of their sales being calculated based on the moving-average method. 88 Tokio Marine Holdings, Inc. Annual Report 2010

91 Year ended March 31, 2010 (April 1, 2009 March 31, 2010) Year ended March 31, 2009 (April 1, 2008 March 31, 2009) b. (No change) b. Held-to-maturity debt securities are recorded by using the amortized cost method based on the moving-average method (straight-line depreciation method). c. Debt securities earmarked for policy reserves are stated at amortized cost under the straight-line method in accordance with the Industry Audit Committee Report No. 21 Temporary Treatment of Accounting and Auditing Concerning Securities Earmarked for Policy Reserve in Insurance Industry issued by the Japanese Institute of Certified Public Accountants (the JICPA ), November 16, The amount of debt securities earmarked for policy reserves recorded on the consolidated balance sheets and their market value are presented under (Securities), 3. Bonds earmarked for policy reserves below. The following is a summary of the risk management policy concerning debt securities earmarked for policy reserves. In order to adequately manage interest rate risk related to assets and liabilities, Tokio Marine & Nichido Life has established the following policy reserve subgroups: the dollardenominated policy reserve for insurance policies during the period of deferment regarding individual annuity insurance denominated in U.S. dollars with a policy cancellation refund based on market interest rates, accumulated fund of policy reserve for insurance policies during the period of deferment regarding individual annuity insurance with floating interest rates, accumulated fund of policy reserve for insurance policies of single payment whole-life insurance with floating interest rates denominated in U.S. dollars, accumulated fund of policy reserve for insurance policies of single payment whole-life insurance with floating interest rates and accumulated fund of policy reserve for insurance policies of single payment individual annuity insurance. Tokio Marine & Nichido Life s policy is to match the duration of the policy reserve in each subgroup with debt securities of the same or similar duration that are earmarked for policy reserves c. Debt securities earmarked for policy reserves are stated at amortized cost under the straight-line method in accordance with the Industry Audit Committee Report No. 21 Temporary Treatment of Accounting and Auditing Concerning Securities Earmarked for Policy Reserve in Insurance Industry issued by the Japanese Institute of Certified Public Accountants (the JICPA ), November 16, The amount of debt securities earmarked for policy reserves recorded on the consolidated balance sheets and their market value are presented under (Securities), 3. Bonds earmarked for policy reserves with fair value below. The following is a summary of the risk management policy concerning debt securities earmarked for policy reserves. In order to adequately manage interest rate risk related to assets and liabilities, Tokio Marine & Nichido Life has established the following policy reserve subgroups: the dollardenominated policy reserve for insurance policies during the period of deferment regarding individual annuity insurance denominated in U.S. dollars with a policy cancellation refund based on market interest rates, accumulated fund of policy reserve for insurance policies during the period of deferment regarding individual annuity insurance with floating interest rates, accumulated fund of policy reserve for insurance policies of single payment whole-life insurance with floating interest rates denominated in U.S. dollars, accumulated fund of policy reserve for insurance policies of single payment whole-life insurance with floating interest rates and accumulated fund of policy reserve for insurance policies of single payment individual annuity insurance. Tokio Marine & Nichido Life s policy is to match the duration of the policy reserve in each subgroup with debt securities of the same or similar duration that are earmarked for policy reserves d. (No change) d. Other securities with fair value are recorded by the mark-tomarket method based upon the market price on the closing date. The total amount of unrealized gains/losses on other securities is included in net assets, net income taxes and costs of sales sold are calculated using the moving-average method e. Other securities for which the fair value cannot be determined are stated at cost determined by the moving-average method. e. Other securities with no fair value are either stated at cost or amortized cost under the straight-line method, cost being determined by the moving average method. f. (No change) f. Investments in non-consolidated subsidiaries and affiliates that are not subject to the equity method are stated at cost determined by the moving-average method. g. (No change) g. Securities held in individually managed money trusts that are mainly invested in securities for trading are accounted for under the mark-to-market method. (2) Valuation of derivative transactions (No change) (2) Valuation of derivative financial instruments Derivative financial instruments are accounted for by the mark-to-market method. Tokio Marine Holdings, Inc. Annual Report 2010 Financial Data Corporate Data Message/Strategy Results/Projections Management Framework CSR 89

92 Financial Information Year ended March 31, 2010 (April 1, 2009 March 31, 2010) (3) Depreciation methods for material depreciable assets a. Tangible fixed assets (No change) b. Intangible fixed assets (No change) (4) Accounting policies for significant reserves and allowances a. Valuation allowance for bad debt (No change) Year ended March 31, 2009 (April 1, 2008 March 31, 2009) (3) Depreciation of significant tangible fixed assets a. Tangible fixed assets Tangible fixed assets owned by the Company and its domestic consolidated subsidiaries are depreciated using the declining balance method. Only buildings that were acquired on or after April 1, 1998 excluding fixtures attached to buildings are depreciated using the straight-line method. b. Intangible fixed assets Intangible fixed assets recognized in an acquisition of overseas subsidiaries are amortized over the estimated useful life reflecting the pattern of assets future economic benefits. (4) Accounting policies for significant reserves and allowances a. Valuation allowance for bad debt In order to provide reserves for losses from bad debts, a general allowance is made pursuant to the rules of asset self-assessment and the rules of asset write-off. Allowances are made by domestic consolidated insurance subsidiaries as follows: For claims to any debtor who has legally, or in practice, become insolvent (due to bankruptcy, special liquidation or suspension of transactions with banks based on the rules governing clearing houses, etc.) and for receivables from any debtor who has substantially become insolvent, reserves are provided based on the amount of any such claim minus the amount expected to be collectible calculated based on the disposal of collateral or execution of guarantees. For claims to any debtor who is likely to become insolvent in the near future, reserves are provided based on the overall solvency assessment of the relevant debtor, the net amount of such claims considered to be collectible through the disposal of collateral or execution of guarantee is deducted from such claims. For claims other than those described above, the amount of claims is multiplied by the default rate, which is computed based on historical loan loss experience in certain previous periods, and is included in the accompanying consolidated financial statements. For specified overseas claims, any estimated losses arising from political or economic situations in the relevant countries are accounted for as reserves for specified overseas claims in the accompanying consolidated financial statements. In addition, all claims are assessed by the asset accounting department and the asset management department in accordance with the rules for self-assessment of asset quality. Subsequently, the asset auditing departments, which are independent from other asset-related departments, conduct audits of the assessment results of the other asset-related departments. Reserves for bad debts are accounted for based on such assessment results as stated above. 90 Tokio Marine Holdings, Inc. Annual Report 2010

93 Year ended March 31, 2010 (April 1, 2009 March 31, 2010) b. Retirement benefit obligations To provide for employees retirement benefits, the Company and its domestic consolidated subsidiaries have recorded the amount deemed to be incurred at the end of the fiscal year ended March 31, 2010 based on the projected retirement benefit obligations and related pension assets at the end of the fiscal year ended March 31, Prior service costs are charged to expense in each subsequent consolidated fiscal year by using the straight-line method with costs based on a certain term (12-14 years) that is based on the average remaining service years of the employees when costs were incurred. Actuarial differences are charged to expense in the subsequent consolidated fiscal year by using the straight-line method based on a certain term (1-14 years) that is based on the average remaining service years of the employees when amounts were incurred. (Changes in the basis of accounting principles) The Company adopted Partial Amendments to Accounting Standard for Retirement Benefits (ASBJ Statement No. 19, July 31, 2008) for the fiscal year ended March 31, 2010 and made the necessary adjustments for its consolidated financial reporting. There is no impact of the above change on the Company s ordinary profit and income before income taxes, because the Company adopted the same discount rates as before. c. Retirement benefit obligations for directors and corporate auditors (No change) d. Provision for employees bonus (No change) e. Provision for demolition of fixed assets (No change) f. Price fluctuation reserve (No change) (5) Consumption taxes (No change) Year ended March 31, 2009 (April 1, 2008 March 31, 2009) b. Retirement benefit obligations To provide for employees retirement benefits, the Company and its domestic consolidated subsidiaries have recorded the amount deemed to be incurred at the end of the fiscal year ended March 31, 2009 based on the projected retirement benefit obligations and related pension assets at the end of the fiscal year ended March 31, Prior service costs are charged to expense in each subsequent consolidated fiscal year by using the straight-line method with costs based on a certain term (14 years) that is based on the average remaining service years of the employees when costs were incurred. Actuarial differences are charged to expense in the subsequent consolidated fiscal year by using the straight-line method based on a certain term (1-14 years) that is based on the average remaining service years of the employees when amounts were incurred. c. Retirement benefit obligations for directors and corporate auditors Some domestic consolidated subsidiaries set aside a reserve for retirement benefits for their directors and corporate auditors as of the end of the fiscal year ended March 31, 2008, in accordance with their internal remuneration regulations. d. Provision for employees bonus To provide for payment of bonuses to employees, the Company and its consolidated domestic subsidiaries maintain reserves for employees bonuses based on the expected amount to be paid. e. Provision for demolition of fixed assets To provide for payment of expenses related to dismantling buildings, Tokio Marine & Nichido provided a reserve for demolition of fixed assets based on the projected amount to be paid for dismantling buildings. f. Price fluctuation reserve Domestic consolidated insurance subsidiaries maintain reserves under Article 115 of the Insurance Business Law in order to provide for possible losses or damages arising from fluctuation of share prices. (5) Consumption taxes For the Company and its domestic consolidated subsidiaries, consumption tax is accounted for by the tax-excluded method. However, underwriting and general administrative costs incurred by domestic consolidated insurance subsidiaries are accounted for by the tax-included method. In addition, any nondeductible consumption taxes, in respect of assets is included in other assets (as suspense payments) and is amortized over five years using the straight-line method. Tokio Marine Holdings, Inc. Annual Report 2010 Financial Data Corporate Data Message/Strategy Results/Projections Management Framework CSR 91

94 Financial Information (6) Lease transactions (No change) Year ended March 31, 2010 (April 1, 2009 March 31, 2010) (7) Hedge accountings a. Interest rate To mitigate interest rate fluctuation risks associated with long-term insurance policies, Tokio Marine & Nichido and Tokio Marine & Nichido Life conduct asset liability management to control such risks by evaluating and analyzing financial assets and insurance liabilities simultaneously. As for interest rate swap transactions that are used to manage such risks, Tokio Marine & Nichido and Tokio Marine & Nichido Life apply deferred hedge accounting to the swap transactions based upon the Industry Audit Committee Report No. 26, Accounting and Auditing Treatments related to Adoption of Accounting for Financial Instruments in the Insurance Industry (issued by the JICPA, September 3, hereinafter called Report No. 26 ). Effectiveness is not evaluated for hedge treatments that are believed to have high hedge effectiveness, because the Company groups hedged insurance liabilities with the interest rate swaps that are the hedge instruments, based on the period remaining for the instruments. Any deferred gains as of the end of March 2003 that were calculated based on the Industry Audit Committee s Report No.16, Accounting and Auditing Treatments related to Adoption of Accounting for Financial Instruments in the Insurance Industry (issued by the JICPA, March 31, 2000), which was applicable prior to the application of Report No. 26, are accounted for by Tokio Marine & Nichido using the straight-line method over the remaining hedging period (1-17 years). Tokio Marine & Nichido Life also uses the straightline method to account for such deferred gains as of the end of March 2002 over the remaining hedging period (6-10 years). The accounting treatments for such deferred gains are based on the transitional measures in Report No. 26. Deferred gains under this treatment as of March 31, 2010 were 29,552 million yen and the amount accounted for in the consolidated financial statements for the fiscal year ended March 31, 2010 was 6,370 million yen. b. Foreign exchange With regard to some currency swaps and forward contract transactions, which are utilized to reduce the future foreign exchange risk associated with assets denominated in foreign currencies, Tokio Marine & Nichido applies fair value hedge accounting and/or matching treatment. Hedge effectiveness is not evaluated, since critical terms of hedged items and hedging instruments are the same and thus believed to be highly hedge-effective. Year ended March 31, 2009 (April 1, 2008 March 31, 2009) (6) Lease transactions Non-transferable finance leases, commencing prior to April 1, 2008 are accounted for under the accounting policy applied to operating lease transactions. (7) Hedge accountings a. Interest rate To mitigate interest rate fluctuation risks associated with long-term insurance policies, Tokio Marine & Nichido and Tokio Marine & Nichido Life implemented an Asset Liability Management framework designed to manage such risks by evaluating and analyzing financial assets and insurance liabilities simultaneously. As for some of interest rate swap transactions that are utilized to manage such risks, Tokio Marine & Nichido and Tokio Marine & Nichido Life have applied deferral hedge treatment and evaluated hedge effectiveness based upon the Industry Audit Committee Report No. 26, Accounting and Auditing Treatments related to Adoption of Accounting for Financial Instruments in the Insurance Industry (issued by the Japanese Institute of Certified Public Accountant ( JICPA ) on September 3, 2002 hereinafter called Report No. 26 ). Hedge effectiveness is evaluated by examining the interest rate conditions which affect calculation of theoretical value of both the hedged items and the hedging instruments. As for any deferred hedge gains based on the Industry Audit Committee s Report No.16, Accounting and Auditing Treatments related to Adoption of Accounting for Financial Instruments in the Insurance Industry (issued by the JICPA, on March 31, 2000) prior to application of the Report No. 26, Tokio Marine & Nichido has amortized such deferred hedge gains as of the end of March 2003 over the remaining period of hedging instruments (1 17 years) by using the straight-line method, and Tokio Marine & Nichido Life has amortized deferred hedge gains as of the end of March 2002 over the remaining period of hedging instruments (6 10 years) by using the straight-line method, respectively, in accordance with the transitional measures in the Report No. 26. The amount of deferred hedge gains under this transitional treatment as of March 31, 2009 is 35,922 million yen and the amount allocated to gains or losses for the fiscal year ended March 31, 2009 is 11,654 million yen. In addition, Tokio Marine & Nichido applies the deferred hedge accounting for interest rate swap transactions which are used to hedge the interest rate risk related to bonds issued by Tokio Marine & Nichido. Hedge effectiveness is not evaluated since the critical terms of hedged items and hedging instruments are same and thus believed to be highly hedge effective. b. Foreign exchange With regard to some currency swaps and forward contract transactions, which are utilized to reduce the future foreign exchange risk associated with assets denominated in foreign currencies, Tokio Marine & Nichido applies deferred hedge accounting and/or fair value hedge accounting. Nisshin Fire applies matching treatment. The effectiveness of these hedging treatments is evaluated by assessing the price fluctuation of both hedging instruments and hedged items. However, hedge effectiveness is not evaluated, since critical terms of hedged items and hedging instruments are the same and thus believed to be highly hedge-effective. 92 Tokio Marine Holdings, Inc. Annual Report 2010

95 Year ended March 31, 2010 (April 1, 2009 March 31, 2010) (8) Accounting for deferred assets under Article 113 of the Insurance Business Law The Company evaluated the amount of provisions for and amortization of deferred assets under Article 113 of the Insurance Business Law for E. design Insurance Co., Ltd. 5. Valuation of assets and liabilities of consolidated subsidiaries (No change) 6. Amortization of goodwill and negative goodwill Negative goodwill recognized as a liability on the consolidated balance sheets is amortized over 20 years using the straight-line method. Goodwill recognized as an asset on the consolidated balance sheets is amortized in the following manner. As for the goodwill in connection with Philadelphia Consolidated Holdings Corp., the goodwill is amortized over 20 years using the straight-line method. As for the goodwill in connection with Kiln Group Limited, the goodwill is amortized over 10 years using the straight-line method. Other goodwill is amortized over 10 to 15 years using the straightline method. Other goodwill and negative goodwill in small amounts are amortized at one time. 7. Scope of cash and cash equivalents included in the consolidated statements of cash flows (No change) Year ended March 31, 2009 (April 1, 2008 March 31, 2009) 5. Valuation of assets and liabilities of consolidated subsidiaries The Company has adopted the mark-to-market method. The full valuation method is adopted in valuing assets and liabilities of consolidated subsidiaries at the initial consolidation date. 6. Amortization of goodwill and negative goodwill Negative goodwill recognized as a liability on the consolidated balance sheets is amortized over 20 years using the straight-line method. Goodwill recognized as an asset on the consolidated balance sheets is amortized in the following manner. As for the goodwill in connection with Philadelphia Consolidated Holdings Corp., the goodwill is amortized over 20 years using the straight-line method. As for the goodwill in connection with Kiln Group Limited, the goodwill is amortized over 10 years using the straight-line method. Other goodwill is amortized over 5 to 15 years using the straightline method. Other goodwill and negative goodwill in small amounts are amortized at one time. 7. Scope of cash and cash equivalents included in the consolidated statements of cash flows Cash and cash equivalents for the consolidated statements of cash flows consist of cash on-hand, demand deposits and short-term investments with original maturities or redemption of 3 months or less at the date of acquisition. Tokio Marine Holdings, Inc. Annual Report 2010 Financial Data Corporate Data Message/Strategy Results/Projections Management Framework CSR 93

96 Financial Information Changes in Significant Matters Related to Financial Statements Year ended March 31, 2010 (April 1, 2009 March 31, 2010) Year ended March 31, 2009 (April 1, 2008 March 31, 2009) Application of Practical Solution on Unification of Accounting Policies Applied to Foreign Subsidiaries for Consolidated Financial Statements The Company has adopted Practical Solution on Unification of Accounting Policies Applied to Foreign Subsidiaries for Consolidated Financial Statements (ASBJ Practical Issues Task Force No. 18, May 17, 2006) for the fiscal year ended March 31, 2009 and has implemented adjustments required for consolidated financial reporting. As a result, for the fiscal year ended March 31, 2009, ordinary loss decreased, and net income before income taxes increased by 4,351 million yen, respectively. The impact of the above change on the Company s segment information is detailed in Segment information section. Accounting policies applied to lease transactions The transactions of ownership non-transferable finance leases were accounted under the accounting policy similar to that applicable to lease transaction. However, from the fiscal year ended March 31, 2009, the Company has adopted Accounting Standard for Lease Transactions (ASBJ Statement No. 13, ASBJ 1st Division, June 17, 1993, revised as of March 30, 2007) and Guidance on Accounting Standard for Lease Transactions (ASBJ, Guidance No. 16, The Japanese Institute of Certified Public Accountants, Accounting Practice Committee, January 18, 1994, revised as of March 30, 2007). Accordingly, the transactions of ownership non-transferable leases with lease periods commencing prior to April 1, 2008 are accounted under the accounting policy applied to normal sales transactions. The impact of the changes described above on ordinary loss and net income before income taxes for the fiscal year ended March 31, 2009 is considered immaterial. 94 Tokio Marine Holdings, Inc. Annual Report 2010

97 Changes in Presentation Year ended March 31, 2010 (April 1, 2009 March 31, 2010) Year ended March 31, 2009 (April 1, 2008 March 31, 2009) Consolidated balance sheet From the fiscal year ended March 31, 2009, in accordance with the amendments to the Enforcement Regulations of Insurance Business Law of Japan, it is required to present Land, Buildings, Construction in progress and Other in the breakdown of Tangible fixed assets, and Software, Goodwill and Other in the breakdown of Intangible fixed assets. The breakdown of tangible fixed assets and intangible fixed assets for the fiscal year ended March 31, 2008 was as follows: Land: 165,480 million yen, Buildings: 145,497 million yen, Construction in progress: 2,629 million yen, Other tangible fixed assets: 24,760 million yen, Software: 3,614 million yen, Goodwill: 45,224 million yen and Other intangible fixed assets: 6,431 million yen. Consolidated statement of changes in shareholders equity From the fiscal year ended March 31, 2009, the item previously presented as Decrease in connection with newly consolidated subsidiaries is presented as two separate items: Changes in the scope of consolidation and Changes in the scope of equity method. The purpose of this change is to improve the comparability of the Company s consolidated financial statements in accordance with the introduction of XBRL to the EDINET disclosure platform. The amounts for Changes in the scope of consolidation and Changes in the scope of equity method for the fiscal year ended March 31, 2008 were 1,056 million yen and negative 5,483 million yen, respectively. Tokio Marine Holdings, Inc. Annual Report 2010 Financial Data Corporate Data Message/Strategy Results/Projections Management Framework CSR 95

98 Financial Information Notes to Consolidated Balance Sheet Year ended March 31, 2010 (April 1, 2009 March 31, 2010) *1. Accumulated depreciation of tangible fixed assets is 364,389 million yen and advanced depreciation of such assets is 23,311 million yen. Year ended March 31, 2009 (April 1, 2008 March 31, 2009) *1. Accumulated depreciation of tangible fixed assets is 362,697 million yen and advanced depreciation of such assets is 23,969 million yen. *2. Securities of non-consolidated subsidiaries and affiliates, etc. are provided as follows: (Yen in millions) Securities (equity) 56,694 Securities (partnership) 40,301 *2. Securities of non-consolidated subsidiaries and affiliates, etc. are provided as follows: (Yen in millions) Securities (equity) 54,395 Securities (partnership) 29,433 *3. The total amount of loans to borrowers in bankruptcy, past due loans, loans contractually past due for three months or more, and restructured loans is 22,255 million yen. The breakdown is as set forth below. (1) The amount of loans to borrowers in bankruptcy is 3,225 million yen. Loans that are past due for a certain period, or for other reasons, are generally placed on non-accrual status when substantial doubt is considered to exist as to the ultimate collectibility either of principal or interest ( Non-accrual status loans ; any part of bad debt written-off is excluded). Loans to borrowers in bankruptcy represent non-accrual loans after a partial charge-off of claims deemed uncollectible, which are defined in Article 96, paragraph 1, subparagraph 3 (a) to (e) (maximum amount transferable to reserve for bad debts) and subparagraph 4 of the Enforcement Ordinance of the Corporation Tax Law (Ordinance No. 97, 1965). (2) The amount of past due loans is 10,138 million yen. Past due loans are non-accrual status loans, other than loans to borrowers in legal bankruptcy and loans on which interest payments are deferred in order to assist business restructuring or financial recovery of the borrowers. (3) The amount of loans contractually past due for three months or more is 337 million yen. Loans contractually past due for three months or more are defined as loans on which any principal or interests payments are delayed for three months or more from the date following the due date. Loans classified as loans to borrowers in bankruptcy and past due loans are excluded. (4) The amount of restructured loans is 8,554 million yen. Restructured loans are loans on which concessions (e.g. reduction of the stated interest rate, deferral of interest payment, extension of the maturity date, forgiveness of debt) are granted to borrowers in financial difficulties to assist them in their corporate restructuring or financial recovery by improving their ability to repay creditors. Restructured loans do not include loans classified as loans to borrowers in bankruptcy, past due loans or loans past due for three months or more. *4. The value of assets pledged as collateral totals 377,618 million yen in securities, 16,452 million yen in deposits, and 643 million yen in buildings. Collateralized debt obligations are held to the value of 63,597 million yen in outstanding claims, 53,846 million yen in underwriting reserve and 24,497 million yen in other debts. *3. The total amount of loans to borrowers in bankruptcy, past due loans, loans contractually past due for three months or more, and restructured loans is 13,831 million yen. The breakdown is as set forth below. (1) The amount of loans to borrowers in bankruptcy is 2,853 million yen. Loans that are past due for a certain period, or for other reasons, are generally placed on non-accrual status when substantial doubt is considered to exist as to the ultimate collectibility either of principal or interest ( Non-accrual status loans ; any part of bad debt written-off is excluded). Loans to borrowers in bankruptcy represent non-accrual loans after a partial charge-off of claims deemed uncollectible, which are defined in Article 96, paragraph 1, subparagraph 3 (a) to (e) (maximum amount transferable to reserve for bad debts) and subparagraph 4 of the Enforcement Ordinance of the Corporation Tax Law (Ordinance No. 97, 1965). (2) The amount of past due loans is 5,465 million yen. Past due loans are non-accrual status loans, other than loans to borrowers in legal bankruptcy and loans on which interest payments are deferred in order to assist business restructuring or financial recovery of the borrowers. (3) The amount of loans contractually past due for three months or more is 107 million yen. Loans contractually past due for three months or more are defined as loans on which any principal or interests payments are delayed for three months or more from the date following the due date. Loans classified as loans to borrowers in bankruptcy and past due loans are excluded. (4) The amount of restructured loans is 5,405 million yen. Restructured loans are loans on which concessions (e.g. reduction of the stated interest rate, deferral of interest payment, extension of the maturity date, forgiveness of debt) are granted to borrowers in financial difficulties to assist them in their corporate restructuring or financial recovery by improving their ability to repay creditors. Restructured loans do not include loans classified as loans to borrowers in bankruptcy, past due loans or loans past due for three months or more. *4. The value of assets pledged as collateral totals 330,405 million yen in securities, 9,125 million yen in deposits, 375 million yen in land, and 1,327 million yen in buildings. Collateralized debt obligations are held to the value of 65,233 million yen in outstanding claims, 51,724 million yen in underwriting reserve and 59,334 million yen in other debts. 96 Tokio Marine Holdings, Inc. Annual Report 2010

99 Year ended March 31, 2010 (April 1, 2009 March 31, 2010) 5. Securities received from security borrowing transactions are 37,042 million yen at market value. *6. Securities include securities lent under loan agreements of 1,578,138 million yen. *7 The outstanding balance of undrawn committed loans is as follows: (Yen in millions) Total loan commitments 81,279 Balance of drawn committed loans 7,800 Undrawn loan commitments 73, The amount of both assets and liabilities for separate account as prescribed in Article 118 of the Insurance Business Law totals 2,237,702 million yen. *9. Tokio Marine & Nichido guarantees the liabilities of some of its subsidiaries. The balance of the guarantees to its subsidiaries as of March 31, 2010 is as follows (Yen in millions) TNUS Insurance Company 20 Tokio Marine Compania de Seguros, S.A. de C.V. 3,394 Tokio Marine Pacific Insurance Limited 1,837 The Tokio Marine & Nichido Fire Insurance Company (China) Limited 1,689 Total 6,942 *10. Other assets include 7,752 million yen of deferred assets under Article 113 of the Insurance Business Law of Japan. Notes to Consolidated Statement of Income Year ended March 31, 2010 (April 1, 2009 March 31, 2010) *1. Major components of business expenses (Yen in millions) Agency commissions, etc. 409,184 Salaries 219,371 Business expenses consist of Loss adjustment expenses, Operating and general administrative expenses and Agency commissions and brokerage as shown in the accompanying consolidated statement of income. Year ended March 31, 2009 (April 1, 2008 March 31, 2009) 5. Securities received from security borrowing transactions are 75,343 million yen at market value. *6. Securities include securities lent under loan agreements of 595,987 million yen. *7 The outstanding balance of undrawn committed loans is as follows: (Yen in millions) Total loan commitments 101,127 Balance of drawn committed loans 16,019 Undrawn loan commitments 85, The amount of both assets and liabilities for separate account as prescribed in Article 118 of the Insurance Business Law totals 1,876,816 million yen. *9. Tokio Marine & Nichido guarantees the liabilities of some of its subsidiaries. The balance of the guarantees to its subsidiaries as of March 31, 2009 is as follows: (Yen in millions) TNUS Insurance Company 22 Tokio Marine Compania de Seguros, S.A. de C.V. 4,880 Tokio Marine Pacific Insurance Limited 1,876 The Tokio Marine & Nichido Fire Insurance Company (China) Limited 6,088 Total 12, Year ended March 31, 2009 (April 1, 2008 March 31, 2009) *1. Major components of business expenses (Yen in millions) Agency commissions, etc. 397,387 Salaries 207,980 Business expenses consist of Loss adjustment expenses, Operating and general administrative expenses and Agency commissions and brokerage as shown in the accompanying consolidated statement of income. *2. *2. In accordance with Paragraph 9 of the Implementation Guidelines for Equity Method Accounting (Accounting Practice Committee, Report No.9) and Paragraph 32, Subparagraph 1 of the Implementation Guidelines for Capital Consolidation in Consolidated Financial Statements (Accounting Practice Committee, Report No.7), the depreciation amount of 1,892 million yen on goodwill in connection with Sino Life Insurance Co., Ltd. is included in Equity in losses of affiliates. *3. *3 The main component of other extraordinary gains is gains on sales of shares of affiliates amounting to 14,275 million yen. Tokio Marine Holdings, Inc. Annual Report 2010 Financial Data Corporate Data Message/Strategy Results/Projections Management Framework CSR 97

100 Financial Information Year ended March 31, 2010 (April 1, 2009 March 31, 2010) *4 The Company recognized impairment losses on the following properties during the year ended March 31, Year ended March 31, 2009 (April 1, 2008 March 31, 2009) *4 The Company recognized impairment losses on the following properties during the year ended March 31, Purpose of use Category Location Properties for business use (derivative business and elderly care business) Idle or potential disposal properties Land and buildings Land and buildings 11 properties including a building in Kawasaki-shi, Kanagawa Pref. 43 properties including a building in Chiba-shi, Chiba Pref. Impairment loss (Yen in millions) Land Building Others Total 1,065 1, ,097 3,631 5, ,544 Others Goodwill Total 4,697 7, ,487 Purpose of use Category Location Properties for business use (derivative business and elderly care business) Properties for rent Idle or potential disposal properties Land and buildings Land and buildings Land and buildings 10 properties including a building in Yokohama City, Kanagawa Pref. A property in Iwaki City, Fukushima Pref. 55 properties including a building in Kashiwa City, Chiba Pref. Impairment loss (Yen in millions) Land Building Others Total 222 1, , , ,050 2,784 Others Goodwill 1,890 1,890 Total 1,558 2,447 3,307 7,313 (1) Properties, etc. Properties are classified as follows: (a) properties for business use used for insurance business and other businesses are grouped by each business unit and (b) other properties including properties for rent, idle or potential disposal properties and properties such as properties business use for elderly care business are grouped on an individual basis. The total amount of projected future cash flow generated from the derivative business and the elderly care business fell below the book values of the properties used for these businesses. Consequently, the Company wrote off the excess of the book values of such properties over the recoverable values and recognized such write-offs as impairment losses in extraordinary losses. The Company calculated the recoverable value of the relevant property by discounting projected future cash flows at a rate of 1.2% to 6.0%. Due mainly to decline in the real estate market, book values of some properties for idle or potential disposal properties fell below the recoverable values. Consequently, the Company wrote off the excess of the book values of such properties over the recoverable values and recognized any such write-off as impairment losses in extraordinary losses. Recoverable values are the net sales price. Net sales price is the market value assessed by real estate appraisers minus anticipated expenses for disposal of the relevant properties. (2) Goodwill An impairment loss of 844 million yen was recognized and recorded in the line item extraordinary losses for the fiscal year ended March 31, 2010 for goodwill held by consolidated subsidiaries of the Company, because the Company concluded that an affiliate of consolidated subsidiaries would not achieve the initially expected levels of profit. *5. The main components of other extraordinary losses are 5,213 million yen of Impairment losses on investment of affiliates. (1) Properties, etc. Properties are classified as follows: (a) properties for business use used for insurance business and other businesses are grouped by each business unit and (b) other properties including properties for rent, idle or potential disposal properties and properties such as properties business use for elderly care business are grouped on an individual basis. The total amount of projected future cash flow generated from the derivative business and the elderly care business fell below the book values of the properties used for these businesses. Consequently, the Company wrote off the excess of the book values of such properties over the recoverable values and recognized such write-offs as impairment losses in extraordinary losses. The Company calculated the recoverable value of the relevant property by discounting projected future cash flows at a rate of 1.4% to 6.0%. Due mainly to decline in the real estate market, book values of some properties for rent and idle or potential disposal properties fell below the recoverable values. Consequently, the Company wrote off the excess of the book values of such properties over the recoverable values and recognized any such write-off as impairment losses in extraordinary losses. Recoverable values are either the higher of the net sales price or the utility values of each property. Net sales price is the market value assessed by real estate appraisers minus anticipated expenses for disposal of the relevant properties. The utility values were calculated by discounting the future cash flows to net present values at a rate of 7.7%. (2) Goodwill With respect to the goodwill relating to Tokio Marine Seguradora S.A., an impairment loss of 1,890 million yen was recognized and recorded in the line item extraordinary losses for the year ended March 31, 2009, since the Company concluded that Tokio Marine Seguradora S.A. would not achieve the initially expected levels of profit. *5. The main components of other extraordinary losses are 7,668 million yen of Impairment losses in debt securities issued by subsidiaries and 3,139 million yen of Losses on redemption of debt securities issued by subsidiaries. 98 Tokio Marine Holdings, Inc. Annual Report 2010

101 Notes to Consolidated Statement of Changes in Shareholders Equity 2010 Year ended March 31, 2010 (April 1, 2009 March 31, 2010) 1. Class and number of issued shares and treasury share (Unit: thousand shares) Number of shares as Increase during the year Decrease during the year Number of shares as of March 31, 2009 ended March 31, 2010 ended March 31, 2010 of March 31, 2010 Issued shares Common share 804, ,524 Total 804, ,524 Treasury share Common share 16, ,919 Total 16, , The increase of 36 thousand shares of treasury share is attributable to acquisition of shares constituting less than one unit of common share. 2. The decrease of 79 thousand shares of treasury share is primarily attributable to the allotments of shares in connection with exercises of share acquisition rights which decreased treasury share by 75 thousand. 2. Share acquisition rights (including those owned by the Company) Category Nature of share acquisition rights Amount as of March 31, 2010 (yen in millions) The Company (parent company) Share acquisition rights as share options 1, Dividends (1) Amount of dividends Resolution Class of share Amount of Dividends per dividends paid share Record date Effective date Ordinary general meeting of shareholders held on 18,901 March 31, Common share 24 yen June 29, 2009 million yen 2009 June 30, 2009 Meeting of the board of directors held on 18,902 September 30, December 8, Common share 24 yen November 19, 2009 million yen (2) Dividends of which the record date falls within the year ended March 31, 2010, and the effective date falls after March 31, Resolution Class of share Amount of Source of Dividends per dividends paid dividends share Record date Effective date Ordinary general meeting of 20,477 Retained March 31, Common share 26 yen shareholders held on June 28, 2010 million yen earnings 2010 June 29, 2010 Financial Data Corporate Data Message/Strategy Results/Projections Management Framework CSR 99

102 Financial Information Year ended March 31, 2009 (April 1, 2008 March 31, 2009) 1. Class and number of issued shares and treasury share (Unit: thousand shares) Number of shares as of March 31, 2008 Increase during the year ended March 31, 2009 Decrease during the year ended March 31, 2009 Number of shares as of March 31, 2009 Issued shares Common share 804, ,524 Total 804, ,524 Treasury share Common share 2,293 14, ,961 Total 2,293 14, , The increase of 14,772 thousand shares of treasury share is attributable to an acquisition of 14,682 thousand shares to implement financial policies. 2. The decrease of 104 thousand shares of treasury share is attributable to a decrease of 75 thousands shares due to share distribution in accordance with an exercise of share acquisition rights. 2. Share acquisition rights (including those owned by the Company) Category Nature of share acquisition rights Amount as of March 31, 2009 (yen in millions) The Company (parent company) Share acquisition rights as share options Dividends (1) Amount of dividends Resolution Ordinary general meeting of shareholders held on June 23, 2008 Meeting of the board of directors held on November 19, 2008 Class of share Common share Common share Amount of dividends paid 24,066 million yen 19,101 million yen Dividends per share 30 yen 24 yen Record date March 31, 2008 September 30, 2008 Effective date June 24, 2008 December 10, 2008 (2) Dividends of which the record date falls within the year ended March 31, 2009, and the effective date falls after March 31, Resolution Ordinary general meeting of shareholders held on June 29, 2009 Class of share Common share Amount of dividends paid 18,901 million yen Source of dividends Retained earnings Dividends per share 24 yen Record date March 31, 2009 Effective date June 30, Tokio Marine Holdings, Inc. Annual Report 2010

103 Notes to Consolidated Statement of Cash Flows Year ended March 31, 2010 (April 1, 2009 March 31, 2010) *1. Reconciliation of cash and cash equivalents at the end of the year to the amounts disclosed in the consolidated balance sheet is provided as follows: (As of March 31, 2010) (Yen in millions) Cash and deposits 452,194 Call loans 116,511 Monetary receivables bought 1,339,172 Securities 12,617,817 Time deposits with initial term over three months to maturity (100,313) Monetary receivables bought not included in cash equivalents (765,674) Securities not included in cash equivalents (12,390,821) Cash and cash equivalents 1,268,885 Year ended March 31, 2009 (April 1, 2008 March 31, 2009) *1. Reconciliation of cash and cash equivalents at the end of the year to the amounts disclosed in the consolidated balance sheet is provided as follows: (As of March 31, 2009) Cash and deposits 461,589 Call loans 352,576 Monetary receivables bought 458,556 Securities 10,695,095 Time deposits with initial term over three months to maturity (63,560) Monetary receivables bought not included in cash equivalents (342,345) Securities not included in cash equivalents (10,684,358) Cash and cash equivalents 877,551 (Yen in millions) Tokio Marine Holdings, Inc. Annual Report (No change) 2. Cash flows from investing activities include cash flows arising from asset management relating to the insurance business. *3. *3. Breakdown of assets and liabilities of newly consolidated subsidiaries The breakdown of assets and liabilities of newly consolidated subsidiary, Philadelphia Consolidated Holding Corp. at the commencement of the consolidation is as follows. The following also shows the acquisition cost of the shares of Philadelphia Consolidated Holding Corp. and amounts paid (net) for the acquisition of such shares. (Yen in millions) Assets 511,852 (Securities) 225,405 Goodwill 253,611 Liabilities (291,926) (Underwriting funds) (226,859) Acquisition cost of Philadelphia Consolidated Holding Corp. shares 473,537 Cash and cash equivalents of Philadelphia Consolidated Holding Corp. (6,377) Net amounts paid for the acquisition of Philadelphia Consolidated Holding Corp. shares 467,160 Financial Data Corporate Data Message/Strategy Results/Projections Management Framework CSR 101

104 Financial Information Lease Transactions Year ended March 31, 2010 (April 1, 2009 March 31, 2010) 1. Finance Lease Transactions Non-transferable finance leases which are accounted under the accounting policy similar to that applicable to operating lease transactions. (1) Acquisition cost, accumulated depreciation, accumulated impairment losses and net book value of leased assets; (Yen in millions) Acquisition cost Accumulated depreciation Accumulated impairment losses Net book value Tangible fixed assets 3,838 2, ,442 (No change) (2) Balance of future lease payments; (Yen in millions) Due within one year 474 Due after one year 979 Total 1,453 Balance of impairment losses on leased assets: 33 million yen (No change) (3) Lease payment, reversal of impairment loss on leased assets, depreciation equivalent and impairment losses; (Yen in millions) Lease payment 859 Reversal of impairment losses on lease assets 24 Depreciation equivalent 828 Impairment losses 8 Year ended March 31, 2009 (April 1, 2008 March 31, 2009) 1. Finance Lease Transactions Non-transferable finance leases which are accounted under the accounting policy similar to that applicable to operating lease transactions. (1) Acquisition cost, accumulated depreciation, accumulated impairment losses and net book value of leased assets; (Yen in millions) Acquisition cost Accumulated depreciation Accumulated impairment losses Net book value Tangible fixed assets 5,058 2, ,120 Acquisition cost includes interest payable thereon because the balance of future lease payment accounts for a small portion of the balance of tangible fixed assets. (2) Balance of future lease payments; (Yen in millions) Due within one year 842 Due after one year 1,328 Total 2,170 Balance of impairment losses on leased assets: 50 million yen Future lease payment includes interest payable thereon because the balance of future lease payment accounts for a small portion of the balance of tangible fixed assets. (3) Lease payment, reversal of impairment loss on leased assets, depreciation equivalent and impairment losses; (Yen in millions) Lease payment 1,254 Reversal of impairment losses on lease assets Depreciation equivalent 1,254 Impairment losses 50 (4) Computation of depreciation equivalent; (No change) 2. Operating lease Future lease payments related to non-cancelable operating leases (Yen in millions) Due within one year 3,198 Due after one year 6,703 Total 9,902 (4) Computation of depreciation equivalent; Depreciation equivalent is determined on the straight-line method over the lease period, with no residual value. 2. Operating lease Future lease payments related to non-cancelable operating leases (Yen in millions) Due within one year 2,140 Due after one year 5,473 Total 7, Tokio Marine Holdings, Inc. Annual Report 2010

105 Information on Financial Instruments 1. Qualitative information on financial instruments (1) Investment policies The Tokio Marine Group s core operation is its insurance business and it generally makes investments based on cash inflows mainly arising from insurance premiums. Investment assets are managed in two categories, which are Assets backing insurance liabilities corresponding to longterm insurance contracts such as deposit type insurance and annuity, and Other. With regard to Assets backing insurance liabilities, Asset Liability Management ( ALM ) is applied in order to ensure future payments for maturity-refunds and claims. Through ALM, the Tokio Marine Group aims to maximize the value of surplus ( Investment assets minus Insurance liabilities ) by controlling the interest rate risks with derivatives such as interest rate swaps to which insurance liabilities are exposed and by investing in bonds with high credit ratings. The Tokio Marine Group also utilizes financial options as one of the ways to control risks related to variable annuities which guarantee minimum amounts of benefits albeit the result of investment. With regard to Other, the Tokio Marine Group works toward diversification of investments and improvement of investment efficiency in order to generate sustainable investment income, while maintaining liquidity for future claims payments. On investment, considering the risk-and-return profile for each investment item, diversified investment is carried out in varieties of investment items such as bonds, equity securities and loans. In addition, foreign exchange forwards, credit derivatives and other derivative transactions are utilized to mitigate risks related to assets held and to generate investment income within a specified range of risks. Through these approaches, the Tokio Marine Group aims to minimize fluctuations in short-term gains and losses, increase investment income in order to maximize net asset value in the mid-to-long-term, and maintain financial soundness. With regard to financing, the Tokio Marine Group issues corporate bonds and undertakes borrowings mainly to secure funds for investments. When financing is necessary, amounts and methodologies are determined based on the group s cash flow status. In addition, a consolidated subsidiary operates a derivatives business that provides financial instruments that meet the diversified and sophisticated hedging and financing needs in the market. Tokio Marine Holdings, Inc. Annual Report 2010 (2) Details of financial instruments and their risks The Tokio Marine Group holds bonds, equity securities and other securities, all of which are exposed to market, credit and market liquidity risks. Market risks refer to the risks of losses arising from fluctuations in share prices, exchange rates, interest rates and other market indicators. Credit risks refer to the risks of losses when the value of an investment declines or is lost due to insolvency or deterioration in the financial condition of the debtor. Market liquidity risks refer to the risks of losses that may occur from being unable to make transactions due to inactive market condition, or being forced to make transactions at extremely unfavorable prices. Some currency risks are hedged through foreign exchange forwards, currency swaps and other such transactions. Hedge accounting is applied to some of these transactions. Loans are exposed to credit risks and market risks. Derivative transactions are exposed to market risks, credit risks and market liquidity risks. Credit risks associated with derivative transactions include losses when the counter-parties fail to fulfill their obligations due to insolvency or for other reasons. In order to reduce such credit risks, netting arrangements may be used with financial institutions and other counter parties with whom there are frequent transactions. Also, interest rate risks associated with long-term insurance liabilities are hedged by interest rate swaps and other transactions for which hedge accounting is applied. With regard to hedging instruments, hedged items, hedging policies and evaluation of hedge effectiveness, please refer to Basis of consolidated financial statements - 4. Accounting policies - (7) Hedge accounting. (3) Risk management structure (i) Market risk and credit risk management In Tokio Marine & Nichido, the Risk Management Department, the department in charge of risk management and independent of departments executing investment transactions, quantitatively and qualitatively controls risks in order to deal with market, credit and market liquidity risks and other investment risks related to financial instruments. Based on the annual investment plan established by the investment departments, the board of directors establishes an investment risk management policy that prescribes organizational structure related to investment risk management, risk management methodologies, how to respond to losses and at times when the risk profile exceeds preset limits, and information to be reported. In accordance with the policy, Investment guidelines are established under which investable instruments, specific risk limits and actions to take in response to losses are classified and prescribed for each segment set in the annual investment plan. In order to monitor individual investments and loans, Review guidelines are established and prescribe items subject to monitoring and criteria for monitoring. Financial Data Corporate Data Message/Strategy Results/Projections Management Framework CSR 103

106 Financial Information As for quantitative risk management, market, credit and other such risks are quantified using on VaR-like concepts. The Risk Management Department monitors compliance with the investment risk policy, as well as levels of investment risk and return, and reports such information on a monthly basis to the directors, and on a quarterly basis to the board of directors. Individual investments are reviewed pursuant to the Review guidelines. Other consolidated subsidiaries maintain risk management structures similar to those described above. (ii) Liquidity risk management The Tokio Marine Group manages liquidity risks by controlling payment schedules and ensuring various ways of financing, through treasury management by each consolidated subsidiary and by the group as a whole. (4) Notes on fair value information The fair value of financial instruments is calculated in a reasonable method when market price is not available. On determination of such fair value, certain assumptions are set, and the fair value may be determined differently on other assumptions. 2. Fair value of financial instruments Table below shows the fair value of financial instruments excluding those without reasonably measured fair value. (Yen in millions) As of March 31, 2010 Item Carrying amount shown on Fair Value Difference balance sheet (1) Cash and bank deposits 452, ,188 (5) (2) Call loans 116, ,511 (3) Receivables under resale agreement 150, ,969 (4) Receivables under security borrowing transactions 22,578 22,578 (5) Monetary receivables bought 1,339,172 1,339,172 (6) Money trusts 11,778 11,778 (7) Securities Trading securities 2,520,751 2,520,751 Bonds held to maturity 1,636,299 1,624,181 (12,118) Bonds earmarked for policy reserves 325, ,568 11,874 Available for sale securities 7,725,998 7,725,998 (8) Loans 455,838 Reserve for bad debts (*1) (13,308) 442, ,546 8,015 Total financial assets 14,744,479 14,752,245 7,766 (1) Corporate bonds 178, ,837 1,016 (2) Payables under security lending transactions 1,580,405 1,580,405 Total financial liabilities 1,759,226 1,760,243 1,016 Derivative assets and liabilities (*2) Hedge accounting not applied 47,443 47,443 Hedge accounting applied 12,968 12,968 Total derivative assets and liabilities 60,412 60,412 (*1) Reserve for bad debts earmarked for loans are deducted from the carrying amount. (*2) Derivative assets and liabilities are presented on a net basis. Debits and credits arising from derivative transactions are netted and net credit position is shown with ( ). (Note 1) Valuation method for financial instruments Assets With regard to (1) Cash and bank deposits (excluding those defined as securities in Accounting Standard for Financial Instruments (ASBJ Statement No.10)), (2) Call loans, (3) Receivables under resale agreement, and (4) Receivables under security borrowing transactions, the book value is deemed as the fair value since it is scheduled to be settled in a short period of time and the book value approximates the fair value. Regarding (7) Securities (including those in (1) Cash and bank deposits and (5) Monetary receivables bought that are defined to be securities in Accounting for Financial Instruments (ASBJ Statement No.10) and securities in (6) Money trusts that are invested as trust funds) with quoted market price, the quoted closing price is used for listed shares and the price of the over-thecounter transactions is used for bonds. For securities with no quoted market price, the net present value of the estimated future cash flows is applied as the fair value. 104 Tokio Marine Holdings, Inc. Annual Report 2010

107 With regard to floating rate loans in (8) Loans, the book value is deemed as the fair value because interest rate changes will be timely reflected in the future cash flows and the book value approximates the fair value. For fixed rate loans, the fair value is Tokio Marine Holdings, Inc. Annual Report 2010 measured as the net present value of estimated future cash flows. For loans where borrowers are insolvent or in bankruptcy proceedings, the estimated uncollectible debts are deducted from the carrying amount to get the fair value. Liabilities With regard to (1) Corporate bonds, the price of the over-the-counter transactions is the fair value. With regard to (2) Payables under security lending transactions, the book value is deemed as the fair value because it is scheduled to be settled in a short period of time and the book value approximates the fair value. Derivatives Please refer to Derivative transactions. (Note 2) Unlisted shares and partnership investments comprised of unlisted shares (Carrying amount on the consolidated balance sheet: 409,073 million yen) are not included in (7) Securities because the fair value cannot be determined as they have no quoted market price and the future cash flow cannot be estimated. Policy loans (Carrying amount on the consolidated balance sheet: 92,083 million yen) are not included in (8) Loans because future cash flows cannot be estimated since it is arranged under insurance policy and the amount is limited within repayment fund for cancellation with no contractual maturity. (Note 3) Maturity analysis of financial assets (Yen in millions) As of March 31, 2010 Within 1 year 1-5 years 5-10 years Over 10 years Cash and bank deposits 332,723 1,943 Monetary receivable bought 1,064,674 46,999 52, ,196 Securities Bonds held to maturity Domestic government bonds 83, ,259 1,257,029 Foreign securities 1,894 7,651 8,601 6,182 Other securities (available for sale) with maturity Domestic government bonds 715, , ,344 1,361,632 Domestic municipal bonds 13,708 66,809 88,614 Domestic corporate bonds 154, , ,141 63,506 Domestic equity securities 100 Foreign securities 155, , , ,865 Other 37 1, Bonds earmarked for policy reserves Domestic government bonds 25,173 88,074 10,692 Foreign securities 69, ,637 42,500 2,774 Loans (*) 79, ,917 61, ,628 Total 2,587,871 1,705,110 1,396,900 3,161,507 (*) Loans to borrowers that are insolvent or in bankruptcy proceedings and for which repayment cannot be expected (11,953 million yen), and loans with no repayment schedule (1,864 million yen) are not included above. (Note 4) Maturity schedules for bonds, long-term borrowings and obligations under lease transactions Please refer to Related Information to the Consolidated Financial Statements. (Additional information) The Company has applied Accounting Standard for Financial Instruments (ASBJ Statement No.10, March 10, 2008) and Guidance on Disclosure about Fair Value of Financial Instruments (ASBJ Guidance No.19, March 10, 2008) from the fiscal year ended March 31, Accordingly, the scope of securities evaluated with the fair value is changed, however, there is no effect on amounts shown on consolidated balance sheets Financial Data Corporate Data Message/Strategy Results/Projections Management Framework CSR 105

108 Financial Information Securities Year ended March 31, 2010 (April 1, 2009 March 31, 2010) 1. Trading securities (Yen in millions) As of March 31, 2010 Type Fair value shown on balance sheet Valuation gains (losses) included in earnings Trading securities 2,525,553 (149,389) Note: The amount of negotiable certificates of deposit (fair value: 1,088 million yen, valuation gains: 0 million yen), which is presented as Cash and bank deposits on the consolidated balance sheet is included in the table above. The amount of commercial paper (fair value: 3,714 million yen, valuation losses: 29 million yen), which is presented as Monetary receivables bought is also included. 2. Bonds held to maturity Gross unrealized gains Type Carrying amount shown on balance sheet As of March 31, 2010 Fair value (Yen in millions) Difference Public and corporate bonds (Domestic) 736, ,485 33,564 Foreign securities 11,256 11, Subtotal 748, ,894 33,716 Public and corporate bonds (Domestic) 875, ,980 (45,368) Gross unrealized losses Foreign securities 12,773 12,306 (467) Subtotal 888, ,286 (45,835) Total 1,636,299 1,624,181 (12,118) 3. Bonds earmarked for policy reserves (Yen in millions) Gross unrealized gains Type Carrying amount shown on balance sheet As of March 31, 2010 Fair value Difference Public and corporate bonds (Domestic) 102, ,649 3,781 Foreign securities 195, ,632 8,873 Subtotal 298, ,281 12,655 Public and corporate bonds (Domestic) 13,499 13,403 (95) Gross unrealized losses Foreign securities 13,568 12,883 (685) Subtotal 27,067 26,287 (780) Total 325, ,568 11, Tokio Marine Holdings, Inc. Annual Report 2010

109 Tokio Marine 4. Other securities (available for sale) (Yen in millions) Holdings, Inc. Annual Report As of March 31, Type Fair value shown on balance sheet Cost Difference Public and corporate bonds (Domestic) 3,005,660 2,934,178 71,481 Equity securities (Domestic) 2,451, ,669 1,545,761 Carrying amount which Foreign securities 780, ,959 75,891 exceeds the original cost Other (Note 2) 151, ,884 18,449 Subtotal 6,389,277 4,677,693 1,711,584 Public and corporate bonds (Domestic) 935, ,899 (23,356) Carrying amount which Equity securities (Domestic) 128, ,618 (12,472) does not exceed the Foreign securities 405, ,371 (24,790) original cost Other (Note 3) 1,316,000 1,336,864 (20,864) Subtotal 2,785,271 2,866,754 (81,483) Total 9,174,548 7,544,447 1,630,100 Notes: 1. Other securities (available for sale) whose fair value cannot be reliably measured are not included in the table above. 2. The amount of foreign mortgage securities (fair value: 141,147 million yen, cost: 124,504 million yen and difference: 16,643 million yen), which are presented as Monetary receivables bought on the consolidated balance sheet, is included in Other. 3. The amount of negotiable certificates of deposit (fair value: 113,091 million yen, cost: 113,091 million yen), which is presented as Cash and bank deposits on the consolidated balance sheet, is included in Other. The amount of commercial paper (fair value: 1,194,310 million yen, cost: 1,214,092 million yen and difference: (19,782) million yen), which is presented as Monetary receivables bought, is also included. 4. The Company adopted Accounting Standard for Financial Instruments (ASBJ statement No.10, March 10, 2008) and Guidance on Fair Value Disclosure of Financial Statements (ASBJ Guidance No.19, March 10, 2008) from the fiscal year ended March 31, As a result, the scope of securities measured at fair value has changed, and commercial paper once regarded as its fair value cannot be reliably measured are included in the table above. 5. Bonds held to maturity that were sold None. 6. Bonds earmarked for policy reserves that were sold (Yen in millions) Year ended March 31, 2010 Type (April 1, 2009 March 31, 2010) Sale proceeds Gains on sale Losses on sale Bonds 5, Foreign securities 7, Total 12, Other securities (available for sale) that were sold (Yen in millions) Year ended March 31, 2010 Type (April 1, 2009 March 31, 2010) Sale proceeds Gains on sale Losses on sale Bonds 326,376 2, Equity securities 111,208 57,374 2,879 Foreign securities 646,393 16,304 7,344 Others 67,121 3, Total 1,151,100 80,281 11,608 Note: The amount of commercial paper (proceeds: 57,497 million yen, gains: 1,362 million yen, losses: (551) million yen), which is presented as Monetary receivables bought on the consolidated balance sheet, is included in Other. 8. Securities impaired A total of 28,746 million yen of impairment losses were recognized for the fiscal year ended March 31, This consisted of 6,682 million yen for securities with fair value and 22,063 million yen for those whose fair value cannot be reliably measured. Impairment losses of 16 million yen for foreign mortgage securities which are presented as Other investment expenses in the consolidated statement of income are included in those. Impairment losses for securities with fair value are recognized when fair value at the end of fiscal year has declined more than 30% of its cost, in principle. Financial Data Corporate Data Message/Strategy Results/Projections Management Framework CSR 107

110 Financial Information Year ended March 31, 2009 (April 1, 2008 March 31, 2009) 1. Trading securities (Yen in millions) As of March 31, 2009 Type Fair value on balance sheet Valuation gains (losses) included in earnings Trading securities 2,121,901 (490,413) Note: The amount of commercial paper (fair value: 1,659 million yen, valuation losses: 90 million yen), which is presented as Monetary receivables bought is included in the table above. 2. Bonds held to maturity with fair value (Yen in millions) Gross unrealized gains Type Cost shown on balance sheet As of March 31, 2009 Fair value Difference Public and corporate bonds (Domestic) 980,575 1,028,261 47,685 Foreign securities 12,949 13, Subtotal 993,524 1,041,528 48,003 Public and corporate bonds (Domestic) 456, ,756 (21,423) Gross unrealized losses Foreign securities 12,343 11,917 (426) Subtotal 468, ,674 (21,849) Total 1,462,048 1,488,202 26, Bonds earmarked for policy reserves with fair value (Yen in millions) Gross unrealized gains Type Cost shown on balance sheet As of March 31, 2009 Fair value Difference Public and corporate bonds (Domestic) 94,707 97,926 3,218 Foreign securities 216, ,272 16,044 Subtotal 310, ,198 19,262 Public and corporate bonds (Domestic) 8,302 8,231 (70) Gross unrealized losses Foreign securities 2,956 2,930 (26) Subtotal 11,258 11,161 (97) Total 322, ,360 19, Other securities (available for sale) with fair value (Yen in millions) Carrying amount which exceeds the original cost Type Cost As of March 31, 2009 Fair vale shown on balance sheets Difference Public and corporate bonds (Domestic) 2,447,355 2,528,468 81,113 Equity securities (Domestic) 876,891 1,838, ,635 Foreign securities 293, ,022 33,728 Other (Note 1) 15,334 17,755 2,420 Subtotal 3,632,876 4,711,773 1,078,897 Public and corporate bonds (Domestic) 768, ,213 (19,190) Carrying amount which Equity securities (Domestic) 244, ,767 (33,983) does not exceed the Foreign securities 730, ,547 (44,706) original cost Other (Note 2) 314, ,581 (33,056) Subtotal 2,058,046 1,927,109 (130,937) Total 5,690,922 6,638, ,960 Notes: 1. The amount of foreign mortgage securities (fair value: 7,401 million yen, cost: 7,232 million yen, difference: 169 million yen), which are presented as Monetary receivables bought on the consolidated balance sheet, is included in Other. 2. The amount of foreign mortgage securities (fair value: 248,216 million yen, cost: 277,434 million yen, difference: (29,218) million yen), which are presented as Monetary receivables bought on the consolidated balance sheet, is included in Other ,098 million yen of impairment losses for securities with fair value are recognized for the fiscal year ended March 31, Impairment losses of 38,436 million yen for foreign mortgage securities which are presented as Other investment expenses in the consolidated statement of income are included in those. Impairment losses for securities with fair value are recognized when fair value at the end of fiscal year has declined more than 30% of its cost, in principle. 108 Tokio Marine Holdings, Inc. Annual Report 2010

111 5. Bonds held to maturity with fair value that were sold None. Tokio Marine Holdings, Inc. Annual Report Bonds earmarked for policy reserves that were sold (Yen in millions) Year ended March 31, 2009 Type (April 1, 2008 March 31, 2009) Sale proceeds Gains on sale Losses on sale Bonds earmarked for policy reserves 10, Other securities (available for sale) that were sold (Yen in millions) Year ended March 31, 2009 Type (April 1, 2008 March 31, 2009) Sale proceeds Gains on sale Losses on sale Other securities 1,464,810 71,579 33,437 Note: The amount of negotiable certificates of deposit (proceeds: 394 million yen, gains: 0 million yen, losses: 0 million yen), which is presented as Cash and bank deposits on the consolidated balance sheet is included in the table above. The amount of commercial paper (proceeds: 45,197 million yen, gains: 11 million yen, losses: 372 million yen), which is presented as Monetary receivables bought is also included. 8. Major securities not stated at fair value (1) Bonds held to maturity None. (2) Bonds earmarked for policy reserve None. (3) Other securities (Yen in millions) Type As of March 31, 2009 Public and corporate bonds (Domestic) 0 Equity securities (Domestic) 209,044 Foreign securities 89,166 Other 252,702 Note: The amount of negotiable certificates of deposit (52,340 million yen), which is presented as Cash and bank deposits on the consolidated balance sheet, is included in Other. The amount of commercial paper (175,057 million yen), which is presented as Monetary receivables bought, is also included. 9. Change in the purpose of holding None. 10. Maturity schedule of other securities with maturity, bonds held to maturity and bonds earmarked for policy reserve (Yen in millions) As of March 31, 2009 Type Within one year Over 1 to 5 years Over 5 to 10 years Over 10 years Government bonds (Domestic) 272, , ,847 2,363,999 Municipal bonds (Domestic) 6,395 55, ,711 Corporate bonds (Domestic) 102, , ,634 65,376 Equity securities (Domestic) 100 Foreign securities 177, , , ,934 Other 236,261 35,038 46, ,599 Total 795,514 1,325,633 1,452,522 2,736,909 Note: The amount of negotiable certificates of deposit (51,142 million yen for within one year, 1,197 million yen for 1 to 5 years), which is presented as Cash and bank deposits on the consolidated balance sheet, is included in Other. The amount of commercial paper (184,871 million yen for within one year, 32,743 million yen for 1 to 5 years, 46,461 million yen for 5 to 10 years, 166,599 million yen for over ten years), which is presented as Monetary receivables bought, is also included. Financial Data Corporate Data Message/Strategy Results/Projections Management Framework CSR 109

112 Financial Information Money Trusts Year ended March 31, 2010 (April 1, 2009 March 31, 2010) 1. Money trusts held for trading purposes (Yen in millions) As of March 31, 2010 Item Carrying amount shown on balance sheet Valuation gains (losses) included in earnings Money trusts 11, Money trusts held to maturity None. 3. Money trusts other than those held to maturity or those held for trading purposes (Yen in millions) Item Carrying amount shown on balance sheet As of March 31, 2010 Original cost Difference Money trusts Year ended March 31, 2009 (April 1, 2008 March 31, 2009) 1. Money trusts held for trading purposes (Yen in millions) As of March 31, 2009 Item Carrying amount shown on balance sheet Valuation gains (losses) included in earnings Money trusts 7,493 (593) 2. Money trusts held to maturity None. 3. Money trusts other than those held to maturity or those held for trading purposes (1) There are no individually managed money trusts valued at fair value. (2) Jointly managed money trusts are included in the balance sheet at the acquisition cost of 1,195 million yen. 110 Tokio Marine Holdings, Inc. Annual Report 2010

113 Derivative Transactions 2010 Year ended March 31, 2010 (April 1, 2009 March 31, 2010) Contract amount, etc. as shown in the tables is the nominal contract amount or notional principal amount of derivative transactions. The amount itself does not represent the market or credit risk of such derivative transactions. 1. Derivatives to which hedge accounting is not applied (1) Foreign currency-related instruments (Yen in millions) As of March 31, 2010 Type Contract amount, etc. Unrealized gains/ Fair value Over 1 year (losses) Foreign exchange forwards Short USD 143, (3,769) (3,769) EUR 24, GBP 5, AUD 13,777 (231) (231) CAD 5,813 (578) (578) JPY 1, Long USD 50,920 1,363 1,363 EUR 10,174 (187) (187) GBP AUD 12, Currency swaps Pay Foreign/Rec. Yen USD 605, ,232 6,814 6,814 EUR 9,535 8, AUD Pay Yen/Rec. Foreign USD 215, ,194 (10,350) (10,350) Over-the-counter EUR 6,291 6,291 (915) (915) transactions AUD (39) (39) Currency options Short Call USD 37,709 27,785 3,318 2,806 3, AUD Put USD 46,504 35,314 3,169 2,752 5,212 (2,042) Long Call USD 55,389 48,619 4,138 3,737 4, AUD (0) Put USD 53,307 45,681 4,253 3,873 8,434 4,180 Total 15,212 (3,428) Notes: 1. The fair value of foreign exchange forwards is measured using quoted forward rates. 2. The fair value of currency swaps is measured by discounting estimated future cash flows at interest rates at end of period. 3. The fair value of currency options is measured using option-pricing models. 4. For option contracts, option premiums are shown below the respective contract amount. Financial Data Corporate Data Message/Strategy Results/Projections Management Framework CSR 111

114 Financial Information (2) Interest rate-related instruments (Yen in millions) Market transactions Over-the-counter transactions Type As of March 31, 2010 Contract amount, etc. Fair value Over 1 year Unrealized gains/ (losses) Interest rate futures Short 26,713 (1) (1) Long 13, Interest rate options Short Cap 49,957 34, Swaption 17,000 16, (295) Long Cap 14,600 4, (135) Swaption 21,154 19, (22) Interest rate swaps Rec. fix/pay float 3,886,269 3,146, , ,301 Rec. float/pay fix 4,161,353 3,213,860 (105,171) (105,171) Rec. float/pay float 462, ,917 12,735 12,735 Rec. fix/pay fix 44,610 44,610 (589) (589) Total 29,502 28,452 Notes: 1. The fair value of interest rate futures is based on the closing prices in principal markets. 2. The fair value of interest rate options is measured using option-pricing models. 3. For option contracts, option premiums at the inception are shown below the respective contract amount. 4. The fair value of interest rate swaps is measured by discounting estimated future cash flows at interest rates at end of period. (3) Equity-related instruments Market transactions Over-the-counter transactions Type As of March 31, 2010 Contract amount, etc. Fair value Over 1 year (Yen in millions) Unrealized gains/ (losses) Equity index futures Short 17,165 (434) (434) Long 1, Equity index options Long Put 22,175 17,624 5,272 4,260 8,501 3,228 Total 8,140 2,867 Notes: 1. The fair value of equity index futures is based on the closing prices in principal markets. 2. The fair value of equity index options is based on indications obtained from counterparties. 3. For option contracts, option premiums at the inception are shown below the respective contract amount. 112 Tokio Marine Holdings, Inc. Annual Report 2010

115 Tokio Marine (4) Bond-related instruments (Yen in millions) Holdings, Inc. Annual Report As of March 31, Type Contract amount, etc. Unrealized gains/ Fair value Over 1 year (losses) Bond futures Market Short 11, transactions Long 5,818 (56) (56) Bond future options Short Call 11, Over-the-counter Put 2,494 transactions 9 13 (4) Long Call 2, (3) Put 11, Total 53 (4) Notes: 1. The fair value of bond futures is based on the closing prices in principal markets. 2. The fair value of bond future options is based on indications obtained from counterparties. 3. For option contracts, option premiums at the inception are shown below the respective contract amount. (5) Credit-related instruments (Yen in millions) As of March 31, 2010 Type Contract amount, etc. Unrealized gains/ Fair value Over 1 year (losses) Credit derivatives Over-the-counter Sell protection 398, ,721 (12,295) (12,295) transactions Buy protection 42,118 40, Total (11,905) (11,905) Note: The fair value of credit derivatives is measured using internal valuation models. (6) Commodity-related instruments (Yen in millions) As of March 31, 2010 Type Contract amount, etc. Unrealized gains/ Fair value Over 1 year (losses) Commodity swaps Over-the-counter Rec. fixed price/pay commodity indices 20,351 20,351 (8,393) (8,393) transactions Rec. commodity indices/ Pay fixed price 22,046 22,046 7,152 7,152 Rec. commodity indices/pay variable indices 8,664 8,664 (414) (414) Total (1,656) (1,656) Note: The fair value of commodity swaps is measured using internal valuation models. Financial Data Corporate Data Message/Strategy Results/Projections Management Framework CSR 113

116 Financial Information (7) Others Type As of March 31, 2010 Contract amount, etc. Fair value Over 1 year (Yen in millions) Unrealized gains/ (losses) Index basket options Long 162, ,544 7,520 7,520 24,081 16,560 Natural disaster derivatives Short 9, Over-the-counter Long 28,953 transactions 4,939 2,777 (2,162) Weather derivatives Short (0) Others Short Total 27,129 14,419 Notes: 1. The fair value of index basket options is based on indications obtained from counterparties. 2. Option premiums at the inception are shown below the respective contract amount. 3. The fair value of commodity swaps is measured using internal valuation models or based on option premiums. 4. The fair value of weather derivatives is measured considering weather conditions, terms of contracts and other components. 5. The fair value of other is based on option premiums. 2. Derivatives transactions to which hedge accounting is applied (1) Foreign currency-related instruments (Yen in millions) As of March 31, 2010 Type Hedged item Contract amount, etc. Over 1 year Fair value Currency swaps Deferred hedge Pay Yen/ Rec. Foreign Borrowing USD 5,000 5,000 (46) Foreign exchange forwards Short Other securities USD 101,921 (2,660) (available EUR for sale) 65,592 (576) Fair value hedge GBP 7, Currency swaps Pay Foreign/ Rec. Yen Other securities USD 20,393 20,393 2,968 (available EUR for sale) 5,890 2, AUD 16,824 16,824 (427) Foreign exchange forwards Assignment accounting Short Bank deposits USD 20,003 (Note 3) AUD 5,005 Total 239 Notes: 1. The fair value of currency swaps is measured by discounting estimated future cash flows at interest rates at end of period. 2. The fair value of foreign exchange forwards is measured using quoted forward rates. 3. The fair value of foreign exchange forwards which is integrally accounted with hedged items is included in the fair value of bank deposits shown in the notes Fair value of financial instruments. 114 Tokio Marine Holdings, Inc. Annual Report 2010

117 (2) Interest rate-related instruments (Yen in millions) As of March 31, 2010 Type Hedged items Contract amount, etc. Fair value Over 1 year Interest rate swaps Insurance Deferred hedge Rec. fix/pay float liabilities 438, ,700 12,729 Total 12,729 Note: The fair value of the interest rate swaps is calculated by discounting future cash flows to the present value based on the interest rate as of the closing date of the fiscal year. Year ended March 31, 2009 (April 1, 2008 March 31, 2009) 1. Details of transactions (1) Types of transactions Consolidated subsidiaries are mainly engaged in the following derivative transactions; a. Currency-related transactions: Forward contracts, currency swaps, currency options, etc. b. Interest rate-related transactions: Interest rate futures, interest rate options, interest rate swaps, etc. c. Equity-related transactions: Equity index futures, equity index options, etc. d. Bond-related transactions: Bond futures, etc. e. Other transactions: Credit derivatives (2) Objectives and policies of transactions The main purposes of the derivative transactions are as follows. a. Risk management related to assets and liabilities: In order to adequately manage risks related to assets and liabilities held by the consolidated subsidiaries (ALM: Asset Liability Management) and reduce losses arising from the future fluctuations in interest rates, exchange rates and share prices. b. Investment activities: The Company engages in various derivative transactions in order to maximize interest gains within a certain risk limit. c. Response to customer needs: The Company carries out derivative transactions in order to provide a wide range of financial instruments that meet customers hedging needs as well as their diverse and complex investment/funding style. The actual transactions are carried out in accordance with the Investment Guidelines under which types of financial instruments, specific risk limits, and actions taken against any losses incurred arising from such transactions, etc. are classified and prescribed according to each investment style. Accounting policies for significant hedging activities are as follows: [1] Interest rate To mitigate interest rate fluctuation risks associated with long-term insurance policies, Tokio Marine & Nichido and Tokio Marine & Nichido Life implement the Asset Liability Management designed to manage such risks by evaluating and analyzing financial assets and insurance liabilities simultaneously. As for some of interest rate swap transactions that are utilized to manage such risks, Tokio Marine & Nichido and Tokio Marine & Nichido Life have applied deferral hedge treatment and evaluated hedge effectiveness based upon the Industry Audit Committee Report No. 26, Accounting and Auditing Treatments related to Adoption of Accounting for Financial Instruments in the Insurance Industry (issued by the Japanese Institute of Certified Public Accountant ( JICPA ) on September 3, 2002 hereinafter called Report No. 26 ). Hedge effectiveness is evaluated by examining the interest rate conditions which affect calculation of theoretical value of both the hedged items and the hedging instruments. As for any deferred hedge gains based on the Industry Audit Committee s Report No.16, Accounting and Auditing Treatments related to Adoption of Accounting for Financial Instruments in the Insurance Industry (issued by the JICPA, on March 31, 2000) prior to application of the Report No. 26, Tokio Marine Holdings, Inc. Annual Report 2010 Financial Data Corporate Data Message/Strategy Results/Projections Management Framework CSR 115

118 Financial Information Tokio Marine & Nichido has amortized such deferred hedge gains as of the end of March 2003 over the remaining period of hedging instruments (1-17 years) by using the straight-line method, and Tokio Marine & Nichido Life has amortized deferred hedge gains as of the end of March 2002 over the remaining period of hedging instruments (6-10 years) by using the straight-line method, respectively, in accordance with the transitional measures in the Report No. 26. The amount of deferred hedge gains under this transitional treatment as of March 31, 2009 is 35,922 million yen and the amount allocated to gains or losses for the fiscal year ended March 31, 2009 is 11,654 million yen. In addition, Tokio Marine & Nichido applies the deferred hedge accounting for interest rate swap transactions which are used to hedge the interest rate risk related to bonds issued by Tokio Marine & Nichido. Hedge effectiveness is not evaluated since the critical terms of hedged items and hedging instruments are same and thus believed to be highly hedge effective. [2] Foreign exchange With regard to some currency swap and forward contract transactions, which are utilized to reduce the future foreign exchange risk associated with assets denominated in foreign currencies, Tokio Marine & Nichido applies deferred hedge accounting and/or fair value hedge accounting. Nisshin Fire also applies matching treatment. The effectiveness of hedging treatments is evaluated by assessing the price fluctuation of both hedging instruments and hedged items. However, hedge effectiveness is not evaluated, since critical terms of hedged items and hedging instruments are the same and thus believed to be highly effective. (3) Details of risks related derivative transactions Derivative transactions involve market risks and credit risks. Market risks include risks that the consolidated subsidiaries may incur losses arising from future fluctuation in prices of the relevant financial instruments (interest rates, exchange rates and share prices). Major consolidated subsidiaries have established risk management systems, under which such consolidated subsidiaries comprehensively manage risks relating to derivative transactions as well as assets and liabilities, and quantify such market risks by way of VaR method, etc. Credit risks include risks that such consolidated subsidiaries may incur losses when their counter-parties in derivative transactions fail to perform obligations set forth in the initial agreements due to insolvency or otherwise, other than any losses arising from deterioration of the credit standing of trade reference stated in credit derivative agreements, etc. Major consolidated subsidiaries manage such credit risks by periodically computing credit risks based on market values. If such counterparties are financial institutions, etc., with which transactions have been frequently carried out, such consolidated subsidiaries adopt necessary actions to reduce credit risks (e.g. conclusion of netting agreements). (4) Risk management system The Risk Management Department of Tokio Marine, a department in charge of risk management which is independent of transaction-related departments, first reconciles transaction information and requests for managerial decisions to transaction reports provided by financial institutions and brokers, and then approves such transaction data. Any risk position determined based upon such approved data are evaluated at fair value as needed, and the Risk Management Department determines interest income and risk volume related to derivative transactions together with balance-sheet transactions such as securities and loans, and reports them to a director in charge on a monthly basis. In addition, as for the risk position of derivative transactions, the Risk Management Department thoroughly reviews whether such position is determined in accordance with types of financial instruments, specific risk limits and actions taken against any losses arising from such derivative transactions classified and expressly stated by investment style in the Investment Guidelines and then reports the results of such review to a director in charge on a monthly basis. The department also confirms by each transactions whether details of such risk position falls within the authority of transaction related departments. Other consolidated subsidiaries have also established similar risk management structures as described above. (5) Supplemental explanation on contract amount, fair value and unrealized gains/losses a. Notional principal (contract amount) Contract amount as shown in the tables set forth in the following section is a nominal contract amount or notional principal of derivative transactions. The amount itself does not represent market risk or credit risk of derivative transactions. b. Unrealized gains/losses Derivative transactions utilized for the purpose other than investment gains are used for the purpose of managing the market risk of financial assets from an ALM point of view. It is therefore necessary to evaluate assets and liabilities as a whole, rather than to focus solely on unrealized gains/losses of derivative transactions, to assess the profitability and financial soundness. 116 Tokio Marine Holdings, Inc. Annual Report 2010

119 2. Contract amount, fair value and unrealized gains and losses of derivative financial instruments (1) Foreign currency-related instruments As of March 31, Type Contract amount, etc. Over 1 year Foreign exchange forwards Short USD 413,200 4,272 EUR 68,921 GBP 11,148 AUD 9,746 CAD 5,310 HKD 24 JPY 1,144 Long USD 94,284 EUR 19,546 GBP 284 AUD 11,985 CAD 801 SGD 1,033 Currency swaps Pay Foreign/Rec. Yen USD 803, ,213 EUR 21,315 15,931 AUD 25,239 17,609 Over-the-counter Pay Yen/Rec. Foreign transactions USD 282, ,544 EUR 15,728 14,202 AUD Pay Foreign/Rec. Foreign Pay EUR/Rec. USD. 1,525 Pay USD/Rec. EUR. 484 Currency options Short Call USD 33,227 22,018 1,639 1,302 Put USD 37,153 25,863 1,929 1,584 Long Call USD 56,021 52,421 4,158 3,979 Put USD 54,133 50,540 4,173 4,017 Total 1,968,393 1,016,439 Notes: 1. The fair value of foreign exchange forwards is measured using quoted forward rates. 2. The fair value of currency swaps is measured by discounting estimated future cash flows at interest rates at end of period. 3. The fair value of currency options is measured using option-pricing models. 4. For option contracts, option premiums are shown below the respective contract amount. 5. Transactions with assignment accounting are not included in the table above. (Yen in millions) 2009 Unrealized gains/ Fair value (losses) (8,136) (8,136) (3,325) (3,325) (658) (658) (133) (133) (302) (302) (0) (0) (74) (74) 1,403 1, (4) (4) (200) (200) (22) (22) ,609 24,609 1,461 1,461 4,501 4,501 (26,915) (26,915) (1,847) (1,847) (226) (226) (126) (126) ,826 (3,896) 4, ,238 3,064 8,336 (9,927) Tokio Marine Holdings, Inc. Annual Report 2010 Financial Data Corporate Data Message/Strategy Results/Projections Management Framework CSR 117

120 Financial Information (2) Interest rate-related instruments (Yen in millions) Type As of March 31, 2009 Contract amount, etc. Fair value Over 1 year Unrealized gains/ (losses) Market transactions Interest rate futures Long 87, Interest rate options Short Cap 45,570 40, Swaption 79,148 69, ,109 (1,323) Long Cap 24,785 14, (398) Swaption 37,974 33, (21) Interest rate swap Rec. fix/pay float 5,579,844 4,267, , ,089 Rec. float/pay fix 5,118,983 3,772,252 (124,231) (124,231) Rec. float/pay float 689, ,341 19,514 19,514 Rec. fix/pay fix 123,864 45,667 (42,670) (42,670) Total 11,787,092 8,695,731 38,567 34,727 Notes: 1. The fair value of interest rate futures is based on the closing prices in principal markets. 2. The fair value of interest rate options is measured using option-pricing models. 3. For option contracts, option premiums at the inception are shown below the respective contract amount. 4. The fair value of interest rate swaps is measured by discounting estimated future cash flows at interest rates at end of period. 5. Interest rate swaps to which hedge accounting is applied are as follows. The amounts of deferred hedge gains and losses are presented before tax basis. Classification As of March 31, 2009 Contract amount, etc. Fair value Over 1 year (Yen in millions) Unrealized gains/ (losses) Deferred hedge accounting in accordance with Report No.26* 439, ,900 19,463 5,095 (Unamortized portion of deferred hedge gains and losses in accordance with Report No.16** are shown below "Deferred 6,117 hedge gains/(losses)" Other deferred hedge accounting 96,748 46, Total 536, ,348 20,357 12, Deferred hedge gains and losses relating to the interest rate swap transactions to which hedge accounting is not applied are as follows. The amount of deferred gains and losses are presented on a before tax basis. (Yen in millions) As of March 31, 2009 Classification Deferred hedge gains (losses) Unamortized portion of deferred hedge gains and losses in accordance with Report in No. 16** relating to interest rate 29,804 swaps which are not covered by Report No. 26* Other deferred hedge accounting (13,955) Total 15,849 * Report No. 26: Accounting and Auditing Treatments related to Adoption of Accounting for Financial Instruments in the Insurance industry (Japanese institute of Certified Public Accountants, September 3, 2002) ** Report No. 16: Tentative Accounting and Auditing Treatments related to Adoption of Accounting for Financial Instruments in the Insurance industry (Japanese institute of Certified Public Accountants, March 31, 2000) 118 Tokio Marine Holdings, Inc. Annual Report 2010

121 Tokio Marine (3) Equity-related instruments (Yen in millions) Holdings, Inc. Annual Report As of March 31, Type Contract amount, etc. Unrealized gains/ Fair value Over 1 year (losses) Equity index futures Market Short 10,454 (57) (57) transactions Long 2, Equity index options Long Put 30,578 22,175 Over-the-counter 6,452 5,272 transactions Equity swap transactions 13,609 7,157 Rec. floating rate/pay. floating equity price Rec. floating equity price/pay. floating rate 199 (56) (56) Total 43,702 22,175 13,666 7,214 Notes: 1. The fair value of equity index futures is based on the closing prices in principal markets. 2. The fair value of equity index options and equity swaps is measured using quoted forward rates, indications obtained from brokers and counterparties and option-pricing models. 3. For option contracts, option premiums at the inception are shown below the respective contract amount. 4. The synthetic options are classified into short or long positions by the receiving or paying option premiums at the time transactions started. (4) Bond-related instruments (Yen in millions) As of March 31, 2009 Type Contract amount, etc. Unrealized gains/ Fair value Over 1 year (losses) Bond futures Market Short 5,726 (48) (48) transactions Long 23, Total 29, Note: The fair value of bond futures is based on the closing prices in principal markets. (5) Credit-related instruments (Yen in millions) As of March 31, 2009 Type Contract amount, etc. Unrealized gains/ Fair value Over 1 year (losses) Credit derivatives Over-the-counter Sell protection 678, ,254 (22,703) (22,703) transactions Buy protection 47,017 45,379 1,588 1,588 Total 725, ,633 (21,114) (21,114) Note: The fair value of credit derivatives is measured using internal valuation models. (6) Commodity-related instruments (Yen in millions) As of March 31, 2009 Type Contract amount, etc. Unrealized gains/ Fair value Over 1 year (losses) Commodity swaps Over-the-counter Rec. fixed price/pay commodity indices 4,307 4,157 (6,139) (6,139) transactions Rec. commodity indices/ Pay fixed price 3,863 3,817 4,369 4,369 Rec. commodity indices/pay variable indices 5,212 5,212 (221) (221) Total 13,383 13,187 (1,990) (1,990) Note: The fair value of commodity swaps is measured using internal valuation models. Financial Data Corporate Data Message/Strategy Results/Projections Management Framework CSR 119

122 Financial Information (7) Others Type As of March 31, 2009 Contract amount, etc. Fair value Over 1 year (Yen in millions) Unrealized gains/ (losses) Index basket options Long 165, ,162 4,976 4,976 30,897 25,920 Over-the-counter Natural disaster derivatives Short 18, transactions Long 27,912 1,593 1,593 Others Short Total 211, ,686 32,895 25,920 Notes: 1. The fair value of index basket options is based on indications obtained from counterparties. 2. Option premiums at the inception are shown below the respective contract amount. 3. The fair value of natural disaster derivatives and others is based on option premiums. Retirement Benefits 1. Outline of the retirement and severance benefit plans The Company and its eight consolidated subsidiaries have an unfunded lump-sum payment retirement plan covering substantially all employees. Tokio Marine & Nichido has a corporate pension plan and an approved retirement annuity plan. The benefits of the corporate pension plan and lump-sum payment retirement plan are based on the points which each employee acquired through service. Additionally, some domestic consolidated subsidiaries have an employee retirement trust. 2. Breakdown of retirement benefit obligations (Yen in millions) As of March 31, 2010 As of March 31, 2009 a. Retirement benefit liabilities (382,272) (371,793) b. Pension assets 158, ,611 c. Employee retirement trust 10,593 9,687 d. Unaccrued retirement benefit liabilities (a+b+c) (213,650) (210,494) e. Unrecognized actuarial difference 79,278 90,345 f. Unrecognized prior service costs (18,795) (21,586) g. Net amount in the consolidated balance sheets (d+e+f) (153,167) (141,734) h. Prepaid pension expenses 6,885 6,772 i. Reserve for retirement benefits (g h) (160,053) (148,506) Note (No change) Year ended March 31, 2010 (April 1, 2009 March 31, 2010) Year ended March 31, 2009 (April 1, 2008 March 31, 2009) Note The Company and its subsidiaries excluding Tokio Marine & Nichido, Nisshin Fire, Tokio Marine & Nichido Life, Tokio Marine & Nichido Facilities and Tokio Marine & Nichido Career Service adopt the simple method in calculation of retirement benefit liabilities. 120 Tokio Marine Holdings, Inc. Annual Report 2010

123 3. Breakdown of retirement expenses (Yen in millions) Year ended March 31, 2010 (April 1, 2009 March 31, 2010) Year ended March 31, 2009 (April 1, 2008 March 31, 2009) a. Service cost 15,762 16,505 b. Interest cost 7,261 7,350 c. Expected investment income (3,533) (5,016) d. Actuarial differences accounted for as expense 10,225 8,918 e. Amortization of prior service cost accounted for as expense (2,684) (2,681) f. Retirement benefit expenses (a+b+c+d+e) 27,030 25,076 g. Amount transferred to the defined contribution pension plan 1,885 1,758 h. Total (f+g) 28,915 26,835 Notes (No change) Year ended March 31, 2010 (April 1, 2009 March 31, 2010) 4. Accounting for retirement benefit obligations a. Distribution method for estimated retirement benefits Year ended March 31, 2010 (April 1, 2009 March 31, 2010) (No change) Year ended March 31, 2009 (April 1, 2008 March 31, 2009) Notes 1. Employee contributions to the corporate pension fund are deducted from service cost. 2. Retirement expenses for companies using simple method are recorded as a. service cost. Year ended March 31, 2009 (April 1, 2008 March 31, 2009) The lump-sum retirement benefit system and the corporate pension plan mainly employ the point standard. b. Discount rate 2.0% 2.0% c. Expected rate of return on investments 2.0% 2.4% 1.3% 3.0% d. Terms to amortize unrecognized prior service costs e. Terms to amortize actuarial unrecognized differences 12 to 14 years (Expenses are accounted for using the straight-line method over a certain number of years within the average remaining work period of employees at the time of occurrence) (No change) 14 years (Expenses are accounted for using the straight-line method over a certain number of years within the average remaining work period of employees at the time of occurrence) 1 to 14 years (Expenses are accounted for in the following fiscal year using the straight-line method over a certain number of years within the average remaining work period of employees at the time of occurrence) Tokio Marine Holdings, Inc. Annual Report 2010 Financial Data Corporate Data Message/Strategy Results/Projections Management Framework CSR 121

124 Financial Information Share Options Year ended March 31, 2010 (April 1, 2009 March 31, 2010) 1. Amount related to share options; (Yen in millions) Loss adjustment expenses 81 Operating and general administrative expenses 398 Total Details of share options (1) Details of share options Share options (July 2009) (Share option scheme as share-linked compensation plan) Title and number of grantees Directors of the Company: 11 Corporate auditors of the Company: 5 Executive officers of the Company: 5 Directors of the Company s consolidated subsidiaries (excluding directors of the Company): 23 Corporate auditors of the Company s consolidated subsidiaries: 12 Directors* of the Company s consolidated subsidiaries(excluding executive officers of the Company): 32 (*) Non-members of the board Share options (August 2008) (Share option scheme as share-linked compensation plan) Directors of the Company: 13 Corporate auditors of the Company: 5 Directors of the Company s consolidated subsidiaries (excluding directors of the Company): 26 Corporate auditors of the Company s consolidated subsidiaries: 12 Directors* of the Company s consolidated subsidiaries: 27 (*) Non-members of the board Share options (July 2007) (Share option scheme as share-linked compensation plan) Directors of the Company: 12 Corporate auditors of the Company: 5 Directors of the Company s consolidated subsidiaries (excluding directors of the Company): 19 Corporate auditors of the Company s consolidated subsidiaries: 8 Directors* of the Company s consolidated subsidiaries: 21 (*) Non-members of the board Number of share options (Note) Common share: 213,300 shares Common share: 122,100 shares Common share: 86,700 shares Grant date July 14, 2009 August 26, 2008 July 23, 2007 Vesting conditions Requisite service period Share options vest on the date of grant. Additionally, share options held by any of the directors or corporate auditors that he/she received in his/her capacity as a director (including a non-member of the board) or a corporate auditor of the relevant entity may be exercised after he/she has retired from any position as a director (including a nonmember of the board) or corporate auditor of such entity before June 30, The number of the exercisable share options is calculated by the following formula. Number of share options allotted x Number of months served by directors (including non-members of the board) or corporate auditors from July 2009 inclusive of the month of the retirement/12. Remaining share options become unexercisable after the retirement date and then expire. Share options vest on the date of grant. Additionally, share options held by any of the directors or corporate auditors that he/she received in his/her capacity as a director (including a non-member of the board) or a corporate auditor of the relevant entity may be exercised after he/she has retired from any position as a director (including a nonmember of the board) or corporate auditor of such entity before June 30, The number of the exercisable share options is calculated by the following formula. Number of share options allotted x Number of months served by directors (including non-members of the board) or corporate auditors from July 2008 inclusive of the month of the retirement/12. Remaining share options become unexercisable after the retirement date and then expire. Share options vest on the date of grant. Additionally, share options held by any of the directors or corporate auditors that he/she received in his/her capacity as a director (including a non-member of the board) or a corporate auditor of the relevant entity may be exercised after he/she has retired from any position as a director (including a nonmember of the board) or corporate auditor of such entity before June 30, The number of the exercisable share options is calculated by the following formula. Number of share options allotted Number of months served by directors (including non-members of the board) or corporate auditors from July 2007 inclusive of the month of the retirement/12. Remaining share options become unexercisable after the retirement date and then expire. From July 15, 2009 to June 30, 2010 From August 27, 2008 to June 30, 2009 From July 24, 2007 to June 30, 2008 From July 15, 2009 to July 14, Share options held by any of the directors, corporate auditors or operating officers that he/she received in his/her capacity as a director (including a non-member of the Exercise period board) or a corporate auditor of the relevant entity may be exercised within ten days after he/she has retired from any position as a director (including a non-member of the board) or corporate auditor of such entity (excluding the date of the retirement). Note: The number of share options is converted into share numbers. From August 27, 2008 to August 26, Share options held by any of the directors, corporate auditors or operating officers that he/she received in his/her capacity as a director (including a non-member of the board) or a corporate auditor of the relevant entity may be exercised within ten days after he/she has retired from any position as a director (including a non-member of the board) or corporate auditor of such entity (excluding the date of the retirement). From July 24, 2007 to July 23, Share options held by any of the directors, corporate auditors or operating officers that he/she received in his/her capacity as a director (including a non-member of the board) or a corporate auditor of the relevant entity may be exercised within ten days after he/she has retired from any position as a director (including a non-member of the board) or corporate auditor of such entity (excluding the date of the retirement). 122 Tokio Marine Holdings, Inc. Annual Report 2010

125 (1) Details of share options (continued) Title and number of grantees Share options (July 2006) (Share option scheme as share-linked compensation plan) Directors of the Company: 7 Corporate auditors of the Company: 2 Directors of the Company s consolidated subsidiaries (excluding directors of the Company): 17 Corporate auditors of the Company s consolidated subsidiaries: 3 Directors* of the Company s consolidated subsidiaries: 27 (*) Non-members of the board Share options (July 2005) (Share option scheme as share-linked compensation plan) Directors of the Company: 11 Corporate auditors of the Company: 5 Directors of the Company s consolidated subsidiaries (excluding directors of the Company): 15 Corporate auditors of the Company s consolidated subsidiaries: 5 Directors* of the Company s consolidated subsidiaries 27 (*) Non-members of the board Number of share options (Note) Common share: 97,000 shares Common share: 155,000 shares Grant date July 18, 2006 July 14, 2005 Vesting conditions Requisite service period Share options vest on the date of grant. Additionally, share options held by any of the directors or corporate auditors that he/she received in his/her capacity as a director (including a non-member of the board) or a corporate auditor of the relevant entity may be exercised after he/she has retired from any position as a director (including a nonmember of the board) or corporate auditor of such entity before June 30, The number of the exercisable share options is calculated by the following formula. Number of share options allotted Number of months served by directors (including non-members of the board) or corporate auditors from July 2006 inclusive of the month of the retirement/12. Remaining share options become unexercisable after the retirement date and then expire. Share options vest on the date of grant. Additionally, share options held by any of the directors or corporate auditors that he/she received in his/her capacity as a director (including a non-member of the board) or a corporate auditor of the relevant entity may be exercised after he/she has retired from any position as a director (including a nonmember of the board) or corporate auditor of such entity before June 30, The number of the exercisable share options is calculated by the following formula. Number of share options allotted Number of months served by directors (including non-members of the board) or corporate auditors from July 2005 inclusive of the month of the retirement/12. Remaining share options become unexercisable after the retirement date and then expire. From July 19, 2006 to June 30, 2007 From July 15, 2005 to June 30, 2006 From July 19, 2006 to July 18, Share options held by any of the directors, corporate auditors or operating officers that he/she received in his/her capacity as a director (including a non-member of the Exercise period board) or a corporate auditor of the relevant entity may be exercised within ten days after he/she has retired from any position as a director (including a non-member of the board) or corporate auditor of such entity (excluding the date of the retirement). Note: The number of share options is converted into share numbers. From July 15, 2005 to June 30, Share options held by any of the directors, corporate auditors or operating officers that he/she received in his/her capacity as a director (including a non-member of the board) or a corporate auditor of the relevant entity may be exercised within ten days after he/she has retired from any position as a director (including a non-member of the board) or corporate auditor of such entity (excluding the date of the retirement). Tokio Marine Holdings, Inc. Annual Report 2010 Financial Data Corporate Data Message/Strategy Results/Projections Management Framework CSR 123

126 Financial Information (2) Figures relating to the share options; (a) Number of the share options Share options (July 2009) (Share option scheme as Share options (August 2008) (Share option scheme as Share options (July 2007) (Share option scheme as Share options (July 2006) (Share option scheme as Share options (July 2005) (Share option scheme as share-linked compensation plan) share-linked compensation plan) share-linked compensation plan) share-linked compensation plan) share-linked compensation plan) Share options before vested (converted into share numbers) Outstanding at the beginning of the fiscal 26,200 year Granted 213,300 Forfeited Vested 163,000 26,200 Outstanding at the end of the fiscal year 50,300 Exercisable share options (converted into share numbers) Outstanding at the beginning of the fiscal 95,700 62,600 50,500 61,500 year Vested 163,000 26,200 Exercised 25,200 16,200 14,500 20,000 Forfeited Outstanding at the end of the fiscal year 163,000 96,700 46,400 36,000 41,500 Note: The Company conducted a share split on September 30, 2006, in the ratio of 500:1. The above numbers are presented on an after share split basis (b) Price information Share options (July 2009) (Share option scheme as Share options (August 2008) (Share option scheme as Share options (July 2007) (Share option scheme as Share options (July 2006) (Share option scheme as Share options (July 2005) (Share option scheme as share-linked compensation plan) share-linked compensation plan) share-linked compensation plan) share-linked compensation plan) share-linked compensation plan) Exercise price Average share price at exercise Fair value on the grant date 100 (per a share option) 100 (per a share option) 100 (per a share option) 500 (per a share option) 500 (per a share option) 2,635 2,635 2,635 2, , , ,700 2,013, Valuation technique used for the estimated fair value of share options Share options granted in July 2009 were valuated as follows: (a) Valuation technique Black-Scholes Model (b) Assumptions Share options (July 2009) (Share option scheme as share-linked compensation plan) Expected volatility (Note 1) 51.77% Expected lives (Note 2) 3 years Expected dividends (Note 3) 44 Risk-free interest rate (Note 4) 0.380% Notes: 1. Computed based on the share prices from July 18, 2006 to July 14, Computed based on the average period of service of directors and corporate auditors. 3. Computed based on the average amount of dividends paid. 4. Based on yields of Japanese government bonds for a term corresponding to the expected lives. 4. Estimate of vested number of share options Only the actual number of forfeited share options is considered because it is difficult to rationally estimate the number of share options that will be forfeited in the future. 124 Tokio Marine Holdings, Inc. Annual Report 2010

127 Year ended March 31, 2009 (April 1, 2008 March 31, 2009) Financial Data Corporate Data Tokio Marine Holdings, Inc. Annual Report Amount related to share options; (Yen in millions) Loss adjustment expenses 73 Operating and general administrative expenses 359 Total Details of share options (1) Details of share options Share options (August 2008) Share options (July 2007) Share options (July 2006) Share options (July 2005) (Share option scheme as sharelinked (Share option scheme as share- (Share option scheme as share- (Share option scheme as share- compensation plan) linked compensation plan) linked compensation plan) linked compensation plan) Directors of the Company: 13 Directors of the Company: 12 Directors of the Company: 7 Directors of the Company: 11 Corporate auditors of the Corporate auditors of the Corporate auditors of the Corporate auditors of the Company: 5 Company: 5 Company: 2 Company: 5 Directors of the Company s Directors of the Company s Directors of the Company s Directors of the Company s consolidated subsidiaries consolidated subsidiaries consolidated subsidiaries consolidated subsidiaries (excluding directors of the (excluding directors of the (excluding directors of the (excluding directors of the Title and number Company): 26 Company): 19 Company): 17 Company): 15 of grantees Corporate auditors of the Corporate auditors of the Corporate auditors of the Corporate auditors of the Company s consolidated Company s consolidated Company s consolidated Company s consolidated subsidiaries: 12 subsidiaries: 8 subsidiaries: 3 subsidiaries: 5 Directors* of the Company s Directors* of the Company s Directors* of the Company s Directors* of the Company s consolidated subsidiaries: 27 consolidated subsidiaries: 21 consolidated subsidiaries: 27 consolidated subsidiaries 27 (*) Non-members of the board (*) Non-members of the board (*) Non-members of the board (*) Non-members of the board Number of share options (Note) Common share: 122,100 shares Common share: 86,700 shares Common share: 97,000 shares Common share: 155,000 shares Grant date August 26, 2008 July 23, 2007 July 18, 2006 July 14, 2005 Share options vest on the date of Share options vest on the date of Share options vest on the date of Share options vest on the date of grant. Additionally, share options grant. Additionally, share options grant. Additionally, share options grant. Additionally, share options held by any of the directors or held by any of the directors or held by any of the directors or held by any of the directors or corporate auditors that he/she corporate auditors that he/she corporate auditors that he/she corporate auditors that he/she received in his/her capacity as a received in his/her capacity as a received in his/her capacity as a received in his/her capacity as a director (including a non-member director (including a non-member director (including a non-member director (including a non-member of the board) or a corporate of the board) or a corporate of the board) or a corporate of the board) or a corporate auditor of the relevant entity may auditor of the relevant entity may auditor of the relevant entity may auditor of the relevant entity may be exercised after he/she has be exercised after he/she has be exercised after he/she has be exercised after he/she has retired from any position as a retired from any position as a retired from any position as a retired from any position as a director (including a non-member director (including a non-member director (including a non-member director (including a non-member of the board) or corporate auditor of the board) or corporate auditor of the board) or corporate auditor of the board) or corporate auditor of such entity before June 30, of such entity before June 30, of such entity before June 30, of such entity before June 30, Vesting The number of the The number of the The number of the The number of the conditions exercisable share options is exercisable share options is exercisable share options is exercisable share options is calculated by the following calculated by the following calculated by the following calculated by the following formula. formula. formula. formula. Number of share options Number of share options Number of share options Number of share options allotted x Number of months allotted Number of months allotted Number of months allotted Number of months served by directors (including served by directors (including served by directors (including served by directors (including non-members of the board) or non-members of the board) or non-members of the board) or non-members of the board) or corporate auditors from July 2008 corporate auditors from July 2007 corporate auditors from July 2006 corporate auditors from July 2005 inclusive of the month of the inclusive of the month of the inclusive of the month of the inclusive of the month of the retirement/12. retirement/12. retirement/12. retirement/12. Remaining share options Remaining share options Remaining share options Remaining share options become unexercisable after the become unexercisable after the become unexercisable after the become unexercisable after the retirement date and then expire. retirement date and then expire. retirement date and then expire. retirement date and then expire. Requisite service From August 27, 2008 From July 24, 2007 From July 19, 2006 From July 15, 2005 period to June 30, 2009 to June 30, 2008 to June 30, 2007 to June 30, 2006 From August 27, 2008 to August From July 24, 2007 to July 23, From July 19, 2006 to July 18, From July 15, 2005 to June 30, 26, Share options held by any of Share options held by any of Share options held by any of Share options held by any of the directors, corporate auditors the directors, corporate auditors the directors, corporate auditors the directors, corporate auditors or operating officers that he/she or operating officers that he/she or operating officers that he/she or operating officers that he/she received in his/her capacity as a received in his/her capacity as a received in his/her capacity as a received in his/her capacity as a director (including a non-member director (including a non-member director (including a non-member director (including a non-member Exercise period of the board) or a corporate of the board) or a corporate of the board) or a corporate of the board) or a corporate auditor of the relevant entity may auditor of the relevant entity may auditor of the relevant entity may auditor of the relevant entity may be exercised within ten days after be exercised within ten days after be exercised within ten days after be exercised within ten days after he/she has retired from any he/she has retired from any he/she has retired from any he/she has retired from any position as a director (including a position as a director (including a position as a director (including a position as a director (including a non-member of the board) or non-member of the board) or non-member of the board) or non-member of the board) or corporate auditor of such entity corporate auditor of such entity corporate auditor of such entity corporate auditor of such entity (excluding the date of the (excluding the date of the (excluding the date of the (excluding the date of the retirement). retirement). retirement). retirement). Note: The number of share options is converted into share numbers. Message/Strategy Results/Projections Management Framework CSR

128 Financial Information (2) Figures relating to the share options; (a) Number of the share options Share options (August 2008) (Share option scheme as share-linked compensation plan) Share options before vested (converted into share numbers) Outstanding at the beginning of the fiscal year Share options (July 2007) (Share option scheme as share-linked compensation plan) Share options (July 2006) (Share option scheme as share-linked compensation plan) Share options (July 2005) (Share option scheme as share-linked compensation plan) 19,400 Granted 122,100 Forfeited 300 Vested 95,900 19,100 Outstanding at the end of the fiscal year 26,200 Exercisable share options (converted into share numbers) Outstanding at the beginning of the fiscal year 66,300 73,000 91,500 Vested 95,900 19,100 Exercised ,800 22,500 30,000 Forfeited Outstanding at the end of the fiscal year 95,700 62,600 50,500 61,500 Note: The Company conducted a share split on September 30, 2006, in the ratio of 500:1. The above numbers are presented on an after share split basis. (b) Price information Exercise price Share options (August 2008) (Share option scheme as share-linked compensation plan) 100 (per a share option) Share options (July 2007) (Share option scheme as share-linked compensation plan) 100 (per a share option) Share options (July 2006) (Share option scheme as share-linked compensation plan) 500 (per a share option) Share options (July 2005) (Share option scheme as share-linked compensation plan) 500 (per a share option) Average share price at 2,215 4,294 4,307 4,290 exercise Fair value on the grant date 353, ,700 2,013, Valuation technique used for the estimated fair value of share options Share options granted in August 2008 were valuated as follows: (a) Valuation technique Black-Scholes Model (b) Assumptions Share options (August 2008) (Share option scheme as share-linked compensation plan) Expected volatility (Note 1) 34.93% Expected lives (Note 2) 2 years Expected dividends (Note 3) 32 Risk-free interest rate (Note 4) 0.700% Notes: 1. Computed based on the share prices from August 27, 2006 to August 26, Computed based on the average period of service of directors and corporate auditors. 3. Computed based on the average amount of dividends paid. 4. Based on yields of Japanese government bonds for a term corresponding to the expected lives. 4. Estimate of vested number of share options Only the actual number of forfeited share options is considered because it is difficult to rationally estimate the number of share options that will be forfeited in the future. 126 Tokio Marine Holdings, Inc. Annual Report 2010

129 Deferred Tax Accounting As of March 31, 2010 As of March 31, Significant balances of deferred tax assets and deferred tax liabilities (Yen in millions) Deferred tax assets Underwriting reserves 431,619 Retirement benefit obligations 61,635 Outstanding claims 60,641 Impairment losses on securities 50,231 Net operating loss carry forward 28,429 Price fluctuation reserve 22,168 Deferred losses on hedge 13,167 Others 94,876 Subtotal 762,768 Valuation allowance (58,145) Total deferred tax assets 704,622 Deferred tax liabilities Unrealized gains on securities (580,240) Unrealized gains on consolidated subsidiaries (67,464) Deferred gains on hedge (20,324) Others (68,129) Total deferred tax liabilities (736,158) Net deferred tax assets (liabilities) (31,535) 2. Reconciliation between the effective tax rate of the Company and the Japanese statutory income tax rate (Percentages) Japanese statutory tax rate 40.7 (Adjustments) Permanent differences such as dividends received (6.4) Tax rate applied to subsidiaries (9.7) Permanent differences such as entertainment expenses 0.9 Income tax equivalents related to the reserve for policyholder dividends incurred by overseas subsidiaries 2.0 Others 0.5 Effective tax rate 27.9 Business Combinations and Other Matters Year ended March 31, 2010 (April 1, 2009 March 31, 2010) None Year ended March 31, 2009 (April 1, 2008 March 31, 2009) 1. Significant balances of deferred tax assets and deferred tax liabilities (Yen in millions) Tokio Marine Holdings, Inc. Annual Report 2010 Deferred tax assets Underwriting reserves 431,940 Outstanding claims 58,433 Retirement benefit obligations 57,881 Impairment losses on securities 55,651 Net operating loss carry forward 25,073 Price fluctuation reserve 20,379 Deferred losses on hedge 15,028 Others 85,523 Subtotal 749,912 Valuation allowance (60,600) Total deferred tax assets 689,312 Deferred tax liabilities Unrealized gains on securities (347,099) Unrealized gains on consolidated subsidiaries (73,673) Deferred gains on hedge (24,959) Others (66,402) Total deferred tax liabilities (512,134) Net deferred tax assets (liabilities) 177, Reconciliation between the effective tax rate of the Company and the Japanese statutory income tax rate (Percentages) Japanese statutory tax rate 40.7 (Adjustments) Permanent differences such as dividends received (33.1) Tax rate applied to subsidiaries (17.2) Permanent differences such as entertainment expenses 9.1 Valuation allowance 71.0 Equity in earnings (losses) of affiliates 4.4 Reversal of deferred tax liabilities for retained earnings of foreign subsidiaries due to the tax reform (25.9) Others 3.9 Effective tax rate 52.9 As of December 1, 2008, the Company acquired Philadelphia Consolidated Holding Corp., a U.S. property & casualty ( P&C ) insurance group and made it a subsidiary through Tokio Marine & Nichido, a wholly owned subsidiary of the Company. In connection with the accounting for the acquisition, the Company has applied the purchase method as described below. (i) The outline of the business combination to which the purchase method was applied a. Acquired company Philadelphia Consolidated Holding Corp. b. Business A holding company for subsidiaries operating insurance and insurance-related businesses c. Reasons for the business combination The Company intends to strengthen its operational platform for local commercial businesses in the U.S. and expand its overall insurance business in the U.S. insurance market. d. Date of the business combination December 1, 2008 Financial Data Corporate Data Message/Strategy Results/Projections Management Framework CSR 127

130 Financial Information e. Form of the business combination Reverse triangular merger under business combination laws in the U.S. f. Ratio of voting rights acquired through the business combination 100% (ii) Period for which the operating results of the acquired company are included in the consolidated statement of income of the Company For accounting purposes, the business combination date is deemed to be the balance sheet date of Philadelphia Consolidated Holdings Corp. Consequently, the results of operation of the acquired company are not included in the consolidated statements of income of the Company for the fiscal year ended March 31, (iii) Acquisition cost 473,537 million yen (iv) Amount, reason, amortization method and period of goodwill a. Amount of goodwill 253,611 million yen b. Reason The acquisition cost of the acquired company, which was calculated by taking into account the projected future revenues as of the valuation date, exceeded the value of the assets and liabilities of the acquired company as of the date of the business combination. This difference was recognized as goodwill. c. Amortization method and period To be amortized over 20 years using the straight-line method (v) Assets and liabilities assumed on the date of the business combination and their main components Item Amount (Yen in millions) Item Amount (Yen in millions) Total assets 511,852 Total liabilities 291,926 (Securities) 225,405 (Insurance liabilities) 226,859 (vi) Approximate impact on the consolidated statements of income, assuming that the business combination took place at the beginning of the fiscal year ended March 31, 2009 The ordinary income, ordinary profit and net income would have increased by 166,851 million yen, 4,393 million yen and 143 million yen, respectively. These amounts represent the difference between the actual figures and the estimates of the figures for ordinary income, ordinary profit and net income calculated based on the assumption that the business combination was completed at the beginning of the fiscal year ended March 31, The amortized amount of goodwill was calculated assuming that the goodwill recognized at the time of the business combination had arisen at the beginning of the fiscal year ended March 31, The figures above are un-audited. 128 Tokio Marine Holdings, Inc. Annual Report 2010

131 Investment Property 2010 Year ended March 31, 2010 (April 1, 2009 March 31, 2010) 1. Some of the consolidated subsidiaries own office buildings and land mainly in Tokyo, Osaka and Nagoya, of which some properties are leased. The carrying amount, changes in carrying amount and the fair value of these investment properties are as follows: (Yen in millions) Carrying amount shown on balance sheet As of March 31, 2009 Changes for the year Fair value as of March 31, 2010 As of March 31, 2010 ended March 31, ,003 2, , ,926 Notes: 1. Carrying amount is the amount that the accumulated depreciation and the accumulated impairment losses are deducted from the cost of acquisition. The estimated cost for demolition of fixed assets is not deducted from carrying amount because provisions for demolition of fixed assets are separately recognized. 2. Changes for the year are mainly due to increases in transfers from owner-occupied property (10,065 million yen) and decreases in disposals (7,634 million yen). 3. Fair value as of March 31, 2010 is primarily based on appraisals by qualified external valuers. 2. Income and expense related to investment property are as follows: (Yen in millions) Rental income Direct operating expense Net income Other 10,182 9,164 1,018 (2,276) Note: Rental income is included in Interest and dividends. Direct operating expenses such as depreciation, repair, insurance costs and taxes are included in Operating and general administrative expenses. Other, such as gains and losses on disposal by sales and impairment losses, is included in Extraordinary gains or Extraordinary losses. (Additional information) The company has applied Accounting Standard for Disclosure about Fair Value of Investment Property and Rental Property (ASBJ Statement No.20, November 28, 2008) and Guidance on Accounting Standard for Disclosure about Fair Value of Investment Property and Rental Property (ASBJ Guidance No.23, November 28, 2008) from the fiscal year ended March 31, Segment Information 1. Operating segments Year ended March 31, 2010 (April 1, 2009 March 31, 2010) (Yen in millions) Property and casualty Life Others Total Elimination Consolidated I Ordinary income and ordinary profit Ordinary income (1) Ordinary income from transactions with external customers 2,838, ,881 50,068 3,741,805 (171,001) 3,570,803 (2) Ordinary income arising from internal segment transactions 6, ,296 32,297 (32,297) Total 2,845, ,218 75,365 3,774,102 (203,299) 3,570,803 Ordinary expenses 2,649, ,458 79,978 3,571,167 (203,778) 3,367,389 Ordinary profit 195,788 11,760 (4,613) 202, ,413 II Assets / Depreciation / Impairment losses of fixed assets and capital expenditure Assets 10,916,963 5,971, ,857 17,288,074 (22,205) 17,265,868 Depreciation 55, ,025 57,025 Impairment losses of fixed assets 10,389 3,097 13,487 13,487 Capital expenditure 29, ,375 31,382 (7) 31,374 Notes: 1. The segments are classified based on the characteristics of operation of the Company and its subsidiaries. 2. Major operations of each segment are as follows; Property and casualty: Underwriting property and casualty insurance and related investment activities Life: Underwriting life insurance and related investment activities Others: Securities investment advisory, securities investment trusts business, derivatives business, staffing business, real estate management business and elderly care business 3. Elimination of Ordinary income from transactions with external customers transfers 156,218 million yen of Reversal of underwriting reserves in the Property and casualty segment to Ordinary expenses as Provision for underwriting reserves in the consolidated statement of income. Financial Data Corporate Data Message/Strategy Results/Projections Management Framework CSR 129

132 Financial Information Year ended March 31, 2009 (April 1, 2008 March 31, 2009) Property and casualty (Yen in millions) Life Others Total Elimination Consolidated I Ordinary income and ordinary profit Ordinary income (1) Ordinary income from transactions with external customers 2,723, ,152 68,816 3,639,069 (135,967) 3,503,102 (2) Ordinary income arising from internal segment transactions 6, ,490 34,931 (34,931) Total 2,730, ,608 96,306 3,674,001 (170,898) 3,503,102 Ordinary expenses 2,726, , ,836 3,689,320 (171,089) 3,518,230 Ordinary profit 3,534 (5,324) (13,529) (15,319) 191 (15,128) II Assets / Depreciation / Impairment losses of fixed assets and capital expenditure Assets 9,458,878 5,359, ,090 15,330,864 (83,640) 15,247,223 Depreciation 19, ,833 20,833 Impairment losses of fixed assets 3, ,061 7,313 7,313 Capital expenditure 25, ,079 27,526 (35) 27,491 Notes: 1. The segments are classified based on the characteristics of operation of the Company and its subsidiaries. 2. Major operations of each segment are as follows; Property and casualty: Underwriting property and casualty insurance and related investment activities Life: Underwriting life insurance and related investment activities Others: Securities investment advisory, securities investment trusts business, derivatives business, staffing business, real estate management business and elderly care business 3. Elimination of Ordinary income from transactions with external customers transfers 123,046 million yen of Reversal of underwriting reserves in the Property and casualty segment to Ordinary expenses as Provision for underwriting reserves in the consolidated statement of income. 4. As described in Changes to Basis of Significant Accounting Policies, the Company has adopted Practical Solution on Unification of Accounting Policies Applied to Foreign Subsidiaries for Consolidated Financial Statements (ASBJ Practical Issues Task Force No.18, May 17, 2006) for the fiscal year ended March 31, 2009 and made necessary adjustments. As a result, in comparison with the previous method, ordinary income of property and casualty insurance business increased by 1,934 million yen and ordinary expense decreased by 2,416 million yen and ordinary profit increased by 4,351 million yen for the fiscal year ended March 31, Regional segments Year ended March 31, 2010 (April 1, 2009 March 31, 2010) (Yen in millions) Japan Americas Others Total Elimination Consolidated I Ordinary income and ordinary profit Ordinary income (1) Ordinary income from transactions with external customers 3,059, , ,647 3,608,341 (37,537) 3,570,803 (2) Ordinary income arising from internal segment transactions ,256 (1,256) Total 3,060, , ,910 3,609,598 (38,794) 3,570,803 Ordinary expenses 2,920, , ,013 3,406,685 (39,295) 3,367,389 Ordinary profit 139,831 20,183 42, , ,413 II Assets 15,071,200 1,447, ,403 17,278,660 (12,791) 17,265,868 Notes: 1. Countries and regions are classified into groups based on geographic proximity. 2. Major countries and regions included in each group are as follows: (1) Americas: North America, Brazil, and Bermuda (2) Others: United Kingdom, Singapore and Malaysia 3. Elimination of Ordinary income from transactions with external customers transfers 19,019 million yen of Reversal of outstanding claims in the Japan segment to Ordinary expenses as Provision for outstanding claims in the consolidated statement of income. 130 Tokio Marine Holdings, Inc. Annual Report 2010

133 Year ended March 31, 2009 (April 1, 2008 March 31, 2009) (Yen in millions) Japan Americas Others Total Elimination Consolidated I Ordinary income and ordinary profit Ordinary income (1) Ordinary income from transactions with external customers 3,219, , ,183 3,545,754 (42,652) 3,503,102 (2) Ordinary income arising from internal segment transactions (846) Total 3,219, , ,475 3,546,600 (43,498) 3,503,102 Ordinary expenses 3,223, , ,695 3,561,917 (43,686) 3,518,230 Ordinary profit (4,012) (6,083) (5,219) (15,316) 188 (15,128) II Assets 13,145,641 1,458, ,226 15,256,599 (9,375) 15,247,223 Notes: 1. Countries and regions are classified into groups based on geographic proximity. 2. Major countries and regions included in each group are as follows: (1) Americas: Brazil, Bermuda (2) Others: United Kingdom, Singapore and Malaysia 3. Elimination of Ordinary income from transactions with external customers transfers 15,971 million yen of Provision for outstanding claims from Ordinary expenses in the Others segment to Ordinary income as Reversal of outstanding claims in the consolidated statement of income. 14,737 million yen of Foreign exchange gains is also transferred from Ordinary income to Ordinary expenses as Other investment expenses in the consolidated statement of income. 4. As noted in Changes in significant matters related to financial statements, the Company has adopted Practical solution on unification of accounting policies applied to foreign subsidiaries for consolidated financial Statements (ASBJ Practical Issues Task Force No. 18, May 17, 2006) for the fiscal year ended March 31, 2009 and implemented adjustments required for the consolidated financial reporting. As a result, in the Americas segment, Ordinary income and Ordinary expenses increased by 115 million yen and 72 million yen, respectively, and ordinary loss decreased by 43 million yen. In addition, in the Others segment, ordinary income increased by 1,832 million yen, ordinary expenses and ordinary loss decreased by 2,475 million yen and 4,308 million yen respectively. 3. Overseas sales Year ended March 31, 2010 (April 1, 2009 March 31, 2010) (Yen in millions, except %) Americas Others Total I Overseas sales 390, , ,883 II Consolidated ordinary income 3,570,803 III Ratio of I to II (%) Notes: 1.Countries and regions are classified into groups based on geographic proximity. 2. Major countries and regions included in each group are as follows: (1) Americas: North America, Brazil, and Bermuda (2) Others: United Kingdom, Singapore, and Malaysia 3. Overseas sales consists of the sum of overseas sales of domestic consolidated subsidiaries and ordinary income of overseas consolidated subsidiaries. Year ended March 31, 2009 (April 1, 2008 March 31, 2009) (Yen in millions, except %) Americas Others Total I Overseas sales 183, , ,713 II Consolidated ordinary income 3,503,102 III Ratio of I to II (%) Notes: 1. Countries and regions are classified into groups based on geographic proximity. 2. Major countries and regions included in each group are as follows: (1) Americas: North America, Brazil (2) Others: United Kingdom, Singapore, and Malaysia 3. Overseas sales consists of the sum of overseas sales of domestic consolidated subsidiaries and ordinary income of overseas consolidated subsidiaries. Transactions With Related Parties Year ended March 31, 2010 (April 1, 2009 March 31, 2010) None of our transactions are specifically described for they are considered immaterial. Year ended March 31, 2009 (April 1, 2008 March 31, 2009) None of our transactions are specifically described for they are considered immaterial. (Additional Information) The Company has applied Accounting Standard for Related Party Disclosures (ASBJ Statement No. 11, October 17, 2006) and Guidance on Accounting Standard for Related Party Disclosures (ASBJ Guidance No. 13, October 17, 2006) from the fiscal year ended March 31, Tokio Marine Holdings, Inc. Annual Report 2010 Financial Data Corporate Data Message/Strategy Results/Projections Management Framework CSR 131

134 Financial Information Per Share Information Year ended March 31, 2010 (April 1, 2009 March 31, 2010) (Yen) Net assets per share 2, Net income per share Basic Net income per share Diluted Year ended March 31, 2009 (April 1, 2008 March 31, 2009) (Yen) Net assets per share 2, Net income per share Basic Net income per share Diluted Note: Calculation of Net income per share Basic and Net income per share Diluted is based on the following figures. Year ended March 31, 2010 (April 1, 2009 March 31, 2010) Year ended March 31, 2009 (April 1, 2008 March 31, 2009) Net income per share Basic Net income (Yen in millions) 128,418 23,141 Net income not attributable to common shareholders (Yen in millions) Net income attributable to common shares (Yen in millions) 128,418 23,141 Average number of shares outstanding 787,605, ,350,872 Net income per share Diluted Adjustment of net income (Yen in millions) Increase number of common shares 393, ,558 Share acquisition rights 393, ,558 Subsequent Events Year ended March 31, 2010 (April 1, 2009 March 31, 2010) The Company repurchased its own shares from July 1, 2010 through August 25, 2010, as approved by the board of directors on June 28, 2010, pursuant to Article 156 which is applicable in accordance with Article 165, paragraph 3 of the Corporation Law, as detailed below. (1) Class of shares repurchased Common share of the Company. (2) Aggregate number of shares repurchased 7,330,100 shares. (3) Aggregate purchase amount of shares 17,313,833,100 yen. (4) Method of repurchase Purchased through the Tokyo Stock Exchange (Reference) (1) Class of shares to be repurchased Common share of the Company. (2) Aggregate number of shares to be repurchased Up to 16,000,000 shares. (3) Aggregate purchase amount of shares Up to 25.0 billion yen. (4) Period in which repurchases to be made From July 1, 2010 through September 21, Year ended March 31, 2009 (April 1, 2008 March 31, 2009) On June 8, 2009, E. design Insurance Co., Ltd. ( E. design ), jointly established by Tokio Marine Holdings, Inc. and NTT FINANCE CORPORATION, received approval to commence business from the Financial Services Agency of Japan. E. design began operations on June 13, E. design Profile (1) Location of headquarters: 13F Tokyo Opera City Tower , Nishi-Shinjuku, Shinjuku-ku, Tokyo, Japan (2) Principal business: Property and casualty insurance business (3) Capitalization: 6,750 million yen (4) Shareholders and shareholding percentages: (i) Tokio Marine Holdings, Inc.: 85.01% (ii) NTT FINANCE CORPORATION: 14.99% As of June 8, 2009, the company s name changed from E. design Insurance Preparatory Co., Ltd. to E. design Insurance Co., Ltd. 132 Tokio Marine Holdings, Inc. Annual Report 2010

135 Related Information to the Consolidated Financial Statements 2010 (Bonds) Amount Amount Issuer Series Issue Date Outstanding Outstanding Coupon March 31, 2010 March 31, 2009 (%) Collateral Maturity (Yen in millions) (Yen in millions) 1 Unsecured Dec 2, ,000 [50,000] 1.96 None Dec 2, , Unsecured Feb 28, 2000 Tokio Marine & Nichido [15,000] 1.95 None Feb 26, Unsecured Sep 20, ,000 [20,000] 20, None Sep 20, Unsecured Sep 20, ,000 10, None Sep 18, 2020 Kiln Group Limited Subordinated Bond in USD Oct 11, 2006 to 5,871 5,881 Oct 11, 2036 to 3.35 None Nov 20, 2006 (US$64,520,000) (US$64,247,000) Nov 20, 2036 Straight Bond Apr 7, 2004 to 32,424 Jan 13, 2009 to 1, None Jul 30, 2008 [300] May 19, 2021 Straight Bond in Euro Mar 31, (EUR1,000,000) 2.35 None Mar 31, 2011 Power Reverse Dual Aug 18, 2003 to 27,350 29,850 Jan 20, 2009 to None Currency Note Apr 23, 2009 [100] [300] Jul 5, 2038 Nikkei Average Linked Note Feb 6, 2006 to Sep 13, 2027 to 6,200 6, None Dec 2, 2008 Dec 3, 2038 CMS Floater Note Sep 16, 2004 to 16,540 Jan 14, 2010 to 19, None Sep 28, 2006 [400] Feb 20, 2026 Tokio Marine Financial Feb 1, 2005 to Dec 20, 2011 to Reverse Floater Note 10,000 26, None Solutions Ltd. Nov 8, 2006 Mar 30, 2026 FX Linked Digital Coupon Dec 1, 2004 to Dec 2, 2024 to 1,250 1, None Note Oct 23, 2006 Oct 24, 2036 Snow Ball Note Jun 16, 2005 to 15,200 Jan 13, 2009 to 14, None Oct 26, 2006 [800] Oct 27, 2026 FX Linked Coupon Note Jul 12, 2005 to Jan 11, 2017 to 64,510 65, None Oct 23, 2008 Oct 22, 2038 Credit Linked Note Jul 14, 2008 to 1,100 2,100 Jun 29, 2009 to None Jul 30, 2008 [600] [1,000] Sep 28, 2011 China Class-A Equity Linked Aug 13, 2008 to 199 Aug 14, 2009 to 0.00 None Note Nov 28, 2008 [199] Nov 30, 2009 Total 178, ,922 Notes: 1. The figures shown in the parentheses ( ) are the principal amount in foreign currencies. 2. The figures shown in the parentheses [ ] are the principal amount to mature within 1 year. 3. Principal amounts to mature within 5 years after March 31, 2010 are as follows: (Yen in millions) Within 1 Year Over 1 to 2 Years Over 2 to 3 Years Over 3 to 4 Years Over 4 to 5 Years 21,100 1,500 1, Financial Data Corporate Data Message/Strategy Results/Projections Management Framework CSR 133

136 Financial Information (Borrowings) Amount Outstanding March 31, 2010 (Yen in millions) Amount Outstanding March 31, 2009 (Yen in millions) Average Interest rate (%) Short term borrowings 524 3, Long term borrowings to be repaid within 1 year 49 12, Obligations under lease transactions to be repaid within 1 year 2,270 2,129 Long term borrowings other than that which to be paid within 1 year Obligations under lease transactions other than that which to be paid within 1 year 217, , ,565 3,335 Maturity Apr 30, 2011 to Mar 20, 2032 Apr 20, 2011 to Feb 20, 2015 Total 222, ,418 Notes: 1. Average interest rate is calculated based on the interest rate as of the end of the fiscal year and principal amount outstanding. 2. The above amount is included in Other liabilities in the consolidated balance sheet. 3. As lease obligations are posted on the consolidated balance sheets in amounts prior to the elimination of an amount equivalent to interest, including interest on the total lease amount, lease obligations are not stated in the Average Rate column. 4. Repayment schedule of long term borrowings and obligations under lease transactions other than that which is to be repaid within 1 year during 5 years after March 31, 2010, is as follows: (Yen in millions) Over 1 to 2 Years Over 2 to 3 Years Over 3 to 4 Years Over 4 to 5 Years Long-term borrowings 195, ,009 2 Lease obligations 1, (2) Others Quarterly results for the year ended March 31, 2010 First quarter (April 1, 2009 to June 30, 2009) Second quarter (July 1, 2009 to September 30, 2009) Third quarter (October 1, 2009 to December 31, 2009) Fourth quarter (January 1, 2010 to March 31, 2010) Ordinary income (Yen in millions) 1,010, , , ,199 Quarterly net income before income taxes (Yen in millions) 45,792 54,282 54,196 26,855 Quarterly net income (Yen in millions) 35,338 35,914 38,771 18,394 Quarterly net income per share (Yen) Tokio Marine Holdings, Inc. Annual Report 2010

137 Tokio Marine Holdings, Inc. Annual Report 2010 Financial Data Corporate Data Message/Strategy Results/Projections Management Framework CSR 135

138 Financial Information 136 Tokio Marine Holdings, Inc. Annual Report 2010

139 Solvency Margin Ratio Insurance claim and other payment abilities of subsidiary insurance companies and small-amount, short-term insurers Solvency margin ratio for Tokio Marine & Nichido Fire Insurance Co., Ltd. (Yen in millions, %) Item As of March 31, 2010 As of March 31, 2009 Total amount of solvency margin (A) 3,867,559 3,258,557 Total net assets 748, ,794 Price fluctuation reserve 57,672 53,462 Contingency reserve 62 Catastrophe loss reserve including earthquake insurance 1,041,450 1,059,901 General valuation allowances for bad debts 2,905 1,039 Net unrealized gains/losses on securities (Prior to tax effect deductions) 1,546, ,195 Net unrealized gains/losses on real estate 224, ,192 Excess amount of policyholders contract deposits Subordinated debt, etc. Deductions 10,000 10,000 Other 256, ,909 Total amount of risks (B) (R 1 + R 2 ) 2 + (R 3 + R 4 ) 2 + R 5 + R 6 907, ,272 General insurance risk (R 1 ) 103, ,078 Third sector insurance risk (R 2 ) 6 Assumed interest risk (R 3 ) 8,556 8,770 Asset management risk (R 4 ) 468, ,692 Business administration risk (R 5 ) 19,604 20,178 Catastrophe risk (R 6 ) 399, ,391 Solvency margin ratio (C) [(A)/{(B) 1/2}] % 696.8% Note: The above figures were calculated in accordance with Articles 86 and 87 of the Insurance Business Law of Japan enforcement regulations and Ministry of Finance Official Notification No.50 stipulated in Solvency Margin Ratio 1. In addition to reserves to cover claims payments and payments for maturity-refunds of saving type insurance policies, etc., it is necessary for insurance companies to maintain sufficient solvency in order to cover against risks which may exceed their usual estimates, i.e., the occurrence of major disasters, a significant decline in value of assets held by insurance companies, etc. 2. The solvency margin ratio (C), which is calculated in accordance with the Insurance Business Law, is the ratio of solvency margin of insurance companies by means of their capital, reserves, etc. (total amount of solvency margin: (A)) to risks which will exceed their usual estimates (total amount of risks: (B)). 3. Risks which will exceed their usual estimates (total amount of risks; (B)) is composed of risks described below. (1) (General) insurance risk, third sector insurance risk: Risks of occurrence of insurance claims in excess of normal expectations (excluding risks relating to major disasters) (2) Assumed interest risk: Risks of invested assets failing to yield assumed interest rates due to the worsening of investment conditions beyond expectations (3) Asset management risk: Risks of retained securities and other assets fluctuating in prices beyond expectations (4) Business administration risk: Risks beyond normal expectations arising from business management that does not fall under other categories (1) to (3) nor (6) (5) Catastrophic risk: Risks of the occurrence of major catastrophic losses in excess of normal expectations (risks such as the Great Kanto Earthquake or Isewan typhoon) (6) Risk concerning the minimum guarantee (minimum guarantee risk): Risks that, for the minimum guarantee of insurance payments among insurance contracts for which special accounts have been established, the amount of assets in the separate accounts when paying insurance claims falls below the minimum-guaranteed insurance payments and risks that a change in the value of assets in separate accounts exceeds usual forecasts 4. The ability of insurance companies to pay claims by means of their capital, reserves, etc. (total amount of solvency margin) is the total amount of capital (excluding planned outflows), certain reserves (reserve for price fluctuations, contingency reserves and catastrophe reserves, etc.) and parts of net unrealized gains on real estate. 5. The solvency margin ratio is one of the indicators for the regulatory authorities to supervise insurance companies. A ratio exceeding 200% indicates adequate ability to meet payments of insurance claims. Tokio Marine Holdings, Inc. Annual Report 2010 Financial Data Corporate Data Message/Strategy Results/Projections Management Framework CSR 137

140 Solvency Margin Ratio Solvency margin ratio for Nisshin Fire & Marine Insurance Co., Ltd. (Yen in millions, %) Item As of March 31, 2010 As of March 31, 2009 Total amount of solvency margin (A) 144, ,990 Total net assets 57,961 57,299 Price fluctuation reserve Contingency reserve Catastrophe loss reserve including earthquake insurance 63,925 64,354 General valuation allowances for bad debts Net unrealized gains/losses on securities (Prior to tax effect deductions) 14,320 6,564 Net unrealized gains/losses on real estate (969) 1,828 Excess amount of policyholders contract deposits Subordinated debt, etc. Deductions Other 8,220 8,229 Total amount of risks (B) (R 1 + R 2 ) 2 + (R 3 + R 4 ) 2 + R 5 + R 6 38,601 37,669 General insurance risk (R 1 ) 7,585 7,831 Third sector insurance risk (R 2 ) Assumed interest risk (R 3 ) Asset management risk (R 4 ) 8,809 8,872 Business administration risk (R 5 ) 852 1,242 Catastrophe risk (R 6 ) 25,799 24,255 Solvency margin ratio (C) [(A)/{(B) 1/2}] % 737.9% Note: The above figures were calculated in accordance with Articles 86 and 87 of the Insurance Business Law of Japan enforcement regulations and Ministry of Finance Official Notification No.50 stipulated in Solvency margin ratio for E. design Insurance Co., Ltd. (Yen in millions, %) Item As of March 31, 2010 Total amount of solvency margin (A) 2,221 Total net assets 2,186 Price fluctuation reserve Contingency reserve Catastrophe loss reserve including earthquake insurance 35 General valuation allowances for bad debts Net unrealized gains/losses on securities (Prior to tax effect deductions) Net unrealized gains/losses on real estate Excess amount of policyholders contract deposits Subordinated debt, etc. Deductions Other Total amount of risks (B) (R 1 + R 2 ) 2 + (R 3 + R 4 ) 2 + R 5 + R 6 77 General insurance risk (R 1 ) 59 Third sector insurance risk (R 2 ) Assumed interest risk (R 3 ) Asset management risk (R 4 ) 36 Business administration risk (R 5 ) 3 Catastrophe risk (R 6 ) 4 Solvency margin ratio (C) [(A)/{(B) 1/2}] 100 5,762.2% Notes: 1. The above figures were calculated in accordance with Articles 86 and 87 of the Insurance Business Law of Japan enforcement regulations and Ministry of Finance Official Notification No.50 stipulated in Figures are disclosed from fiscal 2009 because a non-life insurance industry license was obtained on June 8, Tokio Marine Holdings, Inc. Annual Report 2010

141 Solvency margin ratio for Tokio Marine & Nichido Life Insurance Co., Ltd. (Yen in millions, %) Item As of March 31, 2010 As of March 31, 2009 Total amount of solvency margin (A) 302, ,803 Total net assets 85,530 85,529 Price fluctuation reserve 3,188 2,688 Contingency reserve 24,314 22,959 General valuation allowance for bad debts Net unrealized gains on securities 90% ( 100% if losses) 9,987 22,639 Net unrealized gains on real estate 85% ( 100% if losses) Excess of continued Zillmerized reserve 110,960 78,509 Subordinated debt, etc. Deductions Other 68,613 65,319 Total amount of risks (B) (R 1 + R 8 ) 2 + (R 2 + R 3 + R 7 ) 2 + R 4 23,437 21,259 Insurance risk (R 1 ) 12,184 11,475 Assumed interest risk (R 2 ) 2,239 2,249 Asset management risk (R 3 ) 14,355 12,105 Business administration risk (R 4 ) Minimum guarantee risk (R 7 ) Third sector insurance risk (R 8 ) 2,987 3,010 Solvency margin ratio (C) (A) (1/2) (B) 100 2,584.3% 2,613.4% Note: The above figures were calculated in accordance with Articles 86, 87, 161, 162 and 190 of the Insurance Business Law of Japan enforcement regulations and Ministry of Finance Official Notification No.50 stipulated in Solvency margin ratio for Tokio Marine & Nichido Financial Life Insurance Co., Ltd. (Yen in millions, %) Item As of March 31, 2010 As of March 31, 2009 Total amount of solvency margin (A) 84,814 85,255 Total net assets 24,268 25,632 Price fluctuation reserve Contingency reserve 21,144 20,452 General valuation allowance for bad debts 0 0 Net unrealized gains on securities 90% ( 100% if losses) Net unrealized gains on real estate 85% ( 100% if losses) Excess of continued Zillmerized reserve 29,062 28,978 Subordinated debt, etc. 10,000 10,000 Deductions Other Total amount of risks (B) (R 1 + R 8 ) 2 + (R 2 + R 3 + R 7 ) 2 + R 4 13,300 16,123 Insurance risk (R 1 ) Assumed interest risk (R 2 ) 2 2 Asset management risk (R 3 ) 4,863 6,761 Business administration risk (R 4 ) Minimum guarantee risk (R 7 ) 8,040 8,882 Third sector insurance risk (R 8 ) Solvency margin ratio (C) (A) (1/2) x (B) 100 1,275.3% 1,057.5% Notes: 1. The above figures were calculated in accordance with Articles 86, 87, 161, 162 and 190 of the Insurance Business Law of Japan enforcement regulations and Ministry of Finance Official Notification No.50 stipulated in The minimum guarantee risk was calculated using the standard method. Tokio Marine Holdings, Inc. Annual Report 2010 Financial Data Corporate Data Message/Strategy Results/Projections Management Framework CSR 139

142 Solvency Margin Ratio Solvency margin ratio for Millea Nihon Kosei SS Insurance Co., Ltd. (Yen in millions, %) Item As of March 31, 2010 As of March 31, 2009 Total amount of solvency margin (A) 1,781 1,979 Total net assets excluding planned outflows 1,714 1,938 Reserve for price fluctuation Catastrophe loss reserve General valuation allowance for bad debts Net unrealized gains on securities (Prior to tax effect deductions) Net unrealized gains/losses on real estate Refund reserve premium Future profit Tax effect equivalent value Subordinated debt, etc. Deductions Total amount of risks (B) R 1 + R R 3 + R Equivalent insurance risk General insurance risk equivalent value (R 1 ) Catastrophe risk equivalent value (R 4 ) Asset management risk equivalent value (R 2 ) Business administration risk equivalent value (R 3 ) 6 6 Solvency margin ratio (C) [(A)/{(B) 1/2}] 100 1,918.4% 1,858.3% Notes: 1. The above figures were calculated in accordance with Articles and of the Insurance Business Law of Japan enforcement regulations and Financial Services Agency s Official Notification No.14 stipulated in Company name changed to Tokio Marine Millea SAST Insurance Co., Ltd. in July Tokio Marine Holdings, Inc. Annual Report 2010

143 Interest-Rate Sensitivity of ALM Surplus Value The following tables show how the hypothetical changes in interest rates affect the present value of the surplus in Tokio Marine & Nichido s and in Tokio Marine & Nichido Life s asset-liability portfolio as of March 31, 2010 and March 31, The assetliability Tokio Marine Holdings, Inc. Annual Report 2010 portfolio is composed of assets to meet future obligations and reserves for insurance policies including deposit-type insurance and long-term insurance policies, and the present value of the surplus in the portfolio is measured as the difference between the present value of assets and that of liabilities (before taxes and future policy dividends). Tokio Marine & Nichido Fire Insurance Co., Ltd. (Yen in billions) Yield curve shift (As of March 31, 2010) -1% ±0% +1% General Policy Account (2.3) 0.0 (1.3) Deposit-Type Insurance Accounts (2.8) 0.0 (0.6) Asset-Liability Portfolio (5.1) 0.0 (1.9) (Yen in billions) Yield curve shift (As of March 31, 2009) -1% ±0% +1% General Policy Account (1.9) 0.0 (1.9) Deposit-Type Insurance Accounts (3.3) 0.0 (1.0) Asset-Liability Portfolio (5.2) 0.0 (2.9) Tokio Marine & Nichido Life Insurance Co., Ltd. (Yen in billions) Yield curve shift (As of March 31, 2010) -1% ±0% +1% Asset-Liability Portfolio (114.2) 0.0 (45.5) (Yen in billions) Yield curve shift (As of March 31, 2009) -1% ±0% +1% Asset-Liability Portfolio (93.2) 0.0 (16.4) (1) Based on the prevailing yield curve for Japanese government bonds (JGBs) on the indicated dates (2) The information presented above has been prepared solely for risk management purposes and is not indicative of the actual effect on the financial condition, results of operations or corporate value of Tokio Marine & Nichido and Tokio Marine & Nichido Life caused by the changes in past or future interest rates. (3) The information indicates the hypothetical changes of the present value of ALM surplus value, and accordingly, the numbers of Tokio Marine & Nichido Life presented above may be different from those which are described in table 4. Effects of Changes in Assumptions of Embedded Value for Tokio Marine & Nichido Life as of March 31, (4) The present value of the surplus in Tokio Marine & Nichido Life is calculated on the basis taking dynamic lapse into consideration. Financial Data Corporate Data Message/Strategy Results/Projections Management Framework CSR 141

144 Embedded Value Embedded Value for Tokio Marine & Nichido Life Insurance Co., Ltd. 1. About Embedded Value Embedded value (EV) is regarded as one of the measures used to assess the economic value of a life insurance business and its performance. In Japan, over 10 insurers have disclosed their EV as of March 31, It is calculated as the sum of the net asset value and value of in-force business. Net asset value is calculated by adding Contingency reserve (after tax) and Reserve for price fluctuations (after tax) which are regarded as appropriate to be included in net assets, to net assets in the balance sheets. Value of in-force business represents the present value as at the valuation date of future net income (after tax) distributable to shareholders from the in-force business. The present value is calculated by discounting future distributable shareholders profits, fewer surpluses required to be retained in order to maintain a certain level of solvency margin, using a risk discount rate that takes a risk premium into consideration. 2. EV as of March 31, 2010 (1) EV as of March 31, 2010 The EV as of March 31, 2010 was billion yen in total: net asset value of billion yen and value of in-force business of billion yen. (Yen in billions) FY2009 FY2008 FY2007 Net asset value Value of in-force business EV as at the end of the fiscal year Value of new business (2) Change in EV and ROE The Tokio Marine Group adopts change in EV and ROE as measures used for assessing its performance in the life insurance business. During fiscal 2009, EV increased 32.2 billion yen from the end of the previous fiscal year, and ROE was 8.6%. (Yen in billions) FY2009 FY2008 FY2007 Change in EV 32.2 (6.0) 29.1 Average balance of EV ROE Note 8.6% (1.7%) 8.3% Note: ROE = Change in EV/Average EV During fiscal 2009, the change in EV from the end of the previous fiscal year was an increase of 38.2 billion yen. However, this was mainly because Effect of changes in assumptions was 2.7 billion yen, an increase of 20.6 billion yen from the previous fiscal year-end, due to a re-evaluation of mortality and morbidity rates and surrender and lapse rates, and because Effect of changes in investment yields was 1.2 billion yen, an increase of 10.0 billion yen from the previous fiscal year-end, due to a rise in the ultra long-term JGB yield. (For details on changes, refer to 5. Analysis of Movement of EV. ) EV amounted to 28.2 billion yen when excluding Effect of changes in assumptions and Effect of changes in investment yields. (In this case, ROE was 7.6%.) (Reference) (Yen in billions) FY2009 FY2008 FY2007 Change in EV Tokio Marine Holdings, Inc. Annual Report 2010

145 3. Major Assumptions The major assumptions used in calculating the value of in-force business at March 31, 2010 were as follows: Tokio Marine Holdings, Inc. Annual Report 2010 Assumption Basis of assumption Based on past experience by benefit type, and policy year and attained age, etc. Mortality and morbidity rates For policy years where no experience data was available, assumptions have been based on industry statistics. Surrender and lapse rates Based on past experience by line of business, premium mode and policy year Expenses Based on past actual expenses, expressed as unit costs per in-force policy and percentage of premiums. Assumed to be invested in JGB matched to the duration of liabilities*. Investment yield on new money The JGB yield used is the yield as of the valuation date of the EV (at the end of fiscal year) as follows: FY2008: 10yrs 1.37%; 20yrs 1.96%; 30yrs 2.11%; 40yrs 2.13% FY2009: 10yrs 1.40%; 20yrs 2.17%; 30yrs 2.30%; 40yrs 2.30% Effective tax rate Based on actual experience (36.15%) Solvency margin ratio Assumed to maintain a solvency margin ratio of 600%. Set by adding a risk premium of 6% to the risk free interest rate (the 20-year JGB yield). Risk discount rate FY2008: Risk-free interest rate (1.96%) + 6% 8% FY2009: Risk-free interest rate (2.17%) + 6% 8% *Average investment yield is approximately 2.2%. Investment yield on new money New money is assumed to be invested in JGBs matched to the duration of liabilities. Risk discount rate The risk discount rate has been set by adding a risk premium of 6% to the risk free rate (the 20-year JGB yield). The risk premium has not been changed between fiscal 2008 and fiscal The Tokio Marine Group set a risk premium of 6.0% as the required level for its domestic life insurance business. 4. Effects of Changes in Assumptions The table below shows the change in EV at March 31, 2010 arising from changes to assumptions: (Yen in billions) Change in Assumptions Effect on EV EV Amount Set 1.1 times the insurable mortality and morbidity rate (19.5) Set 1.1 times the surrender rate (0.9) Set 1.1 times the expense (6.2) Investment yield (JGB yield) up 0.25%* Investment yield (JGB yield) down 0.25%* (7.2) Set solvency margin ratio at 500% Set solvency margin ratio at 700% (2.3) Reduce risk premium by 2.0% (with 6% discount rate) Reduce risk premium by 1.0% (with 7% discount rate) Raise risk premium by 1.0% (with 9% discount rate) (21.0) Raise risk premium by 2.0% (with 10% discount rate) (39.3) *Based on the assumption that only investment yield is changed without changes in the risk discount rate Increase or reduction in investment yield The change in assumed investment yield is set based on the assumption that it is affected by increase/decrease in JGB yield (risk free market interest rate). Also, the increase/decrease in unrealized gains/losses arising from the change in interest rate is taken into consideration. For the purpose of the above increase/decrease, the EV has been re-calculated on the basis that the risk discount rate is unchanged. Increase or reduction in the risk premium The risk discount rate is dependent on market interest rates and on the risk premium. For the purpose of the above sensitivities, the EV has been re-calculated on the basis that the risk premium changes without any change in market interest rates (investment yield). Financial Data Corporate Data Message/Strategy Results/Projections Management Framework CSR 143

146 Embedded Value 5. Analysis of Movement of EV (Yen in billions) FY2009 FY2008 Year-on-year change Value of new business Release of the discounted value of in-force business (0.6) Variances between experience and assumptions 1.9 (1.9) 3.8 Effect of changes in investment yields 1.2 (8.7) 10.0 Effect of changes in assumptions 2.7 (17.8) 20.6 Others (0.1) Total 32.2 (6.0) 38.2 The change in EV consists of two major components, the value of new business (new businesses issued in fiscal 2009) and others. (1) Value of new business In fiscal 2009, the value of new business was 4.8 billion yen, an increase of 4.5 billion yen from the previous fiscal year. This was due to an increase in the volume of new business, an income-increasing factor, as well as to a reduction in expenses related to the solicitation of new business. (2) Changes other than value of new business Effect of changes in assumptions was 2.7 billion yen, an increase of 20.6 billion yen from the previous fiscal year, due to a re-evaluation of mortality and morbidity rates and surrender and lapse rates. Effect of changes in investment yields was 1.2 billion yen, an increase of 10.0 billion yen from the previous fiscal year, due to a rise in the ultra long-term JGB yield. 6. Review by Independent Actuarial Firm To ensure the validity and appropriateness of the EV evaluation, Tokio Marine & Nichido Life engaged an external actuarial consulting firm with expertise and knowledge in the area of EV valuations. 7. Instruction As the EV is calculated based on the assumptions including future prospects with risk and uncertainty, actual future results can differ largely from the assumptions used in EV calculation. Also, since the actual market capital is determined by investors judgment based on a number of information, EV can significantly differ from such information. Therefore, sufficient consideration needs to be made in using EV. 144 Tokio Marine Holdings, Inc. Annual Report 2010

147 Embedded Value for Tokio Marine & Nichido Financial Life Insurance Co., Ltd. 1. About Embedded Value Tokio Marine Holdings, Inc. Annual Report 2010 Embedded value (EV) is regarded as one of the measures used to assess the economic value of a life insurance business and its performance. In Japan, over 10 insurers have disclosed their EV as of March 31, It is calculated as the sum of the net asset value and value of in-force business. Net asset value is calculated by adding Contingency reserve and Reserve for price fluctuations which are regarded as appropriate to be included in net assets, to net assets in the balance sheets. Value of in-force business represents the present value as at the valuation date of future net income (after tax) distributable to shareholders from the in-force business. The present value is calculated by discounting future distributable shareholders profits, fewer surpluses required to be retained in order to maintain a certain level of solvency margin, using a risk discount rate that takes a risk premium into consideration. 2. EV as of March 31, 2010 (1) EV as of March 31, 2010 EV as of March 31, 2010 was 63.3 billion yen in total: net asset value of 45.6 billion yen and value of in-force business of 17.6 billion yen. (Yen in billions) FY2009 FY2008 FY2007 Net asset value Value of in-force business 17.6 (2.2) 53.9 EV as at the end of the fiscal year Value of new business (3.1) (2.7) 2.6 (2) Change in EV and ROE The Tokio Marine Group adopts change in EV and ROE as measures used for assessing its performance in the life insurance business. At the end of fiscal 2009, the change in EV (excluding the capital increase during the term) was an increase of 19.2 billion yen from the end of the previous fiscal year, and ROE was 35.9%. (Yen in billions) FY2009 FY2008 FY2007 Change in EV (excluding the capital increase during the term) 19.2 (50.2) (14.4) Average EV ROE Note 35.9% (72.7%) (14.9%) Note: ROE = Change in EV (excluding the capital increase during the term)/average EV During the fiscal 2009, the change in EV (excluding the capital increase during the term) was an increase of 69.5 billion yen from the previous fiscal year-end. However, when excluding Variances between actual performance and assumptions on investment and Effect of changes in assumptions, the change in EV was a decrease of 6.2 billion yen in fiscal 2008 and a decrease of 2.2 billion yen in fiscal 2009, which represents an increase of 4.0 billion yen between these fiscal years. (Reference) (Yen in billions) FY2009 FY2008 FY2007 Change in EV Note (2.2) (6.2) 6.9 Note: ROE = Change in EV (excluding the capital increase during the term)/average EV Financial Data Corporate Data Message/Strategy Results/Projections Management Framework CSR 145

148 Embedded Value 3. Major Assumptions The major assumptions used in calculating the value of in-force business at March 31, 2010 were as follows: Assumptions Basis of assumptions Mortality rate Based on past claim payment performance by insurance type, policy year, etc. Surrender rate Based on past surrender performance by insurance type, payment method and policy year Expense Based on past actual expenses, expressed as unit costs per in-force policy Investment earnings ratio for separate accounts Based on earnings ratio of portfolio (stock fund, bond fund and money fund) by insurance policy type Effective tax rate Based on actual experience (36.2%) Solvency margin ratio Assumed to maintain a solvency margin ratio of 600%. Risk discount rate Set by adding a risk premium of 6% to the risk free interest rate (the 20-year JGB yield). FY2008: Risk-free interest rate (1.96%) + 6% 8% FY2009: Risk-free interest rate (2.17%) + 6% 8% Investment earnings ratio for separate accounts Investment earnings ratio for separate accounts is set by insurance policy type, 4% of stock fund, 1.391% of bond fund and 0.1% of money fund. Risk discount rate The risk discount rate has been set by adding a risk premium of 6% to the risk free interest rate (the 20-year JGB yield). The risk premium has not been changed between fiscal 2008 and fiscal The Tokio Marine Group set a risk premium of 6.0% as the required level for its domestic life insurance business. 4. Effects of Changes in Assumptions The table below shows the change in EV at March 31, 2010 arising from changes to assumptions: Change in Assumptions Effect on EV EV Amount Set 1.1 times the insurable mortality rate (0.8) 62.4 Set 1.1 times the surrender rate Set 1.1 times the expense (0.8) 62.4 If the balance of actual cash value of separate accounts is instantly increased by 10% If the balance of actual cash value of separate accounts is instantly reduced by 10% (19.4) 43.8 Set solvency margin ratio at 500% Set solvency margin ratio at 700% (2.5) 60.7 Reduce risk premium by 2.0% (with 6% discount rate) Reduce risk premium by 1.0% (with 7% discount rate) Raise risk premium by 1.0% (with 9% discount rate) (1.1) 62.1 Raise risk premium by 2.0% (with 10% discount rate) (2.2) 61.0 (Yen in billions) Increase or reduction in the risk premium Any increase or reduction in discount rate is in tandem with the fluctuations in market interest rates and increases or reductions in the risk premium rate. However, in this case, the market interest rate is fixed and the effect is calculated based on the fluctuation of the risk premium. 146 Tokio Marine Holdings, Inc. Annual Report 2010

149 5. Analysis of Movement of EV (Yen in billions) FY2009 FY2008 Year-on-year change Capital increase during the term Value of new business (3.1) (2.7) (0.4) Release of the discounted value of in-force business (3.8) Variances between actual performance and assumptions 23.4 (42.4) 65.9 on investment Variances between actual performance and assumptions 0.6 (0) 0.6 on others Effect of reinsurance (0.3) (7.9) 7.6 Effect of changes in assumptions (1.9) (1.5) (0.3) 19.2 (50.2) 69.5 Total (excluding capital increase during the term) 19.2 (50.2) 69.5 The change in EV, excluding capital increase during the term, consists of two major components, the value of new business and others. (1) Value of new business During fiscal 2009, the value of new business was negative 3.1 billion yen, a decrease of 0.4 billion yen from the previous fiscal year. The principal factors were a decline in the volume of new business and a rise in the costs of hedging minimum guarantee risks for new business following the financial crisis in (2) Changes other than Value of new business Variances between actual performance and assumptions on investment was 23.4 billion yen. This was mainly due to an expected future rise in insurance expenses in proportion to net assets in special accounts because the actual performance of investments of special accounts surpassed assumptions as a result of an improvement in the market environment. In the fiscal year, Effect of reinsurance was a negative 0.3 billion yen. This was because of a rise in reinsurance premium rates for policies ceded that exceeded initial expectations. In the fiscal year Release of the discounted value of in-force business was 0.6 billion yen, a decrease of 3.8 billion yen from the previous fiscal year. This was due to a decrease in the value of in-force business in the previous fiscal year. Effect of changes in assumptions was negative 1.9 billion yen. This was due mainly to changes in assumptions for the insurable mortality rate and for the surrender rates and reflected the most recent actual results in the assumptions. Variances between actual performance and assumptions on others was 0.6 billion yen. This was mainly because business expenses for the fiscal year were below assumptions due to efforts to reduce business expenses. 6. Instruction As EV is calculated based on the assumptions including future prospects with risk and uncertainty, actual future results can differ largely from the assumptions used in EV calculation. Also, since the actual market capital is determined by investors judgment based on a number of information, EV can significantly differ from such information. Therefore, sufficient consideration needs to be made in using EV. Tokio Marine Holdings, Inc. Annual Report 2010 Financial Data Corporate Data Message/Strategy Results/Projections Management Framework CSR 147

150 Statutory Reserve Non-life insurance Tokio Marine & Nichido Fire Insurance Co., Ltd. (Yen in millions) Year ended March 31, 2010 Year ended March 31, 2009 Catastrophe loss reserve 884, ,148 Price fluctuation reserve 57,672 53,462 Nisshin Fire & Marine Insurance Co., Ltd. (Yen in millions) Year ended March 31, 2010 Year ended March 31, 2009 Catastrophe loss reserve 51,451 52,511 Price fluctuation reserve E. design Insurance Co., Ltd. (Yen in millions) Catastrophe loss reserve 35 Year ended March 31, 2010 Life insurance Tokio Marine & Nichido Life Insurance Co., Ltd. (Yen in millions) Year ended March 31, 2010 Year ended March 31, 2009 Catastrophe loss reserve 24,314 22,959 Price fluctuation reserve 3,188 2,688 Tokio Marine & Nichido Financial Life Insurance Co., Ltd. (Yen in millions) Year ended March 31, 2010 Year ended March 31, 2009 Catastrophe loss reserve 21,144 20,452 Price fluctuation reserve Tokio Marine Holdings, Inc. Annual Report 2010

151 Corporate Data 150 Facilities 156 History of the Tokio Marine Group 160 Worldwide Network of the Tokio Marine Group 162 Tokio Marine Holdings, Inc. Annual Report 2010 Corporate Data Financial Data Corporate Data Message/Strategy Results/Projections Management Framework CSR 149