Corporate Governance Policy

This Policy establishes the basic views, framework and operational policy regarding corporate governance of the Sompo Group (hereinafter “the Group”).

1. Basic Views on Corporate Governance

The Group management philosophy sets out that the Group will at all times carefully consider the interests of our customers when making decisions that shape our business. We will strive to contribute to the security, health, and wellbeing of our customers and society as a whole by providing insurance and related services of the highest quality possible.
Following the principles of the Group management philosophy, the Group considers value creation for stakeholders in the administration of its business and establishes and implements the Group Action Guidelines as standards of behavior for the Group employees in Japan and abroad with the business objectives of increasing corporate value through sustainable business growth and becoming the best customer service provider both at home and abroad.
The Group considers continuous improvement of transparency and fairness of the Group’s corporate governance and fulfillment of corporate social responsibility as essential for maintaining strong relations of trust with stakeholders. The Board of Directors has accordingly established this Policy to clarify basic policies regarding the overall vision for the governance structure and the development of governance framework. We continue to make efforts to enhance corporate governance in pursuit of the best corporate governance.

2. Overall Governance Structure

Sompo Holdings, Inc. (hereinafter “the Company”) has changed its governance structure to "Company with committees", effective June 2019, as part of efforts to strengthen corporate governance structure by separating management supervision from business execution in order to reinforce the supervisory function of the Board of Directors and to accelerate business execution by delegating substantial authorities from the Board of Directors to executive functions. The Company also established three committees; Nomination Committee, Audit Committee, and Compensation Committee and established a governance structure that works to improve transparency and fairness. The Board of Directors sets the basic policies for Group management and for internal control which forms the foundation of Group management, appoints Executive Officers, and supervises the performance of duties by Directors and Executive Officers. Additionally, the Board of Directors delegates executive decisions to Executive Officers in principle, as far as the laws permit, to further strengthen the supervisory function of the Board of Directors and accelerate business execution.
In addition, by appropriately executing the duties of the Nominating Committee, Audit Committee, and Compensation Committee, which have the Chairman and a majority of its members as Outside Directors, the Company ensures transparency in the appointment of Directors and Executive Officers, the audit of their duties, and the compensation of Directors and Executive Officers to develop and maintain the structure for enhanced functioning of corporate governance.
On the structure for business execution, Executive Officers make executive decisions and perform duties on the matters delegated from the Board of Directors under the overall supervision of the Group CEO and the Group COO, while Business Owner System and Group Chief Officer (hereinafter “Group CxO”) system are in place to ensure agile and flexible decision-making and business execution, with clearly defined authorities and responsibilities.
Additionally, the Company established the Global Executive Committee (hereinafter “Global ExCo”) which is the highest executive committee and an advisory body to the Group CEO to discuss important matters that significantly impact management, such as Group management strategy and business executive policy. The Company also established Managerial Administrative Committee (hereinafter “MAC”) as an advisory body to the Group COO to discuss important matters related to execution of business strategies and managerial administrative matters of the Company and Group companies.

3. Board of Directors and Committees

(1) Directors and the Board of Directors

(i) Role of Directors and the Board of Directors
The Board of Directors performs its duties as stipulated by laws and regulations or the Articles of Incorporation, decides on important items for management as defined in the Rules of Board of Directors, and serves a supervisory function overseeing the status of business execution.
The Chairman of the Board of Directors is appointed at the Board of Directors Meeting as stipulated in the Articles of Incorporation, which is assumed by the Director who serves as Group CEO.
Prior to the Board of Directors Meeting, preliminary briefing sessions are held for Outside Directors before every meeting to explain about the agenda items. The opinions, questions, and other comments expressed by the Outside Directors at the preliminary briefing sessions are shared with all attending Directors before the Board of Directors Meeting, to operate the Board of Directors Meeting and preliminary briefing session in a unified manner. Additionally, executive functions and the secretariat of the Board of Directors Meeting provide information as necessary. Such procedures facilitate constructive and productive discussion at the Board of Directors Meeting and ensure the effectiveness of the operations of Board of Directors Meeting. In addition, Outside Directors and the Group CEO hold meeting to facilitate open exchange of opinions among Outside Directors and between the top Executive Officers.

(ii)Number, structure and tenure of Directors
The number of Directors shall not exceed 15 (fifteen) as stipulated in the Articles of Incorporation, considering the need for appropriate decision making and the scope of responsibilities and duties of the Board of Directors. Outside Directors shall be selected in accordance with the policies for appointment of Directors and Executive Officers from corporate executives, academic experts, and legal professionals or individuals who have expert knowledge of finance and accounting, etc., in order to incorporate wider perspectives from outside with respect to issues, such as corporate governance, consumer affairs and overseas business operation. The tenure of Directors ends upon the closing of the final General Shareholders Meeting held within a fiscal year that is within one year from the appointment in order to clarify the responsibilities of the management concerning the fiscal year

(2) Nomination Committee

(i)Role of the Committee
The Nomination Committee defines policy and standard for the appointment of Directors and Executive Officers, determines the list of candidates, and involve in the appointment of Directors and Executive Officers of subsidiaries when necessary according to the profile and size of the business.
In addition, the Nomination Committee deliberates appointment and dismissal of the Group CEO based on the personal performance evaluation to improve transparency and corporate governance.

(ii)Structure of the Committee
The Nomination Committee consists of at least 3 (three) members and the majority of the members are selected from Outside Directors to ensure independence and neutrality of the Committee. The Chairman of the Committee is selected from a member who is an Outside Director.

(3) Audit Committee

(i)Role of the Committee
The Audit Committee shall audit the legality and the appropriateness of the duty performance of Directors and Executive Officers, produce audit reports, and determine agenda to be presented to the General Shareholders Meeting regarding the appointment, dismissal and non-reappointment of the Independent Auditor.
In addition, the Audit Committee exercises its right to consent to the determination of compensation for the Independent Auditor.
The Audit Committee establishes the audit standards, basic audit policy, and audit plans to ensure effectiveness of the aforementioned audit practice and carries out audit in an organized manner.

(ii)Structure of the Committee
The Audit Committee consists of at least 3 (three) members selected from the Directors who do not assume any executive role, and the majority of the members shall be Outside Directors.
In addition, the Chairman of the Committee is selected from the members who are Outside Directors in principle with more than one full-time audit member who is familiar with the business of the Group and audit member who has expert knowledge of finance and accounting in principle.

(iii)Ensuring effectiveness of the Committee
An organization dedicated to supporting the duties of the Audit Committee is established.
In addition, the Audit Committee and the Internal Audit Department cooperate closely with each other and share information appropriately, and the Audit Committee provides consent to internal audit plan and personnel affairs related to the General Manager of the Internal Audit Department.

(4) Compensation Committee

(i)Role of the Committee
The Compensation Committee determines the evaluation and compensation scheme and compensations of Directors and Executive Officers, and involve in the compensations of Directors and Executive Officers of subsidiaries according to the profile and the size of the business.
In addition, the Compensation Committee performs personal performance evaluation of the Group CEO to enhance transparency and objectivity of the compensation determination process and improve corporate governance.

(ii)Structure of the Committee
The Committee consists of at least 3 (three) members selected from Directors and the majority of the members are selected from Outside Directors in order to ensure independence and neutrality of the Committee. The Chairman of the Committee is selected from a member who is an Outside Director.

4. Business Executive Structure and Executive Officers

In the Company, Executive Officers shall make executive decisions on matters delegated by the Board of Directors and execute business under the overall supervision of the Group CEO and the Group COO. Additionally, the Group introduced Business Owner System and Group CxO System in order to perform agile and flexible decision-making and business execution, in the Group's best interest with the objective of increasing corporate value of the Group.

(1) Executive Officers

Executive Officers shall make executive decisions on matters delegated by the Board of Directors and execute business, and within the scope of duties in accordance with laws and regulations or the Articles of Incorporation, internal rules, etc., execute business based on management strategy of the Group.

(2)Group CEO

As the Chief Executive Officer of the Group, the Group CEO oversees the overall management of the Group by strategically assigning Business CEOs that are the heads of each business segment and Group CxOs that are the heads of each function of the Group to realize agile and flexible Group management in response to discontinuous changes in business environment.

(3) Group COO

As the Chief Operating Officer of the Group, the Group COO supports the Group CEO in overseeing the overall management of the Group, makes decisions and supervises businesses in accordance with the role sharing with the Group CEO.

(4) Business CEO

Business CEOs as heads of each business (CEO of Domestic P&C Insurance, CEO of Overseas Insurance and Reinsurance, CEO of Domestic Life Insurance and CEO of Nursing Care & Healthcare) are delegated the authority of business strategy formulation, investment decisions, and personnel deployment to enable agile and flexible decision-making and business execution by the business division that is closer to customers.

(5) Group CxO

Group CxOs as heads of each function in the Group (Group CFO (finance), Group CSO (strategy), Group CDO (digital), Group CRO (risk management), Group CIO (IT), Group CHRO (human resource) and Group CBO (brand)) oversee Group-wide operation of each function to enable agile and flexible decision-making and Group-wide business execution in the Group's best interest.

(6) Global ExCo

Global ExCo as an advisory body to the Group CEO and the highest executive committee, is held six times a year in principle to discuss themes that significantly impact group-wide management strategy and business executive policy.
Global ExCo is chaired by the Group CEO and comprised of Group COO, Business CEOs, Chairman of Overseas M&A, Group CFO, Group CSO, Group CHRO and others.

(7) Managerial Administrative Committee (MAC)

Managerial Administrative Committee (MAC) as an advisory body to the Group COO is held monthly in principle to discuss important matters related to execution of business strategy and managerial administrative matters of the Company and Group Companies.
Managerial Administrative Committee (MAC) is chaired by the Group COO and comprised of Group CxOs, Business CEOs and others.

5. Policies for Appointment of Directors and Executive Officers

The appointment of Directors and Executive Officers is conducted in accordance with the following policies for appointment of Directors and Executive Officers. The candidates for Directors selected by the Nomination Committee are approved at the General Shareholders Meeting, and the candidates for Executive Officers are selected by the Nomination Committee and approved by the Board of Directors.

(1) Policies for appointment of Directors

The Company supervises and guides its subsidiaries, formulates management strategy for the Group that encompasses management strategies for subsidiaries that are engaged in the P&C insurance business and other various businesses, and is responsible for ensuring the execution and realization of these strategies.
From this perspective, the Board of Directors selects Outside Directors from corporate executives, academic experts, and legal professionals who have a wide range of knowledge and experiences in various fields or individuals who have expert knowledge of finance and accounting to facilitate objective decision-making with respect to management issues from a diverse and independent viewpoint and perspective with consideration of diversity in terms of gender and nationalities, and the majority of the Board of Directors consists of Outside Directors.
Additionally, the Directors are selected based on the selection criteria that incorporate the Comprehensive Guidelines for Supervision of Insurance Companies. Outside Director independence criteria is established and Outside Directors are selected in accordance with this standard.
For the purpose of carrying out substantive discussions, the number of Directors shall be limited to 15 (fifteen) in accordance with the Articles of Incorporation.

(2) Policies for appointment of Executive Officers

The Company established a “desirable image of Executive Officers” and “policies for appointment of Executive Officers” to define fundamental matters related to a balance of required capabilities and qualities, experience and achievements, and executives officers are selected in accordance with these criteria and policies.

6. Policies for Training of Directors and Executive Officers

To facilitate a deeper understanding of the business environment surrounding the Company, training is provided for newly appointed Outside Directors on the current state of the Company and the P&C insurance industry, risk management, overseas businesses, life insurance business and nursing care and healthcare business. Outside Directors also continue to deepen their understanding of business in a practical manner through various opportunities to communicate with executive functions.
In addition, executive study sessions are held regularly for Executive Officers to acquire knowledge outside the areas of their responsibilities and training is undertaken through participation in seminars and executive training provided by various associations and organizations.
In addition to the aforementioned training, education programs are offered to develop executive mindset and leadership skills in collaboration with outside specialized companies to educate the next generation executives.

7. Policies for Determining Compensation for Directors and Executive Officers

The Company regards compensation for Directors and Executive Officers as important matter from the viewpoints of improving business performance and corporate value, and sets policies for determining compensation for Directors and Executive Officers as follows:

(1) Basic concept of Compensation for Directors and Executive Officers (Group-wide policy)

(i)The level and system of compensation ensures acquisition and retention of top talent as management of the Group.

(ii)The compensation system for Directors and Executive Officers shall be consistent with business strategy and heightens the Directors’ and Executive Officers’ awareness of performance improvement for the Group's growth.

(iii)Compensation shall reflect medium to long-term results and initiatives of Directors and Executive Officers, not just performance in a single fiscal year.

(iv)Compensation shall be determined in accordance with the magnitude of the mission with a forward-looking mindset and accomplishments. Additionally, fixed factors associated with specific job title or position may be taken into consideration.

(v)The compensation system of the Company and major subsidiaries shall have objectivity, transparency and fairness to fulfill accountability to stakeholders through the deliberation process at the Compensation Committee of the Company.

(2) Compensation system for Directors and Executive Officers

The following is applied to the Company’s compensation system for Directors and Executive Officers. However, in case there is a justifiable reason for not applying the following, the amount and composition of compensation are determined individually by the Compensation Committee.

(i)Composition and determination method of Directors’ compensation

Compensation for Directors shall consist of monthly compensation, performance-linked compensation and performance-linked stock compensation. With regard to monthly compensation, performance-linked compensation and performance-linked stock compensation, fixed amount shall be determined for monthly compensation, while a base amount and the number of base point (one point = one common share of the Company) shall be determined for performance-linked compensation and performance-based stock compensation, depending on whether the Director is an Outside Director or not, and whether the Director is a full-time or a part-time Director.
However, performance-linked compensation and performance-linked stock compensation are not paid to non-executive Directors.
Any Director who also serves as an Executive Officer shall be paid with the sum of the compensation for Director and the compensation for Executive Officer.
The overview of the performance-linked compensation and performance-linked stock compensation is described below in (iii) and (iv).

(ii)Composition and determination method of Executive Officers’ compensation

Compensation for Executive Officers shall consist of monthly compensation, performance-linked compensation and performance-linked stock compensation. The amount and composition of compensation for Executive Officers are determined based on the business environment and market average executive compensation, reflecting the magnitude of the mission, strategic importance thereof, achievements and skills.
Additionally, fixed amount shall be determined for monthly compensation, while base amount and the number of base point (one point = one common share of the Company) shall be determined for performance-linked compensation and performance-linked stock compensation.

(iii)Performance-linked compensation

The Company has introduced performance-linked compensation system to align compensation for Directors and Executive Officers and business strategy and heighten the Directors’ and Executive Officers’ awareness of performance improvement for the Group’s growth. The overview of the system is described below.

Performance-linked compensation shall be determined by reflecting the degree of achievement of financial target and strategic target for a single fiscal year in the base amount of performance-linked compensation.
The base amount of performance-linked compensation is defined as the amount to be paid when financial target and strategic target are achieved. This base amount is determined individually for each Director and Executive Officer.
Performance-linked compensation consists of financial performance-linked compensation and strategic performance-linked compensation, and the allocation ratio of each base amount is determined by the Compensation Committee in accordance with the nature of the mission of each Director and Executive Officer.
Performance indicators that are applied to financial target are adjusted consolidated ROE and others for the fiscal year and the coefficient is determined according to the actual figures vs. target figures (numerical target in business plan).
Performance indicators that are applied to strategic target are the indicators agreed by the Group CEO, Business CEO or other Director or Executive Officer responsible for evaluation in accordance with the mission of each Director or Executive Officer, and the coefficient is determined according to the degree of the achievement.

(iv)Performance-linked stock compensation

The company introduced performance-linked stock compensation system using employee benefit trust to increase correlation between compensation and increase in corporate value over the mid-to-long term. The overview of the system is described below.

Performance-linked stock compensation shall be determined by reflecting the mid-to-long term stock value and consolidated performance against market averages in the number of base point for performance-linked stock compensation.
Coefficient for stock value relative to market averages shall be determined by comparing the growth rate of the Company’s stock value over the past 3 (three) fiscal years to the TOPIX growth rate.
Coefficient for consolidated performance relative to global averages shall be determined by comparing the growth rate of the Company’s consolidated net income over the past 3 (three) fiscal years to the growth rate of peer groups (global companies in the insurance industry and others).
Coefficient that are applied when paying performance-linked stock compensation is calculated by adding the above-mentioned coefficient for stock value and coefficient for consolidated performance, and the payment points are calculated by multiplying the number of base point for performance-linked stock compensation by the coefficient for performance-linked stock compensation.

8. Information Disclosure

The Company fulfills accountability to stakeholders through timely, appropriate, fair and accurate disclosure of financial as well as non-financial information, including management strategies and issues, risks, and governance. Disclosure systems, including internal rules, shall be established to accurately and promptly provide required information.

9. Policies for Managing Group Companies

To increase the Group’s corporate value, the Company supervises the businesses of the entire Group with the Business Owner System and Group CxO system. For this, the Company establishes structures, including internal rules, to appropriately manage Group companies.
The Company formulates Group management philosophy and basic policies for the Group and notifies these to Group companies as well as appropriately manages Group companies through monitoring and other means. The Company also establishes appropriate systems, including risk management system, regulatory compliance system, conflict of interest management system, customer information management system, and internal audit system, to ensure effectiveness of internal control system of Group companies.
Group companies shall adhere to basic policies of the Group and formulate business plans based on Group management philosophy and others.

10. Revision and Abolition

A Board of Directors resolution is required to revise or abolish this Policy. However, minor revisions can be made by the General Manager of the Office of Group CEO.