ERM Framework

Our ERM framework aims to maximize corporate value while balancing capital, risk, and return. To effect this, it has two main components: the “Risk Appetite Framework,” which supports conscious risk-taking in pursuit of strategic objectives, and the “Risk Control System,” which contributes to stabilizing the foundations of our business.

1. Risk Appetite Framework

The “Risk Appetite Framework” is a system for increasing the certainty of achieving the Group’s strategic goals - as set forth in SOMPO’s Purpose, and the Group Management Plan - by conducting risk-taking based on the Group’s “Risk Appetite Statement," which clearly states the risks to be taken and the risks to be avoided.
We formulate a Group Management Plan and allocate capital to each business, after dialogue with the respective management teams, based on risk appetite indicators and the perspective of overall optimization as a Group.

2. Risk Control System

Under the Risk Control System, we conduct risk assessment using "the Material Risk Management" framework – firstly identifying all the material risks we face, then evaluating them from both a qualitative and quantitative perspective. For risks that can be quantified, their impacts on capital adequacy and liquidity are analyzed and assessed based on various quantitative indicators in "Capital adequacy management", "Stress testing", "Limit management", and "Liquidity risk management" frameworks. Based on these analyses, the management decides necessary risk control measures to secure and improve the Group’s financial soundness.

(1) Material Risk Management

We define "risks that could have significant impacts on the business" as "material risks" and comprehensively capture and evaluate the risks faced by our business through bottom-up risk assessment and top-down confirmation and discussion by the Board of Directors and others. In conducting risk assessment, we have clarified the criteria so as to emphasize the reputational impact from the viewpoints of customers, society, and other stakeholders, in addition to economic loss and business continuity.

Material risks are comprehensively identified by the Group CRO based on risk assessments and the views of experts, etc., and risks are evaluated both qualitatively and quantitatively in terms of likelihood of occurrence and impact, based on specific scenarios of impact of risks on the Group, and the management status is discussed in the Group ERM Committee, then reported to the Group Executive Committee and the Board of Directors at least twice a year. Risks for which the risk management structure should be reinforced are raised at the Group Executive Committee.

Further, we have defined “emerging risks” as risks that, although it is difficult at this time to evaluate risks based on specific impact scenarios, have the potential to emerge or change due to changes in the environment and have a significant impact on our group in the future, and we manage them appropriately by associating them with individual material risks. In selecting emerging risks, the Group gathers information from various public and private sources, identifies potential candidates based on their possible future impact, and then designates them as emerging risks based on their materiality.

(2) Capital Adequacy Management

We quantify the insurance underwriting risks, asset management risks, nursing risks, and operational risks we are exposed to maintain a sufficient level of capital relative to risks. A system has been established so that countermeasures are properly implemented if necessary.

(3) Stress Testing

We conduct "scenario stress testing", "reverse stress testing", and "sensitivity analyses" on a Group-wide basis to accurately identify and manage events that could significantly affect its business management. We analyze the impact on both capital and risk and take countermeasures as required.

(4) Risk Limit Management

We have established the maximum limit for each risk on a Group-wide basis such as credit risk, reinsurance counterparty risk, and natural catastrophe risk to avoid outsize losses arising from the occurrence of specific events. The Group sets the limits within the maximum limits based on risk characteristics and has established a system to take appropriate measures when those limits are exceeded.

(5) Liquidity Risk Management

In addition to projecting cash requirements for day-to-day operations, we project the maximum cash outflows that could result from events such as a large-scale natural catastrophe. We then conduct management to ensure we have sufficient liquid assets to meet cash requirements in these scenarios.

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Business and other risks