ERM Implementation

We are embedding tangible, practical ERM measures into all levels of our organization, from the pricing of insurance products in frontline operations through to important management decisions that affect the strategies of businesses.
Further, the Group has developed a robust risk control system that incorporates both qualitative and quantitative elements to minimize unforeseen losses in its operations.

1. Management Use of ERM

(1) Insurance Product Development and Management

While taking into account the characteristics of each insurance business, we verify ROR when setting insurance premiums in product development and when managing the profitability of products after launch. We use ROR not only in assessing and managing the profits of each product but also in establishing sales strategies and marketing budgets.

(2) Evaluation of Risks in M&A Deals

We decide on M&A deals and other new business investments after measuring investment effects and performing thoroughgoing due diligence. In this process, we also verify the appropriateness of investments from an ERM perspective, taking into consideration the impact of investment implementation on Group-wide capital efficiency (return on equity (ROE)) financial soundness (ESR), and ROR.

(3) Natural Catastrophe Risk Management

We appropriately manage natural catastrophe risks by keeping them within tolerance levels, which are established in light of capital and profits. Further, we incorporate the latest knowledge into in-house models and continuously upgrade them. At the same time, we employ these models in reinsurance strategies and other business management decisions.

2. Risk Control System

(1) Material Risk Management

We exhaustively identify and assess the risks that businesses face, and define risks that could have a significant impact on businesses as Material Risks. The Group determines the adequacy of countermeasures for Material Risks and continuously monitors these risks. If measures are found to be inadequate, we appoint person responsible and implement countermeasures.
Further, the Group defines emerging risks as those that are not currently material but which, due to environmental changes, could become material and have a significant impact on the Group. We identify the precursors of risks becoming significant and manage such risks accordingly. Identifying emerging risks is important not only as a way of mitigating losses but also in terms of the development of new insurance products and services to realize business opportunities. For these reasons, we monitor, research, and study emerging risks on a Group-wide basis.

(2) Capital Adequacy Management

We quantify the various types of risk that we face by using value at risk (VaR) as a unified risk indicator. If needed, we take management measures to ensure that capital is maintained at an adequate level relative to risks.

(3) Stress Testing

To accurately identify and manage events that could significantly affect its business management, the Group conducts scenario stress testing, reverse stress testing, and sensitivity analyses on a Group-wide basis. We analyze the degree to which such events would affect capital and risk and take countermeasures if required.

Scenario Stress Testing We evaluate how significantly large-scale natural disasters, financial market disruptions, and other stress scenarios could affect business management and verify capital adequacy as well as the effectiveness of risk mitigation measures.
Moreover, we regularly verify the validity of stress scenarios to ensure that we can respond appropriately to environmental changes.
Reverse Stress Testing We identify specific events that breach risk tolerance levels and prepare appropriate actions in advance.
Sensitivity Analyses We identify the impact on capital and risks of fluctuations in the primary causes of risks. Also, we verify the validity of in-house models by comparing their projections with the previous impacts of fluctuations on actual business performance.

(4) Risk Limit Management

We have established tolerance levels and reasonable limits on a Group-wide basis for credit risks, reinsurance counterparty risks, and overseas natural catastrophe risks to avoid huge losses arising from the occurrence of specific events. We manage the risks to ensure that they do not exceed these limits.

(5) Liquidity Risk Management

In addition to projecting cash needed for day-to-day operations, we project the biggest cash outflows that could result from such events as large-scale natural disasters. We then conduct management to ensure we have an adequate supply of liquid assets to meet such outflows.