For the purpose of securing and maintaining the soundness of business operations, the Tokio Marine Group manages various risks related to the operation of its business and ensures the stability of management.

The Tokio Marine Group has developed the basic policies relating to risk management described below. Tokio Marine Holdings, its Subsidiaries and Others manage risks in line with these basic policies.

1. (1)Basic Policies for Risk Management
   The Basic Policies for Risk Management of the entire Group sets forth the department supervising 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 the policies.
2. (2)Basic Policies for Integrated Risk Management
   The Tokio Marine Group has developed the Basic Policies 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. (3)Basic Policies for Crisis Management
   The Tokio Marine Group has developed the Basic Policies for Crisis Management of the entire Group. The policies clarify the principles of actions in an emergency situation 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 the policies.

Through integrated risk management, the Company quantitatively ascertains and properly manages every 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.

We also assume stress scenarios, such as a major natural catastrophe and turmoil in financial markets, that would create detrimental effects in the future and implemented stress tests to evaluate and analyze the impacts of such scenarios.

1. (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. (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. (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 monitored.
4. (4)State of net asset value and risk capital (as of the end of March 2011)
   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 2011, net asset value stood at 3,200.0 billion yen, risk capital was 2,400.0 billion yen and the capital buffer was 800.0 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.

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 risks. 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 recognized 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. 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.

(Within the Tokio Marine Group, we have also received a "Strong" evaluation from Tokio Millennium Re.)

^*For details on "Risk Management," please refer to Tokio Marine Holdings Annual Report 2011.