ANNUAL REPORT 2012 ANNUAL REPORT 26-1, Nishi-Shinjuku 1-chome, Shinjuku-ku, Tokyo, 160-8338, Japan ANNUAL REPORT http://www.nksj-hd.com/ 2012 (99NH5136) 202466 Ver3.00 NK:E7-19-0187 Printed in Japan Preface NKSJ Holdings, Inc. is the joint holding company formed between Sompo Japan Insurance Inc. (Sompo Japan) and NIPPONKOA Insurance Company, Limited (Nipponkoa) in April 2010. Underpinned by our Group Management Philosophy, all exec- utives and employees of the NKSJ Group shall take actions con- sistent with the Group Action Guidelines to provide customers with the highest quality of service. We will enhance our corpo- Masaya Futamiya Kengo Sakurada rate value, aiming to establish our position among customers as Representative Director, Representative Director, Chairman and President and the most highly evaluated service company. Executive Offi cer Executive Offi cer Group Management Philosophy The NKSJ Group will contribute to society by extending the highest quality of service across a wide range of business activities building on its core business of insurance to provide security and peace of mind to its customers, always carefully considering the customer’s perspective in our business actions. Group Action Guidelines To provide the highest quality of customer service, we commit ourselves to: 1. listening closely to our customers, aware that each employee represents the entire NKSJ Group; 2. always setting ambitious goals thinking for ourselves and continuously learning; 3. emphasizing speed, simplicity, and clarity; and, 4. acting with integrity and high ethical standards. Group Vision As part of our effort to build a globally competitive organization, we aim to establish our position among customers as the most highly evaluated service company. Contents Consolidated Financial Highlights 1 Financial Section 35 About the NKSJ Group 2 Financial Review 36 Message from the Management 10 Report of Independent Auditors 47 Interview with the President 12 Consolidated Financial Statements 48 Review of Operations 18 Balance Sheets and Statements of Overseas 18 Income of Principal Consolidated Subsidiaries (Unaudited) 96 Japan 20 Solvency Margin Ratio of NKSJ Holdings, Inc. on a Consolidated Basis (Unaudited) 117 Management Structure 22 Solvency Margin Ratios of Principal Consolidated Subsidiaries Corporate Governance, Internal Control and Compliance 22 (Unaudited) 119 Board of Directors, Offi cers and Auditors 25 Corporate Information 124 Risk Management, Capital Strategy and Overseas Network 124 Asset Management 26 Shares and Shareholders 129 Management Plan 28 Status of Shares Held 130 The NKSJ Group’s Approach to CSR 31 NKSJ Holdings, Subsidiaries and Affi liates 132 Our Impact on Society 31 NKSJ History 133 Strategy on Global Environmental Issues— Risks and Opportunities 33 Corporate Data 134 Initiatives on Global Environmental Issues 34 Forward-looking Statements: This annual report contains certain forward-looking statements relating to future plans and targets, and related operating investments. We caution that there can be no assurance that such targets and plans can or will actually be achieved. Consolidated Financial Highlights NKSJ Holdings Millions of Financial Highlights Millions of yen U.S. dollars Consolidated FY2011 FY2010 FY2011 Ordinary Income 2,790,555 2,621,689 33,673 Net Premiums Written (P&C Insurance) 1,973,777 1,933,283 23,817 Life Insurance Premiums 250,193 238,178 3,019 Ordinary Profi t (Loss) (51,815) (6,437) (625) the NKSJ Group Net Income (Loss) (92,262) (12,918) (1,113) About Comprehensive Income (48,098) (143,120) (580) Total Assets 8,893,378 8,981,974 107,317 Total Net Assets 1,000,577 1,079,446 12,074 Net Income (Loss) per Share (yen, dollars) (222.30) (31.11) (2.68) the Management Diluted Net Income per Share (yen, dollars) — — — Message from Equity Ratio 11.2% 12.0% 11.2% Consolidated Solvency Margin Ratio 549.8% — 549.8% 414,825,205 415,106,429 414,825,205 Number of Shares (Excluding treasury stock) shares shares shares the President Adjusted Consolidated Profi t (billions of yen) 1.2 80.7 15 Interview with Adjusted Consolidated ROE 0.1% 4.2% 0.1% Notes: 1. NKSJ Holdings, Inc. carried out a reverse split of stocks to combine common stocks at a ratio of four shares to one share on October 1, 2011. Number of shares, and Net income per share are calculated based on the assumption that the reverse split of stocks was executed at the beginning of the fi scal year ended March 31, 2011. 2. Diluted net income per share (yen) is not shown because there was a net loss. 3. Consolidated solvency margin ratio as the new standard of consolidated fi nancial soundness is calculated in accordance with the Ordinance for Enforcement of the Insurance Business Act revised on March 31, 2011 and such. 4. The calculation of Adjusted consolidated profi t and Adjusted consolidated ROE is explained in page 30. 5. U.S. dollar amounts are translated from yen at the rate of ¥82.87=U.S.$1.00, the approximate rate prevailing at March 31, 2012. Operations Review of Management Structure Ordinary Income/ Ordinary Profit (Loss)/Net Income (Loss) Total Assets/Total Net Assets Net Premiums Written (P&C Insurance) Ordinary Income Ordinary Profit (Loss) Total Assets The NKSJ Group’s The NKSJ Group’s Net Premiums Written (P&C Insurance) Net Income (Loss) Total Net Assets to CSR Approach (Billions of yen) (Billions of yen) (Billions of yen) 3,000 0 10,000 2,790.5 8,981.9 8,893.3 2,621.6 (6.4) (12.9) (20) 8,000 1,933.2 1,973.7 2,000 (40) 6,000 Financial Section (51.8) (60) 4,000 1,000 (80) 2,000 1,079.4 1,000.5 (92.2) 0 (100) 0 Information FY ’10 ’11 FY ’10 ’11 FY ’10 ’11 Corporate NKSJ Holdings, Inc. 1 About the NKSJ Group Business Domains and Major Group Companies The NKSJ Group deploys various businesses: “Domestic P&C Insurance” as our core business, “Domestic Life Insurance,” “Overseas Insurance” and other businesses. Consolidated Financial Highlights s3OMPO*APAN s.+3*(IMAWARI,IFE About s.IPPONKOA Domestic P&C Domestic Life s3OMPO*APAN$)9,IFE the NKSJ Group Insurance Insurance s3AISON!UTOMOBILE&IRE s3ONPO Message from s!SSET-ANAGEMENT the Management s!SSISTANCE s3OMPO*APANgS /VERSEAS.ETWORKS Overseas Other s2ISK#ONSULTING Insurance Businesses s.IPPONKOAgS s(EALTHCARE /VERSEAS.ETWORKS s$EFINED #ONTRIBUTION Interview with the President 0ENSION0LANS Review of Operations Domestic P&C Insurance Domestic Life Insurance This is the NKSJ Group’s core business, through which we We are actively engaged in this high-growth-potential area. provide high-quality products and services that ensure our NKSJ Himawari Life markets its services mainly through P&C customers’ peace of mind and safety. Sompo Japan and insurance agencies, while Sompo Japan DIY Life engages Nipponkoa market through insurance agencies, while Saison exclusively in direct marketing. Structure Management Automobile & Fire and Sonpo 24 sell directly to customers. Overseas Insurance Other Businesses We are pursuing business expansion, mainly through M&As, To help customers address the risks and issues that they face, in overseas insurance markets with promising growth pros- we also provide products and services in areas other than Approach to CSR Approach The NKSJ Group’s The NKSJ Group’s pects, capitalizing on the human resources and strengthened insurance, including asset management, assistance, risk con- fi nancial foundation following the business integration. sulting, healthcare, and defi ned-contribution pension plans. Financial Section Corporate Information 2 NKSJ Holdings, Inc. Characteristics of Each Business Domain Financial Highlights Domestic P&C Insurance Domestic Life Insurance Consolidated High Market Presence High Growth ･Realizing Group synergies and strengthening domestic ･Growing adjusted embedded value (EV) backed with progress competitiveness on the shift to protection products ･Enhancing earning capacity through increasing premium the NKSJ Group income, reducing expenses and reinforcing asset EV management Sompo Japan Himawari Life (MCEV) About Nipponkoa Life (TEV) NKSJ Himawari Life (MCEV) Net Premiumsms Written in FY2010 (Billions of yen) 700 Others 600 the Management 9.9% NKSJ Message from 27.9% 500 Tokio Marine 400 101.4 27.5% 615.3 MS&AD 300 % the President 34.7 200 345.6 Interview with 100 Domestic P&C Market: ¥6,819.2 billion 0 Source: Statistics of Japanese Non-Life Insurance, 2011 FY ’’1010 ’11 Operations Review of Overseas Insurance An Earnings Pillar to Drive Sustainable Growth –Expanding profit in markets with high potential for growth and profitability Net Premiums Written Sompo Japan: Management (Billionsns of yen)yen) Structure NKSJ Group: 172 Cities in 28 Countries 1000 97.4 209 Cities in 29 Countries Nipponkoa: 77 Cities in 21 Countries 800 The NKSJ Group’s The NKSJ Group’s (As(As of April 1, 2012)2012) 68.0 to CSR Approach Major Recent Developments 64.3 Country Date Event 600 Singapore May. 2010 Acquired Tenet Insurance Company Limited for approx. ¥6.4 billion Turkey Nov. 2010 Acquired Fiba Sigorta Anonim Sirketi for approx. ¥27.4 billion. Transition to joint venture with the European Bank for Reconstruction and Development 400 (Dec. 2010). Brazil Jul. 2009 Took 50% stake (investment: approx. ¥15.5 billion) in Maritima Seguros S.A. Financial Section China Jul. 2010 Sompo Japan Insurance (China) Co., Ltd. opened the Jiangsu Branch. 200 Jan. 2012 Sompo Japan Insurance (China) Co., Ltd. opened the Beijing Branch. Mar. 2012 NIPPONKOA Insurance Company (China) Limited received preliminary approval to establish the Shandong Branch. Malaysia Aug. 2010 Sompo Japan Reinsurance Company Limited received offi cial approval to 0 start business. FY ’10’10 ’11’11 ’12’12 Jun. 2011 Raised investment stake in Berjaya Sompo Insurance Berhad, and made it (Actual) (Actual) (Estimate) subsidiary (approx. ¥13.3 billion) Information Corporate Indonesia Jan. 2011 Raised investment stake in PT.