Risk Management

Risk of Insurance business

There are a variety of risks regarding the insurance business. Insurance and asset management risks are important risks that need to be managed for the stable payment of insurance and benefits. They should be managed in accordance to balance with earnings, and not simply be repressed. On the other hand, operational risks that any corporation would have should be minimized as possible for the stable payment of insurance and benefits.

MSIG tackles risk management as its foremost priority in business by taking sound and appropriate risk measures. By sharing the understandings of these risks and handling more complex and diversified management risks appropriately, we strive to fulfill the responsibility to customers, shareholders, and other stakeholders.

1.Insurance Underwriting Risk

Insurance underwriting risks are risks associated with insurance losses caused by volatility in economic trends or the rate of accidents that differ significantly from the projections on which the premiums have been set. We will realize stable and sound underwriting and claims payment in the future by setting and applying appropriate premium rates and thus retaining an adequate level of reserves to cover social or economic contingencies and/or natural disasters.

2.Investment Risk

Investment risks are risks for losses caused by fluctuations in asset value or asset management unsuitable to the characteristics of our liabilities. Understanding that our assets are the very resource with which we fulfill our responsibility to policyholders, we will work to ensure the soundness of assets and achieve stable profitability.

3.Operational Risk

Operational risk covers all types of risk other than those categorized as insurance underwriting or investment risks. They include liquidity risk, transaction risk, information risk, legal risk, and accident ⁄ disaster risk.
  • • Liquidity Risk
    We will maintain an effective system that prevents cash shortages and allows swift delivery of capital sufficient to cover payments of large claims in case of a natural disaster such as a major earthquake or other contingencies and repayments of unearned premiums.
  • • Transaction Risk
    We work to prevent mistakes and misconduct and to execute business transactions properly, recognizing their potential in all aspect of our operations.
  • • Information Risk
    With respect to data and information that we possess for our business as well as the systems that process and manage information, we will assure confidentiality (protection from unauthorized access), completeness (maintaining impartiality), and availability (assuring uninterrupted access) and properly execute business, and conduct operations properly.
  • • Legal Risk
    We will maintain an appropriate legal check system so as to avoid unforseen liabilities resulting from execution of our business.
  • • Accident ⁄ Disaster Risk
    We take preventive measures and devise proper response to disasters, accidents, and criminal conduct which may have adverse impact on the person of our employees and ⁄ or our assets.

Basic Policy on Risk Management

MSIG (“the Company”) has established the Basic Policy on Group Risk Management, a fundamental principle on risk management to be shared by all MSIG companies. Based on this basic policy, MSIG companies will each establish risk management policies suited for their business and abide by these principles in handling risk-related issues. The Basic Policy on Risk Management covers the basic position and processes of risk management, definitions and how to manage risks for an insurance company.

Risk Management Structure

While MSIG companies manage the risks related to their particular businesses, the Company oversees risk management of the entire group by monitoring risks and situation of risk management and giving support when the situation is too difficult to handle individually. For this reason, MSIG companies report their risks and situation of risk management to the Company on a regular basis. The Corporate Risk Management Department analyzes these reports with the Risk Compliance Committee and reports to the Board of Directors.

General risk management

Based on reports from MSIG companies, the Company takes quantitative and qualitative approaches to monitoring and managing risk.

  • • Quantitative approach
    The Company conducts periodic assessments on whether the risk threshold is in alignment with group capital based on quantitative analysis (VaR) of insurance underwriting risk and asset management risk. The Company also monitors the risk of MSIG companies so it does not exceed the specified limit. The Company conducts periodic stress tests to verify latent risks such as major-scale natural disasters and influential incidents like Black Monday.

    (Note) VaR (Value At Risk) is the predicted maximum loss with a given probability.

  • • Qualitative approach
    The Company evaluates the operational risks of each MSIG company by assessing their situation and stance on risk management. The Company works to ensure that the risks held by MSIG companies are not unevenly diffused, distributed, or concentrated, as to avoid negative ramifications on a MSIG company or overall welfare the group.

Crisis Management Structure

To prepare for risk discovery and having its influence spreading within the group, MSIG companies have created crisis management manuals and business contingency plan, and perform drills to assure the effectiveness of these measures. The Company promotes these preparations and oversees the situation.

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