CHAPTER 2. Management of Nippon Life MUTUAL COMPANY FRAMEWORK 44 CORPORATE GOVERNANCE SYSTEM 50 ENHANCING THE INTERNAL CONTROL SYSTEM 51

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1 CHAPTER 2 Management of MUTUAL COMPANY FRAMEWORK 44 CORPORATE GOVERNANCE SYSTEM 50 ENHANCING THE INTERNAL CONTROL SYSTEM 51 PROMOTING COMPLIANCE 51 STRENGTHENING RISK MANAGEMENT 53 STRENGTHENING THE UNDERWRITING AND INSURANCE CLAIMS AND BENEFITS SETTLEMENT SYSTEM AND EXPANDING EXPLANATION 58 MEASURES TO REFLECT CUSTOMER FEEDBACK IN BUSINESS 62 SYSTEM DEVELOPMENT TO IMPROVE CUSTOMER SERVICE 65 OVERSEAS BUSINESS DEVELOPMENT 66 CONTRIBUTIONS TO THE ENVIRONMENT, COMMUNITIES AND SOCIETY 68 IMPROVING DISCLOSURE 72 43

2 MUTUAL COMPANY FRAMEWORK A mutual company is a corporate structure based on the concept of mutual aid where policyholders can help each other. Policyholders* become company members of a mutual company when they purchase insurance policies and the company s management reflects the views of policyholders. *Does not include holders of policies that do not pay dividends [Management Based on the Voice of Company Members Through the Mutual Company Framework] Company members (policyholders) July: Meeting of Representatives (see p. 44.) January March: Nissay Konwakai Meeting (see p. 47.) l Held every year across Japan since 1975 (total participation of approx. 80,000 people) l Business activities are reported to company members, and a broad range of opinions and requests are received l Representatives feed back the results of the Meeting of Representatives (Kondankai) to company members l Decision-making body set forth by laws and regulations and the Articles of Incorporation (deliberates and passes resolutions on important management matters) l Representatives report on the results of Nissay Konwakai meetings l A broad range of opinions and requests are sought December: Conference of Representatives (Kondankai) (see p. 45.) l Held every year as a unique initiative since 1962 l First-half business results and progress with management issues are reported l Provides another forum for seeking a broad range of opinions and requests in addition to the Meeting of Representatives Board of Trustees (see p. 47.) l Meetings held three times a year in March, May and November l Trustees advise on management and provide opinions l Results are reported at the Meeting of Representatives Concrete responses to feedback Voice of company members Meeting of Representatives Established to replace the General Meeting of Members, the Meeting of Representatives comprises policyholders selected to act as representatives. The Meeting of Representatives is equivalent to the general shareholders meeting of a stock corporation and deliberates and passes resolutions, such as those for amending the Articles of Incorporation, approving proposals for the disposal of surplus and nominating directors and auditors. The 63rd Meeting of Representatives Attendance System for the Meeting of Representatives Policyholders may attend the Meeting of Representatives. Information on how to apply for admission is available at our offices and on our website in May and June. Minutes and a summary of the Meeting of Representatives (Q&A summary) are available soon after the event from the Osaka Head Offices, the Tokyo Headquarters and all branches as well as on the website. (Japanese only) 44

3 Conference of Representatives (Kondankai) The Conference of Representatives (Kondankai) was launched in 1962 as a unique initiative at to further enhance checks over management by the representatives. Held every year, the Conference provides a forum for management to report on first-half business results and progress with management issues to representatives and receive a broad range of opinions. Examples of Opinions Expressed at the Conference of Representatives (Kondankai) for the Fiscal Year Ended March 31, 2011 (Held on December 3, 2010) l In recent years, agricultural business leaders have been running strong operations using organizational models based on corporations. In this context, could you provide an update on s sales activities and business development in the agricultural sector? l The consulting abilities, communication skills, and professionalism of sales representatives seem to be the basis of s face-to-face approach to customer services. I would like to see continue to offer highly specialized training programs to sales representatives. l The methods used by life insurers to perform age calculations during policy enrollment are generally difficult to understand. Why not clearly state the age range for which the premium shown on the prospectus will be effective? l There are many examples around the world in which arts and cultural activities have led to the revitalization of communities. From the standpoint of supporting future generations of society, I would like to continue its social contribution activities over the long term. l Reversing the investment spread from negative to positive in the first half of the year was commendable. However, what is your outlook for the increasingly opaque investment environment, particularly in North America and Europe? What is s investment approach? l I believe that is an organization where many female employees are highly successful. That being the case, why not appoint more actively female employees? l Young people are likely to have a strong interest in asset formation and savings-type products. What is s policy on product development and sales promotions in this area? l I find it reassuring that is strongly concerned about its current performance, and is pursuing various initiatives in response. However, given Japan s falling population and aging society, shouldn t focus more on enhancing its financial soundness, rather than concentrating solely on reversing the decline in the number of policyholders? l The operating environment will continue to change drastically. Even so, I hope that will continue to embrace a broad range of opinions from various forums, including the Meeting of Representatives, the Conference of Representatives (Kondankai), and Nissay Konwakai, and put this feedback to good use in management. l What is s take on the life insurance industry s prospects for the future? The results of the Conference of Representatives (Kondankai) are available on s corporate website. 45

4 Representatives and Their Election Representatives According to the Articles of Incorporation, each representative s term of office is generally four years and can extend to eight years if they are selected for a second term. The number of representatives currently stands at 200. selects policyholders as representatives, and, because they check management from a diversity of perspectives, they are chosen from among people in many occupations and ages and from many parts of the country. They participate in the Meeting of Representatives and deliberate with the Company through direct question and answer sessions. From this perspective, believes that the number of representatives is set at an appropriate level. Election of Representatives To represent the interests of all policyholders, representatives are chosen who have no ties to the interests of specific policyholders among the approximately 9.34 million policyholders, based on the perspective of fairly reflecting the opinions of policyholders at the Meeting of Representatives. In this context, the Representative Nomination Committee recommends candidates, and policyholder voting has been adopted as the means to directly reflect policyholders opinions of the candidates. In addition, representatives are also selected from among policyholders who have participated in Nissay Konwakai (see p. 47.), a forum where management receives opinions and requests from policyholders. Although we have not adopted a system in which policyholders desirous of becoming representatives can be directly selected as representative candidates, will continue to promote this method of selecting representative candidates from among policyholders who participate in the Nissay Konwakai and aims to diversify selection methods. Selection Standards for Representative Candidates 1. Required Qualifications (1) Is a policyholder of (2) Is not a representative of another life insurance company 2. Eligibility Standards (1) Has a strong interest in the life insurance business and the management of and has adequate insight as a representative (2) Can be expected to actively participate as a representative in the Meeting of Representatives and other events (3) Is able to check and advise on operations and management as necessary in addition to making fair decisions at the Meeting of Representatives to promote the interests of all policyholders 3. Selection Representative candidates are selected from a broad base of policyholders with an emphasis placed on ability to represent policyholders and to inspect management. (1) We select representative candidates to ensure well-balanced policyholder representation in terms of geographic region, age and gender. (2) We select representative candidates to ensure checks over management, specifically candidates who are able to check and advise on operations and advise management from diverse viewpoints, including from management, consumer, and specialist perspectives, while giving consideration to occupation, specialties and other factors. 'Representative Nomination Committee The Representative Nomination Committee is composed of members chosen from among policyholders by the Meeting of Representatives. The Representative Nomination Committee decides on selection standards for representative candidates and selects representative candidates from a broad base of policyholders. In addition, works to ensure the independence of the selection process by appointing an external person to the position of head of the secretariat of the Representative Nomination Committee, which also ensures the fairness and transparency of the representative nomination process. Qualifications for Selecting Representative Nomination Committee Members (1) Has a strong interest in and a deep understanding of the life insurance business and mutual company management and adequate insight as a representative (2) Is able to fairly and impartially select representative candidates (3) Is able to participate in the Representative Nomination Committee 'Policyholder Voting All policyholders vote for individual representative candidates selected by the Representative Nomination Committee. If the total number of no-confidence votes for individual candidates is less than 10% of the total number of policyholders, candidates are selected as representatives. Time of Policyholder Voting Voting for representative candidates is held once every two years from August to September. The next election by policyholders is scheduled for (Voting materials shall be sent to all policyholders.) 46

5 Nissay Konwakai The Nissay Konwakai meetings are held every year throughout Japan. These conferences provide opportunities for to explain its business activities and for policyholders to voice their opinions and requests on overall management as well as products and services. Konwakai have been held since From among the opinions and requests (see p. 48.) that we receive from participants, we identify and respond to those that are most frequently expressed. These items are then reported to the Meeting of Representatives and Board of Trustees. The participants include several representatives and directors, and we continue to work to improve ties between the Nissay Konwakai and the Meeting of Representatives. Status of the Nissay Konwakai Meeting in Fiscal Year Ended March 31, 2011 From January through March 2011, we held Nissay Konwakai meetings in 114 locations around Japan, bringing together a total of 141 representatives and 2,478 policyholders and receiving a total of 5,306 opinions and requests. At the Nissay Konwakai meeting, we strove to provide easy-tounderstand explanations, using video and other materials, of performance in the first half of the fiscal year ended March 31, 2011, the development of the products and services reflecting opinions expressed at the Nissay Nissay Konwakai Konwakai meetings, and other topics. Opinions and requests received at the Nissay Konwakai meetings are thoroughly examined by the relevant departments and every effort is made to reflect them in management. The following are some of the main opinions and requests that we received during the fiscal year ended March 31, The results of Nissay Konwakai meetings are available at the corporate website. [Description of Participants in Fiscal Year Ended March 31, 2011] [Categories of Opinions and Requests in Fiscal Year Ended March 31, 2011] By age 60 and over 46.8% % up to % % By occupation Other 10.5% Company directors 5.9% Housewives 11.1% Self-employed 54.1% Company employees 18.4% Asset management 3.2% Services, insurance underwriting and payments 5.6% Social contribution activities 5.7% Information to customers 10.7% Soundness and profitability 10.9% Mutual Company Management 2.1% Products 36.0% Marketing network 25.8% In addition to the above, we received 904 comments from participants in the Nissay Konwakai. Board of Trustees has a Board of Trustees that serves as a management advisory body to ensure the appropriateness of management. Trustees are elected at the Meeting of Representatives from among policyholders and academic experts. Trustees give opinions on advisory matters and important management issues and deliberate on policyholder opinions regarding corporate management. The results of these opinions and deliberations are reported at the Meeting of Representatives. 47

6 Q A Q A Major Opinions and Questions at Nissay Konwakai Meetings and Our Responses has sales representatives standing by to offer assistance with any issue. This gives me great peace of mind. I would like to continue to emphasize face-to-face customer services. Life insurance policies represent a long-term commitment. believes that after-sales services tailored to changes in the lives of policyholders and their families as well as their living environment are extremely important to ensuring long-term policyholder satisfaction over the entire period of an insurance policy, not just at the time of enrollment. Based on this approach, conducts Policy Details Confirmation Activities, which are basic activities of sales representatives that demonstrate the strength of face-to-face customer services. Our nationwide sales representatives visit each and every policyholder to confirm the content of customer policies, such as the terms and conditions of insurance payments, and provide information about various services. In addition, our sales representatives continue to offer optimal consulting services matched to significant events in the lives of policyholders and their families, while introducing the Zutto Motto Service launched in April In annual customer satisfaction surveys conducted by, customers who have undergone Policy Details Confirmation Activities show a much higher degree of customer satisfaction than customers we have yet to visit. This has served as a powerful reminder of the importance of face-to-face customer services. Going forward, will continue working to develop human resources, focusing on improving the consulting skills of sales representatives and other priorities. We will make certain that we provide after sales services to all customers based on Policy Details Confirmation Activities, as we endeavor to ensure even greater customer satisfaction. In the aftermath of the Great East Japan Earthquake, we have striven to Mirai Support is very easy to understand. The Best Doctors Service is also a very good offering. I hope that continues to develop such easy-to-understand, high-quality products and services. launched Mirai Support in October 2008 and comprehensive medical insurance product My Medical EX in April These products were developed based on extensive customer feedback obtained through Policy Details Confirmation Activities and other channels. We received comments such as Policies are difficult to understand because there are so many riders, and I would like to make coverage details easier to understand. The primary goal for these and other products is to be easy to understand. These policies have proven highly popular, recording sales of around 4 million policies since their launch. The Best Doctors Service* is a specialist physician referral service offered to Mirai Support and other policyholders. This service provides a free referral to those diagnosed with a serious illness, such as cancer, to a specialist who can provide treatment or a second opinion. The specialists are selected from a pool of around 4,300 specialists in Japan based on a mutual evaluation among doctors. This service was launched in April 2010 in response to feedback received from numerous customers requesting to provide a physician referral service through Nissay Konwakai and other forums. provide peace of mind to our policyholders through face-to-face customer services. We have already visited customers in the affected areas, as permitted by staffing levels. While checking up on the safety of customers, we are working to provide information about filing procedures for insurance claims and other payments, and deliver gifts expressing s sympathies. is also offering special treatment for customers personally affected by the earthquake. For example, we have introduced simplified and fast payment of insurance claims and benefits, and have extended the grace period for the payment of premiums. However, to make certain that we provide sufficient services to all customers in the affected regions, including policyholders who sales representatives are unable to visit, has made a company-wide effort to implement the following measures: (1) Extension of Call Center hours (2) Launch of a special earthquake response website on the Corporate website (3) Establishment of special earthquake response counters and other sites for various insurance procedures is using every means at its disposal to provide information about filing procedures for insurance claims and benefits, such as notices via post, , and the mass media, in addition to face-to-face consulting, to ensure that policyholders are able to receive all claims, benefits and other payments in full. These efforts are designed to make certain that we live up to our mission as a life insurance company to fulfill our coverage responsibilities to policyholders. All of is working to support the future lives of customers personally affected by the earthquake. * The Best Doctors Service is provided by Best Doctors, Inc. Headquartered in the U.S., Best Doctors, Inc. provides specialist referral services that enable patients to receive proper treatment and obtain second opinions appropriate to their medical condition. Services are provided in countries around the world. has received the following comments from policyholders using the Best Doctors Service, indicating a high degree of satisfaction with the service: (1) The doctor I was referred to provided me with an answer before I could start asking questions. The answer was convincing. I also learned new information. I m very satisfied with the service. (2) Without knowing about this service, I might have had no choice but to choose a doctor with unknown credentials from my limited knowledge. I might have spent the same amount of time and money on such a doctor for an unconvincing diagnosis. I feel very fortunate to have come across the Best Doctors Service. Looking ahead, will continue to seek the opinions and requests of policyholders through Nissay Konwakai meetings, Policy Details Confirmation Activities and various other settings. In the process, we aim to continue providing easy-to-understand products and services. 48 Other Opinions and Requests [Management Overall] As Japan s population declines and the aging of society continues with fewer births, what will be s sales strategy for the Japanese market? I want to continue increasing equity and enhancing its financial soundness. I also want to increase dividends and other returns to policyholders. Please tell me more about s approach to overseas business development and its future plans. Won t demutualize and become a joint stock company? [Products and Services] Because there are frequent changes in sales representatives, I want to nurture sales representatives who can stay on the job for the long term. Also, I ve noticed that consulting skills vary by sales representative. Please provide proper training. held a seminar for my company s employees, which was very popular among participants. I want to continue holding such seminars. Isn t considering insurance sales over the Internet? Young people seem to be showing less interest in insurance products. How is addressing this issue? I want to develop products with lower premiums. Why not further upgrade service details for the Zutto Motto Service and promote this service more extensively? I am relieved that we have switched our approved pension plan to a new plan without any problems. Will as a whole have enough time to complete the transition of all such pension plans by March 2012? Insurance procedures are complicated and bothersome. Is there anything can do? Will develop TV commercials explaining policy details like those of other companies? Aioi Nissay Dowa Insurance Company was recently formed through a merger. What are the advantages of enrolling in this company s insurance policies for policyholders? [Asset Management] The outlook for the investment environment is uncertain. I want to conduct asset management safely and securely. [Social Contribution Activities] I support s variety of programs for children. Why not continue such programs, while promoting them more extensively?

7 What is a Mutual Company? A life insurance company is established as either a joint-stock company or a mutual company as stipulated by the Insurance Business Act. A mutual company is a form of company recognized only in the insurance industry. Based on the concept of mutual aid, it is an incorporated body in which policyholders* are enrolled in insurance policies and at the same time company members. has been formed as a mutual company. decided to form as a mutual company for the following two practical reasons: l The framework for distributing surplus as a mutual company (through the return of a major portion of surplus from business operations to policyholders,* without the need to consider shareholder dividends) corresponds with s belief that policyholder interests come first and should be maximized. l Life insurance companies have a responsibility to preserve longterm financial soundness and generate a consistent surplus in order to meet obligations for paying claims and benefits to policyholders. We believe that the mutual company structure is best suited to maintaining the long-term stability of business operations. Mutual companies are often compared with joint-stock companies with respect to the flexibility of fund procurement and transparency of corporate governance. For flexibility of fund procurement, by making continuous use of the public securitization of foundation funds (kikin) and other fund procurement schemes, has total foundation funds (kikin) (sum of foundation funds and reserve for redemption of foundation funds) of 1,100 billion. For transparency, we are improving corporate governance to make our management more transparent (see p. 50.) and taking actions to reflect input from customers in our management (see p. 62.). We are also enhancing public access to information about our operations through financial information meetings and our website. [Primary Differences between a Mutual Company and a Joint-Stock Company in the Insurance Business] Mutual Company Insurance Business Act Non-profit/non-charitable intermediate corporate body Company members (=policyholders*) Policyholders* are enrolled in insurance policies and at the same time company members General Meeting of Members (Meeting of Representatives) Laws governing the insurance industry Characteristics Membership Decision-making body Joint-Stock Company Company Act Profit-making incorporated association Shareholders Become shareholders through the acquisition of stock General Shareholders Meeting Surplus Surplus Implemented based on a resolution to appropriate surplus at General Meeting of Members (Meeting of Representatives) Payout of dividends to members (policyholders*) Dividend distribution This diagram is only meant to explain the dividend distribution system and is not intended to explain amounts of money or advantages and disadvantages. Recorded in the provision for policyholder dividends in the Statements of Income based on a resolution at the Board of Directors Meeting Distribution of dividends to policyholders* Implemented based on a resolution to distribute the surplus at the General Shareholders Meeting Dividends distributed to shareholders *Excluding nonparticipating insurance policyholders 49

8 CORPORATE GOVERNANCE SYSTEM has constructed a corporate governance system that ensures the appropriateness of management and increases transparency. Specifically, the Company has built a system that more widely reflects policyholder feedback in management through a mutual company framework. (See p. 44.) In addition, to ensure that external points of view are actively incorporated and that a system of checks and balances is placed on management, we have appointed outside directors and established an Operations Oversight Committee. We have also established an Auditing Department to ensure that operations are sound and carried out properly. [Diagram of Corporate Governance System] Company Members (policyholders) Participation Nissay Konwakai Appoint Board of Trustees Opinions / Requests Advise Report Policyholder Voting (election of representatives) Selection Representative Nomination Committee Appoint Meeting of Representatives Conference of Representatives (Kondankai) Opinions / Requests Report Operations Oversight Committee Secretariat Delegate Operations Oversight Committee Director in Charge of Auditing Department Auditing Department Report Supervise Internal Audit Board of Directors Outside Directors President Report Management Committee Advise Directors in Charge Various Committees Executive Officer Executive Officer Executive Officer Operational Organizations Audit Accounting Audit Auditors Outside Auditors Board of Auditors Auditing Office Accounting Auditors Board of Directors The Board of Directors reaches decisions about important affairs concerning business operations based on decisions made at the Meeting of Representatives. The Board of Directors also supervises the performance of the directors. There are 18 directors, of whom four are outside directors (including three who meet the legal requirements for outside directors). Directors who are responsible for business areas are also, in Auditors and Board of Auditors Auditors are responsible for auditing the performance of directors by attending meetings of the Board of Directors and other important meetings. In addition, the Board of Auditors discusses significant matters concerning audits and reaches decisions. has six auditors, including four outside auditors (one of whom is full time). Auditors implement measures to strengthen and expand auditing functions. For Operations Oversight Committee This committee is composed of outside directors, three policyholders and a director exclusively responsible for the Auditing Department. The committee was commissioned by the Board of Directors to fulfill a supervisory function and, as a body directly connected to the Board of Directors, supervises and oversees all of the business affairs of. principle, executive officers who are directly responsible for business operations. This structure unifies two functions in the Board of Directors: decision-making and supervision for the execution of business operations. With this structure, the Board of Directors is able to directly view the status of activities in each business operation. example, meetings are held on a regular basis and at other times as necessary to allow the accounting auditors, Auditing Department and auditors to work closely together. Meetings provide an opportunity to exchange opinions and information about audit plans, the status of audits and the results of audits. The director in charge of the Auditing Department manages and directs the Auditing Department in line with the discussions and decisions made by the Operations Oversight Committee, thus ensuring the effectiveness of internal audits. 50

9 ENHANCING THE INTERNAL CONTROL SYSTEM To ensure that operations are appropriate and to raise corporate value, we established at the Board of Directors meeting a basic policy for the internal control system (a system that ensures appropriateness of Company operations). Based on this policy, we have developed an internal control system that includes the following systems. Management control system (Internal) audit system Rapid decision making and business execution structure based on executive officer system Internal control over financial reporting Information management system Risk management system Compliance system Antisocial activities damage prevention system Conflicting interests management system Group company management system PROMOTING COMPLIANCE Compliance at goes beyond merely observing relevant laws and regulations, and extends to complying with all social norms, earning the trust of customers and society, and performing our work with sincerity. All directors and employees bear the responsibility of compliance and, considering compliance to be a fundamental operating premise, strive to promote compliance throughout the Company. Compliance System [Diagram of Compliance System] Board of Directors President Management Committee Compliance Committee (Committee Chair: President; Offices: Compliance Department, Corporate Planning Department) Insurance Solicitation Management Issues Other Compliance Issues Information Asset Protection Section Meeting Antisocial Activities Countermeasures Committee Branches, Sales Offices Person responsible for compliance: General manager of each branch Person in charge of compliance: Deputy general manager of each branch (Management of each branch s compliance program, the branch compliance meeting and liaison meeting) Each Department at Headquarters Person responsible for compliance: General manager of each department Person in charge of compliance: Deputy general manager appointed for each department (Operation of each department s compliance program) Internal Auditing Unit Auditing Department established the Compliance Committee as an advisory body to the Management Committee. The Compliance Committee comprehensively controls and manages the compliance system, including insurance solicitation management, by deliberating on measures related to compliance issues and by monitoring organizational efforts. In addition, the Information Asset Protection Section Meeting and the Antisocial Activities Countermeasures Committee were established as advisory bodies to investigate and implement specific countermeasures for every issue. Their duties include instituting and promoting an information asset protection system primarily for customers and to conferring on measures for blocking antisocial activities, such as those of gangs, and promoting internal education. The Compliance Department was established to exert Companywide control over compliance. The Compliance Department is attempting to instill an understanding of compliance-related information throughout the Company by adopting an integrated system for reporting inappropriate or suspicious behavior. Under this system, such behavior at branches and headquarters departments is reported to the Compliance Department. At the same time, at each branch and headquarters department we have appointed individuals to be in charge of compliance (compliance officers) who are charged with following up on compliance-related efforts. At each branch and headquarters department, general managers are responsible for compliance. Deputy general managers and managers appointed to each branch and department are in charge of compliance. Together, they form a system that rigorously implements compliance programs as part of operational management. 51

10 Formulating and Implementing the Compliance Program The Board of Directors formulates the compliance programs every year as concrete measures for the promotion of compliance. Each branch and headquarters department also formulates its own branch or divisional compliance programs in response to specific issues arising from its diverse operations and works to implement these programs in daily operations. The formulation and implementation status of these programs is routinely tracked and followed up by the Compliance Department and at the same time new issues are reflected in the programs. Teaching and Entrenching Compliance Principles has established a Code of Conduct that sets forth the principles and standards that all directors and employees must abide by in the course of daily business. The Code of Conduct is set out in a small booklet entitled An Employee Booklet that all directors and employees are required to carry so they can refer to it at any time in case they are unable to decide based on the performance of their duties whether they are operating from a customer perspective; if what they have done is legally or socially acceptable; or whether they have infringed on someone s human rights. We have also created a Compliance Manual that explains the Code of Conduct and the operations of each division from a compliance perspective and have thoroughly instilled their teachings in all directors and employees. provides all directors and employees with compliance textbooks and various other training materials. In these materials, proper training on soliciting insurance policies and after-sales services is offered, reflecting an industry-wide educational curriculum standard. Legal and other compliance-related educational programs are provided regularly through internal satellite broadcasts (NICE-NET) for sales representatives who serve customers. Quizzes about compliance matters are given regarding the content of the broadcast compliance programs to ensure that employees have understood the material. Non-sales personnel undergo group training according to job category and receive training based upon the compliance programs of their departments in order to enhance their knowledge of compliance as it relates to their work. An Employee Booklet Dealing with Antisocial Activities Basic Rules Pertaining to Antisocial Activities In the Code of Conduct, has established rules and standards that all directors and employees must observe when executing their duties. Among them are rules that state that employees must not get involved in antisocial activities that pose a threat to social order and safety, such as those of gangs. If one has knowingly had contact with antisocial activities, he/she must immediately report this contact to their superior, take a resolute stand and deal with the matter in a methodical manner. Initiatives against Antisocial Activities In its Corporate Principles and basic policy for the internal control system (a system that ensures appropriateness of Company operations), has made a commitment to resolutely confront antisocial activities that pose a threat to social order and safety. has also established an Antisocial Activities Countermeasure Committee to upgrade its internal system for addressing this issue. The Company promotes partnerships with external organizations, including the Life Insurance Association of Japan and the police, as well as discussions of countermeasures against such antisocial influences as gangs and internal education. The General Affairs Department has been positioned as the organization to deal with antisocial activities. A system of centralized control has been built to prevent damage from antisocial activities that enables employees to immediately report incidents, such as those involving undue claims, when they arise, to the General Affairs Department. 52

11 STRENGTHENING RISK MANAGEMENT Risk Management System Underwriting the long-term risk of customers is the essence of the insurance business, and the correct identification and appropriate management of respective aspects of risk are of utmost importance in s management. Moreover, as life insurance companies operate in an environment of abrupt fluctuations in share prices and interest rates, along with rapid progress in medical technology, the importance of risk management is growing increasingly pronounced for them. For this reason, develops and upgrades its risk management to ensure that it meets its obligations to customers over the long term. [Risk Management System] Risk Management System Risk Classification Based on the areas and types of risk to which life insurance companies are exposed, our approach to risk management involves a variety of initiatives to create and enhance risk management systems as well as rules and regulations. We manage risks in an integrated fashion that takes into account their overall impact on operations. In addition, we have built a system of mutual checks and balances involving the establishment of risk management units that are independent of profit centers while establishing secondary checks and balances, including examinations of the effectiveness of risk management conducted by the Internal Auditing Unit. Description Board of Directors and Board of Managing Directors Risk Management Committee Integrated Risk Management p. 54 Dedicated Management Committee for Investment Risk Dedicated Management Committee for Operational Risk Insurance Underwriting Risk p. 54 Liquidity Risk Investment Risk Market risk Credit risk Real estate investment risk Operational Risk p. 55 p. 55 p. 56 p. 56 p. 56 p. 57 Insurance underwriting risk can give rise to losses when factors such as economic conditions, the incidence rate of insured events, asset management results and operational expenses do not correspond with the assumptions made when premiums were set. Liquidity risk refers to the risk of incurring losses from a rapid outflow of funds or being forced to make transactions at extremely unfavorable prices due to market confusion and other factors. Risk of losses due to fluctuations in the value of assets or liabilities held. Market risk refers to the risk of losses incurred when the market value in assets declines due to such factors as fluctuations in interest rates, stock prices, exchange rates and other market factors. Credit risk refers to the risk of incurring losses when the value of financial assets declines or is eliminated due to deterioration in the financial condition of the party to whom the credit has been extended. Real estate investment risk refers to the risk of reduced returns caused by such factors as rent fluctuation as well as losses when real estate values decline due to market deterioration. The risk of executives, employees or insurance agents causing problems for customers by not being careful in their work, or by accident or fraud, or the risk of the Company incurring losses. Dedicated Management Committee for Computer System Risk Computer System Risk p. 57 Computer system risk refers to the risk of losses from computer system failure, incorrect or defective operation and illicit use. Internal Auditing Unit 53

12 Integrated Risk Management takes an integrated management approach to the various risks facing the entire Company. In addition to managing each category of risk, we closely monitor the overall magnitude of each type of risk relative to our risk buffer (equity, etc.), and report such conditions regularly to the Risk Management Committee. Stress Tests implements stress tests that assume such scenarios as a dramatic deterioration in the operating environment or increased payments for claims and benefits due to a major earthquake or other disasters. We then analyze the effects of these scenarios on the financial soundness of the Company. The results of the stress tests are reported to the Risk Management Committee and, where appropriate, are useful aids when studying such items as financial soundness. Insurance Underwriting Risk Management Insurance underwriting risk can give rise to losses when such factors as economic conditions, the incidence of insured events, asset management results and operational expenses do not match the predictions made when premiums were set. A life insurance company must fulfill its responsibility to bear the risk it assumes on behalf of customers for long periods extending over many decades. This requires the setting of reasonable premium rates that enable the stable payment of insurance claims and an appropriate level of risk control for upholding our coverage responsibilities based on examination and assessment of the health condition of the insured at the time of insurance underwriting. In addition, we employ an asset liability management (ALM) system, conduct appropriate benefit settlement assessments and adhere to rigorous cost management principles with the aim of responding flexibly to changes in the business environment and other conditions. Dealing with Risks in Setting Premiums sets insurance premiums after expert staff who hold qualifications as doctors or actuaries (experts who use mathematical techniques to set insurance premiums and ensure financial soundness) have analyzed reliable statistical data indicating the frequency ratios of the incidence of insurance claims and other payments. We also conduct numerous simulations based on the set premiums to verify whether or not we will be able to meet future coverage obligations for customers. Responding to Risk Related to Policy Selection and Benefit Settlement Assessments When considers underwriting a new policy, medically-qualified staff or staff with medical expertise conduct a medical examination and assessment while other expert staff perform a more intensive assessment from the perspective of moral risk. Depending on the results of this process, we may choose to impose special conditions, such as increased premiums, that will allow us to offer a wide variety of fairly priced insurance products to as many customers as possible. We are also diligent about managing risks related to paying out insurance claims and benefits. Medically qualified staff or staff with medical expertise are used in the assessment of payments. undertakes rigorous risk management, using outside organizations for verification and through other measures. Policy Selection: Life insurance is a system of mutual dependence involving customers paying premiums that are calculated on the basis of the rate of incidence of insured events. The insured party pays premiums based on his or her state of health, and, when the insurance is underwritten, a medical examination and an assessment are made to ensure that all insured parties are treated fairly. Moral Risk: As a system in which payments from many policyholders are used to provide insurance against the unexpected, life insurance is inherently subject to the danger that some parties might make small premium payments and then attempt to illegitimately gain a large payout, an act that denies the very essence of the system. This is what is generally referred to as moral risk. Reinsurance Policies reinsures as one strategy for diversifying risk. In such cases, determines the cede/assume transaction details by means of a review conducted by the Risk Management Committee after considering the types and characteristics of risks. Moreover, in reinsurance transactions, we evaluate the creditworthiness of each reinsurer based on rankings provided by major ranking agencies and other factors and manage accounts so that transactions do not focus excessively on specific reinsurers. Reinsurance: Reinsurance is the diversifying and leveling of risk through the transference of a portion of an insurance policy obligation assumed by an insurance company to another domestic or foreign insurance company. The transference of a portion of an insurance obligation is referred to as cede and the assumption of an obligation is referred to as assume. 54

13 Liquidity Risk Management Liquidity risk consists of cash flow risk and market liquidity risk. Cash flow risk refers to the risk of incurring losses from a worsening cash flow caused by a rapid outflow of funds due to an unexpected event, such as a major natural catastrophe, which would force the disposal of assets at extremely low prices. Market liquidity risk refers to the risk of incurring losses from being unable to make transactions due to market confusion or other factors or being forced to make transactions at extremely unfavorable prices. Dealing with Cash Flow Risk deals with cash flow risk via asset management plans and daily cash flow management that together ensure that highly liquid assets exceed a given threshold. In the event that cash flows were actually to deteriorate, Dealing with Market Liquidity Risk we would take countermeasures, such as establishing maximum holding ceilings for less liquid assets. deals with market liquidity risks by establishing appropriate transaction limits for each type of asset in line with market conditions. Investment Risk Management Investment risk, which can be categorized into market risk, credit risk and real estate investment risk, refers to a variety of risks associated with investment and finance activities. The long-term nature of life insurance policies requires a long-term approach based on liability characteristics to managing risks associated with investment. has therefore established an Investment Risk Management Department within the Risk Management Department, and, by maintaining and upgrading its rigorous system for managing risks, the Company seeks to limit losses to acceptable levels while pursuing stable returns. [System of Managing Investment Risk] Risk Management Committee Dedicated Management Committee for Investment Risks Report Risk Management and Assessment Management Units Risk Management Department (Investment Risk Management Department) Market risk management Credit risk management Real estate investment risk management Portfolio management Measuring magnitude of risk Establishing maximum holdings ceilings and rules Performance analysis Assessment reports Credit Department Individual transaction assessment for financing and real estate Internal rating management Mutual checks and balances Monitoring Investment Departments Administrative Departments Audit Internal Auditing Unit 55

14 Market Risk Management Market risk refers to the risk of losses incurred when the market value of invested assets and liabilities declines due to such factors as fluctuations in interest rates, exchange rates or stock prices. In addition to preventing the occurrence of large-scale losses on individual investment and finance transactions, it is important to keep risks to the overall portfolio within pre-established boundaries. Portfolio: Holdings of various investment assets under management, including stocks, bonds and loans. 'Establishing Maximum Holding Ceilings To prevent the occurrence of large-scale losses on individual investment and finance transactions, establishes maximum holding ceilings based on the nature of the assets. The Company also regularly reports the state of compliance to the Dedicated Management Committee for Investment Risk and is developing systems to contain risk within acceptable limits when certain transactions violate these ceilings and rules. Credit Risk Management Credit risk refers to the risk of incurring losses when the value of assets, primarily loans and bonds, declines or is entirely eliminated due to the deterioration of the financial condition of the party to whom credit has been extended. We believe that in managing credit risk it is important to 'Measuring and Managing Market Value-at-Risk To control the market risk of our overall portfolio, we use statistical analysis to reasonably calculate market value-at-risk for our entire portfolio and conduct appropriate asset allocation within the level of allowed risk. Market Value-at-Risk: The assumed maximum amount of potential risk due to changes in the external environment, calculated from historical data. examine each transaction rigorously, set terms appropriate to the level of credit risk involved and conduct thorough analyses to accurately evaluate every facet of overall portfolio risk. 'Credit Risk Management in Individual Transactions We have built systems for rigorous examination that involve a Credit Department independent of the departments handling investment and finance activities. We are working to construct a sound portfolio, including loan interest rate guidelines to ensure that the returns we obtain are commensurate with the risk, a system of internal ratings for classifying the creditworthiness of borrowers and credit ceilings to ensure that credit risk is not excessively concentrated in a particular company or group. Loan Interest Rate Guidelines: Loan interest levels are set on the basis of such factors as the potential loss that could incur in the event of a borrower bankruptcy. Internal Rating System: This system classifies the creditworthiness of a borrower based upon an objective statistical analysis of its financial data and other attributes. This system is used in conjunction with our self-assessment system. 'Managing Credit Risk in the Portfolio as a Whole The Company calculates the magnitude of credit risk as credit value at risk using Monte Carlo simulations. We incorporate the results into our management strategy for the credit portfolio to maintain the magnitude of risk within acceptable limits. Monte Carlo Simulation: This is a comprehensive calculation method used to estimate the magnitude of possible portfolio losses by running simulations based on random numbers, yielding a calculation of value at risk. Credit Value at Risk: Calculated from historical data, this is the maximum loss amount that the portfolio could incur due to the deterioration of the financial position of a borrower and other factors. Real Estate Investment Risk Management Real estate investment risk refers to the risk of reduced returns caused by such factors as rent fluctuation as well as losses incurred when real estate values decline due to market deterioration and other factors. Our approach to managing real estate investment risk involves the rigorous examination of each investment by the Credit Department, which is independent of the department actually handling the investment. We also adhere to a system involving warning levels for investment returns and prices. This enables us to appropriately focus management efforts on properties with low profitability. 56