fiscal current state of housing indemnity, ltd.august 1, 2000 acs is outsourced management of...

Fiscal 2012

Current state of Housing

Indemnity, Ltd. (Financial results for Fiscal Year 2011)

Housing Indemnity, Ltd.

Introduction

Thanks to all of you for your continued patronage of Housing Indemnity, Ltd.

At the end of March 2011 we concluded our fourth fiscal year (FY 2011) as a

small-claims and short-term insurance provider and we have created this Annual

Report, "2012: Current state of Housing Indemnity, Ltd.," in order to give an

overview of our business and to explain the financial conditions of our company

We hope this report will help you get a better understanding of our company.

In the past our company was originally entrusted with managing cooperative

insurances covering household goods for rent tenants but in July 2008 we began

operating as provider of small-amount, small-scale insurance and started selling

"Comprehensive Rental Housing Insurance" for tenants of rental housing. We

then began selling "Comprehensive Tenant Insurance" for business tenants in

June 2009 and in December 2011 we introduced the “Peace of Mind

Compensation Special Contract” which expanded compensation contents of the

"Comprehensive Rental Housing Insurance,” and we have been committed ever

since to providing products that meet customer needs.

Even in the future we will continue to carry on that same mutual aid association

spirit of the Housing Guarantee Mutual Aid Association with which our many

customers had been familiar and we shall spare no effort in order to raise the

profile of our company by providing high-quality services and products tailored to

the needs of our customers in the spirit of “customer first.”

We look forward to your continued support and patronage in the future.

Housing Indemnity, Ltd.

President and Representative Director: Masahiko Sugiura

*The present report is a "document describing the state of business and property”

as prescribed by the provisions of Article 111 of the Insurance Business Act as

applied mutatis mutandis pursuant to Section 17 of Article 272 of the Insurance

Business Act," and has been drafted in accordance with Section 37 of Article 211

of the Insurance Business Act Implementation Decree.

Table of Contents

I. Overview of the company and matters relating to its organization

1. Management principles ............................................................................... 1

2. Distinctive features of the company............................................................. 1

3. Company’s history…………………………………………………………….… 2

4. Company’s structure……………………………………………………………. 3

5. Situation of shares and shareholders…………………………………………. 5

6. Profile of Directors………………………………………………………………. 5

7. Information on employees……………………………………………………… 5

8. Information on subsidiaries…………………………………………………….. 5

II. Main business activities

1. Products handled ........................................................................................ 6

2. Situation of shares and shareholders…………………………………………. 6

3. Claim payment stance………………………………………………………….. 6

4. Reinsurance ................................................................................................ 9

5. Residential Security QQ [Emergency] Service ............................................ 9

III. Matters relating to main business activities

1. Overview of business in Fiscal 2011 ......................................................... 10

2. Indicators showing the state of main business activities in the last three

fiscal years…………………………………………………………………………… 11

3. State of business in the last two fiscal years ............................................ 12

4. Balance of liability reserves…………………………………………………... 17

IV. Matters relating to the conduction of business

1. Risk management stance…………………………………………………….. 18

2. Compliance stance……………………………………………………………. 18

3. Handling of Personal (customer) information ........................................... 19

4. Designated bodies for the settlement of disputes………………………….. 21

V. Matters relating to the state of assets in the last two years

1. Financial statements ................................................................................. 22

2. Situation of solvency with regard to benefit payout.................................... 29

2

I. Overview of the company and matters relating to its organization

1. Management principles

The following are the management principles followed by our company in

order to heed to the various daily needs of tenants and to contribute to the

healthy development of the small-claims and short-term insurance industry

while strengthening our management structure.

・ We will strive to develop insurance policies and to offer satisfying

indemnification services

・ We will strive to conduct business in an appropriate way, making

compliance our top priority.

・ We will strive to create an environment where employees can

continuously improve their capabilities and develop their business skills

to the full.

・ We will pursue solid business development focusing on profitability in

order to fulfill our commitment to shareholders.

・ We will strive to take active part in volunteer activities that can contribute

to the creation of a better global environment.

2. Distinctive features of the company

Our company was originally entrusted with managing cooperative

insurances covering household goods for rent tenants of the Housing

Guarantee Mutual Aid Association (private organization).

In conformity with the amendment to the Insurance Business Act which

came into effect on April 1, 2006, by newly registering as a small-claims and

short-term insurer with the regulatory authorities, we were recognized as an

insurance company offering insurance products.

Our company registered as a small-claims and short-term insurer on July

10, 2008 [Kanto Finance Bureau (small-claims and short-term insurance)

3

No. 34], taking over the business infrastructure of the Housing Guarantee

Mutual Aid Association, developing new insurance products which

maintained the distinctive features of traditional mutual aid products and

offering "Comprehensive Rental Housing Insurances" for rent tenants and

“Tenant Comprehensive Insurances “ for business operators established in

rental housing.

As for the future, we shall once again take advantage of the

characteristics of small-claims and short-term insurances in order to

develop insurance products appropriately tailored to diverse compensation

needs and to continue offering peace of mind to our customers.

3. History of the company

July 2, 1997 ACS Ltd. is established

August 1, 2000 ACS is outsourced management of cooperative

insurances covering household goods of the Housing

Guarantee Mutual Aid Association (private organization)

November 14, 2007 The name of the company is changed to Housing

Indemnity, Ltd.

July 10, 2008 Registered as small-claims and short-term insurer.

[Kanto Finance Bureau (small-claims and short-term

insurance) No. 34]

July 10, 2008 Started selling home contents insurance (Comprehensive

Rental Housing Insurance)

September 30, 2008 Allocation of new shares to third parties

(Capital stock: 383,750,000 yen)

June 1, 2009 Started selling “Comprehensive Tenant Insurance”

September 1, 2009 “Special clauses for holders of corporate contracts” first

introduced in “Comprehensive Rental Housing Insurance”

September 10, 2009 "Residential Security QQ [Emergency] Service" for

subscribers of “Comprehensive Rental Housing

Insurance" is offered

December 1, 2011 Started selling the “Peace of Mind Compensation Special

Contract” which expands compensation contents of

“Comprehensive Rental Housing Insurances"

December 1, 2011 Introduced the new "Updated Premium by Account

Transfer Special Contract"

4

4. Company’s structure (as of July 1, 2012)

(1) Management structure

Housing Indemnity, Ltd. Organization Chart

Board of Auditors

Insurance Actuary

Board of Directors

President and Managing Director

Compliance Committee

Personal/Customer Information Protection

Committee

Risk Management Committee

Standing Auditor

Human Resources Committee

Internal Audit Office Compliance Office

Business Headquarters Sales Headquarters

East Japan Sales Promotion Department

West Japan Sales Promotion Department

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Since May 30, 2012

5

(2) Business Offices

Head Office:

1-14-10 Shibadaimon, Minato-ku, Tokyo 105-0012 Japan

Tel: (03)5405-1151 Fax: (03)5405-1152

Tokyo Sales Department

1-14-10 3F Shibadaimon, Minato-ku, 105-0012 Tokyo, Japan

Tel: (03)5405-1155 Fax: (03)5405-1154

Kansai Branch (relocated on April 16, 2012)

2-12-4-703 Sonezaki, Kita-ku, Osaka 530-0057, Japan

Tel: (06)6809-3555 Fax: (06)6809-3556

Tohoku branch

3-3-21-4C Uesugi, Aoba-ku, Sendai, Miyagi 980-0011, Japan

Tel: (022)726-2777 Fax: (022)726-2666

Tokai branch

2-19-19-8F Nishiki, Naka-ku, Nagoya, Aichi 460-0003, Japan

Tel: (052)220-2401 Fax: (052)220-2402

Kyushu Branch (newly-opened on April 23, 2012)

4-3-3-3A Hakata Ekimae, Hakata-ku, Fukuoka 812-0011, Japan

Tel: (092)292-3100 Fax: (092)292-3101

5. Situation of shares and shareholders (as of March 31, 2012)

(1) Number of shares

Issuable shares: 8,000 shares

Issued shares: 3,450 shares

(2) Number of shareholders at the end of the fiscal year: 7

6

(3) Information on shareholders

Shareholder's name (person or

organization)

Stake in our company

Number of

shares (stock)

Stockholding

ratio (%)

Masahiko Sugiura 1,703 49.36

Koichi Yamanaka 1,185 34.35

Toa Reinsurance Co., Ltd. 300 8.70

Housing Indemnity Employee

Stock Ownership Association

200 5.80

Satoshi Kudo 40 1.16

Shigeshi Suzuki 15 0,43

Sakura Real Estate Co., Ltd. 7 0.20

6. Profile of Directors (as of July 1, 2012)

Job title Name Responsibilities Main concurrent

positions

President and

Representative

Director

Masahiko

Sugiura

Director Chiaki Ochiai

Head of East Japan

Sales Promotion

Division

Director Tadafumi Sakai

Head of West Japan

Sales Promotion

Division

Director Kawauchino

Shigetoshi

Business general

manager

Corporate

Auditor Akira Sakurai

Corporate

Auditor Satoshi Kudo Outside Auditor

Director of Satoshi Kudo

Public Accountant Office

Corporate

Auditor

Tomohisa

Tabata Outside Auditor

Director of Tomohisa Tabata

Law Firm

7. Information on employees (as of March 31, 2012)

Number of

employees Average age

Average years of

employment

Average salary

per month

45 35.95 years old 3.07 years 317,000 yen

Notes: 1.Average monthly salaries include non-standard wages and have been rounded down

7

to the nearest thousand yens.

2.Average age and average years of service have been calculated to two decimal

places and rounded down to one decimal place.

8. Information on subsidiaries

N/A

II. Main business activities

1. Products handled

(1) “Comprehensive Rental Housing Insurances” for rent tenants; by

providing "household goods and repair costs" and "indemnity

liability" as a set, we offer compensation for a wide array of damages

to household goods of tenants living in rental housing, ranging from

damages caused by natural disasters to damages caused by fire,

theft, water leakage and breakage, and to the various damages

related to everyday living.

On December 1, 2011 we started sales of the "Peace of Mind

Plan" based on the traditional “Basic plan” which offers extended

compensation coverage for repair costs and damages to home

contents.

(2) "Tenant comprehensive insurances," are aimed at corporations running

businesses from “stores" or "offices" established in rented facilities

and offer indemnification for a wide array of damages to owned

assets or equipment, ranging from damages caused by natural

disasters to damages caused by fire, theft, water leakage and

breakage and to the various damages inherent in the conduction of a

business.

2. Insurance sales stance

Our products are intended for tenants living in rental housing and rented

facilities. Sales of our insurance policies are outsourced to real estate

agencies offering rental properties and to distributors offering insurance

policies to real estate managing agencies.

When selling insurance policies, it is extremely important to accurately

assess the insurance needs of customers and to sell suitable policies in

compliance with laws and regulations.

With regard to outsourcing sales to distributors, or company carefully

8

investigates the suitability of distributors in terms of their compliance with

the law and, even after the outsourcing of sales, we strive to follow up by

offering training and guidance on how to best carry out sales.

3. Claim payment stance

In addition to maintaining a system for reporting the occurrence of

accidents, our company has also adopted a stance for ensuring rapid

damage services and appropriate claim payments with a considerate

approach that takes into account the customer’s position.

(1) Accident reporting

In the event of fires or accidents for which compensation is offered,

we provide a system for reporting accidents to our "Damage Service

Department" 24 hours a day, 365 days a year.

Furthermore, at the time of reporting accidents, we provide

solicitous assistance on submitting billing documents for those

customers with no previous experience of insurance claims.

"Special phone number for reporting accidents” (accessible also

from mobile phones)

0120-608-879 (toll free)

(2) Customer Support Center

All general inquiries, questions and complaints regarding

insurance underwriting and claim payments are handled with

politeness and professionalism by our full-time staff at our Customer

Support Center.

“Phone number of Customer Support Center”

0120-987-313 (toll free)

(Service available on weekdays from 9:30 to 18.00)

(3) Claims processing system

Our company, besides adequately managing the progress of all

claims, from accident reporting all the way to claim payment, by

means of a web-based reporting and management system, also

provides assistance toward accurate and reliable claims processing.

(4) Checking stance for claims processing.

On occasion of the audits carried out by the Internal Audit

Department we conduct a thorough checking of the claim payment

management system as well as detailed monitoring for preventing

claim payment leaks and ensuring accurate claim processing.

9

"Description of claim processing from accident occurrence to claim

settlement"

A description of the stages of claim processing, from the occurrence of

accidents to claim settlement, is given below.

Policyholder Housing Indemnity, Ltd.

Occurrence of Accident

Accident reporting Accident report receipt 0120-608-879

Preparation of securities number Reporting of accident details

Confirmation of policy contents Confirmation of incident details

Completion of insurance claim documents Gathering and preparation of attachments Send

documents

Explanation of insurance amount to be paid Explanation of insurance claim documents

Claim documents shipment

Document submission Return

documents

Document receipt

Investigation Confirmation and assessment of accident

and damage situation Calculation of insurance amount

Relaying of insurance amount

Payment of insurance amount

Confirmation of insurance amount

Out-of-court settlement with victim (if compensated)

Victim

Finalizing of insurance amount

10

4. Reinsurance

Our company, in order to distribute the risks of underwriting insurance

where damages occur simultaneously in a large number of wide-coverage

insurance contracts in case of natural calamities such as large-scale

typhoons, etc., and to maintain an adequate level of control, guarantees the

soundness of claim payment by concluding an insurance contract with a

reinsurance company for part of the insurance.

It should be noted that, as a general rule, when selecting an insurance

company, we only consider insurance companies in solid financial health

which have earned an A- (A minus) rating from Standard & Poor's.

In addition, from the perspective of distributing reinsurance risks, we

divide and cede risks to several reliable companies satisfying the

above-stated requirement.

5. Residential Security QQ [Emergency] Service

For policyholders of Comprehensive Rental Housing Insurances, we offer

the Residential Security QQ [Emergency] Service which provides free of

charge, 24-hours a day, 365 days a year, plumbing assistance, locksmith

services in case of lock-out or loss of keys and glass repair services.

The free service covers travel expenses as well as the first 30 minutes of

on-site emergency work, while all work exceeding 30 minutes, as well as

the cost of spare parts used for repairs and the cost of making spare keys,

etc,. shall be borne by customers.

III. Matters relating to main business activities

1. Overview of business in Fiscal 2011

(1) Overview of our main activities

In the fiscal year under review, the Japanese economy which had been gradually

recovering in the first part of the year from the significant impact of the Great East

Japan Earthquake and the nuclear accident that occurred in March 2011, suffered

in the second half of the year the combined effects of the global economic

slowdown triggered by European national debt problems and the continuing

historical appreciation of the yen, further compounded by the October flooding in

Thailand; all in all very severe business conditions persisted throughout the year.

In the small-claims and short-term insurance industry to which our company

belongs, as of the end of March 2012, 69 small-claims and short-term insurers

were registered nationwide with the Financial Bureau; among these, the number of

11

small-amount short-term insurers handling the same household goods and

compensation insurance as our company and of casualty insurer companies is

considered slightly excessive for the size of the market and mutual competition is

expected to intensify in the future.

Under such severe circumstances, just like in the previous fiscal year, we have

continued pursuing aggressive measures, such as the strengthening of

cooperation with existing distributing agencies, the development of new distributing

agencies and the December renewal of our products which included the addition of

a new plan. With regard to insurance premiums, we were able to secure a strong

growth rate in all areas, even ensuring an 18% increase in the year-on-year growth

rate in the Tohoku region which was greatly affected by the Great East Japan

Earthquake.

With regard to claim processing, we have been offering detailed damage service

giving top priority to consumer protection. As for actual insurance settlements, we

followed the principle of "quickly, kindly and fairly" and worked hard to ensure

suitable insurance settlements by cooperating with the relevant appraisal

companies.

With regard to operating costs, we worked hard to contain rising costs by

revising, among other things, the management of fixed costs (labor, capital

investment, etc.) as well as the cost of the outsourcing of operations.

As a result, ordinary revenue for the fiscal year under review amounted to

3,482,000,000 yen (1,931,000,000 of which in insurance premiums), ordinary profit

amounted to 83,000,000 yen and net income for the fiscal year was 82,000,000

yen.

(2) Issues that must be addressed by our company

In the fiscal year under review we managed to successfully achieve the goals we

had set and in the future we will devote our energies to the prompt reduction of

cumulative losses. To this end, in the next fiscal year we will work to enhance our

market competitiveness and to improve profitability even more by adopting a series

of measures such as opening our Kyushu Branch, diversifying payment methods

for insurance premiums, adjusting agency commissions, digitalizing securities, and

especially promoting sales of our renewed products which were launched in the

course of the fiscal year under review. We will continue to emphasize compliance

throughout the whole company, including on the part of distributing agencies,

insurance salespersons and consignees.

12

"Changes in assets and profit/loss situation"

Category FY2010 FY2011

Total amount of contracts by the

end of the fiscal year

2,940,121,000 yen 3,280,986,000 yen

Insurance premiums 1,729,751,000 yen 1,931,181,000 yen

Interest and dividend income

Ordinary income (loss)

Net income (loss)

129,000 yen

13,066,000 yen

10,216,000 yen

110,000 yen

83,717,000 yen

82,073,000 yen

Total assets 708,849,000 yen 865,713,000 yen

Net income (loss) per share 2,961.04 yen 23,789.19 yen

Note: The amount of contracts at the end of the fiscal year is based on "premium + returned

reinsurance fees + reinsurance commission."

2. Indicators showing the state of main business activities in the last

three fiscal years (In thousand yen)

Category FY2009 FY2010 FY2011

Recurring revenue 2,598,124 3,165,421 3,481,612

Ordinary income (loss) △67,225 13,066 83,717

Net income (loss) △70,329 10,216 82,073

Capital

(Issued shares)

383,750

(3,450 shares)

383,750

(3,450 shares)

383,750

(3,450 shares)

Amount of net assets 156,940 167,155 249,228

Amount of net assets 610,936 708,849 865,713

Liability reserve balance 101,280 173,600 211,131

Balance of marketable

securities

― ― ―

Solvency margin ratio 723.6% 605.1% 787.5%

Dividend payout ratio ― ― ―

Number of employees 39 45 45

Net premiums income 148,241 168,003 186,282

Notes: 1. Figures have been rounded down to the nearest unit used.

2. Breakdown of net premiums written

・ Insurance premiums: 1,931,181,000 yen

・ Reinsurance premiums ceded (-): 1,738,063,000 yen

・ Returned reinsurance fees (+): 59,983,000 yen

・ Canceled and returned premiums (-) : 66,819,000 yen

Deducted net premiums: 186,282,000 yen

13

3. Our company started operating as a small-claims and short-term insurance

provider on July 10, 2008.

3. State of business in the last two fiscal years

(1) Indicators showing the state of main business activities

① Net original premiums (In thousand yen)

Items

FY2010 FY2011

Amount Component

ratio Amount

Component

ratio

Fire insurance 1,680,517 100.0% 1,864,362 100.0%

Other insurance ― ― ― ―

Total 1,680,517 100.0% 1,864,362 100.0%

Note: Net original premiums are calculated deducting original canceled and returned

premiums and other returns from original premiums.

② Reinsurance premiums ceded (In thousand yen)

Items

FY2010 FY2011

Amount Component

ratio Amount

Component

ratio

Fire insurance 1,512,513 100.0% 1,678,080 100.0%


Total 1,512,513 100.0% 1,678,080 100.0%

Note: Reinsurance premiums ceded are calculated deducting returned reinsurance fees

from reinsurance premiums.

③ Net premiums written (In thousand yen)

Items

FY2010 FY2011

Amount Component

ratio Amount

Component

ratio

Fire insurance 168,003 100.0% 186,282 100.0%


Total 168,003 100.0% 186,282 100.0%

Note: Net premiums written are calculated by deducting the ceded reinsurance premiums of

reinsurance contracts from the original net premiums written.

14

④ Original net claims paid

(In thousand yen)

Items

FY2010 FY2011

Amount Component

ratio Amount

Component

ratio

Fire insurance 248,514 100.0% 219,776 100.0%


Total 248,514 100.0% 219,776 100.0%

Note: Original net claims paid are calculated deducting from contractual payments of the

original contracts the amount of money recovered through claims for compensation

pertaining to the original contracts.

⑤ Recovered reinsurance claims

(In thousand yen)

Items

FY2010 FY2011

Amount Component

ratio Amount

Component

ratio

Fire insurance 223,663 100.0% 197,798 100.0%


Total 223,663 100.0% 197,798 100.0%

⑥ Net claims paid

(In thousand yen)

Items

FY2010 FY2011

Amount Component

ratio Amount

Component

ratio

Fire insurance 24,851 100.0% 21,978 100.0%


Total 24,851 100.0% 21,978 100.0%

Note: Net claims paid are calculated deducting from contractual payments of the original

contracts the reinsurance premiums recovered on the basis of reinsurance contracts.

15

⑦ Insurance underwriting profit

(In thousand yen)

Items

FY2010 FY2011

Amount Component

ratio Amount

Component

ratio

Fire insurance 13,157 100.0% 83,717 100.0%


Total 13,157 100.0% 83,717 100.0%

Note: Insurance underwriting profits are calculated by deducting insurance underwriting

costs, business expenses and general administrative costs from insurance

underwriting income and by taking into account other income and expenditures (other

ordinary income and other ordinary costs).

(2) Indicators related to insurance contracts

① Policyholder dividend

N/A

② Incurred loss ratio and operating cost ratio before recovery of

reinsurance and their combined ratio

Items

FY2010 FY2011

Incurred

Loss

ratio

Operating

cost ratio

Combined

ratio

Incurred

Loss

ratio

Operating

cost ratio

Combined

ratio

Fire insurance 14.8% 72.9% 87.7% 14.7% 72.6% 87.3%

Other insurance ― ― ― ― ― ―

Total 14.8% 72.9% 87.7% 14.7% 72.6% 87.3%

Notes: 1. Incurred loss ratio = (amount of loss incurred before recovery of reinsurance + loss

adjustment expenses) ÷ premiums earned before recovery of

reinsurance × 100

2. Expense ratio = (business expenses related to insurance underwriting and general

administrative costs + various fees and collection costs) ÷

Premiums earned before recovery of reinsurance × 100

3. Combined ratio = incurred loss ratio + operating cost ratio

4. Amount of loss incurred before recovery of reinsurance = insurance claims paid +

accumulated reserves for outstanding claims before recovery of reinsurance

16

5. Premiums earned before recovery of reinsurance = premium income - accumulated

unearned insurance premiums before recovery of reinsurance

③ Net loss ratio, net expense ratio and combined ratio

Items

FY2010 FY2011

Net

Loss

ratio

Net

Operating

cost ratio

Combined

ratio

Net

Loss

ratio

Net

Operating

cost ratio

Combined

ratio

Fire insurance 14.8% 34.8% 49.6% 11.8% 22.0% 33.8%

Other insurance ― ― ― ― ― ―

Total 14.8% 34.8% 49.6% 11.8% 22.0% 33.8%

Notes: 1. Net loss ratio = net claims paid ÷ net premiums written × 100

2. Net expense ratio = net expenses÷ net premiums written × 100

3. Combined ratio (combined ratio) = net loss ratio + net expense ratio

④ The number of ceding reinsurance companies and the percentage of

the reinsurance premiums paid by the top three companies

Number of ceding

reinsurance companies

Percentage of reinsurance

premiums paid

FY2010 Two companies 100%

FY2011 Two companies 100%

Note: Type of re-insurance: proportional reinsurance (90% of the insurance amount)

⑤ Percentage of reinsurance premiums paid by ceding reinsurance

companies in each rating category

Rating category FY2010 FY2011

A- or higher 100% 100%

BBB or above ― ―

Other ― ―

Total 100% 100%

Note: Rating categories are those used by Standard & Poor's

⑥ Reinsurance claims recoverable

N/A

17

(3) Indicators related to accounting

① Claims reserves

(In thousand yen)

Items

FY2010 FY2011

Amount Component

ratio Amount

Component

ratio

Fire insurance △661 100.0% 3,970 100.0%


Total △661 100.0% 3,970 100.0%

Note: Claims reserves are calculated by deducting from ordinary claims reserves and losses

incurred but not reported concerning the original contracts the reinsurance portion

based on the related reinsurance contracts.

② Liability reserves

(In thousand yen)

Items

FY2010 FY2011

Amount Component

ratio Amount

Component

ratio

Fire insurance 72,319 100.0% 37,532 100.0%


Total 72,319 100.0% 37,532 100.0%

Note: Liability reserves are calculated by deducting from ordinary liability reserves and

catastrophe reserves concerning the original contracts the reinsurance portion based

on the related reinsurance contracts.

③ Remaining balance for each category of earned reserves and voluntary

retained earnings

N/A

④ Fluctuations of ordinary losses with respect to increases in the loss ratio

Scenario of increasing loss ratio Assuming that incurred loss ratio increases by 1%.

Calculation method: Net earned premiums × 1%

Impact on ordinary income FY2010 1,594,000 yen

FY2011 1,821,000 yen

Note: Earned premiums are calculated deducting the reinsurance portion based on the

reinsurance contract.

18

(4) Indicators related to asset management

① Situation of asset management

(In thousand yen)

Items

FY2010 FY2011

Amount Component

ratio Amount

Component

ratio

Savings deposits 372,830 52.6% 513,238 59.3%

Cash in trust ― ― ― ―

Marketable

securities

― ― ― ―

Total operating

assets

372,937 52.6% 513,238 59.3%

Total assets 708,849 100.0% 865,713 100.0%

② Amount of income from interest on dividend and investment yield

(In thousand yen)

Items FY2010 FY2011

Amount Yield Amount Yield

Savings deposits 129 0.04% 110 0.02%

Cash in trust ― ― ― ―

Marketable

securities

― ― ― ―

Subtotal 129 0.04% 110 0.02%

Other ― ― ― ―

Total 129 0.04% 110 0.02%

Note: yield = "amount of revenue" ÷ "average monthly invested amount" × 100

③ Component ratio with respect to balance by type of marketable

securities held and their total

N/A

④ Yield of marketable securities held

N/A

19

⑤ Balance of marketable securities by type and by remaining maturity

N/A

4. Balance of liability reserves

A breakdown of the balance of liability reserves is shown below.

(In thousand yen)

Items

FY2010 FY2011

Ordinary

liability

Reserve

Catastro

phe

Reserve

Policyhol

ders

Dividend

Reserve

Total

Ordinary

liability

Reserve

Catastro

phe

Reserve

Policyhol

ders

Dividend

Reserve

Total

Fire

insurance

163,529 10,071 ― 173,600 196,438 14,693 ― 211,131

Other

insurance

― ― ― ― ― ― ― ―

Total 163,529 10,071 ― 173,600 196,438 14,693 ― 211,131

20

IV. Matters relating to the conduction of business

1. Risk management stance

We have established a series of "Risk Management Regulations" with the

purpose of laying a sound management foundation by preventing the

occurrence of risks inherent in the small-claims and short-term insurance

business.

The term “risk” refers here to all losses incurred by the company as a

result of unforeseen damages, sharp fluctuations in economic conditions,

mistakes in the handling of accidents, reputational damages and so on.

<Classification of risks>

(1) Insurance underwriting risk

① Insurance underwriting risk

② Insurance payment risk

③ Reinsurance risk

(2) Asset management risks

(3) Operational risk

① Administrative risks

② System risks

③ Liquidity risks

(4) Harmful rumor risk

In addition, a "Risk Management Committee" has been established by

the decision of the Board of Directors as a Standing Committee.

Although each risk management department handles the above-

mentioned risks, by strengthening the cooperation between each risk

management department, the Board of Directors and the Risk Management

Committee, we are striving to give prompt and appropriate responses in the

course of day-to-day operations.

For projects requiring a company-wide response, we are presently

considering cross-departmental risk management as well as a series of

necessary measures which will center around the "Risk Management

Committee."

21

* Our aim is to adopt a risk management stance which will have the

least possible impact on policyholders and agents.

2. Compliance stance

The term “compliance” is used here in the sense of "compliance with laws

and regulations." Complying with all rules, including laws, company’s

regulations, social norms, etc., is the first requirement.

Even the "Guidelines for compliance with regulations," set forth by our

company as a code of conduct, state that "all officers and employees shall

comply with laws and regulations and shall not justify, nor condone, illegal

activities, regardless of any reasons," making compliance the basis of all

business conduction.

<Compliance stance>

In order to ensure thorough compliance, a Compliance Committee

meeting, chaired by the president, is held with all department heads four

times a year.

The Compliance Committee is responsible for the following matters.

(1) Planning and formulating strategies with regard to the general

aspects of compliance promotion.

① Planning and formulation of compliance program

② Appraisal and evaluation of progress and achievement status

of compliance programs and reporting of results to the Board of

Directors

③ Enacting, revising or abolishing compliance policies, code of

conduct, compliance regulations and compliance manual

(2) Matters relating to misconduct

(3) Analysis of complaints regarding compliance issues as well as the

planning and proposing of preventive measures

(4) Verification of investigation results for non-payment of insurance

premiums

In each department, the head of the department, as the person

responsible for compliance, enforces compliance with laws and

regulations and provides training and guidance for all employees.

The Sales Control Headquarters and the Compliance Control Office

22

cooperate in educating and advising distributors with regard to compliance

with rules and regulations.

* We aim to gain the total trust of our customers by ensuring thorough

compliance and an absolute lack of violations.

3. Handling of personal (customer) information

Given the fact that in recent years protecting personal information has

become increasingly important, we have formulated a series of "personal

information and customer information protection rules " and "personal

information and customer information protection guidelines" and we have

been applying them to ensure the appropriate and secure management of

said information.

In addition, we have also summed up how we handle personal

information in the section "Handling of customers' personal information"

which we make known to our customers by inserting it in the "Application

Form" and in the "Pamphlet."

<Handling of customers’ personal information>

1. Housing Indemnity, Ltd. (hereinafter referred to as "our company") will

acquire personal information concerning its customers by lawful and fair

means and only to the extent necessary for business.

2. Our company will use customers’ personal information within the

boundaries of the purposes stated below and as necessary for the

conduction of business.

(1) Underwriting, extending and maintaining of insurance contracts and

payment of insurance claims

(2) Operational management and provision of information regarding our

business as well as improvement of products and services

(3) Other operations related to, or associated with, the insurance

business

3. Our company shall take the appropriate measures in order to ensure the

accuracy of the collected personal information of our customers and to

keep them up-to-date.

Moreover, we shall take all safety measures deemed appropriate in

23

order to prevent unauthorized access to customers’ personal information

as well as the loss, destruction, tampering and leakage of said

information.

4. Our company, with the exception of the cases stated below, shall not

provide the collected personal information of customers to external

parties.

(1) If customers’ consent is given

(2) If required by laws and regulations

(3) In case of provision of personal information to our subcontractors to

the extent necessary for achieving the purpose stated in the

above section 2

(4) In case of provision of personal information to re-insurers to the

extent necessary for claiming reinsurance

(5) In case of provision of personal information to other insurance

companies (mutual aid organizations) to the extent necessary for

the prevention of the conclusion of unauthorized or unreasonable

insurance contracts or claims based on such contracts.

(6) If deemed necessary for the interest of the customer or for public

interest

(7) If there are other legitimate reasons

5. Our company will handle disclosure, revision, addition or deletion of

customers' personal information in the ways described below.

(1) Customers shall have the right to ask our company to disclose to

them any personal information regarding themselves which is in

possession of the company.

(2) In case of errors or mistakes in the personal information divulged as

a result of the disclosure indicated in the preceding section,

customers shall have the right to ask the company to correct,

amend or delete said information.

(3) In case of requests to disclose, correct, amend or delete information

as indicated in the preceding two sections, such requests have to

be made to our company in writing or by telephone.

24

4. Designated bodies for the settlement of disputes

Our company will respond with the maximum seriousness to all

consultations, inquiries or complaints from our customers.

Our company is also a member company of the Incorporated General

Association of Japanese Small Amount and Short Term Insurers which is

specifically authorized as a "Specified Dispute Settlement Body" (specified

ADR institution).

Consequently, our customers, whenever it’s deemed necessary, will be

able to resort to the Specified Dispute Settlement Body listed below and

operated by this association.

The same specified Dispute Settlement Body shall attend to all

consultations and inquiries related to small-claims and short-term

insurances from all consumers, starting with policyholders, as well as to

processing complaint and resolving disputes.

Small-claims and short-term insurance consultation office of the

Incorporated General Association of Japanese Small Amount and Short

Term Insurers.

3-12-8 Hatchobori, Chuo-ku, Tokyo 104-0032, Japan

Tel: 0120-82-1144 Fax: 03-3297-0755

Hours: 9:00 to 12:00; 13:00 to 17:00

Days: Monday to Friday (except holidays and the New Year holiday

period)

25

V. Matters relating to the state of assets in the last two years

1. Financial statements

(1) Balance Sheet (In thousand yen)

Items

2011

As of the end

of March

2012

As of the end

of March

Items

2011

As of the end

of March

2012

As of the end

of March

(Assets)

Cash and savings

Cash

Savings deposits

Other current assets

Tangible fixed assets

Tangible fixed

assets

Intangible assets

Software

Other intangible

assets

Distributor accounts

receivable

Other assets

Accounts receivable

Premiums

receivable

Prepaid Expenses

Other assets

Deposits

372,937

108

372,830

―

20,873

20,873

57,479

57,399

80

54,652

185,907

154,089

―

7,330

24,488

17,000

513,300

62

513,238

―

15,301

15,301

49,691

49,611

80

64,358

205,063

162,204

―

8,865

33,994

18,000

(liabilities)

Insurance contract

reserve

Claims reserves

Liability reserves

Distributor accounts

payable

Reinsurance payable

Other liabilities

Debt

Accounts payable

Accrued expenses

Deposits received

Suspense receipts

Other liabilities

Reserve for bonuses

Reserve for

retirement benefits

Total liabilities

(net assets)

Capital

Capital

Capital surplus

Capital reserves

Earned surplus

Other earned

surplus

Earned surplus

brought forward

Total shareholders'

equity

Stock acquisition

179,361

5,761

173,600

71,818

72,478

189,130

15,355

12,338

14,880

2,347

136,083

8,127

8,597

20,311

541,693

383,750

383,750

13,750

13,750

△234,020

△234,020

△234,020

163,480

220,862

9,731

211,131

128,411

84,561

150,689

―

4,935

19,177

4,180

113,792

8,605

8,703

23,259

616,485

383,750

383,750

13,750

13,750

△151,947

△151,947

△151,947

245,553

26

rights

Stock acquisition

rights

Total stock

acquisition rights

Total net assets

3,675

3,675

3,675

167,155

3,675

3,675

3,675

249,228

Total assets 708,849 865,713

Liabilities and net

assets

Total

708,849 865,713

Notes: 1. Depreciation and amortization methods of fixed assets

(1) Depreciation of tangible fixed assets, is based on the fixed-percentage method

However, small depreciable assets with an acquisition cost between 100,000

and 200,000 yen are amortized evenly over three years by the straight-line

method.

(2) Depreciation and amortization of intangible assets is based on the straight-line

method.

It should be noted that, for software, the straight-line method is adopted based

on the estimated usable period specified by our company (5 years).

2. Accounting for consumption tax

Consumption tax and local consumption taxes are accounted for by using the tax

inclusion method.

3. Assets pledged as collateral Time deposits: 130,063,000 yen

4. Accumulated depreciation of tangible fixed assets: 29,889,000 yen

5. Breakdown of claims reserves

Claims reserves (before recovery of outstanding reinsurance claims): 94,197,000 yen

Outstanding reinsurance claims related to the above: 84,777,000 yen

Net (a): 9,420,000 yen

IBNR reserves(b): 311,000 yen

Net: 9,731,000 yen

6. Breakdown of liability reserves

Liability reserves (first year balance): 196,438,000 yen

Catastrophe reserves: 14,693,000 yen

Total: 211,131,000 yen

■ Reference

Reinsurance premiums ceded: 1,079,707,000 yen

7. Loan guarantee for borrowing from financial institutions of director: 118,600.000 yen

27

8. Net asset value per share: 71,174.49 yen

9. Figures have been rounded down to the nearest unit used and therefore total amounts

do not necessarily match.

(2) Income Statement (In thousand yen)

Items FY2010

(Apr. 1, ‘10 to Mar. 31, ‘11)

FY2011

(Apr. 1, ‘11 to Mar. 31, ‘12)

Recurring revenue

Insurance premium income

Insurance premiums

Reinsurance income

Recovered reinsurance

claims

Reinsurance commission

Returned reinsurance fees

Reversed reserves for

outstanding claims

Investment income

Interest and dividend income

Other recurring revenue

3,165,421

3,163,785

1,729,751

1,434,033

223,662

1,166,108

44,263

661

129

129

846

3,481,612

3,478,784

1,931,181

1,547,603

197,798

1,289,822

59,983

―

110

110

2,717

Ordinary costs

Insurance claims and other

expenses

Insurance claims, etc.

Surrendered contract payments

Reinsurance premiums

Liability reserve provisions

Claims reserves provisions

Liability reserve provisions

Investment costs

Operating costs

Business expenses and general

administrative costs

Tax

Depreciation costs

Provisions for reserves for

bonuses

3,152,354

1,854,525

248,514

49,235

1,556,776

72,319

―

72,319

―

1,224,582

1,155,499

19,604

34,415

8,597

3,397,894

2,024,658

219,776

66,819

1,738,063

41,502

3,970

37,532

―

1,330,718

1,263,282

17,968

35,678

8,703

28

Provisions for reserves for

retirement benefits

Other ordinary costs

6,468

928

5,088

1,016

Ordinary income (loss) 13,066 83,717

Extraordinary income 3,816 ―

Extraordinary losses 5,360 ―

Net income (losses) before taxes

Corporate tax and resident tax

Deferred income taxes

Net income (loss)

11,522

1,306

―

10,216

83,717

1,331

313

82,073

Notes: 1. Claims reserves

Claims reserves provisions (before recovery of outstanding reinsurance claims):

38,795,000 yen

Provisions for outstanding reinsurance claims related to the above: 34,916,000 yen

Net (a): 3,879,000 yen

Provisions for IBNR reserves (b): 90,000 yen

Total (a) + (b): 3,970,000 yen

2. Liability reserves

Provisions for ordinary outstanding liability reserve claims: 32,909,000 yen

Provisions for catastrophe reserves: 4,622,000 yen

Provisions for outstanding liability reserve claims: 37,532,000 yen

■ Reference

Provisions for reinsurance premiums ceded: 99,042,000 yen

3. Current net income per share: 23,789.19 yen

4. Significant transactions with related parties.

As for money (120,000,000 yen, with an extendable term of validity of 1 year)

borrowed from the financial institution of Mr. Masahiko Sugiura, our President and

Representative Director, we have given a loan guarantee and we have provided a

security (130,063,000 yen) to said financial institution.

It should be noted no guarantee fee was set.

5. Significant subsequent events

There are no significant subsequent events



29

(3) Cash Flow Statement (In thousand yen)

FY2010 (April 1, 2010 to March 31, 2011)

FY2011 (April 1, 2011 to March 31, 2012)

Cash flow from operating activities Current net income before taxes ( = loss) 11,522 83,717 Depreciation costs 34,415 35,678 Insurance Business Law Article 113 deferred assets amortization Increase in claims reserves ( = decrease) 661 3,970 Increase in reserves ( = Decrease) 72,319 37,532 Policyholder dividend reserves provision Increase in reserves for retirement benefits ( = decrease) 4,142 2,948 Increase in reserves for retirement benefits ( = decrease) Increase in reserves for price fluctuations ( = decrease) Interest and dividend income 129 110 Marketable securities losses and gains ( = gain) 998 Payment interest 928 357 Foreign exchange losses and gains ( = gain) Tangible fixed assets losses and gains ( = gain) 546 Increase in agency accounts receivable ( = increase) 7,254 9,706 Reinsurance receivable ( = increase) Increases and decreases in other assets (except investment and financing

activities-related, △ = increase)

26,687 △20,156

Increase in agency accounts payable ( = decrease) 3,753 56,593 Increase in reinsurance borrowings ( = decrease) 9,755 12,082 Increases and decreases in other liabilities (except investment and financing

activities-related, △ = decrease)

47,525 23,053

Other

Subtotal 185,036 179,852

Proceeds from interests and dividends, etc. 129 110 Amount of interest paid 928 357 Policyholder dividends paid Other Amount of income tax paid 1,392 1,570

Cash flow from operating activities 182,845 178,035

Cash flow from investment activities Increase/decrease in savings ( = increase) Purchases of marketable securities Proceeds from sale and redemption of marketable securities Purchases of Insurance Business Law Article 113 deferred assets Other 26,744 22,317

Cash flow from investment activities 26,744 22,317

Cash flow from financing activities Proceeds from borrowings Repayment of borrowings 29,540 15,355 Proceeds from issuance bonds Redemption of bonds Proceeds from issuance of common stock 0 0 Purchases of treasury stock Dividend payment 0 0 Other

Cash flow from financing activities 29,540 15,355

Exchange differences related to cash and cash equivalents

Increase/decrease in cash and cash equivalents ( = decrease) 126,561 140,363

Balance at beginning of year of cash and cash equivalents 246,376 372,937 Balance at end of year of cash and cash equivalents 372,937 513,300

Notes: 1. Funds (cash and cash equivalents) in the of cash flow statement derive from cash on

hand, demand deposits and time deposits (excluding foreign currency), and the like.

2. Figures have been rounded down to the nearest unit used and therefore subtotals do

not necessarily match.

30

(4) Statement of changes in shareholders' equity (in thousands of yen)

FY2010 (Apr. 1, ‘10 to Mar. 31, ‘11)

FY2011 (Apr. 1, ‘11 to Mar. 31, ‘12)

Subject Amount Amount

Shareholders' equity Capital

Balance at the end of the previous fiscal year

383,750 383,750

Changes during the fiscal year under review

Total changes during the fiscal year under review

― ―

Balance at the end of the fiscal year under review

383,750 383,750

Capital surplus

Capital reserves


13,750 13,750



― ―


13,750 13,750

Other capital surplus


― ―



― ―


― ―

Total capital surplus


13,750 13,750



― ―


13,750 13,750

Earned surplus

Earned Reserve


― ―



― ―


― ―

Other earned surplus


― ―

Changes during the fiscal year

31

under review


― ―


― ―

Earned surplus brought forward


△244,235 △234,019


Net income for the fiscal year under review

10,215 82,072


10,215 82,072


△234,020 △151,946

Total Earned surplus


△244,235 △234,019



10,215 82,072


10,215 82,072


△234,020 △151,946

Total shareholders' equity


153,265 163,480



10,216 82,072


10,216 82,072


163,480 245,553

Stock acquisition rights


3,675 3,675


― ―


3,675 3,675

Total net assets


156,940 167,155



10,216 82,072


10,216 82,072


167,155 249,228

32

Notes: 1. Items related to the type and total number of shares issued

Class of shares Number of

shares at the

end of the

previous fiscal

year

Current-year

increase in

number of

shares

Current-year

decrease in

number of

shares

Number of

shares at the

end of the fiscal

year under

review

Common stock 3,450 shares ― ― 3,450 shares

2. Items related to acquisition rights of new stocks

Category

Breakdown of

stock acquisition

rights

Class of

shares to be

issued upon

exercise of

stock

acquisition

rights

Number of shares to be issued upon

exercise of stock acquisition rights Current

year-end

Balance

(thousand

yen)

Current

year

end

Current

year

increase

Current

year

decrease

Current

year-end

Submitting

companies

First-time stock

acquisition rights

Common

stock

1,500 ― ―

1,500 3,675

Submitting

companies

Second-time

stock acquisition

rights

Common

stock

60

― ―

60 ―



(5) Audit by independent auditor

In accordance with the provisions of Article 436, Paragraph 2,

Section 1 of the Companies Act, we have retained the services of

independent auditor "Deloitte Touche Tohmatsu LLC” for the auditing

of our company’s financial statements for FY 2011, such as the

"Balance Sheet," the "Income Statement," the "Statement of

changes in equity," etc.

33

2. Situation of enhancement of capacity to pay insurance claims, etc.

(solvency margin ratio)

(In thousands of yen and %)

Items End of FY2010 FY2011

(1) Solvency margin ratio 177,266 263,921

① Partial total of net assets (except estimated

outflow to the outside, differences arising from

valuation and translation and deferred assets)

167,155 249,228

② Reserves for price fluctuation ― ―

③ Catastrophe reserves 10,071 14,693

④ General allowance for bad loans ― ―

⑤ Evaluation differences of other

marketable securities (before effects of

taxation) (99% or 100%)

― ―

⑥ Profits and losses including land (85% or

100%) ― ―

⑦ Policyholder dividend reserves ― ―

⑧ Future profits ― ―

⑨ Taxation effect equivalent ― ―

⑩ Debt capital instruments, etc. ― ―

Items (⑩ (a)) listed in Section 5 of

Paragraph 3 of Article 2

of Notification (No. 14)

― ―

Items (⑩ (b)) listed in Section 5 of

paragraph 3 of Article 2

of Notification (No. 14)

― ―

⑪ Items to deduct (-) ― ―

(2) Total amount of risks √[R12 + R2

2] + R3 + R4 58,578 67,025

R1: General risks equivalent 16,323 18,677

R2: Asset management risks equivalent 19,946 23,898

R3: Operating management risks equivalent 2,012 2,309

R4: Catastrophe risks equivalent 30,792 34,386

Solvency margin ratio (1) and {(1/2) × (2)} 605.1% 787.5%

Note: Figures have been rounded down to the nearest unit used.

The solvency margin ratio has been rounded down to the first decimal place.

End of document

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