ERM

ERM (Enterprise Risk Management) refers to a strategic method of corporate management that seeks to maximize corporate value and profits while ensuring the soundness of business through integrated management of capital, profit, and risk.

As opposed to passive risk management, which considers risk something to be avoided, in ERM, risk is not something only to be eliminated or reduced, but rather, the risks that should be taken on to pursue growth in profitability are selected actively while limiting risk to a fixed scope of capital to maintain sound management of business operations.

T&D Holdings, Inc. quantitatively assesses capital, profit, and risk on an economic value basis, setting standards for soundness and profitability in its "Group Risk Appetite." We have also established the Group ERM Committee for the Group to work as one to promote ERM. We are working to enhance the Group's corporate value in a stable and continuous manner by promoting ERM through the "PDCA Cycle" of formulating a management plan which meets the Group Risk Appetite (Plan), implementing the planned initiatives (Do), monitoring the progress of implementation of the plan (Check), and reviewing the plan as necessary (Action).

PDCA Cycle

Graph of "PDCA Cycle"

EV

The Group has established EV (Embedded Value) as one of the metrics for measuring corporate value based on economic value, and stably and sustainably increasing EV is one of our management targets.

Definition of EV

In general, life insurance policies are extremely long-term, spanning 10 years, 20 years, or even the lifetime of the policyholder, meaning time gaps develop between the recognition of the incurrence of earnings and costs.

For example in financial accounting, especially for companies which are strong in acquiring new contracts, many initial costs such as sales commissions are incurred, and it appears that profit is falling in that year. However, for insurance earnings, as insurance premiums are received yearly, earnings are incurred gradually over time and the scheme raises revenue over the long-term.

Incurrence of costs such as sales commissions and medical examination costs concentrated at start of contract.

Considering the time lag between when insurance companies recognize earnings and costs, an "Embedded Value (EV)" yardstick is used as a means to measure the corporate value of life insurance companies.

The concept of EV totals "the future profits which can be acquired from contracts currently held " and "asset value of certain liabilities, etc. which are actually viewed as capital added to shareholders' equity " to show the amount of net assets after taxes that would be attributable to shareholders.

EV (Embedded Value) Net assets after taxes that would be attributable to shareholders after totaling “adjusted net worth” calculated from the balance sheet, etc. and “value of in-force business” calculated based on in-force contracts. Adjusted net worth: Internal reserves which are recorded as liabilities in accounting but have the quality of equity, unrealized gains or losses on securities, etc. added to shareholders’ equity. Value of in-force business: Expected future profits of in-force business calculated based on various assumptions at the time of calculation. Note that this value is calculated using numerous assumptions. -Risk discount rate -Operating maintenance expenses -Claim incidence rates -Investment yield -Lapse rate. etc.

ESR

The Group has introduced ESR (Economic Solvency Ratio) as a financial soundness indicator based on economic value, and by controlling ESR within a set range, the Group works to maintain financial soundness and capital adequacy.

ESR is calculated by dividing net assets based on economic value (surplus) valuated with the same assumptions as EV by the risk volume quantified using our internal model (economic capital) (*1).

ESR = Net assets based on economic value (surplus) / Risk volume (economic capital)

(*1) Investment risk, insurance underwriting risk, operational risk, etc., are measured using the Value at Risk criterion (hereinafter referred to as “VaR”) with the amount of losses at VaR 99.5% and a measurement period of one year

ORSA (Own Risk and Solvency Assessment)

ORSA is the process of comparing a company’s own risks with its capital and other elements (solvency) to assess the adequacy of its capital.
Within our Group, in executing management plans based on ERM, we comprehensively identify risks, analyze and assess these risks and earnings, and implement control of capital, earnings, and risk in accordance with the Group’s risk appetite.

  1. Basic Policy of ORSA
    Our Group uses ORSA to identify risks and assess the soundness of solvency, and utilizes the results in management decision‑making.
  2. ORSA Framework
    To promote ERM across the Group, we have established the Group ERM Committee as a subordinate body to the Board of Directors, and the Group Risk Management Committee as a subordinate body to the Executive Management Meeting, through which ORSA is conducted.
    The Group ERM Committee oversees the integrated management of capital, earnings, and risk, while the Group Risk Management Committee oversees the overall risk management for the Group.
    In addition, the ORSA frameworks of our insurance subsidiaries are aligned with that of our company. For further details, please refer to the respective insurance subsidiaries’ websites.
  3. Utilization of ORSA in Management
    Based on the results of ORSA, we apply the outcomes to management mainly in the following ways:
    1. ・
      Determining the direction of risk‑taking and further enhancing ERM to achieve an optimal risk balance
    2. ・
      Systematically reducing domestic interest‑rate risk and clarifying the policy of reducing strategically held equities
    3. ・
      Confirming future solvency regulations, the adequacy of economic capital, and future profitability
    4. ・
      Conducting and evaluating stress tests based on stress scenarios such as interest‑rate increases, stock price declines, and natural disasters