Responses to 11 Principles of the Corporate Governance Code

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(As of June 26, 2017)

1. Principles Items Not to Be Implemented (To Explain) and Reasons for Not Implementing

The Company complies with all of the Corporate Governance Code.

2. Principle Items to Be Implemented (To Comply)

The response situations and disclosure scope regarding the following 11 principles are as follows:

Principle 1.4  Policy regarding holding Strategic Equity Holdings and standards with respect to the voting rights as to their cross-shareholdings

‹MS&AD Insurance Group Basic Policy for Strategic Equity Holdings›

Strategic equity holdings is shares held under the assumption of long-term holding for the purpose of long-term increase of asset value and maintaining and strengthening comprehensive business relationships with issuers, etc.
We have adopted a policy to reduce the aggregate amount of our strategic equity holdings, aiming to build a solid financial base less affected by fluctuations in stock prices and to improve the capital efficiency (Note 1).
The economic rationale for holding strategic equities is assessed from the perspective of the equity issuers' growth potential and profitability and the medium-to long-term business relationship (Note 2).
If the rationale is not confirmed, we shall proceed with sales of those strategic equity holdings after obtaining the equity issuers' understanding. Otherwise, we may sell our holdings, taking into account the market environment and our business and financial strategies.

(Note 1) The Group's strategic equity holdings of ¥500 billion are planned to be sold over the 4 years from FY2014 to FY2017. We shall proceed with sales of our holdings based on the planning. The Group sold equity holdings of \405.3 billion (¥91.0 billion in fiscal 2014, ¥181.1 billion in fiscal 2015, and ¥133.0 billion in fiscal 2016) by the end of fiscal 2016 and will proceed with the plan in fiscal 2017.
(Note 2) Mitsui Sumitomo Insurance and Aioi Nissay Dowa Insurance shall examine economic rationale of their major strategic equity holdings (Equities owned by the two companies whose values on the balance sheet exceed one hundredth of the amount of common stock are listed in the securities report.). The results of these examinations shall be reported to MS&AD's Board of Directors.

‹Criteria for Ensuring Appropriate Handling of the Exercise of Voting Rights Pertaining to Strategic Equity Holdings›

  • ① Basic approach to the exercise of voting rights
    The exercise of voting rights is seen to be an important means of influencing the management and improving the enterprise value of investee companies. Decisions are not made uniformly based solely on formulaic short-term criteria, but rather in terms of enhancement of enterprise value in the medium-to-long term and improvement in shareholder returns, among others.
  • ② The process for exercising voting rights
    When exercising voting rights, items such as those listed below are verified for each potential investment, with a focus on such aspects as whether the company in question is managed with an emphasis on growth of the company and the interests of shareholders, and whether the company is engaged in any antisocial behavior. Proposals are also judged based on the results of dialogue with the company concerned following a detailed examination of individual issues as required.
    • Profit distribution plan (such as low payout ratios in proposals for appropriation of surplus)
    • Appointment and dismissal of directors (such as poor performance, the occurrence of scandals, etc., or no outside directors being elected)
    • Directors' remuneration, retirement benefits (such as poor performance or the occurrence of scandals, etc.)
    • Issuance of subscription rights to shares (recipients being outside corporate auditors, etc.)
    • Changes to the articles of incorporation (such as changes that may be significantly detrimental to the rights of shareholders)
    • Takeover defense measures (Poison Pills)
    • Business restructuring, etc.
  • ③ Publication of the results of the exercise of voting rights
    The Company believes that, when conducting stewardship activities, it is important to hold continuous and constructive dialogue to enhance corporate value and support sustained growth of investee companies in the medium- to long-term , leading to the sharing of awareness and the improvement of problems.
    Therefore, in order to encourage the understanding of the Company's stewardship activities, the Company will publish aggregate voting records on the main types of proposals voted upon, along with examples of proposals which the Company voted against.
    Note that the results of the exercise of voting rights in individual investee companies will not be published because this may affect constructive dialogue with such companies.

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Principle 1.7  Procedures for related Party Transactions

With respect to transactions between the Company and a related party, to ensure that they do not harm the common interests of the Company and the Company's shareholders, such transactions as competition transaction by a director, transactions between a corporate officer and the Company, and other transactions with conflict-of-interest characteristics, such transactions will require prior deliberation and approval of a Board of Directors' meeting with the attendance of multiple outside directors, and in the case of similar transactions by executive officers will require a report to the Board of Directors.

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Principle 3.1  Full Disclosure

(ⅰ) Aspiration of the Group (Mission etc.) and business strategies and business plans;

‹Business Objectives , etc.›

Please see “Aspiration of the MS&AD Insurance Group” on our company web site.

‹Business strategies and business plans›

Please see our group Medium-Term Management Plan, “Next Challenge 2017” on our company web site.

(ⅱ) Basic policy and guidelines on corporate governance;

Please see “Basic Policies on Corporate Governance” on our company web site.

(ⅲ) Board policies and procedures in determining the remuneration of the senior management of Directors and Audit & Supervisory Board Members;

Please see “Directors and Audit & Supervisory Board Members Remuneration” on our company web site.

(ⅳ) Board policies and procedures in the appointment of the senior management and the nomination of Directors and Audit & Supervisory Board Members candidates;

(ⅴ) Explanations with respect to the individual selection and appointment.

Please see [Reasons for selection as a candidate] in the “Notice of Convocation of Annual Shareholders Meeting” (page 6-15)

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Supplementary Principle 4.1 ①  Scope and content of the matters delegated to the management

Please see Chapter 3. 2 “Role of the Board of Directors” in the “Basic Policies on Corporate Governance.

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Principle 4.8  A road map if a company in its own judgement believes it needs to appoint at least one-third of directors as independent directors.

The Board of Directors comprises 11 members (9 men and 2 women), and more than one-third of the Directors (four Directors) are nominated as Outside Directors.

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Principle 4.9  Criteria of determining the independence of outside directors

Please see 1. (1) “Eligibility” and 1. (3) “Independence” of “Criteria for the Selection of Director Candidates and Audit & Supervisory Board Member Candidates.”

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Supplementary Principle 4.11 ①  Policies on the Board of Directors' Overall Balance of Expertise, Experience, Capabilities, Diversity, and Scale

  • Four of the eleven Directors (nine men and two women) and two of the four Audit & Supervisory Board Members (2 men and 2 women) have been appointed from outside the Company to incorporate perspectives independent from management, strengthen monitoring and oversight functions, and conduct highly transparent management. We take into consideration overall balance of the Board of Directors in terms of expertise, experience, and capabilities of Directors and strive to ensure diversity, including that of gender.
  • Outside Director candidates must satisfy the eligibility requirements as defined in the Companies Act and the Insurance Business Act. In addition, with the goal of selecting candidates able to accurately and fairly supervise the overall management of insurance companies, candidates are selected based on consideration of specialized expertise such as that stemming from experience working as a government administration officer, general business company corporate officer, lawyer, and academic as well as specialized expertise regarding social, cultural, and consumer issues.
  • Director candidates other than Outside Director candidates must meet legal eligibility requirements. In addition, with the goal of selecting candidates able to accurately and fairly supervise the overall management of insurance companies, candidates are selected based on consideration of specialized expertise, such as that stemming from extensive experience working as a manager in an insurance company as well as on consideration of varied experience, highly specialized experience, and the ability to exercise leadership in accordance with the Company's corporate philosophy.
  • At least one candidate for Audit & Supervisory Board Member must have sufficient knowledge of accounting or finance.
  • Please note that there are no concerns that the interests of these Outside Directors and Outside Audit & Supervisory Board Members of the various companies will be in conflict, in terms of human, capital, transactions, or other relationships, with the interests of shareholders in general. These Directors and Audit & Supervisory Board Members are independent, and their names as independent outside officers have been filed with the Tokyo Stock Exchange Co., Ltd., and Nagoya Stock Exchange Co., Ltd.

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Supplementary Principle 4.11 ②  A status for concurrent positions of Outside Directors and Outside Audit & Supervisory Board Members

Please see [Important Concurrent Positions] in the “Notice of Convocation of Annual Shareholders Meeting” (page 9-13, page 15, page 31)

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Supplementary Principle 4.11 ③  A summary of the results from analysis and evaluation of overall effectiveness of the Board of Directors.

1. Analysis and Evaluation Process

  • As noted in Chapter 3.5 of “Basic Policies on Corporate Governance,” an analysis and evaluation of the overall effectiveness of the Board of Directors is conducted annually. In fiscal 2016, analysis and evaluation was conducted in accordance with the following process.

(1) Questionnaires conducted for Directors' self-evaluation and its summary

  • A questionnaire consisting of eight questions concerning the roles and responsibilities of the Board of Directors, its operation, etc. was distributed to each Director in advance and the secretariat conducted an interview with each Director based on the questionnaire.
  • In light of implementation of a PDCA cycle, evaluation in fiscal 2016 included whether improvement measures (measures for improving capabilities) which had been formulated based on the evaluation of the Board of Directors in fiscal 2015 were implemented or not.

(2) Exchange of opinions at the Outside Director Council

  • At a meeting of the Outside Director Council (consisting of all the Outside Directors), Outside Directors exchanged opinions about analysis and evaluation based on the results of the questionnaire.

(3) Analysis and evaluation by the Governance Committee and formulation of measures for improving capabilities

  • Following the exchange of opinions in (2) above, the Governance Committee (consisting of all the Outside Directors, the Chairman of the Board of Directors, and the President) conducted analysis and evaluation and formulated measures for improving capabilities by identifying issues to be addressed in fiscal 2017.

(4) Results of the analysis and evaluation are outlined in 2. below. We will implement the improvement measures (measures for improving capabilities) based on the results.

2. Summary of the Results of Analysis and Evaluation

(1) Content of deliberations at the Board of Directors and fulfilling function

<Improved >

  • Concerning deliberations on business strategies and the business plan at meetings of the Board of Directors, the Board of Directors has made steady progress compared with the previous year. For example, the agenda included medium- to long-term issues of the Group.
  • It has become customary practice to deliberate on projects involving significant risks and large-scale new investment projects, including investment overseas, several times before making a decision. Reference materials have been provided that are designed to facilitate deliberations, including materials prepared based on requests of outside officers. Overall, the recognition of the Board of Directors concerning risk-taking has increased.
  • Fixed-point observation of the inculcation and practice of the Group's Corporate Philosophy (Mission), Corporate Vision and Values was conducted, and the results were reported to the Board of Directors. It was confirmed that they have been widely inculcated, as was the case in the previous year. “MS&AD's Story of Value Creation” that shows the linkage of employees' daily activities to the realization of the Corporate Philosophy was formulated and has been communicated internally and externally by presenting it in the Integrated Report, etc.
  • The Board of Directors has gained a deeper understanding of issues related to ESG (environment, society, and governance) as a result of a workshop for executives about the climate change, which was held in response to a request of outside officers.

<To be improved from now on>

  • Concerning deliberations on business strategies and the business plan at meetings of the Board of Directors, it is desirable that the Board of Directors deepen deliberations in light of the rapidly changing business environment, including technological innovation.

(2) Operation of the Board of Directors

<Improved >

  • The Board of Directors operates appropriately, with materials distributed prior to meetings, information provided to Directors as needed, and sufficient time allowed for deliberations. The fact that briefings prior to meetings of the Board of Directors are held well in advance is also a positive factor.
  • Visualization of agenda items has been promoted.
  • As a result of greater application of package deliberation, in which explanation of some agenda items during the meetings is simplified, and the review of the agenda items to be presented to the meetings of the Board of Directors was carried out, it has become possible to secure more time for deliberations on important agenda items regarding strategic decisions. Moreover, opinions and questions stated by outside officers at briefings prior to the meetings of the Board of Directors are now communicated at the meetings of the Board of Directors to secure opportunities for outside officers to state their opinions.

<To be improved from now on>

  • Specialist terminology that appears in agenda items is paraphrased by simpler terms or notes are provided. Efforts should be continued to facilitate understanding of outside officers.

(3) Other

<Improved >

  • Regarding education and provision of information to outside officers, we held workshops (three times in fiscal 2016) on the themes in accordance with the requests of outside officers. In addition, supplementary explanation has been provided for certain themes, taking the opportunities of meetings of the Outside Director Council and the Outside Directors-Audit & Supervisory Board Members Joint Council. Thus, outside officers have greater opportunities for education and access to information than before.

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Supplementary Principle 4.14 ②  Criteria for Directors and Audit & Supervisory Board Members Training

Please see Chapter 3. 8 “Support Systems for Directors and Audit & Supervisory Board Members” in the “Basic Policies on Corporate Governance.

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Principle 5.1  Policies concerning the measures and organizational structures aimed at promoting constructive dialogue with shareholders.

Please see “Policy on Constructive Dialogue with Shareholders” on our company web site.

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