ERM-based Group Management

The MS&AD Group endeavors to increase its earnings power and capital efficiency while maintaining financial soundness. Toward this end, it practices Group management based on an enterprise risk management (ERM) cycle. It allocates capital to its businesses in accord with its Group Risk Appetite Statement. Its businesses take risks with the allocated capital. The Group exercises appropriate risk control, through the monitoring of return on risk (ROR) and other metrics. Under the Medium-Term Management Plan (2022–25), the ERM Committee will work to enhance the evaluation and management of each business in the Group, considering capital, risk, and return, and to improve the Group’s capital efficiency by flexibly allocating capital to more capital-efficient business opportunities, such as investments in growth businesses.

Integrated Management of Risk, Returns and Capital

To realize its management vision, the Group formulates medium-term management plans in accord with its Group Risk Appetite Statement and holistically manages risk (integrated risk amount), returns (Group Adjusted Profit), and capital (NAV) with the aim of maintaining financial soundness and boosting capital efficiency and risk/return.

ERM Cycle

Group Risk Appetite Statement and ERM practices

To achieve its management vision, the Company sets out the direction and basic concepts of initiatives related to matters such as capital policy and risk appetite, in the Group Risk Appetite Statement which is resolved by the Board of Directors and manages risk, return and capital in a unified manner.
The Company formulates the Group Medium-Term Management Plan consistent with the Group Risk Appetite Statement, and aims to ensure soundness, improve capital efficiency and increase return on risk through an ERM cycle.
When allocating capital for each business and making the Group income and expenditure plan, the Company confirms these are consistent with the Group Risk Appetite Statement.
The Company periodically reviews the necessity of a revision of the Group Risk Appetite Statement in light of the results of stress tests, environmental changes and other factors.

Initiatives to Boost Profitability

To boost capital efficiency while maintaining financial soundness, the MS&AD Insurance Group seeks to earn adequate risk/return through the following initiatives in each of its business domains.

ROR trends

Implementation and promotion of risk management

Our Group has established the MS&AD Insurance Group Risk Management Basic Policy and is implementing risk management based on the basic philosophy shared within the Group. Specifically, our Group promotes risk management by identifying major risk events affecting our business portfolio and evaluating their risk factors both quantitatively and qualitatively.

・Risk Management Basic Policy

・Risk Management Structure

・Three Lines of Defense Structure for Risk Management

・Insurance Business Risks

・Risk Management in International Business

・Crisis Management System (Including Business Continuity Management System) 

Identification and Management of Risks

Our Group designates important risk events that should be addressed by management as “Group Material Risks,” formulates a management action plan, and periodically monitors the status of each risk. In addition to considering the correspondent relationship of each risk event, we are working to control risks based on the scenario of the occurrence of the risk event to be addressed.

 

No.

FY2025 Group Material Risks
(The dotted areas show "main scenarios assumed" for the respective Group Material Risks.
Considerations are points to keep in mind when considering the main scenarios.)
 

1

Occurrence of large-scale natural catastrophes

 (Considerations: Climate Change)

-    Increase in claims paid due to the occurrence of large-scale windstorms, floods, forest fires, blizzards, hailstorms, droughts, earthquakes, volcanic eruptions and other natural catastrophes in Japan and overseas, in part due to climate change
-    Development of a situation in which it is difficult to control risks in line with the Group policy due to rising outward reinsurance premiums and reduced reinsurers' underwriting capacity mainly as a result of the occurrence of large-scale natural catastrophes
-    Development of a  situation in which the occurrence of a large-scale natural catastrophe prevents the Group from properly executing business or delivering services
 

2

Significant changes in financial markets

(Considerations: Inflation)

-    Fall in the value of stocks and other assets held due to a possible stagnation of the global economy and economic activities
-    Decrease in capital adequacy due to fluctuations in interest rates and currency exchange rates as a result of changes in monetary policy of the respective governments in light of price trends, the downgrading of the credit rating of the government bonds due to a lack of fiscal discipline, etc.
 

3

Significant increase in credit risk

(Considerations: Climate Change)

-    Deterioration in performance and  default of investees due to factors such as deterioration in the actual economy, interest rate hikes, financial institutions tightening their credit standards, tighter regulations in view of the transition to a decarbonized society and delay in the necessary actions
-    Fall in value of bonds and other instruments held due to increased risk aversion among investors amid concerns about a global economic slowdown

4

Occurrence of an act that might result in serious damage to the Group’s enterprise value and the loss of social credibility

(Considerations: Conduct Risks, Digitalization, Climate Change, Human Rights)
*    Acts that might result in serious damage to the Group’s enterprise value and the loss of social credibility are those  that violate laws or regulations, disregard the perspectives of customers and other stakeholders, deviate from social norms, or contradict the values of the MD&AD Group (including inaction and acts based on industry practices)

-    Loss of the Group’s social credibility because its mission, vision, values, and customer-focused approach to business operations have failed to permeate the actions of officers and employees, leading to the Group being unable to achieve a customer-oriented approach or a healthy competitive environment
-    Loss of the Group’s social credibility because its actions based on industry practices, its action objectives (including business goals and targets related to sales and claims service) or employee evaluation systems (including systems to assess personnel and agents) disregard the perspectives of customers and other stakeholders
-    Disadvantages for customers due to the design of products or services (including the designs of administrative work and systems) failing to consider their perspectives (needs, suitability, convenience, ease of understanding, etc.)
-    Increase in business disruption or complaints as a result of reorganization, business reforms or system development for the execution of the Group strategies
-    Violations of domestic or local laws or regulations in regions where the Group operates (including laws or regulations regarding unfair competition, unreasonable trade restrictions and the abuse of dominant bargaining positions), and serious labor issues such as excessive working hours or harassment
-    Information leakage, etc. by our Group (including seconded employees) or by subcontractors (including agents or employees seconded from the Group)
-    Occurrence of infringement of rights, inappropriate disclosure, violations of guidelines created by relevant authorities, damage to the Group’s reputation, etc., due to the increasing utilization, changes of regulatory guidlines, changes in public awareness, etc. regarding generative AI.
-    Damage to the Group’s reputation or an increase in financial burdens as a result of insufficient respondence to sustainability issues, including climate change, information disclosure within the Group or violations of human rights and other rights in the course of business activities (including violations involving business partners), as well as any resulting litigation
-    Material errors in disclosed information due to significant deficiencies in internal control over financial reporting, as well as delays or inadequacies in the preparation of the systems required for disclosing consolidated financial statements in accordance with International Financial Reporting Standards (IFRS), and the implementation of economic value-based capital regulations
 

5

Large-scale and serious business delay and/or information leakage as a result of cyber attack

(Considerations: Digitalization)

-    Occurrence of business holdups or information leakage within the Group or at a subcontractor or other business partner due to the global escalation of damage caused by cyber attacks as a result of further digitalization, increasingly sophisticated and diverse cyber attacks (including attacks using generative AI etc., where technological progress is remarkable), and the expansion of the range of the impact of cyber attacks with the expanding use of cloud technology and supply chains.

6

Frequent occurrence of system failure or occurrence of serious system failure, or progress delay and non-attainment of target, budget overrun or failure to achieve expected outcome in large system development

(Considerations: Digitalization)

-    Business and services holdups caused by simultaneous failures of systems for customers and agents due to increased digitalization, damage of system-related facilities due to a large-scale natural disaster or other event, the suspension of fund settlement infrastructure or a communication failure due to a problem or incident involving communications satellites or communications lines, which could also be affected by space weather phenomena
-    Occurrence of a large-scale fault of a system operating for customers and insurance agents in a non-business hours which leads to delays in dealing with customers and others
-    Failure to accomplish the management plan due to progress delay, non-attainment of targets, budget overrun or failure to achieve expected outcome in large system development
 

7

Spread of a new strain of influenza or other infectious disease

(Considerations: Climate Change)

-    Development of situation in which the Group is prevented from properly executing business or delivering services caused by spread of new strains of infectious diseases and protraction of the impact of infectious disease events partly due to the impact of global warming
-    Decline in profitability caused by an increase in claims and benefits paid amid a rise in infections worldwide and long-term stagnation of economic activity due to protraction of the impacts of infectious disease events
 

8

Changes in the insurance market
(Considerations: Digitalization, Climate Change, Falling Birthrate and Aging Population, Inflation)
-    Having a competitive disadvantage in the insurance market due to an inability to implement expected reforms of business models (including sales channels) and business styles in response to changes in industry practices and changes in the environment (including changes in customer awareness and the demands of society)
-    Impact on profit structure caused by decline in the number of car accidents resulting from the advances in driver assistance and autonomous driving technologies
-    Impact on sales strategy from constraints on the supply of equipment or reputational damage as a result of problem with applications, system, IoT equipment or other technology or fraud or administrative error at a subcontractor or other business partner in line with expansion of services before and after coverage and protection
-    Increase in claims paid due to new insurance procucts relating to responses to climate change such as low-carbon and decarbonization technologies, the development of a circular economy, and health and environmental damage caused by chemical substances, etc.
-    Impact on business portfolio from changes in market size and structure caused by declining birthrate, aging population, and depopulation
-    Increase in claims paid and business expenses due to the rise or accumulation of risks associated with changes in the external environment (including changes in the needs of society, the aging of the buildings and equipment of enterprises, etc., and the emergence of cross-country/regional risks such as climate change and cyber risks) or other factors such as inflation (including social inflation)
 

9

Changes in environment surrounding human capital

(Considerations: Falling Birthrate and Aging Population, Digitalization)
-    Gap between management strategies and human capital portfolio, insufficient recruitment and training/upgrading of human resources to eliminate such gap, due to external changes in areas such as the human capital market / labor supply and demand and changes in the skills and expertises necessary for the execution of strategies such as the promotion of DX and international business
-    Decrease in employee engagement, loss of human capital and a decline in hiring capabilities due to insufficient development of environments (including working conditions) that accurately reflect changes in what employees value in their working life such as autonomous career development opportunities, flexible and diverse work styles and respect for diversity and human rights, and inadequate systematic responses to harassment (including harassment by customers)
 

10

Intensifying confrontation and political, economic and social division and polarization between countries and in overseas countries and national security crises

-    Decline in the value of the assets held by the Group, due to concerns regarding financial market fluctuations caused by intensifying confrontation and political, economic and social division and polarization between countries and in overseas countries (including those caused by changes in world leaders, such as the presidents of countries, and the rise of the Global South)
-    Deterioration in performance and default of investees due to situations including but not limited to  deterioration in the actual economy as a result of supply chain disruptions and other obstacles caused by tighter economic security-related regulations around the world
-    Damage to the Group's reputation as a result of an economic security-related issue within the Group or at a subcontractor or other business partner
-    Occurrence of business holdups or information leakage within the Group or at a subcontractor or other business partner and financial burdens due to stricter cybersecurity laws and regulations due to the expansion of damage caused by a global cyber attack resulting from intensifying confrontation between major powers
-    Restriction or suspension of business or withdrawal from business (including personal harm) in a specific country or region due to a change to regulations, military action or other development associated with intensifying confrontation between major powers and the rise of protectionism, subsequent insurance claims paid based on special war risk clauses, and financial burdens due to increased taxation
 

Listed below are events with the potential for medium- to long-term impacts on Group management and events for which the impact and timing are difficult to grasp at present but about which we need to maintain awareness. As Group Emerging Risks, our Group periodically monitors these events.

 

Management of Natural Catastrophe Risk

Control of the Retained Amount of Natural Catastrophe Risk