Japan Post Insurance : Disclosure of European Embedded Value as of March 31, 2021

UNOFFICIAL TRANSLATION

Although Japan Post Insurance pays close attention to provide English translation of the information disclosed

in Japanese, the Japanese original prevails over its English translation in the case of any discrepancy.

May 25, 2021

Company Name: JAPAN POST INSURANCE Co., Ltd.

Representative: SENDA Tetsuya, Director and President, CEO, Representative Executive Officer

Stock exchange listing: Tokyo Stock Exchange (Code Number: 7181)

Disclosure of European Embedded Value as of March 31, 2021

Japan Post Insurance Co., Ltd. ("Japan Post Insurance", Director and President, CEO SENDA Tetsuya) discloses its European Embedded Value ("EEV") results calculated on the basis of the European Embedded Value Principles ("EEV Principles") as of March 31, 2021 in order to provide additional information as to the current financial position of Japan Post Insurance.

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Contents
1.	Outline of EEV...............................................................................................................................	3
	(1)	Embedded Value ("EV").........................................................................................	3
	(2)	European Embedded Value ("EEV") .....................................................................	3
	(3)	EEV Approach .......................................................................................................	3
2.	Postal Life Insurance Policies.......................................................................................................	4
3.	EEV Results ...................................................................................................................................	5
	(1)	Adjusted Net Worth ("ANW")................................................................................	5
	(2)	Value of In-Force Covered Business ("VIF") .........................................................	6
	(3)	Value of New Business ..........................................................................................	7
4.	Movement Analysis .......................................................................................................................	8
5.	Sensitivities...................................................................................................................................	10
6.	Notes on the Use of Results.........................................................................................................	13
Appendix A: EEV Methodology ........................................................................................................	14
Appendix B: Main EEV Assumptions ...............................................................................................	18
Appendix C: Third Party Opinion.....................................................................................................	27
Glossary................................................................................................................................................	29

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1. Outline of EEV

(1) Embedded Value ("EV")

EV provides an estimate of the value of future profits distributable to shareholders from the assets and liabilities of the covered business, excluding any value of new business that is expected to be sold in the future. This value is the sum of the adjusted net worth ("ANW") and the value of in- force covered business ("VIF").

The ANW represents the market value of net assets attributed to shareholders and is the sum of the required capital and the free surplus. The VIF is defined as the present value at the valuation date of the expected future profits distributable to shareholders from the in-force covered business and the assets held in respect of insurance policies, including a deduction for the cost of holding the required capital.

The profit pattern of life insurance products is typically that a loss arises at the time of issue, due to acquisition costs, followed by profits arising over the remainder of the term of the business. The profits over the remaining term of the business are typically expected to more than offset the initial losses which arose due to acquisition costs. While profits under the current accounting practices only represents the profit or loss for a single accounting period, the EV includes the present value of future profits from the in-force business. Therefore we consider that the EV is a useful indicator which provides financial information supplementary to the statutory accounting statements.

(2) European Embedded Value ("EEV")

The EEV Principles were first published in May 2004 by the CFO Forum, a group representing Chief Financial Officers of major European insurance companies, in order to improve consistency and transparency in EV reporting. In addition, the CFO Forum issued supplementary guidance regarding disclosures and sensitivities in October 2005.

In May 2016, an amended version of the EEV Principles was published by the CFO Forum which permits the use of projection methods and assumptions aligned with those applied for the European Solvency II regime, which came into effect in January 2016, and equivalent market consistent solvency regimes.

(3) EEV Approach

Japan Post Insurance has adopted a market-consistent approach, in which the cash flows arising from assets and liabilities are valued consistently with similar traded market instruments.

Considering disclosure circumstances in Europe and Japan, Japan Post Insurance's management discloses Japan Post Insurance's EV in accordance with the EEV Principles using a market- consistent approach.

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2. Postal Life Insurance Policies

Japan Post Insurance was established in September 2006, and commenced operations in October 2007, on the basis of the Postal Service Privatization Act of October 2005. Pursuant to the Postal Service Privatization Act, insurance policies held by Japan Post on September 30, 2007 ("Postal Life Insurance policies") were taken over by the Organization for Postal Savings, Postal Life Insurance and Post Office Network ("Postal Management and Support Organization"). The Postal Management and Support Organization ceded 100% of its insurance policies to Japan Post Insurance via a reinsurance agreement.

Japan Post Insurance manages the Postal Life Insurance policies ceded from the Postal Management and Support Organization as a block, separate from other policies. In addition, the contingency reserve and reserve for price fluctuations related to the Postal Life Insurance policies are managed separately. An amount equal to 80% of the profits arising from these policies (including profits arising from the release of the contingency reserve and reserve for price fluctuations, and excluding guaranteed policyholder dividend payments and total income taxes), as well as the fixed amount of guaranteed policyholder dividends, is used to determine the reinsurance dividend paid to the Postal Management and Support Organization. The EEV calculations take into consideration the profits net of this reinsurance dividend.

As the profits arising from the release of the contingency reserve and reserve for price fluctuations related to the Postal Life Insurance policies form a part of the reinsurance dividend paid to the Postal Management and Support Organization, the contingency reserve and reserve for price fluctuations related to these policies are included in the VIF, rather than the ANW, as it is assumed that these reserves will be released in the future.

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3. EEV Results

The EEV of Japan Post Insurance is ¥4,026.2 billion as of March 31, 2021, an increase of ¥701.9 billion from March 31, 2020.

				(in billions JPY)
		March 31, 2020	March 31, 2021		Increase
			(Decrease)
EEV	3,324.2	4,026.2	701.9
	Value of in-force covered business	1,111.8	1,649.3	164.4
	Adjusted net worth	2,212.4	2,376.8
				537.4
		Fiscal year ended	Fiscal year ended		Increase
		March 31, 2020	March 31, 2021		(Decrease)
Value of new business	60.6	(12.7)		(73.3)

1. Adjusted Net Worth ("ANW")
   The ANW represents the value of net assets attributed to shareholders. This is the market value of net assets in excess of policyholder liabilities and other liabilities. The ANW as of March 31, 2021 is ¥2,376.8 billion, an increase of ¥164.4 billion from March 31, 2020, which is largely due to an increase in current year earnings. The breakdown of the ANW is shown in the table below.

(in billions JPY)

		March 31, 2020	March 31, 2021	Increase
		(Decrease)
Adjusted net worth	2,212.4	2,376.8	164.4
	Total net assets on the balance sheet(*1)	1,661.6	1,806.4	144.7
	Reserve for price fluctuation(*2)	226.3	249.7	23.3
	Contingency reserve(*2)	476.6	481.6	4.9
	Others(*3)	61.8	60.9	(0.9)
	Tax effect on the above	(214.1)	(221.8)	(7.6)

(*1)

(*2)

(*3)

As the only subsidiary company is included in covered business described in "Appendix A: EEV Methodology 1. Covered Business", the total net assets are the total net assets as on the consolidated balance sheet, excluding the total amount of accumulated other comprehensive income. In addition, the board benefit trust reported as treasury stock has been added at book value.

Excluding amounts in respect of the Postal Life Insurance policies (i.e. those policies taken over by the Postal Management and Support Organization) that are included in the VIF.

Unrealized gains and losses on securities, loans, and real estate, general reserve for possible loan losses, unfunded retirement benefit obligations (unrecognized prior service cost and unrecognized actuarial differences) and unrealized gains and losses on subordinated debt, excluding amounts related to insurance policies.

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