Millea Holdings, Inc.

Otemachi First Square,
West 10F, 5-1, Otemachi 1-chome,
Chiyoda-ku, Tokyo 100-0004, Japan
(Address of principal executive offices)

Common Stock
American Depositary Shares represented by American Depositary Receipts

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:

Indicate the number of outstanding shares of each of the issuer's classes of capital or common stock as of the close of the period covered by the annual report.

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Indicate by check mark which financial statement item the registrant has elected to follow.

TABLE OF CONTENTS


	Page
Forward-Looking Statements		3
Selected Financial Data		4
Risk Factors		6
Exchange Rates		12
Market Price Information		13
Dividend Policy		14
Major Shareholders		14
Business		16
Management’s Discussion and Analysis of Financial Condition and Results of Operations		40
Directors and Corporate Auditors		73
The Japanese Insurance Industry		76
Regulation		78
Description of Common Stock		82
Taxation		88
Controls and Procedures		91
Code of Ethics		91
Principal Accountant Fees and Services		91
Exemptions from Certain Nasdaq Corporate Governance Rules		92
Where You Can Find More Information		94
Index to Financial Statements		F-1
List of Exhibits
Cross Reference Index for Form 20-F
Signatures
EX-1.1 ARTICLES OF INCORPORATION OF MILLEA HOLDINGS, INC.
EX-1.2 SHARE HANDLING REGULATIONS
EX-7 A STATEMENT EXPLAINING HOW RATIOS IN THE ANNUAL REPORT WERE CALCULATED
EX-8 SUBSIDIARIES OF MILLEA HOLDINGS, INC.
EX-12 CERTIFICATIONS required by Rule 13a-14(a)
EX-13 CERTIFICATION required by Rule 13a-14(b)

We were formed on April 2, 2002 as the holding company for The Tokio Marine and Fire Insurance Company, Limited and The Nichido Fire and Marine Insurance Company, Limited in a statutory share transfer under Japanese law. In connection with our formation and the completion of the statutory share transfer:

• Tokio Marine and Nichido Fire became our wholly owned subsidiaries;

• Tokio Marine de-registered its shares of common stock and American depositary shares from registration under Section 12(g) of the U.S. Securities Exchange Act of 1934, as amended, or the Exchange Act, and terminated its ongoing reporting obligations under Section 12(g) and Section 15(d) of the Exchange Act; and

• Our shares of common stock and American depositary shares were registered under Section 12(g) of the Exchange Act (Commission file number 0-31376).

For a more detailed description of the background to our formation, you should refer to “Business — Group Overview — Formation of Millea Holdings” in this annual report.

As used in this annual report, references to “Millea Holdings”, “we”, “us” and “our” are either to (1) Millea Holdings, Inc., (2) Millea Holdings, Inc. and its direct and indirect subsidiaries, including Tokio Marine, Nichido Fire and Tokio Marine & Nichido Life, or (3) Tokio Marine, Nichido Fire and/or other operating subsidiaries of Millea Holdings, Inc., as the context may require; references to “Tokio Marine” are to The Tokio Marine and Fire Insurance Company, Limited; references to “Nichido Fire” are to The Nichido Fire and Marine Insurance Company, Limited; and references to “Tokio Marine & Nichido Life” are to Tokio Marine & Nichido Life Insurance Co., Ltd. Unless the context otherwise requires, references in this annual report to the business or financial results of “Tokio Marine” refer to those of Tokio Marine and its consolidated subsidiaries, references to the business or financial results of “Nichido Fire” refer to those of Nichido Fire and its consolidated subsidiaries and references to the business or financial results of “Tokio Marine & Nichido Life” refer to those of Tokio Marine & Nichido Life.

As used in this annual report, “dollar” or “$” means the lawful currency of the United States of America, and “yen” or “¥” means the lawful currency of Japan.

As used in this annual report, “U.S. GAAP” means accounting principles generally accepted in the United States of America, and “Japanese GAAP” means accounting principles generally accepted in Japan.

In tables appearing in this annual report, figures may not add up to totals due to rounding.

FORWARD-LOOKING STATEMENTS

This annual report contains forward-looking statements that are based on our current expectations, intentions, assumptions, estimates and projections about our businesses, operations, strategies and plans, about the insurance industry, and about capital markets around the world. Generally, these forward-looking statements can be identified by the use of forward-looking terminology such as “may”, “will”, “expect”, “anticipate”, “estimate”, “plan”, “intend” or similar words. These statements discuss future expectations, identify strategies, contain projections of results of operations or financial condition, or state other forward-looking information. These forward-looking statements are subject to various risks and uncertainties. Known and unknown risks, uncertainties and other factors could cause the actual results to differ materially from those contained in any forward-looking statement. We cannot promise that the expectations expressed in these forward-looking statements will turn out to be correct. Our actual results could be materially different from and worse than our stated expectations. Important risks and factors that could cause actual results to be materially different from those expectations are set forth in “Risk Factors” and elsewhere in this annual report.

SELECTED FINANCIAL DATA

The following selected consolidated financial data of Millea Holdings and its subsidiaries as of and for each of the five years ended March 31, 2004 are derived from the audited U.S. GAAP consolidated financial statements of Millea Holdings for those periods. You should read the information below in conjunction with the U.S. GAAP consolidated financial statements of Millea Holdings, including the related notes, included elsewhere in this annual report.


	As of and for the year ended March 31,
	2004(1)			2003(1)			2002(1)			2001(1)			2000(1)
	(yen in millions, except share numbers, per share data and percentages)
Statement of income data:
Net premiums written	¥	1,945,246		¥	1,898,557		¥	1,381,483		¥	1,323,907		¥	1,297,984
Premiums earned		1,860,203			1,760,968			1,342,962			1,310,739			1,281,548
Life premiums		247,800			262,486			209,208			162,905			130,128
Net investment income		126,173			108,311			104,681			127,852			143,686
Total operating income		2,193,566			2,178,454			1,648,512			1,657,638			1,578,225
Total operating costs and expenses		2,041,299			1,977,146			1,539,844			1,524,604			1,459,136
Income before extraordinary items and cumulative effect of accounting changes		102,882			129,694			75,252			88,675			81,815
Extraordinary items(2)		—			248,323			—			—			—
Cumulative effect of accounting changes, net of tax(3)		—			—			85,465			—			—
Net income		102,882			378,017			160,717			88,675			81,815
Balance sheet data:
Total investments	¥	9,393,222		¥	8,345,203		¥	6,628,825		¥	6,817,944		¥	6,778,995
Total assets		12,200,373			10,893,363			8,559,177			8,216,741			8,174,325
Total stockholders’ equity		3,408,351			2,824,316			2,509,694			2,586,544			2,661,770
Common stock		150,000			150,000			101,995			101,995			101,995
Number of shares issued (in thousands)		1,857	.05		1,857	.05		1,549,692			1,549,692			1,549,692
Number of shares held as treasury stock (in thousands)		68	.99		7	.90(4)		—			—			—
Per share data(5):
Net income — basic and diluted	¥	56,457		¥	203,558		¥	103,709		¥	57,221		¥	52,794
Cash dividends declared(6)	¥	11,000		¥	10,000		¥	8,500		¥	8,500		¥	8,500
	$	100	.52	$	83	.42	$	70	.92	$	68	.15	$	80	.08
Key ratios(7):
Net loss ratio		56	.4%		54	.2%		54	.9%		59	.5%		58	.0%
Combined loss and expense ratios		92	.6%		91	.7%		94	.3%		99	.8%		98	.8%

(1)		Our U.S. GAAP consolidated financial statements for the fiscal years ended March 31, 2004 and 2003, from which some of the data in this table are derived, reflect the inclusion in those financial statements of the results of operations and financial position of Nichido Fire and its consolidated subsidiaries from and after the date of our formation on April 2, 2002. Accordingly, the amounts shown in this table for the fiscal years ended March 31, 2004 and 2003 are not directly comparable to the amounts shown for prior fiscal years. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Overview — Business Combination”.

(2)		Extraordinary items represent unallocated negative goodwill arising from the business combination with Nichido Fire. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Overview — Business Combination”.

(3)		In accordance with the adoption of Statement of Financial Accounting Standards No. 133, “Accounting for Derivative Instruments and Hedging Activities”, as amended, we recognized “Cumulative effect of accounting changes, net of tax” for the fiscal year ended March 31, 2002. See note 1(h) to our consolidated financial statements.

(4)		Includes shares held by our subsidiaries as of March 31, 2003.

(5)		In connection with our formation, each 1,000 shares of Tokio Marine common stock were exchanged for one share of our common stock. See “Business — Group Overview — Formation of Millea Holdings”. To facilitate comparability of the per share data from year to year, the per share data for the years ended March 31, 2003 and 2004 are calculated based on 1.00 of our shares, while the per share data for the years ended March 31, 2002, 2001 and 2000 are calculated based on 1,000 of Tokio Marine’s shares. The per share data are calculated using the weighted average number of shares outstanding for the period.

(6)		The U.S. dollar amounts represent translations of the Japanese yen amounts at the noon buying rates for Japanese yen per $1.00 in New York City for cable transfers in foreign currencies as certified for customs purposes by the Federal Reserve Bank of New York in effect on the respective dividend payment dates.

(7)		The key ratios relate to property and casualty insurance only. The net loss ratio is calculated by dividing the losses incurred by the premiums earned. The combined ratio is the sum of the ratio of loss and loss adjustment expenses incurred to premiums earned and the ratio of underwriting and administrative expenses incurred to premiums written. A combined ratio under 100% represents an underwriting profit and over 100% represents an underwriting loss.

RISK FACTORS

If you own our securities, you should carefully consider the risks described below. Our business, operating results and financial condition could be materially adversely affected by any of these risks.

In addition, this annual report contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including the risks described below and elsewhere in this annual report.

Risks Relating to Our Business

Weak economic conditions in Japan may adversely affect our financial condition and results of operations.

We derive most of our insurance underwriting revenues from Japan. In addition, a substantial majority of the investments in our investment portfolio are invested in Japanese equity securities, bonds and loans. Accordingly, our financial condition and results of operations are very dependent on economic conditions in Japan.

The Japanese economy has experienced a significant downturn since the early 1990s. The Nikkei Stock Average, which is one of the major benchmarks for equity prices in Japan, reached its lowest level in twenty years in April, 2003. While economic conditions improved in the year ended March 31, 2004 and equity prices have risen since late April 2003, the Japanese economy remains unstable and there continues to be uncertainty surrounding the economic environment.

Despite the Japanese government’s announced plans to implement fiscal recovery programs and other measures aimed at improving the economy, the current economic climate in Japan may not improve significantly in the near future. Any weakness in the Japanese economy could have a significant impact on our financial condition and results of operations.

A decline in the Japanese stock market, and other economic factors, may adversely affect our results of operations and financial condition.

We invest our policyholders’ premiums in a portfolio of assets, including Japanese stocks. As of March 31, 2004, equity securities available for sale represented approximately 36.8% of the value of our total investments other than investments in related parties. The market values of these equity securities are inherently volatile and, despite an increase in equity prices in Japan since late April 2003, have generally been declining in recent years. We intend to hold our equity investments for the long term, but we may incur losses on our equity securities portfolio if the Japanese stock market again experiences declines or if other economic factors cause the value of our equity securities to decline. A decrease in the market value of these equity securities could have a significant negative impact on our financial condition and results of operations.

Fluctuations in interest rates may adversely affect our results of operations.

We are subject to interest rate risk due to our investments in fixed income instruments and derivatives as well as deposit-type insurance and long-term insurance liabilities. As of March 31, 2004, fixed income instruments represented approximately 46.4% of the value of our total investments other than investments in related parties. An increase in interest rates decreases the value of our fixed income portfolio and thereby adversely affects our financial condition. An increase in interest rates also decreases the value of our interest rate derivatives positions and thereby adversely affects our results of operations.

However, even though the current value of our fixed income portfolios and derivatives positions would decrease with an increase in interest rates, such decrease would be expected to be more than offset by a decrease in the value of our deposit-type insurance and long-term insurance liabilities. On the other hand, a decrease in interest rates may adversely affect our financial position because the amount of increase in the current value of our liabilities would be expected to exceed the amount of increase in the current value of our fixed income portfolio and derivatives positions.

Despite our hedging and other risk management activities to limit our exposure to changes in interest rates, we still maintain exposure to interest rate risk. See “Management’s Discussion and Analysis of Financial Condition and Result of Operations — Quantitative and Qualitative Disclosures about Market Risk.”

Defaults in our fixed income and loan portfolios may adversely affect our results of operations and financial condition.

Issuers of fixed income instruments and loan borrowers have defaulted and may continue to default on principal and interest payments with respect to fixed income instruments and loans we hold. Economic sluggishness, a decline of equity market prices or real estate prices in Japan, an increase in the number of insolvency procedures in Japan or a combination of these events or other factors may increase defaults by issuers or borrowers. A continuation of, or an increase in, defaults may require us to record losses on our fixed income and loan portfolios.

Our foreign assets and liabilities are exposed to foreign currency fluctuations.

We are holding assets and liabilities denominated in foreign currencies such as the U.S. dollar, the euro and the pound sterling. A decrease in the fair value of assets or an increase in the fair value of liabilities as a result of foreign currency fluctuations could adversely affect our financial position. Fluctuations in foreign exchange rates also create foreign currency translation gains or losses.

Japan is prone to natural disasters that can result in substantial claims under non-life insurance policies.

Japan is subject to earthquakes, typhoons, windstorms, volcanic eruptions and other types of natural disasters, the frequency and severity of which are inherently unpredictable. Over the past several years, changing weather patterns and climatic conditions, such as global warming, have added to the unpredictability and frequency of natural disasters in certain parts of the world and created additional uncertainty as to future trends and exposures. These natural disasters can have a serious impact on property and casualty insurers, depending on the frequency, nature and scope of the disaster, the amount of insurance coverage that the insurer has written in respect of the disaster, the amount of claims for losses, the timing of claims, and the extent to which the insurer’s liability is covered by reinsurance. In order to mitigate the effect of disasters, we set our premium rates at levels which we believe are adequate to accommodate the effect of disasters, and cede certain of the relevant risks to reinsurers under reinsurance policies. However, the occurrence of a natural disaster the severity of which we did not predict, or for which we were not adequately reinsured, could significantly affect our financial position and results of operations. In addition, Japan has been hit by more severe typhoons in the first six months of this current fiscal year than in the same period in the previous years and therefore our financial position and results of operations for the year ending March 31, 2005 could be significantly affected.

We may be required to augment our reserves in case of unforeseen losses.

The insurance business is unlike manufacturing and most other business in that, at the time of a “sale”, when the insurance policy is written and the premium is paid, the “cost of sale” or the payment of a claim for a loss under the insurance policy is not yet conclusively determined. Losses may occur whose type or magnitude was not foreseen by the insurance company or the insurance industry generally at the time the insurance policies were written. If this type of deficiency arises with respect to our insurance liability reserves, we would have to augment our reserves or otherwise incur a charge to earnings, which in turn could have a material adverse effect on our results of operations. Historically, Japanese insurance companies have not experienced these unforeseen losses, unlike insurance companies in other countries. For example, the U.S. insurance industry experienced significant losses with respect to unexpected claims resulting from the harmful effects of asbestos use. Our loss reserves could substantially increase if similar claims are made against our insurance policies for risks which we did not anticipate.

Disasters such as typhoons and earthquakes that affect broad areas could result in an unexpected increase of claims for loss under insurance policies and increase our demand for liquidity. As a result, we may be forced to raise capital at a higher interest rate or sell assets at a lower price than we otherwise would, which could adversely affect our financial condition.

Our financial results may be materially adversely affected by unpredictable events.

Our business, results of operations and financial condition may be materially adversely affected by unpredictable events and their continuous effects. Unpredictable events include single or multiple man-made or natural events that, among other things, cause unexpectedly large market price movements, increases in claims or deterioration of economic conditions of certain countries, such as the terrorist attack on the United States on September 11, 2001 and the outbreak of Severe Acute Respiratory Syndrome, or SARS, in Asia in 2003.

We are subject to risks associated with reinsurance.

Like many other non-life insurance companies, each of Tokio Marine and Nichido Fire uses reinsurance to provide greater capacity to write larger policies, and to control its exposure to extraordinary losses or catastrophes. Reinsurance is a form of insurance that insurance companies buy for their own protection. An insurance company, referred to as a reinsured, reduces its possible maximum loss on risks by giving, or ceding, a portion of its liability to another insurance company, referred to as a reinsurer. Reinsurance is subject to prevailing market conditions, both in terms of price, which could affect our profitability, and in terms of availability, which could affect our ability to offer insurance. In addition, we are subject to credit risk with respect to our ability to recover amounts due from our reinsurers, as the ceding of reinsurance does not relieve us of our liability as the direct insurer to policyholders.

Deregulation, consolidation and the entry of new competitors has intensified competition in the Japanese insurance industry.

Japan’s current Insurance Business Law was adopted in May 1995 and enacted in April 1996. The changes from the old Insurance Business Law include provisions designed to deregulate and increase competition in the life and non-life insurance businesses in Japan, including a provision permitting life insurance companies and non-life insurance companies to enter each other’s business through subsidiaries. In January 2001, the entry of life and non-life insurance companies through subsidiaries into the “third sector” insurance business, such as personal accident, sickness and nursing-care insurance, was fully allowed. Further deregulation in July 2001 allowed life and non-life insurance companies to enter the “third sector” insurance business directly. Also, an amendment to the Law Concerning the Non-Life Insurance Rating Organization in 1998 has intensified competition in the non-life insurance industry in Japan by allowing companies to set their own premium rates. These measures are expected to further increase competition.

This liberalization has also resulted in increased consolidation among non-life insurance companies and the formation of business alliances among non-life and life insurance companies. These groupings currently offer similar insurance products and increasingly seek to compete on the basis of lower premium rates. See “Business — Competition”.

In addition, we face intensified competition in premium rates resulting from the entry into the Japanese insurance market by foreign insurance companies and by companies who currently engage in non-insurance business activities. These foreign insurance companies include some with global operations. These new entrants into the Japanese non-life insurance market are making efforts to expand their market share in areas by offering low premium rates and using direct marketing channels instead of traditional Japanese insurance agency channels.

Our business may be adversely affected by negative developments with respect to other Japanese financial institutions.

Many Japanese financial institutions, including banks, non-bank lending and credit institutions, and insurance companies, have experienced severe asset quality and other financial problems in recent years. Any re-emergence of these problems may lead to severe liquidity and solvency problems for affected financial institutions, which could result in their being liquidated or restructured. Financial difficulties of financial institutions could adversely affect us because as of March 31, 2004, a significant portion of our investments (other than those in related parties) was in banks and other financial institutions.

We may not succeed in executing our growth strategies outside of Japan.

To date, we have derived most of our insurance underwriting revenues from Japan. However, our strategy includes expanding our businesses in markets outside of Japan, in particular by targeting non-Japanese customers in local Asian insurance markets.

By operating and expanding our insurance businesses internationally, we will be exposed to operating risks that do not exist or are less significant in Japan. For example, in many of these markets, we will face barriers to entry in the form of protective regulations or long-standing relationships between potential customers and local insurance companies.

Each of the following additional factors, among others, could affect our future international operations:

• The impact of economic slowdown in economies outside Japan, such as those experienced by many southeast Asian countries in the late 1990’s;

• Unexpected changes in or delays resulting from regulatory requirements;

• Exchange controls;

• Restrictions on foreign investment or the repatriation of profits or invested capital;

• Changes in the tax system or rate of taxation; and

• Social, political and economic risks.

These and other factors could adversely affect our business, financial condition and results of operations.

We may not succeed in executing our growth strategies in other businesses.

As part of our growth strategy, we intend to expand our domestic life insurance business as one of our core businesses. We also intend to develop other businesses, such as asset management, health care and senior citizen related businesses. We may not succeed in competing in these competitive markets, particularly against companies with well-established operations. In addition, we may be required to make significant investments, and devote substantial management and other resources, in order to expand these businesses. If we are unable to compete successfully in these businesses, our results of operations and financial condition may be adversely affected.

The merger of Tokio Marine and Nichido Fire may not create the expected integration benefits.

We have announced our plan to merge our principal subsidiaries Tokio Marine and Nichido Fire in October 2004. We are exposed to the following merger-related risks:

• The expected benefits and synergies of the merger may not be achieved fully or at all;

• A delay in the preparation for the merger or in the integration of operating processes may adversely affect our business operations; and

• Unpredictable events may significantly raise the cost of the merger.

These risks and other merger-related risks may adversely affect our business, financial position and results of operations.

A downgrade in the financial strength ratings of our operating subsidiaries could limit our ability to market products, increase the number of policies being surrendered and hurt our relationships with customers and trading counterparties.

Financial strength ratings, which are intended to measure an insurer’s ability to meet policyholder obligations, are an important factor affecting public confidence in most of our products and, as a result, our competitiveness. A downgrade, or potential downgrade, of the financial strength ratings of our operating subsidiaries, including Tokio Marine, Nichido Fire and Tokio Marine & Nichido Life, may limit our ability to sell our insurance and annuity products, adversely affect our reinsurance business and adversely affect the terms and conditions of the business we conduct with trading counterparties.

Inadequate or failed processes or systems, human factors or external events may adversely affect our financial results.

Operational risk is inherent in our business and can manifest itself in various ways, including business interruptions, information systems malfunctions or failures, regulatory breaches, human errors, employee misconduct and external fraud. These events can potentially result in financial loss or harm to our reputation, or otherwise hinder our operational effectiveness. Our management attempts to control this risk and keep operational risk at appropriate levels. Notwithstanding these control measures, operational risk is part of the business environment in which we operate and we may incur losses from time to time due to operational risk.

Changes in existing, or new, Japanese regulations may materially impact our business, results of operations and financial condition.

Our insurance business is subject to detailed, comprehensive regulation and supervision in Japan. Changes in existing, or new, insurance laws and regulations are unpredictable and beyond our control and may affect the way we conduct our business and the products we may offer in Japan. These changes in existing or new insurance laws and regulations may be more restrictive or may result in higher costs than current requirements.

Changes in mortality experienced by our life insurance and annuity policyholders could significantly affect our results of operations.

The determination of liabilities and premiums for our life insurance and annuity businesses is based on models which involve numerous assumptions and subjective judgments as to mortality and morbidity. There can be no assurance that ultimate actual experience on these products will not differ from management’s estimates. If the actual mortality and morbidity experience differs from management’s estimates, our business, results of operations and financial condition could be materially adversely affected.

Litigation and regulatory investigations may adversely affect our financial results.

We face risks of litigation and regulatory investigation and actions in connection with our operations. Lawsuits, including regulatory actions, may seek recovery of very large, indeterminate amounts or limit our operations, and their existence and magnitude may remain unknown for substantial periods of time. A substantial legal liability or a significant regulatory action could have a material adverse effect on our business, results of operations and financial condition.

It may not be possible for investors to effect service of process within the United States upon us or our directors, executive officers or corporate auditors, or to enforce against us or those persons judgments obtained in U.S. courts predicated upon the civil liability provisions of the federal securities laws of the United States.

We are a joint stock corporation organized under the laws of Japan. All of our directors, executive officers and corporate auditors reside outside of the United States. Many of our and their assets are located in Japan and elsewhere outside the United States. It may not be possible, therefore, for U.S. investors to effect service of process within the United States upon us or these persons or to enforce against us or these persons judgments obtained in the U.S. courts predicated upon the civil liability provisions of the federal securities laws of the United States. We believe that there is doubt as to the enforceability in Japan, in original actions or in actions to enforce judgments of U.S. courts, of liabilities predicated solely upon the federal securities laws of the United States.

Since we are a holding company, our ability to pay operating and financing expenses and dividends depends on the financial performance of our principal operating subsidiaries. Our ability to pay dividends also depends on our own dividend-paying capacity.

As a holding company, our ability to pay operating and financing expenses and dividends depends primarily on the receipt of sufficient funds from our principal operating subsidiaries. Statutory provisions regulate our operating subsidiaries’ ability to pay dividends. If our operating subsidiaries are unable to pay dividends to us in a timely manner, and in amounts sufficient to pay our operating and financing expenses, to declare and pay dividends and to meet our other obligations, we may not be able to pay dividends or we may need to seek other sources of liquidity.

Under the Commercial Code of Japan, we cannot declare or pay dividends unless we meet specified financial criteria on a “parent-only” basis. Generally, we will be permitted to pay dividends only if we have retained earnings on a non-consolidated balance sheet basis as of the end of the preceding fiscal year (determined in accordance with Japanese GAAP).

Risks Relating to Owning Our American Depositary Shares

Foreign exchange rate fluctuations may affect the U.S. dollar value of our American depositary shares and dividends payable to holders of our American depositary shares.

Market prices for our American depositary shares may fall if the value of the yen declines against the U.S. dollar. In addition, the U.S. dollar amount of cash dividends and other cash payments made to holders of our American depositary shares would be reduced if the value of the yen declines against the U.S. dollar.

A holder of American depositary shares has fewer rights than a shareholder and must act through the depositary to exercise those rights.

The rights of shareholders under Japanese law to take various actions, including voting their shares, receiving dividends and distributions, bringing derivative actions, examining a company’s accounting books and records, and exercising dissenters’ rights, are available only to holders of record on a company’s register of shareholders. Because the depositary, through its custodian agent, is the registered holder of the shares represented by our American depositary shares, only the depositary is able to exercise those rights in connection with the deposited shares. The depositary will make efforts to vote the shares represented by our American depositary shares as instructed by the holders of those American depositary shares and will pay to those holders the dividends and distributions collected from us. However, a holder of American depositary shares will not be able directly to bring a derivative action, examine our accounting books and exercise dissenters’ rights through the depositary unless the depositary specifically undertakes to exercise those rights and is indemnified to its satisfaction by the holder of American depositary shares for doing so.

There are restrictions on the withdrawal of certificated shares from our depositary receipts facility.

Each of our American depositary shares represents the right to receive .005 of one share of our common stock. Although we maintain a book-entry fractional share register, a holder of American depositary shares must surrender for cancellation depositary receipts evidencing 200 American depositary shares or any integral multiple thereof in order to withdraw whole shares of our common stock in certificated form. Each depositary receipt evidencing our American depositary shares bears a legend to that effect. In addition, although we have implemented procedures to permit us to repurchase fractional share interests, holders of American depositary shares receiving fractional shares of our common stock will need to combine those interests in order to trade whole shares of our common stock on the Tokyo Stock Exchange or the Osaka Securities Exchange.

EXCHANGE RATES

Fluctuations in exchange rates between the Japanese yen and the U.S. dollar and other currencies affect the U.S. dollar and other currency equivalents of the yen price of our shares. These fluctuations also affect the U.S. dollar amounts received on conversion of any cash dividends. The following table shows noon buying rates for Japanese yen per $1.00 in New York City for cable transfers in foreign currencies as certified for customs purposes by the Federal Reserve Bank of New York for each period indicated:


	Average(1)
Year ended March 31:
2000	¥	110.02
2001		111.65
2002		125.64
2003		121.10
2004		112.75


	High		Low
Month:
March 2004	¥	104.18	¥	112.12
April 2004		103.70		110.37
May 2004		108.50		114.30
June 2004		107.10		111.27
July 2004		108.21		111.88
August 2004		109.00		111.53
September (through September 15) 2004		109.22		110.47

(1)

Average rate for each fiscal year is calculated by using the average of the exchange rates on the last day of each month during that year.

The noon buying rate for Japanese yen on September 15, 2004 was $1.00 = ¥110.34.

MARKET PRICE INFORMATION

Our common stock is listed in Japan on the First Section of Tokyo Stock Exchange, Inc., or the Tokyo Stock Exchange, and on the First Section of Osaka Securities Exchange Co., Ltd., or the Osaka Securities Exchange. Trading of our shares on these exchanges began on April 1, 2002.

American depositary shares, or ADSs, representing shares of our common stock are currently traded in the United States on the Nasdaq National Market under the symbol “MLEA”. Trading of our ADSs on the Nasdaq National Market commenced on April 2, 2002. Each ADS represents .005 of one share of our common stock. As of March 31, 2004, outstanding ADSs represented 4.6% of our outstanding shares.

The following table sets forth, for the periods indicated, the reported high and low sales price per share of our common stock on the First Section of the Tokyo Stock Exchange, as well as the high and low sales price per ADS quoted on the Nasdaq National Market. The table also includes high and low market price quotations from the Tokyo Stock Exchange, translated in each case into U.S. dollars per ADS at the Federal Reserve Bank of New York’s noon buying rate on the relevant date.


	Price per share on the				Translated into U.S.				Price per ADS on the
	Tokyo Stock Exchange				dollars per ADS(1)				Nasdaq National Market
	High		Low		High		Low		High		Low
	(yen)				(US$)				(US$)
Year ended March 31, 2003	¥	1,140,000	¥	706,000	$	45.71	$	30.15	$	44.50	$	29.76
First fiscal quarter		1,140,000		910,000		45.71		34.45		44.50		35.00
Second fiscal quarter		1,050,000		900,000		44.68		37.89		43.98		37.84
Third fiscal quarter		985,000		836,000		40.13		34.76		39.68		34.51
Fourth fiscal quarter		898,000		706,000		37.49		30.15		37.33		29.76
Year ended March 31, 2004	¥	1,710,000	¥	725,000	$	81.03	$	30.66	$	80.05	$	30.75
First fiscal quarter		943,000		725,000		40.11		30.66		39.93		30.75
Second fiscal quarter		1,440,000		924,000		62.07		38.68		62.00		39.60
Third fiscal quarter		1,490,000		1,160,000		68.17		53.18		67.40		54.04
Fourth fiscal quarter		1,710,000		1,290,000		81.03		61.08		80.05		60.78
Year ending March 31, 2005
First fiscal quarter		1,730,000		1,280,000		82.74		56.09		83.00		55.81
Month
March 2004	¥	1,710,000	¥	1,400,000	$	81.03	¥	63.17	¥	80.05	¥	63.50
April 2004		1,730,000		1,500,000		82.74		69.12		83.00		70.05
May 2004		1,600,000		1,280,000		71.24		56.09		73.50		55.81
June 2004		1,640,000		1,450,000		74.48		65.64		74.99		64.85
July 2004		1,690,000		1,530,000		76.75		70.58		77.01		70.63
August 2004		1,640,000		1,440,000		73.82		65.08		74.12		65.80
September (through September 15) 2004		1,540,000		1,470,000		70.24		67.23		70.87		66.88

(1)

U.S. dollar amounts have been translated from yen at the Federal Reserve Bank of New York’s noon-buying rate as of the relevant high and low quotation date or the last available date prior thereto.

The closing price of our shares of common stock on the Tokyo Stock Exchange as of September 15, 2004 was ¥1,480,000.

The above prices for our ADSs are based on inter-dealer prices reported by Nasdaq and do not include retail mark-ups, retail mark-downs or commissions.

DIVIDEND POLICY

In June 2004, we declared cash dividends on shares of our common stock in the amount of ¥11,000 per share and paid ¥19,669 million in respect of our fiscal year ended March 31, 2004. In June 2003, we declared cash dividends on shares of our common stock in the amount of ¥10,000 per share and paid ¥18,491 million (excluding the amount of dividends for shares held by a subsidiary) in respect of our fiscal year ended March 31, 2003.

As a holding company, our ability to pay dividends in the future will depend primarily on our receipt of sufficient funds from our two principal operating subsidiaries, Tokio Marine and Nichido Fire. In addition, under the Commercial Code of Japan, we cannot declare or pay dividends unless we meet specified financial criteria on a “parent-only” basis. Generally, we will be permitted to pay dividends only if we have retained earnings on a non-consolidated balance sheet basis as of the end of the preceding fiscal year (determined in accordance with Japanese GAAP). See “Risk Factors — Risks Relating to Our Business” and “Description of Common Stock — Dividends”.

When apportioning profits in respect of any given fiscal year, we expect to pay stable dividends on our common stock, subject to having retained earnings and to providing sufficient capital to meet our business needs.

MAJOR SHAREHOLDERS

Our ten largest shareholders of record as of March 31, 2004, expressed as a percentage of the total number of our shares then outstanding, were as follows:


	Number of		Percentage of
	whole shares		total shares
Shareholder	held		outstanding(1)
The Master Trust Bank of Japan, Ltd. (Trust Account)		132,147		7.4	%
Japan Trustee Services Bank, Ltd. (Trust Account)		95,771		5.4	%
State Street Bank and Trust Company		83,175		4.7	%
Nats Cumco(2)		83,096		4.6	%
The Bank of Tokyo-Mitsubishi, Ltd.		54,239		3.0	%
The Chase Manhattan Bank N.A. London		41,127		2.3	%
Meiji Yasuda Life Insurance Company		39,187		2.2	%
Mellon Bank Treaty Clients Omnibus		31,121		1.7	%
Trust & Custody Services Bank, Ltd.(3)		28,148		1.6	%
Northern Trust Co. (AVFC) sub-account USL		27,998		1.6	%

Total		616,009		34.5	%

(1)		The number of total shares outstanding equals the number of total issued shares minus the number of treasury shares. As of March 31, 2004, there were 1,788,056 shares of our common stock outstanding.

(2)		Nats Cumco is the corporate nominee holder of common stock deposited for the issuance of ADSs.

(3)		As trustee for Mizuho Trust’s retirement benefits trust account for Mitsubishi Heavy Industries, Ltd.

None of our shareholders listed above has voting rights that are different from voting rights of our other shareholders.

As of March 31, 2004, we had 95,743 shareholders of record, of which 95,064 were Japanese record holders. As of the same date, 66.8% of our outstanding shares were owned by Japanese record holders.

We are not aware of any arrangements that may result in a change of control of us.

The identities of shareholders in companies listed on a Japanese stock exchange, as well as their shareholdings, must be publicly reported in Japan under the following circumstances:

• Reporting by Shareholders. As explained in “Regulation — Reporting of Substantial Shareholdings”, any person who becomes a beneficial owner of more than 5% of the total issued shares of a company listed on a Japanese stock exchange must file a public report concerning their shareholdings with the related local finance bureau.

• We received copies of reports filed on May 14, 2004 with the Kanto Finance Bureau by Mitsubishi Tokyo Financial Group, Inc. on behalf of The Bank of Tokyo Mitsubishi, Ltd., The Mitsubishi Trust and Banking Corporation, Mitsubishi Securities Co., Ltd., Tokyo-Mitsubishi International plc, Mitsubishi Trust Asset Management Co., Ltd. and Tokyo-Mitsubishi Asset Management Co., Ltd. indicating that these entities beneficially owned an aggregate of 110,480 shares as of April 30, 2004, representing 5.95% of the total issued shares and 6.20% of the total shares outstanding as of April 30, 2004.

• We received copies of reports filed on July 15, 2004 with the Kanto Finance Bureau by Barclays Global Investors Japan Trust & Banking Co., Ltd., Barclays Global Investors Japan Limited, Barclays Global Investors, N.A., Barclays Global Fund Advisors, Barclays Global Investors Limited, Barclays Global Investors Australia Limited, Barclays Life Assurance Company Limited and Barclays Capital Securities Ltd. indicating that these entities beneficially owned an aggregate of 107,802 shares as of June 30, 2004, representing 5.81% of the total issued shares and 6.07% of the total shares outstanding as of June 30, 2004.

• Reporting by Listed Companies. Under the Securities and Exchange Law, any company whose shares are listed on a Japanese stock exchange must publicly report information about its major shareholders. We are required to make this disclosure, which generally includes information about a company’s ten largest shareholders of record, as of each March 31 and September 30.

BUSINESS

Group Overview

We were formed on April 2, 2002 as the holding company, a joint stock corporation organized under the laws of Japan, for Tokio Marine and Nichido Fire. Since being formed, we have “spun off” various subsidiaries of Tokio Marine and Nichido Fire, so that those subsidiaries are directly owned by us. See “— Subsidiaries and Affiliates”.

Tokio Marine is the oldest and largest property and casualty insurance company in Japan. It underwrites the full range of property and casualty insurance coverage available in Japan, including voluntary automobile, compulsory automobile liability, fire and allied lines, personal accident, cargo and transit, and hull insurance. Tokio Marine underwrites some lines of property and casualty insurance coverage overseas. It also accepts and cedes reinsurance for certain lines of property and casualty insurance coverage.

Tokio Marine was originally founded in 1879. In 1944, it was consolidated with The Meiji Fire and Marine Insurance Company, Limited and The Mitsubishi Marine and Fire Insurance Company, Limited and was incorporated as a joint stock corporation (kabushiki kaisha) under the Commercial Code of Japan.

Nichido Fire was founded in 1914. Its original core focus was to offer insurance coverage to individuals and households located in regional markets throughout Japan, primarily through its own direct marketing channels.

Nichido Fire now underwrites the full range of property and casualty insurance coverage available in Japan, including voluntary automobile, compulsory automobile liability, fire and allied lines, and personal accident insurance. It also accepts and cedes reinsurance for certain lines of property and casualty insurance coverage.

Formation of Millea Holdings

We were formed as the holding company for Tokio Marine and Nichido Fire through a statutory share transfer that became effective on April 2, 2002. Upon our formation and the effectiveness of the statutory share transfer:

• Issued and outstanding shares of Tokio Marine common stock were exchanged for shares of our common stock in the ratio of 1,000 Tokio Marine shares for 1.00 of our shares;

• Issued and outstanding shares of Nichido Fire common stock were exchanged for shares of our common stock in the ratio of 1,000 Nichido Fire shares for 0.69 of our shares;

• Shareholders of Tokio Marine and Nichido Fire whose names appeared in the registers of shareholders of the two companies as of March 31, 2002 were allotted our shares in amounts based on the ratios described above, and these amounts (including fractional shares of our common stock representing any multiple of .01 of one share) were reflected in our registers of shares and fractional shares; and

• Fractional shares of our common stock representing less than .01 of one share that would otherwise have been allotted to former shareholders of Tokio Marine and Nichido Fire were instead cashed out by us.

After the statutory share transfer became effective, former Tokio Marine shareholders held approximately 83% of the outstanding shares of our common stock and former Nichido Fire shareholders held approximately 17%.

Recent Developments

Proposed Merger of Tokio Marine and Nichido Fire

On March 28, 2003, we, Tokio Marine and Nichido Fire jointly announced the proposed merger of Tokio Marine and Nichido Fire. The merger agreement was executed on May 21, 2004 and was approved by us in Tokio Marine’s and Nichido Fire’s respective annual shareholders’ meetings on June 25, 2004. The merger is scheduled to be completed on October 1, 2004. The English-language name of the new combined entity will be “Tokio Marine & Nichido Fire Insurance Co., Ltd.”, referred to as Tokio Marine & Nichido. Tokio Marine will be the surviving company.

The objectives of the merger are to maximize our corporate value by creating synergies, promoting a growth strategy which combines the strengths of both companies and increasing efficiency through a larger scale of business, and to further reduce costs. The primary business mission of Tokio Marine & Nichido will be to provide customers with the highest quality products and services. In order to achieve this objective, we intend to establish three in-house companies that will focus on personal, commercial and automobile manufacturer/dealer insurance operations. We aim to enhance the expertise and flexibility in each sales channel and market by establishing the in-house company system and intend to thereby maximize the strength of each business. Based on this strategy, we intend to further increase customer satisfaction.

We have successfully completed the first two stages of a three stage integration process. In the first stage, from April 2003 to September 2003, we have determined Tokio Marine & Nichido’s business process and systems requirements. In the second stage, from October 2003 to March 2004, we have conformed the operational procedures of Tokio Marine and Nichido Fire. We are currently in the third and final stage of the integration process, which includes, among others, the testing of the integrated operational procedures. We understand that the integration of the operations of the two companies, including the integration of their products, back offices and systems, carries significant management risks and we therefore have focused and continue to focus on the management of these integration risks.

Merger of Tokio Marine Life and Nichido Life

On October 1, 2003, we merged our subsidiaries Tokio Marine Life and Nichido Life. The English-language name of the new combined entity is “Tokio Marine & Nichido Life Insurance Co., Ltd.” Tokio Marine Life was the surviving company.

Acquisition of Skandia Life Insurance Company (Japan) Limited

On February 2, 2004, we acquired all outstanding shares of Skandia Life Insurance Company (Japan) Limited, or Skandia Japan, for the aggregate purchase price of ¥20 billion from Skandia Insurance Company Ltd. (publ.). Skandia Japan was subsequently re-named Tokio Marine & Nichido Financial Life Insurance Co., Ltd., or Tokio Marine & Nichido Financial Life. Tokio Marine & Nichido Financial Life is primarily engaged in the variable insurance businesses, including variable life insurance, variable universal life insurance and variable annuities.

Commencement of operations of Sino Life Insurance Company Ltd.

In July 2003, we invested RMB1.1 billion in Sino Life Insurance Company Ltd., or Sino Life, resulting in a 24.9% interest in Sino Life. Sino Life has commenced life insurance operations in Shanghai in November 2003 and plans to operate in the Peoples Republic of China primarily in major cities such as Beijing, Nanjing and Hangzhou.

Cooperation with The Nisshin Fire and Marine Insurance Company, Limited

Pursuant to an agreement reached in March 2003, we have entered into a strategic alliance with The Nisshin Fire and Marine Insurance Company, Limited, or Nisshin Fire. This alliance includes cooperation in the marketing for Tokio Marine & Nichido Life’s products and joint proposals by Tokio Marine and Nisshin Fire to Nisshin Fire’s corporate clients and automobile dealer agents. We intend to acquire approximately one-third of the total outstanding shares of Nisshin Fire by March 31, 2005 and to further strengthen our cooperation with Nisshin Fire.

Objects and Purposes

Our objects and purposes, as stated in article 2 of our articles of incorporation, are to engage in the following businesses as an insurance holding company:

• Management of non-life insurance companies;

• Management of life insurance companies;

• Management of specialized securities companies;

• Management of foreign companies engaged in the insurance business;

• Management of any other company which is or may become our subsidiary in accordance with the provisions of the Insurance Business Law of Japan; and

• Any other business pertaining to the foregoing listed businesses.

Corporate Philosophy

In November 2003, we adopted as our corporate philosophy the following:

“Millea Group Corporate Philosophy

The Millea Group is committed to the continuous enhancement of corporate value, with customer trust at the base of all of its activities.

• By providing customers with the highest quality products and services, we will spread safety and security to all around us.

• For fulfilling our responsibility to shareholders, we will pursue global development of sound, growing and profitable businesses.

• For promoting the creativity of each and every employee, we will foster a corporate culture which encourages free and open communications.

• While demonstrating responsible management as a good corporate citizen, we will make a positive contribution to society.”

Principal Executive Offices

Our principal executive offices are located at Otemachi First Square, West 10F, 5-1, Otemachi 1-chome, Chiyoda-ku, Tokyo 100-0004, Japan, and our telephone number is 81-3-6212-3333.

Business Goals and Strategies

In November 2003, we announced our current medium- and long-term business strategy. By implementing our strategy for each business segment, we aim to create the optimum business portfolio and to maximize our corporate value.

Domestic Property and Casualty Insurance Business

Our principal revenue base is our domestic property and casualty insurance business. We view the smooth merger of Tokio Marine and Nichido Fire as a critically important task for a continuous increase of profitability and growth potential. We intend to complete the integration process shortly after the merger and realize merger-related synergies under the new medium-term plan. We aim to increase the revenues of this business by strengthening our underwriting operations with a “Customer First” policy at the base of all business activities and further improving efficiencies by:

• Establishing an in-house company system where separate in-house companies focus on the personal, the commercial and the automobile manufacturer/dealer insurance markets. By combining products, services and administration systems that reflect the needs and characteristics of each market, we intend to implement a growth strategy.

• Seeking to increase sales of third sector products, which we believe is a market with significant growth potential, and to increase over-the-counter sales of insurance products through banks.

• Enhancing sales of comprehensive insurance products that cover a variety of risks for individuals and corporate customers such as “TAP Navi”, “Shimpai Gomuyo Navi”, “Super Insurance” and “Super Business Insurance”. See “— Property and Casualty Insurance”.

• Restructuring our sales network and seeking to build a more efficient and higher quality sales network by expanding the number of large-scale agents and making direct capital investment in some of our agents.

• Seeking to provide customers with high quality claims services by pursuing an innovative business model guided by the three principles of “sincerity”, “professionalism” and “open communication”.

Domestic Life Insurance Business

We plan to expand our domestic life insurance business as one of our core businesses. We aim to strengthen our life insurance subsidiaries and seek revenue growth in this business by:

• Enhancing the efficiencies in the business operations and management of our life insurance business. We merged our life insurance subsidiaries Tokio Marine Life and Nichido Fire Life in October 2003 and renamed the entity Tokio Marine & Nichido Life.

• Strengthening the cooperation between our life insurance business and our property and casualty insurance business.

• Strengthening our variable annuities business through our new subsidiary, Tokio Marine & Nichido Financial Life, which we acquired from Skandia in February 2004.

• Introducing new products, such as the “Anshin Dollar Annuity”, which was launched in January 2004. See “Other Businesses — Life Insurance Business”.

• Shifting more of our management resources to the life insurance business and seeking to implement the following growth strategies:

• Strengthen cross-marketing;

• Expand our sales channels dedicated exclusively to the distribution of life insurance; and

• Promote sales through banks.

Overseas Insurance Business (Including Overseas Reinsurance Business)

To diversify geographically and realize stable revenue growth, we aim to expand our overseas insurance business by focusing on the Asian local insurance market, which we believe has high growth potential and profitability. In April 2003, we transferred our Asian insurance operations to our directly held subsidiary, Millea Asia Pte. Ltd., or Millea Asia. Millea Asia is in charge of planning our business growth strategy in the Asian region (excluding Japan), including through mergers, acquisitions and business tie-ups, such as the acquisition of a 24.9% interest in Sino Life in July 2003, and managing our local Asian subsidiaries. It intends to aggressively pursue the expansion of the business with a focus on what we believe are growing areas, such as China, Taiwan, Thailand, Malaysia and India.

In connection with our overseas reinsurance business, we also intend to diversify natural disaster risk and underwrite reinsurance of catastrophe risk through Tokio Millenium Re Ltd. in order to achieve stable revenue growth by globally diversifying our underwriting risk.

Asset Management and Other Businesses

We intend to expand our asset management business and other businesses, which we believe to have significant potential for synergies with our insurance business.

Asset Management Business

Utilizing the expertise acquired in the investment operations of our insurance companies, we intend to pursue the following measures to further increase our assets and to increase revenue:

• In the retail market, we aim to establish an investment trust/defined contribution business.

• In the wholesale market, we plan to actively launch new products in alternative investment areas such as private equity to expand our product line-up.

• We intend to expand our asset management operations globally through Tokio Marine Asset Management Co., Ltd.

Other Businesses

We plan to selectively expand our insurance-related businesses such as health care and senior citizen-related businesses, the risk consulting business and comprehensive human resource-related services, as well as other existing related businesses, where we believe opportunities for growth exist.

Property and Casualty Insurance

Property and Casualty Insurance Lines

We engage primarily in underwriting voluntary automobile, compulsory automobile liability, fire and allied lines (including earthquake), personal accident, cargo and transit, hull and other lines of property and casualty insurance through Tokio Marine and Nichido Fire, principally in Japan. The following table, prepared on a U.S. GAAP basis, shows a breakdown of our direct premiums written by our principal lines of insurance for each of the periods indicated:


	Year ended March 31,
	2004(1)		2003(1)		2002(1)
	(yen in millions)
Voluntary Automobile	¥	887,750	¥	909,341	¥	708,532
Compulsory Automobile Liability(2)		311,124		308,641		193,557
Fire and Allied Lines(3)		299,481		290,189		198,155
Personal Accident		153,849		157,434		125,183
Cargo and Transit		71,678		67,660		59,964
Hull		19,599		19,173		19,451
Other(4)		235,074		235,025		204,773

Total	¥	1,978,555	¥	1,987,463	¥	1,509,615

(1)		Our U.S. GAAP consolidated financial statements for the fiscal years ended March 31, 2004 and 2003, from which some of the data in this table are derived, reflect the inclusion in those financial statements of the results of operations and financial position of Nichido Fire and its consolidated subsidiaries from and after the date of our formation on April 2, 2002. Accordingly, the amounts shown in this table for the fiscal years ended March 31, 2004 and 2003 are not directly comparable to the amounts shown for the fiscal year ended March 31, 2002. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Overview — Business Combination”.

(2)		Japanese law requires that all automobiles be covered by compulsory automobile liability insurance. See note 1 to our consolidated financial statements.

(3)		Includes earthquake insurance.

(4)		Major “Other” lines of insurance are liability, aviation, workers’ compensation, movables comprehensive, machinery breakdown, contractors’ all-risk, and credit and guarantee insurance and surety bonds.

The following table, prepared on a U.S. GAAP basis, shows a breakdown of each key component of our property and casualty insurance premiums written for the year ended March 31, 2004:


	Direct premiums		Reinsurance premiums		Reinsurance premiums		Net premiums written(1)
	written		assumed		ceded		Amount		%
	(yen in millions, except percentages)
Voluntary Automobile	¥	887,750	¥	6,556	¥	15,807	¥	878,499		45.16	%
Compulsory Automobile Liability(2)		311,124		264,757		242,241		333,640		17.15	%
Fire and Allied Lines(3)		299,481		37,697		66,683		270,495		13.91	%
Personal Accident		153,849		2,518		4,305		152,062		7.82	%
Cargo and Transit		71,678		2,461		8,141		65,998		3.39	%
Hull		19,599		9,748		14,863		14,484		0.74	%
Other(4)		235,074		50,482		55,488		230,068		11.83	%

Total	¥	1,978,555	¥	374,219	¥	407,528	¥	1,945,246		100.00	%

(1)		Net premiums written = direct premiums written + reinsurance premiums assumed – reinsurance premiums ceded.

(2)		Japanese law requires that all automobiles be covered by compulsory automobile liability insurance. See note 1 to our consolidated financial statements.

(3)		Includes earthquake insurance.

(4)		Major “Other” lines of insurance are liability, aviation, workers’ compensation, movables comprehensive, machinery breakdown, contractors’ all-risk, credit and guarantee insurance, and surety bonds.

Voluntary Automobile

Automobile ownership in Japan has grown over the years and there is currently no other country in the world, except the United States, where a greater number of automobiles is owned. According to statistics published by the Japanese Automobile Inspection and Registration Association, as of April 30, 2004, approximately 77 million automobiles were owned in Japan. In line with high level of automobile ownership, the number of automobile accidents and the number of persons injured or killed in automobile accidents have remained at high levels despite various social efforts to reduce the number of accidents. To further the public policy of reducing losses from automobile accidents, the Automobile Liability Security Law provides for owner-operators’ tort liabilities that are more strict than those under the Japanese Civil Code’s general tort theory. Over the years, the average amount of damages awarded by Japanese courts in liability claim cases stemming from automobile accidents has increased, as has the public’s awareness of the risks involved in automobile ownership. According to data gathered by The General Insurance Association of Japan, the industry-wide aggregate amount of direct premiums written for voluntary automobile insurance in Japan rose from ¥2,762.3 billion for the year ended March 31, 1992 to ¥3,688.9 billion for the year ended March 31, 1998 and has since been generally stable. According to data gathered by The General Insurance Association of Japan, the industry-wide aggregate amount of direct premiums written for voluntary automobile insurance in Japan for the year ended March 31, 2004 was ¥3,544 billion (exclusive of premiums for the savings portion).

Until 1998, automobile insurance in Japan generally consisted of one or more of the following principal types of coverage:

• Bodily Injury Liability — covers a policyholder’s liability for bodily injuries to others resulting from the ownership, use or maintenance of an automobile. Compulsory automobile liability insurance (discussed below) also covers bodily injury liability; however the compulsory insurance will not pay above a certain maximum amount determined by Japanese law. This bodily injury liability coverage supplements the compulsory insurance scheme by paying the amount of liability in excess of the maximum amount covered by compulsory insurance. The per-person insured amount under this coverage is generally unlimited.

• Property Damage Liability — covers liability for property damage resulting from the ownership, use or maintenance of an automobile included in the policy. One type of damage typically covered by this policy is damage to another’s vehicle as a result of a collision.

• Passengers’ Bodily Injury — covers bodily injuries of drivers and passengers resulting from collisions or other accidents. Like the self-incurred accident coverage, a fixed amount, without regard to the actual amount of damage, is payable according to a pre-set payment table.

• Physical Damage — covers physical damage to automobiles resulting from collisions, thefts or other accidents.

In 1998, Tokio Marine introduced into the Japanese market an innovative voluntary automobile insurance product called the Tokio Automobile Policy, or TAP. TAP, represented a breakthrough from the pre-liberalized days of standardized premiums and services in Japan. Our objective in developing TAP was to create an indemnity product that met a wide range of customer requirements. TAP’s most notable feature is the offering of bodily injury indemnity insurance. If a policyholder is injured in an automobile accident, a full settlement is paid to the injured policyholder, regardless of who was at fault. Together with broader coverage in connection with any physical damage to automobiles, TAP offers wide compensation coverage that was not previously available under conventional automobile insurance policies. TAP has proven to be an extremely successful product, and we have continuously improved on it. In 2000, Tokio Marine integrated all of its automobile insurance products into TAP, so that all of the features of a TAP policy were available to its automobile insurance policyholders.

In 2000, Nichido Fire launched “Shimpai Gomuyo”, a comprehensive automobile insurance product with bodily injury indemnity coverage similar to TAP. In 2001, Nichido Fire integrated all of its automobile insurance products into “Shimpai Gomuyo”.

In August 2003, we launched a risk-differentiated automobile product to strengthen price-competitiveness and to meet a wide variety of customer needs. Tokio Marine’s “TAP Navi” and Nichido Fire’s “Shimpai Gomuyo Navi” offer insurance coverage for a premium based on characteristics of each customer such as usage of insured automobile, status of the driver’s license in the public classification scheme and age. These products will be integrated and offered under the name “TAP Navi” starting October 1, 2004.

Compulsory Automobile Liability

Under the Automobile Liability Security Law, all automobiles operated on public roads in Japan (with certain minor exceptions) are required to be covered by “compulsory automobile liability insurance”, or CALI, which covers liability for bodily injuries. This type of insurance coverage is required in order to register an automobile and for periodic automobile inspections. Generally, if an automobile is not registered, it cannot legally be operated in Japan. Compulsory automobile liability insurance is designed to serve public policy by ensuring that people injured in automobile accidents receive a minimum payment for their injuries from those who are legally responsible. In light of this public policy, licensed non-life insurance companies in Japan cannot refuse to issue compulsory automobile liability policies except in limited cases.

Under these compulsory insurance policies, the maximum amount of coverage for accidents resulting in death is limited to ¥30 million per person, and the maximum amount of coverage for accidents resulting in permanent disability is limited to ¥40 million per person. The maximum amount for accidents resulting in other injuries is ¥1.2 million per person. Individuals who wish to purchase coverage beyond these maximum amounts may purchase automobile insurance with a bodily injury liability coverage on a voluntary basis (as described above). In order to reduce inconveniences caused by being covered by compulsory and voluntary policies, an insured can submit claims for indemnity under both the compulsory and voluntary policies to the insurance company that wrote the voluntary policy. Prior to April 1, 2002, 60% of all CALI insurance written was required by statute to be reinsured with the government. Since April 1, 2002, all CALI premium portfolios are reinsured with the CALI Reinsurance Pool in which all insurers operating CALI business participate.

Fire and Allied Lines

Fire and allied lines insurance is one of the traditional lines of insurance we write. Fire and allied lines insurance (excluding earthquake insurance, which is described below) generally covers dwelling houses, shops, offices, factories and warehouses and their contents against loss or damage caused by fire, flood, storms, lightning, explosion, theft and other risks. In addition, some policies cover personal accident, third-party liability and loss of income caused by these kinds of events. Some of the products offered under this insurance line are deposit-type insurance.

This type of insurance is written for individual customers to safeguard their personal financial security and for business customers to protect their on-going business operations. This type of insurance also provides mortgage lenders, whether residential or commercial, with protection against loss or damage to mortgaged properties. While the demand for this type of insurance has been steady, its relative share of our overall business has declined as voluntary automobile and compulsory automobile liability insurance and personal accident insurance have grown at a faster pace, due mainly to the rapid motorization of Japanese society.

Under fire and allied lines insurance, insurers may be required to make indemnity payments of a huge aggregate amount in the event of a disastrously large windstorm, flood or other catastrophe. The following table shows information concerning major windstorms and floods in Japan that occurred during the last thirty years.


		Buildings		Buildings
Windstorms and floods	Date	damaged		flooded
Typhoon No. 17 and accompanying weather front	September 1976		11,193		442,317
Typhoon No. 20	October 1979		7,523		37,450
Downpour, July 1982	July 1982		851		52,165
Typhoon No. 10 and accompanying weather front	August 1982		5,312		113,902
Typhoon No. 8 and accompanying weather front.	September 1982		651		136,308
Downpour, July 1983	July 1983		3,669		17,141
Typhoon No. 10	August 1986		2,683		105,072
Typhoon No. 19	September 1991		170,447		22,965
Downpour, August 1993	August 1993		824		21,987
Typhoon No. 18	September 1999		47,150		23,218
Hailstorm, May 2000	May 2000		24,692		43
Downpour, September 2000	September 2000		312		71,291

Source: “Non-Life Insurance in Japan Fact Book 2002-2003”, The Marine and Fire Insurance Association of Japan.

We paid insurance claims of ¥123.2 billion under fire and allied lines insurance with respect to Typhoon No. 19, which occurred in September 1991. This is the largest amount we paid during the last thirty years for a single catastrophic event. Prior to this thirty-year period, particularly when public and non-public measures against disasters were underdeveloped, Japan had experienced typhoons and windstorms that caused heavier damage than those listed in the above table. For example, the Isewan Typhoon of 1959 resulted in over 800,000 damaged buildings and over 300,000 flooded buildings.

Earthquake

Japan is subject to earthquakes. Earthquake risk, however, is not easily underwritten by non-life insurance companies in Japan. This is because the loss that may result from one earthquake could be disastrously large and because the lack of adequate statistical data makes the actuarial analysis ineffective. In 1966, the Japanese government enacted the Law Concerning Earthquake Insurance, which implemented a government-sponsored earthquake insurance program for dwellings and their contents. The program incorporates a partial reinsurance arrangement with the government and limits the maximum insured amount.

We write earthquake insurance under the Law Concerning Earthquake Insurance as an extension of fire insurance coverage for dwellings and their contents. The insured amount for earthquake coverage under these policies does not exceed a range of 30% to 50% of the insured amount for fire insurance coverage, up to a maximum amount of ¥50 million for the dwelling and ¥10 million for its contents. These maximum amounts are all prescribed by law. For the year ended March 31, 2004, our direct premiums written for earthquake insurance policies under the Law Concerning Earthquake Insurance represented 9.2% of our direct premiums written for fire and allied lines.

Under the Law Concerning Earthquake Insurance, the aggregate amount of indemnity payable by all insurers to all policyholders for any one occurrence is limited to ¥4,500 billion. The earthquake risks written by direct insurers, including us, are wholly reinsured with the Japan Earthquake Reinsurance Company Limited, or JER, a private reinsurer in Japan owned by major Japanese non-life insurance companies, including us. This portfolio is protected by (1) an excess of loss reinsurance cover arranged between JER and the Japanese government and (2) another excess of loss reinsurance cover arranged among JER, Toa Reinsurance Company, Limited, or Toa, which is another private reinsurer in Japan, and the original direct insurers, including us, which participate in this insurance cover through retrocession agreements with JER. The maximum amount to be paid by JER for any one occurrence, net of the amount covered by reassurance ceded, is ¥380.0 billion. The maximum amount to be paid by the Japanese government for any one occurrence is ¥3,752.7 billion. The maximum aggregate amount to be paid by the original direct insurers and Toa for any occurrence according to the share specified under the retrocession agreements is ¥367.3 billion. Our share of that amount is approximately 29.5%. The Law Concerning Earthquake Insurance requires that, if there are special needs, such as insufficient existing funds for the payment of indemnity under earthquake insurance policies, the Japanese government will make efforts to arrange for, or to facilitate, financings by non-life insurance companies for these payments.

We also write earthquake insurance for buildings and structures other than dwellings as an extension of fire insurance coverage on a private basis. This earthquake insurance is not entitled to the reinsurance arrangements under the Law Concerning Earthquake Insurance, and a substantial part of the risk associated with these policies is reinsured by reinsurers.

Personal Accident

We write personal accident insurance for individual customers primarily through our agents in Japan. Generally, such insurance covers the insured’s personal injuries caused by certain types of accidents that are set forth in the policy.

Typically, a fixed amount, regardless of the actual damages sustained, is paid according to a pre-set payment table. We offer a variety of personal accident insurance products, including:

• General Personal Accident — covers the insured against a broad range of accidents resulting in personal injuries. A fixed amount of indemnity is paid according to the type of injuries (e.g., death, permanent disability or hospitalization).

• Income Indemnity — covers against the loss of income caused by an injury or illness.

• Overseas Traveler’s Personal Accident — covers against accidents during travel and, if the policyholder has elected a special policy condition, against illness during travel.

• Traffic Accident — covers the insured against collisions with, or accidents occurring on, automobiles, trains, planes, ships and other types of vehicles.

Cargo and Transit

Marine cargo insurance covers goods aboard vessels against risks during international transportation or risks during transportation in coastal seas. The terms of international cargo insurance are generally governed by the Institute Cargo Clauses of the former Institute of London Underwriters, currently the International Underwriting Association. This line of insurance is unique in that it provides coverage against acts of war. Approximately 80% of insurance premiums of our marine cargo insurance is from international cargo. Japanese manufacturers and trading companies are our major clients for international cargo insurance.

The marine cargo insurance business is generally conducted directly by our personnel and not by insurance agents. Insurance premiums written are affected primarily by levels of Japanese import and export trading activity.

Inland transit insurance is usually purchased by the owners of goods to cover physical damage to those goods when they are transported by rail, truck or domestic air transport and when the goods are stored on land incidental to transit. Carriers of the goods, on the other hand, purchase inland transit liability insurance to cover their legal and contractual liabilities that may arise from handling the goods.

Hull

Hull insurance is one of our traditional lines of insurance. Hull insurance covers ocean-going and coastal vessels against loss or damage caused by sinking, stranding, grounding, fire, collision and other maritime accidents. The coverage includes damage to the hull, loss of earnings and liability to others for damages. Hull war risk insurance covers vessels against loss or damage resulting from acts of war. Hull insurance is available not only to vessels in operation but also to vessels under construction for damages caused during the construction period.

Our primary customers in this line are Japanese shipping companies, which operate Japan flag vessels or “flag of convenience” vessels, as well as Japanese shipbuilders. The marketing for these customers is generally conducted by our personnel directly and not by insurance agents or brokers. Our revenues in hull insurance are influenced by the number of vessels that are operated by Japanese shipping companies directly and by foreign shipping companies closely associated with Japanese shipping companies, as well as by the number of vessels being built by Japanese shipbuilders. These are in turn influenced by overall worldwide economic conditions and a number of global competitive factors affecting the respective industries of our customers.

A significant portion of our hull insurance premiums received is denominated in currencies other than the Japanese yen, primarily the U.S. dollar.

Because accidents involving vessels can result in large losses, we properly reinsure these risks with Japanese and overseas reinsurers.

Other Lines

Other types of property and casualty insurance we write include liability insurance, aviation insurance, workers’ compensation insurance, movables comprehensive insurance, contractors’ all-risk insurance, e-risk insurance, nuclear insurance, weather insurance, event cancellation and abandonment insurance, credit and guarantee insurance, and surety bonds. Liability insurance is written primarily for business customers and includes product liability insurance, directors’ and officers’ liability insurance and umbrella liability insurance. Movables comprehensive insurance covers damages resulting from loss, theft or destruction of various types of movable property.

Deposit-Type Insurance Products

Deposit-type insurance products combine a long-term insurance policy with a savings feature. We and other non-life insurance companies in Japan are permitted to attach a savings feature to almost all personal lines of insurance other than compulsory automobile liability insurance. The premium for the insurance portion is accounted for as premium written, and the premium for the savings portion is accounted for as “investment deposits by policyholders”. For the year ended March 31, 2004, premiums written arising from deposit-type policies accounted for 1.8% of our direct premiums written for property and casualty insurance.

These policies, which have terms ranging from two to 64 years, provide for the repayment at maturity of the savings-related portion of the premiums together with interest calculated on that amount at a specified rate. The policyholder knows of the maturity value of the savings-related portion of the policy when he or she takes out the policy. Additional payments may also be made depending upon our investment performance during the term of the policy and other factors. Our repayment of the savings-related portion of the premiums and the payment of interest are conditioned on the policy remaining in effect until maturity. Consequently, where a claim for a total loss terminates the policy, we are released from our obligations to make payments to the policyholder. A total loss occurs in only a small number of cases each year. The policyholder can terminate the deposit-type insurance contract before the maturity date by paying us a pre-determined commission.

The contractual rate of interest credited to the policy varies by product and length of policy and is established at the beginning of the policy. We cannot change the committed interest rate during the policy term, unless under extraordinary circumstances where policy terms are changed pursuant to the Insurance Business Law. Committed interest rates on newly issued policies ranged from 0.06% to 1.60% for the year ended March 31, 2004, 0.10% to 1.60% for the year ended March 31, 2003 and from 0.10% to 2.00% for the year ended March 31, 2002.

The savings-related portion of the premiums received under deposit-type insurance is invested primarily in securities other than equity securities. The investment return may exceed or fall short of the committed interest depending on, among other factors, the expected rate of interest, the market interest rates of these securities and the extent to which the terms of these securities match the terms of the deposit-type insurance policies. We adjust from time to time the committed interest offered on new deposit-type insurance policies to reflect changes in the market levels of interest rates.

Launch of “Cho Hoken” and “Cho Business Insurance”

Tokio Marine and Nichido Fire launched “Cho Hoken”, meaning “Super Insurance”, a jointly developed product, during the fiscal year ended March 31, 2003. Cho Hoken, which we believe is an innovative product in the Japanese market, integrates property and casualty and life insurance coverage for individual customers. We intend to offer opportunities for lifetime security to our customers through the marketing of this product, which is a new business approach to the Japanese insurance market. For corporate customers, we released “Cho Business Insurance”, a comprehensive policy for business activities, which was also jointly developed by Tokio Marine and Nichido Fire, during the fiscal year ended March 31, 2003. Cho Business Insurance offers comprehensive coverage for various risks faced by small and medium-sized corporations, including fire, business interruption, general liability and personal accident of employees.

Premium Rates

A premium under an insurance policy corresponds to the “sales price” of that insurance product. There are two components of a premium: the “pure premium”, which represents the cost of claims payment, and the “loading”, which represents the agent commissions and certain other costs to the insurer. The pure premium is determined by multiplying the amount insured by the applicable premium rate, which represents the probability that the loss covered by the insurance policy will occur. The premium rate is calculated by a formula which, on the basis of the “law of large numbers”, purports to reflect the statistical likelihood that the loss will occur. The “law of large numbers” is a mathematical premise that states that the greater the number of exposures, (1) the more accurate the prediction, (2) the less the deviation of the actual losses from the expected losses and (3) the greater the credibility of the prediction. Out of a large group of policyholders, an insurance company can fairly accurately predict the number of policyholders who will suffer a loss. The Law Concerning Non-Life Insurance Rating Organizations requires that premium rates be “reasonable and appropriate in accordance with the mathematical principles of insurance”, and that they not be “unfairly discriminatory”.

Prior to July 1, 1998, premium rates for certain lines of non-life insurance were established by the rating organization that dealt with that particular line of insurance, such as the Automobile Insurance Rating Organization and the Property and Casualty Insurance Rating Organization. Almost all non-life insurance companies, including us, participate in the activities of these rating organizations, although we are not required to do so. As discussed in “Regulation”, the 1998 amendment to the Law Concerning Non-Life Insurance Rating Organizations abolished this arrangement. Since July 1998, the rating organizations have served in an advisory capacity to the non-life insurance companies. They calculate advisory or “reference risk premium” rates, prepare standard forms of insurance contracts and collect a wide range of insurance-related data. As a result of this liberalization, non-life insurance companies may set their own premium rates for their products. This has had the effect of intensifying the competition in the industry. For some lines of insurance, however, such as earthquake insurance and compulsory automobile liability insurance, non-life insurance companies are obligated to use standardized rates.

Reinsurance

In order to reduce our maximum potential net loss and to maximize the return on our retained risk portfolio, we cede and hedge a portion of our insurance risks to other insurers, reinsurers and investors by way of reinsurance and risk financing tools.

The benefits of reinsurance include the stabilization of profits by reducing fluctuations of loss ratios arising from large or multiple claims, the procurement of greater capacities to write larger risks and the control over exposure to extraordinary losses or catastrophes.

We cede to reinsurers a portion of the risks we underwrite for property and casualty insurance. We pay reinsurance premiums to the reinsurers based upon the risks that are subject to reinsurance. Although a reinsurer is liable to us to the extent of the risks assumed, we remain liable as the direct insurer to policyholders on all these risks.

We cede reinsurance to various reinsurers around the world. These reinsurers are selected primarily for their financial security. We believe that no material amounts are uncollectible from our current reinsurers.

We utilize a variety of reinsurance arrangements, which are classified into two basic types: proportional reinsurance and excess-of-loss reinsurance.

• Proportional reinsurance. This type of reinsurance involves reinsurers sharing a proportional part of the original premiums and losses under the reinsurance cession assumed. This type of reinsurance is used as a means to limit a loss amount on an individual-risk basis. In proportional reinsurance, the reinsurer customarily pays the ceding company a ceding commission, which is generally based upon the ceding company’s cost of acquiring the business ceded and may also include the ceding company’s margin. In most cases, this type of reinsurance is arranged in the form of a reinsurance treaty, where the ceding company is automatically authorized to cede any business under a set of terms and conditions previously agreed upon without obtaining a separate prior consent to each cession from the reinsurers. If the underwriting capacity provided by such a treaty is not sufficient, the ceding company would have to arrange for “facultative reinsurance”, whereby a separate prior consent would have to be obtained from each reinsurer.

• Excess-of-loss reinsurance. This type of reinsurance indemnifies the ceding company against a specified level of loss on underlying insurance policies in excess of a specified agreed amount. Excess-of-loss reinsurance is usually arranged in layers to secure greater capacity with more competitive pricing by offering various levels of risk exposure with different terms for reinsurers with different preferences. This type of reinsurance is commonly used as a means to protect against the occurrence of catastrophes, such as earthquakes and windstorms, by capping the total accumulated amount of losses from the retention on each individual risk after recovery of losses from proportional reinsurance.

We manage our insurance risk portfolio in a manner similar to the concept of “Value at Risk” used in managing risks in the financial markets. We take a mathematical approach in calculating the optimal retention for most lines of risks. Under this approach, potential fluctuations of underwriting results are estimated in terms of risks and returns. The actual amount of risk retained is determined by taking the amount of internal reserves into consideration, together with the outcome of the risk and return analysis. Based on these methods, we believe it adequately controls our exposure per risk and per occurrence.

We assume reinsurance from direct insurers and professional reinsurers as an additional source of income. The premiums we assumed from foreign insurers and reinsurers are generally in foreign currencies, in particular U.S. dollars.

In November 1997, Tokio Marine obtained a ten-year coverage from the capital markets for up to $90 million of specified Tokyo-area earthquake risks through a bond offering by Parametric Re Ltd., a special purpose reinsurance company in the Cayman Islands. The Parametric Re transaction represented the first participation in a “catastrophe bond” by a Japanese insurance company, and was intended to provide us with a long-term, stable and fully collateralized supplemental source of catastrophe coverage through the capital markets. The Parametric Re transaction is indicative of our interest in utilizing traditional and non-traditional resources to respond to the changing needs of clients and the increasing deregulation in the markets.

One of the most important targets of our global risk management through reinsurance is to increase our capital efficiency. We have been purchasing traditional reinsurance to reduce our exposure to natural catastrophe risk in Japan, where most of our natural catastrophe risk is concentrated.

Additionally, Tokio Marine developed a new risk management method by establishing a natural catastrophe risk exchange with other premier insurers and reinsurers including State Farm Automobile Mutual and Swiss Re. This exchange allows its participants to diversify their respective risk portfolios and thereby to improve their capital efficiency. We cede domestic risk and assume overseas risk through this exchange. We execute these transactions (other than transactions with State Farm Automobile Mutual) through Tokio Millennium Agency Ltd., which was launched in May 2003 as a wholly owned subsidiary of Tokio Millennium Re Ltd.

In addition to the natural catastrophe exchange, Tokio Millennium Re and Tokio Marine Global Re assume reinsurance to further diversify our risk portfolio. Tokio Millennium Re specializes in natural catastrophe reinsurance and the alternative risk transfer business. Tokio Marine Global Re assumes traditional reinsurance mainly in South East Asia.

The following table, prepared on a U.S. GAAP basis, shows our reinsurance premiums assumed and ceded, and retention ratio, for each of the periods indicated:


	Year ended March 31,
	2004(1)			2003(1)			2002(1)
	(yen in millions, except percentages)
Direct premiums written	¥	1,978,555		¥	1,987,463		¥	1,509,615
Reinsurance premiums assumed		374,219			325,347			138,362
Reinsurance premiums ceded		(407,528	)		(414,253	)		(266,494	)

Net premiums written	¥	1,945,246		¥	1,898,577		¥	1,381,483

Retention ratio(2)		82	.7%		82	.1%		83	.8%

(1)		Our U.S. GAAP consolidated financial statements for the fiscal years ended March 31, 2004 and 2003, from which some of the data in this table are derived, reflect the inclusion in those financial statements of the results of operations and financial position of Nichido Fire and its consolidated subsidiaries from and after the date of our formation on April 2, 2002. Accordingly, the amounts shown in this table for the fiscal years ended March 31, 2004 and 2003 are not directly comparable to the amounts shown for the fiscal year ended March 31, 2002. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Overview — Business Combination”.

(2)		The retention ratio is calculated by dividing the net premiums written by the total of direct premiums written and reinsurance premiums assumed.

Property and Casualty Losses and Reserves

Loss and Expense Ratios

The following table, prepared on a U.S. GAAP basis, shows information with respect to our loss and expense ratios for our principal lines of property and casualty insurance for each of the periods indicated:


	Year ended March 31,
	2004(1)			2003(1)			2002(1)
	(yen in millions, except percentages)
Voluntary Automobile:
Net premiums written	¥	878,499		¥	898,119		¥	700,890
Net premiums earned		884,201			902,491			703,395
Net loss incurred		509,682			510,457			391,358
Net loss ratio(2)		57	.6%		56	.6%		55	.6%
Compulsory Automobile Liability:
Net premiums written	¥	333,640		¥	280,883		¥	114,903
Net premiums earned		262,082			174,074			109,964
Net loss incurred		207,483			129,482			71,895
Net loss ratio(2)		79	.2%		74	.4%		65	.4%
Fire and Allied Lines:
Net premiums written	¥	270,495		¥	258,981		¥	177,635
Net premiums earned		244,777			239,318			162,627
Net loss incurred		85,335			84,363			64,706
Net loss ratio(2)		34	.9%		35	.3%		39	.8%
Personal Accident:
Net premiums written	¥	152,062		¥	155,077		¥	121,227
Net premiums earned		151,954			155,603			123,976
Net loss incurred		61,290			66,604			53,740
Net loss ratio(2)		40	.3%		42	.8%		43	.3%


	Year ended March 31,
	2004(1)			2003(1)			2002(1)
	(yen in millions, except percentages)
Cargo and Transit:
Net premiums written	¥	65,998		¥	62,373		¥	55,293
Net premiums earned		65,869			62,017			53,864
Net loss incurred		30,877			28,939			27,854
Net loss ratio(2)		46	.9%		46	.7%		51	.7%
Hull:
Net premiums written	¥	14,484		¥	14,200		¥	14,200
Net premiums earned		14,309			14,477			13,709
Net loss incurred		9,932			13,050			9,327
Net loss ratio(2)		69	.4%		90	.1%		68	.0%
Other:
Net premiums written	¥	230,068		¥	228,924		¥	197,335
Net premiums earned		237,011			212,988			175,427
Net loss incurred		143,919			120,786			117,885
Net loss ratio(2)		60	.7%		56	.7%		67	.2%
Total:
Net premiums written	¥	1,945,246		¥	1,898,557		¥	1,381,483
Net premiums earned		1,860,203			1,760,968			1,342,962
Net loss incurred		1,048,518			953,681			736,765
Net loss ratio(2)		56	.4%		54	.2%		54	.9%
Net loss adjustment expenses incurred — unallocated	¥	77,389		¥	76,412		¥	61,449
Ratio of losses and loss adjustment expenses incurred to net premiums earned(A)		60	.5%		58	.5%		59	.4%
Underwriting and administrative expenses incurred	¥	623,819		¥	630,005		¥	482,590
Ratio of underwriting and administrative expenses incurred to net premiums written(3)(B)		32	.1%		33	.2%		34	.9%
Combined loss and expense ratios(4)		92	.6%		91	.7%		94	.3%
Net premiums/direct premiums written ratio		98	.3%		95	.5%		91	.5%

(1)		Our U.S. GAAP consolidated financial statements for the fiscal years ended March 31, 2004 and 2003, from which some of the data in this table are derived, reflect the inclusion in those financial statements of the results of operations and financial position of Nichido Fire and its consolidated subsidiaries from and after the date of our formation on April 2, 2002. Accordingly, the amounts shown in this table for the fiscal years ended March 31, 2004 and 2003 are not directly comparable to the amounts shown for the fiscal year ended March 31, 2002. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Overview — Business Combination”.

(2)		Ratio of (x) net loss incurred to (y) net premiums earned.

(3)		These data are for our property and casualty business only.

(4)		Sum of (A) and (B).

Property and Casualty Reserves

When claims are made by or against a policyholder, any amounts that we pay or expect to pay to the policyholder are referred to as losses, and the costs of investigating, resolving and processing those claims are referred to as loss adjustment expenses. We establish reserves for losses and loss adjustment expenses for claims under property and casualty insurance policies and reinsurance policies. We establish these reserves each year for each principal line of property and casualty insurance. In accordance with U.S. GAAP, we do not establish specific loss or loss adjustment expense reserves until an event that causes a loss has occurred.

Loss and loss adjustment expenses fall into two categories:

• Reserves for reported claims. These reserves are based on our estimates of future payments that will be made in respect of claims, including expenses related to those claims. These estimates are made on a case-by-case basis and are based on the facts and circumstances available at the time the reserves are established. These estimates reflect the informed judgment of the claims personnel based on general insurance reserving practices and knowledge of the nature and value of a specific type of claim. These reserves are periodically adjusted in the ordinary course of settlement and represent the estimated ultimate costs necessary to bring all the pending reported claims to final settlement. Consideration is given to historic trends and disposition patterns and loss payments, pending levels of unpaid claims and types of coverage.

• Reserves for incurred but not reported claims. These reserves are established to recognize the estimated cost of losses that have occurred but as to which we do not yet have notice. These reserves, like reserves for reported claims, are established to recognize the estimated costs, including expenses, necessary to bring claims arising out of losses to final settlement. Since nothing is known about the occurrence of the losses, we rely on our past experience to estimate our liability in respect of incurred but not reported claims. These reserves are estimates that involve actuarial and statistical projections of the expected cost of the ultimate settlement and administration of claims. The analyses are based on facts and circumstances known at the time, predictions of future events, estimates of future inflation and other demographic and economic factors. Late reported claim trends, claim severity, exposure growth and future inflation are some of the factors used in projecting reserve requirements for incurred but not reported claims. These reserves are reviewed and revised periodically as additional information becomes available and actual claims are reported.

We factor in the following loss development information, among others, when establishing reserves for incurred but not reported losses:

• For fire and allied lines insurance: (1) substantially all losses are paid or recognized within one year from the casualty date and (2) substantially all underwriting risk is assumed in Japan.

• For liability and workers’ compensation insurance: (1) approximately 90% of losses are recognized within two years from the casualty date and (2) for underwriting risk assumed outside Japan, we make reserves based on reports from actuaries in the relevant countries.

• For automobile, personal accident, cargo and transit, hull and all other insurance: (1) except for physical damage claims under automobile insurance, substantially all losses are paid or recognized within two years from the casualty date, (2) for physical damage claims under automobile insurance, approximately 90% of all losses are paid or recognized within one year and (3) substantially all underwriting risk is assumed in Japan.

The ultimate cost of losses and loss adjustment expenses is subject to a number of highly variable circumstances. From when a claim is reported to when it is finally settled, a change in circumstances may require established reserves to be adjusted either upwards or downwards. Items such as changes in the legal environment, results of litigation, changes in medical costs, costs of automobile and home repair materials and labor rates can substantially impact claim costs. These factors can cause actual developments to vary from expectations, and in some cases materially. Claim reserve adjustments are periodically reviewed and updated, using the most current information available to management, and any adjustments resulting from changes in reserve estimates are reflected in current results of operations.

We believe, based on information currently available to us, that our property and casualty reserves are adequate. However, the establishment of loss reserves is an inherently uncertain process. Accordingly, ultimate losses may differ from our initial estimates.

Reconciliation of Beginning and Ending Reserves

The following table, prepared on a U.S. GAAP basis, is a summary reconciliation of our beginning and ending reserves for property and casualty insurance, including the effect of reinsurance ceded, for each of the periods indicated:


	Year ended March 31,
	2004(1)			2003(1)			2002(1)
	(yen in millions)
Balance at beginning of year	¥	1,131,884		¥	875,463		¥	854,952
Less reinsurance recoverables		342,132			247,861			255,696

Net balance at beginning of year		789,752			627,602			599,256

Adjustment in connection with the acquisition		—			141,940			—
Incurred related to:
Current year insured events		1,116,582			1,029,655			802,061
Prior years insured events		9,325			438			(3,847	)

Total incurred		1,125,907			1,030,093			798,214

Paid related to:
Current year insured events		588,432			590,791			481,710
Prior years insured events		446,825			417,105			288,158

Total paid		1,035,257			1,007,896			769,868

Foreign currency translation adjustments		(1,473	)		(1,987	)		—
Net balance at end of year		878,928			789,752			627,602
Plus reinsurance recoverable		342,217			342,132			247,861

Balance at end of year	¥	1,221,146		¥	1,131,884		¥	875,463

(1)

Our U.S. GAAP consolidated financial statements for the fiscal years ended March 31, 2004 and 2003, from which some of the data in this table are derived, reflect the inclusion in those financial statements of the results of operations and financial position of Nichido Fire and its consolidated subsidiaries from and after the date of our formation on April 2, 2002. Accordingly, the amounts shown in this table for the fiscal years ended March 31, 2004 and 2003 are not directly comparable to the amounts shown for the fiscal year ended March 31, 2002. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Overview — Business Combination”.

Prior year claims and expenses incurred, as reflected in the preceding table, resulted principally from re-estimating and settling claims established in earlier accident years in amounts that differed from expectations.

Operations

Sales and Marketing

In addition to our head offices, which are located in Tokyo, Tokio Marine had 67 branches and 313 sub-branches located throughout Japan, and Nichido Fire had 37 branches and 221 sub-branches located throughout Japan, as of March 31, 2004. Branches and sub-branches carry out ordinary insurance activities, such as loss adjustment and claim settlement, in specified geographical areas or for certain categories of industries, all at their own discretion within authorized limits. Certain activities in the branches are under the control of Tokio Marine and Nichido Fire’s head office in Tokyo, including all reinsurance business and transactions involving amounts which exceed the branches’ authorized limits.

Non-life insurance in Japan is sold primarily through a network of full- and part-time insurance agents. As of March 31, 2004, Tokio Marine had 51,154 insurance agents throughout Japan. As of the same date, Nichido Fire had 21,856 insurance agents apart from 1,205 employees of its direct sales staff. These agents include corporations and individuals. In addition to the traditional agency system used to sell insurance products, since April 2001, as a result of insurance industry deregulation, Japanese commercial banks have been permitted to sell certain insurance products of their affiliated insurance companies at their branch offices. We utilize commercial banks, with their national and regional networks of branches, as a distribution channel for our products. Agents have historically been compensated on a commission basis, with rates varying according to the type of insurance and the qualifications of the agents. We recently introduced a new compensation system that uses individual performance criteria to a greater extent in determining compensation for agents. Insurance agents in Japan are required to be registered with the Financial Services Agency, or the FSA.

Our agents in Japan are authorized to write substantially all lines of insurance. Approximately 93% of our total direct premiums written (including deposits received) in the year ended March 31, 2004 originated through our agents. Through our underwriting agents, subsidiaries and affiliates, we sell insurance in 39 countries and territories overseas, including the United States, where we sell insurance in all 50 states. Approximately 4% of our direct premiums written for the year ended March 31, 2004 originated from policies written outside of Japan.

Tokio Marine and Nichido Fire adopted an on-line agency system in 1991 and continuously expanded this system, which allows for greater efficiency in the contract process by allowing agents to directly input and access contract data. As of March 31, 2004, this on-line system was available for approximately 230,000 users on a combined basis. The number of contracts whose terms were directly input by Tokio Marine’s and Nichido Fire’s agents using this system was approximately 12 million in the year ended March 31, 2004.

We have made efforts in developing the on-line systems for agents to increase work efficiency and strengthen sales capabilities at both insurance companies and agents. During the fiscal year ended March 31, 2003, Tokio Marine and Nichido Fire began to develop “Millea Partners Net”, a new on-line system for agents utilizing broadband communications. As of March 31, 2004, “Millea Partners Net” was used by approximately 26,000 agents of Tokio Marine with an aggregate of 76,000 users and 10,500 agents of Nichido Fire with an aggregate of 15,500 users.

Claims Processing

Claims of policyholders are accepted for processing either by insurance agents or directly by us at our branch offices. There is great customer demand for quick claims processing at a nearby office. In view of the intensifying competition among various sectors in the insurance and other financial markets in Japan, we have focused on expediting claims processing in order to satisfy customer needs. We handle calls from our policyholders involved in accidents throughout Japan from our toll-free line 24 hours a day. In August 2003, we launched a new service which includes giving advice immediately after an accident, making initial contact to hospitals and repair yards and offering expert assistance with car troubles and health problems. By offering such services over the telephone, we aim to mitigate our customers’ anxiety at the outset of an accident. For policyholders of our overseas travel accident insurance, we have facilities to respond to phone calls from policyholders traveling anywhere in the world and provide appropriate services to these customers. As of July 1, 2004, there were 217 claims handling offices for Tokio Marine and 132 claims handling offices for Nichido Fire throughout Japan, including their branch offices, that engage in claims processing work.

Nichido Fire Operational Reform Order

On August 20, 2004, Nichido Fire received an operational reform order from the FSA in connection with inappropriate conduct involving one of Nichido Fire’s direct sales staff. In response to the reform order, Nichido Fire has submitted an operational reform plan to the FSA. Nichido Fire has started to implement reforms based on the plan, and after the merger, Tokio Marine & Nichido intends to continue the efforts to address the issues presented in the FSA operational reform order.

Life Insurance Business

Following an amendment to the Insurance Business Law, which permitted non-life and life insurance companies to enter one another’s markets through subsidiaries, Tokio Marine established The Tokio Marine Life Insurance Company, Limited, or Tokio Marine Life, in August 1996 to carry out its life insurance business. In addition, Nichido Fire established The Nichido Life Insurance Co., Ltd., or Nichido Life, in 1996. Since these two subsidiaries were established, our life insurance business has experienced rapid growth. The number of existing policies exceeded one million during the year ended March 31, 2003. In April 2003, we made Tokio Marine Life and Nichido Life our direct subsidiaries and merged the two subsidiaries on October 1, 2003. The surviving entity was named Tokio Marine & Nichido Life Insurance Co., Ltd., or Tokio Marine & Nichido Life.

We are focusing our sales efforts on lapse-supported type life insurance products, such as “Nagawari”, which is described below. We seek to position these products to compete with existing life insurance companies by offering competitive premium rates. Currently, our main products include comprehensive lifetime insurance, fixed term insurance and pension insurance.

We see product innovation as a core element of our strategy and work to develop new products that will satisfy our customers’ needs. For example, Tokio Marine Life’s “Nagawari” is a lapse-supported whole-life insurance product which allows us to offer lower premiums by making use of high surrender charge. In 1998, Tokio Marine Life launched “Mittsu-no-Anshin”, or “Triple Coverage”, a new type of comprehensive whole-life insurance combining coverage for hospitalization, nursing care and death benefits, won an innovative-product award in February 1998 from the Nihon Keizai Shimbun, the Japanese daily business journal. In 1999, Tokio Marine Life launched “Nagawari Mittsu-no-Anshin”, a product which combines the characteristics of the two previously released products. In 2002, Tokio Marine Life revised its “Household Income Coverage” insurance, a fixed term insurance product which covers household income by monthly payment of insurance money for a reasonable premium. In January 2004, we launched “Anshin Dollar Annuity”, a U.S. dollar denominated annuity, in the Japanese market through Tokio Marine & Nichido Life.

In February 2004, we acquired Skandia Japan, which was primarily engaged in the variable insurance and individual variable annuity businesses, and subsequently positioned it as our directly held subsidiary, Tokio Marine & Nichido Financial Life. We intend to further strengthen our variable annuity business by leveraging the expertise and existing infrastructure of Skandia Japan and utilizing synergies with our existing businesses.

We utilize our property and casualty insurance business’s nationwide network of insurance agents to sell life insurance products. We rely largely on our property and casualty insurance business agents for marketing and sales. We plan to further strengthen cross-selling of life and non-life insurance products. To achieve this, in 2002, we started utilizing “promoters”, who are sales support personnel to assist insurance agents in marketing life insurance products. We also increased the number of “Life Partners”, our direct sales staff for life insurance. We also aim to further strengthen other distribution channels such as agents specializing in life products and sales through banks.

Since we began operations, we have steadily expanded our life insurance business, actively introducing and marketing innovative products. Our total insurance-in-force as of March 31, 2004 was ¥13.8 trillion, compared to ¥11.9 trillion as of March 31, 2003.

Third Sector Insurance Business

In the Japanese insurance industry, the “third sector” refers to insurance products and services that do not fall within the traditional life and non-life insurance areas, such as personal accident, medical and cancer insurance, and insurance covering expenses for nursing care. Since the deregulation in January 2001 and further in July 2001, we have been offering through our life insurance as well as property and casualty subsidiaries cancer and medical insurance products. In 2003, Tokio Marine Life released “Medical Mini”, a medical insurance product featuring simplified terms and conditions at an affordable price, thereby continuing to expand its business in this area.

Overseas Operations

Our overseas business dates back to 1880, when Tokio Marine started offering insurance products in the United Kingdom, France and the United States. As of March 31, 2004, we maintained branch offices in the United States and China and overseas offices in 29 other countries, territories and jurisdictions.

We issue insurance policies in 39 countries and territories outside of Japan. A substantial portion of these policies is for overseas subsidiaries and affiliates of our corporate customers in Japan. Most of our overseas underwriting business is conducted by Tokio Marine as well as by the following principal subsidiaries and affiliates:

• Asia and Oceania — The Tokio Marine and Fire Insurance Company (Hong Kong) Limited and The Tokio Marine and Fire Insurance Company (Singapore) Pte. Limited and Tokio Marine Management (Australasia) Pty. Ltd.

• The Americas — Tokio Marine Management, Inc., First Insurance Company of Hawaii, Ltd., Tokio Marine Compañia de Seguros, S.A. de C.V., Tokio Marine Brasil Seguradora S.A. and Tokio Millennium Re Ltd.

• Europe, the Middle East and Africa — Tokio Marine Europe Insurance Limited and Tokio Marine Global Re Limited.

One of our objectives is to expand the profitability and size of our international operations simultaneously on a coordinated basis, with particular emphasis on Asia.

In December 2002, we launched Millea Asia Pte. Ltd. as an intermediate holding company in Singapore to facilitate the growth of our Asian insurance business. We transferred the Asian insurance management operations of Tokio Marine to the new company in April 2003. Millea Asia is in charge of planning our business growth strategy, pursuing business tie-ups and merger and acquisitions opportunities, and managing our local subsidiaries in the Asian region (excluding Japan). In December 2002, Millea Asia invested in Newa Insurance Co., Ltd., a property and casualty insurance company in Taiwan. In July 2003, Millea Asia, together with Tokio Marine, acquired a 24.9% interest in Sino Life Insurance Co., Ltd., a life insurer in China.

Investments

We invest in a portfolio of assets using funds which represent either (1) our general funds, including that portion of net premiums written that have not been disbursed as claims payments or (2) that portion of deposit premiums by policyholders under deposit-type insurance that are not due for refund to the policyholders.

Our principal investment objectives are: first, to maintain the high quality of our investment assets in order to strengthen our claim payment capabilities; second, to maintain sufficient liquidity to timely meet the requirements of indemnity payments and payments of maturity refunds and dividends; and third, subject to satisfying the first two objectives, to obtain the highest possible return on our investments. We also seek to maintain and enhance our business relationships with major corporate customers in Japan by investing in the equity securities of those customers on a long-term basis.

We engage in asset-liability management with respect to long-term assets and liabilities, seeking a stable present net asset value by controlling interest rate risk. We also seek to increase profit by investing flexibly in various assets that we believe will produce profits commensurate with the associated risks.

The Japanese government’s regulations concerning non-life insurance companies specify the types of assets in which they can invest, and also set upper limits on various kinds of investments based on a percentage of the book value of total assets. For example, investment in domestic stocks is limited to 30% of the book value of total assets, real estate to 20%, and assets in foreign currency to 30%. Under special circumstances, the FSA may approve investments in excess of these limits.

Our investment portfolio consists primarily of Japanese and foreign equity securities, Japanese and foreign bonds and loans to Japanese companies. The following table, prepared on a U.S. GAAP basis, shows our investments as of each date indicated:


	As of March 31,
	2004(1)		2003(1)		2002(1)
	(yen in millions)
Investments — other than investments in related parties:
Securities held to maturity, at amortized cost	¥	1,109,861	¥	883,336	¥	470,188
Securities available for sale:
Fixed maturities, at fair value		3,209,582		3,421,624		2,002,069
Equity securities, at fair value		3,457,374		2,534,221		2,693,591
Trading securities, at fair value		48,513		25,936		—
Mortgage loans on real estate		129,076		148,655		144,323
Investment real estate		104,110		82,886		96,967
Policy loans		33,610		29,171		20,615
Other long-term investments		419,199		559,004		535,666
Short-term investments		881,897		660,370		665,406

Total investments	¥	9,393,222	¥	8,345,203	¥	6,628,825

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Securities Available for Sale

The following table, prepared on a U.S. GAAP basis, shows our investments in securities available for sale by type (other than in related parties) as of each date indicated:


	As of March 31,
	2004(1)		2003(1)		2002(1)
	(yen in millions)
Japanese fixed maturities	¥	2,747,031	¥	2,865,672	¥	1,576,596
Foreign fixed maturities		462,551		555,952		425,473

Total fixed maturities		3,209,582		3,421,624		2,002,069

Japanese equity securities		3,301,699		2,343,710		2,515,023
Foreign equity securities		155,675		190,511		178,568

Total equity securities		3,457,374		2,534,221		2,693,591

Total securities available for sale	¥	6,666,956	¥	5,955,845	¥	4,695,660

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Japanese bonds. We invest in Japanese government bonds, local government bonds and corporate bonds, which generally yield higher returns on investment, yet are nearly as liquid, when compared with deposits and savings or call loans. We purchase Japanese bonds primarily to meet future obligations arising from insurance and investment contracts.

Foreign bonds. We invest in government and corporate bonds of foreign issuers with a view toward generating interest income which is generally higher as compared with investments in Japanese bonds under recent market conditions. We also invest with a view toward maintaining a certain degree of liquidity in our assets in the event of a major natural disaster in Japan that temporarily incapacitates the Japanese financial and monetary system and necessitates indemnity payments under our policies. We manage and control foreign exchange exposures within certain parameters, primarily by using forward exchange contracts and currency options.

Japanese equities. As part of our investment activities, we invest in equity securities of Japanese companies, primarily in equity securities listed on the Tokyo Stock Exchange, consistent with our overall investment objectives. We also seek to maintain and enhance our business relationships with major corporate customers in Japan by investing in the equity securities of those customers on a long-term basis.

Loans

The following table, prepared on a U.S. GAAP basis, shows our investments in loans (other than those to related parties) as of each date indicated:


	As of March 31,
	2004(1)		2003(1)		2002(1)
	(yen in millions)
Mortgage loans on real estate	¥	129,076	¥	148,655	¥	144,323
Mortgage loans on vessels and facilities(2)		20,356		22,125		25,061
Collateral and bank-guaranteed loans(2)		18,542		22,096		29,800
Unsecured loans(2)		357,504		440,997		404,419
Policy loans		33,610		29,171		20,615

Total	¥	559,088	¥	663,044	¥	624,218

(1)		Our U.S. GAAP consolidated financial statements for the fiscal years ended March 31, 2004 and 2003, from which some of the data in this table are derived, reflect the inclusion in those financial statements of the results of operations and financial position of Nichido Fire and its consolidated subsidiaries from and after the date of our formation on April 2, 2002. Accordingly, the amounts shown in this table for the fiscal years ended March 31, 2004 and 2003 are not directly comparable to the amounts shown for the fiscal year ended March 31, 2002. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Overview — Business Combination”.

(2)		Included in “other long-term investments” in our balance sheet prepared in accordance with U.S. GAAP.

Most of our loans are to corporate borrowers in Japan. Since the financial needs of major corporate borrowers are at a low level under present economic conditions, and because these borrowers tend to look more to capital markets in raising funds, the aggregate amount of our loans outstanding has declined over the last few years. In addition, we liquidated a portion of our loans in order to improve our risk/return profile. The increase in loans outstanding as of March 31, 2003, when compared with loans outstanding as of March 31, 2002 results solely from the inclusion of Nichido Fire.

Short-Term Investments

The following table, prepared on a U.S. GAAP basis, shows our short-term investments by type as of each date indicated:


	As of March 31,
	2004(1)		2003(1)		2002(1)
	(yen in millions)
Call loans	¥	587,092	¥	440,093	¥	403,700
Commercial paper		21,599		599		61,472
Deposits and other invested cash		273,206		219,678		200,234

Total	¥	881,897	¥	660,370	¥	665,406

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Our U.S. GAAP consolidated financial statements for the fiscal year ended March 31, 2003, from which some of the data in this table are derived, reflect the inclusion of Nichido Fire and its consolidated subsidiaries from and after the date of our formation on April 2, 2002. Accordingly, the amounts shown in this table for the fiscal years ended March 31, 2003 are not directly comparable to the amounts shown for the fiscal year ended March 31, 2002. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Overview — Business Combination”.

Call loans are short-term loans, with maturities generally ranging from overnight to three weeks, that are made to banks, securities companies and money market dealers. We invest in call loans in order to maintain necessary liquidity in our investment portfolio while seeking to generate returns based on interest rates that reflect current market conditions.

Investment Results

The following table, prepared on a U.S. GAAP basis, shows our investment results for each of the periods indicated:


	Year ended March 31,
	2004(1)			2003(1)			2002(1)
	(yen in millions)
Investment income:
Interest on fixed maturities	¥	73,683		¥	65,762		¥	51,913
Dividends from equity securities		36,692			32,785			29,409
Interest on mortgage loans on real estate		3,286			3,715			4,219
Rent from investment real estate		12,501			12,817			12,907
Interest on policy loans		1,280			1,156			830
Interest on other long-term investments		9,339			11,475			11,802
Interest on short-term investments		4,313			5,677			4,113
Others		1,850			1,715			7,987

Gross investment income		142,944			135,102			123,180
Less investment expenses		16,771			26,791			18,499

Net investment income		126,173			108,311			104,681

Realized gains (losses) on investments:
Fixed maturities		(8,399	)		11,553			8,244
Equity securities		4,645			(37,957	)		(11,900	)
Other investments		(101	)		(3,471	)		2,636

Realized losses on investments		(3,855	)		(29,875	)		(1,020	)

Gains (losses) on derivatives:
Interest rate swaps		(45,775	)		68,011			28,204
Foreign exchange contracts		7,458			11,688			(25,231	)
Credit default swaps		6,797			(3,996	)		(9,662	)
Other		(5,235	)		861			(630	)

Gains (losses) on derivatives		(36,755	)		76,564			(7,319	)

Total net investment income, realized losses on investments and gains (losses) on derivatives	¥	85,563		¥	155,000		¥	96,342

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Subsidiaries and Affiliates

Significant Subsidiaries

The following were our significant subsidiaries as of March 31, 2004, all of which were wholly owned and incorporated in Japan, except as otherwise noted: The Tokio Marine and Fire Insurance Company, Limited, The Nichido Fire and Marine Insurance Company, Limited, Tokio Marine & Nichido Life Insurance Co., Ltd., Tokio Marine & Nichido Financial Life Insurance Co., Ltd. (formerly known as Skandia Life Insurance Company (Japan) Limited), The Tokio Marine & Nichido Career Service Company, Limited, Tokio Marine Europe Insurance Limited (incorporated in the United Kingdom), The Tokio Marine and Fire Insurance Company (Hong Kong) Limited (incorporated in Hong Kong, China), Trans Pacific Insurance Company (incorporated in New York, U.S.A.), Tokio Millennium Re Ltd (incorporated in the Bermudas), Tokio Marine Global Re Limited (incorporated in Ireland), Tokio Marine Asset Management Company, Limited (97.5% owned), Millea Asia Pte. Ltd. (incorporated in Singapore), The Tokio Marine and Fire Insurance Company (Singapore) Pte. Limited (90% owned) (incorporated in Singapore), Tokio Marine Brasil Seguradora S.A. (91.3% owned) (incorporated in Brazil), Nichido Investment (Luxembourg) S.A. (incorporated in Luxembourg and liquidated as of May 24, 2004) and Tokio Marine Financial Solutions Ltd. (incorporated in the Cayman Islands).

Relationships with the Mitsubishi Group

Tokio Marine is a member of the Mitsubishi Group, which has evolved over a period of more than 100 years. The Mitsubishi Group relationship, which is similar to that of other major Japanese corporate groups, is one of cooperation in areas of common interest within a group of companies, each operating independently under its own separate management. Currently there are about 30 Mitsubishi Group companies engaged in a broad range of activities, including manufacturing, trading, natural resources, transportation, real estate, banking, securities and life and non-life insurance. We believe that we write a substantial majority of the non-life insurance for Mitsubishi Group companies.

Competition

There is strong competition in the Japanese non-life insurance industry. We expect that, as deregulation of the insurance business continues, competition will intensify at all levels.

Competition within the non-life insurance industry involves, among other things, expansion of an agency network through the training of new insurance agents, investment in information technology systems and the development and marketing of new insurance products and related services. We expect competition in premium rates and commissions to increase for our property and casualty lines of business as a result of the continuing deregulation of the non-life insurance industry. We believe that it is important to continue to compete on the basis of the quality of services associated with our insurance products, such as the giving of advice on risk management matters to business customers and extended-hour services for automobile insurance claims processing, rather than on premium rates being reduced.

Recent consolidation and alliances among non-life and life insurance companies in Japan have increased competition within the industry. We represent one of the five major non-life insurer groupings that have emerged in the Japanese insurance industry. The others are: the Sompo Japan insurance group (formed by Yasuda Fire and Marine Insurance and others); the Mitsui Sumitomo insurance group (formed by Mitsui Marine and Fire Insurance and Sumitomo Marine and Fire Insurance); the Aioi insurance group (formed by Chiyoda Fire and Marine Insurance and Daitokyo Fire and Marine Insurance); and the Nipponkoa insurance group (formed by Nippon Fire and Marine Insurance and Koa Fire and Marine Insurance and others). There have also been alliances between non-life and life insurers, such as Sompo Japan with Dai-Ichi Mutual Life and Nipponkoa Insurance with Taiyo Life.

Major insurance companies with global operations, have already entered the Japanese insurance market. We believe that the current strategy of these global insurance companies focuses on marketing methods and products that are not yet popular in Japan, such as direct marketing to individual customers and risk-segmented automobile insurance. While it is probable that over time some foreign insurers will succeed in increasing their sales of products that are already popular with consumers in Japan, such as voluntary automobile insurance, through direct marketing, the market share of foreign companies is currently fairly limited. Some of the foreign insurers have already exited from the Japanese insurance market. We do not feel these companies pose a threat to our market position but we are closely monitoring the situation and will respond if necessary.

Many of Japan’s life insurance companies have established non-life insurance subsidiaries as permitted under the 1995 amendments to the Insurance Business Law. Although these non-life insurance subsidiaries have yet to make significant inroads into the non-life insurance market, we continue to monitor the activities of these subsidiaries and their parent companies closely.

Life insurance providers in Japan can be classified into three categories: traditional life insurers, new entrants, such as the foreign life insurers and Japanese non-life insurers, including Tokio Marine & Nichido Life and the postal life insurance system. The ten largest traditional life insurers continue to underwrite the large majority of privately underwritten life insurance in Japan. As discussed in the non-life insurance industry section, life insurance subsidiaries of non-life companies were established in 1996 and thereafter as a result of the deregulation of insurance businesses in Japan. The postal life insurance system, a public insurance system managed by Japan Post, is a distinctive element of the Japanese life insurance market. Postal life insurance products are offered through the network of post offices located throughout Japan.

Properties

We lease real property in Tokyo for use in our operations at the holding company level. The floor space for our office is approximately 19,800 square feet.

Tokio Marine owns and leases real property for use in its operations. Approximately 85% of the 6,300,272 square feet of real property that Tokio Marine uses in its Japanese operations is owned. Tokio Marine owns two large buildings (25 stories and 15 stories) in Marunouchi, Tokyo’s central business district. 63% of the total space in these two buildings (1,241,280 square feet) is used by Tokio Marine and its subsidiaries; the rest is held for lease to tenants.

Tokio Marine also owns and utilizes approximately 670,000 square feet of floor space for its data center located in a suburb of Tokyo. In this center, Tokio Marine utilizes five sets of leased computers with a total capacity of 3,480 million instructions per second, or MIPS. In addition, Tokio Marine has a data center located in a suburb of Osaka. This center has total floor space of approximately 260,000 square feet and is equipped with three sets of leased computers with a total capacity of 370 MIPS. The Osaka center serves as a backup center in case of a disaster in the Tokyo area. The Osaka center operates in conjunction with the Tokyo center to share the data processing load of Tokio Marine.

Nichido Fire also owns and leases real property for use in its operations. Approximately 48% of the 2,824,606 square feet of real property that Nichido Fire uses in its Japanese operations is owned.

Employees

As of March 31, 2004, We had 19,779 employees on a consolidated basis, of which 18,125 employees were in the property and casualty insurance business, 1,237 were in the life insurance business and 417 were in the other businesses, compared with 20,221 employees on a consolidated basis as of March 31, 2003, of which 19,151 employees were in the property and casualty insurance business, 944 were in the life insurance business and 126 were in the other businesses. As of March 31, 2002, prior to our formation, Tokio Marine had, on a consolidated basis, approximately 14,200 employees and Nichido Fire had, on a consolidated basis, approximately 6,600 employees. A majority of Tokio Marine, Nichido Fire and Tokio Marine & Nichido Life employees are members of their respective labor unions, which negotiate with the respective companies concerning remuneration and working conditions. We consider our labor relations to be good.

Legal Proceedings

Neither we nor any of our operating subsidiaries is a party to any material pending legal proceedings other than routine litigation incidental to our business. In addition, we are not aware of any litigation that is reasonably likely to have a material adverse effect on our financial position or results of operations.

MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion and analysis in conjunction with our U.S. GAAP consolidated financial statements included in this annual report, together with the related notes. The following discussion is based on those U.S. GAAP consolidated financial statements. Our fiscal year end is March 31.

Our U.S. GAAP consolidated financial statements for the fiscal years ended March 31, 2004 and 2003 reflect the inclusion in those financial statements of the results of operations and financial position of Nichido Fire and its consolidated subsidiaries from and after the date of our formation on April 2, 2002. Consistent with U.S. GAAP and with Exchange Act requirements regarding the presentation of our financial statements, our U.S. GAAP consolidated financial statements for the fiscal year ended March 31, 2002 has not been restated to include the results of operations and financial position of Nichido Fire and its consolidated subsidiaries for that fiscal year. Accordingly, our U.S. GAAP financial statements for the years ended March 31, 2004 and 2003 are not directly comparable to our financial statements for the year ended March 31, 2002. See “— Overview — Business Combination” and “— Results of Operations — Year Ended March 31, 2003 Compared to Year Ended March 31, 2002”.

Overview

We are principally engaged in the insurance business in Japan and in overseas markets. We offer property and casualty insurance products as well as life insurance products.

In the year ended March 31, 2004, our property and casualty insurance business generated 88.2% of our operating income and 88.4% of our net income. The remainder was generated by our life insurance business.

Our operating income consists of premiums from our property and casualty insurance policies, life premiums, net investment income and gains (losses) on derivatives minus realized losses on investments. We earn most of our premiums from our operations in Japan. Our operating costs and expenses consist primarily of losses and claims under our property and casualty insurance policies, policy benefits and losses under our life insurance policies and policy acquisition costs.

In connection with our formation and the business combination of Tokio Marine and Nichido Fire, we began to include Nichido Fire’s operating results and financial position in our consolidated financial statements in year ended March 31, 2003, which significantly affected our financial statements. See “— Business Combination”.

In addition to the inclusion of Nichido Fire, we believe that our results of operations and financial condition over the past three fiscal years have been influenced by the following major trends:

• Significant fluctuations in the value of Japanese equities, in particular a significant increase in Japanese equity prices in the year ended March 31, 2004, or fiscal 2004, subsequent to a significant decrease in Japanese equity prices in the years ended March 31, 2003 and 2002, or fiscal 2003 and 2002, which have resulted in significant fluctuations in our realized and unrealized gains (losses) on investments;

• Significant fluctuations in long-term interest rates in Japan, in particular a significant increase in long-term interest rates in Japan in fiscal 2004, subsequent to a significant decrease in long-term interest rates in Japan in fiscal 2003, which have resulted in significant fluctuations in our gains (losses) on derivatives, our unrealized gains (losses) on investments and the value of our investment deposits by policyholders and other long-term insurance liabilities;

• Increased competition in the property and casualty insurance business, including price competition which requires us to offer competitive products at competitive rates;

• Slowing demographic growth and an aging population in Japan, which limit the overall growth potential of the individual insurance market in Japan while providing growth opportunities for insurance products that respond to the needs of the elderly, such as third sector insurance;

• Limited growth in the number of automobiles in Japan, which affects the growth potential for automobile insurance in Japan; and

• Improving economic activity in Japan, as Japan’s real gross domestic product grew by 3.3% in fiscal 2004 and by 1.6% in fiscal 2003, after having decreased by 1.2% in fiscal 2002.

The following is a discussion of our results of operations in fiscal 2004 compared to fiscal 2003. For a detailed discussion of changes in our results of operations, see “— Results of Operations”.

• Total operating income increased in fiscal 2004 by ¥15,112 million, or 0.7%, to ¥2,193,566 million, reflecting primarily an increase in net premiums written for property and casualty insurance and a decrease in realized losses on investments that was partially offset by a decrease in life premiums and an increase in losses on derivatives.

• Total operating cost and expenses increased in fiscal 2004 by ¥64,153 million, or 3.2%, to ¥2,041,299 million, reflecting primarily an increase in losses, claims and loss adjustment expenses in our property and casualty insurance business, partially offset by a decrease in policy benefits and losses for life and policy acquisition costs.

• As a result, income before extraordinary items and cumulative effect of accounting changes decreased by ¥26,812 million, or 20.7%, to ¥102,882 million. The main reason for this decrease was an increase in losses on derivatives that are primarily utilized in our economical hedging activities for asset liability management, partially offset by improvement in underwriting results.

• Net income decreased in fiscal 2004 by ¥275,135 million, or 72.8%, to ¥102,882 million. In fiscal 2003, net income included extraordinary items amounting to ¥248,323 million, which was unallocated negative goodwill arising from the business combination with Nichido Fire.

The following is a discussion of our results of operations in fiscal 2003 compared to fiscal 2002. For a detailed discussion of changes in our results of operations see “— Results of Operations”.

• Total operating income increased in fiscal 2003 by ¥529,942 million, or 32.1%, to ¥2,178,454 million. The inclusion of Nichido Fire’s results of operations in our consolidated statement of income in fiscal 2003 accounted for an increase of 20.9% in our operating income when compared to fiscal 2002. The remaining increase was mainly due to an increase in net premiums written for property and casualty insurance and life premiums and an increase in gains on derivatives.

• Total operating cost and expenses increased in fiscal 2003 by ¥437,302 million, or 28.4%, to ¥1,977,146 million. The inclusion of Nichido Fire’s results of operations in our consolidated statement of income in fiscal 2003 accounted for an increase of 25.3% in our operating cost and expenses. The remaining increase was primarily attributable to increases in policy benefits and losses for life, losses and claims incurred and provided for and policy acquisition costs, partially offset by a decrease in income credited to investment deposits by policyholders.

• As a result, income before extraordinary items and cumulative effect of accounting changes increased by ¥54,442 million, or 72.3%, to ¥129,694 million. The inclusion of Nichido Fire’s results of operations in our consolidated statement of income in fiscal 2003 accounted for a decrease of 38.4% in our income before extraordinary items and cumulative effect of accounting changes. The main reason for the remaining increase was an improvement in underwriting results and an increase in gains on derivatives that are primarily utilized in our economical hedging activities for asset liability management.

• Net income increased in fiscal 2003 by ¥217,300 million, or 135.2%, to ¥378,017 million. In fiscal 2003, net income included extraordinary items amounting to ¥248,323 million, which was unallocated negative goodwill arising from the business combination with Nichido Fire. In fiscal 2002, net income included cumulative effect of accounting changes, net of tax amounting to ¥85,465 million due to the adoption of SFAS No. 133, as amended, as of April 1, 2002.

We plan to merge our subsidiaries Tokio Marine and Nichido Fire on October 1, 2004. We view the successful completion of the merger between Tokio Marine and Nichido Fire as a critically important task for a continuous increase of profitability and growth potential. The objectives of the merger are to maximize our corporate value by creating synergies, promoting a growth strategy which combines the strengths of both companies and increasing efficiency through a larger scale of business, and to reduce further costs. See “Business — Recent Developments — Proposed Merger of Tokio Marine and Nichido Fire”.

Economic Conditions

Our financial condition and results of operations are generally affected by economic conditions in Japan and, to a lesser extent, other parts of the world in which we conduct business.

While the Japanese economy has faced a number of volatile and challenging economic trends and conditions over the last decade, it has experienced signs of recovery during the year ended March 31, 2004. Japan’s economic condition has been characterized by:

• Improving economic activity, as the Japanese real gross domestic product decreased by 1.2% in the year ended March 31, 2002 but grew by 1.6% in the year ended March 31, 2003 and grew by 3.3% in the year ended March 31, 2004;

• Increasing total levels of outstanding Japanese government debt, reaching a historical high at 44.6% of the government’s total revenue for the year ended March 31, 2004. Ratings of Japanese government bonds by the major rating agencies remained stable, and one international ratings agency changed the outlook for Japanese government debt from neutral to positive subsequent to March 31, 2004;

• Continuing high levels of corporate bankruptcy filings, despite a decrease of 18.3% from the previous year from 18,928 to 15,466 cases filed in the year ended March 31, 2004. Total liabilities of these insolvent companies for the year ended March 31, 2004 totaled ¥10,300 billion, a decrease of 22.6% from ¥13,310 billion in the previous year;

• A very low interest rate environment, with the Bank of Japan maintaining a policy of near zero interest rates since March 2001;

• Declining real estate values, with government-appraised land prices declining an average of 5.7% for residential areas and 7.4% for commercial areas in calendar year 2003, which represented the thirteenth straight year of decline;

• Improving equity markets, with the Nikkei Stock Average, which is an average of 225 stocks listed on the Tokyo Stock Exchange, increasing 46.9% to 11,715.39 during the year ended March 31, 2004, after declining 27.6% to 7,972.71 during the year ended March 31, 2003 and declining 15.2% to 11,024.94 during the year ended March 29, 2002. Subsequent to March 31, 2004, the Nikkei Stock Average declined to 11,158.58 on September 15, 2004; and

• Significant exchange rate movements, as the value of the yen against the U.S. dollar fluctuated from a high of ¥104.18 to a low of ¥120.55 in the year ended March 31, 2004, from a high of ¥115.71 to a low of ¥133.40 in the year ended March 31, 2003, and from a high of ¥115.89 to a low of ¥134.77 in the year ended March 31, 2002. As of September 15, 2004, the U.S. dollar exchange rate was ¥ 110.34.

The U.S. economy was able to achieve positive growth during the year ended March 31, 2004, but experienced uncertainty against the backdrop of the war in Iraq and concerns regarding unemployment. The U.S. Federal Reserve increased interest rates in July, August and September 2004, bringing the federal fund rates to 1.75% as of September 21, 2004. U.S. equity indices increased, with both the Nasdaq Composite Index and the Dow Jones Industrial Average showing increases in the year ended March 31, 2004. Subsequent to March 31, 2004, the Nasdaq Composite Index decreased from 1,994.22 on March 31, 2004 to 1,896.52 on September 15, 2004 and the Dow Jones Industrial Average decreased from 10,357.70 on March 31, 2004 to 10,231.36 on September 15, 2004.

The European economy was weak throughout the year ended March 31, 2004 and experienced little growth.

In the year ended March 31, 2004, economic growth in Asia outside of China was weak.

Business Combination

We were formed as the holding company for Tokio Marine and Nichido Fire on April 2, 2002. See “Business — Formation of Millea Holdings”.

For U.S. GAAP consolidated financial statement reporting purposes, our formation was treated as a business combination of Tokio Marine and Nichido Fire. We accounted for this business combination using the purchase method of accounting, pursuant to which Tokio Marine was treated as having acquired Nichido Fire.

Under the purchase method of accounting, we generated ¥317.8 billion of negative goodwill in connection with the business combination, representing the amount by which the net assets of Nichido Fire acquired by Tokio Marine exceeded the deemed purchase price for those net assets. For U.S. GAAP financial reporting purposes, we were required to allocate a portion of that negative goodwill to various long-term assets acquired from Nichido Fire. We were also required to recognize as an extraordinary gain the unallocated portion of that negative goodwill. This extraordinary gain, which amounted to ¥248.3 billion, is reflected in our net income for the year ended March 31, 2003.

Our U.S. GAAP consolidated financial statements as of and for the years ended March 31, 2004 and 2003 reflect the inclusion of the operating results and financial position of Nichido Fire and its consolidated subsidiaries from the date of our formation on April 2, 2002. See “ — Results of Operations”. As described above, those financial statements also reflect the effects of accounting for the business combination by the purchase method. Accordingly, our U.S. GAAP consolidated financial statements as of and for the years ended March 31, 2004 and 2003 are not directly comparable to our U.S. GAAP consolidated financial statements for the year ended March 31, 2002.

Critical Accounting Policies

The accounting policies that we follow when preparing U.S. GAAP consolidated financial statements are fundamental to understanding our financial condition and results of operations. Many of these accounting policies require management to make difficult, complex or subjective judgments regarding the valuation of assets and liabilities.

Our significant accounting policies are summarized in the notes to our U.S. GAAP consolidated financial statements included in this annual report. The following is a summary of our critical accounting policies.

Impairment of Securities Available for Sale

Under U.S. GAAP, we are required to recognize an impairment loss for “other than temporary” declines in the fair value of equity and fixed maturity securities available for sale. Determinations of whether a decline is other than temporary often involve estimating the outcome of future events. Management judgment is required in determining whether existing factors indicate that an impairment loss should be recognized at any balance sheet date. These judgments are based on subjective as well as objective factors.

The Japanese stock market has experienced significant downturns and volatility during recent years. In view of the diversity and volume of our shareholdings, the declining but volatile equity markets make it difficult to determine whether the declines in the fair value of equity securities available for sale are other than temporary.

Among the factors that management considers when determining whether declines in the value of equity securities below their costs are other than temporary is the likelihood that those declines will be reversed. For marketable equity securities, management evaluates each of the securities and considers a variety of facts, including (a) whether the value of the securities continued to be below cost for more than 12 months, (b) whether the value of the securities continued to be more than 20% below cost during any six-month period and (c) whether there has been a decline in value to below 30% of cost as measured at the end of any fiscal year. For non-marketable equity securities and fixed maturity securities, management considers whether sharp declines in value over a short period of time reflect fundamental valuation issues such as the deterioration of the issuer’s financial position and credit rating.

After considering these and other factors, we write down individual securities to fair value when management determines that a decline in fair value below the cost of those securities is other than temporary.

Valuation Allowances for Loan Losses

The valuation allowances for loan losses represent management’s estimate of probable losses in our loan portfolios. The evaluation process involves a number of estimates and judgments. The allowance is based on two principles of accounting:

• SFAS No. 114, “Accounting by Creditors for Impairment of a Loan”, and SFAS No. 118, “Accounting by Creditors for Impairment of a Loan — Income Recognition and Disclosures”, which require that losses be accrued based on the difference between the loan balance and the present value of future cash flows or values that are observable in the secondary market; and

• SFAS No. 5, “Accounting for Contingencies”, which requires that losses be accrued when they are probable of occurring and quantitatively estimable.

We record specific allowances for loan losses when we determine that an individual borrower is not able to keep current with payments on its loans. We also record “unallocated valuation allowances”, or general allowances, for loan losses to reflect loss contingencies underlying individual loan portfolios. Based on our past experience, it is probable that a certain percentage of our loans are impaired at any balance sheet date even if there is no specific loss information for individual loans. We calculate the amount of the general allowance for any period by taking the aggregate loan amount for each credit category and multiplying it by the average of each category’s overall loan loss ratio in the past three years, and then subtracting the amount of specific allowances for that period. The amount of the general allowance has varied from year to year due in part to fluctuations in the historical loan loss ratios.

Valuation of Financial Instruments with No Available Market Prices

Certain assets and liabilities, including fixed maturity securities available for sale and financial derivatives, are reflected at their estimated fair values in our U.S. GAAP financial statements. As of March 31, 2004, 7.9% of the equity securities available for sale, virtually all financial derivatives and a small portion of the fixed maturity securities available for sale that we held in our investment portfolio were not listed or quoted, meaning there were no available market prices for these financial instruments.

For financial instruments with no available market prices, we determine fair values for the substantial majority of our portfolios based upon externally verifiable model inputs and quoted prices, such as exchange-traded prices and broker-dealer quotations of other comparable instruments, and use market interest rates in determining discount factors. All financial models, which are used solely for pricing each financial instrument, must be validated and periodically reviewed by qualified personnel independent of the division that created the model.

We determine fair values of equity securities with no available market price based upon various factors, including stockholders’ equity per share.

The fair value of derivatives is determined based upon liquid market prices evidenced by exchange-traded prices, broker-dealer quotations or prices of other transactions with similarly rated counterparties. If available, quoted market prices provide the best indication of fair value. If quoted market prices are not available for derivatives, we discount expected cash flows using market interest rates commensurate with the credit quality and maturity of the investment. Alternatively, we may use model pricing to determine an appropriate fair value (for example, option pricing models). In determining fair values, we consider various factors, including time value, volatility factors and the values of underlying options, warrants and derivatives.

Fair value estimates are made at a specific point in time, based upon relevant market information and information about the financial instruments. These estimates are subjective in nature and involve uncertainties and matters of significant judgment, and changes in assumptions made could significantly affect these estimates. Accordingly, fair values for these financial instruments cannot be determined with precision.

Amortization of Deferred Policy Acquisition Costs

We defer certain costs incurred in acquiring new business to the extent such costs are deemed recoverable from future profits. These costs are principally external sales agents’ commissions, in-house sales agents’ salaries, other compensation and other underwriting costs. For property and casualty insurance products, we defer and amortize (i.e., expense) these costs over the period in which the related premiums written are earned. For traditional life insurance products, we generally defer and amortize these costs over the premium paying period of the policy. For investment contracts, we defer and amortize these costs with interest, in relation to the incidence of estimated gross profits to be realized over the estimated lives of the contracts. We review our deferred policy acquisition costs periodically to determine if they are likely to be offset by future premium revenue recognition. If any of these deferred costs are not considered recoverable, we expense those costs in the current year.

Insurance Reserves

Our insurance reserves represent estimates of future payouts that we will make in respect of property and casualty and life insurance claims, including expenses relating to those claims.

For property and casualty insurance reserves, these estimates are made on a case-by-case basis, based on the facts known to us at the time reserves are established. We periodically adjust these estimates to recognize the estimated ultimate cost of a claim. In addition, we establish reserves in our property and casualty business to recognize the estimated cost of losses that have occurred but about which we do not yet have notice. When actual claims experience differs from our previous estimates, the resulting difference will be reflected in our reported results for the period of the change in the estimate. See “Business — Property and Casualty Insurance — Property and Casualty Losses and Reserves — Property and Casualty Reserves”.

For life insurance reserves, these estimates are made using long-term actuarial assumptions of future investment yields, mortality, morbidity, policy terminations and expenses. These assumptions include provisions for adverse deviations and generally vary by such characteristics as type of coverage, year of issue and policy duration. Future investment yield assumptions are determined at the time the policy is issued based upon prevailing investment yields as well as estimated reinvestment yields. Mortality, morbidity and policy termination assumptions are based on our experience and industry experience prevailing at the time the policies are issued. Expense assumptions are based on our experience and include expenses to be incurred beyond the premium-paying period.

The establishment of our insurance reserves is an inherently uncertain process, involving assumptions as to factors such as court decisions; changes in laws, social, economic and demographic trends, inflation and other factors affecting claim costs; and, in our life insurance business, assumptions regarding mortality and morbidity trends.

Accounting for Deposit-Type Insurance Products

We allocate premiums for the indemnity and investment portions of deposit-type insurance products at the inception of the policy. The premium for the indemnity portion is calculated the same way that the premium for a traditional indemnity policy with no savings portion is calculated. The premium for the savings portion represents the present value of the lump-sum or annuity refund, discounted using the committed interest rate and the “total loss termination” rate. Total loss termination occurs when a full payout is made for the indemnity portion of the contract, in which case the policy terminates without any maturity refund being paid to the policyholder. The weighted average annual frequency of our total loss terminations for the three-year period ended March 31, 2004 was approximately 0.05%.

Premiums for the savings portion of the contract are accounted for as an increase to the liability for refunds captioned “investment deposits by policyholders”. At the end of each fiscal year, the present value of future payments of maturity refunds of contracts in force, net of the present value of the savings portion of future premiums, is accounted for as “investment deposits by policy holders”. The present value of future cash flows is calculated using the committed interest rate and the total loss termination rate, which are both set at the inception of the contracts.

Policy acquisition costs are not charged to the savings portion of the contracts. Costs associated with policy acquisition of deposit-type products are charged to the insurance portion and amortized over the contract period. This is based on the observation that there is no substantial difference in the level of policy acquisition costs depending on whether the savings feature is incorporated.

Initial Adoption of Accounting Policies

Beginning with the year ended March 31, 2004, we adopted new accounting policies in our U.S. GAAP consolidated financial statements in connection with our acquisition of Skandia Japan for the year ended March 31, 2004:

• Separate account assets and liabilities. Beginning with the year ended March 31, 2004, we began to present assets and liabilities that represent funds for which investment income and investment gains and losses accrue directly to policyholders who bear the investment risk, except for minimum guarantees, with respect to such funds as separate items captioned “separate account assets” and “separate account liabilities”. We recognized separate account assets and liabilities in the amount of ¥162,715 million, respectively, at March 31, 2004.

• Goodwill and present value of future profits. As of March 31, 2004, we began to present goodwill and present value of future profits as separate line items on our balance sheet. Goodwill represents the excess of a purchase price paid over the fair value of the net assets of an acquired entity. We recognized goodwill in the amount of ¥9,934 million at March 31, 2004. Present value of future profit represents the present value of profits embedded in acquired long-term life insurance contracts and is determined based on the net present value of future cash flows expected to result from the contracts in force at the date of acquisition. We recognized present value of future profit in the amount of ¥14,744 million at March 31, 2004. Goodwill and present value of future profit are tested for impairment annually and also when a certain triggering event requires such test. Present value of future profit is amortized to match estimated gross profits from the policies acquired.

Securities Available for Sale

At March 31, 2004 and 2003, the fair value of our fixed maturity securities available for sale was ¥3,210 billion and ¥3,422 billion, respectively, and the fair value of our equity securities available for sale was ¥3,457 billion and ¥2,534 billion, respectively. Changes in the fair value of our securities available for sale can have a significant impact on our results of operations, as we are required to recognize losses for declines in fair value below cost that we determine to be “other than temporary” in nature. See “— Critical Accounting Policies — Impairment of Securities Available for Sale”.

For fixed maturity securities available for sale, we use quoted market values to determine fair value. If quoted market values are not available, we instead use quoted market values for similar securities. For equity securities available for sale, which include common stock and non-redeemable preferred stock, we primarily use quoted market prices to determine fair value. As of March 31, 2004 and 2003, approximately 87% and 82%, respectively, of our equity securities available for sale were listed on Japanese or foreign stock exchanges.

The following table shows the fair value of our securities available for sale, broken down by security rating, as of March 31, 2004:


	Fair value
							% of Total
	Fixed maturity		Equity				securities
	securities		securities(1)		Total securities		available for sale
	(yen in millions)
Investment grade	¥	3,052,685	¥	2,621,362	¥	5,674,047		85.1	%
Non-investment grade		5,798		111,301		117,099		1.8
Not rated		151,099		724,711		875,810		13.1

Total securities available for sale	¥	3,209,582	¥	3,457,374	¥	6,666,956		100.0	%

(1)

We classify equity securities based upon the issuer’s long-term bond rating.

The following table shows the fair value of our securities available for sale, broken down by security rating, as of March 31, 2003:


	Fair value
							% of Total
	Fixed maturity		Equity				securities
	securities		securities(1)		Total securities		available for sale
	(yen in millions)
Investment grade	¥	3,128,580	¥	1,853,773	¥	4,982,353		83.6	%
Non-investment grade		11,648		69,856		81,504		1.4
Not rated		281,396		610,592		891,988		15.0

Total securities available for sale	¥	3,421,624	¥	2,534,221	¥	5,955,845		100.0	%

(1)

We classify equity securities based upon the issuer’s long-term bond rating.

The following table shows gross unrealized losses on our securities available for sale, broken down by security rating, as of March 31, 2004:


	Gross unrealized loss
										% of Total
	Fixed maturity			Equity						securities
	securities			securities(1)			Total securities			available for sale
	(yen in millions)
Investment grade	¥	(42,852	)	¥	(340	)	¥	(43,192	)		80.9	%
Non-investment grade		—			(122	)		(122	)		0.2
Not rated		(134	)		(9,963	)		(10,097	)		18.9

Total securities available for sale	¥	(42,986	)	¥	(10,425	)	¥	(53,411	)		100.0	%

(1)

We classify equity securities based upon the issuer’s long-term bond rating.

The following table shows gross unrealized losses on our securities available for sale, broken down by security rating, as of March 31, 2003:


	Gross unrealized loss
										% of Total
	Fixed maturity			Equity						securities
	securities			securities(1)			Total securities			available for sale
	(yen in millions)
Investment grade	¥	(6,050	)	¥	(89,229	)	¥	(95,279	)		82.1	%
Non-investment grade		(34	)		(5,482	)		(5,516	)		4.8
Not rated		(23	)		(15,218	)		(15,241	)		13.1

Total securities available for sale	¥	(6,107	)	¥	(109,929	)	¥	(116,036	)		100.0	%

(1)

We classify equity securities based upon the issuer’s long-term bond rating.

The following table shows gross unrealized gains on our securities available for sale, broken down by security rating, as of March 31, 2004:


	Gross unrealized loss
							% of Total
	Fixed maturity		Equity				securities
	securities		securities(1)		Total securities		available for sale
	(yen in millions)
Investment grade	¥	50,638	¥	1,451,819	¥	1,502,457		82.1	%
Non-investment grade		5		49,342		49,347		2.7
Not rated		4,143		274,181		278,324		15.2

Total securities available for sale	¥	54,786	¥	1,775,342	¥	1,830,128		100.0	%

(1)

We classify equity securities based upon the issuer’s long-term bond rating.

The following table shows gross unrealized gains on our securities available for sale, broken down by security rating, as of March 31, 2003:


	Gross unrealized gain
							% of Total
	Fixed maturity		Equity				securities
	securities		securities(1)		Total securities		available for sale
	(yen in millions)
Investment grade	¥	183,429	¥	685,117	¥	868,546		86.6	%
Non-investment grade		110		8,319		8,429		0.8
Not rated		18,632		107,902		126,534		12.6

Total securities available for sale	¥	202,171	¥	801,338	¥	1,003,509		100.0	%

(1)

We classify equity securities based upon the issuer’s long-term bond rating.

The following table shows the amounts and the periods of time for which securities available for sale have been in an unrealized loss position as of March 31, 2004:


	Gross unrealized loss
	Fixed maturity			Equity
	securities			securities			Total securities
	(yen in millions)
Three months or less	¥	(2,413	)	¥	(4,318	)	¥	(6,731	)
Three months to six months		(1,947	)		(1,637	)		(3,584	)
Six months to nine months		(15,183	)		(812	)		(15,995	)
Nine months to one year		(20,799	)		(1,915	)		(22,714	)
Over one year		(2,644	)		(1,743	)		(4,387	)

Total	¥	(42,986	)	¥	(10,425	)	¥	(53,411	)

The following table shows the amounts and the periods of time for which securities available for sale have been in an unrealized loss position as of March 31, 2003:


	Gross unrealized loss
	Fixed maturity			Equity
	securities			securities			Total securities
	(yen in millions)
Three months or less	¥	(1,283	)	¥	(86,750	)	¥	(88,033	)
Three months to six months		(1,045	)		(6,917	)		(7,962	)
Six months to nine months		(12	)		(4,776	)		(4,788	)
Nine months to one year		(2,176	)		(10,363	)		(12,539	)
Over one year		(1,591	)		(1,123	)		(2,714	)

Total	¥	(6,107	)	¥	(109,929	)	¥	(116,036	)

The following table shows the amounts and the periods of time for which fixed maturity securities available for sale have been in an unrealized loss position as of March 31, 2004, broken down by security rating, as of that date:


	Gross unrealized loss
									Total
				Non-investment					fixed maturity
	Investment grade			grade		Not rated			securities
	(yen in millions)
Three months or less	¥	(2,363	)	¥	—	¥	(50	)	¥	(2,413	)
Three months to six months		(1,944	)		—		(3	)		(1,947	)
Six months to nine months		(15,148	)		—		(35	)		(15,183	)
Nine months to one year		(20,754	)		—		(45	)		(20,799	)
Over one year		(2,643	)		—		(1	)		(2,644	)

Total	¥	(42,852	)	¥	—	¥	(134	)	¥	(42,986	)

The following table shows the amounts and the periods of time for which fixed maturity securities available for sale have been in an unrealized loss position as of March 31, 2003, broken down by security rating, as of that date:


	Gross unrealized loss
										Total
				Non-investment						fixed maturity
	Investment grade			grade			Not rated			securities
	(yen in millions)
Three months or less	¥	(1,246	)	¥	(29	)	¥	(8	)	¥	(1,283	)
Three months to six months		(1,031	)		—			(14	)		(1,045	)
Six months to nine months		(12	)		—			—			(12	)
Nine months to one year		(2,171	)		(5	)		—			(2,176	)
Over one year		(1,590	)		—			(1)			(1,591	)

Total	¥	(6,050	)	¥	(34	)	¥	(23	)	¥	(6,107	)

The following table shows gross unrealized losses on and the fair value of fixed maturity securities available for sale that were in an unrealized loss position as of March 31, 2004 by contractual maturities at that date:


	Gross unrealized loss			Fair value
	(yen in millions)
Due in one year or less	¥	(66	)	¥	106,107
Due after one year through five years		(6,101	)		600,570
Due after five years through ten years		(6,258	)		186,876
Due after ten years		(30,561	)		387,687

Total	¥	(42,986	)	¥	1,281,240


	Gross unrealized loss			Fair value
	(yen in millions)
Due in one year or less	¥	(2,173	)	¥	255,732
Due after one year through five years		(3,660	)		284,458
Due after five years through ten years		(217	)		26,649
Due after ten years		(57	)		2,590

Total	¥	(6,107	)	¥	569,429

The following table shows gross unrealized losses on our securities available for sale as of each of the dates indicated:


	As of March 31,
	2004			2003			2002
	(yen in millions)
Equity securities	¥	(10,425	)	¥	(109,929	)	¥	(16,308	)
Fixed maturity securities		(42,986	)		(6,107	)		(429	)

Total gross unrealized losses	¥	(53,411	)	¥	(116,036	)	¥	(16,737	)

Set forth below is certain other information relating to our portfolio of securities available for sale as of March 31, 2004 and 2003:

• Investment concentration. As of March 31, 2004, we held investments, mainly equity securities, in Toyota Motor Corporation and its affiliates that were valued at ¥394.4 billion, representing approximately 12% of our consolidated stockholders’ equity as of that date. No other investment in a single company including its affiliates exceeded 10% of our consolidated stockholders’ equity as of that date. As of March 31, 2003, we held investments, mainly equity securities, in Toyota Motor Corporation and its affiliates that were valued at ¥290.2 billion, representing approximately 10% of our consolidated stockholders’ equity as of that date. No other investment in a single company including its affiliates exceeded 10% of our consolidated stockholders’ equity as of that date.

• Concentration of gross unrealized losses. As of March 31, 2004, Japanese government bonds accounted for 61.6% of our total gross unrealized losses on securities available for sale as of that date. The unrealized losses on these investments amounted to ¥32,904 million as compared to a cost basis of ¥973,615 million. As of March 31, 2004, two of our investments in equity securities of Japanese issuers accounted for 3.5% of our total gross unrealized losses on securities available for sale as of that date. The unrealized losses on these investments amounted to ¥1,248 million and ¥603 million, respectively, as compared to a cost basis of ¥16,000 million and ¥2,650 million, respectively. As of March 31, 2003, two of our investments in equity securities of Japanese issuers accounted for 37.9% of our total gross unrealized losses on securities available for sale as of that date. The unrealized losses on these investments amounted to ¥33,852 million and ¥10,069 million, respectively, as compared to a cost basis of ¥124,251 million and ¥61,869 million, respectively. Based on our evaluation in accordance with our critical accounting policy “Impairment of Securities Available for Sale”, including the evaluation of the fact that the period of time during which the securities described above were in a continuous loss position was less than twelve months, we did not record any impairment loss for such securities for the years ended March 31, 2004 and 2003, respectively.

• Maturity profile. As of March 31, 2004, we held ¥875.9 billion of fixed maturity securities available for sale (measured at fair value) with an original term to maturity of ten years or longer and ¥2,333.7 billion of fixed maturity securities available for sale (measured at fair value) with an original term to maturity of less than ten years. As of March 31, 2003, we held ¥900.3 billion of fixed maturity securities available for sale (measured at fair value) with an original term to maturity of ten years or longer and ¥2,521.4 billion of fixed maturity securities available for sale (measured at fair value) with an original term to maturity of less than ten years. Fixed maturity securities with longer maturities are more sensitive to interest rate fluctuations than securities with shorter maturities.

• Non-traded securities. As of March 31, 2004, we held ¥336.4 billion of non-traded fixed maturity and equity securities. As of March 31, 2003, we held ¥308.1 billion of non-traded fixed maturity and equity securities. We monitor various information relating to the fair value of non-traded securities, including the net asset values and the credit rating of each issuer.

In addition, during the years ended March 31, 2004 and 2003, we did not record any material loss in connection with sales of securities that were in an unrealized loss position at March 31, 2003 or 2002, respectively.

Hedging for Deposit-Type Insurance and Life Insurance Policies

We enter into interest rate swaps principally as a means of managing our interest rate risk under deposit-type insurance policies and life insurance policies. In managing this interest rate risk, we periodically measure the fair value of substantially all of our related assets and liabilities, including those in respect of these derivative positions.

Since these derivative positions do not qualify for hedge accounting treatment under Statement of Financial Accounting Standard No. 133, or SFAS No. 133, we must recognize as gains or losses in our statement of income any changes in the fair value of these derivative positions. We may not, on the other hand, recognize gains or losses for any change in the fair value of our other related assets and liabilities. Accordingly, the gains or losses that we recognize in respect of these derivative positions in our statement of income, and the fair value of these derivative positions as reflected in our balance sheet and related notes to our financial statements, do not provide a comprehensive view of our financial exposure with respect to deposit-type insurance policies and life insurance policies.

As of March 31, 2004, our net unrealized losses in respect of investment deposits by policyholders totaled ¥207 billion. Of this amount, ¥230 billion of unrealized losses were derived from deposit-type insurance policies issued by Tokio Marine. As of the same date, we had unrealized gains of approximately ¥24 billion on fixed maturity securities held for purposes of managing Tokio Marine’s interest rate risk in respect of deposit-type insurance policies. If low market interest rates continue in Japan, we expect that these unrealized gains (or some portion of them) will be available to offset future losses in respect of investment deposits by policyholders, however, our results of operations in future fiscal years could be adversely affected by our net financial exposure in respect of deposit-type insurance policies.

Results of Operations

The following table, prepared on a U.S. GAAP basis, shows selected statement of income information for us for each of the periods indicated:


	Year ended March 31,
	2004(1)			2003(1)			2002(1)
	(yen in millions)
Operating income:
Property and casualty:
Net premiums written	¥	1,945,246		¥	1,898,557		¥	1,381,483
Less increase in unearned premiums		85,043			137,589			38,521

Premiums earned		1,860,203			1,760,968			1,342,962
Life premiums		247,800			262,486			209,208
Net investment income		126,173			108,311			104,681
Realized gains (losses) on investments		(3,855	)		(29,875	)		(1,020	)
Gains (losses) on derivatives		(36,755	)		76,564			(7,319	)

Total operating income		2,193,566			2,178,454			1,648,512

Operating costs and expenses:
Losses, claims and loss adjustment expenses:
Losses and claims incurred and provided for		1,048,518			953,681			736,765
Related adjustment expenses		77,389			76,412			61,449

Total losses, claims and loss adjustment expenses		1,125,907			1,030,093			798,214
Policy benefits and losses for life		197,903			223,316			175,016
Income credited to investment deposits by policyholders		58,414			56,011			57,507
Policy acquisition costs		558,978			571,058			437,012
Other operating expenses		100,097			96,668			72,095

Total operating costs and expenses		2,041,299			1,977,146			1,539,844

Income before income tax expense, extraordinary items and cumulative effect of accounting changes		152,267			201,308			108,668

Income tax expense (benefit):
Current		50,015			92,935			53,960
Deferred		(630	)		(21,321	)		(20,544	)

Total income tax expense (benefit)		49,385			71,614			33,416


	Year ended March 31,
	2004(1)		2003(1)		2002(1)
	(yen in millions)
Income before extraordinary items and cumulative effect of accounting changes		102,882		129,694		75,252
Extraordinary items		—		248,323		—
Cumulative effect of accounting changes, net of tax		—		—		85,465

Net income	¥	102,882	¥	378,017	¥	160,717

(1)

Year Ended March 31, 2004 Compared to Year Ended March 31, 2003

Our direct premiums written for property and casualty insurance for the fiscal year ended March 31, 2004, or fiscal 2004, were ¥1,978,555 million, a decrease of 0.4% from ¥1,987,463 million in the fiscal year ended March 31, 2003, or fiscal 2003. Net premiums written for property and casualty insurance, which represent direct premiums written plus assumed reinsurance premiums minus ceded reinsurance premiums, were ¥1,945,246 million in fiscal 2004, an increase of 2.5% from ¥1,898,557 million in fiscal 2003. The increase was mainly due to an increase in compulsory automobile liability insurance premiums, reflecting the abolition of the government reinsurance scheme in fiscal 2003. See “Business — Property and Casualty Insurance — Compulsory Automobile Liability”.

Property and casualty insurance premiums are recognized as earned on a pro rata basis over the terms of the policies. Unearned premiums represent the portion of premiums written which relate to the unexpired terms of coverage. After deducting the increase in unearned premiums of ¥85,043 million for fiscal 2004, premiums earned in fiscal 2004 were ¥1,860,203 million, an increase of 5.6% from fiscal 2003. The increase was mainly due to an increase in compulsory automobile liability insurance premiums, reflecting the abolition of the government reinsurance scheme in fiscal 2003.

Life premiums, which represent direct premiums earned plus assumed reinsurance premiums minus ceded reinsurance premiums, were ¥247,800 million in fiscal 2004, a decrease of 5.6% from fiscal 2003. The decrease primarily reflected a decrease in the number of single premium contracts written. Under a single premium contract, the policyholder pays the entire premium due under the contract in a single bullet payment at the time the contract is entered into.

Losses and claims incurred and provided for, or net loss incurred, for all property and casualty insurance in fiscal 2004 amounted to ¥1,048,518 million, an increase of ¥94,837 million, or 9.9%, from fiscal 2003. The ratio of the total amount of net loss incurred to net premiums earned — the net loss ratio — was 56.4% in fiscal 2004, an increase from 54.2% in fiscal 2003. This increase was due primarily to an increase in the loss ratio of voluntary automobile insurance, compulsory automobile insurance and other insurance.

Principal property and casualty insurance lines fared as follows:

• Voluntary Automobile Insurance. Net premiums written for voluntary automobile insurance, the largest line of our property and casualty insurance business, decreased by 2.2% in fiscal 2004 to ¥878,499 million. This decrease was primarily due to discounts in premium rates granted upon the renewal of policies that did not experience any loss in the prior period. The net loss ratio increased from 56.6% in fiscal 2003 to 57.6% in fiscal 2004, mainly due to the decrease in premiums earned.

• Compulsory Automobile Liability Insurance. Net premiums written for compulsory automobile insurance increased by 18.8% in fiscal 2004 to ¥333,640 million. This increase was primarily due to the abolition of the government reinsurance scheme in fiscal 2003. See “Business — Property and Casualty Insurance — Compulsory Automobile Liability”. The net loss ratio increased from 74.4% in fiscal 2003 to 79.2% in fiscal 2004. This was primarily due to the fact that the abolition of the governmental reinsurance scheme increased both losses incurred and premiums earned by substantially the same amount.

• Fire and Allied Lines Insurance. Net premiums written for fire and allied lines insurance increased by 4.4% in fiscal 2004 to ¥270,495 million. This increase was mainly due to expanding sales that reflected the introduction of new products. The net loss ratio decreased from 35.3% in fiscal 2003 to 34.9% in fiscal 2004, primarily due to the increase in premiums earned.

• Personal Accident Insurance. Net premiums written for personal accident insurance decreased by 1.9% in fiscal 2004 to ¥152,062 million. This decrease was mainly due to decreasing sales of overseas traveler’s personal accident insurance, affected by the outbreak of Severe Acute Respiratory Syndrome, or SARS, in Asia, partly offset by expanding sales of medical and cancer insurance. The net loss ratio decreased from 42.8% in fiscal 2003 to 40.3% in fiscal 2004, mainly due to expanding sales of medical and cancer insurance, which has a relatively low loss ratio when compared with other personal accident insurance products.

• Cargo and Transit Insurance. Net premiums written for cargo and transit insurance increased by 5.8% in fiscal 2004 to ¥65,998 million. This increase mainly reflected the high levels of Japanese import and export trading activity as well as an increase in premium rates for war insurance coverage. The net loss ratio increased from 46.7% in fiscal 2003 to 46.9% in fiscal 2004, mainly due to an increase in large claims.

• Hull Insurance. Net premiums written for hull insurance increased slightly by 2.0% in fiscal 2004 to ¥14,484 million. The net loss ratio decreased from 90.1% in fiscal 2003 to 69.4% in fiscal 2004, mainly due to the absence of large claims, which had occurred in fiscal 2003.

• Other Insurance. Net premiums written for all other types of property and casualty insurance, including liability insurance, workers’ compensation insurance, guarantee insurance, movable comprehensive insurance, aviation and miscellaneous pecuniary loss insurance, increased by 0.5% in fiscal 2004 to ¥230,068 million. This increase was mainly due to an increase in liability insurance premiums, partly offset by a decrease in workers’ compensation, guarantee and movables comprehensive insurance premiums. The net loss ratio increased from 56.7% in fiscal 2003 to 60.7% in fiscal 2004, mainly due to an increase in large claims.

Loss adjustment expenses in fiscal 2004 were ¥77,389 million, an increase of 1.3% from fiscal 2003. The ratio of losses, claims and loss adjustment expenses incurred to net premiums earned for all classes of property and casualty insurance was 60.5% in fiscal 2004, an increase from 58.5% in fiscal 2003.

Policy benefits and losses for life decreased by 11.4% in fiscal 2004 to ¥197,903 million. This decrease primarily reflected an improvement in underwriting results and a decrease in life premiums.

Future policy benefits and losses include provisions for future policy benefits for life contracts and for unpaid life policy claims. The liabilities for future policy benefits are computed by a net level premium method using estimated future investment yields, withdrawals and recognized morbidity and mortality tables. For limited-payment contracts, which provide insurance coverage over a contract period that extends beyond the period in which premiums are collected, gross premiums in excess of the net premiums are deferred and recognized in income during the periods when the insurance is in force or when future benefit payments are expected to become due. Unpaid policy claims represent the estimated liability for reported and unreported losses on life policies on an undiscounted basis. We believe that our estimated provisions for future policy benefits and for losses at March 31, 2004 are adequate to cover our life insurance liability. However, our ultimate liability may vary from these estimates.

Income credited to investment deposits by policyholders increased by 4.3% in fiscal 2004 to ¥58,414 million. This increase was primarily due to the expansion of the life annuity business.

We incurred policy acquisition costs in fiscal 2004 of ¥558,978 million, a decrease of 2.1% from fiscal 2003. This decrease primarily reflected our efforts to reduce expenses.

Other operating expenses increased by 3.5% in fiscal 2004 to ¥100,097 million. This increase was primarily due to an increase in expenses relating to the planned merger of Tokio Marine and Nichido Fire.

Net investment income in fiscal 2004 was ¥126,173 million, an increase of ¥17,862 million, or 16.5%, from fiscal 2003. This increase primarily reflected an increase in interest earned on fixed maturities and a decrease in impairments on loans.

Realized losses on investments decreased to ¥3,855 million in fiscal 2004 from ¥29,875 million in fiscal 2003. The decrease in losses primarily reflected a decrease in impairments of equity securities reflecting the recovery of the Japanese equity market, partly offset by the decrease in realized gains on sales of equity securities.

Losses on derivatives in fiscal 2004 were ¥36,755 million, as compared to gains of ¥76,564 million in fiscal 2003. These losses primarily reflected losses of ¥45,775 million on interest swap agreements, partially offset by gains from foreign exchange contracts in the amount of ¥7,458 million and gains on credit default swaps in the amount of ¥6,797 million. We utilize interest rate swaps in our economical hedging activities for our asset liability management and foreign exchange contracts to economically hedge our foreign currency exposure.

Income before income tax expense, extraordinary items and cumulative effect of accounting changes decreased to ¥152,267 million in fiscal 2004 from ¥201,308 million in fiscal 2003, a decrease of 24.4%.

Income tax expense for fiscal 2004 was ¥49,385 million, a decrease of 31.0% compared to fiscal 2003. The effective tax rate decreased to 32.4% in fiscal 2004 from 35.6% in fiscal 2003. This decrease in the effective tax rate reflected an increase in income earned in low income tax rate countries.

Income before extraordinary items and cumulative effect of accounting changes decreased to ¥102,882 million in fiscal 2004 from ¥129,694 million in fiscal 2003, a decrease of 20.7%.

We did not recognize any extraordinary items in fiscal 2004. We recognized extraordinary items of ¥248,323 million in fiscal 2003 with respect to unallocated negative goodwill arising from the business combination with Nichido Fire.

There were no accounting changes that resulted in any cumulative effect of accounting changes in fiscal 2004 and 2003.

As a result of the foregoing, our net income decreased to ¥102,882 million in fiscal 2004 from ¥378,017 million in fiscal 2003, a decrease of 72.8%. This decrease was mainly due to the decrease of income from extraordinary items. In fiscal 2003, we have recognized income from extraordinary items, unallocated negative goodwill arising from the business combination of Tokio Marine and Nichido Fire, in the amount of ¥248,323 million. The remaining decrease was due to a decrease in income before extraordinary items and cumulative effect of accounting changes.

Year Ended March 31, 2003 Compared to Year Ended March 31, 2002

Our consolidated statement of income for the fiscal year ended March 31, 2003, or fiscal 2003, reflected the inclusion of the results of operations of Nichido Fire and its consolidated subsidiaries from and after the date of our formation on April 2, 2002. Consistent with U.S. GAAP and with Exchange Act requirements regarding the presentation of our financial statements, our consolidated statement of income for the fiscal year ended March 31, 2002, or fiscal 2002, has not been restated to reflect the inclusion of Nichido Fire and its consolidated subsidiaries. Accordingly, our results of operations for fiscal 2003 are not directly comparable to our results of operations for fiscal 2002. The following discussion provides certain information regarding the magnitude of the impact of the inclusion of Nichido Fire and its consolidated subsidiaries in our consolidated statement of income for the year ended March 31, 2003.

Our direct premiums written for property and casualty insurance for fiscal 2003 were ¥1,987,463 million, an increase of 31.7% from ¥1,509,615 million in fiscal 2002. The inclusion of Nichido Fire’s results of operations in our consolidated statement of income in fiscal 2003 accounted for an increase of 28.1% in our direct premiums written compared to fiscal 2002. Net premiums written for property and casualty insurance, which represent direct premiums written plus assumed reinsurance premiums minus ceded reinsurance premiums, were ¥1,898,557 million in fiscal 2003, an increase of 37.4% from ¥1,381,483 million in fiscal 2002. The inclusion of Nichido Fire’s results of operations in our consolidated statement of income in fiscal 2003 accounted for an increase of 28.7% in our net premiums written compared to fiscal 2002. The remaining increase was mainly due to a decrease in premiums ceded to the government for compulsory automobile liability insurance, reflecting the abolition of the government reinsurance scheme.

Property and casualty insurance premiums are recognized as earned on a pro rata basis over the terms of the policies. Unearned premiums represent the portion of premiums written which relate to the unexpired terms of coverage. After deducting the increase in unearned premiums of ¥137,589 million for fiscal 2003, premiums earned in fiscal 2003 were ¥1,760,968 million, an increase of 31.1% from fiscal 2002. The inclusion of Nichido Fire’s results of operations in our consolidated statement of income in fiscal 2003 accounted for an increase of 27.7% in our premiums earned compared to fiscal 2002. The remaining increase was primarily attributable to an increase in net premiums written in fiscal 2003 compared to fiscal 2002.

Life premiums, which represent direct premiums earned plus assumed reinsurance premiums minus ceded reinsurance premiums, were ¥262,486 million in fiscal 2003, an increase of 25.5% from fiscal 2002. The inclusion of Nichido Fire’s results of operations in our consolidated statement of income in fiscal 2003 accounted for an increase of 16.3% in our life premiums compared to fiscal 2002. The remaining increase primarily reflected a steady expansion of our life insurance business.

Losses and claims incurred and provided for, or net loss incurred, for all property and casualty insurance in fiscal 2003 amounted to ¥953,681 million, an increase of ¥216,916 million, or 29.4%, from fiscal 2002. The inclusion of Nichido Fire’s results of operations in our consolidated statement of income in fiscal 2003 accounted for an increase of 27.5% in our net loss incurred compared to fiscal 2002. The ratio of the total amount of net loss incurred to net premiums earned — the net loss ratio — was 54.2% in fiscal 2003, a decrease from 54.9% in fiscal 2002. This decrease was due primarily to a decrease in unpaid losses, claims and loss adjustment expenses resulting from foreign currency gains attributable to the appreciation of the yen, as well as to our efforts to improve underwriting results.

Principal property and casualty insurance lines fared as follows:

• Voluntary Automobile Insurance. Net premiums written for voluntary automobile insurance, the largest line of our property and casualty insurance business, increased by 28.1% in fiscal 2003 to ¥898,119 million. The inclusion of Nichido Fire’s results of operations in our consolidated statement of income in fiscal 2003 accounted for an increase of 29.3% in our net premiums written compared to fiscal 2002. This increase was partially offset primarily due to the discount in premium rates granted upon the renewal of policies that did not experience any loss in the prior period. The net loss ratio increased from 55.6% in fiscal 2002 to 56.6% in fiscal 2003, mainly due to the high loss ratio in our overseas business in fiscal 2003 and the inclusion of Nichido Fire’s results of operations in our consolidated statement of income in fiscal 2003.

• Compulsory Automobile Liability Insurance. Net premiums written for compulsory automobile insurance increased by 144.5% in fiscal 2003 to ¥280,883 million. The inclusion of Nichido Fire’s results of operations in our consolidated statement of income in fiscal 2003 accounted for an increase of 56.5% in our net premiums written compared to fiscal 2002. The remaining increase was mainly due to a decrease in premiums ceded to the government, reflecting the abolition of the government reinsurance scheme. The net loss ratio increased from 65.4% in fiscal 2002 to 74.4% in fiscal 2003, mainly due to the abolition of the government reinsurance scheme.

• Fire and Allied Lines Insurance. Net premiums written for fire and allied lines insurance amounted to ¥258,981 million in fiscal 2003, an increase of 45.8% from fiscal 2002. The inclusion of Nichido Fire’s results of operations in our consolidated statement of income in fiscal 2003 accounted for an increase of 40.8% in our net premiums written compared to fiscal 2002. The remaining increase was mainly due to expanding sales of these insurance products through banks. The net loss ratio decreased from 39.8% in fiscal 2002 to 35.3% in fiscal 2003, reflecting the foreign currency gains attributable to the appreciation of the yen, and also reflecting the terrorist attacks in the United States in fiscal 2002, which pushed up the loss ratio in fiscal 2002.

• Personal Accident Insurance. Net premiums written for personal accident insurance increased by 27.9% in fiscal 2003 to ¥155,077 million. The inclusion of Nichido Fire’s results of operations in our consolidated statement of income in fiscal 2003 accounted for an increase of 25.4% in our net premiums written compared to fiscal 2002. The remaining increase was mainly due to expanding sales of so-called “third sector” insurance products, which include cancer insurance and medical insurance products. The net loss ratio decreased from 43.3% in fiscal 2002 to 42.8% in fiscal 2003.

• Cargo and Transit Insurance. Net premiums written for cargo and transit insurance increased by 12.8% in fiscal 2003 to ¥62,373 million. The inclusion of Nichido Fire’s results of operations in our consolidated statement of income in fiscal 2003 accounted for an increase of 4.2% in our net premiums written compared to fiscal 2002. The remaining increase mainly reflected an increase in premium rates for war insurance coverage. The net loss ratio decreased from 51.7% in fiscal 2002 to 46.7% in fiscal 2003, mainly due to our efforts to improve underwriting results.

• Hull Insurance. Net premiums written for hull insurance amounted to ¥14,200 million in fiscal 2003, unchanged from fiscal 2002. The net loss ratio increased from 68.0% in fiscal 2002 to 90.1% in fiscal 2003, mainly due to an increase in large claims.

• Other Insurance. Net premiums written for all other types of property and casualty insurance, including liability insurance, workers’ compensation insurance, guarantee insurance, movable comprehensive insurance, aviation and miscellaneous pecuniary loss insurance, increased by 16.0% in fiscal 2003 to ¥228,924 million. The inclusion of Nichido Fire’s results of operations in our consolidated statement of income in fiscal 2003 accounted for an increase of 10.1% in our net premiums written compared to fiscal 2002. The remaining increase was mainly due to an increase in premium rates reflecting the hard insurance market. The net loss ratio decreased from 67.2% in fiscal 2002 to 56.7% in fiscal 2003, mainly due to the increase in premium rates and the foreign currency gains attributable to the appreciation of the yen.

Total operating costs and expenses, which represents the sum of losses, claims and loss adjustment expenses, policy benefits and losses for life, income credited to investment deposits by policyholders, policy acquisition costs and other operating expenses, amounted to ¥1,977,146 million in fiscal 2003, an increase of 28.4% from fiscal 2002. The inclusion of Nichido Fire’s results of operations in our consolidated statement of income in fiscal 2003 accounted for an increase of 25.3% in our total operating costs and expenses compared to fiscal 2002. The remaining increase was primarily attributable to increases in policy benefits and losses for life, losses and claims incurred and provided for and policy acquisition costs, partially offset by a decrease in income credited to investment deposits by policyholders.

Loss adjustment expenses in fiscal 2003 were ¥76,412 million, an increase of 24.4% from fiscal 2002. The inclusion of Nichido Fire’s results of operations in our consolidated statement of income in fiscal 2003 accounted for an increase of 26.6% in our loss adjustment expenses compared to fiscal 2002. The ratio of losses, claims and loss adjustment expenses incurred to net premiums earned for all classes of property and casualty insurance was 58.5% in fiscal 2003, a decrease from 59.4% in fiscal 2002.

Policy benefits and losses for life increased by 27.6% in fiscal 2003 to ¥223,316 million. The inclusion of Nichido Fire’s results of operations in our consolidated statement of income in fiscal 2003 accounted for an increase of 16.8% in our policy benefits and losses for life compared to fiscal 2002. The remaining increase primarily reflected a steady expansion of our life insurance business.

Future policy benefits and losses include provisions for future policy benefits for life contracts and for unpaid life policy claims. The liabilities for future policy benefits are computed by a net level premium method using estimated future investment yields, withdrawals and recognized morbidity and mortality tables. For limited-payment contracts, which provide insurance coverage over a contract period that extends beyond the period in which premiums are collected, gross premiums in excess of the net premiums are deferred and recognized in income during the periods when the insurance is in force or when future benefit payments are expected to become due. Unpaid policy claims represent the estimated liability for reported and unreported losses on life policies on an undiscounted basis. We believe that our estimated provisions for future policy benefits and for losses at March 31, 2003 are adequate to cover our life insurance liability. However, our ultimate liability may vary from these estimates.

Income credited to investment deposits by policyholders decreased by 2.6% in fiscal 2003 to ¥56,011 million. This decrease was primarily due to a decline in the average committed interest rate and the decrease in the number of investment contracts in force, which was partially offset by the inclusion of Nichido Fire’s results of operations in our consolidated statement of income in fiscal 2003. The inclusion of Nichido Fire accounted for an increase in income credited to investment deposits by policyholders of 4.9% in fiscal 2003 compared to fiscal 2002. Excluding Nichido Fire, income credited to investment deposits by policyholders would have decreased by 7.5% in fiscal 2003.

We incurred policy acquisition costs in fiscal 2003 of ¥571,058 million, an increase of 30.7% from fiscal 2002. The inclusion of Nichido Fire’s results of operations in our consolidated statement of income in fiscal 2003 accounted for an increase of 27.4% in our policy acquisition costs compared to fiscal 2002. The remaining increase primarily reflected an increase in the number of life insurance policies written and an increase in net premiums written for property and casualty insurance.

Other operating expenses increased by 34.1% in fiscal 2003 to ¥96,668 million. The inclusion of Nichido Fire’s results of operations in our consolidated statement of income in fiscal 2003 accounted for an increase of 25.2% in our other operating expenses compared to fiscal 2002.

Net investment income in fiscal 2003 was ¥108,311 million, an increase of ¥3,630 million, or 3.5%, from fiscal 2002. The inclusion of Nichido Fire’s results of operations in our consolidated statement of income in fiscal 2003 accounted for an increase of 19.2% in our net investment income compared to fiscal 2002. This increase was partially offset primarily by a decrease in net investment income reflecting the low Japanese interest rate environment.

Realized losses on investments increased to ¥29,875 million in fiscal 2003 from ¥1,020 million in fiscal 2002. The inclusion of Nichido Fire’s results of operations in our consolidated statement of income in fiscal 2003 accounted for an increase of ¥81,346 million in our realized losses on investments compared to fiscal 2002. This increase was partially offset by realized gains of ¥93,690 million from contributing ¥92,127 million of Tokio Marine’s equity securities, measured at cost, to an exchange traded fund.

Gains on derivatives in fiscal 2003 were ¥76,564 million, as compared to losses of ¥7,319 million in fiscal 2002, reflecting gains of ¥11,688 million for foreign exchange contracts principally to economically hedge our foreign currency exposures and ¥68,011 million for interest rate swap agreements to economically hedge our interest rate risk exposures. Nichido Fire recognized losses on derivatives of ¥429 million in fiscal 2003.

Income before income tax expense, extraordinary items and cumulative effect of accounting changes increased to ¥201,308 million in fiscal 2003 from ¥108,668 million in fiscal 2002, an increase of 85.3%. Excluding Nichido Fire, income before income tax expense, extraordinary items and cumulative effect of accounting changes would have increased by 126.0% in fiscal 2003.

Income tax expense for fiscal 2003 was ¥71,614 million, an increase of 114.3% compared to fiscal 2002. Excluding Nichido Fire’s results of operations from our consolidated statement of income in fiscal 2003, income tax expense would have increased by 160.4%. The effective tax rate increased from 30.8% in fiscal 2002 to 35.6% in fiscal 2003. This increase in the effective tax rate reflected the decrease in dividends received which are deductible in our taxable income calculation.

Income before extraordinary items and cumulative effect of accounting changes increased to ¥129,694 million in fiscal 2003 from ¥75,252 million in fiscal 2002, an increase of 72.3%. The inclusion of Nichido Fire’s results of operations in our consolidated statement of income in fiscal 2003 accounted for a decrease of 38.4% in our income before extraordinary items and cumulative effect of accounting changes compared to fiscal 2002.

Extraordinary items of ¥248,323 million were recognized in fiscal 2003 with respect to unallocated negative goodwill arising from the business combination with Nichido Fire. We recognized no extraordinary items in fiscal 2002.

There were no accounting changes in fiscal 2003 that resulted in any cumulative effect of accounting changes in fiscal 2003. The cumulative effect of accounting changes, net of tax, in fiscal 2002 amounted to ¥85,465 million due to the adoption of SFAS No. 133, as amended, as of April 1, 2002.

As a result of the foregoing, our net income, which includes extraordinary items of ¥248,323 million, increased to ¥378,017 million in fiscal 2003 from ¥160,717 million in fiscal 2002, an increase of 135.2%.

Credit Losses and Non-Performing Loans

The continuing weak economic environment in Japan during the 1990s and the beginning of this decade have resulted in the deterioration of the financial conditions of Japanese corporate and individual borrowers and a high number of bankruptcy filings. A substantial portion of the affected credit extended by Japanese financial institutions is secured by real estate as collateral. The deterioration in credit and the continuing decline in the value of real estate have led to a substantial increase in the amount of non-performing loans in Japanese financial institutions’ portfolios. Under these circumstances, Japanese non-life insurers, including Tokio Marine and Nichido Fire, have seen their non-performing loans increase, although not as much as other types of financial institutions. The main reason for this is that Japanese non-life insurers are required to maintain high levels of liquidity compared with other types of financial institutions, in order to be able to make claims payments, which has meant that they have diversified their investment portfolios.

The following table, prepared on a U.S. GAAP basis, shows our recorded investment in impaired loans and specific valuation allowances as of each of the dates indicated:


	As of March 31,
	2004(1)		2003(1)		2002(1)
	(yen in millions)
Recorded investment in impaired loans:
Mortgage loans on real estate	¥	13,408	¥	31,483	¥	16,726
Collateral and bank guaranteed loans		7		11,360		—
Unsecured loans		17,808		23,153		30,564

Total	¥	31,223	¥	65,996	¥	47,290

Specific valuation allowances:
Mortgage loans on real estate	¥	6,110	¥	12,862	¥	8,264
Collateral and bank guaranteed loans		7		4,865		—
Unsecured loans		9,807		12,378		15,806

Total	¥	15,924	¥	30,105	¥	24,070

(1)

In addition to the valuation allowances reflected in the table above, we have made additional allowances for other loans based on past loss experience and current economic conditions. These additional allowances were ¥3,808 million at March 31, 2004.

Cash Flows

Year Ended March 31, 2004 Compared to Year Ended March 31, 2003

Net cash provided by operating activities was ¥380,647 million in fiscal 2004, compared to ¥440,365 million in fiscal 2003. This decrease was primarily attributable to a decrease in net income, a decrease in payable for current income taxes and a decrease in other liabilities, partially offset by absence of extraordinary items, a decrease in derivatives assets and liabilities (net) and an increase in losses, claims and loss adjustment expense reserve net of ceded reinsurance.

Net cash used in investing activities was ¥253,397 million in fiscal 2004, compared to ¥391,219 million in fiscal 2003. This decrease was principally due to an increase in proceeds from the sale of fixed maturity securities, a decrease in the cost of fixed maturity and equity securities purchased, partially offset by a decrease in the results from short-term investments.

Net cash used in financing activities was ¥34,828 million in fiscal 2004, compared to ¥31,755 million in fiscal 2003. This increase was mainly attributable to an increase in cash used for the purchase of treasury stock, partially offset by an increase in cash received under securities lending transactions and a decrease in net cash used in investment deposits by policyholders.

The operating, investing and financing activities described above resulted in net cash at March 31, 2004 of ¥432,874 million, compared to ¥339,978 million at March 31, 2003, representing an increase of ¥92,896 million.

Year Ended March 31, 2003 Compared to Year Ended March 31, 2002

Our cash flow statements for fiscal 2003 reflected the inclusion of the results of operations and financial position of Nichido Fire and its consolidated subsidiaries from and after the date of our formation on April 2, 2002. Accordingly, our cash flow statements for fiscal 2003 are not directly comparable to our cash flow statements for fiscal 2002.

Net cash provided by operating activities was ¥440,365 million in fiscal 2003, compared to ¥346,885 million in fiscal 2002. This increase was primarily attributable to an increase in net income and unearned premiums net of ceded insurance.

Net cash used in investing activities was ¥391,219 million in fiscal 2003, compared to ¥19,518 million in fiscal 2002. This increase was principally due to an increase in the cost of fixed maturity securities purchased, partially offset by an increase in proceeds from fixed maturity securities sold and redeemed as well as equity securities sold.

Net cash used in financing activities was ¥31,755 million in fiscal 2003, compared to ¥117,787 million in fiscal 2002. This decrease was mainly attributable to an increase in cash flows from investment deposits funded by policyholders and yields on these deposits, as well as the proceeds from issuance of debt, which was partially offset by an increase in withdrawals of investment deposits by policyholders.

The operating, investing and financing activities described above resulted in net cash at March 31, 2003 of ¥339,978 million, compared to ¥322,302 million at March 31, 2002, representing an increase of ¥17,676 million.

Recent Accounting Pronouncements

In June 2001, the FASB issued SFAS No. 143, “Accounting for Asset Retirement Obligations.” This statement addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated retirement costs. We adopted SFAS No. 143 on April 1, 2003. The adoption of SFAS No. 143 did not have a material effect on our financial position and results of operations for the year ended March 31, 2004.

In November 2002, the FASB issued Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others”, or FIN 45. FIN 45 requires that upon issuance of certain types of guarantees, a guarantor must recognize a liability for the fair value of an obligation assumed under a guaranty. FIN 45 also requires additional disclosures by a guarantor in its financial statements about the obligations associated with guarantees issued. The recognition provisions of FIN 45 were effective for any guarantees issued or modified after December 31, 2002. The adoption of FIN 45 did not have a material effect on our financial statements. The disclosure requirements were effective for financial statements for the periods ending after December 15, 2002. We adopted the disclosure requirements effective on March 31, 2003. See note 14 to our consolidated financial statements.

In January 2003, the FASB issued Interpretation No. 46, “Consolidation of Variable Interest Entities — an Interpretation of ARB No. 51”, or FIN 46. FIN 46 clarifies when an enterprise should consolidate an entity that meets the definition of a Variable Interest Entity, or VIE, if that enterprise has a variable interest that will absorb a majority of the VIE’s expected losses, receive a majority of the VIE’s expected residual returns, or both. A VIE is an entity in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties, and may include many types of special purpose entities. In December 2003, FASB issued a revision to Interpretation No. 46, or FIN 46R. FIN 46R retains many of the basic concepts introduced in FIN 46, but it also introduces a new scope exception for a certain type of entities that qualify as “business” as defined in FIN 46R, revises the method of calculating the expected losses and residual returns for determination of a primary beneficiary and includes new guidance for assessing variable interests. We adopted FIN 46 for VIEs created after January 31, 2003. We will adopt FIN 46R for all VIEs effective April 1, 2004. We do not see the adoption of FIN 46R to have a material effect on our financial position or results of operations. See note 3 to our consolidated financial statements.

In July 2003, the Accounting Standards Executive Committee of the American Institute of Certified Public Accountants issued Statement of Position 03-1, Accounting and Reporting by Insurance Enterprises for Certain Nontraditional Long-Duration Contracts and for Separate Accounts, or SOP 03-1. SOP 03-1 provides guidance on accounting and reporting by insurance enterprises for certain nontraditional contracts with long duration and for separate accounts. A provision of SOP 03-1 requires the establishment of reserves in addition to the account balance for contracts containing certain features that provide guaranteed death or other insurance benefits and guaranteed income benefits. SOP 03-1 is effective for financial statements for fiscal years beginning after December 15, 2003. SOP 03-1 is not applied retroactively to financial statements for prior years, and initial application should be as of the beginning of an entity’s fiscal year. We will adopt SOP 03-1 effective April 1, 2004. We are currently evaluating the impact of adopting SOP 03-1.

In November 2003, the Emerging Issues Task Force, or the EITF, reached a consensus on EITF Issue No. 03-01, “The Meaning of Other-Than-Temporary Impairment and its Application to Certain Investments”, or EITF 03-01, that certain quantitative and qualitative disclosures are required for equity and fixed maturity securities that are impaired at the balance sheet date but for which an other-than-temporary impairment has not been recognized. The guidance requires companies to disclose, by investment category, the aggregate amount of unrealized losses and the related fair value of investments with unrealized losses for securities that have been in an unrealized loss position for less than 12 months and separately for those that have been in an unrealized loss position for over 12 months. In March 2004, the EITF reached a consensus also on the additional accounting guidance for other-than-temporary impairments and its application to debt and equity investments. We have adopted these disclosure requirements beginning with our consolidated financial statements as of and for the year ended March 31, 2004. See note 3 to our consolidated financial statements.

In December 2003, the FASB revised SFAS No. 132, “Employers’ Disclosures about Pensions and Other Postretirement Benefits” to require additional disclosures relating to pension plans and other postretirement benefit plans. In addition to the existing disclosure requirements for pensions and postretirement benefits, disclosures relating to pension plan assets, obligations, cash flows and net periodic benefit costs are required beginning with the fiscal year ending after December 15, 2003. Additional disclosures pertaining to benefit payments are required for fiscal years ending after June 30, 2004. We have adopted these disclosure requirements beginning with our consolidated financial statements as of and for the year ended March 31, 2004. See note 10 to our consolidated financial statements.

In January 2003, the EITF released Issue No. 03-02, “Accounting for the Transfer to the Japanese Government of the Substitutional Portion of Employee Pension Fund Liabilities”, or EITF 03-02. EITF 03-02 addresses financial accounting and reporting for a transfer to the Japanese government of a portion of a company’s pension plan which substitutes for the welfare pension plan administered by the Japanese government. We will adopt EITF 03-02 on transferring the substitutional portion of our pension plan in fiscal 2006 or later. The effect on our consolidated financial statements of the transfer has not yet been determined. See note 10 to our consolidated financial statements.

Effects of Inflation

Our assets are generally not significantly affected by inflation, since a substantial portion of those assets is highly liquid. However, inflation may result in increases in our expenses, which may not be readily recoverable in the prices of services offered. If inflation results in rising interest rates and has other adverse effects on the capital markets and on the value of financial instruments, our financial position and profitability may be adversely affected.

Exposure to Currency Fluctuations

We conduct a portion of our business in currencies other than the yen, primarily the U.S. dollar. This business includes operations of hull and marine cargo insurance and certain reinsurance, as well as investments in financial products denominated in foreign currencies. If our exposure to currency fluctuations is not properly managed, we would be exposed to risk arising from fluctuations in exchange rates on assets and liabilities denominated in foreign currencies. We seek to manage this exposure primarily by using forward exchange contracts, currency options and other derivatives. We also seek to control currency exposure by holding offsetting foreign currency positions in order to reduce the risk of loss from currency fluctuations.

Use of Derivative Financial Instruments

We use a variety of derivative financial instruments in the normal course of our business to reduce our exposure to fluctuations in foreign exchange, interest rates and market values in our equity portfolios. These instruments include foreign exchange contracts, foreign exchange forwards and futures, currency swaps and currency option contracts, interest rate swap and swaption agreements, equity index futures contracts, equity index option contracts and bond futures contracts.

Integrated Risk Management

We have adopted an integrated risk management system to measure, monitor and control risks inherent in our businesses. We use this system to establish acceptable levels of measurable risks for each fiscal year and to ensure the sufficiency of our shareholders’ equity in light of those risks. These risk amounts are monitored to ensure they are maintained within permissible ranges based on our economic capital model, and reported to our senior management on a periodic basis.

As part of our integrated risk management system, our subsidiaries also conduct risk management based on our integrated risk management policy. Tokio Marine, Nichido Fire and Tokio Marine & Nichido Life quantify market risk and asset-liability management risk, which are discussed in detail below under “Quantitative and Qualitative Disclosures About Market Risk”. We also identify and monitor the following risks:

• Property and casualty insurance risk

Risk of loss arising from fluctuations in the loss ratio and operating expense ratio expected at the time of calculating premiums.

• Life insurance risk

Risk of loss arising from fluctuations in the mortality rate and operating expense rate expected at the time of calculating premiums.

• Credit risk

Risk of loss arising from a decline in the value of our assets (including off-balance-sheet assets), or the total loss of these assets, as a result of deterioration in the obligor’s financial condition.

• Real estate risk

Risk of loss arising from a decline in income from rentals or in the value of our real estate as a result of deterioration in the real estate market.

• Liquidity risk

Risk of loss arising from being forced to dispose of assets at a significant discount to prevailing market prices because of a shortage of funds, market disruptions or other unexpected events.

• Operational risk

Risk of loss resulting from inadequate or failed internal processes and systems or from external events.

Quantitative and Qualitative Disclosures About Market Risk

Property and Casualty Insurance Business

We conduct our property and casualty insurance business primarily through Tokio Marine and Nichido Fire and their respective subsidiaries. A substantial portion of the investments relating to our property and casualty insurance business are made at the Tokio Marine and Nichido Fire parent company level. Tokio Marine’s and Nichido Fire’s subsidiaries conduct market risk management with respect to their own investments, and report the status of their market risk situations to Tokio Marine and Nichido Fire on a regular basis. Except as otherwise noted, the following discussion relates to market risk management of Tokio Marine and Nichido Fire only (and not their subsidiaries).

Market Risk Generally

Our property and casualty insurance business accumulates assets primarily because it receives premiums for underwriting insurance policies in advance of being required to make payments for claims under those policies as well as deposits for deposit-type insurance policies. Our property and casualty insurance business funds the benefits it provides under insurance policies with gains and income generated by its investment portfolio assets. These investments are subject to market risk. The following is a discussion of our property and casualty insurance business’ primary market risk exposures and how those exposures were managed as of March 31, 2004.

Investment Objectives

Tokio Marine and Nichido Fire invest premiums and deposits received from policyholders in various investments. Their principal investment objectives are to maximize their net asset value and maintain sufficient liquidity in their investment assets to meet insurance payment obligations while controlling risk within an acceptable range. They also seek to safeguard the interests of policyholders and shareholders.

Market Risk Measurement

Tokio Marine’s and Nichido Fire’s primary market risk exposures are to potential changes in interest rates and equity prices, as well as foreign exchange rates.

Tokio Marine and Nichido Fire define interest rate risk as the risk of loss in the fair values of interest rate sensitive instruments caused by changes in market interest rates. Tokio Marine and Nichido Fire are exposed to interest rate risk due to their investments in fixed income instruments, particularly bonds, loans and other long-term investments. In addition, they are exposed to interest rate risk due to interest rate sensitive obligations and liabilities, including deposit-type insurance and long-term insurance policies. See “— Assets to meet future obligations”. Tokio Marine and Nichido Fire risk a loss because both the market value of fixed income instruments and the present value of their obligations and liabilities may vary when market interest rates fluctuate. Between March 31, 2004 and March 31, 2003, interest rate risk of Tokio Marine’s deposit-type insurance account decreased primarily due to the increased utilization of interest rate swap arrangements and long term bonds for hedging purposes. Interest rate risk of Tokio Marine’s general policy account portfolio also decreased owing to a change in the interest rate risk sensitivity curve primarily due to changes in the level of interest rates between March 31, 2004 and March 31, 2003. There was no significant change in Nichido Fire’s interest rate risk between March 31, 2004 and March 31, 2003.

Tokio Marine and Nichido Fire have a risk of loss due to equity prices because the value of their equity securities may decline. Most of Tokio Marine’s and Nichido Fire’s equity investments are intended to be held for the long term. Tokio Marine’s and Nichido Fire’s equity holdings are primarily in the Japanese market. Between March 31, 2004 and March 31, 2003, the level of Tokio Marine’s and Nichido Fire’s equity price risk increased as a result of increases in Japanese equity prices.

Foreign exchange rate risk is the risk of a loss in the fair values of instruments denominated in a currency other than Tokio Marine’s and Nichido Fire’s functional currency, which is the yen, due to fluctuations of foreign exchange rates. Tokio Marine and Nichido Fire are exposed to foreign exchange rate risk because some of their assets are denominated in a currency other than the yen. If the value of a foreign currency declines relative to the yen, the fair value of assets denominated in that foreign currency would also decline. Tokio Marine’s and Nichido Fire’s primary exposures for foreign exchange rate risk are the U.S. dollar, euro and pound sterling. Between March 31, 2004 and March 31, 2003, there was no significant change in Tokio Marine’s and Nichido Fire’s foreign exchange rate risk.

Tokio Marine and Nichido Fire do not hold physical or derivative commodity positions.

We do not anticipate significant changes in the composition of Tokio Marine’s and Nichido Fire’s primary market risk exposures or in how those exposures are managed in future reporting periods.

Market Risk Management and Risk Exposure Estimates

As risks associated with managing assets and liabilities are becoming increasingly diversified and complex, we seek to continue to enhance the risk management systems of our property and casualty insurance business and to adopt more sophisticated methods to manage their various risks. Tokio Marine’s and Nichido Fire’s financial risk management departments, which are independent of their asset management divisions, are responsible for overseeing their market risk management process. This process includes establishing appropriate controls, policies and procedures relating to market risks; ensuring appropriate senior management oversight of market risk-taking and risk controlling activities; and analyzing, monitoring and reporting market risks.

Tokio Marine

Tokio Marine divides its assets under management into the following three categories for investment and risk management purposes, with investment and risk management policies tailored to each category:

• Assets to meet future obligations;

• Risk assets; and

• Other assets.

Assets to meet future obligations. Assets to meet future obligations are intended to provide reserves for insurance policies, including deposit-type insurance and long-term insurance policies. To ensure that Tokio Marine can make required payments on those policies at maturity without regard to interest rate fluctuations, both the assets and the liabilities must be managed effectively. This is called asset-liability management. Tokio Marine has been developing an advanced asset-liability management system and believes that it maintains a well-controlled portfolio that includes various bonds, loans and interest rate swap transactions used for hedging purposes.

In addition, to enhance its asset-liability management capabilities with respect to deposit-type insurance policies, Tokio Marine groups investment deposit contracts primarily by type and duration of insurance policies. Each month, Tokio Marine measures interest rate sensitivity for the assets and liabilities in each of these groups. Based upon these measurements, Tokio Marine utilizes interest rate swaps in an effort to control the interest rate sensitivity in the assets and the liabilities in each group of investment deposits. At March 31, 2004, Tokio Marine had ¥3.1 trillion notional amount of interest rate swaps outstanding primarily to hedge its exposure in respect of deposit-type insurance policies.

In Tokio Marine’s sensitivity analysis model, a hypothetical change in market rates is selected that Tokio Marine expects to reflect reasonably possible near-term changes in those rates. For these purposes, Tokio Marine defines “near-term” to mean a period of up to one year from the date of its most recent consolidated financial statements. Actual results may differ from the hypothetical change in market rates assumed in the following discussion, especially since this sensitivity analysis does not reflect the results of any actions that Tokio Marine would take to mitigate these hypothetical losses in fair value.

The following tables show the effect of hypothetical changes in interest rates on the present value of the surplus in Tokio Marine’s (parent company only) asset-liability portfolio, measured as the difference between the present value of its assets and that of its liabilities (before taxes and future policy dividends) as of March 31, 2004 and March 31, 2003. The information presented in the following tables was prepared for risk management purposes and does not present the effect of actual changes in interest rates that have occurred in the past or may occur in the future on the financial condition, results of operations or corporate value of Tokio Marine.


	As of March 31, 2004
	Yield curve shift(1)
	-1%			±0%		1%			+2%
	(yen in billions)
General Policy Account	¥	(5.7	)	¥	0.0	¥	(6.2	)	¥	(15.5	)
Deposit-Type Insurance Account		(15.7	)		0.0		13.9			24.5

Asset-Liability Portfolio (Tokio Marine non-consolidated)	¥	(21.3	)	¥	0.0	¥	7.7		¥	9.0


	As of March 31, 2003
	Yield curve shift(1)
	-1%			±0%		1%		+2%
	(yen in billions)
General Policy Account		(30.1	)	¥	0.0	¥	2.4	¥	(4.9	)
Deposit-Type Insurance Account		(33.1	)		0.0		29.2		51.5

Asset-Liability Portfolio (Tokio Marine non-consolidated)	¥	(63.2	)	¥	0.0	¥	31.6	¥	46.6

(1)

Based on the then-prevailing yield curve for Japanese government bonds on each of the dates indicated.

Assets to meet future obligations are exposed to credit risk and liquidity risk. Credit risk increase when bonds and loans in a portfolio suffer significant defaults. In addition to using a corporate rating system, Tokio Marine manages credit risk with its Value-at-Credit Risk model, which Tokio Marine developed to estimate credit risk. We believe this model has enhanced Tokio Marine’s ability to manage its credit risk portfolio. Tokio Marine manages liquidity risk by aiming to maintain various ways to raise funds quickly for the prompt payment of insurance claims and to ensure sufficient liquidity.

Risk assets. Risk assets are those investments which purely pursue high profitability compared to risk amount. Tokio Marine’s risk assets include bonds, stocks, derivatives and foreign currency positions in the currencies of industrialized nations.

Each month, Tokio Marine measures the risks that result from its risk asset portfolio utilizing the expected shortfall method, at a 99% confidence level over a one-year period. Under this method, Tokio Marine estimates the expected loss in the fair value of its risk portfolio based on the occurrence of losses that are outside of the 99% confidence interval, as compared to the value-at-risk of that portfolio, which is estimated based on the occurrence of a loss at the 99% confidence level. Like the value-at-risk, the expected shortfall method takes into account market factors to which the market value of the portfolio position is exposed (interest rates, equity prices and foreign exchange rates), the sensitivity of the position to changes in those market factors, and the volatilities and correlation of those factors. This method also makes assumptions about market behavior. Assuming a normal distribution, the expected shortfall for the risk assets portfolio, at a 99% confidence level, is calculated based on an adverse market movement that exceeds the standard deviation by a factor of 2.67, while the value-at-risk for the risk assets portfolio, at a 99% confidence level, is calculated based on an adverse market movement that exceeds the standard deviation by a factor of 2.33.

The following tables present the expected shortfall for Tokio Marine’s risk asset portfolio for the years ended March 31, 2004 and March 31, 2003, calculated over a one-year period. In our annual report for the year ended March 31, 2003, we presented the expected shortfall calculated over a one-month period. To facilitate a period-to-period comparison, we have recalculated the figures for the year ended March 31, 2003 over a one-year period. This change does not constitute any change to our risk management method and is a change in the method of presentation only.


	Year ended March 31, 2004
	Expected shortfall for risk assets portfolio(1)
Risk category	Average		High		Low		As of March 31, 2002
	(yen in billions)
Interest rate	¥	7.0	¥	9.9	¥	3.5	¥	9.9
Foreign exchange		13.2		21.4		10.1		21.4
Equities		49.7		56.0		44.0		47.0


	Year ended March 31, 2003
	Expected shortfall for risk assets portfolio(1)
Risk category	Average		High		Low		As of March 31, 2003
	(yen in billions)
Interest rate	¥	4.1	¥	8.3	¥	0.5	¥	0.5
Foreign exchange		9.8		14.5		0.6		11.3
Equities		37.8		39.7		36.2		36.2

(1)

Calculated over a one-year period and based on a 99% confidence level.

Other assets. Other assets are those held mainly for the purpose of operating the property and casualty insurance business. The profitability of these assets is determined in an integrated manner with the profitability of insurance operations.

At March 31, 2004, the market value of Tokio Marine’s Japanese equity securities in this portfolio was ¥2,677.1 billion, which accounted for 41.9% of Tokio Marine’s total investments across all portfolios. Consequently, Tokio Marine’s net asset value tends to fluctuate considerably in accordance with price movements in the domestic stock market.

We estimated that a ten percent downward movement in the level of the Nikkei Stock Average would have caused a loss in the fair value of Tokio Marine’s other assets of ¥235.6 billion and ¥183.0 billion as of March 31, 2004 and March 31, 2003.

Nichido Fire

Nichido Fire’s material market risk exposures in its investment portfolio relate to interest rates, equity prices and foreign exchange rates. Nichido Fire does not have a material trading portfolio.

Nichido Fire uses a risk modeling technique known as “sensitivity analysis” to analyze the implications of changes in market conditions on investments it holds. Nichido Fire defines sensitivity analysis as the measurement of potential loss in future earnings, fair values or cash flows of market sensitive instruments resulting from one or more selected hypothetical changes in interest rates and other market rates or prices over a selected period of time.

In Nichido Fire’s sensitivity analysis model, a hypothetical change in market rates is selected that Nichido Fire expects to reflect reasonably possible near-term changes in those rates. For these purposes, Nichido Fire defines “near-term” to mean a period of up to one year from the date of its most recent consolidated financial statements. Actual results may differ from the hypothetical change in market rates assumed in the following discussion, especially since this sensitivity analysis does not reflect the results of any actions that Nichido Fire would take to mitigate these hypothetical losses in fair value.

Interest rate risk. The following tables show the effect of hypothetical interest rate fluctuations on the present value of the surplus in Nichido Fire’s (parent company only) asset-liability portfolio, measured as the difference between the present value of its assets and that of its liabilities (before taxes and future policy dividends) as of March 31, 2004 and March 31, 2003. The information presented in the following tables was prepared for risk management purposes and does not present the effect of actual changes in interest rates that have occurred in the past or may occur in the future on the financial condition, results of operations or corporate value of Nichido Fire.


	As of March 31, 2004
	Yield curve shift(1)
	-1%			±0%		1%		+2%
	(yen in billions)
General Policy Account	¥	(7.8	)	¥	0.0	¥	6.7	¥	12.1
Deposit-Type Insurance Account		(5.9	)		0.0		8.6		15.9

Asset-Liability Portfolio (Nichido Fire non-consolidated)	¥	(13.7	)	¥	0.0	¥	15.3	¥	28.0


	As of March 31, 2003
	Yield curve shift(1)
	-1%			±0%		1%		+2%
	(yen in billions)
General Policy Account	¥	(3.3	)	¥	0.0	¥	3.5	¥	6.4
Deposit-Type Insurance Account		(7.1	)		0.0		12.8		23.5

Asset-Liability Portfolio (Nichido Fire non-consolidated)	¥	(10.4	)	¥	0.0	¥	16.3	¥	29.9

(1)

Based on the then-prevailing yield curve for Japanese government bonds on each of the dates indicated.

Equity price and foreign exchange rate risks. A ten percent uniform upward and downward movement in stock prices is assumed for calculating the fair value sensitivity of equity securities held by Nichido Fire. Foreign exchange rate risk is estimated by assuming a ten percent increase and decrease in all non-yen exchange rates against the yen. Consequently, the fair value sensitivity shown below illustrates the effect on fair values if, simultaneously and uniformly, all non-yen currencies gained or lost ten percent of their value relative to the yen. Actual results may differ from the hypothetical change in market rates assumed in the following discussion, especially since this sensitivity analysis does not reflect the results of any actions that Nichido Fire would take to mitigate these hypothetical losses in fair value.

The following table shows the sensitivity of Nichido Fire’s investments to hypothetical changes in equity prices and foreign exchange values, by category of market risk, as of March 31, 2004 and March 31, 2003. The information presented in the following tables was prepared for risk management purposes and does not present the effect of actual changes in foreign exchange rates or stock prices that have occurred in the past or may occur in the future on the financial condition, results of operations or corporate value of Nichido Fire.


	As of March 31, 2004
	Percentage change
Risk category	-10%			±0%		+10%
	(yen in billions)
Equities(1)	¥	(55.3	)	¥	0.0	¥	55.3
Foreign exchange(2)		(4.8	)		0.0		4.8


	As of March 31, 2003
Risk category	Percentage change
	-10%			±0%		+10%
	(yen in billions)
Equities(1)	¥	(41.8	)	¥	0.0	¥	41.8
Foreign exchange(2)		(20.4	)		0.0		20.4

(1)

For equity price risk, a ten percent uniform upward or downward movement in the benchmark Nikkei Stock Average as of March 31, 2004 (¥11,715) and March 31, 2003 (¥7,972) was assumed for calculating the market value of Nichido Fire’s portfolio.

(2)

For foreign exchange risk assets, a ten percent upward or downward change in foreign currencies against the yen as of March 31, 2004 and March 31, 2003 was assumed for calculating the market value of Nichido Fire’s portfolio.

Life Insurance Business

We operate our life insurance business primarily through our subsidiary Tokio Marine & Nichido Life, which was formed in October 2003 as the result of the merger of Tokio Marine Life and Nichido Life. See “Business — Life Insurance Business.” The integration of the risk management functions of Tokio Marine Life and Nichido Life was completed in October 2003. Information presented as of a date or for a period ended prior to October 2003 was prepared for comparison purposes only and presents a combination of Tokio Marine Life’s and Nichido Life’s historic data.

Market Risk Generally

Tokio Marine & Nichido Life accumulates assets primarily because it receives premiums for underwriting insurance policies in advance of being required to make payments for claims under those policies. Tokio Marine & Nichido Life funds the benefits it provides under insurance policies with gains and income generated by its investment portfolio assets. These investments are subject to market risk but are strictly managed under Tokio Marine & Nichido Life’s asset-liability management system. The following is a discussion of Tokio Marine & Nichido Life’s primary market risk exposures and how those exposures were managed as of March 31, 2004.

Investment Objectives

Tokio Marine & Nichido Life invests premiums and deposits received from policyholders in various investments. Its principal investment objective is to effectively control the effect of interest rate fluctuation on the surplus, measured as the difference between the present value of its assets and that of its liabilities, and maintain stable net investment income.

Market Risk Measurement

Tokio Marine & Nichido Life’s primary market risk exposures are to potential changes in interest rates.

Tokio Marine & Nichido Life defines interest rate risk as the risk of loss in the fair values of interest rate sensitive instruments caused by changes in market interest rates. Tokio Marine & Nichido Life is exposed to interest rate risk due to its investments in fixed income instruments, particularly bonds, policy loans and other long-term investments. In addition, Tokio Marine & Nichido Life is exposed to interest rate risk due to interest rate sensitive obligations and liabilities. See “— Assets to meet future obligations”. Tokio Marine & Nichido Life risks a loss because both the market value of fixed income instruments and the present value of its obligations and liabilities may vary when market interest rates fluctuate. Between March 31, 2004 and March 31, 2003, Tokio Marine & Nichido Life’s interest rate risk decreased primarily due to the increased utilization of interest rate swap arrangements in its asset-liability management which has significantly reduced Tokio Marine & Nichido Life’s exposure to fluctuations in the interest rate environment.

Tokio Marine & Nichido Life’s investments in equities expose it to changes in equity prices. However, Tokio Marine & Nichido Life’s investment in equity securities is small and its exposure to equity price risk is therefore not material.

Foreign exchange rate risk is the risk of a loss in the fair values of instruments denominated in a currency other than Tokio Marine & Nichido Life’s functional currency, which is the yen, due to fluctuations of foreign exchange rates. Tokio Marine & Nichido Life is exposed to foreign exchange rate risk because some of its assets are denominated in a currency other than the yen. If the value of a foreign currency declines relative to the yen, the fair value of assets denominated in that foreign currency would also decline. Tokio Marine & Nichido Life’s primary exposures for foreign exchange rate risk are the U.S. dollar. However, Tokio Marine & Nichido Life’s asset-liability management seeks to maintain foreign currency denominated assets that approximately correspond to its foreign currency denominated liabilities. As a result, any change in foreign exchange rates that would affect the value of Tokio Marine & Nichido Life’s foreign currency denominated assets would be expected to have an approximately offsetting effect on the value of Tokio Marine & Nichido Life’s foreign currency denominated liabilities. Therefore, Tokio Marine & Nichido Life does not have material exposure to foreign exchange rate risk.

Tokio Marine & Nichido Life does not hold physical or derivative commodity positions.

We do not anticipate significant changes in the composition of Tokio Marine & Nichido Life’s primary market risk exposures or in how those exposures are managed in future reporting periods.

Market Risk Management and Risk Exposure Estimates

As risks associated with managing assets and liabilities are becoming increasingly diversified and complex, Tokio Marine & Nichido Life continues to seek to enhance its risk management systems and to adopt more sophisticated methods to manage its various risks. Its risk management section, which is independent of Tokio Marine & Nichido Life’s asset management sections, is responsible for overseeing Tokio Marine & Nichido Life’s market risk management process. This process includes establishing appropriate controls, policies and procedures relating to market risk; ensuring appropriate senior management oversight of market risk-taking and risk controlling activities; and analyzing, monitoring and reporting market risk.

Tokio Marine & Nichido Life divides its assets under management into the following two categories for investment and risk management purposes, with investment and risk management policies tailored to each category:

• Assets to meet future obligations; and

• Other assets.

Tokio Marine & Nichido Life does not have a material trading portfolio.

Assets to meet future obligations. Assets to meet future obligations are intended to provide reserves for insurance policies. To ensure that Tokio Marine & Nichido Life can make required payments on those policies at maturity without regard to interest rate fluctuations, both the assets and the liabilities must be managed effectively. This is called the asset-liability management. Tokio Marine & Nichido Life has been developing an advanced asset-liability management system and believes that it maintains a well-controlled portfolio that includes various bonds and interest rate swap transactions used for hedging purposes.

To enhance its asset-liability management capabilities with respect to insurance policies, Tokio Marine & Nichido Life groups life insurance and investment contracts primarily by type and duration of insurance policies. Each month, Tokio Marine & Nichido Life measures interest rate sensitivity for the assets and liabilities in each of these groups. Based upon these measurements, Tokio Marine & Nichido Life utilizes interest rate swaps in an effort to control the interest rate sensitivity in the assets and the liabilities in each group of insurance policies. At March 31, 2004, Tokio Marine & Nichido Life had ¥0.2 trillion notional amount of interest rate swaps outstanding.

In Tokio Marine & Nichido Life’s sensitivity analysis model, a hypothetical change in market rates is selected that Tokio Marine & Nichido Life expects to reflect reasonably possible near-term changes in those rates. For these purposes, Tokio Marine & Nichido Life defines “near-term” to mean a period of up to one year from the date of its most recent consolidated financial statements. Actual results may differ from the hypothetical change in market rates assumed in the following discussion, especially since this sensitivity analysis does not reflect the results of any actions that Tokio Marine & Nichido Life would take to mitigate these hypothetical losses in fair value.

Tokio Marine & Nichido Life’s exposure to credit risk with respect to its investment securities which are categorized as assets to meet future obligations is not significant as it invests primarily in government bonds and government-guaranteed bonds and does not invest in corporate bonds. Tokio Maine & Nichido Life is exposed to credit risk in the form of counterparty risk in connection with its interest rate swap transactions. Tokio Marine & Nichido Life manages credit risk that arises from its interest rate swap transactions by entering into collateral arrangements through credit support annexes and manages its collateral on a daily basis.

The following tables show the effect of hypothetical changes in interest rates on the present value of the surplus in Tokio Marine & Nichido Life’s asset-liability portfolio, measured as the difference between the present value of its assets and that of its liabilities (before taxes and future policy dividends) as of March 31, 2004 and March 31, 2003. The information presented in the following tables was prepared for risk management purposes and is not indicative of the effect of actual changes in interest rates that have occurred in the past or may occur in the future on the financial condition, results of operations or corporate value of Tokio Marine & Nichido Life.


	As of March 31, 2004
	Yield curve shift(1)
	-1%			±0%		1%		+2%
	(yen in billions)
Asset-Liability Portfolio	¥	(32.3	)	¥	0.0	¥	15.4	¥	20.7


	As of March 31, 2003
	Yield curve shift(1)(2)
	-1%			±0%		1%		+2%
	(yen in billions)
Asset-Liability Portfolio	¥	(165.4	)	¥	0.0	¥	112.2	¥	182.1

(1)		Based on the then-prevailing yield curve for Japanese government bonds on each of the dates indicated and excludes assets in foreign currencies which are not material.

(2)		The information as of March 31, 2003 represents the arithmetical sum of the effect of hypothetical changes in interest rates on the present value of the surplus in each of Tokio Marine Life’s and Nichido Fire Life’s asset-liability portfolios as of March 31, 2003.

Between March 31, 2004 and March 31, 2003, Tokio Marine & Nichido Life’s interest rate risk decreased primarily due to the increased utilization of interest rate swap arrangements in its asset-liability management which has significantly reduced Tokio Marine & Nichdo Life’s exposure to fluctuations in the interest rate environment.

Other assets. Assets under this category are primarily policy loans and equity investments. The outstanding aggregate amount of policy loans as of March 31, 2004 was ¥19.1 billion. Policy loans are secured by policy liabilities and investment deposits under the respective policies. At March 31, 2004, the market value of Japanese equity securities in this portfolio was ¥3.3 billion, which accounted for 0.2% of the aggregate value Tokio Marine & Nichido Life’s total investments across all portfolios. Consequently, the effect of price movements in the domestic stock market on Tokio Marine & Nichido Life’s investment assets is not significant.

Limitations of Market Risk Management

Certain of the statements contained in this discussion of our market risks may constitute forward looking statements. These statements inherently are subject to a variety of risks and uncertainties that could cause actual results to differ materially from those set forth in those statements. These risks and uncertainties include, among other things:

• Changes in the composition of our financial instruments that are subject to market risk, including as a result of ordinary financing and investment decisions or as a result of changes in strategy or regulation;

• Changes in the volatility of particular instruments or groups of instruments, including, without limitation, as a result of economic developments in Japan or elsewhere, or changing political conditions, or the increasing liquidity of international securities markets;

• Deviations of the actual behavior of particular markets from those that are indicated by statistical models used by Tokio Marine, Nichido Fire and Tokio Marine & Nichido Life; and

• Deviations of actual loss experience from the results that might be indicated by statistical analysis.

Liquidity and Capital Resources

Liquidity

In the insurance industry, liquidity generally refers to the ability of an enterprise to generate adequate amounts of cash from its normal operations, including its investment portfolio, in order to meet its financial commitments, which are principally obligations under its insurance or reinsurance contracts.

The liquidity of a property and casualty insurer’s operations is generally affected by the frequency and severity of losses under its policies, as well as by the persistency of its products. Future catastrophic events, the timing and effect of which are inherently unpredictable, may also increase liquidity requirements for a property and casualty insurer’s operations.

The liquidity of a life insurer’s operations is generally affected by trends in actual mortality experience relative to the assumptions with respect thereto included in the pricing of its life insurance policies, by the extent to which minimum returns or crediting rates are provided in connection with its life insurance products, and by the level of surrenders and withdrawals.

Our principal sources of liquidity include insurance premiums and deposit premiums received, investment income and cash provided from maturing or liquidated investments and funds that we may raise from time to time by issuing debt or equity securities. In addition, our investments held in liquid securities represent potential sources of liquidity.

As a holding company, we currently conduct all of our operations through our direct and indirect subsidiaries, including Tokio Marine and Nichido Fire. Virtually all of our consolidated assets are held by, and all of our consolidated earnings and cash flows are attributable to, our direct and indirect subsidiaries. As a result, our liquidity and ability to pay expenses and meet obligations at the holding company level, as well as our ability to pay cash dividends on our shares, are dependent upon our ability to receive dividends from our subsidiaries. While we expect that our subsidiaries will contribute cash to us from time to time, their ability to do so is governed not only by their profitability but also by a number of different regulations that are subject to change. See “Risk Factors — Risks Relating to Our Business”.

We are not aware of any developments which would materially increase our demand for liquidity.

Capital Resources

Our capital requirements consist principally of capital expenditures and debt repayment.

We made capital expenditures of ¥17.6 billion in the year ended March 31, 2004, ¥11.5 billion in the year ended March 31, 2003 and ¥3.7 billion in the year ended March 31, 2002, in each case primarily for real estate for operational and lease purposes and for information technology systems development and equipment. At March 31, 2004, we had commitments in the amount of ¥10.1 billion for capital expenditure.

Our debt outstanding amounted to ¥213,446 million as of March 31, 2004, of which the current portion amounted to ¥15,016 million. Debt outstanding at March 31, 2004 was comprised of the following:


	Due		(yen in millions)
Loans, 0.02% to 3.99%		2005-2016	¥	13,627
Equity linked notes, 2.20% to 28.00%		2005		1,716
Equity linked notes, zero coupon		2006-2007		6,192
Fixed rate notes, 0.01% to 0.96%		2005-2010		27,024
Floating rate notes, 0.06%		2005		2,000
Credit linked notes, 1.99% to 11.18%		2007		22,644
Unsecured bonds, 1.47% to 2.78%		2006-2021		135,843
Other notes		2034		4,400

Total debt outstanding			¥	213,446

These borrowings were made primarily for general corporate purposes, and there were no restrictions on the use of proceeds from these borrowings.

We also maintain investment deposits by policyholders, which are liabilities that must be returned to the policyholders under long-term insurance coverage unless there has been a substantial settlement under the policy. Investment deposits by policyholders amounted to ¥2,704,861 million at March 31, 2004.

It is our policy to fund our capital requirements principally from cash flow from operating activities and external sources, such as issuances of debentures. In the future, we intend to explore funding opportunities from diversified external sources within the framework of applicable regulations.

At the holding company level, we intend to finance our capital requirements, investments and working capital needs primarily with a combination of dividends and advances from our subsidiaries and access to the international and domestic capital markets. We believe that dividends and advances provided by our subsidiaries, together with the proceeds from any capital markets offerings, will provide sufficient funds to meet our operating and capital requirements and to implement our corporate strategy.

Effective as of August 19, 2003, we reduced our statutory additional paid in capital in the amount of ¥500 billion pursuant to Article 289, section 2 of the Japanese Commercial Code and transferred that amount to our other capital surplus. This transfer enables us, among other things, to repurchase our own shares of common stock. At our general shareholders’ meeting on June 29, 2004, our shareholders approved a change to our Articles of Incorporation, entitling our board of directors to approve share buybacks. During the period beginning on July 1, 2004 and ending on September 3, 2004, we have repurchased 17,347 shares for an aggregate purchase price of approximately ¥27,400 million. At our general shareholders’ meeting on June 27, 2003, our shareholders approved a share buyback of up to 120,000 shares of our common stock with an aggregate value of no more than ¥100 billion, pursuant to which we repurchased 75,646 shares for an aggregate purchase price of approximately ¥100 billion during the period from July 1, 2003 to May 21, 2004.

Off-Balance Sheet Arrangements

We issue guarantees in various transactions to enhance the credit standing of our customers and third parties. These guarantees represent irrevocable assurances that we will make payment in the event that the primary obligor of the guaranteed obligation fails to fulfill its obligation to third parties. We are obliged to make payment when the primary obligor fails to make payments that become due under the guaranteed obligation in accordance with the contractual terms. Our maximum exposure under these guarantees as of March 31, 2004 was approximately ¥2,117 million. At March 31, 2004, we did not recognize any liabilities for these remote loss contingencies. In some cases, the obligations that we guarantee are secured by the guaranteed parties’ operating assets. In the event that we assume the guaranteed parties’ obligation, we would acquire the right to the collateral.

Contractual Obligations

The table below sets forth the maturities of our contractual cash obligations as of March 31, 2004:


	Payments due by period
	Total		Less than 1 year		1-3 years		3-5 years		After 5 years
	(yen in millions)
Contractual obligations:
Investment deposits by policyholders(1)	¥	3,149,544	¥	293,332	¥	546,512	¥	478,881	¥	1,830,819
Debt outstanding		213,446		15,016		82,199		6,875		109,356
Capital lease obligation		6,115		3,326		2,789		0		0
Purchase Obligation		10,136		7,562		2,574		0		0

Total contractual cash obligations(2)	¥	3,379,241	¥	319,236	¥	634,074	¥	485,756	¥	1,940,175

(1)		Investment contracts that have no contractual maturity were excluded from this table. The carrying amount of our investment deposit by policyholders under contracts that have no contractual maturity was ¥118,026 million at March 31, 2004.

(2)		The total amount of expected future pension payments is not included in the above table as such amount is not currently determinable. We expect to contribute approximately ¥15,894 million to our pension plans for the year ending March 31, 2005. See note 10 to our consolidated financial statements.

DIRECTORS AND CORPORATE AUDITORS

Personal Data

Our current directors were elected to their respective positions with us at the 2004 ordinary general meeting of our shareholders. The term of office for each of our directors will expire at the close of the ordinary general meeting of shareholders convened in 2005. The term of office for three of our corporate auditors, Mr. Kikuchi, Mr. Hanaoka and Mr. Miki, were elected at the 2003 general meeting of our shareholders and their term will expire at the close of the ordinary meeting of shareholders to be convened in 2007. Two of our corporate auditors, Mr. Noji and Ms. Inoguchi, were elected at the 2004 ordinary general meeting of our shareholders and their term will expire at the close of the ordinary meeting of shareholders to be convened in 2008. As of June 29, 2004, we increased the size of our board of directors from 11 directors to 13 directors and the size of our board of corporate auditors from 4 corporate auditors to 5 corporate auditors.

The following table shows information about our directors and corporate auditors as of August 31, 2004:


			Number of shares
			owned as of
Name	Position	Date of birth	August 31, 2004
Tomio Higuchi	Chairman and Representative Director	October 22, 1942		37.53
Kunio Ishihara	President and Representative Director	October 17, 1943		55.84
Katsuo Handa	Executive Vice President and Representative Director	June 29, 1944		28.33
Yasuo Yaoita	Managing Director (Representative Director)	November 13, 1947		32.47
Tomohiro Kotani	Managing Director (Representative Director)	August 28, 1944		11.21
Shoji Ueno	Director	February 5, 1944		35.02
Yasuo Tago	Director	January 13, 1944		18.59
Minoru Makihara	Director	January 12, 1930		22.00
Masamitsu Sakurai	Director	January 8, 1942		—
Haruo Shimada	Director	February 21, 1943		—
Toshiro Yagi	Director	November 1, 1947		21.61
Sukeaki Ohta	Director	February 27, 1943		39.92
Yoichiro Iwama	Director	September 15, 1943		34.00
Takehisa Kikuchi	Standing Corporate Auditor	December 5, 1941		67.49
Yukiteru Noji	Standing Corporate Auditor	May 4, 1942		13.93
Iwao Hanaoka	Corporate Auditor	January 5, 1934		9.07
Shigemitsu Miki	Corporate Auditor	April 4, 1935		—
Kuniko Inoguchi	Corporate Auditor	May 3, 1952		—

Tomio Higuchi joined Nichido Fire in 1965. He became a director of Nichido Fire in 1993, a managing director in 1995, a senior managing director in 1998, vice president in 2000 and president and senior general manager of marketing and sales promotion headquarters in 2001. He has served as chairman of our board of directors since April 2002. He also serves as president of Nichido Fire.

Kunio Ishihara joined Tokio Marine in 1966. He became a director of Tokio Marine in 1995, a managing director in 1998, a senior managing director in 2000 and president in 2001. He has served as our president since April 2002. He also serves as president of Tokio Marine.

Katsuo Handa joined Tokio Marine in 1968. He became a director of Tokio Marine in 1995, a managing director in 1998 and a senior managing director in 2001. He has served as our executive vice president since June 2003.

Yasuo Yaoita joined Tokio Marine in 1970. He became a director of Tokio Marine in 2000. He has served as our managing director since April 2002.

Tomohiro Kotani joined Nichido Fire in 1969. He became a director of Nichido Fire in June 2001. He has served as one of our managing directors since June 2004.

Shoji Ueno joined Tokio Marine in 1967. He became a director of Tokio Marine in 1993, a managing director in 1996, a senior managing director in 1999 and an executive vice president in 2001. He has served as one of our directors since April 2002. He also serves as an executive vice president of Tokio Marine and as president of The Tokio Marine Research Institute.

Yasuo Tago joined Nichido Fire in 1966. He became a director of Nichido Fire in 1996, a managing director in June 1998, a senior managing director in 2002 and an executive vice president in 2003. He has served as one of our directors since April 2002. He also serves as an executive vice president of Nichido Fire.

Minoru Makihara joined Mitsubishi Corporation in 1956. He became president of Mitsubishi Corporation in 1992 and chairman of its board of directors in 1998, and he has served as senior corporate advisor since April 2004. He served as a director of Tokio Marine from 1993 through 2002. He has served as one of our directors since April 2002.

Masamitsu Sakurai joined Ricoh Company, Ltd. In 1966. He became a director of Ricoh Company, Ltd. In 1992 and has served as its president since 1996. He has served as one of our directors since April 2002.

Haruo Shimada joined the faculty of economics at Keio University as a research assistant in 1967. He became an associate professor in 1975 and has been a professor since 1982. He has served as one of our directors since April 2002.

Toshiro Yagi joined Tokio Marine in 1971. He became a director of Tokio Marine in 2001 and a managing director in 2003. He has served as one of our directors since June 2003. He also serves as a managing director of Tokio Marine.

Sukeaki Ohta joined Tokio Marine in 1965. He became a director of Tokio Marine in 1993, a managing director in 1995, a senior managing director in 1998 and served in such function until June 2000. Mr. Ohta became the president of Tokio Marine Life in June 2000 and the president of Tokio Marine & Nichido Life in October 2003. He has served as one of our directors since June 2004. He also serves as president of Tokio Marine & Nichido Life.

Yoichiro Iwama joined Tokio Marine in 1967. He became a director of Tokio Marine in 1996 and a managing director in 1998. He has served has a one of our directors since June 2004. He also serves as a managing director of Tokio Marine.

Takehisa Kikuchi joined Tokio Marine in 1964. He became a director of Tokio Marine in 1992, a managing director in 1995 and a senior managing director in 1998. He has served as one of our standing corporate auditors since April 2002. He has also served as a corporate auditor of Tokio Marine since June 2002.

Yukiteru Noji joined Nichido Fire in 1965. He became a director of Nichido Fire in 1995 and a managing director in 1998. Mr. Noji served as one of our managing directors from June 2003 through June 2004. He has served as one of our standing corporate auditors since June 2004.

Iwao Hanaoka became an attorney-at-law and joined Kaneko Law Office (currently Kaneko Iwamatsu Law Office) in 1959. He served as a corporate auditor of Nichido Fire from 2000 through 2002. He has served as one of our corporate auditors since April 2002.

Shigemitsu Miki joined The Mitsubishi Bank, Ltd. In 1958. He became a director of The Mitsubishi Bank, Ltd. in 1986 and president of The Bank of Tokyo-Mitsubishi, Ltd. in 2000 and has served as chairman of its board of directors since June 2004. He served as a corporate auditor of Tokio Marine from 2000 through 2002. He has served as one of our corporate auditors since April 2002. He also serves as chairman of The Bank of Tokyo-Mitsubishi, Ltd.

Kuniko Inoguchi joined the faculty of foreign studies at Sophia University as assistant in 1980. She became a full-time lecturer, faculty of law, Sophia University in 1980, associate professor in 1981 and professor in 1990. She also served as ambassador extraordinary and plenipotentiary to the United Nations Conference on Disarmament from 2002 through 2004. She has served as one of our corporate auditors since June 2004.

There are no family relationships between any of our directors and corporate auditors. None of our directors or corporate auditors has any service contract with us or any of our subsidiaries that provides for benefits upon termination of service as a director or corporate auditor.

Compensation and Benefits

The aggregate compensation, including bonuses, that was paid by Millea and its subsidiaries during the year ended March 31, 2004 to our directors and corporate auditors was ¥400 million and ¥68 million, respectively. The total amount that we set aside or accrued during the year ended March 31, 2004 to provide pension, retirement or similar benefits to our directors and corporate auditors was ¥162 million and ¥4 million, respectively.

Under the Commercial Code of Japan and local practice, we may make severance payments to retired directors or corporate auditors with shareholder approval when our management proposes such payments based on resolutions of our board of directors. Pursuant to a shareholder approval, the amount of such payments to retired directors is determined by a resolution of the board of directors and the amount of such payments to retired corporate auditors is determined by our board of corporate auditors upon consultation among themselves.

Board Practices

Our board of directors has the authority to determine the fundamental policy for the administration of the board’s affairs and supervises the execution by the directors of their duties. Our articles of incorporation provide for not more than fifteen directors. Directors are elected at general meetings of shareholders, and the normal term of office of directors is one year, although they may serve any number of consecutive terms. Our board of directors elects from among its members one or more representative directors, who have the authority individually to represent us. From among its members, the board of directors also elects a chairman, a president and one or more executive vice presidents, senior managing directors and managing directors.

The Commercial Code of Japan provides that a director may not vote on an agenda item in which he or she has a special interest. There is no compulsory retirement age for directors. There is no requirement that a director hold shares in order to qualify him or her as a director.

Our articles of incorporation provide for not more than six corporate auditors, one or more of whom may serve as a standing (or full-time) corporate auditor. Corporate auditors are elected at general meetings of shareholders. The normal term of office of a corporate auditor is four years. Corporate auditors may serve any number of consecutive terms. The corporate auditors form the board of corporate auditors. Corporate auditors are under a statutory duty to review the administration of our affairs by the directors, examine the financial statements and business reports to be submitted by the board of directors to the general meetings of shareholders and report their opinions thereon to the shareholders. Corporate auditors are required to attend meetings of the board of directors and are entitled to express their opinions, but they are not entitled to vote. Corporate auditors also have a statutory duty to provide their report to the board of corporate auditors, which is required to submit its auditing report to the directors. The board of corporate auditors also determines matters relating to the duties of the corporate auditors, such as auditors’ policy and methods of investigation of our affairs. We currently do not have an audit committee or a remuneration committee.

Audit Committee Financial Expert

Our board of corporate auditors has determined that Takehisa Kikuchi, a standing corporate auditor, is an “audit committee financial expert”, within the meaning of the current rules of the US Securities and Exchange Commission.

THE JAPANESE INSURANCE INDUSTRY

The Non-Life Insurance Industry

History

Tokio Marine, originally founded in 1879, was the first Japanese private non-life insurance company. Following the enactment of the Insurance Business Law in 1900, Japanese non-life insurance business prospered, mainly as a result of the rapid expansion of the Japanese economy during World War I. However, this period was followed by a recession, the great earthquake in Tokyo in 1923 and the financial crisis of 1929, which resulted in Japanese non-life insurance companies incurring substantial losses. This led them to reorganize and form various cartels and co-operative associations. During World War II, under the guidance of the Japanese government, the industry was again reorganized and the number of companies was reduced from 48 in 1940 to 16 in 1945.

By the end of World War II, Japanese non-life insurance companies had lost almost all overseas business and incurred substantial deficits. Nevertheless, Japanese non-life insurance business grew rapidly as the Japanese economy expanded since the late 1950s. In the 1980s, non-life insurance business grew significantly due to sales of automobile insurance and sales to individuals of insurance policies with a refund at maturity, which was seen as an attractive form of investment. In recent years, moderate non-life insurance business growth has been achieved mainly due to the steady growth of sales of automobile insurance.

The growth of automobile insurance business, from both voluntary and (with the introduction in 1955 of the Automobile Liability Security Law) compulsory automobile liability insurance, contributed significantly to the growth of non-life insurance business after World War II. This not only resulted in a substantial volume of business for the non-life insurance industry but also, by introducing individuals to various insurance policies, provided new opportunities for the industry’s future expansion. In recent years, growth in automobile insurance business has slowed down while deregulation of the industry has led to diversification of the Japanese non-life insurance companies’ other business activities.

Until 1996, non-life insurance companies were prohibited from engaging in the life insurance business under Japanese law. However, under the new Insurance Business Law which was enacted on April 1, 1996, non-life insurance companies are allowed to establish subsidiaries to engage in the life insurance business and life insurance companies are allowed to establish subsidiaries to engage in non-life insurance business. Tokio Marine and Nichido Fire consequently entered the life insurance industry by each establishing its life insurance subsidiary in 1996.

Life and non-life insurance companies were mutually allowed to enter the so-called “third sector” insurance business through subsidiaries beginning in January 2001 and directly beginning in July 2001. The “third sector” refers to insurance products and services that do not fall within the traditional life and non-life insurance areas, such as personal, accident, medical and cancer insurance and insurance covering expenses for nursing care. Deregulation of this segment of the insurance industry in Japan is expected to expand the size of the market by raising awareness of consumers to availability of these products.

Industry Background

The growth of non-life insurance business is closely related, among other things, to the growth in the construction and automobile industries and the volume of foreign trade, as well as to the emergence of new kinds of risk resulting from social and economic development, and the increasing public awareness of insurance and liability compensation. In addition, insurance policies with a refund at maturity marketed to individuals became attractive vehicles for personal investment in Japan. Premium income from personal insurance business now accounts for about three-quarters of the industry’s total non-life premium income.

According to the Financial Services Agency, as of January 1, 2004, there were 54 licensed non-life insurance companies conducting non-life insurance business in Japan.

Life Insurance Industry

The life insurance business in Japan can generally be classified into four principal product lines: individual insurance, individual annuities, group insurance and group annuities. Individual insurance is the largest product line in the Japanese life insurance industry in terms of policy amount. The market for life insurance products in Japan, as a whole, has decreased in size in recent years. The prolonged period of economic weakness in Japan which has led Japanese consumers to reduce spending generally, combined with the failure of a number of life insurance companies which has led to a loss of confidence in life insurance companies generally, are thought to be contributing factors for the decreased demand for life insurance products. However, some of the new entrants in the market have enjoyed steady growth amid the weak economy in Japan.

According to the Financial Services Agency, as of April 2, 2004, there were 40 licensed life insurance companies conducting life insurance business in Japan.

REGULATION

Insurance Industry Regulations

General Regulatory Scheme

The Japanese insurance market is regulated by the Insurance Business Law, as amended from time to time, as well as by cabinet orders, ministerial ordinances and various rules and regulations made by the FSA and relevant ministries. Under the Insurance Business Law, all insurance companies must be either joint stock corporations or mutual companies, and they must each obtain a license from the Prime Minister. There are two kinds of licenses related to insurance businesses: one for life insurance businesses and another for non-life insurance businesses. The same entity cannot obtain both of these licenses, although a consolidated entity may contemporaneously hold interests in a life insurance company and a non-life insurance company. The Insurance Business Law also contains detailed provisions regarding, among other things, accounting principles and restrictions relating to the investment of insurance companies’ funds. The Insurance Business Law provides for the registration of insurance agents and insurance brokers with the relevant local finance bureau and regulates their soliciting activities. Foreign insurance companies that intend to conduct insurance business in Japan are also subject to the Insurance Business Law and are required to obtain a license from the Prime Minister.

The FSA supervises and exercises broad regulatory powers over the insurance companies and their business operations, including the authority to grant or, under certain conditions, revoke the operating license of a business. Certain methods of operations, general policy conditions and the basis of calculation of premiums and reserves for unexpired risks must be approved by the FSA. The FSA may, at any time, require insurance companies to submit reports and other documents and may carry out inspections at the companies’ offices. The FSA’s practice is to inspect and audit the business operations of insurance companies regularly.

Insurance Holding Company Regulations

Under the Insurance Business Law of Japan, an insurance holding company is prohibited from carrying on business other than the administration of the management of its subsidiaries and other incidental business. An insurance holding company may have as its subsidiaries life and non-life insurance companies, banks (including trust banks and long-term credit banks), securities companies and foreign subsidiaries engaged in the insurance, banking or securities business. In addition, an insurance holding company may have as its subsidiaries companies engaged in businesses relating or incidental to the businesses of the companies mentioned above, such as credit card companies, leasing companies and investment advisory companies. The provisions of the Act Concerning Prohibition of Private Monopolization and Maintenance of Fair Trade, or the Anti-Monopoly Law, that prohibit an insurance company from holding more than 10% of another company’s voting rights without the prior approval of the Fair Trade Commission, do not apply to an insurance holding company.

The FSA supervises insurance holding companies under the Insurance Business Law. The FSA may, at any time, require an insurance holding company or its subsidiaries to submit reports and other documents and may carry out inspections at the companies’ offices if the FSA deems such action necessary to secure the sound and appropriate operation of the business of the subsidiary insurance companies. In addition, if a bank or a securities company is a subsidiary of an insurance holding company, the insurance holding company is also subject to supervision by the FSA under either the Banking Law or the Securities Exchange Law, as applicable.

Limitations on Investments for Insurance Companies

The Insurance Business Law, ministerial ordinances and the regulations thereunder specify the types of investments that Japanese insurance companies may make and the percentage of their total assets (calculated on the basis of Japanese accounting principles) which can be invested in each type of investment. Under these provisions, Tokio Marine’s and Nichido Fire’s investment portfolios must, in general, be held in the form of securities, real estate, monetary claims, gold bullion, loans, loaned securities, investments in partnerships, cash on deposit, money trusts, monetary claims trusts, securities trusts, real estate trusts, financial derivatives, or other investments enumerated in the Insurance Business Law Enforcement Regulations. Investments in stocks and assets denominated in foreign currencies are each limited to 30% of total assets. The aggregate investment in real estate is limited to 20% of total assets, and investments in claims, loans and loaned securities are limited to 10% of total assets. In 1998, a limit on investments in any one company (including its affiliates) was set at 10% of total assets. Loans to and guarantees in favor of any one company (including its affiliates) are limited to 3% of total assets.

Under the Anti-Monopoly Law, no insurance company can acquire or hold more than 10% of the total outstanding stock of any other company in Japan without obtaining the prior approval of the Fair Trade Commission, except in certain circumstances. Additionally, the Insurance Business Law prohibits an insurance company from acquiring or holding more than 10% of the total outstanding stock of any other company in Japan except of other life or non-life insurance companies, banks, securities companies, foreign insurance companies, foreign banks, foreign securities companies, companies which exclusively operate businesses that provide support to the insurance company and its subsidiaries or finance-related businesses enumerated in the Insurance Business Law, companies that cultivate certain new business fields defined in the Insurance Business Law Enforcement Regulations, and holding companies that exclusively hold the foregoing companies.

Limitations on Dividend Distributions for Insurance Companies

The Insurance Business Law prescribes certain financial requirements that must be met before an insurance company can distribute dividends to its shareholders. Until the aggregate amount of additional paid-in capital and legal reserve is equal to the amount of stated capital of an insurance company, the insurance company must credit to its legal reserve an amount equivalent to at least one-fifth of the amount to be appropriated from the profit for each fiscal period and an amount equal to one-fifth of the cash distribution each time a distribution of money as an interim dividend is made pursuant to the Commercial Code. Under the Commercial Code, a company is permitted to distribute profits by way of year-end dividends out of the excess of its net assets over the aggregate of:

(1) its stated capital;

(2) its additional paid-in capital;

(3) its accumulated legal reserve;

(4) the legal reserve to be set aside in respect of the fiscal period concerned; and

(5) other matters specified in the Insurance Business Law Enforcement Regulations.

In the case of interim dividends, the net assets are calculated by reference to the non-consolidated balance sheet as of the end of the preceding fiscal year, as adjusted to reflect (A) any subsequent payment by way of appropriation of retained earnings and the related transfer to legal reserve, (B) any subsequent transfer of retained earnings to stated capital and (C) if we have been authorized by a resolution of an ordinary general meeting of shareholders or of the board of directors, to purchase shares, the total amount of the purchase price of such shares to be paid by us; provided that (x) if we reduce our stated capital, additional paid-in capital or accumulated legal reserve after the end of the preceding fiscal year, the amounts so reduced, less the amount paid to shareholders upon such reduction and certain other amounts, and (y) such other amounts as are set out in the Insurance Business Law Enforcement Regulations, will be added to the amount distributable as interim dividends as described above. Interim dividends may not be paid where there is a risk that at the end of the financial year net assets might be less than the aggregate of the amounts referred to in (1) through (5) above. For more information on share repurchases, see “Description of Common Stock — Repurchase by Millea Holdings of Shares”.

Recent Changes to Insurance Laws

A number of measures have been implemented under the Insurance Business Law over the past several years in order to provide greater protections to policyholders. Under amendments to the Insurance Business Law passed in 1998, an early warning measure was introduced. This early warning measure is based on a insurance company’s solvency margin ratio. When the solvency margin ratio of a insurance company falls below a certain prescribed ratio, regulators can require that the insurance company take certain actions, such as reducing certain business operations or refraining from making certain investments. Also in 1998, the Non-Life Insurance Policyholders Protection Corporation and the Life Insurance Policyholders Protection Corporation were established to provide assistance to policyholders in the event a non-life or life insurance company becomes insolvent. All insurance companies operating in Japan, including foreign insurers, are obligated to become members of these organizations.

These organizations aid policyholders by rendering financial assistance to an insurance company that assumes the affected policies, by assuming the policies itself or through other methods stipulated in the Insurance Business Law.

Other amendments to the Insurance Business Law passed in 1998 permitted insurance companies to enter the banking business through their subsidiaries from October 1999 and permitted banks to enter the insurance businesses through their subsidiaries from October 2000. These 1998 amendments also abolished the requirements that insurance companies obtain approvals from the Financial Services Agency for certain changes to methods of operations, general policy conditions or the basis of calculations of premiums and reserves for unexpired risks from those previously approved by the FSA. A notification requirement was introduced instead.

Amendments to the Law Concerning the Non-Life Insurance Rating Organizations were also passed in 1998. These amendments abolished the requirement that non-life insurance companies use the premium rates established by the rating organizations. Today, with the exception of earthquake insurance and compulsory automobile liability insurance, non-life insurance companies may set their own premium rates for insurance policies.

These recent changes in insurance industry-related laws have contributed to increased competition among insurance companies.

In April 2001, the Consumer Contracts Law and the Law on Sales of Financial Products were enacted, which regulate soliciting and selling activities of insurance products. Recent amendments to the Insurance Business Law which became effective in April 2000 allow insurance companies to sell some of their products (including credit insurance provided in connection with housing loans made by banks) through banks’ branch offices.

The most recent amendments to the Insurance Business Law enacted on August 24, 2003 allow insurance companies which may find it difficult to continue operating their insurance businesses to change the terms of their insurance policies, including reducing insurance payments. This is subject to obtaining approval from the FSA and shareholders of the insurance company, implementing procedures to protect the interests of policyholders and other conditions and procedures prescribed in the Insurance Business Law.

Foreign Exchange Regulations

General Description

The Foreign Exchange and Foreign Trade Law of Japan, frequently referred to as the Foreign Exchange Law, and the cabinet orders and ministerial ordinances thereunder govern the issuance of shares by companies and the acquisition and holding of shares by “non-residents of Japan” and “foreign investors”, as defined by the Foreign Exchange Law.

Non-residents of Japan are:

(1) individuals who do not reside in Japan; and

(2) corporations whose principal offices are not located in Japan.

Generally, branches and offices of non-resident corporations which are located in Japan are regarded as residents of Japan while branches and offices of Japanese corporations located outside Japan are regarded as non-residents of Japan.

Foreign investors are:

(1) individual not resident in Japan;

(2) corporations organized under the laws of foreign countries or whose principal offices are located outside Japan; and

(3) corporations organized in Japan not less than 50% of the issued shares of which are directly or indirectly held by (1) and/or (2), or a majority of the officers (or officers having the power of representation) of which are non-resident individuals.

Dividends and Proceeds of Sale

Under the Foreign Exchange Law, dividends paid on, and the proceeds of sales in Japan of, shares held by non-residents of Japan may, in general, be converted into any foreign currency and repatriated abroad.

Acquisition of Shares

Under the Foreign Exchange Law, in general, a non-resident who acquires shares from a resident of Japan is not subject to any prior filing requirement, although the Minister of Finance of Japan may require a prior approval for any such acquisition in certain limited circumstances.

If a foreign investor acquires shares of a listed company and, together with parties who have a special relationship with that foreign investor, holds 10% or more of the issued shares of the company as a result of the acquisition, the foreign investor must file a report of the acquisition with the Minister of Finance and any other competent Minister within 15 days from and including the date of such acquisition. In certain limited circumstances, however, a prior notification of such acquisition must be filed with the Minister of Finance and any other competent Minister, who may then modify or prohibit the proposed acquisition. The acquisition of shares of Millea Holdings by non-residents by way of a stock split is not subject to any notification or reporting requirements.

Reporting of Substantial Shareholdings

Under the Securities and Exchange Law of Japan, if any person becomes, beneficially and solely or jointly, a holder of more than 5% of the total issued shares of a public company, that shareholder must file a report concerning the shareholder’s shareholdings with the relevant local finance bureau within five business days. If there is any subsequent change of 1% or more in the above shareholding, the shareholder must file a similar report. For these purposes, the total number of issued shares and the number of shares held by the shareholder include shares to be issued on the exercise of warrants to subscribe for new shares or on the conversion of bonds or debentures with warrants to subscribe for new shares. The shareholder also must file a copy of the relevant report with the issuer of the shares and the stock exchanges on which the shares are listed.

Under the Insurance Business Law, a shareholder of an insurance company or insurance holding company that holds more than 5% of the total voting rights of the insurance company or insurance holding company is required to file a report of its holdings with the Prime Minister within five days after the acquisition of the shares and other reports concerning the changes in the reported matters (including any increase or decrease of more than 1% in the shareholding ratio). In addition, a shareholder of an insurance company that holds 20% or more (in some cases, 15%) of the total voting rights of the insurance company is required to obtain the approval of the FSA in advance of acquiring that percentage of shares. Furthermore, a shareholder of an insurance company approved by the FSA is required to report to the FSA if its shareholding ratio exceeds 50%.

DESCRIPTION OF COMMON STOCK

The following information relates to shares of our common stock, including summaries of certain provisions of our articles of incorporation, the Commercial Code of Japan relating to joint stock corporations (known in Japanese as kabushiki kaisha ) and certain relevant regulations under the Insurance Business Law.

Shares and Share Capital

Our authorized share capital is 7,000,000 shares of common stock, of which 1,857,048.75 shares were issued as of March 31, 2004. Since recent amendments to the Commercial Code of Japan have abolished the concept of par value, the stock issued by us does not have any par value.

We acquired 63,931.89 shares of our own stock for approximately ¥81,727 million during the year ended March 31, 2004. Under the Commercial Code, we may transfer these shares by resolution of the board of directors. However, we cannot transfer these shares at a “specially favorable” price, as described in “ — Voting Rights” below.

Under the Commercial Code, the transfer of shares is effected by delivery of share certificates, but, in order to assert shareholders’ rights against us, the transferee must have his or her name and address registered on our register of shareholders. Shareholders are required to file their names, addresses and seal impressions with The Mitsubishi Trust and Banking Corporation, the transfer agent for our common stock. Foreign shareholders may file a specimen signature in lieu of a seal impression. Non-resident shareholders are required to appoint a standing proxy in Japan or file a mailing address in Japan. Japanese securities firms and commercial banks customarily offer the service of standing proxy, and render related services on payment of their standard fee.

The central clearing system of share certificates under the Law Concerning Central Clearing of Share Certificates and Other Securities in Japan applies to our common stock. Under this system, shareholders may deposit certificates for shares with the Japan Securities Depositary Center, Inc., the sole depositary under the central clearing system, through institutions which have accounts with the Japan Securities Depositary Center. These institutions are normally securities companies.

The shares deposited with the Japan Securities Depositary Center will be registered in the Japan Securities Depositary Center’s name in our register of shareholders. With information provided by the Japan Securities Depositary Center and by the institutions that have accounts with the Japan Securities Depositary Center, we prepare a register of beneficial shareholders that lists the names of those who beneficially own the deposited shares. This register of beneficial shareholders is updated on pre-established “record dates” and on other dates when it is necessary to determine who owns the shares and can thus exercise rights relating to those shares. Delivery of share certificates is not required to transfer deposited shares between accounts at an institution or between accounts at the Japan Securities Depositary Center.

In general, the beneficial shareholders of deposited shares registered in the register of beneficial shareholders are entitled to the same rights and benefits with respect to those shares as the holders of shares registered in the register of shareholders. The registered beneficial shareholders may exercise the rights attached to the beneficially owned shares, such as voting and receiving dividends (if any) and convocation notices of shareholders’ meetings directly from us. The shares held by a person as a registered shareholder and those held by the same person as a registered beneficial shareholder are aggregated for these purposes.

New shares issued with respect to deposited shares, including those issued upon a stock split, automatically become deposited shares. Beneficial shareholders may at any time withdraw their shares from deposit and receive share certificates.

Dividends

Following approval at a general shareholders’ meeting, dividends are distributed to shareholders (or pledgees) appearing in the register of shareholders and to the holders of fractional shares appearing on the register of fractional shares as of the close of business on March 31 of the relevant year. Dividends are distributed in cash. Our articles of incorporation provide that we are relieved of the obligation to pay any dividends that are unclaimed for five years after the payment date.

The Commercial Code provides that, until the aggregate amount of our legal reserve and additional paid-in capital is at least one-quarter of our stated capital, we may not make any distribution of profits by way of annual cash dividends or interim dividends unless we set aside in our legal reserve an amount equal to at least one-tenth of any amount that we pay out as an appropriation of retained earnings, including any payment by way of annual dividends and bonuses to directors and corporate auditors, or equal to one-tenth of any interim dividend. The Commercial Code permits us to distribute profits by way of dividends out of the excess of our net assets, on a non-consolidated basis, over the aggregate of:

(1) our stated capital;

(2) our additional paid-in capital;

(3) our accumulated legal reserve;

(4) the legal reserve to be set aside in respect of the dividends concerned and proposed payment by way of appropriation of retained earnings; and

(5) other matters specified in the Commercial Code Enforcement Regulations.

In the case of interim dividends, the net assets are calculated by reference to the non-consolidated balance sheet as of the end of the preceding fiscal year, as adjusted to reflect (A) any subsequent payment by way of appropriation of retained earnings and the related transfer to legal reserve, (B) any subsequent transfer of retained earnings to stated capital and (C) if we have been authorized by a resolution of an ordinary general meeting of shareholders or of the board of directors, to purchase shares, the total amount of the purchase price of such shares to be paid by us; provided that (x) if we reduce our stated capital, additional paid-in capital or accumulated legal reserve after the end of the preceding fiscal year, the amounts so reduced, less the amount paid to shareholders upon such reduction and certain other amounts, and (y) such other amounts as are set out in the Commercial Code Enforcement Regulations, will be added to the amount distributable as interim dividends as described above. Interim dividends may not be paid where there is a risk that at the end of the financial year net assets might be less than the aggregate of the amounts referred to in (1) through (5) above. For more information on share repurchases, see “Description of Common Stock — Repurchase by Millea Holdings of Shares”.

We may, by resolution of the board of directors, pay interim dividends in cash to the shareholders (or pledgees) on the register of shareholders and to the holders of fractional shares appearing on the register of fractional shares as of the close of business on September 30 of each year.

The amounts of capital and other items discussed in this section are in accordance with Japanese GAAP.

The Commercial Code does not provide for “stock dividends”. However, the Commercial Code does provide that our shareholders may, by resolution, transfer any amount which is distributable as dividends to stated capital, and the board of directors may, by resolution, issue additional shares by way of a stock split; thus, the same effect as a stock dividend can be achieved.

In Japan, the “ex-dividend” date and the record date used to determine the shareholders who will receive a dividend, if paid, are determined before the date the company decides the amount of the dividends, if any, to be paid.

For information as to Japanese taxes on dividends, see “Taxation”.

Stock Splits (Free Share Distributions)

Under the Commercial Code, our board of directors is permitted to declare a stock split without needing to ensure there is a minimum net asset value per share (based on our most recent non-consolidated balance sheet) following the stock split. In addition, in connection with any stock split, our board of directors may increase our authorized number of shares to account for the stock split, and amend our articles of incorporation accordingly, without the need for shareholder approval. For example, if each share becomes three shares by way of a stock split, we can increase our authorized number of shares by up to three times the existing number and do not need to obtain shareholder approval for that increase.

Fractional Shares

The holder of any fractional share constituting one one-hundredth of one share of our common stock or any integral multiple thereof is registered in the register of fractional shares. Any fractional interest representing less than one one-hundredth of one share will not be registered, but entitles the holder to receive cash in lieu of that fractional interest. Certificates are not be issued for fractional shares and fractional shares do not carry voting rights. Our articles of incorporation provide that any registered holder of fractional shares has the right to receive dividends and interim dividends.

A holder of fractional shares may at any time require us to purchase its shares. These shares will be purchased at (a) the closing price of the shares reported by the Tokyo Stock Exchange on the day when the request to purchase is made or (b) if no sale takes place on the Tokyo Stock Exchange on that day, then the price at which sale of shares is effected on the Tokyo Stock Exchange immediately thereafter. In such case, we will request payment of an amount equal to the brokerage commission applicable to the shares purchased pursuant to our share handling regulations. However, because holders of ADSs representing less than one share are not able to withdraw the underlying shares from deposit, these holders will not be able to exercise this right as a practical matter.

Our articles of incorporation also provide that a holder of fractional shares may require us to sell any fractional shares we may have to the holder so that the holder can raise its fractional ownership to a whole share. These shares will be sold at (a) the closing price of the shares reported by the Tokyo Stock Exchange on the day when the request to sell becomes effective or (b) if no sale has taken place on the Tokyo Stock Exchange on that day, then the price at which sale of shares is effected on the Tokyo Stock Exchange immediately thereafter. In connection with a sale, we will request payment of an amount equal to the brokerage commission applicable to the shares sold pursuant to our share handling regulations. However, because holders of ADSs representing less than one share are not able to withdraw the underlying shares from deposit, these holders will not be able to exercise this right as a practical matter.

Voting Rights

A shareholder is entitled to one vote per share, subject to the limitations on voting rights set forth in this section and in “— Fractional Shares”. Except as otherwise provided by law or by our articles of incorporation, a resolution can be adopted at a shareholders’ meeting by the holders of a majority of the shares having voting rights present at the meeting. Shareholders may exercise their voting rights by voting card or proxy, provided that the person acting as proxy is a shareholder of us with voting rights and is present at the meeting. The Commercial Code and our articles of incorporation provide that the quorum for election of directors and corporate auditors shall not be less than one-third of the total number of outstanding shares having voting rights. Our articles of incorporation provide that our shareholders are not entitled to cumulative voting in the election of directors. Under the Commercial Code, cumulative voting is not applicable to the election of corporate auditors.

A corporate shareholder, more than one-quarter of whose shares with voting rights will be directly or indirectly owned by us, may not exercise its voting rights in respect of our shares. We have no voting rights with respect to the shares of our common stock we own.

The Commercial Code and our articles of incorporation provide that a quorum of not less than one-third of outstanding shares with voting rights must be present at a shareholders’ meeting to approve any material corporate action such as:

• The reduction of our stated capital;

• The removal of a director or corporate auditor;

• The establishment of a 100% parent-subsidiary relationship by way of a share exchange or share transfer;

• Our dissolution, merger or corporate split;

• The transfer of the whole or an important part of the business;

• The taking over of the whole business of any other company;

• The issuance of new shares at a “specially favorable” price (or any issuance of warrants to subscribe for new shares with “specially favorable” conditions, or bonds or debentures with warrants to subscribe for new shares with “specially favorable” conditions) to persons other than shareholders; and

• The discharge of certain director’s or corporate auditor’s liabilities that are owed to us.

The quorum necessary to adopt any of the resolutions listed above at a shareholders’ meeting was reduced from a majority to not less than one-third of outstanding shares with voting rights by the amendment of our articles of incorporation in 2003.

At least two-thirds of the shares having voting rights represented at the meeting must be voted to approve these actions. In addition, the Insurance Business Law requires the approval of the FSA for certain transfers of our business, or certain takeovers of whole or important parts of other businesses, or for certain corporate splits.

General Meetings of Shareholders

The ordinary general meeting of our shareholders is held in Tokyo, Japan within three months after the close of each fiscal year. Notice of a shareholders’ meeting stating the place, time and purpose of the meeting and a summary of the matters to be acted upon must be sent to each shareholder having voting rights (or, in the case of a non-resident shareholder, to his mailing address or proxy in Japan) at least two weeks prior to the date set for the meeting. In addition, we may hold an extraordinary general meeting of shareholders whenever necessary by giving at least two weeks’ advance notice to shareholders, as well as giving prior public notice concerning the record date for establishing which shareholders are entitled to exercise rights at the meeting.

Under the Commercial Code, any shareholder holding at least 300 shares or 1% of the total number of shares having voting rights for six months or more may propose a matter to be considered at a general meeting of shareholders by submitting a written request to a representative director at least eight weeks prior to the date set for such meeting.

Liquidation Rights

In the event of our liquidation, the assets remaining after payment of all taxes, liquidation expenses and debts will be distributed among the shareholders in proportion to the respective number of shares which they hold.

Issue of Additional Shares of Common Stock and Pre-Emptive Rights

Holders of our shares have no pre-emptive rights. Authorized but unissued shares may be issued at any time and upon any terms, subject to the limitations as to the issuance of new shares at a “specially favorable” price mentioned above in “— Voting Rights”. However, if the board of directors resolves to give shareholders subscription rights to new shares, the subscription rights must be given on uniform terms to all shareholders who own shares on a designated record date. At least two weeks prior to this record date, public notice of the record date must be made. Each of the shareholders to whom subscription rights are given must also be given at least two weeks’ prior notice of the date on which the subscription rights expire. Under the Commercial Code, we may issue warrants to subscribe for new shares (hereafter referred to as “subscription warrants) as warrants on their own or attached to bonds or debentures to any persons by resolution of the board of directors. Holders of our shares of common stock have no pre-emptive rights under our articles of incorporation when we issue warrants to subscribe for new shares. However, the board of directors may resolve to give shareholders subscription rights in connection with a particular issue of warrants to subscribe for new shares. In the case of an issue of warrants to subscribe for new shares, public or individual notice must be given to each of the shareholders at least two weeks prior to the date of payment (or issue of the warrants if warrants are issued without consideration).

Rights to subscribe for new shares may be transferable or non-transferable by resolution of the board of directors. Also, the board of directors may provide that the transfer of subscription warrants shall require the approval of the board of directors. Whether we will make rights to subscribe for new shares or subscription warrants generally transferable in any future rights offering will depend upon the circumstances at the time of the offering.

Actions Necessary to Change the Rights of Shareholders

The Commercial Code of Japan prescribes most of the basic rights of a shareholder of a Japanese company, including the right to vote and the right to receive dividends upon a resolution of a general meeting of shareholders. These rights cannot be changed by the articles of incorporation. Those rights which may be changed by the articles of incorporation may only be changed by an amendment to the articles of incorporation. Under the Commercial Code of Japan and our articles of incorporation, amendments to a company’s articles of incorporation require, in principle, the affirmative vote of more than two-thirds of the voting rights present at a shareholders’ meeting of which shareholders holding not less than one-third of the outstanding shares having voting rights are present.

Dilution

It is possible that, in the future, market conditions and other factors might make rights to subscribe for new shares, subscription warrants or bonds or debentures with subscription warrants to shareholders desirable at a price substantially below their then current market price. In this case, shareholders who do not exercise and are unable otherwise to realize the full value of their subscription rights will suffer dilution of their equity interest in us.

Reports to Shareholders

We will furnish to shareholders notices of shareholders’ meetings, annual business reports, including financial statements, all of which will be in Japanese. We will distribute English translations of them to ADS holders. In addition, we will send an English-language annual report to Citibank, N.A., the depositary for the ADSs, for distribution to ADS holders.

Record Date

Under our articles of incorporation, the close of business on March 31 is the record date for the determination of shareholders having rights at annual shareholders’ meetings and shareholders eligible to receive our year-end dividend, if paid. The close of business on September 30 is the record date for our interim dividends, if paid. In addition, after giving at least two weeks’ prior public notice, our board of directors may, by resolution at any time, set a record date in order to determine shareholders who are entitled to certain rights pertaining to the common stock.

Repurchase by Millea Holdings of Shares

Under the Commercial Code, we may acquire our own shares for any purpose, subject to the authorization of shareholders at an ordinary general shareholders’ meeting, or if our articles of incorporation so provide, by resolution of our board of directors. In accordance with the recent amendment to the Commercial Code, we amended our articles of incorporation at the ordinary general meeting of shareholders held on June 29, 2004 to authorize us to acquire our shares for any purpose by resolution of our board of directors. An acquisition by us of our own shares is subject to the restriction that the aggregate amount of the purchase price must not exceed the amount of retained earnings available for annual dividend payments, less the sum of any amount paid or to be paid by way of appropriation of retained earnings and any transfer of retained earnings to stated capital.

A resolution approved at our ordinary general meeting of shareholders held on June 27, 2003 authorized us to acquire up to 120,000 shares (representing approximately 6.5% of shares issued and outstanding) with an aggregate purchase price of ¥100 billion prior to the closing of our ordinary general meeting of shareholders to be held in 2004. We purchased 75,646 shares with an aggregate purchase price of approximately ¥100.0 billion in accordance with this resolution.

In the case of shares listed on a Japanese stock exchange or traded in the over-the-counter market, the acquisition must be made through the market or by way of a tender offer by the close of the following ordinary general shareholders’ meeting, unless acquisition of the shares from a specified person is authorized by a special shareholders’ resolution.

None of our subsidiaries can acquire our common stock, except as permitted by the Commercial Code. Any shares of our common stock that are acquired by our subsidiaries under one of these permitted exceptions, including shares that were acquired by Tokio Marine and Nichido Fire in connection with the transactions relating to our formation, must be sold or otherwise transferred to a third party within a reasonable period thereafter.

TAXATION

Japanese Taxation

The discussion of Japanese taxation set forth below is intended only as a summary and does not purport to be a complete analysis or discussion of all the potential Japanese tax consequences that may be relevant to the ownership of our common stock or ADSs by a person who is not a resident of Japan.

A non-resident of Japan or a non-Japanese corporation is generally subject to Japanese withholding tax on cash dividends. Stock splits generally are not subject to Japanese withholding tax since they are characterized merely as an increase in the number of shares (as opposed to an increase in the value of the shares) from a Japanese tax perspective. Due to the 2001 Japanese tax legislation, which became effective April 1, 2001, a conversion of retained earnings or legal earned reserve into stated capital is not deemed a dividend payment to shareholders for Japanese tax purposes and therefore such a conversion does not trigger Japanese withholding taxation.

Pursuant to the Convention Between the Government of the United States of America and the Government of Japan for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income, or the Treaty, dividend payments made by a Japanese corporation to a U.S. resident or corporation, provided the recipient of the dividend does not have a “permanent establishment” in Japan and the shares with respect to which such dividends are paid are effectively connected with such “permanent establishment”, will be subject to withholding tax at rate of: (1) 10% for dividends declared on or after July 1, 2004 for portfolio investors who are qualified U.S. residents eligible for benefits of the Treaty; and (2) 0% (i.e., no withholding) for dividends declared on or after July 1, 2004 for pension funds which are qualified U.S. residents eligible for benefits of the Treaty, provided the dividends are not derived from the carrying on of a business, directly or indirectly, by such pension funds. However, dividends declared before July 1, 2004 will still be subject to withholding at the previous United States and Japan treaty rate of 15%. For Japanese tax purposes, the treaty rate generally supersedes the tax rate under domestic tax law. However, due to the so-called “preservation doctrine” under Article 4(2) of the Treaty, and/or due to Article 3-2 of the Special Measurement Law for the Income Tax Law, Corporation Tax Law and Local Taxes Law with respect to the Implementation of Tax Treaties, if the tax rate under domestic tax law is lower than the applicable treaty rate, the domestic tax rate applies. As discussed below, the domestic tax rate on dividends paid by Millea Holdings to certain shareholders on or after January 1, 2004 but before March 31, 2008 is 7%, and therefore this lower domestic rate will apply with respect to withholding on dividends paid to certain U.S. shareholders during such period.

The amount of withholding tax imposed on dividends payable to the holders of our common stock or ADSs who reside in a country other than the United States is dependent upon the provisions of such treaties or agreements as may exist between such country and Japan. In the absence of any applicable treaty or agreement reducing the maximum rate of withholding tax, the standard rate of Japanese withholding tax applicable to dividends paid by Japanese corporations to non-residents of Japan or non-Japanese corporations is generally 20%. However, with respect to dividends paid on listed shares issued by a Japanese corporation (such as our common stock) to any corporate or individual shareholders (including those shareholders who are non-Japanese corporations or Japanese non-resident individuals), except for any individual shareholder who holds 5% or more of the outstanding total of the shares issued by the relevant Japanese corporation, the aforementioned standard 20% withholding tax rate is reduced to (1) 7% for dividends due and payable on or after January 1, 2004 but on or before March 31, 2008, and (2) 15% for dividends due and payable on or after April 1, 2008.

Non-residents of Japan or non-Japanese corporations that hold common stock or ADSs and are entitled under an applicable tax treaty to a reduced rate of Japanese withholding tax on dividends lower than the tax rate under the domestic tax law, are required to submit, through Millea Holdings to the relevant tax authority prior to the time the dividend is paid, an Application Form for the Income Tax Convention regarding Relief from Japanese Income Tax on Dividends. A standing proxy for a non-resident of Japan or a non-Japanese corporation that holds common stock or ADSs may be used in order that Millea Holdings can submit such application on such holder’s behalf. Non-residents of Japan or non-Japanese corporations that hold common stock or ADSs who do not submit such application in advance of the applicable dividend payment will be entitled to claim a refund from the relevant Japanese tax authorities of withholding taxes withheld in excess of the rate set forth in the applicable tax treaty.

Gains derived from the sale outside Japan of our common stock or ADSs by a non-resident of Japan or a non-Japanese corporation, or from the sale of our common stock within Japan by a non-resident of Japan as an occasional transaction or by a non-Japanese corporation not having a permanent establishment in Japan, are generally not subject to Japanese income or corporation taxes. Japanese inheritance and gift taxes at progressive rates may apply to an individual who has acquired our common stock or ADSs as a distributee, legatee or donee.

United States Taxation

The following is a discussion of material U.S. federal income tax consequences of owning and disposing of our common stock or ADSs by U.S. holders (as defined below). The discussion applies only if a U.S. holder holds our common stock or ADSs as capital assets for U.S. federal income tax purposes and it does not describe all of the tax consequences that may be relevant to holders subject to special rules, such as:

• certain financial institutions;

• insurance companies;

• dealers and traders in securities or foreign currencies;

• persons holding our common stock or ADSs as part of a hedge, straddle or conversion transaction;

• persons whose functional currency for U.S. federal income tax purposes is not the U.S. dollar;

• partnerships or other entities classified as partnerships for U.S. federal income tax purposes;

• persons liable for the alternative minimum tax;

• tax-exempt organizations;

• persons holding our common stock or ADSs that own or are deemed to own more than ten percent of any class of Millea Holdings’ stock; or

• persons who acquired our common stock or ADSs pursuant to the exercise of any employee stock option or otherwise as compensation.

This discussion is based on the Internal Revenue Code of 1986, as amended, or the Code, administrative pronouncements, judicial decisions, final, temporary and proposed Treasury regulations and the Treaty, all as currently in effect. These laws are subject to change, possibly on a retroactive basis. It is also based in part on representations by the depositary and assumes that each obligation under the deposit agreement and any related agreement will be performed in accordance with its terms. U.S. holders should consult their own tax advisors concerning the U.S. federal, state, local and foreign tax consequences of owning and disposing of our common stock or ADSs in their particular circumstances.

A “U.S. holder” is a beneficial owner of our common stock or ADSs that is, for U.S. federal income tax purposes, (1) a citizen or resident of the United States; (2) a corporation, or other entity taxable as a corporation, created or organized in or under the laws of the United States or any political subdivision thereof; or (3) an estate or trust the income of which is subject to U.S. federal income taxation regardless of its source.

In general, a U.S. holder of ADSs will be treated as the holder of the underlying common stock represented by those ADSs for U.S. federal income tax purposes. Accordingly, no gain or loss will be recognized if a U.S. holder exchanges ADSs for the underlying common stock represented by those ADSs.

The U.S. Treasury has expressed concerns that parties to whom ADSs are pre-released may be taking actions that are inconsistent with the claiming of foreign tax credits for U.S. holders of ADSs. Such actions would also be inconsistent with the claiming of the reduced rate of tax, described below, applicable to dividends received by certain non-corporate U.S. holders. Accordingly, the analysis of the creditability of Japanese taxes and the availability of the reduced tax rate for dividends received by certain non-corporate U.S. holders, each described below, could be affected by actions taken by parties to whom ADSs are pre-released.

This discussion assumes that Millea Holdings is not, and will not become, a passive foreign investment company (as discussed below).

Taxation of distributions

Distributions paid on our common stock or ADSs, other than certain pro rata distributions of common stock, will be treated as dividends to the extent paid out of current or accumulated earnings and profits (as determined under U.S. federal income tax principles). Subject to applicable limitations, dividends paid to non-corporate U.S. holders in taxable years beginning before January 1, 2009 will be taxable at a maximum rate of 15%. Non-corporate U.S. holders should consult their own tax advisors to determine whether they are subject to any special rules that limit their ability to be taxed at this favorable rate. The amount of a dividend will include any amounts withheld by us or our paying agent in respect of Japanese taxes. The amount of the dividend will be treated as foreign source dividend income to a U.S. holder and will not be eligible for the dividends received deduction generally allowed to U.S. corporations under the Code. Such dividends will generally constitute “passive income” or, for certain holders, “financial services income” for foreign tax credit purposes.

Dividends paid in yen will be included in a U.S. holder’s income in a U.S. dollar amount calculated by reference to the exchange rate in effect on the date the dividends are received by such U.S. holder in the case of a U.S. holder of our common stock or by the depositary for the ADSs in the case of a U.S. holder of ADSs, regardless of whether the payment is in fact converted into U.S. dollars. If the dividend is converted into U.S. dollars on the date of receipt, a U.S. holder generally should not be required to recognize foreign currency gain or loss in respect of the dividend income. A U.S. holder may have foreign currency gain or loss if the dividend is not converted into U.S. dollars on the date of its receipt.

Japanese taxes withheld from cash dividends on our common stock or ADSs at a rate not exceeding the rate provided in the Treaty will be creditable against a U.S. holder’s U.S. federal income tax liability, subject to applicable restrictions and limitations that may vary depending upon such holder’s circumstances. Instead of claiming a credit, a U.S. holder may elect to deduct such otherwise creditable Japanese taxes in computing such holder’s taxable income, subject to generally applicable limitations under U.S. law. U.S. holders should consult their own tax advisors to determine whether they are subject to any special rules that limit their ability to make effective use of foreign tax credits.

Sale and other disposition of our common stock or ADSs

For U.S. federal income tax purposes, gain or loss a U.S. holder realizes on the sale or other disposition of our common stock or ADSs will be capital gain or loss, and will be long-term capital gain or loss if the holder held the common stock or ADSs for more than one year. The amount of the U.S. holder’s gain or loss will be equal to the difference between the holder’s tax basis in our common stock or ADSs disposed of and the amount realized on the disposition. Such gain or loss will generally be U.S. source gain or loss for foreign tax credit purposes.

Passive foreign investment company rules

Special adverse U.S. federal income tax rules apply if a U.S. holder owns stock or ADSs of a company in any taxable year during which the company is treated as a passive foreign investment company, or a PFIC.

Based upon certain estimates of our management and the nature of the business activities conducted by the Millea Holdings corporate group, we believe that we were not a PFIC for the taxable year ended March 31, 2004 and we do not expect to be a PFIC in the foreseeable future. However, since the determination of whether we are a PFIC is based on the composition of our income and assets and the value of our assets from time to time, there can be no assurance that we will not be considered a PFIC for any taxable year.

In general, if we were treated as a PFIC for any taxable year during which a U.S. holder owned our common stock or ADSs, gain recognized by the U.S. holder on a sale or other disposition of our common stock or ADSs would be allocated ratably over the U.S. holder’s holding period therefor. The amounts allocated to the taxable year of the sale or other disposition and to any taxable year before we became a PFIC would be taxed as ordinary income. The amount allocated to each other taxable year would be subject to tax at the highest rate in effect for individuals or corporations, as appropriate, and an interest charge would be imposed on the amount allocated to such taxable year.

Further, any distribution in respect of our common stock or ADSs in excess of 125% of the average of the annual distributions on such securities received by the U.S. holder during the preceding three years or the U.S. holder’s holding period, whichever is shorter, would be subject to taxation as described above. Under certain circumstances, a mark-to-market election may be available to a U.S. holder, which generally could result in different U.S. federal income tax consequences to such holder.

In addition, if we were to be treated as a PFIC in a taxable year in which we pay a dividend or the prior taxable year, the 15% dividend rate discussed above with respect to payment of dividends to non-corporate U.S. holders would not apply.

Information reporting and backup withholding

Payment of dividends and sales proceeds that are made within the United States or through certain U.S.-related financial intermediaries generally are subject to information reporting and to backup withholding unless (1) the holder is a corporation or other exempt recipient or (2) in the case of backup withholding, the U.S. holder provides a correct taxpayer identification number and certifies that no loss of exemption from backup withholding has occurred.

The amount of any backup withholding from a payment to a U.S. holder will be allowed as a credit against its U.S. federal income tax liability and may entitle it to a refund, provided that the required information is furnished to the Internal Revenue Service.

CONTROLS AND PROCEDURES

As of March 31, 2004, we, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, performed an evaluation of the effectiveness of our disclosure controls and procedures. Our management necessarily applied its judgment in assessing the costs and benefits of those controls and procedures, which by their nature can provide only reasonable assurance regarding management’s control objectives. Based on this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures are effective at the reasonable assurance level for gathering, analyzing and disclosing the information we are required to disclose in the reports we file under the Securities Exchange Act of 1934, within the time periods specified in the SEC’s rules and forms.

There have been no changes in our internal controls over financial reporting that occurred during the period covered by this annual report that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

CODE OF ETHICS

We have adopted a code of ethics that applies to our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. Our code of ethics is available through our website at http://www.millea.co.jp.

PRINCIPAL ACCOUNTANT FEES AND SERVICES

Audit Fees

For the year ended March 31, 2004, ChuoAoyama PricewaterhouseCoopers (including its Japanese and overseas affiliates), our auditors for Japanese domestic purposes and United States securities law reporting purposes for the year ended March 31, 2004, billed us ¥185.6 million for audit fees. For the year ended March 31, 2003, ChuoAoyama PricewaterhouseCoopers (including its Japanese and overseas affiliates), our auditors for Japanese domestic purposes for the year ended March 31, 2003, billed us ¥98.7 million for audit fees. For the year ended March 31, 2003, KPMG AZUSA & Co. (including its Japanese and overseas affiliates), our auditors for United States securities law reporting purposes for the year ended March 31, 2003, billed us ¥93.3 million for audit fees.

Audit Related Fees

In the year ended March 31, 2004, ChuoAoyama PricewaterhouseCoopers (including its Japanese and overseas affiliates) billed us ¥17.3 million for audit-related services, including advisory services relating to internal controls and procedures. In the year ended March 31, 2003, ChuoAoyama PricewaterhouseCoopers (including its Japanese and overseas affiliates) billed us ¥10.7 million for audit-related services, including due diligence services. In the year ended March 31, 2003, KPMG AZUSA & Co. (including its Japanese and overseas affiliates) billed us ¥0.6 million for audit-related services.

Tax Fees

In the year ended March 31, 2004, ChuoAoyama PricewaterhouseCoopers (including its Japanese and overseas affiliates) billed us ¥37.1 million for tax services, including tax-related advice and the preparation of tax returns. In the year ended March 31, 2003, ChuoAoyama PricewaterhouseCoopers (including its Japanese and overseas affiliates) billed us ¥10.0 million for tax fees, including tax-related advice and the preparation of tax returns. In the year ended March 31, 2003, KPMG AZUSA & Co. (including its Japanese and overseas affiliates) billed us ¥9.9 million for tax fees, including tax-related advice and the preparation of tax returns.

All Other Fees

In the year ended March 31, 2004, ChuoAoyama PricewaterhouseCoopers (including its Japanese and overseas affiliates) billed us ¥44.6 million for other products and services, including advisory services in connection with a scheme of arrangement in the United Kingdom. In the year ended March 31, 2003, ChuoAoyama PricewaterhouseCoopers (including its Japanese and overseas affiliates) billed us ¥58.6 million for other products and services, including advisory services in connection with a scheme of arrangement in the United Kingdom. In the year ended March 31, 2003, KPMG AZUSA & Co. (including its Japanese and overseas affiliates) billed us ¥1.5 million for other products and services, including consultation regarding accounting matters.

Pre-Approval Policies and Procedures

Our board of directors, together with our board of corporate auditors, has adopted “Pre-Approval Policies and Procedures for Audit and Non-Audit Services”. These policies require that engagements of our independent accountants for audit and permitted non-audit services be pre-approved by our board of directors and board of corporate auditors in accordance with the prescribed procedures and standards, based on review of explanative summaries of each type of services. Engagements for certain non-audit services are prohibited under these policies. Engagements for non-audit services that are not specifically prohibited and do not violate the auditor independence requirements of the Sarbanes-Oxley Act of 2002 and the related rules may be permitted under special circumstances. In the year ended March 31, 2004, 1.4% of the total amount of fees paid by us to ChuoAoyama PricewaterhouseCoopers was approved by our board of directors and board of corporate auditors under the de minimis exception under paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X under the Exchange Act.

EXEMPTIONS FROM CERTAIN NASDAQ CORPORATE GOVERNANCE RULES

Nasdaq rules provide that Nasdaq may grant exemptions from the Nasdaq corporate governance standards to a foreign issuer when those standards are contrary to a law, rule or regulation of any public authority exercising jurisdiction over such issuer or contrary to generally accepted business practices in the issuer’s country of domicile, except to the extent that such exemptions would be contrary to the U.S. federal securities laws. We received from Nasdaq exemptions from certain Nasdaq corporate governance standards. These exemptions and the practices we follow are described below:

• We are exempt from Nasdaq’s requirement that there be independent directors on the board of directors. Currently, for a foreign issuer, Nasdaq requires that there be two independent directors on its board of directors. For large Japanese companies, including us, which employ a corporate governance system based on a board of corporate auditors, Japan’s company law has no independence requirement with respect to directors. As discussed above, the task of overseeing management and accounting firms is assigned to the corporate auditors, who are separate from the company’s management. Large Japanese companies, including us, are required to have at least one “outside” corporate auditor who must meet independence requirements under Japan’s company law. An outside corporate auditor is defined as a corporate auditor who has not served as a director, manager or any other employee of the company or any of its subsidiaries for the last five years prior to the appointment. Currently, we have three outside corporate auditors. Starting on the date of our ordinary meeting of shareholders relating to the fiscal year ending March 31, 2006, at least 50% of our corporate auditors will be required to be outside corporate auditors. Also, starting on the same date, the independence requirements for outside corporate auditors will be strengthened by extending the five-year period referred to above to any time prior to the appointment.

• We are exempt from Nasdaq’s requirement to establish an audit committee of the board of directors. Currently, for a foreign issuer, Nasdaq requires that a majority of such an audit committee’s members be independent directors. Like a majority of Japanese companies, we employ the corporate auditor system as described above. Under this system, the board of corporate auditors is a legally separate and independent body from the board of directors. The functions of the board of corporate auditors are comparable to those of independent directors, including those who are members of the audit committee, of a U.S. company: to monitor the performance of the directors, and to review and express opinion on the method of auditing by the company’s accounting firm and on such accounting firm’s audit reports, for the protection of the company’s shareholders. Large Japanese companies, including us, are required to have at least three corporate auditors. Currently, we have five corporate auditors. In addition, our corporate auditors serve a longer term than our directors. See “Directors and Corporate Auditors — Board Practices”.

• We are exempt from the requirement to distribute copies of our annual report to our shareholders prior to our annual meeting of shareholders. In accordance with Japanese law, we distribute a convocation notice to our shareholders prior to each annual meeting of shareholders. This convocation notice includes the results of the most recent fiscal year. We distribute a translation of the convocation notice to our ADS holders.

• We are exempt from the requirement to provide for a quorum for any shareholders’ meeting. As permitted by the Commercial Code of Japan, the articles of incorporation of virtually all major Japanese companies, including ours, exclude a quorum requirement for general meetings of shareholders with respect to all matters to which no special provision of the Commercial Code of Japan apply.

• We are exempt from the requirement to solicit proxies and to provide proxy statements for all meetings to shareholders. In common with most other major companies in Japan, we allow each holder of shares of our common stock to cast its vote in writing, instead of soliciting proxies.

• We are exempt from the requirement that our code of conduct shall cover all our employees to the extent that these employees are employed by indirectly held subsidiaries. Under Japanese law and practice, we are not in a position to force our indirectly held subsidiaries to adopt such code.

Starting on July 31, 2005, when the requirements of Rule 10A-3 under the U.S. Securities Exchange Act of 1934 relating to listed company audit committees become applicable to foreign private issuers, we expect to rely on an exemption under that rule which is available to foreign private issuers with a board of corporate auditors meeting certain criteria. We expect to make a disclosure regarding such reliance in our annual reports on Form 20-F for the fiscal year ending March 31, 2005 and thereafter.

WHERE YOU CAN FIND MORE INFORMATION

We are subject to the information requirements of the Securities and Exchange Act of 1934. In accordance with those requirements, we file with the SEC annual reports on Form 20-F within six months of our fiscal year end, and provide to the SEC other material information on Form 6-K. You may read and copy any document that we file with the SEC at the SEC’s public reference room at 450 Fifth Street, N.W., Washington, D.C. 20549. Please call the SEC at 1-800-732-0330 for further information on the operation of its public reference room. You may also view any document that we file with the SEC in electronic format by accessing the SEC’s home page (http://www.sec.gov).

Prior to our formation in April 2002, Tokio Marine and Nichido Fire filed a registration statement on Form F-4 with the SEC under the Securities Act of 1933 (registration number 333-14152 with respect to Tokio Marine and registration number 333-14152-01 with respect to Nichido Fire) covering shares of our common stock to be issued to Tokio Marine and Nichido Fire shareholders in connection with our formation. Tokio Marine and Nichido Fire also filed a related registration statement on Form F-6 with the SEC to register the American depositary shares representing our shares (registration number 333-14154 with respect to Tokio Marine and registration number 333-14154-01 with respect to Nichido Fire). You should refer to these registration statements and their exhibits and schedules, which are also available at the SEC’s public reference room identified above, if you would like to find out more about our formation or our American depositary shares.

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of
Millea Holdings, Inc.:

In our opinion, the accompanying consolidated balance sheet and the related consolidated statements of income, of comprehensive income, of stockholders’ equity and of cash flows present fairly, in all material respects, the financial position of Millea Holdings, Inc. and its subsidiaries (“the Company”) at March 31, 2004, and the results of their operations and their cash flows for the year ended March 31, 2004 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedules for the year ended March 31, 2004 listed in the accompanying index present fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedules are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and financial statement schedules based on our audits. We conducted our audit of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

/s/ ChuoAoyama PricewaterhouseCoopers

Tokyo, Japan
August 3, 2004

F-2

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders
Millea Holdings, Inc.:

We have audited the accompanying consolidated financial statements of Millea Holdings, Inc. and subsidiaries as of and for each of the years in the two-year period ended March 31, 2003 as listed in the accompanying index. In connection with our audits, we also have audited the financial statement schedules as listed in the accompanying index. These consolidated financial statements and financial statement schedules are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedules based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Millea Holdings, Inc. and subsidiaries as of March 31, 2003, and the results of their operations and their cash flows for each of the years in the two-year period ended March 31, 2003, in conformity with accounting principles generally accepted in the United States of America.

Also in our opinion, the related financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.

As discussed in note 1(h) of the notes to the consolidated financial statements, the Company changed its method of accounting for derivative instruments and hedging activities in the year ended March 31, 2002.

/s/ KPMG AZSA & Co.

Tokyo, Japan
September 4, 2003

F-3

MILLEA HOLDINGS, INC.
AND SUBSIDIARIES

Consolidated Balance Sheets

March 31, 2004 and 2003


	(Yen in millions)
Assets	2004		2003
Investments — other than investments in related parties (notes 3):
Securities held to maturity:
Fixed maturities, at amortized cost (fair value ¥1,088,552 million in 2004; ¥1,028,732 million in 2003)	¥	1,109,861		883,336
Securities available for sale:
Fixed maturities, at fair value (amortized cost ¥3,197,782 million in 2004; ¥3,225,560 million in 2003)		3,209,582		3,421,624
Equity securities, at fair value (cost ¥1,692,457 million in 2004; ¥1,842,812 million in 2003)		3,457,374		2,534,221
Trading securities:
Fixed maturities, at fair value (cost ¥36,258 million in 2004; ¥26,076 million in 2003)		35,619		25,936
Equity securities, at fair value (cost ¥11,418 million in 2004)		12,894		—
Mortgage loans on real estate		129,076		148,655
Investment real estate		104,110		82,886
Policy loans		33,610		29,171
Other long-term investments		419,199		559,004
Short-term investments		881,897		660,370

Total investments		9,393,222		8,345,203

Cash and cash equivalents		432,874		339,978
Premiums receivable and agents’ balances		185,498		176,010
Reinsurance recoverable on losses (notes 4 and 8)		447,111		450,345
Prepaid reinsurance premiums (note 4)		318,432		300,847
Deferred policy acquisition costs (note 5)		453,403		422,480
Property and equipment, net of depreciation (note 6)		193,068		204,078
Derivative assets (note 15)		225,822		341,279
Separate account assets		162,715		—
Goodwill		9,934		—
Present value of future profit		14,744		—
Other assets		363,550		313,143

Total assets	¥	12,200,373		10,893,363

(Continued)

See accompanying notes to consolidated financial statements.

F-4

MILLEA HOLDINGS, INC.
AND SUBSIDIARIES

Consolidated Balance Sheets — (Continued)

March 31, 2004 and 2003


	(Yen in millions)
Liabilities and Stockholders’ Equity	2004			2003
Liabilities:
Policy liabilities and accruals:
Losses, claims and loss adjustment expenses (note 8)	¥	1,221,146			1,131,884
Unearned premiums		1,878,824			1,761,155
Future policy benefits and losses		853,804			713,418

Total policy liabilities and accruals		3,953,774			3,606,457

Investment deposits by policyholders		2,704,861			2,716,526
Income tax liability (note 9)		709,224			437,560
Retirement and severance benefits (note 10)		292,054			324,003
Ceded reinsurance balances payable		109,923			113,370
Debt outstanding (note 11)		213,446			177,880
Derivative liabilities (note 15)		156,467			203,011
Cash received under securities lending transactions		272,791			248,214
Separate account liabilities		162,715			—
Other liabilities (note 11)		216,767			242,026

Total liabilities		8,792,022			8,069,047

Commitments and contingent liabilities (notes 4 and 14)
Stockholders’ equity:
Common stock: 7,000,000 shares authorized in 2004 and 2003, 1,857,048.75 shares issued in 2004 and 2003		150,000			150,000
Additional paid-in capital		343,155			343,413
Retained earnings (notes 13)		2,299,338			2,214,947
Accumulated other comprehensive income:
Unrealized appreciation of securities		796,304			227,198
Foreign currency translation adjustments		(26,433	)		(15,254	)
Minimum pension liability adjustments (note 10)		(67,305	)		(88,326	)

Total accumulated other comprehensive income		702,566			123,618
Treasury stock, at cost 68,992 and 7,903 shares in 2004 and 2003, respectively		(86,708	)		(7,662	)

Total stockholders’ equity		3,408,351			2,824,316

Total liabilities and stockholders’ equity	¥	12,200,373			10,893,363

See accompanying notes to consolidated financial statements.

F-5

MILLEA HOLDINGS, INC.
AND SUBSIDIARIES

Consolidated Statements of Income

Years ended March 31, 2004, 2003 and 2002


	(Yen in millions,
	except per share amounts)
	2004			2003			2002
Operating income:
Property and casualty:
Net premiums written (note 4)	¥	1,945,246			1,898,557			1,381,483
Less increase in unearned premiums		85,043			137,589			38,521

Premiums earned (note 4)		1,860,203			1,760,968			1,342,962
Life premiums (note 4)		247,800			262,486			209,208
Net investment income (note 3)		126,173			108,311			104,681
Realized losses on investments (notes 3)		(3,855	)		(29,875	)		(1,020	)
(Losses) gains on derivatives		(36,755	)		76,564			(7,319	)

Total operating income		2,193,566			2,178,454			1,648,512

Operating costs and expenses:
Losses, claims and loss adjustment expenses (notes 4 and 8):
Losses and claims incurred and provided for		1,048,518			953,681			736,765
Related adjustment expenses		77,389			76,412			61,449

Total losses, claims and loss adjustment expenses		1,125,907			1,030,093			798,214
Policy benefits and losses for life		197,903			223,316			175,016
Income credited to investment deposits by policyholders		58,414			56,011			57,507
Policy acquisition costs (note 5)		558,978			571,058			437,012
Other operating expenses		100,097			96,668			72,095

Total operating costs and expenses		2,041,299			1,977,146			1,539,844

Income before income tax expense, extraordinary items and cumulative effect of accounting changes		152,267			201,308			108,668

Income tax expense (benefit) (note 9):
Current		50,015			92,935			53,960
Deferred		(630	)		(21,321	)		(20,544	)

		49,385			71,614			33,416

Income before extraordinary items and cumulative effect of accounting changes		102,882			129,694			75,252
Extraordinary items (note 2)		—			248,323			—
Cumulative effect of accounting changes, net of tax (note 1(h))		—			—			85,465

Net income	¥	102,882			378,017			160,717

Amounts per Share of common stock:
Basic and diluted:
Income before extraordinary items and cumulative effect of accounting changes	¥	56,457			69,839			48.559
Extraordinary items		—			133,719			—
Cumulative effect of accounting changes, net of tax		—			—			55.150

Net income	¥	56,457			203,558			103.709

Cash dividends declared	¥	11,000			10,000			8.50
Weighted average and diluted common shares in thousands		1,822			1,857			1,549,692

Millea Holdings’ consolidated financial statement for the year ended March 31, 2002 represents the financial result of Tokio Marine, as predecessor to Millea Holdings. See accompanying notes to consolidated financial statements.

F-6

MILLEA HOLDINGS, INC.
AND SUBSIDIARIES

Consolidated Statements of Stockholders’ Equity

Years ended March 31, 2004, 2003 and 2002


	(Yen in millions)
	2004			2003			2002
Common stock:
Balance at beginning of year	¥	150,000			101,995			101,995
Adjustment in connection with the acquisition		—			48,005			—

Balance at end of year		150,000			150,000			101,995

Additional paid-in capital:
Balance at beginning of year		343,413			52,917			52,917
Excess of cost of shares transferred over the amount of common stock in connection with the acquisition		—			289,780			—
(Losses) gains on sales of treasury stock		(258	)		716			—

Balance at end of year		343,155			343,413			52,917

Retained earnings:
Balance at beginning of year		2,214,947			1,853,312			1,705,767
Net income for year		102,882			378,017			160,717
Dividends paid (note 13)		(18,491	)		(16,382	)		(13,172	)

Balance at end of year		2,299,338			2,214,947			1,853,312

Accumulated other comprehensive income:
Unrealized appreciation of securities:
Balance at beginning of year		227,198			553,640			765,179
Change during year		569,106			(326,442	)		(211,539	)

Balance at end of year		796,304			227,198			553,640

Foreign currency translation adjustments:
Balance at beginning of year		(15,254	)		(4,549	)		(21,666	)
Change during year		(11,179	)		(10,705	)		17,117

Balance at end of year		(26,433	)		(15,254	)		(4,549	)

Minimum pension liability adjustments (note 10):
Balance at beginning of year		(88,326	)		(47,621	)		(17,648	)
Change during year		21,021			(40,705	)		(29,973	)

Balance at end of year		(67,305	)		(88,326	)		(47,621	)

Accumulated other comprehensive income at end of year		702,566			123,618			501,470

Treasury stock:
Balance at beginning of year		(7,662	)		—			—
Change during year		(79,046	)		(7,662	)		—

Balance at end of year		(86,708	)		(7,662	)		—

Total stockholders’ equity	¥	3,408,351			2,824,316			2,509,694

F-7

MILLEA HOLDINGS, INC.
AND SUBSIDIARIES

Consolidated Statements of Cash Flows

Years ended March 31, 2004, 2003 and 2002


	(Yen in millions)
	2004			2003			2002
Cash flows from operating activities:
Net income	¥	102,882			378,017			160,717
Adjustments to reconcile net income to net cash provided by operating activities:
Increase in losses, claims and loss adjustment expense reserve, net of ceded reinsurance		92,555			21,090			28,346
Increase in unearned premiums, net of ceded reinsurance		100,084			136,405			38,411
Increase in future policy benefits for life		133,451			169,982			139,926
(Increase) decrease in premiums receivables and agents’ balances, net of ceded reinsurance		(13,152	)		18,202			5,094
(Decrease) increase in payable for current income taxes		(59,475	)		1,126			38,494
Increase in receivable for current income taxes		(28,732	)		(20,843	)		(92	)
Deferred income taxes		(503	)		(22,796	)		27,489
Provision for retirement and severance benefits		2,938			(6,045	)		12,893
Increase in deferred policy acquisition costs		(30,923	)		(21,094	)		(24,338	)
Depreciation		19,116			15,076			15,530
Extraordinary items — unallocated negative goodwill (note 2)		—			(248,323	)		—
Cumulative effect of accounting changes (note 1(h))		—			—			(133,498	)
Changes in trading securities, at fair value		(8,065	)		(24,574	)		—
Changes in derivative assets and liabilities — net		68,913			(24,748	)		19,978
Increase in other liabilities		5,707			62,255			7,689
Other — net		(4,149	)		6,635			10,246

Net cash provided by operating activities		380,647			440,365			346,885

Cash flows from investing activities:
Proceeds from investments sold or matured:
Fixed maturities held to maturity redeemed		2,471			661			456
Fixed maturities available for sale sold		870,571			542,909			335,280
Fixed maturities available for sale redeemed		724,003			729,396			436,296
Equity securities available for sale		228,913			421,892			94,796
Mortgage loans on real estate		52,679			37,393			35,953
Investment real estate		5,272			12,025			16,306
Policy loans		21,759			25,606			22,403
Other long-term investments		247,498			400,245			211,793

F-8

MILLEA HOLDINGS, INC.
AND SUBSIDIARIES

Consolidated Statements of Cash Flows — (Continued)

Years ended March 31, 2004, 2003 and 2002


				(Yen in millions)
				2004			2003			2002
	Cost of investments purchased:
		Fixed maturities held to maturity		¥	(231,315	)		(405,856	)		(128,167	)
		Fixed maturities available for sale			(1,593,176	)		(1,881,085	)		(996,999	)
		Equity securities available for sale			(75,562	)		(207,260	)		(185,518	)
		Mortgage loans on real estate			(26,335	)		(25,924	)		(14,981	)
		Investment real estate			(23,594	)		(951	)		(1,972	)
		Policy loans			(25,282	)		(28,696	)		(23,906	)
		Other long-term investments			(142,211	)		(256,205	)		(107,670	)
	Short-term investments — net				(225,535	)		26,662			138,025
	Securities and indebtedness of related parties				(17,566	)		2,497			6,671
	Property and equipment				(8,628	)		(13,208	)		(7,496	)
	(Decrease) increase in cash received under securities lending transactions				(19,397	)		74,812			149,212
	Cash and cash equivalents acquired in connection with noncash business combination				—			153,868			—
	Cash paid on acquisition, net of cash and cash equivalents acquired				(17,962	)		—			—

		Net cash used in investing activities			(253,397	)		(391,219	)		(19,518	)

Cash flows from financing activities:
	Investment deposits funded by policyholders and yields therefrom				423,363			499,110			290,046
	Withdrawals of investment deposits by policyholders				(435,028	)		(549,433	)		(394,661	)
	Proceeds from issuance of debt				68,746			55,900			—
	Repayment of debt				(33,039	)		(14,004	)		—
	Increase in cash received under securities lending transactions				43,974			—			—
	Dividends to stockholders				(18,491	)		(16,382	)		(13,172	)
	Increase in treasury stock				(79,304	)		(6,946	)		—
	Other				(5,049	)		—			—

		Net cash used in financing activities			(34,828	)		(31,755	)		(117,787	)

Effect of exchange rate changes on cash and cash equivalents					474			285			291

Net change in cash and cash equivalents					92,896			17,676			209,871
Cash and cash equivalents at beginning of year					339,978			322,302			112,431

Cash and cash equivalents at end of year				¥	432,874			339,978			322,302

Supplemental information of cash flows:
	Cash paid during the year for:
		Interest		¥	2,885			2,508			2,075
		Income taxes		¥	113,521			73,196			15,466
	Noncash investing and financing activities (note 2):
		Fair value of assets acquired		¥	—			2,108,703			—
		Liabilities assumed			—			(1,606,945	)		—
		Negative goodwill			—			(317,841	)		—
		Fair value of shares issued for acquisition			—			(337,785	)		—

			Cash and cash equivalents acquired in connection with noncash business combination	¥	—			(153,868	)		—

F-9

MILLEA HOLDINGS, INC.
AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income

Years ended March 31, 2004, 2003 and 2002


			(Yen in millions)
			2004			2003			2002
Net income			¥	102,882			378,017			160,717

Other comprehensive income (loss), net of tax:
	Unrealized appreciation of securities:
		Unrealized holding gains (losses)		574,678			(216,114	)		(197,773	)
		Less: reclassification adjustments for gains included in net income		(5,572	)		(110,328	)		(13,766	)

				569,106			(326,442	)		(211,539	)

	Foreign currency translation adjustments:
		Foreign currency translation adjustments		(11,866	)		(10,181	)		17,117
		Less: reclassification adjustments for losses (gains) included in net income		687			(524	)		—

				(11,179	)		(10,705	)		17,117

	Minimum pension liability adjustments			21,021			(40,705	)		(29,973	)

Other comprehensive income (loss)				578,948			(377,852	)		(224,395	)

Comprehensive income (loss)			¥	681,830			165			(63,678	)

F-10

MILLEA HOLDINGS, INC.
AND SUBSIDIARIES

Notes to Consolidated Financial Statements

March 31, 2004, 2003 and 2002

1. Basis of Presentation and Significant Accounting Policies

(a) Description of Business
Millea Holdings, Inc. (“Millea Holdings”), incorporated in Japan, is a holding company engaged in property and casualty and life insurance operations. Through its subsidiaries, Millea Holdings writes marine, fire and casualty, automobile and allied lines of insurance principally covering risks located in Japan and hull and cargo risks for Japanese business and sells a variety of life insurance products mainly in the Japanese market.

Millea Holdings was established on April 2, 2002 as a result of the business combination of The Tokio Marine and Fire Insurance Company, Limited (“Tokio Marine”) with The Nichido Fire and Marine Insurance Company, Limited (“Nichido Fire”), by which both Tokio Marine and Nichido Fire have become wholly owned subsidiaries of Millea Holdings in a statutory share exchange under Japanese law. Millea Holdings is a successor registrant of Tokio Marine to the United States Securities and Exchange Commission. See note 2 “Business Combination” for further detail.

(b) Basis of Presentation
The consolidated financial statements of Millea Holdings and its subsidiaries (collectively referred to as “the Company”) are presented herein in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”), which differ in certain respects from Japanese accounting principles (“Japanese GAAP”). Millea Holdings’ consolidated financial statement for the year ended March 31, 2002 represents the financial result of Tokio Marine, as predecessor to Millea Holdings.

Certain reclassifications have been made to the prior years’ consolidated financial statements to conform to the 2004 presentation.

(c) Principles of Consolidation
The accompanying consolidated financial statements include all significant majority-owned subsidiaries and variable interest entities created after January 31, 2003 to which Millea Holdings and its subsidiaries are the primary beneficiary. Certain subsidiaries’ results were reported in the consolidated financial statements using December 31 year-ends. All significant intercompany accounts and transactions have been eliminated in consolidation. All significant affiliates are accounted for by the equity method. At March 31, 2004 and 2003, investments in related parties which were presented as other assets amounted to ¥29,341 million and ¥11,775 million, respectively.

(d) Use of Estimates
Management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these financial statements in conformity with U.S. GAAP. Actual results could differ from these estimates.

(e) Investments — Other than Investments in Related Parties
Fixed maturities held to maturity, which the Company has the positive intent and ability to hold to maturity, are stated at amortized cost. Declines in fair value below amortized cost that are determined to be other than temporary are charged to earnings.

Fixed maturities available for sale are stated at fair value. When quoted market value is not available, quoted market value for similar securities is utilized instead. Declines in fair value below amortized cost that are determined to be other than temporary are charged to earnings.

Equity securities available for sale, which include common and nonredeemable preferred stocks, are stated at their fair value based primarily on quoted market prices. Stocks listed on Japanese or foreign stock exchanges represent approximately 87% and 82% of the investment in stocks at March 31, 2004 and 2003, respectively. Declines in fair value below cost that are determined to be other than temporary are charged to earnings.

F-11

Trading securities are held to meet short-term investment objectives. These securities are recorded on a trade date basis and carried at current market values. Unrealized gains and losses are recognized in earnings.

Mortgage loans on real estate and other loans which are included in other long-term investments are principally carried at the unpaid balance of the principal amount, net of unamortized premium or discount and valuation allowances. Changes in the valuation allowances are included in net investment income. Commercial loans identified as impaired are placed on a cash basis when it is determined that the payment of interest or principal is doubtful of collection except when the loan is well secured and in the process of collection. Accrued interest on impaired loans is reversed and charged against current earnings, and interest is thereafter included in earnings only to the extent actually received in cash. When there is doubt regarding the ultimate collectibility of principal, all cash receipts are thereafter applied to reduce the recorded investment in the loan. Impaired commercial loans are written down to the extent that principal is judged to be uncollectible. Impaired collateral-dependent loans where repayment is expected to be provided solely by the underlying collateral and there are no other available and reliable sources of repayment are written down to the lower of cost or collateral value. Cash-basis loans are returned to an accrual status when all contractual principal and interest amounts are reasonably assured of repayment and there is a sustained period of repayment performance in accordance with the contractual terms.

Policy loans are made to policyholders of long-term insurance with refund at maturity. Those long-term insurance products include long-term comprehensive insurance and long-term family personal traffic accident insurance. The maximum amount of loans is limited to 90% of return premiums on the policies. Policy loans are carried at cost.

Short-term investments are carried at costs or amortized costs that approximate fair value, and generally include call loans and other investments maturing within one year.

The cost of securities sold is determined on the weighted moving-average basis.

Gains and losses incurred on the sale or impairment of investments are included in realized gains and losses in the consolidated statements of income. Unrealized appreciation or depreciation, net of taxes, in the value of securities available for sale is accounted for as a component of accumulated other comprehensive income.

(f) Investment Real Estate, Property and Equipment
Investment real estate, property and equipment are stated at cost less accumulated depreciation on buildings and furniture and fixtures. Depreciation is computed principally by the declining-balance method based on estimated useful lives. The estimated useful lives of buildings based on construction method and equipment range as follows:


Reinforced concrete		38 to 50 years
Brick and block		41 years
Wood		24 years
Wood and mortar		22 years
Steel		11 to 34 years
Building equipment		3 to 18 years
Furniture and fixtures		2 to 15 years

Maintenance and repairs are charged against income as incurred. Improvements are capitalized to property and equipment.

The cost and accumulated depreciation with respect to assets retired or otherwise disposed of are eliminated from the asset and related accumulated depreciation accounts. Any resulting profit or loss is credited or charged to income.

(g) Cash Equivalents
Cash equivalents include cash deposited in demand deposits at banks.

F-12

(h) Derivatives
In June 1998, U.S. Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No.133, “Accounting for Derivative Instruments and Hedging Activities.” SFAS No.133 was subsequently amended by SFAS No.138, “Accounting for Certain Derivative Instruments and Certain Hedging Activities, an amendment of SFAS No.133.”

SFAS No.133, as amended, establishes accounting and reporting standards for derivative instruments, including derivative instruments embedded in other contracts, and hedging activities. SFAS No.133, as amended, requires that all derivatives be recorded on the consolidated balance sheet at their respective fair values. The Company adopted SFAS No.133, as amended, on April 1, 2001. All changes in the fair value of derivatives are recognized currently in earnings as “gains (losses) on derivatives” from the year ended March 31, 2002.

In accordance with the transition provisions of SFAS No.133, as amended, the Company recorded a net-of-tax cumulative-effect-type adjustment of ¥85,465 million to increase net income on April 1, 2001. Of this adjustment, ¥93,907 million was attributable to the increase in the fair value of interest rate swaps used in the Company’s asset liability management process, partly offset by a net decrease in fair value for other outstanding derivative instruments on April 1, 2001.

The Company occasionally purchases a financial instrument that contains a derivative instrument that is embedded in the financial instrument. The Company bifurcates an embedded derivative where: (1) the economic characteristics of the embedded instrument are not clearly and closely related to those of the remaining components of the financial instrument; and (2) a separate instrument with the same terms as the embedded instrument meets the definition of a derivative under SFAS No.133, as amended. When bifurcated, the embedded derivative is carried at fair value, and changes in its fair value are included currently in earnings.

(i) Premium Revenues
Property and casualty insurance premiums are recognized as earned on a pro rata basis over the terms of the policies. Unearned premiums represent the portion of premiums written relating to the unexpired terms of coverage.

Life premiums for long-duration contracts are recognized when due from policyholders. Life premiums for short-duration contracts are recognized over the period to which the premiums relate on a pro rata basis.

Premiums are stated net of amounts ceded to reinsurers.

(j) Policy Acquisition Costs
Costs that vary with and are primarily related to the acquisition of insurance policies are deferred to the extent such costs are deemed recoverable from future profits. These costs are principally external sales agents’ commissions, in-house sales agents’ salaries, other compensation and other underwriting costs. Deferred policy acquisition costs are reviewed to determine if they are recoverable from future income and, if not recoverable, are charged to expense.

Policy acquisition costs for property and casualty insurance products are deferred and amortized over the period in which the related premiums written are earned. Policy acquisition costs for traditional life insurance products are generally deferred and amortized over the premium paying period of the policy. Policy acquisition costs related to investment contracts are deferred and amortized, with interest, in relation to the incidence of estimated gross profits to be realized over the estimated lives of the contracts.

(k) Separate Account Assets and Liabilities
Separate accounts represent funds for which investment income and investment gains and losses accrue directly to the policyholders who bear the investment risk except for minimum guarantees. Each account has specific investment objectives, and the assets are carried at fair value. Separate accounts liabilities represent the policyholders’ claims to the related assets and are carried at fair value.

F-13

(l) Losses, Claims and Loss Adjustment Expenses
The net liabilities stated for reported and estimated property and casualty losses and claims and for related loss adjustment expenses are based upon the accumulation of (1) case estimates for losses and related loss adjustment expenses reported prior to the close of the accounting period on the direct business written by the Company and (2) estimates received from ceding reinsurers. The loss adjustment expenses represent administrative expenses in connection with settling or disposing of claims, which include out-of-pocket expenses as well as allocated personnel cost. Provision has been made for unreported losses and for loss adjustment expenses not identified with specific claims based upon past experience. These liabilities are adjusted regularly based on experience. The Company believes that the liabilities for unpaid losses and loss adjustment expenses at March 31, 2004 and 2003 are adequate to cover the ultimate net cost of losses and claims incurred to those dates. However, the liabilities are necessarily based on estimates and management makes no representation that the ultimate liability may not exceed or fall short of such estimates.

(m) Future Policy Benefits and Losses
Future policy benefits and losses include provisions for future policy benefits for life contracts and for unpaid life policy claims.

The liabilities for future policy benefits are computed by a net level premium method using estimated future investment yields ranging from approximately 0.9% to 3.3%, withdrawals and recognized morbidity and mortality tables. Those assumptions for all policy are based on our own experience. For limited-payment contracts, which provide insurance coverage over a contract period that extends beyond the period in which premiums are collected, gross premiums in excess of the net premium are deferred and recognized in income in a constant relationship with insurance in force or with the amount of expected future benefit payments.

Unpaid policy claims represent the estimated liability for reported and unreported losses on life policies on an undiscounted basis.

The Company believes that the estimated liabilities for future policy benefits and for losses at March 31, 2004 and 2003 are adequate to cover the life insurance liability. However, the ultimate liability may vary from such estimates.

(n) Investment Deposits by Policyholders
The Company sells certain property and casualty and life insurance products that do not subject the Company to significant risks arising from policyholder mortality or morbidity. These contracts are referred to as investment contracts. For investment contracts the Company records associated liabilities under investment deposits by policyholders.

Specifically, the Company sells certain long-term property and casualty insurance policies, such as long-term comprehensive insurance, long-term family personal traffic accident insurance, and etc. which include a savings feature in addition to the insurance coverage provided under the policy. These policies are issued for periods of two to sixty-four years.

The key terms of such policies (“deposit-type insurance”), which include contractual rates of interest, are fixed at the inception of the policy and remain in effect during the policy period. At inception, policyholders can choose to pay premiums on the policy either in a lump-sum or in annual, semi-annual or monthly installments. The policy allows policyholders to later change the mode for payment with the Company’s approval. In addition, the policy allows policyholders during the payment phase to change the allocation of annuity payments he or she receives if certain conditions established by the Company are met. In practice, these options are rarely used by policyholders. Policyholders can terminate the contract before the maturity date with a payment of a pre-determined commission to the Company.

Premiums for insurance and savings portions of the contract are allocated at inception. The premium for the insurance portion is calculated the same way that the premium for a traditional indemnity policy with no savings portion is calculated. The premium for the savings portion represents the present value of the lump-sum or annuity refund for a fixed period, discounted using the committed interest rate and the “total loss termination” rate, which are both set at the inception of the contracts. “Total loss termination” is an exceptional event that takes place when a full payout is made for the insurance portion of the policy, and in this case, the contract terminates without any maturity refund being paid to the policyholder. The weighted average annual frequency of “total loss termination” is approximately 0.05%.

F-14

In the case of a total loss, deposit premiums under the contract are designed to be used for maturity refunds on the other policies for which a total loss has not occurred. These deposit premiums are not used to fund indemnity claims in the case of a total loss. All payments made to the policyholder in a total loss situation are funded by using liabilities established for the insurance portion of the contract.

The premium for the insurance portion is recognized as revenue over the period of the contract, generally in proportion to the amount of insurance protection provided. The premium for the savings portion of the contract is accounted for as an increase to liabilities for refunds captioned “investment deposits by policyholders.” At the end of each fiscal year, the present value of future payments of maturity refunds of contracts in force less the present value of the savings portion of future premiums is accounted for as refund provisions.

Policy acquisition costs are not charged to the savings portion of the contract. Costs associated with policy acquisition of deposit-type policies are charged to the insurance portion and amortized over the contractual period. The possibility of a premium deficiency, relevant only to the insurance portion, is monitored through combined loss and expense ratio. The Company did not recognize any premium deficiency for such policies for the years ended March 31, 2004, 2003 and 2002.

Income credited to investment deposits by policyholders represents interest accrued or paid for investment contracts. Any investment income attributable to policyholders in respect of investment contracts are presented on a gross basis and included in “Net investment income”, “Realized losses on investments” and “(Losses) gains on derivatives” in the consolidated statements of income.

See note 12 for fair value information of investment deposits by policyholders.

(o) Reinsurance
Amounts recoverable from reinsurers are estimated in a manner consistent with the claim liability associated with the reinsured business. The Company evaluates and monitors the financial condition of its reinsurers under voluntary reinsurance arrangements to minimize its exposure to significant losses from reinsurers’ insolvencies.

(p) Compulsory Automobile Liability Insurance
Japanese law provides that all automobiles are to be covered by specified amounts of liability insurance for personal injury and that insurance companies are to accept such coverage on a non-profit basis. In compliance with this law, which came into effect on April 1, 1966, the Company has not reflected any profit or loss from underwriting such compulsory automobile liability insurance in financial statements prepared for distribution to stockholders under the Japanese Commercial Code. In the accompanying consolidated financial statements, which are presented in accordance with U.S. GAAP, gains or losses from underwriting compulsory automobile liability insurance have been credited or charged to income.

(q) Foreign Currency Translation
Assets and liabilities of the subsidiaries located outside Japan are translated into Japanese yen at the rates of exchange in effect at the balance sheet date. Revenues and expenses of the subsidiaries are translated at weighted average exchange rates during the year. Gains and losses resulting from translation of financial statements are excluded from the consolidated statements of income and are accumulated as foreign currency translation adjustments in stockholders’ equity.

(Losses) gains resulting from foreign currency transactions in the amount of ¥(5,720) million in 2004, ¥(4,016) million in 2003 and ¥5,288 million in 2002 were charged or credited to income.

(r) Impairment of Long-Lived Assets
Effective April 1, 2002, the Company adopted SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” which supersedes SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of.” As required by SFAS No. 144, long-lived assets and certain identifiable intangibles are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If such assets are considered to be impaired, the amount of impairment to be recognized is the amount by which the carrying amount of the assets exceeds the fair value of the assets.

F-15

(s) Earnings per Share
Basic and diluted earnings per share are computed by dividing net income available to common stockholders by the weighted-average number of shares of common stock outstanding for respective period.

(t) Goodwill and Present Value of Future Profit
Goodwill represents the excess of purchase price over fair value of the net assets of acquired entity. Goodwill and present value of future profit are tested for impairment annually or when a certain triggering event requires such test.

When fair value of net assets acquired exceeds their cost, the difference is called negative goodwill. All the acquired assets are then subject to pro rata reduction, except for financial assets other than investments accounted for by the equity method, deferred taxes, assets to be disposed of by sale, prepaid assets relating to pension and other postretirement benefit plans, and any other current assets. If all eligible assets are reduced to zero and amount of negative goodwill still remains, the remaining unallocated negative goodwill is recognized immediately as an extraordinary gain.

Present value of future profit represents the present value of profits embedded in acquired long term (life) insurance contracts and is determined based on the net present value of future cash flows expected to result from the contracts in force at the date of acquisition. Present value of future profit is amortized to match estimated gross profits from the policies acquired.

(u) Income taxes
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income for the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Valuation allowances are established when there is uncertainty that such assets would be realized.

(v) New Accounting Standards
In June 2001, the FASB issued SFAS No.143, “Accounting for Asset Retirement Obligations.” This statement addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated retirement costs. The Company adopted SFAS No.143 on April 1, 2003. The adoption of SFAS No.143 did not have a material effect on its financial position and results of operations for the year ended March 31, 2004.

In November 2002, the FASB issued Interpretation No.45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others” (“FIN 45”). FIN 45 requires that upon issuance of certain types of guarantees, a guarantor must recognize a liability for the fair value of an obligation assumed under a guaranty. FIN 45 also requires additional disclosures by a guarantor in its financial statements about the obligations associated with guarantees issued. The recognition provisions of FIN 45 were effective for any guarantees issued or modified after December 31, 2002. The adoption of FIN 45 did not have a material effect on the Company’s financial statements. The disclosure requirements were effective for financial statements for the periods ending after December 15, 2002. The Company adopted the disclosure requirements effective on March 31, 2003. See note 14 for further information.

In January 2003, the FASB issued Interpretation No.46, “Consolidation of Variable Interest Entities — an Interpretation of ARB No. 51” (“FIN 46”). FIN 46 clarifies when an enterprise should consolidate an entity that meets the definition of a Variable Interest Entity (“VIE”) if that enterprise has a variable interest that will absorb a majority of the VIE’s expected losses, receive a majority of the VIE’s expected residual returns, or both. A VIE is an entity in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties, and may include many types of special purpose entities. In December 2003, FASB issued a revision to Interpretation No.46 (“FIN 46R”). FIN 46R retains many of the basic concepts introduced in FIN 46, however it also introduces a new scope exception for a certain type of entities that qualified as “business” as defined in FIN 46R, revises the method of calculating expected losses and residual returns for determination of a primary beneficiary and includes new guidance for assessing variable interests. The Company adopted FIN 46 for VIEs created after January 31, 2003. The Company will adopt FIN 46R for all VIEs as of April 1, 2004. The Company does not see the adoption of FIN 46R to have a material effect on its financial position or results of operations. See note 3 for further information.

F-16

In July 2003, the Accounting Standards Executive Committee (“AcSEC”) of the American Institute of Certified Public Accountants (“AICPA”) issued Statement of Position 03-1, Accounting and Reporting by Insurance Enterprises for Certain Nontraditional Long-Duration Contracts and for Separate Accounts (“SOP 03-1”). SOP 03-1 provides guidance on accounting and reporting by insurance enterprises for certain nontraditional long-duration contracts and for separate accounts. A provision of SOP 03-1 requires the establishment of reserves in addition to the account balance for contracts containing certain features that provide guaranteed death or other insurance benefits and guaranteed income benefits. SOP 03-1 is effective for financial statements for fiscal years beginning after December 15, 2003. SOP 03-1 is not applied retroactively to prior years’ financial statements, and initial application should be as of the beginning of an entity’s fiscal year. The Company will adopt SOP 03-1 effective April 1, 2004. The Company is currently evaluating the impact of adopting SOP 03-1.

In November 2003, the Emerging Issues Task Force (“EITF”) reached a consensus on EITF Issue No. 03-01, “The Meaning of Other-Than-Temporary Impairment and its Application to Certain Investments” (“EITF 03-01”) that certain quantitative and qualitative disclosures are required for equity and fixed maturity securities that are impaired at the balance sheet date but for which an other-than-temporary impairment has not been recognized. The guidance requires companies to disclose the aggregate amount of unrealized losses and the related fair value of investments with unrealized losses for securities that have been in an unrealized loss position for less than 12 months and separately for those that have been in an unrealized loss position for over 12 months, by investment category. In March 2004, the EITF also reached a consensus on the additional accounting guidance for other-than-temporary impairments and its application to debt and equity investments. The Company has adopted the disclosure requirements in these financial statements. See note 3 for further information.

In December 2003, the FASB revised SFAS No.132, “Employers’ Disclosures about Pensions and Other Postretirement Benefits” to require additional disclosures related to pension plans and other postretirement benefit plans. While retaining the existing disclosure requirements for pensions and postretirement benefits, additional disclosures are required related to pension plan assets, obligations, cash flows and net periodic benefit costs, beginning with fiscal years ending after December 15, 2003. Additional disclosures pertaining to benefit payments are required for fiscal years ending after June 30, 2004. The Company has implemented the revised disclosures required for fiscal years ending at March 31, 2004 in these financial statements. See note 10 for further information.

In January 2003, the EITF released Issue No.03-02, “Accounting for the Transfer to the Japanese Government of the Substitutional Portion of Employee Pension Fund Liabilities” (“EITF 03-02”). EITF 03-02 addresses financial accounting and reporting for a transfer to the Japanese government of a portion of a company’s pension plan which substitutes for the welfare pension plan administered by the Japanese government. The Company will adopt EITF 03-02 on transferring the substitutional portion of its pension plan in fiscal 2006 or later. The effect on the Company’s consolidated financial statements of the transfer has not yet been determined. See note 10 for further information.

2. Business Combination

On April 2, 2002, Tokio Marine completed its business combination with Nichido Fire by way of the creation of a holding company, Millea Holdings, by which each of the companies has become a wholly owned subsidiary of Millea Holdings in a statutory share exchange under Japanese law.

Nichido Fire, incorporated in Japan, is a property and casualty insurer which writes marine, fire and casualty, automobile and allied lines of insurance principally covering risks located in Japan and hull and cargo risks for Japanese business. Under the holding company structure, Tokio Marine and Nichido Fire have been integrating their respective products, information technology systems, property and casualty claims investigation functions and sales office functions to realize the potential synergies available from integration of their property and casualty insurance businesses.

The combination was accounted for by the purchase method in a manner that Tokio Marine had acquired Nichido Fire. The results of operations of Nichido Fire as well as those of Tokio Marine have been included in the financial statements of the Company for the years ended March 31, 2004 and 2003.

F-17

In connection with the share exchange, holders of Tokio Marine shares received 1.00 share of Millea Holdings common stock for each 1,000 shares of Tokio Marine common stock they held, and holders of Nichido Fire shares received 0.69 of one share of Millea Holdings common stock for each 1,000 shares of Nichido Fire common stock they held. Upon the share exchange, Millea Holdings issued 307,356.26 common stock shares, representing approximately 17% of the voting interests of the holding company, to the stockholders of Nichido Fire.

The value of common stock issued to the stockholders of Nichido Fire was ¥337,785 million, based on the share exchange ratio determined by the respective share values of Tokio Marine and Nichido Fire on September 28, 2001.

The allocation of the purchase price is summarized as follows:


	(Yen in millions)
Investments	¥	1,661,867
Other assets		600,704

Assets acquired		2,262,571
Policy liabilities and accruals		709,655
Investment deposits by policyholders		635,015
Other liabilities		262,275

Liabilities assumed		1,606,945

Net assets acquired		655,626
Total purchase price		337,785

Negative goodwill	¥	317,841

Unallocated negative goodwill arising from the combination was recognized as extraordinary gain in the results of operations of the Company for the year ended March 31, 2003 as follows:


	(Yen in millions)
Income before extraordinary items and cumulative effect of accounting changes	¥	129,694
Extraordinary items — unallocated negative goodwill		248,323

Net income	¥	378,017

F-18

The following sets forth results of operations for the year ended March 31, 2002 on a pro forma basis combining those of Nichido Fire. The unaudited pro forma condensed combined statement of income gives effect to the combination as if it had occurred at beginning of the year ended March 31, 2002. The unaudited pro forma condensed combined statement of income does not reflect the transaction costs that have been incurred, nor does it reflect any realized or anticipated synergies or cost savings. Also, it does not reflect unallocated negative goodwill.


	(Yen in millions,
	except per share amount)
	2002
	(Unaudited)
Pro forma statement of income data:
Total operating income	¥	2,013,935
Income before cumulative effect of accounting changes		54,471
Net income		139,936
Earning per Share — Basic and Diluted:
Income before cumulative effect of accounting changes		29
Net income		75

3. Investments

The following summarizes the Company’s investments in fixed maturities held to maturity at March 31, 2004 and 2003:


	(Yen in millions)
			Gross		Gross
			unrealized		unrealized			Fair
	Amortized cost		gains		losses			value
2004:
Bonds and notes:
Other government and government agencies and authorities	¥	1,095,608		22,945		(44,810	)		1,073,743
Other corporate bonds		14,253		556		—			14,809

Total fixed maturities held to maturity	¥	1,109,861		23,501		(44,810	)		1,088,552

2003:
Bonds and notes:
Other government and government agencies and authorities	¥	866,971		144,512		—			1,011,483
Other corporate bonds		16,365		884		—			17,249

Total fixed maturities held to maturity	¥	883,336		145,396		—			1,028,732

F-19

The following summarizes the Company’s investments in fixed maturities available for sale at March 31, 2004 and 2003:


	(Yen in millions)
			Gross		Gross
	Amortized		unrealized		unrealized			Fair
	cost		gains		losses			value
2004:
Bonds and notes:
U.S. government and government agencies and authorities	¥	113,778		2,130		(734	)		115,174
U.S. states, municipalities and political subdivisions		1,055		47		—			1,102
Other government and government agencies and authorities		2,071,900		32,290		(38,051	)		2,066,139
Other municipalities and political subdivisions		171,977		5,383		(247	)		177,113
Public utilities		60,172		901		(281	)		60,792
Convertibles and bonds with warrants attached		42,929		2,830		(75	)		45,684
Mortgage-backed securities		22,893		273		(850	)		22,316
Other corporate bonds		713,078		10,932		(2,748	)		721,262

Total fixed maturities available for sale	¥	3,197,782		54,786		(42,986	)		3,209,582

2003:
Bonds and notes:
U.S. government and government agencies and authorities	¥	129,949		5,827		(1,252	)		134,524
U.S. states, municipalities and political subdivisions		44		20		—			64
Other government and government agencies and authorities		1,935,175		142,252		(4,124	)		2,073,303
Other municipalities and political subdivisions		244,826		19,601		(109	)		264,318
Public utilities		88,322		4,649		(5	)		92,966
Convertibles and bonds with warrants attached		70,622		6,724		(26	)		77,320
Mortgage-backed securities		19,859		1,048		(38	)		20,869
Other corporate bonds		736,763		22,050		(553	)		758,260

Total fixed maturities available for sale	¥	3,225,560		202,171		(6,107	)		3,421,624

The amortized cost and fair value of fixed maturities by contractual maturity at March 31, 2004 are as follows. Actual maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.


	(Yen in millions)
	Amortized		Fair
	cost		value
Fixed maturities held to maturity:
Due in one year or less	¥	2,841		2,853
Due after one year through five years		15,523		16,330
Due after five years through ten years		54,421		53,007
Due after ten years		1,037,076		1,016,362

	¥	1,109,861		1,088,552

F-20


	(Yen in millions)
	Amortized		Fair
	cost		value
Fixed maturities available for sale:
Due in one year or less	¥	782,773		786,819
Due after one year through five years		999,903		1,008,913
Due after five years through ten years		535,620		537,924
Due after ten years		869,482		865,824
With no contractual maturity		10,004		10,102

	¥	3,197,782		3,209,582

Proceeds from sales of investments in fixed maturities available for sale prior to their scheduled maturity dates were ¥870,571 million, ¥542,909 million and ¥335,280 million for the years ended March 31, 2004, 2003 and 2002, respectively. Gross gains of ¥14,465 million and gross losses of ¥14,966 million in 2004, gross gains of ¥9,849 million and gross losses of ¥5,046 million in 2003 and gross gains of ¥12,247 million and gross losses of ¥3,181 million in 2002 were realized on those sales.

With respect to marketable equity securities available for sale, gross unrealized gains were ¥1,775,342 million and gross unrealized losses were ¥10,425 million at March 31, 2004, and gross unrealized gains were ¥801,338 million and gross unrealized losses were ¥109,929 million at March 31, 2003.

Proceeds from sales of investments in equity securities available for sale were ¥228,913 million, ¥421,892 million and ¥94,796 million for the years ended March 31, 2004, 2003 and 2002, respectively. Gross gains of ¥35,438 million and gross losses of ¥2,809 million in 2004, gross gains of ¥110,562 million and gross losses of ¥29,918 million in 2003, and gross gains of ¥39,329 million and gross losses of ¥2,269 million in 2002 were realized on those sales.

In the normal course of business, investment securities the Company owns were pledged to collateralize securities lending transactions and derivative transactions, and for other purposes.

The carrying value of investment securities pledged to counterparties through certain transactions, mainly securities lending transactions, where they have the right to sell or repledge the securities are as follows:


	(Yen in millions)
	2004		2003
Fixed maturities available for sale	¥	276,197		245,541
Equities securities available for sale		19,043		37,127

	¥	295,240		282,668

At March 31, 2004 and 2003, the carrying values of investment securities pledged, except for the above table, are as follows.

Bonds carried at ¥45,632 million at March 31, 2004 and ¥53,138 million at March 31, 2003 were pledged as collateral primarily to reinsurance companies.

Bonds carried at ¥150,603 million at March 31, 2004 and ¥172,513 million at March 31, 2003 were used as collateral for the Bank of Japan’s instant gross settlement system for transactions of checking accounts and Japanese government bonds.

Bonds carried at ¥101,640 million at March 31, 2004 and ¥109,102 million at March 31, 2003 were deposited primarily with United States and other foreign government authorities as required by law.

Bonds carried at ¥10,319 million at March 31, 2004 were pledged as collateral for credit support annex for derivative transactions entered into by the Company.

Bonds carried at ¥4,952 million at March 31, 2004 and ¥15,726 million at March 31, 2003 were pledged as collateral for letters of credit.

Bonds carried at ¥1,889 million at March 31, 2004 and ¥1,874 million at March 31, 2003 were pledged as collateral for the Life Insurance Policyholders Protection Corporation of Japan, a corporation established to protect policyholders from losses in case of bankruptcies of life insurance companies.

Equity securities carried at ¥68,948 million at March 31, 2004, and ¥44,000 million at March 31, 2003 were deposited with securities brokers primarily as collateral for futures transactions entered into by the Company.

F-21

Equity securities carried at ¥6,783 million at March 31, 2004 and ¥6,790 million at March 31, 2003 were deposited with United States government authorities as required by law.

The Company accepts collateral that can be sold or pledged. The primary sources of this collateral are securities financing transactions. The fair value of this collateral was approximately ¥30,720 million and ¥61,937 million at March 31, 2004 and 2003, respectively, of which no securities had been either sold or repledged for the years ended March 31, 2004 and 2003.

The Company provides equity investments in VIEs that are designed to limit the Company’s risk exposure within invested amount as an alternative to direct real estate investment.

As for VIEs created after January 31, 2003, the Company determined that it is a primary beneficiary for a VIE and consolidated that VIE for the year ended March 31, 2004. The VIE borrows non-recourse loans from financial institutions, and as of March 31, 2004, ¥14,491 million of investment real estate are pledged as collateral for the non-recourse loans. The lenders of the non-recourse loans have no recourse to other assets of the Company.

As for VIEs acquired before February 1, 2003, the Company’s investments amounted to ¥23,476 million at March 31, 2004 and ¥42,711 million at March 31, 2003. The Company’s risk exposure is limited to the amount of these investments.

Mortgage loans on real estate are primarily mortgage loans on commercial buildings.

Accumulated depreciation of investment real estate amounted to ¥85,000 million and ¥79,538 million at March 31, 2004 and 2003, respectively.

Depreciation of investment real estate included in net investment income amounted to ¥3,880 million, ¥3,650 million and ¥4,187 million for the years ended March 31, 2004, 2003 and 2002, respectively.

Other long-term investments include:


	(Yen in millions)
	2004		2003
Mortgage loans on vessels and facilities	¥	20,356		22,125
Collateral and bank-guaranteed loans		18,542		22,096
Unsecured loans		357,504		440,997
Money trust		22,797		73,786

	¥	419,199		559,004

Mortgage loans on vessels and facilities are generally joint loans in which other financial institutions participate. The Company participates in the hull insurance on these vessels.

Collateral loans are made to commercial enterprises and are secured principally by listed stocks and/or bonds of Japanese corporations. Certain of these loans are made jointly with other insurance companies.

Bank-guaranteed loans are made to commercial enterprises.

Unsecured loans within authorized limits are made on a selective basis to corporate borrowers. These loans are generally term loans, which had contractual maturities ranging from 2004 through 2038 at March 31, 2004. Interest rates of these loans varied from 0.05% to 10.00% at March 31, 2004, and from 0.04% to 12.00% at March 31, 2003.

Money trust is a type of portfolio investment in which trust banks are entrusted with investments in securities or other financial instruments.

Short-term investments consist primarily of call loans and other investments maturing within one year. Short-term investments amounting to ¥921 million at March 31, 2004 and ¥1,243 million at March 31, 2003 were deposited with the United States government authorities and other foreign government authorities as required by law.

F-22

Details of net investment income were as follows:


	(Yen in millions)
	2004		2003		2002
Fixed maturities	¥	73,683		65,762		51,913
Equity securities		36,692		32,785		29,409
Mortgage loans on real estate		3,286		3,715		4,219
Investment real estate		12,501		12,817		12,907
Policy loans		1,280		1,156		830
Other long-term investments		9,339		11,475		11,802
Short-term investments		4,313		5,677		4,113
Other		1,850		1,715		7,987

Gross investment income		142,944		135,102		123,180
Less investment expenses		16,771		26,791		18,499

Net investment income	¥	126,173		108,311		104,681

At March 31, 2004 and 2003, accrued investment income, included in other assets, amounted to ¥21,225 million and ¥22,030 million, respectively.

Net realized and change in unrealized gains or losses on fixed maturities, equity securities and other investments for the years ended March 31, 2004, 2003 and 2002 were as follows:


	(Yen in millions)
	Fixed			Equity			Other			Net gains
	maturities			securities			investments			(losses)
2004:
Realized	¥	(8,399	)		4,645			(101	)		(3,855	)
Change in unrealized		(184,264	)		1,073,508			412			889,656

Total	¥	(192,663	)		1,078,153			311			885,801

2003:
Realized	¥	11,553			(37,957	)		(3,471	)		(29,875	)
Change in unrealized		120,915			(635,620	)		(1,026	)		(515,731	)

Total	¥	132,468			(673,577	)		(4,497	)		(545,606	)

2002:
Realized	¥	8,244			(11,900	)		2,636			(1,020	)
Change in unrealized		(38,293	)		(290,162	)		(3,764	)		(332,219	)

Total	¥	(30,049	)		(302,062	)		(1,128	)		(333,239	)

The following table shows gross unrealized losses and fair value of investments-other than investments in related parties with unrealized losses that are not deemed to be other-than-temporary impaired, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at March 31, 2004:


	(Yen in millions)
	Less than 12 months					More than 12 months					Total
			Unrealized					Unrealized					Unrealized
	Fair value		losses			Fair value		losses			Fair value		losses
Fixed maturities (*)	¥	1,619,245		(85,152	)		189,632		(2,644	)		1,808,877		(87,796	)
Equity securities		101,521		(8,682	)		16,461		(1,743	)		117,982		(10,425	)

Total	¥	1,720,766		(93,834	)		206,093		(4,387	)		1,926,859		(98,221	)

(*) Primarily relates to the “Other government and governmental agencies and authorities” category.

F-23

Determinations of whether a decline is other than temporary often involve estimating the outcome of future events. Management judgment is required in determining whether factors exist that indicate that an impairment loss should be recognized at any balance sheet date. These judgments are based on subjective as well as objective factors.

For non-marketable equity securities and fixed maturity securities, management considers whether sharp declines in value over a short period of time reflect fundamental valuation issues such as credit deterioration of the issuer.

The Company recognized impairment losses on investment securities — other than investments in related parties in the amount of ¥33,930 million, ¥119,108 million and ¥58,159 million for the years ended March 31, 2004, 2003 and 2002, respectively.

Trading gains (losses) for the years ended March 31, 2004 and 2003 that relate to trading securities still held at March 31, 2004 and 2003 amounted to ¥837 million and ¥(140) million, respectively.

The Company recognized impairment losses on certain of its investment real estate in the amount of ¥3,159 million and ¥5,034 million for the years ended March 31, 2004 and 2003. Considering the decline of Japanese real estate market, tests for impairment were performed as of March 31, 2004 for any significant assets where the Company observed possible decline in the fair value below the carrying amount of the asset. For those assets, the Company recognized impairment losses for the amount by which the carrying amount exceeded the fair value estimated primarily based on recent transactions involving sales of similar assets and charged them to realized gains (losses) on other investments for the years ended March 31, 2004 and 2003 in the property and casualty segment.

On April 1, 2000, the Company transferred certain of its fixed maturities available for sale to the held to maturity category. This transfer was based on the Company’s review of investment policies to match the duration of securities portfolio with certain life insurance liabilities with relatively long duration. The related unrealized gains on these securities at the time of transfer in the amount of ¥9,088 million are being amortized from accumulated other comprehensive income into investment income over the remaining terms of the securities. Unamortized amounts of those unrealized gains were ¥7,026 million and ¥7,719 million at March 31, 2004 and 2003, respectively.

Securities available for sale are carried in the consolidated financial statements at fair value. Changes in unrealized gains and losses, net of taxes, on securities available for sale shown above are included in other comprehensive income.

The Company’s investments in Toyota Motor Corporation and its affiliates amounting to ¥394,361 million and ¥290,199 million at March 31, 2004 and 2003, respectively, exceeded 10% of stockholders’ equity.

F-24

The recorded investments in impaired loans and related specific valuation allowances, which were established for all impaired loans, at March 31, 2004 and 2003 were as follows:


	(Yen in millions)
	Total		Valuation
	recorded		allowances
	investment		– specific
2004:
Mortgage loans on real estate	¥	13,408		6,110
Collateral and bank-guaranteed loans		7		7
Unsecured loans		17,808		9,807

	¥	31,223		15,924

2003:
Mortgage loans on real estate	¥	31,483		12,862
Collateral and bank-guaranteed loans		11,360		4,865
Unsecured loans		23,153		12,378

	¥	65,996		30,105

In addition, based on the Company’s past experience that it is probable that a certain percentage of its loans not covered by specific valuation allowances are impaired at the balance sheet date even in the absence of specific loss information, the Company established unallocated valuation allowances in order to incorporate loss contingencies underlying the loan portfolio comprehensively. In determining the amount of required allowances, the Company classifies loans into three categories based on their current credit quality, and applies historical loan loss ratios for these respective categories. The outstanding unallocated valuation allowances were ¥3,808 million and ¥6,730 million at March 31, 2004 and 2003, respectively.

The activity in valuation allowances for the years ended March 31, 2004, 2003 and 2002 is as follows:


	(Yen in millions)
	2004			2003			2002
Balance at beginning of year	¥	36,835			32,745			38,919
Adjustment in connection with the acquisition (note 2)		—			9,129			—
Charges to income		(9,415	)		1,091			(502	)
Principal charge-offs		(7,688	)		(6,130	)		(5,672	)

Balance at end of year	¥	19,732			36,835			32,745

During the years ended March 31, 2004, 2003 and 2002, the average recorded investment in impaired loans amounted to ¥48,610 million, ¥63,674 million and ¥55,512 million, respectively, and interest income recognized and received in cash on those loans amounted to ¥873 million, ¥1,309 million and ¥747 million, respectively. At March 31, 2004 and 2003, the amount of loans that were non-income producing during the preceding twelve months amounted to ¥3,251 million and ¥3,493 million, respectively.

The Company manages its investments to limit credit risks by diversifying its portfolio among various investment types and industry sectors. The Company monitors creditworthiness of counterparties to all financial instruments by using controls that include credit approvals, limits and other monitory procedures. Collateral often includes pledges of assets, such as stocks and other assets and guarantees.

F-25

4. Reinsurance

In the ordinary course of business, the Company cedes risks to other insurers and reinsurers. Reinsurance enables the Company to reduce its exposure to large losses in all aspects of its insurance business, although it does not relieve the Company of its obligations as direct insurer of the risks reinsured.

Prepaid reinsurance premiums represent the portion of premiums ceded to reinsurers applicable to the unexpired terms of the reinsurance contracts in force. Reinsurance recoverable on losses represents estimates of amounts that will be recovered from reinsurers on reported and unreported losses and claims and loss adjustment expenses.

The Company is exposed to contingent liability with respect to reinsurance which would become an actual liability to the extent that any reinsurers failed to meet its obligations to the Company. Because of the large amount of funds held by the Company under reinsurance treaties and the Company’s favorable historical results with the reinsurers involved, no material amounts were considered uncollectible and no material provisions were made for this contingency.

The effect of ceded reinsurance on the consolidated statements of income for the years ended March 31, 2004, 2003 and 2002 is as follows:


	(Yen in millions)
	2004			2003			2002
Property and casualty:
Premiums written:
Direct	¥	1,978,555			1,987,463			1,509,615
Assumed		374,219			325,347			138,362
Ceded		(407,528	)		(414,253	)		(266,494	)

Net premiums written	¥	1,945,246			1,898,557			1,381,483

Premiums earned:
Direct	¥	1,952,151			1,952,534			1,436,884
Assumed		297,597			190,135			128,786
Ceded		(389,545	)		(381,701	)		(222,708	)

Premiums earned	¥	1,860,203			1,760,968			1,342,962

Losses, claims incurred:
Direct	¥	1,100,584			1,064,457			838,246
Assumed		242,720			174,561			110,858
Ceded		(294,786	)		(285,337	)		(212,339	)

Losses, claims incurred	¥	1,048,518			953,681			736,765

Life:
Premiums earned:
Direct	¥	248,719			263,361			209,469
Assumed		—			0			0
Ceded		(919	)		(875	)		(261	)

Premiums earned	¥	247,800			262,486			209,208

F-26

5. Deferred Policy Acquisition Costs

The following sets forth the policy acquisition costs deferred for amortization against future income and the related amortization charged to income for property and casualty and life insurance operations:


	(Yen in millions)
	2004			2003			2002
Property and casualty:
Deferred at beginning of year	¥	323,865			221,914			214,019
Adjustment in connection with the acquisition (note 2)		—			99,663			—
Incurred during year:		543,373			546,766			426,874

		867,238			868,343			640,893
Foreign currency translation adjustments		(234	)		(331	)		—
Deferred at end of year		328,411			323,865			221,914

Policy acquisition costs		538,593			544,147			418,979

Life:
Deferred at beginning of year		98,615			79,809			63,366
Incurred during year		46,762			45,717			34,476

		145,377			125,526			97,842
Deferred at end of year		124,992			98,615			79,809

Policy acquisition costs		20,385			26,911			18,033

Total policy acquisition costs	¥	558,978			571,058			437,012

6. Property and Equipment

A summary of property and equipment is as follows:


	(Yen in millions)
	2004		2003
Land	¥	83,960		88,778
Buildings		222,299		225,200
Furniture and equipment		63,746		67,372
Construction in progress		5,925		6,404

Total at cost		375,930		387,754
Less accumulated depreciation		182,862		183,676

Net property and equipment	¥	193,068		204,078

Depreciation of property and equipment included in other operating expenses amounted to ¥15,236 million, ¥11,426 million and ¥11,343 million for the years ended March 31, 2004, 2003 and 2002, respectively.

F-27

7. Goodwill and Present Value of Future Profit

In February 2, 2004, the Company acquired Skandia Life Insurance Co. (Japan) Limited (“Skandia Japan”) based in Tokyo, Japan, for a cost of ¥20,339 million which was paid in cash. Skandia Japan’s main product is variable annuity.

Goodwill of ¥9,934 million and present value of future profit (“PVFP”) of ¥14,744 million was recognized on the balance sheet as of March 31, 2004.

The following table shows the estimated future amortization of the PVFP balance during each of the next five years:


	(Yen in millions)
2005	¥	2,464
2006		2,532
2007		2,357
2008		2,156
2009		1,933
Thereafter		3,302

Total PVFP	¥	14,744

The Goodwill and intangible assets were assigned to life insurance segment.

8. Liability for Unpaid Losses and Claims and Loss Adjustment Expenses

The table below is a reconciliation of beginning and ending property and casualty insurance balances for unpaid losses and claims and loss adjustment expenses for the years ended March 31, 2004, 2003 and 2002:


	(Yen in millions)
	2004			2003			2002
Balance at beginning of year	¥	1,131,884			875,463			854,952
Less reinsurance recoverables		342,132			247,861			255,696

Net balance at beginning of year		789,752			627,602			599,256

Adjustment in connection with the acquisition (note 2)		—			141,940			—
Incurred related to:
Current year		1,116,582			1,029,655			802,061
Prior years		9,325			438			(3,847	)

Total incurred		1,125,907			1,030,093			798,214

Paid related to:
Current year		588,432			590,791			481,710
Prior years		446,825			417,105			288,158

Total paid		1,035,257			1,007,896			769,868

Foreign currency translation adjustments		(1,473	)		(1,987	)		—
Net balance at end of year		878,928			789,752			627,602
Plus reinsurance recoverables		342,217			342,132			247,861

Balance at end of year	¥	1,221,146			1,131,884			875,463

Prior year claims and expenses incurred in the preceding table resulted principally from settling claims established in earlier accident years for amounts that differed from expectations.

F-28

The reinsurance recoverables referred to above are reconciled to the balance sheet carrying amounts as follows:


	(Yen in millions)
	2004		2003
Property and casualty:
Unpaid losses	¥	342,217		342,132
Paid losses		104,528		107,885
Life		366		328

Total reinsurance recoverable on losses	¥	447,111		450,345

In prior years, the Company issued insurance policies and assumed reinsurance for cover related to environmental pollution and asbestos exposure. The Company has received and continues to receive notices of potential claims asserting environmental pollution and asbestos losses under those insurance policies. Significant factors which affect the trends that influence the Company’s ability to estimate future losses for these types of claims are the inconsistent court resolutions and the judicial interpretations which broaden the intent of the policies and scope of coverage. Due to this uncertainty, it is not possible to determine the future development of environmental pollution and asbestos claims with the same degree of reliability as with other types of claims. The Company believes insurance claim reserves under insurance and reinsurance contracts related to environmental pollution and asbestos claims to be adequate, and the amount is less than 5% of its total insurance claim reserves at March 31, 2004.

9. Income Taxes

Total income taxes for the years ended March 31, 2004, 2003 and 2002 were allocated as follows:


	(Yen in millions)
	2004		2003			2002
Income before extraordinary items and cumulative effect of accounting changes	¥	49,385		71,614			33,416
Cumulative effect of accounting changes		—		—			48,033
Other comprehensive income:
Unrealized appreciation (depreciation) of securities during the year		320,315		(188,667	)		(118,901	)
Minimum pension liability adjustments		11,779		(22,613	)		(16,860	)

	¥	381,479		(139,666	)		(54,312	)

The Company is subject to a number of taxes based on income, which in the aggregate resulted in a normal tax rate of approximately 36% in 2004, 2003 and 2002.

The effective tax rates of the Company for the years ended March 31, 2004, 2003 and 2002 differ from the Japanese normal income tax rates for the following reasons:


	2004			2003			2002
Japanese normal income tax rate		36.0	%		36.0	%		36.0	%
Tax credit for dividends received		(3.8	)		(3.0	)		(7.1	)
Expenses not deductible for tax purposes		1.5			0.9			1.2
Other		(1.3	)		1.7			0.7

Effective tax rate		32.4	%		35.6	%		30.8	%

F-29

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at March 31, 2004 and 2003 are presented below:


	(Yen in millions)
	2004			2003
Deferred tax assets:
Net unpaid and unreported losses	¥	107,303			84,817
Future policy benefits and losses		11,342			13,501
Retirement and severance benefits		52,331			47,689
Minimum pension liability adjustments		38,929			50,707
Valuation allowance for credit losses		5,701			12,743
Property, equipment and other assets		47,816			49,910
Derivatives		37,868			33,995
Operating loss carryforwards for tax purposes		3,997			10,311
Other		37,938			33,036
Valuation allowance		(833	)		—

Total deferred tax assets		342,392			336,709

Deferred tax liabilities:
Net unearned premiums		(80,200	)		(47,552	)
Deferred policy acquisition costs		(162,425	)		(151,996	)
Fair value adjustments to securities recognized in income		(74,306	)		(88,828	)
Derivatives		(71,431	)		(89,134	)
Other		(17,878	)		(12,225	)

Total deferred tax liabilities		(406,240	)		(389,735	)

Net deferred tax liabilities before deferred taxes on unrealized appreciation of securities		(63,848	)		(53,026	)
Deferred taxes on unrealized appreciation of securities		(641,352	)		(321,037	)

Net deferred tax liabilities		(705,200	)		(374,063	)
Income taxes currently payable		(4,024	)		(63,497	)

Income tax liability	¥	(709,224	)		(437,560	)

Operating loss carryforwards for tax purposes of consolidated subsidiaries at March 31, 2004 amounted to ¥3,164 million, net of valuation allowance, and are available through 2009 to offset against future taxable income of such subsidiaries.

The valuation allowance relates to operating loss carryforwards for tax purposes in Skandia Japan acquired by the Company in the year ended March 31, 2004. Management believes that it is more likely than not that the Company will realize the benefit of the deferred tax assets. While there are no assurances that this benefit will be realized, the Company expects sufficient taxable income in the future, based on its historical record and expected future results to realize the benefit of the deferred tax assets.

10. Retirement and Severance Benefits

Employees of the Company are covered by the defined retirement and severance benefit plans. Primary plans are described below.

The Company has a funded pension plan covering substantially all employees who meet age and service requirements. The plan covers a portion of the welfare pension plan administered by the Japanese government.

In accordance with SFAS No. 87, “Employers’ Accounting for Pensions,” the net periodic benefit cost of the funded pension plan is calculated using the projected unit credit actuarial cost method.

The Company also has an unfunded lump-sum payment retirement plan covering substantially all employees. Under the plan, employees are entitled to lump-sum payments based on points, which are accumulated each year by the employees’ rank, length of service and certain other factors, upon retirement or termination of employment for reasons other than dismissal for cause. Directors and statutory auditors are

F-30

covered by a separate plan. It is not the policy of management to fund the retirement and severance benefits described above.

In accordance with EITF 88-1 “Determination of Vested Benefit Obligation for a Defined Benefit Pension Plan”, for its unfunded plans, the Company records the actuarial present value of the vested benefits to which the employee is entitled if the employee separates immediately as projected benefit obligation.

The Company uses a March 31 measurement date of its plans. Reconciliations of beginning and ending balances of the benefit obligations and the fair value of the plan assets are as follows:


	(Yen in millions)
	2004			2003
Change in benefit obligation:
Benefit obligation at beginning of year	¥	532,931			430,950
Adjustment in connection with the acquisition (note 2)		38			40,690
Service cost		23,964			19,148
Interest cost		7,829			10,874
Plan participants’ contributions		2,758			2,593
Amendments		2,909			(24,793	)
Actuarial gain (loss)		(29,179	)		75,182
Benefits paid		(22,998	)		(21,710	)
Foreign currency translation adjustments		6			(3	)

Benefit obligation at end of year	¥	518,258			532,931

Change in plan assets:
Fair value of plan assets at beginning of year	¥	175,559			144,710
Adjustment in connection with the acquisition (note 2)		—			7,599
Actual return on plan assets		5,711			1,443
Employer contributions		20,683			24,146
Plan participants’ contributions		2,758			2,593
Benefits paid		(5,378	)		(4,932	)

Fair value of plan assets at end of year	¥	199,333			175,559

Funded status	¥	(318,925	)		(357,372	)
Unrecognized net actuarial loss		152,748			196,049
Unrecognized prior service cost		7,620			5,742

Net amount recognized	¥	(158,557	)		(155,581	)

Amounts recognized in the balance sheets consist of:
Accrued benefit liability	¥	(292,054	)		(324,003	)
Intangible asset		25,362			27,567
Accumulated other comprehensive income		108,135			140,855

Net amount recognized	¥	(158,557	)		(155,581	)

The accumulated benefit obligation for all the defined retirement and severance benefit plans was ¥488,954 million at March 31, 2004, and ¥499,345 million at March 31, 2003. In all the plans, projected benefit obligation and accumulated benefit obligation exceeded its plan assets.

Weighted-average actuarial assumptions used to determine benefit obligation at March 31, 2004 and 2003 are as follows:


	2004			2003
Discount rate		2.0	%		1.5	%
Rate of salary increase		0.7-1.7	%		0.6-1.7	%

F-31

The components of net periodic benefit cost for the years ended March 31, 2004, 2003 and 2002 are as follows:


	(Yen in millions)
	2004			2003			2002
Components of net periodic benefit cost:
Service cost	¥	23,964			19,148			15,494
Interest cost		7,829			10,874			11,389
Expected return on plan assets		(3,250	)		(3,108	)		(3,192	)
Amortization of prior service cost		1,031			805			2,397
Recognized actuarial loss		11,663			7,162			4,398

Net periodic benefit cost	¥	41,237			34,881			30,486

Unrecognized net actuarial loss in excess of 10% of the greater of the projected benefit obligation or the fair value of plan assets are amortized over the average remaining service period of active participants expected to receive benefits under the plan. The prior service cost is amortized on a straight-line basis over the average remaining service period of active participants at the date of the amendment.

Weighted-average actuarial assumptions used to determine net periodic benefit cost for the years ended March 31, 2004, 2003 and 2002 are as follows:


	2004			2003			2002
Discount rate		1.5	%		2.5	%		3.0	%
Rate of salary increase		0.6-1.7	%		1.8	%		1.7	%
Expected long-term return on plan assets		1.8-2.0	%		1.3-2.0	%		2.3	%

The expected long-term rate of return on plan assets reflects the average rate of earnings expected on plan assets. This assumption is reviewed annually giving consideration to plan asset allocation, historical returns on plan assets and other relevant market data.

The Company’s pension plan assets are mainly invested with the long-term objective of earning sufficient amounts to cover expected benefit obligation, within the risk it can take. The asset allocation by major asset class of the Company’s pension plan at March 31, 2004 and 2003, and the target allocation percentage for 2005 are as follows:


	(% of Total
	plan assets)			(Yen in millions)
	2005 (target)			2004		2003
Fixed maturities		45	%	¥	74,153		57,268
Equity securities		15			36,387		22,949
Other		40			88,793		95,342

Total plan assets		100	%	¥	199,333		175,559

Other shown in the above table mainly consists of investment trusts with minimum interest rate guarantee.

The Company expects to contribute ¥15,894 million to its pension plan in 2005.

The Japanese government issued a new law concerning defined benefit plans in June 2001. This law allows a company, at its own discretion, to transfer to the government a portion of its pension plan which substitutes for the welfare pension plan administered by the government. In order to transfer the substitutional portion, a company must first make an application to the government for an exemption from the obligation to pay benefits for future employee service. After obtaining the first approval, a company must make a final application for separation of the benefit obligation related to past employee services. After obtaining the final approval, a company will transfer the benefit obligation related to past employee services as well as the related government-specified portion of its plan assets. A company accounts for the entire separation process upon completion of the transfer of the benefit obligation and related plan assets in a single settlement transaction, in accordance with the provisions of EITF 03-02, “Accounting for the Transfer to the Japanese Government of the Substitutional Portion of Employee Pension Fund Liabilities”. Under this approach, the difference between the benefit obligation settled and the related plan assets transferred to the government, determined pursuant to the government formula, is accounted for and disclosed separately as a government subsidy.

F-32

In June 2004, Tokio Marine, a wholly owned subsidiary of the Company, obtained the first approval from the government. The transfer is expected to be completed in fiscal 2006 or later. The effect on the Company’s consolidated statements of the transfer has not yet been determined.

11. Debt Outstanding

Debt outstanding at March 31, 2004 and 2003 comprised the following:


		(Yen in millions)
	Due	2004		2003
Loans, 0.02% to 3.99%	2005-2016	¥	13,627		4,673
Equity linked notes, 2.20% to 28.00%	2005		1,716		4,331
Equity linked notes, zero coupon	2006-2007		6,192		—
Fixed rate notes, 0.01% to 0.96%	2005-2010		27,024		5,000
Floating rate notes, 0.06%	2005		2,000		2,000
Credit linked notes, 1.99% to 11.18%	2007		22,644		25,373
Unsecured bonds, 1.47% to 2.78%	2006-2021		135,843		135,984
Other notes	2034		4,400		519

Total debt outstanding		¥	213,446		177,880

The proceeds of these debts were used primarily for general corporate purposes.

Maturities of debt outstanding at March 31, 2004 are as follows:


	(Yen in millions)
2005	¥	15,016
2006		45,434
2007		36,765
2008		1,824
2009		5,051
Thereafter		109,356

Total debt outstanding	¥	213,446

The Company leases certain property and equipment under noncancelable lease agreements. At March 31, 2004 and 2003, obligations under capital leases which were presented as other liabilities amounted to ¥6,115 million and ¥8,006 million. Of this amount, the obligations due within one year amounted to ¥3,326 million at March 31, 2004.

F-33

12. Fair Values of Financial Instruments

SFAS No. 107, “Disclosures about Fair Value of Financial Instruments” requires disclosure of estimated fair value for all financial instruments. See note 15 for discussion of fair value of derivative financial instruments. The carrying amounts and the fair values of the Company’s nonderivative financial instruments at March 31, 2004 and 2003 are as follows:


	(Yen in millions)
	2004						2003
	Carrying						Carrying
	amount			Fair value			amount			Fair value
Policy loans	¥	33,610			33,610			29,171			29,171
Mortgage loans on real estate		129,076			130,040			148,655			152,379
Mortgage loans on vessels and facilities		20,356			19,989			22,125			21,637
Collateral and bank-guaranteed loans		18,542			22,868			22,096			24,190
Unsecured loans		357,504			363,411			440,997			449,412
Money trust		22,797			22,797			73,786			73,786
Short-term investments		881,897			881,897			660,370			660,370
Investment deposits by policyholders		(2,704,861	)		(2,911,532	)		(2,716,526	)		(3,094,290	)
Debt outstanding		(213,446	)		(220,370	)		(177,880	)		(189,307	)

The following methods and assumptions were used by the Company in estimating the fair values of its nonderivative financial instruments:

Cash and cash equivalents, accrued investment income (included in other assets), premiums receivable and agents’ balances, reinsurance recoverable on losses and ceded reinsurance balances payable
The carrying amounts approximate fair values due to the short maturity of these instruments.

Fixed maturities and equity securities
The carrying amounts and fair values of fixed maturities and equity securities are disclosed in note 3.

Policy loans
The carrying amounts of floating-rate policy loans approximate their fair values as the interest rates charged on those instruments are designed so that they would be adjusted periodically to reflect changes in overall market interest rates.

Mortgage loans on real estate, other long-term investments and short-term investments
The fair values for these financial instruments are estimated based on the quoted market prices for these or similar instruments. For financial instruments for which quoted market prices are not available, fair values are estimated using discounted cash flow analysis and interest rates currently being offered for similar loans to borrowers with similar credit ratings or for similar deposits.

Investment deposits by policyholders
The fair values of investment deposits by policyholders were estimated using discounted cash flow calculations based on market interest rates currently prevailing for similar contracts with similar maturities. The cash flows used in fair value calculation were based on the best estimate assumptions of lapse rates and other factors.

F-34

Debt outstanding
The fair values for debt outstanding are estimated using their market prices. For debt outstanding on which quoted market prices are not available, the fair values are estimated using discounted cash flow analysis, based on the Company’s current borrowing rate for similar types of borrowings.

Limitations
Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instruments. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

13. Statutory Capital and Dividend Availability

Millea Holdings is subject to regulatory restrictions on the amount of dividends distributable to its stockholders. The amount of retained earnings available for dividends is based on the amount recorded on the Millea Holdings’ non-consolidated statutory books of account in accordance with Japanese GAAP. Millea Holdings had retained earnings in the amount of ¥168,245 million, net of treasury stock in the amount of ¥86,707 million, and capital surplus in the amount of ¥500,005 million as of March 31, 2004. The adjustments included in the accompanying consolidated financial statements to have them conform with U.S. GAAP, but not recorded in the books of account, have no effect on the determination of the amount available for dividends.

Provision has not been made in the accompanying consolidated balance sheet as of March 31, 2004 for dividends subsequently proposed to and approved by Millea Holdings’ stockholders in the aggregate amount of ¥19,668 million at the ordinary general meeting of stockholders held on June 29, 2004.

Millea Holdings’ stockholders approved repurchase of its own shares pursuant to Article 210 of the Commercial Code of Japan on June 27, 2003, as follows: (a) aggregate number of shares authorized for repurchase is up to 120,000 shares, (b) total value of shares authorized for repurchase is up to ¥100,000 million, (c) Millea Holdings is authorized to repurchase its stock until the closing of the ordinary general meeting of stockholders for the fiscal year ended March 31, 2004. Under this repurchase program, Millea Holdings repurchased 75,646 shares at a cost of ¥100,000 million by June 29, 2004.

The stockholders approved to insert a new Article in the Articles of Incorporation of Millea Holdings stating that Millea Holdings may, by resolution of the Board of Directors, repurchase its own shares pursuant to Article 211-3, paragraph 1, item 2 of the Commercial Code of Japan, at the ordinary general meeting of stockholders held on June 29, 2004.

At June 29, 2004, the Board of Directors approved repurchase of its own shares pursuant to Article 211-3, paragraph 1, item 2 of the Commercial Code of Japan, as follows: (a) aggregate number of shares to be repurchase is up to 9,000 shares (approximately 0.5% of the share outstanding), (b) aggregate value of shares to be repurchased is up to ¥13,000 million, (c) repurchase would be made from July 1, 2004 through July 30, 2004. Under this repurchase program, Millea Holdings repurchased 8,051 shares at a cost of ¥13,000 million by July 30, 2004.

At July 9, 2004, Millea Holdings cancelled 70,000 shares held by it as treasury stock, by the approval of the Board of Directors, pursuant to Article 212 of the Commercial Code of Japan. Number of issued shares including treasury stock after the cancellation is 1,787,048.75 shares.

At August 2, 2004, the Board of Directors approved repurchase of its own shares pursuant to Article 211-3, paragraph 1, item 2 of the Commercial Code of Japan, as follows: (a) aggregate number of shares to be repurchase is up to 11,000 shares (approximately 0.6% of the share outstanding), (b) aggregate value of shares to be repurchased is up to ¥15,000 million, (c) repurchase would be made from August 3, 2004 through September 3, 2004.

The insurance subsidiaries of Millea Holdings incorporated in Japan are required to maintain adequate solvency margins by the Japanese regulatory authorities. At March 31, 2004, these subsidiaries had sufficient capital surplus in their respective statutory stockholders’ equity to satisfy the solvency margin requirements.

In the parent company only financial statements prepared in conformity with Japanese GAAP, Millea Holdings reported net income of ¥230,871 million in 2004, ¥49,605 million in 2003 and ¥39,182 million in 2002, and stockholders’ equity of ¥ 2,329,735 million at March 31, 2004 and ¥2,206,053 million at March 31, 2003.

F-35

The amounts of statutory net income (loss) for the years ended March 31, 2004, 2003 and 2002, and stockholders’ equity at March 31, 2004 and 2003 of the consolidated insurance subsidiaries were as follows:


	(Yen in millions)
	2004		2003			2002
Statutory net income (loss):
Property and casualty	¥	123,969		112,615			12,703
Life		0		(966	)		1
Statutory stockholders’ equity:
Property and casualty		2,329,686		2,006,678
Life		37,362		46,160

14. Commitments and Contingent Liabilities

At March 31, 2004 and 2003, commitments outstanding for the purchase of property and equipment approximated ¥10,136 million and ¥14,547 million, respectively. At March 31, 2004 and 2003, commitments outstanding for loan commitments were ¥11,198 million and ¥8,707 million, respectively.

The Company occupies certain offices and other facilities and uses certain equipment under cancelable lease arrangements. Rental expenses for the years ended March 31, 2004, 2003 and 2002 aggregated ¥15,302 million, ¥14,694 million and ¥17,427 million, respectively.

The Company enters into credit default swap transactions to earn investment returns. The maximum potential amount of future payments represents the notional amounts that could be lost under the credit default swaps if there were a total default by the guaranteed parties, without consideration of possible recoveries under recourse provisions or from collateral held or pledged. At March 31, 2004, the Company’s maximum potential amount of future payments under the credit default swaps was approximately ¥1,981,668 million. At March 31, 2004 and 2003, the carrying amount of the liabilities related to these credit default swaps was ¥167 million and ¥16,356 million, respectively. Other property will be available to the Company to cover losses, or, the Company will cover losses, net of some collateral, however, the value of such property or collateral has not been determined.

See also note 15 for discussion on credit default swaps.

Guarantees are used in various transactions to enhance the credit standing of the Company’s customers and third parties. They represent irrevocable assurances that the Company will make payment in the event that the customer fails to fulfill its obligation arising from guarantees of the indebtedness of third parties, the corporate loans and bonds, etc., to third parties. The Company is obliged to pay the outstanding liabilities when the guaranteed parties fail to pay principal and/or interest in accordance with the contractual terms. The maximum exposure under these guarantees as of March 31, 2004 was approximately ¥2,117 million. At March 31, 2004, the Company did not recognize any liabilities for these remote loss contingencies. In some cases, those liabilities are secured by the guaranteed parties’ operating assets. Once the Company assumes the guaranteed parties’ obligation, the Company acquires the right of the collateral.

In the ordinary course of business, the Company is involved in various legal proceedings. Although there can be no assurances, as of March 31, 2004, the Company believes, based on information currently available, that the ultimate resolution of these legal proceedings would not be likely to have a material adverse effect on its results of operations, financial condition or liquidity.

See note 8 for the information of contingent liabilities associated with environmental pollution and asbestos exposure.

F-36

15. Derivative Financial Instruments

The Company utilizes derivative financial instruments in its normal course of business (a) to manage interest rate risk, (b) to manage foreign exchange risk and (c) for other purposes. Although some types of these derivatives economically hedge the Company’s risk exposure, they do not qualify for hedge accounting under SFAS No.133. All derivatives are recognized on the consolidated balance sheets at fair value as “derivative assets” or “derivative liabilities,” with the changes in fair value recognized currently in earnings as “gains (losses) on derivatives.”

(a) Derivatives used for interest rate risk management
The Company uses interest rate swaps to manage interest rate exposures arising from mismatches between assets and liabilities (including duration mismatches). The Company’s insurance liabilities that bear credited interest rates, mainly those relating to deposit-type insurance and life insurance, are exposed to the risk of declines in interest rates. The Company’s strategy is to match the interest rate characteristics and duration of those liabilities with those of invested assets through its asset liability management, including the use of interest rate swaps. An interest rate swap is an agreement, generally, to exchange fixed and floating rate interest payments without exchange of the underlying principal.

(b) Derivatives used for foreign exchange risk management
The Company is exposed to foreign currency exposures arising mainly from foreign currency fixed maturity investments and foreign currency receivables/payables in relation to hull and marine cargo insurance and certain reinsurance. The Company uses foreign exchange derivatives, such as foreign exchange forwards and cross-currency swaps, to effectively manage those foreign currency exposures. A foreign exchange forward is an agreement to exchange different currencies at a specific future date. A cross-currency swap is an agreement to exchange coupon payments in one currency for coupon payments in another currency, where the principal amount of each currency is generally exchanged at the beginning and end of the term.

(c) Derivatives used for other purposes
The Company enters into credit default swaps as an alternative to credit insurance it provides. A credit default swap is a contract that provides the buyer with protection against the risk of a default by the reference entity in return for periodic payments to the seller.

The Company uses bond futures, equity index futures and other instruments to manage market risks.

The Company uses foreign exchange forwards, bond futures, equity index options, equity index futures and other instruments to earn investment returns.

F-37

The carrying amounts and the fair values of the Company’s derivative financial instruments at March 31, 2004 and 2003 are as follows:


	(Yen in millions)
	Assets		Liabilities
2004:
Interest rate swaps	¥	203,143		(123,266	)
Foreign exchange forwards		1,959		(197	)
Currency swaps		13,430		(18,806	)
Credit default swaps		4,383		(10,772	)
Bond futures		226		(136	)
Equity index options		188		(144	)
Equity index futures		63		(1,089	)
Other		2,430		(2,057	)

Total derivatives	¥	225,822		(156,467	)

2003:
Interest rate swaps	¥	315,171		(162,019	)
Foreign exchange forwards		177		(2,127	)
Currency swaps		14,881		(15,329	)
Credit default swaps		9,563		(23,050	)
Bond futures		26		(56	)
Equity index futures		633		—
Other		828		(430	)

Total derivatives	¥	341,279		(203,011	)

The following methods and assumptions were used by the Company in estimating the fair values of its derivative financial instruments:

Interest rate swaps
The fair values of interest rate swaps are based on the estimated present values the Company would receive or pay to terminate agreements, taking into consideration current interest rates and the current creditworthiness of the counterparties.

Foreign exchange forwards and currency swaps
The fair values of foreign exchange derivatives including forwards and currency swaps are estimated by obtaining current market quotes from banks.

Credit default swaps
The fair values of credit default swaps are estimated by obtaining current market quotes from counterparties, if available. If quoted market prices are not available, as is the case primarily with credit default swaps on pools of multiple reference assets, then the fair value is based upon estimates calculated by the Company’s internal model reflecting prevailing market conditions and certain other factors relating to the structure of the transaction.

Equity index futures and options, and bond futures
The fair values of equity index futures, equity index options and bond futures are based on the official market quotes.

F-38

The accounting policies of the business segments are the same as those described in the notes to consolidated financial statements. The effects of the elimination of certain intersegment transactions are included in the Property and casualty segment result. There is no revenue derived from transactions with a single major external customer amounting to 10% or more of the Company’s revenue for the years ended March 31, 2004, 2003 and 2002. The following are income and asset data for the Company’s business segments for the years ended March 31, 2004, 2003 and 2002:


	(Yen in millions)
	Property and
	casualty			Life			Consolidated
2004:
Operating income:
Property and casualty:
Net premiums written	¥	1,945,246			—			1,945,246
Less increase in unearned premiums		85,043			—			85,043

Premiums earned		1,860,203			—			1,860,203
Life premiums		—			247,800			247,800
Net investment income		103,097			23,076			126,173
Realized (losses) gains on investments		(5,707	)		1,852			(3,855	)
Losses on derivatives		(22,378	)		(14,377	)		(36,755	)

Total operating income		1,935,215			258,351			2,193,566

Operating costs and expenses:
Losses, claims and loss adjustment expenses		1,125,907			—			1,125,907
Policy benefits and losses for life		—			197,903			197,903
Income credited to investment deposits by policyholders		52,159			6,255			58,414
Policy acquisition costs		538,593			20,385			558,978
Other operating expenses		85,225			14,872			100,097

Total operating costs and expenses		1,801,884			239,415			2,041,299

Income before income tax expense		133,331			18,936			152,267

Income tax expense (benefit):
Current		46,437			3,578			50,015
Deferred		(4,017	)		3,387			(630	)

		42,420			6,965			49,385

Net income	¥	90,911			11,971			102,882

Total investments	¥	7,953,067			1,440,155			9,393,222

Total assets	¥	10,388,135			1,812,238			12,200,373

F-40


	(Yen in millions)
	Property and
	casualty			Life			Consolidated
2003:
Operating income:
Property and casualty:
Net premiums written	¥	1,898,557			—			1,898,557
Less increase in unearned premiums		137,589			—			137,589

Premiums earned		1,760,968			—			1,760,968
Life premiums		—			262,486			262,486
Net investment income		93,129			15,182			108,311
Realized losses on investments		(28,310	)		(1,565	)		(29,875	)
Gains on derivatives		55,044			21,520			76,564

Total operating income		1,880,831			297,623			2,178,454

Operating costs and expenses:
Losses, claims and loss adjustment expenses		1,030,093			—			1,030,093
Policy benefits and losses for life		—			223,316			223,316
Income credited to investment deposits by policyholders		54,111			1,900			56,011
Policy acquisition costs		544,147			26,911			571,058
Other operating expenses		85,859			10,809			96,668

Total operating costs and expenses		1,714,210			262,936			1,977,146

Income before income tax expense and extraordinary items		166,621			34,687			201,308

Income tax expense (benefit):
Current		83,022			9,913			92,935
Deferred		(25,237	)		3,916			(21,321	)

		57,785			13,829			71,614

Income before extraordinary items		108,836			20,858			129,694
Extraordinary items		248,323			—			248,323

Net income	¥	357,159			20,858			378,017

Total investments	¥	7,119,333			1,225,870			8,345,203

Total assets	¥	9,513,060			1,380,303			10,893,363

F-41


	(Yen in millions)
	Property and
	casualty			Life		Consolidated
2002:
Operating income:
Property and casualty:
Net premiums written	¥	1,381,483			—		1,381,483
Less increase in unearned premiums		38,521			—		38,521

Premiums earned		1,342,962			—		1,342,962
Life premiums		—			209,208		209,208
Net investment income		94,386			10,295		104,681
Realized (losses) gains on investments		(1,384	)		364		(1,020	)
(Losses) gains on derivatives		(20,847	)		13,528		(7,319	)

Total operating income		1,415,117			233,395		1,648,512

Operating costs and expenses:
Losses, claims and loss adjustment expenses		798,214			—		798,214
Policy benefits and losses for life		—			175,016		175,016
Income credited to investment deposits by policyholders		56,422			1,085		57,507
Policy acquisition costs		418,979			18,033		437,012
Other operating expenses		63,751			8,344		72,095

Total operating costs and expenses		1,337,366			202,478		1,539,844

Income before income tax expense and cumulative effect of accounting changes		77,751			30,917		108,668

Income tax expense (benefit):
Current		50,070			3,890		53,960
Deferred		(27,806	)		7,262		(20,544	)

		22,264			11,152		33,416

Income before cumulative effect of accounting changes		55,487			19,765		75,252
Cumulative effect of accounting changes, net of tax		56,727			28,738		85,465

Net income	¥	112,214			48,503		160,717

Total investments	¥	6,068,201			560,624		6,628,825

Total assets	¥	7,823,947			735,230		8,559,177

F-42

Schedule I

MILLEA HOLDINGS, INC.
AND SUBSIDIARIES

Summary of Investments — Other than Investments in Related Parties

March 31, 2004


	(Yen in millions)
					Amount at which
					shown in the
Type of investment	Cost		Value		balance sheet
Securities held to maturity:
Fixed maturities:
Bonds and notes:
Government and government agencies and authorities:
Other	¥	1,095,608		1,073,743		1,095,608
All other corporate bonds		14,253		14,809		14,253

Total fixed maturities held to maturity		1,109,861		1,088,552		1,109,861

Securities available for sale:
Fixed maturities:
Bonds and notes:
Government and government agencies and authorities:
United States		113,778		115,174		115,174
Other		2,071,900		2,066,139		2,066,139

		2,185,678		2,181,313		2,181,313

States, municipalities and political subdivisions:
United States		1,055		1,102		1,102
Other		171,977		177,113		177,113

		173,032		178,215		178,215

Public utilities		60,172		60,792		60,792
Convertibles and bonds with warrants attached		42,929		45,684		45,684
Mortgage-backed securities		22,893		22,316		22,316
All other corporate bonds		659,978		668,162		668,162

Total bonds and notes		3,144,682		3,156,482		3,156,482

Redeemable preferred stock		53,100		53,100		53,100

Total fixed maturities available for sale		3,197,782		3,209,582		3,209,582

Equity securities:
Common stocks:
Public utilities		41,214		77,356		77,356
Banks, trust and insurance companies		310,431		487,624		487,624
Industrial, miscellaneous and all other		1,303,644		2,857,418		2,857,418

Total common stocks		1,655,289		3,422,398		3,422,398

Nonredeemable preferred stocks		37,168		34,976		34,976

Total equity securities available for sale		1,692,457		3,457,374		3,457,374

Total securities available for sale		4,890,239		6,666,956		6,666,956

(Continued)

F-43

Schedule I

MILLEA HOLDINGS, INC.
AND SUBSIDIARIES

Summary of Investments — Other than Investments in Related Parties

March 31, 2003


	(Yen in millions)
					Amount at which
					shown in the
Type of investment	Cost		Value		balance sheet
Securities held to maturity:
Fixed maturities:
Bonds and notes:
Government and government agencies and authorities:
Other	¥	866,971		1,011,483		866,971
All other corporate bonds		16,365		17,249		16,365

Total fixed maturities held to maturity		883,336		1,028,732		883,336

Securities available for sale:
Fixed maturities:
Bonds and notes:
Government and government agencies and authorities:
United States		129,949		134,524		134,524
Other		1,935,175		2,073,303		2,073,303

		2,065,124		2,207,827		2,207,827

States, municipalities and political subdivisions:
United States		44		64		64
Other		244,826		264,318		264,318

		244,870		264,382		264,382

Public utilities		88,322		92,966		92,966
Convertibles and bonds with warrants attached		70,622		77,320		77,320
Mortgage-backed securities		19,859		20,869		20,869
All other corporate bonds		683,663		705,160		705,160

Total bonds and notes		3,172,460		3,368,524		3,368,524

Redeemable preferred stock		53,100		53,100		53,100

Total fixed maturities available for sale		3,225,560		3,421,624		3,421,624

Equity securities:
Common stocks:
Public utilities		42,994		62,389		62,389
Banks, trust and insurance companies		296,261		293,903		293,903
Industrial, miscellaneous and all other		1,414,698		2,089,070		2,089,070

Total common stocks		1,753,953		2,445,362		2,445,362

Nonredeemable preferred stocks		88,859		88,859		88,859

Total equity securities available for sale		1,842,812		2,534,221		2,534,221

Total securities available for sale		5,068,372		5,955,845		5,955,845

(Continued)

F-45

Schedule III

MILLEA HOLDINGS, INC.
AND SUBSIDIARIES

Supplementary Insurance Information

Years ended March 31, 2004, 2003 and 2002

Property and casualty:


	(Yen in millions)
	Losses,						Claims,
	claims and						losses and
	loss		Unearned		Premium		settlement		Premiums
	expenses		premiums		revenue		expenses		written
Year ended:
March 31, 2004	¥	1,221,146		1,878,636		1,860,203		1,125,907		1,945,246
March 31, 2003		1,131,884		1,760,981		1,760,968		1,030,093		1,898,557
March 31, 2002		875,463		1,177,506		1,342,962		798,214		1,381,483

Life:


	(Yen in millions)
	Future policy						Benefits, claims,
	benefits, losses,						losses and
	claims and		Unearned		Premium		settlement
	loss expenses		premiums		revenue		expenses
Year ended:
March 31, 2004	¥	853,804		188		247,800		197,903
March 31, 2003		713,418		174		262,486		223,316
March 31, 2002		462,597		6		209,208		175,016

See accompanying report of independent registered public accounting firm.

F-47

Schedule IV

MILLEA HOLDINGS, INC.
AND SUBSIDIARIES

Reinsurance

Years ended March 31, 2004, 2003 and 2002


	(Yen in millions)
									Percentage
			Ceded		Assumed				of amount
	Gross		to other		from other				assumed
	amount		companies		companies		Net amount		to net
Year ended March 31, 2004:
Life insurance in force	¥	14,186,071		395,884		—		13,790,187		0.0	%

Premiums:
Life insurance	¥	248,719		919		—		247,800		0.0	%
Property and casualty insurance		1,952,151		389,545		297,597		1,860,203		16.0	%

Total premiums	¥	2,200,870		390,464		297,597		2,108,003		14.1	%

Year ended March 31, 2003:
Life insurance in force	¥	12,122,086		200,220		—		11,921,866		0.0	%

Premiums:
Life insurance	¥	263,361		875		0		262,486		0.0	%
Property and casualty insurance		1,952,534		381,701		190,135		1,760,968		10.8	%

Total premiums	¥	2,215,895		382,576		190,135		2,023,454		9.4	%

Year ended March 31, 2002:
Life insurance in force	¥	9,037,201		86,058		—		8,951,143		0.0	%

Premiums:
Life insurance	¥	209,469		261		0		209,208		0.0	%
Property and casualty insurance		1,436,884		222,708		128,786		1,342,962		9.6	%

Total premiums	¥	1,646,353		222,969		128,786		1,552,170		8.3	%

See accompanying report of independent registered public accounting firm.

F-48

Schedule V

MILLEA HOLDINGS, INC.
AND SUBSIDIARIES

Valuation and Qualifying Accounts

Years ended March 31, 2004, 2003 and 2002


	(Yen in millions)
			Additions
	Balance at		Assumed by		Charged to			Charged
	beginning		business		costs and			to other					Balance at
Description	of year		combination		expenses			accounts			Deductions		end of year
Year ended March 31, 2004:
Applied against asset accounts:
Accumulated depreciation — investment real estate	¥	79,538		—		3,880			3,731			2,149		85,000
Valuation allowance — loans:
Specific allowance		30,105		—		(6,493	)		—			7,688		15,924
General allowance		6,730		—		(2,922	)		—			—		3,808
Allowance for doubtful accounts		8,197		—		(175	)		—			312		7,710
Accumulated depreciation — property and equipment		183,676		143		15,236			(3,731	)		12,462		182,862

Year ended March 31, 2003:
Applied against asset accounts:
Accumulated depreciation — investment real estate	¥	83,155		—		3,650			2,646			9,913		79,538
Valuation allowance — loans:
Specific allowance		24,070		4,896		7,269			—			6,130		30,105
General allowance		8,675		4,233		(6,178	)		—			—		6,730
Allowance for doubtful accounts		4,681		2,541		975			—			—		8,197
Accumulated depreciation — property and equipment		162,768		—		11,426			13,393			3,911		183,676

Year ended March 31, 2002:
Applied against asset accounts:
Accumulated depreciation — investment real estate	¥	83,249		—		4,187			2,954			7,235		83,155
Valuation allowance — loans:
Specific allowance		25,526		—		4,216			—			5,672		24,070
General allowance		13,393		—		(4,718	)		—			—		8,675
Allowance for doubtful accounts		4,695		—		—			—			14		4,681
Accumulated depreciation — property and equipment		157,612		—		11,343			(2,954	)		3,233		162,768

See accompanying report of independent registered public accounting firm.

F-49

LIST OF EXHIBITS

Millea Holdings is filing the following exhibits (or incorporating them by reference) as part of this annual report:


Exhibit Number		Description
1.1		English translation of the articles of incorporation of Millea Holdings, Inc.
1.2		English translation of the share handling regulations of Millea Holdings, Inc.
2(a)		English translation of the specimen stock certificate of Millea Holdings, Inc., incorporated by reference from the annual report on Form 20-F/A (Commission file number 0-31376) filed on September 27, 2002.
7		A statement explaining in reasonable detail how ratios in the Annual Report were calculated.
8		List of subsidiaries of Millea Holdings, Inc.
12		Certifications required by Rule 13a-14(a) (17 CFR 240.13a-14(a)) or Rule 15d-14(a) (17 CFR 240.15d-14(a)) under the Securities Exchange Act of 1934, as amended.
13		Certification required by Rule 13a-14(b) (17 CFR 240.13a-14(b)) or Rule 15d-14(b) (17 CFR 240.15d-14(b)) under the Securities Exchange Act of 1934, as amended, and by Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. 1350).

We have not included as exhibits certain instruments with respect to our long-term debt. The total amount of long-term debt securities of us or our subsidiaries authorized under any instrument does not exceed 10% of our total assets. We hereby agree to furnish to the SEC, upon its request, a copy of any instrument defining the rights of holders of long-term debt of us or of our subsidiaries for which consolidated or unconsolidated financial states are required to be filed.

CROSS REFERENCE INDEX FOR FORM 20-F


		Part I	Page
Item 1.		Identity of Directors, Senior Management and Advisers
		Not required because this Form 20-F is filed as an annual report
Item 2.		Offer Statistics and Expected Timetable
		Not required because this Form 20-F is filed as an annual report
Item 3.		Key Information
	3.A.	Selected Financial Data
		Selected Financial Data		4
	3.B.	Capitalization and Indebtedness
		Not required because this Form 20-F is filed as an annual report
	3.C.	Reasons for the Offer and Use of Proceeds
		Not required because this Form 20-F is filed as an annual report
	3.D.	Risk Factors
		Risk Factors		6
Item 4.		Information on the Company
	4.A.	History and Development of the Company
		Business — Group Overview		16
	4.B.	Business Overview
		Business		16
		The Japanese Insurance Industry		76
		Regulation		78
	4.C.	Organizational Structure
		Major Shareholders		14
		Business — Group Overview		16
	4.D.	Property, Plants and Equipment
		Business — Properties		39
Item 5.		Operating and Financial Review and Prospects
	5.A.	Operating Results
		Management’s Discussion and Analysis of Financial Condition and Results of Operations		40
	5.B.	Liquidity and Capital Resources
		Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources		70
	5.C.	Research and Development, Patents and Licenses, etc.
		None
	5.D.	Trend Information
		Management’s Discussion and Analysis of Financial Condition and Results of Operations		40
	5.E.	Off-Balance Sheet Arrangements
		Management’s Discussion and Analysis of Financial Condition and Results of Operations — Off-Balance Sheet Arrangements		71
	5.F.	Tabular Disclosure of Contractual Obligations
		Management’s Discussion and Analysis of Financial Condition and Results of Operations — Contractual Obligations		72
Item 6.		Directors, Senior Management and Employees
	6.A.	Directors and Senior Management
		Directors and Corporate Auditors — Personal Data		73
	6.B.	Compensation
		Directors and Corporate Auditors — Compensation and Benefits		75


		Part I	Page
	6.C.	Board Practices
		Directors and Corporate Auditors — Board Practices		75
	6.D.	Employees
		Business — Employees		39
	6.E.	Share Ownership
		Directors and Corporate Auditors — Personal Data		73
Item 7.		Major Shareholders and Related Party Transactions
	7.A.	Major Shareholders
		Major Shareholders		14
	7.B.	Related Party Transactions
		None
	7.C.	Interests of Experts and Counsel
		Not required because this Form 20-F is filed as an annual report
Item 8.		Financial Information
	8.A.	Consolidated Statements and Other Financial Information
		Dividend Policy		14
		Index to Financial Statements		F-1
		Index to Schedules		F-1
	8.B.	Significant Changes
		None
Item 9.		The Offer and Listing
	9.A.	Offer and Listing Details
		Market Price Information		13
	9.B.	Plan of Distribution
		Not required because this Form 20-F is filed as an annual report
	9.C.	Markets
		Market Price Information		13
	9.D.	Selling Shareholders
		Not required because this Form 20-F is filed as an annual report
	9.E.	Dilution
		Not required because this Form 20-F is filed as an annual report
	9.F.	Expenses of the Issue
		Not required because this Form 20-F is filed as an annual report
Item 10.		Additional Information
	10.A.	Share Capital
		Not required because this Form 20-F is filed as an annual report
	10.B.	Memorandum and Articles of Association
		Business		16
		Directors and Corporate Auditors — Board Practices		75
		Description of Common Stock		82
	10.C.	Material Contracts
		None
	10.D.	Exchange Controls
		Regulation — Foreign Exchange Regulations		80
	10.E.	Taxation
		Taxation		88
	10.F.	Dividends and Paying Agents
		Not required because this Form 20-F is filed as an annual report
	10.G.	Statement by Experts
		Not required because this Form 20-F is filed as an annual report
	10.H.	Documents on Display
		Where You Can Find More Information		94
	10.I.	Subsidiary Information
		Not required because this Form 20-F is filed as an annual report


	Part I	Page
Item 11.	Quantitative and Qualitative Disclosures About Market Risk
	Management’s Discussion and Analysis of Financial Condition and Results of Operations — Quantitative and Qualitative Disclosures About Market Risk		62
Item 12.	Description of Securities Other than Equity Securities
	Not required because this Form 20-F is filed as an annual report
Part II
Item 13.	Defaults, Dividend Arrearages and Delinquencies
	None
Item 14.	Material Modifications to the Rights of Security Holders and Use of Proceeds
	None
Item 15.	Controls and Procedures
	Controls and Procedures		91
Item 16.	Reserved
	Not applicable
Item 16A.	Audit Committee Financial Expert
	Directors and Corporate Auditors — Audit Committee Financial Expert		75
Item 16B.	Code of Ethics
	Code of Ethics		91
Item 16C.	Principal Accountant Fees and Services
	Principal Accountant Fees and Services		91
Item 16D.	Exemptions from Listing Standards for Auditing Committees
	Not required because this annual report does not cover a fiscal year ending on or after July 31, 2005
Item 16E.	Repurchases of Equity Securities
	Not required because this annual report does not cover a fiscal year ending on or after December 14, 2004
Part III
Item 17.	Financial Statements
	Not applicable
Item 18.	Financial Statements
	Index to Financial Statements		F-1
	Index to Schedules		F-1
Item 19.	Exhibits
	List of Exhibits

The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.


o		REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934


x		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended March 31, 2004


o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________________ to ________________

	•		Tokio Marine and Nichido Fire became our wholly owned subsidiaries;

	•		Tokio Marine de-registered its shares of common stock and American depositary shares from registration under Section 12(g) of the U.S. Securities Exchange Act of 1934, as amended, or the Exchange Act, and terminated its ongoing reporting obligations under Section 12(g) and Section 15(d) of the Exchange Act; and

	•		Our shares of common stock and American depositary shares were registered under Section 12(g) of the Exchange Act (Commission file number 0-31376).

	•		The impact of economic slowdown in economies outside Japan, such as those experienced by many southeast Asian countries in the late 1990’s;

	•		Unexpected changes in or delays resulting from regulatory requirements;

	•		Exchange controls;

	•		Restrictions on foreign investment or the repatriation of profits or invested capital;

	•		Changes in the tax system or rate of taxation; and

	•		Social, political and economic risks.

	•		The expected benefits and synergies of the merger may not be achieved fully or at all;

	•		A delay in the preparation for the merger or in the integration of operating processes may adversely affect our business operations; and

	•		Unpredictable events may significantly raise the cost of the merger.

	•		Management of non-life insurance companies;

	•		Management of life insurance companies;

	•		Management of specialized securities companies;

	•		Management of foreign companies engaged in the insurance business;

	•		Management of any other company which is or may become our subsidiary in accordance with the provisions of the Insurance Business Law of Japan; and

	•		Any other business pertaining to the foregoing listed businesses.

	•		By providing customers with the highest quality products and services, we will spread safety and security to all around us.

	•		For fulfilling our responsibility to shareholders, we will pursue global development of sound, growing and profitable businesses.

	•		For promoting the creativity of each and every employee, we will foster a corporate culture which encourages free and open communications.

	•		While demonstrating responsible management as a good corporate citizen, we will make a positive contribution to society.”

	•		Establishing an in-house company system where separate in-house companies focus on the personal, the commercial and the automobile manufacturer/dealer insurance markets. By combining products, services and administration systems that reflect the needs and characteristics of each market, we intend to implement a growth strategy.

	•		Seeking to increase sales of third sector products, which we believe is a market with significant growth potential, and to increase over-the-counter sales of insurance products through banks.

	•		Enhancing sales of comprehensive insurance products that cover a variety of risks for individuals and corporate customers such as “TAP Navi”, “Shimpai Gomuyo Navi”, “Super Insurance” and “Super Business Insurance”. See “— Property and Casualty Insurance”.

	•		Restructuring our sales network and seeking to build a more efficient and higher quality sales network by expanding the number of large-scale agents and making direct capital investment in some of our agents.

	•		Seeking to provide customers with high quality claims services by pursuing an innovative business model guided by the three principles of “sincerity”, “professionalism” and “open communication”.

	•		Enhancing the efficiencies in the business operations and management of our life insurance business. We merged our life insurance subsidiaries Tokio Marine Life and Nichido Fire Life in October 2003 and renamed the entity Tokio Marine & Nichido Life.

	•		Strengthening the cooperation between our life insurance business and our property and casualty insurance business.

	•		Strengthening our variable annuities business through our new subsidiary, Tokio Marine & Nichido Financial Life, which we acquired from Skandia in February 2004.

	•		Introducing new products, such as the “Anshin Dollar Annuity”, which was launched in January 2004. See “Other Businesses — Life Insurance Business”.

	•		Shifting more of our management resources to the life insurance business and seeking to implement the following growth strategies:

	•		Strengthen cross-marketing;

	•		Expand our sales channels dedicated exclusively to the distribution of life insurance; and

	•		Promote sales through banks.

	•		In the retail market, we aim to establish an investment trust/defined contribution business.

	•		In the wholesale market, we plan to actively launch new products in alternative investment areas such as private equity to expand our product line-up.

	•		We intend to expand our asset management operations globally through Tokio Marine Asset Management Co., Ltd.

	•		Bodily Injury Liability — covers a policyholder’s liability for bodily injuries to others resulting from the ownership, use or maintenance of an automobile. Compulsory automobile liability insurance (discussed below) also covers bodily injury liability; however the compulsory insurance will not pay above a certain maximum amount determined by Japanese law. This bodily injury liability coverage supplements the compulsory insurance scheme by paying the amount of liability in excess of the maximum amount covered by compulsory insurance. The per-person insured amount under this coverage is generally unlimited.

	•		Property Damage Liability — covers liability for property damage resulting from the ownership, use or maintenance of an automobile included in the policy. One type of damage typically covered by this policy is damage to another’s vehicle as a result of a collision.

	•		Passengers’ Bodily Injury — covers bodily injuries of drivers and passengers resulting from collisions or other accidents. Like the self-incurred accident coverage, a fixed amount, without regard to the actual amount of damage, is payable according to a pre-set payment table.

	•		General Personal Accident — covers the insured against a broad range of accidents resulting in personal injuries. A fixed amount of indemnity is paid according to the type of injuries (e.g., death, permanent disability or hospitalization).

	•		Income Indemnity — covers against the loss of income caused by an injury or illness.

	•		Overseas Traveler’s Personal Accident — covers against accidents during travel and, if the policyholder has elected a special policy condition, against illness during travel.

	•		Traffic Accident — covers the insured against collisions with, or accidents occurring on, automobiles, trains, planes, ships and other types of vehicles.

	•		Proportional reinsurance. This type of reinsurance involves reinsurers sharing a proportional part of the original premiums and losses under the reinsurance cession assumed. This type of reinsurance is used as a means to limit a loss amount on an individual-risk basis. In proportional reinsurance, the reinsurer customarily pays the ceding company a ceding commission, which is generally based upon the ceding company’s cost of acquiring the business ceded and may also include the ceding company’s margin. In most cases, this type of reinsurance is arranged in the form of a reinsurance treaty, where the ceding company is automatically authorized to cede any business under a set of terms and conditions previously agreed upon without obtaining a separate prior consent to each cession from the reinsurers. If the underwriting capacity provided by such a treaty is not sufficient, the ceding company would have to arrange for “facultative reinsurance”, whereby a separate prior consent would have to be obtained from each reinsurer.

	•		Excess-of-loss reinsurance. This type of reinsurance indemnifies the ceding company against a specified level of loss on underlying insurance policies in excess of a specified agreed amount. Excess-of-loss reinsurance is usually arranged in layers to secure greater capacity with more competitive pricing by offering various levels of risk exposure with different terms for reinsurers with different preferences. This type of reinsurance is commonly used as a means to protect against the occurrence of catastrophes, such as earthquakes and windstorms, by capping the total accumulated amount of losses from the retention on each individual risk after recovery of losses from proportional reinsurance.

	•		Reserves for reported claims. These reserves are based on our estimates of future payments that will be made in respect of claims, including expenses related to those claims. These estimates are made on a case-by-case basis and are based on the facts and circumstances available at the time the reserves are established. These estimates reflect the informed judgment of the claims personnel based on general insurance reserving practices and knowledge of the nature and value of a specific type of claim. These reserves are periodically adjusted in the ordinary course of settlement and represent the estimated ultimate costs necessary to bring all the pending reported claims to final settlement. Consideration is given to historic trends and disposition patterns and loss payments, pending levels of unpaid claims and types of coverage.

	•		Reserves for incurred but not reported claims. These reserves are established to recognize the estimated cost of losses that have occurred but as to which we do not yet have notice. These reserves, like reserves for reported claims, are established to recognize the estimated costs, including expenses, necessary to bring claims arising out of losses to final settlement. Since nothing is known about the occurrence of the losses, we rely on our past experience to estimate our liability in respect of incurred but not reported claims. These reserves are estimates that involve actuarial and statistical projections of the expected cost of the ultimate settlement and administration of claims. The analyses are based on facts and circumstances known at the time, predictions of future events, estimates of future inflation and other demographic and economic factors. Late reported claim trends, claim severity, exposure growth and future inflation are some of the factors used in projecting reserve requirements for incurred but not reported claims. These reserves are reviewed and revised periodically as additional information becomes available and actual claims are reported.

	•		For fire and allied lines insurance: (1) substantially all losses are paid or recognized within one year from the casualty date and (2) substantially all underwriting risk is assumed in Japan.

	•		For liability and workers’ compensation insurance: (1) approximately 90% of losses are recognized within two years from the casualty date and (2) for underwriting risk assumed outside Japan, we make reserves based on reports from actuaries in the relevant countries.

	•		For automobile, personal accident, cargo and transit, hull and all other insurance: (1) except for physical damage claims under automobile insurance, substantially all losses are paid or recognized within two years from the casualty date, (2) for physical damage claims under automobile insurance, approximately 90% of all losses are paid or recognized within one year and (3) substantially all underwriting risk is assumed in Japan.

	•		Asia and Oceania — The Tokio Marine and Fire Insurance Company (Hong Kong) Limited and The Tokio Marine and Fire Insurance Company (Singapore) Pte. Limited and Tokio Marine Management (Australasia) Pty. Ltd.

	•		The Americas — Tokio Marine Management, Inc., First Insurance Company of Hawaii, Ltd., Tokio Marine Compañia de Seguros, S.A. de C.V., Tokio Marine Brasil Seguradora S.A. and Tokio Millennium Re Ltd.

	•		Europe, the Middle East and Africa — Tokio Marine Europe Insurance Limited and Tokio Marine Global Re Limited.

	•		Significant fluctuations in the value of Japanese equities, in particular a significant increase in Japanese equity prices in the year ended March 31, 2004, or fiscal 2004, subsequent to a significant decrease in Japanese equity prices in the years ended March 31, 2003 and 2002, or fiscal 2003 and 2002, which have resulted in significant fluctuations in our realized and unrealized gains (losses) on investments;

	•		Significant fluctuations in long-term interest rates in Japan, in particular a significant increase in long-term interest rates in Japan in fiscal 2004, subsequent to a significant decrease in long-term interest rates in Japan in fiscal 2003, which have resulted in significant fluctuations in our gains (losses) on derivatives, our unrealized gains (losses) on investments and the value of our investment deposits by policyholders and other long-term insurance liabilities;

	•		Increased competition in the property and casualty insurance business, including price competition which requires us to offer competitive products at competitive rates;

	•		Slowing demographic growth and an aging population in Japan, which limit the overall growth potential of the individual insurance market in Japan while providing growth opportunities for insurance products that respond to the needs of the elderly, such as third sector insurance;

	•		Limited growth in the number of automobiles in Japan, which affects the growth potential for automobile insurance in Japan; and

	•		Improving economic activity in Japan, as Japan’s real gross domestic product grew by 3.3% in fiscal 2004 and by 1.6% in fiscal 2003, after having decreased by 1.2% in fiscal 2002.

	•		Total operating income increased in fiscal 2004 by ¥15,112 million, or 0.7%, to ¥2,193,566 million, reflecting primarily an increase in net premiums written for property and casualty insurance and a decrease in realized losses on investments that was partially offset by a decrease in life premiums and an increase in losses on derivatives.

	•		Total operating cost and expenses increased in fiscal 2004 by ¥64,153 million, or 3.2%, to ¥2,041,299 million, reflecting primarily an increase in losses, claims and loss adjustment expenses in our property and casualty insurance business, partially offset by a decrease in policy benefits and losses for life and policy acquisition costs.

	•		As a result, income before extraordinary items and cumulative effect of accounting changes decreased by ¥26,812 million, or 20.7%, to ¥102,882 million. The main reason for this decrease was an increase in losses on derivatives that are primarily utilized in our economical hedging activities for asset liability management, partially offset by improvement in underwriting results.

	•		Net income decreased in fiscal 2004 by ¥275,135 million, or 72.8%, to ¥102,882 million. In fiscal 2003, net income included extraordinary items amounting to ¥248,323 million, which was unallocated negative goodwill arising from the business combination with Nichido Fire.

	•		Improving economic activity, as the Japanese real gross domestic product decreased by 1.2% in the year ended March 31, 2002 but grew by 1.6% in the year ended March 31, 2003 and grew by 3.3% in the year ended March 31, 2004;

	•		Increasing total levels of outstanding Japanese government debt, reaching a historical high at 44.6% of the government’s total revenue for the year ended March 31, 2004. Ratings of Japanese government bonds by the major rating agencies remained stable, and one international ratings agency changed the outlook for Japanese government debt from neutral to positive subsequent to March 31, 2004;

	•		Continuing high levels of corporate bankruptcy filings, despite a decrease of 18.3% from the previous year from 18,928 to 15,466 cases filed in the year ended March 31, 2004. Total liabilities of these insolvent companies for the year ended March 31, 2004 totaled ¥10,300 billion, a decrease of 22.6% from ¥13,310 billion in the previous year;

	•		A very low interest rate environment, with the Bank of Japan maintaining a policy of near zero interest rates since March 2001;

	•		Declining real estate values, with government-appraised land prices declining an average of 5.7% for residential areas and 7.4% for commercial areas in calendar year 2003, which represented the thirteenth straight year of decline;

	•		Improving equity markets, with the Nikkei Stock Average, which is an average of 225 stocks listed on the Tokyo Stock Exchange, increasing 46.9% to 11,715.39 during the year ended March 31, 2004, after declining 27.6% to 7,972.71 during the year ended March 31, 2003 and declining 15.2% to 11,024.94 during the year ended March 29, 2002. Subsequent to March 31, 2004, the Nikkei Stock Average declined to 11,158.58 on September 15, 2004; and

	•		Significant exchange rate movements, as the value of the yen against the U.S. dollar fluctuated from a high of ¥104.18 to a low of ¥120.55 in the year ended March 31, 2004, from a high of ¥115.71 to a low of ¥133.40 in the year ended March 31, 2003, and from a high of ¥115.89 to a low of ¥134.77 in the year ended March 31, 2002. As of September 15, 2004, the U.S. dollar exchange rate was ¥ 110.34.

	•		SFAS No. 114, “Accounting by Creditors for Impairment of a Loan”, and SFAS No. 118, “Accounting by Creditors for Impairment of a Loan — Income Recognition and Disclosures”, which require that losses be accrued based on the difference between the loan balance and the present value of future cash flows or values that are observable in the secondary market; and

	•		SFAS No. 5, “Accounting for Contingencies”, which requires that losses be accrued when they are probable of occurring and quantitatively estimable.

	•		Separate account assets and liabilities. Beginning with the year ended March 31, 2004, we began to present assets and liabilities that represent funds for which investment income and investment gains and losses accrue directly to policyholders who bear the investment risk, except for minimum guarantees, with respect to such funds as separate items captioned “separate account assets” and “separate account liabilities”. We recognized separate account assets and liabilities in the amount of ¥162,715 million, respectively, at March 31, 2004.

	•		Goodwill and present value of future profits. As of March 31, 2004, we began to present goodwill and present value of future profits as separate line items on our balance sheet. Goodwill represents the excess of a purchase price paid over the fair value of the net assets of an acquired entity. We recognized goodwill in the amount of ¥9,934 million at March 31, 2004. Present value of future profit represents the present value of profits embedded in acquired long-term life insurance contracts and is determined based on the net present value of future cash flows expected to result from the contracts in force at the date of acquisition. We recognized present value of future profit in the amount of ¥14,744 million at March 31, 2004. Goodwill and present value of future profit are tested for impairment annually and also when a certain triggering event requires such test. Present value of future profit is amortized to match estimated gross profits from the policies acquired.

	•		Investment concentration. As of March 31, 2004, we held investments, mainly equity securities, in Toyota Motor Corporation and its affiliates that were valued at ¥394.4 billion, representing approximately 12% of our consolidated stockholders’ equity as of that date. No other investment in a single company including its affiliates exceeded 10% of our consolidated stockholders’ equity as of that date. As of March 31, 2003, we held investments, mainly equity securities, in Toyota Motor Corporation and its affiliates that were valued at ¥290.2 billion, representing approximately 10% of our consolidated stockholders’ equity as of that date. No other investment in a single company including its affiliates exceeded 10% of our consolidated stockholders’ equity as of that date.

	•		Concentration of gross unrealized losses. As of March 31, 2004, Japanese government bonds accounted for 61.6% of our total gross unrealized losses on securities available for sale as of that date. The unrealized losses on these investments amounted to ¥32,904 million as compared to a cost basis of ¥973,615 million. As of March 31, 2004, two of our investments in equity securities of Japanese issuers accounted for 3.5% of our total gross unrealized losses on securities available for sale as of that date. The unrealized losses on these investments amounted to ¥1,248 million and ¥603 million, respectively, as compared to a cost basis of ¥16,000 million and ¥2,650 million, respectively. As of March 31, 2003, two of our investments in equity securities of Japanese issuers accounted for 37.9% of our total gross unrealized losses on securities available for sale as of that date. The unrealized losses on these investments amounted to ¥33,852 million and ¥10,069 million, respectively, as compared to a cost basis of ¥124,251 million and ¥61,869 million, respectively. Based on our evaluation in accordance with our critical accounting policy “Impairment of Securities Available for Sale”, including the evaluation of the fact that the period of time during which the securities described above were in a continuous loss position was less than twelve months, we did not record any impairment loss for such securities for the years ended March 31, 2004 and 2003, respectively.

	•		Maturity profile. As of March 31, 2004, we held ¥875.9 billion of fixed maturity securities available for sale (measured at fair value) with an original term to maturity of ten years or longer and ¥2,333.7 billion of fixed maturity securities available for sale (measured at fair value) with an original term to maturity of less than ten years. As of March 31, 2003, we held ¥900.3 billion of fixed maturity securities available for sale (measured at fair value) with an original term to maturity of ten years or longer and ¥2,521.4 billion of fixed maturity securities available for sale (measured at fair value) with an original term to maturity of less than ten years. Fixed maturity securities with longer maturities are more sensitive to interest rate fluctuations than securities with shorter maturities.

	•		Non-traded securities. As of March 31, 2004, we held ¥336.4 billion of non-traded fixed maturity and equity securities. As of March 31, 2003, we held ¥308.1 billion of non-traded fixed maturity and equity securities. We monitor various information relating to the fair value of non-traded securities, including the net asset values and the credit rating of each issuer.

	•		Voluntary Automobile Insurance. Net premiums written for voluntary automobile insurance, the largest line of our property and casualty insurance business, decreased by 2.2% in fiscal 2004 to ¥878,499 million. This decrease was primarily due to discounts in premium rates granted upon the renewal of policies that did not experience any loss in the prior period. The net loss ratio increased from 56.6% in fiscal 2003 to 57.6% in fiscal 2004, mainly due to the decrease in premiums earned.

	•		Compulsory Automobile Liability Insurance. Net premiums written for compulsory automobile insurance increased by 18.8% in fiscal 2004 to ¥333,640 million. This increase was primarily due to the abolition of the government reinsurance scheme in fiscal 2003. See “Business — Property and Casualty Insurance — Compulsory Automobile Liability”. The net loss ratio increased from 74.4% in fiscal 2003 to 79.2% in fiscal 2004. This was primarily due to the fact that the abolition of the governmental reinsurance scheme increased both losses incurred and premiums earned by substantially the same amount.

	•		Fire and Allied Lines Insurance. Net premiums written for fire and allied lines insurance increased by 4.4% in fiscal 2004 to ¥270,495 million. This increase was mainly due to expanding sales that reflected the introduction of new products. The net loss ratio decreased from 35.3% in fiscal 2003 to 34.9% in fiscal 2004, primarily due to the increase in premiums earned.

	•		Personal Accident Insurance. Net premiums written for personal accident insurance decreased by 1.9% in fiscal 2004 to ¥152,062 million. This decrease was mainly due to decreasing sales of overseas traveler’s personal accident insurance, affected by the outbreak of Severe Acute Respiratory Syndrome, or SARS, in Asia, partly offset by expanding sales of medical and cancer insurance. The net loss ratio decreased from 42.8% in fiscal 2003 to 40.3% in fiscal 2004, mainly due to expanding sales of medical and cancer insurance, which has a relatively low loss ratio when compared with other personal accident insurance products.

	•		Cargo and Transit Insurance. Net premiums written for cargo and transit insurance increased by 5.8% in fiscal 2004 to ¥65,998 million. This increase mainly reflected the high levels of Japanese import and export trading activity as well as an increase in premium rates for war insurance coverage. The net loss ratio increased from 46.7% in fiscal 2003 to 46.9% in fiscal 2004, mainly due to an increase in large claims.

	•		Hull Insurance. Net premiums written for hull insurance increased slightly by 2.0% in fiscal 2004 to ¥14,484 million. The net loss ratio decreased from 90.1% in fiscal 2003 to 69.4% in fiscal 2004, mainly due to the absence of large claims, which had occurred in fiscal 2003.

	•		Other Insurance. Net premiums written for all other types of property and casualty insurance, including liability insurance, workers’ compensation insurance, guarantee insurance, movable comprehensive insurance, aviation and miscellaneous pecuniary loss insurance, increased by 0.5% in fiscal 2004 to ¥230,068 million. This increase was mainly due to an increase in liability insurance premiums, partly offset by a decrease in workers’ compensation, guarantee and movables comprehensive insurance premiums. The net loss ratio increased from 56.7% in fiscal 2003 to 60.7% in fiscal 2004, mainly due to an increase in large claims.

	•		Property and casualty insurance risk

			Risk of loss arising from fluctuations in the loss ratio and operating expense ratio expected at the time of calculating premiums.

	•		Life insurance risk

			Risk of loss arising from fluctuations in the mortality rate and operating expense rate expected at the time of calculating premiums.

	•		Credit risk

			Risk of loss arising from a decline in the value of our assets (including off-balance-sheet assets), or the total loss of these assets, as a result of deterioration in the obligor’s financial condition.