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:

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      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:

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     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 ¥2,041,299 million in fiscal 2004, an increase of 3.2% from fiscal 2003. This increase was primarily attributable to increases in losses and claims incurred and provided for, partially offset by a decrease in policy benefits and losses for life and policy acquisition costs.

     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.

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     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.

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     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:

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     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.

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     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.

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     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:

     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.

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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.

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     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.

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     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:

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