Summary of Q&A at FY2007 Teleconference for
Domestic Institutional Investors and Analysts
Time/date:

May 16, 2008, 17:00–18:00

Respondents:

Hiromichi Fujikata, Executive Vice President and Representative Director of SFH
Masamitsu Shimaoka, Director of Sony Life
Yuro Fujiyama, Director of Sony Assurance
Hidehiko Nakamura, Director of Sony Bank

Q&A (Summary)Q) Sony Life’s negative spread decreased, and its core profit also fell slightly. Please provide moredetails about operating expenses, which had more of a negative impact on core profit. What isyour forecast for FY2008?
A) (Sony Life) I take the question to be about why the core profit level did not change even though
the negative spread decreased ¥10.0 billion. The reason is that operating expenses increased inline with rises in the new policy amount, thereby filling the gap. Also, the minimum guarantee
cost on variable life insurance increased, owing to the worsening of the market environment.
Q) Can we assume that the remainder of operating expenses are minimum guarantee cost on variable
life insurance?
A) (Sony Life) Another factor was an increase in insurance claim payments.
Q) Assuming that the ratio of insurance claim payments was within the range of your original
expectations, it shouldn’t have had a major impact, correct?
A) (Sony Life) Looking at insurance claim payments in terms of policy amount in force, the ratio
increased slightly.
Q) Looking at the implied forward rate you are using, the comparing the assumptions you made for
FY2007 with FY2006, the shape of the yield curve has changed—becoming lower in theupcoming several years and higher in later years. Please explain the impact of this change.
A) (SFH) With regard to EV yield, I will need to respond by making a comparison with the previous
fiscal year, so please allow me to respond separately. Overall, from around FY2006 we havefocused on long-term bonds. To calculate future yields, we use the actual rate for the period
long-term bonds are held. Our yields assume that bonds that have reached maturity are reinvested
immediately. Because of various factors such as these, it is difficult to answer just now. I will
check the details and respond afterward.

[Reference on EV Assumptions]● Investment Yield (New Investments)
The implied forward rates that were used are as follows:
FY2007Yield

FY2006

Yield

2008

0.57%

2007

0.82%

2009

0.61%

2008

1.06%

2010

0.81%

2009

1.24%

2011

0.98%

2010

1.66%

2012

0.98%

2011

1.80%

2017

2.78%

2016

2.52%

2022

3.18%

2021

2.70%

2027

3.50%

2026

2.90%

2032

3.40%

2031

3.11%

2037

3.51%

2036

3.51%

● Investment Yield (Existing Assets)
The weighted average investment yields on new investments andexisting assets that were used are as follows:
FY2007Yield

FY2006

Yield

2008

0.57%

2007

0.82%

20090.61%

2008

1.06%

2010

0.81%

2009

1.24%

2011

0.98%

2010

1.66%

2012

0.98%

2011

1.80%

2017

2.78%

2016

2.52%

2022

3.18%

2021

2.70%

2027

3.50%

2026

2.90%

2032

3.40%

2031

3.11%

2037

3.51%

2036

3.51%

Q) The ¥82.7 billion decrease in the net unrealized gain, which was a factor behind the decrease inadjusted net worth from an EV standpoint, leaves a gap of approximately ¥36.0 billion from the¥46.0 billion net unrealized gain from a financial accounting standpoint. From a financial

accounting standpoint, the bond offset portion can be calculated to be approximately ¥17.0billion. Please explain the remaining amount of nearly ¥20.0 billion.
A) (Sony Life) For EV, the market value of stocks, convertible bonds and certain other bonds
excluding standard bonds is reflected in EV. However, looking at changes in the overall market
value from a financial accounting standpoint, when interest rates fall the resulting difference inthe opposite direction for bonds (their rise in price), compresses the net unrealized gain. The
assumption when calculating adjusted net worth for EV (the assets used when calculating the net
unrealized gain) are essentially only equity assets, so the impact of the stock market is factoredin, but the decrease in the net unrealized gain is larger than it would be for assets as a whole.
Q) Concerning the decrease in the value of new policies, will the impact of an increase insystem-related expenses linger, or will the impact of these expenses go away after the investment
in systems is complete?
A) (Sony Life) Differences are certainly apparent when you look at individual fiscal years, but we donot expect the figures to change much in the short term. Viewed over the medium term, however,
we should see improvements as the result of higher efficiencies.
Q) Regarding EV, can we expect the value of new policies to increase in line with last fiscal year’s
rise? By “last fiscal year,” do you mean we can increases in line with the rise in FY2007?
A) (SFH) In FY2008, we believe that the increase in the total of the release from the value ofin-force business and the value of new policies will be in line with the FY2007 increase.
Q) Concerning EV, can we assume for the purposes of FY2008 forecasts that there will be no majorchange in the new policy amount product mix?
A) (Sony Life) It is difficult to forecast our product mix, but in general I would say that this is thecase.
Q) I have a question about the future system investments by Sony Assurance and Sony Bank. Your
operating performance forecast mentioned the impact on ordinary profit, but please tell us theoverall amount of investment in systems and its P/L impact. Also, is the startup of the joint
venture with AEGON factored into your forecasts for the life insurance business?
A) (SFH) I am sorry, but I cannot answer your question about the total amount of system investment
or depreciation. We have not yet received official approval for the joint venture, so, although ourpreparations are proceeding apace, we have not factored this into our forecasts.
Q) I have a question about the increase in Sony Life’s lapse and surrender rate. How is thepersistency rate on individual life insurance compared with the preceding fiscal year?
A) The 13-month persistency rate is essentially unchanged. The 25-month persistency rate was down
0.2 percentage point.
[Reference]
FY2007

FY200613th month

95.5%

95.5%

25th month

90.5%

90.7%

Looked at in terms of number of policies, the lapse and surrender rate has actually improved.
The lapse and surrender rate we have released is on a policy amount basis and reflects an upward
trend in the price of individual policies. We will pay close attention to how this situation changes
in the future.
Q) You have raised differential interest dividends on individual life insurance and dividends on groupannuity insurance by 25 basis points. Was this because of positive investment results or to raisecompetitiveness?
A) (Sony Life) It reflects our investment results.
Q) Regarding the decrease in the value of new policies for EV and system-related expenses, could
you please provide more specifics?
A) (Sony Life) Rather than system development, part of this amount is for increased investment insystems to strengthen internal controls in response to recent issues regarding insurance claim
payments. This amount also includes the increase in operating expenses, such as increases inpersonnel expenses.
Q) In terms of calculation, may we assume that among system-related expenses the portion related tooperation and maintenance is based on policies in force, and system development to acquire newpolicies are related to the new policy amount?
A) (Sony Life) This is correct, but ultimately the new policy amount has a greater impact onallocation. Overall, system expenses related to policy maintenance are allocated to policies inforce, and the expenses related to acquiring new policies are allocated to new policies.
Q) Can we assume that this investment will related to future increases in the new policy amount?
A) (Sony Life) The majority of these system expenses will go toward strengthening internal controls
and complying with the Financial Instruments and Exchange Law. There should be some positiveeffect on new policy acquisition.

Q) What are the net income forecasts for Sony Life, Sony Assurance and Sony Bank?
A) (SFH) In our Earnings Releases we disclose ordinary profit forecasts for each segment, but
unfortunately we do not disclose net income. In terms of core profit, the trend is “upward.”
Q) For Sony Assurance and Sony Bank, do you expect extraordinary losses and deferred income
taxes to have a major impact on ordinary profit?
A) (Sony Assurance) These are factors, but we do not expect them to have a major impact.
(Sony Bank) Deferred tax assets had an impact on FY2007 results but we do not anticipate any
major impacts in FY2008 and beyond.
Q) I have a question about Sony Life’s policies on investing. Looking at changes in general accountassets, investment in Japanese government bonds and corporate bonds continues to increase as it
has in the past, but from the second half there was a marked tendency to invest in foreignsecurities. Please explain your plans for allocation in other assets in FY2008 and beyond.
A) (Sony Life) With regard to foreign securities, during the yen inflation period in the second half
we bought foreign bonds without any foreign exchange hedge. We responded expeditiously inline with changes in the operating environment and as our number of investment options
increased but in general our core policy of investing in Japanese government bonds andcorporate bonds remains unchanged. Looking back at FY2007, we acquired quite an amount of
10-year bonds during the first half when interest rates were rising. In the second half, wepurchased bonds of longer duration. In general, we are working to increase the overall durationof our holdings.
Q) Looking at the net unrealized gain on foreign securities, you appear to have a net loss. As yen
inflation continued after you had purchased foreign bonds, has the unrealized loss expanded?
A) (Sony Life) Overall, foreign securities include structured and other bonds. These instruments areaffected to some extent by changes in stock prices, but during the yen inflationary period ofFY2007 exchange rate fluctuations were not factors behind unrealized losses.
Q) With regard to Sony Life’s transfer to the reserve for price fluctuations, what was the reason forincreasing this reserve in FY2007, and what are your assumptions for FY2008?
A) (SFH) We maintained a reserve at the upper limit during FY2007. As we mentioned earlier, we
made a larger provision for the foreign bonds we acquired during the period of yen inflation than
we do for domestic bonds. We anticipate no extraordinary factors in FY2008, so will maintainour current levels.

Q) Where did Sony Assurance’s loss ratio on an E/I basis (earned basis) fall this year?
A) (Sony Assurance) In FY2007, the figure for automobile insurance was 64.3%.
End