FY2009 2Q Conference Call for Domestic Institutional Investors and Analysts
Q&A (Executive Summary)

Date:
November 16, 2009, 17:00–18:00
Respondents: Hiromichi Fujikata, Executive Vice President, Representative Director, SonyFinancial Holdings Inc.
Mitsuhiro Koizumi, Director, Sony Life Insurance Co., Ltd.
Toshihiko Fukumoto, Executive Officer, Sony Assurance Inc.
Hidehiko Nakamura, Director, Chief Financial Officer, Sony Bank Inc.
Questioners: Four
Note: The original content has been revised appropriately and edited for ease of understanding.
The session began with “Guidance on the Value of Existing Business, a Component of Sony
Life’s Market Consistent Embedded Value (MCEV).”
Overview
We provide guidance on the value of existing business, a component of MCEV, by using the interest
swap rates as of September 30, 2009, to make calculations on in-force business as of March 31, 2009.
This is because we have received numerous inquiries regarding the interest rate sensitivity of Sony
Life’s MCEV as of March 31, 2009.
We use the interest swap rates as of September 30, 2009, to make calculations on in-force businessas of March 31, 2009 (Note: not in-force business as of September 30, 2009). This calculation shows
an increase of approximately ¥140 billion in the value of existing business, compared with thecalculation based on interest swap rates as of March 31. Please note, however, that this calculation
merely indicates the change in the sum of the present value of certainty-equivalent profit and thetime value of options and guarantees.
The above calculation does not take into account frictional costs and non-hedgeable costs, which areother remaining components of the value of existing business.
We consider adjusted net worth, another remaining component of MCEV, to have increased
approximately ¥20 billion between March 31, 2009, and September 30, 2009, due primarily to a
recent rise in stock prices.
Note: The above calculation does not take into account changes in product mix of in-force businessand in assumptions other than interest swap rates over lapse of time. The validity of this calculation
has not been reviewed by outside specialists.
Q&A
Q1. With regard to the value of existing business, while interest swap rates have increased
since September 30, 2009, the implied volatility (“IV”) of interest swaptions has also
increased. When viewing IV, I would like to confirm whether we should focus on
ultralong-term interest swaption IV (rather than its short-term counterpart as we do inwatching a change in interest rates). Also, as interest rates are increasing, is it possible thatsensitivity to interest swaption IV itself is decreasing compared with as of March 31, 2009?
1A1. (Sony Life)
We consider it possible for an increase in interest swaption IV to have a negative effect on MCEV.
Moreover, we believe that fluctuations in ultralong-term IV have a greater impact. (Sensitivity tointerest swaption IV could also fall as a result of an increase in interest rates.)
Q2. Considering that interest swaption IV increased from September 30, 2009, to the present(considering the effect of the decrease in MCEV), isn’t the amount of increase in the value ofexisting business evaluated at interest rates as of September 30, 2009, equal to ¥140 billion,
overstated comparing with those at the present?
A2. (Sony Life)In general, one would think this should be the case, but I will refrain from commenting in any moredetail.
Q3. Why does Sony Life’s income statement show that the provision for reserve forpolicyholders’ dividends has decreased from ¥1,688 million for the first half of the preceding
fiscal year to ¥224 million? To what extent has this decrease been factored into your financial
forecast for FY2009?
A3. (Sony Life)
The provision decreased because the provision reserved for the first half of FY2009 was based on
the dividend rate for the previous fiscal year. No detailed breakdown of accounting line items isprovided in our financial forecast for FY2009. For the second half, the estimated provision forreserve for policyholders’ dividends references past dividend results. This is reflected in ourfinancial forecast for the current fiscal year, which consequently incorporates a higher amount thanfor the first half.
Q4. What are your current thoughts regarding the need to increase Sony Life’s capital andyour capital policies?
A4. (Sony Life)
Based on our present level of business operations and in the current financial market environment,
we see no need to increase our capital. Given the uncertainty surrounding regulatory changes suchas the change in the method of calculating the solvency margin, and the requirement to use
market-value accounting for liabilities, at the present we have no additional comments regarding
capital policies.
Q5. Previously, I heard that as of March 31, 2009, Sony Life’s required capital on an EU
Solvency II basis was approximately ¥550 billion. Following your acquisition ofultralong-term bonds to lengthen the assets duration during the first half, what is yourcurrent required capital from an internal management standpoint?
A5. (Sony Life)I cannot provide you with figures, as we have not specifically made this calculation at the present,
but I believe our purchases of ultralong-term bonds have caused this figure to decrease.
Q6. I have a question about your capital policies. The adoption of standard method of EU
Solvency II to calculate the solvency capital requirement (SCR), resulted in a negative freesurplus of ¥173.8 billion as of March 31, 2009. I understand that the rise in interest rates
caused your value of existing business to increase approximately ¥140 billion between March
31, 2009, and September 30, 2009, but would it be safe to assume that a substantial amount ofthat negative figure was erased through decreases in the fair value of your liabilities? Also,2

your negative SCR value may not have been erased entirely, and by definition for thecomputation of SCR your default risk is set on a par with companies rated triple B. How isthis consistent with your current Aa3 rating from Moody’s and your A+ rating from S&P?
Have rating companies shown any changes in their rating valuation methods by taking thevalue of liability on an economic value basis into account?
A6. (Sony Life)
We believe that the recent increase in the value of existing business erased a substantial portion of
our negative free surplus. However, I cannot comment further on this, as we have not disclosed
whether the current figure is still negative or whether it has moved to the positive side. Also, in
terms of consistency between ratings and SCR figures, our understanding is that there are still someuncertainties about EU Solvency II itself. Also, at the present there is no debate among rating
agencies about reviewing their rating evaluation methods based on interest rate risk and thevaluation of liabilities on a fair-value basis.
Q7. Looking at a quarter-on-quarter comparison (every three months) of Sony Life’s
annualized premiums from new policies, during the second quarter of FY2009 your annual
rate of increase on these premiums for third-sector products was double that of the firstquarter of FY2009. Also, in the first quarter of FY2009, these premiums were down year onyear for first-sector products but up year on year in the second quarter of FY2009. Do thesefluctuations represent certain changes in the insurance solicitation environment? Also, do you
expect these trends to remain constant from the third quarter of FY2009?
A7. (Sony Life)In general, we recognize our performance during the second quarter of FY2009 as being sounderthan it was in the first quarter. In the field of death protection, our performance was down year on
year in the first quarter of FY2009, but this situation was rectified in the second quarter. Favorable
sales of cancer hospitalization insurance, which went on sale in April 2009, was one reason for oursolid performance in third-sector products.
Regarding the performance from the third quarter of FY2009 and beyond, as long as there areno major upsets in the business environment we expect the recovery trend that began in the second
quarter of FY2009 to continue (owing also to the effects of our customary insurance sales contest
that begins at year-end and our November 2009 new product launch (on family income insurance, adiscount rider for nonsmokers and others in excellent health)).
Q8. Please elaborate on your general account provision of policy reserves for minimum
guarantee on variable annuities.
A8. (Sony Life)
Compared with the same period of the preceding year, in the first half of FY2008 we added ¥4.0billion to this reserve in relation to the minimum guarantee on valuable annuities. In the first half ofFY2009, we reversed ¥0.5 billion out of this reserve, reflecting a ¥4.6 billion year-on-year increasein core profit. (This is shown in Sony Life’s Supplementary Data for the Six Months Ended
September 30, 2009 at Press Conference:
http://www.sonyfh.co.jp/en/financial_info_e/er_e/091116_04.pdf).
Q9. I understand that Sony Life’s solvency margin ratio (SMR) may decrease as a result of
the revised draft on SMR calculation standards announced by the Financial Services Agency
on August 28, 2009. At this stage, approximately how much do you expect the ratio to fall? If
the SMR does decrease, are you considering measures to raise it, or will you take no action?
A9. (Sony Life)
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Because the revised draft on SMR standards will affect our calculation method of solvency margin,
which limits excess portion of the policy reserve to the core margin, we expect our SMR todecrease. However, we are in the process of calculating the specific figures, so I will refrain fromcommenting.
The new standards will affect the SMR of every insurance company differently, depending on
their circumstances, and in general we believe ratios will fall substantially. However, we believethat Sony Life will maintain an SMR that reflects ongoing soundness, so we are not considering
specific measures at the present stage.
Q10. I would like to inquire why Sony Bank has not revised its financial forecast for the full
fiscal year. Uncertainties about the financial market environment during the second half
affect the life and non-life insurance businesses as well as the banking business, so why has
the bank left its full-year forecast unchanged despite its strong performance in the first half?
Is some factor specific to Sony Bank in play? Is the bank experiencing an increase in defaults
on mortgage loans or being affected by more relaxed lending policies by the Financial
Services Agency in Japan?
A10. (Sony Bank)
Looking at net interest income—our core component of income—for the first half of FY2009, thedifference between yields on the financing side (deposits) and on the investment side (loans)—inother words, the interest spread—was slightly worse in the second quarter of FY2009 than in thefirst quarter. Because we are not optimistic about conditions surrounding this interest spread, weleft our full-year forecast unchanged.
Q11. What is your recent status on mortgage loan defaults? How have you been affected by
the relaxation in lending policies? Will you make any changes to your mortgage loan credit
requirements in the second half, compared with the first half? Do you expect your mortgage
loan volume to continue increasing?
A11. (Sony Bank)
As of September 30, 2009, our sub-standard loans based on the Financial Reconstruction Law, wasonly ¥69 million, and this has not increased as a percentage of total lending. We are not planning tochange our overall credit requirements in the second half, but we will continue to take changes inthe credit environment into account when screening individual cases. We will continue to respondflexibly, according to the circumstances.
In terms of acquiring mortgage loans, our stance remains unchanged. We will continue seeking
to aggressively increase our mortgage loan volume.

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