May 28, 2010
Sony Life Insurance Co., Ltd.

Disclosure of Market Consistent Embedded Value as of March 31, 2010
Tokyo, May 28, 2010 – Sony Life Insurance Co., Ltd. (“Sony Life”), a wholly-owned subsidiary of Sony Financial
Holdings Inc., today disclosed its Market Consistent Embedded Value (“MCEV”) as of March 31, 2010, as one of
the indices used to evaluate the corporate value of the life insurance businesses, which is compliant with theEuropean Insurance CFO Forum Market Consistent Embedded Value Principles©1 (“MCEV Principles”).
Sony Life maintains its accounting records and prepares its financial statements in Japanese yen, in accordancewith the Company Law of Japan and the Insurance Business Law of Japan and in conformity with generally
accepted accounting principles and practices in Japan (“Japanese GAAP”). Sony Financial Holdings Inc.’s parent
company, Sony Corporation, reports its financial statements in accordance with generally accepted accounting
principles and practices in the United States. The figures stated below with respect to Sony Life’s financial
statements are based on Japanese GAAP.

Summary
The MCEV of Sony Life as of March 31, 2010 is as follows. New business value indicates the value of new
business acquired during the year ended March 31, 2010.
Value of existing business has largely increased due to a change in the market environment including steepening of
the yield curve of interest swap rates, which contributed to increase MCEV. Also we have been working to reducethe duration mismatch risk between assets and liabilities. As already announced in the press release “Impact ofAsset Management Policy Changes and Other Factors on Sony Life’s Market Consistent Embedded Value” onMarch 15, 2010, time value of options and guarantees which is an item to reduce MCEV, has been largely declined,
which also had a large effect.
(Billions of yen)
As of March 31, 2010 As of March 31, 2009
Change
MCEV
894.0
400.9
493.1
Adjusted net worth
206.2
195.4
10.8
Value of existing business
687.8
205.4
482.4
New business value
55.6
15.4
40.2
For inquiries:
Masaaki Konoo or Hiroko Hanakura
Corporate Communications & Investor Relations Dept.
Sony Financial Holdings Inc.
E-mail: press@sonyfh.co.jp
Telephone: +81-3-5785-1074
Website of Sony Financial Holdings Inc. http://www.sonyfh.co.jp/index_en.html

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Copyright © Stichting CFO Forum Foundation 20081

Table of Contents
1. Introduction .................................................................................................................................................................... 3
1.1 About MCEV.......................................................................................................................................................... 3
1.2 Covered business.................................................................................................................................................... 3
1.3 Statement of directors............................................................................................................................................ 3
1.4 Opinion of outside specialist ................................................................................................................................. 4
1.5 Compliance with MCEV Principles..................................................................................................................... 4
1.6 Definition of MCEV............................................................................................................................................... 4
2. MCEV Results for Sony Life......................................................................................................................................... 6
2.1 MCEV results......................................................................................................................................................... 6
2.2 Adjusted net worth ................................................................................................................................................ 6
2.3 Value of existing business ...................................................................................................................................... 7
2.4 New business value ................................................................................................................................................ 8
2.5 New business margin............................................................................................................................................. 8
2.6 Reconciliation analysis from MCEV at the end of the prior year.................................................................... 9
2.7 Sensitivity analysis ...............................................................................................................................................12
3. Assumptions ............................................................................................................................................... 16
3.1 Economic assumptions ........................................................................................................................................16
3.2 Future asset allocation.........................................................................................................................................21
3.3 Other assumptions ...............................................................................................................................................21
4. Calculation method of MCEV.....................................................................................................................................24
4.1 Covered business..................................................................................................................................................24
4.2 Treatment of subsidiary and affiliate company................................................................................................24
4.3 Treatment of reinsurance....................................................................................................................................24
4.4 Treatment of semi-participating policies...........................................................................................................24
4.5 MCEV ...................................................................................................................................................................24
4.6 Adjusted net worth ..............................................................................................................................................25
4.7 Required capital...................................................................................................................................................25
4.8 Free surplus ..........................................................................................................................................................26
4.9 Value of existing business ....................................................................................................................................26
4.10 Present value of certainty-equivalent profit ...................................................................................................26
4.11 Time value of options and guarantees .............................................................................................................26
4.12 Frictional costs ...................................................................................................................................................27
4.13 Cost of non-hedgeable risks..............................................................................................................................27
4.14 Cost of capital rate.............................................................................................................................................28
5. Opinion of Outside Specialist......................................................................................................................................29
6. Glossary........................................................................................................................................................................31

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1. Introduction
1.1 About MCEV
The primary purpose of this press release is to provide information regarding the economic value of our life
insurance business and movement analysis of its value.
Companies—primarily leading life insurance firms in Europe—have widely disclosed European Embedded Value(“EEV”) since the CFO Forum formed by the Chief Financial Officers (CFO) of major insurance companies in
Europe, published EEV Principles in May 2004. EEV Principles attempt to address criticisms to traditional
embedded value (TEV) (such as the appropriate valuation of costs related to options and various guarantees andimproving comparability with other firms) and facilitate the implementation of market consistent valuation
methods, which led many leading insurance companies in Europe to disclose EEV based on market-consistent
approaches.
However, EEV Principles allow various calculation methodologies, including MCEV. Many insurance companies
in Europe disclose MCEV as part of their financial reports and use it as an internal management tool, so the CFO
Forum published MCEV Principles in June 2008 in order to make EV information effective and appropriate forinvestors by streamlining MCEV disclosure standards for international use. The CFO Forum has revised MCEV
Principles in October 2009 and added issues relating to liquidity premium.
EV disclosure compliant with MCEV Principles is mandatory for life insurance companies participating to the
CFO Forum in Europe starting in the fiscal year ending December 31, 2011. Therefore, we believe disclosurecompliant with MCEV Principles will spread, particularly in Europe.
In step with these developments, Sony Life has disclosed MCEV beginning as of March 31, 2008, in compliancewith MCEV Principles.

1.2 Covered businessOur calculations include the business operated by Sony Life and its subsidiary and affiliate companies. It should be
noted, however, that we have calculated the value of the subsidiary and affiliated companies by adding the following
values to the calculation of adjusted net worth.
•
AEGON Sony Life Insurance Co., Ltd. is valued as net asset value minus intangible fixed assets andInsurance Business Law Article 113 deferred assets, multiplied by the participation rate•
Sony Life Insurance (Philippines) Corporation is valued as book value under Japanese GAAP adjusted for
unrealized gains / losses due to foreign exchange rate movement (after-tax)•
Other companies are valued as book value under Japanese GAAP

1.3 Statement of directors
The Board of Directors of Sony Life confirms that the EV presented here has been produced following themethodology set out in the MCEV Principles. Areas of material noncompliance are stated in section 1.5 .
3

1.4 Opinion of outside specialist
Sony Life requested Milliman, Inc., an external actuarial consulting firm with expert knowledge in the area of
MCEV valuations, to review the methodology, assumptions and calculations and obtained opinion from Milliman,
Inc. Please refer to Section 5 (“Opinion of Outside Specialist”) for details.

1.5 Compliance with MCEV Principles
We have calculated our MCEV in accordance with the calculation methodologies and assumptions in the MCEV
Principles. Points of notice regarding MCEV Principles compliance are as follows.
•
The calculated value of MCEV is the value for Sony Life only, and not the consolidated value of our parent
company, Sony Financial Holdings Inc.
•
Group MCEV, as prescribed in the MCEV Principles, is not considered in this report, as the report is forSony Life on a standalone basis.
•
With respect to Sony Life’s subsidiary and its equity method affiliates, we have not evaluated their life
insurance business but reflected the following values to the calculation of adjusted net worth. Values ofsubsidiary and affiliated companies were not changed in sensitivity tests.
¾ AEGON Sony Life Insurance Co., Ltd. is valued as net asset value minus intangible fixed assets andInsurance Business Law Article 113 deferred assets, multiplied by the participation rate
¾ Sony Life Insurance (Philippines) Corporation is valued as book value under Japanese GAAP adjusted
for unrealized gains / losses due to foreign exchange rate movement (after-tax)¾ Other companies are valued as book value under Japanese GAAP•Any calculated values of MCEV are not presented separately by segment of subsidiary and affiliatedcompany.
•
We have calculated adjusted net worth based on Japanese GAAP, not on International Financial ReportingStandards (IFRS).
While Japanese solvency regime will be revised at the end of March 2012, the calculation is based on•
the current solvency margin regime, because it is expected that MCEV would not be materiallydifferent even if required capital were set to the revised regulatory minimum solvency capital from theend of March 2012. Accordingly, sensitivity to use the current regulatory minimum solvency capital is
not presented.

1.6 Definition of MCEVMCEV Principles define MCEV as follows.
MCEV represents the present value of the current and future distributable earnings to shareholders generated fromassets allocated to the covered business after sufficient allowance for the aggregate risks in the covered business.
MCEV can be expressed as the EV evaluated in a method consistent with the calculation of prices of financial
products traded in the financial markets.
MCEV consists of adjusted net worth and the value of existing business.

4

Adjusted net worth is the amount of assets allocated for the covered business as of the valuation date and calculated
as the amount of its market value in excess of statutory policy reserve and other liabilities. Adjusted net worth canbe split to required capital and free surplus.
The value of existing business consists of the present value of certainty-equivalent profit, time value of options andguarantees, frictional costs, and the cost of non-hedgeable risks.
•The present value of certainty-equivalent profit is the present value of profit based on future cash flows
generated from the covered business.
•
Time value of options and guarantees is the stochastic valuation of the time value of options and guarantees
inherent in insurance contracts based on risk-neutral scenarios.
•
Frictional costs are the present value of investment costs and taxes on assets backing the required capital ateach point of time in the future.
•
Cost of non-hedgeable risks means the present value of costs necessary to maintain capital related to
non-hedgeable risks in the future.
These four items are all on an after-tax basis.
Please refer to Section 4 for more detailed definitions of terms.

52. MCEV Results for Sony Life
2.1 MCEV results
MCEV of Sony Life as of March 31, 2010 is shown in the table below.
Value of existing business has largely increased due to the change in the market environment including steepeningof the yield curve of interest swap rates, which contributed to increase MCEV. Also we have been working to
reduce the duration mismatch risk between assets and liabilities. As already announced in the press release “Impactof Asset Management Policy Changes and Other Factors on Sony Life’s Market Consistent Embedded Value” onMarch 15, 2010, time value of options and guarantees which is an item to reduce MCEV, has been largely declined,
which also had a large effect.

MCEV
Adjusted net worth
Value of existing businessNew business value

As of March 31,
2010
894.0
206.2
687.8
55.6

As of March 31,
2009
400.9
195.4
205.4
15.4

(Billions of yen)
Change
493.1
10.8
482.4
40.2

2.2 Adjusted net worth
Adjusted net worth is calculated as the market value of assets allocated for the covered business in excess ofstatutory policy reserve and other liabilities as of the valuation date. It is the total amount of the net assets line on
the balance sheets, adding a reserve for price fluctuations, contingency reserves, reserve for possible loan losses,
along with unrealized gains or losses on held-to-maturity securities and unrealized gains or losses on land andbuildings, deducting unfunded pension liabilities and intangible fixed assets, and adjusting for the amount of tax
effect equivalent to these seven items, on which valuation gains or losses on subsidiaries and affiliated companies
are added (see below). Here, foreign exchange rate applied in calculating the valuation gains or losses by theforeign exchange rate on Sony Life Insurance (Philippines) Corporation is ¥2.0/peso at the end of March 2010.
We have also reflected tax effect equivalent in calculating the valuation gains or losses by the foreign exchange
rate.

6

Adjusted net worth
Total net assets
Reserve for price fluctuations
Contingency reserves
Reserve for possible loan losses
Unrealized gains or losses onheld-to-maturity securities
Unrealized gains or losses on land and buildings
Unfunded pension liabilities
Intangible fixed assets
Tax effect equivalent of above seven items
Valuation gain or loss on subsidiaries and affilia
ted companies

As of March 31,
2010
206.2
191.3
9.6
48.5
0.0
(20.5)
12.5(6.6)(13.9)(10.7)(4.0)

As of March 31,
2010
206.2
206.2
－

Adjusted net worth
Free surplus
Required capital(Billions of yen)
As of March 31,
Change
2009
195.4
10.8
140.7
50.6
3.7
6.0
45.5
3.0
0.0
0.0
26.7
(47.2)
28.9(6.8)(12.2)(31.1)－(16.4)
0.1
(1.7)
20.3
(4.0)

(Billions of Yen)
As of March 31,
Change
2009
195.4
10.8
(173.8)380.0
369.2(369.2)We set our required capital as the larger of the amount of capital required for the current solvency margin ratio of600% and the amount of capital to cover risks based on an internal model based on economic value. Please referto section 4.7 for the method used to calculate required capital. While Japanese solvency regime will be revisedat the end of March 2012, the calculation is based on the current solvency margin regime, because it is expectedthat MCEV would not be materially different even if required capital were set to the revised regulatory minimum
solvency capital from the end of March 2012.

2.3 Value of existing business
The value of existing business is the present value of certainty-equivalent profit deducting the time value of options
and guarantees, and frictional costs and the cost of non-hedgeable risks, broken down as follows.
(Billions of yen)
As of March 31, As of March 31,
Change2010
2009
Value of existing business
687.8
205.4
482.4
Present value of certainty-equivalent profit
887.2
673.1
214.0
Time value of options and guarantees(37.7)(228.7)
191.1
Frictional costs(11.5)(58.5)
47.0
Cost of non-hedgeable risks(150.2)(180.5)30.3

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2.4 New business value
Business included in the calculation of new business value is only that acquired during the year ended March 31,
2010, which is consistent with the financial information we have disclosed, and does not include the value of new
business expected to be acquired in the future. The value of new business is the value as of March 31, 2010 and is
calculated based on the same assumptions used for the value of existing business on the same date. As the value of
new business includes profits and losses from the point of sale to the end of March 2010, actual investment gains
and losses during the year ended March 31, 2010 are reflected. A breakdown of the value of new business is asfollows.

Value of new business
Present value of certainty-equivalent profit
Time value of options and guarantees
Frictional costs
Cost of non-hedgeable risks

As of March 31,
2010
55.6
76.9
(4.1)
(0.3)
(16.8)

As of March 31,
2009
15.4
62.8
(28.1)(1.7)(17.7)(Billions of yen)
Change
40.2
14.1
23.9
1.3
0.9

2.5 New business margin
The new business margin described below is the ratio of the value of new business to the present value of premiumincome. The present value of premium income is calculated applying the same assumptions as those for the
calculation of new business value, and is based on the premium before the deduction of the reinsurance premium.
New business margin has largely increased due to the same reasons for the increase in value of existing business.
The primary reasons are the change in the market environment including steepening of the yield curve of interest
swap rates and decrease in time value of options and guarantees as a result of asset management policy changes toreduce the duration mismatch risk between assets and liabilities.

Value of new business
Present value of premium income

As of March 31,
2010
55.6
875.4

As of March 31,
2009
15.4
866.9

6.4%

1.8%

Value of new business / Present value ofpremium income(Billions of yen)
Change40.2
8.5
4.6 points

Relationships between the acquired annualized premiums from new policies and the present value of premiumincome from new business for the year ended March 31, 2010 are as follows.

8

Single premium from new businessAnnualized premiums from level premium
new business2

As of March 31,
2010
44.9
83.2

As of March 31,
2009
35.3
75.4

9.99

11.03

Average annualization multiplier3(Billions of yen)
Change9.6
7.8(1.04)

2.6 Reconciliation analysis from MCEV at the end of the prior year
The table below shows the reconciliation analysis of MCEV as of March 31, 2010, from MCEV as of March 31,
2009, of which format is in line with the one prescribed by MCEV Principles.

Free
surplus

Requiredcapital(Billions of yen)
Value of
MCEV
existing
business

Opening MCEV (MCEV as of March 31, 2009)
Opening adjustments
Adjusted opening MCEVNew business value
Expected existing business contribution (risk-free rate)
Expected existing business contribution (in excess of risk
free rate)
Transfers from value of existing business and required
capital to free surplus
on new business
Experience variances
Assumption changes
Other operating variance
Operating MCEV earnings
Economic variances
Other non operating varianceTotal MCEV earnings
Closing adjustments(173.8)(7.0)(180.8)
－
(1.5)

369.2
－
369.2
－
2.9

205.4
－
205.4
55.6
17.0

400.9
(7.0)
393.9
55.6
18.4

(1.0)

1.9

10.5

11.5

36.0
(31.3)
0.0
22.5
245.7
301.7
85.4
－
387.1
(0.2)

(23.3)－－(22.5)(245.7)(286.6)(82.6)－(369.2)－(12.7)
31.3(1.1)(26.4)
215.3
258.2
224.1
－
482.4
－

(1.0)
(26.4)
215.3
273.3
227.0
－
500.3
(0.2)

Closing MCEV (MCEV as of March 31, 2010)

206.2

－

687.8

894.0

2

－

－

Annualized premiums from level premium new business is calculated by multiplying the number of payments in a year by theamount of premiums received at a time. It should be noted that the definition of annualized premiums here is different from that usedin disclosure such as financial results and annual reports.
3
The average annualization multiplier is calculated as (Present value of premium income – Single premium from new business) /Annualized premiums from level premium new business.

9(1) Opening adjustments
These adjustments reflect changes in dividends paid to shareholders.
(2) New business value
This figure reflects increases resulting from the acquisition of new business during the year ended March 31, 2010.
Please refer to section 2.4 for information concerning the calculation method.
(3) Expected existing business contribution (risk-free rate)
This figure includes the release of the portion for the year ended March 31, 2010, of the time value of options andguarantees and the cost of non-hedgeable risks, in addition to the release of the expected existing business
contributions at a risk-free rate from the opening MCEV (as of March 31, 2009).
(4) Expected existing business contribution (in excess of risk-free rate)
This figure reflects the profit expected in excess of the risk-free rate generated by holding assets such as ordinary
corporate bonds, convertible bonds, loans, stocks and real estate. The expected yield used to calculate the expected
existing business contribution in excess of the risk-free rate for the year ended March 31, 2010, was 1.245%, which
was developed by reflecting our view of the market environment and annual investment plans for the year against
the asset balance at the end of the previous fiscal year.
(5) Transfer from value of existing business and required capital to free surplus
This figure indicates changes in the free surplus by transferring the profit for the year ended March 31, 2010, fromthe existing business value to the free surplus and from changes in the required capital. The transfer of profit, thefirst item, includes the transfer of expected profit that it was assumed would be realized during the year ended
March 31, 2010, under the MCEV calculation as of March 31, 2009, and the transfer of profit for the year ended
March 31, 2010, calculated under the new business value for the year ended March 31, 2010, which is added in (2)above.
The value of MCEV itself does not change as a result of this transfer as the transfer merely constitutes an internal
shift among MCEV components.
(6) Experience variances
These variances show the impact on MCEV of the actual versus assumed differences in non-economic expected
profit for the year ended March 31, 2010, under the MCEV calculation as of March 31, 2009, and of thedifferences between actual policies in force as of March 31, 2010, and those that were projected to be in force on
March 31, 2009, using persistency assumptions. The primary causes are changes in unfunded pension liabilities
and intangible fixed assets reflected in adjusted net worth.
These variances reflect the impact of one-time expenses incurred during the year ended March 31, 2010, if
applicable. Please refer to section 3.3 (5) for information on one-time expenses.

10(7) Assumption changes
This figure indicates the impact of changes in the assumptions, mainly on mortality and morbidity rates, lapse andsurrender rates and operating expense rates.
In addition to the impact of regular annual update of the assumptions, the figure also includes impact of update ofmortality and other rates of accidental and health (A&H) products as announced by press release “Impact of AssetManagement Policy Changes and Other Factors on Sony Life’s Market Consistent Embedded Value” on March 15,
2010. It is to change mortality rates for A&H products from those based on the company’s own experience of life
insurance products to those based on the company’s own experience of A&H products. It also includes to reflectmorbidity deterioration trend to those products for which such trends are observed.
(8) Other operating varianceIn addition to the impact of improvements and corrections of the model used in calculating MCEV, the figure also
includes impact of the following two changes as announced by press release “Impact of Asset Management Policy
Changes and Other Factors on Sony Life’s Market Consistent Embedded Value” on March 15, 2010, which
resulted in an increase of ¥225.3 billion in MCEV.
Change to interest rate sensitive whole life insuranceSony Life has decided no investments will be made in stocks or other risk assets, but only in bonds, aiming at
a stable asset management regarding this product.
Change to semi-participating products
Sony Life has decided it will invest in no stocks or other risk assets, and rather, it will aim to achieve stableasset management by investing only in bonds. In accordance with this change, Sony Life changed its
calculation method of dividends to policyholders from its method of adding gains/losses on sale of securities
to interest income and dividends as dividend resources, to a method of providing dividends based on interest
income, which is unaffected by fluctuations in asset market value.
Sony Life has been selling interest rate sensitive whole life insurance, which generates increased benefit in linewith asset investment performance, and semi-participating products, which pays a fair share of dividends from theasset investment gains in excess of the assumed interest rate. With regard to these products Sony Life had mainly
conducted bond-based asset management, but part of its assets had also been invested in risk assets, including
stocks. Meanwhile, Sony Life has recognized it necessary to mitigate the mismatch risk from the asset–liability
duration gap for ensuring financial health in its practice of risk management on an economic value basis.
Accordingly, Sony Life has increased its investment ratio of ultralong-term bonds and drastically reduced its
holding ratio of stocks and other risk assets in an attempt to revise its asset portfolio. As a result, investment
income primarily consists of interest income from bonds, and the volatility risk on the rate of return on the held
assets has been mitigated by the reduction in risk assets. Regarding the above two products, Sony Life has regarded
it necessary to mitigate the mismatch risk from the asset–liability duration gap for ensuring financial health. Sony
Life also believes that continued investment in long-term bonds contributes to providing policyholders with stable
returns over the long-term. Sony Life believes these revisions help to reduce interest rate risks and allow morestable return (through increased benefit and interest dividends in every 5 years) to policyholders in the long run
than before.
(9) Operating MCEV earnings
This figure shows the aggregate amount of items (2) through (8).
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(10) Economic variances
These variances show the impact of actual to assumed differences in economic assumptions, such as market
interest rates and implied volatilities, that were reflected in the market environment when calculating MCEV as ofMarch 31, 2009, on future values and the impact of the actual to assumed difference in expected asset investment
income that were assumed would be realized during the year ended March 31, 2010, under MCEV as of March 31, 2009.
Most of the difference is created by the former factor, of which major reasons for increases in the value of existing
business include update of economic scenarios due to the change in the market environment such as steepening of
the yield curve of interest swap rates and a change of the implied volatilities, accounting for an increase in thepresent value of certainty-equivalent profit by ¥182.0 billion, as well as decreases in the time value of options andguarantees, in the cost of non-hedgeable risks, and in the frictional costs by ¥3.8 billion, ¥23.3 billion and ¥17.5
billion, respectively.
(11) Other non operating variance
There are no differences based on other factors.
(12) Closing adjustments
It reflects the impact of valuation gains or losses by the foreign exchange rate on Sony Life Insurance (Philippines)
Corporation.
2.7 Sensitivity analysis
The impact of changing the underlying assumptions of MCEV is as follows.
Sensitivities(Billions of yen)
Assumption
BaseInterest rates
Stock / Real estate market
value
Stock / Real estate implied
volatility
Interest swaption
Implied volatility
Maintenance expenses
Lapse and surrender rates
Mortality rates
Morbidity rates

894.0
782.9
918.5

Change inAmount－(111.1)
24.5

878.2

(15.8)

(2%)

890.0

(4.1)

(0%)

25% increase

888.5

(5.5)

(1%)

10% decrease
x 0.9
Death protection products
x 0.95
Third-sector and annuity
products x 0.95
x 0.95

904.8
919.9

10.8
25.8

1%
3%

925.4

31.3

4%

890.9

(3.1)

(0%)

920.5

26.5

3%

Change in Assumption
No change
100bp decrease
100bp increase
10% decrease
25% increase

12

MCEV

Rate of Change
－
(12%)
3%

Changes in adjusted net worth within the amount of change in MCEV are shown in the table below. Of items not
specified in this table, only the value of existing business has been changed while adjusted net worth remains thesame.

Interest rates

100bp decrease
100bp increase(Billions of yen)
391.0
(326.3)

Stock / Real estate market value

10% decrease(13.3)

Stock / Real estate implied volatility

25% increase

(0.1)

13

Sensitivity of new business value(Billions of yen)
Assumption
BaseInterest rates
Stock / Real estate market value
Stock / Real estate implied
volatility
Interest swaption
Implied volatility
Maintenance expenses
Lapse and surrender rates
Mortality rates
Morbidity rates

New Business
Value
55.6
25.8
70.1

Change inAmount－(29.8)
14.5

55.6

(0.0)

(0%)

55.4

(0.2)

(0%)

25% increase

54.3

(1.3)

(2%)

10% decrease
x 0.9
Death protection products
x 0.95
Third sector and annuity
products x 0.95
x 0.95

56.8
60.4

1.2
4.8

2%
9%

57.9

2.3

4%

55.4

(0.2)

(0%)

58.4

2.8

5%

Change in Assumption
No change
100bp decrease
100bp increase
10% decrease
25% increase

Rate of Change
－
(54%)
26%

(1) Interest rates
This sensitivity represents the impact of an immediate parallel shift of the swap curve as of March 31, 2010.
Adjusted net worth would change as the market value of bonds and other assets held were to change. At thesame time, the value of existing business would also change as interest rates, the discount rate, yields of new
bonds to be purchased in the future as the existing bonds mature, and the investment return on stocks, realestate, and other assets were to change. Here, the sensitivity scenarios were made so that the parameters related
to interest rate volatility were equal to those derived for the base case. Only the parameters related to theinterest rate term structure were altered when scenarios were developed using the interest rate model. The floor
in downward changes in interest rates was set at 0%.
(2) Stock and real estate market value
This sensitivity represents the impact of immediate changes in market values of stock and real estate as ofMarch 31, 2010. Adjusted net worth would change as the market value of stock and real estate were to change.
At the same time, the value of existing business would change as the amount of asset changed. Here, we haveexcluded ¥15.8 billion of stocks of subsidiaries and affiliated companies recorded on the balance sheet fromthe scope of this sensitivity.
(3) Implied volatility of stock and real estateThis sensitivity represents the impact of an increase in the implied volatilities of stock and real estate used in
calculating the time value of options and guarantees. The value of convertible bonds and others would alsochange. If stock implied volatilities were changed, the value of convertible bonds and others would change andthus adjusted net worth would change. At the same time, the value of existing business would also change as
the time value of options and guarantees was affected.

14

(4) Interest swaption implied volatility
This sensitivity represents the impact of an increase in the implied volatility of interest swaption used in
calculating the time value of options and guarantees. The value of existing business would change as the timevalue of options and guarantees were changed.
(5) Maintenance expenses
This sensitivity represents the impact of a decrease in maintenance expenses. It should be noted thatmaintenance expenses do not include sales commissions from the in-force policies payable to Sony Life’s
Lifeplanner sales employees in future periods.
(6) Lapse and surrender rates
This sensitivity represents the impact of a decrease in lapse and surrender rates.
(7) Mortality rates
This sensitivity represents the impact of a decrease in the mortality rates. We have shown the impact on death
protection products and the impact on third-sector insurance and annuity products separately, as they would
have different impacts. We have covered base policies and riders of which the principal benefits are accidental
death, disability, cancer, medical and nursing benefits, and individual annuities with respect to the third-sector
insurance and annuity product segment. No management actions were reflected.
(8) Morbidity rates
This sensitivity represents the impact of a decrease in the morbidity rates of sickness and others in third-sector
products.
(9) Required capital
While Japanese solvency regime will be revised at the end of March 2012, the calculation is based on thecurrent solvency margin regime, because it is expected that MCEV would not be materially different even if
required capital were set to the revised regulatory minimum solvency capital from the end of March 2012.
Accordingly, sensitivity to use the current regulatory minimum solvency capital is not presented.
(10) Other
The following points should be noted regarding sensitivity.
・ Frictional costs and the cost of non-hedgeable risks do not change in the sensitivity tests.
・ Values of a subsidiary and an affiliated company are not changed.
・ The impact of changing more than one assumption at a time is not congruent with the sum of impacts foreach assumption.

15

3. Assumptions
3.1 Economic assumptions
We have made economic assumptions in our calculation of MCEV as of March 31, 2010.
(1) Risk-free rate
We have used the interest swap rate of Japanese yen as of March 31, 2010 as a risk-free rate for the certainty
equivalent projections. As there are no data available beyond 50 years, we assumed that forward rates in the
51st year and beyond were equal to those in the 50th year. We have used Bloomberg’s interest swap rate as ourdata source. The spot yields of the swap rate for key terms are as follows:Term
1 year
5 year10 year
20 year
30 year
40 year
50 year

As of March 31, 2010
0.45%
0.76%
1.46%
2.19%
2.32%
2.37%
2.42%

As of March 31, 2009
0.75％
0.97%
1.31%
1.79%
1.88%
1.89%
1.92%

We have not added liquidity premium on the risk free rate, as there are no products which are consideredappropriate to apply liquidity premium as they have reasonably predictable cash flow and are considered
illiquid.
(2) Interest-rate model
We have calibrated the interest rate model to the market as of March 31, 2010. We have estimated parameters
for the interest rate model from the yield curve and the implied volatilities of interest swaptions with different
terms. We have used 1,000 scenarios generated by Milliman, Inc. in calculating the time value of options andguarantees under the stochastic method, where interest rate is floored at 0%.
The implied volatilities of the interest swaption used in our estimation are as follows.

16

As of March 31, 2010
Term of swap
(in years)
1
5
5
5
5
5
5
10
10
10
10
10
10
15
15
15
15
15
15
20
20
20
20
20
20
As of March 31, 2009
Term of swap
(in years)
1
5
5
5
5
10
10
10
10
15
15
15
15

Term of option(in years)
1
1
5
7
10
15
20
1
5
7
10
15
20
1
5
7
10
15
20
1
5
7
10
15
20

Japanese
yen
40.3%
41.8%
27.1%
23.4%
20.9%
20.5%
22.5%
30.3%
23.6%
21.4%
20.4%
21.1%
22.5%
25.2%
22.2%
21.4%
21.0%
21.7%
22.5%
23.7%
22.3%
21.5%
21.5%
22.0%
22.4%

U.S. dollarEuro

UK pound

60.8%
31.4%
21.0%
19.0%
16.6%
14.8%
13.5%
24.8%
19.2%
17.8%
16.0%
14.2%
12.7%
22.3%
17.7%
16.4%
14.7%
12.9%
11.7%
20.5%
17.0%
15.8%
14.0%
12.6%
11.5%

50.5%
25.3%
16.4%
14.6%
13.6%
13.8%
16.1%
19.8%
15.9%
14.9%
14.4%
15.2%
17.5%
18.5%
15.6%
14.9%
14.7%
15.6%
17.7%
18.4%
16.0%
15.5%
15.2%
15.9%
17.7%

53.0%
23.3%
14.9%
13.1%
11.6%
12.0%
12.9%
17.2%
13.5%
12.5%
11.7%
12.1%
12.8%
15.8%
13.5%
12.6%
11.8%
12.1%
12.5%
15.2%
13.6%
12.6%
11.8%
11.8%
12.0%

Term of option(in years)
1
1
5
7
10
1
5
7
10
1
5
7
10

Japanese
yen
38.4%
42.2%
29.7%
25.1%
22.0%
35.4%
25.2%
22.3%
20.0%
31.3%
23.0%
21.3%
20.2%

U.S. dollarEuro

UK pound

54.5%
40.3%
27.6%
24.8%
22.1%
35.7%
25.7%
23.8%
22.1%
33.7%
24.5%
23.5%
21.4%

34.5%
27.6%
17.5%
16.0%
14.5%
27.0%
17.5%
15.9%
15.3%
25.4%
17.7%
16.7%
16.6%

42.5%
30.1%
15.8%
13.2%
11.0%
26.8%
14.7%
12.9%
11.8%
25.1%
14.8%
13.2%
12.1%

17

(3) Implied volatility of foreign exchange rates and equity
We have obtained spot implied volatilities from options with different terms. Implied volatilities are all those
for at-the-money options. Bloomberg is the source of data for foreign exchange and averages of the implied
volatilities provided by securities firms for the stock price index.
We have assumed that forward implied volatilities in the 11th year and beyond are equal to those in the 10th year
for both foreign exchange rates and the stock price index as these derivatives have low liquidities for the period
over 10 years.
In the calculation of MCEV as of March 31, 2010, we used forward implied volatility of 7-year term for the
8-year term and thereafter, as there was no credible data available beyond 7-year term regarding the foreignexchange rate of UK pound and Japanese yen. Here, in the calculation of MCEV as of March 31, 2009, we set
forward implied volatility in the 6th year and beyond are equal to the one in the 5th year as there was no
credible data available beyond 5 year term.
Implied volatilities used for the estimation are as follows:
As of March 31, 2010
Term(inyears)
1510Foreign Exchange
U.S.
Euro/
UK
dollar/Japanesepound/
JapaneseyenJapanese
yen
yen
13.0%
14.4%
16.3%
14.7%
17.7%
18.9%
18.0%
20.2%
20.3%4

Stocks
Japan
TOPIX

U.S.
S&P

Euro
SX5E

UK
FTSE

18.5%
20.5%
22.2%

19.4%
22.1%
28.4%

21.4%
23.5%
26.3%

18.6%
21.7%
25.0%

As of March 31, 2009
Foreign Exchange
Term
U.S. dollar/Euro/
UK pound/Japanese yen Japanese yen Japanese yen
1
14.2%
20.6%
24.0%
5
11.5%
20.6%
23.3%
10
13.3%
22.0%
―

Japan
TOPIX
34.0%
31.6%
31.5%

Stocks
U.S.
Euro
S&P
SX5E
37.0%
36.4%
34.8%
34.3%
34.7%
34.1%

UK
FTSE
33.2%
33.1%
33.9%

(4) Correlation factor
We have calculated correlation factors from the monthly return of each index for a period of five years from
April 2005 and to the end of March 2010 as there is no market-consistent data for correlation factors.

4

Value for the 7-year is presented in the column of 10-year for the implied volatility of UK pond/Japanese yen.

18

As of March 31, 2010
Japanese

U.S.

Euro

UK

U.S.

Euro /

UK

TOPIX

S&P

SX5E

FTSE

yen

dollarInterestpound

dollar /Japanesepound /

Interest

Interest

rate 1YInterest

JapaneseyenJapanese

rate 1Yrate 1Yrate 1Y

yen

1.00

0.48

0.45

0.39

0.36

0.34

0.41

0.20

(0.17)(0.02)(0.16)

0.48

1.00

0.69

0.61

0.38

0.22

0.41

0.48

0.14

0.37

0.16

0.45

0.69

1.00

0.85

0.46

0.46

0.55

0.43

0.06

0.28

0.04

0.39

0.61

0.85

1.00

0.34

0.34

0.46

0.37

0.09

0.22

0.07

0.36

0.38

0.46

0.34

1.00

0.74

0.91

0.34

(0.61)(0.10)(0.47)

0.34

0.22

0.46

0.34

0.74

1.00

0.84

0.28

(0.44)(0.18)(0.44)

0.41

0.41

0.55

0.46

0.91

0.84

1.00

0.34

(0.54)(0.13)(0.51)

0.20(0.17)(0.02)(0.16)

0.48
0.14
0.37
0.16

0.43
0.06
0.28
0.04

0.37
0.09
0.22
0.07

0.34
(0.61)(0.10)(0.47)

0.28(0.44)(0.18)(0.44)

0.34(0.54)(0.13)(0.51)

1.00
0.41
0.75
0.53

0.41
1.00
0.79
0.92

0.75
0.79
1.00
0.88

0.53
0.92
0.88
1.00

yen

JapaneseyenInterest
rate 1Y
U.S.
dollarInterest
rate 1Y
Euro
Interest
rate 1YUK
pound
Interest
rate 1Y
U.S.
dollar /JapaneseyenEuro /
JapaneseyenUKpound /
Japanese
yen

TOPIX
S&P
SX5E
FTSE

19

As of March 31, 2009
Japanese

U.S.

Euro

UK

U.S.

Euro /

UK

TOPIX

S&P

SX5E

FTSE

yen

dollarInterestpound

dollar /Japanesepound /

Interest

Interest

rate 1YInterest

JapaneseyenJapanese

rate 1Yrate 1Yrate 1Y

yen

1.00

0.42

0.44

0.39

0.13

0.19

0.31

0.23

0.20

0.21

0.14

0.42

1.00

0.68

0.60

0.59

0.32

0.60

0.44

0.35

0.48

0.35

0.44

0.68

1.00

0.86

0.48

0.50

0.64

0.47

0.53

0.51

0.42

0.39

0.60

0.86

1.00

0.47

0.48

0.74

0.38

0.40

0.33

0.23

0.13

0.59

0.48

0.47

1.00

0.56

0.72

0.50

0.27

0.35

0.33

0.19

0.32

0.50

0.48

0.56

1.00

0.75

0.66

0.61

0.50

0.52

0.31

0.60

0.64

0.74

0.72

0.75

1.00

0.56

0.46

0.41

0.33

TOPIX

0.23

0.44

0.47

0.38

0.50

0.66

0.56

1.00

0.74

0.79

0.79

S&P

0.20

0.35

0.53

0.40

0.27

0.61

0.46

0.74

1.00

0.91

0.83

SX5E

0.21

0.48

0.51

0.33

0.35

0.50

0.41

0.79

0.91

1.00

0.90

FTSE

0.14

0.35

0.42

0.23

0.33

0.52

0.33

0.79

0.83

0.90

1.00

yen

JapaneseyenInterest
rate 1Y
U.S. dollar
Interest
rate 1Y
Euro
Interest
rate 1Y
UK poundInterest
rate 1Y
U.S. dollar/ JapaneseyenEuro /
Japaneseyen
UK pound/ Japaneseyen

20

(5) Foreign exchange
Assets denominated in foreign currencies are converted to Japanese yen using the TTM (telegraphic transfer
middle exchange rate) as of March 31, 2010. For the calculation of valuation gain / loss on Sony Life
Insurance (Philippines) Corporation caused by the foreign exchange rate, conversion rate at the end of theperiod applied in developing the consolidated financial statements is used.
Table below shows foreign exchange rates of major currencies. As valuation gain/loss on Sony Life Insurance(Philippines) Corporation caused by the foreign exchange rate was not reflected for the March 2009 calculation,
conversion rate at acquisition is presented.

U.S. dollar / Yen
Euro / Yen
UK pound / Yen
Philippine peso / Yen

As ofMarch 31, 2010
¥93.04¥124.92¥140.40
¥2.00

As of
March, 31 2009¥98.23¥129.84¥140.45¥2.17

3.2 Future asset allocation(1) Asset allocation in the general accountSegment accounting is conducted for individual life insurance and individual annuity with the classifications of
non-participating product segment, semi-participating product segment and interest rate-sensitive whole life
insurance segment. Asset allocation in the general account under the stochastic method was determined basedon the actual asset allocation in each segment as of March 31, 2010 with an assumption of no changes in asset
allocation thereafter.
(2) Asset allocation in the separate account
There are eight funds established in the separate account. The asset allocation for each fund at the beginning of
the projection is determined based on the actual fund allocation as of March 31, 2010 and no rebalancing
adjustments are applied to maintain the initial fund allocation thereafter.

3.3 Other assumptions
Assumptions including mortality and morbidity rates, lapse and surrender rates, and operating expense rates, weredeveloped based on product best estimates as of March 31, 2010. Best-estimate assumptions are developed toreflect past and current experiences as well as expected experiences in the future. Expected future changes inassumptions should be reflected only when they are supported by sufficient reasons. Except that deteriorating trend
in morbidity rates, no other expected future changes are assumed in the best estimate assumptions applied.
Assumptions were developed as follows.
(1) Mortality and morbidity rates
Developed based on experiences over the three most recent years. Deteriorating trends in morbidity rates aretaken into account for those A&H products to which deteriorating trends were observed when the experience
data were analyzed in conducting the statutory stress test.
21

(2) Lapse and surrender rates
Lapse and surrender rates for the base case were developed based on experiences over the three most recent
years. We have also developed dynamic assumptions in accordance with the level of interest rate or investment
performance. The dynamic assumptions are made for the following products:
・ Variable life insurance
・ Semi-participating products
・ Non-participating whole life insurance
・ Non-participating endowment insurance
Since we have not identified explicit correlations between interest rates or account values to the amount ofminimum guarantee and the lapse and surrender rates regarding products other than variable insurance, we havedeveloped dynamic surrender rates by referring to the experience with similar products and domestic andoverseas trends of practice. Going forward, we will strive to improve dynamic surrender rates for the relevant
products by carefully monitoring experiential data and referring to experience with similar products and trends
of practice in Japan and other countries.
(3) Flexible premiums
There are no flexible premium products and thus no assumptions were developed.
(4) Renewal rates
Because there is very little renewable business and it does not have a significant impact on results, policy
renewal was reflected in a simplified manner.
(5) Operating expense rates
We have developed unit costs of the expenses incurred for maintenance and administration of policies andpayments of claims based on the actual operating expenses in the most recent year.
Sony Life Insurance (Philippines) Corporation, a subsidiary, is evaluated as its equity converted into yen
amount and its profits and losses are not reflected as life insurance business. So, we have not reflectedadministration expenses incurred at Sony Life regarding management of the relevant subsidiary to the unit
costs.
While AEGON Sony Life Insurance Co., Ltd., an affiliated company, is not evaluated as the life insurance
business, it is not just valued at its book value but valued as net asset value minus intangible fixed assets andInsurance Business Law Article 113 deferred assets, multiplied by the participation rate. So, administration
expenses incurred at Sony Life regarding management of this company is reflected to the unit costs.
Administration expenses of other subsidiaries and affiliated companies are not excluded from the unit costs astheir impact is limited. Look-through effect of the relationship with subsidiaries and affiliated companies is
not considered except for the points described above.
There are no one-time expenses which were incurred during the year ended March 31, 2010 and excluded fromthe unit cost.
Expenses that were not reflected in unit costs accounted for less than 1% of total operating expenses.

22Unit costs include management administration charges payable to the parent company, Sony Financial
Holdings Inc. The look-through effect has not been considered with regards to relationship with Sony Financial
Holdings Inc. except for the point described above.
(6) Tax rate
Based on the most recent effective tax rate.
(7) Inflation
Set inflation to 0% reflecting the break-even inflation rate derived from 10-year Consumer Price Index(CPI)-indexed Japanese government bonds.

23

4. Calculation method of MCEV
4.1 Covered business
The covered business is the business operated by Sony Life, its subsidiary and its affiliate company.

4.2 Treatment of subsidiary and affiliate company
Our calculations include the following values regarding subsidiaries and affiliated companies to the calculation ofadjusted net worth.
•
AEGON Sony Life Insurance Co., Ltd. is valued as net asset value minus intangible fixed assets andInsurance Business Law Article 113 deferred assets, multiplied by the participation rate, which is ¥6.1
billion.
•Sony Life Insurance (Philippines) Corporation is valued as book value under Japanese GAAP adjusted for
unrealized gains / losses due to foreign exchange rate movement (after-tax), which is ¥2.8 billion.
•
Other companies are valued as book value under Japanese GAAP, which is ¥2.8 billion.
There are no other values reflected in the values of subsidiaries and affiliated companies except for the above, andall other results solely reflect Sony Life itself (on a non-consolidated basis).

4.3 Treatment of reinsurance
We have designated reinsurance premiums as expenses and reinsurance benefits as income in our projections, as
we have ceded as reinsurance, the mortality risks of certain death protection insurance products.

4.4 Treatment of semi-participating policies
We have calculated dividends in accordance with the level of future investment returns, based on the same method
used to determine the dividend rate for the accounting closure of March 31, 2010, reflecting the present value ofcertainty-equivalent profit and the time value of options and guarantees.

4.5 MCEVMCEV is defined as the present value of distributable earnings to shareholders generated from assets allocated tothe covered business after sufficient allowance for the aggregate risks in the covered business and consists ofadjusted net worth and the value of existing business.

24

4.6 Adjusted net worth
Adjusted net worth is calculated as the market value of assets allocated for the covered business in excess ofstatutory policy reserves and other liabilities as of the valuation date. Specifically, it equals to the total amount of
the net assets section on the balance sheets, adding reserve for price fluctuations, contingency reserves, reserve forpossible loan losses, unrealized gains or losses on held-to-maturity securities, and unrealized gains or losses onland and buildings, deducting unfunded pension liabilities and intangible fixed assets, and adjusting for the amountof tax effect equivalent of these seven items, on which valuation gains or losses on subsidiaries and affiliatedcompanies are added. Adjusted net worth can be split into required capital and free surplus.

4.7 Required capital
MCEV Principles define required capital as the amount of assets that should be held in addition to the assets
corresponding to the statutory liability to perform the in-force policy obligations, which is restricted from
distributing to shareholders in nature. The level of required capital should be the larger of the solvency capital tomeet the statutory required minimum level or the capital required to meet the internal objectives in terms ofmarketing purpose or risk management purpose, or to achieve the company’s targeted credit rating.
We set our required capital as the larger of the amount of capital required for the current solvency margin ratio of600% or the amount of capital to cover risks based on the internal model.
We have defined the amount of capital to cover risks based on the internal model as the total amount of technicalprovision and solvency risk capital stipulated by QIS4 of the EU Solvency II held in excess of statutory policy
reserves (excluding contingency reserves). It should be noted that we have used a different cost of capital rate incalculating risk margin included in the technical provision than the one stipulated by the QIS4. Please refer tosection 4.14 for the specific cost of capital rate.
In calculating risk amounts, subsidiaries and affiliated companies are treated as described below:z SCR of subsidiaries and affiliated companies are not reflected on the consolidated basis, but equity risks arecalculated as if they were ordinary stocks held as assets.
z Currency risk is calculated for the value of Sony Life Insurance (Philippines) Corporation, as it is invested in
Philippine peso.
Although the Japanese statutory required minimum levels is a solvency margin ratio of 200%, we set our level forthe targeted solvency margin ratio to 600% in calculating MCEV as of March 31, 2010, as there are arguments thata level of 200% under the current solvency margin standard would not necessarily be sufficient to present thesoundness of an insurance company and revisions have been already made to the solvency margin ratio, and Sony
Life has used the targeted minimum solvency margin ratio of 600% instead of 200% as a basis to calculate the costof capital for TEV from the past.
While Japanese solvency regime will be revised at the end of March 2012, it is expected that MCEV would not bematerially different even if required capital were set to maintain a minimum level of 200% solvency margin ratio
under the revised regime from the end of March 2012. Sony Life plans to change the targeted solvency capital levelas appropriate in line with the timing of enforcement of the new regime at the end of March 2012.
25

We will also revise the internal model itself as appropriate, taking into account the domestic and overseas situations,
including movements of international accounting standards, valuation methods of insurance liability on an
economic value basis and solvency margin standard trends5 , as well as the analysis of our internal mortality andmorbidity rates data.

4.8 Free surplus
Free surplus is the amount of adjusted net worth other than that for required capital.

4.9 Value of existing business
The value of existing business is calculated as the present value of certainty-equivalent profit deducting the timevalue of options and guarantees, the frictional costs and the cost of non-hedgeable risks. New business value iscalculated using the same method.

4.10 Present value of certainty-equivalent profit
Present value of certainty-equivalent profit is the present value of profit based on the future cash flows generated
from the covered business. The risk-free rate is used for assuming investment return on all assets and the discount rate.
The present value of certainty-equivalent profit reflects the intrinsic value of options and guarantees.

4.11 Time value of options and guarantees
We have calculated the time value of options and guarantees using the stochastic method with risk-neutral
scenarios. The time value of options and guarantees is calculated as the difference between the present value ofcertainty-equivalent profit and the present value of stochastic future profits.
Time value of options and guarantees considers the following items:
・ Minimum guarantees of variable life insurance
The excess of account value over the scheduled policy reserves is attributed to policyholders. However, when
account value is less than the scheduled policy reserve, the cost incurred from executing guaranteed minimum
death benefits for variable life insurance is attributed to shareholders.
・ Minimum interest-rate guarantee for interest rate-sensitive whole life insurance
When the investment return exceeds the assumed interest rate, the outperforming portion is credited topolicyholder account value. However, when the investment return underperforms the assumed interest rate, thecost for the difference is attributed to shareholders, as the assumed interest rate is guaranteed.
5

Regarding Solvency II, the latest Quantitative Impact Study (QIS5) is expected during this year and the European Commission has
published its draft on April 15, 2010.

26

・ Interest dividend for semi-participating products
When the investment return exceeds the assumed interest rate, the outperforming portion is credited to thefund for policyholder dividends and paid to policyholders every five years as interest dividends. Accordingly,
any of such interest gains would not be attributed to shareholders, while interest losses would be attributed toshareholders.
・ Surrender options
Policyholders have various options in insurance contracts. Reflected among them are the costs ofpolicyholders’ exercising the right of surrender in the event of increased interest rates. Since we have not
identified explicit correlations between interest rates or account values to the amount of minimum guarantee
and the lapse and surrender rates regarding products other than variable insurance, we have developed
dynamic surrender rates by referring to the experience with similar products and domestic and overseas trends
of practice. Going forward, we will strive to improve dynamic surrender rates for the relevant products bycarefully monitoring experiential data and referring to experience with similar products and trends of practicein Japan and other countries.

4.12 Frictional costs
We have calculated frictional costs as the present value of investment costs and taxes on assets backing the required
capital at each point of time in the future.

4.13 Cost of non-hedgeable risks
As risks6 regarding the asymmetric nature of cash flows not reflected in the present value of certainty-equivalentprofit are fully reflected in the time value of options and guarantees, we have reflected an allowance for theuncertainty of non-economic assumptions and the portion of economic assumptions considered non-hedgeablewith respect to the cost of non-hedgeable risks.
Specifically, we have assumed a risk margin based on the method prescribed in QIS4 of the EU Solvency II
framework as the cost of non-hedgeable risks and calculated it with the cost of capital approach. It should be notedthat the following points are different from the method prescribed in QIS4:
・ With respect to non-hedgeable risk, the uncertainty of the risk-free rates beyond the 50th year has been
considered as an interest risk, in addition to life insurance underwriting risks and operational risks.
・ Counterparty default risk has not been reflected in the non-hedgeable risks as its impact is limited.
・ We have used risk amounts quantified after taking into consideration the risk mitigation effect throughpolicyholder dividends without any adjustments.
・ We have used the cost of capital rate described in section 4.14.

6

Please refer to “Asymmetric risk” in the Section 6. (“Glossary”) for the risks regarding the asymmetric nature of the cash flows.

27

4.14 Cost of capital rate
QIS4 of the EU Solvency II has set a cost of capital rate at 6%, which is used for the cost of capital calculation.
On the other hand, the CRO (Chief Risk Officer) Forum comprised of CROs from leading insurance companies in
Europe, proposed that 2.5% to 4.5% would be the appropriate level based on several trial calculations. Following
the philosophy of the CRO Forum’s approach, we have decided to use 2.5% for the cost of capital rate consistent
with the MCEV framework considering Japanese long-term stock risk premiums, the beta of Sony Financial
Holdings Inc. and the anticipated impact of the equity risk exposure of Sony Life on the beta of Sony Financial
Holdings Inc., which is a hedgeable risk. However, we may revise the cost of capital rate in the future, as anindustry development standard has not yet been established.

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5. Opinion of Outside Specialist
Sony Life requested Milliman, Inc., an external actuarial consulting firm with expert knowledge in the area of
MCEV valuations to review the methodology, assumptions and calculations. The opinion obtained from Milliman,
Inc. is as follows.

Milliman, Inc. (“Milliman”) has been engaged to review the methodology, assumptions, and calculations usedby Sony Life Insurance Co., Ltd. (“Sony Life”) to determine the Market Consistent Embedded Value(“MCEV”) as of March 31, 2010. Specifically, the scope of our review included the embedded value as of 31
March 2010, the sensitivities, the new business value, and the movement analysis from the MCEV as of 31
March 2009.
The board of directors made a statement in its News Release Form dated May 28, 2010 that the methodology,
assumptions, and calculations have been made in accordance with the European Insurance CFO Forum Market
Consistent Embedded Value Principles©7 , with the following exceptions:• The calculated value of MCEV is the value for the life insurance business of Sony Life only, and not
the consolidated value of Sony Life’s parent company, Sony Financial Holdings Inc.
• Group MCEV, as prescribed in the MCEV Principles, is not considered in this report, as the report is forSony Life on a standalone basis.
• With respect to Sony Life’s subsidiaries and its equity method affiliate companies, Sony Life has notevaluated their life insurance business but reflected the following values to the calculation of adjusted
net worth. Values of subsidiaries and affiliated companies are not changed in sensitivity tests.
•
AEGON Sony Life Insurance Co., Ltd. is valued as net asset value minus intangible fixed assets
and Insurance Business Law Article 113 deferred assets, multiplied by the participation rate•
Sony Life Insurance (Philippines) Corporation is valued as book value under Japanese GAAP
adjusted for unrealized gains/losses due to foreign exchange rate movement (after-tax)•
Other companies are valued as book value under Japanese GAAP
• Any calculated values of MCEV are not presented separately by the segment of subsidiaries andaffiliated companies.
• Sony Life has calculated the adjusted net worth based on generally accepted accounting principles andpractices in Japan and not based on the International Financial Reporting Standards (IFRS).
• While Japanese solvency regime will be revised at the end of March 2012, the calculation is based on
the current solvency margin regime, because it is expected that MCEV would not be materiallydifferent even if required capital were set to the revised regulatory minimum solvency capital from theend of March 2012. Accordingly, a sensitivity analysis assuming the current regulatory minimum
solvency capital is not presented.

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Copyright © Stichting CFO Forum Foundation 200829

Milliman has concluded that the methodology and assumptions used comply with the MCEV Principles except
for the points described in the above paragraph. In particular:• The non economic assumptions have been set with regard to past, current and expected future
experience;• The economic assumptions used in the calculations are internally consistent and consistent withobservable market data as per the valuation date;• The methodology makes allowance for all the aggregate risks in the covered business through Sony
Life’s market consistent embedded value methodology, which includes−a stochastic allowance for the cost of financial options and guarantees−a deduction for the cost of non-hedgeable risks−a deduction for the frictional costs of the required capital• for participating insurance contracts, the assumed policyholder dividend rates, allocation of profits
between policyholders and shareholders, and other management actions, are consistent with theassumptions and scenarios used in the projections and where applicable local market practice.
Milliman has reviewed the MCEV methodology, assumptions, calculations and analysis prepared by Sony Life,but this does not mean that Milliman has conducted a detailed review in all aspects. During its review
Milliman identified and discussed various MCEV calculation and definition issues with Sony Life staff. Basedupon those discussions and follow-up actions, Milliman is not aware of any issues that would materially impact
the disclosed market consistent embedded values, new business values, sensitivities, or movement analysis fromthe prior period. In arriving at this conclusion, Milliman has relied on data and information provided by SonyLife.
The calculation of MCEV is based on numerous assumptions with respect to economic conditions, operating
conditions, taxes and other matters, many of which are beyond the control of Sony Life. Although themethodology and assumptions used comply with the MCEV Principles, deviations between projection
assumptions and actual experience in the future are to be expected. Such deviations may materially impact thevalue calculated.
This opinion is made solely to Sony Life in accordance with the engagement letter between Sony Life andMilliman. Milliman does not accept or assume any responsibility, duty of care or liability to anyone other thanSony Life for or in connection with its review work, the opinion Milliman has formed or for any statements set
forth in this opinion, to the fullest extent permitted by applicable law.

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6. Glossary
TermA
Appraisal value

Asymmetric risk

B
CBest estimate
assumption
Calibration
Cost of capital
approach
Cost ofnon-hedgeable risk

F

Free surplus
Frictional costs

I

Implied volatility

L

Look throughN

Non-financial risk
Non-hedgeable
non-financial risk
Non-hedgeable risk

O

Options andguarantees

Definition
A corporate value based on projected cash flows receivable for shareholders fromexisting business and future new business. It is defined as the current MCEV plus
new business value acquired in the future.
The risk where symmetric upward and downward changes on assumptions do not
result in symmetric changes in cash flow. Such risk includes minimum guarantee ofvariable life insurance and policyholder dividend payment. These risks areevaluated with a stochastic method and presented as time value of options andguarantees.
The assumption that is most expected to occur in the future.
To set various stochastic model parameters in a market consistent manner.
One of the approaches to calculate risk margin. The cost of risk is determined bytaking the present value of the cost to hold capital required in the future periods.
The present value of the cost to hold required capital to cover future non-hedgeable
risks. As risks regarding the asymmetric nature of cash flows not reflected in thepresent value of certainty-equivalent profit are fully reflected to the time value of
options and guarantees, We have reflected allowance for uncertainty of non
economic assumptions and the portion of economic assumptions considered
non-hedgeable of economic assumptions with respect to the cost of non-hedgeable
risks in this cost.
The portion of adjusted net worth other than the required capital.
The present value of investment costs and taxes on assets backing the required
capital at each point of time in the future.
The expected rate of future variability embedded in current option prices, andrepresents the expected value of the market against the price fluctuation.
To measure the impact of an action on an entire business group, rather than only ona particular part of the group.
Examples are mortality risk, longevity risk, disability risk, operating expense risk,surrender risk and operational risk.
A non-financial risk such that deep and liquid capital markets do not exist to hedge
such risk.
Non-hedgeable risk is composed of non-hedgeable financial risk andnon-hedgeable non-financial risk.
The following are some features of options and guarantees:
・ Policy cash flow would be changed by exercising options granted to thepolicyholder, which may or may not be exercisable at the discretion of thepolicyholder. An example of such features is the exercise of surrender option.
・ It includes guarantee of benefits or policyholder values. An example is aminimum death benefit guarantee for variable life insurance.

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Term
P
Present value ofcertainty-equivalentprofit
Q
QIS4
QIS5

R

Required capital

Risk-free rate
Risk margin
Risk neutral
probability

S

Risk neutral scenario
Solvency II

TTechnical provision
Time value andintrinsic value

Definition
Present value of certainty equivalent profit is the present value of profit based on
the future cash flows generated from the covered business.
Quantitative Impact Study. Conducted prior to implementation of the EU Solvency
II. The 4th study was conducted in May 2008 and is referred as QIS4.
The latest Quantitative Impact Study following the QIS4. It is expected to be
executed between August and November 2010. The European Commission has
published its draft on April 15, 2010.
MCEV Principles define required capital as the capital necessary to hold in excess
of statutory policy reserve (excluding contingency reserve), and the larger of thesolvency capital to meet the statutory required minimum level and the capitalnecessary to meet the internal objectives or to achieve the company’s targeted
credit rating.
Required capital of Sony Life is set as the larger of the amount of capitalcorresponding to the solvency margin ratio of 600% and the amount of capital tocover risks based on the internal model.
The reference rate defined in MCEV Principles. MCEV Principles states that itshould be the swap rate to the currency of the cash flows.
The cost to hold capital to cover non-hedgeable risks reflected in evaluating theinsurance liability on an economic value basis.
A pseudo probability derived so that the present value of future expected values
under multiple scenarios discounted with current risk-free rates is equal to thecurrent value.
An interest rate scenario generated under risk-neutral probabilities.
A new solvency regulation base on economic value to be applied uniformly within
the EU that the European Commission is preparing to implement from 2012.
The value of liability on an economic value basis, which equals to the present valueof best estimate cash flows plus Risk Margin.
An option value that has two elements, time value and intrinsic value. Intrinsic
value is the option value under certainty equivalent conditions. Time value is thevalue of options other than intrinsic value, which is calculated as the difference
between the present value of certainty-equivalent profit and the present value ofstochastic future profit.

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