May 23, 2016
Sony Life Insurance Co., Ltd.

Disclosure of Market Consistent Embedded Value as of March 31, 2016
Tokyo, May 23, 2016 – 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, 2016, compliant
with the European Insurance CFO Forum Market Consistent Embedded Value Principles©1 (“MCEV Principles”).
MCEV is an indicator used to support an analysis of the value of a life insurance operation.
Sony Life maintains its accounting records and prepares its financial statements in Japanese yen in accordance with
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 andpractices in the United States. The figures shown below with respect to Sony Life’s financial statements are basedon Japanese GAAP.

SummarySony Life’s MCEV as of March 31, 2016 was as follows. New business value indicates the value of new businessacquired during the fiscal year ended March 31, 2016.
(Billions of yen)
As of
As of
ChangeMarch 31, 2016
March 31, 2015
MCEV
1,063.7
1,322.9(259.2)Adjusted net worth
2,074.4
1,119.2
955.2
Value of existing business(1,010.7)
203.7(1,214.4)
FY20152

New business value

FY201435.2

48.6

Change(13.4)For inquiries:
Corporate Communications & Investor Relations Dept.
Sony Financial Holdings Inc.
E-mail: press@sonyfh.co.jp
Telephone: +81-3-5785-1070
Website of Sony Financial Holdings Inc. http://www.sonyfh.co.jp /index_en.html
12

Copyright © Stichting CFO Forum Foundation 2008
For FY2015, the methodology used to calculate new business value has been revised. Please refer to Sections 2.4
and 4.10 for details.

1Table of Contents
Summary ........................................................................................................................................................ 1
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
1.7 Use of government bond yields as risk-free rates .................................................................................... 5
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 ................................................................................................................................ 7
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 ............................................................................................................................................ 15
3.1 Economic assumptions ......................................................................................................................... 15
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 subsidiaries and affiliated companies .............................................................................. 24
4.3 Treatment of reinsurance ..................................................................................................................... 24
4.4 Treatment of semi-participating policies............................................................................................... 24
4.5 MCEV ................................................................................................................................................. 24
4.6 Adjusted net worth .............................................................................................................................. 24
4.7 Required capital .................................................................................................................................. 25
4.8 Free surplus ......................................................................................................................................... 26
4.9 Value of existing business ..................................................................................................................... 26
4.10 New business value............................................................................................................................. 26
4.11 Present value of certainty-equivalent profit ........................................................................................ 27
4.12 Time value of options and guarantees ................................................................................................. 27
4.13 Frictional costs ................................................................................................................................... 28
4.14 Cost of non-hedgeable risks ................................................................................................................ 28
4.15 Cost of capital rate ............................................................................................................................. 28
5. Opinion of Outside Specialist ................................................................................................................ 29
6. Glossary................................................................................................................................................... 31

2

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.
Many companies—primarily leading life insurance firms in Europe—have disclosed European Embedded Value(“EEV”) following the publication of EEV Principles by the CFO Forum in May 2004. The CFO Forum, formedby the Chief Financial Officers (CFOs) of major European insurance companies, published the EEV Principles inorder to address criticisms of Traditional Embedded Value (TEV) and to facilitate the implementation of market
consistent valuation methods. (Criticisms of TEV included concern over the valuation of the cost of options andguarantees and concerns about the comparability of results among firms.) This led to the disclosure by manyleading European insurers of EEV using a market-consistent approach.
The EEV Principles allow various calculation methodologies, including MCEV. Recognizing that many insurancecompanies in Europe had begun to disclose MCEV as part of their financial reports and to use MCEV as aninternal management tool, the CFO Forum published the MCEV Principles in June 2008. The MCEV Principles
aim to improve the effectiveness of EV information for investors by streamlining MCEV disclosure standards forinternational use. The CFO Forum revised the MCEV Principles in October 2009 and added guidance relating toliquidity premium.
Sony Life has disclosed MCEV in compliance with the MCEV Principles from March 31, 2008.

1.2 Covered businessOur calculations include the business operated by Sony Life and its subsidiaries and affiliated companies. It should be
noted, however, that we have calculated the value of the subsidiaries and affiliated companies by adding thefollowing values to the calculation of adjusted net worth:・ AEGON Sony Life Insurance Co., Ltd. is valued at net asset value plus reserve for price fluctuations
and contingency reserve, minus intangible fixed assets, reinsurance credits on modified coinsurance(to be amortized in the future) and Insurance Business Law Article 113 deferred assets, plus the tax
effect equivalent on Insurance Business Law Article 113 deferred assets, multiplied by theparticipation rate.
・ Other companies are valued at 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 an opinion from thisfirm. 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. Notable points regarding compliance with the MCEV Principles are as follows:
The reference rate used in the calculations has been defined as the government bond nominal spot rate
curve rather than the swap rate curve as stipulated in the MCEV Principles.

The interest rate sensitivities are disclosed for a 50bp increase and decrease rather than a 100bp increase
and decrease as required in the MCEV Principles, considering the level of interest rates in Japan.

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 stand-alone 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 in the calculation of adjusted net worth:
AEGON Sony Life Insurance Co., Ltd. is valued at net asset value plus reserve for price fluctuations
and contingency reserve, minus intangible fixed assets, reinsurance credits on modified coinsurance(to be amortized in the future) and Insurance Business Law Article 113 deferred assets, plus the tax
effect equivalent on Insurance Business Law Article 113 deferred assets, multiplied by theparticipation rate
Other companies are valued at book value under Japanese GAAPNone of the calculated values of MCEV are presented separately by segment of subsidiary or by affiliatedcompany.
We have calculated adjusted net worth based on Japanese GAAP, not International Financial ReportingStandards (IFRS).

1.6 Definition of MCEV
The MCEV 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 by 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.
Adjusted net worth is the amount of assets allocated for the covered business as of the valuation date and is4

calculated as the amount of its market value in excess of statutory policy reserves and other liabilities. Adjusted net
worth can be split into 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 evaluated on an after-tax basis.
Please refer to Section 4 for more detailed definitions of terms.

1.7 Use of government bond yields as risk-free rates
EU Solvency II suggests the criteria the relevant risk-free rates should meet. We considered some of the criteria
described below and started to use government bond yields instead of swap rates beginning with the MCEV as ofMarch 31, 2012.

No credit risk
The Japanese yen is the currency whose purchasing power is regulated by the Japanese government under afloating exchange rate system, and Japanese government bonds denominated in Japanese yen can be considered tobe financial assets with the lowest credit risk. On the other hand, swap rates are reflected by credit risk with regard
to LIBOR.

Realism
Realism refers to whether it should be possible to earn the rates in practice without credit risk. We have been
conducting risk management based on economic values. For the purpose of interest rate risk management (ALM),
given the difficulties in utilizing swap rate transactions due to limitations under the current accounting frameworkand solvency regulations as well as the credit risk issue mentioned above, we are primarily utilizing Japanese
government bonds in practice.
High liquidity
Japanese government bonds have high liquidity even for long maturities such as 30 or 40 years.
We also use U.S. Treasury yields for risk-free rates in U.S. dollars that were applied to U.S. dollar-denominatedproducts, which were launched in May 2013.
Please refer to Section 2.7 for the impact of the change in risk-free rates from government bond yields to swap
rates on MCEV as of March 31, 2016.
5

2. MCEV Results for Sony Life
2.1 MCEV resultsSony Life’s MCEV as of March 31, 2016 decreased ¥259.2 billion due to a large fall in Japanese yen (JPY) interest
rates and other factors. While the value of existing business decreased significantly and turned negative due to alarge fall in JPY interest rates, a large part of the decrease was offset with the benefit of ALM (by the increase in
the adjusted net worth). The breakdown is shown in the table below.
(Billions of yen)
As of
As of
ChangeMarch 31, 2016
March 31, 2015
MCEV
1,063.7
1,322.9(259.2)Adjusted net worth
2,074.4
1,119.2
955.2
Value of existing business(1,010.7)
203.7(1,214.4)

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 reserves and other liabilities as of the valuation date. It is the total amount of the net assets section
on the balance sheets, adding reserve for price fluctuations, contingency reserve, reserve for possible loan losses,
along with unrealized gains or losses on held-to-maturity securities, unrealized gains or losses on policy reserve
matching bonds and unrealized gains or losses on land and buildings, less unfunded pension liabilities andintangible 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. The adjusted net worth at the end of
the current fiscal year increased by ¥955.2 billion, primarily because of the increase in unrealized gain on
held-to-maturity securities caused by a large fall in JPY interest rates. The breakdown is shown in the table below.
(Billions of yen)
As of
As of
ChangeMarch 31, 2016
March 31, 2015
Adjusted net worth
2,074.4
1,119.2
955.2
Total net assets
482.2
432.5
49.7
Reserve for price fluctuations
44.3
42.8
1.4
Contingency reserve
75.2
68.7
6.5
Reserve for possible loan losses
0.0
0.0
(0.0)
Unrealized gains or losses onheld-to-maturity securities
2,026.2
839.5
1,186.8
Unrealized gains or losses onpolicy reserve matching bonds
41.3
41.3
－
Unrealized gains or losses on land and buildings
56.5
49.8
6.7
Unfunded pension liabilities
(4.8)
(1.9)
(2.9)
Intangible fixed assets(19.2)(21.6)
2.4
Tax effect equivalent of above eight items(621.4)(282.0)(339.4)
Valuation gain or loss on subsidiaries andaffiliated companies
(5.8)
(8.7)
2.9

6

(Billions of yen)
As ofMarch 31, 2016
2,074.4
100.1
1,974.3

Adjusted net worth
Free surplus
Required capital

As ofMarch 31, 2015
1,119.2
597.6
521.6

Change955.2(497.5)
1,452.7

We set our required capital as the larger of the amount of Japanese regulatory minimum capital requirement at thesolvency margin ratio of 200% or the amount of capital to cover risks based on an internal model based on
economic value. The required capital at the end of the current fiscal year increased due to an increase in theeconomic value of technical provisions that mainly resulted from a fall in JPY interest rates. Please refer to Section
4.7 for the method used to calculate required capital.

2.3 Value of existing business
The value of existing business is the present value of certainty-equivalent profit less the time value of options andguarantees, and frictional costs and the cost of non-hedgeable risks. The value of existing business as of March 31,
2016 decreased by ¥1,214.4 billion and turned negative, primarily because the assumed investment returns fell
below the interest rates assumed in statutory reserve for a large part of in-force business due to a large fall in JPY
interest rates. On the other hand, as noted in Sections 2.1 and 2.2 above, please note that the value of bonds held for
ALM purposes moves in a way to offset such a change in the value of existing business. The breakdown of thevalue of existing business is shown in the table below.
(Billions of yen)
As of
As of
ChangeMarch 31, 2016
March 31, 2015
Value of existing business(1,010.7)
203.7(1,214.4)
Present value of certainty-equivalent profit(393.1)652.9(1,046.0)
Time value of options and guarantees(127.6)(154.9)27.3
Frictional costs(55.6)(20.2)(35.5)
Cost of non-hedgeable risks(434.4)(274.1)(160.2)

2.4 New business value
New business value represents the value of new business acquired during the fiscal year ended March 31, 2016,
and does not include the value of new business expected to be acquired in the future. Until the previous year-end
disclosure, the value of new business had been calculated as a value at the end of the year; from this year-end
disclosure, it is calculated as a value at point of sale. The value of new business as of March 31, 2016 wascalculated quarterly using the assumptions as of the end of each quarter. Please refer to Section 4.10 for details.
Despite the strong sales, the new business value in this fiscal year decreased by ¥13.4 billion primarily because of alarge fall in JPY interest rates. A breakdown of the value of new business is as follows:7

(Billions of yen)

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

As ofMarch 31, 2016
35.2
101.0
(29.4)(0.7)(36.9)
1.3

As ofMarch 31, 2015
48.6
92.5
(17.2)(0.4)(26.3)－

Change(13.4)
8.4(12.2)(0.3)(10.6)
1.3

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 premiums before the deduction of reinsurance premiums.
(Billions of yen)

Value of new business
Present value of premium income

As ofMarch 31, 201635.2
1,476.9

As ofMarch 31, 2015
48.6
1,289.0

2.4%

3.8%

Value of new business / Present value ofpremium income

Change(13.4)
187.9(1.4) points

Relationships between annualized premiums from new policies and the present value of premium income fromnew business were as follows:(Billions of yen)
As of
As of
ChangeMarch 31, 2016
March 31, 2015
New business single premium
125.2
73.9
51.3
Annualized premiums from level premium new
111.0
100.5
10.5
business3
Average annualization multiplier4

12.18

3

12.09

0.09

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 disclosures such as financial results and annual reports.
4
The average annualization multiplier is calculated as (Present value of premium income – New business single premium) /Annualized premiums from level premium new business.

8

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, 2016, from MCEV as of March 31,
2015. The format of the table is in line with the format prescribed by the MCEV Principles.
(Billions of yen)
Value ofFree
Requiredexisting
MCEV
surpluscapitalbusiness
Opening MCEV (MCEV as of March 31, 2015)
Opening adjustments
Adjusted opening MCEVNew business value
Expected existing business contribution (risk-free rate)
Expected existing business contribution (in excess ofrisk-free rate)
Transfers from value of existing business and required
capital to free surplus

597.6(20.0)
577.6
(5.0)
0.2

521.6
－
521.6
6.3
0.2

203.7
－
203.7
34.0
15.8

1,322.9(20.0)
1,302.9
35.2
16.1

1.6

1.8

12.6

15.9

(13.5)(43.3)

56.9－(70.8)－

70.8－

Experience variances
Assumption changes
Other operating variance
Operating MCEV earnings
Economic variances
Other non-operating varianceTotal MCEV earnings
Closing adjustments(4.4)(14.5)(4.1)(39.8)(433.6)(4.1)(477.5)
－

2.0
14.5
7.4
(11.2)
1,440.6
23.3
1,452.7
－

(4.1)
29.7
10.3
155.0
(1,359.1)(10.4)(1,214.4)
－

(6.5)
29.7
13.7
104.1
(352.1)8.8(239.3)－

Closing MCEV (MCEV as of March 31, 2016)

100.1

1,974.3(1,010.7)

1,063.7

Of which, on new business(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 fiscal year ended March 31,
2016. Please refer to Section 4.10 for information concerning the calculation method.
(3) Expected existing business contribution (risk-free rate)
This figure includes the release of the portion for the fiscal year ended March 31, 2016 of the time value of options
and guarantees and the cost of non-hedgeable risks, in addition to the unwinding of the opening MCEV at arisk-free rate.
(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 ordinary9

corporate bonds, loans, stocks and real estate. The expected yield used for the fiscal year ended March 31, 2016
was 0.337%, 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 tracks changes in free surplus that emerge over the course of a fiscal year due to transferring profit
earned during the fiscal year from existing business value to free surplus and to changes in required capital. The
transfer of profit includes both the transfer of profit that was anticipated during the current fiscal year under the
MCEV calculation performed at the prior year-end and the transfer of profit that was calculated as a component of
new business value for the current fiscal year.
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 fiscal year ended March 31, 2016 under the MCEV calculation as of March 31, 2015, and of thedifferences between actual policies in force as of March 31, 2016, and those that were projected to be in force on
March 31, 2015 using persistency assumptions.
(7) Assumption changes
This figure primarily indicates the impact of changes in assumptions based on experience data in mortality andmorbidity rates, lapse and surrender rates, and operating expense rates. The value of existing business increased
due to the improvement in mortality rates and other factors.
(8) Other operating varianceThis represents the impact of improvements and corrections of the model used in calculating MCEV. Regarding
renewals arising from in-force business in the future, until the previous year-end disclosure, some renewals had
been reflected in a simplified manner; from this year-end disclosure, renewals are modeled for all renewablepolicies.
(9) Operating MCEV earnings
This figure shows the aggregate amount of items (2) through (8).
(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, 2015 (for new business values, as of the date when they were calculated) on future values, and theimpact of the actual to assumed difference in expected investment income that was assumed to be realized during
the year ended March 31, 2016 under MCEV as of March 31, 2015.
The major reasons for decreases in the value of existing business include an update of economic scenarios due tothe change in the market environment such as a fall in JPY interest rates, a decrease in stock prices and changes in
implied volatilities, accounting for a decrease in the present value of certainty-equivalent profit of ¥1,323.9 billion,a decrease in the time value of options and guarantees of ¥66.9 billion, an increase in frictional costs of ¥36.4
10

billion and an increase in the cost of non-hedgeable risks of ¥117.6 billion. Another factor is a decrease in expenses
tied to the decrease in inflation rates, accounting for an increase in the value of existing business of ¥51.9 billion.
The major reason for the increase in the adjusted net worth was the increase in prices of government bonds caused
by a fall in JPY interest rates. The required capital increased primarily because the amount of liabilities and risks onan economic basis increased due to a fall in JPY interest rates, causing increases in the frictional costs and the costof non-hedgeable risks. While the value of existing business decreased significantly and turned negative, a largepart of the decrease was offset with the benefit of ALM (by the increase in the adjusted net worth). Overall MCEV
changes are disaggregated into a decrease of ¥404.0 billion as a result of the change in the market environment
such as a large fall in JPY interest rates, and an increase of ¥51.9 billion as a result of the decrease in inflation rates.
(11) Other non-operating varianceThis figure shows the effect of the reduction of the corporate tax rate. Please refer to Section 3.3 (6) for details.
(12) Closing adjustments
No items were included in closing adjustments.

112.7 Sensitivity analysis
The impact of changing the underlying assumptions on MCEV and new business value is as follows:
Sensitivities of MCEV

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
Required capital
Foreign exchange rates

Change in assumption

MCEV(Billions of yen)
Change inRate ofamountchange－－(297.1)
(28%)
161.3
15%
(62.0)(6%)

No change
50bp decrease
50bp increase
Swap rates

1,063.7766.5
1,225.0
1,001.7

10% decrease

1,043.2(20.5)(2%)

25% increase

1,041.7(22.0)(2%)

25% increase
25% decrease
10% decrease
x 0.9
Death protection products
x 0.95
Third-sector and annuity
products x 0.95
x 0.95
Regulatory minimum
10% appreciation of JPY

1,062.9
1,067.7
1,087.1
991.3

(0.8)
4.0
23.4
(72.3)

(0%)
0%
2%
(7%)

1,116.6

52.9

5%

1,049.2(14.5)(1%)

1,126.4
1,117.1
1,055.8

62.7
53.5
(7.8)

6%
5%
(1%)

The breakdown of the changes in MCEV into the adjusted net worth and the value of existing business are shownin the table below. Of items not specified in this table, only the value of existing business has been changed while
adjusted net worth remains the same.
(Billions of yen)
Value of
Adjusted net
Assumption
Change in assumption
MCEV
existingworthbusiness
50bp decrease(297.1)645.0(942.1)50bp increase

161.3(663.1)824.5

Stock / Real estate market value

10% decrease(20.5)(10.8)(9.7)

Foreign exchange rates

10% appreciation of JPY

(7.8)

0.0

(7.8)

Interest rates

12

Sensitivity of new business value

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
Required capital
Foreign exchange rates(Billions of yen)
Change inRate ofamountchange－－(56.7)(161%)
38.8
110%(20.1)
(57%)
(0.2)
(0%)

No change
50bp decrease
50bp increase
Swap rates
10% decrease

New business
value
35.2
(21.4)
74.1
15.1
35.1

25% increase

31.5

(3.8)

(11%)

25% increase
25% decrease
10% decrease
x 0.9
Death protection products
x 0.95
Third sector and annuity
products x 0.95
x 0.95
Regulatory minimum
10% appreciation of JPY

34.8
36.0
37.4
29.7

(0.5)
0.8
2.2
(5.6)

(1%)
2%
6%
(16%)

41.1

5.9

17%

34.7

(0.6)

(2%)

37.6
35.4
34.7

2.4
0.2
(0.6)

7%
0%
(2%)

Change in assumption(1) Interest rates
This sensitivity represents the impact of an immediate parallel shift of the Japanese and foreign government
bond yield curves as of the end of March 2016, and the impact if swap rates were used instead of government
bond yields. In each parallel shift sensitivity, adjusted net worth changes as the market value of bonds andother assets change; this is not applicable to the case where swap rates are used. In each of the interest ratesensitivities, the value of existing business changes as interest rates, the discount rate, yields of new bonds tobe purchased in the future as existing bonds mature, and the investment returns on stocks and other assetschange.
Please note that, due to the bonds held for ALM purposes, the adjusted net worth moves in a direction to offset
a change in the value of existing business.
The sensitivities are calculated for a 50bp increase and decrease rather than a 100bp increase and decrease as
required in the MCEV Principles, considering the level of interest rates in Japan. 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 the interest rate term structure were altered when scenarios were developed
using the interest rate model. The floor for downward changes in interest rates was set at 0%.
The sensitivities of new business value reflect the changes in unrealized gains or losses of pre-hedge assets
included in new business value. Please refer to Section 4.10 for details on pre-hedge.
(2) Stock and real estate market value
This sensitivity represents the impact of an immediate drop in market value of stock and real estate as of the13

end of March 2016. Adjusted net worth is directly affected by the change in market value of stock and realestate. The value of existing business would also be affected by the change in the value of assets.
(3) Implied volatility of stock and real estateThis sensitivity represents the impact of an increase in the implied volatilities of stock used in calculating thetime value of options and guarantees. The value of existing business changes because changes in stock implied
volatilities change the time value of options and guarantees.
(4) Interest swaption implied volatility
This sensitivity represents the impact of a change 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 change.
(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 and other sales force 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 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. In the segment of “third-sector insurance and annuity products”, we include basepolicies and riders of which the principal benefits are accidental death, disability, cancer, medical and nursing
care benefits, and individual annuities. 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 capitalThis sensitivity represents the impact in the event that required capital is changed to the regulatory minimum
level, which is a solvency margin ratio of 200%.
(10) Foreign exchange rates
This sensitivity represents the impact of an immediate appreciation of Japanese yen as of the end of March2016. Adjusted net worth is affected by the change in the value of assets and liabilities denominated in foreign
currency. The value of existing business would also be affected.
(11) Other
The following points should be noted regarding the sensitivities:
・ Frictional costs and the cost of non-hedgeable risks do not change in the sensitivity tests, with the
exception of frictional costs, which are changed in terms of (9) required capital.
・ Values of subsidiaries and affiliated companies are not changed except in the case of (2) stock and realestate market value, where the stock value of subsidiaries and affiliated companies are altered.
・ The impact of changing more than one assumption at a time is not equal to the sum of the impacts for each
assumption.

14

3. Assumptions
3.1 Economic assumptions
We have made economic assumptions in our calculation of MCEV as of the end of March 2016.
(1) Risk-free rate
We have used the JGB yields and the U.S. Treasury yields as of the end of March 2016 as risk-free rates for thecertainty-equivalent projections. It is assumed that forward rates in the 41st year and beyond were equal tothose in the 40th year for JGB yields and forward rates in the 31st year and beyond were equal to those in the
30th year for U.S. Treasury yields.
The government bond yields for key terms are as follows:
Japanese yen
U.S. dollar
Term
As of the end of
As of the end of
As of the end of
As of the end of
March 2016
March 2015
March 2016
March 2015
1 year
(0.15%)
0.03%
0.58%
0.23%
5 year
(0.19%)
0.13%
1.21%
1.37%
10 year(0.05%)
0.40%
1.77%
1.92%
20 year
0.44%
1.14%
2.17%
2.30%
30 year
0.55%
1.36%
2.61%
2.54%
40 year
0.63%
1.46%
–
–
(Data: Ministry of Finance Japan for JGB as of March 2016 and Bloomberg for others)
The swap rates for key terms which are used for the sensitivity result with swap rates in Section 2.7 (1) are as
follows. It is assumed that forward rates in the 41st year and beyond were equal to those in the 40th year forswap rates in Japanese yen and forward rates in the 51st year and beyond were equal to those in the 50th year
for swap rates in U.S. dollars.
Japanese yen
U.S. dollar
Term
As of the end of
As of the end of
March 2016
March 2016
1 year
(0.05%)
0.74%
5 year
(0.07%)
1.17%
10 year
0.15%
1.64%
20 year
0.50%
2.03%
30 year
0.60%
2.14%
40 year
0.60%
2.15%
50 year–
2.14%(Data: Bloomberg)
We have not added a liquidity premium on the risk-free rate as there are no products which are considered tohave reasonably predictable and illiquid cash flows and would therefore be appropriate to apply a liquidity
premium.

15

(2) Interest-rate model
We have calibrated the interest rate model to the market as of the end of March 2016. We have estimatedparameters 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 and guarantees under the stochastic method.
The implied volatilities of the interest swaption used in our estimation are presented below.
As of the end of March 2016
Term of swap
Term of option(in years)(in years)
1
1
10
1
10
10
10
20
20
1
20
10
20
20

Japaneseyen－
152.8%
55.0%
80.3%
78.5%
65.2%
118.2%

16

U.S. dollar
65.4%
46.2%
32.3%
25.7%
36.9%
27.9%
23.6%

Euro

UK pound

－
85.2%
93.5%
54.7%
54.1%
37.6%
－
40.8%
69.0%
46.7%
54.9%
38.3%
114.7%
40.8%(Data: Bloomberg)As of the end of March 2015
Term of swap
Term of option(in years)(in years)
1
1
5
1
5
5
5
7
5
10
5
15
5
20
10
1
10
5
10
7
10
10
10
15
10
20
15
1
15
5
15
7
15
10
15
15
15
20
20
1
20
5
20
7
20
10
20
15
20
20

Japanese
yen
95.3%
62.3%
47.2%
38.5%
32.7%
26.5%
27.4%
54.3%
38.6%
33.7%
29.7%
27.5%
29.4%
42.8%
33.5%
31.1%
29.4%
27.4%
28.9%
39.7%
33.1%
31.4%
30.0%
27.8%
29.3%

17

U.S. dollar
60.5%
46.7%
37.3%
34.7%
32.0%
27.9%
24.9%
39.4%
34.7%
32.8%
30.2%
27.1%
24.1%
37.2%
32.3%
30.4%
28.2%
25.2%
22.6%
35.9%
31.3%
29.3%
27.1%
24.3%
22.4%

Euro

UK pound－
76.6%
107.4%
57.3%
84.6%
42.8%
83.5%
39.4%
95.0%
34.7%
109.6%
30.4%
68.3%
29.1%
89.8%
48.7%
83.6%
39.2%
84.3%
36.5%
101.0%
32.7%
128.4%
29.6%
65.6%
27.9%
84.1%
45.5%
78.9%
37.2%
80.9%
34.9%
93.7%
31.5%
123.6%
28.4%
289.7%
26.8%
84.9%
44.3%
81.5%
36.7%
82.4%
34.3%
91.1%
30.6%
155.0%
27.5%
129.2%
25.8%(Data: Bloomberg)

(3) Implied volatilities of foreign exchange rates and stocks
We have obtained spot implied volatilities from options with different terms. Implied volatilities are all those
for at-the-money options.
We have assumed that forward implied volatilities in the 11th year and beyond are equal to those in the 10thyear for both foreign exchange rates and the stock price index as these derivatives have low liquidities for theperiod over 10 years.
Implied volatilities used for the estimation are as follows:
As of the end of March 2016
Foreign exchange
StocksU.S.
UKEuro /
Term
dollar /pound /
Japan
U.S.
Euro
UK
Japanese(in years)
JapaneseJapanese
TOPIX
S&P
SX5E
FTSE
yen
yen
yen
1
9.8%
10.5%
15.0%
20.3%
16.3%
21.1%
18.2%
5
10.6%
12.7%
16.0%
18.7%
21.0%
20.2%
19.6%
10
13.7%
14.5%
14.2%
19.0%
26.4%
20.7%
21.7%
(Data: Bloomberg for foreign exchange and Markit for stocks)
As of the end of March 2015
Foreign exchange
StocksU.S.
UKEuro /
Term
dollar /pound /
Japan
U.S.
Euro
UK
Japanese(in years)
JapaneseJapanese
TOPIX
S&P
SX5E
FTSE
yen
yen
yen
1
9.9%
11.2%
11.7%
18.5%
16.6%
19.4%
15.6%
5
11.4%
13.0%
13.8%
18.6%
22.0%
21.4%
19.4%
10
14.1%
15.0%
15.9%
20.1%
27.3%
21.7%
22.0%
(Data: Bloomberg for foreign exchange and average of those provided by securities firms for stocks)

18

(4) Correlation factors
We have calculated correlation factors from the monthly return of each index for a period of five years from
April 2011 to the end of March 2016 as there is no market-consistent data for correlation factors.
As of the end of March 2016
Japanese

U.S.

UK

U.S.

UK

Euro
yen

dollarEuro /
pound

dollar /pound /

Interest
Interest

Interest

Japanese
Interest

Japanese

rate 1Yrate 1Yrate 1Y

1.00(0.40)(0.40)

TOPIX

S&P

SX5E

FTSE

Japaneseyenrate 1Yyen(0.02)

0.22

0.23

0.12

0.33

0.25

0.05

0.29

0.01

1.00

0.19

(0.14)

0.03(0.03)(0.08)

0.10

0.07

0.05

0.00

(0.02)

0.19

1.00

0.10

0.23

0.44

0.34

0.34

0.40

0.44

0.34

0.22

(0.14)

0.10

1.00

0.25

0.23

0.24

0.27

0.10

0.21

0.06

0.23

0.03

0.23

0.25

1.00

0.70

0.75

0.64

0.32

0.39

0.31

0.12

(0.03)

0.44

0.23

0.70

1.00

0.83

0.56

0.50

0.36

0.41

0.33

(0.08)

0.34

0.24

0.75

0.83

1.00

0.72

0.58

0.50

0.42

TOPIX

0.25

0.10

0.34

0.27

0.64

0.56

0.72

1.00

0.60

0.62

0.49

S&P

0.05

0.07

0.40

0.10

0.32

0.50

0.58

0.60

1.00

0.76

0.82

SX5E

0.29

0.05

0.44

0.21

0.39

0.36

0.50

0.62

0.76

1.00

0.81

FTSE

0.01

0.00

0.34

0.06

0.31

0.41

0.42

0.49

0.82

0.81

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(Data: Ministry of Finance Japan for JPY interest rate and Bloomberg for others)

19

As of the end of March 2015
Japanese

U.S.

yen

dollarInterest

Interest

rate 1Yrate 1Y

1.00(0.18)(0.18)

UK

U.S.

pound

dollar /Interest

Japanese

rate 1Y

yen

0.02

0.30

0.08

(0.04)

1.00

0.15

0.09

0.40

0.02

0.15

1.00

0.27

0.30

0.09

0.27

0.08

0.40

(0.04)

UK

Euro

Euro /
pound /

Interest

Japanese

TOPIX

S&P

SX5E

FTSE

0.09

0.22

0.01

0.23

0.00

0.22

0.25

0.32

0.18

0.05

0.03

0.10

0.47

0.37

0.25

0.41

0.51

0.34

1.00

0.14

0.30

0.20

0.28

0.20

0.30

0.15

0.10

0.14

1.00

0.66

0.71

0.59

0.24

0.21

0.18

0.22

0.47

0.30

0.66

1.00

0.86

0.58

0.65

0.49

0.53

0.09

0.25

0.37

0.20

0.71

0.86

1.00

0.65

0.55

0.42

0.37

TOPIX

0.22

0.32

0.25

0.28

0.59

0.58

0.65

1.00

0.56

0.52

0.45

S&P

0.01

0.18

0.41

0.20

0.24

0.65

0.55

0.56

1.00

0.72

0.84

SX5E

0.23

0.05

0.51

0.30

0.21

0.49

0.42

0.52

0.72

1.00

0.80

FTSE

0.00

0.03

0.34

0.15

0.18

0.53

0.37

0.45

0.84

0.80

1.00

rate 1YJapaneseyenyenJapaneseyenInterest
rate 1Y
U.S. dollar
Interest
rate 1Y
Euro
Interest
rate 1Y
UK poundInterest
rate 1Y
U.S. dollar/ JapaneseyenEuro /
Japaneseyen
UK pound/ Japaneseyen(Data: Bloomberg)

20

(5) Foreign exchange
Assets denominated in foreign currencies and the value of U.S. dollar-denominated products are converted toJapanese yen using the TTM (telegraphic transfer middle exchange rate) as of the end of March 2016.
The table below shows foreign exchange rates of major currencies.

U.S. dollar / Japanese yen
Euro / Japanese yen
UK pound / Japanese yen

As of the end of
March 2016¥112.68¥127.70¥161.92

As of the end of
March 2015
¥120.17¥130.32¥178.07

3.2 Future asset allocation(1) Asset allocation in the general accountSegment accounting is conducted for individual life insurance and individual annuity based on theclassifications of the non-participating product segment, the semi-participating product segment, the interest
rate-sensitive whole life insurance segment and the foreign-currency-denominated product segment. Asset
allocation in the general account under the stochastic method was determined based on the actual asset
allocation in each segment as of the end of March 2016 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 the end of March 2016 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 best estimates by product as of the end of March 2016. Best-estimate assumptions aredeveloped to reflect past and current experiences as well as expected experiences in the future. Expected futurechanges in assumptions should be reflected only when they are supported by sufficient reasons. Except for adeteriorating 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 past three years. Deteriorating trends in morbidity rates are taken into
account for those accidental and health (A&H) products for which deteriorating trends were observed when theexperience data were analyzed in conducting the statutory stress test.
(2) Lapse and surrender rates
Lapse and surrender rates for the base case were developed based on experience over the past three years. We
21

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
・ Interest rate sensitive whole life insurance
・ Semi-participating products
・ Non-participating whole life insurance
・ Non-participating endowment insurance
・ Non-participating educational endowment insurance
・ U.S. dollar-denominated insurance
Since we have not identified explicit correlations that relate interest rates or the level of account value against
minimum guarantee amount to lapse and surrender rates for policies other than variable insurance, we havedeveloped dynamic surrender rates by examining experience on similar products, and taking into accountcurrent domestic and overseas practice. Going forward, we will strive to improve our approach to dynamic
surrender assumptions for the relevant products by carefully monitoring experience data and referring toexperience 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
Developed based on past experiences. Deterioration in mortality and morbidity rates after renewal due toanti-selection is also reflected.
(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 past fiscal year and the depreciation costs
over the past three years. For expected system-related expenses in the future, the unit costs reflect the averageof depreciation costs over the past three years excluding one-off expenses that are not expected to recur in the
future. The one-off expenses excluded from the depreciation costs are ¥1.5 billion (FY2015 base), which arefor system revisions.
MCEV Principles require that, where costs of managing the covered business are incurred within groupcompanies, profit or losses to those companies are to be valued on a “look through” basis. In relation to theparent company, Sony Financial Holdings Inc., unit cost includes management administration charges payable
to the parent company. In relation to subsidiaries and affiliated companies, unit cost includes the cost incurredat Sony Life to manage those companies. Other look-through effects are not considered.
(6) Effective tax rate
With “The Law to Revise the Income Tax, etc.,” enacted on March 29, 2016, the corporate tax rate was reduced.
Reflecting this change, the effective tax rate is set at 28.85% in the fiscal year 2015, 28.24% in the fiscal years
2016 and 2017 and 28.00% in and after the fiscal year 2018.
(7) Consumption tax rate
Future expenses were increased by reflecting the increase in the consumption tax rate to 10% on and after April
1, 2017.
22

(8) Inflation rate
Inflation rates in the future were set at 0.091% by referring to a 10-year inflation swap rate and removing theeffect of the increase in the consumption tax rate.

23

4. Calculation Method of MCEV
4.1 Covered business
The covered business is the business operated by Sony Life, its subsidiaries and its affiliated companies.

4.2 Treatment of subsidiaries and affiliated companies
Our calculations include the following values regarding subsidiaries and affiliated companies in the calculation ofadjusted net worth:・ AEGON Sony Life Insurance Co., Ltd. is valued at ¥0.7 billion, which is equal to net asset value plus
reserve for price fluctuations and contingency reserve, minus intangible fixed assets, reinsurance credits on
modified coinsurance (to be amortized in the future) and Insurance Business Law Article 113 deferredassets, plus the tax effect equivalent on Insurance Business Law Article 113 deferred assets, multiplied by
the participation rate.
・ Other companies are valued at book value under Japanese GAAP, which is ¥6.7 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 (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, 2016, reflecting the present value ofcertainty-equivalent profit and the time value of options and guarantees.

4.5 MCEVMCEV is defined as the expected present value of distributable earnings to shareholders generated from assets
allocated to the covered business after making appropriate allowance for aggregate risks in the covered business.
MCEV is presented as the sum of adjusted net worth and value of existing business.

4.6 Adjusted net worth
Adjusted net worth is calculated as the market value of assets allocated for the covered business in excess of24

statutory policy reserves and other liabilities as of the valuation date. Specifically, it is equal to the total amount of
the net assets section on the balance sheets, adding reserve for price fluctuations, contingency reserve, reserve forpossible loan losses, unrealized gains or losses on held-to-maturity securities, unrealized gains or losses on policy
reserve matching bonds and unrealized gains or losses on land and buildings, less unfunded pension liabilities andintangible fixed assets, and adjusting for the amount of tax effect equivalent of these eight items, on which
valuation gains or losses on subsidiaries and affiliated companies are added. Adjusted net worth can be split into
required capital and free surplus.

4.7 Required capital
The 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 fulfill in-force policy obligations, which by nature is restricted from
distribution to shareholders. The level of required capital should be the larger of the solvency capital to meet theregulatory minimum level or the capital required to meet the internal objectives in terms of marketing or risk
management purposes, or to achieve the company’s targeted credit rating.
We set our required capital as the larger of the amount of capital required for Japanese regulatory minimum at thesolvency margin ratio of 200% or the amount of capital to cover risks based on the internal model on an economic
value basis. The latter is larger as of the end of March 2016.
We define the amount of capital to cover risks based on the internal model as the total amount of technicalprovision and solvency risk capital on an economic value basis in excess of statutory policy reserves (excluding
contingency reserves). The solvency risk capital on an economic value basis is calibrated at VaR (99.5%) over one
year and based on the internal model, which is a similar but modified model based on EU Solvency II standard
method.
The solvency risk capital on an economic value basis as of the end of March 2016 was ¥1,019.2 billion (after tax).
The effective tax rate used to adjust to the after-tax basis is 28.00%. The required capital is ¥1,974.3 billion, which
is 6399.1% of the regulatory minimum capital requirement.
We will also revise the internal model itself as appropriate, taking into account domestic and overseas conditions,
including developments in international accounting standards, valuation methods of insurance liability on an
economic value basis and solvency margin standard trends, as well as the analysis of our internal mortality andmorbidity rates data.
Major differences between the internal model approach and EU Solvency II standard formula are as follows:(1) Market risk
Market risk quantification follows EU Solvency II standard method in principle. However, we modified risk
factors specified in EU Solvency II standard method to make them more suitable in light of the market risk
attributes to which we are exposed, where risk factors specified in EU Solvency II method or our previous risk
measure is considered unable to reflect enough of the risk amount at a 99.5% confidence level.
For interest rate risk in Japanese yen, principal component analysis is employed, where yield curve changes are25

disaggregated into three components—parallel shift, twist and butterfly—and the yield curve is shocked by eachcomponent, to capture the risk of yield curve changes more precisely. For other risks, major stress parameters
different from EU Solvency II include 45% for listed stocks, 100% for subsidiaries and affiliated companies’ stocks,
and 35% for currency risk.
(2) Insurance underwriting risk
Quantification of insurance underwriting risks follows the EU Solvency II standard method, with the exception ofquantification of morbidity, lapse and catastrophe risks, which follows the QIS4 approach.
(3) Operational risk
EU Solvency II standard method is followed.
(4) Correlation parameters
Correlation parameters follow EU Solvency II standard method except that the correlation parameter between
Global and Other equities is set to one to exclude any diversification effect while it is set to 0.75 under EU
Solvency II standard method.

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 less the time value of
options and guarantees, the frictional costs and the cost of non-hedgeable risks.

4.10 New business value
New business value represents the value of new business acquired during the fiscal year ended March 31, 2016.
The definition of new business is consistent with the financial information we have disclosed. New business value
does not include the value of new business expected to be acquired in the future. As with value of in-force business,
new business value is calculated as the present value of certainty-equivalent profit less the time value of options
and guarantees, the frictional costs and the cost of non-hedgeable risks. In addition, other profits and losses arereflected which represents unrealized gains or losses in assets purchased prior to acquisition of new business tohedge interest rate risk on new business (pre-hedge gains or losses).
Until the previous year-end disclosure, the value of new business had been calculated for new business acquired
during the year as a value at the end of the fiscal year; from this year-end disclosure, it is calculated as a value atpoint of sale. The value of new business as of March 31, 2016 was calculated quarterly as a value at the end of eachquarter, using the assumptions as of the end of each quarter for economic ones, inflation rate and lapse andsurrender rates and the same assumptions as the end of previous year for others. As new business value includes
profits and losses from the point of sale to the end of March 2016, actual investment gains and losses during the26period are reflected.
The effect of changing assumptions of new business value to those used to value in-force business as of the end of
March 2016 is included in (7), (10) and (11) in Section 2.6.

4.11 Present value of certainty-equivalent profit
The 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 as the assumed investment return on all assets andthe discount rate.
The present value of certainty-equivalent profit reflects the intrinsic value of options and guarantees.

4.12 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.
The 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
the account value is less than the scheduled policy reserves, 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.
・ 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,
none of such interest gains would 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 that relate interest rates or the level of account value against the minimum
guarantee amount to lapse and surrender rates for policies other than variable insurance, we have developed
dynamic surrender rates by examining experience on similar products, and taking into account current
domestic and overseas practices. Going forward, we will strive to improve our approach to dynamic surrenderassumptions for the relevant products by carefully monitoring experience data and referring to experience with27

similar products and trends of practice in Japan and other countries.

4.13 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.

4.14 Cost of non-hedgeable risks
As risks 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 EU Solvency II standard method as the cost of
non-hedgeable risks and calculated it using the cost of capital approach. It should be noted that the following points
are different from the EU Solvency II standard method:・ Non-hedgeable interest rate risk, which is not subject to risk margin in EU Solvency II, is set to the uncertaintyof the risk-free rates beyond the 40th year for Japanese yen and the 30th year for U.S. dollar.
・ Morbidity, lapse and catastrophe risk follows the QIS4 approach as described in Section 4.7 (2).
・ 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.
・ Please refer to Section 4.15 for the cost of capital rate.

4.15 Cost of capital rate
EU Solvency II has set the cost of capital rate at 6%, which is used for the cost of capital calculation. On theother hand, the CRO (Chief Risk Officer) Forum comprising 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 thephilosophy of the CRO Forum’s approach, we have decided to use a cost of capital rate of 2.5 % consistent with
the MCEV framework considering Japanese long-term equity risk premiums, the beta of Sony Financial Holdings
Inc., and the anticipated impact of Sony Life’s equity risk exposure on the beta of Sony Financial Holdings Inc.,
which is a hedgeable risk. We may revise the method of setting the cost of capital rate in the future, as an industry
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 used bySony Life Insurance Co., Ltd. (“Sony Life”) to determine the Market Consistent Embedded Value (“MCEV”) as ofMarch 31, 2016. Specifically, the scope of our review included the embedded value as of March 31, 2016, thesensitivities, the new business value and the movement analysis from MCEV as of March 31, 2015.
The Board of Directors made a statement in its News Release Form dated May 23, 2016 that the methodology,
assumptions and calculations have been made in accordance with the European Insurance CFO Forum Market
Consistent Embedded Value Principles©1, with the following exceptions:
The reference rate used in the calculations has been defined as the government bond nominal spot rate
curve rather than the swap rate curve as stipulated in the MCEV Principles.

The interest rate sensitivities are disclosed for a 50bp increase and decrease rather than a 100bp increase
and decrease as required in the MCEV Principles, considering the level of interest rates in Japan.

The calculated value of MCEV is the value for the life insurance business of Sony Life only and not theconsolidated 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 stand-alone basis.
With respect to Sony Life’s subsidiaries and its equity-method affiliates, Sony Life has not evaluated theirlife insurance business but reflected the following values in the calculation of adjusted net worth:・ AEGON Sony Life Insurance Co., Ltd. is valued at net asset value plus reserve for price fluctuations
and contingency reserve, minus intangible fixed assets, reinsurance credits on modified coinsurance(to be amortized in the future) and Insurance Business Law Article 113 deferred assets, plus the tax
effect equivalent on Insurance Business Law Article 113 deferred assets, multiplied by theparticipation rate
・ Other companies are valued at book value under Japanese GAAPNone of the calculated values of MCEV are presented separately by segment of subsidiary or by affiliatedcompany.
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).
Milliman has concluded that the methodology and assumptions used comply with the MCEV Principles except forthe 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 an allowance for all the aggregate risks in the covered business. The primarymethodologies employed are:・ 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
1

Copyright © Stichting CFO Forum Foundation 200829For participating insurance contracts, the assumptions and scenarios used in the projections are consistent
with actual practice regarding the allocation of profits between policyholders and shareholders, the settingof policyholder dividend rates, and other management actions.

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. Based upon 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 from the prior period.
In arriving at this conclusion, Milliman has relied on data and information provided by Sony Life.
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 the methodology
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 the value 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

E

EU Solvency II

FFree surplus
Frictional costs

I

Implied volatility

L

Look throughN

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

O

Options andguarantees

Definition
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 a time value of options andguarantees.
The assumption that is most likely to occur in the future.
To set various stochastic model parameters in a market-consistent manner.
One of the approaches to calculate the risk margin. The cost of risk is determinedby taking the present value of the cost to hold capital required in 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 in the time value of
options and guarantees, we have reflected the following in this cost: allowance for
uncertainty of non-economic assumptions and the portion of economic assumptions
considered non-hedgeable with respect to the cost of non-hedgeable risks.
Insurance regulation (economic value-based solvency regulation) which wasintroduced to the European Union in January 2016.
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. An example of such features is the exercise of the surrender
option.
・ It includes guarantee of benefits or policyholder values. An example isguaranteed minimum death benefits for variable life insurance.

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Term
P
Present value ofcertainty-equivalentprofitQ
QIS4R

Required capital

Risk-free rate
Risk marginRisk-neutral
probabilityT

Risk-neutral scenario
Technical 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 forth study was conducted in May 2008 and is referred to as QIS4.
The MCEV Principles define required capital as the capital necessary to hold inexcess of statutory policy reserves (excluding contingency reserve), and it isconsidered to be the larger of the solvency capital to meet the statutory required
minimum level or the capital necessary to meet internal objectives or to achieve thecompany’s targeted credit rating.
The required capital of Sony Life is set as the larger of the amount of capitalcorresponding to the solvency margin ratio of 200% or the amount of capital tocover risks based on the internal model on an economic value basis.
The reference rate defined in the MCEV Principles. The MCEV Principles state thatit should be the swap rate of the currency of 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.
The value of liability on an economic value basis, which equals the present value ofbest estimate cash flows plus the 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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