2006

We create new financial services
by generating ideas fromthe fundamentals.
On April 1, 2004, the Sony Financial Holdings Group (SFH Group) was
founded, becoming Japan’s first financial group to offer both
insurance and banking services under one umbrella.
Sony Financial Holdings GroupThe design of the corporate logo of each company in the SFH Group employs “Sony blue”
and green to express credibility and a sense of speed.

The SFH Group is a financial services group comprising the financial holding
company Sony Financial Holdings Inc. (SFH), which is wholly owned by Sony
Corporation, and core subsidiaries—Sony Life Insurance Co., Ltd. (Sony Life),
Sony Assurance Inc. (Sony Assurance) and Sony Bank Inc. (Sony Bank).
Corporate Vision
The SFH Group aims to integrate the diverse functions that are inherent to such financial services as savings, investment,
borrowing and protection; offer high-value-added products and quality services that meet individual customers’ economic
needs; and become one of the most trusted financial services groups.

Corporate Philosophy
Customer-Oriented
We consider each customer’s input carefully and provide services to their satisfaction, helping them lead lives that areabundant and trouble-free.
Contributing to Society
We understand that financial services businesses have a certain public nature. As we pursue our vision, we contribute tosociety by maintaining high ethical standards and levels of responsibility. We also fulfill our other obligations as a memberof society and good corporate citizen.
Pursuing Originality
We always generate ideas from the fundamentals, and pursue originality and innovation while remaining unfettered byconvention.
Corporate Culture with a Spirit of Freedom and Open-Mindedness
Our ideal for the financial services business recognizes the importance of each employee’s contribution. Our corporate
culture features a spirit of freedom and open-mindedness and takes full advantage of individuality and ability.

目次

Contents
ごあいさつ ................................................................ 2
ソニーフィナンシャルホールディングスグループ .............. 6

fromManagement .........................................
■Message
ソニー生命..........................................................
8 2of ........................................................
Operating Performance for FY2005 ..........
■Analysis
ソニー損保
12 6
................................................
■Corporate
ソニー銀行 Governance........................................................
16 22
Compliance ..................................................................
コーポレートガバナンス............................................. 20 23
Risk Management........................................................
コンプライアンス......................................................
20 24
Privacy..............................................................
Policy ................................................................
リスク管理
21 25
Internal Auditing.........................................................
プライバシーポリシー................................................
22 26
Social.................................................................
Contribution and Environmental Activities 23.... 27
内部監査
Corporate Information................................................
コーポレートデータ...................................................
24 28
Sony Life.......................................................................
財務データ..............................................................
32 30
Sony Assurance ............................................................
連結自己資本比率の状況............................................ 40 42
Sony Bank .....................................................................
保険子会社の保険金等の支払能力の充実の状況............... 41 50
Financial
Data ..............................................................
（ご参考）
子会社の財務データ...................................... 42 58
Consolidated
Capital Adequacy Ratio .......................
決算公告（写）...........................................................
51 65
Risk-Monitored
Loans .................................................
開示規定項目一覧.....................................................
52 66

Sony Financial
Sony Holdings
Financial Holdings
| 1
|

1

Sony Financial Holdings

Message from Management

We offer high-value-added products andquality services to our customers by integrating
the functions offered by life insurance,
non-life insurance and banking businesses.

2 | Sony Financial Holdings

Teruhisa Tokunaka

Kunitake Ando

President, Representative Director

Chairman, Representative Director

The year ended March 31, 2006 (FY2005),
was the second fiscal year since the establishment of Sony Financial Holdings Inc. (SFH).
Each subsidiary of the Sony Financial HoldingsGroup (SFH Group)—comprising Sony Life
Insurance Co., Ltd. (Sony Life), Sony Assurance
Inc. (Sony Assurance) and Sony Bank Inc. (SonyBank)—continued to strengthen and expand
its businesses in FY2005, forming ever firmer
foundations for future growth. The subsidiaries
were highly evaluated in third-party researchon customer satisfaction and security, andeach subsidiary achieved steady businessgrowth. SFH’s consolidated ordinary revenues
for FY2005 increased 16.1% year on year, to¥758.7 billion, owing to increased revenues at
Sony Life, Sony Assurance and Sony Bank.
Consolidated ordinary profit increased 106.8%
from the previous fiscal year, to ¥25.3 billion,
and net income grew 81.0%, to ¥11.5 billion.
In the life insurance business, Sony Life
continued to deliver finely tuned consulting andafter-sale follow-up services to each of its
customers through Lifeplanner®* sales employees and Partners (independent agencies). As
a result, the lapse and surrender rate** forindividual life insurance—one indicator ofcustomer satisfaction level—remained at thefavorable level of 5.88% during FY2005. Sony
Life’s insurance in force (the total of individuallife insurance and individual annuities in force)increased 4.5% from the end of the previous
fiscal year, to ¥29,084.5 billion, despite thedownward trend in insurance in force experienced by the Japanese life insurance industry
overall. Sony Life maintained a high solvency
margin ratio, an indicator of financial health,of 1,547.0% as of March 31, 2006. During
FY2005, Sony Life worked assiduously to
expand its disclosure by publicizing its embedded value, or “EV” (for details, refer to page11), one indicator of operating performance andcorporate value for life insurance companies. Asof March 31, 2006, Sony Life’s EV amounted to¥776.1 billion.
In the non-life insurance business, Sony
Assurance, which operates on the businessmodel of a direct insurance company communicating with customers directly over the

telephone or via the Internet, continued tofocus on selling its mainstay automobile insurance and medical and cancer insurance. To
increase convenience to customers, Sony
Assurance endeavored to extend its functionality by enabling various processes to be performed on its web site. In May 2005, Sony
Assurance renewed its lineup of medical andcancer insurance policies to two types ofwhole-life renewable products—SURE Basicand SURE Wide—and expanded customers’
choices for hospitalization per-day claim
amounts to two plans. Sales of automobile
insurance and medical and cancer insurance
policies were favorable, and as of March 31,
2006, the number of these policies in force
totaled more than 800,000, up approximately
20% from one year earlier. As a result, net
premiums written in FY2005 totaled ¥45.2
billion, up 19.6% from the previous fiscal year.
Especially for automobile insurance, Sony
Assurance has maintained its top position for
direct premiums written among direct non-life
insurance companies in Japan since FY2002.
In the banking business, Sony Bank, which
provides highly convenient financial products
and services to individual customers over theInternet, worked to extend its product andservice offerings and strengthen its financialbase. In May 2005, Sony Bank added to its
mortgage loans the option of fixed interest
rates over periods of more than 15 years. The
bank also added Swiss franc and Hong Kong
dollar offerings to its foreign currency deposits, increasing the number of foreign currencies handled by Sony Bank to eight. In
September 2005, Sony Bank expandedcustomers’ asset investment choices byextending the handling period for yen time
deposits to a maximum of 10 years. In December 2005, the bank expanded its settlement
services by commencing credit card settlements, and started a securities intermediaryservice in alliance with Monex, Inc. In investment trust offerings, the number handled bySony Bank as of March 31, 2006, totaled 45,
including five new investment trusts added
during FY2005. The bank also worked toincrease security by adding a function toprevent spyware and other abuses. In addition,
the bank actively pursued the provision ofSony Financial Holdings |Sony Financial Holdings

NOperating and Financial Review
for the Year Ended March 31, 2006

3

Sony Financial Holdings

information over the Internet by beginning avoice distribution service using podcasting. As
a result, as of March 31, 2006, the balance of
deposited assets—the total of deposits andinvestment trusts—amounted to ¥675.1
billion, up 17.1% from one year earlier, andthe loan balance was ¥239.4 billion, up
89.5%. The number of accounts grew byapproximately 60 thousand, or 16.9%, fromthe end of the previous fiscal year, amounting
to approximately 430 thousand as of March
31, 2006. Furthermore, in FY2005—the fifth
year since Sony Bank’s start of operations—thebank moved into the black on a full-year basis
for the first time.
In September 2005, SFH acquired from
LabMorgan Investment Corporation, a unit ofJPMorgan, all the 15,000 shares of common
stock it held in Sony Bank. Furthermore, inFebruary 2006 SFH implemented a ¥2.5 billion
capital increase to further strengthen thefinancial position of Sony Bank, which established profitable operations and had aspirations for second-stage growth. As a result,
SFH’s position in Sony Bank rose to 88.0%,
compared with 84.2% at the beginning of
the fiscal year.

NTie-ups within the SFH GroupSony Life, Sony Assurance and Sony Bank are
the companies in the SFH Group that provide
financial services to customers. In addition tostrengthening the operations of each of these

Shigeru Ishii

Teruhisa Tokunaka

companies, the SFH Group aims to enhancesynergies by reinforcing mutual tie-ups in product and service offerings, sharing and mutuallycultivating sales channels and infrastructure. In
these ways, we continue to work on offering
attractive, high-value-added products and services that conventional financial institutions are
not prepared to provide.
Even before the inception of the SFH Group,in May 2001 Sony Life started to sell Sony
Assurance’s automobile insurance products
through its Lifeplanner® sales channel, and in
March 2002 Sony Life began underwriting
group credit life insurance for mortgage loans
extended by Sony Bank. Since the launch of
the SFH Group in 2004, SFH has streamlined
and enhanced the group’s structure andreinforced tie-ups, mainly those involving
subsidiaries’ mutual provision and delivery of
products and services, to bring about greatergroup synergy. In June 2004, Sony Bank beganselling Sony Life’s individual annuities products, and in October 2004 Sony Bank began
to offer Sony Assurance’s fire insurance tocustomers taking out Sony Bank’s mortgage
loans. Furthermore, in December 2004 Sony
Life’s Lifeplanner® sales channel started
introducing Sony Bank’s mortgage loans.
We continued to steadily forge tie-ups
within the SFH Group during FY2005. For
example, the amount of new mortgage loans
handled by Sony Life’s Lifeplanner® sales
employees accounted for more than 10%

Taro Okuda

Shinichi Yamamoto

President,
President,
President,
President,
Representative Director
Representative Director Representative Director
Representative Director
Sony Bank Inc.
Sony Financial Holdings Inc. Sony Life Insurance Co., Ltd. Sony Assurance Inc.

4 | Sony Financial Holdingseach company under our umbrella. Sony Life
will continue differentiating itself from providing “Lifeplanner Value®” *, derived from
helping protect policyholders by offering life
insurance products that are optimally tailoredfor each customer’s life plan, as well as at eachof life’s milestones, through its ongoing aftersale communications. Sony Assurance willkeep concentrating on maximizing the qualityof its products and services through directcommunications with customers. At the sametime, the company also aims to move into theblack as soon as possible on the basis ofgenerally accepted accounting principles inJapan (Japanese GAAP), while continuing toachieve profitable financial results based on
U.S. GAAP***, as it has done since FY2003.
Sony Bank, which has begun achieving
profitable financial results, will develop its
forward momentum through the launch ofmobile banking services and by expanding
operations involving personal loans extended
through automated teller machine (ATM) cards
and in the securities business.
To maintain the growth of the SFH Group,
SFH will continue to prepare for a future initialpublic offering (IPO), which is expected tooccur during or after FY2007, whenevertiming is optimal. The goal of this move is todiversify financing opportunities.
We will also continue to enhance the SFH
Group’s management fundamentals and expand
its business. We would like to thank all of our
stakeholders for your ongoing support and lookforward to your continued cooperation.

Sony Financial Holdingsof the total increase of Sony Bank’s mortgage
loans during FY2005. Lifeplanner® sales
employees also made stable progress in salesof Sony Assurance’s automobile insurance. The
number of policies sold by the Lifeplanner®
sales channel accounted for approximately
10% of the total number of new automobile
insurance policies for Sony Assurance
during FY2005.
Cooperation with other companies in theSony Group also increased. For example, Sony
Assurance and Sony Bank began participatingin “Sony Point,” a point program across theSony Group that commenced in November
2005. The SFH Group also cooperated withSony Finance International, Inc. (Sony Finance),
which engages in the leasing and credit cardbusinesses. From March 2006, Sony Life, Sony
Assurance and Sony Bank, together with SonyFinance, opened ANA eLIO Card SQUARE, a
portal site for members of the ANA eLIO Card,a credit card issued by Sony Finance in cooperation with All Nippon Airways Co., Ltd.
(ANA). On the site, the four Sony Groupfinancial companies introduce their services
and outline such card member benefits as
ANA airline mileage.
While maintaining the management independence of the companies under its umbrella, as
a financial holding company SFH also works
to promote functional synergies and create
integrated services that can be deployedhorizontally across the SFH Group. To this end,
we are designing and implementing integrated
and comprehensive groupwide financial
business strategies. In designing such strategies,
SFH ensures the managerial soundness of eachcompany, while aiming to maximize thecorporate value of the SFH Group.

June 30, 2006

NToward Further Growth of the SFH
GroupGiven such trends as a declining birthrate andan aging population, the upcoming privatization of postal services, deregulation lifting theban on bank sales and other industries’ entry
into the financial services business, we expect
competition in the Japanese financial industry
to become increasingly stringent.
In this environment, we are working toaccelerate the business growth strategies ofKunitake Ando
Chairman, Representative Director

Teruhisa Tokunaka
President, Representative Director* “Lifeplanner” and “Lifeplanner Value” are registered trademarks of Sony Life Insurance Co., Ltd.
** The lapse and surrender rate is expressed as a ratio of cancellations or lapses that is modified due to the reduction, increase andreinstatement of the total amount of insurance in force.
*** U.S. GAAP calculations are used for the preparation of the Sony Group’s consolidated financial statements.
Sony Financial Holdings |5Sony Financial Holdings

Analysis of Operating Performance for FY2005

SFH’s consolidated operating results are segmented into the life insurance, non-life insurance andbanking businesses. In this section, we review operating performance in the year ended March 31,
2006 (FY2005) in each business segment.

Life Insurance Business
SFH’s operations in the life insurance business include
the businesses of Sony Life, a wholly owned subsidiaryof SFH, and Sony Life’s wholly owned subsidiary, Sony
Life Insurance (Philippines) Corporation.
In FY2005, ordinary revenues in the life insurance
business increased 15.3%, to ¥696.6 billion, from ¥604.2
billion in FY2004, owing primarily to improvements ingains and losses from investments and an increase inincome from insurance premiums, driven by steady
growth in insurance in force, particularly individual life
insurance. Ordinary profit increased 42.2%, to ¥24.3
billion, due to an improvement in gains and losses
from investments in the general account.

Life Insurance Business
Ordinary Revenues and Ordinary Profit(Billions of yen)
800

(Billions of yen)
40

600

30

400

20

200

10

0

’05

0

’06

Ordinary revenues (left scale)
Ordinary profit
Years ended March 31

Below, we review the operating performance of Sony Life, excluding Sony Life Insurance (Philippines)
Corporation. Sony Life accounts for the majority of the life insurance business in SFH’s consolidated
financial statements.

NNew Insurance SalesIn FY2005, Sony Life’s new insurance sales—the total amount of
new insurance policies sold—decreased 8.9% from the previous
fiscal year, to ¥3,401.2 billion. Within this amount, individual life
insurance sales declined 9.1% year on year, to ¥3,361.2 billion,
while individual annuity sales expanded 26.4%, to ¥30.8 billion.
Group life insurance sales expanded 23.1%, to ¥9.0 billion.
Owing to a price increase in premiums on variable life insurance
implemented in FY2005, a total of Sony Life’s mainstay individual life
insurance and individual annuities, the amount of new insurance
sales and the number of new policies declined 8.9% and 4.1%,
respectively, to ¥3,392.1 billion and 512 thousand.
Annualized premiums for new policies in FY2005 were down
3.2% from the previous fiscal year, to ¥61.7 billion. Of this amount,annualized premiums for medical protection and living benefit
protection products amounted to ¥14.5 billion, down 10.1% fromthe previous year.

NInsurance in Force
Insurance in force is the total amount of coverage that Sony Life’s
policies provide for its policyholders. As of March 31, 2006, total
insurance in force for individual life insurance, individual annuities
and group life insurance amounted to ¥30,007.8 billion, up 4.8%
from one year earlier. Of this amount, individual life insurance in

6 | Sony Financial Holdings

New Insurance Sales
and Number of New Policies(Individual life insurance + Individual annuities)(Trillions of yen)
4

(Thousands of policies)
800

3

600

2

400

1

200

0

’02

’03

’04

’05

’06

New insurance sales (left scale)
Number of new insurance policies
Years ended March 31

0Analysis of Operating Performance for FY2005

Insurance in Force andNumber of Policies in Force(Individual life insurance + Individual annuities in force)(Trillions of yen)
40

30

3

20

2

10

1

0

’02

’03

’04

’05

’06

0

Insurance in force (left scale)
Number of policies in force
As of March 31

NLapse and Surrender Rate and Persistency Rates
In FY2005, Sony Life’s lapse and surrender rate* for individual life
insurance, on a policy amount basis, improved 0.51 percentage
point and remained favorable at 5.88%. Persistency rates forindividual life insurance, on a policy amount basis, remained high.
The 13-month persistency rate increased 0.9 percentage point, to95.5%, and the 25-month persistency rate rose 1.7 percentage
points, to 89.3%.
According to the policyholder opinion research conducted by Sony
Life each year, policyholders are quite satisfied with the way thecompany’s products are tailored to each customer’s life plan throughcareful consulting services. We believe this satisfaction is the reason
for the low lapse and surrender rate and the high persistency rates.

(Millions of policies)
4

Sony Financial Holdings

force amounted to ¥28,908.8 billion, up 4.4%, individual annuities
in force totaled ¥175.7 billion, up 22.7%, and group life insurance
in force was ¥923.2 billion, up 13.1%. In addition, group annuities
in force amounted to ¥71.4 billion as of March 31, 2006, up 3.5%
from one year earlier.
For Sony Life’s mainstay individual life insurance and individual
annuities, the amount of insurance in force and the number ofpolicies in force grew 4.5% and 8.0%, respectively, to ¥29,084.5
billion and 3,845 thousand. We believe these figures reflect a highlevel of satisfaction from policyholders, as well as high acclaim forSony Life’s after-sale follow-up services. Although insurance in force
for the total Japanese life insurance industry has been in a downward trend since 1995, Sony Life’s insurance in force—the total ofindividual life insurance and individual annuities in force—increasedby ¥1,261.0 billion for FY2005, continuing its steady growth foreach of the 25 years the company has been in business.
Annualized premiums for insurance in force increased 5.2% year
on year, to ¥474.2 billion. Of this amount, annualized premiums
for medical protection and living benefit protection products were
¥109.4 billion, up 6.4% from one year earlier.

Lapse and Surrender Rateand Persistency Rates
(%)
9

(%)
100

8

95

7

90

6

85

0

’02

’03

’04

’05

’06

0

Lapse and surrender rate (left scale)
13-month persistency rate
25-month persistency rateYears ended March 31* The lapse and surrender rate is expressed as a ratio of cancellations or lapses that is
modified due to the reduction, increase and reinstatement of the total amount of
insurance in force. Without modification, the lapse and surrender rate in FY2005
was 5.85%.

New Insurance Sales
by Type of Product

NSales of Products
In FY2005, on a policy amount basis more than 80% of new policies
were death protection products. Of new insurance sales, whole life
insurance sales accounted for 15.5%, term life insurance for 60.3%,
endowment and educational insurance for 11.0%, variable life
insurance for 9.9% and other for 3.3%. Of all products, sales of termlife insurance (non-smoker preferred risk insurance) and living benefit
life insurance were favorable, owing mainly to Sony Life’s advantages
in providing reasonable insurance at relatively low premiums, as wellas high demand for insurance to cover three major diseases (cancer,
acute myocardial infarctions and cerebral embolisms.)

(%)
100

75

50

25

0

’05
Whole life
Term life
Endowment andeducational’06
Variable life
Other

Years ended March 31

Sony Financial Holdings |7

Sony Financial Holdings

Analysis of Operating Performance for FY2005

NIncome from Insurance Premiums, Insurance Claims
and Other Payments
Owing to the growth of insurance in force, insurance premiums
received from policyholders in FY2005 rose steadily to ¥579.2 billion,
from ¥550.3 billion in FY2004. Insurance claims and other payments
in FY2005 totaled ¥114.4 billion, up from ¥88.0 billion in the previous
fiscal year. By payment type, claims totaled ¥86.4 billion (up from
¥62.1 billion), benefits were ¥23.5 billion (up from ¥22.6 billion) andannuities were ¥4.4 billion (up from ¥3.1 billion).

NAsset Management

Income from
Insurance Premiums(Billions of yen)
600

400

200

0

Sony Life’s fundamental policy on investing assets in general accountis to maintain the soundness of assets and invest efficiently to build
an investment portfolio capable of ensuring stable medium- andlong-term returns, taking into account expected returns and investment risks and responding deftly to changes in financial conditions
and the investment environment. The company places emphasis on
risk management to ensure stable returns.
In FY2005, Sony Life followed its strategy of investing in responseto changes in the investment environment. During the first half ofthe fiscal year, when the equity markets were sluggish, the company
focused on investing mainly in convertible bonds. When interest
rates trended upward in the second half, the company shifted its
investments to longer-term Japanese government bonds.
As of March 31, 2006, general account assets totaled ¥2,822.5
billion, up 16.8%, or ¥406.2 billion, from one year earlier. Within thegeneral account, Japanese government and corporate bond positions
totaled ¥1,499.5 billion (accounting for 53.1% of general accountassets), Japanese stocks ¥250.7 billion (8.9%), foreign governmentand corporate bonds ¥89.0 billion (3.2%), policyholder loans ¥86.9
billion (3.1%), monetary trusts ¥658.3 billion (23.3%), cash and callloans ¥71.5 billion (2.5%) and real estate ¥75.5 billion (2.7%).

NCore Profit
Core profit is an indicator of the profit-earning capacity of the
primary insurance business over a one-year period. The term
“primary insurance business” refers to the management of insurance premiums received from policyholders, along with investment
income to pay insurance claims, annuities and benefits and to makepolicy reserve provisions for future payments. Adding capital gains orlosses, such as gains/losses on sales of securities, and one-time gains
and losses to core profit produces ordinary profit, which appears on
the statements of income.
In FY2005, Sony Life’s core profit increased 17.4% year on year,to ¥28.5 billion, owing to an improvement in gains and losses fromgeneral account investments.
Note: Like most other life insurers that are organized as joint stock corporations, Sony Lifesells life insurance that is non-profit. Mutual corporations, on the other hand, typicallyoffer with-profit policies, and its insurance premiums include a portion of financial
resources for policyholder dividends. These amounts are counted as core profits andlosses, and the financial resources for policyholder dividends are included in coreprofits. For this reason, mutual corporations tend to show higher core profits thanjoint stock corporations that operate on the same scale.

8 | Sony Financial Holdings

’02

’03

’04

’05

’06

Years ended March 31

Asset Management(General Account Composition)

As of March 31,
2006

Japanese governmentand corporate bonds
Foreign governmentand corporate bonds
Japanese stocks
Foreign stocks
Other securities

Policyholder loans
Monetary trusts
Cash and call loans
Real estate
Other

Core Profit(Billions of yen)
30

20

10

0

’02

’03

’04

Years ended March 31

’05

’06

Analysis of Operating Performance for FY2005

NSolvency Margin Ratio(As of March 31)(Millions of yen)

Item

Total solvency margin

2005

2006

416,666

593,59678,013
12,66634,451080,423
20,10956,542079,897

184,697(401)——
212,0393,220——
248,601[B]

63,26976,738

R1
R2
R3
R4
R7

44,855
10,494
31,622
1,739—

40,20010,43649,8682,062
2,625

1,317.1.%

1,547.0.%[A]

Equity (less certain items)
Reserve for price fluctuations
Contingency reserve
Reserve for possible loan losses
Net unrealized gains/losses on other securities (before taxes)(x 90% if gains; x 100% if losses)
Net unrealized gains/losses on real estate(x 85% if gains; x 100% if losses)
Subordinated debt
Deductible items
Other
Total risk

R12 + (R2 + R3 + R7)2 + R4

Insurance risks
Assumed interest risks
Asset management risks
Business management risks
Minimum guarantee risks

Sony Financial Holdings

The solvency margin ratio indicates a company’s “ability to pay.” Life insurance companies accumulate
policy reserves against the future payment of insurance claims so they can respond sufficiently toordinarily anticipated events. However, unforeseen events sometimes occur as a result of changes in theenvironment, such as a major disaster or a cataclysmic fall in the stock market. The solvency margin
ratio is one administrative control indicator used to judge if an insurer has the ability to pay in response
to such unpredictable events.
As of March 31, 2006, Sony Life had a high solvency margin ratio of 1,547.0%, up 229.9 percentage
points from the end of the previous fiscal year. This increase resulted primarily from an increase in thevalue of securities, owing to a favorable investment environment.

Solvency margin ratio { [A] / ([B] x 1 / 2)} x 100 (%)

Notes: 1. Calculations employed in the chart above apply the methods provided for under Articles 86 and 87 of the Insurance Business
Law of Japan enforcement regulations, as stipulated in 1996 by Ministry of Finance Directive 50.
2. Equity represents stockholders’ equity on the balance sheets less the estimated appropriation of paid-in cash and net unrealized
gains/losses on other securities.
3. A standard method is used to calculate minimum guarantee risks.

NUnrealized Gains on Securities
Unrealized gains and losses refers to the differences between the bookvalues and fair values of assets. If fair value exceeds book value, a gainon sales of assets would be realized by liquidating them at market
prices. For this reason, such unrealized gains act as a provision against
various risks. Part of the unrealized gains and losses on securities andreal estate is included in the total solvency margin—the numerator of
the formula for calculating the solvency margin ratio.
Unrealized gains on securities in the general account stood at¥202.8 billion as of March 31, 2006, up significantly from ¥88.0
billion a year earlier. On March 31, 2006, Japanese stocks accounted
for 8.9% of general account assets, owing to the conversion of
convertible bonds to shares. Convertible bonds accounted for 16.9%of the general account.

Unrealized Gains on Securities(Billions of yen)
250

200

150

100

50

0

’02

’03

’04

’05

’06

As of March 31(Reference: As of March 31, 2006, Sony Life assumes unrealized gains on stocks to be zero
when the Nikkei Stock Average is approximately ¥9,171 and the TOPIX index is 929 points.)

Sony Financial Holdings |9Analysis of Operating Performance for FY2005

Sony Financial Holdings

NNon-Performing Assets
As the table below shows, Sony Life has no risk-monitored loans (loans for which repayment circumstances are not ordinary). Moreover, all figures listed in the loans by borrower category are classified
as normal loans.
Sony Life’s loan balance as of March 31, 2006, was ¥86.9 billion. As Sony Life does not engage incommercial loans*, its loan balance is derived solely from policyholder loans, which are recoverable andlimited to the value of surrender payments.
* Some life insurance companies make commercial loans as a part of their asset management for the purpose of generating interest income.
Loans are categorized as policyholder loans, which are a form of customer service, and commercial loans. The balance of “loans” represents
the sum of these categories.

Risk-Monitored Loans(As of March 31)(Millions of yen)

Category

2005

2006

Bankrupt loans——

Non-accrual delinquent loans——

Past-due loans (three months or more)——

Restructured loans

—

—

—

—

Total

Loans by Borrower Category(As of March 31)(Millions of yen)

Category

2005

2006

Bankrupt and quasi-bankrupt loans——

Doubtful loans——

Sub-standard loans
Normal loans
Total

—

—

81,42388,55481,42388,554

NNegative Spread
Life insurance companies retain a portion of premiums received from policyholders as policy reserves
in anticipation of future payments. These policy reserves are calculated under the assumption that they
will yield a certain rate of interest every year. This interest rate is called the “assumed interest rate (forcalculating policy reserves).” Negative spread arises when, owing to the deterioration of the investment
environment or other factors, the actual investment yield falls below the assumed interest rate (forcalculating policy reserves) for some policies.
Sony Life’s negative spread in FY2005 was ¥33.1 billion, an improvement from ¥34.5 billion in theprevious fiscal year. The company has adequate other income sources to cover its negative spread,
however. (See the analysis on core profit on page 8.) Sony Life will continue working to streamline
operations to maintain and generate sufficient income to cover the negative spread.

Formula for Calculating Negative Spread
Investment yieldfor core profit 1

Average assumed
interest rate(for calculating policy reserve) 2

Policy reservein general account 3

NegativespreadNotes: 1. “Investment yield for core profit” is the investment income from general account that is included in core profit, less the provision
for policyholder dividend reserves, divided by policy reserve in general account.
2. The “average assumed interest rate (for calculating policy reserve)” is the average of the assumed interest rates used to calculate
policy reserve in general account.
3. “Policy reserve in general account” is policy reserve in general account, excluding the contingency reserve, calculated as follows:(Policy reserves at beginning of term + Policy reserves at end of term – Expected interest*) x 1/2*“Expected interest” is the amount of interest calculated by discounting the amount using the assumed interest rate every year.

10 | Sony Financial Holdings

Analysis of Operating Performance for FY2005

NEmbedded Value
Sony Financial Holdings

Embedded value (EV) is calculated as the sum of the “value of in-force business” and “adjusted net
worth.” In Europe and Canada, EV is regarded as a valuable source of information for assessing thecorporate value of a life insurance company. Sony Life discloses EV at fiscal year-end as an indicatorof the value of the life insurance business of the SFH Group.

Embedded Value

Sony Life’s EV Results
The EV results of Sony Life as of March 31, 2006, were as follows:(As of March 31)

Category(Billions of yen)

2004

2005

2006

492.0

539.3

776.1

Value of in-force business

381.7

409.6

499.8

Adjusted net worth

110.2

129.7

276.3

Value of new businessin the fiscal year

38.9

38.1

34.2

EV

Note: Different calculation methods and assumptions are used for EV results as of March 31,
2004, 2005 and 2006.

(Billions of yen)
800

600

400

200

0

’04

’05

’06

As of March 31

The value of in-force business is calculated as follows:
Value of in-force business = Present value of future after-tax profits on existing business – Cost of capital“Cost of capital” is the spread between the investment yield and thediscount rate applied to the amounts of capital and surplus that will be
required to maintain the assumed level of solvency margin ratio.
Adjusted net worth is calculated as follows:
Adjusted net worth = (a) Total equity in the balance sheets** + (b) Reserve for price fluctuations +(c) Contingency reserve + (d) Reserve for possible loan losses + (e) Net unrealized
gains on land – (f) Unfunded employees’ retirement benefits liability – (g) Deferred
tax assets for (b), (c), (d), (e) and (f).
** “Total equity in the balance sheets” excludes net unrealized gain on bonds except for convertible bonds.

Under generally accepted accounting principles in Japan (Japanese GAAP), which applies to life
insurance companies in Japan, the balance sheets do not include future profits on existing business, while
EV indicates the present value of future profits on existing business, together with the company’s adjusted
net worth. For this reason, EV serves as a valuable supplement to the financial information provided underJapanese GAAP and is a helpful indicator used to evaluate corporate value. However, EV covers only
existing in-force business as of the date of valuation, and does not include the potential value of future
new business, which is considered a constituent of the economic value of an insurance company.

Sony Financial Holdings | 11

Sony Financial Holdings

Analysis of Operating Performance for FY2005

Major Assumptions
The major assumptions employed in the calculation of EV at March 31, 2006, were as follows:
Item

1. Discount rate

Assumptions

1

6.5%

2. Investment yield on new investments 2 Investment yield is based on implied forward rates, assumingSony Life makes all new investments only in Japanese
government bonds
3. Mortality and morbidity rates

Based on Sony Life’s experience over the three most recent
fiscal years (FY2003–FY2005)

4. Lapse and surrender rate

Based on Sony Life’s experience over the three most recent
fiscal years (FY2003–FY2005)

5. Operating expenses

Unit cost for the maintenance and administration of policies
and for payments of claims is based on Sony Life’s experienceduring the most recent fiscal year (FY2005)

6. Effective tax rate

Based on the most recent effective tax rate (based on the rate
for FY2005)

7. Required solvency margin ratio

600%
For the purpose of calculating cost of capital, the solvency
margin ratio required to be maintained was assumed.

1. Discount rate
The discount rate was set by adding Sony Life’s assumed risk premium (4.5%) to the risk-free rate (the yield on 10-year Japanese
government bonds: approximately 1.77%), as of the end of the fiscal year.
2. Investment yield(1) Investment yield on new investments:
Investment yield on new investments was calculated based on the implied forward rates computed from the yield curve of Japanese
government bonds as of March 31, 2006, and assuming that the company invests only in Japanese government bonds every year.
Sony Life sets the assumed investment yield on new investments at the end of each fiscal year with the assumption that future
market conditions will be neutral. This assumption is made to avoid potential complications arising from the fact that the moreSony Life invests in assets with higher expected returns, the higher is the calculated EV. Sony Life believes such assets contain higher
risks and should be adjusted by discount rates when calculating EV.
(2) Investment yield on existing assets:
Investment yield on existing assets was calculated separately for each asset with the following assumptions:• For existing bonds other than convertible bonds, Sony Life assumed to hold them to maturity.
• For convertible bonds, Sony Life’s calculations assumed that the company would conduct rebalancing as of the date of evaluation
as follows. After reflecting the unrealized gains from convertible bonds into the adjusted net worth, Sony Life purchases straightbonds corresponding to the marked-to-market bond portions while immediately reinvesting the remaining amount into Japanese
government bonds.
• For stocks and other assets (policyholder loans, real estate, private equity funds, etc.), Sony Life assumed to maintain a balance atthe end of the fiscal year within the limits of its internal holdings.
Interest, dividends and proceeds from redemptions are calculated with the assumption that Sony Life reinvests these proceeds
into Japanese government bonds.

Movement Analysis of EV from March 31, 2005
The change in EV from March 31, 2005, to March 31, 2006, is split into the following components.
(Billions of yen)
Item

Amount1. EV as of March 31, 2005

539.3

2. Shareholder dividends(6.5)

3. Release from the value of existing policies in force

24.7

4. EV of new policies for FY2005

34.2

5. Difference between assumptions and actual experiencefor FY2005

137.2

6. Differences from changes in the assumptions

47.2

7. EV as of March 31, 2006

776.1

Notes: Reversal of discount rate on the value of in-force business for the year:
The amount in item 5 includes an ¥87.8 billion increase in unrealized gains on securities other than bonds.
The amount in item 6 includes a ¥25.9 billion increase due to changes in the method of valuing convertible bonds.

12 | Sony Financial Holdings

Analysis of Operating Performance for FY2005

Sony Financial Holdings

Impact of Changing Assumptions (Sensitivities)
The impact of changing the underlying assumptions on EV at March 31, 2006, is as follows:(Billions of yen)Amount of Increase (Decrease)

EV Amount

Discount rate

6.5%→5.5%
6.5%→7.5%

57.1(47.1)

833.2
729.0

Solvency margin ratio

600%→500%
600%→700%

11.6(12.9)

787.7
763.2

Investment yield: +0.25%*

On total assets
On new assets

48.3
30.3

824.4
806.4

Investment yield: –0.25%

On total assets
On new assets(49.7)(30.6)

726.4
745.5

Mortality and morbidity

Assumption x 1.1(52.4)

723.7

Lapse and surrender rate

Assumption x 1.1(15.9)

760.1

Operating expenses

Assumption x 1.1

(4.0)

772.1

* The impact of changes in investment yield assumptions is also reflected in policyholders’ dividends.

Notes
Regulations require that certain reserves be set aside for minimum guarantee benefit features onvariable life insurance and annuity contracts issued in FY2005 and thereafter. In calculating EV as ofMarch 31, 2006, while setting aside the reserve for guaranteed minimum death benefits (GMDB) basedon Japanese GAAP, Sony Life evaluated the future cash flow on GMDB for all existing variable life
insurance policies using the stochastic method. This evaluation reduced EV by ¥3.2 billion.
For calculating EV as of March 31, 2006, Sony Life changed the method of accounting for existing
convertible bonds at fiscal year-end. In calculating EV as of March 31, 2005, Sony Life assumed thatconvertible bonds would be held to maturity with stock prices remaining unchanged from March 31,
2005. As is described above, Sony Life calculated EV as of March 31, 2006, assuming the rebalancing
of convertible bonds as of the date of evaluation. This increased EV by ¥25.9 billion.
Opinion of Outside Specialist
Sony Life has obtained an opinion letter from Milliman, Inc., an independent actuarial firm thatpossesses insurance actuarial expertise. This opinion letter can be found on SFH’s web site(http://www.sonyfh.co.jp/english/).
Disclaimer
Statements made in this section of the annual report contain calculations based on assumptions regarding future projections that are
subject to risks and uncertainties. It should be noted that actual future results might materially differ from the assumptions used in the
EV calculations. Therefore, readers are advised to be cautious and not place undue reliance on EV calculations.

Sony Financial Holdings | 13

Analysis of Operating Performance for FY2005 (Non-Life Insurance Business)

Sony Financial Holdings

Non-Life Insurance Business
SFH’s non-life insurance business is conducted bySony Assurance, a wholly owned subsidiary of SFH.
In FY2005, ordinary revenues from the non-life
insurance business increased 19.8%, to ¥45.7 billion,
from ¥38.1 billion in FY2004, due to a continued
increase in net premiums written for automobile
insurance and medical and cancer insurance. Ordinary
loss amounted to ¥0.7 billion, an improvement of ¥2.0
billion from the previous fiscal year, owing to an increasein net premiums written and an improvement in the
net expense ratio.

Non-Life Insurance Business
Ordinary Revenues and Ordinary Losses(Billions of yen)
60

(Billions of yen)
15

40

10

20

5

0

0

–20

’05

–5

’06

Ordinary revenues (left scale)
Ordinary losses
Years ended March 31

Below, we review the operating performance of Sony Assurance, which conducts SFH’s non-life
insurance business.

NNumber of Policies in ForceIn FY2005, the number of policyholders of Sony Assurance’s mainstay automobile insurance and medical and cancer insurance policies
continued to grow steadily. In automobile insurance, the number of
new and renewed policies both remained favorable. In medical andcancer insurance, sales continued to grow steadily even after Sony
Assurance’s revision of its offerings in May 2005. Sony Assurance
now offers two “SURE” policies—SURE Basic, which features
inexpensive premiums and selective coverage, and SURE Wide,which provides much more extensive coverage. As a result, thenumber of insurance policies in force—the sum of automobile
insurance and medical and cancer insurance policies—exceeded
800,000 as of March 31, 2006, up approximately 150,000 policies
from one year earlier.

Number of Policies in Force(Automobile insurance +Medical and cancer insurance policies)(Thousands of policies)
1,000

750

500

250

0

NNet Premiums Written
Net premiums written at non-life insurance companies, whichcorresponds with sales in other industries, describes the premiums
received from policyholders (direct premiums written) plus or minus
reinsurance premiums (adding direct reinsurance premiums received
and subtracting direct reinsurance premiums paid). In FY2005, Sony
Assurance’s net premiums written totaled ¥45.2 billion, up 19.6%
from ¥37.8 billion in the previous fiscal year. By type of insurance,
net premiums written for automobile insurance increased 16.5%, to¥39.8 billion, accounting for 88.0% of total net premiums written.
Net premiums written for casualty insurance, which comprises
mainly medical and cancer insurance, grew 54.2% year on year, to¥4.8 billion, accounting for 10.7% of total net premiums written.
For types of insurance other than automobile and casualty insurance,such as fire insurance, marine insurance and automobile liability
insurance, net premiums written rose 19.6%, to ¥0.5 billion.

14 | Sony Financial Holdings

’02

’03

’04

’05

’06

As of March 31

Net Premiums Written(Billions of yen)
50

40

30

20

10

0

’02

’03

’04

Years ended March 31

’05

’06

Analysis of Operating Performance for FY2005 (Non-Life Insurance Business)

NNet Loss Ratio

50

45

40

0

’02

’03

’04

’05

’06

Sony Financial Holdings

The net loss ratio describes the ratio of the total amount of net
losses paid and loss adjustment expenses, such as expenses incurredin surveying damages, to net premiums written. In FY2005, Sony
Assurance’s net loss ratio increased 0.4 percentage point, to 52.3%,
up from 51.9% in FY2004. By type of insurance, the net loss ratio
on automobile insurance rose 1.2 percentage points year on year,
from 55.3% to 56.5%, while for casualty insurance, including
medical and cancer insurance, the ratio increased 1.3 percentage
points, from 15.8% to 17.1%.

Net Loss Ratio(%)
55

Years ended March 31

NNet Expense Ratio
The net expense ratio is the ratio of the total of costs to market andperform ongoing maintenance to net premiums written. This ratio
includes the company’s business expense and development costs
for new products. In FY2005, Sony Assurance’s net expense ratio
improved 4.3 percentage points, to 30.3% from 34.6% in theprevious fiscal year, due to improved efficiency of operations.
The combined ratio—the sum of the net loss ratio and the net
expense ratio—improved 4.0 percentage points, from 86.5% in
FY2004 to 82.5% in FY2005.

Net Expense Ratio
(%)
60

50

40

30

0

’02

’03

’04

’05

’06

Years ended March 31

NUnderwriting Profits
Underwriting profits describe the level of profits that a company
generates by underwriting insurance. Underwriting profits arecalculated by subtracting from underwriting income (net premiums
written, etc.) the underwriting expenses (net losses paid, loss
adjustment expenses, etc.) and the operating, general and administrative expenses associated with underwriting, as well as the net
amounts of various other income and expenses (such as corporate
taxes associated with automobile liability insurance). In FY2005,
Sony Assurance’s underwriting profits improved ¥1.9 billion from theprevious fiscal year, to a negative ¥1.1 billion, owing to an increasein net premiums written and improvements in its net expense ratio.
By type of insurance, underwriting profits on automobile insurance
improved ¥1.3 billion from the previous fiscal year, to a negative¥0.9 billion. On casualty insurance, including medical and cancer
insurance, underwriting profits improved ¥0.6 billion, to a negative¥0.2 billion.

Underwriting Profits(Billions of yen)
0

–2

–4

–6

–8

’02

’03

’04

’05

’06

Years ended March 31

Sony Financial Holdings | 15

Analysis of Operating Performance for FY2005 (Non-Life Insurance Business)

Sony Financial Holdings

NTotal Assets Composition and Investment Policy

Composition of Total Assets

As of March 31, 2006, Sony Assurance’s total assets increased
20.2% from the end of the previous fiscal year, to ¥56.1 billion.
Of total assets, securities amounted to ¥44.0 billion (accounting for78.5% of the total), cash and deposits ¥1.4 billion (accounting for2.6%), property and equipment ¥0.1 billion (accounting for 0.3%),
and other assets ¥10.4 billion (accounting for 18.6%). Sony Assurance’s
investment policy is to ensure stable investment returns over the
medium to long term by investing primarily in yen-denominatedbonds and taking into account the market environment andinvestment risks.

As of March 31,
2006

Cash and deposits
Securities

Property andequipment
Other assets

NSolvency Margin Ratio
For non-life insurers, the solvency margin ratio is an important indicator of the ability to pay claims. Asof March 31, 2006, Sony Assurance had a solvency margin ratio of 976.1%, indicating a substantial
ability to pay claims.
(As of March 31)(Millions of yen)

2005

2006

15,845

116,952

12,065
6
3,742
—
30
—
—
—
—

11,623
15
5,192
—
121
—
—
—
—

[B]

2,893

3,473

Ordinary insurance risks

R1

2,495

3,004

Assumed interest risks

R2

—

—

Asset management risks

R3

188

214

Business management risks

R4

89

107

Major catastrophe risks

R5

Item

Total solvency margin[A]

Equity (less certain items)
Reserve for price fluctuations
Special catastrophe reserves
Reserve for possible loan losses
Net unrealized gains/losses on other securities (before taxes)
Net unrealized gains/losses on real estate
Subordinated debt
Deductible items
Other
Total risk

R12 + (R2 + R3)2 + R4 + R5

Solvency margin ratio { [A] / ([B] x 1 / 2)} x 100 (%)

301

354

1,095.2.%

976.1.%

Notes: 1. Calculations employed in the chart above apply the methods provided for under Articles 86 and 87 of the Insurance Business
Law of Japan enforcement regulations, as stipulated in 1996 by Ministry of Finance Directive 50. The method of computing thesolvency margin ratio changed in FY2005, in accordance with revisions to the Insurance Business Law of Japan enforcement
regulations. Therefore, calculations as of March 31, 2005 and 2006 use different standards.
2. Equity represents stockholders’ equity on the balance sheets less estimated appropriation of paid-in cash, deferred assets andnet unrealized gains/losses on other securities.

16 | Sony Financial Holdings

Analysis of Operating Performance for FY2005 (Non-Life Insurance Business)

NNon-Performing Assets

Risk-Monitored Loans(As of March 31)(Millions of yen)

Category

2005

2006

Bankrupt loans——

Non-accrual delinquent loans——

Past-due loans (three months or more)——

Restructured loans

—

—

—

—

Total

Sony Financial Holdings

Sony Assurance’s self-assessment of assets is outlined below.

Loans by Borrower Category(As of March 31)(Millions of yen)

Category

2005

2006

Bankrupt and quasi-bankrupt loans——

Doubtful loans——

Sub-standard loans

—

—

—

—

—

—

Normal loans
Total

Sony Financial Holdings | 17

Analysis of Operating Performance for FY2005 (Banking Business)

Sony Financial Holdings

Banking Business
SFH’s banking business is conducted by Sony Bank,a subsidiary of SFH.
In FY2005, ordinary revenues from the banking
business increased 51.7%, from ¥11.3 billion in theprevious fiscal year to ¥17.2 billion, due to the expansionof its business, associated with a steady increase indeposited assets—the total of deposits and investment
trusts—and mortgage loans. Ordinary profit improved¥3.8 billion, to ¥1.7 billion,* as a result of an increase ingross operating profit in line with business expansion.
As of March 31, 2005, SFH owned 84.2% of SonyBank’s shares. However, in September 2005 SFH acquired
from LabMorgan Investment Corporation, a unit ofJPMorgan, all the 15,000 shares of common stock that itheld in Sony Bank. Furthermore, with the aim of further
strengthening the bank’s financial foundation, in
February 2006 SFH implemented a ¥2.5 billion capitalincrease in Sony Bank by accepting a shareholder
allocation of new shares. As a result, SFH’s position inSony Bank as of March 31, 2006, had risen to 88.0%,
accounting for the ownership of 440,000 of the 500,000
outstanding shares in Sony Bank.

Banking Business
Ordinary Revenues andOrdinary Profit (Loss)(Billions of yen)
20

(Billions of yen)
10.0

15

7.5

10

5.0

5

2.5

0

0.0

–5

’05

–2.5

’06

Ordinary revenues (left scale)
Ordinary profit (loss)
Years ended March 31* Ordinary profit in the banking business includes a one-time amortization of
goodwill associated with the purchase of Sony Bank’s shares and the acceptanceof its capital increase. As a result, ordinary profit of SFH’s banking business differsfrom the ordinary profit disclosed by Sony Bank.

Below, we review the operating performance of Sony Bank, which constitutes SFH’s banking business.

NGross Operating Profit
Sony Bank’s gross operating profit rose 76.3% year on year, from
¥5.3 billion in the previous fiscal year to ¥9.4 billion in FY2005. The
bank derives gross operating profit from net interest income, net
fees and commissions, and net other income.
Sony Bank uses the funds that its customers have placed on
deposit to invest in securities, provide mortgage loans and offer
other loans to individuals. Net interest income refers to the spread
between funding costs such as interest paid on deposits, and interest
received on securities, loans and other items. In FY2005, net interest
income increased 29.4% year on year, to ¥4.8 billion, owing to anincrease in the bank’s average investment balance throughout theyear, associated with steady growth in the balance of deposits andloans. This situation resulted in an increase in the amount received
from securities and interest on loans that exceeded the increase in
the amount of interest paid on deposits.
Net fees and commissions refers to the spread between fees andcommissions received on investment trusts as well as on remittanceand transfer and fees and commissions paid for the use of ATMs and

18 | Sony Financial Holdings

Gross Operating Profit(Billions of yen)
10.0

7.5

5.0

2.5

0

–2.5

’02

’03

’04

Years ended March 31

’05

’06

Analysis of Operating Performance for FY2005 (Banking Business)

Sony Financial Holdings

for remittance and transfer. In FY2005, the substantial growth infees and commissions on investment trusts, backed by particularly
strong sales of investment trusts, more than offset the increase infees and commissions paid for the use of ATMs. As a result, net fees
and commissions increased 236.4%, to ¥0.4 billion.
Net other income refers to services that are not included in net
interest income or net fees and commissions. These include gains
and losses associated with foreign exchange transactions, sales ofbonds and others, and derivatives (valuation gains or losses onderivative products including swaps that are held to hedge securities
and others). In FY2005, net other income increased 177.7%, to ¥4.1
billion, due mainly to a significant increase in the volume of foreignexchange transactions involving foreign currency deposits, one ofSony Bank’s mainstay products.

NGeneral and Administrative Expenses
General and administrative expenses increased 2.7% during FY2005,
to ¥7.0 billion. The decrease in advertising expenses partially offset
the increase in personnel and system-related expenses, whichaccompanied business expansion and resulted in a slight increasein general and administrative expenses.
As a result, Sony Bank’s operations became profitable, withordinary profit of ¥2.2 billion.* This represents a ¥3.8 billion yearon-year improvement, and is the first time the bank has been
profitable on a full-year basis since its start of operations in 2001.
Taking advantage of tax benefit accounting by recording deferred
tax income, the bank posted net income of ¥3.2 billion andeliminated its accumulated deficit.

General and Administrative
Expenses(Billions of yen)
8

6

4

2

0

’02

’03

’04

’05

’06

Years ended March 31* Ordinary profit that Sony Bank records is different from ordinary profit of SFH’s banking
business. Ordinary profit of SFH’s banking business includes a one-time amortization of
goodwill associated with the purchase of Sony Bank’s shares and the acceptance of its
capital increase.

NNumber of Accounts
In FY2005, Sony Bank continuously endeavored to acquire newcustomers by expanding its product and service offerings and raising
the level of company recognition. As a result, the number ofaccounts increased steadily throughout the year, growing 16.9%,
or 62 thousand, to 430 thousand as of March 31, 2006.

Number of Accounts(Thousands of accounts)
500

400

300

200

NDeposited Assets
Deposited assets as of March 31, 2006, were ¥675.1 billion, up
17.1% from one year earlier. Of this figure, yen deposits accounted
for 66.8%, foreign currency deposits for 22.1%—the sum ofdeposits thereby constituting 88.9%—and investment trusts for
11.1% of deposited assets.
In September 2005, Sony Bank extended its handling period for yentime deposits to a maximum of 10 years, and during FY2005 the bank ran
interest rate benefit campaigns on yen time deposits twice. As of March
31, 2006, yen deposits were up 16.4% year on year, to ¥451.0 billion.

100

0

’02

’03

’04

’05

’06

As of March 31

Sony Financial Holdings | 19

Sony Financial Holdings

Analysis of Operating Performance for FY2005 (Banking Business)

In foreign currency deposits, in May 2005 the bank added Swiss
franc and Hong Kong dollar offerings to the list of foreign currency
deposits it handles, increasing its number of foreign currencies toeight. Sony Bank ran foreign currency campaigns in May andNovember of 2005. As of March 31, 2006, the balance of foreign
currency deposits totaled ¥148.9 billion, down 6.4% from a year
earlier. The main reason for this decrease was that many of the U.S.
dollar deposits that had raised the balance during FY2004 were
exchanged into yen to take advantage of the yen’s depreciation
against the dollar in FY2005. In addition, as the stock market turned
upward individual assets were shifted from foreign currency deposits
to stocks and investment trusts.
In investment trusts, the bank added a total of five new funds inJune and November of 2005, and in November 2005 Sony Bank ran
a half-price commission cash-back campaign on new funds addedat that time. These initiatives, combined with the uptrend in thestock market, caused the total balance of investment trusts to swellsignificantly, up 153.7% year on year, to ¥75.1 billion.

Deposited Assets(Billions of yen)
800

600

400

200

0

’02

’03

’05

’06

As of March 31

NLoansOn March 31, 2006, loans totaled ¥239.4 billion, up 89.5% year
on year, with mortgage loans accounting for 97.9% of the total.
In addition to mortgage loans, Sony Bank offers personal loans
extended through ATM cards and special-purpose loans.
As of March 31, 2006, the balance of mortgage loans was up
90.9% from the end of the previous fiscal year, to ¥234.3 billion.
In May 2005, Sony Bank added new fixed-rate interest periods of
15 years, 20 years and more than 20 years. The bank also ran
discounted interest rate campaigns three times during the year
and expanded its tie-ups in mortgage loans.

’04

Yen deposits
Foreign currency deposits
Investment trusts

Loans(Billions of yen)
250

200

150

100

50

0

’02

’03

’04

’05

’06

Mortgage loans
Other
As of March 31

NSecurities
Sony Bank’s principal investments are in securities, and as of March
31, 2006, the balance of securities was up 39.8% from one year
earlier, to ¥449.5 billion. Of this amount, Japanese government
bonds represented ¥179.7 billion, up ¥59.2 billion, and corporate
bonds were up ¥36.4 billion, to ¥58.4 billion. Other securities,
including corporate bonds issued outside of Japan, amounted to¥211.3 billion, an increase of ¥32.2 billion. Securities rated AA or
higher accounted for 59.6% of the total.
Note: Sony Bank classifies its securities based on the standards below by referring to theratings of five rating agencies: Moody’s Investors Service, Inc. (Moody’s); Standard &Poor’s Corp. (S&P); Rating and Investment Information, Inc. (R&I); Japan Credit Rating
Agency, Ltd. (JCR); and Fitch Ratings, Ltd. (Fitch).
Standards: For Japanese securities, ratings by R&I and JCR are given preference. For
overseas securities, Moody’s, S&P and Fitch are preferred. Where multiple ratings givedifferent results, the lowest are used.

20 | Sony Financial Holdings

Securities (by Rating)(Billions of yen)
500

400

300

200

100

0

’02

’03

AAA
AA
A
As of March 31

’04

’05

’06

BBB
Not ratedAnalysis of Operating Performance for FY2005 (Banking Business)

NCapital Adequacy Ratio

Capital Adequacy Ratio

Sony Financial Holdings

The capital adequacy ratio is used to indicate a bank’s financial
stability. In February 2006, Sony Bank received a capital infusion of¥2.5 billion to strengthen its financial base in response to its steadily
expanding operations. As of March 31, 2006, Sony Bank’s capital
adequacy ratio (domestic criteria) was 9.24%. This level is significantly higher than the 4% capital adequacy ratio that is required
under the Banking Law of Japan as a minimum standard for banks
that operate only in Japan.

(%)
40

30

20

10

0

’02

’03

’04

’05

’06

As of March 31

Sony Bank’s Capital Adequacy Ratio (Domestic Criteria)(As of March 31)(Millions of yen)

Category

Tier I capital(Core capital)[A]
Common stock

2005

2006

34,85823,75034,71525,000Of which, noncumulative
perpetual preferredstock
Capital surplus
Retained earnings
Unrealized losses onother securities
Tier II capital[B](Supplementary capital)——

13,750(2,477)

15,000
781

164
44

6,065
128

44
—

128
—

34,903291,372
290,881490

34,844
376,903376,648
254

General reserve forpossible loan losses

Deductions[C]

Total capital
Risk-adjusted assets[A + B – C] [D][E]
On-balance item
Off-balance item

Capital adequacy ratio [D / E] (%)

11.97.%

9.24.%

NNon-Performing Assets
Sony Bank’s self-assessment is outlined below.
Risk-Monitored Loans(As of March 31)(Millions of yen)

Category

2005

2006

Bankrupt loans
Non-accrual delinquent loans

—
0

—
115

Past-due loans (three months or more)
Restructured loans
Total

—
—
0

—
166
281

Problem Loans based on the Financial Reconstruction Law(As of March 31)(Millions of yen)

Category

Bankrupt and quasi-bankrupt loans
Doubtful loans
Sub-standard loans
Normal loans
Total

2005

2006

—
0
—

89
25
166

133,152
133,153

247,348247,630

Sony Financial Holdings | 21

Sony Financial Holdings

Corporate Governance

The SFH Group positions its corporate visionand philosophy as the basic policy for setting
management strategy and expediting management decision-making initiatives. One facet ofour corporate vision is our goal to “become
one of the most trusted financial services
groups.” Although subsidiaries in the SFH
Group each have different histories, scales ofoperations and business characteristics, SFH
works to achieve this goal by making the mosteffective use of the operating characteristics
and information available within the SFH
Group, to the fullest extent permissible under
the law. In taking this approach, we place utmost importance on the soundness and accuracy of our operations. To this end, we havedesigned a management structure to ensuregroupwide compliance and risk management.

SFH’s Board of Directors* comprises six
directors who are also directors of subsidiaries
within the SFH Group, plus one outside director.
This structure is designed to ensure and expand
the trustworthiness of the SFH Group.
The Board of Statutory Auditors* comprises
four statutory auditors. Based on the audit policy
and plans stipulated by the Board of Statutory
Auditors, statutory auditors are responsible
for attending important meetings, including
Board of Directors’ meetings, and for examining
operating and financial conditions and auditing
the duties executed by directors.
We carefully monitor each subsidiary’s management in a respectful manner and promotemanagement control activities by adding newgroup management control functions andencouraging creativity.
* As of July 1, 2006

Corporate Governance Structure
Shareholders

SFH Group
SFH
Board of Statutory Auditors
Board of Directors

Sony Life
President

22 | Sony Financial Holdings

Statutory Auditors

Sony Bank

Sony Assurance
President

PresidentCompliance

NHotline System

Compliance is a vital part of ensuring that acompany fulfills its responsibilities to society.
The SFH Group is further enhancing its compliance structure, understanding that maintaining
trust-based relationships with customers is an
integral part of the financial services industry.
Each of the companies in the SFH Group
is strengthening its compliance systems andpromoting compliance activities, in line witheach company’s type of business and scaleof operations.
SFH supervises and manages the complianceactivities of each company in the SFH Group,
ensuring their appropriateness and playing
a role in strengthening compliance systems
throughout the SFH Group.

Each company in the SFH Group has its own
internal hotline system. SFH acts as the SFH
Group hotline and confirms the operational
status of each company’s hotline system.
Sony Corporation also maintains a hotline
covering the entire Sony Group. This hotline
works in tandem with the hotline systems of
the SFH Group, responding to reported items
as appropriate.

Sony Financial Holdings

NSFH Group Compliance Systems

NSFH Compliance Initiatives
At SFH, the Board of Directors is assigned withestablishing a compliance program to enhance
the compliance systems of each company in the
SFH Group, and the Board has created andrevises a compliance manual that outlines these
activities. In addition, SFH’s Board of Directors
confirms the progress of such programs. As aresult, SFH monitors and strengthens compliance activities at each company’s Board of
Directors’ meetings, as well as at SFH Group
Compliance Meetings.
SFH’s Corporate Control Department acts as
a compliance division, taking overall control ofcompliance activities. In line with the compliance program, the department also performs
compliance checks and conducts training toraise awareness of compliance and ensure
adherence to relevant laws and statutes.

Sony Financial Holdings | 23

Sony Financial Holdings

Risk Management

One of SFH’s roles as a financial holding company is to concentrate management resources
and strengthen groupwide risk management

in an integrated manner. The SFH Group’s
policy on risk management is described below.

SFH’s Policy on Group Risk Management
1 As a financial holding company, we enhance the corporate value of the SFH Group by basing our risk management structure on the SFH Group’s management policy and strategic objectives, as well as by performing risk
management that responds to the various characteristics of each business and each risk category.
2 SFH confirms that the SFH Group’s subsidiaries, as independent entities, are individually responsible forestablishing risk management structures to achieve their own management targets and institutes any
necessary countermeasures.
3 As a financial holding company, SFH eliminates any excessive concentration of risk in any specific area, provides
appropriate control of intra-group transactions and manages risk propagation within the SFH Group.

SFH’s Board of Directors formulates the fundamental principles for risk management activities and transmits these requirements todirectors and employees throughout SFH andits subsidiaries. The Board then recognizes thepresence or types of risks that differ according
to each subsidiary’s scale, business and characteristics, and establishes structures to appropriately manage the various risks. SFH’s Executive
Committee, delegated by the Board of Directors,
executes daily activities pertaining to group risk
management. Specifically, while each subsidiaryevaluates, monitors and manages each risk,
the Corporate Control Department—which has
overall control of SFH’s risk management—
coordinates with the risk management

departments of those subsidiaries. The department also submits periodic reports to SFH’s
Board of Directors and Executive Committee
on the risk management conditions recognizedthrough monitoring or holding Risk Management Meetings. The Audit Department, on theother hand, conducts internal audits to verify
the appropriateness and effectiveness of theoverall risk management structure.
The types of risk that SFH and its subsidiaries
manage are indicated as below.
● Market-related risk

● Processing risk

● Credit risk

● Systems risk

● Real estate● Legal risk

investment risk
● Liquidity risk
● Insurance
underwriting risk

● Reputational risk
● Business continuity

risk

Risk Management Structure
SFH

President andRepresentative Director

Board of Directors
Reporting

ReportingExecutive Committee
Corporate Control Department

Audit Department

Reporting

Audits(Centralized risk management)

Legal risk

Market-related risk

Assetinvestment
risks

Credit risk

Insurance
underwriting risk

Processing risk

Reputational risk

Real estate
investment risk

Liquidity risk

Systems risk

Business
continuity risk

Confirmation

Sony Life

Reporting

Risk Management Meetings

Control, advice,monitoring

Sony Assurance
Each company puts risk management into practice autonomously

24 | Sony Financial Holdings

Present risk management
policies

Sony Bank

Privacy Policy

the handling of personal information, SFH
adheres to the privacy policy established bySony Corporation.
Note: In the SFH Group, subsidiaries handle personal andprivate information on their customers. SFH itself does
not gather information from customers for the purposeof conducting business and is not a “business entity that
handles personal information,” as defined in Article 2.3of the Personal Information Protection Act.

Excerpt from Sony Group Privacy Policy*
The primary objective of each Sony Group company (hereafter “Sony”) is to provide great
products and services focusing on customers’ needs, through innovative ideas as well as soundbusiness practices. Sony is committed to meeting the high expectations of its customers and tobeing the “most trustworthy partner for customers” in the broadband era of the 21st century.
Sony understands that customers entrust Sony with their Personal Information with the
expectation that it will be used only for specific purposes. Sony respects the customers’
expectations and places a high priority on properly protecting such Personal Information andlimiting its use to such purposes.
We hereby declare that we do our best to protect Personal Information of our customers,
keeping the following policies always in mind.

Sony Financial Holdings

In the course of providing products and services,
SFH’s subsidiaries handle personal and private
information about their customers. SFH exercises
the utmost caution to ensure that this information is managed appropriately and only forthe express purpose for which the customers
have entrusted it to us. For its basic policy on* This Privacy Policy is for Sony Corporation and its subsidiaries in Japan and Sony Ericsson Mobile Communications Japan, Inc.

Policies Regarding Handling of Personal Information(Compliance)
1. Sony will comply with the applicable laws, regulations, ministerial guidelines and this Privacy
Policy in handling Personal Information (information which can identify a specific individual).
(Use within Specific Purpose(s))
2. Sony will specify the purpose(s) of use as muchas possible and use Personal Information only
within the scope Sony has notified or made public, except for cases in which Sony has obtainedin advance consent from the individual who
provides his/her Personal Information (hereafter“the individual”) and for cases permitted
under the related laws or regulations.
(Notification/Publication of Purpose(s) of
Use etc.)
3. Sony will endeavor to clearly notify necessary
information such as purpose(s) of use, names
of user(s) as well as contact details and toobtain consent when asking for Personal Information. Sony may record in writing or in voice
the contents of transactions and inquiries.
Such information will be used only for purposes of responding adequately and swiftlyto the requests from the individual.
(Personal Information of Minors)
4. Sony will make special consideration for thehandling of minors’ Personal Information,e.g. to notify clearly in advance to ask a childunder fifteen (15) years old to provide Personal
Information only upon guardian’s consent.
(Security Control Measures)
5. Sony will endeavor to maintain entrusted Personal Information to be accurate and updated
to the extent necessary for the purpose(s) of its
use. Sony will take necessary and appropriate
security control measures in line with existing
technical standards to protect entrusted Personal Information from unauthorized access,modification, leakage, etc.

(Supervision of Subcontractor(s))
6. Sony may subcontract the processing of entrusted
Personal Information to a third party to the extent
necessary to fulfill the purpose(s) of its use. Suchthird party will be selected after confirming sufficient level of information security, and Sony will
exercise necessary and adequate supervision to
the party by such means as making contracts.
(Providing to Third Parties)
7. Without the consent of the individual, Sony will
not provide Personal Information to any third
party other than joint-users clearly notified at thetime of collection, except for cases permitted
under the related laws or regulations. Sony will
not provide Personal Information to any third
party, based on the “Opt-Out System” (Article
23.2 of the Personal Information Protection Act),
without acknowledgment by the individual.
(Request(s) for Review etc.)
8. Sony will, based on the provisions of the related
laws or regulations, swiftly respond to request(s)from the individual such as to review, correct,
stop receiving further product or service information from Sony, or to delete Personal Informationof their own after confirming their identity. Pleasecontact the appropriate customer center to which
you have provided your Personal Information.
(Response to Complaint(s))
9. Sony will set up necessary internal organizations
to address adequately and swiftly complaint(s)from individuals about its handling of Personal
Information.
(Continuous Improvement of Internal System)
10. Sony will continuously endeavor to improve
internal compliance systems including updating this Privacy Policy through establishmentof internal rules, education to employees andappropriate internal audit to handle entrusted
Personal Information properly.

Sony Financial Holdings | 25

Sony Financial HoldingsInternal Auditing

SFH performs internal audits through its Audit
Department. Reporting directly to the president and representative director, this department operates outside the other lines ofoperational reporting and, from an independent and objective position, verifies theappropriateness and effectiveness of internal
controls, including governance processes,
compliance and risk management. This
department endeavors to perform highly
effective internal audit activities to contributeto the sound and appropriate operations of
SFH and its subsidiaries.
Subsidiaries have their own internal audit
departments, which perform activities designed
to match their specific industry, scale ofbusiness and the types of risk they entail. SFH’s
Audit Department remains constantly aware of
subsidiaries’ internal audit activities by monitoring their audit plans and the audit reports,
and reports periodically to SFH’s president andrepresentative director and the Board of Directors. If necessary, SFH’s Audit Department may
conduct audit activities of subsidiaries directly.
The Audit Department also cooperates withstatutory auditors, who conduct operational
audits based on the audit standards forstatutory auditors. The Audit Department also
maintains reciprocal relationships with statutory auditors and the accounting auditor,
while performing audits independently.

Internal Auditing Structure
SFH

Reporting

AuditsBoard ofDirectors

President andRepresentative Director

Board of
Statutory
Auditors

ReportingStatutory
Auditors

Executive
Committee

Audit Department

AuditsOperational
Departments

Direct audits, as needed

Monitoring

26 | Sony Financial Holdings

Sony Life

Sony AssuranceSony BankInternal Audit Department

Internal Audit Department

Internal Audit Department(Internal Audit Division)(Internal Audit Department)(Internal Audit Department)

AuditsAuditsAuditsOperational Departments

Operational Departments

Operational Departments

Social Contribution and Environmental Activities

NSocial Contribution Initiatives
The Sony Group contributes to society in eachof the locations in which it operates throughout the world. Its policy is to participate inactivities to keep pace with the changing times
and meet the needs of the societies in which it
operates. The Sony Group is also extending its
system to support the volunteer activities of its
employees, thereby encouraging community
participation.
Volunteer Activities
In FY2003, Sony Life designated the anniversary of its founding as Volunteer Day. This isa special day when all employees are encouraged to consider and implement activities that
benefit the community. In FY2005, Sony Life’s
employees volunteered to clean the roadsides
in their office vicinities and donated blood.
At the time of the Kobe earthquake in 1995,
a Sony Life volunteer group established theSony Life Volunteers’ Club, providing support
to people in areas affected by earthquakes andcooperating with local organizations, including
provision of a support network for elderly andphysically impaired victims of the earthquake.
Now, more than 10 years on, the club continues to support the victims by planning andinviting them on bus tours to visit hot springsand holding Christmas parties to deepen
relations with these victims. Sony Life employees also provide operational support for the
Oita International Wheelchair Marathon and
the Sony Life Cup All Japan Ladies Tennis
Tournament, support a bone marrow donor
registry, host events at children’s homes andvolunteer for various other activities that keepthem closely in touch with their communities.
Fundraising
Since FY1997, Sony Life has made financial
donations to the Eye Mate Fund, established by
The Eye Mate, Inc., with the aim of helping
visually impaired people participate in society.
The company donates an amount each yearthat matches the total raised by its employees.
In FY2005, a total of ¥9.72 million in employee

donations, matching funds and a special
company donation were given to Eye Mate,bringing cumulative donations for training
guide dogs to more than ¥100 million.
Sony Assurance participates in fundraising
activities for the Japan Committee for UNICEF.
The company also sends cancelled stamps andprepaid cards to help organizations thatprovide medical care overseas.

Support forSpecial Olympics Nippon (Japan)

Sony Financial Holdings

The SFH Group participates in various social
contribution and environmental activities, basedon the principles and ideals set forth for these
activities by Sony Corporation. As a memberof the Sony Group, we will continue to play
an active role in the progress of these social
contributions and environmental activities.

Since FY1996, Sony Life has offered financial
support to Special Olympics Nippon, a nonprofit organization that provides people withintellectual disabilities with independence andopportunities to participate in the community
through sports. Employees also act as volunteers in running the events. Sony Life is helping to increase awareness and understandingof Special Olympics Nippon’s activities, establishing regional organizations and supporting
charity concerts, movie screenings and otherinitiatives. By supporting Special Olympics
Nippon, Sony Life promotes the independenceof people with intellectual disabilities andhelps them participate in the community.

NEnvironmental Initiatives
Acquisition of ISO 14001 Certification
The Sony Group has acquired ISO 14001
certification, the international standard forenvironmental management systems, and all
the Sony Group companies worldwide adhere
to its Global Environmental Management
System. Within the SFH Group, both Sony Lifeand Sony Assurance are ISO 14001 certified.
These companies pursue energy-saving
activities, such as working toward targets
for the reduced consumption of energy
and photocopier paper, and promote green
procurement to raise the portion of ecoproducts in their office supplies.
System for Using Green Electricity
To reduce greenhouse gas emissions, the Sony
Group takes advantage of reusable energy
resources. Within the SFH Group, in April 2005
Sony Life became the first company in theJapanese life insurance industry to employ agreen electricity certification system. This systempromotes the use of green electricity, such as
wind-powered generation, to help protect theenvironment by reducing CO2 emissions. Thissystem enabled the company to reduce its CO2
emissions by 67 tonnes in FY2005.

Sony Financial Holdings | 27

Corporate Information

Sony Financial Holdings

Company Information(As of July 1, 2006)

Company name:
Established:
Head office:Business:Sony Financial Holdings Inc.
April 1, 2004
1-1, Minami Aoyama 1-chome, Minato-ku, Tokyo, Japan
Management control of subsidiaries (life insurance companies,
non-life insurance companies, banks and others) specified by
the Insurance Business Law of Japan and the Banking Law ofJapan and all duties incidental to that role.
Common stock:¥5,500 million
Number of shares outstanding: 2,100,000 shares
Share ownership:
Sony Corporation 100%

Information on Common Stock, Shares and Shareholders
Historical Data on Common Stock and Number of Shares Outstanding
Common Stock (millions of yen)

Number of Shares Outstanding (shares)

500
5,500

2,000,000
2,100,000

Number of Shares Held (shares)

Percentage Ownership

2,100,000

100%

April 1, 2004
June 25, 2004

Information on Ownership of SharesSony Corporation

Senior Management(As of July 1, 2006)

Directors and Statutory Auditors
Title

Name

Other Concurrent Responsibilities

Chairman,
Representative Director

Kunitake Ando

Chairman and Director of Sony Life Insurance Co., Ltd.,
Director of Sony Assurance Inc.

President,
Representative Director

Teruhisa Tokunaka

Director of Sony Bank Inc.

Executive Vice President,
Representative Director

Hiromichi Fujikata

Director of Sony Life Insurance Co., Ltd.,
Director of Sony Assurance Inc.

Director

Nobuyuki Oneda

Executive Vice President and Chief Financial Officer,
Corporate Executive Officer of Sony Corporation

Director

Shinichi Yamamoto President and Representative Director of Sony
Assurance Inc.

Director

Shigeru Ishii

President and Representative Director of Sony Bank Inc.

Director

Taro Okuda

President and Representative Director of Sony Life
Insurance Co., Ltd.

Standing Statutory
AuditorHiroshi Sano

Statutory Auditor of Sony Life Insurance Co., Ltd.,
Statutory Auditor of Sony Assurance Inc.

Statutory Auditor

Takemi Nagasaka

Senior General Manager, Accounting Department ofSony Corporation

Statutory Auditor

Hiroshi Ueda

Standing Statutory Auditor of Sony Bank Inc.

Statutory Auditor

Masahiro Kodama

Standing Statutory Auditor of Sony Assurance Inc.

28 | Sony Financial Holdings

Number of Employees
Sony Financial Holdings(As of March 31, 2006)

SFH

Life Insurance
Business

Non-Life
Insurance
Business

Banking
Business

SFH
Group

19

5,312

532

120

5,975

Note: SFH employees are personnel on loan from Sony Corporation, Sony Life InsuranceCo., Ltd., Sony Assurance Inc. and Sony Bank Inc.

Organizational Chart(As of July 1, 2006)
Shareholders’ Meeting
Board of Statutory Auditors
Board of Directors
Audit Department
Executive Committee
Corporate Planning Department
Corporate Control Department
Business Development Department

Information on Subsidiaries(As of March 31, 2006)

Company Name

Head Office

EstablishedSony Assurance Inc.

Sony Bank Inc.

Makati City,
Philippines
Kamata,Ota-ku, Tokyo,
Japan
Akasaka,Minato-ku, Tokyo,
Japan

Business

65,000Life
insurance

Ownership (%)
SFH

Sony
Life

Sony
Assurance

Sony
Bank

100

—

—

—

937 million
August 26,
Life
Philippine
(100)
1998
insurance
pesos

100

—

—

June 10,1998

20,000Non-life
insurance

100

—

—

—

April 2,
2001

25,000Banking

88

—

—

—

Minami Aoyama,Sony Life Insurance
August 10,
Minato-ku, Tokyo,Co., Ltd.
1979
Japan
Sony Life Insurance(Philippines)
Corporation

CommonStock(millionsof yen)Note: Ownership figures in parentheses indicate indirect ownership.

History
2004

2004

2005
2006

April

Sony Financial Holdings Inc. established and commenced operations
Emergence of Japan’s first financial holding company to hold both insurance andbanking subsidiaries under one umbrella
Initial ownership was 100% of Sony Life, 100% of Sony Assurance and 80% of Sony Bank
June
Implemented ¥10.0 billion capital increase of SFH through a shareholder allocation
Infused ¥10.0 billion in capital to Sony Bank, increasing SFH’s ownership of Sony Bank
to 84.2%
September Acquired additional shares in Sony Bank, increasing ownership to 87.4%
February
Accepted new share allocation by Sony Bank, raising ownership to 88.0%

Sony Financial Holdings | 29

Sony Life

Life
Insurance

URL

http://www.sonylife.co.jp/(Japanese only)

Sony Life

Sony Life provides ongoing support to its
customers as they move through life’s milestones to achieve their dreams and aspirations.
The value Sony Life offers goes beyond life
insurance, to “Lifeplanner Value®.”Sony Life delivers life insurance products that are optimally tailored for each customer’s life plan.
This approach is based on Sony Life’s basic mission, “to work for customers’ economic protection andstability by offering reasonably priced life insurance products and high-quality services.” Sony Life’s
Lifeplanner® sales employees and Partners (independent agencies) have broad-ranging expertisein economics, finance and taxation, as well as abundant experience, and they support and protect
customers as they move through life’s milestones to achieve their dreams and aspirations. In the future
as well, Sony Life will provide “Lifeplanner Value®” that extends beyond the value of life insurance.
* “Lifeplanner” and “Lifeplanner Value” are registered trademarks of Sony Life Insurance Co., Ltd.

History
1979
1981
1987
1989
1991
1998
2001
2004

AugustSony Prudential Life Insurance Co., Ltd., established as a joint venture between Sony
Corporation and the Prudential Insurance Company of America (Prudential)
February
Business license obtained from the Ministry of Finance in Japan
April
Commenced operations and introduced Lifeplanner® system
July
Agreement reached with Prudential to terminate joint venture contract
September Corporate name changed to Sony Pruco Life Insurance Co., Ltd.
OctoberIndependent agency system established
April
Corporate name changed to Sony Life Insurance Co., Ltd.
AugustSony Life Insurance (Philippines) Corporation establishedMay
Sales of Sony Assurance’s automobile insurance launched through Lifeplanner® sales channel
AprilSony Corporation established Sony Financial Holdings Inc., and Sony Life became a 100%
subsidiary of Sony Financial Holdings

Rating(As of July 1, 2006)

A.M. Best Company, Inc.

Financial strength rating

A+

Superior

Rating and Investment
Information, Inc.

Insurance claims paying abilityAA

A very high degree of capacity
for payment of insurance claims

Japan Credit Rating Agency, Ltd.

Ability to pay insurance claims

Moody’s Investors Service, Inc.

Insurance financial strength rating

Aa3

Offering excellent financial
securityStandard & Poor’s

Insurer financial strength rating

A+

StrongAA

A very high level of capacity tohonor the financial commitment
on the obligation

Note: The above ratings were assigned at Sony Life’s request. They are not evaluations of insurance companies overall, nor are they a guaranteeof claim payments in the future. These ratings are based on rating agencies’ opinions given the numbers and information available at a
specific point in time, and may be changed in the future. Please refer to the respective web site of each agency for more details.

30 | Sony Financial Holdings

Message from the President of Sony Life

Providing “Lifeplanner Value®”as only Sony Life can, we protect
customers throughout theirlives with perceptive consulting
and after-sale follow-up.

Sony Life

Sony Life started operations in 1981 with its
philosophy to meet individual needs by “offering reasonably priced life insurance products
and high-quality services.” Thanks to the support and the trust our customers have placedin us, in April 2006 we celebrated our 25th
anniversary of commencement of operations.
In FY2005, the Japanese life insurance
industry showed signs of recovery, helped byincreased sales of tertiary-sector products andvariable individual annuities, but the industry’s
total insurance in force continued to decline.
In this environment, Sony Life posted a 4.5%
year-on-year increase in insurance in force(total of individual life insurance and individual
annuities in force), ending the fiscal year at¥29,084.5 billion and continuing the steadyincrease that Sony Life has achieved in eachof the 25 years since its start of operations.
As of March 31, 2006, the company’s solvency
margin ratio, an indicator of financial soundness, was 1,547.0%, reflecting an ample
safety margin.
Sony Life’s lapse and surrender rate* remained
low, improving 0.51 percentage point year on
year, to 5.88%. Sony Life believes that thesefavorable results were derived from customers’satisfaction with its consulting-based sales
approach by Lifeplanner® sales employees andPartners, its method of tailoring products toprovide ample protection to each customer andits increasing focus on after-sale follow-up.
Not complacent with its current situation,
Sony Life continues to differentiate itself byoffering “Lifeplanner Value®,” a value that
could only come from Sony Life, by protecting
customers throughout their lives with quality
consulting and ongoing after-sale follow-up.
As a member of the SFH Group, Sony Lifehas endeavored to enhance group synergy byproviding higher quality financial services andraising its corporate value. Going forward,
Sony Life will keep striving to promote superior “comprehensive financial services” byrealizing synergy with other group companies
and providing products and services that are
optimally suited to each customer.

Taro Okuda
President, Representative Director
Sony Life Insurance Co., Ltd.

* The lapse and surrender rate is expressed as a ratio of cancellations or lapses that is modified due to the reduction, increase andreinstatement of the total amount of insurance in force.

Sony Financial Holdings | 31

Sony Life’s Products and Services

Since its establishment, Sony Life has worked to provide optimal life insurance products tailoredto the specific needs of each and every customer. These tailor-made solutions are provided by
Lifeplanner® sales employees and Partners, who possess advanced knowledge and abundant
experience. Lifeplanner® sales employees and Partners seek to become customers’ exclusive
providers of insurance and financial services, or their “own agents,” in building strong relationships of trust and helping them fulfill their lifelong dreams. Even after signing the initial insurance
agreement, Lifeplanner® sales employees and Partners continuously review the content of coverage according to the customer’s changing lifestyle. The company also offers peace of mind in theform of detailed follow-up services, including swift payment of hospitalization benefits and claims
when unforeseen events occur.

Sony Life

NLifeplanner® and Partner Training Systems
A variety of learning programs have been put into place to ensure that Lifeplanner® sales employees
and Partners remain trusted as insurance and financial professionals.
Basic Training Program for Lifeplanner® Sales Employees
This is a basic training program equipping Lifeplanner® sales employees with the basic knowledge,
attitudes, skills and behavioral habits required to become life insurance professionals. It comprises
various sub-programs to implement Sony Life’s needs-based marketing, including a sub-program toacquire basic Lifeplanner® skills and joint working activities in which Lifeplanner® sales employees
visit customers together with their sales office managers.
Partner Training Program for Partners
This program contains various programs to help Partners succeed in the life insurance business. The
program provides training where Partners learn about Sony Life’s products and imparts expertise on
needs-based sales from the sales approaches that Sony Life has accumulated over the years.

NReciprocal Studies
Sony Life’s employees embrace a culture of mutual assistance in their quest to serve customers. To
this end, they have taken the initiative of hosting independent training forums around the nation.
Million Dollar Round Table (MDRT)
MDRT, based in Chicago, is an international association of the world’s best life insurance and financeprofessionals. Based on the concept of reciprocal training and contribution to society, MDRT seeks to help
improve the capabilities of its members, with top priority on providing the best returns for customers. As
of June 1, 2006, there were approximately 35,000 MDRT members worldwide, of whom 563 were Sony
Life’s Lifeplanner® sales employees and Partners, marking one of the highest numbers from Japan.
MDRT Sony Chapter
The MDRT Sony Chapter comprises Lifeplanner® sales employees and Partners of Sony Life who havebecome MDRT members. The chapter holds training sessions several times a year to exchange the latest
information and share skills, with the aim of providing top-quality consulting and other services tocustomers. Chapter members, representing the most successful Lifeplanner® sales employees and Partners,
also spearhead various volunteer activities, demonstrating their passion as conveyors of the MDRT spirit.

Japan Association of Insurance and Financial Advisors (JAIFA)JAIFA was established in 1962 with the purpose of enhancing the status of life insurance salespeople
through the reciprocal education of members. As a forum for mutual training, the association hosts avariety of proactive initiatives. Sony Life’s Lifeplanner® sales employees, sales office managers, branchmanagers and Partners participate in JAIFA events, and JAIFA regional chapters have been set up inregional areas to spearhead various activities.

32 | Sony Financial Holdings

NNurturing Financial Planners (FPs)
The social and economic environment is changing drastically, owing to the advent of the informationoriented society, reforms to the social security system, diversification of financial products and thedemographic shift to an older population. In these circumstances, it is vital for individuals to conduct
comprehensive asset planning and risk management—or financial planning—geared to their specific life
plans. Financial Planners are professionals qualified to meet the financial planning needs of customers. A
large number of Lifeplanner® sales employees study financial planning to achieve higher levels of needsbased sales. In fact, Sony Life is an industry leader in terms of its number of qualified financial planners.

Certified Financial Planners®
(CFPs®)

Certified Skilled Workers
in Financial Planning

The Japan Association for Financial
Planners is the sole issuing authority
for the AFP license. This qualification
certifies that the licensee possesses
the knowledge required of a financial
planner and is competent to offer
advice and make proposals in response
to client needs.

The CFP® license is an international
qualification conferred by the Certified
Financial Planner® Board of Standards,
Inc., of the United States. This is anauthoritative qualification given only tofinancial planners who demonstratesophisticated financial planning abilities
and sound work ethics.

Through the Human Resources
Development Promotion Law, theJapanese government has introduced
a proficiency certification system tocertify levels of expertise in various
fields, including financial planning. Thislaw recognizes three levels of financial
planning expertise.

Affiliated Financial Planners:

Certified Financial Planners:

1,940

129

1st grade certified skilled workers
in financial planning:(As of June 1, 2006)(As of June 1, 2006)

Sony Life

Affiliated Financial Planners(AFPs)

104
2nd grade certified skilled workers
in financial planning:

1,933(As of June 1, 2006)

NProviding Optimal Protection through the Life Planning Support Service (LiPSS)When proposing protection products, Sony Life first asks customers about their lifestyle and future life
plans. By envisioning the life plans of customers and their families, Lifeplanner® sales employees andPartners can map out simulations of their future financial needs.
Sony Life has developed its own simulation, called LiPSS, to explain funding complexities easily to
its customers.
Sony Life puts the many events people commonly experience throughout their lives into 11 major
categories* from a financial standpoint, and it provides estimates based on these categories. For
example, after listening to parents describe their plans, Lifeplanner® sales employees and Partners candesign plans to help parents finance their children’s education, help a family determine the timing ofpurchasing, the type of house they can afford or even provide advice on the advance repayment ofmortgage loans.
Every person has different circumstances, dreams and concerns. By analyzing the details, Sony Life
can help customers envision their future. In this way, Lifeplanner® sales employees and Partners help
customers see how they should respond to different situations and what level of financing will be
required, and then they propose protection plans that are tailored to each customer’s needs.
*Eleven Categories of Financial Needs throughout Life
● Rent or loans● Living expenses after retirement● Reserve for education● Reserve for long-term healthcare● Reserve for marriage● Reserve to reconfigure life
● Reserve for emergencies● Living expenses for bereaved● Funds for home purchasesfamily members

Reserve for funeral andsubsequent arrangements● Funds for inheritance measures●

Sony Financial Holdings | 33

NNew Products Launched during FY2005
Companies face myriad economic risks. In particular, companies need to prepare for economic losses
in case of death, coma or an even worse situation involving their executives. Companies also need tosecure retirement benefits for executives. To meet these needs, in FY2005 Sony Life enhanced its lineup
of management protection products that support comprehensive management of a business, including
business protection, business succession and benefit packages.
New Product #1: Long-Term, Level Term Life Insurance (Disability Compensation, Non-Profit)
Product Characteristics

Sony Life

1. Provides large-scale coverage for company and family
Taking advantage of the term life insurance characteristic of offering a great deal of protection for areasonable premium, this product helps protect a business, indicating a company’s trustworthiness. In
addition, the product helps secure financial resources for “retirement by death and condolence funds,”
which protects an executive’s family members and provides funds for inheritance measures.
2. Provides the financial resources to pay retirement benefits
As protection is provided over the long term—until age 99—even though the policy is for term life
insurance, it provides substantial surrender payments over a certain period of time. While providing the
tax advantages of term life insurance, the policy also offers the security of retirement benefits.
3. Offers protection for particular types of disability
In addition to death and severe disability, protection is provided for particular types of disability.
4. By adding special riders, available for relatively low premiumsa. Non-smoker discount rider
Depending on the health of the insured and if his/her smoking habits within the past year meetcompany criteria, a premium discount may be available.
b. Rider for low surrender payments
Surrender payments decrease to 70% for a certain period (the period for low surrender payments)
but the premium is reduced.
Note: The period for low surrender payments can be specified to be until the day before the designated age within thepolicy. However, in the event that the prescribed premiums are not paid, the surrender payments drop to 70%
even after the period.

Sample Policy Structure
InsuredClaim amount
Policy period
Premium payment period

40 years old, male¥200 million
until age 99
until age 99

Individual monthly premium Without additional riders
With non-smoker discount rider
With low surrender payments rider*With both non-smoker discount rider
and low surrender payments rider**¥358,000¥338,400¥330,200¥311,400* This example sets the period for low surrender
payments until the day before the insured reaches
age 65.
** Premiums differ by age and gender.

Example without Additional Riders

Death anddisability claims¥200 million

Example with Low Surrender Payments Rider¥138.94 million
at age 75¥99.66 million
at age 65

Age 40Surrender
payments

Age 99Death anddisability claims¥200 million¥138.94 million
at age 75¥69.76 million
at age 65
Age 40Surrender
payments

Age 65

Age 99Period of Low Surrender Payments

Note: For additional details, refer to Sony Life’s individual product pamphlet in the section entitled “Policy Guide and Contract Conditions”(Japanese only).

New Product #2: Increasing Term Life Insurance (Low Surrender Payments, Non-Profit)
Product Characteristics

1. Provides business protection, as well as retirement by death or ordinary retirement benefits
As a business develops, the responsibilities of its executives grow. This insurance product follows suchdevelopments by providing an increasing claim amount after the initial policy period ends. As a result,the policy funds appropriate levels of business protection, as well as benefits for ordinary retirement or
retirement by death.
Even though the product is term life insurance, it has a set period for providing surrender payments,
so it can also be used to fund retirement benefits.

34 | Sony Financial Holdings

2. Increasing claim amounts after the initial policy period
While the claim amount remains the level of standard claim amount during the initial portion of thepolicy period, after the initial period has passed, the claim amount for death or severe injury steps up
at a 50% compound annual rate (to a maximum of ¥500 million).

Sample Policy StructureStandard claim amount
Policy period
Premium payment period
Individual monthly premium
Policyholder
Insured¥100 million
until age 67 (10-year initial period)
until age 67¥459,400
Step-up rate
Companyof 50%,
Executive
compounded(age 45, male)annually

Recipient of death orsevere disability claims¥337.5 million

Company

Note: Premiums differ by age and gender.

¥225 million

Period of low ¥100 million
surrender payments
Age 45

Age 50

Policy period
Premium payment period

Claim fordeath or severe
disability¥150 million
Surrender payments
Age 56 Age 57 Age 58 Age 59

Initial period

Age 67

Final periodSony Life

Standard
claim
amount¥500 million

Note: For additional details, refer to Sony Life’s individual product pamphlet in the section entitled “Policy Guide and Contract Conditions”(Japanese only).
This information on new products is for the Japanese domestic market only.

NExtended Services to Protect a Customer’s Life Plan
Quick Claims Service
If the worst happens, in the midst of their grief a bereaved family faces funeral preparations and a host ofadditional burdens that can sap their energy. Furthermore, in most cases such expenses are not insignificant.
The “quick claims service” addresses these issues by simplifying the procedures prior to receiving
claims. With this service, policyholders can receive claims either on the day or two working days after
claims are made.
On-the-Day Claims Service

Quick Claims Service

Pays claims ofPays claims of

up to ¥3 million on the day

up to ¥5 million two business days

claims are made.

after claims are made.

Claims of less than ¥3 million are paidin full on the day claims are made.
For total claims of more than ¥3 million,
the first ¥3 million is paid.

Claims of less than ¥5 million are paidin full two business days after claims are made.
For total claims of more than ¥5 million,
the first ¥5 million is paid.

Note: These service options may not be available on some policies.
This information is for the Japanese domestic market only.

NBusiness in Southeast Asia
Sony Life Insurance (Philippines) Corporation
Owing to the deregulation of financial markets in the Philippines, the life insurance market in thatnation is expected to expand significantly.
Sony Life Insurance (Philippines) Corporation was established in 1998 with capital participation fromthe Sony Group, and commenced operations in November 1999. To reinforce its business foundation,
the company’s capital was increased in December 2003, before transforming it into a wholly owned
subsidiary of Sony Life in March 2004.
Tailoring its activities to local conditions, Sony Life Insurance (Philippines) Corporation is expanding its
operations using consulting methods cultivated in Japan, and is steadily building a high-quality marketing organization. The company also responds steadily to diverse local needs as indicated by the start ofits sales of dollar-denominated products. Fulfilling its social responsibilities as a life insurance company,
Sony Life Insurance (Philippines) Corporation places importance on compliance with all regulations andis upgrading its control systems to minimize business risk.
Sony Financial Holdings | 35

Corporate Information

Company Information(As of July 1, 2006)

Company name:Sony Life Insurance Co., Ltd.
Established:
August 10, 1979
Head office:1-1, Minami Aoyama 1-chome, Minato-ku, Tokyo, Japan
Business:
Life insurance businessCommon stock:¥65,000 million
Number of shares outstanding: 65,000,000 shares
Share ownership:
Sony Financial Holdings Inc. 100%

Senior Management(As of July 1, 2006)

Sony Life

Directors and Statutory Auditors
Title

Name

Other Concurrent Responsibilities

Chairman, Director

Kunitake Ando

Chairman and Representative Director of Sony Financial
Holdings Inc., Director of Sony Assurance Inc.

President,
Representative Director

Taro Okuda

Director of Sony Financial Holdings Inc.

Director

Akihiko Nakamura

Director

Masamitsu Shimaoka

Director

Hiromichi Fujikata

Standing Statutory
AuditorFumio Mitani

Executive Vice President and Representative Director ofSony Financial Holdings Inc., Director of Sony Assurance Inc.

Statutory Auditor

Yoshiaki Yamauchi

Director of Sony Corporation

Statutory Auditor

Hiroshi Sano

Standing Statutory Auditor of Sony Financial Holdings Inc.,
Statutory Auditor of Sony Assurance Inc.

36 | Sony Financial HoldingsOrganizational Chart(As of July 1, 2006)

General Meeting of Shareholders
Board of Directors
Compensation Advisory Committee
Executive Management Board

Board of Auditors
Chief Actuary

Executive Officers Board
Compliance Committee
Market Conduct Compliance (MCC) Committee
Protection of Personal Information Promotion Committee
Risk Management Committee
Disciplinary Committee
Environment Committee
Personnel Development Committee
SLQ Committee
Investment Committee
Agency Office
Agency Office
Agency Office
Agency OfficeSony Life

Lifeplanner Sales Group 1
Lifeplanner Sales Group 2
Lifeplanner Sales Group 3
Lifeplanner Sales Group 4
Independent Agency Sales Group

Independent Agency Sales Division
Independent Agents Planning Division
Independent Agents Sales Promotion
Division
Market Development Division

Sales Administration Group

Sales Administration Division
Sales Education & Training Administration
Division
Product Development Division
Office Administration Division

Total Administration Control Group

Investment Group
Business Process Reengineering Group

Business Administration Control
Division
Compliance Division
Operations Administration Division
Investment Division
Information System Division 1
Information System Division 2
Operations Planning Division
General Operation Division
Lifeplanner Planning & Promotion
Division
Lifeplanner Education & Training DivisionMarketing Division
Knowledge Management Division
Underwriting Division
Policyholders’ Service Division
Claims & Benefits Division
Real Estate Division
Chief Medical Officer
Medical DivisionCorporate Communications DivisionInternational & Business
Development Division
Actuarial Division
ALM DivisionCorporate Planning Division
Customer Relation Planning Division
Accounting Division
Investment Administration Division
Customer Center
Internal Audit Division
Personnel Division
General Affairs Division
Health Promotion Center Division
Representative Office for East Asia

Sony Financial Holdings | 37

Condensed Financial Statements

Consolidated Statements of Income
For the years ended March 31(Millions of yen)

2002

2003

2004

2005

2006

539,805

524,195

581,129604,288696,685

505,950
33,201
25,110
733
—
4,262
2,931
109
—
653

491,606
31,57523,827
891
—
2,289
4,560
3
—
1,013

514,859
64,89024,488
7,951
154
2,353
3,991
2,245
23,702
1,379

551,642
50,25425,755
7,170
3,962
3,344
2,393
—
7,623
2,390

580,564
108,613
26,77819,558
—
6,583
5,342
825
49,524
7,507

519,983

505,777

550,859

587,139

672,306

131,327

170,906

191,542

194,141

231,885

51,83974,991
286,490

61,496
104,435
234,157

81,481
105,227
269,13188,008
101,649
299,508

114,499
113,638
344,939970
285,520
11,234
388
43
7,309
1,130
—
851
83,113
7,817

3,177
230,979
14,946
149
465
2,538
797
—
8,894
77,995
7,772

4,652
264,478
3,606
—
928
—
704
—
—
78,372
8,205—
299,508
5,115
—
330
217
1,146
342
—
79,8168,557

708
344,228
4,610
647
276
—
212
—
—
82,1708,700

19,821

18,41730,27017,14824,379

(259)

(364)

(6,328)(515)(7,520)

281

327

6,264

441

7,442

Provision for reserve for policyholders’dividends
Income before income taxes
Income taxes
Minority interests

601
18,960
7,033
38

583
17,469
6,340
70

644
23,297
9,572
17

519
16,113
5,945
—

1,491
15,3675,730—

Net income

11,966

11,19913,743

10,168

9,636

Ordinary revenues
Income from insurance premiums
Investment income
Interest and dividends
Income from monetary trusts, net
Income from trading securities, net
Gains on sale of securities
Gains on redemption of securities
Gains from derivatives, net
Gains on separate accounts, net
Other ordinary income

Sony Life

Ordinary expenses
Insurance claims and other payments
Insurance claims, annuity payments
and insurance benefits
Surrender payments
Provision for policy reserve and others
Provision for reserve for outstanding
claimsProvision for policy reserve
Investment expenses
Losses on trading securities, net
Losses on sale of securities
Devaluation losses on securities
Losses on redemption of securities
Losses from derivatives, net
Losses on separate accounts, net
Operating expenses
Other ordinary expenses
Ordinary profit
Extraordinary gains (losses), net
Provision for reserves for pricefluctuations

38 | Sony Financial Holdings

Consolidated Balance Sheets
As of March 31(Millions of yen)

2003

2004

2005

2006

Assets:Cash and deposits
Call loans
Monetary trusts
Securities
Loans
Property and equipment
Other assets
Deferred tax assets

226,801
77,800248,750
1,046,085
54,471
46,377
21,532
7,540

130,165
135,100
320,941
1,265,549
65,582
46,351
15,8752,330

66,388175,000
419,224
1,562,929
71,637
46,47633,591—

51,620176,100
515,229
1,703,923
79,91950,79339,072—32,14655,900658,351
2,131,464
86,92475,76362,765—

Total assets

1,729,359

1,981,896

2,375,249

2,616,658

3,103,315

Liabilities:
Policy reserve and others:
Reserve for outstanding claims
Policy reserve
Reserve for price fluctuations
Other liabilities
Deferred tax liabilities
Deferred tax liabilities on land revaluation

1,610,939
10,0821,600,136
5,632
27,294——

1,845,085
13,2601,831,115
5,960
35,811——

2,114,288
17,913
2,095,591
12,225
105,943
10,943—

2,413,543
17,7082,395,099
12,66644,154
5,826—

2,759,342
18,4172,739,340
20,10968,676
36,685706

Total liabilities

1,643,867

1,886,857

2,243,400

2,476,191

2,885,520

472

326

—

—

—

65,00025,625(24,798)(768)

65,000865
11,161(768)

65,000865
15,512(768)

65,000865
19,181(768)

65,000865
22,317(1,475)

20,128(166)

18,697(242)

51,577(337)

56,564(374)

130,974113

85,02094,712

131,848

140,467

217,795

1,729,359

1,981,896

2,375,249

2,616,658

3,103,315

Minority interests:
Minority interests
Stockholders’ equity:
Common stock
Capital surplus
Retained earnings
Land revaluation
Net unrealized gains on other securities,
net of taxes
Foreign currency translation adjustments
Total stockholders’ equity
Total liabilities, minority interests andstockholders’ equity

Sony Life2002* Certain reclassifications of the consolidated balance sheet for the year ended March 31, 2002, have been made to conform to thepresentation for the year ended March 31, 2003, and thereafter.

Consolidated Statements of Cash Flows
For the years ended March 31(Millions of yen)

2002

2003

2004

2005

2006

308,835(281,254)—

270,613(309,944)—

251,976(266,440)(9,391)

292,545(299,712)(6,500)282,158(415,411)(6,500)

4

(5)

(20)

(2)

79

Net increase (decrease) in cash andcash equivalents

27,585(39,336)(23,876)(13,668)(139,673)

Cash and cash equivalents at beginningof year277,016

304,601

265,265

241,388

227,720

Cash and cash equivalents at end of year

304,601

265,265

241,388

227,72088,046

Net cash provided by operating activities
Net cash used in investing activities
Net cash used in financing activities
Effect of exchange rate changes oncash and cash equivalents

Sony Financial Holdings | 39

Nonconsolidated Statements of Income
For the years ended March 31(Millions of yen)

2002

2003

2004

2005

2006

524,089

580,972

604,093

696,426

505,934
503,871
33,11225,021
733
—
4,262
2,931
109
—
653

491,582
489,548
31,49323,746
891
—
2,289
4,560
3
—
1,013

514,825
512,700
64,767
24,377
7,951
154
2,343
3,991
2,245
23,702
1,379

551,610550,304
50,08925,595
7,170
3,962
3,339
2,393
—
7,623
2,392

580,516579,267
108,438
26,581
19,558
—
6,546
5,342
825
49,524
7,471

—

—

—

207

—

519,800

505,531550,493

587,023

672,067

131,327

170,905

191,542

194,141

231,881

51,83974,991
286,486

61,496
104,435
234,148

81,481
105,227
269,11788,008
101,649
299,494

114,497
113,637
344,915970
285,515
11,221
388
43
7,309
1,130
—
851
82,989
7,776

3,177
230,970
14,933
149
465
2,538
797
—
8,894
77,875
7,667

4,652
264,464
3,605
—
928
—
704
—
—
78,254
7,973—
299,494
5,116
—
330
217
1,146
342
—
79,7298,541

709
344,204
4,561
647
267
—
212
—
—
82,0408,668

19,89818,55730,47817,07024,359

(259)

(364)

(6,330)(515)(7,520)

281

327

6,264

441

7,442

Provision for reserve for policyholders’dividends
Income before income taxes
Income taxes

601
19,038
7,033

583
17,6096,340

644
23,504
9,571

519
16,035
5,933

1,491
15,3475,730

Net income

12,004

11,26913,932

10,102

9,616Sony Life

Ordinary revenues

434,62539,699

Income from insurance premiums
Insurance premiums
Investment income
Interest and dividends
Income from monetary trusts, net
Income from trading securities, net
Gains on sale of securities
Gains on redemption of securities
Gains from derivatives, net
Gains on separate accounts, net
Other ordinary income
Reversal of reserves for outstanding
claimsOrdinary expenses
Insurance claims and other payments
Insurance claims, annuity payments
and insurance benefits
Surrender payments
Provision for policy reserve and others
Provision for reserve for outstanding
claimsProvision for policy reserve
Investment expenses
Losses on trading securities, net
Losses on sale of securities
Devaluation losses on securities
Losses on redemption of securities
Losses from derivatives, net
Losses on separate accounts, net
Operating expenses
Other ordinary expenses
Ordinary profit
Extraordinary gains (losses), net
Provision for reserve for pricefluctuations

40 | Sony Financial Holdings

Nonconsolidated Balance Sheets
As of March 31(Millions of yen)

2003

2004

2005

2006

Assets:Cash and deposits
Call loans
Monetary trusts
Securities
Loans
Property and equipment
Other assets
Deferred tax assets

226,775
77,800248,750
1,046,054
54,463
46,283
21,4077,540

130,149
135,100
320,941
1,265,650
65,57446,28915,861
2,330

66,381
175,000
419,224
1,563,605
71,62946,44433,542—

51,611
176,100
515,229
1,704,663
79,91450,76338,983—31,43355,900658,351
2,132,216
86,91875,73962,680—Total assets

1,729,077

1,981,897

2,375,828

2,617,266

3,103,241

Liabilities:
Policy reserve and others:
Reserve for outstanding claims
Policy reserve
Reserve for price fluctuations
Other liabilities
Deferred tax liabilities
Deferred tax liabilities on land revaluation

1,610,933
10,0821,600,130
5,632
27,280——1,845,070
13,2601,831,100
5,960
35,798——2,114,262
17,913
2,095,565
12,225
105,928
10,933—

2,413,501
17,7052,395,060
12,66644,1385,817—

2,759,264
18,4152,739,264
20,10968,642
36,685706

Total liabilities

1,643,847

1,886,829

2,243,350

2,476,124

2,885,408

65,00025,625(24,755)(768)

65,000865
11,274(768)

65,000865
15,814(768)

65,000865
19,417(768)

65,000865
22,533(1,475)

20,12818,69751,56756,629130,90985,23095,068132,478

141,142

217,833

1,729,077

1,981,897

2,375,828

2,617,266

3,103,241

Stockholders’ equity:
Common stock
Capital surplus
Retained earnings
Land revaluation
Net unrealized gains on other securities,
net of taxes
Total stockholders’ equity
Total liabilities and stockholders’ equity

Sony Life2002* Certain reclassifications of the nonconsolidated balance sheet for the year ended March 31, 2002, have been made to conform to thepresentation for the year ended March 31, 2003, and thereafter.

Other Key Indicators
As of March 31 (Items marked with an asterisk (*) are for the years ended March 31.)

2002

Number of shares outstanding(thousands of shares)
Insurance in force
Individual life insurance in force
New insurance sales*
New individual life insurance sales*
Annualized premiums for new policies*
Medical insurance, living benefit life
insurance, etc.*
Solvency margin ratio (%)
Sales employees

2003(Millions of yen)

2004

2005

2006

65,00065,00065,00065,00065,00024,252,921 25,650,022 27,070,067 28,639,488 30,007,828
23,408,050 24,689,151 26,122,855 27,680,259 28,908,802
3,939,732 3,542,249 3,748,640 3,731,597 3,401,226
3,893,199 3,518,350 3,713,390 3,699,791 3,361,271———
63,851
61,791—
1,493.5.
4,895—
1,354.2.
4,752—
1,453.3.
4,700

16,1791,317.1.
4,652

14,543
1,547.0.
4,293

Notes: 1. Insurance in force above is the total of individual life insurance in force, individual annuities in force and group life insurance inforce. Individual annuities in force is the sum of annuity assets at the time annuity payments commence and policy reserves after
annuity payments commence.
2. New insurance sales is the total of new individual life insurance sales, new individual annuities sales and new group life
insurance sales. New individual annuities sales indicates the number of new annuities resources.
3. Annualized premiums are for individual life insurance and individual annuities and refer to an amount that is calculated bymultiplying individual premium amounts by a coefficient that differs depending on the premium payment methods, thereby
converting the figure to a per-year premium. (For single-payment policies, premiums are divided by the coverage period.)
4. Medical protection and living benefit protection products include products with medical protection benefits (hospitalization
benefit, surgical procedure benefit, etc.) and products with living benefit protection (benefits for specific illnesses, nursing carebenefits, etc.).
5. The number of sales employees as of March 31, 2006, includes 3,826 Lifeplanner® sales employees.
Sony Financial Holdings | 41

Sony Assurance

Non-Life
Insurance
URL

http://www.sonysonpo.co.jp/(Japanese only)

Sony Assurance operates under the slogan,“Feel the Difference—a difference that willchange insurance.” The company seeks toprovide customers with valuable products thatare distinctive—offering a difference that could
only come from Sony Assurance.

Sony AssuranceSony Assurance entered the non-life insurance market in the autumn of 1999 with the businessmodel of a “direct insurance provider.” Centering on two flagship products—automobile insurance
and medical and cancer insurance—Sony Assurance contacts customers directly over the telephoneor via the Internet.
One advantage of being a direct insurance provider is the ability to reflect customers’ opinions andneeds in product and service offerings through direct communications with customers. Sony Assurance
capitalizes on these merits and maximizes the quality of its products and services, offering reasonably
priced premiums by taking advantage of its highly concentrated operations.
Sony Assurance operates under the slogan, “Feel the Difference—a difference that will change
insurance.” In every business domain, the company will continue to create valuable products thatare distinctive—offering customers a difference that could only come from Sony Assurance.

History
1998
1999

2002
2004

42 | Sony Financial Holdings

JuneSony Insurance Planning Co., Ltd., established
September Licensed by the Financial Reconstruction Commission to conduct non-life insurance businessCorporate name changed to Sony Assurance Inc.
Began writing automobile insurance policies via the Internet
October
Began writing automobile insurance policies over the telephone
June
Began offering medical and cancer insurance
AprilSony Corporation established Sony Financial Holdings Inc., and Sony Assurance became a
100% subsidiary of Sony Financial Holdings
October
Began offering fire insurance to mortgage loan customers of Sony Bank Inc.

Message from the President of Sony AssuranceSony Assurance operates on
the business model of a “direct
insurance provider,” communicating with customers directly
over the telephone or via theInternet. Through such directcommunication, Sony Assurance
provides rationally priced,
high-quality insurance services.

From a service standpoint, we revised our
web site to allow our policyholders to makepolicy changes for automobile insurance online.
We also enhanced our Internet service levels ina host of other ways, as part of efforts to raise
the level of convenience to our customers. We
conducted surveys of policyholders concerning
our overall level of services, and worked to
improve service quality in areas that were citedfor improvement.

In terms of our information security management system, we became Japan’s first non-life
insurer to acquire both the ISMS and BS7799
certifications. We also improved the overall
functionality of our internal control system,
thereby strengthening our business foundation.
As the deregulation of the insurance industry continues, the competition for products
and services grows increasingly stringent, but
I believe the direct insurance market expands
each year. Our rate of growth remains one of
the highest in this industry, where we remain aleading company. In FY2006, we plan to raise
our marketing efficiency even more and expand
our alliances with Sony Life and Sony Bank. At
the same time, we will steadily improve ourservice quality and enhance communications
with our customers to raise Sony Assurance’s
brand value even more. As we work to achieve
an optimal balance between higher profitability
and efforts to strengthen our operating base,we aim to hold on to our well-earned position
as a leader in the direct insurance industry.

Sony Assurance

In FY2005, we aggressively marketed ourmainstay automobile and medical and cancer
insurance policies, taking advantage of productrevisions. As a result, the number of policies
increased steadily and net premiums written—
which corresponds to sales in other industries—
increased 19.6% year on year, to ¥45.2 billion.
Partly for this reason, our expense ratio improved.
As our loss ratio remained approximately thesame as during the previous fiscal year, ourordinary loss improved substantially, to ¥0.7
billion. I believe we are steadily making ourway toward profitability. As of March 31,
2006, our solvency margin ratio was 976.1%,
indicating that we have adequate financial
stability. Under generally accepted accounting
principles in the United States (U.S. GAAP),
which are prepared for the Sony Group, we
have been operationally profitable since
FY2003, and the level of profitability has
increased steadily since that time.*

Shinichi Yamamoto
President, Representative Director
Sony Assurance Inc.

* U.S. GAAP calculations are used for the preparation of the Sony Group’s consolidated financial statements.

Sony Financial Holdings | 43

Sony Assurance’s Products and Services

Providing a Valuable “Difference” to Customers
To ensure we provide customers with valuable “differences that could only come from Sony Assurance,” thecompany places a high value on customer input. Sony Assurance aims to facilitate better communications
with customers so it can provide services that meet their needs.

NCustomer Centers
Staff at customer centers respond to inquiries from customers via telephone and e-mail, and are on hand to help with contract procedures andcontinue to help customers after they have signed contracts. Designed tofacilitate smooth communications, customer centers are staffed by people
who provide quick and easy-to-understand answers to customers’ questions,ensuring that Sony Assurance provides optimal customer solutions.

NService Centers
For automobile insurance, service center staff members are on hand 24 hours a day, 365 days a year,
to respond to traffic accidents via toll-free telephone numbers. After receiving accident reports, a staff
member is appointed to respond to an accident report from beginning to end from a customer perspective,
communicating directly with that customer until the accident is resolved.
For medical and cancer insurance or fire insurance, a single staff member provides beginning-to-end
support, carefully counseling and responding to various questions all the way through to claim payment.

N“one-on-one club” Support Desk
To enhance the automobile experience for customers, Sony Assurance’s automobile insurance provides
the “one-on-one club” service, which includes free roadside assistance, providing support and driving
assistance in times of trouble, such as in the event of mechanical failure or an accident.
The “one-on-one club” support desk provides quick and appropriate responses to customers regarding
breakdowns and accidents, providing a deep sense of security while on the road.

Sony Assurance

NWeb Site (Japanese only)
Customers and Sony Assurance Communication Site
(http://from.sonysonpo.co.jp/)
By communicating directly with its customers, Sony Assurance
continuously strives to provide products and services that meettheir needs. In April 2006, the company created the Customers
and Sony Assurance Communication Site to deliver its goal ofworking closely alongside its customers.
The site shows the results of customer surveys conductedfollowing the resolution of accidents (Customer Evaluations) andcustomer opinions (Our Customers’ Voices). The site also outlines thecompany’s progress toward its goal of zero customer dissatisfaction(Working toward Zero Dissatisfaction) and helpful information concerning
insurance (Insurance Promenade).
To hear opinions from more customers, all pages within the communication site have links to pages
for posting comments. Sony Assurance staff members maintain an ongoing blog in response to customer
comments and questions. In addition, a community site provides an interface for staff to comment on
products and services.
“Network Style,” a Convenient Internet Service
Mobile Gateway
Sony Assurance provides the Mobile
Gateway web site, which automobile
insurance policyholders can access
via mobile phone, making it easierfor them to contact Sony Assurance
whenever the need arises and locate
relevant information conveniently if
an unforeseen incident occurs.
Information on this page is for the Japanese domestic market only.
44 | Sony Financial HoldingsInternet Service Center
Internet Service Center, a web site Sony Assurance
provides for automobile insurance policyholders,can be accessed from a PC or mobile phone andoffers a host of services to help resolve accidents.
In addition to enabling customers to report an
accident and confirm the status of its resolution, customers cancommunicate easily with Sony Assurance staff members via dedicatedonline bulletin boards for each customer.

NCustomer Questionnaires
To offer products and services that provide even higher customer
satisfaction, surveys on staff response and service content are
performed throughout the year. Typically, questionnaires follow
telephone estimates or accident resolutions.
Once a year, Sony Assurance performs “dissatisfaction level
surveys*,” which are designed to uncover areas of Sony Assurance’s
services that are unsatisfactory and therefore need to be improved.
Sony Assurance then strives to improve these areas to enhance customer satisfaction. Sony Assurance
staff periodically report the status of improvement initiatives in a bloglike format in the Working toward
Zero Dissatisfaction area of the Customers and Sony Assurance Communication site.
* “Dissatisfaction level surveys” are conducted even with customers who have replied that services are satisfactory. The aim of thesesurveys is to seek out areas that should be improved upon and to enhance customer satisfaction by improving those areas.

NProducts
Owing to its focus on providing products that customers value, Sony Assurance has created a numberof originals. For automobile insurance, these include the Kurikoshi discount system and the Oritemo
coverage clause. On medical and cancer insurance policies, the company offers a half-price clause forpolicyholders from age 60. Going forward, Sony Assurance will continue developing products toprovide value that could only come from Sony Assurance.

Popular Half-Price Clauses for Medical and Cancer Insurance Policyholders from Age 60
Sony Assurance’s medical and cancer insurance provides sufficient protection against cancer, which isoften associated with high medical care costs and extensive treatment periods. To provide such insurance with low premiums, such features as death protection or surrender payments are not prepared.
Sony Assurance’s medical and cancer insurance has two types of protection period. Premiums onwhole-life SURE policies remain fixed for life even as a policyholder ages, whereas the 10-year renewable version has low initial premiums that rise at the time of renewal. Whole-life SURE policies alsocome in two types—SURE Basic, which features inexpensive premiums and selective coverage, andSURE Wide, which provides much more extensive protection. Also, Sony Assurance led the industry
in introducing half-price clauses for policyholders who have reached their 60th birthday. For a slightincrease in monthly premiums, this clause halves policy premiums once a policyholder reaches 60 yearsof age.* This option is widely popular with Sony Assurance’s policyholders, approximately 70%** ofwhom have opted for this additional coverage.

Sony AssuranceContinued High Regard for Sony Assurance Automobile Insurance
To more closely tailor its automobile insurance to individual customers, Sony Assurance takes into accounteach customer’s driving characteristics, with risk-segmented categories such as the distance driven eachyear, driving purpose, model of car, number of years since first registering car ownership, driver’s age andtype of driver’s license. Because of Sony Assurance’s direct sales approach, which results in cost reductions
through operational concentration and efficiency, Sony Assurance can pass savings on to its customers in
the form of reasonable premiums. Sony Assurance has designed an original add-on contract called theOritemo coverage clause, which indemnifies people who are out with their insured cars against suchthings as personal injury or damage to personal belongings—even if they are not physically inside thevehicle at the time the accident occurs. Also, as distance driven each year is one risk-segmented category,Sony Assurance offers a unique system of providing refunds for drivers whose distance driven in a year
falls below the distance stipulated in their insurance policies. This Kurikoshi discount, which is applied to
the next year’s insurance premium, has proven popular with customers.

* The half-price clause for policyholders from age 60 is a clause that can be added to SURE whole-life products.
** This ratio is among policyholders under the age of 57, which is the maximum age at which the clause can be added. Participation
rates are based on data as of March 31, 2006.

Information on this page is for the Japanese domestic market only.
Sony Financial Holdings | 45

Corporate Information

Company Information(As of July 1, 2006)

Company name:Sony Assurance Inc.
Established:
June 10, 1998
Head office:37-1, Kamata 5-chome, Ota-ku, Tokyo, Japan
Business:
Non-life insurance businessCommon stock:¥20,000 million
Number of shares outstanding: 400,000 shares
Share ownership:
Sony Financial Holdings Inc. 100%

Senior Management(As of July 1, 2006)

Sony Assurance

Directors and Statutory Auditors
Title

Name

President,
Representative Director

Shinichi Yamamoto

Director

Yuro Fujiyama

Director

Kunitake Ando

Chairman and Representative Director of SonyFinancial Holdings Inc., Chairman and Director ofSony Life Insurance Co., Ltd.

Director

Hiromichi Fujikata

Executive Vice President and Representative Directorof Sony Financial Holdings Inc., Director of Sony Life
Insurance Co., Ltd.

Director

Akinori Takahashi

General Manager, Business Development Department
of Sony Financial Holdings Inc.

Standing Statutory
AuditorMasahiro Kodama

Statutory Auditor of Sony Financial Holdings Inc.

Statutory Auditor

Hiroshi Sano

Standing Statutory Auditor of Sony Financial Holdings Inc.,
Statutory Auditor of Sony Life Insurance Co., Ltd.

Statutory Auditor

Yoshiki Matsuyama

Deputy General Manager, Accounting Department ofSony Corporation

46 | Sony Financial Holdings

Other Concurrent Responsibilities

Director of Sony Financial Holdings Inc.

Organizational Chart(As of July 1, 2006)

Shareholders’ Meeting
Board of Directors

Board of Auditors

Executive Management Board

Chief Actuary

Customer Center

Sapporo Customer Center

Customer Service OfficeClaims Service Department

Claims Service Center

Direct Marketing Department

Medical & Fire Service Center

Tie-up Marketing Department

Physical Damage Service Center

Web Site Planning Department

Hokkaido Service Center

Compliance & Risk Control Department

Tohoku Service Center

Product Planning Department

Shutoken Service Center 1

Corporate Planning & Control Department

Shutoken Service Center 2

Corporate Communication Department

Shutoken Service Center 3

Accounting Department

Shutoken Service Center 4

Finance Department

Chubu Service Center 1

Information System Planning Department

Chubu Service Center 2

Personnel & General Affairs Department

Kansai Service Center 1

Internal Audit Department

Kansai Service Center 2

Environmental Management OfficeKansai Service Center 3
Chugoku & Shikoku Service Center
Kyushu Service CenterSony AssuranceSony Financial Holdings | 47

Condensed Financial Statements

Nonconsolidated Statements of Income
For the years ended March 31(Millions of yen)

2002

Ordinary revenues
Underwriting income
Net premiums written
Investment income
Interest and dividends
Other ordinary income
Ordinary expenses
Underwriting expenses
Net losses paid
Loss adjustment expenses
Net commissions and brokerage fees
Provision for reserve for outstanding
lossesProvision for underwriting reserve
Investment expenses
Operating, general and administrative
expenses
Other ordinary expenses
Deferred charges under Article 113 of
the Insurance Business Law
Ordinary loss

Sony Assurance

2005

2006

24,29931,06638,15945,703

16,372
16,371114
114
124,06424,062
186
186
48

30,79330,785212
215
60

37,862
37,849275274
2145,29845,278349
298
55

20,58628,48533,00740,966

46,467

12,910
5,945
975
168

17,361
9,734
1,503
408

21,097
13,101
2,022
625

28,606
17,463
2,191
784

33,477
21,124
2,535
780

1,646
4,175
0

2,127
3,587
11

881
4,463
31

1,967
6,198
21

2,345
6,691
8

9,513
1,133

11,111
1

11,85424

12,3380

12,96615(2,971)

—

—

—

—

4,097

4,185

1,941

2,806

764

(4)

(7,924)

4

(1)

(35)

4,102

12,110

1,937

2,807

799

11

(723)

(606)

(826)

(358)

4,114

11,386

1,330

1,981

441

Income taxes
Net loss

2004

16,488Extraordinary gains (losses), net
Loss before income taxes

2003

Nonconsolidated Balance Sheets
As of March 31(Millions of yen)

2002

2003

2004

2005

2006

Assets:Cash and deposits
Securities
Other assets
Deferred tax assets

1,845
18,009
11,771—

2,430
17,346
5,358
738

4,512
27,747
6,584
1,277

4,036
32,932
8,020
1,696

1,470
44,067
8,381
2,184

Total assets

31,62625,87340,121

46,685

56,103Liabilities:
Policy reserves
Reserves for outstanding losses
Underwriting reserves
Other liabilities

11,524
2,679
8,845
3,344

17,2394,806
12,432
3,260

22,583
5,688
16,8953,475

30,7507,655
23,094
3,847

39,786
10,001
29,785
4,606

Total liabilities

14,86820,50026,05934,59844,39315,00015,000(13,236)

15,00015,000(24,623)

20,00020,000(25,953)

20,00020,000(27,934)

20,00020,000(28,376)

(5)

(3)

15

21

86

Stockholders’ equity:
Common stock
Capital surplus
Retained earnings
Net unrealized gains (losses) on othersecurities, net of taxes
Total stockholders’ equity

16,7585,372

14,061

12,086

11,709Total liabilities and stockholders’ equity

31,62625,87340,121

46,685

56,103* Certain reclassifications of the nonconsolidated balance sheet for the year ended March 31, 2002, have been made to conform to thepresentation for the year ended March 31, 2003, and thereafter.

48 | Sony Financial Holdings

Nonconsolidated Statements of Cash Flows
For the years ended March 31(Millions of yen)

2002

Net cash provided by (used in) operating
activities
Net cash provided by (used in) investing
activities
Net cash provided by financing activities
Effect of exchange rate changes on cash
and cash equivalents
Net increase (decrease) in cash andcash equivalents

2003

2004

2005

2006

(1,228)

75

2,733

5,081

8,784

(8,377)
10,000210—(10,350)
10,000(5,557)—(11,350)
—

—

—

—

—

—

393

285

2,382

(475)

(2,565)

Cash and cash equivalents at beginningof year

3,507

3,901

4,186

6,569

6,094

Cash and cash equivalents at end of year

3,901

4,186

6,569

6,094

3,528

Other Key Indicators
As of March 31

2002

Number of shares outstanding(thousands of shares)
Solvency margin ratio (%)

300
1,647.2.

2003

300
734.1.

2004

2005

400
1,383.5.

400
1,095.2.

2006

400
976.1.

Sony AssuranceSony Financial Holdings | 49

Sony Bank

Bank

URL

http://sonybank.net/(Japanese only)

With a corporate philosophy of “Be fair,”Sony Bank provides individual customers withhighly convenient financial products andservices—focused on asset management—over the Internet.
In June 2001, Sony Bank commenced operations as an Internet bank, with the concept of providing
asset management tools to meet the needs of independent individuals. Since that time, the company
has aggressively and flexibly worked to provide new products and services. In the five years since its
start of operations, Sony Bank’s product and service offerings have expanded substantially, now
including yen deposits, foreign currency deposits, investment trusts, mortgage loans, personal loans
extended through ATM cards, special-purpose loans, MONEYKit GLOBAL®* (cash card service settled
in U.S. dollars), annuities and insurance, securities intermediary services and credit card settlements
as well as mobile banking, which was launched in June 2006.
Sony Bank endeavors to set interest rates and prices to match market fluctuations and provide
ample information to enable customers to make their own judgments. By maximizing its use of
information technology and taking advantage of the characteristics of the Internet, Sony Bank aims
to provide highly convenient financial products and services more inexpensively than ever before toan expanding customer base.

History
2001

2002
2004
2005
2006

April

Sony Bank Inc. establishedObtained banking business operating license from the prime minister of Japan
June
Commenced operations and opened the MONEYKit® service site
Products comprised ordinary yen deposits, yen time deposits, investment trusts and personalloans extended through ATM cards
September Began handling foreign currency deposits
March
Began offering mortgage loans
June
Began offering special-purpose loans
AprilSony Corporation established Sony Financial Holdings Inc., and Sony Bank became asubsidiary of Sony Financial Holdings
December Commenced securities intermediary service
Began handling credit card settlements
June
Started mobile banking services

Sony Bank* “MONEYKit” and “MONEYKit GLOBAL” are registered trademarks of Sony Bank Inc.

RatingAs of July 1, 2006

Standard & Poor’s (S&P)

Long-term credit rating
Short-term credit ratingA–
A–2

Note: The above ratings were assigned at Sony Bank’s request. These ratings are based on rating agency opinions given the figures andinformation available at a specific point in time, and may be changed in the future. Please refer to the web site of the rating agency
for more details.

50 | Sony Financial Holdings

Message from the President of Sony Bank

Based on its five-year trackrecord and the trust ofcustomers, Sony Bank
continues to take on thechallenge of delivering new
products and services.

As the Japanese economy entered a recovery
phase, in March 2006 the Bank of Japan ended
its policy of quantitative monetary easing. Bankslargely had shaken free of non-performing loans
and appeared set for a return to normalcy.
These changes in the operating environment,
coupled with the increasing pervasiveness of
the Internet as a banking channel, caused
bricks-and-mortar banks to strengthen theirInternet offerings. These waves of activity
rippled outward as other companies entered
the Internet banking industry. Sony Bank, as
it has done since its establishment in 2001,
continued to clearly express its focus on asset
management for individuals—an approachthat has won trust from its customers.

Internet banking is expected to growincreasingly competitive. However, with afive-year track record, and having earneda degree of trust with customers, Sony Bank
aims to be one of the first entities that comesto mind when customers think of Internet
banks. Also, by constantly taking on the challenge of adding new products and services,
we want to contribute to raising the overalllevel of financial services for individuals. In
FY2006, following Sony Bank’s addition ofmobile phone handsets as a new transaction
channel, the bank also plans to upgrade its
settlement services to more easy-to-use operations. I believe this settlement service could bemade available to other companies in the SonyFinancial Holdings Group, boosting their levelsof customer convenience as well.

Sony BankIn FY2005, Sony Bank achieved profitable
operations for the first time on a fiscal year
basis, recording ordinary income of ¥2.2 billion. Deposited assets totaled ¥675.1 billion, in
which investment trusts amounted to ¥75.1
billion as of March 31, 2006. In terms of funduse, loans totaled ¥239.4 billion, the majorityof which were mortgage loans that offer ahigh degree of freedom for early repayment.
This factor, combined with competitive rates ofinterest, prompted a year-on-year increase of¥111.5 billion in the bank’s balance of mortgage loans. In this sense, FY2005 truly can beconsidered the year that Sony Bank’s aim of
meeting the asset management and fundingneeds of individuals took form. I believe thatthe bank’s business performance during theterm was attributable to customers’ acceptanceof Sony Bank’s introduction of new products
and services and its feature of setting rates thatare close to market rates.

In FY2005, Sony Bank added Swiss francs andHong Kong dollars to its lineup of foreign
currency deposits and for yen time deposits thebank extended the maximum handling period
to 10 years. We also added five new investment
trusts during the year, bringing the lineup to a
total of 45 funds as of March 31, 2006. To
enter the equities investing arena, which is a
crucial area of asset management for customers, we began offering a securities intermediaryservice in an alliance with Monex, Inc., in
December 2005.

Shigeru Ishii
President, Representative Director
Sony Bank Inc.

Sony Financial Holdings | 51

Sony Bank’s Products and Services

NSony Bank Account Features
Access to the Internet service site for transactions essentially 24 hours a day, 365 days a year
Sony Bank provides an Internet service site that enables customers to make banking transactions.
Internet Banking Site (http://moneykit.net/, Japanese only)
Sony Bank offers three distinct interfaces—MONEYKit®, MONEYKit®-PostPet™ and MONEYKit-ACTIVE®—
which customers can choose from depending on their purposes or preferences.

Beforelog-inAfterlog-inCustomers can move freely among
the three available interfaces at any
time after log-in.

This “money toolbox” interface assists customers as
they consider, research and carry out transactions.

As well as providing a log-in
gateway to the service site,
this screen provides an
overview of Sony Bank’s
product offerings.

The main tool of this interface is the piggybank-type
Hoshii Mono Chokinbako. Users create separate savings
accounts for different purposes, then select a PostPet™
for each to encourage them along on the way.

“MONEYKit” and “MONEYKit ACTIVE” areregistered trademarks of Sony Bank Inc.
“PostPet” is a registered trademark of Sony
Communication Network Corporation.

This “action toolbox” interface supports customers’“Self-Activity” for property formation.

Cash Deposits and Withdrawals at Affiliated ATMs
Customers can withdraw and deposit cash or transfer funds through ATMs operated by organizations
affiliated with Sony Bank.
All ATMs operated by Sumitomo Mitsui Banking Corporation“@BANK” ATMs at the am/pm convenience store chain (except those in the Kyushu area)● ATMs operated by the Bank of Tokyo–Mitsubishi UFJ, Ltd. (except some ATMs located in hospitals
and schools)● Nationwide ATMs operated by Japan Post●●

V

Sony Bank

Mobile Banking Site (http://mb.moneykit.net/, Japanese only)This service, designed to be highly convenient, is based on the concept of “The bankthat you carry with you.” Updated in line with foreign exchange market fluctuations,customers may use the mobile banking service with current foreign exchange rates forforeign currency deposits. Several functions to enhance the convenience and securityof cash cards are also available.

Information on this page is for the Japanese domestic market only.
52 | Sony Financial Holdings

Telephone Banking
A telephone banking service (automatic voice instructions) allows customers to conduct a numberof transactions such as checking balances, making transfers and applying to open yen time deposits,
essentially 24 hours a day, 365 days a year.
Customer Center
Customer center staff with specialized knowledge communicate with customers via telephone ande-mail, answering questions and advising on customer products and services.

NProduct and Service Offerings
Products● Yen deposits (ordinary yen deposits, yen time
deposits, thrift saving deposits)● Foreign currency deposits (ordinary foreign
currency deposits, foreign currency time deposits,
foreign currency time deposits with special
agreements)● MONEYKit GLOBAL ®
● Investment trusts● Personal loans extended through ATM cards● Special-purpose loans● Mortgage loans● Annuities and insurance● Securities intermediation● Credit cards
Services● Advice engine®
● RiskGrade ®

“MONEYKit GLOBAL” and “Advice engine” are registeredtrademarks of Sony Bank Inc.
“RiskGrade” is a registered trademark of Risk Metrics
Group, Inc.

Sony Bank provides individual customers with products and services
that take advantage of characteristics of the Internet. Foreign currency
deposits available in eight currencies—U.S. dollar, euro, pound sterling,
Australian dollar, New Zealand dollar, Canadian dollar, Hong Kong
dollar and Swiss franc—allow transactions essentially 24 hours a day,365 days a year, and use interest rates and foreign exchange rates thatare closely linked with markets. Sony Bank’s mortgage loans allow
customers to go through the entire process, from application throughto contract, without ever setting foot in a bank branch, as well aschange the type of interest and make early payments over the Internet.
As of July 1, 2006, Sony Bank offered 48 different investment trusts
through 17 companies. In December 2005, Sony Bank commenced
securities intermediary services. The bank has also begun offering credit
card settlements that can be processed online, without paper, and is
expanding its settlement services in other ways.

Foreign exchange
chart assists withforeign currency
investments.

MONEYKit GLOBAL® is a cash card
service that is settled in U.S. dollars.
The service allows local currency cash
withdrawals from overseas affiliatedATMs and debit settlements.

Sony Bank

NSecurity Measures
Sony Bank is working to raise its level of security so that customers can conduct transactions withoutcause for concern.
● Prior PC registration● Multiple password combinations● Software keyboard provision● Setting of daily transfer limits, etc.

Information on this page is for the Japanese domestic market only.
Sony Financial Holdings | 53

Corporate Information

Company Information(As of July 1, 2006)

Company name:Sony Bank Inc.
Established:
April 2, 2001
Head office:9-11, Akasaka 2-chome, Minato-ku, Tokyo, Japan
Business:
Banking businessCommon stock:¥25,000 million
Number of shares outstanding: 500,000 shares
Share ownership:
Sony Financial Holdings Inc.
88%
Sumitomo Mitsui Banking Corporation 12%

Senior Management(As of July 1, 2006)

Directors and Statutory Auditors
Title

Name

Other Concurrent Responsibilities

Shigeru Ishii

Director

Hidehiko Nakamura

Director

Masahiko Tokuyama

Director

Teruhisa Tokunaka

President and Representative Director of Sony Financial
Holdings Inc.

Director

Hiroki Totoki

Executive Vice President and Director of Sony
Communication Network Corporation

Director

Manabu Idei

General Manager, Corporate Planning Department ofSony Financial Holdings Inc.

Director

Kazuya Johno

Director and General Manager, Tokyo Corporate
Banking Department II of Sumitomo Mitsui Banking
Corporation

Director

Tohru Nakajima

Partner, Nagashima Ohno & Tsunematsu

Standing Statutory
AuditorHiroshi Ueda

Statutory Auditor of Sony Financial Holdings Inc.

Statutory Auditor

Fumio Kado

Deputy General Manager, Accounting Department ofSony Corporation

Statutory Auditor

Junichi Yoshikawa

Corporate Control Department of Sony Financial
Holdings Inc.

Sony Bank

President,
Representative Director

54 | Sony Financial Holdings

Director of Sony Financial Holdings Inc.

Organizational Chart(As of July 1, 2006)

Shareholders’ Meeting
Board of Statutory Auditors
Board of Directors
Internal Audit Department
President and Representative Director
Executive Committee

Corporate Planning & Administration Department

Planning & Administration GroupAccounting Department

Financial Accounting Group
General Accounting Group

Compliance Department
Credit Control Department

Planning & Administration Group

Public Relations Department

Public Relations Group

Human Resources & General Affairs Department

Human Resources Group
General Affairs Group

Sales Planning Department
Product Planning Department
Securities Business Department
Contents Design Department
Business Development Department
Customer Office

Customer Center

Loan Business Department

Adviser Group

Control & Administration Department

Operations Planning Group
Market Operations Group
Investment Trust Operations Group
Business Operation Center
Loan Operations Group
Risk Management Group

Treasury & Investment Department
Trading Department
System Department

Planning & Administration Group
System Development GroupSony Bank
Sony Financial Holdings | 55

Condensed Financial Statements

Nonconsolidated Statements of Income
For the years ended March 31(Millions of yen)

2002

Ordinary revenues
Interest income
Interest on loans
Interest and dividends on securities
Fees and commissions
Other operating income
Income from foreign exchangetransactions
Gains on sale of bonds and others
Other income
Ordinary expenses
Interest expenses
Interest on deposits
Fees and commissions
Other operating expenses
Losses on sale of bonds and others
General and administrative expenses
Other expenses
Ordinary profit (loss)

2003

2004

2005

2006

1,043

4,012

7,406

11,353

17,225

748
17
675
111
181

2,477
185
1,973
321
1,121

4,520
990
3,237
524
2,357

6,563
1,560
4,416
817
3,946

9,472
2,721
6,414
1,686
6,039

139
38
2

320
793
92

1,439
324
4

3,212
732
25

4,449
231
26

5,176

8,479

9,608

13,013

14,997

171
168
90
1,116
811
3,752
43

637
633
298
2,105
1,724
5,370
67

1,136
1,001
521
1,988
1,942
5,823
139

2,855
2,559
677
2,452
1,882
6,905
123

4,672
4,365
1,215
1,890
1,528
7,091
127

(4,132)(4,466)(2,202)(1,659)

2,228

—

—

—

—

—

Income (loss) before income taxes
Income taxes

Extraordinary gains (losses), net(4,132)
3(4,466)3(2,202)
3(1,659)3

2,228(1,030)Net income (loss)(4,136)(4,470)(2,206)(1,663)

3,258

Nonconsolidated Balance Sheets

Sony Bank

As of March 31(Millions of yen)

2002

2003

2004

2005

2006

Assets:Cash and due from banks
Call loans and bills bought
Securities
Loans
Other assets
Deferred tax assets

18,4469,165
111,963634
14,664—8,270
31,340211,573
22,464
46,764—

14,13940,966
333,42163,02337,881—

19,773
127,696
321,600
126,385
23,003—

26,186
20,174
449,549
239,467
18,356
1,033

Total assets

154,875

320,414489,432

618,459754,768

Liabilities:
Deposits
Call money and bills sold
Other liabilities
Deferred tax liabilities

106,472
10,0005,204—

248,72134,7007,567
224

378,850
65,00018,179291

546,717
24,60011,620202

599,952
110,700
9,400—

Total liabilities

121,676

291,213462,321583,140

720,052

18,75018,750(4,136)18,75018,750(8,607)18,75018,750(10,813)23,75013,750(2,477)25,00015,000
781

(165)

308

424

295

(6,065)

Stockholders’ equity:
Common stock
Capital surplus
Retained earnings
Net unrealized gains (losses) on othersecurities, net of taxes
Total stockholders’ equity

33,19829,201

27,11135,31834,715

Total liabilities and stockholders’ equity

154,875

320,414489,432

618,459754,768* Certain reclassifications of the nonconsolidated balance sheet for the year ended March 31, 2002, have been made to conform to thepresentation for the year ended March 31, 2003, and thereafter.

56 | Sony Financial Holdings

Nonconsolidated Statements of Cash Flows
For the years ended March 31

Net cash provided by (used in) operating
activities
Net cash provided by (used in) investing
activities
Net cash provided by financing activities
Effect of exchange rate changes on cash
and cash equivalents(Millions of yen)

2002

2003

2004

2005

2006

99,991

116,134

116,319(23,493)

135,772(119,044)—(126,309)—(110,450)—

19,127
10,000(141,859)
2,500

—

—

—

—

—

Net increase (decrease) in cash and cash
equivalents(19,053)(10,175)

5,868

5,633

(3,586)

Cash and cash equivalents at beginningof year37,50018,446

8,270

14,13919,773

Cash and cash equivalents at end of year

18,446

8,270

14,13919,773

16,186

2004

2005

2006

Other Key Indicators
As of March 31 (Items marked with an asterisk (*) are for the years ended March 31.)

2002

Number of shares outstanding(thousands of shares)
Net operating profits* (millions of yen)
Capital adequacy ratio (domestic criteria)
(%)

2003

375
(4,092)375(4,514)375(2,107)475(1,562)500
2,245

36.62.

18.95.

10.29.

11.97.

9.24.

* Net operating profits are calculated by subtracting provision for possible loan losses and general and administrative expenses from grossoperating profit.

Sony Bank
Sony Financial Holdings | 57

Financial Data (Unaudited)Sony Financial Holdings Inc. (SFH)

Sony Financial Holdings

Consolidated Balance Sheets
As of March 31(Millions of yen)

2005

2006

Assets:Cash and due from banks
Call loans and bills bought
Commercial paper and other debt purchased
Monetary trusts
Securities
Loans
Property and equipment
Due from agencies
Due from reinsurers
Foreign exchanges
Other assets
Deferred tax assets
Reserve for possible loan losses

75,811
303,796
1,998
515,229
2,058,456
206,305
51,6685252
4,659
62,562
1,710(187)

61,30476,0742,000
658,351
2,625,081
326,392
76,5880419
5,748
82,046
3,247(205)

Total assets

3,282,269

3,917,048

Liabilities:
Policy reserve and others:
Reserve for outstanding claims
Policy reserve
Reserve for policyholders’ dividends
Due to agencies
Due to reinsurers
Deposits
Call money and bills sold
Foreign exchanges
Other liabilities
Reserve for employees’ bonuses
Reserve for employees’ retirement benefits
Reserve for directors’ retirement benefits
Reserve for price fluctuations
Deferred tax liabilities
Deferred tax liabilities on land revaluation

2,444,293
25,363
2,418,194
735
1,155
781
546,717
24,60013
45,543
1,495
10,492
77
12,672
6,029—

2,799,129
28,4182,769,126
1,584
1,415
990
599,952
110,700
5
67,190
1,735
11,003202
20,12436,685706

Total liabilities

3,093,875

3,649,842

5,576

4,165

Minority interests:
Minority interests
Stockholders’ equity:
Common stock:
Authorized —5,000,000 shares
Issued—2,100,000 shares
Capital surplus
Retained earnings
Land revaluation
Net unrealized gains on other securities, net of taxes
Foreign currency translation adjustments

5,500

5,500

180,877(59,232)(768)
56,817(374)

180,877(47,694)(1,475)
125,720
113

Total stockholders’ equity

182,817

263,040

3,282,269

3,917,048

Total liabilities, minority interests and stockholders’ equity
See notes to the consolidated financial statements.

58 | Sony Financial Holdings

Consolidated Statements of Income(Millions of yen)

2005

2006

653,259

758,711

Ordinary revenues from the life insurance business:
Income from insurance premiums
Investment income
Other ordinary income

603,775
551,447
50,254
2,072

695,876
580,171
108,613
7,091

Ordinary revenues from the non-life insurance business:
Underwriting income
Investment income
Other ordinary income

38,14937,862275
1045,68045,298349
32

Ordinary revenues from the banking business:
Interest income
Fees and commissions
Other operating income
Other ordinary income

11,335
6,563
799
3,946
25

17,154
9,472
1,635
6,039
7

Ordinary revenues

Ordinary expenses

640,990733,333

Ordinary expenses from the life insurance business:
Insurance claims and other payments
Provision for policy reserve and others
Investment expenses
Operating expenses
Other ordinary expenses

587,052
194,141
299,508
5,115
79,682
8,603

672,162
231,885
344,939
4,610
81,982
8,744

Ordinary expenses from the non-life insurance business:
Underwriting expenses
Investment expenses
Operating, general and administrative expenses
Other ordinary expenses

40,66628,54621
12,097
046,09833,1708
12,90315

Ordinary expenses from the banking business:
Interest expenses
Fees and commissions
Other operating expenses
General and administrative expenses
Other ordinary expenses

13,272
2,855
479
2,452
6,902
582

15,072
4,672
771
1,890
7,088
650

12,26925,377Extraordinary gains

0—Extraordinary losses

516

7,555

Provision for reserve for policyholders’ dividends

519

1,491

Ordinary profit

Income before income taxes

11,233

16,330

Income taxes:
Current
Deferred
Minority interests

13,570(8,428)284

17,236(12,871)(427)

Net income

6,375

11,537

Sony Financial Holdings

For the years ended March 31

See notes to the consolidated financial statements.

Sony Financial Holdings | 59

Sony Financial Holdings

Consolidated Statements of Surplus
For the years ended March 31(Millions of yen)

2005

2006

Capital surplus:
Balance at beginning of year
Additions:Issuance of stocks
Establishment of SFH
Balance at end of year—
180,877
5,000
175,877
180,877

180,877———
180,877

Retained earnings:
Balance at beginning of year
Additions:
Net income
Adjustment of retained earnings for newly consolidated subsidiaries
Deductions:
Cash dividends paid
Adjustment of retained earnings for newly consolidated subsidiaries
Balance at end of year—
24,051
6,375
17,67583,2836,500
76,783(59,232)(59,232)
11,537
11,537————(47,694)

See notes to the consolidated financial statements.

60 | Sony Financial Holdings

Consolidated Statements of Cash Flows

Cash flows from operating activities:
Income before income taxes
Depreciation and amortization
Impairment losses
Increase in policy reserve and others
Interest and dividends
Interest expenses
Net increase in loans
Net increase in deposits
Net (increase) decrease in call loans and bills bought
Net increase (decrease) in call money and bills sold
Others, net
SubtotalInterest and dividends received
Interest paid
Policyholders’ dividends paid
Income taxes paid
Net cash provided by operating activities
II Cash flows from investing activities:
Investments in monetary trusts, net
Purchases of securities
Proceeds from sale and redemption of securities
Investments in loans
Collections of loans
Purchases of property and equipment
Proceeds from sale of property and equipment
Purchase of securities of a consolidated subsidiary
Others, net
Net cash used in investing activities
III Cash flows from financing activities:
Proceeds from borrowings
Repayments of borrowings
Proceeds from issuance of stocks
Cash dividends paid
Net cash provided by financing activities
IV Effect of exchange rate changes on cash and cash equivalents
V Net decrease in cash and cash equivalents
VI Cash and cash equivalents at beginning of year
VII Cash and cash equivalents at end of year

(Millions of yen)

2005

2006

11,233
3,339—
307,989(32,593)
2,988(63,361)
168,060(86,729)(40,400)(20,051)
250,474
41,612(2,413)(568)(14,954)274,150

16,3303,524
5355,467(36,549)
4,681(113,082)
53,417
107,522
86,100(72,511)404,905
41,374(4,535)(644)(15,688)425,411(94,487)(1,083,349)
906,646(37,146)
28,653(5,358)1—(1,151)(286,192)(116,304)(1,184,665)
767,116(39,996)
32,723(25,845)—(1,571)(1,652)(570,196)15(15)
10,000(6,500)3,500(2)(8,544)
262,513
253,969

—
—
—
—
—
79
(144,706)
253,969
109,263

I

Sony Financial Holdings

For the years ended March 31

Notes: 1. The reconciliation of “Cash and cash equivalents” in the consolidated statements of cash flows to “Cash and due from banks”
in the consolidated balance sheets is as follows:
March 31, 2005
March 31, 2006
Cash and due from banks¥ 75,811 million¥ 61,304 million
Call loans of domestic life insurance subsidiary¥176,100 million¥ 55,900 million
Securities of non-life insurance subsidiary¥ 32,932 million¥ 44,067 million
Securities other than cash equivalents of non-life insurance subsidiary¥ (30,874) million¥ (42,009) million
Negotiable certificates of deposit of banking subsidiary¥— million¥ (10,000) million
Cash and cash equivalents¥253,969 million¥109,263 million
2. Cash flows from investing activities include cash flows from lending operations of the insurance business.

Sony Financial Holdings | 61

Sony Financial Holdings

Notes to the Consolidated Financial Statements
For the year ended March 31, 2006
1.

Basis of Presenting Consolidated Financial Statements
Sony Financial Holdings Inc. (the “Company”) and its domestic subsidiaries maintain their accounting records and prepare
their financial statements in Japanese yen in accordance with the provisions set forth in the former Commercial Code of Japan,
the Insurance Business Law of Japan and the Banking Law of Japan and in conformity with generally accepted accounting
principles and practices in Japan (Japanese GAAP), which are different in certain respects as compared to the applicationand disclosure requirements of generally accepted accounting principles and practices in the United States (U.S. GAAP). The
Company’s overseas subsidiary maintains its accounting records and prepares its financial statements in conformity withgenerally accepted accounting principles and practices prevailing in its country of domicile.
The accompanying consolidated financial statements are prepared based on the consolidated financial statements of theCompany and its subsidiaries (the “Companies”) which were filed with the Financial Services Agency as required by the
Insurance Business Law and the Banking Law. For the convenience of readers, the preparation is modified in certain respects
from the original Japanese disclosed financial information.

2.

Principles of Consolidation(1) Scope of consolidation
Number of consolidated subsidiaries:
Consolidated subsidiaries:

(2)
(3)

(4)
(5)
(6)

3.

62 | Sony Financial Holdings

4Sony Life Insurance Co., Ltd.
Sony Life Insurance (Philippines) Corporation
Sony Assurance Inc.
Sony Bank Inc.

Application of the equity method
Not applicable
Fiscal year of consolidated subsidiaries
The financial statements of Sony Life Insurance (Philippines) Corporation are prepared with a fiscal year-end of
December 31. Appropriate adjustments are made for material transactions between December 31 and March 31, thedate of the consolidated financial statements. All other subsidiaries prepare their respective financial statements witha fiscal year-end of March 31, the same as the date of the consolidated financial statements.
Valuation of assets and liabilities of consolidated subsidiaries
A portion of the assets and liabilities of consolidated subsidiaries are computed at fair value as of the respective dates
when the subsidiaries were initially consolidated.
Amortization of goodwill
Goodwill is charged to income directly when incurred.
Appropriation of retained earnings
The consolidated statement of surplus is based on the appropriation of retained earnings approved at the shareholders’meeting during the consolidated fiscal year.

Summary of Significant Accounting Policies(1) Securities
Securities (including commercial paper and other debt purchased and monetary trusts) are stated in the following manner:
Securities held for trading purposes (”trading securities”) are stated at fair value. The cost of securities sold isdetermined by the moving-average method. Held-to-maturity securities are stated at amortized cost (straight-line
method) using the moving-average method. Other securities designated as available-for-sale securities with fair value
are stated at fair value at fiscal year-end, and cost of securities sold is determined by the moving-average method. Other
securities designated as available-for-sale securities with no available fair value are stated at amortized cost (straight-line
method) or at acquisition cost using the moving-average method. Net unrealized gains and losses on other securities
above are reported, net of applicable income taxes, as a separate component of stockholders’ equity.
(2) Derivative financial instruments
Derivative financial instruments are stated at fair value.
(3) Property and equipment
Primarily, depreciation is computed by the straight-line method for buildings and by the declining-balance method forother property and equipment.
(4) Software for internal use
Capitalized software for internal use is amortized using the straight-line method over its estimated useful life of five years.
(5) Deferred charges
Stock issuance costs are fully charged to income when incurred.
(6) Reserve for possible loan losses
The reserve for possible loan losses is established in accordance with each company’s Self-Assessment Guidelines andWrite-offs and Reserve Guidelines. With respect to loans to borrowers subject to bankruptcy, court-guided rehabilitationor similar legal or formal proceedings, the Companies provide a specific reserve in the amount of the loan balance lessamounts collectable from collateral, guarantees and by other means. For other loans, the Companies provide a generalreserve by applying the historical loan loss ratio determined over a certain period. Each loan is subject to asset assessmentby the operational departments in accordance with each company’s Self-Assessment Guidelines, and the results of theassessment are reviewed by the internal audit departments, which are independent from the operational departments,
before the reserve amount is finally determined.
(7) Reserve for employees’ bonuses
The reserve for employees’ bonuses is provided for the payment of bonuses to employees, in the amount of estimatedbonuses, which are attributable to the current fiscal year.
(8) Reserve for employees’ retirement benefits
The reserve for employees’ retirement benefits is provided for the payment of retirement benefits to employees, in theamount deemed accrued at the fiscal year-end, based on the projected retirement benefit obligation at the fiscal year-end.
(9) Reserve for directors’ retirement benefits
The reserve for directors’ and statutory auditors’ retirement benefits is provided based on internal regulations and calculated
as the amount that would be payable if all eligible directors and statutory auditors were to resign at the fiscal year-end.

4.

The balance of loans included the following “Risk-monitored loans” stipulated in the Banking Law:
Bankrupt loans:¥ — million
Non-accrual delinquent loans:¥115 million
Past due loans (three months or more): ¥ — million
Restructured loans:¥166 million”Non-accrual delinquent loans” are loans on which accrued interest income is not recognized, excluding “Bankrupt loans”
and loans on which interest payments are deferred in order to support the borrowers’ recovery from financial difficulties.
“Restructured loans” are loans on which terms and conditions have been amended in favor of the borrowers (e.g., reduction of
the original interest rate, deferral of interest payments, extension of principal repayments or debt forgiveness) in order tosupport the borrowers’ recovery from financial difficulties, excluding “Bankrupt loans,” “Non-accrual loans” and “Past dueloans (three months or more).”5.

The domestic life insurance subsidiary revalued its land for operating purposes, as permitted by the Land Revaluation Law(Law No. 34, enacted March 31, 1998—the “Law”). Regarding valuation differences, in the event of revaluation losses thetax effect of the revaluation is accounted for in full in the valuation reserve. In the event of revaluation gains, the tax effect of
the revaluation is recorded in “deferred tax liabilities on land revaluation.” After excluding these amounts, the net revaluationdifference is reported as “land revaluation” in stockholders’ equity. The date of the revaluation was March 31, 2002, and therevaluation method stipulated by Article 3-3 of the Law was based on the land appraisal in conformity with Article 2-5 of the
Law Enforcement Order related to the Law (Government Ordinance No. 119, effective from March 31, 1998).

6.

Accumulated depreciation of property and equipment: ¥5,747 million.

7.

The balance sheet included ¥280,682 million of assets and liabilities in equal amounts related to separate accounts, as
stipulated in Article 118 of the Insurance Business Law.

8.

Net assets per share: ¥125,257.54

9.

Net income per share: ¥5,494.28
The basis for this calculation is net income of ¥11,537 million, of which the entire portion is applicable to common shares.
The weighted-average number of shares outstanding was 2,100 thousand.

Sony Financial Holdings(10) Reserve for price fluctuations
Pursuant to requirements under the Insurance Business Law, the reserve for price fluctuations is provided for pricefluctuations primarily related to stocks, bonds and foreign currency denominated assets which are exposed to losses due
to market price fluctuations. This reserve may only be used to reduce deficits arising from price fluctuations on those assets.
(11) Translation of foreign currencies
Assets and liabilities denominated in foreign currencies are translated into Japanese yen at the foreign exchange rates in
effect at the fiscal year-end.
(12) Lease transactions
Finance leases that have not been deemed to transfer ownership of the leased property to the lessees are accounted for
as operating lease transactions.
(13) Hedge accounting
As for the hedge accounting method applied to hedging transactions for interest rate risk generated by financial assets
and liabilities, the banking subsidiary applies deferred hedge accounting or fair value hedge accounting. Interest rate
swaps are used as hedging instruments to offset fluctuations in interest rates on fixed-rate loans by identifying thehedged items via their grouping according to their maturity, in accordance with the “Treatment for Accounting and
Auditing of Application of Accounting Standard for Financial Instruments in the Banking Industry” (Industry Audit
Committee of Japanese Institute of Certified Public Accountants No. 24). Interest rate swaps and others are used as
hedging instruments to offset fluctuations in the fair value of fixed-rate bonds, which are classified as other securities.
Both of the above-mentioned hedging instruments are identified so that their significant terms are nearly identical tothose of the hedged items. Accordingly, such hedges are considered as highly effective, resulting in a substitution forevaluating the effectiveness of the hedging transactions.
(14) Accounting for consumption taxes
The consumption taxes received or paid by the Company and its domestic subsidiaries, excluding loss adjustment
expenses and operating, general and administrative expenses of the non-life insurance subsidiary, are not included inincome and expenses. Under the Consumption Tax Law of Japan, the consumption taxes paid on property and equipment,
which is not deductible from the consumption taxes received, are deferred as “other assets” and amortized over a fiveyear period on a straight-line basis, while other non-deductible consumption taxes are charged as expenses in the
period in which the consumption taxes are paid.
(15) Policy reserve
Pursuant to Article 116 of the Insurance Business Law, the domestic life insurance subsidiary maintains a policy reserve
for the fulfillment of future obligations under life insurance contracts, and the policy reserve is calculated in thefollowing manner.
a. Policies subject to the standard policy reserve apply the method stipulated by the Financial Services Agency (Ministryof Finance Directive 48, 1996).
b. Policies not subject to the standard policy reserve apply the net level premium method.
(16) Application of consolidated tax provision
The consolidated tax provision, under which Sony Corporation is the parent company, is applied to the Company and its
domestic subsidiaries wholly owned by Sony Corporation.

10. The Company and its subsidiaries have office and computer equipment taken on lease contracts that are not included inproperty and equipment stated in the consolidated balance sheets.
11. The movement of the reserve for policyholders’ dividends at the domestic life insurance subsidiary for the fiscal year is as follows:
Balance at beginning of year:¥ 735 million
Policyholders’ dividends during the year:¥ 644 million
Increase in interest:¥
1 million
Provision for reserve for policyholders’ dividends: ¥1,491 million
Balance at end of year:¥1,584 million

Sony Financial Holdings | 63

Sony Financial Holdings

12. The assets pledged as collateral consisted of the following:
Assets pledged as collateral:
Securities:¥119,598 million
Liabilities corresponding to the assets above:
Call money and bills sold:¥110,700 million
In addition to the assets above, securities of ¥35,525 million were pledged as collateral for domestic exchange settlements,
derivatives transactions and initial margins for future markets and others.
13. The fair value information on securities as of March 31, 2006, is as follows. In addition to “Securities” in the consolidatedbalance sheets, other debt purchased in “Commercial paper and other debt purchased” and negotiable certificates of depositin “Cash and due from banks” are included in the amounts of the following table.
Trading securities
Consolidated balance sheet amount(Millions of yen)
Valuation gains/losses charged to income

270,653

39,050

Held-to-maturity securities with fair value

Bonds
Japanese government and municipal bonds
Japanese corporate bonds
Others
Total(Millions of yen)
Consolidatedbalancesheet amount

Fair valueNet
unrealized
gains/losses

Unrealized
gains

Unrealized
losses

31,77527,7604,014
1,414
33,18931,662
27,655
4,007
1,437
33,099

(112)
(105)
(7)
23
(89)

102
96
6
29
132

215
201
13
6
221

Acquisition
cost

Consolidatedbalancesheet amountNet
unrealized
gains/losses

Unrealized
gains

Unrealized
losses

1,720,856
1,252,313
468,543
126,937
311,569
2,159,364

1,746,659
1,233,945
512,714250,713321,0992,318,472

25,802(18,368)
44,170123,776
9,529
159,108

46,791962
45,828124,106
11,862
182,760

20,98819,330
1,657
330
2,332
23,651Other securities with fair value(Millions of yen)

Bonds
Japanese government and municipal bonds
Japanese corporate bonds
StocksOthers
Total

Other securities sold in the year ended March 31, 2006:
Sales amount

Gains on sales

297,408

6,885(Millions of yen)
Losses on sales

936

Other securities with no available fair value:(Millions of yen)
Consolidated balance sheet amount

StocksOthersTotal

516,76016,765

The future redemption schedule of other securities with maturities and held-to-maturity securities is as follows:(Millions of yen)
1 year or less

Bonds
Japanese government and municipal bonds
Japanese corporate bonds
OthersTotal

234,896
103,511
131,385
63,613
298,510More than 1 year More than 5 years
to 5 years
to 10 years

620,310366,467
253,843
209,966
830,277

Over 10 years

805,651
703,473
102,178
21,320826,972

117,575
88,25429,321
3,485
121,061

14. The fair value information on monetary trusts as of March 31, 2006, is as follows:
Monetary trusts for trading purposes
Consolidated balance sheet amount(Millions of yen)
Valuation gains/losses charged to income

126,857

3,907

Other monetary trusts

Other monetary trusts(Millions of yen)
Acquisition
cost

Consolidatedbalance sheet
amountNet
unrealized
gains/losses

Unrealized
gains

Unrealized
losses495,901

531,493

35,59140,7035,111

Note: Jointly invested monetary trusts of ¥50 million are included in the above table.

15. All figures in the consolidated financial statements and notes are stated in millions of yen by discarding fractional amounts ofless than ¥1 million.

64 | Sony Financial Holdings

Consolidated Capital Adequacy Ratio (Domestic Criteria)

Consolidated Capital Adequacy Ratio (Domestic Criteria)

As of March 31

Tier I capital(Core capital)

Tier II capital(Supplementary capital)(Millions of yen)

2005

2006

181,326

183,582

Common stock

5,500

5,500

Capital surplus

180,877

180,877

Retained earnings(10,462)(1,619)Minority interests

5,576

4,165

Unrealized losses onother securities

164

5,340

44

128

44

128

[A]

[B]
General reserve forpossible loan losses

Deductions[C]

145,881

145,881

Total capital[A + B – C] [D]35,48937,829Risk-adjusted assets[E]291,684

378,798

On-balance item

291,194378,543

Off-balance item

490

254

12.17.%

9.99.%

Consolidated capital
adequacy ratio[D / E]Sony Financial Holdings

The consolidated capital adequacy ratio is subject to the capital adequacy guidelines issued by
the Financial Services Agency in Japan, which closely follow the risk-adjusted approach proposedby the Bank for International Settlements (BIS).
The following table presents the consolidated capital adequacy ratios of Sony Financial
Holdings Inc. under the guidelines.

Note: Pursuant to “Defining the Standards on the Consolidated Capital Adequacy Ratio under the Provision of Article 52-25 of the
Banking Law (Ministry of Finance Directive 62, 1998)”, insurance subsidiaries are excluded from calculation of the consolidated
capital adequacy ratio.

Sony Financial Holdings | 65

Risk-Monitored Loans

Sony Financial Holdings

Risk-Monitored Loans
As of March 31(Millions of yen)

2005

2006

Bankrupt loans——

Non-accrual delinquent loans

0115

Past due loans (three months or more)——

Restructured loans

—

166

0

281

66 | Sony Financial Holdings

Total

Headquarters: 1-1, Minami Aoyama 1-chome
Tel: +81-3-5785-1070
http://www.sonyfh.co.jp/english/
Published in July 2006 by the Corporate Planning Department

2

Headquarters: 1-1, Minami Aoyama 1-chome
Tel: +81-3-5785-1070 (main switchboard)
http://www.sonyfh.co.jp/english/
Published in July 2006 by the Corporate Planning Department

Sony Financial Holdings Group