May 25, 2012
Sony Life Insurance Co., Ltd.

Disclosure of Market Consistent Embedded Value as of March 31, 2012
Tokyo, May 25, 2012 – Sony Life Insurance Co., Ltd. (“Sony Life”), a wholly owned subsidiary of Sony Financial
Holdings Inc., today disclosed its Market Consistent Embedded Value (“MCEV”) as of March 31, 2012. MCEV isan indicator used to evaluate the corporate value of the life insurance businesses, and is compliant with theEuropean Insurance CFO Forum Market Consistent Embedded Value Principles©1 (“MCEV Principles”).
Sony Life maintains its accounting records and prepares its financial statements in Japanese yen, in accordancewith the Company Law of Japan and the Insurance Business Law of Japan, and in conformity with generally
accepted accounting principles and practices in Japan (“Japanese GAAP”). Sony Financial Holdings Inc.’s parent
company, Sony Corporation, reports its financial statements in accordance with generally accepted accounting
principles and practices in the United States. The figures shown below with respect to Sony Life’s financial
statements are based on Japanese GAAP.

SummaryJapanese Government Bond (JGB) yields have been used as risk free rates since the disclosure as of March 31,
2012. The impact of changes in risk free rates on MCEV as of March 31, 2011 was as follows:(Billions of yen)
JGB yields
Swap rates
Change
MCEV
913.5
853.6
59.9
Adjusted net worth
230.3
230.3
－
Value of existing business
683.2
623.3
59.9
New business value
61.7
56.8
4.9
Sony Life’s MCEV as of March 31, 2012 was as follows. New business value indicates the value of new businessacquired during the fiscal year ended March 31, 2012. Both MCEV and the value of new business are measured using
the JGB yields as risk free rates(Billions of yen)
As of
As of
ChangeMarch 31, 2012
March 31, 2011
MCEV
1,041.5
913.5
128.1
Adjusted net worth
409.2
230.3
178.9
Value of existing business
632.4
683.2
(50.8)
New business value
65.2
61.7
3.5

1

Copyright © Stichting CFO Forum Foundation 20081

For inquiries:
Corporate Communications & Investor Relations Dept.
Sony Financial Holdings Inc.
E-mail: press@sonyfh.co.jp
Telephone: +81-3-5785-1074
Website of Sony Financial Holdings Inc. http://www.sonyfh.co.jp/web/index_en.html

2

Table of Contents
For inquiries: .................................................................................................................................................... 2
1. Introduction .............................................................................................................................................. 4
1.1 About MCEV ......................................................................................................................................... 4
1.2 Covered business ................................................................................................................................... 4
1.3 Statement of directors ............................................................................................................................ 4
1.4 Opinion of outside specialist ................................................................................................................... 4
1.5 Compliance with MCEV Principles........................................................................................................ 5
1.6 Definition of MCEV ............................................................................................................................... 5
1.7 Use of Japanese government bond yields as risk free rates ..................................................................... 6
2. MCEV Results for Sony Life .................................................................................................................... 7
2.1 MCEV results ........................................................................................................................................ 7
2.2 Adjusted net worth ................................................................................................................................ 7
2.3 Value of existing business ....................................................................................................................... 8
2.4 New business value ................................................................................................................................ 8
2.5 New business margin ............................................................................................................................. 9
2.6 Reconciliation analysis from MCEV at the end of the prior year ............................................................ 9
2.7 Sensitivity analysis ............................................................................................................................... 13
3. Assumptions ............................................................................................................................................ 16
3.1 Economic assumptions ......................................................................................................................... 16
3.2 Future asset allocation ......................................................................................................................... 22
3.3 Other assumptions ............................................................................................................................... 22
4. Calculation method of MCEV ................................................................................................................ 25
4.1 Covered business ................................................................................................................................. 25
4.2 Treatment of subsidiaries and affiliated companies .............................................................................. 25
4.3 Treatment of reinsurance ..................................................................................................................... 25
4.4 Treatment of semi-participating policies............................................................................................... 25
4.5 MCEV ................................................................................................................................................. 25
4.6 Adjusted net worth .............................................................................................................................. 25
4.7 Required capital .................................................................................................................................. 26
4.8 Free surplus ......................................................................................................................................... 27
4.9 Value of existing business ..................................................................................................................... 27
4.10 Present value of certainty-equivalent profit ........................................................................................ 27
4.11 Time value of options and guarantees ................................................................................................. 27
4.12 Frictional costs ................................................................................................................................... 28
4.13 Cost of non-hedgeable risks ................................................................................................................ 28
4.14 Cost of capital rate ............................................................................................................................. 28
5. Opinion of Outside Specialist ................................................................................................................ 30
6. Glossary................................................................................................................................................... 32

3

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

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

1.3 Statement of directors
The Board of Directors of Sony Life confirms that the EV presented here has been produced following themethodology set out in the MCEV Principles. Areas of material noncompliance are stated in section 1.5
1.4 Opinion of outside specialist
Sony Life requested Milliman, Inc., an external actuarial consulting firm with expert knowledge in the area of
MCEV valuations, to review the methodology, assumptions and calculations and obtained an opinion from thisfirm. Please refer to section 5 (“Opinion of Outside Specialist”) for details.
41.5 Compliance with MCEV Principles
We have calculated our MCEV in accordance with the calculation methodologies and assumptions in the MCEV
Principles. Notable points regarding compliance with the MCEV Principles are as follows:
The reference rate used in the calculations has been defined as the Japanese Government Bond (JGB)
nominal spot rate curve rather than the swap rate curve as stipulated in the MCEV principles.

The calculated value of MCEV is the value for Sony Life only, and not the consolidated value of our parent
company, Sony Financial Holdings Inc.
Group MCEV, as prescribed in the MCEV Principles, is not considered in this report, as the report is forSony Life on a standalone basis.
With respect to Sony Life’s subsidiary and its equity-method affiliates, we have not evaluated their life
insurance business but reflected the following values in the calculation of adjusted net worth: AEGON Sony Life Insurance Co., Ltd. is valued at net asset value minus intangible fixed assets andInsurance Business Law Article 113 deferred assets, multiplied by the participation rate Sony Life Insurance (Philippines) Corporation is valued at book value under Japanese GAAP, adjusted
for unrealized gains / losses due to foreign exchange rate movements (after-tax)
 Other companies are valued at book value under Japanese GAAPNone of the calculated values of MCEV are presented separately by segment of subsidiary or by affiliatedcompany.
We have calculated adjusted net worth based on Japanese GAAP, not International Financial ReportingStandards (IFRS).

1.6 Definition of MCEV
The MCEV Principles define MCEV as follows:
MCEV represents the present value of the current and future distributable earnings to shareholders generated fromassets allocated to the covered business after sufficient allowance for the aggregate risks in the covered business.
MCEV can be expressed as the EV evaluated in a method consistent with the calculation of prices of financial
products traded in the financial markets.
MCEV consists of adjusted net worth and the value of existing business.
Adjusted net worth is the amount of assets allocated for the covered business as of the valuation date and calculated
as the amount of its market value in excess of statutory policy reserves and other liabilities. Adjusted net worth canbe split into required capital and free surplus.
The value of existing business consists of the present value of certainty-equivalent profit, time value of options andguarantees, frictional costs, and the cost of non-hedgeable risks.
The present value of certainty-equivalent profit is the present value of profit based on future cash flows
generated from the covered business.
Time value of options and guarantees is the stochastic valuation of the time value of options and guarantees
inherent in insurance contracts based on risk-neutral scenarios.
5

Frictional costs are the present value of investment costs and taxes on assets backing the required capital ateach point of time in the future.

Cost of non-hedgeable risks means the present value of costs necessary to maintain capital related to
non-hedgeable risks in the future.
These four items are all evaluated on an after-tax basis.
Please refer to Section 4 for more detailed definitions of terms.

1.7 Use of Japanese government bond yields as risk free rates
EU Solvency II suggests the criteria the relevant risk free rates should meet. We considered some of the criteria
described below and have decided to use JGB yields instead of swap rates beginning with the disclosure as ofMarch 31, 2012.

No credit risk
As Japanese yen is the currency of which the right to issue is held by Japanese government under a floatingexchange rate system, Japanese government bonds denominated in Japanese yen can be considered to be financial
assets with the lowest credit risk. On the other hand, swap rates are reflected by credit risk with regard to LIBOR.

Realism
Realism refers to whether it should be possible to earn the rates in practice without credit risk. We have been
conducting risk management based on economic values. For the purpose of interest rate risk management (ALM),
given the difficulties in utilizing swap rate transactions due to limitations under the current accounting frameworkand solvency regulations as well as the credit risk issue as mentioned above, we are primarily utilizing government
bonds in practice.
High liquidity
Japanese government bonds have high liquidity even for long maturities such as 30 or 40 years.

The impact of the change in the definition of risk free rates on MCEV as of March 31, 2011 was asfollows:(Billions of yen)
JGB yields
Swap rates
Change
MCEV
913.5
853.6
59.9
Adjusted net worth
230.3
230.3
－
Value of existing business
683.2
623.3
59.9
New business value
61.7
56.8
4.9

6

2. MCEV Results for Sony Life
2.1 MCEV resultsSony Life’s MCEV as of March 31, 2012 is shown in the table below.
(Billions of yen)

MCEV
Adjusted net worth
Value of existing businessNew business value

As ofMarch 31, 2012
1,041.5
409.2
632.4
65.2

As of
March 31, 2011
913.5
230.3
683.2
61.7

Change128.1
178.9(50.8)
3.5

2.2 Adjusted net worth
Adjusted net worth is calculated as the market value of assets allocated for the covered business in excess ofstatutory policy reserves and other liabilities as of the valuation date. It is the total amount of the net assets line
item on the balance sheets, adding a reserve for price fluctuations, contingency reserve, reserve for possible loan
losses, along with unrealized gains or losses on held-to-maturity securities and unrealized gains or losses on landand buildings, less unfunded pension liabilities and intangible fixed assets, and adjusting for the amount of tax
effect equivalent to these seven items, on which valuation gains or losses on subsidiaries and affiliated companies
are added (see below). Here, the foreign exchange rate applied in calculating the valuation gains or losses causedby the foreign exchange rate at Sony Life Insurance (Philippines) Corporation was ¥1.9/peso at the end of March
2012. We have also reflected tax effect equivalent in calculating the valuation gains or losses caused by theforeign exchange rate.

As ofMarch 31, 2012
409.2
264.8
25.3
55.3
0.0

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

7(Billions of yen)
As of
ChangeMarch 31, 2011
230.3
178.9
215.4
49.4
16.8
8.6
51.6
3.8
0.0
(0.0)

155.9
11.5
(4.9)
(24.3)(66.8)(22.2)
11.2(6.4)(18.4)(11.8)

178.1
0.3
1.6
(5.9)
(55.0)

(7.8)

(5.8)

(2.0)

(Billions of Yen)
As of
March 31, 2012
409.2
382.9
26.3

Adjusted net worth
Free surplus
Required capital

As ofMarch 31, 2011
230.3
230.3
－

Change
178.9
152.6
26.3

We set our required capital as the larger of the amount of capital required for a solvency margin ratio of 200% or
the amount of capital to cover risks based on an internal model based on economic value. Please refer to section 4.7
for the method used to calculate required capital.

2.3 Value of existing business
The value of existing business is the present value of certainty-equivalent profit less the time value of options andguarantees, and frictional costs and the cost of non-hedgeable risks, as follows:(Billions of yen)
As of
As of
ChangeMarch 31, 2012 March 31, 2011
Value of existing business
632.4
683.2
(50.8)
Present value of certainty-equivalent profit
907.7
929.1
(21.4)
Time value of options and guarantees(84.5)(61.9)(22.6)
Frictional costs(5.0)(22.7)
17.7
Cost of non-hedgeable risks(185.9)(161.4)(24.5)

2.4 New business value
Business included in the calculation of new business value covers only business acquired during the fiscal year
ended March 31, 2012, which is consistent with the financial information we have disclosed, and does not include
the value of new business expected to be acquired in the future. The value of new business is the value as of March
31, 2012 and is calculated based on the same assumptions used for the value of existing business on the same date.
As the value of new business includes profits and losses from the point of sale to the end of March 2012, actual
investment gains and losses during the fiscal year ended March 31, 2012 are reflected. A breakdown of the value of
new business is as follows:(Billions of yen)
As of
As of
ChangeMarch 31, 2012 March 31, 2011
Value of new business
65.2
61.7
3.5
Present value of certainty-equivalent profit
91.5
83.5
8.1
Time value of options and guarantees
(8.3)
(5.2)
(3.1)
Frictional costs
(0.2)
(0.3)
0.0
Cost of non-hedgeable risks(17.8)(16.3)(1.6)

8

2.5 New business margin
The new business margin described below is the ratio of the value of new business to the present value of premiumincome. The present value of premium income is calculated applying the same assumptions as those for the
calculation of new business value, and is based on the premium before the deduction of the reinsurance premium.
(Billions of yen)

Value of new business
Present value of premium income

As ofMarch 31, 2012
65.2
1,013.7

As ofMarch 31, 2011
61.7
954.4

6.4%

6.5%

Value of new business / Present value ofpremium income

Change3.5
59.3(0.0) points

Relationships between the acquired annualized premiums from new policies and the present value of premiumincome from new business for the fiscal year ended March 31, 2012 were as follows:(Billions of yen)
As of
As of
ChangeMarch 31, 2012
March 31, 2011
New business single premium
76.1
74.1
2.1
Annualized premiums from level premium
92.4
88.4
4.0
new business2
Average annualization multiplier3

10.15

9.96

0.19

2.6 Reconciliation analysis from MCEV at the end of the prior year
The table below shows the reconciliation analysis of MCEV as of March 31, 2012, from MCEV as of March 31,
2011. The format of the table is in line with the format prescribed by the MCEV Principles.

Free
surplus

Opening MCEV (MCEV as of March 31, 2011)
Change of reference rates
Opening MCEV based on JGB yields

230.3
－
230.3

Requiredcapital－－－(Billions of yen)
Value ofexisting
MCEV
business
623.3
59.9
683.2

853.6
59.9
913.5

Annualized premiums from level premium new business is calculated by multiplying the number of payments in ayear by the amount of premiums received at a time. It should be noted that the definition of annualized premiums
here is different from that used in disclosures such as financial results and annual reports.
3
The average annualization multiplier is calculated as (Present value of premium income – New business single premium) /Annualized premiums from level premium new business.
2

9

Free
surplus

Opening MCEV based on JGB yields(MCEV as of March 31, 2011)
Opening adjustments
Adjusted opening MCEVNew business value
Expected existing business contribution (risk-free rate)
Expected existing business contribution (in excess of risk
free rate)
Transfers from value of existing business and required
capital to free surplus
Of which, on new business
Experience variances
Assumption changes
Other operating variance
Operating MCEV earnings
Economic variances
Other non-operating varianceTotal MCEV earnings
Closing adjustments
Closing MCEV (MCEV as of March 31, 2012)

Requiredcapital(Billions of yen)
Value ofexisting
MCEV
business

230.3
(9.1)
221.2
－
0.3

－
－
－
－
0.0

683.2
－
683.2
65.2
11.1

913.5
(9.1)
904.4
65.2
11.5

0.5

0.1

7.1

7.7

(8.4)
(34.5)(0.2)(0.1)(24.7)(32.6)
187.0
7.2
161.7
－

1.4
(－)
(1.5)
0.1
24.7
24.8
0.2
1.3
26.3
－

6.9
(34.5)
(0.3)
7.0
25.4
122.5
(214.2)40.8(50.8)
－

－
(－)
(2.0)
7.0
25.4
114.7
(26.9)
49.3
137.2
－

382.9

26.3

632.4

1,041.5(1) Change of reference rates
This is the impact due to the change of risk free rates from swap rates to JGB yields.
(2) Opening adjustments
These adjustments reflect changes in dividends paid to shareholders.
(3) New business value
This figure reflects increases resulting from the acquisition of new business during the fiscal year ended March 31,
2012. Please refer to section 2.4 for information concerning the calculation method.
(4) Expected existing business contribution (risk-free rate)
This figure includes the release of the portion for the fiscal year ended March 31, 2012 of the time value of options
and guarantees and the cost of non-hedgeable risks, in addition to the release of the expected existing business
contributions at a risk-free rate from the opening MCEV (as of March 31, 2011).
(5) Expected existing business contribution (in excess of risk-free rate)
This figure reflects the profit expected in excess of the risk-free rate generated by holding assets such as ordinary
corporate bonds, loans, stocks and real estate. The expected yield used to calculate the expected existing business

10contribution in excess of the risk-free rate for the fiscal year ended March 31, 2012 was 0.429%, which wasdeveloped by reflecting our view of the market environment and annual investment plans for the year against theasset balance at the end of the previous fiscal year.
(6) Transfer from value of existing business and required capital to free surplus
This figure indicates changes in the free surplus by transferring the profit for the fiscal year ended March 31, 2012
from the existing business value to the free surplus and from changes in the required capital. The transfer of profit,
the former item, includes the transfer of expected profit that it was assumed would be realized during the fiscal
year ended March 31, 2012 under the MCEV calculation as of March 31, 2011, and the transfer of profit for the
fiscal year ended March 31, 2012 calculated under the new business value for the fiscal year ended March 31, 2012,
which is added in (3) above.
The value of MCEV itself does not change as a result of this transfer as the transfer merely constitutes an internal
shift among MCEV components.
(7) Experience variances
These variances show the impact on MCEV of the actual versus assumed differences in non-economic expected
profit for the fiscal year ended March 31, 2012 under the MCEV calculation as of March 31, 2011, and of thedifferences between actual policies in force as of March 31, 2012, and those that were projected to be in force on
March 31, 2011 using persistency assumptions.
These variances reflect the impact of one-time expenses incurred during the fiscal year ended March 31, 2012, if
applicable. Please refer to section 3.3 (5) for information on one-time expenses.
(8) Assumption changes
This figure indicates the impact of changes in the assumptions, mainly on mortality and morbidity rates, lapse andsurrender rates and operating expense rates.
While changes in morbidity and lapse rates decreased the value of existing business, its increase due to the change
in mortality rate was more significant.
(9) Other operating varianceThis represents the impact of improvements and corrections of the model used in calculating MCEV, including thechange of the required capital calculation described in section 4.7 due to the revision of the statutory minimum
required capital level to 200% under the new solvency margin regime as well as the improvement of the internal
economic capital model to calculate the capital required to meet the internal objective.
(10) Operating MCEV earnings
This figure shows the aggregate amount of items (3) through (9).
(11) Economic variances
These variances show the impact of actual to assumed differences in economic assumptions, such as market
interest rates and implied volatilities, that were reflected in the market environment when calculating MCEV as ofMarch 31, 2011 on future values and the impact of the actual to assumed difference in expected asset investment
income that were assumed would be realized during the year ended March 31, 2012, under MCEV as of March 31,
2011.
Most of the difference is created by the former factor, of which major reasons for decreases in the value of existing11

business include an update of economic scenarios due to the change in the market environment such as a decreasein JGB yields and a change in the implied volatilities, accounting for a decrease in the present value ofcertainty-equivalent profit by ¥195.2 billion, as well as increases in the time value of options and guarantees, thefrictional cost and the cost of non-hedgeable risks by ¥0.3 billion, ¥ (0.5) billion and ¥10.5 billion, respectively.
(12) Other non operating varianceThis figure shows the effect of changes in tax rate assumptions accompanying the corporate tax rate reduction andreconstruction special corporate tax imposition described in section 3.3 (6).
(13) Closing adjustments
It reflects the impact of valuation gains or losses caused by the foreign exchange rate on Sony Life Insurance(Philippines) Corporation.

12

2.7 Sensitivity analysis
The impact of changing the underlying assumptions of MCEV is as follows:
Sensitivities(Billions of yen)
Assumption

No change
100bp decrease
100bp increase
Swap rates

1,041.5
912.7
1,073.4
972.2

Change inAmount－(128.8)31.8(69.3)

10% decrease

1,024.7(16.8)(2%)

25% increase

1,033.7

(7.8)

(1%)

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

1,030.3
1,056.0
1,065.6(11.3)
14.5
24.1

(1%)
1%
2%

1,084.1

42.6

4%

1,038.1
1,074.3
1,041.6

(3.5)
32.8
0.1

(0%)
3%
0%

Change in Assumption

BaseInterest rates
Stock / Real estate market
value
Stock / Real estate implied
volatility
Interest swaption
Implied volatility
Maintenance expenses
Lapse and surrender rates

Mortality rates

Morbidity rates
Required capital

MCEV

Rate of Change
－
(12%)
3%
(7%)

Changes in adjusted net worth within the amount of change in MCEV are shown in the table below. Of items not
specified in this table, only the value of existing business has been changed while adjusted net worth remains thesame.
(Billions of yen)
100bp decrease

710.8

100bp increase(550.7)

Stock / Real estate market value

10% decrease(12.2)

Stock / Real estate implied volatility

25% increase

0.3

Interest rates

13

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

Mortality rates

Morbidity rates
Required capital

New Business
Value
65.2
5.9
99.1
58.2

Change inAmount－(59.3)
34.0
(6.9)

65.2

(0.0)

(0%)

25% increase

64.8

(0.3)

(1%)

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

63.6
66.6
70.9

(1.6)
1.4
5.7

(2%)
2%
9%

68.3

3.1

5%

64.9
67.6
65.2

(0.2)
2.4
0.0

(0%)
4%
0%

Change in Assumption
No change
100bp decrease
100bp increase
Swap rates
10% decrease

Rate of Change
－
(91%)
52%
(11%)

(1) Interest rates
This sensitivity represents the impact of an immediate parallel shift of the Japanese and foreign government
bond yield curves as of March 31, 2012, and the impact if the swap rates were used instead of government
bond yields. Adjusted net worth would change as the market value of bonds and other assets held were tochange, while this is not applicable to the case if the swap rates were used. At the same time, the value ofexisting business would also change as interest rates, the discount rate, yields of new bonds to be purchased in
the future as the existing bonds mature, and the investment return on stocks, real estate, and other assets wereto change. Here, the sensitivity scenarios were made so that the parameters related to interest rate volatility
were equal to those derived for the base case. Only the parameters related to the interest rate term structure
were altered when scenarios were developed using the interest rate model. The floor for downward changes ininterest rates was set at 0%.
The sensitivity of 100 basis points parallel down shift (floored at 0%) from the case where the Japanese andforeign swap rates are used is described in the table below:(Billions of yen)
MCEV
New Business
Value
Swap rates
972.2
58.2
Swap rates 100bp decrease
820.9
(2.3)
Change in amount(151.3)(60.6)

14

(2) Stock and real estate market value
This sensitivity represents the impact of immediate changes in market values of stock and real estate as ofMarch 31, 2012. Adjusted net worth would change as the market value of stock and real estate changes. At thesame time, the value of existing business would change as the amount of assets changes.
(3) Implied volatility of stock and real estateThis sensitivity represents the impact of an increase in the implied volatilities of stock used in calculating thetime value of options and guarantees. Changes in stock implied volatilities affect the adjusted net worth andthe time value of options and guarantees.
(4) Interest swaption implied volatility
This sensitivity represents the impact of an increase in the implied volatility of interest swaption used in
calculating the time value of options and guarantees. The value of existing business would change as the timevalue of options and guarantees change.
(5) Maintenance expenses
This sensitivity represents the impact of a decrease in maintenance expenses. It should be noted thatmaintenance expenses do not include sales commissions from the in-force policies payable to Sony Life’s
Lifeplanner sales employees and other sales force in future periods.
(6) Lapse and surrender rates
This sensitivity represents the impact of a decrease in lapse and surrender rates.
(7) Mortality rates
This sensitivity represents the impact of a decrease in the mortality rates. We have shown the impact on death
protection products and the impact on third-sector insurance and annuity products separately, as they would
have different impacts. We have covered base policies and riders of which the principal benefits are accidental
death, disability, cancer, medical and nursing care benefits, and individual annuities with respect to thethird-sector insurance and annuity product segment. No management actions were reflected.
(8) Morbidity rates
This sensitivity represents the impact of a decrease in the morbidity rates of sickness and others in third-sector products.
(9) Required capitalThis sensitivity represents the impact in the event that required capital is changed to the statutory minimum
level, which is a solvency margin ratio of 200%.
(10) Other
The following points should be noted regarding sensitivity:
・ Frictional costs and the cost of non-hedgeable risks do not change in the sensitivity tests, with the
exception of frictional costs, which are changed in terms of (9) required capital.
・ Values of subsidiaries and affiliated companies are not changed except for stock market value sensitivity,
where the stock value of subsidiaries and affiliated companies are altered.
・ The impact of changing more than one assumption at a time is not congruent with the sumof impacts for each assumption.
15

3. Assumptions
3.1 Economic assumptions
We have made economic assumptions in our calculation of MCEV as of March 31, 2012.
(1) Risk-free rate
We have used the JGB yields as of the end of March, 2012 as a risk-free rate for the certainty-equivalentprojections. It is assumed that forward rates in the 41st year and beyond were equal to those in the 40th year. We
have used Bloomberg’s JGB yields as our data source.
The JGB yields for key terms are as follows:
As of the end of
March, 2012
0.11%
0.32%
0.99%
1.76%
1.95%
2.11%

Term
1 year
5 year10 year
20 year
30 year
40 year

As of the end of
March, 2011
0.15%
0.50%
1.26%
2.07%
2.19%
2.34%

The swap rate for key terms which are used for the sensitivity result with swap rates in section 2.7 (1) are as
follows:
As of the end of
March, 2012
0.34%
0.49%
1.04%
1.75%
1.91%
2.00%

Term
1 year
5 year10 year
20 year
30 year
40 yearWe have not added liquidity premium on the risk free rate as there are no products which are consideredappropriate to apply liquidity premium as they have reasonably predictable cash flows and are considered
illiquid.
(2) Interest-rate model
We have calibrated the interest rate model to the market as of the end of March, 2012. We have estimatedparameters for the interest rate model from the yield curve and the implied volatilities of interest swaptions
with different terms. We have used 1,000 scenarios generated by Milliman, Inc. in calculating the time value of
options and guarantees under the stochastic method where the interest rate is floored at 0%.

16

The implied volatilities of the interest swaption used in our estimation are as follows:
As of the end of March, 2012
Term of swap
Term of option(in years)(in years)
1
1
5
1
5
5
5
7
5
10
5
15
5
20
10
1
10
5
10
7
10
10
10
15
10
20
15
1
15
5
15
7
15
10
15
15
15
20
20
1
20
5
20
7
20
10
20
15
20
20

Japanese
yen
40.8%
48.7%
34.8%
30.1%
26.8%
26.0%
29.0%
37.3%
29.4%
27.1%
26.2%
26.9%
29.6%
29.9%
27.5%
27.2%
27.7%
28.1%
29.5%
27.4%
27.5%
27.6%
28.3%
30.2%
29.1%

17

U.S. dollarEuro

UK pound

66.4%
45.6%
29.9%
26.9%
24.5%
24.0%
22.7%
37.2%
27.8%
26.1%
24.6%
23.8%
22.1%
32.6%
26.2%
24.3%
23.0%
22.3%
21.0%
31.5%
25.9%
24.1%
22.7%
21.6%
20.7%

57.6%
38.5%
27.3%
24.3%
22.5%
24.8%
28.9%
32.2%
25.6%
24.4%
24.2%
27.2%
29.7%
29.5%
25.1%
24.3%
24.4%
26.2%
26.8%
29.7%
26.0%
25.1%
24.8%
25.3%
24.5%

55.6%
40.1%
25.1%
20.1%
17.4%
16.1%
16.5%
31.1%
21.3%
19.0%
17.1%
15.8%
15.0%
26.9%
20.4%
18.2%
16.5%
14.9%
15.0%
25.3%
19.7%
17.7%
16.0%
15.2%
13.7%

As of the end of March, 2011
Term of swap Term of option(in years)(in years)
1
1
5
1
5
5
5
7
5
10
5
15
5
20
10
1
10
5
10
7
10
10
10
15
10
20
15
1
15
5
15
7
15
10
15
15
15
20
20
1
20
5
20
7
20
10
20
15
20
20

Japanese
yen
53.8%
60.1%
32.5%
26.7%
23.6%
22.5%
24.9%
40.6%
28.2%
25.3%
24.0%
24.4%
26.3%
32.6%
26.7%
25.3%
24.8%
25.4%
26.2%
30.4%
26.9%
25.8%
25.7%
25.8%
26.5%

U.S. dollarEuro

UK pound

66.6%
35.0%
23.1%
20.8%
18.3%
16.4%
15.1%
27.7%
21.3%
19.5%
17.8%
15.8%
14.6%
24.1%
19.5%
18.2%
16.5%
14.9%
13.5%
22.7%
18.6%
17.6%
15.7%
13.9%
12.9%

33.9%
24.4%
19.2%
17.5%
15.9%
16.1%
18.1%
21.1%
18.6%
17.5%
16.5%
17.3%
19.4%
20.0%
18.2%
17.2%
16.5%
17.2%
19.0%
20.1%
18.5%
17.6%
16.9%
17.2%
18.0%

44.1%
26.3%
16.5%
14.4%
13.0%
13.2%
13.9%
19.8%
15.1%
13.8%
12.7%
12.5%
12.5%
17.8%
14.6%
13.5%
12.4%
12.3%
12.9%
16.6%
14.2%
13.2%
12.1%
12.4%
11.5%

(3) Implied volatility of foreign exchange rates and equity
We have obtained spot implied volatilities from options with different terms. Implied volatilities are all those
for at-the-money options. Bloomberg is the source of data for foreign exchange rates and the stock price index
is the average of the implied volatilities provided by securities firms.
We have assumed that forward implied volatilities in the 11th year and beyond are equal to those in the 10th year
for both foreign exchange rates and the stock price index as these derivatives have low liquidities for the period
over 10 years.

18

Implied volatilities used for the estimation are as follows:
As of the end of March, 2012
Foreign Exchange
U.S.
UK
Euro/
Term
dollar/pound/
Japanese(in years)
JapaneseJapanese
yen
yen
yen
1
11.8%
14.0%
12.8%
5
15.1%
18.0%
16.6%
10
18.6%
22.1%
20.7%

Stocks

As of the end of March, 2011
Foreign Exchange
U.S.
UK
Euro/
Term
dollar/pound/
Japanese(in years)
JapaneseJapanese
yen
yen
yen
1
13.6%
15.4%
15.2%
5
16.6%
20.1%
18.5%
10
20.0%
24.5%
24.0%

Japan
TOPIX

U.S.
S&P

Euro
SX5E

UK
FTSE

18.0%
20.5%
23.2%

18.6%
23.4%
28.0%

23.4%
24.6%
26.7%

18.9%
23.3%
21.0%

Stocks
Japan
TOPIX

U.S.
S&P

Euro
SX5E

UK
FTSE

20.3%
19.9%
22.1%

19.9%
21.6%
25.7%

21.8%
22.4%
25.1%

18.5%
21.2%
24.8%

(4) Correlation factor
We have calculated correlation factors from the monthly return of each index for a period of five years from
April 2007 and to the end of March 2012 as there is no market-consistent data for correlation factors.

19

As of the end of March, 2012
Japanese

U.S.

UK

U.S.

UK

Euro
yen

dollarEuro /
pound

dollar /pound /

Interest
Interest

Interest

Japanese
Interest

Japanese

rate 1Yrate 1Yrate 1Y

1.00

0.33

0.33

TOPIX

S&P

SX5E

FTSE

Japaneseyenrate 1Y

yen

0.26

0.52

0.34

0.12

0.42

0.22

0.13

0.12

0.05

1.00

0.43

0.54

0.61

0.34

0.52

0.57

0.40

0.42

0.43

0.26

0.43

1.00

0.58

0.30

0.59

0.54

0.52

0.54

0.54

0.53

0.52

0.54

0.58

1.00

0.37

0.24

0.56

0.36

0.32

0.21

0.20

0.34

0.61

0.30

0.37

1.00

0.55

0.73

0.53

0.21

0.20

0.18

0.12

0.34

0.59

0.24

0.55

1.00

0.76

0.64

0.62

0.52

0.52

0.42

0.52

0.54

0.56

0.73

0.76

1.00

0.67

0.49

0.44

0.34

TOPIX

0.22

0.57

0.52

0.36

0.53

0.64

0.67

1.00

0.73

0.71

0.71

S&P

0.13

0.40

0.54

0.32

0.21

0.62

0.49

0.73

1.00

0.89

0.89

SX5E

0.12

0.42

0.54

0.21

0.20

0.52

0.44

0.71

0.89

1.00

0.90

FTSE

0.05

0.43

0.53

0.20

0.18

0.52

0.34

0.71

0.89

0.90

1.00

yen

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

20As of the end of March, 2011
Japanese

U.S.

yen

dollar

UK

U.S.

pound

dollar /Interest

Interest

rate 1Yrate 1Y

1.00

0.45

0.45

UK

Interest

Japanese

rate 1Y

yen

0.41

0.37

0.16

0.16

1.00

0.66

0.63

0.58

0.41

0.66

1.00

0.86

0.37

0.63

0.86

0.16

0.58

0.16

Euro

Euro /
pound /
TOPIX

S&P

SX5E

FTSE

0.28

0.12

0.05

0.04

(0.03)

0.20

0.50

0.32

0.23

0.28

0.18

0.40

0.43

0.56

0.35

0.44

0.40

0.29

1.00

0.46

0.38

0.64

0.36

0.32

0.26

0.16

0.40

0.46

1.00

0.53

0.72

0.52

0.19

0.21

0.17

0.20

0.43

0.38

0.53

1.00

0.74

0.65

0.60

0.52

0.50

0.28

0.50

0.56

0.64

0.72

0.74

1.00

0.65

0.44

0.43

0.29

TOPIX

0.12

0.32

0.35

0.36

0.52

0.65

0.65

1.00

0.75

0.73

0.73

S&P

0.05

0.23

0.44

0.32

0.19

0.60

0.44

0.75

1.00

0.90

0.88

SX5E

0.04

0.28

0.40

0.26

0.21

0.52

0.43

0.73

0.90

1.00

0.89

FTSE

(0.03)

0.18

0.29

0.16

0.17

0.50

0.29

0.73

0.88

0.89

1.00

Interest

Japanese

rate 1YJapaneseyenyenJapaneseyenInterest
rate 1Y
U.S.
dollarInterest
rate 1Y
Euro
Interest
rate 1YUK
pound
Interest
rate 1Y
U.S.
dollar /JapaneseyenEuro /
JapaneseyenUKpound /
Japaneseyen

21

(5) Foreign exchange
Assets denominated in foreign currencies are converted to Japanese yen using the TTM (telegraphic transfer
middle exchange rate) as of the end of March, 2012.
The table below shows foreign exchange rates of major currencies.

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

As of the end of
March , 2012¥82.19¥109.8¥131.34¥1.93

As of the end of
March, 2011
¥83.15¥117.57¥133.89¥1.93

3.2 Future asset allocation(1) Asset allocation in the general accountSegment accounting is conducted for individual life insurance and individual annuity based on theclassifications of the non-participating product segment, semi-participating product segment and interest
rate-sensitive whole life insurance segment. Asset allocation in the general account under the stochastic method
was determined based on the actual asset allocation in each segment as of March 31, 2012 with an assumptionof no changes in asset allocation thereafter.
(2) Asset allocation in the separate account
There are eight funds established in the separate account. The asset allocation for each fund at the beginning of
the projection is determined based on the actual fund allocation as of March 31, 2012 and no rebalancing
adjustments are applied to maintain the initial fund allocation thereafter.

3.3 Other assumptions
Assumptions including mortality and morbidity rates, lapse and surrender rates, and operating expense rates, weredeveloped based on best estimates by product as of the end of March, 2012. Best-estimate assumptions aredeveloped to reflect past and current experiences as well as expected experiences in the future. Expected futurechanges in assumptions should be reflected only when they are supported by sufficient reasons. Except for adeteriorating trend in morbidity rates, no other expected future changes are assumed in the best-estimate
assumptions applied. Assumptions were developed as follows:(1) Mortality and morbidity rates
Developed based on experiences over the past three years. Deteriorating trends in morbidity rates are taken into
account for those A&H products for which deteriorating trends were observed when the experience data wereanalyzed in conducting the statutory stress test.
(2) Lapse and surrender rates
Lapse and surrender rates for the base case were developed based on experiences over the past three years. We
have also developed dynamic assumptions in accordance with the level of interest rate or investment
performance. The dynamic assumptions are made for the following products:
22

・ Variable life insurance
・ Interest rate sensitive whole life insurance
・ Semi-participating products
・ Non-participating whole life insurance
・ Non-participating endowment insurance
Since we have not identified explicit correlations between interest rates or account values to the amount ofminimum guarantee and the lapse and surrender rates regarding products other than variable insurance, we havedeveloped dynamic surrender rates by referring to the experience with similar products and domestic andoverseas trends of practice. Going forward, we will strive to improve dynamic surrender rates for the relevant
products by carefully monitoring experiential data and referring to experience with similar products and trends
of practice in Japan and other countries.
(3) Flexible premiums
There are no flexible premium products and thus no assumptions were developed.
(4) Renewal rates
Because there is very little renewable business and it does not have a significant impact on results, policy
renewal was reflected in a simplified manner.
(5) Operating expense rates
We have developed unit costs of the expenses incurred for maintenance and administration of policies andpayments of claims based on the actual operating expenses in the past fiscal year.
Sony Life Insurance (Philippines) Corporation, a subsidiary, is evaluated by converting its equity into a yen
amount and its profits and losses are not reflected as life insurance business. Accordingly, we have not reflectedadministration expenses incurred at Sony Life regarding management of this subsidiary in the unit costs.
While AEGON Sony Life Insurance Co., Ltd., an affiliated company, is not evaluated as a life insurance
business. Rather than simply valuing this company at its book value, it is valued at net asset value minus
intangible fixed assets and Insurance Business Law Article 113 deferred assets, multiplied by the participation
rate. Accordingly, administration expenses incurred at Sony Life regarding management of this company arereflected in the unit costs.
Administration expenses of other subsidiaries and affiliated companies are not excluded from the unit costs astheir impact is limited. The look-through effect of the relationship with subsidiaries and affiliated companies is
not considered except for the points described above.
There are no one-time expenses which were incurred during the fiscal year ended March 31, 2012 and excluded
from the unit cost.
Expenses that were not reflected in unit costs accounted for less than 1% of total operating expenses.
Unit costs include management administration charges payable to the parent company, Sony Financial
Holdings Inc. The look-through effect has not been considered with regards to the relationship with SonyFinancial Holdings Inc. except for the point described above.
23

(6) Tax rate
“The Law to Revise the Income Tax, etc., in Order to Construct a Tax System Addressing Changes in theSocio-Economic Structure” and “The Act on Special Measures for Securing Financial Resources Necessary for
Reconstruction from the Great East Japan Earthquake” were promulgated on December 2, 2011. As a result of
this, the corporate tax rate will be lowered and reconstruction special corporate tax will be levied from the fiscal
years beginning on or after April 1, 2012, and the statutory effective tax rate will change from 36.21% to33.33% during the fiscal year 2012 through 2014, and 30.78% in and after the fiscal year 2015.
(7) Inflation
Set inflation to 0.31% reflecting the break-even inflation rate derived from 10-year Consumer Price Index(CPI)-indexed Japanese government bonds.

24

4. Calculation method of MCEV
4.1 Covered business
The covered business is the business operated by Sony Life, its subsidiaries and its affiliated companies.
4.2 Treatment of subsidiaries and affiliated companies
Our calculations include the following values regarding subsidiaries and affiliated companies in the calculation ofadjusted net worth:
AEGON Sony Life Insurance Co., Ltd. is valued at net asset value minus intangible fixed assets, andInsurance Business Law Article 113 deferred assets, multiplied by the participation rate, which is ¥2.4 billion.
Sony Life Insurance (Philippines) Corporation is valued at book value under Japanese GAAP, adjusted for
unrealized gains / losses due to foreign exchange rate movements (after-tax), which is ¥2.8 billion.

Other companies are valued at book value under Japanese GAAP, which is ¥2.6 billion.
There are no other values reflected in the values of subsidiaries and affiliated companies except for the above, andall other results solely reflect Sony Life (on a non-consolidated basis).
4.3 Treatment of reinsurance
We have designated reinsurance premiums as expenses and reinsurance benefits as income in our projections, as
we have ceded as reinsurance the mortality risks of certain death protection insurance products.
4.4 Treatment of semi-participating policies
We have calculated dividends in accordance with the level of future investment returns, based on the same method
used to determine the dividend rate for the accounting closure of March 31, 2012, reflecting the present value ofcertainty-equivalent profit and the time value of options and guarantees.
4.5 MCEVMCEV is defined as the present value of distributable earnings to shareholders generated from assets allocated tothe covered business after sufficient allowance for the aggregate risks in the covered business and consists ofadjusted net worth and the value of existing business.
4.6 Adjusted net worth
Adjusted net worth is calculated as the market value of assets allocated for the covered business in excess ofstatutory policy reserves and other liabilities as of the valuation date. Specifically, it is equal to the total amount of
the net assets section on the balance sheets, adding reserve for price fluctuations, contingency reserve, reserve forpossible loan losses, unrealized gains or losses on held-to-maturity securities, and unrealized gains or losses onland and buildings, less unfunded pension liabilities and intangible fixed assets, and adjusting for the amount of tax
effect equivalent of these seven items, on which valuation gains or losses on subsidiaries and affiliated companies
are added. Adjusted net worth can be split into required capital and free surplus.
25

4.7 Required capital
The MCEV Principles define required capital as the amount of assets that should be held in addition to the assets
corresponding to the statutory liability to fulfill in-force policy obligations, which by nature is restricted from
distribution to shareholders. The level of required capital should be the larger of the solvency capital to meet thestatutory required minimum level or the capital required to meet the internal objectives in terms of marketing or
risk management purposes, or to achieve the company’s targeted credit rating.
We set our required capital as the larger of the amount of capital required for the current solvency margin ratio of
200% or the amount of capital to cover risks based on the internal model. Required capital due to the statutory
solvency margin requirement is larger as of March 31, 2012.
We considered the revision to strengthen the solvency margin requirement from the end of March 2012, andchanged the target solvency margin ratio from 600% to 200%.
We define the amount of capital to cover risks based on the internal model as the total amount of technicalprovision and solvency risk capital on an economic value basis in excess of statutory policy reserves (excluding
contingency reserves). The solvency risk capital on an economic value basis is calibrated at VaR (99.5) over one
year and based on the internal model, which is a similar but modified model based on the EU Solvency II (QIS5)
standard method.
The solvency risk capital on an economic value basis as of March 31, 2012 was ¥551.5 billion (after tax). The tax
rate used to adjust to the after-tax basis is 30.78%.
We will also revise the internal model itself as appropriate, taking into account domestic and overseas conditions,
including developments in international accounting standards, valuation methods of insurance liability on an
economic value basis and solvency margin standard trends, as well as the analysis of our internal mortality andmorbidity rates data.
Major changes of the internal model approach from the QIS5 are as follows:(1) Market risk
Market risk quantification follows the QIS5 approach in principle. However, we modified it to make it moresuitable in light of the market risk attribute to which we are exposed to where QIS5 standard methodology is
considered unable to capture enough risk amount at a 99.5% confidence level. It includes the use of alternate stressparameters for some risks derived by using the same calibration method as that used for QIS5. Major stressparameters different from QIS5 include 45% for listed stocks, 100% for subsidiaries and affiliated companies’
stocks, and 30% for currency risk.
(2) Insurance underwriting risk
Quantification of mortality and longevity risks follows the QIS5 approach.
Quantification of morbidity, lapse, expense, and catastrophe risks follows the QIS4 approach. In particular lapse up/ down stress parameters for the Health module under QIS5 are 20%. Because it makes stress parameters extremely
lower only for A&H products, we have kept the parameters at 50%.
26

(3) Operational risk
QIS5 is followed.
(4) Correlation parameters
Correlation parameters follow QIS5 except that the correlation parameter between Global and Other equities is set
to one to exclude any diversification effect while it is set to 0.75 under QIS5.

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

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

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

4.11 Time value of options and guarantees
We have calculated the time value of options and guarantees using the stochastic method with risk-neutral
scenarios. The time value of options and guarantees is calculated as the difference between the present value ofcertainty-equivalent profit and the present value of stochastic future profits.
The time value of options and guarantees considers the following items:
・ Minimum guarantees of variable life insurance
The excess of account value over the scheduled policy reserves is attributed to policyholders. However, when
the account value is less than the scheduled policy reserves, the cost incurred from executing guaranteed
minimum death benefits for variable life insurance is attributed to shareholders.
・ Minimum interest rate guarantee for interest rate sensitive whole life insurance
When the investment return exceeds the assumed interest rate, the outperforming portion is credited topolicyholder account value. However, when the investment return underperforms the assumed interest rate, thecost for the difference is attributed to shareholders, as the assumed interest rate is guaranteed.
27

・ Interest dividend for semi-participating products
When the investment return exceeds the assumed interest rate, the outperforming portion is credited to thefund for policyholder dividends and paid to policyholders every five years as interest dividends. Accordingly,
none of such interest gains would be attributed to shareholders, while interest losses would be attributed toshareholders.
・ Surrender options
Policyholders have various options in insurance contracts. Reflected among them are the costs ofpolicyholders’ exercising the right of surrender in the event of increased interest rates. Since we have not
identified explicit correlations between interest rates or account values to the amount of minimum guarantee
and the lapse and surrender rates regarding products other than variable insurance, we have developed
dynamic surrender rates by referring to the experience with similar products and domestic and overseas trends
of practice. Going forward, we will strive to improve dynamic surrender rates for the relevant products bycarefully monitoring experiential data and referring to experience with similar products and trends of practicein Japan and other countries.
4.12 Frictional costs
We have calculated frictional costs as the present value of investment costs and taxes on assets backing the required
capital at each point of time in the future.

4.13 Cost of non-hedgeable risks
As risks regarding the asymmetric nature of cash flows not reflected in the present value of certainty-equivalentprofit are fully reflected in the time value of options and guarantees, we have reflected an allowance for theuncertainty of non-economic assumptions and the portion of economic assumptions considered non-hedgeablewith respect to the cost of non-hedgeable risks.
Specifically, we have assumed a risk margin based on the method prescribed in QIS5 of the EU Solvency II
framework as the cost of non-hedgeable risks and calculated it using the cost of capital approach. It should be
noted that the following points are different from the method prescribed in QIS5:・ Unavoidable market risk which is not clearly defined in QIS5 specifications is set to the uncertainty of therisk-free rates beyond the 40th year.
・ Catastrophe risk and lapse risk in the Health module follows the QIS4 approach as described in section 4.7 (2).
・ Counterparty default risk has not been reflected in the non-hedgeable risks as its impact is limited.
・ We have used risk amounts quantified after taking into consideration the risk mitigation effect throughpolicyholder dividends without any adjustments.
・ We have used the cost of capital rate described in section 4.14.

4.14 Cost of capital rate
QIS5 of the EU Solvency II has set a cost of capital rate at 6%, which is used for the cost of capital calculation.
On the other hand, the CRO (Chief Risk Officer) Forum comprised of CROs from leading insurance companies in28

Europe proposed that 2.5% to 4.5% would be the appropriate level based on several trial calculations. Following
the philosophy of the CRO Forum’s approach, we have decided to use 2.5% for the cost of capital rate consistent
with the MCEV framework considering Japanese long-term stock risk premiums, the beta of Sony Financial
Holdings Inc. and the anticipated impact of the equity risk exposure of Sony Life on the beta of Sony Financial
Holdings Inc., which is a hedgeable risk. However, we may revise the method of setting the cost of capital rate in
the future as an industry standard has not yet been established.

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5. Opinion of Outside Specialist
Sony Life requested Milliman, Inc., an external actuarial consulting firm with expert knowledge in the area of
MCEV valuations, to review the methodology, assumptions and calculations. The opinion obtained from Milliman,
Inc. is as follows:
Milliman, Inc. (“Milliman”) has been engaged to review the methodology, assumptions and calculations used bySony Life Insurance Co., Ltd. (“Sony Life”) to determine the Market Consistent Embedded Value (“MCEV”) as ofMarch 31, 2012. Specifically, the scope of our review included the embedded value as of March 31, 2012, thesensitivities, the new business value and the movement analysis from MCEV as of March 31, 2011.
The board of directors made a statement in its News Release Form dated May 25, 2012 that the methodology,
assumptions and calculations have been made in accordance with the European Insurance CFO Forum Market
Consistent Embedded Value Principles©4, with the following exceptions:
The reference rate used in the calculations has been defined as the Japanese Government Bond
nominal spot rate curve rather than the swap rate curve as stipulated in the MCEV principles.

The calculated value of MCEV is the value for the life insurance business of Sony Life only and not theconsolidated value of Sony Life’s parent company, Sony Financial Holdings Inc.
Group MCEV, as prescribed in the MCEV Principles, is not considered in this report, as the report is forSony Life on a standalone basis.
With respect to Sony Life’s subsidiaries and its equity-method affiliates, Sony Life has not evaluated theirlife insurance business but reflected the following values in the calculation of adjusted net worth:
AEGON Sony Life Insurance Co., Ltd. is valued at net asset value minus intangible fixed assets andInsurance Business Law Article 113 deferred assets, multiplied by the participation rateSony Life Insurance (Philippines) Corporation is valued at book value under Japanese GAAP
adjusted for unrealized gains/losses due to foreign exchange rate movements (after-tax)Other companies are valued at book value under Japanese GAAPNone of the calculated values of MCEV are presented separately by segment of subsidiary or by affiliatedcompany.
Sony Life has calculated the adjusted net worth based on generally accepted accounting principles andpractices in Japan and not based on the International Financial Reporting Standards (IFRS).
Milliman has concluded that the methodology and assumptions used comply with the MCEV Principles except forthe points described in the above paragraph. In particular The non-economic assumptions have been set with regard to past, current and expected future experience; The economic assumptions used in the calculations are internally consistent and consistent with observable
market data as per the valuation date; The methodology makes an allowance for all the aggregate risks in the covered business through Sony
Life’s market-consistent embedded value methodology, which includes
a stochastic allowance for the cost of financial options and guarantees
a deduction for the cost of non-hedgeable risks
a deduction for the frictional costs of the required capital4

Copyright © Stichting CFO Forum Foundation 200830

For participating insurance contracts, the assumed policyholder dividend rates, allocation of profits between
policyholders and shareholders and other management actions, are consistent with the assumptions andscenarios used in the projections and where applicable local market practice.

Milliman has reviewed the MCEV methodology, assumptions, calculations and analysis prepared by Sony Life, but
this does not mean that Milliman has conducted a detailed review in all aspects. During its review Milliman
identified and discussed various MCEV calculation and definition issues with Sony Life staff. Based upon those
discussions and follow-up actions, Milliman is not aware of any issues that would materially impact the disclosed
market consistent embedded values, new business values, sensitivities or movement analysis from the prior period. In
arriving at this conclusion, Milliman has relied on data and information provided by Sony Life.
The calculation of MCEV is based on numerous assumptions with respect to economic conditions, operating
conditions, taxes and other matters, many of which are beyond the control of Sony Life. Although the methodology
and assumptions used comply with the MCEV Principles, deviations between projection assumptions and actual
experience in the future are to be expected. Such deviations may materially impact the value calculated.
This opinion is made solely to Sony Life in accordance with the engagement letter between Sony Life and Milliman.
Milliman does not accept or assume any responsibility, duty of care or liability to anyone other than Sony Life for orin connection with its review work, the opinion Milliman has formed or for any statements set forth in this opinion, tothe fullest extent permitted by applicable law.

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6. Glossary
TermA
Appraisal value

Asymmetric risk

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

F

Free surplus
Frictional costs

I

Implied volatility

L

Look throughN

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

O

Options andguarantees

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

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Term
P
Present value ofcertainty-equivalentprofit
Q
QIS4
QIS5
R

Required capital

Risk-free rate
Risk margin
Risk neutral
probability

S

Risk neutral scenario
Solvency II

TTechnical provision
Time value andintrinsic value

Definition
Present value of certainty-equivalent profit is the present value of profit based on
the future cash flows generated from the covered business.
Quantitative Impact Study. Conducted prior to implementation of the EU Solvency
II. The 4th study was conducted in May 2008 and is referred to as QIS4.
The latest Quantitative Impact Study following the QIS4. It was executed between
August and November 2010.
The MCEV Principles define required capital as the capital necessary to hold inexcess of statutory policy reserves (excluding contingency reserve), and it isconsidered to be the larger of the solvency capital to meet the statutory required
minimum level or the capital necessary to meet the internal objectives or toachieve the company’s targeted credit rating.
Required capital of Sony Life is set as the larger of the amount of capitalcorresponding to the solvency margin ratio of 200% or the amount of capital tocover risks based on the internal model.
The reference rate defined in the MCEV Principles. The MCEV Principles statethat it should be the swap rate to the currency of the cash flows.
The cost to hold capital to cover non-hedgeable risks reflected in evaluating theinsurance liability on an economic value basis.
A pseudo probability derived so that the present value of future expected values
under multiple scenarios discounted with current risk-free rates is equal to thecurrent value.
An interest rate scenario generated under risk-neutral probabilities.
A new solvency regulation based on economic value to be applied uniformly within
the EU that the European Commission is preparing to implement.
The value of liability on an economic value basis, which equals the present value ofbest estimate cash flows plus Risk Margin.
An option value that has two elements: time value and intrinsic value. Intrinsic
value is the option value under certainty-equivalent conditions. Time value is thevalue of options other than intrinsic value, which is calculated as the difference
between the present value of certainty-equivalent profit and the present value ofstochastic future profit.

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