2017
Annual Report

April 1, 2016 – March 31, 2017

ProfileSony Financial Holdings Inc. (SFH) is a financial holding company with three primarysubsidiaries: Sony Life Insurance Co., Ltd. (Sony Life), Sony Assurance Inc. (Sony Assurance)
and Sony Bank Inc. (Sony Bank).
Corporate Vision

The Sony Financial Group seeks to become the most highly trusted financial services group by
customers. To this end, the Group will combine many different financial functions (savings,
investment, borrowing and protection) to provide high-value-added products and high-quality
financial services that meet every customer’s financial needs.
Corporate Philosophy

Put the Customer FirstWe will provide financial products and services that satisfy customers by embracing their individual views,
to ensure that we help them lead prosperous lives with financial security.

Give Back to Society
We believe that a special commitment to the public good is demanded of a financial services company.
Conscious of this, we will realize our vision by upholding the highest level of ethics
and a strong sense of purpose, and thereby give back to society. In addition,
we will fulfill our responsibilities as a good corporate citizen and member of society.

Strive for Originality
We will constantly strive to come up with fresh ideas from basic principles as we pursue creativity
and innovation, instead of merely following custom and convention.

Foster an Open Corporate Culture
We believe that every employee’s contribution is important to develop our ideal of a financial services company.
We will thus foster an open corporate culture where employees can freely express theirindividuality and demonstrate their abilities to the fullest.
Disclaimer
Statements made in this annual report concerning the current plans, expectations, strategies and beliefs of the Sony Financial Group. Any statements
contained herein that are not historical facts are forward-looking statements or pro forma information. Forward-looking statements may include—but are
not limited to—words such as “believe,” “anticipate,” “plan,” “strategy,” “expect,” “assume,” “forecast,” “predict,” “propose,” “intend” and “possibility” that
describe future operating activities, business performance, events or conditions. Forward-looking statements, whether spoken or written, may also be
included in other materials released to the public. These forward-looking statements and pro forma information are based on assumptions, decisions andjudgments made by the management of Sony Financial Group companies, and are based on information that is currently available to them. As such, they
are subject to various risks and uncertainties, and actual business results may vary substantially from the forecasts expressed or implied in forward-looking
statements. Consequently, investors are cautioned not to place undue reliance on forward-looking statements. Sony Financial Group companies are under
no obligation to revise forward-looking statements or pro forma information in light of new information, future events or other findings. The information contained in this annual report does not constitute or form part of any offer for sale or subscription of or solicitation or invitation of any offer to buy or subscribe
to any securities, nor shall it or any part of it form the basis of or be relied on in connection with any contract or commitment whatsoever in Japan or abroad.
• “Lifeplanner” is a registered trademark of Sony Life.
• “SURE” and “ZiPPi” are registered trademarks of Sony Assurance.
• “MONEYKit” is a registered trademark of Sony Bank.
• Company names and product names that appear in this report, other than those mentioned above, are trademarks or registered trademarks of therespective company.
• The Sony Financial Group refers to the financial group that comprises Sony Financial Holdings Inc., Sony Life Insurance Co., Ltd., Sony Assurance Inc.,
Sony Bank Inc., Sony Lifecare Inc., as well as their subsidiaries and affiliates.
• Unless otherwise indicated, figures less than the indicated unit in this material have been truncated, while ratios and percentage changes have beenrounded off.
• Fiscal 2008–fiscal 2020 represent the fiscal years ended/ending March 31, 2009–2021.

Contents

Sony Financial Group’s Financial Highlights

2

Sony Financial Group’s Growth Trajectory

4

A Message from the President

6

Vision and Strategies

8

Strength8Growth10Corporate Value

14

Sony Financial Group: Medium-term Business Plan

16

Review of Operations and Analysis of Operating Performance

31

Segment Performance Highlights

32

SFH (Consolidated)

33

Life Insurance Business

36

Non-life Insurance Business

44

Banking Business

50

Contributions to Sustainable Development

57

Corporate Governance
Profiles of Directors and Statutory Auditors

58

A Dialogue between Outside Directors:
Corporate Governance at Sony Financial Holdings

60

Basic Stance on Corporate Governance

64

Management System

65

Compliance70

Risk Management

72

Dialogue with Shareholders and Other Investors

74

Corporate Social Responsibility (CSR)
Sony Financial Group’s CSR

75

Communication with Stakeholders

76

Environmental Protection Activities

81

Corporate Section

82

Corporate Information

83

Profiles of Group Companies

84

Stock Information

85

Financial Section

87

SFH Consolidated Financial Statements

88

MCEV Results for Sony Life as of March 31, 2017

116

Glossary

121

SFH’s Website Information

125

Please visit SFH’s website to view the Financial Data Book.
Detailed financial data for each operating company is presented in a separate publication
called the Financial Data Book. The Financial Data Book is available only on SFH’s website.

http://www.sonyfh.co.jp/en/financial_info/annualreport1Sony Financial Group’s Financial Highlights(SFH Consolidated and Primary Subsidiaries)

Sony Financial Holdings (Consolidated)

For the years ended March 31,

2008

2009

Ordinary revenues¥ 822,153¥ 860,323

Ordinary profit

44,50034,253

Profit attributable to owners of the parent

24,25530,722——

4,977,450

5,313,677

261,627

204,897

14.62%

13.32%——

Comprehensive income
As of March 31,

Total assets
Net assets
Consolidated capital adequacy ratio(Domestic standard) (Note 1) (Note 2)
Consolidated solvency margin ratio (Note 1)
For the years ended March 31,

Sony Life (Non-consolidated)

Ordinary revenues¥ 741,250¥ 765,910

Ordinary profit

39,29032,409Net income

18,51433,7833,659,786

3,810,929

As of March 31,

Total assets
Net assets

182,671

140,730

Non-consolidated solvency margin ratio (Note 1)

1,747.9%

2,060.5%

For the years ended March 31,

Sony Assurance

Ordinary revenues¥

55,649Ordinary profit
Net income (loss)¥

61,882

2,817
2,185

2,178
(1,556)78,64586,698

As of March 31,

Total assets
Net assets
Non-consolidated solvency margin ratio (Note 1)

15,385

13,6781,073.9%993.0%For the years ended March 31,

Ordinary revenues

Sony Bank (Non-consolidated)¥

25,988¥33,361

Ordinary profit

2,746

414

Net income (loss)

4,492

(710)

1,211,000

1,411,956

35,712

46,2649.15%

13.37%

As of March 31,

Total assets
Net assets
Non-consolidated capital adequacy ratio(Domestic standard) (Note 1) (Note 2)

Notes: 1. Calculated based on rules in force at the respective dates.
2. The capital adequacy ratio has been calculated by applying the “fundamental internal ratingbased approach (FIRB)” instead of the “standard approach” for measuring credit risk fromMarch 31, 2017.

Composition by Business Segment(For the year ended March 31, 2017)

Life Insurance Business
Non-life Insurance BusinessBanking Business

Ordinary Revenues

Ordinary Profit

7% 3%

Total Assets

8%
8%
21%
2%

90%

2

Sony Financial Holdings Inc. Annual Report 2017

86%

77%

Millions of yen
2010

2011

2012

2013

2014

2015

¥ 978,991¥1,002,201¥1,078,070¥1,259,041¥1,320,456¥1,352,325¥ 1,362,044¥ 1,381,667

84,37376,86074,62579,252

76,13690,062

71,103

66,326

48,126

41,71632,81245,06440,50454,41943,355

41,621

71,066

31,96360,37696,22544,79490,707

71,10521,4336,001,088

6,597,140

7,241,414

8,096,164

8,841,382

9,545,868

10,352,114

11,471,845

269,439

294,877

347,800

435,444467,050

550,672

604,377

601,139

12.05%

10.96%

10.14%

9.88%

12.02%

11.91%

10.70%

14.39%——

1,380.3%

1,520.6%

1,563.8%

1,634.9%

1,637.1%

1,632.9%¥ 881,798¥ 900,091¥ 967,400¥1,142,274¥1,197,109¥1,223,827¥ 1,230,141¥ 1,243,739

80,09973,17669,43674,65969,20579,66560,79260,18046,13840,22031,42642,44437,06342,52437,09635,185

4,286,540

4,723,332

5,222,846

5,952,750

6,624,903

7,301,350

8,035,408

8,873,613¥

2017

191,312215,387

264,836

342,333

369,230

432,526

482,195

473,589

2,637.3%

2,900.1%

1,980.4%

2,281.8%

2,358.7%

2,555.0%

2,722.8%

2,568.8%

68,174¥

2016¥

74,166¥80,096¥84,711¥89,864¥93,022¥

96,905¥102,333

2,565
1,604

2,144
1,297

2,859
1,299

2,371
1,454

3,003
1,664

4,209
2,233

4,680
2,586

4,996
3,515

98,340109,382

118,612

127,421

142,714

157,919

172,323

186,537

15,482

16,77218,00919,934

21,41824,741

28,30529,4091,018.5%

981.4%

557.8%

504.2%

527.6%

629.6%

693.5%

730.8%

30,500¥29,521¥

30,075¥31,351¥

33,994¥35,714¥34,892¥35,105

2,930

3,377

4,033

4,282

5,845

7,298

5,857

4,634

1,646

2,054

2,340

879

3,585

4,634

3,912

3,176

1,612,186

1,761,830

1,890,503

2,005,081

2,056,704

2,062,525

2,126,564

2,424,236

58,98959,971

62,796

67,811

72,77477,06477,42881,332

12.09%

10.84%

11.58%

11.98%

11.72%

10.65%

9.89%

9.75%

Credit Ratings (As of July 1, 2017)
Credit Rating Agencies

Sony Financial Holdings

Sony Life

Rating and Investment
Information (R&I)

Issuer rating

Insurance claims paying ability

AA–

AA
Long-term issuer rating

Japan Credit Rating
Agency (JCR)

AA–
Insurer financial strength ratingStandard & Poor's (S&P)

Sony BankA+Counterparty credit ratingA

Long-term

A-1

Short-termSony Financial Holdings Inc. Annual Report 20173

Sony Financial Group’s Growth TrajectorySony Financial Holdings

Sony Life
1970s

Aug. 1979 Sony Prudential Life Insurance Co., Ltd.,is established (currently Sony Life)

1980s

Apr. 1981 Sony Prudential Life Insurance commences

operations with launch of Lifeplanner system
Jul. 1987 Sony Prudential Life Insurance agrees toterminate joint venture

1990s

Apr. 1991 Changes its name to Sony Life Insurance Co., Ltd.
Aug. 1998 Sony Life establishes Sony Life Insurance(Philippines) Corporation as a wholly owned
subsidiary in the Philippines (In December 2012,
the business is transferred to Paramount Life & General Insurance Corporation.)

2000s

May 2001 Sony Life’s Lifeplanner sales employees begin selling

automobile insurance of Sony Assurance

Dec. 2004 Sony Life’s Lifeplanner sales employees begin to

Apr. 2004 Sony Financial Holdings Inc. is establishedaccept mortgage loan applications as agents ofSony Bank
Aug. 2007 Sony Life establishes AEGON Sony Life PlanningCo., Ltd. (currently AEGON Sony Life Insurance Co.,
Ltd.)
Dec.
Sony Life is approved to conduct banking agency
business on behalf of Sony Bank
Oct. 2009 Sony Life establishes SA Reinsurance Ltd. in
British Bermuda as a reinsurance company
specializing in variable annuities
Dec.
AEGON Sony Life Insurance commences
operations. Sony Life’s Lifeplanner sales employees
begin selling individual variable annuities

as a financial holding company
Oct. 2007 SFH is listed on the First Section of Tokyo Stock

Exchange

2010s
Apr. 2011 SFH conducts stock split and adopts share unit

systemNov. 2013 SFH acquires Senior Enterprise Corporation (cur-rently Lifecare Design Inc.) as a subsidiary andenters nursing care business
Apr. 2014 Sony Lifecare Inc. is established as a holding
company to oversee nursing care business
Apr. 2016 Lifecare Design Inc. opens Sony Lifecare Group’s

first nursing care homeJul. 2017 Sony Lifecare Inc. acquires Yuuai Holdings Co.,

Ltd. as a subsidiary

4

Sony Financial Holdings Inc. Annual Report 2017

Oct. 2016 Sony Life invests in ClearView Wealth Limited, a life

insurance company in Australia

Group StructureSony Financial Holdings(Primary Subsidiaries)
100%
owned

Sony Life

100%
owned

100%
owned

Sony AssuranceSony Bank

Sony Assurance
Jun. 1998 Sony Insurance Planning Co., Ltd., is established(currently Sony Assurance)

Sony Bank

Sep. 1999 Sony Insurance Planning changes its name to Sony

Assurance Inc.
Sony Assurance launches sales of automobile
insurance (over the Internet in September and bytelephone in October)

2000s

Apr. 2001 Sony Bank Inc. (Sony Bank) is establishedSony Bank commences operations. Launches
MONEYKit service site. Starts handling deposits,
investment trusts and card loans
Sep.
Sony Bank begins handling foreign-currency
deposits
Mar. 2002 Sony Bank begins handling mortgage loans
Jun.

Jun. 2002 Sony Assurance launches sales of SURE medical

and cancer insurance

Oct. 2004 Sony Assurance debuts fire insurance to customers

taking out mortgage loans from Sony Bank
Jun. 2007 Sony Bank establishes Sony Bank Securities Inc.

(Sony Bank Securities) as a wholly owned subsidiary. (In August 2012, all shares of Sony Bank
Securities are transferred to Monex Group, Inc.)
Jan. 2009 Sony Assurance offers pet insurance throughalliance with Anicom Insurance, Inc.
Jun. 2010 Sony Bank opens its first over-the-counterbranch—Housing Loan Plaza
Jul. 2011 Sony Bank acquires 57% equity interest in

SmartLink Network, Inc. (currently Sony Payment
Services Inc.)

2010s

Jan. 2016 Sony Bank launches Sony Bank WALLET, a cash

card with Visa debit function
Jan. 2017 Sony Assurance launches “ZiPPi” medical insurance

for hospital inpatient expenses

Sony Financial Holdings Inc. Annual Report 2017

5

A Message from the President

Despite the persistently challenging market environment,
we will enhance our ability for providing high-quality services
from a customer-first perspective toward expanding our businessvolume as well as achieving sustainable growth for the Groupoverall and stable returns to shareholders.
Let me express my deepest appreciation to all stakeholders
for the continued support and interest you have extended
to the Sony Financial Group.
In fiscal 2016, the fiscal year ended March 31, 2017,
the business environment remained challenging. This waslargely because interest rates remained low, paralleling the
Bank of Japan’s monetary easing policy. Nevertheless, theSony Financial Group took a flexible approach to measures
aimed at improving profitability, and achieved steady
expansion in business volume for its three core businesssegments.
At Sony Life, measures were implemented to boost
profitability, including product revisions and a shift in the
product mix toward U.S. dollar-denominated insurance andterm life insurance, and the company was able to maintainthe new policy amount on a par with its record-high posted
in fiscal 2015. At Sony Assurance, insurance policies
steadily increased, mainly by expanding online discounts
to new customers signing up for mainstay automobile
insurance and by reinforcing marketing and communication
techniques. A notable new product for Sony Assurance is
ZiPPi medical insurance, which covers actual patient-paid
expenses. At Sony Bank, the balance of mortgage loans
expanded, driven by soaring customer needs for refinancing.
Sony Bank WALLET cash cards with a Visa debit functionin 11 currencies also proved popular, substantiated by its
higher number of issuance.
Looking at consolidated results in fiscal 2016, ordinary
revenues rose 1.4% year on year, to ¥1,381.6 billion,
consolidated ordinary profit decreased 6.7%, to ¥66.3
billion, and profit attributable to owners of the parent fell
4.0%, to ¥41.6 billion. The dividend for fiscal 2016 was¥55 per share, the same as in fiscal 2015.
In fiscal 2016, the Sony Financial Group embarked ona new three-year medium-term management plan. Though
it has only been a year, progress toward the expansion ofbusiness volume at each Group company is generally on
track. The operating environment surrounding the Groupis sure to remain challenging, characterized by persistently
low interest rates. However, our direction—seeking to

6Sony Financial Holdings Inc. Annual Report 2017

establish competitive excellence and realize sustainablegrowth—remains unchanged, and we will achieve thisgoal by further enhancing our ability to provide high-quality
services from a customer-first perspective.
In addition, in fiscal 2016 we sought to maximize corporate value on a Groupwide basis by optimizing capital, risk
and return and introduced an enterprise risk management(ERM) framework that underpins improvements in capitalefficiency. Going forward, we will continue our efforts toreinforce management practices. From a long-term perspective, we will place emphasis on raising the level of convenience for customers and enhancing operating efficiency
through the use of advanced technologies, epitomized byartificial intelligence (AI) and FinTech.
As for dividends to shareholders, our basic policy
has not changed and we will continue to aim for steadyincreases in dividends in line with revenue growth overthe medium to long term, based on our policy of providing
stable dividends.
Notwithstanding, we have partially revised our
medium-term dividend policy, effective from fiscal 2017.
Previously, we used a certain payout ratio based on underlying statutory profit as our medium-term target. However,going forward we will take a broader view of profit, prioritizing economic value-based indicators that more closely
represent medium-term growth of our business. We willcontinue our efforts to achieve steady increases in dividends
over the medium term in our ongoing commitment to meetthe expectations of shareholders.

July 2017

Shigeru Ishii
President and Representative Director

Sony Financial Holdings Inc. Annual Report 20177

Our Story:

Strength
Strengths of Group Companies

8

Sony Financial Holdings Inc. Annual Report 2017

The Sony Financial Group seeks to differentiate itself by creating new businessmodels unlike those of industry peers and provides customers with reasonable,
convenient and high-quality products and services.
Going forward, the Group will strive to strengthen the presence of eachcompany in its respective market.
Vision and Strategies

Life
Insurance
BusinessSony Life

Business expansion through tailor-made insurance designand sales approach and after-sales consultations basedon life planning
ALM to match insurance liability characteristics to reduce
interest rate risk pertaining to liabilities of insurance policies
with long-term maturities
Financial soundness to meet future capital requirements

Strategic Highlights• Strengthen provision of death protection• Full-scale expansion into corporate market• Expand Lifeplanner channel
Main Products• Death-protection insurance• Living benefit insurance, educational endowment insurance,
medical insurance, and others
Main Sales Channels• Lifeplanner sales employee• Partner (independent agent)Non-life
Insurance
BusinessSony Assurance

Reasonable premiums matched to risk on individual basis
Excellent accident response, with high-quality customer
center and website services

Strategic Highlights• Maintain growth in automobile insurance• Introduce new products and expand insurance categories
Main Products• Automobile insurance• Medical insurance (term-type insurance covering actual
expenses, whole life insurance covering predetermined amounts)
Main Sales Channels• Internet• Telephone

Banking
BusinessSony Bank

Lineup of highly convenient, high-quality products
leveraging advantages of the Internet
Non-face-to-face business operations with high customer
satisfaction

Strategic Highlights• Reinforce foreign currency deposits• Provide products and services for asset management
Main Products• Foreign currency deposits• Mortgage loans• Sony Bank WALLET cash card with Visa debit functionin 11 currencies
Main Sales Channels• Internet

Sony Financial Holdings Inc. Annual Report 20179

Our Story:

GrowthGrowth of the Sony Financial Group10Sony Financial Holdings Inc. Annual Report 2017

SFH (Consolidated)
Ordinary Revenues/Ordinary Profit
Gained customer loyalty through innovation
in a market, which led to sustainable growth

Ordinary revenues¥1,381.6 billion
1,352.3

1,362.0

1,381.6

Vision and Strategies

1,259.0

1,320.4

1,078.0
978.9

758.7

759.2

1,002.2

860.3

822.1

653.2
84.3

90.0
76.8

74.6

79.2

76.1

71.1

66.3

¥ 66.3

44.5
25.3
12.2

2005

2006

Ordinary profit

34.2

billion

18.3

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

(For the years
ended March 31,)2017

Lehman ShockSFH establishedin April 2004

Listed (First Section,
Tokyo Stock Exchange)in October 2007

Bank of Japan introduced a policy of“Quantitative and Qualitative Monetary
Easing with a Negative Interest Rates”

Sony Life implemented asset liability
management (ALM) review and switchedto stable proﬁt-generating structure lesssusceptible to ﬁnancial market ﬂuctuations

Total assets¥11,471.8 billion

Total Assets/Net Assets
Expand asset scale by raising the number of
insurance policies sold and balance of deposits

11,471.8
10,352.1
9,545.8
8,841.3
8,096.1

7,241.4
6,597.1
6,001.0
4,977.4
3,917.0

5,313.6550.6

4,323.7435.4

3,282.2
263.0

270.1

261.6

2006

2007

2008

182.8

2005

SFH establishedin April 2004

204.8

2009

269.4

2010

294.8

2011

604.3

601.1

¥ 601.1

467.0

347.8

2012

Net assets

billion

2013

2014

2015

2016

2017

(As of March 31,)

Listed (First Section,
Tokyo Stock Exchange)in October 2007

Sony Financial Holdings Inc. Annual Report 201711

GrowthOur Story:

Growth of the Sony Financial Group

Life Insurance Business

45.3

¥

Sony Life (Non-consolidated)*1

Policy Amount in Forcetrillion
45.3

43.1
40.9
Total assets: ¥5 trillion

39.0
37.7

36.0
34.7
32.5

Total assets: ¥3 trillion
30.2
27.8

33.4

31.4

29.0

26.2
24.7
23.4
Total assets: ¥1 trillion

21.5

18.8
Changed name toSony Life Insurance
April 1981
Business commenced

10.9

August 1979
Sony Prudential Life InsuranceCo., Ltd. established
3.9
0.04

0.2

0.7

1.9

1980 1982 1985 1988 1991 1994 1997 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

*1 Total amount of individual life insurance and individual annuities(As of March 31,)

A consultation led by a Lifeplanner
sales employee

12Sony Financial Holdings Inc. Annual Report 2017

99.0

Non-life Insurance Business

Vision and Strategies¥

Sony Assurance

billionDirect Premiums Written#FHBOTBMFTPG;J11JNFEJDBMJOTVSBODF
covering actual inpatient expenses
Became No. 1 in direct premiums
written for automobile insurance for
14 straight years among major direct
non-life insurers*2

87.3

94.3

90.4

99.0

82.5

June 1998
4POZ*OTVSBODF1MBOOJOH$P -UE
establishedt#FDBNF/PGPSUIFmSTUUJNFJOUFSNTPGEJSFDU
premiums written for automobile insurance
among major direct non-life insurers*2
t#FHBOTBMFTPG463&NFEJDBMJOTVSBODF
60.8
with emphasis on cancer treatment

78.3
72.8
67.0

54.6
50.1

t$IBOHFEOBNFUP4POZ"TTVSBODF*OD
t#FHBOTBMFTPGBVUPNPCJMFJOTVSBODF

44.9
37.4

30.3
23.6
16.2

1999

1.3

7.5

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

*2 Here, “major direct non-life insurers” refers to non-life insurers selling automobile insurance primarily
via direct sales channels as of March 31 of each year.

2015

2016

2017

(For the years ended March 31,)

3.6¥

Banking BusinesstrillionSony Bank (Non-consolidated)

Deposit balance exceeded ¥2 trillion
3.6

Retail Balance*3

Loan balance exceeded ¥1.0 trillion
3.2

Total assets: ¥2 trillion
Loan balance exceeded¥0.5 trillion
2.6
Deposit balanceexceeded¥1 trillion

2.8

2.9

3.0

2.4
2.1

1.8
1.5
April 2001
Sony Bank Inc. established
Business commenced in June

1.1
0.9
0.7

0.4

0.1

0.2

2002

2003

2004

2005

2006

2007

*3 Sum of deposits, investment trusts and personal loan balances

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

(As of March 31,)Sony Financial Holdings Inc. Annual Report 201713

Our Story:

CorporateValue
Seeking to maximize medium- to long-term
corporate value of the Sony Financial Group

14

Sony Financial Holdings Inc. Annual Report 2017

The Sony Financial Group will maximize corporate value on a Groupwide basis
over the medium to long term through implementing the following measures.
Vision and Strategies

1

Sustainable, stable growth at Group companies
We aim to achieve sustainable, stable growth by utilizing inherent company
strengths and expanding business volume.
▶Page 8: Our Story: Strength (Strengths of Group Companies)▶Page 10: Our Story: Growth (Growth of the Sony Financial Group)2

Creating synergies through cooperation among Group companies
We aim to enhance the synergistic effect of the Group and provide customers
with appealing, high-value-added products and services that were notpreviously available at financial institutions. This will be achieved through thegrowth of each Group company and enhancing cooperation among them.
Sales tie-up through Sony Life’s Lifeplanner sales employees
Lifeplanner sales employees handle products of Group companies, such as automobile insurance from Sony Assurance and mortgage loans from Sony Bank.
In fiscal 2016, the volume of automobile insurance sold along the Lifeplanner channel
represented 4% of the number of new policies by Sony Assurance, while the volume of mortgage loans along this sales route represented 20% of the amount of new loans extended bySony Bank.
In April 2017, Lifeplanner sales employees began handling Sony Bank WALLET andforeign currency sales for Sony Bank. This has reinforced the sales tie-up between Sony Lifeand Sony Bank.

3

Entry into new business domains that transcend our existing
framework
Focusing on business domains connecting to our existing three pillars ofoperations, we will continue to enrich our lineup of products and services to meetcustomer expectations and promote steady expansion of business volume.
Aiming to protect the dignity of seniors through nursing care services andcontribute to a society in which everyone can live comfortably and with peace ofmind throughout their lives, the Sony Financial Group added the nursing carebusiness to its operating portfolio in November 2013. The new business is
steadily developing its activities.
▶Page 30: Vision and Strategies Nursing Care Business▶Page 76: CSR Customers

Sony Financial Holdings Inc. Annual Report 201715

Sony Financial Group

FY

2016

Medium-term
Business Plan FY

2018

Key Messages
Respond to the ultralow • We will respond expeditiously to improve profitability (particularly in the life insuranceinterest rate environment
business).

• We will reinforce our provision of high-quality, highly convenient services, and continue
expanding our business operations by strengthening our competitive edge.

• While monitoring operating expenses closely, we will confidently make up-front
Achieve ongoing growth
for the Group as a wholeinvestments aimed for future growth.

• We will engage steadily in initiatives targeting new business fields and new services. At
the same time, we will utilize technologies that contribute to increases in customer value.

• We have introduced an ERM framework into Group management, and arestrengthening our management platform with a view to improve Group
profitability and capital efficiency.

• Based on the assumption that we will maintain financial soundness in each of ourCapital policies,
shareholder returns

businesses, we will aim for steady increases in dividends in line with earnings growthover the medium to long term.

• We have changed our medium-term dividend policy in line with growth in theGroup’s business operations. (When determining dividends, we will place
importance on profit indicators based on economic value.)Note: Text in blue indicates additions or changes from the medium-term plan announced in June 2016.

Progress toward Medium-term Targets for March 2019
FY2018Results for
FY2016

Progress towardmedium-term targets(Outlook)*

Medium-term targets¥1,381.6 billion¥1,540.0 billion¥1,650.0 billion

Consolidated ordinary profit¥66.3 billion¥71.0 billion¥80.0 billion

Profit attributable to ownersof the parent¥41.6 billion¥45.0 billion¥51.0 billion

Consolidated adjusted ROE**

3.9%

7–8%

4–5%

Consolidated ordinary revenues*Forward-looking forecasts and estimates presented on pages 16–30 are based on information available to management as of the Corporate Strategy Meeting heldon May 31, 2017.
**Consolidated adjusted ROE for fiscal 2015 has been recalculated due to a change in calculation assumptions. ▶ Page 20: “Calculation of Adjusted ROE”
Note: The medium-term targets for the medium-term management plan that Sony Life aims to achieve by March 31, 2019, are based on conditions prevailing asof March 31, 2016, and the April 2017 revision in the standard yield used for calculating policy reserves has not been factored into these targets. However,the forecast for fiscal 2017 and outlook for fiscal 2018 are based on conditions prevailing as of March 31, 2017, and thereby the revision in the standard yieldis reflected in these figures.

16

Sony Financial Holdings Inc. Annual Report 2017

Vision and Strategies

The revision in the standard yield and anticipated acceleration in new policy acquisition are likely to derail
progress toward our medium-term target for consolidated profit based on statutory accounting for fiscal
2018. However, growth in business volume, profit on an economic value basis and consolidated adjusted
ROE should all exceed our medium-term targets.
The Sony Financial Group will continue to promote growth in business volume to enhance corporate
value. We will place more emphasis on profit indicators based on economic value, which more closely reflect
the status of growth in our core life insurance business, and aim for steady increases in dividends.

Page

Page

18

22

Shigeru Ishii

Tomoo Hagimoto

President, Representative Director
Sony Financial Holdings

President, Representative Director
Sony Life

Page

Page

26

28

Atsuo Niwa

Yuichiro Sumimoto

President, Representative Director
Sony Assurance

President, Representative Director
Sony Bank

Sony Financial Holdings Inc. Annual Report 201717

Sony Financial Group
Growth in Business Volume and Performance Forecasts
Business
VolumeIndicators

Sony Life
Policy amount in force(Trillions of yen)

CAGR*
Over ¥49.0
Approx. 5%
trillion

43.1

45.3

FY2015FY2016

Sony Assurance
Direct premiums written(Billions of yen)
99.0

94.3

FY2018(Target)

FY2015CAGR
Approx.
Approx. 5% ¥110.0 billion

Sony Bank
Retail balance(Trillions of yen)

FY2018(Target)¥4.1
trillion

3.6

3.2

FY2016CAGR
Approx. 8%

FY2015FY2016FY2018(Target)*CAGR: Compound Annual Growth Rate

Performance
Consolidated ordinary revenues
Indicators(Billions of yen)

Outlook¥1,540.0 billion(Billions of yen)

Medium-term target¥1,650.0 billion
1,362.0

1,381.6

1,430.0

FY2015015

FY2016FY2017(Forecast)

71.1

FY2018(Target)

FY2015President, Representative Director
Sony Financial Holdings

18

Sony Financial Holdings Inc. Annual
nnual Report 2017

Outlook¥71.0 billion
Medium-term target¥80.0 billion

66.3

FY2016

For fiscal 2016, the Sony Financial Group’s consolidated profit basedng fell below initial expectations. We expect ouron statutory accounting
results to continue to fall below the medium-term target in fiscal 2017
g an increase in first-year expenses in line withand beyond, reflectingndard yield and acceleration in new policy
the revision in the standard
nsurance business.
acquisition in the life insurance
he low interest rate environment, the three core
However, given thending business volumes in line with the plan,subsidiaries are expanding
while taking a flexible approach to restoring profitability.

Shigeru Ishii

Profit attributable toowners of the parent

Consolidated ordinary profit

67.0

FY2017(Forecast)

FY2018(Target)(Billions of yen)

Outlook¥45.0 billion
Medium-term target¥51.0 billion

43.3

41.6

42.0

FY2015FY2016FY2017(Forecast)

FY2018(Target)SFH’s Medium-term Dividend Policy
In April 2017, SFH announced a change in its medium-term
dividend policy. Although the Sony Financial Group expects
to achieve brisk growth in business volume over the medium
term, profit on a statutory accounting basis is unlikely to
expand commensurate with business growth and could fall
below the medium-term target for fiscal 2018. However, if
viewed according to MCEV and other profit indicators on an
economic value basis, which more accurately reflect growthin the life insurance business, profit may actually exceed the
medium-term target.
Previously, we used a certain payout ratio based on underlying statutory profit as our medium-term target. However,

Vision and Strategies

going forward we will take a broader view of profit, prioritizing
economic value-based indicators.
We seek to deliver steady increases in dividends over the
medium to long term corresponding to profit growth based on
economic value.
▶ Page 86: Basic Policy on Returning Profits to Shareholders

The year-end dividend for fiscal 2016 was set at ¥55 pershare, unchanged from fiscal 2015. For fiscal 2017, SFH plans
to maintain its year-end dividend of ¥55 per share.

Dividend per Share

55 yen55

55

FY2015FY2016

(Yen)

40
30
25
15

15

FY2008FY200920

20FY2010FY2011FY2012FY2013

FY2014FY2017(Forecast)

Adjusted ROE
Group companies are engaged in different businesses, suchas insurance and banking, and thus an adjusted ROE is calculated for each company based on adjusted profit and adjusted
capital, to accurately pinpoint corporate value and capitalefficiency. Sony Life’s core ROEV reached 3.6% in fiscal 2016,reflecting the impact of low interest rates. The ratio should bein excess of 4%–5%—the medium-term target—by fiscal 2018,
and eventually improve to 7%. For Sony Assurance, adjusted
ROE should reach 13% by fiscal 2018, while the medium-termtarget for Sony Bank is 6% by fiscal 2018. Both companies areon track toward these targets.

FY2018Results for
FY2016
Sony Life
Core ROEV

Progress towardmedium-term targets(Outlook)

Medium-term targets

3.6%

7%

4–5%

14.4%

In line13%

Sony Bank (consolidated)
ROE

4.1%

In line6%

Consolidated adjusted ROE*

3.9%

7–8%

4–5%

Sony Assurance
Adjusted ROE

Formulas for calculating adjusted ROE are presented on page 20.
*Effective from fiscal 2016, the calculation of consolidated adjusted ROE has changed, with the method of calculating adjusted profit at Sony Life changed to amethod that combines new business value and expected existing business contribution. Furthermore, from fiscal 2016, Sony Life’s MCEV is calculated by using theultimate forward rate (UFR).

Sony Financial Holdings Inc. Annual Report 201719

Introducing a Group ERM Framework
A group-oriented enterprise risk management (ERM) framework was introduced into the Sony Financial Group, effectivefrom fiscal 2016. The objective is to balance and optimize
capital, risk and returns by extending comprehensive risk
management structures already in place at each company

throughout the whole organization, and to instill the idea ofimproved capital efficiency in management across the Group.
This ERM framework will help the Group achieve stable growthin corporate value.

Capital efficiency (profitability) indicators
Return• Sony Life: Core ROEV
• Sony Assurance: Adjusted ROE• Sony Bank: ROE

Capital efficiency(profitability)
Capital policy
Dividend policy

Soundness indicators

Capital

Risk

Soundness• Insurance business: Solvency margin ratio• Banking business: Capital adequacy ratio• Management on a regulatory basis and on thebasis of economic value

Calculation of Adjusted ROESony Life’s core ROEV is calculated as follows:
New business value + Expected existing business contribution
MCEV* as of the beginning of the fiscal year less dividends paid plus MCEV* as of the end of the fiscal year, divided by two
Sony Assurance’s adjusted ROE is calculated as follows:
Net income (loss) + Provision amount for catastrophe reserveand its provision amount for reserve for price fluctuations, in each case after taxes
The average amount of net assets plus the sum of catastrophe reserveand its reserve for price fluctuations during the fiscal year, in each case after taxes
Sony Bank’s ROE is calculated as follows:
Profit (loss) attributable to owners of the parent
The average amount of net assets during the fiscal year
Consolidated adjusted ROE for fiscal 2016 is calculated as follows:
Consolidated adjusted ROE = Consolidated adjusted profit divided by consolidated adjusted capitalSony Life: New business value plus expected existing business contribution+ Sony Assurance: Net income (loss) plus provision amount for catastrophe reserve andits provision amount for reserve for price fluctuations, in each case after taxes+ Sony Bank: Profit (loss) attributable to owners of the parent
Sony Life: MCEV* as of the beginning of the fiscal year less dividends paid plus MCEV* as of the end of the fiscal year, divided by two+ Sony Assurance: The average amount of net assets plus the sum of catastrophe reserve andits reserve for price fluctuations during the fiscal year, in each case after taxes+ Sony Bank: The average amount of net assets during the fiscal year
Note: Sony Life changed its formula for calculating the numerator (adjusted profit), as of fiscal 2016.
*Sony Life discloses Market Consistent Embedded Value (“MCEV”). Sony Life’s MCEV is calculated in compliance with the European Insurance CFO
Forum Market Consistent Embedded Value Principles©** (“MCEV Principles”), the international standard in disclosing MCEV published by the CFO Forumcomprising CFOs from major insurance companies in Europe.
**Copyright© Stichting CFO Forum Foundation 2008

20

Sony Financial Holdings Inc. Annual Report 2017

Customer-First Business Operation Policy (Summary)

FinTech Initiatives
The Sony Financial Group strives to improve services for customers
by putting the advantages afforded by IT to the best possible use.
Going forward, Group companies will aggressively promote initiatives
that utilize new technologies, namely, FinTech and AI, to provide
services that offer enhanced convenience to customers and greater
efficiency in business processes.
Fiscal 2016 welcomed the first SFG Fintech Forum, a Groupwide
framework. In the future, the goal is to expand initiatives throughcollaboration with the Sony Group and outside companies andorganizations.

Vision and Strategies

Based on its vision and philosophy, the Sony Financial Group pursues business operations from a customer-first
perspective. SFH has clarified this initiative as its customer-first business operation policy, and Sony Life, Sony
Assurance and Sony Bank will each go further to establish business operation policies fine-tuned to respective
activities.
The policy that SFH has set as well as the policies in place at Group companies will be reviewed periodically,taking into account such factors as changes in the operating environment. In addition, SFH, as a financial holding
company, will confirm that the content of the customer-first business operation policy is appropriate, and will monitor
the activities at Group companies, based on this policy, to ensure proper business operations. SFH will offer
whatever support and guidance is necessary, as required.
At the same time, Group companies will verify the status of their own initiatives on customer-first business
operations and regularly report to the Board of Directors or other oversight structures and will also provide status
updates on a regular basis.

Groupwide Initiatives
Sony Group

Outside companies
and organizations

チャートあたり
レイアウト確定後に作成します。

SFG Fintech ForumSony Financial Holdings Inc. Annual Report 201721

Sony Life
Fiscal 2016 Review• Ensured profitability by taking a flexible approach to product revisions and shifting toward suchproducts as U.S. dollar-denominated insurance and term life insurance.

• Achieved performance on a par with record-high new policy amount booked in fiscal 2015. Lifeplanner
sales employee recruitment far exceeded target, accelerating expansion of marketing base.

Toward Achieving the Medium-term Management Plan
To achieve profit growth on an economic value basis, in the prevailing low interest rate environment, Sony Life has implemented
marketing strategies and product revisions to ensure and boost profitability. In addition, we aim to acquire new policies by expanding the Lifeplanner channel and the independent agency channel. These efforts will spur steady growth in corporate value.

Activities for Growth in Fiscal 2017 and Beyond<Lifeplanner Channel>
Expansion in the number of sales
personnel to drive stable growth• Enhance recruitment process and initial training• Further improve provision of value (enhance corporate products/services and introduce“Karte” customer database)<Independent Agency Channel>
Realize growth• Achieve steady business growth in large corporate independent agencies• Expand independent agencies with close ties to their local community through establishing solid structure of sales operation

Solid growth of corporate value• Realize profit growth exexceeding medium-term targets based on economic value

Sales Strategy: Steady Growth Hinging
on Lifeplanner Channel and Sales Force
Expansion
Enhance recruitment process and initial training
Sales through the Sony Life Lifeplanner channel represent
about 75% of all new policies, and sales are growing steadily.
At Sony Life, our medium-term target is a Lifeplanner
network of 5,200 sales employees by the end of March 2019.
However, brisk recruitment is pushing the number of Lifeplanner sales employees higher each year, and the target may well
be met ahead of schedule. In fiscal 2016, the number of Lifeplanner sales employees reached 4,933—up 321 from the endof the previous year—due to the addition of 685 newly hired
Lifeplanner sales employees. This aggressive recruitment was

Tomoo Hagimoto
President, Representative Director
Sony Life22

interview process. We will strive to improve the quality of newly
hired employees while expanding the number of Lifeplanner
sales employees through steadily promoting recruitment
activities. In addition, we will strengthen the content of initialtraining for new Lifeplanner sales employees, as its number
increases along with accelerated recruitment efforts, and wewill maintain high productivity.

Vision and Strategies

supported by an increase in the number of office managers
who recruit and train Lifeplanner sales employees.
Meanwhile, productivity, which dropped slightly in fiscal
2016 mainly due to the impact of product revisions, remained
at a high level nonetheless.
Going forward, we will adopt more stringent selection criteria for Lifeplanner sales employee candidates and enhance ourFurther improve provision of value
1. Corporate market initiatives
In fiscal 2016, Sony Life began strengthening its provision of
products and services to the corporate market, with a focus
on owners of small and mid-sized companies. As a result, in
fiscal 2016 new policy amount to corporate customers soared
40% year on year. New products for this market were nonparticipating group welfare term life insurance, launched in
October 2016, and corporate variable term life insurance,
launched in April 2017. In addition, we worked to reinforce ourlineup of appealing products and services by offering personnel and labor consultation services and employee welfare support services. Also, since Lifeplanner sales employees are
required to have expertise in various areas, including economics, finances and taxes, to deal with corporate customers, thecontent of training was reinforced, along with education andsupport structures, including the assignment of a dedicatedsupport manager. Going forward, we will seek to increase newpolicy amount by at least 10% each year.

Number of Lifeplanner Sales Employees*1 andProductivity*2

2. Extending consulting sales through “Karte”
customer database
Consulting sales based on customer needs are a strength ofSony Life, and the Lifeplanner channel draws on LiPSS—Life
Planning Support Service—as a tool to support consulting
sales. LiPSS objectively presents the amount of insurance
coverage needed by customers. To complement the meritsof LiPSS, Sony Life will introduce “Karte” in fiscal 2017 toenhance the system for data collection, updates and sharing.
“Karte” will not only support life-planning but also act as avisual evidence of Lifeplanner sales employees’ proposals andrecommendations for products and services at the time ofpolicy signing. We expect that customers will be more receptive to recommendations if backed by evidence. In addition,
Lifeplanner sales employees will be able to accurately pinpoint
the timing of changes to customers’ life plans and provide
follow-up based on the content of past meetings. Furthermore,
the transition from one Lifeplanner sales employee to another,should a personnel change occur, will become smoother.
“Karte” will further enhance consulting sales and follow-up
activities with customers and strengthen relationships between
Lifeplanner sales employees and customers.

Number of Newly Recruited Lifeplanner Sales Employees

122Over 5,200

100
4,216

FY20134,329

FY20144,612

FY2015

Number of Lifeplanner sales employees
as of the end of the fiscal year

Over 700

4,933

685
577

FY2016FY2018(Target)439

419

FY2013

FY2014FY2015FY2016FY2018(Target)Productivity*1 The figure includes the number of contracted Lifeplanner sales employees
and those rehired on a fixed-term contract basis after retirement.
*2 Productivity is indexed to FY2013 = 100, calculated on the basis of newpolicy amount.

Sony Financial Holdings Inc. Annual Report 201723

Sales Strategy: Independent Agent Channel
Steady business growth in large, corporate independent agencies* and solid operating structure
for independent agencies with close ties to the local community**
Partners (independent agents) are a key sales channel forSony Life, right behind the Lifeplanner channel, and accountfor about 25% of all new policies.
In fiscal 2016, new policy volume was down year on
year, due to the substantial drop in yen interest rates andimplementation of premium revisions ahead of other companies, which reduced demand. Going forward, we will
steadily expand sales through large, corporate agencies
and enhance development and training at independentagencies with close ties to the local community. Specifically,
we will visualize the development activities of our new
Partners, and by creating approach tools customized toPartner characteristics, we will accelerate the developmentof a network of Partners who share our philosophy. We will
also retune training structures and systems matched toPartner growth stages, encourage a quick launch, andthereby reinforce our cooperative relationship with Partners.

Sony Life’s New Policy Amount(Individual life insurance and annuities)(Trillions of yen)

¥5.8 trillion
4.7

5.1

4.9

FY2015FY2016

3.8

FY2013

FY2014

Lifeplanner channel

FY2018(Target)Independent agent channel*Large, corporate independent agencies: Mainly shop-type agencies andprofessional agencies covering a wide geographical area**Independent agencies with close ties to local community: Agencies, such as
value partners, with strong loyalty to Sony Life and deep roots in the community.

Steady Growth in Corporate Value
Realize profit growth exceeding medium-term targets on economic value basis
At Sony Life, we expect ordinary profit to come in at ¥58.0
billion in fiscal 2018, below the ¥66.0 billion medium-termtarget. This reflects the impact of the revision in the standard yield in April 2017 and higher expenses in the firstyear from the accelerated acquisition of new policies
toward fiscal 2018.
We emphasize medium-term profit growth on an economic value basis as an indicator of performance since
it tracks more closely to actual growth of the life insurance
business. Our MCEV was ¥1,441.1 billion at the end of
March 2017, up ¥111.0 billion year on year, and by the end

24Sony Financial Holdings Inc. Annual Report 2017of March 2019, it should exceed ¥1,600.0 billion and thus
place above the medium-term target.
We see new business value and the expected existing
business contribution as the base for growth in corporate
value obtained through insurance underwriting. We define
this rate of increase as core return on embedded value(core ROEV). We are predicting core ROEV of about 7%
by March 31, 2019, well above the medium-term target
of 4%–5%.
Sony Life will continue to work toward achieving
medium-term growth.

MCEV

Ordinary Profit*3(Trillions of yen)(Billions of yen)Core ROEV
7%

Outlook*2
Over¥1.6 trillion

1.4

1.3

60.2

56.8

FY2015FY2016

Medium-term target¥66.0 billion Outlook¥58.0 billion

Medium-term target
Over ¥1.4 trillion*1

FY2016

Vision and Strategies

FY2015FY2018(Target)*1 Based on interest rate level at the end of March 2016. With the adoptionof UFR for MCEV in the first quarter of FY2016, medium-term targets werereevaluated.
*2 Based on interest rate level at end of March 2017.

FY2018(Target)*3 Ordinary profit in the life insurance business

Progress toward FY2018 Medium-term Targets
FY2018Results for
FY2016
Policy amount in force

Number of Lifeplanners*1
MCEV*2
Core ROEV
Ordinary profit(life insurance business)

Progress towardmedium-term targets(Outlook)

Medium-term targets¥45.3 trillion

In lineOver ¥49.0 trillion

4,933

Exceedinginitial targets

Over 5,200¥1.4 trillion

Over ¥1.6 trillion

Over ¥1.4 trillion

3.6%

7%

4–5%

¥56.8 billion¥58.0 billion¥66.0 billion*1 The figures include the number of contracted Lifeplanner sales employees and those rehired on a fixed-term contract basis after retirement.
*2 The figure in “FY2018 Medium-term targets” is based on interest rate levels at the end of March 2016, and others are based on those at the end of March 2017.
With the adoption of UFR for MCEV in the first quarter of FY2016, medium-term targets were reevaluated.

Please refer to Review of Operations: Life Insurance Business on page 36.
Sony Financial Holdings Inc. Annual Report 201725

Sony Assurance
Fiscal 2016 Review• Briskly increased automobile insurance policies in force, primarily because of larger online discounts
on new policies and enhanced marketing communication.

• Began sales of ZiPPi medical insurance, which covers actual patient-paid expenses, in January 2017,
and expanded offerings in categories other than mainstay automobile insurance.

Activities for Growth in Fiscal 2017 and Beyond
Sustain growth inautomobile insurance

Expand businesscategories other thanautomobile insurance

Work to maintain a leading position in the direct automobile insurance market and respond to
future changes in the operating environment• Provide products that are rational, progressive and unique. Focus on the telematics field• Apply progressive technologies to increase sophistication of marketing and services• Improve the operating expense ratio in preparation for future reductions in insurance premium rates

By expanding business categories other than automobile insurance, move away from a structureheavily relied on automobile and ensure a stable, long-term earnings base
• Accelerate expansion in area of medical insurance by introducing new products and enhancing existing products• Consider expansion of new categories within fire and casualty insurance, the business domains that we canleverage the company’s strengths

As a source of growth, enhance the customer experience, as well as product and service
specifications

Maximize customer
value

Renovate businesssystems and reform
operations• Enhance the customer experience through customer contact points, thereby raising NPS* andaugmenting customer retention• Increase perceived quality by raising product and service specifications, sweeping away uncertainties about
direct insurance and strengthening the ability to acquire new contracts

Conduct large-scale renovation of core business systems and enact operational reforms• Improve system development and maintenance efficiency by renovating system configurations• Along with system reconfiguration, enhance services, improve the customer experience and conduct
operational reforms, aiming to improve operating efficiencies*NPS: An index that measures willingness of customers in recommending products or services to other people.

Sony Assurance achieved another year of record-high profits,
charting improvement for a fourth consecutive year since fiscal 2013. This reflects higher ordinary revenues and a relatively low loss ratio. Going forward, we will strive to sustain
growth for automobile insurance, mainly by reinforcing product appeal, raising customer satisfaction and utilizing
advanced technology. We will cement our leading position in
the direct automobile insurance market and work to respondto changes in the business environment in the future. With
regard to telematics insurance, we have teamed up with
Yahoo Japan Corporation and the Sony Group to pursue
research aimed at developing new PHYD-type* telematics

Atsuo Niwa
President, Representative Director
Sony Assurance

26

Sony Financial Holdings Inc. Annual Report 2017

insurance products. In FinTech, we are collaborating with theSony Group and FinTech ventures to achieve greater
sophistication in marketing and services through the useof advanced technologies, including AI.
In addition to these activities, we will strive to maintain
price competitiveness through higher operating efficiency
amid expectations of lower premiums prompted mainly bya drop in the reference loss cost ratio. We will also seek tomaximize customer value by enhancing the customer experience and product and service quality, which will drive greater
brand confidence.

*PHYD: Pay How You Drive

Trends of Ordinary Revenues and Sum of Two Ratios

Ordinary Profit/Adjusted Ordinary Profit(Billions of yen)(Billions of yen)

93.8%

91.0%

90.4%

90.6%
110.0

Ordinary revenues
89.8
84.7

93.0

96.9

7.1

102.3

4.2

4.6

4.2

8.7

8.1

7.6

Vision and Strategies

Sum of two ratios
98.9%

To ensure stable revenues over the long term, we will also
strive to expand business in categories other than automobile
insurance. To this end, in January 2017, we implemented
some revisions to SURE medical insurance, which is geared
to cancer treatment, and began sales of ZiPPi term-type
medical insurance for actual hospital inpatient expenses. In
categories other than automobile insurance and medical
insurance, we will aim to enter business domains where wecan leverage our inherent strengths toward building a newpillar of operations.

4.9

5.2

FY2016FY2018(Target)

3.0

2.3
0.1
FY2012
Medical

FY2013

FY2014FY2015FY2016FY2018(Target)Automobile

FY2012FY2013

Ordinary profit

FY2014FY2015Adjusted ordinary profit

Note: Adjusted ordinary profit = Ordinary profit + Provision for catastrophe reserve
Sum of two ratios = Earned/Incurred loss ratio + Net expense ratio
Earned/Incurred loss ratio = (Net losses paid + Provision for reserve for outstanding losses + Loss adjustment expenses) / Earned premiums
Net expense ratio = Expenses related to underwriting / Net premiums written

Progress toward FY2018 Medium-term Targets
FY2018Results for
FY2016

Progress towardmedium-term targets¥99.0 billion

In line¥110.0 billion

28.3%
62.3%
90.6%

In lineSum of two ratios
Over 90%

Ordinary profit¥4.9 billion

In line¥5.2 billion

Adjusted ordinary profit*1¥8.1 billion

In line¥8.7 billion

14.4%

In line13%

Direct premiums written
Net expense ratio
E.I. loss ratio
Sum of two ratios

Adjusted ROE*2

Medium-term targets*1 Adjusted ordinary profit = Ordinary profit + Provision for catastrophe reserve*2 The formula for adjusted ROE is shown on page 20.

Please refer to Review of Operations: Non-life Insurance Business on page 44.
Sony Financial Holdings Inc. Annual Report 201727

Sony Bank
Fiscal 2016 Review• Benefited from heightened demand for refinancing mortgage loans against a backdrop of low interest
rates, and the amount of new loans extended during the fiscal year reaching an all-time high.

• Increased the balance of foreign currency deposits in the foreign currency business thanks to anincrease in new Sony Bank WALLET cards issued, despite depreciation of the yen in forex markets.

Activities for Growth in Fiscal 2017 and Beyond
Enhance and expand
product services• Establish Sony Bank as a bank that easily deals with foreign currency transactions• Expand apps to increase convenience• Diversify loan products for individual customers

Expand customer base throughstrategic alliances• Strengthen tie-up channels with realtors, etc.
• Expand introduction of Sony Bank WALLET affiliated card
• Expand real channels for Lifeplanner sales employees, etc.

Improve management efficiency• Realize profit growth through improved profitability and efficiency• Achieve 6% ROE

In our quest to achieve growth, our first priority at Sony Bank
is to reinforce our strategic product categories—foreign
currency deposits and mortgage loans. Our foreign currency
deposit balance rose in fiscal 2016, fueled by the popularityof Sony Bank WALLET, a cash card with a Visa debit function available in 11 currencies. The number of Sony BankWALLET cards in issue topped 240,000, as of March 31,
2017, substantiating brisk demand. We offer a diverse lineup
of foreign currency products in addition to ordinary foreign
currency deposits and have enhanced our lineup of products
and services, including access to highly convenient foreign
currency remittance services. Going forward, we are aiming
for a foreign currency deposit balance of ¥500.0 billion by theend of March 2019. We expect to reach this goal by actively
working to increase the number of settlement currencies ofSony Bank WALLET and by adding smartphone-compatible
services. In the mortgage loan business, our balance steadily
grew during fiscal 2016, buoyed by heightened demand forrefinancing against a backdrop of low interest rates. We willcontinue to strengthen alliance channels with banking
agencies and realtors and keep the mortgage loan balancecharting upward while directing efforts into condominium
loans for investment purposes, an area attracting greater
demand in recent years.

Yuichiro Sumimoto
President, Representative Director
Sony Bank28

add a new dimension to our customer base, notably, young
people and financially comfortable individuals.
Sony Bank will also strive to improve management efficiency, which will underpin sustainable profit growth. We will
strengthen asset-liability management and ensure a stableinterest spread. We will enhance the fee business, including
fees associated with Sony Bank WALLET, and improve operating efficiency through a review of business operations.
Through these measures, we expect to achieve an ROE of
6% by March 31, 2019.

Retail Balance (Sum of Yen Deposits, Foreign Currency
Deposits, Investment Trusts and Personal Loans)

Vision and Strategies

In activities to promote growth, Sony Bank emphasizes
strategic tie-ups to widen its customer base. In April 2017,
we broadened the lineup of products handled by Sony Life’s
Lifeplanner sales employees, which has effectively improved
face-to-face services. Earlier, in March 2017, we issued acard featuring a Sony Bank WALLET “PlayStation” design incollaboration with Sony Interactive Entertainment Inc., which
drove the number of cards in issue steadily higher. By promoting the issuance of Sony Bank WALLET cards designed
in collaboration with other companies in a bid to capture
customer segments previously beyond our reach, we will

CAGR Approx. 8%(Trillions of yen)

(March 31, 2016–March 31, 2019)

4.1

3.6

At the end of the fiscal year
3.2

3.0

1.6
0.1
0.5

1.8

FY2014
Yen deposits

Foreign currency deposits

FY2015FY2016

Investment trusts

FY2018(Target)Personal loans

Interest Spread

Consolidated ROE

(%)

6.0%

(%)
1.19%

1.27%
4.1%

0.94%

Interest spread

0.94%

0.25%

0.32%

FY2016FY2018(Target)Yield on investment

FY2016FY2018(Target)Yield on financing

Note: Managerial accounting basis

Progress toward FY2018 Medium-term Targets
FY2018Results for
FY2016

Progress towardmedium-term targets

Retail balance*1¥3.6 trillion

In line¥4.1 trillion

Gross operating profit*2¥24.0 billion

In line¥27.6 billion¥5.0 billion

In line¥7.2 billion

4.1%

In lineAround 6%

Ordinary profit*2
ROE*2

Medium-term targets*1 Sum of yen deposits, foreign currency deposits, investment trusts and personal loans*2 Consolidated base

Please refer to Review of Operations: Banking Business on page 50.
Sony Financial Holdings Inc. Annual Report 201729

Nursing Care BusinessInitiatives toward GrowthSony Lifecare was established in April 2014 as a holding company to oversee the Group’s operations in the nursing carebusiness. The company seeks to realize a “Life Focus” concept—the pursuit of a real long life—and is promoting business expansion through the opening and operation of new
nursing care homes by its subsidiaries and through strategic
alliances with other companies.
In the development of new nursing care homes, Lifecare
Design, a Sony Lifecare subsidiary, opened SONARE Urawain May 2017. This is the second facility under the SONARE
brand of seniors housing with nursing care services. In addition, the company has started the development of projects
for a third home and beyond.
Meanwhile, in April 2017, Sony Lifecare decided to turnYuuai Holdings Co., Ltd. (YHD) into a subsidiary. YHD is anumbrella organization for companies that operate facilities,
including nursing care services, and Sony Lifecare initiallymade an investment into YHD in May 2015. Through theconsolidation of YHD, which already operates 27 locations
with around 1,400 rooms in total, Sony Lifecare will seek toestablish a presence in the nursing care services market, makeinroads into the affordable price range where latent demand isextensive, and effectively utilize know-how and management
resources, such as personnel in developing nursing care homes.
Sony Lifecare is keen to continue efforts to build andexpand its business base by pushing ahead on the establishment of new nursing care homes and forming strategic
alliances.

SONARE Urawa, a nursing care home

Trends in Japan’s Nursing Care Market
Status of Aging Population
The number of seniors aged 65 or older in Japan, referred to hereafter as “seniors,” reached 34.63 million as ofNovember 1, 2016, and represented 27.3% of the total population. Both the number and percentage are record highs.
The ratio of seniors to total population is now more than one in four and will keep growing, with seniors expected tocomprise one in three citizens—or 33.3%—by 2036.
Nursing care needs are also increasing with the graying of society, and nursing care benefits in fiscal 2015 brokeprevious records, with 5.13 million people receiving benefits and the total cost of nursing care at ¥9,991.9 billion.
Working to build an environment for nursing care providers; trend toward standardized system fornursing care services
A key economic policy of Prime Minister Shinzo Abe’s third cabinet, inaugurated in October 2015, is to build a society
in which the entire population—a targeted level of 100 million people—can play active roles. The population is shrinking, and the government is determined to halt the declining birthrate and graying of society and enable everyone tocontribute to a better society at home, at work and in the community. A pillar of the Nippon Ichioku Sokatsuyaku
Plan—government translation: “Plan for Dynamic Engagement of All Citizens”—which was approved by the government in June 2016, is greater support for nursing care, including better working conditions for providers of nursing
care services and measures to attract and keep the necessary human resources. In April 2017, steps were taken to
create a better environment for nursing care providers, including a revision of compensation for workers at nursing
care facilities that would boost the average wage by ¥10,000 per month.
Meanwhile, the Ministry of Health, Labour and Welfare predicts that the percentage of seniors in society will
increase, and demand for health care and nursing care will rise as a consequence. The ministry seeks to create a community-based integrated care system and thereby enable seniors to live out their days, maintaining their own lifestyle inthe community they are used to living in for as long as possible. Japan is certainly building a standardized system fornursing care, which includes another upward revision in compensation in fiscal 2018.
Sources: “Population Estimates,” Statistics Bureau, Ministry of Internal Affairs and Communications; “Population Projections for Japan,” National Institute ofPopulation and Social Security Research; “Nursing Care Expenses,” All-Japan Federation of National Health Insurance Organizations; and materials
prepared by councils and committees of the Ministry of Health, Labour and Welfare

30Sony Financial Holdings Inc. Annual Report 2017

Review of Operations and Analysis of Operating Performance

Review of Operations andAnalysis of Operating PerformanceSony Financial Holdings Inc. Annual Report 201731

Segment Performance Highlights

Details: P36

Life Insurance Business
Ordinary Revenues

Ordinary Profit

Total Assets

Billions of yen

Billions of yen

Billions of yen

100

10,000

1,200

80

8,000

900

60

6,000

600

40

4,000

300

20

2,000

1,500

1,243.9

8,873.4

56.8

0Ordinary
revenues

13

14

15

16

0

17

1,142.3 1,196.6 1,223.9 1,230.2 1,243.9

For the years ended March 31,

Ordinary
profit

13
72.7

14
67.2

15
78.3

16
60.2

17

0

56.8

Total
assetsFor the years ended March 31,

13

14

15

16

As of March 31,

Details: P44

Non-life Insurance Business
Ordinary Revenues

Ordinary Profit

Total Assets

Billions of yen

Billions of yen

Billions of yen

125

7.5

250

102.3
6.0

75

4.5

150

50

3.0

100

25

1.5

50

0

13

14

15

16

17

Ordinary
revenues

84.7

89.8

93.0

96.9

102.3

For the years ended March 31,

0.0
Ordinary
profit

5.0

186.5

200

100

Banking Business

13

14

15

16

17

0

2.3

3.0

4.2

4.6

5.0

Total
assetsFor the years ended March 31,

13

14

15

16

17

127.4

142.7

157.9

172.3

186.5

As of March 31,

Details: P50

Ordinary Revenues

Ordinary Profit

Total Assets

Billions of yen

Billions of yen

Billions of yen

10

3,000

40

8

2,400

30

6

20

4

1,200

10

2

600

50

2,438.8

38.5

0Ordinary
revenues

13
34.3

14
36.4

15
38.4

16
37.9

For the years ended March 31,

17

0

38.5

Ordinary
profit

5.0

13
3.9

Sony Financial Holdings Inc. Annual Report 2017

14
5.6

15
7.3

For the years ended March 31,

Note: Segment results are amounts before consolidation adjustments.

32

17

5,948.1 6,619.3 7,301.0 8,033.3 8,873.4

16
5.9

1,800

17

0

5.0

Total
assets

13

14

15

16

17

2,012.6 2,068.7 2,074.6 2,140.2 2,438.8

As of March 31,

SFH (Consolidated)
Operating Results

Review of Operations and Analysis of Operating Performance

During fiscal 2016, the fiscal year ended March 31, 2017, the Japanese economy showed signs of a gradual recovery inbusiness conditions, highlighted by a positive shift in corporate earnings as well as steady improvements in employment
and personal income. However, a lingering sense of uncertainty about the future became more acute, largely due to economic trends overseas, including changes to economic policies in the United Kingdom and the United States and the riskof economic downturns in emerging markets, particularly China.
In bond markets, the persistently low domestic long-term interest rate reversed course in July 2016, while globally,yields on long-term government bonds charted an upward path following the results of the U.S. presidential election in
November 2016. Despite the limited yet enhanced growth, bond markets remained sluggish, owing to the Bank of Japan’s
monetary easing policy.
In foreign exchange markets, the yen appreciated in response to such events as the decision by the U.K. to exit theEuropean Union and waning expectations of another hike in interest rates by the U.S. However, the yen depreciated against
the U.S. dollar thereafter in response to expectations surrounding the fiscal policy under the new U.S. administration andthe decision to boost interest rates in the U.S. in December 2016. From the beginning of 2017, there was a growing senseof uncertainty regarding policy management in the U.S., which again led to an appreciation of the yen.
Against this backdrop, the Sony Financial Group sought to become the most highly trusted financial services group
among customers. Toward this end, various steps were taken to maintain a sound financial foundation while strengthening
and expanding the lineup of products and services and enhancing the internal control system to deliver high-value-added
products and high-quality services to each and every customer.
Consolidated ordinary revenues inched up 1.4% year on year, to ¥1,381.6 billion, as all business segments—life insurance, non-life insurance and banking—achieved higher results. Consolidated ordinary profit fell 6.7%, to ¥66.3 billion,
reflecting decreases in the life insurance and banking businesses, which neutralized an increase in the non-life insurance
business. Profit attributable to owners of the parent, after accounting for extraordinary losses, provision for reserve for policyholders’ dividends and income taxes, fell 4.0%, to ¥41.6 billion, owing to the lower ordinary profit.
Segment results are amounts before consolidation adjustments and are described below.
Life Insurance Business Ordinary revenues increased 1.1% year on year, to ¥1,243.9 billion, as higher investment
income in separate accounts offset a decrease in insurance premium revenues resulting from a decline in sales of single
premium products. Ordinary profit fell 5.7%, to ¥56.8 billion, due to a worsened profit situation at affiliated companies,
despite Sony Life’s results remaining unchanged from the previous year.
For Sony Life, positive factors contributing to these results were namely a decrease in the provision of policy reserves
for minimum guarantees for variable life insurance, due to lower acquisition of new policies and to an improvement in market
conditions as well as an increase in profit from accumulated policies in force. Meanwhile, negative factors included a deterioration in net gains/losses on derivative transactions to hedge market risks related to minimum guarantees for variable life
insurance, and lower gains on sale of securities in the general account. These factors led to the leveling off of ordinary profit.
Non-life Insurance Business Ordinary revenues rose
5.6% year on year, to ¥102.3 billion, owing to an increasein net premiums written primarily for mainstay automobile
insurance. Ordinary profit climbed 6.8%, to ¥5.0 billion,
despite higher operating expenses, because of a drop inprovision for reserve for outstanding losses, an increase inunderwriting profit and higher investment income.

Ordinary Revenues
For the years ended March 31,
Life insurance businessBillions of yen
1,500
1,200

Non-life insurance businessBanking business

900
600
300

Banking Business Ordinary revenues grew 1.5% year
on year, to ¥38.5 billion, despite a decrease in interest
income and dividends on securities, because of a boost
from interest income on loans in line with a steadily growing balance of mortgage loans. Ordinary profit fell 15.6%,
to ¥5.0 billion, reflecting the downward shift in interest
rates as well as an increase in initial expenses resulting
from a higher execution of mortgage loans, and reduced
transactions of foreign currencies and investment trusts bycustomers.

0

Ordinary Profit
For the years ended March 31,
Life insurance business

13

14

15

16

17

14

15

16

17

Billions of yen
100
80

Non-life insurance businessBanking business

60
40
20
0

13

Sony Financial Holdings Inc. Annual Report 201733

Financial Position
As of March 31, 2017, total assets amounted to ¥11,471.8 billion, up 10.8% from March 31, 2016. Among major components
of assets, securities—mostly Japanese government bonds—
Billions of yen
Total Assets
amounted to ¥8,857.4 billion, up 10.4% and loans came to
12,000
As of March 31,¥1,720 billion, up 13.5%.
Total liabilities were ¥10,870.7 billion, up 11.5% from
9,000
March 31, 2016. Major components of liabilities included policy reserves and others of ¥8,113.1 billion, up 8.1%, and
6,000
deposits totaled ¥2,071 billion, up 8.3%.
Total net assets were ¥601.1 billion, down 0.5% from March
3,000
31, 2016. This included net unrealized gains on other securities,
net of taxes, which decreased ¥22.5 billion, to ¥134.8 billion.
0
13
14
15
16
17

Cash Flow Status
Net cash provided by operating activities in fiscal 2016 reached ¥692.4 billion, mainly on higher contributions from insurance premiums in the life insurance business. This represented an increase in cash inflow of ¥89.9 billion year on year.
Net cash used in investing activities came to ¥624.7 billion, as payments to acquire securities in the life insurance business exceeded inflow from the sale and redemption of securities in the banking and life insurance businesses and anincrease in collateral for securities lending transactions in the life insurance business. This caused cash outflow to expand¥65.9 billion year on year.
Net cash used in financing activities amounted to ¥34.0 billion, mainly due to payments for cash dividends and redemption of bonds. This led to a year-on-year increase of ¥16.6 billion in cash outflow.
Due to the above factors, cash and cash equivalents at March 31, 2017, came to ¥268.3 billion, up ¥34.7 billion fromMarch 31, 2016.
Fiscal 2017 Forecast
For fiscal 2017, the fiscal year ending March 31, 2018, SFH expects all business segments to achieve sustained, stable
growth, fueled by expanding business volume. Consolidated ordinary revenues are expected to rise, buoyed by a stable
increase in insurance premium revenues in the life insurance business.
Consolidated ordinary profit is likely to remain flat overall, as results for the life insurance business are expected tolevel off while those for the banking business are projected to increase. The stronger performance by the banking
business is based on expectations that ordinary revenues will get a boost from a growing balance of mortgage loans andmore robust activity in the foreign currency business, while ordinary profit benefits mainly from efforts to properly control
operating expenses. Meanwhile, in the life insurance business, ordinary profit will likely hover at around the fiscal 2016
level, due to higher provision of policy reserves in line with a revision in the standard yield, despite an improvement in net
gains/losses on derivative transactions to hedge market risk related to minimum guarantees for variable life insurance
as well as higher profit from accumulated policies in force. In the non-life insurance business, ordinary profit will be
adversely affected by an upward change in the loss ratio, which was lower than expected in fiscal 2016 and will risesomewhat in fiscal 2017 mainly because of higher provision for reserve for outstanding losses.
Consequently, consolidated profit attributable to owners of the parent will, like consolidated ordinary profit, remain
essentially flat in fiscal 2017.
Billions of yen
For the years ended March 31,

2017(Results)

2018(Forecast)

Consolidated ordinary revenues¥1,381.6¥1,430.0+3.5%

1,243.9

1,276.1+2.6%

Of which, non-life insurance business

102.3

108.9

+6.4%

Of which, banking business

38.5

40.6

+5.4%

66.3

67.0

+1.0%
(0.7%)Of which, life insurance business

Consolidated ordinary profit
Of which, life insurance business

56.8

56.4

Of which, non-life insurance business

5.0

4.6

(8.0%)Of which, banking business

5.0

6.6

+30.6%

41.6

42.0

+0.9%

Profit attributable to owners of the parent

34

ChangeSony Financial Holdings Inc. Annual Report 2017

Risk-Monitored Loans
Millions of yen
2016

2017

Bankrupt loans

¥ 285

¥ 176

Non-accrual delinquent loans

1,332

1,580

—

—

1,443

1,227

¥3,061¥2,984

Review of Operations and Analysis of Operating Performance

As of March 31,

Category

Past-due loans (3 months or more)
Restructured loans
Total

Consolidated Solvency Margin Ratio
Millions of yen
As of March 31,(A) Total consolidated solvency margin
Common stock, etc.

2016

2017

¥1,282,209¥1,308,134

425,351

443,155

Reserve for price fluctuations

44,41046,182

Contingency reserve

75,25882,564

Catastrophe reserve

14,363

17,542567

490

Net unrealized gains on other securities and net deferred gains or losses on hedging instruments, net of taxes(before tax deductions) x 90% (100% if losses)

General reserve for possible loan losses

194,745

164,792

Net unrealized gains on real estate x 85% (100% if losses)

20,77830,847

Total amount of unrecognized net actuarial gain (loss) and unrecognized prior service cost (before subtracting tax effects)(5,296)(3,874)

Amount excluded from deferred tax assets——

Unallotted portion of reserve for policyholders’ dividends

302

442

Deferred tax assets (after deducting amount excluded)

83,64883,929Subordinated debt and surplus components of premium reserve

439,469

453,092——

11,38911,031

156,642

160,221

Insurance risk (R1)

23,57624,169Ordinary insurance risk (R5)10,906

11,370Total solvency margin of small-amount short-term insurers
Deductible items(B) Total consolidated risk

2

2

2

2

( R1 +R5 +R8+R9) +(R2+R3+R7) +R4+R6

Major catastrophe risk (R6)

1,033

1,033

Third-sector insurance risk (R8)

8,519

8,541

—

—

Insurance risk of small-amount short-term insurers (R9)Assumed interest rate risk (R2)30,70931,462

Minimum guarantee risk (R7)15,902

18,140Asset management risk (R3)

99,00399,441Business management risk (R4)
Consolidated solvency margin ratio (A)/{(1/2)x(B)} x 100

5,963

6,030

1,637.1%

1,632.9%

Notes: 1. Figures are calculated in accordance with Article 210, Paragraph 11-3 and Paragraph 11-4 of the Ordinance of Enforcement of the Insurance BusinessAct of Japan, and FSA Notification No. 23 (2011).
2. Minimum guarantee risk is calculated based on the standardized method.

Sony Financial Holdings Inc. Annual Report 201735

Life Insurance Business
Review of Operations
Business Environment
Japan’s life insurance market is the second largest in the world
on an insurance premium income basis, with a global share ofabout 14%. Although the domestic life insurance market has
been contracting since the late 1990s, the trend has become
more moderate since 2010, and industrywide policy amountin force for individual life insurance stood at ¥862 trillion* asof March 31, 2017, indicating that the life insurance market
remains significantly large. A steadily falling birthrate and aging
population have precipitated a shift in protection needs, fromdeath-protection insurance to individual annuities and thirdsector insurance, such as medical and nursing care insurance.
Nevertheless, at ¥740 trillion* as of March 31, 2017, deathprotection insurance policies accounted for more than 80% of
individual life insurance policy amount in force.
In fiscal 2016, financial markets in Japan and abroad continued to undergo significant changes. Domestic long-term
interest rates remained low, despite some upward movement
during the fiscal year, and the stock market acquired a morepositive tone overall but still showed some instability. The firsthalf of the fiscal year was characterized by a particularly challenging investment environment, which led to suspended salesof savings-type products, such as single premium whole life
insurance, and a series of premium revisions.
In April 2017, the standard yield used for calculating policy
reserves dropped, reflecting the low interest rate situation, anda series of premium increases were implemented on some products, such as whole life insurance and educational endowment
insurance, which are susceptible to changes in the investment
environment. In addition, in April 2018 the Standard Mortality
Table will probably be revised for the first time in 11 years, andlife insurance companies are expected to revise insurance premiums including those on medical insurance and term life insurance,
while taking into account the competitive environment.
Sales channels are becoming increasingly diverse, with awider development of shop-style sales agencies and a notable
expansion in over-the-counter sales at banks. To ensure greater
protection for customers, given these changes in marketing

Life Insurance Premium Volume Share by Country

2016
US$2.6 trillion

channels, in May 2016 regulations were introduced that impose
a duty on agencies to provide sufficient information on products,
to understand customers’ intent and to improve associatedsales systems. Meanwhile, more banks are taking the proactive
step of disclosing to insurance policyholders how much commission they receive on counter sales of insurance products.
In addition, there is an increasing need for independent agents,
who handle products of several insurance companies, to disclose commissions paid by life insurance companies. Goingforward, these trends are bound to prompt insurance companies to change their sales strategies.
*Source: “Summary of Life Insurance Business,” The Life Insurance
Association of Japan’s website

Sony Life’s Responses
Sony Life has expanded sales of highly profitable insurance
products centering on death protection, despite a shrinking
death-protection insurance market. This is primarily a reflectionof successful measures to strengthen consulting-based sales
through Lifeplanner sales employees and Partners (independent agents). In fiscal 2016, the company suspended sales ofsome savings-type products and implemented premium revisions on whole life insurance amid the low interest rate environment. At the same time, Sony Life directed efforts towardenhancing the provision of necessary protection, hinging onterm life insurance and U.S. dollar-denominated insurance
less susceptible to fluctuations in domestic interest rates, andpromoted sales of such products. In regard to asset management, given the challenging investment environment, Sony Life
maintained its emphasis on investing in ultralong-term government bonds while expanding investment in ultralong-term
Japanese corporate bonds, including Fiscal Investment and
Loan Program (FILP) agency bonds. The company also
increased investment in foreign bonds, paralleling the increasein sales of U.S. dollar-denominated insurance.
Sony Life will strive to expand business volume by acquiring
new policies and enhance corporate value while ensuring thorough economic value-based revenue and risk management.
Industrywide Policy Amount in Force** and Sony Life’s Market Share
As of March 31,

21% United States

Policy amount in force (left scale)Sony Life’s share (right scale)

Trillions of yen

%

1,600

6.0

Industry scaleSony Life

32% Others
1,200

4.5

800

3.0

400

1.5

14% Japan
4% South Korea

5% Italy

10% China

6% France

8% United Kingdom

Source: Swiss Re Institute, sigma No 3/2017

36

Sony Financial Holdings Inc. Annual Report 20170

96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17**The above graph indicates individual life insurance.
Source: “Insurance,” by Hoken Kenkyujo (Insurance Research Institute), anddata ofﬁcially disclosed by individual life insurers

0.0Review of Operations and Analysis of Operating Performance

Industry Position
New Policy Amount
Rank
1
2
3
4
5
6
7
8
9
10

Company nameA
B
C
Sony Life
D
E
F
G
H
I

Billions of yen, %Results
8,518.7
7,847.4
4,865.4
4,765.2
4,139.6
4,125.9
3,916.7
2,971.7
2,605.9
2,430.5

Share
12.4
11.5
7.1
7.0
6.0
6.0
5.7
4.3
3.8
3.5

Policy Amount in Force
Rank
1
2
3
4
5
6
7
8
9
10

Company name
A
B
C
D
E
Sony LifeF
G
H
I

Billions of yen, %Results
143,237.0
108,578.4
77,544.1
68,042.2
50,097.9
44,313.3
36,588.0
36,538.0
33,598.4
29,078.1

Share
16.6
12.6
9.0
7.9
5.8
5.1
4.2
4.2
3.9
3.4

Note: Individual life insurance (as of March 31, 2017)
Source: Data officially disclosed by individual life insurers

Recent Topics
October 2016:

Investment in Australia’s ClearView Wealth Limited
In October 2016, Sony Life purchased shares equivalent to14.9% of total shares outstanding in ClearView Wealth Limited,
an Australian life insurance company, and in January 2017,
signed a business alliance agreement with the company.
Under the agreement framework with ClearView Wealth, which
continues to achieve a high growth rate, the objective is toshare information on best practices through personnel
exchanges, including seconding employees from Sony Life toClearView Wealth. This will underpin efforts to provide newvalue to customers in Australia, while promoting activities
designed to improve the corporate value of both companies.
Sony Life will continue its efforts to achieve stable growthin its domestic operations while considering opportunities toexpand its presence overseas to realize growth from a
medium- to long-term perspective.
February 2017:

Provision of Sumitomo Mitsui Trust Bank’s Life Insurance
Trusts through Lifeplanner Network
Sony Life signed a business agency agreement with Sumitomo

Mitsui Trust Bank, Limited, and began providing three Sumitomo Mitsui Trust Bank products—life insurance trusts, willtrusts and estate settlement services—through Lifeplanner
sales employees. Through this agreement, Sony Life will enrich
its lineup of services and be better able to respond to theinheritance-related needs of its customers.
▶ Page 76: CSR Customers

April 2017:

Launch of “Living Benefit Decreasing Term Life Insurance(Living Standard Type/Non-Participating Type)”
Sony Life debuted “Living Benefit Decreasing Term Life Insurance (Living Standard Type/Non-Participating Type),” a comprehensive protection product in the living benefit categorythat covers the three major diseases (cancer, heart attack andstroke), specific disabilities and nursing care in addition todeath protection. This product offers protection at a reasonable price, as the insurance claim amounts gradually decreasein line with the number of years elapsed.
Sony Financial Holdings Inc. Annual Report 201737

Analysis of Operating Performance
SFH’s life insurance business consists of Sony Life, a wholly owned subsidiary of SFH, and AEGON Sony Life Insurance and SA
Reinsurance—both equity-method affiliates 50% owned by Sony Life.
Sony Life accounts for nearly all of SFH’s life insurance business. Below is an analysis of the non-consolidated operating
performance of Sony Life.

New Policy Amount
New policy amount is the total policy amount of new insurance policies.
Billions of yen
For the years ended March 31,

2016

New policy amountIndividual life insurance

2017

Change¥5,151.3 ¥4,957.5
4,871.0 4,765.2

Individual annuities
Annualized premiums from new policies
Medical protection, living benefit
protection and other products
Number of new policies (1,000 policies)

New Policy Amount and Number Billions of yen
6,000
of New Policies

1,000 policies
750(3.8%)(2.2%)(Individual life insurance +Individual annuities)

4,800

600

For the years ended March 31,

3,600

450

2,400

300

1,200

150

280.3
85.0

192.2
78.1

(31.4%)(8.1%)

15.7
629

15.7
513

+0.0%
(18.5%)

New policy amount (left scale)
Number of new policies (right scale)

0

13

14

15

16

0

17

Main Points The new policy amount decreased, due to lower sales of variable life insurance, despite favorable sales of U.S.
dollar-denominated insurance and term life insurance. Annualized premiums from new policies declined, due to reduced sales ofvariable life insurance and single premium whole life insurance, despite higher sales of term life insurance and U.S.-dollar denominated insurance.

Policy Amount in Force
Policy amount in force refers to the total amount of coverage that Sony Life provides to individual policyholders.
Billions of yen
As of March 31,

Policy amount in force

2016

2017

Change¥43,149.8 ¥45,334.1+5.1%

42,293.7+4.8%

Individual life insurance

44,313.3

Individual annuities

856.0

Annualized premiums frominsurance in force

781.3

820.8

+5.1%

179.7

187.4

+4.3%

7,046

7,308

+3.7%

Medical protection, living benefit
protection and other products
Number of policies in force(1,000 policies)

1,020.8 +19.2%

Policy Amount in Force andNumber of Policies in Force

Trillions of yen
50(Individual life insurance +Individual annuities)

40

6,000

As of March 31,

30

4,500

20

3,000

10

1,500

Policy amount in force (left scale)
Number of policies in force(right scale)0131,000 policies
7,500

14

15

16

17

0

Main Points Sony Life’s policy amount in force for individual life insurance and individual annuities has grown steadily for 36 years
since the company commenced operations.

Sales of Products (Percentage Composition)
For the years ended March 31,

2016

2017

ChangeWhole life insurance

11.4%

17.0%

+5.6ptTerm life insurance

61.0%

70.3%

+9.3ptEndowment and educational endowment
insurance, and individual annuities

8.9%

6.9%

(2.0pt)Variable life insurance

17.8%

5.3%

(12.5pt)

Other types of insurance

0.9%

0.5%

(0.4pt)New Policy Amount by
Type of Product(Individual life insurance +Individual annuities;
Policy amount basis)
For the year ended
March 31, 2017

5.3%
Variable life
insurance

6.9%
Endowment
and educational
endowment
insurance, andindividual annuities

0.5%
Other types of insurance

17.0%
Whole life
insurance
70.3%
Term life
insurance

Main Points Death-protection insurance products* accounted for about 90% of the new policy amount in fiscal 2016 (policy amount basis).
*Here, the new policy amount for death-protection insurance products represents the total new policy amount after deducting new policy amounts for endowment
insurance, educational endowment insurance, individual annuities and medical insurance.

38

Sony Financial Holdings Inc. Annual Report 2017

Lapse and Surrender Rate

For the years ended March 31,

2016

2017

ChangeLapse and surrender rate

4.72%

4.27%

(0.45pt)(Individual life insurance +Individual annuities; Policy
amount basis)

Review of Operations and Analysis of Operating Performance

The lapse and surrender rate shows the ratio derived by dividing the amount of lapses and surrenders, not adjusted for policy
amount decreases, increases and reinstatements, by the policy%
Lapse and Surrender Rateamount in force at the beginning of the fiscal year.
8.0
6.0

For the years ended March 31,

Main Points The lapse and surrender rate dropped compared

4.0

with the previous year, mainly in family income insurance andliving benefit insurance.

2.0

0.0

13

14

15

16

17

Income from Insurance Premiums and Insurance Claims and Other Payments
Income from insurance premiums is revenue received mainly from insurance premiums paid by policyholders and is a major component of revenue for life insurance companies. Insurance claims and other payments are payouts based on insurance policies,
including insurance claims, insurance benefits, annuity payments and surrender payments.
Billions of yen
For the years ended March 31,

Income from insurance premiums

2016

2017

ChangeBillions of yen
1,200

Income from Insurance
Premiums¥1,028.0¥956.7(6.9%)

Insurance claims and other payments

363.3

372.4

+2.5%

Of which, insurance claims

84.2

84.1

(0.1%)

720

Of which, insurance benefits

74.8

98.2

+31.3%

480

Of which, annuity payments

11.4

12.0

+4.5%

Of which, surrender payments

184.9

168.4

(8.9%)For the years ended March 31,

960

240
0

13

14

15

16

17

Main Points Income from insurance premiums decreased, due to a decrease in single premiums.

Asset Management (General Account)Sony Life’s investment policy is to identify the characteristics of insurance liabilities, based on the asset-liability management (ALM)
approach, and prioritize investment in assets suited to such characteristics. Specifically, to deal with long-term liabilities—that is, life
insurance policies—the company properly controls the inherent risk in insurance liabilities associated with fluctuating interest rates byinvesting mainly in Japanese government bonds (JGBs) with long-term maturities. At the same time, the company limits investment
into risk assets, such as stocks.
Billions of yen
2016
As of March 31,

AmountJapanese government and corporate bonds
Japanese stocks
Foreign bonds
Foreign stocks and other securities
Money held in trust
Policy loans
Real estate
Cash and deposits, call loans
Other
Total

¥6,351.1
33.3
70.1
23.0
280.9
171.6
115.8
52.5
86.4
¥7,185.0

2017

Composition

88.4%
0.5%
1.0%
0.3%
3.9%
2.4%
1.6%
0.7%
1.2%
100.0%

Amount¥6,828.7
37.6
274.3
31.5
273.8
180.3
117.5
40.8
99.1
¥7,884.0

Composition

86.6%
0.5%
3.5%
0.4%
3.5%
2.3%
1.5%
0.5%
1.3%
100.0%

Main Points In fiscal 2016, Sony Life continued to invest primarily in ultralong-term bonds. The ratio of Japanese government andcorporate bonds stood at 90.1% as of March 31, 2017, in real terms, reflecting the inclusion of bonds invested in money held in
trust. Going forward, Sony Life will continue to properly control the interest rate risk associated with insurance liabilities by investing
most of the new funds generated by income from insurance premiums and other sources in ultralong-term bonds. Sony Life also
promotes diversification of investment assets, such as an increase in investments in ultralong-term corporate bonds including Fiscal
Investment and Loan Program (FILP) agency bonds, as well as a significant increase in investment in U.S. Treasury bonds following
an increase in U.S. dollar-denominated insurance policies.
Sony Financial Holdings Inc. Annual Report 201739

Interest Income and Dividends
Interest income and dividends primarily consist of investment income, which is largely composed of interest income from deposits,
interest income and dividends from securities, income from real estate for rent and interest income from loans.
Millions of yen
For the years ended March 31,

2016

2017

Deposits
Interest and dividends from securities
Of which, Japanese governmentand corporate bonds
Of which, Japanese stocks
Of which, foreign securities
Loans
Real estate for rent
Total, including other interest income
and dividends

¥ 0.0
124.9

¥

Change

115.6
0.5
7.2
6.1
10.2

121.1
0.5
8.8
6.3
10.8

+4.7%
+0.9%
+22.6%+3.3%+5.9%¥141.4¥148.2+4.8%

0.0 +286.6%
130.7
+4.7%

Interest Income and Dividends
For the years ended March 31,

Billions of yen
150
120
90
60
30
0

13

14

15

16

17

Unrealized Gains and Losses on Securities
Unrealized gains and losses on securities* refers to the differences between the carrying amounts of securities and their fair values.
When the fair value of an asset is higher than its carrying amount, the sale of the asset at fair value would result in a gain on thesale. Consequently, unrealized gains can function as a provision for various risks. A portion of unrealized gains and losses on
securities is included in the numerator (total solvency margin) used in calculating the solvency margin ratio (please see page 43).
*Unrealized gains or losses on securities list the total of unrealized gains or losses on held-to-maturity securities, policy-reserve-matching bonds and available-for-salesecurities, with fair values for securities other than securities held for trading. The total amount of securities includes securities included in money held in trust.
Billions of yen
As of March 31,

Unrealized gains on securities in thegeneral accountUnrealized gains on held-to-maturity
securities
Unrealized gains on
policy-reserve-matching bonds
Net unrealized gains onavailable-for-sale securities
Of which, unrealized gains on
Japanese government andcorporate bonds
Of which, unrealized gains on
Japanese stocks
Of which, unrealized gains on
foreign securities

2016

2017

ChangeUnrealized Gains on Securities
As of March 31,

Billions of yen
2,500¥2,271.1 ¥1,644.9(626.2)

2,026.2

1,445.5(580.6)

41.3

25.9

(15.3)

1,000

203.6

173.3

(30.2)

500

186.0

160.7

(25.2)

12.0

13.3

+1.3

5.4

(0.8)

(6.3)

2,000
1,500

0

13

14

15

16

17

Main Points Unrealized gains on securities in the general account,which are mainly Japanese government and corporate bonds,
decreased, paralleling a rise in domestic interest rates.

(Reference: On March 31, 2017, SFH assumed unrealized gains on Japanese stocks to be zero when the Nikkei Stock Average was ¥8,449 and the TOPIX index
was 675 points.)

Ordinary Revenues, Ordinary Profit and Net Income
Billions of yen
For the years ended March 31,

Ordinary revenues
Ordinary profit
Net income
Main Points

2016

2017

Change¥1,230.1
60.7
37.0¥1,243.7
60.1
35.1

+1.1%
(1.0%)(5.2%)

Ordinary Profit and Net Income
For the years ended March 31,
Ordinary proﬁt
Net income

Billions of yen
80

60

40

Ordinary revenues increased, due to an increase in investment
20
income in separate accounts, which was partially offset by a decrease
in insurance premiums resulting from a decline in single premiums.
0
13
14
15
16
17
Ordinary profit remained flat compared with the previous year, as
positive factors, including a decrease in provision of policy reserves for minimum guarantees for variable life insurance owing to reduced acquisition of new policies and an improvement in market conditions, and an increase in profit from accumulated policies in force, were offset by suchnegative factors as a deterioration in net gains/losses on derivative transactions to hedge market risks related to minimum guarantees for variable
life insurance and lower gains on sale of securities in the general account.
Net income decreased, due partly to the recognition of provision of allowance for investment loss as extraordinary losses.

40

Sony Financial Holdings Inc. Annual Report 2017

Core Profit

Note: Sony Life, like most life insurers organized as stock companies, primarily sells non-participating life insurance. This contrasts with life insurersorganized as mutual companies, which typically offer participating policies for which premiums include an additional amount equal to thefunds used for policyholder dividends. This additional amount isrecorded as core profit and the funds used for policyholder dividends
are included in core profit. Mutual companies consequently tend toshow relatively higher core profit than stock companies of similar scale.

Core Profit
For the years ended March 31,

Billions of yen
For the years ended March 31,

2016

2017

ChangeCore profit

¥43.0

¥83.8

+94.9%

Review of Operations and Analysis of Operating PerformanceCore profit is an indicator of the profit-earning capacity of the primary insurance business over a one-year period. Primary insurance
business refers to the management of insurance premiums received from policyholders, along with investment income to pay insurance
claims, benefits and annuities, as well as to making and then investing policy reserve provisions for future payments. Ordinary profit in thestatements of income is calculated by adding the total amount of core profit, capital gains and losses including gains and losses on thesale of securities, and one-time gains and losses.
Billions of yen
100
80
60
40
20
0

13

14

15

16

17

Main Points Core profit increased, due to a decrease in provision of policy reserves for minimum guarantees for variable life insurance

owing to reduced acquisition of new policies and an improvement in market conditions, and an increase in profit from accumulated
policies in force.
Breakdown of Ordinary Profit (Core Profit)

Millions of yen

For the years ended March 31,

2016

2017

Core profit (A)Capital gains
Income from money held in trust, net
Income from trading securities, net
Gains on sale of securities
Gains on derivatives, net
Foreign exchange gains, net
Other capital gains
Capital losses
Losses on money held in trust, net
Losses on trading securities, net
Losses on sale of securities
Devaluation losses on securities
Losses on derivatives, net
Foreign exchange losses, net
Other capital losses
Net capital gains (losses) (B)Core profit plus net capital gains (losses) (A) + (B)Other one-time gains
Gains from reinsurance
Reversal of contingency reserve
Reversal of specific reserve for possible loan losses
OthersOther one-time losses
Losses from reinsurance
Provisions for contingency reserve
Provisions for specific reserve for possible loan losses
Provisions for reserve for loan losses from borrowers in specific foreign countries
Write-off of loans
OthersNet other one-time gains (losses) (C)Ordinary profit (A) + (B) + (C)¥43,019
27,387
7,119
41
12,204
4,768
—
3,253
2,951
—
—
—
—
—
2,798
153
24,43567,455
—
—
—
—
—
6,662
—
6,458
5
—
—
197
(6,662)¥60,792¥ 83,831
16,114
—
134
1,308
—
14,670—32,276————30,050—2,226(16,162)
67,669
1
—
—
1
—
7,490
—
7,296
—
—
—
193
(7,488)¥ 60,180

Notes: 1. Core profit for fiscal 2016 (A) includes income gains of ¥4,493 million in income from money held in trust along with interest income and dividendsof ¥17 million in income from trading securities, net. Other capital losses consist of provision of policy reserves and others of ¥1,560 million for
currency market fluctuations of products denominated in foreign currencies and impairment losses of ¥665 million from investment partnerships.
“Others” of other one-time losses consist of provision of additional policy reserve of ¥193 million.
2. Core profit for fiscal 2015 (A) includes income gains of ¥4,853 million in income from money held in trust along with interest income and dividendsof ¥57 million in income from trading securities, net. Other capital gains consist of reversal of policy reserves and others of ¥3,253 million for
currency market fluctuations of products denominated in foreign currencies, while other capital losses consist of impairment losses of ¥153 million
from investment partnerships. “Others” of other one-time losses consist of provision of additional policy reserve of ¥197 million.
Sony Financial Holdings Inc. Annual Report 201741

Positive Spread
Life insurers use a portion of the premiums received from policyholders to accumulate policy reserves for the payment of
future claims. These policy reserves assume an annual return
based on a fixed interest rate. This interest rate is known as
the assumed interest rate. A positive spread occurs when theactual investment yield is higher than the average assumed
interest rate and vice versa for a negative spread.

Positive Spread
For the years ended March 31,

20
15
10
5

Billions of yen
For the years ended March 31,

2016

2017

ChangePositive spread

¥15.3

¥15.4

+0.7%

Average assumed interest rate

2.06%

2.00%

(0.06pt)

Investment yield (general account)

2.42%

1.81%

(0.61pt)

Investment yield for core profit

2.31%

2.24%

(0.07pt)

Main Points Positive spread remained flat year on year, due to0(Investment yield for core profit1 – Average assumed interest rate2)
×General account policy reserves3||
Positive spread

13

14

15

16

17

13

14

15

16

17

Average Assumed Interest Rate, %Investment Yield for Core Profit 3.0
For the years ended March 31,
Investment yield for core proﬁt
Average assumed interest rate

an offset between a decrease in investment yield for core profit
resulting from a decline in yen interest rates, and a decrease in
the average assumed interest rate resulting from the acquisitionof new policies.
Formula for Calculating Positive Spread

Billions of yen
25

2.0

1.0

0.0

1. Investment yield for core profit is the yield on general account policy reserves after
subtracting the interest portion of provision for reserve for policyholders’ dividends
from the general account investment returns included in core profit.
2. Average assumed interest rate is the assumed yield on general account policy reserves.
3. General account policy reserves are calculated based on the following formula forpolicy reserves in the general account, excluding contingency reserve:(Policy reserves at beginning of period + policy reserves at end of period –assumed interest) x 1/2

Non-performing Assets
Risk-monitored Loans

Loans by Borrower Category
Billions of yen

As of March 31,

Category
Bankrupt loans
Non-accrual delinquent loans
Past-due loans (3 months or more)
Restructured loans
Total

2016

¥—
—
—
—
¥—

2017

¥—
—
—
—
¥—

Billions of yen
As of March 31,

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

2016

2017

¥

¥

—
—
—
223.2
¥223.2———431.3¥431.3Main Points Sony Life’s asset assessment is shown in the above table. The company does not have any risk-monitored loans (loans

for which repayment conditions are not ordinary). Moreover, all figures are classified as normal loans listed in the loans by borrower
category.
As of March 31, 2017, Sony Life’s receivables comprised securities lent and loans*. Securities lent amounted to ¥248.0 billion,
with the loaned bonds recorded as securities lending transactions with cash collateral. The loan balance* was ¥180.3 billion, consisting largely of policy loans, which are limited to recoverable surrender values.
*Life insurers earn interest income by lending a portion of their assets under asset management. Loans are categorized as either policy loans provided as a service tocustomers, or as commercial loans. The loan balance comprises the sum of these two categories.

42

Sony Financial Holdings Inc. Annual Report 2017

Non-consolidated Solvency Margin Ratio
Review of Operations and Analysis of Operating Performance

The solvency margin ratio is an indicator of payment ability. Life insurers accumulate policy reserves to prepare for the paymentof future claims, allowing them to adequately respond to risks within a normally anticipated range. However, unpredictable events
can occur as a result of changes in the environment, including%
Non-consolidated
major disasters and substantial declines in the stock markets.
3,000
Solvency Margin Ratio
The solvency margin ratio is one measure used by regulatory(Current standards)
2,400
authorities to determine whether an insurer has the ability to
As of March 31,
pay in response to the risk of such unpredictable events.
1,800

As of March 31,

2016

Non-consolidated solvency
margin ratio

2,722.8%

2017

Change1,200

2,568.8% (154.0pt)

600

Main Points Sony Life’s non-consolidated solvency margin ratio

0

13

14

15

increased year on year, thus remaining at a high level.

17

Millions of yen

As of March 31,

2016(A) Total solvency margin
Common stock, etc.
Reserve for price fluctuations
Contingency reserve
General reserve for possible loan losses[Net unrealized gains on other securities (before tax deductions) and net deferred gains or losses on hedging
instruments (before tax deductions)] x 90% (100% if losses)
Net unrealized gains on real estate x 85% (100% if losses)
Amount excluded from deferred tax assets
Unallotted portion of reserve for policyholders’ dividends
Deferred tax assets
Excess amount of policy reserves based on Zillmer method
Subordinated debt
The portion of the excess amount of policy reserves based on Zillmer method and subordinated debt thatis not included in the margin
Deductible items(B) Total risk

16

¥1,176,229
324,181
46,00582,463
0

188,217
20,778—302
83,648
470,777—

159,672
30,847—442
82,980495,984—(31,308)(1,707)(42,891)(3,457)(R1+R8)2+(R2+R3+R7)2+R4

Insurance risk (R1)
Third-sector insurance risk (R8)Assumed interest rate risk (R2)
Minimum guarantee risk (R7)
Asset management risk (R3)
Business management risk (R4)(C) Solvency margin ratio [(A)/{(1/2)x(B)}] x 100

2017¥1,169,875
319,740
44,26075,166085,93091,57623,5768,519
30,613
15,90230,8312,188
2,722.8%

24,1698,541
31,35618,14033,5542,315
2,568.8%

Notes: 1. The above figures are calculated based on provisions in Articles 86 and 87 of the Ordinance for Enforcement of the Insurance Business Act of Japanand the Ministry of Finance Public Notice No. 50 (1996).
2. Minimum guarantee risk is calculated based on the standardized method.

AEGON Sony Life Insurance: Over-the-counter (OTC) Sales of Individual Annuity Products at BanksSony Life began sales of individual variable annuity products in December 2009 through AEGON Sony Life Insurance, a 50–50 joint
venture established with the AEGON Group (headquartered in the Netherlands), to meet annuity needs associated with Japan’s aging
population and low birthrate. AEGON Sony Life Insurance sells individual variable annuity products which respond to customers’ needs
to help save for retirement through Sony Life’s Lifeplanner channel and partner agencies, involving 30 financial institutions*.
*As of July 1, 2017

For the years ended March 31,

2016

2017

As of March 31,

2016

2017

Number of new policies

11,851

14,261 +20.3%

ChangeNumber of policies in force

73,40385,942 +17.1%

New policy amount (millions of yen)

¥71,593¥70,814

Policy amount in force (millions of yen) ¥444,280 ¥501,784 +12.9%(1.1%)

ChangeMain Points The new policy amount decreased year on year.
Sony Financial Holdings Inc. Annual Report 201743

Non-life Insurance Business
Review of Operations
Business Environment
Automobile insurance, positioned as Sony Assurance’s coreproduct category, accounts for the largest portion of Japan’s
non-life insurance industry and provides around half of theindustry’s insurance premium revenues. Japan’s automobile
insurance market is dominated by the major non-life insurers,
and approximately 90%* of insurance premium revenues are
generated from policies sold by insurers whose sales aremainly through nationwide agencies.
In fiscal 2016, for the industry as a whole, automobile
insurance premium revenues in Japan surpassed the level
achieved in fiscal 2015. Profits also continued to climb, especially among the major companies, due to a lower accident
rate. Nevertheless, automobile ownership is expected to gradually decline, primarily a consequence of a shrinking population
characterized by fewer children and more seniors. In addition,
insurance premiums are likely to drop, mainly due to thegrowing popularity of advanced safety vehicles reducing thefrequency of accidents and to lower reference loss cost rates
mainly led by lower loss ratios. These factors are sure tocreate a more challenging market environment. In addition,
several insurance companies have been pursuing researchon telematics in auto insurance and introducing policies thatreflect customers’ driving data. Also, the public and private
sectors are accelerating activities to commercialize autonomous cars in the future. The environment surrounding
automobile insurance is itself poised for rapid and significant
changes, heralded by the launch of riders to policies in fiscal
2015 by some major insurance companies in handling accidents caused by autonomous cars.
Against this backdrop, direct non-life insurance companies(direct insurers), including Sony Assurance, have steadily
increased insurance premium revenues and acquired larger
shares of the automobile insurance market year after year.

This growth has been driven by strong customer support for
insurance premium structures that are comparatively lower
than those of major non-life insurers. Going forward, customers’ preference for low prices will continue, which could further
expand the market share of direct insurers. However, the lowprice strategies of direct insurers and increased spending on
advertising could spur fiercer competition among companies
for attracting customers.
*The figure is based on a survey conducted by Sony Assurance from data
officially disclosed by individual non-life insurers.

Sony Assurance’s Responses
Sony Assurance has been a leader in the domestic direct
automobile insurance market since capturing the No.1 position** for direct premiums written in fiscal 2002. In 2015, thecompany debuted Japan’s first*** Pay How You Drive automobile insurance. Keen to pursue this genre further, in fiscal 2016
the company began joint research with Yahoo! JAPAN using
driving behavior data collected by car navigation systems todevelop new telematics insurance products and services forindividuals.
Aside from automobile insurance, Sony Assurance pursues
activities in other areas. In medical insurance, the company
began offering “ZiPPi,” a term-type medical insurance thatcovers the entire self-pay portion of actual hospital inpatient
expenses incurred during a hospital stay for medical treatment.
Meanwhile, though not a new product, the company enabledonline applications for SURE medical and cancer insurance,
which places priority on cancer treatment, and implemented
some revisions, including a rider to cover hospital visits following hospitalization for cancer.
Also, Sony Assurance continued its efforts from fiscal 2015
of focusing on its enhancement of customer experiencethrough direct contact with each customer. Going forward, theAutomobile Insurance Market and Market Share of Major Direct
Non-life Insurers

Direct Premiums Written (Automobile Insurance) by Major Direct
Non-life Insurers

For the years ended March 31,

For the years ended March 31,

Direct premiums written (total of all non-life insurers and shown as theautomobile insurance market) (left scale)Market share of major direct non-life insurers (right scale)Sony Assurance

Billions of yen

%

5,000

10.0

A

B

C

F

G

H

D

E

Billions of yen
100Sony Assurance
4,000

8.0

80

3,000

6.0

60

2,000

4.0

40

1,000

2.0

20

0.0

0

0

06

07

08

09

10

11

12

13

14

15

16

Note: The graph was prepared by Sony Assurance from data ofﬁciallydisclosed by individual non-life insurers.

44

Sony Financial Holdings Inc. Annual Report 2017

02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17

Note: The graph was prepared by Sony Assurance from data ofﬁcially disclosed
by individual non-life insurers. Amounts for ﬁscal 2016 are based on
published data available up to June 23, 2017.

Review of Operations and Analysis of Operating Performance

Photo taken on June 25, 2017

company will continue to polish its well-known qualities ofreasonableness, progressiveness and uniqueness, and strive
to earn the trust and loyalty of even more customers by raising
the customer-oriented value of its products and services,which are a source of growth.

**Based on automobile insurance premium revenues of non-life insurers selling
automobile insurance primarily via direct sales channels since March 31,
2003 (according to research by Sony Assurance).
***First company in Japan to offer “automobile insurance which reflects such
driving behavior as acceleration and deceleration into insurance premiums”(according to research by Sony Assurance based on information publicly
disclosed by non-life insurance companies, as of February 2015).

Recent Topics
September 2016:

Expanded Online Discount for Automobile Insurance
The online discount applied to new automobile insurance
policies with start dates on or after December 1, 2016,
expanded from the previous ¥8,000 to ¥10,000.
January 2017:

Launch of ZiPPi Medical Insurance for Hospital
Inpatient Expenses
Sony Assurance launched “ZiPPi,” a term-type medical insurance that covers the entire* self-pay portion of actual hospital
inpatient expenses incurred during a hospital stay for medical
treatment.
Basic coverage (insured’s self-pay portion of hospital
inpatient expenses on illnesses and injuries covered by public
medical insurance) can be supplemented with a choice of addon options (advanced medical treatment, semi-private rooms
not covered by public medical insurance, and miscellaneous
hospitalization costs) for enhanced coverage.
“ZiPPi” is an Internet-only medical insurance product. All
aspects, from coverage design to estimates and applications,are executed online, so the process is simple and hassle-free,
and the savings to Sony Assurance through elimination of

postage and administrative costs are passed on to customers
in the form of reasonable premiums.
*Pays ¥3 for each medical fee point associated with covered inpatient treatment
during hospitalization under public medical insurance system (up to ¥200,000
per month). Does not include costs for non-eligible benefits under public medical insurance system, such as meals and dietary treatment, and semi-privaterooms not covered under the insurance system. Payment limits are ¥1.2 million
per hospitalization and ¥7.2 million through term of insurance.

February 2017:

Joint Research with Yahoo! JAPAN to Develop Products
and Services of Telematics Insurance for Individuals
Using Driving Behavior Data from Car Navigation Systems
Sony Assurance and Yahoo! JAPAN are conducting joint
research activities to develop new telematics insurance products and related services. The companies will utilize driving
behavior data collected by Yahoo! JAPAN’s free car navigation
app for smartphones called Yahoo! Car Navigation.
Through this collaboration, the two companies will draw on
mutual expertise to create new services that will support safe
driving and help prevent accidents, consider development of new
insurance products that are more appealing to customers, andcontribute to reducing automobile accidents.
Sony Financial Holdings Inc. Annual Report 201745

Analysis of Operating Performance
SFH’s non-life insurance business consists of Sony Assurance, a wholly owned subsidiary of SFH.
Below is an analysis of the operating performance of Sony Assurance, which operates SFH’s non-life insurance business.

Policies in Force
As of March 31,

Number of policies in force(Automobile insurance +Medical insurance)

Million policies
2016

1.79

2017

Change

1.89

+5.3%

Number of Policies in Force

Million policies(Automobile insurance +Medical insurance)

2.0

As of March 31,

1.5

Main Points The number of policies in force increased, mainly for1.0

its mainstay automobile insurance.
0.5

0.0

13

14

15

16

17

Net Premiums Written
Net premiums written correspond to net sales at most non-life insurance companies and comprise the premiums received frompolicyholders (direct premiums written), plus or minus reinsurance premiums (adding direct reinsurance premiums received andsubtracting direct reinsurance premiums paid).
Billions of yen
For the years ended March 31,

2016

2017

ChangeNet Premiums Written

Net premiums written
Voluntary automobile insurance
Personal accident insurance*
Others (Fire + Marine +Compulsory automobile liability)

¥95.5
85.1
8.9

¥100.2
89.7
9.0

+4.9%
+5.4%
+1.0%

For the years ended March 31,

1.4

1.4

+0.7%

Voluntary automobile insurance
Personal accident insurance
Others (Fire + Marine +Compulsory automobile liability)

Billions of yen
100
80
60
40

*Including medical insurance
20

Main Points Net premiums written increased, mainly in its mainstay

automobile insurance.

0

13

14

15

16

17

Net Loss Ratio
The net loss ratio describes the ratio of the total amount of insurance-claim payments (net losses paid) and damage-survey
expenses (loss adjustment expenses) to net premiums written.
For the years ended March 31,

2016

2017

ChangeNet loss ratio

57.8%

57.5%

(0.3pt)

Net Loss Ratio

Net loss ratio for automobile insurance

60.1%

59.5%

(0.6pt)

For the years ended March 31,

Net loss ratio for personal accident
insurance*

30.5%

32.0%

+1.5pt%80

60*Including medical insurance

40

Main Points The net loss ratio was essentially flat, while the acci-

20

dent ratio for automobile insurance remained at a low level.

046Sony Financial Holdings Inc. Annual Report 2017

13

14

15

16

17

Net Expense Ratio

For the years ended March 31,

2016

2017

ChangeNet Expense Ratio%

Net expense ratio

27.1%

28.3%

+1.2pt

For the years ended March 31,

40

Combined ratio(Net loss ratio + net expense ratio)

84.8%

85.8%

+1.0ptReview of Operations and Analysis of Operating Performance

The net expense ratio is the ratio of the total expenses for marketing and maintaining insurance to net premiums written. These
expenses include company operating costs and new product development costs.

30

20

Main Points The net expense ratio rose, due to an increase insystem-related expenses, along with an increase in expenses
associated with the launch of new products.

10

0

13

14

15

16

17

Underwriting Profit
Underwriting profit indicates profit generated from underwriting insurance. Underwriting profit is calculated by subtracting fromunderwriting income (net premiums written, etc.) any underwriting expenses (net losses paid and loss adjustment expenses, etc.)
and operating, general and administrative expenses associatedwith underwriting, then adding or subtracting other income andUnderwriting Profit
Billions of yen
4.0
For the years ended March 31,
expenses (corporate taxes associated with compulsory automobile liability insurance, etc.).
3.0

Billions of yen
For the years ended March 31,

2016

2017

Change(11.5%)

2.0

Main Points Underwriting profit decreased, due to the higher

1.0

Underwriting profit

¥3.4

¥3.0

expense ratio that more than offset the positive effect of
an increase in insurance premiums written and a decreasein provision for reserve for outstanding losses.

0.0

13

14

15

16

17

Ordinary Revenues, Ordinary Profit and Net Income
Billions of yen
For the years ended March 31,

2016

2017

ChangeOrdinary Profit and Net Income

Ordinary revenues
Ordinary profit
Net income

¥96.9
4.6
2.5

¥102.3
4.9
3.5

+5.6%
+6.8%
+35.9%For the years ended March 31,
Ordinary proﬁt
Net income

Billions of yen
5.0
4.0
3.0

Main Points
2.0

Ordinary revenues rose, owing to an increase in net premiums
1.0
written primarily for mainstay automobile insurance.
Ordinary profit increased, due mainly to a decline in provision
0.0
13
14
15
16
17
for reserve for outstanding losses, an increase in underwriting
profit and higher investment income, which were partially offset by an increase in operating expenses.
Net income increased, owing to the recording of a loss on disposal of software in progress as extraordinary losses in the previous
year, in addition to an increase in ordinary profit.

Sony Financial Holdings Inc. Annual Report 201747

Total Asset Composition and Investment Policy
Sony Assurance’s basic investment policy is to invest primarily in yen-denominated bonds to ensure stable investment returns overthe medium to long term, taking into account the market environment, asset management risk and other factors.
Billions of yen
As of March 31,

2016

2017

ChangeComposition of Total Assets

Total assets
Cash and deposits
Securities
Tangible fixed assets
Intangible fixed assets
Other assets¥172.3
8.3
127.2
4.0
5.9
26.6

¥186.5
8.9
137.5
3.3
6.5
30.1

+8.2%
+6.8%
+8.1%
(15.5%)+9.0%+12.9%

As of March 31, 2017
¥186.5 billion

16.1%
Other assets

4.8%
Cash and deposits

3.5%
Intangible
ﬁxed assets
73.7%
Securities
1.8%
Tangible ﬁxed assets

Non-performing Assets
Sony Assurance’s self-assessment indicates its assets are sound, as shown below.
Risk-monitored Loans

Loans by Borrower Category
Millions of yen

As of March 31,

2016

2017

Category
Bankrupt loans
Non-accrual delinquent loans
Past-due loans (3 months or more)
Restructured loans
Total

48

Sony Financial Holdings Inc. Annual Report 2017

Millions of yen
As of March 31,

2016

2017

Category
¥—
—
—
—
¥—

¥—
—
—
—
¥—

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

¥—
—
—
—
¥—

¥—
—
—
—
¥—

Non-consolidated Solvency Margin Ratio
As of March 31,

2016

Non-consolidated solvency margin ratio

693.5% 730.8% +37.3pt

2017

Review of Operations and Analysis of Operating Performance

The non-consolidated solvency margin ratio is an important indicator of non-life insurers’ ability to pay claims.
ChangeNon-consolidated Solvency
Margin Ratio

Main Points Sony Assurance’s non-consolidated solvency(Current standards)

margin ratio remained at a sound level.

As of March 31,

%
1,000
800
600
400
200
0

13

14

15

16

17

Millions of yen
As of March 31,

2016(A) Total non-consolidated solvency margin¥42,701

46,724

Capital or treasury

2017

24,682

26,439Reserve for price fluctuations

149

177

Contingency reserve

91

101

Catastrophe reserve

14,363

17,542——

General reserve for possible loan losses
Net unrealized gains on other securities and net deferred gains or losses on hedging instruments(before tax deductions)

2,910

1,514

Net unrealized gains on real estate——

Excess refund reserve——

Subordinated debt——

The portion of the excess refund reserve and subordinated debt that is not included in the margin——

Deductible items——

Others502

948

12,313

12,786

10,906

11,370(B) Total non-consolidated risk

(R1+R2)2+(R3+R4)2+R5+R6

Ordinary insurance risk (R1)
Third-sector insurance risk (R2)——

Assumed interest rate risk (R3)

96

105

Asset management risk (R4)

1,416

1,431

Business management risk (R5)
Major catastrophe risk (R6)(C) Non-consolidated solvency margin ratio [ (A)/{(B)x(1/2)}] x 100

269

278

1,033

1,033

693.5%

730.8%

Note: The above figures are calculated based on provisions in Articles 86 (non-consolidated solvency margin) and 87 (non-consolidated risk) of the Ordinancefor Enforcement of the Insurance Business Act of Japan and the Ministry of Finance Public Notice No. 50 (1996).

Sony Financial Holdings Inc. Annual Report 201749

Banking Business
Review of Operations
Business Environment

Sony Bank’s Response

In Japan, personal financial assets have climbed to approximately ¥1,800 trillion*, the second highest in the world. Cashand deposits account for more than half of this amount, a highlevel even in comparison with those of other developed countries. Investment preferences and requirements for managing
these personal financial assets are diversifying, parallelingchanging lifestyles and the advent of an aging society with a
low birthrate. As a result, in recent years internet banks haveachieved growth on the back of their cost-competitivenessand convenience to customers.
Nonetheless, the deposit balance of internet banks isabout 2%** of personal financial assets—still quite small—but
given the rapid proliferation of smartphones, tablets and other
online-connectivity devices, there is certainly ample room for
growth. However, Japan’s financial market continues to maintain its aggressive stance on monetary easing, including the
introduction of quantitative and qualitative monetary easing
with short- and long-term interest rate control in September
2016, and as a result, long-term interest rates continue toremain at a low level. Interest rate competition among banks
has intensified, and the challenging environment surrounding
the banking business is expected to continue.

Sony Bank has placed emphasis on its mortgage loan andforeign currency businesses on the strength of its reputation
for high customer satisfaction.
In Japan’s mortgage loan market, with interest rates
still at a historically low level, demand for refinancing grew infiscal 2016. In this operating environment, Sony Bank actively
responded to customers’ refinancing needs and achieved
a significant increase in its mortgage loan balance. Goingforward, the company will strive to maintain profitability andsteadily build its loan balance by improving the quality of its
products and reinforcing its sales channels.
In the foreign currency business, Sony Bank has
expanded its transaction volume by offering reasonable rates
and highly convenient services centered on foreign currency
deposits. The company’s foreign currency deposit balance
represented 7% of total individual foreign currency deposits
of domestic banks, as of March 31, 2017, right behind thatof the major banks. In addition, overseas use of Sony BankWALLET, a cash card with a multi-currency VISA debit function, has expanded to more than 120 countries, substantiating a very positive customer response to the product. Goingforward, the company will work to enrich its lineup of foreigncurrency services and reinforce its customer base.

*Source: Flow of Funds Accounts issued by the Bank of Japan**Sources: Prepared based on the Bank of Japan’s Deposits and Loans Market
and data officially disclosed by various financial institutions.
Excludes data for shinkin (credit union) banks, credit associations,labor credit associations, agricultural cooperatives and certain otherorganizations.

Deposit Balance at Domestic Internet Banks

Deposit Balance of Japan’s Six Internet Banks

As of March 31,
Billions of yen

Billions of yen

15,0005,000

12,376.1

4,006.8
4,000

12,0003,193.6
9,000

3,000

6,000

2,000

3,000

1,000

2,112.9

0

09

10

11

12

13

14

15

16

17

0

1,606.5

771.6

A

B

Sony Bank

C

D

Source: Data compiled by Sony Bank based on publicly
disclosed materials

50

Sony Financial Holdings Inc. Annual Report 2017

684.7

E

Review of Operations and Analysis of Operating Performance

Recent Topics
November 2016:

April 2017:

Enhanced Sony Bank WALLET Service—Enabling
Payments through Foreign Currency Deposits for
Teenagers

Provision of Hoshii Mono Navi Beta, Asset Formation
Simulation Tool

Sony Bank enhanced its Sony Bank WALLET service, a cash
card with VISA debit function, by lowering the minimum age
for use of this service, allowing customers aged 15 and overto pay for purchases from foreign currency deposit accounts.
▶ Page 77: CSR Customers

January 2017:

Launch of Preferred Program Club S Service
Sony Bank debuted Preferred Program Club S, a service thatenables more customers to benefit from special transaction
rates, such as lower fees for money transfers and ATMs. The
previous program focused on customers with foreign currency
deposit accounts; however, seeking to boost customer satisfaction, the company introduced Club S to allow customers
with mortgage loans and others to enjoy special rates as well.

Sony Bank began providing its Hoshii Mono Navi Beta, a simulation tool that suggests ways to save money for several goals,
such as an overseas trip five years from now or the purchaseof a home 10 years down the line. Customers select a specificgoal and a timeframe to achieve this goal, as well as an investment plan from a five-grade menu that ranges from conservative, stable investment centered on yen deposits, to aggressive
investment involving the use of foreign currency deposits andinvestment trusts. Using this data, the simulation tool provides
information on required monthly contributions and allocation of
investment in order to achieve the desired goals.
This service was developed by drawing on a field of artificial intelligence and expertise related to information collectedby Sony Computer Science Laboratories, Inc. and applying
them to finance.
▶ Page 78: CSR Business Partners

March 2017:

Issuance of Cards with Sony Bank WALLET/“PlayStation” Design
In an alliance with Sony Interactive Entertainment Inc., Sony
Bank began issuing cards featuring a Sony BankWALLET/“PlayStation” design. Customers using the card to
make payments at the PlayStation®Store, operated by SonyInteractive Entertainment, receive an additional benefit of 2%
cash back on the amount of use. This feature will provide customers with additional enjoyment when shopping at the store.

Sony Financial Holdings Inc. Annual Report 201751

Analysis of Operating Performance
SFH’s banking business consists of Sony Bank, a wholly owned subsidiary of SFH; Sony Payment Services, a 57%-owned
subsidiary of Sony Bank; and SmartLink Network Hong Kong Limited, a wholly owned subsidiary of Sony Payment Services.

Consolidated
Consolidated Ordinary Revenues, Consolidated Ordinary Profit and Profit Attributable to Owners of
the Parent
Billions of yen
For the years ended March 31,

2016

2017

ChangeConsolidated ordinary revenues

¥37.9

¥38.5

+1.5%

Consolidated ordinary profit

5.9

5.0

(15.7%)

Profit attributable to owners of theparent3.9

3.3(15.3%)

Main Points

Consolidated ordinary revenues increased, due to anincrease in interest income on loans in line with a favorably
growing balance of mortgage loans, which was partially offset
by a decrease in interest income dividends on securities.
Consolidated ordinary profit decreased, due to lower interest
rates, an increase in initial expenses resulting from higher execution of mortgage loans, and reduced transactions involving foreign currencies and investment trusts of customers.
Profit attributable to owners of the parent decreased, due tothe drop in consolidated ordinary profit.

Non-consolidated
Sony Bank accounts for nearly all of SFH’s banking business. Below is an analysis of the operating performance of Sony
Bank (non-consolidated).

Gross Operating Profit
Gross operating profit represents the total income from the four components of income from banking services: net interest income,net fees and commissions, net trading income, and net other operating income. It is equivalent to the gross profi t (sales minus
costs) of companies which operate businesses other than financing and an indicator of the amount of profit a bank generates fromits main services.
Net interest income refers to the spread between investment returns such as interest received on loans, securities and funding
costs, including interest paid on deposits. Sony Bank uses the deposits received from customers primarily to provide mortgage
loans and invest in securities.
Net fees and commissions refers to the spread between the fees and commissions received from mortgage loans, the securities trading of customers, domestic and foreign exchanges and other operations, and the fees and commissions paid for ATM
usage, domestic and foreign exchanges and other operations.
Net other operating income refers to income from operations not included in net interest income or net fees and commissions.
This includes gains and losses on foreign exchange trading; gains and losses on trading of bonds, including government bonds;
and, gains and losses on derivatives, such as swaps held as hedges for securities and other investments.
Billions of yen
For the years ended March 31,

2016

2017

Gross operating profit

¥21.6

¥21.1

(2.6%)For the years ended March 31,

Net interest income

16.5

17.9

+8.4%

Net fees and commissions

0.1

(1.5)

—

Net other operating income

5.0

4.7

(4.5%)Net interest income
Net fees and commissions
Net other operating income

Main Points

ChangeGross Operating Profit

Billions of yen
30

20

10

0

Net interest income increased, due to a rise in interest income
on loans.
-10
13
14
15
16
17
Net fees and commissions decreased, due to an increase ininitial expenses resulting from higher execution of mortgage loans.
Net other operating income decreased, due to lower fees and commissions from foreign currency transactions of customers.

52

Sony Financial Holdings Inc. Annual Report 2017

General and Administrative Expenses
2016

2017

ChangeGeneral and administrative expenses

¥15.9

¥16.5

+3.3%

General and Administrative
Expenses

Review of Operations and Analysis of Operating Performance

Billions of yen
For the years ended March 31,

Billions of yen
20

For the years ended March 31,
Main Points General and administrative expenses increased,15

due to an increase in expenses resulting from higher executionof mortgage loans.

10

5

0

13

14

15

16

17

14

15

16

17

Ordinary Revenues, Ordinary Profit and Net Income
Billions of yen
For the years ended March 31,

2016

2017

ChangeOrdinary Profit and Net Income

Ordinary revenues
Ordinary profit
Net income

¥34.8
5.8
3.9

¥35.1
4.6
3.1

+0.6%
(20.9%)(18.8%)For the years ended March 31,
Ordinary proﬁt
Net income

Main Points Sony Bank’s ordinary revenues remained flat, while

Billions of yen
864

ordinary profit and net income decreased for the same reasonsthat affected its consolidated results.

2

0

13

Number of Accounts
Million accounts
As of March 31,

Number of accounts

2016

1.13

2017

Change1.24

Main Points The number of accounts increased, reflecting thegrowing popularity of Sony Bank WALLET.

+9.8%

Customer Assets (Total of Deposits and Investment Trusts)
Billions of yen
As of March 31,

Customer assets(Total of deposits andinvestment trusts)

2016

2017

ChangeAs of March 31,¥2,034.4 ¥2,227.1+9.5%

Billions of yen
As of March 31,

Deposit balance
Yen deposits
Foreign currency deposits
Investment trust balance

Deposit Balance

2016

2017

¥1,923.5 ¥2,112.9
1,587.9 1,764.9

Yen deposits
Foreign currency deposits

Billions of yen
2,500
2,000
1,500

Change

1,000

+9.9%
+11.1%

500
0

335.5

348.0

+3.7%

110.9

114.1

+2.9%

13

14

15

16

17

Main Points

Yen deposit balance grew, due to an increase in the ordinary yen deposit account reflecting the acquisition of new funds associated with an increase in the number of accounts, along with conversion of foreign currencies to the Japanese yen as a result of thecontinuously depreciating yen.
Foreign currency deposits increased, despite the conversion of foreign currencies to yen during the transition phase from yen
appreciation to depreciation.
Investment trust balance increased, favorably affected by the stock market rally associated with yen depreciation since the U.S.
presidential election in November 2016.
Sony Financial Holdings Inc. Annual Report 201753

LoansBillions of yen
As of March 31,

Loans
Mortgage loans
Others2016

2017¥1,344.1 ¥1,539.6
1,237.1 1,452.4
107.0

87.1

ChangeLoans+14.5%+17.4%

As of March 31,(18.6%)

Billions of yen
1,600

Mortgage loans
Others1,200

Main Points The balance of loans expanded, due to a record-

800high amount of mortgage loans executed during the year
ended March 31, 2017, backed by heightened demand forrefinancing. “Others” includes corporate loans, card loans
and special-purpose loans. The corporate loan balance was¥69 billion as of March 31, 2017.

400

0

13

14

15

16

17

14

15

16

17

Securities
Sony Bank’s securities investments consist of constant investments in highly-rated bonds.
Billions of yen
As of March 31,

2016

2017

ChangeBalance of securities
Japanese government bonds
Japanese local government
bonds
Japanese corporate bonds¥620.981.4¥631.2103.0+1.7%+26.5%

37.8
64.6

34.8
63.6

(7.8%)(1.6%)

Japanese stocks

2.0

2.0

—

Foreign securities

431.0

423.2

(1.8%)

Other securities

3.9

4.4

+12.5%

Balance of Securities(By ratings)

Billions of yen
1,000

As of March 31,
800

AAA
AA
A
BBB
Others

600
400
200
0

13

Main Points With respect to the ratings of the securities* held by Sony Bank, securities rated AA or above accounted for 46.8% of thetotal. The ¥2.0 billion in Japanese stocks represents the company’s investment stake in Sony Payment Services.
*Sony Bank uses the Basel III standardized method and classifies its securities based on ratings by five rating agencies: Moody’s Investors Service, Standard & Poor’s,
Rating and Investment Information, Inc., Japan Credit Rating Agency, Ltd. and Fitch Ratings.

Total Asset Composition
Billions of yen
As of March 31,

Total assets
Loans
Securities

2016

2017

¥2,126.5 ¥2,424.2
1,344.1 1,539.6
620.9
631.2

ChangeComposition of Total Assets+14.0%+14.5%+1.7%

As of March 31, 2017

Cash and due from banks

110.6

177.4

+60.4%

Money held in trust

23.0

23.0

—

0.9%
Money held in trust¥2,424.2 billion
7.3%
Cash and duefrom banks
26.0% Securities

Main Points Sony Bank’s total assets increased, due to anincrease in balance of loans.

54

Sony Financial Holdings Inc. Annual Report 20172.2% Others

63.5%
Loans

Non-consolidated Capital Adequacy Ratio

As of March 31,

2016

2017

ChangeNon-consolidated capital adequacy ratio(Domestic standard)

Non-consolidated Capital
Adequacy Ratio

9.89%

9.75%

(0.14pt)(Domestic standard)*Please refer to the note below for information on the application of theBasel III framework.

%
15.0
12.0

As of March 31,

9.0

Main Points Sony Bank continuously maintains a sound financial

6.0

position.

3.0
0.0

13

14

15

Sony Bank’s Non-consolidated Capital Adequacy Ratio (Domestic standard)

16

17Millions of yen
2016

2017

Amounts
excluded undertransitionalarrangements

Amounts
excluded undertransitionalarrangements

As of March 31,

Core capital: instruments and reserves
Directly issued qualifying common share capital or preferred share capital witha compulsory conversion clause plus related capital surplus and retained earnings
Of which, Capital and capital surplus
Of which, Retained earnings
Of which, Cash dividends to be paid (–)
Total reserves included in core capital: instruments and reserves
Of which, General reserve for loan losses including core capital
Eligible capital instruments subject to transitional arrangements included in core capital: instruments
and reserves
Core capital: instruments and reserves(A)Core capital: regulatory adjustments
Total amount of intangible assets (excluding those relating to mortgage servicing rights)
Of which, Other intangible assets other than goodwill and mortgage servicing rights
Shortfall of eligible reserves to expected losses
Core capital: regulatory adjustments(B)
CapitalCapital ((A)-(B))(C)
Risk-weighted assets
Total amount of credit risk-weighted assets
On-balance sheet asset items
Of which, Total amount included in risk-weighted assets subject to transitionalarrangements
Of which, amount related to intangible assets other than goodwill and mortgage servicing
rights of those classified as risk-weighted assets based on past examples undertransitional arrangements associated with adjustment items
Of which, amount subtracting the amount of risk-weighted assets calculated without using
the transitional arrangements from the amount of risk-weighted assets calculated using
the transitional arrangements related to exposures associated with capital instruments
applicable to other financial institutions
Off-balance sheet transaction items
Total amount of CVA risk equivalent / 8%
Amount of credit risk-weighted assets associated with exposure related to central counterparties
Total amount of operational risk equivalent / 8%
Adjustment to credit risk-weighted assets
Total amount of risk-weighted assets(D)
Capital adequacy ratio
Capital adequacy ratio ((C) / (D)) (%)

Review of Operations and Analysis of Operating Performance

The capital adequacy ratio is an important indicator of a bank’s financial soundness. From March 31, 2014, Sony Bank has calculated
its capital adequacy ratio* based on Basel III. Sony Bank has changed the method of measuring credit risk in calculating the capital adequacy ratio from the previous “standard approach” to the “fundamental internal rating based approach (FIRB)” as of March 31, 2017.

¥ 74,668
52,00024,627
1,959
512
512

¥ 76,303
52,00025,893
1,590——

16,00091,18012,74589,048

899
899
—
899

¥1,349
1,349
—

1,315
1,315
1,253
2,569

90,28086,479872,034
863,501

9 6
470,4550502,459(23,660)(16,092)

1,349

876

(25,009)
7,804
728
—
40,094—
912,128(16,969)
6,214
742
40
38,80751
338,807886,781

9.89

9.75

¥876
876
—

Note: The non-consolidated capital adequacy ratio was calculated using the standard set forth in Notification No. 19 (2006), issued by FSA regarding themethod for determining capital adequacy of a bank in light of the assets held by the bank, in accordance with Article 14-2 of the Banking Act of Japan.
But for credit risk-weighted assets based on domestic standard, the company applied the standard approach at March 31, 2016 and applies the FIRB
approach from March 31, 2017.
Sony Financial Holdings Inc. Annual Report 201755

Non-performing Assets
Sony Bank strives for small-loan diversification in its lending to individuals, screens potential borrowers based on prescribed credit
screening standards, and manages loans after they have been granted. In lending to corporate customers, Sony Bank sets maximum loan limits according to customer credit and adheres to standards that prevent excessive lending to particular borrowers.
The business promotion divisions also work independently of the screening division, and the company ensures that fi nancing
proceeds only following due diligence via relevant deliberative entities. In addition, the company has established a meticulous loan
management and screening system.
Risk-monitored Loans

Problem Loans Based on the Financial Reconstruction Act
Millions of yen

As of March 31,

2016

2017

Category

Millions of yen
As of March 31,

¥ 285
1,332
—
1,443
¥3,061

¥ 176
1,580
—
1,227
¥2,984Bankrupt and quasi-bankrupt loans
Doubtful loans
Sub-standard loans
Normal loans
Total

Main Points Sony Bank has consistently maintained low levels of non-performing loans.

Non-performing Loan Ratio*(Loans disclosed under the Financial Reconstruction Act)As of March 31,

2016

2017

ChangeNon-performing loan ratio

0.23%

0.19%

(0.04pt)*Non-performing loans (loans based on the Financial Reconstruction Act) / Total loan exposure

Sony Financial Holdings Inc. Annual Report 2017

2017

Category

Bankrupt loans
Non-accrual delinquent loans
Past-due loans (3 months or more)
Restructured loans
Total

56

2016

¥

732 ¥
743
890
1,021
1,443
1,227
1,342,916 1,544,587¥1,345,983 ¥1,547,579

Contributions to Sustainable Development

Contributions to Sustainable Development
Corporate Governance

CSR

Sony Financial Holdings Inc. Annual Report 201757

Contributions to Sustainable Development Corporate Governance

Profiles of Directors and Statutory Auditors(As of July 1, 2017)

Directors

h.

c.
f.

President, Representative Directora.

Shigeru Ishii
Director, Sony Life Insurance Co., Ltd.
Director, Sony Assurance Inc.

Managing Directorb.

Hiroaki Kiyomiya

b.
a.

d.

Directorsc.

Director, EVP (Note 2),
Sony Life Insurance Co., Ltd.

Yutaka Itof.

Director, Sony Assurance Inc.
Director, Sony Lifecare Inc.

Director, Sony Bank Inc.

g.
d.

Tomoo Hagimoto
President, Representative Director,
Sony Life Insurance Co., Ltd.

e.

Notes: 1. Main concurrent positions are shown under the name of eachindividual.
2. EVP stands for Executive Vice President.
3. Outside Directors, Isao Yamamoto and Shiro Kuniya and Outside
Statutory Auditors, Yasuyuki Hayase and Yoshimichi Makiyama
are deemed Independent Directors based on Tokyo Stock
Exchange, Inc. regulations.

58

Sony Financial Holdings Inc. Annual Report 2017

Yuichiro Sumimoto
Director, Representative Director,
Sony Bank Inc.

Director, Sony Life Insurance Co., Ltd.

Atsuo Niwa
President, Representative Director,
Sony Assurance Inc.

Shiro Kambe

EVP (Note 2), Corporate Executive
Officer, Sony Corporation

Contributions to Sustainable Development

g.

i.

j.

Directors (Outside)h.

Standing Statutory Auditor (Outside)

Isao Yamamoto(Note 3)j.

President, Enterprising Investment, Inc.
Director, BILCOM, Inc.

i.

Shiro Kuniyal.

Statutory Auditorse.

Yasuyuki Hayase(Note 3)

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

(Note 3)k.
Statutory Auditorl.

Hirotoshi Korenaga
Corporate Executive,
Senior General Manager,
Global Accounting Division,
Sony Corporate Services (Japan) Corporation

Statutory Auditor, Sony Bank Inc.

Managing Partner,
Oh-Ebashi LPC & Partners

Statutory Auditor (Outside)k.

Yoshimichi Makiyama (Note 3)Partner,
Kitamura & Makiyama (law office)Sony Financial Holdings Inc. Annual Report 201759

A Dialogue between Outside Directors:
Corporate Governance at Sony Financial Holdings

To remain the financial group of choice amongcustomers, we are striving to make appropriate
decisions through discussions based on diverse
perspectives.

Outside directors Isao Yamamoto and Shiro Kuniya exchanged opinions on corporate
governance at Sony Financial Holdings. (The discussion took place in May 2017.)
Board of Directors emphasizing open
discussion for new reforms geared toa challenging operating environment
Kuniya: The evaluation of effectiveness of the Board of
Directors in 2016 revealed that overall, the Board maintains
a high level of effectiveness through the exchange of multifaceted opinions and invigorated discussions.
Yamamoto: Mr. Ishii took over as Chairman of the Board from
Mr. Ihara, paralleling his appointment to President of SonyFinancial Holdings (SFH) in June 2016. As before, even with a newchairman in charge, the Board meetings are conducted in a comfortable environment that allows for free and open discussions.
When discussing projects of other companies within theGroup, the Group’s presidents, who are also SFH directors,
touch on the potential impacts on their respective companies.
They also discuss the possibility of synergies with other Group
companies.
Kuniya: An issue that came to light in the recent evaluationof effectiveness was the need to spend more time on discussions about business strategies from a medium- to long-term
perspective.
In deliberating the medium-term business plan for this year,
steps were taken toward improving this issue, including efforts
to widen awareness among executives and spending adequate time on its discussion.
Yamamoto: Domestic interest rates have hovered at a historic
low since January 2016. Low interest rates are a problem forGroup companies as they can rock their business cores. This
creates a mountain of issues for each company to deal with.

60

Sony Financial Holdings Inc. Annual Report 2017

Kuniya: I agree. The severity of conditions in the first half of2016, in particular, prompted considerable concern. Things
did not turn out as bad as initially predicted, but interest rates
remained persistently low, and the situation was definitely tough.
Yamamoto: Against this backdrop, Sony Life made boldchanges to its product mix in a rather short time. This quick
response is highly commendable.
The trend is sure to continue, with significant changes overthe medium to long term, including a revision in the standard
life table, progress in FinTech and InsurTech, responses tofiduciary duty*1 and the introduction of a spin-off tax system*2.
How best to deal with these changes over the long term will
be an issue for Group management.
Kuniya: Sony Assurance, in direct non-life insurance, andSony Bank, as an Internet bank, have both achieved growth
on revolutionary business models. However, the services
offered by both companies are no longer such a novelty,
mainly because nowadays competitors deal with customer
needs online as well. It has come to a make-or-break moment,
and the kind of innovative approaches that Sony Assurance
and Sony Bank come up with now will, I think, determine theirrespective successes for the future.
Yamamoto: In a challenging business environment, Sony Lifeand the Group as a whole need to acquire a different perspective
to utilize the various FinTech technologies to their best advantage.
If the Group’s pursuits till now reflect its initial stage of corporate
development, then you could say that its current pursuits marka second beginning.
Even as changes unfold, the Sony Financial Group remains
fully committed to operating its businesses with a customerfirst perspective.

Contributions to Sustainable Development

Isao Yamamoto

Shiro Kuniya

Outside Director

Outside Director

Opportunities for success in FinTech
and overseas.
Aggressive expansion drawing on added
strength as member of the Sony Group
Yamamoto: To utilize the various FinTech technologies totheir advantage, the Sony Financial Group as a whole will needto experiment with several approaches through trial and error,
and this process needs to start right away.
Kuniya: Competitors at home and abroad have kicked FinTech
investment into high gear. However, the key is not to simply do
the same as other companies but to apply FinTech in a way that
demonstrates a unique point of view. Sony Life’s more-than-4,900
Lifeplanner sales employees have achieved a notable presencein the domestic life insurance industry and are truly a source ofcompetitive strength that gives Sony Life an edge over its rivals.
I think the company could generate opportunities for successby adding technological innovation to the advantage afforded
by Lifeplanner sales employees’ direct contact with customers.
Yamamoto: The addition of FinTech to the Lifeplanner equation will definitely provide that last one inch*3.
Sony Life will introduce “Karte” in fiscal 2017 that records
customer information in detail. With IT, collecting and extracting information will be simple, and if Lifeplanner sales employees can connect key information, provide suitable explanation
and bridge that last one inch with customers, then Sony Life
will be able to work toward the benefit of each customer.
On the technology front, the Sony Financial Group is partof the Sony Group and is able to leverage the parent group’s
excellence in technology. If Sony’s strengths in IoT and sensor
technology are applied to most certainly, life insurance, as wellas other areas of business including automobile insurance in acollaborative way, the Sony Financial Group will secure a very
intriguing position in the industry.

As the Sony Group participates in the SFG Fintech Forum,a cross-group structure initiated by SFH, a framework forcollaboration is already in place.
Kuniya: As Sony Corporation holds 63% equity in SFH, it istruly essential that SFH take a stand to protect the interestsof other shareholders, that is, minority shareholders. To date,
SFH has consciously maintained its independence from Sony,so any synergy coming from the Sony Group connection has
centered on brand power. However, going forward, the useof technologies such as IoT and sensor technology may
generate the potential for new synergies. I think it is possible
to realize this potential while maintaining independence anda strong sense of ethics as a financial institution.
I also think the Lifeplanner business model is perfectly legitimate for overseas application as well. As financial services
must be steeped in regionality and geared to local language,
regulations and culture, the content of services will naturally
differ by region. Japanese companies are not all used to thesedifferences, but the Lifeplanner model has a good chance ofbeing accepted overseas because the service is very specificand well-tuned.
Yamamoto: Yes, FinTech and an overseas presence are keys
to success. The first stage of the second beginning will probably enable SFH to convert adversity into opportunities byfirming up both growth-oriented and defensive positions.
*1 Fiduciary duty:▶ Page 21: Medium-term Business Plan “Customer-First Business

Operation Policy”*2 Spin-off tax system: A tax break that supports flexible business reorganization by deferring taxes related to spin-offs, through which a company
splits off a certain business or division as an independent company. Effective from April 2017 if certain conditions are met.
*3 Last one inch: An area where the Sony Group has strength, that is, theability to “develop products and services that resonate with customers on
an emotional level at the closest point of customer contact (last one inch)and deliver these products and services to customers around the world.”

Sony Financial Holdings Inc. Annual Report 201761

Convey the Group’s growth potential
more precisely, and shift to medium-term
dividend policy emphasizing profit
indicator based on economic value
Yamamoto: I have been pushing for a review of the dividend
policy for several years.
There were repeated discussions on the establishment ofa performance indicator that reflects corporate value and an
appropriate dividend based on that indicator. And so, a decision was eventually reached that for the life insurance business, at least, the emphasis should go beyond book-based
profit to a profit indicator based on economic value in thecontext of actual growth.
However, the life insurance business is a business that
protects customers over the long term, so ensuring financial
soundness has to be the major premise of operations. It is also
important to provide sufficient explanation to prevent customers
from becoming anxious.
Kuniya: In the life insurance business, provision for reserves
and other line items must be considered when calculating
profit, so it is difficult to estimate value from the statement ofincome alone. A simple measurement of true corporate value
is impossible, so a considerable amount of time was dedicatedto discussion on this and adjacent issues. And going forward,
this discussion must continue.

Role of Nomination Advisory Committee
in appointing executives for the design andimplementation of strategies and reviewing
programs for successor development
Yamamoto: In an environment characterized by significant
changes, it is important to know how to build an executive
team of people who are able to devise and implement business strategies.
Kuniya: As we are outsiders, we do not fully know who issuitable or where the right individuals may be. We have had

62Sony Financial Holdings Inc. Annual Report 2017

to rely on others to name qualified candidates, and the taskof carefully screening individuals with tacit knowledge andcreating the necessary list of candidates fell to each company.
Through this process, executives at each Group company alsocame to objectively see where there was a shortfall in humanresources or bias in appointments within their own company.
Yamamoto: In the previous year, Mr. Ishii was nominated aspresident of SFH, and this year, Mr. Sumimoto was nominatedas president of Sony Bank. These appointments were decisions
symbolizing a new perspective on leadership. Much of the discussion held by the Nomination Advisory Committee centeredon the creation of a structure for dealing with management
issues that prevailed at the time.
Kuniya: A key role of the Nomination Advisory Committee isto put a stop to any sort of negative aspect that arises in management-oriented personnel affairs. At SFH, no one individual,
not even the founder, holds all power. The current executive
team speaks frankly and does what it wants to do but neveranything unreasonable.
Our focus of attention was on whether management
appointments are considered from a perspective independent ofSony, which holds 63% equity in SFH. As majority shareholder,Sony has the right to exercise authority over appointments ofBoard members, so we also assume a check-and-balancerole to prevent harm to the interests of minority shareholders.
That said, Sony consciously took a stance that respected ourdue process. Against this backdrop, the Nomination Advisory
Committee nominated Mr. Ishii and Mr. Sumimoto based on
candid discussion.
Yamamoto: Our objective in nominating Mr. Sumimoto tooversee Sony Bank was to capitalize on new leadership methods that will energize business. The required points of discussion were sufficiently addressed by the Nomination Advisory
Committee, and the results were appropriately explained to theBoard of Directors, and the right appointment was made, in
my opinion.
Kuniya: SFH is steadily working toward the next stage of
growth. We, along with everyone in the Group, will strive tobuild a stronger business platform and management structure to underpin realization of sustainable improvement incorporate value.

Profiles of Outside Directors and Outside Statutory Auditors (As of July 1, 2017)

OutsideDirectors

Isao Yamamoto

Contributions to Sustainable Development

Biography

Reasons for Appointment

1981 Joined Nomura Research Institute, Ltd.
1991 Head of Strategic Advisory Group, Nomura Research Institute, Ltd.
1996 Director, Investment Banking Division, Merrill Lynch Japan Securities
Co., Ltd.
1999 Managing Director, Investment Banking Division, Merrill Lynch Japan
Securities Co., Ltd.

Mr. Yamamoto has many yearsof experience as a securities
analyst and an advisor on
corporate finance and M&As,
and has no conflict of special
interest with SFH.

2002 Co-head of Investment Banking Division, Managing Director, Merrill
Lynch Japan Securities Co., Ltd.
2003 President & CEO, The Institute for Securities Investments & Governance2006 Director, Japan CableCast Inc.
Statutory Auditor, MASSTUNE, Inc. (current: MINKABU, Inc.)
2007 Director, MASSTUNE, Inc. (current: MINKABU, Inc.)
2009 President, Enterprising Investment, Inc. (current position)2011 Director, SFH (current position)2012 Director, BILCOM, Inc. (current position)

Shiro Kuniya

1982 Registered as attorney
Joined Oh-Ebashi Law Offices (current: Oh-Ebashi LPC & Partners)
1997 Audit & Supervisory Board Member, Sunstar Inc.
2002 Managing Partner, Oh-Ebashi LPC & Partners (current position)

Mr. Kuniya has specialized
knowledge and experience as
an attorney and has no conflictof special interest with SFH.

2006 Audit & Supervisory Board Member, Nidec Corporation2012 Director, NEXON Co., Ltd. (current position)
Director, Ebara Corporation (current position)2013 Director, SFH (current position)
Corporate Auditor, Takeda Pharmaceutical Company Limited
2016 Director, Takeda Pharmaceutical Company Limited (current position)

OutsideStatutory
Auditors

Yasuyuki Hayase

1980 Joined Mitsui Bank Corporation (current: Sumitomo Mitsui Banking
Corporation)
1999 Group Leader, Credit Planning Department, Mitsui Bank Corporation
2001 Deputy General Manager, Head Office Business Department 1,
Sumitomo Mitsui Banking Corporation

Mr. Hayase has many yearsof experience at a financial
institution, and as acorporate auditor there.

2002 Deputy General Manager, Head Office Business Department 3,
Sumitomo Mitsui Banking Corporation
2003 General Manager, Kumamoto Corporate Business Office,
Sumitomo Mitsui Banking Corporation2005 General Manager, Mitadori Corporate Business Office,
Sumitomo Mitsui Banking Corporation2007 General Manager, Credit & Investment Planning Department,
Sumitomo Mitsui Banking Corporation2010 Corporate Auditor, Sumitomo Mitsui Banking Corporation2012 President & CEO, Sakura Card Co., LTD.
2015 Standing Statutory Auditor, SFH (current position)
Statutory Auditor, Sony Life Insurance Co., Ltd. (current position)
Statutory Auditor, Sony Assurance Inc. (current position)
Statutory Auditor, Sony Bank Inc. (current position)

Yoshimichi Makiyama

1990 Registered as attorney, Japan
Joined Showa Law Office (current: Jones Day Law Office)1995 Joined Mitsui, Yasuda, Wani & Maeda (law office)1999 Registered as attorney, New York, U.S.A.
2000 Joined Microsoft Asia Limited (Law & Corporate Affairs)
2004 Registered as patent attorney, Japan
2006 Joined TMI Associates (law office)2013 Partner, Kitamura & Makiyama (law office) (current position)

Mr. Makiyama qualified as an
attorney and patent attorney inJapan and as an attorney in thestate of New York, withexpertise in many areas
including information security
and compliance, and has abreadth of professional
experience both at home andabroad.

2015 Statutory Auditor, SFH (current position)

Sony Financial Holdings Inc. Annual Report 201763

Basic Stance on Corporate Governance
Basic Policy on Corporate Governance

Establishing an Internal Control System

SFH has formulated the Basic Policy on Corporate Governance.
The Sony Financial Group (hereafter, “the Group”) positions
its corporate vision and philosophy as the basic policy forformulating management strategies and decision making.
SFH strives to meet the expectations and earn the trust of
stakeholders, realize sustainable corporate growth andincrease corporate value over the medium to long term bymaking effective use of the Group’s various management
resources and by realizing its corporate vision and philosophy.
Furthermore, as a financial holding company, SFH is aware of
the highly public nature of its financial business. Accordingly,
SFH has in place a governance structure that emphasizes
ensuring of soundness and appropriateness of the Group’s
management. SFH is a listed subsidiary of Sony Corporation.
As such, SFH maintains managerial independence from its
parent company and strives to ensure a highly transparent
management.

SFH formulated the Basic Policy on Establishing an Internal
Control System in compliance with the Companies Act ofJapan and associated enforcement regulations to ensure theappropriateness of the Group’s business activities. SFH implemented and maintains an internal control system in line withthis policy.
SFH introduced its Internal Control and Financial Reporting
System in accordance with the Financial Instruments andExchange Act of Japan, with the aim of strengthening internal
controls governing financial reporting. As a listed company,
SFH put in place and maintains the necessary organizational
system and operational rules for disclosing proper financial
information.

▶ “Corporate Governance” on SFH’s website, http://www.sonyfh.co.jp/en/company/governance.html

Sony Financial Group’s Internal Control (As of July 1, 2017)

SFH

General Meeting of Shareholders
Appointment/dismissal

Nomination Advisory
Committee

Enquiry

Appointment/dismissal

Board of Statutory Auditors(Statutory Auditors/Outside Auditors)

Audit

Response

Board of Directors(Directors/Outside Directors)

Enquiry

ReportCompensation Advisory
Committee

Response

Audit Department

Executive Committee

Independent
AuditorIndependent
audit

Audit

Business Execution Departments
Corporate
Planning
Department

Corporate
Communications &Investor Relations
DepartmenttServe concurrently as
directors and statutory
auditors

Risk
Management
DepartmenttShare and confirm
information

ComplianceDepartmenttReport andconfirm

Accounting
DepartmenttDiscussin advance

Human
Resources
Department

GeneralAffairs
Department

tConvey Group policies

Financial Market
Research
Department

tManage and advisetMonitortDirectly audit, as needed(Primary Subsidiaries)
Sony Life

64

Sony Financial Holdings Inc. Annual Report 2017

Sony AssuranceSony Bank

Management System

Type of structure
Number of directors
Number of statutory auditors
Director’s term of office
Number of independent directors
Outside directors’ involvement in determination of compensation
Results-linked compensation system
Number of meetings of the Board of Directors held during fiscal 2016
Advisory bodies for the Board of Directors

Contributions to Sustainable Development

Outline of SFH’s Corporate Governance Structure (As of July 1, 2017)
Company with a Board of Directors and a Board of Statutory Auditors
9 (including 2 outside directors)
3 (including 2 outside statutory auditors)
1 year4
Involved
Adopted
14 times
Nomination Advisory Committee; Compensation Advisory Committee▶ “Management System” on SFH’s website, http://www.sonyfh.co.jp/en/company/management.html

Board of Directors (As of July 1, 2017)
SFH, as a pure holding company, maintains a Board of
Directors not only to manage SFH itself, but also to promote
integrated Group management and to ensure the Group’s
corporate governance.
SFH’s Board of Directors is made up of nine members, ofwhich three are representative directors from SFH’s subsidiaries
who serve as non-executive directors of SFH and contribute toefficient business operations of the Group as a whole.
Additionally, to obtain general management advice applicable to the Group, SFH has appointed directors from outside theGroup, one of whom serves concurrently as a Corporate Executive Officer of Sony, the parent company. Because SFH is thesubsidiary of a listed parent company, it has appointed two outside directors who are independent directors as required by the
Tokyo Stock Exchange, Inc. to protect ordinary shareholders.
Regarding the boards of directors of Group subsidiaries,
one of SFH’s representative directors and two of its executive
directors serve concurrently as directors of subsidiaries with theaim of increasing the effectiveness of Group strategies andensuring the sound business management of each company.

Attendance of Outside Directors and Outside Statutory
Auditors in Meetings of the Board of Directors and theBoard of Statutory Auditors for Fiscal 2016
Name

Outsidedirectors

Isao Yamamoto
Shiro Kuniya

Outsidestatutory
auditors

Yasuyuki Hayase
Yoshimichi
Makiyama

Board of Directors’
meeting

Board of Statutory
Auditors’ meeting

Attended all 14
meetings
Attended 11 out
of 14 meetings
Attended all 14
meetings
Attended all 14
meetings——
Attended all 13
meetings
Attended all 13
meetings

Statutory Audits, Internal Audits andAccounting Audits (As of July 1, 2017)
Statutory Audits
SFH’s Board of Statutory Auditors has three members, two ofwhom are outside statutory auditors and deemed as independent directors based on Tokyo Stock Exchange regulations.
Statutory auditors audit the execution of duties by directors
based on the audit policy, audit plan and other matters stipulated by the Board of Statutory Auditors. Statutory auditors
attend important meetings, including Board of Directors’ meetings and examine SFH’s operations and financial condition. At
the same time, statutory auditors maintain close contact suchas through the receiving of reports from independent auditors,
internal audit division and other relevant persons.

Internal Audits
SFH performs internal audits through its Audit Department.
The Audit Department takes an independent and objective
standpoint in performing internal audits to check and evaluate
the appropriateness of work processes and responses torisks. The Audit Department also monitors the results of bothinternal and external audits of Group companies and provides
advice and proposals when necessary. The Audit Department
regularly reports the results of its monitoring activities to thedirector in charge and the Board of Directors. When necessary, the Audit Department may audit subsidiaries directly or
jointly within the scope of governing laws and regulations. In
addition, the Audit Department works closely with statutory
auditors, as well as external auditors, such as independent
auditors, as necessary.

Accounting Audits
The accounting firm and back-up team members of thecertified public accountants (CPAs) who acted as theaccounting auditors of SFH are as follows:
Accounting firm

PricewaterhouseCoopers Aarata LLC

Breakdown: CPAs and the
back-up team members*

6 CPAs, 3 others*For fiscal 2016

Sony Financial Holdings Inc. Annual Report 201765

Nomination Advisory Committee and Compensation
Advisory Committee (As of July 1, 2017)

Independence Standard of Outside Directors
and Outside Statutory Auditors

SFH has established two Committees as advisory bodies
for the Board of Directors to ensure the transparency andobjectivity of the decision-making process.
The Nomination Advisory Committee deliberates on theappointment and dismissal of SFH’s directors, statutory
auditors and Group companies’ presidents, as well as on the
succession planning of SFH and its Group companies’ presidents. It reports the results of its deliberations to the Boardof Directors.
The Compensation Advisory Committee deliberates thepolicy and total amount of compensation for SFH’s directors
and Group companies’ representative directors which are
to be proposed at a General Meeting of Shareholders. The
Committee also deliberates the amount of compensation,bonuses and retirement benefits for individual directors andGroup companies’ representative directors, within the limits
set by a resolution at a General Meeting of Shareholders.
It reports the results of its deliberations to the Board of
Directors.
Each of the Committees consists of a small number of
directors, including outside directors, to reflect opinions froman objective and multifaceted perspective on its deliberations.
A member of the Compensation Advisory Committee shallnot participate in the resolution for determining his/hercompensation.

SFH has formulated the Basic Policy on the Selection of Director and Statutory Auditor Candidates* and set the independence standard of outside directors and outside statutory
auditors.
The Standard provides that a candidate is deemed to be
independent if he/she: (1) satisfies the independence requirements of the Companies Act and the standards for independent directors provided by the Tokyo Stock Exchange; (2) has
had no conflict of special interest with SFH and its Group
companies in the past three years prior to his/her taking officeand currently has no such conflict; (3) has not been an executive or employee of SFH’s parent company or a subsidiary of
SFH’s parent company in the past three years prior to his/her
taking office and is not currently an executive or employee ofthese companies; and (4) is not a spouse of or related within
two degrees of kinship to a person who does not satisfy eitherof items (2) and (3) above.
By appointing highly independent outside directors andoutside statutory auditors, SFH strives to ensure the transparency of corporate management and enhance their supervisory
function.

Advisory bodies

Members

Nomination
Outside Director
Advisory Committee

Isao Yamamoto(Chairperson)

Outside Director

Shiro Kuniya

President,
Representative Director

Shigeru Ishii

Director

Shiro Kambe

Compensation
Outside Director
Advisory Committee

Shiro Kuniya(Chairperson)

Outside Director

Isao Yamamoto

President,
Representative Director

Shigeru Ishii▶ Page 60: A Dialogue between Outside Directors

66

Sony Financial Holdings Inc. Annual Report 2017

*Visit SFH’s website for details of the Basic Policy on the Selection of Director
and Statutory Auditor Candidates.

Evaluation Process
For fiscal 2016, an independent third-party evaluationcompany evaluated the effectiveness of the Board of
Directors by questionnaire to all directors and statutory
auditors.
Principal content of the questionnaire• Composition of the Board of Directors• Quality and volume of discussions on the Group’sbusinesses, risks, strategies, etc.
• Degree of understanding, opportunities for training• Operating practices of the Board of Directors’ meetings• Incentive compensation• Advisory committees• Support system for outside directors and statutory auditors• Dialogue with shareholders
In addition, an evaluation was conducted regarding
responses to items that were raised as issues in the previous
year’s evaluation of effectiveness.
Summary of the Results of Evaluation• As a whole, a high level of effectiveness was achieved.
• The Board of Directors consists of members with a wide
variety of experience.
• The members of the Board of Directors agree inrecognizing never to be satisfied with current conditions
and that further improvement and enhancement of theBoard’s function are necessary. The Board of Directors
is united in an effort to improve its function.

Contributions to Sustainable Development

Evaluation of Effectiveness of the Board of Directors
According to SFH’s Basic Policy on Corporate Governance,
the Board of Directors conducts self-evaluations, evaluating
the effectiveness of its own decision-making and oversight,
as well as its operation of meetings at least once a year.

• The agendas of the Board of Directors’ meetings were
properly selected in terms of their quality and volume.
There was an atmosphere where all members, including
outside directors, could speak in a free and active manner.
The meetings proceeded smoothly under the leadershipof the chairman. Members of the Board of Directors areprovided regular opportunities for communication, andmutual trust is high.
• Comments from shareholders are appropriately provided
as feedback to the Board of Directors.
While various improvements have been made with respect
to the issues raised in the previous year’s evaluation ofeffectiveness (discussion of medium- to long-term Groupwide
business strategies and executive development strategies),
the Board of Directors agrees that continuous discussion isneeded. In addition, some members expressed a desire formore opportunities for study or training sessions related to
the Group’s management and businesses.
Issues to Address and Responses to Make Based on the
Results of Evaluation
Based on the results of this evaluation, SFH’s Board of
Directors judges itself to be wholly effective at this time. Thatsaid, the Board will strive to further enhance its effectivenessthrough improving its understanding of the Group’s
management and business environment and continuous
discussions on the Group’s medium- to long-term businessstrategies.
▶ Page 60: A Dialogue between Outside Directors

Sony Financial Holdings Inc. Annual Report 201767

SFH sets the Policy for Determining the Compensation of
Directors and the Policy for Determining the Compensation of
Statutory Auditors. SFH has created the Compensation Advisory Committee Regulations and established the Compensation Advisory Committee (please see page 66) as its delibera-

tive body. Compensation of individual directors is determinedby the resolution of the Board of Directors, based on a reportfrom the Compensation Advisory Committee. Directors withno executive duties, except outside directors, are paid nocompensation. Compensation of individual statutory auditors
is determined, within the limit set by a General Meeting of
Shareholders, through discussions by statutory auditors.

1. Executive Directors

3. Statutory Auditors

Basic policy

Basic policy

Compensation for SFH’s Directors and Statutory
Auditors• A balance between a fixed portion, a results-linked
portion and a medium- to long-term incentive portion shall be considered. The objective of this is tosecure talented executives for business execution
and ensure that compensation serves as aneffective incentive for improving the business performance and corporate value of the entire Group.

Compensation • Compensation comprises a fixed portion
depending on the position, a results-linked portion depending on the entire Group’s performance and individual responsibilities, and a
medium- to long-term incentive portion in theform of a stock-based compensation.
• The results-linked portion could range from 0%
to 200% of the standard amount subject toachievement of management targets of theGroup and fulfillment of responsibilities.
• The medium- to long-term incentive portion isbased on restricted stock compensation andstock-type compensation stock options. The
stock-type compensation stock options, inprinciple, account for 20% of total annualcompensation.
Level

Compensation • A fixed amount is paid according to the respectiverole of standing statutory auditors and non-executive statutory auditors.
Level• A suitable level of compensation shall be paid inorder to secure talented individuals. The level ofcompensation is determined through discussion of
statutory auditors, in consideration of the results ofthird-party surveys on the compensation levels ofcorporate auditors and other relevant information.

Compensation for SFH’s Directors and Statutory Auditors
for Fiscal 2016
Details of compensation for SFH’s directors and statutory auditors for fiscal 2016 are as follows:• A suitable level of compensation shall be paid inorder to secure talented individuals. The level ofcompensation is determined in consideration of
the results of third-party surveys on the compensation levels of corporate managers and other relevant information.

Total amount byTotal amount ofcompensation categorycompensation
for directors
Provision forand statutory
Basicreserve for
Numberauditors
compen- Stock retirementof payees (Millions of yen)sationoptionbenefits

Directors (internal)

4

297

239

49

8

2. Outside Directors

Directors (outside)

2

20

20

—

—

Basic policy

Statutory auditors(internal)

—

—

—

—

—

Statutory auditors(outside)

2

30

30

—

0

Total

8

348

290

49

9

• The main responsibility of outside directors is toenhance the transparency and objectivity of corporate management through the oversight andsupervision of executive directors’ execution ofduties. Consequently, compensation shall be fixedwith the objective of securing talented individuals
and ensuring that the supervisory and oversightfunction is working effectively.

Compensation • A fixed amount is paid according to the role.
Level

68

• The main responsibility of statutory auditors is toensure the transparency and objectivity of corporate management by conducting operational andaccounting audits. Consequently, compensation
shall be fixed with the objective of securing talented individuals and ensuring that the audit function is working effectively.

• A suitable level of compensation shall be paid inorder to secure talented individuals. The level ofcompensation is determined in consideration of
the results of third-party surveys on the compensation levels of corporate managers and other relevant information.

Sony Financial Holdings Inc. Annual Report 2017

Notes: 1. Compensation refers to compensation, bonuses, and other financial benefits received from the Company in consideration of execution of duties.
2. Compensation categories refer to basic compensation, stock
options, bonuses and retirement benefits and others. SFH did not
pay bonuses as compensation for directors and statutory auditors
prior to and including fiscal 2016.

(As of July 1, 2017)

As is described in the Basic Policy on Corporate Governance(please see page 64), SFH is a listed subsidiary of Sony
Corporation. Accordingly, SFH maintains managerial independence from its parent company and strives to ensure ahighly transparent management.

Capital Relationship
SFH is a financial holding company, established in April 2004
as a corporate spin-off from Sony Corporation. In October
2007, SFH’s shares were listed on the First Section of
the Tokyo Stock Exchange with the initial public offering
conducted in Japan and overseas. Sony Corporation latermade additional purchases of SFH shares, bringing its
shareholding to 63% as of March 31, 2017. As a result,regardless of the intentions and interests of other shareholders, Sony Corporation may have an impact on all mattersrequiring shareholder approval such as the appointment
and dismissal of SFH directors and statutory auditors,
mergers and other organizational restructuring, material
asset and business transfers, amendments to the Articles
of Incorporation, and the payment of dividends.

Personnel RelationshipTo obtain general management advice concerning the SonyFinancial Group and to strengthen the audit function, SFH
appoints directors and statutory auditors from outside theSony Financial Group. However, one of these SFH directors
and one statutory auditor serve concurrently as Corporate
Executive Officer or Senior General Manager of the Sony
Group. Moreover, Sony Corporation has seconded five
employees to SFH. Because the appointment of concurrent
directors and statutory auditors comes at the request of theSony Financial Group, SFH believes that concurrent directors
and statutory auditors are positioned to make independent
management decisions. From the standpoint of further
enhancing independence from the parent company, SFH
has appointed two outside directors who have no special
relationship with the Sony Group, and have designated themas independent directors based on rules set forth by the
Tokyo Stock Exchange.

Ensuring Independence in Business Activities
Because the Sony Financial Group’s business operations havea tenuous connection with Sony Group’s business domains
except for Financial Services*, and because the Sony Financial
Group operates its business primarily in accordance with theInsurance Business Act and the Banking Act of Japan, under
the supervision of the Financial Services Agency of Japan,
SFH believes that the Sony Financial Group conducts its
business with a certain degree of independence from theSony Group.

In addition, Sony Corporation, which has obtained
approval from the Financial Services Agency to remaina major SFH shareholder, recognizes and respects SFH’s
corporate philosophy.

Contributions to Sustainable Development

Relationship with Parent Company, Sony Corporation

Using the “Sony” Trade Name and Trademark
SFH and Group companies have entered into royalty agreements with Sony Corporation for the use of the “Sony” tradename and trademark. However, these agreements can be
rescinded by Sony Corporation under certain conditions, suchas its share of voting rights in SFH falling below a majority,
or SFH’s percentage ownership of the voting rights of SonyFinancial Group companies dropping. Furthermore, SonyFinancial Group companies pay royalty fees to Sony Corporation
based on these agreements. The amount paid in fiscal 2016was ¥1,617 million and the amount of these royalty fees has
no material impact on the management base of the SonyFinancial Group.
The Sony Financial Group believes that the use of the“Sony” trade name and trademark confers certain advantages,
including stronger brand recognition, enhanced trustworthiness, and higher employee motivation and awareness.

Transactions with Sony Corporation
SFH is a listed subsidiary of Sony Corporation. For this reason,
SFH has set out a Policy Concerning Measures to Protect
Minority Shareholders in Transactions with the Controlling
Shareholder to protect the interests of minority shareholders.
Policy Concerning Measures to Protect Minority
Shareholders in Transactions with Sony Corporation(Controlling Shareholder)Sony Financial Group’s policy is to develop business while
maintaining cooperative ties with the Sony Group. However, theSony Financial Group believes that it has secured a certain degreeof independence from the Sony Group, because it conducts
independent business activities in line with its own management
policies and strategies, and operates in different business fields
than the Sony Group.
When entering into transactions with Sony Corporation (thecontrolling shareholder), the Sony Financial Group adequately
confirms the necessity for such transactions, and ensures that theconditions of such transactions do not differ markedly from theterms of ordinary transactions with third parties.

Status of Implementation
With regard to transactions with Sony Corporation, SFH confirms
the necessity for such transactions and ensures that conditions
do not differ markedly from the terms of ordinary transactions withthird parties.
Note: SFH prepares and discloses Information Pertaining to Controlling
Shareholders in accordance with the regulations of the Tokyo Stock
Exchange. The document can be viewed on the Tokyo Stock
Exchange’s or SFH’s website.

Sony Financial Holdings Inc. Annual Report 201769

Compliance
Basic Stance on Compliance
SFH’s broad definition of compliance is that it encourages all executives and employees to deepen their understanding of theCompany’s corporate philosophy, enforces compliance with these laws, regulations, and social norms and manages business
operations transparently and properly based on a strong sense of ethics in order to ensure sound and proper operations. SFH
considers compliance to be one of its top management priorities and, accordingly, it has systems in place to ensure that all executives and employees are fully aware of their duties and responsibilities.
While Group companies are responsible for establishing systems to enhance the effectiveness of compliance according to their
specific industry and scale of business operations, SFH, as a financial holding company, undertakes the ongoing monitoring andpromotion of the Group companies’ compliance by providing advice, as needed, from the viewpoint of Group management.
▶ “Compliance” on SFH’s website, http://www.sonyfh.co.jp/en/company/compliance.html

operate them effectively at Group companies.

Compliance Activities at SFH
SFH considers the Sony Group Code of Conduct as the fundamental internal code that all executives and employees mustobserve. In addition, SFH’s Board of Directors formulated aCompliance Manual* and a Compliance Program**. SFH
strives to monitor adherence to stated practices and theirimplementation at all times, while putting in place and developing the SFH compliance system and working proactively toensure its effective operation.
SFH also provides appropriate guidance and support inorder to put in place and develop compliance systems and*The Compliance Manual outlines SFH’s compliance system, as well as
the Group’s corporate philosophy, which executives and employees
must understand, and laws and regulations, which they must comply
with. The manual also establishes measures for handling behavior thatconflicts with laws and regulations or behavior that raises complianceissues, and for confirming compliance status.
**The Compliance Program is drafted annually, in principle, and defines a
specific action plan for confirming compliance status, conducting training
and for other related items.

Compliance System of the Sony Financial Group (As of July 1, 2017)

SFH

Director in Charge(President, Representative Director)

General Meeting of Shareholders
Board of Statutory Auditors
Statutory Auditors
Board of Directors
ReportAudit Department
ReportReportEntrustExecutive Committee
ReportCompliance Department
Control over the planning and implementation of compliance measures

ReportCompliance Meetings
Secretariat: Compliance Department

Advise and monitor

Sony AssuranceSony Bank(Primary Subsidiaries)
Sony Life70

Sony Financial Holdings Inc. Annual Report 2017

Privacy Policy

SFH holds regular compliance meetings with Group companies to conduct preliminary consultations and exchange information about the status of compliance dissemination andother issues. Members of the meeting include SFH and SonyFinancial Group company executives, general managers andother staff in charge of compliance, depending on the agenda.
The results of these important discussions are reported to theBoard of Directors and at other important meetings.

SFH has formulated a Privacy Policy* governing the handlingof personal information. It sets out SFH’s policies on the acquisition and use of personal information for specific purposes.
SFH has also established Rules Concerning Protection of Personal Information that set out specific security control protocols. SFH monitors the effectiveness of Sony Financial Group
companies’ security control protocols.
SFH and its Group companies formulate and revise thePrivacy Policy, and set up an organization to protect personal
information, to which they appoint persons responsible. SFH
and its Group companies also prepare a set of rules and amanual, as well as training programs on the handling of personal information and information security. These initiatives
allow SFH and Group companies to maintain entrusted personal information so that it is accurate and up-to-date, and toprotect personal information through steps to prevent use forother purposes, unauthorized access, leakage, falsification,
loss, destruction and other incidents.

Internal Hotline System
If executives and employees of SFH and its Group companies,
as well as temporary employees and the employees of business partners, believe that business policies, operating activities or other activities of the companies breach (or could
breach) respective laws and regulations, they can report theirconcerns by choosing and notifying the appropriate hotline
desk at SFH or at any Sony Financial Group company, or theSony Group hotline desk. A total of approximately 30 reports
were received by the hotline desk at SFH and Group companies in fiscal 2016, the majority of which were related to theworkplace environment. SFH implements appropriate measures to protect those who contact these desks, while strictly
managing and responding to the information provided.

Prevention of Insider Trading
SFH has established a Basic Group Policy on the Preventionof Insider Trading, whereby a structure for the preventionof insider trading has been developed at SFH and Group
companies.
SFH monitors whether such framework is adequately inplace and working effectively in the prevention of insider trading at Group companies, and takes actions as necessary.
Note: Visit SFH’s website for details.

Contributions to Sustainable Development

Compliance Meetings*Visit SFH’s website for more about the Privacy Policy (revised as of May
30, 2017).

Basic Group Policy on Eradicating Anti-social Forces
SFH has formulated a Basic Group Policy on Eradicating
Anti-social Forces* whereby SFH and Group companies havein place the structures necessary to take a firm stance on
countering anti-social forces. This includes setting up an organizational unit responsible for dealing with anti-social forces,
appointing a person responsible for refusing unreasonable
demands and gathering information on anti-social forces incollaboration with external specialized agencies. The Group
works uniformly in an effort to eradicate anti-social forces.
*Visit SFH’s website for more about Basic Group Policy on Eradicating
Anti-social Forces.

Conflicts of Interest Policy (Summary)SFH formulated the Conflicts of Interest Policy* to ensure that customers’ interests are not harmed by Group companies. The director
in charge of the Compliance Department, as the manager responsible for managing conflicts of interest, shall require Group companies
to take the following actions when he/she deems them to be necessary based on reports from Group companies, customer complaints
or other sources.
1) Sever the flow of information between divisions that have potential conflicts of interest2) Suspend the transaction concerned, or change the terms and conditions or method of the transaction
3) Disclose the fact or the possibilities of a conflict of interest, to customers4) Other actions deemed necessary
SFH shall retain records, which specify transactions to be managed and that are associated with actions taken to properly protect
customers, for five years.
*Visit SFH’s website for a summary of the Conflicts of Interest Policy.

Sony Financial Holdings Inc. Annual Report 2017

71

Risk Management
One of SFH’s roles as a financial holding company is to further enhance and integrate Groupwide risk management by centralizing
the Group’s management resources. SFH has formulated the Basic Policy on Group Risk Management and develops a risk
management structure by aligning it with Groupwide strategic objectives and management policies. In addition, SFH seeks toenhance the corporate value of the Group by tailoring operating subsidiaries’ risk management to the types of risks inherent intheir respective lines of business.
▶ “Risk Management” on SFH’s website, http://www.sonyfh.co.jp/en/company/risk_management.html

Approach to Risk Management by SFH and Group
Companies
SFH has formulated the Fundamental Principles for Risk
Management and communicates them to directors, employees, and throughout the Sony Financial Group. It also identifies the scope and types of risks of the Group companies,
and establishes structures designed to manage such risks
effectively. SFH’s department in charge of risk management
controls risks through monitoring and holding Risk Manage-

ment Meetings with the subsidiaries’ risk management divisions. It also reports its findings on the state of risk management regularly to SFH’s Board of Directors and Executive
Committee.
The Group companies optimize types and definitions of
their risks according to scale, characteristics and businessmodel. They have established risk management frameworks,
with the aim of autonomously assessing, monitoring, andmanaging these risks.

Risk Management Structure of the Sony Financial Group (As of July 1, 2017)

SFH

Board of
Statutory Auditors

Director in Charge(President, Representative Director)

General Meeting of Shareholders

Statutory
Auditors

Board of Directors
ReportReportAudit Department

ReportAudit

Executive Committee
Risk Management Department(Centralized Risk Management)

Supervisory Department:
Risk Management Department
Investment Risks
r.BSLFUSFMBUFE3JTL
r$SFEJU3JTL
r3FBM&TUBUF
Investment Risk

Liquidity Risk

Administrative Risk

Insurance
Underwriting Risk

Systems Risk

Supervisory Department:
Compliance Department

Supervisory Department:
Corporate Communications &Investor Relations Department

Legal Risk

Reputational Risk

Business Continuity Risk

Confirm

ReportRisk Management Meetings

Manage, advise, monitor

Present risk management policies(Primary Subsidiaries)
Sony Life

Sony Assurance
Each company autonomously puts risk management into practice72

Sony Financial Holdings Inc. Annual Report 2017

Sony Bank

Type

Contributions to Sustainable Development

Types and Definitions of Risks
Definition

Market-related Risk

Risks associated with losses due to changes in the value of assets and liabilities, including off-balance-sheet
items, as a result of unfavorable fluctuations in interest rates, the value of securities held, exchange rates, andother factors.

Credit Risk

Risks associated with losses due to declines or loss in the value of assets, including off-balance-sheet items,
resulting from deterioration in the financial position of retail and corporate customers and other contracts
entered into.

Real Estate Investment Risk

Risks associated with losses due to declines in the market value of owned real estate or in the profitabilityof real estate holdings on account of unfavorable trends in prices and rents, respectively.

Liquidity Risk

Risks associated with losses are as follows:• Cash Flow Risk
Risks associated with losses due to our inability to make cash payments because of
failure to maintain sufficient cash reserves at settlement, as well as risks associatedwith losses if SFH and Group companies are forced to raise funds under unfavorable
conditions in order to fulfill cash payment obligations.
• Market Liquidity Risk Risks associated with losses due to the Group’s inability to conduct market transactions, in particular from an inability to unwind the Group’s market position at a given
time, as well as risks associated with losses if the Group is forced to complete transactions under unfavorable market conditions, in each case due to market turmoil orother factors.

Insurance Underwriting Risk

Risks affecting the Group due to significant differences between the assumptions SFH and Group companies
use to establish appropriate insurance premium levels, including assumptions regarding the expected
frequency and scale of insured events and future economic conditions.

Administrative Risk

Material and immaterial risks affecting the Group due to errors, misconduct, malfunction, and other factors
related to problems with the Group’s internal administrative processes.

Systems Risk

Material and immaterial risks affecting the Group due to IT-system malfunction or breakdown, improper use
or leakage of confidential information stemming from IT-system problems.

Legal Risk

Risks affecting the Group due to violations of applicable laws, rules and regulations occurring during the courseof business operations, as well as the risk of loss due to litigation or infringements of rights.

Reputational Risk

Material and immaterial risks associated with losses resulting from harm to the Group’s reputation in themarket and among customers as a result of unethical behavior, unfair business practices, improper disclosure,or other factors.

Business Continuity Risk

The risk that SFH and Group companies will be unable to continue operations as a result of a deteriorationin financial position, liquidity problems, system failures, scandals, disaster, accidents, or other crises.

Note: As the operating and business environment changes, the Group companies’ risk management departments review the risk types and definitions,amending them as appropriate for new conditions.

Contingency Management System
SFH has established a contingency plan as part of theGroup’s comprehensive policy on business continuity fortimes when ordinary business operations of SFH or Group
companies are at risk due to accidents, system failures orother factors. Group companies have developed regulations,manuals and other guidelines reflecting their respective business volume and nature of business activities. SFH has asystem in place whereby Group companies report to SFH
when they are unable to continue ordinary business operations. If SFH determines that a reported situation is difficult toaddress under the risk management system set forth in thefundamental principles for risk management, among otherguidelines, SFH shall establish a contingency response headquarters led by the President and Representative Director of
SFH and execute business continuity measures aimed at thefull restoration of all operations.

Introducing the Group’s ERM Framework
The Sony Financial Group introduced its ERM framework infiscal 2016.
▶ Page 20: Vision and Strategies Sony Financial GroupSony Financial Holdings Inc. Annual Report 201773

Dialogue with Shareholders and Other Investors
For constructive dialogue with shareholders and other investors, SFH has formulated the Investor Relations (IR) Policy, establishedthe department in charge of IR activities and assigned a corporate executive to oversee IR activities. The department in charge of IR
activities shares information appropriately with SFH’s business execution departments and Group companies in order to disclose
information in a timely, accurate and fair manner, and provide ample opportunities for dialogue with shareholders and other investors.
SFH conducts presentations and individual meetings in a variety of formats, and engages in dialogue, centered on the president
and senior management. In addition, SFH strives toward enhanced disclosure of information via various IR tools (e.g., website information and annual reports).
Feedback and requests obtained through dialogue with shareholders and other investors are regularly reported to senior management to reflect on and improve their operations.
▶ “IR Policy” on SFH’s website, http://www.sonyfh.co.jp/en/financial_info/ir_policy.html

Investor Relations (IR) Initiatives in Fiscal 2016
SFH held its corporate strategy meeting for institutional investors and analysts with participation from top management at
the Company and Group companies. In addition, top management at SFH made visits not only within Japan but also to theUnited Kingdom, the United States, Hong Kong and Singapore
to have meetings individually with institutional investors. Also of
note, the Company’s IR website earned high marks in several
ranking surveys.

Corporate strategy meeting for domestic institutional investors andanalysts (May 2017)

Record of IR Activities

Facilitating the Exercise of Voting Rights
SFH undertakes the following activities as part of its efforts increating an environment that invigorates the general meeting ofshareholders and facilitates the exercise of voting rights.

Earnings briefings (teleconferences withdomestic institutional investors and analysts)

4 times

Corporate strategy meeting

1 timeIndividual meetings with institutional investors
and analysts

Approx. 210

Overseas IR meetings (UK, USA, Hong Kong,
Singapore)Total
4 times

Briefings for individual investors

9 times

Participation in an IR fair for individual investors

1 timeBusiness briefings (small meetings for domestic
institutional investors and analysts)

1 time• SFH sends out the Notice of Convocation for the general meetingof shareholders as early as possible.
• SFH sets the meeting date to avoid dates on which other companies’ annual general meetings of shareholders are concentrated.
• SFH uses an electronic voting platform.
• SFH provides a partial translation of the Notice of Convocation
in English.
• SFH utilizes its website to disclose the Notice of Convocation for
the general meeting of shareholders and the final shareholder
voting results.

Annual IR Schedule
Announcement of
Full-year Consolidated Financial Results

Apr.

May
Corporate
strategy meeting

74

Jun.

Announcement of
1Q Consolidated Financial ResultsJul.

Ordinary
General Meetingof Shareholders

Sony Financial Holdings Inc. Annual Report 2017

Aug.

Sep.
Annual Report

Announcement of
2Q Consolidated Financial Results

Announcement of
3Q Consolidated Financial Results

Oct.

Jan.

Nov.

Dec.

Feb.

Mar.

Contributions to Sustainable Development Corporate Social Responsibility (CSR)

Sony Financial Group’s CSR
Contributions to Sustainable Development

The Sony Financial Group believes that contributing to sustainable social development through the provision of fi nancial services
that reflect real customer needs constitutes the core of corporate social responsibility (CSR). With the highest level of ethics and astrong sense of purpose, we strive to continuously improve corporate value by engaging in sound, responsible business activities.
Seeking to be the most trusted financial group, we work to contribute to society as a good corporate citizen.
The Sony Financial Group has formulated the following Basic CSR Policy, and each company in the Group proactively conducts various CSR initiatives through its business activities. The various departments in SFH exchange information with Group
companies to monitor their CSR initiatives.

Basic CSR Policy
The Sony Financial Group believes that a special commitment to the public good is demanded of a financial services company, and seeks
to achieve its corporate vision and thus give back to society by upholding the highest level of ethics and a strong sense of purpose.
1. We recognize that a corporation’s fundamental responsibility to society is contributing to economic growth through sound businessactivities, and we will fulfill this responsibility by providing high-value-added products and high-quality services.
2. We will esteem our relationships with customers, shareholders, employees, business partners, local communities and all other stakeholders in the Sony Financial Group, and we will make management decisions while considering the impact on each stakeholder group.
3. In carrying out business operations, we will strictly comply with laws, regulations, company rules, policies and other requirements.
4. We will respect the human rights of all and ensure sound employment and labor practices.
5. In all aspects of our business activities we will act in consideration of protecting the environment to help bring about a sustainable
society.
6. We will disclose information in an appropriate and timely manner to obtain the trust and support of the Sony Financial Group’s stakeholders.

Dialogue with sales employees, surveys, callcenter, website, opinion/complaint/inquiry
hotline, and public relations

Customers
Shareholders andother investors
General Meeting of Shareholders,Shareholder Newsletter; IR briefings;
information provided by website anddisclosures; and public relations▶ Page 74: Dialogue with

Business partners
Fair trading based on “Conflicts ofInterest Policy,” “Basic Policy on
Eradicating Anti-social Forces,” and“Policy for Preventing Corruption”;
solidarity and cooperation in business;cooperation with industry
associations, etc.

SFH

Shareholders and Other Investors
stors

Local communities

Social contribution activities
and public relations

Employees

Education and training, employee opinion surveys,
labor-management consultation, and systems toaddress inquiries and complaints

Sony Financial Holdings Inc. Annual Report 201775

Communication with Stakeholders
Customers
Utilizing Customer Feedback
Sony Financial Group companies have in place a framework under which feedback received from each company’s customers on adaily basis is compiled and analyzed by divisions in charge of promoting customer satisfaction and raising quality. This feedback isreported to management and used to make recommendations on operational improvements and product and service enhancements. As a result of this approach, the Sony Financial Group’s three businesses—life insurance, non-life insurance, and banking—have received high appraisals in customer satisfaction surveys conducted by outside institutions and the media.
Sony Life
Sony Life conducts annual customer awareness surveys by
post, and in fiscal 2016 received valuable feedback from 5,757
policyholders. Since fiscal 2013, the company has been conducting telephone customer satisfaction surveys for Lifeplanner
channel policyholders and is able to assess customer satisfaction levels in such areas as frequency of visits, provision of information on new products and services, and speed of responses.
Sony Life analyzes feedback from customers and formulates
specific improvement measures and plans, which it shares withvarious internal departments in an effort to improve services.
Shorter Wait Time for Payment of Insurance Claims
and Benefits
In November 2016, Sony Life debuted an immediate
remittance system and shortened the payment period for
insurance claims and benefits. Previously, payments for
insurance claims and benefits were made the day after
the necessary procedures had been completed. With the
new system, however, insurance claims and benefits forwhich procedures were completed within a certain
timeframe will be paid—remitted—on the same day thatprocedures were completed. Through changes, particularly to this system and workflow, the time from receipt of
documentation to payment for around 50% of insurance
claims and benefits has been shortened by a day.
Launch of Industry’s First Benefit Claims Support
Tool on Website
To address the needs of customers who simply want tofind out how much they would be eligible for in the eventof hospitalization or surgery, in March 2017 Sony Life
launched a benefit claims support tool on its website thatenables customers to get a rough estimate of benefits
for hospitalization and surgery.
Introduction of Life Insurance Trusts throughLifeplanner Sales Employees
Responding to feedback from customers with concerns
about the ability of beneficiaries and guardians to properly utilize death benefits upon the policyholder’s deathas well as requests for advice from heirs, Sony Life
began handling products, including life insurance trusts,
from Sumitomo Mitsui Trust Bank, Limited, through its
Lifeplanner sales employees. Through this tie-up, Sony
Life will be able to meet a wider array of customer needs
and offer a greater range of services.
▶ Page 37: Review of Operations and Analysis of Operating
Performance

76

Sony Financial Holdings Inc. Annual Report 2017

Sony Assurance
Leveraging its unique advantage as an insurer that communicates directly with customers, Sony Assurance listens closely
to its customers and strives to improve services as required
and provides updates on specific improvement measures via
its website. In addition, customer feedback is centrally managed, compiled and analyzed on a monthly basis by the Customer Response Service Department. Feedback is reported
to management every quarter, and in particularly important
cases, detailed reports are made on the causes of incidents
and countermeasures are recommended as necessary. The
feedback is also passed on to relevant departments, alongwith instructions on improvements and other matters. Basedon this feedback, the company encourages daily efforts toenhance services and provide services of higher quality inmeeting the needs of its customers. This commitment has
earned Sony Assurance a solid reputation in customer satisfaction surveys conducted by third parties.

Approach Using SMS—For Easier-to-Understand,More Convenient Communication
Sony Assurance initiated an approach that takes the information collected from customers over the phone to build aquote and makes it accessible online so that customers do
not have to go through the hassle of reinputting information
already given at the time of phone inquiry. In conjunction, forcustomers with smartphones, the company uses a shortmessage service (SMS) for sending texts to the URL of acustomer-only gateway—the quote confirmation page—on
its website. The company is working to simplify the online
quote-checking process through the use of SMS.
Through this approach, the number of inquiries regarding access to the quote confirmation page has declined,
indicating that Sony Assurance has been able to make theprocess easier to understand. Given this result, the company began using SMS for other services as well, including
procedures for changing the vehicle covered under the policy. Going forward, the company will continue its efforts toprovide even better services.

Reflecting Customer Feedback in BusinessIn recent years, customers of Sony Financial Group companies have often asked for advice regarding nursing care andhealth care in later life. In November 2013, the Sony Financial
Group added the nursing care business to its business portfolio, seeking to evolve into a corporate group that follows
customers through all stages of life and provide the basis forliving comfortably, with dignity and peace of mind.
▶ Page 30: Vision and Strategies Nursing Care BusinessContributions to Sustainable Development

Sony Bank
Heeding the feedback from customers, and to provide evenbetter products and services, Sony Bank reviews the comments and requests from customers and strives to make
improvements. Specific feedback and related details are madeavailable on the Voice of Customer webpage of Sony Bank’s
website. Reflecting its efforts to improve services based on
customer feedback, in fiscal 2016 Sony Bank was awarded afive star certification, with recognition in the inquiry desk andweb support portal categories of the Five Star Certification
Program administered by HDI-Japan.
Note: The five-star recognized center mark can be used when a three-star center providing outstanding services from a customer perspective is recognized for excellence in conducting center operations.

Enhanced Sony Bank WALLET Service—Enabling
Payments through Foreign Currency Deposits for
Teenagers
As Sony Bank’s foreign currency deposits were initiallytargeted at customers of ages 20 and above, so was theSony Bank WALLET service to pay for purchases
through foreign currencies. However, as the cash card
enables easy local-currency withdrawals at overseas
ATMs and, unlike a credit card, cannot be used for purchases exceeding the account balance, the Sony BankWALLET service was sought after by customers whowanted this service available for their children whenstudying or traveling abroad. Accordingly, in November
2016 Sony Bank made some foreign-currency transactions available to children of ages 15 and above, thus
enhancing the convenience of Sony Bank WALLET. The
opinions of customers are much appreciated by Sony
Bank, and the company will continue to strive to provide
services fine-tuned to the increasingly diverse financial
needs of its customers.

Business Partners
The Sony Financial Group seeks to promote fair and equitable transactions with institutions that provide financial products andservices and with suppliers and vendors of goods and services, along with insurance agencies, and maintain healthy relationships with all of its business partners and thereby contribute to the sustainable development of society.

Fair Trade
The Sony Financial Group has established the Conflicts ofInterest Policy, the Basic Policy on Eradicating Anti-social
Forces and the Policy for Preventing Corruption. As stated inour code of conduct, we comply with all applicable laws andregulations and conduct business activities ethically and ingood faith. We engage in fair trade practices with all business
partners on this basis.

Partners (Independent Agents)
Sony Life’s Partners (Sony Life refers to independent agentsas “Partners” not only because they are partners from abusiness standpoint but also because they are the lifelong
partners of customers) constitute a critically important sales
channel alongside Lifeplanner sales employees. Sony Life
provides various systematic training programs for Partners
and training related to products, along with expertise on
sales tailored to customer needs based on sales processes
developed by the Company over the years.
Based on the desire to provide high-quality services
closely tied to regional communities, Sony Life’s approximately 1,818 Partners around the country, as of March 31,
2017, faithfully fulfill their responsibilities as Partners tocustomers.

Sony Financial Holdings Inc. Annual Report 201777

Cooperation with the Sony GroupThe Sony Financial Group ensures a certain degree of independence from the Sony Group and maintains a fair, equitable and healthy relationship. Through this group-group connection, the Sony Financial Group will draw on theadvanced technological expertise of the Sony Group andpromote cooperation to provide high-quality services to its
customers.
Introduction of Genomic Information Provision
Services of P5, Inc.
In March 2017, Sony Life’s Lifeplanner sales employees
began introducing the genomic information provision
services of P5, Inc., a Sony Group company. Throughthese services, Sony Life supports customers in making
healthy lifestyle choices and expanding possibilities fortreatment in the event, however remote, that they areaffected by cancer.

Provision of Hoshii Mono Navi Beta, Asset Formation
Simulation Tool
Sony Bank began providing its Hoshii Mono Navi Beta
developed by Sony Computer Science Laboratories
using inherent know-how and ideas. This simulation tool
presents ways to save money for several purposes andfacilitates the search for a savings-building plan that ismatched to the individual and not too hard to achieve.
Sony Bank will work to develop financial services that utilize the advanced technological expertise of the Sony
Group and will provide services featuring a high level ofconvenience that are perfectly matched to the needs ofeach and every customer.

Employees
Employee Education
In addition to training at each Group company, training is jointly conducted at the Group level to encourage everyone to acquire awider understanding of the Group’s business pursuits overall. These programs include life-planning courses, explanations of eachcompany’s business activities and workplace tours. Orientation for new graduates and training for employees in their second year
are also conducted together as a Group.

Sample Programs and Initiatives for the Development of Employees
Self-development ProgramGroup training sessions and opportunities to take correspondence courses for employees working independently todevelop their skills.

Management Skill-development
ProgramConducted jointly by Sony Financial Group companies as a part of efforts to improve the managerial capabilities ofmanagement-level employees.

In-house Inter-departmental
Training Program

Work experience in different departments for a certain period of time allowing for better understanding of different
operations or to achieve career plan objectives.

Training of Global Human Resources With an eye on overseas business expansion in the future, the Sony Financial Group is conducting initiatives, suchas overseas actuary training.

Training System for Lifeplanner Sales Employees at Sony LifeAll Lifeplanner sales employees complete a 36-month program after joining the company in order to develop a customer-first approach, theknowledge and skills required of an insurance and finance professional, and appropriate conduct.
Graduation test 1

78

Necessity of life insurance

Join the company
Beforejoining
C.I.P.
4 timesfor atotal of
8 hours

Sony Financial Holdings Inc. Annual Report 2017

Graduation test 12
Death protection

Life/death consulting

1 month Start of sales

Graduation test 24

Comprehensive risk response

12 months

24 months

IndependenceLife plan support

36 months

B.T.P. 6
B.T.P. 1
1 month
after joining

B.T.P. 12
B.T.P. 24
B.T.P. 36
O.J.T. (Process meetings, role playing, apprentice field work)

New employee training

The Life Insurance
Financial planner Association ofcertification exam Japan’s exam

Certification exam

(As of July 1, 2017)

Attainedlevel

Branch training process

LifeplannerSales Employees
Training System

Follow-up training I

Follow-up training II

Foreign currency
denominated productcertification exam
Generalprocess exam

Follow-up training
Assurance certification exam
Mortgage loan certification examSpecial course exams
Variable insurance sales
certification exam

Advancedcourse exam

Kinzai Institute for Financial Affairs, Inc.
Japan Association for Financial Planners (JAFP)

JAFP
certification
training

Life Insurance University
course exams (6 fields)

2nd Grade
FP knowledge
exam

Total life consultant (financial
planner certified by The Life
Insurance Association of Japan)

2nd Grade
Certification in
Financial Planning(national qualification)
AFP

1st Grade
Certification in
Financial Planning(national qualification)
CFP® (top qualification)

Promotion of Diversity
The Sony Financial Group places significant emphasis on a spirit of diversity, to better address various changes in the environment
surrounding customers and their diverse value perceptions and to generate new value from different viewpoints. As the number of
employees increases, so does diversity within the Group from a human resources perspective, with a greater number of women,
foreign nationals and the mentally and physically challenged within the Group as well as more employees who are dealing witha range of situations, including childcare and nursing care. Various approaches are being applied to address these issues.

(1) Work-life Balance*Sony Assurance is the first direct non-life insurer to receive the certification
based on a survey by Sony Assurance conducted on August 29, 2012. Only
those companies that have received the Kurumin logo certification and haveconsented to be listed on the Ministry of Health, Labour, and Welfare’s
website were surveyed. A direct non-life insurer refers to a Japanese
non-life insurer that sells insurance products and provides services directly
to customers without relying primarily on an insurance agency.

Initiatives for Fiscal 2020
Each Group company is working to achieve the following
targets by March 31, 2021.
Sony Life

Sony AssuranceSony Bank

Average monthly overtime per employee
20 hours or less
Percentage of male employees taking childcare leave
13% or higher
Percentage of employees taking vacation leave
75% or higher
Average monthly overtime per manager/supervisor
30 hours or lessReturn-to-Work Seminar for Women on Maternity Leave
Sony Life holds a return-to-work seminar to support
women in their careers and their lives as mothers. Nearly
all women taking maternity leave successfully return towork after childbirth. In the seminar, the human resources
development department provides an explanation of theprocess leading up to their return to work and the system
to support work and parenting. The seminar is also an
opportunity for women to interact with others who havealready experienced this process, helping to eliminate theapprehension that some women on maternity leave may
have, thereby leading to a successful return to work.

“Smart Work Team” Event Regarding Approaches to WorkAs the first step in creating a Groupwide work environment
where everyone can play active roles, approaches to work
were revised from both individual and team perspectives. As
a new activity designed to reduce overtime, in October 2016
the Sony Financial Group held the “Smart Work Team” event
jointly conducted by all four companies—Sony Financial
Holdings, Sony Life*, Sony Assurance and Sony Bank.
The event unfolded over a month, with teams from eachdivision and section at each company considering measures to cut overtime under a format best suited to theirown operations, and then implementing those measures
to boost productivity in terms of time and task.
Many of the employees who participated expressed thatthey gained a new perspective—that cutting overtime on aGroupwide basis and leaving the office at a more reasonable
hour was a benefit. Even after the event ended, the measurestaken during the event continued, and the idea of revising
approaches to work has become entrenched. Going forward,
the Sony Financial Group will continue to encourage activities
in search for more effective and efficient ways to work.

Contributions to Sustainable Development

The Sony Financial Group promotes initiatives to help balance careers with private
lives. Since its establishment, Sony Life has
had a system in place that goes beyond
what is required by law to enable employees who are raising children to continue working. In June
2016, the company was recognized by the Ministry of Health,Labour and Welfare as a company actively supporting efforts
to raise the next generation of children. Moreover, Sony Assurance became the first direct non-life insurer to receive thiscertification*. Sony Bank implemented an action plan to help
employees balance child-raising responsibilities with work, andproduced a guidebook to promote widespread awareness of
support such as the social security system which can be usedby expecting parents for childbirth and child-raising. Goingforward, by continuing to help employees balance child-raising
responsibilities with work, Group companies will remain
focused on proactively creating a work environment that is
conducive to healthy childbirth and parenting.

*Sony Life participants came from the Otemachi and Nakano Sakaue
headquarters.

(2) Promotion of Women’s Empowerment
For future growth, the Sony Financial Group regards its female
employees as valuable human resources and equal to male
employees. When Sony Life was established, a female sales
force was the mainstream in Japan’s life insurance industry.
Regardless, Sony Life took the strategically bold step of deploying male Lifeplanner sales employees at the core of its sales
operations. As a result, it achieved growth through the sale ofpolicies tailored to customer needs based on the sophisticatedknowledge and consulting capabilities of its life insurance/financial professionals. However, as times changed, Sony Life heightened its efforts to attract female Lifeplanner sales employees, andby 2020, annual recruitment is likely to reach 100, or about
twice the current level. Sony Life established the Women’s
Empowerment Promotion Department, and not only supports
the hiring of female Lifeplanner sales employees but also directs
concerted efforts into the creation of a workplace where womencan continue to work with peace of mind through, for example,
the implementation of programs that enable women to maintaintheir jobs while also focusing on childcare and nursing care.

Initiatives for Fiscal 2020
Each Group company is working to achieve the following
targets for female managers by March 31, 2021.
Sony Life

Sony AssuranceSony Bank

Percentage of females in management positions*1
20% or higher*1 Head office manager, assistant manager
Percentage of females in management positions*2
15% or higher*2 Assistant manager or higher
Percentage of females in management positions*3
15% or higher*3 Senior manager or higher
Sony Financial Holdings Inc. Annual Report 201779

Local Communities
Sony Life Volunteer Club

Life-planning Course Given at over 1,000 Schools

Social contribution is a well-established part of the corporate
culture at Sony Life, where many employees discover the valueof volunteer activities and contribute to society under the slogan “One Love One Trust.” For example, the Sony Life Volunteer Club was established by Sony Life employees in the wakeof the Great Hanshin–Awaji Earthquake, and the Reconstruction Support Council was set up right after the Great East
Japan Earthquake. In both groups, activities are undertaken byindividuals, using donations from employees, and it is themembers themselves who come up with and carry out a wide
range of initiatives.

Since fiscal 2006, Sony Life has conducted life-planning courses,
a hands-on learning program for students nationwide. Courses
are conducted by Lifeplanner sales employees. The program isdesigned to foster students’ appreciation for the importance ofleading a well-planned life, and working hard toward goals.
This program was launched following feedback from seniorhigh school teachers indicating that “by utilizing life planning, wewant to create opportunities for students to set future goals.” It
is an experiential, classroom-based program in which students,
with their whole lives ahead of them, visualize their personal
dreams and aspirations. Lifeplanner sales employees serve aslecturers, providing advice on the funds necessary to achievethese and other goals, and offering support to enable students tosee if their life plans are achievable from an economic standpoint.
Feedback from the students has been positive, with comments such as “With effort and ingenuity, I felt as if I could realize
my dreams,” “It was a good opportunity to think about my future
lifestyle and career,” and “I felt grateful that my parents are making ends meet to cover my living and educational expenses.”
By providing opportunities to think about life and money,
Sony Life hopes many members of the next generation are able
to make their own choices in their paths of life.

Selection of Major Activities (By Sony Life Volunteer Club)• Continuing support for the elderly victims of the Great Hanshin–
Awaji Earthquake• Support for the Special Olympics Nippon Foundation* event• Hosting youth education events at care houses• Operational support for the Oita International Wheelchair Marathon• Support for the Relay for Life** event• Activities to support reconstruction after the Great East Japan
Earthquake*What is the Special Olympics Nippon Foundation?
Special Olympics Nippon is a public-interest incorporated foundation that provides opportunities for daily sports training to intellectually challenged people
throughout the year, while promoting their social participation through organizing athletic competitions for them to demonstrate their achievements.
**What is Relay for Life?
Relay for Life is a worldwide charity event that persons battling cancer, theirfamilies and those who have lost loved ones to the disease run laps arounda track for 24 hours to promote the eradication of cancer.

Sony Financial Group’s Donations and Grants for
Fiscal 2016
Main Recipients of Donations and Other Assistance¥11,000,034

Kumamoto Earthquake Relief Fund

10,429,450

The Eye Mate, Inc. and its supporting groups

6,798,869

The General Insurance Association of Japan

5,959,803

Special Olympics Nippon Foundation

5,150,000

Purchase of green power and J-Credits in fiscal 2016

3,101,970

World Wide Fund for Nature Japan (WWF Japan)

1,106,300

The Tokyo Philharmonic Orchestra Public Interest
Incorporated Foundation

1,000,000

Sony Education Foundation

1,000,000

Project Hand in Hand Japan

1,000,000

Others (incorporated associations, incorporated
foundations, academic societies, and others)
Total

80

AmountNPO Sorabear Foundation

Sony Financial Holdings Inc. Annual Report 2017

1,904,780¥48,451,206

Life-planning Course given by Sony Life
Life-planning Course

FY2016

Number of schools
145
Number of participating students
18,223Cumulative total Number of schools
1,045 (cumulative)(FY2006–FY2016) Number of participating students
110,591

Social Contribution Activities as an Institutional Investor
As an institutional investor, Sony Life, a subsidiary of SFH, hasannounced its adoption of Japan’s Stewardship Code—a set ofprinciples guiding the responsibilities of institutional investors.
Note: Please refer to the following website for information about Sony
Life’s basic stance and exercise of voting rights with respect toJapan’s Stewardship Code (Japanese only):
http://www.sonylife.co.jp/company/management/jsc/

Environmental Protection Activities
The Sony Financial Group recognizes that humankind faces a critical challenge in protecting the global
environment. The major subsidiaries have each established environmental policies, and through everyday
business activities, they carry out initiatives that give due consideration to environmental protection.

Group Company Activities
Sony Life became the first Japanese life
insurance company to introduce a GreenPower Certification System, which enables
companies to use green power in their business activities and thus reduce CO2 emissions. Sony Assurance and Sony Bank
adopt the J-Credit Scheme* to help reduce
CO2 emissions. Sony Bank offsets 100% of CO2 emissions
caused by its power usage (excluding the portion of powerusage in outsourced operations) as a “Carbon Offset Bank.”
In this way, each Group company contributes to the wider
use of natural sources of power, such as solar and wind
power, geothermal power, and biomass. In fiscal 2016, theentire Group purchased green power certificates and J-Credits
equivalent to 1,650 MWh.

*The J-Credit Scheme is a system whereby the government certifies credits forthe reduction or absorption of greenhouse gas emissions such as CO2
through measures including the introduction of energy-saving equipment orforest management.

Contributions to Sustainable Development

Use of Green PowerAcquisition of ISO 14001 Certification
Sony Life, Sony Assurance and Sony Bank* have acquired
ISO 14001 certification, the international standard for environmental management systems. All three companies promoteenergy-saving and natural resource-saving activities such as
targets for reduced energy and photocopier paper usage, andgreen procurement to raise the percentage of eco-products
used in office supplies.
*ISO 14001 certification covers the head offices of Sony Life and Sony Assurance, along with Sony Bank’s head office and the Housing Loan Plaza. The
Sony Financial Group conducts regular internal environmental audits of ISO
14001-certified offices, and the audit results are reported to top management.

Conservation Activities Together with Customers
Donating to the Sorabear Foundation
Automobile insurance, one of Sony Assurance’s mainstay
products, supports the automotive lifestyles of its customers.
While automobiles add affluence and convenience to our lives,
exhaust gases emitted while driving are a cause of global
warming. For this reason, Sony Assurance considers promoting initiatives to prevent global warming, even a little, is its
social responsibility. Teaming up with the Sorabear Foundation, a non-profit organization that promotes the spread ofrenewable energies and environmental education, Sony Assurance has carried out a program to install solar power generators at kindergartens since 2009.
Donations to the Sorabear Foundation are used to provide
Sorabear power generation equipment—solar power generators—to kindergartens and nursery schools around the country.

Ceremony for the donation of Sorabear power generation equipment
to Kitade Welfare Organization NawateSumire pre-school, in Osaka, inMarch 2017.

In fiscal 2016, the program contributed two solar power generators to a kindergarten and nursery school in Chiba and Osaka
prefectures. To date, Sony Assurance has donated a total of 20
solar power generators through this program (as of July 1, 2017).

Reducing CO2 Emissions by Switching to Paperless
Contract Procedures and Electronic Issuance ofDocuments for Customers
The Sony Financial Group has been striving to conserve paper
resources and cut down on CO2 emissions related to postal
mailings by shifting to paperless documentation for certain
contract procedures and transactions.
Sony Life has adopted paperless application procedures
for life insurance policies by equipping its sales force withapproximately 5,000 tablet devices as part of its sales support
system. As a result, Sony Life has reduced use of copier paper
by around five million sheets annually.
In addition, Sony Bank asks its customers to switch toelectronic delivery of investment trust transactional documents.
Sony Assurance has made it possible to apply for automobile insurance policies and medical policies online, thereby
avoiding the need for printing and mailing of insurance application forms and other documents. Also of note, Sony Assurance
takes an environmentally conscious approach to resources,
exemplified by a paperless insurance certificate discountof ¥500 on automobile insurance premiums when customers
who buy a policy online opt not to have certificates of insurance
and other documents printed and mailed.

Sony Financial Holdings Inc. Annual Report 201781

Corporate Section

82

Sony Financial Holdings Inc. Annual Report 2017

Corporate Information(As of March 31, 2017)

Sony Financial Holdings Inc.

Established

April 1, 2004

Head office

1-9-2, Otemachi, Chiyoda-ku, Tokyo, Japan

Business

Management control of subsidiaries (life insurance companies, a non-life insurance company, a bank and others)
specified by the Insurance Business Act of Japan and the Banking Act of Japan and all duties incidental to that role.

Number of employees(As of March 31, 2017)

SFH: 74(Consolidated: 9,739, Life insurance business: 7,861, Non-life insurance business: 1,201, Banking business: 573,
Parent: 49)

Common stock¥19,900 million

Corporate Section

Name

Note: The number of employees of SFH includes 10 belonging to the life insurance business, 1 belonging to the non-life insurance business, 8 belonging to thebanking business, and 55 belonging to the parent.

Organizational Chart(As of July 1, 2017)
Sony Financial Holdings Inc.
General Meeting of Shareholders

Board of Statutory Auditors
Statutory Auditors

Board of Directors

Audit Department
Executive Committee
Business Execution Departments
Corporate Planning
Department

Corporate
Communications &Investor Relations
Department

Risk Management
Department

ComplianceDepartment

Accounting
Department

Human Resources
Department

General Affairs
Department

FinancialMarket Research
Department

Sony Financial Group Organizational Chart of Business Operations (Primary Businesses)(As of July 1, 2017)
Sony Corporation

Sony Financial Holdings Inc.

Life Insurance BusinessSony Life Insurance Co., Ltd.

Life Insurance Business
AEGON Sony Life Insurance Co., Ltd.

Consolidated subsidiaries
Affiliate accounted for by
the equity method

Non-life Insurance BusinessSony Assurance Inc.

Life Insurance Business
SA Reinsurance Ltd.

Sales of and referrals to other Group companies’ products
Shareholding

Banking BusinessSony Bank Inc.

Banking BusinessSony Payment Services Inc.

Banking Business
SmartLink Network Hong Kong Limited

Note: Information for each business is based on SFH’s classification of segments.
In addition to the segments noted above, Sony Lifecare Inc., a holding company which oversees the nursing care business, and Lifecare Design Inc.,a nursing care business, are included in the scope of consolidation.

Sony Financial Holdings Inc. Annual Report 201783

Profiles of Group Companies(As of July 10, 2017)

Life Insurance Business
Name

Established

Head officeBusiness

CommonstockSony Life Insurance Co., Ltd.

August 10,
1979

1-9-2, Otemachi,
Chiyoda-ku,
Tokyo, Japan

Life insurance
business¥70,000 Sony Financial Holdings Inc.
million100%

AEGON Sony Life
Insurance Co., Ltd.

August 29,
2007

5-52-2, Jingumae,
Shibuya-ku,
Tokyo, Japan

Life insurance
business¥15,000 Sony Life Insurance Co., Ltd.
million50%

British Bermuda

Reinsurance
business

SA Reinsurance Ltd.

October 29,
2009

Share ownership

AEGON International B.V.
50%
¥15,900 Sony Life Insurance Co., Ltd.
million50%
AEGON International B.V.
50%

Non-life Insurance Business
Name

Established

Head officeBusiness

CommonstockSony Assurance Inc.

June 10,1998

5-37-1, Kamata,Ota-ku, Tokyo, Japan

Non-life insurance
business¥20,000 Sony Financial Holdings Inc.
million100%

Name

Established

Head officeBusiness

CommonstockSony Bank Inc.

April 2,2001

3-26, Kanda-Nishikicho,
Chiyoda-ku,
Tokyo, Japan

Banking business¥31,000 Sony Financial Holdings Inc.
million100%

Credit card
settlement
services¥488
millionSony Bank Inc. 57%,
4 other companies

Hong Kong, China

Credit card
settlement
services¥13
millionSony Payment Services Inc.
100%

Banking BusinessSony Payment
Services Inc.

September 1, 1-3-13, Takanawa,
2006
Minato-ku,
Tokyo, Japan

SmartLink Network February 27,
Hong Kong Limited 2013

Other (Nursing Care Business)

84

Share ownership

Share ownership

Commonstock

Share ownership¥2,625
millionSony Financial Holdings Inc.
100%

Name

Established

Head officeBusinessSony Lifecare Inc.

April 1,
2014

3-11-11, Shibuya,
Shibuya-ku,
Tokyo, Japan

Management
control of companies
handling the nursing
care business, andother duties incidental
to that role

Lifecare Design Inc.

October 5,
1999

3-11-11, Shibuya,
Shibuya-ku,
Tokyo, Japan

Planning, development ¥1,045
millionand operation ofnursing care homes

Sony Lifecare Inc.
100%

Yuuai Holdings Co., Ltd.

April 5,2012

2-8-4, Kitasaiwai,
Nishi-ku, Yokohama,
Kanagawa Prefecture, Japan

Management
control of companies
handling the nursing
care business, andother duties incidental
to that role

¥1,010
millionSony Lifecare Inc.
100%

Kabushiki Kaisha
Yuuai

May 9,
2002

2-8-4, Kitasaiwai,
Nishi-ku, Yokohama,
Kanagawa Prefecture, Japan

Planning, development ¥10
millionand operation ofnursing care homes

Yuuai Holdings Co., Ltd.
100%

Kabushiki Kaisha
ManyouJuly 3,2006

2-8-4, Kitasaiwai,
Nishi-ku, Yokohama,
Kanagawa Prefecture, Japan

Planning, development ¥3
millionand operation ofnursing care homes

Yuuai Holdings Co., Ltd.
100%

Sony Financial Holdings Inc. Annual Report 2017

Stock Information

Information on Common Stock, Shares Outstanding
Date

April 1, 2004 (Note 2)
June 25, 2004 (Note 3)
October 10, 2007 (Note 4)
March 31, 2011
April 1, 2011 (Note 5)

2,000,000
100,000
75,000—432,825,000

2,000,000
2,100,000
2,175,000
2,175,000
435,000,000

Increase inCommon Stock(Millions of yen)

Common Stock(Millions of yen)

Increase in
Capital Surplus(Millions of yen)

Capital Surplus(Millions of yen)

500
5,000
14,400
—
—

500
5,500
19,90019,90019,900175,877
5,000
14,400——175,877
180,877
195,277
195,277
195,277

Corporate Section

Increase in Issued Total Number of
SharesShares Issued

Notes: 1. The shares outstanding listed above are all common stock with full voting rights and no restrictions, which are the standard shares of SFH.
2. Issued due to the Company’s establishment.
3. Issued in a private placement of 100,000 shares (0.05 shares for each share) to shareholders for an issue price of ¥100,000 per share. The amountadded to common stock was ¥50,000 per share.
4. Issued in a general book-building offering for an issue price of ¥400,000 per share and an underwriting price (the amount paid) of ¥384,000 per share.
The amount added to common stock was ¥192,000 per share and the total amount paid was ¥28.8 billion.
5. Issued due to a 200-for-1 stock split, with an effective date of April 1, 2011. Furthermore, the share unit system was adopted, whereby 100 sharesconstitute one unit.

Stock Exchange Listing(As of July 1, 2017)

The First Section of the Tokyo Stock Exchange (Securities code: 8729)

Major Shareholders(As of March 31, 2017)
Name

Number of
Shares Held

Percentage ofOwnership (%)

Sony Corporation
Japan Trustee Services Bank, Ltd. (Trust Account)
The Master Trust Bank of Japan, Ltd. (Trust Account)
STATE STREET BANK AND TRUST COMPANY
Trust & Custody Services Bank, Ltd. (Securities Investment Trust Account)
Japan Trustee Services Bank, Ltd. (Trust Account 5)
BBH FOR FIDELITY LOW-PRICED STOCK FUND (PRINCIPAL ALL SECTOR SUBPORTFOLIO)
Japan Trustee Services Bank, Ltd. (Trust Account 9)
Trust & Custody Services Bank, Ltd. (Investment Trust Collateral Account)
THE BANK OF NEW YORK 133972

274,050,000
13,637,337
11,376,700
7,946,518
4,267,600
3,473,100
2,784,500
2,715,800
2,698,105
2,624,200

63.00
3.13
2.61
1.82
0.98
0.79
0.64
0.62
0.62
0.60

Distribution of Share Ownership(As of March 31, 2017)

By shareholder type
Financial instruments firms 1.87%
Foreign investors 18.79%

Total number of shares issued

435,000,000

Financial institutions 13.18%
Corporations 63.13%

Individuals and others 3.03%

Sony Financial Holdings Inc. Annual Report 201785

Dividend Policy
Dividends

Profit Attributable to Owners of the Parent

FY2013

FY2014FY2015FY2016FY2017 (Forecast)¥40.5 billion¥54.4 billion¥43.3 billion¥41.6 billion¥42.0 billion

Net Income per Share¥93.11¥125.10¥99.67¥95.69¥96.56

Dividend per Share

¥30

¥40

¥55

¥55

¥55

32.2%

32.0%

55.2%

57.5%

57.0%

(Reference) Dividend Payout Ratio

Basic Policy on Returning Profits to Shareholders
SFH aims for steady increases in dividends in line with earnings growth over the medium to long term, while securing suffi cientinternal reserves to ensure the financial soundness of Group companies and to invest in growth fields. Management will examine
earnings growth over the medium to long term by taking into account not only statutory profit but also other economic value-based
profit indicators that are more suitable for valuing the growth of the life insurance business. Furthermore, management will determine specific dividend amounts for each year by taking into account a comprehensive range of factors surrounding the SonyFinancial Group.
SFH pays dividends once a year as a year-end dividend. The Articles of Incorporation of SFH stipulate that it may also issue
an interim dividend. In regard to the decision-making entities for the payment of dividends, the General Meeting of Shareholders
decides the year-end dividend, while the Board of Directors decides the interim dividend.
Dividends for the year ended March 31, 2017 were ¥55 per share (total amount of dividends: ¥23,922 million). This wasapproved by resolution of the Ordinary General Meeting of Shareholders held on June 21, 2017.
For the year ending March 31, 2018, SFH forecasts dividends of ¥55 per share, unchanged from the amount for the previous
period. The dividends based on the above Basic Policy on Returning Profits to Shareholders are expected to be 50% or more of
net income per share for the foreseeable future.

Share Price

Yen
2,500

2,000

1,500

1,000

500

0

Trading Volume

4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6
2014
2015
2016
2017

Thousand shares
90,00060,00030,000086

4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6
2014
2015
2016
2017

Sony Financial Holdings Inc. Annual Report 2017

Financial Section

Financial Section
SFH Consolidated
Financial Statements

Consolidated Balance Sheets

88

Consolidated Statements of Income andConsolidated Statements of Comprehensive Income

90

Consolidated Statements of Changes in Net Assets

93

Consolidated Statements of Cash Flows95

Notes to the Consolidated Financial Statements(For the year ended March 31, 2017)96

MCEV Results for Sony Life as of March 31, 2017

116

Sony Financial Holdings Inc. Annual Report 201787

SFH Consolidated Financial Statements

Consolidated Balance Sheets
Sony Financial Holdings Inc.
As of March 31, 2016 and 2017
Millions of yen
2016

2017

AssetsCash and due from banks

144,364¥

206,481Call loans and bills bought

88,20061,900

Monetary claims purchased

884

573

303,973

296,877

Securities

8,021,493

8,857,436

Loans

1,515,833

1,720,004

121,376

123,614Land

83,00783,007

Buildings

33,21534,964

Leased assets

40

715

Construction in progress

213

132

Other tangible fixed assets

4,900

4,794

29,88730,776

Software

29,83630,146

Goodwill

19

49

Other intangible fixed assets

31

579

Due from agencies—0

Due from reinsurers

399

1,438

Foreign exchanges

1,139

7,268

115,474

148,650

Net defined benefit asset

2,216

2,752

Deferred tax assets

8,181

15,313

Reserve for possible loan losses(1,308)(1,243)¥10,352,114¥11,471,845

Money held in trust

Tangible fixed assets

Intangible fixed assets

Other assets

Total Assets

88¥Sony Financial Holdings Inc. Annual Report 2017

Financial Section

Millions of yen
2016

2017

¥ 7,504,420¥ 8,113,153

Liabilities
Policy reserves and others
Reserve for outstanding claims
Policy reserves
Reserve for policyholders’ dividends
Due to agencies
Due to reinsurers
Deposits
Call money and bills soldBorrowed money
Foreign exchanges

67,17771,306

7,432,237

8,036,118

5,006

5,729

2,455

2,616

626

3,737

1,912,592

2,071,091—

70,00040,00090,00087

108

Bonds payable

20,00010,000

Other liabilities

183,835

427,866

Reserve for employees’ bonuses

3,557

3,694

Net defined benefit liability

29,26331,399351

366

44,41046,182

44,41046,182

Reserve for directors’ retirement benefits
Reserve under the special laws
Reserve for price fluctuations
Deferred tax liabilities
Deferred tax liabilities on land revaluation
Total Liabilities

5,647

—

488

488

9,747,736

10,870,705

Net Assets
Shareholders’ equity
Common stock

19,90019,900Capital surplus

195,277

195,277

Retained earnings

238,079

255,062(0)(81)

453,256

470,157

Treasury stock
Total shareholders’ equity
Accumulated other comprehensive income
Net unrealized gains (losses) on other securities, net of taxes

157,364

134,849

Net deferred gains (losses) on hedging instruments, net of taxes(2,347)(1,154)

Land revaluation, net of taxes(1,465)(1,465)Remeasurements of defined benefit plans, net of taxes(3,760)(2,756)

149,791

129,472—

49

Total accumulated other comprehensive income
Subscription rights to shares
Non-controlling interests
Total Net Assets
Total Liabilities and Net Assets

1,329

1,460

604,377

601,139¥10,352,114¥11,471,845

See accompanying “Notes to the Consolidated Financial Statements.”

Sony Financial Holdings Inc. Annual Report 201789

Consolidated Statements of Income and Consolidated Statements of Comprehensive Income
Sony Financial Holdings Inc.
For the years ended March 31, 2016 and 2017

(1) Consolidated Statements of Income
Ordinary Revenues
Ordinary Revenues from the Life Insurance Business
Income from insurance premiums
Insurance premiums
Ceded reinsurance commissions
Investment income
Interest income and dividends
Income from money held in trust, net
Gains on trading securities, net
Gains on sale of securities
Gains on derivatives, net
Foreign exchange gains, net
Other investment income
Gains on separate accounts, net
Other ordinary income
Ordinary Revenues from the Non-life Insurance Business
Underwriting income
Net premiums written
Interest and dividends on deposits of premiums
Other underwriting income
Investment income
Interest income and dividends
Gains on sale of securities
Gains on redemption of securities
Transfer to interest and dividends on deposits of premiums
Other ordinary income
Ordinary Revenues from the Banking Business
Interest income
Interest income on loans
Interest income and dividends on securities
Interest income on call loans and bills boughtInterest income on deposits with banks
Interest income on interest rate swaps
Other interest income
Fees and commissions
Other operating income
Gains on foreign exchange transactions, net
OthersOther ordinary income
Other
Other ordinary income

Millions of yen
2016

2017

¥1,362,044
1,227,409
1,026,615
1,024,974
1,640
170,048
140,981
11,97398
12,2044,768—
21—
30,74596,904
95,612
95,549
62
0
1,264
1,313
12
—
(62)
27
37,731
25,481
14,73910,671
7
61
—
2
6,679
5,189
4,263
926
379
—
—

¥1,381,667
1,240,764
955,252
952,547
2,704
244,839
147,785
4,493
152
1,308
—
14,6705
76,42340,672
102,337
100,329
100,274
55
—
1,957
1,327
685
0
(55)
49
38,31826,534
16,065
10,394
—
63
8
1
6,673
4,871
4,431
439
238
247
247

(Continued on next page)90

Sony Financial Holdings Inc. Annual Report 2017

Financial Section

Millions of yen

Ordinary Expenses
Ordinary Expenses from the Life Insurance BusinessInsurance claims and other payments
Insurance claims
Annuity payments
Insurance benefits
Surrender payments
Other payments
Reinsurance premiums
Provision for policy reserves and others
Provision for reserve for outstanding claims
Provision for policy reserves
Interest portion of reserve for policyholders’ dividends
Investment expenses
Interest expenses
Losses on redemption of securities
Losses on derivatives, net
Foreign exchange losses, net
Provision for reserve for possible loan losses
Depreciation of real estate for rent and others
Other investment expenses
Losses on separate accounts, net
Operating expenses
Other ordinary expenses
Ordinary Expenses from the Non-life Insurance Business
Underwriting expenses
Net losses paid
Loss adjustment expenses
Net commission and brokerage fees
Provision for reserve for outstanding losses and claims
Provision for underwriting reserves
Other underwriting expenses
Investment expenses
Losses on sale of securities
Other investment expenses
Operating, general and administrative expenses
Other ordinary expenses

2016

2017

¥1,290,941¥1,315,341

1,169,419
363,370
84,283
11,496
74,842
184,936
5,711
2,099
613,480
4,185
609,291
2
23,095
53
1
—
2,798
5
1,825
3,675
14,735
132,896
36,57891,522
67,326
48,111
7,098
1,043
1,877
9,195
0
4
4
—
24,1883

1,186,465
372,407
84,17812,01998,252
168,409
3,122
6,423
596,7423,330
593,411
035,9374453
30,050
—
—
1,779
4,008
—
136,645
44,733
96,63970,09450,181
7,458
1,187
798
10,469—3
0
326,52019(Continued on next page)

Sony Financial Holdings Inc. Annual Report 201791

Consolidated Statements of Income (Continued)
Ordinary Expenses from the Banking Business
Interest expenses
Interest expenses on deposits
Interest expenses on call money and bills soldInterest on borrowed money
Interest expenses on bonds
Interest expenses on interest rate swaps
Other interest expenses
Fees and commissions
Other operating expenses
General and administrative expenses
Other ordinary expenses
Other
Other ordinary expenses
Ordinary Profit
Extraordinary Losses
Losses on disposal of fixed assets
Impairment losses
Provision for reserve under the special laws
Provision for reserve for price fluctuations
OthersProvision for Reserve for Policyholders’ Dividends
Income Before Income Taxes
Income Taxes-Current
Income Taxes-Deferred
Total Income Taxes
ProfitProfit Attributable to Non-controlling Interests
Profit Attributable to Owners of the Parent

Millions of yen
2016

2017

¥29,999
8,884
4,827
5
32
98
3,921
0
2,437
181
18,347
147——
71,103
2,793
882
470
1,440
1,440
—
3,564
64,744
26,191(4,856)
21,33543,40954¥43,355¥31,274
8,554
5,104
(17)
19
74
3,372
0
3,648
86
18,843142
962
962
66,326
2,032
134
118
1,772
1,772
7
4,153
60,14023,129(4,724)
18,40541,734
113¥41,621

See accompanying “Notes to the Consolidated Financial Statements.”(2) Consolidated Statements of Comprehensive Income
ProfitOther Comprehensive Income
Net unrealized gains (losses) on other securities, net of taxes
Net deferred gains (losses) on hedging instruments, net of taxes
Land revaluation, net of taxes
Foreign currency translation adjustments
Remeasurements of defined benefit plans, net of taxes
Total other comprehensive income
Comprehensive Income
Details:
Comprehensive income attributable to owners of the parent
Comprehensive income attributable to non-controlling interests

92

Sony Financial Holdings Inc. Annual Report 2017

Millions of yen
2016

2017

¥43,409¥ 41,734

30,198(261)
14(1)(2,254)
27,695¥71,105(22,515)
1,192
—
—
1,021
(20,301)¥ 21,433¥71,068¥37¥ 21,301¥131

Consolidated Statements of Changes in Net Assets
Sony Financial Holdings Inc.
For the years ended March 31, 2016 and 2017
Financial Section

Millions of yen
2016
Shareholders’ equity

Common stock

CapitalsurplusRetainedearnings

Treasury
stock

Total
shareholders’equity¥19,900¥195,277¥212,124¥(0)¥427,301——(17,399)—(17,399)————

43,355——(0)43,355(0)——¥19,900——¥195,277—
25,955¥238,079

—
(0)
¥(0)

—
25,954¥453,256

Balance at the beginning of
the period
Changes during the period
Dividends from surplus
Profit attributable to ownersof the parent
Purchase of treasury stock
Net changes of items otherthan shareholders’ equity
Total changes during the period
Balance at the end of the period

Millions of yen
2016
Accumulated other comprehensive income

Balance at the beginning of
the period
Changes during the period
Dividends from surplus
Profit attributable to ownersof the parent
Purchase of treasury stock
Net changes of items otherthan shareholders’ equity
Total changes during the period
Balance at the end of the period

Net unrealized Net deferredgains (losses) gains (losses)
on otheron hedging
securities,
instruments,
net of taxes
net of taxes

RemeasureTotal
Foreignments ofaccumulated
currency
definedothertranslation benefit plans, comprehensive Non-controlling
adjustments net of taxes
incomeinterestsLand
revaluation,
net of taxes¥127,166¥(2,086)¥(1,480)¥0¥(1,522)¥122,078¥1,292¥550,672

—

—

—

—

—

—

—

(17,399)

—
—

—
—

—
—

—
—

—
—

—
—

—
—

43,355(0)30,19830,198¥157,364

(261)
(261)
¥(2,347)14
14¥(1,465)

(0)
(0)
¥ —

(2,237)(2,237)¥(3,760)

27,71327,713¥149,791

37
37¥1,32927,75053,705¥604,377

Total net
assets(Continued on next page)

Sony Financial Holdings Inc. Annual Report 201793

Consolidated Statements of Changes in Net Assets (Continued)
Millions of yen
2017
Shareholders’ equity

Common stock

CapitalsurplusRetainedearnings

Treasury
stock

Total
shareholders’equity¥19,900¥195,277¥238,079¥ (0)¥453,256

—

—

105

—

105

19,900195,277

238,185(0)453,362——(23,924)—(23,924)——

41,621—

41,621

—
—

—
—

(818)
—

—
(81)

(818)
(81)

—
—
¥19,900——¥195,277—
16,877¥255,062

—
(81)
¥(81)

—
16,795¥470,157

Balance at the beginning of
the period
Cumulative effects of changes
in accounting policies
Restated balance at the
beginning of the period
Changes during the period
Dividends from surplus
Profit attributable to ownersof the parent
Adjustments due to changeof scope of consolidation
Purchase of treasury stock
Net changes of items otherthan shareholders’ equity
Total changes during the period
Balance at the end of the period

Millions of yen
2017
Accumulated other comprehensive income

Balance at the beginning of
the period
Cumulative effects of changes
in accounting policies
Restated balance at the
beginning of the period
Changes during the period
Dividends from surplus
Profit attributable to ownersof the parent
Adjustments due to changeof scope of consolidation
Purchase of treasury stock
Net changes of items otherthan shareholders’ equity
Total changes during the period
Balance at the end of the period

Net unrealized Net deferredgains (losses) gains (losses)
on otheron hedging
securities,
instruments,
net of taxes
net of taxes

Landrevaluation,
net of taxes

RemeasureTotal
ments ofaccumulated
definedotherbenefit plans, comprehennet of taxes sive income¥157,364¥(2,347)¥(1,465)¥(3,760)¥149,791

—

—

—

—

157,364(2,347)(1,465)———

Non-controllinginterests

Total net
assets¥—¥1,329¥604,377

—

—

—

105

(3,760)149,791—

1,329

604,482

—

—

—

—

—

(23,924)

—

—

—

—

—

—

41,621

—
—

—
—

—
—

—
—

—
—

—
—

—
—

(818)
(81)

(22,515)(22,515)¥134,849

1,192
1,192
¥(1,154)——¥(1,465)

1,003
1,003
¥(2,756)(20,319)(20,319)¥129,472

49
49
¥49

131
131
¥1,460(20,138)(3,343)¥601,139

See accompanying “Notes to the Consolidated Financial Statements.”

94

Sony Financial Holdings Inc. Annual Report 2017

Subscription
rights tosharesConsolidated Statements of Cash Flows
Sony Financial Holdings Inc.
For the years ended March 31, 2016 and 2017

Millions of yen
2017

¥

¥

¥

64,744
1,825
10,067470
79
6,063
618,487
2
3,564
(113)
2,469
69
1,440
(167,777)
7,620
8,938
22,92418
718(156,996)
39,93520,000
5,115(6,000)1,085
40(16,020)
468,773
180,527(9,196)(2,752)(34,875)
602,475

60,1401,779
10,944118
22
4,128
603,880
0
4,153
(65)
3,020
14
1,772
(175,647)(77,393)
8,636(10,843)
107
3,551(195,446)
156,005
50,000311
70,000(6,129)21
28,339541,424
188,230(8,730)(3,430)(25,047)
692,445—
48,465(1,327,890)
698,310(56,782)
28,76162,804(567)(546,898)
55,576(2,049)(6,927)(1,500)(1,450)—(558,825)

(76)
5,160
(1,171,569)
375,241(57,798)
27,949247,803(35,401)(608,689)
83,755(3,977)(9,024)—(3,045)(12)(624,749)(17,401)—(0)(36)(17,437)(13)
26,197—
207,422233,620(23,925)(10,000)(81)(51)(34,057)(1)
33,636
1,124
233,620
268,381¥

Financial Section

Cash flows from operating activities
Income before income taxes
Depreciation of real estate for rent and others
Depreciation and amortization
Impairment losses
Amortization of goodwill
Increase (decrease) in reserve for outstanding claims
Increase (decrease) in policy reserve
Interest portion of reserve for policyholders’ dividends
Provision for (reversal of) reserve for policyholders’ dividends
Increase (decrease) in reserve for possible loan losses
Increase (decrease) in net defined benefit liability
Increase (decrease) in reserve for directors’ retirement benefits
Increase (decrease) in reserve for price fluctuations
Interest income and dividends(Gains) losses on securities
Interest expenses
Exchange (gains) losses(Gains) losses on disposal of tangible fixed assets
Equity in (gains) losses of affiliates
Net (increase) decrease in loans
Net increase (decrease) in deposits
Net increase (decrease) in borrowed money (excluding subordinated borrowings)
Net (increase) decrease in call loans and others
Net increase (decrease) in call money and others
Net (increase) decrease in foreign exchange (assets)
Net increase (decrease) in foreign exchange (liabilities)
Others, net
SubtotalInterest and dividends received
Interest paid
Policyholders’ dividends paid
Income taxes paid
Net cash provided by (used in) operating activities
Cash flows from investing activities
Investments in money held in trust
Proceeds from money held in trust
Purchases of securities
Proceeds from sale and redemption of securities
Investments in loans
Collections of loans
Net increase (decrease) in collateral for securities lending transactions
OthersTotal of net cash provided by (used in) investment transactions
Total of net cash provided by (used in) operating activities and investment transactions
Purchases of tangible fixed assets
Purchases of intangible fixed assets
Purchase of securities of a non-consolidated subsidiary
Purchase of securities of affiliates
OthersNet cash provided by (used in) investing activities
Cash flows from financing activities
Cash dividends paid
Payments for redemption of bonds payable
Purchase of treasury stock
OthersNet cash provided by (used in) financing activities
Effect of exchange rate changes on cash and cash equivalents
Net increase (decrease) in cash and cash equivalents
Increase (decrease) in cash and cash equivalents resulting from change of scope of consolidation
Cash and cash equivalents at the beginning of the period
Cash and cash equivalents at the end of the period

2016

See accompanying “Notes to the Consolidated Financial Statements.”
Note: The above Consolidated Statements of Cash Flows have been prepared based on Article 210-10 of Ordinance for Enforcement of the Insurance Business Act
of Japan.
Sony Financial Holdings Inc. Annual Report 201795

Notes to the Consolidated Financial Statements(For the year ended March 31, 2017)

1 Basis of Presenting Consolidated Financial Statements
Sony Financial Holdings Inc. (“SFH”) 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 Companies Act of Japan, the Insurance BusinessAct of Japan and the Banking Act of Japan and in conformity with generally accepted accounting principles and practices inJapan, which differ in certain respects from the application and disclosure requirements of generally accepted accounting principles and practices under the International Financial Reporting Standards.

2 Principles of Consolidation(1) Scope of consolidation
Consolidated subsidiaries: 7 companies
Company names
Sony Life Insurance Co., Ltd.
Sony Assurance Inc.
Sony Bank Inc.
Sony Payment Services Inc.
SmartLink Network Hong Kong Limited
Sony Lifecare Inc.
Lifecare Design Inc.
Non-consolidated subsidiaries:
Main companies
There are no main non-consolidated subsidiaries. Non-consolidated subsidiaries are excluded from the scope of consolidation
for the current year because they are immaterial in light of the total assets, ordinary revenues, profit or loss (amounts equivalent
to the Group’s interests in these companies), retained earnings (amounts equivalent to the Group’s interests in these companies) and accumulated other comprehensive income (amounts equivalent to the Group’s interests in these companies) and their
exclusion from the scope of consolidation does not hinder a rational judgment of the Sony Financial Group’s financial position
and results of operations.
Change in the scope of consolidation:
Sony Lifecare Inc., a holding company that oversees the Sony Financial Group’s operations in the nursing care business, andLifecare Design Inc., a nursing care provider, have been included in the scope of consolidation from the year ended March 31,
2017, due to their increased importance. Business results of these two companies are included in “Other” in the consolidated
statements of income.

(2) Application of the equity method
Affiliates accounted for by the equity method: 2 companies
Company names
AEGON Sony Life Insurance Co., Ltd.
SA Reinsurance Ltd.
Non-consolidated subsidiaries and affiliates that are not accounted for by the equity method:
Main companies
There are no main non-consolidated subsidiaries or affiliates. Non-consolidated subsidiaries and affiliates are not accounted forby the equity method because they are immaterial in light of the profit or loss (amounts equivalent to the Group’s interests in thesecompanies) and retained earnings (amounts equivalent to the Group’s interests in these companies) and their exclusion does nothinder a rational judgment of the Sony Financial Group’s financial position and results of operations.

(3) Fiscal year-end of consolidated subsidiaries
Fiscal year-end of all consolidated subsidiaries is March 31, the same date as the consolidated financial statements of SFH.

(4) Amortization of goodwill
Goodwill is equally amortized using the straight-line method over a period of up to 20 years.

96

Sony Financial Holdings Inc. Annual Report 2017

3 Summary of Significant Accounting Policies(1) Securities
Financial Section

Securities, including monetary claims purchased which are equivalent to securities, and securities managed as assets of money
held in trust, are stated in the following manner: Securities held for trading purposes (“trading securities”) are stated at fair value
with unrealized gains and losses charged to income. The cost of such securities sold is determined by the moving-averagemethod. Held-to-maturity securities and policy-reserve-matching bonds held in accordance with the “Temporary Treatmentof Accounting and Auditing concerning Policy-Reserve-Matching Bonds in the Insurance Industry (The Japanese Institute ofCertified Public Accounts Industry Audit Committee Report No. 21, issued on November 16, 2000; hereinafter “the Industry
Audit Committee Report No. 21”) are stated at amortized cost (straight-line method) using the moving-average method. Available-for-sale securities whose fair values are readily determinable are stated at fair value in the consolidated balance sheets
based on market prices prevailing at each balance sheet date, with unrealized gains (losses), net of taxes, included in net
assets and acquisition costs calculated using the moving-average method. Available-for-sale securities whose fair values are
deemed extremely difficult to determine are stated at acquisition cost based on the moving-average method.
The overview of risk management policies of policy-reserve-matching bonds is as follows:
Among the bonds corresponding to sub-segments (according to insurance class, years to maturity, etc.) for individual life insurance and individual annuity sold by domestic life insurance subsidiaries, SFH records those held with the purpose of controlling theduration of insurance liabilities as policy-reserve-matching bonds, in accordance with the Industry Audit Committee Report No. 21.
For the purpose of conducting more appropriate asset-liability management (ALM), the Company has been reviewing thenumber of years to maturity of cash flows associated with liabilities that fall into sub-segments from the year ended March
31, 2017. This change has no impact on profit or loss.

(2) Derivative financial instruments
Derivative financial instruments are stated at fair value, with changes in fair value included in income for the period inwhich they arise, except for derivatives that are designated by SFH and its consolidated subsidiaries (the “Companies”) as “hedging instruments.”(3) Tangible fixed assets (excluding leased assets)
All tangible fixed assets, including real estate for lease, are initially recorded at cost. Subsequent expenses related to asset
improvements are capitalized or are recognized as a separate asset, as appropriate, only when it is probable that future economic
benefits associated with the item will flow to the Companies and the cost of the item can be measured reliably.
All other repairs and maintenance charges are charged to income when incurred.
Depreciation is computed by the straight-line method over the estimated useful lives of the assets as follows:• Buildings: 3 to 50 years• Other tangible fixed assets: 2 to 20 years(4) Intangible fixed assets (excluding leased assets)
Intangible fixed assets are amortized using the straight-line method. Software for internal use is amortized using the straight-line
method generally over 5 years, its estimated useful life.

(5) Leased assets
All leased assets with respect to non-ownership-transfer finance leases are amortized by the straight-line method overthe lease term, without any residual value.

(6) Reserve for possible loan losses
The reserve for possible loan losses is provided as follows for losses from bad debts mainly in accordance with self-assessment
guidelines and write-off and reserve guidelines. With respect to receivables such as loans to borrowers subject to bankruptcy,
court-guided rehabilitation, or similar legal or formal proceedings (the “Bankrupt Borrowers”), loans to borrowers that are substantially in the same condition as the Bankrupt Borrowers (the “Substantially Bankrupt Borrowers”) and money on deposits whosemarket value declined significantly, the Companies provide a reserve in the amount expected to be uncollectible after deducting
amounts expected to be collectible from collateral, guarantees and other means. For loans to borrowers that are not yet bankrupt
but are highly likely to be bankrupt in the future (the “potentially bankrupt borrowers”), the Companies provide a reserve in theamount deemed necessary by comprehensively considering the borrowers’ solvency, of the remaining amount after deducting
amounts expected to be collectible from collateral, guarantees and other means. For other loans, the Companies provide areserve in the amount calculated by multiplying the loans by a historical loan loss ratio determined over certain periods. All loans
are subject to asset assessment by the related operational departments in accordance with self-assessment guidelines, and theassessment results are reviewed by the departments responsible for asset inspection that are independent from the operational
departments. The amount of reserve is provided based upon the above results.
Sony Financial Holdings Inc. Annual Report 201797

(7) Reserve for employees’ bonuses
The reserve for employees’ bonuses is provided for the estimated amount of bonuses the Companies are required to pay for services provided during the current fiscal year.

(8) Reserve for directors’ retirement benefits
The reserve for directors’ and statutory auditors’ retirement benefits is provided and calculated at the amount that would be payable if all eligible directors and statutory auditors were to resign at the fiscal year-end.

(9) Reserve for price fluctuations
Pursuant to requirements under Article 115 of the Insurance Business Act of Japan, the reserve for price fluctuations is provided
for price fluctuations primarily related to stocks, bonds and foreign currency-denominated assets which are exposed to losses due
to market price fluctuations. This reserve is only used to reduce losses arising from price fluctuations on those assets.

(10) Accounting for retirement benefits
1) Method of attributing projected retirement benefits
In the calculation of retirement benefit obligations, the Companies mainly apply the benefit formula basis in attributing
projected retirement benefits to the periods until the end of the current fiscal year.
2) Amortization method of prior service cost and net actuarial gain or loss
Unrecognized prior service cost is amortized using the straight-line method within the employees’ average remaining service
period at incurrence. Unrecognized net actuarial gain or loss is amortized using the straight-line method over 7 to 17 years
within the employees’ average remaining service period, commencing from the fiscal year immediately following incurrence.

(11) Translation of foreign assets or liabilities
Assets and liabilities denominated in foreign currencies are translated into Japanese yen at the foreign exchange rates in effect ateach balance sheet date, whereas components of net assets denominated in foreign currencies are translated at historical rates.
The current year’s profit and loss accounts are translated into yen using the average exchange rate for the fiscal year.

(12) Hedge accounting
The banking subsidiary applies either deferred hedge accounting or fair value hedge accounting to its transactions for hedging
interest rate risks on financial assets and liabilities. With regard to hedging that offsets fluctuating interest rates on fixed-rate loans,the subsidiary identifies the hedged items that are grouped on the basis of a certain period of their remaining maturity and designates interest rate swaps as a hedging instrument, in accordance with “Accounting and Auditing Treatments on Application of
Accounting Standard for Financial Instruments in the Banking Industry” (Industry Audit Committee of the Japanese Institute of Certified Public Accountants (the “Industry Audit Committee”) Statement No. 24, February 13, 2002).
With regard to hedging that fixes the cash flow of a forecasted transaction of a short-term fixed-rate deposit, the subsidiary
identifies the hedged items that are grouped on the basis of a certain period of their interest rate revision and designates interest
rate swaps as a hedging instrument, in accordance with the Industry Audit Committee, Statement No. 24. With regard to hedging
that offsets fluctuations in the fair value of fixed-rate bonds which are classified as available-for-sale securities, the subsidiary identifies the hedged items individually and designates interest rate swaps and others as a hedging instrument. The above-mentioned
hedging instruments are designated with almost identical significant terms and conditions for both the hedging items and thehedged instruments. Accordingly, such hedges are considered highly effective, allowing the banking subsidiary to ensure hedging
effectiveness.

(13) Cash and cash equivalents in the Consolidated Statements of Cash Flows
Cash equivalents consist of highly liquid investments without significant market risks, such as demand deposits and short-term
investments with an original maturity of 3 months or less.

(14) Accounting for consumption taxes
National and local consumption taxes (the “consumption taxes”) received and paid by the Companies, excluding loss adjustment
expenses and operating, general and administrative expenses of SFH’s non-life insurance subsidiary, are not included in income
and expenses. Under the Consumption Tax Act of Japan, the consumption taxes paid on property and equipment are not deductible from the consumption taxes received; they are recorded as “other assets” and amortized on a straight-line basis over 5 years.
Other non-deductible consumption taxes are charged to income as incurred.

(15) Policy reserves
Pursuant to Article 116 of the Insurance Business Act of Japan, SFH’s life insurance subsidiary maintains a policy reserve for thefulfillment of future obligations under life insurance contracts. The policy reserve is established by the net level premium reserve
method, which assumes a constant or level amount of net insurance premiums over the term of the relevant policy when calculating the amount of the reserve required to fund all future policy claims. The net insurance premium is a portion of the premium

98Sony Financial Holdings Inc. Annual Report 2017

Financial Section

covering insurance underwriting risk, which is estimated based on factors such as mortality rates, investment yield, surrender rates
and other factors. The net level premium reserve for individual insurance contracts underwritten from FY1996 is calculated usingmortality and interest rates set by the Financial Services Agency of Japan as standard policy reserve. Additionally, the net level
premium reserve for individual insurance contracts underwritten before FY1996 is calculated using mortality and interest rates
approved by the supervisor of insurance business in Japan.

(16) Changes in accounting policies
Application of the “Revised Implementation Guidance on Recoverability of Deferred Tax Assets” (ASBJ Guidance No. 26,
March 28, 2016) (hereinafter, the “Recoverability Implementation Guidance”)
The Sony Financial Group has applied the Recoverability Implementation Guidance from the year ended March 31, 2017 and partially revised the accounting method of recoverability of deferred tax assets.
The Recoverability Implementation Guidance has been applied in accordance with the transitional treatment set forth in Article
49 (4) of the Recoverability Implementation Guidance. The differences between (i) the amounts of deferred tax assets and deferred
tax liabilities when provisions applicable from (1) to (3) of Article 49 (3) of the Recoverability Implementation Guidance were applied
as of April 1, 2016, and (ii) the amounts of deferred tax assets and deferred tax liabilities at the end of the year ended March 31,
2016, were added to retained earnings as of April 1, 2016.
As a result, deferred tax assets increased ¥48 million and retained earnings rose ¥105 million, while deferred tax liabilities
decreased ¥56 million as of April 1, 2016.
Reflecting the amount of impact of net assets at the beginning of the year ended March 31, 2017 resulted in a ¥105 million
increase in the beginning balance of retained earnings in the Consolidated Statements of Changes in Net Assets.

4 Notes to the Consolidated Balance Sheets

1. Securities with a book value of ¥398,025 million and loans of ¥87,626 million were pledged as collateral for the ¥310,608 million ofcollateral for securities lending transactions, ¥70,000 million of call money and bills sold and the ¥90,000 million of borrowed
money at March 31, 2017. In addition to the assets described above, securities with a book value of ¥16,943 million and cash collateral paid for financial instruments of ¥21,650 million were pledged as collateral for cash settlements, variation margins of futures
markets and certain other purposes at March 31, 2017.

2. The consolidated balance sheet amount of securities loaned for consumption under the loan agreement was ¥248,024 million.
3. Securities include shares in non-consolidated subsidiaries and affiliates worth ¥11,032 million. Among this, investments in jointly
controlled companies are ¥10,986 million.

4. The balance of loans includes ¥176 million in loans to bankrupt borrowers (before deductions for reserve for possible loan losses)and ¥1,580 million in non-accrual delinquent loans (before deductions for reserve for possible loan losses). Loans to bankrupt borrowers include loans that have been in arrears on principal or interest payments for a considerably long period of time or loans(before deductions for reserve for possible loan losses) on which principal or interest payments are considered unlikely to occur
in the future for other reasons and on which interest income is not recognized. These loans are with reasons defined under Article
96-1-3, i through v of the Order for Enforcement of the Corporation Tax Act (Enforcement Order 97 of 1965), or 96-1-4 of the sameguidelines. Non-accrual delinquent loans are loans on which accrued interest income is not recognized, excluding loans to bankrupt
borrowers and loans on which interest payments are deferred in order to support the borrowers’ recovery from financial difficulties.

5. The balance of loans does not include past due loans (3 months or more). Past due loans (3 months or more) are loans on whichprincipal or interest payments are delayed for 3 months or more from the date following the due date, excluding loans to bankrupt
borrowers and non-accrual delinquent loans.

6. The balance of loans includes ¥1,227 million in restructured loans (before deductions for reserve for possible loan losses). 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 waiver) in order to support the borrowers’
recovery from financial difficulties, excluding loans to bankrupt borrowers, non-accrual delinquent loans and past due loans (3months or more).

7. The total amount of loans to bankrupt borrowers, non-accrual delinquent loans, and restructured loans was ¥2,984 million (before
deductions for reserve for possible loan losses).
Sony Financial Holdings Inc. Annual Report 201799

8. In terms of loan participation, the participating principals that were accounted for as loans to the original obligor in accordance with
“Accounting and Presentation of Loan Participation” (Accounting Standards Committee of the Japanese Institute of Certified Public
Accountants, Statement No. 3, November 28, 2014) includes the consolidated balance sheet amount of ¥7,884 million.

9. Accumulated depreciation of tangible fixed assets as of March 31, 2017 was ¥34,611 million.
10. The balance sheet includes ¥989,605 million in assets and liabilities in equal amounts related to separate accounts as stipulated in
Article 118 of the Insurance Business Act of Japan as of March 31, 2017, at SFH’s life insurance subsidiary.

11. Changes in the reserve for policyholders’ dividends at SFH’s life insurance subsidiary for the fiscal year ended March 31, 2017 are
as follows:
Balance at the beginning of the period
Policyholders’ dividends during the period
Increase in interest
Provision for reserve for policyholders’ dividends¥5,006 million¥3,430 million¥0 million¥4,153 million

Balance at the end of the period¥5,729 million

12. On March 31, 2002, SFH’s life insurance subsidiary revalued its land for operating purposes, as permitted by the Act on Revaluation of Land (Act No. 34, enacted March 31, 1998—the “Law”). The tax effect of the revaluation difference is accounted for differently, depending on whether there are gains or losses; when there is a loss, a valuation allowance is fully provided for the tax effectof the loss, and when there is a gain, the tax effect is recorded in “deferred tax liabilities on land revaluation.” After excluding theseamounts, the net revaluation difference is reported as “land revaluation” in net assets.
The revaluation method stipulated by Article 3-3 of the Law was based on the land appraisal in conformity with Article 2-5 of
the Order for Enforcement related to the Law (Cabinet Order No. 119, effective from March 31, 1998).

13. Contracts for commitments to provide credit lines and overdrafts of the life insurance subsidiary and the banking subsidiary areagreements to lend to customers, up to a prescribed amount, as long as there is no violation of the conditions stipulated in thecontracts. The amount of unused commitments at March 31, 2017 was ¥31,447 million, and the amount of unused commitments
whose original contract terms are within 1 year at March 31, 2017 was ¥29,629 million.

14. Expected future losses of the life insurance subsidiary under the life insurance policyholder protection structure stipulated under
Article 259 of the Insurance Business Act of Japan amounted to ¥10,258 million. Such losses are recognized as expenses during
the fiscal year in which they are contributed.

15. Net assets per share were ¥1,378.63.
16. Financial instruments(1) Description of financial instruments
1) Policy on financial instruments
The Companies conduct the life insurance, non-life insurance and banking businesses, etc. in accordance with the provisionsof the Insurance Business Act of Japan, the Banking Act of Japan and other relevant provisions. With regard to financial assets(except for assets in separate accounts as stipulated in Item 1, Article 118 of the Insurance Business Act of Japan in the life
insurance business), to ensure steady investment income the Companies hold various investment assets, including Japanese
government and corporate bonds, foreign government and corporate bonds, Japanese stocks and loans. Deposits from individual customers in the banking business account for nearly all of the Companies’ financial liabilities. Although the Companies
hold financial assets as well as financial liabilities, which are subject to the risk of interest rate and exchange rate fluctuations,they strive to protect themselves from the negative effects of these fluctuations by maintaining an appropriate balance between
assets and liabilities by conducting asset-liability management (ALM) in each of the businesses. Furthermore, derivative transactions are used to control risks in the life insurance business and banking business.
2) Financial instruments and related risks
Securities and loans constitute the majority of the Companies’ financial asset holdings. Most of the securities holdings are in
Japanese government and corporate bonds. Other holdings include Japanese stocks, foreign securities and investment in part-

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Sony Financial Holdings Inc. Annual Report 2017

Financial Section

nership. These holdings are intended either for trading, for holding to maturity, for matching policy reserves or for available-forsale. They are subject to various risks, including interest rate risk, credit risk, stock market price fluctuation risk and exchange
rate risk. Furthermore, the Companies hold some of their financial assets in the shares of overseas unlisted companies, whichhave limited liquidity.
The majority of loans are policy loans in the life insurance business, and individual mortgage loans in the banking business.
These loans carry the credit risk of default, as well as interest rate risk. However, policy loans are limited to the amount of surrender payments, and mortgage loans are backed by real estate. Consequently, loan-related risks are relatively low.
Financial liabilities, meanwhile, are mainly deposits from individual customers, which are subject to interest rate risk. As
some of these deposits are denominated in foreign currencies, they are subject to exchange rate risk, as well as interest raterisk. The life insurance business uses several derivative transactions such as interest rate swaps for hedging interest rate risks
on assets and liabilities, forward foreign exchange transactions for hedging foreign exchange risks associated with assets aswell as the minimum guarantees for individual variable life insurance, and stock index futures trading for hedging equity market
price fluctuation risks associated with assets and the minimum guarantees for individual variable life insurance, and as a matterof policy, does not use derivative transactions for speculative purposes. Hedge accounting is not applied to derivative transactions used in the life insurance business.
The banking business uses several derivative transactions primarily as one aspect of ALM. In this category, hedge accounting is applied. Interest rate swaps are used to hedge against the interest rate risk of fixed-rate loans and deposits. In respect ofloans, the banking subsidiary ensures hedge effectiveness by confirming at the commencement of hedging that the hedgedloans and the interest rate swaps as hedging instruments are grouped on the basis of three months or less of the remaining
maturity. In respect of deposits, the banking subsidiary ensures hedge effectiveness by confirming at the commencement ofhedging that the hedged deposits and the interest rate swaps as hedging instruments share the same interest rate index, andare grouped on the basis of three months or less of the interest rate revision terms.
Interest rate swaps and others are used as hedging instruments to offset fluctuations in the fair value of fixed-rate bonds
classified as available-for-sale securities. When the hedge is implemented, the banking subsidiary determines hedge effectiveness by confirming that the cash flows of the securities to be hedged match those of the hedging method (such as interest rate
swaps).
Transactions involving financial instruments are subject to liquidity risk. Liquidity risk includes cash flow risk and market
liquidity risk. Cash flow risk is the risk of our inability to make cash payments when due because of an inability to maintain sufficient cash reserves, as well as the risk of loss if the Companies are forced to raise funds under unfavorable conditions in orderto obtain cash to meet their payment obligations. Market liquidity risk is risk of loss due to an inability to conduct market transactions, in particular from an inability to change our market position at a given time, as well as the risk of loss if the Companies
are forced to complete transactions under unfavorable market conditions, in each case due to market turmoil or other factors.
3) Risk management of financial instruments
SFH formulates fundamental principles for risk management and manages risks specific to its subsidiaries’ scale, business content and other attributes. Our Risk Management Guidelines establish specific conditions for managing Group risks, while eachof the subsidiaries manages risks on its own. SFH’s Corporate Control Department submits periodic reports to SFH’s Board of
Directors and Executive Committee on subsidiaries’ risk management conditions recognized through monitoring or by holding
Risk Management Meetings.
(i) Credit risk
The Companies use the following methods to manage the credit risk of principal subsidiaries:(a) At the life insurance subsidiary, the risk management division manages issuer credit risk on securities and counterparty risks
by specifying details such as risk management methods and procedures in regulations. The risk management division periodically reports such information to the Board of Directors and the Executive Committee.
(b) The non-life insurance subsidiary ascertains issuer credit information and market values on securities in line with various regulations for asset management risk. The risk management division reports on the situation regularly to the Board of Directors
and the Executive Committee.
(c) The banking subsidiary has formulated and conformed to various regulations for managing credit risks, and controls credit
risk depending on the nature of each type of financial asset. In respect of individual loans, the subsidiary has developed aframework for managing individual credit, including credit screenings, management of credit information, setting of collateraland the handling of problem assets on a case-by-case basis.
In respect of corporate loans or bonds payable, the subsidiary has developed a framework for managing corporate
credit and market credit, including credit screenings, credit limit control, the management of credit information, credit ratings, the setting of guarantees or collateral, and handling of problem assets on a case-by-case basis.
The subsidiary manages market credit risk, such as securities issuer credit risk and, on derivative transactions, counterparty risk, by periodically assessing market value information.
The aforementioned credit risk management is carried out by the risk management division and the screening division.
These divisions periodically report risk management conditions to management via the Board of Directors and the Executive
Committee. In addition, the internal audit division conducts regular audits.
Sony Financial Holdings Inc. Annual Report 2017101

(ii) Market risk
The Companies use the following methods to manage the market risk of principal subsidiaries:(a) The life insurance subsidiary manages various market-related risks in the following manner:• Interest rate risk Interest rate risk is managed by the risk management division based on the regulations for interest
rate risk management that specify details such as risk management methods and procedures. Based on ALM policies thatare determined through such methods as deliberation by the Executive Committee, the subsidiary determines and confirms
actual risk conditions with the Board of Directors. The division maintains an overall grasp on the interest rates and durationsof financial instruments, and monitors them based on the analysis of the quantity of risk using value at risk (“VaR”), and it
periodically reports such information to the Board of Directors and the Executive Committee.
• Exchange rate risk Exchange rate risk is managed by the risk management division based on the regulations forexchange rate risk management that specify details such as risk management methods and procedures. The division periodically reports such information to the Board of Directors and the Executive Committee.
• Equity market price fluctuation risk Equity market price fluctuation risk is managed by the risk management division
based on the regulations for equity market price fluctuation risk management that specify details such as risk management
methods and procedures. The division periodically reports such information to the Board of Directors and the Executive
Committee.
• Derivative transactions Derivative transactions are managed by the risk management division based on the regulations
for derivative transactions that specify details such as risk management methods and procedures. The division periodicallyreports such information to the Board of Directors and the Executive Committee.
(b) The non-life insurance subsidiary manages various market-related risks in the following manner:• Interest rate risk Regulations on asset management risk specify the details such as risk management methods andprocedures based on risk management policies determined by the Board of Directors. The risk management division monitors individual risks and reports on the situation regularly to the Board of Directors and the Executive Committee.
• Price fluctuation risk Equity securities are held for strategic investments for the purpose of enhancing business partnerships. In accordance with regulations on asset management risk, the risk management division monitors the market
environment and financial conditions, and reports on the situation regularly to the Board of Directors and the Executive
Committee.
(c) The banking subsidiary manages various market-related risks in the following manner. The risk management division handles each of these risks and periodically reports risk management conditions to the Board of Directors and the Executive
Committee. In addition, the internal audit division conducts regular audits.
• Interest rate and exchange rate risk By formulating and conforming with market risk management regulations, thesubsidiary manages the risk of loss from changes in the value of assets and liabilities (including off-balance-sheet items) as
well as from changes in income from assets and liabilities, owing to fluctuations in various market risk factors, such as interest rates, exchange rates and stock prices. Market risk management regulations specify details such as risk management
methods and procedures. Based on ALM and risk management policies that are determined through such methods as
deliberation by the Board of Directors, an ALM committee and a risk management committee meet—typically once eachmonth—to understand and confirm actual conditions and deliberate future responses and risk conditions. On a daily basis,the risk management division maintains an overall understanding of interest and exchange rates on financial assets and liabilities, as well as their durations, conducts monitoring that includes VaR and interest rate sensitivity analysis, and ensuresregulatory conformance. In relation to ALM, the subsidiary also conducts interest rate swaps, currency swaps, foreignexchange and other derivative transactions to hedge against interest and exchange rate fluctuation risks.
• Market price fluctuation risk The subsidiary manages the holding of investment products, including securities, inaccordance with market risk management regulations as well as market credit risk. The investment division purchases securities externally, and risks associated with changes in the market price of such securities are managed through prior screening by the screening division, the setting and control of investment limits by the risk management division, and continuous
monitoring by each responsible division.
• Derivative transactions Derivative transactions are executed in accordance with regulations on market risk. The subsidiary also separates and conducts internal checks of individual departments’ execution of transactions, evaluation ofhedge effectiveness and operations management.
• Quantitative information on market risk The principal financial instruments affected by the major risk parameters ofinterest rate risk and exchange rate fluctuation risk are loans, securities, deposits in the banking business and derivativetransactions.
The impact of such risks on these financial assets and liabilities was calculated using the historical simulation method
to determine gains or losses over a given period of 20 business days, assuming the fluctuation of interest and exchange
rates within a rational forecast band determined over an observation period of 250 business days. The Companies thenemployed quantitative analysis to manage interest rate and exchange rate fluctuation risks. The resulting risk amount with
a 99% confidence interval was ¥1,621 million as of March 31, 2017.
This amount of impact is based on the assumption that risk parameters other than interest rates and exchange rates are
fixed. In the event that fluctuations exceed the rational forecast band for interest and exchange rates, the risk impact may

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Sony Financial Holdings Inc. Annual Report 2017

exceed the amount calculated. The aforementioned market risk management is carried out primarily by the risk management division. The division periodically reports risk management conditions to the Board of Directors and the Executive
Committee. In addition, the internal audit division conducts regular audits.
Financial Section(iii) Liquidity risk
The Companies use the following methods to manage the liquidity risk of principal subsidiaries.
(a) At the life insurance subsidiary, in line with liquidity risk management regulations, the accounting division prepares andupdates cash flow plans in a timely manner based on the reports from departments and manages cash flows, and the risk
management division manages the liquidity risk. The accounting division and risk management division periodically or asneeded report such information to the Board of Directors and the Executive Committee.
(b) The non-life insurance subsidiary establishes regulations related to liquidity risk. Its cash flow management division prepares and updates cash flow plans. The risk management division manages liquidity risk by monitoring the situations andreports on the situation regularly to the Board of Directors and the Executive Committee.
(c) The banking subsidiary has formulated and conformed with regulations for managing liquidity risk, and manages a variety ofliquidity risks. Concerning the management of cash flow risks, cash flows are classified into phases based on the degree ofpressure, and methods for risk management and reporting are set out for each phase, while guidelines are formulated andreviewed as necessary. To manage market liquidity risk, the subsidiary works to understand market liquidity conditions thatpertain to the types of products it handles. The subsidiary formulates and revises guidelines on a product by product basis,
as necessary. The aforementioned liquidity risk management is carried out by the risk management division. The divisionperiodically reports risk management conditions to the Board of Directors and the Executive Committee. In addition, theinternal audit division conducts regular audits.
4) Supplementary explanation of the fair value of financial instruments
Market prices of financial instruments are considered to indicate their fair value, unless market prices are not available. In thiscase, rational methods are used to measure their fair values. Although these measurements use assumptions that are believed
to be reasonable under the circumstances, the resulting values may differ if measured using different assumptions.

(2) Fair value information on financial instruments
Below is fair value information on financial instruments as of March 31, 2017, excluding securities whose fair values are not readily
determinable (see Note 2).
Millions of yen
2017
As of March 31,

1) Cash and due from banks

Consolidated balance
sheet amount¥2) Call loans and bills bought

206,481

Fair value

Difference¥¥

206,481—

61,90061,900—296,877

296,877—

921,319

921,319—

6,150,726

7,612,013

1,461,286

277,372

303,356

25,983

1,480,341

1,480,341—

3) Money held in trust
Other money held in trust4) Securities
Trading securities
Held-to-maturity securities
Policy-reserve-matching bonds
Available-for-sale securities
5) Loans

1,720,004

Reserve for possible loan losses (*1)(968)

Loans (after deduction for reserve for possible loan losses)

1,719,035

1,894,612

175,577

Total Financial Assets¥11,114,056¥12,776,903¥1,662,847

1) Deposits¥¥ 2,071,091¥ 2,073,033

2) Bonds payable

10,00010,0293) Collateral for securities lending transactions

310,608

310,608¥ 2,391,699¥ 2,393,670

¥

1,971

¥

¥

¥

—

Total Financial Liabilities

1,941
29
—

Derivative financial instruments (*2)
Hedge accounting not applied
Hedge accounting applied
Total Derivative Financial Instruments

7,127[17,959]¥[10,832]

7,127[17,959]¥[10,832]—¥—(*1) Excludes general and specific reserves for possible loan losses.
(*2) Figures are totals resulting from derivative transactions, which are accounted for as other assets and liabilities on the consolidated balance sheets. If thetotal is a debt amount, the above figure is shown in [ ].

Sony Financial Holdings Inc. Annual Report 2017

103

(Note 1) Calculation of the fair value of financial instruments
Financial Assets
1) Cash and due from banks and 2) Call loans and bills bought
The fair value is regarded as the carrying amount, as they are approximately equal.
3) Money held in trust
In individual money held in trust mainly for investment purposes, the fair value of bonds is the market price on financial instrument
exchanges or the price indicated by a financial institution. Please see “18. Fair value information on money held in trust,” whichindicates fair values by purpose.
4) Securities
The fair value of stocks is the market price on stock markets or financial instrument exchanges. The fair value of bonds andinvestment funds is the market price or the price indicated by a financial institution. Please see “17. Fair value information on
securities,” which indicates fair values by purpose.
5) Loans(i) Loans in the banking business
The fair value of these loans is calculated by type, by estimating their future cash flows and then applying a prescribed discountrate. The discount rate is determined by adding to the LIBOR-based yield curve a premium corresponding to the allowance rateof general provision for loan losses.
(ii) Policy loans in the life insurance business
The fair value of policyholder loans is valued by discounting future cash flows to their current value.
(iii) General loans in the life insurance business
The fair value of general loans is regarded as the carrying amount, as they are approximately equal.
Financial Liabilities
1) Deposits
The fair value of deposits is calculated by type, by estimating their future cash flows and then applying a prescribed discountrate. The discount rate is determined by adding to the LIBOR-based yield curve a premium corresponding to the banking subsidiary’s cumulative default rate by rating.
2) Bonds payable
The fair value of bonds payable is the market price or the price indicated by a financial institution.
3) Collateral for securities lending transactions
The fair value is regarded as the carrying amount, as they are approximately equal.
Derivative Transactions
Please see “19. Derivative financial instruments,” which indicates measurement of fair value.
(Note 2) Securities whose fair values are deemed extremely difficult to determine are as follows. They are not included in “4) Securities” of
Financial Assets in (Note 1) above.
Millions of yen
2017
As of March 31,

1) Unlisted stocks in non-consolidated subsidiaries and affiliates (*1)2) Unlisted stocks other than those in 1) above (*1)3) Convertible bonds (*1)

Consolidated balance
sheet amount¥11,032169
2,0004) Investment in partnership (*2)

14,474

Total¥27,676(*1) Unlisted stocks and convertible bonds have no market prices and their fair values are not readily determinable.
(*2) Assets included in “investment in partnership” are stocks in unlisted companies.
Note: Unlisted stocks, convertible bonds and investment in partnership are considered impaired if their actual value decreases materially below theacquisition cost and such decline is considered non-recoverable. Their actual value is recognized as the consolidated balance sheet amount andthe write-down is accounted for as a devaluation loss (hereinafter, “impairment”) for the fiscal year.
Impairment losses on investment in partnership were recognized as ¥665 million for the year ended March 31, 2017.
Impairment losses are principally recorded when their actual value as of the end of the fiscal year has declined by 50% or more from the acquisition cost.

104

Sony Financial Holdings Inc. Annual Report 2017

(Note 3) Future redemption schedule of monetary claims and securities with maturities
Millions of yen
2017
More than 1 year
to 5 years

1 year or less¥More than 5 years
to 10 years—¥

Over 10 years

Cash and due from banks¥206,481—

Call loans and bills bought

61,900

—

—

¥

—

6,976

19,724

333,910

5,940,738

6,976

19,624

333,8105,530,268

6,640

16,823331,810

5,308,340

336

2,801

2,000

221,928

—

100

100

410,469

3,659

—

—

258,330

3,659

—

—

258,330

3,100

—

—

182,630559——

75,700131,041

399,251

180,951

589,294

43,643141,957

128,267

541,350

35,27378,432

120,367

541,350

Financial Section

As of March 31,—

Securities
Held-to-maturity securities
Japanese government and corporate bonds
Japanese government and local government bonds
Japanese corporate bonds
Others
Policy-reserve-matching bonds
Japanese government and corporate bonds
Japanese government and local government bonds
Japanese corporate bonds
Available-for-sale securities
Japanese government and corporate bonds
Japanese government and local government bonds
Japanese corporate bonds
OthersLoans (*)
Total

8,369

63,5257,900—

87,397257,293

52,68347,94432,80051,31069,185

1,385,252¥442,858¥470,286¥584,047¥8,173,614(*) This figure excludes ¥180,339 million that have no fixed redemption such as policyholder loans.

(Note 4) The future return schedule of deposits and other liabilities with interest
Millions of yen
2017

As of March 31,

1 year or
less

Deposits (*)

More than
1 year to
2 years

More than
2 years to
3 years

More than
3 years to
4 years

More than
4 years to
5 years

More than
5 years¥1,934,654¥64,673¥19,540¥13,442¥9,390¥29,389

Collateral for securities lending transactions

310,608

—

—

—

—

—

Bonds payable

10,000

—

—

—

—

—

¥2,255,262¥64,673¥19,540¥13,442¥9,390¥29,389

Total(*) Demand deposits are included in “1 year or less.”

17. Fair value information on securities as of March 31, 2017:*In addition to “Securities” on the consolidated balance sheets, the figures in the following tables include beneficiary certificates of investment trust in“Monetary claims purchased.”(1) Trading securities
Millions of yen
As of March 31,

Valuation gains charged to income

2017¥45,396

Sony Financial Holdings Inc. Annual Report 2017105

(2) Held-to-maturity securities

Millions of yen
2017

As of March 31,

Consolidated balance
sheet amount

Fair value

Difference¥5,418,222¥6,953,045¥1,534,823

5,356,295

6,878,763

1,522,468

61,92774,281

12,354

Others26,47629,3082,831

Subtotal

5,444,698

6,982,353

1,537,655

Fair values exceeding the consolidated balance sheet amountJapanese government and corporate bonds
Japanese government and local government bonds
Japanese corporate bonds

Fair values not exceeding the consolidated balance sheet amountJapanese government and corporate bonds

475,997423,332(52,664)

Japanese government and local government bonds

307,930

277,328(30,602)

Japanese corporate bonds

168,066

146,004(22,062)

Others230,031206,327(23,704)

Subtotal

706,028

629,659(76,368)¥6,150,726¥7,612,013¥1,461,286

Total(3) Policy-reserve-matching bonds

Millions of yen
2017

As of March 31,

Consolidated balance
sheet amount

Fair value

Difference

Fair values exceeding the consolidated balance sheet amountJapanese government and corporate bonds¥230,196¥258,073¥27,876

Japanese government and local government bonds

189,899

210,237

20,337

Japanese corporate bonds

40,296

47,835

7,539

230,196

258,073

27,876(1,893)

Subtotal
Fair values not exceeding the consolidated balance sheet amountJapanese government and corporate bonds

47,17645,283

Japanese government and local government bonds

5,373

5,209

(163)

Japanese corporate bonds

41,80340,073(1,729)Subtotal
Total

47,17645,283(1,893)¥277,372¥303,356¥25,983(4) Available-for-sale securities

Millions of yen
2017

As of March 31,

Consolidated balance
sheet amount

Acquisition cost

Difference

Consolidated balance sheet amount exceeding the acquisition cost
Japanese government and corporate bonds¥ 947,033¥ 819,619¥127,414

Japanese government and local government bonds

881,470

755,625

125,844

Japanese corporate bonds

65,563

63,994

1,569

28,296

13,323

14,972Equity securities
Others286,296

280,666

5,629

Subtotal

1,261,626

1,113,609

148,016

Consolidated balance sheet amount not exceeding the acquisition cost
Japanese government and corporate bonds

46,987

47,693(706)

Japanese government and local government bonds

32,69333,379(686)

Japanese corporate bonds

14,294

14,314

(19)

833

891

(58)

171,468

173,451(1,983)Equity securities
OthersSubtotal
Total

219,288

222,037(2,748)¥1,480,914¥1,335,646¥145,268

Note: As the unlisted stocks of ¥169 million (consolidated balance sheet amount), convertible bonds of ¥2,000 million (consolidated balance sheet amount)
and other securities of ¥14,474 million (consolidated balance sheet amount) have no market prices and their fair values are not readily determinable,
they are not included in the table above.

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Sony Financial Holdings Inc. Annual Report 2017

(5) Held-to-maturity securities sold during the period
There is no related information to be reported.

(6) Policy-reserve-matching bonds sold during the period
Financial Section

There is no related information to be reported.

(7) Available-for-sale securities sold during the period
Millions of yen
2017
For the year ended March 31,

Total gains
on salesSales

Japanese government and corporate bonds¥ 3,305¥

Total losses
on sales27¥ 0Japanese government and local government bonds

2,000

22

0

Japanese corporate bonds

1,304

4

—

Equity securities

937

679

—

Others71,786

1,569

41

Total

¥76,029¥2,275¥41(8) Impairment of available-for-sale securities
Available-for-sale securities with fair value are considered impaired if the fair value decreases materially below the acquisition costand such decline is considered non-recoverable. The fair value is recognized as the consolidated balance sheet amount and thewrite-down is accounted for as a devaluation loss for the fiscal year.
No impairment loss was recognized for the year ended March 31, 2017.
“Material decline” is indicated when the fair value declines by 30% or more from the acquisition cost.

18. Fair value information on money held in trust as of March 31, 2017:(1) Money held in trust for trading
There is no related information to be reported.

(2) Money held in trust for held-to-maturity and policy-reserve-matching
There is no related information to be reported.

(3) Other money held in trust (other than for trading, held-to-maturity or policy-reserve-matching)
Millions of yen
2017

As of March 31,

Other money held in trust

Consolidatedbalance sheet
amount¥296,877

Acquisition
cost¥254,957

Difference¥41,919

Items whose
consolidatedbalance sheet
amount exceeds
acquisition cost

Items whose
consolidatedbalance sheet
amount does notexceed acquisition cost

¥41,919¥—

Notes: 1. The amount of jointly invested monetary trusts that is included in the table above as of March 31, 2017 is ¥50 million.
2. “Items whose consolidated balance sheet amount exceeds acquisition cost” and “Items whose consolidated balance sheet amount does notexceed acquisition cost” are the breakdown of the difference.

(4) Impairment of other money held in trust
Securities with fair values that are included in other money held in trust are considered impaired if their fair value decreases
materially below the acquisition cost and such decline is considered non-recoverable.
No impairment loss was recognized for the year ended March 31, 2017.
“Material decline” is indicated when the fair value declines by 30% or more from the acquisition cost.

Sony Financial Holdings Inc. Annual Report 2017107

19. Derivative financial instruments:(1) Hedge accounting not applied
Below is a summary of contractual or notional amounts, current market or fair values, valuation gains or losses, and the method of
calculating the fair values of derivatives, classified by transaction, to which hedge accounting is not applied. Notional amounts do
not indicate exposure to credit loss.
1) Interest rate derivatives

Millions of yen
2017
Notional
Notional amountamount total
over 1 year

As of March 31,

Over-the-counter transactions

Valuation gains(losses)

Fair value

Interest rate swaps
Fixed-rate receivable/Floating-rate payable¥4,528¥4,528¥286

Floating-rate receivable/Fixed-rate payable

3,528

3,528

50

50

—

—

¥337

¥337

Total

¥286

Notes: 1. The above transactions are valued at market, and the valuation gains or losses are recorded in the consolidated statements of income.
2. Fair values are calculated using discounted cash flow and the price indicated by a financial institution.

2) Currency derivatives

Millions of yen
2017
Notional
Notional amountamount total
over 1 year

As of March 31,

Over-the-counter transactions

Forward foreign exchanges

Valuation gains(losses)

Fair valueSold¥288,772¥—¥3,868

Bought104,730

—

256

256

Foreign exchange margintransactions

Sold

46,494

—

1,309

1,309

Bought18,449

—

1,018

1,018

Currency options

Sold

214

—

(1)

0

Bought

212

—

1

0

Bought15,265

—

(126)

(126)

¥6,327¥6,328Currency forward contracts
Total

—

—

¥3,868Notes: 1. The above transactions are valued at market, and the valuation gains or losses are recorded in the consolidated statements of income.
2. Fair value is measured using the discounted cash flow and option pricing models.

3) Stock derivatives

Millions of yen
2017
Notional
Notional amountamount total
over 1 year

As of March 31,

ListedStock index futures

Sold

Total

Fair value

Valuation gains(losses)¥96,016

¥—

¥462

¥462

—

—

¥462

¥462

Notes: 1. The above transactions are valued at market, and the valuation gains or losses are recorded in the consolidated statements of income.
2. Fair value is the closing price on the Exchange at the end of the fiscal year.

(2) Hedge accounting is applied
The following provides a summary of contractual or notional amounts, current market or fair values, valuation gains or losses, andthe method of calculating the fair values of derivatives, classified by transactions, to which hedge accounting is applied. Notionalamounts do not indicate exposure to credit loss.
1) Interest rate derivatives

Millions of yen

As of March 31,

2017

Hedge accounting

Hedging instrument

Deferred hedge accounting

Interest rate swaps
Floating-rate receivable/
Fixed-rate payable

Fair value hedge accounting

Notional amountover 1 year

Deposits¥103,000¥103,000¥

Available-for-salesecurities (bonds)

304,661

266,269(17,639)——¥(17,285)

Fair value

Notes: 1. Deferred hedge accounting is applied in accordance with the Industry Audit Committee No. 24, along with fair value hedge accounting.
2. Fair value is calculated using discounted cash flow and other methods.

108Sony Financial Holdings Inc. Annual Report 2017

353

Interest rate swaps
Floating-rate receivable/
Fixed-rate payable

Total

Notional
amount total

Hedged item

2) Currency derivatives

Millions of yen

As of March 31,

2017
Hedging instrument

Hedged item

Fair value hedge accounting

Currency swaps

Available-for-salesecurities (bonds)

Total

Notional
amount total

Notional amountover 1 year

¥14,645¥4,700¥(673)——¥(673)

Fair value

Financial Section

Hedge accounting

Notes: 1. Fair value hedge accounting is applied.
2. Fair value is calculated using discounted cash flow and other methods.

20. Information about retirement benefit obligations as of March 31, 2017:(1) Overview of retirement benefit plans
The life insurance subsidiary provides a lump-sum retirement benefit plan to sales staff and a defined benefit corporate pension
plan and defined contribution pension plan to internal office staff. The non-life insurance subsidiary provides a lump-sum retirement benefit plan and a defined contribution pension plan. SFH and its banking subsidiary mainly provide a lump-sum retirement
benefit plan. SFH and some consolidated subsidiaries calculate retirement benefit obligations based on the simplified method.

(2) Defined benefit plans
1) Reconciliation of beginning and ending balances of retirement benefit obligations (excluding those listed in 9) )Millions of yen
For the year ended March 31,

2017

Balance at the beginning of the period of retirement benefit obligations¥39,800

Service cost

4,767

Interest cost

(37)

Net actuarial gain arising during the period(163)

Retirement benefits paid

(1,799)Balance at the end of the period of retirement benefit obligations¥42,5672) Reconciliation of beginning and ending balances of plan assets (excluding those listed in 9) )Millions of yen
For the year ended March 31,

Balance at the beginning of the period of plan assets

2017¥12,844

Expected return on plan assets

194

Net actuarial gain arising during the period
Employer contribution

198
1,021

Retirement benefits paid
Balance at the end of the period of plan assets(227)¥14,032

3) Reconciliation of the ending balances of retirement benefit obligations and plan assets, and net defined benefit liability
and net defined benefit asset recorded on the consolidated balance sheets
Millions of yen
As of March 31,

2017

Funded retirement benefit obligations¥ 11,028

Plan assets(14,032)(3,003)

Unfunded retirement benefit obligations

31,649Net liabilities and assets recorded on the consolidated balance sheets

28,646

Net defined benefit liability

31,399Net defined benefit asset
Net liabilities and assets recorded on the consolidated balance sheets(2,752)¥ 28,646

Sony Financial Holdings Inc. Annual Report 20171094) Components and amounts of retirement benefit expenses
Millions of yen
For the year ended March 31,

2017Service cost

¥4,767

Interest cost

(37)

Expected return on plan assets(194)

Amortization of net actuarial gain

1,059

OthersRetirement benefit expenses related to defined benefit plans70¥5,665

Note: SFH includes retirement benefit expenses in others based on the simplified method.

5) Remeasurements of defined benefit plans (before tax deductions)
For the year ended March 31,

Millions of yen
2017

Net actuarial gain

¥1,422

Total¥1,4226) Accumulated remeasurements of defined benefit plans (before tax deductions)
As of March 31,

Millions of yen
2017

Unrecognized net actuarial gain¥(3,874)

Total¥(3,874)

7) Plan assets(i) Main components of plan assets
The percentage share of components by main asset class out of total plan assets is as follows:
As of March 31,

%
2017

Bonds

66

Equity securities

30

Others

4

Total

100

(ii) Method of setting the long-term rate of expected return on plan assets
The long-term rate of expected return on plan assets is determined by taking into account the current and expected allocationof plan assets, and the current long-term return rate and the long-term return rate that is expected in the future based on thevarious assets that comprise the plan assets.
8) Basis for calculating actuarial gain or loss
Main basis for calculating actuarial gain or loss as of March 31, 2017
Discount rate
0.2%–0.8%
Long-term rate of expected return on plan assets
1.5%–2.7%
9) Reconciliation of beginning and ending balances of net defined benefit liability of the plan based on the simplified
methodMillions of yen
For the year ended March 31,

Balance at the beginning of the period of net defined benefit liability
Retirement benefit expenses

¥ 91
11

Contribution to the plan

(4)

Others12

Balance at the end of the period of net defined benefit liability(3) Defined contribution plans
The amount of contribution required for defined contribution plans by the Companies was ¥287 million.

110

2017

Sony Financial Holdings Inc. Annual Report 2017¥111

21. Information on stock options as of March 31, 2017:(1) Expenses and line items associated with stock options¥49 million

Financial Section

Operating expenses, etc.

(2) Description and volume of stock options as well as their changes
1) Description of stock options
The first series of stock acquisition rights of SFH

Category and number of eligible recipients

Four executive directors of SFH

Number of stock options granted by type of shares (Note)

Common stock 52,900 shares

Grant dateAugust 8, 2016

Vesting conditions

Options rights are to be vested upon grant.
However, if the recipient loses the position of executive director of the Company
prior to the Ordinary General Meeting of Shareholders in 2017, he/she can exercise
the number of stock options calculated by multiplying the number of stock options
granted, by the number of months he/she serves as executive director from July
2016 up to the month of losing his/her position, and dividing the value by 12. The
rest of the stock options granted shall no longer be exercisable on or after the dateof the recipient losing his/her position, and is cancelled.

Eligible period of service

From June 24, 2016 to the date of the Ordinary General Meeting of
Shareholders in 2017

Exercise period

From August 9, 2016 to August 8, 2046
However, eligible recipients of stock acquisition rights may exercise all (but notpart) of the stock acquisition rights held by him/her only during the period from the
day immediately following the date on which such holder loses any and all of his/her office(s) as executive director of SFH up to ten days (in the event that the tenthday is a holiday, the following business day) thereafter.

Note: Stock options have been converted and stated as number of shares.

2) Volume of stock options and their changes
Stock options that existed in the year ended March 31, 2017, are presented as follows, and have been converted and stated as
number of shares.
(i) Number of stock options

The first series of stockacquisition rights of SFH

Before vesting (shares)
At the end of March 2016
Granted—52,900Lapsed—Vested52,900

Number of unvested stock options—

After vesting (shares)
At the end of March 2016
VestedExercised
LapsedNumber of unexercised stock options(ii) Unit price information
Exercise price
Average share price at the time of exercise
Fairly assessed value on the grant date—
52,900——52,900The first series of stockacquisition rights of SFH¥1—¥1,236

Sony Financial Holdings Inc. Annual Report 2017111

(3) Method for estimating the fair value of stock options
The method for estimating the fair value of stock options that were granted in the year ended March 31, 2017 is as follows.
1) Assessment method used
Black-Scholes model2) Main basic values and their estimation method

The first series ofstock acquisition rights of SFH

Volatility of share price (*1)

35.701%

Expected remaining period (*2)

3.8 years

Expected dividend (*3)¥55/share

Risk-free rate (*4)

(0.188%)(*1) Calculated based on the past share prices during the period corresponding to the expected remaining period of 3.8 years in (*2).
(*2) Calculated by weighting and averaging the expected period of service by the amount to be granted.
(*3) Based on the actual dividends for the fiscal year ended March 31, 2016.
(*4) Calculated using the average compound yield of long-term JGB with the remaining period approximate to the expected remaining period of 3.8 yearsin (*2).

(4) Method for estimating the number of stock options vested
As it is difficult, as a general rule, to reasonably estimate the number of stock options to lapse in the future, SFH adopts a methodthat only reflects the actual number lapsed.

22. Information on tax effect accounting as of March 31, 2017:(1) Breakdown of major factors giving rise to deferred tax assets and deferred tax liabilities
Millions of yen
As of March 31,

2017

Deferred tax assets
Policy reserves and others¥ 34,696

Reserve for price fluctuations

12,931

Net defined benefit liability

8,053

Write-down of securities

3,006

Tax loss carried forward
Depreciation and amortization

431
3,781

Net deferred losses on hedging instruments
OthersSubtotal of deferred tax assets

590
7,445
70,936

Valuation allowance(3,766)

Total deferred tax assets

67,169Deferred tax liabilities
Net unrealized gains on other securities(51,265)

Others(590)

Total deferred tax liabilities(51,855)

Net deferred tax assets (liabilities)¥ 15,313

Note: Net deferred tax assets for the year ended March 31, 2017 are included in the following items of the consolidated balance sheets.
Millions of yen
As of March 31,

Assets - Deferred tax assets
Liabilities - Deferred tax liabilities

112

Sony Financial Holdings Inc. Annual Report 20172017¥15,313—

(2) Breakdown of major items giving rise to a significant difference between the statutory effective tax rate
and the effective income tax rate after application of tax effect accounting%
As of March 31,

2017
Financial Section

Statutory effective tax rate

30.9

(Adjustments)
Difference in tax rate of subsidiaries(2.4)

Increase (decrease) in valuation allowance

1.1

Others1.0

Effective income tax rate after application of tax effect accounting

30.6

23. Asset retirement obligations:
Asset retirement obligations recorded on the consolidated balance sheets(1) Overview of asset retirement obligations
The reserve for asset retirement obligations is provided for the obligation to restore sites to their original states under the leaseagreement of commercial properties, as well as the estimated amount of asbestos removal cost associated with investment andrental property in accordance with Ordinance on Prevention of Health Impairment due to Asbestos and others.

(2) Basis of measurement for asset retirement obligations
The amount of asset retirement obligations is calculated by estimating the usable period to be 13 to 50 years from acquisition andthen applying a 0.1% to 2.3% discount rate.

(3) Changes in the balance of asset retirement obligations
Millions of yen
For the year ended March 31,

2017

Balance at the beginning of the period¥ 752

Increase due to purchase of tangible fixed assets

445

Changes resulting from the passage of time

18

Increase due to changes in estimation (Note)

1,047

Decrease due to performance of asset retirement obligations(2)

Other increase (decrease)(45)

Balance at the end of the period¥2,214

Note: In the year ended March 31, 2017, changes were made to the estimation of asset retirement obligations required to be recorded as part of the obligation to restore sites to their original states under the real estate lease agreement, following acquisition of the latest information about the cost for
restoring sites to their original states.

24. Fair value information on investment and rental property:
The life insurance subsidiary owns rental office buildings in Tokyo. Income related to investment and rental property amounted to¥5,953 million for the year ended March 31, 2017. Below is the consolidated balance sheet amount, net of changes during theperiod, and the fair value at the end of the current period.
Millions of yen
For the year ended March 31,

2017

Consolidated balance sheet amount¥106,135

Balance at the beginning of the period(1,404)

Changes during the period

104,731

Balance at the end of the period¥174,007Fair value at the end of the period
Notes: 1. The consolidated balance sheet amount is the acquisition cost less accumulated depreciation and impairment losses.
2. The fair value at the end of the period is determined by a licensed third-party real estate appraisal agent.

Sony Financial Holdings Inc. Annual Report 2017113

5 Notes to the Consolidated Statements of Income
Profit attributable to owners of the parent per share is calculated based on the weighted-average number of shares of common
stock outstanding during the period. For the year ended March 31, 2017, net income per share was ¥95.69.
The basis for this calculation for the year ended March 31, 2017 is profit attributable to owners of the parent of ¥41,621 million, the entire amount of which is applicable to common stock. The weighted-average number of shares outstanding for the year
ended March 31, 2017 was 434,978 thousand shares.
Diluted net income per share attributable to owners of the parent was ¥95.68. There was no adjustment to profit attributableto owners of the parent for a basis for calculation, and common stock reflecting the dilutive shares increased by 28,000 shares.

6 Notes to the Consolidated Statements of Comprehensive Income
Reclassification adjustments and income tax benefit (expense) on components of other comprehensive income for the year ended
March 31, 2017 are as follows:
Millions of yen
For the year ended March 31,

2017

Net unrealized gains on other securities, net of taxes:
Gains (losses) arising during the period
Reclassification adjustments
Pre-tax amount
Income tax benefit (expense)
Net unrealized gains (losses) on other securities, net of taxes¥(25,307)(6,081)(31,389)
8,873(22,515)

Net deferred losses on hedging instruments, net of taxes:
Gains (losses) arising during the period
Reclassification adjustments
Pre-tax amount

2,581
(862)
1,719

Income tax benefit (expense)(526)

Net deferred gains (losses) on hedging instruments, net of taxes

1,192

Remeasurements of defined benefit plans, net of taxes:
Gains (losses) arising during the period
Reclassification adjustments
Pre-tax amount

1,422

Income tax benefit (expense)(400)

Remeasurements of defined benefit plans, net of taxes

1,021

Total other comprehensive income

114

362
1,059

Sony Financial Holdings Inc. Annual Report 2017¥(20,301)

7 Notes to the Consolidated Statements of Changes in Net Assets

1. Types and numbers of shares issued are as follows:
Financial Section

Thousands of shares
2017
Number ofshares as ofApril 1, 2016

For the year ended March 31,

Number ofshares increased
during the period

Number ofshares decreased
during the period

Number ofshares as ofMarch 31, 2017

435,000——

435,000

435,000——

435,000

0

52

—

52

0

52

—

52

Issued shares
Common stock
Total
Treasury stock
Common stock
Total

Note: The increase of 52 thousand shares in common stock (of treasury stock) was due to purchase of treasury stock.

2. Information on stock acquisition rights is as follows:
SFH

Detail of stock acquisition rights

Balance at the end of the period(Millions of yen)

Stock acquisition rights as stock options

49

3. Information on dividends is as follows:(1) Dividends paid
Resolution

Type ofsharesAggregate
amountof dividends

Cashdividends
per share

Recorddate

Effective
date

Ordinary General Meeting of Shareholders
held on June 23, 2016

Commonstock¥23,924
million¥55

March 31,2016

June 24,2016

Resolution

Type ofsharesAggregate
amountof dividends

Source ofdividends

Cashdividends
per share

Recorddate

Effective
date

Ordinary General Meeting of Shareholders
held on June 21, 2017

Commonstock¥23,922
millionRetainedearnings¥55

March 31,2017

June 22,2017(2) Dividends to be paid in the next fiscal year

8 Notes to the Consolidated Statements of Cash Flows

1. The reconciliation of cash and cash equivalents in the statement of cash flows to cash and due from banks as stated in the consolidated balance sheet as of March 31, 2017, is as follows:
Millions of yen
As of March 31,

2017Cash and due from banks¥206,481

Call loans of life insurance subsidiary

61,900Cash and cash equivalents¥268,381

2. Cash flows from investing activities include cash flows from lending operations of the insurance business.

Sony Financial Holdings Inc. Annual Report 2017115

MCEV Results for Sony Life as of March 31, 2017

1 MCEV Results
Beginning with the disclosure as of March 31, 2017, the extrapolation methodology for ultra-long term risk-free rates was changed
from assuming a flat forward rate after the last market data to applying an ultimate forward rate. Due to this change, Sony Life
restated its MCEV as of March 31, 2016 and new business value during the fiscal year ended March 31, 2016 by applying thesame methodology. Please refer to Section for the risk-free rates used for restatement.
Sony Life’s MCEV as of March 31, 2017 increased ¥111.0 billion, due to an increase in interest rates and other factors. Please
note that the significant changes in adjusted net worth and value of existing business offset each other with the effect of ALM.
Billions of yen
As of March 31,

MCEV
Adjusted net worth
Value of existing business2016 (Restated)2017¥1,330.1¥1,441.1

2,074.4(744.4)

1,657.7(216.7)

Change¥ 111.0(416.7)527.7

2 Adjusted Net WorthThe adjusted net worth as of March 31, 2017 decreased ¥416.7 billion, primarily because of the decrease in unrealized gain on
held-to-maturity securities caused by an increase in interest rates. The breakdown is shown in the table below. Please note thatthe restatement as of March 31, 2016 had no impact on the adjusted net worth as of March 31, 2016.
Billions of yen
As of March 31,

2016

2017

Adjusted net worth
Total net assets
Reserve for price fluctuations
Contingency reserve
Reserve for possible loan losses
Reinsurance debit for coinsurance-type reinsurance
Unrealized gains or losses on held-to-maturity securities
Unrealized gains or losses on policy-reserve-matching bonds
Unrealized gains or losses on land and buildings
Unfunded pension liabilities
Intangible fixed assets
Tax effect equivalent of above nine items
Valuation gain or loss on subsidiaries and affiliated companies¥2,074.4
482.2
44.3
75.2
0.0
—
2,026.2
41.3
56.5
(4.8)
(19.2)(621.4)(5.8)¥1,657.7
473.6
46.0
82.5
0.0
1.2
1,445.6
26.0
71.0
(3.6)
(19.4)(461.8)(3.4)

Change¥(416.7)
(8.6)
1.7
7.3
0.0
1.2
(580.6)(15.3)
14.5
1.3
(0.2)
159.6
2.5

We set our required capital as the larger of the amount of Japanese regulatory minimum capital requirement at the solvency
margin ratio of 200% or the amount of capital to cover risks based on an internal model based on economic value. The required
capital as of March 31, 2017 decreased due to a decrease in the economic value of technical provisions that mainly resulted froman increase in interest rates.

Billions of yen

As of March 31,

Adjusted net worth
Free surplus
Required capital

2016 (Restated)¥2,074.4
394.0
1,680.4

2017¥1,657.7
496.1
1,161.7

Change¥(416.7)
102.0(518.7)

3 Value of Existing Business
The value of existing business as of March 31, 2017 increased ¥527.7 billion, primarily because of an increase in interest rates.
The breakdown of the value of existing business is shown in the table below.
Billions of yen
As of March 31,

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

116

Sony Financial Holdings Inc. Annual Report 20172016 (Restated)¥(744.4)(169.9)(137.3)(36.4)(400.7)2017¥(216.7)350.0(145.2)(35.6)(385.9)Change¥527.7
519.9
(7.8)
0.8
14.8

4 New Business Value
Financial Section

In the year ended March 31, 2016, new business value was calculated quarterly using the assumptions as of the end of eachquarter. From the year ended March 31, 2017, economic assumptions as of the end of each month are applied.
The new business value in fiscal 2016 decreased ¥21.3 billion, primarily because the overall level of interest rates throughout
the year decreased compared with the previous fiscal year. The breakdown of new business value is as follows:
Billions of yen
For the year ended March 31,

2016 (Restated Note)

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

2017¥ 50.4114.2(29.6)(0.4)(35.0)
1.3

Change¥ 29.1
68.3
(9.1)
(0.1)
(29.8)(0.2)¥(21.3)(45.8)
20.5
0.3
5.2
(1.5)

Note: The new business value as of March 31, 2016 was restated for the change in extrapolation methodology for ultra-long term risk-free rates andcalculated quarterly using the assumptions as of the end of each quarter.

5 New Business Margin
The new business margin described below is the ratio of the value of new business to the present value of premium income. The
present value of premium income is calculated applying the same assumptions as those for the calculation of new business value,
and is based on premiums before the deduction of reinsurance premiums.

Billions of yen

For the year ended March 31,

2016 (Restated)

Value of new business
Present value of premium income
Value of new business / Present value of premium income

2017¥ 50.4
1,475.9
3.4%¥

Change29.1
1,297.4
2.2%¥ (21.3)(178.5)(1.2)pt

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, 2017, from MCEV as of March 31, 2016.
Free surplus

Opening MCEV (MCEV as of March 31, 2016) (restated)
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, 2017)¥394.0(21.0)
373.0
(1.3)
(0.5)
0.9
18.2
(56.5)
47.0(61.9)
0.0
2.3
119.1
1.6
123.0

RequiredcapitalValue ofexisting business¥1,680.4—
1,680.4
1.1
(2.6)
4.2
(69.7)—(39.9)
61.9(0.0)(44.9)(472.2)(1.6)(518.7)¥(744.4)—(744.4)
29.3
23.6
10.5
51.5
56.5
3.3
(45.0)
0.0
73.1
453.2
1.4
527.7

Billions of yen
MCEV¥1,330.1(21.0)
1,309.1
29.1
20.4
15.6
—
—
10.4
(45.0)
0.0
30.5
100.0
1.4
132.0

—

—

—

—

¥496.1¥1,161.7¥(216.7)¥1,441.1

Notes: 1. As regards opening MCEV (restated), the extrapolation methodology for ultra-long term risk-free rates was changed from assuming a flat forward
rate after the last market data to applying an ultimate forward rate. It also includes the impact of the change in inflation rates for the 41st year andlater to assure consistency with the extrapolation methodology for ultra-long term risk-free rates.
2. Expected yield used for the fiscal year ended March 31, 2017 was 0.095%.
3. Assumption changes primarily indicate the impact of changes in assumptions based on experience data in mortality and morbidity rates, lapse and surrender rates, and operating expense rates. While mortality and morbidity rates are declining, the value of existing business fell primarily because of a decreasein assumed lapse and surrender rates this fiscal year. The primary cause for this is higher persistency on those blocks of business for which risk-free rates
are below the interest rates underlying statutory reserve in the low interest rates environment in Japan.
4. Other operating variance represents the impact of improvements and corrections of the model used in calculating MCEV.
5. As regards economic variances, the total amount of changes in MCEV are disaggregated into an increase of ¥117.6 billion as a result of changes
in the market environment such as the increase in interest rates, and a decrease of ¥17.6 billion as a result of the increase in inflation rates.
6. Other non-operating variance includes the impact of the change in timing of the consumption tax increase.
Sony Financial Holdings Inc. Annual Report 2017117

7 Sensitivity Analysis
The impact of changing the underlying assumptions on MCEV is as follows:
Sensitivities of MCEVBillions of yen

Assumption

Change in assumption

Changein amount

MCEV

Rate ofchangeBase

No change¥1,441.1¥——

Interest rates

50bp decrease

1,309.6(131.4)(9%)

50bp increase

1,492.3

51.2

4%

Swap rates

1,404.4(36.7)(3%)

Stock / Real estate market value

10% decrease

1,418.6(22.5)(2%)

Stock / Real estate implied volatility

25% increase

1,413.1(27.9)(2%)

Interest swaption implied volatility

25% increase

1,420.2(20.9)(1%)

Maintenance expenses

10% decrease

1,464.7

23.7

2%

Lapse and surrender rates

x 0.9

1,427.6(13.5)(1%)

Mortality rates

Death protection products x 0.95

1,503.7

62.6

4%

Third-sector and annuity products x 0.95

1,429.5(11.5)(1%)

Morbidity rates

x 0.95

1,504.1

63.0

4%

Required capital

Regulatory minimum

1,472.7

31.6

2%

Foreign exchange rates

10% appreciation of JPY

1,432.6

(8.5)

(1%)

The breakdown of the changes in MCEV into the adjusted net worth and the value of existing business are shown in the tablebelow. Of items not specified in this table, only the value of existing business has been changed while adjusted net worth remains
the same.
Billions of yen
Assumption

Interest rates

Change in assumption

Adjusted
net worth

MCEV

Value ofexisting business

50bp decrease¥(131.4)¥ 695.0¥(826.4)

50bp increase

51.2(664.4)715.6

Stock / Real estate market value

10% decrease(22.5)(10.9)(11.6)

Foreign exchange rates

10% appreciation of JPY

(8.5)

3.6

(12.1)

8 Main Assumptions
We have used the JGB yields and U.S. Treasury yields as of the end of March 2017 as reference rates for the certainty-equivalentprojections. We have not added a liquidity premium on the risk-free rate as there are no products which are considered to havereasonably predictable and illiquid cash flows and would therefore be appropriate to apply a liquidity premium.
Previously, regarding the extrapolation for ultra-long term risk-free rates where there is no market data, flat forward rates wereassumed after the latest market data (40 years for JPY and 30 years for USD). From this year-end disclosure, an ultimate forward
rate was applied. More specifically, the ultimate forward rate was set at 3.5% and the last liquid point was set at 40 years (30years for USD) and, based on Smith-Wilson methodology, forward rates on or after 41 years (31 years for USD) were extrapolated
to converge to the ultimate forward rate over 20 years (30 years for USD). These parameters were set primarily in reference to thediscussion on Insurance Capital Standard (ICS) being developed by the International Association of Insurance Supervisors (IAIS)
for the international capital standard. The reasons for setting the last liquid point at 40 years (30 years for USD) are as follows:• Government bonds with 40-year maturity (30-year maturity for USD) have high liquidity and observable market data.
• Consistency in valuation between assets and liabilities as Sony Life holds a large amount of government bonds with 30- to
40-year maturity (30-year maturity for USD).

118

Sony Financial Holdings Inc. Annual Report 2017

The risk-free rates used in calculation for key terms (on a par-rate basis) are as follows:
Japanese yen
As of the end of March,2016 (Restated)

U.S. dollar
20172016 (Restated)2017

1 year

(0.15%)(0.25%)

0.58%

1.02%

5 year

(0.19%)(0.12%)

1.21%

1.92%

10 year(0.05%)

0.07%

1.77%

2.39%

20 year

0.44%

0.64%

2.17%

2.75%

30 year

0.55%

0.84%

2.61%

3.01%

40 year

0.63%

0.96%

2.75%

3.04%

50 year

0.98%

1.25%

2.82%

3.07%

60 year

1.23%

1.45%

2.86%

3.09%

70 year

1.38%

1.57%

2.88%

3.11%

80 year

1.47%

1.65%

2.90%

3.12%

Financial Section

Term(Data: Ministry of Finance Japan for JGB [extrapolated] and Bloomberg for U.S. Treasury [extrapolated])

Assumptions including mortality and morbidity rates, lapse and surrender rates, and operating expense rates, were developed
based on best estimates by product as of the end of March 2017. Best-estimate assumptions are developed to reflect past andcurrent experiences as well as expected experiences in the future. Expected future changes in assumptions should be reflected
only when they are supported by sufficient reasons. Except for a deteriorating trend in morbidity rates, no other expected futurechanges are assumed in the best-estimate assumptions applied.

9 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 this firm. Please refer to Sony Life’spress release “Disclosure of Market Consistent Embedded Value as of March 31, 2017” (http://www.sonyfh.co.jp/index_en.html)
for details.

10 Risk Amount Based on Economic Value (After Tax)
Sony Life has been disclosing the risk amount based on economic value since the end of March 2012 in an effort to provide aclearer picture of its financial soundness based on economic value. The risk amount based on economic value* refers to the total
amount of Sony Life’s risks, comprehensively examined and including insurance risk and market-related risk. Sony Life’s risk
amount based on economic value increased ¥8.2 billion since March 31, 2016, to ¥980.6 billion, due mainly to an increase inmarket-related risk (mainly interest rate risk), despite a decrease in insurance risk associated with an increase in interest rates.
The breakdown of the risk amount is as follows:

Billions of yen

As of March 31,

2016 (Restated)2017

Insurance risk (Note 1)¥ 989.3¥ 937.5

Market-related risk

324.2

405.1

255.2

308.9

Operational risk

31.4

28.1

Counterparty risk

2.0

1.9

Variance effect(374.4)(392.0)¥ 972.4¥ 980.6

Of which, interest rate risk (Note 2)

Risk amount based on economic value
Notes: 1. Insurance risk excludes the variance effect within Life module and Health module.
2. Interest rate risk excludes the variance effect within market-related risk.

Sony Life is making every effort to ensure its financial soundness by maintaining the risk amount based on economic value at an
appropriate level relative to MCEV, which is capital based on economic value.
*The risk amount based on economic value 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 standard method.

For further details, please refer to MCEV Results for Sony Life in the Financial Data Book.
http://www.sonyfh.co.jp/en/financial_info/annualreportSony Financial Holdings Inc. Annual Report 2017119

Financial Data Book Contents

Please visit SFH’s website to view the Financial Data Book.
Detailed financial data for each operating company is presented in a separate publication called
the Financial Data Book.

http://www.sonyfh.co.jp/en/financial_info/annualreport

SFH Financial Data (Consolidated)
Principal Indicators of Operating Performance
Consolidated Balance Sheets
Consolidated Statements of Income andConsolidated Statements of Comprehensive Income
Consolidated Statements of Changes in Net Assets
Consolidated Statements of Cash Flows
Sony Life Financial Data (Non-consolidated)
Balance Sheets
Statements of Income
Statements of Changes in Net Assets
Statements of Cash Flows
1. Loans by Borrower Category
2. Risk-monitored Loans
3. Accounting Indicators
4. Reconciliation to Core Profit andNon-consolidated Ordinary Profit
5. Fair Value Information on Securities (General Account)
6. Fair Value Information on Securities (Company Total)
Sony Life Performance Indicators (Non-consolidated)
1. Key Performance Indicators for Past Five Years
2. Key Performance Indicators
3. Indicators for Insurance Policies
4. Indicators Related to Asset Management(General Account)
5. Status of Insurance Claims Paying Ability
6. Balance of Separate Account Assets
7. Investment Progress of Separate Account Assets in
Individual Variable Life Insurance and Individual Variable
Annuities
8. Status of Individual Variable Life Insurance and Individual
Variable Annuities
9. Number of Agencies
10. Number of Employees and Recruits
11. Average SalarySony Assurance Financial Data
Balance Sheets
Statements of Income
Statements of Changes in Net Assets
Statements of Cash Flows
1. Loans by Borrower Category
2. Risk-monitored Loans
3. Assets and Liabilities
4. Profit and Loss
5. Fair Value Information, etc.
Sony Assurance Performance Indicators
1. Principal Indicators of Operating Performance
2. Underwriting Performance
3. Asset Management
4. Non-consolidated Solvency Margin Ratio
Sony Bank Financial Data (Consolidated)
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Comprehensive Income
Consolidated Statements of Changes in Net Assets
Consolidated Statements of Cash Flows
Sony Bank Financial Data (Non-consolidated)
Balance Sheets
Statements of Income
Statements of Changes in Net Assets
1. Loans by Borrower Category
2. Risk-monitored Loans
3. Profit and Loss
4. Fair Value Information
Sony Bank Performance Indicators (Non-consolidated)
1. Key Performance Indicators
2. Status of Operations (Deposits)
3. Status of Operations (Loans)
4. Status of Operations (Securities)
MCEV Results for Sony Life
1. MCEV Results
2. Assumptions
3. Calculation Method of MCEV
4. Overview of MCEV
5. Glossary of MCEV-related Terminology

120Sony Financial Holdings Inc. Annual Report 2017

Glossary (in Alphabetical Order)

Combined ratioA

B

ALM (asset liability management)

Bonus-malus system(Non-fleet driver rating system)

Life Non-life Banking

A method for maximizing and stabilizing net
asset value, which is calculated by deducting
the value of liabilities from the value of assets,through the comprehensive grasp andmanagement of assets and liabilities inconsideration of their special characteristics.

Annualized insurance premiums

Life

An indicator of the approximate annual
premium income from existing policies, which
is used as a performance indicator. Annualized
insurance premiums are calculated by adjusting
differences in the payment methods sinceinsurance premiums can be paid monthly,
annually, or in a lump sum, and by assumingthat average payments will be made over theterm of the policy.

Assumed interest rate

Life Non-life

Insurance companies anticipate a certain returnon invested assets in advance and discountinsurance premiums only by this amount.
This discount rate is called the assumed
interest rate.

Assumed mortality rate

Life

The mortality rate is the percentage of people
who die in a single year for a given large
population. The assumed mortality rate is themortality rate used when calculating the amountof insurance premiums needed to cover future
benefit payments, and represents a projectionof the number of deaths by gender and age
based on past statistics.

Assumed rate of expense
Life Non-life

In operating their businesses, insurancecompanies forecast their expenses, thenincorporate this amount in their insurance
premiums. This expense rate is called theassumed rate of expense.

Non-life

A system for applying discounted or additional
premiums for non-fleet policyholders (owners/
users of nine or fewer automobiles or
motorcycles) based on their accident histories.
Grades range from 1 to 20, but typically startat Grade 6. The higher the grade (large numbers),
the bigger the discount rate, and the smaller
the number, the smaller the discount.

C
Capital adequacy ratio

Banking

The ratio of capital to total assets. An indicatorof whether a bank has enough capital, includingcommon stock, versus credit risk assets (oftotal assets, those which could become
non-performing). If a bank is unable to recovera large amount of loans, it can draw on capitaland write off these loans. A sharp decrease incapital creates difficulties in bank management.
Capital adequacy ratio regulations ensurethat banks are soundly managed by keeping
the capital adequacy ratio above a certain level.
This ratio is therefore an important indicator toshow financial soundness. For banks possessing
business bases overseas, the internationallystandardized regulations to preserve financial
soundness are a capital adequacy ratio of over
8%, and for banks not possessing businessbases overseas, in Japan a capital adequacy
ratio of 4% is required.

Catastrophe reserve

Non-life

A type of policy reserve, under which, pursuant
to the provisions of the Insurance Business Act
of Japan, non-life insurance companies are
required to accumulate each fiscal year as an
amount calculated based on premium income
to cover losses due to catastrophic events.
In consideration of the special need for the
non-life insurance business to cover a wide
range of risks, the catastrophe reserve acts as
a provision against the risk of large insurance
claims resulting from earthquakes, typhoons,and other catastrophic events. It is structured
to be accumulated over the course of multiple
fiscal years, and reversed during the fiscal year
in which a disaster occurs.

Non-life

The sum of an insurance company’s net loss
ratio and net expense ratio. Indicates aninsurance company’s profitability in the primarybusiness operations.

Compulsory automobile liability
insurance Non-life
Compulsory automobile liability insurance islegally required for all vehicles and provides
protection for victims of traffic accidents
resulting in injury or death. Compulsory
automobile liability mutual aid is similar. With
compulsory automobile liability insurance(mutual aid), indemnity payments per person
per accident are capped at ¥30 million fordeath, ¥40 million for serious residual disability,and ¥1.2 million for injury. Benefits are not paidfor vehicle or property damage.

Contingency reserve

Life

Non-life

Reserve to prepare for possible contingencies,
including insurance risk and assumed interest
rate risk.

Core profit

Life

An indicator of profits (losses) in the primary
insurance business over a one-year period.
It is derived by subtracting from ordinary profit
any profits earned from operations other thanthe primary insurance business. Profit categories
subtracted from ordinary profit include gains
and losses on the sale of securities andone-time gains and losses, such as profits
from the sale of assets owned by the insurancecompany.

D
Direct premiums writtenNon-life

Premiums received from policyholders,
calculated by subtracting direct surrender
payments and other direct payments fromdirect premiums.

DurationLife

A sensitivity index indicating the extent to which
the present value of future cash flow (interest
income, repayment of principal, receipt ofpremiums, payment of insurance benefits anddividends, etc.) from eligible assets (managed
assets) and liabilities (policy liabilities) will beaffected by interest rate fluctuations. While avariety of types and methods for calculating
duration exist, a method expressing theweighted average maturity of the cash flowin question is relatively widely used.

Sony Financial Holdings Inc. Annual Report 2017

121

E

F

I

Earned/incurred (E.I.) loss ratio

Foreign currency-denominatedinsurance Life

Individual annuities

Non-life

An indicator that represents the loss ratio
incurred during the current period that takes
into account the provision and reversal ofreserve for outstanding losses and ordinary
underwriting reserves calculated using thefollowing formula: Earned/incurred (E.I.) loss
ratio = (Net losses paid + Provision for reservefor outstanding losses + Loss adjustment
expenses) / Earned premiums (excluding
earthquake insurance and compulsory
automobile liability insurance)

Endowment insurance

Life

Endowment insurance entitles a beneficiary
to receive death or serious disability benefits
upon the death or serious disability of theinsured within an insurance period specified
when the policy is purchased, or to receive
maturity benefits upon policy maturity.

ERM (enterprise risk management)Life

Non-life Banking

An approach to accomplishing corporate
strategic goals and sustainable growth incorporate value, by conducting integrated
recognition and control of all risks a company
faces and seeking to optimize the risk froma company-wide perspective.

ESR (economic solvency ratio)

Life

ESR is one of the financial soundness
indicators, which measures whether anorganization possesses sufficient capital in
relation to its risks.
Sony Life computes its ESR by dividing
MCEV by the risk amount based on economic
value. For details on MCEV and the risk
amount based on economic value, please see“MCEV Results for Sony Life” in the Financial
Data Book.

EV (embedded value)Life

An indicator of the corporate value of a life
insurance company. Sony Life discloses
MCEV (market consistent embedded value)in conformity with the MCEV Principles. For
details on MCEV, please see “MCEV Resultsfor Sony Life” in the Financial Data Book.

Expense ratioLife

Non-life

The ratio of expenses to insurance premiums.
Used as an indicator of business efficiency atinsurance companies. Expenses are used forsoliciting, maintaining, and managing insurance
as well as for payment of insurance claims.

122Sony Financial Holdings Inc. Annual Report 2017

Insurance product in which insurance
premiums are invested in foreign currency.
Sony Life sells U.S. dollar-denominatedinsurance, in which policyholders pay theJapanese yen equivalent of the U.S.
dollar-denominated insurance premiums
and select the Japanese yen or U.S. dollar
when they receive insurance claims.

Life

Policyholders are eligible for receiving annuity
payments from funds accumulated by paid
insurance premiums at a certain age
prescribed in the policy. There are a variety
of types depending on the period for receiving
the annuity, structure of the annuity, method
for paying premiums, and death protection
prior to receiving the annuity.

Individual variable annuities
Fundamental internal rating based
approach Banking
The amount of credit risk assets is calculated
mainly by the standard approach or internalrating based approach for computing thecapital adequacy ratio. The standard approachcalculates the amount of credit risk assets byusing the risk weight set by authorities. On theother hand, the internal rating based approachcalculates the amount of credit risk assets byusing the default rate, etc. as estimatedinternally by financial institutions that practiceadvanced risk management. This approach
includes a fundamental internal rating based
approach that partly uses the values set by
authorities for loss rates at the time of default,
and an advanced internal rating based approachthat uses the values estimated internally byfinancial institutions in every situation.

G
General accounts

Life

Accounts for managing financial assets notincluded in separate accounts. This accountguarantees policyholders a certain assumed
interest rate, while the life insurance company
bears the asset management risk.

Gross operating profit

Banking

The total income from the four components
of banking services income: net interest income,net fees and commissions, net trading income,and net other operating income. Equivalent
to gross profit (sales minus purchases) andan indicator of the amount of profits a bankgenerates from its main services.

Life

Individual annuity product in which assets
are invested mainly in stocks and bonds,
and annuity and surrender payments increaseor decrease depending on investment returns.
The individual policyholder bears the asset
management risk.

Insurance premiumsLife

Non-life

Money paid by policyholders to an insurancecompany based on the insurance policy.
Even after submitting an insurance policy
application, no protection or compensation
is provided unless premiums are paid.

L
Lapse and surrender rateLife

Non-life

Surrender refers to the cancellation of an
insurance policy at some point in the future.
Upon surrender, the policy is terminated, andfrom that point protection or coverage is lost.
On the other hand, a lapse is when apolicyholder fails to pay premiums within thepayment grace period, causing the policy tolapse, from which point the policy will nolonger provide protection.
The lapse and surrender rate is the ratioof lapses and surrenders to policies in force atthe beginning of the fiscal year. It is calculated
by adding the total of lapses and surrenders
for the year in question, and then dividing by
the amount of policies in force at the beginningof the fiscal year.

Living benefit insurance

LifeThis insurance provides a lump-sum benefit
payment when the insured is diagnosed witha disease such as one of the three majordiseases (cancer, heart attack, or stroke).

Loss adjustment expenses

Non-life

Expenses incurred by an insurance company
in examining an insured event. These include
personnel and non-personnel expenses.

Loss ratio

Net premiums writtenNon-life

The ratio of insurance claims paid to premiumincome. Used in analyzing the business ofan insurance company and in calculating
insurance premium rates. The net loss ratiois the ratio derived by adding loss adjustment
expenses to net losses paid, then dividing by
net premiums written.

Non-life

Premiums received directly from policyholders(direct premiums written), adjusting forreinsurance premiums (subtracting directreinsurance premiums paid and adding
direct reinsurance premiums received), andsubtracting deposits of premiums.

Non-performing assets
LifeN
Net fees and commissions

Banking

Fees and commissions charged for providing
services. These refer to income generated byproviding services, such as bank transfer fees
and investment trust sales commissions, lessthe costs associated with providing these
services.

Net interest income

Banking

Net interest income accounts for the largest
percentage of the four income componentsof gross operating profit. Banks generally use
the deposits received from individuals and thefunds raised in interbank markets to provide
loans to individuals and companies and toinvest in securities. Net interest income is thedifference between the total interest received
from loans and other items (interest income)and the total interest paid for deposits andother items (interest expenses). Net interest
income is affected by changes in interest
rates (e.g., if deposit interest rates rise whileloan interest rates stay at the same levels, net
interest income will decrease), and by deposit
and loan balances.

Net other operating income

Banking

Net other operating income is derived fromservices other than the primary banking
services income categories of net interest
income, net fees and commissions, and net
trading income. One example is buying andselling in dollars and other foreign currencies.
In this case, after purchasing foreign currency
at a certain price, any gain from a subsequentsale at a price higher than the purchase pricewould be recorded in other operating income,and any loss from a subsequent sale at a
price lower than the purchase price would
be recorded in other operating expenses.

Non-life Banking

Non-performing assets are claims against
parties in bankruptcy, claims against parties
in effective bankruptcy due to poor businessor other reasons, and claims against parties
at risk of bankruptcy. Non-performing assets
also include loans for which principal or interest
payments are past due by three months or
more, and loans for which repayment on initial
terms is impossible and interest has been
reduced or exempted and the repaymentof principal has been extended.

Policy reserves and others(Underwriting reserves) Life Non-life
Reserves recorded in the liabilities sectionof the balance sheets for which insurancecompanies are required in the Insurance
Business Act of Japan to accumulate toprepare for the payment of future claims andother items to fulfill their obligations for paying
claims and other actions based on insurance
policies. Policy reserves and others include
reserve for outstanding claims and policy
reserves.

Policyholder loans

Life

As one of the asset management operationsof life insurance companies, loans provided up
to a certain level of the surrender payment onlife insurance policies. In general, policyholders
retain insurance protection and rights to receive
dividends during the period of the policyholder
loan. However, policyholder loans may not be
available depending on the type of insurance.

O

Policyholders’ dividend reserve

Over-the-counter (OTC) sales of
insurance products at banks

A reserve accumulated to fund dividend
payments to policyholders pursuant to theprovisions of the Insurance Business Act ofJapan.

Life

Non-life Banking

A bank serves as an insurance agency to solicit
insurance.

P
Policy amount in force

Life

Total amount of protection provided by life
insurance companies to individual policyholders.
This is different from the total amount ofpremiums paid by policyholders (premiumincome).

Policy reserves(Underwriting reserves)Life

Non-life

Reserves that insurance companies
accumulate in advance, funded by premiums,
investment income, and other sources, toprepare for future liabilities resulting frominsurance policies, including payments ofclaims, annuities, and benefits.

Positive spread

Life

Life

The amount by which the actual investment
income is higher than the expected investment
income from the assumed interest rate.

R
Reference loss cost rates

Non-life

Non-life insurance premium rates comprise
net insurance premium rates used for paying
insurance claims and loading insurance
premium rates used for operating insurance
businesses. Net insurance premium rates
calculated by the General Insurance Rating
Organization of Japan are called reference loss
cost rates. Member insurers of the organization
can use the rates as the basis for calculating
their own insurance premium rates.

ReinsuranceLife

Non-life

The insurance agreement that insurancecompanies conclude with domestic andoverseas reinsurance companies for someof the insurance policies they underwrite inorder to diversify risks on insurance policies.

Sony Financial Holdings Inc. Annual Report 2017123

Reserve for outstanding claims(Reserve for outstanding losses)
Life

Non-life

Reserve for the estimated amount of unfixed
insurance payments and unpaid insurance
claims at the end of the fiscal year, among
payment obligations for insurance claims,
surrender value, and other benefits.

Reserve for price fluctuations
Life

Non-life

This reserve is set aside to prepare for losses
caused by price fluctuations in stocks, bonds
and other assets held by an insurance company.

RidersLife

Non-life

Riders can enlarge the scope of protection in
the primary policy by adding provisions to theprimary coverage. Riders do not constitute a
policy by themselves. Multiple riders can be
added to the primary policy. Riders arecanceled when the primary policy is canceled
due to maturity, surrender, or other reasons.

ROEV (return on embedded value)
Life

ROEV is an indicator that refers to the growthpotential of corporate value. The amount of
increase of EV (embedded value), an indicatorof a life insurance company’s corporate value,is deemed to be profit that takes into accountthe unique aspects of life insurance
accounting.
Core ROEV is the growth rate of EV which
excludes any fluctuation effects of theinvestment yield and discounted rate.

S
Separate accounts

Life

Separate accounts are used for variable life
insurance, variable annuities, and otherinsurance products to invest assets separatelyfrom the other financial assets owned by aninsurance company in order to pay investment
returns directly to policyholders.

Solvency marginLife

Non-life

The solvency margin indicates payment ability.
Insurance companies accumulate policy
reserves to prepare for the payment of future
claims, allowing them to adequately respondto risks within a normally anticipated range.
However, unforeseen events can occur due

124Sony Financial Holdings Inc. Annual Report 2017

to changes in the environment such as majordisasters and substantial declines in stock
prices. The solvency margin ratio is one
measure used by regulatory authorities todetermine how much an insurance company
is able to pay in response to the risk of such
unpredictable events.

Standard Mortality TableLife

The Institute of Actuaries of Japan preparesa table that compiles data including mortality
rates and average life expectancies by genderand age. Of these data, mortality rates areverified by the Commissioner of Financial
Services Agency of Japan, and then usedas the assumed mortality rates in calculating
standard policy reserves required under the
Insurance Business Act of Japan.

Standard yield

Life

Non-life

The standard yield is the calculating rateinsurance companies are required to use
when accumulating policy reserves for future
insurance payments.

Surrender payments

Life

Non-life

Money refunded to the policyholder in theevent that the insurance policy is surrenderedor cancelled. Surrender payment amounts varydepending on several factors, including thetype of insurance, insurance period, and years
elapsed.

T
Term insuranceLife

Term insurance entitles a beneficiary to receive
benefits in the event of death or serious
disability of the insured within an insurance
period specified when the policy is purchased.

U
Underwriting profit

Non-life

Underwriting profit is calculated by subtracting
any underwriting expenses (net losses paid
and loss adjustment expenses, etc.) andoperating, general and administrative expenses
associated with underwriting from underwriting
income (net premiums written, etc.) thenadding or subtracting other income andexpenses (corporate taxes associated withcompulsory automobile liability insurance, etc.).

V
Variable life insurance

Life

Insurance product in which assets areinvested mainly in stocks and bonds, andclaims and surrender payments increase or
decrease depending on investment returns.
The individual policyholder bears the asset
management risk. The minimum insurance
payment is guaranteed, regardless ofinvestment performance.

W
Whole life insurance

Life

Insurance that pays benefits in the eventthe insured dies or is disabled. Unlike termlife insurance, protection continues for an
entire life.

SFH’s Website Information

SFH uses its website to provide timely disclosure and promotea better understanding of the Sony Financial Group.

http://www.sonyfh.co.jp/index_en.html
The SFH website is accessible via smartphone.
Financial Data Book
The Financial Data Book isavailable only on
SFH’s website.

Press releases are sorted into SFH and four businesssegments. Headings make it easy to determine thecontent of each press release.

Click here for Corporate Governance.

Sony Financial Holdings Inc. Annual Report 2017125

Sony Financial Group