2018
Annual Report

April 1, 2017 – March 31, 2018

Contents

History of the Sony Financial Group2

A Message from the President

4

Vision and Strategies

6

Strength —Distinctive Business Portfolio

6Growth —Steady Growth8

Future12—Seeking to Maximize Corporate Value

Sony Financial Group’s Financial Highlights(SFH Consolidated and Primary Subsidiaries)

14

Sony Financial Group: Medium-term Business Plan

16

Review of Operations andAnalysis 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 Audit & Supervisory
Board Members

58

A Dialogue between Outside Directors:
Corporate Governance at SFH

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 Profile

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, 2018

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 isavailable only on SFH’s website.

https://www.sonyfh.co.jp/en/financial_info/annualreportCompany Name Abbreviations
The following abbreviations for company names are used in thisreport.
Sony Financial Holdings Inc.
Sony Life Insurance Co., Ltd.
AEGON Sony Life Insurance Co., Ltd.
SA Reinsurance Ltd.
Sony Assurance Inc.
Sony Bank Inc.
Sony Payment Services Inc.
SmartLink Network Hong Kong Limited
Sony Lifecare Inc.
Lifecare Design Inc.
Proud Life Inc.
Sony Financial Ventures Inc.

SFH, Sony Financial Holdings
Sony LifeAEGON Sony Life Insurance
SA ReinsuranceSony AssuranceSony Bank
Sony Payment Services
SmartLink Network Hong Kong
Sony Lifecare
Lifecare Design
Proud Life
Sony Financial Ventures

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 historicalfacts 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,” which 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
and judgments 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 anduncertainties, and actual business results may vary substantiallyfrom 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 thisannual report does not constitute or form part of any offer forsale or subscription of or solicitation or invitation of any offer tobuy 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” and “Karte” are registered trademarks of SonyLife.
• “SURE” and “ZiPPi” are registered trademarks of Sony
Assurance.
• “MONEYKit” is a registered trademark of Sony Bank.
• “Sony Bank GATE” is a registered trademark of Sony
Corporation.
• Company names and product names that appear in this report,other than those mentioned above, are trademarks or registered trademarks of the respective company.
• The Sony Financial Group refers to the financial group thatcomprises Sony Financial Holdings Inc., Sony Life InsuranceCo., 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 been rounded off.
• Fiscal 2008–fiscal 2020 represent the fiscal years ended/ending March 31, 2009–2021.

AboutSony Financial Holdings
Sony Financial Holdings Inc. is a financial holding company with three
primary subsidiaries: Sony Life Insurance Co., Ltd., Sony Assurance Inc. andSony Bank Inc.

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 financial
products and high-quality financial services that meet every customer’s financial needs.

Corporate Philosophy
Give Back to Society
Put the Customer FirstWe will provide financial products andservices that satisfy customers byembracing their individual views, toensure that we help them lead prosperous lives with financial security.

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 andconvention.

We believe that a special commitment to
the public good is demanded of a financial
services company. Conscious of this, we willrealize 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.

Foster an OpenCorporate Culture
We believe that every employee’s contribution is important to develop our ideal of afinancial services company. We will thus foster
an open corporate culture where employees
can freely express their individuality anddemonstrate their abilities to the fullest.

Sony Financial Holdings Inc. Annual Report 20181

History of the Sony Financial GroupSony Financial Holdings was establishedin 2004 as a corporate spin-off fromSony Corporation. Also, SFH is the first
holding company in Japan with both
insurance and banking businesses under
one umbrella.

1970s

1980s

1990s

2000s

Sony Life
Aug. 1979 Sony Prudential Life Insurance Co., Ltd., is established (currently Sony Life)
Apr. 1981

Apr. 1991

May 2001

Sony Prudential Life Insurance
commences operations withlaunch of Lifeplanner system

Changes its name toSony Life Insurance Co., Ltd.

Sony Life’s Lifeplanner sales
employees begin selling automobile insurance of Sony
Assurance

Jul. 1987

Sony Prudential Life Insurance
agrees to terminate joint ventureSony Assurance
Jun. 1998 Sony Insurance Planning Co., Ltd., is established (currently Sony Assurance)
Sep. 1999

Jun. 2002

Sony Insurance Planning changes its
name to Sony Assurance Inc.
Sony Assurance launches sales of automobile insurance (over the Internet in
September and by telephone in October)Sony Assurance launches
sales of “SURE” medical
insurance with emphasison cancer coverageSony Bank
Apr. 2001 Sony Bank Inc. (Sony Bank) is establishedJun. 2001

Mar. 2002

Sony Bank commences operations.
Launches MONEYKit service site.
Starts handling deposits, investment
trusts and card loans

Sony Bank begins handlingmortgage loans

Sep. 2001

Sony Bank begins handlingforeign-currency deposits

2

Sony Financial Holdings Inc. Annual Report 2018

Sony Financial Holdings
Apr. 2004 Sony Financial Holdings Inc. is established as a financial holding company
Oct. 2007

Apr. 2011

Apr. 2016

SFH is listed on the First Section ofTokyo Stock Exchange

SFH conducts stock split and adopts
share unit system

Lifecare Design Inc. opens Sony Lifecare Group’s
first nursing care home

Nov. 2013

Jul. 2017

SFH acquires Senior Enterprise Corporation (currently Lifecare Design Inc.) as a
subsidiary and enters nursing care businessSony Lifecare Inc. acquires Yuuai Holdings
Co., Ltd. as a subsidiary(In Aug. 2017, Yuuai Holdings Group
undertakes corporate consolidation andchanges its name to Proud Life Inc.)

Apr. 2014

Sony Lifecare Inc. is established as aholding company to oversee nursing
care businessJul. 2018

SFH establishes Sony Financial
Ventures Inc. as an investment subsidiary

2010sDec. 2004

Aug. 2007

Oct. 2009

Jun. 2017

Sony Life’s Lifeplanner sales
employees begin to accept
mortgage loan applications
as agents of Sony Bank

Sony Life establishes AEGONSony Life Planning Co., Ltd.
(currently AEGON Sony Life
Insurance Co., Ltd.)Sony Life establishes SA Reinsurance
Ltd. in British Bermuda as a reinsurance company specializing in variableannuities

Sony Life establishes wholly owned
subsidiary Sony Life Singapore Pte.
Ltd. in Singapore(In Aug. 2017, Sony Life establishesSony Life Financial Advisers Pte.
Ltd., a joint venture, with Starts
Securities Co., Ltd.)

Dec. 2007

Dec. 2009

Sony Life is approved to
conduct banking agency
business on behalf ofSony BankAEGON Sony Life Insurance commences
operations. Sony Life’s Lifeplanner sales
employees begin selling individual
variable annuities

Oct. 2004

Jan. 2009

Jan. 2017

Sony Assurance debuts fire
insurance to customers
taking out mortgage loans
from Sony Bank

Sony Assurance offers pet
insurance through alliance with
Anicom Insurance, Inc.

Sony Assurance launches “ZiPPi”
medical insurance covering actual
inpatient expenses
Jun. 2018

Sony Assurance begins sellingoverseas travel insurance

Jun. 2010

Jan. 2016

Sony Bank opens its firstover-the-counter branch—
Housing Loan Plaza (currently
CONSULTING PLAZA)Sony Bank launches Sony
Bank WALLET, a cash cardwith Visa debit function

Jul. 2011

Aug. 2017

Sony Bank acquires 57% equity
interest in SmartLink Network,
Inc. (currently Sony Payment
Services Inc.)

Sony Bank launches Sony Bank
GATE, an investment-type crowd
funding platform

Sony Financial Holdings Inc. Annual Report 20183

A Message from the President

4Sony Financial Holdings Inc. Annual Report 2018

We will steadily leverage growth achieved through stronger
existing businesses, while we make strategic moves froma long-term perspective to secure further growth by taking fulladvantage of changes that will occur 10 years into the future.
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 2017, ended March 31, 2018, the businessenvironment continued to present challenges, including
long-term interest rates in Japan that remained low. However, the Sony Financial Group performed well, with efforts
to improve profitability and enrich the customer service
menu leading to steady growth in business volume for all
three core business segments.
Given the low interest rate environment in Japan, Sony
Life emphasized activities aimed at raising profitability on
an economic value basis. The Company’s approach included
efforts to enrich the lineup of U.S. dollar-denominatedinsurance products and reinforce consulting sales andfollow-up. Sony Assurance steadily increased policies formainstay automobile insurance and implemented measures
to boost service quality, such as the launch of SECOM
Accident On-site Rush Service. Sony Bank built up the balance of mortgage loans and steadily expanded the numberof Sony Bank WALLET cash cards with Visa debit functionin 11 currencies.
A look at consolidated results of the Sony Financial
Group for fiscal 2017 shows that ordinary revenues increased
8.8%, to ¥1,503.6 billion, ordinary profit increased 0.8%, to¥66.8 billion, and profit attributable to owners of the parent
was up 24.7%, to ¥51.8 billion. Consolidated adjusted
ROE, a key performance indicator, reached 6.1%, up 2.2
points from a year earlier.
In light of such factors as changes in the businessenvironment, the Group formulated a new three-year
medium-term business plan, effective from fiscal 2018.
The three years of the new medium-term business plan will
be a time for strategic moves from a long-term perspective
to secure further growth by taking full advantage of changes
that will occur 10 years into the future. Also, in formulating
the new medium-term business plan, the Group recognized
two points—“customer-first” and “response to changes”—
of major significance to the Group.

Over the next three years, the Group will emphasize“customer-first” business operation more strongly, andSony Financial Holdings will reinforce governance structure
over Group companies. In addition, the Group will create
opportunities through its “response to changes” in theoperating environment, namely, technological progress
and a new social landscape, and lay a solid foundation
for future growth.
These measures should drive growth for 10 years andeven 20 years into the future, and during that time, we will
strive to be a group that earns and keeps the trust of ourcustomers.
With regard to dividends to shareholders for fiscal 2017,
the payout was raised ¥5 per share over the fiscal 2016
level, to ¥60 per share. We aim for steady increases in
dividends in line with earnings growth over the medium tolong term. In determining dividends, we place more importance on economic value-based profit indicators that are
more suitable for evaluating the growth of the life insurance
business, in addition to statutory profit. The dividend forecast for fiscal 2018 is ¥62.50 per share, up ¥2.50 fromfiscal 2017.
We will continue to seek the sustainable growth of theSony Financial Group and raise corporate value, as we
contribute to the development of society.

July 2018

Shigeru Ishii
President and Representative Director

Sony Financial Holdings Inc. Annual Report 2018

5

STRENGTH
Business Portfolio

Distinctive Business Portfolio
The Sony Financial Group seeks to differentiate itself bycreating new business models unlike those of industry peers
and provides customers with reasonable, convenient andhigh-quality products and services. Going forward, the Groupwill strive to strengthen the presence of each company in its
respective market.

Sony Life
Business expansion through tailor-made insurance design and sales approachand after-sales consultations based on life planning
ALM (Asset Liability Management) to match insurance liability characteristics
to reduce interest rate risk pertaining to liabilities of insurance policies withlong-term maturities
Financial soundness to meet future capital requirements
Strategic Highlights• Strengthen provision of death protection• 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 agency)

6Sony Financial Holdings Inc. Annual Report 2018

Life
Insurance
BusinessNon-life
Insurance
BusinessSony Assurance
Reasonable premiums matched to risk on
individual basis

Vision and Strategies

Excellent accident response, with high-quality
customer center and website services
Strategic Highlights• Continue to grow in automobile insurance• Expand business categories outside
automobile insurance• Improve customer services and operating
efficiency, mainly through utilizing
leading-edge technology and renovations
to our core business systems
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
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
function in 11 currencies
Main Sales Channels• Internet• Banking agency
Sony Financial Holdings Inc. Annual Report 20187

Consistently Strong

GROWTH
Steady Growth
The Sony Financial Group has steadily expanded businessvolume by securing the loyalty of customers in each businessthat makes up its distinctive business portfolio. Going forward,
the Group seeks to achieve medium- to long-term growth byproviding high-quality products and services matched to theindividual financial needs of each customer.

SFH (Consolidated)
Ordinary Revenues/Ordinary Profit

Ordinary revenues

Gained customer loyalty through innovation
in a market, which led to sustainable growth¥1,503.6 billion
1,503.6

1,259.0

1,320.4

1,352.3

1,362.0

1,381.6

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

66.8

¥ 66.8

44.5
25.3
12.2

2005

2006

34.2

billion

18.3

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

Lehman ShockSFH establishedin April 2004

8

Ordinary profit

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

Sony Financial Holdings Inc. Annual Report 2018

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

Bank of Japan introduced a policy of“Quantitative and Qualitative Monetary
Easing with Negative Interest Rates”(For the years
ended March 31,)

Vision and Strategies

Total Assets/Net Assets

Total assets

Expand asset scale by raising policy amountin force and balance of deposits¥12,401.4 billion
12,401.4
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

625.4

¥ 625.4

467.0

billion

347.8

2012

2013

Net assets

2014

2015

2016

2017

2018

(As of March 31,)

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

Sony Financial Holdings Inc. Annual Report 20189

2

Consistently Strong GROWTH Steady Growth
C

47.2

¥

Life Insurance BusinesstrillionSony Life (Non-consolidated)

47.2

*1

Policy Amount in Force

45.3
43.1
40.9
Total assets: ¥5 trillion

39.0
37.7

36.0
34.7
32.5

33.4

31.4

Total assets: ¥3 trillion
30.2
29.0
27.8
26.2
24.7
23.4
Total assets: ¥1 trillion 21.5
18.8

Changed name toSony Life Insurance
10.9
April 1981
Business commenced

August 1979
Sony Prudential Life
Insurance Co., Ltd.
established
0.04

0.2

3.9
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 2018

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

A consultation led by a Lifeplanner
sales employee

Consultations draw on Sony Life’s very
own software “LiPSS” and create lifeplanning tables designed to realize
customers’ dreams and hopes.

10

Sony Financial Holdings Inc. Annual Report 2018

107.0Non-life Insurance Business¥tBegan sales of ZiPPi medical insurance covering actual
inpatient expensest#FDBNF/PJOEJSFDUQSFNJVNTXSJUUFOGPS
automobile insurance for 15 straight years amongmajor direct non-life insurers*2
90.4
87.3
t#FDBNF/PGPSUIFmSTUUJNFJOUFSNTPGEJSFDU
82.5
premiums written for automobile insurance
78.3
among major direct non-life insurers*2
72.8t#FHBOTBMFTPG463&NFEJDBMJOTVSBODF
67.0
with emphasis on cancer treatment
60.8

billionDirect Premiums Written

June 1998
Sony Insurance Planning Co., Ltd.
establishedt$IBOHFEOBNFUP4POZ"TTVSBODF*OD
t#FHBOTBMFTPGBVUPNPCJMFJOTVSBODF

50.1

Vision and Strategies

Sony Assurance

107.0
99.0

94.3

54.6

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 “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

¥

Sony Bank (Non-consolidated)

3.9#FHBOJTTVJOH4POZ#BOL8"--&53.6

Loan balance exceeded ¥1 trillion
Total assets: ¥2 trillion

0.2

2.8

3.0

3.2

2.1

1.5

0.7

2003

2.4

2.6

2.9

1.8

April 2001
Sony Bank Inc. established
Business commenced in June

2002

trillion

Deposit balance exceeded ¥2 trillion

Retail Balance*3

Deposit balanceexceeded¥1 trillion

2018

3.9

Banking Business

0.1

2017

(For the years ended March 31,)

0.9

1.1

0.4
2004

2005

2006

2007

2008

2009

2010

2011

*3 Sum of deposits, investment trusts and personal loan balances, including securities brokerage andmediated discretionary investment contracts from fiscal 2017

Various benefits andservices are attached
to Sony Bank WALLET,
including cash back on
domestic purchases,
discounts, purchaseprotection insurance
and compensation for
unauthorized use.

2012

2013

2014

2015

2016

2017

2018

(As of March 31,)Sony Assurance
maintains No. 1 spotin direct insurance for
15 consecutive years(as of March 31, 2017)

Sony Financial Holdings Inc. Annual Report 201811

Inspiring the

FUTURE
Seeking to Maximize Corporate ValueThe Sony Financial Group seeks to build closer ties tocustomers and, through the management strategies described
below, the Group will strive to maximize corporate value froma medium- to long-term perspective.

1
Sustainable, stable growthat Group companies
We aim to achieve sustainable, stable growth byutilizing inherent company strengths andexpanding business volume.

▶Page 6: Vision and Strategies: Strength▶Page 8: Vision and Strategies: Growth2
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 2017, the volume of automobile insurance
sold along the Lifeplanner channel represented 4% of
the number of new policies by Sony Assurance, whilethe volume of mortgage loans along this sales route
represented 16% of the amount of new loans
extended by Sony Bank.

12

Sony Financial Holdings Inc. Annual Report 2018

Create synergies
through cooperation among
Group companies
We will raise the synergistic effect created as a corporategroup and provide appealing, high-value-added products
and services that conventional financial institutions have notbeen able to provide. So as to realize it, we place more importance on growth at each Group company and on efforts
aimed at enhancing intra-company cooperation to facilitate
access to products and services as well as sharing andmutual use of respective sales channels and infrastructure.

3
Entry into new business domainsthat transcend our existing framework
Vision and Strategies

Focusing on business domains related to existing businesses,
we will strive to steadily expand business volume by continuing
to enrich our lineup of products and services to meet customer
expectations.
The Sony Financial Group added the nursing care businessto its corporate portfolio in November 2013 and is steadily pursuing new activities to fuel growth over the medium to longterm. Also, advances in technology have created an excellent
backdrop for launching innovative financial services, a trend thatis gaining momentum. Under these circumstances, we established a subsidiary in July 2018 to invest in venture companies
with strengths in such areas as Fintech.
▶Page 30: Vision and Strategies Nursing Care Business

4
Emphasize customer-firstbusiness operations andreinforce Group governance
The Group has emphasized customer-first business operations
in line with a corporate philosophy that dates back to the Group’s
earliest days. SFH and its three core subsidiaries—Sony Life, Sony
Assurance and Sony Bank—have all disclosed a customer-firstbusiness operations policy and strive to maintain appropriate
business operations. In addition, SFH continuously reinforces thegovernance structure for Group companies.
▶Page 20: Vision and Strategies The Sony Financial GroupSony Financial Holdings Inc. Annual Report 201813

Sony Financial Group’s Financial Highlights(SFH Consolidated and Primary Subsidiaries)

Sony Financial Holdings (Consolidated)

For the years ended March 31,

2009

2010

Ordinary revenues¥ 860,323¥ 978,991

Ordinary profit

34,25384,373

Profit attributable to owners of the parent

30,722

48,126—

71,066

5,313,677

6,001,088

204,897

269,439

13.32%

12.05%——

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,

Ordinary revenues

Sony Life (Non-consolidated)¥ 765,910¥ 881,798

Ordinary profit

32,40980,099Net income

33,783

46,1383,810,929

4,286,540

As of March 31,

Total assets
Net assets

140,730

191,312

Non-consolidated solvency margin ratio (Note 1)

2,060.5%

2,637.3%

For the years ended March 31,

Ordinary revenues

Sony Assurance¥

61,882

Ordinary profit
Net income (loss)¥

68,174

2,178(1,556)

2,565
1,604

86,69898,340

As of March 31,

Total assets
Net assets

13,67815,482

Non-consolidated solvency margin ratio (Note 1)

993.0%

1,018.5%

For the years ended March 31,

Ordinary revenues

Sony Bank (Non-consolidated)¥

33,361¥30,500Ordinary profit

414

2,930

Net income (loss)

(710)

1,646

1,411,956

1,612,186

46,26458,98913.37%

12.09%

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. Capital adequacy ratio has been calculated by applying foundation internal ratings-based(FIRB) approach from March 31, 2017.

Composition by Business Segment(For the year ended March 31, 2018)

Life Insurance Business
Non-life Insurance BusinessBanking Business

Ordinary Revenues

7%

Ordinary Profit

Total Assets

3%
11%
10%

90%

21%
2%

81%

77%

Note: Ratios for each business segment are shown as a percentage of consolidated
Sony Financial Holdings performance.

14

Sony Financial Holdings Inc. Annual Report 2018

Millions of yen
2011

2012

2013

2014

2015

2016

2017

¥1,002,201¥1,078,070¥1,259,041¥1,320,456¥1,352,325¥ 1,362,044¥ 1,381,667¥ 1,503,630

76,86074,62579,252

76,13690,062

71,103

66,326

66,843

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

41,621

51,89531,96360,37696,22544,79490,707

71,10521,43352,207

6,597,140

7,241,414

8,096,164

8,841,382

9,545,868

10,352,114

11,471,845

12,401,446

294,877

347,800

435,444467,050

550,672

604,377

601,139

625,4062018

10.14%

9.88%

12.02%

11.91%

10.70%

14.39%

18.58%
7.1—

1,380.3%

1,520.6%

1,563.8%

1,634.9%

1,637.1%

1,632.9%

1,748.7%¥ 900,091¥ 967,400¥1,142,274¥1,197,109¥1,223,827¥ 1,230,141¥ 1,243,739¥ 1,351,076

73,17669,43674,65969,20579,66560,79260,18056,33840,22031,42642,44437,06342,52437,09635,18545,134

4,723,332

5,222,846

5,952,750

6,624,903

7,301,350

8,035,408

8,873,613

9,567,689¥¥

215,387

264,836

342,333

369,230

432,526

482,195

473,589

492,787

2,900.1%

1,980.4%

2,281.8%

2,358.7%

2,555.0%

2,722.8%

2,568.8%

2,624.3%

74,166¥80,096¥84,711¥89,864¥93,022¥

96,905¥102,333¥

110,092

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

6,574
4,821

109,382

118,612

127,421

142,714

157,919

172,323

186,537

204,362

16,77218,00919,934

21,41824,741

28,30529,40933,189981.4%

557.8%

504.2%

527.6%

629.6%

693.5%

730.8%

782.1%

29,521¥

30,075¥31,351¥

33,994¥35,714¥34,892¥35,105

Vision and Strategies

10.96%¥

36,270

3,377

4,033

4,282

5,845

7,298

5,857

4,634

6,557

2,054

2,340

879

3,585

4,634

3,912

3,176

4,474

1,761,830

1,890,503

2,005,081

2,056,704

2,062,525

2,126,564

2,424,236

2,635,028

59,971

62,796

67,811

72,77477,06477,42881,33285,72910.84%

11.58%

11.98%

11.72%

10.65%

9.89%

9.75%

10.45%

Credit Ratings (As of July 1, 2018)
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 rating

S&P Global Ratings (S&P)

Sony BankA+Counterparty credit ratingA

Long-term

A-1

Short-termSony Financial Holdings Inc. Annual Report 201815

Sony Financial Group

FY

2018

Medium-term
Business Plan FY

2020

The operating environment surrounding the Group is expected to remain challenging. The situation is largely due
to a shrinking market, reflecting a net decrease in the population and downward pressure on profitability, paralleling the low interest rate situation. Particularly the speed of technological innovation, including Fintech, is amazing,
and the danger grows more likely every day that existing financial services will be made obsolete as companies
from different sectors enter the finance industry. In addition, management at financial institutions has placed
more importance on a customer-oriented approach to business operations.
In this operating environment, the Sony Financial Group will steadily strengthen existing businesses, while we
make a new approach with a long-term perspective to secure further growth by taking full advantage of changes
that will occur 10 years into the future. The Group’s growth strategy focuses on two key points: customer-firstand response to changes. With this in mind, the Group will support customers’ financial activities overall,beyond the existing business value chain, to provide reliable services and access to the newest technologies.

Key Points in New Medium-term Business Plan
Customer-first —Further promote the customer-first business operation
Response to Changes —Establish a foundation that allows us to take full advantage
of changes (technological advancements, social or regulatorychanges, etc.) to secure further growth

TARGETS for FY2020
FY2017
ActualFY2020Medium-term targets

Ordinary revenues¥1.50 trillion¥1.76 trillion

Ordinary profit¥66.8 billion¥77 billion

Profit attributable to owners of the parent¥51.8 billion¥50 billion

US-GAAP operating income*1¥178.9 billion¥180 billion

Consolidated adjusted ROE

6.1%*2

Approx. 7%*1 The figures for fiscal 2017, ended March 31, 2018, are rounded to the nearest ¥100 million. The figures for fiscal 2020, ending March 31, 2021, include expectedchanges in actuarial assumptions that are not affected by financial markets, and do not include expected gains/losses on sale of securities according to thechange of available-for-sale securities recognition, which are reported at fair value in the US GAAP from fiscal 2018, ended March 31, 2019 onward.
*2 Actual results for fiscal 2017 exclude the effect of a change to the insurance risk measurement method and other revisions at Sony Life.
▶Page 21: Calculation of Consolidated Adjusted ROE

16Sony Financial Holdings Inc. Annual Report 2018

MANAGEMENT MESSAGESSony Financial Group
Vision and Strategies

Shigeru Ishii

Page

18

President, Representative Director
Sony Financial Holdings

Sony Life

Tomoo Hagimoto
President, Representative Director
Sony Life

Page

22

Sony Assurance

Atsuo Niwa

Page

26

President, Representative Director
Sony AssuranceSony Bank

Yuichiro Sumimoto
President, Representative Director
Sony Bank

Page

28
Sony Financial Holdings Inc. Annual Report 201817

Sony Financial Group
Business Volume and Performance
Business
VolumeSony Life
Policy amount in force

Sony Assurance
Direct premiums written

Trillions of yen

Billions of yen¥55 trillion

Sony Bank
Retail balance*1
Trillions of yen¥120 billion¥5.0 trillion

107.0
3.9

47.2

CAGR*2
Approx. 5%

FY2017
ActualCAGR*2
Approx. 4%

FY2020Target

FY2017
ActualCAGR*2
Approx. 8%

FY2020Target

FY2017
ActualFY2020Target*1 Sum of yen deposits, foreign currency deposits, investment trusts, securities brokerage, mediated discretionary investment contracts and personal loanbalances*2 CAGR: Compound Annual Growth Rate

Ordinary revenues (consolidated)
Performance

Trillions of yen

Ordinary profit (consolidated)%

Billions of yen¥1.76 trillion
1.38

Consolidated adjusted ROE*3

Approx. 7%¥77 billion

1.50
66.3

66.8
6.1%

3.9%

FY2016
Actual

FY2017
ActualFY2020Target

FY2016
Actual

FY2017
ActualFY2020Target

FY2016
Actual

FY2017
ActualFY2020Target*3 The figures prior to fiscal 2017, ended March 31, 2018, exclude the impact of a revision in the insurance risk measurement method andothers for Sony Life.

The Group’s three core subsidiaries are expected tocontinue to expand business volume through fiscal 2020,
ending March 31, 2021. Consolidated ordinary revenues
and ordinary profit in fiscal 2020 should both increase overthose of fiscal 2017. In addition, our goal for consolidated
adjusted ROE, of which Sony Life’s core ROEV constitutes
a major portion, is about 7% in fiscal 2020.

Shigeru Ishii
President, Representative Director
Sony Financial Holdings

18

Sony Financial Holdings Inc. Annual Report 2018

Vision and Strategies

Group Growth Strategy
The growth strategy of the Sony Financial Group builds on organic growth, through stronger existing business and new initiatives
described in the new medium-term business plan that will lay the foundation for growth into the future.

Growth Through Stronger Existing Businesses

Life Insurance

Non-life InsuranceBankingNursing Care

Enhance consulting-based
sales and follow-ups

Maintain growth in automobile insurance while
diversifying portfolios forthe non-life insurance
category

Achieve growth in foreign
currency deposits andmortgage loans throughenhanced proposal capabilities and alliance network

Ensure steady post-startup
progress▶Page 26: Sony Assurance▶Page 28: Sony Bank

▶Page 22: Sony Life

▶Page 30: Nursing carebusiness

New Initiatives for Further Growth

1. Utilize Fintech
To effectively provide higher quality financial services to customers, Group companies will actively incorporate new technologies,
including machine learning and other AI technologies, into operations through alliances within the Group as well as with outside
parties. This will help get us closer to customers.

2. Establish investment subsidiary
In July 2018, SFH established Sony Financial Ventures Inc., an investment subsidiary. Sony Financial Ventures invests inventure companies with strengths in the related businesses of Group companies, including Fintech and health care. By investing,
we aim to reinforce existing Group businesses and facilitate the creation of new businesses, through tie-ups and joint activities
between venture companies and Group companies, besides capturing financial returns.

3. Build physical and digital channels
The Sony Financial Group boasts the strengths of a real sales channel through Sony Life and a digital sales channel throughSony Assurance and Sony Bank. We will take advantage of both channels without losing the characteristics that distinguisheach format through stronger connections within the Group as well as through M&A and alliances.
As a group, we will get closer to customers and enhance our function by analyzing data on customers’ consumption andbehavioral patterns. This will enable us to better match financial services to customers’ needs and create a closer presence
between customers and ourselves.

Sony Financial Holdings Inc. Annual Report 201819

Further Strengthen Group Governance
The Sony Financial Group’s responses to the Corporate Governance Code have included the introduction of a restricted
stock compensation system, the evaluation of the effectiveness of the Board of Directors through a third party and anincrease in the number of independent outside directors. The
Group will continue to promote initiatives aimed at further
strengthening the governance structure.

Promote Group ERM
A group-oriented ERM (Enterprise Risk Management) framework has been introduced into the Sony Financial Group.
It aims to balance and optimize capital, risk and return byextending comprehensive risk management structures alreadyin place at each company throughout the whole organizationand to instill the idea of improved capital efficiency in management across the Group. This ERM framework will help theGroup achieve stable growth and maximize medium- to longterm corporate value. The Group is working to build a PDCA
cycle through the formulation, implementation and monitoringof business plans based on risk appetite. Furthermore, we aretrying to raise Group ERM even higher while keeping related
regulatory trends in sight.

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

Capital efficiency(profitability)
Capital policy
Dividend policy

CapitalSoundness indicators

Soundness

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

Customer-first Business Operation Policy (Summary)
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 their policies, 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.

20

Sony Financial Holdings Inc. Annual Report 2018

Consolidated Adjusted ROE
core ROEV should be 6% or more. For Sony Assurance,adjusted ROE should reach around 13% by that time, while
Sony Bank should show ROE of 6.8%. On a consolidated
basis, achievement of these medium-term targets will lead to a
consolidated adjusted ROE of about 7%.

FY2017
ActualFY2020Medium-term targets

Consolidated adjusted ROE*

6.1%

Approx. 7%(Sony Life) Core ROEV*

5.9%

6% or more

16.1%

Approx. 13%

5.5%

6.8%

(Sony Assurance) Adjusted ROE(Sony Bank) ROE

Vision and Strategies

Since each company of the Sony Financial Group differs byindustry such as insurance and banking, each Group company
calculates its “Adjusted ROE” based on adjusted profit andadjusted capital to realize its corporate value and capital efficiency. By fiscal 2020, as the medium-term target, Sony Life’s* The figures for fiscal 2017 exclude the impact of a revision in the insurance risk management method and others for Sony Life.

Calculation of Consolidated Adjusted ROE
Group companies’ adjusted ROE and ROE as well as consolidated adjusted ROE are presented below.
Calculation of Sony Life’s core ROEV:
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
Calculation of Sony Assurance’s adjusted ROE:
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
Calculation of Sony Bank’s ROE:

Profit (loss) attributable to owners of the parent
The average amount of net assets during the fiscal year

Calculation of Consolidated adjusted ROE for fiscal 2017:
Consolidated adjusted ROE = Consolidated adjusted profit ÷ consolidated adjusted capitalSony Life: New business value + expected existing business contribution+ Sony Assurance: Net income (loss) + 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
*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

Sony Financial Holdings Inc. Annual Report 201821

Sony Life

Response to
ChangesCustomer-first

Activities for Growth in Fiscal 2018 and Beyond
Further strengthen ourbusiness foundation• Pursue quality in the Lifeplanner channel• Achieve steady recovery in the independent agency channel

Provide new value• Expand coverage (new medical insurance)• Evolve customer-first service (Fintech)

Steadily grow corporate
value• Realize growth in profit on the basis of economic value

Channel-specific Strategy: Lifeplanner
ChannelStringent recruitment and enhancing educationand training

Tomoo Hagimoto
President, Representative Director
Sony Life

22

Sony Financial Holdings Inc. Annual Report 2018

Sales through Sony Life’s Lifeplanner channel represent
about 80% of all new policies, and sales are growing steadily.
At Sony Life, brisk recruitment is pushing the number ofLifeplanner sales employees higher every year. As of March
31, 2018, it had reached 5,142. Lifeplanner productivity
continues at a high level.
Going forward, we will apply stricter selection criteria in
the recruitment process of Lifeplanner candidates, including
an enhanced interview process. In addition, through regularcommunication with the head office and standard applicationof best practices, we will raise the level of education andtraining at branch offices and reinforce education and training, including initial training.
Through these measures, we will steadily expand theteam lineup while improving the quality of Lifeplanner sales
employees, and by March 31, 2021, the number of Lifeplanner
sales employees should exceed 5,700.

Sony Life encourages the Lifeplanner channel to utilize
LiPSS, a simulation tool for designing the coverage that customers need to achieve their life plans, as well as Karte,
which collects, updates and keeps data obtained throughcommunication with customers. These approaches underpin
enhanced consulting sales and follow-up capabilities basedon customer needs, as Lifeplanner sales employees are able
to visualize the basis for recommendations to customers andprovide protection along the lines of customer intentions. In
addition, they can check on and optimize coverage throughpost-contract consulting and follow-up activities, which will
drive the value provided by Lifeplanner sales employees
even higher.

Vision and Strategies

Enhancing consulting sales and follow-up
capabilities

Number of Lifeplanner Sales Employees*1 andProductivity*2
108

100

4,329

FY2014
ActualOver 5,700
4,933

4,612

FY2015
Actual5,142

FY2016
Actual

FY2017
ActualNumber of Lifeplanner sales employees
as of the end of the ﬁscal year

FY2020
Outlook

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 FY2014 = 100, calculated on the basis of newpolicy amount.

Channel-specific Strategy: Independent Agency Channel
Sales through Partners (independent agencies) at Sony Lifeaccount for about 20% of all new policies.
We will broaden the range of support matched to type ofbusiness—either independent agencies with close ties to the

local community or large, corporate independent agencies—
as well as strengthen training of Supporters (independentagencies’ sales staff), and we will promote measures aimed
at achieving a recovery in new policy amount.

New Policy Amount Index*1(Independent Agency Channel)

Sony Life’s New Policy Amount*2

108

Trillions of yen

Medium-term target¥6.0 trillion

100

100
92

5.1
4.7

77

4.9

5.2

Broad area/corporate

Independent agency
channelLifeplanner channel
Close ties to local
communities

FY2014
Actual

FY2015
Actual

FY2016
Actual

FY2017
Actual*1 New policy amount is indexed to FY2014 = 100

FY2020Target

FY2014
Actual

FY2015
Actual

FY2016
Actual

FY2017
ActualFY2020Target*2 Individual life insurance and annuities

Sony Financial Holdings Inc. Annual Report 201823

Expanding Provided Value—Launch of New Medical Insurance and Evolution ofCustomer Services Through Fintech
At Sony Life, we provide protection to our customers witha focus on death protection products. Amid a persistently
low-interest situation in Japan, we began selling a new U.S.
dollar-denominated product in October 2017 that utilizes
comparatively higher interest rates on U.S. dollar-denominated investments, compared with current low returns on
yen-denominated investments, to give customers sufficient
protection at reasonable costs. Also, in the medical insurance
field, we launched two products in July 2018 with coverage
better suited to the changing environment of on-site medicalcare to meet the medical protection needs of customers.

The two medical insurance products highlight, respectively,
a focus on insurance premiums and a fondness for saving,
and thereby address the needs of a wide range of customers.
In addition, from a medium-term perspective, we areworking to strengthen proposal-making capabilities by applying advances in Fintech. We are keen to use AI to makeobjective proposals and to improve service quality on bothsales and follow-up fronts by promoting the development of
AI responses using the life plans, dreams, ideas and othercustomer data obtained through consulting activities.

Achieving Profit Growth on an Economic Value BasisAt Sony Life, we emphasize medium-term profit growth on an
economic value basis as an indicator of performance since it
tracks more closely to the actual growth of the life insurance
business. Our MCEV was ¥1,633.2 billion, as of March 31,
2018, and we expect to surpass ¥1,800 billion by March 31,
2021. We see new business value and expected existing
business contributions as the foundation for growth in corporate value obtained through insurance underwriting. We
define the ratio of the total sum of new business value andexpected existing business contributions to MCEV, as a measure of capital efficiency (profitability), also called core ROEV.
We anticipate a core ROEV of 6% or more in fiscal 2020.
Sony Life continues to commit to customer-first business
operations and efforts to strengthen the compliance system
while working to achieve medium-term profit growth on an
economic value basis.

24

Sony Financial Holdings Inc. Annual Report 2018

MCEV
Trillions of yen

Core ROEV
6% or moreOver
¥1.8 trillion*2

1.6*1
1.4

FY2016
Actual

FY2017
ActualFY2020Target*1 Following revisions, including insurance risk measurement method, effectivefrom fiscal year ended March 31, 2018 onward*2 Based on interest rate level at end of March 2018.

Fiscal 2020 Medium-term Targets
FY2017
Actual¥47.2 trillion¥55 trillion

5,142Over 5,700¥1.6 trillion

Over ¥1.8 trillion

5.9%

6% or more

¥54.1 billion¥62 billion

Number of Lifeplanners*1
MCEV*2
Core ROEV*3
Ordinary profit (life insurance business)

Vision and Strategies

Policy amount in force

FY2020Medium-term targets*1 The figures include the number of contracted Lifeplanner sales employees and those rehired on a fixed-term contract basis after retirement.
*2 Medium-term targets for fiscal 2020 are based on interest rate levels as of March 31, 2018.
*3 Results for FY2017 exclude impact from revisions, such as change in insurance risk measurement method.

“Karte” for Higher Quality Consulting and Follow-up
Sony Life’s Karte is an electronic database of customer information and history collected during proposal- and contractmaking and follow-up efforts.
Lifeplanner sales employees give shape to customers’
expectations for the distant future—discussed at the time a
policy is drawn up—and accompany customers as they proceed with life.
Therefore, even after a policy is signed, wheneverLifeplanner sales employees meet with customers, they ask
how customers are doing and inquire about their concerns.
By consistently recording this information in Karte, they canpinpoint future balances of income and expenditure and offer
suggestions, such as policy adjustments to match life events
that could be several years into the future.

Customer demands for life insurance
Customer information
Customer’s ideas
and dreams
Result of life planning
Future balances of income
and expenditure

Kar teHistory of procedures

Required coverage
and recommendation
reasonInsurance policy
content
Changes in customer status

Please refer to Review of Operations: Life Insurance Business on page 36.
Sony Financial Holdings Inc. Annual Report 201825

Sony Assurance

Response to Changes

Customer-first

Activities for Growth in Fiscal 2018 and Beyond
Continue to grow andexpand share of automobile
insurance• Strengthen customer confidence in direct insurance by improving productcapabilities and service quality and conducting effective marketing; establish“a trusted brand”• Improve products, marketing and services using leading-edge technology

Expand business categories
outside automobile
insurance• Aim to establish a foundation for stable long-term earnings and promote categoricalexpansion• Medical insurance field: strengthen and expand products, respond to diverse needs• New fire insurance field: use strength in direct business to expand into new domains

Maximize customer value• Strengthen customer retention by improving the customer experience and offeringhigh-quality services• Increase ability to acquire new policies by improving product and service specs toraise perceived quality• Track medium- to long-term changes in operating environment and utilize leadingReform operations andedge technology to raise operating efficiency and heighten cost competitiveness
improve operating efficiency • Reform operations and aim to improve ability to respond to customer needs throughlarge-scale renovations to our core business systems

Sony Assurance recorded ordinary profit of ¥6.5 billion in fiscal
2017, the fifth consecutive year of record-breaking results, an
upward trend maintained since fiscal 2013. This achievement
reflects higher revenues, paralleling favorable sales of mainstay
automobile insurance, as well as a lower loss ratio. Going forward, we will strive to make customers feel more at ease withdirect insurance and build reliable brand power by reinforcing
product appeal and service quality, and we will expand market
share with an emphasis on active approaches of effective marketing and communication practices. In the area of progressive
products, we will continue to pursue development of new
PHYD-type* telematics insurance products using smartphones
through alliances with Yahoo Japan Corporation (Yahoo! Japan)
and the Sony Group.
At the same time, Sony Assurance is working to transition
from a structure that relies heavily on automobile insurance toa structure featuring multiple products that will underpin stablerevenues over the long term. In the medical insurance field, we
currently sell a predetermined-amount medical insurance
product specifically for cancer and another product for actual
hospital inpatient expenses. Going forward, we will maintainour emphasis on enhanced product appeal to better meet thediversifying medical needs of our customers. In the new fire
insurance field, we have expanded further into new areas ofnon-life insurance, where we can put the originality of our
products and our strength in direct insurance. As part of thispush, in June 2018, we launched sales of an Internet-only,risk-segmented overseas travel accident insurance productdistinguished by attractive, economical premiums. We will use
this product to capture new customers but will also seek tocreate a synergistic effect through cross-marketing products
in existing categories to travel insurance customers.
Another objective is to improve products and services to26Sony Financial Holdings Inc. Annual Report 2018

maximize value to customers and reduce operating costs byapplying leading-edge technologies, such as Fintech, and doinglarge-scale renovation of core business systems.
Going forward, we will take a thorough approach in providing
high-quality products and services from a customer-first perspective, and respond to anticipated changes in the operating environment and strive to maintain steady growth and high profitability.
*PHYD: Pay How You Drive

Atsuo Niwa
President, Representative Director
Sony AssuranceOrdinary Profit and Sum of Two Ratios

Billions of yen

Billions of yen
91.0%

110.0
Ordinary revenues
89.8

96.9

93.0

Investment
incomeNet premiums
written(automobile)

FY2013

FY2014FY2015FY2016

90.6%

89.2%

Sum of two ratios
93.8%

102.3

Net premiums
written(other thanautomobile)

90.4%

10.0

FY2017FY20134.2

FY2014

8.1

7.6

7.1
Adjustedordinary proﬁt
4.2
Ordinary proﬁt
3.0

Vision and Strategies

Trends of Ordinary Revenues

6.5
4.6

4.9

FY2015FY2016FY2017

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

Fiscal 2020 Medium-Term Targets
FY2017
ActualDirect premiums written¥107.0 billion¥120 billion

89.2%[60.7%][28.5%]

Sum of two ratios
89%¥6.5 billion¥7 billion¥10.0 billion¥11 billion

16.1%

Approx.13%

Sum of two ratios[E.I. loss ratio][Net expense ratio]
Ordinary profit
Adjusted ordinary profit*

FY2020Medium-term targets

Adjusted ROE* Adjusted ordinary profit = Ordinary profit + Provision for catastrophe reserve

Please refer to Review of Operations: Non-life Insurance Business on page 44.
Sony Financial Holdings Inc. Annual Report 201827

Sony Bank

Response to
ChangesCustomer-first

Activities for Growth in Fiscal 2018 and Beyond
Increase product strengthand improve service• Improve convenience of Sony Bank WALLET cash card with Visa debit functionin 11 currencies, and expand tie-ups• Strengthen competitiveness of mortgage loans• Offer convenience through banking apps
• Expand investment options through crowd funding

Improve proposal-making
capability• Strengthen digital marketing• Implement digital consulting• Expand consulting, both over the Internet and face to face

Conduct operational reformand utilize Fintech• Begin using AI in provisional screening for mortgage loans• Promote alliances using open API• Improve operational efficiency through implementation of RPA

To fuel growth into the future, Sony Bank continues to focus
on its foreign currency deposit and mortgage loan businesses.
In the foreign currency deposits business, the balance at
March 31, 2018, exceeded ¥400 billion, reflecting successful
efforts to highlight the appeal of interest rates on U.S. dollar
term deposits as well as the popularity of Sony Bank WALLET,
for which the number of cards issued as of March 31, 2018,
topped 370,000. At Sony Bank, we have forged alliances with

Yuichiro Sumimoto
President, Representative Director
Sony Bank

28

Sony Financial Holdings Inc. Annual Report 2018

Sony Interactive Entertainment Inc., Takashimaya Co., Ltd. andothers on Sony Bank WALLET, and we will seek additional
alliances in pursuit of enhanced convenience for customers,
including enhanced functions for the Sony Bank WALLET
app. We will put greater effort into highlighting the convenience of Sony Bank WALLET, namely, the use of foreign
currency deposits on overseas travel and overseas businesstrips, as well as the low service charge, on the way to ourgoal of a foreign currency deposit balance of ¥530 billion
by March 31, 2021.
In the mortgage loan business, interest rates remain low,
and increasingly fierce competition is making it difficult tocapture customers. Sony Bank aims to make our fixed-rate
products more competitive and introduce a new group credit
life insurance. We will also start using AI in provisional
screening for mortgage loans and achieve greater convenience for customers by honing our competitive edge. We
will continue to expand our alliance channel with real estatecompanies and banking agencies in pursuit of a personalloan balance of ¥2.1 trillion by March 31, 2021, with thelargest component of this balance being mortgage loans.
Also, to be chosen more frequently by customers, wehave to fine-tune our proposal-making capabilities. We areworking to draw on the advantages afforded by digital marketing to analyze customer characteristics and preferences
and then recommend products matched to identified needs
at just the right time. Going forward, we will emphasize thedevelopment of apps that facilitate life-planning simulations
and investment product suggestions by smartphone as wellas enhanced face-to-face proposals at CONSULTING PLAZA.
In addition to the above, we will constantly seek to raise
operating efficiency, including concentrating resources into
high-value-added business activities, as we work toward an
ROE of 6.8% by March 31, 2021.

Vision and Strategies

Trends in Foreign Currency Deposit Balance

Trends in Personal Loan BalanceBillions of yen

2.1

Trillions of yen

530

Condominium loans
for investment
purposes

1.5
1.4

404.6

Other personal loans

348.0
Mortgage loans

FY2016
Actual

FY2017
ActualFY2020TargetInterest Spread

FY2016
Actual

FY2017
ActualFY2020TargetOrdinary Revenues (Sony Bank non-consolidated)

%

1.31

Billions of yen

43.2

1.13

Other operating
income36.2

0.94Interest income

0.91

0.37

3.2

FY2020Target

FY2017
Actual0.22
FY2017
ActualInterest spread

Yield on investment

6.0

Fees andcommissions

FY2020TargetYield on ﬁnancing

Fiscal 2020 Medium-term Targets
FY2017
ActualFY2020Medium-term targets

Retail balance (non-consolidated)*¥3.9 trillion¥5.0 trillion

Gross operating profit¥24.6 billion¥33.5 billion¥7.1 billion¥9.7 billion

5.5%

6.8%

Sales

¥3.6 billion¥5.1 billion

Ordinary profit¥0.6 billion¥1.2 billion

Ordinary profit

ROE
Reference: Sony Payment Services Inc. business results* Sum of yen deposits, foreign currency deposits, investment trusts, securities brokerage, mediated discretionary investment contracts and personal loan balances

Please refer to Review of Operations: Banking Business on page 50.
Sony Financial Holdings Inc. Annual Report 201829

Nursing Care BusinessInitiatives for Nursing Care Business GrowthSony Lifecare, a holding company overseeing activities in thenursing care business, seeks to realize a “Life Focus” concept—the pursuit of a fulfilling long life—and promotes expansion of business, particularly nursing care homes, under twobrands. SONARE, handled by Lifecare Design, caters to upper
middle-class seniors, and Hanakotoba, handled by Proud Life,aims at the largest market segment.
In SONARE operations, Sony Lifecare is focused on constructing nursing care homes in the Tokyo metropolitan area,
where demand is expected to grow even higher, and is preparing for the planned opening of its third facility—SONARE
Shakujii—in November 2018. The company will continue toemphasize initiatives that solidify SONARE as a high-quality
brand with appealing originality. In Hanakotoba operations,
Proud Life is making preparations to establish new facilities tocomplement its current network of 26 nursing care homes andthus expand its business base.
Future efforts will be directed toward delivering solutions
to address the needs of a diversifying nursing care home

services market through a lineup of SONARE and Hanakotoba
facilities. In addition, both Sony Lifecare and Proud Life
will work to create a synergetic effect between respective
brands and effectively utilize management resources within
the group.

SONARE Shakujii, a nursing care home, scheduled to open in November 2018

Trends in Japan’s Nursing Care Market
Status of Aging Population
The number of seniors aged 65 or older in Japan (“seniors”) reached 35.19 million as of November 1, 2017, and represented
27.8% of the total population. Both the number and percentage are record highs. In the most recent census, the ratio of
seniors to total population was 1 to 3.6 , up from 1 to 4.7 a decade previously, as of November 1, 2007, with one in threecitizens likely to be in the senior category by 2036, along with the decline of the population.
Nursing care needs are also rising, reflecting the aging society. The status of nursing care benefits in fiscal 2016, ended
March 31, 2017, broke previous records, in terms of people receiving benefits—5.61 million people—and in terms of thetotal cost of nursing care—¥10,180.4 billion. Of note, the total cost of nursing care, on a fiscal year basis, surpassed the¥10 trillion mark for the first time.
Government working on system to ensure access to high-quality, efficient nursing care services
In April 2018, the government revised nursing care compensation, an official rate applied to nursing care services, with totalcompensation showing upward movement—0.54%—for the first time in six years.
The basic stance taken by the government in the recent revision highlights four themes: 1) promoting a community-based
integrated care system; 2) realizing high-quality nursing care services that support the self-reliance of seniors and prevent
existing health issues from becoming more serious; 3) ensuring the availability of diverse human resources and improving
productivity; and 4) ensuring the stability and sustainability of the system by standardizing and prioritizing nursing careservices.
Of these, promoting a community-based integrated care system—which the government has tapped as an approachallowing seniors to receive continuous and consistent nursing care services in a familiar location, to the extent possible—isintended to enhance assessment of activities that link nursing care to medical treatment. In addition, from the perspectiveof enabling seniors to be self-reliant and preventing serious health consequences, emphasis was placed on rehabilitationand systems to evaluate providers whose services maintain and improve the conditions of persons requiring care.
Sources: “Population Estimates,” Statistics Bureau, Ministry of Internal Affairs and Communications; “Population Projections for Japan,” National Instituteof Population and Social Security Research; “Nursing Care Expenses,” All-Japan Federation of National Health Insurance Organizations; “Annual
Report on the Aging Society: 2017,” Cabinet Office; Cabinet decision materials; various council meeting materials (Ministry of Health, Labour andWelfare); and other documents

30Sony Financial Holdings Inc. Annual Report 2018

Review of Operations and Analysis of Operating Performance

Review of Operations andAnalysis of Operating PerformanceSony Financial Holdings Inc. Annual Report 201831

Segment Performance Highlights

Details: P36

Life Insurance Business
Ordinary Revenues

Ordinary Profit

Billions of yen

Billions of yen

Billions of yen

100

12,5001,200

80

10,000

900

60

600

40

5,000

300

20

2,500

1,351.2

1,500

0Ordinary
revenues

14

15

16

17

18

1,196.6 1,223.9 1,230.2 1,243.9 1,351.2

For the years ended March 31,

0
Ordinary
profitTotal Assets

54.1

14
67.2

15
78.3

16
60.2

17
56.8

0

54.1

Total
assets14

Ordinary Revenues

Ordinary Profit
Billions of yen

Billions of yen

125

7.5

250

110.0

6.5

200

75

4.5

150

50

3.0

100

25

1.5

50

0

14

15

16

17

18

Ordinary
revenues

89.8

93.0

96.9

102.3

110.0

For the years ended March 31,

0.0
Ordinary
profit

14

15

16

17

18

0

3.0

4.2

4.6

5.0

6.5

Total
assets

14

15

16

17

18

142.7

157.9

172.3

186.5

204.3

For the years ended March 31,

As of March 31,

Ordinary Revenues

Ordinary Profit

Total Assets

Billions of yen

Billions of yen

Billions of yen

50

10

3,000

Details: P50

39.9

7.1

40

8

30

6

1,800

20

4

1,200

10

2

600

14
36.4

15
38.4

18

204.3

6.0

Ordinary
revenues

17

Total Assets

100

0

16

As of March 31,

Billions of yen

Banking Business

15

6,619.3 7,301.0 8,033.3 8,873.4 9,566.0

Details: P44

Non-life Insurance Business

16
37.9

17
38.5

For the years ended March 31,

32

7,500

18

For the years ended March 31,

9,566.0

Sony Financial Holdings Inc. Annual Report 2018

18

0

39.9

Ordinary
profit

14
5.6

15
7.3

16
5.9

For the years ended March 31,

175.0

2,651.1

2,400

18

0

7.1

Total
assets

14

15

16

17

18

2,068.7 2,074.6 2,140.2 2,438.8 2,651.1

As of March 31,

SFH (Consolidated)
Operating Results

Review of Operations and Analysis of Operating Performance

During fiscal 2017, the Japanese economy continued to recover. Global demand for IT products drove external demand,
while a stable recovery in the employment situation fueled internal demand. The current economic recovery, which began in
December 2012, has now surpassed the Izanagi economic boom (1965–1970) to become Japan’s second-largest postwar
period of economic growth. However, early 2018 was marked by a growing sense of uncertainty regarding the overseas
political and economic situations, and financial markets were characterized by instability, with the yen appreciating and stock
prices falling.
In bond markets, yields on 10-year Japanese government bonds (JGBs) ranged between negative 0.02% and positive
0.09%. The domestic long-term interest rate was still low.
In foreign exchange markets, the yen traded near ¥112 to the U.S. dollar from April 2017 to early January 2018. From
October, debates on tax reform in the United States prompted expectations of a rise in interest rates. And it caused the yen
to depreciate to the ¥114 level against the U.S. dollar, though since mid-January 2018, the yen had appreciated into the¥104 level against the U.S. dollar at one point in late March.
Amid these circumstances, the Sony Financial Group sought to become the financial services group most highly trusted
by customers. To this end, we undertook a variety of measures to maintain a sound financial base, reinforce and expand our
product and service offerings in order to deliver high-value-added products and high-quality services to each of our customers, and enhance our internal control system.
Ordinary revenues increased 8.8% year on year, to ¥1,503.6 billion, owing to increases in ordinary revenues from all thebusinesses: life insurance, non-life insurance and banking businesses. Ordinary profit increased 0.8% year on year, to ¥66.8
billion. By business segment, ordinary profit from the life insurance business decreased, ordinary profit from the non-life
insurance and banking businesses rose. Profit attributable to owners of the parent was up 24.7% year on year, to ¥51.8
billion. This increase was due to a gain on disposal of fixed assets from a sale of the real estate held for investment of ¥13.2
billion in the life insurance business, which was recorded in extraordinary gains in fiscal 2017.
Segment results are amounts before consolidation adjustments and are described below.
Life Insurance Business Ordinary revenues grew 8.6% year on year, to ¥1,351.2 billion, due to higher income frominsurance premiums, owing to a steady rise in the policy amount in force. Ordinary profit decreased 4.7% year on year, to¥54.1 billion, due to a higher provision of policy reserve relating to the acquisition of new policies reflecting a revision in thestandard yields used for calculating policy reserves and lower gains on sale of securities in the general account. On the other
hand, gains/losses related to market fluctuations for variable life insurance* improved year on year, which partially offset thenegative impact of the above-mentioned decreases in ordinary profit.
* The total of (a) the provision of policy reserves for minimum guarantees forvariable life insurance according to market fluctuations and (b) net gains/losses
on derivative transactions to hedge market risks for products

Ordinary Revenues
For the years ended March 31,

2,000Bankingbusiness

1,600

Non-life Insurance Business Ordinary revenues
expanded 7.6% year on year, to ¥110.0 billion, owing to anincrease in net premiums written for mainstay automobile
insurance. Ordinary profit increased 31.5% year on year, to¥6.5 billion, due to a decline in the loss ratio, driven mainly
by a lower car accident ratio.
Banking Business Ordinary revenues rose 3.7% year
on year, to ¥39.9 billion, due to increases in interest income
on loans in line with a favorably growing balance of mortgage
loans and on investment securities. Ordinary profit grew
41.4% year on year, to ¥7.1 billion, due to a decrease inoperating expenses, especially in advertising expenses forthe card loan business.

Billions of yen

Non-life
insurancebusiness

1,200
800

Life insurance
business

4000Ordinary Profit
For the years ended March 31,

14

15

16

17

18

Billions of yen
100
80

Bankingbusiness

60

Non-life
insurancebusiness

40

Life insurance
business

20
0

14

15

16

17

18

Sony Financial Holdings Inc. Annual Report 201833

Financial Position
As of March 31, 2018, total assets amounted to ¥12,401.4 billion, up 8.1% from March 31, 2017. Among major components ofassets, securities—mostly Japanese government bonds—
Billions of yen
Total Assets
amounted to ¥9,581.2 billion, up 8.2%, and loans came to
16,000
As
of
March
31,
¥1,785.8 billion, up 3.8%.
Total liabilities were ¥11,776.0 billion, up 8.3% from March
12,00031, 2017. Major components of liabilities included policy
reserves and others of ¥8,763.3 billion, up 8.0%, and deposits
8,000
of ¥2,159.2 billion, up 4.3%.
Total net assets settled at ¥625.4 billion, up 4.0% from
4,000
March 31, 2017. This included net unrealized gains onavailable-for-sale securities, net of taxes, which decreased
0
14
15
16
17
18
¥0.8 billion, to ¥133.9 billion.

Cash Flow Status
Net cash provided by operating activities in fiscal 2017 reached ¥819.7 billion, mainly on higher contributions from insurance
premiums in the life insurance business. This was up ¥127.2 billion, or 18.4%, year on year, mainly because the increase in loans,including mortgage loans, in the banking business was smaller in fiscal 2017.
Net cash used in investing activities came to ¥680.8 billion, largely because cash used to acquire securities exceeded cash
provided by proceeds from the sale and redemption of securities in the life insurance and banking businesses. This was up ¥56.0
billion, or 9.0%, year on year, largely reflecting a decrease in collateral for securities lending transactions in the life insurance
business in fiscal 2017, compared with an increase in fiscal 2016.
Net cash used in financing activities amounted to ¥14.4 billion, despite proceeds from the issuance of corporate bonds, as
this amount was overshadowed by payments for cash dividends. Net cash used in financing activities was down ¥19.5 billion,
or 57.4%, year on year, owing to proceeds from the corporate bond issuance in fiscal 2017.
Due to the above factors, cash and cash equivalents at March 31, 2018, came to ¥393.1 billion, up ¥124.7 billion, or
46.5%, from March 31, 2017.

Fiscal 2018 Forecast
For fiscal 2018, ending March 31, 2019, all business segments are again expected to sustain growth, fueled byexpanding business volume. Ordinary revenues and ordinary profit should maintain an upward path, driven mainly by
the life insurance business.
In the life insurance business, the outlook for higher ordinary revenues in fiscal 2018 is based on expectations of afavorable shift in revenues, including insurance premiums, over those of fiscal 2017, while the outlook for higher ordinary
profit is based on expectations of an increase in profit paralleling expansion in policies in force, an increase in gains on
the sale of securities as well as an improvement in net gains/losses on derivative transactions to hedge market risk
related to available-for-sale securities.
Profit attributable to owners of the parent should, like ordinary profit, rise, despite the possibility of reduced
extraordinary profit.
Billions of yen
For the years ended March 31,

2018
Actual2019
Forecast

Ordinary revenues¥1,503.6¥1,578.0+4.9%

1,351.2

1,416.1+4.8%

Of which, non-life insurance business

110.0

112.3

+2.0%

Of which, banking business

39.9

42.8

+7.2%

66.8

83.0

+24.2%Of which, life insurance business

54.1

70.9

+30.9%Of which, non-life insurance business

6.5

6.5

(1.1%)Of which, banking business

7.1

7.0

(2.0%)

51.8

55.0

+6.0%

Of which, life insurance business

Ordinary profit

Profit attributable to owners of the parent

34

Sony Financial Holdings Inc. Annual Report 2018

ChangeRisk-monitored Loans

Millions of yen
2017

2018

Bankrupt loans

¥ 176

¥

Non-accrual delinquent loans

1,580

1,075

Restructured loans

1,227

842

¥2,984¥2,009

Review of Operations and Analysis of Operating Performance

As of March 31,

Category

Total

Consolidated Solvency Margin Ratio

91

Millions of yen

As of March 31,(A) Total consolidated solvency margin

2017

2018

¥1,308,134¥1,381,575

Common stock, etc.

443,155

470,030

Reserve for price fluctuations

46,182

48,135

Contingency reserve

82,56490,025

Catastrophe reserve

17,542

20,970490

416

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

164,792

163,989

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

30,84730,023

Total amount of unrecognized net actuarial gain (loss) and unrecognized prior service cost (before subtracting tax effects)(3,874)(2,724)——General reserve for possible loan losses

Amount excluded from deferred tax assets
Unallotted portion of reserve for policyholders’ dividends

442

377

Deferred tax assets (after deducting amount excluded)

83,92990,359Subordinated debt and surplus components of premium reserve

453,092482,261

Total solvency margin of small-amount short-term insurers——

11,031

12,290160,221

158,006

Insurance risk (R1)

24,16924,337

Ordinary insurance risk (R5)11,37012,395Major catastrophe risk (R6)

1,033

1,036

Third-sector insurance risk (R8)

8,541

8,587

Deductible items(B) Total consolidated risk

( R12+R52 +R8+R9)2+(R2+R3+R7)2+R4+R6

Insurance risk of small-amount short-term insurers (R9)Assumed interest rate risk (R2)——

31,46232,566

Minimum guarantee risk (R7)18,14020,137

Asset management risk (R3)

99,44193,730Business management risk (R4)

6,030

6,199

1,632.9%

1,748.7%

Consolidated solvency margin ratio (A)/{(1/2)x(B)} x 100

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 201835

Life Insurance Business
Review of Operations
Business Environment
Japan’s life insurance market is the third largest in the world
on an insurance premium income basis, with a global shareof about 12%. Although the domestic life insurance market
has been contracting since the late 1990s, industrywide policy amount in force for individual life insurance stood at ¥852
trillion* as of March 31, 2018, indicating that the life insurance
market remains significantly large. A steadily falling birthrate
and aging population have precipitated a shift in protectionneeds, from death-protection insurance to individual annuities
and third-sector insurance, such as medical and nursing careinsurance. Nevertheless, at ¥732 trillion* as of March 31, 2018,
death-protection insurance policies accounted for more than
80% of individual life insurance policy amount in force.
In fiscal 2017, despite a significant rise in the domestic
stock market fueled by enhanced business results from Japanese companies, long-term interest rates hovered low,nearly on a par with fiscal 2016.
In April 2017, the standard yield used for calculating policy reserves dropped, reflecting the low interest rate situation,
and a series of premium increases was implemented onsome products, such as whole life insurance and educational
endowment insurance, which are susceptible to changes in
the investment environment. In addition, in April 2018, theStandard Mortality Table was revised for the first time in 11
years, and life insurance companies are revising insurance
premiums, particularly term life insurance, while taking into
account the competitive environment.
In other developments, the finance industry is required
to make business operations more customer oriented. Thisextends to companies that engage in the life insurance business, as well, and it is vital that we adhere to “Principles for
Customer-oriented Business Conduct,” the guideline shownby FSA, and work harder to provide better insurance products
and services.
Also, against the backdrop of progress in information andcommunications technology, the finance industry is accelerating efforts to draw on the power of Fintech. In the insurance
industry, an off-shoot of Fintech has emerged—InsurTech—
Life Insurance Premium Volume Share by Country

2017
US$2.7 trillion

that supports the health of policyholders with smartphones,
wearable devices, artificial intelligence and other technology
innovations, and also streamlines office work related to insurance administration in line with workstyle reform.
*Source: “Summary of Life Insurance Business,” The Life Insurance Association ofJapan’s website

Sony Life’s Activities
Sony Life has expanded sales of insurance products centering on death protection, despite a shrinking death-protection insurance market. This is primarily a reflection of successful measures to strengthen consulting-based sales
through Lifeplanner sales employees and Partners (independent agencies). In fiscal 2017, given the low interest rateenvironment in Japan, the company took steps to enrich
its menu of highly appealing U.S. dollar-denominated insurance products and maintain its ability to provide necessary
protection, and rolled out sales of these products. In regard
to asset management, Sony Life pursued asset management opportunities corresponding to liability characteristics.
Toward this end, the company continued to invest in
ultralong-term government bonds and, seeking to diversify
its investment portfolio in the low interest rate environment,
also invested in ultralong-term Japanese corporate bonds,
including Fiscal Investment and Loan Program (FILP)
agency bonds. In addition, Sony Life invested in foreign
bonds corresponding to the sales volume of U.S. dollardenominated insurance.
Sony Life has always endeavored to provide products
and services from a customer perspective, guided by abasic mission that states, “We will work for our customers’
financial security and stability by offering optimal life insurance products and high-quality services.” Reflecting andpursuing this commitment, the company drafted andannounced its “Customer-first Business Operation Policy”
in June 2017. Putting this policy into practice, Sony Life will
ensure thorough economic value-based revenue and risk
management, expand business volume through new policy
capture and strive to enhance corporate value.
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

34% Others
1,200

4.5

800

3.0

400

1.5

12% China

4% South Korea
4% Italy
6% France

Source: Swiss Re Institute, sigma No 3/2018

36

Sony Financial Holdings Inc. Annual Report 2018

12% Japan
7% United Kingdom

0

96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18**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 name
A
B
Sony Life
C
D
E
F
G
H
I

Billions of yen, %Results
5,464.1
5,214.3
4,912.1
4,033.7
3,937.5
3,530.1
2,972.2
2,831.3
2,629.2
2,261.7

Share
9.5
9.1
8.6
7.0
6.9
6.2
5.2
4.9
4.6
3.9

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

Company name
B
J
K
L
A
Sony LifeCF
E
GBillions of yen, %Results
138,147.7
102,446.7
71,751.2
64,557.6
52,359.7
45,892.4
37,800.2
36,408.7
33,985.9
29,665.8

Share
16.2
12.0
8.4
7.6
6.1
5.4
4.4
4.3
4.0
3.5

Note: Individual life insurance (as of March 31, 2018)
The above table is prepared by Sony Life Insurance from data officially disclosed by individual life insurers.

Recent Topics
June and August 2017:

July 2018:

Established Singapore Subsidiary and Joint Venture

Sales Start for “Medical Benefit” and “Medical Benefit
Return”

Sony Life established Sony Life Singapore Pte. Ltd. in June2017 and its subsidiary Sony Life Financial Advisers Pte. Ltd.
with Starts Securities Co., Ltd. in August. Both parties willdevelop the financial advisory business in Singapore.
October 2017:

Launched Two U.S. Dollar-denominated Products
Sony Life debuted two U.S. dollar-denominated products tocapture higher interest rates than those denominated in yen.
These products carry exchange rate risk, but customers who
accept the risk will be taking an efficient route toward building
protection. “U.S. Dollar-denominated Single Premium Whole
Life Insurance (Non-notification Type)” can also be used tohandle succession of assets. “U.S. Dollar-denominated Living
Benefit Whole Life Insurance (Living Standard Type)” provides
coverage for death and major disability as well as the threemajor diseases* and coverage for specified disabilities andconditions requiring long-term care.

Given changes in the medical industry’s environment, Sony
Life launched two new medical insurance products that better
meet customers’ medical protection needs. “Medical Benefit(comprehensive medical insurance (no surrender value) 18,
non-participating)” expands basic protection, such as hospitalization and surgery, and clarifies terms of payment in addition
to extensive protection against three diseases*. “Medical Benefit Return (comprehensive medical insurance with special provision for health refund benefit (no surrender value) 18, nonparticipating)” provides the same coverage but also is a
response to customers who like to build their savings, as it
pays out a health refund benefit equivalent to insurance premiums paid if there is no hospitalization or other claims, up to theage specified. By enriching the product lineup, Sony Life willcontinue to meet the needs of a wide range of customers.
* Cancer (including intraepithelial carcinoma), cardiovascular disease and cerebrovascular disease* Cancer (excluding intraepithelial carcinoma), acute myocardial infarction and strokeSony Financial Holdings Inc. Annual Report 201837

Analysis of Operating Performance
SFH’s life insurance business consists of Sony Life, a wholly owned subsidiary of SFH, and AEGON Sony Life Insurance andSA Reinsurance—both equity-method affiliates 50% owned by Sony Life.
Sony Life accounts for most 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,

2017

New policy amountIndividual life insurance

Change2018¥4,957.5 ¥5,287.9
4,765.2 4,912.1

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

+6.7%
+3.1%

192.2
78.1

375.8 +95.5%
73.0(6.5%)

15.7
513

12.9
540

(17.4%)+5.2%

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

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

4,800

600

For the years ended March 31,

3,600

450

2,400

300

1,200

150

New policy amount (left scale)
Number of new policies (right scale)0

Main Points The new policy amount increased, buoyed by favorable

14

15

16

17

0

18

sales of family income insurance and U.S. dollar-denominatedinsurance. Annualized premiums from new policies declined, despite brisk sales of U.S. dollar-denominated insurance, variable life
insurance and individual annuities, owing to a drop in sales of such products as term life insurance and living benefi t protection.

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

2017

2018

Change¥45,334.1 ¥47,253.4+4.2%

Individual life insurance

44,313.3

45,892.4+3.6%

Individual annuities

1,020.8

1,360.9 +33.3%

Annualized premiums frominsurance in force

820.8

848.8

+3.4%

187.4

191.8

+2.4%

7,308

7,569

+3.6%

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

Policy Amount in Force andNumber of Policies in Force

Trillions of yen
60

1,000 policies
8,000(Individual life insurance +Individual annuities)

45

6,000

30

4,000

15

2,000

As of March 31,
Policy amount in force (left scale)
Number of policies in force(right scale)

0

14

15

16

17

18

0

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

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

2017

2018

ChangeWhole life insurance

17.0%

17.5%

+0.5ptTerm life insurance

70.3%

63.9%

(6.4pt)Endowment and educational endowment
insurance, and individual annuities

6.9%

9.5%

+2.6ptVariable life insurance

5.3%

8.7%

+3.4ptMedical and other types of insurance

0.5%

0.4%

(0.1pt)New Policy Amountby Type of Product(Individual life insurance +Individual annuities)
For the year ended
March 31, 2018

8.7%
Variable life
insurance

0.4%
Medical and othertypes of insurance

9.5%
Endowment
and educational
endowment
insurance, andindividual annuities

Main Points Death-protection insurance products* accounted for about 90% of the new policy amount in fiscal 2017.
*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 2018

17.5%
Whole life
insurance
63.9%
Term life
insuranceLapse and Surrender Rate

For the years ended March 31,

2017

2018

ChangeLapse and surrender rate

4.27%

4.97%

+0.70pt(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 pol%Lapse and Surrender Rateicy amount 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 rose, mainly becauseof premium revisions on family income insurance and other products introduced in February 2018, as some customers cancelled
existing policies and took out new policies.

4.0

2.0

0.0

14

15

16

17

18

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

Billions of yen
1,200

2017

Income from insurance premiums¥956.7 ¥1,059.2 +10.7%

Insurance claims and other payments

372.4

436.5 +17.2%

960

Of which, insurance claims

84.1

92.3

+9.7%

720

2018

ChangeIncome from Insurance
Premiums

For the years ended March 31,

Of which, insurance benefits

98.2

119.2 +21.4%

Of which, annuity payments

12.0

12.5

Of which, surrender payments

168.4

199.2 +18.3%

For the years ended March 31,

480

+4.5%
240
0

Main Points Income from insurance premiums increased,

14

15

16

17

18

reflecting a favorable trend in policy amount in force as well as steady sales of U.S. dollar-denominated single premium whole life
insurance since the product’s debut in October 2017.

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
by investing mainly in Japanese government bonds (JGBs) with ultralong-term maturities. At the same time, the company limits
investment into risk assets, such as stocks.
Billions of yen
2017
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

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

2018

Composition

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

Amount¥7,281.1
38.4
366.5
30.3
270.5
189.4
92.3
40.8
129.1
¥8,438.8

Composition

86.3%
0.5%
4.3%
0.4%
3.2%
2.2%
1.1%
0.5%
1.5%
100.0%

Main Points In fiscal 2017, Sony Life continued to invest primarily in ultralong-term bonds. The ratio of Japanese government andcorporate bonds stood at 89.5% as of March 31, 2018, 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 mostof 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 an increase in investment in U.S. Treasury bonds following an increase in U.S.
dollar-denominated insurance policies.
Sony Financial Holdings Inc. Annual Report 201839

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

2017

2018

Interest income from deposits
Interest income and dividends fromsecurities
Of which, Japanese governmentand corporate bonds
Of which, Japanese stocks
Of which, foreign securities
Interest income from loans
Income from real estate for rent
Total, including others

¥

¥

0.0

Change0.0 +681.5%

Interest Income and Dividends
For the years ended March 31,

Billions of yen
160

130.7

140.4

+7.4%

120

121.1
0.5
8.8
6.3
10.8
¥148.2

125.2
0.5
13.9
6.6
10.2
¥157.7+3.4%+7.4%+57.3%+3.7%(5.4%)
+6.4%

80

40

0

14

15

16

17

18

Main Points Interest income and dividends rose, paralleling an increase in assets for investment due to expanding business volume.

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 lists 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

2017

Change2018

Unrealized Gains on Securities
As of March 31,

Billions of yen
2,500¥1,644.9 ¥1,786.7+141.72,000

1,445.5

1,582.6+137.0

1,500

25.9

34.8

+8.9

1,000

173.3

169.1

(4.2)

500
0

160.7

155.0

(5.6)

13.3

16.9

+3.5

(0.8)

(2.9)

(2.0)

14

15

16

17

18

Main Points With no major shifts in domestic interest rates, unreal-

ized gains on securities in the general account remained stable.

(Reference: On March 31, 2018, SFH assumed unrealized gains on Japanesestocks to be zero when the Nikkei Stock Average was ¥7,513 and the TOPIX
index was 601 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

2017¥1,243.7
60.1
35.1

2018

Change¥1,351.0 +8.6%
56.3(6.4%)
45.1 +28.3%

Ordinary Profit
and Net Income

Billions of yen
80

Ordinary Proﬁt

For the years ended March 31,
60

40

Net Income
Ordinary revenues increased, owing to higher income, from insur20
ance premiums, reflecting a steady rise in policy amount in force.
Ordinary profit decreased, owing to a higher provision of policy
0
14
15
16
17
18
reserves paralleling acquisition of new policies due to revision in thestandard yields and a drop in gains on the sale of securities in the general account. Note that gains/losses* associated with market fluctuations
on variable life insurance improved year on year, partially offsetting the negative impact of the above-mentioned drop in ordinary profit.

* The total of (a) the provision of policy reserves for minimum guarantees for variable life insurance according to market fluctuations and (b) net gains/losses onderivative transactions to hedge market risks for products

Net income increased, reflecting the recognition of gain on disposal of fixed assets from the sale of real estate held for investment purposes
under extraordinary gains.

40

Sony Financial Holdings Inc. Annual Report 2018

Core Profit

Note: Sony Life, like most life insurers organized as stock companies, primarily
sells non-participating life insurance. These products provide policyholders
with insurance coverage without dividend payment and are thus basedon discounted premiums. By contrast, life insurers organized as mutualcompanies typically offer participating policies. The funds used forpolicyholder dividends in these products are included in core profit assurplus. Mutual companies consequently tend to show 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,

2017

2018

Core profit

¥83.8

¥81.3

Change(2.9%)

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

14

15

16

17

18

Main Points Core profit decreased, despite higher profit from accumulated policies in force and a rise in the positive spread, mainly

because of an increase in the provision of policy reserves relating to the acquisition of new policies due to a revision in thestandard yield.
Breakdown of Ordinary Profit (Core Profit)

Millions of yen
For the years ended March 31,

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
Provision for contingency reserve
Provision for specific reserve for possible loan losses
Provision 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)

2017

2018

¥ 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¥ 81,384
9,894
—
—
0
—
—
9,894
27,357—8
0—
11,403
15,280664(17,463)
63,920
—
—
—
—
—
7,582
—
7,451
23
—
—
107
(7,582)¥ 56,338

Notes: 1. Core profit for fiscal 2017 (A) includes income gains of ¥4,490 million in income from money held in trust along with interest income and dividends of¥11 million in income from trading securities, net. Other capital gains consist of reversal of policy reserves and others of ¥9,894 million for currency
market fluctuations of products denominated in foreign currencies, while other capital losses consists of impairment losses of ¥664 million frominvestment partnerships. “Others” of other one-time losses consists of provision of additional policy reserve of ¥107 million.
2. 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 consists 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 consists of provision of additional policy reserve of ¥193 million.
Sony Financial Holdings Inc. Annual Report 201841

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.

Billions of yen
25

Positive Spread
For the years ended March 31,

20
15
10

Billions of yen
For the years ended March 31,

2017

2018

ChangePositive spread

¥15.4

¥17.7

+14.9%

Average assumed interest rate

2.00%

1.97%

(0.03pt)

Investment yield (general account)

1.81%

1.63%

(0.18pt)

Investment yield for core profit

2.24%

2.22%

(0.02pt)

Main Points Positive spread increased, owing to a drop in the

50

Average Assumed
Interest Rate,
Investment Yield forCore Profit%

For the years ended March 31,

2.0

average assumed interest rate resulting from the acquisition of
new policies.

(Investment yield for core profit1 – Average assumed interest rate2)
×General account policy reserves3||
Positive spread

15

16

3.0

17

18

Investment yield forcore proﬁt
Average assumed
interest rate

1.0

0.0

Formula for Calculating Positive Spread

14

14

15

16

17

18

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

2017

¥—
—
—
—
¥—

2018

¥—
—
—
—
¥—

Billions of yen
As of March 31,

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

2017

2018

¥

¥

—
—
—
431.3
¥431.3———428.3¥428.3Main 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, 2018, Sony Life’s receivables comprised mainly securities lent and loans*. Securities lent amounted to ¥235.8
billion, with the securities loaned for secured transactions recorded as securities lending transactions with cash collateral. The loanbalance* was ¥189.4 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 2018

Non-consolidated Solvency Margin Ratio

As of March 31,

2017

2018

Change2,568.8%

2,624.3%+55.5pt

1,800

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

1,200

Non-consolidated solvency
margin ratio

As of March 31,

has remained at a high level.

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 major disasters and stock market crashes. The solvency margin
ratio is one measure used by regulatory authorities to monitor%
Non-consolidated
whether an insurer has the ability to pay in response to the risk
3,000
Solvency Margin Ratioof such unpredictable events.
(Current standards)
2,400

600
0

14

15

16

17

18

Millions of yen
As of March 31,(A) Total solvency margin
Common stock, etc.
Reserve for price fluctuations
Contingency reserve
General reserve for possible loan losses[Net unrealized gains on available-for-sale 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

(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
Notes:

20172018¥1,176,229
324,181
46,00582,4630¥1,233,854
344,039
47,92989,915
0

159,672
30,847—442
82,980495,984—

156,01129,830—377
88,661
525,389—(42,891)(3,457)(43,128)(5,171)

91,576

94,03024,1698,541
31,35618,14033,5542,315
2,568.8%

24,337
8,587
32,452
20,137
32,9532,369
2,624.3%

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 annuity products which respond to customers’ needs to help
save for retirement through Sony Life’s Lifeplanner channel and partner agencies, involving 32 financial institutions*. *As of March 31, 2018
For the years ended March 31,

Number of new policies (1,000 policies)
New policy amount (billions of yen)

2017

2018

ChangeAs of March 31,

1410(25.2%)

Number of policies in force (1,000 policies)

2017

¥70.8

¥50.2

(29.1%)

Policy amount in force (billions of yen)

2018

Change92+7.7%¥501.7 ¥520.6

+3.8%

85

Main Points The new policy amount decreased year on year.
Sony Financial Holdings Inc. Annual Report 201843

Non-life Insurance Business
Review of Operations
Business Environment

to expand the market share.

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. About 10%* ofinsurance premium revenues in the domestic automobile insurance market is generated from policies sold by direct non-life
insurance companies (direct insurers), including Sony Assurance, and the remaining 90%* is from policies sold mostly by
the major non-life insurance companies through nationwide
agencies.
Amid flat growth in automobile ownership, a consequenceof such factors as declining birthrate and aging population,
there have been fewer accidents in recent years, which hasbrought the loss ratio down. As a result, non-life insurancecompanies have seen a recovery in profitability, prompting adrop in insurance premiums. However, this trend has sparked
heated competition in the market. Meanwhile, the environment
surrounding automobile insurance is changing. Advances in IT
have spurred research on telematics in automobile insurance
and the introduction of policies based on this technology. In
addition, efforts to make self-driving cars a reality in the future
are unfolding in both the public and private sectors, along withdiscussions on associated legislation. These developments are
expected to create a new market landscape, heralded by the
debut of riders on automobile insurance to deal with accidents
caused by self-driving cars, and should present non-life insurance companies with new business opportunities.
Direct non-life insurance companies, including Sony Assurance, have steadily increased insurance premium revenues,
underpinned by strong customer support for insurance premium structures that are comparatively lower than those ofmajor non-life insurers selling through nationwide agencies,
which has translated into higher market shares for direct insurers year after year. Customers’ preference for low prices will
likely continue, presenting further potential for direct insurers* The figures are based on a survey conducted by Sony Assurance from data
officially disclosed by individual non-life insurers.

Automobile 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,

Sony Assurance’s Activities
Sony Assurance is a direct insurer providing automobile
insurance, medical insurance and other insurance products
and services directly to customers through its website andcustomer call centers. Since capturing the No. 1 position**for direct premiums written in fiscal 2002, the company has
maintained this ranking in the direct automobile insurance
market. To achieve sustainable growth, the company has
made enhancing customer experience (CX) a top management priority. With this in mind, the company strives toenhance CX in providing services to customers through all
points of contact while also continuing to devote efforts
toward the development of new products and services. In
automobile insurance, notable activities included an increased
limit on the personal compensation rider that generously
reimburses the cost of compensation for damages in random accidents of everyday life, such as bicycle accidents,
as well as the introduction of “ASV (Advanced Safety Vehicle)
discounts” on insurance premiums for automobiles equippedwith an automatic braking system***. On the service front,
Sony Assurance began offering “SECOM Accident On-site
Rush Service,” which speeds emergency response personnelof SECOM Co., Ltd. to the scene of an accident 24/7 anytime,
to reinforce accident resolution services. In addition, thecompany teamed up with Yahoo! JAPAN to develop new
telematics insurance products and services.
In medical insurance, Sony Assurance increased the number of medical institutions for “Advanced Medical Treatment
Insurance—Direct Insurance Claims Payment Service to Medical
Facilities” and also worked to improve service quality, including
extended insurance claims office hours on Saturday, Sunday
and holidays.

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)Billions of yen%

Billions of yen

5,000

10.0

100

4,000

8.0

80

3,000

6.0

60

Sony Assurance

2,000

4.0

40

1,000

2.0

20

A
C
D

B
G

H
F
E

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 2018

17

0.0

0

03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18

Note: The graph was prepared by Sony Assurance from data ofﬁcially disclosed
by individual non-life insurers. Amounts for ﬁscal 2017 are based on
published data available up to June 29, 2018.

Review of Operations and Analysis of Operating Performance

Photo taken on June 20, 2018

Also, to enhance CX, the company made it possible tocomplete more administrative procedures through its website,enhanced the convenience of its smartphone site and improved
the response quality of customer call center operations. The goal
was to provide customers with pleasant and valuable services.

**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).
***The increased limit on the personal compensation rider applies to policies
effective from April 2017, and the introduction of ASV discounts applies topolicies effective from April 2018.

Recent Topics
April 2017:

Launched “SECOM Accident On-site Rush Service”
In April 2017, Sony Assurance
began providing a service at no
cost to customers to extend
support immediately after an
accident, a time when customers feel very uneasy. In thisservice, SECOM emergency personnel rush to the scene of an
accident 24/7 anytime, and explain how to respond when an
accident occurs, listen to issues of concern, contact the policeand call for an ambulance or tow truck.
The service was expanded in November 2017, with SECOM
emergency personnel on-site to confirm the situation surrounding the accident, listen to comments from the opposite party
involved in an accident and take photos of the accident scene
and the cars involved. Sony Assurance will continue to enhancecustomers’ confidence in direct insurance through higher quality
services.
May 2018:

Added Medical Institutions for “Advanced Medical
Treatment Insurance—Direct Insurance Claims Payment
Service to Medical Facilities”
Proton beam therapy and heavy particle radio therapy are particularly costly types of advanced medical treatment, whose
entire technical fee is self-paid by the patient. Sony Assurance
provides a service that pays the insured amount directly to the
medical facilities where such treatment is done. By adding more

medical facilities to the list of hospitals and other medical institutions that support this service, the company has enabled
policyholders to utilize the service at all 18 facilities, as of May
2018, where advanced medical treatment, namely, proton
beam therapy and heavy particle radio therapy, are available.
June 2018:

Started Selling Overseas Travel Insurance
In June 2018, Sony Assurance began selling Internet-only,risk-segmented overseas travel insurance. By offering
Internet-only products, the company eliminates administrative
costs on various policy-processing steps, which translates
into economical premiums for customers. Also, by segmenting
risks by age as well as travel destination, the company has
discounted premiums to low-risk customers*. This productenables customers to save even more on their premiums
through customized coverage and a repeater discount.
Sony Assurance also leverages the advantages of the Internet to enable customers to complete the majority of policy procedures online in 24 hours. These include customizing coveragecategories and policy amounts, getting quotes and making
applications, and changing policy content after application.
Sony Assurance provides various services to support policyholders. In the event of an accident or trouble, policyholders canaccess support in Japanese 24/7 by phone or online. In addition, Sony Assurance offers no-charge calls from 42 countries
around the world to reduce the cost burden on customers.
* Age difference can mean that some customers of Sony Assurance’s overseas travel
insurance are low risk, while other factors are the same.

Sony Financial Holdings Inc. Annual Report 201845

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
Million policies
As of March 31,

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

2017

1.89

Change

2018

+9.7%

2.07

Number of Policies in Force

Million policies(Automobile insurance +Medical insurance)

2.4

As of March 31,

1.8

Main Points The number of policies in force increased formainstay automobile insurance.

1.2

0.6

0.0

14

15

16

17

18

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,

2017

2018

ChangeNet Premiums Written

Net premiums written
Voluntary automobile insurance
Personal accident insurance*
Others (Fire + Marine +Compulsory automobile liability)¥100.289.7
9.0¥108.2
97.8
8.8

+8.0%
+9.1%
(1.7%)For the years ended March 31,

Billions of yen
125

Others (Fire + Marine +Compulsory automobile liability)

100

Personal
accident
insurance
Voluntary
automobile
insurance

75

1.4

+0.3%

1.4

50

*Including medical insurance
25

Main Points Net premiums written increased in mainstay

automobile insurance.

0

14

15

16

17

18

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,

2017

2018

Net loss ratio

57.5%

55.9%

Change(1.6pt)

Net Loss Ratio
For the years ended March 31,

Net loss ratio for automobile insurance

59.5%

57.4%

(2.1pt)Net loss ratio for personal accident
insurance*

32.0%

33.7%

+1.7pt60*Including medical insurance
Main Points The net loss ratio dropped, reflecting higher net
premiums written and a lower accident ratio on mainstay
automobile insurance.

46

Sony Financial Holdings Inc. Annual Report 2018

%
80

40

20

0

14

15

16

17

18

Net Expense Ratio

For the years ended March 31,

2017

2018

ChangeNet expense ratio

28.3%

28.5%

+0.2ptCombined ratio(Net loss ratio + net expense ratio)

Net Expense Ratio%
40

For the years ended March 31,

85.8%

84.4%

Review 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.

(1.4pt)30

Main Points The net expense ratio was basically flat, owing

to an increase in operating expenses, including advertisingexpenses.

20

10

0

14

15

16

17

18

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 associated with underwriting, then adding or subtracting other income andexpenses (corporate taxes associated with compulsory automobile liability insurance, etc.).
Billions of yen
For the years ended March 31,

2017

2018

ChangeUnderwriting Profit

Underwriting profit

¥3.0

¥4.8

+58.4% )For the years ended March 31,

Billions of yen
6.0

Main Points Underwriting profit climbed, reflecting higher net
premiums written.

4.5

3.0

1.5

0.0

14

15

16

17

18

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

2017

2018

ChangeOrdinary revenues
Ordinary profit
Net income¥102.34.9
3.5¥110.0
6.5
4.8

+7.6%
+31.6%+37.2%

Ordinary Profit andNet Income

Billions of yen
7.5

Ordinary proﬁt

For the years ended March 31,
6.0
4.5

Net income

Main Points

Ordinary revenues rose, owing to an increase in net premiums
written for mainstay automobile insurance.
Ordinary profit increased, owing to a drop in the loss ratio,
which is largely due to a lower accident ratio for automobile
insurance.
Net income rose, reflecting higher ordinary profit.

3.0
1.5
0.0

14

15

16

17

18

Sony Financial Holdings Inc. Annual Report 201847

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,

2017

2018

Total assets
Cash and deposits
Securities
Tangible fixed assets
Intangible fixed assets
Other assets¥186.5
8.9
137.5
3.3
6.5
30.1

¥204.3+9.6%
23.7 +165.6%
145.3
+5.7%
2.4 (29.2%)
6.1(5.1%)
26.6 (11.5%)

ChangeComposition of Total Assets
As of March 31, 2018
¥204.3 billion

13.0%
3.0%
Other assets
Intangible
ﬁxed assets

11.6%
Cash and deposits

71.1%
Securities

1.2%
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
Billions of yen

As of March 31,

2017

2018

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

48

Sony Financial Holdings Inc. Annual Report 2018

Billions of yen
As of March 31,

2017

2018

Category
¥—
—
—
—
¥—

¥—
—
—
—
¥—

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

¥—
—
—
—
¥—

¥—
—
—
—
¥—

Non-consolidated Solvency Margin Ratio
As of March 31,

2017

Non-consolidated solvency margin ratio

730.8% 782.1% +51.3pt

2018

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.
ChangeMain Points Sony Assurance’s non-consolidated solvency
margin ratio remained at a sound level.

Non-consolidated Solvency
Margin Ratio

%
1,000

(Current standards)
800

As of March 31,

600
400
200
0

14

15

16

17

18

Millions of yen
As of March 31,(A) Total non-consolidated solvency margin
Capital or treasury

2017

2018

¥46,724¥54,244

26,43928,849Reserve for price fluctuations

177

206

Contingency reserve

101

109

Catastrophe reserve

17,542

20,970——General reserve for possible loan losses
Net unrealized gains on available-for-sale securities and net deferred gains or losses on hedging instruments(before tax deductions)

1,514

2,409

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——

Others948

1,698

12,786

13,871

11,37012,395——(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)

105

114

Asset management risk (R4)

1,431

1,712

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

278

305

1,033

1,036

730.8%

782.1%

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 201849

Banking Business
Review of Operations
Business Environment

Sony Bank’s Activities

In Japan, personal financial assets have climbed to approximately ¥1,880 trillion*, the second highest in the world. Cashand deposits account for more than half of this amount, ahigh level even in comparison with those of other developed
countries. A new social landscape has emerged, parallelingthe falling birthrate and aging population, changing customer
lifestyles and bringing advances in technology, namely, progress in digitization and an expanding e-commerce footprint.
Against this backdrop, financial institutions are required todeliver an extremely diverse array of personal financial asset
investment services, payment services and other services
that reflect these trends. The realm of financial services isalso being redefined by new technologies, such as artificial
intelligence and blockchain, and many financial institutions
are pursuing research into these technologies.
In this environment, Internet banks have achieved steady
growth on the back of cost-competitiveness and convenientservices. Even so, the deposit balance at Internet banks
remains quite small—about 2%** of personal financial
assets—but as smartphones and tablets continue to be pervasive in society, Internet banks will have considerable room
to expand business volume. That said, in fiscal 2017, interest
rates entered trended upward in the United States while
long-term interest rates in Japan hovered low under the Bankof Japan’s policy on quantitative and qualitative monetaryeasing with short- and long-term interest rate control. As aresult, interest rate competition on asset investment andmortgage loans among banks is likely 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 the domestic mortgage loan market in fiscal 2017,
construction costs climbed higher, fueled by increasing laborcosts and rising prices on construction materials, with city
home prices remaining high. However, new housing starts
charted a downward path, largely due to a shrinking numberof households and more homes being built to last longer.
Mortgage loan interest rates continued to hover low, intensifying competition among financial institutions to attract
demand for mortgage loans. Under these business conditions, Sony Bank’s mortgage loan balance grew but only
moderately. Going forward, the company will strive to ensureprofitability while steadily building its mortgage loan balancethrough efforts to improve product features and reinforce
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
about 7% of total individual foreign currency deposits atdomestic banks, as of March 31, 2018, right behind thoseof the major banks. In addition, “Sony Bank WALLET,” acash card with a VISA debit function in 11 currencies, hasbeen used in 120 countries around the world, substantiatinga very positive customer response to the product. Goingforward, the company will strive to differentiate its foreign
currency services and develop 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 of Japan’s Six Internet Banks

Deposit Balance of Japan’s Six Internet Banks

As of March 31,
Billions of yen

13 868 7
13,868.7

15,000Billions of yen
5,000

4,426.0

12,000

4,000

9,000

3,000

6,000

2,000

3,000

1,000

3,556.0

2,219.3

2,010.1

906 8
906.8

0

09

10

11

12

13

14

15

16

17

18

0

A

B

Sony Bank

C

D

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

50

Sony Financial Holdings Inc. Annual Report 2018

750 3
750.3

E

Review of Operations and Analysis of Operating Performance

Recent Topics
August 2017:

October 2017:

Started Operating “Sony Bank GATE,” Investment-type
Crowd Funding Platform

Began Issuing Takashimaya Platinum Debit Card

Sony Bank is the first bank in Japan to offer an investment-type
crowd funding platform, “Sony Bank GATE,” which connects
companies pursuing new businesses with individuals who
identify with those companies’ goals and want to support
efforts to succeed. With a view to connecting this type offinancing to new business creation and other activities, Sony
Bank will provide investment-type crowd funding that supportsbusiness operators as a new asset investment option for
individual customers.
September 2017:

Opened CONSULTING PLAZASony Bank relocated its Housing Loan Plaza, which had
extended advice to customers on mortgage loans, enhanced
the function of the plaza format and opened the venue as
CONSULTING PLAZA. The company will respond to customer
needs for advice by enriching the selection of face-to-faceconsulting services and enhancing access to information
related to asset investment and asset formation. The newplaza will also reinforce Sony Bank’s ability to present financial
solutions.

In an alliance with Takashimaya Co., Ltd., and Takashimaya
Credit Co., Ltd., Sony Bank began issuing the “Takashimaya
Platinum Debit Card,” integrating Takashimaya’s courtesy
services with the “Sony Bank WALLET” cash card featuring
VISA debit function in 11 currencies. Strategic alliances suchas this will help build a larger customer base.
December 2017:

Began Offering “WealthNavi for Sony Bank” Automated
Asset Investment Service
Sony Bank teamed up with
WealthNavi Inc. and began providing“WealthNavi for Sony Bank,” anautomated asset investment service
customized for Sony Bank customers
with the WealthNavi robo-advisor
developed by WealthNavi Inc. With
this service, customers are able toinvest in overseas exchange tradedfunds (ETFs), placing even small
amounts in internationally diversified
investments in a totally automatedprocess. Going forward, Sony Bank
will provide customers with new
options for asset investment.

Sony Financial Holdings Inc. Annual Report 201851

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, a wholly owned subsidiary of Sony Payment Services.

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

2017

2018

Ordinary revenues

Change

¥38.5

¥39.9

+3.7%

Ordinary profit

5.0

7.1

+42.2%

Profit attributable to owners of theparent3.3

4.7+42.8%

Main Points

Ordinary revenues rose, owing to higher interest income onloans as Sony Bank built a larger mortgage loan balance andobtained higher interest income on securities.
Ordinary profit increased, mainly due to a reduction in generaland administrative expenses, particularly advertising expenses
related to card loans.
Profit attributable to owners of the parent increased, due tothe rise in 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 and securities, andfunding 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,

2017

2018

ChangeGross Operating Profit

Gross operating profit

¥21.1

¥21.4

+1.4%

For the years ended March 31,

Net interest income

17.9

20.6

+15.2%Net fees and commissions

(1.5)

(2.9)

—

Net other operating income

4.7

3.7

(22.4%)

Main Points

Billions of yen
30

20

10

Net other
operatingincomeNet interest
income0
Net interest income increased, due to increases in interest
Net fees andcommissions
income on loans and interest income and dividends on
(10)
14
15
16
17
18
securities.
Net fees and commissions decreased, mainly due to lower fees and commissions on mortgage loans and higher fees paid for loan
guarantees, reflecting the growing loan balance.
Net other operating income decreased, largely because of a drop in gains on foreign exchange transactions.

52

Sony Financial Holdings Inc. Annual Report 2018

General and Administrative Expenses
Billions of yen
2017

2018

ChangeGeneral and administrative expenses

¥16.5

¥15.5

(6.1%)

General and Administrative
Expenses

Review of Operations and Analysis of Operating Performance

For the years ended March 31,

Billions of yen
20

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

15

mainly because of a drop in advertising expenses related tocard loans.

10

5

0

14

15

16

17

18

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

2017

2018

ChangeOrdinary revenues
Ordinary profit
Net income

¥35.1
4.6
3.1

¥36.2
6.5
4.4

+3.3%
+41.5%+40.9%

Ordinary Profit andNet Income

Billions of yen
8

For the years ended March 31,

Ordinary proﬁt
6

Main Points Sony Bank’s ordinary revenues, ordinary profit and4

net income increased for the same reasons as its consolidated
results.

Net income
2

0

14

15

16

17

18

Number of Accounts
Million accounts
As of March 31,

2017

2018

ChangeNumber of accounts

1.24

1.35

+8.8%

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

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

Customer assets(Total of deposits andinvestment trusts)
As of March 31,

Deposit balance
Yen deposits
Foreign currency deposits
Investment trust balance

2017

Change2018

Deposit Balance
As of March 31,¥2,227.1 ¥2,343.0
2017

Billions of yen
2,500

+5.2%

2,000

Billions of yen

1,500

2018

¥2,112.9 ¥2,219.3
1,764.9 1,814.7

Change

+5.0%
+2.8%

348.0

404.6

+16.3%

114.1

123.7

+8.5%

Foreigncurrency
deposits

Yen deposits

1,000
500
0

14

15

16

17

18

Main Points

Yen deposits rose on balances, mainly through the acquisition of new funds, paralleling an increase in the number of accounts.
Foreign currency deposits grew especially in term deposits, reflecting a promotional campaign highlighting exchange rate costs
and also favorable interest rates on U.S. dollar term deposits.
Investment trusts on balances increased, reflecting the impact of higher reference prices.

Sony Financial Holdings Inc. Annual Report 201853

LoansBillions of yen
As of March 31,

Loans
Mortgage loans
Others20172018¥1,539.6 ¥1,596.3
1,452.4 1,525.5
87.1

70.7

Change

Loans

+3.7%
+5.0%

As of March 31,

Billions of yen
1,600

Others1,200(18.8%)

Main Points The balance of loans expanded through a steadybuildup overall, despite a drop in refinancing demand formortgage loans. “Others” includes corporate loans, card loans
and special-purpose loans.

Mortgage
loans

800

400

0

14

15

16

17

18

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

2017

2018

ChangeBalance of securities
Japanese government bonds
Japanese local government
bonds
Japanese corporate bonds¥631.2103.0¥674.296.8+6.8%(6.0%)

34.8
63.6

36.0
65.3

+3.3%
+2.8%

2.0

2.0

—

Japanese stocks
Foreign securities

423.2

Other securities

4.4

Balance of Securities(By ratings)

Billions of yen
1,000

As of March 31,
800

Others
BBB

600

A
400

468.9

+10.8%

200

5.0+13.0%

0

AA
AAA
14

15

16

17

18

Main Points With respect to the ratings of the securities* held by Sony Bank, securities rated AA or above accounted for 50.8% 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, S&P Global Ratings,
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

2017

2018

¥2,424.2 ¥2,635.0
1,539.6 1,596.3
631.2
674.2

Composition of Total Assets

+8.7%
+3.7%
+6.8%

As of March 31, 2018

Cash and due from banks

177.4

287.3

+61.9%

Money held in trust

23.0

21.0

(8.7%)

Main Points Sony Bank’s total assets increased, due toincreases in loans and securities.

54

ChangeSony Financial Holdings Inc. Annual Report 2018

¥2,635.0 billion

0.8%
Money held in trust

10.9%
Cash and duefrom banks
25.6% Securities

2.1% Others

60.6%
Loans

Non-consolidated Capital Adequacy Ratio

As of March 31,

2017

Non-consolidated capital adequacy ratio(Domestic standard)

9.75% 10.45% +0.70pt

2018

Review of Operations and Analysis of Operating Performance

The capital adequacy ratio is an important indicator of a bank’s financial soundness. As of March 31, 2017, Sony Bank uses
foundation internal ratings-based (FIRB) approach to calculate this ratio.
ChangeMain Points Sony Bank continuously maintains a sound financial

position.

Non-consolidated Capital
Adequacy Ratio%
15.0(Domestic standard)
12.0

As of March 31,

9.0
6.0
3.0
0.0

14

15

16

17

18

Sony Bank’s Non-consolidated Capital Adequacy Ratio (Domestic standard)
Millions of yen
2017

2018

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¥ 76,303¥ 78,540

Of which, capital and capital surplus

52,00052,000Of which, retained earnings

25,893

28,778

Of which, cash dividends to be paid (–)

1,590(2,238)

Total reserves included in core capital: instruments and reserves——

Of which, general reserve for loan losses including core capital——

Eligible capital instruments included in core capital: instruments and reserves

12,745

9,682Core capital: instruments and reserves

89,04888,222(A)

Core capital: regulatory adjustments
Total amount of intangible assets (excluding those relating to mortgage servicing rights)

1,315

¥876

2,113

¥528

Of which, other intangible assets other than goodwill and mortgage servicing rights

1,315

876

2,113

528

1,253

—

1,013

—

Shortfall of eligible reserves to expected losses
Core capital: regulatory adjustments

(B)

2,569

3,127

(C)

86,47985,095509,456

522,316(16,092)(9,804)

CapitalCapital ((A)-(B))
Risk-weighted assets
Total amount of credit risk-weighted assets
Of which, total amount included in risk-weighted assets subject to transitional arrangements
Of which, intangible assets (excluding goodwill and mortgage servicing rights)
Of which, exposure to other financial institutions

876

528

(16,969)(10,333)

Total amount of operational risk equivalent / 8%38,807

39,244

Adjustment to credit risk-weighted assets

51
338,807

252,127

886,781813,688

9.75

10.45

Total amount of risk-weighted assets(D)

Capital adequacy ratio
Capital adequacy ratio ((C) / (D)) (%)

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 applies the FIRB approach.

Sony Financial Holdings Inc. Annual Report 201855

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 screening division also works independently of the business promotion divisions, and the company ensures that fi nancing
proceeds only following due diligence via relevant deliberative entities. Thus, the company has established a meticulous loan management and screening system.
Risk-monitored Loans

Problem Loans Based on the Financial Reconstruction Act
Billions of yen

As of March 31,

2017

2018

Category

Billions of yen
As of March 31,

¥0.1
1.5
—
1.2
¥2.9

¥0.0
1.0
—
0.8
¥1.9

Bankrupt 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,

2017

2018

ChangeNon-performing loan ratio

0.19%

0.12%

(0.06pt)*Non-performing loans (loans based on the Financial Reconstruction Act) / Total loan exposure

Sony Financial Holdings Inc. Annual Report 20182018

Category

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

56

2017

¥

0.7
1.0
1.2
1,544.5¥1,547.5

¥

0.4
0.6
0.8
1,604.3¥1,606.3

Contributions to Sustainable Development

Contributions to Sustainable Development
Corporate Governance

CSR

Sony Financial Holdings Inc. Annual Report 201857

Contributions to Sustainable Development Corporate Governance
Profiles of Directors and Audit & Supervisory Board Members(As of July 10, 2018)

Directors
President, Representative Directora.

Shigeru Ishiib.

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

Directors

Managing Director

Hiroaki Kiyomiyac.

Director, EVP (Note 3),
Sony Life Insurance Co., Ltd.

Yutaka Itoe.

Director, Sony Life Insurance Co., Ltd.
Director, Sony Assurance Inc.
Director, Sony Lifecare Inc.
Director, Sony Financial Ventures Inc.
d.

f.

Tomoo Hagimotoh.

Yuichiro Sumimoto

Director, Representative Director,
Sony Bank Inc.

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

j.

Atsuo Niwa

President, Representative Director,
Sony Assurance Inc.

g.

Shiro Kambe

EVP (Note 3), Corporate Executive Officer,
Sony Corporation

c.

e.
f.

d.
a.

58

Sony Financial Holdings Inc. Annual Report 2018

Notes: 1. Main concurrent positions are shown under the name of each individual.
2. Outside Directors Isao Yamamoto, Shiro Kuniya and Takatoshi Ito and Outside Audit& Supervisory Board Members Yasuyuki Hayase and Yoshimichi Makiyama are
deemed Independent officers based on Tokyo Stock Exchange, Inc. regulations.
3. EVP stands for Executive Vice President.

Audit & Supervisory Board Members
Standing Audit & Supervisory Board
Member (Outside)

Directors (Outside)

Isao Yamamoto (Note 2)

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

Shiro Kuniya (Note 2)

Managing Partner,
Oh-Ebashi LPC & Partners

j.

Takatoshi Ito (Note 2)k.

Yasuyuki Hayase (Note 2)m.

Hirotoshi Korenaga

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

Audit & Supervisory Board Member,Sony Life Insurance Co., Ltd.
Audit & Supervisory Board Member,Sony Assurance Inc.
Audit & Supervisory Board Member,Sony Bank Inc.

Professor,
School of International andPublic Affairs, Columbia University
Senior Professor,
National Graduate Institute for
Policy Studies
Director, Chi-X Japan Limited

Contributions to Sustainable Developmenth.

Audit & Supervisory Board Member

Audit & Supervisory Board Member (Outside)

Director, NEXON Co., Ltd.
Director, Ebara Corporationl.

Director,
Takeda Pharmaceutical Company Limited

Yoshimichi Makiyama (Note 2)Partner, Ripple Partners (law office)

g.
i.
m.

b.
l.

k.

Sony Financial Holdings Inc. Annual Report 201859

A Dialogue between Outside Directors:
Corporate Governance at SFH

In an era of transformation, we redefine perceptions of value
in financial services through “customer-first” and “responseto changes.”

Isao Yamamoto

Shiro Kuniya

Outside Director

Outside Director

Outside directors Isao Yamamoto and Shiro Kuniya exchanged opinions on corporate
governance at Sony Financial Holdings Inc. and on measures taken by the Company
to achieve sustainable growth. (The discussion took place in May 2018.)60

Sony Financial Holdings Inc. Annual Report 2018

Board of Directors’ Meetings

Kuniya: A board of directors is expected to be receptive toreasonable opinions, derived through dynamic discussion,and to apply those opinions to the implementation of whatevermeasures are deemed necessary for success. At the Board of
Directors’ meeting, discussions that transcend the position, ormanagement viewpoint, of each Group company have takenplace by Board members—the presidents of Sony Life, Sony
Assurance and Sony Bank, executive directors of SFH andoutside directors—you and me.
Yamamoto: An awareness of the PDCA cycle is firmly
entrenched in the minds of all members of the SFH Board,
having discussions unfold with a forward-looking perspective.
A prime example would be figuring out what kind of check system to establish if a certain plan is put into action. The materials
distributed at meetings are ample, and any questions raised
will receive honest responses. I believe the Board maintains theappropriate level of transparency.
Kuniya: The Group inherited the corporate DNA of a manufacturer—Sony. As a brand, Sony has grown by delivering new value topeople. I believe this “Sony spirit,” if you will, infuses SFH as well.
Yamamoto: I agree. When decisions are to be made, the SFH
Board keeps in mind the mission—to earn and maintain thetrust of customers as a financial institution. The Board places
importance on a corporate attitude that emphasizes the pursuitof something new and engages in comprehensive discussions
with the appropriate decision-making procedures to formulate
various measures. Fintech, for instance, has been a topic oftremendous discussion, underpinned by seminar content andexpert advice.
Kuniya: The Board is also shifting toward a process of implementing various measures based on a deeper understanding of
the issues, such as introducing new technology, launching new
businesses and making inroads overseas, through repeated androbust dialogue. The environment is undergoing a big transformation, and it is important to keep trying and consider whichmeasures will be effective at any given time.

Securing human resources and maintaining
an appropriate compensation system arekeys to sustainable growth

Contributions to Sustainable Development

Board of Directors emphasizing open
discussion on era of change

Nomination Advisory Committee, Compensation Advisory Committee

Yamamoto: Points that always get discussed in the Nomination
Advisory Committee deal with the formation—that is, the lineup—of directors who will best serve SFH for the Group’s continued growth in the future and the content of plans to develop thenext generation of management. As chairperson of the Nomination Advisory Committee, I have to take a medium- to long-term
perspective to properly evaluate suggestions offered to theCommittee. Toward this end, I try to make decisions at committee discussions that are consistent with medium-term targets,and I actively take part in meetings separate from the Board of
Directors where medium-term business plans are drafted.
Kuniya: In deliberating plans for developing the next generationof management, we can give candid opinions because we areexternal to the Company and apply insights from our involvement in other companies and knowledge of applicable situations
overseas. The ideal scenario would be to create a talent poolwith a number of individuals at the top—future presidents ofGroup companies—as well as second and third layers of management candidates. But not all positions will be filled internally,so we have to anticipate the need to attract the right people
externally through headhunting. When SFH was established,a dynamic structure was ensured by utilizing human resourcesin the Sony Group and different industries. But in the last few
years, the dynamic has changed, and SFH is perhaps lagging
behind its overseas peers. Going forward, SFH should makemore of an effort to reinforce diversity in management composition, including the selection of non-Japanese directors.
Yamamoto: On June 22, 2018, SFH plans* to welcome
Takatoshi Ito, an international economist, to the Board as an
outside director. Early on, the Group recognized the need forbroad-based knowledge and a network of experts in fields different from those of existing directors to raise the corporate
value of the Group, and management was already contemplating an increase in the number of outside directors. Against thatbackdrop, Mr. Ito was short-listed, interviewed by the Nomination Advisory Committee and now he is being put forward as an
outside director.
Kuniya: Outside directors are expected to contribute somehowby drawing on personal expertise and experience. Mr. Ito is an
economist, his outlook is microeconomic as well as macroeconomic and he will be expected to add to the conversation froma viewpoint that is both long-term and international, looking five,
10 and 20 years ahead.
Kuniya: From my position as chairperson of the Compensation
Advisory Committee, I believe it is essential that SFH improve
its incentive compensation system to attract skilled humanresources. People with expertise or qualifications in a particularfield, in many cases, receive compensation corresponding totheir capabilities. Such individuals cross the country in search ofjobs, inevitably moving from job to job and industry to industry.
Sony Financial Holdings Inc. Annual Report 2018

61

The current compensation system of SFH is, in my opinion, an
obstacle to attracting and keeping individuals with expertise.
Yamamoto: Last year, SFH expanded the scope of eligibility
for stock options. But the ratio of incentives to overall compensation is still low at SFH. The wisdom of using stock-based
compensation to attract human resources will probably become
a topic of much discussion.
Kuniya: Human resoursing and compensation are very closely
connected, and SFH will need to improve its compensation
system rather drastically in the medium to long term to keep
human resources. For now, the Company should consider
a gradual approach to changes.
Aside from the compensation issue, SFH must also recognize the impact of globalization on work styles. In recent years,
perceptions toward work have changed in Japan. Increasing
globalization and new approaches to workstyles have led people
to assume that whatever job they take will allow them to demonstrate individuality and pursue a desired lifestyle. To attract
people who can change the Company, the Company must
present work-style options that these people find appealing.

New Medium-term Business Plan

Take full advantage of changes to solidify
underlying base and become financial
services group closely connected to every
customer
Yamamoto: The new medium-term business plan was formulated at a meeting set up for that purpose under a process
whereby members of the meeting imagined society 10 years
from now, with major changes in the business environment andtechnological innovations anticipated, then incorporated thesefactors into strategies to be accomplished over three years.
Kuniya: The new medium-term business plan hinges on two
points: “customer-first” and “response to changes.” For the SonyFinancial Group to continue to grow as the financial services
group that customers look to first, SFH has to promote evenmore the concept of customer-first business operations andreinforce governance structure over Group companies.
Yamamoto: Then there is response to changes, specifically,
how to deal with a changing business environment, including ashrinking population with a falling birthrate and aging populationand technological innovations, namely self-driving cars and Fintech. With regard to Fintech, many venture companies present
excellent technologies. What sort of relationships will Sony Life,
Sony Assurance and Sony Bank build with these venture companies? And what function will Sony Financial Ventures play after
its establishment in July? These two points will have far-reaching
implications. Our changing times are fueling the transformationin customer-first business operations through joint activities
among companies in the Sony Financial Group, with the Sony
Group and through open innovation with Fintech ventures.
This is a vital cornerstone for growth in the future.
Kuniya: But in pursuing joint activities with the Sony Group,

62

Sony Financial Holdings Inc. Annual Report 2018

SFH must ensure its independence from the perspective of protecting the interests of minority shareholders who are not Sony
Corporation. It will also become more important to emphasizecooperative efforts related mainly to Fintech, particularly the useof blockchains from the Sony Group, while retaining independence. The integration of new technologies and financial services,and the acceleration of personnel exchanges under the Sonybrand, will lead to the development of new products and services.
Yamamoto: In the meantime, the emphasis is on initiating amajor shift beyond the traditional business formats of a financial
institution and a manufacturer through the use of IoT and Fintech.
The ability to handle big data, namely, details on the lifestyles
and investment environments of each customer, will prompt ahuge change in the personalization of products and services.
Insurance and investment offerings have been, respectively, all
the same. In the future, it will be possible to personalize products and services in each segment to meet the lifestyle needsof each customer. These are exciting, interesting times. The bigchanges taking place will provide the Sony Financial Group witha fabulous opportunity to create new products and services.
Kuniya: The Sony Group’s mission—Kando, to move customers emotionally—has fueled business expansion. It would bea natural progression, then, for the Sony Financial Group, asa member of the Sony Group, to play a part in making its own
customers happy. Take, for example, Sony Life’s Lifeplanner
sales employees, who quite literally make it their business toknow the lives of their customers and stay close to themthrough all stages of life. I think this underpins sustainablegrowth for the Sony Financial Group and certainly translates
into higher corporate value for SFH.
Yamamoto: Fiscal 2018, ending March 31, 2019, is the firstyear of the new medium-term business plan. We outside directors will have to be mindful of what we should do—and what
we can do—for customers. We will contribute to the next stageof growth for the Sony Financial Group by solidifying the defense
and offense sides of business.
*The proposal to appoint Takatoshi Ito to the position of outside director wasapproved by shareholders at the Ordinary General Meeting of Shareholders on
June 22, 2018.

▶ Page 18: Vision and Strategies Sony Financial GroupProfiles of Outside Directors and Outside Audit & Supervisory Board Members
Biography

Isao Yamamoto

2003
2006
2007
2009
2011
2012

Shiro Kuniya

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

Takatoshi Ito

1979
1986
1988
1991
1994
1997
1999
2001
2002
2004
2012
2014
2015
2016
2017
2018

OutsideYasuyuki Hayase
Audit &
Supervisory
Board
Members

Yoshimichi Makiyama

Reasons for Appointment

Joined Nomura Research Institute, Ltd.
Head of Strategic Advisory Group, Nomura Research Institute, Ltd.
Director, Investment Banking Division, Merrill Lynch Japan Securities Co., Ltd.
Managing Director, Investment Banking Division, Merrill Lynch Japan Securities Co., Ltd.
Co-head of Investment Banking Division, Managing Director, Merrill Lynch Japan Securities
Co., Ltd.
President & CEO, The Institute for Securities Investments & GovernanceDirector, Japan CableCast Inc.
Statutory Auditor, MASSTUNE, Inc. (currently: MINKABU, Inc.)
Director, MASSTUNE, Inc. (currently: MINKABU, Inc.)
President, Enterprising Investment, Inc. (current position)
Director, SFH (current position)
Director, BILCOM, Inc. (current position)

Mr. Kuniya has specialized
knowledge and experience as an
attorney and has no conflict ofspecial interests with SFH.

Assistant Professor, Economics Department, University of Minnesota
Associate Professor , Economics Department, University of Minnesota
Associate Professor, Institute of Economic Research, Hitotsubashi University
Professor, Institute of Economic Research, Hitotsubashi University
Senior Advisor, Research Department, International Monetary Fund
Professor, Institute of Economic Research, Hitotsubashi University
Deputy Vice Minister for International Affairs, Ministry of Finance
Professor, Institute of Economic Research, Hitotsubashi University
Professor, Research Center for Advanced Science and Technology, the University of Tokyo
Professor, Economics Department, the University of Tokyo
Dean, Graduate School of Public Policy, the University of Tokyo
Project Professor, Graduate School of Public Policy, the University of Tokyo
Professor, National Graduate Institute for Policy Studies
Professor, School of International and Public Affairs, Columbia University (current position)
Senior Professor, National Graduate Institute for Policy Studies (current position)
Director, Chi-X Japan Limited (current position)
Director, SFH (current position)

1980 Joined Mitsui Bank Corporation (currently: 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
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 Audit & Supervisory Board Member, SFH (current position)
Audit & Supervisory Board Member, Sony Life Insurance Co., Ltd. (current position)
Audit & Supervisory Board Member, Sony Assurance Inc. (current position)
Audit & Supervisory Board Member, Sony Bank Inc. (current position)
1990 Registered as attorney, Japan
Joined Showa Law Office (currently: 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)2015 Audit & Supervisory Board Member, SFH (current position)2018 Partner, Ripple Partners (law office) (current position)

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
interests with SFH.

Contributions to Sustainable Development

OutsideDirectors

1981
1991
1996
1999
2002

Mr. Ito possesses extensive
knowledge and experience as anexpert on subjects including
macroeconomics, financial
policy, international finance andJapanese economic theory, andhas no conflict of special
interests with SFH.

Mr. Hayase has many years ofexperience at a financial
institution, and as a corporate
auditor there.

Mr. Makiyama qualified as an
attorney and patent attorney inJapan and as an attorney in thestate of New York, with expertisein many areas including
information security andcompliance, and has a breadthof professional experience bothat home and abroad.

Sony Financial Holdings Inc. Annual Report 201863

Basic Stance on Corporate Governance
Basic Policy on Corporate Governance

Establishing an Internal Control System

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 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 Vision,” “Corporate Philosophy” on the profile page.

▶ “Corporate Governance” on SFH’s website,

https://www.sonyfh.co.jp/en/company/governance.html▶ “Basic Policy on Corporate Governance” and“Corporate Governance Report” on SFH’s website,
https://www.sonyfh.co.jp/en/company/governance.html

Sony Financial Group’s Internal Control (As of July 1, 2018)

Appointment/dismissal

SFH

General Meeting of Shareholders
Nomination Advisory
Committee

Enquiry
Response
Enquiry

Compensation Advisory
Committee

Audit & Supervisory Board(Audit & Supervisory
Board Members/
Outside Audit & Supervisory
Board Members)

Appointment/dismissal
Audit

Board of Directors(Directors/Outside Directors)
ReportResponse

Audit Department
Executive Committee
Audit

Independent
AuditorAccounting
audit

Business Execution DepartmentstServe concurrently as
directors and audit &supervisory board
memberstShare and confirm
informationtReport andconfirmtDiscussin advancetConvey Group policiestManage and advisetMonitortDirectly audit, as needed(Primary Subsidiaries)
Sony Life

64

Sony Financial Holdings Inc. Annual Report 2018

Sony AssuranceSony Bank

Sony Lifecare

Management System
Type of structure
Number of directors
Number of audit & supervisory board members
Director’s term of office
Number of independent officers
Outside directors’ involvement in determination of compensation
Results-linked compensation system
Number of meetings of the Board of Directors held during fiscal 2017
Advisory bodies for the Board of Directors

Contributions to Sustainable Development

Outline of SFH’s Corporate Governance Structure (As of July 1, 2018)
Company with a Board of Directors and an Audit & Supervisory Board
10 (including 3 outside directors)
3 (including 2 outside audit & supervisory board members)
1 year5
Involved
Adopted16
Nomination Advisory Committee; Compensation Advisory Committee▶ “Management System” on SFH’s website, https://www.sonyfh.co.jp/en/company/management.html

Board of Directors (As of July 1, 2018)
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 10 members, of which three are representative directors
from SFH’s subsidiaries who serve as non-executive directorsof SFH and contribute to efficient business operations of theGroup 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. To obtain knowledge
outside the Company and enhance the efficiency of the Group’s
corporate governance, since June 2018, the Company has
increased the number of outside directors by one andappointed a total of three outside directors, who are designatedindependent directors, as required by the Tokyo Stock
Exchange, to protect ordinary shareholders.
Regarding the boards of directors of Group subsidiaries,
SFH’s representative director and two of its executive directors
serve concurrently as directors of subsidiaries with the aim ofincreasing the effectiveness of Group strategies and ensuring
the sound business management of each company.

Outsidedirectors

Isao Yamamoto
Shiro Kuniya

Outsideaudit &
supervisoryboard
members

Yasuyuki
HayaseYoshimichi
Makiyama

SFH’s Audit & Supervisory Board has three members, two ofwhom are outside audit & supervisory board members anddeemed as independent audit & supervisory board members
based on Tokyo Stock Exchange regulations.
Audit & supervisory board members audit the executionof duties by directors based on the audit policy, audit plan andother matters stipulated by the Audit & Supervisory Board.
Audit & supervisory board members attend important meetings, including Board of Directors’ meetings and examine
SFH’s operations and financial condition. At the same time,
audit & supervisory board members maintain close contact
such as through receiving reports from independent auditors,
internal audit department and other relevant persons.

Internal Audits

Board of Directors’
meeting

Audit & Supervisory
Board’s meeting

Attended all 16
meetings
Attended 14
of 16 meetings
Attended all 16
meetings
Attended 14
of 16 meetings—

SFH performs internal audits through its internal audit department. The internal audit department takes an independentand objective standpoint in performing internal audits to checkand evaluate the appropriateness of work processes andresponses to risks. The internal audit department also monitors
the results of both internal and external audits of Group companies and provides advice and proposals when necessary. Theinternal audit department regularly reports the results of its monitoring activities to the director in charge and the Board of Directors. When necessary, the internal audit department may audit
subsidiaries directly or jointly within the scope of governing laws
and regulations. In addition, the internal audit department works
closely with audit & supervisory board members, as well as
external auditors, such as independent auditors, as necessary.

—

Accounting Audits

Attendance of Outside Directors and Outside Audit &Supervisory Board Members in Meetings of the Boardof Directors and the Audit & Supervisory Board for
Fiscal 2017
Name

Audit & Supervisory Board Member Audits,
Internal Audits and Accounting Audits (As of July 1, 2018)
Audit & Supervisory Board Member Audits

Attended all 12
meetings
Attended all 12
meetings

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

PricewaterhouseCoopers Aarata LLC

Breakdown: CPAs and the
back-up team members*

8 CPAs, 4 others*For fiscal 2017
Sony Financial Holdings Inc. Annual Report 201865

Management System
Nomination Advisory Committee and Compensation
Advisory Committee (As of July 1, 2018)

Independence Standard of Outside Directors andOutside Audit & Supervisory Board Members

SFH has established two committees as advisory bodies for
the Board of Directors to ensure the transparency and objectivity of the decision-making process.
The Nomination Advisory Committee deliberates on theappointment and dismissal of SFH’s directors, audit & supervisory board members 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 Board of Directors.
The Compensation Advisory Committee deliberates thepolicy and total amount of compensation for SFH’s directors
and Group companies’ representative directors who are to
be proposed at a General Meeting of Shareholders. The
committee also deliberates the amount of compensation
for individual directors and Group 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.
More than half of the members of each committee areoutside directors, an arrangement intended to reflect opinions from objective and multifaceted perspectives in deliberations. A member of the Compensation Advisory Committee
shall not participate in the resolution for determining his/hercompensation.

SFH has formulated the Basic Policy on the Selection of Director and Audit & Supervisory Board Member Candidates* andset the independence standard of outside directors and outside audit & supervisory board members.
The standard provides that a candidate is deemed independent if he/she: (1) satisfies the independence requirementsof the Companies Act of Japan 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 office andcurrently 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 of thesecompanies; and (4) is not a spouse of or related within two
degrees of kinship to a person who does not satisfy either of
items (2) and (3) above.
By appointing highly independent outside directors andoutside audit & supervisory board members, SFH strives toensure the transparency of corporate management andenhance their supervisory function.

Advisory bodies

Members

Nomination
Outside Director
Advisory Committee

Isao Yamamoto(Chairperson)

Outside Director

Shiro Kuniya

President,
Representative Director

Shigeru Ishii

Director
Compensation
Outside Director
Advisory Committee

Shiro Kambe
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 2018

* Visit SFH’s website for details of the Basic Policy on the Selection of Director and Audit & Supervisory Board Member Candidates

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.
Evaluation Process
For fiscal 2017, as in fiscal 2016, an independent third-party
evaluation company assessed the effectiveness of the Boardof Directors with a questionnaire given to all directors andaudit & supervisory board members.
Principal content of the questionnaire• Composition and operation of the Board of Directors• Management and business strategies• Corporate ethics and risk management• Evaluation and compensation of management• Matters related to organizational restructuring and businessreorganization• Dialogue with shareholders, etc.
• Self-evaluations
Along with the above, diverse items were evaluated with apoint-based assessment, and all of the questions wereanswered in the questionnaire section for reasons and comments. 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
The results of the assessment by the third-party evaluationcompany were as follows:• As in fiscal 2016, on the whole, a high level of effectivenesshas been achieved.
• There is a free and active atmosphere in which all members
proactively contribute to the meetings. There is also appropriate decision-making and supervision under the leadership of the chairman.
• Information on the main risks to the Group and information
on its situation are appropriately provided and necessary
discussions are held.

• The size of the Board of Directors is appropriate for the business size and field of the Group.
• The member composition of the Compensation Advisory
Committee and that of the Nomination Advisory Committee
are appropriate.
• The frequency and time allocation for the Board of Directors’
meetings are appropriate, and the minutes reflect the contents of discussions and the results of deliberations without
excess or deficiency.
While various improvements have been made on issues
raised in the previous year’s evaluation of effectiveness (continued discussion of medium- to long-term Groupwide issues
and business strategies and opportunities for study or training related to the Group’s management and businesses), thefollowing opinions were received:• Discussions on the Group’s growth strategies need to becontinued, considering the Group’s overall optimization andlessons learned from the past.
• More opportunities for study or training related to theGroup’s management and businesses are needed.
• For further reinforcement of customer-first business operations, the compliance and risk management system as well
as monitoring need to be enhanced.
• Although incentive compensation plans for management
have been expanded with a new restricted stock compensation plan, a desire for continuous consideration of expanding the scope of coverage, changing its proportions andother issues were expressed.
Issues to Address and Responses to Make Based on the
Results of Evaluation
From the results of this evaluation, SFH’s Board of Directors
judges itself to be wholly effective at this time. That said, theBoard will strive to further enhance its effectiveness by continuously discussing the Group’s growth strategies, improving
understanding of the Group’s management and business,and enhancing systems such as compliance and monitoring.

Sony Financial Holdings Inc. Annual Report 201867

Management System
Compensation for SFH’s Directors and Audit &Supervisory Board Members
SFH sets the Policy for Determining the Compensation of
Directors and the Policy for Determining the Compensationof Audit & Supervisory Board Members. SFH has created
the Compensation Advisory Committee Regulations andestablished the Compensation Advisory Committee (pleasesee page 66) as its deliberative body. Compensation of individual directors is determined by the resolution of the Boardof Directors, based on a report from the Compensation
Advisory Committee. Directors with no executive duties,
except outside directors, are paid no compensation. Compensation of individual audit & supervisory board members
is determined, within the limit set by a General Meeting of
Shareholders, through discussions by audit & supervisoryboard members.

1. Executive Directors

3. Audit & Supervisory Board Members

Basic policy

Basic policy• 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 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• 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.

• The main responsibility of audit & supervisory board
members is to ensure the transparency and objectivity of corporate management by conducting
operational and accounting audits. Consequently,
compensation shall be fixed with the objective ofsecuring talented individuals and ensuring that theaudit function is working effectively.

Compensation • A fixed amount is paid according to the respectiverole of standing audit & supervisory board members and non-standing audit & supervisory board
members.
Level• A suitable level of compensation shall be paid inorder to secure talented individuals. The level ofcompensation is determined through discussion
by audit & supervisory board members, in consideration of the results of third-party surveys on thecompensation levels of audit & supervisory board
member and other relevant information.

•Compensation for SFH’s Directors and Audit &Supervisory Board Members for Fiscal 2017
Details of compensation for SFH’s directors and audit &supervisory board members for fiscal 2017 are as follows:
Total amount of
Total amount bycompensationcompensation category
for directors
and audit &BasicRestrictedsupervisory
comstockNumber board members pensa- Stock compensaof payees (Millions of yen)tion
optiontion

2. Outside Directors
Basic policy• 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

• 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 2018

Directors (internal)
Directors (outside)
Audit & Supervisory
Board Members(internal)
Audit & Supervisory
Board Members(outside)
Total

5
2

211
20

166
20

40
—

5
—

—

—

—

—

—

2

31

31

—

—

9

262

217

40

5

Notes: 1. Compensation refers to compensation, bonuses and other financial
benefits received from the Company in consideration of execution ofduties.
2. Compensation categories refer to basic compensation, stock options,
restricted stock compensation, bonuses and retirement benefits andothers. SFH did not pay bonuses as compensation for directors andaudit & supervisory board members prior to and including fiscal 2017.

Contributions to Sustainable Development

Relationship with Parent Company, Sony Corporation(As of July 1, 2018)

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 ensurehighly 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, 2018. 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 audit & supervisoryboard members, mergers and other organizational restructuring, material asset and business transfers, amendments
to the Articles of Incorporation and the payment of dividends.

In addition, Sony Corporation, which has obtained
approval from FSA to remain a major SFH shareholder,
recognizes and respects SFH’s corporate philosophy.

Using the “Sony” Trade Name and Trademark
SFH and Group companies have entered into royalty agreementswith Sony Corporation for the use of the “Sony” trade name andtrademark. However, these agreements can be rescinded bySony Corporation under certain conditions, such as its share of
voting rights in SFH falling below a majority, or SFH’s percentage
ownership of the voting rights of Sony Financial Group companies
dropping. Furthermore, Sony Financial Group companies pay
royalty fees to Sony Corporation based on these agreements.
The amount paid in fiscal 2017 was ¥2,460 million and theamount of these royalty fees has no material impact on the
management base of the Sony Financial 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
Personnel RelationshipTo obtain general management advice concerning the SonyFinancial Group and to strengthen the audit function, SFH
appoints directors and audit & supervisory board members
from outside the Sony Financial Group. However, one SFH
director and one audit & supervisory board member serve
concurrently as Corporate Executive Officer or Senior General Manager of the Sony Group. Moreover, Sony Corporation has seconded seven employees to SFH. Because theappointment of concurrent directors and audit & supervisoryboard members comes at the request of the Sony Financial
Group, SFH believes that concurrent directors and audit &supervisory board members are positioned to make independent management decisions. From the standpoint offurther enhancing independence from the parent company,
SFH has appointed three outside directors who have no special relationship with the Sony Group and have designatedthem as 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 the 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 (FSA) of
Japan, SFH believes that the Sony Financial Group conducts
its business with a certain degree of independence from theSony Group.

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)
The 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 2018

69

Compliance
Basic Stance on Compliance
SFH’s broad definition of compliance is that it enforces compliance with the laws, regulations and social norms and manages
business operations transparently and properly based on a strong sense of ethics. SFH considers compliance 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, https://www.sonyfh.co.jp/en/company/compliance.html

Compliance Activities at SFH
SFH considers the Sony Financial Group Code of Conduct
the fundamental internal code that all executives and employees must observe. In addition, SFH’s Board of Directors formulated a Compliance 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 andoperate them effectively at Group companies.
*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, 2018)

SFH

Audit & Supervisory Board

Director in Charge(President, Representative Director)

General Meeting of Shareholders

Audit & Supervisory
Board Members

Audit Department

Board of Directors
ReportReportReportEntrustExecutive Committee
ReportCompliance Department
Control over the planning and implementation of compliance measures

ReportCompliance Meetings
Secretariat: Compliance Department

Advise and monitor(Primary Subsidiaries)
Sony Life70

Sony Financial Holdings Inc. Annual Report 2018

Sony AssuranceSony Bank

Sony Lifecare

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 handling of
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, which 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 40 reports
were received by the hotline desk at SFH and Group companies in fiscal 2017, the majority of them related to the workplace environment, the organization’s management and thecourse of business operations. 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 a framework is adequately inplace and working effectively in the prevention of insider trading at Group companies, and takes actions as necessary.

Contributions to Sustainable Development

Compliance Meetings▶“Privacy Policy” on SFH’s website

https://www.sonyfh.co.jp/en/notice/privacy_policy/

Basic Group Policy on Eradicating Anti-social Forces
SFH has formulated a “Basic Group Policy on Eradicating Antisocial Forces,” whereby SFH and Group companies have inplace the structures necessary to eliminate anti-social forces.
Efforts include 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 in collaboration with external specialized
agencies. The Group works uniformly in its effort to eradicate
anti-social forces.
▶“Basic Group Policy on Eradicating Anti-social Forces”

on SFH’s website
https://www.sonyfh.co.jp/en/company/compliance.html

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 necessary based on reports from Group companies, customer complaints orother 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) Take other actions deemed necessary
SFH shall retain records that specify transactions to be managed and that are associated with actions taken to properly protect
customers, for five years.
▶“Conflicts of Interest Policy” on SFH’s website

https://www.sonyfh.co.jp/en/company/data/conflicts_of_interest_policy.pdf

Sony Financial Holdings Inc. Annual Report 2018

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, https://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 Management Meetings with the subsidiaries’ risk management divi-

sions. 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, 2018)

SFH

Audit &
Supervisory Board

Director in Charge(President, Representative Director)

General Meeting of Shareholders

Audit & Supervisory
Board Members

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
Department

Legal Risk

Reputational Risk

Business Continuity Risk

Confirm

ReportRisk Management Meetings

Manage, advise, monitor

Present risk management policies(Primary Subsidiaries)
Sony Life

Sony AssuranceSony Bank

Each company autonomously puts risk management into practice72

Sony Financial Holdings Inc. Annual Report 2018

Sony Lifecare

TypeContributions 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, and improperuse 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 18: Vision and Strategies Sony Financial GroupSony Financial Holdings Inc. Annual Report 201873

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 ofIR strives to provide information related to the assessment of corporate value in a timely, accurate and fair manner to shareholders
and other investors, as well as to facilitate sufficient dialogue with them, while sharing information appropriately with SFH’s businessexecution departments and Group companies.
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, https://www.sonyfh.co.jp/en/financial_info/ir_policy.html

Investor Relations (IR) Initiatives in Fiscal 2017
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 andanalysts. In November 2017, SFH held small meetings fordomestic institutional investors with outside directors on thetheme of corporate governance.
Also of note, the Company’s IR website earned high marks
in several ranking surveys.
Corporate strategy meeting for domestic institutional investors andanalysts (May 2018)ᵐᵎᵏᵕ

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

Record of IR Activities

Earnings briefings (teleconferences withdomestic institutional investors and analysts)

4 times

Corporate strategy meeting

1 timeIndividual meetings with institutional investors
and analysts

Approx. 190

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

Briefings for individual investors

9 times

Business briefings (small meetings for domestic
institutional investors and analysts)

2 times• 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 meeting74

Announcement of
1Q Consolidated Financial Results

Jun.
Ordinary
General Meetingof Shareholders

Sony Financial Holdings Inc. Annual Report 2018

Jul.

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 by engaging in sound, responsible operations that leverage its characteristics constitutes the core of its corporate activities. With the highest level of ethics and a strong
sense of purpose, we strive to continuously improve corporate value and seek to be the most trusted fi nancial services groupby providing financial services that reflect customers’ real needs.
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.

Sony Financial Group’s Stakeholders
Customers

Local communities

Shareholders andother investors

Sony Financial
Group

Business partners

Employees

Stewardship CodeAs an institutional investor, Sony Life has announced its adoption of Japan’s Stewardship Code—a set of principles 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 to Japan’s Stewardship Code (Japanese only):https://www.sonylife.co.jp/company/management/jsc/

Sony Financial Holdings Inc. Annual Report 201875

Communication with Stakeholders
With Our Customers—Approaches Utilizing Customer Feedback—Sony Financial Group companies have in place a framework under which feedback received from each company’s customers ona daily basis is compiled and analyzed by divisions in charge of promoting customer satisfaction and raising quality. This feedback
is reported 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. In addition, SonyFinancial Group companies have worked to raise the quality of products and services to further satisfy customers.
Sony Life
Sony Life conducts annual customer awareness surveys by
post, and in fiscal 2017 received valuable feedback from 6,551
policyholders. Also, the company has been conducting customer satisfaction surveys for Lifeplanner channel policyholders on the services provided by Lifeplanner sales employees incharge, thereby striving to further raise the quality of service.
Sony Life analyzes feedback from customers, identifying
and studying issues that it shares with various internal departments in an effort to improve service.

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.

Launch of Proxy Acquisition of Medical Certificates Service

Launch of SECOM Accident On-site Rush Service

When making insurance claims and applying for benefits,
customers normally have to obtain a medical certificate at
a medical institution. However, there have been cases of customers, due to problems such as physical disabilities, being
unable to visit medical institutions to obtain a medical certificate and thus having to wait a long time to make an insurance claim or apply for benefits. In response, Sony Life
launched a service for customers certified as having careneeds or physical disabilities to obtain the necessary medical
certificate to make an insurance claim and apply for benefits.
The service can help reduce such customers’ burden of
insurance claim procedures.

In response to customers who want insurance to provide
immediate support following an accident, Sony Assurance
launched “SECOM Accident On-site Rush Service” in collaboration with SECOM CO., LTD., to all customers for free. The
service enables SECOM’s emergency response personnel torush to an accident site 24/7, to support customers needing
help, contact the police and arrange for ambulances and tow
trucks. Through this service, Sony Assurance believes it canmore than ever before reduce customers’ uneasiness afteran accident.

Launch of Direct Benefit Claims Payment Service to
Medical Facilities Providing Advanced Medical Care
Fees for professional advanced medical treatments are notcovered by public health insurance, and patients bear thefull costs. Therefore, in a routine claim procedure, a customer
has to pay high-priced professional fees prior to receiving
reimbursement under our insurance. To alleviate the temporary financial burden of such customers, Sony Life launcheda direct benefit payment service for advanced medical treatments, particularly heavy particle radio and proton beam
therapy, which have high professional fees, to make direct
payments to medical facilities providing such treatment.

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

76

Sony Financial Holdings Inc. Annual Report 2018

▶Page 44: Review of Operations and Analysis of Operating
Performance Non-life Insurance BusinessSony Bank
To heed feedback from customers and provide even better
products and services, Sony Bank has been promoting VOC(Voice of Customer) activities with the aim of reflecting opinions
and requests from customers in measures centered on thecustomer office. Specific feedback and related details areavailable on the Voice of Customer webpage of Sony Bank’s
website.
New Approach for LGBT* on Mortgage Loans
Same-sex partners still face many financial challenges in areas
such as taxation and inheritance. Sony Bank has responded
so that same-sex partners can use a mortgage pair loan** andprovision of collateral*** from April 2018. Respecting diversity,
Sony Bank will continue to respond to the diverse fundingneeds of customers.
* LGBT is an acronym for lesbian, gay, bisexual and transgender.
** A pair loan is a form of mortgage loan in which multiple borrowers(obligors) enter loan contracts for the same property.
*** Provision of collateral is a practice in which a co-owner of property
provides equity as collateral.

Contributions to Sustainable Development

With 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

Partners (Independent Agencies)

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.

Sony Life’s Partners (Sony Life refers to independent agencies
as “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 andtraining related to products, along with expertise on sales tailored to customer needs based on sales processes developedby the Company over the years.
To provide high-quality services closely tied to regional
communities, Sony Life’s Partners around the country faithfully
fulfill their responsibilities as Partners to customers.

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 the advanced technological expertise of the Sony Group and promote cooperation to provide high-quality services to its customers.

With Local Communities—Social Contribution Activities—
Sony Life Volunteer Club
Social contribution is a well-established part of the corporate
culture at Sony Life, where many employees discover thevalue of 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 wake of the Great Hanshin–Awaji Earthquake, and theReconstruction Support Council was set up right after theGreat East Japan Earthquake. In both groups, activities areundertaken by individuals, using donations from employees,
and it is the members themselves who come up with andcarry out a wide range of initiatives.

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• Support for the Relay for Life** event• Activities to support reconstruction after the Great East Japan
Earthquake• Support activities for areas affected by the Kumamoto earthquakes
and heavy rainfall in northern Kyushu*“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 participation in athletic competitions
that allow them to demonstrate their achievements.
**“Relay for Life” is a worldwide charity event in which persons battling cancer,
their families and those who have lost loved ones to the disease walk arounda track for 24 hours to help promote the eradication of cancer.

Sony Financial Holdings Inc. Annual Report 201877

Communication with Stakeholders

Life-planning Course
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 confident about
realizing my dream,” “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.

Shimajiro Hospital Visit Project “Issho ni Waraou
Caravan”
As a joint project with Benesse Corporation’s preschooler education and life support brand, Sony Life launched a project titled“Issho ni Waraou (Let’s Smile Together) Caravan” in April
2017, where the brand’s popular character Shimajiro visits children’s hospitals to encourage them.
In addition, Sony Life has produced “Kosodate Guide” (a childcare guidebook) with Kodomo Challenge that provides useful
information for parents of children from infancy to preschool.
Through various joint initiatives, Sony Life aims to encourage children’s growth and dreams.

Matching Gift System
Sony Bank has introduced a “matching gift system” whereby adonation is made to volunteer groups according to the numberof hours an employee spends volunteering on days off fromwork. In addition, Sony Bank has joined a volunteer center in
Chiyoda Ward, Tokyo, to support the volunteer activities of its
employees.

Sony Financial Group’s Donations and Grants for
Fiscal 2017
Main Recipients of Donations and Other Assistance

NPO Sorabear Foundation

Life-planning Course given by Sony Life

FY2017
Number of schools
Cumulative total
Number of schools(As of July 1, 2018) Number of participating
students

78

Sony Financial Holdings Inc. Annual Report 2018

158
1,222 (cumulative)
129,423¥11,651,454

The Eye Mate, Inc. and its supporting groups

6,793,302

Special Olympics Nippon Foundation

5,500,000

Purchase of green power and J-Credits in fiscal 2017

3,344,565

Forest Conservation Project in Sumatra, Indonesia

1,432,480

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)

2,635,250

Total

Life-planning Course

Amount¥34,357,051

Promotion of Diversity
The Sony Financial Group places significant emphasis on a
spirit of diversity, to better address various changes in theenvironment 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 thementally and physically challenged within the Group as well as
more employees who are dealing with a range of situations,
including childcare and nursing care. Various approaches arebeing applied to address these issues.

Work-life Balance
The Sony Financial Group promotes initiatives to help balancecareers with private lives. Since its establishment, Sony Lifehas had a system in place that goes beyond what is requiredby law to enable employees who are raising children to continue working. 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
this certification*. Sony Bank has implemented an action plan
to support employees balancing work and childcare and isproviding a guidebook to publicize the social security system,
etc., that is available for childbirth and childcare. Going forward, 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.

Return-to-work Seminar for Women on Maternity Leave
Sony Life holds a return-to-work seminar to support womenin their careers and their lives as mothers. Nearly all womentaking maternity leave successfully return to work after childbirth. In the seminar, the department in charge explains toemployees the process leading up to their return to work andthe system to support working and parenting. The seminar isalso an opportunity for women to interact with others who
have already gone
through the process,helping to eliminate
the apprehension thatsome women on
maternity leave may
have, thereby leading
to a successful return
to work.
Return-to-work seminar

Promotion of Women’s Empowerment

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

For future growth, the Sony Financial Group regards its female
employees as valuable human resources. When Sony Life wasestablished, a female sales force was the mainstream in Japan’slife insurance industry. Nevertheless, 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 growththrough the sale of policies tailored to customer needs based on
the sophisticated knowledge and consulting capabilities of its life
insurance/financial professionals. However, to propose a wide
range of solutions to the diversification of customers’ lifestyles
as times change and in search of excellent talent with a varietyof careers, Sony Life has promoted the employment of female
Lifeplanner sales personnel, offering them various kinds of support to expand their areas of activity. For example, Sony Life haspromoted a cooperative study program for female Lifeplanner
sales employees and implemented programs that enable
women to maintain their jobs while also focusing on childcare
and nursing care. Thus, Sony Life has concentrated on creating
an employee-friendly working environment.

Sony Life

Initiatives for Fiscal 2020

*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.

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 lessContributions to Sustainable Development

With Our Employees—Approaches for the Success of All Employees—

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 201879

Communication with Stakeholders
Employee Education

Education and Training of Lifeplanner Sales
Employees

In addition to training at each Group company, training is
jointly conducted at the Group level to encourage everyone toacquire a wider understanding of the Group’s business pursuits overall. These programs include life-planning courses,
explanations of each company’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.

After joining the Company, Lifeplanner sales employees at Sony
Life take a three-year B.T.P. (basic training program) to develop
the mental attitude, knowledge, skills and conduct required ofa Lifeplanner sales employee.
Through B.T.P., Lifeplanner sales employees are educatedand trained to communicate to customers the necessity andimportance of life insurance, listen to customers talk aboutcherished ideals, concerns and needs, propose reasonable life
insurance that can safely protect them at any time and support
customers through all stages of life with high-quality services
even after a contract has been made.
Levels of knowledge and skills learned in training are confirmed by graduation tests conducted every training period. The
passing of the graduation test is also a prerequisite for taking
other tests such as an assurance sales employee qualification
examination for handling automobile insurance at Sony Assurance and a banking agency business qualification examination
for handling mortgage loans, etc., at Sony Bank, providing sales
employees with a definitive base as Lifeplanner sales employees
on which they are able to advance their career and grow.
In addition, through OJT activities such as process meetings,
role-playing and apprentice fieldwork with office managers on aregular basis, Lifeplanner sales employees can connect what theylearned in training with practical use. As Lifeplanner sales employees, they are trained to provide a higher quality of service to theircustomers.

Sample Programs and Initiatives for the Developmentof Employees
Self-development ProgramGroup training sessions and opportunities totake correspondence courses for employees
working independently to develop their skills.

Management
Conducted jointly by Sony Financial Group
Skill-development Program companies as a part of efforts to improve themanagerial capabilities of management-level
employees.
In-house Inter-departmental Work experience in different departments forTraining Programa certain period of time allowing for better
understanding of different operations or toachieve 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, such as overseas
actuary training.

Training System for Lifeplanner Sales Employees at Sony Life (as of July 1, 2018)
Graduation test 1
Attainedlevel

Necessity of life insurance

Branch training process

Join the company

Life/death consulting

Graduation test 24

Comprehensive risk response

12 months

IndependenceLife plan support

24 months

36 months

B.T.P. 6
Beforejoining
C.I.P.
4 timesfor atotal of
8 hours

B.T.P. 12
B.T.P. 1
1 month
after joining

B.T.P. 24
B.T.P. 36
O.J.T. (Process meetings, role-playing, apprentice fieldwork)

The Life Insurance
Association ofJapan’s exam
Financial plannercertification exam

Certification exam

Death protection

1 month Start of sales

New employee
training

80

Graduation test 12

Follow-up
training I

Branch follow-up
training

Follow-up
training II

Foreign currency
denominated productcertification exam

Generalprocess exam

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)

Sony Financial Holdings Inc. Annual Report 2018

Follow-up training

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)

1st Grade
Certification in
Financial Planning(national qualification)

AFP

CFP®(top qualification)

Environmental Protection Activities

Use of Green PowerSony Life became the first Japanese life insurance company to introduce a Green Power
Certification System, which enables companies to use green power in their businessactivities 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 causedby its power usage (excluding the portion of power usage
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 2017, the entire
Group purchased green power certificates and J-Credits
equivalent to 1,560 MWh.

Contributions to Sustainable Development

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.
Donations to the Sorabear Foundation from Sony Assurance and Sony Life are used to provide Sorabear with power
generation equipment—solar power generators—for kindergartens and nursery schools around the country. In fiscal
2017, Sony Assurance made a donation to a nursery schoolin Yamaguchi prefecture and to a kindergarten in Kyoto prefecture, while Sony Life donated to a kindergarten in Fukui prefecture. In the program, Sony Assurance has donated a totalof 22 solar power generators, and Sony Life a total of eightsolar power generators (as of July 1, 2018).

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

Acquisition 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 CONSULTING PLAZA. The
Sony Financial Group conducts regular internal environmental audits of ISO
14001-certified offices, and the audit results are reported to top management.

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.
Since 2010, Sony Life has also participated in the activitiesof the Sorabear Foundation, making donations equivalent tosome printing expenses, etc., which has been reduced with
the introduction of the CD-ROM version (since 2010) and thewebsite version (since 2017) of “guidebook/policy conditionsof insurance contracts.”

Ceremony for the donation of Sorabear power generationequipment to the Incorporated School of Kusaka Gakuen,
Saienji Kindergarten, in Yamaguchi, in June 2017.

Reducing CO2 Emissions by Switching to Paperless
Contract Procedures and Electronic Issuance ofDocuments
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 conservation) after the initial contract has been made, suchas applications for new contracts, changes in payment methods, changes in contract contents, etc. As a result, Sony Lifehas reduced the use of copier paper.
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 toresources, exemplified by a paperless insurance certificate
discount of ¥500 on automobile insurance premiums whencustomers who buy a policy online opt not to have certificatesof insurance and other documents printed and mailed.
As an Internet bank, Sony Bank aims to use as little paper as
possible when dealing with customers with such things as transaction slips, passbooks and explanations of products. Sony Bank
has promoted a switch to electronic delivery of investment trusttransaction documents that have previously been written.
Sony Financial Holdings Inc. Annual Report 201881

Corporate Section

82

Sony Financial Holdings Inc. Annual Report 2018

Corporate Profile(As of March 31, 2018)

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

SFH: 78(Consolidated: 10,719, Life insurance business: 8,246, Non-life insurance business: 1,234, Banking business: 591,
Others: 587, Parent: 61)

Common stock¥19,927 million

Corporate Section

Name

Notes: 1. The number of employees of SFH includes 11 belonging to the life insurance business, 1 belonging to the non-life insurance business, 5 belonging to
the banking business, and 61 belonging to the parent.
2. The number of employees stated in “Others” is the number of employees belonging to the nursing care business at subsidiaries.

Organizational Chart(As of July 1, 2018)
Sony Financial Holdings Inc.
General Meeting of Shareholders

Audit & Supervisory Board
Audit & Supervisory Board Members

Board of Directors

Audit Department
Executive Committee
Business Execution Departments

Sony Financial Group Organizational Chart of Business Operations(As of July 10, 2018)
Life Insurance BusinessSony Life Insurance Co., Ltd.

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

Life Insurance Business
SA Reinsurance Ltd.
Non-life Insurance BusinessSony Assurance Inc.

Sony Corporation

Sony Financial
Holdings Inc.

Consolidated subsidiaries
Affiliated companies accounted for under the equity method
Sales and referrals of the others’ products
Shareholding

Banking BusinessSony Bank Inc.

Nursing Care BusinessSony Lifecare Inc.

Banking BusinessSony Payment Services Inc.

Banking Business
SmartLink Network
Hong Kong Limited

Nursing Care Business
Lifecare Design Inc.
Nursing Care Business
Proud Life Inc.

Venture Capital BusinessSony Financial Ventures Inc.

Sony Financial Holdings Inc. Annual Report 2018

83

Profiles of Group Companies(As of July 10, 2018)

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¥18,450 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

2-1-6, Uchisaiwaicho,
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)

Share ownership

Commonstock

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

Name

Established

Head officeBusinessSony Lifecare Inc.

April 1,
2014

3-11-2, 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

3-11-2, Shibuya,
Shibuya-ku,
Tokyo, Japan

Planning, development ¥1,495
millionand operation ofnursing care homes

Sony Lifecare Inc.
100%

Proud Life Inc.

July 3,
2006

Management, operation ¥3
2-8-4, Kitasaiwai,
millionand planning of
Nishi-ku, Yokohama,
Kanagawa Prefecture, Japan nursing care homes
such as “Hanakotoba”

Sony Lifecare Inc.
100%

Other (Venture Capital Business)

84

Share ownership

Name

Established

Head officeBusiness

Commonstock

Share ownershipSony Financial Ventures Inc.

July 10,2018

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

Venture capitalbusiness¥10
millionSony Financial Holdings Inc.
100%

Sony Financial Holdings Inc. Annual Report 2018

Stock Information

Information on Common Stock, Shares Outstanding(As of March 31, 2018)

Date

August 7, 2017 (Note)

27,513435,027,513

Increase inCommon Stock(Millions of yen)

Common Stock(Millions of yen)

Increase in
Capital Surplus(Millions of yen)

Capital Surplus(Millions of yen)27

19,927

27

195,304

Corporate Section

Increase in Issued Total Number of
SharesShares Issued

Note: Issued new shares as restricted stock compensation (third-party allocation). The issue price per share was ¥2,020 and the amount added to common
stock was ¥1,010.

Stock Exchange Listing(As of July 1, 2018)

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

Major Shareholders(As of March 31, 2018)
Name

Number of
Shares Held

Percentage ofOwnership (excluding
treasury stocks)

Sony Corporation

274,050,000

63.00

The Master Trust Bank of Japan, Ltd. (Trust Account)

14,265,800

3.27Japan Trustee Services Bank, Ltd. (Trust Account)

13,662,400

3.14

STATE STREET BANK AND TRUST COMPANY

13,272,066

3.05

Trust & Custody Services Bank, Ltd. (Securities Investment Trust Account)

3,414,600

0.78

NOMURA PB NOMINEES LIMITED OMNIBUS-MARGIN (CASHPB)

3,394,680

0.78

GOLDMAN, SACHS & CO. REG

3,129,914

0.71Japan Trustee Services Bank, Ltd. (Trust Account 5)

3,096,700

0.71

JP MORGAN CHASE BANK 380055

3,001,173

0.68

STATE STREET BANK WEST CLIENT – TREATY 505234

2,885,906

0.66

Distribution of Share Ownership(As of March 31, 2018)

By shareholder type
Financial instruments firms 0.89%
Foreign investors 20.86%

Total number of shares issued

435,027,513

Financial institutions 12.27%

Corporations 63.16%

Individuals and others 2.79%

Sony Financial Holdings Inc. Annual Report 201885

Dividend Policy
Dividends

60.0

Dividend per Share

55.0

55.0

FY2015FY201662.5 yen

40.0

15.0

15.0

FY2008FY200920.0

20.0

FY2010FY201130.0

25.0

FY2012FY2013

FY2014FY2017FY2018(Forecast)

Note: Although a stock split was conducted during fiscal 2011, the dividend per share figures are calculated assuming that the stock split was conducted at the
beginning of fiscal 2008.

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 sufficient internal
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 placing more importance on economic value-based profit indicators that are more suitablefor evaluating the growth of the life insurance business, in addition to statutory profit. Furthermore, management will determine specific dividend amounts for each year by taking into account a comprehensive range of factors surrounding the Sony Financial Group.
Dividends for fiscal 2017 were ¥60 per share, an increase of ¥5. This was approved by resolution of the General Meeting of
Shareholders on June 22, 2018.
For fiscal 2018, after considering the business environment, the expansion of the Group’s business volume and the level of
economic value-based profit growth, SFH forecasts dividends of ¥62.5 per share, an increase of ¥2.5 from the dividends of ¥60
per share for fiscal 2017.
SFH pays dividends once a year as a year-end dividend. The Articles of Incorporation of SFH stipulate that it may also issue aninterim dividend. As for who makes decisions about the payment of dividends, the General Meeting of Shareholders decides theyear-end dividend, while the Board of Directors decides the interim dividend.
Share Price

Yen
2,500

2,000

1,500

1,000

500

0

4

5

6

7

8

9

10 11 12

1

2

3

4

5

2015

Trading Volume

6

7

8

9

10 11 12

1

2

3

4

5

2016

6

7

8

9

10 11 12

1

2

2017

3

4

5

6

5

6

2018

Thousand shares
90,00060,00030,000

0

4

5

6

7

8

2015

86

Sony Financial Holdings Inc. Annual Report 20189

10 11 12

1

2

3

4

5

6

7

2016

8

9

10 11 12

1

2

3

4

5

6

7

2017

8

9

10 11 12

1

2

3

4

2018

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, 2018)96

MCEV Results for Sony Life as of March 31, 2018

116

Sony Financial Holdings Inc. Annual Report 201887

SFH Consolidated Financial Statements

Consolidated Balance Sheets
Sony Financial Holdings Inc.
As of March 31, 2017 and 2018
Millions of yen
2017

2018

AssetsCash and due from banks

206,481¥327,633

Call loans and bills bought

61,90065,500

Monetary claims purchased

573

5,378

296,877

291,582

Securities

8,857,436

9,581,206

Loans

1,720,004

1,785,877

123,614106,051

Land

83,007

63,106

Buildings

34,96432,468

Leased assets

715

6,074

Construction in progress

132

5

Other tangible fixed assets

4,794

4,397

30,77635,684

Software30,14635,059Goodwill

49

583

Leased assets—

0

Other intangible fixed assets

579

40

Due from agencies0—

Due from reinsurers

1,438

934

Foreign exchanges

7,268

9,346

148,650

168,736

Net defined benefit asset

2,752

3,426

Deferred tax assets

15,313

21,242

Reserve for possible loan losses(1,243)(1,152)¥11,471,845¥12,401,446

Money held in trust

Tangible fixed assets

Intangible fixed assets

Other assets

Total Assets

88¥Sony Financial Holdings Inc. Annual Report 2018

Financial Section

Millions of yen
2017

2018

¥8,113,153¥8,763,349

Liabilities
Policy reserves and others
Reserve for outstanding claims
Policy reserves
Reserve for policyholders’ dividends
Due to agencies
Due to reinsurers
Deposits

71,30674,7128,036,118

8,683,153

5,729

5,484

2,616

1,873

3,737

5,563

2,071,091

2,159,246

Call money and bills sold

70,00096,000Borrowed money

90,000173,944

108

228

Bonds payable

Foreign exchanges

10,00020,000

Other liabilities

427,866

470,501

Reserve for employees’ bonuses

3,694

3,906

Net defined benefit liability

31,39933,179366—

46,182

48,13546,182

48,135Reserve for directors’ retirement benefits
Reserve under the special laws
Reserve for price fluctuations
Deferred tax liabilities—

0

Deferred tax liabilities on land revaluation

488

109

10,870,705

11,776,039

Total Liabilities
Net Assets
Shareholders’ equity
Common stock

19,90019,927

Capital surplus

195,277

191,157

Retained earnings

255,062

283,911

(81)

(55)

470,157

494,941

Treasury stock
Total shareholders’ equity
Accumulated other comprehensive income

134,849

133,991

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

Net unrealized gains (losses) on available-for-sale securities, net of taxes(1,154)(902)

Land revaluation, net of taxes(1,465)(2,439)Remeasurements of defined benefit plans, net of taxes(2,756)(1,929)129,472

128,719

49

97

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

1,460

1,648

601,139

625,406¥11,471,845¥12,401,446

See accompanying “Notes to the Consolidated Financial Statements.”

Sony Financial Holdings Inc. Annual Report 201889

Consolidated Statements of Income and Consolidated Statements of Comprehensive Income
Sony Financial Holdings Inc.
For the years ended March 31, 2017 and 2018

(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 redemption of securities
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
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
2017

2018

¥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

¥1,503,630
1,347,762
1,057,411
1,054,867
2,544
242,703
157,276
4,490
2
0
1
—
1
80,93147,646
110,091
108,316
108,253
62
1,731
1,324
470
—
(62)
43
39,712
28,344
17,064
11,204
2
63
—
9
6,751
3,823
3,456
366
794
6,064
6,064

(Continued on next page)90

Sony Financial Holdings Inc. Annual Report 2018

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 sale of securities
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
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
Investment expenses
Losses on sale of securities
Other investment expenses
Operating, general and administrative expenses
Other ordinary expenses

2017

2018

¥1,315,341¥1,436,787

1,186,465
372,407
84,17812,01998,252
168,409
3,122
6,423
596,7423,330
593,411
035,93744—53
30,050
—
—
1,779
4,008
136,645
44,733
96,63970,09450,181
7,458
1,187
798
10,4693
0
326,52019

1,296,417
436,538
92,342
12,566
119,294
199,2633,314
9,756
638,3432,211
636,1310
32,889151
02
11,403
15,280
23
1,680
4,346
139,420
49,226
102,798
73,94352,482
8,067
1,295
1,194
10,9032—
2
28,848
4(Continued on next page)

Sony Financial Holdings Inc. Annual Report 201891

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 Gains
Gains on disposal of fixed assets
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
2017

2018

¥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¥30,428
7,656
5,320
(73)
0
40
2,360
8
4,676
105
17,733
257
7,141
7,141
66,843
13,25813,258
2,180
187
2
1,953
1,953
36
3,271
74,65029,008(6,344)
22,664
51,985
90¥51,895

See accompanying “Notes to the Consolidated Financial Statements.”(2) Consolidated Statements of Comprehensive Income
ProfitOther Comprehensive Income
Net unrealized gains (losses) on available-for-sale securities, net of taxes
Net deferred gains (losses) on hedging instruments, net of taxes
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 2018

Millions of yen
2017

2018

¥ 41,734¥51,985(22,515)
1,192
1,021
(20,301)¥ 21,433

(857)
251
827
221
¥52,207¥ 21,301¥
131¥52,116¥91

Consolidated Statements of Changes in Net Assets
Sony Financial Holdings Inc.
For the years ended March 31, 2017 and 2018
Financial Section

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——(81)

41,621
(81)

—

—

(818)

—

(818)

—
—
¥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
Purchase of treasury stock
Adjustments due to changeof scope of consolidation
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
Net unrealized Net deferredgains (losses) on gains (losses)
available-for-sale on hedging
securities,
instruments,
net of taxes
net of taxes

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
Purchase of treasury stock
Adjustments due to changeof scope of consolidation
Net changes of items otherthan shareholders’ equity
Total changes during the period
Balance at the end of the periodLand
revaluation,
net of taxes

RemeasureTotal
ments ofaccumulated
definedother
Subscription
benefit plans, comprehensive
rights to
Non-controlling
net of taxes
incomesharesinterests

Total net
assets¥157,364¥(2,347)¥(1,465)¥(3,760)¥149,791¥—¥1,329¥604,377

—

—

—

—

—

—

—

105

157,364(2,347)(1,465)(3,760)149,791—

1,329

604,482

—

—

—

—

—

—

—

(23,924)

—

—

—

—

—

—

—

41,621

—

—

—

—

—

—

—

(81)

—

—

—

—

—

—

—

(818)

(22,515)

1,192

—

1,003

(20,319)49

131(20,138)(22,515)¥134,849

1,192¥(1,154)—¥(1,465)

1,003¥(2,756)(20,319)¥129,472

49
¥49

131
¥1,460(3,343)¥601,139(Continued on next page)

Sony Financial Holdings Inc. Annual Report 201893

Consolidated Statements of Changes in Net Assets (Continued)
Millions of yen
2018
Shareholders’ equity

Common stock

CapitalsurplusRetainedearnings

Treasury
stock

Total
shareholders’equity¥19,900¥195,277¥255,062¥(81)¥470,157

27
—

27
—

—
(23,922)——55(23,922)——

51,895—51,895

—

(5)

—

26

21

—

5

(5)

—

—

—

—

973

—

973

—

—

(92)

—

(92)

—

(4,147)——(4,147)

—

—

—

—

—

27
¥19,927(4,119)¥191,157

28,849¥283,911

26¥(55)

24,784¥494,941

Balance at the beginning of
the period
Changes during the period
Issuance of new shares
Dividends from surplus
Profit attributable to ownersof the parent
Disposal of treasury shares
Transfer of loss on disposalof treasury shares
Reversal of land revaluation
Adjustments due to changeof scope of consolidation
Change in ownership interestof parent due to transactions
with non-controlling interests
Net changes of items otherthan shareholders’ equity
Total changes during the period
Balance at the end of the period

Millions of yen
2018
Accumulated other comprehensive income

Balance at the beginning of
the period
Changes during the period
Issuance of new shares
Dividends from surplus
Profit attributable to ownersof the parent
Disposal of treasury shares
Transfer of loss on disposalof treasury shares
Reversal of land revaluation
Adjustments due to changeof scope of consolidation
Change in ownership interestof parent due to transactions
with non-controlling interests
Net changes of items otherthan shareholders’ equity
Total changes during the period
Balance at the end of the period

Net unrealized Net deferredgains (losses) on gains (losses)
available-for-sale on hedging
securities,
instruments,
net of taxes
net of taxes

Landrevaluation,
net of taxes

RemeasureTotal
ments ofaccumulated
definedother
Subscription
benefit plans, comprehensive rights to
Non-controlling
net of taxes
incomesharesinterests¥134,849¥(1,154)¥(1,465)¥(2,756)¥129,472¥49¥1,460¥601,139

—
—

—
—

—
—

—
—

—
—

—
—

—
—

55
(23,922)

—

—

—

—

—

—

—

51,895

—

—

—

—

—

—

—

21

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

973

—

—

—

—

—

—

—

(92)

—

—

—

—

—

—

—

(4,147)

(857)

251

(973)

827

(752)

48

187

(516)

(857)
¥133,991251¥ (902)(973)¥(2,439)827¥(1,929)(752)¥128,719

48
¥97

187
¥1,64824,267¥625,406

See accompanying “Notes to the Consolidated Financial Statements.”

94

Sony Financial Holdings Inc. Annual Report 2018

Total net
assetsConsolidated Statements of Cash Flows
Sony Financial Holdings Inc.
For the years ended March 31, 2017 and 2018

Millions of yen
2018

¥

¥

¥

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
30,050(10,843)
107
3,551(195,446)
156,005
50,00070,000311(6,129)21(1,710)541,424
188,230(8,730)(3,430)(25,047)
692,445

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
Losses (gains) on derivatives
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 money and bills soldNet (increase) decrease in call loans and bills bought
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
Net (increase) decrease in deposits
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 gains (losses) from the settlement of derivative financial instruments
Net increase (decrease) in collateral for securities lending transactions
Others, net
Total 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
Proceeds from sales of tangible fixed assets
Purchases of intangible fixed assets
Purchase of securities of non-consolidated subsidiaries
Purchase of securities of affiliates
Others, net
Net cash provided by (used in) investing activities
Cash flows from financing activities
Proceeds from debt borrowing
Repayments of debt
Cash dividends paid
Proceeds from issuance of bonds
Payments for redemption of bonds
Purchase of treasury stock
Payments from changes in ownership interests in subsidiaries that do not result in change in scope of consolidation
Others, net
Net 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

2017

74,6501,680
11,8282
323,405
647,035
0
3,271
(140)
2,363
(176)
1,953
(186,943)(80,057)
8,327
11,40323,489(13,283)
2,338(56,745)
87,98780,00026,000(4,805)(2,077)119
15,506657,168
197,007(8,484)(3,517)(22,451)
819,721

—
(76)
5,160
(1,171,569)
375,241(57,798)
27,949(35,401)
247,803—(608,689)
83,755(3,977)—(9,024)—(3,045)(12)(624,749)

5
(101)
6,532
(1,104,737)
427,925(60,315)
28,761(22,997)(6,719)32,553(699,092)
120,629(2,049)36,700(12,481)(339)(3,450)(132)(680,845)——(23,925)—(10,000)
(81)
—
(51)
(34,057)(1)
33,636
1,124
233,620
268,381

5,266(5,133)(23,921)
19,938(10,000)
—
(171)
(474)
(14,496)(2)
124,377373
268,381393,133¥

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 201895

Notes to the Consolidated Financial Statements(For the year ended March 31, 2018)

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: 8 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.
Proud Life 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:
Proud Life Inc., a nursing care provider, has been included in the scope of consolidation from the year ended March 31, 2018,
due to its increased importance. Business results of the company are included in “Other” in the consolidated statements ofincome.

(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.

3 Note on Going Concerns
There is no related information to be reported.

96

Sony Financial Holdings Inc. Annual Report 2018

4 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.

(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.

(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.

Sony Financial Holdings Inc. Annual Report 201897

(8) 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 that are exposed to losses due
to market price fluctuations. This reserve is only used to reduce losses arising from price fluctuations on those assets.

(9) 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 mainly 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.
3) Adoption of a simplified method at small enterprises, etc.
For calculating net retirement benefit liabilities and retirement benefit expenses, the parent company and some consolidated
subsidiaries apply a simplified method that treats amounts required for voluntary resignation at fiscal year-end as retirement
benefit obligations.

(10) 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.

(11) 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 that 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.

(12) 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.

(13) 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.

(14) 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
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.

98Sony Financial Holdings Inc. Annual Report 2018

5 Changes in Presentation(Consolidated Statements of Cash Flows)

Financial Section

1. “Losses (gains) on derivatives,” which was included in “Others, net” under the subtotal of cash flows from operating activities forthe year ended March 31, 2017, has been separately stated from the year ended March 31, 2018, as its monetary materiality
increased. To reflect such changes in presentation, the consolidated financial statements for the year ended March 31, 2017 havebeen reclassified.
As a result, ¥28,339 million of “Others, net” under the subtotal of cash flows from operating activities for the year ended March
31, 2017 has been reclassified as ¥30,050 million of “Losses (gains) on derivatives” and negative ¥1,710 million of “Others, net.”

2. “Net gains (losses) from the settlement of derivative financial instruments,” which was included in “Others” under the total of net

cash used in investment transactions of cash flows from investing activities for the year ended March 31, 2017, has been separately stated from the year ended March 31, 2018, as its monetary materiality increased. To reflect such changes in presentation,
the consolidated financial statements for the year ended March 31, 2017 have been reclassified.
As a result, negative ¥35,401 million of “Others” under the total of net cash used in investment transactions of cash flows frominvesting activities for the year ended March 31, 2017 has been reclassified as negative ¥35,401 million of “Net gains (losses) fromthe settlement of derivative financial instruments.”

6 Notes to the Consolidated Balance Sheets

1. Securities with a book value of ¥426,523 million and loans of ¥306,589 million were pledged as collateral for the ¥303,889 millionof collateral for securities lending transactions, ¥96,000 million of call money and bills sold, the ¥170,000 million of borrowed
money and payables under repurchase agreements of ¥31,696 million at March 31, 2018. In addition to the assets describedabove, securities with a book value of ¥12,229 million, cash collateral paid for financial instruments of ¥18,559 million and initial
margins of futures markets of ¥18,324 million were pledged as collateral for cash settlements, variation margins of futures markets
and certain other purposes at March 31, 2018.

2. The consolidated balance sheet amount of securities loaned for consumption under the loan agreement was ¥235,886 million.
3. Securities include shares in non-consolidated subsidiaries and affiliates worth ¥12,630 million. Among these, investments in jointly
controlled companies are ¥12,245 million.

4. The balance of loans includes ¥91 million in loans to bankrupt borrowers (before deductions for reserve for possible loan losses)and ¥1,075 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 ¥842 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 ¥2,009 million (before
deductions for reserve for possible loan losses).

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) include the consolidated balance sheet amount of ¥7,278 million.
Sony Financial Holdings Inc. Annual Report 201899

9. Accumulated depreciation of tangible fixed assets as of March 31, 2018 was ¥36,648 million.
10. The balance sheet includes ¥1,128,817 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, 2018, 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, 2018 are
as follows:
Balance at the beginning of the period
Policyholders’ dividends during the period
Increase in interest
Provision for reserve for policyholders’ dividends¥5,729 million¥3,517 million¥0 million¥3,271 million

Balance at the end of the period¥5,484 million

12. On March 31, 2002, SFH’s life insurance subsidiary revalued its land for operating purposes, as permitted by the Act on Revalua-tion 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, 2018 was ¥31,245 million, and the amount of unused commitments
whose original contract terms are within 1 year at March 31, 2018 was ¥29,700 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 ¥10,480 million. Such losses are recognized as expenses during
the fiscal year in which they are contributed.

15. Net assets per share were ¥1,433.73.
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, loans, deposits and derivative transactions constitute the majority of the companies’ financial instruments. They are
subject to market risk, which is the risk of incurring losses when their values change due to fluctuations in interest rates, foreignexchange rates, stock prices, etc., as well as credit risk, which is the risk of incurring losses when the value of assets declines
or disappears due to a deterioration in financial or other conditions of an entity to which credit is provided. In addition, they are
subject to market liquidity risk, which is the risk of loss due to an inability to conduct market transactions, as well as the risk ofloss if the companies are forced to complete transactions under unfavorable market conditions, in each case due to market
turmoil or other factors.
Most of the securities holdings are in domestic government bonds, foreign government bonds and corporate bonds. Other
holdings include domestic stocks, foreign securities and investments in partnerships.
The majority of loans are policy loans in the life insurance business, and individual mortgage loans in the banking business.

100

Sony Financial Holdings Inc. Annual Report 2018

Financial Section

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.
Deposits are mainly those from individual customers, some of which are denominated in foreign currencies.
The life insurance business uses several derivative transactions such as interest rate swaps, forward foreign exchangetransactions and stock index futures trading mainly to hedge the market risk for financial assets and liabilities 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, and it uses interest rate swaps,
etc., to hedge the market risk for financial assets and liabilities. 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 hedge accounting, hedge effectiveness is assessed based on the requirements stipulated in the “Accounting Standards for Financial Instruments” and other standards.
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.
(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.

Sony Financial Holdings Inc. Annual Report 2018101

(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 ¥927 million as of March 31, 2018 (¥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
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.
(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 situations 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.

102

Sony Financial Holdings Inc. Annual Report 2018

4) Supplementary explanation of the fair value of financial instruments
Market prices of financial instruments are considered to indicate their fair values, 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.
Financial Section(2) Fair value information on financial instruments
Below is fair value information on financial instruments as of March 31, 2018, excluding securities whose fair values are not readily
determinable (see Note 2).

Millions of yen

2018
As of March 31,

1) Cash and due from banks2) Call loans and bills bought3) 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
Reserve for possible loan losses (*1)
Loans (after deduction for reserve for possible loan losses)
Total Financial Assets
1) Deposits
2) Call money and bills sold3) Borrowed money4) Bonds payable5) Collateral for securities lending transactions
Total Financial Liabilities
Derivative financial instruments (*2)
Hedge accounting not applied
Hedge accounting applied
Total Derivative Financial Instruments

Consolidated balance
sheet amount¥

327,633
65,500Fair value

Difference¥¥

327,633
65,500——291,582

291,582—

1,048,062
6,547,276
401,958
1,558,456
1,785,877(809)
1,785,067¥12,025,535¥ 2,159,246
96,000173,944
20,000303,889¥ 2,753,079

1,048,062
8,146,787
436,842
1,558,456—
1,599,510
34,884—

1,971,747¥13,846,610¥ 2,160,277
96,000173,603
20,010303,889¥ 2,753,780

186,679¥1,821,074
¥
1,030
—
(340)
10
—
¥
700

¥

¥

¥

¥

10,387[12,857][2,470]¥10,387[12,857][2,470]¥———(*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 [ ].

(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.
Sony Financial Holdings Inc. Annual Report 2018103

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) Call money and bills sold
The fair value is regarded as the carrying amount, as they are approximately equal.
3) Borrowed money
The present value of borrowed money is calculated by discounting the future cash flows of the principal and interest with the
LIBOR-based yield curve.
4) Bonds payable
The fair value of bonds payable is the market price or the price indicated by a financial institution.
5) 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

2018
Consolidated balance
sheet amount

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) Investment in partnership (*2)
Total

¥12,630169
12,653¥25,453(*1) Unlisted stocks 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 and investment in partnership are considered impaired if their actual value decreases materially below the acquisition cost andsuch decline is considered non-recoverable. Their actual value is recognized as the consolidated balance sheet amount and the write-down isaccounted for as a devaluation loss (hereinafter, “impairment”) for the fiscal year.
Impairment losses on unlisted stocks and investment in partnership were recognized as ¥19 million and ¥664 million for the year ended March
31, 2018, respectively.
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.

(Note 3) Future redemption schedule of monetary claims and securities with maturities

Millions of yen
2018

As of March 31,

1 year or lessMore than 1 year
to 5 years

More than 5 years
to 10 years¥

Cash and due from banks
Call loans and bills bought¥327,633
65,500¥

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
OthersAvailable-for-sale securities
Japanese government and corporate bonds
Japanese government and local government bonds
Japanese corporate bonds
OthersLoans (*)
Total

3,236
3,236
2,224
1,012
—
—
—
—
—
—
124,871
36,90528,895
8,009
87,966
12,387¥533,629

27,887
27,687
25,798
1,889
200
—
—
—
—
—
405,464
155,718
80,17575,542249,745
46,021¥479,373——

330,510
330,510
328,610
1,900
—
3,220
3,220
—
3,220
—
307,135
274,185
271,000
3,185
32,95062,679¥703,545(*) This figure excludes ¥189,460 million with no fixed redemption such as policyholder loans, and ¥18,895 million in overdrafts.

104

Sony Financial Holdings Inc. Annual Report 2018——

Over 10 years¥——

6,414,090
5,886,640
5,548,530
338,110
527,449394,683
366,530
265,130
101,400
28,153556,077
388,350
388,350—
167,727
1,455,540¥8,820,391

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

Millions of yen
2018
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¥28,939

As of March 31,

Deposits (*)¥2,042,073¥44,265¥23,553

9,119¥11,295

96,000

—

—

—

—

—

462

20,12250,122

100,122

3,112—
10,000Call money and bills soldBorrowed money
Bonds payable
Collateral for securities lending transactions
Total

¥

—

—

—

—

10,000303,889

—

—

—

—

—

¥2,442,425¥64,388¥73,676¥109,242¥24,407¥38,939

Financial SectionMore than
1 year to
2 years

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

17. Fair value information on securities as of March 31, 2018:*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,

2018

Valuation gains charged to income¥36,944(2) Held-to-maturity securities

Millions of yen
2018

As of March 31,

Consolidated balance
sheet amount

Fair value

Difference

Fair values exceeding the consolidated balance sheet amountJapanese government and corporate bonds
Japanese government and local government bonds
Japanese corporate bonds
OthersSubtotal
Fair values not exceeding the consolidated balance sheet amount¥5,723,643
5,570,041
153,601
63,5585,787,201¥7,377,238
7,206,713
170,524
67,5337,444,772¥1,653,595
1,636,672
16,923
3,975
1,657,570

Japanese government and corporate bonds
Japanese government and local government bonds
Japanese corporate bonds
OthersSubtotal
Total

517,815
325,625
192,189242,259
760,074¥6,547,276

479,378
304,563
174,814222,636702,014¥8,146,787(38,436)(21,061)(17,375)(19,623)(58,060)¥1,599,510(3) Policy-reserve-matching bonds

Millions of yen
2018

As of March 31,

Consolidated balance
sheet amount

Fair value

Difference

Fair values exceeding the consolidated balance sheet amountJapanese government and corporate bonds
Japanese government and local government bonds
Japanese corporate bonds
OthersSubtotal
Fair values not exceeding the consolidated balance sheet amount¥340,492
270,889
69,602
6,286
346,779¥376,212
297,041
79,171
6,506
382,719¥35,720
26,152
9,568
219
35,939Japanese government and corporate bonds
Japanese government and local government bonds
Japanese corporate bonds
OthersSubtotal
Total

47,203
5,309
41,894
7,975
55,179¥401,958

46,2795,240
41,0397,843
54,123¥436,842

(924)
(68)
(855)
(131)
(1,055)¥34,884

Sony Financial Holdings Inc. Annual Report 2018105

(4) Available-for-sale securities

Millions of yen
2018

As of March 31,

Consolidated balance
sheet amount

Acquisition cost

Difference

Consolidated balance sheet amount exceeding the acquisition cost
Japanese government and corporate bonds¥ 930,432¥ 806,099¥124,332

Japanese government and local government bonds

857,801

734,672

123,129

Japanese corporate bonds

72,63071,427

1,203

33,416

13,796

19,619Equity securities
Others296,084

290,380

5,703

Subtotal

1,259,933

1,110,277

149,656

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

61,926

62,232(306)

Japanese government and local government bonds

46,05946,351(292)

Japanese corporate bonds

15,866

15,880

(13)

275

301

(25)

241,698

246,264(4,565)Equity securities
OthersSubtotal
Total

303,900

308,798(4,897)¥1,563,834¥1,419,076¥144,758

Note: As the unlisted stocks of ¥169 million (consolidated balance sheet amount) and investment in partnership of ¥12,653 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.

(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
There is no related information to be reported.

(7) Available-for-sale securities sold during the period
Millions of yen
2018
For the year ended March 31,

Japanese government and corporate bonds

Total gains
on salesSales

Total losses
on sales¥15,993¥ 89¥—

Japanese government and local government bonds

10,213

61—

Japanese corporate bonds

5,779

27

—

573

455

—

Others37,797

241

12

Total

¥54,364¥785¥12Equity securities(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, 2018.
“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, 2018:(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.

106

Sony Financial Holdings Inc. Annual Report 2018

(3) Other money held in trust (other than for trading, held-to-maturity or policy-reserve-matching)
Millions of yen
2018

Other money held in trust¥291,582

Acquisition
cost¥253,030

Difference

Items whose
consolidatedbalance sheet
amount does notexceed acquisition cost

¥38,552¥—¥38,552

Financial Section

As of March 31,

Consolidatedbalance sheet
amountItems whose
consolidatedbalance sheet
amount exceeds
acquisition cost

Notes: 1. The amount of jointly invested monetary trusts that is included in the table above as of March 31, 2018 is ¥40 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, 2018.
“Material decline” is indicated when the fair value declines by 30% or more from the acquisition cost.

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
2018
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¥13,461¥13,461¥(66)

Floating-rate receivable/Fixed-rate payable

13,461

13,461

66

66

—

—

¥—

¥—

Total

¥(66)

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 the discounted cash flow and the price indicated by a financial institution.

2) Currency derivatives

Millions of yen
2018
Notional
Notional amountamount total
over 1 year

As of March 31,

Over-the-counter transactions

Forward foreign exchanges

Valuation gains(losses)

Fair valueSold¥220,252¥—¥5,927

Bought153,241

—

495

495

Foreign exchange margintransactions

Sold

62,635

—

2,480

2,480

Bought21,987

—

1,020

1,020

Currency options

Sold

156

—

(1)

0

Bought

206

—

1

0

Bought14,216

—

(325)

(325)

¥9,600¥9,600Currency forward contracts
Total

—

—

¥5,927

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 measured using the discounted cash flow and option pricing models.

3) Stock derivatives

Millions of yen
2018
Notional
Notional amountamount total
over 1 year

As of March 31,

ListedTotal

Stock index futures

Sold

Fair value

Valuation gains(losses)¥106,875

¥—

¥786

¥786

—

—

¥786

¥786

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.

Sony Financial Holdings Inc. Annual Report 2018107

(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,

2018

Hedge accounting

Hedging instrument

Deferred hedge accounting

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

Fair value hedge accounting

Notional
amount total

Notional amountover 1 year

Deposits¥103,000¥103,000

Available-for-salesecurities (bonds)

268,367

241,415(12,300)——¥(12,169)

Hedged item

Fair value¥

130

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

Total

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 the discounted cash flow and other methods.

2) Currency derivatives

Millions of yen

As of March 31,

2018

Hedge accounting

Hedging instrument

Hedged item

Fair value hedge accounting

Currency swaps

Available-for-salesecurities (bonds)

Total

Notional
amount total

Notional amountover 1 year

¥19,200¥14,000¥(687)——¥(687)

Fair value

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

20. Information about retirement benefit obligations as of March 31, 2018:(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,

Balance at the beginning of the period of retirement benefit obligations

2018¥42,567

Service cost

4,768Interest cost102

Net actuarial gain arising during the period
Retirement benefits paid

321
(2,604)

Prior service cost arising during the period
Balance at the end of the period of retirement benefit obligations

67¥45,2222) 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
Expected return on plan assets
Net actuarial gain arising during the period
Employer contribution
Retirement benefits paid
Balance at the end of the period of plan assets

108Sony Financial Holdings Inc. Annual Report 20182018

¥14,032
143
562
1,122
(258)
¥15,601

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,

2018¥11,938

Plan assets(15,601)

Financial Section

Funded retirement benefit obligations(3,663)
Unfunded retirement benefit obligations

33,416Net liabilities and assets recorded on the consolidated balance sheets

29,753Net defined benefit liability

33,179Net defined benefit asset(3,426)Net liabilities and assets recorded on the consolidated balance sheets¥29,753

4) Components and amounts of retirement benefit expenses
Millions of yen
For the year ended March 31,

2018

Service cost

¥4,768Interest cost

102

Expected return on plan assets(143)

Amortization of net actuarial gain

909

Amortization of prior service cost

67

Others62

Retirement benefit expenses related to defined benefit plans¥5,765

Note: SFH includes retirement benefit expenses in “Others” based on the simplified method.

5) Remeasurements of defined benefit plans (before tax deductions)

Millions of yen

For the year ended March 31,

2018

Net actuarial gain

¥1,150Total¥1,1506) Accumulated remeasurements of defined benefit plans (before tax deductions)

Millions of yen

As of March 31,

2018

Unrecognized net actuarial gain¥(2,724)

Total¥(2,724)

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,

%
2018

Bonds

68

Equity securities

28

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, 2018
Discount rate
0.2%–0.7%
Long-term rate of expected return on plan assets
1.0%–2.4%

Sony Financial Holdings Inc. Annual Report 2018

109

9) Reconciliation of beginning and ending balances of net defined benefit liability of the plan based on the simplified method
Millions of yen
For the year ended March 31,

2018

Balance at the beginning of the period of net defined benefit liability
Retirement benefit expenses
Retirement benefits paid
Contribution to the plan
OthersBalance at the end of the period of net defined benefit liability

¥111
12
(3)
(4)
16
¥132

(3) Defined contribution plans
The amount of contribution required for defined contribution plans by the Companies was ¥332 million.

21. Information on stock options, etc., as of March 31, 2018:(1) Expenses and line items associated with stock options, etc.
Operating expenses, etc.

¥94 million(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

4 executive directors of SFH

Number of stock options granted
by type of share (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/sheserves 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 orafter the date of 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 not part) of the stockacquisition rights held by him/her only during the period from the day immediately following thedate on which such holder loses any and all of his/her office(s) as executive director of SFH up toten days (in the event that the tenth day is a holiday, the following business day) thereafter.

Category and number of eligible recipients

3 executive directors of SFH
7 executive directors of SFH subsidiaries

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

Common stock 41,700 shares

Grant dateAugust 7, 2017

Vesting conditions

Options rights are to be vested upon grant.
However, if the recipient loses the position of executive director of the Company and its subsidiaries prior to the Ordinary General Meeting of Shareholders in 2018, 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 2017 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 date of the recipient losing his/her position, and is cancelled.

Eligible period of service

From June 21, 2017 to the date of the Ordinary General Meeting of Shareholders in 2018

Exercise period

From August 8, 2017 to August 7, 2047
However, eligible recipients of stock acquisition rights may exercise all (but not part) of the stockacquisition rights held by him/her only during the period from the day immediately following thedate on which such holder loses any and all of his/her office(s) as executive director of SFH and its
subsidiaries up to ten days (in the event that the tenth day is a holiday, the following business day)thereafter.

The second series of stock acquisition rights of SFH

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

110

Sony Financial Holdings Inc. Annual Report 2018

2) Volume of stock options and their changes
Stock options that existed in the year ended March 31, 2018, are presented as follows, and have been converted and stated as
number of shares.
The first series of stockacquisition rights of SFH

Financial Section(i) Number of stock options

The second series of stockacquisition rights of SFH

Before vesting (shares)
At the end of the previous year——

Granted—41,700Lapsed——Vested—41,700

Number of unvested stock options——

After vesting (shares)
At the end of the previous year
VestedExercised
LapsedNumber of unexercised stock options(ii) Unit price information
Exercise price

52,900——41,70017,200———35,70041,700The first series of stockacquisition rights of SFH

The second series of stockacquisition rights of SFH¥1¥1

Average share price at the time of exercise¥1,779—Fairly assessed value on the grant date

¥1,236¥1,695(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, 2018 is as follows:
1) Assessment method used
Black-Scholes model2) Main basic values and their estimation method

The second series ofstock acquisition rights of SFH

Volatility of share price (*1)

33.735%

Expected remaining period (*2)

5.4 years

Expected dividend (*3)¥55/share

Risk-free rate (*4)(0.057%)(*1) Calculated based on the past share prices during the period corresponding to the expected remaining period of 5.4 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, 2017.
(*4) Calculated using the average compound yield of long-term JGB with the remaining period approximate to the expected remaining period of 5.4 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.

Sony Financial Holdings Inc. Annual Report 2018111

(5) Description of restricted stock compensation
The first series of restricted stock compensation of SFH

Categories and numbers of eligible recipients

3 executive directors of SFH
4 executive officers of SFH
7 executive directors of SFH subsidiaries
30 executive officers of SFH subsidiaries

Number of shares granted

27,513 shares of common stock

Grant dateAugust 7, 2017

Transfer restriction period

From August 7, 2017 to August 7, 2020

Cancellation conditions

On the condition that the recipient has maintained his/her position of executive director, etc., of
SFH continuously during the transfer restriction period, the transfer restriction shall be cancelled at
the expiration of the transfer restriction period.
If the recipient loses his/her position of executive director, etc., prior to the expiration of thetransfer restriction period for reasons that the Board of Directors of SFH deems justifiable, he/she
can cancel the transfer restriction for the number of allocated stock calculated by multiplying thenumber of allocated stock by the number of months he/she serves as executive director, etc.,from the month of the appointment of his/her respective position up to the month of losing his/her
position, and dividing the value by 12. SFH shall acquire the allocated stock not subject to thecancellation of the transfer restriction free of charge immediately after the cancellation.

Fairly assessed value on the grant date

¥2,02022. Information on tax effect accounting as of March 31, 2018:(1) Breakdown of major factors giving rise to deferred tax assets and deferred tax liabilities
Millions of yen
As of March 31,

2018

Deferred tax assets
Policy reserves and others¥38,672

Reserve for price fluctuations

13,478Net defined benefit liability

8,367

Write-down of securities

1,270

Tax loss carried forward

1,556

Depreciation and amortization

4,667

Net deferred losses on hedging instruments
OthersSubtotal of deferred tax assets

479
8,364
76,855

Valuation allowance(4,115)

Total deferred tax assets

72,740

Deferred tax liabilities
Net unrealized gains on available-for-sale securities(50,868)

Others(628)

Total deferred tax liabilities(51,497)

Net deferred tax assets (liabilities)¥21,242

Note: Net deferred tax assets for the year ended March 31, 2018 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 20182018

¥21,2420(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,

2018
Financial Section

Statutory effective tax rate

30.9

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

Increase (decrease) in valuation allowance

0.5

Others1.4

Effective income tax rate after application of tax effect accounting

30.4

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 15 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,

Balance at the beginning of the period

2018¥2,214

Increase due to purchase of tangible fixed assets

280

Decrease due to sales of tangible fixed assets(356)

Changes resulting from the passage of time

19

Decrease due to performance of asset retirement obligations(27)

Balance at the end of the period¥2,131

24. Fair value information on investment and rental property:

Some consolidated subsidiaries own rental office buildings in Tokyo and other areas. Income related to investment and rental
property and gains on disposal of fixed assets amounted to ¥5,705 million and ¥13,258 million, respectively, for the year ended
March 31, 2018. Below is the consolidated balance sheet amount, net of changes during the period, and the fair value at the endof the current period.
Millions of yen
For the year ended March 31,

2018

Consolidated balance sheet amount
Balance at the beginning of the period
Changes during the period
Balance at the end of the period
Fair value at the end of the period¥104,731(18,354)
86,376¥154,911

Notes: 1. The consolidated balance sheet amount is the acquisition cost less accumulated depreciation and impairment losses.
2. The main components of the increases during the period were transfer from the office used by some consolidated subsidiaries to the rental office(¥6,539 million) and new consolidation (¥308 million), while the decrease was mainly due to sale of real estate held (¥23,691 million).
3. The fair value at the end of the period is determined by a licensed third-party real estate appraisal agent.

25. Subsequent events are as follows:(Establishment of a subsidiary)
May 14, 2018 – The Board of Directors passed a comprehensive resolution to establish a subsidiary through a company split(simple incorporation-type company split).

Sony Financial Holdings Inc. Annual Report 2018113

(1) Objective
SFH will establish an investment subsidiary to invest in venture companies with strengths in Fintech and other fields in the interestof obtaining a financial return and promoting collaboration and cooperation between venture companies and individual companies
in the Sony Financial Group. As a result, SFH aims to enhance the Sony Financial Group’s existing businesses and create new
businesses.

(2) Overview of the subsidiary
Name:
Sony Financial Ventures Inc.
Head office:Chiyoda-ku, Tokyo
Business:
Venture capital operations and any other operations ancillary to or related to venture capital operations
Common stock:¥10 million
Issued shares:
10,000 shares
Established:
July 10, 2018
Shareholder composition: Sony Financial Holdings Inc. 100%

7 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, 2018, net income per share was ¥119.30.
The basis for this calculation for the year ended March 31, 2018 is profit attributable to owners of the parent of ¥51,895 million, the entire amount of which is applicable to common stock. The weighted-average number of shares outstanding for the year
ended March 31, 2018 was 434,979 thousand shares.
Diluted net income per share attributable to owners of the parent was ¥119.29. There was no adjustment to profit attributable toowners of the parent for a basis for calculation, and common stock reflecting the dilutive shares increased by 60 thousand shares.

8 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, 2018 are as follows:

Millions of yen

For the year ended March 31,

2018

Net unrealized gains (losses) on available-for-sale securities, net of taxes:
Gains (losses) arising during the period¥

Reclassification adjustments

838(2,092)Pre-tax amount(1,254)

Income tax benefit (expense)

396

Net unrealized gains (losses) on available-for-sale securities, net of taxes(857)

Net deferred gains (losses) on hedging instruments, net of taxes:
Gains (losses) arising during the period

1,025Reclassification adjustments(662)

Pre-tax amount

363

Income tax benefit (expense)(111)

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

251

Land revaluation, net of taxes:
Gains (losses) arising during the period(378)

Reclassification adjustments—

Pre-tax amount(378)

Income tax benefit (expense)

378

Land revaluation, net of taxes—

Remeasurements of defined benefit plans, net of taxes:
Gains (losses) arising during the period

240

Reclassification adjustments

909

Pre-tax amount

1,150

Income tax benefit (expense)(322)

Remeasurements of defined benefit plans, net of taxes
Total other comprehensive income

114

Sony Financial Holdings Inc. Annual Report 2018

827
¥

221

9 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
2018
Number ofshares as ofApril 1, 2017

For the year ended March 31,

Number ofshares increased
during the period

Number ofshares decreased
during the period

Number ofshares as ofMarch 31, 2018

Issued shares
Common stock
Total

435,000

27—

435,027

435,000

27—

435,027

52

—

17

35

52

—

17

35

Treasury stock
Common stock
Total

Notes: 1. The increase of 27 thousand shares in common stock (of shares outstanding) was due to allocation of restricted stock by resolution of the Boardof Directors.
2. The decrease of 17 thousand shares in common stock (of treasury stock) was due to exercise of subscription rights to shares (stock option).

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

97

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 21, 2017

Commonstock¥23,922
million¥55

March 31,2017

June 22,2017

Resolution

Type ofsharesAggregate
amountof dividends

Source ofdividends

Cashdividends
per share

Recorddate

Effective
date

Ordinary General Meeting of Shareholders
held on June 22, 2018

Commonstock¥26,099
millionRetainedearnings¥60

March 31,2018

June 25,2018(2) Dividends to be paid in the next fiscal year

10 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, 2018 is as follows:

Millions of yen
For the year ended March 31,

2018

Cash and due from banks¥327,633

Call loans of life insurance subsidiary

65,500Cash and cash equivalents¥393,133

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

Sony Financial Holdings Inc. Annual Report 2018115

MCEV Results for Sony Life as of March 31, 2018

1 MCEV ResultsSony Life’s MCEV as of March 31, 2018 increased ¥192.1 billion, due to the revision of the methodologies for the quantification of
insurance risk*, the addition of new business and other factors.
Billions of yen
As of March 31,

2017

2018

MCEV
Adjusted net worth
Value of existing business¥1,441.1
1,657.7(216.7)¥1,633.2
1,786.1(152.9)Change¥192.1
128.4
63.7* Sony Life revised the methodologies for the quantification of insurance risks to better reflect Sony Life’s risk profile as of March 31, 2018. Along with thisrevision, Sony Life also revised the cost of capital rate from 2.5% to 3.0%.

2 Adjusted Net WorthThe adjusted net worth as of March 31, 2018 increased ¥128.4 billion, primarily because of the increase in unrealized gain on
held-to-maturity securities caused by a decrease in interest rates. The breakdown of adjusted net worth is shown in the tablebelow.

Billions of yen

As of March 31,

2017

2018

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¥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)¥1,786.1
492.8
47.9
89.9
0.0
2.1
1,582.6
34.9
69.7
(2.4)
(23.2)(504.4)(3.7)

As of March 31,

2017

2018

Adjusted net worth
Free surplus
Required capital¥1,657.7
496.1
1,161.7¥1,786.1
926.1
860.0

Change¥128.4
19.2
1.9
7.5
(0.0)
0.9
137.1
8.9
(1.3)
1.1
(3.9)
(42.6)(0.4)
Billions of yen
Change¥128.4430.0(301.6)

Sony Life sets its required capital as the larger of the amount of Japanese regulatory minimum capital requirements 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, 2018 decreased due to the revision of the methodologies for the quantification of insurance risks.

3 Value of Existing Business
The value of existing business as of March 31, 2018 increased ¥63.7 billion, primarily due to a revision of the methodologies used
for the quantification of insurance risks and the addition of new business, which increased value, offset by the effect of a decrease
in interest rates, which lowered the value of existing business. The breakdown of the value of existing business is shown in thetable 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 20182017¥(216.7)350.0(145.2)(35.6)(385.9)2018¥(152.9)
316.7(136.0)(22.7)(310.9)Change¥ 63.7(33.3)
9.1
12.9
75.0

4 New Business Value
Financial Section

The new business value in the year ended March 31, 2018 increased ¥41.3 billion, primarily because of the increase in the overalllevel of interest rates throughout the year compared with the previous fiscal year. The breakdown of new business value is as follows:
Billions of yen
For the year ended March 31,

2017

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

Change2018¥ 29.1
68.3
(9.1)
(0.1)
(29.8)(0.2)¥ 70.4
106.3
(6.9)
(0.2)
(26.8)
(2.0)

¥41.3
37.9
2.3
(0.1)
3.1
(1.9)

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. The business margin in the year ended March 31, 2018
increased due to a change in the product mix and the increase in the overall level of interest rates throughout the year comparedwith the previous fiscal year.

Billions of yen

For the year ended March 31,

2017

2018

ChangeValue of new business
Present value of premium income
New business margin¥ 29.1
1,297.4
2.2%¥ 70.4
1,213.8
5.8%¥ 41.3(83.5)
3.6pt

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, 2018, from MCEV as of March 31, 2017.
Free surplus

Opening MCEV (MCEV as of March 31, 2017)
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, 2018)¥ 496.1(23.1)¥ 473.0
(3.2)
(1.4)
0.6
(8.8)
(66.1)
119.5
9.1
373.3
489.2
(36.1)—(453.1)RequiredcapitalValue ofexisting business¥1,161.7—¥1,161.7
1.1
(2.8)
1.2
(61.6)—(114.3)(9.1)(373.3)(558.8)257.1—(301.6)¥(216.7)—¥(216.7)
72.5
20.5
5.1
70.3
66.1
4.0
36.2
80.4
289.0
(225.3)—
63.7

Billions of yen
MCEV¥1,441.1(23.1)¥1,418.0
70.4
16.4
6.8
—
—
9.2
36.2
80.4
219.4
(4.2)
—
215.2

—

—

—

—

¥ 926.1¥ 860.0¥(152.9)¥1,633.2

Notes: 1. Expected yield used for the fiscal year ended March 31, 2018 was negative 0.147%.
2. Assumption changes primarily indicate the impact of changes in assumptions based on experience data for mortality and morbidity rates, lapse
and surrender rates, and operating expense rates. For the year ended March 31, 2018, the value of existing business increased primarily becauseof an improvement in mortality and morbidity.
3. Other operating variance represents the impact of improvements and corrections of the model used in calculating MCEV.
Sony Life revised the methodologies for the qualification of insurance risk to better reflect Sony Life’s risk profile. This revision increased the value ofexisting business ¥149.6 billion and decreased the required capital ¥413.6 billion. At the same time, Sony Life also revised the cost of capital rate from 2.5%
to 3.0%, and this revision decreased the value of existing business ¥53.0 billion and increased the required capital ¥51.8 billion.
In addition, Sony Life revised the shock factors on interest rates for ultra-long term durations where there is no market data, specifically, after the 40thyear for the Japanese yen rates and after the 30th year for the U.S. dollar rates that are used for the calculation of non-hedgeable interest rate risks. This
revision was made in consideration of the discussion on Insurance Capital Standard (ICS) being developed by the International Association of Insurance
Supervisors (IAIS) for the international capital standard. This revision is reflected in this line, which decreased the required capital by ¥58.4 billion.
Sony Life revised pricing for some of its products in February 2018 and April 2018. Renewal premium in the projection reflects those pricing revisions.

Sony Financial Holdings Inc. Annual Report 2018117

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

Assumption

Change in assumption

MCEV

Base

No change¥1,633.2

Interest rates

50bp decrease
50bp increase

Stock / Real estate market value

Changein amount¥Rate ofchange——1,552.6(80.6)(5%)

1,679.2

46.0

3%

Swap rates

1,656.3

23.1

1%

10% decrease

1,610.7(22.5)(1%)

Stock / Real estate implied volatility

25% increase

1,604.2(28.9)(2%)

Interest swaption implied volatility

25% increase

1,614.5(18.7)(1%)

Maintenance expenses

10% decrease

1,659.7

26.5

2%

Lapse and surrender rates

x 0.9

1,617.9(15.3)(1%)

Mortality rates

Death protection products x 0.95

1,699.3

66.1

4%

Third-sector and annuity products x 0.95

1,620.8(12.3)(1%)

Morbidity rates

x 0.95

1,698.6

65.5

4%Required capital

Regulatory minimum

1,652.1

18.9

1%

Foreign exchange rates

10% appreciation of JPY

1,613.5(19.7)(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

MCEV

Adjusted
net worth

Value ofexisting business

50bp decrease¥(80.6)¥ 830.8¥(911.4)

50bp increase

46.0(718.2)764.2

Stock / Real estate market value

10% decrease(22.5)(8.4)(14.0)

Foreign exchange rates

10% appreciation of JPY(19.7)

0.1(19.8)

8 Main Assumptions
Sony Life has used the JGB yields and U.S. Treasury yields as of the end of March 2018 as reference rates for the certaintyequivalent projections.
Sony Life has not added a liquidity premium on the risk-free rate as there are no products that are considered to havereasonably predictable and illiquid cash flows and would therefore be appropriate to apply a liquidity premium.
Regarding the extrapolation for ultra-long term risk-free rates where there is no market data, an ultimate forward rate wasapplied. More specifically, the ultimate forward rate was set at 3.5% and the last liquid point was set at 40 years (30 years for
USD) and, based on Smith-Wilson methodology, forward rates on or after 41 years (31 years for USD) were extrapolated toconverge to the ultimate forward rate over 20 years (30 years for USD). These parameters were set primarily in reference to thediscussion on ICS. 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 2018

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,

2017

U.S. dollar
2017

2018

2018

1

(0.25%)(0.13%)

1.02%

2.09%

5

(0.12%)(0.11%)

1.92%

2.56%

10

0.07%

0.04%

2.39%

2.74%

20

0.64%

0.53%

2.75%

2.85%

30

0.84%

0.74%

3.01%

2.97%

40

0.96%

0.89%

3.04%

3.02%

50

1.25%

1.19%

3.07%

3.05%

60

1.45%

1.40%

3.09%

3.08%

70

1.57%

1.53%

3.11%

3.09%

80

1.65%

1.61%

3.12%

3.10%

Financial Section

Term (in years)(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 2018. 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, 2018” (https://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
a clearer picture of its financial soundness based on economic value. The risk amount based on economic value* refers to thetotal amount of Sony Life’s risks, comprehensively examined by a market consistent approach, including insurance risk,
market-related risk and others. Sony Life’s risk amount based on economic value decreased ¥250.8 billion from March 31,
2017, to ¥729.7 billion, due mainly to the revision of the methodologies for the qualification of insurance risk. The breakdownof the risk amount is as follows:

Billions of yen

As of March 31,

2017

2018

Insurance risk (Note 1)¥ 937.5

Market-related risk

405.1

380.6

308.9

275.3

Operational risk

28.1

31.0

Counterparty risk

1.9

2.6

Variance effect(392.0)(182.0)¥ 980.6¥ 729.7

Of which, interest rate risk (Note 2)

Risk amount based on economic value¥ 497.5

Notes: 1. Insurance risk as of March 31, 2017 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.

For further details, please refer to MCEV Results for Sony Life in the Financial Data Book.
https://www.sonyfh.co.jp/en/financial_info/annualreport/

Sony Financial Holdings Inc. Annual Report 2018

119

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.

https://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 2018

Glossary (in Alphabetical Order)

Contingency reserveA

C

ALM (asset liability management)

Capital adequacy ratio

Life Non-life 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.

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.

Catastrophe reserve

Banking

Non-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.

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.

Assumed rate of expense

Combined ratio

Assumed mortality rate

LifeLife 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

The sum of a net loss ratio and net expense
ratio. Indicates an insurance company’s
profitability in the primary business 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 disabilityand ¥1.2 million for injury. Benefits are not paidfor vehicle or property damage.

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 exists, a method expressing theweighted average maturity of the cash flowin question is relatively widely used.

E
Earned/incurred (E.I.) loss ratio
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).

Sony Financial Holdings Inc. Annual Report 2018121

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.

F
Foreign currency-denominatedinsurance Life
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.

122Sony Financial Holdings Inc. Annual Report 2018

Foundation internal ratings-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

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.

I
Individual annuities

Life

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.

Investment crowd funding

Banking

Investment crowd funding is an arrangementthat uses the Internet to link venturecompanies’ fund-raising needs for theirprojects with investors’ money management
needs. Unlike donation-type and purchase-type
crowd funding, which do not involve monetary
return, investors can receive dividends.
Meanwhile, investment crowd funding has thefeature of investment products associated withrisks, whereby dividends may not be paid or
the investment value may fall below theamount invested due to the performance ofventure companies, etc.

L

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

Insurance premiums

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

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.

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-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

Non-life

Premiums received directly from policyholders(direct premiums written), adjusting forreinsurance premiums (subtracting reinsurance
premiums paid and adding direct reinsurance
premiums received).

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.

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.

Policyholders’ dividend reserve

Life

A reserve accumulated to fund dividend
payments to policyholders pursuant to theprovisions of the Insurance Business Act ofJapan.

Positive spread

Life

The amount by which the actual investment
income is higher than the expected investment
income from the assumed interest rate.

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.

O

R

Over-the-counter (OTC) sales of
insurance products at banks

Reference loss cost ratesLife

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.

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.”

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.

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.

Sony Financial Holdings Inc. Annual Report 2018123

Riders

Life

Standard Mortality Table

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 that
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
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.

124

Sony Financial Holdings Inc. Annual Report 2018

Life

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

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 (income 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.

https://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 2018125

Sony Financial Group