Profile

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

Corporate Vision

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

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

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

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

Foster an Open Corporate Culture
We believe that every employee’s contribution is important to develop our ideal of a financial services company.
We will thus foster an open corporate culture where employees can freely express their individualityand demonstrate their abilities to the fullest.

Disclaimer
This annual report contains statements concerning the current plans, expectations, strategies and beliefs of the Sony Financial Group. Any statements
contained herein that pertain to future operating performance and that are not historic facts are forward-looking statements. Forward-looking statements
may include—but are not limited to—words such as “believe,” “anticipate,” “plan,” “strategy,” “expect,” “assume,” “forecast,” “predict,” “propose,”“intend” and “possibility” that describe future operating activities, business performance, events or conditions. Forward-looking statements, whether
spoken or written, may also be included in other materials released to the public. These statements 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 and uncertainties, and actual business results may vary substantially from the forecasts expressed or implied in forward-looking
statements. Consequently, investors are cautioned not to place undue reliance on forward-looking statements. Sony Financial Group companies areunder no obligation to revise forward-looking statements 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 for sale or subscription of or solicitation or invitation of any offer to buy or subscribe to any
securities, nor shall it or any part of it form the basis of or be relied on in connection with any contract or commitment whatsoever in Japan or abroad.

• “Lifeplanner” is a registered trademark of Sony Life.
• “SURE” is a registered trademark of Sony Assurance.
• “MONEYKit” and “Foreign Currency World” are registered trademarks of Sony Bank. “Carbon Offset Bank” is a trademark of Sony Bank.
• In this annual report, currency amounts shown in the tables and graphs have been truncated to the nearest indicated unit.

Contents

Sony Financial Group’s Financial Highlights

2

Sony Financial Group’s Growth Trajectory

4

A Message from the President

6

Vision and Strategies

Today and Tomorrow

7Sony Financial Group’s Growth Strategies

18

Review of Operations

28
Segment Performance Highlights

29

Life Insurance Business

30

Non-life Insurance Business32

Banking Business

34

Fiscal 2013 Analysis of Operating Performance36

SFH (Consolidated)

37

Life Insurance Business

39

Non-life Insurance Business46

Banking Business

49

Contributions to Sustainable Development

55
Corporate GovernanceCorporate Social Responsibility

Executive Profiles

56

Basic Stance on Corporate Governance

60

Management System

62

Internal Control

65

Compliance

65

Risk Management

68

Internal Audit

70

Stance on Corporate Social Responsibility (CSR)

71

Activity Profiles

72

Environmental Protection Activities

79

Corporate Section

81
Corporate Data

82

Profiles of Group Companies

83

Stock Information

85

Financial Section

87
SFH Consolidated Financial Statements

88

MCEV Results for Sony Life as of March 31, 2014

116

Glossary

122

SFH’s Website Information

127

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

http://www.sonyfh.co.jp/en/financial_info/annualreport.html
Sony Financial Holdings Inc. Annual Report 20141

Sony Financial Group’s Financial Highlights

Sony Financial Holdings (Consolidated)

Millions of yen

For the years ended March 31,

Ordinary revenues
Ordinary profit
Net income

2009

2010

2011

2012

2013

2014

¥ 860,323
34,25330,722¥ 978,991
84,373
48,126¥1,002,201
76,86041,716¥1,078,070
74,62532,812¥1,259,041
79,25245,064¥1,319,766
76,13640,504—71,066

31,96360,37696,22544,794

5,313,677
204,897

6,001,088
269,439

6,597,140
294,877

7,241,414
347,800

8,096,164
435,4448,841,382
467,050

13.32%—

12.05%—

10.96%—

10.14%
1,380.3%

9.88%
1,520.6%

12.02%
1,563.8%¥ 765,910
32,40933,783¥ 881,798
80,09946,138¥ 900,091
73,17640,220¥ 967,400
69,436
31,426¥1,142,274
74,65942,444¥1,197,109
69,20537,0633,810,929
140,730
2,060.5%

4,286,540
191,3122,637.3%

4,723,332
215,387
2,900.1%

5,222,846
264,836
1,980.4%

5,952,750
342,333
2,281.8%

6,624,903
369,230
2,358.7%

Comprehensive income
As of March 31,

Total assets
Net assets
Consolidated capital adequacy ratio(Domestic criteria) (Note 2)
Consolidated solvency margin ratio (Note 3)

Sony Life (Non-consolidated)
For the years ended March 31,

Ordinary revenues
Ordinary profit
Net income
As of March 31,

Total assets
Net assets
Non-consolidated solvency margin ratio (Note 4)

Sony Assurance
For the years ended March 31,

Ordinary revenues
Ordinary profit
Net income (loss)¥

61,882
2,178(1,556)¥

68,174
2,565
1,604

¥

74,166
2,144
1,297

¥

80,096
2,859
1,299

¥

84,711
2,371
1,454

¥

89,864
3,003
1,664

As of March 31,

Total assets
Net assets
Non-consolidated solvency margin ratio (Note 4)

86,69813,678993.0%

98,340
15,482
1,018.5%

109,382
16,772981.4%

118,61218,009557.8%

127,421
19,934504.2%

142,714
21,418527.6%

Sony Bank (Non-consolidated)
For the years ended March 31,

Ordinary revenues
Ordinary profit
Net income (loss)¥

33,361
414
(710)

¥

30,500
2,930
1,646

¥

29,521
3,377
2,054

¥

30,075
4,033
2,340

¥

31,351
4,282
879

¥

33,3035,845
3,585

As of March 31,

Total assets
Net assets
Non-consolidated capital adequacy ratio(Domestic criteria) (Note 5)

1,411,956
46,264

1,612,186
58,989

1,761,830
59,971

1,890,503
62,7962,005,081
67,811

2,056,704
72,77413.37%

12.09%

10.84%

11.58%

11.98%

11.72%

Notes: 1. All figures have been truncated to the nearest million yen.
2. SFH has calculated the consolidated capital adequacy ratio (domestic criteria) based on formulas stipulated in FSA Notification No. 20 (2006), which isbased on Article 52-25 of the Banking Act of Japan. Calculations do not include Sony Life, Sony Life Insurance (Philippines), Sony Assurance, AEGON Sony
Life Insurance, or SA Reinsurance within the scope of consolidation until March 31, 2012. From March 31, 2013, the scope of consolidation for calculation
purposes does not include Sony Life, Sony Assurance, AEGON Sony Life Insurance or SA Reinsurance. SFH applied FSA Notification No. 79 (2008) until
March 31, 2012, and applied FSA Notification No. 56 (2012) on March 31, 2013. From March 31, 2014, SFH applied FSA Notification No. 6 (2013) and
FSA Notification No. 7 (2014).
3. SFH has calculated the consolidated solvency margin ratio based on the stipulations of Article 210, Paragraph 11-3 and Paragraph 11-4 of the Ordinanceof Enforcement of the Insurance Business Act of Japan, and FSA Notification No. 23 (2011).
4. Sony Life and Sony Assurance have applied the previous standards to the calculation of the non-consolidated solvency margin ratio until March 31, 2011,
while applying the current standards from March 31, 2012.
5. Sony Bank has calculated the non-consolidated capital adequacy ratio (domestic criteria) based on FSA Notification No. 19 (2006), which establishes standards based on Article 14-2 of the Banking Act of Japan for determining the capital adequacy of a bank in light of the assets held by the bank. Until March
31, 2012, the Bank applied FSA Notification No. 79 (2008), and applied FSA Notification No. 56 (2012) on March 31, 2013. From March 31, 2014, the Bank
applied FSA Notification No. 6 (2013) and FSA Notification No. 7 (2014).

2

Sony Financial Holdings Inc. Annual Report 2014

Sony Financial Holdings (Consolidated)
Ordinary revenues

Ordinary profit

Billions of yen

1,319.7

1,500

Net income

Total assets

Billions of yen

Billions of yen

Billions of yen

100

100

10,000

80

8,000

1,200

80

900

60

76.1

60

8,841.3

6,000

40.5
600

40

40

4,000

300

20

20

2,000

0

10

11

12

13

0

14

For the years ended March 31,

10

11

12

13

0

14

10

11

12

13

0

14

For the years ended March 31,

For the years ended March 31,

Sony Life

Sony AssuranceSony Bank

Non-consolidated solvency margin ratio

Non-consolidated solvency margin ratio

Non-consolidated capital adequacy ratio(Domestic criteria)

10

11

12

13

14

As of March 31,

Financial Soundness Indicators(As of March 31,)

%

%

%

3,000

1,000

15.0

2,400

800

12.0

1,800

600

1,200

400

6.0

600

200

3.0

2,358.7%

0

11

12

13

14

11.72%

0527.6%

11

12

13

9.0

0

14

10

11

12

13

14

* In the graphs above, Sony Life and Sony Assurance have calculated non-consolidated solvency margin ratios based on
the current standards, which were applied from March 31, 2012.
* Sony Bank has calculated its non-consolidated capital adequacy ratio (domestic criteria) based on FSA Notification No.
19 (2006), which establishes standards based on Article 14-2 of the Banking Act of Japan for determining the capital adequacy of a bank in light of the assets held by the bank. Until March 31, 2012, the Bank applied FSA Notification No. 79(2008), and on March 31, 2013, the Bank applied FSA Notification No. 56 (2012). From March 31, 2014, the Bank applies
FSA Notification No. 6 (2013) and FSA Notification No. 7 (2014).
Credit Ratings(As of July 1, 2014)

Sony Financial
Holdings

Sony Life

Sony Bank

Rating and Investment
Information (R&I)

Issuer rating

Insurance claims
paying ability

Japan Credit Rating
Agency (JCR)

Standard & Poor’s (S&P)

Moody’s Investors Service(Moody’s)AA–AA

Ability to pay
insurance claims

Long-term issuer
ratingfinancialfinancial
AA Insurer
AA– Insurance
Aa3
strength rating
strength ratingA+
AA– Short-term counterparty
A-1
credit rating
Long-term counterparty
credit rating

Sony Financial Holdings Inc. Annual Report 20143

Sony Financial Group’s Growth TrajectorySony Life, Sony Assurance and Sony Bank—the core companies of the Sony Financial
Group—have steadily expanded business volume through highly original business models.

Sony Life
1970s

Aug. 1979 Sony Prudential Life Insurance Co., Ltd., estab-

1980s

Apr. 1981 Sony Prudential Life Insurance commences

lished (currently Sony Life)
operations with launch of Lifeplanner system
Jul.

1987 Sony Prudential Life Insurance agrees toterminate joint venture

1990s

Apr. 1991 Changes its name to Sony Life Insurance Co., Ltd.
Aug. 1998 Sony Life establishes Sony Life Insurance(Philippines) Corporation as a wholly owned
subsidiary in the Philippines

2000s

Sony Assurance
Jun. 1998 Sony Insurance Planning Co., Ltd., established(currently Sony Assurance)
Sep. 1999 Sony Insurance Planning changes name to Sony

Assurance Inc.
Sony Assurance launches sales of automobile
insurance (over the Internet in September and bytelephone in October)Jun. 2002 Sony Assurance launches sales of SURE medical

and cancer insurance
Dec. 2004 Sony Life’s Lifeplanners

begin to accept
mortgage loan
applications as agentsof Sony Bank

Oct. 2004 Sony Assurance debuts long-term fire insurance tocustomers taking out mortgage loans from SonyBank

Oct. 2006 Sony Life completes Sony Corporation’s head

office building, Sony City
Aug. 2007 Sony Life establishes AEGON Sony Life PlanningCo., Ltd. (currently AEGON Sony Life Insurance)
Oct. 2008 Sony Life opens a representative office in Beijing(closed in July 2014)
Jul.
Aug.
Oct.

Dec.

2010s

2009 Sony Life opens a representative office in Taipei

AEGON Sony Life Planning changes name to
AEGON Sony Life Insurance Co., Ltd.
Sony Life establishes SA Reinsurance Ltd. in
British Bermuda as a reinsurance company
specializing in variable annuities
AEGON Sony Life Insurance commences
operations

Dec. 2012 Sony Life transfers business of Sony Life

Insurance (Philippines) to Paramount Life &General Insurance Corporation

4

Sony Financial Holdings Inc. Annual Report 2014

Jan. 2009 Sony Assurance offers pet insurance throughalliance with Anicom Insurance, Inc.

Group Structure (Three Main Subsidiaries)
Sony Financial Holdings

100% owned
Sony Life

100% owned
Sony Assurance

100% owned
Sony Bank

Sony Bank
2000s

Apr. 2001 Sony Bank Inc. (Sony Bank) established
Jun.

Sep.

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

Mar. 2002 Sony Bank begins handling mortgage loans

Sony Financial Holdings
Apr. 2004 Sony Financial Holdings Inc. (SFH) established

as a financial holding company

Jun. 2007 Sony Bank establishes Sony Bank Securities Inc.

(Sony Bank Securities) as a wholly owned
subsidiary

2010sOct. 2007 SFH is listed on the First Section of Tokyo Stock

Exchange

Jun. 2010 Sony Bank opens its first over-the-counterbranch—Housing Loan PlazaJul.

2011 Sony Bank acquires 57% equity interest in

SmartLink Network, Inc.

Apr. 2011 SFH conducts stock split and adopts share unit

systemAug. 2012 Sony Bank transfers all shares in Sony Bank Secu-

rities to Monex Group, with the aim of enhancing
financial products intermediary services bystrengthening its business alliance with Monex
Group

Nov. 2013 SFH turns Senior Enterprise Corporation into wholly

owned subsidiary, enters nursing care business
Apr. 2014 Sony Lifecare Inc. is established as a holding

company to oversee nursing care businessSony Financial Holdings Inc. Annual Report 2014

5

A Message from the President

We aim to achieve sustainable growth for the SonyFinancial Group through steady expansion of our threecore businesses.
Sony Financial Holdings marked its 10th anniversary in April
2014. Let me take this opportunity to express my deepest
gratitude to all of our stakeholders for these many years of
support and interest shown to the Sony Financial Group.
Since their earliest days, the three core businesses of
the Group—Sony Life, Sony Assurance and Sony Bank—
have maintained a high degree of financial soundness andaddressed diversifying market needs with customer-oriented
and convenient, high-quality financial products and services
through distinctive sales channels. Going forward, each corebusiness will strive to reinforce inherent excellence to underpin
sustained growth and establish a stronger presence inrespective financial sectors.

In fiscal 2013, our consolidated results were mixed, as
the Group delivered higher ordinary revenues but lower ordinary profit. In the life insurance business, new policy acquisition decreased year on year, reflecting revision to insurance
premium rates on some products following a reduction in thepolicy reserve discount rate, but policy amount in force continued to rise steadily. In the non-life insurance and banking
businesses, volume continued to expand as well.
The Sony Financial Group broadened its business portfoliowith its entry into the nursing care business in November 2013
and the establishment of a holding company in April 2014 tooversee associated operations. We aim to develop the nursing
care business into a fourth pillar of business, complementing
the existing three business segments, over the medium tolong term.
We will continue to expand business volume in each of theGroup’s businesses, and maintain a robust revenue base thatis impervious to changes in the operating environment. We
are also committed to enhancing shareholder returns, underpinned by stable revenue growth and a solid level of financial
soundness. Therefore, we raised our dividend payment for fiscal 2013 to ¥30 per share, up ¥5 from the previous fiscal year.
In addition, for fiscal 2014, we anticipate a dividend increase of¥10, to ¥40 per share.
We will lift customer satisfaction yet higher and broaden
our customer base by continuing in our quest to provide highquality services, which will become the fuel of sustainablegrowth for the Sony Financial Group. We will also work toenhance corporate value and contribute to the advancementof society as a whole.
July 2014

Katsumi Ihara
President, Representative Director

6Vision and Strategies

Vision and Strategies

Today andTomorrow
In this section, we describe where the Sony Financial Group is now—
its “Today”—and what is in store for the Group—its “Tomorrow.”

Sony Financial Holdings Inc. Annual Report 20147

Today and Tomorrow

Sony Financial Group

GrowthThe Sony Financial Group’s core companies, Sony Life,
Sony Assurance and Sony Bank, have continued to deliver
steady growth by leveraging their respective strengths.

Ordinary Revenues/Ordinary Profit

Gained customer loyalty throughinnovation in a mature market, which
led to sustainable growth

SFH consolidated
ordinary revenues

1,319.7¥

billion1,259.0

1,078.0
1,002.2

978.9

822.1
758.7

860.3

SFH consolidated
ordinary proﬁt

759.2

653.2
84.3
76.8

74.6

79.2

76.1

¥

billion

44.5
34.2
25.3
18.3
12.2

2005

2006

SFH establishedin April 2004

2007

2009

2010

Listed (First Section,
Tokyo Stock Exchange)in October 2007
Lehman Shock(For the years ended March 31,)

8

2008

Sony Financial Holdings Inc. Annual Report 2014

2011

2012

2013

2014

Changed to stable proﬁt-generating
structure less likely to be affected
by ﬁnancial market ﬂuctuations

Implemented asset liability management (ALM) review at Sony Life,and proﬁts increased substantiallyComposition by
Business Segment

Ordinary Revenues

Ordinary Profit(For the year ended
March 31, 2014)

Non-life
Banking BusinessInsurance 7% 3%
Business

Non-life
Insurance
Business 4%

Total Assets

Banking Business7%

Banking Business
23%

Life Insurance Business
90%

Life Insurance Business
89%

Vision and Strategies

Non-life
Insurance
Business
2%

Life Insurance Business75%

Total Assets/Net Assets

Expand asset scale by raising
the number of insurance policies
sold and balance of deposits

SFH consolidated
total assets¥

8,841.3
billion

8,096.1
7,241.4

SFH consolidated
net assets

6,597.1
6,001.0
5,313.6¥

4,977.4435.4

4,323.7

467.0
billion3,917.0
347.8

3,282.2
294.8
263.0

270.1

269.4

261.6
204.8

182.8

2005
SFH establishedin April 2004

2006

2007

2008

2009

2010

2011

2012

2013

2014

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

(As of March 31,)Sony Financial Holdings Inc. Annual Report 2014

9

2014

Life Insurance Business¥Sony Life

39.0

trillion

Total assets:¥5 trillion

37.7

36.0
34.7
33.4
32.5

Total assets:¥3 trillion

31.4
30.2

Sony Life (Non-consolidated)
29.0

Policy Amount in Force*

27.8

Policy amount in force is the total amount ofprotection provided by a life insurance company to individual policyholders.

26.2
24.7
23.4

Total assets:¥1 trillion

21.5

18.8

Changed name toSony Life Insurance

April 1981
Business commenced

August 1979
Sony Prudential Life InsuranceCo., Ltd. established

1980

0.04

0.2

1982

1985

Sony Life has achieved steady
growth, at about 4% a year,
against a backdrop ofa shrinking death-protection
insurance market trend
over the past 10 years.

10.9

3.9

0.7

1.9

1988

1991

1994

1997

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
* Total amount of individual life insurance and individual annuities(As of March 31,)

Main Products• Death-protection insurance• Medical insurance, educational endowment insurance, living benefit insurance, nursing careinsurance and others

Main Sales Channels• Lifeplanner sales employee
Accompany customers through life’s stages
with highly developed consultation skills• Partners (independent agencies)
Understand diverse customer insurance
purchasing styles to meet customer needs

10Sony Financial Holdings Inc. Annual Report 2014

Channel Composition

Lifeplanner
channel28%

Independent agent
channel72%* Annualized insurance premiums from new policies in fiscal
2013 (managerial accounting basis)

Strengths• Business expansion through tailor-made insurance design and sales approach and aftersales consultations based on life planning
What are the characteristics of • Excellent staff hired in line with stringent standards of recruitment.
the Lifeplanner sales employee? Skills developed through systemized training programs.
Vision and Strategies• Highly productive life insurance professionals.
• Full-commission payment structure rooted in entrepreneurial spirit.

A consultation led by a
Lifeplanner sales employee

What is a tailor-made approach
to insurance design and sales?

ony• An approach applied since Sony

What is an after-sales
consultation?

• Fine-tuned after-sales services that encompass a review of policyLife’s earliest days in businesss thatdelivers practical insurance products
roducts
perfectly suited to the needs of eachcustomer through consultations
ons based on life planning.
content paralleling changes in customers’ lifestyles and value
perceptions.

• Product composition centered on high-profit death-protection insuranceSony Life provides death-protection insurance policies to many customers with children, especially
young parents in their 30s who are most in need of coverage for “just in case,” and offers peace of mind
with regard to household finances in the event of the policyholder’s death.
FY2013
Annualized insurance
premiums(Policy amount in force)Sony Life

Industry Total

Individual annuities 2.4%
Medicalprotection,living benefit
protection andother products
24.0%

Individual annuities 27.6%
Death-protection
insurance,
endowment
insurance
73.6%

Medicalprotection,living benefit
protection andother products
22.7%

Death-protection
insurance,
endowment
insurance
49.7%

Source: Official disclosure documents of individual life insurers• ALM and asset management to match insurance liability characteristics to reduce interest
rate risk pertaining to liabilities of insurance policies with long-term maturities• Financial soundness to meet future capital requirements
Please refer to page 30 for details on the life insurance business.
Sony Financial Holdings Inc. Annual Report 201411

Non-life Insurance Business

2014

87.3

¥

Sony Assurance

Became No. 1 in direct
premiums written for automobile
insurance for 11 straight years amongmajor direct non-life insurers**

billion

82.5
78.3
72.8
67.0

Sony Assurance (Non-consolidated)

Direct Premiums Written

60.8t#FDBNF/PGPSUIFmSTUUJNFJOUFSNT
of direct premiums written for automobile
insurance among major direct non-life
insurers*
50.1
t-BVODIFETBMFTPG463&NFEJDBM
and cancer insurance

54.6

44.9

37.4
t$IBOHFEOBNFUP4POZ
Assurance Inc.
t#FHBOTBMFTPG
automobile insurance

30.3
23.6

June 1998
4POZ*OTVSBODF
1MBOOJOH$P -UE
established

16.2

7.5
1.3
1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

* Here, “major direct non-life insurers” refers to non-life insurers selling automobile insurance primarily via direct sales channels as of March 31, 2003.
** Here, “major direct non-life insurers” refers to non-life insurers selling automobile insurance primarily via direct sales channels as of March 31, 2013.

(For the years ended March 31,)

Main Products• Automobile insurance (risk-segmented)• SURE medical and cancer insurance

Strengths• High profitability, a unique aspect of a direct non-life insurer• Risk-segmented automobile insurance facilitates reasonable premium rates• Excellent accident response, with high-quality customer center and website services

Main Sales Channels• Internethone• Telephone
Please refer to page 32 for details on
the non-life insurance business.

12

Sony Financial Holdings Inc. Annual Report 2014

2014

Banking Business¥Sony Bank
Loan balance exceeded¥0.5 trillion

2.9
trillion

Vision and Strategies

Total assets¥2 trillion

2.8

2.6
2.4
Deposit balanceexceeded¥1 trillion

Sony Bank (Non-consolidated)

Retail Balance*

2.1

1.8

1.5

1.1
0.9
0.7
April 2001
Sony Bank Inc. established
Business commenced
in June

0.4

0.2
0.1
2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

* Sum of deposits, investment trusts and personal loan balances(As of March 31,)

Main Products• Deposits (yen, foreign currencies)• Mortgage loans• Investment trusts, foreign-currency margin trading and other services

Strengths• Low-cost structure unique to an Internet bank
• Lineup of highly convenient, high-quality products leveraging advantages of the Internet• Services ranked No. 1 for seven straight years in the financial institution customer
kingsatisfaction ranking*Main Sales Channels* Article in th
the January 25, 2014 issue of the Nihon Keizai Shimbun (Nikkei) newspaper• Internet
Please refer to page 34 for details on
the banking business.
Sony Financial Holdings Inc. Annual Report 201413

Today and Tomorrow

Sony Financial Group

Medium-term Business Plan

FY2016FY2014—

We aim for sustainable growth by positioning the period FY2014—FY2016 as a time to reinforce
our foundation for new stages of growth that will deliver dramatic advances over the next
10 years at each Group company.

Medium-term Corporate Strategies• Realize sustainable growth as a group by further enhancing
customer satisfaction• Maintain a robust revenue platform impervious to changes in theoperating environment• Enhance returns to shareholders, based on stable revenue growthand financial soundness

Cautionary note regarding medium-term business plan:
We apply a process of annual, rolling updates to the Sony Financial Group’s three-year medium-term business plan toensure measures remain relevant to prevailing business conditions. Consequently, the management strategies and management targets stated in these materials are not absolute and may be revised each year with the new fiscal year as thestarting point. Note that the management targets for fiscal 2016, ending March 31, 2017, assume the economic environment as of March 31, 2014.

14

Sony Financial Holdings Inc. Annual Report 2014

Medium-term Management Objectives
Vision and Strategies

1 Continue to steadily expand business volume in all business segmentsof the Group
Life Insurance

Resume expansion of the Lifeplanner channel, maintain growth of independent agent
channelNon-life Insurance Improve profitability and sustain growth in automobile insurance business, and focus on
medical insurance and new types of policies
Banking

Further expand the foreign currency and loan businesses

Nursing Care

Established nursing care holding company in April 2014 and making steady progress in thestart-up phase —Build into fourth pillar of business from a long-term perspective

2 Medium-term Management Targets
Results for FY2013

Targets for FY2016

Consolidated
ordinary profit¥76.1 billion¥ 86.0 billion

Consolidated
net income¥40.5 billion¥ 56.0 billion

Consolidated
adjusted ROE

14.2%

Approx.

8%** The consolidated adjusted ROE for fiscal 2013 increased dramatically year on year due to the impact of higher interest rates. Please note,however, that the consolidated adjusted ROE target for fiscal 2016 does not reflect changes in market conditions after fiscal 2014.
• Consolidated adjusted ROE = Consolidated adjusted profit / Consolidated adjusted capital
Consolidated adjusted profit is calculated as the sum of the following:
1) Sony Life: Amount of increase in market consistent embedded value (MCEV) during the fiscal year plus dividends paid
2) Sony Assurance: Net income plus provision for catastrophe reserve and provision for reserve for price fluctuations, in each case after taxes
3) Sony Bank: Net income
Consolidated adjusted capital is calculated as the sum of the following:
1) 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
2) Sony Assurance: Average amount of net assets plus the sum of catastrophe reserve and reserve for price fluctuations, in each case aftertaxes3) Sony Bank: Average of net assets during the term
Note: Sony Life discloses Market Consistent Embedded Value (“MCEV”). Sony Life’s MCEV is calculated in compliance with the European
Insurance Chief Financial Officers (CFOs) Forum Market Consistent Embedded Value Principles©** (“MCEV Principles”), the international
standard in disclosing MCEV published by the CFO Forum comprising CFOs from major insurance companies in Europe.
** Copyright© Stichting CFO Forum Foundation 2008

3 Enhance Returns to Shareholders: Consecutively higher dividends
each year between fiscal 2012 and fiscal 2014*
Continually increase returns to shareholders according to our policy to steadily increase dividends in line withrevenue growth over the medium to long term
* Dividend for fiscal 2014 is a forecast.

Sony Financial Holdings Inc. Annual Report 201415

Sony Financial Group

Group Companies
Medium-term Business Plan

FY2016FY2014—
Sony Life• Medium-term Business Strategies and Targets
Strengthen sales capabilitiesof the consulting channel• Rekindle growth by expanding scope of Lifeplanner channel• Develop independent agent channel to accurately grasp diverse customer needs

Gain further competitive
advantage• Strengthen operations further in the highly competitive death-protection
insurance segment• Make further progress on operational reforms

Ensure stable growth incorporate value• Steadily increase corporate value by capturing new policies, and sustain highfinancial soundness• Realize steady profit expansion through increased policy amount in force

Medium-term Targets for Fiscal 2016
Sony Life will continue to increase the policy amount in force to attain sustained growth in corporate value through expanding
the scope of its sales channels and thus improving productivity further.
Results for FY2013

Number of Lifeplanners sales employees

An increase of approx.
300 persons

Over

4,500

Policy amount in force(individual life insurance and annuities)¥ 39 trillion

CAGR of approx. 4%

Over ¥

MCEV¥ 1.2 trillion

ROEV of 7% to 8%

Over ¥¥ 67.2 billion

CAGR of approx. 5% with
FY2014 as starting point

Ordinary profit

16

4,216

Targets for FY2016

Sony Financial Holdings Inc. Annual Report 2014

43 trillion

1.4 trillion¥ 74.0 billion

Sony Assurance• Medium-term Business Strategies and Targets• Significant improvement in the loss ratio in FY2013• Will implement accurate and well-timed approaches to keep loss ratio fromrising and thereby ensure ongoing growth in profitability

Sustain growth and achieve
stable profits over the longterm

• Maintain a leading position in direct market for mainstay automobile insurance• Accelerate expansion into areas other than automobile insurance, and shift
away from a one-sided emphasis on automobile insurance

Maximize customer
satisfaction as driver of growth• Create the image of a brand that has the trust and loyal support of customers
through further enhanced quality of services

Vision and Strategies

Return to profitability anda stable profit status

Medium-term Targets for Fiscal 2016
Sony Assurance aims to achieve higher revenue and higher profit through topline expansion and further improvement in profitability.
Results for FY2013

Direct premiums written¥ 87.3 billion

Sum of two ratios:
Net expense ratio + Earned/Incurred (EI) loss ratio1
Ordinary profit
Adjusted ordinary profit2

Targets for FY2016¥ 100 billion

CAGR of approx. 5%

Sum of two ratios
93.8%
reduced to¥ 3.0 billion CAGR of approx. 12%¥ 4.2 billion CAGR of approx. 5%

93 %¥ 4.2 billion¥ 5.0 billion

Approx.

1

Covers all types of policies
Net expense ratio = Expenses related to underwriting / Net premiums written
Earned/Incurred (EI) loss ratio = (Net losses paid + Provision for reserve for outstanding losses + Loss adjustment expenses) / Earned premiums (excluding
earthquake insurance and compulsory automobile liability insurance)
2
Adjusted ordinary profit = Ordinary profit + Provision for catastrophe reserve

Sony Bank• Medium-term Business Strategies and Targets
Increase business volume
spurred by high levels ofcustomer satisfaction• Refine and magnify the stellar reputation earned for customer support, productmarketability and website usability• Bolster recognition and steadily expand business volume

Reinforce strategic products• Enhance loans to individuals centering on mortgage loans• Further extend reach of foreign currency business

Ensure stable profit-generating
capacity• Secure ability to grow revenues and profits through appropriate ALM operations• Maintain a stable interest spread

Medium-term Targets for Fiscal 2016
Sony Bank aims to achieve a sustainable increase in business volume and build a robust revenue structure impervious to changes inthe economic environment by raising the added-value of the products and services it provides and by executing appropriate ALM.
Results for FY2013

Retail balance (Sum of yen deposits, foreign-currency
deposits, investment trusts and personal loan balances)
Gross operating profit (Sony Bank, consolidated)
Ordinary profit (Sony Bank, consolidated)¥ 2.9 trillion

Targets for FY2016
CAGR of approx.
9% or higher¥ 22.9 billion CAGR of over 6%¥ 5.6 billion CAGR of over 11%

3.8 trillion

Over ¥¥ 27.7 billion

7.0 billion

Over ¥

Sony Financial Holdings Inc. Annual Report 201417

Sony Financial Group’s Growth Strategies

In this section, Katsumi Ihara, SFH President
and Representative Director, explains theSony Financial Group’s medium-term strategies and targets and the strengths that will
enable the Group to achieve its goals.

Fiscal 2013 Consolidated Business
Performance
On a consolidated basis, ordinary revenues for fiscal 2013, the fiscal year ended
March 31, 2014, reached ¥1,319.7 billion, up 4.8% over the previous fiscal year,
owing to higher ordinary revenues from all three businesses: life insurance, non-life
insurance and banking. Ordinary profit decreased 3.9% year on year, to ¥76.1 billion,
as ordinary profit from the life insurance business fell, whereas ordinary profit fromthe non-life insurance and banking businesses rose. Net income fell 10.1%, to¥40.5 billion.
The cause of this decline in profits can be traced back to our core life insurance
business, where a constructive effect of a higher positive spread was offset by anincrease in provision to policy reserves in response to a revision in the policy reserve
discount rate as well as a provision for policy reserves for minimum guarantees forvariable life insurance. In this same business, new policy acquisition was down year
on year, reflecting a revision of premium rates on some products following therevision of the policy reserve discount rate, but policy amount in force continued
to increase steadily. Complementing this, the non-life insurance and banking businesses performed well, indicating an underlying growth trend for business overall
for the Group. In addition, Sony Life has paved the way for the Group’s sustained
growth down the road, marked by an upward trend in the number of Lifeplanner
sales employees.

18Sony Financial Holdings Inc. Annual Report 2014

Fiscal 2014 Outlook
Vision and Strategies

We expect a decline in consolidated ordinary revenues in fiscal 2014 because we do
not anticipate the same level of increases in lump-sum payment insurance premiums
and in investment income on separate account due to market recovery as recordedin the previous fiscal year. However, we do look forward to steady growth in policy
amount in force in the life insurance business. We anticipate the same level of ordinary profit in fiscal 2014. This is because we expect a higher provision for policy
reserves related to minimum guarantees for variable life insurance policies, as well as
an increase in operating expenses due to the consumption tax rate rise. Nevertheless, we expect net income to grow significantly year on year. This is because Sony
Life has changed its calculation policy on reserve for price fluctuations to accumulate
reserves up to required levels, effective from fiscal 2014. This policy change is theresult of asset liability management (ALM) initiatives whereby Sony Life has successfully reduced its risk assets.
As noted above, market conditions may create challenges but we look forward to
steady expansion of business volume.

Sony Financial Group’s Growth Strategies

1. Driving Growth in the Three Core Businesses
Sony Life, Sony Assurance and Sony Bank have set themselves apart fromtheir competitors by developing unique business models in respective industries. As a result, the three companies have provided their customers withcustomer-oriented and highly convenient financial products and services.
Going forward, the Sony Financial Group will continue to achieve sustained
growth as each company under the Group umbrella strengthens its inherent
competitive advantages, and further enhances each company’s presence inthe respective markets.

2. Promoting Groupwide Synergies
The Sony Financial Group believes that it will be able to enhance collaboration
among Group companies with respect to the sale of each company’s financial
products to individual customers, taking advantages of its diverse financial
functions (savings, investment, borrowing and protection). To date, we haveworked to promote collaboration within the Group, by, for example, having
Lifeplanner sales employees at Sony Life sell Sony Assurance’s automobile
insurance and Sony Bank’s mortgage loans. By continuing to strengthen andexpand collaboration among core businesses, SFH paves the way for eachcompany to cultivate new customers and raise business efficiency.

Sony Financial Holdings Inc. Annual Report 201419

3. Strengthening Presence in Recently Entered Business
Fields, Expanding into New Business Fields

SFH entered the nursing care business in November 2013 and establishedSony Lifecare Inc. in April 2014 as a holding company to oversee the Group’s
operations in this field. We aim to contribute to society by providing nursing
care services that offer our customers lives of dignity, fulfillment and security.
Going forward, we will continuously enhance the range of products andservices that satisfy the expectations of customers, centered on business fields
that are closely tied to our existing three businesses, and thereby steadily
expand business volume. In fields we have yet to enter, we will actively consider those opportunities with potential to contribute to the realization of theGroup’s vision, as we strive to diversify revenue sources and expand earnings.

Sony Financial Group’s Medium-term
Corporate Strategies (FY2014–FY2016)
The Sony Financial Group’s biggest strength lies in the high quality of the services
provided by Group companies. Enhancing quality and maintaining a high level of customer satisfaction are essential for growth. In our medium-term corporate strategy,
we will return to this basic principle, and set “enhancing service quality” as the corebusiness philosophy for Group companies. We will strengthen risk management and
ALM and maintain a robust revenue platform that is resistant to a continually changing business environment. In addition, we will improve shareholder returns on thebasis of stable revenue growth and a high level of financial soundness.
During the current medium-term business plan, we aim to break the record-highconsolidated ordinary profit. For consolidated net income, we expect to post a solidincrease, paralleling the aforementioned change in calculation policy on its reserve forprice fluctuations applied by Sony Life to accumulate reserves up to required levels,
which go into effect from fiscal 2014. We also expect a steady expansion in businessvolume at our three core subsidiaries reflected in the Medium-term targets for fiscal
2016 for each subsidiary. The consolidated adjusted ROE is influenced by Sony Life’srate of increase in market consistent embedded value (MCEV), because this company
contributes the most to Group profit. Although the consolidated adjusted ROE jumped
to 14.2% in fiscal 2013, reflecting a rise in interest rates at the end of the previous fiscal year, the target for fiscal 2016 (8%) is based on a steady increase in new businessvalue only and no market fluctuations.

20

Sony Financial Holdings Inc. Annual Report 2014

SFH’s Capital Strategy and Dividend Policy

Dividend Trend(Millions of yen)
For the years ended March 31,

Medium-term Target for the Dividend
Payout Ratio

Vision and Strategies

SFH aims for steady increases in dividends in line with earnings growth over the
medium to long term with sufficient internal reserves to ensure financial soundnessof Group companies and to invest in growing fields. Our medium-term target for thedividend payout ratio is 30% to 40% of consolidated net income.
Based on this policy and taking performance andother factors into account, we increased our annual dividend for fiscal 2013 by ¥5, to ¥30 per share. This was
the second consecutive year of increases since fiscal
2012. We expect to further increase the annual dividendby ¥10, to ¥40 per share in fiscal 2014. In determining
this amount, management took into account a comprehensive range of factors, including a significant increasein net income, which we expected because Sony Life haschanged its calculation policy on reserve for price fluctuations to accumulate reserves up to required levels, effective from fiscal 2014, while it had accumulated reserves inexcess of the required levels until the previous fiscal year.
This policy change is the result of asset liability management (ALM) initiatives whereby Sony Life has successfully
reduced its risk assets.
Going forward, we remain committed to enhancing
shareholder returns.

Dividend payout ratio

30%– 40%

35.5%
32.2%
26.5%

26.2%
21.2%

24.1%

20.9%

Total dividend
amount17,39913.6%

13,04910,875
8,700

6,525

6,525

6,525

Increased
dividend

Increased
dividend

Dividend pershare (Yen)

8,700

Increased
dividend

Increased
dividend(Forecast)

2008

2009

2010

2011

2012

2013

2014

2015

15

15

15

20

20

25

30

40
(Forecast)Sony Financial Holdings Inc. Annual Report 201421

Entry into Nursing Care Business
Given the advent of a super-aged society in Japan, in
April 2014, SFH established Sony Lifecare Inc., a holding
company that will oversee the Group’s operations in thenursing care business. Sony Lifecare will establish new
nursing care homes and promote strategic alliances,including capital ties, with other companies that operatenursing care homes to promote the business. From a
medium- to long-term perspective, we aim to grow thenursing care business as a fourth pillar of operations
complementing our existing three businesses of life insurance, non-life insurance and banking. Through our entry
into the nursing care business, we seek to become acorporate group that provides our customers with theservices they need to live fulfilled and secure lives, anda platform through which they can do so with dignity.

Summary of Japan’s Nursing Care Market
Advent of Super-Aged Society

The population of Japan reached 127.27 million as of December 1, 2013. The number of seniors over 65 years of age hit an all-time high of 32.07 million, comprising
25.2% of the demographic spectrum. By 2015, when the so-called baby-boomer
generation—born between 1947 and 1949—is 65 years old or older, the number ofseniors in Japan will rise to 33.95 million and then peak around 2042. The percentage
of elderly in Japan will trend downward after that, probably falling to 39.9% by 2060.
A super-aged society, unprecedented anywhere in the world, is dawning in Japan.
Nursing Care Services Market in Japan Is Growing

In Japan, a public long-term insurance system—for nursing care—was introduced in2000 to address the growing nursing care needs of an aging society. As of March 31,
2013, the number of people who have been certified as needing care, including thoserequiring support, had grown to 5.61 million. At present, people who qualify for longterm care certification are able to use a wide range of public care services at just 10%of the cost, in principle. The services include in-home services, such as home caregivers and nurses who make home visits to provide assistance; drop-in daycare services,whereby a certified person is driven to a nursing home for daycare and rehabilitation;and live-in services, typically paid retirement homes with long-term care services.
As the number of senior citizens rises, so does the aggregate amount of nursing
care insurance payouts, excluding the portion paid by users of the system. In the fiscal
2012, total benefits topped ¥8 trillion for the first time, nearly 2.5 times higher than thelevel at the system’s introduction. In addition, the number of private nursing care insurance policies in force has reached 2.94 million, which not only heralds a bigger nursing
care services market to serve but also highlights a potentially massive financial burden
and the inevitable need to revise the existing system.
Sources: “Population Estimates,” Statistics Bureau, Ministry of Internal Affairs and Communications; “Report Survey on Situation of Long-term Care Insurance Service” and materials
prepared by councils and committees, Ministry of Health, Labour and Welfare; andInsurance: Statistics of Life Insurance Business in Japan, by Hoken Kenkyujo (Insurance Research Institute)

22Sony Financial Holdings Inc. Annual Report 2014

Initiatives for Further Growth of Sony Life

Changes in the Number of Newly
Recruited Lifeplanner Sales Employees
and Office Managers

Reinforce recruitment of Lifeplanner sales employees and enhance
productivity

Vision and Strategies

Strengthen sales capabilitiesof the consulting channel

Sales through Lifeplanner sales employees, Sony Life’s core sales channel, aregrowing steadily, accounting for about 70% of all new policies. Focusing on further
enhancing quality, Sony Life has been promoting measures to strengthen its recruitment system, with an emphasis on introducing stricter recruitment standards, actively
promoting Lifeplanner sales employees to office managers who then take on the roleof recruiting new Lifeplanners, and enriching the content of training programs.
As a result, the number of Lifeplanner sales employees was 4,216 as of March
31, 2014, as the number of new recruits reached a 10-year high. Productivity of Lifeplanner sales employees steadily increased throughout the fiscal year. Going forward,
the company will continue to implement measures to expand the scale of the Lifeplanner sales channel.

Number of newly recruited
Lifeplanner sales employees

Number of ofﬁce managers

Number of newly recruited
Lifeplanner sales
439
employees(Number of persons)
For the years ended March 31,

Actively promoting more Lifeplanner
sales employees to ofﬁce managers

Stricter recruitment standards

2004

Changes in the Number of LifeplannerSales Employees and Productivity

2005

2006

2007

2008

2009

2010

Includes products of AEGON Sony Life Insurance
Excludes products of AEGON Sony Life Insurance

For the years ended March 31,

109
102
100

2012

2011

2014

101

(Index of annualized insurance
premiums from new policies*)

112
100

99

Number of Lifeplanner
sales employees**
Over

4,066

2013

Lifeplanner productivity

Lifeplanner productivity(Number of persons)

2011

4,121

4,133

2012

2013

4,500

4,216

2014

2017

* Productivity is indexed to March 31, 2011 = 100, calculated on the basis of annualized insurance
premiums from new policies (managerial accounting basis)** Figure includes the number of contracted Lifeplanner sales employees and those rehired on a ﬁxed-term
contract basis after retirement

Sony Financial Holdings Inc. Annual Report 201423

Develop independent agent channel
Insurance sales through Partners (independent agencies)
account for about 30% of all new policies at Sony Life,making this an important channel, second only to theLifeplanner sales channel. A notable change in theagency industry in fiscal 2013 was a request issued by
the Financial Services Agency, reflecting such market
changes as increasing diversification and size of insurance solicitation and sales channels, asking agencies toimplement measures for ensuring appropriate solicitationand sales processes. This will likely prompt members of
the industry to establish monitoring systems for theiragents, but the impact on Sony Life will probably be limited. Sony Life’s growth strategy for its independent agent
channel revolves around alliances with different types ofagencies, including shop-style independent agents, which
expand operations by extending their respective networks
over a nationwide area, agencies specializing in life insurance, run by sales experts, and regional or corporate independent agencies. Sony Life
will pursue further growth by steadily augmenting its reach to better meet diversifying
customer needs.

Gain further competitive
advantage

Further strengthen operations of death-protection insurance businessIn fiscal 2013, new policy amounts were down year on year, reflecting a revision to
insurance premium rates on some products following a change in the policy reserve
discount rate in April 2013. From fiscal 2014 onward, however, Sony Life is refocusing on its starting point, its earliest days in business, as it strives to rekindle growth innew policy amount. Toward this end, the company will implement measures toincrease recruitment of Lifeplanner sales employees, enhance training systems, revise
qualification and evaluation systems and augment its product lineup to better meet
diverse customer needs.

Operational reforms
Sony Life has been pursuing business process re-engineering in an effort to establish
a foundation that allows the company to effectively provide an extensive range ofhigh-quality products and services. As part of this effort, the company created a sales
platform for the smartphones that Lifeplanner sales employee carry around so that
customer information is, quite literally, at their fingertips when they get a customer
call. The company believes this system makes a smartphone equivalent to a call center, in terms of access to customer information, and will contribute to improvement inproductivity. Additionally, Sony Life has been rolling out paperless application procedures for new policies nationwide since last year, and branches throughout the country have now embraced this method. As a result, more than 90% of new policies soldthrough the Lifeplanner channel in fiscal 2013 went through a paperless application
process. Going forward, Sony Life will continue to promote operational reforms,
including presentation of application assessment results (underwriting conditions) tocustomers during face-to-face consultations, completing data-entry procedures on
the spot. The reforms also include paperless operations to eliminate maintenanceledgers, to significantly reduce processing time.

24

Sony Financial Holdings Inc. Annual Report 2014

Stable Growth in Corporate
Value

Sony Life’s basic policy on risk preference is to ensure sufficient solvency on an economic value basis and to realize stable and sustainable growth in corporate value by
increasing policies in force and actively underwriting insurance risk. In terms of asset
management, the company lessens the interest rate risk from insurance policy liabilities over the long term through a priority on investment in assets suited to the characteristics of insurance liabilities. Accordingly, the company strives to grow corporate
value created by the insurance business.
Sony Life’s market consistent embedded value (MCEV) was ¥1,221.3 billion as ofMarch 31, 2014, an increase of ¥156.6 billion from a year earlier.
The amount of risk on an economic value basis reached ¥664.3 billion (after tax)
on March 31, 2014, which is a sufficiently low level relative to MCEV (equivalent toowned capital on an economic value basis). Insurance risk accounted for the majorityof risk held, totaling ¥654.5 billion compared with ¥240.0 billion in market-related risk.
Insurance risk is inherent in the life insurance business as it increases corporate
value, and so it will increase along with the acquisition of new policies and growth inpolicies in force. In market-related risk, interest rate risk comprises the majority ataround ¥180.0 billion. Sony Life will continue to mitigate interest rate risk, so that fluctuations in financial markets due to interest rate changes and other factors do not
impair corporate value enhanced through new policy acquisition and other means.
Going forward, we will ensure sufficient solvency on an economic value basis, andrealize stable and sustainable growth in corporate value.

Financial Soundness Based on Economic Value+6.5%(Billions of yen)Over

ROEV ¥1.4
7‒8% trillion+68.7
1,064.7+85.2

Vision and Strategies

MCEVManagement policy on MCEV and economic value-based risk amount

+55.2

+13.5

Expected
New
Impact of business contribution
fromthe change
value
existing
in interest
business
rates, etc.

+2.7

1,221.3(Billions of yen)

MCEV/Risk amount: 184%
Counterparty risk

1,221.3

1.3

OthersOperational risk

26.3

664.3

(257.8)240.0 Market-related risk*

Variance
effect654.5 Insurance risk

2013

+156.6

As of March 31,

2014

2017

2014

As of March 31,

As of March 31,

As of March 31,

30-year rate 1.54%

+16bp

1.70%

40-year rate 1.64%

+14bp

1.78%

MCEV
Risk amount based on economic value (after tax)

* Interest rate risk amounted to ¥180.9 billion, excluding the varianceeffect within market-related risk.

Please refer to Review of Operations: Life Insurance Business on page 30.
Sony Financial Holdings Inc. Annual Report 201425

Initiatives for Further Growth of Sony AssuranceSony Assurance set improvement of the loss ratio for automobile insurance as a priority in fiscal 2013 and implemented various measures to achieve this goal, including
a revision of insurance premium rates and the introduction of a new industry-standard
bonus-malus system (non-fleet driver rating system). As a result, the loss ratio fell andprofitability was substantially improved. New insurance premium rates went into effectin April 2014, mainly as a way to absorb higher expenses following an upward revision to the consumption tax, effective April 1, 2014. Going forward, the company will
strive to implement accurate and well-timed approaches to keep the loss ratio fromrising and thus ensure ongoing increases in profitability.
Furthermore, Sony Assurance will sustain growth and secure a leading positionin the direct automobile insurance market. To maintain stable revenues over the longterm, the company will accelerate expansion into areas other than automobile insurance, such as medical insurance, and shift away from a one-sided emphasis on
automobile insurance. In addition, the company will endeavor to attract the interestof more customers, primarily by raising the quality of its accident response service
and policy processing service as well as by offering unique website/smartphone
applications.

Trends in Earned / Incurred Loss Ratio(automobile insurance)

74.3
73.4

(%)

70.9

For the years ended March 31,
69.3

67.1

2010

Achieve further
improvements
in proﬁtability
over the medium term
2011

2012

2013

Into the67% range

2014

2017

Earned /Incurred loss ratio = (Net losses paid + Provision for reserve for outstanding losses +Loss adjustment expenses) / Earned premiums¥

Trends in Adjusted Ordinary Profit(Billions of yen)
For the years ended March 31,

5.0 billion

4.2
3.9

Signiﬁcant
increase
2.1

0.3
2010

2011

2012

0.1
2013

2014

2017

Adjusted ordinary proﬁt = Ordinary proﬁt + Provision for catastrophe reserve

Please refer to Review of Operations: Non-life Insurance Business on page 32.

26

Sony Financial Holdings Inc. Annual Report 2014

Initiatives for Further Growth of Sony Bank
Vision and Strategies

Sony Bank has earned a stellar reputation from customers, substantiated by manyindustry honors, including the distinction of being No. 1 in customer satisfaction in theannual Nikkei ranking of financial institutions for a seventh consecutive year. The company will continue to steadily expand business volume by drawing on this high levelof customer satisfaction and by enhancing lineups of strategic products—mortgage
loans and foreign currency businesses. In loans for individuals, Sony Bank posted afavorable increase in its mortgage loan balance and pushed its yen deposit ratio close
to 70% in fiscal 2013. Going forward, the emphasis will be to reinforce and diversify
product features, a process that will include setting interest rates more closely alignedwith the creditworthiness of customers, enhancing service site content and information tools, and restarting the card loan business. In addition, the company will build
stronger ties with Sony Life’s Lifeplanner sales employees and forge alliances withreal estate agents to generate new lending transactions in the mortgage loan
segment, thereby growing the loan balance.
In foreign currency business, Sony Bank intends toexpand its foreign-currency deposit balance by strengthening its asset management function, namely the “savings and investment” facility of its “Foreign Currency
World,” as well as its “usage” facility. With this settlement
function of the “usage” facility, users can save foreign
currencies and spend them without converting them into
yen or use the company’s website-based service fortransferring foreign currency overseas.
Sony Bank will also strive to reinforce profitability.
Specifically, the company will continue with efforts toincrease business volume by enhancing the strategic
products described above, while boosting profitability byraising the proportion of foreign currency deposits within
total deposits by enhancing their settlement function. The
company will also strengthen ALM to sustain higher coregross operating profit by focusing on net interest income,the principal profit source of any bank.
* Article in the January 25, 2014 issue of the Nihon Keizai Shimbun(Nikkei) newspaper

Maintain Stable Interest Spread
0.94

0.92

0.93%

2012

2013

2014

(%)
For the years ended March 31,

0.89

2011

Please refer to Review of Operations: Banking Business on page 34.
Sony Financial Holdings Inc. Annual Report 201427

Review of Operations

28

Sony Financial Holdings Inc. Annual Report 2014

Segment Performance Highlights

Details: p30

Life Insurance Business
Ordinary revenues

Ordinary profit

Total assets

Billions of yen

Billions of yen

Billions of yen

1,500

100

7,500

6,619.3

1,196.6
1,200

80

900

60

4,500

600

40

3,000

300

20

1,500

10
882.0

11
900.3

12

13

967.5 1,142.3

141,196.6* For the years ended March 31,

0
Ordinary
proﬁt

10
79.7

11
72.1

12
68.1

13
72.7

67.2

Total
assets89.8

Billions of yen

Billions of yen

3.5

160

3.0

2.8

128

60

2.1

96

40

1.4

64

20

0.7

32

10

11

68.1

74.1

12
80.0

13
84.7

4,286.0 4,721.6

12

14

0.0

89.8

Ordinary
proﬁt* For the years ended March 31,

Ordinary revenues

5,219.9 5,948.1 6,619.3

10
2.5

11
2.1

12
2.8

13

14

2.3

3.0

142.7

0

10

11

12

13

14

Total
assets

98.3

109.3

118.6

127.4

142.7

* For the years ended March 31,* As of March 31,

Ordinary profit

Total assets

Billions of yen

Billions of yen

Billions of yen

50

7.0

2,500

2,068.7

5.6
35.7

40

5.6

2,000

30

4.2

1,500

20

2.8

1,000

10

1.4

500

Ordinary
revenues

10
30.5

11
29.5

14

Details: p34

Banking Business

013

Total assets

80

0

11

* As of March 31,

Ordinary profit

Billions of yen

Ordinary
revenues

10

Details: p32

Ordinary revenues

100

0

14

* For the years ended March 31,

Non-life Insurance Business

6,000

Review of Operations

0
Ordinary
revenues

67.2

12
32.5

* For the years ended March 31,

13
34.3

14

0

35.7

Ordinary
proﬁt

10
1.9

11
2.4

12
3.4

* For the years ended March 31,

13

14

3.9

5.6

0
Total
assets1011

1,613.0 1,761.0

12

13

1,897.6 2,012.6

14
2,068.7* As of March 31,

Note: Segment figures are before consolidation adjustments.
Sony Financial Holdings Inc. Annual Report 201429

Life Insurance Business
Market Conditions

Sony Life’s Responses

Japan’s life insurance market follows that of the United States
as the second largest in the world on an insurance premiumincome basis, with a global share of about 16%. Although thedomestic life insurance market has been contracting since thelate 1990s, industrywide policy amount in force for individuallife insurance stood at ¥857 trillion as of March 31, 2014, anddeath-protection insurance policies accounted for over 80%of that total at ¥729 trillion*, indicating that the life insurance
market remains enormous.
Looking at trends in sales of insurance products in Japan,
with the country’s population aging and its birthrate falling,
there has been an ongoing shift in protection needs from products offering death-protection insurance to individual annuities
and third sector insurance, such as medical and nursing careinsurance, spurring intense competition for customer attention.
Meanwhile, in fiscal 2013, life insurance companies revised
their insurance premium rates, particularly for premiums forsaving-type products, in line with the April 2013 reduction in
the policy reserve discount rate.
On the sales front, sales channels are becoming increasingly diversified. Notable developments include expansion insales of products over-the-counter (OTC) at banks and a wider
variety of sales agency shop formats and bigger scale of operations. In light of marketing format diversification, consumer
protection has become more important, prompting life insurance companies to restructure their systems for more effective
and fair solicitation and sales.

In this competitive environment, Sony Life has increased salesof insurance products, primarily death-protection insurance
products, driven mainly by measures to strengthen consultingbased sales through Lifeplanner sales employees and Partners(independent agencies). In fiscal 2013, new policy acquisition
was down year on year, a repercussion of demand frontloading that preceded upward revision of premium rates. But, policy amount in force continued to increase, largely due to alower lapse and surrender rate. As a result, Sony Life sat in theindustry’s No. 5 position at the end of March 2014 right behindJapan’s four major domestic life insurance companies, on apolicy amount in force basis**.
In terms of asset management, Sony Life continued toinvest in ultralong-term Japanese government bonds (JGBs)
in order to curtail rising interest rate risk associated with theongoing acquisition of new policies. As well, despite theimpact of falling ultralong-term interest rates due to the Bankof Japan’s unconventional monetary easing implemented in
April 2013, the company secured financial soundness by compiling an asset portfolio able to withstand market fluctuations.
Going forward, Sony Life will emphasize measures toreinforce its Lifeplanner sales employee and Partner sales
channels and drive growth in business volume by acquiring
new policies, while maintaining a high degree of financial
soundness. The company aims at further augmenting its
presence in Japan’s life insurance market.

Life Insurance Premium
Volume Share by Countrya.

2013
US$2.6 trilliona20%

b Japan16%c United Kingdom 9%hbga United States

f

e

d

c

* Source: “Summary of Life Insurance Business,” Life Insurance Associationof Japan website** Individual life insurance (as of March 31, 2014)

Industrywide Policy Amount in Force* and Sony Life’s Market Share
As of March 31,
Policy amount in force (left scale)Sony Life’s share (right scale)d France6%

e China6%

Trillions of yen

f Italy5%

1,500

g Germany4%h Others

34%

Source: Swiss Re. Sigma No. 3/2014, World Insurance in 2013,
updated June 2014%

Sony Life
Industry scale

1,200

4.0

900

3.0

600

2.0

300

1.0

0

04

05

06

07

08

09

10

11

12

13

14

* The above graph indicates individual life insurance.
Source: “Insurance,” by Hoken Kenkyujo (Insurance Research Institute), anddata ofﬁcially disclosed by individual life insurers

30Sony Financial Holdings Inc. Annual Report 2014

5.0

0

Review of Operations

Industry Position
New Policy AmountCalculated without adjusting for impact
of conversion

Policy Amount in Force

Rank

Company nameBillions of yen, %Results
Share

1
2
3
4
5
6
7
8
9
10

A
B
C
Sony Life
D
E
F
G
H
I

8,062.3
6,559.8
5,676.4
3,814.2
3,713.2
3,563.7
3,509.6
3,202.3
3,198.0
3,016.8

11.9
9.7
8.4
5.6
5.5
5.3
5.2
4.7
4.7
4.5

Billions of yen, %Rank

Company name

1
2
3
4
5
6
7
8
9
10

A
B
C
D
Sony Life
E
F
G
H
I

Results

Share

150,854.5
128,094.8
92,969.6
78,971.9
38,628.0
34,748.5
33,735.7
31,916.8
31,095.3
25,940.8

17.6
14.9
10.8
9.2
4.5
4.1
3.9
3.7
3.6
3.0

Notes: 1. Individual life insurance (as of March 31, 2014)
2. Japan Post Insurance: Existing policies at the time of privatization were transferred to the Management Organization for Postal Savings and Postal
Life Insurance. The above policy amount in force only takes into account the portion held by the new company.
Source: Data officially disclosed by individual life insurers

Recent Topics
January 2014:

Launch of Educational Endowment Insurance(Non-Participating)
In January 2014, Sony Life launched educational endowment
insurance (non-participating) to complement semi-participating
educational endowment insurance already offered, to meet theneeds of customers who wish to minimize the burden of insurance premiums as much as possible rather than secure potential
future returns.
Previously, Sony Life offered Type I and Type II products,
which provide funds primarily for post-secondary education.
With educational endowment insurance (non-participating),
the product menu gains a third type—Type III—insurance,
under which educational fund payments are divided and paideach year while the insured child is attending college or university. Sony Life also introduced a plan under which insurance
premiums can be paid over a short period (limited payment).
This enhanced selection of educational endowment insurance

products gives customers a more extensive range of plans tomeet their needs.
May 2014:

Launch of Specialty Endowment Insurance
In the past, fixed-policy-amount endowment insurance has
met companies’ needs to provide condolence money andretirement bonuses. However, many corporate systems forproviding retirement payment in the event of death stipulate
rising amounts as the number of years of service increases.
Consequently, with conventional endowment insurance a gap
can arise between the death policy amount and the actual
retirement bonus. So in May 2014, Sony Life commenced
selling specialty endowment insurance which will better meetcompanies’ needs to provide condolence money and retirement bonuses since the policy amount increases in proportion
to years elapsed in the latter half of the insurance period.

Sony Financial Holdings Inc. Annual Report 201431

Non-life Insurance Business
Market Conditions
Automobile insurance, positioned as Sony Assurance’s coreproduct category, accounts for the largest portion of Japan’s
non-life insurance industry and provides around half of theindustry’s insurance premium revenues. Japan’s automobile
insurance market is dominated by the major non-life insurers,
and approximately 90% of insurance premium revenues are
generated by policies sold mainly through those insurers’
nationwide insurance agencies.
In fiscal 2013, Japan’s automobile insurance premium revenues increased over the previous fiscal year, predominantly
because of continuous insurance premium rate increases
implemented by non-life insurers to mitigate worsening loss
ratios as well as steady sales of new automobiles. Profitability
improved dramatically, especially among major non-life
insurers, mainly because of a reduction in the number ofclaims related to the introduction of a new bonus-malus
system (non-fleet driver rating system).
Nevertheless, automobile ownership is projected to gradually decline over the medium and long term, primarily reflecting
a contracting population and a shift in interest away fromautomobiles among young people in recent years. Goingforward, there is also concern that revenues will deteriorate
due to higher claims paid and higher operating expenses
following upward revision to the consumption tax. Such factors have been shaping a challenging market environment.
Against this backdrop, direct non-life insurance companies(direct insurers) as a whole, including Sony Assurance, haveseen steady increases in insurance premium revenues aswell as growth in their share of the automobile insurance
market year after year. This growth has been driven by strong
customer support for lower insurance premium structurescompared with major non-life insurers, plus direct insurers’
heightened brand power and recognition as a result of vigorous advertising activities.
Going forward, the consumption tax increase and toughemployment and personal income conditions are likely tomake customers even more receptive to low prices, whichshould fuel continued expansion of direct insurers’ market
share. Conversely, the low-price strategies of direct insurers,
especially newcomers to the industry, and an upward trendin advertising expenses are issues that could lead to fiercer
competition among direct insurers.

Automobile Insurance Market and Market Share ofMajor Direct Non-life Insurers

Direct Premiums Written (Automobile Insurance) byMajor Direct Non-life Insurers

For the years ended March 31,

For the years ended March 31,

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

Billions of yen%

Billions of yen

4,000

8.0

80

3,000

6.0

60

2,000

4.0

40

1,000

2.0

20

0.0

0

A
F

B
G

C
H

D

E

Sony Assurance

0

04

05

06

07

08

09

10

11

12

13

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

32

Sony Financial Holdings Inc. Annual Report 2014

02

03

04

05

06

07

08

09

10

11

12

13

14

Note: The graph was prepared by Sony Assurance from data ofﬁciallydisclosed by individual non-life insurers. Amounts for ﬁscal 2013
are based on published data available up to June 25, 2014.

Review of Operations

Sony Assurance’s Responses
Since taking the No. 1 position* in direct premiums written in
the direct automobile insurance market in fiscal 2002, Sony
Assurance has established a strong presence at the forefrontof the domestic industry. In fiscal 2013, the company marked
a favorable increase in premium income, largely thanks to thesuccess of approaches such as expanded Internet-based
discounts for new policies. Revenue also benefited from alower loss ratio due to a revision in the premium rate, achieved
through the introduction of a new bonus-malus system(non-fleet driver rating system).
Going forward, Sony Assurance remains committed tothe pursuit of rationality, progressiveness and uniqueness—qualities for which the company is known—in the automobile
insurance business. At the same time, the company will takesteps to earn the trust and loyalty of more customers by raising the customer-oriented value of its products and services,not only for automobile insurance but also for medical
insurance.
* Based on the automobile insurance premiums of non-life insurers selling
automobile insurance directly, as of March 31, 2003 (according to researchby Sony Assurance)

Combined Ratio at Sony Assurance (Net Loss Ratio + Net Expense Ratio)
For the years ended March 31,
Net loss ratio
Net expense ratio
%
100

80

60

40

20

0

10

11

12

13

14

Net loss ratio = (Net losses paid + Loss adjustment expenses) / Net premiums
written
Net expense ratio = Total underwriting costs / Net premiums written

Recent Topics
August 2013:

April 2014:

Enhanced Policyholder Special Benefit

Revised Automobile Insurance Products

The Club Off Service policyholder special benefit is offeredto customers who have maintained automobile insurance ormedical insurance policies with Sony Assurance for at least ayear. These customers can receive VIP member service menus
at no charge.

Sony Assurance revised policy details and insurance premium
rates for automobile insurance policies commencing on orafter April 1, 2014.
April 2014:

Began Offering Policyholder App
This free smartphone application for policyholders makes
it very easy to access all Sony Assurance services from asmartphone.

Sony Financial Holdings Inc. Annual Report 201433

Banking Business
Market Conditions

Sony Bank’s Responses

In Japan, personal financial assets have climbed to approximately ¥1,600 trillion, the second highest level in the world.
Cash and deposits account for more than half of this amount,a high level compared with that of other developed countries.
Investment preferences and requirements in managing these
personal financial assets are diversifying, along with changing
lifestyles and evolving social needs not to mention the accelerated shift to an aging society, coupled with a low birthrate. As
a result, in recent years Internet banks have achieved growthon the back of their cost-competitiveness and convenience
to users.
Nonetheless, the deposit balance of Internet banks is stillquite small—less than 2% of Japan’s personal financial assets
market—so there is ample room for growth. In this market,
however, not only Internet banks, but also megabanks are
keen to make access to their services by Internet and smartphone all the more convenient, and the beginnings of anaggressive price offensive by regional banks will only add fuelto an intensely competitive market.

In this environment, Sony Bank has emphasized mortgage
loans and foreign currency business and expanded its business volume on the strength of its reputation for high customer
satisfaction.
Japan’s mortgage loan balance shifted favorably amid
wider demand for housing funds precipitated by expectationsof economic recovery and a rush of demand ahead of the consumption tax increase in April 2014. In contrast, on accountof the Bank of Japan’s quantitative and qualitative monetaryeasing, implemented in April 2013, interest rates are sluggish
and uncertain world circumstances have created an aversion
to risk. Consequently, competition among banks to trim theirmortgage loan interest rates is heating up. In this competitive
landscape, Sony Bank is steadily growing its mortgage loanbalance, and going forward, the company will maintain thistrend by improving the quality of its products and strengthening its sales channels.
In the foreign currency business, Sony Bank has steadilygrown its transaction volume by offering reasonable rates and

Growth Potential in the Retail Financial Services Market

Deposit Balance at Domestic
Internet Banks

For the year ended March 31, 2014efaTrillions of yen
a 29.9% Japan Post Bank

¥176.6b 26.9% City banks

159.0

c

d

1.6% Internet banks

9.4

d 28.2% Regional banks

166.9

e

7.8% Second tier regional banks

46.0

f

5.6% Trust banks and others

33.1

Billions of yen
10,000

As of March 31,
8,000

6,000

4,000

b
Internet banks ¥9.4 trillion

c

2,000

19.9% Sony Bank
¥1.8 trillion
80.1% Others¥7.6 trillion

Individual deposits
Approx. ¥591.3 trillion(as of March 31, 2014)

0

08

09

10

11

12

13

Sources: Prepared based on the Nikkin Report by The Japan Financial News Co.,
Ltd. and data ofﬁcially disclosed by various ﬁnancial institutions. Excludes
data for shinkin (credit union) banks, credit associations, labor credit
associations, agricultural cooperatives and certain other organizations

Sony Bank’s Mortgage
Loan BalanceMarket Share of Foreign Currency Deposits
As of March 31, 2014

Megabank A
17%

Others59%

Megabank B
10%
Megabank C
7%Billions of yen
1,200

As of March 31,
900

600

300

Sony Bank 7%
Source: Bank of Japan Statistics (individual deposit balances)

34

Sony Financial Holdings Inc. Annual Report 2014

0

11

12

13

14

14

Review of Operations

highly convenient services centered on foreign currency
deposits and foreign-exchange margin trading. The company’s
foreign-currency deposit balance represented 7% of thedomestic bank total, as of March 2014. Efforts will also be

directed into growing the customer base by enhancing convenience through stronger settlement functions.

Recent Topics
May 2013:

October 2013:just by entering the necessary information into an online form.
This process omits the need for customers to fill out a formand send it in with proof of identity, so opening an account ismade simple and fast. The associated client card is sent out
by registered mail, with delivery in as short a span as five days.

Begins handling automatic saving plans for foreigncurrency deposits

December 2013:

Sony Bank removes service charge on inward foreign
currency remittancesThis service draws funds from a yen deposit account to automatically purchase foreign currency on the day the customer
sets, with the foreign currency deposited into a foreign currency deposit account. Buying foreign currency from a fixed
yen amount on the recurring date of the customer’s choice
has the effect of leveling out the purchase rate on the foreign
currency. Customers using this service stagger the purchases’
timing and, with a selection of 12 currencies to pick from, theycan venture into diversified investment in multi currencies witha small investment beginning at ¥500.

Begins handling new Sony Card with enhanced credit
and settlement functions
In a tie-up with Sumitomo Mitsui Card Company, Sony Bank
began handling a new Sony Card with enhanced credit andsettlement functions instead of the earlier-version Sony Card.
Then in January 2014, to strengthen its settlement services,Sony Bank started a service with Sumitomo Mitsui Card
Company that enables Sumitomo Mitsui cardholders to
pay their credit card charges via their Sony Bank account.

December 2013:

Introduces paperless procedures to open bankaccounts
In response to customer demand for faster account-opening
procedures, Sony Bank introduced a service that allows customers to complete the account-opening application processSony Financial Holdings Inc. Annual Report 201435

Fiscal 2013 Analysis of Operating Performance(April 1, 2013 – March 31, 2014)36

Sony Financial Holdings Inc. Annual Report 2014

SFH (Consolidated)
Operating Results

Fiscal 2013 Analysis of Operating Performance

During fiscal 2013, the Japanese economy was characterized by gradual recovery, benefiting from the impact of government
measures to break free of deflationary influences as well as steady improvement in corporate performances, and positive signs on
the employment and income fronts. In financial markets, Japanese stock prices held steady following the introduction of qualitativeand quantitative monetary easing by the Bank of Japan, while in foreign exchange, the yen continued to depreciate. Long-term
domestic interest rates remained generally low after rising temporarily.
Against this backdrop, the Sony Financial Group provided high-quality services with the aim of becoming one of the mosthighly trusted financial services groups for its customers. The Group also implemented various measures to satisfy increasingly
diverse customer needs.
Consequently, Sony Financial Group posted the following consolidated results. Ordinary revenues rose 4.8% over the previous
fiscal year, to ¥1,319.7 billion, buoyed by solid contributions from the three core businesses: life insurance, non-life insurance
and banking. Ordinary profit decreased 3.9% year on year, to ¥76.1 billion, as good performances by the non-life insurance andbanking businesses were offset by lower results in the life insurance business.
The Group booked extraordinary losses of ¥9.5 billion for fiscal 2013, compared with losses of ¥9.2 billion a year earlier. The
primary reason for these losses stems from the provision of a reserve for price fluctuations.
After deducting these extraordinary losses as well as the provision for reserve for policyholders’ dividends and income taxes
from ordinary profit, net income decreased to ¥40.5 billion, down 10.1% year on year. This reflects the drop in ordinary profit aswell as the reversal of a portion of deferred tax assets paralleling promulgation of a revised tax law that ended the reduction in thecorporate tax rate for reconstruction a year ahead of schedule.
Segment performance was as follows:
Life Insurance Business Income from insurance premiums increased 3.8% year on year, to ¥960.9 billion, mainly due to
steady growth in policy amount in force. Investment income rose 6.1% year on year, to ¥212.3 billion, owing to higher interest
income and dividends on general account assets. As a result, ordinary revenues increased 4.8% year on year, to ¥1,196.6 billion.
Ordinary profit decreased 7.6% year on year, to ¥67.2 billion, mirroring a rise in provision to policy reserves resulting from a revision in the policy reserve discount rate as well as the provision to policy reserves for minimum guarantees for variable life insurance, which offset the constructive effect of a higher positive spread.
Non-life Insurance Business Net premiums written
increased 6.0% year on year, to ¥88.6 billion, primarily reflecting a higher number of policies in force for mainstay automobile insurance. Ordinary revenues mirrored that change, rising
6.1% year on year, to ¥89.8 billion. Ordinary profit jumped
26.7% year on year, to ¥3.0 billion, buoyed by higher ordinary
revenues as well as an improvement in the loss ratio achieved
mainly by a revision to premium rates for automobile insurance
and a lower automobile accident ratio owing to the introduction of a new bonus-malus system (non-fleet driver rating
system).
Banking Business Ordinary revenues increased 4.3%
year on year, to ¥35.7 billion, due to higher gains on foreignexchange transactions stemming from active foreign currency
trading by customers and higher interest income on loans led
by the growing balance of mortgage loans. Ordinary profit
surged 42.6% year on year, to ¥5.6 billion, primarily becauseof lower interest expenses and an improvement in net gains
on bond-dealing transactions in addition to enhanced ordinary
revenues.

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

Non-life insurance businessBanking business

900
600
300
0

Ordinary Profit
For the years ended March 31,
Life insurance business
Non-life insurance businessBanking business

10

11

12

13

14

11

12

13

14

Billions of yen
100
80
60
40
20
0

10

Sony Financial Holdings Inc. Annual Report 201437

Financial Position

Risk-Monitored Loans

As of March 31, 2014, total assets stood at ¥8,841.3 billion,
up 9.2% from March 31, 2013. Among major components
of assets, securities—mostly Japanese government bonds—
amounted to ¥6,822.1 billion, up 10.0% from March 31, 2013.
Loans came to ¥1,211.6 billion, up 8.6%, and monetary trusts
reached ¥325.8 billion, up 0.5%.
Total liabilities were ¥8,374.3 billion, up 9.3% from March
31, 2013. Major components of liabilities included policy
reserves and others of ¥6,263.3 billion, up 11.8%, anddeposits totaled ¥1,889.9 billion, up 1.8%.
Total net assets were ¥467.0 billion, up 7.3% from March
31, 2013. This included net unrealized gains on other securities, net of taxes, which increased ¥3.6 billion, to ¥92.0 billion.

As of March 31,

2013

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

¥ 150
1,534
—
2,220
¥3,905

As of March 31,

¥ 308
1,403
—
1,880
3,592

Consolidated Solvency Margin Ratio
As of March 31,(A) Total consolidated solvency margin
Total Assets

Millions of yen
2014

Millions of yen
2013
2014

¥996,999 ¥1,077,568

Common stock, etc.

340,543

367,877

Billions of yen

Reserve for price fluctuations

32,34441,657

10,000Contingency reserve

59,62563,7448,000

Catastrophe reserve

7,164

8,451

General reserve for possible loan losses

834

790

Net unrealized gains on other securities(before tax deductions) x 90% (100% if
losses)123,898

128,179

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

6,000
4,000
2,000

(2,012)75

Total amount of unrecognized net actuarial
gain and unrecognized prior service cost(before tax deductions)—(2,938)Cash Flow Status

Amount excluded from deferred tax assets——

Net cash provided by operating activities in fiscal 2013
amounted to ¥601.7 billion, mainly on higher contributions
from insurance premiums in the life insurance business, up¥20.8 billion from the previous fiscal year. The primary reason
for this rise was the slight increase in interest income on loans,including mortgages, despite lesser growth in deposits in thebanking business.
Net cash used in investing activities was ¥549.3 billion,
mostly comprising payments to acquire marketable securities
in the life insurance business, down ¥0.8 billion, nearly on apar with the previous fiscal year mainly because of an increase
in inflows from the sale and redemption of securities in thebanking business, which was partially offset by the increased
payments to acquire marketable securities in the life insurance
business.
Net cash used in financing activities was ¥13.5 billion, up¥8.5 billion from the previous fiscal year, mainly reflecting cash
dividends paid.
As a result of the above factors, cash and cash equivalents
at March 31, 2014, amounted to ¥240.2 billion, up ¥38.8
billion from March 31, 2013.

Unallotted portion of reserve for policyholders’dividends

464

174

Tax effect equivalent (after deducting amountexcluded)

70,60478,868Subordinated debt and surplus components
of premium reserve

371,470

400,056

0

10

11

12

13

14

Total solvency margin of small-amountshort-term insurers
Deductible items

—

—

7,938

9,369

(B) Total consolidated risk[{(R12+R52)+R8+R9}2+(R2+R3+R7)2]+R4+R6

131,126

137,808

Insurance risk (R1)

21,871

22,512

Ordinary insurance risk (R5)9,865

10,386

Major catastrophe risk (R6)

643

649

8,307

8,368

Third-sector insurance risk (R8)
Substantial insurance risk of small-amountshort-term insurers (R9)——Assumed interest rate risk (R2)

29,122

29,694

Minimum guarantee risk (R7)11,474

12,896

Asset management risk (R3)

80,67184,744

Business management risk (R4)

4,987

5,576

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

1,520.6%

1,563.8%

Notes: 1. The figures are calculated in accordance with the stipulations ofArticle 210, Paragraph 11-3 and Paragraph 11-4 of the Ordinanceof Enforcement of the Insurance Business Act of Japan, and FSA
Notification No. 23 (2011).
2. Minimum guarantee risk is calculated based on the standardized
approach.

38

Sony Financial Holdings Inc. Annual Report 2014

SFH’s consolidated operating results come from its life insurance, non-life insurance, andbanking businesses. Segment-by-segment reviews of fiscal 2013 operating performances are presented below.

Life Insurance Business
SFH’s life insurance business consists of Sony Life, a wholly owned subsidiary of SFH, and AEGON Sony Life Insurance and SA
Reinsurance—both equity-method affiliates 50% owned by Sony Life.
Sony Life accounts for nearly all of SFH’s life insurance business. A discussion of the non-consolidated operating performanceof Sony Life follows.

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

2013

New policy amountIndividual life insurance

2014

Change¥4,454.6 ¥3,889.3 (12.7%)
4,396.6 3,814.2 (13.2%)
57.9
73.2

75.0
63.9

29.6%
(12.7%)

18.3
62.0

13.4
53.3

(26.7%)(14.0%)

Billions of yen
5,000(Individual life insurance +Individual annuities)

4,000

60

For the years ended March 31,

3,000

45

2,000

30

1,000

15

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

10

10,000 policies
75

11

12

13

Fiscal 2013 Analysis of Operating Performance

Individual annuities
Annualized premiums from new policies
Medical protection, living benefit
protection and other products
Number of new policies (10,000 policies)

New Policy Amount and Numberof New Policies

014Main Points New policy amount decreased, primarily because of lower sales of family income insurance and interest rate-sensitive

whole life insurance, despite higher sales of U.S. dollar-denominated insurance and lump-sum payment endowment insurance.
Annualized premiums from new policies decreased due to lower sales of interest rate-sensitive whole life insurance and educational
endowment insurance, despite higher sales of U.S. dollar-denominated insurance and lump-sum payment endowment insurance.
Of which, sales of third-sector insurance declined, owing to a drop in sales of lump-sum payment whole life nursing care insurance.

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

2013

Policy amount in force¥37,779.0
Individual life insurance
37,366.3
Individual annuities
412.7
Annualized premiums frominsurance in force
669.9
Medical protection, living benefit
protection and other products
158.6
The number of policies in force(10,000 policies)
604.1

2014

Change¥39,095.0
38,628.0
466.9

3.5%
3.4%
13.1%

696.9

4.0%

167.0

5.3%

633.0

4.8%

Policy Amount in Force andNumber of Policies in Force

Trillions of yen
40

10,000 policies
800(Individual life insurance +Individual annuities)

30

600

20

400

10

200

For the years ended March 31,
Policy amount in force (left scale)
Number of policies in force(right scale)

0

10

11

12

13

14

0

Main Points Policy amount in force increased owing to the rise in new policies and a decline in the lapse and surrender rate. Sony
Life’s policy amount in force for individual life insurance and individual annuities has grown steadily for 33 years since the company
commenced operations.

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

2013

2014

ChangeWhole life insurance
18.3%
Term life insurance
65.6%
Endowment and educational endowment insurance, and individual annuities 7.4%
Variable life insurance
4.2%
Medical and other types of insurance
4.5%

16.4%
64.2%

(1.9pt)(1.4pt)

11.4%
6.1%
1.9%

4.0pt
1.9pt
(2.6pt)New Policy Amount by Type of Product(Individual life insurance +Individual annuities; Policy amount basis)

d
c

e
a

For the year ended March 31, 2014
a 16.4% Whole life insurance
b 64.2% Term life insurance
c 11.4% Endowment and educational endowment
insurance, and individual annuities
d 6.1% Variable life insurance
e 1.9% Medical and other types of insurancebMain Points Death-protection insurance products* accounted for about 90% of the new policy amount in fiscal 2013 (policy amount basis).
* Here, the new policy amount for death-protection insurance products represents the total new policy amount after deducting new policy amounts for endowment insurance and educational endowment insurance, individual annuities and medical insurance.
Sony Financial Holdings Inc. Annual Report 201439

Lapse and Surrender Rate
The lapse and surrender rate shows the ratio derived by dividing the amount of lapses and surrenders, not adjusted
for policy amount decreases, increases and reinstatements, by the policy amount in force at the beginning of the fiscal year.
For the years ended March 31,

2013

2014

ChangeLapse and Surrender Rate

Lapse and surrender rate

5.31%

4.61%

(0.70pt)(Individual life insurance +Individual annuities; Policy
amount basis)

Main Points The lapse and surrender rate (policy amount basis)
declined across all insurance products, centered on term life
insurance.

%
8.0

6.0

For the years ended March 31,
4.0

2.0

0.0

10

11

12

13

14

11

12

13

14

Income from Insurance Premiums and Insurance Claims and Other Payments
Billions of yen
ChangeIncome from Insurance Premiums Billions of yen
1,000

For the years ended March 31,

2013

2014

Income from insurance premiums¥925.8¥960.93.8%

Insurance claims and other payments

293.9

327.2

11.3%

Insurance claims

71.0

77.4

8.9%

Insurance benefits

46.8

55.5

18.6%

400
200

Annuity payments

9.5

10.7

12.5%

Surrender payments

161.8

178.4

10.2%

For the years ended March 31,

800
600

0

10

Main Points In fiscal 2013, income from insurance premiums received from policyholders increased as a result of steady growth inpolicy amount in force.

Asset Management
Sony Life’s investment policy is to identify the special 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 strives to properly control the inherent risk in insurance liabilities associated with fluctuating interest rates by investing in Japanese government bonds (JGBs) with long-term maturities. At the same time, the company
limits investment into risk assets, such as stocks.

Billions of yen

2014

2013
As of March 31,

AmountComposition

AmountComposition

Japanese government bonds¥4,561.0

84.4%¥5,190.0

86.7%

Japanese stocks

31.1

0.6%

33.2

0.6%

Foreign bonds

62.0

1.1%

79.8

1.3%

Foreign stocks and other securities

25.4

0.5%

26.9

0.4%

Monetary trusts

306.1

5.7%

305.3

5.1%

Policy loans

145.0

2.7%

154.1

2.6%

Real estate

70.3

1.3%

66.5

1.1%

Cash and deposits, call loans

103.3

1.9%

32.6

0.5%

Other

97.7

1.8%

95.6

1.6%

Total

¥5,402.1

100.0%¥5,984.3

100.0%

Main Points In fiscal 2013, Sony Life continued to invest in ultralong-term bonds with maturities of 20 years or more, leading to anincrease in the percentage of JGBs in the investment portfolio. The ratio of JGBs stood at 91.8% as of March 31, 2014, in realterms, reflecting the inclusion of bonds invested in monetary trusts. Going forward, Sony Life will continue to properly control theinterest rate risk associated with insurance liabilities by investing most of the new funds generated by income from insurance premiums and other sources in ultralong-term bonds.

40

Sony Financial Holdings Inc. Annual Report 2014

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

2013

2014

ChangeInterest Income and Dividends(39.8%)
15.2%

For the years ended March 31,

Billions of yen
125
100

12.5%
(25.9%)
79.9%
4.4%(5.6%)

75
50
25
0

10

11

12

13

14

Fiscal 2013 Analysis of Operating Performance

Cash and deposits¥
0 ¥0Interest and dividends from securities 92,167 106,187
Of which, Japanese governmentand corporate bonds
87,634
98,588
Of which, Japanese stocks
536
397
Of which, foreign securities
3,746
6,740
Loans
5,450
5,691
Real estate for rent
10,854
10,250Total, including other interest income
and dividends¥108,539 ¥122,160

12.5%

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 total solvency margin (numerator) used in calculating the solvency margin ratio (please see page 44).
*Unrealized gains and losses on securities list the total of net unrealized gains or losses on held-to-maturity bonds and available-for-sale securities with fair values.
The total of securities includes securities included in monetary trusts.
Billions of yen
As of March 31,

2013

2014

ChangeUnrealized gains on securities in the generalaccount¥675.0 ¥554.7 (120.3)
Unrealized gains on held-to-maturity securities 551.7 430.3 (121.4)
Net unrealized gains on available-for-salesecurities
123.2 124.3
1.0
Of which, unrealized gains on Japanese
government and corporate bonds
111.6 110.8 (0.8)
Of which, unrealized gains on Japanesestocks6.2
8.9
2.7
Of which, unrealized gains on foreign
securities
4.2
3.5 (0.7)

Unrealized Gains on Securities
As of March 31,

Billions of yen
750
600
450
300
150
0

10

11

12

13

14

Main Points Unrealized gains on securities in the general account decreased owing to a drop in unrealized gains on Japanese
government and corporate bonds.

Core Profit
Core 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. The
addition to core profit of capital gains and losses, including
gains and losses on the sale of securities, as well as one-timeBillions of yen
Core Profit
100
gains and losses, results in ordinary profit as listed in the stateFor the years ended March 31,
ments of income.
80

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

60
40
20
0

10

11

12

13

14

Sony Financial Holdings Inc. Annual Report 201441

Billions of yen
For the years ended March 31,

2013

2014

ChangeCore profit

¥80.0

¥72.3

(9.6%)

Main Points Core profit decreased year on year, as the constructive effect of a higher positive spread was offset by an increase inprovision to policy reserves resulting from a revision in the policy reserve discount rate as well as a provision of policy reserves forminimum guarantees for variable life insurance.

Breakdown of Ordinary Profit (Core Profit)
Millions of yen
For the years ended March 31,

Core profit (A)Capital gains
Income from monetary trusts, 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 monetary trusts, net
Losses on trading securities, net
Losses on sale of securities
Devaluation losses on securities
Losses on derivatives, net
Foreign exchange losses, net
Other capital losses
Net capital gains (losses) (B)Core profit plus net capital gains (losses) (A) + (B)Other one-time gains
Gains from reinsurance
Reversal of contingency reserve
Reversal of specific reserve for possible loan losses
OthersOther one-time losses
Losses from reinsurance
Provisions for contingency reserve
Provisions for specific reserve for possible loan losses
Provisions for reserve for loan losses from borrowers in specific foreign countries
Write-off of loans
OthersNet other one-time gains (losses) (C)Ordinary profit (A) + (B) + (C)

2013

2014

¥ 80,045
2,420
—
—
2,420
—
—
—
3,351
—
—
1,587
327
226
1,176
34

¥ 72,365
2,130
—
—
773
172
1,183
—
949
—
—
528
—
—
—
420
1,180

(931)
79,114
—
—
—
—
—
4,454
—
4,223
21
—
—
209
(4,454)¥ 74,659

73,545
—
—
—
—
—
4,340
—
4,110
6
—
—
223
(4,340)¥ 69,205

Notes: 1. Core profit for fiscal 2013 (A) includes income gains of ¥5,311 million in income from monetary trusts. Other capital losses include provision of policy
reserves of ¥227 million for currency market fluctuations of products denominated in foreign currencies and impairment losses of ¥193 million frominvestment partnership. “Others” of other one-time losses include provision of additional policy reserve of ¥223 million.
2. Core profit for fiscal 2012 (A) includes income gains of ¥5,259 million in income from monetary trusts. Other capital losses include impairment lossesof ¥34 million from investment partnership. “Others” of other one-time losses include provision of additional policy reserve of ¥209 million.

42

Sony Financial Holdings Inc. Annual Report 2014

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 the actual investment yield is higher than the average assumed interest rate and viceversa for a negative spread. A negative spread occurs due to deterioration in the investment environment or other reasons.
Billions of yen
For the years ended March 31,

2013

2014

ChangePositive spread

¥ 2.1

¥ 8.4

300.0%

Average assumed interest rate

2.27%

2.18%

(0.09pt)

Investment yield (general account)

2.12%

2.20%

0.08ptInvestment yield for core profit

2.31%

2.35%

0.04ptPositive Spread
For the years ended March 31,
Note: A negative ﬁgure for the positive
spread indicates a negative
spread.

Billions of yen
10
5
0
-5
-10
-15

to ¥8.4 billion, due mainly to a drop in the average assumed
interest rate and a higher investment yield for core profit.

Average Assumed Interest Rate,
Investment Yield for Core Profit

10

11

12

13

14

10

11

12

13

14

Fiscal 2013 Analysis of Operating Performance

Main Points Positive spread advanced ¥6.3 billion year on year,%
4.0

For the years ended March 31,
Investment yield for core proﬁt
Average assumed interest rate

3.0

2.0

1.0

0.0

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

1. Investment yield for core profit is the yield on general account policy reserves after
subtracting the provision for policyholder dividend reserve from the general accountinvestment 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

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

Ordinary revenues
Ordinary profit
Net income

2013

2014

Change¥1,142.2
74.6
42.4¥1,197.1
69.2
37.0

4.8%
(7.3%)(12.7%)

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

Billions of yen
80

60

40

20

Main Points

0

10

11

12

13

14

Ordinary Revenues: Ordinary revenues increased due mainly to higher income from insurance premiums related to steady growthin policy amount in force and also to higher interest income and dividends in the general account.
Ordinary Profit: Ordinary profit decreased as the constructive effect of a higher positive spread was offset by an increase in provision to policy reserves resulting from a revision in the policy reserve discount rate as well as a provision of policy reserves forminimum guarantees for variable life insurance.
Net Income: Net income fell due mainly to the drop in ordinary profit as well as a higher provision for reserve for price fluctuations
paralleling an increase in the balance of securities.

Sony Financial Holdings Inc. Annual Report 2014

43

Solvency Margin Ratio
The solvency margin ratio is an indicator of payment ability. Life insurers accumulate policy reserves to prepare for the payment of
future claims, allowing them to adequately respond to risks within a normally anticipated range. However, unforeseen events canoccur as a result of changes in the environment, including major disasters and substantial declines in the stock market. The solvency margin ratio is one measure used by regulatory authorities to determine whether an insurer has the ability to pay in responseto the risk of such unpredictable events.
As of March 31,

Solvency margin ratio

2013

2014

Change2,281.8%

2,358.7%

76.9ptSolvency Margin Ratio(Current standards)
As of March 31,

Main Points Sony Life’s solvency margin ratio was 2,358.7%, asof March 31, 2014, up 76.9 points from March 31, 2013,
remaining at a high level.

Note: Solvency margin ratios havebeen calculated using current
standards applied since
March 31, 2012.

%
3,000
2,400
1,800
1,200
600
0

11

12

13

14

Millions of yen
As of March 31,

2013

2014

(A) Total solvency margin¥ 872,502¥ 954,157

Common stock, etc.

252,363

274,027

Reserve for price fluctuations

32,26441,556

Contingency reserve

59,561

63,6710

0

114,602118,354(2,012)75

General reserve for possible loan losses
Net unrealized gains on other securities x 90% (100% if losses)
Net unrealized gains on real estate x 85% (100% if losses)
Amount excluded from deferred tax assets

–

–

464

174

Deferred tax assets

70,60478,868

Excess amount of policy reserves based on Zillmer method

372,561

400,056––(27,907)(20,626)–(2,000)76,47280,904

21,871

22,512

Unallotted portion of reserve for policyholders’ dividends

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

2

2

(R1+R8) +(R2+R3+R7) +R4

Insurance risk (R1)
Third-sector insurance risk (R8)

8,307

8,368

Assumed interest rate risk (R2)

29,05429,616

Minimum guarantee risk (R7)11,474

12,896

Asset management risk (R3)27,59230,023Business management risk (R4)

1,966

2,068

2,281.8%

2,358.7%(C) Solvency margin ratio [(A)/{(1/2)x(B)}] x 100

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

44

Sony Financial Holdings Inc. Annual Report 2014

Non-performing Assets
Risk-monitored Loans

Loans by Borrower Category
Millions of yen

As of March 31,

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

2013

¥—
—
—
—
¥—

Millions of yen

2014

As of March 31,

2013

¥—
—
—
—
¥—

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

¥

—
—
—
147,608¥147,608

2014

¥

—
—
—
156,815¥156,815

Fiscal 2013 Analysis of Operating Performance

Main 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 listed in the loans by borrower category are classified
as normal loans.

Sony Life’s loan balance was ¥154.2 billion as of March 31, 2014. As part of this balance, policy loans accounted for ¥154.1
billion and commercial loans* were ¥0.03 billion. Most of the loan balance consists of policy loans, which are limited to recoverable
surrender values.
Note: 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.

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 withJapan’s aging population and low birthrate. AEGON Sony Life Insurance sells individual variable annuity products which respondto customers’ needs to help save for retirement through Sony Life’s Lifeplanner channel and partner agencies, involving 19 partners including banks.**As of July 1, 2014

For the years ended March 31,

2013

2014

ChangeNumber of new policies

7,357

28,893292.7%¥ 51,175¥167,547

227.4%

10,232

38,221273.5%¥ 76,155¥236,482

210.5%

New policy amount (Millions of yen)
As of March 31,

Number of policies in force
Policy amount in force (Millions of yen)

Main Points In fiscal 2013, AEGON Sony Life Insurance marked its fifth year in business with dramatic year-on-year increases inoperating results.

Sony Financial Holdings Inc. Annual Report 201445

Non-life Insurance Business
SFH’s non-life insurance business is conducted by Sony Assurance, a wholly owned subsidiary of SFH.
Below is a discussion of the operating performance of Sony Assurance, which operates SFH’s non-life insurance business.

Policies in Force
10,000 policies
As of March 31,

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

2013

2014

155

Change161

Number of Policies in Force

10,000 policies(Automobile insurance +Medical and cancer insurance)

200

As of March 31,

150

4.0%

100

Main Points The number of polices in force steadily increased,
mainly for its mainstay automobile insurance.

50

0

10

11

12

13

14

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,

2013

2014

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

¥83.5
74.1
8.1

¥88.6
78.4
8.6

6.0%
5.8%
5.8%

1.3

1.5

16.1%

Net Premiums Written
For the years ended March 31,
Voluntary automobile insurance
Personal accident insurance
Others (Fire + Marine +Compulsory automobile liability)

Billions of yen
100
80
60
40

* Including medical and cancer insurance
Main Points Net premiums written increased in line with steady20

growth in the number of policies in force, centered on mainstay
automobile insurance.

0

10

11

12

13

14

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,

2013

Net loss ratio

63.2% 59.3% (3.9pt)

2014

ChangeNet loss ratio for automobile insurance

66.6% 62.4% (4.3pt)

Net Loss Ratio
For the years ended March 31,

%
80

60

Net loss ratio for personal accident insurance* 27.0% 27.2% 0.2pt* Including medical and cancer insurance
Main Points The net loss ratio went down, largely due to a revision of premium rates for automobile insurance and a lower
accident ratio achieved through the introduction of a new
bonus-malus system (non-fleet driver rating system).

40

20

0

10

11

12

13

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

46

Sony Financial Holdings Inc. Annual Report 201414

For the years ended March 31,

2013

2014

ChangeNet Expense Ratio

Net expense ratio

26.0%

25.6%

(0.4pt)

For the years ended March 31,

Combined ratio(Net loss ratio + net expense ratio)

89.2%

84.9%

(4.3pt)%40

30

Main Points The net expense ratio dropped, reflecting higher
insurance premiums on automobile insurance as well as
appropriate control of policy acquisition costs.

20

10

0

10

11

12

13

14

Underwriting Profit

Fiscal 2013 Analysis of Operating Performance

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 autoUnderwriting Profit
Billions of yen
mobile liability insurance, etc.).
2.5
For the years ended March 31,

Billions of yen
2.0

For the years ended March 31,

2013

2014

ChangeUnderwriting profit

¥1.3

¥1.8

34.0%

1.5

Main Points Underwriting profit increased, mainly due to higher

1.0

net premiums written and a lower net loss ratio.

0.5
0.0

10

11

12

13

14

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

Ordinary revenues
Ordinary profit
Net income

2013

¥84.7
2.3
1.4

2014

¥89.8
3.0
1.6

ChangeOrdinary Profit and Net Income

6.1%
26.7%
14.4%

For the years ended March 31,
Ordinary proﬁt
Net income

Billions of yen
3.0
2.4
1.8

Main Points

1.2

Ordinary Revenues: Ordinary revenues increased, due to an
0.6
increase in net premiums written mainly in automobile insurance.
Ordinary Profit: Ordinary profit increased, benefitting from
0.0
10
11
12
13
14
higher ordinary revenues and a lower loss ratio, which cameabout mainly from a revision to premium rates for automobile insurance and a drop in the automobile accident ratio precipitated by
the introduction of a new bonus-malus system (non-fleet driver rating system).
Net Income: Net income grew as a result of improved ordinary profit.

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,

2013

2014

ChangeComposition of Total Assets

Total assets
Cash and deposits
Securities
Tangible fixed assets
Intangible fixed assets
Other assets¥127.4
8.4
88.6
1.1
7.5
21.6

¥142.7
6.9
101.2
3.1
8.2
23.1

12.0%
(18.1%)
14.2%
167.5%
10.2%
7.1%

As of March 31, 2014¥142.7 billion
a 4.8% Cash and deposits
b 70.9% Securities
c 2.2% Tangible ﬁxed assets
d 5.8% Intangible ﬁxed assets
e 16.2% Other assets

e

a

d
c

b

Sony Financial Holdings Inc. Annual Report 201447

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

Non-consolidated Solvency
Margin Ratio(Current standards)
As of March 31,

As of March 31,

2013

Non-consolidated solvency margin ratio

504.2% 527.6% 23.4pt

2014

Change%
1,000* The ﬁgures have been calculatedusing the current standards applied
from March 31, 2012.

Main Points The non-consolidated solvency margin ratio remained

800
600
400
200

at a sound level, rising 23.4 points, to 527.6%, as of March 31,
2014.

0

11

12

13

14

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

2013

2014

¥27,370¥30,118

19,507

21,171

Reserve for price fluctuations

80

101

Contingency reserve

63

73

Catastrophe reserve

7,164

8,451

General reserve for possible loan losses—―

Net unrealized gains on other securities (before tax deductions)

554

320

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—―

Others—―10,855

11,416

9,865

10,386(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)67

77

Asset management risk (R4)

485

662

Business management risk (R5)

331

353

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

643

649

504.2%

527.6%

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

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

Loans by Borrower Category
Millions of yen

As of March 31,

2013

2014

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

48

Sony Financial Holdings Inc. Annual Report 2014

Millions of yen
As of March 31,

2013

2014

¥—
—
—
—
¥—

¥—
—
—
—
¥—

Category
¥—
—
—
—
¥—

¥—
—
—
—
¥—

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

Banking Business
SFH’s banking business comprises Sony Bank, a wholly owned subsidiary of SFH; SmartLink Network, a 57%-owned subsidiaryof Sony Bank; and SmartLink Network Hong Kong Limited,* a wholly owned subsidiary of SmartLink Network.
*SmartLink Network Hong Kong Limited is included under the scope of consolidation from the fourth quarter of fiscal 2013.

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

2013

2014

Consolidated ordinary revenues

Change

¥34.3

¥35.7

4.3%

Consolidated ordinary profit

4.4

5.6

26.5%

Consolidated net income

3.2

3.4

5.2%
Fiscal 2013 Analysis of Operating Performance

Main Points

Consolidated Ordinary Revenues: Sony Bank’s consolidated ordinary revenues increased due to gains on foreign exchangetransactions stemming from active foreign currency trading by customers and a rise in interest income on loans led by the growing
balance of mortgage loans.
Consolidated Ordinary Profit: Sony Bank’s consolidated ordinary profit expanded year on year, due mainly to lower interest
expenses and an improvement in net gains on bond-dealing transactions, in addition to the increase in ordinary revenues.
Consolidated Net Income: Sony Bank’s consolidated net income grew slightly, reflecting a boost in profit in the previous fiscal year
derived from a tax effect stemming from the transfer of all shares in Sony Bank Securities.
Sony Bank accounts for nearly all of SFH’s banking business. A discussion of the operating performance of Sony Bank
(non-consolidated) is presented below.

Gross Operating Profit
Gross operating profit consists of net interest income, net fees and commissions, and net other operating income.
Net interest income refers to the spread between investment returns such as interest received on loans, securities, and otheritems, and funding costs, including interest paid on deposits. Sony Bank uses the deposits received from customers primarily toprovide 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 sale and purchase of bonds, including government bonds; and, gains and losses on swaps and other financial derivatives held as hedges for securities and other investments.
Billions of yen
For the years ended March 31,

2013

2014

ChangeGross operating profit

¥18.5

¥20.7

11.7%

Net interest income

18.1

19.9

10.1%

Net fees and commissions

0.1

(0.0)

–

Net other operating income

0.2

0.7

171.1%

Gross Operating Profit
For the years ended March 31,
Net interest income
Net fees and commissions
Net other operating income

Billions of yen
25
20
15
10

Main Points

5

Net Interest Income: Net interest income increased due to
0
10
11
12
13
14
steady growth in interest income received on loans, especiallymortgage loans, and a decrease in interest expenses.
Net Fees and Commissions: Net fees and commissions decreased, despite higher fees and commissions on investment trusts,
because fees and commissions received for credit card services were down and fees and commissions paid on group credit life
insurance were up due to the growing balance of mortgage loans.
Net Other Operating Income: Net other operating income increased, largely because of higher gains on foreign exchangetransactions stemming from active foreign currency trading by customers, in addition to an improvement in net gains on
bond-dealing transactions.

Sony Financial Holdings Inc. Annual Report 201449

General and Administrative Expenses
Billions of yen
For the years ended March 31,

2013

2014

ChangeGeneral and administrative expenses

¥13.9

¥14.6

5.2%

General and Administrative
ExpensesBillions of yen
15

For the years ended March 31,
12Main Points General and administrative expenses rose, mainly

9

due to higher personnel expenses in step with businessexpansion.

6
3
0

10

11

12

13

14

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

2013

2014

ChangeOrdinary revenues
Ordinary profit
Net income

¥31.3
4.2
0.8

¥33.3
5.8
3.5

6.2%
36.5%
307.8%

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

Billions of yen
64

Main Points
2

Ordinary Revenues: Ordinary revenues increased due to gains
on foreign exchange transactions stemming from active foreign
currency trading by customers and a rise in interest income on
0
10
11
12
13
14
loans led by the growing balance of mortgage loans.
Ordinary Profit: Ordinary profit expanded year on year, due mainly to lower interest expenses and an improvement in net gains on
bond-dealing transactions, in addition to the increase in ordinary revenues.
Net Income: Net income grew due to the booking of extraordinary losses (¥2.7 billion) on the transfer of all shares of Sony Bank
Securities in the previous fiscal year, along with higher ordinary profit.

Number of Accounts
10,000 accounts
As of March 31,

2013

2014

ChangeNumber of accounts

92

97

5.3%

Main Points Sony Bank worked to attract new customers byenriching its lineup of products and services and by raisingbrand recognition, primarily through a public relations effort
highlighting no-fee ATM usage. As a result, the number ofcustomer accounts steadily increased.

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

2013

2014

ChangeCustomer assets(Total of deposits and investment trusts) ¥1,974.3 ¥2,007.5 1.7%
Billions of yen
As of March 31,

Deposit balance
Yen deposits
Foreign currency deposits
Investment trust balance

2013

2014

Change¥1,857.4
1,467.2¥1,890.0
1,526.4

1.8%
4.0%

390.2

363.5

(6.8%)

116.9

117.4

0.5%

Deposit Balance
As of March 31,
Yen deposits
Foreign currency deposits

Billions of yen
2,000
1,600
1,200
800
400
0

10

11

12

13

14

Main Points

Yen Deposits: Yen deposits increased, as foreign currencies were increasingly converted into yen.
Foreign Currency Deposits: The foreign currency deposit balance decreased due to the shift toward yen deposits through selling
to lock in profits prompted by the yen’s drop in foreign exchange markets.
Investment Trusts: The balance of investment trusts was on a par with the level recorded in the previous fiscal year, despite anincrease in sales to customers paralleling market recovery, due to lump-sum redemptions by customers seeking to take advantageof the Nippon Individual Savings Account (NISA), a tax-free investment account program launched in January 2014.

50

Sony Financial Holdings Inc. Annual Report 2014

LoansBillions of yen
As of March 31,

Loans

Billions of yen
1,250

2013

2014

Change¥970.2860.3¥1,057.4
949.3

9.0%
10.3%

109.8

108.1

(1.6%)

750

Main Points The balance of loans increased due to steady growth

500

Loans
Mortgage loans
Others

As of March 31,
Mortgage loans
Others

1,000

Fiscal 2013 Analysis of Operating Performancein the balance of mortgage loans.
250
Competition intensified in the mortgage loan business to
0
10
11
12
13
14
reduce lending rates in a low interest rate environment. However, Sony Bank’s balance of mortgage loans steadily increased, thanks to solid results achieved through enhanced tie-ups with realestate companies as well as the effect generated by a wider discount rate in plans launched since November 2013.
The “Others” balance includes corporate loans, card loans and special-purpose loans. The corporate loan balance stood at¥102.2 billion as of March 31, 2014.

Securities
Sony Bank’s securities investments consist of investments with interest rate risk, mainly Japanese government bonds, andinvestments with credit risk, mainly investment-grade corporate bonds.
Billions of yen
As of March 31,

2013

2014

ChangeBalance of securities
Japanese government bonds
Japanese municipal bonds¥908.8194.0
61.2¥773.896.8
56.7(14.9%)(50.1%)(7.3%)

Japanese corporate bonds

202.4

159.5

(21.2%)

Japanese stocks

2.0

2.0

0.0%

Foreign securities

442.0

455.0

2.9%

Other securities

7.0

3.5

(49.7%)

Balance of Securities(by Ratings)

Billions of yen
1,000

As of March 31,
800

AAA
AA
A
BBB
Others

600
400
200
0

10

11

12

13

14

Main Points With respect to the ratings of the securities* held by Sony Bank, securities rated AA or above accounted for 63.0% of thetotal. The ¥2.0 billion in Japanese stocks represents the company’s investment stake in SmartLink Network.
* Sony Bank uses the Basel III standardized approach and classifies its securities based on ratings by five rating agencies: Moody’s Investors Service, Standard & Poor’s,
Rating and Investment Information, Japan Credit Rating Agency and Fitch Ratings.

Total Asset Composition
Billions of yen
As of March 31,

2013

2014

ChangeTotal assets
Loans
Securities¥2,005.0
970.2
908.8

¥2,056.7
1,057.4
773.8

2.6%
9.0%
(14.9%)

61.9

171.2

176.5%

Monetary trusts

18.1

20.4

12.7%

Call loans

10.0

6.0

(40.0%)Cash and due from banks

Composition of Total Assets
As of March 31, 2014
¥2,056.7 billion
a 51.4% Loansb 37.6% Securities
c 8.3% Cash and due from banks
d 1.0% Monetary trusts
e 0.3% Call loansf1.3% Others

c

de f
a

b

Main Points Sony Bank’s total assets increased, following expansion in loan assets.

Sony Financial Holdings Inc. Annual Report 201451

Non-consolidated Capital Adequacy Ratio
The capital adequacy ratio is an important indicator of a bank’s financial soundness. From March 31, 2014, Sony Bank calculates
its capital adequacy ratio* based on Basel III.
As of March 31,

2013

2014

ChangeNon-consolidated capital adequacy ratio(Domestic criteria)

11.98%——

As of March 31,

2013

2014

ChangeNon-consolidated capital adequacy ratio(Domestic criteria)—

11.72%—

6.0* Please refer to the note under the table on page 53 for information regarding application of the Basel III framework.

3.0

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

As of March 31,

9.0

0.0

10

11

12

13

14

Main Points Sony Bank continues to maintain a sound financial position.

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

Millions of yen

As of March 31,

Tier I (core) capital

2013

Common stock¥ 31,000

Capital surplus

21,000Retained earnings

12,506(A)

Total
Preferred securities with step-up interest rate provision
Tier II (supplementary) capital—

General reserve for possible loan losses

834

Subordinated debt

22,000Subordinated term debt and term preferred stock
Total
Sub-supplementary capital

Total

Capital subtotal(A)+(B)+(C)Deductions

Total

Total capital(D)-(E)

Risk-adjusted assets

Balance sheet items

22,000

(B)
(C)
(D)
(E)
(F)

22,834—87,340—87,340690,590

Off-balance sheet items

5,398

Results of dividing operational risk equivalent amount by 8%

32,853

(G)

Total

52

64,506

728,843

Capital adequacy ratio (domestic criteria) (F) / (G) (%)

11.98

Reference: Tier I ratio (domestic criteria)

8.85Sony Financial Holdings Inc. Annual Report 2014(A) / (G) (%)

Millions of yen
2014
Amounts excluded
under transitional
measures

As of March 31,

Core capital: instruments and reserves
Directly issued qualifying common share capital or preferred share capital with a compulsory conversion clauseplus related capital surplus and retained earnings¥ 68,091¥—

52,000—Of which: Retained earnings

16,091—

Total reserves factored into core capital: instruments and reserves

790—

Of which: General reserve for loan losses including core capital

790—

Eligible non-cumulative perpetual preferred shares subject to transitional arrangements(amount allowed to be included in Core capital: instruments and reserves)

20,000—Core capital: instruments and reserves

88,881

—

—

1,768

—

1,768

(B)

—

—

(C)

88,881—

720,454—(27,892)

—

1,768

—

(A)

Fiscal 2013 Analysis of Operating Performance

Of which: Capital and capital surplus

Core capital: regulatory adjustments
Total amount of intangible assets (excluding those relating to mortgage servicing rights)
Of which: Other intangibles other than those relating to goodwill and mortgage servicing rights
Core capital: regulatory adjustments
CapitalCapital ((A)-(B))
Risk-weighted assets
Total amount of credit risk-weighted assets
Of which: Total amount included in risk-weighted assets by transitional measures
Of which: Intangible assets (excluding those relating to goodwill and mortgage servicing rights)
Of which: Exposure to other financial institutions(29,661)———

Amount obtained by dividing total sum of operational risk equivalent amounts by 8%

37,483—

Total amount of risk-weighted assets

757,937

—

11.72

—

Of which: Applicable amounts other than those above(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 Japan’s Financial Services Agency (FSA) regarding the method 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, the company applies a standard based on domestic criteria. Also, in fiscal 2012,
ended March 31, 2013, the company applied FSA Notification No. 56 (2012), and in fiscal 2013, ended March 31, 2014, the company applied FSA
Notification No. 6 (2013) and Notification No. 7 (2014).

Sony Financial Holdings Inc. Annual Report 201453

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
sales division also works independently of the screening division, and the company ensures that financing proceeds only following
due diligence via relevant deliberative entities. In addition, the company has established a meticulous loan management andscreening system.
Problem Loans based on the Financial Reconstruction Law

Risk-monitored Loans
Millions of yen
As of March 31,

2013

2014

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

Millions of yen
As of March 31,

¥ 150
1,534
—
2,220
¥3,905

¥ 308
1,403
—
1,880
¥3,592Bankrupt and quasi-bankrupt loans
Doubtful loans
Sub-standard loans
Normal loans
Total

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

2013

2014

Non-performing loan ratio

0.41%

0.35%

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

Sony Financial Holdings Inc. Annual Report 2014

2014

Category

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

54

2013

¥

714
1,094
2,222
978,005¥982,036

¥

847
980
1,882
1,064,528¥1,068,238

Corporate GovernanceContributions to Sustainable Development

Contributions to
Sustainable Development

CSR

Sony Financial Holdings Inc. Annual Report 201455

Contributions to Sustainable Development—Corporate Governance

Executive Profiles(As of July 1, 2014)

Directors

8

3

2

5
President, Representative Director
1

Katsumi Ihara
President, Representative Director,
Sony Life Insurance Co., Ltd.
Director, Sony Assurance Inc.
Director, Sony Bank Inc.

Senior Managing Director
2

Hirotoshi Watanabe
Director, Sony Life Insurance Co., Ltd.
Director, Sony Assurance Inc.
Director, Sony Bank Inc.

7

1

4

Managing Director

Directors

3

Yutaka Ito
Director, Sony Life Insurance Co., Ltd.
Director, Sony Assurance Inc.
Director, Sony Bank Inc.
Director, Sony Lifecare Inc.

4

Masamitsu Shimaoka
Representative Director,
Sony Life Insurance Co., Ltd.

5

Shigeru Ishii
President, Representative Director,
Sony Bank Inc.

6

Atsuo Niwa
President, Representative Director,
Sony Assurance Inc.

7

Notes: 1. Main concurrent positions are shown under the name of each individual.
2. SVP stands for senior vice president.
3. Isao Yamamoto and Shiro Kuniya are deemed Independent Directors based on Tokyo Stock Exchange
regulations.

56

Sony Financial Holdings Inc. Annual Report 2014

Takemi Nagasaka
SVP (Note 2), Corporate Executive,in charge of Accounting forSony Corporation

Contributions to Sustainable Development

96Directors (Outside)
8

Isao Yamamoto (Note 3)

Statutory
Auditors

12
10Standing Statutory Auditor (Outside)
10

President, Enterprising Investment, Inc.
9

11

Hiroshi Sano
Statutory Auditor,
Sony Life Insurance Co., Ltd.
Statutory Auditor, Sony Assurance Inc.
Statutory Auditor, Sony Bank Inc.

Shiro Kuniya (Note 3)
Managing Partner,
Oh-Ebashi LPC & Partners

Statutory Auditor
12

Mitsuhiro Koizumi
Standing Statutory Auditor,
Sony Life Insurance Co., Ltd.

Statutory Auditor (Outside)11

Hirotoshi Korenaga
General Manager,
Accounting Department 1,
Accounting Division ofSony Corporation

Sony Financial Holdings Inc. Annual Report 201457

Profiles of Outside Directors(As of July 1, 2014)

Isao Yamamoto
Biography

Shiro Kuniya

1981

Joined Nomura Research Institute, Ltd.

1991

Head of Strategic Advisory Group, Nomura ResearchInstitute, Ltd.

1996

Director, Investment Banking Division, Merrill Lynch Japan
Securities Co., Ltd.

1999

Managing Director, Investment Banking Division, Merrill
Lynch Japan Securities Co., Ltd.

2002

Co-head of Investment Banking Division, Managing Director,
Merrill Lynch Japan Securities Co., Ltd.

2003

President & CEO, The Institute for Securities Investments &Governance2006

Director, Japan CableCast Inc.

Biography

Reasons for
Appointment

Director, MASSTUNE, Inc. (current: MINKABU, Inc.)(current position)

2009

President, Enterprising Investment, Inc. (current position)

2011

Director, SFH (current position)

2012

Director, BILCOM, Inc. (current position)

Registered as attorney and joined Oh-Ebashi Law Offices(current: Oh-Ebashi LPC & Partners)

1997

Audit & Supervisory Board Member, Sunstar Inc.

2002

Managing Partner, Oh-Ebashi LPC & Partners(current position)

2006

Audit & Supervisory Board Member, Nidec Corporation2012

Director, NEXON Co., Ltd. (current position)
Director, Ebara Corporation (current position)

2013

Statutory Auditor, MASSTUNE, Inc. (current: MINKABU, Inc.)
2007

1982

Director, SFH (current position)
Corporate Auditor, Takeda Pharmaceutical Company Limited(current position)

Reasons for
Appointment

Mr. Kuniya has specialized knowledge and experience as a lawyer,
and has no conflict of special interest with SFH. Accordingly, SFH
has determined that Mr. Kuniya can properly fulfill the duties of an
outside director and independent director.

Mr. Yamamoto possesses many years of experience as a securities
analyst and an advisor on corporate financial affairs and M&As, andhas no conflict of special interest with SFH. Accordingly, SFH has
determined that Mr. Yamamoto can properly fulfill the duties of an
outside director and independent director.

A Message from the Outside Director

I participate in business execution and decision-making,determining if activities are on track from an independent
perspective, based on my experience as a lawyer.
I have handled all sorts of cases in my experience for more than 30 years as a lawyer. The list
covers finance, insurance, electricity, gas, communications, automobiles, electronics, realestate, chemicals, airports, theme parks, regenerative medicine, and central and regional government agencies. In addition, I have encountered unrecoverable investments that led to huge
Shiro Kuniya
problems, as well as M&As, bitter disputes and bankruptcies. Based on these experiences, asOutside Director
an outside director, I would like to interpret how the Company is run and how management
forms decisions from another perspective and thereby ensure that activities do not veer from compliance with laws orsocial standards. Naturally, management considers the rationality and appropriateness of management decisions anddecision-making processes, but it is important that the information necessary for making decisions is properly provided
and that the facts are perceived correctly. Therefore, I want to make sure that sufficient information is shared among
directors as well as employees.
SFH is a company with an open and positive atmosphere conducive to earnest and honest discussion. A case inpoint is the Company’s 10th anniversary party that took place recently. The mood was warm and congenial, with theretired executives, the current directors, management and employees all gathering and chatting about the Company’s
past, present and future. I could see that SFH has built a good corporate culture.
SFH has grown at a relatively steady clip over the 10 years since it was established, never resting on its laurels but
rather constantly self-assessing with improvement in mind. In parallel, I will emphasize creative and sound businesspractices, guided by the belief that corporate growth is linked to social contribution. As an outside director, I will ask forlots of creative ideas, and at meetings, I will give frank and honest comments from an objective perspective that is
independent of SFH’s executives and employees.

58

Sony Financial Holdings Inc. Annual Report 2014

Profiles of Outside Statutory Auditors(As of July 1, 2014)

Hirotoshi Korenaga

Hiroshi Sano
Biography

1969

Joined Mitsui Bank (current: Sumitomo Mitsui Banking
Corporation)

1994

General Manager, Legal Department, The Sakura Bank,
Limited (current: Sumitomo Mitsui Banking Corporation)

2001

Senior Managing Director, The Sakura Servicing Co., Ltd.
(current: SMBC Servicer Co., Ltd.)

2004

Standing Statutory Auditor, SFH (current position)

Biography

Statutory Auditor, Sony Life Insurance Co., Ltd.
(current position)

Reasons for
Appointment

2005

Statutory Auditor, Sony Assurance Inc. (current position)

2010

Statutory Auditor, Sony Bank Inc. (current position)

Mr. Sano possesses deep insights into corporate legal affairs andcredit analysis along with abundant work experience in a broad rangeof fields. Accordingly, SFH has determined that Mr. Sano will draw on
this professional experience to fulfill his role as an outside statutory
auditor.

1988

Joined Sony Corporation

2007

Deputy General Manager, Planning and Administration
Department, Accounting Division, Sony Corporation

2008

Deputy General Manager, Consolidation Accounting Department, Accounting Division, Sony Corporation

2012

General Manager, Accounting Department 1, Accounting
Division, Sony Corporation

2014

General Manager, Accounting Department 1, Accounting
Division, Sony Corporation (current position)
Statutory Auditor, SFH (current position)

Reasons for
Appointment

Mr. Korenaga has extensive knowledge about finance and accounting acquired over many years of working in accounting at Sony Corporation. Accordingly, SFH has determined that Mr. Korenaga will
use his professional experience to fulfill his role as an outside statutory auditor.

Contributions to Sustainable Development

A Message from the Outside Statutory Auditor

I will strive, as an outside auditor, to monitor management fromthe standpoint of protecting the interests of policyholders,
depositors and shareholders.
Ten years have passed since SFH was established, and I have served as standing outside auditor
throughout this time, monitoring directors in their duties as the Company marked steady growth.
SFH is a holding company with insurance and banking subsidiaries, but some members of
its executive team have amassed considerable experience at companies other than financial
Hiroshi Sano
institutions, including parent company Sony. Nevertheless, the SFH executive team firmly
Standing Statutory Auditor
believes in providing products and services from a consumer’s perspective, and activities are
therefore customer oriented regardless of the business realm.
I apply the experience that I accumulated as a general manager of the legal department of a major bank, toward
checking the accuracy of management decisions, for example, when I attend meetings of the Board of Directors and the
Executive Committee. In addition, I perform oversight and verification, with an emphasis on ensuring that the day-to-day
execution of business is free of problems in terms of protecting policyholders and depositors, and that the Company
remains financially sound.
What I have learned over 10 years of auditing at SFH is that despite having less experience than management at otherfinancial institutions, this executive team tackles issues with more determination than most other financial institutions today.
This team strives to provide services combining many different financial functions—savings, investment, borrowing andprotection—with customers in mind.
The Sony Financial Group maintains financial soundness, underpinned by high solvency margin ratios at Sony Lifeand Sony Assurance and a high capital adequacy ratio at Sony Bank. Meanwhile, major changes are unfolding in Japanon the economic front, as the Abe administration’s measures to break free of deflation take effect, and even more noticeably on the financial front due to the quantitative and qualitative monetary easing implemented by Bank of Japan Governor
Haruhiko Kuroda. Therefore, as an outside auditor at SFH, I will continue to oversee the actions of management from thestandpoint of protecting the interests of policyholders, depositors and shareholders.

Sony Financial Holdings Inc. Annual Report 201459

Basic Stance on Corporate Governance
The Sony Financial Group (hereafter, “the Group”) positions its corporate vision and corporate philosophy as the basic policy forformulating management strategies and decision-making. The Group’s corporate vision is to become the most highly trusted financial services group by customers. To achieve this objective, SFH makes effective use of the business characteristics, informationand other features of its Group companies, based on an understanding of the differences in the history, size, business models andother attributes of each Group company. The goal is to conduct integrated management of the entire Group. Above all, this goal ispremised on ensuring the soundness and suitability of business activities. Indeed, management sees this task as a top priority.
Accordingly, the organizational framework has been built with an emphasis on Groupwide compliance and risk management.

Establishing an Internal Control System
SFH’s Board of Directors formulated a Basic Policy on Establishing an Internal Control System in compliance with theCompanies Act of Japan to ensure the appropriateness ofcompany business activities. SFH implemented and maintains
an internal control system in line with this policy. In fiscal 2013,
Group Policies (including Basic Policy on Internal Audits in theGroup and Basic Policy on Management of Transactions
within the Group) were newly established, and additions andrevisions to some expressions were made to key existing
policies (including Basic Policy regarding Group Fnancial

Reporting and Conflicts of Interest Policy within the Group).
Consequently, the Basic Policy on Establishing an Internal
Control System has been partially amended.
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.

Basic Policy on Establishing an Internal Control System
1. System to ensure that the execution of duties by directors and employees complies with laws and with the Articles of Incorporationi. The Board of Directors establishes a code of conduct as a basic policy for compliance and makes this code clear to SFH’s executives,
employees and subsidiaries.
ii. The Board of Directors creates a compliance manual that provides specific compliance guidelines and a compliance program thatdefines specific plans.
iii. The Board of Directors creates a compliance supervisory department to promote its compliance program. The compliance supervisorydepartment regularly reports to the Board of Directors on the progress of the compliance program.
iv. The Board of Directors formulates the Basic Group Policy on Eradicating Anti-social Forces. This policy describes the firm stance theGroup takes to counter anti-social forces and build the structure necessary to fulfill this policy.
v. The Board of Directors establishes an internal hotline system and informs SFH’s executives, employees and subsidiaries about thesystem. This system allows employees or others who become aware of business policies, operations or other activities that contravene(or are in danger of contravening) laws and regulations to report directly to a hotline desk. The system prohibits any action from being
taken against employees or others who provide such notification.
vi. The Board of Directors creates the Group Information Security Policies and streamlines a structure to properly control Group information assets, including customer information.
vii. The Board of Directors creates the Conflicts of Interest Policy within the Group and ensures that the necessary formats are in place
to properly control transactions which has potential to harm the interests of customers.
viii. The Board of Directors establishes an internal audit supervisory department, which is independent from other operating departments.
The internal audit supervisory department liaises and cooperates with the statutory auditors and the accounting auditor; monitors andverifies, from an independent and objective viewpoint, the implementation and operational status of the internal control system; andreports regularly to the Board of Directors the status of internal audits.
ix. The Board of Directors formulates the Basic Policy related to the Group’s Internal Audits as well as Regulations on International Audits,
and informs SFH’s executives and employees and subsidiaries of these.
2. System for storing and managing information related to the execution of duties by directors
SFH establishes the Record-keeping Regulations to ensure that documents pertaining to the execution of duties by directors, such asrecords of decisions at Board of Directors and Executive Committee meetings, are appropriately stored and managed in accordancewith these laws and regulations.

60

Sony Financial Holdings Inc. Annual Report 2014

3. System of regulations related to risk management
i. The Board of Directors formulates the Fundamental Principles for Risk Management Activities as a basic policy on Group risk management and informs SFH’s executives, employees and subsidiaries of these.
ii. The Board of Directors establishes a risk management supervisory department to manage risks appropriately for SFH and its subsidiaries, in accordance with each entity’s scale, characteristics and type of business. This department reports regularly to the Board of
Directors on the status of risk management.
iii. The Board of Directors evaluates the capital adequacy of subsidiaries to ensure that their levels of capitalization are sufficient in light of
the risks the Group directly faces and to implement appropriate capital allocations. If necessary, the Board of Directors takes measuresdesigned to strengthen capital bases.
iv. The Board of Directors creates the Basic Policy related to Group Business Continuity Risk Management, as well as contingency plans,
to build a structure that enables the Group to respond rapidly to a crisis and put in place measures to minimize the impact of theserisks. The Board of Directors makes these plans known to SFH’s executives, employees and subsidiaries.
4. System to ensure the efficient execution of duties by directors
i. The Board of Directors establishes approval regulations, organizational and task-sharing regulations and other internal rules, andcreates an appropriate structure for the efficient execution of duties.
ii. The Board of Directors sets up an executive committee and delegates to this committee the discussion and decision-making authority
regarding execution of important corporate day-to-day business activities.
iii. The Board of Directors establishes the Business Plan Control Regulations, formulates and executes non-consolidated and consolidated medium-term business plans and annual business plans, and regularly confirms progress on business plans.
Contributions to Sustainable Development

5. System to ensure reliability of financial reports
SFH maintains the necessary system to ensure reliability of financial reports, in accordance with the Basic Policy regarding Group
Financial Reporting.
6. System to ensure the appropriateness of operations by SFH and the corporate group, including SFH’s parent company andsubsidiaries
i. In addition to exercising shareholder rights as a financial holding company, SFH ensures the appropriateness of Group and subsidiaries’ operations by exercising management control in accordance with the management control agreements made between SFH and its
subsidiaries.
ii. Based on its Basic Policy on Management of Transactions within the Group, SFH deliberates and examines the appropriateness andcompliance of intra-Group transactions with subsidiaries that have the potential to significantly impact the operations of the Group
before commencement of those transactions. Such issues are resolved at or reported to the Board of Directors. In addition, to protect
minority interests, when conducting transactions with parent company Sony Corporation (controlling shareholder) and its group companies, SFH and its subsidiaries duly confirm that these transactions are necessary and that they are entered into under conditions thatare not conspicuously divergent from those of typical transactions with third parties.
iii. SFH’s Audit Department takes responsibility for ensuring that subsidiaries have appropriate internal control systems in place and monitors and verifies the results of internal and third-party audits of subsidiaries.
iv. SFH and its subsidiaries submit management information about the Group as needed to SFH’s parent company and interact with theparent company’s internal audit supervisory department.
7. Items pertaining to employees who are requested to assist statutory auditors in their duties
If directors receive requests from statutory auditors for employees to be allocated to assist them in their duties, the directors assign
such personnel without delay.
8. Independence from directors of employees assigned to assist statutory auditors referred to in 7 above
Statutory auditors must agree to the appointment, removal and evaluation of employees assigned to assist them in their duties.
9. System for directors and employees to report to statutory auditors, and other reporting systems
i. If directors or employees are requested to provide business reports to statutory auditors, they do so without delay.
ii. If directors or employees receive notification via the internal hotline system, they report immediately to the statutory auditors.
10. Other systems to ensure the effectiveness of audits by statutory auditors
Representative directors endeavor to forge and deepen relationships with statutory auditors based on mutual understanding and trustby creating an environment that facilitates audits by statutory auditors.

Sony Financial Holdings Inc. Annual Report 201461

Management System
SFH has adopted the director system and the statutory auditor system. The Company appoints outside directors who work withstatutory auditors to supervise management, thereby strengthening corporate governance.
SFH is a listed company with a listed parent company (Sony Corporation, hereafter “Sony,” which holds 60% of SFH’s shares).
For this reason, SFH has set out a Policy concerning Measures to Protect Minority Shareholders in Transactions with theControlling Shareholder—to protect the interests of minority shareholders.
Note: SFH prepares and discloses a Corporate Governance Report and Information Pertaining to Controlling Shareholders in accordance with the regulations of
the Tokyo Stock Exchange. These documents can be viewed at the Tokyo Stock Exchange’s or SFH’s website (http://www.sonyfh.co.jp/index_en.html).

Board of Directors

Statutory Audits, Internal Audits and Accounting
Audits(As of July 1, 2014)

SFH, as a pure holding company, maintains a Board of
Directors not only to manage SFH itself, but also to promote
integrated Group management and to ensure the Group’s
corporate governance.
SFH’s Board of Directors is made up of nine members. In
addition to three executive directors, there are three representative directors from SFH’s subsidiaries who serve as nonexecutive directors of SFH and contribute to efficient business
operations of the Group as a whole.
Additionally, to obtain general management advice applicable to the Group, SFH has appointed directors from outside
the Group, one of whom serves concurrently as an executive
officer of Sony, the parent company. Because SFH is the subsidiary of a publicly listed parent company, it has appointed
two outside directors who are independent directors as
required by the Tokyo Stock Exchange to protect ordinary
shareholders.
Regarding the boards of directors of Group subsidiaries,
one of SFH’s representative directors and two of its executive
directors serve concurrently as directors of subsidiaries withthe aim of increasing the effectiveness of Group strategy andensuring the sound business management of each company.

Attendance of outside directors and outside statutory
auditors in meetings of the Board of Directors and theBoard of Statutory Auditors for fiscal 2013
Name

Outsidedirectors

Isao Yamamoto
Shiro Kuniya

Outsidestatutory
auditors

Hiroshi Sano
Hirotoshi
Korenaga

Statutory Audits
SFH’s Board of Statutory Auditors has three members, two ofwhom are outside statutory auditors. Statutory auditors audit
the execution of duties by directors based on the audit policy,
audit plan, audit methodology and assignment of audit duties
stipulated by the Board of Statutory Auditors.
Statutory auditors attend important meetings, including
Board of Directors’ meetings, review the details of reports
received from directors, key personnel and other persons, andexamine SFH’s operations and financial condition. At the sametime, statutory auditors maintain close contact with outside
directors and the director and employees in charge of internal
audits to enhance the supervisory function with respect tocorporate management.

Internal Audits
SFH performs internal audits through its Audit Department.
The Audit Department reports directly to the director in chargeof internal audits (the President and Representative Director ofSFH) and is independent of SFH’s operating divisions. This
department conducts internal audits from an independent andobjective standpoint.
Please see page 70 for further details.

Accounting Audits

Board of Directors’
meeting

Board of Statutory
Auditors’ meeting

Attended all 14
meetings
Attended 10 out
of 11 meetings
after appointment
as director*
Attended all 14
meetings
Attended all 11
meetings after
appointment asauditor**—The accounting firm and back-up team of the certified public
accountants (CPAs) who acted as the accounting auditors of
SFH are as follows:—

Accounting firm

PricewaterhouseCoopers Aarata

Accounting audit team

Five CPAs, five others

Attended all 12
meetings
Attended all 10
meetings after
appointment asauditor*** Shiro Kuniya was appointed outside director in June 2013.
** Hirotoshi Korenaga was appointed outside auditor in June 2013.

62(As of July 1, 2014)

Sony Financial Holdings Inc. Annual Report 2014

Compensation for SFH’s Directors and Statutory
Auditors

Basic policy• The main responsibility of outside directors is toenhance the transparency and objectivity ofcorporate management through the oversight andsupervision of executive directors’ execution ofduties. Consequently, compensation for outside
directors is determined as fixed compensation
with a focus on securing talented humanresources and ensuring the supervision and oversight function effectively.

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

Level• A suitable level of compensation shall be paid inorder to secure talented individuals. In determining the level, consideration is given to the resultsof third-party surveys of the compensation levelsof corporate managers and other information.

Retirement
benefits• None paid.

3. Statutory Auditors
Basic policy• The main responsibility of statutory auditors is toensure the transparency and objectivity of corporate management by conducting operational andaccounting audits. Consequently, compensation
for statutory auditors is determined as fixedcompensation with a focus on securing talented
individuals and ensuring that the audit function is
working effectively.

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

Level• A suitable level of compensation shall be paid inorder to secure talented individuals. In determining the level, consideration is given to the resultsof third-party surveys of the compensation levelsof statutory auditors and other information.

Retirement
benefits• A fixed amount is paid according to the role.

1. Executive Directors
Basic policy

Compensation

Level

Retirement
benefits• The main responsibility of executive directors is tocontinuously increase corporate value as corporate managers of SFH and the Group. Consequently, SFH’s basic policy is to determine compensation for executive directors, considering abalance between a fixed portion and a resultslinked portion with a focus on securing talented
human resources and ensuring that compensation serves as an effective incentive for improving
business performance.
• Compensation comprises a fixed portion depending on the position, such as president and representative director, and a results-linked portion
depending on the performance of SFH and theGroup as a whole, and individual responsibilities.
• The results-linked portion could range from 0% to200% of the standard amount subject to achievement of management targets of SFH and theGroup and fulfillment of responsibilities.
• A suitable level of compensation shall be paid inorder to secure talented individuals. In determining the level, consideration is given to the resultsof third-party surveys of the compensation levelsof corporate managers and other information.
• SFH sets aside an amount equivalent to a defined
portion of compensation for every year in officeand pays the full amount upon retirement. A
defined portion of the reserved amount is converted into shares of SFH and granted, with theaggregate number of shares converted at themarket price and paid upon retirement.

Contributions to Sustainable Development

SFH sets the Policy for Determining the Compensation of
Directors and the Policy for Determining the Compensation of
Statutory Auditors.
Additionally, SFH has created the Compensation Advisory
Committee Regulations to clarify the process for determining
the compensation of directors of SFH and representative
directors of subsidiaries, and established the Compensation
Advisory Committee to deliberate these matters. Consisting ofa small number of SFH directors, including an outside director
who serves as the committee chair, the Compensation
Advisory Committee receives advice from the Board of Directors of SFH and the boards of directors of subsidiaries asnecessary, and reports the results of its deliberations to therespective boards of directors. With regard to compensationof individual directors, the Compensation Advisory Committee
discusses the amounts determined by resolution of the Boardof Directors based on the committee’s report. Meanwhile,
compensation of individual statutory auditors is determinedthrough discussion by statutory auditors.
Directors with no executive duties, except outside directors, and non-executive statutory auditors are, in principle,
paid no compensation.

2. Outside Directors

Compensation for SFH’s directors and statutory auditors
for the fiscal 2013
Details of compensation for SFH’s directors and statutory auditors for the fiscal 2013 are as follows:

Directors (internal)
Directors (outside)
Statutory auditor(internal)
Statutory auditor(outside)
Total

Total amount bycompensation category

NumberofpayeesTotal amountof compensation
for directors
and statutory
auditors(Millions of yen)

Basic compensation

Provision forreserve forretirement
benefits

2
3
—

151
16
—

122
16
—

29
—
—

1

21

20

1

6

189

158

31

Note: Compensation categories refer to basic compensation, stock options,bonuses and retirement benefits and others. To date, SFH has neither
paid bonuses nor granted stock options as compensation for directors
and auditors.
Sony Financial Holdings Inc. Annual Report 2014

63

Facilitating the Exercise of Voting Rights
SFH undertakes the following activities to make it easier for shareholders to exercise their voting rights.
• SFH sets the meeting date to avoid dates on which other companies’ annual general meetings are concentrated.
• SFH posts the Notice of Convocation on its website.
• SFH provides a partial translation of the Notice of Convocation in English.
• SFH uses an electronic voting platform.
• SFH posts the results of the voting on its website.

Relationship with Parent Company, Sony Corporation(As of July 1, 2014)

Capital Relationship
SFH is a financial holding company, established in April 2004
as a corporate spin-off from Sony. In October 2007, SFH’s
shares were listed on the First Section of the Tokyo Stock
Exchange with the initial public offering conducted in Japanand overseas, after which Sony’s shareholding became 60%.
As a result of this capital relationship, SFH may be subject
to the influence of Sony, irrespective of the intentions andinterests of other shareholders with regard to all mattersrequiring shareholder approval. These matters include theappointment and dismissal of SFH directors and statutory
auditors, mergers and other organizational restructuring,material asset and business transfers, amendments to the
Articles of Incorporation, and the payment of dividends.

Personnel RelationshipTo obtain general management advice concerning the SonyFinancial Group and to strengthen the audit structure, SFH
appoints directors and statutory auditors from outside theSony Financial Group. However, one of these SFH directors
and one statutory auditor serve concurrently as corporate
executive or general manager of Sony. Moreover, Sony has
seconded one employee to SFH. Also of note, two Sony
employees serve as statutory auditors at SFH’s consolidated
subsidiaries. Because the appointment of concurrent directors
and statutory auditors comes at the request of the SonyFinancial Group, SFH believes that it is in a position to makeindependent management decisions.
From the standpoint of further enhancing independence
from the parent company, SFH has appointed two outside
directors who have no special relationship with the Sony

Group, and have designated them 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 operation has
a tenuous connection with Sony Group’s business domains
except for Financial Services*, and because the Sony Financial
Group operates its business primarily in accordance with theInsurance Business Act and the Banking Act of Japan, under
the supervision of the Financial Services Agency of Japan,
SFH believes that the Sony Financial Group conducts its business with a high degree of independence from the Sony Group.
In addition, Sony, which has obtained approval from the
Financial Services Agency to remain a major SFH shareholder,
recognizes and respects SFH’s corporate philosophy.
* The Sony Financial Group is included in the Sony Group’s Financial
Services segment.

Using the “Sony” Trade Name and Trademark
SFH and Group companies have entered into royalty agreements with Sony for the use of the “Sony” trade name andtrademark. However, these agreements can be rescinded bySony under certain conditions, such as Sony’s 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 based on these agreements. The
monetary amount 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.

Policy Concerning Measures to Protect Minority Shareholders in Transactions with Sony Corporation (Controlling Shareholder)Sony Financial Group’s policy is to develop business while maintaining cooperative ties with the Sony Group. However, the Sony Financial
Group believes that it has secured a degree of independence from the Sony Group, because it conducts independent business activities in linewith its own management policies and strategies, and operates in different business fields than the Sony Group.
When entering into transactions with Sony (the controlling shareholder), the Sony Financial Group adequately confirms the necessity for suchtransactions, and ensures that the conditions of such transactions do not differ markedly from the terms of ordinary transactions with third parties.

Measures to Protect Minority Shareholders Who Enter into Transactions with Sony (Controlling Shareholder)With regard to transactions with Sony, SFH confirms the necessity for such transactions and ensures that conditions do not differ markedly
from the terms of ordinary transactions with third parties.

64

Sony Financial Holdings Inc. Annual Report 2014

Internal Control
To ensure that business related to important matters approved by the Board of Directors is properly executed, SFH establishes
and maintains internal regulations (such as rules for the Board of Directors’ meetings, the Executive Committee, decision making,and internal reporting as well as a code of conduct and a compliance manual) covering management structures, compliance, andallocation of duties, among others.
Sony Financial Group’s Internal Control "TPG+VMZ 
General Meeting of Shareholders

SFH

Board of Statutory Auditors

Compensation Advisory Committee

Board of Directors

Statutory Auditors
Independent
AuditorExecutive Committee
Corporate Planning
Department

Corporate
Communications &Investor Relations
Department

t4FSWFDPODVSSFOUMZBTEJSFDUPST
BOETUBUVUPSZBVEJUPST

Corporate Control
Department

t4IBSFBOEDPOGJSN
information

Sony Life

Accounting
Department

t3FQPSUBOEDPOGJSN

Sony Assurance

Human Resources& General Affairs
Department

t%JTDVTTJOBEWBODF

Audit
Department

t$POWFZ(SPVQQPMJDJFT

Sony Bankt.BOBHFBOEBEWJTF
t.POJUPSSony Lifecare
Contributions to Sustainable Development

Compliance
Basic Stance on ComplianceTo ensure sound and proper business operations, SFH must encourage all executives and employees to deepen their understanding of the Company’s corporate philosophy and relevant laws and regulations, enforce compliance with these laws and regulations,and manage business operations transparently and properly based on a strong sense of ethics. SFH broadly defines complianceto include all of the foregoing factors and considers compliance to be one of its top management priorities. Accordingly, SFH has
systems in place to ensure that all executives and employees are fully aware of their duties and responsibilities under the laws andregulations.
As a financial holding company with insurance and banking subsidiaries, SFH is responsible for monitoring compliance ofGroup companies and advising each of these companies on compliance issues as it deems necessary. Compliance-related
responsibility primarily lies with individual Group companies, which are responsible for establishing systems to enhance the effectiveness of compliance according to their specific industry and scale of business operations. SFH’s role is to constantly monitor
and promote Group companies’ compliance from the viewpoint of Group management.

Compliance System at SFH and Sony Financial
Group Companies
SFH’s Compliance System
SFH’s Board of Directors formulated a Compliance Manual*and a Compliance Program**. SFH strives to monitor adherence to stated practices and their implementation at all times,
while proactively putting a compliance system in place for itself
and for Group companies.
SFH’s Executive Committee is entrusted by the Boardof Directors to ensure that each department formulates andenforces the necessary compliance-related measures.
SFH’s Corporate Control Department is responsible foroverall control of the planning, proposal and promotion ofcompliance-related measures. This department also monitors
the compliance status of Group companies.

* The Compliance Manual outlines SFH’s compliance system, as well as
the Group’s corporate philosophy, which executives and employees
must be aware of, and laws and regulations, which they must obey. The
manual also establishes measures for handling any breaches of laws
and regulations, i.e., contravention of compliance practices, 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 at SFH and Sony Financial Group
Companies
SFH and Group companies are responsible for establishingeffective compliance practices matched to their specificindustry and scale of operations.

Sony Financial Holdings Inc. Annual Report 201465

Compliance Meetings
SFH holds regular compliance meetings with Group companies to conduct preliminary consultations on compliancerelated issues and exchange information about the state ofcompliance promotion and legal issues. The Corporate Control
Department serves as the secretariat for these meetings,
whose members include SFH and Sony Financial Group company executives, general managers and other staff in charge ofcompliance, depending on the agenda. The results of these
discussions are reported to the Board of Directors and at otherimportant meetings.

Internal Hotline System
An internal hotline system is in place to enable executives andemployees of SFH and Group companies, as well as temporary employees of these companies and the employees ofbusiness partners, to report matters of concern. These matters
include business policies, operating activities or other activitiesof the Sony Group, SFH and Group companies that either
breach (or could breach) respective laws and regulations orinternal regulations. Whistleblowers may choose and notify
the appropriate hotline desk at SFH or at any Sony Financial
Group company, or the Compliance Hotline at Sony, whichis the desk for the Sony Group. SFH implements appropriate
measures to protect those who contact these desks, while
strictly managing and responding to the information provided.
Moreover, SFH communicates with Sony regarding appropriate responses to notifications received via the Compliance
Hotline at Sony. SFH also communicates with Sony about
notifications on issues having the potential to affect Sony
Group companies other than SFH.

Conflicts of Interest Policy (Summary)SFH formulated the Conflict of Interest Policy and established a structure under the provisions of the Banking Act, the Insurance Business
Act, and the Financial Instruments and Exchange Act of Japan. The overall goal is to ensure that customers’ interests are not harmed byGroup companies.
Summary of Conflicts of Interest Policy

I. Basic Policy

II. Transactions to Be Managed

Sony Financial Group has established a structure under the provisions of the Banking Act, the Insurance Business Act, and the
Financial Instruments and Exchange Act of Japan to ensure that
customers’ interests are not harmed when they make transactions
with Sony Financial Group companies in the event of potential
conflicts of interest between customers of Sony Financial Group
companies and Sony Group finance companies or between
customers of Sony Financial Group companies and customersof Sony Group finance companies.

1. SFH shall put a structure in place and take all other necessary
actions to prevent customers’ interests from being harmed by
the following transactions (“transactions to be managed”):
1) Transactions that put the Sony Financial Group’s interest firstin circumstances where there are competing interests
between the Group and customers
2) Transactions that profit from customer information
3) Transactions that profit from competing interests between
customers4) Other transactions where the interests of customers may bedeemed to be harmed by Sony Financial Group companies
2. For the purposes of this policy, the “customers” whose interests
should be protected shall be the customers of the following
businesses of Sony Financial Group companies:
1) Sony Life Insurance Co., Ltd.
Life insurance business, business of registered financial institutions, and other businesses that can be conducted by Sony
Life under relevant laws.
2) Sony Assurance Inc.
Non-life insurance business and other businesses that can be
conducted by Sony Assurance under relevant laws.
3) Sony Bank Inc.
Banking business (including bank agency business by banking agents), business of registered financial institutions, andother businesses that can be conducted by Sony Bank underrelevant laws.

* Under this policy, “Sony Financial Group companies” represents Sony
Life, Sony Assurance, Sony Bank, AEGON Sony Life Insurance andSA Reinsurance.
* Under this policy, “Sony Financial Group” represents SFH and SonyFinancial Group companies.
* Under this policy, “Sony Group finance companies” represents SonyFinancial Group companies, and other corporations and entities inwhich Sony Corporation controls the bodies that determine financial,sales, or business policies. Also included are other corporations andentities engaged in the financial services business over which Sony
Corporation can exert a significant influence on the determination offinancial, sales or business policies through investment; appointmentof its directors, employees, or persons who previously held such
posts as director or officer of equivalent position; provision of financing, credit guarantees or pledges of collateral; licensing technology;
or sales or business transactions. However, “Sony Group financecompanies” currently includes only “Group companies.”

66

Sony Financial Holdings Inc. Annual Report 2014

4) AEGON Sony Life Insurance Co., Ltd.
Life insurance business and other businesses that can be
conducted by AEGON Sony Life Insurance under relevant
laws.
5) SA Reinsurance Ltd.
Reinsurance business and other businesses that can be
conducted by SA Reinsurance under relevant local laws.

III. Structure for Management of Conflicts of Interest
1. Structure
SFH shall put a structure in place to manage conflicts of interestin the Sony Financial Group. Under this structure, the director
serving as head of the Corporate Control Department shall be
responsible for managing conflicts of interest, while the Corporate Control Department shall be the business unit responsible
for managing conflicts of interest.
2. Actions
The director responsible for managing conflicts of interest shallorder Sony Financial Group companies to take the following

actions when he or she deems them to be necessary based onreports from Sony Financial Group companies, customer complaints, or other sources:
1) Sever the flow of information between divisions that havepotential conflicts of interest2) Suspend the transaction concerned, or change the terms andconditions or method of the transaction
3) Disclose the fact or the possibilities for a conflict of interest, tocustomers4) Take any other action deemed necessary by the business unit
responsible for managing conflicts of interest
3. Record-keeping
The division responsible for managing conflicts of interest shallmaintain records of the following items and retain them for five
years.
1) Records that specify transactions to be managed
2) Records associated with actions taken to properly protect
customers

Privacy Policy

SFH has formulated a Basic Group Policy on Eradicating Antisocial Forces as follows. SFH and Group companies have inplace the structures necessary to take a firm stance on countering anti-social forces.

SFH has formulated a Privacy Policy* governing the handlingof personal information. It sets out SFH’s policies on the use of
personal information for specific purposes and its acquisitionof personal information to ensure compliance with applicablelaws and regulations. SFH has also established and observes
Rules on Information Security that set out specific security
control protocols.
SFH monitors how Sony Financial Group companies’
security control protocols are working. Specific Group measures include the formulation and revision of the Privacy Policy,
setting up an organization to protect personal information andappointing persons responsible, preparing a set of rules and amanual covering the handling of personal information, andeducation and training programs on the handling of personal
information and information security.
SFH and its Group companies strive to maintain entrusted
personal information so that it is accurate and up-to-date to
the extent necessary for the purposes of its use, and to protect personal information through steps to prevent unauthorized access, leakage, falsification, loss, destruction, and otherincidents.

Structures for Eradicating Anti-social Forces• SFH set up a department for dealing with anti-social forces
and appointed a person responsible for thwarting unreasonable demands.
• SFH collects information on anti-social forces by cooperatingwith specialized external organizations.

Basic Group Policy on Eradicating Anti-social Forces
1. The Sony Financial Group recognizes the importance ofstrictly avoiding any association with anti-social elementsfrom the perspectives of social responsibility, compliance,and corporate defense. It has therefore implemented
frameworks to shut out anti-social forces.
2. The Sony Financial Group strictly rejects unreasonable
demands by anti-social forces. Furthermore, the Group has
put in place a framework for acting firmly, on an organizational basis, against those who make unreasonable
demands.
3. The Sony Financial Group works closely with the police andexternal specialist entities, even during ordinary times, toensure appropriate assistance and cooperation should it bethreatened by anti-social forces.

Contributions to Sustainable Development

Efforts to Eradicate Anti-social Forces* Visit SFH’s website (http://www.sonyfh.co.jp/index_en.html) for more about
the Privacy Policy.

Sony Financial Holdings Inc. Annual Report 2014

67

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’s Basic Policy on Group Risk Management is as follows:

Basic Policy on Group Risk Management• As a financial holding company, SFH enhances the corporate
value of the Group by aligning risk management with Groupwide
strategic objectives and management policies, while tailoring
operating subsidiaries’ risk management to the types of risk
inherent in their respective lines of business.
• SFH adopts all necessary supplemental measures to ensure
effective risk management, after confirming each operating subsidiary has independently and responsibly established its own
risk management structure to achieve its own management
objectives.

• SFH takes steps to eliminate excessive concentration of risk in
specific areas, establish appropriate controls over intra-Grouptransactions and control the ripple effect of risk within the Group.
• In principle, SFH has control over Sony Life, Sony Assurance,
Sony Bank and Sony Lifecare—subsidiaries in which SFH has
direct investment—while these four subsidiaries oversee theirsubsidiaries and affiliates in which they themselves have investment positions. However, SFH may seek to establish an appropriate stance on risk management, by, for example, contacting
directly the subsidiaries and affiliates of its own four subsidiaries
depending on the issue or its urgency.

Approach to Risk Management by SFH and Group
Companies
SFH’s Board of Directors has formulated the Fundamental
Principles for Risk Management and communicates themto directors, employees, and throughout the Sony Financial
Group. The Board also identifies the types of risks specificto the subsidiaries’ scale, business, and other attributes andestablishes structures designed to manage them effectively.
SFH’s Executive Committee, which is appointed by the Boardof Directors, executes routine tasks pertaining to Group risk

management. In more detail, subsidiaries each assess,monitor, and manage their risks on their own. At the sametime, the Corporate Control Department, which is responsible
for SFH’s risk management, controls risks through monitoringand holding Risk Management Meetings with the subsidiaries’
risk management divisions. The Corporate Control Department
also reports its findings on the state of risk management regularly to SFH’s Board of Directors and Executive Committee.

Risk Management Structure of the Sony Financial Group "TPG+VMZ 

SFH

Officer in Charge (President, Representative Director)

General Meeting of Shareholders

Board of
Statutory Auditors

Board of Directors

Statutory
Auditors

ReportReportAudit Department

ReportAudit

Executive Committee
Corporate Control Department(Centralized Risk Management)

Supervisory Department:
Corporate Control Department

Investment Risks
t.BSLFUSFMBUFE3JTLt$SFEJU3JTL
t3FBM&TUBUF3JTL"ENJOJTUSBUJWF3JTL*OTVSBODF6OEFSXSJUJOH3JTL

4ZTUFNT3JTL-JRVJEJUZ3JTL-FHBM3JTL

Supervisory Department:
Corporate Communications &Investor Relations Department
3FQVUBUJPOBM3JTL#VTJOFTT$POUJOVJUZ3JTL

Confirm

ReportSony Life

Risk Management Meetings

Sony AssuranceManage, advise, monitor

Sony Bank&BDIDPNQBOZQVUTSJTLNBOBHFNFOUJOUPQSBDUJDFJOEFQFOEFOUMZ

68

Sony Financial Holdings Inc. Annual Report 2014

Present risk management policies

Sony Lifecare

Types and Definitions of Risks
The types and definitions of risks that SFH and Group companies must manage are shown in the following table:
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 profitability ofreal 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 internal administrative processes.

Systems Risk

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

Legal Risk

Risks affecting the Group through violations of applicable laws, rules and regulations occurring during thecourse of doing business operations, as well as the risk of loss due to litigation as well as various infringementof rights.

Reputational Risk

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

Going Concern Risk

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

Each Group company establishes its own framework for
managing risk matched to respective scale and the attributes
and type of its business, and optimizes its framework according to the risk types and definitions.

Contributions to Sustainable Development

Market-related Risk

As the operating and business environment changes, theGroup companies’ risk management departments review therisk types and definitions set forth above, amending them asappropriate for new conditions.

Contingency Management System
SFH has established a contingency plan as the Group’s comprehensive policy for action to prepare for situations in which
the execution of continuous business operations by SFH orGroup companies is at risk due to accidents, disruptions 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 where Group companies report to theCompany in situations when they may be unable to continue
ordinary business operations. If SFH determines that a reported
situation is difficult to address under the risk management
system set forth in the fundamental principles for risk management, among other guidelines, the Company shall establish
a contingency response headquarters led by the President
and Representative Director of SFH and execute business
continuity measures aimed at full restoration of all operations.

Sony Financial Holdings Inc. Annual Report 201469

Internal Audit
SFH has formulated the Basic Policy on Internal Audit for the Group, and internal audits are conducted within the Company and at
Group companies.

Basic Stance on Internal Audits
Internal audit divisions at SFH and Group companies take a fair and objective standpoint in examining and evaluating the statusof business activities from a perspective of legitimacy and rationality as a way of protecting their customers’ interests. Based onthese, the divisions then state their opinions and offer advice and suggestions for improvement, thereby contributing to ensuringsound and appropriate execution of business activities.

Internal Audit System at SFH and Group Companies
SFH has set up an Audit Department to perform internal audits. Separated from other operating divisions as a structure under the
direct supervision of the director in charge of internal audits (the President and Representative Director of SFH), this department
takes an independent and objective standpoint in performing internal audits to check and evaluate the appropriateness of work
processes and risk responses. Sony Financial Group companies each have their own internal audit divisions to perform internal
audits designed to match their specific industry, scale of business and types of risk they face. SFH’s Audit Department monitors
the results of both internal and external audits of Group companies with the aim of ensuring sound business operations. Whennecessary, the Audit Department provides advice and proposals to the subsidiaries’ internal audit divisions. SFH’s Audit Department regularly reports the results of its monitoring activities to the director in charge and the Board of Directors. Should the director
in charge see the need, as a result of the monitoring, the Audit Department may directly audit subsidiaries within the scope ofgoverning laws and regulations. In addition, the Audit Department works closely with the statutory auditors, as well as external
auditors, such as accounting auditors, as necessary.
Internal Auditing Structure of the Sony Financial Group "TPG+VMZ 

SFH

Officer in Charge (President, Representative Director)
ReportBoard of Directors
ReportAudit Department
Audit

Executive Committee

Audit

Board of Statutory Auditors
Statutory Auditors

Operations Department%JSFDUMZBVEJU BTOFFEFESony Life

Sony AssuranceSony Bank

Sony Lifecare*OUFSOBM"VEJU%JWJTJPO*OUFSOBM"VEJU%JWJTJPO*OUFSOBM"VEJU%JWJTJPO*OUFSOBM"VEJU%JWJTJPO

Audit

0QFSBUJOH%JWJTJPOTAudit

0QFSBUJOH%JWJTJPOTAudit

0QFSBUJOH%JWJTJPOTAudit

0QFSBUJOH%JWJTJPOTEmbracing Japan’s Stewardship CodeBasis of Stewardship CodeSony Life declared its support for Japan’s Stewardship Code—a set of principles guiding the responsibilities of institutional
investors.

70

Sony Financial Holdings Inc. Annual Report 2014

Contributions to Sustainable Development—Corporate Social Responsibility

Stance on Corporate Social Responsibility (CSR)
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 senseof purpose.
Furthermore, in order to fulfill its responsibilities as a member of society, the Sony Financial Group actively participates in social
contribution activities, and believes that the continuation of these activities will earn it even greater trust from local communities andcustomers.
Based on these basic approaches, Group companies have formulated the following Basic CSR Policy, and every company
in the Sony Financial Group conducts different CSR activities.
Basic CSR Policy (Excerpt)

Contributions to Sustainable Development

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 maintain the trust and support of the Sony Financial Group’s
stakeholders.

Structure for Promoting CSRGroup companies of the Sony Financial Group carry out CSR initiatives independently through their business activities. At SFH,
the Corporate Planning Department promotes and manages CSR and formulates policies for the Group. Furthermore, SFH’s otherrelevant departments monitor the CSR activities at Group companies by sharing information with them, and make reports or
proposals as necessary to the Executive Committee and the Board of Directors.

Departmental CSR Responsibilities
Corporate Communications & Investor Relations Department

Promotes external communication on Group activities

Corporate Control Department

Monitors risk management and compliance activities related to overall businessactivities at Group companies

Accounting Department

Manages internal controls over financial information for the Group as a whole

Human Resources & General Affairs Department

Monitors general administrative activities at Group companies, including activities
related to personnel systems and the environment

Audit Department

Monitors internal auditing of business activities at Group companies

Sony Financial Holdings Inc. Annual Report 201471

Activity Profiles
In giving back to society through its business activities, the Sony Financial Group regards and respects
the interests of all stakeholders—customers, shareholders and other investors, business partners,
employees and local communities.

Customers

Guided by our corporate vision and corporate philosophy, the Sony Financial Group is seeking tobecome the most highly trusted financial services group in Japan.

Utilizing Customer Feedback
Sony Financial Group companies have in place a framework
under which feedback received from each company’s customers on a daily basis is compiled and analyzed by divisions incharge of promoting customer satisfaction and raising quality.
This feedback is reported to management and used to makerecommendations on operational improvements and productand service enhancements. As a result of this approach, theSony 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.
Customer Service Divisions at Major Subsidiaries

Sony Life

VOC* DivisionSony Assurance

Customer Response Service Department

Sony Bank

Customer Support Unit(Centered on the Customer Service Office at head
office, the unit engages in VOC activities to reflect
customer feedback and requests in marketing.)* VOC=voice of customer

Sony Life Sony Life conducts customer awareness surveys
once a year, and has gathered valuable feedback andrequests from 3,464 policyholders in fiscal 2013. Also in fiscal
2013, Sony Life launched the Customer Satisfaction Survey, atelephone questionnaire aimed at policyholders to survey levelsof satisfaction with its sales representatives. Additionally, anannual questionnaire is conducted targeting Lifeplanner sales
employees who come into daily contact with customers. Sony
Life has set up a webpage on its intranet site that allows
employees to suggest improvements at any time, and approximately 30 proposals are received each year.
The VOC Division works on improvement efforts in collaboration with other internal divisions based on concrete improvement measures and plans formulated after analysis of customer feedback. Furthermore, the VOC Committee, which
serves as a conduit for reports to and orders from the Executive Committee, improves operations by executing ongoing
improvement measures, verifying the subsequent effects ofthese measures, and revising them as necessary to achieve
further improvement.

72

Sony Financial Holdings Inc. Annual Report 2014

Sony Assurance Leveraging its unique advantage as aninsurer that communicates directly with customers, Sony
Assurance listens closely to its customers and reports on specific improvement measures via its website. In addition, customer feedback is centrally managed, compiled and analyzed
on a monthly basis. Feedback is reported to management
every quarter, and in particularly important cases, detailed
reports are made on the causes of incidents and countermeasures are recommended as necessary. The feedback isalso passed on to relevant departments, along with instructions on improvements and other matters.
Sony Assurance has successfully set up a complainthandling management system. On April 1, 2011, Sony Assurance became the first* direct non-life insurer to declare of its
conformity with ISO 10002, the international standard for complaint-handling management systems. Since that time, Sony
Assurance has continued its daily activities to improve thequality of operations directed at providing better services
to customers. In recognition of these efforts, in 2014, Sony
Assurance yet again obtained approbation from Mr. Junzo
Nabeshima, who has serves as the chair of the Associationof Consumer Affairs Professionals (ACAP), among otherimportant posts.
* Based on a survey by Sony Assurance, as of March 31, 2011. Direct nonlife insurance companies refer to Japanese non-life insurance companies
selling insurance products and providing services directly to customers
without relying primarily on insurance agencies.

Sony Bank Heeding the feedback from customers, and toprovide even better products and services, Sony Bank reviews
the comments and requests from customers and strives tomake improvements. Specific feedback and related details are
made available on the Voice of Customer webpage of SonyBank’s website.
In fiscal 2013, Sony Bank placed first for the seventh consecutive year in Nikkei’s tenth annual ranking* of Japanesefinancial institutions based on customer satisfaction, and washighly evaluated on many other customer satisfaction surveys.
* Article in the January 25,
2014 issue of the Nihon
Keizai Shimbun (Nikkei)
newspaper

Shareholders and Other Investors

The Sony Financial Group has built internal systems for thetimely disclosure of corporate information, and under these systems, we provide timely and accurate information on the
Company to shareholders and other investors. SFH has established the following IR (investor relations) Policy to provide
ample opportunities for two-way communication between shareholders and SFH management, with the aim of maximizing shareholder value.

IR Policy

Basic Approach to IR Activities(1) SFH will disclose the information necessary to assess its corporate
value based on the principles of promptness, accuracy, fairness andconsistency.
(2) SFH will engage with members of the investment community suchas its shareholders and other investors, as well as securities analysts, in a sincere and direct manner in order to establish relationships of trust.
(3) SFH will promote IR activities led by top management, based on theconcerted effort of the entire Sony Financial Group.
Method of Disclosure of IR Information• SFH will provide timely disclosure based on the Securities Listing
Regulations for marketable securities through the Timely Disclosure
Network (TDnet) of the Tokyo Stock Exchange, and will promptly
make such information available on the SFH corporate website. SFH
shall, in principle, make the information published through the TDnet
available on the SFH corporate website.
• SFH strives to provide fair disclosure worldwide by making a full range
of information available on its corporate website, including informationthat is not required under disclosure regulations.
Framework for Disclosure of IR Information
In order to promote timely disclosure, SFH has established the Rules
and Regulations Related to Timely Disclosure, and set up a Disclosure
Committee (DC)*.
In the event that material information comes to light, SFH hasa framework in place whereby SFH’s directors and employees, as wellas managers responsible for the material disclosure of information(hereinafter, the “Disclosure Managers”) of its subsidiaries, promptly
report on this information to the DC.
Furthermore, material corporate information that SFH must
disclose is set forth in the Sony Financial Group Guidelines for Reporting Important Information. These guidelines are made known to SFH’s
directors and employees, as well as the Disclosure Managers of its
subsidiaries.

*Roles of the Disclosure Committee(1) Assist the decision making of the President and Representative Director
regarding the design, implementation, evaluation and maintenance of thedisclosure system(2) Promptly and comprehensively collect material corporate information ofGroup companies. Discuss the necessity of timely disclosure along withthe accuracy, completeness, clarity and level of formality of the content
of timely disclosure, as well as the fairness and urgency of the announcement. Provide the necessary information when authorized personnel
must make decisions on the disclosure of said information.
Contributions to Sustainable Development

Purpose of IR Activities
SFH strives to provide members of the investment community, including its shareholders and other investors, as well as securities analysts,
with information related to the assessment of corporate value in atimely, accurate and fair manner. At the same time, SFH strives toprovide feedback to management in an effort to strengthen two-way
communication. Furthermore, by enhancing disclosure of businessstrategies and financial position, SFH makes efforts to gain the trustof the investment community and obtain a fair corporate valuation fromstakeholders.

Quiet Period for IR Activities
In order to ensure fair disclosure of information and prevent the leak ofmaterial information regarding the Sony Financial Group’s businessresults prior to earnings announcements, SFH has established a quiet
period for IR activities. SFH observes a quiet period for IR activities fromthe second Monday of the month following the end of every quarter until
the earnings announcement. During this period, SFH shall not, in principle, hold individual meetings, presentations about the Company andother such events, and shall refrain from answering inquiries regarding
the settlement of accounts.
Framework for Disclosure of IR Information (As of July 1, 2014)
The Sony Financial Group
Determination and occurrence of materiality of information*
SFH directors and employees
Sony Life
DisclosureManagerSony Assurance
DisclosureManagerSony Bank
DisclosureManagerSony Lifecare
DisclosureManager

SFH
Disclosure Committee (advisory body**)
Board of Directors/Executive Committee (decision-making bodies)
Corporate Communications & Investor Relations Department(department responsible for handling information)

Disclosure
TDnet/Press releases* Defined as information that has “an extremely high likelihood of being
deemed material by shareholders and other investors, as well as otherparties, on a rational basis,” when making an investment decision.
** This advisory body assists the decision making of the President andRepresentative Director. Comprises members of the Executive Committee, including executive directors and general managers from eachdivision (Secretariat/Corporate Communications & Investor Relations
Department).

Sony Financial Holdings Inc. Annual Report 201473

Investor Relations Initiatives in Fiscal 2013
SFH strives to communicate a broad range of information toshareholders and other investors in Japan and overseas, toaddress various topics of interest. To this end, SFH conductedpresentations and individual meetings in a variety of formats,as detailed below.
The SFH IR website has received high marks, including
taking first place for the second consecutive year in the insurance sector on the fiscal 2013 Nikko Investor Relations Co.,
Ltd. industry-specific ranking of all listed Japanese company
websites.
SFH President and Representative Director, Katsumi Ihara, gives a briefing
for individual investors in March 2014.
Record of IR Activities

Earnings briefings (teleconferences with domestic institutional investors and analysts)
Corporate Strategy Meeting
Individual meetings with institutional investors and analysts
Overseas IR meetings (Europe, North America, Asia)
Briefings for individual investors
Participation in an IR fair for individual investors
Business briefing (small meeting for domestic institutional investors and analysts)
Sony Financial Group internal IR briefings

4 times
1 timeApprox. 220
1 tour in each region
4 times
1 time1 time3 times

Annual IR Schedule
Announcement of
Full-year Consolidated Financial Results

Apr.

May

Announcement of
1Q Consolidated Financial Results

Announcement of
2Q Consolidated Financial Results

Announcement of
3Q Consolidated Financial Results

Jul.

Oct.

Jan.

Jun.

Ordinary
General Meetingof Shareholders
Shareholder
Newsletter(Japanese)

74

Aug.

Annual Report(English)

Annual Report(Disclosure Report)(Japanese)Sony Financial Holdings Inc. Annual Report 2014

Sep.

Nov.

Dec.

Feb.

Interim Shareholder Newsletter(Japanese)

Interim Disclosure Report(Japanese)Mar.

Business Partners The Sony Financial Group promotes fair and equitable transactions with institutions thatprovide financial products and services and with suppliers and vendors of goods and services, along with insurance
agencies, and maintains healthy relationships with all of its business partners as part of the sustainable development ofsociety.

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

Partners (Independent Agents)

Partner (Independent Agent) Training ProgramSony Life provides several systematic training programs forPartners, which are collectively referred to as the Partner Training Program. To enable Partners to succeed as life insurance
professionals, Sony Life provides training related to products,
along with expertise on sales tailored to customer needs
based on sales processes developed by the Company over
the years.
Furthermore, Sony Life introduced the Professional Agent(PA) system in 2006 for the purpose of helping to nurture highquality sales people. The PA certification is conferred on
carefully selected sales people who satisfy fixed performanceand qualification requirements and possess the skills neededby life insurance sales professionals.

Contributions to Sustainable Development

Sony Life’s Partners (Sony Life refers to independent agentsas “Partners” not only because they are partners from a business standpoint but also because they are the lifelong partnersof customers) constitute a critically important sales channel
alongside Lifeplanner sales employees. Based on the desire toprovide high-quality services closely tied to regional communities, the Company’s approximately 2,000 Partners around thecountry, as of July 1, 2014, sell policies tailored to customer

needs based on their sophisticated insurance knowledge andconsulting capabilities as life insurance professionals, faithfully
fulfilling their responsibilities as partners to customers.

Employees

The Sony Financial Group’s corporate philosophy states our commitment to fostering an open
corporate culture where employees can freely express their individuality and demonstrate their abilities to the fullest. We
consider it essential that all employees actualize their full potential, and thus implement initiatives to create pleasant andproductive workplaces, through such means as, for example, the Employee Opinion Survey.

Work–life Balance
The Sony Financial Group promotes initiatives to help balancecareers with private lives.
Since it was established, Sony Life has had a system inplace that goes beyond what is required by law to enable
employees who are raising children to continue working. Since
July 2007, Sony Life has been continually certified by the
director of the Tokyo Labour Bureau as a company that meetsthe requirements of the Act on Advancement of Measures to
Support Raising Next-Generation Children. Also, Sony
Assurance became the first direct non-life insurer to receive
this certification* in August 2012.
Sony Bank implemented a two-year action plan from July
1, 2011 to June 30, 2013 to help employees balance childraising responsibilities with work. A guidebook on social

security and other support was distributed and can be referred to by expecting
parents regarding birth and child raising.
By continuing to help employees balance child-raising responsibilities withwork going forward, Group companies
will remain focused on proactively creating a work environment conducive to healthy childbirth andparenting.
* 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 andhave consented 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 Financial Holdings Inc. Annual Report 201475

Sample Initiatives

Sample Programs and Initiatives for the Development of Employees

Introduction offlex-time working
hours and othersystems

Established systems permitting flex-time working
hours, as well as earlier or later start and finish
times for work. Reduced work-hours system
available for employees in childcare periods.

Self-development
ProgramThis program provides group training sessions
and opportunities to take correspondence
courses to employees working independently todevelop their skills.

Childcare leaveand nursing careleave, etc.

Amount of leave time provided exceeds legal
requirements. Childcare leave is taken by somemale employees every year.

Management
Skill-development
ProgramTelecommuting
SystemIntroduced at SFH and Sony Life.

This program is conducted jointly by SonyFinancial Group companies as a part of efforts
to improve the managerial capabilities of management-level employees.

Other leavesystems

Introduced volunteering leave and commemorative leave.

In-house
Inter-departmental
Training ProgramThis program allows employees to obtain work
experience in different departments for a certain
period of time. The program can be used forunderstanding different operations or to achieve
career plan objectives.

Recruitment andTraining of Global
Human Resources

Eyeing overseas business expansion in the
future, the Sony Financial Group is conducting
initiatives, such as recruitment of non-Japaneseindividuals, Management Workshop for Nurturing Future Global Business Leaders, Language
Training Program, overseas training (language
training as well as actuary training and dispatchof employees to leadership programs).

Human Resources Development
New Employee Training
In addition to training at each Group company, training programs are conducted jointly at the Group level to promote
understanding of the business operations of the Group asa whole. These programs include Life-Planning Courses,
briefings on each company’s business operations, and on-site
tours. Training for employees in their second year is also conducted at the Group level.

New employee training

76

Sony Financial Holdings Inc. Annual Report 2014

President Ihara’s Workshop: Management Workshop for Nurturing
Future Global Business LeadersTraining System for Lifeplanner Sales Employees at Sony LifeAll Lifeplanner sales employees complete a 36-month program after joining the company in order to develop a customer-ﬁrst approach,the knowledge and skills required of an insurance and ﬁnance professional, and appropriate customs of conduct.
Lifeplanner Sales Employees Training System (As of July 1, 2014)
Graduation
test
es

Branch study sessions, group study sessions, sales office study sessions, and others

BTP 6
Branchtraining
process
In-house
education
programs

BTP 12
BTP** 1
1 month
after joining BTP 24

Beforejoining
CIP*
8 hours,
4 times

BTP new
employeetraining

Graduation
test
es

2 to 12 months after joining (focused on life planning)
2 to 24 months after joining (focused on knowledge, skill
skills and compliance training)

BTP 362 to 36 months after joining (focused on corporate market
arke and after-sales follow-up consultations)

OJT(Process meetings, role playing, apprentice field work)

Start ofsales

BTP
follow-up
training* CIP: Career Information Program** BTP: Basic Training Program

BTP
follow-up
training

Contributions to Sustainable Development

Headofficetraining

2 to 6 months after joining

Ongoing training, up to 36 months(focused on
knowledge
and skills training) Graduation
test
es

Assurance certification exam (after more than one year of employment)

The Life
Insurance
Association ofJapan’s exam

Certification
exam

Generalprocess examSpecial course exams
Variable insurance sales
certification exam

Advancedcourse exam

GeneralSpecial / Variableinsurance sales

Advanced

Financialplannercertification
exam

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

JAFP
certification
training

Life Insurance
University course exams(6 fields)
Total life consultant (financial
Life Insurance
planner certified by the Life
University
Insurance Association of Japan)

2nd Grade
Certificationin Financial
Planning(national
qualification)

1st Grade Certificationin Financial Planning(national qualification)

AFP

CFP®

Financial Planner

Local Communities
Social Contribution Activities through Insurance Products
Sony Assurance added a bone marrow donor support rider
automatically to all policies in its SURE medical and cancer
insurance offerings in order to lessen the ﬁnancial burden on
donors. Sony Assurance pays surgery beneﬁts to policyholders
who undergo surgery to harvest stem cells from their bonemarrow for donation to patients with intractable blood diseases.
There is no insurance premium burden for the policyholder.

SURE supports bone-marrow donors.

Sony Financial Holdings Inc. Annual Report 201477

Social Contribution Activities with Employee Participation
Sony Life Volunteer Club
Social contribution is a well-established part of the corporate
culture at Sony Life, where many employees discover the valueof volunteer activities and contribute to society under the slogan“One Love One Trust.” The Sony Life Volunteer Club was established by Sony Life’s employees in 1995 after the Great Hanshin–
Awaji Earthquake, and the organization is still in operation morethan 19 years after the disaster. Each member participates inrunning the club, which is funded by donations from employees.
Members devise and carry out a wide range of initiatives.
Examples of main activities• Continuing support for the elderly victims of the Great
Hanshin–Awaji Earthquake• Hosting youth education events at care houses• Operational support for the Oita International Wheelchair Marathon

Life-Planning Courses Win Top Award of Excellencefrom Ministry of Economy, Trade and Industry
Since ﬁscal 2005, Sony Life has conducted Life-Planning
Courses, a hands-on learning program for students nationwide. Courses are conducted by Lifeplanner sales employees.
The program is designed to foster students’ appreciation for
the importance of leading a well-planned life, and working hard
toward goals. As of March 31, 2014, Life-Planning Courses
have been given at more than 600 schools nationwide (cumulative). In recognition of these courses, Sony Life received anAward of Excellence from among major corporations selectedin the Fourth Career Education Awards* held by the Ministry of
Economy, Trade and Industry in January 2014.
* The Career Education Awards were established by the Ministry of Economy,
Trade and Industry in fiscal 2010 as a commendation system to encourageand popularize educational support initiatives by companies and economic
groups.

• Support for the Relay for Life* event

Life-Planning Courses• Activities to support reconstruction after the Great East Japan
Earthquake (soup kitchens, participation in local festivals, distributionof potted plants among temporary-housing residents, and more)* Relay for Life is a charity event held in over 5,000 communities in 20
countries around the world. People battling cancer, their families and people who have lost loved ones to the disease run laps around a track for 24hours to promote the eradication of cancer. Sony Life has participated in
the Relay for Life since 2007. In fiscal 2013, Sony Life participated in relays
in 32 communities held across Japan. Led by Lifeplanner sales employees
at regional branches, over 2,400 people (cumulative) participated, including
the families of employees and customers.

FY2013

Number of schools
Number of participating students

NPO Sorabear Foundation

6,163,125Special Olympics Nippon Foundation

5,000,000

Purchase of green power and J-Credits in ﬁscal 2013

3,345,000

Donations to support children who have suffered inconnection with the Great East Japan Earthquake

5,529,063

Funds for activities of Sony Life Volunteer Club

2,500,000

Japan performance of YPC(Young People’s Chorus of New York City)

1,000,000

Hand in Hand

1,000,000

The Tokyo Philharmonic Orchestra Public Interest
Incorporated Foundation

1,000,000

Sony Education Foundation, Public Interest
Incorporated Foundation

1,000,000

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

78

Amount¥13,500,000

The Eye Mate, Inc.

Sony Financial Holdings Inc. Annual Report 2014

2,987,505¥43,024,693

14,292

Cumulative total Number of schools
604 (cumulative)(FY2005–FY2013)
Number of participating students
57,641

Sony Financial Group’s Donations and Grants for
Fiscal 2013
Main Recipients of Donations and Other Assistance134

A Life-Planning Course held by Sony Life

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

Group Company Activities
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 pursue
energy-saving and natural resource-saving activities, suchas targets for reduced energy and photocopier paper usage,and promote green procurement to raise the percentage of
eco-products used in ofﬁce supplies.

Use of Green PowerIn ﬁscal 2005, Sony Life became the ﬁrst
Japanese life insurance company to introduce
a Green Power Certiﬁcation System, whichenables companies to use green power intheir business activities and thus reduce CO2
emissions. In ﬁscal 2007, Sony Assurance
introduced the same system.
From ﬁscal 2008, Sony Bank has also utilized the system
to cover all of its power usage (excluding the portion of powerusage in outsourced operations) as a “carbon offset bank.”
Since ﬁscal 2013, it has been offsetting 100% of its CO2
emissions through the use of credits certiﬁed under the
J-Credit Scheme*, instead of the green power certiﬁcatesused formerly.
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 2013, theentire Group purchased green power certiﬁcates and J-Credits
equivalent to 1,750 MWh.
* The J-Credit Scheme is a system whereby the government certifies credits
for the reduction or absorption of greenhouse gas emissions such as CO2
through measures including the introduction of energy-saving equipment
or forest management. Credits used by Sony Bank are generated throughincreases in CO2 absorption via forest management activities (forest thinning, for example). Accordingly, Sony Bank’s use of credits also supports
activities to nurture woodlands.

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 overhauled its sales support system in October
2012 with the introduction of approximately 5,000 new tablet
computers, and by introducing paperless application procedures for life insurance policies.
Sony Bank has requested that customers receive documents related to investment trust transactions in electronic
format.
Sony Assurance has also made it possible to apply for
automobile insurance policies online, thereby avoiding theprinting and mailing of insurance application forms and otherdocuments. In addition, Sony Assurance pursues environmental conservation activities such as a paperless insurance certiﬁcate discount of ¥500 on automobile insurance premiums forcustomers who buy a policy online and request not to havecertiﬁcates of insurance and other documents printed andmailed.
Amount of CO2
cut at Sony
Assurance byreducing thevolume ofautomobile
insurance
application forms
printed andmailedContributions to Sustainable Development* ISO 14001 certification covers the head offices of Sony Life and Sony
Assurance, along with Sony Bank’s head office and the Housing Loan
Plaza. The Sony Financial Group conducts regular internal environmental
audits of ISO 14001-certified offices, and the audit results are reported
to top management.

Reducing CO2 Emissions by Switching to Paperless
Contract Procedures and Electronic Issuance ofDocuments for Customers

kg
400,000

300,000

200,000

100,000
0

03

04

05

06

07

08

09

10

11

12

13

The number of customers who buy automobile insurance policies online is growing
every year. This contributes to the reduction of CO2 emissions related to the printing
and mailing of application forms.
Basis for calculating CO2 emissions generated by the printing and mailing of
application forms, among others
New
Amount of CO2 generated in the printing of 1 application form
customers Amount of CO2 generated in the mailing of 1 application form
Amount of CO2 generated in the printing of 1 insurance
certiﬁcate
RenewalAmount of CO2 generated in the mailing of 1 application form
customers Amount of CO2 generated in the printing of 1 renewal
certiﬁcate

0.145kg
0.097kg
0.115kg
0.097kg
0.116kg* Calculations are based on CO2 emission rates in Chart 2.2 of the Report from
Study Group on ICT Policy for Addressing Global Warming (Ministry of Internal
Affairs and Communications)Sony Financial Holdings Inc. Annual Report 201479

Conservation Activities in Cooperation with Customers
Donating to the Sorabear Foundation
Teaming up with Sorabear Foundation, a non-profit organization that promotes the spread of renewable energies and environmental education, Sony Assurance has carried out a program to install solar power generators at kindergartens since
March 2009.
Sony Assurance donates one yen to the Sorabear Foundation for every 100 kilometers of total distance that was not
driven by its policyholders compared to the forecast distance.
The Sorabear Foundation uses the donations to provide Sorabear power generation equipment—solar power generators—
to kindergartens and nursery schools around the country. In
fiscal 2013, the program contributed two solar power generators to nursery schools in Osaka and Ibaraki prefectures. To
date, Sony Assurance has donated a total of 13 solar power
generators through this program (as of July 1, 2014).
In addition, Sony Life began offering policy guides andagreements on CD-ROM for policies dated March 2, 2010or later. Sony Life donates ¥10 for every policyholder whochooses a CD-ROM instead of paper documents when they
sign up for insurance, and donates the proceeds to the Sorabear Foundation. In fiscal 2013, Sony Life used the collected
donations to provide a solar power generator to a nursing
school in Shiga Prefecture.

Supporting Forest Conservation in Sumatra with
Customers by Opening an Account at Sony Bank
To protect World Heritage forests on the island of Sumatra,Sony Bank supports reforestation, the Elephant Patrol program*, and other conservation activities, as well as the activities of the World Wildlife Fund Japan (WWF Japan) to preserve
forests through its Project for Forest Conservation in Sumatra,Indonesia. Since September 2012, Sony Bank has donated¥10 to the project each time a customer opens a new accountwith Sony Bank. Customers can thus help support the effort topreserve Sumatra’s forests simply by establishing an accountwith Sony Bank.
* Patrol staff astride elephants work to uncover illegal activity and keep wild
animals away from populated areas.

©WWF Indonesia

Project for Forest Conservation in Sumatra, Indonesia

Ceremony to mark the donation of Sorabear power generation equipment
to Himawari no Ouchi (Sunflower House kindergarten) in Ibaraki Prefecture,
October 2013

80

Sony Financial Holdings Inc. Annual Report 2014

Open a new bankaccount withSony Bank

Contribute ¥10 for
every newly
opened accountUse the contributions
to support the Projectfor Forest Conservationin Sumatra

Customers

Sony BankWWF Japan

Corporate Section—Corporate Data

Corporate Section

Sony Financial Holdings Inc. Annual Report 201481

Corporate Section—Corporate Data

Corporate Information(As of March 31, 2014)

Name

Sony Financial Holdings Inc.

Established

April 1, 2004

Head office

1-1, Minami Aoyama 1-chome, Minato-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: 50(Consolidated: 8,150, Life insurance business: 6,527, Non-life insurance business: 1,088, Banking business: 498,
Parent: 37)

Common stock¥19,900 million

Note: The number of employees of SFH includes 9 belonging to the life insurance business, 1 belonging to the non-life insurance business, 1 belonging to thebanking business, 2 belonging to the nursing care business, and 37 belonging to the parent.

Organizational Chart(As of July 1, 2014)
Sony Financial Holdings Inc.
General Meeting of Shareholders

Board of Statutory Auditors
Statutory Auditors

Board of Directors

Audit Department
Executive Committee
Business Execution Departments
Corporate Planning
Department

Corporate Communications &Investor Relations Department

Corporate Control
Department

Accounting Department

Human Resources &General Affairs Department

Sony Financial Group Organizational Chart of Business Operations(As of August 1, 2014)

Sony Corporation

Sony Financial Holdings Inc.

Life Insurance BusinessSony Life Insurance Co., Ltd.

Non-life Insurance BusinessSony Assurance Inc.

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

Life Insurance Business
SA Reinsurance Ltd.

Consolidated subsidiaries
Non-consolidated subsidiaries
Affiliate accounted for by
the equity method

Trade name and trademark license
Sales of and referrals toother Group companies’
products

Management fee
Shareholding

Sony Financial Holdings Inc. Annual Report 2014

Nursing Care BusinessSony Lifecare Inc.

Banking Business
SmartLink Network, Inc.

Nursing Care Business
Senior Enterprise Corporation

Banking Business
SmartLink Network Hong Kong Limited

Note: The information for each business is based on SFH’s classification of segment information.

82

Banking BusinessSony Bank Inc.

Profiles of Group Companies(As of July 1, 2014)

Life Insurance Business
Name

Established

Head officeBusiness

CommonstockSony Life Insurance Co., Ltd.

August 10,
1979

1-1, Minami Aoyama
1-chome, Minato-ku,
Tokyo, Japan

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

AEGON Sony Life
Insurance Co., Ltd.

August 29,
2007

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

Life insurance
business¥12,000 Sony Life Insurance Co., Ltd.
million50%

British Bermuda

Reinsurance
business

SA Reinsurance Ltd.

October 29,
2009

Share ownership

AEGON International B.V.
50%
¥8,000
millionSony Life Insurance Co., Ltd.
50%
AEGON International B.V.
50%

Non-life Insurance Business
Name

Established

Head officeBusiness

CommonstockSony Assurance Inc.

June 10,1998

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

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

Name

Established

Head officeBusiness

CommonstockSony Bank Inc.

April 2,2001

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

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

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

Hong Kong, China

Credit card
settlement
services¥13
millionSmartLink Network, Inc.
100%

Commonstock

Share ownership

Banking Business

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

SmartLink Network February 27,
Hong Kong Limited 2013

Nursing Care Business

Share ownership

Name

Established

Head officeBusinessSony Lifecare Inc.

April 1,
2014

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

Management
control of companies
handling the nursing
care business, andother duties incidental
to that role¥10
millionSony Financial Holdings Inc.
100%

October 5,
1999

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

Operation ofnursing care
homes

¥495
millionSony Lifecare Inc.
100%

Senior Enterprise
Corporation

Sony Financial Holdings Inc. Annual Report 2014

Corporate Section

SmartLink Network, Inc.

Share ownership

83

Senior Management of Three Main Subsidiaries(As of July 1, 2014)

Sony Life

Sony
Assurance

Sony Bank

84

Concurrent Positions at Sony Corporationand Main Sony Financial Group Companies

Title

Name

President, Representative Director

Katsumi Ihara

President, Representative Director of Sony Financial Holdings Inc.
Director of Sony Assurance Inc.
Director of Sony Bank Inc.

Representative Director

Masamitsu Shimaoka

Director of Sony Financial Holdings Inc.

Directors

Yuichiro Sumimoto−

Tomoo Hagimoto−

Hirotoshi Watanabe

Senior Managing Director of Sony Financial Holdings Inc.
Director of Sony Assurance Inc.
Director of Sony Bank Inc.

Yutaka Ito

Managing Director of Sony Financial Holdings Inc.
Director of Sony Assurance Inc.
Director of Sony Bank Inc.

Standing Statutory Auditor

Mitsuhiro Koizumi

Statutory Auditor of Sony Financial Holdings Inc.

Statutory Auditors

Hiroshi Sano

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

Nobuhiko Fujii

Standing Statutory Auditor of Sony Assurance Inc.

President, Representative Director

Atsuo Niwa

Director of Sony Financial Holdings Inc.

Representative Director

Takashi Sakuma−

Directors

Toshihiko Fukumoto−

Katsumi Ihara

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

Hirotoshi Watanabe

Senior Managing Director of Sony Financial Holdings Inc.
Director of Sony Life Insurance Co., Ltd.
Director of Sony Bank Inc.

Yutaka Ito

Managing Director of Sony Financial Holdings Inc.
Director of Sony Life Insurance Co., Ltd.
Director of Sony Bank Inc.

Standing Statutory Auditor

Nobuhiko Fujii

Statutory Auditor of Sony Life Insurance Co., Ltd.

Statutory Auditors

Hiroshi Sano

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

Takayuki Nakagawa

Senior Manager, New Consolidation System Group, Consolidation
Accounting Department, Accounting Division, Sony Corporation

President, Representative Director

Shigeru Ishii

Director of Sony Financial Holdings Inc.

Executive Vice President,
Representative Director

Takayuki Suzuki−

Directors

Katsumi Ihara

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

Hirotoshi Watanabe

Senior Managing Director of Sony Financial Holdings Inc.
Director of Sony Life Insurance Co., Ltd.
Director of Sony Assurance Inc.

Yutaka Ito

Managing Director of Sony Financial Holdings Inc.
Director of Sony Life Insurance Co., Ltd.
Director of Sony Assurance Inc.

Tohru Nakajima−

Standing Statutory Auditor

Shinji Sugiyama−

Statutory Auditors

Hidemichi Takenaka

Senior Manager, International Planning Section, Accounting Division,
Sony Corporation

Hiroshi Sano

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

Sony Financial Holdings Inc. Annual Report 2014

Stock Information
Information on Common Stock, Shares Outstanding
Increase in Issued Total Number of
SharesShares Issued

Date

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

2,000,000
100,000
75,000—432,825,000

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

Increase inCommon Stock(Millions of yen)

Common Stock(Millions of yen)

Increase in
Capital Surplus(Millions of yen)

Capital Surplus(Millions of yen)

500
5,000
14,400
—
—

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

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

Stock Exchange Listing(As of July 1, 2014)

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

Major Shareholders(As of March 31, 2014)
Number of
Shares Held

Percentage ofOwnership (%)

Sony Corporation
State Street Bank and Trust Company 505223
The Master Trust Bank of Japan, Ltd. (Trust Account)
JP Morgan Chase Bank 385632
Japan Trustee Services Bank, Ltd. (Trust Account)
MSCO CUSTOMER SECURITIESBNP PARIBAS SECURITIES SERVICES LUXEMBOURG/JASDEC/BP2S DUBLIN–US PENSION FUND
State Street Bank and Trust Company
SAJAP
Goldman, Sachs & Co. Reg

261,000,000
10,129,872
9,118,500
7,416,143
6,660,991
6,107,920
6,105,000
5,617,239
5,028,100
4,833,198

60.00
2.32
2.09
1.70
1.53
1.40
1.40
1.29
1.15
1.11

Corporate Section

Name

Distribution of Share Ownership(As of March 31, 2014)

By shareholder type
Financial instruments firms 1.06%

Total number of shares issued

Foreign investors 27.66%

435,000,000
Corporations 60.12%

Financial institutions 8.14%
Individuals and others 3.02%

Sony Financial Holdings Inc. Annual Report 201485

Dividend Policy
Dividends

FY2011Dividend per ShareFY2012FY2013

FY2014 (Forecast)Year-end

¥20

¥25

¥30

¥40

Interim

—

—

—

—

Annual

¥20

¥25

¥30

¥40

¥8,700 million¥10,875 million¥13,049 million¥17,399 million

Dividend Payout Ratio (Consolidated)

26.5%

24.1%

32.2%

35.5%

Dividend on Net Assets Ratio (Consolidated)

2.7%

2.8%

2.9%

—

Annual Dividend AmountBasic Policy on Returning Profits to Shareholders
SFH intends to meet the expectations of all shareholders by achieving steady earnings growth at Group companies, improving
capital efficiency and returning profits to shareholders as appropriate.
Our basic dividend policy is to maintain stable dividend payments while securing sufficient internal reserves to ensure thefinancial soundness of Group companies and to invest in growing fields. Based on this policy, SFH aims for steady increases in
dividends in line with earnings growth over the medium and long terms. Our medium-term target for the dividend payout ratio is
30% to 40% of consolidated net income.
Management will determine specific dividend amounts for each fiscal year by taking into account a comprehensive range offactors, including the capital adequacy of each Group company relative to risk, investment opportunities, business forecasts andlegal and regulatory developments worldwide.
SFH pays dividends once a year as a year-end dividend. The Articles of Incorporation of SFH stipulate that it may also issue
an interim dividend. In regard to the decision-making entities for the payment of dividends, the General Meeting of Shareholders
decides the year-end dividend, while the Board of Directors decides the interim dividend.
As regards the year-end dividend for fiscal 2013, taking into account a comprehensive range of factors, including operating
results and the business environment, SFH declared a year-end dividend of ¥30 per share, up ¥5 from the previous fiscal year,
representing an annual dividend amount of ¥13.049 billion. This dividend was approved by resolution of the Ordinary General
Meeting of Shareholders held on June 24, 2014.

Share Prices

Yen
2,000

1,500

1,000

500

0

Trading Volume

4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6
2011
2012
2013
2014

Thousand shares
90,00060,00030,000086Sony Financial Holdings Inc. Annual Report 2014

4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6
2011
2012
2013
2014

Financial Section
Contents
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, 2014)96

MCEV Results for Sony Life as of March 31, 2014

116
Financial Section

Sony Financial Holdings Inc. Annual Report 201487

SFH Consolidated Financial Statements

Consolidated Balance Sheets
Sony Financial Holdings Inc.
As of March 31, 2013 and 2014
Millions of yen
2013

2014

Cash and due from banks¥ 104,142¥ 204,546

Call loans and bills bought

107,088

40,628

Monetary trusts

324,305

325,831

Securities

6,202,333

6,822,151

Loans

1,115,330

1,211,638

73,21771,565Land

31,08930,103

Buildings

39,69637,030

Leased assets

302

106

Construction in progress

672

947

Other tangible fixed assets

1,456

3,376

38,232

36,774

Software37,94436,571

Goodwill

258

179

Other intangible fixed assets

29

24

Due from reinsurers

110

158

Foreign exchanges

7,954

7,752

107,345

100,503—

1,730

Deferred tax assets

17,98019,872

Reserve for possible loan losses(1,877)(1,769)¥8,096,164¥8,841,382

AssetsTangible fixed assets

Intangible fixed assets

Other assets
Net defined benefit asset

Total Assets

88Sony Financial Holdings Inc. Annual Report 2014

Millions of yen

Liabilities
Policy reserves and others
Reserve for outstanding claims
Policy reserves
Reserve for policyholders’ dividends
Due to agencies
Due to reinsurers
Deposits
Call money and bills soldBorrowed money
Foreign exchanges
Bonds payable
Other liabilities
Reserve for employees’ bonuses
Reserve for employees’ retirement benefits
Net defined benefit liability
Reserve for directors’ retirement benefits
Special reserves
Reserve for price fluctuations
Deferred tax liabilities
Deferred tax liabilities on land revaluation
Total Liabilities2014¥5,601,060
53,246
5,543,540
4,273
2,431
600
1,857,302
10,0002,000
87
20,000106,365
3,085
24,216—411
32,34432,344275
536
7,660,719¥6,263,315
57,4006,201,676
4,237
2,169
650
1,889,970
6,000
20,00040
20,00095,7253,204—
30,272250
41,65741,657539
536
8,374,332

19,900195,277
135,160—
350,337

19,900195,277
164,790(0)379,967

88,329(3,047)(1,513)——
83,767
1,339
435,444¥8,096,164

92,002(2,388)(1,513)0(2,292)85,8071,275
467,050¥8,841,382

Financial Section

Net Assets
Shareholders’ equity
Common stock
Capital surplus
Retained earnings
Treasury stock
Total shareholders’ equity
Accumulated other comprehensive income
Net unrealized gains on other securities, net of taxes
Net deferred losses on hedging instruments, net of taxes
Land revaluation, net of taxes
Foreign currency translation adjustments
Remeasurements of defined benefit plans, net of taxes
Total accumulated other comprehensive income
Minority interests
Total Net Assets
Total Liabilities and Net Assets

2013

See accompanying “Notes to the Consolidated Financial Statements.”

Sony Financial Holdings Inc. Annual Report 201489

Consolidated Statements of Income and Consolidated Statements of Comprehensive Income
Sony Financial Holdings Inc.
For the years ended March 31, 2013 and 2014
Millions of yen(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 monetary trusts, net
Gains on sale of securities
Gains on redemption of securities
Gains on derivatives, net
Foreign exchange gains, net
Other investment income
Gains on separate accounts, net
Other ordinary income
Ordinary Revenues from the Non-life Insurance Business
Underwriting income
Net premiums written
Interest and dividends on deposits of premiums
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
Other interest income
Fees and commissions
Other operating income
Gains on foreign exchange transactions, net
OthersOther ordinary income

2013

2014

¥1,259,041
1,140,184
925,075
923,672
1,402
199,549
108,153
5,259
2,522
—
—
—
13
83,601
15,55984,711
83,61583,582
33
1,021
1,027
26
—
(33)
74
34,14525,954
13,877
12,007
13
55
0
5,260
2,815
1,874
940
114

¥1,319,766
1,194,315
959,911
958,585
1,325
211,829
121,666
5,311
773
2
172
1,183
47
82,67022,57589,863
88,63988,600
39
1,199
1,209
25
3
(39)
24
35,58626,32814,134
12,077
8
107
0
4,928
4,174
2,782
1,391
155

(Continued on next page)90

Sony Financial Holdings Inc. Annual Report 2014

Millions of yen
2014¥1,179,789
1,069,007
293,938
71,0659,571
46,809161,873
2,649
1,968
630,575
607
629,955
12
11,450
43
1,587
327
226
1,253
21
2,000
5,990
108,849
24,19281,704
61,401
47,153
5,656
945
4,407
3,238
0
7
3
3
20,27916¥1,243,629
1,128,787
327,257
77,413
10,76855,510178,402
3,203
1,959
650,76455
650,703
5
8,182
48
528
—
—
—
6
1,952
5,646
113,442
29,14086,18965,03046,183
6,367
948
4,098
7,433
0
7
5
2
21,150
0

Financial Section

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
Devaluation losses on 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
Provision for underwriting reserves
Other underwriting expenses
Investment expenses
Losses on sale of securities
Losses on redemption of securities
Operating, general and administrative expenses
Other ordinary expenses

2013(Continued on next page)

Sony Financial Holdings Inc. Annual Report 201491

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
Ordinary Profit
Extraordinary Losses
Losses on disposal of fixed assets
Impairment losses
Provision for special reserves
Provision for reserve for price fluctuations
Losses on sale of shares of subsidiaries and affiliates
OthersProvision for Reserve for Policyholders’ Dividends
Income before Income Taxes
Income Taxes-Current
Income Taxes-Deferred
Total Income Taxes
Income before Minority Interests
Minority Interests in Income (Loss)Net Income

Millions of yen
2013

2014

¥29,077
7,811
6,296
10
86
61
1,355
0
1,546
2,568
16,760389
79,252
9,257
113
962
6,964
6,964
1,216
0
2,104
67,89029,366(6,620)22,74645,14378¥45,064¥28,652
6,286
4,905
6
26
119
1,227
0
1,735
3,411
16,920298
76,136
9,508
137
36
9,312
9,312
—
20
2,232
64,396
26,451(2,517)23,93340,462(42)¥40,504

See accompanying “Notes to the Consolidated Financial Statements.”(2) Consolidated Statements of Comprehensive Income
Income before Minority Interests
Other Comprehensive Income
Net unrealized gains on other securities, net of taxes
Net deferred gains or losses on hedging instruments, net of taxes
Land revaluation, net of taxes
Foreign currency translation adjustments
Share of other comprehensive income of affiliates accounted for using equity method
Total other comprehensive income
Comprehensive Income(Details)
Comprehensive income attributable to parent company
Comprehensive income attributable to minority interests

92

Sony Financial Holdings Inc. Annual Report 2014

Millions of yen
2013

2014

¥45,143¥40,462

51,381
(633)
(118)
453
(1)
51,082¥96,225

3,672
659
—
0
0
4,332
¥44,794¥96,146¥78¥44,837¥(42)

Consolidated Statements of Changes in Net Assets
Sony Financial Holdings Inc.
For the years ended March 31, 2013 and 2014
Millions of yen
2013
Shareholders’ Equity

Common stock

CapitalsurplusRetainedearnings

Treasury
stock

Total
shareholders’equity¥19,900¥195,277¥ 98,677¥—¥313,854

—
—
—
—

—
—
—
—

(8,700)45,064
—
118

—
—
—
—

(8,700)45,064
—
118

—
—

—
—

—
36,482———
36,482¥19,900¥195,277¥135,160¥—¥350,337

Balance at the beginning of
the current period
Changes during the period
Dividends from surplus
Net income
Purchase of treasury stockReversal of land revaluation
Net changes of items otherthan shareholders’ equity
Total changes during the period
Balance at the end of
the current period

Millions of yen
2013
Accumulated Other Comprehensive Income
Net
Net deferred
unrealized
losses on
gains on otherhedgingsecurities,
instruments,
net of taxes
net of taxes

RemeasureTotal
ments ofaccumulated
definedotherbenefit plans, comprehensive
net of taxes
incomeMinority
Interests

Total Net
Assets¥36,949¥(2,414)¥(1,395)¥(453)¥—¥32,685¥1,260¥347,800

—
—
—
—

—
—
—
—

—
—
—
—

—
—
—
—

—
—
—
—

—
—
—
—

—
—
—
—

(8,700)45,064—
118

51,38051,380

(633)
(633)

(118)
(118)

453
453

—
—

51,082
51,08278
78

51,16187,643¥88,329¥(3,047)¥(1,513)¥ —¥—¥83,767¥1,339¥435,444

Financial Section

Balance at the beginning of
the current period
Changes during the period
Dividends from surplus
Net income
Purchase of treasury stockReversal of land revaluation
Net changes of items otherthan shareholders’ equity
Total changes during the period
Balance at the end of
the current periodLand
revaluation,
net of taxes

Foreigncurrencytranslation
adjustments(Continued on next page)

Sony Financial Holdings Inc. Annual Report 201493

Consolidated Statements of Changes in Net Assets (Continued)
Millions of yen
2014
Shareholders’ Equity

Balance at the beginning of
the current period
Changes during the period
Dividends from surplus
Net income
Purchase of treasury stock
Net changes of items otherthan shareholders’ equity
Total changes during the period
Balance at the end of
the current period

Common stock

CapitalsurplusRetainedearnings

Treasury
stock

Total
shareholders’equity¥19,900¥195,277¥135,160¥—¥350,337

—
—
—

—
—
—

(10,875)
40,504———(0)(10,875)
40,504
(0)

—
—

—
—

—
29,629—(0)—
29,629¥19,900¥195,277¥164,790¥(0)¥379,967
Millions of yen

2014
Accumulated Other Comprehensive Income
Net
Net deferred
unrealized gains or losses
gains on other on hedging
Land
securities,
instruments,
revaluation,
net of taxes
net of taxes
net of taxes

Balance at the beginning of
the current period
Changes during the period
Dividends from surplus
Net income
Purchase of treasury stock
Net changes of items otherthan shareholders’ equity
Total changes during the period
Balance at the end of
the current period¥88,329¥(3,047)¥(1,513)

¥—

—
—
—

—
—
—

—
—
—

3,672
3,672

659
659

¥92,002¥(2,388)

See accompanying “Notes to the Consolidated Financial Statements.”

94

Sony Financial Holdings Inc. Annual Report 2014

Foreigncurrencytranslation
adjustments

RemeasureTotal
ments ofaccumulated
definedotherbenefit plans, comprehensive
net of taxes
income¥Minority
Interests

Total Net
Assets—¥83,767¥1,339¥435,444

—
—
—

—
—
—

—
—
—

—
—
—

(10,875)
40,504
(0)

—
—

0
0

(2,292)(2,292)

2,039
2,039

(64)
(64)

1,975
31,605¥(1,513)¥0¥(2,292)¥85,807¥1,275¥467,050

Consolidated Statements of Cash Flows
Sony Financial Holdings Inc.
For the years ended March 31, 2013 and 20142014

¥ 67,890
2,000
7,784
962
580
5,015
633,193
12
2,104
28
2,913
—
57
6,964
0
(135,136)(87,294)
7,855(35,508)
69
1,718(134,664)
96,408———981
51
27,437
471,428
146,015(8,330)(1,966)(26,264)
580,882¥ 64,396
1,952
9,147
36
79
4,153
658,136
5
2,232
(108)
—
2,865
(161)
9,312
—
(149,204)(74,996)
6,334(30,559)
146
1,538(87,193)
33,55920,0004,000(4,000)
202
(47)
7,043
478,874
160,737(6,465)(2,273)(29,134)
601,738(4,942)5,300(973,738)
462,518(47,927)
21,144(53)(537,698)
43,184(1,599)—(11,869)
1,035
(30)
—
2
(550,159)(2,301)
5,100(990,899)
480,946(54,102)25,405—(535,850)
65,887(3,326)
2,021(7,707)—(1,058)(3,500)75(549,346)

9,965(8,697)——(6,500)214(5,017)47
25,752
175,651¥ 201,404—(10,878)(2,000)
(0)
(600)
(43)
(13,522)5
38,875
201,404¥ 240,279

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 in reserve for outstanding claims
Increase in policy reserve
Increase in interest portion of reserve for policyholders’ dividends
Increase in reserve for policyholders’ dividends
Increase (decrease) in reserve for possible loan losses
Increase in reserve for employees’ retirement benefits
Increase in net defined benefit liability
Increase (decrease) in reserve for directors’ retirement benefits
Increase in reserve for price fluctuations
Increase in reserve for financial products transaction liabilities
Interest income and dividends
Gains on securities
Interest expenses
Exchange gains
Losses on disposal of tangible fixed assets
Equity in losses of affiliates
Net increase in loans
Net increase in deposits
Net increase in borrowed money (excluding subordinated borrowings)
Net decrease in call loans and bills bought
Net decrease in call money and bills soldNet 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 operating activities
Cash flows from investing activities
Investments in monetary trusts
Proceeds from sale of monetary trusts
Purchases of securities
Proceeds from sale and redemption of securities
Investments in loans
Collections of loans
OthersTotal of net cash used in investment transactions
Total of net cash provided by operating activities and investment transactions
Purchases of tangible fixed assets
Proceeds from sale of tangible fixed assets
Purchases of intangible fixed assets
Proceeds from sales of investments in subsidiaries resulting in change in scope of consolidation
Purchase of securities of a subsidiary
Purchase of securities of affiliates
OthersNet cash used in investing activities
Cash flows from financing activities
Proceeds from issuance of bonds
Cash dividends paid
Net decrease in subordinated borrowings
Purchase of treasury stock
Balance from securitization of lease receivables
OthersNet cash used in financing activities
Effect of exchange rate changes on cash and cash equivalents
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at the beginning of the fiscal year
Cash and cash equivalents at the end of the fiscal year

Millions of yen
2013

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 201495

Notes to the Consolidated Financial Statements(For the year ended March 31, 2014)

1 Basis of Presenting Consolidated Financial Statements
Sony Financial Holdings Inc. (“SFH”) and its domestic subsidiaries maintain their accounting records and prepare theirfinancial statements in Japanese yen in accordance with the provisions set forth in the Companies Act of Japan, the Insurance Business Act of Japan and the Banking Act of Japan and in conformity with generally accepted accounting principles
and practices in Japan, 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
Number of consolidated subsidiaries: 5
Consolidated subsidiaries: Sony Life Insurance Co., Ltd., Sony Assurance Inc., Sony Bank Inc., SmartLink Network, Inc.,and SmartLink Network Hong Kong Limited.
SmartLink Network Hong Kong Limited is included in the scope of consolidation from the year ended March 31, 2014,
because it became a subsidiary.
Number of non-consolidated subsidiaries: 1
Non-consolidated subsidiary: Senior Enterprise Corporation
Senior Enterprise Corporation is excluded from the scope of consolidation for the year ended March 31, 2014 because
it is so immaterial in light of the total assets, ordinary revenues, net income or loss, retained earnings, and accumulated
other comprehensive income that its exclusion from the scope of consolidation does not hinder a rational judgment of theSony Financial Group’s financial position and results of operations.

(2) Application of the equity method
Number of affiliates accounted for by the equity method: 2
Affiliates accounted for by the equity method: AEGON Sony Life Insurance Co., Ltd., and SA Reinsurance Ltd.
Number of non-consolidated subsidiaries and affiliates that are not accounted for by the equity method: 1
Non-consolidated subsidiaries and affiliates that are not accounted for by the equity method: Senior Enterprise Corporation
Senior Enterprise Corporation, the non-consolidated subsidiary, is not accounted for by the equity method because it is
so immaterial in light of the net income or loss, retained earnings, and accumulated other comprehensive income that its
exclusion does not hinder 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 amortized using the straight-line method over 5 years.

3 Summary of Significant Accounting Policies(1) Securities
Securities are stated in the following manner: Securities held for trading purposes (“trading securities”) are stated at fairvalue with unrealized gains and losses charged to income. The cost of such securities sold is determined by the movingaverage method. Held-to-maturity securities are stated at amortized cost (straight-line method) using the moving-averagemethod. Available-for-sale securities whose fair values are readily determinable are stated at fair value in the consolidatedbalance 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-averagemethod.

96

Sony Financial Holdings Inc. Annual Report 2014

(2) Derivative financial instruments
Derivative financial instruments are stated at fair value, with changes in fair value included in income for the period in which
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: 2 to 47 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 thestraight-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 over thelease 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 tobankruptcy, 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”) andmoney on deposits whose market 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 the amount deemed necessary by comprehensively considering the borrowers’
solvency, of the remaining amount after deducting amounts expected to be collectible from collateral, guarantees and othermeans. For other loans, the Companies provide a reserve in the amount calculated by multiplying the loans by a historicalloan 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 the assessment 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
Financial Section

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

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

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

Sony Financial Holdings Inc. Annual Report 201497

(10) Accounting for retirement benefits
1) Method of attributing projected retirement benefits
In the calculation of retirement benefit obligations, SFH mainly applies the straight-line method in attributing projected
retirement benefits to the periods until the end of the current fiscal year.
2) Amortization method of net actuarial gain or loss, prior service cost and net obligation at transition
Unrecognized net obligation at transition is amortized using the straight-line method over 15 years. Unrecognized priorservice cost is amortized using the straight-line method over 10 years within the employees’ average remaining service
period at incurrence. Unrecognized net actuarial gain or loss is amortized using the straight-line method over 7 to 17
years within the employees’ average remaining service period, commencing from the fiscal year immediately following
incurrence.

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

(12) Hedge accounting
SFH’s banking subsidiary applies either deferred hedge accounting or fair value hedge accounting to account for transactions it enters into to hedge interest rate risks on financial assets. SFH’s banking subsidiary uses interest rate swaps to offset fluctuations in interest rates on fixed-rate loans by identifying the hedged items that are grouped based on their maturity, in accordance with “Accounting and Auditing Treatments on Application of Accounting Standard for Financial
Instruments in the Banking Industry” (Industry Audit Committee of Japanese Institute of Certified Public Accountants Statement No. 24). Interest rate swaps and others are used as hedging instruments to offset fluctuations in the fair value of fixedrate bonds which are classified as available-for-sale securities. Both of the above-mentioned hedging instruments are identified so that their significant terms are nearly identical to those of the hedged items. Accordingly, such hedges are
considered as highly effective, resulting in a substitution for evaluating the effectiveness of the hedging transactions.

(13) Cash and cash equivalents
Cash equivalents consist of highly liquid investments without significant market risks, such as demand deposits and shortterm investments with an original maturity of 3 months or less.

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

(15) Policy reserves
Pursuant to Article 116 of the Insurance Business Act of Japan, SFH’s life insurance subsidiary maintains a policy reserve
for the fulfillment 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 aportion of the premium covering insurance under-writing 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 using mortality 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 2014

(16) Changes in accounting policies
Application of Accounting Standards for Consolidated Financial Statements
From the fiscal year under review, the Sony Financial Group has begun applying the “Accounting Standard for Consolidated
Financial Statements” (Accounting Standards Board of Japan (“ASBJ”) Statement No. 22 (March 25, 2011), the “Guidanceon Disclosures about Certain Special Purpose Entities” (ASBJ Guidance No. 15, March 25, 2011), the “Guidance on Determining a Subsidiary and an Affiliate” (ASBJ Guidance No. 22, March 25, 2011) and the “Practical Solution on Application of
the Control Criteria and Influence Criteria to Investment Associations” (ASBJ PITF No. 20, March 25, 2011).
This application has no impact on retained earnings at the beginning of the fiscal year under review.
Application of Accounting Standards for Retirement Benefits
The Sony Financial Group has applied the “Accounting Standard for Retirement Benefits” (ASBJ Statement No.26, May 17,2012) and the “Guidance on Accounting Standard for Retirement Benefits” (ASBJ Guidance No.25, May 17, 2012) from thefiscal year ended March 31, 2014 (except for Clause 35 of the “Accounting Standard for Retirement Benefits” and Clause
67 of the “Guidance on Accounting Standard for Retirement Benefits”). The Company has changed its accounting method
to post retirement benefit obligations less plan assets as net defined benefit liability, and posts unrecognized actuarial gains,
unrecognized past service costs due to the change in accounting standard as net defined benefit liability. If plan assets
exceed retirement benefit obligations, the Company posts the difference as net defined benefit asset.
Following Clause 37 of the “Accounting Standards for Retirement Benefits”, which stipulates transitional treatment of
the new standard, the effect of the application of the new standard is adjusted in remeasurements of defined benefit plansof total accumulated other comprehensive income at the end of the fiscal year ended March 31, 2014.
As a result, net defined benefit asset was recognized as ¥1,730 million and net defined benefit liability was recognizedas ¥30,272 million at the end of the fiscal year ended March 31, 2014. Total accumulated other comprehensive income
decreased by ¥2,292 million.

(17) Changes in presentation method
Consolidated Balance Sheets
Effective from the year ended March 31, 2014, SFH has included loan participation, which is included in loans, in the Notes
to the Consolidated Balance Sheet, in order to more accurately present the actual condition of transactions.

4 Notes to the Consolidated Balance Sheets
1. Securities with a book value of ¥29,471 million were pledged as collateral for the ¥6,000 million of call money and bills sold,and the ¥20,000 million of borrowed money at March 31, 2014. In addition to the assets described above, securities with abook value of ¥25,676 million were pledged as collateral for cash settlements, variation margins of futures markets and certain other purposes at March 31, 2014.

2. Securities include shares in non-consolidated subsidiaries and affiliates worth ¥10,428 million. Among this, investments in
Financial Section

jointly controlled companies are ¥9,369 million.

3. The balance of loans includes ¥308 million in loans to bankrupt borrowers (before deductions for reserve for possible loan
losses) and ¥1,403 million in non-accrual delinquent loans (before deductions for reserve for possible loan losses). Loans tobankrupt borrowers include loans that have been in arrears on principal or interest payments for a considerably long periodof 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 withreasons 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 same guidelines.
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.

Sony Financial Holdings Inc. Annual Report 201499

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

5. The balance of loans includes ¥1,880 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., reductionof 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 (3 months or more).

6. The total amount of loans to bankrupt borrowers, non-accrual delinquent loans, and restructured loans was ¥3,592 million(before deductions for reserve for possible loan losses).

7. 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 Instituteof Certified Public Accountants, Statement No. 3) includes the consolidated balance sheet amount of ¥3,000 million.

8. Accumulated depreciation of tangible fixed assets as of March 31, 2014 was ¥26,085 million.
9. The balance sheet includes ¥640,562 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, 2014, at SFH’s life insurance subsidiary.

10. Changes in the reserve for policyholders’ dividends at SFH’s life insurance subsidiary for the fiscal year ended March 31,
2014 are as follows:
Balance at the beginning of the fiscal year
Policyholders’ dividends during the fiscal year
Increase in interest
Provision for reserve for policyholders’ dividends
Balance at the end of the fiscal year

¥4,273 million¥2,273 million¥5 million¥2,232 million¥4,237 million

11. On March 31, 2002, SFH’s life insurance subsidiary revalued its land for operating purposes, as permitted by the Act on
Revaluation of Land (Act No. 34, enacted March 31, 1998—the “Law”). The tax effect of the revaluation difference isaccounted for differently, depending on whether there are gains or losses; when there is a loss, a valuation allowance is fully
provided for the tax effect of the loss, and when there is a gain, the tax effect is recorded in “deferred tax liabilities on land
revaluation.” After excluding these amounts, 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).

12. Contracts for commitments to provide credit lines and overdrafts of the life insurance subsidiary and the banking subsidiary
are agreements to lend to customers, up to a prescribed amount, as long as there is no violation of the conditions stipulated
in the contracts. The amount of unused commitments at March 31, 2014 was ¥24,170 million, and the amount of unused
commitments whose original contract terms are within 1 year at March 31, 2014 was ¥21,287 million.

13. 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 ¥9,729 million. Such losses are recognized as
expenses during the fiscal year in which they are contributed.

100

Sony Financial Holdings Inc. Annual Report 2014

14. Net assets per share were ¥1,070.75.
15. Financial Instruments(1) Description of financial instruments
1) Policy on financial instruments
The Sony Financial Group conducts its life insurance, non-life insurance and banking businesses in accordance with theprovisions of 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 BusinessAct of Japan in the life insurance business), to ensure steady investment income the Sony Financial Group holds 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 SFH’s
financial liabilities. Although SFH holds financial assets as well as financial liabilities, which are subject to the risk of interest rate and exchange rate fluctuations, it strives to protect itself from the negative effects of these fluctuations by maintaining an appropriate balance between assets and liabilities by conducting asset-liability management (ALM) in each ofits businesses. In addition, the life insurance business and banking business conduct derivatives transactions as one
aspect of its ALM.

Financial Section

2) Financial instruments and related risk
Securities and loans constitute the majority of the Sony Financial Group’s financial asset holdings. Most of its securities
holdings are in Japanese government and corporate bonds. Other holdings include Japanese stocks, foreign securities
and funds invested in investment associations. These holdings are intended either for holding to maturity or for availablefor-sale, and they are subject to various risks, including interest rate risk, issuer credit risk, stock price fluctuation risk
and exchange rate risk. Furthermore, the Sony Financial Group holds some of its financial assets in the shares of overseas unlisted companies, which have limited liquidity.
The majority of loans are policy loans in the life insurance business, and individual mortgage loans in the banking
business. These loans carry the credit risk of default, as well as interest rate risk. However, policy loans are limited to theamount of surrender payments, and mortgage loans are backed by real estate. Consequently, loan-related risks are relatively low.
Financial liabilities, meanwhile, are mainly deposits from individual customers, which are subject to interest rate risk.
As some of these deposits are denominated in foreign currencies, they are subject to exchange rate risk, as well as interest rate risk.
Derivatives transactions in the banking business are conducted primarily as one aspect of ALM. In this category, weapply hedge accounting. Interest rate swap transactions are used to hedge against the interest rate risk of fixed-rateloans. When hedges commence, the banking subsidiary ensures hedge effectiveness by confirming that the financereceivables to be hedged and the interest rate swaps (the hedging method used) are grouped to within 3 months ofeach other. Interest rate swaps and others are used as hedging instruments to offset fluctuations in the fair value of
fixed-rate bonds classified as available-for-sale securities. When the hedge is implemented, the banking subsidiary
determines hedge effectiveness by confirming that the cash flows of the securities to be hedged match those of thehedging method (such as interest rate swaps).
Transactions involving financial instruments are subject to liquidity risk. Liquidity risk includes cash flow risk andmarket liquidity risk. Cash flow risk is the risk of our inability to make cash payments when due because of an inability tomaintain sufficient cash reserves, as well as the risk of loss if we are forced to raise funds under unfavorable conditions
in order to obtain cash to meet our payment obligations. Market liquidity risk is risk of loss due to an inability to conduct
market transactions, in particular from an inability to change our market position at a given time, as well as the risk ofloss if we are forced to complete transactions under unfavorable market conditions, in each case due to market turmoil
or other factors.
3) Risk management of financial instruments
SFH formulates fundamental principles for risk management and manages risks specific to its subsidiaries’ scale, business content and other attributes. Our Risk Management Guidelines establish specific conditions for managing grouprisks, while each of 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 recognizedthrough monitoring or by holding Risk Management Meetings.
Sony Financial Holdings Inc. Annual Report 2014101

(i) Credit risk
The Sony Financial Group uses the following methods to manage the credit risk of its principal subsidiaries:(a) SFH’s life insurance subsidiary manages issuer credit risk on securities by specifying details such as risk management
methods and procedures in regulations. The risk management division periodically reports this information to theBoard of Directors and the Executive Committee.
(b) SFH’s non-life insurance subsidiary ascertains issuer credit risk and market values on securities in line with various
regulations for asset management risk. The risk management division periodically reports such information to theBoard of Directors and the Executive Committee.
(c) In line with various regulations for managing credit risks, SFH’s banking subsidiary manages risks involving lending toindividual customers. For each loan, the subsidiary conducts credit screenings, manages credit information, determines collateral and handles problem assets. In this manner, the banking subsidiary operates a system to manage
individual credit.
With regard to lending to corporate customers, for each loan, the banking subsidiary performs credit screenings,
sets credit limits, manages credit information such as credit ratings by outside agencies, determines security and collateral and handles problem assets. In this manner, the banking subsidiary operates a system to manage risk. The
subsidiary manages market credit risk, such as securities issuer credit risk and, on derivative transactions, counterparty risk, by periodically assessing credit and market value information.
The risk management division and the screening division manage credit. These divisions periodically report risk
management conditions to management via Executive Committee and Board of Directors meetings. In addition, theinternal audit division conducts regular audits.
(ii) Market risk
The Sony Financial Group uses the following methods to manage the market risk of its 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 specifying details such as risk management methods and procedures in regulations. Based on ALM policies that are determined through such methods as deliberation by the
Executive Committee, the subsidiary determines and confirms actual risk conditions at Board of Directors meetings.
The subsidiary’s risk management division maintains an overall grasp on the interest rates and durations of financial
instruments, and monitors risk through interest rate sensitivity analysis and other methods. The division periodicallyreports such information to the Board of Directors and the Executive Committee.
• Exchange rate risk Exchange rate risk is managed by specifying details such as risk management methods andprocedures in regulations. The risk management division reports this information regularly to the Board of Directors
and the Executive Committee.
• Risk associated with equity securities The subsidiary’s risk management division periodically analyzes theamount of risk by the methods prescribed in the regulations. The risk management division reports this information
regularly to the Board of Directors and the Executive Committee.
• Derivative transactions Derivative transactions are managed by specifying details such as risk management
methods and procedures in regulations. The risk management division reports this information regularly to the Boardof Directors and the Executive Committee.
(b) SFH’s 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
and procedures based on risk management policies determined by the Board of Directors. The risk management division monitors individual risks and reports regularly to the Board of Directors and the Executive Committee.
• Price fluctuation risk The equity securities exposed to price fluctuation risk are held for strategic investment forthe purpose of enhancing the business partnerships. The subsidiary monitors the market environment and financial
condition of business partners.
(c) SFH’s banking subsidiary manages various market-related risks in the following manner. The risk management division handles each of these risks and reports risk management conditions regularly to management via Executive
Committee and Board of Directors meetings. In addition, the internal audit division conducts regular audits.
• Interest rate and exchange rate risk In accordance with market risk management regulations, the subsidiarymanages the risk of changes in value and losses in income resulting from changes in the value of assets and liabilities(including off-balance-sheet items), 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

102

Sony Financial Holdings Inc. Annual Report 2014

each month—to understand and confirm actual conditions and deliberate future responses and risk conditions. On adaily 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 value at risk (VaR) and interest
rate sensitivity analysis, and ensures regulatory conformance. The subsidiary also uses ALM to conduct interest rate
swaps, currency swaps, foreign exchange and other derivatives transactions to hedge against interest and exchange
rate fluctuation risks.
• Market price fluctuation risk The subsidiary manages holdings of investment products, including securities, inaccordance with market risk management regulations. Of these, the investment division, which primarily purchases
securities externally, strives to reduce market price fluctuation risk by conducting pre-screening, setting investment
limits and monitoring investments on an ongoing basis.
• Derivatives transactions Derivatives 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 of hedge effectiveness and operations management.
• Quantitative information on market risk The principal financial instruments affected by the major risk parameters of interest rate risk and exchange rate fluctuation risk are loans, securities, deposits in the banking business andderivatives transactions.
The impact of such risks on these financial assets and financial liabilities was calculated using the Variance-Covariance Method to determine gains or losses over a given period of 10 business days, assuming the fluctuation of interest and exchange rates within a rational forecast band determined over an observation period of 250 business days.
We then employed quantitative analysis to manage interest rate and exchange rate fluctuation risks. The resulting risk
amount with a 99% confidence interval was ¥510 million as of March 31, 2014.
This amount of impact is based on the assumption that risk parameters other than interest rates and exchange
rates are fixed, and that a correlation exists between interest rates and exchange rates. However, no correlation withother risk parameters is assumed. Moreover, in the event that fluctuations exceed the rational forecast band for interest and exchange rates, the risk impact may exceed the amount calculated.

4) Supplementary explanation of the fair value of financial instruments
Market prices of financial instruments are considered to indicate their fair value, unless market prices are not available. In
this case, rational methods are used to measure their fair values. Although these measurements use assumptions thatare believed to be reasonable under the circumstances, the resulting values may differ if measured using different
assumptions.
Derivative transaction contract amounts indicated in “(2) Fair value information on financial instruments” do not themselves indicate the volume of market risk related to derivatives transactions.

Sony Financial Holdings Inc. Annual Report 2014

Financial Section(iii) Liquidity risk
The Sony Financial Group uses the following methods to manage the liquidity risk of its 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 therisk management division manages the liquidity risk. The accounting division and risk management division periodically or as needed report this information to the Board of Directors and the Executive Committee.
(b) SFH’s 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.
(c) SFH’s banking subsidiary manages cash flows by dividing the situation into phases, depending on the degree ofpressure on cash flows. In addition to establishing reporting methods, the subsidiary establishes and revises guidelines as necessary. To manage market liquidity risk, the subsidiary works to understand market liquidity conditions
that pertain to the types of products it handles. The subsidiary formulates and revises guidelines on a product byproduct basis, as necessary. The risk management division handles the liquidity management mentioned above, andthe division reports risk management conditions regularly to management via Board of Directors and Executive Committee meetings. In addition, the internal audit division conducts regular audits.

103

(2) Fair value information on financial instruments
Below is fair value information on financial instruments as of March 31, 2014, excluding securities whose fair values are
deemed extremely difficult to determine (see Note 2).
Millions of yen
2014

As of March 31,

1) Cash and due from banks2) Call loans and bills bought3) Monetary trust
Monetary trusts for trading
Other monetary trusts
4) Securities
Trading securities
Held-to-maturity securities
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) Bonds payable
Total Financial Liabilities
Derivative financial instruments (*2)
Hedge accounting not applied
Hedge accounting applied
Total Derivative Financial Instruments

Consolidatedbalance sheet
amountFair value¥ 204,546
40,628¥ 204,546
40,628484
325,346484
325,346——

620,666
4,492,273
1,674,372
1,211,638(1,341)
1,210,297¥8,568,615¥1,889,970
6,000
20,000¥1,915,970

620,666
4,927,696
1,674,372—
435,422—1,315,979¥9,109,721¥1,890,799
6,000
20,096¥1,916,895

105,682¥541,105
¥
829
—
96
¥
925

¥

¥

¥

1,239
[14,254]¥ [13,015]

1,239[14,254]¥ [13,015]

Difference

¥

¥

—
—

—
—
—

(*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) Measurement 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) Monetary trusts
In individual monetary trusts mainly for investment purposes, the fair value of securities (bonds) is the market price on
financial instrument exchanges or the price indicated by a financial institution. Please see “17. Fair value information on
monetary trusts,” which indicates 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
and investment funds is the market price or the price indicated by a financial institution. Please see “16. 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 measured 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 risk premium corresponding to the rateused to determine the general reserve for possible loan losses.
(ii) Policy loans in the life insurance business
Policy loans are valued by discounting future cash flows to their present value.
(iii) General loans in the life insurance business
The fair value is regarded as the carrying amount, as they are approximately equal.

104

Sony Financial Holdings Inc. Annual Report 2014

Financial Liabilities
1) Deposits
The fair value of deposits is measured according to type by estimating the deposits’ future cash flows and then applying
a prescribed discount rate. 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) Bonds payable
The fair value of bonds payable is the market price on bond and other markets.
Derivative Transactions
Please see “18. 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
2014
Consolidatedbalance sheet
amountAs of March 31,

1) Unlisted stocks in non-consolidated subsidiaries and affiliates (*1)2) Investment in partnership (*2)
Total

¥10,428
24,410¥34,838(*1) As unlisted stocks have no market prices and their fair values are deemed extremely difficult to determine, they are not included in the scope of fairvalue disclosure.
(*2) As assets included in “investment in partnership” are stocks in unlisted companies and their fair values are deemed extremely difficult to determine,
they are not included in the scope of fair value disclosure.
Note: Impairment losses on investment in partnership were recognized as ¥193 million for the year ended March 31, 2014. Impairment losses are principally recorded when the fair 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
2014

As of March 31,

More than
5 years to
10 years¥204,546
40,628

¥

¥

9,265
9,265
8,158
1,107
—
216,042
102,901
37,746
65,155
113,141
17,597¥488,079

14,001
14,001
12,232
1,769—
419,816
112,530
70,835
41,695
307,286
75,693¥509,512————

43,68743,48739,7983,689
200
208,248
165,785
106,696
59,08942,46359,917¥311,853Over
10 years¥——

4,434,108
4,327,751
4,306,490
21,261
106,357
697,900
697,900
697,85050—
902,637¥6,034,646

Financial Section

Cash and due from banks
Call loans and bills bought
Securities
Held-to-maturity securities
Bonds
Japanese government and municipal bonds
Japanese corporate bonds
OthersAvailable-for-sale securities
Bonds
Japanese government and municipal bonds
Japanese corporate bonds
OthersLoans (*)
Total

More than
1 year to
5 years

1 year or
less(*) This figure excludes ¥154,180 million of loans such as policy loans that have no fixed redemption period.

Sony Financial Holdings Inc. Annual Report 2014

105

(Note 4) Future return schedule of deposits and other liabilities with interest
Millions of yen
2014

As of March 31,

Deposits (*)
Call money and bills soldBonds payableTotal

1 year or
lessMore than
1 year to
2 years

More than
2 years to
3 years

More than
3 years to
4 years

More than
4 years to
5 years

More than
5 years¥1,793,166
6,000—¥1,799,166¥21,603——¥21,603¥14,837—
10,000¥24,837¥ 3,248—
10,000¥13,248¥4,811——¥4,811¥52,303——¥52,303(*) Demand deposits are included in “1 year or less.”

16. Fair value information on securities as of March 31, 2014:(1) Trading-purpose securities
Millions of yen
As of March 31,

2014

Valuation gains changed to income¥50,776(2) Held-to-maturity securities
Millions of yen
2014

As of March 31,

Fair values exceeding the consolidated balance sheet amount
Bonds
Japanese government and municipal bonds
Japanese corporate bonds
OthersSubtotal
Fair values not exceeding the consolidated balance sheet amount
Bonds
Japanese government and municipal bonds
Japanese corporate bonds
OthersSubtotal
Total

106

Sony Financial Holdings Inc. Annual Report 2014

Consolidatedbalance sheet
amountFair value

Difference¥4,430,770
4,402,886
27,88455,2884,486,059¥4,853,318
4,822,724
30,593
68,2404,921,559¥422,547
419,838
2,709
12,952435,500

873
732
140
5,341
6,214
¥4,492,273

869
729
140
5,267
6,136
¥4,927,696

(3)
(2)
(0)
(73)
(77)
¥435,422

(3) Available-for-sale securities
Millions of yen
2014

As of March 31,

Consolidated balance sheet amount exceeding the acquisition cost
Bonds
Japanese government and municipal bonds
Japanese corporate bonds
Equity securities
OthersSubtotal
Consolidated balance sheet amount not exceeding the acquisition cost
Bonds
Japanese government and municipal bonds
Japanese corporate bonds
Equity securities
OthersSubtotal
Total

Consolidatedbalance sheet
amountAcquisition cost

Difference¥1,113,507
947,221
166,285
22,029367,146
1,502,684¥1,033,040
868,616
164,424
12,770356,526
1,402,338¥ 80,466
78,605
1,861
9,259
10,619100,345

56,95953,994
2,964
191
114,536
171,688¥1,674,372

56,98554,0182,966
195
115,085
172,265¥1,574,604

(25)
(24)
(1)
(3)
(548)
(577)
¥ 99,767

Note: As the investment in partnership of ¥24,410 million has no market price and its fair value is deemed extremely difficult to determine, it is not includedin the table above.

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

(5) Available-for-sale securities sold during the period
Millions of yen
2014
For the year ended March 31,

Bonds
Japanese government and municipal bonds
Japanese corporate bonds
Equity securities
Others
Total

Sales

Gains on sales

Losses on
sales¥ 88,419
82,498
5,920
4,716
101,277¥194,413

¥ 415
399
15
673
1,065
¥2,154

¥354
308
45
487
62
¥904

(6) Impairment of available-for-sale securities

Sony Financial Holdings Inc. Annual Report 2014

Financial Section

Available-for-sale securities with market value are considered impaired if the market value decreases materially below theacquisition cost and such decline is considered non-recoverable. The market value is recognized as the consolidated balance sheet amount and the write-down is accounted for as a devaluation loss for the fiscal year.
No impairment loss was recognized for the year ended March 31, 2014.
“Material decline” is principally indicated when the market value declines by 30% or more below the acquisition cost.

10717. Fair value information on monetary trusts as of March 31, 2014:(1) Monetary trusts for trading
Millions of yen
2014

As of March 31,

Monetary trusts for trading

Consolidatedbalance sheet
amountValuation gains
or losseschanged toincome¥484¥—(2) Monetary trusts for held-to-maturity and policy reserve matching
There is no related information to be reported.

(3) Other monetary trusts (other than for trading, held-to-maturity or policy reserve matching)
Millions of yen
2014

As of March 31,

Consolidatedbalance sheet
amountAcquisition
cost

Difference

Items whose
consolidatedbalance sheet
amount exceeds
acquisition cost

Other monetary trusts¥325,346¥288,093¥37,253¥37,253

Items whose
consolidatedbalance sheet
amount does notexceed acquisition cost¥—

Notes: 1. The amount of jointly invested monetary trusts that is included in the table above for the year ended March 31, 2014 is ¥50 million.
2. “Items whose consolidated balance sheet amount exceeds acquisition cost” and “Items whose consolidated balance sheet amount does notexceed acquisition cost” are the breakdown of the difference.

(4) Impairment of other monetary trusts
Securities with market values that are included in monetary trusts for purposes other than trading, holding to maturity or
policy reserve matching are considered impaired if their market value decreases materially below the acquisition cost andsuch decline is considered non-recoverable. Their market value is recognized as the consolidated balance sheet amountand the write-down is accounted for as a devaluation loss for the fiscal year.
No impairment loss was recognized for the year ended March 31, 2014.
“Material decline” is principally indicated when the market value declines by 30% or more below the acquisition cost.

108

Sony Financial Holdings Inc. Annual Report 2014

18. Derivative financial instruments:(1) Derivatives to which hedge accounting is not applied
The following provides a summary of contractual or notional amounts, current market or fair values and valuation gains orlosses as of March 31, 2014 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 market risk involved in derivative transactions.
1) Interest rate derivatives
There is no related information to be reported.
2) Currency derivatives

Millions of yen
2014

As of March 31,

Over-the-countertransactions

Forward foreign exchanges
Foreign exchange margintransactions
Currency options
Currency forward contracts

Sold
BoughtSold
BoughtSold
BoughtSold
BoughtTotal

Notional
amount total

Notional amountover 1 year

¥ 75,611
126,400
41,601
25,375
1,682
2,570
45
9,560
—

¥—
—
—
—
—
—
—
—
—

Fair value

¥

(14)
585
(1,266)
1,585
(6)
18
(0)
337
¥ 1,239

Valuation gains(losses)

¥

(14)
585
(1,266)
1,585
2
(2)
(0)
337
¥ 1,226

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 such as the discounted present value and option pricing models.

(2) Derivatives to which hedge accounting is applied
The following provides a summary of contractual or notional amounts and current market or fair values as of March 31,
2014 and the method of calculating the fair values of derivatives, classified by transaction, for each hedge accounting, towhich hedge accounting is applied. Notional amounts do not indicate market risk involved in derivative transactions.
1) Interest rate derivatives

Millions of yen

As of March 31,

2014

Hedge accounting

Hedging instrument

Hedged item

Deferred hedge accounting
Fair value hedge accounting

Interest rate swaps
Interest rate swaps

Loans
Available-for-salesecurities (bonds)

Notional amountover 1 year

Fair value¥ 46,974¥ 45,292¥ (1,446)

366,597

313,539(14,149)——¥(15,595)

Notes: 1. SFH applies deferred hedge accounting and fair value hedge accounting in accordance with “Accounting and Auditing Treatments on Applicationof Accounting Standard for Financial Instruments in the Banking Industry” (Industry Audit Committee of Japanese Institute of Certified Public
Accountants Statement No. 24).
2. Fair value is measured using discounted present value.

2) Currency derivatives

Financial Section

Total

Notional
amount total

Millions of yen

As of March 31,

2014

Hedge accounting

Hedging instrument

Hedged item

Fair value hedge accounting

Currency swaps

Available-for-salesecurities (bonds)

Total

Notional
amount total

Notional amountover 1 year

¥12,209¥522¥1,340——¥1,340Fair value

Notes: 1. SFH applies mainly fair value hedge accounting.
2. Fair value is measured mainly using discounted present value.

Sony Financial Holdings Inc. Annual Report 2014109

19. Information about retirement benefit obligations as of March 31, 2014:(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 lumpsum retirement benefit plan and a defined contribution pension plan. SFH and its banking subsidiary mainly provide a lumpsum retirement benefit plan. SFH calculates 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 8) )Millions of yen
For the year ended March 31,

Balance at the beginning of the current period of retirement benefit obligations
Service cost
Interest cost
Net actuarial gain arising during the period
Retirement benefits paid
OthersBalance at the end of the current period of retirement benefit obligations

2014¥36,301
3,152
226
286
(1,096)
4¥38,8752) Reconciliation of beginning and ending balances of plan assets (excluding those listed in 8) )Millions of yen
For the year ended March 31,

Balance at the beginning of the current 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 current period of plan assets

2014¥ 8,849
133
765
962
(284)
¥10,4273) 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,

Funded retirement benefit obligations
Plan assets

110

2014

Unfunded retirement benefit obligations
Net liabilities and assets recorded on the consolidated balance sheets¥ 8,568(10,427)(1,858)30,40028,541

Net defined benefit liability
Net defined benefit asset
Net liabilities and assets recorded on the consolidated balance sheets

30,272(1,730)¥ 28,541

Sony Financial Holdings Inc. Annual Report 2014

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

2014

Service cost
Interest cost
Expected return on plan assets
Amortization of net obligation at transition
Amortization of net actuarial gain
Amortization of prior service cost
OthersRetirement benefit expenses related to defined benefit plans¥3,167
226
(133)
414
1,040
(129)
193
¥4,779Note: SFH includes the retirement benefit expenses in the service cost based on the simplified method.

5) Remeasurements of defined benefit plans
The following items (before tax deductions) have been recorded as components of remeasurements of defined benefit
plans.
Millions of yen
As of March 31,

2014

Unrecognized net obligation at transition
Unrecognized prior service cost
Unrecognized net actuarial gain
Total

¥ 414
(129)
3,067
¥3,352

6) 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,

2014

Bonds
Equity securities
Others
Total

57
37
6
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 allocation of plan assets, and the current long-term return rate and the long-term return rate that is expected in the future
based on the various assets that comprise the plan assets.
Financial Section7) Basis for calculating actuarial gain or loss
Main basis for calculating actuarial gain or loss as of March 31, 2014
Discount rate
0.6% – 1.4%
Long-term rate of expected return on plan assets
1.5% – 3.0%
8) 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,

2014

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

¥ 79
15
(10)
(9)
8
¥ 82

Sony Financial Holdings Inc. Annual Report 2014111

(3) Defined contribution plans
The amount of contribution required for the defined contribution plans by SFH and its consolidated subsidiaries was¥231 million.

20. Information on tax effect accounting as of March 31, 2014:(1) Breakdown of major factors giving rise to deferred tax assets and deferred tax liabilities
Millions of yen
As of March 31,

Deferred tax assets
Policy reserves and others
Reserve for price fluctuations
Net defined benefit liability
Write-down of securities
Net operating loss carryforwards for tax purposes
Depreciation and amortization
Net deferred losses on hedging instruments, net of taxes
OthersSubtotal of deferred tax assets
Valuation allowance
Total deferred tax assets
Deferred tax liabilities
Net unrealized gains on other securities, net of taxes
OthersTotal deferred tax liabilities
Net deferred tax assets (liabilities)

2014¥ 28,140
12,822
8,824
1,012
80
2,409
1,421
6,326
61,039(1,166)59,872(40,323)(216)(40,539)¥ 19,332

Note: Net deferred tax assets for the year ended March 31, 2014 are included in the following items of the consolidated balance sheets.
Millions of yen
As of March 31,

2014

Assets - Deferred tax assets
Liabilities - Deferred tax liabilities¥19,872539(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%

112

As of March 31,

2014

Statutory effective tax rate
(Adjustments)
Revision to reduce deferred tax assets at the fiscal year-end due to changes in tax rates
Difference in tax rate due to the Special Reconstruction Corporation Tax
Difference in tax rate of subsidiaries
Increase (decrease) in valuation allowance
Others
Effective income tax rate after application of tax effect accounting

38.0Sony Financial Holdings Inc. Annual Report 2014

1.3
1.0
(4.3)
(0.0)
1.2
37.2

(3) Revision of deferred tax assets and deferred tax liabilities amounts due to changes in income tax rates“The Bill for Partial Amendment of the Income Tax Act, etc.” (Act No. 10, 2014) was promulgated on March 31, 2014. As aresult, the Special Reconstruction Corporation Tax will no longer be imposed from the fiscal year beginning on and after
April 1, 2014. Accordingly, the statutory effective tax rate used for the calculation of deferred tax assets and deferred tax
liabilities has been changed from 38.01% to 35.64%. The statutory effective tax rate used for the calculation of deferred tax
assets and deferred tax liabilities by Sony Life Insurance Co., Ltd. and Sony Assurance Inc. will be reduced from the33.33% applicable hitherto to 30.78%, because certain portions of their tax base are not subject to taxes that are based on
the amount related to income.
As a result of these changes in tax rates, the net amount of deferred tax assets (after deduction of deferred tax liabilities)
decreased by ¥841 million and income taxes—deferred increased by ¥829 million.

21. 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 estimated amount of asbestos removal cost associated withinvestment and rental property in accordance with Ordinance on Prevention of Health Impairment due to Asbestos.

(2) Basis of measurement for asset retirement obligations
The amount of asset retirement obligations is calculated by estimating the usable period to be 13 to 33 years from acquisition and then applying a 1.6% to 2.3% discount rate.

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

2014

Balance at the beginning of the current period
Increase due to purchase of tangible fixed assets
Changes resulting from the passage of time
Decrease due to execution of asset retirement obligations
OthersBalance at the end of the current period

¥713
12
14
(14)
(16)
¥709

22. Fair value information on investment and rental property:
SFH’s life insurance subsidiary owns rental office buildings in Tokyo. Income related to investment and rental property
amounted to ¥3,487 million for the year ended March 31, 2014. Below is the consolidated balance sheet amount, net ofchanges during the period, and the fair value at the end of the current period.
Millions of yen
2014

Consolidated balance sheet amount
Balance at the beginning of the current period
Changes during the period
Balance at the end of the current period
Fair value at the end of the current period¥61,099(3,845)57,253¥75,581

Financial Section

For the year ended March 31,

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

Sony Financial Holdings Inc. Annual Report 2014113

5 Notes to the Consolidated Statements of Income
Net income 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, 2014, net income per share was ¥93.11. Diluted net income per share is not disclosed for the year ended March 31, 2014 as SFH had no potentially dilutive shares of common stock.
The basis for this calculation for the year ended March 31, 2014 is net income of ¥40,504 million, the entire amount of
which is applicable to common stock. The weighted-average number of shares outstanding for the year ended March 31,
2014 was 434,999 thousand shares.

6 Notes to the Consolidated Statements of Comprehensive Income
Reclassification adjustments and income tax benefit (expense) on components of other comprehensive income for the year
ended March 31, 2014 are as follows:
Millions of yen
For the year ended March 31,

Net unrealized gains on other securities, net of taxes:
Gains arising during the period
Reclassification adjustments
Pre-tax amount
Income tax expense
Net unrealized gains on other securities, net of taxes
Net deferred losses on hedging instruments, net of taxes:
Losses arising during the period
Reclassification adjustments
Pre-tax amount
Income tax benefit
Net deferred losses on hedging instruments, net of taxes
Land revaluation, net of taxes:
Losses arising during the period
Reclassification adjustments
Pre-tax amount
Income tax benefit
Land revaluation, net of taxes
Foreign currency translation adjustments:
Gains arising during the period
Reclassification adjustments
Pre-tax amount
Income tax benefit (expense)
Foreign currency translation adjustments
Share of other comprehensive income of affiliates accounted for using equity method
Losses arising during the period
Reclassification adjustments
Share of other comprehensive income of affiliates accounted for using equity method
Total other comprehensive income

114

Sony Financial Holdings Inc. Annual Report 20142014

¥ 9,069(3,833)
5,236(1,563)
3,672
71
952
1,023
(364)
659
—
—
—
—
—
0
—
0
—
0
0
(0)
0
¥ 4,332

7 Notes to the Consolidated Statements of Changes in Net Assets
1. Types and numbers of shares issued are as follows:
Thousands of shares
2014
Number ofshares as ofApril 1, 2013

For the year ended March 31,

Issued shares
Common stock
Total
Treasury stock
Common stock
Total

Number ofshares increased
during the period

Number ofshares decreased
during the period

Number ofshares as ofMarch 31, 2014

435,000
435,000————

435,000
435,000

—
—

0
0

—
—

0
0

2. 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 25, 2013

Commonstock¥10,875
million¥25

March 31,2013

June 26,
2013

Resolution

Type ofsharesAggregate
amountof dividends

Source ofdividends

Cashdividends
per share

Recorddate

Effective
date

Ordinary General Meeting of Shareholders
held on June 24, 2014

Commonstock¥13,049
millionRetainedearnings¥30

March 31,2014

June 25,
2014(2) Dividends to be paid in the next fiscal year

8 Notes to the Consolidated Statements of Cash Flows
1. The reconciliation of cash and cash equivalents in the statement of cash flows to cash and due from banks as stated in the
consolidated balance sheet as of March 31, 2014, is as follows:
Millions of yen
As of March 31,

2014¥204,546
34,6281,105¥240,279

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

Sony Financial Holdings Inc. Annual Report 2014

Financial Section

Cash and due from banks
Call loans of life insurance subsidiary
Securities of non-life insurance subsidiary maturing within 3 months of the acquisition dateCash and cash equivalents

115

MCEV Results for Sony Life as of March 31, 2014

1 MCEV ResultsSony Life’s MCEV as of March 31, 2014 increased ¥156.6 billion due to the contribution of new business, the change inactuarial assumptions, the increase in interest rates and other factors. The breakdown is shown in the table below.
Billions of yen
As of March 31,

MCEV
Adjusted net worth
Value of existing businessNew business value

2013

2014

Change¥1,064.7
770.8
293.9
41.6

¥1,221.3
722.1
499.1
55.2

¥156.6(48.7)
205.3
13.6

2 Adjusted Net WorthAdjusted net worth at the end of the current fiscal year decreased by ¥48.7 billion, primarily because of the decrease in unrealized gain on held-to-maturity securities caused by the increase in interest rates. The breakdown is shown in the table below.
Billions of yen
As of March 31,

2013

2014

Change¥ 770.8
342.3
32.3
59.6
0.0
551.7
19.4
(5.0)
(26.1)(193.8)(9.6)¥ 722.1
369.2
41.6
63.7
0.0
430.3
19.4
(3.2)
(23.9)(162.5)(12.5)¥ (48.7)
26.9
9.3
4.1
0.0
(121.4)
0.0
1.8
2.2
31.3
(2.9)

As of March 31,

2013

2014

ChangeAdjusted net worth
Free surplus
Required capital¥770.8418.5
352.3¥722.1566.2
156.0¥ (48.7)
147.7(196.3)Adjusted net worth
Total net assets
Reserve for price fluctuations
Contingency reserve
Reserve for possible loan losses
Unrealized gains or losses on held-to-maturity securities
Unrealized gains or losses on land and buildings
Unfunded pension liabilities
Intangible fixed assets
Tax effect equivalent of above seven items
Valuation gain or loss on subsidiaries and affiliated companies

Billions of yen

Sony Life sets its required capital as the larger of the amount of capital required for a solvency margin ratio of 200% or theamount of capital to cover risks based on an internal model based on economic value. The decrease in required capital at
the end of the current fiscal year is due to a decrease in the economic value of technical provisions that mainly resulted
from the increase in interest rates.

116

Sony Financial Holdings Inc. Annual Report 2014

3 Value of Existing Business
Value of existing business increased ¥205.3 billion due to the increase in interest rates, the contribution of new business,the change in actuarial assumptions and other factors. The breakdown is shown in the table below.
Billions of yen
As of March 31,

2013

2014

ChangeValue of existing business
Present value of certainty-equivalent profit
Time value of options and guarantees
Frictional costs
Cost of non-hedgeable risks¥ 293.9
633.2(111.2)(13.9)(214.2)¥ 499.1
869.4(123.1)(9.2)(237.9)¥205.3236.2(11.9)
4.7(23.7)

4 New Business Value
New business value increased by ¥13.6 billion primarily because of improved profitability caused primarily by the revision of
insurance premium rates and the increase in interest rates. A breakdown of the value of new business is as follows:
Billions of yen
As of March 31,

2013

2014

ChangeValue of new business
Present value of certainty-equivalent profit
Time value of options and guarantees¥ 41.674.1(12.4)¥ 55.2
84.9
(9.4)

¥13.6
10.8
3.0

(0.2)
(19.9)(0.3)(20.0)

(0.0)
(0.1)

Frictional costs
Cost of non-hedgeable risks

5 New Business Margin
New business margin described below is the ratio of the value of new business to the present value of premium income.
The present value of premium income is calculated applying the same assumptions as those for the calculation of new
business value, and is based on premiums before the deduction of reinsurance premiums.
Billions of yen
As of March 31,

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

2013

¥

41.6
1,187.5
3.5%

¥

2014

Change55.2
1,069.7
5.2%¥ 13.6(117.7)
1.7pt

Financial Section

Sony Financial Holdings Inc. Annual Report 2014117

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, 2014, from MCEV as of March 31, 2013. The
format of the table is in line with the format prescribed by European Insurance CFO Forum Market Consistent Embedded
Value Principles©* (MCEV Principles).
* Copyright © Stichting CFO Forum Foundation 2008

Opening MCEV (MCEV as of March 31, 2013)
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, 2014)

Billions of yen
Free surplus

RequiredcapitalValue ofexisting business

MCEV¥418.5(13.3)
405.2
—
0.3
0.9
4.4
(44.7)
36.6
(0.5)
30.6
72.4
89.5
(0.9)
161.0
—
¥566.2¥ 352.3
—
352.3
—
0.2
0.7
(31.3)—(34.0)
0.5(30.6)(94.5)(101.5)(0.3)(196.3)—¥ 156.0¥293.9
—
293.9
55.2
13.1
6.7
26.8
44.7
(2.2)
35.5
0.6
135.7
69.0
0.6
205.3
—
¥499.1¥1,064.7(13.3)
1,051.4
55.2
13.5
8.3
—
—
0.5
35.5
0.6
113.6
57.0
(0.7)
169.9
—
¥1,221.3

Notes: 1. Expected yield used to calculate the profit expected in excess of the risk-free rate for fiscal 2013 was 0.272%.
2. Assumption changes primarily indicate the impact of changes in assumptions based on experience data in mortality and morbidity rates, lapse andsurrender rates, and operating expense rates. The improvements in mortality rates, lapse and surrender rates, and operating expense rates
increased the value of existing business.
3. Other operating variance represents the impact of improvements and corrections of the model used in calculating MCEV, including the impact fromthe revision of risk measure for interest rate risk in Japanese yen.
4. As regards economic variances, overall MCEV changes are disaggregated into an increase by ¥76.9 billion as a result of the increase in interest
rates and a decrease by ¥20.0 billion as a result of the increase in inflation swap rates.
5. Other non-operating variance shows the effect of the abolition of the reconstruction special corporate tax.

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

Change in assumption

BaseInterest rates

No change
100bp decrease
100bp increase
Swap rates
10% decrease
25% increase
25% increase
10% decrease
×0.9
Death protection products x 0.95
Third-sector and annuity products x 0.95
×0.95
Regulatory minimum

Stock / Real estate market value
Stock / Real estate implied volatility
Interest swaption implied volatility
Maintenance expenses
Lapse and surrender rates
Mortality rates
Morbidity rates
Required capital

118

Billions of yen

Sony Financial Holdings Inc. Annual Report 2014

MCEV

Change inamountRate ofchange¥1,221.3
1,003.4
1,256.2
1,393.8
1,204.8
1,209.7
1,202.7
1,240.7
1,236.4
1,264.5
1,216.0
1,259.6
1,225.3¥—(217.9)34.9
172.5(16.5)(11.6)(18.6)
19.4
15.1
43.2
(5.3)
38.3
4.0

—
(18%)
3%
14%
(1%)
(1%)
(2%)
2%
1%
4%
(0%)
3%
0%

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

Interest rates
Stock / Real estate market value
Stock / Real estate implied volatility

100bp decrease
100bp increase
10% decrease
25% increase¥ 957.1(754.9)(10.7)(0.9)

8 Main Assumptions
Sony Life has used Japanese government bond (JGB) yields and the U.S. Treasury yields as of the end of March 2014 as
risk-free rates for the certainty-equivalent projections. It is assumed that forward rates in the 41st year and beyond wereequal to those in the 40th year for JGB yields and forward rates in the 31st year and beyond were equal to those in the 30thyear for U.S. Treasury yields. Sony Life has used Bloomberg’s government bond yields as our data source.
The government bond yields for key terms are as follows:
Japanese yen

U.S. dollar

As of the end of March,

2013

2014

2013

2014

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

0.06%
0.13%
0.55%
1.40%
1.54%
1.64%

0.08%
0.20%
0.64%
1.50%
1.70%
1.78%

—
—
—
—
—
—

0.11%
1.72%
2.72%
3.37%
3.56%
—

Sony Life has not added a liquidity premium on the risk-free rate as there are no products which are considered to havereasonably predictable and illiquid cash flows and would therefore be appropriate to apply a liquidity premium.
Assumptions including mortality and morbidity rates, lapse and surrender rates, and operating expense rates, weredeveloped based on best estimates by product as of the end of March 2014. Best-estimate assumptions are developed toreflect past and current 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 future changes are assumed in the best-estimate assumptions applied.

9 Opinion of Outside Specialist

Sony Financial Holdings Inc. Annual Report 2014

Financial Section

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’s press release “Disclosure of Market Consistent Embedded Value as of March 31, 2014” (http://www.sonyfh.co.jp/en/)for details.

119

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
the total amount of Sony Life’s risks, comprehensively examined and including insurance risk and market-related risk. Sony
Life’s risk amount based on economic value (after tax) amounted to ¥664.3 billion. The breakdown of the risk amount is asfollows:
Billions of yen
As of March 31,

Insurance risk
Market-related risk
Of which, interest rate risk (*1)
Operational risk
Counter party risk
Variance effect
The risk amount based on economic value

2013

2014 (*2)¥ 605.6
289.9
234.2
26.0
2.3
(262.5)661.3¥ 654.5
240.0
180.9
26.3
1.3
(257.8)664.3(*1) Interest rate risk is calculated as the amount before excluding the variance effect within market-related risk.
(*2) For interest rate risk in Japanese yen, Sony Life revised the risk measure at the end of March 2014, having observed significant changes in ultra-longterm interest rates during the year 2013. More specifically, Sony Life revised the previous methodology which measured the shock by dropping interest
rates by at least 1% for all maturities (parallel shift) and introduced principal component analysis, where yield curve changes are disaggregated into threecomponents, parallel shift, twist and butterfly, and the yield curve is shocked by each component, to capture the risk of yield curve changes more
precisely.

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 Solvency risk capital on an economic value basis is calibrated at VaR (99.5%) over one year and based on the internal model, which is a similar but
modified model based on the EU Solvency II (QIS5) standard method.

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

120Sony Financial Holdings Inc. Annual Report 2014

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. The Financial Data Book is available only on SFH’s website.

http://www.sonyfh.co.jp/en/financial_info/annualreport.html

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)

Performance Indicators of Sony Assurance
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
Performance Indicators of Sony Bank (Non-consolidated)
1. Key Performance Indicators
2. Status of Operation (Deposits)
3. Status of Operation (Loans)
4. Status of Operation (Securities)

Financial Section

Performance Indicators of Sony Life (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. Status of Individual Variable Life Insurance and Individual
Variable Annuities
8. Number of Agencies
9. Number of Employees and Recruits
10. 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

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
Sony Financial Holdings Inc. Annual Report 2014121

Glossary (in Alphabetical Order)B

ALM (Asset Liability Management)

Benefits

Life Non-life Banking• Money paid by an insurance company toa beneficiary in the event of hospitalization,
surgery, or others involving the insured.

• A risk management method for ensuring
stable delivery of assumed interest rates
through a comprehensive grasp andmanagement of the special characteristics
of assets and liabilities.
Because the majority of life insurancecompany liabilities consist of policy
reserves accumulated based on assumed
interest rates fixed at the time of policy
enrollment, a company must take thisspecial characteristic into consideration
when using ALM.

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 arecalculated by adjusting differences in
the payment methods since insurance
premiums can be paid monthly, annually,or in a lump sum, and by assuming that
average payments will be made over theterm of the policy.

Assumed interest rate

Life

• Insurance companies anticipate a certain
return on invested assets in advance anddiscount insurance premiums only by thisamount. This discount rate is called theassumed interest rate.

Assumed mortality rate

Life

• The mortality rate is the percentage of
people who die in a single year for a given
large population.
The assumed mortality rate is themortality rate used when calculating theamount of insurance premiums needed
to cover future benefit payments, andrepresents a projection of the numberof deaths by gender and age based on
past statistics.

Assumed rate of expense

Life• In operating their businesses, insurancecompanies forecast their expenses, thendiscount their insurance premiums by thatamount. That discount rate is called theassumed rate of expense.

122

Combined ratio

A

Sony Financial Holdings Inc. Annual Report 2014

Life

Bonus-malus system(Non-fleet driver rating system)

Non-life• The sum of an insurance company’s net
loss ratio and net expense ratio. Indicatesan insurance company’s profitability in the
primary business operations.

Compulsory automobile liability
insurance Non-life• A system for applying discounted or
additional premiums for non-fleet
policyholders (owners/users of nine or
fewer automobiles or motorcycles) basedon their accident histories. Grades range
from 1 to 20, but typically start at Grade 6.
The higher the grade (large numbers), thebigger the discount rate, and the smaller
the number, the smaller the discount.

• Compulsory automobile liability insurance
is legally required for all vehicles andprovides 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 arecapped at ¥30 million for death, ¥40 million
for serious residual disability, and ¥1.2
million for injury. Benefits are not paidfor vehicle or property damage.

C

Contingency reserve

Capital adequacy ratio

Non-life

Banking• An indicator of whether a bank has enoughcapital, including common stock, versus
credit risk assets (of total assets, thosewhich could become non-performing). If
a bank is unable to recover a large amountof loans, it can draw on capital and write
off these loans. A sharp decrease in capitalcreates 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 to show financial soundness. Forbanks possessing business bases overseas,
the internationally standardized regulations
to preserve financial soundness are a capital
adequacy ratio of over 8%, and for banks
not possessing business bases overseas,in Japan a capital adequacy ratio of 4%
is required.

Catastrophe reserve

Non-life• A type of policy reserve, under which,pursuant to the provisions of the Insurance
Business Act of Japan, non-life insurancecompanies are required to accumulate eachfiscal year as an amount calculated basedon 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, andother catastrophic events. It is structured tobe accumulated over the course of multiple
fiscal years, and reversed during the fiscal
year in which a disaster occurs.

Life

Non-life• Reserve to prepare for abnormal paymentsin the future resulting from various factors,
including insurance risk and assumed
interest rate risk. Insurance companies
list contingency reserve at every accountclosing as one component of policy
reserves in the financial statements.

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 than the primary insurance business,
including profits from the sale of assets
owned by the insurance company. Profit
categories subtracted from ordinary profit
include gains and losses on the sale ofsecurities and one-time gains and losses.

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 of premiums, payment of insurance
benefits, dividends, etc.) from eligible assets(managed assets) and liabilities (policy
liabilities) will be affected by interest rate
fluctuations. While a variety of types andmethods for calculating duration exist, amethod expressing the weighted average
maturity of the cash flow in question isrelatively widely used.

E
EV (Embedded Value)

Insurance Business Act ofJapan Life Non-life

G
Life

General accounts• 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.

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
Educational endowment
insurance Life
• An insurance policy designed to provide
for the future educational expenses ofchildren. An insurance benefit is paid out
when the child reaches a prescribed age
at the end of the policy period.

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.

Expense ratio

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) and an indicator of theamount of profits a bank generates fromits main services.

Non-life• The ratio of expenses for soliciting,
maintaining, and managing insurance toinsurance premiums. Used as an indicatorof business efficiency at insurance companies.
The ratio is normally derived by adding
operating, general and administrative
expenses related to insurance underwriting
to net commissions and brokerage fees,
and then dividing by net premiums written.

F
Family income insurance

I
Individual annuities

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
the Japanese yen equivalent of the U.S.
dollar-denominated insurance premiums
and select the Japanese yen or U.S. dollar
when they receive insurance claims.

Insurance claims

Life

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 avariety of types depending on the period
for receiving the annuity, structure of theannuity, 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.

Insurance Act of JapanLife

Non-life• Previously, rules concerning insurance
policies were stipulated in the Insurance
Chapter of the Commercial Code, which
was enacted in 1899. In April 2010, theInsurance Act entered into force as a newlaw independent of the Commercial Code.
Because no substantive amendments torules concerning insurance policies in theCommercial Code had been made forover a century, the Insurance Act contains
substantial changes from the standpointof protecting policyholders and others.
In addition, the Act has been written inlanguage reflecting modern usage, among
other revisions.

Non-life• Money paid by an insurance company
to the insured upon the death or serious
disability of the insured or policy maturity
in the case of life insurance; upon damage
caused by a compensation event according
to the insurance policy in the case of non-life
insurance; and upon hospitalization orsurgery of the insured in the case ofthird-sector insurance.

Insurance premiums

Life• In the event the insured dies or becomesdisabled, this insurance pays an annual ormonthly benefit through policy maturationin the form of a family annuity or disability
annuity.

• Insurance business has a public aspect,
and the Insurance Business Act, as noted in
Article 1, is intended to protect policyholders
and contribute to the stable lives of citizens
and to sound national economic development
by ensuring sound and appropriate businesspractices and fair insurance solicitation.

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.

InsuredLife

Non-life• A person who receives insurance protection
and compensation or a person who has
insurance coverage for his/her life, illness,or injury. This can be the same or different
person from the policyholder.

L
Lapse and surrender rate

Life

• Surrender refers to the cancellation of an
insurance policy at some point in the future.
Upon termination, the policy is surrendered,and from that point protection (or coverage,in the case of non-life insurance) is lost.
On the other hand, a lapse is when apolicyholder fails to pay premiums within
the payment grace period, causing thepolicy to lapse, from which point the policy
will no longer provide protection.
The lapse and surrender rate is the ratioof lapses and surrenders to policies in force
at the 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 beginning of the fiscal year.

Sony Financial Holdings Inc. Annual Report 2014123

Limited payment

Life• One of the methods of premium payment
in which insurance premiums are paid up
prior to the expiry of the insurance term.

Living benefit insurance• This insurance provides a lump-sum benefit
payment when the insured is diagnosed
with one of three major diseases (cancer,
heart attack, or stroke).
Non-life• Expenses incurred by an insurancecompany in examining an insured event.
These include personnel and non-personnel
expenses.

Loss ratio

Non-life• The ratio of insurance claims paid topremium income. Used in analyzing thebusiness of an insurance company andin calculating insurance premium rates.
The net loss ratio is the ratio derived byadding loss adjustment expenses to net
losses paid, then dividing by net premiums
written.

M
Medical insurance

Life

N
Banking• Fees and commissions charged forproviding services. These refer to income
generated by providing services, such asbank transfer fees and investment trust
sales commissions, less the costs
associated with providing these services.

Net interest income

Banking• Net interest income accounts for the largest
percentage of the four income componentsof gross operating profit. Banks generally
use the deposits received from individuals
and the funds raised in interbank markets
to provide loans to individuals andcompanies and to invest in securities. Net
interest income is the difference between
the total interest received from loans andother items (interest income) and the totalinterest paid for deposits and other items(interest expenses). Net interest income

124

Net other operating income

Banking• Net other operating income is derived
from services other than the primarybanking services income categories of net
interest income, net fees and commissions,and net trading income. One example isbuying and selling in dollars and otherforeign currencies. In this case, after
purchasing foreign currency at a certain
price, any gain from a subsequent sale
at a price higher than the purchase pricewould be recorded in other operating
income, and any loss from a subsequentsale at a price lower than the purchaseprice would be recorded in other operating
expenses.

Net premiums writtenNon-life• Premiums received directly frompolicyholders (direct premiums written),adjusting for reinsurance premiums(subtracting direct reinsurance premiums
paid and adding direct reinsurance
premiums received), and subtracting
deposits of premiums.

Non-life• Medical insurance provides policyholders
with hospitalization and surgical benefits inthe event of hospitalization or surgery due
to illness or injury.

Net fees and commissions

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

Life

Loss adjustment expenses

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 bydeposit and loan balances.

Sony Financial Holdings Inc. Annual Report 2014

Non-performing assets
Life

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 orinterest payments are past due by threemonths or more, and loans for which
repayment on initial terms is impossible
and interest has been reduced or exempted
and the repayment of principal has been
extended.

Nursing care insuranceLife• Insurance that pays out lump-sum or
annual payments to an insured party who
has become eligible for prescribed nursing
care. Sony Life has products that provide
coverage for those certified as requiring
Level 2 or higher nursing care under the
public nursing care insurance system inJapan, or for insured parties under 65
who have been eligible for nursing careas predefined by Sony Life for a continuous
180 days.

Non-life Banking• A bank serves as an insurance agency
to solicit insurance. There were previously
restrictions on what products could be sold,but these restrictions were abolished in
December 2007, and banks can now sella variety of insurance products.

P
Policy amount in forceLife• Total amount of protection provided bylife insurance companies to individual
policyholders. This is different from the total
amount of premiums paid by policyholders(premium income).

Policy reserves Life
(Underwriting reserves)

Non-life• Reserves that insurance companies
accumulate in advance, funded bypremiums, investment income, and othersources, to prepare for future liabilities
resulting from insurance policies, including
payments of claims, annuities, and benefits.
Policy reserves include ordinary policy
reserves, catastrophe reserve, contingency
reserve, refund reserve, and reserve forpolicyholders’ dividends.

Policy reserves and others Life
(Underwriting reserves) 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
and other items to fulfill their obligations
for paying claims and other actions basedon insurance policies. Policy reserves andothers include reserve for outstanding
claims, policy reserves, and reserve forpolicyholders’ dividends.

Policy reserve discount rate

Life

• The policy reserve discount rate is thecalculating rate insurance companies are
required to use when accumulating policy
reserves for future insurance payments.
A lowering of the rate means that the amountof the policy reserves insurance companies
must accumulate will increase. Since thesource of funds for the policy reserves is
primarily insurance premiums, the premium
rate may be revised as necessary in line withrevision to the policy reserve discount rate.
The policy reserve discount rate applied topolicies from April 2013 is 1.0%, half apercentage point lower than the previous
1.5%.

Policyholder

Life

Non-life• A person who signs up for an insurance
policy with an insurance company and hasvarious rights (e.g., request of changes in
the policy details) and obligations (e.g.,
payment of premiums) based on the policy.
Life

Policyholder loans• Loans provided up to a certain level of thesurrender payment on life 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 reserveLife• A reserve accumulated to fund dividend
payments to policyholders pursuant to theprovisions of the Insurance Business Act
of Japan.

Positive spread

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

R
ReinsuranceLife

Non-life• The insurance agreement that insurancecompanies conclude with domestic andoverseas reinsurance companies for someof the insurance policies they underwrite,
mainly large ones, in order to diversify
risks on insurance policies.

Reserve for outstanding claims Life
(Reserve for outstanding losses)
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 insurancecompany.

RidersLife

Non-life• Riders can enlarge the scope of protectionin the primary policy by adding provisions
to the primary coverage. Riders do notconstitute a policy by themselves. Multiple
riders can be added to the primary policy.
Riders are canceled when the primary policy
is canceled due to maturity, surrender, orother reasons.

Risk segmented automobile
insurance Non-life• Automobile insurance that segments therisk factors on which insurance premium
calculations are based. The provisions of
Insurance Business Act of Japan recognize
nine risk segment categories: age, sex,
driving history, purpose of use, conditionsof use, region, vehicle model, presence ofsafety equipment, and number of vehicles
owned.

S

Life

Non-life• Third-sector insurance refers to insurance
positioned between life insurance(first sector) and non-life insurance (second
sector). It encompasses a variety of typesof insurance, including medical insurance,cancer insurance, nursing care insurance,and personal accident insurance.
Regulatory easing has allowed both lifeand non-life insurance companies tohandle all third-sector insurance products
from July 2001.

U
Life

Separate accounts• Separate accounts are used for variable
life insurance, variable annuities, and otherinsurance products to invest assets separately from the other financial assets owned
by an insurance company in order to pay
investment returns directly to policyholders.

Solvency margin

Third-sector insuranceLife

Non-life• The solvency margin indicates payment
ability. Insurance companies accumulate
policy reserves to prepare for the paymentof future claims, allowing them to adequately
respond to risks within a normally anticipatedrange. However, unforeseen events canoccur, including major disasters andsubstantial declines in stock prices. The
solvency margin ratio is one measure usedby regulatory authorities to determine
whether an insurance company has theability to pay in response to the risk of such
unpredictable events. If this ratio falls below
200%, the Financial Services Agency ofJapan will take steps to quickly restore
financial soundness. New standards wereapplied beginning at the end of fiscal 2011,
with stricter solvency margin standards andstricter and more elaborate standards formeasuring risk.

Underwriting profit

V
Variable life insuranceLife

Non-life• Money refunded to the policyholder in theevent that the insurance policy is surrenderedor cancelled. Surrender payment amounts
vary depending on several factors, including
the type of insurance, insurance period, andyears elapsed.

Life• Insurance product in which assets areinvested mainly in stocks and bonds, andclaims and surrender payments increaseor decrease depending on investment
returns. The individual policyholder bears
the asset management risk.

W
Whole life insurance

Surrender payments

Non-life• Underwriting profit is calculated bysubtracting any underwriting expenses(net losses paid and loss adjustment
expenses, etc.) and operating, generaland administrative expenses associatedwith underwriting from under writing
income (net premiums written, etc.) thenadding or subtracting other income andexpenses (corporate taxes associatedwith compulsory automobile liability
insurance, etc.).

Life• Insurance that pays benefits in the eventthe insured dies or is disabled. Unlike termlife insurance, protection continues for
entire life.

T
Term insuranceLife• Term insurance entitles a beneficiary toreceive benefits in the event of death orserious disability of the insured within an
insurance period specified when the policy
is purchased.

Sony Financial Holdings Inc. Annual Report 2014

125

126

Sony Financial Holdings Inc. Annual Report 2014

SFH’s Website Information

SFH uses its website to provide timely disclosure andpromote a better understanding of the Sony Financial Group.

http://www.sonyfh.co.jp/index_en.html
The website was renewed in April 2014.
The entire website design has been renewed.
Certain pages can be viewed on smartphones.

IR-related materials, such as earnings releases
and financial results, and earnings announcement materials, are available for viewing or
downloading.
Annual reports and financial data are available
for viewing in PDF and HTML formats, respectively.

Financial Data Book
The Financial Data
Book is available only
on SFH’s website.

On the video, Katsumi Ihara, President andRepresentative Director of SFH, talks about
the origin of our businesses, strengths andfuture strategies.

Sony Financial Holdings Inc. Annual Report 2014127

Sony Financial Group

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