June 1, 2009
Sony Life Insurance Co., Ltd.

Disclosure of Market Consistent Embedded Value as of March 31, 2009
Tokyo, June 1, 2009 – Sony Life Insurance Co., Ltd. (“Sony Life”), a wholly-owned subsidiary of Sony Financial
Holdings Inc., today disclosed its Market Consistent Embedded Value (“MCEV”) as of March 31, 2009, as one of
the indices used to evaluate the corporate value of Sony Life and the life insurance businesses of the SonyFinancial Holdings Group, which is compliant with the European Insurance CFO Forum Market Consistent
Embedded Value Principles©1 (“MCEV Principles”).
Sony Life maintains its accounting records and prepares its financial statements in Japanese yen, in accordancewith the Company Law of Japan and the Insurance Business Law of Japan and in conformity with generally
accepted accounting principles and practices in Japan (“Japanese GAAP”). Sony Financial Holdings Inc.’s parent
company, Sony Corporation, reports its financial statements in accordance with generally accepted accounting
principles and practices in the United States. The figures stated below with respect to Sony Life’s financial
statements are based on Japanese GAAP.

Summary
The MCEV of Sony Life as of March 31, 2009 is as follows.
The MCEV as of March 31, 2009, was down ¥415.6 billion compared with its level on March 31, 2008, primarily
due to decreases in interest swap rates, the flattening of the term structure, increases in the implied volatilities of
equity options and interest swaptions, and price declines on stocks and convertible bonds we held. We have beenworking to reduce the duration mismatch risk between assets and liabilities since the year ended March 31, 2008.
Going forward, we will continue in these efforts. We also aim to increase our value of new business to achieve
continuous growth in corporate value.

MCEV
Adjusted net worth
Value of existing businessNew business value

As of March 31, 2009
400.9
195.4
205.4
15.4

As of March 31, 2008
816.5
248.5
568.0
48.2

(Billions of yen)
Change(415.6)(53.1)(362.5)(32.9)*New business value indicates the value of new business acquired during the year ended March 31, 2009.

For inquiries:
Masaaki Konoo or Kayoko Miyako
Corporate Communications & Investor Relations Dept.
Sony Financial Holdings Inc.
E-mail: press@sonyfh.co.jp
Telephone: +81-3-5785-1074
Website of Sony Financial Holdings Inc. http://www.sonyfh.co.jp/index_en.html
1

Copyright © Stichting CFO Forum Foundation 20081

Table of Contents
1. Introduction .................................................................................................................................................................. 3
1.1 About MCEV.......................................................................................................................................................... 3
1.2 Covered business .................................................................................................................................................... 3
1.3 Statement of directors............................................................................................................................................ 4
1.4 Opinion of outside specialist ................................................................................................................................. 4
1.5 Compliance with MCEV Principles..................................................................................................................... 4
1.6 Definition of MCEV............................................................................................................................................... 4
2. MCEV Results for Sony Life ...................................................................................................................................... 6
2.1 MCEV results ......................................................................................................................................................... 6
2.2 Adjusted net worth ................................................................................................................................................ 6
2.3 Value of existing business ...................................................................................................................................... 7
2.4 New business value ................................................................................................................................................ 7
2.5 New business margin ............................................................................................................................................. 8
2.6 Reconciliation analysis from MCEV at the end of the prior year .................................................................... 9
2.7 Sensitivity analysis ............................................................................................................................................... 12
3. Assumptions ................................................................................................................................................................ 15
3.1 Economic assumptions ........................................................................................................................................ 15
3.2 Future asset allocation ......................................................................................................................................... 19
3.3 Other assumptions ............................................................................................................................................... 19
4. Calculation method of MCEV .................................................................................................................................. 21
4.1 Covered business .................................................................................................................................................. 21
The covered business is the business operated by Sony Life, its subsidiary and its affiliate companies. ........ 21
4.2 Treatment of subsidiary and affiliate companies ............................................................................................. 21
4.3 Treatment of reinsurance .................................................................................................................................... 21
4.4 Treatment of semi-participating policies ........................................................................................................... 21
4.5 MCEV ................................................................................................................................................................... 21
4.6 Adjusted net worth .............................................................................................................................................. 21
4.7 Required capital ................................................................................................................................................... 22
4.8 Free surplus .......................................................................................................................................................... 22
4.9 Value of existing business .................................................................................................................................... 224.10 Present value of certainty-equivalent profit ................................................................................................... 23
4.11 Time value of options and guarantees ............................................................................................................. 23
4.12 Frictional costs ................................................................................................................................................... 23
4.13 Cost of non-hedgeable risks .............................................................................................................................. 24
4.14 Cost of capital rate ............................................................................................................................................. 24
5. Opinion of Outside Specialist ................................................................................................................................... 25
6. Glossary....................................................................................................................................................................... 27

2

1. Introduction
1.1 About MCEV
The primary purpose of this press release is to provide information regarding the economic value of our life
insurance business and movement analysis of its value.
Companies—primarily leading life insurance firms in Europe—have widely disclosed European Embedded Value(“EEV”) since the CFO Forum formed by the Chief Financial Officers (CFO) of major insurance companies in
Europe, published EEV Principles in May 2004. EEV Principles attempt to address criticisms to traditional
embedded value (TEV) (such as the appropriate valuation of costs related to options and various guarantees andimproving comparability with other firms) and facilitate the implementation of market consistent valuation
methods, which led many leading insurance companies in Europe to disclose EEV based on market-consistent
approaches.
However, EEV Principles allow various calculation methodologies, including MCEV. Many insurance companies
in Europe disclose MCEV as part of their financial reports and use it as an internal management tool, so the CFO
Forum published MCEV Principles in June 2008 in order to make EV information effective and appropriate forinvestors by streamlining MCEV disclosure standards for international use.
Here, in December 2008 the CFO Forum decided to conduct a review of the impact of turbulent market conditions
on the MCEV Principles, as the MCEV Principles were designed during a period of relatively stable market
conditions and their application could, in turbulent markets, lead to misleading results. Although the review results
have not yet been published, the result of which may lead to changes to the published MCEV Principles or theissuance of guidance. While the CFO Forum remains committed to MCEV Principles, EV disclosure compliant
with MCEV Principles is mandatory for life insurance companies participating to the CFO Forum in Europe
starting in the fiscal year ending December 31, 20092. Therefore, we believe disclosure compliant with MCEV
Principles will spread, particularly in Europe.
In step with these developments, Sonly Life has disclosed MCEV as of March 31, 2008, in compliance with
MCEV Principles.

1.2 Covered businessOur calculations include the business operated by Sony Life and its subsidiary and affiliate companies. It should be
noted, however, that we have calculated the value of the subsidiary and affiliated companies by adding their bookvalues on a Japanese GAAP basis to the calculation of adjusted net worth.

2

According to the press release announced by the CFO Forum on May 22, 2009, the commencement of
mandatory MCEV reporting may be deferred until 2011. For more details, please see the website of the CFO
Forum （http://www.cfoforum.nl/）.
3

1.3 Statement of directors
The Board of Directors of Sony Life confirms that the EV presented here has been produced following themethodology set out in the MCEV Principles. Areas of material noncompliance are stated in section 1.5 .

1.4 Opinion of outside specialist
Sony Life requested Milliman, Inc., an external actuarial consulting firm with expert knowledge in the area of
MCEV valuations, to review the methodology, assumptions and calculations and obtained opinion from Milliman,
Inc. Please refer to Section 5 (“Opinion of Outside Specialist”) for details.

1.5 Compliance with MCEV Principles
We have calculated our MCEV in accordance with the calculation methodologies and assumptions in the MCEV
Principles. Points of notice regarding MCEV Principles compliance are as follows.
•
The calculated value of MCEV is the value for Sony Life only, and not the consolidated value of our parent
company, Sony Financial Holdings Inc.
•
With respect to Sony Life’s subsidiary, Sony Life Insurance (Philippines) Corporation and its equity
method affiliate, AEGON Sony Life Planning Co., Ltd., we have not evaluated their life insurance businessbut reflected their book values in the calculation of adjusted net worth. Values of subsidiary and affiliatedcompanies were not changed in sensitivity tests.
•
Any calculated values of MCEV are not presented separately by segment of subsidiary and affiliatedcompany.
•
We have calculated adjusted net worth based on Japanese GAAP, not on International Financial ReportingStandards (IFRS).

1.6 Definition of MCEVMCEV Principles define MCEV as follows.
MCEV represents the present value of current and future distributable earnings to shareholders generated fromassets allocated to the covered business after sufficient allowance for the aggregate risks in the covered business.
MCEV can be expressed as the EV evaluated in a method consistent with the calculation of prices of financial
products traded in the financial markets.
MCEV consists of adjusted net worth and the value of existing business.
Adjusted net worth is the amount of assets allocated for the covered business as of the valuation date and calculated
as the amount of its market value in excess of statutory policy reserve and other liabilities. Adjusted net worth canbe split to required capital and free surplus.
The value of existing business consists of the present value of certainty-equivalent profit, time value of options andguarantees, frictional costs, and the cost of non-hedgeable risks.
•The present value of certainty equivalent profit is the present value of profit based on future cash flows4generated from the covered business.
•
Time value of options and guarantees is the stochastic valuation of the time value of options and guarantees
inherent in insurance contracts based on risk-neutral scenarios.
•
Frictional costs are the present value of investment costs and taxes on assets backing the required capital ateach point of time in the future.
•
Cost of non-hedgeable risks means the present value of costs necessary to maintain capital related to
non-hedgeable risks in the future. These four items are all on an after-tax basis.
Please refer to Section 4 for more detailed definitions of terms.

52. MCEV Results for Sony Life
2.1 MCEV results
MCEV of Sony Life as of March 31, 2009 is shown in the table below.
The MCEV as of March 31, 2009, was down ¥415.6 billion compared with its level on March 31, 2008,
primarily due to decreases in interest swap rates, the flattening of the term structure, increases in theimplied volatilities of equity options and interest swaptions, and price declines on stocks and convertible
bonds we held. We have been working to reduce the duration mismatch risk between assets andliabilities since the year ended March 31, 2008. Going forward, we will continue in these efforts. We
also aim to increase our value of new business to achieve continuous growth in corporate value.
(Billions of yen)
As of March 31,
As of March 31,
Change
2009
2008
MCEV
400.9
816.5
(415.6)
Adjusted net worth
195.4
248.5
(53.1)
Value of existing business
205.4
568.0
(362.5)New business value
15.4
48.2
(32.9)

2.2 Adjusted net worth
Adjusted net worth is calculated as the market value of assets allocated for the covered business in excess ofstatutory policy reserve and other liabilities as of the valuation date. It is the total amount of the net assets line on
the balance sheets, adding a reserve for price fluctuations, contingency reserves, reserve for possible loan losses,
along with unrealized gains or losses on held-to-maturity securities and unrealized gains or losses on land andbuildings, deducting unfunded pension liabilities and intangible fixed assets, and adjusting for the amount of tax
effect equivalent to these seven items (see below).
(Billions of yen)
As of March 31, As of March 31,
Change2009
2008
Adjusted net worth
195.4
248.5
(53.1)
Total net assets
140.7
182.7
(41.9)
Reserve for price fluctuations
3.7
24.1(20.4)
Contingency reserves
45.5
61.8
(16.3)
Reserve for possible loan losses
0.0
0.0
0.0
Unrealized gains or losses onheld-to-maturity securities
26.7
－
26.7
Unrealized gains or losses on land and buildings
28.9
29.0
(0.1)
Unfunded pension liabilities
(6.8)
(3.5)
(3.2)
Intangible fixed assets(12.2)(8.1)(4.1)
Tax effect equivalent of above seven items(31.1)(37.4)
6.3

6

As of March 31,
2009
195.4
(173.8)369.2

Adjusted net worth
Free surplus
Required capital(Billions of Yen)
As of March 31,
Change2008
248.5(53.1)
248.5(422.3)369.2

We set our required capital as the larger of the amount of capital required for a solvency margin ratio of 600% andthe amount of capital to cover risks based on an internal model based on economic value. As of the valuation date,
the amount of the former is 0 and all the required capital is inferred from the latter. Please refer to section 4.7 forthe method used to calculate required capital.
Sony Life aims to manage risk on the basis of economic value. As this type of risk management has only recently
begun, the free surplus as of the valuation date delivered a negative value. We will strive to clear up the negative
free surplus by reducing the duration mismatch risk of assets and liabilities, reviewing product characteristics andadopting other measures.

2.3 Value of existing business
The value of existing business is the present value of certainty-equivalent profit deducting the time value of options
and guarantees, and frictional costs and the cost of non-hedgeable risks, broken down as follows.
(Billions of yen)
As of March 31,
As of March 31,
Change2009
2008
Value of existing business
205.4
568.0
(362.5)Present value of certainty-equivalent profit
673.1
810.4
(137.3)Time value of options and guarantees(228.7)(94.8)(134.0)Frictional costs(58.5)(16.3)(42.3)
Cost of non-hedgeable risks(180.5)(131.5)(49.0)

2.4 New business value
Business included in the calculation of new business value is only that acquired during the year ended March 31,
2009, which is consistent with the financial information we have disclosed, and does not include the value of new
business expected to be acquired in the future. The value of new business is the value as of March 31, 2009 and is
calculated based on the same assumptions used for the value of existing business on the same date. As the value of
new business includes profits and losses from the point of sale to the end of March 2009, actual investment gains
and losses during the year ended March 31, 2009 are reflected. A breakdown of the value of new business is asfollows.

7

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

As of March 31,
2009
15.4
62.8
(28.1)(1.7)(17.7)

As of March 31,
2008
48.2
76.3
(13.2)(0.7)(14.2)(Billions of yen)
Change(32.9)(13.5)(14.8)(1.0)(3.5)

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

Value of new business
Present value of premium income

As of March 31,
2009
15.4
866.9

As of March 31,
2008
48.2
863.0

1.8%

5.6%

Value of new business / Present value ofpremium income(Billions of yen)
Change(32.9)
3.9(3.8 points)

Relationships between the acquired annualized premiums from new policies and the present value of premiumincome from new business for the year ended March 31, 2009 are as follows.

Single premium from new businessAnnualized premiums from level premium
new business3

As of March 31,
2009
35.3
75.4

As of March 31,
2008
40.3
78.4

11.03

10.49

Average annualization multiplier4

3(Billions of yen)
Change
(4.9)
(3.0)
0.53

Annualized premiums from level premium new business is calculated by multiplying the number of payments in a year by theamount of premiums received at a time. It should be noted that the definition of annualized premiums here is different from that usedin disclosure such as financial results and annual reports.
4
The average annualization multiplier is calculated as (Present value of premium income – Single premium from new business) /Annualized premiums from level premium new business.

8

2.6 Reconciliation analysis from MCEV at the end of the prior year
The table below shows the reconciliation analysis of MCEV as of March 31, 2009, from MCEV as of March 31,
2008, of which format is in line with the one prescribed by MCEV Principles.

Free
surplus
Opening MCEV (MCEV as of March 31, 2008)
Opening adjustment
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
Experience variances
Assumption changes
Other operating variance
Operating MCEV earnings
Economic variances
Other non operating varianceTotal MCEV earnings
Closing MCEV (MCEV as of March 31, 2009)

Requiredcapital(Billions of yen)
Value ofexisting
MCEV
business

248.5
3.0
251.5
－
2.3
1.8

－
－
－
－
0.1
0.0

568.0
－
568.0
15.4
16.6
15.6

816.5
3.0
819.5
15.4
19.0
17.5

12.0

12.5

(24.5)－(18.9)(35.6)(6.1)(44.5)(380.8)－(425.3)

11.4
35.6
6.1
65.6
303.6
－
369.2

(2.4)
(27.3)(5.8)(12.4)(350.2)－(362.5)(9.9)(27.3)(5.8)
8.7(427.4)－(418.6)(173.8)

369.2

205.4

400.9

(1) Opening adjustments
These adjustments reflect changes in dividends paid to shareholders and capital increases. A decrease of ¥7.0
billion due to dividends paid to shareholders was more than offset by a ¥10.0 billion increase in capital.
(2) New business value
This figure reflects increases resulting from the acquisition of new business during the year ended March 31, 2009.
Please refer to section 2.4 for information concerning the calculation method.
(3) Expected existing business contribution (risk-free rate)
This figure includes the release of the portion for the year ended March 31, 2009, of the time value of options andguarantees and allowance for non-hedgeable risks, in addition to the release of the expected existing business
contributions at a risk-free rate from the opening MCEV (as of March 31, 2008).
(4) Expected existing business contribution (in excess of risk-free rate)
This figure reflects the profit expected in excess of the risk-free rate generated by holding assets such as ordinary9

corporate bonds, convertible bonds, loans, stocks and real estate. The expected yield used to calculate the expected
existing business contribution in excess of the risk-free rate for the year ended March 31, 2009, was 1.65%, which
was developed by reflecting our view of the market environment and annual investment plans for the year against
the asset balance at the end of the previous fiscal year.
(5) Transfer from value of existing business and required capital to free surplus
This figure indicates changes in the free surplus by transferring the profit for the year ended March 31, 2009, fromthe existing business value to the free surplus and from changes in the required capital. The transfer of profit, thefirst item, includes the transfer of expected profit that it was assumed would be realized during the year ended
March 31, 2009, under the MCEV calculation as of March 31, 2008, and the transfer of profit for the year ended
March 31, 2009, calculated under the new business value for the year ended March 31, 2009, which is added in (2)above.
The value of MCEV itself does not change as a result of this transfer as the transfer merely constitutes an internal
shift among MCEV components.
(6) Experience variances
These variances show the impact on MCEV of the actual versus assumed differences in non-economic expected
profit for the year ended March 31, 2009, under the MCEV calculation as of March 31, 2008, and of thedifferences between actual policies in force as of March 31, 2009, and those that were projected to be in force on
March 31, 2008, using persistency assumptions. The primary causes of changes in unfunded pension liabilities andintangible fixed assets are reflected in adjusted net worth.
These variances reflect the impact of one-time expenses incurred during the year ended March 31, 2009. Pleaserefer to section 3.3 (5) for information on one-time expenses.
(7) Assumption changes
This figure indicates the impact of changes in the assumptions, mainly on mortality and morbidity rates, lapse andsurrender rates and operating expense rates, in the calculation of MCEV as of March 31, 2009. The figure also
reflects the two changes described below, which resulted in a ¥27.3 billion of decrease in MCEV.
During the year ended March 31, 2009, although actual mortality figures were improved by reflecting recent
experience, the value of existing business decreased due to the withdrawal of the application of dynamic surrender
rates to interest-sensitive whole life insurance, as described below, and higher lapse and surrender rates as a resultof reflecting recent experience. A decrease in the value of existing business means an increase in the present valueof future liability cash flows. This change, in turn, inflates changes in the present value of liability cash flows if theinterest rates are changed, resulting in an increase in required capital based on an internal model method.
・ Changes in dynamic surrender rates
We have decided not to apply dynamic surrender rates for interest-sensitive whole life insurance for calculating
MCEV as of March 31, 2009. Although we have not identified an explicit correlation between interest rates or
account values to minimum guarantees and lapse and surrender rates, we have developed dynamic surrender
rates for the calculation of MCEV as of March 31, 2008, by referring to experience with similar products anddomestic and overseas trends of practice. However, if we were to apply dynamic surrender rates to this productin the same manner as for the calculation of MCEV as of March 31, 2008, MCEV as of March 31, 2009, would
be higher than the case in which dynamic surrender rates were not applied. Therefore, we have decided not toapply dynamic surrender rates for this product. Going forward, we will strive to improve dynamic surrender
rates for this product by carefully monitoring experiential data and referring to experience with similar products
and trends of practice in Japan and other countries.
10・ Change in the method of calculating the interest dividend rate for semi-participating products
As we revised the method of calculating interest dividend rates applied during and after April 2009, we havereflected the relevant changes in MCEV calculations.
(8) Other operating varianceThis figure reflects the impact of model improvements and updates used in calculating MCEV.
(9) Operating MCEV earnings
This figure shows the aggregate amount of items (2) through (8).
(10) Economic variances
These variances show the impact of actual to assumed differences in economic assumptions, such as market
interest rates and implied volatilities, that were reflected in the market environment when calculating MCEV as ofMarch 31, 2008, on future values and the impact of the actual to assumed difference in expected asset investment
income that were assumed would be realized during the year ended March 31, 2009, under MCEV as of March 31,
2008.
Major reasons for decreases in the value of existing business from the impact of the former item include decreases
in interest swap rates and a flattening of the term structure, and increase in the implied volatilities of equity options
and interest swaptions accounting for ¥276.6 billion, an increase in the allowance for non-hedgeable risks and anincrease in the frictional costs of such changes in the market environment, accounting for ¥40.1 billion and ¥33.4
billion, respectively.
Major causes of decreases in the adjusted net worth owing to the impact of the latter are declines in the prices ofstocks and convertible bonds held.
(11) Other non operating variance
There are no differences based on other factors.

11

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

No change
100bp decrease
100bp increase
10% decrease
10% increase
25% increase
25% decrease

400.9
107.3
573.2
385.1
416.8
398.8
403.9

Change inAmount－(293.6)172.3(15.7)
15.9
(2.1)
3.0

25% increase

331.3(69.5)(17%)

10% decrease
x 0.9
Death protection products
x 0.95
Third-sector and annuity
products x 0.95
x 0.95
Statutory required minimum
level

411.3
393.1

10.5
(7.7)

3%
(2%)

435.6

34.7

9%

396.5

(4.4)

(1%)

428.6

27.7

7%

459.2

58.3

15%

Change in Assumption

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

MCEV

Rate of Change
－
(73%)
43%
(4%)
4%
(1%)
1%

Changes in adjusted net worth within the amount of change in MCEV are shown in the table below. Of items not
specified in this table, only the value of existing business has been changed while adjusted net worth remains thesame.
Interest rates
Stock / Real estate market value
Stock / Real estate implied volatility

100bp decrease
100bp increase
10% decrease
10% increase
25% increase
25% decrease

12

274.8
(242.5)(14.0)
14.2
2.8
(2.8)

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

No change
100bp decrease
100bp increase
10% decrease
10% increase
25% increase
25% decrease

New Business
Value
15.4
(24.6)
40.5
15.3
15.4
14.6
16.2

Change inAmount－(39.9)
25.1
(0.0)
0.0
(0.7)
0.8

25% increase

7.1

(8.3)

(54%)

10% decrease
x 0.9
Death protection products
x 0.95
Third sector and annuity
products x 0.95
x 0.95
Statutory required minimum
level

16.5
16.0

1.2
0.6

8%
4%

18.0

2.6

17%

15.0

(0.3)

(2%)

18.3

2.9

19%

17.0

1.6

11%

Change in Assumption

Rate of Change－(260%)
164%
(0%)
0%
(5%)
5%

(1) Interest rates
This sensitivity represents the impact of an immediate parallel shift of the swap curve as of March 31, 2009.
Adjusted net worth would change as the market value of bonds and other assets held were to change. At thesame time, the value of existing business would also change as the discount rate and the investment return on
stocks, real estate, and etc. were changed. Here, the sensitivity scenarios were made so that the parameters
related to interest rate volatility were equal to those derived for the base case. Only the parameters related tothe interest rate term structure were altered when scenarios were developed using the interest rate model. The
floor in downward changes in interest rates was set at 0%.
(2) Stock and real estate market value
This sensitivity represents the impact of immediate changes in market values of stock and real estate as ofMarch 31, 2009. Adjusted net worth would change as the market value of stock and real estate were to change.
At the same time, the value of existing business would change as the amount of asset changed(3) Implied volatility of stock and real estateThis sensitivity represents the impact of an increase in the implied volatilities of stock and real estate used in
calculating the time value of options and guarantees. The value of convertible bonds would also change. If
stock implied volatilities were changed, the value of convertible bonds would change and thus adjusted net
worth would change. At the same time, the value of existing business would also change as the time value of
options and guarantees was affected.

13

(4) Interest swaption implied volatility
This sensitivity represents the impact of an increase in the implied volatility of interest swaption used in
calculating the time value of options and guarantees. The value of existing business would change as the timevalue of options and guarantees were changed.
(5) Maintenance expenses
This sensitivity represents the impact of an increase in maintenance expenses. It should be noted thatmaintenance expenses do not include sales commissions from the in-force policies payable to Sony Life’s
Lifeplanner sales employees in future periods.
(6) Lapse and surrender rates
This sensitivity represents the impact of a decrease in lapse and surrender rates.
The result of this sensitivity for the existing business value has moved toward the opposite direction from thatof the previous fiscal year and the value of the company increases as more policies would be surrendered.
This is because the number of policies that would continue to be in negative spread status in the future has
increased due to decline in interest rates and others.
(7) Mortality rates
This sensitivity represents the impact of a decrease in the mortality rates. We have shown the impact on death
protection products and the impact on third-sector insurance and annuity products separately, as they would
have different impacts. We have covered base policies and riders of which the principal benefits are accidental
death, disability, cancer, medical and nursing benefits, and individual annuities with respect to the third-sector
insurance and annuity product segment. No management actions were reflected.
(8) Morbidity rates
This sensitivity represents the impact of a decrease in the morbidity rates of sickness and others in third-sector
products.
(9) Required capitalThis sensitivity represents the impact in the event that required capital was changed to the statutory minimum
level, a solvency margin ratio of 200%.
(10) Other
The following points should be noted regarding sensitivity.
・ Frictional costs and the cost of non-hedgeable risks do not change in the sensitivity tests, with the
exception of frictional costs, which are changed in terms of (9) required capital.
・ Values of a subsidiary and an affiliated company are not changed.
・ The impact of changing more than one assumption at a time is not congruent with the sum of impacts foreach assumption.

14

3. Assumptions
3.1 Economic assumptions
We have made economic assumptions in our calculation of MCEV as of March 31, 2009.
(1) Risk-free rate
We have used the interest swap rate of Japanese yen as of March 31, 2009 as a risk-free rate for the certainty
equivalent projections. As there are no data available beyond 50 years, we assumed that forward rates in the
51st year and beyond were equal to those in the 50th year. We have used Bloomberg’s interest swap rate as ourdata source.
The spot yields of the swap rate for key terms are as follows:Term
As of March 31, 2009
As of March 31, 2008
1 year0.75％
0.92%
5 year
0.97%
1.03%
10 year
1.31%
1.45%
20 year
1.79%
2.04%
30 year
1.88%
2.26%
40 year
1.89%
2.34%
50 year
1.92%
2.41%(2) Interest-rate model
We have calibrated the interest rate model to the market as of March 31, 2009. We have estimated parameters
for the interest rate model from the yield curve and the implied volatilities of interest swaptions with different
terms. We have used 1,000 scenarios generated by Milliman, Inc. in calculating the time value of options andguarantees under the stochastic method, where interest rate is floored at 0%.
The implied volatilities of the interest swaption used in our estimation are as follows.
As of March 31, 2009
Term of swap
Term of option(in years)(in years)
1
1
5
1
5
5
5
7
5
10
10
1
10
5
10
7
10
10
15
1
15
5
15
7
15
10

Japanese
yen
38.4%
42.2%
29.7%
25.1%
22.0%
35.4%
25.2%
22.3%
20.0%
31.3%
23.0%
21.3%
20.2%

15

U.S. dollarEuro

UK pound

54.5%
40.3%
27.6%
24.8%
22.1%
35.7%
25.7%
23.8%
22.1%
33.7%
24.5%
23.5%
21.4%

34.5%
27.6%
17.5%
16.0%
14.5%
27.0%
17.5%
15.9%
15.3%
25.4%
17.7%
16.7%
16.6%

42.5%
30.1%
15.8%
13.2%
11.0%
26.8%
14.7%
12.9%
11.8%
25.1%
14.8%
13.2%
12.1%

As of March 31, 2008
Term of swap
Term of option(in years)(in years)
1
1
5
1
5
5
5
7
5
10
10
1
10
5
10
7
10
10
15
1
15
5
15
7
15
10

Japanese
yen
39.2%
41.8%
26.1%
21.3%
18.5%
27.9%
20.0%
17.5%
15.6%
22.1%
17.4%
15.7%
14.5%

U.S. dollarEuro

UK pound

49.1%
35.7%
20.3%
17.6%
15.1%
28.3%
18.7%
16.7%
14.6%
24.7%
16.7%
15.1%
12.9%

19.6%
17.5%
12.8%
11.6%
10.8%
14.6%
11.8%
11.2%
10.7%
13.5%
11.5%
11.0%
10.5%

24.3%
16.5%
12.2%
11.5%
10.9%
13.9%
11.2%
10.7%
10.4%
12.8%
10.5%
10.3%
10.3%

(3) Implied volatility of foreign exchange rates and equity
We have obtained spot implied volatilities from options with different terms. Implied volatilities are all those
for at-the-money options. Bloomberg is the source of data for foreign exchange and averages of the implied
volatilities provided by securities firms for the stock price index. We have assumed that forward implied
volatilities in the 11th year and beyond are equal to those in the 10th year for both foreign exchange rates and thestock price index as these derivatives have low liquidities.
In the calculation of MCEV as of March 31, 2008, we used implied volatility of 5-year term for the 10-year
term, as there was no credible data beyond 5-year term regarding the foreign exchange rate of UK pound andJapanese yen. However, in the calculation of MCEV as of March 31, 2009, we set forward implied volatility inthe 6th year and beyond are equal to the one in the 5th year.
Implied volatilities used for the estimation are as follows:
As of March 31, 2009
Foreign Exchange
Term
U.S. dollar/Euro/
UK pound/Japanese yen Japanese yen Japanese yen
1
14.2%
20.6%
24.0%
5
11.5%
20.6%
23.3%
10
13.3%
22.0%
―

16

Japan
TOPIX
34.0%
31.6%
31.5%

Stocks
U.S.
Euro
S&P
SX5E
37.0%
36.4%
34.8%
34.3%
34.7%
34.1%

UK
FTSE
33.2%
33.1%
33.9%

As of March 31, 2008
Foreign Exchange
Term
U.S. dollar/Euro/
UK pound/Japanese yen Japanese yen Japanese yen
1
12.1%
12.1%
13.7%
5
10.7%
11.4%
12.9%
10
13.1%
13.0%
12.9%

StocksU.S.A.
EURO
S&P
SX5E
24.1%
23.4%
25.9%
26.3%
28.0%
28.0%

Japan
TOPIX
22.9%
21.7%
22.6%

U.K.
FTSE
23.7%
25.8%
27.6%

(4) Correlation factor
We have calculated correlation factors from the monthly return of each index for a period of five years from
April 2004 and to the end of March 2009 as there is no market-consistent data for correlation factors.
As of March 31, 2009
Japanese

U.S.

Euro

UK

U.S.

Euro /

UK

yen

dollarInterestpound

dollar /Japanesepound /

Interest

Interest

rate 1YInterest

JapaneseyenJapanese

rate 1Yrate 1Yrate 1Y

yen

1.00

0.42

0.44

0.39

0.13

0.19

0.42

1.00

0.68

0.60

0.59

0.44

0.68

1.00

0.86

0.39

0.60

0.86

0.13

0.59

0.19

0.31

TOPIX

S&P

SX5E

FTSE

0.31

0.23

0.20

0.21

0.14

0.32

0.60

0.44

0.35

0.48

0.35

0.48

0.50

0.64

0.47

0.53

0.51

0.42

1.00

0.47

0.48

0.74

0.38

0.40

0.33

0.23

0.48

0.47

1.00

0.56

0.72

0.50

0.27

0.35

0.33

0.32

0.50

0.48

0.56

1.00

0.75

0.66

0.61

0.50

0.52

0.60

0.64

0.74

0.72

0.75

1.00

0.56

0.46

0.41

0.33

yen

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

TOPIX

0.23

0.44

0.47

0.38

0.50

0.66

0.56

1.00

0.74

0.79

0.79

S&P

0.20

0.35

0.53

0.40

0.27

0.61

0.46

0.74

1.00

0.91

0.83

SX5E

0.21

0.48

0.51

0.33

0.35

0.50

0.41

0.79

0.91

1.00

0.90

FTSE

0.14

0.35

0.42

0.23

0.33

0.52

0.33

0.79

0.83

0.90

1.00

17

As of March 31, 2008
TOPIX

SPX

SX5E

FTSE

(0.07)(0.00)(0.09)

0.00(0.02)

0.28

0.40

0.39

0.38

0.57

0.54

0.37

0.18

0.13

0.08

0.24

0.39

0.31

1.00

0.12

(0.07)

0.23

0.15

0.19

0.21

0.11

0.37

0.12

1.00

0.53

0.60

0.31

0.24

0.47

0.47

0.28

0.18

(0.07)

0.53

1.00

0.77

0.12

0.42

0.32

0.46

(0.07)

0.40

0.13

0.23

0.60

0.77

1.00

0.23

0.38

0.35

0.37

TOPIX

(0.00)

0.39

0.08

0.15

0.31

0.12

0.23

1.00

0.42

0.48

0.53

JapaneseJapanese

U.S.

Euro

UK

U.S.

Euro /

UK

yen

dollarInterestpound

dollar /Japanesepound /

Interest

Interest

rate 1YInterest

JapaneseyenJapanese

rate 1Yrate 1Yrate 1Y

yen

1.00

0.21

0.20

0.10

(0.05)(0.07)

0.21

1.00

0.60

0.41

0.52

0.20

0.60

1.00

0.54

0.10

0.41

0.54

(0.05)

0.52(0.07)

yen

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

SPX(0.09)

0.38

0.24

0.19

0.24

0.42

0.38

0.42

1.00

0.82

0.76

SX5E

0.00

0.57

0.39

0.21

0.47

0.32

0.35

0.48

0.82

1.00

0.87

FTSE

(0.02)

0.54

0.31

0.11

0.47

0.46

0.37

0.53

0.76

0.87

1.00

18

(5) Foreign exchange
Assets denominated in foreign currencies are converted to Japanese yen using the TTM (telegraphic transfer
middle exchange rate) as of March 31, 2009.

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

As ofMarch 31, 200998.23
129.84140.45

As ofMarch, 31 2008
100.19158.19200.11

3.2 Future asset allocation(1) Asset allocation in the general accountSegment accounting is conducted for individual life insurance and individual annuity with the classifications of
non-participating product segment, semi-participating product segment and interest rate-sensitive whole life
insurance segment. Asset allocation in the general account under the stochastic method was determined basedon the actual asset allocation in each segment as of March 31, 2009 with an assumption of no changes in asset
allocation thereafter.
(2) Asset allocation in the separate account
There are eight funds established in the separate account. The asset allocation for each fund at the beginning of
the projection is determined based on the actual fund allocation as of March 31, 2009 and no rebalancing
adjustments are applied to maintain the initial fund allocation thereafter.

3.3 Other assumptions
Assumptions including mortality and morbidity rates, lapse and surrender rates, and operating expense rates, weredeveloped based on product best estimates as of March 31, 2009. Best-estimate assumptions are developed toreflect past and current experiences as well as expected experiences in the future. Expected future changes are notreflected in the best estimate assumptions, as expected future changes in assumptions should be reflected only
when they are supported by sufficient reasons. Assumptions were developed as follows.
(1) Mortality and morbidity rates
Developed based on experiences over the three most recent years.
(2) Lapse and surrender rates
Lapse and surrender rates for the base case were developed based on experiences over the three most recent
years. We have also developed dynamic assumptions in accordance with the level of interest rate or investment
performance. The dynamic assumptions are made for the following products:
・ Variable life insurance
・ Semi-participating products
・ Non-participating whole life insurance
・ Non-participating endowment insurance
We have decided not to apply dynamic surrender rates for interest-sensitive whole life insurance for the19

calculation of MCEV as of March 31, 2009. Although we have not identified explicit correlations between
interest rates or account values to the amount of minimum guarantee and the lapse and surrender rates, we havedeveloped dynamic surrender rates for calculating MCEV as of March 31, 2008, by referring to the experience
with similar products and domestic and overseas trends of practice. However, if we were to apply dynamic
surrender rates to this product in the same manner as for the calculation of MCEV as of March 31, 2008,MCEV as of March 31, 2009 would be higher than would be the case without applying the dynamic surrender
rates. Therefore, we have decided not to apply dynamic surrender rates for this product. Going forward, we will
strive to improve dynamic surrender rates for this product by carefully monitoring experiential data andreferring to experience with similar products and trends of practice in Japan and other countries.
(3) Flexible premiums
There are no flexible premium products and thus no assumptions were developed.
(4) Renewal rates
Because there is very little renewable business and it does not have a significant impact on results, policy
renewal was reflected in a simplified manner.
(5) Operating expense rates
We have developed unit costs of the expenses incurred for maintenance and administration of policies andpayments of claims based on the actual operating expenses in the most recent year. As subsidiary and affiliatedcompany are evaluated on book values, we have not reflected expenses incurred at Sony Life regarding
management of the relevant subsidiary and affiliated company to the unit costs. Within actual operating
expenses, exceptional one-time expenses incurred during the year ended March 31, 2009, and therefore
excluded from the unit cost, as well as expenses regarding a subsidiary and affiliated company that were notreflected in unit costs accounted for 1% of total operating expenses, comprised primarily of expenses for the
Beijing representative office.
Unit costs include management administration charges payable to the parent company, Sony Financial
Holdings Inc. The look-through effect has not been considered with regards to Sony Financial Holdings Inc.
(6) Tax rate
Based on the most recent effective tax rate.
(7) Inflation
Set inflation to 0% reflecting the break-even inflation rate derived from 10-year Consumer Price Index(CPI)-indexed Japanese government bonds.

20

4. Calculation method of MCEV
4.1 Covered business
The covered business is the business operated by Sony Life, its subsidiary and its affiliate company.

4.2 Treatment of subsidiary and affiliate company
With respect to subsidiary, Sony Life Insurance (Philippines) Corporation, and its equity method affiliate, AEGONSony Life Planning Co., Ltd., book values reflect the calculation of adjusted net worth based on Japanese GAAP.
Amounts reflecting adjusted net worth are ¥3.0 billion and ¥3.0 billion, respectively. These are the only values
reflecting the results of these companies; all other results solely reflect Sony Life itself (on a non-consolidated
basis).

4.3 Treatment of reinsurance
We have designated reinsurance premiums as expenses and reinsurance benefits as income in our projections, as
we consider the mortality risks as part of the death protection insurance products.

4.4 Treatment of semi-participating policies
We have calculated dividends in accordance with the level of future investment returns, based on the same method
used to determine the dividend rate for the accounting closure of March 31, 2009, reflecting the present value ofcertainty-equivalent profit and the time value of options and guarantees.

4.5 MCEVMCEV is defined as the present value of distributable earnings to shareholders generated from assets allocated tothe covered business after sufficient allowance for the aggregate risks in the covered business and consists ofadjusted net worth and the value of existing business.

4.6 Adjusted net worth
Adjusted net worth is calculated as the market value of assets allocated for the covered business in excess ofstatutory policy reserves and other liabilities as of the valuation date. Specifically, it equals to the total amount of
the net assets section on the balance sheets, adding reserve for price fluctuations, contingency reserves, reserve forpossible loan losses, unrealized gains or losses on held-to-maturity securities, and unrealized gains or losses onland and buildings, deducting unfunded pension liabilities and intangible fixed assets, and adjusting for the amountof tax effect equivalent of these seven items. Adjusted net worth can be split into required capital and free surplus.
21

4.7 Required capital
MCEV Principles define required capital as the amount of assets that should be held in addition to the assets
corresponding to the statutory liability to perform the in-force policy obligations, which is restricted from
distributing to shareholders in nature. The level of required capital should be the larger of the solvency capital tomeet the statutory required minimum level and the capital required to meet the internal objectives in terms ofmarketing purpose or risk management purpose, or to achieve the company’s targeted credit rating.
We set our required capital as the larger of the amount of capital required for a solvency margin ratio of 600% andthe amount of capital to cover risks based on the internal model.
We have defined the amount of capital to cover risks based on the internal model as the total amount of technicalprovision and solvency risk capital stipulated by QIS4 of the EU Solvency II held in excess of statutory policy
reserves (excluding contingency reserves). It should be noted that we have used a different cost of capital rate incalculating risk margin included in the technical provision than the one stipulated by the QIS4. Please refer tosection 4.14 for the specific cost of capital rate.
Although the Japanese statutory required minimum levels is a solvency margin ratio of 200%, we set our level forthe targeted solvency margin ratio to 600% in calculating MCEV as of March 31, 2009, as there are arguments thata level of 200% would not necessarily be sufficient to present the soundness of an insurance company. As a result,
this criterion is currently under revision to improve the credibility of the solvency margin ratio, and Sony Life has
used the targeted minimum solvency margin ratio of 600% instead of 200% as a basis to calculate the cost ofcapital from the past. In case of the solvency margin ratio will be revised and that the risk calibration will become
stricter in the future, therefore we plan to change the targeted solvency capital level as appropriate.
We will also revise the internal model itself as appropriate, taking into account the domestic and overseas situations,
including movements of international accounting standards, valuation methods of insurance liability on an
economic value basis and solvency margin standard trends, as well as the analysis of our internal mortality andmorbidity rates data.

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

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

22

4.10 Present value of certainty-equivalent profit
Present value of certainty equivalent profit is the present value of profit based on the future cash flows generated
from the covered business. Investment return on all assets and the discount rate are set to the risk-free rate.
The present value of certainty equivalent profit reflects the intrinsic value of options and guarantees.

4.11 Time value of options and guarantees
We have calculated the time value of options and guarantees using the stochastic method with risk-neutral
scenarios. The time value of options and guarantees is calculated as the difference between the present value ofcertainty-equivalent profit and the present value of stochastic future profits.
Time value of options and guarantees considers the following items:
・ Minimum guarantees of variable life insurance
The excess of account value over the scheduled policy reserves is attributed to policyholders. However, thecost of guaranteed minimum death benefits for variable life insurance incurred when account value is less than
the scheduled policy reserve is attributed to shareholders.
・ Minimum interest-rate guarantee for interest rate-sensitive whole life insurance
When the investment return exceeds the assumed interest rate, the outperforming portion is credited topolicyholder account value. However, when the investment return underperforms the assumed interest rate, thecost for the difference is attributed to shareholders, as the assumed interest rate is guaranteed.
・ Interest dividend for semi-participating products
When the investment return exceeds the assumed interest rate, the outperforming portion is credited to thefund for policyholder dividends and paid to policyholders every five years as interest dividends. Accordingly,
any of such interest gains would not be attributed to shareholders, while interest losses would be attributed toshareholders.
・ Surrender options
Policyholders have various options in insurance contracts. Reflected among them are the cost of policyholders’exercising the right of surrender in the event of increased interest rates.
We have decided not to apply dynamic surrender rates for interest-sensitive whole life insurance for the
calculation of MCEV as of March 31, 2009. Although we have not identified explicit correlations between
interest rates or account values to the amount of minimum guarantee and the lapse and surrender rates, we havedeveloped dynamic surrender rates for calculating MCEV as of March 31, 2008. by referring to the experience
with similar products and domestic and overseas trends of practice. However, if we were to apply dynamic
surrender rates to this product in the same manner as for the calculation of MCEV as of March 31, 2008,MCEV as of March 31, 2009 would be higher than would be the case without applying the dynamic surrender
rates. Therefore, we have decided not to apply dynamic surrender rates for this product. Going forward, we will
strive to improve dynamic surrender rates for this product by carefully monitoring experiential data andreferring to experience with similar products and trends of practice in Japan and other countries.

4.12 Frictional costs
We have calculated frictional costs as the present value of investment costs and taxes on assets backing the required
capital at each point of time in the future.
23

4.13 Cost of non-hedgeable risks
As risks5 regarding the asymmetric nature of cash flows not reflected in the present value of certainty-equivalentprofit are fully reflected in the time value of options and guarantees, we have reflected an allowance for theuncertainty of non-economic assumptions and the portion of economic assumptions considered non-hedgeablewith respect to the cost of non-hedgeable risks.
Specifically, we have assumed a risk margin based on the method prescribed in QIS4 of the EU Solvency II
framework as the cost of non-hedgeable risks and calculated it with the cost of capital approach. It should be notedthat the following points are different from the method prescribed in QIS4:
・ With respect to non-hedgeable risk, the uncertainty of the risk-free rates beyond the 50th year has been
considered as an interest risk, in addition to life insurance underwriting risks and operational risks.
・ Counterparty default risk has not been reflected in the non-hedgeable risks as its impact is limited.
・ We have used risk amounts quantified after taking into consideration the risk mitigation effect throughpolicyholder dividends without any adjustments.
・ We have used the cost of capital rate described in section 4.14.

4.14 Cost of capital rate
QIS4 of the EU Solvency II has set a cost of capital rate at 6%, which is used for the cost of capital calculation.
On the other hand, the CRO (Chief Risk Officer) Forum comprised of CROs from leading insurance companies in
Europe, proposed that 2.5% to 4.5% would be the appropriate level based on several trial calculations. Following
the philosophy of the CRO Forum’s approach, we have decided to use 2.5% for the cost of capital rate consistent
with the MCEV framework considering Japanese long-term stock risk premiums, the beta of Sony Financial
Holdings Inc. and the anticipated impact of the equity risk exposure of Sony Life on the beta of Sony Financial
Holdings Inc., which is a hedgeable risk. However, we may revise the cost of capital rate in the future, as anindustry development standard has not yet been established.

5

Please refer to “Asymmetric risk” in the Section 6. (“Glossary”) for the risks regarding the asymmetric nature of the cash flows.

24

5. Opinion of Outside Specialist
Sony Life requested Milliman, Inc., an external actuarial consulting firm with expert knowledge in the area of
MCEV valuations to review the methodology, assumptions and calculations. The opinion obtained from Milliman,
Inc. is as follows.
Milliman Inc. (“Milliman”) has been engaged to review the methodology, assumptions and calculations used by Sony
Life Insurance Co., Ltd.(“Sony Life”) to determine the Market Consistent Embedded Value (“MCEV”) as of March
31, 2009. Specifically, the scope of our review included the embedded value as of 31 March 2009, the sensitivities,
the new business value, and the movement analysis from the MCEV as of 31 March 2008.
The board of directors made a statement in its News Release Form dated June 1, 2009 that the methodology,
assumptions, and calculations have been made in accordance with the MCEV Principles©6, with the following
exceptions:•
The calculated value of MCEV here is not the value of Sony Life’s parent company, Sony Financial
Holdings Inc., on consolidated basis but the calculated value for Sony Life only.
•
With respect to Sony Life’s subsidiary, Sony Life Insurance (Philippines) Corporation, and its equity
method affiliate, AEGON Sony Life Planning Co., Ltd., Sony Life has not evaluated their life insurance
business but reflected their book values to the calculation of adjusted net worth. Values of subsidiaries andaffiliated companies are not changed in sensitivity tests.
•
Any calculated values of MCEV are not presented separately by the segment of subsidiaries and affiliatedcompanies.
•
Sony Life has calculated adjusted net worth based on generally accepted accounting principles andpractices in Japan and not based on the International Financial Reporting Standards (IFRS).

Milliman has concluded that the methodology and assumptions used comply with the MCEV Principles except forthe points described in the above paragraph. In particular:• The non-economic assumptions have been set in accordance with regard to past, current and expected future
experience,• The economic assumptions used in the calculations are internally consistent and consistent with observable
market data as per the valuation date;• The methodology makes allowance for the aggregate risks in the covered business through Sony Life’s
market consistent embedded value methodology, which includes•
a stochastic allowance for the cost of financial options and guarantees•
a deduction for the cost of non-hedgeable risks•
a deduction for the frictional costs on the required capital• for participating insurance contracts, the assumed policyholders’ dividend rates, allocation of dividends
between policyholders and shareholders, and other management actions, are consistent with the assumptions
and scenarios used in the projections and where applicable local market practice.

6

European Insurance CFO Forum Market Consistent Embedded Value Principles © (Copyright © Stichting CFO Forum Foundation
2008)

25

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

26

6. Glossary

TermA
Appraisal value

Asymmetric risk

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

F

Free surplus
Frictional costs

I

Implied volatility

L

Look throughN

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

O

Options andguarantees

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

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Term
P
Present value ofcertainty-equivalentprofitQ
QIS4R

Required capital

Risk-free rate
Risk margin
Risk neutral
probability

S

Risk neutral scenario
Solvency II

TTechnical provision
Time value andintrinsic value

Definition
Present value of certainty equivalent profit is the present value of profit based on
the future cash flows generated from the covered business.
Quantitative Impact Study. Conducted prior to implementation of the EU Solvency
II. The 4th study was conducted in May 2008 and is referred as QIS4.
MCEV Principles define required capital as the capital necessary to hold in excess
of statutory policy reserve (excluding contingency reserve), and the larger of thesolvency capital to meet the statutory required minimum level and the capitalnecessary to meet the internal objectives or to achieve the company’s targeted
credit rating.
Required capital of Sony Life is set as the larger of the amount of capitalcorresponding to the solvency margin ratio of 600% and the amount of capital tocover risks based on the internal model.
The reference rate defined in MCEV Principles. MCEV Principles states that itshould be the swap rate to the currency of the cash flows.
The cost to hold capital to cover non-hedgeable risks reflected in evaluating theinsurance liability on an economic value basis.
A pseudo probability derived so that the present value of future expected values
under multiple scenarios discounted with current risk-free rates is equal to thecurrent value.
An interest rate scenario generated under risk-neutral probabilities.
A new solvency regulation base on economic value to be applied uniformly within
the EU that the European Commission is preparing to implement from 2012.
The value of liability on an economic value basis, which equals to the present valueof best estimate cash flows plus Risk Margin.
An option value that has two elements, time value and intrinsic value. Intrinsic
value is the option value under certainty equivalent conditions. Time value is thevalue of options other than intrinsic value, which is calculated as the difference
between the present value of certainty-equivalent profit and the present value ofstochastic future profit.

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