Annual Report 2006 For the year ended March 31, 2006 Offer ing value that goes beyond life insurance — to “Lifeplanner Value ® ” Breakthrough Insurance Creating new value in life insurance The roles of life insurance aren’t simply to protect you against unforeseen events and illness or to provide for you in old age. Life insurance gives you and your family a chance to rethink your dreams and help them come true. We stand by you throughout your life, propose appropriate solutions at life’s various stages and help you realize your dreams. That is the mission of the Lifeplanner ® sales employees of Sony Life. We are the bridge to the dreams you and your family hold dear. Who is yourr Lifeplanner®? Aiming to become each customer’s “own agent” A long life visits numerous changes on each of us. As your “own agent,”” we help you meet these changes flexibly and with the best possible solutions. It is the mission of our Lifeplanner ® sales employees to do so. The face that you see in happy times and sad, in good times and bad—that is your Lifeplanner ®. Who is your ur L Lifeplanner ®? Note: “Lifeplanner” and “Lifeplanner Value” are registered trademarks of Sony Life. Profile Sony Life Insurance Co., Ltd., is a wholly owned subsidiary of Sony Financial Holdings Inc.* and a prominent member of the Sony Group. Sony Life’s philosophy of providing tailor-made solutions to the specific insurance needs of each customer has supported annual growth every year since operations commenced in 1981. A sound operational and financial structure is demonstrated by financial strength ratings from overseas and domestic rating agencies, including Standard & Poor’s, which has assigned Sony Life an A+ rating (as of June 2006) and describes the Company as offering “strong” insurer financial strength. Sony Life fosters a sales force with a high level of financial planning knowledge through its exclusive Lifeplanner® sales employee system and an independent agent system. Sony Life was the first company in Japan to introduce tailor-made insurance products based on consulting expertise, and its needs-based marketing methods are rapidly becoming the de facto industry standard. *Sony Financial Holdings Inc. is the financial holding company of Sony Life Insurance Co., Ltd., Sony Assurance Inc. (“Sony Assurance”) and Sony Bank Inc. (“Sony Bank”), and is 100% owned by Sony Corporation. CONTENTS 2 Financial Highlights 3 Key Performance Measures 3 Message from Management 4 The Sony Financial Holdings Group 6 Tie-ups within the SFH Group and the Sony Group 7 Working as Our Customers’ “Own Agents” 8 Acting as a Good Corporate Citizen 11 Financial Review 20 Balance Sheets 28 Statements of Income 30 Notes to Financial Statements 31 Details of Operating Income (Core Profit) 33 Investment Summary of General Account Assets 34 Organization 38 Corporate History 39 Directors and Statutory Auditors 40 Corporate Data 41 Financial Highlights Fiscal Years Ended March 31 Thousands of U.S. dollars (Note 1) Millions of yen 2006 2005 2004 2003 2002 2006 ¥ 579,267 ¥ 550,304 ¥ 512,700 ¥ 489,548 ¥ 503,871 $ 4,951,001 Investment income 108,438 50,089 64,767 31,493 33,112 926,828 Ordinary revenues Insurance premiums 696,426 604,093 580,972 524,089 539,699 5,952,366 Ordinary profit 24,359 17,070 30,478 18,557 19,898 208,201 Core profit 28,564 24,333 22,821 22,460 26,754 244,145 Net income 9,616 10,102 13,932 11,269 12,004 82,196 Common stock Total assets Assets in separate account Policy reserve Loans Securities 65,000 65,000 65,000 65,000 65,000 555,556 3,103,241 2,617,266 2,375,828 1,981,897 1,729,077 26,523,429 280,682 200,996 164,461 118,189 106,150 2,398,992 2,739,264 2,395,060 2,095,565 1,831,100 1,600,130 23,412,515 86,918 79,914 71,629 65,574 54,463 742,896 2,132,216 1,704,663 1,563,605 1,265,650 1,046,054 18,224,075 Solvency margin ratio 1,547.0% 1,317.1.% 1,453.3.% 1,354.2.% 1,493.5.% — Number of employees 5,250 5,528 5,538 5,569 5,721 — Notes: 1. U.S. dollar amounts have been translated from yen, for convenience only, at the rate of ¥117=U.S.$1.00, the approximate Tokyo Foreign Exchange Market rate as of March 31, 2006. 2. U.S. dollar figures are based on non-truncated yen amounts. Key Performance Measures Insurance in Force Billions of yen As of March 31 Individual life insurance in force Percentage change 2006 2005 2006 2005 ¥28,909 ¥27,680 +4.4 +6.0 Individual annuities in force 176 143 +22.7 +19.6 Group life insurance in force 923 816 +13.1 –1.4 71 69 +3.5 +2.8 Group annuities in force Notes: 1. Individual annuities in force is the sum of annuity assets at the time annuity payments commence and policy reserves after annuity payments commence. 2. Group annuities in force is the amount of policy reserves. New Insurance Sales Billions of yen New insurance sales + Net increase from conversion Fiscal years ended March 31 Individual life insurance sales Individual annuity sales Net increase from conversion New insurance sales 2006 2005 2006 2005 2006 2005 ¥3,361 ¥3,700 ¥3,361 ¥3,700 ¥— ¥— 31 24 31 24 — — Group life insurance sales 9 7 9 7 — — Group annuity sales 2 — 2 — — — Notes: 1. Individual annuity sales (New insurance sales + Net increase from conversion) equals the amount of annuity assets at the time annuity payments commence. 2. Group annuity sales is equal to the first premium income. 3 Message from Management 4 Taro Okuda, President and Representative Director Kunitake Ando, Chairman and Director Sony Life commenced operations in 1981 with the low, improving 0.51 percentage point, to 5.88%. We philosophy of meeting individual needs by “providing believe these favorable results were derived from the optimum life insurance products and services of the satisfaction of customers with the consulting-based highest quality.” Thanks to the support and trust our sales approach by Lifeplanner® sales employees and customers have placed in us, in April 2006 we cel- Partners (independent agencies), the Company’s ebrated our 25th anniversary of operations. We will method of tailoring products to provide ample protec- continue to do our utmost to merit this support by tion to each customer and its increasing focus on raising the level of services we provide. after-sale follow-up. Operating Results in Fiscal 2005 showed signs of recovery, helped by increased sales A Management Style that Emphasizes Listening and Providing Ongoing Protection to Customers of tertiary-sector products and variable individual The life insurance business involves the protection of annuities, but the industry’s total insurance in force customers over a long period of time. In addition to continued to decline. In this environment, Sony Life communicating face to face through its Lifeplanner® posted a 4.5% increase in insurance in force, to sales employees, Sony Life considers earning the ¥29,084.5 billion, buoyed by protection products, ongoing trust of customers and society as a whole and continuing the steady increase that Sony Life has to be one of its most important missions. We have achieved in each of the 25 years since its start of introduced a number of initiatives to propel ourselves operations. Our lapse and surrender rate remained toward this goal. During the year, the Japanese life insurance industry For example, in a move designed to enhance cus- address a variety of issues. Through this sort of tomer convenience, in June 2005 we commenced service, Sony Life’s Lifeplanner ® sales employees act holiday operations at our customer center. Along with as each customer’s “own agent,” guiding them past the Notice of Coverage that we send out each year to life’s milestones. policyholders, we included a Customer Request Card Lifeplanner Value ® is what customers experience to elicit requests from customers. We also conducted as a result of their communications with Lifeplanner® a customer opinion survey to try to uncover custom- sales employees. In a sense, this value derives from ers’ true feelings about Sony Life. Through such the customer’s realization that their Lifeplanner® is a broad-ranging activities, we seek out valued customer person who will remain by their side throughout life. thoughts and opinions, which we then incorporate into our management and use to enhance our services. To protect customers and fulfill the vital public role The Sony Financial Holdings Group Working to Provide Higher Quality Financial Services that the life insurance industry plays in society, we Since its inception in April 2004, the Sony Financial accord compliance a high priority among our man- Holdings Group has worked to enhance group syner- agement policies. However, I believe this particular gies. Sony Life’s Lifeplanner ® sales employees now area still requires a keen individual focus from each sell Sony Assurance’s products; Sony Life’s individual of Sony Life’s employees and executives. annuities are offered for sale on Sony Bank’s web site; and a host of other measures are in place to offer higher Sony Life’s Mission and Lifeplanner Value® Creating New Value in Life Insurance and quality financial services and to raise corporate value. Previously available only in certain regions, from Aiming to Become Each Customer’s “Own Agent” April 1, 2005, Sony Life’s Lifeplanner® sales employ- Through its consulting-based sales approach, Sony ees have begun introducing Sony Bank’s mortgage Life has taken on the challenge of changing the very loans nationwide throughout Japan. face of life insurance. We see it as our mission to Sony Life will continue to strengthen its ties with provide the life insurance that is most appropriate for other companies under the SFH umbrella. As we each of our customers, whose satisfaction from this increase group synergy, we will promote comprehen- approach has enabled us to continue expanding our sive financial services, working to provide customers business each year since the time we began opera- with even higher value-added products and services. tions. Rather than simply resting on our laurels, though, we take our mission as an ongoing challenge. We also consider exactly what kind of value cus- In Conclusion To guarantee our ability to protect customers for tomers expect Sony Life to deliver after concluding many years to come, we will strive to heighten our insurance contracts, as clients may have unstated compliance, financial soundness and profitability. needs of which they are themselves unaware. Sony Furthermore, by enhancing the security and added Life believes in remaining closely in tune with its cus- value that we provide our customers, we aim to earn tomers, serving as a trusted advisor in time of need. increasing levels of trust and confidence and remain Such approaches enable us to provide value to cus- their life insurance company of choice. I thank you for tomers who take out Sony Life policies, and envision- your support and encouragement of Sony Life in ing that value is the first step toward making changes. these endeavors. We seek to understand our customers’ goals and work to develop life plans to ensure that these develop beyond the state of mere dreams. Naturally, a customer’s life plan undergoes many changes even after their insurance policy commences. To maintain optimum levels of protection, we review these levels Taro Okuda as their situations change. Aiming to do the best President and Representative Director for our customers, we work together with them to Sony Life Insurance Co., Ltd. 5 The Sony Financial Holdings Group One Team, One Dream Aiming to Become One of the Most Trusted Financial Services Groups 6 With the establishment of the financial holding company Sony Financial Holdings Inc. in April 1, 2004, Sony Life, together with Sony Assurance and Sony Bank, became subsidiaries of this holding company. In terms of history and scale of business, Sony Life accounts for the major portion of the Sony Financial Holdings Group (SFH Group). To provide high-valueadded products and quality services to each of our customers in a swift and more precise manner, we have reinforced tie-ups with Sony Assurance and Sony Bank, two highly distinctive financial institutions. In fiscal 2005, collaboration within the SFH Group continued to expand steadily. For example, the volume of new mortgage loans handled by our Lifeplanner® sales employees accounted for more than 10% of the total increase in Sony Bank’s mortgage loans during the year. Lifeplanner® sales employees also made steady progress in sales of Sony Assurance’s automobile insurance. The number of policies sold by Lifeplanner® sales employees accounted for approximately 10% of the total number of new automobile insurance policies for Sony Assurance during the year. In addition to tie-ups within the SFH Group, we will further strengthen cooperation with other companies in the Sony Group, which provides diverse products and services. We also will keep delivering valueadded products and services that are innovative and that match customers’ needs. Sony Financial Holdings is preparing for a future initial public offering (IPO), with the goal of diversifying financing opportunities to promote the further growth of the SFH Group and to enhance the group’s corporate value. By reinforcing the business fundamentals and increasing transparency, the SFH Group will continue to secure the trust of customers. SFH Group Management Shigeru Ishii President and Representative Director Sony Bank Inc. Teruhisa Tokunaka President and Representative Director Sony Financial Holdings Inc. Taro Okuda President and Representative Director Sony Life Insurance Co., Ltd. Shinichi Yamamoto President and Representative Director Sony Assurance Inc. Tie-ups within the SFH Group and the Sony Group Tie-ups with Sony Assurance ● Lifeplanner® Sales Employees Sell Sony Assurance’s Products In March 2001, Sony Life obtained authorization to act as an agent for Sony Assurance, and in May 2001 our Lifeplanner® sales employees started selling non-life insurance products. Sales of non-life insurance products are handled by Lifeplanner® sales employees with relevant qualifications. In fiscal 2005, the number of policies sold by our Lifeplanner ® sales employees accounted for approximately 10% of the total number of new automobile insurance policies issued by Sony Assurance. By extending our offerings beyond life insurance to include non-life insurance products that cover various risks in our daily lives, Sony Life will continue to provide comprehensive risk management for its customers. Tie-ups with Sony Bank ● Underwriting Group Credit Life Insurance for Sony Bank’s Mortgage Loans In March 2002, Sony Life began underwriting group credit life insurance for mortgage loans extended by Sony Bank. This insurance applies to customers taking out mortgage loans, and claims on this insurance are used to repay mortgage loans when unforeseen events prevent customers from making mortgage repayments. ● Sony Life’s Individual Annuities Sold by Sony Bank In June 2004, Sony Bank started selling singlepremium individual annuities developed by Sony Life. With this launch, Sony Bank expanded its product lineup beyond those of a bank primarily focused on asset management, consequently responding to diverse customer needs in a more effective manner. At the same time, Sony Life has also benefited in terms of expanded sales channels, which further enhanced customer convenience. ● Lifeplanner® Sales Employees Introduce Sony Bank’s Mortgage Loans In December 2004, Sony Life’s Lifeplanner® sales employees began introducing Sony Bank’s mortgage loans in certain regions of Japan, with these activities expanding nationwide in April 2005. This offering enabled our Lifeplanner® sales employees to consult with customers in a more concrete way on their requests or inquiries regarding home-purchasing funds. In fiscal 2005, the volume of new mortgage loans handled by our Lifeplanner ® sales employees accounted for more than 10% of the total increase of Sony Bank’s mortgage loans. Tie-ups among the Sony Group’s Four Financial Companies ● Initiation of Benefit Provision to ANA Mileage Club Card Members Sony Life (from late April 2006), jointly with Sony Assurance and Sony Bank (both from March 2006), started offering members of the ANA eLIO Card— which Sony Finance International Inc. issues in affiliation with All Nippon Airways Co., Ltd. (ANA)— ANA airline mileage and other cardmember benefits. By cooperating with Sony Group companies, we will continue to enhance our services and respond to customers’ needs. 7 Working as Our Customers’ “Own Agents” With Our Customers. For Our Customers. Helping People Fulfill Their Lifelong Dreams. Working Together with Customers as Their “Own Agents” 8 Since its establishment, Sony Life has worked to provide optimal life insurance products tailored to the specific needs of each and every customer. To assist in this process, first we work together with customers to formulate individualized life plans based on their specific circumstances and dreams. These plans consider such factors as age, family composition, financial condition and children’s higher education plans. We then calculate the level of insurance coverage needed over time to help customers fulfill their plans, and create an optimal insurance portfolio accordingly. These tailor-made solutions are provided by our Lifeplanner® sales employees and Partners (independent agencies), who possess advanced financial knowledge and abundant experience. Lifeplanner ® sales employees and Partners seek to become customers’ exclusive providers of insurance and financial services, or their “own agents,” in building strong relationships of trust and helping them fulfill their lifelong dreams. Even after signing the initial insurance agreement, Lifeplanner ® sales employees and Partners regularly review the content of coverage according to the customer’s changing lifestyle. We also offer peace of mind in the form of comprehensive follow-up services, including swift payment of hospitalization benefits and claims when unforeseen events occur. Educational Systems, Reciprocal Studies and Self-Development Educational System for Lifeplanner ® Sales Employees and Partners Sony Life provides a diverse range of educational programs designed to enable Lifeplanner ® sales employees and Partners to fulfill their roles as insurance and financial professionals in responding to the confidence that customers place in them. ● Basic Training Program (BTP) for Lifeplanner ® Sales Employees This program equips Lifeplanner® sales employees with the basic knowledge, attitudes, skills and behavioral habits required to become life insurance professionals. It comprises various sub-programs based on Sony Life’s needs-based marketing approach. These include a subprogram to acquire basic Lifeplanner® skills and another covering joint activities, in which Lifeplanner® sales employees visit customers together with their sales office managers. ● Partner Training Program (PTP) for Partners This program is designed to help Partners succeed in the life insurance business. In the program, Partners learn about our products and needs-based sales approaches derived from expertise we have accumulated over the years. Enhancing Education for Managers Our branch managers, sales office managers and other managers who oversee sales staff have an important responsibility to carefully nurture selected individuals into Lifeplanner® sales employees. To help managers fulfill this responsibility, Sony Life continues to upgrade its educational system, which includes training to deepen understanding of the essence of life insurance, develop character and acquire leadership skills. MDRT Sony Chapter The MDRT Sony Chapter comprises Lifeplanner® sales employees and Partners of Sony Life who have become MDRT members. The chapter holds training sessions several times a year to exchange the latest information and build their skills, with the aim of providing top-quality consulting and other services to customers. Chapter members, representing our most successful Lifeplanner ® sales employees and Partners, also promote various volunteer activities, demonstrating their passion as conveyors of the MDRT spirit. ● Sony Life Academy The Company opened its Sony Life Academy in fiscal 2003 to train its branch general managers and the heads of its independent Agency Sales Division, as well as its head office general managers. After one year of basic training, followed by ongoing coursework, participants emerge as accomplished life insurance professionals with the guidance and leadership skills required of effective managers. Four Pillars of Sony Life Academy Education ● Acquire knowledge, beliefs and convictions worthy of life insurance professionals ● Help people convey the business and sales philosophies of Sony Life to others ● Train people to acquire management skills ● Help people hone their sensitivities as human beings Reciprocal Studies Sony Life’s employees have embraced a culture of mutual assistance in their quest to serve customers. To this end, they have taken the initiative of hosting independent training forums around the nation. ● Million Dollar Round Table (MDRT) MDRT, based in Chicago, is an international association of the world’s best life insurance and finance professionals. Based on the concept of reciprocal training and contribution to society, MDRT seeks to help improve the capabilities of its members, with top priority on providing the best returns for clients. As of June 1, 2006, there were 35,000 MDRT members worldwide, of whom 563 were Lifeplanner ® sales employees and Partners of Sony Life. MDRT ® Sony Chapter training (Fukuoka, April 2006) ● Japan Association of Insurance and Financial Advisors (JAIFA) JAIFA was established in 1962 with the purpose of enhancing the status of life insurance salespeople through the reciprocal education of members. As a forum for mutual training, the association hosts a variety of proactive initiatives. Our Lifeplanner® sales employees, sales office managers, branch managers and Partners participate in JAIFA events, and JAIFA Sony regional chapters have been set up in regional areas to spearhead various activities. JAIFA Sony regional chapter training (Chiba, April 2006) 9 Nurturing Financial Planners Our socioeconomic environment is undergoing major changes, owing to the advent of the informationoriented society, reforms to the social security system, diversification of financial products and a demographic shift to an older population. In these circumstances, it is vital for individuals to conduct comprehensive asset planning and risk management—or financial planning—geared to their specific life plans. Financial planners are professionals qualified to meet the financial planning needs of customers. A large number of Lifeplanner® sales employees study financial planning to achieve higher levels of needs-based sales capabilities. In fact, Sony Life is an industry leader in terms of its number of qualified financial planners. Affiliated Financial Planners (AFPs) Affiliated Financial Planners: 1,940 10 (As of June 1, 2006) The Japan Association for Financial Planners is the sole issuing authority for the AFP license. This qualification certifies that the licensee possesses the knowledge required of a financial planner and is competent to offer advice and make proposals in response to client needs. Providing Optimal Protection through the Life Planning Support Service (LiPSS) When proposing protection products, Sony Life first asks customers about their lifestyle and future life plans. By envisioning the life plans of customers and their families, Lifeplanner® sales employees and Partners can map out simulations of their future financial needs. Sony Life has developed its own simulation, called LiPSS, to explain funding complexities easily to its customers. Sony Life puts the many events that people commonly experience throughout their lives into 11 major categories* from a financial standpoint, and it provides estimates based on these categories. For example, after listening to parents, Lifeplanner® sales employees and Partners can design plans to help parents finance their children’s education. In addition, Sony Life might help a family determine the timing of purchasing, the type of house they can afford or even provide advice on the advance repayment of mortgage loans. Every person has different circumstances, dreams and concerns. By analyzing the details, Sony Life can help customers envision their future. In this way, Lifeplanner® sales employees and Partners help customers see how they should respond to different situations and what level of financing will be required, and then they propose protection plans that are tailored to each customer’s needs. Certified Financial Planners® (CFPs ®) Certified Financial Planners®: 129 (As of June 1, 2006) The CFP® license is an international qualification conferred by the Certified Financial Planner® Board of Standards, Inc., of the United States. This is an authoritative qualification given only to financial planners who demonstrate sophisticated financial planning abilities and sound work ethics. Certified Skilled Workers of Financial Planning 1st Grade Certified Skilled Workers in Financial Planning: 104 2nd Grade Certified Skilled Workers in Financial Planning: 1,933 (As of June 1, 2006) Through the Human Resources Development Promotion Law, the Japanese government has introduced a proficiency certification system to certify levels of expertise in various fields, including financial planning. This law recognizes three levels of financial planning expertise. *Eleven Categories of Financial Needs throughout Life ● ● ● ● ● Rent or loans Reserve for education Reserve for marriage Reserve for emergencies Funds for home purchases ● Living expenses after retirement ● Reserve for long-term healthcare ● Reserve to reconfigure life ● Living expenses for bereaved family members ● Reserve for funeral and subsequent arrangements ● Funds for inheritance measures Acting as a Good Corporate Citizen Fulfilling Our Social Responsibilities Risk Management Amid the rapid liberalization and internationalization of financial markets, the activities of life insurance companies are becoming increasingly diverse and complex. For such companies, the optimal management of various risks—such as investment risk, insurance underwriting risk, operational risk, system risk and legal risk—becomes more and more important every year. The various transactions executed by life insurance companies generally carry risks, which cannot be avoided completely. Moreover, minimizing such risks is insufficient. Instead, we must grasp the nature of each type of risk, implement suitable controls and make preparations to ensure returns that are reasonable and in proportion to the risks. We must also respond flexibly to the evolution of risk management techniques. Sony Life works continuously to enhance its risk management organization. In fiscal 2005, we strengthened the management conditions of claims payment and risk management conditions of our overseas subsidiary, Sony Life Insurance (Philippines) Corporation. We also set up the Investment Committee to realize stable investment profits over the medium to long term by securing our soundness as a life insurance company. Furthermore, we have often held the Risk Management Committee, which is composed of general managers of the several divisions responsible for the Company’s risk management, to discuss various Companywide risk management issues. We have been conducting stress tests and reporting the results to the Executive Officers Board to check the possible impacts of future unprofitability on our financial soundness and take additional management and/or financial measurers as the need arises. As one aspect of our investment risk management, we conduct stress tests based on a worst-case scenario that exceeds normal market fluctuations, whereby interest rates, share prices and currency exchange rates all are at historic lows. For insurance underwriting risk management, we also perform stress tests during new product development, assuming income and expense fluctuations. In its Risk Management Manual, the Company sets forth its fundamental approach to risk management and the methods for applying its risk management policies, with full consideration for the specific characteristics of each type of risk. Sony Life’s Basic Risk Management Policy By strengthening our risk management capabilities and executing optimal risk controls, we aim to ensure the soundness and appropriateness of our operations and protect the interests of policyholders. In this way, we will improve our reputation as a trustworthy and credible life insurance company and thus fulfill our responsibility to society. Risk Management Organization (As of July 1, 2006) General Meeting of Shareholders Board of Directors Board of Auditors Executive Officers Board Chief Actuary Internal Inspections Division Risk Management Committee Risk Management Corporate Planning Division Investment Risk ALM Division Liquidity Risk ALM Division Insurance Underwriting Risk ALM Division Operational Risk Operations Administration Division System Risk Operations Administration Division Other Management Risks Office Risk General Affairs Division Market Risk Personnel Risk Personnel Division Sales Administration Division Credit Risk Legal Risk Compliance Division Real Estate Investment Risk Reputation Risk Corporate Communications Division Management Risk Corporate Planning Division Insurance Subsidiary Risk New Business Promotion Division Business Offices Sony Life Insurance (Philippines) Corporation 11 Compliance (MCC) Guidelines. In these ways, we are taking a comprehensive approach to protecting personal information and guaranteeing customer privacy. Personal Information Protection and Information Security Amid rapid innovations in information technology in recent years, computer networks have become more advanced and complex, while services are growing more diversified. Companies can now use sophisticated networks to store and handle confidential data about their customers. Protecting private information is thus becoming more important than ever. To conduct their business properly, life insurance companies need confidential information about their individual customers. To enhance convenience for customers, Sony Life uses networks as part of its policy of delivering the most advanced services. The Company places high priority on effectively managing customer information and implementing measures to ensure information security. 12 ● Gathering Personal Information Our policy is to gather only information that is necessary for our business, based on clear disclosure of our intentions. When collecting information, we obtain consent from customers and strictly adhere to the Insurance Business Law, the Law Concerning the Protection of Personal Information and other regulations. We use fair and appropriate means to gather information. ● Using and Managing Personal Information We limit the use of personal information to the scope required to conduct our business, and only people in authorized departments are allowed to handle such information. Customer data is not disclosed to outside parties, except in certain circumstances, such as when specific consent has been obtained from the customer, legislation mandates disclosure, the customer benefits from disclosure or disclosure is deemed necessary in the public interest. Sony Life has appropriate mechanisms in place to update and accurately maintain its personal information database. We are also working to create systems that address various threats to such information, including unauthorized access, loss, duplication, destruction, tampering or leakage. Protecting Personal Information ● Information Management System Sony Life has appointed information managers and security managers to each department that handles personal customer information. We have also established protocols to ensure effective protection of personal information and upgrade regularly our training system for employees. In addition, we have formulated a set of Customer Data Protection Rules, as well as a Compliance Manual and Market Conduct System for Protecting Personal Information Customer Data Gathering Use fair and appropriate means to gather information. Managing Using Ensure information remains accurate and up to date. Limit usage to the scope required by our business. Storing Prevent unauthorized access, loss, duplication, destruction, tampering or leakage of information. When we entrust the handling—inputting, storing and saving—of personal information to our business partners, we enter consignment contracts with those parties. The contracts specify various items for maintaining and handling personal information, including secrecy obligations and prohibition of duplication. We also perform comprehensive prior checks to confirm the security level of business partners. ● Disclosure and Revision of Personal Information When a customer makes a request to disclose information he or she has supplied, or to correct or delete erroneous information, we first confirm that the person making the request and the customer are one and the same. Special circumstances notwithstanding, our policy is to grant such requests. In principle, we insist that the requester and the policyholder be the same person. ● Law Concerning the Protection of Personal Information Sony Life’s Information Security Policies is a document outlining the Company’s stance with respect to personal information, centering on our customers. Based on these policies, we seek to ensure proper management, usage and protection of information. Following the enactment of the Law Concerning the Protection of Personal Information, we established a Privacy Policy, as well as a Committee to Promote the Security of Personal Information. Together, these address the gathering and use of personal information, as well as methods of assembling and managing it. The Company will strive more rigorously than ever to protect all personal information in its possession. Policy Content Storage System To ensure the stable operation of the life insurance system, insurance companies are required to register with the Life Insurance Association of Japan information on all policies and riders that involve claims and benefit payments, including hospitalization benefits, for death (severe injury) protection insurance and accidental death (accidental severe injury) protection insurance. The association uses this information as a reference for writing policies and disbursing claims payments and hospitalization benefits, but for no other purposes. Furthermore, the Life Insurance Association of Japan and each life insurance company is prohibited from publicizing information that has been received in this manner. ● Security Measures for Protecting Personal Information Standards for the Safe Management of Personal Information Sony Life has established standards for the safe management of personal information at each stage, including the gathering, use, storage and disposal of this information. The Company thoroughly trains all executives and employees, including temporary staff, on these standards. Measures to Counter the Theft of Notebook Personal Computers (PCs) and Other Property To prevent notebook PCs containing personal customer information from being stolen in a car break-in or other type of theft, employees who take these PCs outside the Company are required to keep them nearby at all times. Customer data that is copied onto electronic storage media is protected with a special electronic encryption key. Password-protected integrated circuit (IC) cards double this security. Office Security Measures Only authorized employees are allowed access to office areas where personal information is handled, and counterfeit-resistant IC cards are used to monitor entries and exits. As a further countermeasure, the Company restricts personal items that can be brought into insurance business departments, which handle large amounts of personal customer information. 13 First Company in Industry to Obtain Information Security Management System (ISMS) Certification On June 27, 2003, Sony Life became the first company in Japan’s life insurance industry to obtain BS7799–Part 2: 2002 and ISMS (Ver. 2.0)—two ISMS certifications conferred by the Japan Audit and Certification Association for Information Security. The certifications were bestowed on the Company’s departments related to insurance business administration. In addition, on June 22, 2006, we received ISO 27001 certification and shifted to this international standard for information security management systems. Going forward, we will continue to maintain and improve our information security systems and upgrade protection of our information assets, including the personal information of our customers. Information Security Management System 14 ISMS certification indicates the reliability of a company’s information security systems. This certification is provided to companies that have systems to determine the appropriate level of security based on risk self-assessments, and that have concrete plans and resources allocated to ensure the effective management of such systems. The principal concept of ISMS is for a company to maintain and improve the secrecy, completeness and accessibility of its information assets in a well-balanced manner. ● Secrecy: The guarantee that information can only be accessed by authorized people ● Completeness: The guarantee that information and information-processing methods are accurate and complete ● Accessibility: The guarantee that authorized people can have timely access to required information and related assets ● Obtaining Certification Sony Life has positioned the maintenance and improvement of information security as a central management priority. For this reason, we have built and are operating a framework for guaranteeing information security by our administrative departments (Insurance Administration Department, Information System Department and Customer Center) that gather customer data and other information. ● Maintaining and Improving Information Security Our administrative departments constantly assess the danger of leaks and breakdowns affecting all of our information assets, including customer information, and formulate and take measures designed to minimize such dangers. To earn certification, we implemented those measures on schedule, regularly confirmed that the measures had the desired effect and built frameworks for enforcing all of the improvements required for certification. Main Initiatives ● Ensure understanding among all employees, including temporary staff, about the importance of the Company’s information security policies and provide training to ensure widespread acceptance of such policies. ● Assess the dangers of leakage and destruction of all information assets and take measures to minimize such dangers. ● Constantly improve our information systems based on regular system audits by external specialists. ISMS Cycle ISMS targets improvements in information security through repeated implementation of the cycle described below: ● Plan: Formulate specific plans and policies for information security ● Do: Implement measures outlined in the security plans ● Check: Monitor the results of implementation ● Act: Undertake regular reassessments and improvements Plan Act Ongoing improvements Check Do Compliance Programs Compliance Compliance means conformity with relevant laws, regulations and rules. This is a crucial issue for companies seeking to fulfill their social responsibilities. Life insurance companies need to reinforce their compliance systems to maintain the long-term trust of customers. Sony Life has positioned compliance as a central management priority to protect customers and earn their confidence. Compliance Framework Sony Life has established a Compliance Committee, which reports to the Executive Officers Board, to spearhead Companywide compliance programs. In addition, our compliance officers and supervisors conduct routine checks of compliance status and create plans and systems for improving overall compliance. In May 2005, we also established the Market Conduct Compliance (MCC) Committee to strengthen the compliance of sales activities. In these ways, we are striving to build a more effective compliance framework. Compliance Framework ● Every fiscal year, we compile a Compliance Program, which serves as an action plan for implementing compliance initiatives. Based on the program, we adopt various measures. ● We work to ensure all members of the Company are familiar with our Compliance Manual. We modify the manual as necessitated by changes to our compliance system, as well as enactment or revision of relevant laws. ● We publish a booklet, called MCC Guidelines, which contains 15 principles and serves as a compliance manual covering our sales activities. We use the booklet for continuous training at agency offices and independent agency sales divisions. We are also improving the MCC training curriculum for Partners. ● We conduct regular checks of each head office and sales division to confirm legal compliance status, and routinely reassess and augment checking and confirmation procedures. ● The efficacy of our compliance programs is verified through a number of means, including internal audits, surveys of employee awareness and practices and confirmation of the status of compliance of each division. As required, we take concrete measures to improve and strengthen compliance programs. ● If violations or suspected violations of laws or regulations are discovered, they are investigated and reported. We swiftly devise appropriate processes to prevent the reoccurrence of violations; these are added to the Compliance Manual and circulated throughout the Company. Adapting to Changing Laws Board of Directors Executive Officers Board Compliance Committee/ Market Conduct Compliance (MCC) Committee Compliance Officers Agency Offices Independent Agency Sales Divisions Headquarter Divisions Compliance Manager (Agency Manager) Compliance Administrator Compliance Manager (Sales General Manager) Compliance Administrator Compliance Manager (General Manager) Compliance Administrator ● The Law on Sales of Financial Products and the Consumer Contract Act came into force in April 2001. In response, Sony Life established its MCC Guidelines, a booklet that sets forth the Company’s solicitation policy in the form of 15 principles. Customers are kept informed of changes to compliance laws through posters, the Company web site and other means, and employees through education and training. In May 2004, we modified the guidelines to reflect revisions of relevant laws and recent changes in the environment pertaining to compliance. ● In August 2003, we reinforced our systems in response to legislation designed to prevent the concealment of funds for terrorism purposes and money laundering. Measures included more rigorous confirmation of customers’ identity based on the Law Concerning the Confirmation of Customer Identity and the Prevention of Improper Deposit Accounts, as well as the reporting of suspicious transactions under the Law for Punishment of Organized Crimes, Control of Crime Proceeds and Other Matters. ● To fulfill our social and public service responsibilities as a life insurance company and conduct our business in a fair manner, we have formulated a set of behavioral guidelines to serve as basic rules for directors and employees to observe. In February 2004, we compiled an upgraded version called the Sony Life Activity Charter. ● Full-scale enforcement of the Law Concerning the Protection of Personal Information began in April 2005. This law places obligations on private sector enterprises handling personal information. We have established the Committee to Promote the Protection of Personal Information, which spearheads Companywide measures to address the new legislation. 15 Environmental Protection Initiatives Environmental Management System Sony Life has mounted a number of initiatives to reduce the burden it places on the environment. We have established environmental goals and objectives, and put programs in place to lead us toward these aims, and will continue with such environmentally conscious activities and initiatives. Environmental Policy Core Philosophy We believe that preservation of the global environment is a vital topic for all people of the world. As a member of the Sony Group, we adhere to the Sony Group Environmental Vision and make every effort to preserve the environment in all aspects of our operations. 16 Performance Indicators 1. Based on the Sony Group’s Global Environmental Management System (GEMS), we enact thorough environmental compliance, seek to enhance our environmental performance and minimize environmental risk. 2. In line with our core philosophy of providing efficient life insurance and high-quality services, we evaluate the impact of our activities, products and services, and set and implement programs to achieve our environmental goals and objectives. We aim to ensure ongoing improvements in environmental preservation and reductions in pollution. 3. We employ the following environmental preservation activities Companywide and at every stage of our activities, products and services: ● Use documents effectively and take paper quality into consideration. ● Recycle paper documents and office supplies. ● Reduce electric power consumption. ● Prioritize the purchase of goods and products that have a low environmental impact. (Employ green purchasing.) ● Consider the development of environmentally conscious products and services. 4. We continue to improve our environmental management system by conducting internal environmental audits. 5. We conduct environmental training and other activities that raise employees’ environmental awareness. 6. We communicate our environmental policy both inside and outside the Company. Acquisition of ISO 14001 Certification and Implementation of the Green Power Certification System In March 2001, Sony Life acquired ISO 14001 certification, the international standard for environmental management systems, for its head office, and has since kept its certification up to date. In fiscal 2005, as part of plans to reduce our consumption of fuels that emit carbon dioxide and accelerate global warming, we set up a Green Power Certification system, whereby the purchase of electrical power originating from wind-powered generators is certified. This system facilitates electric-power swaps, ensuring that our electrical power is wind generated, even if the power originates at locations far from where it is used. During the term, we purchased 250,000 kilowatts of “green-certified” electric power, thereby reducing our CO 2 consumption by the equivalent of 92.5 tonnes per year. Protection of the global environment is a top-priority issue for the Company. Through our environmental management system, we are working constantly to protect the environment in all of our daily activities. What is ISO 14001? ISO 14001 is an international standard for environmental management systems created by the International Organization for Standardization (ISO). Certification is given to entities that review their environmental management systems annually, take action to address difficult and unprecedented issues, and work continually to improve their environmental performance. The Certificate of Green Power issued by Japan Natural Energy Company Limited Certificate documenting our ISO 14001 compliance, issued by the certifying institution BVQI Japan Co., Ltd. Social Contribution Activities “One Love, One Trust” In fiscal 2003, we established a Social Contributions Department to spearhead our social benefit initiatives. We also set up a Volunteer Activity Coordination Committee, with the aim of promoting the sharing of information from various sources, enhancing our support for volunteerism and broadening the scope of volunteer activities. Sony Life has designated August 10, the anniversary of its founding, as Volunteer Day. This is a special day when all employees are encouraged to consider and implement activities that benefit the community. August has also been declared Volunteer Enrichment Month, in which all employees throughout Japan implement original social benefit activities in their respective communities. Our rallying cry is the phrase “one love, one trust,” reminding us that for each voluntary contribution, or “act of love,” our standing within the community increases. Volunteer Leave Program In fiscal 2003, Sony Life introduced a volunteer leave program, designed to facilitate the efforts of employees to participate actively in volunteer activities. The leave program applies to the following activities: ● Social welfare ● Disaster relief ● Environmental protection ● International exchange ● Community activities and aid Leave Program for Bone Marrow Donors On April 1, 2002, Sony Life became the first life insurance company to introduce a special leave program for bone marrow donors, offering employees compensated time off, independent of their regular holidays, for the period necessary to donate bone marrow for transplants. Support for Special Olympics Nippon Since 1996, Sony Life has given financial support for Special Olympics Nippon, a non-profit organization that provides people with intellectual disabilities with independence and opportunities to participate in the community through sports. We also volunteer to run the events. In February 2005, Nagano Prefecture hosted the Special Olympics World Winter Games, which drew 2,500 athletes from 84 countries. Approximately 400 Sony Life employees volunteered their time to work at the Games, making ours one of the largest single company volunteer groups. Sony Life also helps increase awareness and understanding of Special Olympics Nippon’s activities by supporting charity concerts, movie screenings and other initiatives. We plan to offer our full support for the National Summer Games Kumamoto, which are scheduled for November 2006. Through our support of Special Olympics Nippon, we hope to promote greater independence for people with intellectual disabilities and help them become more active members of society. Special Olympics Nippon Special Olympics Nippon is a specified non-profit organization that provides people with intellectual disabilities with ongoing year-round sports training opportunities and holds athletic competitions to demonstrate their accomplishments and give them an opportunity to participate in society. One section of the Special Olympics Nippon home page introduces Sony Life’s social contributions through this society. For further details, see the following web site: http://www.son.or.jp/tokutoku/sonylife/index.html (Japanese only) Japan Marrow Donor Program Established in December 1991 under the auspices of the Ministry of Health and Welfare (now called the Ministry of Health, Labour and Welfare), this organization handles bone marrow donor registrations and operates a bone marrow bank that is used for transplants. Alpine ski competition at the Special Olympics World Winter Games in Nagano 17 Eye Mate Fund Sony Life has contributed to the Eye Mate Fund since 1997, with the aim of helping visually impaired people participate in society. The Company donates an amount each year that matches the total raised by employees during the year. In fiscal 2005, ¥9.72 million in employee donations and matching funds were given to Eye Mate, Inc. (formerly the Tokyo Guide Dog Association). Since 1997, Sony Life has donated more than ¥100 million in contributions, which are used in training guide dogs. Sony Life will continue providing Eye Mate with support to help more visually impaired people participate in society. Eye Mate, Inc. Since its introduction of the first guide dogs to Japan, this organization has been responsible for training numerous guide dogs. The assistance of properly trained Eye Mate guide dogs helps people with visual impairment participate in society by enabling them to walk about on their own. Sony Life Volunteers’ Club The Sony Life Volunteers’ Club was established by its employees at the time of the Kobe earthquake in 1995, and has continued its activities to the present day. The club operates using funds collected from employee donations, and is managed by individual employees. The club promotes a variety of volunteer activities that center on providing ongoing support to the elderly victims of the Kobe earthquake. The club also provides ongoing support to elderly people affected by the Niigata Chuetsu earthquake in 2004. In March 2006, the club organized a hot springs bus tour for these people, to help keep their spirits up. The club also conducts voluntary activities at care facilities, as well as youth educational support activities that are designed to protect children from drugs. The Sony Life Volunteers’ Club, whose primary membership is Lifeplanner® sales employees, actively conducts a wide range of social contribution activities to put employees into direct contact, conduct ongoing activities and create trust-based relationships with people in regional communities. Some Sony Life Volunteers’ Club Activities 18 A Sony Life employee’s son experiencing walking practice ● Support for people affected by the Kobe earthquake in 1995 (Hyogo Prefecture) ● Support for people affected by the Niigata Chuetsu earthquake (Niigata Prefecture) ● Care facility support (Tokyo and Kanagawa prefectures) ● Operational support for the Yokohama Handy Tennis Competition (Kanagawa Competition) ● Bone marrow donor registrations and activities to support the Munakata Yurix 24-hour EKIDEN marathon (Fukuoka Prefecture) ● Operational support for the Oita International Wheelchair Marathon (Oita Prefecture) ● Operational support and everyday training support for Special Olympics Nippon (nationwide) ● Blood donor activities (nationwide) Providing meals for people affected by the Niigata Chuetsu earthquake A hot springs bus tour for some of the people affected by the Kobe earthquake Sony Life Cup All Japan Ladies Tennis Tournament Since 2002, Sony Life has provided support to the Sony Life Cup All Japan Ladies Tennis Tournament, one of the largest amateur events for women tennis players in Japan, through sponsorship and volunteer activities. The tournament has been held since 1979 to promote the development of tennis as a sport with mass appeal that also helps improve women’s health. This year marks the 28th staging of this traditional event, which has attracted a cumulative total of approximately 27,000 players. The event features a series of strongly contested tournaments that are held in various prefectures throughout Japan. Our Lifeplanner® sales employees support as volunteers at the event, working alongside players to ensure its smooth operation and to cheer the athletes. We will continue to support the Sony Life Cup All Japan Ladies Tennis Tournament as part of our efforts to foster better communication with local communities. For more information about this tournament, please visit: http://zenkokuladies.jp/ (Japanese only) 19 Expanding Operations in Southeast Asia Sony Life Insurance (Philippines) Corporation Owing to the deregulation of financial markets in the Philippines, the life insurance market in that nation is expected to expand significantly. Sony Life Insurance (Philippines) Corporation was established in 1998 with capital participation from the Sony Group and commenced operations in November 1999. To reinforce its business foundation, Sony Life increased that company’s capital in December 2003, before transforming it into a wholly owned subsidiary in March 2004. Tailoring its activities to local conditions, Sony Life Insurance (Philippines) Corporation is expanding its operations using consulting methods cultivated in Japan, and is steadily building a high-quality marketing organization. The Company also responds steadily to diverse local needs, as indicated by the start of its sales of dollar-denominated products. Fulfilling its social responsibilities as a life insurance company, Sony Life Insurance (Philippines) Corporation places importance on compliance with all regulations and is upgrading its control systems to minimize business risk. Financial Review Growth and Profitability New Insurance Sales ● New Insurance Sales New insurance sales totaled ¥3,392.1 billion. In fiscal 2005, ended March 31, 2006, the total value of new life insurance policies sold—the sum of individual life insurance and individual annuities—was ¥3,392.1 billion. This represented an 8.9% decrease from the preceding year, affected by an April 2005 rise in variable life insurance premiums. Of this total, individual life insurance sales fell 9.1%, to ¥3,361.2 billion, while individual annuities sales expanded 26.4%, to ¥30.8 billion. At the same time, group life insurance sales surged 23.1%, to ¥9.0 billion. Total sales of individual life insurance, individual annuities and group life insurance was therefore ¥3,401.2 billion, down 8.9%. The number of new individual life insurance and individual annuity policies sold during the year was 512,947, down 4.1%. (Individual life insurance + Individual annuities) (Billions of yen) 5,000 3,916.6 4,000 3,537.3 20 At the end of fiscal 2005, total insurance in force—including individual life insurance and individual annuities—was ¥29,084.5 billion, up 4.5% from a year earlier. Of this amount, individual life insurance in force expanded 4.4%, to ¥28,908.8 billion, and individual annuities in force grew 22.7%, to ¥175.7 billion. We believe that these figures reflect the high level of trust we received from our policyholders, as well as high acclaim for our after-sales services. Group life insurance in force was ¥923.2 billion, up 13.1%. Consequently, the total of individual life insurance, individual annuities and group life insurance in force was ¥30,007.8 billion, up 4.8%. 3,392.1 2,000 1,000 0 2002 2003 2004 2005 2006 (Years ended March 31) Insurance in Force (Individual life insurance + individual annuities in force) (Billions of yen) 30,000 24,000 27,823.4 23,496.6 24,792.9 29,084.5 26,242.6 18,000 12,000 6,000 0 2002 2003 2004 2005 2006 (As of March 31) ● Ratio of Operating Expenses to Insurance Premiums Ratio of Operating Expenses to Insurance Premiums Our ratio of operating expenses to insurance premiums continues to improve each year, thanks to efficient management. Selling new policies, maintaining existing policies, making insurance payouts and other tasks incur various costs, such as personnel and administrative expenses. We refer to costs necessary to conduct our business as a life insurance company as operating expenses. In fiscal 2005, Sony Life held its ratio of operating expenses to insurance premiums to 14.2%. This reflects ongoing cost reductions and management rationalization efforts. Going forward, we will continue working to raise our management efficiency. 3,724.2 3,000 ● Insurance in Force We have maintained consistent growth since our establishment, with insurance in force up 4.5% in fiscal 2005. 3,732.0 (%) 25 20 16.5 15.9 15.3 15 14.5 14.2 2005 2006 10 5 0 2002 2003 2004 (Years ended March 31) ● Lapse and Surrender Rate and Persistency Rates Lapse and Surrender Rate We continued to maintain a low lapse and surrender rate and solid persistency rates. (Individual life insurance on a policy amount basis) Persistency Rates (Individual life insurance on a policy amount basis) (%) (%) 10 100 93.9 93.7 93.7 94.6 95.5 80 85.7 87.0 86.4 87.6 89.3 2002 2003 2004 2005 2006 7.99 In fiscal 2005, our lapse 7.74 8 7.56 rate for individual life insur6.39 5.88 ance on a policy amount 6 basis continued to improve, 4 declining 0.51 percentage point, to 5.88%. 2 The persistency rates for individual life insurance 0 policies, on a policy 2002 2003 2004 2005 2006 (Years ended March 31) amount basis, remained high. The 13-month rate was 95.5%, up from 94.6% in fiscal 2004, and the 25-month rate was 89.3%, up from 87.6%. 60 40 20 0 (Years ended March 31) 13th month 25th month Note: The lapse and surrender rate is expressed as a ratio of cancellations or lapses that is modified due to the reduction, increase or reinstatement of the total amount of insurance in force. ● Product Mix Sales of term life insurance (non-smoker preferred risk insurance) and living benefit life insurance were favorable. In fiscal 2005, more than 80% of new policies, on a policy amount basis, were death protection products. Sales were strong for such mainstay term life insurance products as non-smoker preferred risk insurance. Sales of living benefit life insurance also expanded, reflecting steadily increasing demand for insurance to cover three major diseases (cancer, acute myocardial infarctions and cerebral embolisms). New Insurance Sales by Type (Policy amount basis, fiscal 2005) Variable life 9.9% 21 Other 3.3% Whole life 15.5% Endowment/ Educational 11.0% Term life 60.3% ● Insurance Premiums and Claims Both insurance premiums and insurance payments increased in line with the rise in in force. Owing to the growth in insurance in force, insurance premiums in fiscal 2005 rose to ¥579.2 billion, from ¥550.3 billion in fiscal 2004. Insurance claims, annuity payments and insurance benefits totaled ¥114.4 billion, up from ¥88.0 billion in fiscal 2004, indicating our assistance to policyholders. By payment type, claims totaled ¥86.4 billion (up from ¥62.1 billion), benefits were ¥23.5 billion (up from ¥22.6 billion) and annuity payments amounted to ¥4.4 billion (up from ¥3.1 billion). Payments by Type (Billions of yen) 125 4.4 100 23.5 ● Asset Management 3.1 2.4 Our policy is to invest assets efficiently, while responding flexibly to changes in the investment environment. 75 Sony Life’s fundamental policy on investing assets in general account is to maintain the soundness of assets and to build an investment portfolio capable of ensuring stable medium- and long-term returns, taking into account expected returns and investment risks and responding deftly to changes in financial conditions and the investment environment. The Company places emphasis on risk management to ensure stable returns. 50 22.6 19.8 2.0 1.1 19.1 86.4 16.6 25 34.0 0 62.1 59.2 2002 40.2 2003 2004 2005 Death and other claims Hospitalization and other benefits Pension and annuity payments 2006 (Years ended March 31) In fiscal 2005, Sony Life followed its strategy of investing in response to changes in the investment environment. During the first half of the fiscal year, when the equity markets were lackluster, the Company invested mainly in convertible bonds. When interest rates trended upward in the second half, we shifted our investments to longer-term Japanese government bonds. Investment Performance As of March 31, 2006, general account assets totaled ¥2,822.5 billion, up 16.8%, or ¥406.2 billion, from one year earlier. Within the general account, positions of Japanese government, municipal and Japanese corporate bonds totaled ¥1,499.5 billion (accounting for 53.1% of general account assets), foreign government and corporate bonds ¥89.0 billion (3.2%), Japanese stocks ¥250.7 billion (8.9%), policy loans ¥86.9 billion (3.1%), monetary trusts ¥658.3 billion (23.3%), cash and call loans ¥71.5 billion (2.5%), and real estate ¥75.5 billion (2.7%). ● Core Profit Core profit reached ¥28.5 billion. 22 Core profit is an indicator of the profit-earning capacity of the primary insurance business over a one-year period. The term “primary insurance business” refers to the management of insurance premiums received from policyholders, along with investment income to pay insurance claims, annuities and benefits and to make policy reserve provisions for future payments. Adding capital gains or losses, such as on sales of securities, and one-time gains and losses to core profit produces ordinary profit, which appears on the statements of income. In fiscal 2005, Sony Life’s core profit increased 17.4% year-on-year, to ¥28.5 billion, owing to an improvement in gains and losses from general account investments. ● Ordinary Profit and Net Income Ordinary profit was ¥24.3 billion; net income came to ¥9.6 billion. Ordinary Profit Ordinary profit—the difference between ordinary revenues and ordinary expenses—represents income derived from operating activities during the fiscal year. The principal sources of revenue for life insurance companies are insurance premiums and investment income. The main expenses are death and other claims, hospitalization and other benefits, annuity payments, provision for policy reserves, investment expenses and operating expenses. In fiscal 2005, ordinary profit expanded 42.7%, to ¥24.3 billion. This rise resulted from the steady growth in insurance premiums and higher investment income. Net Income Net income is calculated by adding extraordinary gains to ordinary profit, then subtracting extraordinary losses, such as provision for reserve for price fluctuations, provision for policyholders’ dividend reserve and income taxes. In fiscal 2005, net income fell 4.8%, to ¥9.6 billion, as we expanded our reserves for price fluctuations in tandem with changes in our composition of assets. General Account Assets (As of March 31, 2006) Real estate 2.7% Other assets 2.1% Cash and call loans 2.5% Monetary trusts 23.3% Policy loans 3.1% Japanese government, municipal, and Japanese corporate bonds 53.1% Other securities 0.6% Foreign stocks and others 0.5% Foreign government and corporate bonds 3.2% Japanese stocks 8.9% Core profit of ¥28.5 billion Net capital gains of ¥21.4 billion Net other operating expenses of ¥25.6 billion Ordinary profit of ¥24.3 billion Note: Like most other life insurers that are organized as joint stock corporations, Sony Life sells life insurance that is non-profit. As no policyholder dividend is added, we are able to offer services to policyholders for lower premiums. Mutual corporations, on the other hand, typically offer for-profit policies; their insurance premiums include a portion of financial resources for policyholder dividends; and, financial resources for these dividends are included in core profits. For this reason, mutual corporations tend to show higher core profits than joint stock corporations that operate on the same scale. Financial Stability and Soundness ● Total Assets As of the end of fiscal 2005, total assets amounted to ¥3.1 trillion. Total assets, comprising the capital received from shareholders and premiums paid by policyholders, are invested in securities, property and equipment and other assets. These assets are held in preparation for future insurance claims and benefit payments, as well as to maintain the soundness of the Company’s insurance business. As of March 31, 2006, Sony Life’s total assets reached ¥3,103.2 billion, up 18.6% from a year earlier, exceeding ¥3 trillion for the first time since operations began 25 years ago. Total Assets (Billions of yen) 3,500 3,103.2 2,800 2,617.2 2,375.8 1,981.8 2,100 1,729.0 1,400 700 ● Policy Reserve 0 2002 We maintained sufficient policy reserve to cover future insurance claim payments. Policy reserve is a fund derived from insurance premiums and investments, held in reserve to ensure life insurance companies are able to pay future insurance claims. Policy reserve is mandatory under the Insurance Business Law of Japan. Since attaining standard policy reserve at the end of fiscal 2000, Sony Life has used the “net level premium method” to build up its reserves. Under this method, we calculate operating expenses assuming a constant, or “net level,” throughout the premium payment period. Our policy reserve at the end of fiscal 2005 totaled ¥2,739.2 billion, which we consider sufficient. 2003 2004 2005 2006 (As of March 31) Policy Reserve (Billions of yen) 3,000 2,739.2 2,395.0 2,400 2,095.5 23 1,831.1 1,800 1,600.1 1,200 600 ● Solvency Margin Ratio We maintained a high solvency margin ratio, of 1,547.0%. The solvency margin ratio indicates a company’s “ability to pay.” Life insurance companies accumulate policy reserves against the future payment of insurance claims so they can respond sufficiently to ordinarily anticipated events. However, unforeseen events sometimes occur as a result of changes in the environment, such as a major disaster or a cataclysmic fall in the stock market. The solvency margin ratio is one administrative control indicator used to judge if an insurer has the ability to pay in response to such unpredictable events. As of March 31, 2006, Sony Life had a high solvency margin ratio of 1,547.0%, up 229.9 percentage points from the end of the previous fiscal year. 0 2002 2003 2004 2005 2006 (As of March 31) Solvency Margin Ratio (%) 2,500 2,000 1,500 1,493.5 1,354.2 1,453.3 1,547.0 1,317.1 1,000 500 0 2002 2003 2004 2005 2006 (As of March 31) ● Unrealized Gains on Securities Unrealized gains on our securities holdings amounted to ¥202.8 billion. Unrealized gains and losses refers to the differences between the book values and fair values of securities. If fair value exceeds book value, a gain on sales of securities would be realized by liquidating them at market prices. For this reason, such securities act as a provision against various risks. Part of the unrealized gains and losses on securities and real estate is included in the total solvency margin—the numerator of the formula for calculating the solvency margin ratio. Unrealized gains on securities in the general account stood at ¥202.8 billion as of March 31, 2006, up from ¥88.0 billion a year earlier. (Reference: As of March 31, 2006, Sony Life assumed unrealized gains on shares to be zero when the Nikkei Stock Average is approximately ¥9,171 and the TOPIX index is 929 points.) ● Non-Performing Assets Sony Life has no non-performing assets. 24 Life insurance companies make loans as investment assets and earn interest from such loans. These comprise policy loans offered as a service to policyholders and other loans made to third parties. A company’s total loan balance represents the sum of these two loan balances. Sony Life’s loan balance at the end of fiscal 2005 was ¥86.9 billion. Because the Company does not engage in commercial lending, its loan balance is derived solely from policy loans, which are limited to the value of recoverable surrender cash. As a consequence, the Company has no risk-monitored loans (loans where repayment circumstances are not ordinary). Moreover, all figures listed in loans by debtor category are classified as performing loans. ● Credit Rating Sony Life has been rated highly by credit rating agencies. Sony Life has requested ratings from several agencies to help policyholders and potential customers make objective decisions concerning its ability to finance insurance and pay claims and benefits. Credit Rating A.M. Best Company, Inc. Financial strength rating Rating and Investment Information, Inc. Insurance claim paying ability Japan Credit Rating Agency, Ltd. Ability to pay insurance claim Moody’s Investors Service, Inc. Insurance financial strength rating Standard & Poor’s Insurer financial strength rating (Ratings as of June 2006) A+ AA AA Aa3 A+ Superior A very high degree of capacity for payment of insurance claims A very high level of capacity to honor the financial commitment on the obligation Offering excellent financial security Strong Note: The above ratings were assigned at Sony Life’s request. They are not evaluations of insurance companies overall, nor are they a guarantee of claim payments in the future. The ratings are the opinions of the respective rating agencies, based on the figures and information available to them at that time. Please refer to each agency’s web site for more details. Formula for Calculating Negative Spread ● Negative Spread The negative spread for fiscal 2005 was ¥33.1 billion. Life insurance companies retain a portion of premiums received from policyholders as policy reserves in anticipation of future payments. These policy reserves are maintained by investing under the assumption that they will yield a certain rate of interest every year. This interest rate is called the “assumed interest rate (for calculating policy reserves).” Negative spread arises when, owing to the deterioration of the investment environment or other factors, the actual yield on investment for a portion of the policies falls below the assumed interest rate (for calculating policy reserves). Our negative spread in fiscal 2005 was ¥33.1 billion, down from ¥34.5 billion in the previous fiscal year. The Company has adequate other income sources to cover its negative spread, however. (See the analysis on core profit on page 22.) Sony Life will continue working to streamline operations to maintain and generate sufficient income to cover the negative spread. ● Capital Sony Life’s capital was ¥65.0 billion. Capital is the minimum standard amount of shareholders’ equity a company must hold to protect its creditors, and Article 6 of the Insurance Business Law of Japan prescribes a minimum of ¥1.0 billion. Other regulations have also been established to ensure adequate capitalization. As of March 31, 2006, Sony Life had total capital of ¥65.0 billion (wholly provided by Sony Financial Holdings since April 1, 2004). Yield on investment on core profit 1 Average assumed interest rate (for calculating policy reserves) 2 General account policy reserves 3 Negative spread Notes: 1. “Investment yield for core profit” is the investment income from general account that is included in core profit, less the provision for policyholder dividend reserves, divided by policy reserve in general account. 2. The “average assumed interest rate (for calculating policy reserve)” is the average of the assumed interest rates used to calculate policy reserve in general account. 3. “Policy reserve in general account” is policy reserve in general account, excluding the contingency reserve, calculated as follows: (Policy reserves at beginning of term + Policy reserves at end of term – Expected interest*) x 1/2 * “Expected interest” is the amount of interest calculated by discounting the amount using the assumed interest rate every year. 25 ● Real Net Worth Real Net Worth Real net worth totals ¥614.9 billion. Real net worth refers to the net asset amount that results from subtracting real liabilities—excluding such factors as policy reserves and capital—from the fair market value of such real assets as securities and real estate. If this number is negative, the regulating authorities may judge a company to have real liabilities in excess of assets and order a company to halt operations. As of March 31, 2006, Sony Life had real net worth of ¥614.9 billion, up 44.0% from one year earlier. (Billions of yen) 750 614.9 600 426.9 450 381.5 300 296.5 319.4 150 0 2002 2003 2004 2005 2006 (As of March 31) Embedded Value ● Meaning of Embedded Value Embedded value (EV) is calculated as the sum of the “value of in-force business” and “adjusted net worth.” In Europe and Canada, EV is regarded as a valuable source of information for assessing the corporate value of a life insurance company. Sony Life discloses EV at fiscal year-end as an indicator of the value of its business. The value of in-force business is the present value of future after-tax profits on existing business minus the cost of capital. Cost of capital is the spread between the investment yield and the discount rate applied to the amounts of capital and surplus that will be required to maintain the assumed level of solvency margin ratio. Adjusted net worth is calculated as (a) Total equity in the balance sheets, excluding net unrealized gain on bonds except for convertible bonds + (b) Reserve for price fluctuations + (c) Contingency reserve + (d) Reserve for possible loan losses + (e) Net unrealized gains on land – (f) Unfunded employees’ retirement benefits liability – (g) Deferred tax assets for (b), (c), (d), (e) and (f). Under generally accepted accounting principles in Japan (Japanese GAAP), which applies to life insurance companies in Japan, the balance sheets exclude future profits on existing business, while EV indicates the present value of future profits on existing business, together with the Company’s adjusted net worth. For this reason, EV serves as a valuable supplement to the financial information provided under Japanese GAAP and is a helpful indicator used to evaluate corporate value. However, EV covers only existing in-force business as of the date of valuation, and excludes the potential value of future new business, which is considered a constituent of the economic value of an insurance company. ● EV as of March 31, 2006 EV as of March 31, 2006, and changes in EV compared with one year earlier, are indicated below. March 31 EV Value of in-force business Adjusted net worth Value of new business in the fiscal year 26 2004 2005 2006 (Billions of yen) Increase (Decrease) 492.0 381.7 110.2 38.9 539.3 409.6 129.7 38.1 776.1 499.8 276.3 34.2 236.8 90.2 146.6 (3.8) ■ The value of in-force business as follows: Value of in-force business = Present value of future after-tax profits on existing business – Cost of capital. Cost of capital is the spread between the investment yield and the discount rate applied to the amounts of capital and surplus that will be required to maintain the assumed level of solvency margin ratio. ■ Adjusted net worth is calculated as follows: Adjusted net worth = (a) Total equity in the balance sheets* + (b) Reserve for price fluctuations + (c) Contingency reserve + (d) Reserve for possible loan losses + (e) Net unrealized gains on land – (f) Unfunded employees’ retirement benefits liability – (g) Deferred tax assets for (b), (c), (d), (e) and (f). * Total equity in the balance sheets excludes net unrealized gain on bonds except for convertible bonds. ■ “Value of new business in the fiscal year” refers only to that portion of EV derived from new policies concluded during each fiscal year. ■ In calculating “value of in-force business,” the present value of future after-tax profits and adjusted net worth use balance sheet and reserve figures, based on Japanese GAAP. ■ Assumptions and methods of computing EV differ for March 31, 2004, 2005 and 2006. Embedded Value of yen) 539.3 492.0 2004 2005 2 (Years ended March 31) ● Principal Assumptions Below are the principal assumptions used to compute EV as of March 31, 2006. Category Method of Establishing 1. Discount rate 2. Investment yield on new investments 6.5% Investment yield is based on implied forward rates, assuming Sony Life makes all new investments only in Japanese government bonds. Based on the Company’s experience over the three most recent fiscal years Based on the Company’s experience over the three most recent fiscal years The unit cost for the maintenance and administration of policies and for payments of claims is based on Sony Life’s experience during the most recent fiscal year. Based on the most recent effective tax rate For the purpose of calculating cost of capital, the required solvency margin ratio of 600% was assumed. 3. Mortality and morbidity rates 4. Lapse and surrender rate 5. Operating expenses (unit cost) 6. Effective tax rate 7. Required solvency margin ratio 1. Discount rate The discount rate was set by adding the Company’s assumed risk premium (4.5%) to the risk-free rate (the yield on 10-year Japanese government bonds: approximately 1.77%), as of the end of the fiscal year. 2. Investment yield (1) Investment yield on new investments: Investment yield on new investments was calculated based on the implied forward rates computed from the yield curve of Japanese government bonds as of March 31, 2006, and assuming that the Company invests only in Japanese government bonds every year. Sony Life sets the assumed investment yield on new investments at the end of each fiscal year with the assumption that future market conditions will be neutral. This assumption is made to avoid potential complications arising from the fact that the more Sony Life invests in assets with higher expected returns, the higher is the calculated EV. Sony Life believes such assets contain higher risks and should be adjusted when calculating EV. (2) Investment yield on existing assets: Investment yield on existing assets was calculated separately for each asset with the following assumptions: ■ For existing bonds other than convertible bonds, Sony Life assumes holdings to maturity. ■ For convertible bonds, Sony Life’s calculations assume that the Company will conduct rebalancing as of the date of evaluation as follows: After taking unrealized gains from convertible bonds into account when adjusting net worth, Sony Life purchases straight bonds corresponding to the marked-to-market bond portions while immediately reinvesting the remaining amount into Japanese government bonds. ■ For stocks and other assets (policyholder loans, real estate, private equity funds, etc.), Sony Life is assumed to maintain a balance at the end of the fiscal year within the limits of its internal holdings. Interest, dividends and proceeds from redemptions are calculated with the assumption that Sony Life reinvests these proceeds into Japanese government bonds. ● Breakdown of Changes in EV The change in EV from March 31, 2005, to March 31, 2006, is split into the following components: (Billions of yen) Amount Item 1. EV as of March 31, 2005 2. Shareholder dividends 3. Release from the value of existing policies in force* 4. EV of new policies for the year ended March 31, 2006 5. Difference between assumptions and actual experience for the year ended March 31, 2006 6. Differences from changes in assumptions 7. EV as of March 31, 2006 (Total of items 1 through 6) 539.3 (6.5) 24.7 34.2 137.2 47.2 776.1 Notes: Reversal of discount rate on the value of in-force business for the year: The amount in item 5 includes an ¥87.8 billion increase in unrealized gains on securities other than bonds. The amount in item 6 includes a ¥25.9 billion increase due to changes in the method of valuing convertible bonds. ● Impact of Changing Assumptions (Sensitivities) The impact of changing the underlying assumptions on EV at March 31, 2006, is as follows: Amount of Increase (Decrease) Discount rate Solvency margin ratio Investment yield: +0.25%* Investment yield: –0.25% Mortality and morbidity Lapse and surrender rate Operating expenses (unit cost of ongoing policies) 6.5%→5.5% 6.5%→7.5% 600%→500% 600%→700% On total assets On new assets On total assets On new assets Assumption x 1.1 Assumption x 1.1 Assumption x 1.1 57.1 (47.1) 11.6 (12.9) 48.3 30.3 (49.7) (30.6) (52.4) (15.9) (4.0) (Billions of yen) EV Amount 833.2 729.0 787.7 763.2 824.4 806.4 726.4 745.5 723.7 760.1 772.1 * The impact of changes in investment yield assumptions is also reflected in policyholders’ dividends. ● Notes Regulations require that certain reserves be set aside for minimum guarantee benefit features on variable life insurance and annuity contracts issued in fiscal 2005 and thereafter. In calculating EV as of March 31, 2006, while setting aside the reserve for guaranteed minimum death benefits (GMDB) based on Japanese GAAP, Sony Life evaluated the future cash flow on GMDB for all existing variable life insurance policies using the stochastic method. This evaluation reduced EV by ¥3.2 billion. For calculating EV as of March 31, 2006, Sony Life changed the method of accounting for existing convertible bonds at fiscal year-end. In calculating EV as of March 31, 2005, Sony Life assumed that convertible bonds would be held to maturity with stock prices remaining unchanged from March 31, 2005. As is described above, Sony Life calculated EV as of March 31, 2006, assuming the rebalancing of convertible bonds as of the date of evaluation. This increased EV by ¥25.9 billion. ● Opinion of Outside Specialist Sony Life has obtained an opinion letter from Milliman, Inc., an independent actuarial firm that possesses insurance actuarial expertise. The opinion letter can be found on Sony Life’s web site (http://www.sonylife.co.jp/). Disclaimer Statements made in this section of the annual report contain calculations based on assumptions regarding future projections that are subject to risks and uncertainties. It should be noted that actual future results might materially differ from the assumptions used in the EV calculations. Therefore, readers are advised to be cautious and not place undue reliance on EV calculations. 27 Balance Sheets As of March 31 Thousands of U.S. dollars (Note 1) Millions of yen Assets Cash and deposits Cash on hand Cash in banks Call loans Monetary trusts Securities Japanese government bonds Municipal bonds Japanese corporate bonds Japanese stocks Foreign securities Other securities Loans Policy loans Other loans 28 Property and equipment (net of accumulated depreciation) Land Buildings Furniture and equipment Construction in progress Due from agencies Due from reinsurers Other assets Other receivables Prepaid expenses Accrued income Money on deposits Derivative assets Advance payments Others Deferred tax assets Allowance for doubtful accounts Total assets 2006 ¥ 63 31,370 31,433 2005 ¥ 167 51,443 51,611 2004 ¥ 104 66,276 66,381 2003 ¥ 124 130,025 130,149 2002 ¥ 192 226,583 226,775 2006 $ 542 268,124 268,666 55,900 176,100 175,000 135,100 77,800 477,778 658,351 515,229 419,224 320,941 248,750 5,626,935 1,054,410 53,252 487,933 278,860 164,092 93,665 2,132,216 712,158 54,504 629,561 74,249 179,239 54,949 1,704,663 397,522 167,941 660,699 57,939 235,443 44,058 1,563,605 127,767 199,989 665,179 41,658 219,601 11,455 1,265,650 73,228 214,794 532,471 40,908 180,853 3,798 1,046,054 9,012,059 455,153 4,170,375 2,383,427 1,402,497 800,564 18,224,075 86,918 — 86,918 79,914 — 79,914 71,629 — 71,629 65,574 — 65,574 54,463 0 54,463 742,896 — 742,896 32,855 11,869 160 30,853 75,739 32,855 12,159 161 5,586 50,763 32,855 12,281 161 1,145 46,444 32,780 12,819 189 500 46,289 32,707 13,106 188 280 46,283 280,820 101,452 1,369 263,707 647,348 0 5 0 2 3 2 335 184 960 730 654 2,866 23,910 703 22,244 11,938 39 1,484 2,067 62,389 19,746 749 13,225 2,835 — 351 2,028 38,936 18,354 730 8,823 3,122 — 334 1,323 32,688 1,591 973 7,850 3,118 — 320 1,426 15,281 6,406 992 8,856 2,744 — 222 1,690 20,912 204,366 6,012 190,120 102,042 338 12,688 17,675 533,241 — — — 2,330 7,540 — (44) (142) (107) (153) (163) (378) ¥3,103,241 ¥2,617,266 ¥2,375,828 ¥1,981,897 ¥1,729,077 $26,523,429 Notes: 1. U.S. dollar amounts have been translated from yen, for convenience only, at the rate of ¥117=U.S.$1.00, the approximate Tokyo Foreign Exchange Market rate as of March 31, 2006. 2. U.S. dollar figures are based on non-truncated yen amounts. Thousands of U.S. dollars (Note 1) Millions of yen Liabilities and shareholders’ equity Policy reserve and others Reserve for outstanding claims Policy reserve Reserve for policyholders’ dividends Due to agencies Due to reinsurers Other liabilities Accrued income taxes Other payables Accrued expenses Unearned income Deposits received Deposits received for guarantees Borrowed securities Derivative liabilities Policy suspense and other suspense Reserve for employees’ retirement benefits Reserve for directors’ and auditors’ retirement benefits Reserve for price fluctuations Deferred tax liabilities Deferred tax liabilities for land revaluation Total liabilities 2006 ¥ 18,415 2,739,264 1,584 2,759,264 1,415 782 17,705 2,395,060 735 2,413,501 1,155 625 ¥ 17,913 2,095,565 783 2,114,262 1,038 524 2003 ¥ 13,260 1,831,100 709 1,845,070 786 432 2002 ¥ 10,082 1,600,130 720 1,610,933 754 419 2006 $ 157,399 23,412,515 13,542 23,583,456 12,102 6,686 1,272 14,504 8,751 244 323 2,153 — 0 4,824 32,075 10,204 2,168 81,287 8,658 158 334 2,018 — — 1,327 95,953 8,366 105 14,020 7,515 221 333 2,851 — — 2,810 27,858 6,720 64 6,091 8,139 232 627 2,791 — — 3,179 21,126 4,981 13,562 258,800 78,382 2,137 2,636 19,255 83,459 — 17,860 476,091 90,874 109 20,109 36,685 706 2,885,408 77 12,666 5,817 — 2,476,124 46 12,225 10,933 — 2,243,350 — 5,960 — — 1,886,829 — 5,632 — — 1,643,847 937 171,873 313,548 6,041 24,661,608 65,000 865 865 65,000 865 865 65,000 865 865 65,000 865 865 — — — 555,556 7,393 7,393 4,478 — — 18,055 9,616 22,533 (1,475) 3,178 40 40 16,197 10,102 19,417 (768) 1,878 3 3 13,932 13,932 15,814 (768) — 4 4 11,269 11,269 11,274 (768) — — — — — — — 38,278 — — 154,320 82,196 192,598 (12,612) 130,909 217,833 3,103,241 56,629 141,142 2,617,266 51,567 132,478 2,375,828 18,697 95,068 1,981,897 — — — 1,118,886 1,861,821 26,523,429 — — — — — — — — — — — — 65,000 25,625 (768) — — — — — — — — — — — 5 5 — — — — — — — — — — — — — — — — — — — — — — (24,761) (24,755) 20,128 85,230 ¥1,729,077 — — — — — Common stock Additional paid-in capital Land revaluation Retained earnings (Accumulated deficit) General reserves Special depreciation reserve Unappropriated retained earnings (Undisposed deficit) Unrealized gain on securities Total shareholders’ equity Total liabilities and shareholders’ equity ¥ 2004 1,586 30,279 9,170 250 308 2,252 9,764 — 2,089 55,702 10,632 Common stock Capital surplus Capital reserve Retained earnings Earned reserve General reserves Special depreciation reserve Unappropriated retained earnings Net income Land revaluation Net unrealized gain on other securities, net of taxes Total shareholders’ equity Total liabilities and shareholders’ equity 2005 ¥ ¥ ¥ ¥ $ 29 Statements of Income Fiscal Years Ended March 31 Thousands of U.S. dollars (Note 1) Millions of yen Ordinary revenues: Income from insurance premiums and others Insurance premiums Reinsurance income Investment income Interest and dividends Interest on bank deposits Interest and dividends on securities Interest on loans Rental income from real estate Other interest and dividends Income from monetary trusts, net Income from trading securities, net Gain on sales of securities Gain on redemption of securities Gain from derivatives, net Foreign exchange gain, net Other investment income Gain on separate accounts, net Other ordinary income Income for annuity riders Income for deferred payment of claims Reversal of reserves for outstanding claims Others Total ordinary revenues Ordinary expenses: Insurance claims and other payments Insurance claims Annuity payments Insurance benefits Surrender payments Refund to policyholders Reinsurance premiums 30 Provision for policy reserve and others Provision for reserve for outstanding claims Provision for policy reserve Interest on policyholders’ dividend reserves Investment expenses Interest expenses Losses on trading securities, net Loss on sales of securities Devaluation losses on securities Losses on redemption of securities Losses from derivatives, net Foreign exchange losses, net Provision for doubtful accounts Depreciation of real estate for rent and others Other investment expenses Losses on separate accounts, net Operating expenses Other ordinary expenses Payments of deferred claims Taxes other than income taxes Depreciation Provision for retirement benefits Provision for directors’ retirement benefits Others Total ordinary expenses Ordinary profit Extraordinary gains: Gain on sales of properties Reversal of reserve for possible loan losses Extraordinary losses: Loss on sales of properties Impairment loss Provision for reserve for price fluctuations Others Provision for policyholders’ dividend reserve Income before income taxes Income taxes—current Income taxes—deferred Net income Earning (Deficit) at beginning of the year Unappropriated retained earnings at the end of the year (Accumulated deficit at the end of the year) 2006 2005 2004 2003 2002 2006 ¥579,267 1,249 580,516 ¥550,304 1,306 551,610 ¥512,700 2,125 514,825 ¥489,548 2,034 491,582 ¥503,871 2,062 505,934 $4,951,001 10,679 4,961,680 26,581 10 19,640 3,607 3,313 8 19,558 — 6,546 5,342 825 59 0 49,524 25,595 9 19,349 3,357 2,828 51 7,170 3,962 3,339 2,393 — — 4 7,623 24,377 16 17,202 3,141 3,966 50 7,951 154 2,343 3,991 2,245 — 0 23,702 23,746 34 17,600 2,820 3,246 44 891 — 2,289 4,560 3 — 1 — 25,021 57 20,352 2,350 2,225 36 733 — 4,262 2,931 109 3 50 — 227,190 92 167,871 30,831 28,324 72 167,170 — 55,953 45,661 7,058 508 2 423,286 108,438 50,089 64,767 31,493 33,112 926,828 5,466 1,401 — 602 7,471 696,426 1,037 729 207 418 2,392 604,093 251 878 — 249 1,379 580,972 96 373 — 543 1,013 524,089 195 344 — 112 653 539,699 46,724 11,981 — 5,153 63,858 5,952,366 86,477 4,437 23,582 113,637 1,663 2,083 231,881 62,136 3,173 22,698 101,649 2,046 2,436 194,141 59,210 2,435 19,836 105,227 2,370 2,462 191,542 40,291 2,016 19,188 104,435 2,620 2,353 170,905 34,052 1,177 16,608 74,991 1,696 2,800 131,327 739,121 37,931 201,557 971,259 14,217 17,810 1,981,895 709 344,204 1 344,915 — 299,494 0 299,494 4,652 264,464 0 269,117 3,177 230,970 0 234,148 970 285,515 0 286,486 6,068 2,941,915 12 2,947,995 9 647 267 — 212 — — 6 523 2,895 — 4,561 82,040 133 — 330 217 1,146 342 59 118 558 2,208 — 5,116 79,729 4 — 928 — 704 — 21 24 612 1,308 — 3,605 78,254 2 149 465 2,538 797 — 3 — 723 1,358 8,894 14,933 77,875 3 388 43 7,309 1,130 — — — 592 902 851 11,221 82,989 77 5,533 2,284 — 1,818 — — 52 4,476 24,746 — 38,986 701,200 647 5,517 789 1,681 31 0 8,668 672,067 24,359 486 5,425 704 1,837 31 55 8,541 587,023 17,070 399 5,199 672 1,646 46 10 7,973 550,493 30,478 213 4,944 769 1,739 — 0 7,667 505,531 18,557 126 5,092 888 1,668 — 0 7,776 519,800 19,898 5,533 47,162 6,744 14,373 272 5 74,089 5,744,165 208,201 — — — 0 — 0 2 — 2 0 3 3 0 76 76 — — — 72 5 7,442 — 7,520 1,491 15,347 17,027 (11,296) 74 — 441 — 515 519 16,035 13,922 (7,989) 67 — 6,264 1 6,332 644 23,504 14,966 (5,394) 40 — 327 — 368 583 17,609 317 6,023 36 — 281 18 335 601 19,038 64 6,969 617 44 63,614 — 64,275 12,751 131,175 145,534 (96,555) 9,616 8,438 10,102 6,095 13,932 — 11,269 — 12,004 (36,766) 82,196 72,124 ¥ 18,055 ¥ 16,197 ¥ 13,932 ¥ 11,269 ¥ (24,761) $ 154,320 Notes: 1. U.S. dollar amounts have been translated from yen, for convenience only, at the rate of ¥117=U.S.$1.00, the approximate Tokyo Foreign Exchange Market rate as of March 31, 2006. 2. U.S. dollar figures are based on non-truncated yen amounts. Notes to Financial Statements As of March 31 Significant Accounting Policies—As of March 31, 2006 1. Basis of Presentation of Financial Statements The accompanying financial statements have been prepared based on the accounts maintained by Sony Life Insurance Co., Ltd. (“the Company”), in accordance with the provisions set forth in the Insurance Business Law of Japan, and in conformity with accounting principles and practices generally accepted in Japan, which are different in certain respects as to the application and disclosure requirements of International Accounting Standards. 2. Valuation of Securities (Including Securities Managed as Trust Assets of Monetary Trusts) Trading securities are stated at market value, and sales cost is determined by the moving-average method. Shares of subsidiaries (shares issued by subsidiaries that fall under Article 2–12 of the Insurance Business Law of Japan) are stated at cost. Other securities for which market prices are available are stated at market value based on market prices as of March 31, and sales cost is determined by the moving-average method. Other securities for which market prices are unavailable, such as public and corporate bonds (including foreign bonds) for which the difference between acquisition cost and face amount is due to adjustment of interest to maturity, are stated at amortized cost (straight-line method) determined by the moving-average method. Remaining other securities are stated at cost determined by the moving-average method. Unrealized gains or losses on other securities are reported as a separate component of shareholders’ equity. 3. Standards of Valuation of Derivatives Derivatives are stated at market value. 4. Depreciation of Property and Equipment Depreciation of property and equipment is computed by the declining balance method, except for buildings acquired after April 1, 1998, which are computed by the straight-line method. 5. Translation of Foreign Currencies Assets and liabilities denominated in foreign currency (excluding shares of subsidiaries) are translated into Japanese yen using exchange rates at the balance sheet date. Shares of subsidiaries are translated into Japanese yen using exchange rates at the time of acquisition. 6. Basis for Recording Allowances (1) Allowance for doubtful accounts Allowance for doubtful accounts is calculated as follows based on the self-assessment rule for assets and the rules for write-off and allowance. For debt in which the debtors are legally and formally bankrupt by such measures as filing under the Civil Rehabilitation Law or the Bankruptcy Law and are substantially bankrupt in terms of their business operations, for debt in which the debtors are actually bankrupt and for such debt as deposited money, of which the collectible amount has remarkably decreased, the allowance amount is calculated as the principal balance less the amounts collectible from foreclosing collateral and from the loan’s third-party guarantors. For other kinds of debt, the reserve amount is calculated in accordance with historical credit loss ratios and other factors. For debt in which debtors are currently not bankrupt in terms of their business operations but have been determined to have a high likelihood of going into bankruptcy (hereinafter, “debtors in danger of bankruptcy”), the amount remaining after deducting the amount of collateral that is expected to be recoverable and guarantee amounts that are determined to be recoverable, the necessary allowance amount is calculated by taking into consideration overall ability of the debtor to pay. For debt other than that described above, the reserve amount is calculated in accordance with historical credit loss ratios over a specific period of time. For all debt, the allowance amount is calculated in accordance with the self-assessment rule for assets and rules for write-off and allowance conducted by the appropriate division and audited by an independent audit division. (2) Reserve for Employees’ Retirement Benefits Based on the accounting standards for retirement benefits (Opinion Concerning the Establishment of Accounting Standard for Retirement Benefits, Business Accounting Council, June 16, 1998), reserve for employees’ retirement benefits is provided based on the estimated amount of retirement benefit liabilities at the balance sheet date. The retirement benefit system for internal employees has been revised. Whereas the previous system was according to base salary, the new system is based on the number of points received through certain qualifications. In line with this revision, the periodic disbursement method for the expected accrued benefit amount was changed from a fixed amount over a specific period of time to point-based standard. This revision caused a ¥1,291 million decrease in past service obligations (reduction of obligation), which will be amortized over a 10-year period beginning with the year under review. (3) Reserve for Directors’ and Auditors’ Retirement Benefits The Company provides a reserve for directors’ and auditors’ retirement benefits based on amounts necessary at the end of the year according to internal rules. This is an allowance defined by Article 43 of the Japanese Commercial Code Enforcement Regulations. 7. Basis for Reserve for Price Fluctuations Reserve for price fluctuations is provided for according to Article 115 of the Insurance Business Law. 8. Others (1) Accounting for consumption taxes and regional consumption tax Consumption taxes are excluded from expenses. Regarding consumption taxes relative to assets, deferred consumption taxes under Japanese income tax regulations are included in prepaid expenses and amortized over five years based on the straight-line method, and others are charged to expenses as incurred. (2) Method for calculating policy reserve Policy reserve is provided for according to Article 116 of the Insurance Business Law and calculated as follows. a. Reserves for policies subject to standard policy reserves are calculated in accordance with the method determined by the Financial Services Agency (Ministry of Finance Directive 48, 1996). b. Other reserves are calculated in accordance with the net level premium method. (3) Amortization of software Amortization of software for internal use, which is included in other assets (others), is calculated by the straight-line method over the useful lives. 9. Accounting Standards for the Impairment of Fixed Assets Beginning with the fiscal year under review, the Company adopted accounting for the impairment of fixed assets according to the Opinions on Accounting Standards for the Impairment of Fixed Assets by the Business Accounting Council on August 9, 2002, and the Guidance for the Application of the Impairment of Fixed Assets (Business Accounting Standards Guidance No. 6, October 31, 2003). This resulted in a decrease of ¥5 million in net income before income taxes. Accumulated impairment losses are written off directly from the values of the relevant assets. Balance Sheets—As of March 31, 2006 1. Loans Loans do not include any loans to borrowers under bankruptcy proceedings, loans past due for three months or more, or restructured loans. 2. Land Revaluation Based on the Land Revaluation Law (Law No. 34, promulgated on March 31, 1998—the “Law”), the Company revalued its businessuse land. Regarding valuation differences, in the event of revaluation losses the tax-equivalent portion is recognized in the valuation reserve. In the event of revaluation gains, the tax-equivalent portion of the revaluation is recorded in the “deferred tax liabilities for land revaluation” in liabilities. After excluding these amounts, the net revaluation difference is reported as “land revaluation” in stockholders’ equity. The date of the revaluation was March 31, 2002, and the revaluation method as stipulated by Article 3, Clause 3 of the Law was based on an appraisal as stipulated by Article 2, Clause 5 of the Law Enforcement Order related to the Law (Government Ordinance No. 119, effective from March 31, 1998). 3. Accumulated Depreciation of Property and Equipment Accumulated depreciation of property and equipment amounted to ¥4,240 million. 4. Separate Accounts The amount of total assets for separate accounts was ¥280,682 million. The amount of total liabilities was the same. 31 5. Net Assets Net assets, as defined by Paragraph 1–3 of Article 17–3 of the Insurance Business Law Enforcement Regulations, totaled ¥136,853 million. 6. Receivables and Payables Due to/from Majority Shareholders Total receivables due from majority shareholders amounted to ¥129 million, and total payables were ¥13,226 million. 7. Receivables and Payables Due to/from Subsidiaries Total payables due to subsidiaries amounted to ¥0 million. There were no total receivables due from subsidiaries. 8. Leased Computer Equipment The Company has computer equipment taken on lease contracts that is not included in property and equipment on the balance sheets. 9. Reserve for Policyholders’ Dividends The movement of reserve for policyholders’ dividends was as follows: Balance at the beginning of the year ¥ 735 million Payments made in the year ¥ 644 million Increase by interest earned ¥ 1 million Provision for reserves made in the year ¥1,491 million Balance at the end of the year ¥1,584 million 32 (2) The effective tax rate for the year under review was 36.21%. The difference between the legal effective tax rate and the actual tax burden after the application of tax effect accounting was minimal. (3) Sony Life is treated for tax purposes as a consolidated entity with Sony Corporation as its consolidated parent company. 16. The amount of ¥278 million is set forth as a reinsurance provision against a corresponding portion of claims for outstanding reserves, as set forth in Item 3, Provision 73 of the Insurance Business Law and as set forth in Item 1, Provision 71. Furthermore, the corresponding policy reserve is ¥955 million, as set forth in Item 1, Provision 71 of this same law. 17. Units smaller than those stated herein have been rounded off. Statements of Income—From April 1, 2005 to March 31, 2006 1. Total income from transactions with majority shareholders was ¥63 million, while total expenses amounted to ¥2,115 million. 2. Gain on sales of securities consisted of ¥231 million from Japanese government bonds and other securities and ¥6,314 million from stocks and others. 10. Assets Pledged as Collateral The amount of assets pledged as collateral was ¥14,067 million. There was no debt with collateral. 3. Loss on sales of securities consisted of ¥105 million from Japanese government bonds and other securities and ¥161 million from stocks and others. 11. Assets and Liabilities Denominated in Foreign Currencies Assets denominated in foreign currencies amounted to ¥105,753 million, which mainly comprised US$494 million, EUR162 million and GBP77 million. Liabilities denominated in foreign currencies amounted to ¥4 million (US$0 million, PHP0 million). 4. When calculating the provision for outstanding claims, the amount deducted as the ceded provision for outstanding claims was ¥252 million, and when calculating the provision for policy reserves, the added amount of the returned portion of ceded policy reserves was ¥108 million. 12. Policyholder Protection Fund and Organization (1) The Company’s estimated future contribution to the former Policyholder Protection Fund, which has been superseded by the Life Insurance Policyholder Protection Corporation, in accordance with Paragraph 5, Article 140 of the Financial Reconstruction Law was ¥461 million at March 31, 2006. The contribution will be recorded in operating expenses in the year in which it is paid. (2) The Company’s estimated future contribution to the Life Insurance Policyholder Protection Corporation, as provided in Article 259 of the Insurance Business Law, was ¥6,289 million at March 31, 2006. The contribution will be recorded in operating expenses in the year in which it is paid. 5. Losses on trading securities, net, was the net result of gain on sales of ¥130 million and valuation loss of ¥778 million. 13. Retirement Benefit Obligation (1) Breakdown of retirement benefit obligation Retirement benefit obligation ¥(14,478) million Pension assets ¥ 1,264 million Funded status ¥(13,213) million Unrecognized transition obligation ¥ 3,729 million Unrecognized actuarial gain ¥ (14) million Unrecognized prior service obligations ¥( 1,162) million Reserve for employees’ retirement benefits ¥(10,632) million (2) Basis for calculation of retirement benefit obligation Allocation of projected retirement benefits Point standard for internal employees Period definition standard for sales employees Discount rate 1.4% Amortization period of transition obligation 15 years Expected rate of investment return — Amortization period of actuarial differences: Sales employees 7 years Internal employees 10 years The processing period for prior service obligations is 10 years for internal employees. 10. Retirement benefit cost totaled ¥2,011 million, and consisted of the following: Service cost ¥1,608 million Interest cost ¥ 190 million Expected investment income ¥ — million Amortization of transition obligation ¥ 414 million Amortization of actuarial gain ¥ (72) million Amortization of prior service obligations ¥ (129) million 14. Shares of Subsidiaries Shares of subsidiaries amounted to ¥3,047 million. 15. Taxes (1) Deferred tax assets totaled ¥38,368 million and deferred tax liabilities were ¥74,887 million. Valuation allowance totaling ¥165 million was excluded from deferred tax assets. Deferred tax assets consisted mainly of insurance reserves of ¥24,198 million, reserve for price fluctuations of ¥7,281 million and reserve for employees’ retirement benefits of ¥3,849 million. Deferred tax liabilities arose mainly due to unrealized gain on other securities of ¥74,310 million. 6. Income from monetary trusts included ¥3,907 million in valuation gains. 7. Gain from derivatives, net, includes a valuation loss of ¥11 million. 8. Other investment expenses mainly consisted of ¥2,590 million in expenses related to real estate for investment purposes. 9. Net income per share was ¥147.95. The basis for this calculation is net income of ¥9,616 million, of which the entire portion is applicable to shares of common stock, and an average of 65,000,000 shares of common stock outstanding during the period. 11. During the year under review, the Company recorded impairment losses on fixed assets, as described below. (1) Method of grouping assets Real estate that is dedicated to use in the insurance business constitutes a single asset group. In rental real estate and idle assets, each individual property constitutes a single asset group. (2) Recognition of impairment losses In the fiscal year under review, the book value of idle assets for which no future use is expected was written down to their recoverable value. The resulting decreases in value were accounted for as impairment losses and considered an extraordinary loss. (3) Breakdown of asset groups and types for which impairment losses were recognized Use Category Impairment loss Idle assets Buildings, etc. ¥5 million (4) Method of computing recoverable value The recoverable value is considered to be the net sale value of idle assets, as estimated by a third party. 12. Units smaller than those stated herein have been rounded off. Details of Oridnary Profit (Core Profit) Fiscal Years Ended March 31 Millions of yen 2006 2005 ¥28,564 ¥24,333 22,316 10,555 14,884 3,253 — 3,962 6,546 3,339 825 — Foreign exchange gain, net 59 — Others — — 914 949 — — Core profit (A) Capital gains Income from monetary trusts, net Income from trading securities, net Gain on sales of securities Gain from derivatives, net Capital losses Loss from monetary trusts, net Losses on trading securities, net 647 — Loss on sales of securities 267 330 Devaluation losses — 217 Losses from derivatives, net — 342 Foreign exchange losses, net — 59 Others — — Net capital gains (B) 21,401 9,605 Core profit + capital gains (A + B) 49,966 33,939 Other operating income — — Reinsurance income — — Reversal of risk — — Others — — 25,606 16,868 Other operating expenses Reinsurance payments Provision for contingency reserves Provision for individual doubtful accounts Write-off of loans Others Net other operating loss (C) Ordinary profit (A + B + C) — — 22,090 16,750 5 118 — — 3,511 — (25,606) (16,868) ¥24,359 ¥17,070 Notes: 1. In fiscal 2005, core profit (A) includes an income gain of ¥4,674 million in income from monetary trusts. Other operating expenses include a ¥3,511 million increase in policy reserve. 2. Core profit (A) for fiscal 2005 includes income gains of ¥3,917 million income from monetary trusts. 33 Investment Summary of General Account Assets 1. Breakdown of Assets Amount 2006 2005 2006 2005 71,598 ¥ 214,266 2.5 8.9 Repurchase agreement account — — — — Purchased monetary trusts — — — — Trading securities — — — — 658,351 515,229 23.3 21.3 1,870,288 1,517,858 66.3 62.8 As of March 31 Cash and call loans Monetary trusts Securities Japanese government and corporate bonds ¥ 1,499,591 1,321,447 53.1 54.7 Stocks 250,718 53,248 8.9 2.2 Foreign securities 102,720 131,068 3.6 5.4 Public and corporate bonds 89,095 122,782 3.2 5.1 Stocks and others 13,624 8,285 0.5 0.3 17,257 12,093 0.6 0.5 86,918 79,914 3.1 3.3 86,918 79,914 3.1 3.3 Other securities Loans Policy loans Other loans Property and equipment Deferred tax assets Other assets Provision for possible loan losses Total assets 34 Millions of yen / Percentage Percentage of total (Foreign currency assets) — — — — 75,579 50,602 2.7 2.1 — — — — 59,866 38,541 2.1 1.6 (44) (142) ¥2,822,559 ¥2,416,269 100.0 (0.0) 100.0 (0.0) 46,973 46,240 1.7 1.9 Note: Monetary trusts for investment and securities held for trading purposes and other securities are posted at a price equivalent to present market value. 2. Change in Assets Years ended March 31 Cash and call loans Millions of yen Amount 2006 2005 ¥(142,668) ¥ (17,845) Repurchase agreement account — — Purchased monetary trusts — — Trading securities — — Monetary trusts 143,121 96,005 Securities 352,430 108,780 Government and corporate bonds 178,143 163,017 Stocks 197,470 14,486 Foreign securities (28,347) (68,640) (33,686) (71,081) 5,339 2,441 5,164 (83) Public and corporate bonds Stocks and others Other securities Loans 7,004 8,284 Policy loans 7,004 8,284 Other loans — — 24,977 4,319 Property and equipment Deferred tax assets Other assets Provision for possible loan losses Total assets (Foreign currency assets) — — 21,325 5,395 98 (35) ¥ 406,289 ¥204,902 733 4,268 Note: Monetary trusts for investment and securities held for trading purposes and other securities are posted at a price equivalent to present market value. 3. Investment Income (General Account) Millions of yen 2006 2005 ¥26,581 ¥25,595 Years ended March 31 Interest and dividends Interest on bank deposits 10 9 19,640 19,349 Interest on loans 3,607 3,357 Rental income from real estate Interest and dividends on securities 3,313 2,828 Other interest and dividends 8 51 Gain on sales of securities owned — — Investment income from securities owned — — 19,558 7,170 — 3,962 6,546 3,339 231 482 Income from monetary trusts, net Income from trading securities, net Gain on sales of securities Gain on sales of government bonds and others Gain on sales of stocks and others 6,314 2,497 Gain on sales of foreign securities — 359 Gain on sales of other securities — — 5,342 2,393 825 — 59 — Gain on redemption of securities Gain from derivatives, net Foreign exchange gain, net Other investment income Total 0 4 ¥58,914 ¥42,466 35 4. Investment Expenses (General Account) Millions of yen 2006 2005 9 ¥ 133 Loss on sales of securities owned — — Investment loss on securities owned — — Loss on monetary trusts, net — — Years ended March 31 Interest expense ¥ Losses on trading securities, net 647 — Loss on sales of securities 267 330 Loss on sales of government bonds and others 105 4 Loss on sales of stocks and others 161 326 Loss on sales of foreign securities — — Loss on sales of other securities — — — 217 Devaluation losses on securities Valuation loss on government bonds and others — — Valuation loss on stocks and others — 217 Valuation loss on foreign securities — — Losses on redemption of securities 212 1,146 Losses from derivatives, net — 342 Foreign exchange loss — 59 6 118 Provision for possible loan losses Write-off of loans Depreciation of properties for lease Other investment expenses Total — — 523 558 2,895 2,208 ¥4,561 ¥5,116 5. Yields on Investment Assets (a) Yield by Asset Class (General Account) Percentage Years ended March 31 Cash and call loans Securities 2006 2005 0.01 0.01 — — Monetary trusts 3.51 1.59 Government and corporate bonds 1.19 1.31 Stocks 11.05 17.57 Foreign securities 5.67 3.14 Loans 4.39 4.43 Property and equipment 0.33 0.39 2.22 1.70 Total assets in general account Notes: 1. The denominator of yield calculations is the daily average balance on a book value basis. The numerator is the yield calculated by subtracting investment expenses from investment income in operating income (expenses). 2. The above yield calculations do not include valuation gains in accordance with Article 112 of the Insurance Business Law. (b) Yield on Overseas Investments (General Account) Percentage Years ended March 31 Yield on overseas investments 2006 2005 5.67 3.13 Note: Overseas investments is the sum of foreign-currency and yen-denominated assets. (c) Valuation Gain (Loss) on Securities Held for Trading Purposes Millions of yen 36 Amount in balance sheets Years ended March 31 Securities held for trading purposes Note: “Securities held for trading purposes” includes monetary trusts and other items. Valuation gain (loss) included in statements of income 2006 2005 2006 2005 ¥59,649 ¥87,370 ¥3,907 ¥(1,042) (d) Market Value Information for Listed Marketable Securities Millions of yen Book value Market value Net gain or loss Gain or loss Gain Loss Book value Market value Gain or loss Net gain or loss Gain 2006 As of March 31, 2006 and 2005 Loss 2005 Bonds to be held until maturity — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — ¥2,186,863 ¥2,389,702 ¥202,839 ¥222,866 ¥20,026 ¥1,766,699 ¥1,854,708 ¥88,009 ¥91,180 ¥3,170 Bonds corresponding to policy reserves Shares of subsidiaries and affiliated companies Other securities Government and corporate bonds Stocks Foreign securities 1,927,403 1,968,806 41,402 60,193 18,790 1,591,361 1,651,629 60,268 62,312 160,589 311,061 150,471 150,848 376 90,694 93,820 3,125 3,984 859 90,622 93,577 2,955 3,814 859 128,836 2,044 38,253 57,863 19,609 20,221 611 128,909 133,944 5,034 5,549 514 133,746 4,910 5,424 514 — Government and corporate bonds Stocks and others 72 242 169 169 — 72 197 124 124 8,175 16,015 7,839 7,839 — 8,175 11,272 3,097 3,097 — ¥2,186,863 ¥2,389,702 ¥202,839 ¥222,866 ¥20,026 ¥1,766,699 ¥1,854,708 ¥88,009 ¥91,180 ¥3,170 Other securities Total Government and corporate bonds 1,927,403 1,968,806 41,402 1,591,361 1,651,629 60,268 62,312 160,589 311,061 150,471 150,848 376 38,253 57,863 19,609 20,221 611 90,694 93,820 3,125 3,984 859 128,909 133,944 5,034 5,549 514 corporate bonds 90,622 93,577 2,955 3,814 859 128,836 133,746 4,910 5,424 514 Stocks and others 72 242 169 169 — 72 197 124 124 — 8,175 16,015 7,839 7,839 — 8,175 11,272 3,097 3,097 — Stocks Foreign securities 60,193 18,790 2,044 Government and Other securities Notes: 1. The above table includes securities such as CDs which are regarded appropriate to treat as securities defined by Securities and Exchange Law. 2. The above table includes monetary trusts except securities held for trading purposes. Its book value for the fiscal year ended March 31, 2006 was ¥499,575 million and net gain was ¥35,591 million. 3. The book value represents the value after accounting for depreciation and impairment losses, but before determining the fair market value. The following table shows book value of securities without market value at March 31, 2006 and 2005: Millions of yen 2006 2005 — — Unlisted foreign bonds — — Other — — As of March 31, 2006 and 2005 Bonds to be held until maturity Bonds corresponding to policy reserves Shares of subsidiaries and affiliated companies Other securities Unlisted domestic stock, excluding over-the-counter stocks Unlisted foreign stock, excluding over-the-counter stocks — — ¥ 3,047 ¥3,047 10,326 5,101 5 5 159 116 Unlisted foreign bonds 1,125 — Others 9,036 4,980 ¥13,374 ¥8,149 Total 37 Organization As of July 1, 2006 General Meeting of Shareholders Board of Directors Compensation Advisory Committee Executive Management Board Board of Auditors Chief Actuary Executive Officers Board Compliance Committee Market Conduct Compliance (MCC) Committee Protection of Personal Information Promotion Committee Risk Management Committee Disciplinary Committee Environment Committee Personnel Development Committee SLQ Committee Investment Committee Lifeplanner Sales Group 1 Lifeplanner Sales Group 2 Lifeplanner Sales Group 3 Lifeplanner Sales Group 4 Agency Office Agency Office Agency Office Agency Office Independent Agency Sales Group Independent Agency Sales Division Independent Agents Planning Division Independent Agents Sales Promotion Division Market Development Division Sales Administration Group Sales Administration Division Sales Education & Training Administration Division Product Development Division Office Administration Division Total Administration Control Group Business Administration Control Division Compliance Division Operations Administration Division Investment Group Investment Division Business Process Reengineering Group Information System Division 1 Information System Division 2 Operations Planning Division General Operation Division 38 Lifeplanner Planning & Promotion Division Lifeplanner Education & Training Division Marketing Division Knowledge Management Division Underwriting Division Policyholders’ Service Division Claims & Benefits Division Real Estate Division Chief Medical Officer Medical Division Corporate Communications Division International & Business Development Division Actuarial Division ALM Division Corporate Planning Division Customer Relation Planning Division Accounting Division Investment Administration Division Customer Center Internal Audit Division Personnel Division General Affairs Division Health Promotion Center Division Representative Office for East Asia Corporate History 1979 June Aug Sept 1980 1981 1982 1986 1987 Dec Sept Feb Feb Sept Oct July Sept 1988 1989 1990 1991 Oct Apr June Aug Oct Dec Apr June 1992 1993 July Nov Apr Feb Sept 1994 Sept Dec 1995 Dec 1996 Mar Dec 1997 1998 Feb July Jan Aug 1999 Nov Mar Apr Aug Sept Nov Dec Preliminary authorization obtained from the Ministry of Finance Sony Prudential Life Insurance Co., Ltd., established with capital of ¥400 million as a joint venture between Sony Corporation and Prudential Insurance Company of America Head office established at 1-1, Minami Aoyama 1-chome, Minato-ku, Tokyo Capital increased to ¥1.2 billion Capital increased to ¥3.0 billion Business license obtained from the Ministry of Finance Capital increased to ¥4.5 billion Capital increased to ¥5.5 billion Variable life insurance launched Agreement reached with Prudential to terminate joint venture contract Corporate name changed to Sony Pruco Life Insurance Co., Ltd. Equity interest: Sony Corporation 50%; Pruco Inc. 30%; Career Development International Co., Ltd. 10%; Mitsui Bank, Ltd. 5%; The Mitsui Trust & Banking Co., Ltd. 5% Capital increased to ¥11.0 billion Cancer insurance launched Individual life insurance in force exceeded ¥1 trillion Tenth anniversary of founding Independent agency system introduced Capital increased to ¥18.0 billion Corporate name changed to Sony Life Insurance Co., Ltd. Individual life insurance in force exceeded ¥2 trillion Began handling group annuity insurance Capital increased to ¥22.0 billion Comprehensive medical insurance launched Individual life insurance in force exceeded ¥3 trillion Equity interest: Sony Corporation 50%; Sony Corporation of America 30%; Career Development International Co., Ltd. 10%; The Sakura Bank, Ltd. 5%; The Mitsui Trust & Banking Co., Ltd. 5% Equity interest: Sony Corporation 60%; Sony Corporation of America 30%; Career Development International Co., Ltd. 10% Individual life insurance in force exceeded ¥5 trillion All sales employees provided with personal computers Individual life insurance in force exceeded ¥8 trillion Equity interest: Sony Corporation 100% Individual life insurance in force exceeded ¥10 trillion Total assets exceeded ¥500.0 billion Capital increased to ¥50.0 billion Individual life insurance in force exceeded ¥13 trillion Sony Life Insurance (Philippines) Corporation established Total assets exceeded ¥800 billion Individual life insurance in force exceeded ¥16 trillion Mutual fund launched Twentieth anniversary of founding Cumulative deficit cleared Capital decreased to ¥40.0 billion Variable annuity insurance launched Non-smoker preferred risk insurance launched Total assets exceeded ¥1 trillion 2000 Jan Feb Sept Oct 2001 Mar Apr May June July Sept 2002 Mar Apr May July Sept Oct 2003 Jan May June July 2004 Nov Mar Apr May June Dec 2005 June July Nov 2006 Jan Feb Individual life insurance in force exceeded ¥18 trillion Sales of Global Wrap mutual fund launched through Lifeplanner® marketing channel Whole-Life Insurance launched Cancer rider launched Individual life insurance in force exceeded ¥20 trillion Standard policy reserves achieved by increasing capital by ¥50.0 billion Capital increased to ¥65.0 billion ISO 14001 certification acquired Long-term comprehensive medical insurance launched Sales of Sony Assurance’s products started through Lifeplanner® sales employees Sales structure for mutual funds expanded through Lifeplanner® Individual life insurance in force exceeded ¥22 trillion Comprehensive long-term medical insurance coverage launched, including features for hospitalization and surgical procedures Commenced group credit life insurance service for mortgage loan borrowers from Sony Bank Inc. Nursing needs rider launched Registration of legal entity for management of defined contribution plans completed Variable life term insurance product launched Separate accounts associated with variable life insurance product, proliferated with Japan Equity Growth Fund and World Core Equity Fund Individual life insurance in force exceeded ¥24 trillion Began selling insurance products through bank channels Increasing term life insurance product Excellent Value Plan launched Sony Life Academy for executive training opened Total assets exceeded ¥2 trillion The Book 1 completed ISMS certification obtained Rider to cover initial period of hospitalization launched Individual life insurance in force exceeded ¥25 trillion The Book 2 completed Individual life insurance in force exceeded ¥26 trillion Sony Corporation established Sony Financial Holdings Inc. Sony Life became 100% subsidiary of Sony Financial Holdings Inc. Insurance with special exemption from payment of premiums launched Sony Bank began selling Sony Life’s individual annuities Individual life insurance in force exceeded ¥27 trillion Commenced introduction of Sony Bank mortgage loans through Lifeplanner® sales channel Individual life insurance in force exceeded ¥28 trillion “Lifeplanner Value® ” registered as a trademark Commenced sales of Long-Term, Level Term Life Insurance (Disability Compensation, Non-Profit) Total assets exceeded ¥3 trillion Commenced sales of Increasing Term Life Insurance (Low Surrender Payments, Non-Profit) 39 Directors and Statutory Auditors As of July 1, 2006 FOUNDER Taro Okuda Hiromichi Fujikata STANDING STATUTORY Akio Morita President, Executive Vice President, AUDITOR Representative Director, Representative Director, Fumio Mitani BOARD OF DIRECTORS Sony Life Insurance Co., Ltd. Sony Financial Holdings Inc. Kunitake Ando Director, Director, STATUTORY AUDITORS Chairman, Sony Financial Holdings Inc. Sony Assurance Inc. Yoshiaki Yamauchi Sony Life Insurance Co., Ltd. Hiroshi Sano Chairman and Representative Akihiko Nakamura Director, Executive Deputy President, Sony Financial Holdings Inc. Sony Life Insurance Co., Ltd. Director, Sony Assurance Inc. Masamitsu Shimaoka Senior Executive Vice President, Sony Life Insurance Co., Ltd. OFFICERS 40 Taro Okuda Shigeru Arakawa Hirotoshi Watanabe Yoshihiko Kaiya President Executive Vice President, Executive Vice President Senior Vice President, and Representative Director Independent Agency Sales Corporate Communications Lifeplanner Sales Group 3 Group, Chairman of the Division, International & Business Akihiko Nakamura Board of Sony Life Insurance Development Division, Yuichiro Sumimoto Executive Deputy President, (Philippines) Corporation Representative Office Senior Vice President, for East Asia Independent Agency Sales Total Administration Control Group, Investment Group Tohru Hanatsuya Group Executive Vice President, Tominaga Ozawa Hisakazu Takeuchi Chief Actuary, Senior Vice President, Kiyoshi Watanabe Senior Executive Vice President, Actuarial Division, ALM Division Real Estate Division Senior Vice President, Lifeplanner Planning & Promotion Hideki Yamada Toshirou Maeda Division, Lifeplanner Education & Executive Vice President, Senior Vice President, Training Division, Marketing Underwriting Division, Chief Medical Officer, Jun Shirai Division, Knowledge Policyholders’ Service Division, Medical Division Senior Vice President, Management Division Claims & Benefits Division, Lifeplanner Sales Group, Total Administration Control Group Internal Audit Division Accounting Division, Investment Kazuhiro Wakayama Takeshi Honda Administration Division, Senior Vice President, Tomohito Tsuchiya Senior Executive Vice President, Customer Center Lifeplanner Sales Group 4 Senior Vice President, Customer Taketoshi Nonaka Masao Hagiwara (Corporate Planning Department, Mitsuhiro Koizumi Executive Vice President, Senior Vice President, investment planning by request) Senior Executive Vice President, Personnel Division, General Lifeplanner Sales Group 1 Sales Administration Group Affairs Division, Health Promotion Investment Group Relation Planning Division Center Division Mafumi Hashimoto Masamitsu Shimaoka Senior Vice President, Senior Executive Vice President, Lifeplanner Sales Group 2 Business Process Reengineering Group, Corporate Planning Division Corporate Data As of March 31, 2006 Sony Life Insurance Co., Ltd. Head Office Representative Office for East Asia 1-1, Minami Aoyama 1-chome, Minato-ku, Tokyo 107-8585, Japan 35th Floor, PB Com Tower E-mail: info-e@sonylife.co.jp 6795 Ayala Avenue Corner V.A. Rufino Street, 1226 Chief Representative Officer: Hiromitsu Onodera Makati City, Philippines Established: August 1979 Common Stock: ¥65,000 million Tel: +63-2-819-1801 Sony Life Insurance (Philippines) Corporation Chairman of the Board: Shigeru Arakawa Employees: 5,250 (including 3,826 Lifeplanner ® ) Total Assets: ¥3,103,241 million Fiscal Year: April 1 to March 31 President and Chief Executive Officer: Akira Yazawa 35th Floor, PB Com Tower 6795 Ayala Avenue Corner V.A. Rufino Street, 1226 Makati City, Philippines Tel: +63-2-819-6001 41 Sony Financial Holdings Group This business report is printed on recycled paper. Printed in Japan