Individual Life Insurance

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Products -- Doing it Differently: the Sony Life Way
July, 2012
Katsuki Yoshimoto
General Manager,
Investment Planning Division
& New Business Development Division
Sony Life Insurance Co., Ltd.
Co-Managing Director,
SA Reinsurance Ltd.
1
1.Introdutction of Sony Life Business
2.Extract from Annual Report – Corporate History
3.Long standing low interest rate and MCEV
4.Other consideration
2
Origin of Sony Life
Mr. Morita, having a financial institution within the structure of Sony
Group was important to reinforce the business.
Morita also thought that Japanese consumers were not satisfied with
existing life insurance companies.
Making innovative changes in the industry
was a big business opportunity and also a contribution to society.
Akio Morita’s Vision/Dream
3
Sony’s Financial Service Sector
SONY Consolidated Op. Profit (FY2010)
SONY Consolidated Op. Profit (FY2010)
Other CPD
5% 1%
NPS
14%
Pictures
16%
Financial
Services
48%
Music
16%
\118.8 bln.
($1.5 bln. or 48% of SONY Gp.)
Mission of Sony Life
To work for customers’ financial security and stability by
offering optimal life insurance products and high-quality services.
4
Overview of Sony Life
Overview (As of March 31,2011)
Name
Sony Life Insurance co.,Ltd
Chairman / President
Taro Okuda / Katsumi Ihara
Established
Aug 1979
Capital
JPY 70bn (USD 0.88bn)
Share ownership
Sony Financial Holdings Inc. 100%
Employee
5,921 (Lifeplanners: 4,017)
Credit Rating
Moody’s:Aa3, S&P:A+,
R&I:AA, JCR:AA,
Highlights of Sony Life operating performance
(in USD billion)
2007
2008
2009
2010
2011
43.0
45.7
47.6
53.5
59.0
8.6
9.2
9.5
11.0
11.2
0.18
0.49
0.40
1.00
0.91
As of March 31
Total assets
For the years ended March 31
Ordinary revenues
History
Aug 1979
Sony Prudential Life Insurance established (Started operation in 1981)
July 1987
Agreement reached with Prudential to terminate joint venture contract
Aug 1998
Sony Life Insurance (Philippines) Corporation established
Apr 2004
Sony Corporation established Sony Financial Holdings Inc.
Sony Life became 100% subsidiary of Sony Financial Holdings Inc.
Sep 2006
Opened Life Planning SQUARE
Oct 2007
Sony Financial Holdings was listed on the Tokyo Stock Exchange
Oct 2008
Established Beijing Representative Office
July 2009
Established Taipei Representative Office
Dec 2009
AEGON Sony Life started operation in Japan
Apr 2011
30 years anniversary from start operation
Dec 2011
Total asset exceeded 5 trillion yen
Ordinary profit
USD1=JPY80
Sony Life’s Product Portfolio (2011)
5
Remarkable Growth of Sony Life
Akio Morita’s dream came true!
New Policy Amount* (Individual Life Insurance)
(Trillions of yen)
200
Policy Amount in Force (Individual Life Insurance)
*excluding the impact of the conversion
(Trillions of yen)
Total of all insurers
Sony Life's share
2,000
7.0%
Total of all insurers
Sony Life's share
FY2010 7.4%
FY2010 4.0%
(excl. Japan Post Insurance)
(excl. Japan Post Insurance)
6.0%
150
1,500
4.0%
3.5%
3.0%
5.0%
2.5%
4.0%
100
1,000
2.0%
3.0%
1.5%
50
2.0%
500
1.0%
1.0%
0
(FY) 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10
0.0%
Japan Post Insurance commenced operations at its privatization in October, 2007
0.5%
0
(FY)
0.0%
93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10
Source: Statistics of Life Insurance Business in Japan, Materials officially disclosed by individual insurers
6
Sony Financial Holdings Group
Since 2004
100%
Since 1979
Main
Sales
channels
 Sales through consultation
 Lifeplanner (sales employees)
 Partners (independent agencies)
 Death protection life insurance
Main
products
Target
customers
 Medical insurance
 Variable life, etc.
 Individuals
100%
 Direct sales
 Call-Center
 Internet
 Automobile insurance
Since 2001
100%
 Internet
 Deposits (JPY, foreign currencies)
 Medical and cancer insurance
 Mortgage loans
 Investment trusts, and others
 Individuals
 Individuals
 # of Policies inforce:1.38 mil
 Accounts: 859.0 thousand
 Common Stock3: JPY 20.0 bn
 Common Stock3: JPY 31.0 bn
 Total assets: JPY 109.3 bn
 Total assets: JPY 1,760.0 bn
(risk segmented)
 Corporate
 # of Policies in force2: 5.35 mil
Scale1
Since 1998
 Common
Stock3:
JPY 70.0 bn
 Total assets: JPY 4723.3 bn
As of March 31, 2011 , figures for Sony Bank are non-consolidated basis, which does not include those of Sony Bank Securities.
Sony Life’s policies in force are for individual life insurance and individual annuities. 3 The amounts of common stock above include capital
surplus.
1
2
7
Sony Life’s Market Position (FY2010)
Individual Life Insurance
*including Japan Post
◆New Policy Amount (2010)
Result
◆Policy Amount in Force
Result
Ranking
Insurer
1 (1)
A
68,442
(107.0)
10.9
(0.1)
1 (1)
α
1,707,917
(94.6)
19.4
(▲0.6)
1(1)
θ
52,990
2 (2)
B
65,776
(104.8)
10.4
(▲0.1)
2 (2)
β
1,443,613
(95.9)
16.4
(▲0.3)
2(4)
Sony Life
12,577
3 (3)
C
59,053
(99.9)
9.4
(▲0.6)
3 (3)
γ
1,091,259
(94.0)
12.4
(▲0.5)
3(2)
Б
12,452
Sony Life 41,662
(103.7)
6.6
(▲0.2)
4 (4)
δ
923,837
(94.8)
10.5
(▲0.3)
4(5)
Д
12,373
4 (5)
(JPY 100mil)
Share
◆Net Increase
Ranking Insurer
Share
(JPY 100mil)
Ranking Insurer
Result
5(10)
D
40,135
(168.9)
6.4
(2.4)
5 (5)
ε
353,296
(98.3)
4.0
(0.0)
5(3)
Е
11,683
6 (4)
E
38,947
(83.6)
6.2
(▲1.7)
6 (7)
Sony Life
344,218
(103.8)
3.9
(0.2)
6(10)
Ж
6,815
7 (6)
F
34,403
(101.0)
5.5
(▲0.3)
7 (6)
ζ
310,593
(91.7)
3.5
(▲0.2)
7(9)
И
6,499
8 (7)
G
28,194
(100.6)
4.5
(▲0.2)
8(10)
η
273,490
(101.8)
3.1
(0.1)
8(26)
К
4,901
9 (9)
H
27,332
(112.0)
4.3
(0.2)
9 (9)
θ
270,750
(94.9)
3.1
(▲0.1)
9(6)
Л
4,796
10(11)
I
26,686
(113.6)
4.2
(0.3)
10(8)
ι
269,566
(90.7)
3.1
(▲0.2)
10(8)
Ю
4,210
Source: Statistics of Life Insurance Business in Japan, Materials officially disclosed by individual insurers
8
LiPSS : Life Planning Support Service
1. Life Planning Chart
2. Cash Flow Analysis
3. Financial Asset Analysis
4. Needs for Protection
9
Extract from Annual Report
Corporate History
10
Corporate History and Insurance Products
1979 June Preliminary authorization obtained from the Ministry of Finance
Aug 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
1981 Feb Business license obtained from the Ministry of Finance
1986 Oct Variable life insurance launched
1987 July Agreement reached with Prudential to terminate joint venture contract
1989 Apr Cancer insurance launched
June Individual life insurance in force exceeded ¥1 trillion
Oct Independent agency system introduced
1991 Apr Corporate name changed to Sony Life Insurance Co., Ltd.
June Individual life insurance in force exceeded ¥2 trillion
July Began handling group annuity insurance
1992 Apr Comprehensive medical insurance launched
1993 Feb Individual life insurance in force exceeded ¥3 trillion
1994 Dec Individual life insurance in force exceeded ¥5 trillion
1995 Dec All sales employees provided with personal computers
1996 Mar Individual life insurance in force exceeded ¥8 trillion
Dec Individual life insurance in force exceeded ¥10 trillion
1998 Jan Individual life insurance in force exceeded ¥13 trillion
1999 Mar Individual life insurance in force exceeded ¥16 trillion
11
Corporate History and Insurance Products
1999 Nov Variable annuity insurance launched
Non-smoker preferred risk insurance launched
2000 Jan Individual life insurance in force exceeded ¥18 trillion
Sep Cancer rider launched
Oct Individual life insurance in force exceeded ¥20 trillion
2001 Apr Long-term comprehensive medical insurance launched
July Individual life insurance in force exceeded ¥22 trillion
Sept Comprehensive long-term medical insurance coverage
launched, including features for hospitalization and
surgical procedures
2002 Apr Nursing needs rider launched
2003 July 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
Sept Individual life insurance in force exceeded ¥24 trillion
Oct Began selling insurance products through bank channels
2003 Jan Increasing term life insurance product Excellent Value Plan Launched
July Rider to cover initial period of hospitalization launched
Individual life insurance in force exceeded ¥25 trillion
12
Corporate History and Insurance Products
2004 Mar Individual life insurance in force exceeded ¥26 trillion
Dec Individual life insurance in force exceeded ¥27 trillion
2005 June Individual life insurance in force exceeded ¥28 trillion
July “LIFEPLANNER VALUE” registered as a trademark
Feb Commenced sales of Increasing Term Life Insurance (Low Surrender Payments,
Non-Profit)
Nov Began selling semi-participating whole life nursing-care insurance
Commenced sales of semi-participating lump-sum nursing care policy rider
Began selling income protection insurance to cover three major diseases
2007 Mar Individual life insurance in force exceeded ¥30 trillion
2008 Apr Whole-life cancer insurance (08) offered
Oct Sales of level premium term life insurance plan and rider with no surrender value
2009 April Sales of cancer hospitalization insurance
Sales of advanced medical treatment rider
Sales of hospitalization surgical benefits rider
Nov Commenced sales of discount rider for nonsmokers and others in excellent health
2010 Nov Sales of whole life nursing-care insurance (reduced surrender value) and lump-sum
payment nursing-care rider
Began offering discount rider for nonsmokers and others in excellent health for
decreasing term life insurance
2011 May Sales of income protection insurance to cover three major diseases (Type II)
13
Long standing low interest rate
And MCEV
14
10 year swap rate historical chart
15
MCEV ( Market Consistent Embedded Value )
•Sony Life believes EV serves as a valuable supplement to the financial
information provided under Japanese GAAP and is a helpful indicator used to
evaluate corporate value.
•If one had kept using historical average interest rate instead of market consistent
interest rate for pricing in Japan, one would have had a big hidden loss in his
liability.
•Sony Life decided to use disciplined pricing approach based on MCEV.
•For the new business sensitive to interest rate, we have to revise the pricing,
when market interest rate goes down.
•At the same time, Sony Life does not want to lose the value we straggle to earn
through competition. There is a larger incentive to lock in the value (i.e. ALM
matching) than before.
• Some people could say “One would have regretted on his or her decision ALM
matching, if the interest rate had gone up. Hindsight is 20/20. Interest rate have
come down to the historical low. Why do we need to do ALM matching at the
bottom of the market.”
16
Business Cycle of Insurance Company
•When a manufacturing company develop a product, they calculate the cost with
talking to the supplier. When they actually produce the product, they will buy the
raw material from the supplier at the planned cost. This is a usual business cycle.
•When we develop a product, we calculate the cost with observing the financial
market. When we actually sell the product, we buy financial asset at the market
rate. This is also a usual business cycle. ALM matching means “doing business
as usual”.
•One may strongly believe that the interest rate will go up, since the interest rate
is at the historical low. He or she can bet on the possibility of rising interest rate,
but that is another business cycle other than insurance business.
•Interest rate risk to an insurance company is similar to foreign exchange risk to
an exporting company.
17
Suspicion to Model
• Some people could say “Stock market priced insurance companies below EV.
Investors are suspicious about the valuation based on EV.”
•Usage of mathematical models is also questioned in derivatives.
•Headline News suggest that we are far from perfect modeling.
JP Morgan in 2012 - 2 billion USD loss from Credit Derivative
MUFG Morgan Stanley in 2011 – 80billion JPY ( 1 billion USD) loss
from Interest Rate Derivative
•Extract from an annual report of a Bank
“XXX uses mathematical risk models to help estimate its exposure to market
risk. ….may provide a greater sense of security than warranted; therefore,
reliance on these models should be limited.”
18
Suspicion to Model
• But it does not mean one should use old mathematical technique rather than
new technique nor completely give up the usage of the model and rely on
intuition.
•One just have to go back to the basics and develop the better model.
•In the meantime, one should be aware of the limitation of the model.
•Much more important thing is to take action rather than to keep hesitating.
•Risk is opportunity. Better solution is the hedge embedded in the insurance
product.
•EV=Economic Value?
•Libor vs. OIS, Collateralized vs. Uncollateralized.
19
Other consideration
20
Other consideration in Product Development Process
•Service vs. Product. Service is invisible. Product is visible.
•Importance of reputation and brand.
•Product lifecycle. Business model lifecycle.
•Vertical integration vs. Horizontal integration. Independent Agency Channel.
•Independent Agency Channel / Bancassurance makes insurance company more
product oriented company than service oriented company?
•Internet channel. Out of box thinking. Possibility of no life experience employee?
•Innovator’s dilemma. Speed of high-end and low-end market overlapping.
•Importance of timing of entrant. PDA, EV car. What will be the enabler for our
industries?
•Decision making. Committee? Belief without evidence?
21
Non traditional important products
•Health products – impact of National Health Insurance, TPP?
•Nursing Care products – impact of National Nursing Care Insurance
•Corporate products – Tax change
•No (or low ) surrender value products – Lapse assumption
•Preferred Risk Products – Higher price sensitivity due to more information flow
•Variable Annuity Products – Bank’s dedication, Risk asset performance
•Foreign Currency Products – Bank’s dedication, Foreign investment information
22
Thank you very much!
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