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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.

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1.Introdutction of Sony Life Business

2.Extract from Annual Report – Corporate History

3.Long standing low interest rate and MCEV

4.Other consideration

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Origin of Sony Life

Akio Morita’s Vision/Dream

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.

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Sony’s Financial Service Sector

CPD1% NPS

14%

Pictures16%

Music16%

Other5%

FinancialServices

48%

SONY Consolidated Op. Profit (FY2010)

\118.8 bln.($1.5 bln. or 48% of SONY Gp.)

SONY Consolidated Op. Profit (FY2010)

Mission of Sony Life

To work for customers’ financial security and stability byoffering optimal life insurance products and high-quality services.

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(in USD billion) 2007 2008 2009 2010 2011

As of March 31

Total assets 43.0 45.7 47.6 53.5 59.0

For the years ended March 31

Ordinary revenues 8.6 9.2 9.5 11.0 11.2

Ordinary profit 0.18 0.49 0.40 1.00 0.91

Sony Life’s Product Portfolio （ 2011 ）

Highlights of Sony Life operating performanceOverview (As of March 31,2011)

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

History

USD1=JPY80

Overview of Sony Life

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,

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0

50

100

150

200

93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 100.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

FY2010 7.4%(excl. Japan Post Insurance)

New Policy Amount* (Individual Life Insurance)

(Trillions of yen)

Japan Post Insurance commenced operations at its privatization in October, 2007

Policy Amount in Force (Individual Life Insurance)

Total of all insurers

Sony Life's share

Total of all insurers

Sony Life's share

(Trillions of yen)

Source: Statistics of Life Insurance Business in Japan, Materials officially disclosed by individual insurers

0

500

1,000

1,500

2,000

93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 100.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

FY2010 4.0%(excl. Japan Post Insurance)

(FY) (FY)

＊ excluding the impact of the conversion

Remarkable Growth of Sony Life

Akio Morita’s dream came true!

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# of Policies in force2 ： 5.35 mil

Common Stock3 ： JPY 70.0 bn

Total assets ： JPY 4723.3 bn

# of Policies inforce:1.38 mil Common Stock3 ： JPY 20.0

bn Total assets ： JPY 109.3 bn

Accounts: 859.0 thousand Common Stock3 ： JPY 31.0

bn Total assets ： JPY 1,760.0

bn

Scale1

MainSales

channels

Sales through consultation Lifeplanner (sales employees) Partners (independent agencies)

Direct sales Call-Center Internet

Internet

Main products

Death protection life insurance Medical insurance Variable life, etc.

Automobile insurance (risk segmented)

Medical and cancer insurance

Deposits (JPY, foreign currencies)

Mortgage loans Investment trusts, and others

100%100%100%

1 　 As　of　March　31,　2011　,　figures　for　Sony　Bank　are　non-consolidated　basis,　which　does　not　include　those　of　Sony　Bank　Securities.　2 　 Sony　Life’s　policies　in　force　are　for　individual　life　insurance　and　individual　annuities.　　　　3 　 The　amounts　of　common　stock　above　include　capital　surplus.

Target customers

Individuals Corporate

Individuals Individuals

Sony Financial Holdings Group

Since 1979

Since 2004

Since 1998 Since 2001

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◆Net Increase◆Policy Amount in Force◆New Policy Amount (2010)

Ranking Insurer Result

1(1) θ 52,990

2(4) Sony Life 12,577

3(2) Б 12,452

4(5) Д 12,373

5(3) Е 11,683

6(10) Ж 6,815

7(9) И 6,499

8(26) К 4,901

9(6) Л 4,796

10(8) Ю 4,210

Ranking InsurerResult

(JPY 100mil)Share

1 (1) A 68,442 (107.0) 10.9 (0.1)

2 (2) B 65,776 (104.8) 10.4 (▲0.1)

3 (3) C 59,053 (99.9) 9.4 (▲0.6)

4 (5) Sony Life 41,662 (103.7) 6.6 (▲0.2)

5(10) D 40,135 (168.9) 6.4 (2.4)

6 (4) E 38,947 (83.6) 6.2 (▲1.7)

7 (6) F 34,403 (101.0) 5.5 (▲0.3)

8 (7) G 28,194 (100.6) 4.5 (▲0.2)

9 (9) H 27,332 (112.0) 4.3 (0.2)

10(11) I 26,686 (113.6) 4.2 (0.3)

Ranking InsurerResult

(JPY 100mil)Share

1 (1) α 1,707,917 (94.6) 19.4 (▲0.6)

2 (2) β 1,443,613 (95.9) 16.4 (▲0.3)

3 (3) γ 1,091,259 (94.0) 12.4 (▲0.5)

4 (4) δ 923,837 (94.8) 10.5 (▲0.3)

5 (5) ε 353,296 (98.3) 4.0 (0.0)

6 (7) Sony Life 344,218 (103.8) 3.9 (0.2)

7 (6) ζ 310,593 (91.7) 3.5 (▲0.2)

8(10) η 273,490 (101.8) 3.1 (0.1)

9 (9) θ 270,750 (94.9) 3.1 (▲0.1)

10(8) ι 269,566 (90.7) 3.1 (▲0.2)

Sony Life’s Market Position (FY2010)

Source: Statistics of Life Insurance Business in Japan, Materials officially disclosed by individual insurers

Individual Life Insurance*including Japan Post

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1. Life Planning Chart 2. Cash Flow Analysis

3. Financial Asset Analysis 4. Needs for Protection

LiPSS : Life Planning Support Service

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Extract from Annual ReportCorporate History

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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 America1981 Feb Business license obtained from the Ministry of Finance1986 Oct Variable life insurance launched1987 July Agreement reached with Prudential to terminate joint venture contract1989 Apr Cancer insurance launched June Individual life insurance in force exceeded ¥1 trillion Oct Independent agency system introduced1991 Apr Corporate name changed to Sony Life Insurance Co., Ltd. June Individual life insurance in force exceeded ¥2 trillion July Began handling group annuity insurance1992 Apr Comprehensive medical insurance launched1993 Feb Individual life insurance in force exceeded ¥3 trillion1994 Dec Individual life insurance in force exceeded ¥5 trillion1995 Dec All sales employees provided with personal computers1996 Mar Individual life insurance in force exceeded ¥8 trillion Dec Individual life insurance in force exceeded ¥10 trillion1998 Jan Individual life insurance in force exceeded ¥13 trillion1999 Mar Individual life insurance in force exceeded ¥16 trillion

Corporate History and Insurance Products

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1999 Nov Variable annuity insurance launched Non-smoker preferred risk insurance launched2000 Jan Individual life insurance in force exceeded ¥18 trillion Sep Cancer rider launched Oct Individual life insurance in force exceeded ¥20 trillion2001 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 procedures2002 Apr Nursing needs rider launched2003 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 channels2003 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

Corporate History and Insurance Products

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2004 Mar Individual life insurance in force exceeded ¥26 trillion Dec Individual life insurance in force exceeded ¥27 trillion2005 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 diseases2007 Mar Individual life insurance in force exceeded ¥30 trillion2008 Apr Whole-life cancer insurance (08) offered Oct Sales of level premium term life insurance plan and rider with no surrender value2009 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 health2010 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 insurance2011 May Sales of income protection insurance to cover three major diseases (Type II)

Corporate History and Insurance Products

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Long standing low interest rateAnd MCEV

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10 year swap rate historical chart

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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.”

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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.

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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.”

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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.

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Other consideration

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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?

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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

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Thank you very much!