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Edited Transcript of 8729.T earnings conference call or presentation 8-Aug-19 6:30am GMT

Q1 2020 Sony Financial Holdings Inc Earnings Call

Tokyo Sep 9, 2019 (Thomson StreetEvents) -- Edited Transcript of Sony Financial Holdings Inc earnings conference call or presentation Thursday, August 8, 2019 at 6:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Hiroaki Kiyomiya

Sony Financial Holdings Inc. - MD & Director

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Conference Call Participants

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* Futoshi Sasaki

BofA Merrill Lynch, Research Division - Research Analyst

* Kazuki Watanabe

Daiwa Securities Co. Ltd., Research Division - Research Analyst

* Koki Sato

Mizuho Securities Co., Ltd., Research Division - Senior Analyst

* Masao Muraki

Deutsche Bank AG, Research Division - Director and Senior Analyst

* Natsumu Tsujino

Mitsubishi UFJ Morgan Stanley Securities Co., Ltd., Research Division - Senior Analyst

* Tatsuo Majima

Tokai Tokyo Research Institute Co., Ltd. - Senior Analyst

* Wataru Otsuka

JP Morgan Chase & Co, Research Division - Analyst

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Presentation

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Hiroaki Kiyomiya, Sony Financial Holdings Inc. - MD & Director [1]

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I am Kiyomiya from Sony Financial Holdings. I would like to explain about consolidated financial results for FY '19 Q1 by following these presentation materials.

Please turn to Slide 4. I would like to explain the highlights of consolidated financial results for FY '19 Q1. Ordinary revenues decreased year-on-year, while ordinary profit increased year-on-year. Ordinary revenues decreased due to a decrease in net gains on investment in the separate account, reflecting an impact of market conditions despite higher income from insurance premiums. Ordinary profit increased as the life insurance and the banking businesses delivered higher ordinary profit, while ordinary profit from the non-life insurance business was essentially flat.

As the Sony Financial Group, all 3 businesses expanded their business scale. Sony Life's new policy amount was down in comparison with corresponding period of the previous fiscal year when the new policy amount was high as premiums were changed in line with revisions to the standard mortality tables. The policy amount in force was up only slightly from March 31, 2019, due in part to the impact of the yen appreciation. MCEV decreased from March due mainly to a decrease in interest rates in Japanese yen. New business value decreased from FY '18 Q4 due mainly to the lower sales of interest products for corporate customers.

Next slide, please. Next, I would like to explain about consolidated financial results. Ordinary revenues decreased 1.7% year-on-year to JPY 413.6 billion. Ordinary profit increased 19.3% to JPY 34.3 billion.

Next, I would like to explain about operating performance of Sony Life. Next slide, please. Ordinary revenues decreased 2.8% year-on-year to JPY 368.8 billion due to a decrease in net gains on investments in the separate account, despite higher income from insurance premiums due mainly to a steady rise in the policy amount in force.

Ordinary profit increased 23.2% to JPY 28.6 billion due to such factors as a decrease in acquisition costs in line with the lower acquisition of new policies, a decline in lower insurance claims and other payments, and an increase in profit, owing to growing policy amount in force despite lower gains on sales of securities.

Next slide, please. New policy amount for the total of individual life insurance and individual annuities decreased 27.2% year-on-year to JPY 1.2191 trillion due to the lower sales of family income insurance. Annualized premiums from new policies decreased 6.5% to JPY 17.5 billion due to lower sales of term life insurance and variable life insurance for corporate customers despite favorable sales of U.S. dollar-denominated insurance.

Next slide, please. Policy amount in force increased 0.5% from March 31 to JPY 49.8 trillion. Annualized premiums from insurance in force increased 0.4% to JPY 893.2 billion, of which the figure for the third-sector product was up 0.6% to JPY 198.6 billion.

Next slide, please. The lapse and surrender rate was down 0.74 percentage point year-on-year to 1.16% due to a decrease in cancellation of policies, with certain customers canceling existing policies and taking up new family income insurance and other policies as premiums were revised in line with revisions to the standard mortality tables in February 2018.

Next slide, please. Core profit increased 11.4% year-on-year to JPY 29.8 billion due to a decrease in acquisition cost, in line with the lower acquisition of new policies, lower insurance payments and an increase in profit owing to growing policy amount in force. Adjusted core profit, calculated by subtracting positive spread and the provision of policy reserves for minimum guarantees for variable life insurance from core profit, increased 16.4% to JPY 27.2 billion.

Slide 12, please. The number of Lifeplanner sales employees as of June 30 was 5,116, down 48 quarter-on-quarter and down 19 year-on-year. Sony Life will work to expand its business scale through stringent recruiting of Lifeplanner sales employees and further enhancing their productivity.

Next, operating performance of Sony Assurance, Slide 13. Ordinary revenue rose 7.3% year-on-year to JPY 31.8 billion due mainly to an increase in net premiums written for mainstay automobile insurance. Ordinary profit was essentially flat year-on-year at JPY 3.8 billion.

Please turn to Slide 14. Net premiums written increased 4.7% year-on-year to JPY 30.4 billion due to stable sales of automobile insurance.

Please turn to Slide 15. The sum of the 2 ratios, E.I. loss ratio plus net expense ratio remained essentially flat year-on-year at 81%, due mainly to lower E.I. loss ratio reflecting a lower accident ratio despite an increase in expense ratio.

Next, operating performance of Sony Bank, Slide 16. In consolidated basis, ordinary revenues increased 10.7% year-on-year to JPY 11.7 billion due to increases in interest income on investment securities and on loans in line with a growing balance of mortgage loans. Ordinary profit increased 9.3% to JPY 2.4 billion for the same reasons as ordinary revenues.

Next, operating performance of Sony Bank on nonconsolidated basis, Slide 17. As of June 30, customer assets amounted to JPY 2,526.9 billion, up JPY 43.6 billion from March 31. Of this amount, the yen deposit balance amounted to JPY 1,963.3 billion, up JPY 23.9 billion, due mainly to an increase in newly accumulated funds via the increased number of accounts.

The yen-denominated balance of foreign currency deposits amounted to JPY 440.1 billion, up JPY 20.5 billion due mainly to an increase in U.S. dollar deposits, in line with the appreciation of the Japanese yen. The loan balance expanded JPY 38.6 billion from March 31 to JPY 1,782.7 billion due to a steady increase in mortgage loans. That's the result of the 3 companies.

Next, Slide 19. Forecast of consolidated financial results for fiscal 2019 is unchanged from the forecast announced on April 26.

Next, Sony Life's MCEV as of June 30, Slide 21. Sony Life's MCEV as of June 30 was JPY 1,651.2 billion, down JPY 69 billion from March 31, due mainly to a decrease in interest rates in Japanese yen. The new business value for the first quarter was JPY 17 billion, due mainly to a lower sales of insurance products for corporate customers.

New business margin for the first quarter was 5.4%, up 4 percentage points quarter-on-quarter due to an assumption changes and changes in product, despite a decrease in interest rates. Consolidated adjusted ROE for the first quarter was 1.4%. Please refer to appendix for the detail.

This concludes my presentation. Thank you for your kind attention.

Now I would like to start the Q&A session.

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Questions and Answers

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Operator [1]

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First question is from Mr. Muraki of Deutsche Securities.

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Masao Muraki, Deutsche Bank AG, Research Division - Director and Senior Analyst [2]

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My first question is about profitability of new business value of Sony Life. You said that the new business value for 3 months in Q1 was JPY 17 billion in total.

But on the other hand, looking at the 30-year interest rate trend on Page 39, the rate at the end of April was 56 basis points, 46 basis points at the end of May, 36 basis points at the end of June. And you used the average rate of 46 basis points to calculate the new business value. Did you also calculate the new business value using the rate of 36 basis points at the end of June? If you did, how much was it? And how much was the new business value of a single month of June.

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Unidentified Company Representative [3]

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Sony Life will answer this question. Internally, we calculate by aggregating the monthly figures, but we do not disclose details. Please understand that we only disclose 3 months total.

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Masao Muraki, Deutsche Bank AG, Research Division - Director and Senior Analyst [4]

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But today's interest rate is down to 27 basis points. I understand that Sony Life has a committee that takes profitability of products on a monthly basis from risk management perspectives. Now that the interest rate has come down this much, could you share with us what you have discussed in terms of reshuffle of product portfolio?

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Unidentified Company Representative [5]

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Internally, we check profitability of products by looking at monthly and quarterly rates and then consider premiums revision. But at this point of time, there is nothing we can share with you.

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Masao Muraki, Deutsche Bank AG, Research Division - Director and Senior Analyst [6]

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Okay. Second question. On Page 31, there is a breakdown of Sony Life's general account assets. And it says you have continued to accumulate ultra long-term bonds. Are you going to continue to do so in Q2 onwards, even in this kind of interest rate environment?

And also, the chart shows that foreign bonds amount has increased substantially. Is my understanding correct that it matches the dollar-denominated whole life and the single premium whole life? And in terms of ALM risk, FX risk and overseas interest rate risk have not increased.

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Unidentified Company Representative [7]

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You asked about our asset purchase program based on the interest rate environment. Our policy to purchase bonds to match to the assets with liability remains unchanged. As you can see on Page 30, foreign bonds increased in proportion, but we purchase them to match the foreign currency denominated insurance policies. In some part, we purchase them in advance anticipating future sales. That is why its proportion has increased. But in any case, the purchase is to match the liability.

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Operator [8]

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Next question is from Ms. Tsujino from Mitsubishi UFJ Morgan Stanley.

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Natsumu Tsujino, Mitsubishi UFJ Morgan Stanley Securities Co., Ltd., Research Division - Senior Analyst [9]

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I have a question about product mix on Page 29. Because you have suspended the sale of insurance products for corporate customers, protection-type products such as term life decreased and in dollar-denominated, whole life increased and the saving-type products increased.

The protection-type products that declined were tax-saving type and relatively low in new business margin. That is why the new business margin itself did not deteriorate so much, even though the interest rates declined significantly. But how do you want to change or improve the product mix going forward? Do you think it is appropriate to continue to sell saving-type products so much? How do you want to change this?

In addition, you're going to resume sale of insurance products for corporate customers, but what kind of sales method are you going to employ? What is your volume expectations?

And about variable insurance. I assume that the large part of hedging P&L was hedge error. How much was the hedge error?

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Unidentified Company Representative [10]

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About the product mix of new business on Page 29, as you said, the main reason for the decline of protection type in proportion was the suspension of sales for corporate customers. In the saving-type products category, variable annuities without minimum guarantee increased in proportion. Going forward, we are just going to offer products that meet the needs of customers. So we do not have any specific portfolio plan.

On August 26, as you said, we are going to start to sell new products and resume the sale of products for corporate customers. Therefore, we expect the proportion of protection type will increase compared with Q1. We will resume sale of products for corporate customers on August 26 with a strong compliance regime and a sales training in place.

Thinking about the impact that will give on new business and the volume in FY '19 and also on JGAAP, we do not think there will be a big gap because we had originally assumed that suspension of the corporate products would call some shift from corporates to individuals or towards more popular corporate products. But now, on the other hand, sale for corporate customers will be resumed. So we expect a shift and the resumption will be offset with each other.

About the hedge error for variable insurance. We could call it error, but when it comes to delta hedge of variable insurance, sensitivity is different, depending on whether you look at it on economic value basis or statutory accounting basis or U.S. GAAP basis. On the statutory accounting basis, the gap is roughly JPY 500 million for 3 months this year. So it is not a large amount compared with the past.

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Natsumu Tsujino, Mitsubishi UFJ Morgan Stanley Securities Co., Ltd., Research Division - Senior Analyst [11]

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Do you mean plus JPY 500 million?

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Unidentified Company Representative [12]

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Yes, plus JPY 500 million.

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Natsumu Tsujino, Mitsubishi UFJ Morgan Stanley Securities Co., Ltd., Research Division - Senior Analyst [13]

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About the foreign currency-denominated insurance. If you calculate new business margin of that alone, would it be much higher than 5.4% that we see here?

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Unidentified Company Representative [14]

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We cannot disclose the profitability of individual products. Please understand.

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Operator [15]

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Next question is from Mr. Otsuka of JPMorgan.

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Wataru Otsuka, JP Morgan Chase & Co, Research Division - Analyst [16]

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My first question is about forecast of consolidated financial results. Looking at Page '19, it says ordinary profit exceeded expectations. Specifically, does that refer to Sony Life?

And about the announcement made on July 30. Sony disclosed U.S. GAAP-based results as usual, which included JPY 46.1 billion of operating profit in the Sony Group Financial Services segment. That looks like it will exceed the full year forecast. Is that correct?

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Unidentified Company Representative [17]

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First of all, about Q1. Looking at the statutory accounting and also U.S. GAAP as well, the progress was quite high. One of the reasons was that taking life insurance business, for example, which is the biggest profit size, some of the expenses were booked in Q2 onwards instead of Q1. And also the amount of claims payment was small. Those factors are likely to settle in line with the original plan. We do not think at this point of time that we will exceed the full year forecast. That is why we did not revise our forecast.

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Wataru Otsuka, JP Morgan Chase & Co, Research Division - Analyst [18]

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My second question is about consolidated adjusted ROE on Page 23. It is lower compared with the same period of last year. The reason is explained on Page 24. But I would like to understand the outlook on the full year basis. Especially in the case of Sony Life, you explained the decline in new business value was due to the suspension of sale for corporate customers. So how should we expect it going forward?

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Unidentified Company Representative [19]

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As for the outlook of new business value of Sony Life, now that interest rates have declined substantially, we cannot give our outlook clearly.

About the consolidated adjusted ROE, our target is 6% for FY '19. Now it is 1.4%. And if you simply multiply that by 4, it will be 5.6%. It is a little short of the original plan. But on a full year basis, we would like to target 6% or so.

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Operator [20]

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Next question is from Mr. Majima of Tokai Tokyo Research Center.

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Tatsuo Majima, Tokai Tokyo Research Institute Co., Ltd. - Senior Analyst [21]

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I have 2 questions. First question, Kampo has recently had the problem of violation of duty of disclosure upon switching policies and so on. At Sony Life as well, cancellation and switching to new and the lower rate of products increased a year ago. You did not have similar problems, right? Or not much of an impact, if any.

Second question is about the reason for the increase of ordinary profits. Of the 3 following factors, which contributed the most? Number one, new business acquisition costs declined due to lower new business amount; number two, payment such as claims was low; number three, policy in force expanding.

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Unidentified Company Representative [22]

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To answer your first question, we are watching the Kampo situation and what they will announce closely. At Sony Life, we have been providing our employees with compliance training thoroughly about marketing activities. And also, we introduced the policy of the suspensive condition of cancellation in 2010 so that policyholders would never have a period with no coverage. We have always -- we have always been customer-first.

About your second question, our profits increased JPY 5.4 billion year-on-year, because of the 3 positive factors you mentioned, despite a little decline in gains from sale of securities. Relatively speaking, a decline in new business amount contributed more on the JGAAP basis.

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Operator [23]

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Next question is from Mr. Sato of Mizuho Securities.

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Koki Sato, Mizuho Securities Co., Ltd., Research Division - Senior Analyst [24]

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I have 2 questions. One is about Lifeplanners on Page 12. How many of them left in Q1? There should be some seasonality. So for reference, what was the number last year? I think your full year target is 5,300 Lifeplanners. But what was the progress so far? And what do you think of that? And what do you think the reason for the turnover, if that has increased?

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Unidentified Company Representative [25]

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The turnover number was 102 in Q1 and has increased year-on-year from 96. But in terms of turnover ratio, it remains the same. The number of Lifeplanners at the end of June of 2019 was 5,116, a decline of 48 from the end of March, mainly because of seasonal factors. Some were promoted to unit managers. And we usually do not recruit in June. So the total number declined.

As for the full year forecast, we plan to hire about 100 at around the fiscal year-end. This target has not changed. Q1 onwards, we will elevate our recruitment activities so that we can hire 100 Lifeplanner sales employees.

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Koki Sato, Mizuho Securities Co., Ltd., Research Division - Senior Analyst [26]

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Second question is about the pace of dividend increase, which is always asked about. The consolidated adjusted ROE in Q1 will be a little short of 6% on the annualized basis. Is it correct to assume that you're going to target 6%? And since you have been saying that you would think about further dividend increase, when it reaches 7%? So you are not considering more dividend increase at this point of time. Is that correct?

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Unidentified Company Representative [27]

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Yes, that is correct. We have not changed our dividend policy. So we are assuming to increase JPY 2.5 to pay JPY 65 per share.

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Operator [28]

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Next question is from Mr. Watanabe from Daiwa Securities.

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Kazuki Watanabe, Daiwa Securities Co. Ltd., Research Division - Research Analyst [29]

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I have 2 main questions. The first one is about Lifeplanners compensation scheme. Now fiduciary duty is more and more focused in the insurance sales. So please share with us if you have any discussions about their compensation scheme, including performance-based pay.

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Unidentified Company Representative [30]

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As for the compensation system for Lifeplanner sales employees, we have been always trying to improve. For fiscal 2019, we have drastically revised the compensation system to appropriately reflect the customer-oriented approach.

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Kazuki Watanabe, Daiwa Securities Co. Ltd., Research Division - Research Analyst [31]

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I see. My second question is on Slide 21, new business value. You said that changes to insurance assumptions had a positive impact. Could you elaborate on that? And also the size of impact to the new business value, please.

In addition, on a full year basis, you are projecting new business value to be close to JPY 80 billion. Where are you in relation to that projection? Please give us the update.

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Unidentified Company Representative [32]

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As for the new business margin, as the slide shows quarter-on-quarter, an improvement by 0.4 percentage points at 5.4% for the first quarter. There were 3 main reasons: one is lower interest rate, which is a negative factor; and second is changes to the assumptions. Surrender rate, mortality rate assumptions are reviewed once every year. And this revision fell on the first quarter. Based on the latest results, future incident rates, expense ratio and others have been revisited and improved, which had positive effect.

The third is the major changes in product portfolio. Suspension of products for corporate customers had a positive impact on new business margin. So these are the 3 factors: One, negative interest rate; two, positive changes in assumptions; and product portfolio. The size of the impact was about the same among those 3 factors.

As for the future projection, as was briefly mentioned earlier, interest rates are again falling significantly. So we can't really give you any specific projection on a full year basis.

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Kazuki Watanabe, Daiwa Securities Co. Ltd., Research Division - Research Analyst [33]

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I see. So should new business value decline dramatically and push down the adjusted ROE drastically, will you still maintain the plan to increase dividends by JPY 2.5? So there is no possibility of canceling that plan?

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Unidentified Company Representative [34]

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For now, we are saying JPY 2.5 dividend increase when adjusted ROE is 5% or higher. But this 5% is not a strict threshold. If the adjusted ROE is basically at 5% level, we'd like to stick to the plan of JPY 2.5 dividend increase.

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Operator [35]

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The next questioner is Mr. Sasaki from Merrill Lynch Japan.

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Futoshi Sasaki, BofA Merrill Lynch, Research Division - Research Analyst [36]

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I have 2 questions, one is on ESR. You have disclosed the figures as of the end of June. But internally, how do you view of ESR in terms of metrics for capital adequacy? What's your current view. And it is generally believed that interest rates will further decline going forward. And based on that assumption, what is your current view on the capital adequacy? That's my first question.

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Unidentified Company Representative [37]

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Yes, ESR is used internally as one of the metrics to measure the capital adequacy. And we are also looking at metrics without UFR as well.

Interest rates are coming down, but we have been making investments based on ultra long term investment based on ALM. So that policy remains unchanged.

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Futoshi Sasaki, BofA Merrill Lynch, Research Division - Research Analyst [38]

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So you're saying that even with the further lowering of the interest rates, your management policy remains unchanged. Am I correct?

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Unidentified Company Representative [39]

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No major changes to our investment activities. We will manage risk in accordance with the liability characteristics and accumulate bonds.

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Futoshi Sasaki, BofA Merrill Lynch, Research Division - Research Analyst [40]

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I see. Can you comment on the average assumed interest rates for premiums that you receive? In other words, the average cost of Sony Life. I'm interested to know to what level the interest rates can go down before we should get alarmed or concerned. So I'd like to know the average cost you are incurring today. That's the intent of my question.

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Unidentified Company Representative [41]

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The relationship between the average assumed interest rates and the actual interest rate on investment. I think the best is to look at the positive spread. In our case, positive spread hasn't gone down over the years. It has remained unchanged.

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Futoshi Sasaki, BofA Merrill Lynch, Research Division - Research Analyst [42]

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So am I correct to understand that even at the current interest rate level, you are securing positive spread on investment flow?

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Unidentified Company Representative [43]

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Rather than investment flow, it's more to do with the stock. Assumed interest rate for liabilities are gradually coming down. And the investments flows interest rates are going to come down in line with the actual interest rate, which is represented in the positive spread. And we do not expect this to change dramatically going forward.

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Futoshi Sasaki, BofA Merrill Lynch, Research Division - Research Analyst [44]

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I see. A follow-up question. When you talked about the first quarter results, you said that lower death insurance payments was one of the positives. Was this in relation to any particular disease? Or is it that Japanese people are living longer?

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Unidentified Company Representative [45]

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Well, this was an observation just for this 3-month period. So this was a simple variance. The amount of insurance payments actually go up and down on quarterly basis. So no, we do not expect major changes to the full year -- major changes on a full year basis.

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Operator [46]

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The next questions are from Ms. Tsujino from Mitsubishi UFJ Morgan Stanley.

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Natsumu Tsujino, Mitsubishi UFJ Morgan Stanley Securities Co., Ltd., Research Division - Senior Analyst [47]

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EV went down by JPY 69 billion from the end of March. Can you give us the breakdown of various factors such as interest rates in the Japanese yen, parallel shift and change in the shape of the yield curve, interest rates in foreign currencies, inflation rate, risk covered, share prices, et cetera? You have been giving us the detailed breakdown in the past, so could you do the same here?

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Unidentified Company Representative [48]

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EV was down by JPY 69 billion from the end of March to end of June. Main factors were: Payment of dividends, approximately minus JPY 32 billion; new business value acquisition, plus JPY 17 billion; changes in economic assumptions, particularly interest rates in Japanese yen, minus JPY 63 billion. For interest rates in Japanese yen, parallel shift, minus JPY 38 billion; change in the shape, the flattening of the yield curve, minus JPY 25 billion for a total effect of minus JPY 63 billion.

In addition, changes in insurance assumptions, unwinding of risk associated with insurance in force had the combined impact of plus JPY 4 billion.

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Natsumu Tsujino, Mitsubishi UFJ Morgan Stanley Securities Co., Ltd., Research Division - Senior Analyst [49]

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So no major changes to the insurance-related assumptions. Am I correct?

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Unidentified Company Representative [50]

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Correct. No major changes.

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Natsumu Tsujino, Mitsubishi UFJ Morgan Stanley Securities Co., Ltd., Research Division - Senior Analyst [51]

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What about the changes in interest rates in the U.S. dollars? What impact did it have while you are increasing foreign currency-denominated insurance?

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Unidentified Company Representative [52]

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Based on ALM, the impact has been limited.

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Natsumu Tsujino, Mitsubishi UFJ Morgan Stanley Securities Co., Ltd., Research Division - Senior Analyst [53]

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Thank you for giving us the details of the breakdown. For new business EV, what with product portfolio changes. I'm afraid you can't really give us a clear-cut breakdown of different -- various factors. Still, I'd appreciate it if you can give us the updates, at least on the interest rate factor, be it year-on-year or quarter-on-quarter.

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Unidentified Company Representative [54]

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As for the new business value, comparing fourth quarter and the first quarter, it was JPY 17 billion in the first quarter. So quarter-on-quarter, down JPY 6 billion or 30%. New business value can be divided into 2 factors, volume versus margin. In terms of volume, in the first quarter it was about 2/3 of the volume for the fourth quarter.

On the other hand, new business margin improved from 5% to 5.4%, about 10% improvement. So the volume was down to 2/3 while the margin was 1.1x higher. So if you multiply the 2, it will be about 70%, which is consistent with the new business value of about 70% compared to fourth quarter. And I've already explained the factors for increase in new business margin.

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Natsumu Tsujino, Mitsubishi UFJ Morgan Stanley Securities Co., Ltd., Research Division - Senior Analyst [55]

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So sales volume 2/3, meaning 0.6, whatever, multiplied by 1.1x. So that is the calculation that you just explained, correct?

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Unidentified Company Representative [56]

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Right. And the result is about 30% lower quarter-on-quarter.

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Natsumu Tsujino, Mitsubishi UFJ Morgan Stanley Securities Co., Ltd., Research Division - Senior Analyst [57]

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I see. My last question is on ESR. You gave us a very general explanation. But what is your view on the future of interest rate risk?

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Unidentified Company Representative [58]

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What we are looking at is the index with UFR. And in terms of calculating the interest rate risks, the current premise is that currently positive interest rate would not turn negative. And of course, I don't believe that the ultra long-term interest rate to turn negative, but this approach will reduce the interest rate risk rapidly.

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Natsumu Tsujino, Mitsubishi UFJ Morgan Stanley Securities Co., Ltd., Research Division - Senior Analyst [59]

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To surrender risk among insurance risk is to increase, but the reduction in the interest rate risk, I think, is larger. So the ESR with the UFR keeping the rate at 0 or above. I wonder what this really represents. You said you will continue with the steady accumulation of the ultra long-term bonds. But what is your take on the ESR under the current environment?

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Unidentified Company Representative [60]

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Indices with UFR are based on international regulations and others. So we believe this is a solid trustworthy indicator. If I could add, with the current approach of calculating interest rate risk, when interest rates go down, the risk itself will be reduced. So basically, our goal in the future is to make the sensitivity of 10 basis points to flat over time. Of course, this cannot be achieved immediately. So basically, over time, we will be matching the assets and liability to minimize the interest rate risk.

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Natsumu Tsujino, Mitsubishi UFJ Morgan Stanley Securities Co., Ltd., Research Division - Senior Analyst [61]

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I see. And you plan to do this even under the low interest rate environment. And so the asset duration is getting longer. I see.

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Operator [62]

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The next question is from Mr. Muraki of Deutsche Securities.

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Masao Muraki, Deutsche Bank AG, Research Division - Director and Senior Analyst [63]

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Under the current interest rate environment, new business margin without UFR could turn negative in some products. How long should the negative new business margin without UFR continue in terms of the number of months before you start considering price hikes or the discontinuation of the sale of the product? Also, what kind of discussion is taking place at the Board of Directors meeting of the holding company regarding how to address the low interest rates?

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Unidentified Company Representative [64]

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New business margin, without UFR is used internally as one of the metrics for management. When the negative margin continues for the third consecutive quarter, price hikes and/or sales discontinuation are to be carried out, that's the basic policy.

At the Board meeting of the holding company, monthly new business margin calculated by Sony Life is being reported. For example, for ESR with and without UFR, both are being reported. And based on that, the management means are shared at the board meeting of the holding company. I hope that answers your question.

In the interest of time, the next question will be the last question.

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Operator [65]

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Next question will come from Mr. Otsuka from JPMorgan.

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Wataru Otsuka, JP Morgan Chase & Co, Research Division - Analyst [66]

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Following the general shareholders' meeting, you have the new Board of Directors. And in addition to the interest rates, what things are being discussed by the new Board of Directors?

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Unidentified Company Representative [67]

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General shareholders' meeting was held in June and Board meetings held at the end of June, in July and August so far. Basically, we share the strategies and operating performance of the selling financial group and get input from new Board members. And we have just started discussing on the way forward.

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Wataru Otsuka, JP Morgan Chase & Co, Research Division - Analyst [68]

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At the last corporate strategy meeting, you shared with us the basic direction of your corporate strategy. So do I take it that the discussions at the Board are basically in line with that direction?

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Unidentified Company Representative [69]

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Specifics have yet to be discussed, but basically, we'll be implementing what were presented at the corporate strategy meeting.

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Editor [70]

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Statements in English on this transcript were spoken by an interpreter present on the live call. The interpreter was provided by the Company sponsoring this Event.