T&D : Disclosure of Market Consistent Embedded Value as of March 31, 2019

May 17, 2019

T&D Holdings, Inc.

(Security Code: 8795)

Taiyo Life Insurance Company

Daido Life Insurance Company

T&D Financial Life Insurance Company

Disclosure of Market Consistent Embedded Value

as of March 31, 2019

T&D Holdings, Inc. (President: Hirohisa Uehara, "TDH"), Taiyo Life Insurance Company

(President: Naoki Soejima, "Taiyo"), Daido Life Insurance Company (President: Minoru Kudo,

"Daido") and T&D Financial Life Insurance Company (President: Masafumi Itasaka, "TDF") (collectively, "T&D Insurance Group" or "the Group") is disclosing the Group's market consistent embedded value ("MCEV") in compliance with the European Insurance CFO Forum Market Consistent Embedded Value Principles©1 ("the MCEV Principles") as of March 31, 2019.

			Summary
The Group's MCEV as of March 31, 2019 is as shown in the table below:
				(Billions of yen)
			March 31, 2018	March 31, 2019	Increase
			(Decrease)
	MCEV	2,378.9	2,342.7	(36.1)
		Adjusted net worth	2,030.0	2,159.9	129.8
		Value of in-force business	348.8	182.8	(165.9)
	Value of new business	129.4	140.3	10.8
	Group MCEV (Note1)	2,406.7	2,370.6	(36.1)
Note:

1. Please refer to Section 6 for explanation of the Group MCEV.

1Copyright © Stichting CFO Forum Foundation 2008

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Contents

1.Outline of MCEV

2.MCEV results of T&D Insurance Group

3.Movement Analysis

4.MCEV by Company

5.Sensitivities

6.Group MCEV

7.MCEV Methodology

8.Main MCEV Assumptions

9.Notes on the Use of the Information

10.Third Party Opinion

Glossary

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1.Outline of MCEV

(1) What is MCEV?

The MCEV Principles and Guidance were first published in June 2008 by the CFO Forum, a group consisting of Chief Financial Officers from leading European insurance companies. They were amended in October 2009 to reflect the inclusion of a liquidity premium and were amended in May 2016 to permit alignment with projection methods and assumptions applied for market consistent solvency regimes such as Solvency II and to allow flexibility of disclosures.

Disclosure of embedded values ("EVs") in compliance with the European Embedded Value Principles ("the EEV Principles") has spread among global insurers, led by large European life insurance companies and groups. The EEV Principles were published in May 2004 and additional guidance on European Embedded Value ("EEV") disclosures was published in October 2005. The EEV Principles were amended in May 2016 for the same reason the MCEV Principles were updated. Increasing numbers of companies have been disclosing EEVs with market consistent methodology to evaluate assets and liabilities consistently with financial instruments traded in markets. However, as the EEV Principles allowed a wide range of methodologies, the CFO Forum published the MCEV Principles in June 2008 in order to improve consistency and standardize disclosure of market consistent EVs.

(2) Statement by directors

The Boards of Directors of T&D Holdings, Inc., Taiyo Life Insurance Company, Daido Life Insurance Company, and T&D Financial Life Insurance Company confirm that the EV presented here has been produced following the methodology set out in the MCEV Principles.

Notable points regarding compliance with the MCEV Principles are as follows:

∙The reference rate used in the calculations is defined as the Japanese Government Bond (JGB) nominal spot rate curve rather than the swap rate curve as stipulated in the MCEV Principles.

(3) MCEV and Group MCEV

The Group's business is split into covered business and non-covered business for the calculation of MCEV. The MCEV of covered business is calculated applying MCEV methodology. Group MCEV is the sum of covered business MCEV and net asset value of non-covered business based on Japanese GAAP.

(4) Covered business

Covered business includes all life insurance business of the Group written through its three life insurance subsidiaries, Taiyo, Daido and TDF, and the business of their subsidiaries and affiliates. TDH holds 100% of the shares of these three life insurance subsidiaries.

(5) Use of JGB yields as reference rates

The reference rate is defined in the MCEV Principles as a proxy for a risk free rate appropriate to the currency, term and liquidity of the liability cash flows and the MCEV Principles require using a swap rate as the reference. The Group has decided to use JGB yields as the reference rates and not swaps for the following reasons:

∙Use as benchmark within the Group's asset liability management

The Group conducts asset liability management based on JGBs as the reference for other asset classes and JGBs form a significant proportion of holdings. The use of JGB as the reference rate therefore reduces valuation mismatches between assets and liabilities.

∙Low levels of credit risk

Japanese government bonds contain low levels of credit risk compared with other Yen fixed interest asset classes for a number of reasons, including that the Japanese government has the right to collect taxes and issue currency.

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∙High liquidity

Japanese government bonds have high liquidity.

∙Realism

Large amount of JGBs are issued and it should be possible to earn the rates in practice with very low levels of credit risk and liquidity risk.

The impact of changing reference rates to swap rates is shown in Section 2. (2) and Section 2. (3).

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2. MCEV results of T&D Insurance Group

The embedded value on an MCEV basis as of March 31, 2019 is ¥2,342.7 billion, a decrease of ¥36.1 billion from the value as of March 31, 2018, which is primarily related to lower domestic interest rates and lower domestic equity prices, despite an increase due to the contribution of new business. The adjusted net worth has increased due to the increase in the market value of domestic and foreign bonds.

The value of new business is ¥140.3 billion, an increase of ¥10.8 billion, which has resulted primarily from the increase in new business sales.

This embedded value does not include the value of the Group's direct subsidiaries, other than for the three life insurance subsidiaries of TDH.

				(Billions of yen)
		March 31, 2018	March 31, 2019	Increase
		(Decrease)
MCEV	2,378.9	2,342.7	(36.1)
	Adjusted net worth	2,030.0	2,159.9	129.8
	Value of in-force business	348.8	182.8	(165.9)
		March 31, 2018	March 31, 2019	Increase
		(Decrease)
Value of new business	129.4	140.3	10.8
New business margin(Note1)	8.5%	7.1%	(1.5)points

Notes:

1. Please refer to Section 2(3) for explanation of the new business margin.

(1) Adjusted Net Worth

Adjusted net worth represents the market value of assets in excess of policyholder liabilities, represented by statutory reserves, and other liabilities.

Adjusted net worth is the sum of the stated amount in the financial statements and appropriate adjustments for unrealized gains and losses and other items. The adjusted net worth has been derived as follows.

			(Billions of yen)
		March 31,	March 31,	Increase
		2018	2019	(Decrease)
Adjusted net worth	2,030.0	2159.9	129.8
	Shareholders equity on the balance sheet (Note1)	798.6	828.2	29.6
	Unrealized gains/losses on securities (after tax)	877.5	945.9	68.4
	Unrealized gains/losses on loans (after tax)	37.3	38.0	0.7
	Unrealized gains/losses on real estate (after tax)	39.5	60.2	20.6
	General reserves for possible loan losses (after	0.8	0.8	0.0
	tax)
	Internal reserves as quasi-equity liabilities (after	276.2	287.2	10.9
	tax) (Note2)
	Unrealized gains/losses on subordinated debts	(0.1)	(0.7)	(0.6)
	(after tax)

Notes:

1.Excluding unrealized gains/losses, and including an accumulated amount (¥1.6 billion) of share-based payments

2.Price fluctuation reserve, contingency reserve and unallocated amount in policyholders' dividend reserve

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