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Investment in Securities

12 Months Ended

Mar. 31, 2023

9. Investment in Securities

Investment in securities as of March 31, 2022 and 2023 consists of the following:


	Millions of yen
	2022		2023
Equity securities *	¥	560,643	¥	589,312
Trading debt securities		2,503		2,179
Available-for-sale debt securities		2,174,891		2,234,608
Held-to-maturity debt securities		114,312		114,759

Total	¥	2,852,349	¥	2,940,858

The amount of assets under management of variable annuity and variable life insurance contracts included in equity securities were ¥185,115 million and ¥151,445 million as of March 31, 2022 and 2023, respectively. The amount of investment funds that are accounted for under the equity method included in equity securities were ¥90,650 million and ¥90,993 million as of March 31, 2022 and 2023, respectively. The amount of investment funds and others elected the fair value option included in equity securities were ¥11,709 million and ¥16,032 million as of March 31, 2022 and 2023, respectively.

Gains and losses realized from the sale of equity securities and net unrealized holding gains (losses) on equity securities are included in gains on investment securities and dividends, life insurance premiums and

related investment income, and write-downs of securities. For further information, see Note 22 “Gains on Investment Securities and Dividends” and Note 23 “Life Insurance Operations.” Net unrealized holding gains (losses) on equity securities held as of March 31, 2021, 2022 and 2023 were gains of ¥83,643 million, ¥26,075 million and ¥18,065 million for fiscal 2021, 2022 and 2023, respectively, which did not include net unrealized holding gains (losses) on both investment funds above mentioned.

Equity securities include

non-marketable

equity securities and preferred equity securities, etc. elected for the measurement alternative. Upward or downward adjustments resulting from observable price changes are included in gains on investment securities and dividends and life insurance premiums and related investment income. Impairments are included in write-downs of securities. The following tables provide information about impairment and upward or downward adjustments resulting from observable price changes as of March 31, 2022 and 2023, and for fiscal 2022 and 2023.


	Millions of yen
	March 31, 2022							Fiscal Year ended March 31, 2022
	Carrying value		Accumulated impairments and downward adjustments			Accumulated upward adjustments		Impairments and downward adjustments			Upward adjustments
Equity securities measured using the measurement alternative	¥	58,723	¥	(13,880	)	¥	401	¥	(208	)	¥	163

	Millions of yen
	March 31, 2023							Fiscal Year ended March 31, 2023
	Carrying value		Accumulated impairments and downward adjustments			Accumulated upward adjustments		Impairments and downward adjustments			Upward adjustments
Equity securities measured using the measurement alternative	¥	67,820	¥	(14,062	)	¥	1,742	¥	(787	)	¥	1,360

Gains and losses realized from the sale of trading debt securities and net unrealized holding gains (losses) on trading debt securities are included in gains on investment securities and dividends. Net unrealized holding gains (losses) on trading debt securities held as of March 31, 2021, 2022 and 2023 were gains of ¥120 million, ¥213 million and

losses of

¥469 million for fiscal 2021, 2022 and 2023, respectively.

During fiscal 2021, 2022 and 2023, the Company and its subsidiaries sold

available-for-sale

debt securities for aggregate proceeds of ¥285,836 million, ¥239,250 million and ¥323,773 million, respectively, resulting in gross realized gains of ¥8,854 million, ¥6,493 million and ¥7,757 million, respectively, and gross realized losses of ¥1,918 million, ¥1,236 million and ¥8,367 million, respectively. The cost of the

available-for-sale

securities or the debt securities sold was based on the average cost of each issue of securities held at the time of the sale.

Certain subsidiaries elected the fair value option for certain investments in investment funds, and others included in equity securities whose net asset values do not represent the fair value of investments due to the illiquid nature of these investments. The subsidiaries manage these investments on a fair value basis and the election of the fair value option enables the subsidiaries to reflect more appropriate assumptions to measure the fair value of these investments. As of March 31, 2022 and 2023, these investments were fair valued at ¥11,709 million and ¥16,032 million, respectively.

A certain subsidiary elected the fair value option for investments in foreign government bond securities included in

available-for-sale

debt securities to mitigate volatility in the consolidated statements of income

caused by the difference in recognition of gain or loss that would otherwise exist between the foreign government bond securities and the derivatives used to reduce the risks of fluctuations in market interest rates and exchange rates on these foreign government bond securities. There were no such investments as of March 31, 2022. As of March 31, 2023, these investments were fair valued at ¥237 million.

A certain subsidiary elected the fair value option for investments in foreign corporate debt securities included in

available-for-sale

debt securities to mitigate volatility in the consolidated statements of income caused by the difference in recognition of gain or loss that would otherwise exist between the foreign corporate debt securities and the derivatives used to reduce the risks of fluctuations in market interest rates and exchange rates on these foreign corporate debt securities. As of March 31, 2022 and 2023, these investments were fair valued at ¥7,644 million and ¥6,605 million, respectively.

The amortized cost basis amounts, gross unrealized holding gains, gross unrealized holding losses and fair values of

available-for-sale

debt securities and

held-to-maturity

debt securities in each major security type as of March 31, 2022 and 2023 are as follows:

March 31, 2022


	Millions of yen
	Amortized cost		Allowance for credit losses			Gross unrealized gains		Gross unrealized losses			Fair value
Available-for-sale debt securities:
Japanese and foreign government bond securities	¥	905,004	¥	0		¥	5,178	¥	(77,569	)	¥	832,613
Japanese prefectural and foreign municipal bond securities		333,449		(132	)		2,482		(10,195	)		325,604
Corporate debt securities		873,178		0			10,014		(33,632	)		849,560
CMBS and RMBS in the Americas		29,349		0			112		(729	)		28,732
Other asset-backed securities and debt securities		135,445		(21	)		5,456		(2,498	)		138,382

		2,276,425		(153	)		23,242		(124,623	)		2,174,891

Held-to-maturity debt securities:
Japanese government bond securities and other		114,312		0			21,129		0			135,441

	¥	2,390,737	¥	(153	)	¥	44,371	¥	(124,623	)	¥	2,310,332

March 31, 2023


	Millions of yen
	Amortized cost		Allowance for credit losses			Gross unrealized gains		Gross unrealized losses			Fair value
Available-for-sale debt securities:
Japanese and foreign government bond securities	¥	962,969	¥	0		¥	2,863	¥	(164,537	)	¥	801,295
Japanese prefectural and foreign municipal bond securities		389,150		(144	)		1,146		(20,906	)		369,246
Corporate debt securities		851,525		0			6,270		(73,407	)		784,388
CMBS and RMBS in the Americas		45,292		0			62		(2,181	)		43,173
Other asset-backed securities and debt securities		239,922		0			5,735		(9,151	)		236,506

		2,488,858		(144	)		16,076		(270,182	)		2,234,608

Held-to-maturity debt securities:
Japanese government bond securities and other		114,759		0			14,919		0			129,678

	¥	2,603,617	¥	(144	)	¥	30,995	¥	(270,182	)	¥	2,364,286

The following table presents rollforwards of the allowance for credit losses for fiscal 2021, 2022 and 2023, respectively.


	Millions of yen
	Fiscal Year ended March 31, 2021
	Foreign municipal bond securities		Total
Beginning	¥	0	¥	0
Additions to the allowance for credit losses on available-for-sale debt securities for which credit losses were not previously recorded*		120		120

Ending	¥	120	¥	120

*	An increase from the effects of changes in foreign exchange rates of ¥3 million was included in additions to the allowance for credit losses on available-for-sale debt securities for fiscal 2021.


	Millions of yen
	Fiscal Year ended March 31, 2022
	Foreign municipal bond securities		Japanese other asset- backed securities and debt securities		Total
Beginning	¥	120	¥	0	¥	120
Additions to the allowance for credit losses on available-for-sale debt securities for which credit losses were not previously recorded		0		21		21
Increase (Decrease) from the effects of changes in foreign exchange rates		12		0		12

Ending	¥	132	¥	21	¥	153


	Millions of yen
	Fiscal Year ended March 31, 2023
	Foreign municipal bond securities		Japanese other asset- backed securities and debt securities			Total
Beginning	¥	132	¥	21		¥	153
Additional increases (decreases) to the allowance for credit losses on AFS debt securities that had an allowance recorded in a previous period, net		0		(21	)		(21	)
Increase (Decrease) from the effects of changes in foreign exchange rates		12		0			12

Ending	¥	144	¥	0		¥	144

The following tables provide information about

available-for-sale

debt securities with gross unrealized losses (including allowance for credit losses) and the length of time that individual securities have been in a continuous unrealized loss position as of March 31, 2022 and 2023, respectively:

March 31, 2022


	Millions of yen
	Less than 12 months					12 months or more					Total
	Fair value		Gross unrealized losses			Fair value		Gross unrealized losses			Fair value		Gross unrealized losses
Available-for-sale debt securities:
Japanese and foreign government bond securities	¥	217,457	¥	(16,117	)	¥	521,633	¥	(61,452	)	¥	739,090	¥	(77,569	)
Japanese prefectural and foreign municipal bond securities		190,081		(6,509	)		46,391		(3,818	)		236,472		(10,327	)
Corporate debt securities		373,506		(19,340	)		156,687		(14,292	)		530,193		(33,632	)
CMBS and RMBS in the Americas		6,458		(98	)		17,542		(631	)		24,000		(729	)
Other asset-backed securities and debt securities		66,543		(995	)		37,432		(1,524	)		103,975		(2,519	)

	¥	854,045	¥	(43,059	)	¥	779,685	¥	(81,717	)	¥	1,633,730	¥	(124,776	)

March 31, 2023


	Millions of yen
	Less than 12 months					12 months or more					Total
	Fair value		Gross unrealized losses			Fair value		Gross unrealized losses			Fair value		Gross unrealized losses
Available-for-sale debt securities:
Japanese and foreign government bond securities	¥	2,588	¥	(207	)	¥	662,897	¥	(164,330	)	¥	665,485	¥	(164,537	)
Japanese prefectural and foreign municipal bond securities		97,721		(1,508	)		194,280		(19,542	)		292,001		(21,050	)
Corporate debt securities		191,669		(6,570	)		401,994		(66,837	)		593,663		(73,407	)
CMBS and RMBS in the Americas		16,691		(672	)		23,653		(1,509	)		40,344		(2,181	)
Other asset-backed securities and debt securities		63,958		(2,300	)		88,503		(6,851	)		152,461		(9,151	)

	¥	372,627	¥	(11,257	)	¥	1,371,327	¥	(259,069	)	¥	1,743,954	¥	(270,326	)

The following table provides information about

available-for-sale

debt securities with gross unrealized losses for which allowance for credit losses were not recorded and the length of time that individual securities have been in a continuous unrealized loss position as of March 31, 2022 and 2023, respectively:

March 31, 2022


	Millions of yen
	Less than 12 months					12 months or more					Total
	Fair value		Gross unrealized losses			Fair value		Gross unrealized losses			Fair value		Gross unrealized losses
Available-for-sale debt securities:
Japanese and foreign government bond securities	¥	217,457	¥	(16,117	)	¥	521,633	¥	(61,452	)	¥	739,090	¥	(77,569	)
Japanese prefectural and foreign municipal bond securities		190,081		(6,509	)		43,338		(3,686	)		233,419		(10,195	)
Corporate debt securities		373,506		(19,340	)		156,687		(14,292	)		530,193		(33,632	)
CMBS and RMBS in the Americas		6,458		(98	)		17,542		(631	)		24,000		(729	)
Other asset-backed securities and debt securities		66,489		(974	)		37,432		(1,524	)		103,921		(2,498	)

	¥	853,991	¥	(43,038	)	¥	776,632	¥	(81,585	)	¥	1,630,623	¥	(124,623	)

March 31, 2023


	Millions of yen
	Less than 12 months					12 months or more					Total
	Fair value		Gross unrealized losses			Fair value		Gross unrealized losses			Fair value		Gross unrealized losses
Available-for-sale debt securities:
Japanese and foreign government bond securities	¥	2,588	¥	(207	)	¥	662,897	¥	(164,330	)	¥	665,485	¥	(164,537	)
Japanese prefectural and foreign municipal bond securities		97,721		(1,508	)		190,805		(19,398	)		288,526		(20,906	)
Corporate debt securities		191,669		(6,570	)		401,994		(66,837	)		593,663		(73,407	)
CMBS and RMBS in the Americas		16,691		(672	)		23,653		(1,509	)		40,344		(2,181	)
Other asset-backed securities and debt securities		63,958		(2,300	)		88,503		(6,851	)		152,461		(9,151	)

	¥	372,627	¥	(11,257	)	¥	1,367,852	¥	(258,925	)	¥	1,740,479	¥	(270,182	)

The number of investment securities that were in an unrealized loss position as of March 31, 2022 and 2023 were 963 and 1,208, respectively. The gross unrealized losses on these debt securities are attributable to a number of factors including changes in interest rates, credit spreads and market trends.

As of March 31, 2022 and 2023, the amount of accrued revenues on

available-for-sale

debt securities were ¥8,798 million and ¥10,781 million, respectively, which was included in other assets. The Company and its subsidiaries estimate credit losses and develop an allowance for credit losses for accrued interest receivables. There was no allowance for credit losses for accrued interest receivables as of March 31, 2023.

For

available-for-sale

debt securities, if the fair value is less than the amortized cost, the debt securities are impaired. The Company and its subsidiaries identify per each impaired security whether the decline of fair value is due to credit losses component or

non-credit

losses component. Impairment related to credit losses is recognized in earning through an allowance for credit losses. Impairment related to other factors than credit losses is recognized in other comprehensive income (loss), net of applicable income taxes. In estimating an allowance of credit losses, the Company and its subsidiaries consider the existence of credit losses if the present value of estimated cash flows is less than the amortized cost basis. When the Company and its subsidiaries intend to sell the debt securities for which an allowance for credit losses is previously established or it is more likely than not that the Company and its subsidiaries will be required to sell the debt securities before recovery of the amortized cost basis, the allowance for credit losses is fully

written-off

and the amortized cost is reduced to the fair value after recognizing additional impairment in earnings. In addition, the Company and its subsidiaries recognize in earnings the full difference between the amortized cost and the fair value of the debt securities by direct write-down, without any allowance for credit losses, if the debt securities are expected to be sold and the fair value is less than the amortized cost.

Credit losses related to available-for-sale debt securities recognized for fiscal 2021 were resulting from foreign municipal bond securities due to a decrease in the occupancy rate of the underlying assets. Credit losses related to

available-for-sale

debt securities recognized for fiscal 2022 were resulting from Japanese other asset-backed securities and debt securities due to deterioration in the financial condition of the credit guarantor of the underlying receivables. Reversals of credit losses related to

available-for-sale

debt securities recognized for fiscal

2023 resulted from the redemption of Japanese other asset-backed and debt securities, as of March 31, 2023. The evaluation of credit losses with

available-for-sale

debt securities is compared to the amortized cost of debt securities with the present value of cash flows estimated based on a number of overall conditions, including estimated fair value of the underlying receivables and the repayment priority of the securities. Because the Company and its subsidiaries do not intend to sell the debt security or it is more likely than not that the Company and its subsidiaries will be required to sell the debt security before recovery of its amortized cost basis, the Company and its subsidiaries recognized the allowance for credit losses.

Unrealized losses on

available-for-sale

debt securities mainly result from changes in market interest rates and foreign exchange rates, and changes in risk premiums. In order to evaluate the recoverability of the

available-for-sale

debt securities, the Company and its subsidiaries utilize all available information such as issuer’s financial condition and business outlook. The fair value of Japanese and foreign government bond securities, Japanese prefectural and foreign municipal bond, and corporate debt securities is mainly estimated based on prices for similar assets. If there are no prices for similar assets available, the fair value of these securities is estimated by using discounted cash flow methodologies and broker quotes. The fair value of CMBS and RMBS in the Americas and other asset-backed securities and debt securities refers to prices from independent pricing service vendors and brokers, such as trading prices and bit prices. If the Company and its subsidiaries cannot rely on such prices, the fair value is calculated by using discounted cash flow methodologies and broker quotes. In discounted cash flow methodologies, future cash flows estimated based on a number of assumptions such as default rate, prepayment rate, and seniority are discounted by discount rate adjusted for credit risk and liquidity risk.

The following is a summary of the contractual maturities of

available-for-sale

debt securities and

held-to-maturity

debt securities held as of March 31, 2023:

Available-for-sale

debt securities held as of March 31, 2023


	Millions of yen
	Amortized cost		Fair value
Due within one year	¥	75,103	¥	75,662
Due after one to five years		305,405		305,832
Due after five to ten years		378,144		364,070
Due after ten years		1,730,206		1,489,044

	¥	2,488,858	¥	2,234,608

Held-to-maturity

debt securities held as of March 31, 2023


	Millions of yen
	Amortized cost		Fair value
Due after five to ten years	¥	28,658	¥	32,204
Due after ten years		86,101		97,474

	¥	114,759	¥	129,678

Debt securities not due at a single maturity date, such as mortgage-backed securities, are included in the above table based on their final maturities.

Certain borrowers may have the right to call or prepay obligations. This right may cause actual maturities to differ from the contractual maturities summarized above.

Included in finance revenues in the consolidated statements of income is interest income on investment securities of ¥11,870 million, ¥12,737 million and ¥19,906 million for fiscal 2021, 2022 and 2023, respectively.

There were no

available-for-sale

debt securities accounted for as purchased credit deterioration financial assets acquired during fiscal 2022 and 2023.