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Investment in Securities

6 Months Ended

Sep. 30, 2023

8.	Investment in Securities

Investment in securities as of March 31, 2023 and September 30, 2023 consists of the following:


	Millions of yen

	March 31, 2023		September 30, 2023

Equity securities *	¥	589,312	¥	751,872
Trading debt securities		2,179		2,259
Available-for-sale debt securities		2,234,608		2,318,317
Held-to-maturity debt securities		114,759		115,515

Total	¥	2,940,858	¥	3,187,963

The amount of assets under management of variable annuity and variable life insurance contracts included in equity securities were ¥151,445 million and ¥151,281 million as of March 31, 2023 and September 30, 2023, respectively. The amount of investment funds that are accounted for under the equity method included in equity securities were ¥90,993 million and ¥196,899 million as of March 31, 2023 and September 30, 2023, respectively. The amount of investment funds elected the fair value option included in equity securities were ¥16,032 million and ¥19,401 million as of March 31, 2023 and September 30, 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 17 “Income and Expenses Relating to Life Insurance Operations.” Net unrealized holding gains (losses) on equity securities held as of September 30, 2022 were losses of ¥15,645 million and ¥949 million for the six and three months ended September 30, 2022, respectively. Net unrealized holding gains (losses) on equity securities held as of September 30, 2023 were gains of ¥24,322 million and ¥1,178 million for the six and three months ended September 30, 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, 2023 and September 30, 2023, and for the six and three months ended September 30, 2022 and 2023.


	Millions of yen

	March 31, 2023							Six months ended September 30, 2022					Three months ended September 30, 2022

	Carrying value		Accumulated impairments and downward adjustments			Accumulated upward adjustments		Impairments and downward adjustments			Upward adjustments		Impairments and downward adjustments			Upward adjustments

Equity securities measured using the measurement alternative	¥	67,820	¥	(14,062	)	¥	1,742	¥	(368	)	¥	896	¥	(278	)	¥	27

	Millions of yen

	September 30, 2023							Six months ended September 30, 2023					Three months ended September 30, 2023

	Carrying value		Accumulated impairments and downward adjustments			Accumulated upward adjustments		Impairments and downward adjustments			Upward adjustments		Impairments and downward adjustments			Upward adjustments

Equity securities measured using the measurement alternative	¥	76,756	¥	(14,126	)	¥	1,947	¥	(90	)	¥	956	¥	(3	)	¥	832

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 September 30, 2022 were gains of ¥198 million and ¥104 million, respectively, for the six and three months ended September 30, 2022. Net unrealized holding gains (losses) on trading debt securities held as of September 30, 2023 were losses of ¥28 million and ¥23 million, respectively, for the six and three months ended September 30, 2023.

Certain subsidiaries elected the fair value option for certain investments in investment funds 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, 2023 and September 30, 2023, these investments were fair valued at ¥16,032 million and ¥19,401 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. As of March 31, 2023 and September 30, 2023, these investments were fair valued at ¥237 million and ¥314 million, respectively.

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, 2023 and September 30, 2023, these investments were fair valued at ¥6,605 million and ¥7,133 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, 2023 and September 30, 2023 are as follows:

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

September 30, 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	¥	1,073,621	¥	0		¥	962	¥	(262,776	)	¥	811,807
Japanese prefectural and foreign municipal bond securities		404,890		(246	)		390		(35,223	)		369,811
Corporate debt securities		892,807		0			8,971		(98,969	)		802,809
CMBS and RMBS in the Americas		70,307		0			198		(2,312	)		68,193
Other asset-backed securities and debt securities		267,633		(222	)		5,456		(7,170	)		265,697

		2,709,258		(468	)		15,977		(406,450	)		2,318,317

Held-to-maturity debt securities:
Japanese government bond securities and other		115,515		0			10,098		(1,493	)		124,120

	¥	2,824,773	¥	(468	)	¥	26,075	¥	(407,943	)	¥	2,442,437

The following table presents rollforwards of the allowance for credit losses for the six months ended September 30, 2022 and 2023, respectively:


	Millions of yen
	Six months ended September 30, 2022
	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		(5	)		(5	)
Increase (Decrease) from the effects of changes in foreign exchange rates		24		0			24

Ending	¥	156	¥	16		¥	172


	Millions of yen
	Six months ended September 30, 2023
	Foreign municipal bond securities		Foreign other asset- backed securities and debt securities			Total
Beginning	¥	144	¥	0		¥	144
Additions to the allowance for credit losses on available-for-sale debt securities for which credit losses were not previously recorded		80		212			292
Increase (Decrease) from the effects of changes in foreign exchange rates		22		10			32

Ending	¥	246	¥	222		¥	468

The following table presents rollforwards of the allowance for credit losses for the three months ended September 30, 2022 and 2023, respectively:


	Millions of yen
	Three months ended September 30, 2022
	Foreign municipal bond securities		Japanese other asset- backed securities and debt securities		Total
Beginning	¥	147	¥	16	¥	163
Increase (Decrease) from the effects of changes in foreign exchange rates		9		0		9

Ending	¥	156	¥	16	¥	172


	Millions of yen
	Three months ended September 30, 2023
	Foreign municipal bond securities		Foreign other asset- backed securities and debt securities		Total
Beginning	¥	238	¥	216	¥	454
Increase (Decrease) from the effects of changes in foreign exchange rates		8		6		14

Ending	¥	246	¥	222	¥	468

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, 2023 and September 30, 2023, respectively:

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	)


September 30, 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	¥	149,069	¥	(13,479	)	¥	628,120	¥	(249,297	)	¥	777,189	¥	(262,776	)
Japanese prefectural and foreign municipal bond securities		107,381		(3,827	)		231,641		(31,642	)		339,022		(35,469	)
Corporate debt securities		158,052		(3,540	)		475,625		(95,429	)		633,677		(98,969	)
CMBS and RMBS in the Americas		7,409		(34	)		35,761		(2,278	)		43,170		(2,312	)
Other asset-backed securities and debt securities		2,856		(231	)		145,796		(7,107	)		148,652		(7,338	)

	¥	424,767	¥	(21,111	)	¥	1,516,943	¥	(385,753	)	¥	1,941,710	¥	(406,864	)

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, 2023 and September 30, 2023, respectively:

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	)


September 30, 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	¥	149,069	¥	(13,479	)	¥	628,120	¥	(249,297	)	¥	777,189	¥	(262,776	)
Japanese prefectural and foreign municipal bond securities		106,003		(3,743	)		227,748		(31,480	)		333,751		(35,223	)
Corporate debt securities		158,052		(3,540	)		475,625		(95,429	)		633,677		(98,969	)
CMBS and RMBS in the Americas		7,409		(34	)		35,761		(2,278	)		43,170		(2,312	)
Other asset-backed securities and debt securities		2,856		(231	)		145,267		(6,939	)		148,123		(7,170	)

	¥	423,389	¥	(21,027	)	¥	1,512,521	¥	(385,423	)	¥	1,935,910	¥	(406,450	)

The number of investment securities that were in an unrealized loss position as of March 31, 2023 and September 30, 2023 were 1,208 and 1,273, 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, 2023 and September 30, 2023, the amount of accrued revenues on

available-for-sale

debt securities were ¥10,781 million and ¥12,918 million, respectively, which were 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 and September 30, 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.

Reversals of credit losses related to

available-for-sale

debt securities recognized for the six months ended September 30, 2022 resulted from Japanese other asset-backed securities and debt securities due to the reduced credit risk by postponement of maturity date. Credit losses related to

available-for-sale

debt securities recognized for the six months ended September 30, 2023 resulted from foreign municipal bond securities and foreign other asset-backed securities and debt securities due to the deterioration of cash flows, respectively. 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 an 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.

There were no

available-for-sale

debt securities accounted for as purchased credit deterioration financial assets acquired for the six months ended September 30, 2022 and 2023.