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Long-Duration Insurance Contracts Relating to Life Insurance Operations

6 Months Ended

Sep. 30, 2023

Long-Duration Insurance Contracts Relating to Life Insurance Operations

18.	Long-Duration Insurance Contracts Relating to Life Insurance Operations

The Company and its subsidiaries adopted the modified retrospective transition approach to the liability for future policy benefits and deferred policy acquisition costs based on the balance as of April 1, 2021, the transition date, in accordance with Accounting Standards Update

2018-12

(“Targeted Improvements to Accounting for Long-Duration Contracts”—ASC 944 (“Financial Services—Insurance”)).

The following table presents the effect on the liability for future policy benefits (including deferred profit liabilities) as of the transition date, using the modified retrospective transition approach.


	Millions of yen
	Yen-denominated insurance (First Sector)		Yen-denominated insurance (Third Sector)		Foreign currency denominated insurance			Total
Balance at March 31, 2021	¥	610,877	¥	493,558	¥	48,259		¥	1,152,694

Effect of change in discount rates*		22,686		52,967		(46,716	)		28,937

Balance at April 1, 2021	¥	633,563	¥	546,525	¥	1,543		¥	1,181,631

*	The impact on the liability for future policy benefits is due to the difference in the discount rates used before and after the adoption of LDTI.

The following tables present balances of and changes in the liability for future policy benefits as of and for the fiscal year ended March 31, 2022.


	Millions of yen
	March 31, 2022
Present value of expected net premiums	Yen-denominated insurance (First Sector)			Yen-denominated insurance (Third Sector)			Foreign currency denominated insurance
Balance at April 1, 2021	¥	909,868		¥	1,377,265		¥	366,081

Beginning balance at original discount rate		843,892			1,261,182			355,835

Effect of changes in cash flow assumptions		21,353			28,690			662
Effect of actual variances from expected experience		2,351			1,414			(209	)

Adjusted beginning balance		867,596			1,291,286			356,288

Issuances		82,105			86,304			77,532
Interests		12,490			19,412			9,263
Net premium earned		(96,605	)		(114,874	)		(49,290	)
Actual variances from cash flow assumptions		(299	)		(652	)		(8	)
Derecognition		7,285			3,901			2,610
Effect of changes in foreign exchange rate		0			0			41,684

Ending balance at original discount rate		872,572			1,285,377			438,079

Effect of changes in discount rates		54,338			95,576			(15,326	)

Balance at March 31, 2022	¥	926,910		¥	1,380,953		¥	422,753


	Millions of yen
	March 31, 2022
Present value of expected future policy benefits	Yen-denominated insurance (First Sector)			Yen-denominated insurance (Third Sector)			Foreign currency denominated insurance
Balance at April 1, 2021	¥	1,526,258		¥	1,877,906		¥	366,081

Beginning balance at original discount rate		1,437,596			1,708,857			402,552

Effect of changes in cash flow assumptions		22,525			29,515			626

Adjusted beginning balance		1,460,121			1,738,372			403,178

Issuances		82,105			86,304			77,532
Interests		23,867			27,677			11,125
Insurance claims paid		(42,897	)		(65,052	)		(1,631	)
Actual variances from cash flow assumptions		(12,698	)		(6,083	)		(329	)
Derecognition		24,520			12,773			2,533
Effect of changes in foreign exchange rate		0			0			51,096

Ending balance at original discount rate		1,535,018			1,793,991			543,504

Effect of changes in discount rates		56,250			128,012			(106,040	)

Balance at March 31, 2022	¥	1,591,268		¥	1,922,003		¥	437,464

Net liability for future policy benefits	¥	664,358		¥	541,050		¥	14,711
Deferred profit liabilities		26,173			54,801			7,573

Subtotal		690,531			595,851			22,284

Less: Reinsurance recoverable		210			0			0

The liability for future policy benefits, after reinsurance recoverable	¥	690,321		¥	595,851		¥	22,284

The following table provides the breakdown of the policy liabilities and policy account balances recorded in the consolidated balance sheets as of March 31, 2022:


	Millions of yen
	March 31, 2022
Yen-denominated insurance (First Sector)	¥	690,321
Yen-denominated insurance (Third Sector)		595,851
Foreign currency denominated insurance		22,284

Subtotal		1,308,456

Policy account balances for variable annuity and variable life insurance contracts and market risk benefits		198,905
Fixed annuities and annuitization benefits		193,322
Others*		212,015

Total	¥	1,912,698

*	Others include unearned premiums and liabilities for unpaid claims.

The following tables present balances of and changes in the liability for future policy benefits as of and for the fiscal year ended March 31, 2023 and for the six months ended September 30, 2023.


	Millions of yen
	March 31, 2023									September 30, 2023
Present value of expected net premiums	Yen-denominated insurance (First Sector)			Yen-denominated insurance (Third Sector)			Foreign currency denominated insurance			Yen-denominated insurance (First Sector)			Yen-denominated insurance (Third Sector)			Foreign currency denominated insurance
Beginning balance	¥	926,910		¥	1,380,953		¥	422,753		¥	894,537		¥	1,389,063		¥	374,951

Beginning balance at original discount rate		872,573			1,285,377			438,079			865,333			1,338,398			409,847

Effect of changes in cash flow assumptions		125			48,389			(6,975	)		0			0			0
Effect of actual variances from expected experience		2,495			22,851			(1,957	)		0			0			0

Adjusted beginning balance		875,193			1,356,617			429,147			865,333			1,338,398			409,847

Issuances		76,519			83,982			22,660			30,127			28,481			22,366
Interests		11,715			18,762			10,966			5,513			9,360			5,782
Net premium earned		(101,554	)		(117,670	)		(60,198	)		(46,315	)		(59,561	)		(33,580	)
Actual variances from cash flow assumptions		(385	)		(710	)		(1,274	)		(237	)		(439	)		(656	)
Derecognition		3,845			(2,583	)		(33,441	)		3,091			(1,957	)		(14,744	)
Effect of changes in foreign exchange rate		0			0			41,987			0			0			49,340

Ending balance at original discount rate		865,333			1,338,398			409,847			857,512			1,314,282			438,355

Effect of changes in discount rates		29,204			50,665			(34,896	)		12,008			13,733			(50,253	)

Ending balance	¥	894,537		¥	1,389,063		¥	374,951		¥	869,520		¥	1,328,015		¥	388,102


	Millions of yen
	March 31, 2023									September 30, 2023
Present value of expected future policy benefits	Yen-denominated insurance (First Sector)			Yen-denominated insurance (Third Sector)			Foreign currency denominated insurance			Yen-denominated insurance (First Sector)			Yen-denominated insurance (Third Sector)			Foreign currency denominated insurance
Beginning balance	¥	1,591,268		¥	1,922,003		¥	437,464		¥	1,571,886		¥	1,918,462		¥	387,073

Beginning balance at original discount rate		1,535,018			1,793,991			543,504			1,598,009			1,887,744			573,616

Effect of changes in cash flow assumptions		1,506			53,098			(6,296	)		0			0			0

Adjusted beginning balance		1,536,524			1,847,089			537,208			1,598,009			1,887,744			573,616

Issuances		76,519			83,982			22,660			30,127			28,481			22,366
Interests		24,023			27,839			14,552			11,996			14,123			8,163
Insurance claims paid		(45,075	)		(96,364	)		(13,370	)		(24,340	)		(35,369	)		(7,666	)
Actual variances from cash flow assumptions		(12,376	)		20,178			9,002			(7,436	)		(3,485	)		4,416
Derecognition		18,394			5,020			(47,189	)		10,943			1,328			(21,716	)
Effect of changes in foreign exchange rate		0			0			50,753			0			0			70,615

Ending balance at original discount rate		1,598,009			1,887,744			573,616			1,619,299			1,892,822			649,794

Effect of changes in discount rates		(26,123	)		30,718			(186,543	)		(94,265	)		(53,678	)		(252,809	)

Ending balance	¥	1,571,886		¥	1,918,462		¥	387,073		¥	1,525,034		¥	1,839,144		¥	396,985

Net liability for future policy benefits	¥	677,349		¥	529,399		¥	12,122		¥	655,514		¥	511,129		¥	8,883
Deferred profit liabilities		35,770			61,668			15,578			39,815			66,255			22,595

Subtotal		713,119			591,067			27,700			695,329			577,384			31,478

Less: Reinsurance recoverable		215			0			0			132			0			0

The liability for future policy benefits, after reinsurance recoverable	¥	712,904		¥	591,067		¥	27,700		¥	695,197		¥	577,384		¥	31,478

The following tables provide the breakdown of the policy liabilities and policy account balances recorded in the consolidated balance sheets as of March 31, 2023 and September 30, 2023:


	Millions of yen
	March 31, 2023		September 30, 2023
Yen-denominated insurance (First Sector)	¥	712,904	¥	695,197
Yen-denominated insurance (Third Sector)		591,067		577,384
Foreign currency denominated insurance		27,700		31,478

Subtotal		1,331,671		1,304,059

Policy account balances for variable annuity and variable life insurance contracts and market risk benefits		163,734		160,177
Fixed annuities and annuitization benefits		158,952		149,544
Others*		177,700		169,294

Total	¥	1,832,057	¥	1,783,074

*	Others include unearned premiums and liabilities for unpaid claims.

The amount of undiscounted and discounted expected future gross premiums and expected future policy benefits and expenses as of March 31, 2023 and September 30, 2023 are as follows:


	Millions of yen
	March 31, 2023				September 30, 2023
	Undiscounted		Discounted		Undiscounted		Discounted
Yen-denominated insurance (First Sector)
Expected future gross premiums	¥	1,538,107	¥	1,429,503	¥	1,522,501	¥	1,389,250
Expected future policy benefits and expenses		2,291,205		1,571,887		2,316,478		1,525,033

Yen-denominated insurance (Third Sector)
Expected future gross premiums		2,695,239		2,388,386		2,649,324		2,287,047
Expected future policy benefits and expenses		2,578,630		1,918,462		2,582,806		1,839,144

Foreign currency denominated insurance
Expected future gross premiums		626,411		492,588		687,445		519,357
Expected future policy benefits and expenses		1,097,567		387,073		1,262,953		396,985

For the fiscal year ended March 31, 2023 and the six months ended September 30, 2023, the effects of net premium exceeding gross premiums in certain cohorts are immaterial in earnings for the respective periods.

The amounts of gross premiums and interest expense recognized in the consolidated statement of income for the six and three months ended September 30, 2022 and 2023 are as follows:


	Millions of yen
	Six months ended September 30, 2022				Six months ended September 30, 2023
	Gross premiums		Interest expense		Gross premiums		Interest expense
Yen-denominated insurance (First Sector)	¥	73,383	¥	6,047	¥	74,702	¥	6,484
Yen-denominated insurance (Third Sector)		103,314		4,465		102,734		4,763
Foreign currency denominated insurance		43,473		1,624		44,288		2,381

Total	¥	220,170	¥	12,136	¥	221,724	¥	13,628


	Millions of yen
	Three months ended September 30, 2022				Three months ended September 30, 2023
	Gross premiums		Interest expense		Gross premiums		Interest expense
Yen-denominated insurance (First Sector)	¥	37,775	¥	3,049	¥	38,306	¥	3,263
Yen-denominated insurance (Third Sector)		51,906		2,258		51,362		2,406
Foreign currency denominated insurance		27,763		882		27,251		1,267

Total	¥	117,444	¥	6,189	¥	116,919	¥	6,936

The weighted average discount rates for the liability for future policy benefits as of March 31, 2023 and September 30, 2023 are as follows:


	Weighted average rate
	March 31, 2023			September 30, 2023
Yen-denominated insurance (First Sector)
Weighted average of the original discount rates		1.6	%		1.6	%
Weighted average of the current discount rates		1.9			2.1

Yen-denominated insurance (Third Sector)
Weighted average of the original discount rates		1.7			1.7
Weighted average of the current discount rates		1.8			2.0

Foreign currency denominated insurance
Weighted average of the original discount rates		2.9			3.0
Weighted average of the current discount rates		5.2			6.0

The weighted average duration of the liability for future policy benefit as of March 31, 2023 and September 30, 2023 are as follows:


	Years
	March 31, 2023		September 30, 2023
Yen-denominated insurance (First Sector)		37.9		37.1
Yen-denominated insurance (Third Sector)		36.8		35.8
Foreign currency denominated insurance		40.7		38.6

Assumptions for calculating the liability for future policy benefits include assumptions related to mortality, morbidity, lapse rates and discount rates. The Company and its subsidiaries recognized actual variances from expected experience and updated the assumptions during the fiscal year ended March 31, 2023 as follows. For the six months ended September 30, 2023, the Company and its subsidiaries continued to use the same assumptions.

•

Yen-denominated

insurance (First Sector)

•

Yen-denominated

insurance (Third Sector)

The Company and its subsidiaries reviewed actual experience during the fiscal year ended March 31, 2023. As a result, the Company and its subsidiaries updated expected mortality and lapse rates due to the higher-than-expected mortality and the lower-than-expected lapse rate. The actual morbidity was higher than expected due to the impact of a significant amount of hospitalization benefits for deemed hospitalization caused by

COVID-19.

However, the relevant morbidity assumptions were not updated because benefits arising from such hospitalization benefits are not eligible for claim after reclassification of the legal category of

COVID-19

by Japanese government.

•

Foreign currency denominated insurance

The market data underlying the discount rate was updated quarterly for both the fiscal year ended March 31, 2023 and for the six months ended September 30, 2023.

For the effect of the changes in assumptions on expected net premiums and expected future policy benefits, see “Effect of changes in cash flow assumptions” and “Effect of changes in discount rates” in the tables that represent balances of and changes in the liability for future policy benefits.

The following tables present balances of and changes in the deferred policy acquisition costs as of and for the fiscal year ended March 31, 2023 and for the six months ended September 30, 2023:


	Millions of yen
	March 31, 2023												September 30, 2023
	Yen-denominated insurance (First Sector)			Yen-denominated insurance (Third Sector)			Foreign currency denominated insurance			Total			Yen-denominated insurance (First Sector)			Yen-denominated insurance (Third Sector)			Foreign currency denominated insurance			Total
Beginning balance	¥	74,676		¥	159,041		¥	35,243		¥	268,960		¥	77,957		¥	166,696		¥	42,726		¥	287,379

Capitalization		8,682			16,795			5,725			31,202			3,937			7,065			3,567			14,569
Amortization		(5,401	)		(9,140	)		(1,779	)		(16,320	)		(2,917	)		(4,971	)		(1,091	)		(8,979	)
Effect of changes in foreign exchange rate		0			0			3,537			3,537			0			0			5,440			5,440

Ending balance	¥	77,957		¥	166,696		¥	42,726		¥	287,379		¥	78,977		¥	168,790		¥	50,642		¥	298,409

Deferred policy acquisition costs are amortized over the expected term of the policies on a constant-level basis. The assumptions used for the amortization of deferred policy acquisition costs are consistent with the assumptions for the liability for future policy benefits. The underlying assumptions for deferred policy acquisition costs and the liability for future policy benefits are updated at the same time. In addition, deferred policy acquisition costs are included in other assets in the consolidated balance sheets.

The following table presents policyholder account balances for fixed annuity and annuitization benefits by range of minimum guaranteed interest rates as of March 31, 2023 and September 30, 2023.


	Millions of yen
	March 31, 2023		September 30, 2023
Range of minimum guaranteed interest rates	Minimum guarantees		Minimum guarantees
0.00% – less than 1.50%	¥	152,259	¥	142,567
1.50% – less than 2.50%		6,644		6,977
2.50% or more		49		0

Total	¥	158,952	¥	149,544

There are no contracts with interest rates that exceed the minimum guaranteed interest rates.

The following table provides information about fixed annuity and annuitization benefits for the fiscal year ended March 31, 2023 and for the six months ended September 30, 2023.


	Millions of yen
	March 31, 2023			September 30, 2023
Beginning balance	¥	193,322		¥	158,952

Transfer in		17,223			5,540
Surrenders and partial surrenders		(58	)		(25	)
Benefit payments and lump sum payments, etc.		(50,956	)		(15,142	)
Policy charges		(262	)		(113	)
Transfer out		(409	)		(188	)
Interests		1,209			532
Others		(1,117	)		(12	)

Ending balance	¥	158,952		¥	149,544


	March 31, 2023			September 30, 2023
Weighted average guaranteed interest rate (%)		0.7			0.7
Benefits in excess of policyholder account balances (Millions of yen)	¥	1		¥	1
Cash surrender value (Millions of yen)		152,578			143,335

The following table provides information about policy account balances for variable annuity and variable life insurance contracts and market risk benefits as of and for the fiscal year ended March 31, 2023, and for the six months ended September 30, 2023:


	Millions of yen
	March 31, 2023			September 30, 2023
Beginning balance	¥	198,905		¥	163,734

Effect of changes other than through net income and other comprehensive income		(28,754	)		(13,848	)
Surrenders and withdrawals		(4,083	)		(4,125	)
Transfer in		(14,093	)		(4,257	)
Benefit payments		(10,762	)		(5,435	)
Others		184			(31	)

Changes through net income		(6,343	)		10,121

Effect of changes in fair value of corresponding investment assets		(2,347	)		15,531

Fee income		(3,938	)		(1,893	)
Effect of changes in fair value of market risk benefits		(58	)		(3,517	)

Changes through other comprehensive income		(74	)		170
Effect of changes in the instrument-specific credit risk		(74	)		170

Ending balance	¥	163,734		¥	160,177


	Millions of yen
	March 31, 2023			September 30, 2023
Policyholder account balances	¥	157,399		¥	157,190
Market risk benefits		6,335			2,987

Total	¥	163,734		¥	160,177