Derivative Financial Instruments and Hedging

6 Months Ended

Sep. 30, 2023

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Financial Instruments and Hedging

21.	Derivative Financial Instruments and Hedging

Risk management policy

The Company and its subsidiaries manage interest rate risk through asset-liability management (“ALM”). The Company and its subsidiaries use derivative financial instruments to hedge interest rate risk and avoid changes in interest rates that could have a significant adverse effect on the Company’s results of operations. As a result of interest rate changes, the fair value and/or cash flow of interest sensitive assets and liabilities will fluctuate. However, such fluctuation will generally be offset by using derivative financial instruments as hedging instruments. Derivative financial instruments that the Company and its subsidiaries use as part of the interest risk management include interest rate swaps.

The Company and its subsidiaries utilize foreign currency borrowings, foreign exchange contracts and foreign currency swap agreements to hedge exchange rate risk that are associated with certain transactions and investments denominated in foreign currencies. Similarly, overseas subsidiaries generally structure their liabilities to match the currency-denomination of assets in each region. A certain subsidiary holds futures and foreign exchange contracts for the purpose of economic hedges against minimum guarantee risk of variable annuity and variable life insurance contracts.

By using derivative instruments, the Company and its subsidiaries are exposed to credit risk in the event of nonperformance by counterparties. The Company and its subsidiaries attempt to manage the credit risk by carefully evaluating the content of transactions and the quality of counterparties in advance and regularly monitoring the amount of notional principal, fair value, type of transaction and other factors pertaining to each counterparty.

The Company and its subsidiaries have no derivative instruments with credit-risk-related contingent features as of March 31, 2023 and September 30, 2023.

(a) Cash flow hedges

The Company and its subsidiaries designate interest rate swap agreements, foreign currency swap agreements and foreign exchange contracts as cash flow hedges for variability of cash flows originating from floating rate borrowings and forecasted transactions and for exchange fluctuations.

(b) Fair value hedges

The Company and its subsidiaries use financial instruments designated as fair value hedges to hedge their exposure to interest rate risk and foreign currency exchange risk. A certain subsidiary designates foreign exchange contracts to minimize foreign currency exposures on bonds in foreign currencies in the insurance business. The subsidiary also uses interest rate swap agreements to hedge interest rate exposure of the fair values of bonds in foreign currencies in the insurance business.

The Company and its subsidiaries use foreign exchange contracts and borrowings and bonds denominated in foreign currencies to hedge the foreign currency exposure of the net investment in overseas subsidiaries and affiliates.

(d) Derivatives not designated as hedging instruments

The Company and its subsidiaries entered into interest rate swap agreements, futures and foreign exchange contracts for risk management purposes which are not qualified for hedge accounting. A certain subsidiary holds futures and foreign exchange contracts for the purpose of economic hedges against minimum guarantee risk of variable annuity and variable life insurance contracts.

The effect of derivative instruments on the consolidated statements of income,

pre-tax,

for the six months ended September 30, 2022 is as follows.

(1) Cash flow hedges


	Millions of yen
	Gains (losses) recognized in other comprehensive income on derivative			Gains (losses) reclassified from other comprehensive income (loss) into income
				Interest expense		Other (income) and expense
Interest rate swap agreements	¥	22,506		¥	157	¥	0
Foreign exchange contracts		(172	)		17		147
Foreign currency swap agreements		(545	)		302		1,262

(2) Fair value hedges


	Millions of yen
	Gains (losses) recognized in income on derivative and other						Gains (losses) recognized in income on hedged item
	Life insurance premiums and related investment income			Other (income) and expense			Life insurance premiums and related investment income			Other (income) and expense
Interest rate swap agreements	¥	3,173		¥	0		¥	(3,058	)	¥	0
Foreign exchange contracts		(78,667	)		(449	)		78,817			399

(3) Hedges of net investment in foreign operations


	Millions of yen
	Gains (losses) recognized in other comprehensive income on derivative and others			Gains (losses) reclassified from other comprehensive income (loss) into income
				Gains on sales of subsidiaries and affiliates and liquidation losses, net		Interest expense		Other (income) and expense
Foreign exchange contracts	¥	(24,595	)	¥	51	¥	1,956	¥	(252	)
Borrowings and bonds in foreign currencies		(122,739	)		0		0		0

(4) Derivatives not designated as hedging instruments


	Millions of yen
	Gains (losses) recognized in income on derivative
	Life insurance premiums and related investment income*		Interest expense		Other (income) and expense
Interest rate swap agreements	¥	0	¥	3	¥	(139	)
Futures		852		0		(4,105	)
Foreign exchange contracts		34,472		1,950		51,589
Credit derivatives written		0		0		4
Options held/written and other		0		0		(886	)

Futures and foreign exchange contracts in the above table include gains (losses) arising from futures and foreign exchange contracts held to economically hedge the minimum guarantee risk of variable annuity and variable life insurance contracts for the six months ended September 30, 2022 (see Note 17 “Income and Expenses Relating to Life Insurance Operations”).

The effect of derivative instruments on the consolidated statements of income,

pre-tax,

for the six months ended September 30, 2023 is as follows.

(1) Cash flow hedges


	Millions of yen
	Gains (losses) recognized in other comprehensive income on derivative			Gains (losses) reclassified from other comprehensive income (loss) into income
				Interest expense		Other (income) and expense
Interest rate swap agreements	¥	4,011		¥	30	¥	0
Foreign exchange contracts		170			0		0
Foreign currency swap agreements		5,352			1,001		(6,535	)
Options held/written and other		(838	)		0		0

(2) Fair value hedges


	Millions of yen
	Gains (losses) recognized in income on derivative and other						Gains (losses) recognized in income on hedged item
	Life insurance premiums and related investment income			Other (income) and expense			Life insurance premiums and related investment income			Other (income) and expense
Interest rate swap agreements	¥	371		¥	0		¥	(227	)	¥	11
Foreign exchange contracts		(55,247	)		(101	)		55,301			48

(3) Hedges of net investment in foreign operations


	Millions of yen
	Gains (losses) recognized in other comprehensive income on derivative and others			Gains (losses) reclassified from other comprehensive income (loss) into income
				Gains on sales of subsidiaries and affiliates and liquidation losses, net			Interest expense
Foreign exchange contracts	¥	(30,436	)	¥	(69	)	¥	7,567
Borrowings and bonds in foreign currencies		(84,367	)		0			0

(4) Derivatives not designated as hedging instruments


	Millions of yen
	Gains (losses) recognized in income on derivative
	Life insurance premiums and related investment income*			Interest expense		Other (income) and expense
Interest rate swap agreements	¥	0		¥	2	¥	(8	)
Futures		(1,557	)		0		(685	)
Foreign exchange contracts		30,067			1,513		5,077
Credit derivatives held/written		0			0		8
Options held/written and other		0			0		(878	)

Futures and foreign exchange contracts in the above table include gains (losses) arising from futures and foreign exchange contracts to economically hedge the minimum guarantee risk of variable annuity and variable life insurance contracts for the six months ended September 30, 2023 (see Note 17 “Income and Expenses Relating to Life Insurance Operations”).

The effect of derivative instruments on the consolidated statements of income,

pre-tax,

for the three months ended September 30, 2022 is as follows.

(1) Cash flow hedges


	Millions of yen
	Gains (losses) recognized in other comprehensive income on derivative			Gains (losses) reclassified from other comprehensive income (loss) into income
				Interest expense			Other (income) and expense
Interest rate swap agreements	¥	10,230		¥	(63	)	¥	0
Foreign exchange contracts		(186	)		(155	)		239
Foreign currency swap agreements		1,788			180			(1,763	)

(2) Fair value hedges


	Millions of yen
	Gains (losses) recognized in income on derivative and other						Gains (losses) recognized in income on hedged item
	Life insurance premiums and related investment income			Other (income) and expense			Life insurance premiums and related investment income			Other (income) and expense
Interest rate swap agreements	¥	1,305		¥	0		¥	(1,309	)	¥	0
Foreign exchange contracts		(29,199	)		(314	)		29,275			218

(3) Hedges of net investment in foreign operations


	Millions of yen
	Gains (losses) recognized in other comprehensive income on derivative and others			Gains (losses) reclassified from other comprehensive income (loss) into income
				Gains on sales of subsidiaries and affiliates and liquidation losses, net			Interest expense
Foreign exchange contracts	¥	(2,042	)	¥	(5	)	¥	1,166
Borrowings and bonds in foreign currencies		(42,929	)		0			0

(4) Derivatives not designated as hedging instruments


	Millions of yen
	Gains (losses) recognized in income on derivative
	Life insurance premiums and related investment income*		Interest expense		Other (income) and expense
Interest rate swap agreements	¥	0	¥	2	¥	(70	)
Futures		173		0		(1,424	)
Foreign exchange contracts		13,332		1,696		14,519
Credit derivatives written		0		0		4
Options held/written and other		0		0		(170	)

Futures and foreign exchange contracts in the above table include gains (losses) arising from futures and foreign exchange contracts held to economically hedge the minimum guarantee risk of variable annuity and variable life insurance contracts for the three months ended September 30, 2022 (see Note 17 “Income and Expenses Relating to Life Insurance Operations”).

The effect of derivative instruments on the consolidated statements of income,

pre-tax,

for the three months ended September 30, 2023 is as follows.

(1) Cash flow hedges


	Millions of yen
	Gains (losses) recognized in other comprehensive income on derivative			Gains (losses) reclassified from other comprehensive income (loss) into income
				Interest expense			Other (income) and expense
Interest rate swap agreements	¥	5,389		¥	(7	)	¥	0
Foreign exchange contracts		(36	)		0			0
Foreign currency swap agreements		(750	)		604			183
Options held/written and other		(913	)		0			0

(2) Fair value hedges


	Millions of yen
	Gains (losses) recognized in income on derivative and other					Gains (losses) recognized in income on hedged item
	Life insurance premiums and related investment income			Other (income) and expense		Life insurance premiums and related investment income			Other (income) and expense
Interest rate swap agreements	¥	79		¥	0	¥	(76	)	¥	11
Foreign exchange contracts		(13,560	)		52		13,603			(35	)

(3) Hedges of net investment in foreign operations


	Millions of yen
	Gains (losses) recognized in other comprehensive income on derivative and others			Gains (losses) reclassified from other comprehensive income (loss) into income
				Gains on sales of subsidiaries and affiliates and liquidation losses, net		Interest expense
Foreign exchange contracts	¥	(5,159	)	¥	0	¥	3,316
Borrowings and bonds in foreign currencies		(21,284	)		0		0

(4) Derivatives not designated as hedging instruments


	Millions of yen
	Gains (losses) recognized in income on derivative
	Life insurance premiums and related investment income*			Interest expense		Other (income) and expense
Interest rate swap agreements	¥	0		¥	1	¥	(6	)
Futures		(150	)		0		(1,095	)
Foreign exchange contracts		10,595			106		(5,102	)
Options held/written and other		0			0		(345	)

Futures and foreign exchange contracts in the above table include gains (losses) arising from futures and foreign exchange contracts to economically hedge the minimum guarantee risk of variable annuity and variable life insurance contracts for the three months ended September 30, 2023 (see Note 17 “Income and Expenses Relating to Life Insurance Operations”).

The effect of the components excluded from the assessment of hedge effectiveness on the consolidated statements of income,

pre-tax,

for the six months ended September 30, 2022 is as follows.

Fair value hedges


	Millions of yen
	Gains (losses) recognized in income
	Life insurance premiums and related investment income			Interest expense		Other (income) and expense
Foreign exchange contracts	¥	(1,474	)	¥	14	¥	0
Options held/written and other		0			0		27

The effect of the components excluded from the assessment of hedge effectiveness on the consolidated statements of income,

pre-tax,

for the three months ended September 30, 2022 is as follows.

Fair value hedges


	Millions of yen
	Gains (losses) recognized in income
	Life insurance premiums and related investment income			Interest expense		Other (income) and expense
Foreign exchange contracts	¥	(2,155	)	¥	7	¥	0
Options held/written and other		0			0		14

The carrying amount of hedged assets and liabilities recognized in balance sheets in fair value hedges and the cumulative amount of fair value hedging adjustments included in the carrying amount (excluding the effect of changes in foreign exchange rates) at March 31, 2023 is as follows.


Assets as hedged items in fair value hedges						Liabilities as hedged items in fair value hedges
	Millions of yen						Millions of yen
Consolidated balance sheets location	Carrying amount		The cumulative amount of fair value hedging adjustments included in the carrying amount			Consolidated balance sheets location	Carrying amount		The cumulative amount of fair value hedging adjustments included in the carrying amount
Investment in Securities	¥	470,204	¥	(1,107	)	—	¥	0	¥	0
Installment Loans		13,969		(1	)	—		0		0

The effect of the components excluded from the assessment of hedge effectiveness on the consolidated statements of income,

pre-tax,

for the six months ended September 30, 2023 is as follows.

Fair value hedges


	Millions of yen
	Gains (losses) recognized in income
	Life insurance premiums and related investment income			Interest expense		Other (income) and expense
Foreign exchange contracts	¥	(10,635	)	¥	17	¥	0
Options held/written and other		0			0		25

The effect of the components excluded from the assessment of hedge effectiveness on the consolidated statements of income,

pre-tax,

for the three months ended September 30, 2023 is as follows.

Fair value hedges


	Millions of yen
	Gains (losses) recognized in income
	Life insurance premiums and related investment income			Interest expense		Other (income) and expense
Foreign exchange contracts	¥	(6,578	)	¥	9	¥	0
Options held/written and other		0			0		10


Assets as hedged items in fair value hedges						Liabilities as hedged items in fair value hedges
	Millions of yen						Millions of yen
Consolidated balance sheets location	Carrying amount		The cumulative amount of fair value hedging adjustments included in the carrying amount			Consolidated balance sheets location	Carrying amount		The cumulative amount of fair value hedging adjustments included in the carrying amount
Investment in Securities	¥	506,514	¥	(1,387	)	—	¥	0	¥	0
Installment Loans		15,694		(1	)	—		0		0

Notional amounts of derivative instruments and other, fair values of derivative instruments and other before offsetting at March 31, 2023 and September 30, 2023 are as follows.

March 31, 2023


			Derivative assets			Derivative liabilities
	Notional amount		Fair value		Consolidated balance sheets location	Fair value		Consolidated balance sheets location
	Millions of yen		Millions of yen			Millions of yen
Derivatives designated as hedging instruments and other:

Interest rate swap agreements	¥	568,864	¥	22,798	Other Assets	¥	3,311	Other Liabilities

Options held/written and other		9,486		52	Other Assets		88	—

Futures, foreign exchange contracts		933,988		2,735	Other Assets		26,217	Other Liabilities

Foreign currency swap agreements		99,878		1,325	Other Assets		2,426	Other Liabilities

Foreign currency long-term debt		748,396		0	—		0	—

Derivatives not designated as hedging instruments:

Interest rate swap agreements	¥	464	¥	0	—	¥	8	Other Liabilities

Options held/written and other		632,211		30,435	Other Assets		28,335	Other Liabilities

Futures, foreign exchange contracts *		788,361		15,050	Other Assets		10,978	Other Liabilities

Credit derivatives held/written		1,098		3	Other Assets		3	Other Liabilities

The notional amounts of futures and foreign exchange contracts in the above table include futures contracts of ¥14,758 million and foreign exchange contracts of ¥5,554 million to economically hedge the minimum guarantee risk of variable annuity and variable life insurance contracts at March 31, 2023, respectively. Derivative assets in the above table include fair value of the futures and foreign exchange contracts before offsetting of ¥52 million and ¥12 million and derivative liabilities include fair value of the futures and foreign exchange contracts before offsetting of ¥200 million and ¥179 million at March 31, 2023, respectively.

September 30, 2023


			Derivative assets			Derivative liabilities
	Notional amount		Fair value		Consolidated balance sheets location	Fair value		Consolidated balance sheets location
	Millions of yen		Millions of yen			Millions of yen
Derivatives designated as hedging instruments and other:

Interest rate swap agreements	¥	603,623	¥	26,777	Other Assets	¥	3,169	Other Liabilities

Options held/written and other		14,541		44	Other Assets		886	Other Liabilities

Futures, foreign exchange contracts		972,031		2,613	Other Assets		51,029	Other Liabilities

Foreign currency swap agreements		107,406		491	Other Assets		6,831	Other Liabilities

Foreign currency long-term debt		817,200		0	—		0	—

Derivatives not designated as hedging instruments:

Interest rate swap agreements	¥	2,122	¥	165	Other Assets	¥	8	Other Liabilities

Options held/written and other		564,816		33,397	Other Assets		29,818	Other Liabilities

Futures, foreign exchange contracts *		871,149		37,446	Other Assets		8,797	Other Liabilities

Credit derivatives held/written		1,979		8	Other Assets		6	Other Liabilities

The notional amounts of futures and foreign exchange contracts in the above table include futures contracts of ¥10,229 million and foreign exchange contracts of ¥3,622 million to economically hedge the minimum guarantee risk of variable annuity and variable life insurance contracts at September 30, 2023, respectively. Derivative assets in the above table include fair value of the futures and foreign exchange contracts before offsetting of ¥144 million and ¥19 million and derivative liabilities include fair value of the futures and foreign exchange contracts before offsetting of ¥3 million and ¥168 million at September 30, 2023, respectively.

The Company and its subsidiaries have contracted credit derivatives for the purpose of trading. Details of credit derivatives written as of March 31, 2023 and September 30, 2023 are as follows.

March 31, 2023

Types of derivatives

The events or circumstances
that would require the seller

to perform under the credit

derivative

Maximum potential
amount of future
payment under the
credit derivative

Approximate
remaining term

of the credit

derivative

Fair value of

the credit
derivative

Millions of yen

Credit default swap

In case of credit event (bankruptcy, failure to pay, restructuring) occurring in underlying reference company *

1,000

Less than

five years

)

*	Underlying reference company’s credit ratings are A1 or better rated by rating agencies as of March 31, 2023.

September 30, 2023

Types of derivatives

The events or circumstances

that would require the seller

to perform under the credit

derivative

Maximum potential
amount of future
payment under the
credit derivative

Approximate
remaining term

of the credit

derivative

Fair value of

the credit
derivative

Millions of yen

Credit default swap

In case of credit event (bankruptcy, failure to pay, restructuring) occurring in underlying reference company *

1,532

Less than

six years

)

*	Underlying reference company’s credit ratings are Baa3 or better rated by rating agencies as of September 30, 2023.