T&D : MCEV as of March 31, 2024

May 17, 2024

T&D Holdings, Inc.

(Security Code: 8795, TSE Prime Market)

Taiyo Life Insurance Company

Daido Life Insurance Company

T&D Financial Life Insurance Company

Disclosure of Market Consistent Embedded Value

as of March 31, 2024

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

(President: Naoki Soejima, "Taiyo"), Daido Life Insurance Company (President: Mutsuro Kitahara,

"Daido") and T&D Financial Life Insurance Company (President: Kanaya Morinaka, "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, 2024.

			Summary
The Group's MCEV as of March 31, 2024 is as shown in the table below:
				(Billions of yen)
			March 31, 2023	March 31, 2024	Increase
			(Decrease)
	MCEV	3,440.3	3,983.2	542.9
		Adjusted net worth	1,511.4	1,605.9	94.4
		Value of in-force business	1,928.9	2,377.3	448.4
	Value of new business	167.0	161.7	(5.2)
	Group MCEV (Note1)	3,331.3	3,884.4	553.0
Note:

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

1 Copyright © 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.

1. 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 rates used in the calculations are defined as the government bond nominal spot rate curves rather than the swap rate curves as stipulated in the MCEV Principles.

1. 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.

1. 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.

1. Use of government bond 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 government bond yields as the reference rates and not swaps for the following reasons:

• Japanese government bond (JGB) yields are used as a 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.

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• 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.
• 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 Group also uses government bond yields for non-Japanese currencies.

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, 2024 is ¥3,983.2 billion, an increase of ¥542.9 billion from the value as of March 31, 2023, which is primarily related to the contribution of new business, higher equity prices and higher interest rates. The adjusted net worth has increased due to the increase in the market value of equities caused by higher equity prices and the value of in-force business has increased due to the contribution of new business and higher domestic interest rates.

The value of new business is ¥161.7 billion, a decrease of ¥5.2 billion from the value as of March 31,2023.

				(Billions of yen)
		March 31, 2023	March 31, 2024	Increase
		(Decrease)
MCEV	3,440.3	3,983.2	542.9
	Adjusted net worth	1,511.4	1,605.9	94.4
	Value of in-force business	1,928.9	2,377.3	448.4
		March 31, 2023	March 31, 2024	Increase
		(Decrease)
Value of new business	167.0	161.7	(5.2)
New business margin(Note1)	8.9%	7.8%	(1.0)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
		2023	2024	(Decrease)
Adjusted net worth	1,511.4	1,605.9	94.4
	Shareholders equity on the balance sheet (Note1)	832.2	833.8	1.5
	Unrealized gains/losses on securities (after tax)	268.6	347.5	78.8
	Unrealized gains/losses on loans (after tax)	4.9	(7.5)	(12.4)
	Unrealized gains/losses on real estate (after tax)	97.5	116.5	19.0
	General reserves for possible loan losses (after	0.9	1.7	0.7
	tax)
	Internal reserves as quasi-equity liabilities (after	306.4	313.4	6.9
	tax) (Note2)
	Unrealized gains/losses on subordinated debts	0.6	0.4	(0.2)
	(after tax)

Notes:

1. Excluding unrealized gains/losses, and including an accumulated amount (¥2.7 billion as of March 31, 2023 and ¥3.0 billion as of March 31, 2024) of share-based payments

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

The breakdown of the adjusted net worth into the free surplus and the required capital is as follows. Please refer Section 7. (3) for the calculation of the required capital:

			(Billions of yen)
		March 31,	March 31,	Increase
		2023	2024	(Decrease)
Adjusted net worth	1,511.4	1,605.9	94.4
	Free surplus	1,397.3	1,432.5	35.1
	Required capital	114.1	173.4	59.3

(2) Value of in-force business

Value of in-force business represents the present value as of the valuation date (March 31, 2024) of future profits distributable to shareholders from the in-force business as of the valuation date and consists of the following components, as defined in Section 7.

			(Billions of yen)
		March 31,	March 31,	Increase
		2023	2024	(Decrease)
Value of in-force business	1,928.9	2,377.3	448.4
	Certainty equivalent present value of future	2,308.3	2,729.1	420.8
	profit
	Time value of financial options and guarantees	(134.1)	(93.1)	40.9
	Frictional costs of required capital	(5.4)	(7.1)	(1.7)
	Cost of non-hedgeable risks	(239.8)	(251.4)	(11.5)

The certainty equivalent present value of future profit is the present value of future profit calculated deterministically by assuming the investment yield is equal to the reference rate and using the reference rate as the discount rate. This value includes the intrinsic cost of the financial options and guarantees present in the Group's products.

The time value of financial options and guarantees is calculated stochastically using a set of market- consistent risk neutral economic scenarios.

The frictional costs of required capital represent the cost associated with maintaining the level of capital which the Group considers as required in continuing the operation of the life insurance business.

The cost of non-hedgeable risks is an estimate of the impact of non hedgeable risks not allowed for the certainty equivalent present value of future profit or the time value of financial options and guarantees.

Further explanation of the above components is provided in Section 7 of this document.

Impact on EV of using swap rate as the reference rate

The Group uses the Japanese government bond yield as the reference rate. If swap rates were used as the reference rate, the value of in-force business would be ¥2,141.0 billion.

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(3) Value of new business

Value of new business is the value as at the valuation date of the new business issued in the fiscal year ended March 31, 2024. The figure for adjusted net worth represents the loss (new business strain) arising between the point of sale and March 31, 2024 on business sold in the period. However, the value of new business of the single premium saving products issued by TDF is calculated as a value at point of sale applying economic assumptions as of the end of each quarter to new business generated in the quarter. Please refer to Section 7. for the detail of the methodology of the value of new business. It does not include values anticipated from future new business. For conversions, only net increases in value by conversions have been included in the value of new business. The table below shows the results.

					(Billions of yen)
				March 31,	March 31,	Increase
				2023	2024	(Decrease)
Value of new business	167.0	161.7	(5.2)
	Adjusted net worth	(83.5)	(87.4)	(3.9)
	Value of in-force business	250.6	249.2	(1.3)
		Certainty equivalent present value of future	296.2	281.2	(14.9)
		profit
		Time value of financial options and	(9.5)	(5.2)	4.3
		guarantees
		Frictional costs of required capital	(0.8)	(0.9)	(0.1)
		Cost of non-hedgeable risks	(35.1)	(25.7)	9.3

The table below shows the new business margin, calculated as the ratio of the value of new business to the present value of new business premiums (PVNBP). The PVNBP is based on the premiums before reinsurance and calculated with the same assumptions as used for the calculation of the value of new business.

		(Billions of yen)
	March 31,	March 31,	Increase
	2023	2024	(Decrease)
Value of new business	167.0	161.7	(5.2)
Present value of new business premiums	1,883.2	2,067.2	184.0
New business margin	8.9%	7.8%	(1.0)points

The table below shows the total amount of single premiums, the total annualized amount of level premiums and the average annual premium multiplier.

		(Billions of yen)
	March 31,	March 31,	Increase
	2023	2024	(Decrease)
New business single premium	655.0	967.4	312.4
Annualized amount of new business level	121.8	103.6	(18.2)
premium (Note1)
Average annual premium multiplier (Note2)	10.1	10.6	0.5

Notes:

1. Here annualized amount of level premium is determined by multiplying the amounts of the periodic premiums paid by the number of payments in a year. It should be noted that this definition of annualized premiums is different from that used

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in our other disclosures including financial results and annual reports.

2. The average annual premium multiplier is defined as (PVNBP - total amount of new business single premiums)/total annualized amount of new business level premiums.

Impact on VNB of using swap rate as the reference rate

The Group uses the Japanese government bond yield as the reference rate. If swap rates were used as the reference rate, the value of new business would be ¥146.1 billion.

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3. Movement Analysis

The table below shows an analysis of the increase (decrease) in the embedded value during the 12 month period ended March 31, 2024. All components are shown on a post-tax basis.

(Billions of yen)

			Required	Value of in-
		Free surplus	force
		capital
			business
Opening MCEV	1,397.3	114.1	1,928.9
(1)	Opening adjustments	(88.3)	-	-
Adjusted opening MCEV	1,309.0	114.1	1,928.9
(2)	New business value	(101.4)	13.9	249.2
(3)	Expected existing business	(1.1)	-	27.4
contribution (reference rate)
(4)	Expected existing business
contribution (in excess of reference	12.0	-	102.6
rate)
(5) Transfers from VIF and required	179.2	(56.8)	(122.3)
capital to free surplus
(6)	Experience variances	(56.5)	63.6	(20.5)
(7) Assumption changes	(160.2)	160.2	(154.1)
(8)	Other operating variance	137.9	(137.9)	-
(9)	Operating MCEV earnings	9.8	42.9	82.3
(10) Economic variances	113.6	16.3	366.0
(11) Other non operating variance	-	-	-
(12) Total MCEV earnings	123.4	59.3	448.4
Closing MCEV	1,432.5	173.4	2,377.3

MCEV

3,440.3

(88.3)

3,352.0

161.7

26.3

114.7

-

(13.4)

(154.1)

-

135.2

496.0

-

631.2

3,983.2

1. Opening adjustments

This amount consists of the shareholders dividend paid to its shareholders and the treasury stock purchased from the market by T&D Holdings during fiscal year 2023 and the additional capital injection to FGH Parent, L. P., the Group's non-covered business.

1. New business value

This is the value of new business issued during fiscal year 2023. For details of the approach, refer to Section 2. (3).

1. Expected existing business contribution (reference rate)

This amount is the sum of the following expected items:

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1. After-taxinvestment earnings on Adjusted Net Worth at the 1-year reference rate in "Free surplus" column; and
2. Increase of the certainty equivalent value of in-force business as of March 31, 2023 during fiscal year 2023 calculated at the 1 year reference rate and the amount projected to be released in fiscal year 2023 in respect of time value of financial options and guarantees, frictional costs of required capital and cost of non-hedgeable risks in "Value of in-force business" column.

1. Expected existing business contribution (in excess of reference rate)

Expected after-tax investment earnings on assets during fiscal year 2023 earned in excess of the reference rates. For detail of the expected investment earnings assumptions, refer to Section 8. (4).

1. Transfers from VIF and required capital to free surplus

This item represents the after-tax expected return on the required capital and the after-tax surplus expected to emerge during the period from the business that was in force at the beginning of the period. The effect is a movement of value from the value of in-force business and the required capital to the free surplus. This does not affect the total embedded value.

1. Experience variances

This is the impact on the embedded value of differences between the actual experience and the operating assumptions during the period. The Group's MCEV has decreased mainly due to the increase of lapse assumptions.

1. Assumption changes

This is the impact of changes in the operating assumptions which has been calculated as of the beginning of the period. The value of in-force business decreased mainly due to the changes to the lapse assumptions.

1. Other operating variances

This shows the operating variances which are not included in items (2) through (7), which includes the impact of improvements and corrections of the model used for the calculation of MCEV. For detail of the cost of capital charge, please refer to Section 7. (9).

1. Operating MCEV earnings

This shows the aggregate amount of items (2) through (8).

1. Economic variances

This is the impact of differences between the actual investment returns in the period and the expected investment returns and the impact on the value of future profits from the change to the end of period future economic assumptions, including the change of the extrapolation of the risk- free rates of Japanese yen and inflation rates. The Group's MCEV has increased mainly due to the higher equity prices and higher domestic interest rates. See Sections 8. (1) and 8. (2) for details of economic assumptions and see Section 8. (3) for the details of inflation assumptions.

1. Other non operating variances

The Group has no other non operating variances in fiscal year 2023.

1. Total MCEV earnings

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