One of Sony Financial Holdings' roles as a financial holding company is to further enhance and integrate Groupwide risk management by centralizing the Group' s management resources. Sony Financial Holdings has formulated the Basic Policy on Group Risk Management and develops a risk management structure by aligning it with Groupwide strategic objectives and management policies. In addition, Sony Financial Holdings seeks to enhance the corporate value of the Group by tailoring operating subsidiaries’ risk management to the types of risks inherent in their respective lines of business.
Basic Policy on Group Risk Management
- As a financial holding company, Sony Financial Holdings enhances the corporate value of the Group by aligning risk management with Groupwide strategic objectives and management policies, while tailoring operating subsidiaries' risk management to the types of risk inherent in their respective lines of business.
- Sony Financial Holdings adopts all necessary supplemental measures to ensure effective risk management, after confirming each operating subsidiary has independently and responsibly established its own risk management structure to achieve its own management objectives.
- Sony Financial Holdings takes steps to eliminate excessive concentration of risk in specific areas, establish appropriate controls over intra-Group transactions and control the ripple effect of risk within the Group.
- In principle, Sony Financial Holdings has control over Sony Life, Sony Assurance, Sony Bank and Sony Lifecare―subsidiaries in which Sony Financial Holdings has direct investment―while these four subsidiaries oversee their subsidiaries and affiliates in which they themselves have investment positions. However, Sony Financial Holdings may seek to establish an appropriate stance on risk management, by, for example, contacting directly the subsidiaries and affiliates of its own four subsidiaries depending on the issue or its urgency.
Approach to Risk Management by Sony Financial Holdings and Group Companies
Sony Financial Holdings has formulated the Fundamental Principles for Risk Management and communicates them to directors, employees, and throughout the Sony Financial Group. It also identifies the scope and types of risks of the Group companies, and establishes structures designed to manage such risks effectively. Sony Financial Holdings' department in charge of risk management controls risks through monitoring and holding Risk Management Meetings with the subsidiaries’ risk management divisions. It also reports its findings on the state of risk management regularly to Sony Financial Holdings' Board of Directors and Executive Committee.
The Group companies optimize types and definitions of their risks according to scale, characteristics and business model. They have established risk management frameworks, with the aim of autonomously assessing, monitoring, and managing these risks.
Types and Definitions of Risks
The types and definitions of risks that Sony Financial Holdings and Group companies must manage are shown in the following table:
|Market-related Risk||Risks associated with losses due to changes in the value of assets and liabilities, including off-balance-sheet items as a result of unfavorable fluctuations in interest rates, the value of securities held, exchange rates, and other factors.|
|Credit Risk||Risks associated with losses due to declines or loss in the value of assets, including off-balance-sheet items, resulting from deterioration in the financial position of retail and corporate customers and other contracts entered into.|
|Real Estate Investment Risk||Risks associated with losses due to declines in the market value of owned real estate or in the profitability of real estate holdings on account of unfavorable trends in prices and rents, respectively.|
Risks associated with losses are as follows:
|Insurance Underwriting Risk||Risks affecting the Group due to significant differences between the assumptions Sony Financial Holdings and the Group companies use to establish appropriate insurance premium levels, including assumptions regarding the expected frequency and scale of insured events and future economic conditions.|
|Administrative Risk||Material and immaterial risks affecting the Group due to errors, misconduct, malfunction, and other factors related to problems with the Group's internal administrative processes.|
|Systems Risk||Material and immaterial risks affecting the Group due to IT-system malfunction or breakdown, improper use or leakage of confidential information stemming from IT-system problems.|
|Legal Risk||Risks affecting the Group due to violations of applicable laws, rules and regulations occurring during the course of business operations, as well as the risk of loss due to litigation or infringement of rights.|
|Reputational Risk||Material and immaterial risks associated with losses resulting from harm to the Group’s reputation in the market and among customers as a result of unethical behavior, unfair business practices, improper disclosure, or other factors.|
|Business Continuity Risk||The risk that Sony Financial Holdings and the Group companies will be unable to continue operations as a result of a deterioration in financial position, liquidity problems, system failures, scandals, accidents, and other crises.|
Note: As the operating and business environment changes, the Group companies’ risk management departments review the risk types and definitions, amending them as appropriate for new conditions.
Contingency Management System
Sony Financial Holdings has established a contingency plan as part of the Group’s comprehensive policy on business continuity for times when ordinary business operations of Sony Financial Holdings or Group companies are at risk due to accidents, system failure or other factors. Group companies have developed regulations, manuals and other guidelines reflecting their respective business volume and nature of business activities. Sony Financial Holdings has a system in place whereby Group companies report to Sony Financial Holdings when they are unable to continue ordinary business operations. If Sony Financial Holdings determines that a reported situation is difficult to address under the risk management system set forth in the fundamental principles for risk management, among other guidelines, Sony Financial Holdings shall establish a contingency response headquarters led by the President and Representative Director of Sony Financial Holdings and execute business continuity measures aimed at the full restoration of all operations.
Introducing a Group ERM Framework
A group-oriented enterprise risk management (ERM) framework was introduced into the Sony Financial Group, effective from fiscal 2016. The objective is to balance and optimize capital, risk and returns by extending comprehensive risk management structures already in place at each company throughout the whole organization, and to instill the idea of improved capital efficiency in management across the Group. This ERM framework will help the Group achieve stable growth in corporate value.