Investment in Securities

6 Months Ended

Sep. 30, 2024

Investments Schedule [Abstract]

Investment in Securities

8. Investment in Securities

The presentation of equity method investment has been changed since fiscal 2024. The amounts of investment in securities in the previous years have been retrospectively reclassified for this change.

Investment in securities as of March 31, 2024 and September 30, 2024 consists of the following:

	Millions of yen
	March 31, 2024		September 30, 2024
Equity securities *	¥	597,601	¥	584,008
Available-for-sale debt securities		2,665,478		2,601,080
Total	¥	3,263,079	¥	3,185,088

* The amount of assets under management of variable annuity and variable life insurance contracts included in equity securities were ¥161,244 million and ¥146,047 million as of March 31, 2024 and September 30, 2024, respectively. The amount of investment funds and others that elected the fair value option and were included in equity securities were ¥26,945 million and ¥25,618 million as of March 31, 2024 and September 30, 2024, 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, 2023 and 2024 were gains of ¥24,322 million and losses of ¥1,992 million for the six months ended September 30, 2023 and 2024, respectively, which does not include net unrealized holding gains (losses) on investment funds and others that elected the fair value option.

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, 2024 and September 30, 2024, and for the six months ended September 30, 2023 and 2024.

	Millions of yen
	March 31, 2024							Six months ended September 30, 2023
	Carrying value		Accumulated impairments and downward adjustments			Accumulated upward adjustments		Impairments and downward adjustments			Upward adjustments
Equity securities measured using the measurement alternative	¥	96,714	¥	(16,171	)	¥	2,201	¥	(90	)	¥	956
	Millions of yen
	September 30, 2024							Six months ended September 30, 2024
	Carrying value		Accumulated impairments and downward adjustments			Accumulated upward adjustments		Impairments and downward adjustments			Upward adjustments
Equity securities measured using the measurement alternative	¥	88,692	¥	(16,429	)	¥	2,680	¥	(780	)	¥	634

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, 2023 were losses of ¥28 million for the six months ended September 30, 2023. There were no gains and losses recognized on trading debt securities held as of September 30, 2024 for the six months ended September 30, 2024.

Certain subsidiaries elected the fair value option for certain investments in investment funds and others 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, 2024 and September 30, 2024, these investments were fair valued at ¥26,945 million and ¥25,618 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, 2024 and September 30, 2024, these investments were fair valued at ¥1,000 million and ¥6,795 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, 2024 and September 30, 2024, these investments were fair valued at ¥7,751 million and ¥9,996 million, respectively.

The amortized cost basis amounts, gross unrealized holding gains, gross unrealized holding losses and fair values of available-for-sale debt securities in each major security type as of March 31, 2024 and September 30, 2024 are as follows:

March 31, 2024

	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	¥	1,299,025	¥	0		¥	11,526	¥	(275,637	)	¥	1,034,914
Japanese prefectural and foreign municipal bond securities		425,426		(248	)		2,623		(26,336	)		401,465
Corporate debt securities		905,706		0			21,415		(82,542	)		844,579
CMBS and RMBS in the Americas		88,586		0			929		(1,775	)		87,740
Other asset-backed securities and debt securities		297,197		(386	)		5,496		(5,527	)		296,780
		3,015,940		(634	)		41,989		(391,817	)		2,665,478
September 30, 2024
	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	¥	1,419,155	¥	0		¥	8,589	¥	(340,948	)	¥	1,086,796
Japanese prefectural and foreign municipal bond securities		432,387		(234	)		3,895		(24,203	)		411,845
Corporate debt securities		874,013		0			17,066		(91,931	)		799,148
CMBS and RMBS in the Americas		86,582		0			1,159		(1,275	)		86,466
Other asset-backed securities and debt securities		217,775		(306	)		4,960		(5,604	)		216,825
	¥	3,029,912	¥	(540	)	¥	35,669	¥	(463,961	)	¥	2,601,080

The following table presents rollforwards of the allowance for credit losses for the six months ended September 30, 2023 and 2024, respectively:

	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
	Millions of yen
	Six months ended September 30, 2024
	Foreign municipal bond securities			Foreign other asset-  backed securities and  debt securities			Total
Beginning	¥	248		¥	386		¥	634
Additions to the allowance for credit losses on available-for-sale debt securities for which credit losses were not previously recorded		0			35			35
Additional increases to the allowance for credit losses on available-for-sale debt securities that had an allowance recorded in a previous period		0			31			31
Increase (Decrease) from the effects of changes in foreign exchange rates		(14	)		(146	)		(160	)
Ending	¥	234		¥	306		¥	540

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, 2024 and September 30, 2024, respectively:

March 31, 2024

	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	¥	288,662	¥	(20,561	)	¥	605,941	¥	(255,076	)	¥	894,603	¥	(275,637	)
Japanese prefectural and foreign municipal bond securities		81,368		(573	)		234,289		(26,011	)		315,657		(26,584	)
Corporate debt securities		113,066		(1,317	)		418,666		(81,225	)		531,732		(82,542	)
CMBS and RMBS in the Americas		3,482		(79	)		35,880		(1,696	)		39,362		(1,775	)
Other asset-backed securities and debt securities		46,950		(2,557	)		52,382		(3,356	)		99,332		(5,913	)
	¥	533,528	¥	(25,087	)	¥	1,347,158	¥	(367,364	)	¥	1,880,686	¥	(392,451	)
September 30, 2024
	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	¥	114,175	¥	(8,315	)	¥	801,192	¥	(332,633	)	¥	915,367	¥	(340,948	)
Japanese prefectural and foreign municipal bond securities		54,985		(753	)		228,194		(23,684	)		283,179		(24,437	)
Corporate debt securities		89,296		(1,963	)		429,753		(89,968	)		519,049		(91,931	)
CMBS and RMBS in the Americas		7,847		(83	)		22,246		(1,192	)		30,093		(1,275	)
Other asset-backed securities and debt securities		10,999		(1,512	)		41,206		(4,398	)		52,205		(5,910	)
	¥	277,302	¥	(12,626	)	¥	1,522,591	¥	(451,875	)	¥	1,799,893	¥	(464,501	)

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, 2024 and September 30, 2024, respectively:

March 31, 2024

	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	¥	288,662	¥	(20,561	)	¥	605,941	¥	(255,076	)	¥	894,603	¥	(275,637	)
Japanese prefectural and foreign municipal bond securities		80,058		(488	)		230,512		(25,848	)		310,570		(26,336	)
Corporate debt securities		113,066		(1,317	)		418,666		(81,225	)		531,732		(82,542	)
CMBS and RMBS in the Americas		3,482		(79	)		35,880		(1,696	)		39,362		(1,775	)
Other asset-backed securities and debt securities		45,517		(2,474	)		51,812		(2,932	)		97,329		(5,406	)
	¥	530,785	¥	(24,919	)	¥	1,342,811	¥	(366,777	)	¥	1,873,596	¥	(391,696	)
September 30, 2024
	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	¥	114,175	¥	(8,315	)	¥	801,192	¥	(332,633	)	¥	915,367	¥	(340,948	)
Japanese prefectural and foreign municipal bond securities		53,750		(673	)		224,634		(23,530	)		278,384		(24,203	)
Corporate debt securities		89,296		(1,963	)		429,753		(89,968	)		519,049		(91,931	)
CMBS and RMBS in the Americas		7,847		(83	)		22,246		(1,192	)		30,093		(1,275	)
Other asset-backed securities and debt securities		10,922		(1,451	)		40,850		(4,097	)		51,772		(5,548	)
	¥	275,990	¥	(12,485	)	¥	1,518,675	¥	(451,420	)	¥	1,794,665	¥	(463,905	)

The number of investment securities that were in an unrealized loss position as of March 31, 2024 and September 30, 2024 were 1,126 and 1,037, 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, 2024 and September 30, 2024, the amount of accrued revenues on available-for-sale debt securities were ¥13,960 million and ¥49,360 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, 2024 and September 30, 2024.

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.

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. Credit losses related to available-for-sale debt securities recognized for the six months ended September 30, 2024 resulted from foreign other asset-backed securities and debt securities due to the deterioration of cash flows. 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 and it is not 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, 2023 and 2024.