The global economy generally recovered, albeit moderately, in fiscal 2010, particularly in emerging nations, despite downward factors such as the fiscal insecurity in Europe, rising resource and food prices, and the Great East Japan Earthquake. Although the Japanese economy avoided a recession, thanks to solid external demand in Asia and the supporting effect of monetary easing by the Bank of Japan, economic activities were significantly weakened by the effects of the Great East Japan Earthquake that struck in March 2011. The U.S. economy remained firm, primarily owning to the underlying support of various tax breaks by the government and large-scale monetary easing by the Federal Reserve Board (FRB), although employment conditions and the housing market were still in the process of recovering.

Given the economic conditions described above, the investment environment was as follows:

The yield on ten year government bonds fell below 1.0% at one point, for the first time in seven years, as interest rates trended downwards on stepped up monetary easing by the Bank of Japan, in addition to concern that the economy may slow because of the fiscal insecurity in Europe and the termination of policy effects such as subsidies for eco-friendly vehicles. Although the yield turned up towards the end of the fiscal year based on expectations of an economic recovery following large-scale monetary easing in the United States, the rise was limited by concerns linked to growing tension in the Middle East and the Great East Japan Earthquake.

Yield on ten-year government bonds:
March 31, 2010 1.390%
March 31, 2011 1.250%

The Nikkei 225 Stock Average topped 11,000 at one point, on expectations of improving corporate earnings due to higher external demand. However, it began to weaken in the early fall, with investors taking action to avoid risks associated with the fiscal insecurity in Europe and concern about the economic slowdown, and with concerns rising about a deterioration in corporate earnings because of the appreciating yen. Although the index began to rise towards the end of the fiscal year, reflecting hope for an economy recovery due to enhanced credit easing measures in Japan and the United States and the end of the yen's climb, it temporarily dropped to the 8,000 level, reflecting the future uncertainty caused by the Great East Japan Earthquake.

Nikkei 225 Stock Average:
March 31, 2010 11,089
March 31, 2011 9,755

TOPIX:
March 31, 2010 978
March 31, 2011 869

Reflecting the stronger risk aversion of investors following increasing insecurity about fiscal conditions in Europe and the adoption of large-scale monetary easing by the FRB, the yen remained strong against the dollar. The yen hit a new postwar high at the end of the fiscal year based on (1) speculation that Japanese companies and investors may bring their overseas assets back to Japan because of the effects of the Great East Japan Earthquake and (2) growing tension in the Middle East. However, it subsequently returned to the pre-earthquake level, primarily because of the effect of the coordinated intervention of the G7 nations in foreign exchange markets.

Although the yen also appreciated against the euro as against the dollar, upward pressure on the Japanese currency was attenuated towards the end of the fiscal year, as the disparity between future interest rates in Japan and overseas was recognized based on speculation about a rate hike by the European Central Bank (ECB).

Yen/U.S. dollar:
March 31, 2010　93.04
March 31, 2011　83.15

Yen/Euro:
March 31, 2010　124.92
March 31, 2011　117.57

Our fundamental investment policy is based on the Asset Liability Management (ALM) approach. The objective of the approach is to make stable long-term payment of annuities or claims and benefits, taking into consideration the characteristics of the liability. Specifically, our investment portfolio is built around a core of yen-denominated fixed income assets, consisting mainly of domestic bonds. On the other hand, we are striving to increase the profitability of our portfolio by incorporating stocks and foreign securities within an acceptable range of risk in securing financial soundness. Through a meticulous risk management system, Dai-ichi ensures the effectiveness of its risk monitoring and seeks to improve investment efficiency.

[ALM]
ALM is the abbreviation of Asset Liability Management. For the life insurance company, it is to grasp the risks arising from fluctuations in interest rates on liabilities (insurance policies) and manage the assets that are appropriate given the characteristics of those risks. Among other imperatives, it is important to maintain assets in accordance with the characteristics of the liabilities and prepare for the payment of insurance claims.

[Portfolio]
A portfolio is a set of assets that a particular company has.

Notes:

Dai-ichi recognizes that, particularly at life insurance companies, it has become increasingly important to ensure the proper management of profit, risk, and capital through ALM, a system to control investment assets and liabilities (insurance policies) appropriately by being fully aware of the characteristics of liabilities.

Dai-ichi has adopted a number of management initiatives to ensure sound management. It has established the ALM Committee and built a system in which it examines (1) the integrated management of assets and liabilities and (2) the sophistication of its management system.

The Company has also introduced internal management accounting for each product group, the liabilities of which have different characteristics. We are also developing an administrative structure for each product group based on differences in market characteristics and profitability. Specifically, we identify and manage each risk associated with insurance underwriting, investment and liquidity for each major accounting unit, based on the product characteristics. We set an appropriate assumed interest rate in consideration of investment environment and other factors, draw up an investment policy taking into account the characteristics of liabilities, verify the appropriateness of the policy through the department in charge of risk management, and check the investment results. In addition, Dai-ichi will check the risks involved in insurance underwriting and investment at the time of the development and sale of new products.

The Company also promotes ALM based on the economic value. In the valuation based on the economic value, liabilities are calculated by (1) discounting future cash flows to be generated from policies in force, using the current interest rate, and (2) adding a risk margin (a consideration required for risks relating to policy obligations).

The objective of risk management at Dai-ichi is to maintain the soundness of its assets while paying close attention to the balance between risks and returns from a mid- to long-term perspective.

At Dai-ichi, the Risk Management Department carries out integrated risk management in which it oversees risks for the entire portfolio, including market, credit, and real estate investment risks, and strengthens its check function from the perspective of financial soundness.