Based on our reflections on the incidents that occurred in FY2019, such as those related to the policy rewriting that was not in line with customers’ intentions and caused disadvantages, and those in which violations of laws and regulations or internal rules were recognized (hereinafter referred to as the “solicitation quality issues” in this “Business Risks and Other Risk Factors” section), we have formulated business strategies and management plans in an aim to achieve sustained growth by reinventing ourselves as a company truly trusted by customers. These include a Medium-Term Management Plan (FY2021 – FY2025) for a plan period from FY2021 to FY2025 (hereinafter referred to as the “Medium-Term Management Plan”), based on the basic policy of “continue efforts to regain trust,” “reinforce business foundations,” “improve customer experience value,” “promote ESG management (contribute to solutions to social issues),” “corporate culture and work-style reform,” and “reinforcement of governance, solvency policy,” as well as the Review of Medium-Term Management Plan (FY2021 – FY2025) for a plan period from FY2024 to FY2025 (hereinafter referred to as the “Reviewed Medium-Term Management Plan”), the reviewed version formulated to reflect changes in the internal and external environments and the progress we have made so far while maintaining the basic policy set in the original Plan, such as thoroughly implementing customer-oriented business operations. The various risks described in “Business Risks and Other Risk Factors” are inherent in the measures included in this basic policy. In addition, there is a possibility that there will be increased risks or new risks that may hinder the implementation of the above measures by the Company in the future.

In addition, these business strategies and management plans have been prepared based on a number of assumptions, including general economic conditions such as market interest rates, foreign exchange rates, stock prices, and the business environment, as well as legal systems, and the activities of the employees of the Company and Japan Post Co. under the new sales system. However, if these assumptions are not met, or if the business evaluation of each measure is not sufficiently conducted and the results are not commensurate with the investment amount and costs, it may be impossible to achieve the goals of the business strategies and management plans, which may affect the performance and financial position of the Group.

Among these, although a new sales system was launched in April 2022 and the results of new policies have been improving, they have not reached the level assumed in the Medium-Term Management Plan, and the impact on net income is becoming apparent as the number of policies in force, which are the source of income, declines. If this trend continues for a longer period of time, such as if the results of new policies do not progress as expected, it would lead to a decrease in the number of the policies in force, and could have a significant negative impact on the Group’s business, performance, financial position, and EV and other indicators.

Of the various measures set forth in the Medium-Term Management Plan and Reviewed Medium-Term Management Plan (hereinafter referred to as the “Medium-Term Management Plan, etc.”), other items that are recognized as particularly important risks for the achievement of the objectives of the plan are as follows.

①　Risks related to the Company’s corporate culture or organizational culture

In December 2019, the Special Investigation Committee regarding the issues related to the solicitation quality of Japan Post Insurance products, consisting of three lawyers who have no vested interest in Japan Post Holdings, Japan Post Co., or the Company, released an investigation report regarding the investigation of the facts and causes of the solicitation quality issues. The report pointed out the existence of a corporate culture or organizational culture in the Group, such as postponing the investigation and resolution of causes when risk events are detected, trivialization of problems, and lack of horizontal cooperation among departments and blocked communication of information under the top-down system. The Group is working to foster a sound corporate culture under the leadership of management, and in its Medium-Term Management Plan, etc., the Group aims to become a company where all officers and employees are able to grow with the company and can work with confidence and pride. However, if such initiatives are not successful, or they take longer than expected before they are successful, similar incidents may recur, which may affect the Group’s social credibility, performance, and financial position.

①　Risks associated with changes in the economic environment

Because most of the revenues of the Group’s businesses are generated in Japan, trends in the domestic economy and household income, as well as the ongoing decline in the total domestic population and working population due to the prolonged birthrate decline, may affect the businesses conducted by the Group. In addition, there are concerns about the impact on the financial markets and the real economy over the near term due to increasing uncertainties in the domestic and overseas economies, such as the emergence of geopolitical risks such as conflicts among nations, in addition to concerns about global inflation, rising interest rates, and economic recession. For example, compared to other companies, we may take longer time to reflect interest rate increases in the assumed interest rate, or pass on the impact of increased operating expenses due to inflation to insurance premiums. In this manner, trends in these and other economic conditions may affect the Group’s business, performance, and financial position.

②　Risks related to competition with competitors

The Company faces intense competition in the Japanese life insurance market from domestic life insurance companies, foreign life insurance companies, and various cooperative associations, and recently some of these companies have gained an advantage over the Company with respect to product content and lineup, sales channels, and insurance premium levels. In addition, there is a possibility that competitors will become more competitive in the future through consolidation, restructuring, alliances with other industries, or the development of attractive products and services based on new technologies (AI, generative AI, etc.). Furthermore, if we expand the scope of our business, or if the market structure changes due to factors surrounding the Company such as deregulation or new entrants into the market, new competitive relationships may emerge with companies with which we currently have no competitive relationship.

While the number of systems used by the Company to provide services to customers via the Internet is increasing due to the promotion of DX, cyber risks are becoming more serious as cyberattack methods against systems are becoming more advanced, sophisticated, and systematized every day. In addition, such risks may further increase in the future due to geopolitical risks associated with changes in social conditions and risks from supply chains via third-party systems such as contractors.

In light of such risks, we have established a prevention system based on the concept of multi-layered defense, which combines defense and detection mechanisms, and a system to take appropriate measures to prevent the spread of damage by the Japan Post Insurance CSIRT (Computer Security Incident Response Team), a specialized security organization, in the event of a cyberattack. Moreover, we are further strengthening our information security management system by enhancing data governance in consideration of economic security, ensuring the proper business operation framework in compliance with laws and regulations, enhancing information asset management, and strengthening supply chain risk countermeasures, as well as improving company-wide information literacy and thoroughly implementing information management rules as the foundation for these efforts.

In this manner, we are constantly working to improve our cyber security measures. However, in spite of these measures, if our information system were to fail due to an unknown threat that significantly affects our business, the time and cost required to investigate and analyze the extent of the impact, restore the system, and prevent its recurrence, could affect the Group’s business, social credibility, performance, and financial position.

①　Risks related to provision of universal service

In order to comply with the provisions for universal service under the Postal Service Privatization Act, Japan Post Co. has entered into a life insurance sales and maintenance agreement and a life insurance counter services agreement with the Company and is entrusted with the Company’s insurance agency business, and provides the Company’s products and services at each post office nationwide (details stated in “5. Important Business Contracts” of the 18th Annual Securities Report).

In particular, the life insurance counter services agreement is a contract with no fixed term and cannot be unilaterally terminated by the Company unless there are special circumstances stipulated in the contract. In addition, there is a provision in the Company’s Articles of Incorporation to the effect that the Company shall enter into a life insurance counter services agreement with Japan Post Co., and if such agreement is terminated, an amendment to the Company’s Articles of Incorporation will be required. Accordingly, in order for the Company to terminate the life insurance counter services agreement with Japan Post Co., it is necessary to follow these procedures and others.

In this manner, the Company has a contractual obligation to maintain its status as an affiliated insurance company in providing universal service by Japan Post Co., and as a result, the Company’s flexible business development could become difficult.

In addition, the Group’s business, performance, and financial position may be affected by future government measures to ensure universal service, as well as amendments to laws and regulations.

Due to the enforcement of the Act to Partially Revise the Act on the Management Organization for Postal Savings and Postal Life Insurance in December 2018, of the costs required to maintain the post office network, which were previously covered by consignment commission based on contracts between Japan Post Co. and affiliated banks and insurance companies, in accordance with the act, the essential costs for ensuring universal service (excluding the amount to be borne by Japan Post Co.) are covered by a grant to Japan Post Co. by the Organization for Postal Savings, Postal Life Insurance and Post Office Network (hereinafter referred to as the “Management Network”) with contributions from the Company and Japan Post Bank Co., Ltd. starting from the fiscal year ended March 31, 2020.

Such essential costs constituting the basis for the calculation of the amount of contribution/grant are calculated as the sum of the following costs based on the most recent status of maintenance of the post office network.

• A. Personnel expenses, rent, construction expenses and other expenses necessary to maintain post offices, expenses necessary for transporting and managing cash, property taxes and business facility taxes, in each case, based on a post office network consisting of post offices of the minimum scale necessary to operate the network; and
• B. Expenses necessary for the minimum level of outsourcing services needed to ensure that basic postal services can be provided at contracted post offices

The contributions paid by the Company to the Management Network (56.4 billion yen paid by the Company for the fiscal year ended March 31, 2024) are the portion allocated to insurance counter operations of the total amount of such essential costs and the Management Network’s administrative costs related to the calculation of contributions and grants, which is divided proportionally between the postal counter operations, bank counter operations, and insurance counter operations, according to their expected degrees of use of the post office network.

In this manner, our contributions are calculated by the Management Network in accordance with the relevant laws and regulations, and therefore do not reflect the Company’s intentions.

As an affiliated insurance company of Japan Post Co. in providing universal service, we are required to make this contribution, which is a fixed operating expense unique to the Company. If the amount of such essential costs calculated by the Management Network is larger than we anticipate, the Group’s business, performance, and financial position may be affected.

②　Risks related to consignment commission, etc. paid to Japan Post Co., Ltd.

Based on a life insurance sales and maintenance agreement and a life insurance counter services agreement, etc. signed with Japan Post Co., as well as agent commission arrangements, etc. notified to Japan Post Co., the Company pays consignment commission to Japan Post Co. The commission includes those calculated by multiplying the unit cost of the services provided by Japan Post Co. to the Company by the number of post offices, etc., and those required for the maintenance and management of policies in force, which include fixed operating expenses that are incurred independent of the volume of sales activity and may not be reduced immediately, and expenses may increase depending on work outsourced from the Company.

The Company may consider introducing an appropriate incentive structure, while making consistent with the Group’s business strategy for each fiscal year. Failure to properly set up a consignment commission structure, including an incentive structure, could damage the credibility of the Company, and could affect the actual result in terms of new policies or the maintenance of policies in force, as well as its business performance and financial position (details stated in “5. Important Business Contracts, (Reference) Consignment Commission Paid to Japan Post Co., Ltd.” of the 18th Annual Securities Report).

③　Risks related to the post office network

Although the majority of the Company’s products and services are provided through the post office network, recently, the diversification of means of communication has made various services necessary for daily life easily accessible via means such as the Internet, and the need for non-face-to-face services has increased. If the sales capabilities and attractiveness of the post office network is impaired due to a decrease in the number of post offices and the number of users or frequency of use of post offices as a result of these factors, the actual result of the Company’s new policies and maintenance of policies in force may be adversely affected. The Company will continue to consider and introduce means of providing products and services that complement or partially replace the post office network. However, if these measures are not successful, the Group’s business, performance, and financial position may be affected.

In addition, the provision of our products and services at post offices is performed by employees of our contractor, Japan Post Co., Ltd. For this reason, if securing excellent personnel by Japan Post Co. or our training for Japan Post Co. employees in the insurance business, etc. is not adequate, there is a possibility that the Company’s products and services may not be provided as expected.

①　Risks related to quality assurance in the insurance solicitation process

In response to the occurrence of the solicitation quality issues, the Group has prioritized and worked steadily to quickly regain the trust of customers and to ensure and improve solicitation quality by ensuring legal compliance and customer-first awareness in the insurance solicitation process.

However, with the increase in opportunities to interact with customers including elderly customers due to sales of lump-sum payment whole life insurance as well as the resumption of solicitation to elderly customers, if there are cases that are not in line with the wishes of customers and are disadvantageous, or that violate laws and regulations or internal rules, cases where the policy is not suitable for the customer or where the customer’s understanding of the policy is not sufficient even if it does not amount to a violation, or if complaints about insurance policies or requests for invalidation arise, the Group’s social credibility, performance, and financial position may be adversely affected. Accordingly, in the event that the Group is found to be in breach of its legal and regulatory obligations to be observed, depending on the scale and extent of such violations and our efforts, the Group may be subject to another administrative action, such as a business suspension order, from the supervisory authorities, which could have a significant adverse impact on its management and the survival of its business.

②　Risks related to compliance

The Group is under the supervision of the Financial Services Agency and the Ministry of Internal Affairs and Communications in accordance with the Insurance Business Act and the Postal Service Privatization Act. In addition, as a business that handles life insurance policies, the Group is obligated to comply with various related laws and regulations, including the Insurance Act, the Consumer Contract Act, the Act on the Protection of Personal Information, and the Act on Prevention of Transfer of Criminal Proceeds.

Based on our reflection on the solicitation quality issues, etc., the Group defines compliance risk as the risk of losing the trust of customers and other stakeholders due to acts that violate social expectations, such as acts that lack the user perspective, as well as compliance with laws and regulations, resulting in damage to corporate value, and is reinforcing its risk management system by strengthening cooperation between the risk management and compliance departments. Through these initiatives, we will detect risk information with a high level of risk sensitivity, and by instilling in each employee the behavior that meets society’s expectations, we will curb the manifestation of compliance risks in the insurance solicitation process and in all other business operations.

Furthermore, we have formulated a code of conduct based on our customer-first philosophy, and are implementing company-wide efforts to further strengthen compliance, including offering training programs to ensure that the code of conduct permeates the sales floors of post offices and other locations. However, if these guidance and education are not sufficiently effective or if other violations of laws and regulations, such as inappropriate solicitation activities, occur, the Group’s social credibility, business, and performance could be affected.

In addition, the Group has established a Compliance Program up until now to ensure compliance with laws and regulations through regular compliance training for executives and employees, thorough information management, and strengthening of measures against crime prevention, anti-money laundering, combating the financing of terrorism, and countering proliferation financing. However, the occurrence of violations of laws and regulations due to acts or omissions by executives or employees, or the ineffectiveness of measures taken to prevent violations of laws and regulations, may affect the social credibility and business of the Group. In addition, although the Company has entered into a vast number of insurance policies and contracts for operations consignment and purchase of goods, in the event that the Company is the victim of fraudulent acts by the other party to the contract, or if it enters into a contract with antisocial forces, the social credibility and business of the Group may be affected. Furthermore, the Group is exposed to the risk of potential losses due to fraud and other forms of misconduct by its employees, agents, contractors, and policyholders. The Company’s employees and agents hold personal information of policyholders through their interactions with policyholders, and we cannot deny the possibility that illegal sales techniques, fraud, identity theft, loss or leakage of personal information, or inappropriate use of such information may occur. Although we take measures to prevent or detect such illegal activities, if our initiatives fail to eliminate them, the social credibility and business of the Group may be affected.

①　Market risk related to domestic interest rates

Because the Company’s asset structure has a high percentage of yen interest rate assets and the duration of the Company’s liabilities to policyholders is longer than the assets under management, the Company is exposed to the risk of fluctuations in domestic interest rates due to the mismatch between the duration of assets and liabilities.

Because the assumed interest rates on insurance policies already held by the Company has not changed even after the Bank of Japan lifted its negative interest rate policy in March 2024, if domestic interest rates rise above the level as of March 31, 2024, although interest income, etc. will improve due to higher investment yields, a decline in bond prices may result in valuation losses, impairment losses, or losses on sales. In addition, policy cancellations or transfers may increase as policyholders move their funds to other financial instruments that offer higher returns.

On the other hand, if domestic interest rates fall below the level as of March 31, 2024, we may not be able to secure the investment returns we initially expected, or we may experience a negative spread (a phenomenon in which the average investment yield of the investment portfolio is less than the assumed interest rate used to accumulate policy reserves for existing policies).

②　Market risks other than ① above

The Company holds assets denominated in foreign currencies, some of which are hedged by forward exchange contracts. However, if fluctuations in foreign exchange rates occur with respect to the portion of foreign exchange risk that has not been hedged, or even if foreign exchange risk has been hedged, if hedging costs increase due to widening interest rate differentials between Japan and overseas caused by trends in monetary and fiscal policies in various countries, and if it becomes impossible to make forward exchange contracts by rolling under the existing conditions, the Group’s performance and financial position may be affected. In addition, changes in the monetary and fiscal policies of various countries and fluctuations in foreign interest rates could cause the value of our foreign securities holdings to decline, which could affect the performance and financial position of the Group.

Furthermore, if the prices of our stock holdings decline due to the deterioration of economic or market conditions in Japan or overseas or the emergence of geopolitical risks, our stock holdings may incur valuation losses, impairment losses, or losses on sales, which may affect the Group’s performance and financial position. In addition, deeper and more sophisticated asset management, such as alternative investment management, may not produce the expected results.

③　Credit risks

If the financial position of the Group’s business partners, investees or borrowers, or issuers of securities held by the Company deteriorates due to changes in domestic or overseas economic trends, changes in the business environment surrounding specific industries, the occurrence of scandals, the emergence of geopolitical risks, or other unforeseen circumstances, credit risk and credit-related costs may increase, or the value of our securities holdings may decline, which may affect the Group’s performance and financial position. In addition, achieving greater depth and sophistication of asset management, such as management of foreign corporate and government bonds, may not produce the expected results.

In preparation for the above risks in ① through ③, the Company is continuing its efforts to enhance its ERM (enterprise risk management) that focuses on maintenance of financial soundness, and ALM (asset liability management) that controls risks while taking into account the balance between assets and liabilities, for the purpose of appropriately managing investment assets commensurate with the liabilities arising from underwriting insurance policies and stabilizing profit and loss. In addition, we regularly conduct stress tests to verify our ability to respond to the occurrence of stress events, and we are strengthening our screening and monitoring systems, especially in deeper and more sophisticated asset management. However, if such responses are not successful, or if the market environment changes significantly due to domestic or international economic fluctuations or changes in monetary and fiscal policies of various countries, the Company’s performance and financial position may be affected.

The Company operates a life insurance business with a nationwide sales network in Japan. Accordingly, in the event of a large-scale disaster such as an earthquake, eruption, tsunami, typhoon, flood, or heavy snowfall; a pandemic of infectious diseases such as a new type of influenza; a human disaster such as terrorism or a conflict between nations; or a major failure or disruption of social infrastructure such as water, electricity, gas, telecommunications, or financial services, the following situations may occur.

• ・Insurance claims payments or policy cancellations exceeding initial expectations
• ・Decrease in premium revenue due to fewer insurance sales opportunities and lower insurance needs
• ・Damage to the value of stock holdings and other assets due to stagnation of economic activities caused by the issuance of voluntary restraints on going out due to the spread of large-scale infectious diseases and increased risk aversion in the financial markets
• ・Difficulties in ensuring normal business operations, such as suspension or stagnation of business due to the damage or illness of executives, employees, and related persons, or a decrease in the number of employees coming to work to prevent the spread of the disaster, as well as expenses incurred for business continuity and recovery
• ・Suspension or stagnation of operations due to damage to the Group’s head office, branches, or other equipment and facilities, and incurrence of expenses for business continuity and restoration
• ・Losses incurred due to the establishment of special treatment or services based on factors such as social demands in an emergency, and the occurrence of cases of application beyond initial assumptions

In addition to accumulating contingency reserves in accordance with the standards of the Insurance Business Act in preparation for payment of insurance claims, the Company strives to ensure sufficient fund liquidity. In addition, we have formulated a business continuity plan to ensure that, in the event of an emergency, we can reliably carry out important operations such as payment of insurance claims as an insurance company. We hold regular liaison meetings of crisis management officers and conduct disaster drills from normal times to raise awareness of crisis management among executives and employees, and confirm the status of our response to disasters. Furthermore, the Crisis Management Committee plays a central role in the Company’s system to take appropriate and prompt action in the event of a crisis.

However, if such responses are not successful, or if a disaster beyond expectations occurs and the aforementioned events occur, expand, or become prolonged, the Group’s business, performance, and financial position may be affected.

Operational risk exists in the course of the Group’s business operations and may include internal and external misconduct, occurrence of problems in labor management and workplace environment, loss of credibility due to inadequate response to customer-first business operations, business interruption due to system failure, etc., inappropriate paperwork, inadequate payment of insurance claims and other payments, pressures on administrative systems, inadequate trademark applications and other administrative matters. In particular, because most of the Company’s products and services are provided through the post office network, where not only our business but also banking and logistics services are provided in parallel, the possibility of these operational risks materializing is relatively high, which may affect our business, social credibility, performance, and financial position.

・System risk

The Group conducts life insurance solicitation and management operations using not only the systems owned by the Group, but also those owned by Japan Post Holdings Co., Ltd., Japan Post Co., Ltd., and Japan Post Bank Co., Ltd, and the information system performs an extremely important function for the Company’s business, as it communicates with post offices nationwide and with the Company’s various offices, etc.

In addition to external factors such as earthquake, eruption, tsunami, typhoon, flood, heavy snowfall, fire, and other natural disasters and terrorism, such information systems may experience serious failures or malfunctions due to human error, accidents, power outages, defects in new system development and updates, and defects in service provision by telecommunications carriers and other third parties. In the event of such a system failure or malfunction, the Group’s business, performance, and financial position may be affected due to the suspension or disruption of operations and the resulting compensation for damages, administrative penalties, damage to social credibility, and costs incurred in responding to or taking countermeasures against such events.

In the course of its business, the Group acquires and holds a large amount of information directly from the Company or through its agent, Japan Post Co., Ltd. This information includes information on individual customers and corporate customers, such as policyholders, as well as various internal information obtained in the course of business. Among this information, personal information (including Individual Numbers as defined in the “Act on the Use of Numbers to Identify a Specific Individual in Administrative Procedures”; the same applies below) is required to be handled appropriately in accordance with the Act on the Protection of Personal Information and other related laws. In particular, leakage and loss of personal information held by companies and organizations have frequently occurred recently, and stricter management is required for such information.

The Group has established a privacy policy and rules and regulations for information management in an effort to ensure strict information management. In addition, as part of its work style reform efforts, the Group is promoting work from home, and is also thoroughly promoting information management awareness.

However, in the event that personal information or other important information held by the Company is leaked to outside parties by employees (including retired employees), agents, contractors, or other parties, and the Company is subject to claims for damages, administrative investigations, guidance, or disciplinary action, the Group may incur time and costs to deal with the matter, or lose its social credibility, which may affect the Group’s performance and financial position.

①　Risks related to laws and regulations under the Postal Service Privatization Act

The Company is under the supervision of the Financial Services Agency and the Ministry of Internal Affairs and Communications in accordance with the Postal Service Privatization Act and related cabinet and ministerial orders. In addition, under the Postal Service Privatization Act, the Company is subject to the opinions of the Postal Privatization Committee operated by the Headquarters for the Promotion of Privatization of the Postal Services established by the Cabinet, as well as restrictive business regulations that are not imposed on other Japanese life insurance companies. The main regulatory requirements include the maximum amount of insurance policy per insured person, the prohibition of making insurance companies subsidiaries, the need to notify the Prime Minister and the Minister of Internal Affairs and Communications when developing new products or implementing new asset management methods, and the need to take special care not to impede proper competition with other life insurance companies or the appropriate provision of services to users (hereinafter referred to as “additional restrictions,” details stated in “I. Company Overview, 3. Details of Business, (Reference) Special Measures under the Postal Service Privatization Act” of the 18th Annual Securities Report). If these regulations further restrict our competitiveness or revenue opportunities in the future, the Group’s business may be affected.

②　Risks related to the Insurance Business Act and other related business regulations

The Company is a Japanese life insurance company, and like other Japanese life insurance companies, it is subject to supervision by the Financial Services Agency under the Insurance Business Act and related business regulations. The Insurance Business Act gives the Prime Minister (delegating authority to the Commissioner of the Financial Services Agency) broad supervisory authority over the insurance business, including the authority to revoke licenses, suspend operations, collect reports, and conduct strict on-site inspections regarding matters such as accounting records. In the event of violation of the Insurance Business Act or other particularly important laws and regulations, etc., the Company may be subject to administrative penalties such as suspension of all or part of its business operations or revocation of its license.

The life insurance business license is the premise of the Company’s principal business activities, and the license does not expire, and as of March 31, 2024 the Company is aware of no events that would constitute grounds for revocation of the license. However, the occurrence of such an event could have a significant impact on the Company’s business activities.

In addition, the Company is under the supervision of the Financial Services Agency based on the solvency margin ratio and real net assets, which the agency defines as indicators to judge the soundness of Japanese life insurance companies. The Company’s consolidated solvency margin ratio was 1,023.2% as of March 31, 2024, which is considerably higher than the legally regulated ratio. However, if the ratio falls below 200%, there is a possibility that the Prime Minister will take early corrective action, which may affect the Group’s business, performance, and financial position.

In addition, the IAIS (International Association of Insurance Supervisors) adopted the ComFrame (the Common Framework for Supervision of Internationally Active Insurance Groups (IAIGs)) in November 2019 and announced an implementation plan for the Insurance Capital Standard (ICS) for IAIGs, which is part of ComFrame, to be applied as regulatory capital requirements starting in 2025, after five years of monitoring beginning in 2020. The Financial Services Agency is considering new regulations for domestic companies in line with this discussion, with the assumption that they will be introduced in FY2025, and the new regulations will be based on economic value and are expected to be significantly different from the current regulations. If such new regulations or standards are introduced, the restrictions contained in them may affect the Group’s business, performance, and financial position.

In addition, in June 2020, the International Accounting Standards Board (IASB) issued the amendments to International Financial Reporting Standards (hereinafter referred to as “IFRS”) 17, “Insurance Contracts,” which is effective for fiscal years beginning on and after January 1, 2023. Because this standard values insurance contracts at their economic value, fluctuations in each period may affect net assets. Future application of IFRS or equivalent standards in the Group’s accounting standards due to changes in Japanese statutory accounting and other factors may affect the Group’s business, performance, and financial position.

Japan, as a member of the WTO (World Trade Organization), has established a Protocol Amending the Agreement on Government Procurement, and the rules stipulated in this Protocol are applied to companies that have succeeded to a public corporation, accordingly, when the Company procures goods, etc., it needs to comply with the government procurement rules under the WTO. If we fail to comply with these rules through our acts or omissions, procurement actions may not be concluded, or there may be delays in procurement actions, which may prevent us from implementing the plan we originally envisioned, thereby affecting the Group’s social credibility, performance, and financial position.

In addition to the above regulations, the Group is subject to various regulations such as the Insurance Act and the Act on Prevention of Transfer of Criminal Proceeds, and any revision of such regulations or change in government policy regarding their enforcement may result in new responses, costs, etc., which may affect the Group’s business, performance, and financial position.

The Company has obtained credit ratings from Rating and Investment Information, Inc. (R&I), Japan Credit Rating Agency, Ltd. (JCR), and S&P Global Ratings Japan Inc.(S&P), and as of March 31, 2024, the Company’s credit ratings were “AA-“(insurance claims paying ability), “AA” (ability to pay insurance claims rating), and “A+” (insurer financial strength ratings), respectively, and the Company believes it has received a favorable evaluation in its financial soundness. Under the Medium-Term Management Plan, etc., we are thoroughly implementing customer-first business operations and striving to regain trust. However, if the performance of new policies, maintenance of policies in force, and control of operating expenses do not progress as planned, and if the credit rating of each company is downgraded due to deterioration in the Company’s future financial outlook, the Group may not be able to obtain favorable debt financing in the capital markets, and this may cause uncertainty about the Company, leading to a decrease in new policies and policies in force.

In the event that rumors and false information about the Group’s business in general spread through the media, market participants, and postings on Internet bulletin boards and social media, and negative media reports are made by the media, against the backdrop of public benefit, business scale, and recognition and visibility in society of the Group’s services, and regardless of whether such rumors, false information, and media reports are based on fact or not, they may be negatively understood, perceived, or strongly criticized by customers, market participants, etc., which may further damage the image and social credibility of our products, services, and business, thereby affecting the Group’s business, performance, and financial position.

①　Risks related to premium setting and the accumulation of policy reserves

The Company sets insurance premiums based on the following basic calculation rates (assumed mortality rate, assumed interest rate, and assumed rate of expenses), taking into consideration the type and nature of insurance, the age and gender of the insured at the time of entering the policy, and the amount of insurance.

In insurance policies, if the actual mortality rate exceeds the predetermined assumed mortality rate, if the actual investment yield falls below the predetermined assumed interest rate, or if the actual expenses exceed the predetermined assumed rate of expenses, the total amount of claims and expenses to be paid will exceed the total amount of premiums and other benefits received during the insurance period, which may cause losses and affect the Group’s performance and financial position.

In accordance with the Insurance Business Act and related business regulations, the Company sets aside a significant portion of its premium income as a policy reserve for future payments of insurance claims and other benefits. Policy reserves represent the largest portion of the Company’s liabilities and are calculated based on certain assumptions regarding the frequency and timing of covered events, the amount of claims and other payments, and the amount of assets under management for each policy. If actual results deviate from these assumptions, or if future deviations are expected due to changes in the environment, an additional policy reserve may be required, which may affect the Group’s performance and financial position.

In addition, regulations concerning the accumulation of policy reserves, standard interest rates and standard life tables are set by the Financial Services Agency, the financial regulator, and any change in these factors may require a revision of premiums and additional policy reserves, which may affect the Group’s performance and financial position.

②　Risks related to reinsurance

The Company has entered into reinsurance contracts to reduce insurance underwriting risk and asset management risk by reinsuring high-interest whole life annuity insurance policies from before privatization, in an aim to improve future earnings and capital efficiency. If counterparty risks materialize in the future, the Group’s performance and financial position may be affected.

①　Market liquidity risk

If the Group is unable to trade financial instruments and settle funds normally in the market due to disruptions in the financial markets, or is forced to trade at prices that are significantly less favorable than usual, the Group’s business, performance, and financial position may be adversely affected. In addition, if market liquidity declines due to deterioration in domestic or overseas financial markets or economic conditions, the possibility of selling the Company’s holdings or their value may decrease.

②　Funding risk

In the event that cash flow is tight due to an increase in payments of termination refunds following a large amount of policy surrenders and lapses or an increase in insurance claim expenditures following a significant natural disaster, and we are forced to sell assets at prices lower than the normal appraisal value to secure funds, or in the event that payment of insurance claims, etc. is delayed, it may affect the Group’s business, social credibility, performance, and financial position.

Recognizing the risks and opportunities posed by climate change, the Company expressed its support for the recommendations of the TCFD (Task Force on Climate-related Financial Disclosures) in April 2019, and is further promoting its initiatives up until now related to climate change and enhancing information disclosure (details stated in “2. Basic Concept and Initiatives on Sustainability” of the 18th Annual Securities Report).

Climate change has the potential to affect the Company’s performance and financial position, and the Company conducts scenario analysis to assess its impact.

We recognize that the main impacts of climate change on our life insurance business include possibilities of a rise in insurance claim payment due to increased damage from natural disaster, etc., and a rise in insurance claim payment due to changes in mortality and morbidity rates over the medium to long term due to the impact of rising average temperature and abnormal weather. In addition, as major impacts on asset management, we recognize impaired value of investment and loan assets due to expanding loss incurred by investees or borrowers upon increased damage from natural disasters, etc., and impaired value of investees or borrowers due to the impact of changes in regulations in line with the shift to a low-carbon society, stricter regulations and changes in consumer preference.

In addition, in order to manage our investment portfolio based on GHG emissions, we measure and analyze GHG emissions of our investment portfolio and, taking into account the analysis results, engage in constructive dialogue (engagement) with investees or borrowers, and actively promote investment and financing in renewable energy facilities.

Furthermore, we are promoting initiatives for biodiversity and natural capital which are priority issues on the global level along with climate change. We support the philosophy of the Taskforce on Nature-related Financial Disclosures (TNFD), a global initiative to establish an information disclosure framework related to natural capital, and joined the TNFD Forum to support its activities in June 2023, expressed our intention to make disclosure based on TNFD recommendations as an Early Adopter, on the TNFD website in December 2023.

In terms of nature-related risks in asset management, the Company recognizes the risk of impaired value of investment and loan assets due to the depletion of natural capital on which investees or borrowers depend, as well as the risk of impaired value of investment and loan assets due to stricter laws and regulations regarding environmental protection and changes in social demands.

In addition, we have started to conduct analysis on nature-related dependencies and impacts of our investment portfolio, and reflect its results and consideration for social demands in our asset management activities.

As mentioned above, we are implementing various initiatives related to climate change, biodiversity, and natural capital; however, if these measures are deemed insufficient, the Group’s reputation in the capital markets and other social evaluation may deteriorate, which may affect the Group’s business, performance, and financial position, as well as our stock price.

①　Risks related to influence and conflicts of interest with other general shareholders due to the holding of voting rights by Japan Post Holdings Co., Ltd.

Although Japan Post Holdings Co., Ltd. holds 49.8% of the Company’s voting rights as of March 31, 2024 Japan Post Holdings Co., Ltd. may still have a significant influence on the outcome of resolutions of the Company’s general meeting of shareholders, such as the election and dismissal of the Company’s directors, organizational restructuring such as mergers with other companies, capital reduction, and amendments to our Articles of Incorporation. Furthermore, as of March 31, 2024, the Japanese government holds approximately 36.0% of the voting rights of Japan Post Holdings Co., Ltd.

From the perspective of the interests of the Japan Post Group and the provision of universal service, Japan Post Holdings Co., Ltd. may exercise voting rights, etc. that are different from the interests of the Company and its general shareholders. In addition, as described in “2) Risks related to personal and business relationships with the Japan Post Group” below, in addition to having a business contracting relationship and other transactional and contractual relationships with the Company, Japan Post Holdings Co., Ltd. has interests that differ from those of the Company’s general shareholders, such as engaging in businesses that compete or may compete with the Company through its subsidiaries, etc. (commissioned sales of products of life insurance companies other than the Company, etc.). For example, in December 2018, Japan Post Holdings Co., Ltd. entered into a basic agreement with Aflac Incorporated and Aflac Life Insurance Japan Ltd. regarding a Strategic Alliance Based on Capital Relationship. Based on this agreement, Japan Post Holdings Co., Ltd. acquired 7% of the total number of Aflac Incorporated’s common shares issued, reaffirmed its commitment to cancer insurance, and discussed new collaborative initiatives, and in June 2021, Japan Post Holdings Co., Ltd., Japan Post Co., Ltd., and the Company agreed to further develop the Strategic Alliance Based on Capital Relationship with Aflac Incorporated and Aflac Life Insurance Japan Ltd. In March 2024, Japan Post Holdings Co., Ltd. applied the equity method to Aflac Incorporated, and a portion of Aflac Incorporated’s profits will be reflected in the consolidated results of Japan Post Holdings Co., Ltd. from FY2024. In addition, Japan Post Holdings Co., Ltd. entered into a business alliance agreement with Japan Post Co., Ltd. and Rakuten Group, Inc. to strengthen cooperation in various areas such as logistics, mobile, and DX in March 2021. Furthermore, in April 2021, Japan Post Holdings Co., Ltd., Japan Post Co., Ltd., Japan Post Bank Co., Ltd., and the Company signed a business alliance agreement with Rakuten Group, Inc. once again. In these agreements, Japan Post Holdings Co., Ltd. will discuss and consider collaboration in the insurance field, but the details of the collaboration may conflict with the interests of the Company and its general shareholders, such as affecting the Group’s performance.

②　Risks related to personal and business relationships with the Japan Post Group

• a．Personal relationships with the Japan Post Group

  The Company has directors who concurrently serve as directors/executive officers of the Japan Post Group, and the table below shows the main directors who concurrently serve as directors/executive officers of the Japan Post Group as of the date of submission of the 18th Annual Securities Report. In principle, except for members of the Executive Committee who concurrently serve as executive officers of the Company at the managing executive officer level or above and as executive officers of the Company who are in charge of business operations, no directors or executive officers of Japan Post Holdings Co., Ltd. attend the Company’s Executive Committee meetings. However, the Company requests representative executive officers of Japan Post Holdings Co., Ltd. to attend the meetings when we consider their attendance necessary depending on the agenda or matters to be reported.

  Name	Position in the Company	Main positions in the Japan Post Group	Reason for concurrent appointment
  TANIGAKI Kunio	Director and President, CEO, Representative Executive Officer	Director (part-time) of Japan Post Holdings Co., Ltd.	To enhance the effectiveness of business management and management efficiency of the Group
  ONISHI Toru	Director and Deputy President, Representative Executive Officer	Managing Executive Officer (part-time) of Japan Post Holdings Co., Ltd.	To respond to technical questions about the Company in the Diet as Japan Post Holdings Co., Ltd., a corporation in which the government invests more than one-third of its capital
  MASUDA Hiroya (Note)	Director (part-time)	Director and Representative Executive Officer, President & CEO of Japan Post Holdings Co., Ltd.	To strengthen Group governance

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  (Note) He serves concurrently as a Director (part-time) of Japan Post Co., Ltd. and Japan Post Bank Co., Ltd., subsidiaries of Japan Post Holdings Co., Ltd.

  The status of the Company’s directors is as described in “IV. Status of Submitting Company, 4. Corporate Governance, etc., (2) Status of Directors” of the 18th Annual Securities Report.
  
  Although the Company accepts seconded employees and conducts personnel exchanges with Japan Post Holdings Co., Ltd. and its subsidiaries, Japan Post Co., Ltd. and Japan Post Bank Co., Ltd., none of these employees holds a position that has a significant impact on the Company’s business operations.

• b．Transactions with the Japan Post Group

  The Company conducts transactions with other companies belonging to the Japan Post Group, and the main transactions in the fiscal year ended March 31, 2024 are as follows.

  Details of transaction	Counterparty	Amount (Millions of yen)	Method of determining transaction terms, etc.
  Payment of brand royalty fees	Japan Post Holdings Co., Ltd.	2,094	As described below in “c. Brand royalty fees to Japan Post Holdings Co., Ltd.”
  Payment of system usage fees	Japan Post Holdings Co., Ltd.	2,591	The Company, Japan Post Co., Ltd., and Japan Post Bank Co., Ltd. bear an amount calculated by multiplying the necessary expenses for providing the system by a certain profit margin ratio set in consideration of the profit margin ratio of other companies, depending on the usage of the system, etc.
  Payment of consignment commission for agency services	Japan Post Co., Ltd.	123,794	The Company makes payments including sales commission calculated by multiplying the insurance amounts and the insurance premiums of each contract by the commission rates set for each class of insurance, and maintenance commission calculated by multiplying the unit prices set for each type of outsourcing services, such as the collection of insurance premiums and payments for insurance claims, by the number of policies in force.
  Postage and other charges	Japan Post Co., Ltd.	4,707	Postage is charged at the same rate as general customers in accordance with our policy agreements.
  Lease of building owned by Japan Post Co., Ltd.	Japan Post Co., Ltd.	7,681	Rent (including common service fees) is set using a method similar to the cost approach for rental valuation, thereby ensuring its appropriateness.
  Payment of counter terminal usage fees	Japan Post Bank Co., Ltd.	1,351	The Company and Japan Post Bank Co., Ltd. set the share according to the number of terminal operations handled, and the Company pays an amount corresponding to its share of the maintenance costs of the counter terminals.

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  (Note) In addition to the above, as described in ‘(4) Risks related to the relationship with Japan Post Co., Ltd., 1) Risks related to provision of universal service,” there was a payment of 56.4 billion yen in the fiscal year ended March 31, 2024 for contributions to the Management Network in relation to the maintenance of the post office network.
  
  In order to ensure the appropriateness of transaction terms with other companies belonging to the Japan Post Group, the Company has established a system whereby resolutions are passed at meetings of the Board of Directors, including outside directors, when new important transactions are implemented, or existing important transaction terms are changed.

• c．Brand royalty fees to Japan Post Holdings Co., Ltd.

  As stated in “5. Important Business Contracts” of the 18th Annual Securities Report, the Company has concluded the Japan Post Group Agreement and other agreements with each company in the Japan Post Group, and matters necessary for the appropriate and smooth operation of the Group or matters requiring management by Japan Post Holdings Co., Ltd. under laws and regulations are subject to prior consultation with Japan Post Holdings Co., Ltd. or reporting to Japan Post Holdings Co., Ltd. In addition, the Company is licensed by Japan Post Holdings Co., Ltd. to use “Kampo Seimei” and other trademarks, and pays brand royalty fees to Japan Post Holdings Co., Ltd. as consideration for the benefit of being able to utilize the brand power of the Japan Post Group in the Company’s business activities.
  
  Based on the concept that the brand value from which we benefit by belonging to the Japan Post Group is reflected in our business performance, this fee is calculated by multiplying the amount of insurance policies in force as of March 31, 2023, a performance indicator that reflects such benefit, by a certain rate (0.0036%), and this rate will not be changed unless there is a significant change in economic conditions or other special circumstances. The brand royalty fees will continue to be paid as long as the Company belongs to the Japan Post Group, and the obligation to pay such royalty fees will continue as long as the Company operates as an affiliated insurance company as defined in the Act on Japan Post Co., Ltd., regardless of the percentage of the Company’s shares held by Japan Post Holdings Co., Ltd.
  
  If the Company is no longer able to use the trademark under the conditions as of March 31, 2024 due to the termination or revision of these agreements, etc., or if the calculation method of brand royalty fees is changed due to significant changes in economic conditions or other special circumstances, the Group’s business, performance, and financial position may be affected.

③　Risks related to additional disposal of the Company’s shares by Japan Post Holdings Co., Ltd.

While the percentage of the Company’s voting rights held by Japan Post Holdings Co., Ltd. is 49.8% as of March 31, 2024 under the Postal Service Privatization Act, Japan Post Holdings Co., Ltd. aims to dispose of all of the Company’s shares held by Japan Post Holdings Co., Ltd. as soon as possible, taking into consideration the Company’s business situation and the impact on the provision of universal service, and Japan Post Holdings Co., Ltd. has announced that it will continue to consider the disposal of shares in the Company even after its shareholding ratio falls below 50%.

In accordance with the Postal Service Privatization Act, the Company is subject to additional restrictions that other companies in the industry are not (details stated in “I. Company Overview, 3. Details of Business, (Reference) Special Measures under the Postal Service Privatization Act” of the 18th Annual Securities Report). However, such restrictions will cease to apply when (i) Japan Post Holdings Co., Ltd. disposes of all of its shares in the Company, or (ii) Japan Post Holdings Co., Ltd. disposes of one-half or more of its shares in the Company, and the Prime Minister and the Minister of Internal Affairs and Communications recognize that there is no risk of impeding appropriate competitive relationships with other financial institutions and appropriate provision of services to users and determine that the additional restrictions do not apply to the Company. Although Japan Post Holdings Co., Ltd. has notified the Minister of Internal Affairs and Communications that it has disposed of more than one-half of the Company’s shares, because of the discretion of the authorities in determining (ii) above, it is unclear when and how the additional restrictions will be removed. Among the additional restrictions, the restrictions on operations stipulated in Article 138 of the Postal Service Privatization Act, such as approval for the development of new products and implementation of new asset management methods, will not apply after the day Japan Post Holdings Co., Ltd. notifies the Minister of Internal Affairs and Communications that it has disposed of more than one-half of the Company’s shares, and the Company has already shifted to a notification system. Accordingly, when the Company intends to conduct such operations, it is necessary to stipulate the details of the operations and notify the Prime Minister and the Minister of Internal Affairs and Communications, and in conducting such operations, the Company must give special consideration so as not to impede proper competitive relationships with other life insurance companies and the appropriate provision of services to users.

Although the timing and scale of any future sale of our shares by Japan Post Holdings Co., Ltd. have not yet been determined, if additional sales of our shares are made in the future, or if there is a widespread perception in the market that such sales will increase the number of our shares circulating in the market and worsen the supply-demand balance, the liquidity of the Company’s shares and the formation of the Company’s stock price may be affected. Conversely, if the further sale of our shares by Japan Post Holdings Co., Ltd. does not proceed as planned due to changes in the provisions of the Postal Service Privatization Act concerning the disposal of the Company’s shares, stock market trends, or other factors, the removal of the additional restrictions may not take place, and the expanded management flexibility that Japan Post Holdings Co., Ltd. and the Company expect may not be realized.

In addition, if the terms and conditions of the life insurance solicitation and policy maintenance operations consignment agreement, the insurance counter operations agreement, or any other agreements that the Company has concluded with Japan Post Co., Ltd. are changed to the Company’s disadvantage or if such agreements are terminated as a result of the sale of the Company’s shares by Japan Post Holdings Co., Ltd., a large amount of cost, time, etc. may be required to maintain our business as before due to such factors as inability to use the post office network, which may affect the Group’s business, performance, and financial position. In addition, with respect to the Japan Post Group Agreement and the Japan Post Group Trademark Management Agreement that the Company has concluded with the Japan Post Group, as well as the Agreement Relating Japan Post Group Management and the Group Trademark Management Agreement that the Company has concluded with Japan Post Holdings Co., Ltd., if the Company ceases to be an affiliated insurance company and an agreement or contract itself is not applied, the Group’s business, performance, and financial position may be affected.

Furthermore, although the Company has not received any guarantee or other credit enhancement from the Japanese government or any other public institution, in the event that the misconception or illusion that the Company’s economic creditworthiness has declined is widely propagated in society as a result of Japan Post Holdings Co., Ltd. ceasing to be the Company’s parent company, this could have a negative impact on employee recruitment activities, induce customers and other business partners to suspend transactions, reduce transaction volume, cancel insurance contracts, or change terms and conditions of transactions to those that are unfavorable to the Company.

The Group has established rules of risk management and has a risk management framework to manage insurance underwriting risk, asset management risk, market liquidity risk, funding risk, and operational risk in general.

Although the Group’s management of risks including insurance underwriting risk, asset management risk, market liquidity risk, and funding risk is built on our past experience and data, it is not necessarily possible to accurately predict risks that may arise in the future, and thus risk management may not function effectively due to the Group’s entry into new business fields or changes in the external environment. In addition, the effectiveness of risk management may be adversely affected if the information used as reference or assumed by the Group in formulating risk management policies and procedures lacks accuracy, completeness, or rationality.

Furthermore, although the effectiveness and efficiency of policies and procedures related to the proper recording, review, and investigation of a vast number of transactions and events are critical to managing the risks in the Group such as operational risk, such policies and procedures may not necessarily function effectively in the future. Moreover, the implementation of risk management and supervision of its compliance must be conducted across the entire post office network of Japan Post Co., Ltd., which provides the Company’s products and services. If there are difficulties or failures in the implementation and supervision of risk management to the post office network including offering of products of Japan Post Bank Co., Ltd. and the postal and logistics services of Japan Post Co., Ltd., risk management by the Company may not function or may be insufficient.

The Company reviews its overall risk management system from time to time in response to changes in the business environment, risk conditions, and other factors, and strives to establish a complete risk management system. However, if the Group’s risk management system does not function effectively or defects occur, the Group may suffer unexpected losses or be subject to administrative dispositions, etc., which may affect the Group’s social credibility, business, performance, and financial position.

The Group is exposed to the risk of lawsuits and other legal proceedings being brought or initiated against it in connection with the execution of its business. In addition, there is a possibility that lawsuits may be filed by policyholders, etc., or that lawsuits related to personnel treatment, work management, harassment, and other personnel and labor issues, or workplace health and safety management issues, etc., may be filed by the Group’s employees or others.

If a new lawsuit is filed against the Company, it may take a considerable amount of time and cost to resolve the lawsuit. In the event that a lawsuit or other legal action over an event of significant social interest or impact is initiated, and adverse decision such as an order requiring the Company to pay damages was made, the Group’s social credibility, business, performance, and financial position may be affected.

In accordance with current accounting standards, the Company’s deferred tax assets are reported to the extent that future tax liabilities are recognized to be reduced by taxable income estimated based on certain assumptions. Although the actual results of new policies have not reached the level assumed in the Medium-Term Management Plan despite an improvement in the results, the estimates of such taxable income are based on the management plan, which are prepared on the assumption that a certain level of new policies will be reached in the future under the policies to be implemented in the plan. However, if the actual results of new policies do not progress as expected for a longer period of time, or if the amount of deferred tax assets decreases due to a change in the assumptions used in the estimates resulting from the continued significant deterioration of the economic environment or a reduction in the tax rate following a tax system reform, the Group’s performance and financial position may be affected.

The Group has entered into alliances with other companies for various operations to create new business opportunities. If problems arise in the execution of business by alliance partners, or if the business is not conducted as planned, or if the expected results from the business alliances are not achieved, the Group’s business, social credibility, performance, and financial position may be affected.

In addition, the Group may make investments, etc. in conjunction with business alliances. If the performance or financial position of an investee deteriorates due to changes in its business environment or various other reasons, impairment losses may be recognized, which could affect the business, performance, and financial position of the Group.

The Company is obligated to pay contributions to the Life Insurance Policyholders Protection Corporation of Japan (the “Protection Corporation”). The purpose of the Protection Corporation is to protect policyholders of failed life insurance companies, and it provides financial assistance when transferring insurance policies from a failed life insurance company to another life insurance company. Because the balance of the policyholder protection fund at the Protection Corporation reached the maximum amount as of March 31, 2022, there were no payments of contributions to the protection fund. However, because in the event of a future event requiring the payment of contributions, the amount to be paid to the Protection Corporation is determined based on the amount of premium income and policy reserves, etc., if the Company’s premium income and policy reserves increase compared to other life insurance companies, the amount of contributions may increase, which may affect the Group’s business, performance, and financial position. In addition, the failure of another Japanese life insurance company could also adversely affect the reputation of the Japanese life insurance industry as a whole and damage the confidence of policyholders in the life insurance industry as a whole, and therefore a downturn of new policies or increased cancellation of existing policies could adversely affect the Group’s business, performance, and financial position.