LIFENET INSURANCE COMPANY

In addition to domestic and overseas life insurance companies, the acceleration of digitalization in financial services has led to online market entry by insurers traditionally reliant on face-to-face channels, intensifying the competitive environment. If the Company cannot maintain its competitiveness, a decrease in new policies and an increase in cancellations may reduce the number of policies in force, making it impossible to achieve improved profitability through scale expansion and operational efficiency gains. In response, the Company promotes product and service development under the manifesto "Honest, Simple, Affordable, Convenient," and is expanding the Individual Insurance (Partner Business) and the Group Credit Life Insurance (Danshin) business.

The Company actively deploys policy acquisition cash flow into television commercials, search-linked advertising, and other channels, but if marketing effectiveness is insufficient or internet-based insurance purchasing behavior does not spread as expected, deployment efficiency may decline and adversely affect business performance. If the Company fails to respond appropriately to changes in customer needs and the socioeconomic environment, new policy performance may decline even while maintaining current deployment levels, making it impossible to secure product profitability. The Company periodically monitors and analyzes the balance between new policy growth and deployment efficiency when making deployment decisions.

Life insurance premiums are calculated based on assumed rates such as expected mortality and morbidity rates, and if actual mortality or morbidity rates exceed those assumptions, insurance claim and benefit payments beyond expectations will occur. Non-traditional risk products such as medical, disability, cancer, and dementia insurance carry relatively higher uncertainty in their assumed rates, and similar risks exist in the Group Credit Life Insurance (Danshin) business launched in July 2023. In addition, in the event of a pandemic exceeding the scale of COVID-19 or mass casualties from a large-scale disaster, payments exceeding contingency reserves may occur; the Company addresses this through underwriting method design at the time of product development, monitoring systems, and stress testing.

The Company primarily invests in highly-rated government and corporate bonds, and if market interest rates rise significantly, the fair value of bonds held may decline beyond expectations. Because the IFRS insurance liability valuation and economic value-based eligible capital also fluctuate in line with market interest rates, Japanese GAAP net assets, IFRS capital, and comprehensive capital are all affected. The Company recognizes that the probability of interest rate fluctuations has increased against the backdrop of continued geopolitical tensions, and is strengthening resilience by shortening bond duration and shifting from "other securities" to "held-to-maturity" holdings.

As the Group relies primarily on the internet as its main sales channel, its entire business depends on the stable operation of its information systems. If systems become inoperable due to unauthorized access, virus infection, external denial-of-service attacks, hardware malfunctions, or other causes, insurance claim payments, premium collection, and asset management operations may be disrupted. This could result in lost business opportunities and additional costs, as well as damage to customer trust and reputation, and could lead to administrative sanctions. The Company has implemented multi-layered countermeasures including firewalls, antivirus measures, vulnerability assessments, and CSIRT operations, and has not experienced any major system trouble since its establishment.

The Company holds confidential information, primarily customers' personal information, mainly through electromagnetic means. If leakage occurs due to officers, employees, agencies, or outsourcing partners, or if unauthorized acquisition by a third party occurs, this could result in administrative sanctions, brand damage, and substantial costs such as damages, adversely affecting the Company's financial condition and business performance. The Company positions information security management as one of its most critical management priorities and implements technical measures including data access and copy restrictions, log monitoring, firewalls, and CSIRT operations.

If officers, employees, agencies, outsourcing partners, or customers engage in misconduct such as illegal insurance solicitation, unauthorized use of customer information, fraud, or impersonation, this could lead to administrative sanctions, loss of trust, brand damage, and substantial costs. Even where conduct does not constitute fraud or a legal violation, actions that deviate from social norms or customer perspectives could adversely affect stakeholders and market soundness. The Company promotes customer-oriented business operations through regular compliance reviews by the Compliance Committee, tiered training programs, and analysis of customer complaints.

The Company voluntarily adopted IFRS beginning in fiscal year 2023. If significant deterioration in insurance event occurrence rates, lapse rates, or maintenance expense rates, or a significant increase in non-financial risk, results in an unfavorable change in assumptions that cannot be fully absorbed by the Contractual Service Margin (CSM), the amount exceeding the CSM will be recognized as a loss for the period. This could result in financial accounting losses that adversely affect business performance.

If a partner in the Individual Insurance (Partner Business) faces business challenges or undergoes a strategic shift due to industry restructuring, the business alliance could be terminated or modified. In the Group Credit Life Insurance (Danshin) field, there is a risk that the business alliance agreement with au Jibun Bank, a key business partner, could be terminated or modified, which could force a change in business strategy and adversely affect business performance.

In addition to overseas bonds and domestic and foreign equities held for pure investment purposes, the Company made a new equity investment of ¥3,000 million during the consolidated fiscal year in connection with a capital and business alliance with Advance Create Co., Ltd., increasing exposure to stock price fluctuation risk. If unexpected market fluctuations such as stock price declines, credit spread widening, or yen appreciation occur, the Company may incur losses due to declines in fair value or sales under unfavorable conditions. Investments are made under appropriate risk controls, and the Company recognizes the impact of market risk as limited.