JAPAN POST INSURANCE Co.,Ltd.

As the use of open environments such as cloud services increases with the advancement of DX promotion and AI utilization, cyber attacks are becoming more frequent, sophisticated, and organized, with risks arising via supply chains and geopolitical risks also expanding. If an attack succeeds, it could result in the suspension of information system functions and business interruption, requiring significant time and expense for investigation, recovery, and recurrence prevention, potentially affecting social credibility, business performance, and financial condition. The Company has established a multi-layered defense system through the Kampo CSIRT and an information security management system that takes economic security into account, and is working to ensure effectiveness through training and other measures.

Most of the Company's product and service offerings are provided through the post office network, and commissions paid to Japan Post Co., Ltd. (¥89,830 million for FY2026 (ending March 2026)) and contributions to the Management Organization for Postal Savings and Postal Life Insurance (¥57,600 million for the same period) are fixed operating expenses that cannot be immediately reduced. A decrease in the number of post office users due to growing demand for non-face-to-face services, or deficiencies in agency management systems, could affect new policy sales performance and policies-in-force retention, and could also result in administrative sanctions. The Company is progressively working to ensure the effectiveness of its agency management system and to respond to legal amendments, but the structural dependence on the post office network constitutes a business constraint.

Following the sales quality issues of fiscal 2019, the Company has taken fundamental measures to prevent recurrence; however, subsequent cases of inappropriate use of non-public financial information and solicitation prior to obtaining approval have been confirmed within the Japan Post Group, indicating that improvement of corporate culture and organizational culture remains incomplete. If inappropriate sales activities or legal violations recur, the Company could be subject to administrative sanctions such as business suspension orders, potentially having a material impact on social credibility, business performance, and financial condition. The Company continues to develop and strengthen its conduct risk management system, thoroughly implement the Kampo Sales Standards, and conduct company-wide compliance training, but implementation and supervision across the entire post office network remains challenging.

The Company has a high proportion of yen interest-rate assets and a duration mismatch between assets and liabilities, giving rise to the risk of valuation losses, impairment losses, or negative spreads due to fluctuations in domestic interest rates. The Company is also broadly exposed to foreign exchange risk and foreign interest rate fluctuation risk related to foreign currency-denominated assets, price fluctuation risk related to stocks and real estate, and credit risk related to investment and loan counterparties; if market conditions fluctuate beyond expectations due to the materialization of geopolitical risk or other factors, this could affect business performance and financial condition. The Company is working to enhance ALM and ERM, conduct regular stress tests, and strengthen its screening and monitoring systems, and is promoting portfolio restructuring under the Medium-Term Management Plan.

The Company is subject to additional regulations (business restrictions) not applicable to other life insurance companies under the Postal Service Privatization Act, and the outlook for the removal of such regulations remains unclear unless Japan Post Holdings Co., Ltd. proceeds with the disposal of the Company's shares. In addition, an economic value-based solvency regulation will be introduced from the end of March 2026, and if market fluctuations cause the solvency margin ratio to fall below the level required by the Financial Services Agency, early corrective measures could be triggered. Furthermore, if approvals under the Insurance Business Act are not obtained as expected, it may become difficult to sell new products on schedule, potentially affecting competitiveness.

The Company's customer base has a high proportion of middle-aged and older individuals and women, and its product lineup is skewed toward savings-type products such as endowment insurance and whole life insurance, making it directly exposed to the long-term declining trend in policies in force due to population decline from the falling birthrate and aging population. In a rising interest rate environment, there is also a risk that policyholders will move funds to higher-yielding alternative financial products, increasing cancellations and policy switching. The Company has revised and expanded its education endowment insurance and single-premium whole life insurance, and revised its assumed interest rates (in July 2025, January 2026, and May 2026), and is working to respond to the diverse needs of a wide range of customers, including younger and middle-aged adults; however, failure to respond to products in a timely manner could affect business performance and financial condition.

Since the majority of the Group's revenue is generated domestically, fluctuations in Japan's economic and price conditions, household income, and savings/investment stances directly affect the business. Sustained high consumer prices could lead to rising operating expenses, deteriorating insurance premium profitability, and difficulty securing human resources, while a greater-than-expected rise in interest rates could lead to expanded valuation losses on held bonds and an increase in policy cancellations. There are also concerns regarding the impact on the domestic economy of trade policy trends and geopolitical risks in various countries, and if these factors materialize in combination, they could have a material impact on business performance and financial condition.

The Company plans to implement business growth strategy investments of approximately ¥90.0 billion during the Medium-Term Management Plan period (FY2026 to FY2028), working on business restructuring and productivity improvement premised on AI and digital technology; however, if results commensurate with the investment amount and costs are not achieved, the expense burden through depreciation and other costs could put pressure on business performance. Furthermore, the use of AI carries technical and ethical risks such as confidential information leakage, copyright infringement, hallucination, and bias, and if inappropriate use of AI results in disadvantage to customers, it could affect social credibility and business performance. The Company is proceeding with the formulation of a unified Group AI policy, implementation of prior assessments, and development of a company-wide risk management system, but delays in responding to the rapidly changing AI regulatory environment also pose a risk of adversely affecting business development.

The Group directly or through Japan Post Co., Ltd. holds large volumes of personal information of policyholders and others (including My Number information), and in recent years there have been numerous leakage incidents at external outsourcing contractors, requiring stricter management. If personal information or internal information is leaked by employees, agencies, outsourcing contractors, or others, this could result in costs associated with responding to damage compensation claims, administrative investigations, and sanctions, as well as loss of social credibility, potentially affecting business performance and financial condition. The Company is working on developing its privacy policy and information management regulations, thoroughly managing information during telework, and strictly managing information including at external outsourcing contractors.

The Company is expanding multiple alliances and investments both domestically and internationally, including an asset management partnership with Mitsui & Co. and the Daiwa Securities Group, a reinsurance co-investment with KKR and Global Atlantic (an additional investment of approximately US$2.0 billion decided in July 2025), and a minority investment in the Hoken Minaoshi Honpo (Insurance Review Head Office) Group; the goodwill-equivalent amount related to Daiwa Asset Management Co., Ltd. reached ¥31.9 billion as of the end of FY2026 (ending March 2026). If issues arise in business execution or internal controls at partner companies, or if business does not proceed as planned, impairment losses could occur, potentially affecting business performance and financial condition. Similar risks could arise if the Company faces deterioration in overseas insurance markets or asset management markets, and the Company has established a system for risk recognition utilizing external experts and for monitoring after forming alliances.