IRRC Corporation

Revenue from the Insurance Sales Business accounts for 61.8% of consolidated net sales, and there is a risk that a decline in conclusion rates due to stricter underwriting standards by partner insurance companies, or a review of agency commission rates due to changes in sales policy or deterioration of financial conditions, could occur. In addition, increased dependence on specific insurance companies may result in the Group being affected by their sales policies. The Group seeks to diversify through product comparison and consulting-based sales utilizing the Hoken IQ System®; however, in the event of the bankruptcy of a partner insurance company, lapses or cancellations of held insurance policies may occur, which could have a material impact on the Group's financial position and business results.

If lapses or cancellations of insurance policies increase and the continuation rate deteriorates due to scandals occurring in the insurance industry, changes in policyholders' behavior and thinking, or fluctuations in economic conditions, it may affect business results. Currently, the continuation rate of insurance policies held by individual policyholders has remained at approximately 95% to 97%, maintaining a high level compared to other companies in the same industry, which is attributed to high customer satisfaction resulting from consulting utilizing the Hoken IQ System®. The Group intends to maintain the continuation rate by continuing customer-oriented business operations going forward.

The main source of income in the Insurance Sales Business is insurance commission income, which has a structure of receiving first-year commissions and commissions from the second year onward. If insurance companies change their policies regarding commission regulations and the insurance commission rates received by the Company fluctuate, it could directly affect business results. A commission structure that pays based on quality as an evaluation criterion has been introduced in line with the principle of customer-oriented business operations, and the Group is addressing this by improving quality.

Important information, including customer information, is accumulated on the servers of the Hoken IQ System®, AS System, and AS-BOX, and there is a possibility that data leakage, destruction, or malfunction may occur due to natural disasters, accidents, unauthorized access, computer viruses, etc. If such an event occurs, in addition to loss of trust, the Group's financial position and business results may be affected by claims for damages or lawsuits from customers and others. The Group has implemented firewall systems to prevent unauthorized access and conducts regular data backups.

On August 2, 2024, it was discovered that an employee seconded from Dai-ichi Life Insurance had leaked customer insurance contract information (including some personal information) to Neo First Life Insurance. If a leakage of personal information occurs, business operations and business results may be affected by claims for damages from business partners or damage to brand image. The Group has obtained Privacy Mark (P Mark) and ISMS certifications, and has implemented recurrence prevention measures such as stricter access authorization and obtaining pledges from seconded employees.

The Group is registered as a non-life and life insurance agency under the Insurance Business Act, and in the event of violations of prohibited acts such as false statements or inducement of non-disclosure, the Group may be subject to administrative sanctions such as revocation of agency registration, suspension of business, or business improvement orders. If subject to administrative sanctions, not only would sales activities in the Insurance Sales Business become difficult, but the Solutions Business could also be affected due to damage to brand image and loss of credibility. In addition, amendments or abolitions of relevant laws and regulations such as the Insurance Business Act, the Financial Services Provision Act, and the Personal Information Protection Act may impose restrictions on service activities and insurance solicitation methods.

Due to the revision of the Corporation Tax Basic Circular Notice by the National Tax Agency on June 28, 2019, the tax treatment of premiums for term life insurance and third-sector insurance was changed, resulting in a reduction in the deductible amount of premiums. If similar reviews of tax treatment occur in the future, business operations and business results may be affected by changes in customer needs or product competitiveness. The Group is taking measures to minimize the impact on earnings by keeping the proportion of corporate sales in overall consolidated net sales low.

In the walk-in insurance sales service, competition is intensifying due to an increase in new entrants from other industries, and business results may be affected if the Group is unable to provide attractive services, or if the number of franchise stores decreases or does not increase as expected. In addition, the market size of the insurance industry as a whole is stagnating due to the effects of the declining birthrate, aging population, and population decline, and if this industry-wide stagnation trend continues, it may affect business strategy and business results. The Group is addressing this by leveraging its strengths in system-based consulting sales and its experience and know-how specialized in walk-in stores.

Revenue from the Solutions Business accounts for 23.6% of consolidated net sales, and unexpected events occurring at franchise stores or system provision partners could damage the brand image of Hoken Clinic® or the Company's systems, which could affect the Group's financial position and business results. In addition, if the expansion of the franchise store network does not proceed as expected due to a decrease in new agency registration candidates or the withdrawal of operating agencies, it could also affect business results. The Group, as an insurance solicitor supervising entity, confirms the appropriateness of matters such as personal information protection at franchise stores through internal audits.

As of the filing date of this document, Nihon IFA Partners Ltd, a company whose business purpose is investment, holds a 29.63% equity stake, and if a large volume of shares were sold at once, it could affect the market price of the Company's shares. On the other hand, the company is said to have a very good understanding of the Company's business and maintains a favorable relationship, but the risk of a sale cannot be completely ruled out. While there is an aspect of improved liquidity, the impact on the share price is an important risk factor for investors.