Anicom Holdings, Inc.

If the number of pets owned decreases due to a reduction in pet shops resulting from revisions to the Act on Welfare and Management of Animals, or due to deterioration of the economic environment or concerns over the outbreak of zoonotic infectious diseases, the business model centered on pet insurance may no longer be viable. Since the Non-life Insurance Business accounts for approximately 90% of group sales, the impact of market contraction directly affects the entire business. The Company has formulated a medium-term management plan premised on changes in the pet market and conducts continuous monitoring.

Competition is rapidly intensifying due to the entry of major non-life insurance companies, new entrants from other industries, and the placement of pet insurance companies under the umbrella of major life insurance groups, among other factors. Competition in products, services, and prices may lead to a decrease in the number of contracts and agencies and a decline in per-unit premium rates. A decrease in premium income would have a material impact on the group's overall performance. The Company views this changing environment as an opportunity to surface latent needs and is promoting sales expansion measures.

Due to the spread of animal infectious diseases (including zoonotic diseases similar to novel influenza), a rise in disease incidence rates and medical cost levels, or changes in the in-force contract portfolio and risk concentration, the Company may be unable to secure an appropriate premium level. An excessive rise in the loss ratio would undermine the soundness of management and have a material impact on the financial position and business performance. The Company manages this risk through ERM promotion and solvency assessment and stress testing using internal models.

There is a risk that valuation losses on investment assets may arise or expand due to rising interest rate levels or significant declines in stock prices, as well as a risk of inability to recover principal and interest due to default by issuers of corporate bonds and similar instruments. Anicom Sonpo diversifies its investments across stocks, bonds, real estate, deposits, and other assets to ensure liquidity, but sudden changes in market conditions could affect business performance and financial position. The Company implements measures such as loss-cut rules and continuously monitors interest rate and stock price levels.

The Company holds large volumes of customer information, including policyholder information, agency information, and animal hospital information. If an information leak occurs due to a cyberattack, unauthorized access, or computer virus infection targeting group companies or outsourced contractors, it could result in a decline in social credibility and brand image, as well as the payment of damages. Although each group company has established and rigorously manages information management systems, risks remain across the entire supply chain, including outsourced contractors.

If the information systems experience outages, malfunctions, or unauthorized use due to natural disasters, accidents, cyberattacks, or deficiencies in system development or operation, this could result in information leaks, business suspension, damages, administrative sanctions, or reputational damage, potentially affecting the financial position and business performance. Although the Company has established a system to contain system risk to a certain degree and maintain business continuity, the risk of serious failures remains, particularly during new system development.

If business continuity is disrupted by unforeseen events such as a large-scale natural disaster, including an earthquake directly beneath the Tokyo metropolitan area, or a pandemic of novel influenza, this could affect the financial position and business performance. The Company has established a crisis management system, including the formulation of a Business Continuity Plan (BCP), to limit the impact of business interruption to a certain extent, but there are limits to responding to events that exceed expectations.

If insurance agencies and others violate the Insurance Business Act or other laws and regulations in the course of insurance solicitation, this could give rise to reputational risk or impede the continuation of appropriate insurance business operations. There are also risks of violations of related laws such as the Antimonopoly Act and the Act on Welfare and Management of Animals, which could affect business continuity. The Company promotes appropriate insurance solicitation management through day-to-day sales activities and audits, but the difficulty of management increases as the agency network expands.

Regarding goodwill acquired through M&A, if the operating income of the acquired business continues to be in deficit, or if there is a significant deterioration in the business environment or a significant decline in market prices, the Company may recognize an impairment loss on goodwill, which would affect the financial position and business performance. Although the Company conducts impairment assessments every fiscal period, the risk of unexpected impairment remains in the event of sudden changes in the business environment.

Although the Company has established a Group Risk Management Committee and a Risk Management Department to promote ERM and conduct qualitative and quantitative risk management, if the management system fails to function effectively against the diverse risks faced by each group company or risks specific to the holding company structure, this could affect the financial position and business performance. The Company regularly conducts solvency assessments and stress tests using internal models to manage the adequacy of its capital, but responding to unexpected risks, including emerging risks, remains a challenge.