MS&AD Insurance Group Holdings, Inc.

The risk that insurance claim payments increase significantly due to large-scale wind and flood damage, earthquakes, volcanic eruptions, etc., in Japan and overseas, affected by climate change. A situation in which risk control as planned becomes difficult due to soaring reinsurance premiums or reduced underwriting capacity of reinsurance companies is also anticipated. The Group formulates and resolves at the Board of Directors a Group Material Risk Management Action Plan, and confirms capital adequacy through stress tests and strengthens risk control.

The risk that capital adequacy declines due to a decline in the value of held assets such as equities amid concerns over global economic stagnation, and due to interest rate and foreign exchange fluctuations accompanying changes in monetary policy and lack of fiscal discipline in various countries. Progressing inflation is also explicitly noted as a matter for attention, with the potential to affect held assets broadly. The Group monitors ESR (Economic Solvency Ratio) based on the ERM (Enterprise Risk Management) cycle and works to maintain the soundness of capital.

The risk that deterioration in the real economy, tightening of credit by financial institutions, increased costs due to interest rate and foreign exchange fluctuations, and strengthening of decarbonization regulations lead to deteriorating performance or default of invested/financed companies, developing into systemic risk. The possibility that the failure of the bloated non-bank sector, etc., broadly affects financial markets has also been added to the assumed scenarios. Management has been strengthened with inflation and climate change designated as matters for attention.

The risk that social credibility is lost due to insufficient penetration of customer-oriented business operations, actions based on industry practices or internal evaluation systems that lack the customer's perspective, rights infringement or inappropriate information disclosure associated with AI utilization, deficiencies in sustainability disclosure such as climate change response, and human rights violations. The scenario also explicitly includes a decline in credibility if the vision presented to stakeholders regarding the merger of Mitsui Sumitomo Insurance and Aioi Nissay Dowa Insurance cannot be realized. Based on the Group Material Risk Management Action Plan, the Group is working on appropriate control of conduct risk.

The risk that business disruption or information leakage occurs at the Group and outsourced partners due to the global expansion of cyber attack damage accompanying the progress of digitalization, the increasing sophistication and diversification of AI-utilized attacks, and the expansion of the scope of impact due to cloud utilization and supply chain expansion. The global expansion of cyber attack damage accompanying intensifying conflict among major powers is also anticipated in conjunction with geopolitical risk. The Group continuously monitors this as a material Group risk and implements countermeasures.

The risk that multiple simultaneous failures occur in customer- and agency-facing systems accompanying the progress of digitalization, that system-related facilities are damaged by large-scale natural disasters, and that business and services are disrupted due to communication failures. There is also a possibility that management plans are not achieved due to delays in progress, non-achievement, budget overruns, or failure to realize expected effects of large-scale system development. Based on the Group Material Risk Management Action Plan, the Group implements a system failure response framework and manages the progress of large-scale development.

The risk that the business portfolio is affected by delays in reviewing industry practices and responding to environmental changes, competitive disadvantage due to delays in utilizing technology such as AI, impacts on the profit structure such as a decrease in automobile accidents due to the progress of driving assistance and autonomous driving technology, and changes in market size and structure accompanying the declining birthrate, aging population, and population decline. The scenario has also been expanded to include profit instability due to sharp fluctuations in the reinsurance market and increased systemic risk due to concentration in specific reinsurance companies or jurisdictions. The Group is strengthening its promotion of business model transformation and its response to changes in the value provided by risk solutions.

The risk that the gap between management strategy and the human capital portfolio widens due to external changes in the human capital market and labor supply and demand, changes in the skills and expertise required for business model transformation and execution of overseas business strategy, the retirement of experienced personnel, and insufficient planned development. A decline in employee engagement and loss of human capital or weakening of recruiting capability are also anticipated, and management is conducted with the declining birthrate, aging population, and digitalization designated as matters for attention. Based on the Group Material Risk Management Action Plan, the Group is working to strengthen human capital development and environment improvement.

The risk of a decline in the value of held assets due to financial market fluctuations accompanying intensifying conflict between nations and political, economic, and social division/polarization, supply chain disruption due to strengthened economic security-related regulations, and business restriction, suspension, or withdrawal (including human casualties) in specific countries or regions accompanying the rise of protectionism. The assumed scenarios also include the occurrence of insurance claim payments covering war risk-related special provisions, and financial burdens due to intensified taxation. The Group continuously monitors this as a material Group risk and works on appropriate control of geopolitical risk, including inflation concerns.

The risk that the Group is unable to appropriately execute business and services due to the pandemic of new types of infectious diseases, also affected by global warming, and the prolongation of their impact. An increase in insurance claim and benefit payments due to global infection spread, and a decline in profits due to prolonged stagnation of economic activity accompanying the prolonged impact of infectious diseases, are also anticipated. Climate change is positioned as a matter for attention, and countermeasures are implemented based on the Group Material Risk Management Action Plan.