Sony Financial Group Inc.

A sharp rise or fall in interest rates or a decline in stock prices could result in valuation losses on held assets, widening negative spreads, and a significant decline in the solvency margin ratio and capital adequacy ratio. At Sony Life, ALM is particularly challenging because liability durations are longer than those of invested assets, and while the company is addressing this by expanding long-term bond investments, if market volatility exceeds the scope that ALM can accommodate, it could have a substantial adverse effect on business performance and financial condition. Foreign exchange, credit, and real estate investment risks also affect the investment portfolio in combination.

The occurrence of pandemics or large-scale natural disasters (including those caused by climate change) could result in insurance claim payments at Sony Life and Sony Assurance exceeding the projections made when insurance premiums were set, potentially leading to a shortfall in policy reserves and contingency reserves. The risk of increased frequency and scale of severe disasters due to progressing climate change is also rising, and there is an anticipated indirect impact whereby strengthened policy measures such as the introduction of carbon taxes could reduce the asset value of investees and borrowers. Each insurance subsidiary utilizes reinsurance, but if counterparty risk at reinsurers materializes, there is a possibility that reinsurance claims may not be recoverable.

Policy reserves are calculated based on numerous assumptions and estimates, including mortality rates, morbidity rates, lapse and surrender rates, and expense ratios, but these are inherently uncertain, and if actual results significantly fall short of the assumptions, a shortfall in reserves could occur. Changes in guidelines by regulatory authorities could also require additional provisioning under stricter assumptions. In addition, there is a risk that advances in cancer diagnosis and genetic testing technology could increase adverse selection in policy enrollment, increasing insurance claim payments.

Cyberattacks, system failures, malware, and other incidents could result in large-scale leaks of customer information or business interruptions, which could lead to administrative sanctions, damages lawsuits, and damage to corporate image. Due to the rapid recent development of frontier AI, the period from vulnerability discovery to attack has shortened and attacks have become larger in scale, increasing the risk that conventional defensive measures may be insufficient. The Group is strengthening security measures such as vulnerability management, patch application, and monitoring response, but there remains a risk that the impact cannot be sufficiently mitigated depending on changes in technology trends.

There is a risk of incurring losses due to fraud or misconduct by employees, agencies, or customers (such as illegal sales, impersonation, or improper use of personal information). In fact, improper conduct involving money by Sony Life's exclusive agency (Premier Agency) as well as by current and former sales representatives was announced on April 24, 2026, and the Company is currently in the process of confirming customer contract status and taking corrective action. Because the Group uses a common brand, there is also a high risk that a legal violation in one business could spread to affect the credibility and business of the entire Group.

Changes to or the introduction of new regulations under the Insurance Business Act, Banking Act, and other laws could result in additional costs for establishing operational systems or restrictions on business activities. If the solvency margin ratio or capital adequacy ratio falls below regulatory levels, there is a risk that the Commissioner of the Financial Services Agency could invoke prompt corrective action measures such as a business suspension order. In addition, with the voluntary adoption of IFRS accounting standards from FY2027 (ending March 2027), changes to revenue recognition and asset/liability valuation, among other items, could adversely affect the solvency margin ratio and capital adequacy ratio.

Against the backdrop of AI utilization and deregulation, entry into financial services by companies from other industries and FinTech firms continues, which could further intensify the competitive environment in both the insurance and banking businesses. There is a risk that the amount of new life insurance policies and policies in force could decline in the future due to the declining birthrate, aging population, and population decrease, and the automobile insurance market, which is Sony Assurance's core business, also continues to show a flat trend. Because Sony Bank operates exclusively online, it faces difficulty appealing to customer segments that prefer face-to-face transactions, and if demand for internet-based financial services does not grow as expected, business performance could be adversely affected.

Important operations such as the development, maintenance, and operation of information systems, customer centers, ATM services, and credit evaluation and guarantee services are outsourced to third parties, and if service is suspended due to system outages, processing capacity being exceeded, or the materialization of geopolitical risk at an outsourcing partner, it may become impossible to provide services to customers. If alternative measures cannot be promptly implemented at a reasonable cost, additional expenses could be incurred, and corporate image could also be adversely affected. Attention must also be paid to the risk that geopolitical tensions, such as U.S.-China conflict, could affect relationships with outsourcing partners (including subcontractors).

Malfunctions or defects in advanced technologies, including generative AI, could cause operational errors, and malicious use of such technologies (such as deepfakes and phishing) could adversely affect business operations and performance. The spread of fake news about management conditions via social media could heighten reputational risk, potentially leading to increased policy cancellations and outflows of funds. The Group is working to carefully manage advanced technologies and social media, but there remains a risk that responses may not keep pace with the speed of technological change.

As a financial holding company, the Company relies for the majority of its income on dividends from its subsidiaries, but restrictions under the Insurance Business Act, Banking Act, and Companies Act on the amount of dividends that subsidiaries can pay, or a failure by subsidiaries to record sufficient profit, could constrain the Company's shareholder returns. A deterioration in various management indicators, including the Group's consolidated ESR, could also force a review of the shareholder return policy. Because Sony Life accounts for a large proportion of the Group's income and profit, there is also a high risk that a deterioration in its business performance would directly impact the financial foundation of the entire Group.