eGuarantee,Inc.

Since risk transfer costs are in principle fixed under one-year contracts, a decline in guarantee fee rates could cause a short-term deterioration in profit margins. In addition, if guarantee performance events occur frequently during an economic downturn and price pass-through to customers does not progress sufficiently, this could adversely affect business performance. Because payments to risk transfer counterparties are determined based on multiple years of guarantee performance track record, a temporary surge in guarantee performance events does not become a factor in short-term cost increases.

The Company transfers risk to financial institutions and others in order to hedge the credit risk it has assumed. However, if a significant deterioration in creditworthiness or guarantee performance events beyond expectations occur with respect to guaranteed receivables, or if risk transfer counterparties become unable to accept risk transfer due to default or other reasons, the Company may not be able to carry out risk transfer as planned. In such cases, a decline in net sales or an increase in the cost ratio may occur, which could adversely affect business performance. While diversification is being pursued through diversification of risk transfer counterparties, complete elimination of this risk is difficult.

The Company self-retains a portion of credit risk through multiple consolidated subsidiaries (Credit Guarantee GK series, etc.). As of the end of March 2026, out of guarantee obligations of ¥911,349,373 thousand related to accounts receivable guarantee services, the amount self-retained by the group reached ¥146,668,969 thousand. If guarantee performance events occur more frequently than expected, this could directly impact business performance. Although measures have been implemented, including setting certain standards to prevent extreme deterioration in the loss ratio, the risk remains.

Guarantee factoring offered by factoring companies affiliated with major financial institutions and trade credit insurance offered by non-life insurance companies exist as similar services, and these have an advantage over the Company in terms of brand recognition and creditworthiness. If competition intensifies due to new entrants from other financial institutions in the future, this could lead to a decline in the Company's new contract rate or the loss of existing customers. While the Company asserts its competitive advantage in terms of the breadth of underwriting scope and diversity of eligible receivables, it needs to continue responding to changes in the competitive environment through ongoing product development.

The Company has determined that its accounts receivable guarantee business does not currently fall under the scope of regulation under the Insurance Business Act, the Act on Special Measures Concerning Claim Management and Collection Businesses, or the Financial Instruments and Exchange Act, and has therefore not made any filings with or obtained any licenses from the relevant regulatory authorities. However, if new legal regulations are established in the future, if the interpretation of existing laws changes, or if regulatory deregulation occurs with respect to other companies' services, the Company may be forced to change its business model or face intensified competition. Changes in the regulatory environment constitute a significant risk that could affect the Company's business foundation itself.

The Company Group handles confidential customer information, corporate information, and credit information through its guarantee services business, and if such information were to be leaked, this could lead to a loss of social trust and a decline in business performance. As countermeasures, the Company updates the latest security software and implements access restrictions by staff role and position, but despite such measures, the risk of leakage cannot be completely eliminated. Deficiencies in information management directly affect the relationship of trust with customers, making this a material risk to business continuity.

If a large-scale earthquake, volcanic eruption, terrorist attack, or similar event were to occur at the Tokyo head office and effectively halt head office functions, this could have a material impact on the Company's financial position and business results. The Company faces a risk from the concentration of functions at the Tokyo head office, and the limited geographic dispersion could be a vulnerability. As countermeasures, the Company has established a disaster response system and conducts initial response training to work to mitigate disaster risk.

The Company Group has entered into risk transfer agreements with risk transfer counterparties, but deficiencies in contracts and other documents could give rise to doubts regarding transaction details or conditions, potentially developing into disputes. Because guarantee services involve a complex structure of dispersing and transferring the risk of payment default associated with the bankruptcy or other events of guaranteed parties across multiple financial institutions and others, the risk of contractual disputes is inherently present. While the Company strives to prevent transaction-related troubles before they occur, when disputes do arise, they could impact business performance and creditworthiness.

The Company conducts scenario analysis based on the TCFD framework using 1.5°C and 4°C scenarios, identifying transition risks and physical risks. The progression of climate change could affect the creditworthiness and business performance of guaranteed companies, indirectly increasing the Company's guarantee performance risk. The Company has established a deliberation system involving the Management Committee and the Board of Directors, and is advancing responses such as setting a target of net-zero Scope 2 GHG emissions by fiscal 2030.

The Company self-retains credit risk through multiple consolidated subsidiaries (Credit Guarantee GK series, etc.) in which it holds ownership interests of 51% to 82%, creating a structure in which the group's overall loss risk is reflected in the consolidated financial statements. While risk retention through each subsidiary's silent partnership (tokumei kumiai) takes the form of joint investment with outside investors, because majority ownership results in consolidation, an unexpected surge in guarantee performance events would directly impact the Company Group's business performance. While certain loss ratio management standards have been established, the complexity of the group structure could pose a challenge for risk management.