Risk Factors

Major risk factors related to the business of Tokio Marine Group are described below, which may materially affect investment decisions and which may be important for the understanding of the Group’s business. Tokio Marine Group strives to prevent the occurrence or adverse situations and to respond to such situations whenever necessary. The following information including forward-looking statements were determined as of the date of submission of our securities report (available only in Japanese).

1.Risks Relating to Underwriting

（1）Risks Relating to Insurance Products

Insurance companies underwrite various risks such as large-scale risks and long-term risks. We set our coverage and premium rates at levels which we believe are adequate and cede certain risks to reinsurers. Nevertheless, the economic conditions and insurance accident rate fluctuation could significantly affect our financial condition and results of operations.
Also, Japan is prone to earthquakes, typhoons, flood and other types of natural disasters and these are frequently occurring all around the world these days. Especially, large-scale natural disasters at home and abroad could significantly affect our financial condition and results of operations.

（2）Risks Relating to Reinsurance

An insurance company may attempt to reduce its possible maximum loss on risks by giving, or ceding, a portion of its liability to another insurance company, referred to as a reinsurer. Like many other property and casualty insurance companies and life insurance companies, we use reinsurance to provide greater capacity to write larger policies and to control our exposure to extraordinary losses or catastrophes. Reinsurance is subject to prevailing market conditions, both in terms of price, which could affect our profitability, and in terms of availability, which could affect our ability to offer insurance. We are subject to credit risk with respect to our ability to recover amounts due from our reinsurers, as the ceding of reinsurance does not relieve us of our liability as the direct insurer to policy holders.

（3）Risks Relating to Life Insurance

In life insurance, mortality and morbidity rates and surrender movements due to long-term insurance period and uncertainties of assumptions such as interest rates and stock prices are unavoidable. Therefore, if payment and operating expenses came out to be totally different from the previous projection, our financial results and financial status might be affected.

2.Risks Relating to Investment

（1）Stock Market Declining Risks

We invest our policyholders’ premiums in a portfolio of marketable assets, including Japanese stocks, partly in order to maintain medium-to-long-term relationships with our customers. We may incur losses on our equity securities portfolio if the Japanese stock market experiences declines. A significant decrease in the market value of these equity securities could have a negative impact on our results of operations and financial condition.

（2）Interest Rate Fluctuation Risks

We are subject to interest rate risk due to our investments in fixed income instruments, loan receivable as well as derivatives. An increase in interest rates decreases the value of our fixed income portfolio and thereby adversely affects our results of operations and financial condition. However, fluctuations in interest rates affect not only the current value of fixed income instruments but also the value of our deposit-type insurance and long-term insurance liabilities. Therefore, we need to consider the fluctuation of both the assets and liabilities in evaluating fluctuations in interest rate risks.

（3）Credit Risks

Issuers of fixed income instruments and loan borrowers may default on principal and interest payments with respect to fixed income instruments and loans we hold. A continuation of, or an increase in, defaults may require us to record losses on our fixed income and loan portfolios and may adversely affect our results of operations and financial condition.

（4）Foreign Currency Fluctuation Risks

We hold assets and liabilities denominated in foreign currencies such as the U.S. dollar, the euro and the pound sterling. A decrease in the fair value of assets or an increase in the fair value of liabilities as a result of foreign currency fluctuations could adversely affect our results of operations and financial condition.

3.Liquidity Risks

4.Operational Risks

Operational risk is inherent in our business and can manifest itself in various ways, including regulatory breaches and receipt of administrative orders relating to such regulatory breaches, human errors, employee misconduct and external crimes. These events can potentially result in financial loss or harm to our reputation and otherwise hinder our operational effectiveness.

5.System Risks

System risk is inherent in our operations. System risks include a sudden malfunction and wrongful use of systems due to events such as natural disasters, accidents, cyber attacks, or deficient or defective development or operation of information systems. To manage and minimize our system risk, we have in place functional systems that would allow us to continue our operations in the event of a system failure. However, if such system risk manifests itself, our operations and financial condition could be adversely affected.

6.Risks Relating to Information Leakage

We keep and manage personal information obtained from customers in relation to our insurance business and confidential information regarding the operations of our group companies. Although we exercise care in ensuring the confidentiality and security of such information, if any critical information leakage due to unauthorized access to our group companies or outsourcing companies, computer virus infection, and information spread through SNS does occur, our credibility and brand image may suffer. In addition, we may have to provide compensation for economic loss arising out of a failure to protect such information, thereby adversely affecting our results of operations and financial condition.

7.Change in Existing or New Regulations Risks

Our business is subject to detailed, comprehensive regulation and supervision in Japan, including the Insurance Business Law of Japan. Changes in existing, or new, laws and regulations are unpredictable and beyond our control and may materially impact our business, results of operations and financial condition, through adverse development, including a decrease of operating income or higher requirements for insurance reserves.

8.Reputation Risks

Regardless of authenticity, harmful rumors or speculations that spread through press coverage or entries on the Internet may adversely affect our credibility. We take utmost precautions to identify such rumors or speculations as soon as possible and minimize their adverse effects. However, if such rumors or speculations actually spread, our credibility may be damaged and our operations and financial condition could be adversely affected.

9.Business Interruption Risks

Although we have implemented a BCP (Business Continuity Plan) in order to prevent interruption of our business operations or the occurrence of a pandemic of contagious diseases, such as a new type of influenza, or the occurrence of a natural disaster, and have made a system that enables continuous management of business, disruption of the smooth BCP may affect our results of operations and financial condition.

10.Risks Relating to Personnel and Labor Management

Although we strive to recruit and develop talented human resources, if we couldn’t recruit and develop human resources due to a decrease in our credibility as well as an increase in competition of personnel acquisition, it could affect smooth operation of our business.

11.Risk Relating to International Business

Our strategy includes expanding our business in markets outside of Japan through organic growth and M&A. Some of the factors that could adversely affect our international operations are:

Impact of economic slowdown or currency crises in economies outside Japan;
Unexpected changes in or delays resulting from regulatory requirements;
Fluctuation of exchange rates;
Restrictions on foreign investment or the repatriation of profits or invested capital;
Change in tax system or rate of taxation;
Natural disasters; and
Social, political and economic risks other than those described above.

12.Risks Relating to Other Businesses

We intend to develop other businesses, such as asset management, health care and senior citizen related businesses. In addition, we may be required to make significant investments, and devote substantial management and other resources, in order to expand or support these businesses. If we are unable to compete successfully in these business, our results of operations and financial condition may be adversely affected.

13.Others

（1）Risks Relating to the Competitive Environment in the Insurance Business

We face intensified price and services competition against other insurance companies in connection with sales of insurance products. If this competition further intensifies due to new entrants, M&A activities in the insurance industry, and digital advancement, our profitability could be adversely affected.

（2）Risks Relating to Unpredictable External Factors

In addition to the risks described above, unpredictable external factors such as conflicts, terrorism, riot, large-scale accidents, and disasters could affect our results of operations, financial condition, and business continuity.

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