1. Risks Related to Business
(1) Risks associated with the fact that individual life insurance sales by Sony Life account for a large
percentage of Sony FG’s business
Sony Life has a longer history than the Company’s other subsidiaries and accounts for a significant percentage
of Sony FG’s revenues and profits. Factors affecting the individual life insurance market generally include the
following.
- Indicators such as employment rate and household income in Japan
- Relative attractiveness of other savings or investment products to customers
- Public perception or reputations about the financial position or reliability of the insurer
- Trends in fertility, aging, and other factors that will affect Japan’s population structure over the long
term
These changes and other factors could result in a decrease in new individual life insurance policies, an
increase in policy cancellations, and a deterioration in profitability, which could adversely affect Sony FG’s
performance and financial position.
Risks related to management plans, etc.
In formulating its management plans, Sony FG makes numerous assumptions regarding the market environment,
business conditions, and other factors. However, if actual developments diverge from these assumptions or if the
monitoring and responses related to plan progress are insufficient during the execution of the plans, the
targets set in the management plans may not be achieved, which could adversely affect the performance and
financial condition of Sony FG.
(3) Risks related to underfunded policy reserves
In the life insurance and non-life insurance businesses, policy reserves are accumulated for future payments of
insurance claims and benefits in accordance with the Insurance Business Act and the Ordinance for Enforcement of
the Insurance Business Act. These policy reserves are calculated based on a number of assumptions and estimates,
including the frequency and timing of events covered by the policy, the amount of claims and benefits paid, and
the amount of investment income from assets purchased with premium income. Because these assumptions and
estimates are inherently uncertain, it is difficult to accurately determine the amounts and timing of payments
that Sony Life and Sony Assurance will ultimately pay as insurance claims and benefits, or whether assets
corresponding to insurance policy liabilities will reach the levels assumed prior to the payment of insurance
claims and benefits. The frequency and timing of events covered by insurance policies and the amount of
insurance claims paid are affected by a number of risks and uncertainties that are difficult to control,
including the following.
- Changes in trends that are the basis for calculation assumptions and estimates, such as mortality,
morbidity, surrender and lapse rates, and motor vehicle accident rates
- Availability of reliable data and ability to accurately analyze such data
- Selection and use of appropriate rates and pricing methods
- Changes in legal standards, insurance claim underwriting methods, and medical and auto repair cost levels
If Sony FG’s performance deteriorates to a greater extent than the assumptions and estimates used in the
calculations, Sony FG may not be able to fully fund its policy reserves. In addition, if there are changes in
guidelines or standards regarding the level of policy reserves, it may be necessary to increase policy reserves
based on more stringent calculation assumptions, estimates or actuarial calculations. An increase in reserve
requirements could adversely affect Sony FG’s performance and financial position.
Sony Life and Sony Assurance use reinsurance as a means of appropriately diversifying risk. With respect to the
risks associated with reinsurance, although the Company manages the risk of underwriting in excess of the
retention limit based on its retention and ceding policies to ensure that underwriting risk in excess of the
retention limit is adequately covered, it may not be possible to collect reinsurance proceeds due to the
emergence of counterparty risk in the ceding company or other factors.
(4) Risk related to advances in medical technology
In the insurance business, there is the possibility that insurance benefit payments may increase due to rapid
advancements in medical technologies such as cancer diagnostics and genetic testing, which may lead to increased
adverse selection, where relatively higher-risk customers are more likely to enroll in insurance.
Such circumstances could adversely affect Sony FG’s performance and financial position.
(5) Risks related to securing and training human resources
Sony FG employs a large number of employees, including Sony Life’s Lifeplanner sales specialists (sales
employees), and strives to retain, secure, and develop capable human resources.
However, if the turnover rate increases due to insufficient personnel and labor management, or due to inadequate
response to diversity, it may become difficult to retain, secure, and develop sufficient human resources. Such
circumstances could adversely affect Sony FG’s business operations, performance, and financial position.
(6) Risks related to stock price fluctuations
There is a risk that a decline in the stock market could result in valuation losses or losses on the sale of
securities, or a decrease in gains or unrealized profits on the sale of securities, or an increase in the
provision of policy reserves for minimum guarantees, which could adversely affect Sony FG’s performance and
financial position.
Sony Financial Ventures invests in funds backed by unlisted stocks and other assets. Unlisted stocks have the
same risks as listed stocks, as well as lower liquidity, difficulty in timely redemption, and less stable
management compared to larger companies.
(7) Risks related to interest rate fluctuations
Sony FG conducts asset and liability management (“ALM”) in order to appropriately manage the assets under
management in light of the liabilities of each business. Sony FG’s ALM aims to ensure stable earnings while
taking into account the long-term balance of assets and liabilities. In particular, at Sony Life, ALM is
challenging because the duration of liabilities owed to policyholders is generally longer than that of assets
under management. Sony Life is conducting ALM in response to changes in the interest rate environment by
increasing investments in long-term bonds. However, if Sony FG fails to properly execute ALM, or if market
conditions fluctuate beyond the extent Sony FG’s ALM can accommodate, it could adversely affect Sony FG’s
performance and financial position. For example, Sony Life accumulates a portion of the premiums paid by
policyholders as policy reserves for future claim payments, based on the assumption that these reserves will be
invested annually at a certain interest rate (this interest rate is referred to as the “assumed interest rate
for reserve calculation”).
When interest rates are declining (including negative interest rates), the return on the investment portfolio
may decrease due to lower investment yields, and the assumed interest rate (for the calculation of policy
reserves) may not be sufficient to meet the assumed return, resulting in the possibility of an occurrence or
increase of a negative spread.
In a rising interest rate environment, while investment returns may increase, policyholders may prefer other
higher-yielding financial products, leading to an increase in policy surrender rates. In addition, fluctuations
in interest rates may result in valuation losses on fixed-rate bonds held by Sony Life, which could adversely
affect Sony FG’s performance and financial position.
Similar risks as to those described above for Sony Life apply to Sony Assurance’s whole-life medical
insurance.
Sony Bank’s investment income is largely composed of interest income from loans and bonds. If interest rates
continue to rise and the increase in deposit interest exceeds the rise in yields from bond investments or other
assets, it could adversely affect Sony Bank’s performance. Unexpected interest rate fluctuations may also
negatively impact the market value of fixed-income bonds held by Sony Bank and the gains or losses on interest
rate derivative instruments. Furthermore, a rise in interest rates is also likely to reduce borrowing demand for
Sony Bank’s mortgages.
(8) Other risks related to investment portfolio
In order to secure stable investment income, Sony FG holds a variety of investment assets, including Japanese
and foreign government and corporate bonds, Japanese stocks, loans, and real estate. In addition to interest
rate and stock price fluctuation risks, Sony FG’s investment portfolio is exposed to the various risks listed
below, and such risks may adversely affect its performance and financial position.
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Foreign currency risk: Securities held by Sony Life and Sony Bank include securities denominated in foreign
currencies. Although Sony Life’s foreign currency-denominated insurance are hedged by investing in securities
and other assets denominated in the same currency, there is no guarantee that such hedging will be effective.
In addition, as part of asset management, we sometimes invest in foreign currency-denominated securities
without applying foreign exchange hedges. Sony Bank hedges the risk related to foreign currency-denominated
liabilities arising from foreign currency deposits by holding foreign currency-denominated assets in a form
commensurate with the relevant currency. While the majority of other foreign currency-denominated bonds are
also hedged against foreign exchange rate fluctuations, there is no guarantee that the hedges are effective.
Due to these foreign currency-denominated investments, and due to the foreign exchange risk associated with
the derivative instruments that Sony Bank holds as part of its investment activities, exchange rate trends
could adversely affect the Sony Bank’s performance and financial position.
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Credit risk: If the creditworthiness of issuers of bonds held by Sony FG deteriorates, such as through a
credit rating downgrade, it may negatively affect the market value of those bonds, potentially resulting in
valuation losses, reduced gains or increased losses on the sale of securities, or a decline in unrealized
gains. There is also the possibility that issuers of bonds held by Sony FG may default on principal and
interest payments. Furthermore, derivative transactions such as interest rate swaps, currency swaps, foreign
exchange futures, and stock index options, which are used to hedge market risk, also involve counterparty
risk. If the creditworthiness of the issuers of bonds held by Sony FG deteriorates and they default on the
principal or interest payments on such bonds, or if counterparties default on their obligations under
derivative transactions, it could adversely affect Sony FG’s performance and financial position.
- Real estate investment risk: Real estate-related income may decrease due to declines in real estate prices
and rents or increases in vacancy rates caused by a variety of factors.
(9) Liquidity risk
Sony FG needs to secure liquidity for payments of insurance claims, benefits, and cash surrender values and
other payments in the life insurance and non-life insurance businesses, as well as for withdrawals of deposits
in the banking business, and so Sony FG strives to appropriately manage liquidity according to the
characteristics of each business. Although Sony FG holds a large amount of liquid assets, it also holds assets
that are illiquid or have little or no liquidity, such as loans, real estate, and unlisted stocks. For example,
if significant cash outflows are suddenly required due to an unexpected surge in policy surrenders, financial
market turmoil or natural disasters, Sony FG companies may be forced to sell their assets under unfavorable
conditions to cover the portion of their liquidity shortfalls. Such circumstances could adversely affect Sony
FG’s performance and financial position.
(10) Risks related to deterioration of the financial base
Financial strength is an important factor in ensuring the competitive advantage of Sony FG companies. The
solvency margin ratio in the insurance industry, to which Sony Life and Sony Assurance belong, and the capital
adequacy ratio in the banking industry, to which Sony Bank belongs, are common industry benchmarks for measuring
financial strength. If these ratios were to decline significantly, the relevant Group company would be subject
to various orders from the Commissioner of the Financial Services Agency under the Prompt Corrective Action
regime, including an order to suspend all or part of its operations, which could adversely affect Sony FG’s
business.
In addition, the Company, Sony Life, and Sony Bank are rated by rating agencies, and a deterioration in Sony
FG’s profitability or financial base could result in a downgrade of Sony FG’s credit rating, which could
adversely affect Sony FG’s business or the terms and conditions of its financing. Factors contributing to rating
fluctuations may include not only deterioration in Sony FG’s profitability or financial base but also changes in
the credit rating of the government or our parent company.
(11) Administrative risk
Sony FG’s business involves a variety of administrative processes, including the following.
- Management of Sony FG’s insurance policies, including premium billing and payment of insurance claims,
benefits, surrender charges, etc.
- Management and execution of interbank transactions, including management and collection of loans and
deposits in Sony FG’s banking business
- Management of Sony FG’s investment portfolio, including investments in securities and the execution of
derivatives, foreign exchange, and other transactions
- Settlement of funds
Sony FG’s business entails administrative risk of incurring losses due to negligence, fraud, malfunction, or
other problems related to Sony FG’s internal administrative processes. As part of our efforts to identify and
manage administrative risks, Sony FG must establish and implement procedures for accurately recording and
verifying the large and growing number of transactions and events. If Sony FG’s administrative risk management
fails or is ineffective, and gross negligence, fraud, or malfunction that affect the proper execution of the
above administrative processes arise, Sony FG may suffer losses, which could adversely affect Sony FG’s
performance and financial position.
(12) System risk and information security risk
Sony FG’s information systems and those of its outsourcing partners include Internet-based marketing and sales
channels, portfolio management tools, and back-office systems for managing insurance policies, deposits, and
loans, as well as for handling card and credit payments, statistical data, and personal information. Direct or
indirect costs arising from Internet or system failures or from outages caused by cyberattacks or other factors,
or inadequacies in system planning, development, or operation, including the inability to properly process
applications, payments, or other customer transactions, could have a significant impact on operations. Such an
event could lead to customer dissatisfaction due to delays in operations, which in turn could lead to
administrative penalties or damage suits, resulting in a deterioration of Sony FG’s image and a decrease in
revenues, commissions, and other business opportunities. The IT and other systems of Sony FG, as well as those
of external contractors and partners, may be affected by a range of disruptions, including the following.
- Defects and malfunctions in hardware and software, including defects and malfunctions in network and system
architecture
- Usage volumes beyond expectations
- Accidents, fires and natural disasters
- Power outage
- Cyberattacks, human negligence, sabotage, hacking, subversive activities, etc.
- Malware, computer viruses
(13) Risks related to outsourcing of important operations
Sony FG outsources the following types of operations to third parties.
- Development, maintenance, and operation of major information systems
- Development, maintenance, and operation of telephone and information management systems for customer centers
- Printing and dispatch of various change notices for customers and shareholders
- Data entry of insurance-related documents for Sony Life
- Road services and damage investigation services for Sony Assurance policyholders in the event of an accident
- ATM services for Sony Bank account holders
- Borrower credit assessments and guarantee services related to Sony Bank credit card loans
- Document storage
- Other back-office operations
There is no assurance that the external contractors will be able to continue these operations efficiently and at
a reasonable cost, or that they will be able to expand their operations appropriately in line with the expansion
of Sony FG’s business. If these services were to be suspended due to system outages, excess throughput, or the
emergence of geopolitical risks, Sony FG would be unable to provide services to its customers, which could have
a negative impact on Sony FG’s image. Furthermore, Sony FG may be unable to implement alternative services
promptly and at a reasonable cost, which could result in additional expenses. For these reasons, the suspension
of such services may adversely affect Sony FG’s business and performance.
(14) Risks related to personal information leaks
Sony FG, including operations entrusted to external contractors, makes extensive use of online services and
centralized data management, which makes the secure retention and transmission of confidential information
important. There is no guarantee that the loss, leakage, or theft of customer or shareholder information will
not occur, or that security breaches involving the IT or other systems of Sony FG, external contractors, or
partners will not occur. If Sony FG loses personal information, or if a third party breaches the network
security of Sony FG, its partners, or external contractors, and misuses the personal information of customers or
shareholders, Sony FG may be subject to lawsuits, and its corporate image may be damaged. The same applies in
cases where officers or employees of Sony FG lose, leak, or misuse customer or shareholder information. The
loss, leakage, unauthorized use, or other security breaches of customer or shareholder information could lead to
a loss of trust in Sony FG, which could adversely affect Sony FG’s business and performance.
(15) Risk of losses caused by fraud by employees, agents, third-party vendors, or customers
There is a risk of loss due to fraud or other irregularities by employees, agents, third-party suppliers, and
customers, such as illegal sales activities, scams, identity theft crimes, and the loss of personal information.
In particular, Sony Life’s Lifeplanner sales specialists and agencies, and Sony Bank’s bank agencies, each
operate with a considerable degree of discretion, have direct relationships with customers, and are in a
position to know their personal and financial information. Furthermore, some third-party suppliers are also in a
position to know personal and financial information about their customers.
Customers themselves may also engage in fraudulent behavior, such as the unauthorized use of accounts or
submitting false personal information when opening an account. Such fraudulent acts are difficult to prevent or
detect in advance, and it is often difficult to recover the resulting losses. These acts may damage the image of
Sony FG, and in particular, if customers use their accounts for money laundering or other illegal activities, it
may severely harm Sony FG’s reputation, expose us to significant legal liability, and possibly result in
administrative penalties.
(16) Risk of inappropriate incidents caused by advanced technologies and social media
The pace of change in information and communication technologies continues to accelerate, and advanced
technologies such as cloud computing, blockchain, and artificial intelligence (including generative AI) not only
offer significant opportunities, but also present new risks.
Although we carefully manage our operations with respect to cutting-edge technologies and social media, the
following factors may adversely affect the Company’s business operations and performance.
- Administrative incidents due to malfunction or inadequacy of advanced technology, etc.
- Malicious use of advanced technologies such as generative AI
- Spreading fake news about the Company’s business conditions, etc. (including spreading on social media)
(17) Risks related to violation of laws and regulations
All of Sony FG’s businesses are subject to strict legal regulation and supervision. Therefore, in the event of a
violation of laws and regulations, each company in Sony FG may be subject to fines, surcharges, business
improvement orders, business suspension orders, or revocation of licenses and permits. In addition, because each
company in Sony FG conducts business using a common brand, a violation of laws or regulations in one business
could have a negative impact on Sony FG’s overall business.
In particular, the following licenses and authorizations based on the Insurance Business Act, the Banking Act,
and other laws and regulations are prerequisites for Sony FG's main business activities. There are no expiration
dates for these licenses, and as of the end of the current consolidated fiscal year, we are not aware of any
circumstances that would result in the revocation of these licenses and permits. However, if such circumstances
arise in the future, the company will be unable to continue its business, which could have an adverse effect on
Sony FG's business performance and financial position.
[Main licenses and authorizations of Sony FG]
In addition, because each company in Sony FG conducts business using a common brand, a violation of laws or
regulations in one business could have a negative impact on Sony FG’s overall business.
(18) Risks related to litigation, etc.
Sony FG provides various financial services, mainly in the insurance and banking businesses, and in the course
of conducting these businesses, there is a possibility that a lawsuit or other legal proceedings may be filed or
initiated against Sony FG by a customer or other party. In addition, there is a possibility that Sony FG may be
sued by its employees due to inadequacies in personnel and labor management, including human rights violations,
or inadequacies in health and safety management.
If a lawsuit or other action is brought against Sony FG, depending on the outcome, it could adversely affect
Sony FG’s corporate image, business and performance.
(19) Risk of risk management policies and manuals not functioning properly in response to unforeseen
risks
Sony FG’s risk management framework is designed to address a broad range of risks, including liquidity risk and
other investment-related risks, as well as administrative risk, systems risk, information security risk,
insurance underwriting risk, legal risk, internal fraud risk, reputational risk, business continuity risk, and
climate change risk. However, as Sony FG diversifies its products and services and expands its customer base, it
may become difficult to improve the systems and risk management necessary to manage these risks. Risk management
policies and manuals may not be effective in preventing losses related to the various risks associated with the
business.
If these policies and manuals do not function effectively, Sony FG’s performance could be subject to significant
adverse impact and losses could be incurred.
(20) General risks related to hedging
In order to enhance management stability, in addition to the perspectives mentioned above, Sony FG also hedges
risks as appropriate.
Although care is taken to ensure that the intended effects of risk hedging, including reinsurance, are achieved,
there are no guarantees that the effects will be as expected, and as a result, (opportunity) losses may be
incurred or increased.
There is also the possibility that even if the hedging effect is achieved as expected, a different method of
evaluation would have led to the occurrence or expansion of losses. For example, hedging changes in the
corporate value on an economic value basis, such as EV, may result in greater changes in periodic income based
on corporate accounting.
(21) Risks related to application of IFRS Accounting Standards
The Company is preparing for the future application of IFRS Accounting Standards on a group consolidated basis,
including assessments of its impact and the identification of related issues. However, even if there is no
change in the actual performance or condition of Sony FG at the time of application, changes in accounting
treatments, such as revenue recognition and valuation of assets and liabilities, could adversely affect Sony
FG’s operations, financial position, solvency margin ratio, or capital adequacy ratio.
(22) General risks related to the Company’s shares
The Company has commenced preparations for the execution of a partial spin-off of the Company (the “Spin-off”)
by its parent company, Sony Group Corporation, and the listing of the Company’s shares. The Spin-off is intended
to enable continued use of the Sony brand while enhancing our financial flexibility and paving the way for
investment in growth.
However, more efficient financing and business operations are not always successful as a listed company.
In addition, in the event of a hostile acquisition (tender offer), the strategic policies and corporate culture
of the Company would change under the control of new shareholders and management, and changes in management and
executives, as well as the loss of the right to use the Sony brand, could lead to employee anxiety or
dissatisfaction and a host of other problems, such as the need to integrate business processes and IT systems,
as well as other significant burdens.
As a result, if the Spin-off does not bring the expected benefits, it could reduce corporate value and adversely
affect Sony FG’s performance and financial position. For details of the Spin-off, please refer to “Section 5
Financial Position, 1 Consolidated Financial Statements, etc., (1) Notes to Consolidated Financial Statements
(Subsequent Events)”.