CINCINNATI FINANCIAL CORP 10-Q

Item 1. Financial Statements (unaudited) Cincinnati Financial Corporation and Subsidiaries Condensed Consolidated Balance Sheets (Dollars in millions, except per share data) September 30, December 31, 2022 2021 Assets Investments Fixed maturities, at fair value (amortized cost: 2022—$ 12,812 ; 2021—$ 12,230 ) $ 11,734 $ 13,022 Equity securities, at fair value (cost: 2022—$ 4,292 ; 2021—$ 4,121 ) 8,840 11,315 Other invested assets 414 329 Total investments 20,988 24,666 Cash and cash equivalents 1,083 1,139 Investment income receivable 152 144 Finance receivable 87 98 Premiums receivable 2,403 2,053 Reinsurance recoverable 561 570 Prepaid reinsurance premiums 91 78 Deferred policy acquisition costs 1,036 905 Land, building and equipment, net, for company use (accumulated depreciation: 2022—$ 317 ; 2021—$ 303 ) 204 205 Other assets 706 570 Separate accounts 888 959 Total assets $ 28,199 $ 31,387 Liabilities Insurance reserves Loss and loss expense reserves $ 8,113 $ 7,305 Life policy and investment contract reserves 3,053 3,014 Unearned premiums 3,798 3,271 Other liabilities 1,249 1,092 Deferred income tax 780 1,744 Note payable 44 54 Long-term debt and lease obligations 843 843 Separate accounts 888 959 Total liabilities 18,768 18,282 Commitments and contingent liabilities (Note 12) Shareholders' Equity Common stock, par value—$ 2 per share; (authorized: 2022 and 2021— 500 million shares; issued: 2022 and 2021— 198.3 million shares) 397 397 Paid-in capital 1,379 1,356 Retained earnings 10,797 12,625 Accumulated other comprehensive income ( 828 ) 648 Treasury stock at cost (2022— 41.2 million shares and 2021— 38.0 million shares) ( 2,314 ) ( 1,921 ) Total shareholders' equity 9,431 13,105 Total liabilities and shareholders' equity $ 28,199 $ 31,387 Accompanying Notes are an integral part of these Condensed Consolidated Financial Statements. Cincinnati Financial Corporation Third-Quarter 2022 10-Q Page 3 Cincinnati Financial Corporation and Subsidiaries Condensed Consolidated Statements of Income (Dollars in millions, except per share data) Three months ended September 30, Nine months ended September 30, 2022 2021 2022 2021 Revenues Earned premiums $ 1,882 $ 1,669 $ 5,345 $ 4,806 Investment income, net of expenses 193 179 573 528 Investment gains and losses, net ( 674 ) ( 70 ) ( 2,494 ) 954 Fee revenues 5 4 12 11 Other revenues 2 3 7 8 Total revenues 1,408 1,785 3,443 6,307 Benefits and Expenses Insurance losses and contract holders' benefits 1,418 1,072 3,766 2,990 Underwriting, acquisition and insurance expenses 551 511 1,604 1,440 Interest expense 14 13 40 39 Other operating expenses 4 5 13 14 Total benefits and expenses 1,987 1,601 5,423 4,483 Income (Loss) Before Income Taxes ( 579 ) 184 ( 1,980 ) 1,824 Provision (Benefit) for Income Taxes Current 19 55 90 166 Deferred ( 180 ) ( 24 ) ( 571 ) 182 Total provision (benefit) for income taxes ( 161 ) 31 ( 481 ) 348 Net Income (Loss) $ ( 418 ) $ 153 $ ( 1,499 ) $ 1,476 Per Common Share Net income (loss)—basic $ ( 2.64 ) $ 0.95 $ ( 9.41 ) $ 9.16 Net income (loss)—diluted ( 2.64 ) 0.94 ( 9.41 ) 9.07 Accompanying Notes are an integral part of these Condensed Consolidated Financial Statements. Cincinnati Financial Corporation Third-Quarter 2022 10-Q Page 4 Cincinnati Financial Corporation and Subsidiaries Condensed Consolidated Statements of Comprehensive Income (Dollars in millions) Three months ended September 30, Nine months ended September 30, 2022 2021 2022 2021 Net Income (Loss) $ ( 418 ) $ 153 $ ( 1,499 ) $ 1,476 Other Comprehensive Income (Loss) Change in unrealized gains and losses on investments, net of tax (benefit) of $( 109 ), $( 19 ), $( 393 ) and $( 33 ), respectively ( 405 ) ( 69 ) ( 1,477 ) ( 119 ) Amortization of pension actuarial loss and prior service cost, net of tax of $ 0 , $ 1 , $ 0 and $ 2 , respectively — 1 — 5 Change in life deferred acquisition costs, life policy reserves and other, net of tax of $ 0 , $ 0 , $ 0 and $ 2 , respectively — — 1 8 Other comprehensive loss ( 405 ) ( 68 ) ( 1,476 ) ( 106 ) Comprehensive Income (Loss) $ ( 823 ) $ 85 $ ( 2,975 ) $ 1,370 Accompanying Notes are an integral part of these Condensed Consolidated Financial Statements. Cincinnati Financial Corporation Third-Quarter 2022 10-Q Page 5 Cincinnati Financial Corporation and Subsidiaries Condensed Consolidated Statements of Shareholders' Equity (Dollars in millions) Three months ended September 30, Nine months ended September 30, 2022 2021 2022 2021 Common Stock Beginning of period $ 397 $ 397 $ 397 $ 397 Share-based awards — — — — End of period 397 397 397 397 Paid-In Capital Beginning of period 1,367 1,334 1,356 1,328 Share-based awards 1 1 ( 11 ) ( 13 ) Share-based compensation 9 8 29 25 Other 2 1 5 4 End of period 1,379 1,344 1,379 1,344 Retained Earnings Beginning of period 11,324 11,205 12,625 10,085 Net income (loss) ( 418 ) 153 ( 1,499 ) 1,476 Dividends declared ( 109 ) ( 101 ) ( 329 ) ( 304 ) End of period 10,797 11,257 10,797 11,257 Accumulated Other Comprehensive Income Beginning of period ( 423 ) 731 648 769 Other comprehensive loss ( 405 ) ( 68 ) ( 1,476 ) ( 106 ) End of period ( 828 ) 663 ( 828 ) 663 Treasury Stock Beginning of period ( 2,112 ) ( 1,809 ) ( 1,921 ) ( 1,790 ) Share-based awards 1 1 13 16 Shares acquired - share repurchase authorization ( 203 ) ( 12 ) ( 399 ) ( 40 ) Shares acquired - share-based compensation plans — — ( 8 ) ( 7 ) Other — — 1 1 End of period ( 2,314 ) ( 1,820 ) ( 2,314 ) ( 1,820 ) Total Shareholders' Equity $ 9,431 $ 11,841 $ 9,431 $ 11,841 (In millions, except per common share) Common Stock - Shares Outstanding Beginning of period 159.2 161.1 160.3 160.9 Share-based awards — 0.1 0.5 0.6 Shares acquired - share repurchase authorization ( 2.1 ) ( 0.1 ) ( 3.7 ) ( 0.4 ) End of period 157.1 161.1 157.1 161.1 Dividends declared per common share $ 0.69 $ 0.63 $ 2.07 $ 1.89 Accompanying Notes are an integral part of these Condensed Consolidated Financial Statements. Cincinnati Financial Corporation Third-Quarter 2022 10-Q Page 6 Cincinnati Financial Corporation and Subsidiaries Condensed Consolidated Statements of Cash Flows (Dollars in millions) Nine months ended September 30, 2022 2021 Cash Flows From Operating Activities Net income (loss) $ ( 1,499 ) $ 1,476 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 81 69 Investment gains and losses, net 2,513 ( 933 ) Share-based compensation 29 25 Interest credited to contract holders 34 33 Deferred income tax expense ( 571 ) 182 Changes in: Investment income receivable ( 8 ) ( 6 ) Premiums and reinsurance receivable ( 354 ) ( 280 ) Deferred policy acquisition costs ( 118 ) ( 84 ) Other assets ( 6 ) ( 12 ) Loss and loss expense reserves 808 546 Life policy and investment contract reserves 52 76 Unearned premiums 527 382 Other liabilities 3 95 Current income tax receivable/payable ( 70 ) ( 51 ) Net cash provided by operating activities 1,421 1,518 Cash Flows From Investing Activities Sale of fixed maturities 93 88 Call or maturity of fixed maturities 818 1,049 Sale of equity securities 333 123 Purchase of fixed maturities ( 1,445 ) ( 1,831 ) Purchase of equity securities ( 380 ) ( 276 ) Investment in finance receivables ( 18 ) ( 30 ) Collection of finance receivables 30 28 Investment in building and equipment ( 12 ) ( 12 ) Change in other invested assets, net ( 65 ) ( 30 ) Net cash used in investing activities ( 646 ) ( 891 ) Cash Flows From Financing Activities Payment of cash dividends to shareholders ( 316 ) ( 295 ) Shares acquired - share repurchase authorization ( 399 ) ( 40 ) Changes in note payable ( 10 ) 5 Proceeds from stock options exercised 8 10 Contract holders' funds deposited 54 64 Contract holders' funds withdrawn ( 98 ) ( 104 ) Other ( 70 ) ( 82 ) Net cash used in financing activities ( 831 ) ( 442 ) Net change in cash and cash equivalents ( 56 ) 185 Cash and cash equivalents at beginning of year 1,139 900 Cash and cash equivalents at end of period $ 1,083 $ 1,085 Supplemental Disclosures of Cash Flow Information: Interest paid $ 27 $ 26 Income taxes paid 144 205 Noncash Activities Equipment acquired under finance lease obligations $ 13 $ 9 Share-based compensation 24 22 Other assets and other liabilities 203 137 Accompanying Notes are an integral part of these Condensed Consolidated Financial Statements. Cincinnati Financial Corporation Third-Quarter 2022 10-Q Page 7 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 1 — Accounting Policies The condensed consolidated financial statements include the accounts of Cincinnati Financial Corporation and its consolidated subsidiaries, each of which is wholly owned. These statements are presented in conformity with accounting principles generally accepted in the United States of America (GAAP). All intercompany balances and transactions have been eliminated in consolidation. The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect amounts reported in the financial statements and accompanying notes. Our actual results could differ from those estimates. Certain financial information that is normally included in annual financial statements prepared in accordance with GAAP, but that is not required for interim reporting purposes, has been condensed or omitted. Our September 30, 2022, condensed consolidated financial statements are unaudited. We believe that we have made all adjustments, consisting only of normal recurring accruals, that are necessary for fair presentation. These condensed consolidated financial statements should be read in conjunction with our consolidated financial statements included in our 2021 Annual Report on Form 10-K. The results of operations for interim periods do not necessarily indicate results to be expected for the full year. The company continues to monitor the impact of the coronavirus (SARS-CoV-2 or COVID-19) pandemic outbreak. The company cannot predict the impact the pandemic will have on its future consolidated financial position, results of operations and cash flows, however the impact could be material. Pending Accounting Updates ASU 2018-12, Financial Services - Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts In August 2018, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2018-12, Financial Services - Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts . ASU 2018-12 requires changes to the measurement and disclosure of long-duration insurance contracts. In November 2020, the FASB issued an ASU that delayed the effective date of ASU 2018-12 to interim and annual reporting periods beginning after December 15, 2022. We plan to adopt these ASUs on a modified retrospective basis on January 1, 2023. Related to the company's term and whole life products included in life policy and investment contract reserves, the new guidance requires that cash flow assumptions be reviewed at least annually to determine any necessary updates. Additionally, the discount rate assumption is required to be updated quarterly based on upper-medium grade fixed-income instrument yields (market value discount rates). The life policy and investment contract reserves balance is adjusted through insurance losses and contract holders' benefits for cash flow assumption updates and through accumulated other comprehensive income (AOCI) for discount rate updates. These ASUs also amend the previous guidance related to life deferred policy acquisition costs by requiring amortization of those costs on a constant level basis for a group of contracts that approximates straight-line and the removal of shadow deferred policy acquisition costs for universal life and deferred annuity products. These ASUs also require entities to provide additional disclosures including disaggregated rollforwards of the life policy and investment contract reserves, separate account liabilities and life deferred policy acquisition costs. Based on current conditions, management estimates at September 30, 2022, that adoption would not have a material impact and would have resulted in an after-tax increase to shareholders' equity of approximately $ 50 million. The ultimate impact of adoption of these ASUs will be affected by the market value discount rates and other assumptions determined at the January 1, 2023, adoption date and could be material. The process of addressing necessary remaining implementation-related items, including modifications to reporting and analysis capabilities as well as actuarial systems and associated data processes is substantially complete. Cincinnati Financial Corporation Third-Quarter 2022 10-Q Page 8 NOTE 2 – Investments The following table provides amortized cost, gross unrealized gains, gross unrealized losses and fair value for our fixed-maturity securities: (Dollars in millions) Amortized cost Gross unrealized Fair value At September 30, 2022 gains losses Fixed maturity securities: Corporate $ 7,307 $ 33 $ 661 $ 6,679 States, municipalities and political subdivisions 4,911 4 433 4,482 Commercial mortgage-backed 253 — 13 240 United States government 193 — 5 188 Government-sponsored enterprises 122 — 3 119 Foreign government 26 — — 26 Total $ 12,812 $ 37 $ 1,115 $ 11,734 At December 31, 2021 Fixed maturity securities: Corporate $ 7,043 $ 467 $ 13 $ 7,497 States, municipalities and political subdivisions 4,768 330 3 5,095 Commercial mortgage-backed 264 9 — 273 United States government 121 2 — 123 Government-sponsored enterprises 8 — — 8 Foreign government 26 — — 26 Total $ 12,230 $ 808 $ 16 $ 13,022 Th e net unrealized investment losses in our fixed-maturity portfolio at September 30, 2022, are primarily due to an increase in U.S. Treasury yields and a widening of corporate credit spreads . Our commercial mortgage-backed securities had an average rating of Aa2/AA- and Aa2/AA at September 30, 2022, and December 31, 2021, respectively. Cincinnati Financial Corporation Third-Quarter 2022 10-Q Page 9 The table below provides fair values and gross unrealized losses by investment category and by the duration of the securities' continuous unrealized loss positions: (Dollars in millions) Less than 12 months 12 months or more Total At September 30, 2022 Fair value Unrealized losses Fair value Unrealized losses Fair value Unrealized losses Fixed maturity securities: Corporate $ 5,835 $ 535 $ 376 $ 126 $ 6,211 $ 661 States, municipalities and political subdivisions 3,831 414 48 19 3,879 433 Commercial mortgage-backed 225 11 14 2 239 13 United States government 173 5 12 — 185 5 Government-sponsored enterprises 101 3 3 — 104 3 Foreign government 21 — — — 21 — Total $ 10,186 $ 968 $ 453 $ 147 $ 10,639 $ 1,115 At December 31, 2021 Fixed maturity securities: Corporate $ 861 $ 13 $ 15 $ — $ 876 $ 13 States, municipalities and political subdivisions 105 2 2 1 107 3 Commercial mortgage-backed 10 — 11 — 21 — United States government 48 — — — 48 — Government-sponsored enterprises 7 — — — 7 — Foreign government 16 — — — 16 — Total $ 1,047 $ 15 $ 28 $ 1 $ 1,075 $ 16 Contractual maturity dates for fixed-maturities securities were: (Dollars in millions) Amortized cost Fair value % of fair value At September 30, 2022 Maturity dates: Due in one year or less $ 690 $ 687 5.9 % Due after one year through five years 3,861 3,717 31.7 Due after five years through ten years 3,573 3,334 28.4 Due after ten years 4,688 3,996 34.0 Total $ 12,812 $ 11,734 100.0 % Actual maturities may differ from contractual maturities when there is a right to call or prepay obligations with or without call or prepayment penalties. Cincinnati Financial Corporation Third-Quarter 2022 10-Q Page 10 The following table provides investment income and investment gains and losses, net: (Dollars in millions) Three months ended September 30, Nine months ended September 30, 2022 2021 2022 2021 Investment income: Interest $ 129 $ 121 $ 376 $ 356 Dividends 66 61 203 179 Other 3 1 6 4 Total 198 183 585 539 Less investment expenses 5 4 12 11 Total $ 193 $ 179 $ 573 $ 528 Investment gains and losses, net: Equity securities: Investment gains and losses on securities sold, net $ 16 $ ( 1 ) $ 34 $ 6 Unrealized gains and losses on securities still held, net ( 705 ) ( 104 ) ( 2,568 ) 869 Subtotal ( 689 ) ( 105 ) ( 2,534 ) 875 Fixed maturities: Gross realized gains — 10 6 24 Gross realized losses — ( 1 ) ( 3 ) ( 3 ) Write-down of impaired securities — ( 1 ) — ( 1 ) Subtotal — 8 3 20 Other 15 27 37 59 Total $ ( 674 ) $ ( 70 ) $ ( 2,494 ) $ 954 The fair value of our equity portfolio was $ 8.840 billion and $ 11.315 billion at September 30, 2022, and December 31, 2021, respectively. At September 30, 2022, and December 31, 2021, Apple Inc. (Nasdaq:AAPL) , an equity holding, was our largest single investment holding with a fair value of $ 638 million and $ 862 million, which was 7.6 % and 7.9 % of our publicly traded common equities portfolio and 3.1 % and 3.5 % of the total investment portfolio, respectively. At September 30, 2022, and December 31, 2021, the allowance for credit losses was $ 1 million and less than $ 1 million, respectively. Changes in the amount during each period were less than $ 1 million. During the three months ended September 30, 2022, there were no fixed-maturity securities that were written down to fair value due to an intention to be sold. During the nine months ended September 30, 2022, there were two fixed-maturity securities that were written down to fair value due to an intention to be sold resulting in impairment charges of less than $ 1 million. During the three and nine months ended September 30, 2021, there were five fixed-maturity securities that were written down to fair value due to an intention to be sold. At September 30, 2022, 4,049 fixed-maturity securities with a total unrealized loss of $ 1.115 billion were in an unrealized loss position. Of that total, 118 fixed-maturity securities had fair values below 70 % of amortized cost. At December 31, 2021, 278 fixed-maturity securities with a total unrealized loss of $ 16 million were in an unrealized loss position. Of that total, no fixed-maturity securities had fair values below 70 % of amortized cost. Cincinnati Financial Corporation Third-Quarter 2022 10-Q Page 11 NOTE 3 – Fair Value Measurements In accordance with accounting guidance for fair value measurements and disclosures, we categorized our financial instruments, based on the priority of the observable and market-based data for the valuation technique used, into a three-level fair value hierarchy. The fair value hierarchy gives the highest priority to quoted prices with readily available independent data in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable market inputs (Level 3). When various inputs for measurement fall within different levels of the fair value hierarchy, the lowest observable input that has a significant impact on fair value measurement is used. Our valuation techniques have not changed from those used at December 31, 2021, and ultimately management determines fair value. See our 2021 Annual Report on Form 10-K, Item 8, Note 3, Fair Value Measurements, Page 137, for information on characteristics and valuation techniques used in determining fair value. Fair Value Disclosures for Assets The following tables illustrate the fair value hierarchy for those assets measured at fair value on a recurring basis at September 30, 2022, and December 31, 2021. We do not have any liabilities carried at fair value. (Dollars in millions) Quoted prices in active markets for identical assets (Level 1) Significant other observable inputs (Level 2) Significant unobservable inputs (Level 3) Total At September 30, 2022 Fixed maturities, available for sale: Corporate $ — $ 6,679 $ — $ 6,679 States, municipalities and political subdivisions — 4,482 — 4,482 Commercial mortgage-backed — 240 — 240 United States government 188 — — 188 Government-sponsored enterprises — 119 — 119 Foreign government — 26 — 26 Subtotal 188 11,546 — 11,734 Common equities 8,433 — — 8,433 Nonredeemable preferred equities — 407 — 407 Separate accounts taxable fixed maturities — 811 — 811 Top Hat savings plan mutual funds and common equity (included in Other assets) 51 — — 51 Total $ 8,672 $ 12,764 $ — $ 21,436 At December 31, 2021 Fixed maturities, available for sale: Corporate $ — $ 7,497 $ — $ 7,497 States, municipalities and political subdivisions — 5,095 — 5,095 Commercial mortgage-backed — 273 — 273 United States government 123 — — 123 Government-sponsored enterprises — 8 — 8 Foreign government — 26 — 26 Subtotal 123 12,899 — 13,022 Common equities 10,862 — — 10,862 Nonredeemable preferred equities — 453 — 453 Separate accounts taxable fixed maturities — 948 — 948 Top Hat savings plan mutual funds and common equity (included in Other assets) 64 — — 64 Total $ 11,049 $ 14,300 $ — $ 25,349 Cincinnati Financial Corporation Third-Quarter 2022 10-Q Page 12 We also held Level 1 cash and cash equivalents of $ 1.083 billion and $ 1.139 billion at September 30, 2022, and December 31, 2021, respectively. Fair Value Disclosures for Assets and Liabilities Not Carried at Fair Value The disclosures below are presented to provide information about the effects of current market conditions on financial instruments that are not reported at fair value in our condensed consolidated financial statements. This table summarizes the book value and principal amounts of our long-term debt: (Dollars in millions) Book value Principal amount Interest rate Year of issue September 30, December 31, September 30, December 31, 2022 2021 2022 2021 6.900 % 1998 Senior debentures, due 2028 $ 27 $ 27 $ 28 $ 28 6.920 % 2005 Senior debentures, due 2028 391 391 391 391 6.125 % 2004 Senior notes, due 2034 371 371 374 374 Total $ 789 $ 789 $ 793 $ 793 The following table shows fair values of our note payable and long-term debt: (Dollars in millions) Quoted prices in active markets for identical assets (Level 1) Significant other observable inputs (Level 2) Significant unobservable inputs (Level 3) Total At September 30, 2022 Note payable $ — $ 44 $ — $ 44 6.900 % senior debentures, due 2028 — 29 — 29 6.920 % senior debentures, due 2028 — 415 — 415 6.125 % senior notes, due 2034 — 384 — 384 Total $ — $ 872 $ — $ 872 At December 31, 2021 Note payable $ — $ 54 $ — $ 54 6.900 % senior debentures, due 2028 — 34 — 34 6.920 % senior debentures, due 2028 — 501 — 501 6.125 % senior notes, due 2034 — 510 — 510 Total $ — $ 1,099 $ — $ 1,099 Cincinnati Financial Corporation Third-Quarter 2022 10-Q Page 13 The following table shows the fair value of our life policy loans included in other invested assets and the fair values of our deferred annuities and structured settlements included in life policy and investment contract reserves: (Dollars in millions) Quoted prices in active markets for identical assets (Level 1) Significant other observable inputs (Level 2) Significant unobservable inputs (Level 3) Total At September 30, 2022 Life policy loans $ — $ — $ 37 $ 37 Deferred annuities — — 612 612 Structured settlements — 139 — 139 Total $ — $ 139 $ 612 $ 751 At December 31, 2021 Life policy loans $ — $ — $ 44 $ 44 Deferred annuities — — 778 778 Structured settlements — 201 — 201 Total $ — $ 201 $ 778 $ 979 Outstanding principal and interest for these life policy loans totaled $ 31 million at September 30, 2022, and December 31, 2021. Recorded reserves for the deferred annuities were $ 753 million and $ 762 million at September 30, 2022, and December 31, 2021, respectively. Recorded reserves for the structured settlements were $ 131 million and $ 136 million at September 30, 2022, and December 31, 2021, respectively. Cincinnati Financial Corporation Third-Quarter 2022 10-Q Page 14 NOTE 4 – Property Casualty Loss and Loss Expenses This table summarizes activity for our consolidated property casualty loss and loss expense reserves: (Dollars in millions) Three months ended September 30, Nine months ended September 30, 2022 2021 2022 2021 Gross loss and loss expense reserves, beginning of period $ 7,603 $ 6,955 $ 7,229 $ 6,677 Less reinsurance recoverable 287 274 327 277 Net loss and loss expense reserves, beginning of period 7,316 6,681 6,902 6,400 Net incurred loss and loss expenses related to: Current accident year 1,391 1,090 3,687 3,072 Prior accident years ( 43 ) ( 102 ) ( 143 ) ( 331 ) Total incurred 1,348 988 3,544 2,741 Net paid loss and loss expenses related to: Current accident year 484 416 1,021 893 Prior accident years 464 349 1,709 1,344 Total paid 948 765 2,730 2,237 Net loss and loss expense reserves, end of period 7,716 6,904 7,716 6,904 Plus reinsurance recoverable 329 322 329 322 Gross loss and loss expense reserves, end of period $ 8,045 $ 7,226 $ 8,045 $ 7,226 We use actuarial methods, models and judgment to estimate, as of a financial statement date, the property casualty loss and loss expense reserves required to pay for and settle all outstanding insured claims, including incurred but not reported (IBNR) claims, as of that date. The actuarial estimate is subject to review and adjustment by an inter-departmental committee that includes actuarial, claims, underwriting, loss prevention and accounting management. This committee is familiar with relevant company and industry business, claims and underwriting trends, as well as general economic and legal trends that could affect future loss and loss expense payments. The amount we will actually have to pay for claims can be highly uncertain. This uncertainty, together with the size of our reserves, makes the loss and loss expense reserves our most significant estimate. The reserve for loss and loss expenses in the condensed consolidated balance sheets also included $ 68 million at September 30, 2022, and $ 66 million at September 30, 2021, for certain life and health loss and loss expense reserves. For the three months ended September 30, 2022, we experienced $ 43 million of favorable development on prior accident years, including $ 4 million of favorable development in commercial lines, $ 8 million of favorable development in personal lines and $ 7 million of favorable development in excess and surplus lines. Within commercial lines, we recognized favorable reserve development of $ 24 million for the commercial property line and $ 16 million for the workers' compensation line due to reduced uncertainty of prior accident year loss and loss adjustment expense for these lines. This was partially offset by unfavorable reserve development of $ 23 million for the commercial casualty line and $ 16 million for the commercial auto line. For the nine months ended September 30, 2022, we experienced $ 143 million of favorable development on prior accident years, including $ 51 million of favorable development in commercial lines, $ 56 million of favorable development in personal lines and $ 13 million of favorable development in excess and surplus lines. Within commercial lines, we recognized favorable reserve development of $ 43 million for the workers' compensation line and $ 36 million for the commercial property line due to reduced uncertainty of prior accident year loss and loss adjustment expense for these lines. This was partially offset by unfavorable reserve development of $ 25 million for the commercial casualty line and $ 15 million for the commercial auto line. Within personal lines, we recognized favorable reserve development of $ 51 million for the homeowner line. Cincinnati Financial Corporation Third-Quarter 2022 10-Q Page 15 For the three months ended September 30, 2021, we experienced $ 102 million of favorable development on prior accident years, including $ 107 million of favorable development in commercial lines, $ 3 million of favorable development in personal lines and $ 3 million of unfavorable development in excess and surplus lines. Within commercial lines, we recognized favorable reserve development of $ 52 million for the commercial casualty line and $ 34 million for the commercial property line due to reduced uncertainty of prior accident year loss and loss adjustment expense for these lines. For the nine months ended September 30, 2021, we experienced $ 331 million of favorable development on prior accident years, including $ 276 million of favorable development in commercial lines, $ 35 million of favorable development in personal lines and $ 6 million of unfavorable development in excess and surplus lines. Within commercial lines, we recognized favorable reserve development of $ 85 million for the commercial casualty line, $ 68 million for the commercial property line, $ 59 million for the workers' compensation line and $ 44 million for the commercial auto line due to reduced uncertainty of prior accident year loss and loss adjustment expense for these lines. Within personal lines, we recognized favorable reserve development of $ 24 million in personal auto. Cincinnati Financial Corporation Third-Quarter 2022 10-Q Page 16 NOTE 5 – Life Policy and Investment Contract Reserves We establish the reserves for traditional life insurance policies based on expected expenses, mortality, morbidity, withdrawal rates, timing of claim presentation and investment yields, including a provision for uncertainty. Once these assumptions are established, they generally are maintained throughout the lives of the contracts. We use both our own experience and industry experience, adjusted for historical trends, in arriving at our assumptions for expected mortality, morbidity and withdrawal rates as well as for expected expenses. We base our assumptions for expected investment income on our own experience adjusted for current and future economic conditions. We establish reserves for the company's deferred annuity, universal life and structured settlement policies equal to the cumulative account balances, which include premium deposits plus credited interest less charges and withdrawals. Some of our universal life policies contain no-lapse guarantee provisions. For these policies, we establish a reserve in addition to the account balance, based on expected no-lapse guarantee benefits and expected policy assessments. This table summarizes our life policy and investment contract reserves: (Dollars in millions) September 30, 2022 December 31, 2021 Life policy reserves: Ordinary/traditional life $ 1,432 $ 1,376 Other 52 52 Subtotal 1,484 1,428 Investment contract reserves: Deferred annuities 753 762 Universal life 677 679 Structured settlements 131 136 Other 8 9 Subtotal 1,569 1,586 Total life policy and investment contract reserves $ 3,053 $ 3,014 Cincinnati Financial Corporation Third-Quarter 2022 10-Q Page 17 NOTE 6 – Deferred Policy Acquisition Costs Expenses directly related to successfully acquired insurance policies – primarily commissions, premium taxes and underwriting costs – are deferred and amortized over the terms of the policies. We update our acquisition cost assumptions periodically to reflect actual experience, and we evaluate the costs for recoverability. The table below shows the deferred policy acquisition costs and asset reconciliation. (Dollars in millions) Three months ended September 30, Nine months ended September 30, 2022 2021 2022 2021 Property casualty: Deferred policy acquisition costs asset, beginning of period $ 723 $ 630 $ 602 $ 542 Capitalized deferred policy acquisition costs 325 287 1,064 924 Amortized deferred policy acquisition costs ( 342 ) ( 300 ) ( 960 ) ( 849 ) Deferred policy acquisition costs asset, end of period $ 706 $ 617 $ 706 $ 617 Life: Deferred policy acquisition costs asset, beginning of period $ 322 $ 294 $ 303 $ 263 Capitalized deferred policy acquisition costs 16 15 46 44 Amortized deferred policy acquisition costs ( 12 ) ( 12 ) ( 33 ) ( 35 ) Shadow deferred policy acquisition costs 4 1 14 26 Deferred policy acquisition costs asset, end of period $ 330 $ 298 $ 330 $ 298 Consolidated: Deferred policy acquisition costs asset, beginning of period $ 1,045 $ 924 $ 905 $ 805 Capitalized deferred policy acquisition costs 341 302 1,110 968 Amortized deferred policy acquisition costs ( 354 ) ( 312 ) ( 993 ) ( 884 ) Shadow deferred policy acquisition costs 4 1 14 26 Deferred policy acquisition costs asset, end of period $ 1,036 $ 915 $ 1,036 $ 915 No premium deficiencies were recorded in the condensed consolidated statements of income, as the sum of the anticipated loss and loss expenses, policyholder dividends and unamortized deferred acquisition expenses did not exceed the related unearned premiums and anticipated investment income. Cincinnati Financial Corporation Third-Quarter 2022 10-Q Page 18 NOTE 7 – Accumulated Other Comprehensive Income Accumulated other comprehensive income (AOCI) includes changes in unrealized gains and losses on investments, changes in pension obligations and changes in life deferred acquisition costs, life policy reserves and other as follows: (Dollars in millions) Three months ended September 30, 2022 2021 Before tax Income tax Net Before tax Income tax Net Investments: AOCI, beginning of period $ ( 564 ) $ ( 119 ) $ ( 445 ) $ 962 $ 201 $ 761 OCI before investment gains and losses, net, recognized in net income ( 514 ) ( 109 ) ( 405 ) ( 80 ) ( 18 ) ( 62 ) Investment gains and losses, net, recognized in net income — — — ( 8 ) ( 1 ) ( 7 ) OCI ( 514 ) ( 109 ) ( 405 ) ( 88 ) ( 19 ) ( 69 ) AOCI, end of period $ ( 1,078 ) $ ( 228 ) $ ( 850 ) $ 874 $ 182 $ 692 Pension obligations: AOCI, beginning of period $ 27 $ 7 $ 20 $ ( 36 ) $ ( 6 ) $ ( 30 ) OCI excluding amortization recognized in net income — — — — — — Amortization recognized in net income — — — 2 1 1 OCI — — — 2 1 1 AOCI, end of period $ 27 $ 7 $ 20 $ ( 34 ) $ ( 5 ) $ ( 29 ) Life deferred acquisition costs, life policy reserves and other: AOCI, beginning of period $ 2 $ — $ 2 $ — $ — $ — OCI before investment gains and losses, net, recognized in net income — — — — — — Investment gains and losses, net, recognized in net income — — — — — — OCI — — — — — — AOCI, end of period $ 2 $ — $ 2 $ — $ — $ — Summary of AOCI: AOCI, beginning of period $ ( 535 ) $ ( 112 ) $ ( 423 ) $ 926 $ 195 $ 731 Investments OCI ( 514 ) ( 109 ) ( 405 ) ( 88 ) ( 19 ) ( 69 ) Pension obligations OCI — — — 2 1 1 Life deferred acquisition costs, life policy reserves and other OCI — — — — — — Total OCI ( 514 ) ( 109 ) ( 405 ) ( 86 ) ( 18 ) ( 68 ) AOCI, end of period $ ( 1,049 ) $ ( 221 ) $ ( 828 ) $ 840 $ 177 $ 663 Cincinnati Financial Corporation Third-Quarter 2022 10-Q Page 19 (Dollars in millions) Nine months ended September 30, 2022 2021 Before tax Income tax Net Before tax Income tax Net Investments: AOCI, beginning of period $ 792 $ 165 $ 627 $ 1,026 $ 215 $ 811 OCI before investment gains and losses, net, recognized in net income ( 1,867 ) ( 392 ) ( 1,475 ) ( 132 ) ( 29 ) ( 103 ) Investment gains and losses, net, recognized in net income ( 3 ) ( 1 ) ( 2 ) ( 20 ) ( 4 ) ( 16 ) OCI ( 1,870 ) ( 393 ) ( 1,477 ) ( 152 ) ( 33 ) ( 119 ) AOCI, end of period $ ( 1,078 ) $ ( 228 ) $ ( 850 ) $ 874 $ 182 $ 692 Pension obligations: AOCI, beginning of period $ 27 $ 7 $ 20 $ ( 41 ) $ ( 7 ) $ ( 34 ) OCI excluding amortization recognized in net income — — — 2 1 1 Amortization recognized in net income — — — 5 1 4 OCI — — — 7 2 5 AOCI, end of period $ 27 $ 7 $ 20 $ ( 34 ) $ ( 5 ) $ ( 29 ) Life deferred acquisition costs, life policy reserves and other: AOCI, beginning of period $ 1 $ — $ 1 $ ( 10 ) $ ( 2 ) $ ( 8 ) OCI before investment gains and losses, net, recognized in net income 1 — 1 10 2 8 Investment gains and losses, net, recognized in net income — — — — — — OCI 1 — 1 10 2 8 AOCI, end of period $ 2 $ — $ 2 $ — $ — $ — Summary of AOCI: AOCI, beginning of period $ 820 $ 172 $ 648 $ 975 $ 206 $ 769 Investments OCI ( 1,870 ) ( 393 ) ( 1,477 ) ( 152 ) ( 33 ) ( 119 ) Pension obligations OCI — — — 7 2 5 Life deferred acquisition costs, life policy reserves and other OCI 1 — 1 10 2 8 Total OCI ( 1,869 ) ( 393 ) ( 1,476 ) ( 135 ) ( 29 ) ( 106 ) AOCI, end of period $ ( 1,049 ) $ ( 221 ) $ ( 828 ) $ 840 $ 177 $ 663 Investment gains and losses, net, and life deferred acquisition costs, life policy reserves and other investment gains and losses, net, are recorded in the investment gains and losses, net, line item in the condensed consolidated statements of income. Amortization on pension obligations is recorded in the insurance losses and contract holders' benefits and underwriting, acquisition and insurance expenses line items in the condensed consolidated statements of income. Cincinnati Financial Corporation Third-Quarter 2022 10-Q Page 20 NOTE 8 – Reinsurance Primary components of our property casualty reinsurance assumed operations include involuntary and voluntary assumed as well as contracts from our reinsurance assumed operations, known as Cincinnati Re. Primary components of our ceded reinsurance include a property per risk treaty, property excess treaty, casualty per occurrence treaty, casualty excess treaty, property catastrophe treaty and retrocessions on our reinsurance assumed operations. Management’s decisions about the appropriate level of risk retention are affected by various factors, including changes in our underwriting practices, capacity to retain risks and reinsurance market conditions. The table below summarizes our consolidated property casualty insurance net written premiums, earned premiums and incurred loss and loss expenses: (Dollars in millions) Three months ended September 30, Nine months ended September 30, 2022 2021 2022 2021 Direct written premiums $ 1,730 $ 1,527 $ 5,304 $ 4,721 Assumed written premiums 92 66 548 432 Ceded written premiums ( 72 ) ( 55 ) ( 239 ) ( 208 ) Net written premiums $ 1,750 $ 1,538 $ 5,613 $ 4,945 Direct earned premiums $ 1,743 $ 1,553 $ 4,935 $ 4,447 Assumed earned premiums 161 117 416 327 Ceded earned premiums ( 95 ) ( 74 ) ( 227 ) ( 189 ) Earned premiums $ 1,809 $ 1,596 $ 5,124 $ 4,585 Direct incurred loss and loss expenses $ 1,247 $ 876 $ 3,316 $ 2,525 Assumed incurred loss and loss expenses 164 165 304 297 Ceded incurred loss and loss expenses ( 63 ) ( 53 ) ( 76 ) ( 81 ) Incurred loss and loss expenses $ 1,348 $ 988 $ 3,544 $ 2,741 Our life insurance company purchases reinsurance for protection of a portion of the risks that are written. Primary components of our life reinsurance program include individual mortality coverage, aggregate catastrophe and accidental death coverage in excess of certain deductibles. Cincinnati Financial Corporation Third-Quarter 2022 10-Q Page 21 The table below summarizes our consolidated life insurance earned premiums and contract holders' benefits incurred: (Dollars in millions) Three months ended September 30, Nine months ended September 30, 2022 2021 2022 2021 Direct earned premiums $ 92 $ 93 $ 278 $ 278 Ceded earned premiums ( 19 ) ( 20 ) ( 57 ) ( 57 ) Earned premiums $ 73 $ 73 $ 221 $ 221 Direct contract holders' benefits incurred 93 103 298 310 Ceded contract holders' benefits incurred ( 23 ) ( 19 ) ( 76 ) ( 61 ) Contract holders' benefits incurred $ 70 $ 84 $ 222 $ 249 The ceded benefits incurred can vary depending on the type of life insurance policy held and the year the policy was issued. At September 30, 2022, and December 31, 2021, the allowance for uncollectible property casualty premiums was $ 15 million and $ 14 million, respectively. At September 30, 2022, and December 31, 2021, the allowances for credit losses on other premiums receivable and recoverable assets were immaterial. Cincinnati Financial Corporation Third-Quarter 2022 10-Q Page 22 NOTE 9 – Income Taxes The differences between the 21 % statutory federal income tax rate and our effective income tax rate were as follows: (Dollars in millions) Three months ended September 30, Nine months ended September 30, 2022 2021 2022 2021 Tax at statutory rate: $ ( 122 ) 21.0 % $ 39 21.0 % $ ( 416 ) 21.0 % $ 383 21.0 % Increase (decrease) resulting from: Tax-exempt income from municipal bonds ( 5 ) 0.9 ( 5 ) ( 2.7 ) ( 15 ) 0.8 ( 15 ) ( 0.8 ) Dividend received exclusion ( 5 ) 0.9 ( 5 ) ( 2.7 ) ( 15 ) 0.8 ( 14 ) ( 0.8 ) Release of unrecognized tax benefit ( 34 ) 5.9 — — ( 34 ) 1.7 — — Other 5 ( 0.9 ) 2 1.2 ( 1 ) — ( 6 ) ( 0.3 ) Provision (benefit) for income taxes $ ( 161 ) 27.8 % $ 31 16.8 % $ ( 481 ) 24.3 % $ 348 19.1 % The provision (benefit) for federal income taxes is based upon filing a consolidated income tax return for the company and its domestic subsidiaries. We continue to believe that after considering all positive and negative evidence of taxable income in the carryback and carryforward periods as permitted by law, it is more likely than not that all of the deferred tax assets on our U.S. domestic operations will be realized. As a result, we have no valuation allowance for our U.S. domestic operations at September 30, 2022, and December 31, 2021. As more fully discussed below, we do carry a valuation allowance on the deferred tax assets related to Cincinnati Global Underwriting Ltd. SM (Cincinnati Global). Enactment of the Inflation Reduction Act of 2022 The Inflation Reduction Act of 2022 (Tax Act) was enacted on August 16, 2022. Along with other changes, the Tax Act created a new corporate alternative minimum tax (AMT) for certain corporations based on 15% of adjusted financial statement income for the taxable year. In addition, the Tax Act imposes a 1% excise tax on corporate stock repurchases. The effective date of these two provisions is January 1, 2023. We do not expect the enactment of the Tax Act to have a material impact on our financial statements. Any excise tax incurred on corporate stock repurchases will be recognized as part of the cost basis of the treasury stock acquired and not reported as part of income tax expense. Unrecognized Tax Benefits During the current quarter, we received favorable guidance from the Internal Revenue Service (IRS) supporting our tax position related to our unrecognized tax benefit set up in 2018. As a result of this guidance, we released our $34 million gross unrecognized tax benefit liability at September 30, 2022. The $34 million release is recognized as an additional income tax benefit and is shown separately in our effective income tax rate reconciliation. The following is a tabular reconciliation of the total amounts of unrecognized tax benefits: (Dollars in millions) Three months ended September 30, Nine months ended September 30, 2022 2021 2022 2021 Gross unrecognized tax benefits, beginning of period $ 34 $ 34 $ 34 $ 34 Gross increase in prior year positions — — — — Gross decrease in prior year positions ( 34 ) — ( 34 ) — Gross increase in current year positions — — — — Settlements with tax authorities — — — — Lapse of statute of limitations — — — — Gross unrecognized tax benefits, end of period $ — $ 34 $ — $ 34 During the current quarter, the Congressional Joint Committee on Taxation completed review of our 2017 tax return and related carryback claims with no change to our returns as filed. Our 2018 tax year remains open and we recently received notice from the IRS of their intent to audit tax year ended December 31, 2020. Cincinnati Financial Corporation Third-Quarter 2022 10-Q Page 23 Cincinnati Global As a result of operations for the three and nine months ended September 30, 2022, Cincinnati Global increased its net deferred tax assets by $ 7 million and decreased it by $ 4 million with an offsetting increase of $ 7 million and decrease of $ 4 million to the valuation allowance. At September 30, 2022, Cincinnati Global had a net deferred tax asset of $ 49 million and an offsetting valuation allowance of $ 49 million. Deferred tax assets are reduced by a valuation allowance when management believes it is more likely than not that some, or all, of the deferred tax assets will not be realized. After considering all positive and negative evidence, we continue to believe it is appropriate to carry a valuation allowance at September 30, 2022. At September 30, 2022, and December 31, 2021, Cincinnati Global had operating loss carryforwards in the United States of $ 6 million and $ 8 million, respectively, and in the United Kingdom of $ 123 million and $ 130 million, respectively. These Cincinnati Global losses can only be utilized within the Cincinnati Global group in both the United States and in the United Kingdom and cannot offset the income of our domestic operations in the United States. Cincinnati Financial Corporation Third-Quarter 2022 10-Q Page 24 NOTE 10 – Net Income (Loss) Per Common Share Basic earnings per share are computed based on the weighted average number of common shares outstanding. Diluted earnings per share are computed based on the weighted average number of common and dilutive potential common shares outstanding using the treasury stock method. The table shows calculations for basic and diluted earnings per share: (In millions, except per share data) Three months ended September 30, Nine months ended September 30, 2022 2021 2022 2021 Numerator: Net income (loss)—basic and diluted $ ( 418 ) $ 153 $ ( 1,499 ) $ 1,476 Denominator: Basic weighted-average common shares outstanding 158.0 161.1 159.3 161.1 Effect of share-based awards: Stock options — 1.2 — 1.1 Nonvested shares — 0.6 — 0.6 Diluted weighted-average shares 158.0 162.9 159.3 162.8 Earnings (loss) per share: Basic $ ( 2.64 ) $ 0.95 $ ( 9.41 ) $ 9.16 Diluted $ ( 2.64 ) $ 0.94 $ ( 9.41 ) $ 9.07 Number of anti-dilutive share-based awards 2.3 0.4 1.9 0.9 The above table shows the number of anti-dilutive share-based awards for the three and nine months ended September 30, 2022 and 2021. In accordance with Accounting Standards Codification 260, Earnings per Share , the assumed exercise of share-based awards were excluded from the computation of diluted loss per share for the three and nine months ended September 30, 2022, because their exercise would have anti-dilutive effects. See our 2021 Annual Report on Form 10-K, Item 8, Note 17, Share-Based Associate Compensation Plans, Page 169, for information about share-based awards. NOTE 11 – Employee Retirement Benefits The following summarizes the components of net periodic (benefit) cost for our qualified and supplemental pension plans: (Dollars in millions) Three months ended September 30, Nine months ended September 30, 2022 2021 2022 2021 Service cost $ 2 $ 2 $ 7 $ 7 Non-service (benefit) costs: Interest cost 3 2 8 7 Expected return on plan assets ( 6 ) ( 5 ) ( 17 ) ( 16 ) Amortization of actuarial loss and prior service cost — 2 — 5 Other — — — 2 Total non-service benefit ( 3 ) ( 1 ) ( 9 ) ( 2 ) Net periodic (benefit) cost $ ( 1 ) $ 1 $ ( 2 ) $ 5 See our 2021 Annual Report on Form 10-K, Item 8, Note 13, Employee Retirement Benefits, Page 162, for information on our retirement benefits. The net periodic (benefit) cost is allocated in the same proportion primarily to the underwriting, acquisition and insurance expenses line item with the remainder allocated to the insurance losses and contract holders' benefits line item on the condensed consolidated statements of income for both 2022 and 2021. Cincinnati Financial Corporation Third-Quarter 2022 10-Q Page 25 We made matching contributions totaling $ 6 million and $ 7 million to our 401(k) and Top Hat savings plans during the third quarter of 2022 and 2021 and contributions of $ 20 million and $ 18 million for the first nine months of 2022 and 2021, respectively. We m ade no con tributions to our qualified pension plan during the first nine months of 2022. NOTE 12 – Commitments and Contingent Liabilities The company, through its insurance subsidiaries, is involved in claims litigation arising in the ordinary course of conducting its business, both as a liability insurer defending or providing indemnity for third-party claims brought against insureds and as an insurer defending coverage claims brought against it. The company accounts for such activity through the establishment of unpaid loss and loss expense reserves. Subject to the uncertainties discussed in Note 4, Property Casualty Loss and Loss Expenses, and in the discussion in the balance of this Note, we believe that the ultimate liability, if any, with respect to such ordinary-course claims litigation, after consideration of provisions made for potential losses, costs of defense, and reinsurance recoveries, is immaterial to our consolidated financial position, results of operations and cash flows. Beginning in April 2020, like many companies in the property casualty insurance industry, the company’s property casualty subsidiaries, were named as defendants in lawsuits seeking insurance coverage under commercial property insurance policies issued by the company for alleged losses resulting from the shutdown or suspension of their businesses due to the COVID-19 pandemic. Although the allegations vary, the plaintiffs generally seek a declaration of insurance coverage, damages for breach of contract in unspecified amounts for claim denials, interest and attorney fees. Some of the lawsuits also allege that the insurance claims were denied in bad faith or otherwise in violation of state laws and seek extra-contractual or punitive damages. The company denies the allegations in these lawsuits and intends to continue to vigorously defend the lawsuits. The company maintains that it has no coverage obligations with respect to these lawsuits for business income allegedly lost by the plaintiffs due to the COVID-19 pandemic based on the terms of the applicable insurance policies. Although the policy terms vary, in general, the claims at issue in these lawsuits were denied because the policyholder identified no direct physical loss or damage to property at the insured premises, and the governmental orders that led to the complete or partial shutdown of the business were not due to the existence of any direct physical loss or damage to property in the immediate vicinity of the insured premises and did not prohibit access to the insured premises, as required by the terms of the insurance policies. Depending on the individual policy, additional policy terms and conditions may also prohibit coverage, such as exclusions for pollutants, ordinance or law, loss of use, and acts or decisions. The company’s standard commercial property insurance policies generally did not contain a specific virus exclusion. In addition to the inherent difficulty in predicting litigation outcomes, the COVID-19 pandemic business income coverage lawsuits present a number of uncertainties and contingencies that are not yet known, including how many policyholders will ultimately file claims, the number of lawsuits that will be filed, the extent to which any class may be certified, and the size and scope of any such classes. The legal theories advanced by plaintiffs vary by case as do the state laws that govern the policy interpretation. These lawsuits are at various stages of litigation: a few filed in 2022, including several that continue to be amended; several that have been dismissed voluntarily and may be refiled; and others that have been dismissed by trial courts and appealed. While appellate decisions issued to date generally have been favorable for the insurance industry and the company, many remain to be decided. In some jurisdictions, many cases have been stayed pending appellate decisions in their state or federal circuit. Accordingly, little discovery has occurred on pending cases. In addition, business income calculations depend upon a wide range of factors that are particular to the circumstances of each individual policyholder and, here, virtually none of the plaintiffs have submitted proofs of loss or otherwise quantified or factually supported any allegedly covered loss. Moreover, the company’s experience shows that demands for damages often bear little relation to a reasonable estimate of potential loss. Accordingly, management cannot now reasonably estimate the possible loss or range of loss, if any. Nonetheless, given the number of claims and potential claims, the indeterminate amounts sought, and the inherent unpredictability of litigation, it is possible that adverse outcomes, if any, in the aggregate could have a material adverse effect on the company’s consolidated financial position, results of operations and cash flows. The company and its subsidiaries also are occasionally involved in other legal and regulatory proceedings, some of which assert claims for substantial amounts. These actions include, among others, putative class actions seeking certification of state or national classes. Such proceedings have alleged, for example, improper depreciation of labor costs in repair estimates. The company’s insurance subsidiaries also are occasionally parties to individual actions in Cincinnati Financial Corporation Third-Quarter 2022 10-Q Page 26 which extra-contractual damages, punitive damages or penalties are sought, such as claims alleging bad faith handling of insurance claims or writing unauthorized coverage or claims alleging discrimination by former or current associates. On a quarterly basis, we review these outstanding matters. Under current accounting guidance, we establish accruals when it is probable that a loss has been incurred and we can reasonably estimate its potential exposure. The company accounts for such probable and estimable losses, if any, through the establishment of legal expense reserves. Based on our quarterly review, we believe that our accruals for probable and estimable losses are reasonable and that the amounts accrued do not have a material effect on our consolidated financial position, results of operations and cash flows. However, if any one or more of these matters results in a judgment against us or settlement for an amount that is significantly greater than the amount accrued, the resulting liability could have a material effect on the company’s consolidated financial position, results of operations and cash flows. Based on our most recent review, our estimate for any other matters for which the risk of loss is not probable, but more than remote, is immaterial. NOTE 13 – Segment Information We operate primarily in two industries, property casualty insurance and life insurance. Our chief operating decision maker regularly reviews our reporting segments to make decisions about allocating resources and assessing performance. Our reporting segments are: • Commercial lines insurance • Personal lines insurance • Excess and surplus lines insurance • Life insurance • Investments We report as Other the noninvestment operations of the parent company and its noninsurer subsidiary, CFC Investment Company. We also report as Other the underwriting results of Cincinnati Re and Cincinnati Global. See our 2021 Annual Report on Form 10-K, Item 8, Note 18, Segment Information, Page 172, for a description of revenue, income or loss before income taxes and identifiable assets for each of the five segments. Cincinnati Financial Corporation Third-Quarter 2022 10-Q Page 27 Segment information is summarized in the following table: (Dollars in millions) Three months ended September 30, Nine months ended September 30, 2022 2021 2022 2021 Revenues: Commercial lines insurance Commercial casualty $ 360 $ 323 $ 1,046 $ 938 Commercial property 292 264 846 776 Commercial auto 213 200 627 591 Workers' compensation 73 66 209 201 Other commercial 90 77 256 221 Commercial lines insurance premiums 1,028 930 2,984 2,727 Fee revenues 1 1 3 3 Total commercial lines insurance 1,029 931 2,987 2,730 Personal lines insurance Personal auto 158 153 465 457 Homeowner 213 184 609 536 Other personal 60 51 172 153 Personal lines insurance premiums 431 388 1,246 1,146 Fee revenues 1 1 3 3 Total personal lines insurance 432 389 1,249 1,149 Excess and surplus lines insurance 125 105 361 289 Fee revenues 1 1 2 2 Total excess and surplus lines insurance 126 106 363 291 Life insurance premiums 73 73 221 221 Fee revenues 2 1 4 3 Total life insurance 75 74 225 224 Investments Investment income, net of expenses 193 179 573 528 Investment gains and losses, net ( 674 ) ( 70 ) ( 2,494 ) 954 Total investment revenue ( 481 ) 109 ( 1,921 ) 1,482 Other Premiums 225 173 533 423 Other 2 3 7 8 Total other revenues 227 176 540 431 Total revenues $ 1,408 $ 1,785 $ 3,443 $ 6,307 Income (loss) before income taxes: Insurance underwriting results Commercial lines insurance $ 11 $ 182 $ 25 $ 457 Personal lines insurance ( 18 ) ( 10 ) ( 2 ) 16 Excess and surplus lines insurance 9 7 44 25 Life insurance 11 ( 5 ) 22 ( 9 ) Investments ( 508 ) 83 ( 2,003 ) 1,403 Other ( 84 ) ( 73 ) ( 66 ) ( 68 ) Total income (loss) before income taxes $ ( 579 ) $ 184 $ ( 1,980 ) $ 1,824 Identifiable assets: September 30, 2022 December 31, 2021 Property casualty insurance $ 5,072 $ 4,421 Life insurance 1,525 1,590 Investments 20,726 24,481 Other 876 895 Total $ 28,199 $ 31,387 Cincinnati Financial Corporation Third-Quarter 2022 10-Q Page 28