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) March 31, December 31, 2023 2022 Assets Investments Fixed maturities, at fair value (amortized cost: 2023—$ 13,362 ; 2022—$ 12,979 ) $ 12,678 $ 12,132 Equity securities, at fair value (cost: 2023—$ 4,311 ; 2022—$ 4,294 ) 9,967 9,841 Other invested assets 478 452 Total investments 23,123 22,425 Cash and cash equivalents 955 1,264 Investment income receivable 160 160 Finance receivable 94 92 Premiums receivable 2,509 2,322 Reinsurance recoverable 698 665 Prepaid reinsurance premiums 57 51 Deferred policy acquisition costs 1,048 1,013 Land, building and equipment, net, for company use (accumulated depreciation: 2023—$ 326 ; 2022—$ 322 ) 199 202 Other assets 732 646 Separate accounts 899 892 Total assets $ 30,474 $ 29,732 Liabilities Insurance reserves Loss and loss expense reserves $ 8,693 $ 8,400 Life policy and investment contract reserves 3,059 3,015 Unearned premiums 3,890 3,689 Other liabilities 1,193 1,229 Deferred income tax 1,104 1,054 Note payable 50 50 Long-term debt and lease obligations 845 841 Separate accounts 899 892 Total liabilities 19,733 19,170 Commitments and contingent liabilities (Note 12) Shareholders' Equity Common stock, par value—$ 2 per share; (authorized: 2023 and 2022— 500 million shares; issued: 2023 and 2022— 198.3 million shares) 397 397 Paid-in capital 1,398 1,392 Retained earnings 11,818 11,711 Accumulated other comprehensive income ( 527 ) ( 614 ) Treasury stock at cost (2023— 41.1 million shares and 2022— 41.2 million shares) ( 2,345 ) ( 2,324 ) Total shareholders' equity 10,741 10,562 Total liabilities and shareholders' equity $ 30,474 $ 29,732 Accompanying Notes are an integral part of these Condensed Consolidated Financial Statements. Cincinnati Financial Corporation First-Quarter 2023 10-Q Page 3 Cincinnati Financial Corporation and Subsidiaries Condensed Consolidated Statements of Income (Dollars in millions, except per share data) Three months ended March 31, 2023 2022 Revenues Earned premiums $ 1,918 $ 1,693 Investment income, net of expenses 210 185 Investment gains and losses, net 106 ( 666 ) Fee revenues 4 4 Other revenues 3 2 Total revenues 2,241 1,218 Benefits and Expenses Insurance losses and contract holders' benefits 1,398 1,032 Underwriting, acquisition and insurance expenses 556 520 Interest expense 14 13 Other operating expenses 5 4 Total benefits and expenses 1,973 1,569 Income (Loss) Before Income Taxes 268 ( 351 ) Provision (Benefit) for Income Taxes Current 16 41 Deferred 27 ( 126 ) Total provision (benefit) for income taxes 43 ( 85 ) Net Income (Loss) $ 225 $ ( 266 ) Per Common Share Net income (loss)—basic $ 1.43 $ ( 1.66 ) Net income (loss)—diluted 1.42 ( 1.66 ) Accompanying Notes are an integral part of these Condensed Consolidated Financial Statements. Cincinnati Financial Corporation First-Quarter 2023 10-Q Page 4 Cincinnati Financial Corporation and Subsidiaries Condensed Consolidated Statements of Comprehensive Income (Dollars in millions) Three months ended March 31, 2023 2022 Net Income (Loss) $ 225 $ ( 266 ) Other Comprehensive Income (Loss) Change in unrealized gains and losses on investments, net of tax (benefit) of $ 35 and $( 157 ), respectively 128 ( 589 ) Amortization of pension actuarial loss and prior service cost, net of tax (benefit) of $( 1 ) and $ 0 , respectively ( 5 ) — Change in life policy reserves, reinsurance recoverable and other, net of tax (benefit) of $( 9 ) and $ 41 , respectively ( 36 ) 155 Other comprehensive income (loss) 87 ( 434 ) Comprehensive Income (Loss) $ 312 $ ( 700 ) Accompanying Notes are an integral part of these Condensed Consolidated Financial Statements. Cincinnati Financial Corporation First-Quarter 2023 10-Q Page 5 Cincinnati Financial Corporation and Subsidiaries Condensed Consolidated Statements of Shareholders' Equity (Dollars in millions) Three months ended March 31, 2023 2022 Common Stock Beginning of period $ 397 $ 397 Share-based awards — — End of period 397 397 Paid-In Capital Beginning of period 1,392 1,356 Share-based awards ( 6 ) ( 14 ) Share-based compensation 12 11 Other — 1 End of period 1,398 1,354 Retained Earnings Beginning of period 11,711 12,625 Cumulative effect of change in accounting for long-duration insurance contracts (Note 1) — 10 Adjusted beginning of period 11,711 12,635 Net income (loss) 225 ( 266 ) Dividends declared ( 118 ) ( 111 ) End of period 11,818 12,258 Accumulated Other Comprehensive Income (Loss) Beginning of period ( 614 ) 648 Cumulative effect of change in accounting for long-duration insurance contracts (Note 1) — ( 352 ) Adjusted beginning of period ( 614 ) 296 Other comprehensive income (loss) 87 ( 434 ) End of period ( 527 ) ( 138 ) Treasury Stock Beginning of period ( 2,324 ) ( 1,921 ) Share-based awards 7 9 Shares acquired - share repurchase authorization ( 25 ) ( 45 ) Shares acquired - share-based compensation plans ( 3 ) ( 2 ) End of period ( 2,345 ) ( 1,959 ) Total Shareholders' Equity $ 10,741 $ 11,912 (In millions, except per common share) Common Stock - Shares Outstanding Beginning of period 157.1 160.3 Share-based awards 0.3 0.4 Shares acquired - share repurchase authorization ( 0.2 ) ( 0.4 ) End of period 157.2 160.3 Dividends declared per common share $ 0.75 $ 0.69 Accompanying Notes are an integral part of these Condensed Consolidated Financial Statements. Cincinnati Financial Corporation First-Quarter 2023 10-Q Page 6 Cincinnati Financial Corporation and Subsidiaries Condensed Consolidated Statements of Cash Flows (Dollars in millions) Three months ended March 31, 2023 2022 Cash Flows From Operating Activities Net income (loss) $ 225 $ ( 266 ) Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, amortization and other 40 37 Investment gains and losses, net ( 93 ) 674 Interest credited to contract holders 10 12 Deferred income tax expense 27 ( 126 ) Changes in: Premiums and reinsurance receivable ( 229 ) ( 182 ) Deferred policy acquisition costs ( 36 ) ( 67 ) Other assets ( 24 ) ( 20 ) Loss and loss expense reserves 293 61 Life policy and investment contract reserves 25 7 Unearned premiums 201 289 Other liabilities ( 121 ) ( 136 ) Current income tax receivable/payable ( 68 ) ( 85 ) Net cash provided by operating activities 250 198 Cash Flows From Investing Activities Sale, call or maturity of fixed maturities 303 351 Sale of equity securities 4 56 Purchase of fixed maturities ( 606 ) ( 460 ) Purchase of equity securities ( 22 ) ( 90 ) Changes in finance receivables ( 3 ) 6 Investment in building and equipment ( 4 ) ( 4 ) Change in other invested assets, net ( 34 ) ( 21 ) Net cash used in investing activities ( 362 ) ( 162 ) Cash Flows From Financing Activities Payment of cash dividends to shareholders ( 106 ) ( 99 ) Shares acquired - share repurchase authorization ( 25 ) ( 45 ) Changes in note payable — ( 5 ) Proceeds from stock options exercised 5 4 Contract holders' funds deposited 20 18 Contract holders' funds withdrawn ( 58 ) ( 32 ) Other ( 33 ) ( 29 ) Net cash used in financing activities ( 197 ) ( 188 ) Net change in cash and cash equivalents ( 309 ) ( 152 ) Cash and cash equivalents at beginning of year 1,264 1,139 Cash and cash equivalents at end of period $ 955 $ 987 Supplemental Disclosures of Cash Flow Information: Interest paid $ 1 $ — Income taxes paid 76 121 Noncash Activities Equipment acquired under finance lease obligations $ 1 $ 2 Share-based compensation 11 16 Other assets and other liabilities 96 10 Accompanying Notes are an integral part of these Condensed Consolidated Financial Statements. Cincinnati Financial Corporation First-Quarter 2023 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 March 31, 2023, 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 2022 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. Adopted 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. 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. We adopted these ASUs on a modified retrospective basis on January 1, 2023, resulting in an after-tax increase to shareholders' equity of $ 31 million. Cincinnati Financial Corporation First-Quarter 2023 10-Q Page 8 The following table illustrates the effect of adopting ASU 2018-12 in the condensed consolidated balance sheets: (Dollars in millions) March 31, 2023 December 31, 2022 As originally reported As adjusted Difference Reinsurance recoverable $ 698 $ 640 $ 665 $ 25 Prepaid reinsurance premiums 57 79 51 ( 28 ) Deferred policy acquisition costs 1,048 1,014 1,013 ( 1 ) Total assets 30,474 29,736 29,732 ( 4 ) Life policy and investment contract reserves 3,059 3,059 3,015 ( 44 ) Deferred income tax 1,104 1,045 1,054 9 Total liabilities 19,733 19,205 19,170 ( 35 ) Retained earnings 11,818 11,702 11,711 9 Accumulated other comprehensive income ( 527 ) ( 636 ) ( 614 ) 22 Total shareholders' equity 10,741 10,531 10,562 31 Total liabilities and shareholders' equity 30,474 29,736 29,732 ( 4 ) The following table illustrates the effect of adopting ASU 2018-12 in the condensed consolidated statements of income and condensed consolidated statements of comprehensive income: (Dollars in millions, except per share data) Three months ended March 31, 2023 2022 As originally reported As adjusted Difference Earned premiums $ 1,918 $ 1,690 $ 1,693 $ 3 Insurance losses and contract holders' benefits 1,398 1,039 1,032 ( 7 ) Underwriting, acquisition and insurance expenses 556 519 520 1 Deferred income tax expense 27 ( 128 ) ( 126 ) 2 Net Income (Loss) 225 ( 273 ) ( 266 ) 7 Change in life policy reserves, reinsurance recoverable and other, net of tax ( 36 ) — 155 155 Other comprehensive income (loss) 87 ( 589 ) ( 434 ) 155 Comprehensive Income (Loss) 312 ( 862 ) ( 700 ) 162 Net income (loss) per share: Basic $ 1.43 $ ( 1.70 ) $ ( 1.66 ) $ 0.04 Diluted 1.42 ( 1.70 ) ( 1.66 ) 0.04 The adoption of ASU 2018-12 did not have a material impact on the company's condensed consolidated cash flows. Cincinnati Financial Corporation First-Quarter 2023 10-Q Page 9 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 March 31, 2023 gains losses Fixed-maturity securities: Corporate $ 7,568 $ 49 $ 526 $ 7,091 States, municipalities and political subdivisions 4,933 42 226 4,749 Government-sponsored enterprises 390 1 4 387 Commercial mortgage-backed 241 — 16 225 United States government 199 — 4 195 Foreign government 31 — — 31 Total $ 13,362 $ 92 $ 776 $ 12,678 At December 31, 2022 Fixed-maturity securities: Corporate $ 7,412 $ 37 $ 580 $ 6,869 States, municipalities and political subdivisions 4,901 24 303 4,622 Government-sponsored enterprises 186 — 3 183 Commercial mortgage-backed 250 — 16 234 United States government 196 — 5 191 Foreign government 34 — 1 33 Total $ 12,979 $ 61 $ 908 $ 12,132 Th e net unrealized investment losses in our fixed-maturity portfolio at March 31, 2023, 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- at March 31, 2023, and December 31, 2022. Cincinnati Financial Corporation First-Quarter 2023 10-Q Page 10 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 March 31, 2023 Fair value Unrealized losses Fair value Unrealized losses Fair value Unrealized losses Fixed-maturity securities: Corporate $ 3,910 $ 158 $ 2,273 $ 368 $ 6,183 $ 526 States, municipalities and political subdivisions 1,287 48 890 178 2,177 226 Government-sponsored enterprises 263 3 7 1 270 4 Commercial mortgage-backed 107 5 116 11 223 16 United States government 121 1 52 3 173 4 Foreign government 10 — 2 — 12 — Total $ 5,698 $ 215 $ 3,340 $ 561 $ 9,038 $ 776 At December 31, 2022 Fixed-maturity securities: Corporate $ 5,651 $ 412 $ 661 $ 168 $ 6,312 $ 580 States, municipalities and political subdivisions 2,600 274 77 29 2,677 303 Government-sponsored enterprises 123 3 3 — 126 3 Commercial mortgage-backed 215 13 14 3 229 16 United States government 146 3 41 2 187 5 Foreign government 25 1 4 — 29 1 Total $ 8,760 $ 706 $ 800 $ 202 $ 9,560 $ 908 Contractual maturity dates for fixed-maturities securities were: (Dollars in millions) Amortized cost Fair value % of fair value At March 31, 2023 Maturity dates: Due in one year or less $ 728 $ 725 5.7 % Due after one year through five years 4,139 4,003 31.6 Due after five years through ten years 3,583 3,447 27.2 Due after ten years 4,912 4,503 35.5 Total $ 13,362 $ 12,678 100.0 % 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 First-Quarter 2023 10-Q Page 11 The following table provides investment income and investment gains and losses, net: (Dollars in millions) Three months ended March 31, 2023 2022 Investment income: Interest $ 140 $ 123 Dividends 66 65 Other 7 1 Total 213 189 Less investment expenses 3 4 Total $ 210 $ 185 Investment gains and losses, net: Equity securities: Investment gains and losses on securities sold, net $ ( 1 ) $ 8 Unrealized gains and losses on securities still held, net 106 ( 683 ) Subtotal 105 ( 675 ) Fixed-maturity securities: Gross realized gains 1 4 Gross realized losses ( 1 ) ( 1 ) Subtotal — 3 Other 1 6 Total $ 106 $ ( 666 ) The fair value of our equity portfolio was $ 9.967 billion and $ 9.841 billion at March 31, 2023, and December 31, 2022, respectively. Apple Inc. (Nasdaq:AAPL), an equity holding, was our largest single investment holding with a fair value of $ 758 million and $ 597 million, which was 7.9 % and 6.3 % of our publicly traded common equities portfolio and 3.3 % and 2.7 % of the total investment portfolio at March 31, 2023, and December 31, 2022, respectively. The allowance for credit losses was $ 1 million at both March 31, 2023, and December 31, 2022. Changes in the allowance for credit losses were less than $ 1 million for both the three months ended March 31, 2023 and 2022. There were no fixed-maturity securities that were written down to fair value due to an intention to be sold during the three months ended March 31, 2023. There was one fixed-maturity security that was written down to fair value due to an intention to be sold during the three months ended March 31, 2022, resulting in an impairment charge of less than $1 million. There were 2,900 fixed-maturity securities with a total unrealized loss of $ 776 million, which were in an unrealized loss position at March 31, 2023. Of that total, 26 fixed-maturity securities had fair values below 70 % of amortized cost. There were 3,272 fixed-maturity securities with a total unrealized loss of $ 908 million, which were in an unrealized loss position at December 31, 2022. Of that total, 49 fixed-maturity securities had fair values below 70 % of amortized cost. Cincinnati Financial Corporation First-Quarter 2023 10-Q Page 12 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, 2022, and ultimately management determines fair value. See our 2022 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 March 31, 2023, and December 31, 2022. We do not have any liabilities carried at fair value. (Dollars in millions) Level 1 Level 2 Level 3 Total At March 31, 2023 Fixed maturities, available for sale: Corporate $ — $ 7,091 $ — $ 7,091 States, municipalities and political subdivisions — 4,749 — 4,749 Government-sponsored enterprises — 387 — 387 Commercial mortgage-backed — 225 — 225 United States government 195 — — 195 Foreign government — 31 — 31 Subtotal 195 12,483 — 12,678 Common equities 9,589 — — 9,589 Nonredeemable preferred equities — 378 — 378 Separate accounts taxable fixed maturities — 836 — 836 Top Hat savings plan mutual funds and common equity (included in Other assets) 64 — — 64 Total $ 9,848 $ 13,697 $ — $ 23,545 At December 31, 2022 Fixed maturities, available for sale: Corporate $ — $ 6,869 $ — $ 6,869 States, municipalities and political subdivisions — 4,622 — 4,622 Government-sponsored enterprises — 183 — 183 Commercial mortgage-backed — 234 — 234 United States government 191 — — 191 Foreign government — 33 — 33 Subtotal 191 11,941 — 12,132 Common equities 9,454 — — 9,454 Nonredeemable preferred equities — 387 — 387 Separate accounts taxable fixed maturities — 815 — 815 Top Hat savings plan mutual funds and common equity (included in Other assets) 57 — — 57 Total $ 9,702 $ 13,143 $ — $ 22,845 We also held Level 1 cash and cash equivalents of $ 955 million and $ 1.264 billion at March 31, 2023, and December 31, 2022, respectively. Cincinnati Financial Corporation First-Quarter 2023 10-Q Page 13 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 March 31, December 31, March 31, December 31, 2023 2022 2023 2022 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) Level 1 Level 2 Level 3 Total At March 31, 2023 Note payable $ — $ 50 $ — $ 50 6.900 % senior debentures, due 2028 — 30 — 30 6.920 % senior debentures, due 2028 — 435 — 435 6.125 % senior notes, due 2034 — 408 — 408 Total $ — $ 923 $ — $ 923 At December 31, 2022 Note payable $ — $ 50 $ — $ 50 6.900 % senior debentures, due 2028 — 29 — 29 6.920 % senior debentures, due 2028 — 418 — 418 6.125 % senior notes, due 2034 — 388 — 388 Total $ — $ 885 $ — $ 885 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) Level 1 Level 2 Level 3 Total At March 31, 2023 Life policy loans $ — $ — $ 37 $ 37 Deferred annuities — — 608 608 Structured settlements — 144 — 144 Total $ — $ 144 $ 608 $ 752 At December 31, 2022 Life policy loans $ — $ — $ 37 $ 37 Deferred annuities — — 621 621 Structured settlements — 143 — 143 Total $ — $ 143 $ 621 $ 764 Cincinnati Financial Corporation First-Quarter 2023 10-Q Page 14 Outstanding principal and interest for these life policy loans totaled $ 30 million and $ 31 million at March 31, 2023, and December 31, 2022, respectively. Recorded reserves for the deferred annuities were $ 711 million and $ 734 million at March 31, 2023, and December 31, 2022, respectively. Recorded reserves for the structured settlements were $ 128 million and $ 129 million at March 31, 2023, and December 31, 2022, respectively. Cincinnati Financial Corporation First-Quarter 2023 10-Q Page 15 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 March 31, 2023 2022 Gross loss and loss expense reserves, beginning of period $ 8,336 $ 7,229 Less reinsurance recoverable 405 327 Net loss and loss expense reserves, beginning of period 7,931 6,902 Net incurred loss and loss expenses related to: Current accident year 1,376 997 Prior accident years ( 59 ) ( 41 ) Total incurred 1,317 956 Net paid loss and loss expenses related to: Current accident year 187 169 Prior accident years 859 721 Total paid 1,046 890 Net loss and loss expense reserves, end of period 8,202 6,968 Plus reinsurance recoverable 424 319 Gross loss and loss expense reserves, end of period $ 8,626 $ 7,287 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 $ 67 million at March 31, 2023, and $ 79 million at March 31, 2022, for certain life and health loss and loss expense reserves. We experienced $ 59 million of favorable development on prior accident years, including $ 32 million of favorable development in commercial lines, $ 31 million of favorable development in personal lines and $ 9 million of favorable development in excess and surplus lines for the three months ended March 31, 2023. Within commercial lines, we recognized favorable reserve development of $ 16 million for the commercial property line and $ 15 million for the workers' compensation 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 $ 27 million for the homeowner line. We experienced $ 41 million of favorable development on prior accident years, including $ 18 million of favorable development in commercial lines, $ 34 million of favorable development in personal lines and $ 5 million of favorable development in excess and surplus lines for the three months ended March 31, 2022. Within commercial lines, we recognized favorable reserve development of $ 10 million for the workers' compensation line and $ 6 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 $ 31 million for the homeowner line. Cincinnati Financial Corporation First-Quarter 2023 10-Q Page 16 NOTE 5 – Life Policy and Investment Contract Reserves In the first quarter of 2023, we adopted ASU 2018-12 which resulted in changes to the life policy and investment contract reserves and the expansion of required disclosures. The below disclosures represent application of the updated guidance. See Note 1, Accounting Policies, for further discussion. We establish the reserves for traditional life policies including term, whole life and other products based on certain cash flow assumptions including expected expenses, mortality, morbidity, withdrawal rates and timing of claim presentation. These assumptions are established based on our current expectations and are reviewed annually to determine any necessary updates. Assumptions are also updated on an interim basis if evidence suggests that they should be revised. 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. These reserves also include a discount rate assumption that is based on market value discount rates and is updated quarterly. Changes in the inputs, judgments and assumptions during the period and the related measurement impact on the liability are reflected in the below tables. There were no significant changes in the cash flow assumptions during the period. 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. The following table summarizes our life policy and investment contract reserves and provides a reconciliation of the balances described in the below tables to those in the condensed consolidated balance sheets: (Dollars in millions) March 31, 2023 December 31, 2022 Life policy reserves: Term $ 1,011 $ 961 Whole life 427 408 Other 94 94 Subtotal 1,532 1,463 Investment contract reserves: Deferred annuities 711 734 Universal life 583 578 Structured settlements 128 129 Other 105 111 Subtotal 1,527 1,552 Total life policy and investment contract reserves $ 3,059 $ 3,015 Cincinnati Financial Corporation First-Quarter 2023 10-Q Page 17 The table below shows the ASU 2018-12 adoption impacts to the life policy and investment contract reserves as of January 1, 2021 (transition date), pre-tax: (Dollars in millions) Term Whole life Deferred annuity Universal life Other Total At January 1, 2021 Balance, pre-adoption at December 31, 2020 $ 901 $ 363 $ 761 $ 567 $ 323 $ 2,915 Removal of shadow adjustments — — — — 13 13 Net premiums in excess of gross premiums 14 1 — — — 15 Remeasurement at market value discount rates 372 245 — — — 617 Balance, post-adoption at January 1, 2021 $ 1,287 $ 609 $ 761 $ 567 $ 336 $ 3,560 The table below shows the ASU 2018-12 adoption impacts to the life reinsurance recoverable asset as of January 1, 2021, pre-tax: (Dollars in millions) Term Whole life Deferred annuity Universal life Other Total At January 1, 2021 Balance, pre-adoption at December 31, 2020 $ 113 $ 26 $ — $ — $ 78 $ 217 Remeasurement at market value discount rates 29 18 — — — 47 Other adjustments 20 1 — 2 — 23 Balance, post-adoption at January 1, 2021 $ 162 $ 45 $ — $ 2 $ 78 $ 287 Other above includes structured settlements, other life policy reserves and other investment contract reserves. The removal of shadow adjustments above represents an increase to the life policy and investment contract reserve balance as it is no longer required under ASU 2018-12 for liabilities amortized in accordance with deferred acquisition costs. Shadow adjustments were historically included to present the carrying amount of the liability as if unrealized holding gains and losses had been realized. The net premiums in excess of gross premiums adjustment represents an increase to the liability as the remeasured net premiums, calculated as the present value of future benefits and related expenses using updated cash flow assumptions as of the transition date less the carrying amount of the liability prior to transition, exceeded the present value of future gross premiums. For purposes of calculating the updated present value of future benefits and related expenses above, the discount rate assumption that was used prior to adoption of ASU 2018-12 was retained. The remeasurement at market value discount rates adjustment represents the increase to the liability as a result of updating the discount rate assumption for our term and whole life products from the rates used prior to adoption of ASU 2018-12 to market value discount rates that existed at the transition date. As the discount rate assumption decreased significantly from the date the contracts were initially made, this adjustment represents the largest impact on the liability as a result of the initial adoption of ASU 2018-12. The life reinsurance recoverable asset is included in the remeasurement as the assumptions used in estimating the life reinsurance recoverable are consistent with those used in estimating the related liabilities. Other adjustments includes a reclassification from prepaid reinsurance premiums to reinsurance recoverable. The shadow removal and remeasurement at market value discount rates adjustments were recorded as an increase to the life policy and investment contract reserves liability and a decrease to opening AOCI as of the transition date. The net premiums in excess of gross premiums adjustment was recorded as an increase to the life policy and investment contract reserves liability and a decrease to the opening balance of retained earnings as of the transition date. Cincinnati Financial Corporation First-Quarter 2023 10-Q Page 18 The following table shows the balances and changes in the term and whole life policy reserves included in life policy and investment contract reserves: (Dollars in millions) Three months ended March 31, 2023 2022 Term Whole life Term Whole life Present value of expected net premiums: Balance, beginning of period $ 1,643 $ 208 $ 1,801 $ 241 Beginning balance at original discount rate 1,708 217 1,503 201 Effect of changes in cash flow assumptions — — ( 4 ) — Effect of actual variances from expected experience ( 3 ) 1 11 — Adjusted beginning of period balance 1,705 218 1,510 201 Issuances 38 7 59 11 Interest accrual 18 2 15 2 Net premiums collected ( 46 ) ( 7 ) ( 42 ) ( 7 ) Ending balance at original discount rate 1,715 220 1,542 207 Effect of changes in discount rate assumptions ( 16 ) ( 3 ) 144 19 Balance, end of period 1,699 217 1,686 226 Present value of expected future policy benefits: Balance, beginning of period 2,584 614 2,993 826 Beginning balance at original discount rate 2,692 607 2,425 577 Effect of changes in cash flow assumptions — — ( 4 ) — Effect of actual variances from expected experience ( 2 ) 1 18 — Adjusted beginning of period balance 2,690 608 2,439 577 Issuances 38 6 59 11 Interest accrual 30 8 27 7 Benefits paid ( 46 ) ( 8 ) ( 62 ) ( 9 ) Ending balance at original discount rate 2,712 614 2,463 586 Effect of changes in discount rate assumptions ( 21 ) 30 282 150 Balance, end of period 2,691 644 2,745 736 Net liability for future policy benefits: Present value of expected future policy benefits less expected net premiums 992 427 1,059 510 Impact of flooring at cohort level 19 — 20 — Net life policy reserves 1,011 427 1,079 510 Less reinsurance recoverable at original discount rate ( 96 ) ( 25 ) ( 100 ) ( 27 ) Less effect of discount rate assumption changes on reinsurance recoverable ( 10 ) ( 6 ) ( 14 ) ( 11 ) Net life policy reserves, after reinsurance recoverable $ 905 $ 396 $ 965 $ 472 Weighted-average duration of the net life policy reserves 12 16 12 18 The total impact of flooring at cohort level in the above table includes the effect of discount rate assumption changes of $ 5 million and $ 6 million for the three months ended March 31, 2023 and 2022, respectively. Cincinnati Financial Corporation First-Quarter 2023 10-Q Page 19 The following table shows the amount of undiscounted and discounted expected future benefit payments and expected gross premiums for our term and whole life policies: (Dollars in millions) At March 31, 2023 2022 Undiscounted Discounted Undiscounted Discounted Term Expected future benefit payments $ 4,696 $ 2,691 $ 4,128 $ 2,745 Expected future gross premiums 4,470 2,674 4,000 2,754 Whole life Expected future benefit payments $ 1,586 $ 644 $ 1,511 $ 736 Expected future gross premiums 618 384 580 400 The following table shows the amount of revenue and interest recognized in the condensed consolidated statements of income related to our term and whole life policies: (Dollars in millions) Three months ended March 31, 2023 2022 Gross premiums Term $ 73 $ 69 Whole life 12 12 Total $ 85 $ 81 Interest accretion Term $ 12 $ 12 Whole life 6 5 Total $ 18 $ 17 Adverse development that resulted in an immediate charge to income due to net premiums exceeding gross premiums was immaterial for the three months ended March 31, 2023 . The following table shows the weighted-average interest rate for our term and whole life products : At March 31, 2023 2022 Term Interest accretion rate 5.32 % 5.37 % Current discount rate 4.81 3.40 Whole life Interest accretion rate 5.94 % 5.98 % Current discount rate 5.06 3.77 The discount rate assumption was developed by calculating forward rates from market yield curves of upper-medium grade fixed-income instruments. Cincinnati Financial Corporation First-Quarter 2023 10-Q Page 20 The following table shows the balances and changes in policyholders' account balances included in investment contract reserves: (Dollars in millions) Three months ended March 31, 2023 2022 Deferred annuity Universal life Deferred annuity Universal life Balance, beginning of period $ 734 $ 457 $ 763 $ 454 Premiums received 10 11 6 11 Policy charges — ( 10 ) — ( 10 ) Surrenders and withdrawals ( 36 ) ( 3 ) ( 12 ) ( 3 ) Benefit payments ( 3 ) ( 2 ) ( 6 ) ( 1 ) Interest credited 6 5 5 5 Balance, end of period $ 711 $ 458 $ 756 $ 456 Weighted average crediting rate 3.36 % 4.26 % 2.95 % 4.25 % Net amount at risk $ — $ 4,064 $ — $ 4,172 Cash surrender value 706 424 752 421 The net amount at risk above represents the guaranteed benefit amount in excess of the current account balances. The following table shows the balance of account values by range of guaranteed minimum crediting rates, in basis points, and the related range of the difference between rates being credited to policyholders and the respective guaranteed minimums for our deferred annuity and universal life contracts: (Dollars in millions) At guaranteed minimum 1 to 50 basis points above 51-150 basis points above Greater than 150 basis points Total At March 31, 2023 Deferred annuity 1.00-3.00% $ 9 $ 423 $ 17 $ 212 661 3.01-4.00% 50 — — — 50 Total $ 59 $ 423 $ 17 $ 212 $ 711 Universal life 1.00-3.00% $ 60 $ 47 $ 9 $ 2 $ 118 3.01-4.00% 53 — — — 53 Greater than 4.00% 287 — — — 287 Total $ 400 $ 47 $ 9 $ 2 $ 458 At March 31, 2022 Deferred annuity 1.00-3.00% $ 479 $ — $ 177 $ 50 $ 706 3.01-4.00% 50 — — — 50 Total $ 529 $ — $ 177 $ 50 $ 756 Universal life 1.00-3.00% $ 61 $ 44 $ 7 $ 1 $ 113 3.01-4.00% 51 — — — 51 Greater than 4.00% 292 — — — 292 Total $ 404 $ 44 $ 7 $ 1 $ 456 Cincinnati Financial Corporation First-Quarter 2023 10-Q Page 21 The following table shows the balances and changes i n the other additional liability related to the no-lapse guarantees contained within our universal life contracts: (Dollars in millions) Three months ended March 31, 2023 2022 Balance, beginning of period $ 121 $ 133 Balance, beginning of period before shadow reserve adjustments 123 131 Effect of changes in cash flow assumptions — — Effect of actual variances from expected experience ( 1 ) 3 Adjusted beginning of period balance 122 134 Interest accrual 1 1 Excess death benefits — ( 8 ) Attributed assessments 3 3 Effect of changes in interest rate assumptions 1 ( 3 ) Balance, end of period before shadow reserve adjustments 127 127 Shadow reserve adjustments ( 2 ) — Balance, end of period 125 127 Less reinsurance recoverable, end of period 6 5 Net other additional liability, after reinsurance recoverable $ 131 $ 132 Weighted-average duration of the other additional liability 34 35 The following table shows balances and changes in separate account balances during the period: (Dollars in millions) Three months ended March 31, 2023 2022 Balance, beginning of period $ 892 $ 959 Interest credited before policy charges 10 10 Change in unrealized gains and losses impacting separate account liabilities — ( 52 ) Benefit payments ( 2 ) ( 10 ) Other ( 1 ) ( 4 ) Balance, end of period $ 899 $ 903 Cash surrender value $ 896 $ 869 Cincinnati Financial Corporation First-Quarter 2023 10-Q Page 22 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. For property casualty, we evaluate the costs for recoverability. The adoption of ASU 2018-12 on January 1, 2023 resulted in a simplified amortization of life deferred acquisition costs and the removal of shadow deferred acquisition costs. See Note 1, Accounting Policies, for further discussion. The table below shows the deferred policy acquisition costs and asset reconciliation. (Dollars in millions) Three months ended March 31, 2023 2022 Property casualty: Deferred policy acquisition costs asset, beginning of period $ 682 $ 602 Capitalized deferred policy acquisition costs 372 364 Amortized deferred policy acquisition costs ( 340 ) ( 301 ) Deferred policy acquisition costs asset, end of period $ 714 $ 665 Life: Deferred policy acquisition costs asset, beginning of period $ 331 $ 314 Capitalized deferred policy acquisition costs 11 12 Amortized deferred policy acquisition costs ( 8 ) ( 7 ) Deferred policy acquisition costs asset, end of period $ 334 $ 319 Consolidated: Deferred policy acquisition costs asset, beginning of period $ 1,013 $ 916 Capitalized deferred policy acquisition costs 383 376 Amortized deferred policy acquisition costs ( 348 ) ( 308 ) Deferred policy acquisition costs asset, end of period $ 1,048 $ 984 The removal of shadow deferred policy acquisition costs as a result of the adoption of ASU 2018-12 resulted in a $ 33 million increase, across all products, from $ 263 million pre-adoption at December 31, 2020, to $ 296 million post-adoption at January 1, 2021. The table below shows the life deferred policy acquisition costs asset by product: (Dollars in millions) Three months ended March 31, 2023 Term Whole life Deferred annuity Universal life Total Balance, beginning of period $ 228 $ 43 $ 7 $ 53 $ 331 Capitalized deferred policy acquisition costs 9 2 — — 11 Amortized deferred policy acquisition costs ( 6 ) ( 1 ) — ( 1 ) ( 8 ) Balance, end of period $ 231 $ 44 $ 7 $ 52 $ 334 Three months ended March 31, 2022 Balance, beginning of period $ 215 $ 38 $ 7 $ 54 $ 314 Capitalized deferred policy acquisition costs 10 2 — — $ 12 Amortized deferred policy acquisition costs ( 5 ) ( 1 ) — ( 1 ) $ ( 7 ) Balance, end of period $ 220 $ 39 $ 7 $ 53 $ 319 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 First-Quarter 2023 10-Q Page 23 NOTE 7 – Accumulated Other Comprehensive Income The adoption of ASU 2018-12 on January 1, 2023 resulted in restatement of certain amounts below. See Note 1, Accounting Policies, for further discussion. Accumulated other comprehensive income (AOCI) includes changes in unrealized gains and losses on investments, changes in pension obligations and changes in life policy reserves, reinsurance recoverable and other as follows: (Dollars in millions) Three months ended March 31, 2023 2022 Before tax Income tax Net Before tax Income tax Net Investments: AOCI, beginning of period $ ( 847 ) $ ( 182 ) $ ( 665 ) $ 792 $ 165 $ 627 OCI before investment gains and losses, net, recognized in net income 163 35 128 ( 743 ) ( 157 ) ( 586 ) Investment gains and losses, net, recognized in net income — — — ( 3 ) — ( 3 ) OCI 163 35 128 ( 746 ) ( 157 ) ( 589 ) AOCI, end of period $ ( 684 ) $ ( 147 ) $ ( 537 ) $ 46 $ 8 $ 38 Pension obligations: AOCI, beginning of period $ 36 $ 9 $ 27 $ 27 $ 7 $ 20 OCI excluding amortization recognized in net income ( 5 ) ( 1 ) ( 4 ) — — — Amortization recognized in net income ( 1 ) — ( 1 ) — — — OCI ( 6 ) ( 1 ) ( 5 ) — — — AOCI, end of period $ 30 $ 8 $ 22 $ 27 $ 7 $ 20 Life policy reserves, reinsurance recoverable and other: AOCI, beginning of period $ 29 $ 5 $ 24 $ 1 $ — $ 1 Cumulative effect of change in accounting for long duration insurance contracts — — — ( 445 ) ( 93 ) ( 352 ) Adjusted AOCI, beginning of period 29 5 24 ( 444 ) ( 93 ) ( 351 ) OCI before investment gains and losses, net, recognized in net income ( 45 ) ( 9 ) ( 36 ) 196 41 155 Investment gains and losses, net, recognized in net income — — — — — — OCI ( 45 ) ( 9 ) ( 36 ) 196 41 155 AOCI, end of period $ ( 16 ) $ ( 4 ) $ ( 12 ) $ ( 248 ) $ ( 52 ) $ ( 196 ) Summary of AOCI: AOCI, beginning of period $ ( 782 ) $ ( 168 ) $ ( 614 ) $ 820 $ 172 $ 648 Cumulative effect of change in accounting for long duration insurance contracts — — — ( 445 ) ( 93 ) ( 352 ) Adjusted AOCI, beginning of period ( 782 ) ( 168 ) ( 614 ) 375 79 296 Investments OCI 163 35 128 ( 746 ) ( 157 ) ( 589 ) Pension obligations OCI ( 6 ) ( 1 ) ( 5 ) — — — Life policy reserves, reinsurance recoverable and other OCI ( 45 ) ( 9 ) ( 36 ) 196 41 155 Total OCI 112 25 87 ( 550 ) ( 116 ) ( 434 ) AOCI, end of period $ ( 670 ) $ ( 143 ) $ ( 527 ) $ ( 175 ) $ ( 37 ) $ ( 138 ) Investment gains and losses, net, 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 First-Quarter 2023 10-Q Page 24 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 March 31, 2023 2022 Direct written premiums $ 1,859 $ 1,703 Assumed written premiums 244 263 Ceded written premiums ( 84 ) ( 67 ) Net written premiums $ 2,019 $ 1,899 Direct earned premiums $ 1,760 $ 1,561 Assumed earned premiums 159 121 Ceded earned premiums ( 78 ) ( 64 ) Earned premiums $ 1,841 $ 1,618 Direct incurred loss and loss expenses $ 1,299 $ 895 Assumed incurred loss and loss expenses 76 73 Ceded incurred loss and loss expenses ( 58 ) ( 12 ) Incurred loss and loss expenses $ 1,317 $ 956 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 First-Quarter 2023 10-Q Page 25 The table below summarizes our consolidated life insurance earned premiums and contract holders' benefits incurred: (Dollars in millions) Three months ended March 31, 2023 2022 Direct earned premiums $ 96 $ 93 Ceded earned premiums ( 19 ) ( 18 ) Earned premiums $ 77 $ 75 Direct contract holders' benefits incurred 97 103 Ceded contract holders' benefits incurred ( 16 ) ( 27 ) Contract holders' benefits incurred $ 81 $ 76 The ceded benefits incurred can vary depending on the type of life insurance policy held and the year the policy was issued. The allowance for uncollectible property casualty premiums was $ 13 million at both March 31, 2023, and December 31, 2022. The allowances for credit losses on other premiums receivable and reinsurance recoverable assets were immaterial at March 31, 2023, and December 31, 2022. Cincinnati Financial Corporation First-Quarter 2023 10-Q Page 26 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 March 31, 2023 2022 Tax at statutory rate: $ 56 21.0 % $ ( 74 ) 21.0 % Increase (decrease) resulting from: Tax-exempt income from municipal bonds ( 5 ) ( 1.9 ) ( 5 ) 1.4 Dividend received exclusion ( 5 ) ( 1.9 ) ( 5 ) 1.4 Other ( 3 ) ( 1.2 ) ( 1 ) 0.4 Provision (benefit) for income taxes $ 43 16.0 % $ ( 85 ) 24.2 % 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 March 31, 2023, and December 31, 2022. 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). Cincinnati Global As a result of operations for the three months ended March 31, 2023, Cincinnati Global decreased its net deferred tax assets by $ 5 million with an offsettin g decrease of $ 5 million to the valuation allowance. Cincinnati Global had a net deferred tax asset of $ 26 million and an offsetting valuation allowance of $ 26 million at March 31, 2023. 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 March 31, 2023. Cincinnati Global had operating loss carryforwards in the United States of $ 6 million and $ 5 million and in the United Kingdom of $ 105 million and $ 109 million at March 31, 2023, and December 31, 2022, 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 First-Quarter 2023 10-Q Page 27 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 March 31, 2023 2022 Numerator: Net income (loss)—basic and diluted $ 225 $ ( 266 ) Denominator: Basic weighted-average common shares outstanding 157.2 160.4 Effect of share-based awards: Stock options 0.8 — Nonvested shares 0.5 — Diluted weighted-average shares 158.5 160.4 Earnings (loss) per share: Basic $ 1.43 $ ( 1.66 ) Diluted $ 1.42 $ ( 1.66 ) Number of anti-dilutive share-based awards 1.0 2.3 The above table shows the number of anti-dilutive share-based awards for the three months ended March 31, 2023 and 2022. In accordance with Accounting Standards Codification 260, Earnings per Share , the assumed exercise of share-based awards was excluded from the computation of diluted loss per share for the three months ended March 31, 2022, because their exercise would have anti-dilutive effects. See our 2022 Annual Report on Form 10-K, Item 8, Note 17, Share-Based Associate Compensation Plans, Page 170, for information about share-based awards. NOTE 11 – Employee Retirement Benefits The following summarizes the components of net periodic benefit for our qualified and supplemental pension plans: (Dollars in millions) Three months ended March 31, 2023 2022 Service cost $ 1 $ 2 Non-service (benefit) costs: Interest cost 3 3 Expected return on plan assets ( 5 ) ( 6 ) Amortization of actuarial loss and prior service cost ( 1 ) — Other ( 5 ) — Total non-service benefit ( 8 ) ( 3 ) Net periodic benefit $ ( 7 ) $ ( 1 ) See our 2022 Annual Report on Form 10-K, Item 8, Note 13, Employee Retirement Benefits, Page 163, for information on our retirement benefits. The net periodic benefit 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 2023 and 2022. We made matching contributions totaling $ 8 million to our 401(k) and Top Hat savings plans during both the first quarter of 2023 and 2022. We m ade no con tributions to our qualified pension plan during the first three months of 2023. Cincinnati Financial Corporation First-Quarter 2023 10-Q Page 28 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, including several that continue to be amended; many that have been dismissed; several that 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 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. Cincinnati Financial Corporation First-Quarter 2023 10-Q Page 29 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 2022 Annual Report on Form 10-K, Item 8, Note 18, Segment Information, Page 173, for a description of revenue, income or loss before income taxes and identifiable assets for each of the five segments. Cincinnati Financial Corporation First-Quarter 2023 10-Q Page 30 Segment information is summarized in the following table: (Dollars in millions) Three months ended March 31, 2023 2022 Revenues: Commercial lines insurance Commercial casualty $ 377 $ 336 Commercial property 299 274 Commercial auto 213 205 Workers' compensation 74 67 Other commercial 93 80 Commercial lines insurance premiums 1,056 962 Fee revenues 1 1 Total commercial lines insurance 1,057 963 Personal lines insurance Personal auto 166 152 Homeowner 232 195 Other personal 66 55 Personal lines insurance premiums 464 402 Fee revenues 1 1 Total personal lines insurance 465 403 Excess and surplus lines insurance 127 112 Fee revenues — 1 Total excess and surplus lines insurance 127 113 Life insurance premiums 77 75 Fee revenues 2 1 Total life insurance 79 76 Investments Investment income, net of expenses 210 185 Investment gains and losses, net 106 ( 666 ) Total investment revenue 316 ( 481 ) Other Premiums 194 142 Other 3 2 Total other revenues 197 144 Total revenues $ 2,241 $ 1,218 Income (loss) before income taxes: Insurance underwriting results Commercial lines insurance $ ( 2 ) $ 76 Personal lines insurance ( 57 ) 65 Excess and surplus lines insurance 13 16 Life insurance 8 7 Investments 286 ( 508 ) Other 20 ( 7 ) Total income (loss) before income taxes $ 268 $ ( 351 ) Identifiable assets: March 31, 2023 December 31, 2022 Property casualty insurance $ 5,229 $ 5,178 Life insurance 1,529 1,518 Investments 22,805 22,133 Other 911 903 Total $ 30,474 $ 29,732 Cincinnati Financial Corporation First-Quarter 2023 10-Q Page 31