What changed in this filing

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Item 1. Financial Statements

2023-07-27 compared with 2023-04-27 · 226 added, 110 removed, 770 unchanged (30% of the section changed)

2 unchanged sentences

Condensed Consolidated Balance Sheets

(Dollars in millions, except per share data) March 31, December 31,

(Dollars in millions, except per share data) June 30, December 31,

Fixed maturities, at fair value (amortized cost:

41 unchanged sentences

Accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.

Cincinnati Financial Corporation First-Quarter 2023 10-Q

Cincinnati Financial Corporation Second-Quarter 2023 10-Q

Cincinnati Financial Corporation and Subsidiaries

Condensed Consolidated Statements of Income

(Dollars in millions, except per share data) Three months ended March 31,

(Dollars in millions, except per share data) Three months ended June 30, Six months ended June 30,

2023 2022 2023 2022

Earned premiums $ 1,943 $ 1,773 $ 3,861 $ 3,466

20 unchanged sentences

Accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.

Cincinnati Financial Corporation First-Quarter 2023 10-Q

Cincinnati Financial Corporation Second-Quarter 2023 10-Q

Cincinnati Financial Corporation and Subsidiaries

Condensed Consolidated Statements of Comprehensive Income

(Dollars in millions) Three months ended March 31,

(Dollars in millions) Three months ended June 30, Six months ended June 30,

2023 2022 2023 2022

Net Income (Loss) $ 534 $ ( 818 ) $ 759 $ ( 1,084 )

1 unchanged sentence

Change in unrealized gains and losses on investments, net of tax (benefit) of $( 32 ), $( 127 ), $ 3 and $( 284 ), respectively

( 122 ) ( 483 ) 6 ( 1,072 )

Amortization of pension actuarial loss and prior service cost, net of tax (benefit) of $( 1 ), $ 0 , $( 2 ) and $ 0 , respectively

Change in life policy reserves, reinsurance recoverable and other, net of tax (benefit) of $ 6 , $ 38 , $( 3 ) and $ 79 , respectively

23 143 ( 13 ) 298

Other comprehensive income (loss) ( 99 ) ( 340 ) ( 12 ) ( 774 )

1 unchanged sentence

Accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.

Cincinnati Financial Corporation First-Quarter 2023 10-Q

Cincinnati Financial Corporation Second-Quarter 2023 10-Q

Cincinnati Financial Corporation and Subsidiaries

Condensed Consolidated Statements of Shareholders' Equity

(Dollars in millions) Three months ended March 31,

(Dollars in millions) Three months ended June 30, Six months ended June 30,

2023 2022 2023 2022

Beginning of period $ 397 $ 397 $ 397 $ 397

5 unchanged sentences

Share-based compensation 10 9 22 20

Other 2 2 2 3

End of period 1,410 1,367 1,410 1,367

10 unchanged sentences

Adjusted beginning of period ( 527 ) ( 138 ) ( 614 ) 296

Other comprehensive income (loss) 87 ( 434 )

Other comprehensive loss ( 99 ) ( 340 ) ( 12 ) ( 774 )

End of period ( 626 ) ( 478 ) ( 626 ) ( 478 )

4 unchanged sentences

Shares acquired - share-based compensation plans — ( 6 ) ( 3 ) ( 8 )

Other 1 1 1 1

End of period ( 2,386 ) ( 2,112 ) ( 2,386 ) ( 2,112 )

8 unchanged sentences

Accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.

Cincinnati Financial Corporation First-Quarter 2023 10-Q

Cincinnati Financial Corporation Second-Quarter 2023 10-Q

Cincinnati Financial Corporation and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Dollars in millions) Three months ended March 31,

(Dollars in millions) Six months ended June 30,

Cash Flows From Operating Activities

27 unchanged sentences

Changes in note payable

( 25 ) ( 10 )

Proceeds from stock options exercised 6 6

14 unchanged sentences

Accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.

Cincinnati Financial Corporation First-Quarter 2023 10-Q

Cincinnati Financial Corporation Second-Quarter 2023 10-Q

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

6 unchanged sentences

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.

Our June 30, 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.

1 unchanged sentence

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

11 unchanged sentences

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

Cincinnati Financial Corporation Second-Quarter 2023 10-Q

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

(Dollars in millions) June 30, 2023 December 31, 2022

As originally reported As adjusted Difference

11 unchanged sentences

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,

(Dollars in millions, except per share data) Three months ended June 30,

As originally reported As adjusted Difference

10 unchanged sentences

Diluted 3.38 ( 5.06 ) ( 5.12 ) ( 0.06 )

(Dollars in millions, except per share data) Six months ended June 30,

As originally reported As adjusted Difference

Earned premiums $ 3,861 $ 3,463 $ 3,466 $ 3

Insurance losses and contract holders' benefits 2,738 2,348 2,354 6

Underwriting, acquisition and insurance expenses 1,135 1,053 1,053 —

Deferred income tax expense 108 ( 391 ) ( 391 ) —

Net Income (Loss) 759 ( 1,081 ) ( 1,084 ) ( 3 )

Change in life policy reserves, reinsurance recoverable and other, net of tax ( 13 ) 1 298 297

Other comprehensive income (loss) ( 12 ) ( 1,071 ) ( 774 ) 297

Comprehensive Income (Loss) 747 ( 2,152 ) ( 1,858 ) 294

Net income (loss) per share:

Basic $ 4.83 $ ( 6.76 ) $ ( 6.77 ) $ ( 0.01 )

Diluted 4.80 ( 6.76 ) ( 6.77 ) ( 0.01 )

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

Cincinnati Financial Corporation Second-Quarter 2023 10-Q

NOTE 2 – Investments

2 unchanged sentences

cost Gross unrealized Fair value

At March 31, 2023 gains losses

At June 30, 2023 gains losses

Fixed-maturity securities:

15 unchanged sentences

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.

Th e net unrealized investment losses in our fixed-maturity portfolio at June 30, 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

Our commercial mortgage-backed securities had an average rating of Aa2/AA- at June 30, 2023, and December 31, 2022.

Cincinnati Financial Corporation Second-Quarter 2023 10-Q

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

At June 30, 2023 Fair

value Unrealized

21 unchanged sentences

value % of fair

At March 31, 2023

At June 30, 2023

Maturity dates:

5 unchanged sentences

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

Cincinnati Financial Corporation Second-Quarter 2023 10-Q

The following table provides investment income and investment gains and losses, net:

(Dollars in millions) Three months ended March 31,

(Dollars in millions) Three months ended June 30, Six months ended June 30,

2023 2022 2023 2022

Investment income:

1 unchanged sentence

Dividends 70 72 136 137

Other 6 2 13 3

Total 223 198 436 387

9 unchanged sentences

Gross realized losses — ( 2 ) ( 1 ) ( 3 )

Write-down of impaired securities with intent to sell ( 4 ) — ( 4 ) —

Subtotal ( 4 ) — ( 4 ) 3

Other ( 21 ) 16 ( 20 ) 22

Total $ 434 $ ( 1,154 ) $ 540 $ ( 1,820 )

The fair value of our equity portfolio was $ 9.967 billion and $ 9.841 billion at March 31, 2023, and December 31, 2022, respectively.

(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.

The fair value of our equity portfolio was $ 10.502 billion and $ 9.841 billion at June 30, 2023, and December 31, 2022, respectively.

(Nasdaq:AAPL), an equity holding, was our largest single investment holding with a fair value of $ 892 million and $ 597 million, which was 8.8 % and 6.3 % of our publicly traded common equities portfolio and 3.8 % and 2.7 % of the total investment portfolio at June 30, 2023, and December 31, 2022, respectively.

The allowance for credit losses was $ 4 million and $ 1 million at June 30, 2023, and December 31, 2022, respectively.

Changes in the allowance were $ 3 million for both the three and six months ended June 30, 2023 and

less than $ 1 million for both the three and six months ended June 30, 2022.

There were 3,452 fixed-maturity securities with a total unrealized loss of $ 900 million, which were in an unrealized loss position at June 30, 2023.

Of that total, 23 fixed-maturity securities had fair values below 70 % of amortized cost.

1 unchanged sentence

Of that total, 49 fixed-maturity securities had fair values below 70 % of amortized cost.

Cincinnati Financial Corporation First-Quarter 2023 10-Q

Cincinnati Financial Corporation Second-Quarter 2023 10-Q

NOTE 3 – Fair Value Measurements

5 unchanged sentences

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.

The following tables illustrate the fair value hierarchy for those assets measured at fair value on a recurring basis at June 30, 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

At June 30, 2023

Fixed maturities, available for sale:

27 unchanged sentences

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

We also held Level 1 cash and cash equivalents of $ 748 million and $ 1.264 billion at June 30, 2023, and December 31, 2022, respectively.

Cincinnati Financial Corporation Second-Quarter 2023 10-Q

Fair Value Disclosures for Assets and Liabilities Not Carried at Fair Value

2 unchanged sentences

(Dollars in millions) Book value Principal amount

issue March 31, December 31, March 31, December 31,

issue June 30, December 31, June 30, December 31,

2023 2022 2023 2022

5 unchanged sentences

(Dollars in millions) Level 1 Level 2 Level 3 Total

At March 31, 2023

At June 30, 2023

Note payable $ — $ 25 $ — $ 25

11 unchanged sentences

(Dollars in millions) Level 1 Level 2 Level 3 Total

At March 31, 2023

At June 30, 2023

Life policy loans $ — $ — $ 37 $ 37

7 unchanged sentences

Total $ — $ 143 $ 621 $ 764

Cincinnati Financial Corporation First-Quarter 2023 10-Q

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

Cincinnati Financial Corporation Second-Quarter 2023 10-Q

Outstanding principal and interest for these life policy loans totaled $ 31 million at both June 30, 2023, and December 31, 2022.

Recorded reserves for the deferred annuities were $ 696 million and $ 734 million at June 30, 2023, and December 31, 2022, respectively.

Recorded reserves for the structured settlements were $ 126 million and $ 129 million at June 30, 2023, and December 31, 2022, respectively.

Cincinnati Financial Corporation Second-Quarter 2023 10-Q

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,

(Dollars in millions) Three months ended June 30, Six months ended June 30,

2023 2022 2023 2022

Gross loss and loss expense reserves, beginning of period $ 8,626 $ 7,287 $ 8,336 $ 7,229

17 unchanged sentences

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.

The reserve for loss and loss expenses in the condensed consolidated balance sheets also included $ 66 million at both June 30, 2023, and 2022, for certain life and health loss and loss expense reserves.

We experienced $ 101 million of favorable development on prior accident years, including $ 59 million of favorable development in commercial lines, $ 15 million of favorable development in personal lines and $ 5 million of favorable development in excess and surplus lines for the three months ended June 30, 2023.

Within commercial lines, we recognized favorable reserve development of $ 34 million for the commercial casualty line and $ 11 million for the workers' compensation line due to reduced uncertainty of prior accident year loss and loss adjustment expense for these lines.

We experienced $ 160 million of favorable development on prior accident years, including $ 91 million of favorable development in commercial lines, $ 46 million of favorable development in personal lines and $ 14 million of favorable development in excess and surplus lines for the six months ended June 30, 2023.

Within commercial lines, we recognized favorable reserve development of $ 36 million for the commercial casualty line, $ 26 million for the workers' compensation line and $ 25 million for the commercial property 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 $ 35 million for the homeowner line and $ 12 million for the personal auto line.

Cincinnati Financial Corporation Second-Quarter 2023 10-Q

We experienced $ 59 million of favorable development on prior accident years, including $ 29 million of favorable development in commercial lines, $ 14 million of favorable development in personal lines and $ 1 million of favorable development in excess and surplus lines for the three months ended June 30, 2022.

Within commercial lines, we recognized favorable reserve development of $ 18 million for the workers' compensation line and $ 7 million for the commercial property 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 $ 16 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.

We experienced $ 100 million of favorable development on prior accident years, including $ 47 million of favorable development in commercial lines, $ 48 million of favorable development in personal lines and $ 6 million of favorable development in excess and surplus lines for the six months ended June 30, 2022.

Within commercial lines, we recognized favorable reserve development of $ 27 million for the workers' compensation line and $ 12 million for the commercial property 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 $ 46 million for the homeowner line.

Cincinnati Financial Corporation First-Quarter 2023 10-Q

Cincinnati Financial Corporation Second-Quarter 2023 10-Q

NOTE 5 – Life Policy and Investment Contract Reserves

7 unchanged sentences

These reserves also include a discount rate assumption that is based on market value discount rates and is updated quarterly.

Certain assumptions, including the mortality, lapse and long-term interest rate reversion targets, were updated in the second quarter of 2023 as part of our annual assumption unlocking.

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.

2 unchanged sentences

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,

(Dollars in millions) June 30,

2023 December 31,

10 unchanged sentences

Total life policy and investment contract reserves $ 3,038 $ 3,015

Cincinnati Financial Corporation First-Quarter 2023 10-Q

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:

Cincinnati Financial Corporation Second-Quarter 2023 10-Q

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), pretax:

(Dollars in millions) Term Whole life Deferred annuity Universal life Other Total

5 unchanged sentences

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:

The table below shows the ASU 2018-12 adoption impacts to the life reinsurance recoverable asset as of January 1, 2021, pretax:

(Dollars in millions) Term Whole life Deferred annuity Universal life Other Total

15 unchanged sentences

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

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,

Cincinnati Financial Corporation Second-Quarter 2023 10-Q

The balances and changes in the term and whole life policy reserves included in life policy and investment contract reserves is as follows:

(Dollars in millions) Three months ended June 30,

Term Whole life Term Whole life

30 unchanged sentences

Net life policy reserves, after reinsurance recoverable $ 907 $ 391 $ 882 $ 406

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

Weighted-average duration of the net life policy reserves in years 12 16 12 17

Cincinnati Financial Corporation Second-Quarter 2023 10-Q

(Dollars in millions) Six months ended June 30,

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 ( 5 ) ( 6 ) 145 ( 1 )

Effect of actual variances from expected experience ( 12 ) 1 8 —

Adjusted beginning of period balance 1,691 212 1,656 200

Issuances 78 17 104 19

Interest accrual 35 4 32 4

Net premiums collected ( 92 ) ( 14 ) ( 88 ) ( 14 )

Ending balance at original discount rate 1,712 219 1,704 209

Effect of changes in discount rate assumptions ( 48 ) ( 7 ) 19 1

Balance, end of period 1,664 212 1,723 210

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 5 ( 10 ) 162 ( 3 )

Effect of actual variances from expected experience ( 13 ) 1 17 —

Adjusted beginning of period balance 2,684 598 2,604 574

Issuances 78 17 104 18

Interest accrual 60 15 55 15

Benefits paid ( 85 ) ( 15 ) ( 100 ) ( 17 )

Ending balance at original discount rate 2,737 615 2,663 590

Effect of changes in discount rate assumptions ( 75 ) 18 39 56

Balance, end of period 2,662 633 2,702 646

Net liability for future policy benefits:

Present value of expected future policy benefits less expected net premiums 998 421 979 436

Impact of flooring at cohort level 17 — 20 2

Net life policy reserves 1,015 421 999 438

Less reinsurance recoverable at original discount rate ( 100 ) ( 25 ) ( 104 ) ( 25 )

Less effect of discount rate assumption changes on reinsurance recoverable ( 8 ) ( 5 ) ( 13 ) ( 7 )

Net life policy reserves, after reinsurance recoverable $ 907 $ 391 $ 882 $ 406

Weighted-average duration of the net life policy reserves in years 12 16 12 17

The total impact of flooring at cohort level in the above tables includes the effect of discount rate assumption change s of $ 3 million and $ 10 million at June 30, 2023 and 2022, respectively.

Cincinnati Financial Corporation Second-Quarter 2023 10-Q

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,

(Dollars in millions) At June 30,

Undiscounted Discounted Undiscounted Discounted

4 unchanged sentences

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,

(Dollars in millions) Three months ended June 30, Six months ended June 30,

2023 2022 2023 2022

Gross premiums

6 unchanged sentences

Total $ 17 $ 17 $ 35 $ 34

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 .

Adverse development that resulted in an immediate charge to income due to net premiums exceeding gross premiums was immaterial for the three and six months ended June 30, 2023, and 2022.

The following table shows the weighted-average interest rate for our term and whole life products :

4 unchanged sentences

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

Cincinnati Financial Corporation Second-Quarter 2023 10-Q

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,

Deferred annuity Universal life Deferred annuity Universal life

(Dollars in millions) Three months ended June 30, Six months ended June 30,

2023 2022 2023 2022

Deferred annuity Universal life Deferred annuity Universal life Deferred annuity Universal life Deferred annuity Universal life

Balance, beginning of period $ 711 $ 458 $ 756 $ 456 $ 734 $ 457 $ 763 $ 454

11 unchanged sentences

(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

At June 30, 2023

Deferred annuity

7 unchanged sentences

Total $ 397 $ — $ 56 $ 3 $ 456

At March 31, 2022

At June 30, 2022

Deferred annuity

7 unchanged sentences

Total $ 403 $ 45 $ 7 $ 2 $ 457

Cincinnati Financial Corporation First-Quarter 2023 10-Q

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,

Cincinnati Financial Corporation Second-Quarter 2023 10-Q

The following table shows the balances and changes in the other additional liability related to the no-lapse guarantees contained within our universal life contracts:

(Dollars in millions) Three months ended June 30, Six months ended June 30,

2023 2022 2023 2022

Balance, beginning of period $ 125 $ 127 $ 121 $ 133

12 unchanged sentences

Net other additional liability, after reinsurance recoverable $ 129 $ 128 $ 129 $ 128

Weighted-average duration of the other additional liability 34 35

Weighted-average duration of the other additional liability in years 32 35 32 35

The following table shows balances and changes in separate account balances during the period:

(Dollars in millions) Three months ended March 31,

(Dollars in millions) Three months ended June 30, Six months ended June 30,

2023 2022 2023 2022

Balance, beginning of period $ 899 $ 903 $ 892 $ 959

5 unchanged sentences

Cash surrender value $ 906 $ 878 $ 906 $ 878

Cincinnati Financial Corporation First-Quarter 2023 10-Q

Cincinnati Financial Corporation Second-Quarter 2023 10-Q

NOTE 6 – Deferred Policy Acquisition Costs

5 unchanged sentences

The table below shows the deferred policy acquisition costs and asset reconciliation.

(Dollars in millions) Three months ended March 31,

(Dollars in millions) Three months ended June 30, Six months ended June 30,

2023 2022 2023 2022

Property casualty:

13 unchanged sentences

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.

Cincinnati Financial Corporation Second-Quarter 2023 10-Q

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

Three months ended June 30, 2023 Term Whole life Deferred annuity Universal life Total

Balance, beginning of period $ 231 $ 44 $ 7 $ 52 $ 334

2 unchanged sentences

Balance, end of period $ 233 $ 45 $ 8 $ 52 $ 338

Three months ended March 31, 2022

Three months ended June 30, 2022

Balance, beginning of period $ 220 $ 39 $ 7 $ 53 $ 319

2 unchanged sentences

Balance, end of period $ 222 $ 40 $ 7 $ 54 $ 323

(Dollars in millions)

Six months ended June 30, 2023 Term Whole life Deferred annuity Universal life Total

Balance, beginning of period $ 228 $ 43 $ 7 $ 53 $ 331

Capitalized deferred policy acquisition costs 16 4 1 1 22

Amortized deferred policy acquisition costs ( 11 ) ( 2 ) — ( 2 ) ( 15 )

Balance, end of period $ 233 $ 45 $ 8 $ 52 $ 338

Six months ended June 30, 2022

Balance, beginning of period $ 215 $ 38 $ 7 $ 54 $ 314

Capitalized deferred policy acquisition costs 18 3 — 1 $ 22

Amortized deferred policy acquisition costs ( 11 ) ( 1 ) — ( 1 ) $ ( 13 )

Balance, end of period $ 222 $ 40 $ 7 $ 54 $ 323

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

Cincinnati Financial Corporation Second-Quarter 2023 10-Q

NOTE 7 – Accumulated Other Comprehensive Income

2 unchanged sentences

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,

(Dollars in millions) Three months ended June 30,

Before tax Income tax Net Before tax Income tax Net

12 unchanged sentences

AOCI, beginning of period $ ( 16 ) $ ( 4 ) $ ( 12 ) $ ( 248 ) $ ( 52 ) $ ( 196 )

OCI before investment gains and losses, net, recognized in net income 29 6 23 181 38 143

Investment gains and losses, net, recognized in net income — — — — — —

OCI 29 6 23 181 38 143

AOCI, end of period $ 13 $ 2 $ 11 $ ( 67 ) $ ( 14 ) $ ( 53 )

Summary of AOCI:

AOCI, beginning of period $ ( 670 ) $ ( 143 ) $ ( 527 ) $ ( 175 ) $ ( 37 ) $ ( 138 )

Investments OCI ( 154 ) ( 32 ) ( 122 ) ( 610 ) ( 127 ) ( 483 )

Pension obligations OCI ( 1 ) ( 1 ) — — — —

Life policy reserves, reinsurance recoverable and other OCI 29 6 23 181 38 143

Total OCI ( 126 ) ( 27 ) ( 99 ) ( 429 ) ( 89 ) ( 340 )

AOCI, end of period $ ( 796 ) $ ( 170 ) $ ( 626 ) $ ( 604 ) $ ( 126 ) $ ( 478 )

Cincinnati Financial Corporation Second-Quarter 2023 10-Q

(Dollars in millions) Six months ended June 30,

Before tax Income tax Net Before tax Income tax Net

AOCI, beginning of period $ ( 847 ) $ ( 182 ) $ ( 665 ) $ 792 $ 165 $ 627

OCI before investment gains and losses, net, recognized in net income 5 1 4 ( 1,353 ) ( 284 ) ( 1,069 )

Investment gains and losses, net, recognized in net income 4 2 2 ( 3 ) — ( 3 )

OCI 9 3 6 ( 1,356 ) ( 284 ) ( 1,072 )

AOCI, end of period $ ( 838 ) $ ( 179 ) $ ( 659 ) $ ( 564 ) $ ( 119 ) $ ( 445 )

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 ( 2 ) ( 1 ) ( 1 ) — — —

OCI ( 7 ) ( 2 ) ( 5 ) — — —

AOCI, end of period $ 29 $ 7 $ 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 )

15 unchanged sentences

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

Cincinnati Financial Corporation Second-Quarter 2023 10-Q

NOTE 8 – Reinsurance

3 unchanged sentences

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,

(Dollars in millions) Three months ended June 30, Six months ended June 30,

2023 2022 2023 2022

Direct written premiums $ 2,071 $ 1,871 $ 3,930 $ 3,574

12 unchanged sentences

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

Cincinnati Financial Corporation Second-Quarter 2023 10-Q

The table below summarizes our consolidated life insurance earned premiums and contract holders' benefits incurred:

(Dollars in millions) Three months ended March 31,

(Dollars in millions) Three months ended June 30, Six months ended June 30,

2023 2022 2023 2022

Direct earned premiums $ 100 $ 96 $ 196 $ 189

5 unchanged sentences

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

The allowance for uncollectible property casualty premiums was $ 14 million and $ 13 million at June 30, 2023, and December 31, 2022, respectively.

The allowances for credit losses on other premiums receivable and reinsurance recoverable assets were immaterial at June 30, 2023, and December 31, 2022.

Cincinnati Financial Corporation Second-Quarter 2023 10-Q

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,

(Dollars in millions) Three months ended June 30, Six months ended June 30,

2023 2022 2023 2022

Tax at statutory rate:

9 unchanged sentences

As a result, we have no valuation allowance for our U.S.

domestic operations at March 31, 2023, and December 31, 2022.

domestic operations at June 30, 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.

1 unchanged sentence

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.

As a result of operations for the three and six months ended June 30, 2023, Cincinnati Global decreased its net deferred tax assets by $ 5 million and $ 10 million with an offsettin g decrease of $ 5 million and $ 10 million to the valuation allowance.

Cincinnati Global had a net deferred tax asset of $ 21 million and an offsetting valuation allowance of $ 21 million at June 30, 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.

After considering all positive and negative evidence, we continue to believe it is appropriate to carry a valuation allowance at June 30, 2023.

Cincinnati Global had operating loss carryforwards in the United States of $ 6 million and $ 5 million and in the United Kingdom of $ 101 million and $ 109 million at June 30, 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

Cincinnati Financial Corporation Second-Quarter 2023 10-Q

NOTE 10 – Net Income (Loss) Per Common Share

2 unchanged sentences

The table shows calculations for basic and diluted earnings per share:

(In millions, except per share data) Three months ended March 31,

(In millions, except per share data) Three months ended June 30, Six months ended June 30,

2023 2022 2023 2022

Net income (loss)—basic and diluted

9 unchanged sentences

Number of anti-dilutive share-based awards 1.5 2.0 1.5 2.2

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.

The above table shows the number of anti-dilutive share-based awards for the three and six months ended June 30, 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 and six months ended June 30, 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.

1 unchanged sentence

The following summarizes the components of net periodic benefit for our qualified and supplemental pension plans:

(Dollars in millions) Three months ended March 31,

(Dollars in millions) Three months ended June 30, Six months ended June 30,

2023 2022 2023 2022

Service cost $ 2 $ 3 $ 3 $ 5

8 unchanged sentences

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

We made matching contributions totaling $ 6 million to our 401(k) and Top Hat savings plans during both the second quarter of 2023 and 2022 and contributions of $ 14 million for both the first half of 2023 and 2022.

We m ade no con tributions to our qualified pension plan during the first six months of 2023.

Cincinnati Financial Corporation Second-Quarter 2023 10-Q

NOTE 12 – Commitments and Contingent Liabilities

16 unchanged sentences

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.

Appellate decisions issued to date generally have been favorable for the insurance industry, and the company has received numerous favorable rulings on appeal with no adverse appellate rulings to date.

Some cases remain to be decided and in some jurisdictions, cases have been stayed pending appellate decisions in their state or federal circuit.

Accordingly, little discovery has occurred on pending cases.

7 unchanged sentences

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

Cincinnati Financial Corporation Second-Quarter 2023 10-Q

On a quarterly basis, we review these outstanding matters.

16 unchanged sentences

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

Cincinnati Financial Corporation Second-Quarter 2023 10-Q

Segment information is summarized in the following table:

(Dollars in millions) Three months ended March 31,

(Dollars in millions) Three months ended June 30, Six months ended June 30,

2023 2022 2023 2022

Commercial lines insurance

24 unchanged sentences

Premiums 172 166 366 308

Other 2 3 5 5

Total other revenues 174 169 371 313

16 unchanged sentences

Total $ 31,352 $ 29,732

Cincinnati Financial Corporation First-Quarter 2023 10-Q

Cincinnati Financial Corporation Second-Quarter 2023 10-Q

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements