CINCINNATI FINANCIAL CORP 10-Q

Item 1. Financial Statements (unaudited) Cincinnati Financial Corporation and Subsidiaries Condensed Consolidated Balance Sheets (Dollars in millions, except per share data) September 30, December 31, 2023 2022 Assets Investments Fixed maturities, at fair value (amortized cost: 2023—$ 14,050 ; 2022—$ 12,979 ) $ 12,843 $ 12,132 Equity securities, at fair value (cost: 2023—$ 4,399 ; 2022—$ 4,294 ) 10,031 9,841 Other invested assets 534 452 Total investments 23,408 22,425 Cash and cash equivalents 899 1,264 Investment income receivable 182 160 Finance receivable 103 92 Premiums receivable 2,654 2,322 Reinsurance recoverable 699 665 Prepaid reinsurance premiums 69 51 Deferred policy acquisition costs 1,101 1,013 Land, building and equipment, net, for company use (accumulated depreciation: 2023—$ 333 ; 2022—$ 322 ) 199 202 Other assets 683 646 Separate accounts 918 892 Total assets $ 30,915 $ 29,732 Liabilities Insurance reserves Loss and loss expense reserves $ 9,077 $ 8,400 Life policy and investment contract reserves 2,920 3,015 Unearned premiums 4,195 3,689 Other liabilities 1,315 1,229 Deferred income tax 997 1,054 Note payable 25 50 Long-term debt and lease obligations 844 841 Separate accounts 918 892 Total liabilities 20,291 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 1,422 1,392 Retained earnings 12,018 11,711 Accumulated other comprehensive income ( 827 ) ( 614 ) Treasury stock at cost (2023— 41.4 million shares and 2022— 41.2 million shares) ( 2,386 ) ( 2,324 ) Total shareholders' equity 10,624 10,562 Total liabilities and shareholders' equity $ 30,915 $ 29,732 Accompanying Notes are an integral part of these Condensed Consolidated Financial Statements. Cincinnati Financial Corporation Third-Quarter 2023 10-Q Page 3 Table of Contents Cincinnati Financial Corporation and Subsidiaries Condensed Consolidated Statements of Income (Dollars in millions, except per share data) Three months ended September 30, Nine months ended September 30, 2023 2022 2023 2022 Revenues Earned premiums $ 2,033 $ 1,884 $ 5,894 $ 5,350 Investment income, net of expenses 225 193 655 573 Investment gains and losses, net ( 456 ) ( 674 ) 84 ( 2,494 ) Fee revenues 6 5 16 12 Other revenues 3 2 8 7 Total revenues 1,811 1,410 6,657 3,448 Benefits and Expenses Insurance losses and contract holders' benefits 1,332 1,418 4,070 3,772 Underwriting, acquisition and insurance expenses 609 551 1,744 1,604 Interest expense 13 14 40 40 Other operating expenses 5 4 17 13 Total benefits and expenses 1,959 1,987 5,871 5,429 Income (Loss) Before Income Taxes ( 148 ) ( 577 ) 786 ( 1,981 ) Provision (Benefit) for Income Taxes Current 57 19 124 90 Deferred ( 106 ) ( 180 ) 2 ( 571 ) Total provision (benefit) for income taxes ( 49 ) ( 161 ) 126 ( 481 ) Net Income (Loss) $ ( 99 ) $ ( 416 ) $ 660 $ ( 1,500 ) Per Common Share Net income (loss)—basic $ ( 0.63 ) $ ( 2.63 ) $ 4.20 $ ( 9.42 ) Net income (loss)—diluted ( 0.63 ) ( 2.63 ) 4.17 ( 9.42 ) Accompanying Notes are an integral part of these Condensed Consolidated Financial Statements. Cincinnati Financial Corporation Third-Quarter 2023 10-Q Page 4 Table of Contents Cincinnati Financial Corporation and Subsidiaries Condensed Consolidated Statements of Comprehensive Income (Dollars in millions) Three months ended September 30, Nine months ended September 30, 2023 2022 2023 2022 Net Income (Loss) $ ( 99 ) $ ( 416 ) $ 660 $ ( 1,500 ) Other Comprehensive Income (Loss) Change in unrealized gains and losses on investments, net of benefit of $( 79 ), $( 109 ), $( 76 ) and $( 393 ), respectively ( 290 ) ( 405 ) ( 284 ) ( 1,477 ) Amortization of pension actuarial loss and prior service cost, net of tax (benefit) of $ 0 , $ 0 , $( 2 ) and $ 0 , respectively — — ( 5 ) — Change in life policy reserves, reinsurance recoverable and other, net of tax of $ 22 , $ 25 , $ 19 and $ 104 , respectively 89 95 76 393 Other comprehensive loss ( 201 ) ( 310 ) ( 213 ) ( 1,084 ) Comprehensive Income (Loss) $ ( 300 ) $ ( 726 ) $ 447 $ ( 2,584 ) Accompanying Notes are an integral part of these Condensed Consolidated Financial Statements. Cincinnati Financial Corporation Third-Quarter 2023 10-Q Page 5 Table of Contents Cincinnati Financial Corporation and Subsidiaries Condensed Consolidated Statements of Shareholders' Equity (Dollars in millions) Three months ended September 30, Nine months ended September 30, 2023 2022 2023 2022 Common Stock Beginning of period $ 397 $ 397 $ 397 $ 397 Share-based awards — — — — End of period 397 397 397 397 Paid-In Capital Beginning of period 1,410 1,367 1,392 1,356 Share-based awards 1 1 ( 5 ) ( 11 ) Share-based compensation 9 9 31 29 Other 2 2 4 5 End of period 1,422 1,379 1,422 1,379 Retained Earnings Beginning of period 12,235 11,331 11,711 12,625 Cumulative effect of change in accounting for long-duration insurance contracts (Note 1) — — — 10 Adjusted beginning of period 12,235 11,331 11,711 12,635 Net income (loss) ( 99 ) ( 416 ) 660 ( 1,500 ) Dividends declared ( 118 ) ( 109 ) ( 353 ) ( 329 ) End of period 12,018 10,806 12,018 10,806 Accumulated Other Comprehensive Income (Loss) Beginning of period ( 626 ) ( 478 ) ( 614 ) 648 Cumulative effect of change in accounting for long-duration insurance contracts (Note 1) — — — ( 352 ) Adjusted beginning of period ( 626 ) ( 478 ) ( 614 ) 296 Other comprehensive loss ( 201 ) ( 310 ) ( 213 ) ( 1,084 ) End of period ( 827 ) ( 788 ) ( 827 ) ( 788 ) Treasury Stock Beginning of period ( 2,386 ) ( 2,112 ) ( 2,324 ) ( 1,921 ) Share-based awards 1 1 8 13 Shares acquired - share repurchase authorization — ( 203 ) ( 67 ) ( 399 ) Shares acquired - share-based compensation plans ( 2 ) — ( 5 ) ( 8 ) Other 1 — 2 1 End of period ( 2,386 ) ( 2,314 ) ( 2,386 ) ( 2,314 ) Total Shareholders' Equity $ 10,624 $ 9,480 $ 10,624 $ 9,480 (In millions, except per common share) Common Stock - Shares Outstanding Beginning of period 156.8 159.2 157.1 160.3 Share-based awards — — 0.3 0.5 Shares acquired - share repurchase authorization — ( 2.1 ) ( 0.6 ) ( 3.7 ) Other 0.1 — 0.1 — End of period 156.9 157.1 156.9 157.1 Dividends declared per common share $ 0.75 $ 0.69 $ 2.25 $ 2.07 Accompanying Notes are an integral part of these Condensed Consolidated Financial Statements. Cincinnati Financial Corporation Third-Quarter 2023 10-Q Page 6 Table of Contents Cincinnati Financial Corporation and Subsidiaries Condensed Consolidated Statements of Cash Flows (Dollars in millions) Nine months ended September 30, 2023 2022 Cash Flows From Operating Activities Net income (loss) $ 660 $ ( 1,500 ) Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, amortization and other 88 102 Investment gains and losses, net ( 69 ) 2,513 Interest credited to contract holders 33 34 Deferred income tax expense 2 ( 571 ) Changes in: Premiums and reinsurance receivable ( 392 ) ( 354 ) Deferred policy acquisition costs ( 88 ) ( 118 ) Other assets ( 30 ) ( 6 ) Loss and loss expense reserves 677 808 Life policy and investment contract reserves 73 53 Unearned premiums 506 527 Other liabilities 8 3 Current income tax receivable/payable 7 ( 70 ) Net cash provided by operating activities 1,475 1,421 Cash Flows From Investing Activities Sale, call or maturity of fixed maturities 826 911 Sale of equity securities 68 333 Purchase of fixed maturities ( 1,853 ) ( 1,445 ) Purchase of equity securities ( 157 ) ( 380 ) Changes in finance receivables ( 10 ) 12 Investment in building and equipment ( 10 ) ( 12 ) Change in other invested assets, net ( 102 ) ( 65 ) Net cash used in investing activities ( 1,238 ) ( 646 ) Cash Flows From Financing Activities Payment of cash dividends to shareholders ( 338 ) ( 316 ) Shares acquired - share repurchase authorization ( 67 ) ( 399 ) Changes in note payable ( 25 ) ( 10 ) Proceeds from stock options exercised 7 8 Contract holders' funds deposited 67 54 Contract holders' funds withdrawn ( 165 ) ( 98 ) Other ( 81 ) ( 70 ) Net cash used in financing activities ( 602 ) ( 831 ) Net change in cash and cash equivalents ( 365 ) ( 56 ) Cash and cash equivalents at beginning of year 1,264 1,139 Cash and cash equivalents at end of period $ 899 $ 1,083 Supplemental Disclosures of Cash Flow Information: Interest paid $ 28 $ 27 Income taxes paid 94 144 Noncash Activities Equipment acquired under finance lease obligations $ 10 $ 13 Share-based compensation 15 24 Other assets and other liabilities 120 203 Accompanying Notes are an integral part of these Condensed Consolidated Financial Statements. Cincinnati Financial Corporation Third-Quarter 2023 10-Q Page 7 Table of Contents NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 1 — Accounting Policies The condensed consolidated financial statements include the accounts of Cincinnati Financial Corporation and its consolidated subsidiaries, each of which is wholly owned. These statements are presented in conformity with accounting principles generally accepted in the United States of America (GAAP). All intercompany balances and transactions have been eliminated in consolidation. The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect amounts reported in the financial statements and accompanying notes. Our actual results could differ from those estimates. Certain financial information that is normally included in annual financial statements prepared in accordance with GAAP, but that is not required for interim reporting purposes, has been condensed or omitted. Our September 30, 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. 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 Third-Quarter 2023 10-Q Page 8 Table of Contents The following table illustrates the effect of adopting ASU 2018-12 in the condensed consolidated balance sheets: (Dollars in millions) September 30, 2023 December 31, 2022 As originally reported As adjusted Difference Reinsurance recoverable $ 699 $ 640 $ 665 $ 25 Prepaid reinsurance premiums 69 79 51 ( 28 ) Deferred policy acquisition costs 1,101 1,014 1,013 ( 1 ) Total assets 30,915 29,736 29,732 ( 4 ) Life policy and investment contract reserves 2,920 3,059 3,015 ( 44 ) Deferred income tax 997 1,045 1,054 9 Total liabilities 20,291 19,205 19,170 ( 35 ) Retained earnings 12,018 11,702 11,711 9 Accumulated other comprehensive income ( 827 ) ( 636 ) ( 614 ) 22 Total shareholders' equity 10,624 10,531 10,562 31 Total liabilities and shareholders' equity 30,915 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 September 30, 2023 2022 As originally reported As adjusted Difference Earned premiums $ 2,033 $ 1,882 $ 1,884 $ 2 Insurance losses and contract holders' benefits 1,332 1,418 1,418 — Underwriting, acquisition and insurance expenses 609 551 551 — Deferred income tax expense ( 106 ) ( 180 ) ( 180 ) — Net Income (Loss) ( 99 ) ( 418 ) ( 416 ) 2 Change in life policy reserves, reinsurance recoverable and other, net of tax 89 — 95 95 Other comprehensive income (loss) ( 201 ) ( 405 ) ( 310 ) 95 Comprehensive Income (Loss) ( 300 ) ( 823 ) ( 726 ) 97 Net income (loss) per share: Basic $ ( 0.63 ) $ ( 2.64 ) $ ( 2.63 ) $ 0.01 Diluted ( 0.63 ) ( 2.64 ) ( 2.63 ) 0.01 (Dollars in millions, except per share data) Nine months ended September 30, 2023 2022 As originally reported As adjusted Difference Earned premiums $ 5,894 $ 5,345 $ 5,350 $ 5 Insurance losses and contract holders' benefits 4,070 3,766 3,772 6 Underwriting, acquisition and insurance expenses 1,744 1,604 1,604 — Deferred income tax expense 2 ( 571 ) ( 571 ) — Net Income (Loss) 660 ( 1,499 ) ( 1,500 ) ( 1 ) Change in life policy reserves, reinsurance recoverable and other, net of tax 76 1 393 392 Other comprehensive income (loss) ( 213 ) ( 1,476 ) ( 1,084 ) 392 Comprehensive Income (Loss) 447 ( 2,975 ) ( 2,584 ) 391 Net income (loss) per share: Basic $ 4.20 $ ( 9.41 ) $ ( 9.42 ) $ ( 0.01 ) Diluted 4.17 ( 9.41 ) ( 9.42 ) ( 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 Third-Quarter 2023 10-Q Page 9 Table of Contents NOTE 2 – Investments The following table provides amortized cost, gross unrealized gains, gross unrealized losses and fair value for our fixed-maturity securities: (Dollars in millions) Amortized cost Gross unrealized Fair value At September 30, 2023 gains losses Fixed-maturity securities: Corporate $ 7,786 $ 27 $ 700 $ 7,113 States, municipalities and political subdivisions 4,911 2 489 4,424 Government-sponsored enterprises 897 — 23 874 United States government 223 — 6 217 Commercial mortgage-backed 214 — 18 196 Foreign government 19 — — 19 Total $ 14,050 $ 29 $ 1,236 $ 12,843 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 United States government 196 — 5 191 Commercial mortgage-backed 250 — 16 234 Foreign government 34 — 1 33 Total $ 12,979 $ 61 $ 908 $ 12,132 Th e net unrealized investment losses in our fixed-maturity portfolio at September 30, 2023, are primarily due to an increase in U.S. Treasury yields, partially offset by a tightening of corporate credit spreads . Our commercial mortgage-backed securities had an average rating of Aa3/AA- and Aa2/AA- at September 30, 2023, and December 31, 2022, respectively. Cincinnati Financial Corporation Third-Quarter 2023 10-Q Page 10 Table of Contents The table below provides fair values and gross unrealized losses by investment category and by the duration of the securities' continuous unrealized loss positions: (Dollars in millions) Less than 12 months 12 months or more Total At September 30, 2023 Fair value Unrealized losses Fair value Unrealized losses Fair value Unrealized losses Fixed-maturity securities: Corporate $ 1,283 $ 58 $ 5,431 $ 642 $ 6,714 $ 700 States, municipalities and political subdivisions 2,331 89 1,902 400 4,233 489 Government-sponsored enterprises 742 17 95 6 837 23 United States government 80 1 130 5 210 6 Commercial mortgage-backed 1 — 194 18 195 18 Foreign government 9 — 5 — 14 — Total $ 4,446 $ 165 $ 7,757 $ 1,071 $ 12,203 $ 1,236 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 United States government 146 3 41 2 187 5 Commercial mortgage-backed 215 13 14 3 229 16 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 September 30, 2023 Maturity dates: Due in one year or less $ 825 $ 814 6.3 % Due after one year through five years 4,507 4,314 33.6 Due after five years through ten years 3,522 3,246 25.3 Due after ten years 5,196 4,469 34.8 Total $ 14,050 $ 12,843 100.0 % Actual maturities may differ from contractual maturities when there is a right to call or prepay obligations with or without call or prepayment penalties. Cincinnati Financial Corporation Third-Quarter 2023 10-Q Page 11 Table of Contents The following table provides investment income and investment gains and losses, net: (Dollars in millions) Three months ended September 30, Nine months ended September 30, 2023 2022 2023 2022 Investment income: Interest $ 154 $ 129 $ 441 $ 376 Dividends 69 66 205 203 Other 5 3 18 6 Total 228 198 664 585 Less investment expenses 3 5 9 12 Total $ 225 $ 193 $ 655 $ 573 Investment gains and losses, net: Equity securities: Investment gains and losses on securities sold, net $ ( 5 ) $ 16 $ 2 $ 34 Unrealized gains and losses on securities still held, net ( 458 ) ( 705 ) 99 ( 2,568 ) Subtotal ( 463 ) ( 689 ) 101 ( 2,534 ) Fixed-maturity securities: Gross realized gains 1 — 2 6 Gross realized losses ( 1 ) — ( 2 ) ( 3 ) Write-down of impaired securities with intent to sell — — ( 4 ) — Subtotal — — ( 4 ) 3 Other 7 15 ( 13 ) 37 Total $ ( 456 ) $ ( 674 ) $ 84 $ ( 2,494 ) The fair value of our equity portfolio was $ 10.031 billion and $ 9.841 billion at September 30, 2023, and December 31, 2022, respectively. Apple Inc. (Nasdaq:AAPL), an equity holding, was our largest single investment holding with a fair value of $ 764 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 September 30, 2023, and December 31, 2022, respectively. The allowance for credit losses was $ 3 million and $ 1 million at September 30, 2023, and December 31, 2022, respectively. Changes decreased the allowance $ 1 million for the three months ended September 30, 2023, and increased the allowance $ 2 million for the nine months ended September 30, 2023. Changes were less than $ 1 million for both the three and nine months ended September 30, 2022. There were 4,490 fixed-maturity securities with a total unrealized loss of $ 1.236 billion, which were in an unrealized loss position at September 30, 2023. Of that total, 202 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 Third-Quarter 2023 10-Q Page 12 Table of Contents 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 September 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 September 30, 2023 Fixed maturities, available for sale: Corporate $ — $ 7,113 $ — $ 7,113 States, municipalities and political subdivisions — 4,424 — 4,424 Government-sponsored enterprises — 874 — 874 United States government 217 — — 217 Commercial mortgage-backed — 196 — 196 Foreign government — 19 — 19 Subtotal 217 12,626 — 12,843 Common equities 9,678 — — 9,678 Nonredeemable preferred equities — 353 — 353 Separate accounts taxable fixed maturities — 823 — 823 Top Hat savings plan mutual funds and common equity (included in Other assets) 63 — — 63 Total $ 9,958 $ 13,802 $ — $ 23,760 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 United States government 191 — — 191 Commercial mortgage-backed — 234 — 234 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 $ 899 million and $ 1.264 billion at September 30, 2023, and December 31, 2022, respectively. Cincinnati Financial Corporation Third-Quarter 2023 10-Q Page 13 Table of Contents Fair Value Disclosures for Assets and Liabilities Not Carried at Fair Value The disclosures below are presented to provide information about the effects of current market conditions on financial instruments that are not reported at fair value in our condensed consolidated financial statements. This table summarizes the book value and principal amounts of our long-term debt: (Dollars in millions) Book value Principal amount Interest rate Year of issue September 30, December 31, September 30, December 31, 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 372 371 374 374 Total $ 790 $ 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 September 30, 2023 Note payable $ — $ 25 $ — $ 25 6.900 % senior debentures, due 2028 — 28 — 28 6.920 % senior debentures, due 2028 — 411 — 411 6.125 % senior notes, due 2034 — 371 — 371 Total $ — $ 835 $ — $ 835 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 September 30, 2023 Life policy loans $ — $ — $ 36 $ 36 Deferred annuities — — 595 595 Structured settlements — 129 — 129 Total $ — $ 129 $ 595 $ 724 At December 31, 2022 Life policy loans $ — $ — $ 37 $ 37 Deferred annuities — — 621 621 Structured settlements — 143 — 143 Total $ — $ 143 $ 621 $ 764 Cincinnati Financial Corporation Third-Quarter 2023 10-Q Page 14 Table of Contents Outstanding principal and interest for these life policy loans totaled $ 31 million at both September 30, 2023, and December 31, 2022. Recorded reserves for the deferred annuities were $ 680 million and $ 734 million at September 30, 2023, and December 31, 2022, respectively. Recorded reserves for the structured settlements were $ 124 million and $ 129 million at September 30, 2023, and December 31, 2022, respectively. Cincinnati Financial Corporation Third-Quarter 2023 10-Q Page 15 Table of Contents NOTE 4 – Property Casualty Loss and Loss Expenses This table summarizes activity for our consolidated property casualty loss and loss expense reserves: (Dollars in millions) Three months ended September 30, Nine months ended September 30, 2023 2022 2023 2022 Gross loss and loss expense reserves, beginning of period $ 8,807 $ 7,603 $ 8,336 $ 7,229 Less reinsurance recoverable 424 287 405 327 Net loss and loss expense reserves, beginning of period 8,383 7,316 7,931 6,902 Net incurred loss and loss expenses related to: Current accident year 1,314 1,391 4,053 3,687 Prior accident years ( 53 ) ( 43 ) ( 213 ) ( 143 ) Total incurred 1,261 1,348 3,840 3,544 Net paid loss and loss expenses related to: Current accident year 597 484 1,286 1,021 Prior accident years 461 464 1,899 1,709 Total paid 1,058 948 3,185 2,730 Net loss and loss expense reserves, end of period 8,586 7,716 8,586 7,716 Plus reinsurance recoverable 419 329 419 329 Gross loss and loss expense reserves, end of period $ 9,005 $ 8,045 $ 9,005 $ 8,045 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 $ 72 million and $ 68 million at September 30, 2023, and 2022, respectively, for certain life and health loss and loss expense reserves. We experienced $ 53 million of favorable development on prior accident years, including $ 34 million of favorable development in commercial lines, $ 8 million of favorable development in personal lines and no net development in excess and surplus lines for the three months ended September 30, 2023. Within commercial lines, we recognized favorable reserve development of $ 20 million for the workers' compensation line and $ 11 million for the commercial property line due to reduced uncertainty of prior accident year loss and loss adjustment expense for these lines. We experienced $ 213 million of favorable development on prior accident years, including $ 125 million of favorable development in commercial lines, $ 54 million of favorable development in personal lines and $ 14 million of favorable development in excess and surplus lines for the nine months ended September 30, 2023. Within commercial lines, we recognized favorable reserve development of $ 46 million for the workers' compensation line and $ 36 million for both the commercial property and commercial casualty lines 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 $ 44 million for the homeowner line and $ 12 million for the personal auto line. Cincinnati Financial Corporation Third-Quarter 2023 10-Q Page 16 Table of Contents We experienced $ 43 million of favorable development on prior accident years, including $ 4 million of favorable development in commercial lines, $ 8 million of favorable development in personal lines and $ 7 million of favorable development in excess and surplus lines for the three months ended September 30, 2022. Within commercial lines, we recognized favorable reserve development of $ 24 million for the commercial property line and $ 16 million for the workers' compensation line due to reduced uncertainty of prior accident year loss and loss adjustment expense for these lines. This was partially offset by unfavorable reserve development of $ 23 million for the commercial casualty line and $ 16 million for the commercial auto line. We experienced $ 143 million of favorable development on prior accident years, including $ 51 million of favorable development in commercial lines, $ 56 million of favorable development in personal lines and $ 13 million of favorable development in excess and surplus lines for the nine months ended September 30, 2022. Within commercial lines, we recognized favorable reserve development of $ 43 million for the workers' compensation line and $ 36 million for the commercial property line due to reduced uncertainty of prior accident year loss and loss adjustment expense for these lines. This was partially offset by unfavorable reserve development of $ 25 million for the commercial casualty line and $ 15 million for the commercial auto line. Within personal lines, we recognized favorable reserve development of $ 51 million for the homeowner line. Cincinnati Financial Corporation Third-Quarter 2023 10-Q Page 17 Table of Contents 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, lapse 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 lapse rates. 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. 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) September 30, 2023 December 31, 2022 Life policy reserves: Term $ 956 $ 961 Whole life 381 408 Other 97 94 Subtotal 1,434 1,463 Investment contract reserves: Deferred annuities 680 734 Universal life 575 578 Structured settlements 124 129 Other 107 111 Subtotal 1,486 1,552 Total life policy and investment contract reserves $ 2,920 $ 3,015 Cincinnati Financial Corporation Third-Quarter 2023 10-Q Page 18 Table of Contents 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 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, pretax: (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 Third-Quarter 2023 10-Q Page 19 Table of Contents 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 September 30, 2023 2022 Term Whole life Term Whole life Present value of expected net premiums: Balance, beginning of period $ 1,664 $ 212 $ 1,723 $ 210 Beginning balance at original discount rate 1,712 219 1,704 209 Effect of changes in cash flow assumptions — ( 1 ) ( 13 ) ( 2 ) Effect of actual variances from expected experience ( 3 ) 2 ( 3 ) — Adjusted beginning of period balance 1,709 220 1,688 207 Issuances 33 7 50 11 Interest accrual 18 3 17 2 Net premiums collected ( 45 ) ( 7 ) ( 44 ) ( 6 ) Ending balance at original discount rate 1,715 223 1,711 214 Effect of changes in discount rate assumptions ( 133 ) ( 17 ) ( 94 ) ( 13 ) Balance, end of period 1,582 206 1,617 201 Present value of expected future policy benefits: Balance, beginning of period 2,662 633 2,702 646 Beginning balance at original discount rate 2,737 615 2,663 590 Effect of changes in cash flow assumptions — — ( 12 ) ( 2 ) Effect of actual variances from expected experience ( 6 ) 2 ( 2 ) — Adjusted beginning of period balance 2,731 617 2,649 588 Issuances 33 7 49 11 Interest accrual 30 8 29 7 Benefits paid ( 39 ) ( 9 ) ( 48 ) ( 7 ) Ending balance at original discount rate 2,755 623 2,679 599 Effect of changes in discount rate assumptions ( 234 ) ( 37 ) ( 159 ) ( 5 ) Balance, end of period 2,521 586 2,520 594 Net liability for future policy benefits: Present value of expected future policy benefits less expected net premiums 939 380 903 393 Impact of flooring at cohort level 17 1 22 2 Net life policy reserves 956 381 925 395 Less reinsurance recoverable at original discount rate ( 99 ) ( 25 ) ( 98 ) ( 25 ) Less effect of discount rate assumption changes on reinsurance recoverable ( 7 ) ( 3 ) ( 9 ) ( 4 ) Net life policy reserves, after reinsurance recoverable $ 850 $ 353 $ 818 $ 366 Weighted-average duration of the net life policy reserves in years 11 16 11 16 Cincinnati Financial Corporation Third-Quarter 2023 10-Q Page 20 Table of Contents (Dollars in millions) Nine months ended September 30, 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 ( 5 ) ( 7 ) 132 ( 3 ) Effect of actual variances from expected experience ( 15 ) 3 5 — Adjusted beginning of period balance 1,688 213 1,640 198 Issuances 111 24 154 30 Interest accrual 53 7 49 6 Net premiums collected ( 137 ) ( 21 ) ( 132 ) ( 20 ) Ending balance at original discount rate 1,715 223 1,711 214 Effect of changes in discount rate assumptions ( 133 ) ( 17 ) ( 94 ) ( 13 ) Balance, end of period 1,582 206 1,617 201 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 ) 150 ( 5 ) Effect of actual variances from expected experience ( 19 ) 3 15 — Adjusted beginning of period balance 2,678 600 2,590 572 Issuances 111 24 153 29 Interest accrual 90 23 84 22 Benefits paid ( 124 ) ( 24 ) ( 148 ) ( 24 ) Ending balance at original discount rate 2,755 623 2,679 599 Effect of changes in discount rate assumptions ( 234 ) ( 37 ) ( 159 ) ( 5 ) Balance, end of period 2,521 586 2,520 594 Net liability for future policy benefits: Present value of expected future policy benefits less expected net premiums 939 380 903 393 Impact of flooring at cohort level 17 1 22 2 Net life policy reserves 956 381 925 395 Less reinsurance recoverable at original discount rate ( 99 ) ( 25 ) ( 98 ) ( 25 ) Less effect of discount rate assumption changes on reinsurance recoverable ( 7 ) ( 3 ) ( 9 ) ( 4 ) Net life policy reserves, after reinsurance recoverable $ 850 $ 353 $ 818 $ 366 Weighted-average duration of the net life policy reserves in years 11 16 11 16 The total impact of flooring at cohort level in the above tables includes the effect of discount rate assumption change s of $ 5 million and $ 13 million at September 30, 2023 and 2022, respectively. Cincinnati Financial Corporation Third-Quarter 2023 10-Q Page 21 Table of Contents 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 September 30, 2023 2022 Undiscounted Discounted Undiscounted Discounted Term Expected future benefit payments $ 4,768 $ 2,521 $ 4,618 $ 2,520 Expected future gross premiums 4,364 2,464 4,402 2,528 Whole life Expected future benefit payments $ 1,631 $ 586 $ 1,540 $ 594 Expected future gross premiums 653 379 596 356 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 September 30, Nine months ended September 30, 2023 2022 2023 2022 Gross premiums Term $ 71 $ 70 $ 217 $ 210 Whole life 14 11 39 35 Total $ 85 $ 81 $ 256 $ 245 Interest accretion Term $ 13 $ 12 $ 37 $ 35 Whole life 5 5 16 16 Total $ 18 $ 17 $ 53 $ 51 Adverse development that resulted in an immediate charge to income due to net premiums exceeding gross premiums w as immaterial for the three and nine months ended September 30, 2023, and 2022. The following table shows the weighted-average interest rate for our term and whole life products : At September 30, 2023 2022 Term Interest accretion rate 5.29 % 5.15 % Current discount rate 5.73 5.18 Whole life Interest accretion rate 5.92 % 5.97 % Current discount rate 5.95 5.51 The discount rate assumption was developed by calculating forward rates from market yield curves of upper-medium grade fixed-income instruments. Cincinnati Financial Corporation Third-Quarter 2023 10-Q Page 22 Table of Contents The following table shows the balances and changes in policyholders' account balances included in investment contract reserves: (Dollars in millions) Three months ended September 30, Nine months ended September 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 $ 696 $ 456 $ 755 $ 457 $ 734 $ 457 $ 763 $ 454 Premiums received 13 8 12 8 38 28 23 29 Policy charges — ( 9 ) — ( 10 ) — ( 29 ) — ( 29 ) Surrenders and withdrawals ( 32 ) ( 2 ) ( 17 ) ( 4 ) ( 100 ) ( 9 ) ( 37 ) ( 9 ) Benefit payments ( 3 ) ( 1 ) ( 3 ) ( 1 ) ( 9 ) ( 5 ) ( 13 ) ( 4 ) Interest credited 6 4 5 5 17 14 16 14 Balance, end of period $ 680 $ 456 $ 752 $ 455 $ 680 $ 456 $ 752 $ 455 Weighted average crediting rate 3.45 % 4.29 % 3.10 % 4.24 % 3.45 % 4.29 % 3.10 % 4.24 % Net amount at risk $ — $ 3,989 $ — $ 4,108 $ — $ 3,989 $ — $ 4,108 Cash surrender value 675 424 748 421 675 424 748 421 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 September 30, 2023 Deferred annuity 1.00-3.00% $ 5 $ 380 $ 16 $ 229 630 3.01-4.00% 50 — — — 50 Total $ 55 $ 380 $ 16 $ 229 $ 680 Universal life 1.00-3.00% $ 60 $ — $ 57 $ 3 $ 120 3.01-4.00% 54 — — — 54 Greater than 4.00% 282 — — — 282 Total $ 396 $ — $ 57 $ 3 $ 456 At September 30, 2022 Deferred annuity 1.00-3.00% $ 467 $ — $ 170 $ 64 $ 701 3.01-4.00% 51 — — — 51 Total $ 518 $ — $ 170 $ 64 $ 752 Universal life 1.00-3.00% $ 59 $ 46 $ 8 $ 2 $ 115 3.01-4.00% 52 — — — 52 Greater than 4.00% 288 — — — 288 Total $ 399 $ 46 $ 8 $ 2 $ 455 Cincinnati Financial Corporation Third-Quarter 2023 10-Q Page 23 Table of Contents 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 September 30, Nine months ended September 30, 2023 2022 2023 2022 Balance, beginning of period $ 122 $ 122 $ 121 $ 133 Balance, beginning of period before shadow reserve adjustments 124 123 123 131 Effect of changes in cash flow assumptions — — ( 5 ) ( 2 ) Effect of actual variances from expected experience 2 1 1 6 Adjusted beginning of period balance 126 124 119 135 Interest accrual 1 1 3 3 Excess death benefits ( 4 ) ( 2 ) ( 6 ) ( 14 ) Attributed assessments 3 3 9 9 Effect of changes in interest rate assumptions ( 5 ) ( 4 ) ( 4 ) ( 11 ) Balance, end of period before shadow reserve adjustments 121 122 121 122 Shadow reserve adjustments ( 2 ) ( 3 ) ( 2 ) ( 3 ) Balance, end of period 119 119 119 119 Less reinsurance recoverable, end of period 7 5 7 5 Net other additional liability, after reinsurance recoverable $ 126 $ 124 $ 126 $ 124 Weighted-average duration of the other additional liability in years 32 34 32 34 The following table shows balances and changes in separate accounts balances during the period: (Dollars in millions) Three months ended September 30, Nine months ended September 30, 2023 2022 2023 2022 Balance, beginning of period $ 911 $ 860 $ 892 $ 959 Interest credited before policy charges 11 9 31 29 Change in unrealized gains and losses impacting separate accounts liabilities — 20 — ( 85 ) Benefit payments ( 3 ) — ( 6 ) ( 10 ) Other ( 1 ) ( 1 ) 1 ( 5 ) Balance, end of period $ 918 $ 888 $ 918 $ 888 Cash surrender value $ 912 $ 886 $ 912 $ 886 Cincinnati Financial Corporation Third-Quarter 2023 10-Q Page 24 Table of Contents 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 September 30, Nine months ended September 30, 2023 2022 2023 2022 Property casualty: Deferred policy acquisition costs asset, beginning of period $ 771 $ 723 $ 682 $ 602 Capitalized deferred policy acquisition costs 355 325 1,134 1,064 Amortized deferred policy acquisition costs ( 366 ) ( 342 ) ( 1,056 ) ( 960 ) Deferred policy acquisition costs asset, end of period $ 760 $ 706 $ 760 $ 706 Life: Deferred policy acquisition costs asset, beginning of period $ 338 $ 323 $ 331 $ 314 Capitalized deferred policy acquisition costs 10 11 32 33 Amortized deferred policy acquisition costs ( 7 ) ( 7 ) ( 22 ) ( 20 ) Deferred policy acquisition costs asset, end of period $ 341 $ 327 $ 341 $ 327 Consolidated: Deferred policy acquisition costs asset, beginning of period $ 1,109 $ 1,046 $ 1,013 $ 916 Capitalized deferred policy acquisition costs 365 336 1,166 1,097 Amortized deferred policy acquisition costs ( 373 ) ( 349 ) ( 1,078 ) ( 980 ) Deferred policy acquisition costs asset, end of period $ 1,101 $ 1,033 $ 1,101 $ 1,033 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 Third-Quarter 2023 10-Q Page 25 Table of Contents The table below shows the life deferred policy acquisition costs asset by product: (Dollars in millions) Three months ended September 30, 2023 Term Whole life Deferred annuity Universal life Total Balance, beginning of period $ 233 $ 45 $ 8 $ 52 $ 338 Capitalized deferred policy acquisition costs 8 2 — — 10 Amortized deferred policy acquisition costs ( 7 ) — — — ( 7 ) Balance, end of period $ 234 $ 47 $ 8 $ 52 $ 341 Three months ended September 30, 2022 Balance, beginning of period $ 222 $ 40 $ 7 $ 54 $ 323 Capitalized deferred policy acquisition costs 9 2 — — $ 11 Amortized deferred policy acquisition costs ( 5 ) ( 1 ) — ( 1 ) $ ( 7 ) Balance, end of period $ 226 $ 41 $ 7 $ 53 $ 327 (Dollars in millions) Nine months ended September 30, 2023 Term Whole life Deferred annuity Universal life Total Balance, beginning of period $ 228 $ 43 $ 7 $ 53 $ 331 Capitalized deferred policy acquisition costs 24 6 1 1 32 Amortized deferred policy acquisition costs ( 18 ) ( 2 ) — ( 2 ) ( 22 ) Balance, end of period $ 234 $ 47 $ 8 $ 52 $ 341 Nine months ended September 30, 2022 Balance, beginning of period $ 215 $ 38 $ 7 $ 54 $ 314 Capitalized deferred policy acquisition costs 27 5 — 1 $ 33 Amortized deferred policy acquisition costs ( 16 ) ( 2 ) — ( 2 ) $ ( 20 ) Balance, end of period $ 226 $ 41 $ 7 $ 53 $ 327 No premium deficiencies were recorded in the condensed consolidated statements of income, as the sum of the anticipated loss and loss expenses, policyholder dividends and unamortized deferred acquisition expenses did not exceed the related unearned premiums and anticipated investment income. Cincinnati Financial Corporation Third-Quarter 2023 10-Q Page 26 Table of Contents 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 September 30, 2023 2022 Before tax Income tax Net Before tax Income tax Net Investments: AOCI, beginning of period $ ( 838 ) $ ( 179 ) $ ( 659 ) $ ( 564 ) $ ( 119 ) $ ( 445 ) OCI before investment gains and losses, net, recognized in net income ( 369 ) ( 79 ) ( 290 ) ( 514 ) ( 109 ) ( 405 ) Investment gains and losses, net, recognized in net income — — — — — — OCI ( 369 ) ( 79 ) ( 290 ) ( 514 ) ( 109 ) ( 405 ) AOCI, end of period $ ( 1,207 ) $ ( 258 ) $ ( 949 ) $ ( 1,078 ) $ ( 228 ) $ ( 850 ) Pension obligations: AOCI, beginning of period $ 29 $ 7 $ 22 $ 27 $ 7 $ 20 OCI excluding amortization recognized in net income — — — — — — Amortization recognized in net income — — — — — — OCI — — — — — — AOCI, end of period $ 29 $ 7 $ 22 $ 27 $ 7 $ 20 Life policy reserves, reinsurance recoverable and other: AOCI, beginning of period $ 13 $ 2 $ 11 $ ( 67 ) $ ( 14 ) $ ( 53 ) OCI before investment gains and losses, net, recognized in net income 111 22 89 120 25 95 Investment gains and losses, net, recognized in net income — — — — — — OCI 111 22 89 120 25 95 AOCI, end of period $ 124 $ 24 $ 100 $ 53 $ 11 $ 42 Summary of AOCI: AOCI, beginning of period $ ( 796 ) $ ( 170 ) $ ( 626 ) $ ( 604 ) $ ( 126 ) $ ( 478 ) Investments OCI ( 369 ) ( 79 ) ( 290 ) ( 514 ) ( 109 ) ( 405 ) Pension obligations OCI — — — — — — Life policy reserves, reinsurance recoverable and other OCI 111 22 89 120 25 95 Total OCI ( 258 ) ( 57 ) ( 201 ) ( 394 ) ( 84 ) ( 310 ) AOCI, end of period $ ( 1,054 ) $ ( 227 ) $ ( 827 ) $ ( 998 ) $ ( 210 ) $ ( 788 ) Cincinnati Financial Corporation Third-Quarter 2023 10-Q Page 27 Table of Contents (Dollars in millions) Nine months ended September 30, 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 ( 364 ) ( 77 ) ( 287 ) ( 1,867 ) ( 392 ) ( 1,475 ) Investment gains and losses, net, recognized in net income 4 1 3 ( 3 ) ( 1 ) ( 2 ) OCI ( 360 ) ( 76 ) ( 284 ) ( 1,870 ) ( 393 ) ( 1,477 ) AOCI, end of period $ ( 1,207 ) $ ( 258 ) $ ( 949 ) $ ( 1,078 ) $ ( 228 ) $ ( 850 ) Pension obligations: AOCI, beginning of period $ 36 $ 9 $ 27 $ 27 $ 7 $ 20 OCI excluding amortization recognized in net income ( 5 ) ( 2 ) ( 3 ) — — — Amortization recognized in net income ( 2 ) — ( 2 ) — — — 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 ) Adjusted AOCI, beginning of period 29 5 24 ( 444 ) ( 93 ) ( 351 ) OCI before investment gains and losses, net, recognized in net income 95 19 76 497 104 393 Investment gains and losses, net, recognized in net income — — — — — — OCI 95 19 76 497 104 393 AOCI, end of period $ 124 $ 24 $ 100 $ 53 $ 11 $ 42 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 ( 360 ) ( 76 ) ( 284 ) ( 1,870 ) ( 393 ) ( 1,477 ) Pension obligations OCI ( 7 ) ( 2 ) ( 5 ) — — — Life policy reserves, reinsurance recoverable and other OCI 95 19 76 497 104 393 Total OCI ( 272 ) ( 59 ) ( 213 ) ( 1,373 ) ( 289 ) ( 1,084 ) AOCI, end of period $ ( 1,054 ) $ ( 227 ) $ ( 827 ) $ ( 998 ) $ ( 210 ) $ ( 788 ) 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 of pension obligations is recorded in the insurance losses and contract holders' benefits and underwriting, acquisition and insurance expenses line items in the condensed consolidated statements of income. Cincinnati Financial Corporation Third-Quarter 2023 10-Q Page 28 Table of Contents NOTE 8 – Reinsurance Primary components of our property casualty reinsurance assumed operations include involuntary and voluntary assumed as well as contracts from our reinsurance assumed operations, known as Cincinnati Re. Primary components of our ceded reinsurance include a property per risk treaty, property excess treaty, casualty per occurrence treaty, casualty excess treaty, property catastrophe treaty and retrocessions on our reinsurance assumed operations. Management’s decisions about the appropriate level of risk retention are affected by various factors, including changes in our underwriting practices, capacity to retain risks and reinsurance market conditions. The table below summarizes our consolidated property casualty insurance net written premiums, earned premiums and incurred loss and loss expenses: (Dollars in millions) Three months ended September 30, Nine months ended September 30, 2023 2022 2023 2022 Direct written premiums $ 1,939 $ 1,730 $ 5,869 $ 5,304 Assumed written premiums 89 92 527 548 Ceded written premiums ( 71 ) ( 72 ) ( 270 ) ( 239 ) Net written premiums $ 1,957 $ 1,750 $ 6,126 $ 5,613 Direct earned premiums $ 1,912 $ 1,743 $ 5,478 $ 4,935 Assumed earned premiums 142 161 435 416 Ceded earned premiums ( 97 ) ( 95 ) ( 252 ) ( 227 ) Earned premiums $ 1,957 $ 1,809 $ 5,661 $ 5,124 Direct incurred loss and loss expenses $ 1,220 $ 1,247 $ 3,784 $ 3,316 Assumed incurred loss and loss expenses 82 164 216 304 Ceded incurred loss and loss expenses ( 41 ) ( 63 ) ( 160 ) ( 76 ) Incurred loss and loss expenses $ 1,261 $ 1,348 $ 3,840 $ 3,544 Our life insurance company purchases reinsurance for protection of a portion of the risks that are written. Primary components of our life reinsurance program include individual mortality coverage, aggregate catastrophe and accidental death coverage in excess of certain deductibles. Cincinnati Financial Corporation Third-Quarter 2023 10-Q Page 29 Table of Contents The table below summarizes our consolidated life insurance earned premiums and contract holders' benefits incurred: (Dollars in millions) Three months ended September 30, Nine months ended September 30, 2023 2022 2023 2022 Direct earned premiums $ 97 $ 94 $ 293 $ 283 Ceded earned premiums ( 21 ) ( 19 ) ( 60 ) ( 57 ) Earned premiums $ 76 $ 75 $ 233 $ 226 Direct contract holders' benefits incurred 92 90 289 302 Ceded contract holders' benefits incurred ( 21 ) ( 20 ) ( 59 ) ( 74 ) Contract holders' benefits incurred $ 71 $ 70 $ 230 $ 228 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 $ 16 million and $ 13 million at September 30, 2023, and December 31, 2022, respectively. The allowances for credit losses on other premiums receivable and reinsurance recoverable assets were immaterial at September 30, 2023, and December 31, 2022. Cincinnati Financial Corporation Third-Quarter 2023 10-Q Page 30 Table of Contents NOTE 9 – Income Taxes The differences between the 21 % statutory federal income tax rate and our effective income tax rate were as follows: (Dollars in millions) Three months ended September 30, Nine months ended September 30, 2023 2022 2023 2022 Tax at statutory rate: $ ( 31 ) 21.0 % $ ( 122 ) 21.0 % $ 165 21.0 % $ ( 416 ) 21.0 % Increase (decrease) resulting from: Tax-exempt income from municipal bonds ( 5 ) 3.4 ( 5 ) 0.9 ( 15 ) ( 1.9 ) ( 15 ) 0.8 Dividend received exclusion ( 5 ) 3.4 ( 5 ) 0.9 ( 16 ) ( 2.0 ) ( 15 ) 0.8 Release of unrecognized tax benefit — — ( 34 ) 5.9 — — ( 34 ) 1.7 Other ( 8 ) 5.3 5 ( 0.8 ) ( 8 ) ( 1.1 ) ( 1 ) — Provision (benefit) for income taxes $ ( 49 ) 33.1 % $ ( 161 ) 27.9 % $ 126 16.0 % $ ( 481 ) 24.3 % The provision (benefit) for federal income taxes is based upon filing a consolidated income tax return for the company and its domestic subsidiaries. We continue to believe that after considering all positive and negative evidence of taxable income in the carryback and carryforward periods as permitted by law, it is more likely than not that all of the deferred tax assets on our U.S. domestic operations will be realized. As a result, we have no valuation allowance for our U.S. domestic operations at September 30, 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). Unrecognized Tax Benefits During the third quarter of 2022, we received favorable guidance from the Internal Revenue Service (IRS) supporting our tax position related to our unrecognized tax benefit set up in 2018. As a result of this guidance, we released our $ 34 million gross unrecognized tax benefit liability at September 30, 2022. The $ 34 million release was recognized as an additional income tax benefit and shown separately in our effective income tax rate reconciliation. Cincinnati Global As a result of operations for the three and nine months ended September 30, 2023, Cincinnati Global decreased its net deferred tax assets by $ 10 million and $ 20 million, respectively, with an offsettin g decrease of $ 10 million and $ 20 million, respectively, to the valuation allowance. Cincinnati Global had a net deferred tax asset of $ 11 million and an offsetting valuation allowance of $ 11 million at September 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 September 30, 2023. Cincinnati Global had operating loss carryforwards in the United States of $ 6 million and $ 5 million and in the United Kingdom of $ 99 million and $ 109 million at September 30, 2023, and December 31, 2022, respectively. These Cincinnati Global losses can only be utilized within the Cincinnati Global group. Cincinnati Financial Corporation Third-Quarter 2023 10-Q Page 31 Table of Contents NOTE 10 – Net Income (Loss) Per Common Share Basic earnings per share are computed based on the weighted average number of common shares outstanding. Diluted earnings per share are computed based on the weighted average number of common and dilutive potential common shares outstanding using the treasury stock method. The table shows calculations for basic and diluted earnings per share: (In millions, except per share data) Three months ended September 30, Nine months ended September 30, 2023 2022 2023 2022 Numerator: Net income (loss)—basic and diluted $ ( 99 ) $ ( 416 ) $ 660 $ ( 1,500 ) Denominator: Basic weighted-average common shares outstanding 156.9 158.0 157.0 159.3 Effect of share-based awards: Stock options — — 0.7 — Nonvested shares — — 0.5 — Diluted weighted-average shares 156.9 158.0 158.2 159.3 Earnings (loss) per share: Basic $ ( 0.63 ) $ ( 2.63 ) $ 4.20 $ ( 9.42 ) Diluted $ ( 0.63 ) $ ( 2.63 ) $ 4.17 $ ( 9.42 ) Number of anti-dilutive share-based awards 2.4 2.3 1.3 1.9 The above table shows the number of anti-dilutive share-based awards for the three and nine months ended September 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 months ended September 30, 2023 and for the three and nine months ended September 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. 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 September 30, Nine months ended September 30, 2023 2022 2023 2022 Service cost $ 1 $ 2 $ 4 $ 7 Non-service (benefit) costs: Interest cost 3 3 9 8 Expected return on plan assets ( 5 ) ( 6 ) ( 15 ) ( 17 ) Amortization of actuarial loss and prior service cost — — ( 2 ) — Other — — ( 5 ) — Total non-service benefit ( 2 ) ( 3 ) ( 13 ) ( 9 ) Net periodic benefit $ ( 1 ) $ ( 1 ) $ ( 9 ) $ ( 2 ) 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 $ 6 million to our 401(k) and Top Hat savings plans during both the third quarter of 2023 and 2022 and contributions of $ 20 million for both the first nine months of 2023 and 2022. Cincinnati Financial Corporation Third-Quarter 2023 10-Q Page 32 Table of Contents We m ade no con tributions to our qualified pension plan during the first nine months of 2023. 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 continues to vigorously defend them. 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. Most of these lawsuits have been dismissed, both by courts and by plaintiffs, but some have been appealed and a few others remain pending in trial courts. 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. 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 Third-Quarter 2023 10-Q Page 33 Table of Contents 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 Third-Quarter 2023 10-Q Page 34 Table of Contents Segment information is summarized in the following table: (Dollars in millions) Three months ended September 30, Nine months ended September 30, 2023 2022 2023 2022 Revenues: Commercial lines insurance Commercial casualty $ 365 $ 360 $ 1,115 $ 1,046 Commercial property 321 292 933 846 Commercial auto 216 213 644 627 Workers' compensation 66 73 212 209 Other commercial 94 90 280 256 Commercial lines insurance premiums 1,062 1,028 3,184 2,984 Fee revenues 1 1 3 3 Total commercial lines insurance 1,063 1,029 3,187 2,987 Personal lines insurance Personal auto 185 158 524 465 Homeowner 271 213 755 609 Other personal 71 60 205 172 Personal lines insurance premiums 527 431 1,484 1,246 Fee revenues 1 1 3 3 Total personal lines insurance 528 432 1,487 1,249 Excess and surplus lines insurance 135 125 394 361 Fee revenues 1 1 2 2 Total excess and surplus lines insurance 136 126 396 363 Life insurance premiums 76 75 233 226 Fee revenues 3 2 8 4 Total life insurance 79 77 241 230 Investments Investment income, net of expenses 225 193 655 573 Investment gains and losses, net ( 456 ) ( 674 ) 84 ( 2,494 ) Total investment revenue ( 231 ) ( 481 ) 739 ( 1,921 ) Other Premiums 233 225 599 533 Other 3 2 8 7 Total other revenues 236 227 607 540 Total revenues $ 1,811 $ 1,410 $ 6,657 $ 3,448 Income (loss) before income taxes: Insurance underwriting results Commercial lines insurance $ 52 $ 11 $ 83 $ 25 Personal lines insurance 1 ( 18 ) ( 92 ) ( 2 ) Excess and surplus lines insurance 14 9 38 44 Life insurance 17 13 38 21 Investments ( 262 ) ( 508 ) 648 ( 2,003 ) Other 30 ( 84 ) 71 ( 66 ) Total income (loss) before income taxes $ ( 148 ) $ ( 577 ) $ 786 $ ( 1,981 ) Identifiable assets: September 30, 2023 December 31, 2022 Property casualty insurance $ 5,302 $ 5,178 Life insurance 1,556 1,518 Investments 23,063 22,133 Other 994 903 Total $ 30,915 $ 29,732 Cincinnati Financial Corporation Third-Quarter 2023 10-Q Page 35 Table of Contents