CINCINNATI FINANCIAL CORP 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion highlights significant factors influencing the condensed consolidated results of operations and financial position of Cincinnati Financial Corporation. It should be read in conjunction with the consolidated financial statements and related notes included in our 2022 Annual Report on Form 10-K. Unless otherwise noted, the industry data is prepared by A.M. Best Co., a leading insurance industry statistical, analytical and financial strength rating organization. Information from A.M. Best is presented on a statutory basis for insurance company regulation in the United States of America. When we provide our results on a comparable statutory basis, we label it as such; all other company data is presented in accordance with accounting principles generally accepted in the United States of America (GAAP). As discussed in Item 1, Note 1, Accounting Policies, Page 8, effective January 1, 2023, we adopted ASU 2018-12, Financial Services - Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts. We adjusted applicable financial statements. Related financial data shown in Management's Discussion and Analysis of Financial Condition and Results of Operations also have been adjusted. We present per share data on a diluted basis unless otherwise noted, adjusting those amounts for all stock splits and dividends. Dollar amounts are rounded to millions; calculations of percent changes are based on dollar amounts rounded to the nearest million. Certain percentage changes are identified as not meaningful (nm). SAFE HARBOR STATEMENT This is our “Safe Harbor” statement under the Private Securities Litigation Reform Act of 1995. Our business is subject to certain risks and uncertainties that may cause actual results to differ materially from those suggested by the forward-looking statements in this report. Some of those risks and uncertainties are discussed in our 2022 Annual Report on Form 10-K, Item 1A, Risk Factors, Page 32. Factors that could cause or contribute to such differences include, but are not limited to: • Effects of the COVID-19 pandemic that could affect results for reasons such as: ◦ Securities market disruption or volatility and related effects such as decreased economic activity and continued supply chain disruptions that affect our investment portfolio and book value ◦ An unusually high level of claims in our insurance or reinsurance operations that increase litigation-related expenses ◦ An unusually high level of insurance losses, including risk of legislation or court decisions extending business interruption insurance in commercial property coverage forms to cover claims for pure economic loss related to the COVID-19 pandemic ◦ Decreased premium revenue and cash flow from disruption to our distribution channel of independent agents, consumer self-isolation, travel limitations, business restrictions and decreased economic activity ◦ Inability of our workforce, agencies or vendors to perform necessary business functions • Ongoing developments concerning business interruption insurance claims and litigation related to the COVID-19 pandemic that affect our estimates of losses and loss adjustment expenses or our ability to reasonably estimate such losses, such as: ◦ The continuing duration of the pandemic and governmental actions to limit the spread of the virus that may produce additional economic losses ◦ The number of policyholders that will ultimately submit claims or file lawsuits ◦ The lack of submitted proofs of loss for allegedly covered claims ◦ Judicial rulings in similar litigation involving other companies in the insurance industry ◦ Differences in state laws and developing case law ◦ Litigation trends, including varying legal theories advanced by policyholders ◦ Whether and to what degree any class of policyholders may be certified ◦ The inherent unpredictability of litigation • Unusually high levels of catastrophe losses due to risk concentrations, changes in weather patterns (whether as a result of global climate change or otherwise), environmental events, war or political unrest, terrorism incidents, cyberattacks, civil unrest or other causes Cincinnati Financial Corporation Third-Quarter 2023 10-Q Page 36 Table of Contents • Increased frequency and/or severity of claims or development of claims that are unforeseen at the time of policy issuance, due to inflationary trends or other causes • Inadequate estimates or assumptions, or reliance on third-party data used for critical accounting estimates • Declines in overall stock market values negatively affecting our equity portfolio and book value • Interest rate fluctuations or other factors that could significantly affect: • Our ability to generate growth in investment income • Values of our fixed-maturity investments, including accounts in which we hold bank-owned life insurance contract assets • Our traditional life policy reserves • Domestic and global events, such as Russia's invasion of Ukraine, war in the Middle East and recent disruptions in the banking and financial services industry, resulting in capital market or credit market uncertainty, followed by prolonged periods of economic instability or recession, that lead to: ◦ Significant or prolonged decline in the fair value of a particular security or group of securities and impairment of the asset(s) ◦ Significant decline in investment income due to reduced or eliminated dividend payouts from a particular security or group of securities ◦ Significant rise in losses from surety or director and officer policies written for financial institutions or other insured entities • Our inability to manage Cincinnati Global or other subsidiaries to produce related business opportunities and growth prospects for our ongoing operations • Recession, prolonged elevated inflation or other economic conditions resulting in lower demand for insurance products or increased payment delinquencies • Ineffective information technology systems or discontinuing to develop and implement improvements in technology may impact our success and profitability • Difficulties with technology or data security breaches, including cyberattacks, that could negatively affect our or our agents' ability to conduct business; disrupt our relationships with agents, policyholders and others; cause reputational damage, mitigation expenses and data loss and expose us to liability under federal and state laws • Difficulties with our operations and technology that may negatively impact our ability to conduct business, including cloud-based data information storage, data security, cyberattacks, remote working capabilities, and/or outsourcing relationships and third-party operations and data security • Disruption of the insurance market caused by technology innovations such as driverless cars that could decrease consumer demand for insurance products • Delays, inadequate data developed internally or from third parties, or performance inadequacies from ongoing development and implementation of underwriting and pricing methods, including telematics and other usage-based insurance methods, or technology projects and enhancements expected to increase our pricing accuracy, underwriting profit and competitiveness • Intense competition, and the impact of innovation, technological change and changing customer preferences on the insurance industry and the markets in which we operate, could harm our ability to maintain or increase our business volumes and profitability • Changing consumer insurance-buying habits and consolidation of independent insurance agencies could alter our competitive advantages • Inability to obtain adequate ceded reinsurance on acceptable terms, amount of reinsurance coverage purchased, financial strength of reinsurers and the potential for nonpayment or delay in payment by reinsurers • Inability to defer policy acquisition costs for any business segment if pricing and loss trends would lead management to conclude that segment could not achieve sustainable profitability • Inability of our subsidiaries to pay dividends consistent with current or past levels • Events or conditions that could weaken or harm our relationships with our independent agencies and hamper opportunities to add new agencies, resulting in limitations on our opportunities for growth, such as: ◦ Downgrades of our financial strength ratings ◦ Concerns that doing business with us is too difficult ◦ Perceptions that our level of service, particularly claims service, is no longer a distinguishing characteristic in the marketplace Cincinnati Financial Corporation Third-Quarter 2023 10-Q Page 37 Table of Contents ◦ Inability or unwillingness to nimbly develop and introduce coverage product updates and innovations that our competitors offer and consumers expect to find in the marketplace • Actions of insurance departments, state attorneys general or other regulatory agencies, including a change to a federal system of regulation from a state-based system, that: ◦ Impose new obligations on us that increase our expenses or change the assumptions underlying our critical accounting estimates ◦ Place the insurance industry under greater regulatory scrutiny or result in new statutes, rules and regulations ◦ Restrict our ability to exit or reduce writings of unprofitable coverages or lines of business ◦ Add assessments for guaranty funds, other insurance‑related assessments or mandatory reinsurance arrangements; or that impair our ability to recover such assessments through future surcharges or other rate changes ◦ Increase our provision for federal income taxes due to changes in tax law ◦ Increase our other expenses ◦ Limit our ability to set fair, adequate and reasonable rates ◦ Place us at a disadvantage in the marketplace ◦ Restrict our ability to execute our business model, including the way we compensate agents • Adverse outcomes from litigation or administrative proceedings, including effects of social inflation and third-party litigation funding on the size of litigation awards • Events or actions, including unauthorized intentional circumvention of controls, that reduce our future ability to maintain effective internal control over financial reporting under the Sarbanes-Oxley Act of 2002 • Unforeseen departure of certain executive officers or other key employees due to retirement, health or other causes that could interrupt progress toward important strategic goals or diminish the effectiveness of certain longstanding relationships with insurance agents and others • Our inability, or the inability of our independent agents, to attract and retain personnel in a competitive labor market, impacting the customer experience and altering our competitive advantages • Events, such as an epidemic, natural catastrophe or terrorism, that could hamper our ability to assemble our workforce at our headquarters location or work effectively in a remote environment Further, our insurance businesses are subject to the effects of changing social, global, economic and regulatory environments. Public and regulatory initiatives have included efforts to adversely influence and restrict premium rates, restrict the ability to cancel policies, impose underwriting standards and expand overall regulation. We also are subject to public and regulatory initiatives that can affect the market value for our common stock, such as measures affecting corporate financial reporting and governance. The ultimate changes and eventual effects, if any, of these initiatives are uncertain. Cincinnati Financial Corporation Third-Quarter 2023 10-Q Page 38 Table of Contents CORPORATE FINANCIAL HIGHLIGHTS Net Income and Comprehensive Income Data (Dollars in millions, except per share data) Three months ended September 30, Nine months ended September 30, 2023 2022 % Change 2023 2022 % Change Earned premiums $ 2,033 $ 1,884 8 $ 5,894 $ 5,350 10 Investment income, net of expenses (pretax) 225 193 17 655 573 14 Investment gains and losses, net (pretax) (456) (674) 32 84 (2,494) nm Total revenues 1,811 1,410 28 6,657 3,448 93 Net income (loss) (99) (416) 76 660 (1,500) nm Comprehensive income (loss) (300) (726) 59 447 (2,584) nm Net income (loss) per share—diluted (0.63) (2.63) 76 4.17 (9.42) nm Cash dividends declared per share 0.75 0.69 9 2.25 2.07 9 Diluted weighted average shares outstanding 156.9 158.0 (1) 158.2 159.3 (1) Total revenues increased $401 million for the third quarter of 2023, compared with the third quarter of 2022, primarily due to a smaller reduction in net investment gains in addition to higher earned premiums and investment income. Premium and investment revenue trends are discussed further in the respective sections of Financial Results. Investment gains and losses are recognized on the sales of investments, on certain changes in fair values of securities even though we continue to hold the securities or as otherwise required by GAAP. We have substantial discretion in the timing of investment sales, and that timing generally is independent of the insurance underwriting process. The change in fair value of securities is also generally independent of the insurance underwriting process. The net loss of $99 million for the third quarter of 2023, compared with a net loss in the third quarter of 2022 of $416 million, was a change of $317 million, including increases of $172 million in after-tax net investment gains and losses, $25 million in after-tax investment income and $141 million in after-tax property casualty underwriting income. Catastrophe losses for the third quarter of 2023, mostly weather related, were $58 million lower after taxes and favorably affected both net income and property casualty underwriting income. Life insurance segment results increased by $4 million on a pretax basis. For the first nine months of 2023, net income increased $2.160 billion, compared with the first nine months of 2022, including increases of $2.037 billion in after-tax investment gains and losses, $66 million in after-tax investment income and $81 million in after-tax property casualty underwriting income. The property casualty underwriting income increase included an unfavorable $116 million after-tax effect from higher catastrophe losses. Life insurance segment results increased by $17 million on a pretax basis. The increase in property casualty underwriting income for the third quarter of 2023 included improved overall insured loss experience before catastrophe effects, as price increases have helped to offset elevated paid losses reflecting economic or other forms of inflation that are increasing our uncertainty regarding ultimate losses. Until longer-term paid loss cost trends become more clear, we intend to remain prudent in reserving for estimated ultimate losses and this is discussed further in Financial Results by property casualty insurance segment. Performance by segment is discussed below in Financial Results. As discussed in our 2022 Annual Report on Form 10-K, Item 7, Executive Summary, Page 48, there are several reasons why our performance during 2023 may be below our long-term targets. The board of directors is committed to rewarding shareholders directly through cash dividends and through share repurchase authorizations. Through 2022, the company had increased the annual cash dividend rate for 62 consecutive years, a record we believe is matched by only seven other U.S. publicly traded companies. In January 2023, the board of directors increased the regular quarterly dividend to 75 cents per share, setting the stage for our 63 rd consecutive year of increasing cash dividends. During the first nine months of 2023, cash dividends declared by the company increased 9% compared with the same period of 2022. Our board regularly evaluates relevant factors in decisions related to dividends and share repurchases. The 2023 dividend Cincinnati Financial Corporation Third-Quarter 2023 10-Q Page 39 Table of Contents increase reflected our strong operating performance and signaled management's and the board's positive outlook and confidence in our outstanding capital, liquidity and financial flexibility. Balance Sheet Data and Performance Measures (Dollars in millions, except share data) At September 30, At December 31, 2023 2022 Total investments $ 23,408 $ 22,425 Total assets 30,915 29,732 Short-term debt 25 50 Long-term debt 790 789 Shareholders' equity 10,624 10,562 Book value per share 67.72 67.21 Debt-to-total-capital ratio 7.1 % 7.4 % Total assets at September 30, 2023, increased 4% compared with year-end 2022, and included a 4% increase in total investments that reflected net purchases that were partially offset by lower fair values for many securities in our portfolio. Shareholders' equity increased 1% and book value per share also increased 1% during the first nine months of 2023. Our debt-to-total-capital ratio (capital is the sum of debt plus shareholders' equity) decreased compared with year-end 2022. Our value creation ratio is our primary performance metric. As shown in the tables below, that ratio was 4.4% for the first nine months of 2023, and was more than the same period in 2022 primarily due to a higher amount in overall net gains from our investment portfolio. Book value per share increased $0.71 during the first nine months of 2023 and contributed 1.1 percentage points to the value creation ratio, while dividends declared at $2.25 per share contributed 3.3 points. Value creation ratios by major components and in total, along with calculations from per-share amounts, are shown in the tables below. Three months ended September 30, Nine months ended September 30, 2023 2022 2023 2022 Value creation ratio major components: Net income before investment gains 2.4 % 1.1 % 5.6 % 3.7 % Change in fixed-maturity securities, realized and unrealized gains (2.6) (3.9) (2.7) (11.5) Change in equity securities, investment gains (3.3) (5.2) 0.8 (15.6) Other 0.9 (0.4) 0.7 (0.6) Value creation ratio (2.6) % (8.4) % 4.4 % (24.0) % Cincinnati Financial Corporation Third-Quarter 2023 10-Q Page 40 Table of Contents (Dollars are per share) Three months ended September 30, Nine months ended September 30, 2023 2022 2023 2022 Book value change per share Book value as originally reported December 31, 2022 $ 67.01 Cumulative effect of change in accounting for long-duration insurance contracts, net of tax 0.20 Book value as adjusted December 31, 2022 $ 67.21 Value creation ratio: End of period book value*- as originally reported $ 67.72 $ 60.01 $ 67.72 $ 60.01 Less beginning of period book value - as originally reported 70.33 66.30 67.01 81.72 Change in book value - as originally reported (2.61) (6.29) 0.71 (21.71) Dividend declared to shareholders 0.75 0.69 2.25 2.07 Total value creation $ (1.86) $ (5.60) $ 2.96 $ (19.64) Value creation ratio from change in book value** (3.7) % (9.4) % 1.1 % (26.5) % Value creation ratio from dividends declared to shareholders*** 1.1 1.0 3.3 2.5 Value creation ratio (2.6) % (8.4) % 4.4 % (24.0) % * Book value per share is calculated by dividing end of period total shareholders' equity by end of period shares outstanding ** Change in book value divided by the beginning of period book value *** Dividend declared to shareholders divided by beginning of period book value DRIVERS OF LONG-TERM VALUE CREATION Operating through The Cincinnati Insurance Company, Cincinnati Financial Corporation is one of the 25 largest property casualty insurers in the nation, based on 2022 net written premiums for approximately 2,000 U.S. stock and mutual insurer groups. We market our insurance products through a select group of independent insurance agencies as discussed in our 2022 Annual Report on Form 10-K, Item 1, Our Business and Our Strategy, Page 6. At September 30, 2023, we actively marketed through 2,053 agencies located in 46 states. We maintain a long-term perspective that guides us in addressing immediate challenges or opportunities while focusing on the major decisions that best position our company for success through all market cycles. To measure our long-term progress in creating shareholder value, our value creation ratio is our primary financial performance target. As discussed in our 2022 Annual Report on Form 10-K, Item 7, Executive Summary, Page 48, management believes this measure is a meaningful indicator of our long-term progress in creating shareholder value and has three primary performance drivers: • Premium growth – We believe our agency relationships and initiatives can lead to a property casualty written premium growth rate over any five-year period that exceeds the industry average. For the first nine months of 2023, our consolidated property casualty net written premium year-over-year growth was 9%, compared with the industry's 10% growth rate reported by A.M. Best for the first six months of 2023. For the five-year period 2018 through 2022, our growth rate exceeded that of the industry. The industry's growth rate excludes its mortgage and financial guaranty lines of business. • Combined ratio – We believe our underwriting philosophy and initiatives can generate a GAAP combined ratio over any five-year period that is consistently within the range of 95% to 100%. For the first nine months of 2023, our GAAP combined ratio was 97.5%, including 11.9 percentage points of current accident year catastrophe losses partially offset by 3.8 percentage points of favorable loss reserve development on prior accident years. Our statutory combined ratio was 96.5% for the first nine months of 2023, comparing favorably with the industry's 104.5% reported by A.M. Best for the first six months of 2023. The industry's ratio again excludes its mortgage and financial guaranty lines of business. Cincinnati Financial Corporation Third-Quarter 2023 10-Q Page 41 Table of Contents • Investment contribution – We believe our investment philosophy and initiatives can drive investment income growth and lead to a total return on our equity investment portfolio over a five-year period that exceeds the five-year return of the Standard & Poor's 500 Index. For the first nine months of 2023, pretax investment income was $655 million, up 14% compared with the same period in 2022. We believe our investment portfolio mix provides an appropriate balance of income stability and growth with capital appreciation potential. Financial Strength An important part of our long-term strategy is financial strength, which is described in our 2022 Annual Report on Form 10-K, Item 1, Our Business and Our Strategy, Financial Strength, Page 8. One aspect of our financial strength is prudent use of reinsurance ceded to help manage financial performance variability due to catastrophe loss experience. A description of how we use reinsurance ceded is included in our 2022 Annual Report on Form 10-K, Item 7, Liquidity and Capital Resources, 2023 Reinsurance Ceded Programs, Page 104. Another aspect of our financial strength is our investment portfolio, which remains well-diversified as discussed in this quarterly report in Item 3, Quantitative and Qualitative Disclosures About Market Risk. Our strong parent-company liquidity and financial strength increase our flexibility to maintain a cash dividend through all periods and to continue to invest in and expand our insurance operations. At September 30, 2023, we held $4.561 billion of our cash and cash equivalents and invested assets at the parent-company level, of which $4.142 billion, or 90.8%, was invested in common stocks, and $227 million, or 5.0%, was cash or cash equivalents. Our debt-to-total-capital ratio was 7.1% at September 30, 2023. Another important indicator of financial strength is our ratio of property casualty net written premiums to statutory surplus, which was 1.2-to-1 for the 12 months ended September 30, 2023, compared with 1.1-to-1 at year-end 2022. Financial strength ratings assigned to us by independent rating firms also are important. In addition to rating our parent company's senior debt, four firms award insurer financial strength ratings to one or more of our insurance subsidiary companies based on their quantitative and qualitative analyses. These ratings primarily assess an insurer's ability to meet financial obligations to policyholders and do not necessarily address all of the matters that may be important to investors. Ratings are under continuous review and subject to change or withdrawal at any time by the rating agency. Each rating should be evaluated independently of any other rating; please see each rating agency's website for its most recent report on our ratings. At October 25, 2023, our insurance subsidiaries continued to be highly rated. Insurer Financial Strength Ratings Rating agency Standard market property casualty insurance subsidiaries Life insurance subsidiary Excess and surplus lines insurance subsidiary Outlook Rating tier Rating tier Rating tier A.M. Best Co. ambest.com A+ Superior 2 of 16 A+ Superior 2 of 16 A+ Superior 2 of 16 Stable Fitch Ratings fitchratings.com A+ Strong 5 of 21 A+ Strong 5 of 21 - - - Stable Moody's Investors Service moodys.com A1 Good 5 of 21 - - - - - - Stable S&P Global Ratings spratings.com A+ Strong 5 of 21 A+ Strong 5 of 21 - - - Stable Cincinnati Financial Corporation Third-Quarter 2023 10-Q Page 42 Table of Contents CONSOLIDATED PROPERTY CASUALTY INSURANCE HIGHLIGHTS Consolidated property casualty insurance results include premiums and expenses for our standard market insurance segments (commercial lines and personal lines), our excess and surplus lines segment, Cincinnati Re ® and our London-based global specialty underwriter Cincinnati Global Underwriting Ltd. SM (Cincinnati Global). (Dollars in millions) Three months ended September 30, Nine months ended September 30, 2023 2022 % Change 2023 2022 % Change Earned premiums $ 1,957 $ 1,809 8 $ 5,661 $ 5,124 10 Fee revenues 3 3 0 8 8 0 Total revenues 1,960 1,812 8 5,669 5,132 10 Loss and loss expenses from: Current accident year before catastrophe losses 1,130 1,116 1 3,380 3,127 8 Current accident year catastrophe losses 184 275 (33) 673 560 20 Prior accident years before catastrophe losses (48) (20) (140) (178) (74) (141) Prior accident years catastrophe losses (5) (23) 78 (35) (69) 49 Loss and loss expenses 1,261 1,348 (6) 3,840 3,544 8 Underwriting expenses 587 530 11 1,680 1,541 9 Underwriting profit (loss) $ 112 $ (66) nm $ 149 $ 47 217 Ratios as a percent of earned premiums: Pt. Change Pt. Change Current accident year before catastrophe losses 57.7 % 61.7 % (4.0) 59.7 % 61.0 % (1.3) Current accident year catastrophe losses 9.4 15.2 (5.8) 11.9 10.9 1.0 Prior accident years before catastrophe losses (2.4) (1.1) (1.3) (3.2) (1.4) (1.8) Prior accident years catastrophe losses (0.3) (1.3) 1.0 (0.6) (1.4) 0.8 Loss and loss expenses 64.4 74.5 (10.1) 67.8 69.1 (1.3) Underwriting expenses 30.0 29.4 0.6 29.7 30.1 (0.4) Combined ratio 94.4 % 103.9 % (9.5) 97.5 % 99.2 % (1.7) Combined ratio 94.4 % 103.9 % (9.5) 97.5 % 99.2 % (1.7) Contribution from catastrophe losses and prior years reserve development 6.7 12.8 (6.1) 8.1 8.1 0.0 Combined ratio before catastrophe losses and prior years reserve development 87.7 % 91.1 % (3.4) 89.4 % 91.1 % (1.7) Our consolidated property casualty insurance operations generated an underwriting profit of $112 million for the third quarter of 2023 and $149 million for the first nine months of the year. Compared with an underwriting loss of $66 million for the third quarter of 2022, the third-quarter 2023 improvement of $178 million included a favorable decrease of $73 million in losses from catastrophes, mostly caused by severe weather. The third-quarter 2023 change in underwriting profitability also included higher current accident year loss and loss expenses before catastrophe losses that grew more slowly than earned premiums and higher amounts of favorable reserve development on prior accident years.The nine-month underwriting profit improvement of $102 million, compared with the first nine months of 2022, included an unfavorable increase of $147 million in losses from catastrophes. The nine-month 2023 period also experienced higher current accident year loss and loss expenses before catastrophe losses that grew more slowly than earned premiums and higher amounts of favorable reserve development on prior accident years. Elevated inflation was a driver of higher losses and loss expenses in 2023 as costs have increased significantly to repair damaged autos or other property that we insure. We also experienced higher losses for liability coverages for some of our lines of business. Due to increased uncertainty regarding ultimate losses, we intend to remain prudent in reserving for estimated ultimate losses until longer-term loss cost trends become more clear. The higher loss experience is discussed in Financial Results by property casualty insurance segment. We believe future property casualty underwriting results will continue to benefit from price increases and our ongoing initiatives to improve pricing precision and loss experience related to claims and loss control practices. Cincinnati Financial Corporation Third-Quarter 2023 10-Q Page 43 Table of Contents For all property casualty lines of business in aggregate, net loss and loss expense reserves at September 30, 2023, were $655 million, or 8%, higher than at year-end 2022, including an increase of $539 million for the incurred but not reported (IBNR) portion. We measure and analyze property casualty underwriting results primarily by the combined ratio and its component ratios. The GAAP-basis combined ratio is the percentage of incurred losses plus all expenses per each earned premium dollar – the lower the ratio, the better the performance. An underwriting profit results when the combined ratio is below 100%. A combined ratio above 100% indicates that an insurance company's losses and expenses exceeded premiums. Our consolidated property casualty combined ratio for the third quarter of 2023 improved by 9.5 percentage points, compared with the same period of 2022, including a decrease of 4.8 points from lower catastrophe losses and loss expenses. For the first nine months of 2023, compared with the 2022 nine-month period, our combined ratio decreased by 1.7 percentage points, despite an increase of 1.8 points from catastrophe losses and loss expenses. Other combined ratio components that increased are discussed below and in further detail in Financial Results by property casualty insurance segment. The combined ratio can be affected significantly by natural catastrophe losses and other large losses as discussed in detail below. The combined ratio can also be affected by updated estimates of loss and loss expense reserves established for claims that occurred in prior periods, referred to as prior accident years. Net favorable development on prior accident year reserves, including reserves for catastrophe losses, benefited the combined ratio by 3.8 percentage points in the first nine months of 2023, compared with 2.8 percentage points in the same period of 2022. Net favorable development is discussed in further detail in Financial Results by property casualty insurance segment. The ratio for current accident year loss and loss expenses before catastrophe losses improved in the first nine months of 2023. That 59.7% ratio was 1.3 percentage points lower, compared with the 61.0% accident year 2022 ratio measured as of September 30, 2022, including a decrease of 0.6 points in the ratio for large losses of $2 million or more per claim, discussed below. The ratio improvement of 1.3 percentage points included an increase of 3.0 points for the IBNR portion and a decrease of 4.3 points for the case incurred portion. The underwriting expense ratio increased for the third quarter and decreased for the first nine months of 2023, compared with the same periods a year ago. The increase for third-quarter 2023 was primarily due to an increase in employee and travel-related expenses while the nine-month 2023 decrease was primarily due to a decrease in profit-sharing commissions for agencies. The ratios also included ongoing expense management efforts and higher earned premiums. Cincinnati Financial Corporation Third-Quarter 2023 10-Q Page 44 Table of Contents Consolidated Property Casualty Insurance Premiums (Dollars in millions) Three months ended September 30, Nine months ended September 30, 2023 2022 % Change 2023 2022 % Change Agency renewal written premiums $ 1,549 $ 1,390 11 $ 4,727 $ 4,269 11 Agency new business written premiums 313 264 19 867 794 9 Other written premiums 95 96 (1) 532 550 (3) Net written premiums 1,957 1,750 12 6,126 5,613 9 Unearned premium change — 59 (100) (465) (489) 5 Earned premiums $ 1,957 $ 1,809 8 $ 5,661 $ 5,124 10 The trends in net written premiums and earned premiums summarized in the table above include the effects of price increases. Price change trends that heavily influence renewal written premium increases or decreases, along with other premium growth drivers for 2023, are discussed in more detail by segment below in Financial Results. Consolidated property casualty net written premiums for the third quarter and nine months ended September 30, 2023, grew $207 million and $513 million compared with the same periods of 2022. Our premium growth initiatives from prior years have provided an ongoing favorable effect on growth during the current year, particularly as newer agency relationships mature over time. Consolidated property casualty agency new business written premiums increased by $49 million and $73 million for the third quarter and first nine months of 2023, compared with the same periods of 2022. New agency appointments during 2023 and 2022 produced a $44 million increase in standard lines new business for the first nine months of 2023 compared with the same period of 2022. As we appoint new agencies that choose to move accounts to us, we report these accounts as new business. While this business is new to us, in many cases it is not new to the agent. We believe these seasoned accounts tend to be priced more accurately than business that may be less familiar to our agent upon obtaining it from a competing agent. Net written premiums for Cincinnati Re, included in other written premiums, decreased by $1 million and $26 million to $85 million and $492 million, respectively, for the three and nine months ended September 30, 2023, compared with the same periods of 2022. Cincinnati Re assumes risks through reinsurance treaties and in some cases cedes part of the risk and related premiums to one or more unaffiliated reinsurance companies through transactions known as retrocessions. Cincinnati Global is also included in other written premiums. Net written premiums increased for Cincinnati Global by $12 million and $38 million to $69 million and $215 million, respectively, for the three and nine months ended September 30, 2023, compared with the same periods of 2022. Other written premiums include premiums ceded to reinsurers as part of our reinsurance ceded program. An increase in ceded premiums reduced net written premiums by $7 million and $27 million for the third quarter and first nine months of 2023, compared with the same periods of 2022. Catastrophe losses and loss expenses typically have a material effect on property casualty results and can vary significantly from period to period. Losses from catastrophes contributed 9.1 and 11.3 percentage points to the combined ratio in the third quarter and first nine months of 2023, compared with 13.9 and 9.5 percentage points in the same periods of 2022. Effective June 1, 2023, we restructured our reinsurance program for Cincinnati Re that included property catastrophe excess of loss coverage. The restructured treaties are for a period of one year and provide $40 million of coverage for various combinations of occurrences for business written in North America on a direct basis and by Cincinnati Re. Cincinnati Global catastrophe losses are not applicable to the treaty. There is a per occurrence limit of $20 million for Cincinnati Re catastrophe losses in excess of $80 million per event. The remaining coverage is for business written by Cincinnati Re and on a direct basis that applies to catastrophe losses in excess of $600 million per event. Ceded premiums for these treaties are estimated to be approximately $8 million. Cincinnati Financial Corporation Third-Quarter 2023 10-Q Page 45 Table of Contents We did not renew our quota share reinsurance arrangement for our personal lines risks in California that we insure through excess and surplus lines policies. The expiring treaty first became effective in May 2022 and no similar treaty replaced it. The following table shows consolidated property casualty insurance catastrophe losses and loss expenses incurred, net of reinsurance, as well as the effect of loss development on prior period catastrophe events. We individually list declared catastrophe events for which our incurred losses reached or exceeded $25 million. Consolidated Property Casualty Insurance Catastrophe Losses and Loss Expenses Incurred (Dollars in millions, net of reinsurance) Three months ended September 30, Nine months ended September 30, Comm. Pers. E&S Comm. Pers. E&S Dates Region lines lines lines Other Total lines lines lines Other Total 2023 Mar. 1-4 Midwest, Northeast, South $ (1) $ (3) $ — $ — $ (4) $ 27 $ 27 $ — $ 2 $ 56 Mar. 23-28 Midwest, Northeast, South (2) (3) — — (5) 20 24 — — 44 Mar. 30 - Apr. 1 Midwest, Northeast, South (1) — — — (1) 62 33 — — 95 Apr. 3-7 Midwest, Northeast, South 2 2 — — 4 12 32 — — 44 May 2-9 Midwest, South (1) (1) — — (2) 23 7 — — 30 Jun. 21-27 Midwest, Northeast, South, West 14 4 — — 18 23 17 — — 40 Jun. 28 - Jul. 4 Midwest, Northeast, South, West 8 11 — — 19 10 16 — — 26 All other 2023 catastrophes 53 69 (1) 34 155 125 171 3 39 338 Development on 2022 and prior catastrophes (1) (6) (1) 3 (5) (2) (42) (1) 10 (35) Calendar year incurred total $ 71 $ 73 $ (2) $ 37 $ 179 $ 300 $ 285 $ 2 $ 51 $ 638 2022 Jun. 11-17 Midwest, Northeast, South $ 1 $ (2) $ — $ — $ (1) $ 18 $ 17 $ — $ — $ 35 Sep. 27 - Oct.1 South (Ian) 26 51 — 143 220 26 51 — 143 220 All other 2022 catastrophes 23 27 — 6 56 157 126 3 19 305 Development on 2021 and prior catastrophes (4) (7) — (12) (23) (17) (40) — (12) (69) Calendar year incurred total $ 46 $ 69 $ — $ 137 $ 252 $ 184 $ 154 $ 3 $ 150 $ 491 Cincinnati Financial Corporation Third-Quarter 2023 10-Q Page 46 Table of Contents The following table includes data for losses incurred of $2 million or more per claim, net of reinsurance. Consolidated Property Casualty Insurance Losses Incurred by Size (Dollars in millions, net of reinsurance) Three months ended September 30, Nine months ended September 30, 2023 2022 % Change 2023 2022 % Change Current accident year losses greater than $5 million $ 24 $ 38 (37) $ 103 $ 99 4 Current accident year losses $2 million - $5 million 52 41 27 102 116 (12) Large loss prior accident year reserve development 32 16 100 60 47 28 Total large losses incurred 108 95 14 265 262 1 Losses incurred but not reported 150 131 15 474 241 97 Other losses excluding catastrophe losses 639 700 (9) 1,906 2,056 (7) Catastrophe losses 170 246 (31) 614 478 28 Total losses incurred $ 1,067 $ 1,172 (9) $ 3,259 $ 3,037 7 Ratios as a percent of earned premiums: Pt. Change Pt. Change Current accident year losses greater than $5 million 1.2 % 2.1 % (0.9) 1.8 % 1.9 % (0.1) Current accident year losses $2 million - $5 million 2.7 2.3 0.4 1.8 2.3 (0.5) Large loss prior accident year reserve development 1.6 0.9 0.7 1.1 0.9 0.2 Total large loss ratio 5.5 5.3 0.2 4.7 5.1 (0.4) Losses incurred but not reported 7.6 7.2 0.4 8.4 4.7 3.7 Other losses excluding catastrophe losses 32.7 38.7 (6.0) 33.7 40.2 (6.5) Catastrophe losses 8.7 13.6 (4.9) 10.8 9.3 1.5 Total loss ratio 54.5 % 64.8 % (10.3) 57.6 % 59.3 % (1.7) We believe the inherent variability of aggregate loss experience for our portfolio of larger policies is greater than that of our portfolio of smaller policies, and we continue to monitor the variability in addition to general inflationary trends in loss costs. Our analysis continues to indicate no unexpected concentration of large losses and case reserve increases by risk category, geographic region, policy inception, agency or field marketing territory. The third-quarter 2023 property casualty total large losses incurred of $108 million, net of reinsurance, was higher than the $77 million quarterly average during full-year 2022 and the $95 million experienced for the third quarter of 2022. The ratio for these large losses was 0.2 percentage points higher compared with last year's third quarter. The third-quarter 2023 amount of total large losses incurred unfavorably contributed to the decrease in the nine-month 2023 total large loss ratio, compared with 2022, partially offsetting a first-half 2023 ratio that was 0.7 points lower than the first half of 2022. We believe results for the three- and nine-month periods largely reflected normal fluctuations in loss patterns and normal variability in large case reserves for claims above $2 million. Losses by size are discussed in further detail in results of operations by property casualty insurance segment. FINANCIAL RESULTS Consolidated results reflect the operating results of each of our five segments along with the parent company, Cincinnati Re, Cincinnati Global and other activities reported as "Other." The five segments are: • Commercial lines insurance • Personal lines insurance • Excess and surplus lines insurance • Life insurance • Investments Cincinnati Financial Corporation Third-Quarter 2023 10-Q Page 47 Table of Contents COMMERCIAL LINES INSURANCE RESULTS (Dollars in millions) Three months ended September 30, Nine months ended September 30, 2023 2022 % Change 2023 2022 % Change Earned premiums $ 1,062 $ 1,028 3 $ 3,184 $ 2,984 7 Fee revenues 1 1 0 3 3 0 Total revenues 1,063 1,029 3 3,187 2,987 7 Loss and loss expenses from: Current accident year before catastrophe losses 642 664 (3) 1,959 1,896 3 Current accident year catastrophe losses 72 50 44 302 201 50 Prior accident years before catastrophe losses (33) — nm (123) (34) (262) Prior accident years catastrophe losses (1) (4) 75 (2) (17) 88 Loss and loss expenses 680 710 (4) 2,136 2,046 4 Underwriting expenses 331 308 7 968 916 6 Underwriting profit $ 52 $ 11 373 $ 83 $ 25 232 Ratios as a percent of earned premiums: Pt. Change Pt. Change Current accident year before catastrophe losses 60.5 % 64.5 % (4.0) 61.6 % 63.5 % (1.9) Current accident year catastrophe losses 6.8 4.9 1.9 9.5 6.8 2.7 Prior accident years before catastrophe losses (3.2) — (3.2) (3.9) (1.1) (2.8) Prior accident years catastrophe losses (0.1) (0.4) 0.3 (0.1) (0.6) 0.5 Loss and loss expenses 64.0 69.0 (5.0) 67.1 68.6 (1.5) Underwriting expenses 31.2 30.0 1.2 30.4 30.7 (0.3) Combined ratio 95.2 % 99.0 % (3.8) 97.5 % 99.3 % (1.8) Combined ratio 95.2 % 99.0 % (3.8) 97.5 % 99.3 % (1.8) Contribution from catastrophe losses and prior years reserve development 3.5 4.5 (1.0) 5.5 5.1 0.4 Combined ratio before catastrophe losses and prior years reserve development 91.7 % 94.5 % (2.8) 92.0 % 94.2 % (2.2) Overview Performance highlights for the commercial lines segment include: • Premiums – Earned premiums and net written premiums for the commercial lines segment grew during the third quarter and first nine months of 2023, compared with the same periods a year ago, reflecting renewal written premium growth that continued to include higher average pricing. The table below analyzes the primary components of premiums. We continue to use predictive analytics tools to improve pricing precision and segmentation while leveraging our local relationships with agents through the efforts of our teams that work closely with them. We seek to maintain appropriate pricing discipline for both new and renewal business as our agents and underwriters assess account quality to make careful decisions on a policy-by-policy basis whether to write or renew a policy. Agency renewal written premiums increased by 6% for both the third quarter and first nine months of 2023, compared with the same periods of 2022, including price increases. During the third quarter of 2023, our overall standard commercial lines policies averaged estimated renewal price increases at percentages near the low end of the high-single-digit range. We continue to segment commercial lines policies, emphasizing identification and retention of those we believe have relatively stronger pricing. Conversely, we have been seeking stricter renewal terms and conditions on policies we believe have relatively weaker pricing, thus retaining fewer of those policies. We measure average changes in commercial lines renewal pricing as the percentage rate of change in renewal premium for the new policy period compared with the premium for the expiring policy period, assuming no change in the level of insured exposures or policy coverage between those periods for the respective policies. Cincinnati Financial Corporation Third-Quarter 2023 10-Q Page 48 Table of Contents Our average overall commercial lines renewal pricing change includes the impact of flat pricing for certain coverages within package policies written for a three-year term that were in force but did not expire during the period being measured. Therefore, our reported change in average commercial lines renewal pricing reflects a blend of three-year policies that did not expire and other policies that did expire during the measurement period. For commercial lines policies that did expire and were then renewed during the third quarter of 2023, we estimate that our average percentage price increases were in the high-single-digit range for our commercial property, commercial auto and commercial casualty lines of business. The estimated average percentage price change for workers' compensation was a decrease in the low-single-digit range. Our commercial lines segment's increase in agency renewal written premiums for the first nine months of 2023 also included changes in the level of insured exposures. Part of the insured exposure increase reflects our response to inflation effects that increase the cost of building materials to repair damaged commercial structures. We use building valuation software to automate much of that underwriting process and may also manually adjust premiums to reflect property costs. Renewal premiums for certain policies, primarily our commercial casualty and workers' compensation lines of business, include the results of policy audits that adjust initial premium amounts based on differences between estimated and actual sales or payroll related to a specific policy. Audits completed during the first nine months of 2023 contributed $105 million to net written premiums, compared with $72 million for the same period of 2022. New business written premiums for commercial lines decreased $1 million and $39 million during the third quarter and first nine months of 2023, compared with the same periods of 2022, reflecting pricing discipline in a highly competitive market. Trend analysis for year-over-year comparisons of individual quarters is more difficult to assess for commercial lines new business written premiums, due to inherent variability. That variability is often driven by larger policies with annual premiums greater than $100,000. Other written premiums include premiums ceded to reinsurers as part of our reinsurance ceded program. For our commercial lines insurance segment, an increase in ceded premiums reduced net written premiums by $6 million and $17 million for the third quarter and first nine months of 2023, compared with the same periods of 2022. Commercial Lines Insurance Premiums (Dollars in millions) Three months ended September 30, Nine months ended September 30, 2023 2022 % Change 2023 2022 % Change Agency renewal written premiums $ 914 $ 860 6 $ 2,940 $ 2,764 6 Agency new business written premiums 148 149 (1) 431 470 (8) Other written premiums (33) (25) (32) (95) (82) (16) Net written premiums 1,029 984 5 3,276 3,152 4 Unearned premium change 33 44 (25) (92) (168) 45 Earned premiums $ 1,062 $ 1,028 3 $ 3,184 $ 2,984 7 • Combined ratio – The third-quarter 2023 commercial lines combined ratio improved by 3.8 percentage points, compared with the third quarter of 2022, despite an increase of 2.2 points in losses from catastrophes. The third-quarter combined ratio also decreased 4.0 points from current accident year loss and loss expenses before catastrophe losses, including an increase of 2.3 points for the IBNR portion and a decrease of 6.3 points for the case incurred portion. For the first nine months of 2023, the combined ratio improved by 1.8 percentage points, compared with the same period a year ago, despite an increase of 3.2 points in losses from catastrophes. The nine-month 2023 combined ratio also included a decrease of 1.9 points from current accident year loss and loss expenses before catastrophe losses, including an increase of 4.1 points for the IBNR portion and a decrease of 6.0 points for the case incurred portion. Underwriting results also included a higher level of favorable reserve development on prior accident years, as discussed below. The current accident year ratios were measured as of September 30 of the respective years and included a decrease of 1.5 percentage points for the third quarter and a decrease of 0.8 points for the first nine months of 2023 in the ratio for large losses of $2 million or more per claim, discussed below. When estimating the ultimate cost of total loss and loss expenses, we consider many factors, including trends for inflation, historical paid and reported losses, large loss activity and other data or information for the industry or our company. Elevated inflation was a driver of higher losses and loss expenses as costs have increased significantly to repair damaged business property or autos that we insure, in addition to higher losses for liability Cincinnati Financial Corporation Third-Quarter 2023 10-Q Page 49 Table of Contents coverages for some of our lines of business. Due to increased uncertainty regarding ultimate losses, we intend to remain prudent in reserving for estimated ultimate losses until longer-term loss cost trends become more clear. Commercial umbrella coverages, part of our commercial casualty line of business that help protect businesses against liability from occurrences such as accidents or injuries, contributed a decrease of approximately 2.5 percentage points to the commercial lines segment nine-month 2023 ratio for loss and loss expenses decrease of 1.5% shown in the table above. For the first nine months of 2023, incurred losses and loss expenses for commercial umbrella coverages of $257 million decreased $59 million or 19%, compared with the same period of 2022, including a decrease of $8 million or 7% for the IBNR portion, while earned premiums of $379 million increased 2%. The estimated combined ratio for commercial umbrella for the first nine months of 2023 was 96%, compared with an estimated 115% for the same period of 2022. Commercial umbrella paid loss experience is inherently variable. The profile of coverage limits for policies in force at the end of 2022 included 43% with $1 million of coverage per policy, 91% with $5 million or less and 99% with $10 million or less of coverage. Our commercial umbrella insurance coverages have a strong record of profitability for us, including an estimated combined ratio averaging below 85% for the five years ending in 2022. Catastrophe losses and loss expenses accounted for 6.7 and 9.4 percentage points of the combined ratio for the third quarter and first nine months of 2023, compared with 4.5 and 6.2 percentage points for the same periods a year ago. Through 2022, the 10-year annual average for that catastrophe measure for the commercial lines segment was 5.5 percentage points, and the five-year annual average was 6.2 percentage points. The net effect of reserve development on prior accident years during the third quarter and first nine months of 2023 was favorable for commercial lines overall by $34 million and $125 million, compared with $4 million and $51 million for the same periods in 2022. For the first nine months of 2023, our workers' compensation, commercial casualty and commercial property lines of business were the main contributors to the commercial lines net favorable reserve development on prior accident years. The net favorable reserve development recognized during the first nine months of 2023 for our commercial lines insurance segment was mainly for accident years 2022 and 2020 and was primarily due to lower-than-anticipated loss emergence on known claims. Reserve estimates are inherently uncertain as described in our 2022 Annual Report on Form 10-K, Item 7, Critical Accounting Estimates, Property Casualty Insurance Loss and Loss Expense Reserves, Page 53. The commercial lines underwriting expense ratio increased for the third quarter and decreased for the first nine months of 2023, compared with the same periods a year ago. The increase for third-quarter 2023 was primarily due to an increase in employee and travel-related expenses while the nine-month 2023 decrease was primarily due to a decrease in profit-sharing commissions for agencies. The ratios also included ongoing expense management efforts and higher earned premiums. Cincinnati Financial Corporation Third-Quarter 2023 10-Q Page 50 Table of Contents Commercial Lines Insurance Losses Incurred by Size (Dollars in millions, net of reinsurance) Three months ended September 30, Nine months ended September 30, 2023 2022 % Change 2023 2022 % Change Current accident year losses greater than $5 million $ 18 $ 30 (40) $ 76 $ 61 25 Current accident year losses $2 million - $5 million 28 29 (3) 68 95 (28) Large loss prior accident year reserve development 30 14 114 52 43 21 Total large losses incurred 76 73 4 196 199 (2) Losses incurred but not reported 88 97 (9) 242 196 23 Other losses excluding catastrophe losses 336 386 (13) 1,055 1,149 (8) Catastrophe losses 67 44 52 288 179 61 Total losses incurred $ 567 $ 600 (6) $ 1,781 $ 1,723 3 Ratios as a percent of earned premiums: Pt. Change Pt. Change Current accident year losses greater than $5 million 1.7 % 3.0 % (1.3) 2.4 % 2.0 % 0.4 Current accident year losses $2 million - $5 million 2.6 2.8 (0.2) 2.1 3.3 (1.2) Large loss prior accident year reserve development 2.8 1.3 1.5 1.6 1.4 0.2 Total large loss ratio 7.1 7.1 0.0 6.1 6.7 (0.6) Losses incurred but not reported 8.3 9.4 (1.1) 7.6 6.6 1.0 Other losses excluding catastrophe losses 31.7 37.7 (6.0) 33.2 38.4 (5.2) Catastrophe losses 6.3 4.2 2.1 9.0 6.0 3.0 Total loss ratio 53.4 % 58.4 % (5.0) 55.9 % 57.7 % (1.8) We continue to monitor new losses and case reserve increases greater than $2 million for trends in factors such as initial reserve levels, loss cost inflation and claim settlement expenses. Our analysis continues to indicate no unexpected concentration of these large losses and case reserve increases by risk category, geographic region, policy inception, agency or field marketing territory. The third-quarter 2023 commercial lines total large losses incurred of $76 million, net of reinsurance, was higher than the quarterly average of $56 million during full-year 2022 and the $73 million of total large losses incurred for the third quarter of 2022. The decrease in commercial lines large losses for the first nine months of 2023 was primarily due to our commercial casualty line of business. The third-quarter 2023 ratio for commercial lines total large losses matched last year's third-quarter ratio. The third-quarter 2023 amount of total large losses incurred unfavorably contributed to the decrease in the nine-month 2023 total large loss ratio, compared with 2022, as it partially offset a first-half 2023 ratio that was 0.7 points lower than the first half of 2022. We believe results for the three- and nine-month periods largely reflected normal fluctuations in loss patterns and normal variability in large case reserves for claims above $2 million. Cincinnati Financial Corporation Third-Quarter 2023 10-Q Page 51 Table of Contents PERSONAL LINES INSURANCE RESULTS (Dollars in millions) Three months ended September 30, Nine months ended September 30, 2023 2022 % Change 2023 2022 % Change Earned premiums $ 527 $ 431 22 $ 1,484 $ 1,246 19 Fee revenues 1 1 0 3 3 0 Total revenues 528 432 22 1,487 1,249 19 Loss and loss expenses from: Current accident year before catastrophe losses 297 256 16 865 740 17 Current accident year catastrophe losses 79 76 4 327 194 69 Prior accident years before catastrophe losses (2) (1) (100) (12) (16) 25 Prior accident years catastrophe losses (6) (7) 14 (42) (40) (5) Loss and loss expenses 368 324 14 1,138 878 30 Underwriting expenses 159 126 26 441 373 18 Underwriting profit (loss) $ 1 $ (18) nm $ (92) $ (2) nm Ratios as a percent of earned premiums: Pt. Change Pt. Change Current accident year before catastrophe losses 56.3 % 59.5 % (3.2) 58.3 % 59.4 % (1.1) Current accident year catastrophe losses 15.1 17.7 (2.6) 22.0 15.6 6.4 Prior accident years before catastrophe losses (0.4) (0.2) (0.2) (0.8) (1.3) 0.5 Prior accident years catastrophe losses (1.2) (1.8) 0.6 (2.8) (3.2) 0.4 Loss and loss expenses 69.8 75.2 (5.4) 76.7 70.5 6.2 Underwriting expenses 30.1 29.3 0.8 29.7 29.9 (0.2) Combined ratio 99.9 % 104.5 % (4.6) 106.4 % 100.4 % 6.0 Combined ratio 99.9 % 104.5 % (4.6) 106.4 % 100.4 % 6.0 Contribution from catastrophe losses and prior years reserve development 13.5 15.7 (2.2) 18.4 11.1 7.3 Combined ratio before catastrophe losses and prior years reserve development 86.4 % 88.8 % (2.4) 88.0 % 89.3 % (1.3) Overview Performance highlights for the personal lines segment include: • Premiums – Personal lines earned premiums and net written premiums continued to grow during the third quarter and first nine months of 2023, including increased new business and renewal written premiums that included higher average pricing. Cincinnati Private Client SM net written premiums included in the personal lines insurance segment results totaled approximately $356 million and $938 million for the third quarter and first nine months of 2023, compared with $249 million and $685 million for the same periods of 2022. Cincinnati Private Client net written premiums for the respective periods included excess and surplus lines homeowner policies with premiums totaling $34 million in third-quarter 2023, $85 million in first nine months of 2023, $15 million in third-quarter 2022 and $49 million for the first nine months of 2022. The table below analyzes the primary components of premiums. Agency renewal written premiums increased 24% and 22% for the third quarter and first nine months of 2023, reflecting rate increases in selected states, a higher level of insured exposures and other factors such as higher policy retention rates and changes in policy deductibles or mix of business. Part of the insured exposure increase reflects our response to inflation effects that increase the cost of building materials to repair damaged homes. We estimate that premium rates for our personal auto line of business increased at average percentages in the high-single-digit range during the first nine months of 2023, with the third quarter in the low-double-digit range. We plan to increase rates aggressively in future quarters, and we expect full-year 2023 written premiums will include an average rate increase of approximately 10% for our personal auto line of business. For our homeowner line of business, we estimate that premium rates for the first nine months of 2023 increased at average percentages in the mid-single-digit range, with the third quarter near the low end of the high-single-digit Cincinnati Financial Corporation Third-Quarter 2023 10-Q Page 52 Table of Contents range. For both our personal auto and homeowner lines of business, some individual policies experienced lower or higher rate changes based on each risk's specific characteristics and enhanced pricing precision enabled by predictive models. Personal lines new business written premiums increased $41 million or 51% for the third quarter, compared with the same period of 2022 with approximately half of the increase occurring in the middle market part of our personal lines insurance segment. For the first nine months of 2023, compared with the same period of 2022, personal lines new business written premiums increased $86 million or 39%, including approximately $31 million from Cincinnati Private Client policies and $55 million from middle-market policies. We believe we maintained underwriting and pricing discipline across all personal lines markets as we expanded use of enhanced pricing precision tools. Other written premiums include premiums ceded to reinsurers as part of our reinsurance ceded program. For our personal lines insurance segment, an increase in 2023 ceded premiums reduced net written premiums by $1 million and $12 million for the third quarter and first nine months, compared with the same periods of 2022. Personal Lines Insurance Premiums (Dollars in millions) Three months ended September 30, Nine months ended September 30, 2023 2022 % Change 2023 2022 % Change Agency renewal written premiums $ 542 $ 437 24 $ 1,471 $ 1,208 22 Agency new business written premiums 122 81 51 307 221 39 Other written premiums (18) (16) (13) (55) (43) (28) Net written premiums 646 502 29 1,723 1,386 24 Unearned premium change (119) (71) (68) (239) (140) (71) Earned premiums $ 527 $ 431 22 $ 1,484 $ 1,246 19 • Combined ratio – Our personal lines combined ratio for the third quarter of 2023 improved by 4.6 percentage points, compared with third-quarter 2022, including a decrease of 2.0 points in losses from catastrophes. The third-quarter 2023 combined ratio also included a decrease of 3.2 percentage points from current accident year loss and loss expenses before catastrophe losses, including a decrease of 2.0 points for the IBNR portion and a decrease of 1.2 points for the case incurred portion. For the first nine months of 2023, the combined ratio increased by 6.0 percentage points, compared with the same period a year ago, including an increase of 6.8 points in losses from catastrophes. The nine-month 2023 combined ratio also included a decrease of 1.1 points from current accident year loss and loss expenses before catastrophe losses, including an increase of 2.5 points for the IBNR portion and a decrease of 3.6 points for the case incurred portion. Those current accident year ratios were measured as of September 30 of the respective years and included an increase of 1.3 percentage points for the third quarter, and a decrease of 0.5 points for the first nine months of 2023, in the ratio for large losses of $2 million or more per claim, discussed below. When estimating the ultimate cost of total loss and loss expenses, we consider many factors, including trends in inflation, historical paid and reported losses, large loss activity and other data or information for the industry or our company. Elevated inflation was a driver of higher losses and loss expenses as costs have increased significantly to repair damaged autos or homes that we insure. Due to increased uncertainty regarding ultimate losses, we intend to remain prudent in reserving for estimated ultimate losses until longer-term loss cost trends become more clear. For example, for the first nine months of 2023, personal auto incurred loss and loss expenses before catastrophe losses increased $45 million or 13%, compared with the same period of 2022, including an increase of $18 million or 86% for the IBNR portion, while earned premiums rose 13%. Catastrophe losses and loss expenses accounted for 13.9 and 19.2 percentage points of the combined ratio for the third quarter and first nine months of 2023, compared with 15.9 and 12.4 points for the same periods a year ago. The 10-year annual average catastrophe loss ratio for the personal lines segment through 2022 was 10.6 percentage points, and the five-year annual average was 12.0 percentage points. In addition to the average rate increases discussed above, we continue to refine our pricing to better match premiums to the risk of loss on individual policies. Improved pricing precision and broad-based rate increases are expected to help position the combined ratio at a profitable level over the long term. In addition, greater geographic diversification is expected to reduce the volatility of homeowner loss ratios attributable to weather-related catastrophe losses over time. Cincinnati Financial Corporation Third-Quarter 2023 10-Q Page 53 Table of Contents The net effect of reserve development on prior accident years during the third quarter and first nine months of 2023 was favorable for personal lines overall by $8 million and $54 million, compared with $8 million and $56 million of favorable development for the same periods of 2022. Our homeowner line of business was the primary contributor to the personal lines net favorable reserve development for the first nine months of 2023. The net favorable reserve development was primarily due to lower-than-anticipated loss emergence on known claims. Reserve estimates are inherently uncertain as described in our 2022 Annual Report on Form 10-K, Item 7, Critical Accounting Estimates, Property Casualty Insurance Loss and Loss Expense Reserves, Page 53. The personal lines underwriting expense ratio increased for the third quarter and decreased for the first nine months of 2023, compared with the same periods a year ago. The increase for third-quarter 2023 was primarily due to increases in reinsurance commissions and profit-sharing commissions for agencies while the nine-month 2023 decrease was mainly due to a decrease in profit-sharing commissions for agencies. The ratios also included ongoing expense management efforts and higher earned premiums. Personal Lines Insurance Losses Incurred by Size (Dollars in millions, net of reinsurance) Three months ended September 30, Nine months ended September 30, 2023 2022 % Change 2023 2022 % Change Current accident year losses greater than $5 million $ 6 $ 8 (25) $ 27 $ 38 (29) Current accident year losses $2 million - $5 million 24 12 100 34 19 79 Large loss prior accident year reserve development 2 2 0 9 4 125 Total large losses incurred 32 22 45 70 61 15 Losses incurred but not reported 7 9 (22) 60 7 nm Other losses excluding catastrophe losses 210 185 14 591 548 8 Catastrophe losses 71 66 8 277 150 85 Total losses incurred $ 320 $ 282 13 $ 998 $ 766 30 Ratios as a percent of earned premiums: Pt. Change Pt. Change Current accident year losses greater than $5 million 1.1 % 1.9 % (0.8) 1.8 % 3.1 % (1.3) Current accident year losses $2 million - $5 million 4.7 2.6 2.1 2.3 1.5 0.8 Large loss prior accident year reserve development 0.4 0.6 (0.2) 0.6 0.3 0.3 Total large loss ratio 6.2 5.1 1.1 4.7 4.9 (0.2) Losses incurred but not reported 1.2 2.0 (0.8) 4.0 0.6 3.4 Other losses excluding catastrophe losses 39.9 43.0 (3.1) 39.9 44.0 (4.1) Catastrophe losses 13.4 15.5 (2.1) 18.7 12.0 6.7 Total loss ratio 60.7 % 65.6 % (4.9) 67.3 % 61.5 % 5.8 We continue to monitor new losses and case reserve increases greater than $2 million for trends in factors such as initial reserve levels, loss cost inflation and claim settlement expenses. Our analysis continues to indicate no unexpected concentration of these large losses and case reserve increases by risk category, geographic region, policy inception, agency or field marketing territory. In the third quarter of 2023, the personal lines total large loss ratio, net of reinsurance, was 1.1 percentage points higher than last year's third quarter. The increase in personal lines total large losses incurred for the first nine months of 2023 occurred primarily for our homeowner line of business. The third-quarter 2023 amount of total large losses incurred unfavorably contributed to the decrease in the nine-month 2023 total large loss ratio, compared with 2022, partially offsetting a first-half 2023 ratio that was 0.8 points lower than the first half of 2022. We believe results for the three- and nine-month periods largely reflected normal fluctuations in loss patterns and normal variability in large case reserves for claims above $2 million. Cincinnati Financial Corporation Third-Quarter 2023 10-Q Page 54 Table of Contents EXCESS AND SURPLUS LINES INSURANCE RESULTS (Dollars in millions) Three months ended September 30, Nine months ended September 30, 2023 2022 % Change 2023 2022 % Change Earned premiums $ 135 $ 125 8 $ 394 $ 361 9 Fee revenues 1 1 0 2 2 0 Total revenues 136 126 8 396 363 9 Loss and loss expenses from: Current accident year before catastrophe losses 88 93 (5) 268 236 14 Current accident year catastrophe losses (1) — nm 3 3 0 Prior accident years before catastrophe losses 1 (7) nm (13) (13) 0 Prior accident years catastrophe losses (1) — nm (1) — nm Loss and loss expenses 87 86 1 257 226 14 Underwriting expenses 35 31 13 101 93 9 Underwriting profit $ 14 $ 9 56 $ 38 $ 44 (14) Ratios as a percent of earned premiums: Pt. Change Pt. Change Current accident year before catastrophe losses 64.8 % 74.8 % (10.0) 67.9 % 65.4 % 2.5 Current accident year catastrophe losses (0.6) (0.4) (0.2) 0.8 0.8 0.0 Prior accident years before catastrophe losses 0.9 (5.9) 6.8 (3.3) (3.6) 0.3 Prior accident years catastrophe losses (0.2) (0.1) (0.1) (0.2) (0.2) 0.0 Loss and loss expenses 64.9 68.4 (3.5) 65.2 62.4 2.8 Underwriting expenses 25.6 25.5 0.1 25.7 26.0 (0.3) Combined ratio 90.5 % 93.9 % (3.4) 90.9 % 88.4 % 2.5 Combined ratio 90.5 % 93.9 % (3.4) 90.9 % 88.4 % 2.5 Contribution from catastrophe losses and prior years reserve development 0.1 (6.4) 6.5 (2.7) (3.0) 0.3 Combined ratio before catastrophe losses and prior years reserve development 90.4 % 100.3 % (9.9) 93.6 % 91.4 % 2.2 Overview Performance highlights for the excess and surplus lines segment include: • Premiums – Excess and surplus lines earned premiums and net written premiums continued to grow during the third quarter and first nine months of 2023, compared with the same periods a year ago, largely due to increases in agency new business written premiums. For both 2023 periods, excess and surplus lines policy renewals experienced estimated average price increases at percentages in the high-single-digit range. We measure average changes in excess and surplus lines renewal pricing as the percentage rate of change in renewal premium for the new policy period compared with the premium for the expiring policy period, assuming no change in the level of insured exposures or policy coverage between those periods for respective policies. New business written premiums produced by agencies increased by 26% for the third quarter and 25% for the first nine months of 2023 compared with the same periods of 2022, as we continued to carefully underwrite each policy in a highly competitive market. Some of what we report as new business came from accounts that were not new to our agents. We believe our agents' seasoned accounts tend to be priced more accurately than business that may be less familiar to them. Cincinnati Financial Corporation Third-Quarter 2023 10-Q Page 55 Table of Contents Excess and Surplus Lines Insurance Premiums (Dollars in millions) Three months ended September 30, Nine months ended September 30, 2023 2022 % Change 2023 2022 % Change Agency renewal written premiums $ 93 $ 93 0 $ 316 $ 297 6 Agency new business written premiums 43 34 26 129 103 25 Other written premiums (8) (6) (33) (25) (20) (25) Net written premiums 128 121 6 420 380 11 Unearned premium change 7 4 75 (26) (19) (37) Earned premiums $ 135 $ 125 8 $ 394 $ 361 9 • Combined ratio – The excess and surplus lines combined ratio decreased by 3.4 percentage points for the third quarter but increased 2.5 points for the first nine months of 2023, compared with the same periods of 2022, with the change for both periods primarily due to current accident year loss and loss expenses before catastrophe losses. The third-quarter 2023 ratio for current accident year loss and loss expenses before catastrophe losses was 10.0 percentage points lower, compared with the 74.8% accident year 2022 ratio measured as of September 30, 2022, including a decrease of 6.0 points for the IBNR portion and a decrease of 4.0 points for the case incurred portion. The nine-month 2023 ratio for current accident year loss and loss expenses before catastrophe losses was 2.5 percentage points higher, compared with the 65.4% accident year 2022 ratio measured as of September 30, 2022, including an increase of 9.1 points for the IBNR portion and a decrease of 6.6 points for the case incurred portion. Excess and surplus lines net reserve development on prior accident years, as a ratio to earned premiums, was an unfavorable 0.7% for the third quarter and a favorable 3.5% for the first nine months of 2023, compared with favorable 6.0% and 3.8% for the same periods of 2022. The $14 million of net favorable reserve development recognized during the first nine months of 2023 was mostly for accident year 2022. The favorable reserve development was due primarily to lower-than-anticipated loss emergence on known claims. Reserve estimates are inherently uncertain as described in our 2022 Annual Report on Form 10-K, Item 7, Critical Accounting Estimates, Property Casualty Insurance Loss and Loss Expense Reserves, Page 53. The excess and surplus lines underwriting expense ratio increased slightly for the third quarter, mainly due to higher reinsurance commissions, and decreased for the first nine months of 2023, compared with the same periods of 2022. Both 2023 periods benefited from ongoing expense management efforts and premium growth. Cincinnati Financial Corporation Third-Quarter 2023 10-Q Page 56 Table of Contents Excess and Surplus Lines Insurance Losses Incurred by Size (Dollars in millions, net of reinsurance) Three months ended September 30, Nine months ended September 30, 2023 2022 % Change 2023 2022 % Change Current accident year losses greater than $5 million $ — $ — nm $ — $ — nm Current accident year losses $2 million - $5 million — — nm — 2 (100) Large loss prior accident year reserve development — — nm (1) — nm Total large losses incurred — — nm (1) 2 nm Losses incurred but not reported 16 25 (36) 63 38 66 Other losses excluding catastrophe losses 45 40 13 118 122 (3) Catastrophe losses (1) (1) 0 2 2 0 Total losses incurred $ 60 $ 64 (6) $ 182 $ 164 11 Ratios as a percent of earned premiums: Pt. Change Pt. Change Current accident year losses greater than $5 million — % — % 0.0 — % — % 0.0 Current accident year losses $2 million - $5 million — — 0.0 — 0.6 (0.6) Large loss prior accident year reserve development — — 0.0 (0.2) — (0.2) Total large loss ratio — — 0.0 (0.2) 0.6 (0.8) Losses incurred but not reported 11.9 20.0 (8.1) 15.9 10.5 5.4 Other losses excluding catastrophe losses 33.2 32.4 0.8 29.9 33.9 (4.0) Catastrophe losses (0.9) (0.5) (0.4) 0.5 0.6 (0.1) Total loss ratio 44.2 % 51.9 % (7.7) 46.1 % 45.6 % 0.5 We continue to monitor new losses and case reserve increases greater than $2 million for trends in factors such as initial reserve levels, loss cost inflation and claim settlement expenses. Our analysis continues to indicate no unexpected concentration of these large losses and case reserve increases by risk category, geographic region, policy inception, agency or field marketing territory. In the third quarter of 2023, the excess and surplus lines total ratio for large losses, net of reinsurance, matched last year's third quarter. The third-quarter 2023 amount of total large losses incurred unfavorably contributed to the decrease in the nine-month 2023 total large loss ratio, compared with 2022, as it partially offset a first-half 2023 ratio that was 1.1 points lower than the first half of 2022. We believe results for the three- and nine-month periods largely reflected normal fluctuations in loss patterns and normal variability in large case reserves for claims above $2 million. Cincinnati Financial Corporation Third-Quarter 2023 10-Q Page 57 Table of Contents LIFE INSURANCE RESULTS (Dollars in millions) Three months ended September 30, Nine months ended September 30, 2023 2022 % Change 2023 2022 % Change Earned premiums $ 76 $ 75 1 $ 233 $ 226 3 Fee revenues 3 2 50 8 4 100 Total revenues 79 77 3 241 230 5 Contract holders' benefits incurred 71 70 1 230 228 1 Investment interest credited to contract holders (31) (27) (15) (91) (82) (11) Underwriting expenses incurred 22 21 5 64 63 2 Total benefits and expenses 62 64 (3) 203 209 (3) Life insurance segment profit $ 17 $ 13 31 $ 38 $ 21 81 Overview Performance highlights for the life insurance segment include: • Revenues – Revenues increased for the nine months ended September 30, 2023, compared with the same period a year ago, driven by higher earned premiums from term life insurance, our largest life insurance product line. Net in-force life insurance policy face amounts increased 2% to $82.055 billion at September 30, 2023, from $80.482 billion at year-end 2022. Fixed annuity deposits received for the three and nine months ended September 30, 2023, were $13 million and $38 million, compared with $10 million and $23 million for the same periods of 2022. Fixed annuity deposits have a minimal impact to earned premiums because deposits received are initially recorded as liabilities. Profit is earned over time by way of interest rate spreads. We do not write variable or equity-indexed annuities. Life Insurance Premiums (Dollars in millions) Three months ended September 30, Nine months ended September 30, 2023 2022 % Change 2023 2022 % Change Term life insurance $ 56 $ 55 2 $ 170 $ 165 3 Whole life insurance 12 11 9 37 34 9 Universal life and other 8 9 (11) 26 27 (4) Net earned premiums $ 76 $ 75 1 $ 233 $ 226 3 • Profitability – Our life insurance segment typically reports a smaller profit compared with the life insurance subsidiary because profits from investment income spreads are included in our investments segment results. We include only investment income credited to contract holders (including interest assumed in life insurance policy reserve calculations) in our life insurance segment results. A profit of $38 million for our life insurance segment in the first nine months of 2023, compared with a profit of $21 million for the same period of 2022, was primarily due to more favorable mortality experience and higher fee revenues. Life insurance segment benefits and expenses consist principally of contract holders' (policyholders') benefits incurred related to traditional life and interest-sensitive products and operating expenses incurred, net of deferred acquisition costs. Total benefits decreased in the first nine months of 2023 due to more favorable mortality experience. Life policy and investment contract reserves decreased due to an increase in market value discount rates, partially offset by continued growth in net in-force life insurance policy face amounts. Mortality results decreased compared with the same period of 2022, in part due to pandemic-related death claims incurred in the first three months of last year. Underwriting expenses for the first nine months of 2023 increased compared with the same period a year ago, largely due to higher general insurance expense levels compared to the same period of 2022. Cincinnati Financial Corporation Third-Quarter 2023 10-Q Page 58 Table of Contents We recognize that assets under management, capital appreciation and investment income are integral to evaluating the success of the life insurance segment because of the long duration of life products. On a basis that includes investment income and investment gains or losses from life-insurance-related invested assets, the life insurance subsidiary reported net income of $25 million and $65 million for the three and nine months ended September 30, 2023, compared with $23 million and $51 million for the three and nine months ended September 30, 2022. The life insurance subsidiary portfolio had net after-tax investment gains of less than $1 million and net after-tax investment losses of $1 million for the three and nine months ended September 30, 2023, respectively, compared with net after-tax investment losses of $1 million for the three and nine months ended September 30, 2022. INVESTMENTS RESULTS Overview The investments segment contributes investment income and investment gains and losses to results of operations. Investments traditionally are our primary source of pretax and after-tax profits. Investment Income Pretax investment income grew 17% for the third quarter and 14% for the first nine months of 2023, compared with the same periods of 2022. Interest income increased by $25 million and $65 million for the three and nine months ended September 30, 2023, as net purchases of fixed-maturity securities in recent quarters and rising bond yields are working to generally offset effects of the low interest rate environment of the past several years. Although dividend rates generally are increasing more slowly, our minor asset allocation adjustments in our equity portfolio and net purchases of equity securities in recent quarters partially offset the effect of a $5 million special dividend from one of our holdings in the second quarter of 2022, helping dividend income to grow by $3 million and $2 million for the three and nine months ended September 30, 2023. Investments Results (Dollars in millions) Three months ended September 30, Nine months ended September 30, 2023 2022 % Change 2023 2022 % Change Total investment income, net of expenses $ 225 $ 193 17 $ 655 $ 573 14 Investment interest credited to contract holders (31) (27) (15) (91) (82) (11) Investment gains and losses, net (456) (674) 32 84 (2,494) nm Investments profit (loss), pretax $ (262) $ (508) 48 $ 648 $ (2,003) nm We continue to consider the low interest rate environment that prevailed in recent years as well as the potential for a continuation of both elevated inflation and higher bond yields as we position our portfolio. As bonds in our generally laddered portfolio mature or are called over the near term, we will reinvest with a balanced approach, keeping in mind our long-term strategy and pursuing attractive risk-adjusted after-tax yields. The table below shows the average pretax yield-to-amortized cost associated with expected principal redemptions for our fixed-maturity portfolio. The expected principal redemptions are based on par amounts and include dated maturities, calls and prefunded municipal bonds that we expect will be called during each respective time period. (Dollars in millions) % Yield Principal redemptions At September 30, 2023 Fixed-maturity pretax yield profile: Expected to mature during the remainder of 2023 4.25 % $ 226 Expected to mature during 2024 4.36 1,112 Expected to mature during 2025 4.74 1,378 Average yield and total expected maturities from the remainder of 2023 through 2025 4.54 $ 2,716 Cincinnati Financial Corporation Third-Quarter 2023 10-Q Page 59 Table of Contents The table below shows the average pretax yield-to-amortized cost for fixed-maturity securities acquired during the periods indicated. The average yield for total fixed-maturity securities acquired during the first nine months of 2023 was higher than the 4.22% average yield-to-amortized cost of the fixed-maturity securities portfolio at the end of 2022. Our fixed-maturity portfolio's average yield of 4.35% for the first nine months of 2023, from the investment income table below, was also higher than the 4.22% yield for the year-end 2022 fixed-maturities portfolio. Three months ended September 30, Nine months ended September 30, 2023 2022 2023 2022 Average pretax yield-to-amortized cost on new fixed-maturities: Acquired taxable fixed-maturities 6.60 % 5.70 % 6.41 % 4.82 % Acquired tax-exempt fixed-maturities 4.34 4.32 4.24 3.85 Average total fixed-maturities acquired 6.40 5.39 6.15 4.62 While our bond portfolio more than covers our insurance reserve liabilities, we believe our diversified common stock portfolio of mainly blue chip, dividend-paying companies represents one of our best investment opportunities for the long term. We discussed our portfolio strategies in our 2022 Annual Report on Form 10-K, Item 1, Investments Segment, Page 24, and Item 7, Investments Outlook, Page 90. We discuss risks related to our investment income and our fixed-maturity and equity investment portfolios in this quarterly report Item 3, Quantitative and Qualitative Disclosures About Market Risk. The table below provides details about investment income. Average yields in this table are based on the average invested asset and cash amounts indicated in the table, using fixed-maturity securities valued at amortized cost and all other securities at fair value. (Dollars in millions) Three months ended September 30, Nine months ended September 30, 2023 2022 % Change 2023 2022 % Change Investment income: Interest $ 154 $ 129 19 $ 441 $ 376 17 Dividends 69 66 5 205 203 1 Other 5 3 67 18 6 200 Less investment expenses 3 5 (40) 9 12 (25) Investment income, pretax 225 193 17 655 573 14 Less income taxes 37 30 23 106 90 18 Total investment income, after-tax $ 188 $ 163 15 $ 549 $ 483 14 Investment returns: Average invested assets plus cash and cash equivalents $ 25,490 $ 23,323 $ 25,025 $ 24,081 Average yield pretax 3.53 % 3.31 % 3.49 % 3.17 % Average yield after-tax 2.95 2.80 2.93 2.67 Effective tax rate 16.3 15.8 16.2 15.8 Fixed-maturity returns: Average amortized cost $ 13,879 $ 12,655 $ 13,515 $ 12,521 Average yield pretax 4.44 % 4.08 % 4.35 % 4.00 % Average yield after-tax 3.66 3.38 3.59 3.32 Effective tax rate 17.6 17.1 17.4 17.1 Cincinnati Financial Corporation Third-Quarter 2023 10-Q Page 60 Table of Contents Total Investment Gains and Losses Investment gains and losses are recognized on the sale of investments, for certain changes in fair values of securities even though we continue to hold the securities or as otherwise required by GAAP. The change in fair value for equity securities still held are included in investment gains and losses and also in net income. The change in unrealized gains or losses for fixed-maturity securities are included as a component of other comprehensive income (OCI). Accounting requirements for the allowance for credit losses for the fixed-maturity portfolio are disclosed in our 2022 Annual Report on Form 10-K, Item 8, Note 1, Summary of Significant Accounting Policies, Page 127. The table below summarizes total investment gains and losses, before taxes. (Dollars in millions) Three months ended September 30, Nine months ended September 30, 2023 2022 2023 2022 Investment gains and losses: 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 maturities: 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 investment gains and losses reported in net income (456) (674) 84 (2,494) Change in unrealized investment gains and losses: Fixed maturities (369) (514) (360) (1,870) Total $ (825) $ (1,188) $ (276) $ (4,364) Of the 4,707 fixed-maturity securities in the portfolio, 202 securities were trading below 70% of amortized cost at September 30, 2023. Our asset impairment committee regularly monitors the portfolio, including a quarterly review of the entire portfolio for potential credit losses. We believe that if liquidity in the markets were to significantly deteriorate or economic conditions were to significantly weaken, we could experience declines in portfolio values and possibly increases in the allowance for credit losses or write-downs to fair value. Fixed-maturity securities written down to fair value due to an intention to be sold were $4 million for the first nine months of 2023, in addition to a $2 million increase in the allowance for credit losses. Fixed-maturity securities written down to fair value due to an intention to be sold and changes in the allowance for credit losses were each less than $1 million for the first nine months of 2022. (Dollars in millions) Three months ended September 30, Nine months ended September 30, 2023 2022 2023 2022 Fixed maturities: Real estate $ — $ — $ 4 $ — Total fixed maturities $ — $ — $ 4 $ — Cincinnati Financial Corporation Third-Quarter 2023 10-Q Page 61 Table of Contents OTHER We report as Other the noninvestment operations of the parent company and a noninsurance subsidiary, CFC Investment Company. We also report as Other the underwriting results of Cincinnati Re and Cincinnati Global, including earned premiums, loss and loss expenses and underwriting expenses in the table below. Total revenues for the first nine months of 2023 for our Other operations increased, compared with the same period of 2022, primarily due to earned premiums from Cincinnati Re and Cincinnati Global, with increases of $23 million and $43 million, respectively. Cincinnati Re had $406 million of earned premiums for the first nine months of 2023 and generated an underwriting profit of $88 million. Cincinnati Global had $193 million of earned premiums for the first nine months of 2023 and generated an underwriting profit of $32 million. Total expenses for Other decreased for the first nine months of 2023, primarily due to loss and loss expenses from Cincinnati Re and Cincinnati Global. Other income or loss in the table below represents profit or losses before income taxes. For all periods shown except the first nine months of 2022, total other income or loss was driven by underwriting profit or loss from Cincinnati Re and Cincinnati Global. Total other loss for the first nine months of 2022 was primarily due to interest expense. (Dollars in millions) Three months ended September 30, Nine months ended September 30, 2023 2022 % Change 2023 2022 % Change Interest and fees on loans and leases $ 2 $ 2 0 $ 5 $ 5 0 Earned premiums 233 225 4 599 533 12 Other revenues 1 — nm 3 2 50 Total revenues 236 227 4 607 540 12 Interest expense 13 14 (7) 40 40 0 Loss and loss expenses 126 228 (45) 309 394 (22) Underwriting expenses 62 65 (5) 170 159 7 Operating expenses 5 4 25 17 13 31 Total expenses 206 311 (34) 536 606 (12) Total other income (loss) $ 30 $ (84) nm $ 71 $ (66) nm TAXES We had $49 million of income tax benefit for the third quarter of 2023 and $126 million of income tax expense for the nine months ended September 30, 2023, compared with $161 million and $481 million of income tax benefit for the same periods of 2022. The effective tax rate for the three and nine months ended September 30, 2023, was 33.1% and 16.0% compared with 27.9% and 24.3% for the same periods last year. The change in our effective tax rate between periods was primarily due to large changes in our net investment gains and losses included in income for the periods and changes in underwriting income. Historically, we have pursued a strategy of investing some portion of cash flow in tax-advantaged fixed-maturity and equity securities to minimize our overall tax liability and maximize after-tax earnings. See Tax-Exempt Fixed Maturities in this quarterly report Item 3, Quantitative and Qualitative Disclosures About Market Risk for further discussion on municipal bond purchases in our fixed-maturity investment portfolio. For tax years after 2017, for our property casualty insurance subsidiaries, approximately 75% of interest from tax-advantaged, fixed-maturity investments and approximately 40% of dividends from qualified equities are exempt from federal tax after applying proration. For our noninsurance companies, the dividend received deduction exempts 50% of dividends from qualified equities. Our life insurance company does not own tax-advantaged, fixed-maturity investments or equities subject to the dividend received deduction. Details about our effective tax rate are in this quarterly report Item 1, Note 9, Income Taxes. Cincinnati Financial Corporation Third-Quarter 2023 10-Q Page 62 Table of Contents LIQUIDITY AND CAPITAL RESOURCES At September 30, 2023, shareholders' equity was $10.624 billion, compared with $10.562 billion at December 31, 2022. Total debt was $815 million at September 30, 2023, compared with $839 million at December 31, 2022. At September 30, 2023, cash and cash equivalents totaled $899 million, compared with $1.264 billion at December 31, 2022. In addition to our historically positive operating cash flow to meet the needs of operations, we have the ability to slow investing activities or sell a portion of our high-quality, liquid investment portfolio if such need arises. We also have additional capacity to borrow on our revolving short-term line of credit, as described further below. SOURCES OF LIQUIDITY Subsidiary Dividends Our lead insurance subsidiary declared dividends of $426 million to the parent company in the first nine months of 2023, compared with $504 million for the same period of 2022. For full-year 2022, our lead insurance subsidiary paid dividends totaling $729 million to the parent company. State of Ohio regulatory requirements restrict the dividends our insurance subsidiary can pay. For full-year 2023, total dividends that our insurance subsidiary can pay to our parent company without regulatory approval are approximately $651 million. Investing Activities Investment income is a source of liquidity for both the parent company and its insurance subsidiaries. We continue to focus on portfolio strategies to balance near-term income generation and long-term book value growth. Parent company obligations can be funded with income on investments held at the parent-company level or through sales of securities in that portfolio, although our investment philosophy seeks to compound cash flows over the long term. These sources of capital can help minimize subsidiary dividends to the parent company, protecting insurance subsidiary capital. For a discussion of our historic investment strategy, portfolio allocation and quality, see our 2022 Annual Report on Form 10-K, Item 1, Investments Segment, Page 24. Insurance Underwriting Our property casualty and life insurance underwriting operations provide liquidity because we generally receive premiums before paying losses under the policies purchased with those premiums. After satisfying our cash requirements, we use excess cash flows for investment, increasing future investment income. Historically, cash receipts from property casualty and life insurance premiums, along with investment income, have been more than sufficient to pay claims, operating expenses and dividends to the parent company. The table below shows a summary of the operating cash flow for property casualty insurance (direct method): (Dollars in millions) Three months ended September 30, Nine months ended September 30, 2023 2022 % Change 2023 2022 % Change Premiums collected $ 2,025 $ 1,818 11 $ 5,806 $ 5,295 10 Loss and loss expenses paid (1,058) (948) (12) (3,185) (2,730) (17) Commissions and other underwriting expenses paid (516) (474) (9) (1,772) (1,674) (6) Cash flow from underwriting 451 396 14 849 891 (5) Investment income received 151 128 18 447 394 13 Cash flow from operations $ 602 $ 524 15 $ 1,296 $ 1,285 1 Collected premiums for property casualty insurance rose $511 million during the first nine months of 2023, compared with the same period in 2022. Loss and loss expenses paid for the 2023 perio d increased $455 million. Commissions and other underwriting expenses pai d increased $98 million. Cincinnati Financial Corporation Third-Quarter 2023 10-Q Page 63 Table of Contents We discuss our future obligations for claims payments and for underwriting expenses in our 2022 Annual Report on Form 10-K, Item 7, Obligations, Page 96. Capital Resources At September 30, 2023, our debt-to-total-capital ratio was 7.1%, considerably below our 35% covenant threshold, with $790 million in long-term debt and $25 million in borrowing on our revolving short-term line of credit. At September 30, 2023, $275 million was available for future cash management needs as part of the general provisions of the line of credit agreement, with another $300 million available as part of an accordion feature. Based on our capital requirements at September 30, 2023, we do not anticipate a material increase in debt levels exceeding the available line of credit amount during the year. As a result, we expect changes in our debt-to-total-capital ratio to continue to be largely a function of the contribution of unrealized investment gains or losses to shareholders' equity. We have an unsecured letter of credit agreement that provides a portion of the capital needed to support Cincinnati Global's obligations at Lloyd's. The amount of this unsecured letter of credit agreement was $94 million at September 30, 2023, with no amounts drawn. On March 23, 2023, we amended our line of credit agreement to replace LIBOR with SOFR plus a credit spread adjustment. We provide details of our three long-term notes in this quarterly report Item 1, Note 3, Fair Value Measurements. None of the notes are encumbered by rating triggers. Four independent ratings firms award insurer financial strength ratings to our property casualty insurance companies and three firms rate our life insurance company. Those firms made no changes to our parent company debt ratings during the first nine months of 2023. Our debt ratings are discussed in our 2022 Annual Report on Form 10-K, Item 7, Liquidity and Capital Resources, Long-Term Debt, Page 95. Off-Balance Sheet Arrangements We do not use any special-purpose financing vehicles or have any undisclosed off-balance sheet arrangements (as that term is defined in applicable SEC rules) that are reasonably likely to have a current or future material effect on the company's financial condition, results of operation, liquidity, capital expenditures or capital resources. Similarly, the company holds no fair-value contracts for which a lack of marketplace quotations would necessitate the use of fair-value techniques. USES OF LIQUIDITY Our parent company and insurance subsidiary have contractual obligations and other commitments. In addition, one of our primary uses of cash is to enhance shareholder return. Contractual Obligations We estimated our future contractual obligations as of December 31, 2022, in our 2022 Annual Report on Form 10-K, Item 7, Contractual Obligations, Page 96. There have been no material changes to our estimates of future contractual obligations since our 2022 Annual Report on Form 10-K. Other Commitments In addition to our contractual obligations, we have other property casualty operational commitments: • Commissions – Commissions paid were $1.153 billion in the first nine months of 2023. Commission payments generally track with written premiums, except for annual profit-sharing commissions typically paid during the first quarter of the year. • Other underwriting expenses – Many of our underwriting expenses are not contractual obligations, but reflect the ongoing expenses of our business. Noncommission underwriting expenses paid were $619 million in the first nine months of 2023. There were no contributions to our qualified pension plan during the first nine months of 2023. Cincinnati Financial Corporation Third-Quarter 2023 10-Q Page 64 Table of Contents Investing Activities After fulfilling operating requirements, we invest cash flows from underwriting, investment and other corporate activities in fixed-maturity and equity securities on an ongoing basis to help achieve our portfolio objectives. We discuss our investment strategy and certain portfolio attributes in this quarterly report Item 3, Quantitative and Qualitative Disclosures About Market Risk. Uses of Capital Uses of cash to enhance shareholder return include dividends to shareholders and shares acquired under our repurchase program. In January 2023, the board of directors declared regular quarterly cash dividends of 75 cents per share for an indicated annual rate of $3.00 per share. During the first nine months of 2023, we used $338 million to pay cash dividends to shareholders. PROPERTY CASUALTY INSURANCE LOSS AND LOSS EXPENSE RESERVES For the business lines in the commercial and personal lines insurance segments, and in total for the excess and surplus lines insurance segment and other property casualty insurance operations, the following table details gross reserves among case, IBNR (incurred but not reported) and loss expense reserves, net of salvage and subrogation reserves. Reserving practices are discussed in our 2022 Annual Report on Form 10-K, Item 7, Property Casualty Loss and Loss Expense Obligations and Reserves, Page 97. Total gross reserves at September 30, 2023, increased $669 million compared with December 31, 2022. Case loss reserves increased by $212 million, IBNR loss reserves increased by $338 million and loss expense reserves increased by $119 million. The total gross increase was primarily due to our commercial casualty and commercial auto lines of business and also Cincinnati Re and our excess and surplus lines insurance segment. Cincinnati Financial Corporation Third-Quarter 2023 10-Q Page 65 Table of Contents Property Casualty Gross Reserves (Dollars in millions) Loss reserves Loss expense reserves Total gross reserves Case reserves IBNR reserves Percent of total At September 30, 2023 Commercial lines insurance: Commercial casualty $ 1,131 $ 1,136 $ 763 $ 3,030 33.7 % Commercial property 431 133 79 643 7.1 Commercial auto 427 313 143 883 9.8 Workers' compensation 460 523 89 1,072 11.9 Other commercial 155 23 128 306 3.4 Subtotal 2,604 2,128 1,202 5,934 65.9 Personal lines insurance: Personal auto 211 94 73 378 4.2 Homeowner 229 125 55 409 4.6 Other personal 110 110 7 227 2.5 Subtotal 550 329 135 1,014 11.3 Excess and surplus lines 336 319 229 884 9.8 Cincinnati Re 150 739 6 895 9.9 Cincinnati Global 148 127 3 278 3.1 Total $ 3,788 $ 3,642 $ 1,575 $ 9,005 100.0 % At December 31, 2022 Commercial lines insurance: Commercial casualty $ 1,163 $ 938 $ 722 $ 2,823 33.9 % Commercial property 301 256 71 628 7.5 Commercial auto 449 258 131 838 10.1 Workers' compensation 434 521 85 1,040 12.4 Other commercial 98 16 125 239 2.9 Subtotal 2,445 1,989 1,134 5,568 66.8 Personal lines insurance: Personal auto 222 64 64 350 4.2 Homeowner 189 138 49 376 4.5 Other personal 99 86 5 190 2.3 Subtotal 510 288 118 916 11.0 Excess and surplus lines 302 256 195 753 9.0 Cincinnati Re 156 639 6 801 9.6 Cincinnati Global 163 132 3 298 3.6 Total $ 3,576 $ 3,304 $ 1,456 $ 8,336 100.0 % LIFE POLICY AND INVESTMENT CONTRACT RESERVES Gross life policy and investment contract reserves were $2.920 billion at September 30, 2023, compared with $3.015 billion at year-end 2022, reflecting an increase in market value discount rates partially offset by continued growth in life insurance policies in force. We discussed our life insurance reserving practices in our 2022 Annual Report on Form 10-K, Item 7, Life Insurance Policyholder Obligations and Reserves, Page 103, and updated that disclosure in this quarterly report Item 1, Note 1, Accounting Policies. Cincinnati Financial Corporation Third-Quarter 2023 10-Q Page 66 Table of Contents OTHER MATTERS SIGNIFICANT ACCOUNTING POLICIES Our significant accounting policies are discussed in our 2022 Annual Report on Form 10-K, Item 8, Note 1, Summary of Significant Accounting Policies, Page 127, and updated in this quarterly report Item 1, Note 1, Accounting Policies. In conjunction with those discussions, in the Management's Discussion and Analysis in the 2022 Annual Report on Form 10-K, management reviewed the estimates and assumptions used to develop reported amounts related to the most significant policies. Management discussed the development and selection of those accounting estimates with the audit committee of the board of directors.