What changed in this filing

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

2025-04-28 compared with 2024-10-24 · 88 added, 68 removed, 146 unchanged (52% of the section changed)

5 unchanged sentences

Our view of potential risks and our sensitivity to such risks is discussed in our 2024 Annual Report on Form 10-K, Item 7A, Quantitative and Qualitative Disclosures About Market Risk, Page 112.

The fair value of our investment portfolio was $27.441 billion at September 30, 2024, up $2.661 billion from year-end 2023, including a $2.080 billion increase in the fixed-maturity portfolio and a $581 million increase in the equity portfolio.

(Dollars in millions) At September 30, 2024 At December 31, 2023

The fair value of our investment portfolio was $27.741 billion at March 31, 2025, up $76 million from year-end 2024, including a $341 million increase in the fixed-maturity portfolio, a $67 million decrease in the equity portfolio and a $198 million decrease in short-term investments.

(Dollars in millions) At March 31, 2025 At December 31, 2024

amortized cost Percent

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equities 377 1.8 336 1.2 385 1.8 349 1.3

Short-term investments 100 0.5 100 0.4 298 1.4 298 1.1

Total $ 21,073 100.0 % $ 27,741 100.0 % $ 20,986 100.0 % $ 27,665 100.0 %

At September 30, 2024, substantially all of our consolidated investment portfolio, measured at fair value, is classified as Level 1 or Level 2.

At March 31, 2025, substantially all of our consolidated investment portfolio, measured at fair value, is classified as Level 1 or Level 2.

See Item 1, Note 3, Fair Value Measurements, for additional discussion of our valuation techniques.

In addition to our investment portfolio, the total investments amount reported in our condensed consolidated balance sheets includes Other invested assets.

Other invested assets included $528 million of private equity investments, $84 million of real estate through direct property ownership and development projects in the United States, $35 million of life policy loans and $16 million in Lloyd's deposit at September 30, 2024.

Cincinnati Financial Corporation Third-Quarter 2024 10-Q

Other invested assets included $592 million of private equity investments, $97 million of real estate through direct property ownership and development projects in the United States, $36 million of life policy loans and $15 million in Lloyd's deposit at March 31, 2025.

Cincinnati Financial Corporation First-Quarter 2025 10-Q

FIXED-MATURITY SECURITIES INVESTMENTS

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By regularly investing in the bond market, we build a broad, diversified portfolio that we believe mitigates the impact of adverse economic factors.

In the first nine months of 2024, the increase in fair value of our fixed-maturity portfolio was due to net purchases of securities, plus a decrease in our net unrealized loss position that reflected realized losses from the sales of some lower-yielding bonds, as well as a decrease in U.S.

Treasury yields in addition to tightening of corporate credit spreads.

At September 30, 2024, our fixed-maturity portfolio with an average rating of A2/A was valued at 98.7% of its amortized cost, compared with 96.0% at December 31, 2023.

At September 30, 2024, our investment-grade fixed-maturity securities represented 97.4% of the portfolio based on ratings provided by nationally recognized statistical rating organizations or the Securities Valuation Office of the National Association of Insurance Commissioners.

In the first three months of 2025, the increase in fair value of our fixed-maturity portfolio was due to net purchases of securities, plus a decrease in our net unrealized loss position that reflected a decrease in U.S.

Treasury yields partially offset by a widening of corporate credit spreads.

At March 31, 2025, our fixed-maturity portfolio with an average rating of A2/A+ was valued at 97.1% of its amortized cost, compared with 96.7% at December 31, 2024.

At March 31, 2025, our investment-grade fixed-maturity securities represented 97.7% of the portfolio based on ratings provided by nationally recognized statistical rating organizations or the Securities Valuation Office of the National Association of Insurance Commissioners.

Attributes of the fixed-maturity portfolio include:

At September 30, 2024 At December 31, 2023

At March 31, 2025 At December 31, 2024

Weighted average yield-to-amortized cost 5.15 % 5.06 %

2 unchanged sentences

We discuss maturities of our fixed-maturity portfolio in our 2024 Annual Report on Form 10-K, Item 8, Note 2, Investments, Page 135, and in this quarterly report Item 2, Investments Results.

Cincinnati Financial Corporation Third-Quarter 2024 10-Q

Cincinnati Financial Corporation First-Quarter 2025 10-Q

TAXABLE FIXED MATURITIES

Our taxable fixed-maturity portfolio, with a fair value of $11.882 billion at September 30, 2024, included:

(Dollars in millions) At September 30, 2024 At December 31, 2023

Our taxable fixed-maturity portfolio, with a fair value of $12.636 billion at March 31, 2025, included:

(Dollars in millions) At March 31, 2025 At December 31, 2024

Investment-grade corporate $ 8,350 $ 8,070

States, municipalities and political subdivisions 820 801

Noninvestment-grade corporate 329 412

Government-sponsored enterprises 2,310 2,274

States, municipalities and political subdivisions 805 782

Asset-backed 645 551

Noninvestment-grade corporate 283 310

United States government 216 226

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Our strategy is to buy, and typically hold, fixed-maturity investments to maturity, but we monitor credit profiles and fair value movements when determining holding periods for individual securities.

With the exception of United States agency issues that include government-sponsored enterprises, no individual issuer's securities accounted for more than 0.9% of the taxable fixed-maturity portfolio at September 30, 2024.

Our investment-grade corporate bonds had an average rating of Baa1 by Moody's or BBB+ by S&P Global Ratings and represented 67.4% of the taxable fixed-maturity portfolio's fair value at September 30, 2024, compared with 71.2% at year-end 2023.

With the exception of United States agency issues that include government-sponsored enterprises, no individual issuer's securities accounted for more than 0.8% of the taxable fixed-maturity portfolio at March 31, 2025.

Our investment-grade corporate bonds had an average rating of Baa1 by Moody's or BBB+ by S&P Global Ratings and represented 66.1% of the taxable fixed-maturity portfolio's fair value at March 31, 2025, compared with 65.9% at year-end 2024.

The heaviest concentration in our investment-grade corporate bond portfolio, based on fair value at

September 30, 2024, was the financial sector.

March 31, 2025, was the financial sector.

It represented 32.1% of our investment-grade corporate bond portfolio, compared with 33.8% at year-end 2024.

The utility and energy sectors represented 12.5% and 10.6%, compared with less than 10% and 11.2%, respectively, at year-end 2023.

The utility and energy sectors represented 13.0% and 11.2%, compared with 13.0% and 10.6%, respectively, at year-end 2024.

No other sector exceeded 10% of our investment-grade corporate bond portfolio.

As discussed in our 2024 Annual Report on Form 10-K, Item 1A, Risk Factors, Page 30, investments in the financial sector include various risks.

See risk factors entitled “Financial disruption or a prolonged economic downturn could materially and adversely affect our investment performance” and “Our ability to achieve our performance objectives could be affected by changes in the financial, credit and capital markets or the general economy.”

Our taxable fixed-maturity portfolio at September 30, 2024, included $314 million of asset-backed securities with an average rating of Aa2/AA-.

See risk factors entitled “Financial disruption or a prolonged economic downturn could affect our investment performance” and “Our ability to achieve our performance objectives could be affected by changes in the financial, credit and capital markets or the general economy.”

Our taxable fixed-maturity portfolio at March 31, 2025, included $645 million of asset-backed securities at fair value with an average rating of Aa1/AA.

TAX-EXEMPT FIXED MATURITIES

At September 30, 2024, we had $3.989 billion of tax-exempt fixed-maturity securities with an average rating of Aa2/AA by Moody's and S&P Global Ratings.

At March 31, 2025, we had $3.887 billion of tax-exempt fixed-maturity securities at fair value with an average rating of Aa2/AA by Moody's and S&P Global Ratings.

We traditionally have purchased municipal bonds focusing on general obligation and essential services issues, such as water, waste disposal or others.

The portfolio is well diversified among approximately 1,900 municipal bond issuers.

No single municipal issuer accounted for more than 0.6% of the tax-exempt fixed-maturity portfolio at September 30, 2024.

No single municipal issuer accounted for more than 0.6% of the tax-exempt fixed-maturity portfolio at March 31, 2025.

INTEREST RATE SENSITIVITY ANALYSIS

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As part of this model, the effective duration of the fixed-maturity portfolio is continually monitored by our investment department to evaluate the theoretical impact of interest rate movements.

Cincinnati Financial Corporation Third-Quarter 2024 10-Q

Cincinnati Financial Corporation First-Quarter 2025 10-Q

The table below summarizes the effect of hypothetical changes in interest rates on the fair value of the fixed-maturity portfolio:

1 unchanged sentence

-200 -100 — 100 200

At September 30, 2024 $ 17,326 $ 16,590 $ 15,871 $ 15,107 $ 14,301

At March 31, 2025 $ 18,178 $ 17,347 $ 16,523 $ 15,635 $ 14,724

At December 31, 2024 $ 17,750 $ 16,967 $ 16,182 $ 15,317 $ 14,433

The effective duration of the fixed-maturity portfolio as of September 30, 2024, was 4.6 years, up from 4.3 years at the end of 2023.

The effective duration of the fixed-maturity portfolio as of March 31, 2025, was 5.0 years, matching year-end 2024.

The above table is a theoretical presentation showing that an instantaneous, parallel shift in the yield curve of 100 basis points could produce an approximately 5.0% change in the fair value of the fixed-maturity portfolio.

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The analysis is not intended to provide a precise forecast of the effect of changes in rates on our results or financial condition, nor does it take into account any actions that we might take to reduce exposure to such risks.

SHORT-TERM INVESTMENTS

Our short-term investments consist of commercial paper purchased within one year of maturity.

We make short-term investments primarily with funds to be used to make upcoming cash payments, such as dividends, taxes or other corporate purposes.

At March 31, 2025, we had $100 million of short-term investments.

EQUITY INVESTMENTS

Our equity investments, with a fair value totaling $11.570 billion at September 30, 2024, included $11.200 billion of common stock securities of companies generally with strong indications of paying and growing their dividends.

Our equity investments, with a fair value totaling $11.118 billion at March 31, 2025, included $10.782 billion of common stock securities of companies generally with strong indications of paying and growing their dividends.

Other criteria we evaluate include increasing sales and earnings, proven management and a favorable outlook.

5 unchanged sentences

-30% -20% -10% — 10% 20% 30%

At September 30, 2024 $ 8,099 $ 9,256 $ 10,413 $ 11,570 $ 12,727 $ 13,884 $ 15,041

At March 31, 2025 $ 7,783 $ 8,894 $ 10,006 $ 11,118 $ 12,230 $ 13,342 $ 14,453

At December 31, 2024 $ 7,830 $ 8,948 $ 10,067 $ 11,185 $ 12,304 $ 13,422 $ 14,541

At September 30, 2024, Apple Inc.(Nasdaq:AAPL) was our largest single common stock holding with a fair value of $885 million, or 7.9% of our publicly traded common stock portfolio and 3.2% of the total investment portfolio.

Forty holdings among nine different sectors each had a fair value greater than $100 million.

Cincinnati Financial Corporation Third-Quarter 2024 10-Q

At March 31, 2025, Apple Inc.(Nasdaq:AAPL) was our largest single common stock holding with a fair value of $786 million, or 7.3% of our publicly traded common stock portfolio and 2.8% of the total investment portfolio.

Forty-two holdings (among nine different sectors) each had a fair value greater than $100 million.

Cincinnati Financial Corporation First-Quarter 2025 10-Q

Common Stock Portfolio Industry Sector Distribution

Percent of common stock portfolio

At September 30, 2024 At December 31, 2023

At March 31, 2025 At December 31, 2024

Financial S&P 500 Industry

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Industrials 14.3 8.5 14.3 8.2

Healthcare 11.8 11.6 11.6 12.6

Financial 12.7 14.7 12.4 13.6

Healthcare 12.0 11.2 10.8 10.1

Consumer discretionary 7.8 10.3 7.6 11.2

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Real estate 2.3 2.3 2.1 2.1

Telecomm services 1.4 8.9 1.4 8.6

Communication services 1.4 9.2 1.3 9.4

Total 100.0 % 100.0 % 100.0 % 100.0 %

UNREALIZED INVESTMENT GAINS AND LOSSES

At September 30, 2024, unrealized investment gains before taxes for the fixed-maturity portfolio totaled $201 million and unrealized investment losses amounted to $404 million before taxes.

The $203 million net unrealized loss position in our fixed-maturity portfolio at September 30, 2024, decreased in the first nine months of 2024, primarily due to the sale of low-yielding bonds sold at a loss and a decrease in U.S.

Treasury yields in addition to tightening of corporate credit spreads.

At March 31, 2025, unrealized investment gains before taxes for the fixed-maturity portfolio totaled $96 million and unrealized investment losses amounted to $582 million before taxes.

The $486 million net unrealized loss position in our fixed-maturity portfolio at March 31, 2025, decreased in the first three months of 2025, primarily due to a decrease in U.S.

Treasury yields partially offset by a widening of corporate credit spreads.

The net loss position for our current fixed-maturity holdings will naturally decline over time as individual securities approach maturity.

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We believe that the appreciated value of equity securities, compared with the cost of securities that is generally used as a tax basis, is a useful measure to help evaluate how fair value can change over time.

On this basis, the net unrealized investment gains at September 30, 2024, consisted of a net gain position in our equity portfolio of $7.536 billion.

On this basis, the net unrealized investment gains at March 31, 2025, consisted of a net gain position in our equity portfolio of $7.154 billion.

Events or factors such as economic growth or recession can affect the fair value and unrealized investment gains of our equity securities.

The five largest holdings in our common stock portfolio were Apple, Microsoft (Nasdaq:MSFT), Broadcom Inc.

(Nasdaq:AVGO), UnitedHealth Group Inc (NYSE:UNH) and Abbvie Inc.

(NYSE:ABBV), which had a combined fair value of $3.046 billion.

The five largest holdings in our common stock portfolio were Apple, Microsoft (Nasdaq:MSFT), Abbvie Inc.

(NYSE:ABBV), JPMorgan Chase & Co (NYSE:JPM) and Broadcom Inc.

(Nasdaq:AVGO), which had a combined fair value of $2.716 billion.

Unrealized Investment Losses

1 unchanged sentence

Further, amortized costs for some securities are revised through write-downs recognized in prior periods.

At September 30, 2024, 2,495 of the 4,988 fixed-maturity securities we owned had fair values below amortized cost, compared with 2,840 of the 4,738 securities we owned at year-end 2023.

The 2,495 holdings with fair values below amortized cost at September 30, 2024, represented 48.7% of the fair value of our fixed-maturity investment portfolio and $404 million in unrealized losses.

• 1,854 of the 2,495 holdings had fair value between 90% and 100% of amortized cost at September 30, 2024.

At March 31, 2025, 3,679 of the 5,140 fixed-maturity and short-term securities we owned had fair values below amortized cost, compared with 3,723 of the 5,090 securities we owned at year-end 2024.

The 3,679 holdings with fair values below amortized cost at March 31, 2025, represented 65.7% of the fair value of our fixed-maturity and short-term investments portfolio and $582 million in unrealized losses.

• 2,807 of the 3,679 holdings had fair value between 90% and 100% of amortized cost at March 31, 2025.

These primarily consist of securities whose current valuation is largely the result of interest rate factors.

The fair value of these 2,807 securities was $9.407 billion, and they accounted for $237 million in unrealized losses.

• 636 of the 2,495 fixed-maturity holdings had fair value between 70% and 90% of amortized cost at

September 30, 2024.

We believe the 636 fixed-maturity securities will continue to pay interest and ultimately

Cincinnati Financial Corporation Third-Quarter 2024 10-Q

pay principal upon maturity.

• 838 of the 3,679 holdings had fair value between 70% and 90% of amortized cost at

March 31, 2025.

We believe the 838 securities will continue to pay interest and ultimately pay principal upon

Cincinnati Financial Corporation First-Quarter 2025 10-Q

The issuers of these 838 securities have strong cash flow to service their debt and meet their contractual obligation to make principal payments.

The fair value of these securities was $1.469 billion, and they accounted for $321 million in unrealized losses.

• Five of the 2,495 fixed-maturity holdings had fair value below 70% of amortized cost at September 30, 2024.

We believe these fixed-maturity securities will continue to pay interest and ultimately pay principal upon maturity.

• 34 of the 3,679 holdings had fair value below 70% of amortized cost at March 31, 2025.

We believe these securities will continue to pay interest and ultimately pay principal upon maturity.

The fair value of these securities was $44 million, and they accounted for $24 million in unrealized losses.

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(Dollars in millions) Less than 12 months 12 months or more Total

At September 30, 2024 Fair value Unrealized

At March 31, 2025 Fair value Unrealized

losses Fair value Unrealized

value Unrealized

Fixed-maturity securities:

Fixed-maturity:

Corporate $ 2,184 $ 53 $ 3,487 $ 225 $ 5,671 $ 278

4 unchanged sentences

Foreign government — — — — — —

Total $ 1,452 $ 10 $ 6,272 $ 394 $ 7,724 $ 404

Total fixed-maturity 4,973 95 5,847 487 10,820 582

Short-term 100 — — — 100 —

Total fixed-maturity and short-term investments $ 5,073 $ 95 $ 5,847 $ 487 $ 10,920 $ 582

At December 31, 2024

Fixed-maturity securities:

Fixed-maturity:

Corporate $ 2,815 $ 78 $ 3,634 $ 255 $ 6,449 $ 333

4 unchanged sentences

Foreign government — — 3 — 3 —

Total $ 1,384 $ 18 $ 7,912 $ 669 $ 9,296 $ 687

At September 30, 2024, applying our invested asset impairment policy, we determined that the total of $404 million, for securities in an unrealized loss position in the table above, was not the result of a credit loss.

During the first nine months of 2024, no fixed maturity securities were written down to fair value, due to an intention to be sold.

The allowance for credit losses increased $25 million during the first nine months of 2024.

During the first nine months of 2023, one fixed-maturity security was written down to fair value, due to an intention to be sold, resulting in $4 million of noncash charges.

Changes in allowance for credit losses were $3 million during the first nine months of 2023.

During the full year of 2023, we wrote down one security and recorded $4 million in impairment charges.

At December 31, 2023, 2,840 fixed-maturity securities with a total unrealized loss of $687 million were in an unrealized loss position.

Of that total, 20 fixed-maturity securities had fair values below 70% of amortized cost.

Cincinnati Financial Corporation Third-Quarter 2024 10-Q

Total fixed-maturity 6,583 121 5,823 510 12,406 631

Short-term 100 — — — 100 —

Total fixed-maturity and short-term investments $ 6,683 $ 121 $ 5,823 $ 510 $ 12,506 $ 631

At March 31, 2025, applying our invested asset impairment policy, we determined that the total of $582 million, for securities in an unrealized loss position in the table above, was not the result of a credit loss.

During the first three months of 2025, no fixed maturity securities were written down to fair value, due to an intention to be sold.

The allowance for credit losses increased $2 million during the first three months of 2025.

During the first three months of 2024, no fixed maturity securities were written down to fair value, due to an intention to be sold.

The increase in the allowance for credit losses was $9 million during the first three months of 2024.

During the full year of 2024, no securities were written down to fair value.

At December 31, 2024, 3,723 fixed-maturity and short-term securities with a total unrealized loss of $631 million were in an unrealized loss position.

Of that total, 19 securities had fair values below 70% of amortized cost.

Cincinnati Financial Corporation First-Quarter 2025 10-Q

The following table summarizes the investment portfolio by severity of decline:

3 unchanged sentences

gain (loss) Gross investment income

At September 30, 2024

At March 31, 2025

Taxable fixed maturities:

16 unchanged sentences

Total 5,139 17,009 16,523 (486) 208

Short-term investments:

Fair valued below 70% of cost — — — — —

Fair valued at 70% to less than 100% of cost 1 100 100 — 1

Fair valued at 100% and above of cost — — — — —

Investment income on securities sold in current year — — — — 1

Total 1 100 100 — 2

Fixed maturities and short-term investments summary:

Fair valued below 70% of cost 34 68 44 (24) —

Fair valued at 70% to less than 100% of cost 3,645 11,434 10,876 (558) 129

Fair valued at 100% and above of cost 1,461 5,607 5,703 96 77

Investment income on securities sold in current year — — — — 4

Total 5,140 $ 17,109 $ 16,623 $ (486) $ 210

At December 31, 2024

Fixed-maturities summary:

Fixed maturities and short-term investments summary:

Fair valued below 70% of amortized cost 19 $ 43 $ 28 $ (15) $ 2

4 unchanged sentences

See our 2024 Annual Report on Form 10-K, Item 7, Critical Accounting Estimates, Asset Impairment, Page 56.

Cincinnati Financial Corporation Third-Quarter 2024 10-Q

Cincinnati Financial Corporation First-Quarter 2025 10-Q

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

What changed 10-Q

Item 3. Quantitative and Qualitative Disclosures About Market Risk