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Item 3. Quantitative and Qualitative Disclosures About Market Risk

2025-07-28 compared with 2025-04-28 · 51 added, 51 removed, 183 unchanged (36% 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 $27.741 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

The fair value of our investment portfolio was $28.826 billion at June 30, 2025, up $1.161 billion from year-end 2024, including a $895 million increase in the fixed-maturity portfolio, a $464 million increase in the equity portfolio and a $198 million decrease in short-term investments.

(Dollars in millions) At June 30, 2025 At December 31, 2024

amortized cost Percent

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Total $ 21,647 100.0 % $ 28,826 100.0 % $ 20,986 100.0 % $ 27,665 100.0 %

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

At June 30, 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 $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

Other invested assets included $594 million of private equity investments, $99 million of real estate through direct property ownership and development projects in the United States, $36 million of life policy loans and $14 million in Lloyd's deposit at June 30, 2025.

Cincinnati Financial Corporation Second-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 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.

In the first six 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 slight widening of corporate credit spreads.

At June 30, 2025, our fixed-maturity portfolio with an average rating of A2/A+ was valued at 97.4% of its amortized cost, compared with 96.7% at December 31, 2024.

At June 30, 2025, our investment-grade fixed-maturity securities represented 97.9% 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 March 31, 2025 At December 31, 2024

At June 30, 2025 At December 31, 2024

Weighted average yield-to-amortized cost 5.16 % 5.06 %

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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 First-Quarter 2025 10-Q

Cincinnati Financial Corporation Second-Quarter 2025 10-Q

TAXABLE FIXED MATURITIES

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

Our taxable fixed-maturity portfolio, with a fair value of $13.166 billion at June 30, 2025, included:

(Dollars in millions) At June 30, 2025 At December 31, 2024

Investment-grade corporate $ 8,716 $ 8,070

7 unchanged sentences

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 0.8% 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.

Our investment-grade corporate bonds had an average rating of Baa1 by Moody's or BBB+ by S&P Global Ratings and represented 66.2% of the taxable fixed-maturity portfolio's fair value at June 30, 2025, compared with 65.9% at year-end 2024.

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

March 31, 2025, was the financial sector.

June 30, 2025, was the financial sector.

It represented 31.4% of our investment-grade corporate bond portfolio, compared with 33.8% at year-end 2024.

3 unchanged sentences

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.

Our taxable fixed-maturity portfolio at June 30, 2025, included $732 million of asset-backed securities at fair value with an average rating of Aa2/AA.

TAX-EXEMPT FIXED MATURITIES

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.

At June 30, 2025, we had $3.911 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 March 31, 2025.

No single municipal issuer accounted for more than 0.6% of the tax-exempt fixed-maturity portfolio at June 30, 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 First-Quarter 2025 10-Q

Cincinnati Financial Corporation Second-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 March 31, 2025 $ 18,178 $ 17,347 $ 16,523 $ 15,635 $ 14,724

At June 30, 2025 $ 18,906 $ 17,985 $ 17,077 $ 16,093 $ 15,100

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

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

The effective duration of the fixed-maturity portfolio as of June 30, 2025, was 5.3 years, up from 5.0 years at 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 5.5% change in the fair value of the fixed-maturity portfolio.

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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.

At June 30, 2025, we had $100 million of short-term investments.

EQUITY INVESTMENTS

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.

Our equity investments, with a fair value totaling $11.649 billion at June 30, 2025, included $11.309 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 March 31, 2025 $ 7,783 $ 8,894 $ 10,006 $ 11,118 $ 12,230 $ 13,342 $ 14,453

At June 30, 2025 $ 8,154 $ 9,319 $ 10,484 $ 11,649 $ 12,814 $ 13,979 $ 15,144

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

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.

At June 30, 2025, Microsoft (Nasdaq:MSFT) was our largest single common stock holding with a fair value of $903 million, or 8.0% of our publicly traded common stock portfolio and 3.1% 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

Cincinnati Financial Corporation Second-Quarter 2025 10-Q

Common Stock Portfolio Industry Sector Distribution

Percent of common stock portfolio

At March 31, 2025 At December 31, 2024

At June 30, 2025 At December 31, 2024

Financial S&P 500 Industry

5 unchanged sentences

Healthcare 9.6 9.3 10.8 10.1

Consumer discretionary 7.8 10.3 7.6 11.2

Consumer staples 7.5 5.5 6.9 5.5

Consumer discretionary 7.4 10.4 7.6 11.2

Materials 4.1 1.9 4.7 1.9

5 unchanged sentences

UNREALIZED INVESTMENT GAINS AND LOSSES

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.

At June 30, 2025, unrealized investment gains before taxes for the fixed-maturity portfolio totaled $124 million and unrealized investment losses amounted to $582 million before taxes.

The $458 million net unrealized loss position in our fixed-maturity portfolio at June 30, 2025, decreased in the first six months of 2025, primarily due to a decrease in U.S.

Treasury yields partially offset by a slight 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.

2 unchanged sentences

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 March 31, 2025, consisted of a net gain position in our equity portfolio of $7.154 billion.

On this basis, the net unrealized investment gains at June 30, 2025, consisted of a net gain position in our equity portfolio of $7.637 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), Abbvie Inc.

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

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

The five largest holdings in our common stock portfolio at June 30, 2025, were Microsoft, Apple (Nasdaq:AAPL), Broadcom Inc.

(Nasdaq:AVGO), JPMorgan Chase & Co (NYSE:JPM), and Abbvie Inc.

(NYSE:ABBV), which had a combined fair value of $3.171 billion.

Unrealized Investment Losses

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

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.

At June 30, 2025, 3,537 of the 5,278 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 3,537 holdings with fair values below amortized cost at June 30, 2025, represented 60.4% of the fair value of our fixed-maturity and short-term investments portfolio and $582 million in unrealized losses.

• 2,658 of the 3,537 holdings had fair value between 90% and 100% of amortized cost at June 30, 2025.

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

1 unchanged sentence

• 831 of the 3,537 holdings had fair value between 70% and 90% of amortized cost at

March 31, 2025.

June 30, 2025.

We believe the 831 securities will continue to pay interest and ultimately pay principal upon

Cincinnati Financial Corporation First-Quarter 2025 10-Q

Cincinnati Financial Corporation Second-Quarter 2025 10-Q

The issuers of these 831 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 $1.452 billion, and they accounted for $320 million in unrealized losses.

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

• 48 of the 3,537 holdings had fair value below 70% of amortized cost at June 30, 2025.

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

2 unchanged sentences

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

At March 31, 2025 Fair value Unrealized

At June 30, 2025 Fair value Unrealized

losses Fair value Unrealized

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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.

At June 30, 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 six 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 $14 million during the first six months of 2025.

During the first six 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 $25 million during the first six months of 2024.

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

1 unchanged sentence

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

Cincinnati Financial Corporation First-Quarter 2025 10-Q

Cincinnati Financial Corporation Second-Quarter 2025 10-Q

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

3 unchanged sentences

gain (loss) Gross investment income

At March 31, 2025

At June 30, 2025

Taxable fixed maturities:

36 unchanged sentences

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

Cincinnati Financial Corporation First-Quarter 2025 10-Q

Cincinnati Financial Corporation Second-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