CINCINNATI FINANCIAL CORP 10-Q

Item 3. Quantitative and Qualitative Disclosures About Market Risk Our greatest exposure to market risk is through our investment portfolio. Market risk is the potential for a decrease in securities' fair value resulting from broad yet uncontrollable forces such as: inflation, economic growth or recession, interest rates, world political conditions or other widespread unpredictable events. It is comprised of many individual risks that, when combined, create a macroeconomic impact. 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 $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 Cost or amortized cost Percent of total Fair value Percent of total Cost or amortized cost Percent of total Fair value Percent of total Taxable fixed maturities $ 13,437 62.0 % $ 13,166 45.7 % $ 12,668 60.4 % $ 12,243 44.2 % Tax-exempt fixed maturities 4,098 18.9 3,911 13.6 4,067 19.4 3,939 14.2 Common equities 3,626 16.8 11,309 39.2 3,568 17.0 10,836 39.2 Nonredeemable preferred equities 386 1.8 340 1.2 385 1.8 349 1.3 Short-term investments 100 0.5 100 0.3 298 1.4 298 1.1 Total $ 21,647 100.0 % $ 28,826 100.0 % $ 20,986 100.0 % $ 27,665 100.0 % 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 $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 Page 64 Table of Contents FIXED-MATURITY SECURITIES INVESTMENTS By maintaining a well-diversified fixed-maturity portfolio, we attempt to reduce overall risk. We invest new money in the bond market on a regular basis, targeting what we believe to be optimal risk-adjusted, after-tax yields. Risk, in this context, includes interest rate, call, reinvestment rate, credit and liquidity risk. We do not make a concerted effort to alter duration on a portfolio basis in response to anticipated movements in interest rates. 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 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 June 30, 2025 At December 31, 2024 Weighted average yield-to-amortized cost 5.16 % 5.06 % Weighted average maturity 10.7 yrs 10.2 yrs Effective duration 5.3 yrs 5.0 yrs 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 Second-Quarter 2025 10-Q Page 65 Table of Contents TAXABLE FIXED MATURITIES 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 Government-sponsored enterprises 2,447 2,274 States, municipalities and political subdivisions 797 782 Asset-backed 732 551 Noninvestment-grade corporate 271 310 United States government 183 226 Foreign government 20 30 Total $ 13,166 $ 12,243 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 June 30, 2025. Our investment-grade corporate bonds had an average rating of Baa1 by Moody's or BBB+ by S&P Global Ratings and represented 66.2% 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 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. The utility and energy sectors represented 13.0% and 11.0%, 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 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 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 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 June 30, 2025. INTEREST RATE SENSITIVITY ANALYSIS Because of our strong surplus, long-term investment horizon and ability to hold most fixed-maturity investments until maturity, we believe the company is adequately positioned if interest rates were to rise. Although the fair values of our existing holdings may suffer, a higher rate environment would provide the opportunity to invest cash flow in higher-yielding securities, while reducing the likelihood of untimely redemptions of currently callable securities. While higher interest rates would be expected to continue to increase the number of fixed-maturity holdings trading below 100% of amortized cost, we believe lower fixed-maturity security values due solely to interest rate changes would not signal a decline in credit quality. We continue to manage the portfolio with an eye toward both meeting current income needs and managing interest rate risk. Our dynamic financial planning model uses analytical tools to assess market risks. 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 Second-Quarter 2025 10-Q Page 66 Table of Contents The table below summarizes the effect of hypothetical changes in interest rates on the fair value of the fixed-maturity portfolio: (Dollars in millions) Effect from interest rate change in basis points -200 -100 — 100 200 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 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. Generally speaking, the higher a bond is rated, the more directly correlated movements in its fair value are to changes in the general level of interest rates, exclusive of call features. The fair values of average- to lower-rated corporate bonds are additionally influenced by the expansion or contraction of credit spreads. In our dynamic financial planning model, the selected interest rate change of 100 to 200 basis points represents our view of a shift in rates that is quite possible over a one-year period. The rates modeled should not be considered a prediction of future events as interest rates may be much more volatile in the future. 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 June 30, 2025, we had $100 million of short-term investments. EQUITY INVESTMENTS 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. We believe our equity investment style is an appropriate long-term strategy. While our long-term financial position would be affected by prolonged changes in the market valuation of our investments, we believe our strong surplus position and cash flow provide a cushion against short-term fluctuations in valuation. Continued payment of cash dividends by the issuers of our common equity holdings can provide a floor to their valuation. The table below summarizes the effect of hypothetical changes in market prices on fair value of our equity portfolio. (Dollars in millions) Effect from market price change in percent -30% -20% -10% — 10% 20% 30% 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 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 Second-Quarter 2025 10-Q Page 67 Table of Contents Common Stock Portfolio Industry Sector Distribution Percent of common stock portfolio At June 30, 2025 At December 31, 2024 Cincinnati Financial S&P 500 Industry Weightings Cincinnati Financial S&P 500 Industry Weightings Sector: Information technology 33.0 % 33.1 % 32.6 % 32.5 % Industrials 14.4 8.6 14.3 8.2 Financial 13.3 14.0 12.4 13.6 Healthcare 9.6 9.3 10.8 10.1 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 Energy 4.1 3.0 4.2 3.2 Utilities 3.2 2.4 3.1 2.3 Real estate 2.1 2.0 2.1 2.1 Communication services 1.3 9.8 1.3 9.4 Total 100.0 % 100.0 % 100.0 % 100.0 % UNREALIZED INVESTMENT GAINS AND LOSSES 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. In addition, changes in interest rates can cause rapid, significant changes in fair values of fixed-maturity securities and the net loss position, as discussed in Quantitative and Qualitative Disclosures About Market Risk. For federal income tax purposes, taxes on gains from appreciated investments generally are not due until securities are sold. 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 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 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 We expect the number of fixed-maturity securities trading below amortized cost to fluctuate as interest rates rise or fall and credit spreads expand or contract due to prevailing economic conditions. Further, amortized costs for some securities are revised through write-downs recognized in prior periods. 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. The fair value of these 2,658 securities was $8.867 billion, and they accounted for $236 million in unrealized losses. • 831 of the 3,537 holdings had fair value between 70% and 90% of amortized cost at June 30, 2025. We believe the 831 securities will continue to pay interest and ultimately pay principal upon Cincinnati Financial Corporation Second-Quarter 2025 10-Q Page 68 Table of Contents maturity. 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. • 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. The fair value of these securities was $51 million, and they accounted for $26 million in unrealized losses. The table below reviews fair values and unrealized losses by investment category and by the overall duration of the securities' continuous unrealized loss position. (Dollars in millions) Less than 12 months 12 months or more Total At June 30, 2025 Fair value Unrealized losses Fair value Unrealized losses Fair value Unrealized losses Fixed-maturity: Corporate $ 1,738 $ 51 $ 3,037 $ 205 $ 4,775 $ 256 States, municipalities and political subdivisions 1,505 49 2,062 255 3,567 304 Government-sponsored enterprises 1,427 9 124 — 1,551 9 Asset-backed 237 7 78 5 315 12 United States government — — 62 1 62 1 Foreign government — — — — — — Total fixed-maturity 4,907 116 5,363 466 10,270 582 Short-term 100 — — — 100 — Total fixed-maturity and short-term investments $ 5,007 $ 116 $ 5,363 $ 466 $ 10,370 $ 582 At December 31, 2024 Fixed-maturity: Corporate $ 2,815 $ 78 $ 3,634 $ 255 $ 6,449 $ 333 States, municipalities and political subdivisions 1,513 25 1,898 245 3,411 270 Government-sponsored enterprises 1,876 8 92 1 1,968 9 Asset-backed 331 10 96 7 427 17 United States government 48 — 100 2 148 2 Foreign government — — 3 — 3 — 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 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. 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 Second-Quarter 2025 10-Q Page 69 Table of Contents The following table summarizes the investment portfolio by severity of decline: (Dollars in millions) Number of issues Amortized cost Fair value Gross unrealized gain (loss) Gross investment income At June 30, 2025 Taxable fixed maturities: Fair valued below 70% of amortized cost 8 $ 18 $ 11 $ (7) $ — Fair valued at 70% to less than 100% of amortized cost 1,647 7,771 7,389 (382) 193 Fair valued at 100% and above of amortized cost 1,082 5,648 5,766 118 140 Investment income on securities sold in current year — — — — 18 Total 2,737 13,437 13,166 (271) 351 Tax-exempt fixed maturities: Fair valued below 70% of amortized cost 40 59 40 (19) 1 Fair valued at 70% to less than 100% of amortized cost 1,841 3,004 2,830 (174) 50 Fair valued at 100% and above of amortized cost 659 1,035 1,041 6 18 Investment income on securities sold in current year — — — — 2 Total 2,540 4,098 3,911 (187) 71 Fixed-maturities summary: Fair valued below 70% of amortized cost 48 77 51 (26) 1 Fair valued at 70% to less than 100% of amortized cost 3,488 10,775 10,219 (556) 243 Fair valued at 100% and above of amortized cost 1,741 6,683 6,807 124 158 Investment income on securities sold in current year — — — — 20 Total 5,277 17,535 17,077 (458) 422 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 — — — — 2 Total 1 100 100 — 3 Fixed maturities and short-term investments summary: Fair valued below 70% of cost 48 77 51 (26) 1 Fair valued at 70% to less than 100% of cost 3,489 10,875 10,319 (556) 244 Fair valued at 100% and above of cost 1,741 6,683 6,807 124 158 Investment income on securities sold in current year — — — — 22 Total 5,278 $ 17,635 $ 17,177 $ (458) $ 425 At December 31, 2024 Fixed maturities and short-term investments summary: Fair valued below 70% of amortized cost 19 $ 43 $ 28 $ (15) $ 2 Fair valued at 70% to less than 100% of amortized cost 3,704 13,094 12,478 (616) 461 Fair valued at 100% and above of amortized cost 1,367 3,896 3,974 78 184 Investment income on securities sold in current year — — — — 86 Total 5,090 $ 17,033 $ 16,480 $ (553) $ 733 See our 2024 Annual Report on Form 10-K, Item 7, Critical Accounting Estimates, Asset Impairment, Page 56. Cincinnati Financial Corporation Second-Quarter 2025 10-Q Page 70 Table of Contents