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 $30.326 billion at September 30, 2025, up $2.661 billion from year-end 2024, including a $1.448 billion increase in the fixed-maturity portfolio, a $1.362 billion increase in the equity portfolio and a $149 million decrease in short-term investments. (Dollars in millions) At September 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 $ 13,708 61.8 % $ 13,593 44.8 % $ 12,668 60.4 % $ 12,243 44.2 % Tax-exempt fixed maturities 4,139 18.7 4,037 13.3 4,067 19.4 3,939 14.2 Common equities 3,779 17.1 12,209 40.3 3,568 17.0 10,836 39.2 Nonredeemable preferred equities 375 1.7 338 1.1 385 1.8 349 1.3 Short-term investments 149 0.7 149 0.5 298 1.4 298 1.1 Total $ 22,150 100.0 % $ 30,326 100.0 % $ 20,986 100.0 % $ 27,665 100.0 % At September 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 $623 million of private equity investments, $99 million of real estate through direct property ownership and development projects in the United States, $37 million of life policy loans and $14 million in Lloyd's deposit at September 30, 2025. Cincinnati Financial Corporation Third-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 nine 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 and a slight tightening of corporate credit spreads. At September 30, 2025, our fixed-maturity portfolio with an average rating of A2/A+ was valued at 98.8% of its amortized cost, compared with 96.7% at December 31, 2024. At September 30, 2025, 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. Attributes of the fixed-maturity portfolio include: At September 30, 2025 At December 31, 2024 Weighted average yield-to-amortized cost 5.10 % 5.06 % Weighted average maturity 10.9 yrs 10.2 yrs Effective duration 5.6 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 Third-Quarter 2025 10-Q Page 65 Table of Contents TAXABLE FIXED MATURITIES Our taxable fixed-maturity portfolio, with a fair value of $13.593 billion at September 30, 2025, included: (Dollars in millions) At September 30, 2025 At December 31, 2024 Investment-grade corporate $ 9,140 $ 8,070 Government-sponsored enterprises 2,346 2,274 States, municipalities and political subdivisions 809 782 Asset-backed 778 551 United States government 274 226 Noninvestment-grade corporate 223 310 Foreign government 23 30 Total $ 13,593 $ 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 September 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 67.2% of the taxable fixed-maturity portfolio's fair value at September 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 September 30, 2025, was the financial sector. It represented 30.3% of our investment-grade corporate bond portfolio, compared with 33.8% at year-end 2024. The utility and energy sectors represented 13.4% 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 September 30, 2025, included $778 million of asset-backed securities at fair value with an average rating of Aa2/AA. TAX-EXEMPT FIXED MATURITIES At September 30, 2025, we had $4.037 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, 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 Third-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 September 30, 2025 $ 19,606 $ 18,610 $ 17,630 $ 16,563 $ 15,495 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, 2025, was 5.6 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 5.8% 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 September 30, 2025, we had $149 million of short-term investments. EQUITY INVESTMENTS Our equity investments, with a fair value totaling $12.547 billion at September 30, 2025, included $12.209 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 September 30, 2025 $ 8,783 $ 10,038 $ 11,292 $ 12,547 $ 13,802 $ 15,056 $ 16,311 At December 31, 2024 $ 7,830 $ 8,948 $ 10,067 $ 11,185 $ 12,304 $ 13,422 $ 14,541 At September 30, 2025, Microsoft (Nasdaq:MSFT) was our largest single common stock holding with a fair value of $940 million, or 7.7% 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 Third-Quarter 2025 10-Q Page 67 Table of Contents Common Stock Portfolio Industry Sector Distribution Percent of common stock portfolio At September 30, 2025 At December 31, 2024 Cincinnati Financial S&P 500 Industry Weightings Cincinnati Financial S&P 500 Industry Weightings Sector: Information technology 33.9 % 34.8 % 32.6 % 32.5 % Industrials 14.1 8.3 14.3 8.2 Financial 13.4 13.6 12.4 13.6 Healthcare 10.2 8.9 10.8 10.1 Consumer discretionary 7.5 10.5 7.6 11.2 Consumer staples 6.6 4.9 6.9 5.5 Energy 4.3 2.9 4.2 3.2 Materials 3.8 1.8 4.7 1.9 Utilities 3.1 2.3 3.1 2.3 Real estate 1.9 1.9 2.1 2.1 Communication services 1.2 10.1 1.3 9.4 Total 100.0 % 100.0 % 100.0 % 100.0 % UNREALIZED INVESTMENT GAINS AND LOSSES At September 30, 2025, unrealized investment gains before taxes for the fixed-maturity portfolio totaled $212 million and unrealized investment losses amounted to $429 million before taxes. The $217 million net unrealized loss position in our fixed-maturity portfolio at September 30, 2025, decreased in the first nine months of 2025, primarily due to a decrease in U.S. Treasury yields and a slight tightening 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 September 30, 2025, consisted of a net gain position in our equity portfolio of $8.393 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 September 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 $3.652 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 September 30, 2025, 2,831 of the 5,331 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 2,831 holdings with fair values below amortized cost at September 30, 2025, represented 46.5% of the fair value of our fixed-maturity and short-term investments portfolio and $429 million in unrealized losses. • 2,137 of the 2,831 holdings had fair value between 90% and 100% of amortized cost at September 30, 2025. These primarily consist of securities whose current valuation is largely the result of interest rate factors. The fair value of these 2,137 securities was $7.055 billion, and they accounted for $156 million in unrealized losses. • 677 of the 2,831 holdings had fair value between 70% and 90% of amortized cost at September 30, 2025. We believe the 677 securities will continue to pay interest and ultimately pay principal upon maturity. Cincinnati Financial Corporation Third-Quarter 2025 10-Q Page 68 Table of Contents The issuers of these 677 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 $1.192 billion, and they accounted for $257 million in unrealized losses. • 17 of the 2,831 holdings had fair value below 70% of amortized cost at September 30, 2025. We believe these securities will continue to pay interest and ultimately pay principal upon maturity. The fair value of these securities was $27 million, and they accounted for $16 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 September 30, 2025 Fair value Unrealized losses Fair value Unrealized losses Fair value Unrealized losses Fixed-maturity: Corporate $ 793 $ 14 $ 2,887 $ 179 $ 3,680 $ 193 States, municipalities and political subdivisions 873 20 2,019 201 2,892 221 Government-sponsored enterprises 922 3 488 2 1,410 5 Asset-backed 173 4 91 5 264 9 United States government — — 27 1 27 1 Foreign government 1 — — — 1 — Total fixed-maturity 2,762 41 5,512 388 8,274 429 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 September 30, 2025, applying our invested asset impairment policy, we determined that the total of $429 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 2025, no fixed maturity securities were written down to fair value, due to an intention to be sold. The allowance for credit losses increased $15 million during the first nine months of 2025. 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 increase in the allowance for credit losses was $25 million during the first nine 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 Third-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 September 30, 2025 Taxable fixed maturities: Fair valued below 70% of amortized cost 6 $ 27 $ 17 $ (10) $ 1 Fair valued at 70% to less than 100% of amortized cost 1,373 6,331 6,035 (296) 215 Fair valued at 100% and above of amortized cost 1,365 7,350 7,541 191 266 Investment income on securities sold in current year — — — — 58 Total 2,744 13,708 13,593 (115) 540 Tax-exempt fixed maturities: Fair valued below 70% of amortized cost 11 16 10 (6) — Fair valued at 70% to less than 100% of amortized cost 1,441 2,329 2,212 (117) 58 Fair valued at 100% and above of amortized cost 1,134 1,794 1,815 21 44 Investment income on securities sold in current year — — — — 5 Total 2,586 4,139 4,037 (102) 107 Fixed-maturities summary: Fair valued below 70% of amortized cost 17 43 27 (16) 1 Fair valued at 70% to less than 100% of amortized cost 2,814 8,660 8,247 (413) 273 Fair valued at 100% and above of amortized cost 2,499 9,144 9,356 212 310 Investment income on securities sold in current year — — — — 63 Total 5,330 17,847 17,630 (217) 647 Short-term investments: Fair valued below 70% of cost — — — — — Fair valued at 70% to less than 100% of cost — — — — — Fair valued at 100% and above of cost 1 149 149 — 2 Investment income on securities sold in current year — — — — 3 Total 1 149 149 — 5 Fixed maturities and short-term investments summary: Fair valued below 70% of cost 17 43 27 (16) 1 Fair valued at 70% to less than 100% of cost 2,814 8,660 8,247 (413) 273 Fair valued at 100% and above of cost 2,500 9,293 9,505 212 312 Investment income on securities sold in current year — — — — 66 Total 5,331 $ 17,996 $ 17,779 $ (217) $ 652 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 Third-Quarter 2025 10-Q Page 70 Table of Contents