UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark one)

☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the quarterly period ended ~~September 30, 2020.~~March 31, 2021.

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the transition period from _____________________ to _____________________.

Commission file number 0-4604

CINCINNATI FINANCIAL CORPORATION

(Exact name of registrant as specified in its charter)

Ohio

31-0746871

(State or other jurisdiction of
incorporation or organization)

(I.R.S. Employer Identification No.)

6200 S. Gilmore Road,

Fairfield,

Ohio

45014-5141

(Address of principal executive offices)

(Zip code)

Registrant's telephone number, including area code: (513) 870-2000

N/A

(Former name or former address, if changed since last report.)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common stock

CINF

Nasdaq Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

☑Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

☑Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a nonaccelerated filer, a smaller reporting company or an emerging growth company. See definition of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.

☑ Large accelerated filer ☐ Accelerated filer ☐ Nonaccelerated filer ☐ Smaller reporting company

☐ Emerging growth company

☐ If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act):

☐Yes ☑ No

As of ~~October 22, 2020,~~April 23, 2021, there were ~~160,896,903 shares~~161,096,632 shares of common stock outstanding.

CINCINNATI FINANCIAL CORPORATION AND SUBSIDIARIES

FORM 10-Q FOR THE QUARTER ENDED ~~September 30, 2020~~March 31, 2021

TABLE OF CONTENTS


Part I – Financial Information			3

Item 1. Financial Statements (unaudited)			3

Condensed Consolidated Balance Sheets			3

Condensed Consolidated Statements of Income			4

Condensed Consolidated Statements of Comprehensive Income			5

Condensed Consolidated Statements of Shareholders’ Equity			6

Condensed Consolidated Statements of Cash Flows			7

Notes to Condensed Consolidated Financial Statements (unaudited)			8

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			2726

Safe Harbor Statement			2726

Corporate Financial Highlights			29

Financial Results			4039

Liquidity and Capital Resources			5754

Other Matters			6158

Item 3. Quantitative and Qualitative Disclosures about Market Risk			6158

Item 4. Controls and Procedures			6764

Part II – Other Information			6966

Item 1. Legal Proceedings			6966

Item 1A. Risk Factors			6966

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			7067

Item 6. Exhibits			7168

Cincinnati Financial Corporation ~~Third-Quarter 2020~~First-Quarter 2021 10-Q

Page 2

Part I – Financial Information

Item 1. Financial Statements (unaudited)

Cincinnati Financial Corporation and Subsidiaries

Condensed Consolidated Balance Sheets


(Dollars in millions, except per share data)	(Dollars in millions, except per share data)	September 30,		December 31,		(Dollars in millions, except per share data)	March 31,		December 31,
		2020		2019			2021		2020
Assets	Assets					Assets
Investments	Investments					Investments
Fixed maturities, at fair value (amortized cost: 2020—$11,273; 2019—$11,108)		$	12,157	$	11,698
Equity securities, at fair value (cost: 2020—$3,898; 2019—$3,581)		7,867		7,752
Fixed maturities, at fair value (amortized cost: 2021—$11,478; 2020—$11,312)						Fixed maturities, at fair value (amortized cost: 2021—$11,478; 2020—$11,312)	$	12,308	$	12,338
Equity securities, at fair value (cost: 2021—$3,938; 2020—$3,927)						Equity securities, at fair value (cost: 2021—$3,938; 2020—$3,927)	9,360		8,856

Other invested assets	Other invested assets	275		296		Other invested assets	350		348
Total investments	Total investments	20,299		19,746		Total investments	22,018		21,542
Cash and cash equivalents	Cash and cash equivalents	914		767		Cash and cash equivalents	947		900

Investment income receivable	Investment income receivable	131		133		Investment income receivable	134		136
Finance receivable	Finance receivable	86		77		Finance receivable	99		95
Premiums receivable	Premiums receivable	1,925		1,777		Premiums receivable	2,048		1,879
Reinsurance recoverable	Reinsurance recoverable	533		610		Reinsurance recoverable	511		517
Prepaid reinsurance premiums	Prepaid reinsurance premiums	73		54		Prepaid reinsurance premiums	68		65
Deferred policy acquisition costs	Deferred policy acquisition costs	817		774		Deferred policy acquisition costs	880		805
Land, building and equipment, net, for company use (accumulated depreciation: 2020—$283; 2019—$276)		211		207
Land, building and equipment, net, for company use (accumulated depreciation: 2021—$290; 2020—$285)						Land, building and equipment, net, for company use (accumulated depreciation: 2021—$290; 2020—$285)	213		213
Other assets	Other assets	452		381		Other assets	466		438
Separate accounts	Separate accounts	929		882		Separate accounts	929		952
Total assets	Total assets	$	26,370	$	25,408	Total assets	$	28,313	$	27,542

Liabilities	Liabilities					Liabilities
Insurance reserves	Insurance reserves					Insurance reserves
Loss and loss expense reserves	Loss and loss expense reserves	$	6,747	$	6,147	Loss and loss expense reserves	$	6,950	$	6,746
Life policy and investment contract reserves	Life policy and investment contract reserves	2,900		2,835		Life policy and investment contract reserves	2,950		2,915
Unearned premiums	Unearned premiums	3,024		2,788		Unearned premiums	3,181		2,960
Other liabilities	Other liabilities	981		928		Other liabilities	887		982
Deferred income tax	Deferred income tax	1,077		1,079		Deferred income tax	1,373		1,299
Note payable	Note payable	123		39		Note payable	57		54
Long-term debt and lease obligations	Long-term debt and lease obligations	844		846		Long-term debt and lease obligations	848		845
Separate accounts	Separate accounts	929		882		Separate accounts	929		952
Total liabilities	Total liabilities	16,625		15,544		Total liabilities	17,175		16,753

Commitments and contingent liabilities (Note 12)	Commitments and contingent liabilities (Note 12)					Commitments and contingent liabilities (Note 12)	0		0

Shareholders' Equity	Shareholders' Equity					Shareholders' Equity
Common stock, par value—$2 per share; (authorized: 2020 and 2019—500 million shares; issued: 2020 and 2019—198.3 million shares)		397		397
Common stock, par value—$2 per share; (authorized: 2021 and 2020—500 million shares; issued: 2021 and 2020—198.3 million shares)						Common stock, par value—$2 per share; (authorized: 2021 and 2020—500 million shares; issued: 2021 and 2020—198.3 million shares)	397		397
Paid-in capital	Paid-in capital	1,318		1,306		Paid-in capital	1,322		1,328
Retained earnings	Retained earnings	9,132		9,257		Retained earnings	10,603		10,085
Accumulated other comprehensive income	Accumulated other comprehensive income	686		448		Accumulated other comprehensive income	625		769
Treasury stock at cost (2020—37.5 million shares and 2019—35.4 million shares)		(1,788)		(1,544)
Treasury stock at cost (2021—37.3 million shares and 2020—37.4 million shares)						Treasury stock at cost (2021—37.3 million shares and 2020—37.4 million shares)	(1,809)		(1,790)
Total shareholders' equity	Total shareholders' equity	9,745		9,864		Total shareholders' equity	11,138		10,789
Total liabilities and shareholders' equity	Total liabilities and shareholders' equity	$	26,370	$	25,408	Total liabilities and shareholders' equity	$	28,313	$	27,542

Accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.

Cincinnati Financial Corporation ~~Third-Quarter 2020~~First-Quarter 2021 10-Q

Page 3

Cincinnati Financial Corporation and Subsidiaries

Condensed Consolidated Statements of Income


(Dollars in millions, except per share data)	(Dollars in millions, except per share data)	Three months ended September 30,						Nine months ended September 30,			(Dollars in millions, except per share data)			Three months ended March 31,
		2020		2019		2020		2019				2021		2020
Revenues	Revenues									Revenues
Earned premiums	Earned premiums	$	1,522	$	1,446	$	4,460	$	4,163	Earned premiums		$	1,544	$	1,456
Investment income, net of expenses	Investment income, net of expenses	167		161		498		478		Investment income, net of expenses		174		165
Investment gains and losses, net	Investment gains and losses, net	533		86		(132)		1,113		Investment gains and losses, net		504		(1,725)
Fee revenues	Fee revenues	2		4		8		11		Fee revenues		3		3
Other revenues	Other revenues	3		3		8		7		Other revenues		2		2
Total revenues	Total revenues	2,227		1,700		4,842		5,772		Total revenues		2,227		(99)
Benefits and Expenses	Benefits and Expenses									Benefits and Expenses
Insurance losses and contract holders' benefits	Insurance losses and contract holders' benefits	1,143		932		3,232		2,728		Insurance losses and contract holders' benefits		1,003		1,003
Underwriting, acquisition and insurance expenses	Underwriting, acquisition and insurance expenses	452		455		1,372		1,296		Underwriting, acquisition and insurance expenses		439		456
Interest expense	Interest expense	13		14		40		40		Interest expense		13		13
Other operating expenses	Other operating expenses	5		5		15		17		Other operating expenses		4		5
Total benefits and expenses	Total benefits and expenses	1,613		1,406		4,659		4,081		Total benefits and expenses		1,459		1,477
Income Before Income Taxes	Income Before Income Taxes	614		294		183		1,691		Income Before Income Taxes		768		(1,576)
Provision (Benefit) for Income Taxes	Provision (Benefit) for Income Taxes									Provision (Benefit) for Income Taxes
Current	Current	55		28		81		84		Current		36		3
Deferred	Deferred	75		18		(65)		236		Deferred		112		(353)
Total provision for income taxes		130		46		16		320
Net Income		$	484	$	248	$	167	$	1,371
Total provision (benefit) for income taxes										Total provision (benefit) for income taxes		148		(350)
Net Income (Loss)										Net Income (Loss)		$	620	$	(1,226)
Per Common Share	Per Common Share									Per Common Share
Net income—basic		$	3.01	$	1.51	$	1.03	$	8.40
Net income—diluted		2.99		1.49		1.03		8.30
Net income (loss)—basic										Net income (loss)—basic		$	3.85	$	(7.56)
Net income (loss)—diluted										Net income (loss)—diluted		3.82		(7.56)

Accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.

Cincinnati Financial Corporation ~~Third-Quarter 2020~~First-Quarter 2021 10-Q

Page 4

Cincinnati Financial Corporation and Subsidiaries

Condensed Consolidated Statements of Comprehensive Income

(Dollars in millions) Three months ended September 30, Nine months ended September 30,
2020 2019 2020 2019
Net Income $ 484 $ 248 $ 167 $ 1,371
Other Comprehensive Income
Change in unrealized gains on investments, net of tax of $23, $21, $62 and $114, respectively 89 79 232 428
Amortization of pension actuarial loss and prior service cost, net of tax of $0, $0, $0 and $0, respectively 0 0 2 1
Change in life deferred acquisition costs, life policy reserves and other, net of tax (benefit) of $0, $0, $1 and $(2), respectively 0 (1) 4 (9)
Other comprehensive income 89 78 238 420
Comprehensive Income $ 573 $ 326 $ 405 $ 1,791


(Dollars in millions)	Three months ended March 31,
		2021		2020
Net Income (Loss)		$	620	$	(1,226)
Other Comprehensive Income (Loss)
Change in unrealized gains on investments, net of tax (benefit) of $(41) and $(68), respectively		(155)		(256)
Amortization of pension actuarial loss and prior service cost, net of tax of $1 and $0, respectively		3		1
Change in life deferred acquisition costs, life policy reserves and other, net of tax of $2 and $3, respectively		8		11
Other comprehensive loss		(144)		(244)
Comprehensive Income (Loss)		$	476	$	(1,470)

Accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.

Cincinnati Financial Corporation ~~Third-Quarter 2020~~First-Quarter 2021 10-Q

Page 5

Cincinnati Financial Corporation and Subsidiaries

Condensed Consolidated Statements of Shareholders' Equity


(Dollars in millions)	(Dollars in millions)	Three months ended September 30,						Nine months ended September 30,			(Dollars in millions)			Three months ended March 31,
		2020		2019		2020		2019				2021		2020
Common Stock	Common Stock									Common Stock
Beginning of period	Beginning of period	$	397	$	397	$	397	$	397	Beginning of period		$	397	$	397
Share-based awards	Share-based awards	0		0		0		0		Share-based awards		0		0
End of period	End of period	397		397		397		397		End of period		397		397

Paid-In Capital	Paid-In Capital									Paid-In Capital
Beginning of period	Beginning of period	1,309		1,286		1,306		1,281		Beginning of period		1,328		1,306
Share-based awards	Share-based awards	0		1		(16)		(12)		Share-based awards		(16)		(16)
Share-based compensation	Share-based compensation	8		7		24		23		Share-based compensation		9		9
Other	Other	1		1		4		3		Other		1		1
End of period	End of period	1,318		1,295		1,318		1,295		End of period		1,322		1,300

Retained Earnings	Retained Earnings									Retained Earnings
Beginning of period	Beginning of period	8,745		8,566		9,257		7,625		Beginning of period		10,085		9,257
Cumulative effect of change in accounting for credit losses as of January 1, 2020	Cumulative effect of change in accounting for credit losses as of January 1, 2020	0		0		(2)		0		Cumulative effect of change in accounting for credit losses as of January 1, 2020		0		(2)
Adjusted beginning of year	Adjusted beginning of year	8,745		8,566		9,255		7,625		Adjusted beginning of year		10,085		9,255
Net income	Net income	484		248		167		1,371		Net income		620		(1,226)
Dividends declared	Dividends declared	(97)		(92)		(290)		(274)		Dividends declared		(102)		(97)
End of period	End of period	9,132		8,722		9,132		8,722		End of period		10,603		7,932

Accumulated Other Comprehensive Income	Accumulated Other Comprehensive Income									Accumulated Other Comprehensive Income
Beginning of period	Beginning of period	597		364		448		22		Beginning of period		769		448

Other comprehensive income	Other comprehensive income	89		78		238		420		Other comprehensive income		(144)		(244)
End of period	End of period	686		442		686		442		End of period		625		204

Treasury Stock	Treasury Stock									Treasury Stock
Beginning of period	Beginning of period	(1,790)		(1,482)		(1,544)		(1,492)		Beginning of period		(1,790)		(1,544)
Share-based awards	Share-based awards	0		3		12		19		Share-based awards		12		11
Shares acquired - share repurchase authorization	Shares acquired - share repurchase authorization	0		(5)		(256)		(5)		Shares acquired - share repurchase authorization		(28)		(256)
Shares acquired - share-based compensation plans	Shares acquired - share-based compensation plans	0		(2)		(3)		(9)		Shares acquired - share-based compensation plans		(3)		(3)
Other	Other	2		1		3		2		Other		0		1
End of period	End of period	(1,788)		(1,485)		(1,788)		(1,485)		End of period		(1,809)		(1,791)

Total Shareholders' Equity	Total Shareholders' Equity	$	9,745	$	9,371	$	9,745	$	9,371	Total Shareholders' Equity		$	11,138	$	8,042

(In millions, except per common share)	(In millions, except per common share)									(In millions, except per common share)
Common Stock - Shares Outstanding	Common Stock - Shares Outstanding									Common Stock - Shares Outstanding
Beginning of period	Beginning of period	160.8		163.3		162.9		162.8		Beginning of period		160.9		162.9
Share-based awards	Share-based awards	0		0.1		0.4		0.6		Share-based awards		0.4		0.4
Shares acquired - share repurchase authorization	Shares acquired - share repurchase authorization	0		0		(2.5)		0		Shares acquired - share repurchase authorization		(0.3)		(2.5)

End of period	End of period	160.8		163.4		160.8		163.4		End of period		161.0		160.8

Dividends declared per common share	Dividends declared per common share	$	0.60	$	0.56	$	1.80	$	1.68	Dividends declared per common share		$	0.63	$	0.60

Accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.

Cincinnati Financial Corporation ~~Third-Quarter 2020~~First-Quarter 2021 10-Q

Page 6

Cincinnati Financial Corporation and Subsidiaries

Condensed Consolidated Statements of Cash Flows


(Dollars in millions)	(Dollars in millions)	Nine months ended September 30,						(Dollars in millions)	Three months ended March 31,
		2020		2019			2021		2020
Cash Flows From Operating Activities	Cash Flows From Operating Activities					Cash Flows From Operating Activities
Net income	Net income	$	167	$	1,371	Net income	$	620	$	(1,226)
Adjustments to reconcile net income to net cash provided by operating activities:	Adjustments to reconcile net income to net cash provided by operating activities:					Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	Depreciation and amortization	62		54		Depreciation and amortization	23		22
Investment gains and losses, net	Investment gains and losses, net	137		(1,103)		Investment gains and losses, net	(501)		1,729
Share-based compensation	Share-based compensation	24		23		Share-based compensation	9		9
Interest credited to contract holders'	Interest credited to contract holders'	33		31		Interest credited to contract holders'	11		11
Deferred income tax expense	Deferred income tax expense	(65)		236		Deferred income tax expense	112		(353)
Changes in:	Changes in:					Changes in:
Investment income receivable	Investment income receivable	2		7		Investment income receivable	2		9
Premiums and reinsurance receivable	Premiums and reinsurance receivable	(93)		(156)		Premiums and reinsurance receivable	(166)		(86)
Deferred policy acquisition costs	Deferred policy acquisition costs	(46)		(69)		Deferred policy acquisition costs	(49)		(31)
Other assets	Other assets	(25)		(36)		Other assets	(33)		(11)
Loss and loss expense reserves	Loss and loss expense reserves	600		72		Loss and loss expense reserves	204		59
Life policy and investment contract reserves	Life policy and investment contract reserves	94		79		Life policy and investment contract reserves	15		27
Unearned premiums	Unearned premiums	236		255		Unearned premiums	221		134
Other liabilities	Other liabilities	(34)		39		Other liabilities	(80)		(123)
Current income tax receivable/payable	Current income tax receivable/payable	27		77		Current income tax receivable/payable	(34)		(3)
Net cash provided by operating activities	Net cash provided by operating activities	1,119		880		Net cash provided by operating activities	354		167
Cash Flows From Investing Activities	Cash Flows From Investing Activities					Cash Flows From Investing Activities
Sale of fixed maturities	Sale of fixed maturities	100		61		Sale of fixed maturities	30		21
Call or maturity of fixed maturities	Call or maturity of fixed maturities	756		988		Call or maturity of fixed maturities	300		321
Sale of equity securities	Sale of equity securities	471		194		Sale of equity securities	65		7
Purchase of fixed maturities	Purchase of fixed maturities	(1,092)		(1,345)		Purchase of fixed maturities	(467)		(336)
Purchase of equity securities	Purchase of equity securities	(640)		(341)		Purchase of equity securities	(78)		(132)

Investment in finance receivables	Investment in finance receivables	(33)		(25)		Investment in finance receivables	(12)		(6)
Collection of finance receivables	Collection of finance receivables	26		20		Collection of finance receivables	8		7
Investment in building and equipment	Investment in building and equipment	(16)		(22)		Investment in building and equipment	(5)		(4)
Change in other invested assets, net	Change in other invested assets, net	16		(56)		Change in other invested assets, net	6		(14)
Net cash used in investing activities	Net cash used in investing activities	(412)		(526)		Net cash used in investing activities	(153)		(136)
Cash Flows From Financing Activities	Cash Flows From Financing Activities					Cash Flows From Financing Activities
Payment of cash dividends to shareholders	Payment of cash dividends to shareholders	(280)		(265)		Payment of cash dividends to shareholders	(95)		(90)
Shares acquired - share repurchase authorization	Shares acquired - share repurchase authorization	(256)		(5)		Shares acquired - share repurchase authorization	(28)		(256)
Changes in note payable	Changes in note payable	84		6		Changes in note payable	3		75
Proceeds from stock options exercised	Proceeds from stock options exercised	5		9		Proceeds from stock options exercised	4		4
Contract holders' funds deposited	Contract holders' funds deposited	64		67		Contract holders' funds deposited	27		21
Contract holders' funds withdrawn	Contract holders' funds withdrawn	(123)		(133)		Contract holders' funds withdrawn	(33)		(40)
Other	Other	(54)		(30)		Other	(32)		(26)
Net cash used in financing activities	Net cash used in financing activities	(560)		(351)		Net cash used in financing activities	(154)		(312)
Net change in cash and cash equivalents	Net change in cash and cash equivalents	147		3		Net change in cash and cash equivalents	47		(281)
Cash and cash equivalents at beginning of year	Cash and cash equivalents at beginning of year	767		784		Cash and cash equivalents at beginning of year	900		767
Cash and cash equivalents at end of period	Cash and cash equivalents at end of period	$	914	$	787	Cash and cash equivalents at end of period	$	947	$	486
Supplemental Disclosures of Cash Flow Information:	Supplemental Disclosures of Cash Flow Information:					Supplemental Disclosures of Cash Flow Information:
Interest paid		$	27	$	27

Income taxes paid	Income taxes paid	42		3		Income taxes paid	66		0
Noncash Activities	Noncash Activities					Noncash Activities

Equipment acquired under finance lease obligations	Equipment acquired under finance lease obligations	$	13	$	6	Equipment acquired under finance lease obligations	$	3	$	6
Cashless exercise of stock options		3		9
Share-based compensation						Share-based compensation	16		3
Other assets and other liabilities	Other assets and other liabilities	63		65		Other assets and other liabilities	44		77

Accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.

Cincinnati Financial Corporation ~~Third-Quarter 2020~~First-Quarter 2021 10-Q

Page 7

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 1 — Accounting Policies

The condensed consolidated financial statements include the accounts of Cincinnati Financial Corporation and its consolidated subsidiaries, each of which is wholly owned. These statements are presented in conformity with accounting principles generally accepted in the United States of America (GAAP). All intercompany balances and transactions have been eliminated in consolidation.

The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect amounts reported in the financial statements and accompanying notes. Our actual results could differ from those estimates. Certain financial information that is normally included in annual financial statements prepared in accordance with GAAP, but that is not required for interim reporting purposes, has been condensed or omitted.

Our ~~September 30, 2020,~~March 31, 2021, condensed consolidated financial statements are unaudited. We believe that we have made all adjustments, consisting only of normal recurring accruals, that are necessary for fair presentation. These condensed consolidated financial statements should be read in conjunction with our consolidated financial statements included in our ~~2019~~2020 Annual Report on Form 10-K. The results of operations for interim periods do not necessarily indicate results to be expected for the full year.

~~The World Health Organization declared~~Beginning in mid-March 2020, the ~~2019 novel~~ coronavirus (SARS-CoV-2 or COVID-19) ~~outbreak a Public Health Emergency of International Concern on January 30, 2020, and a pandemic on March 11, 2020. The~~ pandemic outbreak, ~~has~~and unprecedented actions taken to contain the virus, caused an economic downturn on a global scale ~~and uncertainty surrounding future government and private company restrictions~~ as ~~many businesses resume operations. The pandemic, and unprecedented actions taken to contain the virus, has also continued to cause significant~~well as market disruption and volatility. ~~Through the first nine months of 2020, the company estimated that pandemic-related incurred losses and expenses totaled $72 million.~~ The company continues to monitor the impact of the pandemic as it unfolds. The company cannot predict the impact the pandemic will have on its future consolidated financial position, ~~cash flows or~~ results of operations and cash flows, however the impact could be material.

~~Adopted Accounting Updates~~

~~ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments~~

~~In June 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-13,~~ ~~Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,~~ as well as additional implementation related ASU's in 2018, 2019 and 2020. These ASU’s amend previous guidance on the impairment of financial instruments by adding an impairment model that allows an entity to recognize expected credit losses as an allowance rather than impairing as they are incurred. The new guidance is intended to reduce complexity of credit impairment models and result in a more timely recognition of expected credit losses. The standards require the company to consider all relevant information at the time of estimating the expected credit loss, including past events, the current environment, and reasonable and supportable forecasts over the life of the asset.

These ASU's also eliminated the other-than-temporary impairment model for available for sale fixed-maturity securities by requiring that credit related impairments be recognized through an allowance account. Changes in the allowance account are recorded in the period of change as a credit loss expense or reversal of credit loss expense. The measurement of credit losses is not impacted, except that credit losses recognized are limited to the amount by which fair value is below amortized cost and that the length of time that a security has been below amortized cost cannot be considered. These ASU's retain the guidance requiring that impaired securities intended to be sold have their amortized cost basis written down to fair value through net income.

The company adopted these ASU's on January 1, 2020, and applied them on a modified retrospective basis. As a result of this adoption, an after-tax cumulative effect decrease of $2 million was made to retained earnings representing an increase to the overall valuation allowances for financial instruments measured at amortized cost. These ASU's will be applied to available for sale fixed-maturity securities prospectively with no adjustments to the amortized cost basis of securities for which an other-than-temporary impairment had been previously recognized. The company has elected not to measure expected credit losses for accrued interest receivables related to its finance receivables and fixed-maturity securities.

~~Cincinnati Financial Corporation Third-Quarter 2020 10-Q~~

~~Page 8~~

Pending Accounting Updates

ASU 2018-12, Financial Services - Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts

In August 2018, the ~~FASB~~Financial Accounting Standards Board (FASB) issued ASU 2018-12,Financial Services - Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration ~~Contracts~~.Contracts. ASU 2018-12 is intended to improve the timeliness of recognizing changes in the liability for future policy benefits and modify the rate used to discount future cash flows. The ASU will simplify and improve the accounting for certain market-based options or guarantees associated with deposit or account balance contracts and simplify amortization of deferred acquisition costs while improving and expanding required disclosures. In November ~~2019,~~2020, the FASB issued an ASU ~~2019-09,~~ ~~Financial Services - Insurance (Topic 944): Effective Date. ASU 2019-09~~that delayed the effective date of ASU 2018-12 ~~by one year~~ to interim and annual reporting periods beginning after December 15, 2021. In July 2020, the FASB issued a proposed ASU that would further delay the effective date of ASU 2018-12 by an additional year to interim and annual reporting periods beginning after December 15, 20~~22.~~ 2022. These ASU's have not yet been adopted. Management is currently evaluating the impact on our company's consolidated financial position, ~~cash flows and~~ results of ~~operations.~~operations and cash flows.

Cincinnati Financial Corporation ~~Third-Quarter 2020~~First-Quarter 2021 10-Q

Page 98

NOTE 2 – Investments

The following table provides amortized cost, gross unrealized gains, gross unrealized losses and fair value for our fixed-maturity securities:


(Dollars in millions)	(Dollars in millions)	Amortized cost		Gross unrealized									Fair value		(Dollars in millions)			Amortized cost				Gross unrealized								Fair value
At September 30, 2020						gains			losses
At March 31, 2021												At March 31, 2021		Amortized cost						gains				losses				Fair value
Fixed maturity securities:	Fixed maturity securities:											Fixed maturity securities:
Corporate	Corporate	$	6,264	$	532		$	27		$	6,769	Corporate				$	6,426			$	505			$	11			$	6,920
States, municipalities and political subdivisions	States, municipalities and political subdivisions	4,579		366			3			4,942		States, municipalities and political subdivisions		4,641				326				7				4,960
Commercial mortgage-backed	Commercial mortgage-backed	271		13			2			282		Commercial mortgage-backed		272				14				1				285
United States government	United States government	119		5			0			124		United States government		109				4				0				113
Foreign government	Foreign government	27		0			0			27		Foreign government		24				0				0				24
Government-sponsored enterprises	Government-sponsored enterprises	13		0			0			13		Government-sponsored enterprises		6				0				0				6

Total	Total	$	11,273	$	916		$	32		$	12,157	Total		$	11,478			$	849			$	19			$	12,308

At December 31, 2019
At December 31, 2020												At December 31, 2020
Fixed maturity securities:	Fixed maturity securities:											Fixed maturity securities:
Corporate	Corporate	$	6,074	$	332		$	5		$	6,401	Corporate		$	6,281			$	621			$	7			$	6,895
States, municipalities and political subdivisions	States, municipalities and political subdivisions	4,477		252			1			4,728		States, municipalities and political subdivisions		4,604				395				2				4,997
Commercial mortgage-backed	Commercial mortgage-backed	290		11			0			301		Commercial mortgage-backed		271				15				1				285
United States government	United States government	102		2			0			104		United States government		115				5				0				120
Foreign government	Foreign government	28		0			0			28		Foreign government		29				0				0				29
Government-sponsored enterprises	Government-sponsored enterprises	137		0			1			136		Government-sponsored enterprises		12				0				0				12

Total	Total	$	11,108	$	597		$	7		$	11,698	Total		$	11,312			$	1,036			$	10			$	12,338

The net unrealized investment gains in our fixed-maturity portfolio at ~~September 30, 2020,~~March 31, 2021, are primarily the result of the continued low interest rate environment that increased the fair value of our fixed-maturity portfolio. Our commercial mortgage-backed securities had an average rating of Aa1/AA at ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019.~~2020.

Cincinnati Financial Corporation ~~Third-Quarter 2020~~First-Quarter 2021 10-Q

Page 109

The table below provides fair values and gross unrealized losses by investment category and by the duration of the securities' continuous unrealized loss positions:


(Dollars in millions)	(Dollars in millions)	Less than 12 months						12 months or more							Total						(Dollars in millions)	Less than 12 months				12 months or more		Total
At September 30, 2020		Fair value		Unrealized losses		Fair value		Unrealized losses		Fair value		Unrealized losses
At March 31, 2021														At March 31, 2021		Fair value		Unrealized losses		Fair value		Unrealized losses		Fair value		Unrealized losses
Fixed maturity securities:	Fixed maturity securities:													Fixed maturity securities:
Corporate	Corporate	$	600	$	23	$	62	$	4	$	662	$	27	Corporate		$	316	$	8	$	67	$	3	$	383	$	11
States, municipalities and political subdivisions	States, municipalities and political subdivisions	121		3		2		0		123		3		States, municipalities and political subdivisions		206		6		14		1		220		7
Commercial mortgage-backed	Commercial mortgage-backed	38		2		0		0		38		2		Commercial mortgage-backed		4		0		14		1		18		1
United States government	United States government	0		0		0		0		0		0		United States government		2		0		0		0		2		0
Foreign government	Foreign government	16		0		0		0		16		0		Foreign government		1		0		0		0		1		0
Government-sponsored enterprises	Government-sponsored enterprises	0		0		0		0		0		0		Government-sponsored enterprises		4		0		0		0		4		0
Total	Total	$	775	$	28	$	64	$	4	$	839	$	32	Total		$	533	$	14	$	95	$	5	$	628	$	19

At December 31, 2019
At December 31, 2020														At December 31, 2020
Fixed maturity securities:	Fixed maturity securities:													Fixed maturity securities:
Corporate	Corporate	$	199	$	2	$	118	$	3	$	317	$	5	Corporate		$	330	$	5	$	46	$	2	$	376	$	7
States, municipalities and political subdivisions	States, municipalities and political subdivisions	98		1		10		0		108		1		States, municipalities and political subdivisions		31		2		2		0		33		2
Commercial mortgage-backed	Commercial mortgage-backed	6		0		0		0		6		0		Commercial mortgage-backed		23		1		6		0		29		1
United States government	United States government	0		0		4		0		4		0		United States government		12		0		0		0		12		0
Foreign government	Foreign government	11		0		0		0		11		0		Foreign government		10		0		0		0		10		0
Government-sponsored enterprises		26		1		51		0		77		1

Total	Total	$	340	$	4	$	183	$	3	$	523	$	7	Total		$	406	$	8	$	54	$	2	$	460	$	10

Contractual maturity dates for fixed-maturities ~~investments~~securities were:


(Dollars in millions)	(Dollars in millions)	Amortized cost		Fair value		% of fair value		(Dollars in millions)	Amortized cost				Fair value				% of fair value
At September 30, 2020
At March 31, 2021								At March 31, 2021	Amortized cost						Fair value						% of fair value
Maturity dates:	Maturity dates:							Maturity dates:
Due in one year or less	Due in one year or less	$	600	$	608	5.0	%	Due in one year or less			$	585			$	593			4.8	%
Due after one year through five years	Due after one year through five years	3,293		3,500		28.8		Due after one year through five years	3,563				3,799				30.9
Due after five years through ten years	Due after five years through ten years	3,879		4,212		34.6		Due after five years through ten years	3,688				3,987				32.4
Due after ten years	Due after ten years	3,501		3,837		31.6		Due after ten years	3,642				3,929				31.9
Total	Total	$	11,273	$	12,157	100.0	%	Total	$	11,478			$	12,308			100.0	%

Actual maturities may differ from contractual maturities when there is a right to call or prepay obligations with or without call or prepayment penalties.

Cincinnati Financial Corporation ~~Third-Quarter 2020~~First-Quarter 2021 10-Q

Page 1110

The following table provides investment income and investment gains and losses, net:


(Dollars in millions)	(Dollars in millions)	Three months ended September 30,						Nine months ended September 30,			(Dollars in millions)			Three months ended March 31,
		2020		2019		2020		2019				2021		2020
Investment income:	Investment income:									Investment income:
Interest	Interest	$	113	$	110	$	339	$	332	Interest		$	118	$	112
Dividends	Dividends	55		50		161		146		Dividends		58		53
Other	Other	2		5		7		10		Other		2		3
Total	Total	170		165		507		488		Total		178		168
Less investment expenses	Less investment expenses	3		4		9		10		Less investment expenses		4		3
Total	Total	$	167	$	161	$	498	$	478	Total		$	174	$	165

Investment gains and losses, net:	Investment gains and losses, net:									Investment gains and losses, net:
Equity securities:	Equity securities:									Equity securities:
Investment gains and losses on securities sold, net	Investment gains and losses on securities sold, net	$	55	$	0	$	75	$	27	Investment gains and losses on securities sold, net		$	4	$	(4)
Unrealized gains and losses on securities still held, net	Unrealized gains and losses on securities still held, net	475		89		(130)		1,084		Unrealized gains and losses on securities still held, net		487		(1,649)

Subtotal	Subtotal	530		89		(55)		1,111		Subtotal		491		(1,653)
Fixed maturities:	Fixed maturities:									Fixed maturities:
Gross realized gains	Gross realized gains	4		6		9		9		Gross realized gains		3		2
Gross realized losses		0		(1)		(3)		(3)

Write-down of impaired securities	Write-down of impaired securities	(1)		(6)		(78)		(6)		Write-down of impaired securities		0		(77)
Subtotal	Subtotal	3		(1)		(72)		0		Subtotal		3		(75)

Other	Other	0		(2)		(5)		2		Other		10		3

Total	Total	$	533	$	86	$	(132)	$	1,113	Total		$	504	$	(1,725)

The fair value of our ~~common equities~~equity portfolio was ~~$7.589~~$9.360 billion and ~~$7.518~~$8.856 billion at ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, respectively. At ~~September 30,~~March 31, 2021 and December 31, 2020, Apple Inc. (Nasdaq:AAPL), an equity holding, was our largest single ~~equity~~investment holding with a fair value of ~~$562~~$593 million and $644 million, which was ~~7.4%~~6.6% and 7.5% of our publicly traded common equities portfolio and ~~2.8%~~2.7% and 3.0% of the total investment ~~portfolio.~~portfolio, respectively.

~~During the three~~At March 31, 2021 and ~~nine months ended September 30,~~December 31, 2020, there were 0 fixed-maturity securities with an allowance for credit losses. During the three months ended ~~September 30, 2020,~~March 31, 2021, there were 20 fixed-maturity securities ~~from the municipal sector which are intended to be sold and~~that were written down to fair value due to an intention to be sold and during the ~~nine~~three months ended ~~September 30,~~March 31, 2020, there were 1412 fixed-maturity securities from the energy, real estate, consumer goods ~~municipal~~ and technology & electronics sectors ~~which are intended to be sold and~~that were written down to fair ~~value. During~~ ~~the three and nine months ended September 30, 2019, there were 2 fixed-maturity securities other-than-temporarily impaired.~~value due to an intention to be sold.

At ~~September 30, 2020, 254~~March 31, 2021, 296 fixed-maturity securities with a total unrealized loss of ~~$32~~$19 million were in an unrealized loss position. Of that total, 1 fixed-maturity security ~~from the retail sector~~ had a fair value below 70% of amortized cost. At December 31, ~~2019, 38~~2020, 128 fixed-maturity securities with a total unrealized loss of $3$10 million ~~had been~~were in an unrealized loss ~~position for 12 months or more.~~position. Of that total, 0 fixed-maturity securities had fair values below 70% of amortized cost.

Cincinnati Financial Corporation ~~Third-Quarter 2020~~First-Quarter 2021 10-Q

Page 1211

NOTE 3 – Fair Value Measurements

In accordance with accounting guidance for fair value measurements and disclosures, we categorized our financial instruments, based on the priority of the observable and market-based data for the valuation technique used, into a three-level fair value hierarchy. The fair value hierarchy gives the highest priority to quoted prices with readily available independent data in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable market inputs (Level 3). When various inputs for measurement fall within different levels of the fair value hierarchy, the lowest observable input that has a significant impact on fair value measurement is used. Our valuation techniques have not changed from those used at December 31, ~~2019,~~2020, and ultimately management determines fair value. See our ~~2019~~2020 Annual Report on Form 10-K, Item 8, Note 3, Fair Value Measurements, Page ~~144,~~143, for information on characteristics and valuation techniques used in determining fair value.

Fair Value Disclosures for Assets

The following tables illustrate the fair value hierarchy for those assets measured at fair value on a recurring basis at ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019.~~2020. We do not have any liabilities carried at fair value.


(Dollars in millions)	(Dollars in millions)	Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)		Total		(Dollars in millions)	Quoted prices in active markets for identical assets (Level 1)				Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)			Total
At September 30, 2020
At March 31, 2021										At March 31, 2021	Quoted prices in active markets for identical assets (Level 1)				Significant other observable inputs (Level 2)				Significant unobservable inputs (Level 3)			Total
Fixed maturities, available for sale:	Fixed maturities, available for sale:									Fixed maturities, available for sale:
Corporate	Corporate	$	0	$	6,769	$	0	$	6,769	Corporate			$	0			$	6,920		$	0	$	6,920
States, municipalities and political subdivisions	States, municipalities and political subdivisions	0		4,942		0		4,942		States, municipalities and political subdivisions	0				4,960		0			4,960
Commercial mortgage-backed	Commercial mortgage-backed	0		282		0		282		Commercial mortgage-backed	0				285		0			285
United States government	United States government	124		0		0		124		United States government	113				0		0			113
Foreign government	Foreign government	0		27		0		27		Foreign government	0				24		0			24
Government-sponsored enterprises	Government-sponsored enterprises	0		13		0		13		Government-sponsored enterprises	0				6		0			6

Subtotal	Subtotal	124		12,033		0		12,157		Subtotal	113				12,195		0			12,308
Common equities	Common equities	7,589		0		0		7,589		Common equities	9,032				0		0			9,032
Nonredeemable preferred equities	Nonredeemable preferred equities	0		278		0		278		Nonredeemable preferred equities	0				328		0			328

Separate accounts taxable fixed maturities	Separate accounts taxable fixed maturities	0		909		0		909		Separate accounts taxable fixed maturities	0				880		0			880
Top Hat savings plan mutual funds and common equity (included in Other assets)	Top Hat savings plan mutual funds and common equity (included in Other assets)	46		0		0		46		Top Hat savings plan mutual funds and common equity (included in Other assets)	57				0		0			57
Total	Total	$	7,759	$	13,220	$	0	$	20,979	Total	$	9,202			$	13,403	$	0		$	22,605

At December 31, 2019
At December 31, 2020										At December 31, 2020
Fixed maturities, available for sale:	Fixed maturities, available for sale:									Fixed maturities, available for sale:
Corporate	Corporate	$	0	$	6,401	$	0	$	6,401	Corporate	$	0			$	6,895	$	0		$	6,895
States, municipalities and political subdivisions	States, municipalities and political subdivisions	0		4,728		0		4,728		States, municipalities and political subdivisions	0				4,997		0			4,997
Commercial mortgage-backed	Commercial mortgage-backed	0		301		0		301		Commercial mortgage-backed	0				285		0			285
United States government	United States government	104		0		0		104		United States government	120				0		0			120
Foreign government	Foreign government	0		28		0		28		Foreign government	0				29		0			29
Government-sponsored enterprises	Government-sponsored enterprises	0		136		0		136		Government-sponsored enterprises	0				12		0			12

Subtotal	Subtotal	104		11,594		0		11,698		Subtotal	120				12,218		0			12,338
Common equities	Common equities	7,518		0		0		7,518		Common equities	8,541				0		0			8,541
Nonredeemable preferred equities	Nonredeemable preferred equities	0		234		0		234		Nonredeemable preferred equities	0				315		0			315
Separate accounts taxable fixed maturities	Separate accounts taxable fixed maturities	0		855		0		855		Separate accounts taxable fixed maturities	0				903		0			903
Top Hat savings plan mutual funds and common equity (included in Other assets)	Top Hat savings plan mutual funds and common equity (included in Other assets)	45		0		0		45		Top Hat savings plan mutual funds and common equity (included in Other assets)	51				0		0			51
Total	Total	$	7,667	$	12,683	$	0	$	20,350	Total	$	8,712			$	13,436	$	0		$	22,148

Cincinnati Financial Corporation ~~Third-Quarter 2020~~First-Quarter 2021 10-Q

Page 1312

We also held Level 1 cash and cash equivalents of ~~$914~~$947 million and ~~$767~~$900 million at ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, respectively.

Fair Value Disclosures for Assets and Liabilities Not Carried at Fair Value

The disclosures below are presented to provide information about the effects of current market conditions on financial instruments that are not reported at fair value in our condensed consolidated financial statements.

This table summarizes the book value and principal amounts of our long-term debt:


(Dollars in millions)	(Dollars in millions)						Book value								Principal amount						(Dollars in millions)											Book value				Principal amount
Interest rate	Interest rate		Year of issue		September 30,		December 31,		September 30,		December 31,		Interest rate			Year of issue				March 31,				December 31,				March 31,				December 31,
							2020		2019		2020				2019		Year of issue							2021				2020				2021			2020
6.900	6.900	%	1998	Senior debentures, due 2028	$	27	$	27	$	28	$	28	6.900	%		1998		$	27			$	27			$	28			$	28
6.920	6.920	%	2005	Senior debentures, due 2028	391		391		391		391		6.920	%		2005		Senior debentures, due 2028				391				391				391				391
6.125	6.125	%	2004	Senior notes, due 2034	370		370		374		374		6.125	%		2004	Senior notes, due 2034			370				370				374				374
Total	Total				$	788	$	788	$	793	$	793	Total							$	788			$	788			$	793			$	793

The following table shows fair values of our note payable and long-term debt:


(Dollars in millions)	(Dollars in millions)	Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)		Total		(Dollars in millions)	Quoted prices in active markets for identical assets (Level 1)			Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)			Total
At September 30, 2020
At March 31, 2021										At March 31, 2021	Quoted prices in active markets for identical assets (Level 1)			Significant other observable inputs (Level 2)				Significant unobservable inputs (Level 3)			Total
Note payable	Note payable	$	0	$	123	$	0	$	123	Note payable
6.900% senior debentures, due 2028	6.900% senior debentures, due 2028	0		35		0		35		6.900% senior debentures, due 2028			0			34			0		34
6.920% senior debentures, due 2028	6.920% senior debentures, due 2028	0		518		0		518		6.920% senior debentures, due 2028	0			499		0			499
6.125% senior notes, due 2034	6.125% senior notes, due 2034	0		533		0		533		6.125% senior notes, due 2034	0			497		0			497
Total	Total	$	0	$	1,209	$	0	$	1,209	Total	$	0		$	1,087	$	0		$	1,087

At December 31, 2019
At December 31, 2020										At December 31, 2020
Note payable	Note payable	$	0	$	39	$	0	$	39	Note payable	$	0		$	54	$	0		$	54
6.900% senior debentures, due 2028	6.900% senior debentures, due 2028	0		34		0		34		6.900% senior debentures, due 2028	0			35		0			35
6.920% senior debentures, due 2028	6.920% senior debentures, due 2028	0		506		0		506		6.920% senior debentures, due 2028	0			515		0			515
6.125% senior notes, due 2034	6.125% senior notes, due 2034	0		512		0		512		6.125% senior notes, due 2034	0			522		0			522
Total	Total	$	0	$	1,091	$	0	$	1,091	Total	$	0		$	1,126	$	0		$	1,126

Cincinnati Financial Corporation ~~Third-Quarter 2020~~First-Quarter 2021 10-Q

Page 1413

The following table shows the fair value of our life policy loans included in other invested assets and the fair values of our deferred annuities and structured settlements included in life policy and investment contract reserves:


(Dollars in millions)	(Dollars in millions)	Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)		Total		(Dollars in millions)	Quoted prices in active markets for identical assets (Level 1)			Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)			Total
At September 30, 2020
At March 31, 2021										At March 31, 2021	Quoted prices in active markets for identical assets (Level 1)			Significant other observable inputs (Level 2)				Significant unobservable inputs (Level 3)			Total
Life policy loans	Life policy loans	$	0	$	0	$	50	$	50	Life policy loans

Deferred annuities	Deferred annuities	0		0		817		817		Deferred annuities			0			0			795		795
Structured settlements	Structured settlements	0		224		0		224		Structured settlements	0			203		0			203
Total	Total	$	0	$	224	$	817	$	1,041	Total	$	0		$	203	$	795		$	998

At December 31, 2019
At December 31, 2020										At December 31, 2020
Life policy loans	Life policy loans	$	0	$	0	$	44	$	44	Life policy loans	$	0		$	0	$	49		$	49

Deferred annuities	Deferred annuities	0		0		770		770		Deferred annuities	0			0		836			836
Structured settlements	Structured settlements	0		212		0		212		Structured settlements	0			227		0			227
Total	Total	$	0	$	212	$	770	$	982	Total	$	0		$	227	$	836		$	1,063

Outstanding principal and interest for these life policy loans totaled $32 million and $33 million ~~and $32 million~~ at ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, respectively.

Recorded reserves for the deferred annuities were ~~$760~~$769 million and $761 million at ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019.~~2020, respectively. Recorded reserves for the structured settlements were ~~$147~~$144 million and ~~$151~~$145 million at ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, respectively.

Cincinnati Financial Corporation ~~Third-Quarter 2020~~First-Quarter 2021 10-Q

Page 1514

NOTE 4 – Property Casualty Loss and Loss Expenses

This table summarizes activity for our consolidated property casualty loss and loss expense reserves:


(Dollars in millions)	(Dollars in millions)	Three months ended September 30,						Nine months ended September 30,			(Dollars in millions)			Three months ended March 31,
		2020		2019		2020		2019				2021		2020
Gross loss and loss expense reserves, beginning of period	Gross loss and loss expense reserves, beginning of period	$	6,409	$	5,954	$	6,088	$	5,646	Gross loss and loss expense reserves, beginning of period		$	6,677	$	6,088
Less reinsurance recoverable	Less reinsurance recoverable	294		269		342		238		Less reinsurance recoverable		277		342
Net loss and loss expense reserves, beginning of period	Net loss and loss expense reserves, beginning of period	6,115		5,685		5,746		5,408		Net loss and loss expense reserves, beginning of period		6,400		5,746

Net loss and loss expense reserves related to acquisition of Cincinnati Global at February 28, 2019		—		—		—		246

Net incurred loss and loss expenses related to:	Net incurred loss and loss expenses related to:									Net incurred loss and loss expenses related to:
Current accident year	Current accident year	1,082		916		3,099		2,720		Current accident year		1,033		963
Prior accident years	Prior accident years	(11)		(52)		(91)		(203)		Prior accident years		(110)		(33)
Total incurred	Total incurred	1,071		864		3,008		2,517		Total incurred		923		930
Net paid loss and loss expenses related to:	Net paid loss and loss expenses related to:									Net paid loss and loss expenses related to:
Current accident year	Current accident year	443		457		998		995		Current accident year		143		186
Prior accident years	Prior accident years	336		373		1,349		1,457		Prior accident years		562		631
Total paid	Total paid	779		830		2,347		2,452		Total paid		705		817
Net loss and loss expense reserves, end of period	Net loss and loss expense reserves, end of period	6,407		5,719		6,407		5,719		Net loss and loss expense reserves, end of period		6,618		5,859
Plus reinsurance recoverable	Plus reinsurance recoverable	285		278		285		278		Plus reinsurance recoverable		262		294
Gross loss and loss expense reserves, end of period	Gross loss and loss expense reserves, end of period	$	6,692	$	5,997	$	6,692	$	5,997	Gross loss and loss expense reserves, end of period		$	6,880	$	6,153

We use actuarial methods, models and judgment to estimate, as of a financial statement date, the property casualty loss and loss expense reserves required to pay for and settle all outstanding insured claims, including incurred but not reported (IBNR) claims, as of that date. The actuarial estimate is subject to review and adjustment by an inter-departmental committee that includes actuarial, claims, underwriting, loss prevention and accounting management. This committee is familiar with relevant company and industry business, claims and underwriting trends, as well as general economic and legal trends that could affect future loss and loss expense payments. The amount we will actually have to pay for claims can be highly uncertain. This uncertainty, together with the size of our reserves, makes the loss and loss expense reserves our most significant estimate. The reserve for loss and loss expenses in the condensed consolidated balance sheets also included ~~$55~~$70 million at ~~September 30, 2020~~March 31, 2021 and
$5953 million at ~~September 30, 2019,~~March 31, 2020, for certain life and health loss and loss expense reserves.

For the three months ended ~~September 30, 2020,~~March 31, 2021, we experienced ~~$11~~$110 million of favorable development on prior accident years, including $8$83 million of favorable development in commercial lines, ~~less than $1 million of unfavorable development in personal lines and $1 million of favorable development in excess and surplus lines.~~Within commercial lines, we recognized favorable reserve development of $10 million for the commercial casualty line and $6 million for the workers' compensation line due to reduced uncertainty of prior accident year loss and loss adjustment expense for these lines. This was partially offset by unfavorable reserve development of $10 million for the commercial auto line.

~~For the nine months ended September 30, 2020, we experienced $91 million of favorable development on prior accident years, including $59 million of favorable development in commercial lines, $28~~$20 million of favorable development in personal lines and $8$4 million of unfavorable development in excess and surplus lines. Within commercial lines, we recognized favorable reserve development of ~~$36 million for the commercial casualty line and $32~~$25 million for the workers' compensation line, ~~due to reduced uncertainty of prior accident year loss and loss adjustment expense for these lines. This was partially offset by unfavorable reserve development of $14~~$24 million for the commercial auto ~~line. Within personal lines, we recognized favorable reserve development of $19 million in personal auto and~~ ~~$10 million~~ ~~for the homeowner line of business.~~

~~Cincinnati Financial Corporation Third-Quarter 2020 10-Q~~

~~Page 16~~

For the three months ended September 30, 2019, we experienced $52 million of favorable development on prior accident years, including $33 million of favorable development in commercial lines, $6 million of favorable development in personal lines and $4 million of favorable development in excess and surplus lines. Within commercial lines, we recognized favorable reserve development of $20 million for the workers' compensation line, $8 million for the commercial casualty line and $7$21 million for the commercial property line due to reduced uncertainty of prior accident year loss and loss adjustment expense for these lines. Within personal lines, we recognized favorable reserve development of $3$15 million in personal auto.

For the ~~nine~~three months ended ~~September 30, 2019,~~March 31, 2020, we experienced ~~$203~~$33 million of favorable development on prior accident years, including ~~$153~~$6 million of favorable development in commercial lines, ~~$17~~$28 million of favorable development in personal lines and ~~$11~~$1 million of ~~favorable~~unfavorable development in excess and surplus lines. Within commercial lines, we recognized favorable reserve development of ~~$65 million for the commercial casualty line, $62~~$7 million for the workers' compensation line ~~$15~~and $5 million for the commercial ~~property line and $7 million for the commercial auto~~casualty line due to reduced uncertainty of prior accident year loss and loss adjustment expense for these lines. This was partially offset by unfavorable reserve development of $6 million for the commercial auto line. Within personal lines, we recognized favorable reserve development of ~~$23 million in personal auto. We recognized unfavorable reserve development of $15~~$18 million for the homeowner line of business ~~due primarily to higher-than-anticipated loss development on known claims.~~and $13 million in personal auto.

Cincinnati Financial Corporation ~~Third-Quarter 2020~~First-Quarter 2021 10-Q

Page 1715

NOTE 5 – Life Policy and Investment Contract Reserves

We establish the reserves for traditional life insurance policies based on expected expenses, mortality, morbidity, withdrawal rates, timing of claim presentation and investment yields, including a provision for uncertainty. Once these assumptions are established, they generally are maintained throughout the lives of the contracts. We use both our own experience and industry experience, adjusted for historical trends, in arriving at our assumptions for expected mortality, morbidity and withdrawal rates as well as for expected expenses. We base our assumptions for expected investment income on our own experience adjusted for current and future economic conditions.

We establish reserves for the company's deferred annuity, universal life and structured settlement policies equal to the cumulative account balances, which include premium deposits plus credited interest less charges and withdrawals. Some of our universal life policies contain no-lapse guarantee provisions. For these policies, we establish a reserve in addition to the account balance, based on expected no-lapse guarantee benefits and expected policy assessments.

This table summarizes our life policy and investment contract reserves:


(Dollars in millions)	(Dollars in millions)	September 30, 2020		December 31, 2019		(Dollars in millions)	March 31, 2021		December 31, 2020
Life policy reserves:	Life policy reserves:					Life policy reserves:
Ordinary/traditional life	Ordinary/traditional life	$	1,287	$	1,226	Ordinary/traditional life	$	1,314	$	1,301
Other	Other	51		50		Other	52		52
Subtotal	Subtotal	1,338		1,276		Subtotal	1,366		1,353
Investment contract reserves:	Investment contract reserves:					Investment contract reserves:
Deferred annuities	Deferred annuities	760		760		Deferred annuities	769		761
Universal life	Universal life	646		640		Universal life	663		647
Structured settlements	Structured settlements	147		151		Structured settlements	144		145
Other	Other	9		8		Other	8		9
Subtotal	Subtotal	1,562		1,559		Subtotal	1,584		1,562
Total life policy and investment contract reserves	Total life policy and investment contract reserves	$	2,900	$	2,835	Total life policy and investment contract reserves	$	2,950	$	2,915

Cincinnati Financial Corporation ~~Third-Quarter 2020~~First-Quarter 2021 10-Q

Page 1816

NOTE 6 – Deferred Policy Acquisition Costs

Expenses directly related to successfully acquired insurance policies – primarily commissions, premium taxes and underwriting costs – are deferred and amortized over the terms of the policies. We update our acquisition cost assumptions periodically to reflect actual experience, and we evaluate the costs for recoverability. The table below shows the deferred policy acquisition costs and asset reconciliation.


(Dollars in millions)	(Dollars in millions)	Three months ended September 30,						Nine months ended September 30,			(Dollars in millions)			Three months ended March 31,
		2020		2019		2020		2019				2021		2020
Property casualty:	Property casualty:									Property casualty:
Deferred policy acquisition costs asset, beginning of period	Deferred policy acquisition costs asset, beginning of period	$	567	$	526	$	512	$	464	Deferred policy acquisition costs asset, beginning of period		$	542	$	512
Capitalized deferred policy acquisition costs	Capitalized deferred policy acquisition costs	258		256		830		790		Capitalized deferred policy acquisition costs		312		280
Amortized deferred policy acquisition costs	Amortized deferred policy acquisition costs	(274)		(257)		(791)		(729)		Amortized deferred policy acquisition costs		(268)		(256)
Deferred policy acquisition costs asset, end of period	Deferred policy acquisition costs asset, end of period	$	551	$	525	$	551	$	525	Deferred policy acquisition costs asset, end of period		$	586	$	536

Life:	Life:									Life:
Deferred policy acquisition costs asset, beginning of period	Deferred policy acquisition costs asset, beginning of period	$	267	$	260	$	262	$	274	Deferred policy acquisition costs asset, beginning of period		$	263	$	262
Capitalized deferred policy acquisition costs	Capitalized deferred policy acquisition costs	14		15		43		46		Capitalized deferred policy acquisition costs		14		15
Amortized deferred policy acquisition costs	Amortized deferred policy acquisition costs	(12)		(13)		(36)		(38)		Amortized deferred policy acquisition costs		(9)		(9)
Shadow deferred policy acquisition costs	Shadow deferred policy acquisition costs	(3)		(4)		(3)		(24)		Shadow deferred policy acquisition costs		26		23
Deferred policy acquisition costs asset, end of period	Deferred policy acquisition costs asset, end of period	$	266	$	258	$	266	$	258	Deferred policy acquisition costs asset, end of period		$	294	$	291

Consolidated:	Consolidated:									Consolidated:
Deferred policy acquisition costs asset, beginning of period	Deferred policy acquisition costs asset, beginning of period	$	834	$	786	$	774	$	738	Deferred policy acquisition costs asset, beginning of period		$	805	$	774
Capitalized deferred policy acquisition costs	Capitalized deferred policy acquisition costs	272		271		873		836		Capitalized deferred policy acquisition costs		326		295
Amortized deferred policy acquisition costs	Amortized deferred policy acquisition costs	(286)		(270)		(827)		(767)		Amortized deferred policy acquisition costs		(277)		(265)
Shadow deferred policy acquisition costs	Shadow deferred policy acquisition costs	(3)		(4)		(3)		(24)		Shadow deferred policy acquisition costs		26		23
Deferred policy acquisition costs asset, end of period	Deferred policy acquisition costs asset, end of period	$	817	$	783	$	817	$	783	Deferred policy acquisition costs asset, end of period		$	880	$	827

No premium deficiencies were recorded in the condensed consolidated statements of income, as the sum of the anticipated loss and loss expenses, policyholder dividends and unamortized deferred acquisition expenses did not exceed the related unearned premiums and anticipated investment income.

Cincinnati Financial Corporation ~~Third-Quarter 2020~~First-Quarter 2021 10-Q

Page 1917

NOTE 7 – Accumulated Other Comprehensive Income

Accumulated other comprehensive income (AOCI) includes changes in unrealized gains and losses on investments, changes in pension obligations and changes in life deferred acquisition costs, life policy reserves and other as follows:

(Dollars in millions) Three months ended September 30,
2020 2019
Before tax Income tax Net Before tax Income tax Net
Investments:
AOCI, beginning of period $ 772 $ 162 $ 610 $ 488 $ 102 $ 386
OCI before investment gains and losses, net, recognized in net income 115 23 92 99 21 78
Investment gains and losses, net, recognized in net income (3) 0 (3) 1 0 1
OCI 112 23 89 100 21 79
AOCI, end of period $ 884 $ 185 $ 699 $ 588 $ 123 $ 465
Pension obligations:
AOCI, beginning of period $ (7) $ 0 $ (7) $ (15) $ (2) $ (13)
OCI excluding amortization recognized in net income 0 0 0 0 0 0
Amortization recognized in net income 0 0 0 0 0 0
OCI 0 0 0 0 0 0
AOCI, end of period $ (7) $ 0 $ (7) $ (15) $ (2) $ (13)
Life deferred acquisition costs, life policy reserves and other:
AOCI, beginning of period $ (8) $ (2) $ (6) $ (11) $ (2) $ (9)
OCI before investment gains and losses, net, recognized in net income 0 0 0 (3) 0 (3)
Investment gains and losses, net, recognized in net income 0 0 0 2 0 2
OCI 0 0 0 (1) 0 (1)
AOCI, end of period $ (8) $ (2) $ (6) $ (12) $ (2) $ (10)
Summary of AOCI:
AOCI, beginning of period $ 757 $ 160 $ 597 $ 462 $ 98 $ 364
Investments OCI 112 23 89 100 21 79
Pension obligations OCI 0 0 0 0 0 0
Life deferred acquisition costs, life policy reserves and other OCI 0 0 0 (1) 0 (1)
Total OCI 112 23 89 99 21 78
AOCI, end of period $ 869 $ 183 $ 686 $ 561 $ 119 $ 442

~~Cincinnati Financial Corporation Third-Quarter 2020 10-Q~~

~~Page 20~~


(Dollars in millions)	(Dollars in millions)	Nine months ended September 30,																							(Dollars in millions)	Three months ended March 31,
		2020										2019											2021					2020
		Before tax		Income tax		Net		Before tax		Income tax		Net			Before tax		Income tax		Net		Before tax			Income tax		Net
Investments:	Investments:													Investments:
AOCI, beginning of period	AOCI, beginning of period	$	590	$	123	$	467	$	46	$	9	$	37	AOCI, beginning of period	$	1,026	$	215	$	811	$	590		$	123	$	467

OCI before investment gains and losses, net, recognized in net income	OCI before investment gains and losses, net, recognized in net income	222		46		176		542		114		428		OCI before investment gains and losses, net, recognized in net income	(193)		(41)		(152)		(399)			(84)		(315)
Investment gains and losses, net, recognized in net income	Investment gains and losses, net, recognized in net income	72		16		56		0		0		0		Investment gains and losses, net, recognized in net income	(3)		0		(3)		75			16		59
OCI	OCI	294		62		232		542		114		428		OCI	(196)		(41)		(155)		(324)			(68)		(256)
AOCI, end of period	AOCI, end of period	$	884	$	185	$	699	$	588	$	123	$	465	AOCI, end of period	$	830	$	174	$	656	$	266		$	55	$	211

Pension obligations:	Pension obligations:													Pension obligations:
AOCI, beginning of period	AOCI, beginning of period	$	(9)	$	0	$	(9)	$	(16)	$	(2)	$	(14)	AOCI, beginning of period	$	(41)	$	(7)	$	(34)	$	(9)		$	0	$	(9)
OCI excluding amortization recognized in net income	OCI excluding amortization recognized in net income	0		0		0		0		0		0		OCI excluding amortization recognized in net income	2		1		1		0			0		0
Amortization recognized in net income	Amortization recognized in net income	2		0		2		1		0		1		Amortization recognized in net income	2		0		2		1			0		1
OCI	OCI	2		0		2		1		0		1		OCI	4		1		3		1			0		1
AOCI, end of period	AOCI, end of period	$	(7)	$	0	$	(7)	$	(15)	$	(2)	$	(13)	AOCI, end of period	$	(37)	$	(6)	$	(31)	$	(8)		$	0	$	(8)

Life deferred acquisition costs, life policy reserves and other:	Life deferred acquisition costs, life policy reserves and other:													Life deferred acquisition costs, life policy reserves and other:
AOCI, beginning of period	AOCI, beginning of period	$	(13)	$	(3)	$	(10)	$	(1)	$	0	$	(1)	AOCI, beginning of period	$	(10)	$	(2)	$	(8)	$	(13)		$	(3)	$	(10)
OCI before investment gains and losses, net, recognized in net income	OCI before investment gains and losses, net, recognized in net income	5		1		4		(9)		(2)		(7)		OCI before investment gains and losses, net, recognized in net income	10		2		8		14			3		11
Investment gains and losses, net, recognized in net income	Investment gains and losses, net, recognized in net income	0		0		0		(2)		0		(2)		Investment gains and losses, net, recognized in net income	0		0		0		0			0		0
OCI	OCI	5		1		4		(11)		(2)		(9)		OCI	10		2		8		14			3		11
AOCI, end of period	AOCI, end of period	$	(8)	$	(2)	$	(6)	$	(12)	$	(2)	$	(10)	AOCI, end of period	$	0	$	0	$	0	$	1		$	0	$	1

Summary of AOCI:	Summary of AOCI:													Summary of AOCI:
AOCI, beginning of period	AOCI, beginning of period	$	568	$	120	$	448	$	29	$	7	$	22	AOCI, beginning of period	$	975	$	206	$	769	$	568		$	120	$	448

Investments OCI	Investments OCI	294		62		232		542		114		428		Investments OCI	(196)		(41)		(155)		(324)			(68)		(256)
Pension obligations OCI	Pension obligations OCI	2		0		2		1		0		1		Pension obligations OCI	4		1		3		1			0		1
Life deferred acquisition costs, life policy reserves and other OCI	Life deferred acquisition costs, life policy reserves and other OCI	5		1		4		(11)		(2)		(9)		Life deferred acquisition costs, life policy reserves and other OCI	10		2		8		14			3		11
Total OCI	Total OCI	301		63		238		532		112		420		Total OCI	(182)		(38)		(144)		(309)			(65)		(244)
AOCI, end of period	AOCI, end of period	$	869	$	183	$	686	$	561	$	119	$	442	AOCI, end of period	$	793	$	168	$	625	$	259		$	55	$	204

Investment gains and losses, net, and life deferred acquisition costs, life policy reserves and other investment gains and losses, net, are recorded in the investment gains and losses, net, line item in the condensed consolidated statements of income. Amortization on pension obligations is recorded in the insurance losses and contract holders' benefits and underwriting, acquisition and insurance expenses line items in the condensed consolidated statements of income.

Cincinnati Financial Corporation ~~Third-Quarter 2020~~First-Quarter 2021 10-Q

Page 2118

NOTE 8 – Reinsurance

Primary components of our property casualty reinsurance assumed operations include involuntary and voluntary assumed risks as well as contracts from Cincinnati Re^®, our reinsurance assumed operations. Primary components of our ceded reinsurance include a property per risk treaty, property excess treaty, casualty per occurrence treaty, casualty excess treaty, property catastrophe treaty and retrocessions on our reinsurance assumed operations. Management's decisions about the appropriate level of risk retention are affected by various factors, including changes in our underwriting practices, capacity to retain risks and reinsurance market conditions.

The table below summarizes our consolidated property casualty insurance net written premiums, earned premiums and incurred loss and loss expenses:


(Dollars in millions)	(Dollars in millions)	Three months ended September 30,						Nine months ended September 30,			(Dollars in millions)			Three months ended March 31,
		2020		2019		2020		2019				2021		2020
Direct written premiums	Direct written premiums	$	1,386	$	1,361	$	4,383	$	4,168	Direct written premiums		$	1,545	$	1,458
Assumed written premiums	Assumed written premiums	55		41		267		203		Assumed written premiums		205		111
Ceded written premiums	Ceded written premiums	(48)		(50)		(180)		(162)		Ceded written premiums		(57)		(51)
Net written premiums	Net written premiums	$	1,393	$	1,352	$	4,470	$	4,209	Net written premiums		$	1,693	$	1,518

Direct earned premiums	Direct earned premiums	$	1,439	$	1,386	$	4,198	$	3,971	Direct earned premiums		$	1,429	$	1,371
Assumed earned premiums	Assumed earned premiums	78		52		207		145		Assumed earned premiums		101		66
Ceded earned premiums	Ceded earned premiums	(67)		(62)		(163)		(156)		Ceded earned premiums		(55)		(48)
Earned premiums	Earned premiums	$	1,450	$	1,376	$	4,242	$	3,960	Earned premiums		$	1,475	$	1,389

Direct incurred loss and loss expenses	Direct incurred loss and loss expenses	$	1,039	$	855	$	2,915	$	2,508	Direct incurred loss and loss expenses		$	868	$	900
Assumed incurred loss and loss expenses	Assumed incurred loss and loss expenses	54		37		133		87		Assumed incurred loss and loss expenses		78		34
Ceded incurred loss and loss expenses	Ceded incurred loss and loss expenses	(22)		(28)		(40)		(78)		Ceded incurred loss and loss expenses		(23)		(4)
Incurred loss and loss expenses	Incurred loss and loss expenses	$	1,071	$	864	$	3,008	$	2,517	Incurred loss and loss expenses		$	923	$	930

Our life insurance company purchases reinsurance for protection of a portion of the risks that are written. Primary components of our life reinsurance program include individual mortality coverage, aggregate catastrophe and accidental death coverage in excess of certain deductibles.

The table below summarizes our consolidated life insurance earned premiums and contract holders' benefits incurred:


(Dollars in millions)	(Dollars in millions)	Three months ended September 30,						Nine months ended September 30,			(Dollars in millions)			Three months ended March 31,
		2020		2019		2020		2019				2021		2020
Direct earned premiums	Direct earned premiums	$	90	$	87	$	273	$	256	Direct earned premiums		$	87	$	85

Ceded earned premiums	Ceded earned premiums	(18)		(17)		(55)		(53)		Ceded earned premiums		(18)		(18)
Earned premiums	Earned premiums	$	72	$	70	$	218	$	203	Earned premiums		$	69	$	67

Direct contract holders' benefits incurred	Direct contract holders' benefits incurred	85		87		270		259		Direct contract holders' benefits incurred		107		85

Ceded contract holders' benefits incurred	Ceded contract holders' benefits incurred	(13)		(19)		(46)		(48)		Ceded contract holders' benefits incurred		(27)		(12)
Contract holders' benefits incurred	Contract holders' benefits incurred	$	72	$	68	$	224	$	211	Contract holders' benefits incurred		$	80	$	73

The ceded benefits incurred can vary depending on the type of life insurance policy held and the year the policy was issued.

At March 31, 2021 and December 31, 2020, the allowance for uncollectible property casualty premiums was

$17 million and $19 million, respectively. At March 31, 2021 and December 31, 2020, the allowances for credit losses on other premiums receivable and recoverable assets were immaterial.

Cincinnati Financial Corporation ~~Third-Quarter 2020~~First-Quarter 2021 10-Q

Page 2219

Cincinnati Financial Corporation First-Quarter 2021 10-Q

Page 20

NOTE 9 – Income Taxes

The differences between the 21% statutory federal income tax rate and our effective income tax rate were as follows:


(Dollars in millions)	(Dollars in millions)	Three months ended September 30,														Nine months ended September 30,							(Dollars in millions)				Three months ended March 31,
		2020						2019						2020					2019						2021				2020
Tax at statutory rate:	Tax at statutory rate:	$	129	21.0	%	$	62	21.0	%	$	38	21.0	%	$	355	21.0	%	Tax at statutory rate:		$	161	21.0		%	$	(331)	21.0	%
Increase (decrease) resulting from:	Increase (decrease) resulting from:																	Increase (decrease) resulting from:
Tax-exempt income from municipal bonds	Tax-exempt income from municipal bonds	(5)		(0.8)		(5)		(1.7)		(15)		(8.2)		(14)		(0.8)		Tax-exempt income from municipal bonds		(5)		(0.7)			(5)		0.3
Dividend received exclusion	Dividend received exclusion	(5)		(0.8)		(3)		(1.0)		(13)		(7.1)		(11)		(0.7)		Dividend received exclusion		(5)		(0.7)			(4)		0.3

Other	Other	11		1.8		(8)		(2.7)		6		3.0		(10)		(0.6)		Other		(3)		(0.3)			(10)		0.6
Provision for income taxes		$	130	21.2	%	$	46	15.6	%	$	16	8.7	%	$	320	18.9	%
Provision (benefit) for income taxes																		Provision (benefit) for income taxes		$	148	19.3		%	$	(350)	22.2	%

The provision for federal income taxes is based upon filing a consolidated income tax return for the company and its domestic subsidiaries.

We continue to believe that after considering all positive and negative evidence of taxable income in the carryback and carryforward periods as permitted by law, it is more likely than not that all of the deferred tax assets on our U.S. domestic operations will be realized. As a result, we have 0 valuation allowance for our U.S. domestic operations ~~as of September 30, 2020~~at March 31, 2021 and December 31, ~~2019.~~2020. As more fully discussed below, we do carry a valuation allowance on the deferred tax assets related to Cincinnati Global.

~~During the first quarter of 2020, the IRS notified us they would be expanding their audit of tax year 2017 to include the tax year ended December 31, 2018.~~

In response to the novel coronavirus (SARS-CoV-2 or COVID-19), as more fully discussed in Note 1, Accounting Policies, the Coronavirus Aid, Relief and Economic Security Act (CARES Act) was signed into law on March 27, 2020. We have evaluated the CARES Act and believe any impact to our financial statements will be immaterial.

Unrecognized Tax Benefits

~~As of September 30, 2020~~At March 31, 2021 and December 31, ~~2019,~~2020, we had a gross unrecognized tax benefit of $34 million. There were no changes to this amount during the first ~~nine months~~quarter of ~~2020.~~2021. It is reasonably possible that within the next 12 months, our unrecognized tax benefit could change when the IRS completes its examination of the tax year ended December 31, 2018.

Cincinnati Global

As a result of operations for the three ~~and nine~~ months ended ~~September 30, 2020,~~March 31, 2021, Cincinnati Global ~~our London-based global specialty underwriter, increased~~decreased their net deferred assets ~~$15 million and $13~~$1 million with an offsetting ~~increase~~decrease of ~~$15 million and $13~~$1 million to their valuation allowance. ~~As of September 30, 2020,~~At March 31, 2021, Cincinnati Global had a net deferred tax asset of ~~$54~~$55 million and an offsetting valuation allowance of ~~$54~~$55 million.

Deferred tax assets are reduced by a valuation allowance when management believes it is more likely than not that some, or all, of the deferred tax assets will not be realized. After considering all positive and negative evidence related to the Cincinnati Global operations, we continue to believe it is appropriate to carry a valuation allowance ~~as of September 30, 2020.~~at March 31, 2021.

~~As of September 30,~~At March 31, 2021 and December 31, 2020, Cincinnati Global had operating loss carryforwards ~~of $178 million~~ in the United ~~Kingdom.~~States of $26 million for both periods and in the United Kingdom of $115 million and $108 million, respectively. These Cincinnati Global losses can only be utilized within the Cincinnati Global group in both the United States and in the United Kingdom and cannot offset the income of our domestic operations in the United States. ~~Other than the Cincinnati Global loss carryforwards, we had no other operating or capital loss carryforwards as of September 30, 2020.~~

Cincinnati Financial Corporation ~~Third-Quarter 2020~~First-Quarter 2021 10-Q

Page 2321

NOTE 10 – Net Income (Loss) Per Common Share

Basic earnings per share are computed based on the weighted average number of common shares outstanding. Diluted earnings per share are computed based on the weighted average number of common and dilutive potential common shares outstanding using the treasury stock method. The table shows calculations for basic and diluted earnings per share:


(In millions, except per share data)	(In millions, except per share data)	Three months ended September 30,									Nine months ended September 30,				(In millions, except per share data)			Three months ended March 31,
				2020			2019			2020			2019	(In millions, except per share data)			2021		2020
Numerator:	Numerator:												Numerator:
Net income—basic and diluted		$	484		$	248		$	167		$	1,371
Net income (loss)—basic and diluted													Net income (loss)—basic and diluted			$	620	$	(1,226)
Denominator:	Denominator:												Denominator:
Basic weighted-average common shares outstanding	Basic weighted-average common shares outstanding	160.9			163.3			161.3			163.2		Basic weighted-average common shares outstanding			161.0		162.2
Effect of share-based awards:	Effect of share-based awards:												Effect of share-based awards:
Stock options	Stock options	0.5			1.4			0.7			1.2		Stock options			0.9		0
Nonvested shares	Nonvested shares	0.6			0.9			0.5			0.7		Nonvested shares			0.6		0
Diluted weighted-average shares	Diluted weighted-average shares	162.0			165.6			162.5			165.1		Diluted weighted-average shares			162.5		162.2
Earnings per share:
Earnings (loss) per share:													Earnings (loss) per share:
Basic	Basic	$	3.01		$	1.51		$	1.03		$	8.40	Basic			$	3.85	$	(7.56)
Diluted	Diluted	$	2.99		$	1.49		$	1.03		$	8.30	Diluted			$	3.82	$	(7.56)
Number of anti-dilutive share-based awards	Number of anti-dilutive share-based awards	1.4			0			1.4			0.4		Number of anti-dilutive share-based awards			1.0		2.5

The sources of dilution of our common shares are certain equity-based awards. See our ~~2019~~2020 Annual Report on Form 10-K, Item 8, Note 17, Share-Based Associate Compensation Plans, Page 176, for information about share-based awards. The above table shows the number of anti-dilutive share-based awards for the three ~~and nine~~ months ended ~~September 30, 2020~~March 31, 2021 and ~~2019.~~2020. These share-based awards were not included in the computation of net income per common share (diluted) because their exercise would have anti-dilutive effects. In accordance with Accounting Standards Codification 260, Earnings per Share, the assumed exercise of share-based awards in 2020 were excluded from the computation of diluted loss per share.

NOTE 11 – Employee Retirement Benefits

The following summarizes the components of net periodic benefit cost for our qualified and supplemental pension plans:


(Dollars in millions)	(Dollars in millions)	Three months ended September 30,						Nine months ended September 30,			(Dollars in millions)			Three months ended March 31,
		2020		2019		2020		2019				2021		2020
Service cost	Service cost	$	2	$	2	$	7	$	6	Service cost		$	2	$	2
Non-service costs (benefit):	Non-service costs (benefit):									Non-service costs (benefit):
Interest cost	Interest cost	3		4		9		10		Interest cost		2		3
Expected return on plan assets	Expected return on plan assets	(5)		(5)		(16)		(15)		Expected return on plan assets		(5)		(5)
Amortization of actuarial loss and prior service cost	Amortization of actuarial loss and prior service cost	0		0		2		1		Amortization of actuarial loss and prior service cost		2		1
Other	Other	0		0		0		1		Other		2		0
Total non-service benefit		(2)		(1)		(5)		(3)
Total non-service cost (benefit)										Total non-service cost (benefit)		1		(1)
Net periodic benefit cost	Net periodic benefit cost	$	0	$	1	$	2	$	3	Net periodic benefit cost		$	3	$	1

See our ~~2019~~2020 Annual Report on Form 10-K, Item 8, Note 13, Employee Retirement Benefits, Page ~~170,~~169, for information on our retirement benefits. Service costs and non-service costs (benefit) are allocated in the same proportion primarily to the underwriting, acquisition and insurance expenses line item with the remainder allocated to the insurance losses and contract holders' benefits line item on the condensed consolidated statements of income for both ~~2020~~2021 and ~~2019.~~2020.

Cincinnati Financial Corporation ~~Third-Quarter 2020~~First-Quarter 2021 10-Q

Page 2422

We made matching contributions totaling $6 million and $8 million to our 401(k) and Top Hat savings plans during ~~both the third quarters of 2020 and 2019 and contributions of $18 million and $15 million for~~ the first ~~nine months~~ quarter of 2021 and 2020, ~~and 2019,~~ respectively.

We made 0 contributions to our qualified pension plan during the first ~~nine~~three months of ~~2020.~~2021.

NOTE 12 – Commitments and Contingent Liabilities

In the ordinary course of conducting business, the company and its subsidiaries are named as defendants in various legal proceedings. Most of these proceedings are claims litigation involving the ~~company's~~company’s insurance subsidiaries in which the company is either defending or providing indemnity for third-party claims brought against insureds or litigating first-party coverage claims. ~~Recently, these proceedings have included claims for coverage under commercial property policies for economic losses related to the COVID-19 pandemic.~~ The company accounts for such activity through the establishment of unpaid loss and loss expense reserves. We believe that the ultimate liability, if any, with respect to such ordinary-course claims litigation, after consideration of provisions made for potential losses and costs of defense, is immaterial to our consolidated financial ~~condition,~~position, results of operations and cash flows. ~~Future~~

Beginning in April 2020, like many companies in the property casualty insurance industry, the company’s property casualty subsidiaries, were named as defendants in lawsuits seeking insurance coverage under commercial property insurance policies issued by the company for alleged economic losses resulting from the shutdown or suspension of their businesses due to the COVID-19 pandemic. Although the allegations vary, the plaintiffs generally seek a declaration of insurance coverage, damages for breach of contract in unspecified amounts for claim denials, interest and attorney fees. Some of the lawsuits also allege that the insurance claims were denied in bad faith or otherwise in violation of state laws and seek extra-contractual or punitive damages.

The company denies the allegations in these lawsuits and intends to continue to vigorously defend them. Although the policy terms vary in general, the claims at issue in these lawsuits were denied because the policyholder identified no direct physical loss or damage to property at the insured premises, and the governmental orders that led to the complete or partial shutdown of the business were not due to the existence of any direct physical loss or damage to property in the immediate vicinity of the insured premises and did not prohibit access to the insured premises, as required by the terms of the insurance policies. Depending on the individual policy, additional policy terms and conditions may also prohibit coverage, such as exclusions for pollutants, ordinance or law, loss of use, and acts or decisions. The company’s standard commercial property insurance policies generally did not contain a specific virus exclusion.

In addition to the inherent difficulty in predicting litigation outcomes, the COVID-19 pandemic business income coverage lawsuits present a number of uncertainties and contingencies that are not yet known, including how many policyholders will ultimately file claims, the number of lawsuits that will be filed, the extent to which any class may be certified, and the size and scope of any such classes. The legal theories advanced by plaintiffs vary by case as do the state laws that govern policy interpretation. These lawsuits are in the early stages of litigation; many complaints continue to be amended; several have been dismissed voluntarily and may be refiled; and others have been dismissed by trial courts. Some early decisions on motion filings have been appealed.

Recently, several cases in Ohio have been stayed pending a decision by the Ohio Supreme Court on a question certified to it by the federal district court ~~decisions~~in the Northern District of Ohio in the case of Neuro-Communication Services, Inc. v. The Cincinnati Insurance Company, et al., Case No. 4:20-cv-1275 (N.D. Ohio filed June 10, 2020). The Ohio Supreme Court has agreed to answer the following question: “Does the general presence in the community, or on surfaces at a premises, of the novel coronavirus known as SARS-CoV-2, constitute direct physical loss or damage to property; or does the presence of a person infected with COVID-19 constitute direct physical loss or damage to property at that premises?" Accordingly, little discovery has occurred on pending cases and ~~interpretations, as well as future changes,~~most cases have not yet produced any substantive legal rulings. In addition, business income calculations depend upon a wide range of factors that are particular to the circumstances of each individual policyholder and, here, virtually none of the plaintiffs have submitted proofs of loss or otherwise quantified or factually supported any allegedly covered loss. Moreover, the company’s experience shows that demands stated in lawsuits often bear little relation to a reasonable estimate of potential loss. Accordingly, management cannot now reasonably estimate the possible loss or range of loss, if any. Nonetheless, given the number of claims and potential claims, the indeterminate amounts sought, and the inherent unpredictability of litigation, it is possible that adverse outcomes, if any, in ~~legislation could create uncertainties and additional liabilities may arise for amounts in excess of~~ the ~~company's current insurance reserves and~~aggregate could have a material adverse effect on the ~~company's~~company’s consolidated financial position, results of operations orand cash flows.

The company and its subsidiaries also are occasionally involved in other legal and regulatory proceedings, some of which assert claims for substantial amounts. These actions include, among others, putative class actions seeking certification of a ~~state or~~ national class. Such proceedings have alleged, for example, breach of an alleged duty to search

Cincinnati Financial Corporation First-Quarter 2021 10-Q

Page 23

national databases to ascertain unreported deaths of insureds under life insurance policies. The ~~company's~~company’s insurance subsidiaries also are occasionally parties to individual actions in which extra-contractual damages, punitive damages or penalties are sought, such as claims alleging bad faith handling of insurance claims or writing unauthorized coverage or claims alleging discrimination by former or current associates.

On a quarterly basis, we review these outstanding matters. Under current accounting guidance, we establish accruals when it is probable that a loss has been incurred and we can reasonably estimate its potential exposure. The company accounts for such probable and estimable losses, if any, through the establishment of legal expense reserves. Based on our quarterly review, we believe that our accruals for probable and estimable losses are reasonable and that the amounts accrued do not have a material effect on our consolidated financial ~~condition or~~position, results of ~~operations.~~operations and cash flows. However, if any one or more of these matters results in a judgment against us or settlement for an amount that is significantly greater than the amount accrued, the resulting liability could have a material effect on the ~~company's~~company’s consolidated financial position, results of operations orand cash flows. Based on our most recent review, our estimate for any other matters for which the risk of loss is not probable, but more than remote, is immaterial.

NOTE 13 – Segment Information

We operate primarily in 2 industries, property casualty insurance and life insurance. Our chief operating decision maker regularly reviews our reporting segments to make decisions about allocating resources and assessing performance. Our reporting segments are:

•Commercial lines insurance

•Personal lines insurance

•Excess and surplus lines insurance

•Life insurance

•Investments

We report as Other the noninvestment operations of the parent company and its noninsurer subsidiary, CFC Investment Company. We also report as Other the underwriting results of Cincinnati Re and Cincinnati Global. See our ~~2019~~2020 Annual Report on Form 10-K, Item 8, Note 18, Segment Information, Page 179, for a description of revenue, income or loss before income taxes and identifiable assets for each of the 5 segments.

Cincinnati Financial Corporation ~~Third-Quarter 2020~~First-Quarter 2021 10-Q

Page 2524

Segment information is summarized in the following table:


(Dollars in millions)	(Dollars in millions)	Three months ended September 30,						Nine months ended September 30,			(Dollars in millions)			Three months ended March 31,
		2020		2019		2020		2019				2021		2020
Revenues:	Revenues:									Revenues:
Commercial lines insurance	Commercial lines insurance									Commercial lines insurance
Commercial casualty	Commercial casualty	$	290	$	277	$	868	$	822	Commercial casualty		$	303	$	289
Commercial property	Commercial property	252		241		755		709		Commercial property		253		249
Commercial auto	Commercial auto	189		179		563		524		Commercial auto		193		185
Workers' compensation	Workers' compensation	64		73		207		224		Workers' compensation		67		75
Other commercial	Other commercial	70		64		205		188		Other commercial		70		65
Commercial lines insurance premiums	Commercial lines insurance premiums	865		834		2,598		2,467		Commercial lines insurance premiums		886		863
Fee revenues	Fee revenues	1		1		3		3		Fee revenues		1		1
Total commercial lines insurance	Total commercial lines insurance	866		835		2,601		2,470		Total commercial lines insurance		887		864

Personal lines insurance	Personal lines insurance									Personal lines insurance
Personal auto	Personal auto	154		156		462		466		Personal auto		152		154
Homeowner	Homeowner	165		154		487		450		Homeowner		174		159
Other personal	Other personal	48		44		141		130		Other personal		50		46
Personal lines insurance premiums	Personal lines insurance premiums	367		354		1,090		1,046		Personal lines insurance premiums		376		359
Fee revenues	Fee revenues	1		1		3		3		Fee revenues		1		1
Total personal lines insurance	Total personal lines insurance	368		355		1,093		1,049		Total personal lines insurance		377		360

Excess and surplus lines insurance	Excess and surplus lines insurance	82		72		238		202		Excess and surplus lines insurance		89		78
Fee revenues	Fee revenues	0		1		1		2		Fee revenues		0		1
Total excess and surplus lines insurance	Total excess and surplus lines insurance	82		73		239		204		Total excess and surplus lines insurance		89		79

Life insurance premiums	Life insurance premiums	72		70		218		203		Life insurance premiums		69		67
Fee revenues	Fee revenues	0		1		1		3		Fee revenues		1		0
Total life insurance	Total life insurance	72		71		219		206		Total life insurance		70		67

Investments	Investments									Investments
Investment income, net of expenses	Investment income, net of expenses	167		161		498		478		Investment income, net of expenses		174		165
Investment gains and losses, net	Investment gains and losses, net	533		86		(132)		1,113		Investment gains and losses, net		504		(1,725)
Total investment revenue	Total investment revenue	700		247		366		1,591		Total investment revenue		678		(1,560)

Other	Other									Other
Premiums	Premiums	136		116		316		245		Premiums		124		89

Other	Other	3		3		8		7		Other		2		2
Total other revenues	Total other revenues	139		119		324		252		Total other revenues		126		91
Total revenues	Total revenues	$	2,227	$	1,700	$	4,842	$	5,772	Total revenues		$	2,227	$	(99)

Income (loss) before income taxes:	Income (loss) before income taxes:									Income (loss) before income taxes:
Insurance underwriting results	Insurance underwriting results									Insurance underwriting results
Commercial lines insurance	Commercial lines insurance	$	(20)	$	56	$	(32)	$	144	Commercial lines insurance		$	130	$	(20)
Personal lines insurance	Personal lines insurance	(2)		3		(24)		4		Personal lines insurance		(3)		21
Excess and surplus lines insurance	Excess and surplus lines insurance	11		12		19		40		Excess and surplus lines insurance		8		9
Life insurance	Life insurance	6		5		9		2		Life insurance		(2)		2
Investments	Investments	674		222		289		1,517		Investments		652		(1,586)
Other	Other	(55)		(4)		(78)		(16)		Other		(17)		(2)
Total income before income taxes		$	614	$	294	$	183	$	1,691
Total income (loss) before income taxes										Total income (loss) before income taxes		$	768	$	(1,576)


Identifiable assets:	Identifiable assets:	September 30, 2020		December 31, 2019		Identifiable assets:	March 31, 2021		December 31, 2020
Property casualty insurance	Property casualty insurance	$	3,796	$	3,437	Property casualty insurance	$	4,163	$	3,838
Life insurance	Life insurance	1,619		1,516		Life insurance	1,574		1,661
Investments	Investments	20,155		19,583		Investments	21,803		21,332
Other	Other	800		872		Other	773		711
Total	Total	$	26,370	$	25,408	Total	$	28,313	$	27,542

Cincinnati Financial Corporation ~~Third-Quarter 2020~~First-Quarter 2021 10-Q

Page 2625

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 ~~2019~~2020 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).

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 ~~2019~~2020 Annual Report on Form 10-K, Item 1A, Risk Factors, Page ~~35 and Item 1A, Risk Factors in our subsequent Quarterly Reports on Form 10-Q.~~34.

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 that affect the company’s 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 in the relatively few decisions rendered to date

◦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, environmental events, terrorism incidents or other causes

•Increased frequency and/or severity of claims or development of claims that are unforeseen at the time of policy issuance

•Inadequate estimates, assumptions or reliance on third-party data used for critical accounting estimates

•Declines in overall stock market values negatively affecting the company’s equity portfolio and book value

Cincinnati Financial Corporation First-Quarter 2021 10-Q

Page 26

•Prolonged low interest rate environment or other factors that limit the company’s ability to generate growth in investment income or interest rate fluctuations that result in declining values of fixed-maturity investments, including declines in accounts in which we hold bank-owned life insurance contract assets

•Domestic and global events 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 and director and officer policies written for financial institutions or other insured entities

•Our inability to integrate Cincinnati Global and its subsidiaries into our ~~on-going~~ongoing operations, or disruptions to our ~~on-going~~ongoing operations due to such integration

•Recession or other economic conditions resulting in lower demand for insurance products or increased payment delinquencies

•Difficulties with technology or data security breaches, including cyberattacks, that could negatively affect our ability to conduct business; disrupt our relationships with agents, policyholders and others; cause

~~Cincinnati Financial Corporation Third-Quarter 2020 10-Q~~

~~Page 27~~

reputational damage, mitigation expenses and data loss and expose us to liability under federal and state laws

•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

•Increased competition that could result in a significant reduction in the company’s premium volume

•Changing consumer insurance-buying habits and consolidation of independent insurance agencies that 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 the company’s relationships with its independent agencies and hamper opportunities to add new agencies, resulting in limitations on the company’s opportunities for growth, such as:

◦Downgrades of the company’s financial strength ratings

◦Concerns that doing business with the company is too difficult

◦Perceptions that the company’s level of service, particularly claims service, is no longer a distinguishing characteristic in the marketplace

◦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

Cincinnati Financial Corporation First-Quarter 2021 10-Q

Page 27

◦Add assessments for guaranty funds, other ~~insurance-related~~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

•Events or actions, including unauthorized intentional circumvention of controls, that reduce the company’s 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

•Events, such as an epidemic, natural catastrophe or terrorism, that could hamper our ability to assemble our workforce at our headquarters location

Further, the company’s 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. The company also is subject to public and regulatory initiatives that can affect the market value for its 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 2020~~First-Quarter 2021 10-Q

Page 28

CORPORATE FINANCIAL HIGHLIGHTS

Net Income and Comprehensive Income Data


(Dollars in millions, except per share data)	(Dollars in millions, except per share data)	Three months ended September 30,									Nine months ended September 30,			(Dollars in millions, except per share data)			Three months ended March 31,
		2020		2019		% Change	2020		2019		% Change		2021		2020		% Change
Earned premiums	Earned premiums	$	1,522	$	1,446	5	$	4,460	$	4,163	7	Earned premiums	$	1,544	$	1,456	6
Investment income, net of expenses (pretax)	Investment income, net of expenses (pretax)	167		161		4	498		478		4	Investment income, net of expenses (pretax)	174		165		5
Investment gains and losses, net (pretax)	Investment gains and losses, net (pretax)	533		86		520	(132)		1,113		nm	Investment gains and losses, net (pretax)	504		(1,725)		nm
Total revenues	Total revenues	2,227		1,700		31	4,842		5,772		(16)	Total revenues	2,227		(99)		nm
Net income		484		248		95	167		1,371		(88)
Comprehensive income		573		326		76	405		1,791		(77)
Net income per share—diluted		2.99		1.49		101	1.03		8.30		(88)
Net income (loss)												Net income (loss)	620		(1,226)		nm
Comprehensive income (loss)												Comprehensive income (loss)	476		(1,470)		nm
Net income (loss) per share—diluted												Net income (loss) per share—diluted	3.82		(7.56)		nm
Cash dividends declared per share	Cash dividends declared per share	0.60		0.56		7	1.80		1.68		7	Cash dividends declared per share	0.63		0.60		5
Diluted weighted average shares outstanding	Diluted weighted average shares outstanding	162.0		165.6		(2)	162.5		165.1		(2)	Diluted weighted average shares outstanding	162.5		162.2		0

Total revenues rose ~~31%~~$2.326 billion for the ~~third~~first quarter of ~~2020,~~2021, compared with the ~~third~~first quarter of ~~2019,~~2020, primarily due to increases in net investment gains and earned premiums. ~~For the first nine months of 2020, compared with the first nine months of 2019, total revenues decreased 16%, as higher earned premiums were offset by net investment losses.~~ 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.

Net income for the ~~third~~first quarter of ~~2020,~~2021, compared with ~~the same period of 2019,~~first-quarter 2020, increased ~~$236 million,~~$1.846 billion, including increases of ~~$352 million~~$1.761 billion in after-tax net investment gains, ~~and $6~~$86 million ~~in after-tax investment income, partially offset by a $106 million decrease~~ in after-tax property casualty underwriting income and $8 million in after-tax investment income. ~~Third-quarter 2020 catastrophe~~Catastrophe losses for the first quarter of 2021, mostly weather related, were ~~$152~~$21 million higher after taxes and unfavorably affected both net income and property casualty underwriting income. Life insurance segment results on a pretax basis ~~improved $1~~decreased by $4 million compared with the ~~third~~first quarter of ~~2019.~~

For the first nine months of 2020, net income decreased $1.204 billion, compared with the same period of 2019, including decreases of $984 million in after-tax investment gains and losses and $229 million in after-tax property casualty underwriting income, partially offset by a $18 million improvement in after-tax investment income. The property casualty underwriting income decrease included an unfavorable $273 million after-tax effect from higher catastrophe losses. Life insurance segment results improved by $7 million on a pretax basis.2020.

During ~~much of~~ the first ~~nine~~three months of ~~2020, the novel coronavirus (SARS-CoV-2 or COVID-19),~~2021, SARS-CoV-2, also known as COVID-19 and recognized as a pandemic by the World Health Organization, ~~caused significant~~continued to cause dampening economic effects in some areas where we operate, including temporary closures of ~~many~~ businesses and reduced consumer spending due to shelter-in-place, stay-at-home and other governmental actions. Those orders and the uncertainty surrounding COVID-19 had broad financial market effects and caused significant market disruption and volatility. The stock market volatility was a major contributor to the nine-month revenue and net income decreases discussed above, and below in this quarterly report Item 2, Investments Results.spending.

The health and safety of our associates, agents and policyholders is at the top of the company's priorities. As stay-at-home actions were enacted, we promptly and effectively transitioned most of our headquarters associates to working from home. We provided the technology necessary to keep the business running, as associates continued writing and collecting insurance premiums, processing claims and performing other operational functions. They joined our field associates who already worked from home, providing agents and policyholders with outstanding service. At the end of the ~~third~~first quarter of ~~2020,~~2021, nearly all of our associates continued to work from home.

~~Cincinnati Financial Corporation Third-Quarter 2020 10-Q~~

~~Page 29~~

The COVID-19 pandemic slowed the growth of our premium revenues for the ~~third quarter and~~ first ~~nine~~three months of ~~2020,~~2021, including new business written ~~premiums.~~premiums, although overall premium growth was very good. Premium growth by segment is discussed below in Financial Results. For future periods, renewal premium or new business premium amounts could further decline if the basis for policy premiums, such as sales and payrolls of businesses we insure, decrease as a result of the pandemic and a weakened economy. In addition, the ultimate effects of recent or future government-ordered moratoriums or deferral of premium payments related to our insurance policies are uncertain and may further adversely affect premium growth. We are not able to determine premium effects for future periods.

During the ~~third~~first quarter of ~~2020,~~2021, there were no material changes to our estimates for incurred losses and expenses related to the pandemic. An updated estimate of ultimate credit losses related to uncollectible premiums reduced underwriting expenses by approximately $2 million. For ~~the first nine months of~~full-year 2020, pandemic-related incurred losses and expenses totaled ~~$72~~$85 million. The total included ~~$22~~$30 million for legal expenses in defense of business interruption claims, ~~$16~~$19 million for Cincinnati Re^® losses, ~~$10~~$12 million for Cincinnati Global Underwriting Ltd.^TMSM (Cincinnati

Cincinnati Financial Corporation First-Quarter 2021 10-Q

Page 29

Global) losses, $8 million for credit losses related to uncollectible premiums and $16 million for the Stay-at-Home policyholder credit for personal auto policies.

Approximately half of the losses for Cincinnati Re represent its estimated share from reinsurance treaties with companies that provided affirmative coverage for pandemic-related business interruption, and most of the remainder is an estimated share of treaties covering professional liability. Most of the losses for Cincinnati Global represent its share of potential losses from business interruption coverage for large risks with customized policy terms and conditions.

Loss experience for our insurance operations is influenced by many factors, as discussed in our ~~2019~~2020 Annual Report on Form 10-K, Item 7, Property Casualty Insurance Loss and Loss Expense Reserves, Page 56. Because of various factors that affect exposure to certain insurance losses, such as less miles driven for vehicles or reduced sales and payrolls for businesses, there could be a reduction in future losses, and in some cases a generally corresponding reduction in premiums. Also, there could be losses or legal expenses that increase or otherwise occur independently of changes in sales or payrolls of businesses we insure. We are not able to determine loss effects for future periods.

Performance by segment is discussed below in Financial Results. As discussed in our ~~2019~~2020 Annual Report on Form 10-K, Item 7, Factors Influencing Our Future Performance, Page 55, there are several reasons why our performance during ~~2020~~2021 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 ~~2019,~~2020, the company had increased the annual cash dividend rate for 5960 consecutive years, a record we believe is matched by only seven other U.S. publicly traded companies. In January ~~2020,~~2021, the board of directors increased the regular quarterly dividend to 6063 cents per share, setting the stage for our 6061^thst consecutive year of increasing cash dividends. During the first ~~nine~~three months of ~~2020,~~2021, cash dividends declared by the company increased 7%5% compared with the same period of ~~2019.~~2020. Our board regularly evaluates relevant factors in decisions related to dividends and share repurchases. The ~~2020~~2021 dividend increase reflected our strong earnings performance and signaled management's and the board's positive outlook and confidence in our outstanding capital, liquidity and financial flexibility.

Cincinnati Financial Corporation ~~Third-Quarter 2020~~First-Quarter 2021 10-Q

Page 30

Balance Sheet Data and Performance Measures


(Dollars in millions, except share data)	(Dollars in millions, except share data)	At September 30,			At December 31,			(Dollars in millions, except share data)	At March 31,			At December 31,
		2020			2019				2021			2020
Total investments	Total investments	$	20,299		$	19,746		Total investments	$	22,018		$	21,542
Total assets	Total assets	26,370			25,408			Total assets	28,313			27,542
Short-term debt	Short-term debt	123			39			Short-term debt	57			54
Long-term debt	Long-term debt	788			788			Long-term debt	788			788
Shareholders' equity	Shareholders' equity	9,745			9,864			Shareholders' equity	11,138			10,789
Book value per share	Book value per share	60.57			60.55			Book value per share	69.16			67.04
Debt-to-total-capital ratio	Debt-to-total-capital ratio	8.5		%	7.7		%	Debt-to-total-capital ratio	7.1		%	7.2		%

Total assets at ~~September 30, 2020,~~March 31, 2021, increased 4%3% compared with year-end ~~2019,~~2020, and included a 3%2% increase in total investments that reflected a combination of net purchases and higher fair values for many securities in our portfolio. Shareholders' equity ~~decreased 1%~~increased 3% and book value per share also increased ~~slightly~~3% during the first ~~nine~~three months of ~~2020.~~2021. Our debt-to-total-capital ratio (capital is the sum of debt plus shareholders' equity) ~~increased~~decreased slightly compared with year-end ~~2019.~~2020.

Our value creation ratio is our primary performance metric. That ratio was 3%4.1% for the first ~~nine~~three months of ~~2020,~~2021, and was significantly ~~lower~~higher than the same period in ~~2019,~~2020, primarily due to a ~~lower~~higher amount of overall net gains from our investment portfolio. The ~~$0.02~~$2.12 increase in book value per share during the first ~~nine~~three months of ~~2020~~2021 contributed ~~less than 0.1~~3.2 percentage points to the value creation ratio, while dividends declared at ~~$1.80~~$0.63 per share contributed ~~3.0~~0.9 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,					Three months ended March 31,
		2020		2019		2020		2019			2021		2020
Value creation ratio major components:	Value creation ratio major components:									Value creation ratio major components:
Net income before investment gains	Net income before investment gains	0.7	%	2.0	%	2.8	%	6.3	%	Net income before investment gains	2.1	%	1.4	%
Change in fixed-maturity securities, realized and unrealized gains	Change in fixed-maturity securities, realized and unrealized gains	1.0		0.8		1.8		5.4		Change in fixed-maturity securities, realized and unrealized gains	(1.4)		(3.2)
Change in equity securities, investment gains	Change in equity securities, investment gains	4.5		0.8		(0.5)		11.2		Change in equity securities, investment gains	3.6		(13.4)
Other	Other	0.1		0.0		(1.1)		(0.1)		Other	(0.2)		(1.2)
Value creation ratio	Value creation ratio	6.3	%	3.6	%	3.0	%	22.8	%	Value creation ratio	4.1	%	(16.4)	%


(Dollars are per share)	Three months ended March 31,
		2021			2020
Value creation ratio:
End of period book value*		$	69.16		$	50.02
Less beginning of period book value		67.04			60.55
Change in book value		2.12			(10.53)
Dividend declared to shareholders		0.63			0.60
Total value creation		$	2.75		$	(9.93)

Value creation ratio from change in book value**		3.2		%	(17.4)		%
Value creation ratio from dividends declared to shareholders***		0.9			1.0
Value creation ratio		4.1		%	(16.4)		%

* 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

Cincinnati Financial Corporation ~~Third-Quarter 2020~~First-Quarter 2021 10-Q

Page 31

(Dollars are per share) Three months ended September 30, Nine months ended September 30,
2020 2019 2020 2019
Value creation ratio:
End of period book value* $ 60.57 $ 57.37 $ 60.57 $ 57.37
Less beginning of period book value 57.56 55.92 60.55 48.10
Change in book value 3.01 1.45 0.02 9.27
Dividend declared to shareholders 0.60 0.56 1.80 1.68
Total value creation $ 3.61 $ 2.01 $ 1.82 $ 10.95
Value creation ratio from change in book value** 5.2 % 2.6 % 0.0 % 19.3 %
Value creation ratio from dividends declared to shareholders*** 1.1 1.0 3.0 3.5
Value creation ratio 6.3 % 3.6 % 3.0 % 22.8 %
* 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 ~~2019~~2020 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 ~~2019~~2020 Annual Report on Form 10-K, Item 1, Our Business and Our Strategy, Page 5. At ~~September 30, 2020,~~March 31, 2021, we actively marketed through agencies located in 45 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 ~~2019~~2020 Annual Report on Form 10-K, Item 7, Executive Summary, Page ~~51,~~50, 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~~three months of ~~2020,~~2021, our consolidated property casualty net written premium year-over-year growth was ~~6%, comparing favorably with the industry’s 3% growth rate reported by~~12%. As of February 2021, A.M. Best ~~for~~projected the ~~first six months of 2020.~~industry's full-year 2021 written premium growth at approximately 5%. For the five-year period ~~2015~~2016 through ~~2019,~~2020, 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~~three months of ~~2020,~~2021, our GAAP combined ratio was ~~101.8%~~91.2%, including ~~15.1~~12.4 percentage points of current accident year catastrophe losses partially offset by ~~2.1~~7.4 percentage points of favorable loss reserve development on prior accident years. Our statutory combined ratio was ~~99.5%~~89.7% for the first ~~nine~~three months of ~~2020, comparing unfavorably with the 97.6% reported for the industry by~~2021. As of February 2021, A.M. Best ~~for~~projected the ~~first six months of 2020, and reflecting our catastrophe loss~~industry's full-year 2021 statutory combined ratio at approximately 100%, including approximately 6 percentage points ~~higher than the industry for the first six months~~ of ~~the year.~~catastrophe losses and a favorable effect of approximately 1 percentage point of loss reserve development on prior accident years. The industry's ratio again excludes its mortgage and financial guaranty lines of business.

•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~~three months of ~~2020,~~2021, pretax investment income was ~~$498~~$174 million, up 4%5% compared with the same period in ~~2019.~~2020. We believe our investment portfolio mix provides an appropriate balance of income stability and growth with capital appreciation potential.

~~Cincinnati Financial Corporation Third-Quarter 2020 10-Q~~

~~Page 32~~

Highlights of Our Strategy and Supporting Initiatives

Management has worked to identify a strategy that can lead to long-term success, with concurrence by the board of directors. Our strategy is intended to position us to compete successfully in the markets we have targeted while appropriately managing risk. Further description of our long-term, proven strategy can be found in our ~~2019~~2020 Annual Report on Form 10-K, Item 1, Our Business and Our Strategy, Page 5. We believe successful implementation of initiatives that support our strategy will help us better serve our agent customers and reduce volatility in our financial results while we also grow earnings and book value over the long term, successfully navigating challenging economic, market or industry pricing cycles.

•Manage insurance profitability – Implementation of these initiatives is intended to enhance underwriting expertise and knowledge, thereby increasing our ability to manage our business while also gaining efficiency. Better profit margins can arise from additional information and more focused action on underperforming product lines, plus pricing capabilities we are expanding through the use of technology and analytics. In addition to enhancing company efficiency, improving internal processes also supports the ability of the independent agencies that represent us to grow profitably by allowing them to serve clients faster and to more efficiently manage agency expenses.

We continue to enhance our property casualty underwriting expertise and to effectively and efficiently underwrite individual policies and process transactions. Ongoing initiatives supporting this work include expanding our pricing and segmentation capabilities through experience and use of predictive analytics and additional data. Our segmentation efforts emphasize identification and retention of insurance policies we believe have relatively

Cincinnati Financial Corporation First-Quarter 2021 10-Q

Page 32

stronger pricing, while seeking more aggressive renewal terms and conditions on policies we believe have relatively weaker pricing. In 2020, we are continuing to improve underwriting and rate adequacy for our commercial auto and homeowner lines of business. Our commercial auto policies that renewed during the first nine months of 2020 experienced an estimated average price increase at percentages in the high-single-digit range, and our homeowner policies that renewed during that period averaged an estimated price increase at percentages in the mid-single-digit range.

•Drive premium growth – Implementation of these initiatives is intended to further penetrate each market we serve through our independent agencies. Strategies aimed at specific market opportunities, along with service enhancements, can help our agents grow and increase our share of their business. Premium growth initiatives also include expansion of Cincinnati Re, our reinsurance assumed operation, and successful integration of Cincinnati Global, our London-based global specialty underwriter for Lloyd's Syndicate 318. Diversified growth also may reduce variability of losses from weather-related catastrophes.

We continue to appoint new agencies to develop additional points of distribution. In ~~2020,~~2021, we are planning approximately ~~125~~120 appointments of independent agencies that offer most or all of our property casualty insurance products. During the first ~~nine~~three months of ~~2020,~~2021, we appointed ~~105 new agencies that meet that criteria.~~

We also plan to appoint additional agencies that focus on high net worth personal lines clients. In 2020, we targeted the appointment of approximately 35 agencies that market only personal lines products for us. During the first nine months of 2020, we appointed 4143 new agencies that meet that criteria.

As of ~~September 30, 2020,~~March 31, 2021, a total of ~~1,832~~1,859 agency relationships market our property casualty insurance products from ~~2,550~~2,613 reporting locations. The totals do not include Lloyd's brokers or coverholders that source business for Cincinnati Global.

We also continue to grow premiums through the disciplined expansion of Cincinnati Re and the acquisition of Cincinnati Global. During the first nine months of 2020, Cincinnati Re contributed $50 million of growth in consolidated property casualty insurance net written premiums while Cincinnati Global contributed $26 million. We also believe that over time Cincinnati Global will provide opportunities to support business produced by our independent agencies in new geographies and lines of business.

~~Cincinnati Financial Corporation Third-Quarter 2020 10-Q~~

~~Page 33~~

Financial Strength

An important part of our long-term strategy is financial strength, which is described in our ~~2019~~2020 Annual Report on Form 10-K, Item 1, Our Business and Our Strategy, Financial Strength, Page 8.9. 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 ~~2019~~2020 Annual Report on Form 10-K, Item 7, Liquidity and Capital Resources, ~~2020~~2021 Reinsurance Ceded Programs, Page ~~109.~~110. 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, 2020,~~March 31, 2021, we held ~~$3.575~~$4.109 billion of our cash and invested assets at the parent-company level, of which ~~$3.280~~$3.856 billion, or ~~91.7%~~93.8%, was invested in common stocks, and ~~$135~~$37 million, or ~~3.8%~~0.9%, was cash or cash equivalents. Our debt-to-total-capital ratio was ~~8.5%~~7.1% at ~~September 30, 2020.~~March 31, 2021. Another important indicator of financial strength is our ratio of property casualty net written premiums to statutory surplus, which was 1.0-to-1 for the 12 months ended ~~September 30, 2020,~~March 31, 2021, matching year-end ~~2019.~~2020.

Cincinnati Financial Corporation First-Quarter 2021 10-Q

Page 33

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 23, 2020,~~April 27, 2021, 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

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

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 2020~~First-Quarter 2021 10-Q

Page 34

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.


(Dollars in millions)	(Dollars in millions)	Three months ended September 30,													Nine months ended September 30,			(Dollars in millions)					Three months ended March 31,
		2020			2019			% Change	2020			2019			% Change		2021			2020			% Change
Earned premiums	Earned premiums	$	1,450		$	1,376		5	$	4,242		$	3,960		7	Earned premiums	$	1,475		$	1,389		6
Fee revenues	Fee revenues	2			3			(33)	7			8			(13)	Fee revenues	2			3			(33)
Total revenues	Total revenues	1,452			1,379			5	4,249			3,968			7	Total revenues	1,477			1,392			6
Loss and loss expenses from:	Loss and loss expenses from:															Loss and loss expenses from:
Current accident year before catastrophe losses	Current accident year before catastrophe losses	807			829			(3)	2,456			2,417			2	Current accident year before catastrophe losses	850			832			2
Current accident year catastrophe losses	Current accident year catastrophe losses	275			87			216	643			303			112	Current accident year catastrophe losses	183			131			40
Prior accident years before catastrophe losses	Prior accident years before catastrophe losses	(3)			(39)			92	(72)			(178)			60	Prior accident years before catastrophe losses	(80)			(28)			(186)
Prior accident years catastrophe losses	Prior accident years catastrophe losses	(8)			(13)			38	(19)			(25)			24	Prior accident years catastrophe losses	(30)			(5)			(500)
Loss and loss expenses	Loss and loss expenses	1,071			864			24	3,008			2,517			20	Loss and loss expenses	923			930			(1)
Underwriting expenses	Underwriting expenses	432			432			0	1,309			1,229			7	Underwriting expenses	421			438			(4)
Underwriting profit (loss)		$	(51)		$	83		nm	$	(68)		$	222		nm
Underwriting profit																Underwriting profit	$	133		$	24		454

Ratios as a percent of earned premiums:	Ratios as a percent of earned premiums:							Pt. Change							Pt. Change	Ratios as a percent of earned premiums:							Pt. Change
Current accident year before catastrophe losses	Current accident year before catastrophe losses	55.7		%	60.3		%	(4.6)	57.9		%	61.0		%	(3.1)	Current accident year before catastrophe losses	57.6		%	59.9		%	(2.3)
Current accident year catastrophe losses	Current accident year catastrophe losses	18.9			6.2			12.7	15.1			7.7			7.4	Current accident year catastrophe losses	12.4			9.4			3.0
Prior accident years before catastrophe losses	Prior accident years before catastrophe losses	(0.2)			(2.8)			2.6	(1.7)			(4.5)			2.8	Prior accident years before catastrophe losses	(5.4)			(2.1)			(3.3)
Prior accident years catastrophe losses	Prior accident years catastrophe losses	(0.6)			(0.9)			0.3	(0.4)			(0.6)			0.2	Prior accident years catastrophe losses	(2.0)			(0.3)			(1.7)
Loss and loss expenses	Loss and loss expenses	73.8			62.8			11.0	70.9			63.6			7.3	Loss and loss expenses	62.6			66.9			(4.3)
Underwriting expenses	Underwriting expenses	29.8			31.4			(1.6)	30.9			31.0			(0.1)	Underwriting expenses	28.6			31.6			(3.0)
Combined ratio	Combined ratio	103.6		%	94.2		%	9.4	101.8		%	94.6		%	7.2	Combined ratio	91.2		%	98.5		%	(7.3)

Combined ratio	Combined ratio	103.6		%	94.2		%	9.4	101.8		%	94.6		%	7.2	Combined ratio	91.2		%	98.5		%	(7.3)
Contribution from catastrophe losses and prior years reserve development	Contribution from catastrophe losses and prior years reserve development	18.1			2.5			15.6	13.0			2.6			10.4	Contribution from catastrophe losses and prior years reserve development	5.0			7.0			(2.0)
Combined ratio before catastrophe losses and prior years reserve development	Combined ratio before catastrophe losses and prior years reserve development	85.5		%	91.7		%	(6.2)	88.8		%	92.0		%	(3.2)	Combined ratio before catastrophe losses and prior years reserve development	86.2		%	91.5		%	(5.3)

The COVID-19 pandemic and related economic effects slowed the rate of our premium growth for the first quarter of 2021, but to a lesser extent than the second and third ~~quarter and first nine months~~quarters of 2020. Consolidated property casualty net written premiums grew 3%12% for ~~third-quarter 2020 and~~first-quarter 2021, including a contribution of 6% for the second quarter, following growth of 10% for both the first quarter of 2020 and full-year 2019. For the first nine months of 2020, net written premiums grew 6%, compared with 9% for the same period of 2019.from Cincinnati Re. In addition to reduced insured exposure levels that affected some lines of business, first-quarter 2021 new business written premiums decreased for ~~both the second and third quarter of 2020 decreased~~our commercial lines insurance segment, compared with the same ~~periods~~period a year ago, contributing to the slowed growth in net written premiums.

~~New~~Consolidated property casualty new business written premiums ~~decreased~~increased 2% for the ~~third~~first quarter of ~~2020,~~2021, compared with ~~third-quarter 2019. While~~ the ~~number~~first quarter of submissions from agents for us to quote premiums for policies were generally higher than the year-ago period, we experienced a higher rate of our underwriters declining to quote on those submissions in third-quarter 2020, particularly for our commercial lines and excess and surplus lines insurance segments.2020. For policies that renewed during the ~~third~~first quarter of ~~2020,~~2021, higher average pricing ~~offset some of the factors that slowed~~also contributed to premium growth. Regardless of ~~future policy submission volume and~~ pricing changes, new business and renewal premium amounts could decline if the exposure basis for policy premiums, such as sales and payrolls of businesses we insure, decrease as a result of a weakened economy. ~~We are not able to determine other effects of the pandemic on future periods.~~

Cincinnati Financial Corporation ~~Third-Quarter 2020~~First-Quarter 2021 10-Q

Page 35

Loss experience for our insurance operations is influenced by many factors as discussed in further detail in Financial Results by property casualty insurance segment. Consolidated property casualty paid losses before catastrophe effects for the ~~third~~first quarter of ~~2020~~2021 decreased by ~~18%~~17% compared with ~~third-quarter 2019.~~first-quarter 2020. Each major line of business other than homeowner decreased, ranging from ~~12%~~18% to 24%, with the commercial lines insurance segment decreasing by ~~16%~~22% and the personal lines insurance segment decreasing by ~~21%~~11%. As a ratio to earned premiums, paid losses before catastrophe effects were ~~9.5~~9.2 percentage points lower than the same period a year ago, but were ~~mostly~~somewhat offset by the change in loss reserves that increased by ~~7.2~~3.9 points. ~~For the first nine months of 2020, compared with a year ago, ratios before catastrophe effects were 8.7 percentage points lower for paid losses and 7.4 points higher for the change in loss reserves.~~ For future periods, factors that reduce exposure to certain insurance losses, such as fewer vehicular miles driven or reduced sales and payrolls for businesses, could cause a reduction in future losses that generally correspond to reduced premiums. However, there could be losses or legal expenses that occur independent of changes in mileage, sales or payrolls of businesses we insure. ~~We are not able to determine premium or loss effects for future periods.~~

Our consolidated property casualty insurance operations generated an underwriting ~~loss~~profit of ~~$51 million for the third quarter of 2020 and $68~~$133 million for the first ~~nine~~three months of ~~2020.~~2021. The ~~decreases~~increase of ~~$134~~$109 million, ~~and $290 million, respectively,~~ compared with the same ~~periods~~period of ~~2019,~~2020, included an unfavorable ~~increases~~increase of ~~$193 million and $346~~$27 million in losses from catastrophes, mostly caused by severe weather. 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.

For all property casualty lines of business in aggregate, net loss and loss expense reserves at ~~September 30, 2020,~~March 31, 2021, were ~~$661~~$218 million higher, or ~~12%~~3%, than at year-end ~~2019,~~2020, including an increase of ~~$457~~$195 million for the 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~~first quarter of ~~2020 increased~~2021 improved by ~~9.4~~7.3 percentage points, compared with the same period of ~~2019, including~~2020, despite an increase of 13.0 points from higher catastrophe losses and loss expenses. For the first nine months of 2020, compared with the 2019 nine-month period, our combined ratio increased by 7.2 percentage points, including an increase of 7.61.3 points from higher catastrophe losses and loss expenses.

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 ~~2.1~~7.4 percentage points in the first ~~nine~~three months of ~~2020,~~2021, compared with ~~5.1~~2.4 percentage points in the same period of ~~2019.~~2020. 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~~three months of ~~2020.~~2021. That ~~57.9%~~57.6% ratio was ~~3.1~~2.3 percentage points lower, compared with the ~~61.0%~~59.9% accident year ~~2019~~2020 ratio measured as of ~~September 30, 2019,~~March 31, 2020, including a decrease of ~~0.1~~1.1 points in the ratio for large losses of $1 million or more per claim, discussed below.

The underwriting expense ratio decreased for the ~~third~~first quarter ~~and first nine months~~ of ~~2020,~~2021, compared with the same ~~periods~~period a year ago. The ~~decreases were~~decrease was primarily due to lower levels of ~~profit-sharing commissions for agencies and~~ business travel spending ~~for associates,~~and uncollectible premiums, in addition to ongoing expense management efforts and higher earned premiums. ~~The decreases were partially offset by a second-quarter 2020 Stay-at-Home policyholder credit for personal auto policies and higher credit losses due to uncollectible premiums.~~

Cincinnati Financial Corporation ~~Third-Quarter 2020~~First-Quarter 2021 10-Q

Page 36

Consolidated Property Casualty Insurance Premiums


(Dollars in millions)	(Dollars in millions)	Three months ended September 30,									Nine months ended September 30,			(Dollars in millions)			Three months ended March 31,
		2020		2019		% Change	2020		2019		% Change		2021		2020		% Change
Agency renewal written premiums	Agency renewal written premiums	$	1,153	$	1,119	3	$	3,595	$	3,435	5	Agency renewal written premiums	$	1,276	$	1,198	7
Agency new business written premiums	Agency new business written premiums	189		192		(2)	614		585		5	Agency new business written premiums	220		215		2

Other written premiums	Other written premiums	51		40		28	261		188		39	Other written premiums	197		105		88
Net written premiums	Net written premiums	1,393		1,351		3	4,470		4,208		6	Net written premiums	1,693		1,518		12
Unearned premium change	Unearned premium change	57		25		(128)	(228)		(248)		8	Unearned premium change	(218)		(129)		(69)
Earned premiums	Earned premiums	$	1,450	$	1,376	5	$	4,242	$	3,960	7	Earned premiums	$	1,475	$	1,389	6

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 ~~2020,~~2021, are discussed in more detail by segment below in Financial Results.

Consolidated property casualty net written premiums for the three ~~and nine~~ months ended ~~September 30, 2020,~~March 31, 2021, grew ~~$42 million and $262~~$175 million compared with the same ~~periods~~period of ~~2019.~~2020. 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 ~~decreased by $3 million for the third quarter of 2020 but~~ grew ~~$29~~$5 million for the first ~~nine months~~quarter of ~~the year,~~2021, compared with the same ~~periods~~period of ~~2019. The nine-month increase was primarily from our commercial lines insurance segment.~~2020. New agency appointments during ~~2019~~2020 and ~~2020~~2021 produced a ~~$45~~$10 million increase in standard lines new business for the first ~~nine~~three months of ~~2020~~2021 compared with the same period of ~~2019.~~2020. 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, increased by ~~$19 million and $50~~$91 million for the three ~~and nine~~ months ended ~~September 30, 2020,~~March 31, 2021, compared with the same ~~periods~~period of ~~2019,~~2020, to ~~$54 million and $242 million, respectively.~~$196 million. 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 also contributed to the increase in other written premiums, ~~following our acquisition of it on February 28, 2019. Net~~with net written premiums ~~decreased~~increasing by ~~less than $1~~$4 million for the ~~third quarter of 2020 and increased by $26 million for the nine~~three months ended ~~September 30, 2020,~~March 31, 2021, compared with the ~~third quarter and seven-month periods in 2019,~~2020 period, to ~~$38 million and $129 million, respectively.~~$41 million.

Other written premiums also include premiums ceded to reinsurers as part of our reinsurance ceded program. An increase in ceded premiums decreased net written premiums by ~~$3 million for the third quarter of 2020, compared with third-quarter 2019. A decrease in ceded premiums increased net written premiums by $1~~$2 million for the first ~~nine months~~quarter of ~~2020,~~2021, compared with ~~the same period of 2019. Both 2020 periods included $3 million of reinstatement premiums for our property catastrophe reinsurance treaty.~~first-quarter 2020.

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 ~~18.3 and 14.7~~10.4 percentage points to the combined ratio in the ~~third quarter and~~ first ~~nine~~three months of ~~2020,~~2021, compared with ~~5.3 and 7.1~~9.1 percentage points in the same ~~periods~~period of ~~2019.~~2020.

Cincinnati Financial Corporation ~~Third-Quarter 2020~~First-Quarter 2021 10-Q

Page 37

Effective June 1, 2020, we restructured and renewed our combined property catastrophe occurrence excess of loss treaty for a period of one year, commuting the expiring treaty one month in advance of its expiration date. The treaty provides coverage for various combinations of occurrences, has an aggregate limit of $50 million in excess of $150 million per loss and applies to business written on a direct basis and by Cincinnati Re. Cincinnati Global catastrophe losses are not applicable to the treaty. Ceded premiums for the one-year renewal period of coverage from this treaty are estimated to be approximately $11 million. Cincinnati Re purchases additional reinsurance coverages with various triggers and unique features. As of June 1, 2020, Cincinnati Re had separate property catastrophe excess of loss coverage with a total available aggregate limit of $30 million.

~~Cincinnati Financial Corporation Third-Quarter 2020 10-Q~~

~~Page 38~~

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 $10 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
2020
Jan. 10-12 Midwest, Northeast, South $ — $ — $ — $ — $ — $ 6 $ 5 $ — $ — $ 11
Feb. 5-8 Northeast, South — — — — — 10 5 — — 15
Mar. 2-4 Midwest, South (3) — — — (3) 61 8 — 5 74
Mar. 27-30 Midwest, Northeast, South — 1 — — 1 23 14 — — 37
Apr. 7-9 Midwest, Northeast, South 2 4 — — 6 29 29 — — 58
Apr. 10-14 Midwest, Northeast, South — — — — — 23 27 — — 50
May 4-5 Midwest, South 1 — — — 1 23 5 — — 28
May 26 - Jun. 8 Midwest, Northeast, South, West (1) — — — (1) 18 — 1 8 27
Jul. 10-12 Midwest, South 14 14 — — 28 14 14 — — 28
Jul. 30 - Aug. 5 International, South, Northeast 6 21 — — 27 6 21 — — 27
Aug. 8-11 Midwest 84 19 — — 103 84 19 �� — 103
Aug. 26-28 South (Laura) 2 2 — 42 46 2 2 — 42 46
Sep. 7-16 West 12 3 — — 15 12 3 — — 15
Sep. 14-18 South (Sally) 6 8 — 14 28 6 8 — 14 28
All other 2020 catastrophes 5 14 1 4 24 26 61 3 6 96
Development on 2019 and prior catastrophes 1 (3) — (6) (8) (8) (8) — (3) (19)
Calendar year incurred total $ 129 $ 83 $ 1 $ 54 $ 267 $ 335 $ 213 $ 4 $ 72 $ 624
2019
Jan. 29-Feb. 1 Midwest, Northeast $ (1) $ — $ — $ — $ (1) $ 10 $ 10 $ — $ 1 $ 21
Feb. 23-26 Midwest, Northeast, South (1) — — — (1) 10 10 — — 20
Mar. 12-17 Midwest, Northeast, West, South — (2) — 2 — 5 4 — 4 13
May 16-17 Midwest 3 — — — 3 9 6 — — 15
May 26-28 Midwest, Northeast, West, South (2) 1 — — (1) 76 25 — — 101
Aug. 4-5 Midwest 5 7 — — 12 5 7 — — 12
Aug. 10-11 West 24 1 — — 25 24 1 — — 25
Aug. 28-Sep. 6 International, South (Dorian) 3 1 — 13 17 3 1 — 13 17
All other 2019 catastrophes 8 17 1 7 33 34 37 1 7 79
Development on 2018 and prior catastrophes (4) (2) — (7) (13) (18) 3 — (10) (25)
Calendar year incurred total $ 35 $ 23 $ 1 $ 15 $ 74 $ 158 $ 104 $ 1 $ 15 $ 278


(Dollars in millions, net of reinsurance)		Three months ended March 31,
					Comm.				Pers.				E&S
Dates	Region				lines				lines				lines				Other				Total
2021
Feb. 12-15	South, West				$	10			$	6			$	—			$	49			$	65
Feb. 16-20	Midwest, Northeast, South				22				37				1				1				61
Mar. 24-26	Midwest, Northeast, South				8				19				—				—				27

Mar. 27-29	Midwest, Northeast, South				4				8				—				—				12










All other 2021 catastrophes			10				8				—				—				18
Development on 2020 and prior catastrophes			(17)				(3)				—				(10)				(30)
Calendar year incurred total			$	37			$	75			$	1			$	40			$	153

2020
Jan. 10-12	Midwest, Northeast, South				$	6			$	5			$	—			$	—			$	11
Feb. 5-8	Northeast, South				11				6				—				—				17
Mar. 2-4	Midwest, South				64				10				—				—				74
Mar. 27-30	Midwest, Northeast, South				6				16				—				—				22








All other 2020 catastrophes			1				6				—				—				7
Development on 2019 and prior catastrophes			(3)				(5)				—				3				(5)
Calendar year incurred total			$	85			$	38			$	—			$	3			$	126

Cincinnati Financial Corporation ~~Third-Quarter 2020~~First-Quarter 2021 10-Q

Page 3938

The following table includes data for losses incurred of $1 million or more per claim, net of reinsurance.

Consolidated Property Casualty Insurance Losses Incurred by Size


(Dollars in millions, net of reinsurance)	(Dollars in millions, net of reinsurance)	Three months ended September 30,													Nine months ended September 30,			(Dollars in millions, net of reinsurance)					Three months ended March 31,
		2020			2019			% Change	2020			2019			% Change		2021			2020			% Change
Current accident year losses greater than $5 million	Current accident year losses greater than $5 million	$	21		$	(1)		nm	$	40		$	13		208	Current accident year losses greater than $5 million	$	5		$	—		nm
Current accident year losses $1 million - $5 million	Current accident year losses $1 million - $5 million	46			76			(39)	149			166			(10)	Current accident year losses $1 million - $5 million	31			50			(38)
Large loss prior accident year reserve development	Large loss prior accident year reserve development	(3)			33			nm	30			54			(44)	Large loss prior accident year reserve development	24			26			(8)
Total large losses incurred	Total large losses incurred	64			108			(41)	219			233			(6)	Total large losses incurred	60			76			(21)
Losses incurred but not reported	Losses incurred but not reported	38			(24)			nm	251			9			nm	Losses incurred but not reported	102			79			29
Other losses excluding catastrophe losses	Other losses excluding catastrophe losses	550			566			(3)	1,455			1,606			(9)	Other losses excluding catastrophe losses	451			496			(9)
Catastrophe losses	Catastrophe losses	261			70			273	611			268			128	Catastrophe losses	150			123			22
Total losses incurred	Total losses incurred	$	913		$	720		27	$	2,536		$	2,116		20	Total losses incurred	$	763		$	774		(1)

Ratios as a percent of earned premiums:	Ratios as a percent of earned premiums:							Pt. Change							Pt. Change	Ratios as a percent of earned premiums:							Pt. Change
Current accident year losses greater than $5 million	Current accident year losses greater than $5 million	1.5		%	(0.1)		%	1.6	0.9		%	0.3		%	0.6	Current accident year losses greater than $5 million	0.3		%	—		%	0.3
Current accident year losses $1 million - $5 million	Current accident year losses $1 million - $5 million	3.2			5.5			(2.3)	3.5			4.2			(0.7)	Current accident year losses $1 million - $5 million	2.2			3.6			(1.4)
Large loss prior accident year reserve development	Large loss prior accident year reserve development	(0.3)			2.4			(2.7)	0.8			1.4			(0.6)	Large loss prior accident year reserve development	1.6			1.9			(0.3)
Total large loss ratio	Total large loss ratio	4.4			7.8			(3.4)	5.2			5.9			(0.7)	Total large loss ratio	4.1			5.5			(1.4)
Losses incurred but not reported	Losses incurred but not reported	2.6			(1.8)			4.4	5.9			0.2			5.7	Losses incurred but not reported	6.9			5.7			1.2
Other losses excluding catastrophe losses	Other losses excluding catastrophe losses	38.0			41.2			(3.2)	34.3			40.5			(6.2)	Other losses excluding catastrophe losses	30.5			35.6			(5.1)
Catastrophe losses	Catastrophe losses	18.0			5.1			12.9	14.4			6.8			7.6	Catastrophe losses	10.2			8.9			1.3
Total loss ratio	Total loss ratio	63.0		%	52.3		%	10.7	59.8		%	53.4		%	6.4	Total loss ratio	51.7		%	55.7		%	(4.0)

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 2020~~first-quarter 2021 property casualty total large losses incurred of ~~$64~~$60 million, net of reinsurance, were lower than the ~~$80~~$74 million quarterly average during full-year ~~2019~~2020 and lower than the ~~$108~~$76 million experienced for the ~~third~~first quarter of ~~2019.~~2020. The ratio for these large losses was ~~3.4~~1.4 percentage points lower compared with last year's ~~third~~first quarter. The third-quarter 2020 amount of total large losses incurred favorably contributed to the decrease in the nine-month 2020 total large loss ratio, compared with 2019, as it offset a first-half 2020 ratio that was 0.8 points higher than the first half of 2019. We believe results for the ~~three- and nine-month periods~~three-month period largely reflected normal fluctuations in loss patterns and normal variability in large case reserves for claims above $1 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 2020~~First-Quarter 2021 10-Q

Page 4039

COMMERCIAL LINES INSURANCE RESULTS


(Dollars in millions)	(Dollars in millions)	Three months ended September 30,													Nine months ended September 30,			(Dollars in millions)					Three months ended March 31,
		2020			2019			% Change	2020			2019			% Change		2021			2020			% Change
Earned premiums	Earned premiums	$	865		$	834		4	$	2,598		$	2,467		5	Earned premiums	$	886		$	863		3
Fee revenues	Fee revenues	1			1			0	3			3			0	Fee revenues	1			1			0
Total revenues	Total revenues	866			835			4	2,601			2,470			5	Total revenues	887			864			3
Loss and loss expenses from:	Loss and loss expenses from:															Loss and loss expenses from:
Current accident year before catastrophe losses	Current accident year before catastrophe losses	500			504			(1)	1,540			1,518			1	Current accident year before catastrophe losses	532			526			1
Current accident year catastrophe losses	Current accident year catastrophe losses	128			39			228	343			176			95	Current accident year catastrophe losses	54			88			(39)
Prior accident years before catastrophe losses	Prior accident years before catastrophe losses	(9)			(29)			69	(51)			(135)			62	Prior accident years before catastrophe losses	(66)			(3)			nm
Prior accident years catastrophe losses	Prior accident years catastrophe losses	1			(4)			nm	(8)			(18)			56	Prior accident years catastrophe losses	(17)			(3)			(467)
Loss and loss expenses	Loss and loss expenses	620			510			22	1,824			1,541			18	Loss and loss expenses	503			608			(17)
Underwriting expenses	Underwriting expenses	266			269			(1)	809			785			3	Underwriting expenses	254			276			(8)
Underwriting profit (loss)	Underwriting profit (loss)	$	(20)		$	56		nm	$	(32)		$	144		nm	Underwriting profit (loss)	$	130		$	(20)		nm

Ratios as a percent of earned premiums:	Ratios as a percent of earned premiums:							Pt. Change							Pt. Change	Ratios as a percent of earned premiums:							Pt. Change
Current accident year before catastrophe losses	Current accident year before catastrophe losses	57.8		%	60.5		%	(2.7)	59.2		%	61.5		%	(2.3)	Current accident year before catastrophe losses	60.0		%	61.0		%	(1.0)
Current accident year catastrophe losses	Current accident year catastrophe losses	14.7			4.6			10.1	13.2			7.1			6.1	Current accident year catastrophe losses	6.1			10.2			(4.1)
Prior accident years before catastrophe losses	Prior accident years before catastrophe losses	(1.0)			(3.4)			2.4	(1.9)			(5.4)			3.5	Prior accident years before catastrophe losses	(7.5)			(0.3)			(7.2)
Prior accident years catastrophe losses	Prior accident years catastrophe losses	0.1			(0.5)			0.6	(0.3)			(0.7)			0.4	Prior accident years catastrophe losses	(1.9)			(0.4)			(1.5)
Loss and loss expenses	Loss and loss expenses	71.6			61.2			10.4	70.2			62.5			7.7	Loss and loss expenses	56.7			70.5			(13.8)
Underwriting expenses	Underwriting expenses	30.8			32.2			(1.4)	31.1			31.8			(0.7)	Underwriting expenses	28.7			32.0			(3.3)
Combined ratio	Combined ratio	102.4		%	93.4		%	9.0	101.3		%	94.3		%	7.0	Combined ratio	85.4		%	102.5		%	(17.1)

Combined ratio	Combined ratio	102.4		%	93.4		%	9.0	101.3		%	94.3		%	7.0	Combined ratio	85.4		%	102.5		%	(17.1)
Contribution from catastrophe losses and prior years reserve development	Contribution from catastrophe losses and prior years reserve development	13.8			0.7			13.1	11.0			1.0			10.0	Contribution from catastrophe losses and prior years reserve development	(3.3)			9.5			(12.8)
Combined ratio before catastrophe losses and prior years reserve development	Combined ratio before catastrophe losses and prior years reserve development	88.6		%	92.7		%	(4.1)	90.3		%	93.3		%	(3.0)	Combined ratio before catastrophe losses and prior years reserve development	88.7		%	93.0		%	(4.3)

Overview

~~While earned~~Earned premiums ~~increased 4% for the third quarter and 5%~~grew 3% for the first ~~nine months~~quarter of ~~2020,~~2021 as the COVID-19 pandemic and related economic effects slowed the pace of net written premium growth for our commercial lines insurance segment. Net written premiums ~~decreased~~grew by ~~$2 million~~5% during the ~~third~~first quarter of ~~2020 but grew 4% on a nine-month basis,~~2021, compared with the same ~~periods~~period a year ago. The rate of growth for each major line of business was less for the third quarter of 2020, compared with the first quarter of the year, including commercial property down 3 percentage points while commercial casualty, commercial auto and workers' compensation each decreased by 11 percentage points or more. New business and renewal premium growth could continue to slow if the basis for policy premiums, such as sales results and payrolls of businesses we insure, decrease as a result of a weakened economy. ~~We are not able to determine other effects of the pandemic on future periods.~~

Loss experience for our insurance operations is influenced by many factors, ~~and higher~~including lower catastrophe losses ~~were the main driver of higher~~that contributed to lower overall commercial lines losses for the ~~third quarter and~~ first ~~nine~~three months of ~~2020.~~2021. During the ~~third~~first quarter of ~~2020,~~2021, loss experience before catastrophe effects for our commercial lines insurance segment continued to improve. The main driver of the improvement was the ratio for reserve development on prior accident ~~year 2020 loss and loss expenses~~years before catastrophe losses. On a nine-month basis, measured as of September 30, accident year 2020 improved by 2.3 percentage points. The improvement was driven by our commercial casualty and commercial auto lines of business, while commercial property increased by 0.6 points and workers' compensation increased by 2.2 points. The unfavorable change for commercial property included 2.8 points for $21 million of legal expenses in defense of business interruption claims, related to the pandemic, incurred during the first half of the year. The unfavorable change for workers' compensation reflected average percentage price changes that have decreased in the mid-single-digit range for several quarters.

~~Cincinnati Financial Corporation Third-Quarter 2020 10-Q~~

~~Page 41~~

For future periods, factors that reduce exposure to certain insurance losses, such as fewer vehicular miles driven or reduced sales results and payrolls for businesses, could cause a reduction in future losses that generally correspond to reduced premiums. However, there could be losses or legal expenses that occur independent of changes in mileage, sales or payrolls of businesses we insure. ~~We are not able to determine premium or loss effects for future periods.~~

Performance highlights for the commercial lines segment include:

•Premiums – Earned premiums for the commercial lines segment rose during the ~~third quarter and~~ first ~~nine~~three months of ~~2020,~~2021, compared with the same ~~periods~~period a year ago, primarily due to 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

Cincinnati Financial Corporation First-Quarter 2021 10-Q

Page 40

appropriate pricing discipline for both new and renewal business as our agents and underwriters assess account quality to make careful decisions on a case-by-case basis whether to write or renew a policy.

Agency renewal written premiums increased by ~~2% for the third quarter and 4%~~7% for the first ~~nine~~three months of ~~2020,~~2021, compared with the same ~~periods~~period of ~~2019.~~2020. During the ~~third~~first quarter of ~~2020,~~2021, our overall standard commercial lines policies averaged estimated renewal price increases at percentages ~~near the low end of~~in the mid-single-digit range. We continue to segment commercial lines policies, emphasizing identification and retention of ~~policies~~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.

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~~first quarter of ~~2020,~~2021, we estimate that our average percentage price ~~increase for~~increases were as follows: commercial ~~auto was near the low end of the high-single-digit range. The estimated average percentage price change for our commercial~~ property ~~line of business was an increase~~ in the high-single-digit range, ~~and for~~ commercial ~~casualty it was an increase~~auto in the mid-single-digit range ~~both improved compared with~~and commercial casualty in the ~~second quarter of 2020.~~mid-single-digit range. The estimated average percentage price change for workers' compensation was a decrease innear the ~~mid-single-digit range, but near~~high end of the low-single-digit range.

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 ~~third quarter and~~ first ~~nine~~three months of ~~2020~~2021 contributed $11 ~~million and $43~~ million to net written premiums, ~~respectively,~~ compared with ~~$13 million and $50~~$18 million for the same ~~periods~~period of ~~2019.~~2020.

New business written premiums for commercial lines decreased by ~~$10~~$9 million for the ~~third~~first quarter, ~~but increased $21 million during the first nine months of 2020,~~ compared with the same periods of 2019. The third-quarter decrease reflected a higher rate of our underwriters declining to quote premiums for prospective insurance policies submitted by agencies. The higher level for the nine-month period ~~was driven by a 28% increase for the first quarter~~ of 2020. 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 decreased net written premiums by $2$1 million for the ~~third~~first quarter of ~~2020,~~2021, compared with ~~third-quarter 2019, while ceded premiums for the first nine months of 2020 matched the same period a year ago.~~first-quarter 2020.

~~Cincinnati Financial Corporation Third-Quarter 2020 10-Q~~

~~Page 42~~

Commercial Lines Insurance Premiums


(Dollars in millions)	(Dollars in millions)	Three months ended September 30,									Nine months ended September 30,			(Dollars in millions)			Three months ended March 31,
		2020		2019		% Change	2020		2019		% Change		2021		2020		% Change
Agency renewal written premiums	Agency renewal written premiums	$	727	$	713	2	$	2,363	$	2,279	4	Agency renewal written premiums	$	898	$	842	7
Agency new business written premiums	Agency new business written premiums	114		124		(8)	402		381		6	Agency new business written premiums	145		154		(6)
Other written premiums	Other written premiums	(27)		(21)		(29)	(71)		(69)		(3)	Other written premiums	(24)		(24)		0
Net written premiums	Net written premiums	814		816		0	2,694		2,591		4	Net written premiums	1,019		972		5
Unearned premium change	Unearned premium change	51		18		183	(96)		(124)		23	Unearned premium change	(133)		(109)		(22)
Earned premiums	Earned premiums	$	865	$	834	4	$	2,598	$	2,467	5	Earned premiums	$	886	$	863	3

•Combined ratio – The commercial lines combined ratio for the ~~third~~first quarter of ~~2020 increased~~2021 improved by ~~9.0 percentage points, compared with third-quarter 2019, including an increase of 10.7 points in losses from catastrophes. For the first nine months of 2020, the combined ratio increased by 7.0~~17.1 percentage points, compared with the ~~same period~~first quarter of 2020, including a ~~year ago, primarily due to an increase~~decrease of ~~6.5~~5.6 points in losses from catastrophes. Underwriting results ~~for both periods included~~continued to reflect better loss experience for the current accident year ~~but~~and a ~~lower~~higher level of favorable reserve development on prior accident years.

The ratio for current accident year loss and loss expenses before catastrophe losses ~~ratio~~ for commercial lines improved in the first ~~nine~~three months of ~~2020.~~2021. That ~~59.2%~~60.0% ratio was ~~2.3~~1.0 percentage points lower, compared with the ~~61.5%~~61.0% accident year ~~2019~~2020 ratio measured as of ~~September 30, 2019,~~March 31, 2020, including a decrease of ~~0.2~~0.6 percentage points in the ratio for large losses of $1 million or more per claim, discussed below.

Catastrophe losses and loss expenses accounted for ~~14.8 and 12.9~~4.2 percentage points of the combined ratio for the ~~third quarter and~~ first ~~nine~~three months of ~~2020,~~2021, compared with ~~4.1 and 6.4~~9.8 percentage points for the same ~~periods~~period a year ago. Through ~~2019,~~ 2020,

Cincinnati Financial Corporation First-Quarter 2021 10-Q

Page 41

the 10-year annual average for that catastrophe measure for the commercial lines segment was ~~5.2~~6.2 percentage points, and the five-year annual average was ~~5.5~~6.6 percentage points.

The net effect of reserve development on prior accident years during the ~~third quarter and~~ first ~~nine~~three months of ~~2020~~2021 was favorable for commercial lines overall by ~~$8 million and $59~~$83 million, compared with ~~$33 million and $153~~$6 million for the same ~~periods~~period in ~~2019.~~2020. For the first ~~nine~~three months of ~~2020,~~2021, our commercial ~~casualty~~property, commercial auto and workers' compensation lines of business ~~accounted for nearly all of~~were the main contributors to the commercial lines net favorable reserve development on prior accident ~~years, each representing approximately half of the total, and offset $14 million of commercial auto unfavorable development.~~years. The net favorable reserve development recognized during the first ~~nine~~three months of ~~2020~~2021 for our commercial lines insurance segment was primarily for accident years ~~2019~~2020 and ~~2018~~2019 and was primarily due to lower-than-anticipated loss emergence on known claims. Reserve estimates are inherently uncertain as described in our ~~2019~~2020 Annual Report on Form 10-K, Item 7, Critical Accounting Estimates, Property Casualty Insurance Loss and Loss Expense Reserves, Page 56.

The commercial lines underwriting expense ratio decreased for ~~the third quarter and~~ first ~~nine~~three months of ~~2020,~~2021, compared with the same ~~periods~~period a year ago, primarily due to lower levels of ~~profit-sharing commissions for agencies and~~ business travel spending ~~for associates,~~and uncollectible premiums, in addition to ongoing expense management efforts and higher earned premiums.

~~Cincinnati Financial Corporation Third-Quarter 2020 10-Q~~

~~Page 43~~

Commercial Lines Insurance Losses Incurred by Size


(Dollars in millions, net of reinsurance)	(Dollars in millions, net of reinsurance)	Three months ended September 30,													Nine months ended September 30,			(Dollars in millions, net of reinsurance)					Three months ended March 31,
		2020			2019			% Change	2020			2019			% Change		2021			2020			% Change
Current accident year losses greater than $5 million	Current accident year losses greater than $5 million	$	21		$	(1)		nm	$	40		$	13		208	Current accident year losses greater than $5 million	$	5		$	—		nm
Current accident year losses $1 million - $5 million	Current accident year losses $1 million - $5 million	20			56			(64)	100			124			(19)	Current accident year losses $1 million - $5 million	26			36			(28)
Large loss prior accident year reserve development	Large loss prior accident year reserve development	(1)			32			nm	27			48			(44)	Large loss prior accident year reserve development	26			22			18
Total large losses incurred	Total large losses incurred	40			87			(54)	167			185			(10)	Total large losses incurred	57			58			(2)
Losses incurred but not reported	Losses incurred but not reported	60			(22)			nm	190			14			nm	Losses incurred but not reported	39			58			(33)
Other losses excluding catastrophe losses	Other losses excluding catastrophe losses	287			314			(9)	817			919			(11)	Other losses excluding catastrophe losses	261			298			(12)
Catastrophe losses	Catastrophe losses	125			32			291	327			151			117	Catastrophe losses	35			82			(57)
Total losses incurred	Total losses incurred	$	512		$	411		25	$	1,501		$	1,269		18	Total losses incurred	$	392		$	496		(21)

Ratios as a percent of earned premiums:	Ratios as a percent of earned premiums:							Pt. Change							Pt. Change	Ratios as a percent of earned premiums:							Pt. Change
Current accident year losses greater than $5 million	Current accident year losses greater than $5 million	2.5		%	(0.1)		%	2.6	1.5		%	0.5		%	1.0	Current accident year losses greater than $5 million	0.6		%	—		%	0.6
Current accident year losses $1 million - $5 million	Current accident year losses $1 million - $5 million	2.3			6.8			(4.5)	3.9			5.1			(1.2)	Current accident year losses $1 million - $5 million	2.9			4.1			(1.2)
Large loss prior accident year reserve development	Large loss prior accident year reserve development	(0.2)			3.8			(4.0)	1.0			1.9			(0.9)	Large loss prior accident year reserve development	3.0			2.6			0.4
Total large loss ratio	Total large loss ratio	4.6			10.5			(5.9)	6.4			7.5			(1.1)	Total large loss ratio	6.5			6.7			(0.2)
Losses incurred but not reported	Losses incurred but not reported	6.9			(2.6)			9.5	7.3			0.6			6.7	Losses incurred but not reported	4.3			6.8			(2.5)
Other losses excluding catastrophe losses	Other losses excluding catastrophe losses	33.1			37.6			(4.5)	31.5			37.2			(5.7)	Other losses excluding catastrophe losses	29.4			34.5			(5.1)
Catastrophe losses	Catastrophe losses	14.5			3.8			10.7	12.6			6.1			6.5	Catastrophe losses	4.0			9.5			(5.5)
Total loss ratio	Total loss ratio	59.1		%	49.3		%	9.8	57.8		%	51.4		%	6.4	Total loss ratio	44.2		%	57.5		%	(13.3)

We continue to monitor new losses and case reserve increases greater than $1 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 2020~~first-quarter 2021 commercial lines total large losses incurred of ~~$40~~$57 million, net of reinsurance, were ~~lower~~slightly higher than the quarterly average of ~~$65~~$55 million during full-year ~~2019 and~~2020 but slightly lower than the ~~$87~~$58 million of total large losses incurred for the ~~third~~first quarter of ~~2019.~~2020. The decrease in commercial lines large losses for the first ~~nine~~three months of ~~2020~~2021 was primarily due to our commercial casualty ~~line~~and commercial property lines of business and were mostly offset by increases for our commercial auto and workers' compensation lines of business. The ~~third-quarter 2020~~first-quarter 2021 ratio for commercial lines total large losses was ~~5.9~~0.2 percentage points lower than last year's ~~third-quarter~~first-quarter ratio. The third-quarter 2020 amount of total large losses incurred favorably contributed to the decrease in the nine-month 2020 total large loss ratio, compared with 2019, as it offset a first-half 2020 ratio that was 1.3 points higher than the first half of 2019. We believe results for the ~~three- and nine-month periods~~three-month period largely reflected normal fluctuations in loss patterns and normal variability in large case reserves for claims above $1 million.

Cincinnati Financial Corporation ~~Third-Quarter 2020~~First-Quarter 2021 10-Q

Page 4442

PERSONAL LINES INSURANCE RESULTS


(Dollars in millions)	(Dollars in millions)	Three months ended September 30,													Nine months ended September 30,			(Dollars in millions)					Three months ended March 31,
		2020			2019			% Change	2020			2019			% Change		2021			2020			% Change
Earned premiums	Earned premiums	$	367		$	354		4	$	1,090		$	1,046		4	Earned premiums	$	376		$	359		5
Fee revenues	Fee revenues	1			1			0	3			3			0	Fee revenues	1			1			0
Total revenues	Total revenues	368			355			4	1,093			1,049			4	Total revenues	377			360			5
Loss and loss expenses from:	Loss and loss expenses from:															Loss and loss expenses from:
Current accident year before catastrophe losses	Current accident year before catastrophe losses	179			226			(21)	589			651			(10)	Current accident year before catastrophe losses	215			216			0
Current accident year catastrophe losses	Current accident year catastrophe losses	86			25			244	221			101			119	Current accident year catastrophe losses	78			43			81
Prior accident years before catastrophe losses	Prior accident years before catastrophe losses	3			(5)			nm	(20)			(21)			5	Prior accident years before catastrophe losses	(17)			(23)			26
Prior accident years catastrophe losses	Prior accident years catastrophe losses	(3)			(2)			(50)	(8)			3			nm	Prior accident years catastrophe losses	(3)			(5)			40
Loss and loss expenses	Loss and loss expenses	265			244			9	782			734			7	Loss and loss expenses	273			231			18
Underwriting expenses	Underwriting expenses	105			108			(3)	335			311			8	Underwriting expenses	107			108			(1)
Underwriting profit (loss)	Underwriting profit (loss)	$	(2)		$	3		nm	$	(24)		$	4		nm	Underwriting profit (loss)	$	(3)		$	21		nm

Ratios as a percent of earned premiums:	Ratios as a percent of earned premiums:							Pt. Change							Pt. Change	Ratios as a percent of earned premiums:							Pt. Change
Current accident year before catastrophe losses	Current accident year before catastrophe losses	48.5		%	63.8		%	(15.3)	54.0		%	62.2		%	(8.2)	Current accident year before catastrophe losses	57.3		%	60.0		%	(2.7)
Current accident year catastrophe losses	Current accident year catastrophe losses	23.3			7.2			16.1	20.2			9.7			10.5	Current accident year catastrophe losses	20.6			12.0			8.6
Prior accident years before catastrophe losses	Prior accident years before catastrophe losses	0.9			(1.3)			2.2	(1.8)			(2.0)			0.2	Prior accident years before catastrophe losses	(4.5)			(6.5)			2.0
Prior accident years catastrophe losses	Prior accident years catastrophe losses	(0.8)			(0.5)			(0.3)	(0.7)			0.3			(1.0)	Prior accident years catastrophe losses	(0.8)			(1.3)			0.5
Loss and loss expenses	Loss and loss expenses	71.9			69.2			2.7	71.7			70.2			1.5	Loss and loss expenses	72.6			64.2			8.4
Underwriting expenses	Underwriting expenses	28.8			30.4			(1.6)	30.8			29.7			1.1	Underwriting expenses	28.5			30.1			(1.6)
Combined ratio	Combined ratio	100.7		%	99.6		%	1.1	102.5		%	99.9		%	2.6	Combined ratio	101.1		%	94.3		%	6.8

Combined ratio	Combined ratio	100.7		%	99.6		%	1.1	102.5		%	99.9		%	2.6	Combined ratio	101.1		%	94.3		%	6.8
Contribution from catastrophe losses and prior years reserve development	Contribution from catastrophe losses and prior years reserve development	23.4			5.4			18.0	17.7			8.0			9.7	Contribution from catastrophe losses and prior years reserve development	15.3			4.2			11.1
Combined ratio before catastrophe losses and prior years reserve development	Combined ratio before catastrophe losses and prior years reserve development	77.3		%	94.2		%	(16.9)	84.8		%	91.9		%	(7.1)	Combined ratio before catastrophe losses and prior years reserve development	85.8		%	90.1		%	(4.3)

Overview

The COVID-19 pandemic did not have a significant effect on our personal lines insurance segment premiums for the ~~third quarter or~~ first ~~nine~~three months of ~~2020. Net~~2021, as net written premiums grew ~~5% during the third quarter of 2020, following growth of 4% for both the first half of 2020 and full-year 2019. For the first nine months of 2020, net written premiums also grew 5%~~6%, compared with ~~4% for~~ the same period of 2019. Early in the second quarter of 2020, we announced a 15% policyholder credit applied to each personal auto policy for the months of April and May, resulting in approximately $16 million of second-quarter 2020 underwriting expense. We are not able to determine other effects of the pandemic on future periods.

2020. Loss experience for our insurance operations is influenced by many factors. During the ~~second and third quarters~~first quarter of ~~2020,~~2021, loss experience for our personal auto line of business improved, ~~largely due to a reduction in personal auto reported claims~~ as ~~a result of~~ reduced driving related to the ~~pandemic.~~pandemic contributed to a reduction in reported claims. Because of factors that reduce exposure to certain insurance losses, there could be a reduction in future losses that generally corresponds to reduced premiums. However, there could be losses or legal expenses that occur independent of changes in miles driven for autos we insure. ~~We are not able to determine premium or loss effects for future periods.~~

~~Cincinnati Financial Corporation Third-Quarter 2020 10-Q~~

~~Page 45~~

Performance highlights for the personal lines segment include:

•Premiums – Personal lines earned premiums and net written premiums continued to grow during the ~~third~~first quarter ~~and first nine months~~ of ~~2020, largely due to increases in agency~~2021, reflecting increased new business and renewal written premiums ~~reflecting~~that included higher average pricing. Personal lines net written premiums from high net worth policies totaled approximately ~~$141 million and $387~~$133 million for the ~~third quarter and~~ first ~~nine~~three months of ~~2020,~~2021, compared with ~~$110 million and $302~~$101 million for the ~~same periods of 2019.~~prior-year period. The table below analyzes the primary components of premiums.

Agency renewal written premiums increased 3% for the ~~third~~first quarter of ~~2020, and 4% for the first nine months of the year, primarily due to~~2021, reflecting rate increases in selected ~~states.~~states and other factors such as changes in policy deductibles or mix of business. We estimate that premium rates for our personal auto line of business increased at average percentages in the mid-single-digit range during the first ~~nine~~three months of ~~2020.~~2021. For our homeowner line of business, we estimate that premium rates for the first ~~nine~~three months of ~~2020~~2021 also increased at average percentages in the mid-single-digit ~~range, higher than in 2019.~~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.

Cincinnati Financial Corporation First-Quarter 2021 10-Q

Page 43

Personal lines new business written premiums increased ~~28% during the third quarter and 6%~~35% during the first ~~nine months~~quarter of ~~2020,~~2021, compared with the same ~~periods~~period of ~~2019. The faster pace~~2020, following growth of ~~third-quarter growth includes multiple factors, including a slowing effect~~26% for the second half of ~~more stringent~~2020. We believe underwriting and pricing ~~efforts~~discipline was maintained in ~~selected states, while maintaining discipline. It also reflects~~recent quarters, and growth was enhanced by expanded use of enhanced pricing precision tools, including excess and surplus lines homeowner policies we began offering in early 2020. Those homeowner policies contributed $3$5 million in ~~third-quarter 2020~~ personal lines new business written premiums ~~and $5 million~~ for the first ~~nine~~three months of ~~2020.~~2021.

Other written premiums include premiums ceded to reinsurers as part of our reinsurance ceded program. For our personal lines insurance segment, ~~a decrease~~an increase in ceded premiums ~~increased~~decreased net written premiums by ~~less than~~ $1 ~~million and $2~~ million for the ~~third quarter and~~ first ~~nine~~three months of ~~2020,~~2021, compared with the same ~~periods~~period of ~~2019.~~2020.

We continue to implement strategies discussed in our ~~2019~~2020 Annual Report on Form 10-K, Item 1, Strategic Initiatives, Page 15, to enhance our responsiveness to marketplace changes and to help achieve our long-term objectives for personal lines growth and profitability. ~~These strategies include initiatives to more profitably underwrite homeowner policies.~~

Personal Lines Insurance Premiums


(Dollars in millions)	(Dollars in millions)	Three months ended September 30,									Nine months ended September 30,			(Dollars in millions)			Three months ended March 31,
		2020		2019		% Change	2020		2019		% Change		2021		2020		% Change
Agency renewal written premiums	Agency renewal written premiums	$	366	$	356	3	$	1,047	$	1,003	4	Agency renewal written premiums	$	302	$	294	3
Agency new business written premiums	Agency new business written premiums	51		40		28	129		122		6	Agency new business written premiums	46		34		35
Other written premiums	Other written premiums	(10)		(8)		(25)	(27)		(26)		(4)	Other written premiums	(10)		(9)		(11)
Net written premiums	Net written premiums	407		388		5	1,149		1,099		5	Net written premiums	338		319		6
Unearned premium change	Unearned premium change	(40)		(34)		(18)	(59)		(53)		(11)	Unearned premium change	38		40		(5)
Earned premiums	Earned premiums	$	367	$	354	4	$	1,090	$	1,046	4	Earned premiums	$	376	$	359	5

•Combined ratio – Our personal lines combined ratio increased by ~~1.1~~6.8 percentage points for the ~~third~~first quarter of ~~2020, and 2.6~~2021, compared with the same period a year ago. The increase was driven by a catastrophe loss ratio that rose by 9.1 percentage points for the first ~~nine~~three months of ~~the year, compared with the same periods a year ago. Offsetting improved experience in the ratios~~2021.

The ratio for current accident year loss and loss expenses before catastrophe losses ~~the catastrophe loss ratio rose by 15.8 percentage points for the third quarter and 9.5 points for the first nine months of 2020.~~

~~The current accident year loss and loss expenses before catastrophe losses ratio~~ for personal lines improved in the first ~~nine~~three months of ~~2020.~~2021. That ~~54.0%~~57.3% ratio was ~~8.2~~2.7 percentage points lower, compared with the ~~62.2%~~60.0% accident year ~~2019~~2020 ratio measured as of ~~September 30, 2019,~~March 31, 2020, including ~~an increase~~a decrease of ~~0.1~~2.3 percentage points in the ratio for large losses of $1 million or more per claim, discussed below.

Catastrophe losses and loss expenses accounted for ~~22.5 and 19.5~~19.8 percentage points of the combined ratio for the ~~third~~first quarter ~~and first nine months~~ of ~~2020,~~2021, compared with ~~6.7 and 10.0~~10.7 percentage points for the same ~~periods~~period of last year. The 10-year annual average catastrophe loss ratio for the personal lines segment through ~~2019~~2020 was ~~10.4~~11.2 percentage points, and the five-year annual average was ~~9.3~~11.1 percentage points.

~~Cincinnati Financial Corporation Third-Quarter 2020 10-Q~~

~~Page 46~~

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.

The net effect of reserve development on prior accident years ~~was unfavorable by less than $1 million~~ during the ~~third~~first quarter of ~~2020 and~~2021 was favorable for personal lines overall by $20 million, compared with $28 million for the ~~first nine months~~same period of ~~the year, compared with favorable amounts of $7 million and $18 million for the same periods of 2019.~~2020. Our personal auto ~~and homeowner lines~~line of business ~~were~~was the primary ~~contributors~~contributor to the personal lines net favorable reserve development ~~on prior accident years~~ for the first ~~nine~~three months of ~~2020.~~2021. 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 ~~2019~~2020 Annual Report on Form 10-K, Item 7, Critical Accounting Estimates, Property Casualty Insurance Loss and Loss Expense Reserves, Page 56.

The underwriting expense ratio decreased for the ~~third~~first quarter ~~but increased for the first nine months~~ of ~~2020,~~2021, compared with the same ~~periods~~period a year ago. The ~~third-quarter~~ decrease was primarily due to lower levels of ~~profit-sharing commissions for agencies and~~ business travel spending ~~for associates. The nine-month increase was primarily due to the 15% policyholder credit applied to each personal auto policy for the months of April~~ and ~~May 2020.~~uncollectible premiums. The ratios also reflect ongoing expense management efforts and premium growth outpacing growth in expenses.

Cincinnati Financial Corporation First-Quarter 2021 10-Q

Page 44

Personal Lines Insurance Losses Incurred by Size


(Dollars in millions, net of reinsurance)	(Dollars in millions, net of reinsurance)	Three months ended September 30,													Nine months ended September 30,			(Dollars in millions, net of reinsurance)					Three months ended March 31,
		2020			2019			% Change	2020			2019			% Change		2021			2020			% Change
Current accident year losses greater than $5 million	Current accident year losses greater than $5 million	$	—		$	—		nm	$	—		$	—		nm	Current accident year losses greater than $5 million	$	—		$	—		nm
Current accident year losses $1 million - $5 million	Current accident year losses $1 million - $5 million	21			20			5	42			39			8	Current accident year losses $1 million - $5 million	4			12			(67)
Large loss prior accident year reserve development	Large loss prior accident year reserve development	(2)			(1)			(100)	4			2			100	Large loss prior accident year reserve development	(1)			5			nm
Total large losses incurred	Total large losses incurred	19			19			0	46			41			12	Total large losses incurred	3			17			(82)
Losses incurred but not reported	Losses incurred but not reported	(24)			—			nm	41			(1)			nm	Losses incurred but not reported	41			24			71
Other losses excluding catastrophe losses	Other losses excluding catastrophe losses	156			172			(9)	388			504			(23)	Other losses excluding catastrophe losses	130			127			2
Catastrophe losses	Catastrophe losses	81			23			252	208			101			106	Catastrophe losses	74			38			95
Total losses incurred	Total losses incurred	$	232		$	214		8	$	683		$	645		6	Total losses incurred	$	248		$	206		20

Ratios as a percent of earned premiums:	Ratios as a percent of earned premiums:							Pt. Change							Pt. Change	Ratios as a percent of earned premiums:							Pt. Change
Current accident year losses greater than $5 million	Current accident year losses greater than $5 million	—		%	—		%	0.0	—		%	—		%	0.0	Current accident year losses greater than $5 million	—		%	—		%	0.0
Current accident year losses $1 million - $5 million	Current accident year losses $1 million - $5 million	5.8			5.4			0.4	3.8			3.7			0.1	Current accident year losses $1 million - $5 million	1.2			3.5			(2.3)
Large loss prior accident year reserve development	Large loss prior accident year reserve development	(0.7)			(0.2)			(0.5)	0.4			0.2			0.2	Large loss prior accident year reserve development	(0.3)			1.3			(1.6)
Total large loss ratio	Total large loss ratio	5.1			5.2			(0.1)	4.2			3.9			0.3	Total large loss ratio	0.9			4.8			(3.9)
Losses incurred but not reported	Losses incurred but not reported	(6.6)			(0.1)			(6.5)	3.7			(0.1)			3.8	Losses incurred but not reported	11.0			6.6			4.4
Other losses excluding catastrophe losses	Other losses excluding catastrophe losses	42.5			48.9			(6.4)	35.6			48.1			(12.5)	Other losses excluding catastrophe losses	34.4			35.3			(0.9)
Catastrophe losses	Catastrophe losses	22.1			6.4			15.7	19.1			9.7			9.4	Catastrophe losses	19.6			10.5			9.1
Total loss ratio	Total loss ratio	63.1		%	60.4		%	2.7	62.6		%	61.6		%	1.0	Total loss ratio	65.9		%	57.2		%	8.7

~~Cincinnati Financial Corporation Third-Quarter 2020 10-Q~~

~~Page 47~~

reflected normal fluctuations in loss patterns and normal variability in large case reserves for claims above $1 million.

Cincinnati Financial Corporation First-Quarter 2021 10-Q

Page 45

EXCESS AND SURPLUS LINES INSURANCE RESULTS


(Dollars in millions)	(Dollars in millions)	Three months ended September 30,													Nine months ended September 30,			(Dollars in millions)					Three months ended March 31,
		2020			2019			% Change	2020			2019			% Change		2021			2020			% Change
Earned premiums	Earned premiums	$	82		$	72		14	$	238		$	202		18	Earned premiums	$	89		$	78		14
Fee revenues	Fee revenues	—			1			(100)	1			2			(50)	Fee revenues	—			1			(100)
Total revenues	Total revenues	82			73			12	239			204			17	Total revenues	89			79			13

Loss and loss expenses from:	Loss and loss expenses from:															Loss and loss expenses from:
Current accident year before catastrophe losses	Current accident year before catastrophe losses	48			41			17	138			110			25	Current accident year before catastrophe losses	54			44			23
Current accident year catastrophe losses	Current accident year catastrophe losses	1			1			0	4			1			300	Current accident year catastrophe losses	1			—			nm
Prior accident years before catastrophe losses	Prior accident years before catastrophe losses	(1)			(3)			67	8			(10)			nm	Prior accident years before catastrophe losses	4			1			300
Prior accident years catastrophe losses	Prior accident years catastrophe losses	—			—			0	—			—			0	Prior accident years catastrophe losses	—			—			0
Loss and loss expenses	Loss and loss expenses	48			39			23	150			101			49	Loss and loss expenses	59			45			31
Underwriting expenses	Underwriting expenses	23			22			5	70			63			11	Underwriting expenses	22			25			(12)
Underwriting profit	Underwriting profit	$	11		$	12		(8)	$	19		$	40		(53)	Underwriting profit	$	8		$	9		(11)

Ratios as a percent of earned premiums:	Ratios as a percent of earned premiums:							Pt. Change							Pt. Change	Ratios as a percent of earned premiums:							Pt. Change
Current accident year before catastrophe losses	Current accident year before catastrophe losses	58.5		%	57.6		%	0.9	57.8		%	54.7		%	3.1	Current accident year before catastrophe losses	61.0		%	55.7		%	5.3
Current accident year catastrophe losses	Current accident year catastrophe losses	1.0			0.6			0.4	1.7			0.5			1.2	Current accident year catastrophe losses	1.3			0.5			0.8
Prior accident years before catastrophe losses	Prior accident years before catastrophe losses	(1.5)			(6.0)			4.5	3.4			(5.5)			8.9	Prior accident years before catastrophe losses	4.7			0.7			4.0
Prior accident years catastrophe losses	Prior accident years catastrophe losses	0.2			0.5			(0.3)	0.1			0.1			0.0	Prior accident years catastrophe losses	(0.3)			0.5			(0.8)
Loss and loss expenses	Loss and loss expenses	58.2			52.7			5.5	63.0			49.8			13.2	Loss and loss expenses	66.7			57.4			9.3
Underwriting expenses	Underwriting expenses	28.5			30.5			(2.0)	29.5			31.1			(1.6)	Underwriting expenses	25.3			31.7			(6.4)
Combined ratio	Combined ratio	86.7		%	83.2		%	3.5	92.5		%	80.9		%	11.6	Combined ratio	92.0		%	89.1		%	2.9

Combined ratio	Combined ratio	86.7		%	83.2		%	3.5	92.5		%	80.9		%	11.6	Combined ratio	92.0		%	89.1		%	2.9
Contribution from catastrophe losses and prior years reserve development	Contribution from catastrophe losses and prior years reserve development	(0.3)			(4.9)			4.6	5.2			(4.9)			10.1	Contribution from catastrophe losses and prior years reserve development	5.7			1.7			4.0
Combined ratio before catastrophe losses and prior years reserve development	Combined ratio before catastrophe losses and prior years reserve development	87.0		%	88.1		%	(1.1)	87.3		%	85.8		%	1.5	Combined ratio before catastrophe losses and prior years reserve development	86.3		%	87.4		%	(1.1)

Overview

The COVID-19 pandemic did not have a significant effect on our excess and surplus lines insurance segment premiums during the ~~third~~first quarter ~~or first nine months~~ of ~~2020. Net~~2021, as net written premiums grew ~~8% for third-quarter 2020 and 15% for the first nine months of the year.~~16%. Premium growth could slow significantly if the basis for policy premiums, such as the sales results of businesses we insure, decrease as a result of a weakened economy. ~~We are not able to determine other effects of the pandemic on future periods.~~

Loss experience for our insurance operations is influenced by many factors. We have not determined any material effect on our excess and surplus lines insurance loss experience for the ~~third quarter or~~ first ~~nine~~three months of ~~2020~~2021 as a result of the pandemic. Because of factors that reduce exposure to certain insurance losses, such as reduced sales results for businesses, there could be a reduction in future losses that generally corresponds to reduced premiums. However, there could be losses or legal expenses that occur independent of changes in sales of businesses we insure. ~~We are not able to determine premium or loss effects for future periods.~~

Performance highlights for the excess and surplus lines segment include:

•Premiums – Excess and surplus lines net written premiums continued to grow during the ~~third~~first quarter ~~and first nine months~~ of ~~2020,~~2021, compared with the same ~~periods~~period a year ago, primarily due to an increase in agency renewal written premiums. Renewal written premiums rose ~~21%~~23% for the ~~nine~~three months ended ~~September 30, 2020,~~March 31, 2021, compared with the same period of ~~2019,~~2020, reflecting the opportunity to renew

~~Cincinnati Financial Corporation Third-Quarter 2020 10-Q~~

~~Page 48~~

many accounts for the first time, as well as higher renewal pricing. For the first ~~nine~~three months of ~~2020,~~2021, excess and surplus lines policy renewals experienced estimated average price increases at percentages in the high-single-digit range, up from a mid-single-digit range ~~higher than~~ in ~~the first half of~~ 2020. 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.

Cincinnati Financial Corporation First-Quarter 2021 10-Q

Page 46

New business written premiums produced by agencies ~~decreased~~increased by $4$2 million, ~~for the third quarter of 2020 while increasing by $1 million~~or 7%, for the first ~~nine months~~quarter of ~~2020,~~2021, compared with the same ~~periods~~period of ~~2019. We~~2020, as we continued to carefully underwrite each policy in a highly competitive ~~market, and the third-quarter decrease reflected a higher rate of our underwriters declining to quote premiums for prospective insurance policies submitted by agencies.~~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.

Excess and Surplus Lines Insurance Premiums


(Dollars in millions)	(Dollars in millions)	Three months ended September 30,									Nine months ended September 30,			(Dollars in millions)			Three months ended March 31,
		2020		2019		% Change	2020		2019		% Change		2021		2020		% Change
Agency renewal written premiums	Agency renewal written premiums	$	60	$	50	20	$	185	$	153	21	Agency renewal written premiums	$	76	$	62	23
Agency new business written premiums	Agency new business written premiums	24		28		(14)	83		82		1	Agency new business written premiums	29		27		7
Other written premiums	Other written premiums	(4)		(4)		0	(12)		(12)		0	Other written premiums	(6)		(4)		(50)
Net written premiums	Net written premiums	80		74		8	256		223		15	Net written premiums	99		85		16
Unearned premium change	Unearned premium change	2		(2)		nm	(18)		(21)		14	Unearned premium change	(10)		(7)		(43)
Earned premiums	Earned premiums	$	82	$	72	14	$	238	$	202	18	Earned premiums	$	89	$	78	14

•Combined ratio – The excess and surplus lines combined ratio increased by ~~3.5 and 11.6~~2.9 percentage points for the ~~third~~first quarter ~~and first nine months~~ of ~~2020,~~2021, compared with the same ~~periods~~period of ~~2019.~~2020. The ~~third-quarter~~ increase was ~~primarily~~ due to ~~less favorable~~a higher current accident year result and unfavorable reserve development on prior accident years. The nine-month increase included less favorable reserve development on prior accident years, while the current accident year result also increased, together increasing by 12.0 points on a ratio basis. Those increases reflect more prudent reserving, as claims on average are remaining open longer than previously expected. The $4 million of unfavorable reserve development was due to an updated estimate for salaries and other costs for claims associates, reflecting our experience of claims on average remaining open longer than previously expected. The loss component of loss and loss expenses was a small favorable amount for prior accident years. The IBNR portion of the total loss and loss expense ratio before catastrophe losses was ~~11.2~~30.8 percentage points higher for the first ~~nine~~three months of ~~2020,~~2021, compared with the same period a year ago, while the paid portion was approximately ~~1 point~~5 points lower and the case incurred portion was approximately ~~1 point higher.~~22 points lower.

The ratio for current accident year loss and loss expenses before catastrophe losses ~~ratio~~ for excess and surplus lines increased in the first ~~nine~~three months of ~~2020.~~2021. That ~~57.8%~~61.0% ratio was ~~3.1~~5.3 percentage points higher, compared with the ~~54.7%~~55.7% accident year ~~2019~~2020 ratio measured as of ~~September 30, 2019,~~March 31, 2020, including ~~an increase~~a decrease of ~~1.5~~1.4 percentage points in the ratio for large losses of $1 million or more per claim, discussed below. The paid portion of the ~~3.2~~5.3 percentage-point increase was ~~down 0.5~~up 0.7 points, the case incurred portion was up less than ~~1 point~~2 points and the IBNR portion was up ~~2.5~~3.6 points.

Excess and surplus lines net reserve development on prior accident years, as a ratio to earned premiums, was ~~a favorable 1.3% for the third quarter and~~ an unfavorable ~~3.5%~~4.4% for the first ~~nine~~three months of ~~2020,~~2021, compared with ~~favorable~~unfavorable net reserve development of ~~5.5% and 5.4%~~1.2% for the same ~~periods~~period of ~~2019.~~2020. The $8$4 million of net unfavorable reserve development recognized during the first ~~nine~~three months of ~~2020~~2021 included $9approximately $3 million for accident years prior to ~~2017, as claims on average are remaining open longer than previously expected.~~2019. Reserve estimates are inherently uncertain as described in our ~~2019~~2020 Annual Report on Form 10-K, Item 7, Critical Accounting Estimates, Property Casualty Insurance Loss and Loss Expense Reserves, Page 56.

The excess and surplus lines underwriting expense ratio for the ~~third quarter and~~ first ~~nine~~three months of ~~2020~~2021 decreased, compared with the same ~~periods~~period of ~~2019,~~2020, primarily due to lower levels of ~~profit-sharing commissions for agencies and~~ business travel spending, ~~for associates,~~ in addition to ongoing expense management efforts and premium growth outpacing growth in expenses.

Cincinnati Financial Corporation ~~Third-Quarter 2020~~First-Quarter 2021 10-Q

Page 4947

Excess and Surplus Lines Insurance Losses Incurred by Size


(Dollars in millions, net of reinsurance)	(Dollars in millions, net of reinsurance)	Three months ended September 30,													Nine months ended September 30,			(Dollars in millions, net of reinsurance)					Three months ended March 31,
		2020			2019			% Change	2020			2019			% Change		2021			2020			% Change
Current accident year losses greater than $5 million	Current accident year losses greater than $5 million	$	—		$	—		nm	$	—		$	—		nm	Current accident year losses greater than $5 million	$	—		$	—		nm
Current accident year losses $1 million - $5 million	Current accident year losses $1 million - $5 million	5			—			nm	7			3			133	Current accident year losses $1 million - $5 million	1			2			(50)
Large loss prior accident year reserve development	Large loss prior accident year reserve development	—			2			(100)	(1)			4			nm	Large loss prior accident year reserve development	(1)			(1)			0
Total large losses incurred	Total large losses incurred	5			2			150	6			7			(14)	Total large losses incurred	—			1			(100)
Losses incurred but not reported	Losses incurred but not reported	2			(2)			nm	20			(4)			nm	Losses incurred but not reported	22			(3)			nm
Other losses excluding catastrophe losses	Other losses excluding catastrophe losses	24			25			(4)	74			61			21	Other losses excluding catastrophe losses	15			29			(48)
Catastrophe losses	Catastrophe losses	1			1			0	4			1			300	Catastrophe losses	1			1			0
Total losses incurred	Total losses incurred	$	32		$	26		23	$	104		$	65		60	Total losses incurred	$	38		$	28		36

Ratios as a percent of earned premiums:	Ratios as a percent of earned premiums:							Pt. Change							Pt. Change	Ratios as a percent of earned premiums:							Pt. Change
Current accident year losses greater than $5 million	Current accident year losses greater than $5 million	—		%	—		%	0.0	—		%	—		%	0.0	Current accident year losses greater than $5 million	—		%	—		%	0.0
Current accident year losses $1 million - $5 million	Current accident year losses $1 million - $5 million	6.4			—			6.4	3.0			1.5			1.5	Current accident year losses $1 million - $5 million	1.2			2.6			(1.4)
Large loss prior accident year reserve development	Large loss prior accident year reserve development	0.1			2.7			(2.6)	(0.4)			1.8			(2.2)	Large loss prior accident year reserve development	(1.7)			(1.5)			(0.2)
Total large loss ratio	Total large loss ratio	6.5			2.7			3.8	2.6			3.3			(0.7)	Total large loss ratio	(0.5)			1.1			(1.6)
Losses incurred but not reported	Losses incurred but not reported	2.6			(2.6)			5.2	8.4			(2.2)			10.6	Losses incurred but not reported	24.8			(4.4)			29.2
Other losses excluding catastrophe losses	Other losses excluding catastrophe losses	29.5			34.5			(5.0)	31.0			30.3			0.7	Other losses excluding catastrophe losses	17.8			37.8			(20.0)
Catastrophe losses	Catastrophe losses	1.2			1.0			0.2	1.8			0.6			1.2	Catastrophe losses	1.0			0.9			0.1
Total loss ratio	Total loss ratio	39.8		%	35.6		%	4.2	43.8		%	32.0		%	11.8	Total loss ratio	43.1		%	35.4		%	7.7

Cincinnati Financial Corporation ~~Third-Quarter 2020~~First-Quarter 2021 10-Q

Page 5048

LIFE INSURANCE RESULTS


(Dollars in millions)	(Dollars in millions)	Three months ended September 30,									Nine months ended September 30,			(Dollars in millions)			Three months ended March 31,
		2020		2019		% Change	2020		2019		% Change		2021		2020		% Change
Earned premiums	Earned premiums	$	72	$	70	3	$	218	$	203	7	Earned premiums	$	69	$	67	3
Fee revenues	Fee revenues	—		1		(100)	1		3		(67)	Fee revenues	1		—		nm
Total revenues	Total revenues	72		71		1	219		206		6	Total revenues	70		67		4
Contract holders' benefits incurred	Contract holders' benefits incurred	72		68		6	224		211		6	Contract holders' benefits incurred	80		73		10
Investment interest credited to contract holders	Investment interest credited to contract holders	(26)		(25)		(4)	(77)		(74)		(4)	Investment interest credited to contract holders	(26)		(26)		0
Underwriting expenses incurred	Underwriting expenses incurred	20		23		(13)	63		67		(6)	Underwriting expenses incurred	18		18		0
Total benefits and expenses	Total benefits and expenses	66		66		0	210		204		3	Total benefits and expenses	72		65		11
Life insurance segment profit		$	6	$	5	20	$	9	$	2	350
Life insurance segment profit (loss)												Life insurance segment profit (loss)	$	(2)	$	2	nm

Overview

The COVID-19 pandemic did not have a significant effect on our life insurance segment earned premiums, benefits or expenses for the first ~~nine~~three months of ~~2020.~~2021. However, ~~higher rates of unemployment related to~~ the pandemic ~~could meaningfully decrease premiums of our life insurance products and cause an~~did contribute to a moderate increase in ~~policy surrender activity~~death claims in ~~future periods. Specifically,~~the first three months of 2021. Further, growth in worksite premiums, which originate from enrollments at the workplace, have slowed to a small extent in ~~the second and third~~recent quarters, ~~of 2020,~~ and could continue to slow in the future, due to curtailed enrollment activity. ~~We are not able to determine other premium, benefit or expense effects for future periods.~~ It is also possible we may continue to experience higher than projected future death claims due to the pandemic.

Performance highlights for the life insurance segment include:

•Revenues – Revenues increased for the ~~nine~~three months ended ~~September 30, 2020,~~March 31, 2021, compared with the same period a year ago, ~~with~~driven by higher earned premiums from term life insurance, our largest life insurance product ~~line, the largest contributor to the increase.~~line.

Net in-force life insurance policy face amounts increased to ~~$72.961~~$74.410 billion at ~~September 30, 2020,~~March 31, 2021, from ~~$69.984~~$73.475 billion at year-end ~~2019.~~2020.

Fixed annuity deposits received for the three ~~and nine~~ months ended ~~September 30, 2020,~~March 31, 2021, were ~~$9 million and $33~~$17 million, compared with $11 million ~~and $31 million~~ for the same ~~periods~~period of ~~2019.~~2020. 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)	(Dollars in millions)	Three months ended September 30,									Nine months ended September 30,			(Dollars in millions)			Three months ended March 31,
		2020		2019		% Change	2020		2019		% Change		2021		2020		% Change
Term life insurance	Term life insurance	$	49	$	47	4	$	147	$	139	6	Term life insurance	$	51	$	47	9
Universal life insurance	Universal life insurance	10		11		(9)	34		31		10	Universal life insurance	7		8		(13)
Other life insurance and annuity products	Other life insurance and annuity products	13		12		8	37		33		12	Other life insurance and annuity products	11		12		(8)
Net earned premiums	Net earned premiums	$	72	$	70	3	$	218	$	203	7	Net earned premiums	$	69	$	67	3

•Profitability – Our life insurance segment typically reports a small profit or loss on a GAAP basis because profits from investment income spreads are included in our investment 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 $9~~$2 million loss for our life insurance segment in the first ~~nine~~three months of ~~2020,~~2021, compared with profit of $2 million for the same period of ~~2019,~~2020, was primarily due to ~~higher earned premiums, improved~~less favorable mortality results ~~and lower underwriting expenses, partially offset by the less favorable effects~~as a result of ~~the unlocking of interest rate and other actuarial assumptions.~~higher death claims.

~~Cincinnati Financial Corporation Third-Quarter 2020 10-Q~~

~~Page 51~~

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 increased in the first ~~nine~~three months of ~~2020.~~2021. Life policy and investment contract reserves increased with continued growth in net in-force life insurance policy face ~~amounts and less favorable effects of the unlocking of interest rate and other actuarial assumptions.~~amounts. Mortality results ~~decreased,~~increased, compared with the same period of ~~2019,~~2020, and were ~~below~~above our ~~2020 projections.~~2021 projections, due in part to pandemic related death claims.

Cincinnati Financial Corporation First-Quarter 2021 10-Q

Page 49

Underwriting expenses for the first ~~nine~~three months of ~~2020 decreased compared~~2021 were consistent with the same period a year ~~ago, largely due to lower commission and general insurance expense levels compared with the same period of 2019.~~ago.

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 company reported net income of ~~$18~~$10 million for the ~~third quarter of 2020 and $17 million for the nine~~three months ended ~~September 30, 2020,~~March 31, 2021, compared with a net ~~income~~loss of ~~$12 million and $30~~$13 million for the same ~~periods~~period of ~~2019.~~2020. The life insurance company portfolio had a net after-tax investment gain of less than $1 million for the ~~third quarter of 2020 and a~~three months ended March 31, 2021, compared with an net after-tax investment loss of ~~$23~~$25 million ~~for the nine~~three months ended ~~September 30, 2020, compared with net after-tax investment losses of $1 million and $3 million for the three and nine months ended September 30, 2019.~~March 31, 2020. The ~~increased~~ after-tax investment losses for the ~~nine~~three months ended ~~September 30,~~March 31, 2020, were due to impairments of fixed-maturity securities.

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. During the first nine months of 2020, the COVID-19 pandemic and related economic effects caused volatility in fair values of securities discussed below in Total Investment Gains and Losses. Our fixed-maturity and equity portfolios experienced a decrease in valuation during the first quarter of 2020, in large part due to the volatility and economic uncertainty caused by the coronavirus outbreak that affected various sectors of our portfolio. During the first quarter of 2020, already low oil prices and the sudden demand drop in related products due to governmental actions, such as shelter-in-place orders, contributed to the energy sector accounting for most of the write-downs of impaired securities in the tables below. During second and third quarters 2020, valuations increased for a significant portion of our fixed-maturity and equity portfolios.

Investment Income

Pretax investment income grew 4%5% for ~~both the third quarter and~~ the first ~~nine months of 2020,~~quarter, compared with the same ~~periods~~period of ~~2019.~~2020. Interest income increased by $3$6 million for the ~~third~~first quarter, ~~and $7 million for nine months ended September 30, 2020,~~ as net purchases of fixed-maturity securities in recent quarters generally offset the continuing effects of the low interest rate environment. Higher dividend income reflected rising dividend rates and net purchases of equity securities in recent quarters, helping dividend income to grow by $5 million ~~and $15 million~~ for the three ~~and nine~~ months ended ~~September 30, 2020.~~March 31, 2021.

Investments Results

(Dollars in millions) Three months ended September 30, Nine months ended September 30,
2020 2019 % Change 2020 2019 % Change
Total investment income, net of expenses $ 167 $ 161 4 $ 498 $ 478 4
Investment interest credited to contract holders (26) (25) (4) (77) (74) (4)
Investment gains and losses, net 533 86 520 (132) 1,113 nm
Investments profit, pretax $ 674 $ 222 204 $ 289 $ 1,517 (81)

~~Cincinnati Financial Corporation Third-Quarter 2020 10-Q~~

~~Page 52~~


(Dollars in millions)	Three months ended March 31,
		2021		2020		% Change
Total investment income, net of expenses		$	174	$	165	5
Investment interest credited to contract holders		(26)		(26)		0
Investment gains and losses, net		504		(1,725)		nm
Investments profit (loss), pretax		$	652	$	(1,586)	nm

We continue to position our portfolio considering both the challenges presented by the current low interest rate environment and the risks presented by potential future inflation. As bonds in our generally laddered portfolio mature or are called over the near term, we will be challenged to replace their current yield. 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, 2020
Fixed-maturity pretax yield profile:
Expected to mature during the remainder of 2020 4.65 % $ 109
Expected to mature during 2021 4.32 857
Expected to mature during 2022 4.00 909
Average yield and total expected maturities from the remainder of 2020 through 2022 4.18 $ 1,875


(Dollars in millions)	% Yield		Principal redemptions
At March 31, 2021
Fixed-maturity pretax yield profile:
Expected to mature during the remainder of 2021	4.31	%	$	589
Expected to mature during 2022	3.93		915
Expected to mature during 2023	4.21		970
Average yield and total expected maturities from the remainder of 2021 through 2023	4.13		$	2,474

Cincinnati Financial Corporation First-Quarter 2021 10-Q

Page 50

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 ~~nine~~first three months of ~~2020~~2021 was lower than the ~~4.10%~~4.12% average yield-to-amortized cost of the fixed-maturity securities portfolio at the end of ~~2019.~~2020. Our fixed-maturity portfolio's average yield of ~~4.04%~~4.14% for the first ~~nine~~three months of ~~2020,~~2021, from the investment income table below, was ~~also~~ slightly ~~lower~~higher than that yield for the year-end ~~2019~~2020 fixed-maturities portfolio.


		Three months ended September 30,						Nine months ended September 30,					Three months ended March 31,
		2020		2019		2020		2019			2021		2020
Average pretax yield-to-amortized cost on new fixed-maturities:	Average pretax yield-to-amortized cost on new fixed-maturities:									Average pretax yield-to-amortized cost on new fixed-maturities:
Acquired taxable fixed-maturities	Acquired taxable fixed-maturities	3.92	%	3.97	%	4.27	%	4.42	%	Acquired taxable fixed-maturities	3.74	%	4.06	%
Acquired tax-exempt fixed-maturities	Acquired tax-exempt fixed-maturities	2.42		3.14		2.63		3.19		Acquired tax-exempt fixed-maturities	2.94		3.72
Average total fixed-maturities acquired	Average total fixed-maturities acquired	3.42		3.86		3.98		4.19		Average total fixed-maturities acquired	3.71		4.05

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 ~~2019~~2020 Annual Report on Form 10-K, Item 1, Investments Segment, Page ~~27,~~26, and Item 7, Investments Outlook, Page ~~95.~~96. 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.

~~Cincinnati Financial Corporation Third-Quarter 2020 10-Q~~

~~Page 53~~

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)	(Dollars in millions)	Three months ended September 30,													Nine months ended September 30,			(Dollars in millions)					Three months ended March 31,
		2020			2019			% Change	2020			2019			% Change		2021			2020			% Change
Investment income:	Investment income:															Investment income:
Interest	Interest	$	113		$	110		3	$	339		$	332		2	Interest	$	118		$	112		5
Dividends	Dividends	55			50			10	161			146			10	Dividends	58			53			9
Other	Other	2			5			(60)	7			10			(30)	Other	2			3			(33)
Less investment expenses	Less investment expenses	3			4			(25)	9			10			(10)	Less investment expenses	4			3			33
Investment income, pretax	Investment income, pretax	167			161			4	498			478			4	Investment income, pretax	174			165			5
Less income taxes	Less income taxes	26			26			0	77			75			3	Less income taxes	27			26			4
Total investment income, after-tax	Total investment income, after-tax	$	141		$	135		4	$	421		$	403		4	Total investment income, after-tax	$	147		$	139		6

Investment returns:	Investment returns:															Investment returns:
Average invested assets plus cash and cash equivalents	Average invested assets plus cash and cash equivalents	$	19,875		$	19,088			$	20,126		$	18,364			Average invested assets plus cash and cash equivalents	$	21,776		$	19,010
Average yield pretax	Average yield pretax	3.36		%	3.37		%		3.30		%	3.47		%		Average yield pretax	3.20		%	3.47		%
Average yield after-tax	Average yield after-tax	2.84			2.83				2.79			2.93				Average yield after-tax	2.70			2.92
Effective tax rate	Effective tax rate	15.5			15.7				15.5			15.6				Effective tax rate	15.5			15.5

Fixed-maturity returns:	Fixed-maturity returns:															Fixed-maturity returns:
Average amortized cost	Average amortized cost	$	11,206		$	10,922			$	11,191		$	10,828			Average amortized cost	$	11,395		$	11,091
Average yield pretax	Average yield pretax	4.03		%	4.03		%		4.04		%	4.09		%		Average yield pretax	4.14		%	4.04		%
Average yield after-tax	Average yield after-tax	3.36			3.36				3.37			3.41				Average yield after-tax	3.45			3.37
Effective tax rate	Effective tax rate	16.6			16.5				16.6			16.6				Effective tax rate	16.7			16.6

Cincinnati Financial Corporation First-Quarter 2021 10-Q

Page 51

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 ~~and other-than-temporary impairment (OTTI) charges~~ for the fixed-maturity portfolio are disclosed in our ~~2019~~2020 Annual Report on Form 10-K, Item 8, Note 1, Summary of Significant Accounting Policies, Page ~~133 and in this quarterly report Item 1, Note 1, Accounting Policies.~~133.

~~Cincinnati Financial Corporation Third-Quarter 2020 10-Q~~

~~Page 54~~

The table below summarizes total investment gains and losses, before taxes.


(Dollars in millions)	(Dollars in millions)	Three months ended September 30,						Nine months ended September 30,			(Dollars in millions)			Three months ended March 31,
		2020		2019		2020		2019				2021		2020
Investment gains and losses:	Investment gains and losses:									Investment gains and losses:
Equity securities:	Equity securities:									Equity securities:
Investment gains and losses on securities sold, net	Investment gains and losses on securities sold, net	$	55	$	—	$	75	$	27	Investment gains and losses on securities sold, net		$	4	$	(4)
Unrealized gains and losses on securities still held, net	Unrealized gains and losses on securities still held, net	475		89		(130)		1,084		Unrealized gains and losses on securities still held, net		487		(1,649)

Subtotal	Subtotal	530		89		(55)		1,111		Subtotal		491		(1,653)
Fixed maturities:	Fixed maturities:									Fixed maturities:
Gross realized gains	Gross realized gains	4		6		9		9		Gross realized gains		3		2
Gross realized losses		—		(1)		(3)		(3)

Write-down of impaired securities	Write-down of impaired securities	(1)		(6)		(78)		(6)		Write-down of impaired securities		—		(77)
Subtotal	Subtotal	3		(1)		(72)		—		Subtotal		3		(75)
Other	Other	—		(2)		(5)		2		Other		10		3
Total investment gains and losses reported in net income	Total investment gains and losses reported in net income	533		86		(132)		1,113		Total investment gains and losses reported in net income		504		(1,725)

Change in unrealized investment gains and losses:	Change in unrealized investment gains and losses:									Change in unrealized investment gains and losses:

Fixed maturities	Fixed maturities	112		100		294		542		Fixed maturities		(196)		(324)

Total	Total	$	645	$	186	$	162	$	1,655	Total		$	308	$	(2,049)

Of the ~~4,103~~4,188 fixed-maturity securities in the portfolio, one security was trading below 70% of amortized cost at ~~September 30, 2020, with a fair value of $1 million and an unrealized loss of $1 million.~~March 31, 2021. Our asset impairment committee regularly monitors the portfolio, including a quarterly review of the entire portfolio for potential credit losses, resulting in charges disclosed in the table below. 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.

The table below provides additional details for write-downs of impaired ~~securities or OTTI charges.~~securities. We had no allowance for credit losses for the first ~~nine~~three months of ~~2020.~~2021 or 2020, respectively.


(Dollars in millions)	(Dollars in millions)	Three months ended September 30,						Nine months ended September 30,			(Dollars in millions)			Three months ended March 31,
		2020		2019		2020		2019				2021		2020
Fixed maturities:	Fixed maturities:									Fixed maturities:
Energy	Energy	$	—	$	6	$	62	$	6	Energy		$	—	$	62
Real Estate		—		—		13		—
Consumer Goods		—		—		1		—
Municipal		1		—		1		—
Real estate										Real estate		—		13
Consumer goods										Consumer goods		—		1

Technology & Electronics	Technology & Electronics	—		—		1		—		Technology & Electronics		—		1
Total fixed maturities	Total fixed maturities	$	1	$	6	$	78	$	6	Total fixed maturities		$	—	$	77

Cincinnati Financial Corporation ~~Third-Quarter 2020~~First-Quarter 2021 10-Q

Page 5552

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 ~~our reinsurance assumed operation,~~ and Cincinnati Global, ~~since its acquisition on February 28, 2019. Underwriting results in the table below for Cincinnati Re and Cincinnati Global include~~including earned premiums, loss and loss expenses and underwriting ~~expenses.~~expenses in the table below.

Total revenues for the first ~~nine~~three months of ~~2020~~2021 for our Other operations increased, compared with the same period of ~~2019,~~2020, primarily due to earned premiums from Cincinnati Re and Cincinnati Global, with increases of ~~$56~~$30 million and ~~$15~~$5 million, respectively. Total expenses for Other increased for the first ~~nine~~three months of ~~2020,~~2021, primarily due to more losses and loss expenses from Cincinnati Re and Cincinnati Global.

Other loss in the table below represents losses before income taxes. For both periods shown, Other loss resulted largely from interest expense from debt of the parent company.


(Dollars in millions)	(Dollars in millions)	Three months ended September 30,									Nine months ended September 30,			(Dollars in millions)			Three months ended March 31,
		2020		2019		% Change	2020		2019		% Change		2021		2020		% Change
Interest and fees on loans and leases	Interest and fees on loans and leases	$	1	$	1	0	$	4	$	4	0	Interest and fees on loans and leases	$	1	$	1	0
Earned premiums	Earned premiums	136		116		17	316		245		29	Earned premiums	124		89		39
Other revenues	Other revenues	2		2		0	4		3		33	Other revenues	1		1		0
Total revenues	Total revenues	139		119		17	324		252		29	Total revenues	126		91		38
Interest expense	Interest expense	13		14		(7)	40		40		0	Interest expense	13		13		0
Loss and loss expenses	Loss and loss expenses	138		71		94	252		141		79	Loss and loss expenses	88		46		91
Underwriting expenses	Underwriting expenses	38		33		15	95		70		36	Underwriting expenses	38		29		31
Operating expenses	Operating expenses	5		5		0	15		17		(12)	Operating expenses	4		5		(20)
Total expenses	Total expenses	194		123		58	402		268		50	Total expenses	143		93		54
Total other loss	Total other loss	$	(55)	$	(4)	nm	$	(78)	$	(16)	(388)	Total other loss	$	(17)	$	(2)	nm

TAXES

We had ~~$130 million and $16~~$148 million of income tax expense for the three ~~and nine~~ months ended ~~September 30, 2020,~~March 31, 2021, compared with ~~$46 million and $320~~$350 million of income tax ~~expense~~benefit for the same ~~periods~~period of ~~2019.~~2020. The effective tax rate for the three ~~and nine~~ months ended ~~September 30, 2020,~~March 31, 2021, was ~~21.2% and 8.7%~~19.3% compared with ~~15.6% and 18.9%~~22.2% for the same ~~periods~~period last year. The change in our effective tax rate between periods was primarily due to ~~large~~ net investment ~~losses~~gains included in income for ~~2020~~2021 versus large net investment ~~gains~~losses included in income for the prior-year period as well as 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 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 from the 1986 Tax Reform Act. Our noninsurance companies own an immaterial amount of tax-advantaged fixed-maturity investments. 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 2020~~First-Quarter 2021 10-Q

Page 5653

LIQUIDITY AND CAPITAL RESOURCES

At ~~September 30, 2020,~~March 31, 2021, shareholders' equity was ~~$9.745~~$11.138 billion, compared with ~~$9.864~~$10.789 billion at December 31, ~~2019.~~2020. Total debt was ~~$911~~$845 million at ~~September 30, 2020,~~March 31, 2021, up ~~$84~~$3 million from December 31, ~~2019.~~2020. At ~~September 30, 2020,~~March 31, 2021, cash and cash equivalents totaled ~~$914~~$947 million, compared with ~~$767~~$900 million at December 31, ~~2019.~~

~~The COVID-19 pandemic and related economic effects slowed the rate of our premium growth for the third quarter and first nine months of~~ 2020. Most states where we market our products issued mandates or requests such as moratoriums on policy cancellations or nonrenewals for nonpayments of premiums, forbearance on premium collections, waivers of late payment fees and extended periods in which policyholders may make their missed payments. Extended or future moratoriums and deferral of premiums may disrupt cash flows while also increasing credit risk from policyholders struggling to make timely premium payments.

The pandemic did not have a significant effect on our cash flows for the first ~~nine~~three months of ~~2020.~~2021. In addition to our historically positive operating cash flow to meet the needs of operations, we have the ability to sell a portion of our high-quality, liquid investment portfolio or slow investing activities 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 ~~$325~~ $158 million to the parent company in the first ~~nine~~three months of ~~2020,~~2021, compared with ~~$400~~$125 million for the same period of ~~2019.~~2020. For full-year ~~2019,~~2020, subsidiary dividends declared totaled ~~$625~~$550 million. State of Ohio regulatory requirements restrict the dividends our insurance subsidiary can pay. For full-year ~~2020,~~2021, total dividends that our insurance subsidiary can pay to our parent company without regulatory approval are approximately ~~$562~~$583 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 ~~2019~~2020 Annual Report on Form 10-K, Item 1, Investments Segment, Page ~~27.~~26.

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.

~~Cincinnati Financial Corporation Third-Quarter 2020 10-Q~~

~~Page 57~~

The table below shows a summary of the operating cash flow for property casualty insurance (direct method):


(Dollars in millions)	(Dollars in millions)	Three months ended September 30,									Nine months ended September 30,			(Dollars in millions)			Three months ended March 31,
		2020		2019		% Change	2020		2019		% Change		2021		2020		% Change
Premiums collected	Premiums collected	$	1,457	$	1,405	4	$	4,442	$	4,197	6	Premiums collected	$	1,523	$	1,467	4
Loss and loss expenses paid	Loss and loss expenses paid	(779)		(830)		6	(2,347)		(2,452)		4	Loss and loss expenses paid	(705)		(817)		14
Commissions and other underwriting expenses paid	Commissions and other underwriting expenses paid	(397)		(385)		(3)	(1,385)		(1,282)		(8)	Commissions and other underwriting expenses paid	(571)		(591)		3
Cash flow from underwriting	Cash flow from underwriting	281		190		48	710		463		53	Cash flow from underwriting	247		59		319
Investment income received	Investment income received	117		118		(1)	346		338		2	Investment income received	121		119		2
Cash flow from operations	Cash flow from operations	$	398	$	308	29	$	1,056	$	801	32	Cash flow from operations	$	368	$	178	107

Collected premiums for property casualty insurance rose ~~$245~~$56 million during the first ~~nine~~three months of ~~2020,~~2021, compared with the same period in ~~2019.~~2020. Loss and loss expenses paid for the ~~2020~~2021 period decreased ~~$105~~$112 million. Commissions and other underwriting expenses paid ~~increased $103 million, primarily due to higher commissions paid to agencies, reflecting the increase in collected premiums.~~decreased $20 million.

Cincinnati Financial Corporation First-Quarter 2021 10-Q

Page 54

We discuss our future obligations for claims payments and for underwriting expenses in our ~~2019~~2020 Annual Report on Form 10-K, Item 7, Contractual Obligations, Page ~~101,~~102, and Other Commitments also on Page ~~101.~~102.

Capital Resources

At ~~September 30, 2020,~~March 31, 2021, our debt-to-total-capital ratio was ~~8.5%~~7.1%, considerably below our 35% covenant threshold, with $788 million in long-term debt and ~~$123~~$57 million in borrowing on our revolving short-term line of credit. ~~We borrowed~~ ~~an additional $75 million in the first quarter of 2020, from the $39 million balance at December~~At March 31, ~~2019, which was used to repurchase shares during the first quarter of 2020. At September 30, 2020, $177~~2021, $243 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, 2020,~~March 31, 2021, we do not anticipate a material increase in debt levels exceeding the available line of credit amount during the remainder of 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. ~~As part of our Cincinnati Global acquisition, on February 25, 2019, we entered into~~We have an unsecured letter of credit agreement ~~to provide~~which provides a portion of the capital needed to support ~~its~~Cincinnati Global's obligations at Lloyd's. The amount of this unsecured letter of credit agreement was ~~$130~~$94 million at ~~September 30, 2020.~~March 31, 2021 with no amounts drawn.

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~~three months of ~~2020.~~2021. Our debt ratings are discussed in our ~~2019~~2020 Annual Report on Form 10-K, Item 7, Liquidity and Capital Resources, ~~Other Sources of Liquidity,~~Long-Term Debt, Page ~~99.~~101.

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.

~~Cincinnati Financial Corporation Third-Quarter 2020 10-Q~~

~~Page 58~~

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, ~~2019,~~2020, in our ~~2019~~2020 Annual Report on Form 10-K, Item 7, Contractual Obligations, Page ~~101.~~102. There have been no material changes to our estimates of future contractual obligations since our ~~2019~~2020 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 ~~$868~~$405 million in the first ~~nine~~three months of ~~2020.~~2021. 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 ~~$517~~$166 million in the first ~~nine~~three months of ~~2020.~~2021.

There were no contributions to our qualified pension plan during the first ~~nine~~three months of ~~2020.~~2021.

Cincinnati Financial Corporation First-Quarter 2021 10-Q

Page 55

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. In January ~~2020,~~2021, the board of directors declared regular quarterly cash dividends of 6063 cents per share for an indicated annual rate of ~~$2.40~~$2.52 per share. During the first ~~nine~~three months of ~~2020,~~2021, we used ~~$280~~$95 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 ~~2019~~2020 Annual Report on Form 10-K, Item 7, Property Casualty Insurance Loss and Loss Expense Obligations and Reserves, Page ~~102.~~103.

Total gross reserves at ~~September 30, 2020,~~March 31, 2021, increased ~~$604~~$203 million compared with December 31, ~~2019.~~2020. Case loss reserves for losses increased by ~~$145~~$4 million, IBNR loss reserves increased by ~~$419~~$180 million and loss expense reserves increased by ~~$40~~$19 million. The total gross increase was primarily due to our commercial casualty ~~commercial property~~ and homeowner lines of business, ~~our excess~~ and ~~surplus lines insurance segment and~~also Cincinnati Re.

Cincinnati Financial Corporation ~~Third-Quarter 2020~~First-Quarter 2021 10-Q

Page 5956

Property Casualty Gross Reserves


(Dollars in millions)	(Dollars in millions)	Loss reserves						Loss expense reserves		Total gross reserves					(Dollars in millions)		Loss reserves							Loss expense reserves		Total gross reserves
		Case reserves		IBNR reserves									Percent of total				Case reserves			IBNR reserves								Percent of total
At September 30, 2020												Total gross reserves
At March 31, 2021													At March 31, 2021			Case reserves			IBNR reserves							Loss expense reserves		Total gross reserves	Percent of total
Commercial lines insurance:	Commercial lines insurance:														Commercial lines insurance:
Commercial casualty	Commercial casualty	$	964	$	755	$	635	$	2,354	35.2	%	Commercial casualty		$	965		$	781				$	692						35.4	%
Commercial property	Commercial property	405		90		64		559		8.3		Commercial property		314			165			66				545		7.9
Commercial auto	Commercial auto	396		211		141		748		11.2		Commercial auto		400			217			122				739		10.7
Workers' compensation	Workers' compensation	402		529		87		1,018		15.2		Workers' compensation		415			508			90				1,013		14.7
Other commercial	Other commercial	96		11		96		203		3.0		Other commercial		86			16			100				202		3.0
Subtotal	Subtotal	2,263		1,596		1,023		4,882		72.9		Subtotal		2,180			1,687			1,070				4,937		71.7
Personal lines insurance:	Personal lines insurance:											Personal lines insurance:
Personal auto	Personal auto	208		76		69		353		5.3		Personal auto		203			70			62				335		4.9
Homeowner	Homeowner	182		52		41		275		4.1		Homeowner		176			99			41				316		4.6
Other personal	Other personal	59		90		5		154		2.3		Other personal		61			99			5				165		2.4
Subtotal	Subtotal	449		218		115		782		11.7		Subtotal		440			268			108				816		11.9
Excess and surplus lines	Excess and surplus lines	187		122		118		427		6.4		Excess and surplus lines		186			155			132				473		6.9
Cincinnati Re	Cincinnati Re	64		275		2		341		5.1		Cincinnati Re		85			330			4				419		6.1
Cincinnati Global	Cincinnati Global	146		112		2		260		3.9		Cincinnati Global		137			95			3				235		3.4
Total	Total	$	3,109	$	2,323	$	1,260	$	6,692	100.0	%	Total		$	3,028		$	2,535		$	1,317			$	6,880	100.0	%
At December 31, 2019
At December 31, 2020												At December 31, 2020
Commercial lines insurance:	Commercial lines insurance:											Commercial lines insurance:
Commercial casualty	Commercial casualty	$	937	$	680	$	622	$	2,239	36.8	%	Commercial casualty		$	955		$	764		$	653			$	2,372	35.5	%
Commercial property	Commercial property	339		20		64		423		7.0		Commercial property		338			127			69				534		8.0
Commercial auto	Commercial auto	409		157		143		709		11.6		Commercial auto		391			209			141				741		11.1
Workers' compensation	Workers' compensation	404		516		93		1,013		16.6		Workers' compensation		402			534			89				1,025		15.4
Other commercial	Other commercial	108		7		70		185		3.0		Other commercial		92			13			104				209		3.1
Subtotal	Subtotal	2,197		1,380		992		4,569		75.0		Subtotal		2,178			1,647			1,056				4,881		73.1
Personal lines insurance:	Personal lines insurance:											Personal lines insurance:
Personal auto	Personal auto	233		46		78		357		5.9		Personal auto		205			56			68				329		4.9
Homeowner	Homeowner	134		32		41		207		3.4		Homeowner		166			47			41				254		3.8
Other personal	Other personal	49		69		5		123		2.0		Other personal		61			90			5				156		2.3
Subtotal	Subtotal	416		147		124		687		11.3		Subtotal		432			193			114				739		11.0
Excess and surplus lines	Excess and surplus lines	149		102		100		351		5.8		Excess and surplus lines		190			133			123				446		6.7
Cincinnati Re	Cincinnati Re	47		204		2		253		4.2		Cincinnati Re		77			287			2				366		5.5
Cincinnati Global	Cincinnati Global	155		71		2		228		3.7		Cincinnati Global		147			95			3				245		3.7
Total	Total	$	2,964	$	1,904	$	1,220	$	6,088	100.0	%	Total		$	3,024		$	2,355		$	1,298			$	6,677	100.0	%

LIFE POLICY AND INVESTMENT CONTRACT RESERVES

Gross life policy and investment contract reserves were ~~$2.900~~$2.950 billion at ~~September 30, 2020,~~March 31, 2021, compared with ~~$2.835~~$2.915 billion at year-end ~~2019,~~2020, reflecting continued growth in life insurance policies in force. We discuss our life insurance reserving practices in our ~~2019~~2020 Annual Report on Form 10-K, Item 7, Life Insurance Policyholder Obligations and Reserves, Page ~~108.~~109.

Cincinnati Financial Corporation ~~Third-Quarter 2020~~First-Quarter 2021 10-Q

Page 6057

OTHER MATTERS

SIGNIFICANT ACCOUNTING POLICIES

Our significant accounting policies are discussed in our ~~2019~~2020 Annual Report on Form 10-K, Item 8, Note 1, Summary of Significant Accounting Policies, Page 133, 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 ~~2019~~2020 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.

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 ~~2019~~2020 Annual Report on Form 10-K, Item 7A, Quantitative and Qualitative Disclosures About Market Risk, Page ~~117.~~118.

The fair value of our investment portfolio was ~~$20.024~~$21.668 billion at ~~September 30, 2020,~~March 31, 2021, up ~~$574~~$474 million from year-end ~~2019,~~2020, including a ~~$459~~$30 million ~~increase~~decrease in the fixed-maturity portfolio and a ~~$115~~$504 million increase in the equity portfolio.


(Dollars in millions)	(Dollars in millions)	At September 30, 2020														At December 31, 2019														(Dollars in millions)		At March 31, 2021					At December 31, 2020
		Cost or amortized cost		Percent of total		Fair value		Percent of total		Cost or amortized cost		Percent of total		Fair value		Percent of total			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	Taxable fixed maturities	$	7,331	48.3	%	$	7,907	39.5	%	$	7,250	49.4	%	$	7,617	39.1	%	Taxable fixed maturities	$	7,547	49.0	%	$	8,091	37.3	%	$	7,363	48.3		%		$	8,053	38.0	%
Tax-exempt fixed maturities	Tax-exempt fixed maturities	3,942		26.0		4,250		21.2		3,858		26.3		4,081		21.0		Tax-exempt fixed maturities	3,931		25.5		4,217		19.5		3,949		25.9				4,285		20.2
Common equities	Common equities	3,634		24.0		7,589		37.9		3,371		22.9		7,518		38.7		Common equities	3,640		23.6		9,032		41.7		3,640		23.9				8,541		40.3
Nonredeemable preferred equities	Nonredeemable preferred equities	264		1.7		278		1.4		210		1.4		234		1.2		Nonredeemable preferred equities	298		1.9		328		1.5		287		1.9				315		1.5

Total	Total	$	15,171	100.0	%	$	20,024	100.0	%	$	14,689	100.0	%	$	19,450	100.0	%	Total	$	15,416	100.0	%	$	21,668	100.0	%	$	15,239	100.0		%		$	21,194	100.0	%

At ~~September 30, 2020,~~March 31, 2021, substantially all of our consolidated investment portfolio, measured at fair value, are 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 ~~$33 million of life policy loans, $114~~$161 million in Lloyd's deposits, ~~$101~~$135 million of private equity investments, $32 million of life policy loans and ~~$27~~$22 million of real estate through direct property ownership and development projects in the United States at ~~September 30, 2020.~~March 31, 2021.

Cincinnati Financial Corporation ~~Third-Quarter 2020~~First-Quarter 2021 10-Q

Page 6158

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~~three months of ~~2020,~~2021, the ~~increase~~slight decrease in fair value of our fixed-maturity portfolio reflected ~~an increase~~a decrease in net unrealized gains, primarily due to ~~a combination of net purchases and a decline~~an increase in U.S. Treasury yields, ~~somewhat~~largely offset by ~~a widening of corporate credit spreads.~~net purchases. At ~~September 30, 2020,~~March 31, 2021, our fixed-maturity portfolio with an average rating of A3/A was valued at ~~107.8%~~107.2% of its amortized cost, compared with ~~105.3%~~109.1% at December 31, ~~2019.~~2020.

At ~~September 30, 2020,~~March 31, 2021, our investment-grade and noninvestment-grade fixed-maturity securities represented ~~82.4%~~80.6% and ~~3.8%~~4.6% of the portfolio, respectively. The remaining ~~13.8%~~14.8% represented fixed-maturity securities that were not rated by Moody's or S&P Global Ratings.

Attributes of the fixed-maturity portfolio include:


		At September 30, 2020			At December 31, 2019				At March 31, 2021			At December 31, 2020
Weighted average yield-to-amortized cost	Weighted average yield-to-amortized cost	4.16	%	4.10	%	Weighted average yield-to-amortized cost	4.10	%		4.12	%
Weighted average maturity	Weighted average maturity	7.6	yrs	7.7	yrs	Weighted average maturity	7.5	yrs		7.5	yrs
Effective duration	Effective duration	4.7	yrs	4.8	yrs	Effective duration	4.6	yrs		4.5	yrs

We discuss maturities of our fixed-maturity portfolio in our ~~2019~~2020 Annual Report on Form 10-K, Item 8, Note 2, Investments, Page ~~141,~~140, and in this quarterly report Item 2, Investments Results.

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Page 6259

TAXABLE FIXED MATURITIES

Our taxable fixed-maturity portfolio, with a fair value of ~~$7.907~~$8.091 billion at ~~September 30, 2020,~~March 31, 2021, included:


(Dollars in millions)	(Dollars in millions)	At September 30, 2020		At December 31, 2019		(Dollars in millions)	At March 31, 2021		At December 31, 2020
Investment-grade corporate	Investment-grade corporate	$	6,315	$	6,137	Investment-grade corporate	$	6,370	$	6,416
States, municipalities and political subdivisions	States, municipalities and political subdivisions	692		647		States, municipalities and political subdivisions	743		712
Noninvestment-grade corporate	Noninvestment-grade corporate	454		264		Noninvestment-grade corporate	550		479
Commercial mortgage-backed	Commercial mortgage-backed	282		301		Commercial mortgage-backed	285		285
United States government	United States government	124		104		United States government	113		120
Foreign government	Foreign government	27		28		Foreign government	24		29
Government-sponsored enterprises	Government-sponsored enterprises	13		136		Government-sponsored enterprises	6		12

Total	Total	$	7,907	$	7,617	Total	$	8,091	$	8,053

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 ~~1.0%~~0.9% of the taxable fixed-maturity portfolio at ~~September 30, 2020.~~March 31, 2021. Our investment-grade corporate bonds had an average rating of Baa2 by Moody's or BBB by S&P Global Ratings and represented ~~79.9%~~78.7% of the taxable fixed-maturity portfolio's fair value at ~~September 30, 2020,~~March 31, 2021, compared with ~~80.6%~~79.7% at year-end ~~2019.~~2020.

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

~~September 30, 2020,~~March 31, 2021, was the financial sector. It represented ~~46.6%~~46.1% of our investment-grade corporate bond portfolio, compared with ~~44.6%~~46.2% at year-end ~~2019.~~2020. No other sector exceeded 10% of our investment-grade corporate bond portfolio.

Our taxable fixed-maturity portfolio at ~~September 30, 2020,~~March 31, 2021, included ~~$282~~$285 million of commercial mortgage-backed securities with an average rating of Aa1/AA.

TAX-EXEMPT FIXED MATURITIES

At ~~September 30, 2020,~~March 31, 2021, we had ~~$4.250~~$4.217 billion of tax-exempt fixed-maturity securities 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 ~~1,600~~1,700 municipal bond issuers. No single municipal issuer accounted for more than 0.6% of the tax-exempt fixed-maturity portfolio at ~~September 30, 2020.~~March 31, 2021.

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.

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Page 6360

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, 2020 $ 13,324 $ 12,728 $ 12,157 $ 11,577 $ 10,987
At December 31, 2019 $ 12,850 $ 12,263 $ 11,698 $ 11,117 $ 10,529


(Dollars in millions)	Effect from interest rate change in basis points
	-200		-100		-		100		200
At March 31, 2021	$	13,465	$	12,875	$	12,308	$	11,725	$	11,134
At December 31, 2020	$	13,493	$	12,900	$	12,338	$	11,774	$	11,195

The effective duration of the fixed-maturity portfolio as of ~~September 30, 2020,~~March 31, 2021, was ~~4.7~~4.6 years, ~~down~~up from ~~4.8~~4.5 years at year-end ~~2019.~~2020. 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 4.7% 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.

EQUITY INVESTMENTS

Our equity investments, with a fair value totaling ~~$7.867~~$9.360 billion at ~~September 30, 2020,~~March 31, 2021, included ~~$7.589~~$9.032 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, 2020 $ 5,507 $ 6,294 $ 7,080 $ 7,867 $ 8,654 $ 9,440 $ 10,227
At December 31, 2019 $ 5,426 $ 6,202 $ 6,977 $ 7,752 $ 8,527 $ 9,302 $ 10,078


(Dollars in millions)	Effect from market price change in percent
		-30%		-20%		-10%		—		10%		20%		30%
At March 31, 2021		$	6,552	$	7,488	$	8,424	$	9,360	$	10,296	$	11,232	$	12,168
At December 31, 2020		$	6,199	$	7,085	$	7,970	$	8,856	$	9,742	$	10,627	$	11,513

At ~~September 30, 2020,~~March 31, 2021, Apple Inc. (Nasdaq:AAPL) was our largest single common stock holding with a fair value of ~~$562~~$593 million, or ~~7.4%~~6.6% of our publicly traded common stock portfolio and ~~2.8%~~2.7% of the total investment portfolio. ~~Thirty-two~~Forty-one holdings among ~~eight~~nine different sectors each had a fair value greater than $100 million.

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Page 6461

Common Stock Portfolio Industry Sector Distribution


		Percent of common stock portfolio															Percent of common stock portfolio
		At September 30, 2020						At December 31, 2019							At March 31, 2021				At December 31, 2020
		Cincinnati Financial		S&P 500 Industry Weightings		Cincinnati Financial		S&P 500 Industry Weightings			Cincinnati Financial		S&P 500 Industry Weightings		Cincinnati Financial		S&P 500 Industry Weightings
Sector:	Sector:									Sector:
Information technology	Information technology	27.8	%	28.1	%	23.7	%	23.2	%	Information technology	27.0	%	26.7	%	28.3	%	27.6	%
Financial										Financial	15.1		11.3		14.2		10.4
Healthcare	Healthcare	13.5		14.2		12.4		14.2		Healthcare	13.0		13.0		13.3		13.5
Financial		12.5		9.7		15.7		13.0
Industrials	Industrials	12.0		8.3		12.6		9.1		Industrials	12.9		8.9		12.3		8.4
Consumer discretionary	Consumer discretionary	9.4		11.6		9.7		9.7		Consumer discretionary	8.7		12.4		8.9		12.7
Consumer staples	Consumer staples	7.2		7.0		6.2		7.2		Consumer staples	6.8		6.1		6.7		6.5
Materials	Materials	5.5		2.6		5.0		2.7		Materials	5.1		2.7		5.1		2.6
Energy	Energy	3.6		2.1		6.3		4.3		Energy	4.4		2.8		3.8		2.3
Utilities										Utilities	2.6		2.7		2.6		2.8
Real Estate	Real Estate	3.0		2.6		2.5		2.9		Real Estate	2.3		2.5		2.7		2.4
Utilities		2.9		3.0		2.5		3.3
Telecomm services	Telecomm services	2.6		10.8		3.4		10.4		Telecomm services	2.1		10.9		2.1		10.8
Total	Total	100.0	%	100.0	%	100.0	%	100.0	%	Total	100.0	%	100.0	%	100.0	%	100.0	%

UNREALIZED INVESTMENT GAINS AND LOSSES

At ~~September 30, 2020,~~March 31, 2021, unrealized investment gains before taxes for the fixed-maturity portfolio totaled ~~$916~~$849 million and unrealized investment losses amounted to ~~$32~~$19 million before taxes.

The ~~$884~~$830 million net unrealized gain position in our fixed-maturity portfolio at ~~September 30, 2020, increased~~March 31, 2021, decreased in the first ~~nine~~three months of ~~2020,~~2021, primarily due to ~~a combination of net purchases and a decline~~an increase in U.S. Treasury yields, ~~somewhat~~largely offset by ~~a widening of corporate credit spreads.~~net purchases. The net gain position for our current fixed-maturity holdings will naturally decline over time as individual securities mature. In addition, changes in interest rates can cause rapid, significant changes in fair values of fixed-maturity securities and the net gain 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, 2020,~~March 31, 2021, consisted of a net gain position in our equity portfolio of ~~$3.969~~$5.422 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), JPMorgan Chase (NYSE:JPM), BlackRock Inc. (NYSE:BLK), and Accenture Co. (NYSE:ACN) ~~and JPMorgan Chase (NYSE:JPM)~~, which had a combined fair value of ~~$1.784~~$2.133 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, 2020, 254~~March 31, 2021, 296 of the ~~4,103~~4,188 fixed-maturity securities we owned had fair values below amortized cost, compared with ~~157~~128 of the ~~3,911~~4,128 securities we owned at year-end ~~2019.~~2020. The ~~254~~296 holdings with fair values below amortized cost at ~~September 30, 2020,~~March 31, 2021, represented ~~6.9%~~5.1% of the fair value of our fixed-maturity investment portfolio and ~~$32~~$19 million in unrealized losses.

•~~231~~287 of the ~~254~~296 holdings had fair value between 90% and 100% of amortized cost at ~~September 30, 2020.~~March 31, 2021. These primarily consist of securities whose current valuation is largely the result of interest rate factors. The fair value of these ~~231~~287 securities was ~~$756~~$613 million, and they accounted for ~~$15~~$16 million in unrealized losses.

~~Cincinnati Financial Corporation Third-Quarter 2020 10-Q~~

~~Page 65~~

•228 of the ~~254~~296 fixed-maturity holdings had fair value between 70% and 90% of amortized cost at ~~September 30, 2020.~~March 31, 2021. We believe the 22eight fixed-maturity securities will continue to pay interest and ultimately pay principal upon

Cincinnati Financial Corporation First-Quarter 2021 10-Q

Page 62

maturity. The issuers of these 22eight 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 ~~$82~~$15 million, and they accounted for ~~$16~~$3 million in unrealized losses.

•~~1 of the 254~~There was one fixed-maturity ~~holdings had~~security with a fair value below 70% of amortized cost at ~~September 30, 2020. We believe the fixed-maturity security will continue to pay interest and ultimately pay principal upon maturity.~~March 31, 2021. The fair value and unrealized loss of ~~the~~this security ~~was~~were each less than $1 ~~million, and it accounted for $1 million in unrealized losses.~~million.

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)	(Dollars in millions)	Less than 12 months						12 months or more							Total						(Dollars in millions)	Less than 12 months				12 months or more		Total
At September 30, 2020		Fair value		Unrealized losses		Fair value		Unrealized losses		Fair value		Unrealized losses
At March 31, 2021														At March 31, 2021		Fair value		Unrealized losses		Fair value		Unrealized losses		Fair value		Unrealized losses
Fixed maturity securities:	Fixed maturity securities:													Fixed maturity securities:
Corporate	Corporate	$	600	$	23	$	62	$	4	$	662	$	27	Corporate		$	316	$	8	$	67	$	3	$	383	$	11
States, municipalities and political subdivisions	States, municipalities and political subdivisions	121		3		2		—		123		3		States, municipalities and political subdivisions		206		6		14		1		220		7
Commercial mortgage-backed	Commercial mortgage-backed	38		2		—		—		38		2		Commercial mortgage-backed		4		—		14		1		18		1
United States government	United States government	—		—		—		—		—		—		United States government		2		—		—		—		2		—
Foreign government	Foreign government	16		—		—		—		16		—		Foreign government		1		—		—		—		1		—
Government-sponsored enterprises	Government-sponsored enterprises	—		—		—		—		—		—		Government-sponsored enterprises		4		—		—		—		4		—
Total	Total	$	775	$	28	$	64	$	4	$	839	$	32	Total		$	533	$	14	$	95	$	5	$	628	$	19

At December 31, 2019
At December 31, 2020														At December 31, 2020
Fixed maturity securities:	Fixed maturity securities:													Fixed maturity securities:
Corporate	Corporate	$	199	$	2	$	118	$	3	$	317	$	5	Corporate		$	330	$	5	$	46	$	2	$	376	$	7
States, municipalities and political subdivisions	States, municipalities and political subdivisions	98		1		10		—		108		1		States, municipalities and political subdivisions		31		2		2		—		33		2
Commercial mortgage-backed	Commercial mortgage-backed	6		—		—		—		6		—		Commercial mortgage-backed		23		1		6		—		29		1
United States government	United States government	—		—		4		—		4		—		United States government		12		—		—		—		12		—
Foreign government	Foreign government	11		—		—		—		11		—		Foreign government		10		—		—		—		10		—
Government-sponsored enterprises		26		1		51		—		77		1

Total	Total	$	340	$	4	$	183	$	3	$	523	$	7	Total		$	406	$	8	$	54	$	2	$	460	$	10

At ~~September 30, 2020,~~March 31, 2021, applying our invested asset impairment policy, we determined that the total of ~~$32~~$19 million, for securities in an unrealized loss position in the table above, was not the result of a credit loss.

During the ~~third quarter~~first three months of ~~2020, two~~2021, no securities were written down to fair value through an impairment ~~charge resulting in $1 million of noncash charges.~~charge. During the first ~~nine~~three months of 2020, ~~14 securities were written down to fair value through an impairment charge resulting in $78 million of noncash charges. During the first nine months of 2019,~~ we wrote down ~~two~~12 securities and recorded $6$77 million in ~~OTTI~~impairment charges.

During full-year ~~2019,~~2020, we wrote down ~~three~~14 securities and recorded $9$78 million in ~~OTTI~~impairment charges.

At December 31, ~~2019, 38~~2020, 128 fixed-maturity ~~investments~~securities with a total unrealized loss of $3$10 million ~~had been~~were in an unrealized loss ~~position for 12 months or more.~~position. Of that total, no fixed-maturity ~~investments~~securities had fair values below 70% of amortized cost.

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Page 6663

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


(Dollars in millions)	(Dollars in millions)	Number of issues	Amortized cost		Fair value		Gross unrealized gain (loss)		Gross investment income		(Dollars in millions)	Number of issues		Amortized cost		Fair value			Gross unrealized gain (loss)		Gross investment income
At September 30, 2020
At March 31, 2021											At March 31, 2021	Number of issues		Amortized cost				Fair value					Gross unrealized gain (loss)			Gross investment income
Taxable fixed maturities:	Taxable fixed maturities:										Taxable fixed maturities:
Fair valued below 70% of amortized cost	Fair valued below 70% of amortized cost	1	$	2	$	1	$	(1)	$	—	Fair valued below 70% of amortized cost		—			$	—		$	—	$	—		$	—
Fair valued at 70% to less than 100% of amortized cost	Fair valued at 70% to less than 100% of amortized cost	162	763		735		(28)		24		Fair valued at 70% to less than 100% of amortized cost	217		559		543			(16)		4
Fair valued at 100% and above of amortized cost	Fair valued at 100% and above of amortized cost	1,676	6,566		7,171		605		212		Fair valued at 100% and above of amortized cost	1,695		6,988		7,548			560		80
Investment income on securities sold in current year	Investment income on securities sold in current year	—	—		—		—		11		Investment income on securities sold in current year	—		—		—			—		2
Total	Total	1,839	7,331		7,907		576		247		Total	1,912		7,547		8,091			544		86
Tax-exempt fixed maturities:	Tax-exempt fixed maturities:										Tax-exempt fixed maturities:
Fair valued below 70% of amortized cost	Fair valued below 70% of amortized cost	—	—		—		—		—		Fair valued below 70% of amortized cost	1		—		—			—		—
Fair valued at 70% to less than 100% of amortized cost	Fair valued at 70% to less than 100% of amortized cost	91	106		103		(3)		2		Fair valued at 70% to less than 100% of amortized cost	78		88		85			(3)		1
Fair valued at 100% and above of amortized cost	Fair valued at 100% and above of amortized cost	2,173	3,836		4,147		311		90		Fair valued at 100% and above of amortized cost	2,197		3,843		4,132			289		31
Investment income on securities sold in current year	Investment income on securities sold in current year	—	—		—		—		1		Investment income on securities sold in current year	—		—		—			—		—
Total	Total	2,264	3,942		4,250		308		93		Total	2,276		3,931		4,217			286		32

Fixed-maturities summary:	Fixed-maturities summary:										Fixed-maturities summary:
Fair valued below 70% of amortized cost	Fair valued below 70% of amortized cost	1	2		1		(1)		—		Fair valued below 70% of amortized cost	1		—		—			—		—
Fair valued at 70% to less than 100% of amortized cost	Fair valued at 70% to less than 100% of amortized cost	253	869		838		(31)		26		Fair valued at 70% to less than 100% of amortized cost	295		647		628			(19)		5
Fair valued at 100% and above of amortized cost	Fair valued at 100% and above of amortized cost	3,849	10,402		11,318		916		302		Fair valued at 100% and above of amortized cost	3,892		10,831		11,680			849		111
Investment income on securities sold in current year	Investment income on securities sold in current year	—	—		—		—		12		Investment income on securities sold in current year	—		—		—			—		2
Total	Total	4,103	$	11,273	$	12,157	$	884	$	340	Total	4,188		$	11,478	$	12,308		$	830	$	118

At December 31, 2019
At December 31, 2020											At December 31, 2020
Fixed-maturities summary:	Fixed-maturities summary:										Fixed-maturities summary:
Fair valued below 70% of amortized cost	Fair valued below 70% of amortized cost	—	$	—	$	—	$	—	$	—	Fair valued below 70% of amortized cost	—		$	—	$	—		$	—	$	—
Fair valued at 70% to less than 100% of amortized cost	Fair valued at 70% to less than 100% of amortized cost	157	530		523		(7)		12		Fair valued at 70% to less than 100% of amortized cost	128		470		460			(10)		18
Fair valued at 100% and above of amortized cost	Fair valued at 100% and above of amortized cost	3,754	10,578		11,175		597		401		Fair valued at 100% and above of amortized cost	4,000		10,842		11,878			1,036		414
Investment income on securities sold in current year	Investment income on securities sold in current year	—	—		—		—		33		Investment income on securities sold in current year	—		—		—			—		23
Total	Total	3,911	$	11,108	$	11,698	$	590	$	446	Total	4,128		$	11,312	$	12,338		$	1,026	$	455

See our ~~2019~~2020 Annual Report on Form 10-K, Item 7, Critical Accounting Estimates, Asset Impairment, Page ~~61, and updated in this quarterly report Item 1, Note 1, Accounting Policies.~~61.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures – The company maintains disclosure controls and procedures (as that term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (Exchange Act)).

Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. The company's management, with the participation of the company's chief executive officer and chief financial officer, has evaluated the effectiveness of the design and operation of the company's disclosure controls and procedures as of ~~September 30, 2020.~~March 31, 2021. Based upon that evaluation, the company's chief executive officer and chief financial officer concluded that the design and operation of the company's disclosure controls and procedures provided reasonable assurance that the disclosure controls and procedures are effective to ensure:

•that information required to be disclosed in the company's reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, and

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•that such information is accumulated and communicated to the company's management, including its chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosures.

Changes in Internal Control over Financial Reporting – During the three months ended ~~September 30, 2020,~~March 31, 2021, there were no changes in our internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. There was no significant impact to our internal controls over financial reporting while the majority of our associates are working remotely due to the COVID-19 pandemic. We are continually monitoring and assessing any potential impact on the design and operating effectiveness of our internal controls over financial reporting, caused by or related to the pandemic.

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Part II – Other Information

Item 1. Legal Proceedings

Neither the company nor any of our subsidiaries are involved in any litigation believed to be material other than ordinary, routine litigation incidental to the nature of our business.

Item 1A. Risk Factors

Our risk factors have not changed materially since they were described in our ~~2019~~2020 Annual Report on Form 10-K filed February 25, 2020, and subsequently updated in our quarterly report on Form 10-Q for the periods ended March 31, 2020, filed on April 27, 2020, and June 30, 2020, filed on July 27, 2020, other than as described below.

~~The outbreak of COVID-19 could result in an unusually high level of losses.~~

In March 2020, the outbreak of COVID-19 caused by a novel strain of the coronavirus was recognized as a pandemic by the World Health Organization. The outbreak has become increasingly widespread in the United States, including in the markets in which we operate. Risks to our business include legislation or court decisions that extend business interruption insurance in commercial property coverage forms to cover claims for pure economic loss related to the COVID-19 pandemic. Legislative initiatives and pending litigation are ongoing in numerous jurisdictions, and we cannot provide assurance that we will not be impacted by adverse legislation or adverse judicial rulings in certain of these jurisdictions. These actions seek to extend coverage beyond the terms and conditions we intended for those policies, including policies that do not contain specific virus exclusions. Therefore we would be forced to pay claims when no coverage was contemplated and for which no premium was collected. If these actions are successful, these claim amounts could have a material, adverse impact on our business, financial condition, results of operations or cash flows.2021.

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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

We did not sell any of our shares that were not registered under the Securities Act during the first ~~nine~~three months of ~~2020. Our repurchase program was expanded on October 22, 2007, to increase our repurchase authorization to approximately 13 million shares.~~2021. Our repurchase program does not have an expiration date. On January 26, 2018, an additional 15 million shares were authorized, which expanded our current repurchase program. We have ~~12,376,785~~12,043,152 shares available for purchase under our programs at ~~September 30, 2020.~~March 31, 2021.

~~Period~~

Total number
of shares
purchased

Average
price paid
per share

Total number of shares purchased as part of
publicly announced
plans or programs

Maximum number of
shares that may yet be
purchased under the
plans or programs

~~July 1-31, 2020~~

—

~~12,376,785~~

~~August 1-31, 2020~~

—

~~12,376,785~~

~~September 1-30, 2020~~

—

~~12,376,785~~

~~Totals~~

—


Period	Total number of shares purchased	Average price paid per share		Total number of shares purchased as part of publicly announced plans or programs	Maximum number of shares that may yet be purchased under the plans or programs
January 1-31, 2021	—	—		—	12,326,785
February 1-28, 2021				—	12,326,785
March 1-31, 2021	283,633	$	100.48	283,633	12,043,152






Totals	283,633	100.48		283,633

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Item 6. Exhibits


Exhibit No.						Exhibit Description
3.1						Amended and Restated Articles of Incorporation of Cincinnati Financial Corporation (incorporated by reference to the company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2017, Exhibit 3.1)
3.2						Amended and Restated Code of Regulations of Cincinnati Financial Corporation, as of May 5, 2018 (incorporated by reference to the company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2018, Exhibit 3.2)
31A						Certification pursuant to Section 302 of the Sarbanes Oxley Act of 2002 – Chief Executive Officer
31B						Certification pursuant to Section 302 of the Sarbanes Oxley Act of 2002 – Chief Financial Officer
32						Certification pursuant to Section 906 of the Sarbanes Oxley Act of 2002
101.INS						The instance document does not appear in the interactive data file because its XBRL tags are embedded within the Inline XBRL document.
101.SCH						XBRL Taxonomy Extension Schema Document
101.CAL						XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF						XBRL Taxonomy Extension Definition Linkbase Document
101.LAB						XBRL Taxonomy Extension Label Linkbase Document
101.PRE						XBRL Taxonomy Extension Presentation Linkbase Document
104						Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


CINCINNATI FINANCIAL CORPORATION
Date: ~~October 26, 2020~~April 28, 2021

/S/ Michael J. Sewell
Michael J. Sewell, CPA
Chief Financial Officer, Senior Vice President and Treasurer
(Principal Accounting Officer)

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