CINCINNATI FINANCIAL CORP

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

COMMERCIAL LINES INSURANCE RESULTS

Performance highlights for the commercial lines segment include:

•Premiums – Earned premiums and net written premiums for the commercial lines segment grew during the first three months of 2024, compared with the same period a year ago, due to agency renewal written premium growth that continued to include higher average pricing as well as growth in agency new business written premiums. 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 appropriate pricing discipline for both new and renewal business as our agents and underwriters assess account quality to make careful decisions on a policy-by-policy basis whether to write or renew a policy.

Agency renewal written premiums increased by 3% for the first three months of 2024, compared with the same period of 2023, including price increases. During the first quarter of 2024, our overall standard commercial lines policies averaged estimated renewal price increases at percentages near the low end of the high-single-digit range. We continue to segment commercial lines policies, emphasizing identification and retention of 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 first quarter of 2024, we estimate that our average percentage price increases were in the high-single-digit range for our commercial casualty, commercial property and commercial auto lines of business. The estimated average percentage price change for workers' compensation was a decrease in the mid-single-digit range.

Our commercial lines segment's increase in agency renewal written premiums for the first three months of 2024 also included changes in the level of insured exposures. Part of the insured exposure increase reflects our response to inflation effects that increase the cost of building materials to repair damaged commercial structures. We use building valuation software to automate much of that underwriting process and may also manually adjust premiums to reflect property costs.

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 first three months of 2024 contributed $29 million to net written premiums, compared with $35 million for the same period of 2023.

New business written premiums for commercial lines increased $48 million during the first three months of 2024, compared with the same period of 2023, as we continued to carefully underwrite each policy in a highly competitive market. 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 reduced net written premiums by less than $1 million for the first three months of 2024, compared with the same period of 2023.

Commercial Lines Insurance Premiums

•Combined ratio – The first-quarter 2024 commercial lines combined ratio improved by 3.9 percentage points, compared with the first quarter of 2023, including a decrease of 4.2 points in losses from catastrophes. The first-quarter combined ratio also decreased 0.9 points from current accident year loss and loss expenses before catastrophe losses, including an increase of 1.7 points for the IBNR portion and a decrease of 2.6 points for the case incurred portion. Underwriting results also included a higher level of favorable reserve development on prior accident years, as discussed below. The current accident year ratios were measured as of March 31 of the respective years and included a decrease of 2.9 percentage points for the first three months of 2024 in the ratio for large losses of $2 million or more per claim, discussed below.

When estimating the ultimate cost of total loss and loss expenses, we consider many factors, including trends for inflation, historical paid and reported losses, large loss activity and other data or information for the industry or our company. Elevated inflation in recent years has been a driver of higher losses and loss expenses as costs have increased significantly to repair damaged business property or autos that we insure, in addition to higher losses for liability coverages for some of our lines of business. Due to increased uncertainty regarding ultimate losses, we intend to remain prudent in reserving for estimated ultimate losses until longer-term loss cost trends become more clear.

Catastrophe losses and loss expenses accounted for 6.2 percentage points of the combined ratio for the first three months of 2024, compared with 10.4 percentage points for the same period a year ago. Through 2023, the 10-year annual average for that catastrophe measure for the commercial lines segment was 5.9 percentage points, and the five-year annual average was 6.5 percentage points.

The net effect of reserve development on prior accident years during the first three months of 2024 was favorable for commercial lines overall by $38 million, compared with $32 million for the same period in 2023. For the first three months of 2024, our commercial property and workers' compensation lines of business were the main contributors to the commercial lines net favorable reserve development on prior accident years. The net favorable reserve development recognized during the first three months of 2024 for our commercial lines insurance segment was mainly for accident years 2023 and 2022 and was primarily due to lower-than-anticipated loss emergence on known claims. Reserve estimates are inherently uncertain as described in our 2023 Annual Report on Form 10-K, Item 7, Critical Accounting Estimates, Property Casualty Insurance Loss and Loss Expense Reserves, Page 53.

The commercial lines underwriting expense ratio increased for the first three months of 2024, compared with the same period a year ago. The increase was largely due to an increase in profit-sharing commissions for agencies. The ratios also included ongoing expense management efforts and higher earned premiums.

Commercial Lines Insurance Losses Incurred by Size

We continue to monitor new losses and case reserve increases greater than $2 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 first-quarter 2024 commercial lines total large losses incurred of $23 million, net of reinsurance, was lower than the quarterly average of $74 million during full-year 2023 and the $45 million of total large losses incurred for the first quarter of 2023. The decrease in commercial lines large losses for the first three months of 2024 was primarily due to our commercial property line of business. The first-quarter 2024 ratio for commercial lines total large losses was 2.1 percentage points lower than last year's first-quarter ratio. We believe results for the three-month period largely reflected normal fluctuations in loss patterns and normal variability in large case reserves for claims above $2 million.

PERSONAL LINES INSURANCE RESULTS

Performance highlights for the personal lines segment include:

•Premiums – Personal lines earned premiums and net written premiums continued to grow during the first three months of 2024, including increased agency new business and renewal written premiums that included higher average pricing. Cincinnati Private Client SM net written premiums included in the personal lines insurance segment results totaled approximately $330 million for the first three months of 2024, compared with $233 million for the same period of 2023. Cincinnati Private Client net written premiums for the respective periods included excess and surplus lines homeowner policies with premiums totaling $34 million in first three months of 2024 and $19 million for the first three months of 2023. The table below analyzes the primary components of premiums.

Agency renewal written premiums increased 27% for the first three months of 2024, reflecting rate increases in selected states, a higher level of insured exposures and other factors such as higher policy retention rates and changes in policy deductibles or mix of business. Part of the insured exposure increase reflects our response to inflation effects that increase the cost of building materials used to repair damaged homes.

We estimate that premium rates for our personal auto line of business increased at average percentages in the low-double-digit range during the first three months of 2024. For our homeowner line of business, we estimate that premium rates for the first three months of 2024 increased at average percentages in the high-single-digit 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.

Personal lines new business written premiums increased $43 million or 54% for the first three months of 2024, compared with the same period of 2023, including approximately $15 million from Cincinnati Private Client policies and $28 million from middle-market policies. We believe we maintained underwriting and pricing discipline across all personal lines markets as we expanded use of enhanced pricing precision tools.

Other written premiums include premiums ceded to reinsurers as part of our reinsurance ceded program. For our personal lines insurance segment, an increase in 2024 ceded premiums reduced net written premiums by approximately $2 million for the first three months of 2024, compared with the same period of 2023.

Personal Lines Insurance Premiums

•Combined ratio – Our personal lines combined ratio for the first quarter of 2024 improved by 18.6 percentage points, compared with first-quarter 2023, including a decrease of 15.9 points in losses from catastrophes. The first-quarter 2024 combined ratio also included a decrease of 2.2 percentage points from current accident year loss and loss expenses before catastrophe losses, including an increase of 2.2 points for the IBNR portion and a decrease of 4.4 points for the case incurred portion. Those current accident year ratios were measured as of March 31 of the respective years and included a decrease of 0.1 percentage points for the first three months of 2024, in the ratio for large losses of $2 million or more per claim, discussed below.

When estimating the ultimate cost of total loss and loss expenses, we consider many factors, including trends in inflation, historical paid and reported losses, large loss activity and other data or information for the industry or our company. Elevated inflation in recent years has been a driver of higher losses and loss expenses as costs have increased significantly to repair damaged autos or homes that we insure. Due to increased uncertainty regarding ultimate losses, we intend to remain prudent in reserving for estimated ultimate losses until longer-term loss cost trends become more clear.

Catastrophe losses and loss expenses accounted for 8.8 percentage points of the combined ratio for the first three months of 2024, compared with 24.7 points for the same period a year ago. The 10-year annual average catastrophe loss ratio for the personal lines segment through 2023 was 11.4 percentage points, and the five-year annual average was 13.2 percentage points.

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 during the first three months of 2024 was favorable for personal lines overall by $33 million, compared with $31 million of favorable development for the same period of 2023. Our homeowner line of business was the primary contributor to the personal lines net favorable reserve development for the first three months of 2024. 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 2023 Annual Report on Form 10-K, Item 7, Critical Accounting Estimates, Property Casualty Insurance Loss and Loss Expense Reserves, Page 53.

The personal lines underwriting expense ratio increased for the first three months of 2024, compared with the same period a year ago. The increase was primarily due to an increase in profit-sharing commissions for agencies. The ratios also included ongoing expense management efforts and higher earned premiums.

Personal Lines Insurance Losses Incurred by Size

We continue to monitor new losses and case reserve increases greater than $2 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. In the first quarter of 2024, the personal lines total large loss ratio, net of reinsurance, was 0.3 percentage points higher than last year's first quarter. The increase in personal lines total large losses incurred for the first three months of 2024 occurred primarily for our homeowner line of business. We believe results for the three-month period largely reflected normal fluctuations in loss patterns and normal variability in large case reserves for claims above $2 million.

EXCESS AND SURPLUS LINES INSURANCE RESULTS

Performance highlights for the excess and surplus lines segment include:

•Premiums – Excess and surplus lines earned premiums and net written premiums continued to grow during the first quarter of 2024, compared with the same period a year ago, including increases in both agency renewal and new business written premiums. For the first three months of 2024, excess and surplus lines policy renewals experienced estimated average price increases at percentages in the high-single-digit range. 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.

New business written premiums produced by agencies increased by 11% for the first three months of 2024 compared with the same period of 2023, as we continued to carefully underwrite each policy in a highly competitive 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

•Combined ratio – The excess and surplus lines combined ratio increased by 2.0 percentage points for the first quarter of 2024, compared with the same period of 2023, with the change primarily due to lower favorable reserve development on prior accident year loss and loss expenses.

The first-quarter 2024 ratio for current accident year loss and loss expenses before catastrophe losses was 3.5 percentage points lower, compared with the 69.2% accident year 2023 ratio measured as of March 31, 2023.

Excess and surplus lines net reserve development on prior accident years, as a ratio to earned premiums, was a favorable 2.1% for the first three months of 2024, compared with favorable 6.5% for the same period of 2023. The $3 million of net favorable reserve development recognized during the first three months of 2024 was mostly for accident year 2023 and was primarily due to lower-than-anticipated loss emergence on known claims. Reserve estimates are inherently uncertain as described in our 2023 Annual Report on Form 10-K, Item 7, Critical Accounting Estimates, Property Casualty Insurance Loss and Loss Expense Reserves, Page 53.

The excess and surplus lines underwriting expense ratio increased for the first three months of 2024, largely due to an increase in profit-sharing commissions for agencies, compared with the same period of 2023. The ratio for both periods also benefited from ongoing expense management efforts and premium growth.

Excess and Surplus Lines Insurance Losses Incurred by Size

We continue to monitor new losses and case reserve increases greater than $2 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. In the first quarter of 2024, the excess and surplus lines total ratio for large losses, net of reinsurance, was 0.3 percentage points higher than last year's first quarter. We believe results for the three-month period largely reflected normal fluctuations in loss patterns and normal variability in large case reserves for claims above $2 million.

LIFE INSURANCE RESULTS

Performance highlights for the life insurance segment include:

•Revenues – Revenues increased for the three months ended March 31, 2024, compared with the same period a year ago, driven by higher earned premiums from term life insurance, our largest life insurance product line.

Net in-force life insurance policy face amounts increased less than 1% to $82.670 billion at March 31, 2024, from $82.361 billion at year-end 2023.

Fixed annuity deposits received for the three months ended March 31, 2024, were $9 million, compared with $10 million for the same period of 2023. 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

•Profitability – Our life insurance segment typically reports a smaller profit compared with the life insurance subsidiary because profits from investment income spreads are included in our investments 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 $10 million for our life insurance segment in the first three months of 2024, compared with a profit of $8 million for the same period of 2023, was primarily due to more favorable impacts from the unlocking of interest rate actuarial assumptions.

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 decreased in the first three months of 2024 primarily due to more favorable impacts from the unlocking of interest rate actuarial assumptions. Life policy and investment contract reserves decreased due to an increase in market value discount rates. Mortality results improved compared with the same period of 2023.

Underwriting expenses for the first three months of 2024 increased compared with the same period a year ago, largely due to higher general insurance expense levels compared to the same period of 2023.

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 subsidiary reported net income of $19 million for the three months ended March 31, 2024, and March 31, 2023. The life insurance subsidiary portfolio had net after-tax investment losses of $2 million for the three months ended March 31, 2024, compared with net after-tax investment gains of $1 million for the three months ended March 31, 2023.

INVESTMENTS RESULTS

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.

Investment Income

Pretax investment income grew 17% for the first quarter of 2024, compared with the same period of 2023. Interest income increased by $29 million for the first quarter, as net purchases of fixed-maturity securities in recent quarters and higher bond yields are working to generally offset effects of the low interest rate environment of the past several years. Although dividend rates generally are increasing more slowly, minor asset allocation adjustments in our equity portfolio and net purchases of equity securities in recent quarters helped dividend income to grow by $6 million for the three months ended March 31, 2024.

Investments Results

We continue to consider the low interest rate environment that prevailed in recent years as well as the potential for a continuation of both elevated inflation and higher bond yields as we position our portfolio. As bonds in our generally laddered portfolio mature or are called over the near term, we will reinvest with a balanced approach, keeping in mind our long-term strategy and pursuing attractive risk-adjusted after-tax yields. 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.

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 first three months of 2024 was higher than the 4.60% average yield-to-amortized cost of the fixed-maturity securities portfolio at the end of 2023. Our fixed-maturity portfolio's average yield of 4.65% for the first three months of 2024, from the investment income table below, was also higher than the 4.60% yield for the year-end 2023 fixed-maturities portfolio.

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 2023 Annual Report on Form 10-K, Item 1, Investments Segment, Page 21, and Item 7, Investments Outlook, Page 91. 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.

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.

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 for the fixed-maturity portfolio are disclosed in our 2023 Annual Report on Form 10-K, Item 8, Note 1, Summary of Significant Accounting Policies, Page 128.

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

Of the 4,804 fixed-maturity securities in the portfolio, 12 securities were trading below 70% of amortized cost at March 31, 2024. Our asset impairment committee regularly monitors the portfolio, including a quarterly review of the entire portfolio for potential credit losses. 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.

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 and Cincinnati Global, including earned premiums, loss and loss expenses and underwriting expenses in the table below.

Total revenues for the first three months of 2024 for our Other operations decreased, compared with the same period of 2023, primarily due to earned premiums from Cincinnati Re and Cincinnati Global, with a decrease of $15 million and an increase of $4 million, respectively. Cincinnati Re had $135 million of earned premiums for the first three months of 2024 and generated an underwriting profit of $29 million. Cincinnati Global had $48 million of earned premiums for the first three months of 2024 and generated an underwriting profit of $14 million. Total expenses for Other decreased for the first three months of 2024, primarily due to lower loss and loss expenses from Cincinnati Re and Cincinnati Global.

Other income in the table below represents profit before income taxes. For all periods shown, total other income was driven by underwriting profit from Cincinnati Re and Cincinnati Global.

TAXES

We had $198 million of income tax expense for the three months ended March 31, 2024, compared with $43 million for the same period of 2023. The effective tax rate for the three months ended March 31, 2024, was 20.8% compared with 16.0% for the same period last year. The change in our effective tax rate between periods was primarily due to large changes in our net investment gains and losses included in income for the periods and changes in underwriting income and investment 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 tax years after 2017, 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. 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.