Item 8. Financial Statements and Supplementary Data

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Item 8. Financial Statements and Supplementary Data

Responsibility for Financial Statements

We have prepared the consolidated financial statements of Cincinnati Financial Corporation and our subsidiaries for the year ended December 31, 2020, in accordance with accounting principles generally accepted in the United States of America (GAAP).

We are responsible for the integrity and objectivity of these financial statements. The amounts, presented on an accrual basis, reflect our best estimates and judgment. These statements are consistent in all material aspects with other financial information in the Annual Report on Form 10-K. Our accounting system and related internal controls are designed to assure that our books and records accurately reflect the company’s transactions in accordance with established policies and procedures as implemented by qualified personnel.

Our board of directors has established an audit committee of independent outside directors. We believe these directors are free from any relationships that could interfere with their independent judgment as audit committee members.

The audit committee meets periodically with management, our independent registered public accounting firm and our internal auditors to discuss how each is handling its respective responsibilities. The audit committee reports its findings to the board of directors. The audit committee recommends to the board the annual appointment of the independent registered public accounting firm. The audit committee reviews with this firm the scope of the audit assignment and the adequacy of internal controls and procedures.

Deloitte & Touche LLP, our independent registered public accounting firm, audited the consolidated financial statements of Cincinnati Financial Corporation and subsidiaries for the year ended December 31, 2020. Deloitte & Touche LLP met with our audit committee to discuss the results of its audit. They have the opportunity to discuss the adequacy of internal controls and the quality of financial reporting without management present.

Cincinnati Financial Corporation - 2020 10-K - Page 124

Management’s Annual Report on Internal Control Over Financial Reporting

The management of Cincinnati Financial Corporation and its subsidiaries is responsible for establishing and maintaining adequate internal controls, designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America (GAAP). The company’s internal control over financial reporting includes those policies and procedures that:

Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;
Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP and that receipts and expenditures of the company are being made only in accordance with authorizations of management and the directors of the company; and
Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements.

All internal control systems, no matter how well designed, have inherent limitations, including the possibility of human error and the circumvention of overriding controls. Accordingly, even effective internal control can provide only reasonable assurance with respect to financial statement preparation and presentation. Further, because of changes in conditions, the effectiveness of internal control may vary over time.

The company’s management assessed the effectiveness of the company’s internal control over financial reporting as of December 31, 2020, as required by Section 404 of the Sarbanes Oxley Act of 2002. Management’s assessment was based on the criteria established in the Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and was designed to provide reasonable assurance that the company maintained effective internal control over financial reporting as of December 31, 2020. The assessment led management to conclude that, as of December 31, 2020, the company’s internal control over financial reporting was effective based on those criteria.

The company’s independent registered public accounting firm has issued an audit report on our internal control over financial reporting as of December 31, 2020.

/S/ Steven J. Johnston

Steven J. Johnston, FCAS, MAAA, CFA, CERA

Chairman, President and Chief Executive Officer

/S/ Michael J. Sewell

Michael J. Sewell, CPA

Chief Financial Officer, Senior Vice President and Treasurer

(Principal Accounting Officer)

February 25, 2021

Cincinnati Financial Corporation - 2020 10-K - Page 125

Report of Independent Registered Public Accounting Firm

To the Shareholders and Board of Directors of Cincinnati Financial Corporation

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of Cincinnati Financial Corporation and subsidiaries (the “Company”) as of December 31, 2020 and 2019, the related consolidated statements of income, comprehensive income, shareholders' equity, and cash flows for each of the three years in the period ended December 31, 2020, and the related notes and the schedules listed in the Index at Item 15(c) (collectively referred to as the “financial statements”). We also have audited the Company’s internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by COSO.

Basis for Opinions

The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on these financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures to respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

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Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Property and Casualty Insurance Loss and Loss Expense Reserves - Refer to Note 4 to the financial statements*.*

Critical Audit Matter Description

The Company’s property and casualty insurance loss and loss expense reserves for long-tailed lines of business, such as workers’ compensation, commercial casualty and certain other liability lines (referred to as “loss and loss expense reserves”), are determined by the Company using actuarial methods, models, assumptions, and judgment to estimate the reserves ("actuarial estimates") required to pay for and settle all outstanding insured claims, including incurred but not reported (IBNR) claims, as of the financial statement date. The actuarial estimates of loss and loss expense reserves are subject to review and adjustment by Company management.

Loss and loss expense reserves are inherently uncertain as to timing and amount and the recorded loss and loss expense reserves may vary materially from the actual ultimate cost of claims. Given the subjectivity in estimating ultimate loss and loss expense reserves, due to uncertainties concerning the future emergence of loss and loss expenses, inflation trends, and the judicial environment, among other factors, auditing loss and loss expense reserves involved an especially high degree of auditor judgment, including the need to involve our actuarial specialists.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to loss and loss expense reserves included the following, among others:

We tested the effectiveness of controls related to loss and loss expense reserves, including those over the review of methods, models, assumptions and judgments used, and management’s review of the estimate.
We tested the underlying data that served as the basis for the actuarial analysis, including historical claims data, to test the reasonableness of key inputs to the actuarial estimate.
With the assistance of our actuarial specialists, we used the Company’s claims data and other inputs, to develop a range of independent estimates for the loss and loss expense reserves. We used these independent estimates to assess the reasonableness of the Company’s reserves by comparing our estimates to the Company’s recorded loss and loss expense reserves.
We compared the Company’s prior year estimates of expected incurred losses to actual experience during the current year to identify potential bias in the determination of loss and loss expense reserves.

/S/ DELOITTE & TOUCHE LLP

Cincinnati, Ohio

February 25, 2021

We have served as the Company’s auditor since 1980.

Cincinnati Financial Corporation - 2020 10-K - Page 127

Cincinnati Financial Corporation and Subsidiaries

Consolidated Balance Sheets


(Dollars in millions, except per share data)	December 31,		December 31,
	2020		2019
Assets
Investments
Fixed maturities, at fair value (amortized cost: 2020—$11,312; 2019—$11,108)	$	12,338	$	11,698
Equity securities, at fair value (cost: 2020—$3,927; 2019—$3,581)	8,856		7,752
Other invested assets	348		296
Total investments	21,542		19,746
Cash and cash equivalents	900		767
Investment income receivable	136		133
Finance receivable	95		77
Premiums receivable	1,879		1,777
Reinsurance recoverable	517		610
Prepaid reinsurance premiums	65		54
Deferred policy acquisition costs	805		774
Land, building and equipment, net, for company use (accumulated depreciation: 2020—$285; 2019—$276)	213		207
Other assets	438		381
Separate accounts	952		882
Total assets	$	27,542	$	25,408

Liabilities
Insurance reserves
Loss and loss expense reserves	$	6,746	$	6,147
Life policy and investment contract reserves	2,915		2,835
Unearned premiums	2,960		2,788
Other liabilities	982		928
Deferred income tax	1,299		1,079
Note payable	54		39
Long-term debt and lease obligations	845		846
Separate accounts	952		882
Total liabilities	16,753		15,544

Commitments and contingent liabilities (Note 16)	—		—

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
Paid-in capital	1,328		1,306
Retained earnings	10,085		9,257
Accumulated other comprehensive income	769		448
Treasury stock, at cost (2020—37.4 million shares and 2019—35.4 million shares)	(1,790)		(1,544)
Total shareholders' equity	10,789		9,864
Total liabilities and shareholders' equity	$	27,542	$	25,408

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

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Cincinnati Financial Corporation and Subsidiaries

Consolidated Statements of Income


(Dollars in millions, except per share data)	Years ended December 31,
	2020		2019		2018
Revenues
Earned premiums	$	5,980	$	5,604	$	5,170
Investment income, net of expenses	670		646		619
Investment gains and losses, net	865		1,650		(402)
Fee revenues	11		15		15
Other revenues	10		9		5
Total revenues	7,536		7,924		5,407
Benefits and Expenses
Insurance losses and contract holders' benefits	4,134		3,638		3,490
Underwriting, acquisition and insurance expenses	1,829		1,738		1,597
Interest expense	54		53		53
Other operating expenses	20		23		16
Total benefits and expenses	6,037		5,452		5,156
Income Before Income Taxes	1,499		2,472		251
Provision (Benefit) for Income Taxes
Current	147		132		11
Deferred	136		343		(47)
Total provision (benefit) for income taxes	283		475		(36)
Net Income	$	1,216	$	1,997	$	287
Per Common Share
Net income—basic	$	7.55	$	12.24	$	1.76
Net income—diluted	7.49		12.10		1.75

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

Cincinnati Financial Corporation - 2020 10-K - Page 129

Cincinnati Financial Corporation and Subsidiaries

Consolidated Statements of Comprehensive Income


(Dollars in millions)	Years ended December 31,
	2020		2019		2018
Net Income	$	1,216	$	1,997	$	287
Other Comprehensive Income (Loss)
Change in unrealized gains and losses on investments, net of tax (benefit) of $92, $114 and $(72), respectively	344		430		(267)
Amortization of pension actuarial gains and losses and prior service cost, net of tax (benefit) of $(7), $2 and $(1), respectively	(25)		5		(3)
Change in life deferred acquisition costs, life policy reserves and other, net of tax (benefit) of $1, $(3) and $2, respectively	2		(9)		7

Other comprehensive income (loss)	321		426		(263)
Comprehensive Income	$	1,537	$	2,423	$	24

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

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Cincinnati Financial Corporation and Subsidiaries

Consolidated Statements of Shareholders’ Equity


(Dollars in millions)	Years ended December 31,
	2020		2019		2018
Common Stock
Beginning of year	$	397	$	397	$	397
Share-based awards	—		—		—
End of year	397		397		397

Paid-In Capital
Beginning of year	1,306		1,281		1,265
Share-based awards	(15)		(12)		(17)
Share-based compensation	31		30		28
Other	6		7		5
End of year	1,328		1,306		1,281

Retained Earnings
Beginning of year	9,257		7,625		5,180
Cumulative effect of change in accounting for credit losses as of January 1, 2020	(2)		—		—
Cumulative effect of change in accounting for equity securities as of January 1, 2018	—		—		2,503
Adjusted beginning of year	9,255		7,625		7,683
Net income	1,216		1,997		287
Dividends declared	(386)		(365)		(345)

End of year	10,085		9,257		7,625

Accumulated Other Comprehensive Income
Beginning of year	448		22		2,788
Cumulative effect of change in accounting for equity securities as of January 1, 2018	—		—		(2,503)
Adjusted beginning of year	448		22		285
Other comprehensive income (loss)	321		426		(263)

End of year	769		448		22

Treasury Stock
Beginning of year	(1,544)		(1,492)		(1,387)
Share-based awards	15		21		21
Shares acquired - share repurchase authorization	(261)		(67)		(125)
Shares acquired - share-based compensation plans	(5)		(9)		(5)
Other	5		3		4
End of year	(1,790)		(1,544)		(1,492)

Total Shareholders' Equity	$	10,789	$	9,864	$	7,833

(In millions)
Common Stock - Shares Outstanding
Beginning of year	162.9		162.8		163.9
Share-based awards	0.5		0.7		0.7
Shares acquired - share repurchase authorization	(2.5)		(0.6)		(1.8)
Shares acquired - share-based compensation plans	(0.1)		(0.1)		—
Other	0.1		0.1		—
End of year	160.9		162.9		162.8

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

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Cincinnati Financial Corporation and Subsidiaries

Consolidated Statements of Cash Flows


(Dollars in millions)	Years ended December 31,
	2020		2019		2018
Cash Flows From Operating Activities
Net income	$	1,216	$	1,997	$	287
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	81		72		63
Investment gains and losses, net	(851)		(1,640)		408
Share-based compensation	31		30		28
Interest credited to contract holders	43		44		47
Deferred income tax expense	136		343		(47)
Changes in:
Investment income receivable	(3)		(1)		2
Premiums and reinsurance receivable	(23)		(174)		(109)
Deferred policy acquisition costs	(39)		(61)		(48)
Other assets	(26)		(22)		(1)
Loss and loss expense reserves	599		163		434
Life policy and investment contract reserves	116		107		96
Unearned premiums	172		184		112
Other liabilities	(5)		74		—
Current income tax receivable/payable	44		92		(91)
Net cash provided by operating activities	1,491		1,208		1,181
Cash Flows From Investing Activities
Sale of fixed maturities	179		102		36
Call or maturity of fixed maturities	912		1,241		1,127
Sale of equity securities	515		203		403
Purchase of fixed maturities	(1,382)		(1,742)		(1,510)
Purchase of equity securities	(699)		(382)		(441)


Investment in finance receivables	(50)		(34)		(33)
Collection of finance receivables	35		29		25
Investment in buildings and equipment	(20)		(24)		(20)
Change in other invested assets, net	(50)		(72)		(38)
Net cash used in investing activities	(560)		(679)		(451)
Cash Flows From Financing Activities
Payment of cash dividends to shareholders	(375)		(355)		(336)
Shares acquired - share repurchase authorization	(261)		(67)		(125)
Changes in note payable	15		7		8
Proceeds from stock options exercised	7		11		9
Contract holders' funds deposited	85		86		84
Contract holders' funds withdrawn	(159)		(174)		(183)

Other	(110)		(54)		(60)
Net cash used in financing activities	(798)		(546)		(603)
Net change in cash and cash equivalents	133		(17)		127
Cash and cash equivalents at beginning of year	767		784		657
Cash and cash equivalents at end of year	$	900	$	767	$	784
Supplemental Disclosures of Cash Flow Information
Interest paid	$	53	$	53	$	53
Income taxes paid	84		34		98
Noncash Activities

Equipment acquired under finance lease obligations	$	19	$	14	$	21
Share-based compensation	19		9		5
Other assets and other liabilities	57		29		48

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

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Notes to Consolidated Financial Statements

NOTE 1 – Summary of Significant Accounting Policies

Nature of Operations

Cincinnati Financial Corporation (CFC) operates through The Cincinnati Insurance Company and Cincinnati Global Underwriting Ltd.SM (Cincinnati Global) insurance subsidiaries and two complementary subsidiary companies. Cincinnati Global, our London-based global specialty underwriter, was acquired effective February 28, 2019.

The Cincinnati Insurance Company leads our insurance group that also includes two subsidiaries: The Cincinnati Casualty Company and The Cincinnati Indemnity Company. This group markets a broad range of standard market commercial and personal policies. The group focuses on delivery of quality customer service to our select group of 1,848 independent insurance agencies with 2,578 reporting locations across 45 states. Other subsidiaries of The Cincinnati Insurance Company include: The Cincinnati Life Insurance Company, which markets life insurance and fixed annuities; and The Cincinnati Specialty Underwriters Insurance Company, which offers excess and surplus lines property casualty insurance products. The Cincinnati Insurance Company also conducts the business of our reinsurance assumed operations, Cincinnati Re®.

The two CFC complementary subsidiaries are CSU Producer Resources Inc., which provides insurance brokerage services to our independent agencies so their clients can access our excess and surplus lines insurance products, and CFC Investment Company, which offers commercial leasing and financing services to our agents, their clients and other customers.

The World Health Organization declared 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 caused an economic downturn on a global scale and although many businesses have resumed operations at some capacity, there is still uncertainty surrounding future government and private company restrictions. The pandemic, and unprecedented actions taken to contain the virus, has also continued to cause market disruption and volatility. For 2020, the company estimated that pandemic-related incurred losses and expenses totaled $85 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 condition, results of operations and cash flows, however the impact could be material.

Basis of Presentation

Our consolidated financial statements include the accounts of the parent and its wholly owned subsidiaries and are presented in conformity with accounting principles generally accepted in the United States of America (GAAP). The 2019 consolidated financial statements include Cincinnati Global's results for the period from February 28, 2019, through December 31, 2019. Foreign exchange rates related to Cincinnati Global's operations did not have a material impact to our consolidated financial statements. All intercompany balances and transactions have been eliminated in consolidation.

The preparation of the consolidated financial statements in conformity with GAAP requires us to make estimates and assumptions that affect amounts reported in the consolidated financial statements and accompanying notes. Our actual results could differ from those estimates.

Investments

Our portfolio investments are primarily in publicly traded fixed-maturity and equity security investments. Fixed-maturity investments (taxable bonds, tax-exempt bonds, redeemable preferred equities and commercial mortgage- backed securities) classified as available for sale and equity investments (common and nonredeemable preferred equities) are recorded at fair value in the consolidated financial statements. Changes in fair value of fixed-maturity securities are reported in other comprehensive income while equity securities are reported in net income. The number of fixed-maturity securities with fair values below 100% of amortized cost can be expected to fluctuate as interest rates rise or fall. Because of our strong capital and long-term investment horizon, our general intent is to hold fixed-maturity investments until maturity, regardless of short-term fluctuations in fair values.

An available for sale fixed maturity is impaired if the fair value of the security is below amortized cost. The impaired loss is charged to net income when we have the intent to sell the security or it is more likely than not we will be

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required to sell the security before recovery of the amortized cost. For impaired securities we intend to hold, an allowance for credit related losses is recorded in investment losses when the company determines a credit loss has been incurred based on certain factors such as adverse conditions, credit rating downgrades or failure of the issuer to make scheduled principal or interest payments. A credit loss is determined using a discounted cash flow analysis by comparing the present value of expected cash flows with the amortized cost basis, limited to the difference between fair value and amortized cost. Noncredit losses are recognized in other comprehensive income as a change in unrealized gains and losses on investments. As securities are sold, we recognize the gain or loss in income based on the trade date.

Included within our other invested assets were $162 million and $164 million held on deposit at Lloyd's, $128 million and $71 million of private equity investments, $33 million and $32 million of life policy loans and $25 million and $29 million of real estate through direct property ownership and development projects in the United States at December 31, 2020 and 2019, respectively. Lloyd's deposits primarily consist of highly liquid short-term investment instruments. The private equity investments provide their financial statements to us and generally report investments on their balance sheets at fair value. We use the equity method of accounting for private equity and real estate development investments. Life policy loans are carried at the receivable value.

Investment income, net of expenses, consists mainly of interest and dividends. We record interest on an accrual basis and record dividends at the ex-dividend date. We amortize premiums and discounts on fixed-maturity securities using the effective interest method over the expected life of the security.

Fair Value Disclosures

Fair value is defined as the exit price or the amount that would be (1) received to sell an asset or (2) paid to transfer a liability in an orderly transaction between marketplace participants at the measurement date. When determining an exit price, we rely upon observable market data whenever possible. We primarily base fair value for investments in equity and fixed-maturity securities (including redeemable preferred stock and assets held in separate accounts) on quoted market prices or on prices from the company’s nationally recognized pricing vendors, outside resources that supply global securities pricing, dividend, corporate action and descriptive information to support fund pricing, securities operations, research and portfolio management. The company obtains and reviews the pricing services' valuation methodologies and related inputs and validates these prices by replicating a sample across each asset class using a discounted cash flow model. When a price is not available from these sources, as in the case of securities that are not publicly traded, we determine the fair value using various inputs including quotes from independent brokers. The fair value of investments not priced by the company’s nationally recognized pricing vendors is immaterial.

For the purpose of Accounting Standards Codification (ASC) 825, Financial Instruments disclosure, we estimate the fair value of our long-term senior notes on market pricing of similar debt instruments that are actively trading. We estimate the fair value of our note payable on the year-end outstanding balance because it is short term and tied to a variable interest rate. We estimate the fair value of liabilities for investment contracts and annuities using discounted cash flow calculations across a wide range of economic interest rate scenarios with a provision for our nonperformance risk. We estimate the fair value for policyholder loans on insurance contracts using a discounted cash flow model. Determination of fair value for structured settlements assumes the discount rates used to calculate the present value of expected payments are the risk-free spot rates plus an A3 rated bond spread for financial issuers at December 31, 2020, to account for nonperformance risk. See Note 3, Fair Value Measurements, for further details.

Cash and Cash Equivalents

Cash and cash equivalents are highly liquid instruments that include liquid debt instruments with original maturities of less than three months. These are carried at cost, which approximates fair value.

Property Casualty Insurance

The consolidated property casualty companies actively write property casualty insurance through independent agencies in 45 states. Our 10 largest states generated 53.3% and 54.8% of total earned premiums in 2020 and 2019, respectively. Ohio, our largest state, accounted for 14.8% and 15.1% of total earned premiums in 2020 and 2019, respectively. Illinois, Georgia, North Carolina, Pennsylvania and Indiana each accounted for between 4% and 6% of total earned premiums in 2020. Our largest single agency relationship accounted for approximately 1.3% of our total property casualty earned premiums in 2020. No aggregate agency relationship locations under a single

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ownership structure accounted for more than 4% of our total property casualty earned premiums in 2020. We record revenues for installment charges as fee revenues in the consolidated statements of income.

Property casualty written premiums are deferred and recorded as earned premiums primarily on a pro rata basis over the terms of the policies. We record as unearned premiums the portion of written premiums that applies to unexpired policy terms. Expenses associated with successfully acquiring insurance policies – commissions, premium taxes and underwriting costs – are deferred and amortized over the terms of the policies. We assess recoverability of deferred acquisition costs at a level consistent with the way we acquire, service and manage insurance policies and measure profitability. We analyze our acquisition cost assumptions to reflect actual experience, and we evaluate potential premium deficiencies.

Certain property casualty policies are not entered into policy underwriting systems as of the effective date of coverage. An estimate is recorded for these unprocessed written premiums. A large majority of the estimate is unearned and has no material impact on earned premiums.

An allowance for credit losses on uncollectible property casualty premiums is updated and reviewed on a quarterly basis. At January 1, 2020, the allowance was $9 million. At December 31, 2020, the allowance increased to $19 million, of which a significant portion was due to consideration of pandemic-related factors. Other changes in the amount during 2020 were immaterial.

We establish reserves to cover the expected cost of claims, losses and expenses related to investigating, processing and resolving claims. Although the appropriate amount of reserves is inherently uncertain, we base our decisions on past experience and current facts. Reserves are based on claims reported prior to the end of the year and estimates of incurred but not reported (IBNR) claims. We regularly review and update reserves using the most current information available. Any resulting adjustments are reflected in current calendar year insurance losses and policyholder benefits. We estimate that we may recover some of our costs through salvage and subrogation.

Policyholder Dividends

Certain workers’ compensation policies include the possibility of a policyholder earning a return of a portion of premium in the form of a policyholder dividend. The dividend generally is calculated by determining the profitability of a policy year along with the associated premium. We reserve for all probable future policyholder dividend payments. We record policyholder dividends as other underwriting expenses.

Life Insurance

We offer several types of life insurance and we account for each according to the duration of the contract. Short-duration life and health contracts are written to cover claims that arise during a short, fixed term of coverage. We generally have the right to change the amount of premium charged or cancel the coverage at the end of each contract term. We record premiums for short-duration life and health contracts similarly to property casualty contracts.

Long-duration contracts are written to provide coverage for an extended period of time. Traditional long-duration contracts require policyholders to pay scheduled gross premiums, generally not less frequently than annually, over the term of the coverage. Premiums for these contracts, such as whole life insurance are recognized as revenue when due. Some traditional long-duration contracts, such as ten-pay whole life insurance, have premium payment periods shorter than the period over which coverage is provided. For these contracts, the excess of premium over the amount required to pay expenses and benefits is recognized over the term of the coverage rather than over the premium payment period.

We establish a liability for traditional long-duration contracts as we receive premiums. The amount of this liability is the present value of future expenses and benefits less the present value of future net premiums. Net premium is the portion of gross premium required to provide for all expenses and benefits. We estimate future expenses and benefits and net premium using assumptions for expected expenses, mortality, morbidity, withdrawal rates and investment income. We include a provision for deviation, meaning we allow for some uncertainty in making our assumptions. We establish our assumptions when the contract is issued, and we generally maintain those assumptions for the life of the contract. 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. We use our own experience and historical trends for setting our assumption for expected expenses. We base our assumption for expected investment income on our own experience, adjusted for current and future economic conditions.

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We capitalize acquisition costs for traditional long-duration contracts. We charge these capitalized costs associated with successfully acquiring traditional long-duration contract insurance policies in proportion to premium revenue recognized. We use the same assumptions used in establishing the liability for the contract. We update our acquisition cost assumptions periodically to reflect actual experience, and we evaluate our deferred acquisition costs for recoverability.

Universal life contracts are long-duration contracts for which contractual provisions are not fixed, unlike whole life insurance. Universal life contracts allow policyholders to vary the amount of premium, within limits, without our consent. However, we may vary the mortality, expense charges and the interest crediting rate, within limits, used to accumulate policy values. We do not record universal life premiums as revenue. Instead we recognize as revenue the mortality charges, administration charges and surrender charges when received. Some of our universal life contracts assess administration charges in the early years of the contract that are compensation for services we will provide in the later years of the contract. These administration charges are deferred and are recognized over the period when we provide those future services. We maintain a policy reserve liability equal to the policyholder account value. There is no provision for adverse deviation. 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.

We capitalize acquisition costs associated with successfully acquiring universal life long-duration contracts. We charge these capitalized costs to expenses over the term of coverage of the contract in accordance with the recognition of gross profit from the contract or notional benefit base. When we charge deferred policy acquisition costs to expenses, we use assumptions based on our best estimates of long-term experience. We review and modify these assumptions on a regular basis.

An allowance for credit losses on uncollectible life insurance premiums is updated and reviewed on a quarterly basis. The allowance, including changes in the amount during 2020, was immaterial to our consolidated financial condition, results of operations and cash flows.

Separate Accounts

We have issued universal life contracts with guaranteed minimum returns, referred to as bank-owned life insurance contracts (BOLIs). A BOLI is designed so the bank is the policy owner and the policy beneficiary. We legally segregate and record as separate accounts the assets and liabilities for some of our BOLIs, based on the specific contract provisions. We guarantee minimum investment returns, account values and death benefits for our separate account BOLIs. Our other BOLIs are general account products.

We carry the assets of separate account BOLIs at fair value. The liabilities on separate account BOLIs primarily are the contract holders’ claims to the related assets and are carried at an amount equal to the contract holders’ account value. At December 31, 2020 and 2019, the current fair value of the BOLI invested assets and cash exceeded the current fair value of the contract holders’ account value by approximately $99 million and $52 million, respectively. If the BOLI projected fair value were to fall below the value we guaranteed, a liability would be established with a corresponding charge to the company’s earnings.

Generally, investment income and investment gains and losses of the separate accounts accrue directly to the contract holder, and we do not include them in the consolidated statements of income. Revenues and expenses related to separate accounts consist of contractual fees and mortality, surrender and expense risk charges. Also, each separate account BOLI includes a negotiated capital gain and loss sharing arrangement between the company and the bank. A percentage of each separate account’s investment gains and losses representing contract fees and assessments accrues to us and is transferred from the separate account to our general account and is recognized as revenue or expense. We record as revenues separate account investment management fees in fee revenues of the consolidated statements of income.

Reinsurance

The Cincinnati Insurance Company offers reinsurance assumed for casualty (predominantly domestic exposure), specialty and property (worldwide exposure). Treaties are written on a pro rata and excess of loss basis. We also continue to assume risk with limited exposure as a reinsurer for involuntary state pools.

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Written premium is recorded, net of contract specific retrocessions, on an ultimate estimate basis and primarily earned on a pro rata basis over the coverage period of the treaty. Expenses are recorded as per contract terms and deferred over the earning period of the premium.

We establish known loss reserves when reported. We establish reserves for losses in excess of reported activity in the form of IBNR. Reserves are established using actuarial analysis, which includes models and methods traditionally used for the types of exposures written. We establish reserves for event specific occurrences using modeling data and company specific data when available.

We enter into other reinsurance transactions to reduce risk and uncertainty by buying property casualty reinsurance and retrocessional reinsurance as well as life reinsurance. Reinsurance and retrocessional reinsurance contracts do not relieve us from our obligation to policyholders, but rather help protect our financial strength to perform that duty. All of these ceded reinsurance contracts transfer the economic risk of loss.

Premiums that we cede are deferred and recorded as earned premiums on a pro rata basis over the terms of the contracts. We estimate loss amounts recoverable from our reinsurers based on the reinsurance policy terms. Historically, our claims with reinsurers have been paid.

An allowance for credit losses on uncollectible reinsurance premiums and recoverable assets is updated and reviewed on a quarterly basis. The allowances, including changes in the amounts during 2020, were immaterial to our consolidated financial condition, results of operations and cash flows.

Income Taxes

We calculate deferred income tax liabilities and assets using tax rates in effect when temporary differences in the consolidated financial statement income and taxable income are expected to reverse. We recognize deferred income taxes for numerous temporary differences between our taxable income and consolidated financial statement income and other changes in shareholders’ equity. Such temporary differences relate primarily to unrealized gains and losses on investments and differences in the recognition of deferred acquisition costs, unearned premiums, insurance reserves and basis differences in the carrying value of investments held. We charge deferred income taxes associated with balances that impact other comprehensive income, such as unrealized gains and losses of fixed-maturity investments, to shareholders’ equity in accumulated other comprehensive income (AOCI). We charge deferred taxes associated with other differences to income.

See Note 11, Income Taxes, for further detail on our uncertain tax positions and other income tax items. Although no Internal Revenue Service (IRS) penalties currently are accrued, if incurred, they would be recognized as a component of income tax expense.

Earnings per Share

Net income per common share is based on the weighted average number of common shares outstanding during each of the respective years. We calculate net income per common share (diluted) assuming the exercise or conversion of share‑based awards using the treasury stock method.

Land, Building and Equipment

We record land at cost, and record building and equipment at cost less accumulated depreciation. Equipment held under finance leases also is classified as property and equipment with the related lease obligations recorded as liabilities. We capitalize and amortize costs for internally developed computer software during the application development stage. These costs generally consist of external consulting, internal payroll and payroll-related costs. Our depreciation is based on estimated useful lives (ranging from three to 39.5 years) using straight-line and accelerated methods. Depreciation expense was $33 million for 2020, $25 million for 2019 and $31 million for 2018. We review our accumulated depreciation for our building, equipment and software assets and write off fully depreciated assets for obsolescence and nonuse. We monitor land, building and equipment and software assets for potential impairments. Indicators of potential impairments may include a significant decrease in the fair values of the assets, considerable cost overruns on projects, a change in legal factors or business climate or other factors that indicate that the carrying amount may not be recoverable or useful. There were no recorded land, building and equipment impairments for 2020, 2019 or 2018.

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Finance Receivables

Our leasing subsidiary provides auto and equipment direct financing (leases and loans) to commercial and individual clients. We generally transfer ownership of the property to the client as the terms of the leases expire. Our lease contracts contain bargain purchase options. We account for these leases and loans as sales-type leases. We capitalize and amortize lease or loan origination costs over the life of the financing, using the effective interest method. These costs may include, but are not limited to finder fees, broker fees, filing fees and the cost of credit reports. We record income as other revenues over the financing term using the effective interest method in the consolidated statements of income. An allowance for credit losses on finance receivables is updated and reviewed on a quarterly basis. The allowance, including changes in the amount during 2020, was immaterial to our consolidated financial condition, results of operations and cash flows.

Employee Benefit Pension Plan

We sponsor a qualified defined benefit pension plan that was modified during 2008. We closed entry into the pension plan, and only participants 40 years of age or older could elect to remain in the plan. Our pension expenses are based on certain actuarial assumptions and also are composed of several components that are determined using the projected unit credit actuarial cost method. Refer to Note 13, Employee Retirement Benefits, for more information about our defined benefit pension plan.

Share-Based Compensation

We grant qualified and nonqualified share-based compensation under authorized plans. The stock options generally vest on a graded scale over three years following the date of grant and are exercisable over 10-year periods. We grant service-based restricted stock units that cliff vest three years after the date of grant as well as service-based restricted stock units that vest ratably over the three-year vesting term. We also grant performance-based restricted stock units that vest if certain market conditions are attained. In 2020, the CFC compensation committee approved share-based awards including incentive stock options, nonqualified stock options, service-based restricted and performance-based restricted stock units. See Note 17, Share-Based Associate Compensation Plans, for further details.

Goodwill and Intangible Assets

We recognize goodwill and intangible assets generated through acquisitions within other assets in the consolidated balance sheets. Goodwill arises when the fair value of consideration transferred exceeds the fair value of the net identifiable assets acquired at the acquisition date. Goodwill and intangible assets with an indefinite life are not amortized. Intangible assets with a definite life are amortized on a straight-line basis over the estimated useful lives as follows: broker relationships, 15 years; internally developed technology, five years; value of business acquired, over the remaining coverage period of the underlying insurance contracts, which expired during 2020. We test for impairments on an annual basis or more frequently if events or circumstances indicate that the asset might be impaired. The company performed its annual impairment test on goodwill and intangibles on September 30, which did not result in the recognition of an impairment loss. The company held goodwill of $30 million and intangible assets with an indefinite life of $31 million at December 31, 2020 and 2019, respectively.

Subsequent Events

There were no subsequent events requiring adjustment to the consolidated financial statements or disclosure.

Cincinnati Financial Corporation - 2020 10-K - Page 138

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 the 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 were 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.

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 issued ASU 2018-12, Financial Services - Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration 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 2020, the FASB issued an ASU that delayed the effective date of ASU 2018-12 to interim and annual reporting periods beginning after December 15, 2022. These ASU's have not yet been adopted. Management is currently evaluating the impact on our company's consolidated financial condition, results of operations and cash flows.

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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)	Amortized cost			Gross unrealized					Fair value
At December 31, 2020			gains			losses
Fixed-maturity securities:
Corporate	$	6,281		$	621		$	7	$	6,895
States, municipalities and political subdivisions	4,604			395			2		4,997
Commercial mortgage-backed	271			15			1		285
United States government	115			5			—		120
Foreign government	29			—			—		29
Government-sponsored enterprises	12			—			—		12

Total	$	11,312		$	1,036		$	10	$	12,338






At December 31, 2019
Fixed-maturity securities:
Corporate	$	6,074		$	332		$	5	$	6,401
States, municipalities and political subdivisions	4,477			252			1		4,728
Commercial mortgage-backed	290			11			—		301
United States government	102			2			—		104
Foreign government	28			—			—		28
Government-sponsored enterprises	137			—			1		136

Total	$	11,108		$	597		$	7	$	11,698

The net unrealized investment gains in our fixed-maturity portfolio at December 31, 2020, 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 December 31, 2020 and 2019.

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


(Dollars in millions)	Less than 12 months				12 months or more				Total
At December 31, 2020	Fair value		Unrealized losses		Fair value		Unrealized losses		Fair value		Unrealized losses
Fixed-maturity securities:
Corporate	$	330	$	5	$	46	$	2	$	376	$	7
States, municipalities and political subdivisions	31		2		2		—		33		2
Commercial mortgage-backed	23		1		6		—		29		1
United States government	12		—		—		—		12		—
Foreign government	10		—		—		—		10		—

Total	$	406	$	8	$	54	$	2	$	460	$	10





At December 31, 2019
Fixed-maturity securities:
Corporate	$	199	$	2	$	118	$	3	$	317	$	5
States, municipalities and political subdivisions	98		1		10		—		108		1
Commercial mortgage-backed	6		—		—		—		6		—
United States government	—		—		4		—		4		—
Foreign government	11		—		—		—		11		—
Government-sponsored enterprises	26		1		51		—		77		1
Total	$	340	$	4	$	183	$	3	$	523	$	7

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Contractual maturity dates for fixed-maturity investments were:


(Dollars in millions)	Amortized cost		Fair value		% of fair value
At December 31, 2020
Maturity dates:
Due in one year or less	$	581	$	589	4.8	%
Due after one year through five years	3,450		3,697		30.0
Due after five years through ten years	3,789		4,178		33.9
Due after ten years	3,492		3,874		31.3
Total	$	11,312	$	12,338	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.

At December 31, 2020 and 2019, the company had fixed-maturity investments with a fair value of $121 million and $117 million, respectively, on deposit with various states in compliance with regulatory requirements. In addition, cash and fixed-maturity investments deposited with third parties used as collateral to secure liabilities on behalf of insureds, cedants and other creditors had a fair value of $98 million and $95 million at December 31, 2020 and 2019, respectively.

In the normal course of investing activities, the company enters into investments in limited partnerships, including private equity, real estate investments and asset-backed securities issued by third-parties. The company’s maximum exposure to loss with respect to these investments is limited to the investment carrying values included in the company’s consolidated balance sheets and any unfunded commitments.

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


(Dollars in millions)	Years ended December 31,
	2020		2019		2018
Investment income:
Interest	$	455	$	446	$	445
Dividends	220		201		181
Other	8		12		5
Total	683		659		631
Less investment expenses	13		13		12
Total	$	670	$	646	$	619

Investment gains and losses, net:
Equity securities:
Investment gains and losses on securities sold, net	$	79	$	26	$	9
Unrealized gains and losses on securities still held, net	841		1,626		(404)



Subtotal	920		1,652		(395)
Fixed-maturity securities:
Gross realized gains	16		13		12
Gross realized losses	(3)		(3)		(2)
Write-down of impaired securities	(78)		(9)		(5)
Subtotal	(65)		1		5

Other	10		(3)		(12)
Total	$	865	$	1,650	$	(402)

Cincinnati Financial Corporation - 2020 10-K - Page 141

The fair value of our equity portfolio was $8.856 billion and $7.752 billion at December 31, 2020 and 2019, respectively. At December 31, 2020 and 2019, Apple, Inc. (Nasdaq:AAPL), an equity holding, was our largest single investment holding with a fair value of $644 million and $414 million, which was 7.5% and 5.5% of our publicly traded common equities portfolio and 3.0% and 2.1% of the total investment portfolio, respectively.

During 2020, there were no fixed-maturity securities with an allowance for credit losses. There were 14 fixed-maturity securities that were written down to fair value, due to an intention to be sold, for holdings in the energy, real estate, consumer goods, municipal and technology & electronics sectors. At December 31, 2020, 128 fixed-maturity investments with a total unrealized loss of $10 million were in an unrealized loss position. Of that total, no fixed-maturity investments had fair values below 70% of amortized cost.

During 2019, we other-than-temporarily impaired three securities. At December 31, 2019, 38 fixed-maturity investments with a total unrealized loss of $3 million had been in an unrealized loss position for 12 months or more. Of that total, no fixed-maturity investments had fair values below 70% of amortized cost.

During 2018, we other-than-temporarily impaired one security. At December 31, 2018, 400 fixed-maturity investments with a total unrealized loss of $58 million had been in an unrealized loss position for 12 months or more. Of that total, no fixed-maturity investments had fair values below 70% of amortized cost.

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NOTE 3 – Fair Value Measurements

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, and ultimately management determines fair value. Financial instruments reported at fair value in our consolidated financial statements are categorized based upon the following characteristics or inputs to the valuation techniques:

Level 1 – Financial assets and liabilities for which inputs are observable and are obtained from reliable quoted prices for identical assets or liabilities in active markets. This is the most reliable fair value measurement and includes, for example, active exchange-traded equity securities.
Level 2 – Financial assets and liabilities for which values are based on quoted prices in markets that are not active or for which values are based on similar assets and liabilities that are actively traded. This also includes pricing models for which the inputs are corroborated by market data.

The technique used for the Level 2 fixed-maturity securities is the application of market based modeling. The inputs used for all classes of fixed-maturity securities listed in the table below include relevant market information by asset class, trade activity of like securities, marketplace quotes, benchmark yields, spreads off benchmark yields, interest rates, U.S. Treasury or swap curves, yield to maturity and economic events. Specific to commercial mortgage-backed securities, key inputs also include prepayment and default projections based on past performance of the underlying collateral and current market data. Level 2 fixed-maturity securities are priced by a nationally recognized pricing vendor.

The Level 2 nonredeemable preferred equities technique used is the application of market based modeling. The inputs used, similar to those used by the pricing vendor for our fixed-maturity securities, include relevant market information, trade activity of like securities, yield to maturity, corporate action notices and economic events. Level 2 nonredeemable preferred equities are priced by a nationally recognized pricing vendor.

Level 3 – Financial assets and liabilities for which values are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. Level 3 inputs include the following:

◦Quotes from brokers or other external sources that are not considered binding;

◦Quotes from brokers or other external sources where it cannot be determined that market participants would in fact transact for the asset or liability at the quoted price; or

◦Quotes from brokers or other external sources where the inputs are not deemed observable.

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The following tables illustrate the fair value hierarchy for those assets measured at fair value on a recurring basis at December 31, 2020 and 2019. We do not have any liabilities carried at fair value. There were no transfers between Level 1 and Level 2.



(Dollars in millions)	Quoted prices in active markets for identical assets (Level 1)					Significant unobservable inputs (Level 3)
At December 31, 2020			Significant other observable inputs (Level 2)			Total
Fixed maturities, available for sale:
Corporate	$	—		$	6,895	$	—	$	6,895
States, municipalities and political subdivisions	—			4,997		—		4,997
Commercial mortgage-backed	—			285		—		285
United States Government	120			—		—		120
Foreign government	—			29		—		29
Government-sponsored enterprises	—			12		—		12

Subtotal	120			12,218		—		12,338
Common equities	8,541			—		—		8,541
Nonredeemable preferred equities	—			315		—		315
Separate accounts taxable fixed maturities	—			903		—		903
Top Hat savings plan mutual funds and common equity (included in Other assets)	51			—		—		51
Total	$	8,712		$	13,436	$	—	$	22,148

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

Subtotal	104			11,594		—		11,698
Common equities	7,518			—		—		7,518
Nonredeemable preferred equities	—			234		—		234
Separate accounts taxable fixed maturities	—			855		—		855
Top Hat savings plan mutual funds and common equity (included in Other assets)	45			—		—		45
Total	$	7,667		$	12,683	$	—	$	20,350

We also held Level 1 cash and cash equivalents of $900 million and $767 million at December 31, 2020 and 2019, respectively. Level 3 assets reported at fair value in our consolidated financial statements are not material, and therefore no further disclosures are provided.

Cincinnati Financial Corporation - 2020 10-K - Page 144

Fair Value Disclosure 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 consolidated financial statements.

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


(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 December 31, 2020
Note payable	$	—	$	54	$	—	$	54
6.900% senior debentures, due 2028	—		35		—		35
6.920% senior debentures, due 2028	—		515		—		515
6.125% senior notes, due 2034	—		522		—		522
Total	$	—	$	1,126	$	—	$	1,126

At December 31, 2019
Note payable	$	—	$	39	$	—	$	39
6.900% senior debentures, due 2028	—		34		—		34
6.920% senior debentures, due 2028	—		506		—		506
6.125% senior notes, due 2034	—		512		—		512
Total	$	—	$	1,091	$	—	$	1,091

Fair value of the note payable was determined based upon the outstanding balance at December 31, 2020 and 2019, because it is short term and tied to a variable interest rate. Fair value of the long-term debt was determined under the fair value measurements and disclosure accounting rules based on market pricing of similar debt instruments that are actively trading. We determine fair value for our debt the same way that we value corporate fixed maturities in our investment portfolio. Fair value can vary with macroeconomic conditions. Regardless of the fluctuations in fair value, the outstanding principal amount of our long-term debt is $793 million at both December 31, 2020 and 2019. None of the long-term debt is encumbered by rating triggers. The note payable and long-term debt were classified as Level 2 as an active market does not exist, but fair value is determined based on observable inputs.

The following table shows the fair value of our life policy loans, included in other invested assets:


(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 December 31, 2020
Life policy loans	$	—	$	—	$	49	$	49

At December 31, 2019
Life policy loans	$	—	$	—	$	44	$	44

Outstanding principal and interest for these life policy loans totaled $33 million and $32 million at December 31, 2020 and 2019, respectively. To determine the fair value, we make the following significant assumptions: (1) the discount rates used to calculate the present value of expected payments are the risk-free spot rates, as nonperformance risk is minimal; and (2) the loan repayment rate by which policyholders pay off their loan balances is in line with past experience.

Cincinnati Financial Corporation - 2020 10-K - Page 145

The following table shows fair value of our deferred annuities and structured settlements included in life policy and investment contract reserves:


(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 December 31, 2020
Deferred annuities	$	—	$	—	$	836	$	836
Structured settlements	—		227		—		227
Total	$	—	$	227	$	836	$	1,063

At December 31, 2019
Deferred annuities	$	—	$	—	$	770	$	770
Structured settlements	—		212		—		212
Total	$	—	$	212	$	770	$	982

Recorded reserves for the deferred annuities were $761 million and $760 million at December 31, 2020 and 2019, respectively. Recorded reserves for the structured settlements were $145 million and $151 million at December 31, 2020 and 2019, respectively.

Fair values for deferred annuities were calculated based upon internally developed models because active markets and observable inputs do not exist. To determine the fair value, we made the following significant assumptions: (1) the discount rates used to calculate the present value of expected payments are the risk-free spot rates plus an A3 rated bond spread for financial issuers at December 31, 2020 and 2019, to account for nonperformance risk; (2) the rate of interest credited to policyholders is the portfolio net earned interest rate less a spread for expenses and profit; and (3) additional lapses occur when the credited interest rate is exceeded by an assumed competitor credited rate, which is a function of the risk-free rate of the economic scenario being modeled.

Fair values for structured settlements were calculated based on internally developed models which assume the discount rates used to calculate the present value of expected payments are the risk-free spot rates plus an A3 rated bond spread for financial issuers at December 31, 2020 and 2019, to account for nonperformance risk. The structured settlements were classified as Level 2 as an active market does not exist, but fair value is based on observable inputs.

Cincinnati Financial Corporation - 2020 10-K - Page 146

NOTE 4 – Property Casualty Loss and Loss Expenses

We use actuarial methods, models, assumptions 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 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 finance 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.

Our reserving process takes into account known facts and interpretations of circumstances and factors including the type of claim, policy provisions pertaining to each claim, potential subrogation or salvage recoverable, large loss activity and trends, new business activity, judicial decisions, economic conditions, changes in law and regulation and product and underwriting changes. There have been no significant changes in methodologies and assumptions used in calculating loss and loss expense reserves for all years presented. There were no material additional premiums or return premiums accrued for as a result of prior-year effects.

Our claims representatives establish case reserves when claims are reported to provide for our unpaid loss and loss expense obligation associated with individual claims.

For events designated as natural catastrophes resulting in losses incurred related to direct premiums, we calculate IBNR reserves directly as a result of an estimated claim counts and estimated average dollar amount per claim for each event. Once individual case reserves are established for a catastrophe event, we reduce the IBNR reserves.

Our actuarial staff uses generally accepted actuarial methods and models to derive ultimate loss and IBNR reserve estimates. The time interval between a claims occurrence and its settlement is one of the crucial attributes when estimating ultimate losses and IBNR reserves.

Due to the uncertainties inherent with loss reserves, our ultimate loss experience could prove better or worse than what our carried reserves reflect. To the extent that reserves are inadequate and are required to be increased, the amount of the increase is a charge in that period, raising our loss and loss expense ratio and reducing earnings. To the extent that reserves are redundant and are required to be released, the amount of the release is a credit in that period, reducing our loss and loss expense ratio and increasing earnings.

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


(Dollars in millions)	Years ended December 31,
	2020		2019		2018
Gross loss and loss expense reserves, January 1	$	6,088	$	5,646	$	5,219
Less reinsurance recoverable	342		238		187
Net loss and loss expense reserves, January 1	5,746		5,408		5,032

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:
Current accident year	3,968		3,600		3,390
Prior accident years	(131)		(248)		(167)
Total incurred	3,837		3,352		3,223
Net paid loss and loss expenses related to:
Current accident year	1,493		1,462		1,391
Prior accident years	1,690		1,798		1,456
Total paid	3,183		3,260		2,847

Net loss and loss expense reserves, December 31	6,400		5,746		5,408
Plus reinsurance recoverable	277		342		238
Gross loss and loss expense reserves, December 31	$	6,677	$	6,088	$	5,646

Cincinnati Financial Corporation - 2020 10-K - Page 147

In 2020, 2019 and 2018, the reserve for loss and loss expense in the consolidated balance sheets also included $69 million, $59 million and $61 million, respectively, for certain life and health loss and loss expense reserves. Additional disclosures for reserves related to these health claims are not material and therefore not provided.

During 2020, we experienced $131 million of favorable development on prior accident years including $95 million of favorable development in commercial lines, $18 million of favorable development in personal lines and $7 million of unfavorable development in excess and surplus lines. Within commercial lines, we recognized favorable development of $54 million for the commercial casualty line, $39 million for the workers' compensation line and $16 million for the commercial property line due to reduced uncertainty of prior accident year loss and loss expense for these lines. This was partially offset by unfavorable development of $17 million for the commercial auto line. Within personal lines, we recognized favorable reserve development of $15 million in personal auto and $5 million for the homeowner line of business.

During 2019, we experienced $248 million of favorable development on prior accident years including $192 million of favorable development in commercial lines, $27 million of favorable development in personal lines and $11 million of favorable development in excess and surplus lines. Within commercial lines, we recognized favorable development of $78 million for the commercial casualty line, $77 million for the workers' compensation line, $25 million for the commercial property line and $6 million for the commercial auto line due to reduced uncertainty of prior accident year loss and loss expense for these lines. Within personal lines, we recognized favorable reserve development of $26 million in personal auto. We recognized unfavorable reserve development of $11 million for the homeowner line of business due primarily to higher-than-anticipated loss development on known claims.

During 2018, we experienced $167 million of favorable development on prior accident years including $157 million of favorable development in commercial lines, $13 million of unfavorable development in personal lines, $24 million of favorable development in excess and surplus lines and $1 million of unfavorable development in our reinsurance assumed operations. We recognized favorable development of $58 million for the workers' compensation line and $47 million for both the commercial property line and commercial casualty line due to reduced uncertainty of prior accident year loss and loss expense for these lines.

Included in our lines of business are asbestos and environmental claims. We carried $85 million of net loss and loss expense reserves for asbestos and environmental claims at December 31, 2020 and 2019. The asbestos and environmental claims amounts for each respective year constituted less than 2.0% of total net loss and loss expense reserves at these year-end dates. We believe our exposure to asbestos and environmental claims is limited, largely because our reinsurance retention was $500,000 or below prior to 1987. We also were predominantly a personal lines company in the 1960s and 1970s. During the 1980s and early 1990s, commercial lines grew as a percentage of our overall business and our exposure to asbestos and environmental claims grew accordingly. Over that period, we included an asbestos and environmental exclusion in almost all policies or endorsed the exclusion to the policies. We have no exposure to asbestos and environmental claims related to our acquisition of Cincinnati Global. We continue to monitor our claims for evidence of material exposure to other mass tort classes but have found no such credible evidence to date.

Cincinnati Financial Corporation - 2020 10-K - Page 148

The following table provides a reconciliation of the property casualty incurred losses and allocated loss adjustment expenses (ALAE) development and paid losses and ALAE development information at December 31, 2020.


(Dollars in millions)	Cumulative incurred losses and ALAE as reported within the triangles, net of reinsurance		Cumulative paid losses and ALAE as reported within the triangles, net of reinsurance		Liabilities for loss and ALAE for accident years not presented in the triangles, net of reinsurance		Total liabilities for loss and ALAE, net of reinsurance		Reinsurance recoverable on unpaid losses		Total liabilities for gross loss and loss expense reserves




Commercial casualty	$	5,179	$	3,012	$	91	$	2,258	$	24	$	2,282
Workers' compensation	1,990		1,357		308		941		61		1,002
Commercial auto	2,235		1,581		26		680		5		685
Commercial property	3,158		2,725		15		448		66		514
Personal auto	1,860		1,610		10		260		32		292
Homeowner	1,996		1,781		4		219		18		237
Excess and surplus	836		430		1		407		16		423
Other lines											959
Total liabilities for loss and ALAE reserves											6,394
Unallocated loss adjustment expense reserves											283
Gross loss and loss expense reserves											$	6,677

For all lines of business, the claim counts reported are primarily measured by insurance coverages that are triggered when a loss occurs and a reserve is established. For this purpose, coverages are defined as unique combinations of certain attributes such as line of business and cause of loss. Claims that are opened and closed without payment are included in the reported claim counts. Claim counts are presented on a direct basis only and do not reflect any assumed or ceded reinsurance.

In the following tables, commercial casualty, workers' compensation and excess and surplus lines each disclose 10 accident years of loss and ALAE reserves and the cumulative number of reported claims. Commercial auto, commercial property, personal auto and homeowner each disclose five accident years of loss and ALAE reserves and the cumulative number of reported claims as each of these lines have five year cumulative average annual percentage payouts of approximately 95% or higher.

Cincinnati Financial Corporation - 2020 10-K - Page 149

Commercial Casualty

The following table shows the commercial casualty incurred and paid losses and ALAE development by accident year. The table also shows the IBNR reserves plus expected development on reported losses and claim frequency:


(Dollars in millions, reported claims in thousands)																					As of December 31, 2020
Incurred losses and ALAE, net of reinsurance for the years ended December 31,																						Total of incurred but not reported liabilities plus expected development on reported losses		Cumulative number of reported claims

Accident	Unaudited
Year	2011		2012		2013		2014		2015		2016		2017		2018		2019		2020
2011	$	466	$	404	$	377	$	377	$	375	$	380	$	366	$	365	$	368	$	361		$	—	19
2012			466		414		417		394		394		404		399		397		397			11		18
2013					448		443		431		416		413		407		391		386			22		20
2014							503		496		479		476		479		465		469			27		21
2015									533		526		529		516		508		502			54		21
2016											563		574		557		555		554			89		21
2017													610		597		577		571			124		21
2018															650		641		622			181		22
2019																	672		643			293		19
2020																			674			472		11
Total																			$	5,179

Cumulative paid losses and ALAE, net of reinsurance
2011	$	27	$	93	$	149	$	227	$	266	$	298	$	315	$	325	$	337	$	342
2012			27		88		170		232		288		330		346		364		374
2013					35		90		159		232		286		312		337		348
2014							34		97		172		287		338		390		409
2015									38		108		200		287		362		404
2016											46		126		228		331		395
2017													48		122		234		320
2018															44		148		253
2019																	39		134
2020																			33
Total																			3,012
All outstanding liabilities before 2011, net of reinsurance																			91
Liabilities for loss and ALAE, net of reinsurance																			$	2,258

The following table shows the average annual percentage payout of incurred losses for the commercial casualty line of business:


Average annual percentage payout of incurred losses by age, net of reinsurance (unaudited)
Years	1	2	3	4	5	6	7	8	9	10
Average annual percentage payout	7.3%	14.9%	17.9%	18.8%	12.7%	9.1%	4.8%	3.5%	3.0%	1.7%

Cincinnati Financial Corporation - 2020 10-K - Page 150

Workers’ Compensation

The following table shows the workers’ compensation incurred and paid losses and ALAE development by accident year. The table also shows the IBNR reserves plus expected development on reported losses and claim frequency:


(Dollars in millions, reported claims in thousands)																					As of December 31, 2020
Incurred losses and ALAE, net of reinsurance for the years ended December 31,																						Total of incurred but not reported liabilities plus expected development on reported losses		Cumulative number of reported claims

Accident	Unaudited
Year	2011		2012		2013		2014		2015		2016		2017		2018		2019		2020
2011	$	284	$	251	$	246	$	242	$	239	$	236	$	231	$	229	$	228	$	228		$	17	24
2012			265		245		234		220		213		211		209		208		207			19		21
2013					264		246		221		212		208		205		202		201			12		20
2014							261		233		214		203		201		198		197			13		19
2015									246		220		208		195		179		173			26		17
2016											230		218		206		188		183			27		16
2017													218		208		190		183			46		15
2018															222		207		199			52		15
2019																	224		215			65		14
2020																			204			100		10
Total																			$	1,990

Cumulative paid losses and ALAE, net of reinsurance
2011	$	65	$	131	$	161	$	177	$	186	$	190	$	192	$	195	$	197	$	198
2012			62		121		147		162		171		175		178		180		182
2013					61		119		144		157		164		168		170		174
2014							56		110		134		148		157		162		165
2015									47		93		115		129		134		137
2016											46		97		119		131		141
2017													45		88		106		114
2018															48		95		115
2019																	49		94
2020																			37
Total																			1,357
All outstanding liabilities before 2011, net of reinsurance																			308
Liabilities for loss and ALAE, net of reinsurance																			$	941

The following table shows the average annual percentage payout of incurred losses for the workers’ compensation line of business:


Average annual percentage payout of incurred losses by age, net of reinsurance (unaudited)
Years	1	2	3	4	5	6	7	8	9	10
Average annual percentage payout	25.9%	26.3%	11.9%	6.7%	4.1%	2.0%	1.4%	1.2%	1.1%	0.5%

Cincinnati Financial Corporation - 2020 10-K - Page 151

Commercial Auto

The following table shows the commercial auto incurred and paid losses and ALAE development by accident year. The table also shows the IBNR reserves plus expected development on reported losses and claim frequency:


(Dollars in millions, reported claims in thousands)											As of December 31, 2020
Incurred losses and ALAE, net of reinsurance for the years ended December 31,												Total of incurred but not reported liabilities plus expected development on reported losses		Cumulative number of reported claims

Accident	Unaudited
Year	2016		2017		2018		2019		2020
2016	$	417	$	430	$	450	$	463	$	474		$	5	53
2017			451		441		443		444			13		51
2018					453		442		442			36		49
2019							452		451			73		46
2020									424			164		33
Total									$	2,235

Cumulative paid losses and ALAE, net of reinsurance
2016	$	184	$	273	$	350	$	408	$	441
2017			187		266		334		381
2018					184		266		337
2019							183		268
2020									154
Total									1,581
All outstanding liabilities before 2016, net of reinsurance									26
Liabilities for loss and ALAE, net of reinsurance									$	680

The following table shows the average annual percentage payout of incurred losses for the commercial auto line of business. Commercial auto includes both physical damage and liability losses. A majority of the incurred losses paid after year 2 are the result of liability losses.


Average annual percentage payout of incurred losses by age, net of reinsurance (unaudited)
Years	1	2	3	4	5
Average annual percentage payout	39.9%	18.6%	15.8%	11.5%	7.0%

Cincinnati Financial Corporation - 2020 10-K - Page 152

Commercial Property

The following table shows the commercial property incurred and paid losses and ALAE development by accident year. The table also shows the IBNR reserves plus expected development on reported losses and claim frequency:


(Dollars in millions, reported claims in thousands)											As of December 31, 2020
Incurred losses and ALAE, net of reinsurance for the years ended December 31,												Total of incurred but not reported liabilities plus expected development on reported losses		Cumulative number of reported claims

Accident	Unaudited
Year	2016		2017		2018		2019		2020
2016	$	590	$	551	$	541	$	545	$	542		$	2	17
2017			587		560		556		565			3		18
2018					630		603		590			7		18
2019							621		606			6		17
2020									855			141		22
Total									$	3,158

Cumulative paid losses and ALAE, net of reinsurance
2016	$	358	$	504	$	528	$	539	$	539
2017			395		522		547		560
2018					386		559		576
2019							413		561
2020									489
Total									2,725
All outstanding liabilities before 2016, net of reinsurance									15
Liabilities for loss and ALAE, net of reinsurance									$	448

The following table shows the average annual percentage payout of incurred losses for the commercial property line of business:


Average annual percentage payout of incurred losses by age, net of reinsurance (unaudited)
Years	1	2	3	4	5
Average annual percentage payout	65.3%	25.8%	3.9%	2.1%	0.1%

Cincinnati Financial Corporation - 2020 10-K - Page 153

Personal Auto

The following table shows the personal auto incurred and paid losses and ALAE development by accident year. The table also shows the IBNR reserves plus expected development on reported losses and claim frequency:


(Dollars in millions, reported claims in thousands)											As of December 31, 2020
Incurred losses and ALAE, net of reinsurance for the years ended December 31,												Total of incurred but not reported liabilities plus expected development on reported losses		Cumulative number of reported claims

Accident	Unaudited
Year	2016		2017		2018		2019		2020
2016	$	383	$	384	$	386	$	384	$	384		$	1	110
2017			412		394		391		393			1		109
2018					424		398		395			1		111
2019							399		383			14		102
2020									305			62		67
Total									$	1,860

Cumulative paid losses and ALAE, net of reinsurance
2016	$	243	$	316	$	351	$	370	$	378
2017			256		324		358		374
2018					262		327		358
2019							250		314
2020									186
Total									1,610
All outstanding liabilities before 2016, net of reinsurance									10
Liabilities for loss and ALAE, net of reinsurance									$	260

The following table shows the average annual percentage payout of incurred losses for the personal auto line of business. Personal auto includes both physical damage and liability losses. A majority of the incurred losses paid after year 2 are the result of liability losses.


Average annual percentage payout of incurred losses by age, net of reinsurance (unaudited)
Years	1	2	3	4	5
Average annual percentage payout	64.2%	17.3%	8.6%	4.6%	2.0%

Cincinnati Financial Corporation - 2020 10-K - Page 154

Homeowner

The following table shows the homeowner incurred and paid losses and ALAE development by accident year. The table also shows the IBNR reserves plus expected development on reported losses and claim frequency:


(Dollars in millions, reported claims in thousands)											As of December 31, 2020
Incurred losses and ALAE, net of reinsurance for the years ended December 31,												Total of incurred but not reported liabilities plus expected development on reported losses		Cumulative number of reported claims

Accident	Unaudited
Year	2016		2017		2018		2019		2020
2016	$	315	$	304	$	303	$	302	$	304		$	—	23
2017			356		383		385		387			—		26
2018					370		386		387			5		24
2019							432		421			10		22
2020									497			54		21
Total									$	1,996

Cumulative paid losses and ALAE, net of reinsurance
2016	$	208	$	283	$	295	$	299	$	302
2017			277		356		378		384
2018					268		368		378
2019							303		391
2020									326
Total									1,781
All outstanding liabilities before 2016, net of reinsurance									4
Liabilities for loss and ALAE, net of reinsurance									$	219

The following table shows the average annual percentage payout of incurred losses for the homeowner line of business:


Average annual percentage payout of incurred losses by age, net of reinsurance (unaudited)
Years	1	2	3	4	5
Average annual percentage payout	69.3%	23.0%	4.1%	1.4%	0.8%

Cincinnati Financial Corporation - 2020 10-K - Page 155

Excess and Surplus Lines

The following table shows the excess and surplus lines incurred and paid losses and ALAE development by accident year. The table also shows the IBNR reserves plus expected development on reported losses and claim frequency:


(Dollars in millions, reported claims in thousands)																			As of December 31, 2020
Incurred losses and ALAE, net of reinsurance for the years ended December 31,																						Total of incurred but not reported liabilities plus expected development on reported losses		Cumulative number of reported claims

Accident	Unaudited
Year	2011		2012		2013		2014		2015		2016		2017		2018		2019			2020
2011	$	48	$	47	$	44	$	38	$	36	$	35	$	35	$	34	$	34		$	34	$	—	1
2012			67		56		49		40		37		36		35		36			35		—		1
2013					74		64		54		45		42		41		41			41		2		2
2014							95		82		75		64		60		59			59		5		2
2015									96		81		73		67		65			66		6		2
2016											93		87		84		82			90		13		3
2017													104		95		95			94		15		3
2018															116		109			110		29		3
2019																	137			135		50		3
2020																				172		$	105	2
Total																				$	836

Cumulative paid losses and ALAE, net of reinsurance
2011	$	8	$	14	$	23	$	27	$	30	$	32	$	34	$	33	$	33		$	33
2012			9		15		19		25		29		31		32		33			34
2013					7		12		20		27		32		34		37			39
2014							9		17		27		37		43		48			51
2015									8		19		29		41		51			54
2016											10		21		39		51			62
2017													11		23		41			57
2018															11		26			50
2019																	13			34
2020																				16
Total																				430
All outstanding liabilities before 2011, net of reinsurance																				1
Liabilities for loss and ALAE, net of reinsurance																				$	407

The following table shows the average annual percentage payout of incurred losses for the excess and surplus lines insurance segment. Excess and surplus lines consist mostly of commercial casualty and commercial property coverages. A majority of the incurred losses paid after year 2 are the result of commercial casualty losses.


Average annual percentage payout of incurred losses by age, net of reinsurance (unaudited)
Years	1	2	3	4	5	6	7	8	9	10
Average annual percentage payout	14.6%	14.4%	19.2%	15.4%	11.7%	6.9%	3.9%	2.2%	1.0%	0.2%

Cincinnati Financial Corporation - 2020 10-K - Page 156

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 universal life, deferred annuity 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)	At December 31,
	2020		2019
Life policy reserves:
Ordinary/traditional life	$	1,301	$	1,226
Other	52		50
Subtotal	1,353		1,276
Investment contract reserves:
Deferred annuities	761		760
Universal life	647		640
Structured settlements	145		151
Other	9		8
Subtotal	1,562		1,559
Total life policy and investment contract reserves	$	2,915	$	2,835

Cincinnati Financial Corporation - 2020 10-K - Page 157

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)	Years ended December 31,
	2020		2019		2018
Property casualty:
Deferred policy acquisition costs asset, January 1	$	512	$	464	$	438
Capitalized deferred policy acquisition costs	1,087		1,034		933
Amortized deferred policy acquisition costs	(1,057)		(986)		(907)
Deferred policy acquisition costs asset, December 31	$	542	$	512	$	464

Life:
Deferred policy acquisition costs asset, January 1	$	262	$	274	$	232
Capitalized deferred policy acquisition costs	58		61		60
Amortized deferred policy acquisition costs	(49)		(48)		(39)
Shadow deferred policy acquisition costs	(8)		(25)		21
Deferred policy acquisition costs asset, December 31	$	263	$	262	$	274

Consolidated:
Deferred policy acquisition costs asset, January 1	$	774	$	738	$	670
Capitalized deferred policy acquisition costs	1,145		1,095		993
Amortized deferred policy acquisition costs	(1,106)		(1,034)		(946)
Shadow deferred policy acquisition costs	(8)		(25)		21
Deferred policy acquisition costs asset, December 31	$	805	$	774	$	738

No premium deficiencies were recorded in the consolidated statements of income in 2020, 2019 and 2018, 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 - 2020 10-K - Page 158

NOTE 7 – Note Payable

We have one unsecured revolving credit facility through multiple commercial banks which was due to expire on February 4, 2025, with the option of a one-year extension remaining from the 2019 amendment. The borrowing capacity is $300 million with an additional $300 million accordion feature. Terms and conditions of the agreement include a debt-to-total capital maximum of 35%. On December 11, 2020, we exercised our option to extend the term of the line of credit one year to February 4, 2026. We had no compensating balance requirements on short-term debt for either 2020 or 2019. At December 31, 2020 and 2019, $54 million and $39 million was drawn on the line of credit, respectively. The interest rate charged on our borrowings on this credit agreement ranged from 1.03% to 4.25% during 2020 and ranged from 2.59% to 3.41% during 2019. In addition, we have letters of credit related to our Cincinnati Re and Cincinnati Global operations with no amounts drawn at December 31, 2020 and 2019.

Cincinnati Financial Corporation - 2020 10-K - Page 159

NOTE 8 – Long-Term Debt and Lease Obligations

This table summarizes the principal amounts of our long-term debt excluding unamortized discounts, none of which are encumbered by rating triggers:


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

The finance lease term for equipment and autos is three to six years while the operating lease term for real estate properties is typically five years. Lease obligations totaled $57 million in both 2020 and 2019, respectively. Below are the lease obligations we expect to pay through years 2026 and thereafter including $3 million of interest for finance and operating leases:


(Dollars in millions)	Years ended December 31,
	2021		2022		2023		2024		2025		2026 and thereafter
Finance lease obligations	$	15	$	12	$	10	$	6	$	4	$	2
Operating lease obligations	2		2		2		2		1		2
Total lease obligations	$	17	$	14	$	12	$	8	$	5	$	4

The following table provides lease cost and other information for the year ended December 31, 2020 and 2019:


(Dollars in millions)
	2020			2019
Lease cost:
Finance lease cost	$	15		$	9
Operating lease cost	4			4
Total lease cost	$	19		$	13

Other information finance leases:
Finance cash outflows	$	15		$	15
Weighted average discount rate	2.62		%	2.96		%
Weighted average remaining lease term in years	3.67			3.65

Other information operating leases:
Operating cash outflows	$	8		$	8
Weighted average discount rate	3.65		%	3.69		%
Weighted average remaining lease term in years	4.84			4.71

Cincinnati Financial Corporation - 2020 10-K - Page 160

NOTE 9 – Shareholders’ Equity and Dividend Restrictions

Declared cash dividends per share were $2.40, $2.24 and $2.12 for the years ended December 31, 2020, 2019 and 2018, respectively.

Our lead insurance subsidiary, The Cincinnati Insurance Company, paid dividends to the parent company of $550 million in 2020, $625 million in 2019 and $500 million in 2018. State regulatory requirements restrict the dividends insurance subsidiaries can pay. Generally, the most our lead insurance subsidiary can pay without prior regulatory approval is the greater of 10% of statutory capital and surplus or 100% of statutory net income for the prior calendar year. Dividends exceeding these limitations may be paid only with approval of the insurance department of the domiciliary state. During 2021, the total that our lead insurance subsidiary may pay in dividends is approximately $583 million.

Dividend payments from Cincinnati Global to the parent company are subject to regulation by U.K. law. Cincinnati Global paid no dividends to the parent company in either 2020 or 2019.

Accumulated Other Comprehensive Income

The table below shows beginning and end of year accumulated other comprehensive income (AOCI) for investments, pension obligations, life deferred acquisition costs, life policy reserves and other. The changes from the beginning of year to the end of year are the result of changes to other comprehensive income or loss (OCI).

Cincinnati Financial Corporation - 2020 10-K - Page 161


(Dollars in millions)	2020						2019						2018
	Before tax		Income tax		Net		Before tax		Income tax		Net		Before tax		Income tax		Net
Investments:
AOCI, January 1	$	590	$	123	$	467	$	46	$	9	$	37	$	3,540	$	733	$	2,807
Cumulative effect of change in accounting for equity securities as of January 1, 2018	—		—		—		—		—		—		(3,155)		(652)		(2,503)
Adjusted AOCI, beginning of period	590		123		467		46		9		37		385		81		304
OCI before investment gains and losses, net, recognized in net income	371		78		293		545		115		430		(334)		(71)		(263)
Investment gains and losses, net, recognized in net income	65		14		51		(1)		(1)		—		(5)		(1)		(4)
OCI	436		92		344		544		114		430		(339)		(72)		(267)

AOCI, December 31	$	1,026	$	215	$	811	$	590	$	123	$	467	$	46	$	9	$	37

Pension obligations:
AOCI, January 1	$	(9)	$	—	$	(9)	$	(16)	$	(2)	$	(14)	$	(12)	$	(1)	$	(11)
OCI excluding amortization recognized in net income	(35)		(7)		(28)		6		2		4		(5)		(1)		(4)
Amortization recognized in net income	3		—		3		1		—		1		1		—		1
OCI	(32)		(7)		(25)		7		2		5		(4)		(1)		(3)
AOCI, December 31	$	(41)	$	(7)	$	(34)	$	(9)	$	—	$	(9)	$	(16)	$	(2)	$	(14)

Life deferred acquisition costs, life policy reserves and other:
AOCI, January 1	$	(13)	$	(3)	$	(10)	$	(1)	$	—	$	(1)	$	(10)	$	(2)	$	(8)
OCI before investment gains and losses, net, recognized in net income	3		1		2		(15)		(3)		(12)		(3)		(1)		(2)
Investment gains and losses, net, recognized in net income	—		—		—		3		—		3		12		3		9
OCI	3		1		2		(12)		(3)		(9)		9		2		7
AOCI, December 31	$	(10)	$	(2)	$	(8)	$	(13)	$	(3)	$	(10)	$	(1)	$	—	$	(1)

Summary of AOCI:
AOCI, January 1	$	568	$	120	$	448	$	29	$	7	$	22	$	3,518	$	730	$	2,788
Cumulative effect of change in accounting for equity securities as of January 1, 2018	—		—		—		—		—		—		(3,155)		(652)		(2,503)
Adjusted AOCI, beginning of period	568		120		448		29		7		22		363		78		285
Investments OCI	436		92		344		544		114		430		(339)		(72)		(267)
Pension obligations OCI	(32)		(7)		(25)		7		2		5		(4)		(1)		(3)
Life deferred acquisition costs, life policy reserves and other OCI	3		1		2		(12)		(3)		(9)		9		2		7
Total OCI	407		86		321		539		113		426		(334)		(71)		(263)

AOCI, December 31	$	975	$	206	$	769	$	568	$	120	$	448	$	29	$	7	$	22

Investments 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 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 consolidated statements of income.

Cincinnati Financial Corporation - 2020 10-K - Page 162

NOTE 10 – Reinsurance

Primary components of our property casualty reinsurance assumed operations include involuntary and voluntary assumed as well as contracts from our reinsurance assumed operations, known as Cincinnati Re. 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 catastrophe bonds 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)	Years ended December 31,
	2020		2019		2018
Direct written premiums	$	5,756	$	5,477	$	5,018
Assumed written premiums	335		244		173
Ceded written premiums	(227)		(205)		(161)
Net written premiums	$	5,864	$	5,516	$	5,030

Direct earned premiums	$	5,623	$	5,340	$	4,931
Assumed earned premiums	285		199		149
Ceded earned premiums	(217)		(205)		(160)
Earned premiums	$	5,691	$	5,334	$	4,920

Direct incurred loss and loss expenses	$	3,699	$	3,402	$	3,188
Assumed incurred loss and loss expenses	184		117		125
Ceded incurred loss and loss expenses	(46)		(167)		(90)
Incurred loss and loss expenses	$	3,837	$	3,352	$	3,223

Our life insurance company purchases reinsurance for protection of a portion of 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)	Years ended December 31,
	2020		2019		2018
Direct earned premiums	$	362	$	341	$	320
Ceded earned premiums	(73)		(71)		(70)
Earned premiums	$	289	$	270	$	250

Direct contract holders' benefits incurred	$	359	$	359	$	328
Ceded contract holders' benefits incurred	(62)		(73)		(61)
Contract holders' benefits incurred	$	297	$	286	$	267

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

Cincinnati Financial Corporation - 2020 10-K - Page 163

NOTE 11 – Income Taxes

The significant components of deferred tax assets and liabilities included in the consolidated balance sheets at December 31 were as follows:


(Dollars in millions)	At December 31,
	2020		2019
Deferred tax assets:
Unearned premiums	$	119	$	113
Loss and loss expense reserves	81		66
Deferred international earnings	45		51
Net operating loss on international earnings	26		4
Other	41		39
Deferred tax assets before valuation allowance	312		273
Valuation allowance for international operations	56		41
Deferred tax assets net of valuation allowance	256		232
Deferred tax liabilities:
Investment gains and other, net	1,240		995
Deferred acquisition costs	143		139
Life policy reserves	121		120
Investments	13		23
Other	38		34
Total gross deferred tax liabilities	1,555		1,311
Net deferred income tax liability	$	1,299	$	1,079

Deferred tax assets and liabilities reflect temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amount recognized for tax purposes.

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 of taxable income in the carryback and carryforward periods as permitted by law, we believe 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 no valuation allowance as of December 31, 2020 and 2019 for our U.S. domestic operations. As more fully discussed below, we do carry a valuation allowance on the deferred tax assets related to Cincinnati Global.

For financial reporting purposes, income (loss) before income taxes includes the following components:


(Dollars in millions)	For the years ended December 31,
	2020		2019		2018
United States	$	1,521	$	2,440	$	251
International	(22)		32		—
Total income before income taxes	$	1,499	$	2,472	$	251

Cincinnati Financial Corporation - 2020 10-K - Page 164

The provision (benefit) for income taxes consists of:


(Dollars in millions)	For the years ended December 31,
	2020		2019		2018
Provision (benefit) for income taxes:
Current – United States federal	$	147	$	137	$	11
International	—		(5)		—
Total current	147		132		11
Deferred – United States federal	136		338		(47)
International	—		5		—
Total deferred	136		343		(47)
Total provision (benefit) for income taxes	$	283	$	475	$	(36)

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


(Dollars in millions)	Years ended December 31,
	2020				2019				2018
Tax at statutory rate:	$	315	21.0	%	$	519	21.0	%	$	53	21.0	%
Increase (decrease) resulting from:
Tax-exempt income from municipal bonds	(20)		(1.3)		(19)		(0.8)		(20)		(8.0)
Dividend received exclusion	(17)		(1.1)		(16)		(0.6)		(15)		(6.0)
Tax accounting method changes	—		—		—		—		(50)		(19.9)

Other	5		0.3		(9)		(0.4)		(4)		(1.4)
Provision (benefit) for income taxes	$	283	18.9	%	$	475	19.2	%	$	(36)	(14.3)	%

In 2018, we received approval from the IRS to change our method of tax accounting for certain items applicable for the 2017 tax year and tax return, primarily related to the valuation of our tax basis unpaid losses. Accounting guidance does not allow recognition of the impact of certain tax accounting method changes until approved by the IRS. As a result, we recognized a $50 million income tax benefit in 2018 for the difference between the current 21% tax rate and the 2017 tax rate of 35% for the related items. This reduced our effective tax rate by 19.9% for the year ended December 31, 2018.

The provision for federal income taxes is based upon the filing of a consolidated income tax return for the company and its domestic subsidiaries within the United States. As of December 31, 2020, 2019 and 2018, we have no operating loss carryforwards in the United States. For the years ended December 31, 2020, 2019 and 2018, we have no capital loss carryforwards in the United States. As more fully discussed below, Cincinnati Global, has operating loss carryforwards in the United Kingdom.

As more fully discussed in Note 1, Summary of Significant Accounting Policies, COVID-19 was declared a pandemic on March 11, 2020. In response to the pandemic, various stimulus legislation was enacted in 2020 including the Coronavirus Aid, Relief and Economic Security Act (CARES Act), signed into law on March 27, 2020 and the Consolidated Appropriations Act, 2021 (CAA Act), signed into law on December 27, 2020. We have evaluated both Acts as well as other pandemic-related legislation enacted in 2020 and believe any impact to our financial statements, as a result of such legislation, will be immaterial.

Cincinnati Financial Corporation - 2020 10-K - Page 165

Unrecognized Tax Benefits

As of December 31, 2020, 2019 and 2018, we had a gross unrecognized tax benefit of $34 million. The following is a tabular reconciliation of the total amounts of unrecognized tax benefits.


(Dollars in millions)	Years ended December 31,
	2020		2019		2018
Gross unrecognized tax benefits, January 1	$	34	$	34	$	—
Gross increase in prior year positions	—		—		—
Gross decrease in prior year positions	—		—		—
Gross increase in current year positions	—		—		34
Settlements with tax authorities	—		—		—
Lapse of statute of limitations	—		—		—
Gross unrecognized tax benefits, December 31	$	34	$	34	$	34

The unrecognized tax benefit liability is carried in other liabilities in the consolidated balance sheets. Included in the unrecognized tax benefit liability as of December 31, 2020 is $34 million that, if recognized, would affect the effective tax rate in the period of the release. Although no interest and penalties currently are accrued, if incurred, they would be recognized as a component of income tax expense. We do not expect any changes to our unrecognized tax benefit liability in the next twelve months.

The statute of limitations for federal tax purposes has generally closed for tax years ended December 31, 2016 and earlier, however, as a result of certain net operating loss carryback claims we have filed, the IRS maintains a limited ability to assess tax for the 2015 tax year. In 2019, the IRS began its examination of the tax year ended December 31, 2017 and they have expanded their scope to include tax year ended December 31, 2018. At this time, no adjustments have been proposed. In addition to our IRS filings, we file income tax returns with immaterial amounts in various state jurisdictions and record these amounts in our provision for income taxes for both current and deferred taxes. The statute of limitations for state income tax purposes has closed for tax years ended December 31, 2016 and earlier.

Cincinnati Global operates in the United Kingdom and as such, is subject to tax in that jurisdiction. The statute of limitation for tax return review by Her Majesty’s Revenue and Customs (HMRC) has closed for tax years ended December 31, 2018 and earlier. There are currently no tax returns under review by HMRC.

Income taxes paid in our consolidated statements of cash flows are shown net of refunds received. We received no refunds in 2020, $94 million in 2019 and none in 2018.

Cincinnati Financial Corporation - 2020 10-K - Page 166

Cincinnati Global

Cincinnati Global's operating results for the year ended December 31, 2020, increased their net deferred assets by $15 million with an offsetting increase of $15 million to their valuation allowance. As of December 31, 2020, Cincinnati Global had a net deferred tax asset of $56 million and an offsetting valuation allowance of $56 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, including cumulative losses related to the operations of Cincinnati Global, we believe it was appropriate to set up a valuation allowance for purposes of our opening Cincinnati Global balance sheet and is appropriate to carry a valuation allowance as of December 31, 2020 and 2019.

The following is a tabular reconciliation of the total amounts of our Cincinnati Global valuation allowance.


(Dollars in millions)	Years ended December 31,
	2020		2019
Valuation allowance, January 1	$	41	$	—
Acquisition accounting amount	—		55
Current year operations	15		(14)
Valuation allowance, December 31	$	56	$	41

As of December 31, 2020, and 2019, Cincinnati Global had operating loss carryforwards in the United States of $26 million and $20 million and in the United Kingdom of $108 million and $127 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 CFC group domestic operations in the United States.

Cincinnati Financial Corporation - 2020 10-K - Page 167

NOTE 12 – Net Income 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)		Years ended December 31,
	2020			2019			2018
Numerator:
Net income—basic and diluted		$	1,216		$	1,997		$	287
Denominator:
Basic weighted-average common shares outstanding		161.2			163.2			163.2
Effect of share-based awards:
Stock options		0.7			1.2			0.8
Nonvested shares		0.5			0.7			0.5
Diluted weighted-average shares		162.4			165.1			164.5
Earnings per share:
Basic		$	7.55		$	12.24		$	1.76
Diluted		7.49			12.10			1.75
Number of anti-dilutive share-based awards		1.4			—			1.3

The sources of dilution of our common shares are certain equity-based awards as discussed in Note 17, Share-Based Associate Compensation Plans. The above table includes the number of anti-dilutive share-based awards at year-end 2020, 2019 and 2018. We did not include these share-based awards in the computation of net income per common share (diluted) because their exercise would have anti-dilutive effects.

Cincinnati Financial Corporation - 2020 10-K - Page 168

NOTE 13 – Employee Retirement Benefits

We sponsor a qualified defined benefit pension plan that we closed entry into for new associates as of June 30, 2008, and only participants 40 years of age or older as of August 31, 2008, could elect to continue to participate. During 2008, we changed the form of retirement benefit we offer some associates to a company match on contributions to a 401(k) plan as further explained below. For participants remaining in the pension plan, we continue to fund future benefit obligations. Benefits for the defined benefit pension plan are based on years of credited service and compensation level. Contributions are based on the prescribed method defined in the Pension Protection Act. Our net periodic benefit cost is based on certain actuarial assumptions and also is composed of several components that are determined using the projected unit credit actuarial cost method. The qualified plan has been amended to allow for distribution of vested balances to terminated participants.

We sponsor a defined contribution plan (401(k) plan) for eligible associates with matching company contributions totaling $22 million, $19 million and $18 million during the years 2020, 2019 and 2018, respectively. Associates who are not accruing benefits under the pension plan are eligible to receive the company match of up to 6% of cash compensation. Participants vest in the company match for the 401(k) plan after three years of eligible service.

We maintain a supplemental executive retirement plan (SERP) with a benefit obligation of $10 million at

year-end 2020 and $11 million at year-end 2019, which is included in the projected benefit obligation. The company also makes available to a select group of associates the CFC Top Hat Savings Plan, a nonqualified deferred compensation plan, which had a fair value of $51 million and $45 million at December 31, 2020 and 2019, respectively. Company matching contributions to the CFC Top Hat Savings Plan totaled approximately $1 million for the years 2020, 2019 and 2018, respectively.

Defined Benefit Pension Plan Assumptions

We evaluate our pension plan assumptions annually and update them as necessary. This is a summary of the weighted-average assumptions used to determine our benefit obligations at December 31 for the plans:


	Qualified Pension Plan				SERP
	2020		2019		2020		2019
Discount rate	2.68	%	3.40	%	2.52	%	3.33	%
Rate of compensation increase	2.25-3.25		2.25-3.25		2.25-3.25		2.25-3.25

To determine the discount rate for each plan, a theoretical settlement portfolio of high-quality rated corporate bonds was chosen to provide payments approximately matching the plan’s projected benefit payments. A single interest rate for each plan was determined resulting in a discounted value of the plan's benefit payments that equates to the market value of the selected bonds. The discount rate is reflective of current market interest rate conditions and our plan's liability characteristics. Based on this analysis, we decreased the rate from the prior year by 0.72 percentage points for the qualified pension plan and by 0.81 percentage points for the SERP. Compensation increase assumptions reflect anticipated rates of inflation, real return on wage growth and merit and promotional increases. The mortality assumption is updated annually to reflect the updated scale. The Pri-2012 tables with Scale MP-2020 and Scale MP-2019 were used for the years 2020 and 2019, respectively. The RP-2014 table projected generationally with Scale MP-2018 was used for the year 2018. The updated mortality table did not have a significant impact on our consolidated financial statements as our qualified plan assumes the majority of benefits will be paid in the form of lump sums.

This is a summary of the weighted-average assumptions used to determine our net periodic benefit cost for the plans:


	Qualified Pension Plan						SERP
	2020		2019		2018		2020		2019		2018
Discount rate	3.40	%	4.34	%	3.73	%	3.33	%	4.25	%	3.61	%
Expected return on plan assets	7.00		7.00		7.25		n/a		n/a		n/a
Rate of compensation increase	2.25-3.25		2.25-3.25		2.75-3.25		2.25-3.25		2.25-3.25		2.75-3.25

The discount rate was decreased by 0.94 percentage points for the qualified pension plan and 0.92 percentage points for the SERP due to market interest rate conditions at the beginning of 2020. The discount rate assumptions

Cincinnati Financial Corporation - 2020 10-K - Page 169

for our benefit obligation generally track with high-quality rated corporate bond yields chosen in our theoretical settlement portfolio, and yearly adjustments reflect any changes to those bond yields. We believe the expected return on plan assets is representative of the expected long-term rate of return on these assets, which is consistent with 2020 expectations of interest rates and based partially on the fact that the plan’s common stock holdings pay dividends. We review historical actual return on plan assets when determining our expected long-term rate of return. Total portfolio return for 2020 was 11.4% and for 2019 was 24.5%. Our compensation increase assumptions in 2020 reflect anticipated rates of inflation, real return on wage growth and merit and promotional increases.

Benefit obligation activity using an actuarial measurement date for our qualified pension plan and SERP at December 31 follows:


(Dollars in millions)	At December 31,
	2020		2019
Change in projected benefit obligation:
Benefit obligation, January 1	$	350	$	318
Service cost	9		8
Interest cost	12		13
Actuarial loss	51		45
Benefits paid	(35)		(34)

Projected benefit obligation, December 31	$	387	$	350

Change in plan assets:
Fair value of plan assets, January 1	$	354	$	318
Actual return on plan assets	34		70
Employer contribution	4		—
Benefits paid	(35)		(34)
Fair value of plan assets, December 31	$	357	$	354

Funded status, December 31	$	(30)	$	4

Accumulated benefit obligation	$	360	$	327

Our plan was in an unfunded status for 2020 compared to 2019 primarily due to lower year over year return on plan assets, increases in actuarial losses from decreases in discount rates and changes to assumed lump sum basis. The lump sum basis was changed from a Pension Benefit Guaranty Corporation (PBGC) rate, which is no longer being published by the PBGC after December 31, 2020, and mortality rates based on GAM83 tables with minor adjustments, to Internal Revenue Code (IRC) Section 417(e) interest rates and IRC Section 417(e) mortality rates, updated annually and projected into the future. The lump sum basis change resulted in an increase to our actuarial loss at December 31, 2020.

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A reconciliation follows of the funded status for our qualified plan and SERP at the end of the measurement period to the amounts recognized in the consolidated balance sheets at December 31:


(Dollars in millions)	At December 31,
	2020		2019
Pension amounts recognized in the consolidated balance sheets:

Other (liability) assets	$	(30)	$	4
Total	$	(30)	$	4

Pension amounts recognized in accumulated other comprehensive income:
Net actuarial loss	$	41	$	9

Total	$	41	$	9

Below are the components of our net periodic benefit cost, as well as other changes in plan assets and benefit obligations recognized in other comprehensive income for our qualified plan and SERP at December 31:


(Dollars in millions)	Years ended December 31,
	2020		2019		2018
Net periodic benefit cost:
Service cost	$	9	$	8	$	11
Non-service costs (benefit):
Interest cost	12		13		13
Expected return on plan assets	(21)		(20)		(22)
Amortization of actuarial loss and prior service cost	3		1		1
Other	3		1		2
Net periodic benefit cost	$	6	$	3	$	5

Other changes in plan assets and benefit obligations recognized in other comprehensive income:
Current year actuarial (gain) loss	$	38	$	(5)	$	7
Amortization of actuarial loss	(6)		(2)		(3)


Total recognized in other comprehensive (income) loss	$	32	$	(7)	$	4
Total recognized in net periodic benefit cost and other comprehensive (income) loss	$	38	$	(4)	$	9

The 2020 change in the amount recognized in other comprehensive income from 2019 is largely due to changes in the actuarial loss resulting from decreases in discount rates and changes to assumed lump sum basis as discussed above.

Service costs and non-service costs (benefit) are allocated in the same proportion primarily to underwriting, acquisition and insurance expenses line item with the remainder allocated to the insurance losses and contract holders' benefits line item on the consolidated statements of income for 2020, 2019 and 2018.

Defined Benefit Pension Plan Assets

The pension plan assets are managed to maximize total return over the long term while providing sufficient liquidity and current return to satisfy the cash flow requirements of the plan. The plan’s day-to-day investment decisions are managed by our internal investment department; however, overall investment strategies are discussed with our employee benefits committee. Our investment strategy is to weight our portfolio towards large-cap, high-quality, dividend-growing equities that we have historically favored. As our plan matures and interest rates normalize, we expect a greater allocation to fixed-income securities to better align asset and liability market risks. Our fixed-maturity bond portfolio is investment grade. The plan does not engage in derivative transactions.

Excluding cash, during 2020 we held approximately 82% of our pension portfolio in domestic common equity investments. The remainder of the portfolio consisted of 9% in United States government fixed-maturity

Cincinnati Financial Corporation - 2020 10-K - Page 171

investments, 6% in domestic corporate fixed-maturity investments and 3% in states, municipalities and taxable political subdivisions fixed-maturity investments. Our common equity portfolio consisted of 26% in the information technology sector, 20% in the financial sector, 13% in the industrial sector, and 12% in the healthcare sector at year-end 2020. No additional sectors accounted for 10% or more of our common equity portfolio balance at year-end 2020.

Investments in securities are valued based on the fair value hierarchy outlined in Note 3, Fair Value Measurements. The pension plan did not have any liabilities carried at fair value during the years ended December 31, 2020 and 2019. There have been no transfers between Level 1 and Level 2 for the years ended December 31, 2020 and 2019. The following table shows the fair value hierarchy for those assets measured at fair value on a recurring basis at December 31, 2020 and 2019. Excluded from the table below is cash on hand of $31 million and $17 million at December 31, 2020 and 2019, respectively.


(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 December 31, 2020
Fixed maturities, available for sale:
United States Government	$	31	$	—	$	—	$	31
Corporate	—		20		—		20
States, municipalities and political subdivisions	—		9		—		9
Total fixed maturities, available for sale	31		29		—		60
Common equities	266		—		—		266
Total	$	297	$	29	$	—	$	326

At December 31, 2019
Fixed maturities, available for sale:
United States Government	$	25	$	—	$	—	$	25
Corporate	—		27		—		27
States, municipalities and political subdivisions	—		25		—		25
Total fixed maturities, available for sale	25		52		—		77
Common equities	260		—		—		260
Total	$	285	$	52	$	—	$	337

Our pension plan assets included 202,337 and 232,113 shares of the company’s common stock at December 31, 2020 and 2019, which had a fair value of $18 million and $24 million at December 31, 2020 and 2019, respectively. The defined benefit pension plan did not purchase any of our common stock during 2020 or 2019. The defined benefit pension plan sold 29,776 shares of our common stock during 2020 and did not sell any shares during 2019. The company paid less than $1 million in 2020 and 2019 in cash dividends on our common stock to the pension plan.

We estimate $8 million of benefit payments from the SERP during 2021. We expect to make the following benefit payments for our qualified plan and SERP, reflecting expected future service:


(Dollars in millions)	Years ended December 31,
	2021		2022		2023		2024		2025		2026 - 2030
Expected future benefit payments	$	49	$	22	$	25	$	27	$	29	$	163

Cincinnati Financial Corporation - 2020 10-K - Page 172

NOTE 14 – Statutory Accounting Information

Insurance companies’ statutory financial statements are presented on the basis of accounting practices prescribed or permitted by applicable state insurance departments of domicile. Insurance companies use statutory accounting practices (SAP) as recognized by various states. We have adopted the National Association of Insurance Commissioners’ (NAIC) Accounting Practices and Procedures manual, version effective January 1, 2001, and updates through the current year as a component of prescribed or permitted practices by laws of the state of domicile. The primary differences between SAP and GAAP include the valuation of investment gains and losses, expensing of policy acquisition costs, actuarial assumptions for life insurance reserves and deferred income taxes based on differences in statutory and taxable income.

Statutory net income and capital and surplus are determined in accordance with SAP prescribed or permitted by insurance regulatory authorities for five legal entities, our lead insurance subsidiary and its four insurance subsidiaries. Statutory capital and surplus for our insurance subsidiary, The Cincinnati Insurance Company, includes capital and surplus of its four insurance subsidiaries. All capital and surplus amounts exceed statutory risk-based capital requirements. The statutory net income and statutory capital and surplus are presented below:


(Dollars in millions)	Net income						Capital and surplus
	Years ended December 31,						At December 31,
	2020		2019		2018		2020		2019
The Cincinnati Insurance Company	$	466	$	558	$	626	$	5,838	$	5,620
The Cincinnati Casualty Company	14		13		16		456		437
The Cincinnati Indemnity Company	3		3		5		115		111
The Cincinnati Specialty Underwriters Insurance Company	42		62		69		528		526
The Cincinnati Life Insurance Company	27		19		—		241		204

NOTE 15 – Transactions With Affiliated Parties

We paid certain officers and directors, or insurance agencies of which they are shareholders, commissions of

$7 million in 2020, $8 million in 2019 and $7 million in 2018, on premium volume of $45 million, $48 million and $45 million for 2020, 2019 and 2018, respectively.

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NOTE 16 – 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 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. 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, results of operations and cash flows.

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 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 the lawsuits. The company maintains that it has no coverage obligations with respect to these lawsuits for business income allegedly lost by the plaintiffs due to the COVID-19 pandemic based on the terms of the applicable insurance policies. 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 the 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. Accordingly, little discovery has occurred on pending cases and few substantive legal rulings have been made. 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 for damages 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 the aggregate could have a material adverse effect on the company’s consolidated financial condition, results of operations and 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 national class. Such proceedings have alleged, for example, breach of an alleged duty to search national databases to ascertain unreported deaths of insureds under life insurance policies. The 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.

Cincinnati Financial Corporation - 2020 10-K - Page 174

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, results of 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 consolidated financial condition, results of operations and 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.

Cincinnati Financial Corporation - 2020 10-K - Page 175

NOTE 17 – Share-Based Associate Compensation Plans

Four equity compensation plans currently permit us to grant various types of equity awards. We currently grant incentive stock options, nonqualified stock options, service-based restricted stock units and performance-based restricted stock units to associates, including some with market-based performance objectives under our shareholder-approved plans. We also have a Holiday Stock Plan that permits annual awards of one share of common stock to each full-time associate for each full calendar year of service up to a maximum of 10 shares. One of our equity compensation plans permits us to grant stock to our outside directors as a component of their annual compensation. We used treasury shares for share-based compensation award issues or exercises during 2020 and 2019.

Share-based compensation cost after tax was $25 million, $24 million and $23 million for the years ended

December 31, 2020, 2019 and 2018, respectively. The related income tax benefit recognized was $6 million,

$6 million, and $5 million for the years ended December 31, 2020, 2019 and 2018, respectively. Options exercised during the years ended December 31, 2020, 2019 and 2018, had intrinsic value of $15 million, $26 million and $15 million, respectively. Intrinsic value is the market price less the exercise price. Options vested during the years ended December 31, 2020, 2019 and 2018, had total intrinsic value of $7 million, $23 million and $6 million, respectively.

As of December 31, 2020, we had $34 million of unrecognized total compensation cost related to nonvested stock options and restricted stock unit awards. That cost will be recognized over a weighted-average period of 1.7 years.

Stock Options

Stock options are granted to associates at an exercise price equal to the fair value as determined by the average high and low sales price reported on the Nasdaq Global Select Market for the grant date and are exercisable over 10-year periods. The stock options generally vest ratably over a three-year period. In determining the share-based compensation amounts, we estimate the fair value of each option granted on the date of grant using the Black Scholes pricing model. We make the following assumptions to develop the Black Scholes pricing model as follows:

Weighted-average expected term is based on historical experience of similar awards with consideration for current exercise trends.
Expected volatility is based on our stock price over a historical period that approximates the expected term.
Dividend yield is determined by dividing the annualized per share dividend by the stock price on the date of grant.
Risk-free rates are the implied yield currently available on zero-coupon U.S. Treasury issues with a remaining term approximating the expected term.

The following weighted average assumptions were used in determining fair value for option grants issued:


	2020	2019	2018
Weighted-average expected term	7-8 years	7-8 years	7-8 years
Expected volatility	16.89-17.13%	14.49-15.39%	15.04-15.10%
Dividend yield	2.15%	2.61%	2.98%
Risk-free rates	1.40-1.41%	2.62-2.64%	2.77-2.83%
Weighted-average fair value of options granted during the period	$15.45	$11.73	$9.87

Cincinnati Financial Corporation - 2020 10-K - Page 176

Below is a summary of option information for the year 2020:


(Dollars in millions, except exercise price. Shares in thousands)	Shares	Weighted- average exercise price		Aggregate intrinsic value		Weighted-average remaining contractual life
Outstanding option shares at January 1, 2020	3,437	$	63.99
Granted	508	111.53
Exercised	(274)	41.86
Forfeited or expired	(70)	55.60
Outstanding option shares at December 31, 2020	3,601	72.55		$	66	6.01 years



Options exercisable at end of period	2,509	$	63.11	$	61	4.97 years

Cash received from the exercise of options was $7 million, $11 million and $9 million for the years ended December 31, 2020, 2019 and 2018, respectively. We acquired 50,751, 103,237 and 69,649 shares totaling

$5 million, $9 million and $5 million, respectively, from associates in consideration for option exercises during 2020, 2019 and 2018. The weighted-average remaining contractual life for options expected to vest as of December 31, 2020, was 8.38 years.

Under all active shareholder approved plans, a total of 17.3 million shares were authorized to be granted. At December 31, 2020, 7.1 million shares remained available for future issuance under the plans. During 2020, we granted 12,928 shares of common stock to our directors for 2019 board service fees.

Restricted Stock Units

Service-based restricted stock units granted to associates are valued at fair value of the shares on the date of grant less the present value of the dividends that holders of restricted stock units do not receive on the shares underlying the restricted stock units during the vesting period. Service-based restricted stock units generally cliff vest three years after the date of grant. We also grant restricted stock units which vest on a three year ratable vesting schedule. Service-based restricted stock units vested during the year had an intrinsic value of $30 million, $25 million and $24 million for the years ended December 31, 2020, 2019 and 2018, respectively.

We have performance-based awards that vest on the first day of March after a three-calendar-year performance period. These awards vest according to the level of three-year total shareholder return achieved compared with a peer group over a three-year performance period with payouts ranging from 0% to 200% for awards granted in 2020, 2019 and 2018. Three-year total shareholder return is calculated by using annualized total return of a stock to an investor due to capital gain appreciation plus reinvestment of all dividends.

For the three-year performance period ended December 31, 2020, our total shareholder return exceeded eight of our nine peers. We expect payout of these shares at the maximum level to occur in March of 2021. During 2020, we issued 56,722 shares of performance-based restricted stock units at the target-level performance hurdle for the three-year performance period ended December 31, 2019, as our total shareholder return exceeded five of nine peers in our 2017 peer group. We issued 20,549 shares of performance-based restricted stock units during 2019 at the threshold-level performance hurdle for the three-year performance period ended December 31, 2018, as our total shareholder return exceeded four of nine peers in our 2016 peer group. Performance-based awards vested during the year had an intrinsic value of $5 million, $2 million and $6 million for the years ended December 31, 2020, 2019 and 2018, respectively.

These performance-based awards are valued using a Monte-Carlo valuation on the date of grant, which uses a risk-neutral framework to model future stock price movements based upon the risk-free rate of return, the volatility of each peer and the pairwise correlations of each peer being modeled. Compensation cost is recognized regardless of whether the market-based performance objective has been satisfied. We make assumptions to develop the Monte-Carlo model as follows:

Correlation coefficients are based upon the stock price data used to calculate the historical volatilities. The correlation coefficients are used to model the way the price of each entity's stock tends to move in relation to each other.

Cincinnati Financial Corporation - 2020 10-K - Page 177

Expected volatility is based on each company's historical volatility using daily stock price observations with the period commensurate with the performance measurement period.
Dividend yield has been modeled assuming dividends are reinvested in additional shares of the issuing entity on the ex-dividend date during the performance period.
Risk-free rates are equal to the yield, as of the measurement date, of the zero-coupon U.S. Treasury bill that is commensurate with the performance measurement period.

The following assumptions were used in determining fair value for performance-based grants issued:


	2020	2019	2018
Expected term	2.86 years	2.86 years	2.89 years
Expected volatility	15.88-25.13%	15.10-25.00%	16.01-26.32%
Dividend yield	2.15%	2.61%	2.81%
Risk-free rates	1.30%	2.48%	2.22%

Below is a summary of service-based and performance-based share information, assuming a target payout for performance-based shares, for the year 2020:


(Shares in thousands)	Service-based shares	Weighted- average grant date fair value		Performance-based shares	Weighted- average grant date fair value
Nonvested at January 1, 2020	783	$	70.27	165	$	64.23
Granted	204	104.81		38	111.77
Vested	(269)	66.53		(56)	43.26
Forfeited or canceled	(22)	78.96		—	—
Nonvested at December 31, 2020	696	81.56		147	84.64

Cincinnati Financial Corporation - 2020 10-K - Page 178

NOTE 18 – Segment Information

We operate primarily in two 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.

Revenues come primarily from unaffiliated customers:

All four insurance segments record revenues from insurance premiums earned.
Fee revenues for the commercial, personal and excess and surplus insurance segments primarily represent installment fees. Fee revenues for the life insurance segment represent separate account investment management fees.
Our investments’ revenues consist of pretax net investment income and investment gains and losses.
Other revenues are primarily finance income and earned premiums of Cincinnati Re and Cincinnati Global.

Income or loss before income taxes for each segment is reported based on the nature of that business area’s operations:

Income before income taxes for the insurance segments is defined as underwriting profit or loss.

◦For commercial lines, personal lines and excess and surplus lines insurance segments, we calculate underwriting profit or loss as premiums earned and fee revenue minus loss and loss expenses and underwriting expenses incurred.

◦For the life insurance segment, we calculate underwriting profit or loss as premiums earned and fee revenue, minus contract holders’ benefits and expenses incurred, plus investment interest credited to contract holders.

Income before income taxes for the investments segment is net investment income plus investment gains and losses for investments of the entire company, minus investment interest credited to contract holders of the life insurance segment.
Loss before income taxes for the Other category is primarily due to interest expense from debt of the parent company, operating expenses of our headquarters and premiums earned minus loss and loss expenses and underwriting expenses of Cincinnati Re and Cincinnati Global.

We do not separately report the identifiable assets of property casualty insurance for the commercial, personal and excess and surplus lines segments or for Cincinnati Re because we do not use that measure to analyze performance. We include all investment assets, regardless of ownership, in the investments segment.

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Segment information is summarized in the following table:


(Dollars in millions)	Years ended December 31,
	2020		2019		2018
Revenues:
Commercial lines insurance
Commercial casualty	$	1,165	$	1,102	$	1,075
Commercial property	1,010		958		920
Commercial auto	755		707		664
Workers' compensation	271		300		324
Other commercial	275		252		235
Commercial lines insurance premiums	3,476		3,319		3,218
Fee revenues	3		5		5
Total commercial lines insurance	3,479		3,324		3,223

Personal lines insurance
Personal auto	615		621		614
Homeowner	658		607		563
Other personal	190		176		159
Personal lines insurance premiums	1,463		1,404		1,336
Fee revenues	4		4		5
Total personal lines insurance	1,467		1,408		1,341

Excess and surplus lines insurance	325		278		234
Fee revenues	2		2		1
Total excess and surplus lines insurance	327		280		235

Life insurance premiums	289		270		250
Fee revenues	2		4		4
Total life insurance	291		274		254

Investments
Investment income, net of expenses	670		646		619
Investment gains and losses, net	865		1,650		(402)
Total investment revenue	1,535		2,296		217

Other
Premiums	427		333		132
Other	10		9		5
Total other revenue	437		342		137
Total revenues	$	7,536	$	7,924	$	5,407

Income (loss) before income taxes:
Insurance underwriting results
Commercial lines insurance	$	64	$	241	$	151
Personal lines insurance	47		8		(20)
Excess and surplus lines insurance	34		53		63
Life insurance	11		1		8
Investments	1,433		2,197		121
Other	(90)		(28)		(72)
Total income before income taxes	$	1,499	$	2,472	$	251

	December 31,		December 31,
Identifiable assets:	2020		2019
Property casualty insurance	$	3,838	$	3,437
Life insurance	1,661		1,516
Investments	21,332		19,583
Other	711		872
Total	$	27,542	$	25,408

Cincinnati Financial Corporation - 2020 10-K - Page 180

NOTE 19 – Quarterly Supplementary Data

This table includes unaudited quarterly financial information for the years ended December 31, 2020 and 2019:


(Dollars in millions, except per share data)	Quarter
	1st		2nd		3rd		4th		Full year
2020
Revenues	$	(99)	$	2,714	$	2,227	$	2,694	$	7,536
Income (loss) before income taxes	(1,576)		1,145		614		1,316		1,499
Net income (loss)	(1,226)		909		484		1,049		1,216
Net income (loss) per common share—basic	(7.56)		5.65		3.01		6.52		7.55
Net income (loss) per common share—diluted	(7.56)		5.63		2.99		6.47		7.49

2019
Revenues	$	2,159	$	1,913	$	1,700	$	2,152	$	7,924
Income before income taxes	867		530		294		781		2,472
Net income	695		428		248		626		1,997
Net income per common share—basic	4.27		2.62		1.51		3.84		12.24
Net income per common share—diluted	4.22		2.59		1.49		3.79		12.10

The sum of the quarterly reported per share amounts may not equal the full year as each is computed independently. Revenues including investment gains and losses, which are integral to our financial results over the long term, may cause this value to fluctuate substantially because we have substantial discretion in the timing of investment sales. Also, applicable accounting standards require us to recognize gains and losses from certain changes in fair values of securities without actual realization of those gains and losses.

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