Cincinnati Financial (CINF) 10-K risk factor changes: FY2021 vs FY2020

According to these models, probable maximum loss estimates from a single hurricane event that combine the effects of property casualty insurance written on a direct basis by The Cincinnati Insurance Companies, the Cincinnati Re reinsurance portfolio and risks insured by Cincinnati Global include the following amounts, net of amounts recoverable through reinsurance ceded and also income taxes, and including the effects of estimated reinstatement premiums: [removed: $326] [added: $428] million for a once-in-a-100-year event and [removed: $459] [added: $602] million for a once-in-a-250-year event.

Please see Item 7, Liquidity and Capital Resources, [removed: 2021] [added: 2022] Reinsurance Programs, for a discussion of modeled losses considered in evaluating our risk mitigation strategy, which includes our ceded reinsurance program.

We have exposure to small co-op utilities, water utilities, wholesale fuel distributors, small shopping malls and small colleges throughout our [removed: 45] [added: 46] active states and, because of the number of associates located there, our Fairfield, Ohio, headquarters.

We market our standard market property casualty insurance products in [removed: 45] [added: 46] states, but our business is concentrated in the Midwest and Southeast.

Based on treaties in effect at January 1, [removed: 2021,] [added: 2022,] the largest loss exposure to us for Cincinnati Re is from natural catastrophe events.

That exposure includes probable maximum loss estimates, on a marginal basis, of the following amounts: [removed: $116] [added: $174] million for a once-in-a-100-year event and [removed: $118] [added: $167] million for a once-in-a-250-year event.

They are based on probable maximum loss estimates from the Applied Insurance Research Touchstone® version [removed: 7.0] [added: 8.0] catastrophe model.

Ignoring diversification effects provided by those two components, on a standalone basis, probable maximum loss estimates for Cincinnati Re include the following amounts: [removed: $167] [added: $201] million for a once-in-a-100-year event and [removed: $193] [added: $230] million for a once-in-a-250-year event.

At January 1, [removed: 2021,] [added: 2022,] the largest loss exposure to us for Cincinnati Global is from natural catastrophe events.

That exposure includes probable maximum loss estimates of the following amounts: [removed: $48] [added: $49] million for a once-in-a-100-year event and [removed: $77] [added: $78] million for a once-in-a-250-year event.

based on probable maximum loss estimates from the Applied Insurance Research Touchstone version [removed: 7.0] [added: 8.0] catastrophe model.

[removed: If there is a high frequency of large property catastrophe or terrorism events, or a single extreme] event, during the coverage period of its policies, our financial position and results of operations could be materially affected.

The outbreak [removed: has become increasingly] [added: was] widespread in the United States, including in the markets in which we operate.

Our estimates for COVID-19 losses and loss adjustment expenses represent our best estimates as of December 31, [removed: 2020,] [added: 2021,] based upon information currently available.

While we believe our net reserves for losses and loss adjustment expenses for COVID-19 as of December 31, [removed: 2020,] [added: 2021,] are adequate based on information available at this time, we continue to closely monitor reported claims, government actions, judicial decisions and changes in the levels of worldwide social disruption and economic activity arising from the pandemic and will adjust our estimates of gross and net losses as new information becomes available.

Factors that affect our estimates of losses and loss adjustment expenses or our ability to reasonably estimate such losses include the continuing duration of the pandemic and governmental actions to limit the spread of the virus that may produce additional economic losses; the number of policyholders that will ultimately submit claims or file lawsuits; the lack of submitted proofs of loss for allegedly covered claims; judicial rulings in similar litigation involving other companies in the insurance industry; difference in state law and developing case [removed: law in the relatively few decisions rendered to date;] [added: law;] litigation trends, including varying legal theories advanced by policyholders; whether and to what degree any class of policyholders may be certified; and the inherent unpredictability of litigation.

[removed: Inflation trends, especially outside of] historical norms, may make it more difficult to determine adequate pricing.

From time to time, the [removed: insurance] industry goes through prolonged periods of intense competition during which it is more difficult to attract new business, retain existing business and maintain profitability.

In addition, capital market participants have created alternative products that are intended to compete with reinsurance products that we sell [removed: in] [added: through] Cincinnati Re.

We can provide no assurance that the anticipated benefits of the transaction will be fully realized in the time frame anticipated or at all, or that the costs or difficulties related to [removed: the integration of] [added: further developing] its operations will not be greater than expected.

We may never realize these business opportunities and growth prospects, and our management might have its attention diverted while trying to [removed: integrate] [added: further develop ongoing] operations.

Cincinnati Global’s international operations [removed: subjects] [added: subject] us to additional regulation and could expose us to additional investment, political and economic risks.

With a view to mitigating the potential effects of Brexit on business underwritten through [removed: Lloyd’s, it] [added: it, Lloyd’s] has set up an insurance company subsidiary in Belgium, with the intention of underwriting European Economic Area insurance business via that subsidiary.

Please see Item 7, Liquidity and Capital Resources, [removed: 2021] [added: 2022] Reinsurance Ceded Programs, for a discussion of selected reinsurance transactions.

The outbreak of COVID-19 [removed: has] contributed to [removed: recent] significant disruption and volatility for financial markets and decreased economic activity.

Many companies [removed: have] experienced uncertainty and reduced liquidity.

These market conditions could [added: also] cause our investment income or the value of securities we own to decrease.

For fixed-maturity investments such as bonds, which represented [removed: 58.2%] [added: 53.5%] of the fair value of our investment portfolio at the end of [removed: 2020,] [added: 2021,] the inverse relationship between interest rates and bond prices leads to falling bond values during periods of increasing interest rates.

At year-end [removed: 2020,] [added: 2021,] common stock holdings made up [removed: 40.3%] [added: 44.6%] of our investment portfolio.

In [removed: 2021,] [added: 2022,] the maximum dividend that may be paid without prior regulatory approval is limited to the greater of 10% of statutory capital and surplus or 100% of statutory net income for the prior calendar year, up to the amount of statutory unassigned capital and surplus as of the end of the prior calendar year.

Such tools and information can allow them to effectively perform critical business functions and [removed: adapt to changing business needs.]

Any proposed or future legislation, regulation or NAIC initiatives, if adopted, may be more restrictive on our ability to conduct business than current regulatory requirements or may result in [added: higher costs.]

Our insurance policies provide coverage for terrorism risk in all areas we serve, including Tier 1 and Tier 2 cities.

If there is a high frequency of large property catastrophe or terrorism events, or a single extreme

Inflation trends, especially outside of

adapt to changing business needs.

Many markets in which we operate are experiencing a low unemployment rate and labor shortages are affecting many industries.

We use technology to process, store, retrieve, evaluate and utilize customer and company data and information.

Our information technology and telecommunications systems, in turn, interface with and rely upon third-party systems.

We must be able to access our systems to provide insurance quotes, process premium payments, make changes to existing policies, file and pay claims, provide customer support, manage our investment portfolios, report on financial results and perform other necessary business functions.

Systems failures or outages could compromise our ability to perform these business functions in a timely manner, which could harm our ability to conduct business and hurt our relationships with our business partners and customers.

In the event of a disaster such as a natural

catastrophe, a pandemic, civil unrest, an industrial accident, a cyber-attack, a blackout, a terrorist attack (including conventional, nuclear, biological, chemical or radiological) or war, systems upon which we rely may be inaccessible to our employees or independent agents for an extended period of time.

Even if our employees and independent agents are able to report to work, they may be unable to perform their duties for an extended period of time if our data or systems used to conduct our business are disabled or destroyed.

Our systems have been, and will likely continue to be, subject to viruses or other malicious codes, unauthorized access, cyber attacks, cyber frauds or other computer related penetrations.

While we are not aware of having experienced a material breach of our cybersecurity systems, administrative, internal accounting and technical controls as well as other preventative actions may be insufficient to prevent security breaches to our systems or those of third parties with whom we do business.

While our insurance policies provide coverage for terrorism risk in all areas we serve, we have identified our major terrorism exposure geographically as risks in the Tier 1 cities of Chicago, Dallas, New York, Houston, Los Angeles and Washington D.C. We have a greater amount of business in less hazardous Tier 2 cities such as Atlanta, Cincinnati, Cleveland, Denver, Minneapolis, Phoenix-Mesa, Pittsburgh, St. Louis and Tampa-St. Petersburg.

A weaker economy could result in reduced insurance premium revenue.

The outbreak of COVID-19 could have adverse impacts on economic activity that affect demand for insurance or cause substantial disruption to our distribution channel of independent agents, due to self-isolation, travel limitations, business restrictions, and otherwise.

During the pandemic, many areas within the United States have imposed mandatory closures for businesses not deemed to be essential.

It is currently unclear if such mandatory closures will again be imposed or for how long such closures will last.

Though most of our employees are able to work remotely, these closures have affected agents, through which we sell our products and services, or their clients, which could result in significant declines in premium revenues.

In an effort to support insurance consumers

during this pandemic, most states where we market our products have issued mandates or requests such as moratoriums on policy cancellations or nonrenewals for nonpayments of premiums, forbearance on premium collections, waivers of late payment fees and extended periods in which policyholders may make their missed payments.

Such actions may result in delayed premium receipts, disrupting cash flows and increasing credit risk from policyholders unable to make timely premium payments.

Cash flows and gross premium receipts may also be affected by mid-term adjustments to exposures on which premium calculations are based to reflect the economic impact of the COVID-19 crisis on insureds’ business operations.

The amount or duration of the effects could adversely impact our business, financial condition, results of operations or cash flows.

Such adverse impacts may be material.

higher costs.

Our Management’s Discussion and Analysis should be read in conjunction with Item [removed: 6, Selected Financial Data, and Item] 8, Consolidated Financial Statements and related Notes.

We begin with an executive summary of our results of operations, followed by other [removed: highlights, an overview of our strategy, an outlook for future performance] [added: highlights] and details about critical accounting estimates.

Through The Cincinnati Insurance Company, Cincinnati Financial Corporation is one of the 25 largest property casualty insurers in the nation, based on net written premium volume for the first nine months of [removed: 2020,] [added: 2021,] among approximately 2,000 U.S. stock and mutual insurer groups.

We market our insurance products through a select group of independent insurance agencies in [removed: 45] [added: 46] states as discussed in Item 1, Our Business and Our Strategy.

| [removed: As] [added: As] of December 31, [removed: 2020] [added: 2020] | | | | | | [removed: 14.7] [added: 14.7] | | [removed: %] | | | | [removed: 15.0] [added: 15.0] | | [removed: %] | | | | [removed: 16.5] [added: 16.5] | | [removed: %] |

At [removed: 14.7%] [added: 25.7%] for [removed: 2020,] [added: 2021,] our performance exceeded the high end of that range.

We also exceeded the high end of [removed: it] [added: the range] for both the three-year and five-year periods that ended in December [removed: 2020.][added: 2021.]

| | | | | | | Years ended December 31, | | | | | | | | | | | | | | | | | | [removed: 2020-2019] [added: 2021-2020] | | | | | | [removed: 2019-2018] [added: 2020-2019] | | |

| | | | | | | [removed: 2020] [added: 2021] | | | | | | [removed: 2019] [added: 2020] | | | | | | [removed: 2018] [added: 2019] | | | | | | Pt. Change | | | | | | Pt. Change | | |

| Net income before investment gains | | | | | | [removed: 5.5] [added: 9.7] | | % | | | | [removed: 8.9] [added: 5.5] | | % | | | | [removed: 7.4] [added: 8.9] | | % | | | | [removed: (3.4)] [added: 4.2] | | | | | | [removed: 1.5] [added: (3.4)] | | |

| Change in fixed-maturity securities, realized and unrealized gains | | | | | | [removed: 3.0] [added: (1.5)] | | | | | | [removed: 5.5] [added: 3.0] | | | | | | [removed: (3.2)] [added: 5.5] | | | | | | [removed: (2.5)] [added: (4.5)] | | | | | | [removed: 8.7] [added: (2.5)] | | |

| Change in equity securities, investment gains | | | | | | [removed: 7.5] [added: 16.8] | | | | | | [removed: 16.6] [added: 7.5] | | | | | | [removed: (3.8)] [added: 16.6] | | | | | | [removed: (9.1)] [added: 9.3] | | | | | | [removed: 20.4] [added: (9.1)] | | |

| Other | | | | | | [removed: (1.3)] [added: 0.7] | | | | | | [removed: (0.5)] [added: (1.3)] | | | | | | (0.5) | | | | | | [removed: (0.8)] [added: 2.0] | | | | | | [removed: 0.0] [added: (0.8)] | | |

| Value creation ratio | | | | | | [removed: 14.7] [added: 25.7] | | % | | | | [removed: 30.5] [added: 14.7] | | % | | | | [removed: (0.1)] [added: 30.5] | | % | | | | [removed: (15.8)] [added: 11.0] | | | | | | [removed: 30.6] [added: (15.8)] | | |

The [removed: 2020] [added: 2021] value creation ratio [removed: decreased] [added: increased] by [removed: 15.8] [added: 11.0] percentage points, compared with [removed: 2019, primarily due to] [added: 2020, including improved operating results and] a [removed: less favorable] [added: higher] valuation for our investment portfolio, as shown in the table above.

The [removed: increase] [added: decrease] in [removed: 2019,] [added: 2020,] compared with [removed: 2018,] [added: 2019,] was primarily due to a [removed: higher] [added: less favorable] valuation for our investment portfolio.

| | | | | | | [removed: 2020] [added: 2021] | | | | | | [removed: 2019] [added: 2020] | | | | | | [removed: 2018] [added: 2019] | | |

| End of period book value* | | | | | | $ | [removed: 67.04] [added: 81.72] | | | | | $ | [removed: 60.55] [added: 67.04] | | | | | $ | [removed: 48.10] [added: 60.55] | |

| Less beginning of period book value | | | | | | [removed: 60.55] [added: 67.04] | | | | | | [removed: 48.10] [added: 60.55] | | | | | | [removed: 50.29] [added: 48.10] | | |

| Change in book value | | | | | | [removed: 6.49] [added: 14.68] | | | | | | [removed: 12.45] [added: 6.49] | | | | | | [removed: (2.19)] [added: 12.45] | | |

| Dividend declared to shareholders | | | | | | [removed: 2.40] [added: 2.52] | | | | | | [removed: 2.24] [added: 2.40] | | | | | | [removed: 2.12] [added: 2.24] | | |

| Total value creation | | | | | | $ | [removed: 8.89] [added: 17.20] | | | | | $ | [removed: 14.69] [added: 8.89] | | | | | $ | [removed: (0.07)] [added: 14.69] | |

| Value creation ratio from change in book value | | | | | | [removed: 10.7] [added: 21.9] | | % | | | | [removed: 25.9] [added: 10.7] | | % | | | | [removed: (4.3)] [added: 25.9] | | % |

| Value creation ratio from dividends declared to shareholders* | | | | | | [removed: 4.0] [added: 3.8] | | | | | | [removed: 4.6] [added: 4.0] | | | | | | [removed: 4.2] [added: 4.6] | | |

| Value creation ratio | | | | | | [removed: 14.7] [added: 25.7] | | % | | | | [removed: 30.5] [added: 14.7] | | % | | | | [removed: (0.1)] [added: 30.5] | | % |

The compound annual growth rate of our net written premiums was [removed: 6.1%] [added: 7.2%] over the five-year period [removed: 2016] [added: 2017] through [removed: 2020,] [added: 2021,] exceeding the [removed: 4.6%] [added: 5.8%] estimated growth rate for the property casualty insurance [removed: industry.][added: industry, with 2021 representing industry data reported through the first nine months of 2021.]

Our GAAP combined ratio averaged [removed: 96.1%] [added: 94.8%] over the five-year period [removed: 2016] [added: 2017] through [removed: 2020, near the more favorable end of] [added: 2021, slightly better than] the performance target range.

Our statutory combined ratio averaged [removed: 95.6%] [added: 94.2%] over the five-year period [removed: 2016] [added: 2017] through [removed: 2020,] [added: 2021,] compared with an estimated [removed: 100.6%] [added: 100.3%] for the property casualty [removed: industry.][added: industry, with 2021 representing industry data reported through the first nine months of 2021.]

◦Investment income growth, on a pretax basis, had a compound annual growth rate of [removed: 3.2%] [added: 3.7%] over the five-year period [removed: 2016] [added: 2017] through [removed: 2020.][added: 2021.]

◦Over the five years ended December 31, [removed: 2020,] [added: 2021,] our equity portfolio compound annual total return was [removed: 15.9%] [added: 18.0%] compared with a compound annual total return of [removed: 15.2%] [added: 18.5%] for the Index.

For the year [removed: 2020,] [added: 2021,] our equity portfolio total return was [removed: 14.7%,] [added: 29.6%,] compared with [removed: 18.4%] [added: 28.7%] for the Index.

Through [removed: 2020,] [added: 2021,] the company has increased the annual cash dividend rate for [removed: 60] [added: 61] consecutive years, a record we believe is matched by only seven other publicly traded U.S. companies.

In addition to regular dividends, strong capital and excellent company performance has provided opportunities to further reward [removed: shareholders, including a special dividend paid in December 2017.][added: shareholders.]

The board regularly evaluates relevant factors in dividend-related decisions, and the [removed: 2020] [added: 2021] increase to the regular dividend reflected confidence in our strong capital, liquidity and financial flexibility, as well as progress [removed: through] [added: of] our initiatives to improve earnings performance while growing insurance premium revenues.

| | | | | | | [removed: 2020] [added: 2021] | | | | | | [added: 2020 | | | | | |] 2019 | | | [added: | | | Change % | | | | | | Change % | | |]

| Total investments | | | | | | $ | [removed: 21,542] [added: 24,666] | | | | | $ | [removed: 19,746] [added: 21,542] | |

| Total assets | | | | | | [removed: 27,542] [added: 31,387] | | | | | | [removed: 25,408] [added: 27,542] | | |

| Short-term debt | | | | | | 54 | | | | | | [removed: 39] [added: 54] | | |

| Long-term debt | | | | | | [removed: 788] [added: 789] | | | | | | 788 | | |

| Shareholders' equity | | | | | | [removed: 10,789] [added: 13,105] | | | | | | [removed: 9,864] [added: 10,789] | | |

The primary sources of our company’s net income are summarized below.

We discuss contributions to net income and VCR by source in Corporate Financial Highlights, followed by more detailed discussion in Financial Results.

- Underwriting profit (loss) – Includes revenues from earned premiums for insurance and reinsurance policies or contracts, reduced by losses and loss expenses from associated insurance coverages.

Those revenues are further reduced by underwriting expenses associated with marketing policies or related to administration of our insurance operation.

The net result represents an underwriting profit when revenues exceed losses and expenses.

- Investment income – Is generated primarily from investing the premiums collected for insurance policies sold, until funds are needed to pay losses for insurance claims or other expenses.

Interest income from bonds or dividend income from stocks are the main categories of our investment income, with additional contribution from compounding effects over time.

- Investment gains and losses – Occur from appreciation or depreciation of invested assets over time.

Gains or losses are generally recognized from changes in market values of equity securities without a sale or when invested assets are sold or become impaired.

| As of December 31, 2021 | | | | | | 25.7 | | % | | | | 23.6 | | % | | | | 18.7 | | % |

| | | | | | | 2021 | | | | | | 2020 | | |

Net income rose by $1.730 billion or 142% in 2021, compared with 2020, including a $1.220 billion increase for 2021 net investment gains after taxes.

The improved 2021 net income also included an increase in property casualty underwriting income of $483 million after taxes, as discussed below, and a $37 million increase in investment income after taxes.

During 2021, SARS-CoV-2, also known as COVID-19 and recognized as a pandemic by the World Health Organization, continued to cause dampening economic effects in some areas where we operate, while many areas experienced strengthening economic effects due to increased business activity and consumer spending.

In 2020, it caused significant effects, including temporary closures of many businesses and reduced consumer spending due

to shelter-in-place, stay-at-home and other governmental actions.

We believe the COVID-19 pandemic did not have a significant effect on our premium revenues for the last three quarters of 2021, while it had a modestly slowing effect on premium growth for the first quarter of the year.

We are not able to determine premium effects for future periods.

During 2021, changes to our estimates for incurred losses and expenses related to the pandemic included a $2 million increase in Cincinnati Re® losses, a $1 million decrease in Cincinnati Global Underwriting Ltd.SM (Cincinnati Global) losses and an $8 million decrease in ultimate credit losses related to uncollectible premiums.

We are not able to determine loss effects for future periods.

Property casualty net written premiums grew 10% and earned premiums grew 9% in 2021.

The growth reflected average renewal price increases, premium growth initiatives and a higher level of insured exposures, including a contribution to net written premium growth of 3 percentage points from Cincinnati Re.

| At December 31, 2021 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |

| Total | | | | | | $ | 6,902 | | | | | $ | 6,446 | | | | | $ | 7,014 | | | | | $ | 284 | | | | | $ | 224 | |

| Commercial casualty | | | | | | $ | 2,464 | | | | | $ | 2,222 | | | | | $ | 2,655 | | | | | $ | 217 | | | | | $ | 171 | |

| Commercial property | | | | | | 456 | | | | | | 314 | | | | | | 527 | | | | | | 107 | | | | | | 85 | | |

| Commercial auto | | | | | | 759 | | | | | | 708 | | | | | | 798 | | | | | | 45 | | | | | | 36 | | |

| Workers' compensation | | | | | | 965 | | | | | | 815 | | | | | | 989 | | | | | | 87 | | | | | | 69 | | |

| Personal auto | | | | | | 292 | | | | | | 272 | | | | | | 313 | | | | | | 21 | | | | | | 17 | | |

| Homeowners | | | | | | 299 | | | | | | 282 | | | | | | 316 | | | | | | 17 | | | | | | 13 | | |

| Excess and surplus | | | | | | 562 | | | | | | 521 | | | | | | 603 | | | | | | 43 | | | | | | 34 | | |

We believe the COVID-19 pandemic did not have a significant effect on our consolidated property casualty premium revenues for the last three quarters of 2021, while it had a modestly slowing effect on premium growth for the first quarter.

The pandemic and a weakened economy reduced premium volume during the first quarter of 2021 and during much of 2020.

A strengthening economy in 2021 contributed to premium growth, compared with the same period a year ago.

Consolidated property casualty net written premiums grew 10% in 2021, compared with 2020, including a contribution of 3% from Cincinnati Re.

Consolidated property casualty new business written premiums increased 12% in 2021, compared with 2020.

was 99.5% in 2021, 99.1% in 2020 and 99.2% in 2019.

We determined that the coverage was no longer cost effective.

Before any recoveries, that program included property catastrophe excess of loss coverage with a total available aggregate limit of $48 million in excess of $80 million per loss.

It provided a recovery based on Hurricane Ida losses estimated as of December 31, 2021.

| As of December 31, 2018 | | | | | | (0.1) | | | | | | 12.4 | | | | | | 10.7 | | |

| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |

| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |

Operating results in 2019 contributed to VCR more than in 2018, despite a 0.7% contribution from certain non-recurring items in the 2018 ratio, including the impact of various tax accounting method changes.

| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |

| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |

Net income in 2018 included a $56 million benefit from certain other non-recurring items, primarily the impact of various tax accounting method changes as disclosed in Item 8, Note 11 of the Consolidated Financial Statements.

During much of 2020, the novel coronavirus (SARS-CoV-2 or COVID-19), recognized as a pandemic by the World Health Organization, caused significant economic effects where we operate, including temporary closures of many businesses and reduced consumer spending due to shelter-in-place, stay-at-home and other governmental actions.

In addition, the ultimate effects of past or future government-ordered actions, including moratoriums or deferral of premium payments related to our insurance policies, are uncertain and may further adversely affect premium growth.

Net income in 2019 increased $1.710 billion, compared with 2018, primarily due to a $1.621 billion increase for 2019 in net investment gains after taxes and a $122 million increase in property casualty underwriting income after taxes.

| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |

| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |

| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |

Included in the 2019 growth rate was a contribution of 3 percentage points from Cincinnati Global.

We completed our transaction to acquire Cincinnati Global, a London-based global specialty underwriter for Lloyd's Syndicate 318, on February 28, 2019.

We expect the transaction to contribute to future earnings and book value growth as we believe it should provide opportunities to support business produced by our independent agencies in new geographies and lines of business.

Strategic Initiatives Overview

Management has worked to identify a strategy that can lead to long-term success, with concurrence by the board of directors.

Our strategy is intended to position us to compete successfully in the markets we have targeted while appropriately managing risk.

We discuss our long-term, proven strategy in Item 1, Our Business and Our Strategy.

We believe successful implementation of initiatives that support our strategy will help us better serve our agent customers and reduce volatility in our financial results while we also grow earnings and book value over the long term, successfully navigating challenging economic, market or industry pricing cycles.

- Manage insurance profitability – Implementation of these initiatives is intended to enhance underwriting expertise and knowledge, thereby increasing our ability to manage our business while also gaining efficiency.

Better profit margins can arise from additional information and more focused action on underperforming product lines, plus pricing capabilities we are expanding through the use of technology and analytics.

In addition to enhancing company efficiency, improving internal processes also supports the ability of the independent agencies that represent us to grow profitably by allowing them to serve clients faster and to more efficiently manage agency expenses.

- Drive premium growth – Implementation of these initiatives is intended to further penetrate each market we serve through our appointed independent agencies.

Strategies aimed at specific market opportunities, along with service enhancements, can help our agents grow and increase our share of their business.

Premium growth initiatives also include expansion of Cincinnati Re and Cincinnati Global.

Diversified growth also may reduce variability of losses from weather-related catastrophes.

Detailed discussion of recent-year financial performance influenced by our strategic initiatives appears below in Financial Results and Liquidity and Capital Resources.

Factors Influencing Our Future Performance

Other factors that could influence our ability to achieve our targets include:

- We expect the insurance marketplace to remain competitive, which is likely to cause carriers to pursue strategies that they believe could lead to economies of scale, market share gains or the potential for an improved competitive posture.

- We expect the independent insurance agency system to remain strong, with continued agency consolidation.

If soft insurance market conditions return in the near term, it will create additional risk for agencies.

- A return of soft insurance market pricing could significantly affect growth rates and earned premium levels for some time into the future.

If the economy falters, we may experience low or no premium growth for our property casualty segments.

Premium growth also may lag as some of our growth initiatives require more time to reach their full contribution.

In addition, economic factors, including inflation, may increase our claims and settlement expenses related to medical care, litigation and construction.

- Financial markets continued to display volatility in recent years, and some predict more turbulence in the future from effects such as changes in government policy, growth challenges for emerging country economies or other geopolitical events that could also affect the U.S. economy and markets.

Should financial markets decline temporarily, which could occur as part of typical market volatility patterns, the related book value component of our value creation ratio could also register a weak or negative result.

| [removed: At] [added: At] December 31, [removed: 2020] [added: 2020] | | | | | | [removed: $] [added: $] | [removed: 13,493] [added: 13,493] | | | | | [removed: $] [added: $] | [removed: 12,900] [added: 12,900] | | | | | [removed: $] [added: $] | [removed: 12,338] [added: 12,338] | | | | | [removed: $] [added: $] | [removed: 11,774] [added: 11,774] | | | | | [removed: $] [added: $] | [removed: 11,195] [added: 11,195] | |

The effective duration of the fixed-maturity portfolio was [removed: 4.5] [added: 4.8] years at year-end [removed: 2020, down] [added: 2021, up] from [removed: 4.8] [added: 4.5] years at year-end [removed: 2019.][added: 2020.]

A 100-basis-point movement in interest rates would result in an approximately [removed: 4.6%] [added: 4.8%] change in the fair value of the fixed-maturity portfolio.

| [removed: At] [added: At] December 31, [removed: 2020] [added: 2020] | | | | | | [removed: $] [added: $] | [removed: 6,199] [added: 6,199] | | | | | [removed: $] [added: $] | [removed: 7,085] [added: 7,085] | | | | | [removed: $] [added: $] | [removed: 7,970] [added: 7,970] | | | | | [removed: $] [added: $] | [removed: 8,856] [added: 8,856] | | | | | [removed: $] [added: $] | [removed: 9,742] [added: 9,742] | | | | | [removed: $] [added: $] | [removed: 10,627] [added: 10,627] | | | | | [removed: $] [added: $] | [removed: 11,513] [added: 11,513] | |

Our equity holdings represented [removed: $8.856] [added: $11.315] billion in fair value and accounted for approximately [removed: 82.8%] [added: 90.1%] of the net unrealized gains and losses of the entire portfolio at year-end [removed: 2020.][added: 2021.]

No holding had a fair value greater than [removed: 7.6%] [added: 8.0%] of our [removed: $8.541] [added: $10.862] billion publicly traded common stock portfolio.

We had [removed: 36] [added: 42] holdings among [removed: eight] [added: 10] different sectors each with a fair value greater than $100 million.

The application of our impairment policy resulted in write-downs of impaired securities intended to be sold that reduced our income before income taxes by [added: $1 million in 2021,] $78 million in [removed: 2020,] [added: 2020] and OTTI charges of $9 million in [removed: 2019 and $5 million in 2018.][added: 2019.]

At year-end [removed: 2020, 128] [added: 2021, 278] of the [removed: 4,128] [added: 4,329] fixed-maturity securities we owned had a fair value below 100% of cost or amortized cost compared with [removed: 157] [added: 128] of the [removed: 3,911 fixed-maturity and equity securities we owned] [added: 4,128] at year-end [removed: 2019] [added: 2020] and [removed: 1,262] [added: 157] of the [removed: 3,606 fixed-maturity and equity securities we owned] [added: 3,911] at year-end [removed: 2018.][added: 2019.]

The [removed: 128] [added: 278] holdings fair valued below cost or amortized cost at year-end [removed: 2020] [added: 2021] represented [removed: 3.7%] [added: 8.3%] of our fixed-maturity portfolio and [removed: $10] [added: $16] million in unrealized losses.

- [removed: 118] [added: 274] of these holdings were fair valued between 90% and 100% of cost or amortized cost.

The fair value of these [removed: 118] [added: 274] securities was [removed: $441 million] [added: $1.069 billion] at year-end [removed: 2020,] [added: 2021,] and they accounted for [removed: $7] [added: $15] million in unrealized losses.

- [removed: 10] [added: 4] of these holdings were fair valued between 70% and 90% of cost or amortized cost.

The fair value of these holdings was [removed: $19] [added: $6] million, and they accounted for [removed: $3] [added: $1] million in unrealized losses.

| At December 31, [removed: 2020] [added: 2021] | | | | | | Fair value | | | | | | Unrealized losses | | | | | | Fair value | | | | | | Unrealized losses | | | | | | Fair value | | | | | | Unrealized losses | | |

| Corporate | | | | | | [removed: $] [added: $] | [removed: 330] [added: 330] | | | | | [removed: $] [added: $] | [removed: 5] [added: 5] | | | | | [removed: $] [added: $] | [removed: 46] [added: 46] | | | | | [removed: $] [added: $] | [removed: 2] [added: 2] | | | | | [removed: $] [added: $] | [removed: 376] [added: 376] | | | | | [removed: $] [added: $] | [removed: 7] [added: 7] | |

| States, municipalities and political subdivisions | | | | | | [removed: 31] [added: 31] | | | | | | [removed: 2] [added: 2] | | | | | | [removed: 2] [added: 2] | | | | | | [removed: —] [added: —] | | | | | | [removed: 33] [added: 33] | | | | | | [removed: 2] [added: 2] | | |

| Commercial mortgage-backed | | | | | | [removed: 23] [added: 10] | | | | | | [removed: 1] [added: —] | | | | | | [removed: 6] [added: 11] | | | | | | — | | | | | | [removed: 29] [added: 21] | | | | | | [removed: 1] [added: —] | | |

| United States government | | | | | | [removed: 12] [added: 48] | | | | | | — | | | | | | — | | | | | | — | | | | | | [removed: 12] [added: 48] | | | | | | — | | |

| Foreign government | | | | | | [removed: 10] [added: 16] | | | | | | — | | | | | | — | | | | | | — | | | | | | [removed: 10] [added: 16] | | | | | | — | | |

| Total | | | | | | [removed: $] [added: $] | [removed: 406] [added: 406] | | | | | [removed: $] [added: $] | [removed: 8] [added: 8] | | | | | [removed: $] [added: $] | [removed: 54] [added: 54] | | | | | [removed: $] [added: $] | [removed: 2] [added: 2] | | | | | [removed: $] [added: $] | [removed: 460] [added: 460] | | | | | [removed: $] [added: $] | [removed: 10] [added: 10] | |

| States, municipalities and political subdivisions | | | | | | [removed: 98] [added: 105] | | | | | | [removed: 1] [added: 2] | | | | | | [removed: 10] [added: 2] | | | | | | [removed: —] [added: 1] | | | | | | [removed: 108] [added: 107] | | | | | | [removed: 1] [added: 3] | | |

| Commercial mortgage-backed | | | | | | [removed: 6] [added: 23] | | | | | | [removed: —] [added: 1] | | | | | | [removed: —] [added: 6] | | | | | | — | | | | | | [removed: 6] [added: 29] | | | | | | [removed: —] [added: 1] | | |

| United States government | | | | | | [removed: —] [added: 12] | | | | | | — | | | | | | [removed: 4] [added: —] | | | | | | — | | | | | | [removed: 4] [added: 12] | | | | | | — | | |

| Foreign government | | | | | | [removed: 11] [added: 10] | | | | | | — | | | | | | — | | | | | | — | | | | | | [removed: 11] [added: 10] | | | | | | — | | |

| Government-sponsored enterprises | | | | | | [removed: 26] [added: 7] | | | | | | [removed: 1] [added: —] | | | | | | [removed: 51] [added: —] | | | | | | [removed: —] [added: —] | | | | | | [removed: 77] [added: 7] | | | | | | [removed: 1] [added: —] | | |

| [removed: At] [added: At] December 31, [removed: 2020] [added: 2020] | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | [added: | | | | | |]

| Fair valued at 70% to less than 100% of amortized cost | | | | | | [removed: 104] [added: 20] | | | | | | [removed: 445] [added: 32] | | | | | | [removed: 436] [added: 31] | | | | | | [removed: (9)] [added: (1)] | | | | | | [removed: 17] [added: 1] | | |

| Fair valued at 100% and above of amortized cost | | | | | | [removed: 1,745] [added: 1,820] | | | | | | [removed: 6,918] [added: 7,285] | | | | | | [removed: 7,617] [added: 7,814] | | | | | | [removed: 699] [added: 529] | | | | | | [removed: 293] [added: 307] | | |

| Investment income on securities sold in current year | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | [removed: 21] [added: 30] | | |

| Fair valued at 70% to less than 100% of amortized cost | | | | | | [removed: 24] [added: 258] | | | | | | [removed: 25] [added: 1,059] | | | | | | [removed: 24] [added: 1,044] | | | | | | [removed: (1)] [added: (15)] | | | | | | [removed: 1] [added: 16] | | |

| Fair valued at 100% and above of amortized cost | | | | | | [removed: 2,255] [added: 2,231] | | | | | | [removed: 3,924] [added: 3,854] | | | | | | [removed: 4,261] [added: 4,133] | | | | | | [removed: 337] [added: 279] | | | | | | [removed: 121] [added: 120] | | |

| Investment income on securities sold in current year | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | [removed: 2] [added: 3] | | |

| Fair valued at 70% to less than 100% of amortized cost | | | | | | [removed: 128] [added: 128] | | | | | | [removed: 470] [added: 470] | | | | | | [removed: 460] [added: 460] | | | | | | [removed: (10)] [added: (10)] | | | | | | [removed: 18] [added: 18] | | |

| Fair valued at 100% and above of amortized cost | | | | | | [removed: 4,000] [added: 4,000] | | | | | | [removed: 10,842] [added: 10,842] | | | | | | [removed: 11,878] [added: 11,878] | | | | | | [removed: 1,036] [added: 1,036] | | | | | | [removed: 414] [added: 414] | | |

| Investment income on securities sold in current year | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | [removed: 23] [added: 33] | | |

| Total | | | | | | [removed: 4,128] [added: 4,128] | | | | | | [removed: $] [added: $] | [removed: 11,312] [added: 11,312] | | | | | [removed: $] [added: $] | [removed: 12,338] [added: 12,338] | | | | | [removed: $] [added: $] | [removed: 1,026] [added: 1,026] | | | | | [removed: $] [added: $] | [removed: 455] [added: 455] | |

| Fair valued at 70% to less than 100% of amortized cost | | | | | | [removed: 157] [added: 278] | | | | | | [removed: 530] [added: 1,091] | | | | | | [removed: 523] [added: 1,075] | | | | | | [removed: (7)] [added: (16)] | | | | | | [removed: 12] [added: 17] | | |

| Fair valued at 100% and above of amortized cost | | | | | | [removed: 3,754] [added: 4,051] | | | | | | [removed: 10,578] [added: 11,139] | | | | | | [removed: 11,175] [added: 11,947] | | | | | | [removed: 597] [added: 808] | | | | | | [removed: 401] [added: 427] | | |

| Investment income on securities sold in current year | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | [removed: 33] [added: 23] | | |

| At December 31, 2021 | | | | | | $ | 14,327 | | | | | $ | 13,656 | | | | | $ | 13,022 | | | | | $ | 12,399 | | | | | $ | 11,768 | |

| At December 31, 2021 | | | | | | $ | 7,921 | | | | | $ | 9,052 | | | | | $ | 10,184 | | | | | $ | 11,315 | | | | | $ | 12,447 | | | | | $ | 13,578 | | | | | $ | 14,710 | |

| Corporate | | | | | | $ | 861 | | | | | $ | 13 | | | | | $ | 15 | | | | | $ | — | | | | | $ | 876 | | | | | $ | 13 | |

| Total | | | | | | $ | 1,047 | | | | | $ | 15 | | | | | $ | 28 | | | | | $ | 1 | | | | | $ | 1,075 | | | | | $ | 16 | |

| Government-sponsored enterprises | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | |

| At December 31, 2021 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |

| Total | | | | | | 2,078 | | | | | | 8,344 | | | | | | 8,858 | | | | | | 514 | | | | | | 353 | | |

| Total | | | | | | 2,251 | | | | | | 3,886 | | | | | | 4,164 | | | | | | 278 | | | | | | 124 | | |

| Total | | | | | | 4,329 | | | | | | $ | 12,230 | | | | | $ | 13,022 | | | | | $ | 792 | | | | | $ | 477 | |

| At December 31, 2020 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |

| At December 31, 2019 | | | | | | $ | 12,850 | | | | | $ | 12,263 | | | | | $ | 11,698 | | | | | $ | 11,117 | | | | | $ | 10,529 | |

| At December 31, 2019 | | | | | | $ | 5,426 | | | | | $ | 6,202 | | | | | $ | 6,977 | | | | | $ | 7,752 | | | | | $ | 8,527 | | | | | $ | 9,302 | | | | | $ | 10,078 | |

| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |

| At December 31, 2019 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |

| Corporate | | | | | | $ | 199 | | | | | $ | 2 | | | | | $ | 118 | | | | | $ | 3 | | | | | $ | 317 | | | | | $ | 5 | |

| Total | | | | | | $ | 340 | | | | | $ | 4 | | | | | $ | 183 | | | | | $ | 3 | | | | | $ | 523 | | | | | $ | 7 | |

| Total | | | | | | 1,849 | | | | | | 7,363 | | | | | | 8,053 | | | | | | 690 | | | | | | 331 | | |

| Total | | | | | | 2,279 | | | | | | 3,949 | | | | | | 4,285 | | | | | | 336 | | | | | | 124 | | |

| At December 31, 2019 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |

| Total | | | | | | 3,911 | | | | | | $ | 11,108 | | | | | $ | 11,698 | | | | | $ | 590 | | | | | $ | 446 | |

Our main business is property casualty insurance marketed through independent insurance agencies in [removed: 45] [added: 46] states.

These filings include annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and [added: exhibits and] amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934.

At the end of [removed: 2020,] [added: 2021,] we employed [removed: 5,266] [added: 5,166] associates, including [removed: 3,362] [added: 3,284] headquarters associates who provide support to [removed: 1,849] [added: 1,814] field associates and [removed: 55] [added: 68] associates for Cincinnati Global.

The associate voluntary turnover rate [removed: has] [added: had] been approximately 5% for several [removed: years.][added: years prior to 2021, when it increased to approximately 10%.]

For example, we build relationships with future talent by partnering with career services [removed: department,] [added: departments,] faculty and staff, and Diversity and Inclusion Offices at local and regional colleges and universities along with historically Black colleges and universities.

[removed: We believe] [added: Despite an uptick during 2021 in] our voluntary turnover [removed: rate] [added: rate, we believe it] indicates overall associate satisfaction with their working environment, compensation and benefits.

Using a multivariate regression analysis, the independent studies in [removed: 2020] [added: 2021] showed that we administer pay fairly and equitably because the factors used to make compensation decisions, such as role, salary grade, tenure and performance do in fact drive compensation awarded to each associate.

At year-end [removed: 2020,] [added: 2021,] a select group of independent agencies in [removed: 45] [added: 46] states actively marketed our property casualty insurance within their communities.

Personal lines policies were marketed in [removed: 43] [added: 45] of those states.

The U.S. property casualty insurance industry is a highly competitive marketplace with more than 2,000 stock and mutual companies [added: (carriers)] operating independently or in groups.

Agencies marketing our commercial lines or personal lines products typically represent several standard market insurance [removed: carriers, including both national and regional carriers, many which are mutual companies.][added: carriers.]

[removed: We are fully committed to the independent agency channel for marketing our insurance policies, while] Cincinnati Re typically markets through broker organizations or similar intermediaries that specialize in reinsurance.

They [added: generally] do business person to person; offer broad, value-added services; [removed: maintain sound balance sheets;] and manage their agencies professionally, targeting long-term success.

We develop our relationships with [removed: agencies that are active in their communities,] [added: agencies,] providing important knowledge of local market trends, opportunities and challenges.

Insurers operating in the excess and surplus lines marketplace generally market business through [added: nonaffiliated] excess and surplus lines [removed: brokers, whether they are small specialty insurers or specialized divisions of larger insurance organizations.][added: brokers.]

| Property casualty agency relationships, January 1 | | | | | | [removed: 1,796] [added: 1,848] | | | | | | [removed: 1,757] [added: 1,796] | | |

| New appointments that market all or most of The Cincinnati Insurance Companies' products | | | | | | [removed: 133] [added: 155] | | | | | | [removed: 117] [added: 133] | | |

| New appointments that market only personal lines insurance products for Cincinnati Insurance | | | | | | [removed: 58] [added: 59] | | | | | | [removed: 70] [added: 58] | | |

| Changes due to consolidation and other | | | | | | [removed: (139)] [added: (141)] | | | | | | [removed: (148)] [added: (139)] | | |

| Property casualty agency relationships, December 31 | | | | | | [removed: 1,848] [added: 1,921] | | | | | | [removed: 1,796] [added: 1,848] | | |

| Property casualty reporting locations | | | | | | [removed: 2,578] [added: 2,721] | | | | | | [removed: 2,458] [added: 2,578] | | |

| New relationship appointments | | | | | | [removed: 119] [added: 159] | | | | | | [removed: 112] [added: 119] | | |

| Active states | | | | | | [removed: 45] [added: 46] | | | | | | 45 | | |

An increasing number of agencies have multiple, separately identifiable locations, reflecting their growth as well as consolidation of ownership within the independent [removed: agency marketplace.]

On average, we have a [removed: 6.6%] [added: 5.5%] share of the standard lines property casualty insurance purchased through our reporting agency locations, according to [removed: 2019] [added: 2020] data from agency surveys.

Our share is [removed: 12.5%] [added: 11.6%] in reporting agency locations that have represented us for more than 10 years; [removed: 5.7%] [added: 4.3%] in agencies that have represented us for six to 10 years; [removed: 2.4%] [added: 1.9%] in agencies that have represented us for two to five years; and 0.3% in agencies that have represented us for one year or less.

Our largest single agency relationship accounted for approximately [removed: 1.3%] [added: 0.6%] of our total property casualty earned premiums in [removed: 2020.][added: 2021.]

No aggregate locations under a single ownership structure accounted for more than [removed: 4%] [added: 5%] of our earned premiums in [removed: 2020.][added: 2021.]

- Our [removed: $12.338] [added: $13.022] billion fixed-maturity portfolio is diversified and exceeds total insurance reserves.

The portfolio had an average rating of A3/A, and its fair value exceeded total insurance reserve liabilities by approximately [removed: 28%] [added: 26%] at December 31, [removed: 2020.][added: 2021.]

No corporate bond exposure accounted for more than [removed: 0.7%] [added: 0.9%] of our fixed-maturity portfolio, and no municipal exposure accounted for more than 0.2%.

Our [removed: $8.856] [added: $11.315] billion equity portfolio minimizes concentrations in single stocks or industries.

At December 31, [removed: 2020,] [added: 2021,] no single security accounted for more than [removed: 7.6%] [added: 8.0%] of our portfolio of publicly traded common stocks, and no single sector accounted for more than [removed: 29%.][added: 32%.]

At December 31, [removed: 2020,] [added: 2021,] we held [removed: $3.916] [added: $5.099] billion of our cash and invested assets at the parent-company level, of which [removed: $3.686] [added: $4.774] billion, or [removed: 94.1%,] [added: 93.6%,] was invested in common stocks, and [removed: $16] [added: $211] million, or [removed: 0.4%,] [added: 4.1%,] was cash and cash equivalents.

We minimize reliance on debt as a source of capital, with a debt-to-total-capital ratio of [removed: 7.2%] [added: 6.0%] at year-end [removed: 2020.][added: 2021.]

Long-term debt at year-end [removed: 2020] [added: 2021] totaled [removed: $788] [added: $789] million, [removed: matching] [added: up $1 million from] year-end [removed: 2019,] [added: 2020,] and our short-term debt was $54 million, [removed: up from $39 million at] [added: matching] the end of the prior year.

At year-end [removed: 2020] [added: 2021] and [removed: 2019,] [added: 2020,] risk-based capital (RBC) for our standard market property casualty insurance, excess and surplus lines insurance and life insurance subsidiaries was strong, far exceeding regulatory requirements.

- We ended [removed: 2020] [added: 2021] with a [removed: 1.0-to-1] [added: 0.9-to-1] ratio of property casualty premiums to surplus, a key measure of property casualty insurance company capacity and security.

The estimated industry average ratio was 0.7-to-1 at year-end [removed: 2020.][added: 2021, based on industry data reported through the first nine months of 2021.]

- We ended [removed: 2020] [added: 2021] with a [removed: 7.1%] [added: 7.4%] ratio of life statutory adjusted risk-based surplus to liabilities, a key measure of life insurance company capital strength.

Management and our board of directors has developed an agency-focused strategy that we believe positions our company for long-term success and value creation, while managing difficult economic, market or pricing cycles.

- Manage insurance profitability – Implementation of these initiatives is intended to enhance underwriting expertise and knowledge, thereby increasing our ability to manage our business while also gaining efficiency.

Better profit margins may be achieved with additional information and expanded pricing capabilities we can access with the use of technology and analytics.

In addition to enhancing company efficiency and more quickly deploying product or service enhancements, improving internal processes also supports the ability of the independent agencies that represent us to grow profitably by allowing them to serve clients faster and to more efficiently manage agency expenses as we make it easier for them to do business with us.

- Drive premium growth – Implementation of these initiatives is intended to further penetrate each market we serve through our appointed independent agencies.

Premium growth initiatives also include expansion of Cincinnati Re and Cincinnati Global.

Diversified growth also may reduce variability of losses from weather-related catastrophes.

We also compete with carriers that market through captive agents representing a single carrier or that market directly to consumers, sometimes offering a less broad range of insurance products.

We are fully committed to the independent agency channel for marketing our insurance policies.

The specialized nature of our other insurance operations helps avoid conflicts with the independent agency distribution channel.

Cincinnati Global markets its business through brokers and coverholders.

Coverholders are entities that can be authorized by a Lloyd's syndicate to underwrite policies, manage risks, collect premiums or arrange claims settlements up to agreed upon limits.

| | | | | | | 2021 | | | | | | 2020 | | |

agency marketplace.

Our life insurance subsidiary’s RBC at year-end 2021 was 5.0 times the authorized control level RBC.

| | | | | | | 2021 | | | | | | 2020 | | |

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| | | | | | | | | | | | | | | |

| | | | | | | | | | | | | | | |

| | | | | | | | | | | | | | | |

| | | | | | | | | | | | | | | |

On July 30, 2021, Moody's affirmed its ratings, continuing its stable outlook.

| | | | | | | | | | | | | | | |

| Ohio | | | $ | 889 | | 14.4 | | % | 253 | | | $ | 3.5 | |

| Illinois | | | 339 | | | 5.5 | | | 173 | | | 2.0 | | |

| North Carolina | | | 291 | | | 4.7 | | | 110 | | | 2.6 | | |

| Georgia | | | 289 | | | 4.7 | | | 110 | | | 2.6 | | |

| Pennsylvania | | | 282 | | | 4.6 | | | 152 | | | 1.9 | | |

| Indiana | | | 266 | | | 4.3 | | | 113 | | | 2.4 | | |

| New York | | | 264 | | | 4.3 | | | 160 | | | 1.7 | | |

| Tennessee | | | 204 | | | 3.3 | | | 69 | | | 3.0 | | |

| Michigan | | | 200 | | | 3.2 | | | 143 | | | 1.4 | | |

| Virginia | | | 195 | | | 3.1 | | | 76 | | | 2.6 | | |

| | | | | | | | | | | | | | | |

Human Capital

More information about the studies is available in our Environmental, Social and Governance Report available on the Sustainability page of our website, *cinfin.com/sustainability*, which is not incorporated by reference in this Annual Report on Form 10-K.

The screening helps associates learn about their health and identify risk factors while earning a company contribution into their Health Savings Account.

Management liability coverage can also include cyber insurance as an affirmative coverage option on various insurance policies.

We cede all of the related premiums to a reinsurer, therefore transferring substantially all of that risk.

Ceded premiums for 2021 included $37 million for cyber insurance.

The studies also showed that there remains an adjusted gender pay gap of 1.0%, in favor of men, and an adjusted ethnic minority pay gap of 1.5%, in favor of ethnic minorities.

The primary sources of our company’s net income are summarized below.

We discuss the contribution to net income from each source in Item 7, Corporate Financial Highlights of Management’s Discussion and Analysis.

- Underwriting profit (loss) – Includes revenues from earned premiums for insurance and reinsurance policies or contracts, reduced by losses and loss expenses from associated insurance coverages.

Those revenues are further reduced by underwriting expenses associated with marketing policies or related to administration of our insurance operation.

The net result represents an underwriting profit when revenues exceed losses and expenses.

- Investment income – Is generated primarily from investing the premiums collected for insurance policies sold, until funds are needed to pay losses for insurance claims or other expenses.

Interest income from bond investments or dividend income from stock investments are the main categories of our investment income, with additional contribution from compounding effects over time.

- Investment gains and losses – Occur from appreciation or depreciation of invested assets over time.

Gains or losses are generally recognized from changes in market values of equity securities without a sale or when invested assets are sold or become impaired.

No single company or group dominates across all product lines and states.

Standard market insurance companies (carriers) can market a broad array of products nationally or:

- choose to sell a limited product line or only one type of insurance (monoline carrier)

- target a certain segment of the market (for example, personal insurance)

- focus on one or more states or regions (regional carrier)

Standard market property casualty insurers generally offer insurance products through one or more distribution channels:

- independent agents, who represent multiple carriers

- captive agents, who represent one carrier exclusively

- direct marketing to consumers

We also compete with carriers that market personal lines products through captive agents and direct writers.

Cincinnati Global markets much of its business through coverholders, which are entities that help insurance companies with processes such as writing policies and collecting premiums.

We plan to build on our recent marketing efforts and continue with our national advertising campaign in 2021.

Our intent is to increase the visibility of our company, supporting our agents' efforts as they recommend policies and services offered through The Cincinnati Insurance Companies.

We also continue to build our social media presence, focusing on providing content that agents can share on their own sites.

For our life insurance operation, property casualty agencies make up the main distribution system.

To help that operation build scale, we also develop life insurance business from other independent life insurance agencies in geographic markets underserved through our property casualty agencies.

We are careful to solicit business from these other agencies in a manner that does not compete with the life insurance marketing and sales efforts of our property casualty agencies.

Cincinnati Life emphasizes up-to-date products, responsive underwriting, high-quality service and competitive pricing.

Our excess and surplus lines insurance operation helps meet the specific insurance needs of certain agency clients.

Generally, excess and surplus lines insurance carriers provide insurance that is unavailable in the standard market due to market conditions or characteristics of the insured persons or organizations that are caused by their nature, claim history or the characteristics of their business.

Agencies have access to Cincinnati Specialty Underwriters' product line through CSU Producer Resources, the wholly owned insurance brokerage subsidiary of Cincinnati Financial Corporation.

By providing superior service, we can help our agencies grow while also profitably growing our property casualty insurance business.

| | | | | | | 2020 | | | | | | 2019 | | |

| | | | | | | 2020 | | | | | | 2019 | | |

| Statutory capital and surplus | | | | | | $ | 528 | | | | | $ | 526 | |

| Risk-based capital | | | | | | 528 | | | | | | 526 | | |

| Authorized control level risk-based capital | | | | | | 69 | | | | | | 54 | | |

| Risk-based capital to authorized control level risk-based capital ratio | | | | | | 7.7 | | | | | | 9.8 | | |

| Written premium to surplus ratio | | | | | | 0.7 | | | | | | 0.6 | | |

| Statutory capital and surplus | | | | | | $ | 241 | | | | | $ | 204 | |

For the fiscal year ended December 31, [removed: 2020.][added: 2021.]

The aggregate market value of voting stock held by nonaffiliates of the Registrant based on the closing price of [removed: $64.03] [added: $116.62] per share as reported on Nasdaq Global Select Market on June 30, [removed: 2020,] [added: 2021,] was [removed: $9,621,748,017.][added: $18,398,492,958.]

As of February [removed: 19, 2021,] [added: 15, 2022,] there were [removed: 161,201,922] [added: 160,433,769] shares of common stock outstanding.

Portions of the definitive Proxy Statement for Cincinnati Financial Corporation’s Annual Meeting of Shareholders to be held on May [removed: 8, 2021,] [added: 7, 2022,] are incorporated by reference into Part III of this Form 10-K.

| Item 1. | | | Business | | | [removed: [4](#i9e7c265e17224890b9ef13144e2bf104_13)] [added: [5](#ib516704f6c694dd39ca65eef55d59c29_13)] | | |

| | | | Cincinnati Financial Corporation – Introduction | | | [removed: [4](#i9e7c265e17224890b9ef13144e2bf104_16)] [added: [5](#ib516704f6c694dd39ca65eef55d59c29_16)] | | |

| | | | Our Business and Our Strategy | | | [removed: [5](#i9e7c265e17224890b9ef13144e2bf104_19)] [added: [6](#ib516704f6c694dd39ca65eef55d59c29_19)] | | |

| | | | Our Segments | | | [removed: [16](#i9e7c265e17224890b9ef13144e2bf104_22)] [added: [14](#ib516704f6c694dd39ca65eef55d59c29_22)] | | |

| Item 1A. | | | Risk Factors | | | [removed: [34](#i9e7c265e17224890b9ef13144e2bf104_31)] [added: [32](#ib516704f6c694dd39ca65eef55d59c29_31)] | | |

| Item 1B. | | | Unresolved Staff Comments | | | [removed: [45](#i9e7c265e17224890b9ef13144e2bf104_34)] [added: [43](#ib516704f6c694dd39ca65eef55d59c29_34)] | | |

| Item 2. | | | Properties | | | [removed: [45](#i9e7c265e17224890b9ef13144e2bf104_37)] [added: [43](#ib516704f6c694dd39ca65eef55d59c29_37)] | | |

| Item 3. | | | Legal Proceedings | | | [removed: [45](#i9e7c265e17224890b9ef13144e2bf104_40)] [added: [43](#ib516704f6c694dd39ca65eef55d59c29_40)] | | |

| Item 4. | | | Mine Safety Disclosures | | | [removed: [45](#i9e7c265e17224890b9ef13144e2bf104_43)] [added: [43](#ib516704f6c694dd39ca65eef55d59c29_43)] | | |

| Item 5. | | | Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities | | | [removed: [46](#i9e7c265e17224890b9ef13144e2bf104_49)] [added: [44](#ib516704f6c694dd39ca65eef55d59c29_49)] | | |

| Item 7. | | | Management’s Discussion and Analysis of Financial Condition and Results of Operations | | | [removed: [49](#i9e7c265e17224890b9ef13144e2bf104_55)] [added: [46](#ib516704f6c694dd39ca65eef55d59c29_55)] | | |

| | | | Executive Summary | | | [removed: [50](#i9e7c265e17224890b9ef13144e2bf104_61)] [added: [47](#ib516704f6c694dd39ca65eef55d59c29_61)] | | |

| | | | Critical Accounting Estimates | | | [removed: [56](#i9e7c265e17224890b9ef13144e2bf104_64)] [added: [52](#ib516704f6c694dd39ca65eef55d59c29_64)] | | |

| | | | Recent Accounting Pronouncements | | | [removed: [63](#i9e7c265e17224890b9ef13144e2bf104_67)] [added: [58](#ib516704f6c694dd39ca65eef55d59c29_67)] | | |

| | | | Financial Results | | | [removed: [64](#i9e7c265e17224890b9ef13144e2bf104_70)] [added: [59](#ib516704f6c694dd39ca65eef55d59c29_70)] | | |

| | | | Liquidity and Capital Resources | | | [removed: [99](#i9e7c265e17224890b9ef13144e2bf104_91)] [added: [93](#ib516704f6c694dd39ca65eef55d59c29_91)] | | |

| | | | Safe Harbor Statement | | | [removed: [115](#i9e7c265e17224890b9ef13144e2bf104_94)] [added: [109](#ib516704f6c694dd39ca65eef55d59c29_94)] | | |

| Item 7A. | | | Quantitative and Qualitative Disclosures About Market Risk | | | [removed: [118](#i9e7c265e17224890b9ef13144e2bf104_97)] [added: [112](#ib516704f6c694dd39ca65eef55d59c29_97)] | | |

| Item 8. | | | Financial Statements and Supplementary Data | | | [removed: [124](#i9e7c265e17224890b9ef13144e2bf104_112)] [added: [118](#ib516704f6c694dd39ca65eef55d59c29_112)] | | |

| | | | Responsibility for Financial Statements | | | [removed: [124](#i9e7c265e17224890b9ef13144e2bf104_115)] [added: [118](#ib516704f6c694dd39ca65eef55d59c29_115)] | | |

| | | | Management’s Annual Report on Internal Control Over Financial Reporting | | | [removed: [125](#i9e7c265e17224890b9ef13144e2bf104_118)] [added: [119](#ib516704f6c694dd39ca65eef55d59c29_118)] | | |

| | | | Report of Independent Registered Public Accounting Firm [added: (PCAOB ID No. 34)] | | | [removed: [126](#i9e7c265e17224890b9ef13144e2bf104_121)] [added: [120](#ib516704f6c694dd39ca65eef55d59c29_121)] | | |

| | | | Consolidated Balance Sheets | | | [removed: [128](#i9e7c265e17224890b9ef13144e2bf104_124)] [added: [122](#ib516704f6c694dd39ca65eef55d59c29_124)] | | |

| | | | Consolidated Statements of Income | | | [removed: [129](#i9e7c265e17224890b9ef13144e2bf104_130)] [added: [123](#ib516704f6c694dd39ca65eef55d59c29_130)] | | |

| | | | Consolidated Statements of Comprehensive Income | | | [removed: [130](#i9e7c265e17224890b9ef13144e2bf104_133)] [added: [124](#ib516704f6c694dd39ca65eef55d59c29_133)] | | |

| | | | Consolidated Statements of Shareholders’ Equity | | | [removed: [131](#i9e7c265e17224890b9ef13144e2bf104_139)] [added: [125](#ib516704f6c694dd39ca65eef55d59c29_139)] | | |

| | | | Consolidated Statements of Cash Flows | | | [removed: [132](#i9e7c265e17224890b9ef13144e2bf104_142)] [added: [126](#ib516704f6c694dd39ca65eef55d59c29_142)] | | |

| | | | Notes to Consolidated Financial Statements | | | [removed: [133](#i9e7c265e17224890b9ef13144e2bf104_145)] [added: [127](#ib516704f6c694dd39ca65eef55d59c29_145)] | | |

| Item 9. | | | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure | | | [removed: [182](#i9e7c265e17224890b9ef13144e2bf104_241)] [added: [174](#ib516704f6c694dd39ca65eef55d59c29_238)] | | |

| Item 9A. | | | Controls and Procedures | | | [removed: [182](#i9e7c265e17224890b9ef13144e2bf104_244)] [added: [174](#ib516704f6c694dd39ca65eef55d59c29_241)] | | |

| Item 9B. | | | Other Information | | | [removed: [182](#i9e7c265e17224890b9ef13144e2bf104_247)] [added: [174](#ib516704f6c694dd39ca65eef55d59c29_244)] | | |

| Item 10. | | | Directors, Executive Officers and Corporate Governance | | | [removed: [183](#i9e7c265e17224890b9ef13144e2bf104_253)] [added: [175](#ib516704f6c694dd39ca65eef55d59c29_250)] | | |

| Item 11. | | | Executive Compensation | | | [removed: [185](#i9e7c265e17224890b9ef13144e2bf104_256)] [added: [177](#ib516704f6c694dd39ca65eef55d59c29_253)] | | |

| Item 12. | | | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters | | | [removed: [185](#i9e7c265e17224890b9ef13144e2bf104_259)] [added: [177](#ib516704f6c694dd39ca65eef55d59c29_256)] | | |

| Item 13. | | | Certain Relationships and Related Transactions, and Director Independence | | | [removed: [186](#i9e7c265e17224890b9ef13144e2bf104_262)] [added: [178](#ib516704f6c694dd39ca65eef55d59c29_259)] | | |

| Item 14. | | | Principal Accounting Fees and Services | | | [removed: [186](#i9e7c265e17224890b9ef13144e2bf104_265)] [added: [178](#ib516704f6c694dd39ca65eef55d59c29_262)] | | |

2021 ANNUAL REPORT ON FORM 10-K

| Part I | | | | | | [5](#ib516704f6c694dd39ca65eef55d59c29_13) | | |

| | | | Other | | | [27](#ib516704f6c694dd39ca65eef55d59c29_25) | | |

| | | | Regulation | | | [28](#ib516704f6c694dd39ca65eef55d59c29_28) | | |

| Part II | | | | | | [44](#ib516704f6c694dd39ca65eef55d59c29_46) | | |

| Item 6. | | | \[Reserved\] | | | [45](#ib516704f6c694dd39ca65eef55d59c29_2655) | | |

| | | | Introduction | | | [46](#ib516704f6c694dd39ca65eef55d59c29_58) | | |

| Item 9C. | | | Disclosure Regarding Foreign Jurisdictions that Prevent Inspections | | | [174](#ib516704f6c694dd39ca65eef55d59c29_2641) | | |

| | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- |

| Part III | | | | | | [175](#ib516704f6c694dd39ca65eef55d59c29_247) | | |

| Part IV | | | | | | [179](#ib516704f6c694dd39ca65eef55d59c29_265) | | |

| Item 16 | | | Form 10-K Summary | | | [179](#ib516704f6c694dd39ca65eef55d59c29_268) | | |

2020 ANNUAL REPORT ON FORM 10-K

| Part I | | | | | | [4](#i9e7c265e17224890b9ef13144e2bf104_13) | | |

| | | | Other | | | [29](#i9e7c265e17224890b9ef13144e2bf104_25) | | |

| | | | Regulation | | | [30](#i9e7c265e17224890b9ef13144e2bf104_28) | | |

| Part II | | | | | | [46](#i9e7c265e17224890b9ef13144e2bf104_46) | | |

| Item 6 | | | Selected Financial Data | | | [48](#i9e7c265e17224890b9ef13144e2bf104_52) | | |

| | | | Introduction | | | [49](#i9e7c265e17224890b9ef13144e2bf104_58) | | |

| Part III | | | | | | [183](#i9e7c265e17224890b9ef13144e2bf104_250) | | |

| Part IV | | | | | | [187](#i9e7c265e17224890b9ef13144e2bf104_268) | | |

Cincinnati Financial Corporation owns our headquarters building located on [removed: 102] [added: 107] acres of land in Fairfield, Ohio.

The property, including [removed: land] [added: land,] is recorded in our financial statements at [removed: $133] [added: $8] million at December 31, [removed: 2020,] [added: 2021,] and is classified as [removed: land,] [added: Land,] building and equipment, net, for company use.

Schiff & Co. Inc., a related party, occupies [removed: 8,034] [added: 8,991] square feet (less than 1%).

The property is recorded in the financial statements at [removed: $5] [added: $4] million at December 31, [removed: 2020,] [added: 2021,] and is classified as investment property in Other [removed: Invested Assets, net.][added: invested assets.]

At December 31, [removed: 2020,] [added: 2021,] unaffiliated tenants occupied 86%, Cincinnati Financial affiliates occupied 14%.

The property, including [removed: land,] [added: land] is recorded in our financial statements at [removed: $8] [added: $131] million at December 31, [removed: 2020,] [added: 2021,] and is classified as [removed: land,] [added: Land,] building and equipment, net, for company use.

Cincinnati Financial Corporation had approximately [removed: 183,000] [added: 243,000] shareholders of record as of December 31, [removed: 2020.][added: 2021.]

We believe many of our independent agent representatives and most of the [removed: 5,266] [added: 5,166] associates of our subsidiaries own the company’s common stock.

As depicted in the graph below, the five-year total return on a $100 investment made December 31, [removed: 2015,] [added: 2016,] assuming the reinvestment of all dividends, was [removed: 70.5%] [added: 72.8%] for Cincinnati Financial Corporation’s common stock compared with [removed: 77.5%] [added: 82.3%] for the S&P Composite 1500 Property & Casualty Insurance Index and [removed: 103.0%] [added: 133.4%] for the S&P 500 Index.

The following graph depicts $100 invested on December 31, [removed: 2015,] [added: 2016,] in stock or index, including reinvestment of dividends.

[removed: ][added: ]

At year-end [removed: 2020,] [added: 2021,] the S&P Composite 1500 Property & Casualty Insurance Index included 28 companies.

The following summarizes securities authorized for issuance under our equity compensation plans as of December 31, [removed: 2020:][added: 2021:]

| Plan category | | | | | | Number of securities to be issued upon exercise of outstanding options, warrants and rights at December 31, [removed: 2020] [added: 2021] | | | | | | Weighted-average exercise price of outstanding options, warrants and rights | | | | | | Number of securities remaining available for future issuance under equity compensation plan (excluding securities reflected in column (a)) at December 31, [removed: 2020] [added: 2021] | | |

The number of securities remaining available for future issuance includes: [removed: 6,727,521] [added: 5,538,245] shares available for issuance under the Cincinnati Financial Corporation 2016 Stock Compensation Plan (the 2016 Plan), [removed: 78,709] [added: 74,411] shares available for issuance under the Cincinnati Financial Corporation 2012 Stock Compensation Plan (the 2012 Plan), and [removed: 271,970] [added: 254,952] shares available for issuance of share grants under the Director’s Stock Plan of 2018.