Cincinnati Financial 10-Q 2022-03-31

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark one)

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

For the quarterly period ended March 31, 2022.

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

For the transition period from _____________________ to _____________________.

Commission file number 0-4604

CINCINNATI FINANCIAL CORPORATION

(Exact name of registrant as specified in its charter)

Ohio																		31-0746871
(State or other jurisdiction of incorporation or organization)																		(I.R.S. Employer Identification No.)
			6200 S. Gilmore Road,						Fairfield,			Ohio						45014-5141
(Address of principal executive offices)																		(Zip code)

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

N/A

(Former name, former address and former fiscal year, if changed since last report)

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

Title of each class						Trading Symbol(s)						Name of each exchange on which registered
Common stock						CINF						Nasdaq Global Select Market

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

☑Yes ☐ No

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

☑Yes ☐ No

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

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

☐ Emerging growth company

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

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

☐Yes ☑ No

As of April 22, 2022, there were 160,355,247 shares of common stock outstanding.

CINCINNATI FINANCIAL CORPORATION AND SUBSIDIARIES

FORM 10-Q FOR THE QUARTER ENDED March 31, 2022

TABLE OF CONTENTS

Part I – Financial Information			3
Item 1. Financial Statements (unaudited)			3
Condensed Consolidated Balance Sheets			3
Condensed Consolidated Statements of Income			4
Condensed Consolidated Statements of Comprehensive Income			5
Condensed Consolidated Statements of Shareholders’ Equity			6
Condensed Consolidated Statements of Cash Flows			7
Notes to Condensed Consolidated Financial Statements (unaudited)			8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			26
Safe Harbor Statement			26
Corporate Financial Highlights			29
Financial Results			36
Liquidity and Capital Resources			51
Other Matters			55
Item 3. Quantitative and Qualitative Disclosures about Market Risk			55
Item 4. Controls and Procedures			61
Part II – Other Information			63
Item 1. Legal Proceedings			63
Item 1A. Risk Factors			63
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			64
Item 6. Exhibits			65

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Part I – Financial Information

Cincinnati Financial Corporation and Subsidiaries

Condensed Consolidated Balance Sheets

(Dollars in millions, except per share data)						March 31,						December 31,
						2022						2021
Assets
Investments
Fixed maturities, at fair value (amortized cost: 2022—$12,330; 2021—$12,230)						$	12,376					$	13,022
Equity securities, at fair value (cost: 2022—$4,167; 2021—$4,121)						10,675						11,315
Other invested assets						348						329
Total investments						23,399						24,666
Cash and cash equivalents						987						1,139
Investment income receivable						147						144
Finance receivable						92						98
Premiums receivable						2,248						2,053
Reinsurance recoverable						556						570
Prepaid reinsurance premiums						79						78
Deferred policy acquisition costs						979						905
Land, building and equipment, net, for company use (accumulated depreciation: 2022—$309; 2021—$303)						203						205
Other assets						657						570
Separate accounts						903						959
Total assets						$	30,250					$	31,387
Liabilities
Insurance reserves
Loss and loss expense reserves						$	7,366					$	7,305
Life policy and investment contract reserves						3,027						3,014
Unearned premiums						3,560						3,271
Other liabilities						952						1,092
Deferred income tax						1,460						1,744
Note payable						49						54
Long-term debt and lease obligations						841						843
Separate accounts						903						959
Total liabilities						18,158						18,282
Commitments and contingent liabilities (Note 12)
Shareholders' Equity
Common stock, par value—$2 per share; (authorized: 2022 and 2021—500 million shares; issued: 2022 and 2021—198.3 million shares)						397						397
Paid-in capital						1,354						1,356
Retained earnings						12,241						12,625
Accumulated other comprehensive income						59						648
Treasury stock at cost (2022—38.0 million shares and 2021—38.0 million shares)						(1,959)						(1,921)
Total shareholders' equity						12,092						13,105
Total liabilities and shareholders' equity						$	30,250					$	31,387

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

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Cincinnati Financial Corporation and Subsidiaries

Condensed Consolidated Statements of Income

(Dollars in millions, except per share data)									Three months ended March 31,
															2022						2021
Revenues
Earned premiums															$	1,690					$	1,544
Investment income, net of expenses															185						174
Investment gains and losses, net															(666)						504
Fee revenues															4						3
Other revenues															2						2
Total revenues															1,215						2,227
Benefits and Expenses
Insurance losses and contract holders' benefits															1,039						1,003
Underwriting, acquisition and insurance expenses															519						439
Interest expense															13						13
Other operating expenses															4						4
Total benefits and expenses															1,575						1,459
Income (Loss) Before Income Taxes															(360)						768
Provision (Benefit) for Income Taxes
Current															41						36
Deferred															(128)						112
Total provision (benefit) for income taxes															(87)						148
Net Income (Loss)															$	(273)					$	620
Per Common Share
Net income (loss)—basic															$	(1.70)					$	3.85
Net income (loss)—diluted															(1.70)						3.82

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

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Cincinnati Financial Corporation and Subsidiaries

Condensed Consolidated Statements of Comprehensive Income

(Dollars in millions)												Three months ended March 31,
																		2022						2021
Net Income (Loss)

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Results of Operations

The following discussion highlights significant factors influencing the condensed consolidated results of operations and financial position of Cincinnati Financial Corporation. It should be read in conjunction with the consolidated financial statements and related notes included in our 2021 Annual Report on Form 10-K. Unless otherwise noted, the industry data is prepared by A.M. Best Co., a leading insurance industry statistical, analytical and financial strength rating organization. Information from A.M. Best is presented on a statutory basis for insurance company regulation in the United States of America. When we provide our results on a comparable statutory basis, we label it as such; all other company data is presented in accordance with accounting principles generally accepted in the United States of America (GAAP).

We present per share data on a diluted basis unless otherwise noted, adjusting those amounts for all stock splits and dividends. Dollar amounts are rounded to millions; calculations of percent changes are based on dollar amounts rounded to the nearest million. Certain percentage changes are identified as not meaningful (nm).

SAFE HARBOR STATEMENT

This is our “Safe Harbor” statement under the Private Securities Litigation Reform Act of 1995. Our business is subject to certain risks and uncertainties that may cause actual results to differ materially from those suggested by the forward-looking statements in this report. Some of those risks and uncertainties are discussed in our 2021 Annual Report on Form 10-K, Item 1A, Risk Factors, Page 32.

Factors that could cause or contribute to such differences include, but are not limited to:

• Effects of the COVID-19 pandemic that could affect results for reasons such as:

◦Securities market disruption or volatility and related effects such as decreased economic activity and continued supply chain disruptions that affect our investment portfolio and book value

◦An unusually high level of claims in our insurance or reinsurance operations that increase litigation-related expenses

◦An unusually high level of insurance losses, including risk of legislation or court decisions extending business interruption insurance in commercial property coverage forms to cover claims for pure economic loss related to the COVID-19 pandemic

◦Decreased premium revenue and cash flow from disruption to our distribution channel of independent agents, consumer self-isolation, travel limitations, business restrictions and decreased economic activity

◦Inability of our workforce, agencies or vendors to perform necessary business functions

• Ongoing developments concerning business interruption insurance claims and litigation related to the COVID-19 pandemic that affect our estimates of losses and loss adjustment expenses or our ability to reasonably estimate such losses, such as:

◦The continuing duration of the pandemic and governmental actions to limit the spread of the virus that may produce additional economic losses

◦The number of policyholders that will ultimately submit claims or file lawsuits

◦The lack of submitted proofs of loss for allegedly covered claims

◦Judicial rulings in similar litigation involving other companies in the insurance industry

◦Differences in state laws and developing case law

◦Litigation trends, including varying legal theories advanced by policyholders

◦Whether and to what degree any class of policyholders may be certified

◦The inherent unpredictability of litigation

• Unusually high levels of catastrophe losses due to risk concentrations, changes in weather patterns (whether as a result of global climate change or otherwise), environmental events, terrorism incidents, cyberattacks, civil unrest or other causes

• Increased frequency and/or severity of claims or development of claims that are unforeseen at the time of policy issuance, due to inflationary trends or other causes

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

• Declines in overall stock market values negatively affecting our equity portfolio and book value

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

• Domestic and global events, such as Russia's invasion of Ukraine, resulting in capital market or credit market uncertainty, followed by prolonged periods of economic instability or recession, that lead to:

◦Significant or prolonged decline in the fair value of a particular security or group of securities and impairment of the asset(s)

◦Significant decline in investment income due to reduced or eliminated dividend payouts from a particular security or group of securities

◦Significant rise in losses from surety or director and officer policies written for financial institutions or other insured entities

• Our inability to manage Cincinnati Global or other subsidiaries to produce related business opportunities and growth prospects for our ongoing operations

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

• Ineffective information technology systems or discontinuing to develop and implement improvements in technology may impact our success and profitability

• Difficulties with technology or data security breaches, including cyberattacks, that could negatively affect our or our agents' ability to conduct business; disrupt our relationships with agents, policyholders and others; cause reputational damage, mitigation expenses and data loss and expose us to liability under federal and state laws

• Difficulties with our operations and technology that may negatively impact our ability to conduct business, including cloud-based data information storage, data security, cyberattacks, remote working capabilities, and/or outsourcing relationships and third-party operations and data security

• Disruption of the insurance market caused by technology innovations such as driverless cars that could decrease consumer demand for insurance products

• Delays, inadequate data developed internally or from third parties, or performance inadequacies from ongoing development and implementation of underwriting and pricing methods, including telematics and other usage-based insurance methods, or technology projects and enhancements expected to increase our pricing accuracy, underwriting profit and competitiveness

• Intense competition, and the impact of innovation, technological change and changing customer preferences on the insurance industry and the markets in which we operate, could harm our ability to maintain or increase our ability to maintain or increase our business volumes and profitability

• Changing consumer insurance-buying habits and consolidation of independent insurance agencies could alter our competitive advantages

• Inability to obtain adequate ceded reinsurance on acceptable terms, amount of reinsurance coverage purchased, financial strength of reinsurers and the potential for nonpayment or delay in payment by reinsurers

• Inability to defer policy acquisition costs for any business segment if pricing and loss trends would lead management to conclude that segment could not achieve sustainable profitability

• Inability of our subsidiaries to pay dividends consistent with current or past levels

• Events or conditions that could weaken or harm our relationships with our independent agencies and hamper opportunities to add new agencies, resulting in limitations on our opportunities for growth, such as:

◦Downgrades of our financial strength ratings

◦Concerns that doing business with us

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Our greatest exposure to market risk is through our investment portfolio. Market risk is the potential for a decrease in securities' fair value resulting from broad yet uncontrollable forces such as: inflation, economic growth or recession, interest rates, world political conditions or other widespread unpredictable events. It is comprised of many individual risks that, when combined, create a macroeconomic impact.

Our view of potential risks and our sensitivity to such risks is discussed in our 2021 Annual Report on Form 10-K, Item 7A, Quantitative and Qualitative Disclosures About Market Risk, Page 112.

The fair value of our investment portfolio was $23.051 billion at March 31, 2022, down $1.286 billion from year-end 2021, including a $646 million decrease in the fixed-maturity portfolio and a $640 million decrease in the equity portfolio.

(Dollars in millions)			At March 31, 2022																		At December 31, 2021
			Cost or amortized cost			Percent of total						Fair value			Percent of total						Cost or amortized cost			Percent of total						Fair value			Percent of total
Taxable fixed maturities			$	8,470		51.3		%				$	8,467		36.7		%				$	8,344		51.0		%				$	8,858		36.4		%
Tax-exempt fixed maturities			3,860			23.4						3,909			17.0						3,886			23.8						4,164			17.1
Common equities			3,743			22.7						10,245			44.4						3,697			22.6						10,862			44.6
Nonredeemable preferred equities			424			2.6						430			1.9						424			2.6						453			1.9
Total			$	16,497		100.0		%				$	23,051		100.0		%				$	16,351		100.0		%				$	24,337		100.0		%

At March 31, 2022, substantially all of our consolidated investment portfolio, measured at fair value, are classified as Level 1 or Level 2. See Item 1, Note 3, Fair Value Measurements, for additional discussion of our valuation techniques.

In addition to our investment portfolio, the total investments amount reported in our condensed consolidated balance sheets includes Other invested assets. Other invested assets included $249 million of private equity investments, $35 million of real estate through direct property ownership and development projects in the United States, $34 million in Lloyd's deposits and $30 million of life policy loans at March 31, 2022.

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FIXED-MATURITY SECURITIES INVESTMENTS

By maintaining a well-diversified fixed-maturity portfolio, we attempt to reduce overall risk. We invest new money in the bond market on a regular basis, targeting what we believe to be optimal risk-adjusted, after-tax yields. Risk, in this context, includes interest rate, call, reinvestment rate, credit and liquidity risk. We do not make a concerted effort to alter duration on a portfolio basis in response to anticipated movements in interest rates. By regularly investing in the bond market, we build a broad, diversified portfolio that we believe mitigates the impact of adverse economic factors.

In the first three months of 2022, the decrease in fair value of our fixed-maturity portfolio reflected net purchases of securities, offset by a decrease in net unrealized gains, primarily due to an increase in U.S. Treasury yields and to a lesser degree a widening of corporate credit spreads. At March 31, 2022, our fixed-maturity portfolio with an average rating of A3/A was valued at 100.4% of its amortized cost, compared with 106.5% at December 31, 2021.

At March 31, 2022, our investment-grade and noninvestment-grade fixed-maturity securities represented 79.9% and 5.1% of the portfolio, respectively. The remaining 15.0% represented fixed-maturity securities that were not rated by Moody's or S&P Global Ratings.

Attributes of the fixed-maturity portfolio include:

						At March 31, 2022									At December 31, 2021
Weighted average yield-to-amortized cost						4.00			%						4.02			%
Weighted average maturity						7.9			yrs						8.0			yrs
Effective duration						4.9			yrs						4.8			yrs

We discuss maturities of our fixed-maturity portfolio in our 2021 Annual Report on Form 10-K, Item 8, Note 2, Investments, Page 134, and in this quarterly report Item 2, Investments Results.

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TAXABLE FIXED MATURITIES

Our taxable fixed-maturity portfolio, with a fair value of $8.467 billion at March 31, 2022, included:

(Dollars in millions)						At March 31, 2022						At December 31, 2021
Investment-grade corporate						$	6,535					$	6,807
States, municipalities and political subdivisions						901						931
Noninvestment-grade corporate						614						690
Commercial mortgage-backed						266						273
United States government						112						123
Foreign government						25						26
Government-sponsored enterprises						14						8
Total						$	8,467					$	8,858

Our strategy is to buy, and typically hold, fixed-maturity investments to maturity, but we monitor credit profiles and fair value movements when determining holding periods for individual securities. With the exception of United States agency issues that include government-sponsored enterprises, no individual issuer's securities accounted for more than 0.9% of the taxable fixed-maturity portfolio at March 31, 2022. Our investment-grade corporate bonds had an average rating of Baa2 by Moody's or BBB by S&P Global Ratings and represented 77.2% of the taxable fixed-maturity portfolio's fair value at March 31, 2022, compared with 76.9% at year-end 2021.

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

March 31, 2022, was the financial sector. It represented 41.0% of our investment-grade corporate bond portfolio, compared with 41.4% at year-end 2021. The energy sector represented 10.7% and was less than 10% at year-end 2021. No other sector exceeded 10% of our investment-grade corporate bond portfolio.

Our taxable fixed-maturity portfolio at March 31, 2022, included $266 million of commercial mortgage-backed securities with an average rating of Aa2/AA.

TAX-EXEMPT FIXED MATURITIES

At March 31, 2022, we had $3.909 billion of tax-exempt fixed-maturity securities with an average rating of Aa2/AA by Moody's and S&P Global Ratings. We traditionally have purchased municipal bonds focusing on general obligation and essential services issues, such as water, waste disposal or others. The portfolio is well diversified among approximately 1,700 municipal bond issuers. No single municipal issuer accounted for more than 0.6% of the tax-exempt fixed-maturity portfolio at March 31, 2022.

INTEREST RATE SENSITIVITY ANALYSIS

Because of our strong surplus, long-term investment horizon and ability to hold most fixed-maturity investments until maturity, we believe the company is adequately positioned if interest rates were to rise. Although the fair values of our existing holdings may suffer, a higher rate environment would provide the opportunity to invest cash flow in higher-yielding securities, while reducing the likelihood of untimely redemptions of currently callable securities. While higher interest rates would be expected to continue to increase the number of fixed-maturity holdings trading below 100% of amortized cost, we believe lower fixed-maturity security values due solely to interest rate changes would not signal a decline in credit quality. We continue to manage the portfolio with an eye toward both meeting current income needs and managing interest rate risk.

Our dynamic financial planning model uses analytical tools to assess market risks. As part of this model, the effective duration of the fixed-maturity portfolio is continually monitored by our investment department to evaluate the theoretical impact of interest rate movements.

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The table below summarizes the effect of hypothetical changes in interest rates on the fair value of the fixed-maturity portfolio:

(Dollars in millions)						Effect from interest rate change in basis points
						-200						-100						-						100						200
At March 31, 2022						$	13,620					$	12,989					$	12,376					$	11,763					$	11,151
At December 31, 2021						$	14,327					$	13,656					$	13,022					$	12,399					$	11,768

The effective duration of the fixed-maturity portfolio as of March 31, 2022, was 4.9 years, up from 4.8 years at year-end 2021. The above table is a theoretical presentation showing that an instantaneous, parallel shift in the yield curve of 100 basis points could produce an approximately 5.0% change in the fair value of the fixed-maturity portfolio. Generally speaking, the higher a bond is rated, the more directly correlated movements in its fair value are to changes in the general level of interest rates, exclusive of call features. The fair values of average- to lower-rated corporate bonds are additionally influenced by the expansion or contraction of credit spreads.

In our dynamic financial planning model, the selected interest rate change of 100 to 200 basis points represents our view of a shift in rates that is quite possible over a one-year period. The rates modeled should not be considered a prediction of future events as interest rates may be much more volatile in the future. The analysis is not intended to provide a precise forecast of the effect of changes in rates on our results or financial condition, nor does it take into account any actions that we might take to reduce exposure to such risks.

EQUITY INVESTMENTS

Our equity investments, with a fair value totaling $10.675 billion at March 31, 2022, included $10.245 billion of common stock securities of companies generally with strong indications of paying and growing their dividends. Other criteria we evaluate include increasing sales and earnings, proven management and a favorable outlook. We believe our equity investment style is an appropriate long-term strategy. While our long-term financial position would be affected by prolonged changes in the market valuation of our investments, we believe our strong surplus position and cash flow provide a cushion against short-term fluctuations in valuation. Continued payment of cash dividends by the issuers of our common equity holdings can provide a floor to their valuation.

The table below summarizes the effect of hypothetical changes in market prices on fair value of our equity portfolio.

(Dollars in millions)			Effect from market price change in percent
						-30%						-20%						-10%						—						10%						20%						30%
At March 31, 2022						$	7,473					$	8,540					$	9,608					$	10,675					$	11,743					$	12,810					$	13,878
At December 31, 2021						$	7,921					$	9,052					$	10,184					$	11,315					$	12,447					$	13,578					$	14,710

At March 31, 2022, Apple Inc. (Nasdaq:AAPL) was our largest single common stock holding with a fair value of $848 million, or 8.3% of our publicly traded common stock portfolio and 3.7% of the total investment portfolio. Forty-four holdings among 10 different sectors each had a fair value greater than $100 million.

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Common Stock Portfolio Industry Sector Distribution

			Percent of common stock portfolio
			At March 31, 2022												At December 31, 2021
			Cincinnati Financial						S&P 500 Industry Weightings						Cincinnati Financial						S&P 500 Industry Weightings
Sector:
Information technology			30.1		%				28.0		%				31.1		%				29.2		%
Healthcare			14.2						13.6						13.5						13.3
Financial			13.9						11.1						14.2						10.7
Industrials			11.0						7.9						11.1						7.8
Consumer staples			7.3						6.1						6.9						5.9
Consumer discretionary			7.1						12.0						8.3						12.5
Energy			5.2						3.9						4.0						2.7
Materials			4.1						2.6						4.4						2.5
Utilities			2.9						2.7						2.2						2.5
Real estate			2.6						2.7						2.7						2.8
Telecomm services			1.6						9.4						1.6						10.1
Total			100.0		%				100.0		%				100.0		%				100.0		%

UNREALIZED INVESTMENT GAINS AND LOSSES

At March 31, 2022, unrealized investment gains before taxes for the fixed-maturity portfolio totaled $291 million and unrealized investment losses amounted to $245 million before taxes.

The $46 million net unrealized gain position in our fixed-maturity portfolio at March 31, 2022, decreased in the first three months of 2022, primarily due to an increase in U.S. Treasury yields and to a lesser degree a widening of corporate credit spreads. The net gain position for our current fixed-maturity holdings will naturally decline over time as individual securities mature. In addition, changes in interest rates can cause rapid, significant changes in fair values of fixed-maturity securities and the net gain position, as discussed in Quantitative and Qualitative Disclosures About Market Risk.

For federal income tax purposes, taxes on gains from appreciated investments generally are not due until securities are sold. We believe that the appreciated value of equity securities, compared with the cost of securities that is generally used as a tax basis, is a useful measure to help evaluate how fair value can change over time. On this basis, the net unrealized investment gains at March 31, 2022, consisted of a net gain position in our equity portfolio of $6.508 billion. Events or factors such as economic growth or recession can affect the fair value and unrealized investment gains of our equity securities. The five largest holdings in our common stock portfolio were Apple, Microsoft (Nasdaq:MSFT), Accenture Co. (NYSE:ACN), UnitedHealth Group Inc. (NYSE:UNH) and BlackRock Inc. (NYSE:BLK), which had a combined fair value of $2.633 billion.

Unrealized Investment Losses

We expect the number of fixed-maturity securities trading below amortized cost to fluctuate as interest rates rise or fall and credit spreads expand or contract due to prevailing economic conditions. Further, amortized costs for some securities are revised through write-downs recognized in prior periods. At March 31, 2022, 1,377 of the 4,362 fixed-maturity securities we owned had fair values below amortized cost, compared with 278 of the 4,329 securities we owned at year-end 2021. The 1,377 holdings with fair values below amortized cost at March 31, 2022, represented 31.6% of the fair value of our fixed-maturity investment portfolio and $245 million in unrealized losses.

• 1,103 of the 1,377 holdings had fair value between 90% and 100% of amortized cost at March 31, 2022. These primarily consist of securities whose current valuation is largely the result of interest rate factors. The fair value of these 1,103 securities was $3.063 billion, and they accounted for $121 million in unrealized losses.

• 274 of the 1,377 fixed-maturity holdings had fair value between 70% and 90% of amortized cost at March 31, 2022. We believe the 274 fixed-maturity securities will continue to pay interest and ultimately pay

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principal upon maturity. The issuers of these 274 securities have strong cash flow to service their debt and meet their contractual obligation to make principal payments. The fair value of these securities was $846 million, and they accounted for $124 million in unrealized losses.

• None of the fixed-maturity holdings had fair value below 70% of amortized cost at March 31, 2022.

The table below reviews fair values and unrealized losses by investment category and by the overall duration of the securities' continuous unrealized loss position.

(Dollars in millions)						Less than 12 months												12 months or more												Total
At March 31, 2022						Fair value						Unrealized losses						Fair value						Unrealized losses						Fair value						Unrealized losses
Fixed maturity securities:
Corporate						$	2,603					$	157					$	78					$	9					$	2,681					$	166
States, municipalities and political subdivisions						977						72						21						4						998						76
Commercial mortgage-backed						128						2						10						—						138						2
United States government						72						1						—						—						72						1
Foreign government						7						—						—						—						7						—
Government-sponsored enterprises						10						—						3						—						13						—
Total						$	3,797					$	232					$	112					$	13					$	3,909					$	245
At December 31, 2021
Fixed maturity securities:
Corporate						$	861					$	13					$	15					$	—					$	876					$	13
States, municipalities and political subdivisions						105						2						2						1						107						3
Commercial mortgage-backed						10						—						11						—						21						—
United States government						48						—						—						—						48						—
Foreign government						16						—						—						—						16						—
Government-sponsored enterprises						7						—						—						—						7						—
Total						$	1,047					$	15					$	28					$	1					$	1,075					$	16

At March 31, 2022, applying our invested asset impairment policy, we determined that the total of $245 million, for securities in an unrealized loss position in the table above, was not the result of a credit loss.

During the first three months of 2022, one fixed-maturity security that was written down to fair value, due to an intention to be sold, and changes in allowance for credit losses were each less than $1 million. During the first three months of 2021, no securities were written down to fair value due to an intention to be sold and we had no allowance for credit losses.

During the full year of 2021, we wrote down five securities and recorded $1 million in impairment charges. At December 31, 2021, 278 fixed-maturity securities with a total unrealized loss of $16 million were in an unrealized loss position. Of that total, no fixed-maturity securities had fair values below 70% of amortized cost.

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

(Dollars in millions)						Number of issues						Amortized cost						Fair value						Gross unrealized gain (loss)						Gross investment income
At March 31, 2022
Taxable fixed maturities:
Fair valued below 70% of amortized cost						—						$	—					$	—					$	—					$	—
Fair valued at 70% to less than 100% of amortized cost						974						3,607						3,403						(204)						32
Fair valued at 100% and above of amortized cost						1,146						4,863						5,064						201						58
Investment income on securities sold in current year						—						—						—						—						2
Total						2,120						8,470						8,467						(3)						92
Tax-exempt fixed maturities:
Fair valued below 70% of amortized cost						—						—						—						—						—
Fair valued at 70% to less than 100% of amortized cost						403						547						506						(41)						4
Fair valued at 100% and above of amortized cost						1,839						3,313						3,403						90						27
Investment income on securities sold in current year						—						—						—						—						—
Total						2,242						3,860						3,909						49						31
Fixed-maturities summary:
Fair valued below 70% of amortized cost						—						—						—						—						—
Fair valued at 70% to less than 100% of amortized cost						1,377						4,154						3,909						(245)						36
Fair valued at 100% and above of amortized cost						2,985						8,176						8,467						291						85
Investment income on securities sold in current year						—						—						—						—						2
Total						4,362						$	12,330					$	12,376					$	46					$	123
At December 31, 2021
Fixed-maturities summary:
Fair valued below 70% of amortized cost						—						$	—					$	—					$	—					$	—
Fair valued at 70% to less than 100% of amortized cost						278						1,091						1,075						(16)						17
Fair valued at 100% and above of amortized cost						4,051						11,139						11,947						808						427
Investment income on securities sold in current year						—						—						—						—						33
Total						4,329						$	12,230					$	13,022					$	792					$	477

See our 2021 Annual Report on Form 10-K, Item 7, Critical Accounting Estimates, Asset Impairment, Page 57.

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

Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. The company's management, with the participation of the company's chief executive officer and chief financial officer, has evaluated the effectiveness of the design and operation of the company's disclosure controls and procedures as of March 31, 2022. Based upon that evaluation, the company's chief executive officer and chief financial officer concluded that the design and operation of the company's disclosure controls and procedures provided reasonable assurance that the disclosure controls and procedures are effective to ensure:

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

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

Changes in Internal Control over Financial Reporting – During the three months ended March 31, 2022, there were no changes in our internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. There was no significant impact to our internal controls over financial reporting while the majority of our associates were working remotely due to the COVID-19 pandemic.

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Part II – Other Information

Item 1. Legal Proceedings

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

Our risk factors have not changed materially since they were described in our 2021 Annual Report on Form 10-K filed February 24, 2022. Investors should not interpret the disclosure of a risk to imply that the risk has not already materialized.

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

We did not sell any of our shares that were not registered under the Securities Act during the first three months of 2022. Our repurchase program does not have an expiration date. On January 26, 2018, an additional 15 million shares were authorized, which expanded our current repurchase program. We have 10,701,785 shares available for purchase under our programs at March 31, 2022.

Period						Total number of shares purchased						Average price paid per share						Total number of shares purchased as part of publicly announced plans or programs						Maximum number of shares that may yet be purchased under the plans or programs
January 1-31, 2022						—						—						—						11,076,785
February 1-28, 2022						200,000						$	120.06					200,000						10,876,785
March 1-31, 2022						175,000						120.03						175,000						10,701,785
Totals						375,000						120.05						375,000

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

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SIGNATURE

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

CINCINNATI FINANCIAL CORPORATION
Date: April 28, 2022
/S/ Michael J. Sewell
Michael J. Sewell, CPA
Chief Financial Officer, Senior Vice President and Treasurer
(Principal Accounting Officer)

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