Item 1. Financial Statements (unaudited)

Cincinnati Financial Corporation and Subsidiaries

Condensed Consolidated Balance Sheets

(Dollars in millions, except per share data)						June 30,						December 31,
						2023						2022
Assets
Investments
Fixed maturities, at fair value (amortized cost: 2023—$13,708; 2022—$12,979)						$	12,870					$	12,132
Equity securities, at fair value (cost: 2023—$4,382; 2022—$4,294)						10,502						9,841
Other invested assets						507						452
Total investments						23,879						22,425
Cash and cash equivalents						748						1,264
Investment income receivable						163						160
Finance receivable						98						92
Premiums receivable						2,749						2,322
Reinsurance recoverable						694						665
Prepaid reinsurance premiums						95						51
Deferred policy acquisition costs						1,109						1,013
Land, building and equipment, net, for company use (accumulated depreciation: 2023—$329; 2022—$322)						198						202
Other assets						708						646
Separate accounts						911						892
Total assets						$	31,352					$	29,732
Liabilities
Insurance reserves
Loss and loss expense reserves						$	8,873					$	8,400
Life policy and investment contract reserves						3,038						3,015
Unearned premiums						4,222						3,689
Other liabilities						1,253						1,229
Deferred income tax						1,158						1,054
Note payable						25						50
Long-term debt and lease obligations						842						841
Separate accounts						911						892
Total liabilities						20,322						19,170
Commitments and contingent liabilities (Note 12)
Shareholders' Equity
Common stock, par value—$2 per share; (authorized: 2023 and 2022—500 million shares; issued: 2023 and 2022—198.3 million shares)						397						397
Paid-in capital						1,410						1,392
Retained earnings						12,235						11,711
Accumulated other comprehensive income						(626)						(614)
Treasury stock at cost (2023—41.5 million shares and 2022—41.2 million shares)						(2,386)						(2,324)
Total shareholders' equity						11,030						10,562
Total liabilities and shareholders' equity						$	31,352					$	29,732

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 June 30,												Six months ended June 30,
			2023						2022						2023						2022
Revenues
Earned premiums			$	1,943					$	1,773					$	3,861					$	3,466
Investment income, net of expenses			220						195						430						380
Investment gains and losses, net			434						(1,154)						540						(1,820)
Fee revenues			6						3						10						7
Other revenues			2						3						5						5
Total revenues			2,605						820						4,846						2,038
Benefits and Expenses
Insurance losses and contract holders' benefits			1,340						1,322						2,738						2,354
Underwriting, acquisition and insurance expenses			579						533						1,135						1,053
Interest expense			13						13						27						26
Other operating expenses			7						5						12						9
Total benefits and expenses			1,939						1,873						3,912						3,442
Income (Loss) Before Income Taxes			666						(1,053)						934						(1,404)
Provision (Benefit) for Income Taxes
Current			51						30						67						71
Deferred			81						(265)						108						(391)
Total provision (benefit) for income taxes			132						(235)						175						(320)
Net Income (Loss)			$	534					$	(818)					$	759					$	(1,084)
Per Common Share
Net income (loss)—basic			$	3.40					$	(5.12)					$	4.83					$	(6.77)
Net income (loss)—diluted			3.38						(5.12)						4.80						(6.77)

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 June 30,												Six months ended June 30,
						2023						2022						2023						2022
Net Income (Loss)						$	534					$	(818)					$	759					$	(1,084)
Other Comprehensive Income (Loss)
Change in unrealized gains and losses on investments, net of tax (benefit) of $(32), $(127), $3 and $(284), respectively						(122)						(483)						6						(1,072)
Amortization of pension actuarial loss and prior service cost, net of tax (benefit) of $(1), $0, $(2) and $0, respectively						—						—						(5)						—
Change in life policy reserves, reinsurance recoverable and other, net of tax (benefit) of $6, $38, $(3) and $79, respectively						23						143						(13)						298
Other comprehensive income (loss)						(99)						(340)						(12)						(774)
Comprehensive Income (Loss)						$	435					$	(1,158)					$	747					$	(1,858)

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 Shareholders' Equity

(Dollars in millions)						Three months ended June 30,												Six months ended June 30,
						2023						2022						2023						2022
Common Stock
Beginning of period						$	397					$	397					$	397					$	397
Share-based awards						—						—						—						—
End of period						397						397						397						397
Paid-In Capital
Beginning of period						1,398						1,354						1,392						1,356
Share-based awards						—						2						(6)						(12)
Share-based compensation						10						9						22						20
Other						2						2						2						3
End of period						1,410						1,367						1,410						1,367
Retained Earnings
Beginning of period						11,818						12,258						11,711						12,625
Cumulative effect of change in accounting for long-duration insurance contracts (Note 1)						—						—						—						10
Adjusted beginning of period						11,818						12,258						11,711						12,635
Net income (loss)						534						(818)						759						(1,084)
Dividends declared						(117)						(109)						(235)						(220)
End of period						12,235						11,331						12,235						11,331
Accumulated Other Comprehensive Income (Loss)
Beginning of period						(527)						(138)						(614)						648
Cumulative effect of change in accounting for long-duration insurance contracts (Note 1)						—						—						—						(352)
Adjusted beginning of period						(527)						(138)						(614)						296
Other comprehensive loss						(99)						(340)						(12)						(774)
End of period						(626)						(478)						(626)						(478)
Treasury Stock
Beginning of period						(2,345)						(1,959)						(2,324)						(1,921)
Share-based awards						—						3						7						12
Shares acquired - share repurchase authorization						(42)						(151)						(67)						(196)
Shares acquired - share-based compensation plans						—						(6)						(3)						(8)
Other						1						1						1						1
End of period						(2,386)						(2,112)						(2,386)						(2,112)
Total Shareholders' Equity						$	11,030					$	10,505					$	11,030					$	10,505
(In millions, except per common share)
Common Stock - Shares Outstanding
Beginning of period						157.2						160.3						157.1						160.3
Share-based awards						—						0.1						0.3						0.5
Shares acquired - share repurchase authorization						(0.4)						(1.2)						(0.6)						(1.6)
End of period						156.8						159.2						156.8						159.2
Dividends declared per common share						$	0.75					$	0.69					$	1.50					$	1.38

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 Cash Flows

(Dollars in millions)						Six months ended June 30,
						2023						2022
Cash Flows From Operating Activities
Net income (loss)						$	759					$	(1,084)
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, amortization and other						74						78
Investment gains and losses, net						(526)						1,829
Interest credited to contract holders						21						23
Deferred income tax expense						108						(391)
Changes in:
Premiums and reinsurance receivable						(504)						(427)
Deferred policy acquisition costs						(96)						(130)
Other assets						(17)						(29)
Loss and loss expense reserves						473						364
Life policy and investment contract reserves						56						38
Unearned premiums						533						596
Other liabilities						(27)						(31)
Current income tax receivable/payable						(29)						(81)
Net cash provided by operating activities						825						755
Cash Flows From Investing Activities
Sale, call or maturity of fixed maturities						581						702
Sale of equity securities						4						178
Purchase of fixed maturities						(1,313)						(942)
Purchase of equity securities						(97)						(218)
Changes in finance receivables						(6)						11
Investment in building and equipment						(8)						(8)
Change in other invested assets, net						(81)						(47)
Net cash used in investing activities						(920)						(324)
Cash Flows From Financing Activities
Payment of cash dividends to shareholders						(223)						(208)
Shares acquired - share repurchase authorization						(66)						(196)
Changes in note payable						(25)						(10)
Proceeds from stock options exercised						6						6
Contract holders' funds deposited						45						34
Contract holders' funds withdrawn						(113)						(62)
Other						(45)						(36)
Net cash used in financing activities						(421)						(472)
Net change in cash and cash equivalents						(516)						(41)
Cash and cash equivalents at beginning of year						1,264						1,139
Cash and cash equivalents at end of period						$	748					$	1,098
Supplemental Disclosures of Cash Flow Information:
Interest paid						$	27					$	26
Income taxes paid						79						142
Noncash Activities
Equipment acquired under finance lease obligations						$	4					$	6
Share-based compensation						13						24
Other assets and other liabilities						65						180

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

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 1 — Accounting Policies

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

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

Our June 30, 2023, condensed consolidated financial statements are unaudited. We believe that we have made all adjustments, consisting only of normal recurring accruals, that are necessary for fair presentation. These condensed consolidated financial statements should be read in conjunction with our consolidated financial statements included in our 2022 Annual Report on Form 10-K. The results of operations for interim periods do not necessarily indicate results to be expected for the full year.

Adopted Accounting Updates

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

In August 2018, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2018-12, Financial Services - Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts. ASU 2018-12 requires changes to the measurement and disclosure of long-duration insurance contracts. In November 2020, the FASB issued an ASU that delayed the effective date of ASU 2018-12 to interim and annual reporting periods beginning after December 15, 2022.

Related to the company's term and whole life products included in life policy and investment contract reserves, the new guidance requires that cash flow assumptions be reviewed at least annually to determine any necessary updates. Additionally, the discount rate assumption is required to be updated quarterly based on upper-medium grade fixed-income instrument yields (market value discount rates). The life policy and investment contract reserves balance is adjusted through insurance losses and contract holders' benefits for cash flow assumption updates and through accumulated other comprehensive income (AOCI) for discount rate updates.

These ASUs also amend the previous guidance related to life deferred policy acquisition costs by requiring amortization of those costs on a constant level basis for a group of contracts that approximates straight-line and the removal of shadow deferred policy acquisition costs for universal life and deferred annuity products. These ASUs also require entities to provide additional disclosures including disaggregated rollforwards of the life policy and investment contract reserves, separate account liabilities and life deferred policy acquisition costs.

We adopted these ASUs on a modified retrospective basis on January 1, 2023, resulting in an after-tax increase to shareholders' equity of $31 million.

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The following table illustrates the effect of adopting ASU 2018-12 in the condensed consolidated balance sheets:

(Dollars in millions)			June 30, 2023						December 31, 2022
									As originally reported			As adjusted			Difference
Reinsurance recoverable			$	694					$	640		$	665		$	25
Prepaid reinsurance premiums			95						79			51			(28)
Deferred policy acquisition costs			1,109						1,014			1,013			(1)
Total assets			31,352						29,736			29,732			(4)
Life policy and investment contract reserves			3,038						3,059			3,015			(44)
Deferred income tax			1,158						1,045			1,054			9
Total liabilities			20,322						19,205			19,170			(35)
Retained earnings			12,235						11,702			11,711			9
Accumulated other comprehensive income			(626)						(636)			(614)			22
Total shareholders' equity			11,030						10,531			10,562			31
Total liabilities and shareholders' equity			31,352						29,736			29,732			(4)

The following table illustrates the effect of adopting ASU 2018-12 in the condensed consolidated statements of income and condensed consolidated statements of comprehensive income:

(Dollars in millions, except per share data)			Three months ended June 30,
			2023						2022
									As originally reported			As adjusted			Difference
Earned premiums			$	1,943					$	1,773		$	1,773		$	—
Insurance losses and contract holders' benefits			1,340						1,309			1,322			13
Underwriting, acquisition and insurance expenses			579						534			533			(1)
Deferred income tax expense			81						(263)			(265)			(2)
Net Income (Loss)			534						(808)			(818)			(10)
Change in life policy reserves, reinsurance recoverable and other, net of tax			23						1			143			142
Other comprehensive income (loss)			(99)						(482)			(340)			142
Comprehensive Income (Loss)			435						(1,290)			(1,158)			132
Net income (loss) per share:
Basic			$	3.40					$	(5.06)		$	(5.12)		$	(0.06)
Diluted			3.38						(5.06)			(5.12)			(0.06)
(Dollars in millions, except per share data)			Six months ended June 30,
			2023						2022
									As originally reported			As adjusted			Difference
Earned premiums			$	3,861					$	3,463		$	3,466		$	3
Insurance losses and contract holders' benefits			2,738						2,348			2,354			6
Underwriting, acquisition and insurance expenses			1,135						1,053			1,053			—
Deferred income tax expense			108						(391)			(391)			—
Net Income (Loss)			759						(1,081)			(1,084)			(3)
Change in life policy reserves, reinsurance recoverable and other, net of tax			(13)						1			298			297
Other comprehensive income (loss)			(12)						(1,071)			(774)			297
Comprehensive Income (Loss)			747						(2,152)			(1,858)			294
Net income (loss) per share:
Basic			$	4.83					$	(6.76)		$	(6.77)		$	(0.01)
Diluted			4.80						(6.76)			(6.77)			(0.01)

The adoption of ASU 2018-12 did not have a material impact on the company's condensed consolidated cash flows.

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NOTE 2 – Investments

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

(Dollars in millions)						Amortized cost						Gross unrealized												Fair value
At June 30, 2023									gains						losses
Fixed-maturity securities:
Corporate						$	7,719					$	39					$	608					$	7,150
States, municipalities and political subdivisions						4,951						23						262						4,712
Government-sponsored enterprises						582						—						8						574
Commercial mortgage-backed						227						—						17						210
United States government						209						—						5						204
Foreign government						20						—						—						20
Total						$	13,708					$	62					$	900					$	12,870
At December 31, 2022
Fixed-maturity securities:
Corporate						$	7,412					$	37					$	580					$	6,869
States, municipalities and political subdivisions						4,901						24						303						4,622
Government-sponsored enterprises						186						—						3						183
Commercial mortgage-backed						250						—						16						234
United States government						196						—						5						191
Foreign government						34						—						1						33
Total						$	12,979					$	61					$	908					$	12,132

The net unrealized investment losses in our fixed-maturity portfolio at June 30, 2023, are primarily due to an increase in U.S. Treasury yields and a widening of corporate credit spreads. Our commercial mortgage-backed securities had an average rating of Aa2/AA- at June 30, 2023, and December 31, 2022.

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

(Dollars in millions)						Less than 12 months												12 months or more												Total
At June 30, 2023						Fair value						Unrealized losses						Fair value						Unrealized losses						Fair value						Unrealized losses
Fixed-maturity securities:
Corporate						$	2,133					$	94					$	4,347					$	514					$	6,480					$	608
States, municipalities and political subdivisions						1,042						11						1,897						251						2,939						262
Government-sponsored enterprises						502						6						32						2						534						8
Commercial mortgage-backed						1						—						208						17						209						17
United States government						144						2						60						3						204						5
Foreign government						15						—						—						—						15						—
Total						$	3,837					$	113					$	6,544					$	787					$	10,381					$	900
At December 31, 2022
Fixed-maturity securities:
Corporate						$	5,651					$	412					$	661					$	168					$	6,312					$	580
States, municipalities and political subdivisions						2,600						274						77						29						2,677						303
Government-sponsored enterprises						123						3						3						—						126						3
Commercial mortgage-backed						215						13						14						3						229						16
United States government						146						3						41						2						187						5
Foreign government						25						1						4						—						29						1
Total						$	8,760					$	706					$	800					$	202					$	9,560					$	908

Contractual maturity dates for fixed-maturities securities were:

(Dollars in millions)						Amortized cost						Fair value						% of fair value
At June 30, 2023
Maturity dates:
Due in one year or less						$	772					$	766					6.0		%
Due after one year through five years						4,348						4,179						32.5
Due after five years through ten years						3,508						3,312						25.7
Due after ten years						5,080						4,613						35.8
Total						$	13,708					$	12,870					100.0		%

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

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

(Dollars in millions)			Three months ended June 30,												Six months ended June 30,
			2023						2022						2023						2022
Investment income:
Interest			$	147					$	124					$	287					$	247
Dividends			70						72						136						137
Other			6						2						13						3
Total			223						198						436						387
Less investment expenses			3						3						6						7
Total			$	220					$	195					$	430					$	380
Investment gains and losses, net:
Equity securities:
Investment gains and losses on securities sold, net			$	—					$	5					$	(4)					$	37
Unrealized gains and losses on securities still held, net			459						(1,175)						568						(1,882)
Subtotal			459						(1,170)						564						(1,845)
Fixed-maturity securities:
Gross realized gains			—						2						1						6
Gross realized losses			—						(2)						(1)						(3)
Write-down of impaired securities with intent to sell			(4)						—						(4)						—
Subtotal			(4)						—						(4)						3
Other			(21)						16						(20)						22
Total			$	434					$	(1,154)					$	540					$	(1,820)

The fair value of our equity portfolio was $10.502 billion and $9.841 billion at June 30, 2023, and December 31, 2022, respectively. Apple Inc. (Nasdaq:AAPL), an equity holding, was our largest single investment holding with a fair value of $892 million and $597 million, which was 8.8% and 6.3% of our publicly traded common equities portfolio and 3.8% and 2.7% of the total investment portfolio at June 30, 2023, and December 31, 2022, respectively.

The allowance for credit losses was $4 million and $1 million at June 30, 2023, and December 31, 2022, respectively. Changes in the allowance were $3 million for both the three and six months ended June 30, 2023 and

less than $1 million for both the three and six months ended June 30, 2022.

There were 3,452 fixed-maturity securities with a total unrealized loss of $900 million, which were in an unrealized loss position at June 30, 2023. Of that total, 23 fixed-maturity securities had fair values below 70% of amortized cost. There were 3,272 fixed-maturity securities with a total unrealized loss of $908 million, which were in an unrealized loss position at December 31, 2022. Of that total, 49 fixed-maturity securities had fair values below 70% of amortized cost.

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NOTE 3 – Fair Value Measurements

In accordance with accounting guidance for fair value measurements and disclosures, we categorized our financial instruments, based on the priority of the observable and market-based data for the valuation technique used, into a three-level fair value hierarchy. The fair value hierarchy gives the highest priority to quoted prices with readily available independent data in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable market inputs (Level 3). When various inputs for measurement fall within different levels of the fair value hierarchy, the lowest observable input that has a significant impact on fair value measurement is used. Our valuation techniques have not changed from those used at December 31, 2022, and ultimately management determines fair value. See our 2022 Annual Report on Form 10-K, Item 8, Note 3, Fair Value Measurements, Page 137, for information on characteristics and valuation techniques used in determining fair value.

Fair Value Disclosures for Assets

The following tables illustrate the fair value hierarchy for those assets measured at fair value on a recurring basis at June 30, 2023, and December 31, 2022. We do not have any liabilities carried at fair value.

(Dollars in millions)						Level 1						Level 2						Level 3						Total
At June 30, 2023
Fixed maturities, available for sale:
Corporate						$	—					$	7,150					$	—					$	7,150
States, municipalities and political subdivisions						—						4,712						—						4,712
Government-sponsored enterprises						—						574						—						574
Commercial mortgage-backed						—						210						—						210
United States government						204						—						—						204
Foreign government						—						20						—						20
Subtotal						204						12,666						—						12,870
Common equities						10,124						—						—						10,124
Nonredeemable preferred equities						—						378						—						378
Separate accounts taxable fixed maturities						—						837						—						837
Top Hat savings plan mutual funds and common equity (included in Other assets)						62						—						—						62
Total						$	10,390					$	13,881					$	—					$	24,271
At December 31, 2022
Fixed maturities, available for sale:
Corporate						$	—					$	6,869					$	—					$	6,869
States, municipalities and political subdivisions						—						4,622						—						4,622
Government-sponsored enterprises						—						183						—						183
Commercial mortgage-backed						—						234						—						234
United States government						191						—						—						191
Foreign government						—						33						—						33
Subtotal						191						11,941						—						12,132
Common equities						9,454						—						—						9,454
Nonredeemable preferred equities						—						387						—						387
Separate accounts taxable fixed maturities						—						815						—						815
Top Hat savings plan mutual funds and common equity (included in Other assets)						57						—						—						57
Total						$	9,702					$	13,143					$	—					$	22,845

We also held Level 1 cash and cash equivalents of $748 million and $1.264 billion at June 30, 2023, and December 31, 2022, respectively.

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

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

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

(Dollars in millions)																		Book value												Principal amount
Interest rate						Year of issue												June 30,						December 31,						June 30,						December 31,
												2023						2022						2023						2022
6.900%						1998						Senior debentures, due 2028						$	27					$	27					$	28					$	28
6.920%						2005						Senior debentures, due 2028						391						391						391						391
6.125%						2004						Senior notes, due 2034						371						371						374						374
Total																		$	789					$	789					$	793					$	793

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

(Dollars in millions)						Level 1						Level 2						Level 3						Total
At June 30, 2023
Note payable						$	—					$	25					$	—					$	25
6.900% senior debentures, due 2028						—						29						—						29
6.920% senior debentures, due 2028						—						419						—						419
6.125% senior notes, due 2034						—						396						—						396
Total						$	—					$	869					$	—					$	869
At December 31, 2022
Note payable						$	—					$	50					$	—					$	50
6.900% senior debentures, due 2028						—						29						—						29
6.920% senior debentures, due 2028						—						418						—						418
6.125% senior notes, due 2034						—						388						—						388
Total						$	—					$	885					$	—					$	885

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

(Dollars in millions)						Level 1						Level 2						Level 3						Total
At June 30, 2023
Life policy loans						$	—					$	—					$	37					$	37
Deferred annuities						—						—						599						599
Structured settlements						—						141						—						141
Total						$	—					$	141					$	599					$	740
At December 31, 2022
Life policy loans						$	—					$	—					$	37					$	37
Deferred annuities						—						—						621						621
Structured settlements						—						143						—						143
Total						$	—					$	143					$	621					$	764

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Outstanding principal and interest for these life policy loans totaled $31 million at both June 30, 2023, and December 31, 2022.

Recorded reserves for the deferred annuities were $696 million and $734 million at June 30, 2023, and December 31, 2022, respectively. Recorded reserves for the structured settlements were $126 million and $129 million at June 30, 2023, and December 31, 2022, respectively.

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NOTE 4 – Property Casualty Loss and Loss Expenses

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

(Dollars in millions)						Three months ended June 30,												Six months ended June 30,
						2023						2022						2023						2022
Gross loss and loss expense reserves, beginning of period						$	8,626					$	7,287					$	8,336					$	7,229
Less reinsurance recoverable						424						319						405						327
Net loss and loss expense reserves, beginning of period						8,202						6,968						7,931						6,902
Net incurred loss and loss expenses related to:
Current accident year						1,363						1,299						2,739						2,296
Prior accident years						(101)						(59)						(160)						(100)
Total incurred						1,262						1,240						2,579						2,196
Net paid loss and loss expenses related to:
Current accident year						502						368						689						537
Prior accident years						579						524						1,438						1,245
Total paid						1,081						892						2,127						1,782
Net loss and loss expense reserves, end of period						8,383						7,316						8,383						7,316
Plus reinsurance recoverable						424						287						424						287
Gross loss and loss expense reserves, end of period						$	8,807					$	7,603					$	8,807					$	7,603

We use actuarial methods, models and judgment to estimate, as of a financial statement date, the property casualty loss and loss expense reserves required to pay for and settle all outstanding insured claims, including incurred but not reported (IBNR) claims, as of that date. The actuarial estimate is subject to review and adjustment by an inter-departmental committee that includes actuarial, claims, underwriting, loss prevention and accounting management. This committee is familiar with relevant company and industry business, claims and underwriting trends, as well as general economic and legal trends that could affect future loss and loss expense payments. The amount we will actually have to pay for claims can be highly uncertain. This uncertainty, together with the size of our reserves, makes the loss and loss expense reserves our most significant estimate. The reserve for loss and loss expenses in the condensed consolidated balance sheets also included $66 million at both June 30, 2023, and 2022, for certain life and health loss and loss expense reserves.

We experienced $101 million of favorable development on prior accident years, including $59 million of favorable development in commercial lines, $15 million of favorable development in personal lines and $5 million of favorable development in excess and surplus lines for the three months ended June 30, 2023. Within commercial lines, we recognized favorable reserve development of $34 million for the commercial casualty line and $11 million for the workers' compensation line due to reduced uncertainty of prior accident year loss and loss adjustment expense for these lines.

We experienced $160 million of favorable development on prior accident years, including $91 million of favorable development in commercial lines, $46 million of favorable development in personal lines and $14 million of favorable development in excess and surplus lines for the six months ended June 30, 2023. Within commercial lines, we recognized favorable reserve development of $36 million for the commercial casualty line, $26 million for the workers' compensation line and $25 million for the commercial property due to reduced uncertainty of prior accident year loss and loss adjustment expense for these lines. Within personal lines, we recognized favorable reserve development of $35 million for the homeowner line and $12 million for the personal auto line.

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We experienced $59 million of favorable development on prior accident years, including $29 million of favorable development in commercial lines, $14 million of favorable development in personal lines and $1 million of favorable development in excess and surplus lines for the three months ended June 30, 2022. Within commercial lines, we recognized favorable reserve development of $18 million for the workers' compensation line and $7 million for the commercial property line due to reduced uncertainty of prior accident year loss and loss adjustment expense for these lines. Within personal lines, we recognized favorable reserve development of $16 million for the homeowner line.

We experienced $100 million of favorable development on prior accident years, including $47 million of favorable development in commercial lines, $48 million of favorable development in personal lines and $6 million of favorable development in excess and surplus lines for the six months ended June 30, 2022. Within commercial lines, we recognized favorable reserve development of $27 million for the workers' compensation line and $12 million for the commercial property line due to reduced uncertainty of prior accident year loss and loss adjustment expense for these lines. Within personal lines, we recognized favorable reserve development of $46 million for the homeowner line.

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NOTE 5 – Life Policy and Investment Contract Reserves

In the first quarter of 2023, we adopted ASU 2018-12 which resulted in changes to the life policy and investment contract reserves and the expansion of required disclosures. The below disclosures represent application of the updated guidance. See Note 1, Accounting Policies, for further discussion.

We establish the reserves for traditional life policies including term, whole life and other products based on certain cash flow assumptions including expected expenses, mortality, morbidity, withdrawal rates and timing of claim presentation. These assumptions are established based on our current expectations and are reviewed annually to determine any necessary updates. Assumptions are also updated on an interim basis if evidence suggests that they should be revised. We use both our own experience and industry experience, adjusted for historical trends, in arriving at our assumptions for expected mortality, morbidity and withdrawal rates. These reserves also include a discount rate assumption that is based on market value discount rates and is updated quarterly. Certain assumptions, including the mortality, lapse and long-term interest rate reversion targets, were updated in the second quarter of 2023 as part of our annual assumption unlocking. Changes in the inputs, judgments and assumptions during the period and the related measurement impact on the liability are reflected in the below tables.

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

The following table summarizes our life policy and investment contract reserves and provides a reconciliation of the balances described in the below tables to those in the condensed consolidated balance sheets:

(Dollars in millions)						June 30, 2023						December 31, 2022
Life policy reserves:
Term						$	1,015					$	961
Whole life						421						408
Other						95						94
Subtotal						1,531						1,463
Investment contract reserves:
Deferred annuities						696						734
Universal life						578						578
Structured settlements						126						129
Other						107						111
Subtotal						1,507						1,552
Total life policy and investment contract reserves						$	3,038					$	3,015

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The table below shows the ASU 2018-12 adoption impacts to the life policy and investment contract reserves as of January 1, 2021 (transition date), pretax:

(Dollars in millions)												Term						Whole life						Deferred annuity						Universal life												Other						Total
At January 1, 2021
Balance, pre-adoption at December 31, 2020												$	901					$	363					$	761					$	567											$	323					$	2,915
Removal of shadow adjustments												—						—						—						—												13						13
Net premiums in excess of gross premiums												14						1						—						—												—						15
Remeasurement at market value discount rates												372						245						—						—												—						617
Balance, post-adoption at January 1, 2021												$	1,287					$	609					$	761					$	567											$	336					$	3,560

The table below shows the ASU 2018-12 adoption impacts to the life reinsurance recoverable asset as of January 1, 2021, pretax:

(Dollars in millions)												Term						Whole life						Deferred annuity						Universal life						Other						Total
At January 1, 2021
Balance, pre-adoption at December 31, 2020												$	113					$	26					$	—					$	—					$	78					$	217
Remeasurement at market value discount rates												29						18						—						—						—						47
Other adjustments												20						1						—						2						—						23
Balance, post-adoption at January 1, 2021												$	162					$	45					$	—					$	2					$	78					$	287

Other above includes structured settlements, other life policy reserves and other investment contract reserves. The removal of shadow adjustments above represents an increase to the life policy and investment contract reserve balance as it is no longer required under ASU 2018-12 for liabilities amortized in accordance with deferred acquisition costs. Shadow adjustments were historically included to present the carrying amount of the liability as if unrealized holding gains and losses had been realized. The net premiums in excess of gross premiums adjustment represents an increase to the liability as the remeasured net premiums, calculated as the present value of future benefits and related expenses using updated cash flow assumptions as of the transition date less the carrying amount of the liability prior to transition, exceeded the present value of future gross premiums. For purposes of calculating the updated present value of future benefits and related expenses above, the discount rate assumption that was used prior to adoption of ASU 2018-12 was retained. The remeasurement at market value discount rates adjustment represents the increase to the liability as a result of updating the discount rate assumption for our term and whole life products from the rates used prior to adoption of ASU 2018-12 to market value discount rates that existed at the transition date. As the discount rate assumption decreased significantly from the date the contracts were initially made, this adjustment represents the largest impact on the liability as a result of the initial adoption of ASU 2018-12. The life reinsurance recoverable asset is included in the remeasurement as the assumptions used in estimating the life reinsurance recoverable are consistent with those used in estimating the related liabilities. Other adjustments includes a reclassification from prepaid reinsurance premiums to reinsurance recoverable.

The shadow removal and remeasurement at market value discount rates adjustments were recorded as an increase to the life policy and investment contract reserves liability and a decrease to opening AOCI as of the transition date. The net premiums in excess of gross premiums adjustment was recorded as an increase to the life policy and investment contract reserves liability and a decrease to the opening balance of retained earnings as of the transition date.

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The balances and changes in the term and whole life policy reserves included in life policy and investment contract reserves is as follows:

(Dollars in millions)						Three months ended June 30,
						2023												2022
						Term						Whole life						Term						Whole life
Present value of expected net premiums:
Balance, beginning of period						$	1,699					$	217					$	1,686					$	226
Beginning balance at original discount rate						1,715						220						1,542						207
Effect of changes in cash flow assumptions						(5)						(6)						149						(1)
Effect of actual variances from expected experience						(9)						—						(3)						—
Adjusted beginning of period balance						1,701						214						1,688						206
Issuances						40						10						45						8
Interest accrual						17						2						17						2
Net premiums collected						(46)						(7)						(46)						(7)
Ending balance at original discount rate						1,712						219						1,704						209
Effect of changes in discount rate assumptions						(48)						(7)						19						1
Balance, end of period						1,664						212						1,723						210
Present value of expected future policy benefits:
Balance, beginning of period						2,691						644						2,745						736
Beginning balance at original discount rate						2,712						614						2,463						586
Effect of changes in cash flow assumptions						5						(10)						166						(3)
Effect of actual variances from expected experience						(11)						—						(1)						—
Adjusted beginning of period balance						2,706						604						2,628						583
Issuances						40						11						45						7
Interest accrual						30						7						28						8
Benefits paid						(39)						(7)						(38)						(8)
Ending balance at original discount rate						2,737						615						2,663						590
Effect of changes in discount rate assumptions						(75)						18						39						56
Balance, end of period						2,662						633						2,702						646
Net liability for future policy benefits:
Present value of expected future policy benefits less expected net premiums						998						421						979						436
Impact of flooring at cohort level						17						—						20						2
Net life policy reserves						1,015						421						999						438
Less reinsurance recoverable at original discount rate						(100)						(25)						(104)						(25)
Less effect of discount rate assumption changes on reinsurance recoverable						(8)						(5)						(13)						(7)
Net life policy reserves, after reinsurance recoverable						$	907					$	391					$	882					$	406
Weighted-average duration of the net life policy reserves in years						12						16						12						17

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(Dollars in millions)						Six months ended June 30,
						2023												2022
						Term						Whole life						Term						Whole life
Present value of expected net premiums:
Balance, beginning of period						$	1,643					$	208					$	1,801					$	241
Beginning balance at original discount rate						1,708						217						1,503						201
Effect of changes in cash flow assumptions						(5)						(6)						145						(1)
Effect of actual variances from expected experience						(12)						1						8						—
Adjusted beginning of period balance						1,691						212						1,656						200
Issuances						78						17						104						19
Interest accrual						35						4						32						4
Net premiums collected						(92)						(14)						(88)						(14)
Ending balance at original discount rate						1,712						219						1,704						209
Effect of changes in discount rate assumptions						(48)						(7)						19						1
Balance, end of period						1,664						212						1,723						210
Present value of expected future policy benefits:
Balance, beginning of period						2,584						614						2,993						826
Beginning balance at original discount rate						2,692						607						2,425						577
Effect of changes in cash flow assumptions						5						(10)						162						(3)
Effect of actual variances from expected experience						(13)						1						17						—
Adjusted beginning of period balance						2,684						598						2,604						574
Issuances						78						17						104						18
Interest accrual						60						15						55						15
Benefits paid						(85)						(15)						(100)						(17)
Ending balance at original discount rate						2,737						615						2,663						590
Effect of changes in discount rate assumptions						(75)						18						39						56
Balance, end of period						2,662						633						2,702						646
Net liability for future policy benefits:
Present value of expected future policy benefits less expected net premiums						998						421						979						436
Impact of flooring at cohort level						17						—						20						2
Net life policy reserves						1,015						421						999						438
Less reinsurance recoverable at original discount rate						(100)						(25)						(104)						(25)
Less effect of discount rate assumption changes on reinsurance recoverable						(8)						(5)						(13)						(7)
Net life policy reserves, after reinsurance recoverable						$	907					$	391					$	882					$	406
Weighted-average duration of the net life policy reserves in years						12						16						12						17

The total impact of flooring at cohort level in the above tables includes the effect of discount rate assumption changes of $3 million and $10 million at June 30, 2023 and 2022, respectively.

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The following table shows the amount of undiscounted and discounted expected future benefit payments and expected gross premiums for our term and whole life policies:

(Dollars in millions)						At June 30,
						2023												2022
						Undiscounted						Discounted						Undiscounted						Discounted
Term
Expected future benefit payments						$	4,738					$	2,662					$	4,589					$	2,702
Expected future gross premiums						4,345						2,583						4,378						2,690
Whole life
Expected future benefit payments						$	1,610					$	633					$	1,517					$	646
Expected future gross premiums						641						390						583						372

The following table shows the amount of revenue and interest recognized in the condensed consolidated statements of income related to our term and whole life policies:

(Dollars in millions)						Three months ended June 30,												Six months ended June 30,
						2023						2022						2023						2022
Gross premiums
Term						$	73					$	71					$	146					$	140
Whole life						13						12						25						24
Total						$	86					$	83					$	171					$	164
Interest accretion
Term						$	12					$	11					$	24					$	23
Whole life						5						6						11						11
Total						$	17					$	17					$	35					$	34

Adverse development that resulted in an immediate charge to income due to net premiums exceeding gross premiums was immaterial for the three and six months ended June 30, 2023, and 2022.

The following table shows the weighted-average interest rate for our term and whole life products:

						At June 30,
						2023						2022
Term
Interest accretion rate						5.29		%				5.16		%
Current discount rate						5.11						4.20
Whole life
Interest accretion rate						5.93		%				5.98		%
Current discount rate						5.22						4.74

The discount rate assumption was developed by calculating forward rates from market yield curves of upper-medium grade fixed-income instruments.

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The following table shows the balances and changes in policyholders' account balances included in investment contract reserves:

(Dollars in millions)			Three months ended June 30,																								Six months ended June 30,
			2023												2022												2023												2022
			Deferred annuity						Universal life						Deferred annuity						Universal life						Deferred annuity						Universal life						Deferred annuity						Universal life
Balance, beginning of period			$	711					$	458					$	756					$	456					$	734					$	457					$	763					$	454
Premiums received			15						9						5						10						25						20						11						21
Policy charges			—						(10)						—						(9)						—						(20)						—						(19)
Surrenders and withdrawals			(32)						(4)						(8)						(2)						(68)						(7)						(20)						(5)
Benefit payments			(3)						(2)						(4)						(2)						(6)						(4)						(10)						(3)
Interest credited			5						5						6						4						11						10						11						9
Balance, end of period			$	696					$	456					$	755					$	457					$	696					$	456					$	755					$	457
Weighted average crediting rate			3.41		%				4.29		%				3.06		%				4.25		%				3.41		%				4.29		%				3.06		%				4.25		%
Net amount at risk			$	—					$	4,030					$	—					$	4,141					$	—					$	4,030					$	—					$	4,141
Cash surrender value			691						423						750						422						691						423						750						422

The net amount at risk above represents the guaranteed benefit amount in excess of the current account balances.

The following table shows the balance of account values by range of guaranteed minimum crediting rates, in basis points, and the related range of the difference between rates being credited to policyholders and the respective guaranteed minimums for our deferred annuity and universal life contracts:

(Dollars in millions)						At guaranteed minimum						1 to 50 basis points above						51-150 basis points above						Greater than 150 basis points						Total
At June 30, 2023
Deferred annuity
1.00-3.00%						$	5					$	400					$	17					$	224					646
3.01-4.00%						50						—						—						—						50
Total						$	55					$	400					$	17					$	224					$	696
Universal life
1.00-3.00%						$	61					$	—					$	56					$	3					$	120
3.01-4.00%						53						—						—						—						53
Greater than 4.00%						283						—						—						—						283
Total						$	397					$	—					$	56					$	3					$	456
At June 30, 2022
Deferred annuity
1.00-3.00%						$	475					$	—					$	173					$	56					$	704
3.01-4.00%						51						—						—						—						51
Total						$	526					$	—					$	173					$	56					$	755
Universal life
1.00-3.00%						$	60					$	45					$	7					$	2					$	114
3.01-4.00%						52						—						—						—						52
Greater than 4.00%						291						—						—						—						291
Total						$	403					$	45					$	7					$	2					$	457

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The following table shows the balances and changes in the other additional liability related to the no-lapse guarantees contained within our universal life contracts:

(Dollars in millions)			Three months ended June 30,												Six months ended June 30,
			2023						2022						2023						2022
Balance, beginning of period			$	125					$	127					$	121					$	133
Balance, beginning of period before shadow reserve adjustments			127						127						123						131
Effect of changes in cash flow assumptions			(5)						(2)						(5)						(2)
Effect of actual variances from expected experience			—						2						(1)						5
Adjusted beginning of period balance			122						127						117						134
Interest accrual			1						1						2						2
Excess death benefits			(2)						(4)						(2)						(12)
Attributed assessments			3						3						6						6
Effect of changes in interest rate assumptions			—						(4)						1						(7)
Balance, end of period before shadow reserve adjustments			124						123						124						123
Shadow reserve adjustments			(2)						(1)						(2)						(1)
Balance, end of period			122						122						122						122
Less reinsurance recoverable, end of period			7						6						7						6
Net other additional liability, after reinsurance recoverable			$	129					$	128					$	129					$	128
Weighted-average duration of the other additional liability in years			32						35						32						35

The following table shows balances and changes in separate account balances during the period:

(Dollars in millions)						Three months ended June 30,												Six months ended June 30,
						2023						2022						2023						2022
Balance, beginning of period						$	899					$	903					$	892					$	959
Interest credited before policy charges						10						10						20						20
Change in unrealized gains and losses impacting separate account liabilities						—						(53)						—						(105)
Benefit payments						(1)						—						(3)						(10)
Other						3						—						2						(4)
Balance, end of period						$	911					$	860					$	911					$	860
Cash surrender value						$	906					$	878					$	906					$	878

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NOTE 6 – Deferred Policy Acquisition Costs

Expenses directly related to successfully acquired insurance policies – primarily commissions, premium taxes and underwriting costs – are deferred and amortized over the terms of the policies. We update our acquisition cost assumptions periodically to reflect actual experience. For property casualty, we evaluate the costs for recoverability. The adoption of ASU 2018-12 on January 1, 2023 resulted in a simplified amortization of life deferred acquisition costs and the removal of shadow deferred acquisition costs. See Note 1, Accounting Policies, for further discussion. The table below shows the deferred policy acquisition costs and asset reconciliation.

(Dollars in millions)			Three months ended June 30,												Six months ended June 30,
			2023						2022						2023						2022
Property casualty:
Deferred policy acquisition costs asset, beginning of period			$	714					$	665					$	682					$	602
Capitalized deferred policy acquisition costs			407						375						779						739
Amortized deferred policy acquisition costs			(350)						(317)						(690)						(618)
Deferred policy acquisition costs asset, end of period			$	771					$	723					$	771					$	723
Life:
Deferred policy acquisition costs asset, beginning of period			$	334					$	319					$	331					$	314
Capitalized deferred policy acquisition costs			11						10						22						22
Amortized deferred policy acquisition costs			(7)						(6)						(15)						(13)
Deferred policy acquisition costs asset, end of period			$	338					$	323					$	338					$	323
Consolidated:
Deferred policy acquisition costs asset, beginning of period			$	1,048					$	984					$	1,013					$	916
Capitalized deferred policy acquisition costs			418						385						801						761
Amortized deferred policy acquisition costs			(357)						(323)						(705)						(631)
Deferred policy acquisition costs asset, end of period			$	1,109					$	1,046					$	1,109					$	1,046

The removal of shadow deferred policy acquisition costs as a result of the adoption of ASU 2018-12 resulted in a $33 million increase, across all products, from $263 million pre-adoption at December 31, 2020, to $296 million post-adoption at January 1, 2021.

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The table below shows the life deferred policy acquisition costs asset by product:

(Dollars in millions)
Three months ended June 30, 2023						Term						Whole life						Deferred annuity						Universal life												Total
Balance, beginning of period						$	231					$	44					$	7					$	52											$	334
Capitalized deferred policy acquisition costs						7						2						1						1												11
Amortized deferred policy acquisition costs						(5)						(1)						—						(1)												(7)
Balance, end of period						$	233					$	45					$	8					$	52											$	338
Three months ended June 30, 2022
Balance, beginning of period						$	220					$	39					$	7					$	53											$	319
Capitalized deferred policy acquisition costs						8						1						—						1												$	10
Amortized deferred policy acquisition costs						(6)						—						—						—												$	(6)
Balance, end of period						$	222					$	40					$	7					$	54											$	323

(Dollars in millions)
Six months ended June 30, 2023						Term						Whole life						Deferred annuity						Universal life												Total
Balance, beginning of period						$	228					$	43					$	7					$	53											$	331
Capitalized deferred policy acquisition costs						16						4						1						1												22
Amortized deferred policy acquisition costs						(11)						(2)						—						(2)												(15)
Balance, end of period						$	233					$	45					$	8					$	52											$	338
Six months ended June 30, 2022
Balance, beginning of period						$	215					$	38					$	7					$	54											$	314
Capitalized deferred policy acquisition costs						18						3						—						1												$	22
Amortized deferred policy acquisition costs						(11)						(1)						—						(1)												$	(13)
Balance, end of period						$	222					$	40					$	7					$	54											$	323

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

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NOTE 7 – Accumulated Other Comprehensive Income

The adoption of ASU 2018-12 on January 1, 2023 resulted in restatement of certain amounts below. See Note 1, Accounting Policies, for further discussion. Accumulated other comprehensive income (AOCI) includes changes in unrealized gains and losses on investments, changes in pension obligations and changes in life policy reserves, reinsurance recoverable and other as follows:

(Dollars in millions)						Three months ended June 30,
						2023																					2022
						Before tax						Income tax						Net									Before tax						Income tax						Net
Investments:
AOCI, beginning of period						$	(684)					$	(147)					$	(537)								$	46					$	8					$	38
OCI before investment gains and losses, net, recognized in net income						(158)						(34)						(124)									(610)						(127)						(483)
Investment gains and losses, net, recognized in net income						4						2						2									—						—						—
OCI						(154)						(32)						(122)									(610)						(127)						(483)
AOCI, end of period						$	(838)					$	(179)					$	(659)								$	(564)					$	(119)					$	(445)
Pension obligations:
AOCI, beginning of period						$	30					$	8					$	22								$	27					$	7					$	20
OCI excluding amortization recognized in net income						—						—						—									—						—						—
Amortization recognized in net income						(1)						(1)						—									—						—						—
OCI						(1)						(1)						—									—						—						—
AOCI, end of period						$	29					$	7					$	22								$	27					$	7					$	20
Life policy reserves, reinsurance recoverable and other:
AOCI, beginning of period						$	(16)					$	(4)					$	(12)								$	(248)					$	(52)					$	(196)
OCI before investment gains and losses, net, recognized in net income						29						6						23									181						38						143
Investment gains and losses, net, recognized in net income						—						—						—									—						—						—
OCI						29						6						23									181						38						143
AOCI, end of period						$	13					$	2					$	11								$	(67)					$	(14)					$	(53)
Summary of AOCI:
AOCI, beginning of period						$	(670)					$	(143)					$	(527)								$	(175)					$	(37)					$	(138)
Investments OCI						(154)						(32)						(122)									(610)						(127)						(483)
Pension obligations OCI						(1)						(1)						—									—						—						—
Life policy reserves, reinsurance recoverable and other OCI						29						6						23									181						38						143
Total OCI						(126)						(27)						(99)									(429)						(89)						(340)
AOCI, end of period						$	(796)					$	(170)					$	(626)								$	(604)					$	(126)					$	(478)

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(Dollars in millions)						Six months ended June 30,
						2023																					2022
						Before tax						Income tax						Net									Before tax						Income tax						Net
Investments:
AOCI, beginning of period						$	(847)					$	(182)					$	(665)								$	792					$	165					$	627
OCI before investment gains and losses, net, recognized in net income						5						1						4									(1,353)						(284)						(1,069)
Investment gains and losses, net, recognized in net income						4						2						2									(3)						—						(3)
OCI						9						3						6									(1,356)						(284)						(1,072)
AOCI, end of period						$	(838)					$	(179)					$	(659)								$	(564)					$	(119)					$	(445)
Pension obligations:
AOCI, beginning of period						$	36					$	9					$	27								$	27					$	7					$	20
OCI excluding amortization recognized in net income						(5)						(1)						(4)									—						—						—
Amortization recognized in net income						(2)						(1)						(1)									—						—						—
OCI						(7)						(2)						(5)									—						—						—
AOCI, end of period						$	29					$	7					$	22								$	27					$	7					$	20
Life policy reserves, reinsurance recoverable and other:
AOCI, beginning of period						$	29					$	5					$	24								$	1					$	—					$	1
Cumulative effect of change in accounting for long duration insurance contracts						—						—						—									(445)						(93)						(352)
Adjusted AOCI, beginning of period						29						5						24									(444)						(93)						(351)
OCI before investment gains and losses, net, recognized in net income						(16)						(3)						(13)									377						79						298
Investment gains and losses, net, recognized in net income						—						—						—									—						—						—
OCI						(16)						(3)						(13)									377						79						298
AOCI, end of period						$	13					$	2					$	11								$	(67)					$	(14)					$	(53)
Summary of AOCI:
AOCI, beginning of period						$	(782)					$	(168)					$	(614)								$	820					$	172					$	648
Cumulative effect of change in accounting for long duration insurance contracts						—						—						—									(445)						(93)						(352)
Adjusted AOCI, beginning of period						(782)						(168)						(614)									375						79						296
Investments OCI						9						3						6									(1,356)						(284)						(1,072)
Pension obligations OCI						(7)						(2)						(5)									—						—						—
Life policy reserves, reinsurance recoverable and other OCI						(16)						(3)						(13)									377						79						298
Total OCI						(14)						(2)						(12)									(979)						(205)						(774)
AOCI, end of period						$	(796)					$	(170)					$	(626)								$	(604)					$	(126)					$	(478)

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

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NOTE 8 – Reinsurance

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

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

(Dollars in millions)						Three months ended June 30,												Six months ended June 30,
						2023						2022						2023						2022
Direct written premiums						$	2,071					$	1,871					$	3,930					$	3,574
Assumed written premiums						194						193						438						456
Ceded written premiums						(115)						(100)						(199)						(167)
Net written premiums						$	2,150					$	1,964					$	4,169					$	3,863
Direct earned premiums						$	1,806					$	1,631					$	3,566					$	3,192
Assumed earned premiums						134						134						293						255
Ceded earned premiums						(77)						(68)						(155)						(132)
Earned premiums						$	1,863					$	1,697					$	3,704					$	3,315
Direct incurred loss and loss expenses						$	1,265					$	1,174					$	2,564					$	2,069
Assumed incurred loss and loss expenses						58						67						134						140
Ceded incurred loss and loss expenses						(61)						(1)						(119)						(13)
Incurred loss and loss expenses						$	1,262					$	1,240					$	2,579					$	2,196

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

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

(Dollars in millions)						Three months ended June 30,												Six months ended June 30,
						2023						2022						2023						2022
Direct earned premiums						$	100					$	96					$	196					$	189
Ceded earned premiums						(20)						(20)						(39)						(38)
Earned premiums						$	80					$	76					$	157					$	151
Direct contract holders' benefits incurred						100						109						197						212
Ceded contract holders' benefits incurred						(22)						(27)						(38)						(54)
Contract holders' benefits incurred						$	78					$	82					$	159					$	158

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

The allowance for uncollectible property casualty premiums was $14 million and $13 million at June 30, 2023, and December 31, 2022, respectively. The allowances for credit losses on other premiums receivable and reinsurance recoverable assets were immaterial at June 30, 2023, and December 31, 2022.

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NOTE 9 – Income Taxes

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

(Dollars in millions)						Three months ended June 30,																								Six months ended June 30,
						2023												2022												2023												2022
Tax at statutory rate:						$	140					21.0		%				$	(220)					21.0		%				$	196					21.0		%				$	(294)					21.0		%
Increase (decrease) resulting from:
Tax-exempt income from municipal bonds						(5)						(0.8)						(5)						0.5						(10)						(1.1)						(10)						0.7
Dividend received exclusion						(6)						(0.9)						(5)						0.5						(11)						(1.2)						(10)						0.7
Other						3						0.5						(5)						0.3						—						—						(6)						0.4
Provision (benefit) for income taxes						$	132					19.8		%				$	(235)					22.3		%				$	175					18.7		%				$	(320)					22.8		%

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

We continue to believe that after considering all positive and negative evidence of taxable income in the carryback and carryforward periods as permitted by law, it is more likely than not that all of the deferred tax assets on our U.S. domestic operations will be realized. As a result, we have no valuation allowance for our U.S. domestic operations at June 30, 2023, and December 31, 2022. As more fully discussed below, we do carry a valuation allowance on the deferred tax assets related to Cincinnati Global Underwriting Ltd.SM (Cincinnati Global).

Cincinnati Global

As a result of operations for the three and six months ended June 30, 2023, Cincinnati Global decreased its net deferred tax assets by $5 million and $10 million with an offsetting decrease of $5 million and $10 million to the valuation allowance. Cincinnati Global had a net deferred tax asset of $21 million and an offsetting valuation allowance of $21 million at June 30, 2023.

Deferred tax assets are reduced by a valuation allowance when management believes it is more likely than not that some, or all, of the deferred tax assets will not be realized. After considering all positive and negative evidence, we continue to believe it is appropriate to carry a valuation allowance at June 30, 2023.

Cincinnati Global had operating loss carryforwards in the United States of $6 million and $5 million and in the United Kingdom of $101 million and $109 million at June 30, 2023, and December 31, 2022, respectively. These Cincinnati Global losses can only be utilized within the Cincinnati Global group in both the United States and in the United Kingdom and cannot offset the income of our domestic operations in the United States.

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NOTE 10 – Net Income (Loss) Per Common Share

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

(In millions, except per share data)						Three months ended June 30,												Six months ended June 30,
			2023						2022						2023						2022
Numerator:
Net income (loss)—basic and diluted						$	534					$	(818)					$	759					$	(1,084)
Denominator:
Basic weighted-average common shares outstanding						157.0						159.6						157.1						160.0
Effect of share-based awards:
Stock options						0.6						—						0.8						—
Nonvested shares						0.4						—						0.4						—
Diluted weighted-average shares						158.0						159.6						158.3						160.0
Earnings (loss) per share:
Basic						$	3.40					$	(5.12)					$	4.83					$	(6.77)
Diluted						$	3.38					$	(5.12)					$	4.80					$	(6.77)
Number of anti-dilutive share-based awards						1.5						2.0						1.5						2.2

The above table shows the number of anti-dilutive share-based awards for the three and six months ended June 30, 2023 and 2022. In accordance with Accounting Standards Codification 260, Earnings per Share, the assumed exercise of share-based awards was excluded from the computation of diluted loss per share for the three and six months ended June 30, 2022, because their exercise would have anti-dilutive effects. See our 2022 Annual Report on Form 10-K, Item 8, Note 17, Share-Based Associate Compensation Plans, Page 170, for information about share-based awards.

NOTE 11 – Employee Retirement Benefits

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

(Dollars in millions)						Three months ended June 30,												Six months ended June 30,
						2023						2022						2023						2022
Service cost						$	2					$	3					$	3					$	5
Non-service (benefit) costs:
Interest cost						3						2						6						5
Expected return on plan assets						(5)						(5)						(10)						(11)
Amortization of actuarial loss and prior service cost						(1)						—						(2)						—
Other						—						—						(5)						—
Total non-service benefit						(3)						(3)						(11)						(6)
Net periodic benefit						$	(1)					$	—					$	(8)					$	(1)

See our 2022 Annual Report on Form 10-K, Item 8, Note 13, Employee Retirement Benefits, Page 163, for information on our retirement benefits. The net periodic benefit is allocated in the same proportion primarily to the underwriting, acquisition and insurance expenses line item with the remainder allocated to the insurance losses and contract holders' benefits line item on the condensed consolidated statements of income for both 2023 and 2022.

We made matching contributions totaling $6 million to our 401(k) and Top Hat savings plans during both the second quarter of 2023 and 2022 and contributions of $14 million for both the first half of 2023 and 2022.

We made no contributions to our qualified pension plan during the first six months of 2023.

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NOTE 12 – Commitments and Contingent Liabilities

The company, through its insurance subsidiaries, is involved in claims litigation arising in the ordinary course of conducting its business, both as a liability insurer defending or providing indemnity for third-party claims brought against insureds and as an insurer defending coverage claims brought against it. The company accounts for such activity through the establishment of unpaid loss and loss expense reserves. Subject to the uncertainties discussed in Note 4, Property Casualty Loss and Loss Expenses, and in the discussion in the balance of this Note, we believe that the ultimate liability, if any, with respect to such ordinary-course claims litigation, after consideration of provisions made for potential losses, costs of defense, and reinsurance recoveries, is immaterial to our consolidated financial position, results of operations and cash flows.

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

The company denies the allegations in these lawsuits and intends to continue to vigorously defend the lawsuits. The company maintains that it has no coverage obligations with respect to these lawsuits for business income allegedly lost by the plaintiffs due to the COVID-19 pandemic based on the terms of the applicable insurance policies. Although the policy terms vary, in general, the claims at issue in these lawsuits were denied because the policyholder identified no direct physical loss or damage to property at the insured premises, and the governmental orders that led to the complete or partial shutdown of the business were not due to the existence of any direct physical loss or damage to property in the immediate vicinity of the insured premises and did not prohibit access to the insured premises, as required by the terms of the insurance policies. Depending on the individual policy, additional policy terms and conditions may also prohibit coverage, such as exclusions for pollutants, ordinance or law, loss of use, and acts or decisions. The company’s standard commercial property insurance policies generally did not contain a specific virus exclusion.

In addition to the inherent difficulty in predicting litigation outcomes, the COVID-19 pandemic business income coverage lawsuits present a number of uncertainties and contingencies that are not yet known, including how many policyholders will ultimately file claims, the number of lawsuits that will be filed, the extent to which any class may be certified, and the size and scope of any such classes. The legal theories advanced by plaintiffs vary by case as do the state laws that govern the policy interpretation. These lawsuits are at various stages of litigation, including several that continue to be amended; many that have been dismissed; several that may be refiled; and others that have been dismissed by trial courts and appealed. Appellate decisions issued to date generally have been favorable for the insurance industry, and the company has received numerous favorable rulings on appeal with no adverse appellate rulings to date. Some cases remain to be decided and in some jurisdictions, cases have been stayed pending appellate decisions in their state or federal circuit. Accordingly, little discovery has occurred on pending cases. In addition, business income calculations depend upon a wide range of factors that are particular to the circumstances of each individual policyholder and, here, virtually none of the plaintiffs have submitted proofs of loss or otherwise quantified or factually supported any allegedly covered loss. Moreover, the company’s experience shows that demands for damages often bear little relation to a reasonable estimate of potential loss. Accordingly, management cannot now reasonably estimate the possible loss or range of loss, if any. Nonetheless, given the number of claims and potential claims, the indeterminate amounts sought, and the inherent unpredictability of litigation, it is possible that adverse outcomes, if any, in the aggregate could have a material adverse effect on the company’s consolidated financial position, results of operations and cash flows.

The company and its subsidiaries also are occasionally involved in other legal and regulatory proceedings, some of which assert claims for substantial amounts. These actions include, among others, putative class actions seeking certification of state or national classes. Such proceedings have alleged, for example, improper depreciation of labor costs in repair estimates. The company’s insurance subsidiaries also are occasionally parties to individual actions in which extra-contractual damages, punitive damages or penalties are sought, such as claims alleging bad faith handling of insurance claims or writing unauthorized coverage or claims alleging discrimination by former or current associates.

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

NOTE 13 – Segment Information

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

• Commercial lines insurance

• Personal lines insurance

• Excess and surplus lines insurance

• Life insurance

• Investments

We report as Other the noninvestment operations of the parent company and its noninsurer subsidiary, CFC Investment Company. We also report as Other the underwriting results of Cincinnati Re and Cincinnati Global. See our 2022 Annual Report on Form 10-K, Item 8, Note 18, Segment Information, Page 173, for a description of revenue, income or loss before income taxes and identifiable assets for each of the five segments.

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Segment information is summarized in the following table:

(Dollars in millions)						Three months ended June 30,												Six months ended June 30,
						2023						2022						2023						2022
Revenues:
Commercial lines insurance
Commercial casualty						$	373					$	350					$	750					$	686
Commercial property						312						280						611						554
Commercial auto						214						210						428						415
Workers' compensation						72						68						146						136
Other commercial						95						86						187						165
Commercial lines insurance premiums						1,066						994						2,122						1,956
Fee revenues						1						1						2						2
Total commercial lines insurance						1,067						995						2,124						1,958
Personal lines insurance
Personal auto						173						155						339						307
Homeowner						251						202						484						397
Other personal						69						56						134						111
Personal lines insurance premiums						493						413						957						815
Fee revenues						1						1						2						2
Total personal lines insurance						494						414						959						817
Excess and surplus lines insurance						132						124						259						236
Fee revenues						1						—						1						1
Total excess and surplus lines insurance						133						124						260						237
Life insurance premiums						80						76						157						151
Fee revenues						3						1						5						2
Total life insurance						83						77						162						153
Investments
Investment income, net of expenses						220						195						430						380
Investment gains and losses, net						434						(1,154)						540						(1,820)
Total investment revenue						654						(959)						970						(1,440)
Other
Premiums						172						166						366						308
Other						2						3						5						5
Total other revenues						174						169						371						313
Total revenues						$	2,605					$	820					$	4,846					$	2,038
Income (loss) before income taxes:
Insurance underwriting results
Commercial lines insurance						$	33					$	(62)					$	31					$	14
Personal lines insurance						(36)						(49)						(93)						16
Excess and surplus lines insurance						11						19						24						35
Life insurance						13						1						21						8
Investments						624						(987)						910						(1,495)
Other						21						25						41						18
Total income (loss) before income taxes						$	666					$	(1,053)					$	934					$	(1,404)

Identifiable assets:						June 30, 2023						December 31, 2022
Property casualty insurance						$	5,354					$	5,178
Life insurance						1,542						1,518
Investments						23,535						22,133
Other						921						903
Total						$	31,352					$	29,732

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