CINCINNATI FINANCIAL CORP

Net Income and Comprehensive Income Data

Total revenues increased $694 million for the first quarter of 2024, compared with the first quarter of 2023, primarily due to an increase in net investment gains in addition to higher earned premiums and investment income. Premium and investment revenue trends are discussed further in the respective sections of Financial Results.

Investment gains and losses are recognized on the sales of investments, on certain changes in fair values of securities even though we continue to hold the securities or as otherwise required by GAAP. We have substantial discretion in the timing of investment sales, and that timing generally is independent of the insurance underwriting process. The change in fair value of securities is also generally independent of the insurance underwriting process.

Net income for the first quarter of 2024, compared with first-quarter 2023, increased $530 million, including increases of $399 million in after-tax net investment gains and losses, $111 million in after-tax property casualty underwriting income and $28 million in after-tax investment income. Catastrophe losses for the first quarter of 2024, mostly weather related, were $93 million lower after taxes and favorably affected both net income and property casualty underwriting income. Life insurance segment results increased by $2 million on a pretax basis.

Performance by segment is discussed below in Financial Results. As discussed in our 2023 Annual Report on Form 10-K, Item 7, Executive Summary, Page 48, there are several reasons why our performance during 2024 may ultimately be below our long-term targets.

The board of directors is committed to rewarding shareholders directly through cash dividends and through share repurchase authorizations. Through 2023, the company had increased the annual cash dividend rate for 63 consecutive years, a record we believe is matched by only seven other U.S. publicly traded companies. In January 2024, the board of directors increased the regular quarterly dividend to 81 cents per share, setting the stage for our 64 th consecutive year of increasing cash dividends. During the first three months of 2024, cash dividends declared by the company increased 8% compared with the same period of 2023. Our board regularly evaluates relevant factors in decisions related to dividends and share repurchases. The 2024 dividend increase reflected our strong operating performance and signaled management's and the board's positive outlook and confidence in our outstanding capital, liquidity and financial flexibility.

Balance Sheet Data and Performance Measures

Total assets at March 31, 2024, increased 3% compared with year-end 2023, and included a 4% increase in total investments that reflected net purchases and higher fair values for many securities in our equity portfolio. Shareholders' equity increased 5% and book value per share also increased 5% during the first three months of 2024. Our debt-to-total-capital ratio (capital is the sum of debt plus shareholders' equity) decreased compared with year-end 2023.

Our value creation ratio is our primary performance metric. As shown in the tables below, that ratio was 5.9% for the first three months of 2024, better than the same period in 2023, including higher net income before investment gains and a higher amount in overall net gains from our investment portfolio. Book value per share increased $3.77 during the first three months of 2024 and contributed 4.9 percentage points to the value creation ratio, while dividends declared at $0.81 per share contributed 1.0 points. Value creation ratio major contributors and in total, along with calculations from per-share amounts, are shown in the tables below.

DRIVERS OF LONG-TERM VALUE CREATION

Operating through The Cincinnati Insurance Company, Cincinnati Financial Corporation is one of the 25 largest property casualty insurers in the nation, based on 2023 net written premiums for approximately 2,000 U.S. stock and mutual insurer groups. We market our insurance products through a select group of independent insurance agencies as discussed in our 2023 Annual Report on Form 10-K, Item 1, Our Business and Our Strategy, Page 6. At March 31, 2024, we actively marketed through 2,125 agencies located in 46 states. We maintain a long-term perspective that guides us in addressing immediate challenges or opportunities while focusing on the major decisions that best position our company for success through all market cycles.

To measure our long-term progress in creating shareholder value, our value creation ratio is our primary financial performance target. As discussed in our 2023 Annual Report on Form 10-K, Item 7, Executive Summary, Page 48, management believes this measure is a meaningful indicator of our long-term progress in creating shareholder value and has three primary performance drivers:

•Premium growth – We believe our agency relationships and initiatives can lead to a property casualty written premium growth rate over any five-year period that exceeds the industry average. For the first three months of 2024, our consolidated property casualty net written premium year-over-year growth was 11%. As of March 2024, A.M. Best projected the industry's full-year 2024 written premium growth at approximately 9%. For the five-year period 2019 through 2023, our growth rate exceeded that of the industry. The industry's growth rate excludes its mortgage and financial guaranty lines of business.

•Combined ratio – We believe our underwriting philosophy and initiatives can generate a GAAP combined ratio over any five-year period that is consistently within the range of 92% to 98%. For the first three months of 2024, our GAAP combined ratio was 93.6%, including 7.5 percentage points of current accident year catastrophe losses partially offset by 5.0 percentage points of favorable loss reserve development on prior accident years. Our statutory combined ratio was 92.3% for the first three months of 2024. As of March 2024, A.M. Best projected the industry's full-year 2024 statutory combined ratio at approximately 101%, including approximately 7 percentage points of catastrophe losses and a favorable effect of less than 1 percentage point of loss reserve development on prior accident years. The industry's ratio again excludes its mortgage and financial guaranty lines of business.

•Investment contribution – We believe our investment philosophy and initiatives can drive investment income growth and lead to a total return on our equity investment portfolio over a five-year period that exceeds the five-year return of the Standard & Poor's 500 Index. For the first three months of 2024, pretax investment income was $245 million, up 17% compared with the same period in 2023. We believe our investment portfolio mix provides an appropriate balance of income stability and growth with capital appreciation potential.

Financial Strength

An important part of our long-term strategy is financial strength, which is described in our 2023 Annual Report on Form 10-K, Item 1, Our Business and Our Strategy, Financial Strength, Page 8. One aspect of our financial strength is prudent use of reinsurance ceded to help manage financial performance variability due to catastrophe loss experience. A description of how we use reinsurance ceded is included in our 2023 Annual Report on Form 10-K, Item 7, Liquidity and Capital Resources, 2024 Reinsurance Ceded Programs, Page 105. Another aspect of our financial strength is our investment portfolio, which remains well-diversified as discussed in this quarterly report in Item 3, Quantitative and Qualitative Disclosures About Market Risk. Our strong parent-company liquidity and financial strength increase our flexibility to maintain a cash dividend through all periods and to continue to invest in and expand our insurance operations.

At March 31, 2024, we held $4.906 billion of our cash and cash equivalents and invested assets at the parent-company level, of which $4.543 billion, or 92.6%, was invested in common stocks, and $163 million, or 3.3%, was cash or cash equivalents. Our debt-to-total-capital ratio was 6.1% at March 31, 2024. Another important indicator of financial strength is our ratio of property casualty net written premiums to statutory surplus, which was 1.0-to-1 for the 12 months ended March 31, 2024, matching year-end 2023.

Financial strength ratings assigned to us by independent rating firms also are important. In addition to rating our parent company's senior debt, four firms award insurer financial strength ratings to one or more of our insurance subsidiary companies based on their quantitative and qualitative analyses. These ratings primarily assess an insurer's ability to meet financial obligations to policyholders and do not necessarily address all of the matters that may be important to investors. Ratings are under continuous review and subject to change or withdrawal at any time by the rating agency. Each rating should be evaluated independently of any other rating; please see each rating agency's website for its most recent report on our ratings.

At April 24, 2024, our insurance subsidiaries continued to be highly rated.

CONSOLIDATED PROPERTY CASUALTY INSURANCE HIGHLIGHTS

Consolidated property casualty insurance results include premiums and expenses for our standard market insurance segments (commercial lines and personal lines), our excess and surplus lines segment, Cincinnati Re®and our London-based global specialty underwriter Cincinnati Global Underwriting Ltd. SM (Cincinnati Global).

Our consolidated property casualty insurance operations generated an underwriting profit of $131 million for the first quarter of 2024. Compared with an underwriting loss of $10 million for the first quarter of 2023, the first-quarter 2024 improvement of $141 million included a favorable decrease of $118 million in losses from catastrophes, mostly caused by severe weather. The first-quarter 2024 change in underwriting profitability also included higher current accident year loss and loss expenses before catastrophe losses that grew slightly faster than earned premiums and higher amounts of favorable reserve development on prior accident years.

Underwriting results for the first quarter of 2024 included improved overall insured loss experience before catastrophe effects, as price increases have helped to offset recent-year elevated paid losses reflecting economic or other forms of inflation. Elevated inflation was a driver of higher losses and loss expenses in both 2024 and 2023 as costs have increased significantly to repair damaged autos or other property that we insure. We also experienced higher losses for liability coverages for some of our lines of business. Due to increased uncertainty regarding ultimate losses, we intend to remain prudent in reserving for estimated ultimate losses until longer-term loss cost trends become more clear. The higher loss experience is discussed in Financial Results by property casualty insurance segment. We believe future property casualty underwriting results will continue to benefit from price increases and our ongoing initiatives to improve pricing precision and loss experience related to claims and loss control practices.

For all property casualty lines of business in aggregate, net loss and loss expense reserves at March 31, 2024, were $233 million, or 3%, higher than at year-end 2023, including an increase of $272 million for the incurred but not reported (IBNR) portion.

We measure and analyze property casualty underwriting results primarily by the combined ratio and its component ratios. The GAAP-basis combined ratio is the percentage of incurred losses plus all expenses per each earned premium dollar – the lower the ratio, the better the performance. An underwriting profit results when the combined ratio is below 100%. A combined ratio above 100% indicates that an insurance company's losses and expenses exceeded premiums.

Our consolidated property casualty combined ratio for the first quarter of 2024 improved by 7.1 percentage points, compared with the same period of 2023, including a decrease of 6.9 points from lower catastrophe losses and loss expenses. Other combined ratio components that changed are discussed below and in further detail in Financial Results by property casualty insurance segment.

The combined ratio can be affected significantly by natural catastrophe losses and other large losses as discussed in detail below. The combined ratio can also be affected by updated estimates of loss and loss expense reserves established for claims that occurred in prior periods, referred to as prior accident years. Net favorable development on prior accident year reserves, including reserves for catastrophe losses, benefited the combined ratio by 5.0 percentage points in the first three months of 2024, compared with 3.2 percentage points in the same period of 2023. Net favorable development is discussed in further detail in Financial Results by property casualty insurance segment.

The ratio for current accident year loss and loss expenses before catastrophe losses increased in the first three months of 2024. That 61.3% ratio was 0.3 percentage points higher, compared with the 61.0% accident year 2023 ratio measured as of March 31, 2023, including a decrease of 1.6 points in the ratio for large losses of $2 million or more per claim, discussed below. The ratio increase of 0.3 percentage points included an increase of 1.8 points for the IBNR portion and a decrease of 1.5 points for the case incurred portion.

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

Consolidated Property Casualty Insurance Premiums

The trends in net written premiums and earned premiums summarized in the table above include the effects of price increases. Price change trends that heavily influence renewal written premium increases or decreases, along with other premium growth drivers for 2024, are discussed in more detail by segment below in Financial Results.

Consolidated property casualty net written premiums for the three months ended March 31, 2024, grew $229 million compared with the same period of 2023. Our premium growth initiatives from prior years have provided an ongoing favorable effect on growth during the current year, particularly as newer agency relationships mature over time.

Consolidated property casualty agency new business written premiums increased by $95 million for the first three months of 2024, compared with the same period of 2023. New agency appointments during 2024 and 2023 produced a $24 million increase in standard lines new business for the first three months of 2024 compared with the same period of 2023. As we appoint new agencies that choose to move accounts to us, we report these accounts as new business. While this business is new to us, in many cases it is not new to the agent. We believe these seasoned accounts tend to be priced more accurately than business that may be less familiar to our agent upon obtaining it from a competing agent.

Net written premiums for Cincinnati Re, included in other written premiums, decreased by $28 million to $202 million for the three months ended March 31, 2024, compared with the same period of 2023. Cincinnati Re assumes risks through reinsurance treaties and in some cases cedes part of the risk and related premiums to one or more unaffiliated reinsurance companies through transactions known as retrocessions.

Cincinnati Global is also included in other written premiums. Net written premiums increased for Cincinnati Global by $18 million to $82 million for the three months ended March 31, 2024, compared with the same period of 2023.

Other written premiums include premiums ceded to reinsurers as part of our reinsurance ceded program. An increase in ceded premiums reduced net written premiums by $5 million for the first three months of 2024, compared with the same period of 2023.

Catastrophe losses and loss expenses typically have a material effect on property casualty results and can vary significantly from period to period. Losses from catastrophes contributed 5.9 percentage points to the combined ratio in the first three months of 2024, compared with 12.8 percentage points in the same period of 2023.

The reinsurance program for Cincinnati Re effective June 1, 2023, provides property catastrophe excess of loss coverage and includes $40 million of coverage for various combinations of occurrences for business written in North America on a direct basis. There is a per occurrence limit of $20 million for Cincinnati Re catastrophe losses in excess of $80 million per event. The remaining coverage is for business written by Cincinnati Re and on a direct basis for catastrophe losses in excess of $600 million per event. During 2023 and for the first three months of 2024, there was no recovery from reinsurers pertaining to these treaties.

The following table shows consolidated property casualty insurance catastrophe losses and loss expenses incurred, net of reinsurance, as well as the effect of loss development on prior period catastrophe events. We individually list declared catastrophe events for which our incurred losses reached or exceeded $25 million.

Consolidated Property Casualty Insurance Catastrophe Losses and Loss Expenses Incurred

The following table includes data for losses incurred of $2 million or more per claim, net of reinsurance.

Consolidated Property Casualty Insurance Losses Incurred by Size

We believe the inherent variability of aggregate loss experience for our portfolio of larger policies is greater than that of our portfolio of smaller policies, and we continue to monitor the variability in addition to general inflationary trends in loss costs. Our analysis continues to indicate no unexpected concentration of large losses and case reserve increases by risk category, geographic region, policy inception, agency or field marketing territory. The first-quarter 2024 property casualty total large losses incurred of $44 million, net of reinsurance, was lower than the $95 million quarterly average during full-year 2023 and the $60 million experienced for the first quarter of 2023. The ratio for these large losses was 1.0 percentage point lower compared with last year's first quarter. We believe results for the three-month period largely reflected normal fluctuations in loss patterns and normal variability in large case reserves for claims above $2 million. Losses by size are discussed in further detail in results of operations by property casualty insurance segment.