2021 ANNUAL REPORT
ON FORM 10–K
CINCINNATI
Cincinnati Financial Corporation stands among the 25 largest property casualty insurers in the
nation, based on net written premiums. A select group of independent agencies actively markets
our business, home and auto insurance in 46 states. Within this select group, we also seek to
become the life insurance carrier of choice and to help agents and their clients – our policyholders –
by offering leasing and financing services.
Three competitive advantages distinguish your company, positioning us to build shareholder value
and long-term success:
1. Commitment to our network of professional independent insurance agencies and to their
continued success
2. Operating structure that supports local decision making, showcasing the strength of our field
claims service, field underwriting and field support services
3. Financial strength to fulfill our promises and be a consistent market for our agents’ business,
supporting stability and confidence
Learn more about where we are today and where we are headed by reviewing our publications
on cinfin.com/investors.
CINCINNATI
Independent agents who work with The Cincinnati
Insurance Company appreciate the ease with which they
can reach us. Finding value in direct access to associates
from all areas of the company, we often hear, “I love that
you answer the phone.” However, we know it’s more
than just easily reaching a real person – it’s reaching a
person who can offer solutions and options. We’ve invested
in talented associates who increase the capabilities we have
and the resources we provide to agents and their clients when they
have unique or challenging insurance situations.
We answer the call for local independent insurance agents:
• offering a breadth of products that create flexibility in responding to the needs
of business owners, from entrepreneurs just starting out to those operating
multi-million dollar businesses, as well as both middle market and high net
worth personal lines clients.
• connecting professional risk management associates to business leaders, large
fleet operators, homeowners and collectors, helping them prevent loss or
damage to their most important assets.
•
responding with fast, fair and empathetic claims service, supporting our agents’
reputations in their communities and making communities, businesses and
families financially whole again.
United States Securities and Exchange Commission
Washington, D.C. 20549
Form 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934.
For the fiscal year ended December 31, 2021.
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934.
☑
☐
For the transition period from _____________________ to _____________________.
Commission file number 000-04604
Cincinnati Financial Corporation
(Exact name of registrant as specified in its charter)
Ohio
(State of incorporation)
31-0746871
(I.R.S. Employer Identification No.)
6200 S. Gilmore Road
Fairfield, Ohio 45014-5141
(Address of principal executive offices) (Zip Code)
(513) 870-2000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common stock, $2.00 par
CINF
Nasdaq Global Select Market
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes ☑ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Act. Yes ☐ No ☑
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.
Yes ☑ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be
submitted pursuant to Rule 405 if Regulation S-T(§232.405 of this chapter) during the preceding 12 months (or for
such shorter period that the registrant was required to submit such files). Yes ☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated
filer, a smaller reporting company, or emerging growth company. See definition of “large accelerated filer,”
“accelerated filer,” “smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Cincinnati Financial Corporation - 2021 10-K - Page 1
Large accelerated filer ☑ Accelerated filer ☐ Non-accelerated filer ☐ Smaller reporting company ☐
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended
transition period for complying with any new or revised financial accounting standards provided pursuant to Section
13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment
of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act
(15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☑
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☑
The aggregate market value of voting stock held by nonaffiliates of the Registrant based on the closing price of
$116.62 per share as reported on Nasdaq Global Select Market on June 30, 2021, was $18,398,492,958.
As of February 15, 2022, there were 160,433,769 shares of common stock outstanding.
Document Incorporated by Reference
Portions of the definitive Proxy Statement for Cincinnati Financial Corporation’s Annual Meeting of Shareholders to
be held on May 7, 2022, are incorporated by reference into Part III of this Form 10-K.
Cincinnati Financial Corporation - 2021 10-K - Page 2
2021 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
Part I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Part II
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Business
Cincinnati Financial Corporation – Introduction
Our Business and Our Strategy
Our Segments
Other
Regulation
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
[Reserved]
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Introduction
Executive Summary
Critical Accounting Estimates
Recent Accounting Pronouncements
Financial Results
Liquidity and Capital Resources
Safe Harbor Statement
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Responsibility for Financial Statements
Management’s Annual Report on Internal Control Over Financial Reporting
Report of Independent Registered Public Accounting Firm (PCAOB ID No. 34)
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Comprehensive Income
Consolidated Statements of Shareholders’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Item 9.
Item 9A.
Item 9B.
Item 9C.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
5
5
5
6
14
27
28
32
43
43
43
43
44
44
45
46
46
47
52
58
59
93
109
112
118
118
119
120
122
123
124
125
126
127
174
174
174
174
Cincinnati Financial Corporation - 2021 10-K - Page 3
Part III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Part IV
Item 15.
Item 16
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services
Exhibit and Financial Statement Schedules
Form 10-K Summary
175
175
177
177
178
178
179
179
179
Cincinnati Financial Corporation - 2021 10-K - Page 4
Part I
ITEM 1.
Business
Cincinnati Financial Corporation – Introduction
We are an Ohio corporation formed in 1968. Our lead subsidiary, The Cincinnati Insurance Company, was founded
in 1950. Our main business is property casualty insurance marketed through independent insurance agencies in
46 states. Our headquarters is in Fairfield, Ohio.
Cincinnati Financial Corporation owns 100% of four subsidiaries: The Cincinnati Insurance Company (Cincinnati
Insurance), Cincinnati Global Underwriting Ltd.SM (Cincinnati Global), CSU Producer Resources Inc. and CFC
Investment Company. In addition, the parent company has an investment portfolio, owns the headquarters property
and is responsible for corporate borrowings and shareholder dividends.
The Cincinnati Insurance Company owns 100% of four additional insurance subsidiaries. Our standard market
property casualty insurance group includes two of those subsidiaries – The Cincinnati Casualty Company and
The Cincinnati Indemnity Company. This group writes a broad range of business, homeowner and auto policies.
The Cincinnati Insurance Company also conducts the business of our reinsurance assumed operations, known as
Cincinnati Re®. Other subsidiaries of The Cincinnati Insurance Company include: The Cincinnati Life Insurance
Company (Cincinnati Life), which provides life insurance policies and fixed annuities; and The Cincinnati Specialty
Underwriters Insurance Company (Cincinnati Specialty Underwriters), which offers excess and surplus lines
insurance products. In this report and elsewhere we often refer to any or all of these five companies as
The Cincinnati Insurance Companies.
Cincinnati Global owns 100% of Cincinnati Global Underwriting Agency Ltd.SM, a London-based, global specialty
underwriter for Lloyd's Syndicate 318, and Cincinnati Global Dedicated No. 2 Ltd.SM, a Lloyd’s corporate member
and vehicle through which capital is provided by Cincinnati Financial Corporation and third-party names at Lloyd’s.
The two noninsurance subsidiaries of Cincinnati Financial Corporation are CSU Producer Resources, which offers
insurance brokerage services to our independent agencies so their clients can access our excess and surplus lines
insurance products; and CFC Investment Company, which offers commercial leasing and financing services to our
agencies, their clients and other customers.
Our filings with the U.S. Securities and Exchange Commission (SEC) are available on our website,
cinfin.com/investors, as soon as possible after they have been filed with the SEC. Reports filed with the SEC may
also be viewed at sec.gov. These filings include annual reports on Form 10-K, quarterly reports on Form 10-Q,
current reports on Form 8-K and exhibits and amendments to those reports filed or furnished pursuant to Section
13(a) or 15(d) of the Securities Exchange Act of 1934. In this report we reference various websites. These websites,
including our own, are not incorporated by reference in this Annual Report on Form 10-K.
Periodically, we refer to estimated industry data so that we can give information about our performance versus the
overall U.S. insurance industry. Unless otherwise noted, the industry data is prepared by A.M. Best, a leading
insurance industry statistical, analytical and insurer financial strength and credit rating organization. Information
from A.M. Best is presented on a statutory accounting basis for insurance company regulation in the United States
of America. When we provide our results on a comparable statutory accounting basis, we label it as such; all other
company data is presented in accordance with accounting principles generally accepted in the United States of
America (GAAP).
Cincinnati Financial Corporation - 2021 10-K - Page 5
Our Business and Our Strategy
Introduction
The Cincinnati Insurance Company was founded more than 70 years ago by four independent insurance agents.
They established the mission that continues to guide all of the companies in the Cincinnati Financial Corporation
family – to grow profitably and enhance the ability of local independent insurance agents to deliver quality financial
protection to the people and businesses they serve by:
providing insurance market stability through financial strength
producing competitive, up-to-date products and services
developing associates committed to superior service
At year-end 2021, a select group of independent agencies in 46 states actively marketed our property casualty
insurance within their communities. Standard market commercial lines and excess and surplus lines policies were
marketed in 41 of those states. Personal lines policies were marketed in 45 of those states. Within our select group
of agencies, we also seek to become the life insurance carrier of choice and to help agents and their clients – our
policyholders – by offering leasing and financing services.
Three competitive advantages distinguish our company, positioning us to build shareholder value and to be
successful overall:
Commitment to our professional independent insurance agencies and to their continued success
Financial strength to fulfill our promises and be a consistent market for our agents’ business, supporting stability
and confidence
•
•
•
•
•
• Operating structure that supports local decision making, showcasing our claims excellence and allowing us to
balance growth with underwriting discipline
Management and our board of directors has developed an agency-focused strategy that we believe positions our
company for long-term success and value creation, while managing difficult economic, market or pricing cycles. We
broadly group our key strategic initiatives into two areas of focus – managing insurance profitability and driving
premium growth, as summarized below. Our strategic priorities include meeting the wants and needs of our agent
customers, attracting and developing talented associates, achieving best-in-class field service and continually
enhancing operational efficiency and effectiveness. To help guide our strategic efforts, we have placed an emphasis
on innovation to accelerate operational improvement and to also favorably position us for the future. We find
innovative ideas in many places, including: internally through management and other associates, with our traditional
business partners and in the start-up business community.
• Manage insurance profitability – Implementation of these initiatives is intended to enhance underwriting expertise
and knowledge, thereby increasing our ability to manage our business while also gaining efficiency. Better profit
margins may be achieved with additional information and expanded pricing capabilities we can access with the
use of technology and analytics. This includes segmentation efforts that emphasize identification and retention of
insurance policies we believe have relatively stronger pricing, while seeking more aggressive renewal terms and
conditions on policies we believe have relatively weaker pricing. In addition to enhancing company efficiency and
more quickly deploying product or service enhancements, improving internal processes also supports the ability of
the independent agencies that represent us to grow profitably by allowing them to serve clients faster and to more
efficiently manage agency expenses as we make it easier for them to do business with us.
•
Drive premium growth – Implementation of these initiatives is intended to further penetrate each market we serve
through our appointed independent agencies. Strategies aimed at specific market opportunities, along with
service enhancements, can help our agents grow and increase our share of their business. This includes
increasing opportunities for agencies to cross-serve their clients by providing updated products and services that
aim to meet their life insurance needs. We continue to increase our capabilities to successfully underwrite both
larger commercial policies, which we refer to as key accounts, or small business accounts that require greater
efficiency. Premium growth initiatives also include expansion of Cincinnati Re and Cincinnati Global. Diversified
growth also may reduce variability of losses from weather-related catastrophes.
Cincinnati Financial Corporation - 2021 10-K - Page 6
Independent Insurance Agency Marketplace
The U.S. property casualty insurance industry is a highly competitive marketplace with more than 2,000 stock and
mutual companies (carriers) operating independently or in groups.
For the most part, we compete with standard market insurance companies that market through independent
insurance agents. Agencies marketing our commercial lines or personal lines products typically represent several
standard market insurance carriers. We also compete with carriers that market through captive agents representing
a single carrier or that market directly to consumers, sometimes offering a less broad range of insurance products.
Some of our agencies describe their roles as brokers instead of agents. Distribution through independent insurance
agents or brokers represents nearly 60% of overall U.S. property casualty insurance premiums and approximately
80% of commercial property casualty insurance premiums, according to studies by the Independent Insurance
Agents and Brokers of America.
We are fully committed to the independent agency channel for marketing our insurance policies. For marketing
standard lines insurance products, we choose independent agencies that share our philosophies. They generally do
business person to person; offer broad, value-added services; and manage their agencies professionally, targeting
long-term success. We develop our relationships with agencies, providing important knowledge of local market
trends, opportunities and challenges.
Our associates work to support agencies with tools and resources that help communicate the value of choosing an
independent insurance agent and our insurance policies to their clients and prospective clients. We help our
agencies meet the broader needs of their clients and increase and diversify their revenues and profitability by
offering insurance solutions beyond our standard market property casualty insurance products. We market life
insurance products through the agencies that offer our property casualty products and through other independent
life agencies that represent Cincinnati Life without also representing our other subsidiaries. We operate our own
excess and surplus lines insurance brokerage firm and insurance carrier so that we can offer our excess and
surplus lines products exclusively to the independent agencies who market our other property casualty insurance
products. Insurers operating in the excess and surplus lines marketplace generally market business through
nonaffiliated excess and surplus lines brokers.
The specialized nature of our other insurance operations helps avoid conflicts with the independent agency
distribution channel. Cincinnati Re typically markets through broker organizations or similar intermediaries that
specialize in reinsurance. Cincinnati Global markets its business through brokers and coverholders. Coverholders
are entities that can be authorized by a Lloyd's syndicate to underwrite policies, manage risks, collect premiums or
arrange claims settlements up to agreed upon limits.
The table below includes data about property casualty agency relationships that market our standard market
insurance products. It does not include Lloyd's brokers or coverholders that source business for Cincinnati Global.
Agency Data
Property casualty agency relationships, January 1
New appointments that market all or most of The Cincinnati Insurance Companies' products
New appointments that market only personal lines insurance products for Cincinnati Insurance
Changes due to consolidation and other
Property casualty agency relationships, December 31
Property casualty reporting locations
New relationship appointments
Active states
Years ended December 31,
2021
2020
1,848
155
59
(141)
1,921
1,796
133
58
(139)
1,848
2,721
2,578
159
46
119
45
The annual total of agency new appointments may be partially offset by other changes in agency structures,
such as consolidation through mergers or acquisitions. An increasing number of agencies have multiple,
separately identifiable locations, reflecting their growth as well as consolidation of ownership within the independent
Cincinnati Financial Corporation - 2021 10-K - Page 7
agency marketplace. The number of reporting agency locations indicates our agents’ regional scope and the extent
of our presence within our active states. The difference between new appointments in total and the number of
new relationships represents either: new branch offices opened by existing Cincinnati agencies; or agencies that
merged with another Cincinnati agency and we still believed would produce a meaningful amount of new
business premiums.
On average, we have a 5.5% share of the standard lines property casualty insurance purchased through our
reporting agency locations, according to 2020 data from agency surveys. Our share is 11.6% in reporting agency
locations that have represented us for more than 10 years; 4.3% in agencies that have represented us for six to
10 years; 1.9% in agencies that have represented us for two to five years; and 0.3% in agencies that have
represented us for one year or less.
Our largest single agency relationship accounted for approximately 0.6% of our total property casualty earned
premiums in 2021. No aggregate locations under a single ownership structure accounted for more than 5% of our
earned premiums in 2021.
Financial Strength
We believe that our financial strength and strong capital and surplus position, reflected in our insurer financial
strength ratings, are clear, competitive advantages in the segments of the insurance marketplace that we serve.
This strength supports the consistent, predictable performance that our policyholders, agents, associates and
shareholders have always expected and received, helping us withstand significant challenges.
Effective capital management is an important part of creating long-term shareholder value, serving as a foundation
to support other strategic areas focused on profitable growth of our insurance business. Our capital management
philosophy is intended to preserve and build our capital while maintaining appropriate liquidity.
While the potential exists for short-term financial performance variability due to our exposures to possible natural or
man-made catastrophes or to significant capital market losses, the rating agencies consistently assert that we have
built appropriate financial strength and flexibility to manage that variability. We remain committed to strategies that
emphasize being a consistent, stable market for our agents’ business rather than seeking short-term benefits that
might accrue by quick, opportunistic reaction to changes in market conditions.
We use various principles and practices such as diversification and enterprise risk management to maintain strong
capital. For example, we maintain a diversified investment portfolio by reviewing and applying specific parameters
and tolerances.
• Our $13.022 billion fixed-maturity portfolio is diversified and exceeds total insurance reserves. The portfolio had
an average rating of A3/A, and its fair value exceeded total insurance reserve liabilities by approximately 26% at
December 31, 2021. No corporate bond exposure accounted for more than 0.9% of our fixed-maturity portfolio,
and no municipal exposure accounted for more than 0.2%.
•
The strength of our fixed-maturity portfolio provides an opportunity to invest for potential capital appreciation by
purchasing equity securities. Our $11.315 billion equity portfolio minimizes concentrations in single stocks or
industries. At December 31, 2021, no single security accounted for more than 8.0% of our portfolio of publicly
traded common stocks, and no single sector accounted for more than 32%.
Strong liquidity increases our flexibility through all periods to maintain our cash dividend and to continue to invest in
and expand our insurance operations. At December 31, 2021, we held $5.099 billion of our cash and invested
assets at the parent-company level, of which $4.774 billion, or 93.6%, was invested in common stocks, and
$211 million, or 4.1%, was cash and cash equivalents.
We minimize reliance on debt as a source of capital, with a debt-to-total-capital ratio of 6.0% at year-end 2021.
Long-term debt at year-end 2021 totaled $789 million, up $1 million from year-end 2020, and our short-term debt
was $54 million, matching the end of the prior year. The long-term debt consists of three nonconvertible, noncallable
debentures, two due in 2028 and one in 2034. Ratings for our long-term debt are discussed in Item 7, Liquidity and
Capital Resources, Long-Term Debt of Management’s Discussion and Analysis.
Cincinnati Financial Corporation - 2021 10-K - Page 8
At year-end 2021 and 2020, risk-based capital (RBC) for our standard market property casualty insurance, excess
and surplus lines insurance and life insurance subsidiaries was strong, far exceeding regulatory requirements.
• We ended 2021 with a 0.9-to-1 ratio of property casualty premiums to surplus, a key measure of property casualty
insurance company capacity and security. A lower ratio indicates more security for policyholders and greater
capacity for growth by an insurer. We believe our ratio provides ample flexibility to diversify risk by expanding
our operations into new geographies and product areas. The estimated industry average ratio was 0.7-to-1 at
year-end 2021, based on industry data reported through the first nine months of 2021. On a statutory consolidated
property casualty insurance basis, our ratio of investments in common stock, at fair value, to statutory capital and
surplus was 83.6% at year-end 2021 compared with 82.6% at year-end 2020.
• We ended 2021 with a 7.4% ratio of life statutory adjusted risk-based surplus to liabilities, a key measure of life
insurance company capital strength. A higher ratio indicates an insurer’s stronger security for policyholders and
capacity to support business growth. Our life insurance subsidiary’s RBC at year-end 2021 was 5.0 times the
authorized control level RBC.
(Dollars in millions) Statutory Information
Standard market property casualty insurance subsidiary
Statutory capital and surplus
Risk-based capital
Authorized control level risk-based capital
Risk-based capital to authorized control level risk-based capital ratio
Written premium to surplus ratio
At December 31,
2021
2020
$
7,247 $
7,279
1,093
6.7
0.9
5,838
5,860
924
6.3
1.0
Cincinnati Financial Corporation’s senior debt is rated by four independent rating firms. In addition, the rating firms
award our property casualty and life operations insurance financial strength ratings based on their quantitative and
qualitative analyses. These ratings 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 shareholders. Ratings may be subject to revision
or withdrawal at any time by the ratings agency, and each rating should be evaluated independently of any
other rating.
At February 23, 2022, our insurance subsidiaries continued to be highly rated.
Rating
agency
Standard market property
casualty insurance subsidiary
Life insurance
subsidiary
Excess and surplus lines
insurance subsidiary
Outlook
Insurer Financial Strength Ratings
A.M. Best Company
ambest.com
A+
Superior
Rating
Tier
2 of 16
A+ Superior
Rating
Tier
2 of 16
A+ Superior
Rating
Tier
2 of 16
Fitch Ratings
fitchratings.com
Moody's Investors
Service
moodys.com
S&P Global Ratings
spratings.com
A+
Strong
5 of 21
A+
Strong
5 of 21
A1
Good
5 of 21
-
-
-
A+
Strong
5 of 21
A+
Strong
5 of 21
-
-
-
-
-
-
-
-
-
Stable
Stable
Stable
Stable
On February 2, 2022, A.M. Best affirmed its ratings, continuing its stable outlook. On November 17, 2021, Fitch
affirmed its ratings, continuing its stable outlook. On July 30, 2021, Moody's affirmed its ratings, continuing its stable
outlook. On July 26, 2021, S&P affirmed its ratings, continuing its stable outlook.
Cincinnati Financial Corporation - 2021 10-K - Page 9
Operating Structure
We offer our broad array of insurance products through the independent agency distribution channel. We recognize
that locally based independent agencies have relationships in their communities and local marketplace intelligence
that can lead to profitable business and policyholder satisfaction and loyalty. Several of our strategic initiatives
are intended not only to help us compete but also to enhance support of agencies that represent us, thereby
contributing to agency success. We seek to be a consistent and predictable property casualty carrier that agencies
can rely on to serve their clients.
In our 10 highest volume states for consolidated property casualty premiums, 1,359 reporting agency locations
wrote 52.1% of our 2021 consolidated property casualty earned premium volume compared with 1,316 locations
and 53.3% in 2020. We continue efforts to geographically diversify our property casualty risks.
Our 10 largest states based on property casualty premium volume, excluding Cincinnati Re and Cincinnati Global,
are shown in the table below.
(Dollars in millions)
Year ended December 31, 2021
Ohio
Illinois
North Carolina
Georgia
Pennsylvania
Indiana
New York
Tennessee
Michigan
Virginia
Earned
premiums
% of total
earned
Agency
locations
Average
premium per
location
$
889
339
291
289
282
266
264
204
200
195
14.4 %
5.5
4.7
4.7
4.6
4.3
4.3
3.3
3.2
3.1
253 $
173
110
110
152
113
160
69
143
76
3.5
2.0
2.6
2.6
1.9
2.4
1.7
3.0
1.4
2.6
Field Focus Emphasizing Service
We rely on our force of 1,814 field associates to provide service and be accountable to our agencies for decisions
we make at the local level. These associates live in the communities our agents serve, so they are readily available
when agencies or policyholders need them. While their work is often conducted at the premises of the agency or
policyholder, they also work from offices in their homes. Headquarters associates support agencies and field
associates with underwriting, accounting, technology assistance, training and other services. Company executives
and headquarters associates typically travel to visit agencies, strengthening the personal relationships we have with
these organizations. Agents have opportunities for direct, personal conversations with our senior management
team, and headquarters associates have opportunities to refresh their knowledge of marketplace conditions and
field activities.
The field team is coordinated by field marketing representatives responsible for underwriting new commercial lines
business. They are joined by field representatives specializing in claims, loss control, commercial lines key
accounts, personal lines, excess and surplus lines, machinery and equipment, management liability and surety,
premium audit and life insurance. The field team provides a variety of services, such as recommending specific
actions to improve the safety of the policyholder’s operations. We seek to develop long-term relationships by
understanding the unique needs of each agency's clients, who are also our policyholders.
Technology enhances our service to agencies, allowing them to more easily access our systems and process
business transactions. Policyholders can conveniently access pertinent policy information online, helping to reduce
costs for agencies and the company. Technology and ongoing training also help our associates collaborate and
process business efficiently, providing more time for personal service to agencies and their clients.
We also provide and continue to develop enhanced, tailored services offered at the time a claim is reported for an
insured loss event. Those services include assisting with car rental or towing, arranging temporary housing and
coordinating emergency repairs to homes so additional damage is minimized.
Cincinnati Financial Corporation - 2021 10-K - Page 10
Our claims philosophy reflects our belief that we prosper as a company by responding to claims person to person,
paying covered claims promptly, preventing false claims from unfairly adding to overall premiums and building
financial strength to meet future obligations.
Our 894 locally based field claims associates work from their homes and are assigned to specific agencies. They
respond personally to policyholders and claimants and are equipped to handle a claim from nearly anywhere. We
believe we have a competitive advantage because of the person-to-person approach and the resulting high level of
service that our field claims representatives and Express Claims Center associates deliver. For field claims
associates handling excess and surplus lines claims, guidance is provided by headquarters-based excess and
surplus lines claims managers. Claims may be reported directly to us by calling our claims call center, online via our
company website or through the MyCincinnati app using a mobile device.
Catastrophe response teams are comprised of our experienced field claims associates who have the authority they
need to do their jobs. In times of widespread loss, our field claims representatives confidently and quickly resolve
claims, with the ability to provide claims payments on the same day they inspect the loss. Technology helps to
enable fast initial contact with policyholders and easy sharing of information and data among storm teams,
headquarters associates and local field claims representatives. When hurricanes or other weather events are
predicted, we can identify through mapping technologies the expected number of our policyholders that may be
impacted by the event and choose to have catastrophe response team members travel to strategic locations near
the expected impact area. They are then in position to quickly get to the affected area and begin providing service
to policyholders.
Our 31 associates working in the Special Investigations Unit (SIU) include former law enforcement and claims
professionals whose qualifications make them well suited to gathering facts to uncover potential fraud. While we
believe our job is to pay what is due under each policy contract, we also want to prevent false claims from unfairly
increasing overall premiums. Our SIU also operates a computer forensics lab that supports field investigation efforts
in various ways including assistance with video evidence and data recovery.
We seek to attract and retain high-quality independent insurance agencies with knowledgeable, professional staffs.
In turn, we make an exceptionally strong commitment to assist them in keeping their knowledge up to date and
educating new people they bring on board as they grow. This includes offering classes, usually at no cost to
agencies, except travel-related expenses they may incur, and other training support. We also offer noninsurance
financial services. We believe that providing these services enhances agency relationships with the company and
their clients, increasing loyalty while diversifying the agency’s revenues.
Cincinnati Financial Corporation - 2021 10-K - Page 11
Human Capital
At the end of 2021, we employed 5,166 associates, including 3,284 headquarters associates who provide support to
1,814 field associates and 68 associates for Cincinnati Global. The associate voluntary turnover rate had been
approximately 5% for several years prior to 2021, when it increased to approximately 10%.
We believe our compensation, training, technology, inclusive culture and other support help to develop, attract and
retain our associates, which is critical to our strategy that emphasizes superior service to agencies and their clients,
as described in this report. Our goal is to hire job candidates with promise, matching their strengths to positions
within the company and providing resources to help them meet professional and personal goals. We are committed
to providing equal opportunity for all associates, encouraging a work environment free from unlawful discrimination
and harassment.
We use multiple channels to ensure we recruit a diverse workforce rich with ideas and knowledge. For example, we
build relationships with future talent by partnering with career services departments, faculty and staff, and Diversity
and Inclusion Offices at local and regional colleges and universities along with historically Black colleges and
universities.
We offer a base pay level for all roles that is competitive, market-based and re-evaluated on a recurring basis.
The base pay is complemented by a matching 401(k) program, annual cash bonus and stock ownership
opportunities along with healthcare benefits to provide a comprehensive compensation and benefits package.
In addition, we have many special programs that appeal to associates while aligning with our corporate values.
Despite an uptick during 2021 in our voluntary turnover rate, we believe it indicates overall associate satisfaction
with their working environment, compensation and benefits.
We strive to offer equal pay for equal work and use independent consultants to conduct gender and ethnic minority
pay equity studies examining total direct compensation, which consists of base salary, cash bonus and equity
awards. Using a multivariate regression analysis, the independent studies in 2021 showed that we administer pay
fairly and equitably because the factors used to make compensation decisions, such as role, salary grade, tenure
and performance do in fact drive compensation awarded to each associate. More information about the studies is
available in our Environmental, Social and Governance Report available on the Sustainability page of our website,
cinfin.com/sustainability, which is not incorporated by reference in this Annual Report on Form 10-K.
We offer all regular, full- and part-time associates the opportunity to participate in the CFC Savings Plan, our 401(k)
plan. We also offer all full-time associates the opportunity to purchase health, prescription, vision and dental
insurance. Associates enrolled in our health plan can receive a free biometric screening – either onsite at our
headquarters or with their personal physician. The screening helps associates learn about their health and identify
risk factors while earning a company contribution into their Health Savings Account.
While providing stock compensation at all levels of an organization may not be a common business practice, we
firmly believe that stock ownership helps drive good decision making and encourages a long-term view by
associates. We historically grant annual stock-based compensation to full-time, salaried associates in the form of
stock options and restricted stock units that vest over time. In addition, each year all regular, full-time associates –
salaried and hourly – are awarded one share of stock for each full calendar year of service, up to 10 shares, through
our Holiday Stock Plan.
Additional human capital information is available in our Environmental, Social and Governance Report available on
the Sustainability page of our website, cinfin.com/sustainability.
Cincinnati Financial Corporation - 2021 10-K - Page 12
Insurance Products
We provide well-designed property casualty and life insurance products to bring policyholders convenience,
discounts and a reduced risk of coverage gaps or disputes. For most agencies that represent us, we believe we
offer insurance solutions for approximately 75% of the typical insurable risks of their clients. Products for various
business lines within our reporting segments include insurance coverages for business property and liability,
automobiles and homes.
The table below shows net written premiums by segment and business line at year-end 2021, 2020 and 2019. We
discuss our insurance segments in their respective sections later in this report.
(Dollars in millions)
Segment:
Commercial lines insurance
Personal lines insurance
Excess and surplus lines insurance
Life insurance
Other
Total
Business line:
Commercial lines insurance:
Commercial casualty
Commercial property
Commercial auto
Workers' compensation
Other commercial
Total commercial lines insurance
Personal lines insurance:
Personal auto
Homeowner
Other personal
Total personal lines insurance
Excess and surplus lines insurance
Life insurance:
Term life insurance
Universal life insurance
Other life insurance and annuity products
Subtotal
Other
Total
2021
2020
2019
Percent of
total 2021
$
3,811
$
3,534
$
1,594
426
346
648
1,503
348
328
479
3,410
1,435
303
318
368
55.8 %
23.4
6.2
5.1
9.5
$
6,825
$
6,192
$
5,834
100.0 %
$
1,315
$
1,205
$
1,131
19.2 %
1,090
816
269
321
3,811
608
769
217
1,594
426
218
34
94
346
648
1,019
763
266
281
3,534
611
693
199
1,503
348
202
34
92
328
479
$
6,825
$
6,192
$
985
735
294
265
3,410
620
631
184
1,435
303
196
37
85
318
368
5,834
16.0
12.0
3.9
4.7
55.8
8.9
11.3
3.2
23.4
6.2
3.2
0.5
1.4
5.1
9.5
100.0 %
Cincinnati Financial Corporation - 2021 10-K - Page 13
Our Segments
Consolidated financial results primarily reflect the results of our five reporting segments. These segments are
defined based on financial information we use to evaluate performance and to determine the allocation of assets.
•
•
•
•
•
Commercial lines insurance
Personal lines insurance
Excess and surplus lines insurance
Life insurance
Investments
Revenues, income before income taxes and identifiable assets for each segment are shown in Item 8, Note 18 of
the Consolidated Financial Statements. Some of that information is discussed in this section, where we explain the
business operations of each segment. The financial performance of each segment is discussed in Item 7,
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Cincinnati Financial Corporation - 2021 10-K - Page 14
Commercial Lines Insurance Segment
In 2021, the commercial lines insurance segment contributed net earned premiums of $3.674 billion, representing
38.2% of consolidated total revenues. This segment reported profit before income taxes of $598 million.
Commercial lines net earned premiums rose 6% in 2021 and 5% in 2020.
We believe that our commercial lines business is best measured and evaluated on a segment basis. However, we
also provide selected line of business data to summarize growth and profitability trends separately for our business
lines. The five commercial business lines are:
•
•
•
Commercial casualty – Provides coverage to businesses against third-party liability from accidents occurring on
their premises or arising out of their operations, including injuries sustained from products or liability related to
professional services. Specialized casualty policies may include similar coverage such as umbrella liability or
employment practices. The commercial casualty business line includes liability coverage written as part of
commercial package policies.
Commercial property – Provides coverage for loss or damage to buildings, inventory and equipment caused
by covered causes of loss such as fire, wind, hail, water, theft and vandalism, as well as business interruption
resulting from a covered loss. Commercial property also includes other coverages such as inland marine,
which covers losses related to builder’s risk, cargo or equipment. Various property coverages can be written as
stand-alone policies or can be added to a commercial package policy.
Commercial auto – Protects businesses against liability to others for both bodily injury and property damage,
medical payments to insureds and occupants of their vehicles, physical damage to an insured’s own vehicle from
collision and various other perils, and damages caused by uninsured motorists.
• Workers’ compensation – Covers employers for government-specified benefits from work-related injuries
to employees.
• Other commercial lines – This includes several other types of insurance products for businesses, including:
◦ Management liability and surety – Includes director and officer (D&O) liability insurance, which covers
liability for actual or alleged errors in judgment, breaches of duty or other wrongful acts related to activities
of organizations and can optionally include other liability coverages. We market primarily to nonprofit
organizations, privately held businesses, healthcare organizations, financial institutions and educational
institutions. The for-profit portion includes approximately 170 bank or savings and loan financial
institutions, with none having assets of $1 billion or more. The surety portion includes contract and
commercial surety bonds for losses resulting from dishonesty, failure to perform and other acts and also
includes fidelity bonds for fraudulent acts by specified individuals or dishonest acts by employees.
Management liability coverage can also include cyber insurance as an affirmative coverage option on
various insurance policies. We cede all of the related premiums to a reinsurer, therefore transferring
substantially all of that risk. Ceded premiums for 2021 included $37 million for cyber insurance.
◦ Machinery and equipment – Specialized coverage provides protection for loss or damage to boilers and
machinery, including production and computer equipment and business interruption, due to sudden and
accidental mechanical breakdown, steam explosion or artificially generated electrical current.
Our history of emphasizing products and services that agencies can market to small or midsized businesses in their
communities remains a critical piece of our strategy even as we expand our appetite to insure larger businesses.
While some of our property casualty agencies market only our personal lines or management liability and surety
products, approximately 84% offer some or all of our standard market commercial insurance products.
Cincinnati Financial Corporation - 2021 10-K - Page 15
In 2021, our 10 highest volume commercial lines states generated 56.7% of our earned premiums compared with
57.1% in 2020. The aggregate number of reporting agency locations in our 10 highest volume states increased to
1,174 in 2021 from 1,150 in 2020.
Our 10 largest states based on commercial lines premium volume are shown in the table below.
(Dollars in millions)
Year ended December 31, 2021
Ohio
Illinois
Pennsylvania
North Carolina
Indiana
Virginia
Georgia
Tennessee
Missouri
Michigan
Earned
premiums
% of total
earned
Agency
locations
Average
premium per
location
$
539
225
219
195
183
152
151
146
137
136
14.7 %
6.1
6.0
5.3
5.0
4.1
4.1
4.0
3.7
3.7
242 $
152
140
108
109
70
96
69
55
133
2.2
1.5
1.6
1.8
1.7
2.2
1.6
2.1
2.5
1.0
For new commercial lines business, policy-by-policy underwriting and pricing is coordinated by our locally based
field marketing representatives who are also responsible for selecting new independent agencies. Our agents and
our team of field associates get to know the people and businesses in their communities and can make informed
decisions about each risk.
Commercial lines policy renewals are managed by headquarters underwriters who are assigned to specific
agencies and consult with local field associates as needed. As part of our team approach, headquarters
underwriters also help oversee agency growth and profitability. They are responsible for formal issuance of all
new business and renewal policies as well as policy endorsements. Further, the headquarters underwriters provide
day-to-day customer service to agencies and our field marketing representatives by offering technical and industry
expertise and product training, helping to determine underwriting eligibility and assisting with the mechanics of
premium determination. We also continue a target markets emphasis to analyze opportunities and to develop new
products and services, new coverage options and improvements to existing insurance products.
Understanding evolving market conditions is a critical function for our success, accomplished through both
informal commentary and formal reviews. Informally, our field marketing representatives, underwriters and
product development associates routinely receive market intelligence from a variety of channels, including from
the agencies with which they work. This market information helps identify the top competitors and our market
strengths and weaknesses. The information obtained encompasses pricing, breadth of coverage and use of
underwriting guidelines.
Our historical emphasis on small to midsized businesses is reflected in the mix of our commercial lines premium
volume by policy size. Approximately 75% of our commercial in-force policies have annual premiums of $10,000 or
less, accounting in total for approximately 20% of our 2021 commercial lines premium volume. The remainder of
policies have annual premiums greater than $10,000, including policies with annual premiums greater than
$100,000 that account for approximately 30% of our 2021 commercial lines premium volume. Our average
commercial lines policy size is approximately $13,000 in annual premiums.
Our commercial lines packages typically are offered on a three-year policy term for most insurance coverages –
a key competitive advantage. In our experience, multi-year packages appeal to the quality-conscious insurance
buyers who we believe are typical clients of our independent agents. Customized insurance programs on a three-
year term complement the long-term relationships these policyholders typically have with their agents and with our
company. By reducing annual administrative efforts, multi-year policies lower expenses for our company and for our
agents. The commitment we make to policyholders encourages long-term relationships and reduces their need to
annually re-evaluate their insurance carrier or agency. We believe that the advantages of three-year policies in
Cincinnati Financial Corporation - 2021 10-K - Page 16
terms of improved policyholder convenience, increased account retention and reduced administrative costs
outweigh the potential disadvantage of these policies, even in periods of rising rates.
Although we offer three-year policy terms, premiums for some coverages within those policies are adjustable at the
anniversary for the next annual period, and policies may be canceled at any time at the discretion of the
policyholder. Contract terms often provide that rates for property, general liability, inland marine and crime
coverages, as well as policy terms and conditions, are fixed for the term of the policy. However, the exposure we
insure is reviewed annually, near the policy anniversary date, and the amount of premiums may be adjusted based
on changes to that exposure.
The general liability exposure basis may be audited annually. Commercial auto, workers’ compensation,
professional liability and most umbrella liability coverages within multi-year packages are rated at each of the
policy’s annual anniversaries for the next one-year period. The annual pricing could incorporate rate changes
approved by state insurance regulatory authorities between the date the policy was written and its annual
anniversary date, as well as changes in risk exposures and premium credits or debits relating to loss experience
and other underwriting judgment factors. We estimate that approximately 75% of 2021 commercial premiums were
subject to annual rating or were written on a one-year policy term. That 75% includes approximately one-third of
policies offered on a three-year policy term that expire during any given year.
We believe our commercial lines insurance segment premiums reflect a higher concentration, relative to industry
commercial lines premiums, in contractor-related businesses. Since economic activity related to construction, which
can heavily influence insured exposures of contractors, may experience cycles that vary significantly with the
economy as a whole, our commercial lines premium trends could vary from commercial lines premium trends for the
property casualty insurance industry. In 2021, we estimated that 39% of our general liability premiums, and 37% of
our workers’ compensation premiums, came from the construction industry based on North American Industry
Classification System (NAICS) codes.
Cincinnati Financial Corporation - 2021 10-K - Page 17
Personal Lines Insurance Segment
The personal lines insurance segment contributed net earned premiums of $1.542 billion to 2021 consolidated
total revenues, or 16.0% of the total, and reported profit before income taxes of $97 million. Personal lines net
earned premiums rose 5% in 2021 and 4% in 2020.
We prefer to write personal lines coverage in accounts that include both auto and homeowner coverages as well as
coverages that are part of our other personal business line. At the end of 2021, for example, approximately 83% of
our homeowner policies were accompanied by a personal auto policy in the same account. As a result of our
account-based approach, we believe that our personal lines business is best measured and evaluated on a
segment basis. However, we provide line of business data to summarize growth and profitability trends separately
for three business lines:
•
•
Personal auto – Protects against liability to others for both bodily injury and property damage, medical payments
to insureds and occupants of their vehicle, physical damage to an insured’s own vehicle from collision and various
other perils, and damages caused by uninsured motorists. In addition, many states require policies to provide first-
party personal injury protection, frequently referred to as no-fault coverage.
Homeowner – Protects against losses to dwellings and contents from a wide variety of perils, as well as liability
arising out of personal activities both on and off the covered premises. We also offer coverage for condominium
unit owners and renters.
• Other personal lines – This includes the other types of insurance products we offer to individuals, including
dwelling fire, inland marine, personal umbrella liability and watercraft coverages.
At year-end 2021, we marketed personal lines insurance products through 1,974, or approximately 73%, of
our 2,721 agency reporting locations. The 1,974 personal lines agency locations were in 45 of the 46 states in which
we offered property casualty insurance. Those agencies produced approximately 1.0 million personal lines policies
in force for us, representing approximately 385,000 policyholders.
Expansion of our personal lines insurance segment includes marketing through independent agencies to profitably
grow our premiums for products and services offered to their high net worth personal lines clients. In 2021, our
appointed agencies produced for us approximately $663 million of net written premiums in total from policyholders
with insured home values of $1 million or more, up 28% from 2020. We estimate those policyholders represent
approximately 20% of our total personal lines policyholders.
In 2021, our 10 highest volume personal lines states generated 64.8% of our earned premiums compared with
65.2% in 2020. In 2015, our 10 highest volume personal lines states generated 78.5% of our earned premiums.
The reduction in that percentage indicates progress over time toward our long-term objective of geographic
diversification through new states for our personal lines operation. The aggregate number of reporting agency
locations in our 10 highest volume states increased to 1,002 in 2021 from 957 in 2020.
Cincinnati Financial Corporation - 2021 10-K - Page 18
Our 10 largest states based on personal lines premium volume are shown in the table below.
(Dollars in millions)
Year ended December 31, 2021
Ohio
Georgia
New York
Illinois
North Carolina
California
Indiana
Alabama
Michigan
Kentucky
Earned
premiums
% of total
earned
Agency
locations
Average
premium per
location
$
319
117
106
82
75
70
67
63
51
47
20.7 %
7.6
6.9
5.3
4.9
4.6
4.3
4.1
3.3
3.1
231 $
91
105
123
88
70
92
49
100
53
1.4
1.3
1.0
0.7
0.9
1.0
0.7
1.3
0.5
0.9
New and renewal personal lines business reflects our risk-specific underwriting philosophy. Each agency selects
personal lines business primarily from within the geographic territory that it serves, based in part on agency
staff’s knowledge of the risks in those communities or familiarity with the policyholder. We have personal lines field
marketing representatives who have underwriting authority and visit agencies on a regular basis. They focus
primarily on key states targeted for growth, reinforcing the advantages of our personal lines products and offering
training in the use of our policy processing system. Personal lines activities are further supported by headquarters
associates assigned to individual agencies.
Cincinnati Financial Corporation - 2021 10-K - Page 19
Excess and Surplus Lines Insurance Segment
The excess and surplus lines segment contributed net earned premiums of $398 million to 2021 consolidated total
revenues, or 4.1% of the total, and reported profit before income taxes of $44 million. Excess and surplus lines net
earned premium increased 22% in 2021 and 17% in 2020.
Our excess and surplus lines policies typically cover business risks with unique characteristics, such as the nature
of the business or its claim history, that are difficult to profitably insure in the standard commercial lines market.
Excess and surplus lines insurers have more flexibility in coverage terms and rates compared with standard lines
companies, generally resulting in policies with higher rates and terms and conditions customized for specific risks,
including restricted coverage where appropriate. We target small to midsized risks, and policyholders in many cases
also have standard market insurance with one of our other subsidiaries. Our average excess and surplus lines
policy size is approximately $8,000 in annual premiums, and the majority have coverage limits of $1 million or less.
All of our excess and surplus lines policies are written for a maximum term of one year. Approximately 91% of our
2021 earned premiums for the excess and surplus lines insurance segment provided commercial casualty
coverages and about 9% provided commercial property coverages. Those coverages are described below.
•
•
Commercial casualty – Covers businesses for third-party liability from accidents occurring on their premises
or arising out of their operations, including injuries sustained from products. Other coverages available include
miscellaneous errors and omissions, professional liability and excess liability. Typical businesses covered
include contractors, manufacturers, real estate owners and managers, retail, consultants, and bars or taverns.
Policies covering liability at special events are also available.
Commercial property – Insures buildings, inventory, equipment and business income from loss or damage due to
causes such as fire, wind, hail, water, theft and vandalism. Examples of property we commonly insure with excess
and surplus lines policies include temporarily vacant buildings, habitational, restaurants and relatively higher-
hazard manufacturing classes.
At the end of 2021, we marketed excess and surplus lines insurance products in each of the 41 states in which we
offer standard market commercial lines insurance. Offering excess and surplus lines helps agencies representing
The Cincinnati Insurance Companies meet the insurance needs of their clients when coverage is unavailable in the
standard market. By providing outstanding service, we can help agencies grow and prosper while also profitably
growing our property casualty business.
In 2021, our 10 highest volume excess and surplus lines states generated 54.9% of our earned premiums,
compared with 55.0% in 2020.
Our 10 largest states based on excess and surplus lines premium volume are shown in the table below.
(Dollars in millions)
Year ended December 31, 2021
Illinois
Ohio
Texas
New York
Pennsylvania
North Carolina
Georgia
Missouri
Indiana
Minnesota
Earned
premiums
% of total
earned
$
31
30
24
22
22
21
20
16
16
16
7.8 %
7.6
6.1
5.6
5.5
5.3
5.0
4.1
4.0
3.9
Cincinnati Financial Corporation - 2021 10-K - Page 20
Agencies representing The Cincinnati Insurance Companies produce approximately $5 billion in annual premiums
for all carriers writing excess and surplus lines policies for their clients. We estimate that approximately half of that
premium volume matches the targeted business types and coverages we offer through our excess and surplus lines
insurance segment. We structured the operations of this segment to meet the needs of these agencies and to
market exclusively through them.
Agencies have access to Cincinnati Specialty Underwriters' product line through CSU Producer Resources, the
wholly owned insurance brokerage subsidiary of Cincinnati Financial Corporation. CSU Producer Resources has
binding authority on all classes of business written through Cincinnati Specialty Underwriters and maintains
appropriate agent and surplus lines licenses.
We seek to earn a share of each agency’s best excess and surplus lines accounts by offering several unique
benefits. Agency producers have direct access through CSU Producer Resources to a group of our underwriters
who focus exclusively on excess and surplus lines business. Those underwriters can tap into broader services we
offer to provide policyholders additional value and help producers build the relationship through experienced and
responsive loss control services and claims handling. CSU Producer Resources gives extra support to our
independent agency producers by remitting surplus lines taxes and stamping fees and retaining admitted market
diligent search affidavits, where required. Agencies marketing through CSU Producer Resources instead of a
competing brokerage generally receive a higher commission because use of our internal brokerage subsidiary
eliminates some of the intermediary costs. This business is factored in their profit-sharing agreement with
The Cincinnati Insurance Companies. We also offer prompt service, generally issuing approximately 95% of policies
within 24 hours of a request to bind a policy.
Cincinnati Financial Corporation - 2021 10-K - Page 21
Life Insurance Segment
The life insurance segment contributed $298 million of net earned premiums, representing 3.1% of 2021
consolidated total revenues, and reported a loss before income taxes of $16 million. Life insurance net earned
premiums grew 3% in 2021 and 7% in 2020.
The Cincinnati Life Insurance Company supports our agency-centered business model by deepening the
relationships we have with agents while also diversifying revenue and profitability for both the agency and our
company. We primarily focus on life products that feature a steady stream of premium payments and that have the
potential for generating revenue growth through increasing demand.
Life Insurance Business Lines
Four lines of business that account for more than 99% of the life insurance segment’s revenues are:
•
Term life insurance – Policies under which a death benefit is payable only if the insured dies during a specific
period of time. Policy options include a return of premium provision, a benefit equal to the sum of all paid base
premiums that is payable if the insured person survives to the end of the term. The policies are fully underwritten
using traditional and accelerated methods.
• Worksite products – Term life insurance, return of premium term life insurance and whole life insurance offered to
employees through their employer. Premiums are collected by the employer using payroll deduction. Policies are
issued using a simplified underwriting approach and on a guaranteed issue basis. Worksite insurance products
provide our property casualty agency force with excellent cross-serving opportunities for both commercial and
personal accounts.
• Whole life insurance – Policies that provide life insurance for the entire lifetime of the insured. The death benefit is
guaranteed never to decrease and premiums are guaranteed never to increase. While premiums are fixed, they
must be paid as scheduled. These policies provide guaranteed cash values that are available as loans
collateralized by the cash surrender value. The policies are fully underwritten.
•
•
•
Universal life insurance – Long-duration life insurance policies that are fully underwritten. Contract premiums are
neither fixed nor guaranteed; however, the contract does specify a minimum interest crediting rate and a
maximum cost of insurance charge and expense charge. The cash values, available as loans collateralized by the
cash surrender value, are not guaranteed and depend on the amount and timing of actual premium payments and
the amount of actual contract assessments.
In addition, Cincinnati Life markets:
Deferred annuities that provide regular income payments that commence after the end of a specified period or
when the annuitant attains a specified age. During the deferral period, any payments made under the contract
accumulate at the crediting rate declared by the company but not less than a contract-specified guaranteed
minimum interest rate. A deferred annuity may be surrendered during the deferral period for a cash value equal to
the accumulated payments plus interest less the surrender charge, if any.
Immediate annuities that provide some combination of regular income and lump-sum payments in exchange for a
single premium.
Cincinnati Financial Corporation - 2021 10-K - Page 22
Life Insurance Distribution
Cincinnati Life is licensed in 49 states and the District of Columbia. At year-end 2021, approximately 80% of our
1,921 property casualty agency relationships offered Cincinnati Life products to their clients. We also develop life
business from approximately 356 other independent life insurance agencies. We are careful to solicit business from
these other agencies in a manner that does not conflict with or compete with the marketing and sales efforts of our
property casualty agencies.
When marketing through our property casualty agencies, we have specific competitive advantages:
•
Because our property casualty operations are held in high regard, property casualty agency management is
predisposed to consider selling our life products.
• Marketing efforts for both our property casualty and life insurance businesses are directed by our field
marketing department, coordinated with our life field marketing representatives, which assures consistency of
communication and operations. Life field marketing representatives are available to meet face-to-face with agency
personnel and their clients as well. Our life headquarters underwriters and other associates are available to the
agents and field team to assist in the placement of business.
We continue to emphasize the cross-serving opportunities of our life insurance, including term and worksite
products, for the property casualty agency’s personal and commercial accounts. In both the property casualty and
independent life agency distribution systems, we enjoy the advantages of offering competitive, up-to-date products
and providing personal attention in combination with financial strength and stability.
•
Term life insurance is our largest life insurance product line. We continue to develop and offer term products with
features our agents indicate are important, such as a return of premium benefit and an accelerated underwriting
option.
• We also offer products addressing the needs of businesses with key person and buy-sell coverages. We offer
quality, personal life insurance coverage to personal and commercial clients of our agencies.
Because of our strong capital position, we can offer a competitive product portfolio, including guaranteed products,
giving our agents a marketing edge. Our life insurance company maintains strong insurer financial strength ratings:
A.M. Best, A+ (Superior); Fitch, A+ (Strong); and S&P, A+ (Strong). Our life insurance company has chosen not to
establish a Moody’s rating.
In 2021, our five highest volume states for life insurance premiums, based on information contained in statements
filed with state insurance departments, are shown in the table below.
(Dollars in millions)
Year ended December 31, 2021
Ohio
Pennsylvania
Illinois
Indiana
Georgia
Premiums
% of total
$
57
27
22
21
19
15.7 %
7.4
6.0
5.7
5.3
Cincinnati Financial Corporation - 2021 10-K - Page 23
Investments Segment
Revenues of the investments segment are primarily from net investment income and from net investment gains and
losses from investment portfolios managed for the holding company and each of the operating subsidiaries.
Our investment department operates under risk guidelines set forth in our investment policy along with oversight of
the investment committee of our board of directors. These guidelines set parameters for risk tolerances governing,
among other items, the allocation of the portfolio as well as security and sector concentrations. These parameters
are part of an integrated corporate risk management program. When allocating cash to various asset classes, we
consider market-based factors such as risk adjusted after-tax yields as well as internal measures based in part on
insurance department regulations and rating agency guidance.
The fair value of our investment portfolio was $24.337 billion and $21.194 billion at year-end 2021 and 2020,
respectively, as shown in the table below. The overall portfolio increased, reflecting an unrealized gain position and
fair value increase. The fair value increased largely due to equity markets that rose during 2021. The unrealized
gain position in our fixed-maturity investments decreased in 2021, primarily due to an increase in interest rates such
as U.S. Treasury yields.
(Dollars in millions)
At December 31, 2021
At December 31, 2020
Cost or
amortized cost
Percent
of total
Fair value
Percent
of total
Cost or
amortized cost
Percent
of total
Fair value
Percent
of total
Taxable fixed maturities
$
8,344
51.0 % $
8,858
36.4 % $
7,363
48.3 % $
8,053
38.0 %
Tax-exempt fixed maturities
Common equities
Nonredeemable preferred
equities
3,886
23.8
3,697
22.6
4,164
17.1
10,862
44.6
3,949
25.9
3,640
23.9
4,285
20.2
8,541
40.3
424
2.6
453
1.9
287
1.9
315
1.5
Total
$
16,351 100.0 % $ 24,337 100.0 % $
15,239 100.0 % $ 21,194 100.0 %
The cash we generate from insurance operations historically has been invested in two broad categories
of investments:
•
•
Fixed-maturity investments – Includes taxable and tax-exempt bonds and redeemable preferred stocks.
During 2021, net purchases offset the combined effect of a net decrease in unrealized gains, sales and calls of
fixed-maturity securities in our portfolio. During 2020, net purchases and a net increase in unrealized gains offset
sales and calls.
Equity investments – Includes common and nonredeemable preferred stocks. During 2021, the combined effect of
purchases and a net increase in fair value offset sales of equity securities in our portfolio. During 2020, purchases
and a net increase in fair value offset sales.
In addition to securities held in our investment portfolio at year-end 2021, other invested assets included
$227 million of private equity investments, $36 million of real estate through direct property ownership and
development projects in the United States, $35 million held on deposit at Lloyd's and $31 million of life policy loans.
Our investment portfolio is further described below. Additional information about the composition and valuation of
investments is included in Item 8, Note 2, Investments, and Note 3, Fair Value Measurements, of the Consolidated
Financial Statements. A detailed listing of our portfolio is updated on our website, cinfin.com/investors, each quarter
when we report our quarterly financial results.
Fixed-Maturity Securities Investments
By maintaining a well-diversified fixed-maturity portfolio, we attempt to manage overall interest rate, reinvestment,
credit and liquidity risk. We pursue a buy-and-hold strategy and do not attempt to make large-scale changes to the
portfolio in anticipation of rate movements. By investing new money on a regular basis and analyzing risk-adjusted
after-tax yields, we work to achieve a general laddering effect to our portfolio that may mitigate some of the effects
of adverse interest rate movements.
Cincinnati Financial Corporation - 2021 10-K - Page 24
At December 31, 2021, our investment-grade and noninvestment-grade fixed-maturity securities represented 80.2%
and 5.3% of the portfolio, respectively. The remaining 14.5% represented fixed-maturity securities that were not
rated by Moody’s or S&P. Our nonrated securities include smaller municipal issues and private placement corporate
securities. Many of these, although not rated by Moody’s or S&P, are rated by the Securities’ Valuation Office of the
National Association of Insurance Commissioners (NAIC). Also included in this category are smaller public
corporate securities, many of which carry a rating by an agency other than Moody’s or S&P, such as Fitch or Kroll.
Other selected attributes of the fixed-maturity portfolio are shown in the table below. Additional maturity
periods and other information for our fixed-maturity portfolio are shown in Item 8, Note 2 of the Consolidated
Financial Statements.
Weighted average yield-to-amortized cost
Weighted average maturity
Effective duration
At December 31,
2021
2020
4.02 %
4.12 %
8.0 yrs
4.8 yrs
7.5 yrs
4.5 yrs
The fair values of our taxable fixed-maturity securities portfolio at the end of the last two years were:
(Dollars in millions)
Investment-grade corporate
States, municipalities and political subdivisions
Noninvestment-grade corporate
Commercial mortgage-backed
United States government
Foreign government
Government-sponsored enterprises
Total
At December 31,
2021
2020
$
$
6,807 $
931
690
273
123
26
8
8,858 $
6,416
712
479
285
120
29
12
8,053
While our strategy typically is to buy and hold fixed-maturity investments to maturity, we monitor credit profiles
and fair value movements when determining holding periods for individual securities. With the exception of
U.S. agency issues, no individual issuer's securities accounted for more than 1.3% of the taxable fixed-maturity
portfolio at year-end 2021. Investment-grade corporate bonds had an average rating of Baa1 by Moody’s or BBB by
S&P at year-end 2021. Our taxable fixed-maturity portfolio included $273 million of commercial mortgage-backed
securities with an average rating of Aa2/AA at year-end 2021.
Relative to a broad bond market index such as the Barclay’s Aggregate, we are most heavily exposed to the
investment grade corporate bond asset class. Within that asset class, we have a weighting of 41.2% for the financial
sector, higher than the 34.0% weighting for the financial sectors of the Bank of America Merrill Lynch U.S. Corporate
Index. Relative to the Barclay’s Aggregate, we are overweight in the commercial mortgage-backed securities asset
class while having no exposure to the much larger residential mortgage-backed market.
At December 31, 2021, we had $4.164 billion of tax-exempt fixed-maturity securities with an average rating of Aa2/
AA by Moody’s and S&P. The portfolio is well diversified among approximately 1,700 municipal bond issuers.
No single municipal issuer accounted for more than 0.6% of the tax-exempt fixed-maturity portfolio at year-end
2021.
Cincinnati Financial Corporation - 2021 10-K - Page 25
Equity Securities Investments
After covering both our intermediate and long-range insurance obligations with fixed-maturity investments,
we historically have used some available cash flow to invest in equity securities. Our equity securities
portfolio includes common stocks and nonredeemable preferred stocks. Investment in equity securities
has played an important role in achieving our portfolio objectives and has contributed to both growth of investment
income and portfolio appreciation. We remain committed to our long-term equity focus, which we believe is key to
our company’s long-term growth and stability. We believe our strategy of primarily investing in a diversified selection
of larger-capitalization, high-quality, dividend-increasing companies generally results in reduced volatility relative to
the broader equity markets.
For federal income tax purposes, taxes on gains from appreciated investments generally are not due until
securities are sold. We believe that the appreciated value of equity securities, compared with the cost of securities
that is generally used as a tax basis, is a useful measure to help evaluate how fair value can change over time.
On this basis, the net unrealized investment gains at year-end 2021 consisted of a net gain position in our equity
portfolio of $7.194 billion. Events or factors such as economic growth or recession can affect the fair value of our
equity securities.
At year-end 2021, Apple Inc. (Nasdaq:AAPL) was our largest single common stock investment, comprising 7.9% of
our publicly traded common stock portfolio and 3.5% of the entire investment portfolio. The parent company held
43.9% of our common stock holdings (measured by fair value). The distribution of the portfolio among industry
sectors is shown in the table below.
Common Stock Portfolio Industry Sector Distribution
Sector:
Information technology
Financial
Healthcare
Industrials
Consumer discretionary
Consumer staples
Materials
Energy
Real estate
Utilities
Telecomm services
Total
Percent of common stock portfolio
At December 31, 2021
At December 31, 2020
Cincinnati
Financial
S&P 500 Industry
Weightings
Cincinnati
Financial
S&P 500 Industry
Weightings
31.1 %
14.2
13.5
11.1
8.3
6.9
4.4
4.0
2.7
2.2
1.6
100.0 %
29.2 %
10.7
13.3
7.8
12.5
5.9
2.5
2.7
2.8
2.5
10.1
100.0 %
28.3 %
14.2
13.3
12.3
8.9
6.7
5.1
3.8
2.7
2.6
2.1
100.0 %
27.6 %
10.4
13.5
8.4
12.7
6.5
2.6
2.3
2.4
2.8
10.8
100.0 %
We evaluate nonredeemable preferred stocks in a manner similar to our evaluation of fixed-maturity investments,
seeking attractive relative yields. We generally focus on investment-grade nonredeemable preferred stocks issued
by companies with strong histories of paying common dividends, providing us with another layer of protection.
Consideration is also given to nonredeemable preferred stocks that offer a dividend received deduction for income
tax purposes. We purchased $173 million and $79 million of nonredeemable preferred stocks in this portfolio during
2021 and 2020, respectively.
Cincinnati Financial Corporation - 2021 10-K - Page 26
Other
What we report as Other includes the noninvestment operations of the parent company and its noninsurer
subsidiary, CFC Investment Company. At year-end 2021, this subsidiary had $98 million in receivables related to its
commercial leasing and financing services, compared with $95 million in receivables at year-end 2020.
We also report as Other the results of Cincinnati Re, which has contracts, also referred to as treaties, with other
insurance or reinsurance companies to assume a portion of their insured risk in exchange for a portion of premiums
from insurance policies covering those risks. The treaties and their exposure to losses are diverse in nature,
including various lines of business and geographies for the reinsured risks. Some of our treaties reflect a type of
contract commonly referred to as participating or proportional, typically sharing premiums and losses between the
reinsured entity and us, as reinsurer, on a pro rata basis. Some are a contract type commonly referred to as excess
of loss, where we indemnify the reinsured entity only for losses exceeding a predetermined amount.
Net written premiums for Cincinnati Re totaled $461 million in 2021, compared with $302 million in 2020.
Approximately 32% of 2021 net written premiums was for property exposures that include risk of loss from natural
catastrophes and approximately 55% was for casualty exposures from various liability risks. The remainder of
approximately 13% was a combination of what we consider to be more specialized coverages that include, but are
not limited to, credit risk transfer related to residential mortgages, marine and energy risks and cyber risks.
Also reported as Other are the results of Cincinnati Global, our London-based global specialty underwriter for
Lloyd's Syndicate 318, which we acquired on February 28, 2019. We expect it to contribute to future earnings and
book value growth. We also believe it should provide opportunities to support business produced by our
independent agencies in new geographies and lines of business.
Net written premiums for Cincinnati Global totaled $187 million in 2021, compared with $177 million in 2020. Most of
the 2021 premiums were for U.S. and international property exposures that include risk of loss from natural
catastrophes, including approximately 65% classified as direct and facultative and 23% as binder, where binding
authority has been granted to various coverholders. The coverholders are mostly in the U.S., and we believe they
have the ability to successfully underwrite and manage risks. The remainder, approximately 12%, was for other
classes of business that include trade credit, terrorism, specie coverage for high-value portable property and
contingency insurance with coverage for film and entertainment risks or event cancellation.
Cincinnati Financial Corporation - 2021 10-K - Page 27
Regulation
The business of insurance in the United States (U.S.) is primarily regulated by state law. All of our U.S. insurance
company subsidiaries are domiciled in the state of Ohio except The Cincinnati Specialty Underwriters Insurance
Company, which is domiciled in the state of Delaware. Each domestic insurance subsidiary is primarily governed by
the insurance laws and regulations in its respective state of domicile. We also are subject to regulatory authorities of
all states in which we write insurance. The state laws and regulations that have the most significant effect on our
insurance operations and financial reporting are discussed below.
•
•
•
•
Insurance Holding Company Regulation – We are regulated as an insurance holding company system in
the respective states of domicile of our lead standard market property casualty company subsidiary and
its surplus lines insurance subsidiary. These regulations require that we annually furnish financial and other
information about the governance and operations of the individual companies within the holding company system.
Information about the risks posed by any noninsurance company subsidiaries must also be disclosed.
All transactions within a holding company system affecting insurers must be fair and equitable. Notice to the state
insurance commissioner is required prior to the consummation of transactions affecting the ownership or control
of an insurer and prior to certain material transactions between an insurer and any person or entity in its holding
company group. In addition, some of those transactions cannot be consummated without the commissioner’s
prior approval.
Subsidiary Dividends – The Cincinnati Insurance Company is fully owned by Cincinnati Financial Corporation.
The dividend-paying capacity of The Cincinnati Insurance Company and its fully owned subsidiaries is
regulated by the laws of the applicable state of domicile. Under these laws, our domestic insurance subsidiaries
must provide a 10-day advance informational notice to the insurance commissioner for the domiciliary state prior
to payment of any dividend or distribution to its shareholders. Generally, the most our domestic insurance
subsidiary can pay without prior regulatory approval is the greater of 10% of statutory capital and surplus or 100%
of statutory net income for the prior calendar year.
The domestic insurance company subsidiaries must give 30 days of notice to, and obtain prior approval from, the
state insurance commissioner before the payment of an extraordinary dividend as defined by the state’s insurance
code. You can find information about the dividends paid by our insurance subsidiary during 2021 in Item 8, Note 9
of the Consolidated Financial Statements.
Insurance Operations – All of our domestic insurance subsidiaries are subject to licensing and supervision by
departments of insurance in the states in which they do business. The nature and extent of such regulations vary,
but generally are rooted in statutes that delegate regulatory, supervisory and administrative powers to state
insurance departments. Such regulations, supervision and administration of the domestic insurance subsidiaries
include: the standards of solvency that must be met and maintained; the licensing of insurers and their agents and
brokers; the nature and limitations on investments; deposits of securities for the benefit of policyholders;
regulation of standard market policy forms and premium rates; policy cancellations and nonrenewals; test audit
programs; periodic examination of the affairs of insurance companies; annual and other reports required to be
filed on the financial condition of insurers or for other purposes; requirements regarding reserves for unearned
premiums, losses and other matters; the nature of and limitations on dividends to policyholders and shareholders;
the nature and extent of required participation in insurance guaranty funds; the involuntary assumption of hard-to-
place or high-risk insurance business, primarily workers’ compensation insurance; and the collection, remittance
and reporting of certain taxes and fees. Our primary insurance regulators in the U.S. have adopted the Model
Audit Rule for annual statutory financial reporting. This regulation closely mirrors the Sarbanes-Oxley Act on
matters such as auditor independence, corporate governance and internal controls over financial reporting.
The regulation permits the audit committee of Cincinnati Financial Corporation’s board of directors to also serve
as the audit committee of each of our insurance subsidiaries for purposes of this regulation.
Insurance Guaranty Associations – For certain obligations of insolvent insurance companies to policyholders and
claimants, states assess each member insurer in an amount relative to the insurer’s proportionate share of
business written by all member insurers in the state. While the amount of such assessments has not been
material in recent years, we cannot predict the amount and timing of any future assessments or refunds on our
insurance subsidiaries under these laws.
Cincinnati Financial Corporation - 2021 10-K - Page 28
•
•
•
•
•
Shared Market and Joint Underwriting Plans – Assigned risk plans, reinsurance facilities and joint underwriting
associations are mechanisms that generally provide applicants with various basic insurance coverages when they
are not available in voluntary markets. States can require participation based upon the amount of an insurance
company’s voluntary market share, and underwriting results related to these pools could be adverse to
our company.
Statutory Accounting – For public reporting, domestic insurance companies prepare financial statements in
accordance with GAAP. However, certain data also must be calculated according to statutory accounting rules as
defined in the NAIC’s Accounting Practices and Procedures Manual. While not a substitute for any GAAP
measure of performance, statutory data frequently is used by industry analysts and other recognized reporting
sources to facilitate comparisons of the performance of insurance companies.
Insurance Reserves – State insurance laws require that property casualty and life insurers annually analyze the
adequacy of reserves. Our appointed actuaries must submit an opinion that reserves are adequate for policy
claims-paying obligations and related expenses.
Investment Regulation – Insurance company investments must comply with laws and regulations pertaining to the
type, quality and concentration of investments. Such laws and regulations permit investments in federal, state and
municipal obligations, corporate bonds, preferred and common equity securities, mortgage loans, real estate and
certain other investments, subject to specified limits and other qualifications.
Risk-Based Capital Requirements – The NAIC’s risk-based capital (RBC) requirements for property casualty and
life insurers serve as an early warning tool for the NAIC and state regulators to identify companies that may be
undercapitalized and may merit further regulatory action. The NAIC has a standard formula for annually assessing
RBC. The formula for calculating RBC for property casualty companies takes into account asset and credit risks
but places more emphasis on underwriting factors for reserving and pricing. The formula for calculating RBC for
life insurance companies takes into account factors relating to insurance, business, asset and interest-rate risks.
Although the federal government and its regulatory agencies generally do not directly regulate the business of
insurance, federal legislation and administrative rules adopted can affect our business. Privacy laws, such as the
Gramm-Leach-Bliley Act, the Fair Credit Reporting Act and the Health Insurance Portability and Accounting Act
(HIPAA) are the federal laws that most affect our day-to-day operations. These apply to us because we gather and
use personal nonpublic information to underwrite insurance and process claims. We also are subject to other
federal laws, such as the Terrorism Risk Insurance Act (TRIA), anti-money laundering statute (AML), the
Nonadmitted and Reinsurance Reform Act (NRRA), the U.S. Foreign Corrupt Practices Act (FCPA), and the rules
and regulations of the Office of Foreign Assets Control (OFAC).
Title V of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank) created the
Federal Insurance Office to monitor the insurance industry and gather information to identify issues or gaps in the
regulation of insurers that could contribute to a systemic crisis in the insurance industry that affects the United
States’ financial system and to recommend to the Financial Stability Oversight Council that it designate an insurer
as a systemically significant entity requiring additional supervision by the Federal Reserve Board. We do not expect
Dodd-Frank to result in federal oversight of our operations as a systemically significant entity.
We do not expect to have any material effects on our expenditures, earnings or competitive position as
a result of compliance with any federal, state or local provisions enacted or adopted relating to the protection of
the environment. We currently do not have any material estimated capital expenditures for environmental
control facilities.
Cincinnati Financial Corporation - 2021 10-K - Page 29
We operate in limited foreign jurisdictions. Our foreign insurance subsidiary Cincinnati Global Underwriting Ltd.,
based in the United Kingdom (U.K.), holds a group of companies led by our managing agency, Cincinnati Global
Underwriting Agency Ltd., of Lloyd’s Syndicate 318, which is regulated by The Prudential Regulation Authority
(PRA) and The Financial Conduct Authority (FCA). The PRA’s primary objective with respect to insurers is to
promote the safety and soundness of insurers for the protection of policyholders, while the FCA has three
operational objectives: (i) to secure an appropriate degree of protection for consumers; (ii) to protect and enhance
the integrity of the U.K. financial system; and (iii) to promote effective competition in the interests of consumers in
the financial services markets. The PRA/FCA’s Senior Managers and Certification Regime provides regulatory
frameworks for standards of fitness and propriety, conduct and accountability for individuals in positions of
responsibility at insurers. The PRA and FCA have also delegated certain additional regulatory responsibilities to the
Council of Lloyd’s. By virtue of Lloyd’s international licenses, we can write business in various countries throughout
the world. In each such country, we are subject to the laws and insurance regulations of that jurisdiction.
Our operations in the U.K. are further subject to regulation by the European Union (EU). Generally, EU
requirements are adopted by the EU and then implemented by enabling legislation in the member countries.
Significant areas of oversight and influence from the EU include capital, solvency and risk management
requirements (Solvency II), competition law and antitrust regulation, intermediary and distribution regulation,
gender discrimination and data protection and privacy (General Data Protection Regulation). The applicability of
EU regulation to our U.K. business is likely to change in ways yet to be fully determined as a result of the U.K.’s exit
from the EU.
Cincinnati Financial Corporation - 2021 10-K - Page 30
Enterprise Risk Management
We manage enterprise risk through formal risk management programs overseen by an executive officer of the
company. Our ERM framework includes an enterprise risk management committee, which is responsible for
overseeing risk activities and is comprised of senior executive-level risk owners from across the enterprise. The risk
committee's activities are supported by a team of representatives from business areas that focus on identifying,
evaluating and developing risk plans for emerging risks. A comprehensive report is provided quarterly to our
chairman, president and chief executive officer and also to our board of directors and our senior executive team, as
appropriate, on the status of risk metrics relative to identified tolerances and limits, risk assessments and risk plans.
The use of operational audits, strategic plans and departmental business plans, as well as our culture of open
communications and fundamental respect for our Code of Conduct, continue to help us manage risks on an ongoing
basis.
We understand that a cybersecurity incident is just one example of an event that could affect our future
performance. We work to keep our systems and data secure while continuing to increase our understanding of
cybersecurity risk through risk management efforts and testing by third-party experts of our cybersecurity program
structure and capabilities. Those efforts include blocking attempted cyber intrusions, defending against denial of
service attacks, performing frequent vulnerability assessments and maintaining procedures to ensure timely
notification of critical cybersecurity incidents and related disclosure controls. We also have developed procedures
and reporting processes when we identify an attempted cyber intrusion to the system of one of our independent
agents. Cybersecurity matters are an important part of reporting to our executive management team, risk
committee, disclosure committee and the board of directors, including its audit committee. Effects of cyberattacks
can happen to any corporation and they can be significant, including additional costs for remediation, litigation and
reputational damage.
Our risk management programs include a formalized risk appetite element and a risk identification and
quantification process. The overall enterprise objective is to appropriately balance risk and reward to achieve an
appropriate return on risk capital. Our key risks are discussed in Item 1A, Risk Factors, including risks related to
natural catastrophes, investments and operations.
We continue to study emerging risks, including climate change risk and its potential financial effects on our results of
operations and on those we insure. These effects include deterioration in the credit quality of our municipal or
corporate bond portfolios and increased losses without sufficient corresponding increases in premiums. As with any
risk, we seek to identify the extent of the risk exposure and possible actions to mitigate potential negative effects of
risk at an enterprise level.
Cincinnati Financial Corporation - 2021 10-K - Page 31
ITEM 1A. Risk Factors
Our business involves various risks and uncertainties that may affect achievement of our business objectives.
Many of the risks could have ramifications across our organization. For example, while risks related to setting
insurance rates and establishing and adjusting loss reserves are insurance activities, actual results differing from
our assumptions, judgments or estimates in these areas could have an impact on our investment activities, growth
and overall results.
The following discussion should be viewed as a starting point for understanding the significant risks we face. It is
not a definitive summary of their potential impacts or of our strategies to manage and control the risks. Please see
Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, for a discussion of
those strategies.
If any risks or uncertainties discussed here develop into actual events, they could have a material adverse effect on
our business, financial condition, results of operations or cash flows. In that case, the market price of our common
stock could decline materially. The failure of our risk management strategies could have a material adverse impact
on our consolidated financial condition, results of operations or cash flows.
Readers should carefully consider this information together with the other information we have provided in this
report and in other reports and materials we file periodically with the Securities and Exchange Commission as well
as news releases and other information we disseminate publicly.
Risks related to insurance operations
We rely primarily on independent insurance agents to distribute our products.
We market our main products, insurance policies for businesses and individuals, through independent, nonexclusive
insurance agents. These agents are not obligated to promote our products and can and do sell our competitors’
products. We must offer insurance products that meet the needs of these agents and their clients. We need to
maintain good relationships with the agents who market our products. If we do not, these agents may market our
competitors’ products instead of ours, which may lead to us having a less desirable mix of business and could affect
our results of operations.
In addition to our marketing of insurance policies for businesses and individuals, Cincinnati Re reinsures policies
written by other insurance companies. This business is marketed through reinsurance intermediaries and is
generally not offered by the typical independent agents who market our insurance policies.
Certain events or conditions could diminish our agents’ desire to produce business for us and the competitive
advantage that our independent agents enjoy, including:
•
•
Downgrade of the financial strength ratings of our insurance subsidiaries. We believe our strong insurer financial
strength ratings, in particular, the A+ (Superior) ratings from A.M. Best for our standard market property casualty
insurance group and each subsidiary in that group, are an important competitive advantage. See Item 1,
Our Business and Our Strategy, Financial Strength, for additional discussion of our financial strength ratings.
Concerns that doing business with us is difficult or not profitable, perceptions that our level of service is no longer
a distinguishing characteristic in the marketplace, perceptions that our products do not meet the needs of our
agents’ clients or perceptions that our business practices are not compatible with agents’ business models.
• Mergers and acquisitions could result in a concentration of a significant amount of premium in one agency.
•
Delays in the development, implementation, performance and benefits of technology systems and enhancements
or independent agent perceptions that our technology solutions do not match their needs.
A reduction in the number of independent agencies marketing our products, the failure of agencies to successfully
market our products or pay amounts due to us, changes in the strategy or operations of agencies or the choice of
agencies to reduce their writings of our products could affect our results of operations if we were unable to replace
them with agencies that produce adequate and profitable premiums.
Cincinnati Financial Corporation - 2021 10-K - Page 32
Further, policyholders may choose a competitor’s product rather than our own because of real or perceived
differences in price, terms and conditions, coverage or service. If the quality of the independent agencies with which
we do business were to decline, that also might cause policyholders to purchase their insurance through different
agencies or channels. Consumers, especially in the personal insurance industry segment, may increasingly choose
to purchase insurance from distribution channels other than independent insurance agents, such as
direct marketers. Increased advertising by insurers, especially direct marketers, could cause consumers to shift their
buying habits, bypassing independent agents altogether. Innovation, new or changing technologies and/or buying
trends or consumer preferences could reduce or eliminate the need or demand for products we sell.
Our credit ratings or financial strength ratings of our insurance subsidiaries could be downgraded.
A downgrade in one or more of our company’s credit or debt ratings could adversely impact our borrowing costs or
limit our access to capital. Financial strength ratings reflect a rating agency’s opinion of our insurance subsidiaries’
financial strength, operating performance, strategic position and ability to meet obligations to policyholders.
Our ratings are subject to periodic review and there is no assurance that our ratings will not be changed.
Rating agencies could change or expand their requirements or could find that our insurance subsidiaries no longer
meet the criteria established for current ratings. If our property casualty or life insurance subsidiary insurer financial
strength ratings were to be downgraded, our agents might find it more difficult to market our products or might
choose to emphasize the products of other carriers.
We could experience an unusually high level of losses due to catastrophic, terrorism or epidemic events or
risk concentrations.
In the normal course of our business, both in our insurance and reinsurance operations, we provide coverage
against perils for which estimates of losses are highly uncertain, in particular catastrophic and terrorism events.
Catastrophes can be man-made or caused by natural perils. Man-made catastrophes to which we may be
exposed include, but are not limited to, industrial accidents, terrorist attacks, social unrest and riot. Natural peril
catastrophe events to which we may be exposed include, but are not limited to, hurricanes, tornadoes,
windstorms, earthquakes, landslides, hailstorms, flooding, severe winter weather and wildfires. Due to the nature of
these events, we are unable to predict precisely the frequency or potential cost of catastrophe occurrences.
Various scientists and other experts believe that changing climate conditions have added to the unpredictability,
frequency and severity of such natural disasters in certain parts of the world and have created additional uncertainty
as to future trends and exposures. We cannot predict the impact that changing climate conditions may have on our
results of operations nor can we predict how any legal, regulatory or social responses to concerns about climate
change may impact our business. Additionally, man-made events, such as hydraulic fracturing, could cause damage
from earth movement or create environmental and/or health hazards.
The extent of losses from a catastrophe is a function of both the total amount of insured and reinsured exposure in
the area affected by the event and the severity of the event. Our ability to appropriately manage catastrophe risk
depends partially on catastrophe models, which may be affected by inaccurate or incomplete data, the uncertainty
of the frequency and severity of future events and the uncertain impact of climate change. Additionally, these
models are recalibrated and changed over time, with more data availability and changing opinions regarding the
effect of current or emerging loss patterns and conditions.
According to these models, probable maximum loss estimates from a single hurricane event that combine the
effects of property casualty insurance written on a direct basis by The Cincinnati Insurance Companies, the
Cincinnati Re reinsurance portfolio and risks insured by Cincinnati Global include the following amounts, net of
amounts recoverable through reinsurance ceded and also income taxes, and including the effects of estimated
reinstatement premiums: $428 million for a once-in-a-100-year event and $602 million for a once-in-a-250-year
event. Please see Item 7, Liquidity and Capital Resources, 2022 Reinsurance Programs, for a discussion of
modeled losses considered in evaluating our risk mitigation strategy, which includes our ceded reinsurance
program.
Cincinnati Financial Corporation - 2021 10-K - Page 33
The geographic regions in which we market insurance and reinsurance are exposed to numerous natural
catastrophes, such as:
•
•
•
Hurricanes in the gulf, eastern, southeastern and northeastern coastal regions.
Earthquakes in many regions, most particularly in the New Madrid fault zone, California, the Northwest
and Southwest.
Tornadoes, wind and hail in the Midwest, South, Southeast, Southwest and the mid-Atlantic.
• Wildfires.
• On a worldwide basis, in the event of a severe catastrophic event or terrorist attack we may be exposed to
material losses through our Cincinnati Re and Cincinnati Global operations.
The occurrence of terrorist attacks in the geographic areas we serve could result in substantially higher claims
under our insurance policies than we have anticipated. Our insurance policies provide coverage for terrorism risk in
all areas we serve, including Tier 1 and Tier 2 cities. We have exposure to small co-op utilities, water utilities,
wholesale fuel distributors, small shopping malls and small colleges throughout our 46 active states and, because of
the number of associates located there, our Fairfield, Ohio, headquarters. Additionally, our life insurance subsidiary
could be adversely affected in the event of a terrorist event or an epidemic, particularly if the epidemic were to affect
a broad range of the population, or affects the overall economy. Our associate health plan is self-funded and could
similarly be affected.
Our results of operations would be adversely affected if the level of losses we experience over a period of time were
to exceed our actuarially determined expectations. In addition, our financial condition may be adversely affected if
we were required to sell securities prior to maturity or at unfavorable prices to pay an unusually high level of loss
and loss expenses. Securities pricing might be even less favorable if a number of insurance or other companies and
other investors needed to sell securities during a short period of time because of unusually high losses from
catastrophic events.
Our geographic concentration ties our performance to business, economic, environmental and regulatory conditions
in certain states. We market our standard market property casualty insurance products in 46 states, but our
business is concentrated in the Midwest and Southeast. We also have exposure in states where we do not actively
market insurance when clients of our independent agencies have businesses or properties in multiple states.
The Cincinnati Insurance Company continues to expand its Cincinnati Re reinsurance assumed operations and has
staffed it with seasoned underwriting and analytical talent who strive to assume risks that we understand well,
both quantitatively and qualitatively. Business written includes treaties that provide coverage for property
catastrophe and terrorism events on a worldwide basis. Based on treaties in effect at January 1, 2022, the largest
loss exposure to us for Cincinnati Re is from natural catastrophe events. That exposure includes probable maximum
loss estimates, on a marginal basis, of the following amounts: $174 million for a once-in-a-100-year event and
$167 million for a once-in-a-250-year event. Those effects represent a single hurricane event and include the effects
of income taxes, estimated reinstatement premiums and applicable reinsurance ceded, including any retrocessions
for reinsurance assumed, and estimated reinstatement premiums. They are based on probable maximum loss
estimates from the Applied Insurance Research Touchstone® version 8.0 catastrophe model. The marginal basis
reflects diversification effects of the Cincinnati Re reinsurance portfolio and property casualty insurance written on a
direct basis by The Cincinnati Insurance Companies. Ignoring diversification effects provided by those two
components, on a standalone basis, probable maximum loss estimates for Cincinnati Re include the following
amounts: $201 million for a once-in-a-100-year event and $230 million for a once-in-a-250-year event. If there is a
high frequency of large property catastrophe or terrorism events, or a single extreme event, during the coverage
period of these treaties, our financial position and results of operations could be materially affected.
We are also expanding Cincinnati Global, our global specialty underwriter with premiums primarily for U.S.
and international property exposures, given its seasoned underwriting talent. At January 1, 2022, the largest loss
exposure to us for Cincinnati Global is from natural catastrophe events. That exposure includes probable
maximum loss estimates of the following amounts: $49 million for a once-in-a-100-year event and $78 million for a
once-in-a-250-year event. Those effects are on a standalone basis and represent a single hurricane event and
include the effects of income taxes, applicable reinsurance ceded and estimated reinstatement premiums. They are
based on probable maximum loss estimates from the Applied Insurance Research Touchstone version 8.0
catastrophe model. If there is a high frequency of large property catastrophe or terrorism events, or a single extreme
Cincinnati Financial Corporation - 2021 10-K - Page 34
event, during the coverage period of its policies, our financial position and results of operations could be materially
affected.
Additionally, the companies we invest in might be severely affected by a severe catastrophic event, terrorist attack,
or epidemic event which could affect our financial condition and results of operations. Our reinsurers might
experience significant losses, potentially jeopardizing their ability to pay losses we cede to them. It could also
reduce the availability of reinsurance. If we cannot obtain adequate coverage at a reasonable cost, it could
constrain where we can write business or reduce the amount of business we can write in certain areas. We also
may be exposed to state guaranty fund assessments if other carriers in a state cannot meet their obligations to
policyholders. A catastrophe or epidemic event also could affect our operations by damaging our headquarters
facility, injuring associates and visitors at our Fairfield, Ohio, headquarters or disrupting our associates’ ability to
perform their assigned tasks.
The outbreak of COVID-19 could result in an unusually high level of losses.
In March 2020, the outbreak of COVID-19, also known as the novel coronavirus SARS-CoV-2, was recognized as a
pandemic by the World Health Organization. The outbreak was widespread in the United States, including in the
markets in which we operate. Like many companies in the property casualty insurance industry, our 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. Risks to our business include legislation or court decisions that
extend business interruption insurance in commercial property coverage forms to cover claims for pure economic
loss related to the COVID-19 pandemic. Legislative initiatives and pending litigation are ongoing in numerous
jurisdictions, and we cannot provide assurance that we will not be impacted by adverse legislation or adverse
judicial rulings in certain of these jurisdictions. These actions seek to extend coverage beyond the terms and
conditions we intended for those policies, including policies that do not contain specific virus exclusions. Therefore
we could be forced to pay claims when no coverage was contemplated and for which no premium was collected. If
these actions are successful, the aggregate amount of these claims could have a material, adverse impact on our
business, financial condition, reputation, results of operations and cash flows.
Our net losses and loss adjustment expenses are estimates and actual net losses could be higher.
Our estimates for COVID-19 losses and loss adjustment expenses represent our best estimates as of
December 31, 2021, based upon information currently available. These estimates are based on reported claims,
policy level reviews and recent judicial rulings. However, assumptions about coverage, liability and reinsurance
continue to be subject to on-going judicial review and may be subject to further government action. While we believe
our net reserves for losses and loss adjustment expenses for COVID-19 as of December 31, 2021, are adequate
based on information available at this time, we continue to closely monitor reported claims, government actions,
judicial decisions and changes in the levels of worldwide social disruption and economic activity arising from the
pandemic and will adjust our estimates of gross and net losses as new information becomes available. Factors that
affect our estimates of losses and loss adjustment expenses or our ability to reasonably estimate such losses
include the continuing duration of the pandemic and governmental actions to limit the spread of the virus that may
produce additional economic losses; the number of policyholders that will ultimately submit claims or file lawsuits;
the lack of submitted proofs of loss for allegedly covered claims; judicial rulings in similar litigation involving other
companies in the insurance industry; difference in state law and developing case law; litigation trends, including
varying legal theories advanced by policyholders; whether and to what degree any class of policyholders may be
certified; and the inherent unpredictability of litigation. Such adjustments to our reserves for COVID-19 losses and
loss adjustment expenses may be material to our results of operations, financial condition and cash flows.
Our ability to properly underwrite and price risks and increased competition could adversely affect
our results.
Our financial condition, results of operations and cash flows depend on our ability to underwrite and set rates
accurately for a full spectrum of risks. We establish our pricing based on assumptions about the level of losses that
may occur within classes of business, geographic regions and other criteria.
To properly price our products, we must collect, properly analyze and use data to make decisions and take
appropriate action; the data must be sufficient, reliable and accessible; we need to develop appropriate rating
methodologies and formulae; and we may need to identify and respond to trends quickly. We may overestimate or
underestimate loss cost trends or these trends may unexpectedly change, leading to losing business by pricing risks
above our competitors or charging rates too low to maintain profitability. Inflation trends, especially outside of
Cincinnati Financial Corporation - 2021 10-K - Page 35
historical norms, may make it more difficult to determine adequate pricing. If rates are not accurate, we may not
generate enough premiums to offset losses and expenses, or we may not be competitive in the marketplace.
Our ability to set appropriate rates could be hampered if states where we write business refuse to allow rate
increases that we believe are necessary to cover the risks insured. A state could also hamper our ability to set
appropriate rates if it no longer allowed us to use factors that we believe are predictive of loss, such as credit-based
factors. Multiple states require us to purchase reinsurance from a mandatory reinsurance fund. Such reinsurance
funds can create a credit risk for insurers if not adequately funded by the state and, in some cases, the existence of
a reinsurance fund could affect the prices charged for our policies. The effect of these and similar arrangements
could reduce our profitability in any given period or limit our ability to grow our business.
The insurance industry is cyclical and intensely competitive. From time to time, the industry goes through prolonged
periods of intense competition during which it is more difficult to attract new business, retain existing business and
maintain profitability. Competition in our insurance business is based on many factors, including:
Competitiveness of premiums charged
Relationships among carriers, agents, brokers and policyholders
Underwriting and pricing methodologies that allow insurers to identify and flexibly price risks
Compensation provided to agents
Underwriting discipline
Terms and conditions of insurance coverage
Speed with which products are brought to market
Product and marketing innovations, including advertising
Technological competence and innovation
Ability to control expenses
Adequacy of financial strength ratings by independent rating agencies such as A.M. Best
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Claims satisfaction and reputation
We compete with major U.S., Bermudian, European, and other international insurers and reinsurers and with
underwriting syndicates, some of which have greater financial, marketing and management resources than we do.
Recent industry consolidation, including business combinations among insurance and other financial services
companies, has resulted in larger competitors with even greater financial resources. We also compete with new
companies that continue to enter the insurance and reinsurance markets. In addition, capital market participants
have created alternative products that are intended to compete with reinsurance products that we sell through
Cincinnati Re. Increased competition could result in fewer submissions, lower premium rates, and less favorable
policy terms and conditions, which could reduce our underwriting margins and have a material adverse effect on our
results of operations and financial condition.
If our pricing was incorrect or we were unable to compete effectively because of one or more of these factors,
our premium writings could decline and our results of operations and financial condition could be materially
adversely affected. Large competitors could intentionally disrupt the market by targeting certain lines or underpricing
the market.
Please see the discussion of our Commercial Lines, Personal Lines, Excess and Surplus Lines and Life Insurance
Segments in Item 1, Our Segments, for a discussion of our competitive position in the insurance marketplace.
Cincinnati Financial Corporation - 2021 10-K - Page 36
Our pricing and capital models could be flawed.
We use various actuarial pricing methods, predictive pricing and underwriting models, stochastic models and/or
forecasting techniques to help us understand our business, analyze risk and estimate future trends. The output of
these techniques and models is used to assist us in making underwriting, pricing, reinsurance, reserving and capital
decisions and helps us set our strategic direction. These models contain numerous assumptions, including the
assumption that the data used is sufficient and accurate. They are also subject to uncertainties and limitations
inherent in any statistical analysis. Actual results may be materially different from modeled output, resulting
in pricing our products incorrectly, overestimating or underestimating reserves, or inaccurately forecasting
the impact of modeled events on our results. This could materially adversely impact the results of our operations.
Our loss reserves, our largest liability, are based on estimates and could be inadequate to cover our
actual losses.
Our consolidated financial statements are prepared using GAAP. These principles require us to make estimates and
assumptions that affect the amounts reported in the Consolidated Financial Statements and accompanying Notes.
Actual results could differ materially from those estimates. For a discussion of the significant accounting policies we
use to prepare our financial statements, the material implications of uncertainties associated with the methods,
assumptions and estimates underlying our critical accounting policies and the process used to determine our loss
reserves, please refer to Item 8, Note 1 of the Consolidated Financial Statements, and Item 7, Critical Accounting
Estimates, Property Casualty Insurance Loss and Loss Expense Reserves and Life Insurance Policy Reserves.
Our most critical accounting estimate is loss reserves. Loss reserves are the amounts we expect to pay for covered
claims and expenses we incur to settle those claims. The loss reserves we establish in our financial statements
represent an estimate of amounts needed to pay and administer claims arising from insured events that have
already occurred, including events that have not yet been reported to us. Loss reserves are estimates and are
inherently uncertain; they do not and cannot represent an exact measure of liability. Inflationary scenarios,
especially scenarios outside of historical norms or regulatory changes that affect the assumptions underlying our
critical accounting estimates, may make it more difficult to estimate loss reserves. Accordingly, our loss reserves for
past periods could prove to be inadequate to cover our actual losses and related expenses. Any changes in these
estimates are reflected in our results of operations during the period in which the changes are made. An increase
in our loss reserves would decrease earnings, while a decrease in our loss reserves would increase earnings.
Unforeseen losses, the type and magnitude of which we cannot predict, may emerge. These additional losses could
arise from changes in the legal environment, laws and regulations, climate change, catastrophic events, increases
in loss severity or frequency, environmental claims, mass torts or other causes such as social inflation. Such future
losses could be substantial. Inflationary scenarios may cause the cost of claims, especially medical claims, to rise,
impacting reserve adequacy and our results of operations.
In addition to the risks stated above, Cincinnati Re reserves are subject to uncertainty because a reinsurer relies on
the original underwriting decisions and claims reserving practices of ceding companies. As a result, we are subject
to the risk that our ceding companies may not have adequately evaluated the risks reinsured by us and the
premiums ceded may not adequately compensate us for the risks we assume. In addition, there is generally a
longer lapse of time from the occurrence of the event to the reporting of the loss or benefit to the reinsurer and
ultimate resolution or settlement of the loss. Similar risks exist for Cincinnati Global due to reliance on coverholders
in underwriting parts of its business.
The anticipated benefits may not be realized for our acquisition of Cincinnati Global.
Cincinnati Global, our London-based global specialty underwriter for Lloyd's Syndicate 318, was acquired on
February 28, 2019. We can provide no assurance that the anticipated benefits of the transaction will be fully realized
in the time frame anticipated or at all, or that the costs or difficulties related to further developing its operations will
not be greater than expected. The success of the transaction will depend, in part, on our ability to realize the
anticipated business opportunities and growth prospects from acquiring Cincinnati Global. We may never realize
these business opportunities and growth prospects, and our management might have its attention diverted while
trying to further develop ongoing operations.
Cincinnati Financial Corporation - 2021 10-K - Page 37
Cincinnati Global’s international operations subject us to additional regulation and could expose us to
additional investment, political and economic risks.
We have international operations that could expose us to a number of additional risks. These risks include
restrictions such as price controls, capital controls, currency exchange limits, ownership limits and other restrictive
or anti-competitive governmental actions or requirements, which could have an adverse effect on our business and
reputation. Our business activities outside the United States, including the United Kingdom (U.K.), could also be
subject to political and economic risks, including foreign currency and credit risk. Additionally, Cincinnati Global’s
operations will expand the products offered by us and could expose us to additional regulation or other risks.
Additionally, business activities outside the United States will subject us to additional domestic and foreign laws and
regulations, including the Foreign Corrupt Practices Act, the U.K. Bribery Act and similar laws in other countries that
prohibit the making of improper payments to foreign officials. In addition, insurers in the U.K. (including managing
agents and members of Lloyd’s of London) are subject to Solvency II and the U.K. regulatory regime, which itself
includes rules promulgated by Lloyd's. Although we have policies and controls in place that are designed to ensure
compliance with these laws and regulatory requirements, if those controls are ineffective and an employee or
intermediary fails to comply with applicable laws and regulations, we could suffer civil and criminal penalties and our
business and reputation could be adversely affected. Some countries have laws and regulations that lack clarity
and, even with local expertise and effective controls, it can be difficult to determine the exact requirements of, and
potential liability under, the local laws. Failure to comply with local laws in a particular market may result in
substantial liability and could have a significant and negative effect not only on our business in that market but also
on our reputation generally.
Business activities at Cincinnati Global are subject to Lloyd's approval of a business plan each year. There is risk
that plans will not be approved or will be limited. As a Lloyd’s managing agent and syndicate, Cincinnati Global is
exposed to various risks and the uncertainties associated, including its obligation to maintain funds at Lloyd’s to
support its underwriting activities and periodic assessment of its capital, governance and other aspects of
its business.
Developments relating to the United Kingdom’s leaving the European Union could adversely affect
Cincinnati Global’s operations.
The terms of the U.K.’s withdrawal from the European Union (Brexit) and the relationship between the U.K. and the
European Union going forward can affect economic conditions, including the terms of trade between them. The
ultimate impact of Brexit is uncertain and will depend on any agreements that the U.K. makes to retain access to
European Union markets. Brexit could also lead to legal uncertainty and potentially divergent national laws and
regulations as the U.K. determines which European Union laws to replace or replicate. These or other adverse
consequences from Brexit could adversely affect the operations and business opportunities of Cincinnati Global.
With a view to mitigating the potential effects of Brexit on business underwritten through it, Lloyd’s has set up an
insurance company subsidiary in Belgium, with the intention of underwriting European Economic Area insurance
business via that subsidiary. It is uncertain how effective Lloyd's proposed Brexit contingency plan will be.
Our ability to obtain or collect on our reinsurance protection could affect our business, financial condition,
results of operations or cash flows.
We buy property casualty and life reinsurance coverage to mitigate the liquidity risk and earnings volatility risk of an
unexpected rise in claims severity or frequency from catastrophic events or a single large loss. The availability,
amount and cost of reinsurance depend on market conditions and may vary significantly. If we were unable to obtain
reinsurance on acceptable terms and in appropriate amounts, our business and financial condition could be
adversely affected.
In addition, we are subject to credit risk with respect to our reinsurers. Although we purchase reinsurance to
manage our risks and exposures to losses, this reinsurance does not discharge our direct obligations under the
policies we write. We would remain liable to our policyholders even if we were unable to recover what we believe we
are entitled to receive under our reinsurance contracts. Reinsurers might refuse or fail to pay losses that we cede to
them, or they might delay payment. For long-tail claims, the creditworthiness of our reinsurers may change before
we can recover amounts to which we are entitled. A reinsurer’s insolvency, inability or unwillingness to make
payments under the terms of its reinsurance agreement with our insurance subsidiaries could have a material
adverse effect on our financial position, results of operations or cash flows.
Cincinnati Financial Corporation - 2021 10-K - Page 38
Please see Item 7, Liquidity and Capital Resources, 2022 Reinsurance Ceded Programs, for a discussion of
selected reinsurance transactions.
Risks related to investments or other financial matters
Financial disruption or a prolonged economic downturn could materially and adversely affect our
investment performance.
The outbreak of COVID-19 contributed to significant disruption and volatility for financial markets and decreased
economic activity. Many companies experienced uncertainty and reduced liquidity. In the event that these conditions
recur or result in a prolonged economic downturn, they could adversely impact our financial condition, results of
operations or cash flows. Such adverse impacts may be material. These market conditions could also cause our
investment income or the value of securities we own to decrease.
Our ability to achieve our performance objectives could be affected by changes in the financial, credit and
capital markets or the general economy.
We invest premiums received from policyholders and other available cash to generate investment income and
capital appreciation, while also maintaining sufficient liquidity to pay covered claims and operating expenses,
service our debt obligations and pay dividends. The value of our invested assets is an important component of
shareholders’ equity, also known as book value. Changes in the valuation of invested assets can significantly affect
changes in book value per share, a key performance objective as discussed in Item 7, Executive Summary of
Management’s Discussion and Analysis.
For fixed-maturity investments such as bonds, which represented 53.5% of the fair value of our investment portfolio
at the end of 2021, the inverse relationship between interest rates and bond prices leads to falling bond values
during periods of increasing interest rates. A significant increase in the general level of interest rates could have an
adverse effect on our shareholders’ equity.
Investment income is an important component of our revenues and net income. The ability to increase investment
income and generate longer-term growth in book value is affected by factors beyond our control, such as: inflation,
economic growth, interest rates, world political conditions, changes in laws and regulations, epidemic events,
terrorism attacks or threats, adverse events affecting other companies in our industry or the industries in which we
invest, market events leading to credit constriction, and other widespread unpredictable events. These events may
adversely affect the economy generally and could cause our investment income or the value of securities we own to
decrease. A significant decline in our investment income could have an adverse effect on our net income, and
thereby on our shareholders’ equity and our statutory capital and surplus. For a more detailed discussion of risks
associated with our investments, please refer to Item 7A, Quantitative and Qualitative Disclosures About
Market Risk.
We have issued life contracts with guaranteed minimum returns, referred to as bank-owned life insurance
contracts (BOLIs). BOLI investment assets must meet certain criteria established by the regulatory authorities in the
jurisdiction for which the group contract holder is subject. Therefore, sales of investments may be mandated to
maintain compliance with these regulations, possibly requiring gains or losses to be recorded. We could experience
losses if the assets in the accounts were less than liabilities at the time of maturity or termination.
Our investment performance also could suffer because of the types of investments, industry groups and/or
individual securities in which we choose to invest. Market value changes related to these choices could cause a
material change in our financial condition or results of operations.
At year-end 2021, common stock holdings made up 44.6% of our investment portfolio. Adverse news or events
affecting the global or U.S. economy or the equity markets could affect our net income, book value and overall
results, as well as our ability to pay our common stock dividend. See Item 7, Investments Results, and Item 7A,
Quantitative and Qualitative Disclosures About Market Risk, for a discussion of our investment activities.
Deterioration in the banking sector or in banks with which we have relationships could affect our results of
operations. Our ability to maintain or obtain short-term lines of credit could be affected if the banks from which we
obtain these lines are acquired, fail or are otherwise negatively affected. We may lose premium revenue if a bank
that owns appointed agencies were to change its strategies. We could experience increased losses in our director
and officer liability line of business if claims were made against insured financial institutions.
Cincinnati Financial Corporation - 2021 10-K - Page 39
A deterioration of credit and market conditions could also impair our ability to access credit markets and could affect
existing or future lending arrangements.
Our overall results could be affected if a significant portion of our commercial lines policyholders, including those
purchasing surety bonds, are adversely affected by marked or prolonged economic downturns and events such as a
downturn in construction and related sectors, tightening credit markets and higher fuel costs. Such events could
make it more difficult for policyholders to finance new projects, complete projects or expand their businesses,
leading to lower premiums from reduced payrolls and sales and lower purchases of equipment and vehicles.
These events could also cause claims, including surety claims, to increase due to a policyholder’s inability to secure
necessary financing to complete projects or to collect on underlying lines of credit in the claims process.
Such economic downturns and events could have a greater impact in the construction sector where we have a
concentration of risks and in geographic areas that are hardest hit by economic downturns.
Deteriorating economic conditions could also increase the degree of credit risk associated with amounts due from
independent agents who collect premiums for payment to us and could hamper our ability to recover amounts due
from reinsurers.
Our status as an insurance holding company with no direct operations could affect our ability to pay
dividends in the future.
Cincinnati Financial Corporation is a holding company that transacts substantially all of its business through its
subsidiaries. Our primary assets are the stock in our operating subsidiaries and our investments. Consequently,
our cash flow to pay cash dividends and interest on our long-term debt depends on dividends we receive from
our operating subsidiaries and income earned on investments held at the parent-company level.
Dividends received from our lead insurance subsidiary are restricted by the insurance laws of Ohio, its domiciliary
state. These laws establish minimum solvency and liquidity thresholds and limits. In 2022, the maximum dividend
that may be paid without prior regulatory approval is limited to the greater of 10% of statutory capital and surplus or
100% of statutory net income for the prior calendar year, up to the amount of statutory unassigned capital and
surplus as of the end of the prior calendar year. Dividends exceeding these limitations may be paid only with prior
approval of the Ohio Department of Insurance. We might not be able to receive dividends from our insurance
subsidiaries, or we might not receive dividends in the amounts necessary to meet our debt obligations or to pay
dividends on our common stock without liquidating securities. This could affect our financial position.
Please see Item 1, Regulation, and Item 8, Note 9 of the Consolidated Financial Statements, for a discussion of
insurance holding company dividend regulations.
General risk factors
Our business depends on the uninterrupted operation of our facilities, systems and business functions.
Our business depends on our associates’ ability to perform necessary business functions, such as processing new
and renewal policies and handling claims. We increasingly rely on technology and systems to accomplish these
business functions in an efficient and uninterrupted fashion. Our inability to access our headquarters facilities for
certain critical functions or a failure of technology, telecommunications or other systems or the loss or failure of
services provided by key vendors, could significantly impair our ability to perform such functions on a timely basis or
affect the accuracy of transactions. If sustained or repeated, such a business interruption or system failure could
result in a deterioration of our ability to write and process new and renewal business, serve our agents and
policyholders, pay claims in a timely manner, collect receivables or perform other necessary business functions.
If our disaster recovery and business continuity plans did not sufficiently consider, address or reverse the
circumstances of an interruption or failure, this could result in a materially adverse effect on our operating results
and financial condition. This risk is exacerbated because approximately 64% of our associates typically work at our
Fairfield, Ohio, headquarters. As stay-at-home actions were enacted in 2020, we promptly and effectively
transitioned most of our headquarters associates to working from home.
Our ability to successfully execute business functions also depends on hiring and retaining qualified associates.
Competition for high-quality executives and other key associates occurs within the insurance industry and from
other industries. We also must effectively develop and manage associates, including providing training and
resources. Such tools and information can allow them to effectively perform critical business functions and
Cincinnati Financial Corporation - 2021 10-K - Page 40
adapt to changing business needs. Many markets in which we operate are experiencing a low unemployment rate
and labor shortages are affecting many industries. If we were unable to attract and retain certain associates, or if we
fail to provide adequate training or resources, we could limit the success of executing our strategic plans and vital
business functions.
The effects of changes in industry practices, laws and regulations on our business are uncertain.
As industry practices and legal, judicial, legislative, regulatory, political, social and other environmental conditions
change, unexpected and unintended issues related to insurance pricing, claims and coverage may emerge.
These issues may adversely affect our business by impeding our ability to obtain adequate rates for covered risks
or otherwise extending coverage beyond our underwriting intent, by increasing the number or size of claims, by
varying assumptions underlying our critical accounting estimates or by increasing duties owed to policyholders
beyond contractual obligations. In some instances, unforeseeable emerging and latent claim and coverage issues
and court decisions or legislative changes may not become apparent until sometime after we have issued the
insurance policies that could be affected by the changes. As a result, the full extent of liability under our insurance
contracts may not be known for many years after a policy is issued and our pricing and reserve estimates may not
accurately reflect its effect.
We are required to adopt new or revised accounting standards issued by recognized authoritative organizations,
including the Financial Accounting Standards Board (FASB) and the SEC. Future changes required to be adopted
could change the current accounting treatment that we apply and could result in material adverse effects on our
results of operations, financial position or cash flows.
Our investment income benefits from tax rate preferences for municipal bond interest and dividend income from
equity securities. Market valuations for these securities also benefit from the tax-preference aspect of current tax
laws, affecting the value of our investment portfolio and also shareholders’ equity. Future changes in tax laws could
result in material adverse effects on our results of operations and financial condition.
The NAIC, state insurance regulators and state legislators continually re-examine existing laws and regulations
governing insurance companies and insurance holding companies, specifically focusing on modifications to
statutory accounting principles, interpretations of existing laws, regulations relating to product forms and pricing
methodologies and the development of new laws and regulations that affect a variety of financial and nonfinancial
components of our business. Any proposed or future legislation, regulation or NAIC initiatives, if adopted, may be
more restrictive on our ability to conduct business than current regulatory requirements or may result in
higher costs. The loss or significant restriction on the use of a particular variable, such as credit, in pricing and
underwriting our products could lead to future unprofitability and increased costs.
Federal laws and regulations and the influence of international laws and regulations, including those that may be
enacted in the wake of the financial and credit crises, may have adverse effects on our business, potentially
including a change from a state-based system of regulation to a system of federal regulation, the repeal of the
McCarran Ferguson Act, and/or measures under the Dodd-Frank Act that establish the Federal Insurance Office
and provide for a determination that a nonbank financial company presents systemic risk and therefore should be
subject to heightened supervision by the Federal Reserve Board. It is not known how this federal office will
coordinate and interact with the NAIC and state insurance regulators. Adoption or implementation of any of these
measures may restrict our ability to conduct our insurance business, govern our corporate affairs or increase our
cost of doing business.
The effects of such changes could adversely affect our results of operations. Please see Item 7, Critical Accounting
Estimates, Property Casualty Insurance Loss and Loss Expense Reserves and Life Insurance Policy Reserves, for
a discussion of our reserving practices.
Managing technology initiatives and meeting data security requirements are significant challenges.
We use technology to process, store, retrieve, evaluate and utilize customer and company data and information.
Our information technology and telecommunications systems, in turn, interface with and rely upon third-party
systems. We must be able to access our systems to provide insurance quotes, process premium payments, make
changes to existing policies, file and pay claims, provide customer support, manage our investment portfolios, report
on financial results and perform other necessary business functions. Systems failures or outages could compromise
our ability to perform these business functions in a timely manner, which could harm our ability to conduct business
and hurt our relationships with our business partners and customers. In the event of a disaster such as a natural
Cincinnati Financial Corporation - 2021 10-K - Page 41
catastrophe, a pandemic, civil unrest, an industrial accident, a cyber-attack, a blackout, a terrorist attack (including
conventional, nuclear, biological, chemical or radiological) or war, systems upon which we rely may be inaccessible
to our employees or independent agents for an extended period of time. Even if our employees and independent
agents are able to report to work, they may be unable to perform their duties for an extended period of time if our
data or systems used to conduct our business are disabled or destroyed. While technology can streamline many
business processes and ultimately reduce the costs of operations, technology initiatives present short-term cost and
also have implementation and operational risks. In addition, we may have inaccurate expense projections,
implementation schedules or expectations regarding the effectiveness and user acceptance of the end product.
These issues could escalate over time. If we were unable to find and retain associates with key technical
knowledge, our ability to develop and deploy key technology solutions could be hampered.
We necessarily collect, use and hold data concerning individuals and businesses with whom we have a relationship.
Threats to data security, including unauthorized access and cyberattacks, rapidly emerge and change, exposing us
to additional costs for protection or remediation and competing time constraints to secure our data in accordance
with customer expectations and statutory and regulatory requirements.
Our systems have been, and will likely continue to be, subject to viruses or other malicious codes, unauthorized
access, cyber attacks, cyber frauds or other computer related penetrations. While we take commercially reasonable
measures to keep our systems and data secure, it is difficult or impossible to defend against every risk being posed
by changing technologies as well as criminal and state-sponsored cybercrime and cyber threats. While we are not
aware of having experienced a material breach of our cybersecurity systems, administrative, internal accounting
and technical controls as well as other preventative actions may be insufficient to prevent security breaches to our
systems or those of third parties with whom we do business. Increasing sophistication of cyber criminals and
terrorists make keeping up with new threats difficult and could result in a breach. Patching and other measures to
protect existing systems and servers could be inadequate, especially on systems that are being retired. Controls
employed by our U.S., off-shore and cloud vendors could prove inadequate. We could also experience a breach by
intentional or negligent conduct on the part of associates or other internal sources. Our systems and those of our
third-party vendors may become vulnerable to damage or disruption due to circumstances beyond our or their
control, such as from catastrophic events, power anomalies or outages, natural disasters, network failures, and
viruses, ransomware and malware.
A breach of our security or the security of a vendor that results in unauthorized access to our data could expose us
to a disruption or challenges relating to our daily operations as well as to data loss, litigation, damages, fines and
penalties, significant increases in compliance costs and reputational damage.
Cincinnati Financial Corporation - 2021 10-K - Page 42
ITEM 1B.
Unresolved Staff Comments
None
ITEM 2.
Properties
Cincinnati Financial Corporation owns our headquarters building located on 107 acres of land in Fairfield, Ohio.
This building has 1,508,200 square feet of total space. The property, including land is recorded in our financial
statements at $131 million at December 31, 2021, and is classified as Land, building and equipment, net, for
company use. John J. & Thomas R. Schiff & Co. Inc., a related party, occupies 8,991 square feet (less than 1%).
This property is used for the operations described in the Consolidated Financial Statements and accompanying
Notes.
Cincinnati Financial Corporation owns Gilmore Pointe, located on the northwest corner of our headquarters
property. This four-story building contains approximately 103,000 square feet of usable space. The property is
recorded in the financial statements at $4 million at December 31, 2021, and is classified as investment property in
Other invested assets. At December 31, 2021, unaffiliated tenants occupied 86%, Cincinnati Financial affiliates
occupied 14%.
The Cincinnati Insurance Company owns the CFC Winton Center used for multiple operations with approximately
48,000 square feet of total space, located approximately six miles from our headquarters. The property, including
land, is recorded in our financial statements at $8 million at December 31, 2021, and is classified as Land, building
and equipment, net, for company use.
We lease office space located in London, United Kingdom, for our Cincinnati Global operations. We also lease office
space throughout the United States to support our insurance operations.
ITEM 3.
Legal Proceedings
Neither the company nor any of our subsidiaries are involved in any litigation believed to be material other than
ordinary, routine litigation incidental to the nature of our business.
ITEM 4.
Mine Safety Disclosures
This item is not applicable to the company.
Cincinnati Financial Corporation - 2021 10-K - Page 43
Part II
ITEM 5.
Market for the Registrant’s Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities
Cincinnati Financial Corporation had approximately 243,000 shareholders of record as of December 31, 2021.
While approximately 13,500 shareholders are registered, the majority of shareholders are beneficial owners
whose shares are held in “street name” by brokers and institutional accounts. We believe many of our independent
agent representatives and most of the 5,166 associates of our subsidiaries own the company’s common stock.
Our common shares are traded under the symbol CINF on Nasdaq.
Cumulative Total Return
As depicted in the graph below, the five-year total return on a $100 investment made December 31, 2016, assuming
the reinvestment of all dividends, was 72.8% for Cincinnati Financial Corporation’s common stock compared with
82.3% for the S&P Composite 1500 Property & Casualty Insurance Index and 133.4% for the S&P 500 Index.
The following graph depicts $100 invested on December 31, 2016, in stock or index, including reinvestment of
dividends. The years shown represent each respective fiscal year ending December 31.
Comparison of Five-Year Cumulative Total Return
The S&P 500 Index includes a representative sample of 500 leading companies in a cross section of industries of
the U.S. economy. At year-end 2021, the S&P Composite 1500 Property & Casualty Insurance Index included
28 companies.
Cincinnati Financial Corporation - 2021 10-K - Page 44
Issuances and Purchases of Equity Securities
The following summarizes securities authorized for issuance under our equity compensation plans as of
December 31, 2021:
Plan category
Equity compensation plans
approved by security holders
Equity compensation plans not
approved by security holders
Total
Number of securities to be
issued upon exercise of
outstanding options,
warrants and rights at
December 31, 2021
Weighted-average exercise
price of outstanding
options, warrants and rights
Number of securities remaining
available for future issuance under
equity compensation plan (excluding
securities reflected in column (a)) at
December 31, 2021
(a)
(b)
(c)
3,552,336 $
—
3,552,336 $
78.52
—
78.52
5,867,608
—
5,867,608
The number of securities remaining available for future issuance includes: 5,538,245 shares available for issuance
under the Cincinnati Financial Corporation 2016 Stock Compensation Plan (the 2016 Plan), 74,411 shares available
for issuance under the Cincinnati Financial Corporation 2012 Stock Compensation Plan (the 2012 Plan),
and 254,952 shares available for issuance of share grants under the Director’s Stock Plan of 2018. The number
of securities remaining available for future issuance assumes the number of securities to be issued from
performance-based awards are issued at the target-level performance level. Both the 2016 Plan and 2012 Plan
allow for issuance of stock options, service-based or performance-based restricted stock units, stock appreciation
rights or other equity-based grants. Awards other than stock options granted from the 2016 and 2012 plans are
counted as three shares against the plan for each one share of common stock actually issued. Additional
information about share-based associate compensation granted under our equity compensation plans is available in
Item 8, Note 17 of the Consolidated Financial Statements.
We discuss the factors that affect our ability to pay cash dividends and repurchase shares in Item 7, Liquidity and
Capital Resources. Regulatory restrictions on dividends our insurance subsidiaries can pay to the parent company
are discussed in Item 8, Note 9 of the Consolidated Financial Statements.
The following summarizes shares purchased under our repurchase programs:
Period
October 1-31, 2021
November 1-30, 2021
December 1-31, 2021
Totals
Total number
of shares
purchased
Average
price paid
per share
Total number of shares
purchased as part of
publicly announced
plans or programs
Maximum number of
shares that may yet be
purchased under the
plans or programs
—
715,913 $
150,000
865,913
—
120.27
116.21
119.56
—
715,913
150,000
865,913
11,942,698
11,226,785
11,076,785
We did not sell any of our shares that were not registered under the Securities Act during 2021. Our repurchase
program does not have an expiration date. Our repurchase program was expanded on January 26, 2018, by
15 million shares. We have 11,076,785 shares available for purchase under our programs at December 31, 2021.
During 2021, we repurchased 1,250,000 shares at an average price of $115.19.
ITEM 6.
[Reserved]
Cincinnati Financial Corporation - 2021 10-K - Page 45
ITEM 7.
Results of Operations
Management's Discussion and Analysis of Financial Condition and
Introduction
The purpose of Management’s Discussion and Analysis is to provide an understanding of Cincinnati Financial
Corporation’s consolidated results of operations and financial condition. Our Management’s Discussion and Analysis
should be read in conjunction with Item 8, Consolidated Financial Statements and related Notes. We present per
share data on a diluted basis unless otherwise noted, adjusting those amounts for all stock splits and
stock dividends.
We begin with an executive summary of our results of operations, followed by other highlights and details about
critical accounting estimates. In several instances, we refer to estimated industry data so that we can provide
information on our performance within the context of the overall insurance industry. Unless otherwise noted, the
industry data is prepared by A.M. Best, a leading insurance industry statistical, analytical and financial strength
rating organization. Information from A.M. Best is presented on a statutory accounting basis for insurance company
regulation in the United States of America. When we provide our results on a comparable statutory accounting
basis, we label it as such; all other company data is presented in accordance with accounting principles generally
accepted in the United States of America (GAAP).
Through The Cincinnati Insurance Company, Cincinnati Financial Corporation is one of the 25 largest property
casualty insurers in the nation, based on net written premium volume for the first nine months of 2021, among
approximately 2,000 U.S. stock and mutual insurer groups. We market our insurance products through a select
group of independent insurance agencies in 46 states as discussed in Item 1, Our Business and Our Strategy.
The U.S. economy, the insurance industry and our company continue to face many challenges. Our long-term
perspective has allowed us to address immediate challenges while also focusing on the major decisions that best
position the company for success through all market cycles. We believe that this forward-looking view consistently
benefits our shareholders, agents, policyholders and associates.
To measure our progress, we have defined a measure of value creation that we believe captures the contribution
of our insurance operations, the success of our investment strategy and the importance we place on paying cash
dividends to shareholders. We refer to this measure as our value creation ratio (VCR) and it is made up of
two primary components: (1) our rate of growth in book value per share plus (2) the ratio of dividends declared
per share to beginning book value per share. This measure, intended to be all-inclusive regarding changes in
book value per share, uses originally reported book value per share in cases where book value per share has
been adjusted, such as after the adoption of Accounting Standards Updates with a cumulative effect of a change
in accounting.
The primary sources of our company’s net income are summarized below. We discuss contributions to net income
and VCR by source in Corporate Financial Highlights, followed by more detailed discussion in Financial Results.
•
•
•
Underwriting profit (loss) – Includes revenues from earned premiums for insurance and reinsurance policies
or contracts, reduced by losses and loss expenses from associated insurance coverages. Those revenues are
further reduced by underwriting expenses associated with marketing policies or related to administration of
our insurance operation. The net result represents an underwriting profit when revenues exceed losses
and expenses.
Investment income – Is generated primarily from investing the premiums collected for insurance policies sold, until
funds are needed to pay losses for insurance claims or other expenses. Interest income from bonds or dividend
income from stocks are the main categories of our investment income, with additional contribution from
compounding effects over time.
Investment gains and losses – Occur from appreciation or depreciation of invested assets over time. Gains or
losses are generally recognized from changes in market values of equity securities without a sale or when
invested assets are sold or become impaired.
Cincinnati Financial Corporation - 2021 10-K - Page 46
Executive Summary
Our value creation ratio, defined above, is our primary performance target. VCR trends are shown in the
table below.
Value creation ratio:
As of December 31, 2021
As of December 31, 2020
As of December 31, 2019
One
year
Three-year
% average
Five-year
% average
25.7 %
14.7
30.5
23.6 %
15.0
17.8
18.7 %
16.5
14.2
We are targeting an annual value creation ratio averaging 10% to 13% over the next five-year period. At 25.7%
for 2021, our performance exceeded the high end of that range. We also exceeded the high end of the range for
both the three-year and five-year periods that ended in December 2021.
The table below shows the primary components of our value creation ratio on a percentage basis. Analysis of the
components aids understanding of our financial performance. Our financial results are further analyzed in the
Corporate Financial Highlights section below.
Years ended December 31,
2019
2020
2021
2021-2020
Pt. Change
2020-2019
Pt. Change
Value creation ratio major components:
Net income before investment gains
Change in fixed-maturity securities, realized and unrealized gains
Change in equity securities, investment gains
Other
Value creation ratio
9.7 % 5.5 % 8.9 %
3.0
(1.5)
7.5
16.8
0.7
(1.3)
25.7 % 14.7 % 30.5 %
5.5
16.6
(0.5)
4.2
(4.5)
9.3
2.0
11.0
(3.4)
(2.5)
(9.1)
(0.8)
(15.8)
The 2021 value creation ratio increased by 11.0 percentage points, compared with 2020, including improved
operating results and a higher valuation for our investment portfolio, as shown in the table above. The decrease in
2020, compared with 2019, was primarily due to a less favorable valuation for our investment portfolio.
We believe our value creation ratio is a useful measure. The table below shows calculations for VCR.
(Dollars are per share)
Value creation ratio:
End of period book value*
Less beginning of period book value
Change in book value
Dividend declared to shareholders
Total value creation
Years ended December 31,
2021
2020
2019
$
81.72
$
67.04
$
60.55
67.04
14.68
2.52
$
17.20
$
60.55
6.49
2.40
8.89
48.10
12.45
2.24
$
14.69
Value creation ratio from change in book value**
Value creation ratio from dividends declared to shareholders***
Value creation ratio
21.9 %
3.8
25.7 %
10.7 %
4.0
14.7 %
25.9 %
4.6
30.5 %
* Book value per share is calculated by dividing end of period total shareholders' equity by end of period shares outstanding
** Change in book value divided by the beginning of year book value
*** Dividend declared to shareholders divided by beginning of year book value
Cincinnati Financial Corporation - 2021 10-K - Page 47
When looking at our longer-term objectives, we see three primary performance drivers for our value creation ratio:
•
•
•
Premium growth – We believe over any five-year period our agency relationships and initiatives can lead to a
property casualty written premium growth rate that exceeds the industry average. The compound annual growth
rate of our net written premiums was 7.2% over the five-year period 2017 through 2021, exceeding the 5.8%
estimated growth rate for the property casualty insurance industry, with 2021 representing industry data reported
through the first nine months of 2021. The industry’s growth rate excludes its mortgage and financial guaranty
lines of business.
Combined ratio – We believe our underwriting philosophy and initiatives can drive performance to achieve
our underwriting profitability target of a GAAP combined ratio over any five-year period that consistently
averages within the range of 95% to 100%. Our GAAP combined ratio averaged 94.8% over the five-year period
2017 through 2021, slightly better than the performance target range. Performance as measured by the combined
ratio is discussed in Consolidated Property Casualty Insurance Results. Our statutory combined ratio averaged
94.2% over the five-year period 2017 through 2021, compared with an estimated 100.3% for the property casualty
industry, with 2021 representing industry data reported through the first nine months of 2021. 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 total return of the S&P 500 Index.
◦
Investment income growth, on a pretax basis, had a compound annual growth rate of 3.7% over the five-
year period 2017 through 2021.
◦ Over the five years ended December 31, 2021, our equity portfolio compound annual total return was
18.0% compared with a compound annual total return of 18.5% for the Index. Our equity portfolio favors
larger-capitalization, high-quality, dividend-growing stocks with a slight value orientation. For the year
2021, our equity portfolio total return was 29.6%, compared with 28.7% for the Index.
The board of directors is committed to rewarding shareholders directly through cash dividends and share
repurchase authorizations. Through 2021, the company has increased the annual cash dividend rate for
61 consecutive years, a record we believe is matched by only seven other publicly traded U.S. companies.
In addition to regular dividends, strong capital and excellent company performance has provided opportunities to
further reward shareholders. The board regularly evaluates relevant factors in dividend-related decisions, and the
2021 increase to the regular dividend reflected confidence in our strong capital, liquidity and financial flexibility, as
well as progress of our initiatives to improve earnings performance while growing insurance premium revenues. We
discuss our financial position in more detail in Liquidity and Capital Resources.
Our view of the shareholder value we can create over the next five years relies largely on three assumptions –
each highly dependent on the external environment. First, we anticipate our property casualty average insurance
prices will increase in proportion to, or in excess of, our loss cost trends. Second, we assume that the economy can
maintain a long-term growth track. Third, we assume that valuations of our marketable securities will vary within a
typical range over time, based on historical trends. If those assumptions prove to be inaccurate, we may not be able
to achieve our performance targets even if we accomplish our strategic objectives.
We discuss in Item 1A, Risk Factors, many potential risks to our business and our ability to achieve our qualitative
and quantitative objectives.
Cincinnati Financial Corporation - 2021 10-K - Page 48
Corporate Financial Highlights
In addition to the value creation ratio discussion and analysis in the Executive Summary, we further analyze our
financial results in the sections below.
Balance Sheet Data
(Dollars in millions, except share data)
Total investments
Total assets
Short-term debt
Long-term debt
Shareholders' equity
Book value per share
Debt-to-total-capital ratio
At December 31,
2021
At December 31,
2020
$
$
24,666
31,387
54
789
13,105
81.72
21,542
27,542
54
788
10,789
67.04
6.0 %
7.2 %
Total investments increased by 15% during 2021 on a fair value basis, with an increase in our securities portfolio
valuation that added to a 7% increase in its cost basis. Entering 2022, we believe the portfolio continues to be well
diversified and is well positioned to withstand short-term fluctuations. We discuss our investment strategy in Item 1,
Investments Segment, and results for the segment in Investments Results. Total assets rose 14%. Shareholders’
equity increased by 21% and book value per share increased by 22%, for reasons discussed in the preceding
Executive Summary.
The amount of our debt obligations increased by $1 million in 2021, compared with 2020. Our 6.0% ratio of debt to
total capital (debt plus shareholders’ equity) at year-end 2021 decreased by 1.2 percentage points compared with
the prior-year ratio.
Income Statement and Per Share Data
(In millions, except per share data)
Earned premiums
Investment income, net of expenses (pretax)
Investment gains and losses, net (pretax)
Total revenues
Net income
Comprehensive income
Net income per share - diluted
Cash dividends declared per share
Diluted weighted average shares outstanding
Years ended December 31,
2020
2021
2019
$
6,482 $
714
2,409
9,630
2,946
2,825
18.10
2.52
162.7
5,980 $
670
865
7,536
1,216
1,537
7.49
2.40
162.4
5,604
646
1,650
7,924
1,997
2,423
12.10
2.24
165.1
2021-2020
2020-2019
Change % Change %
7
8
4
7
(48)
178
(5)
28
(39)
142
(37)
84
(38)
142
7
5
(2)
0
Net income rose by $1.730 billion or 142% in 2021, compared with 2020, including a $1.220 billion increase
for 2021 net investment gains after taxes. The improved 2021 net income also included an increase in
property casualty underwriting income of $483 million after taxes, as discussed below, and a $37 million increase in
investment income after taxes. Our investment operation’s performance is discussed further in Investments Results.
Net income in 2020 decreased by $781 million, compared with 2019, including a $620 million decrease for 2020 net
investment gains after taxes. The decrease in 2020 net income also included a decrease in property casualty
underwriting income of $175 million after taxes and was partially offset by a $21 million increase in investment
income after taxes.
During 2021, SARS-CoV-2, also known as COVID-19 and recognized as a pandemic by the World Health
Organization, continued to cause dampening economic effects in some areas where we operate, while many areas
experienced strengthening economic effects due to increased business activity and consumer spending. In 2020, it
caused significant effects, including temporary closures of many businesses and reduced consumer spending due
Cincinnati Financial Corporation - 2021 10-K - Page 49
to shelter-in-place, stay-at-home and other governmental actions. Those orders and the uncertainty surrounding
COVID-19 had broad financial market effects and caused significant market disruption and volatility.
As the pandemic unfolded in 2020 and continued into 2021, management met with the board of directors frequently
to discuss matters such as our response to prioritize the health and safety of our associates, agents and
policyholders. Discussion also included near-term and longer-term financial effects. As stay-at-home orders were
enacted, we promptly and effectively transitioned most of our headquarters associates to working from home. We
provided the technology necessary to keep the business running, as associates continued writing and collecting
insurance premiums, responding to claims and performing other operational functions. They joined our field
associates who already worked from home, providing agents and policyholders with outstanding service. At the end
of 2021, most of our associates continued to work from home.
We believe the COVID-19 pandemic did not have a significant effect on our premium revenues for the last three
quarters of 2021, while it had a modestly slowing effect on premium growth for the first quarter of the year. In 2020,
the pandemic slowed the growth of our premium revenues, including new business written premiums. Premium
growth by segment is discussed below in Financial Results. For future periods, renewal premium or new business
premium amounts could decline if the basis for policy premiums, such as sales and payrolls of businesses we
insure, decrease as a result of the pandemic and a weakening economy. We are not able to determine premium
effects for future periods.
During 2021, changes to our estimates for incurred losses and expenses related to the pandemic included a
$2 million increase in Cincinnati Re® losses, a $1 million decrease in Cincinnati Global Underwriting Ltd.SM
(Cincinnati Global) losses and an $8 million decrease in ultimate credit losses related to uncollectible premiums.
For full-year 2020, pandemic-related incurred losses and expenses totaled $85 million. The total included
$30 million for legal expenses in defense of business interruption claims, $19 million for Cincinnati Re losses,
$12 million for Cincinnati Global losses, $8 million for credit losses related to uncollectible premiums and $16 million
for the Stay-at-Home policyholder credit for personal auto policies.
Factors used in estimating reserves for business interruption legal expenses included estimates for attorney fees
associated with the defense of such lawsuits filed against the company; litigation trends of such cases, including
responding to amended and replead cases and cases on appeal; and trends in judicial decisions in cases filed
against the company and other insurers.
Approximately half of the losses for Cincinnati Re represent its estimated share from reinsurance treaties with
companies that provided affirmative coverage for pandemic-related business interruption, and most of the
remainder is an estimated share of treaties covering professional liability. Most of the losses for Cincinnati Global
represent its share of potential losses from business interruption coverage for large risks with customized policy
terms and conditions.
Most of our commercial property policies are written to preclude coverage for business interruption claims unless
there is direct physical loss or damage to property. For this reason, most of our standard market commercial
property policies in states where we actively write business do not contain a specific virus exclusion.
Loss experience for our insurance operations is influenced by many factors, as discussed in Critical Accounting
Estimates, Property Casualty Insurance Loss and Loss Expense Reserves. Because of various factors that affect
exposure to certain insurance losses, such as less miles driven for vehicles or reduced sales and payrolls for
businesses, there could be a reduction in future losses, and in some cases a generally corresponding reduction in
premiums. Also, there could be losses or legal expenses that increase or otherwise occur independently of changes
in sales or payrolls of businesses we insure, due to pandemic effects or other factors. We are not able to determine
loss effects for future periods.
As discussed in Investments Results, we reported a net investment gain in 2021, primarily due to a $2.278 billion
net favorable change in fair value for equity securities still held. In both 2020 and 2019, we reported net investment
gains, including $841 million in 2020 and $1.626 billion in 2019 from net favorable changes in fair value for equity
securities still held.
Cincinnati Financial Corporation - 2021 10-K - Page 50
Contribution from Insurance Operations
(Dollars in millions)
Consolidated property casualty data:
Net written premiums
Earned premiums
Underwriting profit
GAAP combined ratio
Statutory combined ratio
Written premium to statutory surplus
Years ended December 31,
2019
2020
2021
2021-2020
2020-2019
Change % Change %
$ 6,479
6,184
731
$ 5,864
5,691
119
$ 5,516
5,334
341
10
9
514
6
7
(65)
Pt. Change
88.3 % 98.1 %
87.9
0.9
96.7
1.0
93.8 %
93.4
1.0
(9.8)
(8.8)
(0.1)
Pt. Change
4.3
3.3
0.0
Property casualty net written premiums grew 10% and earned premiums grew 9% in 2021. The growth reflected
average renewal price increases, premium growth initiatives and a higher level of insured exposures, including a
contribution to net written premium growth of 3 percentage points from Cincinnati Re. The 2020 growth rate for net
written premiums was slower, reflecting the pandemic and related economic effects. Trends and related factors are
discussed in Commercial Lines, Personal Lines and Excess and Surplus Lines Insurance Results, respectively.
Our property casualty insurance operations generated an underwriting profit for each of the three years ending in
2021. The $612 million improvement in 2021, compared with 2020, included a $195 million decrease in losses from
natural catastrophe events and $265 million more benefit from net favorable reserve development on prior accident
years before catastrophe losses. The $222 million decrease in 2020, compared with 2019, included a $370 million
increase in losses from catastrophe events and $121 million less benefit from net favorable reserve development on
prior accident years before catastrophe losses.
We measure property casualty underwriting profitability primarily by the combined ratio. Our combined ratio
measures the percentage of each earned premium dollar spent on claims plus all expenses related to our property
casualty operations, all on a pretax basis. A lower ratio indicates more favorable results and better underlying
performance. A ratio below 100% represents an underwriting profit. Initiatives to improve our combined ratio are
discussed in Item 1, Our Business and Our Strategy, Strategic Initiatives. In 2021, 2020 and 2019, favorable
development on reserves for claims that occurred in prior accident years helped offset other incurred losses and
loss expenses. Reserve development is discussed further in Property Casualty Loss and Loss Expense
Obligations and Reserves. Losses from weather-related catastrophes are another important item influencing
the combined ratio and are discussed along with other factors in Financial Results for our property casualty
business and related segments.
Our life insurance segment reported a loss of $16 million in 2021 and profit of $11 million in 2020. We discuss
results for the segment in Life Insurance Results. Most of this segment’s investment income is included in our
investments segment results. In addition to investment income, investment gains from the life insurance investment
portfolio are also included in our investments segment results.
Cincinnati Financial Corporation - 2021 10-K - Page 51
Critical Accounting Estimates
Cincinnati Financial Corporation’s financial statements are prepared using U.S. GAAP. These principles require
management to make estimates and assumptions that affect the amounts reported in the Consolidated Financial
Statements and accompanying Notes. Actual results could differ materially from those estimates.
The significant accounting policies used in the preparation of the financial statements are discussed in Item 8,
Note 1 of the Consolidated Financial Statements. In conjunction with that discussion, material implications of
uncertainties associated with the methods, assumptions and estimates underlying the company’s critical accounting
policies are discussed below. The audit committee of the board of directors reviews the annual financial statements
with management and the independent registered public accounting firm. These discussions cover the quality of
earnings, review of reserves and accruals, reconsideration of the suitability of accounting principles, review of highly
judgmental areas including critical accounting estimates, audit adjustments and such other inquiries as may
be appropriate.
Property Casualty Insurance Loss and Loss Expense Reserves
We establish loss and loss expense reserves for our property casualty insurance business as balance sheet
liabilities. Unpaid loss and loss expenses are the estimated amounts necessary to pay for and settle all outstanding
insured claims, including incurred but not reported (IBNR) claims. These reserves account for unpaid loss and loss
expenses as of a financial statement date.
For some lines of business that we write, a considerable and uncertain amount of time can elapse between the
occurrence, reporting and payment of insured claims. The amount we will actually have to pay for such claims also
can be highly uncertain. This uncertainty, together with the size of our reserves, makes the loss and loss expense
reserves our most significant estimate. Gross loss and loss expense reserves were $7.229 billion at year-end 2021
compared with $6.677 billion at year-end 2020.
How Reserves Are Established
Our field claims representatives establish case reserves when claims are reported to the company to provide for
our unpaid loss and loss expense obligation associated with known claims. Field claims managers supervise
and review all claims with case reserves less than $100,000. Additionally, a headquarters supervisor and
regional claims manager review claims under $100,000 if litigation or a certain specialty claim is involved. All claims
with case reserves of $100,000 or greater are reviewed and approved by experienced headquarters supervisors
and regional claims managers. Upper-level headquarters claims managers also review case reserves of
$175,000 or more.
Our claims representatives base their case reserve estimates primarily upon case-by-case evaluations
that consider:
•
•
•
•
•
type of claim involved
circumstances surrounding each claim
policy provisions pertaining to each claim
potential for subrogation or salvage recoverable
general insurance reserving practices
Case reserves of all sizes are subject to review on a 90-day cycle, or more frequently if new information about a
loss becomes available. As part of the review process, we monitor industry trends, cost trends, relevant court cases,
legislative activity and other current events in an effort to ascertain new or additional loss exposures.
Cincinnati Financial Corporation - 2021 10-K - Page 52
We also establish IBNR reserves to provide for all unpaid loss and loss expenses not accounted for by
case reserves:
•
•
•
•
•
For events designated as natural catastrophes resulting in losses incurred related to premiums written on a direct
basis by The Cincinnati Insurance Companies, we calculate IBNR reserves directly as a result of an estimated
IBNR claim count and an estimated average claim amount for each event. Once case reserves are established for
a catastrophe event, we reduce the IBNR reserves. Our claims department management coordinates the
assessment of these events and prepares the related IBNR reserve estimates. Such an assessment involves a
comprehensive analysis of the nature of the event, of policyholder exposures within the affected geographic
area and of available claims intelligence. Depending on the nature of the event, available claims intelligence could
include surveys of field claims associates within the affected geographic area, feedback from a catastrophe claims
team sent into the area, as well as data on claims reported as of the financial statement date.
To determine whether an event is designated as a catastrophe, related to premiums written on a direct basis by
The Cincinnati Insurance Companies, we generally use the catastrophe definition provided by Property Claims
Service (PCS), a division of Insurance Services Office. PCS defines a catastrophe as an event that causes U.S.,
Puerto Rico and U.S. Virgin Islands damage of $25 million or more in insured property losses and affects a
significant number of policyholders and insureds.
For events designated as natural catastrophes resulting in losses for Cincinnati Re and Cincinnati Global, we
begin with a review of in-force policies, treaties and related limits likely to be affected by each event. For both
Cincinnati Re and Cincinnati Global, use of information from third-party catastrophe models, industry estimates,
and our own proprietary adjustments are used for the estimate of ultimate losses for each catastrophe event.
Incurred losses from catastrophe events for both Cincinnati Re and Cincinnati Global can be designated
catastrophes by PCS, or deemed as a catastrophe by the international insurance industry or, for Cincinnati Re, as
reported by ceding companies. IBNR reserves are calculated as the difference between the estimate of the
ultimate loss and loss expenses and the sum of total loss and loss expense payments and total case reserves.
For asbestos and environmental claims, we calculate IBNR reserves by deriving an actuarially-based estimate of
total unpaid loss and loss expenses. We then reduce the estimate by total case reserves. We discuss the reserve
analysis that applies to asbestos and environmental reserves in Liquidity and Capital Resources, Asbestos and
Environmental Loss and Loss Expense Reserves.
For loss expenses that pertain primarily to salaries and other costs related to our claims department associates,
also referred to as adjusting and other expense or AOE, we calculate reserves based on an analysis of the
relationship between paid losses and paid AOE. Reserves for AOE are allocated to company, line of business and
accident year based on a claim count algorithm. Claim counts reported and used in the reserving process are
primarily measured by insurance coverages that are triggered when a loss occurs and a reserve is
established. Coverages are defined as unique combinations of certain attributes such as line of business and
cause of loss. Claims that are opened and closed without payment are included in the reported claim counts.
Claim counts are presented on a direct basis only and do not reflect any assumed or ceded reinsurance.
For all other claims and events, including reinsurance assumed or ceded, IBNR reserves are calculated as the
difference between an actuarial estimate of the ultimate cost of total loss and loss expenses incurred reduced
by the sum of total loss and loss expense payments and total case reserves estimated for individual claims.
Reserve amounts for those other claims and events are significant, and represent the majority of amounts shown
as IBNR reserves and loss expense reserves in the table included in Liquidity and Capital Resources, Property
Casualty Loss and Loss Expense Obligations and Reserves. We discuss below the development of actuarially
based estimates of the ultimate cost of total loss and loss expenses incurred.
Our actuarial staff applies significant judgment in selecting models and estimating model parameters when
preparing reserve analyses. Unpaid loss and loss expenses are inherently uncertain as to timing and amount.
Uncertainties relating to model appropriateness, parameter estimates and actual loss and loss expense amounts
are referred to as model, parameter and process uncertainty, respectively. Our management and actuarial staff
address these uncertainties in the reserving process in a variety of ways.
Cincinnati Financial Corporation - 2021 10-K - Page 53
Our actuarial staff bases its IBNR reserve estimates for these losses primarily on the indications of methods and
models that analyze accident year data. Accident year is the year in which an insured claim, loss or loss expense
occurred. The specific methods and models that our actuaries have used for the past several years are:
paid and reported loss development methods
paid and reported loss Bornhuetter-Ferguson methods
individual and multiple probabilistic trend family models
Our actuarial staff uses diagnostics provided by stochastic reserving software to evaluate the appropriateness of the
models and methods listed above. The software’s diagnostics have indicated that the appropriateness of these
models and methods for estimating IBNR reserves for our lines of business tends to depend on a line’s tail.
Tail refers to the time interval between a typical claim’s occurrence and its settlement. For our long-tail lines such as
workers’ compensation, commercial casualty and certain other liability lines, models from the probabilistic trend
family tend to provide superior fits and to validate well, compared with models underlying the loss development and
Bornhuetter-Ferguson methods. The loss development and Bornhuetter-Ferguson methods, particularly the
reported loss variations, tend to produce the more appropriate IBNR reserve estimates for our short-tail lines such
as homeowner and commercial property. For our mid-tail lines such as personal and commercial auto liability, all
models and methods provide useful insights.
Our actuarial staff also devotes significant time and effort to the estimation of model and method parameters.
The loss development and Bornhuetter-Ferguson methods require the estimation of numerous loss development
factors. The Bornhuetter-Ferguson methods also involve the estimation of numerous expected loss ratios by
accident year. Models from the probabilistic trend family require the estimation of development trends, calendar year
inflation trends and exposure levels. Consequently, our actuarial staff monitors a number of trends and measures to
gain key business insights necessary for exercising appropriate judgment when estimating the parameters
mentioned, such as:
company and industry pricing
company and industry exposure
company and industry loss frequency and severity
past large loss events
company and industry premium
company in-force policy count
These trends and measures also support the estimation of expected accident year loss ratios needed for applying
the Bornhuetter-Ferguson methods and for assessing the reasonability of all IBNR reserve estimates computed.
Our actuarial staff reviews these trends and measures quarterly, updating parameters derived from them
as necessary.
Quarterly, our actuarial staff summarizes their reserve analysis by preparing an actuarial best estimate and a range
of reasonable IBNR reserves intended to reflect the uncertainty of the estimate. An inter-departmental committee
that includes our actuarial management team reviews the results of each quarterly reserve analysis. The committee
establishes management’s best estimate of IBNR reserves, which is the amount that is included in each period’s
financial statements. In addition to the information provided by actuarial staff, the committee also considers factors
such as:
large loss activity and trends in large losses
new business activity
judicial decisions
general economic trends such as inflation
trends in litigiousness and legal expenses
product and underwriting changes
changes in claims practices
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
Cincinnati Financial Corporation - 2021 10-K - Page 54
The determination of management’s best estimate, like the preparation of the reserve analysis that supports it,
involves considerable judgment. Changes in reserving data or the trends and factors that influence reserving data
may signal fundamental shifts or may simply reflect single-period anomalies. Even if a change reflects a
fundamental shift, the full extent of the change may not become evident until years later. Moreover, since our
methods and models do not explicitly relate many of the factors we consider directly to reserve levels, we typically
cannot quantify the precise impact of such factors on the adequacy of reserves prospectively or retrospectively.
Due to the uncertainties described above, our ultimate loss experience could prove better or worse than our carried
reserves reflect. To the extent that reserves are inadequate and increased, the amount of the increase is a charge in
the period that the deficiency is recognized, raising our loss and loss expense ratio and reducing earnings. To the
extent that reserves are redundant and released, the amount of the release is a credit in the period that the
redundancy is recognized, reducing our loss and loss expense ratio and increasing earnings.
Key Assumptions – Loss Reserving
Our actuarial staff makes a number of key assumptions when using their methods and models to derive IBNR
reserve estimates. Appropriate reliance on these key assumptions essentially entails determinations of the
likelihood that statistically significant patterns in historical data may extend into the future. The four most significant
of the key assumptions used by our actuarial staff and approved by management are:
•
•
•
•
Emergence of loss and defense and cost containment expenses, also referred to as DCCE, on an accident year
basis. Historical paid loss, reported loss and paid DCCE data for the business lines we analyze contain
patterns that reflect how unpaid losses, unreported losses and unpaid DCCE as of a financial statement date will
emerge in the future. Unless our actuarial staff or management identifies reasons or factors that invalidate the
extension of historical patterns into the future, these patterns can be used to make projections necessary for
estimating IBNR reserves. Our actuaries significantly rely on this assumption in the application of all methods and
models mentioned above.
Calendar year inflation. For long-tail and mid-tail business lines, calendar year inflation trends for future paid
losses and paid DCCE do not vary significantly from a stable, long-term average. Our actuaries base reserve
estimates derived from probabilistic trend family models on this assumption.
Exposure levels. Historical earned premiums, when adjusted to reflect common levels of product pricing and
loss cost inflation, can serve as a proxy for historical exposures. Our actuaries require this assumption to estimate
expected loss ratios and expected DCCE ratios used by the Bornhuetter-Ferguson reserving methods. They may
also use this assumption to establish exposure levels for recent accident years, characterized by “green” or
immature data, when working with probabilistic trend family models.
Claims having atypical emergence patterns. Characteristics of certain subsets of claims, such as high frequency,
high severity, or mass tort claims, have the potential to distort patterns contained in historical paid loss, reported
loss and paid DCCE data. When testing indicates this to be the case for a particular subset of claims, our
actuaries segregate these claims from the data and analyze them separately. Subsets of claims that could fall into
this category include hurricane claims or claims for other weather events where total losses we incurred were very
large, individual large claims and asbestos and environmental claims.
These key assumptions have not changed since 2005, when our actuarial staff began using probabilistic trend
family models to estimate IBNR reserves.
Paid losses, reported losses and paid DCCE are subject to random as well as systematic influences. As a result,
actual paid losses, reported losses and paid DCCE are virtually certain to differ from projections. Such differences
are consistent with what specific models for our business lines predict and with the related patterns in the historical
data used to develop these models. As a result, management does not closely monitor statistically insignificant
differences between actual and projected data.
Cincinnati Financial Corporation - 2021 10-K - Page 55
Reserve Estimate Variability
Management believes that the standard error of a reserve estimate, a measure of the estimate’s variability, provides
the most appropriate measure of the estimate’s sensitivity. The reserves we establish depend on the models we use
and the related parameters we estimate in the course of conducting reserve analyses. However, the actual amount
required to settle all outstanding insured claims, including IBNR claims, as of a financial statement date depends on
stochastic, or random, elements as well as the systematic elements captured by our models and estimated model
parameters. For the lines of business we write, process uncertainty – the inherent variability of loss and loss
expense payments – typically contributes more to the imprecision of a reserve estimate than parameter uncertainty.
Consequently, a sensitivity measure that ignores process uncertainty would provide an incomplete picture of the
reserve estimate’s sensitivity. Since a reserve estimate’s standard error accounts for both process and parameter
uncertainty, it reflects the estimate’s full sensitivity to a range of reasonably likely scenarios.
The table below provides standard errors and reserve ranges by major property casualty lines of business and in
total for net loss and loss expense reserves as well as the potential effects on our net income, assuming a 21%
federal tax rate. Standard errors and reserve ranges for assorted groupings of these lines of business cannot be
computed by simply adding the standard errors and reserve ranges of the component lines of business, since such
an approach would ignore the effects of product diversification. See Liquidity and Capital Resources, Property
Casualty Loss and Loss Expense Obligations and Reserves, Range of Reasonable Reserves, for more details on
our total reserve range. While the table reflects our assessment of the most likely range within which each line’s
actual unpaid loss and loss expenses may fall, one or more lines’ actual unpaid loss and loss expenses could
nonetheless fall outside of the indicated ranges.
(Dollars in millions)
Net loss and loss expense range of reserves
Carried
reserves
Low
point
High
point
Standard
error
Net income
effect
At December 31, 2021
Total
Commercial casualty
Commercial property
Commercial auto
Workers' compensation
Personal auto
Homeowners
Excess and surplus
$ 6,902 $ 6,446 $ 7,014 $
284 $
$ 2,464 $ 2,222 $ 2,655 $
314
708
815
272
282
521
456
759
965
292
299
562
527
798
989
313
316
603
217 $
107
45
87
21
17
43
224
171
85
36
69
17
13
34
Cincinnati Financial Corporation - 2021 10-K - Page 56
Life Policy and Investment Contract Reserves
We establish the reserves for traditional life insurance policies based on expected expenses, mortality, morbidity,
withdrawal rates and investment yields, including a provision for uncertainty. Once these assumptions are
established, they generally are maintained throughout the lives of the contracts. We use both our own experience
and industry experience adjusted for historical trends in arriving at our assumptions for expected mortality and
morbidity. We use our own experience and historical trends for setting our assumptions for expected withdrawal
rates and expenses. We base our assumptions for expected investment income on our own experience adjusted for
current and future expected economic conditions.
We establish reserves for our universal life, deferred annuity and investment contracts equal to the cumulative
account balances, which include premium deposits plus credited interest less charges and withdrawals. Some of
our universal life insurance 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.
Asset Impairment
Our investment portfolio is our largest asset. We monitor the fixed-maturity portfolio and all other assets for signs of
credit-related or other impairment. We monitor decreases in the fair value of invested assets and the need for an
allowance for credit losses for our fixed-maturity portfolio; allowances for expected credit losses on receivable and
recoverable assets considering past events, current conditions and reasonable and supportable forecasts; an
accumulation of company costs in excess of the amount originally expected to acquire or construct an asset; or
other factors such as bankruptcy, deterioration of creditworthiness, failure to pay interest; and changes in legal
factors or in the business climate.
The application of our invested assets impairment policy resulted in write-downs of impaired securities intended to
be sold that reduced our income before income taxes by $1 million in 2021 and $78 million in 2020, and other-than-
temporary impairment (OTTI) charges of $9 million in 2019. Write-downs and OTTI losses represent noncash
charges to income and are reported as investment losses. The application of our non-invested assets impairment
policy did not have a material effect on our financial condition in 2021 or 2020.
Our internal investment portfolio managers monitor their assigned portfolios. If a fixed-maturity security is valued
below amortized cost, the portfolio managers undertake additional reviews. Such declines often occur in conjunction
with events taking place in the overall economy and market, combined with events specific to the industry or
operations of the issuing organization. Managers review quantitative measurements such as a declining trend in fair
value and the extent of the fair value decline, as well as qualitative measures such as pending events, credit ratings
and issuer liquidity. We are even more proactive when these declines in valuation are greater than might be
anticipated when viewed in the context of overall economic and market conditions. We provide detailed information
about fixed-maturity securities fair valued in a continuous loss position at year-end 2020 in Item 7A, Quantitative
and Qualitative Disclosures About Market Risk.
An available for sale fixed maturity is impaired if the fair value of the security is below amortized cost. The impaired
loss is charged to net income when we have the intent to sell the security or it is more likely than not we will be
required to sell the security before recovery of the amortized cost. For impaired securities we intend to hold, an
allowance for credit related losses is recorded in investment losses when the company determines a credit loss has
been incurred based on certain factors such as adverse conditions, credit rating downgrades or failure of the issuer
to make scheduled principal or interest payments. A credit loss is determined using a discounted cash flow analysis
by comparing the present value of expected cash flows with the amortized cost basis, limited to the difference
between fair value and amortized cost. Noncredit losses are recognized in other comprehensive income as a
change in unrealized gains and losses on investments. We provide information about valuations of our invested
assets in Item 8, Note 2 of the Consolidated Financial Statements.
Cincinnati Financial Corporation - 2021 10-K - Page 57
Fair Value Measurements
Valuation of Financial Instruments
Fair value is defined as the exit price or the amount that would be (1) received to sell an asset or (2) paid to transfer
a liability in an orderly transaction between marketplace participants at the measurement date. When determining
an exit price, we must, whenever possible, rely upon observable market data.
We have categorized our financial instruments, based on the priority of the inputs to the valuation technique, into a
three-level fair value hierarchy. The fair value hierarchy gives the highest priority to quoted prices in active markets
for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). If the inputs used
to measure the financial instruments fall within different levels of the hierarchy, the categorization is based on the
lowest level that is significant to the fair value measurement of the instrument. While we consider pricing data from
outside services, we ultimately determine whether the data or inputs used by these outside services are observable
or unobservable.
Financial assets and liabilities recorded in the Consolidated Balance Sheets are categorized based on the inputs to
the valuation techniques as described in Item 8, Note 3 of the Consolidated Financial Statements.
Level 1 and Level 2 Valuation Techniques
Substantially all of the $24.337 billion of securities in our investment portfolio at year-end 2021, measured at fair
value, are classified as Level 1 or Level 2. Financial assets that fall within Level 1 and Level 2 are priced according
to observable data from identical or similar securities that have traded in the marketplace. Also within Level 2 are
securities that are valued by outside services or brokers where we have evaluated and verified the pricing
methodology and determined that the inputs are observable.
Recent Accounting Pronouncements
Information about recent accounting pronouncements is provided in Item 8, Note 1 of the Consolidated
Financial Statements.
Cincinnati Financial Corporation - 2021 10-K - Page 58
Financial Results
Consolidated financial results primarily reflect the results of our five reporting segments. These segments
are defined based on financial information we use to evaluate performance and to determine the allocation
of assets.
•
•
•
•
•
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. In addition, Other includes the financial results of our reinsurance assumed operations,
known as Cincinnati Re, and our London-based global specialty underwriter known as Cincinnati Global.
We measure profit or loss for our commercial lines, personal lines, excess and surplus lines and life insurance
segments based upon underwriting results (profit or loss), which represent net earned premium less loss and
loss expenses, or contract holders’ benefits incurred, and underwriting expenses on a pretax basis. We also
evaluate results for our consolidated property casualty insurance operations. That is the total of our standard market
segments (commercial lines and personal lines), our excess and surplus lines insurance segment, Cincinnati Re
and Cincinnati Global. For analysis of our consolidated property casualty insurance results, it is important to include
the earned premiums, loss and loss expenses and also underwriting expenses reported as Other. Underwriting
results and segment pretax operating income are not substitutes for net income determined in accordance
with GAAP.
For our consolidated property casualty insurance operations as well as the insurance segments, statutory
accounting data and ratios are key performance indicators that we use to assess business trends and to make
comparisons to industry results, since GAAP-based industry data generally is not as readily available.
Investments held by the parent company and the investment portfolios for the insurance subsidiaries are managed
and reported as the investments segment, separate from our underwriting business. Net investment income and net
investment gains and losses for our investment portfolios are discussed in the Investments Results.
The calculations of segment data are described in more detail in Item 8, Note 18, of the Consolidated Financial
Statements. The following sections provide analysis and discussion of results of operations for each of the
five segments.
Cincinnati Financial Corporation - 2021 10-K - Page 59
Consolidated Property Casualty Insurance Results
Earned and net written premiums for our consolidated property casualty operations grew in 2021, reflecting average
renewal price increases, a higher level of insured exposures and strategic initiatives for targeted growth. A key
measure of property casualty profitability is underwriting profit or loss. Our 2021 underwriting profit of $731 million
was $612 million more than in 2020, including a $195 million favorable effect from a lower amount of catastrophe
losses, mostly caused by severe weather. Prior accident year loss experience before catastrophes during 2021 was
more favorable than in 2020, and represented $265 million of the 2021 underwriting profit increase. Improved
profitability also included other factors, such as higher pricing and our ongoing initiatives to improve pricing
precision and loss experience related to claims and loss control practices. Pandemic-related incurred losses and
expenses of $85 million in 2020 were discussed in more detail in Corporate Financial Highlights of Management’s
Discussion and Analysis. Underwriting profit trends are discussed further below.
The table below highlights property casualty results, with analysis and discussion in the sections that follow.
That analysis and discussion includes sections by segment.
Overview – Three-Year Highlights
(Dollars in millions)
Earned premiums
Fee revenues
Total revenues
Loss and loss expenses from:
Current accident year before catastrophe losses
Current accident year catastrophe losses
Prior accident years before catastrophe losses
Prior accident years catastrophe losses
Loss and loss expenses
Underwriting expenses
Underwriting profit
Ratios as a percent of earned premiums:
Current accident year before catastrophe losses
Current accident year catastrophe losses
Prior accident years before catastrophe losses
Prior accident years catastrophe losses
Loss and loss expenses
Underwriting expenses
Combined ratio
Combined ratio:
Contribution from catastrophe losses and prior years
reserve development
Combined ratio before catastrophe losses and prior years
reserve development
Years ended December 31,
2019
2020
2021
$ 5,334
$ 5,691
$ 6,184
11
9
10
5,345
5,700
6,194
2021-2020
2020-2019
Change % Change %
7
(18)
7
9
11
9
3,462
562
(363)
(65)
3,596
1,867
$ 731
3,243
725
(98)
(33)
3,837
1,744
$ 119
3,249
351
(219)
(29)
3,352
1,652
$ 341
7
(22)
(270)
(97)
(6)
7
514
0
107
55
(14)
14
6
(65)
Pt. Change
Pt. Change
56.0 % 57.0 %
9.1
(5.9)
(1.1)
58.1
30.2
88.3 % 98.1 %
12.7
(1.7)
(0.6)
67.4
30.7
60.9 %
6.6
(4.1)
(0.6)
62.8
31.0
93.8 %
88.3 % 98.1 %
93.8 %
2.1
10.4
1.9
86.2 % 87.7 %
91.9 %
(1.0)
(3.6)
(4.2)
(0.5)
(9.3)
(0.5)
(9.8)
(9.8)
(8.3)
(1.5)
(3.9)
6.1
2.4
0.0
4.6
(0.3)
4.3
4.3
8.5
(4.2)
We believe the COVID-19 pandemic did not have a significant effect on our consolidated property casualty premium
revenues for the last three quarters of 2021, while it had a modestly slowing effect on premium growth for the first
quarter. The pandemic and a weakened economy reduced premium volume during the first quarter of 2021 and
during much of 2020. A strengthening economy in 2021 contributed to premium growth, compared with the same
period a year ago. Consolidated property casualty net written premiums grew 10% in 2021, compared with 2020,
including a contribution of 3% from Cincinnati Re.
Cincinnati Financial Corporation - 2021 10-K - Page 60
Consolidated property casualty new business written premiums increased 12% in 2021, compared with 2020. For
policies that renewed during 2021, higher average pricing also contributed to premium growth. Regardless of pricing
changes, new business and renewal premium amounts could decline if the exposure basis for policy premiums,
such as sales and payrolls of businesses we insure, decrease as a result of a weakened economy.
Loss experience for our insurance operations is influenced by many factors as discussed in further detail in
Financial Results by property casualty insurance segment. For future periods, factors that reduce exposure to
certain insurance losses, such as fewer vehicular miles driven or reduced sales and payrolls for businesses, could
cause a reduction in future losses that generally correspond to reduced premiums. However, there could be losses
or legal expenses that occur independent of changes in mileage, sales or payrolls of businesses we insure, due to
pandemic effects or other factors.
Performance highlights for consolidated property casualty operations also included:
•
Premiums – Agency renewal written premiums rose $351 million in 2021 and continued to contribute to growth in
earned premiums and net written premiums that rose in each of our property casualty segments. The renewal
premium increase was largely due to average renewal price increases and a higher level of insured exposures.
Price increases with enhanced precision continue to benefit operating results.
New business written premiums produced through agencies increased $98 million in 2021, compared with 2020.
Agents appointed during 2021 or 2020 produced a 2021 increase in standard lines new business of $50 million.
Growth initiatives also favorably affect growth in subsequent years, particularly as newer agency relationships
mature over time.
Expansion of Cincinnati Re produced $461 million of 2021 net written premiums and contributed $159 million of
the growth in other written premiums, compared with 2020. 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. In 2021, earned premiums for Cincinnati Re totaled
$392 million.
Cincinnati Global also contributed to the increase in other written premiums. Net written premiums were
$187 million in 2021, and contributed $10 million of the growth in other written premiums, compared with 2020.
In 2021, earned premiums for Cincinnati Global totaled $178 million.
Other written premiums also include premiums ceded to reinsurers as part of our ceded reinsurance program.
An increase in ceded premiums, other than Cincinnati Re and Cincinnati Global premiums, reduced net written
premium growth by $15 million in 2021.
The table below analyzes premium revenue components and trends.
(Dollars in millions)
Agency renewal written premiums
Agency new business written premiums
Other written premiums
Net written premiums
Unearned premium change
Earned premiums
Years ended December 31,
2019
2020
2021
$ 5,091 $ 4,740 $ 4,519
778
219
5,516
(182)
$ 6,184 $ 5,691 $ 5,334
799
325
5,864
(173)
897
491
6,479
(295)
2020-2019
2021-2020
Change % Change %
5
3
48
6
5
7
7
12
51
10
(71)
9
•
Combined ratio – The combined ratio improved by 9.8 percentage points in 2021, compared with 2020, including
a 4.1 percentage-point decrease in the ratio for catastrophe losses. The 2021 ratio for current accident year
losses and loss expenses before catastrophes improved by 1.0 percentage point, largely reflecting what we
believe are improvements to some of our loss experience due to recent-year initiatives to improve pricing
precision and claims and loss control practices. The remainder of the 2021 combined ratio improvement included
4.2 percentage points more benefit in the ratio for prior accident year losses and loss expenses before
catastrophes. We further discuss ratios related to reserve development in the sections that follow the Catastrophe
Losses Incurred table below.
Our statutory combined ratio was 87.9% in 2021 compared with 96.7% in 2020 and 93.4% in 2019. The estimated
statutory combined ratio for the property casualty industry, with the industry’s ratio excluding its mortgage and
financial guaranty lines of business and based on industry data reported through the first nine months of 2021,
Cincinnati Financial Corporation - 2021 10-K - Page 61
was 99.5% in 2021, 99.1% in 2020 and 99.2% in 2019. The contribution of catastrophe losses to our statutory
combined ratio was 7.6 percentage points in 2021, 11.2 percentage points in 2020 and 6.0 percentage points in
2019, compared with industry estimates of 8.2, 7.5 and 4.1 percentage points, respectively, with 2021
representing industry data reported through the first nine months of 2021. Components of the combined ratio are
discussed below.
Catastrophe loss trends are an important factor in assessing trends for overall underwriting results. Our 10-year
historical annual average contribution of catastrophe losses to the combined ratio was 7.3 percentage points at
December 31, 2021. Our five-year average was 8.2 percentage points.
Effective June 1, 2021, we nonrenewed our combined property catastrophe occurrence excess of loss treaty that
provided coverage for business written on a direct basis and by Cincinnati Re. We determined that the coverage
was no longer cost effective. A restructured reinsurance program became effective for Cincinnati Re only, providing
retrocession coverages with various triggers and unique features. Before any recoveries, that program included
property catastrophe excess of loss coverage with a total available aggregate limit of $48 million in excess of
$80 million per loss. It provided a recovery based on Hurricane Ida losses estimated as of December 31, 2021.
The estimated recovery from the program was $16 million, with a net incurred loss of $80 million for Cincinnati Re in
2021, excluding the benefit of reinstatement premiums estimated at approximately $11 million.
The following table shows catastrophe losses incurred for the past two calendar years, net of reinsurance, as well
as the effect of loss development on prior period catastrophe reserves. We individually list declared catastrophe
events for which our incurred losses reached or exceeded $10 million.
Cincinnati Financial Corporation - 2021 10-K - Page 62
South, West
$
9 $
5 $
— $
34 $
48
Catastrophe Losses Incurred
(Dollars in millions, net of reinsurance)
Dates
2021
Feb. 12-15
Feb. 16-20
Mar. 24-26
Mar. 27-29
May 3-4
Events
Regions
Flood, Freeze, Ice,
Snow, Wind
Flood, Freeze, Ice,
Snow, Wind
Midwest, Northeast, South
Flood, Hail, Wind
Midwest, Northeast, South
Flood, Hail, Wind
Midwest, Northeast, South
Flood, Hail, Wind
South
Jun. 17-20
Jun. 24 - Jul. 1
Flood, Hail, Wind
Flood, Hail, Wind
Midwest
Midwest, Northeast, South,
West
Jul. 8-10
Flood, Hail, Wind
Midwest
Aug. 10-13
Flood, Hail, Wind
Midwest, Northeast, South
Aug. 29 - Sep. 2
Flood, Hail, Wind
Northeast, South (Ida)
Dec. 10-12
Dec. 13-16
Flood, Hail, Wind
Flood, Lightning,
Wind
Midwest, Northeast, South
Midwest, West
All other 2021 catastrophes
Development on 2020 and prior catastrophes
Calendar year incurred total
2020
Commercial
lines
Personal
lines
Excess
and
surplus
lines
Other
Total
18
12
4
8
10
4
5
5
14
40
10
29
(44)
27
18
9
4
16
10
6
8
36
22
9
48
(7)
1
—
—
—
—
—
—
—
—
—
—
2
—
8
—
—
—
—
—
—
—
118
—
—
13
54
30
13
12
26
14
11
13
168
62
19
92
(14)
(65)
$
124 $
211 $
3 $
159 $
497
Jan. 10-12
Flood, hail, wind
Midwest, Northeast, South
$
6 $
4 $
— $ — $
Feb. 5-8
Mar. 2-4
Flood, hail, wind
Northeast, South
Flood, hail, wind
Midwest, South
Mar. 27-30
Flood, hail, wind
Midwest, Northeast, South
Apr. 7-9
Apr. 10-14
Flood, hail, wind
Midwest, Northeast, South
Flood, hail, wind
Midwest, Northeast, South
May 4-5
May 26 - Jun. 8
Flood, hail, wind
Civil unrest
Jul. 10-12
Jul. 30 - Aug. 5
Flood, hail, wind
Flood, hail, wind
Midwest, South
Midwest, Northeast, South,
West
Midwest, South
International, South,
Northeast
Aug. 8-11
Aug. 26-28
Sep. 7-16
Sep. 14-18
Oct. 9-12
Oct. 28-29
Flood, hail, wind
Midwest
Flood, hail, wind
South (Laura)
Wildfire
West
Flood, hail, wind
South (Sally)
Flood, hail, wind
South (Delta)
Flood, hail, wind
South (Zeta)
Nov. 15-16
Flood, hail, wind
Midwest, Northeast, South
Dec. 25
Explosion
South
All other 2020 catastrophes
9
58
21
29
22
22
16
15
6
84
2
9
8
—
7
4
20
38
Development on 2019 and prior catastrophes
(14)
5
8
14
29
27
5
—
13
19
20
2
4
4
1
15
6
—
57
(8)
—
—
—
—
—
—
1
—
—
1
—
—
—
—
—
—
—
3
—
—
5
—
—
1
—
5
—
1
—
41
—
25
14
9
—
—
10
(11)
10
14
71
35
58
50
27
22
28
26
105
45
13
37
15
31
10
20
108
(33)
Calendar year incurred total
$
362 $
225 $
5 $
100 $
692
Cincinnati Financial Corporation - 2021 10-K - Page 63
Consolidated Property Casualty Insurance Loss and Loss Expenses
Loss and loss expenses include both net paid losses and reserve changes for unpaid losses as well as the
associated loss expenses. For all property casualty lines of business in aggregate, net loss and loss expense
reserves at December 31, 2021, were $502 million higher than at year-end 2020, including $202 million for incurred
but not reported (IBNR) reserves. The $502 million reserve increase raised year-end 2020 net loss and loss
expense reserves by 8%, compared with a 9% increase in 2021 earned premiums.
Most of the incurred losses and loss expenses shown in the consolidated property casualty insurance results three-
year highlights table are for the respective current accident years, with reserve development on prior accident years
shown separately. Since less than half of our consolidated property casualty current accident year incurred losses
and loss expenses represents net paid amounts, the majority represents reserves for our estimate of ultimate losses
and loss expenses. These reserves develop over time, and we re-estimate previously reported reserves as we learn
more about the development of the related claims. The table below illustrates that development. For example, the
69.7% accident year 2020 loss and loss expense ratio reported as of December 31, 2020, developed favorably by
4.9 percentage points to 64.8% due to claims settling for less than previously estimated, or due to updated reserve
estimates for unpaid claims, as of December 31, 2021. Accident years 2020 and 2019 have both developed
favorably, as indicated by the progression over time for the ratios in the table.
(Dollars in millions)
Accident year loss and loss expenses incurred and ratios to earned premiums:
Accident year:
as of December 31, 2021
as of December 31, 2020
as of December 31, 2019
2019
2021
2020
$ 4,024 $ 3,686 $ 3,463
3,519
3,600
3,968
2021
65.1 % 64.8 % 64.9 %
2020
2019
69.7
66.0
67.5
Catastrophe loss trends, discussed above, accounted for some of the movement in the current accident year loss
and loss expense ratio for 2020, compared with 2019. Catastrophe losses added 9.1 percentage points in 2021,
12.7 points in 2020 and 6.6 points in 2019 to the respective consolidated property casualty current accident year
loss and loss expense ratios in the table above.
The 56.0% ratio for current accident year loss and loss expenses before catastrophe losses for 2021 decreased
1.0 percentage points compared with the 57.0% accident year 2020 ratio measured as of December 31, 2020.
The decrease was partially offset by a 1.5 percentage-point increase in the ratio for current accident year losses of
$1 million or more per claim, shown in the table below.
Reserve development on prior accident years continued to net to a favorable amount in 2021, and was primarily due
to less-than-anticipated loss emergence on known claims. We recognized $428 million of favorable development in
2021, compared with $131 million in 2020 and $248 million in 2019. Of the $297 million increase in 2021, compared
with 2020, $207 million was attributable to our commercial casualty, commercial property and commercial auto lines
of business. Approximately 66% of our net favorable reserve development on prior accident years recognized during
2021 occurred in our commercial casualty, commercial property and workers’ compensation lines of business.
In 2020, our commercial casualty, workers' compensation and commercial property lines of business were
responsible for approximately 83% of the favorable reserve development. As discussed in Liquidity and Capital
Resources, Property Casualty Loss and Loss Expense Obligations and Reserves, Property Casualty Insurance
Development of Estimated Reserves by Accident Year, commercial casualty and workers' compensation are
considered long-tail lines with the potential for revisions inherent in estimating reserves. Favorable development
recognized during 2018 was primarily from our commercial casualty, commercial property and workers’
compensation lines of business. Development by accident year is further discussed in Liquidity and Capital
Resources, Property Casualty Insurance Development of Estimated Reserves by Accident Year.
Cincinnati Financial Corporation - 2021 10-K - Page 64
Consolidated Property Casualty Insurance Losses by Size
(Dollars in millions, net of reinsurance)
Years ended December 31,
2019
2020
2021
2021-2020
2020-2019
Change % Change %
Current accident year losses greater than $5,000,000
$ 112
$
50
$
27
Current accident year losses $1,000,000-$5,000,000
Large loss prior accident year reserve development
Total large losses incurred
Losses incurred but not reported
Other losses excluding catastrophe losses
Catastrophe losses
Total losses incurred
Ratios as a percent of earned premiums:
Current accident year losses greater than $5,000,000
Current accident year losses $1,000,000-$5,000,000
Large loss prior accident year reserve development
Total large loss ratio
Losses incurred but not reported
Other losses excluding catastrophe losses
Catastrophe losses
Total loss ratio
257
95
464
(19)
202
42
294
310
243
50
320
50
2,062
1,909
2,118
472
670
309
$ 2,979
$ 3,183
$ 2,797
124
27
126
58
nm
8
(30)
(6)
85
(17)
(16)
(8)
nm
(10)
117
14
Pt. Change
Pt. Change
1.8 %
4.2
0.9 %
3.6
1.5
7.5
(0.3)
33.4
7.6
48.2 % 55.9 %
0.7
5.2
5.5
33.4
11.8
0.5 %
4.6
0.9
6.0
0.9
39.7
5.8
52.4 %
0.9
0.6
0.8
2.3
(5.8)
0.0
(4.2)
(7.7)
0.4
(1.0)
(0.2)
(0.8)
4.6
(6.3)
6.0
3.5
In 2021, total large losses incurred increased by $170 million, or 58%, net of reinsurance, primarily due to an
increase for our commercial lines insurance segment. The corresponding ratio increased 2.3 percentage points. The
large loss data included in the table above does not include Cincinnati Re and Cincinnati Global. Our analysis of
large losses incurred indicated no unexpected concentration of these losses and reserve increases by geographic
region, policy inception, agency or field marketing territory. We believe the inherent volatility 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 volatility in addition to general inflationary trends in loss costs.
Cincinnati Financial Corporation - 2021 10-K - Page 65
Consolidated Property Casualty Insurance Underwriting Expenses
(Dollars in millions)
Commission expenses
Other underwriting expenses
Policyholder dividends
Total underwriting expenses
Ratios as a percent of earned premiums:
Commission expenses
Other underwriting expenses
Policyholder dividends
Years ended December 31,
2019
2020
2021
$ 989
$ 1,042
$ 1,168
651
692
694
12
10
5
$ 1,652
$ 1,744
$ 1,867
2021-2020
2020-2019
Change % Change %
5
6
(17)
6
12
0
(50)
7
18.9 % 18.3 %
11.2
0.1
12.2
0.2
Pt. Change
0.6
(1.0)
(0.1)
18.6 %
12.2
0.2
Pt. Change
(0.3)
0.0
0.0
(0.3)
Total underwriting expense ratio
30.2 % 30.7 %
31.0 %
(0.5)
Consolidated property casualty commission expenses rose $126 million, or 12%, in 2021, with profit-sharing
commissions for agencies increasing by $53 million. The 2021 ratio of commission expenses as a percent of earned
premiums increased by 0.6 percentage points, compared with 2020. The 2021 ratio for other underwriting expenses
decreased by 1.0 percentage points, compared with 2020 that included a $16 million Stay-at-Home policyholder
credit for personal auto policies and higher levels of uncollectible premiums. Earned premiums rose at a slightly
faster pace than other underwriting expenses during 2021, and we continued to carefully manage expenses while
also making strategic investments that include enhancement of underwriting expertise.
Commission expenses include our profit-sharing commissions, which are primarily based on one-year and three-
year profitability of an agency’s business. The aggregate profit trend for agencies that earn these profit-based
commissions can differ from the aggregate profit trend for all agencies reflected in our consolidated property
casualty results.
Salaries, benefits and payroll taxes for our associates account for approximately half of our property casualty other
underwriting expenses. Most of our associates either provide direct service to the property casualty portion of our
agencies’ businesses or provide support to those associates.
Discussions below of our property casualty insurance segments provide additional details about our results.
Cincinnati Financial Corporation - 2021 10-K - Page 66
Commercial Lines Insurance Results
Overview – Three-Year Highlights
(Dollars in millions)
Earned premiums
Fee revenues
Total revenues
Loss and loss expenses from:
Current accident year before catastrophe losses
Current accident year catastrophe losses
Prior accident years before catastrophe losses
Prior accident years catastrophe losses
Loss and loss expenses
Underwriting expenses
Underwriting profit
Ratios as a percent of earned premiums:
Current accident year before catastrophe losses
Current accident year catastrophe losses
Prior accident years before catastrophe losses
Prior accident years catastrophe losses
Loss and loss expenses
Underwriting expenses
Combined ratio
Combined ratio:
Contribution from catastrophe losses and prior years
reserve development
Combined ratio before catastrophe losses and prior years
reserve development
Years ended December 31,
2021-2020
2020-2019
2021
$ 3,674
4
3,678
2,125
168
(309)
(44)
1,940
1,140
$ 598
2020
$ 3,476
3
3,479
2,055
376
(81)
(14)
2,336
1,079
64
$
2019
$ 3,319
5
3,324
2,046
176
(167)
(25)
2,030
1,053
$ 241
Change % Change %
5
(40)
5
6
33
6
3
(55)
(281)
(214)
(17)
6
834
0
114
51
44
15
2
(73)
Pt. Change
Pt. Change
57.8 % 59.2 %
4.6
(8.4)
(1.2)
52.8
31.0
83.8 % 98.3 %
10.8
(2.3)
(0.4)
67.3
31.0
61.7 %
5.3
(5.0)
(0.8)
61.2
31.7
92.9 %
(1.4)
(6.2)
(6.1)
(0.8)
(14.5)
0.0
(14.5)
83.8 % 98.3 %
92.9 %
(14.5)
(5.0)
8.1
(0.5)
(13.1)
(2.5)
5.5
2.7
0.4
6.1
(0.7)
5.4
5.4
8.6
88.8 % 90.2 %
93.4 %
(1.4)
(3.2)
Commercial lines insurance segment earned premiums grew 6% in 2021. The pandemic and a weakened economy
reduced premium volume during the first quarter of 2021 and during much of 2020. A strengthening economy during
the rest of 2021 contributed to net written premium growth, compared with the year-ago period.
Net written premiums grew 8% in 2021, compared with the same period of 2020, with new business written
premiums increasing 11%. New business and renewal premium amounts could decline if the exposure basis for
policy premiums, such as sales and payrolls of businesses we insure, decrease as a result of a weakened
economy.
Loss experience for our insurance operations is influenced by many factors, including lower catastrophe losses
that contributed to lower overall commercial lines losses in 2021. Loss experience before catastrophe effects for our
commercial lines insurance segment continued to improve during 2021. The main driver of the improvement was
the ratio for reserve development on prior accident years before catastrophe losses. For future periods, factors that
reduce exposure to certain insurance losses, such as fewer vehicular miles driven or reduced sales results and
payrolls for businesses, could cause a reduction in future losses that generally correspond to reduced premiums.
However, there could be losses or legal expenses that occur independent of changes in mileage, sales or payrolls
of businesses we insure, due to pandemic effects or other factors.
Cincinnati Financial Corporation - 2021 10-K - Page 67
Performance highlights for the commercial lines insurance segment also included:
•
•
Premiums – Earned premiums and net written premiums rose in 2021, including a $212 million increase in
renewal written premiums that continued to include higher average pricing and a higher level of insured
exposures. New business written premiums in 2021 increased $56 million, or 11%, compared with 2020.
Combined ratio – The 2021 combined ratio improved by 14.5 percentage points compared with 2020, including a
7.0 percentage-point decrease in the ratio component for catastrophe losses. Development on prior accident
years’ loss and loss expense reserves before catastrophes during 2021 was 6.1 percentage points more
favorable than in 2020.
Pricing precision and other initiatives to improve commercial lines underwriting profitability complement our
business practices that continue to leverage the local presence of our field associates. Field marketing
representatives meet with local agencies to assess each risk, determine limits of insurance and establish
appropriate terms and conditions. They underwrite new business, with collaboration and expertise from
headquarters associates as needed, while field loss control, machinery and equipment and claims representatives
conduct on-site inspections. Field claims representatives also assist underwriters by preparing full reports on their
first-hand observations of risk quality.
Our commercial lines statutory combined ratio was 83.2% in 2021, compared with 97.5% in 2020 and 92.3% in
2019. The contribution of catastrophe losses to our commercial lines statutory combined ratio was 3.4 percentage
points in 2021, 10.4 percentage points in 2020 and 4.5 percentage points in 2019.
Commercial Lines Insurance Premiums
(Dollars in millions)
Agency renewal written premiums
Agency new business written premiums
Other written premiums
Net written premiums
Unearned premium change
Earned premiums
Years ended December 31,
2019
2020
2021
$ 3,334 $ 3,122 $ 2,998
510
(98)
3,410
(91)
$ 3,674 $ 3,476 $ 3,319
515
(103)
3,534
3,811
(137)
571
(94)
(58)
2021-2020
2020-2019
Change % Change %
4
1
(5)
4
36
5
7
11
9
8
(136)
6
We continue to refine our use of predictive analytics tools to improve pricing precision as we further segment
commercial lines policies, emphasizing identification and retention of policies we believe have relatively stronger
price adequacy. These tools better align individual insurance policy pricing to risk attributes, providing our
underwriters with enhanced abilities to target profitability and to discuss pricing impacts with our agencies. We also
continue to leverage our local relationships with agents through the efforts of our teams that work closely with them.
We believe our field focus is unique and has several advantages, including providing us with quality intelligence on
local market conditions. We seek to maintain appropriate pricing discipline for both new and renewal business as
management continues to emphasize the importance of our agencies and underwriters assessing account quality to
make careful decisions on a case-by-case basis whether to write or renew a policy. Premium rate credits may be
used to retain renewals of quality business and to earn new business, but we do so selectively in order to avoid
commercial accounts that we believe have insufficient profit margins.
Our 7% increase in 2021 agency renewal written premiums included higher average pricing. We measure average
changes in commercial lines renewal pricing as the rate of change in renewal premium for the new policy period
compared with the premium for the expiring policy period, assuming no change in the level of insured exposures or
policy coverage between those periods for respective policies. In 2021, our standard commercial lines policies
averaged an estimated pricing change at a percentage in the mid-single-digit range, similar to 2020. Our average
commercial lines pricing change includes the flat pricing effect of certain coverages within package policies written
for a three-year term that were in force but did not expire during the period being measured. Therefore, the average
commercial lines pricing change we report reflects a blend of policies that did not expire and other policies that did
expire during the measurement period.
Cincinnati Financial Corporation - 2021 10-K - Page 68
For only those commercial lines policies that did expire and were then renewed during 2021, we estimate
that the average price increase was near the high end of the mid-single-digit range. During 2021, we continued to
further segment our commercial lines policies, emphasizing identification and retention of policies we believed had
relatively stronger price adequacy. Conversely, we continued to seek more aggressive renewal terms and conditions
on policies we believed had relatively weaker pricing, in turn retaining fewer of those policies.
Changes in the economy can affect insured exposures that directly relate to premium amounts charged for some
policies. For commercial accounts, we usually calculate initial estimates for general liability premiums based on
estimated sales or payroll volume, while we calculate workers’ compensation premiums based on estimated payroll
volume. A change in sales or payroll volume generally indicates a change in demand for a business’s goods or
services, as well as a change in its exposure to risk. Policyholders who experience sales or payroll volume changes
due to economic factors may also have other exposures requiring insurance, such as commercial auto or
commercial property. Premium levels for these other types of coverages generally are not linked directly to sales or
payroll volumes.
Premiums resulting from audits of actual sales or payrolls that confirmed or adjusted initial premium estimates are
part of net written premiums and earned premiums. The contribution to our commercial lines earned premiums was
$47 million, $41 million and $65 million in 2021, 2020 and 2019, respectively. The contribution on a net written
premium basis was $44 million, $53 million and $65 million in 2021, 2020 and 2019, respectively. These net written
premium amounts are included with agency renewal written premiums in the Commercial Lines Insurance
Premiums table above.
In 2021, our commercial lines new business premiums written by our agencies increased $56 million, or 11%,
compared with 2020. New business premium volume in recent years has been significantly influenced by new
agency appointments. Agencies appointed since the beginning of 2020 produced commercial lines new business
written premiums of $53 million, in aggregate, during 2021, up $41 million from what they produced during 2020.
All other agencies contributed the remaining $518 million, up $15 million from the $503 million they produced
in 2020.
For new business, our field associates are frequently in our agents’ offices to: help judge the quality of each
account; emphasize the Cincinnati value proposition; call on sales prospects with those agents; carefully evaluate
risk exposure; and provide their best quotes. Some of our new business comes from accounts that are not new to
the agent. We believe these seasoned accounts tend to be priced more accurately than business that is new to us
and the agency. As we appoint new agencies who choose to move accounts to us, we report these accounts as new
business to us.
Other written premiums primarily consist of premiums that are ceded to reinsurers and lower our net written
premiums. An increase in ceded premiums reduced net written premium growth by $10 million in 2021.
Cincinnati Financial Corporation - 2021 10-K - Page 69
Commercial Lines Insurance Loss and Loss Expenses
Loss and loss expenses include both net paid losses and reserve changes for unpaid losses as well as the
associated loss expenses. Most of the incurred losses and loss expenses shown in the commercial lines insurance
segment three-year highlights table are for the respective current accident years, with reserve development on
prior accident years shown separately. Since less than half of our commercial lines insurance segment current
accident year incurred losses and loss expenses represents net paid amounts, the majority represents reserves
for our estimate of ultimate losses and loss expenses. These reserves develop over time, and we re-estimate
previously reported reserves as we learn more about development on the related claims. The table below illustrates
that development. For example, the 70.0% accident year 2020 loss and loss expense ratio reported as of
December 31, 2020, developed favorably by 6.2 percentage points to 63.8% due to claims settling for less than
previously estimated, or due to updates to reserve estimates for unpaid claims, as of December 31, 2021.
Accident years 2020 and 2019 for the commercial lines insurance segment have both developed favorably, as
indicated by the progression over time of the ratios in the table.
(Dollars in millions)
Accident year loss and loss expenses incurred and ratios to earned premiums:
Accident year:
as of December 31, 2021
as of December 31, 2020
as of December 31, 2019
2019
2021
2020
$ 2,293 $ 2,216 $ 2,113
2,171
2,222
2,431
2021
62.4 % 63.8 % 63.7 %
2019
2020
70.0
65.4
67.0
Catastrophe losses, as discussed in Consolidated Property Casualty Insurance Results, explain some of the
movement in the current accident year loss and loss expense ratio for accident year 2021, compared with 2020.
Catastrophe losses added 4.6 percentage points in 2021, 10.8 points in 2020 and 5.3 points in 2019 to the
respective commercial lines current accident year loss and loss expense ratios in the table above.
The 57.8% ratio for current accident year loss and loss expenses before catastrophe losses for 2021 decreased
1.4 percentage points compared with the 59.2% accident year 2020 ratio measured as of December 31, 2020. The
decrease was partially offset by an increase in large losses incurred, described below, and the corresponding ratios
for new losses above $1 million, with a 2.2 percentage-point increase in the 2021 ratio. Other contributions included
favorable effects from various initiatives, such as those to improve pricing precision and loss experience related to
claims and loss control practices.
Commercial lines reserve development on prior accident years of $353 million in 2021 continued to net to a
favorable amount and provided a larger benefit than the $95 million recognized in 2020. The $258 million net
increase in 2021, compared with 2020, included $81 million, $66 million and $60 million from our commercial
property, commercial casualty and commercial auto lines of business, respectively. Most of our commercial lines net
favorable reserve development on prior accident years recognized during 2021 occurred in our commercial
casualty, commercial property and workers’ compensation lines of business. Favorable development recognized
during 2020 and 2019 was also mostly from our commercial casualty and workers’ compensation lines of business.
As discussed in Critical Accounting Estimates, Property Casualty Insurance Loss and Loss Expense Reserves,
stable historical paid loss patterns are a key assumption used to make projections necessary for estimating
IBNR reserves. Development by accident year and other trends for commercial lines loss and loss expenses and
the related ratios are further discussed in Liquidity and Capital Resources, Property Casualty Insurance
Development of Estimated Reserves by Accident Year.
Cincinnati Financial Corporation - 2021 10-K - Page 70
Commercial Lines Insurance Losses by Size
(Dollars in millions, net of reinsurance)
Years ended December 31,
2019
2020
2021
2021-2020
2020-2019
Change % Change %
Current accident year losses greater than $5,000,000
$
97
$
50
$
27
Current accident year losses $1,000,000-$5,000,000
Large loss prior accident year reserve development
Total large losses incurred
Losses incurred but not reported
185
96
378
(83)
135
36
221
240
185
49
261
26
Other losses excluding catastrophe losses
1,131
1,073
1,222
Catastrophe losses
Total losses incurred
116
350
142
$ 1,542
$ 1,884
$ 1,651
94
37
167
71
nm
5
(67)
(18)
85
(27)
(27)
(15)
nm
(12)
146
14
Ratios as a percent of earned premiums:
Current accident year losses greater than $5,000,000
Current accident year losses $1,000,000-$5,000,000
Large loss prior accident year reserve development
Total large loss ratio
Losses incurred but not reported
Other losses excluding catastrophe losses
Catastrophe losses
Total loss ratio
Pt. Change
Pt. Change
2.6 %
5.0
1.4 %
4.0
2.7
10.3
(2.3)
30.8
3.2
42.0 % 54.2 %
1.0
6.4
6.9
30.8
10.1
0.8 %
5.6
1.5
7.9
0.8
36.7
4.3
49.7 %
1.2
1.0
1.7
3.9
(9.2)
0.0
(6.9)
(12.2)
0.6
(1.6)
(0.5)
(1.5)
6.1
(5.9)
5.8
4.5
In 2021, total large losses incurred increased by $157 million, or 71%, net of reinsurance. The corresponding ratio
increased 3.9 percentage points. The 2021 increases on both a dollar and ratio basis were largely due to higher
amounts for our commercial casualty and commercial property lines of business. In 2020, total large losses incurred
and the corresponding ratio were lower than in 2019, largely due to lower amounts of large losses for our
commercial casualty and commercial property lines of business. Our analysis indicated no unexpected
concentration of these losses and reserve increases by geographic region, policy inception, agency or field
marketing territory. We believe the inherent volatility 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 volatility in addition to general
inflationary trends in loss costs.
Commercial Lines Insurance Underwriting Expenses
(Dollars in millions)
Commission expenses
Other underwriting expenses
Policyholder dividends
Total underwriting expenses
Ratios as a percent of earned premiums:
Commission expenses
Other underwriting expenses
Policyholder dividends
Total underwriting expense ratio
Years ended December 31,
2019
2020
2021
$ 614
$ 625
$ 684
427
444
451
12
10
5
$ 1,053
$ 1,079
$ 1,140
2021-2020
2020-2019
Change % Change %
2
4
(17)
2
9
2
(50)
6
18.6 % 18.0 %
12.2
0.2
31.0 % 31.0 %
12.7
0.3
Pt. Change
0.6
(0.5)
(0.1)
0.0
18.5 %
12.9
0.3
31.7 %
Pt. Change
(0.5)
(0.2)
0.0
(0.7)
Commercial lines commission expenses as a percent of earned premiums increased in 2021, compared with 2020,
primarily due to an increase in the ratio for profit-sharing commissions for agencies. The ratio for 2020 decreased
compared with 2019, including a decrease in the ratio for profit-sharing commissions for agencies that reflected a
higher amount of catastrophe losses. In 2021, other underwriting expenses as a percent of earned premiums
decreased, compared with 2020, primarily due to lower levels of uncollectible premiums, in addition to ongoing
expense management efforts and higher earned premiums. In 2020, other underwriting expenses as a percent of
Cincinnati Financial Corporation - 2021 10-K - Page 71
earned premiums decreased, compared with 2019, primarily due to a lower level of business travel spending for
associates and earned premiums that rose at a slightly faster pace than other underwriting expense.
Commercial Lines Insurance Outlook
Renewal and new business pricing for commercial risks continues to experience significant competitive pressure,
reinforcing the need for enhanced pricing analytics and careful risk selection. Despite challenging market conditions
from strong competition, we believe we can manage our business and execute strategic initiatives to offset market
pressures and profitably grow our commercial lines insurance segment.
We are building commercial lines for an even larger percentage of our agencies' total portfolio, whether through
expansion of our local field presence, enhanced expertise or flexibility in processes and service. Our goal is to
provide an industry-leading agency experience as we work to be the first and last solution when our agencies are
considering business placement.
We intend to keep marketing our products to a broad range of business classes with a total account approach,
while also continuing improvement of our pricing precision and further segmentation among commercial lines
policies. We intend to maintain our underwriting discipline and carefully manage our rate levels as well as our
programs that seek to accurately match exposures with appropriate premiums. We will continue to evaluate each
risk on a policy-by-policy basis, making decisions about rates, terms and conditions based on each account’s
individual characteristics. We believe that our initiatives to improve pricing precision and lower loss costs will
continue to benefit commercial lines profitability during 2022, and that recent-year premium growth initiatives will
continue to grow commercial lines premiums at a healthy pace.
Cincinnati Financial Corporation - 2021 10-K - Page 72
Personal Lines Insurance Results
Overview – Three-Year Highlights
(Dollars in millions)
Earned premiums
Fee revenues
Total revenues
Loss and loss expenses from:
Current accident year before catastrophe losses
Current accident year catastrophe losses
Prior accident years before catastrophe losses
Prior accident years catastrophe losses
Loss and loss expenses
Underwriting expenses
Underwriting profit
Ratios as a percent of earned premiums:
Current accident year before catastrophe losses
Current accident year catastrophe losses
Prior accident years before catastrophe losses
Prior accident years catastrophe losses
Loss and loss expenses
Underwriting expenses
Combined ratio
Years ended December 31,
2019
2020
2021
$ 1,404
$ 1,463
$ 1,542
4
4
4
1,408
1,467
1,546
2021-2020
2020-2019
Change % Change %
4
0
4
5
0
5
824
218
(43)
(7)
992
457
97
$
762
233
(10)
(8)
977
443
47
$
875
137
(29)
2
985
415
8
$
8
(6)
(330)
13
2
3
106
53.4 % 52.1 %
14.2
(2.8)
(0.5)
64.3
29.7
94.0 % 97.1 %
16.0
(0.7)
(0.6)
66.8
30.3
Pt. Change
1.3
(1.8)
(2.1)
0.1
(2.5)
(0.6)
(3.1)
62.4 %
9.7
(2.1)
0.2
70.2
29.6
99.8 %
(13)
70
(66)
nm
(1)
7
488
Pt. Change
(10.3)
6.3
1.4
(0.8)
(3.4)
0.7
(2.7)
(2.7)
6.9
(9.6)
Combined ratio:
94.0 % 97.1 %
99.8 %
Contribution from catastrophe losses and prior years
reserve development
Combined ratio before catastrophe losses and prior years
reserve development
10.9
14.7
7.8
83.1 % 82.4 %
92.0 %
(3.1)
(3.8)
0.7
The COVID-19 pandemic did not have a significant effect on our personal lines insurance segment premiums.
Loss experience for our insurance operations is influenced by many factors. During 2021, loss experience for our
personal auto line of business drove the increase in the personal lines insurance segment loss and loss expenses
for the current accident year before catastrophe effects, compared with 2020. Reduced driving in 2020 related to the
pandemic contributed to a reduction in reported claims, while driving patterns in 2021 moved towards pre-pandemic
levels. Because of factors that reduce exposure to certain insurance losses, there could be a reduction in future
losses that generally corresponds to reduced premiums. However, there could be losses or legal expenses that
occur independent of changes in miles driven for autos we insure, due to pandemic effects or other factors.
Performance highlights for the personal lines insurance segment also included:
•
•
Premiums – Earned premiums and net written premiums continued to grow in 2021, largely due to increases in
renewal written premiums that reflected higher average pricing. Renewal written premiums rose $70 million, or
5%, in 2021, compared with 2020. Net written premiums from high net worth policies in 2021 totaled
approximately $663 million, compared with $519 million in 2020.
Combined ratio – The 2021 combined ratio improved by 3.1 percentage points, compared with 2020, including a
1.7 percentage-point decrease in the ratio for 2021 catastrophe losses. Development on prior accident years’ loss
and loss expense reserves before catastrophes during 2021 was 2.1 percentage points more favorable than in
2020.
We have increased our pricing precision and implemented numerous rate increases in recent years to improve
our personal lines insurance segment results. In addition, we have made greater use of higher minimum loss
Cincinnati Financial Corporation - 2021 10-K - Page 73
deductibles and enhanced our property inspection processes to verify condition and insurance to value. We have
worked to improve our geographic diversification by expanding our personal lines operation to several states less
prone to catastrophes.
Our personal lines statutory combined ratio was 93.5% in 2021, compared with 96.4% in 2020 and 99.3% in 2019.
The contribution of catastrophe losses to our personal lines statutory combined ratio was 13.7 percentage points
in 2021, 15.4 percentage points in 2020 and 9.9 percentage points in 2019.
Personal Lines Insurance Premiums
(Dollars in millions)
Agency renewal written premiums
Agency new business written premiums
Other written premiums
Net written premiums
Unearned premium change
Earned premiums
Years ended December 31,
2020
2021
2019
$
1,434 $
202
(42)
1,364 $
174
(35)
1,594
1,503
(52)
1,542 $
(40)
1,463 $
$
1,312
158
(35)
1,435
(31)
1,404
2021-2020
2020-2019
Change % Change %
4
10
0
5
(29)
4
5
16
(20)
6
(30)
5
Personal lines insurance is a strategic component of our overall relationship with most of our agencies and is an
important component of our agencies’ relationships with their clients. We believe agents recommend our personal
insurance products to their clients who seek to balance quality and price and who are attracted by our superior
claims service and the benefits of our package approach. We also believe our continuing efforts to improve pricing
precision are helping us attract and retain more of our agencies’ preferred business, while also obtaining higher
rates for more thinly priced business.
The 5% increase in agency renewal written premiums in 2021 reflected various rate changes. We estimate that
premium rates for our personal auto line of business increased at average percentages near the high end of the
low-single-digit range during 2021, with some individual policies experiencing lower or higher rate changes based
on enhanced pricing precision enabled by predictive models that consider characteristics of specific risks. For our
homeowner line of business, we estimate that rate increases during 2021 averaged in the mid-single-digit range.
Similar to our personal auto line of business, that average varied widely by state, and some individual policies
experienced lower or higher rate changes based on pricing precision and current rate level indications that helped
determine appropriate premium rates.
Personal lines new business written premiums grew by $28 million, or 16%, during 2021, compared with 2020. We
believe underwriting and pricing discipline was maintained in recent quarters, and the growth reflects expanded use
of enhanced pricing precision tools, including excess and surplus lines homeowner policies we began offering in
early 2020. Some of what we report as new business came from accounts that were not new to our agents.
We believe our agents’ seasoned accounts tend to be priced more accurately than business that may be less
familiar to them.
Other written premiums primarily consist of premiums that are ceded to reinsurers and lower our net written
premiums. An increase in ceded premiums reduced net written premium growth by $5 million in 2021.
Cincinnati Financial Corporation - 2021 10-K - Page 74
Personal Lines Insurance Loss and Loss Expenses
Loss and loss expenses include both net paid losses and reserve changes for unpaid losses as well as
the associated loss expenses. Most of the incurred losses and loss expenses shown in the personal lines
insurance segment three-year highlights table are for the respective current accident years, with reserve
development on prior accident years shown separately. Since approximately two-thirds of our personal lines
current accident year incurred losses and loss expenses represent net paid amounts, the remaining one-third
represents reserves for our estimate of ultimate losses and loss expenses. These reserves develop over time, and
we re-estimate previously reported reserves as we learn more about the development of the related claims.
The table below illustrates that development. For example, the 68.1% accident year 2020 loss and loss expense
ratio reported as of December 31, 2020, developed favorably by 3.6 percentage points to 64.5% due to claims
settling for less than previously estimated, or due to updated reserve estimates for unpaid claims, as of
December 31, 2021. Accident years 2020 and 2019 for the personal lines insurance segment have both developed
favorably, as indicated by the progression over time for the ratios in the table.
(Dollars in millions)
Accident year loss and loss expenses incurred and ratios to earned premiums:
Accident year:
as of December 31, 2021
as of December 31, 2020
as of December 31, 2019
2021
2020
2019
$
1,042 $
943 $
995
990
991
1,012
2021
67.6 %
2020
64.5 %
68.1
2019
70.6 %
70.6
72.1
Catastrophe losses, as discussed in Consolidated Property Casualty Insurance Results, explain some of the
movement in the current accident year loss and loss expense ratio for accident year 2021, compared with accident
year 2020. Catastrophe losses added 14.2 percentage points in 2021, 16.0 points in 2020 and 9.7 points in 2019 to
the respective personal lines current accident year loss and loss expense ratios in the table above. Personal lines
catastrophe losses for 2021 resulted in a ratio higher than our 11.2% 10-year annual average for personal lines that
included 22.8% for 2011. Personal lines catastrophe losses are inherently volatile, as discussed above and in
Consolidated Property Casualty Insurance Results.
The 53.4% ratio for current accident year loss and loss expenses before catastrophe losses for 2021 increased
1.3 percentage points compared with the 52.1% accident year 2020 ratio measured as of December 31, 2020. The
ratio for 2020 was unusually low due to reduced driving related to the pandemic that contributed to a reduction in
reported claims. The increase included a 0.6 percentage-point increase in the ratio for current accident year losses
of $1 million or more per claim, shown in the table below. Other contributions included favorable effects from various
initiatives, such as those to improve pricing precision and loss experience related to claims and loss control
practices.
Personal lines loss and loss expense reserve development on prior accident years recognized in 2021 was
favorable by $50 million, in aggregate, compared with $18 million in 2020. The 2021 net favorable reserve
development included $31 million for our personal auto line of business and $14 million for our homeowner line of
business. The 2020 net favorable reserve development included $15 million for our personal auto line of business
and $5 million for our homeowner line of business. Development by accident year and other trends for personal
lines loss and loss expenses and the related ratios are further discussed in Liquidity and Capital Resources,
Property Casualty Insurance Development of Estimated Reserves by Accident Year.
Cincinnati Financial Corporation - 2021 10-K - Page 75
Personal Lines Insurance Losses by Size
(Dollars in millions, net of reinsurance)
Current accident year losses greater than $5,000,000
$
Current accident year losses $1,000,000-$5,000,000
Large loss prior accident year reserve development
Total large losses incurred
Losses incurred but not reported
Other losses excluding catastrophe losses
Catastrophe losses
Total losses incurred
$
Ratios as a percent of earned premiums:
Current accident year losses greater than $5,000,000
Current accident year losses $1,000,000-$5,000,000
Large loss prior accident year reserve development
Total large loss ratio
Losses incurred but not reported
Other losses excluding catastrophe losses
Catastrophe losses
Total loss ratio
Years ended December 31,
2020
2021
2019
15
56
(4)
67
11
588
198
864
1.0 %
3.6
(0.2)
4.4
0.7
38.1
12.8
56.0 %
$ —
$ —
$
$
59
6
65
39
523
216
843
0.0 %
4.0
0.4
4.4
2.7
35.8
14.7
57.6 %
51
(1)
50
17
662
135
864
0.0 %
3.6
(0.1)
3.5
1.2
47.2
9.6
61.5 %
2021-2020
2020-2019
Change % Change %
nm
(5)
nm
3
(72)
12
(8)
2
nm
16
nm
30
129
(21)
60
(2)
Pt. Change
Pt. Change
1.0
(0.4)
(0.6)
0.0
(2.0)
2.3
(1.9)
(1.6)
0.0
0.4
0.5
0.9
1.5
(11.4)
5.1
(3.9)
In 2021, personal lines total large losses incurred increased by $2 million, or 3%, net of reinsurance. The ratio for
2021 large losses as a percent of earned premiums matched 2020. The 2021 increase on a dollar basis was
primarily due to a higher amount for umbrella coverage in our other personal line of business that was partially
offset by a lower amount for our homeowner line of business. In 2020, total large losses increased, compared with
2019, primarily due to higher amounts for our homeowner line of business and umbrella coverage in our other
personal line of business. Our analysis indicated no unexpected concentration of these losses and reserve
increases by risk category, geographic region, policy inception, agency or field marketing territory. We believe the
inherent volatility 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 volatility in addition to general inflationary trends in loss costs.
Personal Lines Insurance Underwriting Expenses
(Dollars in millions)
Commission expenses
Other underwriting expenses
Total underwriting expenses
Ratios as a percent of earned premiums:
Commission expenses
Other underwriting expenses
Total underwriting expense ratio
$
$
Years ended December 31,
2020
2019
$
$
266
177
443
$
$
259
156
415
2021
292
165
457
2021-2020
2020-2019
Change % Change %
3
13
7
10
(7)
3
19.0 %
10.7
29.7 %
18.2 %
12.1
30.3 %
Pt. Change
0.8
(1.4)
(0.6)
18.5 %
11.1
29.6 %
Pt. Change
(0.3)
1.0
0.7
Personal lines commission expense as a percent of earned premiums increased in 2021, compared with 2020,
primarily due to an increase in the ratio for profit-sharing commissions for agencies. The ratio for 2020 decreased
compared with 2019, largely due to a decrease in the ratio for profit-sharing commissions for agencies that reflected
a higher amount of catastrophe losses. In 2021, other underwriting expenses as a percent of earned premiums
decreased, compared with 2020 that included a $16 million Stay-at-Home policyholder credit for personal auto
policies. We also continued expense management efforts in 2021 and premium growth outpaced growth in other
expenses. Other underwriting expenses as a percent of earned premiums in 2020 increased, compared with 2019,
primarily due to the 15% policyholder credit applied to each personal auto policy for the months of April and
May 2020.
Cincinnati Financial Corporation - 2021 10-K - Page 76
Personal Lines Insurance Outlook
A.M. Best indicates 2021 personal lines direct written premiums for the U.S. property casualty industry grew
approximately 5%, based on industry data reported through the first nine months of 2021. Growth for our personal
lines insurance segment net written premiums in 2021 exceeded the industry by approximately one percentage
point, and we believe it will likely be higher than industry projections for 2022. Drivers of our growth include rate
increases, an accelerated pace of new agency appointments in recent years and increased focus on the high net
worth personal lines market.
Our high net worth initiative, along with various other actions to improve performance in our personal lines
insurance segment, is discussed in greater detail in Personal Lines Insurance Results and also in Item 1,
Our Business and Our Strategy, Strategic Initiatives and Our Segments, Personal Lines Insurance Segment.
Cincinnati Financial Corporation - 2021 10-K - Page 77
Excess and Surplus Lines Insurance Results
Overview – Three-Year Highlights
(Dollars in millions)
Earned premiums
Fee revenues
Total revenues
Loss and loss expenses from:
Current accident year before catastrophe losses
Current accident year catastrophe losses
Prior accident years before catastrophe losses
Prior accident years catastrophe losses
Loss and loss expenses
Underwriting expenses
Underwriting profit
Ratios as a percent of earned premiums:
Current accident year before catastrophe losses
Current accident year catastrophe losses
Prior accident years before catastrophe losses
Prior accident years catastrophe losses
Loss and loss expenses
Underwriting expenses
Combined ratio
Combined ratio:
Contribution from catastrophe losses and prior years
reserve development
Combined ratio before catastrophe losses and prior years
reserve development
Years ended December 31,
2019
2020
2021
$ 278
$ 325
$ 398
2
2
2
280
327
400
2021-2020
2020-2019
Change % Change %
17
0
17
22
0
22
240
3
7
—
250
106
44
$
187
5
7
—
199
94
34
$
152
1
(11)
—
142
85
53
$
28
(40)
0
0
26
13
29
23
400
nm
0
40
11
(36)
60.3 % 57.7 %
0.6
1.9
0.0
62.8
26.7
89.5 % 90.0 %
1.3
2.1
0.2
61.3
28.7
Pt. Change
2.6
(0.7)
(0.2)
(0.2)
1.5
(2.0)
(0.5)
Pt. Change
3.1
0.9
6.2
0.0
10.2
(1.7)
8.5
54.6 %
0.4
(4.1)
0.2
51.1
30.4
81.5 %
89.5 % 90.0 %
81.5 %
2.5
3.6
(3.5)
87.0 % 86.4 %
85.0 %
(0.5)
(1.1)
0.6
8.5
7.1
1.4
The COVID-19 pandemic did not have a significant effect on our excess and surplus lines insurance segment
premiums during 2021, as net written premiums grew 22%. Premium growth could slow significantly if the basis for
policy premiums, such as the sales results of businesses we insure, decrease as a result of a weakened economy.
Loss experience for our insurance operations is influenced by many factors. We have not determined any material
effect on our excess and surplus lines insurance loss experience for 2021 as a result of the pandemic. Because of
factors that reduce exposure to certain insurance losses, such as reduced sales results for businesses, there could
be a reduction in future losses that generally corresponds to reduced premiums. However, there could be losses or
legal expenses that occur independent of changes in sales of businesses we insure, due to pandemic effects or
other factors.
Our excess and surplus lines insurance segment includes results of The Cincinnati Specialty Underwriters
Insurance Company and CSU Producer Resources Inc. Performance highlights for this segment also included:
•
•
Premiums – Earned premiums and net written premiums continued to grow during 2021, including higher renewal
written premiums that included average renewal estimated price increases in the high-single-digit range.
New business written premiums rose 13% in 2021, compared with 2020, and also contributed to premium growth.
Combined ratio – The combined ratio improved by 0.5 percentage points in 2021, as lower ratios for underwriting
expenses and catastrophe losses offset higher current accident year losses and loss expenses before
catastrophes. The higher current accident year losses and loss expenses before catastrophes reflected what we
believe are now adequate reserves for estimated ultimate losses and loss expenses, as claims on average are
Cincinnati Financial Corporation - 2021 10-K - Page 78
remaining open longer than previously expected. Components of the 2.4 percentage-point increase in 2021 for
the total of loss and loss expense ratios before catastrophe losses, shown in the table above, include an IBNR
portion that increased by 6.5 points and a case incurred portion that decreased by 4.1 points. The paid
component of the case incurred portion decreased by 3.8 percentage points.
Excess and Surplus Lines Insurance Premiums
(Dollars in millions)
Years ended December 31,
2020
2021
2019
Agency renewal written premiums
Agency new business written premiums
Other written premiums
Net written premiums
Unearned premium change
Earned premiums
$
$
323 $
124
(21)
426
(28)
398 $
254 $
110
(16)
348
(23)
325 $
209
110
(16)
303
(25)
278
2020-2019
2021-2020
Change % Change %
22
0
0
15
8
17
27
13
(31)
22
(22)
22
The $69 million increase in 2021 renewal premiums reflected the opportunity to renew many policies for the first
time as well as higher renewal pricing. Average renewal estimated price increases were in the high-single-digit
range during 2021. We measure average changes in excess and surplus lines renewal pricing as the rate of change
in renewal premium for the new policy period compared with the premium for the expiring policy period, assuming
no change in the level of insured exposures or policy coverage between those periods for respective policies.
New business written premiums grew by $14 million during 2021, compared with 2020, as we continued to carefully
underwrite each policy in a highly competitive market. Lack of growth in 2020 was largely due to our underwriters
seeing fewer opportunities to write policies with annual premiums of $10,000 or more at pricing levels that we
believed were adequate. Other written premiums in 2021 reduced net written premium growth by $5 million more
than in 2020, and are primarily premiums that are ceded to reinsurers and therefore reduce our net written
premiums.
Excess and Surplus Lines Loss and Loss Expenses
Loss and loss expenses include both net paid losses and reserve changes for unpaid losses, as well as
the associated loss expenses. The majority of the total incurred losses and loss expenses shown above in the
three-year highlights table are for the respective current accident years, with reserve development on prior
accident years shown separately. Since less than 20% of our excess and surplus lines current accident year
incurred losses and loss expenses represents net paid amounts, a large majority represents reserves for our
estimate of unpaid losses and loss expenses. These reserves develop over time, and we update our estimates of
previously reported reserves as we learn more about the development of the related claims. The table below
illustrates that development. For example, the 55.0% accident year 2019 loss and loss expense ratio reported as of
December 31, 2019, developed favorably by 0.7 percentage points to 54.3% due to claims settling for less than
previously estimated, or due to updated reserve estimates for unpaid claims, as of December 31, 2020.
Accident year 2019 for this segment developed unfavorably during 2021, as indicated by the progression over time
of the ratios in the table.
(Dollars in millions)
Accident year loss and loss expenses incurred and ratios to earned premiums:
Accident year:
as of December 31, 2021
as of December 31, 2020
as of December 31, 2019
2021
2020
2019
$
243 $
192 $
192
158
151
153
2021
60.9 %
2020
59.0 %
59.0
2019
56.9 %
54.3
55.0
Catastrophe losses, as discussed in Consolidated Property Casualty Insurance Results, explain some of the
movement among components of the current accident year loss and loss expense ratio for accident year 2021,
compared with 2020. Catastrophe losses added 0.6 percentage points in 2021, 1.3 percentage points in 2020 and
0.4 percentage points in 2019 to the respective excess and surplus lines current accident year loss and loss
expense ratios in the table above.
Cincinnati Financial Corporation - 2021 10-K - Page 79
The 60.3% ratio for current accident year loss and loss expenses before catastrophe losses for 2021 increased by
2.6 percentage points compared with the 57.7% accident year 2020 ratio measured as of December 31, 2020.
The increase included a 1.6 percentage-point increase in the ratio for current accident year losses of $1 million or
more per claim, shown in the table below.
Excess and surplus lines reserve development on prior accident years was a net unfavorable $7 million for
both 2020 and 2021. Nearly all of the net amount for 2021 was for accident year 2019. The unfavorable reserve
development on prior accident years reflected what we believe are now adequate reserves for estimated ultimate
losses and loss expenses, as claims on average are remaining open longer than previously expected.
We believe the loss and loss expense reserves for our excess and surplus lines business are adequate.
The amount of outstanding reserves for our excess and surplus lines operation can be seen in a table in Liquidity
and Capital Resources, Property Casualty Loss and Loss Expense Obligations and Reserves. One indication of
how long it takes for most of the outstanding reserves to be settled is to measure outstanding reserves by accident
year at different points in time, using Item 8, Note 4 of the Consolidated Financial Statements. For example, for
accident years 2014, 2013 and 2012, in aggregate, after subtracting cumulative paid amounts from incurred
amounts at December 31, 2014, reserves for estimated unpaid losses, plus the portion of loss expenses known as
ALAE, equaled $168 million. For those same accident years, at December 31, 2021, the reserve estimate for the
remaining unpaid amount equaled $7 million. The inherent uncertainty in estimating reserves is discussed in
Liquidity and Capital Resources, Property Casualty Insurance Loss and Loss Expense Obligations and Reserves.
Development trends by accident year are further discussed in Property Casualty Insurance Development of
Estimated Reserves by Accident Year.
Excess and Surplus Lines Insurance Losses by Size
(Dollars in millions, net of reinsurance)
Years ended December 31,
2020
2021
2019
Current accident year losses greater than $5,000,000
$ —
$ —
$ —
Current accident year losses $1,000,000-$5,000,000
Large loss prior accident year reserve development
Total large losses incurred
Losses incurred but not reported
Other losses excluding catastrophe losses
Catastrophe losses
Total losses incurred
Ratios as a percent of earned premiums:
Current accident year losses greater than $5,000,000
Current accident year losses $1,000,000-$5,000,000
Large loss prior accident year reserve development
Total large loss ratio
Losses incurred but not reported
Other losses excluding catastrophe losses
Catastrophe losses
Total loss ratio
16
3
19
53
97
2
8
—
8
31
95
5
$
171
$
139
$
0.0 %
4.1
0.6
4.7
13.4
24.3
0.6
43.0 %
0.0 %
2.5
0.0
2.5
9.5
29.3
1.4
42.7 %
7
2
9
7
76
2
94
0.0 %
2.5
0.6
3.1
2.4
27.7
0.5
33.7 %
2021-2020
2020-2019
Change % Change %
nm
100
nm
138
71
2
(60)
23
nm
14
(100)
(11)
343
25
150
48
Pt. Change
Pt. Change
0.0
1.6
0.6
2.2
3.9
(5.0)
(0.8)
0.3
0.0
0.0
(0.6)
(0.6)
7.1
1.6
0.9
9.0
In 2021, total large losses increased by $11 million, net of reinsurance. The ratio for 2021 large losses as a percent
of earned premiums increased by 2.2 percentage points. That ratio for 2020 decreased by 0.6 points, compared
with 2019. Our analysis indicated no unexpected concentration of these losses and reserve increases by risk
category, geographic region, policy inception, agency or field marketing territory. We believe the inherent volatility 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 volatility in addition to general inflationary trends in loss costs.
Cincinnati Financial Corporation - 2021 10-K - Page 80
Excess and Surplus Lines Insurance Underwriting Expenses
(Dollars in millions)
Commission expenses
Other underwriting expenses
Total underwriting expenses
Ratios as a percent of earned premiums:
Commission expenses
Other underwriting expenses
Total underwriting expenses ratio
$
$
Years ended December 31,
2020
2019
$
$
58
36
94
$
$
53
32
85
2021
70
36
106
2021-2020
2020-2019
Change % Change %
9
13
11
Pt. Change
21
0
13
Pt. Change
17.5 %
9.2
26.7 %
17.6 %
11.1
28.7 %
18.9 %
11.5
30.4 %
(0.1)
(1.9)
(2.0)
(1.3)
(0.4)
(1.7)
Excess and surplus lines commission expense as a percent of earned premiums for 2021 decreased slightly
compared with 2020, despite a slight increase in the ratio for profit-sharing commissions for agencies. The ratio for
2020 decreased compared with 2019, largely due to a decrease in the ratio for profit-sharing commissions for
agencies. The ratio for other underwriting expenses decreased in 2021, largely due to ongoing expense
management efforts and premium growth outpacing growth in expenses. In 2020, the ratio decreased, reflecting
lower levels of business travel spending for associates, in addition to higher earned premiums and ongoing expense
management efforts.
Excess and Surplus Lines Outlook
The excess and surplus lines market is expected to see the magnitude of rate increases moderate for risks that are
casualty-driven. For property risks involving catastrophe exposures, premium rates in the foreseeable future are
expected to be firm. New business opportunities are expected to increase as standard market insurance companies
continue to re-underwrite business they previously took from the excess and surplus lines market and as larger
excess and surplus lines companies re-underwrite their business with an emphasis on underwriting profitability.
Firming is expected to continue for specific classes of business where loss costs are exceeding rates, such as
habitational for property and general liability coverages, liquor liability for general liability coverages and hired and
non-owned for general liability coverages.
Industry reports suggest that there are opportunities for profitability and growth through greater use of technology.
Technology and data are also being used by excess and surplus lines insurance companies to identify new
exposures in emerging businesses that need insurance protection or other value-added services.
Our strategy of providing superior service is expected to continue to grow our excess and surplus lines insurance
segment and to achieve profitability despite challenging market conditions. We intend to keep carefully selecting
and pricing risks, providing prompt delivery of insurance quotes and policies and giving outstanding claims and loss
control service from local field representatives who also handle the standard lines business for their assigned
agencies. These local representatives are supported by headquarters underwriters and claims managers who
specialize in excess and surplus lines.
Cincinnati Financial Corporation - 2021 10-K - Page 81
Life Insurance Results
Overview – Three-Year Highlights
(Dollars in millions)
Earned premiums
Fee revenues
Total revenues
Contract holders' benefits incurred
Investment interest credited to contract holders
Underwriting expenses incurred
Total benefits and expenses
Life insurance segment profit (loss)
Years ended December 31,
2020
2021
2019
$
$
298 $
5
303
340
(105)
84
319
(16) $
289 $
2
291
297
(102)
85
280
11 $
270
4
274
286
(99)
86
273
1
2021-2020
2020-2019
Change % Change %
7
(50)
6
4
(3)
(1)
3
nm
3
150
4
14
(3)
(1)
14
nm
The COVID-19 pandemic did not have a significant effect on our life insurance segment earned premiums or
underwriting expenses in 2021. However, the pandemic did contribute to an increase in death claims during 2021.
It is possible we may continue to experience higher than projected future death claims due to the pandemic.
Performance highlights for the life insurance segment also included:
•
•
Revenues – Earned premiums rose 3% for the year 2021, as shown in the table below that includes details
by major line of business. Our largest life insurance product line, term life insurance, rose 7%. Net in-force
policy face amounts rose 5% to $77.493 billion at year-end 2021 from $73.475 billion at year-end 2020 and
$69.984 billion at year-end 2019.
Profitability – The life insurance segment frequently reports only a small profit or loss because most of its
investment income is included in the investments segment results. We include only investment income credited to
contract holders (interest assumed in life insurance policy reserve calculations) in life insurance segment results.
A $16 million loss for our life insurance segment in 2021, compared with a profit of $11 million in 2020 and
$1 million in 2019, was primarily due to less favorable mortality results as a result of higher death claims. The life
insurance segment has averaged an annual profit of less than $1 million over the past five years.
Earned premiums rose $9 million in 2021, primarily due to growth in our term life insurance business, as shown in
the table below. Growth in 2020 was also primarily due to term life insurance. Universal life insurance earned
premiums can vary, including from changes in interest rate or other actuarial assumptions, and decreased by
$5 million in 2021 after increasing $5 million in 2020.
(Dollars in millions)
Term life insurance
Universal life insurance
Other life insurance and annuity products
Net earned premiums
Years ended December 31,
2020
2021
2019
$
$
210 $
39
49
298 $
197 $
44
48
289 $
186
39
45
270
2021-2020
2020-2019
Change % Change %
6
13
7
(11)
2
3
7
7
Products we market include term, whole and universal life insurance and also fixed annuities. In addition, we offer
term and whole life insurance to employees at their worksite. These products provide our property casualty agency
force with excellent cross-serving opportunities for both commercial and personal accounts.
Over the past several years, we have worked to maintain a portfolio of simple, yet competitive, products. Our
product development efforts emphasize death benefit protection and guarantees. Distribution expansion within our
property casualty insurance agencies remains a high priority. Our 34 life field marketing representatives work in
partnership with our property casualty field marketing representatives. Approximately 65% of our term and other life
insurance product premiums were generated through our property casualty insurance agency relationships.
Cincinnati Financial Corporation - 2021 10-K - Page 82
Life insurance segment expenses consist principally of:
•
•
Contract holders’ benefits incurred, related to traditional life and interest-sensitive products, accounted for 80.2%
of 2021 total benefits and expenses compared with 77.7% in 2020 and 76.9% in 2019. Total contract holders’
benefits increased as net death claims were higher in 2021, compared with 2020, and were above our mortality
projections.
Underwriting expenses incurred, net of deferred acquisition costs, accounted for 19.8% of 2021 total benefits and
expenses compared with 22.3% in 2020 and 23.1% in 2019. Expenses in 2021 decreased by 1%, compared with
3% growth in earned premiums. Expenses in 2020 also decreased 1%, compared with 7% growth in earned
premiums. In both 2021 and 2020, unlocking of interest rate and other actuarial assumptions decreased the
amount of expenses deferred to future periods, increasing underwriting expenses.
Life insurance segment profitability depends largely on premium levels, the adequacy of product pricing,
underwriting skill and operating efficiencies. This segment’s results include only investment interest credited to
contract holders (interest assumed in life insurance policy reserve calculations). The remaining investment income
is reported in the investments segment results. The life investment portfolio is managed to earn target spreads
between earned investment rates on general account assets and rates credited to policyholders. We consider the
value of assets under management and investment income for the life investment portfolio as key performance
indicators for the life insurance segment. We seek to maintain a competitive advantage with respect to benefits paid
and reserve increases by consistently achieving better than average claims experience due to skilled underwriting.
We recognize that assets under management, capital appreciation and investment income are integral to evaluation
of the success of the life insurance segment because of the long duration of life products. On a basis that includes
investment income and investment gains or losses from life insurance-related invested assets, our life insurance
subsidiary reported net income of $44 million in 2021, compared with $32 million in 2020 and $39 million in 2019.
The life insurance subsidiary portfolio had after-tax net investment gains of $8 million in 2021 and after-tax net
investment losses of $21 million in 2020 and $4 million in 2019. Investment gains and losses are discussed under
Investments Results. We exclude most of our life insurance company investment income from investments
segment results.
Life Insurance Outlook
The desire for our products remains strong, influenced in no small part by the COVID-19 waves we continue to
endure. Millennials and Generation Z are now more inclined to consider life insurance than ever before, and we
believe the independent agent is best-positioned to sell it to them. We will continue to benefit from new distribution
as our property casualty company appoints new agencies across the country. The voluntary life insurance market
remains strong as well. We plan to expand our enrollment services with both internal and external options for our
property casualty agencies to choose from if they are unable to do it themselves.
Inflation is raising the possibility that the yield curve will be on the rise. While it will take time for an increase to have
a material effect on our investment income, it would bode well for pricing. We also will monitor legislation to change
the tax code and will position our products accordingly.
Cincinnati Financial Corporation - 2021 10-K - Page 83
Investments Results
Overview – Three-Year Highlights
Investments Results
(Dollars in millions)
Years ended December 31,
2021-2020
2020-2019
2021
2020
2019
Change % Change %
Total investment income, net of expenses
$
714 $
670 $
646
Investment interest credited to contract holders
Investment gains and losses, net
Investments profit, pretax
(105)
(102)
(99)
2,409
865
1,650
$ 3,018 $ 1,433 $ 2,197
7
(3)
178
111
4
(3)
(48)
(35)
We believe the COVID-19 pandemic did not have a significant effect on our investments results in 2021. During
2020, the COVID-19 pandemic and related economic effects caused volatility in fair values of securities. Our fixed-
maturity and equity portfolios experienced a decrease in valuation during the first quarter of 2020, in large part due
to the volatility and economic uncertainty caused by the coronavirus outbreak that affected various sectors of our
portfolio. During the first quarter of 2020, already low oil prices and the sudden demand drop in related products due
to governmental actions, such as shelter-in-place orders, contributed to the energy sector accounting for most of the
write-downs of impaired securities in the tables below. During the last three quarters of 2020, valuations increased
for a significant portion of our fixed-maturity and equity portfolios.
The investments segment contributes investment income and investments gains and losses to results of operations.
Investment income is generally our primary source of pretax and after-tax profits.
Investment income – Pretax investment income grew $44 million, or 7%, in 2021, due to increases from
dividends and interest income. Dividend income grew 12%, reflecting rising dividend rates and net purchases of
equity securities from available funds. Interest income grew 5% in 2021, compared with 2020, as net purchases of
fixed-maturity securities offset the continuing effects of the low interest rate environment on bond yields.
Pretax investment income rose 4% in 2020, including increases in interest and dividend income. Average yields in
the investment income table below are based on the average invested asset and cash amounts indicated in the
table using fixed-maturity securities valued at amortized cost and all other securities at fair value.
Investment gains and losses – We reported an investment gain in 2021, 2020 and 2019, primarily due to
favorable changes in fair values of equity securities even though we continue to hold the securities or as
otherwise required by GAAP.
•
•
We believe it is useful to analyze our overall investment performance by using total investment return over several
years. Total investment return considers changes in unrealized gains and losses that are not included in net income,
in addition to net investment income and investment gains and losses that are included in net income. Changes in
unrealized gains and losses shown in the table below include other invested assets. Considering total investment
gains and losses over several years helps evaluate performance since gains and losses may experience typical
variability during shorter periods of time.
Cincinnati Financial Corporation - 2021 10-K - Page 84
The table below shows total return based on assumptions that simplify cash flow timing that is commonly used in
total return measures. This simplified calculation uses data shown in our consolidated financial statements or notes
to those statements. Added to invested asset amounts from our consolidated balance sheets are 50% of annual
amounts pertaining to invested asset categories included in net cash used in investing activities from our
consolidated statements of cash flows. The cash flow amounts are reduced by net gains from investment portfolio
securities sales or called bonds, with the net result reduced by 50% to represent estimated new cash invested
during each respective year. All new cash is assumed to be invested at the midpoint of the year.
Total investment return of 13.1% in 2021 was 3.3 percentage points more than in 2020. Both the 2021 and 2020
contributions from the investment income component were enhanced by the net favorable effect of the investment
gains and losses components. Comparing contributions for 2021 with 2020, investment income rose $44 million,
investment gains were $1.544 billion more favorable and the invested assets change in unrealized gains and losses
decreased by $670 million. The base component of the return calculation, annual average invested assets, was up
10% in 2021. For 2020 compared with 2019, total investment return decreased by 6.8 percentage points, primarily
due to a less favorable net effect of the investment gains and losses. The base component of the return calculation,
annual average invested assets, increased 17% in 2020.
2021-2020
2020-2019
Change % Change %
5
14
18
9
74
10
7
178
nm
47
9
31
141
18
(10)
17
4
(48)
(20)
(31)
(Dollars in millions)
Invested assets beginning balance:
Fixed maturities
Equity securities
Other invested assets
Invested assets beginning balance
Average acquisitions (dispositions), net
Annual average invested assets
Total investment return:
Years ended December 31,
2020
2021
2019
$ 12,338
8,856
348
21,542
538
$ 22,080
$ 11,698
7,752
296
19,746
309
$ 20,055
$ 10,689
5,920
123
16,732
343
$ 17,075
Investment income, net of expenses
Investment gains and losses, net
Total invested assets change in unrealized gains and losses
Total
$ 714
2,409
(234)
$ 2,889
$ 670
865
436
$ 1,971
$ 646
1,650
544
$ 2,840
Total return on invested assets, pretax
13.1 %
9.8 %
16.6 %
Cincinnati Financial Corporation - 2021 10-K - Page 85
Investment Income
The primary drivers of investment income are highlighted below, followed by additional details of our investment
results.
•
•
Interest income increased by $22 million, or 5%, in 2021, compared with 2020. The average fixed-maturity pretax
yield declined by approximately 1 basis point but was offset by a larger average fixed-maturity portfolio that rose
8% on an amortized cost basis. Interest income in 2020 increased by $9 million, compared with 2019, when that
yield declined by approximately 4 basis points while the portfolio rose 2% on an amortized cost basis.
Dividend income rose $26 million, or 12%, in 2021, after rising 9% in 2020. Increases in dividend payment
rates for most of the holdings in our common stock portfolio during both 2021 and 2020 drove the increases in
dividend income. An increase in funds invested in that portfolio during both 2021 and 2020 also favorably affected
dividend income.
(Dollars in millions)
Investment income:
Interest
Dividends
Other
Less investment expenses
Investment income, pretax
Less income taxes
Years ended December 31,
2021-2020
2020-2019
2021
2020
2019
Change % Change %
$ 477
$ 455
$ 446
246
5
14
714
111
220
8
13
670
104
201
12
13
646
101
5
12
(38)
8
7
7
7
2
9
(33)
0
4
3
4
Total investment income, after-tax
$ 603
$ 566
$ 545
Investment returns:
Average invested assets plus cash and cash equivalents
$ 23,215
$ 20,670
$ 18,697
Average yield pretax
Average yield after-tax
Effective tax rate
Fixed-maturity returns:
Average amortized cost
Average yield pretax
Average yield after-tax
Effective tax rate
3.08 % 3.24 %
3.46 %
2.60
15.5
2.74
15.5
2.91
15.6
$ 11,771
$ 11,210
$ 10,876
4.05 % 4.06 %
4.10 %
3.37
16.8
3.39
16.6
3.42
16.6
In 2021, we continued to invest available cash flow in both fixed income and equity securities in a manner that we
believe balances current income needs with longer-term invested asset growth goals. While our bond portfolio more
than covers our insurance reserve liabilities, we believe our diversified common stock portfolio of mainly blue chip,
dividend-paying companies represents one of our best investment opportunities for the long term. We position our
portfolio with consideration to both the challenges presented by the current low interest rate environment and the
risks presented by potential future inflation. As bonds in our generally laddered portfolio mature or are called over
the near term, we will be challenged to replace their current yield.
Cincinnati Financial Corporation - 2021 10-K - Page 86
The table below summarizes pretax yield to amortized costs excluding any book value adjustments due to
impairment for bonds in our fixed-maturity portfolio by various maturity periods.
At December 31, 2021
Fixed-maturity yield profile:
Expected to mature during 2022
Expected to mature during 2023
Expected to mature during 2024
Average yield and total expected redemptions from 2022 through 2024
% Yield
Principal
redemptions
3.65 % $
3.78
4.27
3.94
$
771
809
1,024
2,604
The average pretax yield of 3.47% for fixed-maturity securities acquired during 2021, shown in the table below, was
lower than the 4.02% average yield-to-amortized cost of the fixed-maturity securities portfolio at the end of 2021.
Average pretax yield-to-amortized cost on new fixed maturities:
Acquired taxable fixed maturities
Acquired tax-exempt fixed maturities
Average total fixed maturities acquired
Years ended December 31,
2021
2020
3.52 %
4.23 %
2.65
3.47
2.71
3.97
We discussed our portfolio strategies in Item 1, Investments Segment. We discuss risks related to our investment
income and our fixed-maturity and equity investment portfolios in Item 7a, Quantitative and Qualitative Disclosures
About Market Risk.
Cincinnati Financial Corporation - 2021 10-K - Page 87
Total Investment Gains and Losses
Investment gains and losses are recognized on the sales of investments, for certain changes in fair values of
securities even though we continue to hold the securities or as otherwise required by GAAP. The change in fair
value for equity securities still held is reported in net income, as disclosed in Note 1, Summary of Significant
Accounting Policies. Total investment gains and losses in 2021 included $2.278 billion of gains from the recognition
of fair value changes of equity securities still held that prior to 2018 would have been reported in other
comprehensive income (OCI) instead of net income. Change in unrealized gains or losses for fixed-maturity
securities are included as a component of OCI. Accounting requirements for the allowance for credit losses and
other-than-temporary impairment (OTTI) charges for the fixed-maturity portfolio are disclosed in Item 8, Note 1,
Summary of Significant Accounting Policies. The factors we consider when evaluating impairments are also
discussed in Critical Accounting Estimates, Asset Impairment.
The timing of gains or losses from sales can have a material effect on results in any given period. However, such
gains or losses usually have little, if any, effect on total shareholders’ equity because most equity and fixed-maturity
investments are carried at fair value.
As appropriate, we buy, hold or sell both fixed-maturity and equity securities on an ongoing basis to help achieve
our portfolio objectives. We generally purchase fixed-maturity securities with the intention to hold until maturity.
If they no longer meet our investment criteria, they are divested. Sales of fixed-maturity securities are usually due to
a change in credit fundamentals. Pretax total investment gains in 2021, 2020 and 2019 were largely due to
favorable changes in fair values of equity securities even though we continue to hold the securities. Additional
information about investment gains or losses is included in Item 8, Note 2 of the Consolidated Financial Statements.
The table below summarizes total investment gains and losses, before taxes.
(Dollars in millions)
Investment gains and losses
Equity securities:
Years ended December 31,
2021
2020
2019
Investment gains and losses on securities sold, net
$
4 $
79 $
Unrealized gains and losses on securities still held, net
Subtotal
Fixed-maturity securities:
Gross realized gains
Gross realized losses
Write-down of impaired securities
Subtotal
Other
Total investment gains and losses reported in net income
Change in unrealized investment gains and losses reported in OCI
Fixed-maturity securities
Total
$
$
2,278
2,282
36
(5)
(1)
30
97
2,409 $
(234)
2,175 $
841
920
16
(3)
(78)
(65)
10
865 $
436
1,301 $
26
1,626
1,652
13
(3)
(9)
1
(3)
1,650
544
2,194
Cincinnati Financial Corporation - 2021 10-K - Page 88
Write-downs of impaired securities or OTTI charges from the investment portfolio by the asset classes we described
in Item 1, Our Segments, Investments Segment, are summarized below:
(Dollars in millions)
Taxable fixed maturities:
Impairment amount
New amortized cost
Percent to total amortized cost owned
Number of impaired securities written down
Percent to number of securities owned
Tax-exempt fixed maturities:
Impairment amount
New amortized cost
Percent to total amortized cost owned
Number of impaired securities written down
Percent to number of securities owned
Totals:
Impairment amount
New amortized cost
Percent to total amortized cost owned
Number of impaired securities written down
Percent to number of securities owned
Years ended December 31,
2020
2021
2019
$
$
$
$
$
$
$
$
$
$
$
$
—
—
— %
—
— %
1
2
— %
5
— %
1
2
— %
5
— %
$
$
$
$
$
$
77
78
1 %
13
2 %
1
1
— %
1
— %
78
79
1 %
14
1 %
9
20
— %
3
— %
—
—
— %
—
— %
9
20
— %
3
— %
Write-downs of impaired securities or OTTI charges from the investment portfolio by industry are summarized
as follows:
(Dollars in millions)
Fixed maturities:
Energy
Real estate
Consumer goods
Municipal
Technology & Electronics
Total fixed maturities
Years ended December 31,
2020
2021
2019
$
$
— $
—
—
1
—
1 $
62 $
13
1
1
1
78 $
6
3
—
—
—
9
Cincinnati Financial Corporation - 2021 10-K - Page 89
Investments Outlook
The year 2021 saw a continuation of the economic recovery that began in the second half of 2020. Most bond
markets experienced declines as interest rates rose. In 2022, we will likely see the Federal Reserve take rate
actions that could further pressure existing bond values while at the same time provide opportunities to invest at
potentially higher yields. Periods in which the central bank moves to a less accommodating or tightening position
can also lead to increased equity market volatility.
We continue to focus on portfolio strategies to balance near-term income generation and long-term book value
growth. In 2022, we expect to continue to allocate a portion of cash available for investment to equity securities,
taking into consideration corporate liquidity and income requirements, as well as insurance department regulations
and rating agency comments. We discuss our portfolio strategies in Item 1, Our Segments, Investments Segment.
Cincinnati Financial Corporation - 2021 10-K - Page 90
Other
Total revenues in 2021 and 2020 for our Other operations increased, compared with the respective prior-year
periods, primarily due to earned premiums of Cincinnati Re and Cincinnati Global. Other also includes
noninvestment operations of the parent company and its commercial leasing and financial services subsidiary,
CFC Investment Company. Total expenses for Other also increased in 2021 and 2020, primarily due to losses and
loss expenses and underwriting expenses from Cincinnati Re and Cincinnati Global.
Other loss in the table below represents losses before income taxes. For each year shown, Other loss was largely
driven by interest expense from debt of the parent company. Net results for the combination of Cincinnati Re and
Cincinnati Global were an underwriting loss of approximately $8 million in 2021 and $26 million in 2020 and an
underwriting profit of approximately $39 million in 2019. The underwriting loss in 2020 included $31 million of
pandemic-related incurred losses and expenses, as discussed in Corporate Financial Highlights of Management’s
Discussion and Analysis.
(Dollars in millions)
Interest and fees on loans and leases
Earned premiums
Other revenues
Total revenues
Interest expense
Loss and loss expenses
Underwriting expenses
Operating expenses
Total expenses
Other loss
2021-2020
2020-2019
Change % Change %
17
33
(25)
33
(2)
27
28
0
24
21
20
28
0
28
2
67
29
(13)
42
(221)
Years ended December 31,
2020
2019
2021
$
$
7 $
570
3
580
53
414
164
20
651
(71) $
6 $
427
4
437
54
325
128
20
527
(90) $
5
333
4
342
53
195
99
23
370
(28)
Cincinnati Financial Corporation - 2021 10-K - Page 91
Taxes
We had a $724 million income tax expense in 2021, compared with $283 million in 2020 and $475 million in 2019.
The corporate effective tax rate for 2021 was 19.7% compared with 18.9% in 2020 and 19.2% in 2019.
The changes in our effective tax rate between periods were primarily due to large changes in our net investment
gains and losses, included in income for the periods, as well as changes in underwriting income.
Historically, we have pursued a strategy of investing some portion of cash flow in tax-advantaged fixed-maturity and
equity securities to minimize our overall tax liability and maximize after-tax earnings. See Item 1, Our Segments,
Fixed-Maturity Securities Investments, for further discussion on municipal bond purchases in our fixed-maturity
investment portfolio.
For tax years after 2017, for our property casualty insurance subsidiaries, approximately 75% of interest from tax-
advantaged, fixed-maturity investments and approximately 40% of dividends from qualified equities are exempt from
federal tax after applying proration. For our noninsurance companies, the dividend received deduction exempts 50%
of dividends from qualified equities. Our life insurance company does not own tax-advantaged, fixed-maturity
investments or equities subject to the dividend received deduction.
Our effective tax rate reconciliation is found in Item 8, Note 11 of the Consolidated Financial Statements.
Cincinnati Financial Corporation - 2021 10-K - Page 92
Liquidity and Capital Resources
We seek to maintain prudent levels of liquidity and financial strength for the protection of our policyholders, creditors
and shareholders. We manage liquidity at two levels to meet the short- and long-term cash requirements of
business obligations and growth needs. The first is the liquidity of the parent company. The second is the liquidity of
our lead insurance subsidiary. Management of liquidity at both levels is essential because each has different funding
needs and sources, and each is subject to certain regulatory guidelines and requirements.
We believe the COVID-19 pandemic did not have a significant effect on our cash flows during 2021. In addition to
our historically positive operating cash flow to meet the needs of operations, we have the ability to slow investing
activities if such need arises or sell a portion of our high-quality, liquid investment portfolio. We also have additional
capacity to borrow on our revolving short-term line of credit, as described further below.
Parent Company Liquidity
At December 31, 2021, the parent company had $5.053 billion in cash and marketable securities, providing strong
liquidity to fund cash outflows, as needed. The payment of dividends to shareholders is largely based upon
receiving subsidiary dividends. Alternatively, we could sell investments or use our line of credit to support the
dividend payment.
The parent company’s primary sources of cash inflows are dividends from our lead insurance subsidiary, investment
income and sale proceeds from investments. The parent company’s cash outflows are primarily interest and
principal payments on long- and short-term debt, dividends to shareholders, common stock repurchases, deposits
at Lloyd's and general operating expenses. The table below shows a summary, by the direct cash flow method, of
the major sources and uses of cash flow of the parent company.
(Dollars in millions)
Sources of liquidity:
Subsidiary dividends received
Investment income received
Proceeds from stock options exercised
Return of funds on deposit from Lloyd's
Uses of liquidity:
Shareholders' dividend payments
Share repurchases
Debt interest payments
Payment of funds on deposit at Lloyd's
Years ended December 31,
2020
2021
2019
$
$
598 $
90
13
117
395 $
144
52
14
550 $
81
7
5
375 $
261
54
47
625
75
11
—
355
67
52
67
We expect 2022 parent company sources of cash flow to be similar to 2021. Use of liquidity for share repurchases
are discretionary depending on cash availability and capital management decisions. In addition, the subsidiaries
have the discretion to pay dividends to the parent company. Cincinnati Global is required to maintain certain capital
funding requirements with Lloyd’s, which the parent company may deposit on their behalf. These funding
requirements may fluctuate based on the profitability of Cincinnati Global and syndicate solvency capital
requirements as set by Lloyd's, which may result in return of funds on deposit. Other than share repurchases and
funding at Lloyd's, the majority of expenditures for the parent company have been consistent during the last three
years, and we expect future expenditures to remain stable.
Cincinnati Financial Corporation - 2021 10-K - Page 93
Insurance Subsidiary Liquidity
The parent company’s lead insurance subsidiary largely represents the operations of the property casualty
segments. The primary sources of cash inflows are collection of premiums, investment income, maturity of fixed-
income securities and sale proceeds from investments. Property casualty insurance premiums generally are
received before losses are paid under the policies purchased with those premiums. Cash outflows are primarily loss
and loss expenses, commissions, salaries, taxes, operating expenses and investment purchases. Over the three-
year period ended December 31, 2021, premium receipts and investment income have been more than sufficient to
pay claims and operating expenses. Excess cash flows were partially used to pay dividends to the parent company.
We are not aware of any known trends that would materially change historical cash flow results, other than
fluctuations in catastrophe claims and other large losses, either individually or in aggregate.
The table below shows a summary of operating cash flow for property casualty insurance (direct method).
Historically, annual variation in operating cash flow has been largely related to changes in amounts of
catastrophe losses.
(Dollars in millions)
Premiums collected
Loss and loss expenses paid
Commissions and other underwriting expenses paid
Cash flow from underwriting
Investment income received
Cash flow from operations
Other Sources of Liquidity
Years ended December 31,
2020
2021
2019
$
$
6,309 $
(3,094)
(1,842)
1,373
497
1,870 $
5,828 $
(3,183)
(1,785)
860
456
1,316 $
5,495
(3,260)
(1,639)
596
451
1,047
Cash in excess of operating requirements is invested in fixed-maturity and equity securities. Cash generated
from investment income provides an important investment contribution to cash flow and liquidity. The sale of
investments could provide an additional source of liquidity at either the parent company or insurance subsidiary
level, if required. In addition to possible sales of investments, proceeds of calls or maturities of fixed-maturity
securities also can provide liquidity. During the five-year period beginning in 2022, fair value of $4.568 billion, or
35.1%, of our fixed-maturity portfolio is scheduled to mature. At December 31, 2021, we had $10.862 billion of
common stock securities, with $4.774 billion, or 44.0%, held by the parent company.
Financial resources of the parent company also could be made available to our insurance subsidiaries,
if circumstances required it. This flexibility would include our ability to access the capital markets and short-term
bank borrowings. We generally have minimized our reliance on debt financing, although we may use the line of
credit to fund short-term cash needs.
Cincinnati Financial Corporation - 2021 10-K - Page 94
•
•
•
•
•
Long-Term Debt
We provide details of our three long-term notes in Item 8, Note 8 of the Consolidated Financial Statements.
None of the notes are encumbered by rating triggers. The total principal amount of our long-term debt at
December 31, 2021, was $793 million and included:
$28 million aggregate principal amount of 6.900% senior debentures due 2028.
$391 million aggregate principal amount of 6.920% senior debentures due 2028.
$374 million aggregate principal amount of 6.125% senior debentures due 2034.
The company’s senior debt is rated investment grade by four independent rating agencies. None of the rating
agencies made changes to our debt ratings in 2021. At February 23, 2022, our debt ratings from the rating agencies
were: a from A.M. Best, A- from Fitch, A3 from Moody’s and BBB+ from S&P.
Note Payable
At December 31, 2021, we had a $300 million line of credit with commercial banks, with $54 million borrowed at
both December 31, 2021 and 2020. That unsecured revolving line of credit has an accordion feature giving us the
option to double the $300 million amount, under the same terms and conditions. Terms and conditions of the
agreement include a debt-to-total capital maximum of 35% and the agreement has no net worth covenant. It was
due to expire on February 4, 2024, with the option of two one-year extensions. We exercised both one-year options
to extend the term of the line of credit by two additional years to February 4, 2026.
At year-end 2021, we were in compliance with all covenants under the credit agreement and believe we will remain
in compliance. The credit agreement provides alternative interest charges based on the type of borrowing and our
debt rating. The interest rate charged is adjusted LIBOR plus an applicable margin. The agreement contains
successor LIBOR rate language, which will require an amendment to reflect the new replacement rate. We could be
impacted to the extent the replacement rate differs materially from the LIBOR rate.
Capital Resources
Capital resources, consisting of shareholders’ equity and total debt, represent our overall financial strength to
support current obligations and growth in our insurance businesses. At December 31, 2021, we had total capital of
$13.948 billion. Shareholders’ equity was $13.105 billion, an increase of $2.316 billion, or 21%, from the prior year.
Our total debt was $843 million, up $1 million from a year ago. We seek to maintain a solid financial position and
provide capital flexibility by keeping our ratio of debt to total capital moderate. At year-end 2021, the ratio was 6.0%,
compared with 7.2% at year-end 2020.
At times we enter into letter of credit agreements to support our Cincinnati Re and Cincinnati Global operations.
We have an unsecured letter of credit agreement to provide a portion of the capital needed to support Cincinnati
Global's obligations at Lloyd's. The amount of this unsecured letter of credit agreement was $94 million with no
amounts drawn at December 31, 2021.
At the discretion of the board of directors, the company can return capital directly to shareholders as
discussed below.
Dividends to shareholders – The ability of our company to continue paying cash dividends is subject to factors
the board of directors deems relevant. While the board and management believe there is merit to sustaining the
company’s long record of dividend increases, our first priority is the company’s financial strength. Over the past
10 years, the company has paid an average of 51% of net income as dividends. Through 2021, the board had
increased our cash dividend for 61 consecutive years. The board's decision in January 2022 to increase the
dividend demonstrated confidence in the company’s strong capital, liquidity, financial flexibility and initiatives to
grow earnings.
Common stock repurchase – Generally, our board believes that share repurchases can help fulfill our commitment
to enhancing shareholder value. Consequently, the board has authorized the repurchase of outstanding shares,
giving management discretion to purchase shares at reasonable prices in light of circumstances at the time of
purchase. Our approach has been to hold capital adequate to support future growth of our insurance operations
and repurchase shares at management's discretion. Repurchases are intended to offset the issuance of shares
through equity compensation plans, primarily due to vesting of service-based restricted stock units of equity
awards granted in the past. The amount of future repurchases may be more, or less, than the past, depending
on circumstances and discretion exercised by management. Our corporate Code of Conduct restricts
Cincinnati Financial Corporation - 2021 10-K - Page 95
repurchases during certain time periods. The details of the repurchase authorizations and activity are described in
Item 5, Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities.
Obligations
We pay obligations to customers, suppliers and associates in the normal course of our business operations.
Some are contractual obligations that define the amount, circumstances and/or timing of payments. We have other
commitments for business expenditures; such as $294 million we expect to fund for our private equity and real
estate investments, however, the amount, circumstances and/or timing of our other commitments are not dictated by
contractual arrangements.
Contractual Obligations
At December 31, 2021, we estimated our significant future contractual obligations as follows:
(Dollars in millions)
Payment due by period
Year
2022
Years
2023-2026
There-
after
Total
Gross property casualty loss and loss expense payments
$
2,627 $
3,695 $
907 $
Gross life policyholder obligations
Long-term debt
Interest on long-term debt
Profit-sharing commissions
Other liabilities
Total
87
—
52
195
122
335
—
208
—
40
5,500
793
215
—
5
7,229
5,922
793
475
195
167
$
3,083 $
4,278 $
7,420 $
14,781
Liquidity and Capital Resources Outlook
At December 31, 2021, we had $1.139 billion in cash and cash equivalents. During 2022, our lead insurance
subsidiary may pay $929 million in dividends to our parent company without regulatory approval. That strong
liquidity and our consistent cash flows give us the flexibility to meet current obligations and commitments while
building value by prudently investing where we see potential for both current income and long-term return.
Our cash and cash equivalents provide adequate financial cushion when short-term operating results do not meet
our objectives.
A long-term perspective governs our liquidity and capital resources decisions, with the goal of benefiting
our policyholders, agents, shareholders and associates over time. Our underwriting philosophy and initiatives can
drive performance to achieve our underwriting profitability target of a GAAP combined ratio over any five-year
period that consistently averages within the range of 95% to 100%. Our GAAP combined ratio averaged 94.8% over
the five-year period 2017 through 2021, resulting in strong underwriting profits.
In any year, we consider the most likely source of pressure on liquidity would be an unusually high level of
catastrophe loss payments within a short period of time. There could be additional obligations for our insurance
operations due to increasing severity or frequency of noncatastrophe claims. To address the risk of unusually large
insurance loss obligations, including catastrophe events, we maintain property casualty reinsurance contracts with
highly rated reinsurers, as discussed under 2022 Reinsurance Ceded Programs. We also monitor the financial
condition of our reinsurers because their insolvency could jeopardize a portion of our $570 million reinsurance
recoverable asset at December 31, 2021. Parent-company liquidity could also be constrained by Ohio regulatory
requirements that restrict the dividends insurance subsidiaries can pay.
Economic weakness also has the potential to affect our liquidity and capital resources in a number of different ways,
including delinquent payments from agencies, defaults on interest payments by fixed-maturity holdings in our
portfolio, dividend reductions by holdings in our equity portfolio or declines in the market value of holdings in
our portfolio.
Cincinnati Financial Corporation - 2021 10-K - Page 96
LIBOR Discontinuation
We have identified our population of contracts that contain a LIBOR reference and determined our exposure to be
minimal. Our identification is primarily related to our line of credit, an unsecured letter of credit agreement to provide
a portion of the capital needed to support obligations at Lloyd's, investments in floating rate securities and late fee
provisions. We will continue to work with counterparties to determine alternative rates for each contract identified.
Off-Balance-Sheet Arrangements
We do not use any special-purpose financing vehicles or have any undisclosed off-balance-sheet arrangements (as
that term is defined in applicable SEC rules) that are reasonably likely to have a current or future material effect on
the company’s financial condition, results of operation, liquidity, capital expenditures or capital resources.
Property Casualty Loss and Loss Expense Obligations and Reserves
Our estimate of future gross property casualty loss and loss expense payments of $7.229 billion is lower than loss
and loss expense reserves of $7.305 billion reported on our balance sheet at December 31, 2021. The $76 million
difference is due to certain life and health loss reserves. Reserving practices are discussed in Critical Accounting
Estimates, Property Casualty Insurance Loss and Loss Expense Reserves.
For the business lines in the commercial and personal lines insurance segments, and in total for the excess and
surplus lines insurance segment and for other parts of our property casualty insurance operations, the following
table details gross reserves among case, IBNR and loss expense reserves, net of salvage and subrogation.
The $552 million increase in total gross reserves was primarily due to a $307 million increase in case loss reserves
and a $178 million increase in IBNR loss reserves. The increase in total gross reserves included $125 million for our
commercial casualty line of business, $131 million for excess and surplus lines and $216 million for Cincinnati Re.
Cincinnati Financial Corporation - 2021 10-K - Page 97
Property Casualty Gross Loss and Loss Expense Reserves
(Dollars in millions)
At December 31, 2021
Commercial lines insurance:
Commercial casualty
Commercial property
Commercial auto
Workers' compensation
Other commercial
Subtotal
Personal lines insurance:
Personal auto
Homeowner
Other personal
Subtotal
Excess and surplus lines
Cincinnati Re
Cincinnati Global
Total
At December 31, 2020
Commercial lines insurance:
Commercial casualty
Commercial property
Commercial auto
Workers' compensation
Other commercial
Subtotal
Personal lines insurance:
Personal auto
Homeowner
Other personal
Subtotal
Excess and surplus lines
Cincinnati Re
Cincinnati Global
Total
Loss reserves
Case
reserves
IBNR
reserves
Loss
expense
reserves
Total gross
reserves
Percent of
total
$
$
$
$
1,059 $
357
419
442
91
2,368
211
168
84
463
233
117
150
3,331 $
955 $
338
391
402
92
2,178
205
166
61
432
190
77
147
3,024 $
734 $
82
220
503
9
1,548
53
102
87
242
186
460
97
2,533 $
764 $
127
209
534
13
1,647
56
47
90
193
133
287
95
2,355 $
704 $
62
124
85
116
1,091
60
44
5
109
158
5
2
1,365 $
653 $
69
141
89
104
1,056
68
41
5
114
123
2
3
1,298 $
2,497
501
763
1,030
216
5,007
324
314
176
814
577
582
249
7,229
2,372
534
741
1,025
209
4,881
329
254
156
739
446
366
245
6,677
34.5 %
6.9
10.6
14.3
3.0
69.3
4.5
4.3
2.4
11.2
8.0
8.1
3.4
100.0 %
35.5 %
8.0
11.1
15.4
3.1
73.1
4.9
3.8
2.3
11.0
6.7
5.5
3.7
100.0 %
Cincinnati Financial Corporation - 2021 10-K - Page 98
Asbestos and Environmental Loss and Loss Expense Reserves
We carried $88 million of net loss and loss expense reserves for asbestos and environmental claims at year-end
2021, compared with $85 million year-end 2020. The asbestos and environmental claims amounts for each
respective year constituted 1.3% of total net loss and loss expense reserves at these year-end dates.
We believe our exposure to asbestos and environmental claims is limited, largely because our reinsurance retention
was $500,000 or below prior to 1987. We also were predominantly a personal lines company in the 1960s and
1970s, when asbestos and pollution exclusions were not widely used by commercial lines insurers. During the
1980s and early 1990s, commercial lines grew as a percentage of our overall business and our exposure to
asbestos and environmental claims grew accordingly. Over that period, we endorsed to or included in most policies
an asbestos and environmental exclusion.
Additionally, since 2002, we have revised policy terms where permitted by state regulation to limit our exposure to
mold claims prospectively and further reduce our exposure to other environmental claims generally. Finally, we have
not engaged in any mergers or acquisitions through which such a liability could have been assumed. We continue to
monitor our claims for evidence of material exposure to other mass tort classes, but we have found no such credible
evidence to date.
Reserving data for asbestos and environmental claims has characteristics that limit the usefulness of the methods
and models used to analyze loss and loss expense reserves for other claims. Specifically, asbestos and
environmental loss and loss expenses for different accident years do not emerge independently of one another as
loss development and Bornhuetter-Ferguson methods assume. In addition, asbestos and environmental loss and
loss expense data available to date did not reflect a well-defined tail, greatly complicating the identification of an
appropriate probabilistic trend family model. At year-end 2021, we used a weighted average of a paid survival ratio
method and report year method to estimate reserves for IBNR asbestos and environmental claims. Our exposure to
such claims is limited; we believe a weighted average of both methods produces a sufficient level of reserves.
Gross Property Casualty Loss and Loss Expense Payments
While we believe that historical performance of property casualty and life loss payment patterns is a reasonable
source for projecting future claim payments, there is inherent uncertainty in this estimate of contractual obligations.
We believe that we could meet our obligations under a significant and unexpected change in the timing of these
payments because of the liquidity of our invested assets, strong financial position and access to lines of credit.
Our estimates of gross property casualty loss and loss expense payments do not include reinsurance receivables or
ceded losses. As discussed in 2022 Reinsurance Ceded Programs, we purchase reinsurance to mitigate our
property casualty risk exposure. Ceded property casualty reinsurance unpaid receivables of $327 million at year-
end 2021 are an offset to our gross property casualty loss and loss expense obligations. Our reinsurance program
mitigates the liquidity risk of a single large loss or an unexpected rise in claim severity or frequency due to a
catastrophic event. Reinsurance does not relieve us of our obligation to pay covered claims. The financial strength
of our reinsurers is important because our ability to recover losses under our reinsurance agreements depends on
the financial viability of the reinsurers.
We direct our associates to settle claims and pay losses as quickly as is practical, and we made $3.094 billion of
net claim payments during 2021. At year-end 2021, total net property casualty reserves of $6.902 billion reflected
$3.133 billion in unpaid amounts on reported claims (case reserves), $1.352 billion in loss expense reserves and
$2.417 billion in estimates of claims that were incurred but had not yet been reported (IBNR). The specific amounts
and timing of obligations related to case reserves and associated loss expenses are not set contractually. The
amounts and timing of obligations for IBNR claims and related loss expenses are unknown. We discuss our
methods of establishing loss and loss expense reserves and our belief that reserves are adequate in Critical
Accounting Estimates, Property Casualty Insurance Loss and Loss Expense Reserves.
Cincinnati Financial Corporation - 2021 10-K - Page 99
The historical pattern of using premium receipts for the payment of loss and loss expenses has enabled us to
extend slightly the maturities of our investment portfolio beyond the estimated settlement date of the loss reserves.
The effective duration of our consolidated property casualty fixed-maturity portfolio was 4.5 years at year-end 2021.
By contrast, the duration of our loss and loss expense reserves was approximately 3.1 years. We believe this
difference in duration does not affect our ability to meet current obligations because cash flow from operations is
sufficient to meet these obligations. In addition, investment holdings could be sold, if necessary, to meet higher than
anticipated loss and loss expenses.
Range of Reasonable Reserves
The company established a reasonably likely range for net loss and loss expense reserves of $6.446 billion to
$7.014 billion at year-end 2021, with the company carrying net reserves of $6.902 billion. The range was
$5.859 billion to $6.543 billion at year-end 2020, with the company carrying net reserves of $6.400 billion. Our loss
and loss expense reserves are not discounted for the time-value of money, but we have reduced the reserves by an
estimate of the amount of salvage and subrogation payments we expect to recover.
The low point of each year’s range corresponds to approximately one standard error below each year’s mean
reserve estimate, while the high point corresponds to approximately one standard error above each year’s mean
reserve estimate. We discussed management’s reasons for basing reasonably likely reserve ranges on standard
errors in Critical Accounting Estimates, Reserve Estimate Variability.
The ranges reflect our assessment of the most likely unpaid loss and loss expenses at year-end 2021 and 2020.
However, actual unpaid loss and loss expenses could nonetheless fall outside of the indicated ranges.
Management’s best estimate of total loss and loss expense reserves as of year-end 2021 and 2020 was consistent
with the corresponding actuarial best estimate.
Cincinnati Financial Corporation - 2021 10-K - Page 100
Property Casualty Insurance Development of Estimated Reserves by Accident Year
The following table shows net reserve changes at year-end 2021, 2020 and 2019 by property casualty segment and
accident year:
(Dollars in millions)
As of December 31, 2021
2020 accident year
2019 accident year
2018 accident year
2017 accident year
2016 accident year
2015 accident year
2014 and prior accident years
(Favorable)/unfavorable
As of December 31, 2020
2019 accident year
2018 accident year
2017 accident year
2016 accident year
2015 accident year
2014 accident year
2013 and prior accident years
(Favorable)/unfavorable
As of December 31, 2019
2018 accident year
2017 accident year
2016 accident year
2015 accident year
2014 accident year
2013 accident year
2012 and prior accident years
(Favorable)/unfavorable
Commercial
lines
Personal
lines
E&S
lines
Other
Totals
$
$
$
$
$
$
(215) $
(58)
(42)
(19)
(11)
—
(8)
(353) $
(51) $
(44)
(4)
4
(10)
4
6
(95) $
(67) $
(48)
(4)
(27)
(16)
(16)
(14)
(192) $
(52) $
—
5
4
(1)
(1)
(5)
(50) $
(22) $
(3)
3
1
—
1
2
(18) $
(10) $
(6)
(5)
(1)
(3)
(2)
—
(27) $
— $
7
—
1
1
(1)
(1)
7 $
(2) $
—
(1)
8
1
1
—
7 $
(6) $
(1)
(1)
(1)
(1)
(1)
—
(11) $
(16) $
(5)
(7)
2
(6)
—
—
(32) $
(5) $
(9)
(6)
(5)
—
—
—
(25) $
(7) $
(6)
(5)
—
—
—
—
(18) $
(283)
(56)
(44)
(12)
(17)
(2)
(14)
(428)
(80)
(56)
(8)
8
(9)
6
8
(131)
(90)
(61)
(15)
(29)
(20)
(19)
(14)
(248)
Overall favorable development for consolidated property casualty reserves of $428 million in 2021 illustrated the
potential for revisions inherent in estimating reserves, especially for long-tail lines such as commercial casualty and
workers’ compensation. As noted in Critical Accounting Estimates, Key Assumptions Loss Reserving, our models
predict that actual loss and loss expense emergence will differ from projections, and we do not attempt to monitor or
identify such normal variations. The table in Property Casualty Loss and Loss Expense Obligations and Reserves
shows reserves by segment and lines of business and the components of gross reserves among case, IBNR and
loss expense reserves.
Cincinnati Financial Corporation - 2021 10-K - Page 101
Favorable reserve development was $120 million for our commercial casualty line of business, $97 million for our
commercial property line of business and $66 million for our workers’ compensation line of business, together
accounting for approximately 66% of the overall total. Drivers of significant reserve development typically reflect loss
emergence on known claims that was more favorable or less favorable than previously anticipated for various lines
of business and are discussed below.
•
Commercial casualty – During 2021 and 2020, we continued to experience favorable development on prior
accident years in aggregate. We continue to watch this line so we can detect unfavorable trends should
they reoccur.
• Workers’ compensation – We continue to see favorable reserve development, for all prior accident years in
aggregate. During 2021 and 2020, the trend for estimated payments to be made in future calendar years was
stable compared with 2019. However, we continue to monitor this line closely, as a sudden increase in trend for
future payments has a highly leveraged effect.
•
Commercial auto – Ultimate losses developed favorably during calendar year 2021, for all prior accident years in
aggregate, after several years of unfavorable reserve development. During the U.S. economic recession several
years ago, slowing business activity influenced our estimates of reserves for ultimate losses and loss expenses
during that period. As the economy recovered, we believe we were slow to recognize some of the higher loss cost
effects in reserve estimates for at least part of that period. As claims that occurred during that period have
become more mature, loss cost trends resulted in increased estimated ultimate losses for the accident years
impacted by the recession.
In consideration of the data’s credibility, we analyze commercial and personal umbrella liability reserves together
and then allocate the derived total reserve estimate to the commercial and personal coverages. Consequently, the
umbrella factors that contributed to commercial lines reserve development also contributed to personal lines reserve
development through the other personal line, of which personal umbrella coverages are a part.
For the excess and surplus lines insurance segment, the table showing reserves by segment and lines of business
in Property Casualty Loss and Loss Expense Obligations and Reserves, shows the components of gross reserves
among case, IBNR and loss expense reserves. Total gross reserves increased $131 million from year-end 2020,
largely due to the increase in premiums and exposures for this segment, as we discussed in Excess and Surplus
Lines Insurance Results. More prudent reserving, as claims on average are remaining open longer than previously
expected, also contributed to the increase. Adverse, or unfavorable, reserve development netted to $7 million during
2021, following adverse development during 2020 of $7 million for excess and surplus lines insurance segment
reserves, shown in the table above, illustrates the potential for revisions inherent in estimating reserves.
Cincinnati Financial Corporation - 2021 10-K - Page 102
Life Insurance Policyholder Obligations and Reserves
Gross Life Insurance Policyholder Obligations
Our estimates of life, annuity and disability policyholder obligations reflect future estimated cash payments to be
made to policyholders for future policy benefits, policyholders’ account balances and separate account liabilities.
These estimates include death and disability income claims, policy surrenders, policy maturities, annuity payments,
minimum guarantees on separate account products, commissions and premium taxes offset by expected future
deposits and premiums on in-force contracts. Further, these estimates are based on mortality, morbidity and lapse
assumptions reflective of our recent experience and expectations of future payment obligations.
Our estimates of gross life, annuity and disability obligations do not reflect net recoveries from reinsurance
agreements. Ceded life reinsurance receivables were $214 million at year-end 2021. As discussed in
2022 Reinsurance Programs, we purchase reinsurance to mitigate our life insurance risk exposure. At year-end
2021, ceded death benefits represented approximately 33.6% of our total gross policy face amounts in force.
These estimated cash outflows are undiscounted with respect to interest. As a result, the sum of the cash outflows
for all years of $5.922 billion (total of life insurance obligations) exceeds the liabilities recorded in life policy and
investment contract reserves and separate accounts for future policy benefits and claims of $3.960 billion (total of
life insurance policy reserves and separate account policy reserves). A significant portion of the difference can be
attributed to the time value of money and changes in mortality, morbidity and lapse assumptions between the date
the liabilities were originally established and the current date.
We have made significant assumptions to determine the estimated undiscounted cash flows of these policies and
contracts that include mortality, morbidity, timing of claims, future lapse rates and interest crediting rates. Due to the
significance of the assumptions used, the amounts presented could materially differ from actual results.
Life Insurance Reserves
Gross life policy reserves were $3.014 billion at year-end 2021, compared with $2.915 billion at year-end 2020.
The increase was primarily due to reserves for traditional life insurance contracts. We establish reserves for
traditional life insurance policies based on expected expenses, mortality, morbidity, withdrawal rates and investment
yields, including a provision for uncertainty. Once these assumptions are established, they generally are maintained
throughout the lives of the contracts. We use both our own experience and industry experience adjusted for
historical trends in arriving at our assumptions for expected mortality and morbidity. We use our own experience and
historical trends for setting our assumptions for expected withdrawal rates and expenses. We base our assumptions
for expected investment income on our own experience adjusted for current and future expected economic
conditions.
We establish reserves for our universal life, deferred annuity and investment contracts equal to the cumulative
account balances, which include premium deposits plus credited interest less charges and withdrawals. Some of
our universal life insurance policies contain no-lapse guarantee provisions. For these policies, we establish a
reserve in addition to the account balance based on expected no-lapse guarantee benefits and expected
policy assessments.
We regularly review our life insurance business to ensure that any deferred acquisition cost associated with the
business is recoverable and that our actuarial liabilities (life insurance segment reserves) make sufficient provision
for future benefits and related expenses.
Cincinnati Financial Corporation - 2021 10-K - Page 103
2022 Reinsurance Ceded Programs
A single large loss or an unexpected rise in claims severity or frequency due to a catastrophic event is a risk to the
company's liquidity and financial strength. To control such losses, we limit marketing property casualty insurance in
specific geographic areas and monitor our exposure in certain coastal regions. Examples of this include the
reduction in recent years of our homeowner policies in the southeastern U.S. coastal region or limiting our
earthquake writings in the New Madrid region. Loss exposures in these areas have been identified as a major
contributor to our catastrophe probable maximum loss estimates. The table below includes probable maximum loss
estimates for the peril of hurricane. These estimates were subsequently reduced, in large part due to less exposure
from southeastern U.S. homeowner policies. We also continually review aggregate exposures to large disasters and
purchase reinsurance protection to cover these exposures. For business other than Cincinnati Re and Cincinnati
Global, we use the Risk Management Solutions (RMS) and Applied Insurance Research (AIR) models to evaluate
exposures to a once-in-a-100-year and a once-in-a-250-year event to help determine appropriate reinsurance
coverage programs. In conjunction with these activities, we also continue to evaluate information provided by our
reinsurance broker. Examples include deterministic modeling of probable maximum loss contribution from growth in
new geographic territories.
To help determine appropriate reinsurance coverage for hurricane, earthquake and tornado/hail exposures, for
business other than Cincinnati Re and Cincinnati Global we use the RMS and AIR models to estimate the probable
maximum loss from a single event or multiple events occurring in a one-year period. The models are proprietary in
nature, and the vendors that provide them periodically update the models, sometimes resulting in significant
changes to their estimate of probable maximum loss. As of the end of 2021, both models indicated that a hurricane
event represents our largest amount of exposure to losses. The table below summarizes estimated probabilities and
the corresponding probable maximum loss from a single hurricane event occurring in a one-year period, for
business other than Cincinnati Re and Cincinnati Global, and indicates the effect of such losses on consolidated
shareholders’ equity at December 31, 2021. Net losses are net of reinsurance, estimated reinstatement premiums
and income taxes, assuming a 21% federal tax rate, and assume our 2022 reinsurance programs apply.
(Dollars in millions)
RMS Model
AIR Model
Probability at December 31, 2021
2.0% (1 in 50 year event)
1.0% (1 in 100 year event)
0.4% (1 in 250 year event)
0.2% (1 in 500 year event)
Gross
losses
Net
losses
$
427 $
682
1,161
1,638
168
204
468
842
Percent
of total
equity
Gross
losses
Net
losses
1.3 % $
1.6
3.6
6.4
455 $
692
1,084
1,482
169
202
386
689
Percent
of total
equity
1.3 %
1.5
2.9
5.3
The modeled losses according to RMS in the table are based on its RiskLink version 18.1 catastrophe model and
use a long-term storm catalog methodology. The modeled losses according to AIR in the table are based on its AIR
Touchstone® version 8.2.5 catastrophe model and use a long-term methodology. The AIR and RMS storm catalogs
include decades of documented weather events used in simulations for probable maximum loss projections.
Reinsurance mitigates the risk of highly uncertain exposures and limits the maximum net loss that can arise from
large risks or risks concentrated in areas of exposure. Management’s decisions about the appropriate structure of
reinsurance protection and level of risk retention are affected by various factors, including changes in our
underwriting practices, capacity to retain risks and reinsurance market conditions.
Reinsurance does not relieve us of our obligation to pay covered claims. The financial strength of our reinsurers is
important because our ability to recover for losses covered under any reinsurance agreement depends on the
financial viability of the reinsurer.
Cincinnati Financial Corporation - 2021 10-K - Page 104
For 2022, the primary participants on our standard market property and casualty per-risk and per-occurrence
reinsurance ceded programs include Munich Reinsurance America, Hannover Re, Swiss Reinsurance America
Corporation, Partner Reinsurance Company of the U.S. and Transatlantic Reinsurance Company, all of which had
A.M. Best insurer financial strength ratings of A (Excellent) or better as of December 31, 2021. Our property
catastrophe program is subscribed through a broker by reinsurers from the United States, Bermuda, London and
the European markets. The largest participant in our property catastrophe program, representing approximately
28% of total participation, is the Lloyd's of London placement that features numerous syndicates. Some of the other
reinsurers with large participation in the program include Lancashire Insurance Company Limited, Mapfre Re,
Partner Reinsurance Company Ltd. and R&V Versicherung AG.
The following table shows our five largest property casualty reinsurance receivable amounts by reinsurer at year-
end 2021 and 2020. Michigan Catastrophic Claims Association is a mandatory nonprofit association which runs
a reinsurance program funded by an annual premium assessment per vehicle. This assessment covers Michigan’s
automobile no-fault policies, which provide unlimited lifetime coverage for medical expenses resulting from auto
accidents. The A.M. Best insurer financial strength ratings as of the end of the two most recent years are also
shown for each of those reinsurers that have an applicable rating.
(Dollars in millions)
Name of reinsurer
Munich Reinsurance America
Swiss Reinsurance America Corporation
Michigan Catastrophic Claims Association
General Reinsurance Corporation
Hartford Steam Boiler Inspection & Insurance Company
2021
2020
Total
receivable
52
$
41
39
30
23
A.M. Best
Rating
A+
A+
NA
A++
A++
Total
receivable
44
$
41
39
28
14
A.M. Best
Rating
A+
A+
NA
A++
A++
Cincinnati Financial Corporation - 2021 10-K - Page 105
•
•
•
•
•
•
Primary components of the 2022 property and casualty reinsurance program are summarized below. The premium
estimates below occurred near the beginning of each respective year, when direct written premiums that were
subject to applicable reinsurance treaties were also estimated.
Property per risk treaty – The primary purpose of the property treaty is to provide capacity up to $50 million,
adequate for the majority of the risks we write. It also includes protection for extra-contractual liability coverage
losses. We retain the first $10 million of each loss. Losses between $10 million and $50 million are reinsured at
100%. The 2022 ceded premium estimate was $41 million, compared with $36 million for the 2021 estimate.
Property excess treaty – We purchased a property reinsurance treaty that provides an additional $50 million in
protection for certain property losses. This treaty, along with the property per risk treaty, provides a total of
$100 million of protection. The 2022 ceded premium estimate was approximately $4 million, essentially
unchanged from the 2021 estimate.
Casualty per occurrence treaty – The casualty treaty provides capacity up to $25 million. Similar to the
property treaty, it provides sufficient capacity to cover the vast majority of casualty accounts we insure and also
includes protection for extra-contractual liability coverage losses. We retain the first $10 million of each loss.
Losses between $10 million and $25 million are reinsured at 100%. The 2022 ceded premium estimate was
$15 million, compared with $13 million for the 2021 estimate.
Casualty excess treaty – We purchase a casualty reinsurance treaty that provides an additional $45 million in
protection for certain casualty losses. This treaty, along with the casualty per occurrence treaty, provides a total of
$70 million of protection for workers’ compensation, extra-contractual liability coverage and clash coverage
losses, which would apply when a single occurrence involves multiple policyholders of The Cincinnati Insurance
Companies or multiple coverages for one insured. The 2022 ceded premium estimate was approximately
$3 million, essentially unchanged from the 2021 estimate.
Property catastrophe treaty – To protect against catastrophic events such as wind and hail, hurricanes or
earthquakes, we purchased property catastrophe reinsurance with a limit up to $900 million. To promote pricing
stability over changing market conditions, parts of this treaty are written on a multi-year basis. This treaty and our
property and casualty treaties contain exclusions for communicable disease and cyber losses. Aggregation of
losses into one event, sometimes referred to as an hours clause, varies by peril. For example, the general
provision in this treaty is 168 hours, but it is 120 hours for a wind event and 96 hours for a riot or civil commotion
event. Losses from the same occurrence can be aggregated into one limit over the hour period applicable to the
peril causing the loss and applied to the treaty towards recovery. The treaty contains one reinstatement provision.
The 2022 ceded premium estimate was $47 million, compared with $47 million for the 2021 estimate. We retain
the first $100 million of any loss, and a share of losses up to $900 million. The percentage share we retain for
each layer of coverage is indicated below:
◦
◦
◦
◦
◦
◦
54.4% of losses between $100 million and $200 million
14.6% of losses between $200 million and $300 million
10.1% of losses between $300 million and $400 million
10.6% of losses between $400 million and $600 million
23.1% of losses between $600 million and $800 million
52.9% of losses between $800 million and $900 million
Effective June 1, 2021, we nonrenewed our combined property catastrophe occurrence excess of loss treaty that
provided coverage for business written on a direct basis and by Cincinnati Re. We determined that the coverage
was no longer cost effective. A restructured reinsurance program became effective for Cincinnati Re only,
providing retrocession coverages with various triggers and unique features. That program included property
catastrophe excess of loss coverage with a total available aggregate limit of $48 million in excess of $80 million
per loss. Coverage for Cincinnati Re only with a total available aggregate limit of $30 million expired during the
second quarter of 2021.
Cincinnati Financial Corporation - 2021 10-K - Page 106
After reinsurance, our maximum exposure to a catastrophic event that causes $900 million in covered losses in
2022 would be $299 million, compared with our retention of $202 million for 2021 for an event causing $800 million
in covered losses. The largest catastrophe loss event in our history occurred during 2011 from a May 20-27 storm
system that included a tornado in Joplin, Missouri, and that also included significant losses from hail in the Dayton,
Ohio, area. Our losses from that storm were estimated to be $226 million before reinsurance, based on updated
estimates as of December 31, 2017.
Individual risks with insured values in excess of $100 million, as identified in the policy, are handled through a
different reinsurance mechanism. We typically reinsure property coverage for individual risks with insured values
between $100 million and $225 million under an automatic facultative agreement. For risks with property values
exceeding $225 million, we negotiate the purchase of facultative coverage on an individual certificate basis.
For casualty coverage on individual risks with limits exceeding $25 million, facultative reinsurance coverage is
placed on an individual certificate basis. For risks with casualty limits that are between $25 million and $27 million,
we sometimes forego facultative reinsurance and retain an additional $2 million of loss exposure.
Terrorism coverage at various levels has been secured in most of our reinsurance agreements. The broadest
coverage for this peril is found in the property and casualty working treaties, the property per risk treaty and the
casualty per occurrence treaty, which provide coverage for commercial and personal risks. Our property catastrophe
treaty provides terrorism coverage for personal risks, and coverage for commercial risks with total insured values of
$15 million or less. For insured values between $15 million and $100 million, there also may be coverage in the
property working treaty.
A form of reinsurance is also provided through The Terrorism Risk Insurance Act of 2002 (TRIA). TRIA was originally
signed into law on November 26, 2002, and extended on several occasions. The most recent extension was signed
into law on December 20, 2019, and is scheduled to expire on December 31, 2027. TRIA provides a temporary
federal backstop for losses related to the writing of the terrorism peril in property casualty insurance policies. Under
regulations promulgated under this statute, insurers are required to offer terrorism coverage for certain lines of
property casualty insurance, including property, commercial multi-peril, fire, ocean marine, inland marine, liability,
aircraft and workers’ compensation. In the event of a terrorism event defined by TRIA, the federal government would
reimburse terrorism claim payments subject to the insurer’s deductible. The deductible is calculated as
a percentage of subject written premiums for the preceding calendar year. Our deductible in 2021 was $610 million
(20% of 2020 subject premiums), and we estimate it is $658 million (20% of 2021 subject premiums) for 2022.
Reinsurance protection for the company’s surety business is covered under a separate treaty with many of the
same reinsurers that write the property casualty working treaties. Reinsurance protection for cyber coverage is also
through a separate treaty. We offer cyber insurance as an affirmative coverage option on various insurance policies
written on a direct basis and subsequently cede all of the related premiums to a reinsurer, therefore transferring
substantially all of that risk. Reinsurance protection for Cincinnati Global's business is also provided through
separate treaties.
The Cincinnati Specialty Underwriters Insurance Company has separate property and casualty reinsurance treaties
for 2022 through its parent, The Cincinnati Insurance Company. Primary components of the treaties include:
•
•
•
•
Property per risk treaty – The property treaty provides limits up to $5 million, which is adequate capacity for the
risk profile we insure. It also includes protection for extra-contractual liability coverage losses. Cincinnati Specialty
Underwriters retains the first $1 million of any policy loss. Losses between $1 million and $5 million are reinsured
at 100% by The Cincinnati Insurance Company.
Casualty treaties – The casualty treaty is written on an excess of loss basis and provide limits up to $6 million,
which is adequate capacity for the risk profile we insure. A second treaty layer of $5 million excess of $6 million is
written to provide coverage for extra contractual obligations or clash exposures. The maximum retention for any
one casualty loss is $2 million by Cincinnati Specialty Underwriters. Losses on a per occurrence basis between $2
million and $6 million and extra contractual and clash losses between $6 million and $11 million are reinsured at
100% by The Cincinnati Insurance Company.
Basket retention – Cincinnati Specialty Underwriters has purchased this coverage to limit their retention to
$2 million in the event that the same occurrence results in both a property and a casualty loss.
Property catastrophe treaty – As a subsidiary of The Cincinnati Insurance Company, Cincinnati Specialty
Underwriters is a named insured under our corporate property catastrophe treaty. All terms and conditions of this
reinsurance coverage apply to policies underwritten by Cincinnati Specialty Underwriters.
Cincinnati Financial Corporation - 2021 10-K - Page 107
For property risks with limits exceeding $5 million or casualty risks with limits exceeding $6 million, underwriters
place facultative reinsurance coverage on an individual certificate basis.
Cincinnati Life, our life insurance subsidiary, purchases reinsurance under separate treaties with many of the same
reinsurers that write the property casualty working treaties. Our corporate retention is $1 million on a single life.
For most of our core term life insurance line of business, we retain no more than a $500,000 exposure on a single
policy, ceding the balance using excess over retention mortality coverage, and retaining the policy reserve. Because
of the conservative nature of statutory reserving principles, retaining the policy reserve unduly depresses our
statutory earnings and requires a large commitment of our capital. Effective November 1, 2015, we increased our
retention to $1 million for issue ages up to 61 years on new term life insurance sales. For issue ages 61 years or
older, our retention remains $500,000. For term life insurance business written prior to 2005, we retain 10% to 25%
of each term policy, not to exceed $500,000, ceding the balance of mortality risk and policy reserve.
We also have catastrophe reinsurance coverage on our life insurance operations that reimburses us for covered net
losses in excess of $13 million. Our recovery is capped at $75 million for losses involving our associates.
The following table shows our five largest life reinsurance receivable amounts by reinsurer at year-end 2021 and
2020. Insurer financial strength ratings are also shown.
(Dollars in millions)
Name of reinsurer
Swiss Re Life & Health America, Inc.
General Re Life Corporation
Lincoln National Life Insurance Company
Security Life of Denver Insurance Company
Employers Reassurance Corporation
Total
receivable
$
2021
Rating
agency
66 A.M. Best
44 A.M. Best
30 A.M. Best
19
15
S&P
S&P
Total
receivable
$
2020
Rating
Agency
71 A.M. Best
43 A.M. Best
31 A.M. Best
22
15
S&P
S&P
Rating
A+
A++
A+
A+
BBB+
Rating
A+
A++
A+
A+
BBB+
Cincinnati Financial Corporation - 2021 10-K - Page 108
Safe Harbor Statement
This is our “Safe Harbor” statement under the Private Securities Litigation Reform Act of 1995. Our business is
subject to certain risks and uncertainties that may cause actual results to differ materially from those suggested
by the forward-looking statements in this report. Some of those risks and uncertainties are discussed in Item 1A,
Risk Factors.
Factors that could cause or contribute to such differences include, but are not limited to:
•
Effects of the COVID-19 pandemic that could affect results for reasons such as:
◦
◦
◦
Securities market disruption or volatility and related effects such as decreased economic activity
and continued supply chain disruptions that affect our investment portfolio and book value
An unusually high level of claims in our insurance or reinsurance operations that increase litigation-
related expenses
An unusually high level of insurance losses, including risk of legislation or court decisions extending
business interruption insurance in commercial property coverage forms to cover claims for pure
economic loss related to the COVID-19 pandemic
◦ Decreased premium revenue and cash flow from disruption to our distribution channel of
independent agents, consumer self-isolation, travel limitations, business restrictions and decreased
economic activity
◦
Inability of our workforce, agencies or vendors to perform necessary business functions
• Ongoing developments concerning business interruption insurance claims and litigation related to the
COVID-19 pandemic that affect our estimates of losses and loss adjustment expenses or our ability to
reasonably estimate such losses, such as:
◦
The continuing duration of the pandemic and governmental actions to limit the spread of the virus
that may produce additional economic losses
Judicial rulings in similar litigation involving other companies in the insurance industry
The number of policyholders that will ultimately submit claims or file lawsuits
The lack of submitted proofs of loss for allegedly covered claims
◦
◦
◦
◦ Differences in state laws and developing case law
◦
◦ Whether and to what degree any class of policyholders may be certified
◦
The inherent unpredictability of litigation
Litigation trends, including varying legal theories advanced by policyholders
• Unusually high levels of catastrophe losses due to risk concentrations, changes in weather patterns
(whether as a result of global climate change or otherwise), environmental events, terrorism incidents, civil
unrest or other causes
•
Increased frequency and/or severity of claims or development of claims that are unforeseen at the time of
policy issuance, due to inflationary trends or other causes
Inadequate estimates or assumptions, or reliance on third-party data used for critical accounting estimates
•
• Declines in overall stock market values negatively affecting our equity portfolio and book value
•
Prolonged low interest rate environment or other factors that limit our ability to generate growth in
investment income or interest rate fluctuations that result in declining values of fixed-maturity investments,
including declines in accounts in which we hold bank-owned life insurance contract assets
• Domestic and global events resulting in capital market or credit market uncertainty, followed by prolonged
periods of economic instability or recession, that lead to:
◦
◦
◦
Significant or prolonged decline in the fair value of a particular security or group of securities and
impairment of the asset(s)
Significant decline in investment income due to reduced or eliminated dividend payouts from a
particular security or group of securities
Significant rise in losses from surety or director and officer policies written for financial institutions or
other insured entities
Cincinnati Financial Corporation - 2021 10-K - Page 109
• Our inability to manage Cincinnati Global or other subsidiaries to produce related business opportunities
and growth prospects for our ongoing operations
• Recession or other economic conditions resulting in lower demand for insurance products or increased
payment delinquencies
•
Ineffective information technology systems or discontinuing to develop and implement improvements in
technology may impact our success and profitability
• Difficulties with technology or data security breaches, including cyberattacks, that could negatively affect our
or our agents’ ability to conduct business; disrupt our relationships with agents, policyholders and others;
cause reputational damage, mitigation expenses and data loss and expose us to liability under federal and
state laws
• Difficulties with our operations and technology that may negatively impact our ability to conduct business,
including cloud-based data information storage, data security, cyberattacks, remote working capabilities,
and/or outsourcing relationships and third-party operations and data security
• Disruption of the insurance market caused by technology innovations such as driverless cars that could
decrease consumer demand for insurance products
• Delays, inadequate data developed internally or from third parties, or performance inadequacies from
ongoing development and implementation of underwriting and pricing methods, including telematics and
other usage-based insurance methods, or technology projects and enhancements expected to increase our
pricing accuracy, underwriting profit and competitiveness
•
Intense competition, and the impact of innovation, technological change and changing customer
preferences on the insurance industry and the markets in which we operate, could harm our ability to
maintain or increase our ability to maintain or increase our business volumes and profitability
• Changing consumer insurance-buying habits and consolidation of independent insurance agencies could
alter our competitive advantages
•
•
•
•
•
Inability to obtain adequate ceded reinsurance on acceptable terms, amount of reinsurance coverage
purchased, financial strength of reinsurers and the potential for nonpayment or delay in payment by
reinsurers
Inability to defer policy acquisition costs for any business segment if pricing and loss trends would lead
management to conclude that segment could not achieve sustainable profitability
Inability of our subsidiaries to pay dividends consistent with current or past levels
Events or conditions that could weaken or harm our relationships with our independent agencies and
hamper opportunities to add new agencies, resulting in limitations on our opportunities for growth, such as:
◦ Downgrades of our financial strength ratings
◦ Concerns that doing business with us is too difficult
◦
Perceptions that our level of service, particularly claims service, is no longer a distinguishing
characteristic in the marketplace
◦
Inability or unwillingness to nimbly develop and introduce coverage product updates and
innovations that our competitors offer and consumers expect to find in the marketplace
Actions of insurance departments, state attorneys general or other regulatory agencies, including a change
to a federal system of regulation from a state-based system, that:
◦
◦
Impose new obligations on us that increase our expenses or change the assumptions underlying
our critical accounting estimates
Place the insurance industry under greater regulatory scrutiny or result in new statutes, rules and
regulations
◦ Restrict our ability to exit or reduce writings of unprofitable coverages or lines of business
◦
Add assessments for guaranty funds, other insurance‑related assessments or mandatory
reinsurance arrangements; or that impair our ability to recover such assessments through future
surcharges or other rate changes
◦
◦
Increase our provision for federal income taxes due to changes in tax law
Increase our other expenses
Cincinnati Financial Corporation - 2021 10-K - Page 110
Place us at a disadvantage in the marketplace
Limit our ability to set fair, adequate and reasonable rates
◦
◦
◦ Restrict our ability to execute our business model, including the way we compensate agents
Adverse outcomes from litigation or administrative proceedings, including effects of social inflation on the
size of litigation awards
Events or actions, including unauthorized intentional circumvention of controls, that reduce our future ability
to maintain effective internal control over financial reporting under the Sarbanes-Oxley Act of 2002
•
•
• Unforeseen departure of certain executive officers or other key employees due to retirement, health or other
causes that could interrupt progress toward important strategic goals or diminish the effectiveness of certain
longstanding relationships with insurance agents and others
• Our inability, or the inability of our independent agents, to attract and retain personnel in a competitive labor
market, impacting the customer experience and altering our competitive advantages
•
Events, such as an epidemic, natural catastrophe or terrorism, that could hamper our ability to assemble
our workforce at our headquarters location or work effectively in a remote environment
Further, our insurance businesses are subject to the effects of changing social, global, economic and regulatory
environments. Public and regulatory initiatives have included efforts to adversely influence and restrict premium
rates, restrict the ability to cancel policies, impose underwriting standards and expand overall regulation. We also
are subject to public and regulatory initiatives that can affect the market value for our common stock, such as
measures affecting corporate financial reporting and governance. The ultimate changes and eventual effects, if any,
of these initiatives are uncertain.
Cincinnati Financial Corporation - 2021 10-K - Page 111
ITEM 7A.
Quantitative and Qualitative Disclosures About Market Risk
Introduction
Market risk is the potential for a decrease in securities value resulting from broad yet uncontrollable forces such as
inflation, economic growth, interest rates, world political conditions or other widespread unpredictable events. It is
comprised of many individual risks that, when combined, create a macroeconomic impact. The company accepts
and manages risks in its investment portfolio as part of the means of achieving portfolio objectives. Some of the
risks are:
Political – the potential for a decrease in value due to the real or perceived impact of governmental policies
or conditions
Regulatory – the potential for a decrease in value due to the impact of legislative proposals or changes in laws
or regulations
Economic – the potential for a decrease in value due to changes in general economic factors (recession, inflation,
deflation, etc.)
Revaluation – the potential for a decrease in value due to a change in relative value (change in market multiple) of
the market brought on by general economic factors
Interest-rate – the potential for a decrease in value of a security or portfolio due to its sensitivity to changes
(increases or decreases) in the general level of interest rates
Company-specific risk is the potential for a particular issuer to experience a decline in value due to the impact of
sector or market risk on the holding or because of issues specific to the firm:
Fraud – the potential for a negative impact on an issuer’s performance due to actual or alleged illegal or improper
activity of individuals it employs
Credit – the potential for deterioration in an issuer’s financial profile due to specific company issues, problems it
faces in the course of its operations or industry-related issues
Default – the possibility that an issuer will not make a required payment (interest payment or return of principal) on
its debt. Generally this occurs after its financial profile has deteriorated (credit risk) and it no longer has the means
to make its payments
•
•
•
•
•
•
•
•
The investment committee of the board of directors monitors the investment risk management process primarily
through its executive oversight of our investment activities. We take an active approach to managing market and
other investment risks, including the accountabilities and controls over these activities. Actively managing these
market risks is integral to our operations and could require us to change the character of future investments
purchased or sold or require us to shift the existing asset portfolios to manage exposure to market risk within
acceptable ranges.
Sector risk is the potential for a negative impact on a particular industry due to its sensitivity to factors that make up
market risk. Market risk affects general supply or demand factors for an industry and affects companies within that
industry to varying degrees.
Cincinnati Financial Corporation - 2021 10-K - Page 112
Risks associated with the asset classes described in Item 1, Our Segments, Investments Segment, can be
summarized as follows (H – high, A – average, L – low):
Political
Regulatory
Economic
Revaluation
Interest rate
Fraud
Credit
Default
Taxable
Tax-exempt
fixed maturities
fixed maturities
A
A
A
A
H
A
A
A
H
A
A
A
H
L
L
L
Common
equities
A
A
H
H
A
A
A
A
Nonredeemable
preferred
equities
A
A
A
A
H
A
A
A
Fixed-Maturity Securities Investments
For investment-grade corporate bonds, the inverse relationship between interest rates and bond prices leads to
falling bond values during periods of increasing interest rates. We address this risk by attempting to construct a
generally laddered maturity schedule that allows us to reinvest cash flows at prevailing rates. Although the potential
for a worsening financial condition, and ultimately default, does exist with investment-grade corporate bonds, we
address this risk by performing credit analysis and monitoring as well as maintaining a diverse portfolio of holdings.
The primary risk related to high-yield corporate bonds is credit risk. A weak financial profile can lead to rating
downgrades from the credit rating agencies, which can put further downward pressure on bond prices. Interest rate
risk, while significant, is less of a factor with high-yield corporate bonds, as valuation is related more directly to
underlying operating performance than to general interest rates. This puts more emphasis on the financial results
achieved by the issuer rather than on general economic trends or statistics within the marketplace. We address this
concern by analyzing issuer- and industry-specific financial results and by closely monitoring holdings within this
asset class.
The primary risks related to tax-exempt bonds are interest rate risk and political risk associated with the specific
economic environment within the political boundaries of the issuing municipal entity. We address these concerns by
focusing on municipalities’ general-obligation debt and on essential-service bonds. Essential-service bonds derive a
revenue stream from municipal services that are vital to the people living in the area (water service, sewer service,
etc.). Another risk related to tax-exempt bonds is regulatory risk or the potential for legislative changes that would
negate the benefit of owning tax-exempt bonds. We monitor regulatory activity for situations that may negatively
affect current holdings and our ongoing strategy for investing in these securities.
The final, less significant risk is our exposure to credit risk for a portion of the tax-exempt portfolio that has support
from corporate entities. Examples are bonds insured by corporate bond insurers or bonds with interest payments
made by a corporate entity through a municipal conduit or authority. Our decisions regarding these investments
primarily consider the underlying municipal situation. The existence of third-party insurance is intended to reduce
risk in the event of default. In circumstances in which the municipality is unable to meet its obligations, risk would be
increased if the insuring entity were experiencing financial duress. Because of our diverse exposure and selection
of higher-rated entities with strong financial profiles, we do not believe this is a material concern as we discuss in
Item 1, Our Segments, Investments Segment.
Interest Rate Sensitivity Analysis
Because of our strong shareholders’ equity, long-term investment horizon and ability to hold most fixed-maturity
investments to maturity, we believe the company is well-positioned if interest rates were to rise. A higher rate
environment would provide the opportunity to invest cash flow in higher-yielding securities, while reducing the
likelihood of untimely redemptions of currently callable securities. While higher interest rates would be expected to
increase the number of fixed-maturity holdings fair valued below 100% of amortized cost, we believe lower fixed-
maturity security values due solely to interest rate changes would not signal a decline in credit quality.
Cincinnati Financial Corporation - 2021 10-K - Page 113
Our dynamic financial planning model uses analytical tools to assess market risks. As part of this model, the
effective duration of the fixed-maturity portfolio is continually monitored by our investment department to evaluate
the theoretical impact of interest rate movements.
The table below summarizes the effect of hypothetical changes in interest rates on fair value of our fixed-
maturity portfolio.
(Dollars in millions)
At December 31, 2021
At December 31, 2020
$
$
-100
Effect from interest rate change in basis points
—
13,022 $
12,338 $
100
12,399 $
11,774 $
13,656 $
12,900 $
-200
14,327 $
13,493 $
200
11,768
11,195
The effective duration of the fixed-maturity portfolio was 4.8 years at year-end 2021, up from 4.5 years at year-end
2020. A 100-basis-point movement in interest rates would result in an approximately 4.8% change in the fair value
of the fixed-maturity portfolio. Generally speaking, the higher a bond is rated, the more directly correlated
movements in its fair value are to changes in the general level of interest rates, exclusive of call features. The fair
values of average- to lower-rated corporate bonds are additionally influenced by the expansion or contraction of
credit spreads.
In the dynamic financial planning model, the selected interest rate change of 100 to 200 basis points represents our
views of a shift in rates that is quite possible over a one-year period. The rates modeled should not be considered a
prediction of future events as interest rates may be much more volatile in the future. The analysis is not intended to
provide a precise forecast of the effect of changes in rates on our results or financial condition, nor does it take into
account any actions that we might take to reduce exposure to such risks.
Cincinnati Financial Corporation - 2021 10-K - Page 114
Equity Securities Investments
Our equity portfolio is subject to a variety of risk factors encompassed under the umbrella of market risk.
General economic swings influence the performance of the underlying industries and companies within those
industries. Industry- and company-specific risks also have the potential to substantially affect the value of our
portfolio. Our investment guidelines help address these risks by diversifying the portfolio and establishing
parameters to help manage exposures.
The table below summarizes the effect of hypothetical changes in market prices on fair value of our equity portfolio.
(Dollars in millions)
Effect from market price change in percent
At December 31, 2021
At December 31, 2020
$ 7,921
$ 9,052
$ 10,184
$ 11,315
$ 12,447
$ 13,578
$ 14,710
$ 6,199
$ 7,085
$ 7,970
$ 8,856
$ 9,742
$ 10,627
$ 11,513
-30%
-20%
-10%
—
10%
20%
30%
Our equity holdings represented $11.315 billion in fair value and accounted for approximately 90.1% of the
net unrealized gains and losses of the entire portfolio at year-end 2021. No holding had a fair value greater than
8.0% of our $10.862 billion publicly traded common stock portfolio. We had 42 holdings among 10 different sectors
each with a fair value greater than $100 million. See Item 1, Our Segments, Investments Segment and Item 8,
Note 2 of the Consolidated Financial Statements, for additional details on our holdings.
The primary risks related to preferred stocks are similar to those related to investment-grade corporate bonds.
Rising interest rates adversely affect market values due to the normal inverse relationship between interest rates
and bond prices. Credit risk exists due to the subordinate position of preferred stocks in the capital structure.
We minimize this risk by primarily purchasing investment-grade preferred stocks of issuers with a strong history of
paying a common stock dividend.
Cincinnati Financial Corporation - 2021 10-K - Page 115
Application of Asset Impairment Policy
As discussed in Item 7, Critical Accounting Estimates, Asset Impairment, our fixed-maturity investment portfolio is
evaluated for credit-related impairments. The company’s asset impairment committee monitors a number of
significant factors for indications of investments with a fair value below the carrying amount that may not be
recoverable. The application of our impairment policy resulted in write-downs of impaired securities intended to be
sold that reduced our income before income taxes by $1 million in 2021, $78 million in 2020 and OTTI charges of
$9 million in 2019. Impairments are discussed in Item 7, Investments Results.
We expect the number of fixed-maturity securities with a fair value below 100% of amortized cost to fluctuate as
interest rates rise or fall and credit spreads expand or contract due to prevailing economic conditions. Further, cost
or amortized cost for some securities have been revised due to impairment charges recognized in prior periods.
At year-end 2021, 278 of the 4,329 fixed-maturity securities we owned had a fair value below 100% of cost or
amortized cost compared with 128 of the 4,128 at year-end 2020 and 157 of the 3,911 at year-end 2019.
The 278 holdings fair valued below cost or amortized cost at year-end 2021 represented 8.3% of our fixed-maturity
portfolio and $16 million in unrealized losses.
•
•
•
274 of these holdings were fair valued between 90% and 100% of cost or amortized cost. The value of these
securities fluctuates primarily because of changes in interest rates. The fair value of these 274 securities was
$1.069 billion at year-end 2021, and they accounted for $15 million in unrealized losses.
4 of these holdings were fair valued between 70% and 90% of cost or amortized cost. The fair value of these
holdings was $6 million, and they accounted for $1 million in unrealized losses.
No fixed-maturity securities had a fair value below 70% of cost or amortized cost.
The following table summarizes the length of time securities in the investment portfolio have been in a continuous
unrealized loss position.
(Dollars in millions)
At December 31, 2021
Fixed-maturity securities:
Less than 12 months
Unrealized
losses
Fair
value
12 months or more
Fair
value
Unrealized
losses
Total
Fair
value
Unrealized
losses
Corporate
States, municipalities and political subdivisions
Commercial mortgage-backed
United States government
Foreign government
$
Government-sponsored enterprises
861 $
105
10
48
16
7
Total
At December 31, 2020
Fixed-maturity securities:
Corporate
States, municipalities and political subdivisions
Commercial mortgage-backed
United States government
Foreign government
Government-sponsored enterprises
Total
$ 1,047 $
$
$
330 $
31
23
12
10
—
406 $
13 $
2
—
—
—
—
15 $
5 $
2
1
—
—
—
8 $
15 $
2
11
—
—
—
28 $
46 $
2
6
—
—
—
54 $
— $
1
—
—
—
876 $
107
21
48
16
—
1 $ 1,075 $
7
2 $
—
—
—
—
—
2 $
376 $
33
29
12
10
—
460 $
13
3
—
—
—
—
16
7
2
1
—
—
—
10
Cincinnati Financial Corporation - 2021 10-K - Page 116
The following table summarizes and classifies securities based on fair values relative to amortized cost:
Number
of issues
Amortized
cost
Fair
value
Gross
unrealized
gain (loss)
Gross
investment
income
(Dollars in millions)
At December 31, 2021
Taxable fixed maturities:
Fair valued below 70% of amortized cost
Fair valued at 70% to less than 100% of amortized cost
Fair valued at 100% and above of amortized cost
Investment income on securities sold in current year
Total
Tax-exempt fixed maturities:
Fair valued below 70% of amortized cost
Fair valued at 70% to less than 100% of amortized cost
Fair valued at 100% and above of amortized cost
Investment income on securities sold in current year
Total
Fixed-maturities summary:
Fair valued below 70% of amortized cost
Fair valued at 70% to less than 100% of amortized cost
Fair valued at 100% and above of amortized cost
Investment income on securities sold in current year
Total
At December 31, 2020
Fixed-maturities summary:
— $
258
1,820
—
2,078
—
20
2,231
—
2,251
— $
— $
1,059
7,285
—
8,344
—
32
3,854
—
3,886
1,044
7,814
—
8,858
—
31
4,133
—
4,164
—
—
—
278
4,051
—
1,091
11,139
—
4,329 $ 12,230 $ 13,022 $
1,075
11,947
—
— $
(15)
529
—
514
—
(1)
279
—
278
—
(16)
808
—
792 $
—
16
307
30
353
—
1
120
3
124
—
17
427
33
477
—
18
414
23
455
Fair valued below 70% of amortized cost
— $
— $
— $
— $
Fair valued at 70% to less than 100% of amortized cost
Fair valued at 100% and above of amortized cost
Investment income on securities sold in current year
Total
128
4,000
—
470
10,842
—
4,128 $ 11,312 $ 12,338 $
460
11,878
—
(10)
1,036
—
1,026 $
Cincinnati Financial Corporation - 2021 10-K - Page 117
ITEM 8. Financial Statements and Supplementary Data
Responsibility for Financial Statements
We have prepared the consolidated financial statements of Cincinnati Financial Corporation and our subsidiaries for
the year ended December 31, 2021, in accordance with accounting principles generally accepted in the United
States of America (GAAP).
We are responsible for the integrity and objectivity of these financial statements. The amounts, presented on an
accrual basis, reflect our best estimates and judgment. These statements are consistent in all material aspects with
other financial information in the Annual Report on Form 10-K. Our accounting system and related internal controls
are designed to assure that our books and records accurately reflect the company’s transactions in accordance with
established policies and procedures as implemented by qualified personnel.
Our board of directors has established an audit committee of independent outside directors. We believe these
directors are free from any relationships that could interfere with their independent judgment as audit committee
members.
The audit committee meets periodically with management, our independent registered public accounting firm and
our internal auditors to discuss how each is handling its respective responsibilities. The audit committee reports its
findings to the board of directors. The audit committee recommends to the board the annual appointment of the
independent registered public accounting firm. The audit committee reviews with this firm the scope of the audit
assignment and the adequacy of internal controls and procedures.
Deloitte & Touche LLP, our independent registered public accounting firm, audited the consolidated financial
statements of Cincinnati Financial Corporation and subsidiaries for the year ended December 31, 2021. Deloitte &
Touche LLP met with our audit committee to discuss the results of its audit. They have the opportunity to discuss the
adequacy of internal controls and the quality of financial reporting without management present.
Cincinnati Financial Corporation - 2021 10-K - Page 118
Management’s Annual Report on Internal Control Over Financial Reporting
The management of Cincinnati Financial Corporation and its subsidiaries is responsible for establishing and
maintaining adequate internal controls, designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with accounting
principles generally accepted in the United States of America (GAAP). The company’s internal control over financial
reporting includes those policies and procedures that:
•
•
•
Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company;
Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with GAAP and that receipts and expenditures of the company are being made only in
accordance with authorizations of management and the directors of the company; and
Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or
disposition of the company’s assets that could have a material effect on the financial statements.
All internal control systems, no matter how well designed, have inherent limitations, including the possibility of
human error and the circumvention of overriding controls. Accordingly, even effective internal control can provide
only reasonable assurance with respect to financial statement preparation and presentation. Further, because of
changes in conditions, the effectiveness of internal control may vary over time.
The company’s management assessed the effectiveness of the company’s internal control over financial reporting
as of December 31, 2021, as required by Section 404 of the Sarbanes Oxley Act of 2002. Management’s
assessment was based on the criteria established in the Internal Control – Integrated Framework (2013) issued by
the Committee of Sponsoring Organizations of the Treadway Commission and was designed to provide reasonable
assurance that the company maintained effective internal control over financial reporting as of December 31, 2021.
The assessment led management to conclude that, as of December 31, 2021, the company’s internal control over
financial reporting was effective based on those criteria.
The company’s independent registered public accounting firm has issued an audit report on our internal control over
financial reporting as of December 31, 2021.
/S/ Steven J. Johnston
Steven J. Johnston, FCAS, MAAA, CFA, CERA
Chairman, President and Chief Executive Officer
/S/ Michael J. Sewell
Michael J. Sewell, CPA
Chief Financial Officer, Senior Vice President and Treasurer
(Principal Accounting Officer)
February 24, 2022
Cincinnati Financial Corporation - 2021 10-K - Page 119
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors of Cincinnati Financial Corporation
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Cincinnati Financial Corporation and
subsidiaries (the “Company”) as of December 31, 2021 and 2020, the related consolidated statements of income,
comprehensive income, shareholders' equity, and cash flows for each of the three years in the period ended
December 31, 2021, and the related notes and the schedules listed in the Index at Item 15(c) (collectively referred
to as the “financial statements”). We also have audited the Company’s internal control over financial reporting as of
December 31, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position
of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 2021, in conformity with accounting principles generally accepted
in the United States of America. Also, in our opinion, the Company maintained, in all material respects, effective
internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control -
Integrated Framework (2013) issued by COSO.
Basis for Opinions
The Company’s management is responsible for these financial statements, for maintaining effective internal control
over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting,
included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our
responsibility is to express an opinion on these financial statements and an opinion on the Company’s internal
control over financial reporting based on our audits. We are a public accounting firm registered with the Public
Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to
the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the
Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the financial statements are free of material
misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was
maintained in all material respects.
Our audits of the financial statements included performing procedures to assess the risks of material misstatement
of the financial statements, whether due to error or fraud, and performing procedures to respond to those risks.
Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the
financial statements. Our audits also included evaluating the accounting principles used and significant estimates
made by management, as well as evaluating the overall presentation of the financial statements. Our audit of
internal control over financial reporting included obtaining an understanding of internal control over financial
reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk. Our audits also included performing such other
procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable
basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A company’s internal control over financial reporting
includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial statements.
Cincinnati Financial Corporation - 2021 10-K - Page 120
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial
statements that was communicated or required to be communicated to the audit committee and that (1) relates to
accounts or disclosures that are material to the financial statements and (2) involved our especially challenging,
subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion
on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below,
providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Property and Casualty Insurance Loss and Loss Expense Reserves - Refer to Note 4 to the
financial statements.
Critical Audit Matter Description
The Company’s property and casualty insurance loss and loss expense reserves for long-tailed lines of business,
such as workers’ compensation, commercial casualty and certain other liability lines (referred to as “loss and loss
expense reserves”), are determined by the Company using actuarial methods, models, assumptions, and judgment
to estimate the reserves ("actuarial estimates") required to pay for and settle all outstanding insured claims,
including incurred but not reported (IBNR) claims, as of the financial statement date. The actuarial estimates of loss
and loss expense reserves are subject to review and adjustment by Company management.
Loss and loss expense reserves are inherently uncertain as to timing and amount and the recorded loss and loss
expense reserves may vary materially from the actual ultimate cost of claims. Given the subjectivity in estimating
ultimate loss and loss expense reserves, due to uncertainties concerning the future emergence of loss and loss
expenses, inflation trends, and the judicial environment, among other factors, auditing loss and loss expense
reserves involved an especially high degree of auditor judgment, including the need to involve our actuarial
specialists.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to loss and loss expense reserves included the following, among others:
• We tested the effectiveness of controls related to loss and loss expense reserves, including those over the
review of methods, models, assumptions and judgments used, and management’s review of the estimates.
• We tested the underlying data that served as the basis for the actuarial analysis, including historical claims
data, to test the reasonableness of key inputs to the actuarial estimates.
• With the assistance of our actuarial specialists, we used the Company’s claims data and other inputs, to
develop a range of independent estimates for the loss and loss expense reserves. We used these
independent estimates to assess the reasonableness of the Company’s reserves by comparing our
estimates to the Company’s recorded loss and loss expense reserves.
• We compared the Company’s prior year estimates of expected incurred losses to actual experience during
the current year to identify potential bias in the determination of loss and loss expense reserves.
/S/ DELOITTE & TOUCHE LLP
Cincinnati, Ohio
February 24, 2022
We have served as the Company’s auditor since 1980.
Cincinnati Financial Corporation - 2021 10-K - Page 121
Cincinnati Financial Corporation and Subsidiaries
Consolidated Balance Sheets
(Dollars in millions, except per share data)
Assets
Investments
Fixed maturities, at fair value (amortized cost: 2021—$12,230; 2020—$11,312)
Equity securities, at fair value (cost: 2021—$4,121; 2020—$3,927)
Other invested assets
Total investments
Cash and cash equivalents
Investment income receivable
Finance receivable
Premiums receivable
Reinsurance recoverable
Prepaid reinsurance premiums
Deferred policy acquisition costs
Land, building and equipment, net, for company use (accumulated depreciation:
2021—$303; 2020—$285)
Other assets
Separate accounts
Total assets
Liabilities
Insurance reserves
Loss and loss expense reserves
Life policy and investment contract reserves
Unearned premiums
Other liabilities
Deferred income tax
Note payable
Long-term debt and lease obligations
Separate accounts
Total liabilities
Commitments and contingent liabilities (Note 16)
Shareholders' Equity
Common stock, par value—$2 per share; (authorized: 2021 and 2020—500 million shares;
issued: 2021 and 2020—198.3 million shares)
Paid-in capital
Retained earnings
Accumulated other comprehensive income
Treasury stock, at cost (2021—38.0 million shares and 2020—37.4 million shares)
Total shareholders' equity
Total liabilities and shareholders' equity
Accompanying Notes are an integral part of these Consolidated Financial Statements.
Cincinnati Financial Corporation - 2021 10-K - Page 122
December 31, December 31,
2021
2020
$
$
$
$
13,022 $
11,315
329
24,666
1,139
144
98
2,053
570
78
905
205
570
959
31,387 $
7,305 $
3,014
3,271
1,092
1,744
54
843
959
18,282
12,338
8,856
348
21,542
900
136
95
1,879
517
65
805
213
438
952
27,542
6,746
2,915
2,960
982
1,299
54
845
952
16,753
397
1,356
12,625
648
(1,921)
13,105
31,387 $
397
1,328
10,085
769
(1,790)
10,789
27,542
Cincinnati Financial Corporation and Subsidiaries
Consolidated Statements of Income
(Dollars in millions, except per share data)
Revenues
Earned premiums
Investment income, net of expenses
Investment gains and losses, net
Fee revenues
Other revenues
Total revenues
Benefits and Expenses
Insurance losses and contract holders' benefits
Underwriting, acquisition and insurance expenses
Interest expense
Other operating expenses
Total benefits and expenses
Income Before Income Taxes
Provision for Income Taxes
Current
Deferred
Total provision for income taxes
Net Income
Per Common Share
Net income—basic
Net income—diluted
Years ended December 31,
2021
2020
2019
$
$
$
6,482 $
714
2,409
15
10
9,630
5,980 $
670
865
11
10
7,536
3,936
1,951
53
20
5,960
3,670
4,134
1,829
54
20
6,037
1,499
247
477
724
2,946 $
147
136
283
1,216 $
18.29 $
18.10
7.55 $
7.49
5,604
646
1,650
15
9
7,924
3,638
1,738
53
23
5,452
2,472
132
343
475
1,997
12.24
12.10
Accompanying Notes are an integral part of these Consolidated Financial Statements.
Cincinnati Financial Corporation - 2021 10-K - Page 123
Cincinnati Financial Corporation and Subsidiaries
Consolidated Statements of Comprehensive Income
(Dollars in millions)
Net Income
Other Comprehensive Income (Loss)
Change in unrealized gains and losses on investments, net of tax
(benefit) of $(50), $92 and $114, respectively
Amortization of pension actuarial gains and losses and prior service
cost, net of tax (benefit) of $14, $(7) and $2, respectively
Change in life deferred acquisition costs, life policy reserves and
other, net of tax (benefit) of $2, $1 and $(3), respectively
Other comprehensive income (loss)
Comprehensive Income
Years ended December 31,
2021
2020
2019
$
2,946 $
1,216 $
1,997
(184)
344
430
54
9
(121)
2,825 $
$
(25)
2
321
1,537 $
5
(9)
426
2,423
Accompanying Notes are an integral part of these Consolidated Financial Statements.
Cincinnati Financial Corporation - 2021 10-K - Page 124
Cincinnati Financial Corporation and Subsidiaries
Consolidated Statements of Shareholders’ Equity
(Dollars in millions)
Common Stock
Beginning of year
Share-based awards
End of year
Paid-In Capital
Beginning of year
Share-based awards
Share-based compensation
Other
End of year
Retained Earnings
Beginning of year
Cumulative effect of change in accounting for credit losses as of
January 1, 2020
Adjusted beginning of year
Net income
Dividends declared
End of year
Accumulated Other Comprehensive Income
Beginning of year
Other comprehensive income (loss)
End of year
Treasury Stock
Beginning of year
Share-based awards
Shares acquired - share repurchase authorization
Shares acquired - share-based compensation plans
Other
End of year
Years ended December 31,
2020
2021
2019
$
397 $
—
397
397 $
—
397
397
—
397
1,328
(14)
33
9
1,356
1,306
(15)
31
6
1,328
10,085
9,257
—
10,085
2,946
(406)
12,625
(2)
9,255
1,216
(386)
10,085
769
(121)
648
448
321
769
1,281
(12)
30
7
1,306
7,625
—
7,625
1,997
(365)
9,257
22
426
448
(1,790)
18
(144)
(8)
3
(1,921)
(1,544)
15
(261)
(5)
5
(1,790)
(1,492)
21
(67)
(9)
3
(1,544)
Total Shareholders' Equity
$
13,105 $
10,789 $
9,864
(In millions)
Common Stock - Shares Outstanding
Beginning of year
Share-based awards
Shares acquired - share repurchase authorization
Shares acquired - share-based compensation plans
Other
End of year
160.9
0.6
(1.2)
(0.1)
0.1
160.3
162.9
0.5
(2.5)
(0.1)
0.1
160.9
162.8
0.7
(0.6)
(0.1)
0.1
162.9
Accompanying Notes are an integral part of these Consolidated Financial Statements.
Cincinnati Financial Corporation - 2021 10-K - Page 125
Cincinnati Financial Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(Dollars in millions)
Cash Flows From Operating Activities
Net income
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization
Investment gains and losses, net
Share-based compensation
Interest credited to contract holders
Deferred income tax expense
Changes in:
Investment income receivable
Premiums and reinsurance receivable
Deferred policy acquisition costs
Other assets
Loss and loss expense reserves
Life policy and investment contract reserves
Unearned premiums
Other liabilities
Current income tax receivable/payable
Net cash provided by operating activities
Cash Flows From Investing Activities
Sale of fixed maturities
Call or maturity of fixed maturities
Sale of equity securities
Purchase of fixed maturities
Purchase of equity securities
Investment in finance receivables
Collection of finance receivables
Investment in buildings and equipment
Change in other invested assets, net
Net cash used in investing activities
Cash Flows From Financing Activities
Payment of cash dividends to shareholders
Shares acquired - share repurchase authorization
Changes in note payable
Proceeds from stock options exercised
Contract holders' funds deposited
Contract holders' funds withdrawn
Other
Net cash used in financing activities
Net change in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Supplemental Disclosures of Cash Flow Information
Interest paid
Income taxes paid
Noncash Activities
Equipment acquired under finance lease obligations
Share-based compensation
Other assets and other liabilities
Years ended December 31,
2020
2019
2021
$
2,946 $
1,216 $
1,997
93
(2,353)
33
45
477
(8)
(240)
(73)
(11)
559
99
311
128
(25)
1,981
118
1,343
136
(2,388)
(313)
(39)
37
(15)
64
(1,057)
(395)
(144)
—
13
85
(146)
(98)
(685)
239
900
1,139 $
52 $
257
12 $
26
87
81
(851)
31
43
136
(3)
(23)
(39)
(26)
599
116
172
(5)
44
1,491
179
912
515
(1,382)
(699)
(50)
35
(20)
(50)
(560)
(375)
(261)
15
7
85
(159)
(110)
(798)
133
767
900 $
53 $
84
19 $
19
57
72
(1,640)
30
44
343
(1)
(174)
(61)
(22)
163
107
184
74
92
1,208
102
1,241
203
(1,742)
(382)
(34)
29
(24)
(72)
(679)
(355)
(67)
7
11
86
(174)
(54)
(546)
(17)
784
767
53
34
14
9
29
$
$
$
Accompanying Notes are an integral part of these Consolidated Financial Statements.
Cincinnati Financial Corporation - 2021 10-K - Page 126
Notes to Consolidated Financial Statements
NOTE 1 – Summary of Significant Accounting Policies
Nature of Operations
Cincinnati Financial Corporation (CFC) operates through The Cincinnati Insurance Company and Cincinnati Global
Underwriting Ltd.SM (Cincinnati Global) insurance subsidiaries and two complementary subsidiary companies.
Cincinnati Global, our London-based global specialty underwriter, was acquired effective February 28, 2019.
The Cincinnati Insurance Company leads our insurance group that also includes two subsidiaries: The Cincinnati
Casualty Company and The Cincinnati Indemnity Company. This group markets a broad range of standard market
commercial and personal policies. The group focuses on delivery of quality customer service to our select group of
1,921 independent insurance agencies with 2,721 reporting locations across 46 states. Other subsidiaries of
The Cincinnati Insurance Company include: The Cincinnati Life Insurance Company, which markets life insurance
and fixed annuities; and The Cincinnati Specialty Underwriters Insurance Company, which offers excess and
surplus lines property casualty insurance products. The Cincinnati Insurance Company also conducts the business
of our reinsurance assumed operations, Cincinnati Re®.
The two CFC complementary subsidiaries are CSU Producer Resources Inc., which provides insurance brokerage
services to our independent agencies so their clients can access our excess and surplus lines insurance products,
and CFC Investment Company, which offers commercial leasing and financing services to our agents, their clients
and other customers.
Beginning in mid-March 2020, the coronavirus (SARS-CoV-2 or COVID-19) pandemic outbreak, and unprecedented
actions taken to contain the virus, caused an economic downturn on a global scale as well as market disruption and
volatility. The estimated pandemic-related incurred losses and expenses were negative $7 million and positive
$85 million in 2021 and 2020, respectively. The company continues to monitor the impact of the pandemic as it
unfolds. The company cannot predict the impact the pandemic will have on its future consolidated financial position,
results of operations and cash flows, however the impact could be material.
Basis of Presentation
Our consolidated financial statements include the accounts of the parent and its wholly owned subsidiaries and are
presented in conformity with accounting principles generally accepted in the United States of America (GAAP).
The 2019 consolidated financial statements include Cincinnati Global's results for the period from February 28,
2019, through December 31, 2019. Foreign exchange rates related to Cincinnati Global's operations did not have a
material impact to our consolidated financial statements. All intercompany balances and transactions have been
eliminated in consolidation.
The preparation of the consolidated financial statements in conformity with GAAP requires us to make estimates
and assumptions that affect amounts reported in the consolidated financial statements and accompanying notes.
Our actual results could differ from those estimates.
Investments
Our portfolio investments are primarily in publicly traded fixed-maturity and equity security investments. Fixed-
maturity investments (taxable bonds, tax-exempt bonds, redeemable preferred equities and commercial mortgage-
backed securities) classified as available for sale and equity investments (common and nonredeemable preferred
equities) are recorded at fair value in the consolidated financial statements. Changes in fair value of fixed-maturity
securities are reported in other comprehensive income while equity securities are reported in net income.
The number of fixed-maturity securities with fair values below 100% of amortized cost can be expected to fluctuate
as interest rates rise or fall. Because of our strong capital and long-term investment horizon, our general intent is to
hold fixed-maturity investments until maturity, regardless of short-term fluctuations in fair values.
Cincinnati Financial Corporation - 2021 10-K - Page 127
An available for sale fixed maturity is impaired if the fair value of the security is below amortized cost. The impaired
loss is charged to net income when we have the intent to sell the security or it is more likely than not we will be
required to sell the security before recovery of the amortized cost. For impaired securities we intend to hold, an
allowance for credit related losses is recorded in investment losses when the company determines a credit loss has
been incurred based on certain factors such as adverse conditions, credit rating downgrades or failure of the issuer
to make scheduled principal or interest payments. A credit loss is determined using a discounted cash flow analysis
by comparing the present value of expected cash flows with the amortized cost basis, limited to the difference
between fair value and amortized cost. Noncredit losses are recognized in other comprehensive income as a
change in unrealized gains and losses on investments. As securities are sold, we recognize the gain or loss in
income based on the trade date.
Included within our other invested assets were $227 million and $128 million of private equity investments,
$36 million and $25 million of real estate through direct property ownership and development projects in the United
States, $35 million and $162 million held on deposit at Lloyd's and $31 million and $33 million of life policy loans at
December 31, 2021 and 2020, respectively. The private equity investments provide their financial statements to us
and generally report investments on their balance sheets at fair value. We use the equity method of accounting for
private equity and real estate development investments. Lloyd's deposits primarily consist of highly liquid short-term
investment instruments. Life policy loans are carried at the receivable value.
Investment income, net of expenses, consists mainly of interest and dividends. We record interest on an accrual
basis and record dividends at the ex-dividend date. We amortize premiums and discounts on fixed-maturity
securities using the effective interest method over the expected life of the security.
Fair Value Disclosures
Fair value is defined as the exit price or the amount that would be (1) received to sell an asset or (2) paid to transfer
a liability in an orderly transaction between marketplace participants at the measurement date. When determining
an exit price, we rely upon observable market data whenever possible. We primarily base fair value for investments
in equity and fixed-maturity securities (including redeemable preferred stock and assets held in separate accounts)
on quoted market prices or on prices from the company’s nationally recognized pricing vendors, outside resources
that supply global securities pricing, dividend, corporate action and descriptive information to support fund pricing,
securities operations, research and portfolio management. The company obtains and reviews the pricing services'
valuation methodologies and related inputs and validates these prices by replicating a sample across each asset
class using a discounted cash flow model. When a price is not available from these sources, as in the case of
securities that are not publicly traded, we determine the fair value using various inputs including quotes from
independent brokers. The fair value of investments not priced by the company’s nationally recognized pricing
vendors is immaterial.
For the purpose of Accounting Standards Codification (ASC) 825, Financial Instruments disclosure, we estimate the
fair value of our long-term senior notes on market pricing of similar debt instruments that are actively trading. We
estimate the fair value of our note payable on the year-end outstanding balance because it is short term and tied to
a variable interest rate. We estimate the fair value of liabilities for investment contracts and annuities using
discounted cash flow calculations across a wide range of economic interest rate scenarios with a provision for our
nonperformance risk. We estimate the fair value for policyholder loans on insurance contracts using a discounted
cash flow model. Determination of fair value for structured settlements assumes the discount rates used to calculate
the present value of expected payments are the risk-free spot rates plus an A3 rated bond spread for financial
issuers at December 31, 2021, to account for nonperformance risk. See Note 3, Fair Value Measurements, for
further details.
Cash and Cash Equivalents
Cash and cash equivalents are highly liquid instruments that include liquid debt instruments with original maturities
of less than three months. These are carried at cost, which approximates fair value.
Property Casualty Insurance
The consolidated property casualty companies actively write property casualty insurance through independent
agencies in 46 states. Our 10 largest states generated 52.1% and 53.3% of total earned premiums in 2021 and
2020, respectively. Ohio, our largest state, accounted for 14.4% and 14.8% of total earned premiums in 2021 and
2020, respectively. Illinois, North Carolina, Georgia, Pennsylvania, Indiana and New York each accounted for
between 4% and 6% of total earned premiums in 2021. Our largest single agency relationship accounted for
Cincinnati Financial Corporation - 2021 10-K - Page 128
approximately 0.6% of our total property casualty earned premiums in 2021. No aggregate agency relationship
locations under a single ownership structure accounted for more than 5% of our total property casualty earned
premiums in 2021. We record revenues for installment charges as fee revenues in the consolidated statements
of income.
Property casualty written premiums are deferred and recorded as earned premiums primarily on a pro rata basis
over the terms of the policies. We record as unearned premiums the portion of written premiums that applies to
unexpired policy terms. Expenses associated with successfully acquiring insurance policies – commissions,
premium taxes and underwriting costs – are deferred and amortized over the terms of the policies. We assess
recoverability of deferred acquisition costs at a level consistent with the way we acquire, service and manage
insurance policies and measure profitability. We analyze our acquisition cost assumptions to reflect actual
experience, and we evaluate potential premium deficiencies.
Certain property casualty policies are not entered into policy underwriting systems as of the effective date of
coverage. An estimate is recorded for these unprocessed written premiums. A large majority of the estimate is
unearned and has no material impact on earned premiums.
An allowance for credit losses on uncollectible property casualty premiums is updated and reviewed on a quarterly
basis. The allowance for credit losses was $14 million, $19 million and $9 million at December 31, 2021, 2020 and
January 1, 2020 (date of adoption), respectively. A significant portion of the increase in the allowance to $19 million
at December 31, 2020 was due to consideration of pandemic-related factors. Other changes in the amount for each
period were immaterial.
We establish reserves to cover the expected cost of claims, losses and expenses related to investigating,
processing and resolving claims. Although the appropriate amount of reserves is inherently uncertain, we base our
decisions on past experience and current facts. Reserves are based on claims reported prior to the end of the year
and estimates of incurred but not reported (IBNR) claims. We regularly review and update reserves using the most
current information available. Any resulting adjustments are reflected in current calendar year insurance losses and
policyholder benefits. We estimate that we may recover some of our costs through salvage and subrogation.
Policyholder Dividends
Certain workers’ compensation policies include the possibility of a policyholder earning a return of a portion of
premium in the form of a policyholder dividend. The dividend generally is calculated by determining the profitability
of a policy year along with the associated premium. We reserve for all probable future policyholder dividend
payments. We record policyholder dividends as other underwriting expenses.
Life Insurance
We offer several types of life insurance and we account for each according to the duration of the contract. Short-
duration life and health contracts are written to cover claims that arise during a short, fixed term of coverage.
We generally have the right to change the amount of premium charged or cancel the coverage at the end of
each contract term. We record premiums for short-duration life and health contracts similarly to property
casualty contracts.
Long-duration contracts are written to provide coverage for an extended period of time. Traditional long-duration
contracts require policyholders to pay scheduled gross premiums, generally not less frequently than annually, over
the term of the coverage. Premiums for these contracts, such as whole life insurance are recognized as revenue
when due. Some traditional long-duration contracts, such as ten-pay whole life insurance, have premium payment
periods shorter than the period over which coverage is provided. For these contracts, the excess of premium over
the amount required to pay expenses and benefits is recognized over the term of the coverage rather than over the
premium payment period.
Cincinnati Financial Corporation - 2021 10-K - Page 129
We establish a liability for traditional long-duration contracts as we receive premiums. The amount of this liability is
the present value of future expenses and benefits less the present value of future net premiums. Net premium is the
portion of gross premium required to provide for all expenses and benefits. We estimate future expenses and
benefits and net premium using assumptions for expected expenses, mortality, morbidity, withdrawal rates and
investment income. We include a provision for deviation, meaning we allow for some uncertainty in making our
assumptions. We establish our assumptions when the contract is issued, and we generally maintain those
assumptions for the life of the contract. We use both our own experience and industry experience, adjusted for
historical trends, in arriving at our assumptions for expected mortality, morbidity and withdrawal rates. We use our
own experience and historical trends for setting our assumption for expected expenses. We base our assumption
for expected investment income on our own experience, adjusted for current and future economic conditions.
We capitalize acquisition costs for traditional long-duration contracts. We charge these capitalized costs associated
with successfully acquiring traditional long-duration contract insurance policies in proportion to premium revenue
recognized. We use the same assumptions used in establishing the liability for the contract. We update our
acquisition cost assumptions periodically to reflect actual experience, and we evaluate our deferred acquisition
costs for recoverability.
Universal life contracts are long-duration contracts for which contractual provisions are not fixed, unlike whole life
insurance. Universal life contracts allow policyholders to vary the amount of premium, within limits, without our
consent. However, we may vary the mortality, expense charges and the interest crediting rate, within limits, used to
accumulate policy values. We do not record universal life premiums as revenue. Instead we recognize as revenue
the mortality charges, administration charges and surrender charges when received. Some of our universal life
contracts assess administration charges in the early years of the contract that are compensation for services we will
provide in the later years of the contract. These administration charges are deferred and are recognized over the
period when we provide those future services. We maintain a policy reserve liability equal to the policyholder
account value. There is no provision for adverse deviation. Some of our universal life policies contain no-lapse
guarantee provisions. For these policies, we establish a reserve in addition to the account balance, based on
expected no-lapse guarantee benefits and expected policy assessments.
We capitalize acquisition costs associated with successfully acquiring universal life long-duration contracts.
We charge these capitalized costs to expenses over the term of coverage of the contract in accordance with the
recognition of gross profit from the contract or notional benefit base. When we charge deferred policy acquisition
costs to expenses, we use assumptions based on our best estimates of long-term experience. We review and
modify these assumptions on a regular basis.
An allowance for credit losses on uncollectible life insurance premiums is updated and reviewed on a quarterly
basis. At December 31, 2021 and 2020, the allowance, including changes in the amount for each period, was
immaterial.
Separate Accounts
We have issued universal life contracts with guaranteed minimum returns, referred to as bank-owned life insurance
contracts (BOLIs). A BOLI is designed so the bank is the policy owner and the policy beneficiary. We legally
segregate and record as separate accounts the assets and liabilities for some of our BOLIs, based on the specific
contract provisions. We guarantee minimum investment returns, account values and death benefits for our separate
account BOLIs. Our other BOLIs are general account products.
We carry the assets of separate account BOLIs at fair value. The liabilities on separate account BOLIs primarily are
the contract holders’ claims to the related assets and are carried at an amount equal to the contract holders’
account value. At December 31, 2021 and 2020, the current fair value of the BOLI invested assets and cash
exceeded the current fair value of the contract holders’ account value by approximately $79 million and $99 million,
respectively. If the BOLI projected fair value were to fall below the value we guaranteed, a liability would be
established with a corresponding charge to the company’s earnings.
Generally, investment income and investment gains and losses of the separate accounts accrue directly to the
contract holder, and we do not include them in the consolidated statements of income. Revenues and expenses
related to separate accounts consist of contractual fees and mortality, surrender and expense risk charges.
Also, each separate account BOLI includes a negotiated capital gain and loss sharing arrangement between the
company and the bank. A percentage of each separate account’s investment gains and losses representing contract
Cincinnati Financial Corporation - 2021 10-K - Page 130
fees and assessments accrues to us and is transferred from the separate account to our general account and is
recognized as revenue or expense. We record as revenues separate account investment management fees in fee
revenues of the consolidated statements of income.
Reinsurance
The Cincinnati Insurance Company offers reinsurance assumed for casualty (predominantly domestic exposure),
specialty and property (worldwide exposure). Treaties are written on a pro rata and excess of loss basis. We also
continue to assume risk with limited exposure as a reinsurer for involuntary state pools.
Written premium is recorded, net of contract specific retrocessions, on an ultimate estimate basis and primarily
earned on a pro rata basis over the coverage period of the treaty. Expenses are recorded as per contract terms and
deferred over the earning period of the premium.
We establish known loss reserves when reported. We establish reserves for losses in excess of reported activity in
the form of IBNR. Reserves are established using actuarial analysis, which includes models and methods
traditionally used for the types of exposures written. We establish reserves for event specific occurrences using
modeling data and company specific data when available.
We enter into other reinsurance transactions to reduce risk and uncertainty by buying property casualty reinsurance
and retrocessional reinsurance as well as life reinsurance. Reinsurance and retrocessional reinsurance contracts do
not relieve us from our obligation to policyholders, but rather help protect our financial strength to perform that duty.
All of these ceded reinsurance contracts transfer the economic risk of loss.
Premiums that we cede are deferred and recorded as earned premiums on a pro rata basis over the terms of the
contracts. We estimate loss amounts recoverable from our reinsurers based on the reinsurance policy terms.
Historically, our claims with reinsurers have been paid.
An allowance for credit losses on uncollectible reinsurance premiums and recoverable assets is updated and
reviewed on a quarterly basis. At December 31, 2021 and 2020, the allowances, including changes in the amount
for each period, were immaterial.
Income Taxes
We calculate deferred income tax liabilities and assets using tax rates in effect when temporary differences in
taxable income and financial statement income are expected to reverse. We recognize deferred income taxes for
numerous temporary differences between our taxable income and financial statement income and other changes in
shareholders’ equity. Such temporary differences relate primarily to unrealized gains and losses on investments and
differences in the recognition of deferred acquisition costs, unearned premiums, insurance reserves, international
earnings and basis differences in the carrying value of investments held. We charge deferred income taxes
associated with balances that impact other comprehensive income, such as unrealized gains and losses of fixed-
maturity investments, to shareholders’ equity in accumulated other comprehensive income (AOCI). We charge
deferred taxes associated with other differences to income.
See Note 11, Income Taxes, for further detail on our uncertain tax positions and other income tax items. Although no
Internal Revenue Service (IRS) penalties currently are accrued, if incurred, they would be recognized as a
component of income tax expense.
Earnings per Share
Net income per common share is based on the weighted average number of common shares outstanding during
each of the respective years. We calculate net income per common share (diluted) assuming the exercise or
conversion of share‑based awards using the treasury stock method.
Cincinnati Financial Corporation - 2021 10-K - Page 131
Land, Building and Equipment
We record land at cost, and record building and equipment at cost less accumulated depreciation. Equipment held
under finance leases also is classified as property and equipment with the related lease obligations recorded as
liabilities. We capitalize and amortize costs for internally developed computer software during the application
development stage. These costs generally consist of external consulting fees and internal payroll-related costs.
Our depreciation is based on estimated useful lives (ranging from three to 39.5 years) using straight-line and
accelerated methods. Depreciation expense was $33 million for 2021, $33 million for 2020 and $25 million for 2019.
We review our accumulated depreciation for our building, equipment and software assets and write off fully
depreciated assets for obsolescence and nonuse. We monitor land, building and equipment and software assets for
potential impairments. Indicators of potential impairments may include a significant decrease in the fair values of the
assets, considerable cost overruns on projects, a change in legal factors or business climate or other factors that
indicate that the carrying amount may not be recoverable or useful. There were no recorded land, building and
equipment impairments for 2021, 2020 or 2019.
Finance Receivables
Our leasing subsidiary provides auto and equipment direct financing (leases and loans) to commercial and
individual clients. We generally transfer ownership of the property to the client as the terms of the leases
expire. Our lease contracts contain bargain purchase options. We account for these leases and loans as sales-type
leases. We capitalize and amortize lease or loan origination costs over the life of the financing, using the effective
interest method. These costs may include, but are not limited to finder fees, broker fees, filing fees and the cost of
credit reports. We record income as other revenues over the financing term using the effective interest method in
the consolidated statements of income. An allowance for credit losses on finance receivables is updated and
reviewed on a quarterly basis. At December 31, 2021 and 2020, the allowance, including changes in the amount for
each period, was immaterial.
Employee Benefit Pension Plan
We sponsor a qualified defined benefit pension plan that was modified during 2008. We closed entry into the
pension plan, and only participants 40 years of age or older could elect to remain in the plan. Our pension expenses
are based on certain actuarial assumptions and also are composed of several components that are determined
using the projected unit credit actuarial cost method. Refer to Note 13, Employee Retirement Benefits, for more
information about our defined benefit pension plan.
Share-Based Compensation
We grant qualified and nonqualified share-based compensation under authorized plans. The stock options generally
vest on a graded scale over three years following the date of grant and are exercisable over 10-year periods.
We grant service-based restricted stock units that cliff vest three years after the date of grant as well as service-
based restricted stock units that vest ratably over the three-year vesting term. We also grant performance-based
restricted stock units that vest if certain market conditions are attained. In 2021, the CFC compensation committee
approved share-based awards including incentive stock options, nonqualified stock options, service-based restricted
and performance-based restricted stock units. See Note 17, Share-Based Associate Compensation Plans, for
further details.
Goodwill and Intangible Assets
We recognize goodwill and intangible assets generated through acquisitions within other assets in the consolidated
balance sheets. Goodwill arises when the fair value of consideration transferred exceeds the fair value of the net
identifiable assets acquired at the acquisition date. Goodwill and intangible assets with an indefinite life are not
amortized. Intangible assets with a definite life are amortized on a straight-line basis over the estimated useful lives
as follows: broker relationships, 15 years; internally developed technology, five years; value of business acquired,
over the remaining coverage period of the underlying insurance contracts, which expired during 2020. We test for
impairments on an annual basis or more frequently if events or circumstances indicate that the asset might be
impaired. The company performed its annual impairment test on goodwill and intangibles at September 30, which
did not result in the recognition of an impairment loss. The company held goodwill of $30 million and intangible
assets with an indefinite life of $31 million at December 31, 2021 and 2020, respectively.
Subsequent Events
There were no subsequent events requiring adjustment to the consolidated financial statements or disclosure.
Cincinnati Financial Corporation - 2021 10-K - Page 132
Pending Accounting Updates
ASU 2018-12, Financial Services - Insurance (Topic 944): Targeted Improvements to the Accounting for
Long-Duration Contracts
In August 2018, the FASB issued ASU 2018-12, Financial Services - Insurance (Topic 944): Targeted Improvements
to the Accounting for Long-Duration Contracts. ASU 2018-12 requires changes to the measurement and disclosure
of long-duration 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. We plan to adopt these ASUs
on a modified retrospective basis on January 1, 2023, with a transition date of January 1, 2021.
Related to the company's term and whole life products included in life policy 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 reserves balance is adjusted through insurance
losses and contract holders' benefits for cash flow assumption updates and through 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.
Management has identified that the requirement to measure term and whole life policy reserves using updated
discount rates is expected to have a material impact on shareholders' equity, through an increase to life policy
reserves and a decrease to AOCI, at the transition date. The company is in the process of addressing necessary
implementation-related items, including modifications to reporting and analysis capabilities as well as actuarial
systems and associated data processes. Further, the company continues to refine its accounting policy decisions
associated with the new guidance. Additional impacts of these ASUs on our company's consolidated financial
position, results of operations and cash flows are being further evaluated by management.
Cincinnati Financial Corporation - 2021 10-K - Page 133
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)
At December 31, 2021
Fixed-maturity securities:
Corporate
States, municipalities and political subdivisions
Commercial mortgage-backed
United States government
Foreign government
Government-sponsored enterprises
Total
At December 31, 2020
Fixed-maturity securities:
Corporate
States, municipalities and political subdivisions
Commercial mortgage-backed
United States government
Foreign government
Government-sponsored enterprises
Total
Amortized
cost
Gross unrealized
gains
losses
Fair
value
$
$
$
$
7,043 $
4,768
264
121
26
8
12,230 $
6,281 $
4,604
271
115
29
12
11,312 $
467 $
330
9
2
—
—
808 $
621 $
395
15
5
—
—
1,036 $
13 $
3
—
—
—
—
16 $
7 $
2
1
—
—
—
10 $
7,497
5,095
273
123
26
8
13,022
6,895
4,997
285
120
29
12
12,338
The net unrealized investment gains in our fixed-maturity portfolio at December 31, 2021, are primarily the result
of the continued low interest rate environment that increased the fair value of our fixed-maturity portfolio.
Our commercial mortgage-backed securities had an average rating of Aa2/AA and Aa1/AA at December 31, 2021
and 2020, respectively.
Cincinnati Financial Corporation - 2021 10-K - Page 134
The table below provides fair values and unrealized losses by investment category and by the duration of the
securities’ continuous unrealized loss positions:
(Dollars in millions)
At December 31, 2021
Fixed-maturity securities:
Less than 12 months
Unrealized
losses
Fair
value
12 months or more
Fair
value
Unrealized
losses
Total
Fair
value
Unrealized
losses
$
Corporate
States, municipalities and political subdivisions
Commercial mortgage-backed
United States government
Foreign government
Government-sponsored enterprises
861 $
105
10
48
16
7
Total
At December 31, 2020
Fixed-maturity securities:
Corporate
States, municipalities and political subdivisions
Commercial mortgage-backed
United States government
Foreign government
Government-sponsored enterprises
Total
$ 1,047 $
$
$
330 $
31
23
12
10
—
406 $
13 $
2
—
—
—
—
15 $
5 $
2
1
—
—
—
8 $
15 $
2
11
—
—
—
28 $
46 $
2
6
—
—
—
54 $
876 $
107
21
48
16
7
— $
1
—
—
—
—
1 $ 1,075 $
2 $
—
—
—
—
—
2 $
376 $
33
29
12
10
—
460 $
13
3
—
—
—
—
16
7
2
1
—
—
—
10
Contractual maturity dates for fixed-maturity investments were:
(Dollars in millions)
At December 31, 2021
Maturity dates:
Due in one year or less
Due after one year through five years
Due after five years through ten years
Due after ten years
Total
Amortized
cost
Fair
value
% of fair
value
$
689 $
3,675
3,404
4,462
12,230 $
$
697
3,871
3,678
4,776
13,022
5.4 %
29.7
28.2
36.7
100.0 %
Actual maturities may differ from contractual maturities when there is a right to call or prepay obligations with or
without call or prepayment penalties.
At December 31, 2021 and 2020, the company had fixed-maturity investments with a fair value of $119 million
and $121 million, respectively, on deposit with various states in compliance with regulatory requirements. In
addition, cash and fixed-maturity investments deposited with third parties used as collateral to secure liabilities on
behalf of insureds, cedants and other creditors had a fair value of $116 million and $98 million at December 31,
2021 and 2020, respectively. At December 31, 2021, the company had common equities with a fair value of
$84 million held in Lloyd's trust accounts to provide a portion of the capital needed to support Cincinnati Global's
operations.
In the normal course of investing activities, the company enters into investments in limited partnerships, including
private equity, real estate investments and asset-backed securities issued by third-parties. The company’s
maximum exposure to loss with respect to these investments is limited to the investment carrying values included in
the company’s consolidated balance sheets and any unfunded commitments.
The following table provides investment income and investment gains and losses:
Cincinnati Financial Corporation - 2021 10-K - Page 135
(Dollars in millions)
Investment income:
Interest
Dividends
Other
Total
Less investment expenses
Total
Investment gains and losses, net:
Equity securities:
Investment gains and losses on securities sold, net
Unrealized gains and losses on securities still held, net
Subtotal
Fixed-maturity securities:
Gross realized gains
Gross realized losses
Write-down of impaired securities
Subtotal
Other
Total
$
$
$
Years ended December 31,
2021
2020
2019
477 $
246
5
728
14
714 $
455 $
220
8
683
13
670 $
446
201
12
659
13
646
4 $
2,278
2,282
79 $
841
920
26
1,626
1,652
36
(5)
(1)
30
16
(3)
(78)
(65)
13
(3)
(9)
1
97
2,409 $
$
10
865 $
(3)
1,650
The fair value of our equity portfolio was $11.315 billion and $8.856 billion at December 31, 2021 and 2020,
respectively. At December 31, 2021 and 2020, Apple, Inc. (Nasdaq:AAPL), an equity holding, was our largest single
investment holding with a fair value of $862 million and $644 million, which was 7.9% and 7.5% of our publicly
traded common equities portfolio and 3.5% and 3.0% of the total investment portfolio, respectively.
During 2021, the allowance for credit losses on fixed-maturity securities, including changes in the amount during the
period, was immaterial. There were five fixed-maturity securities that were written down to fair value, due to an
intention to be sold, for holdings in the municipal sector. At December 31, 2021, 278 fixed-maturity investments with
a total unrealized loss of $16 million were in an unrealized loss position. Of that total, no fixed-maturity investments
had fair values below 70% of amortized cost.
During 2020, there were no fixed-maturity securities with an allowance for credit losses. There were 14 fixed-
maturity securities that were written down to fair value, due to an intention to be sold, for holdings in the energy, real
estate, consumer goods, municipal and technology & electronics sectors. At December 31, 2020, 128 fixed-maturity
investments with a total unrealized loss of $10 million were in an unrealized loss position. Of that total, no fixed-
maturity investments had fair values below 70% of amortized cost.
During 2019, we other-than-temporarily impaired three securities. At December 31, 2019, 38 fixed-maturity
investments with a total unrealized loss of $3 million had been in an unrealized loss position for 12 months or more.
Of that total, no fixed-maturity investments had fair values below 70% of amortized cost.
Cincinnati Financial Corporation - 2021 10-K - Page 136
NOTE 3 – Fair Value Measurements
Fair Value Hierarchy
The fair value hierarchy gives the highest priority to quoted prices with readily available independent data in active
markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable market inputs (Level 3).
When various inputs for measurement fall within different levels of the fair value hierarchy, the lowest observable
input that has a significant impact on fair value measurement is used. Our valuation techniques have not changed
from those used at December 31, 2020, and ultimately management determines fair value. Financial instruments
reported at fair value in our consolidated financial statements are categorized based upon the following
characteristics or inputs to the valuation techniques:
•
•
Level 1 – Financial assets and liabilities for which inputs are observable and are obtained from reliable quoted
prices for identical assets or liabilities in active markets. This is the most reliable fair value measurement and
includes, for example, active exchange-traded equity securities.
Level 2 – Financial assets and liabilities for which values are based on quoted prices in markets that are not
active or for which values are based on similar assets and liabilities that are actively traded. This also includes
pricing models for which the inputs are corroborated by market data.
The technique used for the Level 2 fixed-maturity securities is the application of market based modeling.
The inputs used for all classes of fixed-maturity securities listed in the table below include relevant market
information by asset class, trade activity of like securities, marketplace quotes, benchmark yields, spreads
off benchmark yields, interest rates, U.S. Treasury or swap curves, yield to maturity and economic events.
Specific to commercial mortgage-backed securities, key inputs also include prepayment and default
projections based on past performance of the underlying collateral and current market data. Level 2 fixed-
maturity securities are priced by a nationally recognized pricing vendor.
The Level 2 nonredeemable preferred equities technique used is the application of market based modeling.
The inputs used, similar to those used by the pricing vendor for our fixed-maturity securities, include
relevant market information, trade activity of like securities, yield to maturity, corporate action notices and
economic events. Level 2 nonredeemable preferred equities are priced by a nationally recognized pricing
vendor.
•
Level 3 – Financial assets and liabilities for which values are based on prices or valuation techniques that require
inputs that are both unobservable and significant to the overall fair value measurement. Level 3 inputs include
the following:
◦ Quotes from brokers or other external sources that are not considered binding;
◦ Quotes from brokers or other external sources where it cannot be determined that market participants
would in fact transact for the asset or liability at the quoted price; or
◦ Quotes from brokers or other external sources where the inputs are not deemed observable.
Cincinnati Financial Corporation - 2021 10-K - Page 137
The following tables illustrate the fair value hierarchy for those assets measured at fair value on a recurring basis at
December 31, 2021 and 2020. We do not have any liabilities carried at fair value.
(Dollars in millions)
At December 31, 2021
Fixed maturities, available for sale:
Corporate
States, municipalities and political subdivisions
Commercial mortgage-backed
United States government
Foreign government
Government-sponsored enterprises
Subtotal
Common equities
Nonredeemable preferred equities
Separate accounts taxable fixed maturities
Top Hat savings plan mutual funds and common
equity (included in Other assets)
Total
At December 31, 2020
Fixed maturities, available for sale:
Corporate
States, municipalities and political subdivisions
Commercial mortgage-backed
United States government
Foreign government
Government-sponsored enterprises
Subtotal
Common equities
Nonredeemable preferred equities
Separate accounts taxable fixed maturities
Top Hat savings plan mutual funds and common
equity (included in Other assets)
Total
Quoted prices in
active markets for
identical assets
(Level 1)
Significant other
observable inputs
(Level 2)
Significant
unobservable
inputs
(Level 3)
Total
$
$
$
— $
—
—
123
—
—
123
10,862
—
—
7,497 $
5,095
273
—
26
8
12,899
—
453
948
64
11,049 $
—
14,300 $
— $
—
—
120
—
—
120
8,541
—
—
6,895 $
4,997
285
—
29
12
12,218
—
315
903
$
51
8,712 $
—
13,436 $
— $
—
—
—
—
—
—
—
—
—
—
— $
— $
—
—
—
—
—
—
—
—
—
—
— $
7,497
5,095
273
123
26
8
13,022
10,862
453
948
64
25,349
6,895
4,997
285
120
29
12
12,338
8,541
315
903
51
22,148
We also held Level 1 cash and cash equivalents of $1.139 billion and $900 million at December 31, 2021 and 2020,
respectively. Level 3 assets reported at fair value in our consolidated financial statements are not material, and
therefore no further disclosures are provided.
Cincinnati Financial Corporation - 2021 10-K - Page 138
Fair Value Disclosure for Assets and Liabilities Not Carried at Fair Value
The disclosures below are presented to provide information about the effects of current market conditions on
financial instruments that are not reported at fair value in our consolidated financial statements.
The following table shows fair values of our note payable and long-term debt:
(Dollars in millions)
At December 31, 2021
Note payable
6.900% senior debentures, due 2028
6.920% senior debentures, due 2028
6.125% senior notes, due 2034
Total
At December 31, 2020
Note payable
6.900% senior debentures, due 2028
6.920% senior debentures, due 2028
6.125% senior notes, due 2034
Total
Quoted prices in
active markets for
identical assets
(Level 1)
Significant other
observable inputs
(Level 2)
Significant
unobservable
inputs
(Level 3)
Total
$
$
$
$
— $
—
—
—
— $
— $
—
—
—
— $
54 $
34
501
510
1,099 $
54 $
35
515
522
1,126 $
— $
—
—
—
— $
— $
—
—
—
— $
54
34
501
510
1,099
54
35
515
522
1,126
Fair value of the note payable was determined based upon the outstanding balance at December 31, 2021 and
2020, because it is short term and tied to a variable interest rate. Fair value of the long-term debt was determined
under the fair value measurements and disclosure accounting rules based on market pricing of similar debt
instruments that are actively trading. We determine fair value for our debt the same way that we value corporate
fixed maturities in our investment portfolio. Fair value can vary with macroeconomic conditions. Regardless of the
fluctuations in fair value, the outstanding principal amount of our long-term debt is $793 million at both
December 31, 2021 and 2020. None of the long-term debt is encumbered by rating triggers. The note payable and
long-term debt were classified as Level 2 as an active market does not exist, but fair value is determined based on
observable inputs.
The following table shows the fair value of our life policy loans, included in other invested assets:
(Dollars in millions)
At December 31, 2021
Life policy loans
At December 31, 2020
Life policy loans
Quoted prices in
active markets for
identical assets
(Level 1)
Significant other
observable inputs
(Level 2)
Significant
unobservable
inputs
(Level 3)
$
$
— $
— $
44 $
— $
— $
49 $
Total
44
49
Outstanding principal and interest for these life policy loans totaled $31 million and $33 million at December 31,
2021 and 2020, respectively. To determine the fair value, we make the following significant assumptions: (1) the
discount rates used to calculate the present value of expected payments are the risk-free spot rates, as
nonperformance risk is minimal; and (2) the loan repayment rate by which policyholders pay off their loan balances
is in line with past experience.
Cincinnati Financial Corporation - 2021 10-K - Page 139
The following table shows fair value of our deferred annuities and structured settlements included in life policy and
investment contract reserves:
(Dollars in millions)
At December 31, 2021
Deferred annuities
Structured settlements
Total
At December 31, 2020
Deferred annuities
Structured settlements
Total
Quoted prices in
active markets for
identical assets
(Level 1)
Significant other
observable inputs
(Level 2)
Significant
unobservable
inputs
(Level 3)
$
$
$
$
— $
—
— $
— $
—
— $
— $
201
201 $
— $
227
227 $
778 $
—
778 $
836 $
—
836 $
Total
778
201
979
836
227
1,063
Recorded reserves for the deferred annuities were $762 million and $761 million at December 31, 2021 and 2020,
respectively. Recorded reserves for the structured settlements were $136 million and $145 million at December 31,
2021 and 2020, respectively.
Fair values for deferred annuities were calculated based upon internally developed models because active markets
and observable inputs do not exist. To determine the fair value, we made the following significant assumptions:
(1) the discount rates used to calculate the present value of expected payments are the risk-free spot rates plus an
A3 rated bond spread for financial issuers at December 31, 2021 and 2020, to account for nonperformance risk;
(2) the rate of interest credited to policyholders is the portfolio net earned interest rate less a spread for expenses
and profit; and (3) additional lapses occur when the credited interest rate is exceeded by an assumed competitor
credited rate, which is a function of the risk-free rate of the economic scenario being modeled.
Fair values for structured settlements were calculated based on internally developed models which assume the
discount rates used to calculate the present value of expected payments are the risk-free spot rates plus an A3
rated bond spread for financial issuers at December 31, 2021 and 2020, to account for nonperformance risk.
The structured settlements were classified as Level 2 as an active market does not exist, but fair value is based on
observable inputs.
Cincinnati Financial Corporation - 2021 10-K - Page 140
NOTE 4 – Property Casualty Loss and Loss Expenses
We use actuarial methods, models, assumptions and judgment to estimate, as of a financial statement date, the
property casualty loss and loss expense reserves required to pay for and settle all outstanding insured claims,
including IBNR claims, as of that date. The actuarial estimate is subject to review and adjustment by an inter-
departmental committee that includes actuarial, claims, underwriting, loss prevention and finance management.
This committee is familiar with relevant company and industry business, claims and underwriting trends, as well as
general economic and legal trends that could affect future loss and loss expense payments. The amount we will
actually have to pay for claims can be highly uncertain. This uncertainty, together with the size of our reserves,
makes the loss and loss expense reserves our most significant estimate.
Our reserving process takes into account known facts and interpretations of circumstances and factors including the
type of claim, policy provisions pertaining to each claim, potential subrogation or salvage recoverable, large loss
activity and trends, new business activity, judicial decisions, economic conditions, changes in law and regulation
and product and underwriting changes. There have been no significant changes in methodologies and assumptions
used in calculating loss and loss expense reserves for all years presented. There were no material additional
premiums or return premiums accrued for as a result of prior-year effects.
Our claims representatives establish case reserves when claims are reported to provide for our unpaid loss and loss
expense obligation associated with individual claims.
For events designated as natural catastrophes resulting in losses incurred related to direct premiums, we calculate
IBNR reserves directly as a result of an estimated claim counts and estimated average dollar amount per claim for
each event. Once individual case reserves are established for a catastrophe event, we reduce the IBNR reserves.
Our actuarial staff uses generally accepted actuarial methods and models to derive ultimate loss and IBNR reserve
estimates. The time interval between a claims occurrence and its settlement is one of the crucial attributes when
estimating ultimate losses and IBNR reserves.
Due to the uncertainties inherent with loss reserves, our ultimate loss experience could prove better or worse than
what our carried reserves reflect. To the extent that reserves are inadequate and are required to be increased, the
amount of the increase is a charge in that period, raising our loss and loss expense ratio and reducing earnings.
To the extent that reserves are redundant and are required to be released, the amount of the release is a credit in
that period, reducing our loss and loss expense ratio and increasing earnings.
This table summarizes activity for our consolidated property casualty loss and loss expense reserves:
(Dollars in millions)
Years ended December 31,
2021
2020
2019
Gross loss and loss expense reserves, January 1
$
6,677 $
6,088 $
Less reinsurance recoverable
Net loss and loss expense reserves, January 1
277
6,400
342
5,746
5,646
238
5,408
Net loss and loss expense reserves related to acquisition of Cincinnati Global at
February 28, 2019
—
—
246
Net incurred loss and loss expenses related to:
Current accident year
Prior accident years
Total incurred
Net paid loss and loss expenses related to:
Current accident year
Prior accident years
Total paid
Net loss and loss expense reserves, December 31
Plus reinsurance recoverable
4,024
(428)
3,596
1,379
1,715
3,094
6,902
327
3,968
(131)
3,837
1,493
1,690
3,183
6,400
277
Gross loss and loss expense reserves, December 31
$
7,229 $
6,677 $
Cincinnati Financial Corporation - 2021 10-K - Page 141
3,600
(248)
3,352
1,462
1,798
3,260
5,746
342
6,088
In 2021, 2020 and 2019, the reserve for loss and loss expense in the consolidated balance sheets also included
$76 million, $69 million and $59 million, respectively, for certain life and health loss and loss expense reserves.
Additional disclosures for reserves related to these health claims are not material and therefore not provided.
During 2021, we experienced $428 million of favorable development on prior accident years including $353 million
of favorable development in commercial lines, $50 million of favorable development in personal lines and $7 million
of unfavorable development in excess and surplus lines. Within commercial lines, we recognized favorable
development of $120 million for the commercial casualty line, $97 million for the commercial property line,
$66 million for the workers' compensation line and $43 million for the commercial auto line due to reduced
uncertainty of prior accident year loss and loss expense for these lines. Within personal lines, we recognized
favorable reserve development of $31 million in personal auto and $14 million for the homeowner line of business.
During 2020, we experienced $131 million of favorable development on prior accident years including $95 million
of favorable development in commercial lines, $18 million of favorable development in personal lines and $7 million
of unfavorable development in excess and surplus lines. Within commercial lines, we recognized favorable
development of $54 million for the commercial casualty line, $39 million for the workers' compensation line and
$16 million for the commercial property line due to reduced uncertainty of prior accident year loss and loss expense
for these lines. This was partially offset by unfavorable development of $17 million for the commercial auto line.
Within personal lines, we recognized favorable reserve development of $15 million in personal auto and $5 million
for the homeowner line of business.
During 2019, we experienced $248 million of favorable development on prior accident years including $192 million
of favorable development in commercial lines, $27 million of favorable development in personal lines and
$11 million of favorable development in excess and surplus lines. Within commercial lines, we recognized favorable
development $78 million for the commercial casualty line, $77 million for the workers' compensation line,
$25 million for the commercial property line and $6 million for the commercial auto line due to reduced uncertainty of
prior accident year loss and loss expense for these lines. Within personal lines, we recognized favorable reserve
development of $26 million in personal auto. We recognized unfavorable reserve development of $11 million for the
homeowner line of business due primarily to higher-than-anticipated loss development on known claims.
Included in our lines of business are asbestos and environmental claims. We carried $88 million and $85 million of
net loss and loss expense reserves for asbestos and environmental claims at December 31, 2021 and 2020,
respectively. The asbestos and environmental claims amounts for each respective year constituted less than 2.0%
of total net loss and loss expense reserves at these year-end dates. We believe our exposure to asbestos and
environmental claims is limited, largely because our reinsurance retention was $500,000 or below prior to 1987.
We also were predominantly a personal lines company in the 1960s and 1970s. During the 1980s and early 1990s,
commercial lines grew as a percentage of our overall business and our exposure to asbestos and environmental
claims grew accordingly. Over that period, we included an asbestos and environmental exclusion in almost all
policies or endorsed the exclusion to the policies. We have no exposure to asbestos and environmental claims
related to our acquisition of Cincinnati Global. We continue to monitor our claims for evidence of material exposure
to other mass tort classes but have found no such credible evidence to date.
Cincinnati Financial Corporation - 2021 10-K - Page 142
The following table provides a reconciliation of the property casualty incurred losses and allocated loss adjustment
expenses (ALAE) development and paid losses and ALAE development information at December 31, 2021.
(Dollars in millions)
Cumulative
incurred losses
and ALAE
as reported within
the triangles,
net of reinsurance
Cumulative paid
losses and ALAE
as reported within
the triangles,
net of reinsurance
Liabilities for loss
and ALAE for
accident years not
presented in the
triangles, net of
reinsurance
Total liabilities
for loss and
ALAE, net of
reinsurance
Reinsurance
recoverable
on unpaid
losses
Total
liabilities
for gross
loss and loss
expense
reserves
Commercial casualty
$
5,383 $
3,146 $
90 $
2,327 $
33 $
Workers' compensation
Commercial auto
Commercial property
Personal auto
Homeowner
Excess and surplus
Other lines
1,923
2,203
3,118
1,802
2,169
1,021
1,279
1,515
2,698
1,552
1,893
496
301
34
17
10
5
1
945
722
437
260
281
526
65
4
46
32
8
21
2,360
1,010
726
483
292
289
547
1,210
6,917
312
$
7,229
Total liabilities for loss and ALAE reserves
Unallocated loss adjustment expense reserves
Gross loss and loss expense reserves
For all lines of business, the claim counts reported are primarily measured by insurance coverages that are
triggered when a loss occurs and a reserve is established. For this purpose, coverages are defined as unique
combinations of certain attributes such as line of business and cause of loss. Claims that are opened and closed
without payment are included in the reported claim counts. Claim counts are presented on a direct basis only and
do not reflect any assumed or ceded reinsurance.
In the following tables, commercial casualty, workers' compensation and excess and surplus lines each disclose
10 accident years of loss and ALAE reserves and the cumulative number of reported claims. Commercial auto,
commercial property, personal auto and homeowner each disclose five accident years of loss and ALAE reserves
and the cumulative number of reported claims consistent with the number of years for which claims incurred
typically remain outstanding.
Cincinnati Financial Corporation - 2021 10-K - Page 143
Commercial Casualty
The following table shows the commercial casualty incurred and paid losses and ALAE development by accident
year. The table also shows the IBNR reserves plus expected development on reported losses and claim frequency:
(Dollars in millions, reported claims in thousands)
Incurred losses and ALAE, net of reinsurance for the years ended December 31,
As of December 31, 2021
Total of incurred
but not reported
liabilities plus
expected
development on
reported losses
Cumulative
number of
reported
claims
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
Unaudited
$ 466 $ 414 $ 417 $ 394 $ 394 $ 404 $ 399 $ 397 $ 397 $ 397 $
448
443
431
416
413
407
391
386
503
496
479
476
479
465
469
533
526
529
516
508
502
563
574
557
555
554
610
597
577
571
650
641
622
672
643
674
385
466
504
538
555
588
607
629
714
$ 5,383
10
17
22
42
58
68
101
141
307
492
18
20
21
21
22
21
22
20
14
10
Cumulative paid losses and ALAE, net of reinsurance
$ 27 $ 88 $ 170 $ 232 $ 288 $ 330 $ 346 $ 364 $ 374 $ 383
35
90
34
159
232
286
312
337
348
97
38
172
287
338
390
409
108
200
287
362
404
46
126
228
331
395
48
122
234
320
44
148
253
39
134
33
355
421
424
434
392
345
259
102
31
3,146
90
$ 2,327
All outstanding liabilities before 2012, net of reinsurance
Liabilities for loss and ALAE, net of reinsurance
Accident
Year
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
Total
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
Total
The following table shows the average annual percentage payout of incurred losses for the commercial casualty line
of business:
Average annual percentage payout of incurred losses by age, net of reinsurance (unaudited)
Years
1
2
3
4
5
6
7
8
9
10
Average annual percentage payout
7.2%
14.4% 18.8% 18.1% 13.2%
8.8%
4.6%
3.4%
2.3%
1.7%
Cincinnati Financial Corporation - 2021 10-K - Page 144
Workers’ Compensation
The following table shows the workers’ compensation incurred and paid losses and ALAE development by accident
year. The table also shows the IBNR reserves plus expected development on reported losses and claim frequency:
(Dollars in millions, reported claims in thousands)
Incurred losses and ALAE, net of reinsurance for the years ended December 31,
As of December 31, 2021
Total of incurred
but not reported
liabilities plus
expected
development on
reported losses
Cumulative
number of
reported
claims
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
Unaudited
$ 265 $ 245 $ 234 $ 220 $ 213 $ 211 $ 209 $ 208 $ 207 $ 209 $
264
246
221
212
208
205
202
201
261
233
214
203
201
198
197
246
220
208
195
179
173
230
218
206
188
183
218
208
190
183
222
207
199
224
215
204
204
202
173
183
172
186
202
190
202
$ 1,923
20
17
17
26
24
31
34
50
68
72
21
20
19
17
16
15
15
14
11
10
Cumulative paid losses and ALAE, net of reinsurance
$ 62 $ 121 $ 147 $ 162 $ 171 $ 175 $ 178 $ 180 $ 182 $ 183
61
119
144
157
164
168
170
174
56
110
134
148
157
162
165
47
93
46
115
129
134
137
97
45
119
131
141
88
48
106
114
95
49
115
94
37
177
168
139
146
119
127
115
68
37
1,279
301
$ 945
All outstanding liabilities before 2012, net of reinsurance
Liabilities for loss and ALAE, net of reinsurance
Accident
Year
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
Total
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
Total
The following table shows the average annual percentage payout of incurred losses for the workers’ compensation
line of business:
Average annual percentage payout of incurred losses by age, net of reinsurance (unaudited)
Years
1
2
3
4
5
6
7
8
9
10
Average annual percentage payout
25.3% 25.3% 11.6%
6.5%
3.9%
2.3%
1.4%
1.3%
1.3%
0.3%
Cincinnati Financial Corporation - 2021 10-K - Page 145
As of December 31, 2021
Total of incurred
but not reported
liabilities plus
expected
development on
reported losses
Cumulative
number of
reported
claims
Commercial Auto
The following table shows the commercial auto incurred and paid losses and ALAE development by accident year.
The table also shows the IBNR reserves plus expected development on reported losses and claim frequency:
(Dollars in millions, reported claims in thousands)
Incurred losses and ALAE, net of reinsurance for the years ended December 31,
Accident
Year
2017
2018
2019
2020
2021
Total
Unaudited
2017
2018
2019
2020
2021
$
451 $
441 $
443 $
444 $
449 $
453
442
452
442
451
424
440
453
391
470
$
2,203
8
15
34
86
154
51
49
46
36
36
Cumulative paid losses and ALAE, net of reinsurance
2017
2018
2019
2020
2021
Total
$
187 $
266 $
334 $
381 $
184
266
183
337
268
154
All outstanding liabilities before 2017, net of reinsurance
Liabilities for loss and ALAE, net of reinsurance
$
411
378
333
214
179
1,515
34
722
The following table shows the average annual percentage payout of incurred losses for the commercial auto line of
business. Commercial auto includes both physical damage and liability losses. A majority of the incurred losses paid
after year 2 are the result of liability losses.
Average annual percentage payout of incurred losses by age, net of reinsurance (unaudited)
Years
Average annual percentage payout
1
40.3%
2
17.7%
3
15.2%
4
9.8%
5
6.7%
Cincinnati Financial Corporation - 2021 10-K - Page 146
As of December 31, 2021
Total of incurred
but not reported
liabilities plus
expected
development on
reported losses
Cumulative
number of
reported
claims
Commercial Property
The following table shows the commercial property incurred and paid losses and ALAE development by accident
year. The table also shows the IBNR reserves plus expected development on reported losses and claim frequency:
(Dollars in millions, reported claims in thousands)
Incurred losses and ALAE, net of reinsurance for the years ended December 31,
Accident
Year
2017
2018
2019
2020
2021
Total
Unaudited
2017
2018
2019
2020
2021
$
587 $
560 $
556 $
565 $
572 $
630
603
621
590
606
855
597
600
742
607
$
3,118
2
6
9
43
49
18
18
17
23
13
Cumulative paid losses and ALAE, net of reinsurance
2017
2018
2019
2020
2021
Total
$
395 $
522 $
547 $
560 $
386
559
413
576
561
489
All outstanding liabilities before 2017, net of reinsurance
Liabilities for loss and ALAE, net of reinsurance
$
567
589
579
637
326
2,698
17
437
The following table shows the average annual percentage payout of incurred losses for the commercial property line
of business:
Average annual percentage payout of incurred losses by age, net of reinsurance (unaudited)
Years
Average annual percentage payout
1
64.4%
2
24.0%
3
3.4%
4
2.2%
5
1.3%
Cincinnati Financial Corporation - 2021 10-K - Page 147
Personal Auto
The following table shows the personal auto incurred and paid losses and ALAE development by accident year.
The table also shows the IBNR reserves plus expected development on reported losses and claim frequency:
(Dollars in millions, reported claims in thousands)
Incurred losses and ALAE, net of reinsurance for the years ended December 31,
Accident
Year
2017
2018
2019
2020
2021
Total
Unaudited
2017
2018
2019
2020
2021
$
412 $
394 $
391 $
393 $
393 $
424
398
399
395
383
305
398
380
281
350
$
1,802
1
—
2
18
51
109
111
102
71
75
As of December 31, 2021
Total of incurred
but not reported
liabilities plus
expected
development on
reported losses
Cumulative
number of
reported
claims
Cumulative paid losses and ALAE, net of reinsurance
2017
2018
2019
2020
2021
Total
$
256 $
324 $
358 $
374 $
262
327
250
358
314
186
All outstanding liabilities before 2017, net of reinsurance
Liabilities for loss and ALAE, net of reinsurance
$
383
379
346
225
219
1,552
10
260
The following table shows the average annual percentage payout of incurred losses for the personal auto line of
business. Personal auto includes both physical damage and liability losses. A majority of the incurred losses paid
after year 2 are the result of liability losses.
Average annual percentage payout of incurred losses by age, net of reinsurance (unaudited)
Years
Average annual percentage payout
1
65.1%
2
16.1%
3
8.3%
4
4.8%
5
2.2%
Cincinnati Financial Corporation - 2021 10-K - Page 148
Homeowner
The following table shows the homeowner incurred and paid losses and ALAE development by accident year.
The table also shows the IBNR reserves plus expected development on reported losses and claim frequency:
(Dollars in millions, reported claims in thousands)
Incurred losses and ALAE, net of reinsurance for the years ended December 31,
Accident
Year
2017
2018
2019
2020
2021
Total
Unaudited
2017
2018
2019
2020
2021
$
356 $
383 $
385 $
387 $
389 $
370
386
432
387
421
497
388
422
475
495
$
2,169
1
5
7
16
95
27
24
22
23
17
As of December 31, 2021
Total of incurred
but not reported
liabilities plus
expected
development on
reported losses
Cumulative
number of
reported
claims
Cumulative paid losses and ALAE, net of reinsurance
2017
2018
2019
2020
2021
Total
$
277 $
356 $
378 $
384 $
268
368
303
378
391
326
All outstanding liabilities before 2017, net of reinsurance
Liabilities for loss and ALAE, net of reinsurance
$
386
381
407
434
285
1,893
5
281
The following table shows the average annual percentage payout of incurred losses for the homeowner line
of business:
Average annual percentage payout of incurred losses by age, net of reinsurance (unaudited)
Years
Average annual percentage payout
1
67.6%
2
22.4%
3
4.0%
4
1.2%
5
0.5%
Cincinnati Financial Corporation - 2021 10-K - Page 149
Excess and Surplus Lines
The following table shows the excess and surplus lines incurred and paid losses and ALAE development by
accident year. The table also shows the IBNR reserves plus expected development on reported losses and
claim frequency:
(Dollars in millions, reported claims in thousands)
Incurred losses and ALAE, net of reinsurance for the years ended December 31,
As of December 31, 2021
Total of incurred
but not reported
liabilities plus
expected
development on
reported losses
Cumulative
number of
reported
claims
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
Unaudited
$ 67 $ 56 $ 49 $ 40 $ 37 $ 36 $ 35 $ 36 $ 35 $
35 $
74
64
95
54
82
96
45
75
81
93
42
64
73
87
104
41
60
67
84
95
41
59
65
82
95
41
59
66
90
94
116
109
110
137
135
172
40
58
65
91
94
108
141
172
217
$ 1,021
—
1
3
4
8
13
23
41
78
129
1
2
2
2
3
3
3
3
3
3
Cumulative paid losses and ALAE, net of reinsurance
$
9 $ 15 $ 19 $ 25 $ 29 $ 31 $ 32 $ 33 $ 34 $
7
12
9
20
17
8
27
27
19
10
32
37
29
21
11
34
43
41
39
23
11
37
48
51
51
41
26
13
39
51
54
62
57
50
34
16
34
39
53
56
75
68
62
55
37
17
All outstanding liabilities before 2012, net of reinsurance
Liabilities for loss and ALAE, net of reinsurance
496
1
$ 526
Accident
Year
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
Total
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
Total
The following table shows the average annual percentage payout of incurred losses for the excess and surplus lines
insurance segment. Excess and surplus lines consist mostly of commercial casualty and commercial property
coverages. A majority of the incurred losses paid after year 2 are the result of commercial casualty losses.
Average annual percentage payout of incurred losses by age, net of reinsurance (unaudited)
Years
1
2
3
4
5
6
7
8
9
10
Average annual percentage payout
13.1% 13.9% 17.6% 15.6% 12.3%
8.4%
4.3%
3.0%
1.1%
0.4%
Cincinnati Financial Corporation - 2021 10-K - Page 150
NOTE 5 – Life Policy and Investment Contract Reserves
We establish the reserves for traditional life insurance policies based on expected expenses, mortality,
morbidity, withdrawal rates, timing of claim presentation and investment yields, including a provision for uncertainty.
Once these assumptions are established, they generally are maintained throughout the lives of the contracts.
We use both our own experience and industry experience, adjusted for historical trends, in arriving at our
assumptions for expected mortality, morbidity and withdrawal rates as well as for expected expenses. We base
our assumptions for expected investment income on our own experience adjusted for current and future
economic conditions.
We establish reserves for the company’s universal life, deferred annuity and structured settlement policies equal
to the cumulative account balances, which include premium deposits plus credited interest less charges and
withdrawals. Some of our universal life policies contain no-lapse guarantee provisions. For these policies,
we establish a reserve in addition to the account balance, based on expected no-lapse guarantee benefits and
expected policy assessments.
This table summarizes our life policy and investment contract reserves:
(Dollars in millions)
Life policy reserves:
Ordinary/traditional life
Other
Subtotal
Investment contract reserves:
Deferred annuities
Universal life
Structured settlements
Other
Subtotal
Total life policy and investment contract reserves
At December 31,
2021
2020
$
$
1,376 $
52
1,428
762
679
136
9
1,586
3,014 $
1,301
52
1,353
761
647
145
9
1,562
2,915
Cincinnati Financial Corporation - 2021 10-K - Page 151
NOTE 6 – Deferred Policy Acquisition Costs
Expenses directly related to successfully acquired insurance policies – primarily commissions, premium taxes and
underwriting costs – are deferred and amortized over the terms of the policies. We update our acquisition cost
assumptions periodically to reflect actual experience, and we evaluate the costs for recoverability. The table below
shows the deferred policy acquisition costs and asset reconciliation:
(Dollars in millions)
Property casualty:
Deferred policy acquisition costs asset, January 1
Capitalized deferred policy acquisition costs
Amortized deferred policy acquisition costs
Deferred policy acquisition costs asset, December 31
Life:
Deferred policy acquisition costs asset, January 1
Capitalized deferred policy acquisition costs
Amortized deferred policy acquisition costs
Shadow deferred policy acquisition costs
Deferred policy acquisition costs asset, December 31
Consolidated:
Deferred policy acquisition costs asset, January 1
Capitalized deferred policy acquisition costs
Amortized deferred policy acquisition costs
Shadow deferred policy acquisition costs
Deferred policy acquisition costs asset, December 31
Years ended December 31,
2021
2020
2019
$
$
$
$
$
$
542 $
1,211
(1,151)
602 $
512 $
1,087
(1,057)
542 $
263 $
59
(46)
27
303 $
262 $
58
(49)
(8)
263 $
805 $
1,270
(1,197)
27
905 $
774 $
1,145
(1,106)
(8)
805 $
464
1,034
(986)
512
274
61
(48)
(25)
262
738
1,095
(1,034)
(25)
774
No premium deficiencies were recorded in the consolidated statements of income in 2021, 2020 and 2019, as the
sum of the anticipated loss and loss expenses, policyholder dividends and unamortized deferred acquisition
expenses did not exceed the related unearned premiums and anticipated investment income.
Cincinnati Financial Corporation - 2021 10-K - Page 152
NOTE 7 – Note Payable
We have one unsecured revolving credit facility through multiple commercial banks which expires on
February 4, 2026. The borrowing capacity is $300 million with an additional $300 million accordion feature.
Terms and conditions of the agreement include a debt-to-total capital maximum of 35%. We had no compensating
balance requirements on short-term debt for either 2021 or 2020. At December 31, 2021 and 2020, $54 million was
drawn on the line of credit. The interest rate charged on our borrowings on this credit agreement ranged from 0.97%
to 1.03% during 2021 and ranged from 1.03% to 4.25% during 2020. In addition, we have letters of credit related to
our Cincinnati Re and Cincinnati Global operations with no amounts drawn at December 31, 2021 and 2020.
Cincinnati Financial Corporation - 2021 10-K - Page 153
NOTE 8 – Long-Term Debt and Lease Obligations
This table summarizes the principal amounts of our long-term debt excluding unamortized discounts, none of which
are encumbered by rating triggers:
(Dollars in millions)
Interest rate
6.900%
6.920%
6.125%
Year of
issue
1998
2005
2004
Book value
At December 31,
Principal amount
At December 31,
2021
2020
2021
2020
Senior debentures, due 2028
Senior debentures, due 2028
Senior notes, due 2034
Total
$
$
27 $
391
371
789 $
27 $
391
370
788 $
28 $
391
374
793 $
28
391
374
793
The finance lease term for equipment and autos is three to six years while the operating lease term for real estate
properties is typically five years. Lease obligations totaled $54 million and $57 million in 2021 and 2020,
respectively. Below are the lease obligations we expect to pay through years 2027 and thereafter including
$3 million of interest for finance and operating leases:
(Dollars in millions)
Years ended December 31,
Finance lease obligations
Operating lease obligations
Total lease obligations
2022
2023
2024
2025
2026
$
$
14 $
4
18 $
12 $
2
14 $
8 $
2
10 $
6 $
2
8 $
2027 and
thereafter
2
1
3
3 $
1
4 $
The following table provides lease cost and other information:
(Dollars in millions)
Lease cost:
Finance lease cost
Operating lease cost
Total lease cost
Other information finance leases:
Finance cash outflows
Weighted average discount rate
Weighted average remaining lease term in years
Other information operating leases:
Operating cash outflows
Weighted average discount rate
Weighted average remaining lease term in years
Years ended December 31,
2020
2019
2021
$
$
$
$
$
$
$
$
15
4
19
15
2.46%
3.45
4
2.86%
4.37
$
$
$
$
15
4
19
15
2.62%
3.67
8
3.65%
4.84
9
4
13
15
2.96%
3.65
8
3.69%
4.71
Cincinnati Financial Corporation - 2021 10-K - Page 154
NOTE 9 – Shareholders’ Equity and Dividend Restrictions
Declared cash dividends per share were $2.52, $2.40 and $2.24 for the years ended December 31, 2021, 2020 and
2019, respectively.
Our lead insurance subsidiary, The Cincinnati Insurance Company, paid dividends to the parent company of
$583 million in 2021, $550 million in 2020 and $625 million in 2019. State regulatory requirements restrict the
dividends insurance subsidiaries can pay. Generally, the most our lead insurance subsidiary can pay without prior
regulatory approval is the greater of 10% of statutory capital and surplus or 100% of statutory net income for the
prior calendar year. Dividends exceeding these limitations may be paid only with approval of the insurance
department of the domiciliary state. During 2022, the total that our lead insurance subsidiary may pay in dividends is
approximately $929 million.
Dividend payments from Cincinnati Global to the parent company are subject to regulation by U.K. law.
Cincinnati Global paid no dividends to the parent company in 2021, 2020 or 2019.
Accumulated Other Comprehensive Income
The table below shows beginning and end of year accumulated other comprehensive income (AOCI) for
investments, pension obligations, life deferred acquisition costs, life policy reserves and other. The changes from
the beginning of year to the end of year are the result of changes to other comprehensive income or loss (OCI).
Cincinnati Financial Corporation - 2021 10-K - Page 155
(Dollars in millions)
Investments:
AOCI, January 1
OCI before investment gains and
losses, net, recognized in net
income
Investment gains and losses, net,
recognized in net income
OCI
AOCI, December 31
Pension obligations:
AOCI, January 1
OCI excluding amortization
recognized in net income
Amortization recognized in net
income
OCI
AOCI, December 31
Life deferred acquisition costs, life
policy reserves and other:
AOCI, January 1
OCI before investment gains and
losses, net, recognized in net
income
Investment gains and losses, net,
recognized in net income
OCI
AOCI, December 31
Summary of AOCI:
AOCI, January 1
Investments OCI
Pension obligations OCI
Life deferred acquisition costs,
life policy reserves and other OCI
Total OCI
AOCI, December 31
Before
tax
2021
Income
tax
Net
Before
tax
2020
Income
tax
Net
Before
tax
2019
Income
tax
Net
$ 1,026 $ 215 $ 811
$ 590 $ 123 $ 467
$
46 $
9 $
37
(204)
(44)
(160)
371
78
293
545
115
430
(30)
(234)
(24)
(184)
$ 792 $ 165 $ 627
(6)
(50)
65
436
51
344
$ 1,026 $ 215 $ 811
14
92
(1)
(1) —
430
$ 590 $ 123 $ 467
544
114
$
(41) $
(7) $
(34) $
(9) $ — $
(9) $
(16) $
(2) $
(14)
62
12
6
68
27 $
2
14
7 $
$
50
4
54
20
$
(35)
(7)
(28)
6
2
—
3
(32)
(41) $
(7)
(7) $
3
(25)
(34) $
—
2
1
7
(9) $ — $
4
1
5
(9)
$
(10) $
(2) $
(8) $
(13) $
(3) $
(10) $
(1) $ — $
(1)
11
2
9
3
1
2
(15)
(3)
(12)
—
2
—
11
1 $ — $
—
9
1
$
$ 975 $ 206 $ 769
(184)
54
(234)
68
(50)
14
11
(155)
9
(121)
$ 820 $ 172 $ 648
2
(34)
—
3
(10) $
—
1
(2) $
—
2
(8) $
$
3
(12)
(13) $
—
(3)
(3) $
3
(9)
(10)
$ 568 $ 120 $ 448
344
(25)
436
(32)
92
(7)
$
29 $
544
7
7 $
114
2
22
430
5
3
407
2
321
$ 975 $ 206 $ 769
1
86
(3)
(12)
539
(9)
426
$ 568 $ 120 $ 448
113
Investments gains and losses, net, and life deferred acquisition costs, life policy reserves and other investment
gains and losses, net, are recorded in the investment gains and losses, net, line item in the consolidated statements
of income. Amortization on pension obligations is recorded in the insurance losses and contract holders' benefits
and underwriting, acquisition and insurance expenses line items in the consolidated statements of income.
Cincinnati Financial Corporation - 2021 10-K - Page 156
NOTE 10 – Reinsurance
Primary components of our property casualty reinsurance assumed operations include involuntary and
voluntary assumed as well as contracts from our reinsurance assumed operations, known as Cincinnati Re.
Primary components of our ceded reinsurance include a property per risk treaty, property excess treaty, casualty per
occurrence treaty, casualty excess treaty, property catastrophe treaty and catastrophe bonds and retrocessions on
our reinsurance assumed operations. Management’s decisions about the appropriate level of risk retention are
affected by various factors, including changes in our underwriting practices, capacity to retain risks and reinsurance
market conditions.
The table below summarizes our consolidated property casualty insurance net written premiums, earned premiums
and incurred loss and loss expenses:
(Dollars in millions)
Direct written premiums
Assumed written premiums
Ceded written premiums
Net written premiums
Direct earned premiums
Assumed earned premiums
Ceded earned premiums
Earned premiums
Direct incurred loss and loss expenses
Assumed incurred loss and loss expenses
Ceded incurred loss and loss expenses
Incurred loss and loss expenses
Years ended December 31,
2020
2021
2019
$
$
$
$
$
$
6,229 $
515
(265)
6,479 $
5,996 $
443
(255)
6,184 $
3,352 $
366
(122)
3,596 $
5,756 $
335
(227)
5,864 $
5,623 $
285
(217)
5,691 $
3,699 $
184
(46)
3,837 $
5,477
244
(205)
5,516
5,340
199
(205)
5,334
3,402
117
(167)
3,352
Our life insurance company purchases reinsurance for protection of a portion of risks that are written. Primary
components of our life reinsurance program include individual mortality coverage, aggregate catastrophe and
accidental death coverage in excess of certain deductibles.
The table below summarizes our consolidated life insurance earned premiums and contract holders'
benefits incurred:
(Dollars in millions)
Direct earned premiums
Ceded earned premiums
Earned premiums
Direct contract holders' benefits incurred
Ceded contract holders' benefits incurred
Contract holders' benefits incurred
Years ended December 31,
2021
2020
2019
$
$
$
$
374 $
(76)
298 $
423 $
(83)
340 $
362 $
(73)
289 $
359 $
(62)
297 $
341
(71)
270
359
(73)
286
The ceded benefits incurred can vary depending on the type of life insurance policy held and the year the policy
was issued.
Cincinnati Financial Corporation - 2021 10-K - Page 157
NOTE 11 – Income Taxes
The significant components of deferred tax assets and liabilities included in the consolidated balance sheets at
December 31 were as follows:
(Dollars in millions)
Deferred tax assets:
Unearned premiums
Loss and loss expense reserves
Net operating loss on international earnings
Deferred international earnings
Other
Deferred tax assets before valuation allowance
Valuation allowance for international operations
Deferred tax assets net of valuation allowance
Deferred tax liabilities:
Investment gains and other, net
Deferred acquisition costs
Life policy reserves
Investments
Other
Total gross deferred tax liabilities
Net deferred income tax liability
At December 31,
2021
2020
$
$
131 $
92
34
31
50
338
53
285
1,684
155
116
38
36
2,029
1,744 $
119
81
26
45
41
312
56
256
1,240
143
121
13
38
1,555
1,299
Deferred tax assets and liabilities reflect temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amount recognized for tax purposes.
Deferred tax assets are reduced by a valuation allowance when management believes it is more likely than not that
some, or all, of the deferred tax assets will not be realized. After considering all positive and negative evidence of
taxable income in the carryback and carryforward periods as permitted by law, we believe it is more likely than not
that all of the deferred tax assets on our U.S. domestic operations will be realized. As a result, we have no valuation
allowance at December 31, 2021 and 2020 for our U.S. domestic operations. As more fully discussed below, we do
carry a valuation allowance on the deferred tax assets related to Cincinnati Global.
For financial reporting purposes, income (loss) before income taxes includes the following components:
(Dollars in millions)
United States
International
Total income before income taxes
For the years ended December 31,
2019
2020
2021
$
$
3,644 $
26
3,670 $
1,521 $
(22)
1,499 $
2,440
32
2,472
Cincinnati Financial Corporation - 2021 10-K - Page 158
The provision for income taxes consists of:
(Dollars in millions)
Provision (benefit) for income taxes:
Current – United States federal
International
Total current
Deferred – United States federal
International
Total deferred
Total provision for income taxes
For the years ended December 31,
2019
2020
2021
$
$
248 $
(1)
247
477
—
477
724 $
147 $
—
147
136
—
136
283 $
137
(5)
132
338
5
343
475
The differences between the 21% statutory federal income tax rate and our effective income tax rate were
as follows:
(Dollars in millions)
Tax at statutory rate:
Increase (decrease) resulting from:
Tax-exempt income from municipal bonds
Dividend received exclusion
Other
Provision for income taxes
2021
Years ended December 31,
2020
2019
$
771
21.0 % $
315
21.0 % $
519
21.0 %
(20)
(20)
(7)
724
(0.5)
(0.5)
(0.3)
19.7 % $
(20)
(17)
5
283
(1.3)
(1.1)
0.3
18.9 % $
(19)
(16)
(9)
475
(0.8)
(0.6)
(0.4)
19.2 %
$
The provision for federal income taxes is based upon the filing of a consolidated income tax return for the company
and its domestic subsidiaries within the United States. At December 31, 2021 and 2020 we had no operating or
capital loss carryforwards in the United States. As more fully discussed below, Cincinnati Global, has operating loss
carryforwards in the United Kingdom.
As more fully discussed in Note 1, Summary of Significant Accounting Policies, the COVID-19 pandemic outbreak
began in mid-March 2020. In response to the pandemic, various stimulus legislation was enacted in 2021 and 2020.
We have evaluated the pandemic-related legislation enacted in 2021 and 2020 and believe any impact to our
financial statements, as a result of such legislation, is immaterial.
Unrecognized Tax Benefits
At December 31, 2021, 2020 and 2019, we had a gross unrecognized tax benefit of $34 million. Additionally, there
was no change in the amount for 2021, 2020 or 2019.
The unrecognized tax benefit liability is carried in other liabilities in the consolidated balance sheets. If recognized,
the unrecognized tax benefit liability would affect the effective tax rate in the period of the release. Although no
interest and penalties currently are accrued, if incurred, they would be recognized as a component of income tax
expense. It is reasonably possible that within the next 12 months, our unrecognized tax benefit could change when
the IRS completes its examination of the tax year ended December 31, 2018.
The statute of limitations for federal tax purposes has closed for tax years ended December 31, 2016 and earlier.
However, as a result of certain net operating loss carryback claims we have filed related to the tax year ended
December 31, 2017, the IRS has a limited ability to assess tax for the 2015 tax year. In 2019, the IRS began its
examination of the tax year ended December 31, 2017 and they have expanded their scope to include tax year
ended December 31, 2018. At this time, no adjustments have been proposed. In addition to our IRS filings, we file
income tax returns with immaterial amounts in various state jurisdictions and record these amounts in our provision
for income taxes for both current and deferred taxes. The statute of limitations for state income tax purposes has
closed for tax years ended December 31, 2017 and earlier.
Cincinnati Financial Corporation - 2021 10-K - Page 159
Cincinnati Global operates in the United Kingdom and as such, is subject to tax in that jurisdiction. The statute of
limitations for tax return review by Her Majesty’s Revenue and Customs (HMRC) has closed for tax years ended
December 31, 2019 and earlier. There are currently no tax returns under review by HMRC.
Income taxes paid in our consolidated statements of cash flows are shown net of refunds received. We received no
refunds in either 2021 or 2020 and $94 million in 2019.
Cincinnati Global
Cincinnati Global's operating results for the year ended December 31, 2021, decreased their net deferred assets by
$3 million with an offsetting decrease of $3 million to their valuation allowance. At December 31, 2021, Cincinnati
Global had a net deferred tax asset of $53 million and an offsetting valuation allowance of $53 million.
Deferred tax assets are reduced by a valuation allowance when management believes it is more likely than not that
some, or all, of the deferred tax assets will not be realized. After considering all positive and negative evidence, we
believe it was appropriate to set up a valuation allowance for purposes of our opening Cincinnati Global balance
sheet and is appropriate to carry a valuation allowance at December 31, 2021, 2020 and 2019.
The following is a tabular reconciliation of the total amounts of our Cincinnati Global valuation allowance.
(Dollars in millions)
Valuation allowance, January 1
Acquisition accounting amount
Current year operations
Valuation allowance, December 31
Years ended December 31,
2021
2020
2019
$
$
56 $
—
(3)
53 $
41 $
—
15
56 $
—
55
(14)
41
At December 31, 2021, and 2020, Cincinnati Global had operating loss carryforwards in the United States of
$8 million and $26 million and in the United Kingdom of $130 million and $108 million, respectively. These Cincinnati
Global losses can only be utilized within the Cincinnati Global group in both the United States and in the United
Kingdom and cannot offset the income of our domestic operations in the United States.
Cincinnati Financial Corporation - 2021 10-K - Page 160
NOTE 12 – Net Income Per Common Share
Basic earnings per share are computed based on the weighted average number of common shares outstanding.
Diluted earnings per share are computed based on the weighted average number of common and dilutive potential
common shares outstanding using the treasury stock method. The table shows calculations for basic and diluted
earnings per share:
(In millions, except per share data)
Numerator:
Net income—basic and diluted
Denominator:
Basic weighted-average common shares outstanding
Effect of share-based awards:
Stock options
Nonvested shares
Diluted weighted-average shares
Earnings per share:
Basic
Diluted
Number of anti-dilutive share-based awards
Years ended December 31,
2021
2020
2019
$
2,946 $
1,216 $
1,997
161.0
161.2
163.2
1.1
0.6
162.7
0.7
0.5
162.4
$
18.29 $
18.10
0.8
7.55 $
7.49
1.4
1.2
0.7
165.1
12.24
12.10
—
The sources of dilution of our common shares are certain equity-based awards as discussed in Note 17, Share-
Based Associate Compensation Plans. The above table includes the number of anti-dilutive share-based awards at
year-end 2021, 2020 and 2019. We did not include these share-based awards in the computation of net income per
common share (diluted) because their exercise would have anti-dilutive effects.
Cincinnati Financial Corporation - 2021 10-K - Page 161
NOTE 13 – Employee Retirement Benefits
We sponsor a qualified defined benefit pension plan that we closed entry into for new associates as of
June 30, 2008, and only participants 40 years of age or older as of August 31, 2008, could elect to continue to
participate. During 2008, we changed the form of retirement benefit we offer some associates to a company match
on contributions to a 401(k) plan as further explained below. For participants remaining in the pension plan, we
continue to fund future benefit obligations. Benefits for the defined benefit pension plan are based on years of
credited service and compensation level. Contributions are based on the prescribed method defined in the Pension
Protection Act. Our net periodic benefit cost is based on certain actuarial assumptions and also is composed of
several components that are determined using the projected unit credit actuarial cost method. The qualified plan
has been amended to allow for distribution of vested balances to terminated participants.
We sponsor a defined contribution plan (401(k) plan) for eligible associates with matching company contributions
totaling $22 million, $22 million and $19 million during the years 2021, 2020 and 2019, respectively. Associates who
are not accruing benefits under the pension plan are eligible to receive the company match of up to 6% of cash
compensation. Participants vest in the company match for the 401(k) plan after three years of eligible service.
We maintain a supplemental executive retirement plan (SERP) with a benefit obligation of $9 million at
year-end 2021 and $10 million at year-end 2020, which is included in the projected benefit obligation. The company
also makes available to a select group of associates the CFC Top Hat Savings Plan, a nonqualified deferred
compensation plan, which had a fair value of $64 million and $51 million at December 31, 2021 and 2020,
respectively. Company matching contributions to the CFC Top Hat Savings Plan totaled approximately $1 million for
the years 2021, 2020 and 2019, respectively.
Defined Benefit Pension Plan Assumptions
We evaluate our pension plan assumptions annually and update them as necessary. This is a summary of the
weighted-average assumptions used to determine our benefit obligations at December 31 for the plans:
Discount rate
Rate of compensation increase
Qualified Pension Plan
SERP
2021
2.97 %
2.25-3.25
2020
2.68 %
2.25-3.25
2021
2.90 %
2.25-3.25
2020
2.52 %
2.25-3.25
To determine the discount rate for each plan, a theoretical settlement portfolio of high-quality rated corporate bonds
was chosen to provide payments approximately matching the plan’s projected benefit payments. A single interest
rate for each plan was determined resulting in a discounted value of the plan's benefit payments that equates to the
market value of the selected bonds. The discount rate is reflective of current market interest rate conditions and our
plan's liability characteristics. Based on this analysis, we increased the rate from the prior year by 0.29 percentage
points for the qualified pension plan and by 0.38 percentage points for the SERP. Compensation increase
assumptions reflect anticipated rates of inflation, real return on wage growth and merit and promotional increases.
The mortality assumption is updated annually to reflect the updated mortality scales. The Pri-2012 tables with Scale
MP-2021, Scale MP-2020, and Scale MP-2019 were used for the years 2021, 2020, and 2019, respectively.
The updated mortality table did not have a significant impact on our consolidated financial statements as our
qualified plan assumes the majority of benefits will be paid in the form of lump sums.
This is a summary of the weighted-average assumptions used to determine our net periodic benefit cost for
the plans:
Discount rate
Expected return on plan assets
Rate of compensation increase
Qualified Pension Plan
2021
2.68 %
7.00
2.25-3.25
2020
3.40 %
7.00
2.25-3.25
2019
4.34 %
7.00
2.25-3.25
2021
2.52 %
n/a
2.25-3.25
SERP
2020
3.33 %
n/a
2.25-3.25
2019
4.25 %
n/a
2.25-3.25
The discount rate was decreased by 0.72 percentage points for the qualified pension plan and 0.81 percentage
points for the SERP due to market interest rate conditions at the beginning of 2021. The discount rate assumptions
for our benefit obligation generally track with high-quality rated corporate bond yields chosen in our theoretical
Cincinnati Financial Corporation - 2021 10-K - Page 162
settlement portfolio, and yearly adjustments reflect any changes to those bond yields. We believe the expected
return on plan assets is representative of the expected long-term rate of return on these assets, which is consistent
with 2021 expectations of interest rates and based partially on the fact that the plan’s common stock holdings pay
dividends. We review historical actual return on plan assets when determining our expected long-term rate of return.
Total portfolio return for 2021 was 24.5% and for 2020 was 11.4%. Our compensation increase assumptions in 2021
reflect anticipated rates of inflation, real return on wage growth and merit and promotional increases.
Benefit obligation activity using an actuarial measurement date for our qualified pension plan and SERP at
December 31 follows:
(Dollars in millions)
Change in projected benefit obligation:
Benefit obligation, January 1
Service cost
Interest cost
Actuarial (gain) loss
Benefits paid
Other
Projected benefit obligation, December 31
Change in plan assets:
Fair value of plan assets, January 1
Actual return on plan assets
Employer contribution
Benefits paid
Fair value of plan assets, December 31
Funded status, December 31
Accumulated benefit obligation
At December 31,
2021
2020
$
$
$
$
$
$
387 $
10
10
(5)
(41)
1
362 $
357 $
78
3
(41)
397 $
35 $
338 $
350
9
12
51
(35)
—
387
354
34
4
(35)
357
(30)
360
Our funded status for 2021 compared to 2020 improved primarily due to a higher return on plan assets and
increases in actuarial gain from increases in discount rates. Effective January 1, 2021, the lump sum basis was
changed from a Pension Benefit Guaranty Corporation (PBGC) rate, which is no longer being published by the
PBGC after December 31, 2020, and mortality rates based on GAM83 tables with minor adjustments, to Internal
Revenue Code (IRC) Section 417(e) interest rates and IRC Section 417(e) mortality rates, updated annually and
projected into the future. The lump sum annual update resulted in an immaterial change at December 31, 2021, but
the basis change resulted in an increase to our actuarial loss at December 31, 2020.
Cincinnati Financial Corporation - 2021 10-K - Page 163
A reconciliation follows of the funded status for our qualified plan and SERP at the end of the measurement period
to the amounts recognized in the consolidated balance sheets at December 31:
(Dollars in millions)
Pension amounts recognized in the consolidated balance sheets:
Other assets (liability)
Total
Pension amounts recognized in accumulated other comprehensive income:
Net actuarial (gain) loss
Total
At December 31,
2021
2020
$
$
$
$
35 $
35 $
(27) $
(27) $
(30)
(30)
41
41
Below are the components of our net periodic benefit cost, as well as other changes in plan assets and benefit
obligations recognized in other comprehensive income for our qualified plan and SERP at December 31:
(Dollars in millions)
Net periodic benefit cost:
Service cost
Non-service costs (benefit):
Interest cost
Expected return on plan assets
Amortization of actuarial loss and prior service cost
Other
Net periodic benefit cost
Other changes in plan assets and benefit obligations recognized in other
comprehensive income:
Current year actuarial (gain) loss
Amortization of actuarial loss
Current year prior service cost
Total recognized in other comprehensive (income) loss
Total recognized in net periodic benefit cost and other comprehensive
(income) loss
Years ended December 31,
2021
2020
2019
$
10 $
9 $
8
10
(21)
6
1
6 $
(62) $
(7)
1
(68) $
12
(21)
3
3
6 $
38 $
(6)
—
32 $
(62) $
38 $
13
(20)
1
1
3
(5)
(2)
—
(7)
(4)
$
$
$
$
The 2021 change in the amount recognized in other comprehensive income from 2020 is largely due to changes
in the actuarial gain resulting from actual return on plan assets being greater than expected and increases in
discount rates.
Service costs and non-service costs (benefit) are allocated in the same proportion primarily to underwriting,
acquisition and insurance expenses line item with the remainder allocated to the insurance losses and contract
holders' benefits line item on the consolidated statements of income for 2021, 2020 and 2019.
Defined Benefit Pension Plan Assets
The pension plan assets are managed to maximize total return over the long term while providing sufficient liquidity
and current return to satisfy the cash flow requirements of the plan. The plan’s day-to-day investment decisions are
managed by our internal investment department; however, overall investment strategies are discussed with our
employee benefits committee. Our investment strategy is to weight our portfolio towards large-cap, high-quality,
dividend-growing equities that we have historically favored. As our plan matures and interest rates normalize,
we expect a greater allocation to fixed-income securities to better align asset and liability market risks. Our fixed-
maturity bond portfolio is investment grade. The plan does not engage in derivative transactions.
Cincinnati Financial Corporation - 2021 10-K - Page 164
Excluding cash, during 2021 we held approximately 87% of our pension portfolio in domestic common
equity investments. The remainder of the portfolio consisted of 8% in United States government fixed-maturity
investments, 3% in domestic corporate fixed-maturity investments and 2% in states, municipalities and taxable
political subdivisions fixed-maturity investments. Our common equity portfolio consisted of 32% in the information
technology sector, 20% in the financial sector, 13% in the healthcare sector, and 12% in the industrial sector, at
year-end 2021. No additional sectors accounted for 10% or more of our common equity portfolio balance at
year-end 2021.
Investments in securities are valued based on the fair value hierarchy outlined in Note 3, Fair Value Measurements.
The pension plan did not have any liabilities carried at fair value during the years ended December 31, 2021 and
2020. The following table shows the fair value hierarchy for those assets measured at fair value on a recurring basis
at December 31, 2021 and 2020. Excluded from the table below is cash on hand of $16 million and $31 million at
December 31, 2021 and 2020, respectively.
(Dollars in millions)
At December 31, 2021
Fixed maturities, available for sale:
United States government
Corporate
States, municipalities and political subdivisions
Total fixed maturities, available for sale
Common equities
Total
At December 31, 2020
Fixed maturities, available for sale:
United States government
Corporate
States, municipalities and political subdivisions
Total fixed maturities, available for sale
Common equities
Total
Quoted prices in
active markets for
identical assets
(Level 1)
Significant other
observable inputs
(Level 2)
Significant
unobservable
inputs
(Level 3)
Total
$
$
$
$
31 $
—
—
31
332
363 $
31 $
—
—
31
266
297 $
— $
11
7
18
—
18 $
— $
20
9
29
—
29 $
— $
—
—
—
—
— $
— $
—
—
—
—
— $
31
11
7
49
332
381
31
20
9
60
266
326
Our pension plan assets included 202,337 shares of the company’s common stock at both December 31, 2021 and
2020, which had a fair value of $23 million and $18 million at December 31, 2021 and 2020, respectively. The
defined benefit pension plan did not purchase any of our common stock during 2021 or 2020. The defined benefit
pension plan did not sell any shares during 2021 and sold 29,776 shares of our common stock during 2020.
The company paid less than $1 million in both 2021 and 2020 in cash dividends on our common stock to the
pension plan.
We estimate $6 million of benefit payments from the SERP during 2022. We expect to make the following benefit
payments for our qualified plan and SERP, reflecting expected future service:
(Dollars in millions)
2022
2023
2024
2025
Years ended December 31,
Expected future benefit payments
$
29 $
25 $
27 $
29 $
2026
2027 - 2031
162
34 $
Cincinnati Financial Corporation - 2021 10-K - Page 165
NOTE 14 – Statutory Accounting Information
Insurance companies’ statutory financial statements are presented on the basis of accounting practices prescribed
or permitted by applicable state insurance departments of domicile. Insurance companies use statutory accounting
practices (SAP) as recognized by various states. We have adopted the National Association of Insurance
Commissioners’ (NAIC) Accounting Practices and Procedures manual, version effective January 1, 2001, and
updates through the current year as a component of prescribed or permitted practices by laws of the state of
domicile. The primary differences between SAP and GAAP include the valuation of investment gains and losses,
expensing of policy acquisition costs, actuarial assumptions for life insurance reserves and deferred income taxes
based on differences in statutory and taxable income.
Statutory net income and capital and surplus are determined in accordance with SAP prescribed or permitted by
insurance regulatory authorities for five legal entities, our lead insurance subsidiary and its four insurance
subsidiaries. Statutory capital and surplus for our insurance subsidiary, The Cincinnati Insurance Company, includes
capital and surplus of its four insurance subsidiaries. All capital and surplus amounts exceed statutory risk-based
capital requirements. The statutory net income and statutory capital and surplus are presented below:
(Dollars in millions)
Net income
Years ended December 31,
2021
2020
2019
The Cincinnati Insurance Company
The Cincinnati Casualty Company
The Cincinnati Indemnity Company
$
929 $
15
5
466 $
14
3
The Cincinnati Specialty Underwriters Insurance Company
The Cincinnati Life Insurance Company
47
41
42
27
558
13
3
62
19
Capital and surplus
At December 31,
2021
2020
$ 7,247 $ 5,838
456
115
500
126
571
270
528
241
NOTE 15 – Transactions With Affiliated Parties
We paid certain officers and directors, or insurance agencies of which they are shareholders, commissions of
$8 million in 2021, $7 million in 2020 and $8 million in 2019, on premium volume of $47 million, $45 million and
$48 million for 2021, 2020 and 2019, respectively.
Cincinnati Financial Corporation - 2021 10-K - Page 166
NOTE 16 – 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; many
complaints continue to be amended; several have been dismissed voluntarily and may be refiled; and others have
been dismissed by trial courts and appealed. While early appellate decisions have been favorable, many remain to
be decided. In some jurisdictions, many 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 a national class. Such proceedings have alleged, for example, breach of an alleged duty to search
national databases to ascertain unreported deaths of insureds under life insurance policies. The company’s
insurance subsidiaries also are occasionally parties to individual actions in which extra-contractual damages,
punitive damages or penalties are sought, such as claims alleging bad faith handling of insurance claims or writing
unauthorized coverage or claims alleging discrimination by former or current associates.
Cincinnati Financial Corporation - 2021 10-K - Page 167
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.
Cincinnati Financial Corporation - 2021 10-K - Page 168
NOTE 17 – Share-Based Associate Compensation Plans
Four equity compensation plans currently permit us to grant various types of equity awards. We currently grant
incentive stock options, nonqualified stock options, service-based restricted stock units and performance-based
restricted stock units to associates, including some with market-based performance objectives under our
shareholder-approved plans. We also have a Holiday Stock Plan that permits annual awards of one share of
common stock to each full-time associate for each full calendar year of service up to a maximum of 10 shares.
One of our equity compensation plans permits us to grant stock to our outside directors as a component of their
annual compensation. We used treasury shares for share-based compensation award issues or exercises
during 2021 and 2020.
Share-based compensation cost after tax was $26 million, $25 million and $24 million for the years ended
December 31, 2021, 2020 and 2019, respectively. The related income tax benefit recognized was $6 million for
each of the years ended December 31, 2021, 2020 and 2019. Options exercised during the years ended
December 31, 2021, 2020 and 2019, had intrinsic value of $24 million, $15 million and $26 million, respectively.
Intrinsic value is the market price less the exercise price. Options vested during the years ended December 31,
2021, 2020 and 2019, had total intrinsic value of $15 million, $7 million and $23 million, respectively.
As of December 31, 2021, we had $35 million of unrecognized total compensation cost related to nonvested stock
options and restricted stock unit awards. That cost will be recognized over a weighted-average period of 1.8 years.
Stock Options
Stock options are granted to associates at an exercise price equal to the fair value as determined by the average
high and low sales price reported on the Nasdaq Global Select Market for the grant date and are exercisable over
10-year periods. The stock options generally vest ratably over a three-year period. In determining the share-based
compensation amounts, we estimate the fair value of each option granted on the date of grant using the Black
Scholes pricing model. We make the following assumptions to develop the Black Scholes pricing model as follows:
• Weighted-average expected term is based on historical experience of similar awards with consideration for
current exercise trends.
•
•
•
Expected volatility is based on our stock price over a historical period that approximates the expected term.
Dividend yield is determined by dividing the annualized per share dividend by the stock price on the date of grant.
Risk-free rates are the implied yield currently available on zero-coupon U.S. Treasury issues with a remaining
term approximating the expected term.
The following weighted average assumptions were used in determining fair value for option grants issued:
Weighted-average expected term
Expected volatility
Dividend yield
Risk-free rates
Weighted-average fair value of options granted during the period
2021
7-9 years
2020
7-8 years
2019
7-8 years
25.56-27.81% 16.89-17.13% 14.49-15.39%
2.15%
1.40-1.41%
$15.45
2.62%
0.97-1.26%
$19.64
2.61%
2.62-2.64%
$11.73
Cincinnati Financial Corporation - 2021 10-K - Page 169
Below is a summary of option information for the year 2021:
(Dollars in millions, except exercise price. Shares in thousands)
Outstanding option shares at January 1, 2021
Granted
Exercised
Forfeited or expired
Outstanding option shares at December 31, 2021
Weighted-
average
exercise
price
Aggregate
intrinsic
value
Shares
Weighted-
average
remaining
contractual
life
3,601 $
464
(415)
(98)
3,552
72.55
96.32
50.51
62.00
78.52 $
126
5.97 years
Options exercisable at end of period
2,599 $
70.99 $
112
5.07 years
Cash received from the exercise of options was $13 million, $7 million and $11 million for the years ended
December 31, 2021, 2020 and 2019, respectively. We acquired 77,947, 50,751 and 103,237 shares totaling
$8 million, $5 million and $9 million, respectively, from associates in consideration for option exercises during
2021, 2020 and 2019. The weighted-average remaining contractual life for options expected to vest as of
December 31, 2021, was 8.41 years.
Under all active shareholder approved plans, a total of 17.3 million shares were authorized to be granted.
At December 31, 2021, 5.9 million shares remained available for future issuance under the plans. During 2021,
we granted 17,018 shares of common stock to our directors for 2020 board service fees.
Restricted Stock Units
Service-based restricted stock units granted to associates are valued at fair value of the shares on the date of
grant less the present value of the dividends that holders of restricted stock units do not receive on the shares
underlying the restricted stock units during the vesting period. Service-based restricted stock units generally cliff
vest three years after the date of grant. We also grant restricted stock units which vest on a three year ratable
vesting schedule. Service-based restricted stock units vested during the year had an intrinsic value of $26 million,
$30 million and $25 million for the years ended December 31, 2021, 2020 and 2019, respectively.
We have performance-based awards that vest on the first day of March after a three-calendar-year performance
period. These awards vest according to the level of three-year total shareholder return achieved compared with
a peer group over a three-year performance period with payouts ranging from 0% to 200% for awards granted
in 2021, 2020 and 2019. Three-year total shareholder return is calculated by using annualized total return of a stock
to an investor due to capital gain appreciation plus reinvestment of all dividends.
For the three-year performance period ended December 31, 2021, our total shareholder return exceeded six of our
nine peers. We expect payout of these shares at the target level to occur in March of 2022. During 2021, we issued
113,648 shares of performance-based restricted stock units at the maximum-level performance hurdle for the three-
year performance period ended December 31, 2020, as our total shareholder return exceeded eight of nine peers in
our 2018 peer group. We issued 56,722 shares of performance-based restricted stock units during 2020 at the
target-level performance hurdle for the three-year performance period ended December 31, 2019, as our total
shareholder return exceeded five of nine peers in our 2017 peer group. Performance-based awards vested during
the year had an intrinsic value of $11 million, $5 million and $2 million for the years ended December 31, 2021,
2020 and 2019, respectively.
These performance-based awards are valued using a Monte-Carlo valuation on the date of grant, which uses a
risk-neutral framework to model future stock price movements based upon the risk-free rate of return, the volatility of
each peer and the pairwise correlations of each peer being modeled. Compensation cost is recognized regardless
of whether the market-based performance objective has been satisfied. We make assumptions to develop the
Monte-Carlo model as follows:
•
Correlation coefficients are based upon the stock price data used to calculate the historical volatilities.
The correlation coefficients are used to model the way the price of each entity's stock tends to move in relation to
each other.
Cincinnati Financial Corporation - 2021 10-K - Page 170
•
•
•
Expected volatility is based on each company's historical volatility using daily stock price observations with the
period commensurate with the performance measurement period.
Dividend yield has been modeled assuming dividends are reinvested in additional shares of the issuing entity on
the ex-dividend date during the performance period.
Risk-free rates are equal to the yield, as of the measurement date, of the zero-coupon U.S. Treasury bill that is
commensurate with the performance measurement period.
The following assumptions were used in determining fair value for performance-based grants issued:
Expected term
Expected volatility
Dividend yield
Risk-free rates
2021
2.85 years
29.50-47.26%
2.62%
0.20%
2020
2.86 years
15.88-25.13%
2.15%
1.30%
2019
2.86 years
15.10-25.00%
2.61%
2.48%
Below is a summary of service-based and performance-based share information, assuming a target payout for
performance-based shares, for the year 2021:
Performance-based
shares
Weighted-
average grant
date fair value
84.64
86.13
63.29
—
103.16
147 $
106
(114)
—
139
(Shares in thousands)
Nonvested at January 1, 2021
Granted
Vested
Forfeited or canceled
Nonvested at December 31, 2021
Service-based
shares
Weighted-
average grant
date fair value
81.56
89.29
67.96
89.73
90.01
696 $
243
(274)
(31)
634
Cincinnati Financial Corporation - 2021 10-K - Page 171
NOTE 18 – Segment Information
We operate primarily in two industries, property casualty insurance and life insurance. Our chief operating decision
maker regularly reviews our reporting segments to make decisions about allocating resources and assessing
performance. Our reporting segments are:
Commercial lines insurance
Personal lines insurance
Excess and surplus lines insurance
Life insurance
Investments
We report as Other the noninvestment operations of the parent company and its noninsurer subsidiary,
CFC Investment Company. We also report as Other the underwriting results of Cincinnati Re and Cincinnati Global.
Revenues come primarily from unaffiliated customers:
All four insurance segments record revenues from insurance premiums earned.
Fee revenues for the commercial, personal and excess and surplus insurance segments primarily represent
installment fees. Fee revenues for the life insurance segment represent separate account investment
management fees.
•
•
•
•
•
•
•
• Our investments’ revenues consist of pretax net investment income and investment gains and losses.
• Other revenues are primarily finance income and earned premiums of Cincinnati Re and Cincinnati Global.
Income or loss before income taxes for each segment is reported based on the nature of that business
area’s operations:
•
Income before income taxes for the insurance segments is defined as underwriting profit or loss.
◦
◦
For commercial lines, personal lines and excess and surplus lines insurance segments, we calculate
underwriting profit or loss as premiums earned and fee revenue minus loss and loss expenses and
underwriting expenses incurred.
For the life insurance segment, we calculate underwriting profit or loss as premiums earned and fee
revenue, minus contract holders’ benefits and expenses incurred, plus investment interest credited to
contract holders.
•
•
Income before income taxes for the investments segment is net investment income plus investment gains and
losses for investments of the entire company, minus investment interest credited to contract holders of the life
insurance segment.
Loss before income taxes for the Other category is primarily due to interest expense from debt of the parent
company, operating expenses of our headquarters and premiums earned minus loss and loss expenses and
underwriting expenses of Cincinnati Re and Cincinnati Global.
We do not separately report the identifiable assets of property casualty insurance for the commercial, personal and
excess and surplus lines segments or for Cincinnati Re because we do not use that measure to analyze
performance. We include all investment portfolio assets, regardless of ownership, in the investments segment.
Cincinnati Financial Corporation - 2021 10-K - Page 172
Segment information is summarized in the following table:
(Dollars in millions)
Revenues:
Commercial lines insurance
Commercial casualty
Commercial property
Commercial auto
Workers' compensation
Other commercial
Commercial lines insurance premiums
Fee revenues
Total commercial lines insurance
Personal lines insurance
Personal auto
Homeowner
Other personal
Personal lines insurance premiums
Fee revenues
Total personal lines insurance
Excess and surplus lines insurance
Fee revenues
Total excess and surplus lines insurance
Life insurance premiums
Fee revenues
Total life insurance
Investments
Investment income, net of expenses
Investment gains and losses, net
Total investment revenue
Other
Premiums
Other
Total other revenue
Total revenues
Income (loss) before income taxes:
Insurance underwriting results
Commercial lines insurance
Personal lines insurance
Excess and surplus lines insurance
Life insurance
Investments
Other
Total income before income taxes
Identifiable assets:
Property casualty insurance
Life insurance
Investments
Other
Total
Years ended December 31,
2020
2019
2021
1,102
958
707
300
252
3,319
5
3,324
621
607
176
1,404
4
1,408
278
2
280
270
4
274
646
1,650
2,296
333
9
342
7,924
241
8
53
1
2,197
(28)
2,472
$
$
$
$
1,270 $
1,043
794
268
299
3,674
4
3,678
1,165 $
1,010
755
271
275
3,476
3
3,479
609
726
207
1,542
4
1,546
398
2
400
298
5
303
714
2,409
3,123
570
10
580
9,630 $
598 $
97
44
(16)
3,018
(71)
3,670 $
615
658
190
1,463
4
1,467
325
2
327
289
2
291
670
865
1,535
427
10
437
7,536 $
64 $
47
34
11
1,433
(90)
1,499 $
December 31, December 31,
2021
2020
$
$
4,421 $
1,590
24,481
895
31,387 $
3,838
1,661
21,332
711
27,542
Cincinnati Financial Corporation - 2021 10-K - Page 173
ITEM 9. Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure
We had no disagreements with the independent registered public accounting firm on accounting and financial
disclosure during the last two fiscal years.
ITEM 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures – The company maintains disclosure controls and procedures (as
that term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended
(Exchange Act)).
Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of
achieving the desired control objectives. The company’s management, with the participation of the company’s chief
executive officer and chief financial officer, has evaluated the effectiveness of the design and operation of the
company’s disclosure controls and procedures as of December 31, 2021. Based upon that evaluation, the
company’s chief executive officer and chief financial officer concluded that the design and operation of the
company’s disclosure controls and procedures provided reasonable assurance that the disclosure controls and
procedures are effective to ensure that:
•
•
information required to be disclosed in the company’s reports under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules
and forms, and
such information is accumulated and communicated to the company’s management, including its chief executive
officer and chief financial officer, as appropriate, to allow for timely decisions regarding required disclosures.
Changes in Internal Control over Financial Reporting – During the three months ended December 31, 2021, there
were no changes in our internal controls over financial reporting that have materially affected, or are reasonably
likely to materially affect, our internal control over financial reporting. There was no significant impact to our internal
controls over financial reporting while the majority of our associates are working remotely due to the COVID-19
pandemic. We are continually monitoring and assessing any potential impact on the design and operating
effectiveness of our internal controls over financial reporting, caused by or related to the pandemic. Management’s
Annual Report on Internal Control Over Financial Reporting and the Report of the Independent Registered Public
Accounting Firm are set forth in Item 8.
ITEM 9B. Other Information
None
ITEM 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
This item is not applicable to the company.
Cincinnati Financial Corporation - 2021 10-K - Page 174
Part III
Our Proxy Statement will be filed with the SEC no later than April 30, 2022, in preparation for the 2022 Annual
Meeting of Shareholders scheduled for May 7, 2022. As permitted in Paragraph G(3) of the General Instructions for
Form 10-K, we are incorporating by reference, to that statement, portions of the information required by Part III as
noted in Item 10 through Item 14 below.
ITEM 10.
Directors, Executive Officers and Corporate Governance
a) The following sections of our Proxy Statement for our 2022 Annual Meeting of Shareholders to be held
May 7, 2022, are incorporated herein by reference: “Delinquent Section 16(a) Reports,” “Information about the
Board of Directors,” and “Governance of Your Company.”
b) Information about the “Code of Ethics for Senior Financial Officers” appeared in the 2004 Proxy Statement as
an appendix and is available at cinfin.com/investors. Our Code of Ethics applies to those who are responsible for
preparing and disclosing our financial information. This includes our chief executive officer, chief financial officer and
others performing similar functions.
c) Set forth below is information concerning the company’s executive officers who are not also directors of the
company, as of February 24, 2022.
Name and Age as of
February 24, 2022
Roger A. Brown, FSA,
MAAA, CLU (50)
Teresa C. Cracas, Esq.
(56)
Angela O. Delaney (53)
Donald J. Doyle, Jr.,
CPCU, AIM (55)
Sean M. Givler, CIC, CRM
(46)
Theresa A. Hoffer (60)
Martin F. Hollenbeck, CFA,
CPCU (62)
John S. Kellington (60)
Primary Title(s) and Business Responsibilities
Since February 2017
Senior vice president and chief operating officer of The Cincinnati
Life Insurance Company. Responsible for life insurance
underwriting and operations.
Chief risk officer and executive vice president of The Cincinnati
Insurance Company. Senior vice president until 2022.
Responsible for strategic planning and risk management,
including oversight of modeling for financial analysis, property
casualty reserving and pricing, strategic innovation, reinsurance
assumed operations and the activities of Cincinnati Global
Underwriting Ltd., a London-based, global specialty underwriter
for Lloyd's Syndicate 318.
Senior vice president of The Cincinnati Insurance Company.
Responsible for property casualty insurance sales and marketing
operations since 2019, including management of field
underwriters and independent agency relationships. Field sales
supervisor for Idaho, Iowa, Montana, Oregon, South Dakota and
Washington from 2017 to 2019.
Senior vice president of The Cincinnati Insurance Company.
Responsible for excess and surplus lines underwriting
and operations of The Cincinnati Specialty Underwriters
Insurance Company and CSU Producer Resources Inc.
Senior vice president of The Cincinnati Insurance Company.
Responsible for standard market commercial lines underwriting
and operations, including management liability and surety
insurance, machinery and equipment insurance, loss control and
premium audit. Until 2019, responsible for sales and marketing,
including management of field underwriters and independent
agency relationships.
Senior vice president and treasurer of The Cincinnati Insurance
Company since 2016. Responsible for corporate accounting and
SEC reporting operations.
Chief investment officer, senior vice president, assistant
secretary and assistant treasurer of Cincinnati Financial
Corporation. Chief investment officer and executive vice
president of The Cincinnati Insurance Company. Senior vice
president until 2022. Responsible for all investment operations.
Chief information officer and executive vice president of
The Cincinnati Insurance Company. Senior vice president until
2022. Responsible for enterprise strategic technology and
oversight of all technology activities.
Cincinnati Financial Corporation - 2021 10-K - Page 175
Executive
Officer Since
2016
2011
2020
2008
2017
2017
2008
2010
Name and Age as of
February 24, 2022
Lisa A. Love, Esq. (62)
Michael J. Sewell, CPA
(58)
Stephen M. Spray (55)
William H. Van Den Heuvel
(55)
Primary Title(s) and Business Responsibilities
Since February 2017
Senior vice president, general counsel and corporate secretary
of Cincinnati Financial Corporation. Chief legal officer, executive
vice president and corporate secretary of The Cincinnati
Insurance Company. Senior vice president until 2022.
Responsible for corporate legal, governance and compliance
activities, including oversight of regulatory and compliance,
shareholder services, government relations, litigation and
contract administration.
Chief financial officer, principal accounting officer, senior vice
president and treasurer of Cincinnati Financial Corporation. Chief
financial officer and executive vice president of The Cincinnati
Insurance Company. Senior vice president until 2022. Chief
operating officer of CFC Investment Company, a commercial
lease and finance subsidiary. Responsible for oversight of all
accounting, finance, financial reporting, purchasing, investor
relations, administrative services and facilities maintenance and
security.
President of The Cincinnati Insurance Company and its
subsidiaries; CFC Investment Company; and CSU Producer
Resources Inc. since 2022. Chief insurance officer of The
Cincinnati Insurance Company and its property casualty
subsidiaries since 2019. Responsible for executive oversight of
commercial and personal standard market and excess and
surplus lines property and casualty insurance sales, marketing,
underwriting, related field services, relationships with
independent agents, ceded reinsurance programs, corporate
communications and human resources. Until 2019, senior vice
president responsible for commercial lines underwriting and
operations.
Senior vice president of The Cincinnati Insurance Company.
Responsible for all aspects of personal lines operations,
including underwriting, insurance regulatory filings, product
management and risk management.
Executive
Officer Since
2011
2011
2012
2014
Cincinnati Financial Corporation - 2021 10-K - Page 176
ITEM 11.
Executive Compensation
The “Compensation of Named Executive Officers and Directors,” section of our Proxy Statement for our
Annual Meeting of Shareholders to be held May 7, 2022, is incorporated herein by reference. It includes the
“Report of the Compensation Committee,” “Compensation Committee Interlocks and Insider Participation” and the
“Compensation Discussion and Analysis.”
ITEM 12.
Related Stockholder Matters
Security Ownership of Certain Beneficial Owners and Management and
a) The “Security Ownership of Principal Shareholders and Management” section of our Proxy Statement for our
Annual Meeting of Shareholders to be held May 7, 2022, is incorporated herein by reference.
b) Information on securities authorized for issuance under equity compensation plans appears in Part II, Item 5,
Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Additional information on share-based compensation under our equity compensation plans is available in Item 8,
Note 17 of the Consolidated Financial Statements.
Cincinnati Financial Corporation - 2021 10-K - Page 177
ITEM 13.
Certain Relationships and Related Transactions, and Director Independence
The following sections of our Proxy Statement for our Annual Meeting of Shareholders to be held May 7, 2022, are
incorporated herein by reference: “Governance of Your Company – Director Independence” and “Governance of
Your Company – Certain Relationships and Transactions.”
ITEM 14.
Principal Accounting Fees and Services
The “Audit-Related Matters,” section of our Proxy Statement for our Annual Meeting of Shareholders to be held
May 7, 2022, is incorporated herein by reference. It includes the “Proposal 3 – Ratification of Selection of
Independent Registered Public Accounting Firm,” “Report of the Audit Committee,” “Fees Billed by the
Independent Registered Public Accounting Firm” and “Services Provided by the Independent Registered Public
Accounting Firm.”
Cincinnati Financial Corporation - 2021 10-K - Page 178
Part IV
ITEM 15.
Exhibit and Financial Statement Schedules
a) Financial Statements – information contained in Part II, Item 8, of this report, Page 118 to Page 173
b) Exhibits – see Index of Exhibits, Page 191
c) Financial Statement Schedules
Schedule I – Summary of Investments – Other Than Investments in Related Parties, Page 180
Schedule II – Condensed Financial Statements of Parent Company, Page 182
Schedule III – Supplementary Insurance Information, Page 185
Schedule IV – Reinsurance, Page 187
Schedule V – Valuation and Qualifying Accounts, Page 188
Schedule VI – Supplementary Information Concerning Property Casualty Insurance Operations, Page 189
ITEM 16. Form 10-K Summary
This item is not applicable to the company.
Cincinnati Financial Corporation - 2021 10-K - Page 179
Schedule I
(Dollars in millions)
Type of investment
Fixed maturities:
Cincinnati Financial Corporation and Subsidiaries
Summary of Investments - Other Than Investments in Related Parties
Cost or
amortized cost
At December 31, 2021
Fair
value
Balance sheet
States, municipalities and political subdivisions:
The Cincinnati Insurance Company
The Cincinnati Casualty Company
The Cincinnati Indemnity Company
The Cincinnati Life Insurance Company
The Cincinnati Specialty Underwriters Insurance Company
Cincinnati Financial Corporation
Total
United States government:
The Cincinnati Insurance Company
The Cincinnati Casualty Company
The Cincinnati Indemnity Company
Cincinnati Global Underwriting Ltd.
Total
Foreign government:
The Cincinnati Insurance Company
Cincinnati Global Underwriting Ltd.
Total
Government-sponsored enterprises:
Cincinnati Global Underwriting Ltd.
Total
All other corporate bonds:
The Cincinnati Insurance Company
The Cincinnati Casualty Company
The Cincinnati Indemnity Company
The Cincinnati Life Insurance Company
The Cincinnati Specialty Underwriters Insurance Company
CSU Producer Resources Inc.
Cincinnati Global Underwriting Ltd.
Cincinnati Financial Corporation
Total
Total fixed maturities
$
$
3,343 $
230
49
446
643
57
4,768
3,583 $
246
53
471
685
57
5,095
69
1
1
50
121
10
16
26
8
8
71
1
1
50
123
10
16
26
8
8
3,443
102
33
3,339
300
1
82
7
7,307
12,230 $
3,628
106
35
3,595
316
1
82
7
7,770
13,022 $
3,583
246
53
471
685
57
5,095
71
1
1
50
123
10
16
26
8
8
3,628
106
35
3,595
316
1
82
7
7,770
13,022
Cincinnati Financial Corporation - 2021 10-K - Page 180
Schedule I (continued)
Cincinnati Financial Corporation and Subsidiaries
Summary of Investments - Other Than Investments in Related Parties
(Dollars in millions)
Type of investment
Equity securities:
Common equities:
The Cincinnati Insurance Company
The Cincinnati Casualty Company
The Cincinnati Indemnity Company
The Cincinnati Specialty Underwriters Insurance Company
CSU Producer Resources Inc.
Cincinnati Financial Corporation
Total
Nonredeemable preferred equities:
The Cincinnati Insurance Company
The Cincinnati Life Insurance Company
Cincinnati Financial Corporation
Total
Total equity securities
Other invested assets:
Policy loans:
The Cincinnati Life Insurance Company
Deposits at Lloyd's:
Cincinnati Global Underwriting Ltd.
Cincinnati Financial Corporation
Private equity:
The Cincinnati Insurance Company (1)
Cincinnati Financial Corporation (1)
Real estate:
The Cincinnati Insurance Company (1)
The Cincinnati Life Insurance Company (1)
Cincinnati Financial Corporation (1)
Total other invested assets
Total investments
Cost or
amortized cost
At December 31, 2021
Fair
value
Balance
sheet
$
$
$
$
$
1,848 $
59
18
101
15
1,656
3,697
407
13
4
424
4,121 $
31
29
6
191
36
27
5
4
329
16,680
5,543 $
186
44
287
28
4,774
10,862
436
13
4
453
11,315 $
— $
—
—
—
—
5,543
186
44
287
28
4,774
10,862
436
13
4
453
11,315
31
29
6
191
36
—
—
—
— $
— $
27
5
4
329
24,666
Notes to Schedule I:
(1) These other invested assets are accounted for under the equity method.
Cincinnati Financial Corporation - 2021 10-K - Page 181
Schedule II
(Dollars in millions)
Assets
Cincinnati Financial Corporation (parent company only)
Condensed Balance Sheets
Investments
Fixed maturities, at fair value (amortized cost: 2021—$64; 2020—$69)
Equity securities, at fair value (cost: 2021—$1,660; 2020—$1,607)
Other invested assets
Total investments
Cash and cash equivalents
Equity in net assets of subsidiaries
Investment income receivable
Land, building and equipment, net, for company use (accumulated depreciation:
2021—$147; 2020—$138)
Income tax receivable
Other assets
Due from subsidiaries
Total assets
Liabilities
Dividends declared but unpaid
Deferred federal income tax
Long-term debt
Other liabilities
Total liabilities
Shareholders' Equity
Common stock
Paid-in capital
Retained earnings
Accumulated other comprehensive income
Treasury stock, at cost
Total shareholders' equity
Total liabilities and shareholders' equity
At December 31,
2021
2020
$
64 $
4,778
46
4,888
211
9,292
9
140
—
108
106
14,754 $
101 $
664
789
95
1,649
397
1,356
12,625
648
(1,921)
13,105
14,754 $
$
$
$
68
3,687
145
3,900
16
7,982
8
143
5
53
110
12,217
97
429
788
114
1,428
397
1,328
10,085
769
(1,790)
10,789
12,217
This condensed financial information should be read in conjunction with the Consolidated Financial Statements and
Notes included in Part II, Item 8.
Cincinnati Financial Corporation - 2021 10-K - Page 182
Schedule II (continued)
Cincinnati Financial Corporation (parent company only)
Condensed Statements of Income and Comprehensive Income
(Dollars in millions)
Revenues
Investment income, net of expenses
Investment gains and losses, net
Other revenue
Total revenues
Expenses
Interest expense
Other expenses
Total expenses
Income Before Income Taxes and Earnings of Subsidiaries
Provision for Income Taxes
Net Income Before Earnings of Subsidiaries
Increase in equity of subsidiaries
Net Income
Other Comprehensive Income (Loss), Net of Taxes
Years ended December 31,
2021
2020
2019
91 $
$
1,058
15
1,164
81 $
556
15
652
75
728
15
818
53
32
85
54
34
88
52
37
89
729
1,079
146
217
583
862
2,084
1,414
$ 2,946 $ 1,216 $ 1,997
564
111
453
763
Change in unrealized gain on securities
Amortization of pension actuarial gains (losses) and prior service costs
1
54
—
—
5
(25)
Other Comprehensive Income (Loss), Net of Taxes Before Other Comprehensive Income
of Subsidiaries
Other comprehensive income (loss) of subsidiaries
Other comprehensive income (loss)
Comprehensive Income
55
(176)
(121)
5
421
426
$ 2,825 $ 1,537 $ 2,423
(25)
346
321
This condensed financial information should be read in conjunction with the Consolidated Financial Statements and
Notes included in Part II, Item 8.
Cincinnati Financial Corporation - 2021 10-K - Page 183
Schedule II (continued)
Cincinnati Financial Corporation (parent company only)
Condensed Statements of Cash Flows
(Dollars in millions)
Cash Flows From Operating Activities
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
Investment gains and losses, net
Dividends from subsidiaries
Changes in:
Increase in equity of subsidiaries
Investment income receivable
Current federal income taxes
Deferred income tax
Other assets
Other liabilities
Intercompany receivable for operations
Net cash provided by operating activities
Cash Flows From Investing Activities
Sale of fixed maturities
Call or maturity of fixed maturities
Sale of equity securities
Purchase of fixed maturities
Purchase of equity securities
Investment in buildings and equipment
Cash paid for acquisition
Change in other invested assets, net
Net cash (used in) received from investing activities
Cash Flows From Financing Activities
Payment of cash dividends to shareholders
Shares acquired - share repurchase authorization
Proceeds from stock options exercised
Other
Net cash used in financing activities
Net change in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Years ended December 31,
2021
2020
2019
$
2,946 $
1,216 $
1,997
11
12
(1,034)
(552)
598
550
10
(720)
625
(2,084)
(763)
(1,414)
(1)
6
220
5
—
5
672
4
18
25
(19)
(82)
(6)
—
108
48
(1)
(3)
91
—
1
34
585
—
1
307
(23)
(372)
(11)
—
(42)
(140)
(395)
(144)
(375)
(261)
13
1
(525)
195
16
7
3
(626)
(181)
197
$
211 $
16 $
(1)
(1)
146
4
4
20
670
3
21
122
(39)
(237)
(13)
(63)
(67)
(273)
(355)
(67)
11
2
(409)
(12)
209
197
This condensed financial information should be read in conjunction with the Consolidated Financial Statements and
Notes included in Part II, Item 8.
Cincinnati Financial Corporation - 2021 10-K - Page 184
Schedule III
(Dollars in millions)
Cincinnati Financial Corporation and Subsidiaries
Supplementary Insurance Information
Years ended December 31,
2021
2020
2019
Deferred policy acquisition costs:
Commercial lines insurance
Personal lines insurance
Excess and surplus lines insurance
Other
Total property casualty insurance
Life insurance
Total
Gross future policy benefits, losses, claims and expense losses:
Commercial lines insurance
Personal lines insurance
Excess and surplus lines insurance
Other
Total property casualty insurance
Life insurance
Total (1)
Gross unearned premiums:
Commercial lines insurance
Personal lines insurance
Excess and surplus lines insurance
Other
Total property casualty insurance
Life insurance
Total (1)
Other policy claims and benefits payable:
Commercial lines insurance
Personal lines insurance
Excess and surplus lines insurance
Other
Total property casualty insurance
Life insurance
Total (1)
Earned premiums:
Commercial lines insurance
Personal lines insurance
Excess and surplus lines insurance
Other
Total property casualty insurance
Life insurance
Total
$
$
$
$
$
$
$
$
$
$
345 $
145
33
79
602
303
905 $
5,007 $
814
577
831
7,229
3,037
10,266 $
1,857 $
850
207
356
3,270
1
3,271 $
— $
—
—
—
—
53
53 $
317 $
136
28
61
542
263
805 $
4,881 $
739
446
611
6,677
2,938
9,615 $
1,714 $
797
175
273
2,959
1
2,960 $
— $
—
—
—
—
46
46 $
3,674 $
1,542
398
570
6,184
298
6,482 $
3,476 $
1,463
325
427
5,691
289
5,980 $
311
130
25
46
512
262
774
4,569
687
351
481
6,088
2,859
8,947
1,665
757
152
213
2,787
1
2,788
—
—
—
—
—
35
35
3,319
1,404
278
333
5,334
270
5,604
Cincinnati Financial Corporation - 2021 10-K - Page 185
Schedule III (continued)
Cincinnati Financial Corporation and Subsidiaries
Supplementary Insurance Information
(Dollars in millions)
Investment income, net of expenses:
Commercial lines insurance
Personal lines insurance
Excess and surplus lines insurance
Other
Total property casualty insurance (2)
Life insurance
Total
Benefits, claims losses and settlement expenses:
Commercial lines insurance
Personal lines insurance
Excess and surplus lines insurance
Other
Total property casualty insurance
Life insurance
Total
Amortization of deferred policy acquisition costs:
Commercial lines insurance
Personal lines insurance
Excess and surplus lines insurance
Other
Total property casualty insurance
Life insurance
Total (3)
Underwriting, acquisition and insurance expenses:
Commercial lines insurance
Personal lines insurance
Excess and surplus lines insurance
Other
Total property casualty insurance
Life insurance
Total (3)
Net written premiums:
Commercial lines insurance
Personal lines insurance
Excess and surplus lines insurance
Other
Total property casualty insurance
Accident and health insurance
Total
Years ended December 31,
2020
2019
2021
— $
—
—
—
457
166
623 $
1,940 $
992
250
414
3,596
340
3,936 $
703 $
276
63
109
1,151
46
1,197 $
437 $
181
43
55
716
38
754 $
3,811 $
1,594
426
648
6,479
2
6,481 $
— $
—
—
—
431
158
589 $
2,336 $
977
199
325
3,837
297
4,134 $
664 $
256
51
86
1,057
49
1,106 $
415 $
187
43
42
687
36
723 $
3,534 $
1,503
348
479
5,864
2
5,866 $
—
—
—
—
419
152
571
2,030
985
142
195
3,352
286
3,638
631
251
47
57
986
48
1,034
422
164
38
42
666
38
704
3,410
1,435
303
368
5,516
2
5,518
$
$
$
$
$
$
$
$
$
$
Notes to Schedule III:
(1) The sum of gross future policy benefits, losses, claims and expense losses, gross unearned premiums and other
policy claims and benefits payable is equal to the sum of Loss and loss expense reserves, Life policy reserves and
investment contract reserves and Unearned premiums reported in the company’s consolidated balance sheets.
(2) This segment information is not regularly allocated to segments and reviewed by company management in
making decisions about resources to be allocated to the segments or to assess their performance.
(3) The sum of amortization of deferred policy acquisition costs and other underwriting and insurance expenses is
equal to Underwriting, acquisition and insurance expenses in the consolidated statements of income.
Cincinnati Financial Corporation - 2021 10-K - Page 186
Cincinnati Financial Corporation and Subsidiaries
Reinsurance
Schedule IV
(Dollars in millions)
Gross amounts:
Life insurance in force
Earned premiums
Commercial lines insurance
Personal lines insurance
Excess and surplus lines insurance
Other
Total property casualty insurance
Life insurance
Total
Ceded amounts to other companies:
Life insurance in force
Earned premiums
Commercial lines insurance
Personal lines insurance
Excess and surplus lines insurance
Other
Total property casualty insurance
Life insurance
Total
Assumed amounts from other companies:
Life insurance in force
Earned premiums
Commercial lines insurance
Personal lines insurance
Excess and surplus lines insurance
Other
Total property casualty insurance
Life insurance
Total
Net amounts:
Life insurance in force
Earned premiums
Commercial lines insurance
Personal lines insurance
Excess and surplus lines insurance
Other
Total property casualty insurance
Life insurance
Total
Percentage of amounts assumed to net:
Life insurance in force
Earned premiums
Commercial lines insurance
Personal lines insurance
Excess and surplus lines insurance
Other
Total property casualty insurance
Life insurance
Total
Years ended December 31,
2020
2019
2021
$ 116,697
$ 111,756
$ 108,130
$
$
3,777
1,586
417
216
5,996
374
6,370
$
$
3,578
1,503
341
201
5,623
362
5,985
$ 39,204
$ 38,281
$
$
$
$
$
115
45
19
76
255
76
331
—
12
1
—
430
443
—
443
$
$
$
$
$
109
41
16
51
217
73
290
—
7
1
—
277
285
—
285
$ 77,493
$ 73,475
$
$
3,674
1,542
398
570
6,184
298
6,482
$
$
3,476
1,463
325
427
5,691
289
5,980
$
$
$
$
$
$
$
$
$
$
$
3,421
1,446
292
181
5,340
341
5,681
38,146
109
43
14
39
205
71
276
—
7
1
—
191
199
—
199
69,984
3,319
1,404
278
333
5,334
270
5,604
— %
— %
— %
0.3 %
0.1
—
75.4
7.2
—
6.8
0.2 %
0.1
—
64.9
5.0
—
4.8
0.2 %
0.1
—
57.4
3.7
—
3.6
Cincinnati Financial Corporation - 2021 10-K - Page 187
Schedule V
(Dollars in millions)
Allowance for credit losses (1):
Beginning balance, January 1
Cincinnati Financial Corporation and Subsidiaries
Valuation and Qualifying Accounts
At December 31,
2021
2020
2019
Cumulative effect of change in accounting for credit losses as of January 1, 2020, pretax
Additions charged to costs and expenses
Deductions
Ending balance, December 31
Deferred tax valuation allowance:
Beginning balance, January 1
Additions charged to costs and expenses
Deductions
Ending balance, December 31
Total valuation and qualifying accounts
$
$
$
22 $
8 $
—
14
3
19
(20)
(8)
16 $
22 $
6
—
8
(6)
8
56 $
41 $ —
—
(3)
53
15
—
56
$
69 $
78 $
55
(14)
41
49
Notes to Schedule V:
(1) Includes allowances for credit losses related to premiums receivable, reinsurance recoverable, finance
receivables and fixed-maturity securities.
Cincinnati Financial Corporation - 2021 10-K - Page 188
Schedule VI
(Dollars in millions)
Cincinnati Financial Corporation and Subsidiaries
Supplementary Information Concerning Property Casualty Insurance Operations
Deferred policy acquisition costs:
Commercial lines insurance
Personal lines insurance
Excess and surplus lines insurance
Other
Total
Reserves for unpaid claims and claim adjustment expenses:
Commercial lines insurance
Personal lines insurance
Excess and surplus lines insurance
Other
Total
Reserve discount deducted
Gross unearned premiums:
Commercial lines insurance
Personal lines insurance
Excess and surplus lines insurance
Other
Total
Earned premiums:
Commercial lines insurance
Personal lines insurance
Excess and surplus lines insurance
Other
Total
Investment income, net of expenses:
Commercial lines insurance
Personal lines insurance
Excess and surplus lines insurance
Other
Total (1)
Years ended December 31,
2021
2020
2019
$
345 $
317 $
145
33
79
136
28
61
$
602 $
542 $
311
130
25
46
512
$
5,007 $
4,881 $
4,569
814
577
831
739
446
611
687
351
481
7,229 $
6,677 $
6,088
— $
— $
—
$
$
$
1,857 $
1,714 $
1,665
850
207
356
797
175
273
757
152
213
$
3,270 $
2,959 $
2,787
$
3,674 $
3,476 $
1,542
398
570
1,463
325
427
3,319
1,404
278
333
$
6,184 $
5,691 $
5,334
$
— $
— $
—
—
—
—
—
—
—
—
—
—
$
457 $
431 $
419
Note to Schedule VI:
(1) This segment information is not regularly allocated to segments and not reviewed by company management in
making decisions about resources to be allocated to the segments or to assess their performance.
Cincinnati Financial Corporation - 2021 10-K - Page 189
Schedule VI (continued)
Cincinnati Financial Corporation and Subsidiaries
Supplementary Information Concerning Property Casualty Insurance Operations
(Dollars in millions)
Loss and loss expenses incurred related to current accident year:
Commercial lines insurance
Personal lines insurance
Excess and surplus lines insurance
Other
Total
Loss and loss expenses incurred related to prior accident years:
Commercial lines insurance
Personal lines insurance
Excess and surplus lines insurance
Other
Total
Amortization of deferred policy acquisition costs:
Commercial lines insurance
Personal lines insurance
Excess and surplus lines insurance
Other
Total
Paid loss and loss expenses:
Commercial lines insurance
Personal lines insurance
Excess and surplus lines insurance
Other
Total
Net written premiums:
Commercial lines insurance
Personal lines insurance
Excess and surplus lines insurance
Other
Total
$
$
Years ended December 31,
2021
2020
2019
$
2,293 $
2,431 $
1,042
243
446
995
192
350
2,222
1,012
153
213
$
4,024 $
3,968 $
3,600
$
(353) $
(95) $
(192)
(50)
7
(32)
(18)
7
(25)
(27)
(11)
(18)
(428) $
(131) $
(248)
703 $
664 $
276
63
109
256
51
86
$
1,151 $
1,057 $
631
251
47
57
986
$
1,806 $
1,969 $
2,023
914
118
256
921
112
181
966
90
181
$
3,094 $
3,183 $
3,260
$
3,811 $
3,534 $
1,594
426
648
1,503
348
479
3,410
1,435
303
368
$
6,479 $
5,864 $
5,516
Cincinnati Financial Corporation - 2021 10-K - Page 190
Index of Exhibits
Exhibit No.
3.1
3.2
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12
10.13
10.14
Exhibit Description
Amended and Restated Articles of Incorporation of Cincinnati Financial Corporation (incorporated by
reference to the company’s Quarterly Report on Form 10-Q for the quarter ended
September 30, 2017, Exhibit 3.1)
Amended and Restated Code of Regulations of Cincinnati Financial Corporation, as of May 5, 2018
(incorporated by reference to the company’s Quarterly Report on Form 10-Q for the quarter ended
June 30, 2018, Exhibit 3.2)
Indenture with The Bank of New York Trust Company (incorporated by reference to the company’s
Current Report on Form 8-K dated November 2, 2004, filed with respect to the issuance of the
company’s 6.125% Senior Notes due November 1, 2034)
Supplemental Indenture with The Bank of New York Trust Company (incorporated by reference to the
company’s Current Report on Form 8-K dated November 2, 2004, filed with respect to the issuance
of the company’s 6.125% Senior Notes due November 1, 2034)
Second Supplemental Indenture with The Bank of New York Trust Company (incorporated by
reference to the company’s Current Report on Form 8-K dated May 9, 2005, filed with respect to the
completion of the company’s exchange offer and rescission offer for its 6.90% senior debentures due
2028)
Form of 6.125% Exchange Note Due 2034 (included in Exhibit 4.2)
Form of 6.92% Debentures Due 2028 (included in Exhibit 4.3)
Indenture with the First National Bank of Chicago (subsequently assigned to The Bank of New York
Trust Company) (incorporated by reference to the company’s registration statement on Form S-3 filed
on May 20, 1998 (File No. 333-51677))
Form of 6.90% Debentures Due 2028 (included in Exhibit 4.6)
Description of Registered Securities
Cincinnati Financial Corporation Nonemployee Director Stock Plan of 2018 (incorporated by
reference to the company’s definitive Proxy Statement dated March 21, 2018)
First Amendment to Cincinnati Financial Corporation Nonemployee Director Stock Plan of 2018
Cincinnati Financial Corporation Nonemployee Director Deferred Compensation Plan
Cincinnati Financial Corporation Stock Option Plan No. VII (incorporated by reference to the
company’s definitive Proxy Statement dated March 8, 2002) (File No. 000-04604)
Cincinnati Financial Corporation Annual Incentive Compensation Plan of 2009, Amended and
Restated on January 29, 2021 (incorporated by reference to Exhibit 10.6 filed with the company's
Annual Report on Form 10-K dated February 25, 2021)
Cincinnati Financial Corporation Annual Incentive Compensation Plan of 2009, Amended and
Restated on January 29, 2022
Cincinnati Financial Corporation 2006 Stock Compensation Plan (incorporated by reference to the
company’s definitive Proxy Statement dated March 30, 2006)
Cincinnati Financial Corporation 2012 Stock Compensation Plan (incorporated by reference to the
company’s definitive Proxy Statement dated March 16, 2012)
Cincinnati Financial Corporation 2016 Stock Compensation Plan (incorporated by reference to the
company’s Definitive Proxy Statement dated March 16, 2016, Appendix B)
First Amendment of Cincinnati Financial Corporation 2016 Stock Compensation Plan (incorporated
by reference to Exhibit 99.1 filed with the Company’s current report on Form 8-K dated
April 11, 2016)
Amended and Restated Cincinnati Financial Corporation Supplemental Retirement Plan dated
January 1, 2009 (incorporated by reference to Exhibit 10.7 filed with the company’s Annual Report on
Form 10-K dated February 27, 2013)
Form of Incentive Stock Option Agreement for Stock Option Plan VII (incorporated by reference to
Exhibit 10.1 filed with the company’s Current Report on Form 8-K dated October 20, 2006)
Form of Nonqualified Stock Option Agreement for Stock Option Plan VII (incorporated by reference to
Exhibit 10.2 filed with the company’s Current Report on Form 8-K dated October 20, 2006)
Form of Incentive Stock Option Agreement for the 2006 Stock Compensation Plan (incorporated by
reference to Exhibit 10.3 filed with the company’s Current Report on Form 8-K dated
October 20, 2006)
Cincinnati Financial Corporation - 2021 10-K - Page 191
Exhibit No.
10.15
10.16
10.17
10.18
10.19
10.20
10.21
10.22
10.23
10.24
10.25
10.26
10.27
10.28
10.29
10.30
10.31
10.32
10.33
Exhibit Description
Form of Nonqualified Stock Option Agreement for the 2006 Stock Compensation Plan (incorporated
by reference to Exhibit 10.4 filed with the company’s Current Report on Form 8-K dated
October 20, 2006)
Form of Incentive Stock Option Agreement for the Cincinnati Financial Corporation 2012 Stock
Compensation Plan (incorporated by reference to Exhibit 10.1 filed with the company’s Current
Report on Form 8-K dated February 21, 2013)
Form of Nonqualified Stock Option Agreement for the Cincinnati Financial Corporation 2012 Stock
Compensation Plan (incorporated by reference to Exhibit 10.2 filed with the company’s Current
Report on Form 8-K dated February 21, 2013)
Form of Restricted Stock Unit Agreement (service based) for the Cincinnati Financial Corporation
2012 Stock Compensation Plan (incorporated by reference to Exhibit 10.3 filed with the company’s
Current Report on Form 8-K dated February 21, 2013)
Form of Restricted Stock Unit Agreement (service based/ratable) for the Cincinnati Financial
Corporation 2012 Stock Compensation Plan (incorporated by reference to Exhibit 10.1 filed with the
company’s Current Report on Form 8-K dated February 13, 2015)
Form of Restricted Stock Unit Agreement (performance based) for the Cincinnati Financial
Corporation 2012 Stock Compensation Plan (incorporated by reference to Exhibit 10.4 filed with the
company’s Current Report on Form 8-K dated February 21, 2013)
Form of Incentive Compensation Agreement for the Cincinnati Financial Corporation Incentive
Compensation Plan of 2009 (as amended January 31, 2014) (incorporated by reference to Exhibit
10.1 filed with the company’s Current Report on Form 8-K dated January 30, 2017)
Form of Incentive Stock Option Agreement for the Cincinnati Financial Corporation 2012 Stock
Compensation Plan (incorporated by reference to Exhibit 10.2 filed with the company’s Current
Report on Form 8-K dated January 30, 2017)
Form of Nonqualified Stock Option Agreement for the Cincinnati Financial Corporation 2012 Stock
Compensation Plan (incorporated by reference to Exhibit 10.3 filed with the company’s Current
Report on Form 8-K dated January 30, 2017)
Form of Restricted Stock Unit Agreement (service based/cliff) for the Cincinnati Financial Corporation
2012 Stock Compensation Plan (incorporated by reference to Exhibit 10.4 filed with the company’s
Current Report on Form 8-K dated January 30, 2017)
Form of Restricted Stock Unit Agreement (service based/ratable) for the Cincinnati Financial
Corporation 2012 Stock Compensation Plan (incorporated by reference to Exhibit 10.5 filed with the
company’s Current Report on Form 8-K dated January 30, 2017)
Form of Restricted Stock Unit Agreement (performance-based) for the Cincinnati Financial
Corporation 2012 Stock Compensation Plan (incorporated by reference to Exhibit 10.6 filed with the
company’s Current Report on Form 8-K dated January 30, 2017)
Form of Incentive Stock Option Agreement for the Cincinnati Financial Corporation 2016 Stock
Compensation Plan (incorporated by reference to Exhibit 10.7 filed with the company’s Current
Report on Form 8-K dated January 30, 2017)
Form of Nonqualified Stock Option Agreement for the Cincinnati Financial Corporation 2016 Stock
Compensation Plan (incorporated by reference to Exhibit 10.8 filed with the company’s Current
Report on Form 8-K dated January 30, 2017)
Form of Restricted Stock Unit Agreement (service based/cliff) for the Cincinnati Financial Corporation
2016 Stock Compensation Plan (incorporated by reference to Exhibit 10.9 filed with the company’s
Current Report on Form 8-K dated January 30, 2017)
Form of Restricted Stock Unit Agreement (service based/ratable) for the Cincinnati Financial
Corporation 2016 Stock Compensation Plan (incorporated by reference to Exhibit 10.10 filed with the
company’s Current Report on Form 8-K dated January 30, 2017)
Form of Restricted Stock Unit Agreement (performance based) for the Cincinnati Financial
Corporation 2016 Stock Compensation Plan (incorporated by reference to Exhibit 10.11 filed with the
company’s Current Report on Form 8-K dated January 30, 2017)
Amended and Restated Cincinnati Financial Corporation Top Hat Savings Plan dated
January 1, 2018 (incorporated by reference to Exhibit 10.31 filed with the company's Form 10-K
dated February 23, 2018)
Cincinnati Financial Corporation Executive Deferred Compensation Agreement by and between the
Cincinnati Financial Corporation and Michael J. Sewell, dated as of October 25, 2011 (incorporated
by reference to Exhibit 10.2 filed with the company’s Quarterly Report on Form 10-Q for the quarter
ended September 30, 2011)
Cincinnati Financial Corporation - 2021 10-K - Page 192
Exhibit No.
10.34
10.35
10.36
10.37
10.38
10.39
10.40
10.41
10.42
10.43
10.44
10.45
11
14
21
23
31A
Exhibit Description
Amended and Restated Credit Agreement by and among Cincinnati Financial Corporation, CFC
Investment Company, PNC Bank, N.A. as Administrative Agent, PNC Capital Markets LLC, as Sole
Bookrunner and Joint Lead Arranger, Fifth Third Bank, N.A., as Joint Lead Arranger and Syndication
Agent, The Huntington National Bank and U.S. Bank, N.A., as Documentation Agents, dated
May 13, 2014 (incorporated by reference to the company’s Current Report on Form 8-K dated
May 13, 2014, Exhibit 10.1)
First Amendment of the Amended and Restated Credit Agreement by and among Cincinnati Financial
Corporation, CFC Investment Company, PNC Bank, N.A. as Administrative Agent, PNC Capital
Markets LLC, as Sole Bookrunner and Joint Lead Arranger, Fifth Third Bank, N.A., as Joint Lead
Arranger and Syndication Agent, The Huntington National Bank and U.S. Bank, N.A., as
Documentation Agents, dated February 8, 2016 (incorporated by reference to Exhibit 10.1 filed with
the company’s Current Report on Form 8-K dated February 8, 2016)
Second Amendment of the Amended and Restated Credit Agreement by and among Cincinnati
Financial Corporation, CFC Investment Company, PNC Bank, N.A., as Administrative Agent, PNC
Capital Markets, LLC, as Sole Bookrunner and Joint Lead Arranger, Fifth Third Bank, N.A. as Joint
Lead Arranger and Syndication Agent, The Huntington National Bank and U.S. Bank, N.A. as
Documentation Agents, dated March 31, 2016 (incorporated by reference to Exhibit 10.1 filed with the
company’s Current Report on Form 8-K dated April 4, 2016)
Third Amendment of the Amended and Restated Credit Agreement by and among Cincinnati
Financial Corporation, CFC Investment Company, PNC Bank, N.A., as Administrative Agent, PNC
Capital Markets, LLC, as Sole Bookrunner and Joint Lead Arranger, Fifth Third Bank, N.A. as Joint
Lead Arranger and Syndication Agent, The Huntington National Bank and U.S. Bank, N.A. as
Documentation Agents, dated February 4, 2019 (incorporated by reference to Exhibit 10.1 filed with
the company's Current Report on Form 8-K dated February 6, 2019)
Fourth Amendment of the Amended and Restated Credit Agreement by and among Cincinnati
Financial Corporation, CFC Investment Company, PNC Bank, N.A., as Administrative Agent, PNC
Capital Markets, LLC, as Sole Bookrunner and Joint Lead Arranger, Fifth Third Bank, N.A. as Joint
Lead Arranger and Syndication Agent, The Huntington National Bank and U.S. Bank, N.A. as
Documentation Agents, dated February 26, 2019 (incorporated by reference to Exhibit 10.6 filed with
the company’s Current Report on Form 8-K dated February 28, 2019)
Limited Consent to Credit Agreement, dated December 6, 2019, among Cincinnati Financial
Corporation, CFC Investment Company, PNC Bank, N.A., Fifth Third Bank, N.A., The Huntington
National Bank, U.S. Bank, N.A., and Branch Banking and Trust Company (incorporated by reference
to Exhibit 10.6 filed with the company’s Current Report on Form 8-K, dated December 6, 2019)
Limited Consent to Credit Agreement, dated December 11, 2020, among Cincinnati Financial
Corporation, CFC Investment Company, PNC Bank, N.A., Fifth Third Bank, N.A., The Huntington
National Bank, U.S. Bank, N.A., and Branch Banking and Trust Company (incorporated by reference
to Exhibit 10.7 filed with the company’s Current Report on Form 8-K, dated December 11, 2020)
Reimbursement Agreement for Letters of Credit by and between Bank of Nova Scotia and The
Cincinnati Insurance Company, dated October 15, 2018 (incorporated by reference to Exhibit 10.1
filed with the company's Current Report on Form 8-K dated October 17, 2018)
Letter of Credit Facility Agreement by and between Cincinnati Financial Corporation, as Borrower,
and The Bank of Nova Scotia, as Bank, dated February 25, 2019 (incorporated by reference to
Exhibit 10.1 filed with the company’s Current Report on Form 8-K dated February 28, 2019)
Amendment Letter No. 1 to the Letter of Credit Facility Agreement, dated November 4, 2019
(incorporated by reference to Exhibit 10.1 filed with the company’s Current Report on Form 8-K,
dated November 5, 2019)
Amendment Letter No. 2 to the Letter of Credit Facility Agreement, dated October 30, 2020
(incorporated by reference to Exhibit 10.1 filed with the company’s Current Report on Form 8-K,
dated November 2, 2020)
Amendment Letter No. 3 to the Letter of Credit Facility Agreement, dated November 2, 2021
(incorporated by reference to Exhibit 10.1 filed with the company’s Current Report on Form 8-K,
dated November 3, 2021)
Statement re: Computation of per share earnings for the years ended December 31, 2021, 2020, and
2019, contained in Part II, Item 8, Note 12, to the Consolidated Financial Statements
Cincinnati Financial Corporation Code of Ethics for Senior Financial Officers (incorporated by
reference to the company’s definitive Proxy Statement dated March 18, 2004 (File No. 000-04604))
Cincinnati Financial Corporation subsidiaries contained in Part I, Item 1, of this report
Consent of Independent Registered Public Accounting Firm
Certification pursuant to Section 302 of the Sarbanes Oxley Act of 2002 – Chief Executive Officer
Cincinnati Financial Corporation - 2021 10-K - Page 193
Exhibit No.
31B
Certification pursuant to Section 302 of the Sarbanes Oxley Act of 2002 – Chief Financial Officer
Exhibit Description
32
Certification pursuant to Section 906 of the Sarbanes Oxley Act of 2002
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Cincinnati Financial Corporation - 2021 10-K - Page 194
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Cincinnati Financial Corporation
/S/ Michael J. Sewell
By:
Title:
Date:
Michael J. Sewell, CPA
Chief Financial Officer, Senior Vice President and Treasurer
(Principal Accounting Officer)
February 24, 2022
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been duly signed below by the
following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature
/S/ Steven J. Johnston
Steven J. Johnston
/S/ Michael J. Sewell
Michael J. Sewell
/S/ Thomas J. Aaron
Thomas J. Aaron
/S/ William F. Bahl
William F. Bahl
/S/ Nancy C. Benacci
Nancy C. Benacci
/S/ Linda W. Clement-Holmes
Linda W. Clement-Holmes
/S/ Dirk J. Debbink
Dirk J. Debbink
/S/ Kenneth C. Lichtendahl
Kenneth C. Lichtendahl
/S/ David P. Osborn
David P. Osborn
/S/ Jill P. Meyer Pratt
Jill P. Meyer Pratt
/S/ Gretchen W. Schar
Gretchen W. Schar
/S/ Charles O. Schiff
Charles O. Schiff
/S/ Douglas S. Skidmore
Douglas S. Skidmore
/S/ John F. Steele, Jr.
John F. Steele, Jr.
/S/ Larry R. Webb
Larry R. Webb
Title
Date
Chairman, President, Chief
Executive Officer and Director
Chief Financial Officer, Senior Vice
President and Treasurer
Director
Director
Director
Director
Director
Director
Director
Director
Director
Director
Director
Director
Director
February 24, 2022
February 24, 2022
February 24, 2022
February 24, 2022
February 24, 2022
February 24, 2022
February 24, 2022
February 24, 2022
February 24, 2022
February 24, 2022
February 24, 2022
February 24, 2022
February 24, 2022
February 24, 2022
February 24, 2022
Cincinnati Financial Corporation - 2021 10-K - Page 195
EXHIBIT 31A
CERTIFICATION PURSUANT TO SECTION 302 OF
THE SARBANES OXLEY ACT OF 2002
I, Steven J. Johnston, certify that:
1.
2.
3.
4.
I have reviewed this Annual Report on Form 10-K of Cincinnati Financial Corporation;
Based on my knowledge, this report does not contain any untrue statement of a material
fact or omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect to
the period covered by this report;
Based on my knowledge, the financial statements, and other financial information
included in this report, fairly present in all material respects the financial condition, results
of operations and cash flows of the registrant as of, and for, the periods presented in
this report;
The registrant's other certifying officer and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-
15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange
Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)
b)
c)
d)
designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure that
material information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the period in
which this report is being prepared;
designed such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;
evaluated the effectiveness of the registrant's disclosure controls and procedures and
presented in this report our conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period covered by this report based on
such evaluation; and
disclosed in this report any change in the registrant’s internal control over financial
reporting that occurred during the registrant’s most recent fiscal quarter (the
registrant’s fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrant’s internal control
over financial reporting; and
5.
The registrant's other certifying officer and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons performing the equivalent
functions):
a)
b)
all significant deficiencies and material weaknesses in the design or operation of
internal controls over financial reporting which are reasonably likely to adversely
affect the registrant's ability to record, process, summarize and report financial
information; and
any fraud, whether or not material, that involves management or other employees
who have a significant role in the registrant's internal control over financial reporting.
Date: February 24, 2022
/S/ Steven J. Johnston
Steven J. Johnston, FCAS, MAAA, CFA, CERA
Chairman, President and Chief Executive Officer
EXHIBIT 31B
CERTIFICATION PURSUANT TO SECTION 302 OF
THE SARBANES OXLEY ACT OF 2002
I, Michael J. Sewell, certify that:
1.
2.
3.
4.
I have reviewed this Annual Report on Form 10-K of Cincinnati Financial Corporation;
Based on my knowledge, this report does not contain any untrue statement of a material
fact or omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect to
the period covered by this report;
Based on my knowledge, the financial statements, and other financial information
included in this report, fairly present in all material respects the financial condition, results
of operations and cash flows of the registrant as of, and for, the periods presented in
this report;
The registrant's other certifying officer and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-
15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange
Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)
b)
c)
d)
designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure that
material information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the period in
which this report is being prepared;
designed such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;
evaluated the effectiveness of the registrant's disclosure controls and procedures and
presented in this report our conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period covered by this report based on
such evaluation; and
disclosed in this report any change in the registrant’s internal control over financial
reporting that occurred during the registrant’s most recent fiscal quarter (the
registrant’s fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrant’s internal control
over financial reporting; and
5.
The registrant's other certifying officer and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons performing the
equivalent functions):
a)
b)
all significant deficiencies and material weaknesses in the design or operation of
internal controls over financial reporting which are reasonably likely to adversely
affect the registrant's ability to record, process, summarize and report financial
information; and
any fraud, whether or not material, that involves management or other employees
who have a significant role in the registrant's internal control over financial reporting.
Date: February 24, 2022
/S/ Michael J. Sewell
Michael J. Sewell, CPA
Chief Financial Officer, Senior Vice President and Treasurer
(Principal Accounting Officer)
EXHIBIT 32
CERTIFICATION PURSUANT TO SECTION 906 OF
THE SARBANES OXLEY ACT OF 2002
The certification set forth below is being submitted in connection with this report on Form 10-K for the
purpose of complying with Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934
and Section 1350 of Chapter 63 of Title 18 of the United States Code.
Steven J. Johnston, the chief executive officer, and Michael J. Sewell, the chief financial officer, of
Cincinnati Financial Corporation each certifies that, to the best of his knowledge:
1.
2.
the report fully complies with the requirements of Section 13(a) or 15(d) of the Exchange
Act; and
the information contained in the report fairly presents, in all material respects, the
financial condition and results of operations of Cincinnati Financial Corporation.
Date: February 24, 2022
/S/ Steven J. Johnston
Steven J. Johnston, FCAS, MAAA, CFA, CERA
Chairman, President and Chief Executive Officer
/S/ Michael J. Sewell
Michael J. Sewell, CPA
Chief Financial Officer, Senior Vice President and Treasurer
(Principal Accounting Officer)
CINCINNATI FINANCIAL CORPORATION DIRECTORS
As of February 24, 2022
T.J. Aaron
W.F. Bahl
N.C. Benacci
L.W. Clement-Holmes
D.J. Debbink
S.J. Johnston
K.C. Lichtendahl
J.P. Meyer
D.P. Osborn
G.W. Schar
C.O. Schiff
D.S. Skidmore
J. F. Steele, Jr.
L.R. Webb
(A) Audit Committee (C) Compensation
Committee (E) Executive Committee
(I) Investment Committee (N) Nominating
Committee *Committee Chair **Lead Director
Thomas J. Aaron, CPA
Executive Vice President and
Chief Financial Officer (Ret.)
Community Health Systems
(Operator of general acute care hospitals)
Director since 2019 (A)
William F. Bahl, CFA, CIC
Chairman of the Board
Bahl & Gaynor Investment Counsel Inc.
(Independent registered investment adviser)
Director** since 1995 (A)(E)(I)(N*)
Nancy C. Benacci, CFA
Head of Equity Research (Ret.)
KeyBanc Capital Markets
(Investment bank)
Director since 2020 (A)(I)
Linda W. Clement-Holmes
Chief Information Officer (Ret.)
The Procter & Gamble Company
(Consumer products)
Director since 2010 (A)(C)(N)
Dirk J. Debbink
Chairman and Chief Executive Officer
MSI General Corporation
(Design/build construction firm)
Director since 2012 (A)(N)
Steven J. Johnston, FCAS, MAAA, CFA, CERA
Chairman, President and
Chief Executive Officer
Cincinnati Financial Corporation
Director since 2011 (E*)(I*)
Kenneth C. Lichtendahl
Director of Development and Sales (Ret.)
Heliosphere Designs LLC
(Solar product marketing)
Director since 1988 (C)
Jill P. Meyer, Esq.
President and Chief Executive Officer
Cincinnati USA Regional Chamber
(Metro business chamber)
Director since 2019 (N)
David P. Osborn, CFA
President
Osborn Williams & Donohoe LLC
(Independent registered investment adviser)
Director since 2013 (A)(C*)(I)
Gretchen W. Schar
Executive Vice President and
Chief Financial and Administrative Officer (Ret.)
Arbonne International LLC
(Beauty and nutritional products)
Director since 2002 (A*)(C)(N)
Charles O. Schiff
Executive Vice President, Secretary
and Treasurer
John J. & Thomas R. Schiff & Co. Inc.
(Independent insurance agency)
Director since 2020 (I)
Douglas S. Skidmore
Chief Executive Officer
Skidmore Sales & Distributing Company Inc.
(Food ingredient distributor)
Director since 2004 (E)(N)
John F. Steele, Jr.
Chairman and Chief Executive Officer
Hilltop Basic Resources Inc.
(Supplier of aggregates and concrete)
Director since 2005 (E)
Larry R. Webb, CPCU
President
Webb Insurance Agency Inc.
(Independent insurance agency)
Director since 1979 (E)(I)
OFFICERS
Steven J. Johnston, FCAS, MAAA, CFA, CERA
Chairman, President and Chief Executive Officer
Michael J. Sewell, CPA
Chief Financial Officer, Principal Accounting
Officer, Senior Vice President and Treasurer
Martin F. Hollenbeck, CFA, CPCU
Chief Investment Officer, Senior Vice
President, Assistant Secretary and
Assistant Treasurer
Lisa A. Love, Esq.
Senior Vice President, General Counsel and
Corporate Secretary
DIRECTORS EMERITI
James E. Benoski
Gregory T. Bier, CPA (Ret.)
Michael Brown
W. Rodney McMullen
John J. Schiff, Jr., CPCU
Thomas R. Schiff
Frank J. Schultheis
David B. Sharrock
John M. Shepherd
Kenneth W. Stecher
Alan R. Weiler, CPCU
E. Anthony Woods
William H. Zimmer
KENNETH C. LICHTENDAHL
Kenneth Lichtendahl, our director since
1988, is retiring from the board in May.
During his tenure, Ken served on our audit
(former chair), nominating and
compensation committees. He contributed
valuable insights in developing customer
relationships, ethical practices, high-quality
associates and product differentiators. As a
long-serving board member, he brought
institutional continuity with company and
industry knowledge accumulated through
all phases of industry and economic cycles.
We thank him for his many years of service.
SHAREHOLDER INFORMATION
ANNUAL MEETING
Shareholders are invited to attend the
Annual Meeting of Shareholders of
Cincinnati Financial Corporation at
9:30 a.m. ET, on Saturday, May 7, 2022,
at the Cincinnati Art Museum,
953 Eden Park Drive, Cincinnati, Ohio.
You may listen to an audio webcast of
the event by visiting cinfin.com/investors.
INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
Deloitte & Touche LLP
50 West Fifth St., Suite 200
Cincinnati, Ohio 45202
COMMON STOCK PRICE AND DIVIDEND DATA
Common shares are traded under the symbol CINF on the Nasdaq Global Select
Stock Market.
(Source: Nasdaq Global Select Market)
2021
2020
2019
2018
2017
Year-end closing price ............................. $113.93 $87.37 $105.15 $77.42 $74.97
Ordinary cash dividends declared ......
$2.52
2.40
2.24
2.12
2.00
Special cash dividends declared
and paid ...............................................
—
—
—
—
0.50
SHAREHOLDER SERVICES
Equiniti Trust Company is the transfer
agent and administrator for all registered shareholder accounts. Services available to registered shareholder accounts include dividend direct
deposit, Shareholder Investment Plan (including dividend reinvestment), direct registration of shares and electronic delivery. Registered
shareholders may also access your individual account at shareowneronline.com, where you can complete transactions online at any time,
including changing your address, opting out of receiving paper statements, changing your current dividend reinvestment option and viewing
recent transactions.
CONTACT INFORMATION
You may direct communications to Cincinnati Financial Corporation’s Senior Vice President, General Counsel and Corporate Secretary
Lisa A. Love, Esq. for sharing with the appropriate individual(s). Or, you may directly contact the following areas:
Investors: Investor Relations responds to investor inquiries about the company and its performance.
Dennis E. McDaniel, CPA, CMA, CFM, CPCU – Vice President, Investor Relations Officer
513-870-2768 or investor_inquiries@cinfin.com
Shareholders: Shareholder Services administers the company’s stock compensation plans and fulfills requests for shareholder materials.
C. Brandon McIntosh, CEP, CPA – Assistant Vice President, Shareholder Services
513-870-2639 or shareholder_inquiries@cinfin.com
Equiniti Trust Company provides the company’s stock transfer and recordkeeping services, including assisting registered shareholders with
updating account information or enrolling in shareholder plans.
1110 Centre Pointe Curve, Suite 101, Mendota Heights, MN 55120
866-638-6443 or visit shareowneronline.com then Contact Us
Media: Corporate Communications assists media representatives seeking information or comment from the company or its subsidiaries.
Betsy E. Ertel, CPCU, AIM, API – Vice President, Corporate Communications
513-603-5323 or media_inquiries@cinfin.com
CINCINNATI FINANCIAL CORPORATION
The Cincinnati Insurance Company
The Cincinnati Casualty Company
The Cincinnati Indemnity Company
The Cincinnati Life Insurance Company
MAILING ADDRESS
P.O. Box 145496
Cincinnati, Ohio 45250-5496
The Cincinnati Specialty Underwriters Insurance Company
CSU Producer Resources Inc.
CFC Investment Company
Cincinnati Global Underwriting Ltd.
STREET ADDRESS
6200 South Gilmore Road
Fairfield, Ohio 45014-5141
Phone: 888-242-8811 or 513-870-2000
Email: cfc_corporate@cinfin.com
Web: cinfin.com