Cincinnati Financial Corporation First-Quarter 2022 10-Q
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(Dollars are per share) | | | | Three months ended March 31, |
| | | | | | 2022 | | 2021 |
Value creation ratio: | | | | | | | | |
End of period book value* | | | | | | $ | 75.43 | | | $ | 69.16 | |
Less beginning of period book value | | | | | | 81.72 | | | 67.04 | |
Change in book value | | | | | | (6.29) | | | 2.12 | |
Dividend declared to shareholders | | | | | | 0.69 | | | 0.63 | |
Total value creation | | | | | | $ | (5.60) | | | $ | 2.75 | |
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Value creation ratio from change in book value** | | | | | | (7.7) | % | | 3.2 | % |
Value creation ratio from dividends declared to shareholders*** | | | | | | 0.8 | | | 0.9 | |
Value creation ratio | | | | | | (6.9) | % | | 4.1 | % |
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* 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 period book value | | |
*** Dividend declared to shareholders divided by beginning of period book value | | |
DRIVERS OF LONG-TERM VALUE CREATION
Operating through The Cincinnati Insurance Company, Cincinnati Financial Corporation is one of the 25 largest property casualty insurers in the nation, based on 2021 net written premiums for approximately 2,000 U.S. stock and mutual insurer groups. We market our insurance products through a select group of independent insurance agencies as discussed in our 2021 Annual Report on Form 10-K, Item 1, Our Business and Our Strategy, Page 6. At March 31, 2022, we actively marketed through 1,946 agencies located in 46 states. We maintain a long-term perspective that guides us in addressing immediate challenges or opportunities while focusing on the major decisions that best position our company for success through all market cycles.
To measure our long-term progress in creating shareholder value, our value creation ratio is our primary financial performance target. As discussed in our 2021 Annual Report on Form 10-K, Item 7, Executive Summary, Page 47, management believes this measure is a meaningful indicator of our long-term progress in creating shareholder value and has three primary performance drivers:
•Premium growth – We believe our agency relationships and initiatives can lead to a property casualty written premium growth rate over any five-year period that exceeds the industry average. For the first three months of 2022, our consolidated property casualty net written premium year-over-year growth was 12%. As of February 2022, A.M. Best projected the industry's full-year 2022 written premium growth at approximately 6%. For the five-year period 2017 through 2021, our growth rate exceeded that of the industry. The industry's growth rate excludes its mortgage and financial guaranty lines of business.
•Combined ratio – We believe our underwriting philosophy and initiatives can generate a GAAP combined ratio over any five-year period that is consistently within the range of 95% to 100%. For the first three months of 2022, our GAAP combined ratio was 89.9%, including 3.1 percentage points of current accident year catastrophe losses partially offset by 2.5 percentage points of favorable loss reserve development on prior accident years. Our statutory combined ratio was 88.0% for the first three months of 2022. As of February 2022, A.M. Best projected the industry's full-year 2022 statutory combined ratio at approximately 101%, including approximately 7 percentage points of catastrophe losses and less than 1 percentage point of loss reserve development on prior accident years. The industry's ratio again excludes its mortgage and financial guaranty lines of business.
•Investment contribution – We believe our investment philosophy and initiatives can drive investment income growth and lead to a total return on our equity investment portfolio over a five-year period that exceeds the five-year return of the Standard & Poor's 500 Index. For the first three months of 2022, pretax investment income was $185 million, up 6% compared with the same period in 2021. We believe our investment portfolio mix provides an appropriate balance of income stability and growth with capital appreciation potential.
Cincinnati Financial Corporation First-Quarter 2022 10-Q
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Financial Strength
An important part of our long-term strategy is financial strength, which is described in our 2021 Annual Report on Form 10-K, Item 1, Our Business and Our Strategy, Financial Strength, Page 8. One aspect of our financial strength is prudent use of reinsurance ceded to help manage financial performance variability due to catastrophe loss experience. A description of how we use reinsurance ceded is included in our 2021 Annual Report on Form 10-K, Item 7, Liquidity and Capital Resources, 2022 Reinsurance Ceded Programs, Page 104. Another aspect of our financial strength is our investment portfolio, which remains well-diversified as discussed in this quarterly report in Item 3, Quantitative and Qualitative Disclosures About Market Risk. Our strong parent-company liquidity and financial strength increase our flexibility to maintain a cash dividend through all periods and to continue to invest in and expand our insurance operations.
At March 31, 2022, we held $4.777 billion of our cash and cash equivalents and invested assets at the parent-company level, of which $4.509 billion, or 94.4%, was invested in common stocks, and $137 million, or 2.9%, was cash or cash equivalents. Our debt-to-total-capital ratio was 6.5% at March 31, 2022. Another important indicator of financial strength is our ratio of property casualty net written premiums to statutory surplus, which was 1.0-to-1 for the 12 months ended March 31, 2022, compared with 0.9-to-1 at year-end 2021.
Financial strength ratings assigned to us by independent rating firms also are important. In addition to rating our parent company's senior debt, four firms award insurer financial strength ratings to one or more of our insurance subsidiary companies based on their quantitative and qualitative analyses. These ratings primarily assess an insurer's ability to meet financial obligations to policyholders and do not necessarily address all of the matters that may be important to investors. Ratings are under continuous review and subject to change or withdrawal at any time by the rating agency. Each rating should be evaluated independently of any other rating; please see each rating agency's website for its most recent report on our ratings.
At April 27, 2022, our insurance subsidiaries continued to be highly rated.
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Insurer Financial Strength Ratings |
Rating agency | Standard market property casualty insurance subsidiaries | Life insurance subsidiary | Excess and surplus lines insurance subsidiary | Outlook |
| | | Rating tier | | | Rating tier | | | Rating tier | |
A.M. Best Co. ambest.com | A+ | Superior | 2 of 16 | A+ | Superior | 2 of 16 | A+ | Superior | 2 of 16 | Stable |
Fitch Ratings fitchratings.com | A+ | Strong | 5 of 21 | A+ | Strong | 5 of 21 | - | - | - | Stable |
Moody's Investors Service moodys.com | A1 | Good | 5 of 21 | - | - | - | - | - | - | Stable |
S&P Global Ratings spratings.com | A+ | Strong | 5 of 21 | A+ | Strong | 5 of 21 | - | - | - | Stable |
Cincinnati Financial Corporation First-Quarter 2022 10-Q
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CONSOLIDATED PROPERTY CASUALTY INSURANCE HIGHLIGHTS
Consolidated property casualty insurance results include premiums and expenses for our standard market insurance segments (commercial lines and personal lines), our excess and surplus lines segment, Cincinnati Re® and our London-based global specialty underwriter Cincinnati Global Underwriting Ltd.SM (Cincinnati Global).
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(Dollars in millions) | | | | Three months ended March 31, |
| | | | | | | | 2022 | | 2021 | | % Change |
Earned premiums | | | | | | | | $ | 1,618 | | $ | 1,475 | | 10 | |
Fee revenues | | | | | | | | 3 | | 2 | | 50 | |
Total revenues | | | | | | | | 1,621 | | 1,477 | | 10 | |
Loss and loss expenses from: | | | | | | | | | | | | |
Current accident year before catastrophe losses | | | | | | | | 947 | | 850 | | 11 | |
Current accident year catastrophe losses | | | | | | | | 50 | | 183 | | (73) | |
Prior accident years before catastrophe losses | | | | | | | | (20) | | (80) | | 75 | |
Prior accident years catastrophe losses | | | | | | | | (21) | | (30) | | 30 | |
Loss and loss expenses | | | | | | | | 956 | | 923 | | 4 | |
Underwriting expenses | | | | | | | | 500 | | 421 | | 19 | |
Underwriting profit | | | | | | | | $ | 165 | | $ | 133 | | 24 | |
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Ratios as a percent of earned premiums: | | | | | | | | | | | | Pt. Change |
Current accident year before catastrophe losses | | | | | | | | 58.5 | % | | 57.6 | % | | 0.9 | |
Current accident year catastrophe losses | | | | | | | | 3.1 | | | 12.4 | | | (9.3) | |
Prior accident years before catastrophe losses | | | | | | | | (1.2) | | | (5.4) | | | 4.2 | |
Prior accident years catastrophe losses | | | | | | | | (1.3) | | | (2.0) | | | 0.7 | |
Loss and loss expenses | | | | | | | | 59.1 | | | 62.6 | | | (3.5) | |
Underwriting expenses | | | | | | | | 30.8 | | | 28.6 | | | 2.2 | |
Combined ratio | | | | | | | | 89.9 | % | | 91.2 | % | | (1.3) | |
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Combined ratio | | | | | | | | 89.9 | % | | 91.2 | % | | (1.3) | |
Contribution from catastrophe losses and prior years reserve development | | | | | | | | 0.6 | | | 5.0 | | | (4.4) | |
Combined ratio before catastrophe losses and prior years reserve development | | | | | | | | 89.3 | % | | 86.2 | % | | 3.1 | |
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Our consolidated property casualty insurance operations generated an underwriting profit of $165 million for the first three months of 2022. The improvement of $32 million, compared with the same period of 2021, included a favorable decrease of $124 million in losses from catastrophes, mostly caused by severe weather. We believe future property casualty underwriting results will continue to benefit from price increases and our ongoing initiatives to improve pricing precision and loss experience related to claims and loss control practices.
For all property casualty lines of business in aggregate, net loss and loss expense reserves at March 31, 2022, were $66 million, or 1%, higher than at year-end 2021, including an increase of $69 million for the incurred but not reported (IBNR) portion.
We measure and analyze property casualty underwriting results primarily by the combined ratio and its component ratios. The GAAP-basis combined ratio is the percentage of incurred losses plus all expenses per each earned premium dollar – the lower the ratio, the better the performance. An underwriting profit results when the combined ratio is below 100%. A combined ratio above 100% indicates that an insurance company's losses and expenses exceeded premiums.
Our consolidated property casualty combined ratio for the first quarter of 2022 improved by 1.3 percentage points, compared with the same period of 2021, including a decrease of 8.6 points from lower catastrophe losses and loss expenses. Other combined ratio components that increased are discussed below and in further detail in Financial Results by property casualty insurance segment.
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The combined ratio can be affected significantly by natural catastrophe losses and other large losses as discussed in detail below. The combined ratio can also be affected by updated estimates of loss and loss expense reserves established for claims that occurred in prior periods, referred to as prior accident years. Net favorable development on prior accident year reserves, including reserves for catastrophe losses, benefited the combined ratio by 2.5 percentage points in the first three months of 2022, compared with 7.4 percentage points in the same period of 2021. Net favorable development is discussed in further detail in Financial Results by property casualty insurance segment.
The ratio for current accident year loss and loss expenses before catastrophe losses increased in the first three months of 2022. That 58.5% ratio was 0.9 percentage points higher, compared with the 57.6% accident year 2021 ratio measured as of March 31, 2021, including an increase of 4.0 points in the ratio for large losses of $1 million or more per claim, discussed below.
The underwriting expense ratio increased for the first quarter of 2022, compared with the same period a year ago, primarily due to an increase in profit-sharing commissions for agencies and related expenses. The ratio also included ongoing expense management efforts and higher earned premiums.
Consolidated Property Casualty Insurance Premiums
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(Dollars in millions) | | | | Three months ended March 31, |
| | | | | | | | 2022 | | 2021 | | % Change |
Agency renewal written premiums | | | | | | | | $ | 1,397 | | | $ | 1,276 | | | 9 | |
Agency new business written premiums | | | | | | | | 244 | | | 220 | | | 11 | |
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Other written premiums | | | | | | | | 258 | | | 197 | | | 31 | |
Net written premiums | | | | | | | | 1,899 | | | 1,693 | | | 12 | |
Unearned premium change | | | | | | | | (281) | | | (218) | | | (29) | |
Earned premiums | | | | | | | | $ | 1,618 | | | $ | 1,475 | | | 10 | |
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The trends in net written premiums and earned premiums summarized in the table above include the effects of price increases. Price change trends that heavily influence renewal written premium increases or decreases, along with other premium growth drivers for 2022, are discussed in more detail by segment below in Financial Results.
Consolidated property casualty net written premiums for the three months ended March 31, 2022, grew $206 million compared with the same period of 2021. Our premium growth initiatives from prior years have provided an ongoing favorable effect on growth during the current year, particularly as newer agency relationships mature over time.
Consolidated property casualty agency new business written premiums increased by $24 million for the first quarter of 2022, compared with the same period of 2021. New agency appointments during 2022 and 2021 produced a $13 million increase in standard lines new business for the first three months of 2022 compared with the same period of 2021. As we appoint new agencies that choose to move accounts to us, we report these accounts as new business. While this business is new to us, in many cases it is not new to the agent. We believe these seasoned accounts tend to be priced more accurately than business that may be less familiar to our agent upon obtaining it from a competing agent.
Net written premiums for Cincinnati Re, included in other written premiums, increased by $58 million for the three months ended March 31, 2022, compared with the same period of 2021, to $254 million. Cincinnati Re assumes risks through reinsurance treaties and in some cases cedes part of the risk and related premiums to one or more unaffiliated reinsurance companies through transactions known as retrocessions.
Cincinnati Global is also included in other written premiums. Net written premiums increased, by $10 million for the three months ended March 31, 2022, compared with the same period of 2021, to $51 million.
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Other written premiums also include premiums ceded to reinsurers as part of our reinsurance ceded program. An increase in ceded premiums decreased net written premiums by $7 million for the first three months of 2022, compared with the same period of 2021.
Catastrophe losses and loss expenses typically have a material effect on property casualty results and can vary significantly from period to period. Losses from catastrophes contributed 1.8 percentage points to the combined ratio in the first three months of 2022, compared with 10.4 percentage points in the same period of 2021.
The reinsurance program for Cincinnati Re which went into effect on June 1, 2021, provided no additional recoveries during the first three months of 2022. As of March 31, 2022, it provided an estimated recovery of $14 million from Hurricane Ida, with a net incurred loss of $80 million for Cincinnati Re, excluding the benefit of reinstatement premiums estimated at approximately $11 million. Before any recoveries, the program included property catastrophe excess of loss coverage with an annual total available aggregate limit of $48 million in excess of $80 million per loss.
The following table shows consolidated property casualty insurance catastrophe losses and loss expenses incurred, net of reinsurance, as well as the effect of loss development on prior period catastrophe events. We individually list declared catastrophe events for which our incurred losses reached or exceeded $10 million.
Consolidated Property Casualty Insurance Catastrophe Losses and Loss Expenses Incurred
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(Dollars in millions, net of reinsurance) | | | Three months ended March 31, | | | |
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Dates | | Region | | | | | | | | | | | lines | | lines | | lines | | Other | | Total | | | |
2022 | | | | | | | | | | | | | | | | | | | | | | | | |
Jan. 15-17 | | Northeast, South | | | | | | | | | | | $ | 4 | | | $ | 6 | | | $ | 1 | | | $ | — | | | $ | 11 | | | | |
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All other 2022 catastrophes | | | | | | | | | | | 12 | | | 22 | | | — | | | 5 | | | 39 | | | | |
Development on 2021 and prior catastrophes | | | | | | | | | | | (3) | | | (21) | | | — | | | 3 | | | (21) | | | | |
Calendar year incurred total | | | | | | | | | | | $ | 13 | | | $ | 7 | | | $ | 1 | | | $ | 8 | | | $ | 29 | | | | |
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2021 | | | | | | | | | | | | | | | | | | | | | | | | |
Feb. 12-15 | | South, West | | | | | | | | | | | $ | 10 | | | $ | 6 | | | $ | — | | | $ | 49 | | | $ | 65 | | | | |
Feb. 16-20 | | Midwest, Northeast, South | | | | | | | | | | | 22 | | | 37 | | | 1 | | | 1 | | | 61 | | | | |
Mar. 24-26 | | Midwest, Northeast, South | | | | | | | | | | | 8 | | | 19 | | | — | | | — | | | 27 | | | | |
Mar. 27-29 | | Midwest, Northeast, South | | | | | | | | | | | 4 | | | 8 | | | — | | | — | | | 12 | | | | |
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All other 2021 catastrophes | | | | | | | | | | | 10 | | | 8 | | | — | | | — | | | 18 | | | | |
Development on 2020 and prior catastrophes | | | | | | | | | | | (17) | | | (3) | | | — | | | (10) | | | (30) | | | | |
Calendar year incurred total | | | | | | | | | | | $ | 37 | | | $ | 75 | | | $ | 1 | | | $ | 40 | | | $ | 153 | | | | |
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The following table includes data for losses incurred of $1 million or more per claim, net of reinsurance.
Consolidated Property Casualty Insurance Losses Incurred by Size
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(Dollars in millions, net of reinsurance) | | | | Three months ended March 31, |
| | | | | | | | 2022 | | 2021 | | % Change |
Current accident year losses greater than $5 million | | | | | | | | $ | 23 | | | $ | 5 | | | 360 | |
Current accident year losses $1 million - $5 million | | | | | | | | 82 | | | 31 | | | 165 | |
Large loss prior accident year reserve development | | | | | | | | 25 | | | 24 | | | 4 | |
Total large losses incurred | | | | | | | | 130 | | | 60 | | | 117 | |
Losses incurred but not reported | | | | | | | | 36 | | | 102 | | | (65) | |
Other losses excluding catastrophe losses | | | | | | | | 592 | | | 451 | | | 31 | |
Catastrophe losses | | | | | | | | 24 | | | 150 | | | (84) | |
Total losses incurred | | | | | | | | $ | 782 | | | $ | 763 | | | 2 | |
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Ratios as a percent of earned premiums: | | | | | | | | | | | | Pt. Change |
Current accident year losses greater than $5 million | | | | | | | | 1.4 | % | | 0.3 | % | | 1.1 | |
Current accident year losses $1 million - $5 million | | | | | | | | 5.1 | | | 2.2 | | | 2.9 | |
Large loss prior accident year reserve development | | | | | | | | 1.5 | | | 1.6 | | | (0.1) | |
Total large loss ratio | | | | | | | | 8.0 | | | 4.1 | | | 3.9 | |
Losses incurred but not reported | | | | | | | | 2.2 | | | 6.9 | | | (4.7) | |
Other losses excluding catastrophe losses | | | | | | | | 36.6 | | | 30.5 | | | 6.1 | |
Catastrophe losses | | | | | | | | 1.5 | | | 10.2 | | | (8.7) | |
Total loss ratio | | | | | | | | 48.3 | % | | 51.7 | % | | (3.4) | |
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We believe the inherent variability of aggregate loss experience for our portfolio of larger policies is greater than that of our portfolio of smaller policies, and we continue to monitor the variability in addition to general inflationary trends in loss costs. Our analysis continues to indicate no unexpected concentration of large losses and case reserve increases by risk category, geographic region, policy inception, agency or field marketing territory. The first-quarter 2022 property casualty total large losses incurred of $130 million, net of reinsurance, were higher than the $116 million quarterly average during full-year 2021 and the $60 million experienced for the first quarter of 2021. The ratio for these large losses was 3.9 percentage points higher compared with last year's first quarter. We believe results for the three-month period largely reflected normal fluctuations in loss patterns and normal variability in large case reserves for claims above $1 million. Losses by size are discussed in further detail in results of operations by property casualty insurance segment.
FINANCIAL RESULTS
Consolidated results reflect the operating results of each of our five segments along with the parent company, Cincinnati Re, Cincinnati Global and other activities reported as "Other." The five segments are:
•Commercial lines insurance
•Personal lines insurance
•Excess and surplus lines insurance
•Life insurance
•Investments
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COMMERCIAL LINES INSURANCE RESULTS
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(Dollars in millions) | | | | Three months ended March 31, |
| | | | | | | | 2022 | | 2021 | | % Change |
Earned premiums | | | | | | | | $ | 962 | | | $ | 886 | | | 9 | |
Fee revenues | | | | | | | | 1 | | | 1 | | | 0 | |
Total revenues | | | | | | | | 963 | | | 887 | | | 9 | |
Loss and loss expenses from: | | | | | | | | | | | | |
Current accident year before catastrophe losses | | | | | | | | 588 | | | 532 | | | 11 | |
Current accident year catastrophe losses | | | | | | | | 16 | | | 54 | | | (70) | |
Prior accident years before catastrophe losses | | | | | | | | (15) | | | (66) | | | 77 | |
Prior accident years catastrophe losses | | | | | | | | (3) | | | (17) | | | 82 | |
Loss and loss expenses | | | | | | | | 586 | | | 503 | | | 17 | |
Underwriting expenses | | | | | | | | 301 | | | 254 | | | 19 | |
Underwriting profit | | | | | | | | $ | 76 | | | $ | 130 | | | (42) | |
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Ratios as a percent of earned premiums: | | | | | | | | | | | | Pt. Change |
Current accident year before catastrophe losses | | | | | | | | 61.2 | % | | 60.0 | % | | 1.2 | |
Current accident year catastrophe losses | | | | | | | | 1.7 | | | 6.1 | | | (4.4) | |
Prior accident years before catastrophe losses | | | | | | | | (1.6) | | | (7.5) | | | 5.9 | |
Prior accident years catastrophe losses | | | | | | | | (0.3) | | | (1.9) | | | 1.6 | |
Loss and loss expenses | | | | | | | | 61.0 | | | 56.7 | | | 4.3 | |
Underwriting expenses | | | | | | | | 31.3 | | | 28.7 | | | 2.6 | |
Combined ratio | | | | | | | | 92.3 | % | | 85.4 | % | | 6.9 | |
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Combined ratio | | | | | | | | 92.3 | % | | 85.4 | % | | 6.9 | |
Contribution from catastrophe losses and prior years reserve development | | | | | | | | (0.2) | | | (3.3) | | | 3.1 | |
Combined ratio before catastrophe losses and prior years reserve development | | | | | | | | 92.5 | % | | 88.7 | % | | 3.8 | |
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Overview
Performance highlights for the commercial lines segment include:
•Premiums – Earned premiums and net written premiums for the commercial lines segment grew during the first three months of 2022, compared with the same period a year ago, primarily due to renewal written premium growth that continued to include higher average pricing. The table below analyzes the primary components of premiums. We continue to use predictive analytics tools to improve pricing precision and segmentation while leveraging our local relationships with agents through the efforts of our teams that work closely with them. We seek to maintain appropriate pricing discipline for both new and renewal business as our agents and underwriters assess account quality to make careful decisions on a policy-by-policy basis whether to write or renew a policy.
Agency renewal written premiums increased by 8% for the first quarter of 2022, compared with the same period of 2021. During the first quarter of 2022, our overall standard commercial lines policies averaged estimated renewal price increases at percentages in the mid-single-digit range. We continue to segment commercial lines policies, emphasizing identification and retention of those we believe have relatively stronger pricing. Conversely, we have been seeking stricter renewal terms and conditions on policies we believe have relatively weaker pricing, thus retaining fewer of those policies. We measure average changes in commercial lines renewal pricing as the percentage 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 the respective policies.
Our average overall commercial lines renewal pricing change includes the impact of flat pricing for certain coverages within package policies written for a three-year term that were in force but did not expire during
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the period being measured. Therefore, our reported change in average commercial lines renewal pricing reflects a blend of three-year policies that did not expire and other policies that did expire during the measurement period. For commercial lines policies that did expire and were then renewed during the first quarter of 2022, we estimate that our average percentage price increases were as follows: commercial property in the mid-single-digit range, commercial auto in the mid-single-digit range and commercial casualty in the mid-single-digit range. The estimated average percentage price change for workers' compensation was a decrease near the high end of the low-single-digit range.
Renewal premiums for certain policies, primarily our commercial casualty and workers' compensation lines of business, include the results of policy audits that adjust initial premium amounts based on differences between estimated and actual sales or payroll related to a specific policy. Audits completed during the first three months of 2022 contributed $21 million to net written premiums, compared with $11 million for the same period of 2021.
New business written premiums for commercial lines increased $11 million during the first three months of 2022, compared with the same period of 2021. Trend analysis for year-over-year comparisons of individual quarters is more difficult to assess for commercial lines new business written premiums, due to inherent variability. That variability is often driven by larger policies with annual premiums greater than $100,000.
Other written premiums include premiums ceded to reinsurers as part of our reinsurance ceded program. For our commercial lines insurance segment, an increase in ceded premiums decreased net written premiums by $7 million for the first three months of 2022, compared with the same period of 2021.
Commercial Lines Insurance Premiums
| | | | | | | | | | | | | | | | | | | | | | | | | | |
(Dollars in millions) | | | | Three months ended March 31, |
| | | | | | | | 2022 | | 2021 | | % Change |
Agency renewal written premiums | | | | | | | | $ | 970 | | | $ | 898 | | | 8 | |
Agency new business written premiums | | | | | | | | 156 | | | 145 | | | 8 | |
Other written premiums | | | | | | | | (30) | | | (24) | | | (25) | |
Net written premiums | | | | | | | | 1,096 | | | 1,019 | | | 8 | |
Unearned premium change | | | | | | | | (134) | | | (133) | | | (1) | |
Earned premiums | | | | | | | | $ | 962 | | | $ | 886 | | | 9 | |
| | | | | | | | | | | | |
•Combined ratio – The commercial lines combined ratio for the first quarter of 2022 increased by 6.9 percentage points, compared with first-quarter 2021, including a decrease of 2.8 points in losses from catastrophes. Underwriting results also included a higher ratio for loss experience for the current accident year and a lower level of favorable reserve development on prior accident years.
The ratio for current accident year loss and loss expenses before catastrophe losses for commercial lines increased in the first three months of 2022. That 61.2% ratio was 1.2 percentage points higher, compared with the 60.0% accident year 2021 ratio measured as of March 31, 2021, including an increase of 5.1 percentage points in the ratio for large losses of $1 million or more per claim, discussed below.
Catastrophe losses and loss expenses accounted for 1.4 percentage points of the combined ratio for the first three months of 2022, compared with 4.2 percentage points for the same period a year ago. Through 2021, the 10-year annual average for that catastrophe measure for the commercial lines segment was 5.5 percentage points, and the five-year annual average was 5.8 percentage points.
The net effect of reserve development on prior accident years during the first three months of 2022 was favorable for commercial lines overall by $18 million, compared with $83 million for the same period in 2021. For the first three months of 2022, our workers' compensation and commercial auto lines of business were the main contributors to the commercial lines net favorable reserve development on prior accident years. The net favorable reserve development recognized during the first three months of 2022 for our commercial lines insurance segment was primarily for accident years 2020 and 2021 and was primarily due to lower-than-anticipated loss emergence on known claims. Reserve estimates are inherently uncertain as described in our 2021 Annual Report on Form 10-K, Item 7, Critical Accounting Estimates, Property Casualty Insurance Loss and Loss Expense Reserves, Page 52.
The commercial lines underwriting expense ratio increased for the first quarter of 2022, compared with the same period a year ago, primarily due to an increase in profit-sharing commissions for agencies and related expenses. The ratio also included ongoing expense management efforts and higher earned premiums.
Cincinnati Financial Corporation First-Quarter 2022 10-Q
Page 38
Commercial Lines Insurance Losses Incurred by Size
| | | | | | | | | | | | | | | | | | | | | | | | | | |
(Dollars in millions, net of reinsurance) | | | | Three months ended March 31, |
| | | | | | | | 2022 | | 2021 | | % Change |
Current accident year losses greater than $5 million | | | | | | | | $ | 16 | | | $ | 5 | | | 220 | |
Current accident year losses $1 million - $5 million | | | | | | | | 67 | | | 26 | | | 158 | |
Large loss prior accident year reserve development | | | | | | | | 21 | | | 26 | | | (19) | |
Total large losses incurred | | | | | | | | 104 | | | 57 | | | 82 | |
Losses incurred but not reported | | | | | | | | 38 | | | 39 | | | (3) | |
Other losses excluding catastrophe losses | | | | | | | | 318 | | | 261 | | | 22 | |
Catastrophe losses | | | | | | | | 11 | | | 35 | | | (69) | |
Total losses incurred | | | | | | | | $ | 471 | | | $ | 392 | | | 20 | |
| | | | | | | | | | | | |
Ratios as a percent of earned premiums: | | | | | | | | | | | | Pt. Change |
Current accident year losses greater than $5 million | | | | | | | | 1.7 | % | | 0.6 | % | | 1.1 | |
Current accident year losses $1 million - $5 million | | | | | | | | 6.9 | | | 2.9 | | | 4.0 | |
Large loss prior accident year reserve development | | | | | | | | 2.1 | | | 3.0 | | | (0.9) | |
Total large loss ratio | | | | | | | | 10.7 | | | 6.5 | | | 4.2 | |
Losses incurred but not reported | | | | | | | | 4.0 | | | 4.3 | | | (0.3) | |
Other losses excluding catastrophe losses | | | | | | | | 33.0 | | | 29.4 | | | 3.6 | |
Catastrophe losses | | | | | | | | 1.2 | | | 4.0 | | | (2.8) | |
Total loss ratio | | | | | | | | 48.9 | % | | 44.2 | % | | 4.7 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
We continue to monitor new losses and case reserve increases greater than $1 million for trends in factors such as initial reserve levels, loss cost inflation and claim settlement expenses. Our analysis continues to indicate no unexpected concentration of these large losses and case reserve increases by risk category, geographic region, policy inception, agency or field marketing territory. The first-quarter 2022 commercial lines total large losses incurred of $104 million, net of reinsurance, were higher than the quarterly average of $95 million during full-year 2021 and the $57 million of total large losses incurred for the first quarter of 2021. The increase in commercial lines large losses for the first three months of 2022 was primarily due to our commercial property line of business. The first-quarter 2022 ratio for commercial lines total large losses was 4.2 percentage points higher than last year's first-quarter ratio. We believe results for the three-month period largely reflected normal fluctuations in loss patterns and normal variability in large case reserves for claims above $1 million.
Cincinnati Financial Corporation First-Quarter 2022 10-Q
Page 39
PERSONAL LINES INSURANCE RESULTS
| | | | | | | | | | | | | | | | | | | | | | | | | | |
(Dollars in millions) | | | | Three months ended March 31, |
| | | | | | | | 2022 | | 2021 | | % Change |
Earned premiums | | | | | | | | $ | 402 | | | $ | 376 | | | 7 | |
Fee revenues | | | | | | | | 1 | | | 1 | | | 0 | |
Total revenues | | | | | | | | 403 | | | 377 | | | 7 | |
Loss and loss expenses from: | | | | | | | | | | | | |
Current accident year before catastrophe losses | | | | | | | | 221 | | | 215 | | | 3 | |
Current accident year catastrophe losses | | | | | | | | 28 | | | 78 | | | (64) | |
Prior accident years before catastrophe losses | | | | | | | | (13) | | | (17) | | | 24 | |
Prior accident years catastrophe losses | | | | | | | | (21) | | | (3) | | | (600) | |
Loss and loss expenses | | | | | | | | 215 | | | 273 | | | (21) | |
Underwriting expenses | | | | | | | | 123 | | | 107 | | | 15 | |
Underwriting profit (loss) | | | | | | | | $ | 65 | | | $ | (3) | | | nm |
| | | | | | | | | | | | |
Ratios as a percent of earned premiums: | | | | | | | | | | | | Pt. Change |
Current accident year before catastrophe losses | | | | | | | | 55.0 | % | | 57.3 | % | | (2.3) | |
Current accident year catastrophe losses | | | | | | | | 6.9 | | | 20.6 | | | (13.7) | |
Prior accident years before catastrophe losses | | | | | | | | (3.2) | | | (4.5) | | | 1.3 | |
Prior accident years catastrophe losses | | | | | | | | (5.2) | | | (0.8) | | | (4.4) | |
Loss and loss expenses | | | | | | | | 53.5 | | | 72.6 | | | (19.1) | |
Underwriting expenses | | | | | | | | 30.4 | | | 28.5 | | | 1.9 | |
Combined ratio | | | | | | | | 83.9 | % | | 101.1 | % | | (17.2) | |
| | | | | | | | | | | | |
Combined ratio | | | | | | | | 83.9 | % | | 101.1 | % | | (17.2) | |
Contribution from catastrophe losses and prior years reserve development | | | | | | | | (1.5) | | | 15.3 | | | (16.8) | |
Combined ratio before catastrophe losses and prior years reserve development | | | | | | | | 85.4 | % | | 85.8 | % | | (0.4) | |
| | | | | | | | | | | | |
Overview
Performance highlights for the personal lines segment include:
•Premiums – Personal lines earned premiums and net written premiums continued to grow during the first three months of 2022, including increased new business and renewal written premiums that included higher average pricing. Personal lines net written premiums from high net worth policies totaled approximately $176 million for the first three months of 2022, compared with $133 million for the same period of 2021. The table below analyzes the primary components of premiums.
Agency renewal written premiums increased 10% for the first three months of 2022, reflecting rate increases in selected states and other factors such as changes in policy deductibles or mix of business. We estimate that premium rates for our personal auto line of business increased at average percentages in the low-single-digit range during the first three months of 2022. For our homeowner line of business, we estimate that premium rates for the first three months of 2022 increased at average percentages in the mid-single-digit range. For both our personal auto and homeowner lines of business, some individual policies experienced lower or higher rate changes based on each risk's specific characteristics and enhanced pricing precision enabled by predictive models.
Personal lines new business written premiums increased 13% for the first three months of 2022, compared with the same period of 2021. We believe underwriting and pricing discipline was maintained in recent quarters, and growth was supported by expanded use of enhanced pricing precision tools, including excess and surplus lines homeowner policies.
Other written premiums include premiums ceded to reinsurers as part of our reinsurance ceded program. For our personal lines insurance segment, an increase in ceded premiums decreased net written premiums by less than $1 million for the first three months of 2022, compared with the same period of 2021.
Cincinnati Financial Corporation First-Quarter 2022 10-Q
Page 40
We continue working to enhance our responsiveness to marketplace changes and to help achieve our long-term objectives for personal lines growth and profitability.
Personal Lines Insurance Premiums
| | | | | | | | | | | | | | | | | | | | | | | | | | |
(Dollars in millions) | | | | Three months ended March 31, |
| | | | | | | | 2022 | | 2021 | | % Change |
Agency renewal written premiums | | | | | | | | $ | 333 | | | $ | 302 | | | 10 | |
Agency new business written premiums | | | | | | | | 52 | | | 46 | | | 13 | |
Other written premiums | | | | | | | | (11) | | | (10) | | | (10) | |
Net written premiums | | | | | | | | 374 | | | 338 | | | 11 | |
Unearned premium change | | | | | | | | 28 | | | 38 | | | (26) | |
Earned premiums | | | | | | | | $ | 402 | | | $ | 376 | | | 7 | |
| | | | | | | | | | | | |
•Combined ratio – Our personal lines combined ratio for the first quarter of 2022 improved by 17.2 percentage points, compared with first-quarter 2021, including a lower ratio for current accident year loss and loss expenses before catastrophe losses and a decrease of 18.1 points in losses from catastrophes.
The ratio for current accident year loss and loss expenses before catastrophe losses for personal lines improved in the first three months of 2022. That 55.0% ratio was 2.3 percentage points lower, compared with the 57.3% accident year 2021 ratio measured as of March 31, 2021, including an increase of 3.2 percentage points in the ratio for large losses of $1 million or more per claim, discussed below.
Catastrophe losses and loss expenses accounted for 1.7 percentage points of the combined ratio for the first three months of 2022, compared with 19.8 percentage points for the same period a year ago. The 10-year annual average catastrophe loss ratio for the personal lines segment through 2021 was 10.8 percentage points, and the five-year annual average was 12.0 percentage points.
In addition to the average rate increases discussed above, we continue to refine our pricing to better match premiums to the risk of loss on individual policies. Improved pricing precision and broad-based rate increases are expected to help position the combined ratio at a profitable level over the long term. In addition, greater geographic diversification is expected to reduce the volatility of homeowner loss ratios attributable to weather-related catastrophe losses over time.
The net effect of reserve development on prior accident years during the first quarter of 2022 was favorable for personal lines overall by $34 million, compared with $20 million of favorable development for the first three months of 2021. Our homeowner line of business was the primary contributor to the personal lines net favorable reserve development for the first three months of 2022. The net favorable reserve development was primarily due to lower-than-anticipated loss emergence on known claims. Reserve estimates are inherently uncertain as described in our 2021 Annual Report on Form 10-K, Item 7, Critical Accounting Estimates, Property Casualty Insurance Loss and Loss Expense Reserves, Page 52.
The personal lines underwriting expense ratio increased for the first quarter of 2022, compared with the same period a year ago, primarily due to an increase in profit-sharing commissions for agencies and related expenses. The ratio also included ongoing expense management efforts and higher earned premiums.
Cincinnati Financial Corporation First-Quarter 2022 10-Q
Page 41
Personal Lines Insurance Losses Incurred by Size
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(Dollars in millions, net of reinsurance) | | | | Three months ended March 31, |
| | | | | | | | 2022 | | 2021 | | % Change |
Current accident year losses greater than $5 million | | | | | | | | $ | 7 | | | $ | — | | | nm |
Current accident year losses $1 million - $5 million | | | | | | | | 11 | | | 4 | | | 175 | |
Large loss prior accident year reserve development | | | | | | | | 4 | | | (1) | | | nm |
Total large losses incurred | | | | | | | | 22 | | | 3 | | | nm |
Losses incurred but not reported | | | | | | | | (14) | | | 41 | | | nm |
Other losses excluding catastrophe losses | | | | | | | | 165 | | | 130 | | | 27 | |
Catastrophe losses | | | | | | | | 6 | | | 74 | | | (92) | |
Total losses incurred | | | | | | | | $ | 179 | | | $ | 248 | | | (28) | |
| | | | | | | | | | | | |
Ratios as a percent of earned premiums: | | | | | | | | | | | | Pt. Change |
Current accident year losses greater than $5 million | | | | | | | | 1.7 | % | | — | % | | 1.7 | |
Current accident year losses $1 million - $5 million | | | | | | | | 2.7 | | | 1.2 | | | 1.5 | |
Large loss prior accident year reserve development | | | | | | | | 1.1 | | | (0.3) | | | 1.4 | |
Total large loss ratio | | | | | | | | 5.5 | | | 0.9 | | | 4.6 | |
Losses incurred but not reported | | | | | | | | (3.6) | | | 11.0 | | | (14.6) | |
Other losses excluding catastrophe losses | | | | | | | | 41.2 | | | 34.4 | | | 6.8 | |
Catastrophe losses | | | | | | | | 1.4 | | | 19.6 | | | (18.2) | |
Total loss ratio | | | | | | | | 44.5 | % | | 65.9 | % | | (21.4) | |
| | | | | | | | | | | | |
We continue to monitor new losses and case reserve increases greater than $1 million for trends in factors such as initial reserve levels, loss cost inflation and claim settlement expenses. Our analysis continues to indicate no unexpected concentration of these large losses and case reserve increases by risk category, geographic region, policy inception, agency or field marketing territory. In the first quarter of 2022, the personal lines total large loss ratio, net of reinsurance, was 4.6 percentage points higher than last year's first quarter. The increase in personal lines large losses for the first three months of 2022 occurred primarily for our homeowner line of business. We believe results for the three-month period largely reflected normal fluctuations in loss patterns and normal variability in large case reserves for claims above $1 million.
Cincinnati Financial Corporation First-Quarter 2022 10-Q
Page 42
EXCESS AND SURPLUS LINES INSURANCE RESULTS
| | | | | | | | | | | | | | | | | | | | | | | | | | |
(Dollars in millions) | | | | Three months ended March 31, |
| | | | | | | | 2022 | | 2021 | | % Change |
Earned premiums | | | | | | | | $ | 112 | | | $ | 89 | | | 26 | |
Fee revenues | | | | | | | | 1 | | | — | | | nm |
Total revenues | | | | | | | | 113 | | | 89 | | | 27 | |
| | | | | | | | | | | | |
Loss and loss expenses from: | | | | | | | | | | | | |
Current accident year before catastrophe losses | | | | | | | | 70 | | | 54 | | | 30 | |
Current accident year catastrophe losses | | | | | | | | 1 | | | 1 | | | 0 | |
Prior accident years before catastrophe losses | | | | | | | | (5) | | | 4 | | | nm |
Prior accident years catastrophe losses | | | | | | | | — | | | — | | | 0 | |
Loss and loss expenses | | | | | | | | 66 | | | 59 | | | 12 | |
Underwriting expenses | | | | | | | | 31 | | | 22 | | | 41 | |
Underwriting profit | | | | | | | | $ | 16 | | | $ | 8 | | | 100 | |
| | | | | | | | | | | | |
Ratios as a percent of earned premiums: | | | | | | | | | | | | Pt. Change |
Current accident year before catastrophe losses | | | | | | | | 61.8 | % | | 61.0 | % | | 0.8 | |
Current accident year catastrophe losses | | | | | | | | 1.5 | | | 1.3 | | | 0.2 | |
Prior accident years before catastrophe losses | | | | | | | | (4.6) | | | 4.7 | | | (9.3) | |
Prior accident years catastrophe losses | | | | | | | | (0.4) | | | (0.3) | | | (0.1) | |
Loss and loss expenses | | | | | | | | 58.3 | | | 66.7 | | | (8.4) | |
Underwriting expenses | | | | | | | | 27.6 | | | 25.3 | | | 2.3 | |
Combined ratio | | | | | | | | 85.9 | % | | 92.0 | % | | (6.1) | |
| | | | | | | | | | | | |
Combined ratio | | | | | | | | 85.9 | % | | 92.0 | % | | (6.1) | |
Contribution from catastrophe losses and prior years reserve development | | | | | | | | (3.5) | | | 5.7 | | | (9.2) | |
Combined ratio before catastrophe losses and prior years reserve development | | | | | | | | 89.4 | % | | 86.3 | % | | 3.1 | |
| | | | | | | | | | | | |
Overview
Performance highlights for the excess and surplus lines segment include:
•Premiums – Excess and surplus lines net written premiums continued to grow during the first three months of 2022, compared with the same period a year ago, primarily due to an increase in agency renewal written premiums. Renewal written premiums rose 24% for the three months ended March 31, 2022, compared with the same period of 2021, reflecting the opportunity to renew many accounts for the first time, as well as higher renewal pricing. For the first three months of 2022, excess and surplus lines policy renewals experienced estimated average price increases at percentages in the high-single-digit range. We measure average changes in excess and surplus lines renewal pricing as the percentage 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 produced by agencies increased by 24% for the first quarter of 2022 compared with the same period of 2021, as we continued to carefully underwrite each policy in a highly competitive market. 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.
Cincinnati Financial Corporation First-Quarter 2022 10-Q
Page 43
Excess and Surplus Lines Insurance Premiums
| | | | | | | | | | | | | | | | | | | | | | | | | | |
(Dollars in millions) | | | | Three months ended March 31, |
| | | | | | | | 2022 | | 2021 | | % Change |
Agency renewal written premiums | | | | | | | | $ | 94 | | | $ | 76 | | | 24 | |
Agency new business written premiums | | | | | | | | 36 | | | 29 | | | 24 | |
Other written premiums | | | | | | | | (6) | | | (6) | | | 0 | |
Net written premiums | | | | | | | | 124 | | | 99 | | | 25 | |
Unearned premium change | | | | | | | | (12) | | | (10) | | | (20) | |
Earned premiums | | | | | | | | $ | 112 | | | $ | 89 | | | 26 | |
| | | | | | | | | | | | |
•Combined ratio – The excess and surplus lines combined ratio improved by 6.1 percentage points for the first quarter of 2022, compared with the same period of 2021, primarily due to favorable reserve development on prior accident years. The IBNR portion of the total loss and loss expense ratio before catastrophe losses was 20.8 percentage points lower for the first three months of 2022, compared with the same period a year ago, while the paid portion was 10.0 points lower and the case incurred portion was 12.3 points higher.
The ratio for current accident year loss and loss expenses before catastrophe losses for excess and surplus lines increased in the first three months of 2022. That 61.8% ratio was 0.8 percentage points higher, compared with the 61.0% accident year 2021 ratio measured as of March 31, 2021, including an increase of 2.4 percentage points in the ratio for large losses of $1 million or more per claim, discussed below.
Excess and surplus lines net reserve development on prior accident years, as a ratio to earned premiums, was a favorable 5.0% for the first three months of 2022, compared with unfavorable net reserve development of 4.4% for the first three months of 2021. The $5 million of net favorable reserve development recognized during the first three months of 2022 was primarily for accident years prior to 2021. The favorable reserve development was due primarily to lower-than-anticipated loss emergence on known claims. Reserve estimates are inherently uncertain as described in our 2021 Annual Report on Form 10-K, Item 7, Critical Accounting Estimates, Property Casualty Insurance Loss and Loss Expense Reserves, Page 52.
The excess and surplus lines underwriting expense ratio increased for the first three months of 2022, compared with the same period of 2021, primarily due to an increase in commissions for agencies and related expenses. The ratio also included ongoing expense management efforts and higher earned premiums.
Cincinnati Financial Corporation First-Quarter 2022 10-Q
Page 44
Excess and Surplus Lines Insurance Losses Incurred by Size
| | | | | | | | | | | | | | | | | | | | | | | | | | |
(Dollars in millions, net of reinsurance) | | | | Three months ended March 31, |
| | | | | | | | 2022 | | 2021 | | % Change |
Current accident year losses greater than $5 million | | | | | | | | $ | — | | | $ | — | | | 0 | |
Current accident year losses $1 million - $5 million | | | | | | | | 4 | | | 1 | | | 300 | |
Large loss prior accident year reserve development | | | | | | | | — | | | (1) | | | 100 | |
Total large losses incurred | | | | | | | | 4 | | | — | | | nm |
Losses incurred but not reported | | | | | | | | 12 | | | 22 | | | (45) | |
Other losses excluding catastrophe losses | | | | | | | | 32 | | | 15 | | | 113 | |
Catastrophe losses | | | | | | | | 1 | | | 1 | | | 0 | |
Total losses incurred | | | | | | | | $ | 49 | | | $ | 38 | | | 29 | |
| | | | | | | | | | | | |
Ratios as a percent of earned premiums: | | | | | | | | | | | | Pt. Change |
Current accident year losses greater than $5 million | | | | | | | | — | % | | — | % | | 0.0 | |
Current accident year losses $1 million - $5 million | | | | | | | | 3.6 | | | 1.2 | | | 2.4 | |
Large loss prior accident year reserve development | | | | | | | | 0.3 | | | (1.7) | | | 2.0 | |
Total large loss ratio | | | | | | | | 3.9 | | | (0.5) | | | 4.4 | |
Losses incurred but not reported | | | | | | | | 10.6 | | | 24.8 | | | (14.2) | |
Other losses excluding catastrophe losses | | | | | | | | 27.4 | | | 17.8 | | | 9.6 | |
Catastrophe losses | | | | | | | | 1.1 | | | 1.0 | | | 0.1 | |
Total loss ratio | | | | | | | | 43.0 | % | | 43.1 | % | | (0.1) | |
| | | | | | | | | | | | |
We continue to monitor new losses and case reserve increases greater than $1 million for trends in factors such as initial reserve levels, loss cost inflation and claim settlement expenses. Our analysis continues to indicate no unexpected concentration of these large losses and case reserve increases by risk category, geographic region, policy inception, agency or field marketing territory. In the first quarter of 2022, the excess and surplus lines total ratio for large losses, net of reinsurance, was 4.4 percentage points higher than last year's first quarter. We believe results for the three-month period largely reflected normal fluctuations in loss patterns and normal variability in large case reserves for claims above $1 million.
Cincinnati Financial Corporation First-Quarter 2022 10-Q
Page 45
LIFE INSURANCE RESULTS
| | | | | | | | | | | | | | | | | | | | | | | | | | |
(Dollars in millions) | | | | Three months ended March 31, |
| | | | | | | | 2022 | | 2021 | | % Change |
Earned premiums | | | | | | | | $ | 72 | | | $ | 69 | | | 4 | |
Fee revenues | | | | | | | | 1 | | | 1 | | | 0 | |
Total revenues | | | | | | | | 73 | | | 70 | | | 4 | |
Contract holders' benefits incurred | | | | | | | | 83 | | | 80 | | | 4 | |
Investment interest credited to contract holders | | | | | | | | (27) | | | (26) | | | (4) | |
Underwriting expenses incurred | | | | | | | | 19 | | | 18 | | | 6 | |
Total benefits and expenses | | | | | | | | 75 | | | 72 | | | 4 | |
Life insurance segment loss | | | | | | | | $ | (2) | | | $ | (2) | | | 0 | |
| | | | | | | | | | | | |
Overview
The COVID-19 pandemic did not have a significant effect on our life insurance segment earned premiums or expenses for the first three months of 2022. However, the pandemic did contribute to a moderate increase in death claims in that time period. 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 include:
•Revenues – Revenues increased for the three months ended March 31, 2022, compared with the same period a year ago, driven by higher earned premiums from term life insurance, our largest life insurance product line.
Net in-force life insurance policy face amounts increased 1% to $78.372 billion at March 31, 2022, from $77.493 billion at year-end 2021.
Fixed annuity deposits received for the three months ended March 31, 2022, were $8 million, compared with $17 million for the same period of 2021. Fixed annuity deposits have a minimal impact to earned premiums because deposits received are initially recorded as liabilities. Profit is earned over time by way of interest rate spreads. We do not write variable or equity-indexed annuities.
Life Insurance Premiums
| | | | | | | | | | | | | | | | | | | | | | | | | | |
(Dollars in millions) | | | | Three months ended March 31, |
| | | | | | | | 2022 | | 2021 | | % Change |
Term life insurance | | | | | | | | $ | 54 | | | $ | 51 | | | 6 | |
Whole life insurance | | | | | | | | 11 | | | 11 | | | 0 | |
Universal life and other | | | | | | | | 7 | | | 7 | | | 0 | |
Net earned premiums | | | | | | | | $ | 72 | | | $ | 69 | | | 4 | |
| | | | | | | | | | | | |
•Profitability – Our life insurance segment typically reports a small profit or loss on a GAAP basis because profits from investment income spreads are included in our investment segment results. We include only investment income credited to contract holders (including interest assumed in life insurance policy reserve calculations) in our life insurance segment results. A $2 million loss for our life insurance segment was reported in the first three months of 2022 and 2021. Favorable impacts from unlocking of interest rate actuarial assumptions in the first three months of 2022 were mostly offset by less favorable mortality experience compared to the same period of 2021, due in part to pandemic-related death claims.
Life insurance segment benefits and expenses consist principally of contract holders' (policyholders') benefits incurred related to traditional life and interest-sensitive products and operating expenses incurred, net of deferred acquisition costs. Total benefits increased in the first three months of 2022. Life policy and investment contract reserves increased with continued growth in net in-force life insurance policy face amounts partially offset by favorable effects from the unlocking of interest rate actuarial assumptions. Mortality results increased,
Cincinnati Financial Corporation First-Quarter 2022 10-Q
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compared with the same period of 2021, and were above our 2022 projections, due in part to pandemic-related death claims.
Underwriting expenses for the first three months of 2022 increased compared to the same period a year ago, largely due to higher commission and general expense levels compared to the same period of 2021.
We recognize that assets under management, capital appreciation and investment income are integral to evaluating 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, the life insurance company reported net income of $10 million for the three months ended March 31, 2022, and March 31, 2021.
INVESTMENTS RESULTS
Overview
The investments segment contributes investment income and investment gains and losses to results of operations. Investments traditionally are our primary source of pretax and after-tax profits.
Investment Income
Pretax investment income grew 6% for the first quarter of 2022, compared with the same period of 2021. Interest income increased by $5 million for the first quarter, as net purchases of fixed-maturity securities in recent quarters generally offset the continuing effects of the low interest rate environment. Higher dividend income reflected rising dividend rates and net purchases of equity securities in recent quarters, helping dividend income to grow by $7 million for the three months ended March 31, 2022.
Investments Results
| | | | | | | | | | | | | | | | | | | | | | | | | | |
(Dollars in millions) | | | | Three months ended March 31, |
| | | | | | | | 2022 | | 2021 | | % Change |
Total investment income, net of expenses | | | | | | | | $ | 185 | | | $ | 174 | | | 6 | |
Investment interest credited to contract holders | | | | | | | | (27) | | | (26) | | | (4) | |
Investment gains and losses, net | | | | | | | | (666) | | | 504 | | | nm |
Investments profit (loss), pretax | | | | | | | | $ | (508) | | | $ | 652 | | | nm |
| | | | | | | | | | | | |
We continue to consider the low interest rate environment that has prevailed in recent years as well as the potential for a continuation of the recent spike in both inflation and yields as we position our portfolio. As bonds in our generally laddered portfolio mature or are called over the near term, we will reinvest with a balanced approach, keeping in mind our long term strategy and pursuing attractive risk-adjusted after-tax yields. The table below shows the average pretax yield-to-amortized cost associated with expected principal redemptions for our fixed-maturity portfolio. The expected principal redemptions are based on par amounts and include dated maturities, calls and prefunded municipal bonds that we expect will be called during each respective time period.
| | | | | | | | | | | |
(Dollars in millions) | % Yield | | Principal redemptions |
At March 31, 2022 | |
Fixed-maturity pretax yield profile: | | | |
Expected to mature during the remainder of 2022 | 3.69 | % | | $ | 554 | |
Expected to mature during 2023 | 3.83 | | | 788 | |
Expected to mature during 2024 | 4.31 | | | 1,001 | |
Average yield and total expected maturities from the remainder of 2022 through 2024 | 4.00 | | | $ | 2,343 | |
| | | |
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The table below shows the average pretax yield-to-amortized cost for fixed-maturity securities acquired during the periods indicated. The average yield for total fixed-maturity securities acquired during the first three months of 2022 was lower than the 4.02% average yield-to-amortized cost of the fixed-maturity securities portfolio at the end of 2021. Our fixed-maturity portfolio's average yield of 4.01% for the first three months of 2022, from the investment income table below, was also lower than the 4.02% yield for the year-end 2021 fixed-maturities portfolio.
| | | | | | | | | | | | | | | | | |
| | | Three months ended March 31, |
| | | | | 2022 | | 2021 |
Average pretax yield-to-amortized cost on new fixed-maturities: | | | | | | | |
Acquired taxable fixed-maturities | | | | | 3.79 | % | | 3.74 | % |
Acquired tax-exempt fixed-maturities | | | | | 2.71 | | | 2.94 | |
Average total fixed-maturities acquired | | | | | 3.64 | | | 3.71 | |
| | | | | | | |
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 discussed our portfolio strategies in our 2021 Annual Report on Form 10-K, Item 1, Investments Segment, Page 24, and Item 7, Investments Outlook, Page 90. We discuss risks related to our investment income and our fixed-maturity and equity investment portfolios in this quarterly report Item 3, Quantitative and Qualitative Disclosures About Market Risk.
The table below provides details about investment income. Average yields in this table 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.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
(Dollars in millions) | | | | Three months ended March 31, |
| | | | | | | | 2022 | | 2021 | | % Change |
Investment income: | | | | | | | | | | | | |
Interest | | | | | | | | $ | 123 | | | $ | 118 | | | 4 | |
Dividends | | | | | | | | 65 | | | 58 | | | 12 | |
Other | | | | | | | | 1 | | | 2 | | | (50) | |
Less investment expenses | | | | | | | | 4 | | | 4 | | | 0 | |
Investment income, pretax | | | | | | | | 185 | | | 174 | | | 6 | |
Less income taxes | | | | | | | | 29 | | | 27 | | | 7 | |
Total investment income, after-tax | | | | | | | | $ | 156 | | | $ | 147 | | | 6 | |
| | | | | | | | | | | | |
Investment returns: | | | | | | | | | | | | |
Average invested assets plus cash and cash equivalents | | | | | | | | $ | 24,677 | | | $ | 21,776 | | | |
Average yield pretax | | | | | | | | 3.00 | % | | 3.20 | % | | |
Average yield after-tax | | | | | | | | 2.53 | | | 2.70 | | | |
Effective tax rate | | | | | | | | 15.6 | | | 15.5 | | | |
| | | | | | | | | | | | |
Fixed-maturity returns: | | | | | | | | | | | | |
Average amortized cost | | | | | | | | $ | 12,280 | | | $ | 11,395 | | | |
Average yield pretax | | | | | | | | 4.01 | % | | 4.14 | % | | |
Average yield after-tax | | | | | | | | 3.33 | | | 3.45 | | | |
Effective tax rate | | | | | | | | 17.0 | | | 16.7 | | | |
| | | | | | | | | | | | |
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Total Investment Gains and Losses
Investment gains and losses are recognized on the sale 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 are included in investment gains and losses and also in net income. The change in unrealized gains or losses for fixed-maturity securities are included as a component of other comprehensive income (OCI). Accounting requirements for the allowance for credit losses for the fixed-maturity portfolio are disclosed in our 2021 Annual Report on Form 10-K, Item 8, Note 1, Summary of Significant Accounting Policies, Page 127.
The table below summarizes total investment gains and losses, before taxes.
| | | | | | | | | | | | | | | | | | |
(Dollars in millions) | | | | Three months ended March 31, |
| | | | | | 2022 | | 2021 |
Investment gains and losses: | | | | | | | | |
Equity securities: | | | | | | | | |
Investment gains and losses on securities sold, net | | | | | | $ | 8 | | | $ | 4 | |
Unrealized gains and losses on securities still held, net | | | | | | (683) | | | 487 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Subtotal | | | | | | (675) | | | 491 | |
Fixed maturities: | | | | | | | | |
Gross realized gains | | | | | | 4 | | | 3 | |
Gross realized losses | | | | | | (1) | | | — | |
| | | | | | | | |
Subtotal | | | | | | 3 | | | 3 | |
Other | | | | | | 6 | | | 10 | |
Total investment gains and losses reported in net income | | | | | | (666) | | | 504 | |
| | | | | | | | |
Change in unrealized investment gains and losses: | | | | | | | | |
| | | | | | | | |
Fixed maturities | | | | | | (746) | | | (196) | |
| | | | | | | | |
Total | | | | | | $ | (1,412) | | | $ | 308 | |
| | | | | | | | |
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| | | | | | | | |
| | | | | | | | |
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| | | | | | | | |
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Of the 4,362 fixed-maturity securities in the portfolio, none were trading below 70% of amortized cost at March 31, 2022. Our asset impairment committee regularly monitors the portfolio, including a quarterly review of the entire portfolio for potential credit losses, resulting in charges disclosed in the table below. We believe that if liquidity in the markets were to significantly deteriorate or economic conditions were to significantly weaken, we could experience declines in portfolio values and possibly increases in the allowance for credit losses or write-downs to fair value.
Fixed-maturity securities written down to fair value due to an intention to be sold and changes in the allowance for credit losses were each less than $1 million for the first three months of 2022. We had no fixed-maturity securities written down to fair value due to an intention to be sold and no allowance for credit losses for the first three months of 2021.
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OTHER
We report as Other the noninvestment operations of the parent company and a noninsurance subsidiary, CFC Investment Company. We also report as Other the underwriting results of Cincinnati Re and Cincinnati Global, including earned premiums, loss and loss expenses and underwriting expenses in the table below.
Total revenues for the first three months of 2022 for our Other operations increased, compared with the same period of 2021, primarily due to earned premiums from Cincinnati Re and Cincinnati Global, with increases of $18 million and less than $1 million, respectively. Total expenses for Other increased for the first three months of 2022, primarily due to underwriting expenses from Cincinnati Re and Cincinnati Global.
Other profit or loss in the table below represents profit or losses before income taxes. Other loss resulted primarily from interest expense from debt of the parent company.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
(Dollars in millions) | | | | Three months ended March 31, |
| | | | | | | | 2022 | | 2021 | | % Change |
Interest and fees on loans and leases | | | | | | | | $ | 1 | | | $ | 1 | | | 0 | |
Earned premiums | | | | | | | | 142 | | | 124 | | | 15 | |
Other revenues | | | | | | | | 1 | | | 1 | | | 0 | |
Total revenues | | | | | | | | 144 | | | 126 | | | 14 | |
Interest expense | | | | | | | | 13 | | | 13 | | | 0 | |
Loss and loss expenses | | | | | | | | 89 | | | 88 | | | 1 | |
Underwriting expenses | | | | | | | | 45 | | | 38 | | | 18 | |
Operating expenses | | | | | | | | 4 | | | 4 | | | 0 | |
Total expenses | | | | | | | | 151 | | | 143 | | | 6 | |
Total other loss | | | | | | | | $ | (7) | | | $ | (17) | | | 59 | |
| | | | | | | | | | | | |
TAXES
We had $87 million of income tax benefit for the three months ended March 31, 2022, compared with $148 million of income tax expense for the same period of 2021. The effective tax rate for the three months ended March 31, 2022, was 24.2% compared with 19.3% for the same period last year. The change in our effective tax rate between periods was primarily due to large changes in our net investment gains and losses included in income for the periods.
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 Tax-Exempt Fixed Maturities in this quarterly report Item 3, Quantitative and Qualitative Disclosures About Market Risk 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. Details about our effective tax rate are in this quarterly report Item 1, Note 9, Income Taxes.
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LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2022, shareholders' equity was $12.092 billion, compared with $13.105 billion at December 31, 2021. Total debt was $838 million at March 31, 2022, down $5 million from December 31, 2021. At March 31, 2022, cash and cash equivalents totaled $987 million, compared with $1.139 billion at December 31, 2021.
The pandemic did not have a significant effect on our cash flows for the first three months of 2022. In addition to our historically positive operating cash flow to meet the needs of operations, we have the ability to slow investing activities or sell a portion of our high-quality, liquid investment portfolio if such need arises. We also have additional capacity to borrow on our revolving short-term line of credit, as described further below.
SOURCES OF LIQUIDITY
Subsidiary Dividends
Our lead insurance subsidiary declared dividends of $504 million to the parent company in the first three months of 2022, compared with $158 million for the same period of 2021. For full-year 2021, our lead insurance subsidiary paid dividends totaling $583 million to the parent company. State of Ohio regulatory requirements restrict the dividends our insurance subsidiary can pay. For full-year 2022, total dividends that our insurance subsidiary can pay to our parent company without regulatory approval are approximately $929 million.
Investing Activities
Investment income is a source of liquidity for both the parent company and its insurance subsidiaries. We continue to focus on portfolio strategies to balance near-term income generation and long-term book value growth.
Parent company obligations can be funded with income on investments held at the parent-company level or through sales of securities in that portfolio, although our investment philosophy seeks to compound cash flows over the long term. These sources of capital can help minimize subsidiary dividends to the parent company, protecting insurance subsidiary capital.
For a discussion of our historic investment strategy, portfolio allocation and quality, see our 2021 Annual Report on Form 10-K, Item 1, Investments Segment, Page 24.
Insurance Underwriting
Our property casualty and life insurance underwriting operations provide liquidity because we generally receive premiums before paying losses under the policies purchased with those premiums. After satisfying our cash requirements, we use excess cash flows for investment, increasing future investment income.
Historically, cash receipts from property casualty and life insurance premiums, along with investment income, have been more than sufficient to pay claims, operating expenses and dividends to the parent company.
The table below shows a summary of the operating cash flow for property casualty insurance (direct method):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
(Dollars in millions) | | | | Three months ended March 31, |
| | | | | | | | 2022 | | 2021 | | % Change |
Premiums collected | | | | | | | | $ | 1,714 | | | $ | 1,523 | | | 13 | |
Loss and loss expenses paid | | | | | | | | (890) | | | (705) | | | (26) | |
Commissions and other underwriting expenses paid | | | | | | | | (711) | | | (571) | | | (25) | |
Cash flow from underwriting | | | | | | | | 113 | | | 247 | | | (54) | |
Investment income received | | | | | | | | 128 | | | 121 | | | 6 | |
Cash flow from operations | | | | | | | | $ | 241 | | | $ | 368 | | | (35) | |
| | | | | | | | | | | | |
Collected premiums for property casualty insurance rose $191 million during the first three months of 2022, compared with the same period in 2021. Loss and loss expenses paid for the 2022 period increased $185 million. Commissions and other underwriting expenses paid increased $140 million.
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We discuss our future obligations for claims payments and for underwriting expenses in our 2021 Annual Report on Form 10-K, Item 7, Obligations, Page 96.
Capital Resources
At March 31, 2022, our debt-to-total-capital ratio was 6.5%, considerably below our 35% covenant threshold, with $789 million in long-term debt and $49 million in borrowing on our revolving short-term line of credit. At March 31, 2022, $251 million was available for future cash management needs as part of the general provisions of the line of credit agreement, with another $300 million available as part of an accordion feature. Based on our capital requirements at March 31, 2022, we do not anticipate a material increase in debt levels exceeding the available line of credit amount during the year. As a result, we expect changes in our debt-to-total-capital ratio to continue to be largely a function of the contribution of unrealized investment gains or losses to shareholders' equity. We have an unsecured letter of credit agreement which provides 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 at March 31, 2022, with no amounts drawn.
We provide details of our three long-term notes in this quarterly report Item 1, Note 3, Fair Value Measurements. None of the notes are encumbered by rating triggers.
Four independent ratings firms award insurer financial strength ratings to our property casualty insurance companies and three firms rate our life insurance company. Those firms made no changes to our parent company debt ratings during the first three months of 2022. Our debt ratings are discussed in our 2021 Annual Report on Form 10-K, Item 7, Liquidity and Capital Resources, Long-Term Debt, Page 95.
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. Similarly, the company holds no fair-value contracts for which a lack of marketplace quotations would necessitate the use of fair-value techniques.
USES OF LIQUIDITY
Our parent company and insurance subsidiary have contractual obligations and other commitments. In addition, one of our primary uses of cash is to enhance shareholder return.
Contractual Obligations
We estimated our future contractual obligations as of December 31, 2021, in our 2021 Annual Report on Form 10-K, Item 7, Contractual Obligations, Page 96. There have been no material changes to our estimates of future contractual obligations since our 2021 Annual Report on Form 10-K.
Other Commitments
In addition to our contractual obligations, we have other property casualty operational commitments.
•Commissions – Commissions paid were $499 million in the first three months of 2022. Commission payments generally track with written premiums, except for annual profit-sharing commissions typically paid during the first quarter of the year.
•Other underwriting expenses – Many of our underwriting expenses are not contractual obligations, but reflect the ongoing expenses of our business. Noncommission underwriting expenses paid were $212 million in the first three months of 2022.
There were no contributions to our qualified pension plan during the first three months of 2022.
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Investing Activities
After fulfilling operating requirements, we invest cash flows from underwriting, investment and other corporate activities in fixed-maturity and equity securities on an ongoing basis to help achieve our portfolio objectives. We discuss our investment strategy and certain portfolio attributes in this quarterly report Item 3, Quantitative and Qualitative Disclosures About Market Risk.
Uses of Capital
Uses of cash to enhance shareholder return include dividends to shareholders. In January 2022, the board of directors declared regular quarterly cash dividends of 69 cents per share for an indicated annual rate of $2.76 per share. During the first three months of 2022, we used $99 million to pay cash dividends to shareholders.
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 other property casualty insurance operations, the following table details gross reserves among case, IBNR (incurred but not reported) and loss expense reserves, net of salvage and subrogation reserves. Reserving practices are discussed in our 2021 Annual Report on Form 10-K, Item 7, Property Casualty Loss and Loss Expense Obligations and Reserves, Page 97.
Total gross reserves at March 31, 2022, increased $58 million compared with December 31, 2021. Case loss reserves decreased by $4 million, IBNR loss reserves increased by $45 million and loss expense reserves increased by $17 million. The total gross increase was primarily due to our commercial casualty line of business and also Cincinnati Re.
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Property Casualty Gross Reserves
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(Dollars in millions) | | Loss reserves | | Loss expense reserves | | Total gross reserves | | |
| | Case reserves | | IBNR reserves | | | | Percent of total |
At March 31, 2022 | | | | | |
Commercial lines insurance: | | | | | | | | | | |
Commercial casualty | | $ | 1,045 | | | $ | 791 | | | $ | 710 | | | $ | 2,546 | | | 34.9 | % |
Commercial property | | 348 | | | 52 | | | 68 | | | 468 | | | 6.4 | |
Commercial auto | | 420 | | | 218 | | | 123 | | | 761 | | | 10.5 | |
Workers' compensation | | 426 | | | 518 | | | 87 | | | 1,031 | | | 14.1 | |
Other commercial | | 101 | | | 10 | | | 120 | | | 231 | | | 3.2 | |
Subtotal | | 2,340 | | | 1,589 | | | 1,108 | | | 5,037 | | | 69.1 | |
Personal lines insurance: | | | | | | | | | | |
Personal auto | | 206 | | | 54 | | | 58 | | | 318 | | | 4.4 | |
Homeowner | | 168 | | | 74 | | | 42 | | | 284 | | | 3.9 | |
Other personal | | 82 | | | 88 | | | 5 | | | 175 | | | 2.4 | |
Subtotal | | 456 | | | 216 | | | 105 | | | 777 | | | 10.7 | |
Excess and surplus lines | | 249 | | | 198 | | | 163 | | | 610 | | | 8.4 | |
Cincinnati Re | | 133 | | | 483 | | | 4 | | | 620 | | | 8.5 | |
Cincinnati Global | | 149 | | | 92 | | | 2 | | | 243 | | | 3.3 | |
Total | | $ | 3,327 | | | $ | 2,578 | | | $ | 1,382 | | | $ | 7,287 | | | 100.0 | % |
At December 31, 2021 | | | | | | | | | | |
Commercial lines insurance: | | | | | | | | | | |
Commercial casualty | | $ | 1,059 | | | $ | 734 | | | $ | 704 | | | $ | 2,497 | | | 34.5 | % |
Commercial property | | 357 | | | 82 | | | 62 | | | 501 | | | 6.9 | |
Commercial auto | | 419 | | | 220 | | | 124 | | | 763 | | | 10.6 | |
Workers' compensation | | 442 | | | 503 | | | 85 | | | 1,030 | | | 14.3 | |
Other commercial | | 91 | | | 9 | | | 116 | | | 216 | | | 3.0 | |
Subtotal | | 2,368 | | | 1,548 | | | 1,091 | | | 5,007 | | | 69.3 | |
Personal lines insurance: | | | | | | | | | | |
Personal auto | | 211 | | | 53 | | | 60 | | | 324 | | | 4.5 | |
Homeowner | | 168 | | | 102 | | | 44 | | | 314 | | | 4.3 | |
Other personal | | 84 | | | 87 | | | 5 | | | 176 | | | 2.4 | |
Subtotal | | 463 | | | 242 | | | 109 | | | 814 | | | 11.2 | |
Excess and surplus lines | | 233 | | | 186 | | | 158 | | | 577 | | | 8.0 | |
Cincinnati Re | | 117 | | | 460 | | | 5 | | | 582 | | | 8.1 | |
Cincinnati Global | | 150 | | | 97 | | | 2 | | | 249 | | | 3.4 | |
Total | | $ | 3,331 | | | $ | 2,533 | | | $ | 1,365 | | | $ | 7,229 | | | 100.0 | % |
| | | | | | | | | | |
LIFE POLICY AND INVESTMENT CONTRACT RESERVES
Gross life policy and investment contract reserves were $3.027 billion at March 31, 2022, compared with $3.014 billion at year-end 2021, reflecting continued growth in life insurance policies in force. We discuss our life insurance reserving practices in our 2021 Annual Report on Form 10-K, Item 7, Life Insurance Policyholder Obligations and Reserves, Page 103.
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OTHER MATTERS
SIGNIFICANT ACCOUNTING POLICIES
Our significant accounting policies are discussed in our 2021 Annual Report on Form 10-K, Item 8, Note 1, Summary of Significant Accounting Policies, Page 127, and updated in this quarterly report Item 1, Note 1, Accounting Policies.
In conjunction with those discussions, in the Management's Discussion and Analysis in the 2021 Annual Report on Form 10-K, management reviewed the estimates and assumptions used to develop reported amounts related to the most significant policies. Management discussed the development and selection of those accounting estimates with the audit committee of the board of directors.