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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
 (Mark one)
       QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. 
For the quarterly period ended June 30, 2022.
       TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. 
For the transition period from _____________________ to _____________________.
Commission file number 0-4604
CINCINNATI FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
Ohio   31-0746871
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer Identification No.)
6200 S. Gilmore Road, Fairfield, Ohio   45014-5141
(Address of principal executive offices)   (Zip code)
Registrant's telephone number, including area code: (513) 870-2000
N/A
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Trading Symbol(s) Name of each exchange on which registered
Common stock CINF Nasdaq Global Select Market
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. 
Yes No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a nonaccelerated filer, a smaller reporting company or an emerging growth company. See definition of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer Accelerated filer Nonaccelerated filer Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act):
Yes No
As of July 22, 2022, there were 159,199,453 shares of common stock outstanding.



CINCINNATI FINANCIAL CORPORATION AND SUBSIDIARIES
FORM 10-Q FOR THE QUARTER ENDED June 30, 2022
 
TABLE OF CONTENTS
 
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Cincinnati Financial Corporation Second-Quarter 2022 10-Q
Page 2


Part I – Financial Information
Item 1.    Financial Statements (unaudited)
 
Cincinnati Financial Corporation and Subsidiaries
Condensed Consolidated Balance Sheets
(Dollars in millions, except per share data) June 30, December 31,
2022 2021
Assets    
Investments    
Fixed maturities, at fair value (amortized cost: 2022—$12,497; 2021—$12,230)
$ 11,933  $ 13,022 
Equity securities, at fair value (cost: 2022—$4,205; 2021—$4,121)
9,510  11,315 
Other invested assets 391  329 
Total investments 21,834  24,666 
Cash and cash equivalents 1,098  1,139 
Investment income receivable 141  144 
Finance receivable 87  98 
Premiums receivable 2,484  2,053 
Reinsurance recoverable 531  570 
Prepaid reinsurance premiums 113  78 
Deferred policy acquisition costs 1,045  905 
Land, building and equipment, net, for company use (accumulated depreciation:
   2022—$312; 2021—$303)
201  205 
Other assets 798  570 
Separate accounts 860  959 
Total assets $ 29,192  $ 31,387 
Liabilities    
Insurance reserves    
Loss and loss expense reserves $ 7,669  $ 7,305 
Life policy and investment contract reserves 3,041  3,014 
Unearned premiums 3,867  3,271 
Other liabilities 1,248  1,092 
Deferred income tax 1,069  1,744 
Note payable 44  54 
Long-term debt and lease obligations 841  843 
Separate accounts 860  959 
Total liabilities 18,639  18,282 
Commitments and contingent liabilities (Note 12)
Shareholders' Equity    
Common stock, par value—$2 per share; (authorized: 2022 and 2021—500 million
   shares; issued: 2022 and 2021—198.3 million shares)
397  397 
Paid-in capital 1,367  1,356 
Retained earnings 11,324  12,625 
Accumulated other comprehensive income (423) 648 
Treasury stock at cost (2022—39.1 million shares and 2021—38.0 million shares)
(2,112) (1,921)
Total shareholders' equity 10,553  13,105 
Total liabilities and shareholders' equity $ 29,192  $ 31,387 
 Accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.
Cincinnati Financial Corporation Second-Quarter 2022 10-Q
Page 3


Cincinnati Financial Corporation and Subsidiaries
Condensed Consolidated Statements of Income
(Dollars in millions, except per share data) Three months ended June 30, Six months ended June 30,
2022 2021 2022 2021
Revenues        
Earned premiums $ 1,773  $ 1,593  $ 3,463  $ 3,137 
Investment income, net of expenses 195  175  380  349 
Investment gains and losses, net (1,154) 520  (1,820) 1,024 
Fee revenues 3  7 
Other revenues 3  5 
Total revenues 820  2,295  2,035  4,522 
Benefits and Expenses        
Insurance losses and contract holders' benefits 1,309  915  2,348  1,918 
Underwriting, acquisition and insurance expenses 534  490  1,053  929 
Interest expense 13  13  26  26 
Other operating expenses 5  9 
 Total benefits and expenses 1,861  1,423  3,436  2,882 
Income (Loss) Before Income Taxes (1,041) 872  (1,401) 1,640 
Provision (Benefit) for Income Taxes        
Current 30  75  71  111 
Deferred (263) 94  (391) 206 
Total provision (benefit) for income taxes (233) 169  (320) 317 
Net Income (Loss) $ (808) $ 703  $ (1,081) $ 1,323 
Per Common Share        
Net income (loss)—basic $ (5.06) $ 4.36  $ (6.76) $ 8.21 
Net income (loss)—diluted (5.06) 4.31  (6.76) 8.13 
Accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.
Cincinnati Financial Corporation Second-Quarter 2022 10-Q
Page 4


Cincinnati Financial Corporation and Subsidiaries
Condensed Consolidated Statements of Comprehensive Income
(Dollars in millions) Three months ended June 30, Six months ended June 30,
2022 2021 2022 2021
Net Income (Loss) $ (808) $ 703  $ (1,081) $ 1,323 
Other Comprehensive Income (Loss)        
Change in unrealized gains and losses on investments, net of tax (benefit) of $(127), $27, $(284) and $(14), respectively
(483) 105  (1,072) (50)
Amortization of pension actuarial loss and prior service cost, net of tax of $0, $0, $0 and $1, respectively
   
Change in life deferred acquisition costs, life policy reserves and other, net of tax of $0, $0, $0 and $2, respectively
1  —  1 
Other comprehensive income (loss) (482) 106  (1,071) (38)
Comprehensive Income (Loss) $ (1,290) $ 809  $ (2,152) $ 1,285 
Accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.

Cincinnati Financial Corporation Second-Quarter 2022 10-Q
Page 5


Cincinnati Financial Corporation and Subsidiaries
Condensed Consolidated Statements of Shareholders' Equity
(Dollars in millions) Three months ended June 30, Six months ended June 30,
2022 2021 2022 2021
Common Stock
   Beginning of period $ 397  $ 397  $ 397  $ 397 
   Share-based awards   —    — 
   End of period 397  397  397  397 
Paid-In Capital
   Beginning of period 1,354  1,322  1,356  1,328 
   Share-based awards 2  (12) (14)
   Share-based compensation 9  20  17 
   Other 2  3 
   End of period 1,367  1,334  1,367  1,334 
Retained Earnings
   Beginning of period 12,241  10,603  12,625  10,085 
   Net income (loss) (808) 703  (1,081) 1,323 
Dividends declared (109) (101) (220) (203)
   End of period 11,324  11,205  11,324  11,205 
Accumulated Other Comprehensive Income
   Beginning of period 59  625  648  769 
   Other comprehensive income (loss) (482) 106  (1,071) (38)
   End of period (423) 731  (423) 731 
Treasury Stock
   Beginning of period (1,959) (1,809) (1,921) (1,790)
   Share-based awards 3  12  15 
   Shares acquired - share repurchase authorization (151) —  (196) (28)
   Shares acquired - share-based compensation plans (6) (4) (8) (7)
   Other 1  1 
   End of period (2,112) (1,809) (2,112) (1,809)
      Total Shareholders' Equity $ 10,553  $ 11,858  $ 10,553  $ 11,858 
(In millions, except per common share)
Common Stock - Shares Outstanding
   Beginning of period 160.3  161.0  160.3  160.9 
   Share-based awards 0.1  0.1  0.5  0.5 
   Shares acquired - share repurchase authorization (1.2) —  (1.6) (0.3)
   End of period 159.2  161.1  159.2  161.1 
Dividends declared per common share $ 0.69  $ 0.63  $ 1.38  $ 1.26 
Accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.
Cincinnati Financial Corporation Second-Quarter 2022 10-Q
Page 6


Cincinnati Financial Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows
 (Dollars in millions) Six months ended June 30,
2022 2021
Cash Flows From Operating Activities    
Net income (loss) $ (1,081) $ 1,323 
Adjustments to reconcile net income to net cash provided by operating activities:    
Depreciation and amortization 55  46 
Investment gains and losses, net 1,829  (1,011)
Share-based compensation 20  17 
Interest credited to contract holders 23  23 
Deferred income tax expense (391) 206 
Changes in:    
Investment income receivable 3  (2)
Premiums and reinsurance receivable (427) (365)
Deferred policy acquisition costs (130) (94)
Other assets (29) (23)
Loss and loss expense reserves 364  273 
Life policy and investment contract reserves 35  55 
Unearned premiums 596  457 
Other liabilities (31) 23 
Current income tax receivable/payable (81) (11)
Net cash provided by operating activities 755  917 
Cash Flows From Investing Activities    
Sale of fixed maturities 190  73 
Call or maturity of fixed maturities 512  690 
Sale of equity securities 178  110 
Purchase of fixed maturities (942) (1,228)
Purchase of equity securities (218) (152)
Investment in finance receivables (10) (22)
Collection of finance receivables 21  18 
Investment in building and equipment (8) (9)
Change in other invested assets, net (47) (6)
Net cash used in investing activities (324) (526)
Cash Flows From Financing Activities    
Payment of cash dividends to shareholders (208) (195)
Shares acquired - share repurchase authorization (196) (28)
Changes in note payable
(10)
Proceeds from stock options exercised 6 
Contract holders' funds deposited 34  47 
Contract holders' funds withdrawn (62) (75)
Other (36) (50)
Net cash used in financing activities (472) (288)
Net change in cash and cash equivalents (41) 103 
Cash and cash equivalents at beginning of year 1,139  900 
Cash and cash equivalents at end of period $ 1,098  $ 1,003 
Supplemental Disclosures of Cash Flow Information:    
Interest paid $ 26  $ 26 
Income taxes paid 142  113 
Noncash Activities    
Equipment acquired under finance lease obligations $ 6  $
Share-based compensation 24  21 
Other assets and other liabilities 180  83 
 Accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.
Cincinnati Financial Corporation Second-Quarter 2022 10-Q
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 
NOTE 1 — Accounting Policies
The condensed consolidated financial statements include the accounts of Cincinnati Financial Corporation and its consolidated subsidiaries, each of which is wholly owned. These statements are presented in conformity with accounting principles generally accepted in the United States of America (GAAP). All intercompany balances and transactions have been eliminated in consolidation.
 
The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect amounts reported in the financial statements and accompanying notes. Our actual results could differ from those estimates. Certain financial information that is normally included in annual financial statements prepared in accordance with GAAP, but that is not required for interim reporting purposes, has been condensed or omitted.
 
Our June 30, 2022, condensed consolidated financial statements are unaudited. We believe that we have made all adjustments, consisting only of normal recurring accruals, that are necessary for fair presentation. These condensed consolidated financial statements should be read in conjunction with our consolidated financial statements included in our 2021 Annual Report on Form 10-K. The results of operations for interim periods do not necessarily indicate results to be expected for the full year.

The company continues to monitor the impact of the coronavirus (SARS-CoV-2 or COVID-19) pandemic outbreak. 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.

Pending Accounting Updates
ASU 2018-12, Financial Services - Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts
In August 2018, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2018-12, Financial Services - Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts. ASU 2018-12 requires changes to the measurement and disclosure of long-duration insurance contracts. In November 2020, the FASB issued an ASU that delayed the effective date of ASU 2018-12 to interim and annual reporting periods beginning after December 15, 2022. We plan to adopt these ASUs on a modified retrospective basis on January 1, 2023.

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

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

Based on market value discount rates and other assumptions that existed at March 31, 2022, management estimated that adoption would have a material impact. However, based on current conditions, primarily an increase in market value discount rates, management estimates at June 30, 2022, that adoption would not have a material impact and would have resulted in an after-tax reduction to shareholders' equity of approximately $50 million. The ultimate impact of adoption of these ASUs will be affected by the market value discount rates and other assumptions determined at the January 1, 2023, adoption date. The company is in the process of addressing necessary remaining 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 Second-Quarter 2022 10-Q
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NOTE 2 – Investments
The following table provides amortized cost, gross unrealized gains, gross unrealized losses and fair value for our fixed-maturity securities:
(Dollars in millions) Amortized
cost
Gross unrealized Fair value
At June 30, 2022 gains losses
Fixed maturity securities:        
Corporate $ 7,167  $ 60  $ 424  $ 6,803 
States, municipalities and political subdivisions 4,845  38  229  4,654 
Commercial mortgage-backed 256    7  249 
United States government 146    2  144 
Government-sponsored enterprises 60      60 
Foreign government 23      23 
Total $ 12,497  $ 98  $ 662  $ 11,933 
At December 31, 2021        
Fixed maturity securities:        
Corporate $ 7,043  $ 467  $ 13  $ 7,497 
States, municipalities and political subdivisions 4,768  330  5,095 
Commercial mortgage-backed 264  —  273 
United States government 121  —  123 
Government-sponsored enterprises —  — 
Foreign government 26  —  —  26 
Total $ 12,230  $ 808  $ 16  $ 13,022 
 
The net unrealized investment losses in our fixed-maturity portfolio at June 30, 2022, are primarily due to an increase in U.S. Treasury yields and a widening of corporate credit spreads. Our commercial mortgage-backed securities had an average rating of Aa2/AA- and Aa2/AA at June 30, 2022, and December 31, 2021, respectively.

Cincinnati Financial Corporation Second-Quarter 2022 10-Q
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The table below provides fair values and gross unrealized losses by investment category and by the duration of the securities' continuous unrealized loss positions:
(Dollars in millions) Less than 12 months 12 months or more Total
At June 30, 2022 Fair
value
Unrealized
losses
Fair
value
Unrealized
losses
Fair
value
Unrealized
losses
Fixed maturity securities:            
Corporate $ 4,768  $ 398  $ 107  $ 26  $ 4,875  $ 424 
States, municipalities and political subdivisions 2,341  223  20  6  2,361  229 
Commercial mortgage-backed 237  7  10    247  7 
United States government 85  2  11    96  2 
Government-sponsored enterprises 36    3    39   
Foreign government 16        16   
Total $ 7,483  $ 630  $ 151  $ 32  $ 7,634  $ 662 
At December 31, 2021            
Fixed maturity securities:            
Corporate $ 861  $ 13  $ 15  $ —  $ 876  $ 13 
States, municipalities and political subdivisions 105  107 
Commercial mortgage-backed 10  —  11  —  21  — 
United States government 48  —  —  —  48  — 
Government-sponsored enterprises —  —  —  — 
Foreign government 16  —  —  —  16  — 
Total $ 1,047  $ 15  $ 28  $ $ 1,075  $ 16 

Contractual maturity dates for fixed-maturities securities were:
(Dollars in millions) Amortized
cost
Fair
value
% of fair
value
At June 30, 2022
Maturity dates:      
Due in one year or less $ 645  $ 645  5.4  %
Due after one year through five years 3,721  3,670  30.8 
Due after five years through ten years 3,519  3,416  28.6 
Due after ten years 4,612  4,202  35.2 
Total $ 12,497  $ 11,933  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.

Cincinnati Financial Corporation Second-Quarter 2022 10-Q
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The following table provides investment income and investment gains and losses, net:
(Dollars in millions) Three months ended June 30, Six months ended June 30,
2022 2021 2022 2021
Investment income:
Interest $ 124  $ 117  $ 247  $ 235 
Dividends 72  60  137  118 
Other 2  3 
Total 198  178  387  356 
Less investment expenses 3  7 
Total $ 195  $ 175  $ 380  $ 349 
Investment gains and losses, net:        
Equity securities:        
Investment gains and losses on securities sold, net $ 5  $ —  $ 37  $
Unrealized gains and losses on securities still held, net (1,175) 489  (1,882) 974 
Subtotal (1,170) 489  (1,845) 980 
Fixed maturities:        
Gross realized gains 2  11  6  14 
Gross realized losses (2) (2) (3) (2)
Subtotal   3  12 
Other 16  22  22  32 
Total $ (1,154) $ 520  $ (1,820) $ 1,024 
 
The fair value of our equity portfolio was $9.510 billion and $11.315 billion at June 30, 2022, and December 31, 2021, respectively. At June 30, 2022, and December 31, 2021, Apple Inc. (Nasdaq:AAPL), an equity holding, was our largest single investment holding with a fair value of $664 million and $862 million, which was 7.3% and 7.9% of our publicly traded common equities portfolio and 3.1% and 3.5% of the total investment portfolio, respectively.

At June 30, 2022, and December 31, 2021, the allowance for credit losses, including changes in the amount during each period, was less than $1 million. During the three and six months ended June 30, 2022, there were one and two fixed-maturity securities, respectively, that were written down to fair value due to an intention to be sold resulting in impairment charges of less than $1 million for each period. During the three and six months ended June 30, 2021, there were no fixed-maturity securities that were written down to fair value due to an intention to be sold.

At June 30, 2022, 2,735 fixed-maturity securities with a total unrealized loss of $662 million were in an unrealized loss position. Of that total, seven fixed-maturity securities had fair values below 70% of amortized cost. At December 31, 2021, 278 fixed-maturity securities with a total unrealized loss of $16 million were in an unrealized loss position. Of that total, no fixed-maturity securities had fair values below 70% of amortized cost.

Cincinnati Financial Corporation Second-Quarter 2022 10-Q
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NOTE 3 – Fair Value Measurements
In accordance with accounting guidance for fair value measurements and disclosures, we categorized our financial instruments, based on the priority of the observable and market-based data for the valuation technique used, into a three-level fair value hierarchy. The fair value hierarchy gives the highest priority to quoted prices with readily available independent data in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable market inputs (Level 3). When various inputs for measurement fall within different levels of the fair value hierarchy, the lowest observable input that has a significant impact on fair value measurement is used. Our valuation techniques have not changed from those used at December 31, 2021, and ultimately management determines fair value. See our 2021 Annual Report on Form 10-K, Item 8, Note 3, Fair Value Measurements, Page 137, for information on characteristics and valuation techniques used in determining fair value.

Fair Value Disclosures for Assets
The following tables illustrate the fair value hierarchy for those assets measured at fair value on a recurring basis at June 30, 2022, and December 31, 2021. We do not have any liabilities carried at fair value.
(Dollars in millions) Quoted prices in
active markets for
identical assets
(Level 1)
Significant other
observable inputs (Level 2)
Significant
unobservable
inputs
(Level 3)
Total
At June 30, 2022
Fixed maturities, available for sale:        
Corporate $   $ 6,803  $   $ 6,803 
States, municipalities and political subdivisions   4,654    4,654 
Commercial mortgage-backed   249    249 
United States government 144      144 
Government-sponsored enterprises   60    60 
Foreign government   23    23 
Subtotal 144  11,789    11,933 
Common equities 9,092      9,092 
Nonredeemable preferred equities   418    418 
Separate accounts taxable fixed maturities   844    844 
Top Hat savings plan mutual funds and common
   equity (included in Other assets)
60      60 
Total $ 9,296  $ 13,051  $   $ 22,347 
At December 31, 2021
Fixed maturities, available for sale:        
Corporate $ —  $ 7,497  $ —  $ 7,497 
States, municipalities and political subdivisions —  5,095  —  5,095 
Commercial mortgage-backed —  273  —  273 
United States government 123  —  —  123 
Government-sponsored enterprises —  — 
Foreign government —  26  —  26 
Subtotal 123  12,899  —  13,022 
Common equities 10,862  —  —  10,862 
Nonredeemable preferred equities —  453  —  453 
Separate accounts taxable fixed maturities —  948  —  948 
Top Hat savings plan mutual funds and common
  equity (included in Other assets)
64  —  —  64 
Total $ 11,049  $ 14,300  $ —  $ 25,349 
 
Cincinnati Financial Corporation Second-Quarter 2022 10-Q
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We also held Level 1 cash and cash equivalents of $1.098 billion and $1.139 billion at June 30, 2022, and December 31, 2021, respectively.

Fair Value Disclosures for Assets and Liabilities Not Carried at Fair Value 
The disclosures below are presented to provide information about the effects of current market conditions on financial instruments that are not reported at fair value in our condensed consolidated financial statements.
 
This table summarizes the book value and principal amounts of our long-term debt:
(Dollars in millions)   Book value Principal amount
Interest
rate
Year of 
issue
  June 30, December 31, June 30, December 31,
  2022 2021 2022 2021
6.900% 1998 Senior debentures, due 2028 $ 27  $ 27  $ 28  $ 28 
6.920% 2005 Senior debentures, due 2028 391  391  391  391 
6.125% 2004 Senior notes, due 2034 371  371  374  374 
Total   $ 789  $ 789  $ 793  $ 793 
 
The following table shows fair values of our note payable and long-term debt:
(Dollars in millions) Quoted prices in
active markets for
identical assets
(Level 1)
Significant other observable inputs (Level 2) Significant
unobservable
inputs
(Level 3)
Total
At June 30, 2022
Note payable $   $ 44  $   $ 44 
6.900% senior debentures, due 2028
  31    31 
6.920% senior debentures, due 2028
  443    443 
6.125% senior notes, due 2034
  426    426 
Total $   $ 944  $   $ 944 
At December 31, 2021
Note payable $ —  $ 54  $ —  $ 54 
6.900% senior debentures, due 2028
—  34  —  34 
6.920% senior debentures, due 2028
—  501  —  501 
6.125% senior notes, due 2034
—  510  —  510 
Total $ —  $ 1,099  $ —  $ 1,099 
 
Cincinnati Financial Corporation Second-Quarter 2022 10-Q
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The following table shows the fair value of our life policy loans included in other invested assets and the fair values of our deferred annuities and structured settlements included in life policy and investment contract reserves:
(Dollars in millions) Quoted prices in
active markets for
identical assets
(Level 1)
Significant other
observable inputs (Level 2)
Significant
unobservable
inputs
(Level 3)
Total
At June 30, 2022
Life policy loans $   $   $ 39  $ 39 
Deferred annuities     649  649 
Structured settlements   155    155 
Total $   $ 155  $ 649  $ 804 
At December 31, 2021
Life policy loans $ —  $ —  $ 44  $ 44 
Deferred annuities —  —  778  778 
Structured settlements —  201  —  201 
Total $ —  $ 201  $ 778  $ 979 
 
Outstanding principal and interest for these life policy loans totaled $31 million at June 30, 2022, and
December 31, 2021.
 
Recorded reserves for the deferred annuities were $755 million and $762 million at June 30, 2022, and December 31, 2021, respectively. Recorded reserves for the structured settlements were $133 million and $136 million at June 30, 2022, and December 31, 2021, respectively.


Cincinnati Financial Corporation Second-Quarter 2022 10-Q
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NOTE 4 – Property Casualty Loss and Loss Expenses
This table summarizes activity for our consolidated property casualty loss and loss expense reserves:
(Dollars in millions) Three months ended June 30, Six months ended June 30,
2022 2021 2022 2021
Gross loss and loss expense reserves, beginning of period $ 7,287  $ 6,880  $ 7,229  $ 6,677 
Less reinsurance recoverable 319  262  327  277 
Net loss and loss expense reserves, beginning of period 6,968  6,618  6,902  6,400 
Net incurred loss and loss expenses related to:        
Current accident year 1,299  949  2,296  1,982 
Prior accident years (59) (119) (100) (229)
Total incurred 1,240  830  2,196  1,753 
Net paid loss and loss expenses related to:        
Current accident year 368  334  537  477 
Prior accident years 524  433  1,245  995 
Total paid 892  767  1,782  1,472 
Net loss and loss expense reserves, end of period 7,316  6,681  7,316  6,681 
Plus reinsurance recoverable 287  274  287  274 
Gross loss and loss expense reserves, end of period $ 7,603  $ 6,955  $ 7,603  $ 6,955 
 
We use actuarial methods, models and judgment to estimate, as of a financial statement date, the property casualty loss and loss expense reserves required to pay for and settle all outstanding insured claims, including incurred but not reported (IBNR) claims, as of that date. The actuarial estimate is subject to review and adjustment by an inter-departmental committee that includes actuarial, claims, underwriting, loss prevention and accounting management. This committee is familiar with relevant company and industry business, claims and underwriting trends, as well as general economic and legal trends that could affect future loss and loss expense payments. The amount we will actually have to pay for claims can be highly uncertain. This uncertainty, together with the size of our reserves, makes the loss and loss expense reserves our most significant estimate. The reserve for loss and loss expenses in the condensed consolidated balance sheets also included $66 million at June 30, 2022, and $64 million at June 30, 2021, for certain life and health loss and loss expense reserves.

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

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

Cincinnati Financial Corporation Second-Quarter 2022 10-Q
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For the three months ended June 30, 2021, we experienced $119 million of favorable development on prior accident years, including $86 million of favorable development in commercial lines, $12 million of favorable development in personal lines and $1 million of favorable development in excess and surplus lines. Within commercial lines, we recognized favorable reserve development of $27 million for the workers' compensation line and $26 million for the commercial casualty line due to reduced uncertainty of prior accident year loss and loss adjustment expense for these lines. Within personal lines, we recognized favorable reserve development of $9 million in personal auto.

For the six months ended June 30, 2021, we experienced $229 million of favorable development on prior accident
years, including $169 million of favorable development in commercial lines, $32 million of favorable development in
personal lines and $3 million of unfavorable development in excess and surplus lines. Within commercial lines, we
recognized favorable reserve development of $52 million for the workers' compensation line, $37 million for the
commercial auto line, $34 million for the commercial property line and $32 million for the commercial casualty line
due to reduced uncertainty of prior accident year loss and loss adjustment expense for these lines. Within personal
lines, we recognized favorable reserve development of $24 million in personal auto.
Cincinnati Financial Corporation Second-Quarter 2022 10-Q
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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 deferred annuity, universal life and structured settlement policies equal to the cumulative account balances, which include premium deposits plus credited interest less charges and withdrawals. Some of our universal life policies contain no-lapse guarantee provisions. For these policies, we establish a reserve in addition to the account balance, based on expected no-lapse guarantee benefits and expected policy assessments.

This table summarizes our life policy and investment contract reserves:
(Dollars in millions) June 30,
2022
December 31,
2021
Life policy reserves:
Ordinary/traditional life $ 1,414  $ 1,376 
Other 52  52 
Subtotal 1,466  1,428 
Investment contract reserves:
Deferred annuities 755  762 
Universal life 679  679 
Structured settlements 133  136 
Other 8 
Subtotal 1,575  1,586 
Total life policy and investment contract reserves $ 3,041  $ 3,014 

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NOTE 6 – Deferred Policy Acquisition Costs
Expenses directly related to successfully acquired insurance policies – primarily commissions, premium taxes and underwriting costs – are deferred and amortized over the terms of the policies. We update our acquisition cost assumptions periodically to reflect actual experience, and we evaluate the costs for recoverability. The table below shows the deferred policy acquisition costs and asset reconciliation.
(Dollars in millions) Three months ended June 30, Six months ended June 30,
2022 2021 2022 2021
Property casualty:
Deferred policy acquisition costs asset, beginning of period $ 665  $ 586  $ 602  $ 542 
Capitalized deferred policy acquisition costs 375  325  739  637 
Amortized deferred policy acquisition costs (317) (281) (618) (549)
Deferred policy acquisition costs asset, end of period $ 723  $ 630  $ 723  $ 630 
Life:
Deferred policy acquisition costs asset, beginning of period $ 314  $ 294  $ 303  $ 263 
Capitalized deferred policy acquisition costs 15  15  30  29 
Amortized deferred policy acquisition costs (11) (14) (21) (23)
Shadow deferred policy acquisition costs 4  (1) 10  25 
Deferred policy acquisition costs asset, end of period $ 322  $ 294  $ 322  $ 294 
Consolidated:
Deferred policy acquisition costs asset, beginning of period $ 979  $ 880  $ 905  $ 805 
Capitalized deferred policy acquisition costs 390  340  769  666 
Amortized deferred policy acquisition costs (328) (295) (639) (572)
Shadow deferred policy acquisition costs 4  (1) 10  25 
Deferred policy acquisition costs asset, end of period $ 1,045  $ 924  $ 1,045  $ 924 

No premium deficiencies were recorded in the condensed consolidated statements of income, as the sum of the anticipated loss and loss expenses, policyholder dividends and unamortized deferred acquisition expenses did not exceed the related unearned premiums and anticipated investment income.
 
Cincinnati Financial Corporation Second-Quarter 2022 10-Q
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NOTE 7 – Accumulated Other Comprehensive Income
Accumulated other comprehensive income (AOCI) includes changes in unrealized gains and losses on investments, changes in pension obligations and changes in life deferred acquisition costs, life policy reserves and other as follows:
(Dollars in millions) Three months ended June 30,
2022 2021
Before tax Income tax Net Before tax Income tax Net
Investments:
AOCI, beginning of period $ 46  $ 8  $ 38  $ 830  $ 174  $ 656 
OCI before investment gains and losses, net, recognized in net income (610) (127) (483) 141  28  113 
Investment gains and losses, net, recognized in net income       (9) (1) (8)
OCI (610) (127) (483) 132  27  105 
AOCI, end of period $ (564) $ (119) $ (445) $ 962  $ 201  $ 761 
Pension obligations:
AOCI, beginning of period $ 27  $ 7  $ 20  $ (37) $ (6) $ (31)
OCI excluding amortization recognized in net income       —  —  — 
Amortization recognized in net income       — 
OCI       — 
AOCI, end of period $ 27  $ 7  $ 20  $ (36) $ (6) $ (30)
Life deferred acquisition costs, life policy reserves and other:
AOCI, beginning of period $ 1  $   $ 1  $ —  $ —  $ — 
OCI before investment gains and losses, net, recognized in net income 1    1  —  —  — 
Investment gains and losses, net, recognized in net income       —  —  — 
OCI 1    1  —  —  — 
AOCI, end of period $ 2  $   $ 2  $ —  $ —  $ — 
Summary of AOCI:
AOCI, beginning of period $ 74  $ 15  $ 59  $ 793  $ 168  $ 625 
Investments OCI (610) (127) (483) 132  27  105 
Pension obligations OCI       — 
Life deferred acquisition costs, life policy reserves and other OCI 1    1  —  —  — 
Total OCI (609) (127) (482) 133  27  106 
AOCI, end of period $ (535) $ (112) $ (423) $ 926  $ 195  $ 731 
Cincinnati Financial Corporation Second-Quarter 2022 10-Q
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(Dollars in millions) Six months ended June 30,
2022 2021
Before tax Income tax Net Before tax Income tax Net
Investments:
AOCI, beginning of period $ 792  $ 165  $ 627  $ 1,026  $ 215  $ 811 
OCI before investment gains and losses, net, recognized in net income (1,353) (284) (1,069) (52) (11) (41)
Investment gains and losses, net, recognized in net income (3)   (3) (12) (3) (9)
OCI (1,356) (284) (1,072) (64) (14) (50)
AOCI, end of period $ (564) $ (119) $ (445) $ 962  $ 201  $ 761 
Pension obligations:
AOCI, beginning of period $ 27  $ 7  $ 20  $ (41) $ (7) $ (34)
OCI excluding amortization recognized in net income       — 
Amortization recognized in net income      
OCI      
AOCI, end of period $ 27  $ 7  $ 20  $ (36) $ (6) $ (30)
Life deferred acquisition costs, life policy reserves and other:
AOCI, beginning of period $ 1  $   $ 1  $ (10) $ (2) $ (8)
OCI before investment gains and losses, net, recognized in net income 1    1  10 
Investment gains and losses, net, recognized in net income       —  —  — 
OCI 1    1  10 
AOCI, end of period $ 2  $   $ 2