Cincinnati Financial Corporation Third-Quarter 2021 10-Q
Page 32
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(Dollars are per share)
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Three months ended September 30,
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Nine months ended September 30,
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2021
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2020
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2021
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2020
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Value creation ratio:
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End of period book value*
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$
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73.49
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$
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60.57
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$
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73.49
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$
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60.57
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Less beginning of period book value
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73.57
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57.56
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67.04
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60.55
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Change in book value
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(0.08)
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3.01
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6.45
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0.02
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Dividend declared to shareholders
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0.63
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0.60
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1.89
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1.80
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Total value creation
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$
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0.55
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$
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3.61
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$
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8.34
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$
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1.82
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Value creation ratio from change in book
value**
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(0.1)
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%
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5.2
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%
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9.6
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%
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0.0
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%
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Value creation ratio from dividends declared to
shareholders***
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0.8
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1.1
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2.8
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3.0
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Value creation ratio
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0.7
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%
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6.3
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%
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12.4
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%
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3.0
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%
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* Book value per share is calculated by dividing end of period total shareholders' equity by end of period shares outstanding
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** Change in book value divided by the beginning of period book value
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*** Dividend declared to shareholders divided by beginning of period book value
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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 2020 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 2020 Annual Report on Form 10-K, Item 1, Our Business and Our Strategy, Page 5. At September 30, 2021, we actively marketed through agencies located in 45 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 2020 Annual Report on Form 10-K, Item 7, Executive Summary, Page 50, 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 nine months of 2021, our consolidated property casualty net written premium year-over-year growth was 11%, comparing favorably with the industry's 7% growth rate reported by A.M. Best for the first six months of 2021. For the five-year period 2016 through 2020, 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 nine months of 2021, our GAAP combined ratio was 89.8%, including 10.7 percentage points of current accident year catastrophe losses partially offset by 7.2 percentage points of favorable loss reserve development on prior accident years. Our statutory combined ratio was 89.0% for the first nine months of 2021, comparing favorably with the industry's 96.9% reported by A.M. Best for the first six months of 2021. The industry's ratio again excludes its mortgage and financial guaranty lines of business.
•Investment contribution – We believe our investment philosophy and initiatives can drive investment income growth and lead to a total return on our equity investment portfolio over a five-year period that exceeds the five-year return of the Standard & Poor's 500 Index. For the first nine months of 2021, pretax investment income was $528 million, up 6% compared with the same period in 2020. We believe our investment portfolio mix provides an appropriate balance of income stability and growth with capital appreciation potential.
Cincinnati Financial Corporation Third-Quarter 2021 10-Q
Page 33
Highlights of Our Strategy and Supporting Initiatives
Management has worked to identify a strategy that can lead to long-term success, with concurrence by the board of directors. Our strategy is intended to position us to compete successfully in the markets we have targeted while appropriately managing risk. Further description of our long-term, proven strategy can be found in our 2020 Annual Report on Form 10-K, Item 1, Our Business and Our Strategy, Page 5. We believe successful implementation of initiatives that support our strategy will help us better serve our agent customers and reduce volatility in our financial results while we also grow earnings and book value over the long term, successfully navigating challenging economic, market or industry pricing cycles.
•Manage insurance profitability – Implementation of these initiatives is intended to enhance underwriting expertise and knowledge, thereby increasing our ability to manage our business while also gaining efficiency. Better profit margins can arise from additional information and more focused action on underperforming product lines, plus pricing capabilities we are expanding through the use of technology and analytics. In addition to enhancing company efficiency, improving internal processes also supports the ability of the independent agencies that represent us to grow profitably by allowing them to serve clients faster and to more efficiently manage agency expenses.
We continue to enhance our property casualty underwriting expertise and to effectively and efficiently underwrite individual policies and process transactions. Ongoing initiatives supporting this work include expanding our pricing and segmentation capabilities through experience and use of predictive analytics and additional data. Our segmentation efforts emphasize identification and retention of insurance policies we believe have relatively stronger pricing, while seeking more aggressive renewal terms and conditions on policies we believe have relatively weaker pricing.
•Drive premium growth – Implementation of these initiatives is intended to further penetrate each market we serve through our independent agencies. Strategies aimed at specific market opportunities, along with service enhancements, can help our agents grow and increase our share of their business. Premium growth initiatives also include expansion of Cincinnati Re, our reinsurance assumed operation, and successful integration of Cincinnati Global, our London-based global specialty underwriter for Lloyd's Syndicate 318. Diversified growth also may reduce variability of losses from weather-related catastrophes.
We continue to appoint new agencies to develop additional points of distribution. During the first nine months of 2021, we appointed 122 new agencies that offer most or all of our property casualty insurance products.
As of September 30, 2021, a total of 1,904 agency relationships market our property casualty insurance products from 2,687 reporting locations. The totals do not include Lloyd's brokers or coverholders that source business for Cincinnati Global.
Financial Strength
An important part of our long-term strategy is financial strength, which is described in our 2020 Annual Report on Form 10-K, Item 1, Our Business and Our Strategy, Financial Strength, Page 9. 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 2020 Annual Report on Form 10-K, Item 7, Liquidity and Capital Resources, 2021 Reinsurance Ceded Programs, Page 110. 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 September 30, 2021, we held $4.461 billion of our cash and cash equivalents and invested assets at the parent-company level, of which $4.072 billion, or 91.3%, was invested in common stocks, and $156 million, or 3.5%, was cash or cash equivalents. Our debt-to-total-capital ratio was 6.7% at September 30, 2021. Another important indicator of financial strength is our ratio of property casualty net written premiums to statutory surplus, which was 0.9-to-1 for the 12 months ended September 30, 2021, compared with 1.0-to-1 at year-end 2020.
Cincinnati Financial Corporation Third-Quarter 2021 10-Q
Page 34
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 October 26, 2021, our insurance subsidiaries continued to be highly rated.
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Insurer Financial Strength Ratings
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Rating
agency
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Standard market property casualty insurance subsidiaries
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Life insurance
subsidiary
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Excess and surplus lines insurance subsidiary
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Outlook
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Rating
tier
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Rating
tier
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Rating
tier
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A.M. Best Co.
ambest.com
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A+
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Superior
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2 of 16
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A+
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Superior
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2 of 16
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A+
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Superior
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2 of 16
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Stable
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Fitch Ratings
fitchratings.com
|
A+
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Strong
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5 of 21
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A+
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Strong
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5 of 21
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-
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-
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-
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Stable
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Moody's Investors Service
moodys.com
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A1
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Good
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5 of 21
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-
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-
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-
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-
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-
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-
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Stable
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S&P Global Ratings
spratings.com
|
A+
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Strong
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5 of 21
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A+
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Strong
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5 of 21
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-
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-
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-
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Stable
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Cincinnati Financial Corporation Third-Quarter 2021 10-Q
Page 35
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.
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(Dollars in millions)
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Three months ended September 30,
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Nine months ended September 30,
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2021
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2020
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% Change
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2021
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2020
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% Change
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Earned premiums
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$
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1,596
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$
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1,450
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10
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$
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4,585
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$
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4,242
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8
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Fee revenues
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3
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2
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50
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8
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7
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14
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Total revenues
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1,599
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1,452
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10
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4,593
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4,249
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8
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Loss and loss expenses from:
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Current accident year before catastrophe losses
|
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872
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807
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8
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2,583
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2,456
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5
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Current accident year catastrophe losses
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218
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275
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(21)
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489
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643
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(24)
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Prior accident years before catastrophe losses
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(112)
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(3)
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nm
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(282)
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(72)
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|
(292)
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Prior accident years catastrophe losses
|
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10
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(8)
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nm
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(49)
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(19)
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(158)
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Loss and loss expenses
|
|
988
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|
1,071
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(8)
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2,741
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|
3,008
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(9)
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Underwriting expenses
|
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490
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|
432
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13
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1,377
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|
1,309
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5
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Underwriting profit (loss)
|
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$
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121
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$
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(51)
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nm
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$
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475
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$
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(68)
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nm
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Ratios as a percent of earned premiums:
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Pt. Change
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Pt. Change
|
Current accident year before catastrophe losses
|
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54.7
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%
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55.7
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%
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(1.0)
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56.3
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%
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57.9
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%
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(1.6)
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Current accident year catastrophe losses
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13.6
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18.9
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(5.3)
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10.7
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15.1
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(4.4)
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Prior accident years before catastrophe losses
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(7.0)
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(0.2)
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(6.8)
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(6.1)
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(1.7)
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(4.4)
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|
Prior accident years catastrophe losses
|
|
0.6
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|
|
(0.6)
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1.2
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|
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(1.1)
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|
|
(0.4)
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|
|
(0.7)
|
|
Loss and loss expenses
|
|
61.9
|
|
|
73.8
|
|
|
(11.9)
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|
|
59.8
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|
|
70.9
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|
|
(11.1)
|
|
Underwriting expenses
|
|
30.7
|
|
|
29.8
|
|
|
0.9
|
|
|
30.0
|
|
|
30.9
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|
|
(0.9)
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|
Combined ratio
|
|
92.6
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%
|
|
103.6
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%
|
|
(11.0)
|
|
|
89.8
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%
|
|
101.8
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%
|
|
(12.0)
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|
|
|
|
|
|
|
|
|
|
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|
Combined ratio
|
|
92.6
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%
|
|
103.6
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%
|
|
(11.0)
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|
89.8
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%
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|
101.8
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%
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(12.0)
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|
Contribution from catastrophe losses and prior
years reserve development
|
|
7.2
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|
|
18.1
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|
|
(10.9)
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|
3.5
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|
13.0
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(9.5)
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Combined ratio before catastrophe losses and
prior years reserve development
|
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85.4
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%
|
|
85.5
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%
|
|
(0.1)
|
|
|
86.3
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%
|
|
88.8
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%
|
|
(2.5)
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|
|
|
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We believe the COVID-19 pandemic did not have a significant effect on our consolidated property casualty premium revenues for the third or second quarters of 2021, while it had a modestly slowing effect on premium growth for the first quarter of 2021. The pandemic and a weakened economy reduced premium volume during the first quarter of 2021 and the second and third quarters of last year. A strengthening economy in 2021 contributed to premium growth for the third quarter and first nine months of 2021, compared with the same periods a year ago.
Consolidated property casualty net written premiums grew 10% for the third quarter of 2021. For the first nine months of 2021, compared with the same period of 2020, consolidated property casualty net written premiums grew 11%, including a contribution of 3% from Cincinnati Re.
Consolidated property casualty new business written premiums increased 22% and 12% for the third quarter and first nine months of 2021, compared with the same periods of 2020. For policies that renewed during the first nine months of 2021, higher average pricing also contributed to premium growth. Regardless of pricing changes, new business and renewal premium amounts could decline if the exposure basis for policy premiums, such as sales and payrolls of businesses we insure, decrease as a result of a weakened economy.
Loss experience for our insurance operations is influenced by many factors as discussed in further detail in Financial Results by property casualty insurance segment. For future periods, factors that reduce exposure to certain insurance losses, such as fewer vehicular miles driven or reduced sales and payrolls for businesses, could cause a reduction in future losses that generally correspond to reduced premiums. However, there could be losses
Cincinnati Financial Corporation Third-Quarter 2021 10-Q
Page 36
or legal expenses that occur independent of changes in mileage, sales or payrolls of businesses we insure, due to pandemic effects or other factors.
Our consolidated property casualty insurance operations generated an underwriting profit of $121 million for the third quarter of 2021 and $475 million for the first nine months of 2021. The increases of $172 million and $543 million, respectively, compared with the same periods of 2020, included favorable decreases of $39 million and $184 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 September 30, 2021, were $504 million, or 8%, higher than at year-end 2020, including an increase of $299 million for the 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 third quarter of 2021 improved by 11.0 percentage points, compared with the same period of 2020, including a decrease of 4.1 points from lower catastrophe losses and loss expenses. For the first nine months of 2021, compared with the 2020 nine-month period, our combined ratio improved by 12.0 percentage points, including a decrease of 5.1 points from lower catastrophe losses and loss expenses.
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 7.2 percentage points in the first nine months of 2021, compared with 2.1 percentage points in the same period of 2020. 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 improved in the first nine months of 2021. That 56.3% ratio was 1.6 percentage points lower, compared with the 57.9% accident year 2020 ratio measured as of September 30, 2020, including an increase of 0.2 points in the ratio for large losses of $1 million or more per claim, discussed below.
The underwriting expense ratio increased for the third quarter of 2021, compared with the same period a year ago, primarily due to an increase in profit-sharing commissions for agencies. The underwriting expense ratio decreased for the first nine months of 2021, compared with the same period a year ago. The nine-month decrease reflected the second-quarter 2020 $16 million Stay-at-Home policyholder credit for personal auto policies, in addition to ongoing expense management efforts and higher earned premiums.
Cincinnati Financial Corporation Third-Quarter 2021 10-Q
Page 37
Consolidated Property Casualty Insurance Premiums
|
|
|
|
|
|
|
|
|
|
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|
|
|
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|
|
|
|
|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in millions)
|
|
Three months ended September 30,
|
|
Nine months ended September 30,
|
|
|
2021
|
|
2020
|
|
% Change
|
|
2021
|
|
2020
|
|
% Change
|
Agency renewal written premiums
|
|
$
|
1,244
|
|
|
$
|
1,153
|
|
|
8
|
|
|
$
|
3,853
|
|
|
$
|
3,595
|
|
|
7
|
|
Agency new business written premiums
|
|
230
|
|
|
189
|
|
|
22
|
|
|
685
|
|
|
614
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other written premiums
|
|
64
|
|
|
51
|
|
|
25
|
|
|
407
|
|
|
261
|
|
|
56
|
|
Net written premiums
|
|
1,538
|
|
|
1,393
|
|
|
10
|
|
|
4,945
|
|
|
4,470
|
|
|
11
|
|
Unearned premium change
|
|
58
|
|
|
57
|
|
|
2
|
|
|
(360)
|
|
|
(228)
|
|
|
(58)
|
|
Earned premiums
|
|
$
|
1,596
|
|
|
$
|
1,450
|
|
|
10
|
|
|
$
|
4,585
|
|
|
$
|
4,242
|
|
|
8
|
|
|
|
|
|
|
|
|
|
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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 2021, are discussed in more detail by segment below in Financial Results.
Consolidated property casualty net written premiums for the three and nine months ended September 30, 2021, grew $145 million and $475 million compared with the same periods of 2020. 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 $41 million and $71 million for the third quarter and first nine months of 2021, compared with the same periods of 2020. New agency appointments during 2020 and 2021 produced a $38 million increase in standard lines new business for the first nine months of 2021 compared with the same period of 2020. 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 $3 million and $147 million for the three and nine months ended September 30, 2021, compared with the same periods of 2020, to $57 million and $389 million, respectively. 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 $9 million and $6 million, for the three and nine months ended September 30, 2021, compared with the same periods of 2020, to $47 million and $135 million, respectively.
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 $1 million and $9 million for the third quarter and first nine months of 2021, compared with the same periods of 2020.
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 14.2 and 9.6 percentage points to the combined ratio in the third quarter and first nine months of 2021, compared with 18.3 and 14.7 percentage points in the same periods of 2020.
The reinsurance program for Cincinnati Re that was effective June 1, 2021, provided a recovery based on Hurricane Ida losses estimated as of September 30, 2021. The estimated recovery from the program was $18 million, with a net incurred loss of $80 million for Cincinnati Re in the third quarter of 2021, 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.
Cincinnati Financial Corporation Third-Quarter 2021 10-Q
Page 38
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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|
|
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(Dollars in millions, net of reinsurance)
|
Three months ended September 30,
|
|
Nine months ended September 30,
|
|
|
|
|
|
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Comm.
|
|
Pers.
|
|
E&S
|
|
|
|
|
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Comm.
|
|
Pers.
|
|
E&S
|
|
|
|
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|
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Dates
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Region
|
lines
|
|
lines
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|
lines
|
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Other
|
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Total
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|
lines
|
|
lines
|
|
lines
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Other
|
|
Total
|
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|
|
2021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Feb. 12-15
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South, West
|
$
|
(1)
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(10)
|
|
|
$
|
(11)
|
|
|
$
|
9
|
|
|
$
|
5
|
|
|
$
|
—
|
|
|
$
|
37
|
|
|
$
|
51
|
|
|
|
|
Feb. 16-20
|
|
Midwest, Northeast, South
|
(3)
|
|
|
(3)
|
|
|
—
|
|
|
(2)
|
|
|
(8)
|
|
|
21
|
|
|
30
|
|
|
1
|
|
|
9
|
|
|
61
|
|
|
|
|
Mar. 24-26
|
|
Midwest, Northeast, South
|
(1)
|
|
|
(1)
|
|
|
—
|
|
|
—
|
|
|
(2)
|
|
|
12
|
|
|
18
|
|
|
—
|
|
|
—
|
|
|
30
|
|
|
|
|
Mar. 27-29
|
|
Midwest, Northeast, South
|
1
|
|
|
(1)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4
|
|
|
8
|
|
|
—
|
|
|
—
|
|
|
12
|
|
|
|
|
May 3-4
|
|
South
|
(2)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(2)
|
|
|
9
|
|
|
4
|
|
|
—
|
|
|
—
|
|
|
13
|
|
|
|
|
Jun. 17-20
|
|
Midwest
|
6
|
|
|
2
|
|
|
—
|
|
|
—
|
|
|
8
|
|
|
12
|
|
|
16
|
|
|
—
|
|
|
—
|
|
|
28
|
|
|
|
|
Jun. 24 - Jul. 1
|
|
Midwest, Northeast, South, West
|
3
|
|
|
6
|
|
|
—
|
|
|
—
|
|
|
9
|
|
|
5
|
|
|
12
|
|
|
—
|
|
|
—
|
|
|
17
|
|
|
|
|
Aug. 10 - 13
|
|
Midwest, Northeast, South
|
6
|
|
|
9
|
|
|
—
|
|
|
—
|
|
|
15
|
|
|
6
|
|
|
9
|
|
|
—
|
|
|
—
|
|
|
15
|
|
|
|
|
Aug. 29 - Sep. 2
|
|
Northeast, South (Ida)
|
18
|
|
|
42
|
|
|
—
|
|
|
109
|
|
|
169
|
|
|
18
|
|
|
42
|
|
|
—
|
|
|
109
|
|
|
169
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|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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All other 2021 catastrophes
|
10
|
|
|
24
|
|
|
1
|
|
|
5
|
|
|
40
|
|
|
34
|
|
|
53
|
|
|
1
|
|
|
5
|
|
|
93
|
|
|
|
|
Development on 2020 and prior catastrophes
|
(5)
|
|
|
—
|
|
|
—
|
|
|
15
|
|
|
10
|
|
|
(32)
|
|
|
(4)
|
|
|
—
|
|
|
(13)
|
|
|
(49)
|
|
|
|
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Calendar year incurred total
|
$
|
32
|
|
|
$
|
78
|
|
|
$
|
1
|
|
|
$
|
117
|
|
|
$
|
228
|
|
|
$
|
98
|
|
|
$
|
193
|
|
|
$
|
2
|
|
|
$
|
147
|
|
|
$
|
440
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jan. 10-12
|
|
Midwest, Northeast, South
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
6
|
|
|
$
|
5
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
11
|
|
|
|
|
Feb. 5-8
|
|
Northeast, South
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
10
|
|
|
5
|
|
|
—
|
|
|
—
|
|
|
15
|
|
|
|
|
Mar. 2-4
|
|
Midwest, South
|
(3)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(3)
|
|
|
61
|
|
|
8
|
|
|
—
|
|
|
5
|
|
|
74
|
|
|
|
|
Mar. 27-30
|
|
Midwest, Northeast, South
|
—
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
23
|
|
|
14
|
|
|
—
|
|
|
—
|
|
|
37
|
|
|
|
|
Apr. 7-9
|
|
Midwest, Northeast, South
|
2
|
|
|
4
|
|
|
—
|
|
|
—
|
|
|
6
|
|
|
29
|
|
|
29
|
|
|
—
|
|
|
—
|
|
|
58
|
|
|
|
|
Apr. 10-14
|
|
Midwest, Northeast, South
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
23
|
|
|
27
|
|
|
—
|
|
|
—
|
|
|
50
|
|
|
|
|
May 4-5
|
|
Midwest, South
|
1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
23
|
|
|
5
|
|
|
—
|
|
|
—
|
|
|
28
|
|
|
|
|
May 26 - Jun. 8
|
|
Midwest, Northeast, South, West
|
(1)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1)
|
|
|
18
|
|
|
—
|
|
|
1
|
|
|
8
|
|
|
27
|
|
|
|
|
Jul. 10-12
|
|
Midwest, South
|
14
|
|
|
14
|
|
|
—
|
|
|
—
|
|
|
28
|
|
|
14
|
|
|
14
|
|
|
—
|
|
|
—
|
|
|
28
|
|
|
|
|
Jul. 30 - Aug. 5
|
|
International, South, Northeast
|
6
|
|
|
21
|
|
|
—
|
|
|
—
|
|
|
27
|
|
|
6
|
|
|
21
|
|
|
—
|
|
|
—
|
|
|
27
|
|
|
|
|
Aug. 8-11
|
|
Midwest
|
84
|
|
|
19
|
|
|
—
|
|
|
—
|
|
|
103
|
|
|
84
|
|
|
19
|
|
|
—
|
|
|
—
|
|
|
103
|
|
|
|
|
Aug. 26-28
|
|
South (Laura)
|
2
|
|
|
2
|
|
|
—
|
|
|
42
|
|
|
46
|
|
|
2
|
|
|
2
|
|
|
—
|
|
|
42
|
|
|
46
|
|
|
|
|
Sep. 7-16
|
|
West
|
12
|
|
|
3
|
|
|
—
|
|
|
—
|
|
|
15
|
|
|
12
|
|
|
3
|
|
|
—
|
|
|
—
|
|
|
15
|
|
|
|
|
Sep. 14-18
|
|
South (Sally)
|
6
|
|
|
8
|
|
|
—
|
|
|
14
|
|
|
28
|
|
|
6
|
|
|
8
|
|
|
—
|
|
|
14
|
|
|
28
|
|
|
|
|
All other 2020 catastrophes
|
5
|
|
|
14
|
|
|
1
|
|
|
4
|
|
|
24
|
|
|
26
|
|
|
61
|
|
|
3
|
|
|
6
|
|
|
96
|
|
|
|
|
Development on 2019 and prior catastrophes
|
1
|
|
|
(3)
|
|
|
—
|
|
|
(6)
|
|
|
(8)
|
|
|
(8)
|
|
|
(8)
|
|
|
—
|
|
|
(3)
|
|
|
(19)
|
|
|
|
|
Calendar year incurred total
|
$
|
129
|
|
|
$
|
83
|
|
|
$
|
1
|
|
|
$
|
54
|
|
|
$
|
267
|
|
|
$
|
335
|
|
|
$
|
213
|
|
|
$
|
4
|
|
|
$
|
72
|
|
|
$
|
624
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cincinnati Financial Corporation Third-Quarter 2021 10-Q
Page 39
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in millions, net of reinsurance)
|
|
Three months ended September 30,
|
|
Nine months ended September 30,
|
|
|
2021
|
|
2020
|
|
% Change
|
|
2021
|
|
2020
|
|
% Change
|
Current accident year losses greater than $5 million
|
|
$
|
14
|
|
|
$
|
21
|
|
|
(33)
|
|
|
$
|
57
|
|
|
$
|
40
|
|
|
43
|
|
Current accident year losses $1 million - $5 million
|
|
72
|
|
|
46
|
|
|
57
|
|
|
154
|
|
|
149
|
|
|
3
|
|
Large loss prior accident year reserve development
|
|
30
|
|
|
(3)
|
|
|
nm
|
|
67
|
|
|
30
|
|
|
123
|
|
Total large losses incurred
|
|
116
|
|
|
64
|
|
|
81
|
|
|
278
|
|
|
219
|
|
|
27
|
|
Losses incurred but not reported
|
|
(13)
|
|
|
38
|
|
|
nm
|
|
52
|
|
|
251
|
|
|
(79)
|
|
Other losses excluding catastrophe losses
|
|
514
|
|
|
550
|
|
|
(7)
|
|
|
1,542
|
|
|
1,455
|
|
|
6
|
|
Catastrophe losses
|
|
215
|
|
|
261
|
|
|
(18)
|
|
|
421
|
|
|
611
|
|
|
(31)
|
|
Total losses incurred
|
|
$
|
832
|
|
|
$
|
913
|
|
|
(9)
|
|
|
$
|
2,293
|
|
|
$
|
2,536
|
|
|
(10)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratios as a percent of earned premiums:
|
|
|
|
|
|
Pt. Change
|
|
|
|
|
|
Pt. Change
|
Current accident year losses greater than $5 million
|
|
0.9
|
%
|
|
1.5
|
%
|
|
(0.6)
|
|
|
1.2
|
%
|
|
0.9
|
%
|
|
0.3
|
|
Current accident year losses $1 million - $5 million
|
|
4.5
|
|
|
3.2
|
|
|
1.3
|
|
|
3.4
|
|
|
3.5
|
|
|
(0.1)
|
|
Large loss prior accident year reserve development
|
|
1.9
|
|
|
(0.3)
|
|
|
2.2
|
|
|
1.5
|
|
|
0.8
|
|
|
0.7
|
|
Total large loss ratio
|
|
7.3
|
|
|
4.4
|
|
|
2.9
|
|
|
6.1
|
|
|
5.2
|
|
|
0.9
|
|
Losses incurred but not reported
|
|
(0.8)
|
|
|
2.6
|
|
|
(3.4)
|
|
|
1.1
|
|
|
5.9
|
|
|
(4.8)
|
|
Other losses excluding catastrophe losses
|
|
32.2
|
|
|
38.0
|
|
|
(5.8)
|
|
|
33.6
|
|
|
34.3
|
|
|
(0.7)
|
|
Catastrophe losses
|
|
13.4
|
|
|
18.0
|
|
|
(4.6)
|
|
|
9.2
|
|
|
14.4
|
|
|
(5.2)
|
|
Total loss ratio
|
|
52.1
|
%
|
|
63.0
|
%
|
|
(10.9)
|
|
|
50.0
|
%
|
|
59.8
|
%
|
|
(9.8)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 third-quarter 2021 property casualty total large losses incurred of $116 million, net of reinsurance, were higher than the $74 million quarterly average during full-year 2020 and the $64 million experienced for the third quarter of 2020. The ratio for these large losses was 2.9 percentage points higher compared with last year's third quarter. The third-quarter 2021 amount of total large losses incurred unfavorably contributed to the increase in the nine-month 2021 total large loss ratio, compared with 2020, as it offset a first-half 2021 ratio that was 0.2 points lower than the first half of 2020. We believe results for the three- and nine-month periods largely reflected normal fluctuations in loss patterns and normal variability in large case reserves for claims above $1 million. Losses by size are discussed in further detail in results of operations by property casualty insurance segment.
FINANCIAL RESULTS
Consolidated results reflect the operating results of each of our five segments along with the parent company, Cincinnati Re, Cincinnati Global and other activities reported as "Other." The five segments are:
•Commercial lines insurance
•Personal lines insurance
•Excess and surplus lines insurance
•Life insurance
•Investments
Cincinnati Financial Corporation Third-Quarter 2021 10-Q
Page 40
COMMERCIAL LINES INSURANCE RESULTS
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(Dollars in millions)
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Three months ended September 30,
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Nine months ended September 30,
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2021
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2020
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% Change
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2021
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2020
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% Change
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Earned premiums
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$
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930
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$
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865
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8
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$
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2,727
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$
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2,598
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5
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Fee revenues
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1
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1
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0
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3
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3
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0
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Total revenues
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931
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866
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8
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2,730
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2,601
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5
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Loss and loss expenses from:
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Current accident year before catastrophe losses
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521
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500
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4
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1,580
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1,540
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3
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Current accident year catastrophe losses
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37
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128
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(71)
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130
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343
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(62)
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Prior accident years before catastrophe losses
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(102)
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(9)
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nm
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(244)
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(51)
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(378)
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Prior accident years catastrophe losses
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(5)
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1
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nm
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(32)
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(8)
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(300)
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Loss and loss expenses
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451
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620
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(27)
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1,434
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1,824
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(21)
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Underwriting expenses
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298
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266
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12
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839
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809
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4
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Underwriting profit (loss)
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$
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182
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$
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(20)
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nm
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$
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457
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$
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(32)
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nm
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Ratios as a percent of earned premiums:
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Pt. Change
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Pt. Change
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Current accident year before catastrophe losses
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56.1
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%
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57.8
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%
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(1.7)
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57.9
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%
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59.2
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%
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(1.3)
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Current accident year catastrophe losses
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3.9
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14.7
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(10.8)
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4.8
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13.2
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(8.4)
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Prior accident years before catastrophe losses
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(10.9)
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(1.0)
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(9.9)
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(8.9)
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(1.9)
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(7.0)
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Prior accident years catastrophe losses
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(0.6)
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0.1
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(0.7)
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(1.2)
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(0.3)
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(0.9)
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Loss and loss expenses
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48.5
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71.6
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(23.1)
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52.6
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70.2
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(17.6)
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Underwriting expenses
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32.1
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30.8
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1.3
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30.8
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31.1
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(0.3)
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Combined ratio
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80.6
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%
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102.4
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%
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(21.8)
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83.4
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%
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101.3
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%
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(17.9)
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Combined ratio
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80.6
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%
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102.4
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%
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(21.8)
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83.4
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%
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101.3
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%
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(17.9)
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Contribution from catastrophe losses and
prior years reserve development
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(7.6)
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13.8
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(21.4)
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(5.3)
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11.0
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(16.3)
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Combined ratio before catastrophe losses and
prior years reserve development
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88.2
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%
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88.6
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%
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(0.4)
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88.7
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%
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90.3
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%
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(1.6)
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Overview
Commercial lines insurance segment earned premiums grew 8% for the third quarter and 5% for the first nine months of 2021, exceeding the 3% full-year 2019 earned premiums growth rate recorded prior to the COVID-19 pandemic. The pandemic and a weakened economy reduced premium volume during the first quarter of 2021 and the second and third quarters of last year. A strengthening economy in 2021 contributed to net written premium growth for the third quarter and first nine months of 2021, compared with the same periods a year ago.
Net written premiums grew 10% for the third quarter of 2021 and 7% for the first nine months of 2021, compared with the same periods of 2020. New business written premiums increased 27% for the third quarter of 2021 and 8% for the first nine months of 2021. New business and renewal premium amounts could decline if the exposure basis for policy premiums, such as sales and payrolls of businesses we insure, decrease as a result of a weakened economy.
Loss experience for our insurance operations is influenced by many factors, including lower catastrophe losses that contributed to lower overall commercial lines losses for the first nine months of 2021. Loss experience before catastrophe effects for our commercial lines insurance segment continued to improve during the first nine months of 2021. The main driver of the improvement was the ratio for reserve development on prior accident years before catastrophe losses. For future periods, factors that reduce exposure to certain insurance losses, such as fewer vehicular miles driven or reduced sales results and payrolls for businesses, could cause a reduction in future losses that generally correspond to reduced premiums. However, there could be losses or legal expenses that occur independent of changes in mileage, sales or payrolls of businesses we insure, due to pandemic effects or other factors.
Cincinnati Financial Corporation Third-Quarter 2021 10-Q
Page 41
Performance highlights for the commercial lines segment include:
•Premiums – Earned premiums and net written premiums for the commercial lines segment rose during the third quarter and first nine months of 2021, compared with the same periods 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 7% for both the third quarter and the first nine months of 2021, compared with the same periods of 2020. During the third quarter of 2021, our overall standard commercial lines policies averaged estimated renewal price increases at percentages near the low end of 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 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 third quarter of 2021, we estimate that our average percentage price increases were as follows: commercial property near the high end of 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 nine months of 2021 contributed $31 million to net written premiums, compared with $43 million for the same period of 2020.
New business written premiums for commercial lines increased by $31 million for the third quarter and $34 million for the first nine months of 2021, compared with the same periods of 2020. 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 $1 million and $6 million for the third quarter and first nine months of 2021, compared with the same periods of 2020.
Commercial Lines Insurance Premiums
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(Dollars in millions)
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Three months ended September 30,
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Nine months ended September 30,
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2021
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2020
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% Change
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2021
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2020
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% Change
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Agency renewal written premiums
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$
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775
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$
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727
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7
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$
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2,525
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$
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2,363
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7
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Agency new business written premiums
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145
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114
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27
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436
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|
402
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8
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Other written premiums
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(25)
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(27)
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7
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(70)
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(71)
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1
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Net written premiums
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895
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814
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10
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2,891
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2,694
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7
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Unearned premium change
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35
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51
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(31)
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(164)
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(96)
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(71)
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Earned premiums
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$
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930
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|
|
$
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865
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|
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8
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|
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$
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2,727
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|
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$
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2,598
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5
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Cincinnati Financial Corporation Third-Quarter 2021 10-Q
Page 42
•Combined ratio – The commercial lines combined ratio for the third quarter of 2021 improved by 21.8 percentage points, compared with third-quarter 2020, including a decrease of 11.5 points in losses from catastrophes. For the first nine months of 2021, the combined ratio improved by 17.9 percentage points, compared with the same period a year ago, including a decrease of 9.3 points in losses from catastrophes. Underwriting results continued to reflect better loss experience for the current accident year and a higher 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 improved in the first nine months of 2021. That 57.9% ratio was 1.3 percentage points lower, compared with the 59.2% accident year 2020 ratio measured as of September 30, 2020, including an increase of 0.5 percentage points in the ratio for large losses of $1 million or more per claim, discussed below.
Catastrophe losses and loss expenses accounted for 3.3 and 3.6 percentage points of the combined ratio for the third quarter and first nine months of 2021, compared with 14.8 and 12.9 percentage points for the same periods a year ago. Through 2020, the 10-year annual average for that catastrophe measure for the commercial lines segment was 6.2 percentage points, and the five-year annual average was 6.6 percentage points.
The net effect of reserve development on prior accident years during the third quarter and first nine months of 2021 was favorable for commercial lines overall by $107 million and $276 million, compared with $8 million and $59 million for the same periods in 2020. For the first nine months of 2021, our commercial casualty, commercial property and workers' compensation 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 nine months of 2021 for our commercial lines insurance segment was primarily for accident years 2018 through 2020 and was primarily due to lower-than-anticipated loss emergence on known claims. Reserve estimates are inherently uncertain as described in our 2020 Annual Report on Form 10-K, Item 7, Critical Accounting Estimates, Property Casualty Insurance Loss and Loss Expense Reserves, Page 56.
The commercial lines underwriting expense ratio increased for the third quarter of 2021, compared with the same period a year ago, primarily due to an increase in profit-sharing commissions for agencies. The underwriting expense ratio decreased for the first nine months of 2021, compared with the same period a year ago. The nine-month decrease was primarily due to lower levels of uncollectible premiums, in addition to ongoing expense management efforts and higher earned premiums.
Commercial Lines Insurance Losses Incurred by Size
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(Dollars in millions, net of reinsurance)
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Three months ended September 30,
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Nine months ended September 30,
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2021
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2020
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% Change
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2021
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2020
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% Change
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Current accident year losses greater than $5 million
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$
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4
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$
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21
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(81)
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$
|
47
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$
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40
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18
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Current accident year losses $1 million - $5 million
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60
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|
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20
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|
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200
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|
|
115
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|
|
100
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|
15
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Large loss prior accident year reserve development
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29
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(1)
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nm
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69
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|
27
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|
|
156
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|
Total large losses incurred
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93
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|
|
40
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|
|
133
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|
|
231
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|
|
167
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|
|
38
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Losses incurred but not reported
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(35)
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|
60
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nm
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(30)
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|
|
190
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|
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nm
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Other losses excluding catastrophe losses
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270
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|
|
287
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(6)
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|
857
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|
|
817
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|
|
5
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Catastrophe losses
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30
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|
|
125
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|
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(76)
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|
|
92
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|
|
327
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|
|
(72)
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|
Total losses incurred
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$
|
358
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|
|
$
|
512
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|
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(30)
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|
|
$
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1,150
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|
|
$
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1,501
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(23)
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Ratios as a percent of earned premiums:
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Pt. Change
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Pt. Change
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Current accident year losses greater than $5 million
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0.5
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%
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2.5
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%
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(2.0)
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1.7
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%
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1.5
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%
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0.2
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Current accident year losses $1 million - $5 million
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6.5
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2.3
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4.2
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4.2
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3.9
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0.3
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Large loss prior accident year reserve development
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3.1
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(0.2)
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3.3
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2.6
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1.0
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|
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1.6
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Total large loss ratio
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10.1
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|
|
4.6
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|
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5.5
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8.5
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6.4
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|
2.1
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Losses incurred but not reported
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(3.7)
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6.9
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|
|
(10.6)
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|
|
(1.1)
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7.3
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|
|
(8.4)
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Other losses excluding catastrophe losses
|
|
29.0
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|
|
33.1
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|
|
(4.1)
|
|
|
31.4
|
|
|
31.5
|
|
|
(0.1)
|
|
Catastrophe losses
|
|
3.1
|
|
|
14.5
|
|
|
(11.4)
|
|
|
3.4
|
|
|
12.6
|
|
|
(9.2)
|
|
Total loss ratio
|
|
38.5
|
%
|
|
59.1
|
%
|
|
(20.6)
|
|
|
42.2
|
%
|
|
57.8
|
%
|
|
(15.6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cincinnati Financial Corporation Third-Quarter 2021 10-Q
Page 43
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 third-quarter 2021 commercial lines total large losses incurred of $93 million, net of reinsurance, were higher than the quarterly average of $55 million during full-year 2020 and the $40 million of total large losses incurred for the third quarter of 2020. The increase in commercial lines large losses for the first nine months of 2021 was primarily due to our commercial casualty line of business. The third-quarter 2021 ratio for commercial lines total large losses was 5.5 percentage points higher than last year's third-quarter ratio. The third-quarter 2021 amount of total large losses incurred unfavorably contributed to the increase in the nine-month 2021 total large loss ratio, compared with 2020, in addition to a first-half 2021 ratio that was 0.4 points higher than the first half of 2020. We believe results for the three-and nine- month periods largely reflected normal fluctuations in loss patterns and normal variability in large case reserves for claims above $1 million.
Cincinnati Financial Corporation Third-Quarter 2021 10-Q
Page 44
PERSONAL LINES INSURANCE RESULTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in millions)
|
|
Three months ended September 30,
|
|
Nine months ended September 30,
|
|
|
2021
|
|
2020
|
|
% Change
|
|
2021
|
|
2020
|
|
% Change
|
Earned premiums
|
|
$
|
388
|
|
|
$
|
367
|
|
|
6
|
|
|
$
|
1,146
|
|
|
$
|
1,090
|
|
|
5
|
|
Fee revenues
|
|
1
|
|
|
1
|
|
|
0
|
|
|
3
|
|
|
3
|
|
|
0
|
|
Total revenues
|
|
389
|
|
|
368
|
|
|
6
|
|
|
1,149
|
|
|
1,093
|
|
|
5
|
|
Loss and loss expenses from:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current accident year before catastrophe losses
|
|
206
|
|
|
179
|
|
|
15
|
|
|
633
|
|
|
589
|
|
|
7
|
|
Current accident year catastrophe losses
|
|
78
|
|
|
86
|
|
|
(9)
|
|
|
197
|
|
|
221
|
|
|
(11)
|
|
Prior accident years before catastrophe losses
|
|
(3)
|
|
|
3
|
|
|
nm
|
|
(31)
|
|
|
(20)
|
|
|
(55)
|
|
Prior accident years catastrophe losses
|
|
—
|
|
|
(3)
|
|
|
100
|
|
|
(4)
|
|
|
(8)
|
|
|
50
|
|
Loss and loss expenses
|
|
281
|
|
|
265
|
|
|
6
|
|
|
795
|
|
|
782
|
|
|
2
|
|
Underwriting expenses
|
|
118
|
|
|
105
|
|
|
12
|
|
|
338
|
|
|
335
|
|
|
1
|
|
Underwriting profit (loss)
|
|
$
|
(10)
|
|
|
$
|
(2)
|
|
|
(400)
|
|
|
$
|
16
|
|
|
$
|
(24)
|
|
|
nm
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratios as a percent of earned premiums:
|
|
|
|
|
|
Pt. Change
|
|
|
|
|
|
Pt. Change
|
Current accident year before catastrophe losses
|
|
53.1
|
%
|
|
48.5
|
%
|
|
4.6
|
|
|
55.2
|
%
|
|
54.0
|
%
|
|
1.2
|
|
Current accident year catastrophe losses
|
|
20.1
|
|
|
23.3
|
|
|
(3.2)
|
|
|
17.2
|
|
|
20.2
|
|
|
(3.0)
|
|
Prior accident years before catastrophe losses
|
|
(0.7)
|
|
|
0.9
|
|
|
(1.6)
|
|
|
(2.7)
|
|
|
(1.8)
|
|
|
(0.9)
|
|
Prior accident years catastrophe losses
|
|
(0.1)
|
|
|
(0.8)
|
|
|
0.7
|
|
|
(0.4)
|
|
|
(0.7)
|
|
|
0.3
|
|
Loss and loss expenses
|
|
72.4
|
|
|
71.9
|
|
|
0.5
|
|
|
69.3
|
|
|
71.7
|
|
|
(2.4)
|
|
Underwriting expenses
|
|
30.3
|
|
|
28.8
|
|
|
1.5
|
|
|
29.5
|
|
|
30.8
|
|
|
(1.3)
|
|
Combined ratio
|
|
102.7
|
%
|
|
100.7
|
%
|
|
2.0
|
|
|
98.8
|
%
|
|
102.5
|
%
|
|
(3.7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined ratio
|
|
102.7
|
%
|
|
100.7
|
%
|
|
2.0
|
|
|
98.8
|
%
|
|
102.5
|
%
|
|
(3.7)
|
|
Contribution from catastrophe losses and
prior years reserve development
|
|
19.3
|
|
|
23.4
|
|
|
(4.1)
|
|
|
14.1
|
|
|
17.7
|
|
|
(3.6)
|
|
Combined ratio before catastrophe losses and
prior years reserve development
|
|
83.4
|
%
|
|
77.3
|
%
|
|
6.1
|
|
|
84.7
|
%
|
|
84.8
|
%
|
|
(0.1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Overview
The COVID-19 pandemic did not have a significant effect on our personal lines insurance segment premiums for the third quarter or first nine months of 2021, as net written premiums grew 7% for the quarter and 5% for the nine-month period, compared with the same periods of 2020. Loss experience for our insurance operations is influenced by many factors. For the third quarter and first nine months of 2021, loss experience for our personal auto line of business drove the increase in the personal lines insurance segment loss and loss expenses for the current accident year before catastrophe effects, compared with the 2020 periods. Reduced driving in 2020 related to the pandemic contributed to a reduction in reported claims, while driving patterns in 2021 have been moving towards pre-pandemic levels. Because of factors that reduce exposure to certain insurance losses, there could be a reduction in future losses that generally corresponds to reduced premiums. However, there could be losses or legal expenses that occur independent of changes in miles driven for autos we insure, due to pandemic effects or other factors.
Performance highlights for the personal lines segment include:
•Premiums – Personal lines earned premiums and net written premiums continued to grow during the third quarter and first nine months of 2021, reflecting increased new business and renewal written premiums that included higher average pricing. Personal lines net written premiums from high net worth policies totaled approximately $180 million and $490 million for the third quarter and first nine months of 2021, compared with $141 million and $387 million for the same periods of 2020. The table below analyzes the primary components of premiums.
Agency renewal written premiums increased 7% for the third quarter and 4% for the first nine months of 2021, reflecting rate increases in selected states and other factors such as changes in policy deductibles or mix of
Cincinnati Financial Corporation Third-Quarter 2021 10-Q
Page 45
business. We estimate that premium rates for our personal auto line of business increased at average percentages near the high end of the low-single-digit range during the first nine months of 2021. For our homeowner line of business, we estimate that premium rates for the first nine months of 2021 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 4% for the third quarter and 18% for the first nine months of 2021, compared with the same periods of 2020. We believe underwriting and pricing discipline was maintained in recent quarters, and growth was enhanced by expanded use of enhanced pricing precision tools, including excess and surplus lines homeowner policies we began offering in early 2020.
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 $1 million and $3 million for the third quarter and first nine months of 2021, compared with the same periods of 2020.
We continue to implement strategies discussed in our 2020 Annual Report on Form 10-K, Item 1, Strategic Initiatives, Page 15, 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 September 30,
|
|
Nine months ended September 30,
|
|
|
2021
|
|
2020
|
|
% Change
|
|
2021
|
|
2020
|
|
% Change
|
Agency renewal written premiums
|
|
$
|
393
|
|
|
$
|
366
|
|
|
7
|
|
|
$
|
1,092
|
|
|
$
|
1,047
|
|
|
4
|
|
Agency new business written premiums
|
|
53
|
|
|
51
|
|
|
4
|
|
|
152
|
|
|
129
|
|
|
18
|
|
Other written premiums
|
|
(11)
|
|
|
(10)
|
|
|
(10)
|
|
|
(32)
|
|
|
(27)
|
|
|
(19)
|
|
Net written premiums
|
|
435
|
|
|
407
|
|
|
7
|
|
|
1,212
|
|
|
1,149
|
|
|
5
|
|
Unearned premium change
|
|
(47)
|
|
|
(40)
|
|
|
(18)
|
|
|
(66)
|
|
|
(59)
|
|
|
(12)
|
|
Earned premiums
|
|
$
|
388
|
|
|
$
|
367
|
|
|
6
|
|
|
$
|
1,146
|
|
|
$
|
1,090
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
•Combined ratio – Our personal lines combined ratio for the third quarter of 2021 increased by 2.0 percentage points, compared with third-quarter 2020, as higher current accident year loss and loss expenses before catastrophe losses offset a decrease of 2.5 points in losses from catastrophes. For the first nine months of 2021, the combined ratio improved by 3.7 percentage points, compared with the same period a year ago, including a decrease of 2.7 points in losses from catastrophes.
The ratio for current accident year loss and loss expenses before catastrophe losses for personal lines increased in the first nine months of 2021. That 55.2% ratio was 1.2 percentage points higher, compared with the 54.0% accident year 2020 ratio measured as of September 30, 2020, including a decrease of 0.2 percentage points in the ratio for large losses of $1 million or more per claim, discussed below.
Catastrophe losses and loss expenses accounted for 20.0 and 16.8 percentage points of the combined ratio for the third quarter and first nine months of 2021, compared with 22.5 and 19.5 percentage points for the same periods a year ago. The 10-year annual average catastrophe loss ratio for the personal lines segment through 2020 was 11.2 percentage points, and the five-year annual average was 11.1 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 third quarter and first nine months of 2021 was favorable for personal lines overall by $3 million and $35 million, compared with less than $1 million of unfavorable development for third-quarter 2020 and $28 million of favorable development for the first nine months of 2020. Our personal auto line of business was the primary contributor to the personal lines net favorable reserve development for the first nine months of 2021. The net favorable reserve development was primarily due to lower-than-anticipated loss emergence on known claims. Reserve estimates are inherently
Cincinnati Financial Corporation Third-Quarter 2021 10-Q
Page 46
uncertain as described in our 2020 Annual Report on Form 10-K, Item 7, Critical Accounting Estimates, Property Casualty Insurance Loss and Loss Expense Reserves, Page 56.
The personal lines underwriting expense ratio increased for the third quarter of 2021, compared with the same period a year ago, primarily due to an increase in profit-sharing commissions for agencies. The underwriting expense ratio decreased for the first nine months of 2021, compared with the same period a year ago. The nine-month decrease reflected the second-quarter 2020 $16 million Stay-at-Home policyholder credit for personal auto policies. The ratios also included ongoing expense management efforts and premium growth outpacing growth in expenses.
Personal Lines Insurance Losses Incurred by Size
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in millions, net of reinsurance)
|
|
Three months ended September 30,
|
|
Nine months ended September 30,
|
|
|
2021
|
|
2020
|
|
% Change
|
|
2021
|
|
2020
|
|
% Change
|
Current accident year losses greater than $5 million
|
|
$
|
10
|
|
|
$
|
—
|
|
|
nm
|
|
$
|
10
|
|
|
$
|
—
|
|
|
nm
|
Current accident year losses $1 million - $5 million
|
|
12
|
|
|
21
|
|
|
(43)
|
|
|
31
|
|
|
42
|
|
|
(26)
|
|
Large loss prior accident year reserve development
|
|
(1)
|
|
|
(2)
|
|
|
50
|
|
|
(4)
|
|
|
4
|
|
|
nm
|
Total large losses incurred
|
|
21
|
|
|
19
|
|
|
11
|
|
|
37
|
|
|
46
|
|
|
(20)
|
|
Losses incurred but not reported
|
|
—
|
|
|
(24)
|
|
|
100
|
|
|
37
|
|
|
41
|
|
|
(10)
|
|
Other losses excluding catastrophe losses
|
|
154
|
|
|
156
|
|
|
(1)
|
|
|
442
|
|
|
388
|
|
|
14
|
|
Catastrophe losses
|
|
69
|
|
|
81
|
|
|
(15)
|
|
|
182
|
|
|
208
|
|
|
(13)
|
|
Total losses incurred
|
|
$
|
244
|
|
|
$
|
232
|
|
|
5
|
|
|
$
|
698
|
|
|
$
|
683
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratios as a percent of earned premiums:
|
|
|
|
|
|
Pt. Change
|
|
|
|
|
|
Pt. Change
|
Current accident year losses greater than $5 million
|
|
2.6
|
%
|
|
—
|
%
|
|
2.6
|
|
|
0.9
|
%
|
|
—
|
%
|
|
0.9
|
|
Current accident year losses $1 million - $5 million
|
|
2.9
|
|
|
5.8
|
|
|
(2.9)
|
|
|
2.7
|
|
|
3.8
|
|
|
(1.1)
|
|
Large loss prior accident year reserve development
|
|
(0.2)
|
|
|
(0.7)
|
|
|
0.5
|
|
|
(0.4)
|
|
|
0.4
|
|
|
(0.8)
|
|
Total large loss ratio
|
|
5.3
|
|
|
5.1
|
|
|
0.2
|
|
|
3.2
|
|
|
4.2
|
|
|
(1.0)
|
|
Losses incurred but not reported
|
|
(0.1)
|
|
|
(6.6)
|
|
|
6.5
|
|
|
3.2
|
|
|
3.7
|
|
|
(0.5)
|
|
Other losses excluding catastrophe losses
|
|
39.7
|
|
|
42.5
|
|
|
(2.8)
|
|
|
38.6
|
|
|
35.6
|
|
|
3.0
|
|
Catastrophe losses
|
|
17.7
|
|
|
22.1
|
|
|
(4.4)
|
|
|
15.9
|
|
|
19.1
|
|
|
(3.2)
|
|
Total loss ratio
|
|
62.6
|
%
|
|
63.1
|
%
|
|
(0.5)
|
|
|
60.9
|
%
|
|
62.6
|
%
|
|
(1.7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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. In the third quarter of 2021, the personal lines total large loss ratio, net of reinsurance, was 0.2 percentage points higher than last year's third quarter. The decrease in personal lines large losses for the first nine months of 2021 occurred primarily for umbrella coverage in our homeowner line of business. The third-quarter 2021 amount of total large losses incurred unfavorably contributed to the decrease in the nine-month 2021 total large loss ratio, compared with 2020, as it partially offset a first-half 2021 ratio that was 1.6 points lower than the first half of 2020. We believe results for the three- and nine-month periods largely reflected normal fluctuations in loss patterns and normal variability in large case reserves for claims above $1 million.
Cincinnati Financial Corporation Third-Quarter 2021 10-Q
Page 47
EXCESS AND SURPLUS LINES INSURANCE RESULTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in millions)
|
|
Three months ended September 30,
|
|
Nine months ended September 30,
|
|
|
2021
|
|
2020
|
|
% Change
|
|
2021
|
|
2020
|
|
% Change
|
Earned premiums
|
|
$
|
105
|
|
|
$
|
82
|
|
|
28
|
|
|
$
|
289
|
|
|
$
|
238
|
|
|
21
|
|
Fee revenues
|
|
1
|
|
|
—
|
|
|
nm
|
|
2
|
|
|
1
|
|
|
100
|
|
Total revenues
|
|
106
|
|
|
82
|
|
|
29
|
|
|
291
|
|
|
239
|
|
|
22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss and loss expenses from:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current accident year before catastrophe losses
|
|
66
|
|
|
48
|
|
|
38
|
|
|
179
|
|
|
138
|
|
|
30
|
|
Current accident year catastrophe losses
|
|
1
|
|
|
1
|
|
|
0
|
|
|
2
|
|
|
4
|
|
|
(50)
|
|
Prior accident years before catastrophe losses
|
|
3
|
|
|
(1)
|
|
|
nm
|
|
6
|
|
|
8
|
|
|
(25)
|
|
Prior accident years catastrophe losses
|
|
—
|
|
|
—
|
|
|
0
|
|
|
—
|
|
|
—
|
|
|
0
|
|
Loss and loss expenses
|
|
70
|
|
|
48
|
|
|
46
|
|
|
187
|
|
|
150
|
|
|
25
|
|
Underwriting expenses
|
|
29
|
|
|
23
|
|
|
26
|
|
|
79
|
|
|
70
|
|
|
13
|
|
Underwriting profit
|
|
$
|
7
|
|
|
$
|
11
|
|
|
(36)
|
|
|
$
|
25
|
|
|
$
|
19
|
|
|
32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratios as a percent of earned premiums:
|
|
|
|
|
|
Pt. Change
|
|
|
|
|
|
Pt. Change
|
Current accident year before catastrophe losses
|
|
62.6
|
%
|
|
58.5
|
%
|
|
4.1
|
|
|
61.9
|
%
|
|
57.8
|
%
|
|
4.1
|
|
Current accident year catastrophe losses
|
|
0.4
|
|
|
1.0
|
|
|
(0.6)
|
|
|
0.7
|
|
|
1.7
|
|
|
(1.0)
|
|
Prior accident years before catastrophe losses
|
|
3.3
|
|
|
(1.5)
|
|
|
4.8
|
|
|
2.1
|
|
|
3.4
|
|
|
(1.3)
|
|
Prior accident years catastrophe losses
|
|
(0.1)
|
|
|
0.2
|
|
|
(0.3)
|
|
|
(0.1)
|
|
|
0.1
|
|
|
(0.2)
|
|
Loss and loss expenses
|
|
66.2
|
|
|
58.2
|
|
|
8.0
|
|
|
64.6
|
|
|
63.0
|
|
|
1.6
|
|
Underwriting expenses
|
|
27.9
|
|
|
28.5
|
|
|
(0.6)
|
|
|
27.3
|
|
|
29.5
|
|
|
(2.2)
|
|
Combined ratio
|
|
94.1
|
%
|
|
86.7
|
%
|
|
7.4
|
|
|
91.9
|
%
|
|
92.5
|
%
|
|
(0.6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined ratio
|
|
94.1
|
%
|
|
86.7
|
%
|
|
7.4
|
|
|
91.9
|
%
|
|
92.5
|
%
|
|
(0.6)
|
|
Contribution from catastrophe losses and
prior years reserve development
|
|
3.6
|
|
|
(0.3)
|
|
|
3.9
|
|
|
2.7
|
|
|
5.2
|
|
|
(2.5)
|
|
Combined ratio before catastrophe losses and
prior years reserve development
|
|
90.5
|
%
|
|
87.0
|
%
|
|
3.5
|
|
|
89.2
|
%
|
|
87.3
|
%
|
|
1.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Overview
The COVID-19 pandemic did not have a significant effect on our excess and surplus lines insurance segment premiums during the third quarter or first nine months of 2021, as net written premiums grew 30% for the quarter and 24% for the nine-month period, compared with the same periods of 2020. Premium growth could slow significantly if the basis for policy premiums, such as the sales results of businesses we insure, decrease as a result of a weakened economy.
Loss experience for our insurance operations is influenced by many factors. We have not determined any material effect on our excess and surplus lines insurance loss experience for the first nine months of 2021 as a result of the pandemic. Because of factors that reduce exposure to certain insurance losses, such as reduced sales results for businesses, there could be a reduction in future losses that generally corresponds to reduced premiums. However, there could be losses or legal expenses that occur independent of changes in sales of businesses we insure, due to pandemic effects or other factors.
Performance highlights for the excess and surplus lines segment include:
•Premiums – Excess and surplus lines net written premiums continued to grow during the third quarter and first nine months of 2021, compared with the same periods a year ago, primarily due to an increase in agency renewal written premiums. Renewal written premiums rose 28% for the nine months ended September 30, 2021, compared with the same period of 2020, reflecting the opportunity to renew many accounts for the first time, as well as higher renewal pricing. For the first nine months of 2021, excess and surplus lines policy renewals experienced estimated average price increases at percentages in the high-single-digit range, up from a mid-single-digit range in 2020. We measure average changes in excess and
Cincinnati Financial Corporation Third-Quarter 2021 10-Q
Page 48
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 33% for the third quarter and 17% for the first nine months of 2021 compared with the same periods of 2020, 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.
Excess and Surplus Lines Insurance Premiums
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in millions)
|
|
Three months ended September 30,
|
|
Nine months ended September 30,
|
|
|
2021
|
|
2020
|
|
% Change
|
|
2021
|
|
2020
|
|
% Change
|
Agency renewal written premiums
|
|
$
|
76
|
|
|
$
|
60
|
|
|
27
|
|
|
$
|
236
|
|
|
$
|
185
|
|
|
28
|
|
Agency new business written premiums
|
|
32
|
|
|
24
|
|
|
33
|
|
|
97
|
|
|
83
|
|
|
17
|
|
Other written premiums
|
|
(4)
|
|
|
(4)
|
|
|
0
|
|
|
(15)
|
|
|
(12)
|
|
|
(25)
|
|
Net written premiums
|
|
104
|
|
|
80
|
|
|
30
|
|
|
318
|
|
|
256
|
|
|
24
|
|
Unearned premium change
|
|
1
|
|
|
2
|
|
|
(50)
|
|
|
(29)
|
|
|
(18)
|
|
|
(61)
|
|
Earned premiums
|
|
$
|
105
|
|
|
$
|
82
|
|
|
28
|
|
|
$
|
289
|
|
|
$
|
238
|
|
|
21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
•Combined ratio – The excess and surplus lines combined ratio increased by 7.4 percentage points for the third quarter of 2021, compared with the same period of 2020, including an increase in the ratio for current accident year loss and loss expenses before catastrophe losses and unfavorable reserve development on prior accident years. The combined ratio decreased by 0.6 percentage points for the first nine months of 2021, compared with the same period of 2020. The nine-month 2021 decrease included a lower underwriting expense ratio and less unfavorable effects from catastrophe losses and reserve development on prior accident years that offset a higher ratio for current accident year loss and loss expenses before catastrophe losses. The ratios for loss and loss expenses before catastrophe losses reflected more prudent reserving, as claims on average are remaining open longer than previously expected. The IBNR portion of the total loss and loss expense ratio before catastrophe losses was 9.7 percentage points higher for the first nine months of 2021, compared with the same period a year ago, while the paid portion was 1.4 points lower and the case incurred portion was 6.8 points lower.
The ratio for current accident year loss and loss expenses before catastrophe losses for excess and surplus lines increased in the first nine months of 2021. That 61.9% ratio was 4.1 percentage points higher, compared with the 57.8% accident year 2020 ratio measured as of September 30, 2020, including a decrease of 0.2 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 an unfavorable 3.2% for third-quarter 2021 and 2.0% for the first nine months of 2021, compared with favorable net reserve development of 1.3% for third-quarter 2020 and unfavorable development of 3.5% for the first nine months of 2020. The $6 million of net unfavorable reserve development recognized during the first nine months of 2021 included approximately $5 million for accident years prior to 2019. Reserve estimates are inherently uncertain as described in our 2020 Annual Report on Form 10-K, Item 7, Critical Accounting Estimates, Property Casualty Insurance Loss and Loss Expense Reserves, Page 56.
The excess and surplus lines underwriting expense ratio decreased for the third quarter and first nine months of 2021, compared with the same periods of 2020, largely due to ongoing expense management efforts and premium growth outpacing growth in expenses.
Cincinnati Financial Corporation Third-Quarter 2021 10-Q
Page 49
Excess and Surplus Lines Insurance Losses Incurred by Size
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in millions, net of reinsurance)
|
|
Three months ended September 30,
|
|
Nine months ended September 30,
|
|
|
2021
|
|
2020
|
|
% Change
|
|
2021
|
|
2020
|
|
% Change
|
Current accident year losses greater than $5 million
|
|
$
|
—
|
|
|
$
|
—
|
|
|
nm
|
|
$
|
—
|
|
|
$
|
—
|
|
|
nm
|
Current accident year losses $1 million - $5 million
|
|
—
|
|
|
5
|
|
|
(100)
|
|
|
8
|
|
|
7
|
|
|
14
|
|
Large loss prior accident year reserve development
|
|
2
|
|
|
—
|
|
|
nm
|
|
2
|
|
|
(1)
|
|
|
nm
|
Total large losses incurred
|
|
2
|
|
|
5
|
|
|
(60)
|
|
|
10
|
|
|
6
|
|
|
67
|
|
Losses incurred but not reported
|
|
22
|
|
|
2
|
|
|
nm
|
|
45
|
|
|
20
|
|
|
125
|
|
Other losses excluding catastrophe losses
|
|
23
|
|
|
24
|
|
|
(4)
|
|
|
72
|
|
|
74
|
|
|
(3)
|
|
Catastrophe losses
|
|
1
|
|
|
1
|
|
|
0
|
|
|
2
|
|
|
4
|
|
|
(50)
|
|
Total losses incurred
|
|
$
|
48
|
|
|
$
|
32
|
|
|
50
|
|
|
$
|
129
|
|
|
$
|
104
|
|
|
24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratios as a percent of earned premiums:
|
|
|
|
|
|
Pt. Change
|
|
|
|
|
|
Pt. Change
|
Current accident year losses greater than $5 million
|
|
—
|
%
|
|
—
|
%
|
|
0.0
|
|
|
—
|
%
|
|
—
|
%
|
|
0.0
|
|
Current accident year losses $1 million - $5 million
|
|
(0.1)
|
|
|
6.4
|
|
|
(6.5)
|
|
|
2.8
|
|
|
3.0
|
|
|
(0.2)
|
|
Large loss prior accident year reserve development
|
|
1.9
|
|
|
0.1
|
|
|
1.8
|
|
|
0.6
|
|
|
(0.4)
|
|
|
1.0
|
|
Total large loss ratio
|
|
1.8
|
|
|
6.5
|
|
|
(4.7)
|
|
|
3.4
|
|
|
2.6
|
|
|
0.8
|
|
Losses incurred but not reported
|
|
21.2
|
|
|
2.6
|
|
|
18.6
|
|
|
15.5
|
|
|
8.4
|
|
|
7.1
|
|
Other losses excluding catastrophe losses
|
|
21.9
|
|
|
29.5
|
|
|
(7.6)
|
|
|
25.0
|
|
|
31.0
|
|
|
(6.0)
|
|
Catastrophe losses
|
|
0.2
|
|
|
1.2
|
|
|
(1.0)
|
|
|
0.5
|
|
|
1.8
|
|
|
(1.3)
|
|
Total loss ratio
|
|
45.1
|
%
|
|
39.8
|
%
|
|
5.3
|
|
|
44.4
|
%
|
|
43.8
|
%
|
|
0.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 third quarter of 2021, the excess and surplus lines total ratio for large losses, net of reinsurance, was 4.7 percentage points lower than last year's third quarter. The third-quarter 2021 amount of total large losses incurred partially offset a first-half 2021 ratio that was 3.7 points higher than the first half of 2020. We believe results for the three- and nine-month periods largely reflected normal fluctuations in loss patterns and normal variability in large case reserves for claims above $1 million.
Cincinnati Financial Corporation Third-Quarter 2021 10-Q
Page 50
LIFE INSURANCE RESULTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in millions)
|
|
Three months ended September 30,
|
|
Nine months ended September 30,
|
|
|
2021
|
|
2020
|
|
% Change
|
|
2021
|
|
2020
|
|
% Change
|
Earned premiums
|
|
$
|
73
|
|
|
$
|
72
|
|
|
1
|
|
|
$
|
221
|
|
|
$
|
218
|
|
|
1
|
|
Fee revenues
|
|
1
|
|
|
—
|
|
|
nm
|
|
3
|
|
|
1
|
|
|
200
|
|
Total revenues
|
|
74
|
|
|
72
|
|
|
3
|
|
|
224
|
|
|
219
|
|
|
2
|
|
Contract holders' benefits incurred
|
|
84
|
|
|
72
|
|
|
17
|
|
|
249
|
|
|
224
|
|
|
11
|
|
Investment interest credited to contract holders
|
|
(26)
|
|
|
(26)
|
|
|
—
|
|
|
(79)
|
|
|
(77)
|
|
|
(3)
|
|
Underwriting expenses incurred
|
|
21
|
|
|
20
|
|
|
5
|
|
|
63
|
|
|
63
|
|
|
—
|
|
Total benefits and expenses
|
|
79
|
|
|
66
|
|
|
20
|
|
|
233
|
|
|
210
|
|
|
11
|
|
Life insurance segment profit (loss)
|
|
$
|
(5)
|
|
|
$
|
6
|
|
|
nm
|
|
$
|
(9)
|
|
|
$
|
9
|
|
|
nm
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Overview
The COVID-19 pandemic did not have a significant effect on our life insurance segment earned premiums or expenses for the first nine months of 2021. However, the pandemic did contribute to a moderate increase in death claims in the first nine months of 2021. Further, growth in worksite premiums, which originate from enrollments at the workplace, have slowed to a small extent in recent quarters, and could continue to slow in the future, due to curtailed enrollment activity. It is also 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 nine months ended September 30, 2021, 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 to $76.604 billion at September 30, 2021, from $73.475 billion at year-end 2020.
Fixed annuity deposits received for the three and nine months ended September 30, 2021, were $8 million and $35 million, compared with $9 million and $33 million for the same periods of 2020. 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 September 30,
|
|
Nine months ended September 30,
|
|
|
2021
|
|
2020
|
|
% Change
|
|
2021
|
|
2020
|
|
% Change
|
Term life insurance
|
|
$
|
53
|
|
|
$
|
49
|
|
|
8
|
|
|
$
|
156
|
|
|
$
|
147
|
|
|
6
|
|
Universal life insurance
|
|
7
|
|
|
10
|
|
|
(30)
|
|
|
28
|
|
|
34
|
|
|
(18)
|
|
Other life insurance and annuity products
|
|
13
|
|
|
13
|
|
|
0
|
|
|
37
|
|
|
37
|
|
|
0
|
|
Net earned premiums
|
|
$
|
73
|
|
|
$
|
72
|
|
|
1
|
|
|
$
|
221
|
|
|
$
|
218
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
•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 $9 million loss for our life insurance segment in the first nine months of 2021, compared with profit of $9 million for the same period of 2020, was primarily due to less favorable mortality results as a result of higher death claims.
Cincinnati Financial Corporation Third-Quarter 2021 10-Q
Page 51
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 nine months of 2021. Life policy and investment contract reserves increased with continued growth in net in-force life insurance policy face amounts and less favorable effects from the unlocking of interest rate and other actuarial assumptions. Mortality results increased, compared with the same period of 2020, and were above our 2021 projections, due in part to pandemic-related death claims.
Underwriting expenses for the first nine months of 2021 matched the same period a year ago.
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 $11 million and $35 million for the three and nine months ended September 30, 2021, compared with net income of $18 million and $17 million for the third quarter and first nine months of 2020. The life insurance company portfolio had net after-tax investment gains of $3 million and $6 million for the three and nine months ended September 30, 2021, compared with a net after-tax investment gain of $1 million for the third quarter of 2020 and a net after-tax investment loss of $23 million for the nine months ended September 30, 2020. The after-tax investment losses for the nine months ended September 30, 2020, were due to impairments of fixed-maturity securities.
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 7% and 6% for the third quarter and first nine months of 2021, compared with the same periods of 2020. Interest income increased by $8 million and $17 million for the three and nine months ended September 30, 2021, 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 $6 million and $18 million for the three and nine months ended September 30, 2021.
Investments Results
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in millions)
|
|
Three months ended September 30,
|
|
Nine months ended September 30,
|
|
|
2021
|
|
2020
|
|
% Change
|
|
2021
|
|
2020
|
|
% Change
|
Total investment income, net of expenses
|
|
$
|
179
|
|
|
$
|
167
|
|
|
7
|
|
|
$
|
528
|
|
|
$
|
498
|
|
|
6
|
|
Investment interest credited to contract holders
|
|
(26)
|
|
|
(26)
|
|
|
—
|
|
|
(79)
|
|
|
(77)
|
|
|
(3)
|
|
Investment gains and losses, net
|
|
(70)
|
|
|
533
|
|
|
nm
|
|
954
|
|
|
(132)
|
|
|
nm
|
Investments profit (loss), pretax
|
|
$
|
83
|
|
|
$
|
674
|
|
|
(88)
|
|
|
$
|
1,403
|
|
|
$
|
289
|
|
|
385
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cincinnati Financial Corporation Third-Quarter 2021 10-Q
Page 52
We continue to position our portfolio considering both the challenges presented by the current low interest rate environment and the risks presented by potential future inflation. As bonds in our generally laddered portfolio mature or are called over the near term, we will be challenged to replace their current yield. 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 September 30, 2021
|
|
Fixed-maturity pretax yield profile:
|
|
|
|
Expected to mature during the remainder of 2021
|
4.01
|
%
|
|
$
|
100
|
|
Expected to mature during 2022
|
3.79
|
|
|
782
|
|
Expected to mature during 2023
|
4.05
|
|
|
907
|
|
Average yield and total expected maturities from the remainder of 2021 through 2023
|
3.93
|
|
|
$
|
1,789
|
|
|
|
|
|
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 nine months of 2021 was lower than the 4.12% average yield-to-amortized cost of the fixed-maturity securities portfolio at the end of 2020. Our fixed-maturity portfolio's average yield of 4.07% for the first nine months of 2021, from the investment income table below, was also lower than the 4.12% yield for the year-end 2020 fixed-maturities portfolio.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30,
|
|
Nine months ended September 30,
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
Average pretax yield-to-amortized cost on new
fixed-maturities:
|
|
|
|
|
|
|
|
Acquired taxable fixed-maturities
|
3.46
|
%
|
|
3.92
|
%
|
|
3.49
|
%
|
|
4.27
|
%
|
Acquired tax-exempt fixed-maturities
|
2.83
|
|
|
2.42
|
|
|
2.70
|
|
|
2.63
|
|
Average total fixed-maturities acquired
|
3.43
|
|
|
3.42
|
|
|
3.46
|
|
|
3.98
|
|
|
|
|
|
|
|
|
|
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 2020 Annual Report on Form 10-K, Item 1, Investments Segment, Page 26, and Item 7, Investments Outlook, Page 96. 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.
Cincinnati Financial Corporation Third-Quarter 2021 10-Q
Page 53
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 September 30,
|
|
Nine months ended September 30,
|
|
|
2021
|
|
2020
|
|
% Change
|
|
2021
|
|
2020
|
|
% Change
|
Investment income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
121
|
|
|
$
|
113
|
|
|
7
|
|
|
$
|
356
|
|
|
$
|
339
|
|
|
5
|
|
Dividends
|
|
61
|
|
|
55
|
|
|
11
|
|
|
179
|
|
|
161
|
|
|
11
|
|
Other
|
|
1
|
|
|
2
|
|
|
(50)
|
|
|
4
|
|
|
7
|
|
|
(43)
|
|
Less investment expenses
|
|
4
|
|
|
3
|
|
|
33
|
|
|
11
|
|
|
9
|
|
|
22
|
|
Investment income, pretax
|
|
179
|
|
|
167
|
|
|
7
|
|
|
528
|
|
|
498
|
|
|
6
|
|
Less income taxes
|
|
28
|
|
|
26
|
|
|
8
|
|
|
82
|
|
|
77
|
|
|
6
|
|
Total investment income, after-tax
|
|
$
|
151
|
|
|
$
|
141
|
|
|
7
|
|
|
$
|
446
|
|
|
$
|
421
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment returns:
|
|
|
|
|
|
|
|
|
|
|
|
|
Average invested assets plus cash and cash
equivalents
|
|
$
|
23,263
|
|
|
$
|
19,875
|
|
|
|
|
$
|
22,420
|
|
|
$
|
20,126
|
|
|
|
Average yield pretax
|
|
3.08
|
%
|
|
3.36
|
%
|
|
|
|
3.14
|
%
|
|
3.30
|
%
|
|
|
Average yield after-tax
|
|
2.60
|
|
|
2.84
|
|
|
|
|
2.65
|
|
|
2.79
|
|
|
|
Effective tax rate
|
|
15.6
|
|
|
15.5
|
|
|
|
|
15.5
|
|
|
15.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed-maturity returns:
|
|
|
|
|
|
|
|
|
|
|
|
|
Average amortized cost
|
|
$
|
11,931
|
|
|
$
|
11,206
|
|
|
|
|
$
|
11,673
|
|
|
$
|
11,191
|
|
|
|
Average yield pretax
|
|
4.06
|
%
|
|
4.03
|
%
|
|
|
|
4.07
|
%
|
|
4.04
|
%
|
|
|
Average yield after-tax
|
|
3.37
|
|
|
3.36
|
|
|
|
|
3.38
|
|
|
3.37
|
|
|
|
Effective tax rate
|
|
16.9
|
|
|
16.6
|
|
|
|
|
16.8
|
|
|
16.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 2020 Annual Report on Form 10-K, Item 8, Note 1, Summary of Significant Accounting Policies, Page 133.
Cincinnati Financial Corporation Third-Quarter 2021 10-Q
Page 54
The table below summarizes total investment gains and losses, before taxes.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in millions)
|
|
Three months ended September 30,
|
|
Nine months ended September 30,
|
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
Investment gains and losses:
|
|
|
|
|
|
|
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
Investment gains and losses on securities sold, net
|
|
$
|
(1)
|
|
|
$
|
55
|
|
|
$
|
6
|
|
|
$
|
75
|
|
Unrealized gains and losses on securities still held, net
|
|
(104)
|
|
|
475
|
|
|
869
|
|
|
(130)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
(105)
|
|
|
530
|
|
|
875
|
|
|
(55)
|
|
Fixed maturities:
|
|
|
|
|
|
|
|
|
Gross realized gains
|
|
10
|
|
|
4
|
|
|
24
|
|
|
9
|
|
Gross realized losses
|
|
(1)
|
|
|
—
|
|
|
(3)
|
|
|
(3)
|
|
Write-down of impaired securities
|
|
(1)
|
|
|
(1)
|
|
|
(1)
|
|
|
(78)
|
|
Subtotal
|
|
8
|
|
|
3
|
|
|
20
|
|
|
(72)
|
|
Other
|
|
27
|
|
|
—
|
|
|
59
|
|
|
(5)
|
|
Total investment gains and losses reported in net income
|
|
(70)
|
|
|
533
|
|
|
954
|
|
|
(132)
|
|
|
|
|
|
|
|
|
|
|
Change in unrealized investment gains and losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturities
|
|
(88)
|
|
|
112
|
|
|
(152)
|
|
|
294
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(158)
|
|
|
$
|
645
|
|
|
$
|
802
|
|
|
$
|
162
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Of the 4,285 fixed-maturity securities in the portfolio, one security was trading below 70% of amortized cost at September 30, 2021. 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.
The table below provides additional details for write-downs of impaired securities. We had no allowance for credit losses for the first nine months of 2021 or 2020.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in millions)
|
|
Three months ended September 30,
|
|
Nine months ended September 30,
|
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
Fixed maturities:
|
|
|
|
|
|
|
|
|
Energy
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
62
|
|
Real estate
|
|
—
|
|
|
—
|
|
|
—
|
|
|
13
|
|
Consumer goods
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1
|
|
Municipal
|
|
1
|
|
|
1
|
|
|
1
|
|
|
1
|
|
Technology & Electronics
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1
|
|
Total fixed maturities
|
|
$
|
1
|
|
|
$
|
1
|
|
|
$
|
1
|
|
|
$
|
78
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cincinnati Financial Corporation Third-Quarter 2021 10-Q
Page 55
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 nine months of 2021 for our Other operations increased, compared with the same period of 2020, primarily due to earned premiums from Cincinnati Re and Cincinnati Global, with increases of $100 million and $7 million, respectively. Total expenses for Other increased for the first nine months of 2021, primarily due to the combination of more losses and loss 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 underwriting losses from the combination of Cincinnati Re and Cincinnati Global, along with interest expense from debt of the parent company.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in millions)
|
|
Three months ended September 30,
|
|
Nine months ended September 30,
|
|
|
2021
|
|
2020
|
|
% Change
|
|
2021
|
|
2020
|
|
% Change
|
Interest and fees on loans and leases
|
|
$
|
2
|
|
|
$
|
1
|
|
|
100
|
|
|
$
|
5
|
|
|
$
|
4
|
|
|
25
|
|
Earned premiums
|
|
173
|
|
|
136
|
|
|
27
|
|
|
423
|
|
|
316
|
|
|
34
|
|
Other revenues
|
|
1
|
|
|
2
|
|
|
(50)
|
|
|
3
|
|
|
4
|
|
|
(25)
|
|
Total revenues
|
|
176
|
|
|
139
|
|
|
27
|
|
|
431
|
|
|
324
|
|
|
33
|
|
Interest expense
|
|
13
|
|
|
13
|
|
|
0
|
|
|
39
|
|
|
40
|
|
|
(3)
|
|
Loss and loss expenses
|
|
186
|
|
|
138
|
|
|
35
|
|
|
325
|
|
|
252
|
|
|
29
|
|
Underwriting expenses
|
|
45
|
|
|
38
|
|
|
18
|
|
|
121
|
|
|
95
|
|
|
27
|
|
Operating expenses
|
|
5
|
|
|
5
|
|
|
0
|
|
|
14
|
|
|
15
|
|
|
(7)
|
|
Total expenses
|
|
249
|
|
|
194
|
|
|
28
|
|
|
499
|
|
|
402
|
|
|
24
|
|
Total other loss
|
|
$
|
(73)
|
|
|
$
|
(55)
|
|
|
(33)
|
|
|
$
|
(68)
|
|
|
$
|
(78)
|
|
|
13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TAXES
We had $31 million and $348 million of income tax expense for the three and nine months ended September 30, 2021, compared with $130 million and $16 million for the same periods of 2020. The effective tax rate for the three and nine months ended September 30, 2021, was 16.8% and 19.1% compared with 21.2% and 8.7% for the same periods 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, as well as changes in underwriting income.
Historically, we have pursued a strategy of investing some portion of cash flow in tax-advantaged fixed-maturity and equity securities to minimize our overall tax liability and maximize after-tax earnings. See 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.
Cincinnati Financial Corporation Third-Quarter 2021 10-Q
Page 56
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2021, shareholders' equity was $11.841 billion, compared with $10.789 billion at December 31, 2020. Total debt was $848 million at September 30, 2021, up $6 million from December 31, 2020. At September 30, 2021, cash and cash equivalents totaled $1.085 billion, compared with $900 million at December 31, 2020.
The pandemic did not have a significant effect on our cash flows for the first nine months of 2021. In addition to our historically positive operating cash flow to meet the needs of operations, we have the ability to sell a portion of our high-quality, liquid investment portfolio or slow investing activities 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 $358 million to the parent company in the first nine months of 2021, compared with $325 million for the same period of 2020. For full-year 2020, subsidiary dividends declared totaled $550 million. State of Ohio regulatory requirements restrict the dividends our insurance subsidiary can pay. For full-year 2021, total dividends that our insurance subsidiary can pay to our parent company without regulatory approval are approximately $583 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 2020 Annual Report on Form 10-K, Item 1, Investments Segment, Page 26.
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 September 30,
|
|
Nine months ended September 30,
|
|
|
2021
|
|
2020
|
|
% Change
|
|
2021
|
|
2020
|
|
% Change
|
Premiums collected
|
|
$
|
1,634
|
|
|
$
|
1,457
|
|
|
12
|
|
|
$
|
4,725
|
|
|
$
|
4,442
|
|
|
6
|
|
Loss and loss expenses paid
|
|
(765)
|
|
|
(779)
|
|
|
2
|
|
|
(2,237)
|
|
|
(2,347)
|
|
|
5
|
|
Commissions and other underwriting expenses paid
|
|
(430)
|
|
|
(397)
|
|
|
(8)
|
|
|
(1,434)
|
|
|
(1,385)
|
|
|
(4)
|
|
Cash flow from underwriting
|
|
439
|
|
|
281
|
|
|
56
|
|
|
1,054
|
|
|
710
|
|
|
48
|
|
Investment income received
|
|
125
|
|
|
117
|
|
|
7
|
|
|
366
|
|
|
346
|
|
|
6
|
|
Cash flow from operations
|
|
$
|
564
|
|
|
$
|
398
|
|
|
42
|
|
|
$
|
1,420
|
|
|
$
|
1,056
|
|
|
34
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collected premiums for property casualty insurance rose $283 million during the first nine months of 2021, compared with the same period in 2020. Loss and loss expenses paid for the 2021 period decreased $110 million. Commissions and other underwriting expenses paid increased $49 million.
Cincinnati Financial Corporation Third-Quarter 2021 10-Q
Page 57
We discuss our future obligations for claims payments and for underwriting expenses in our 2020 Annual Report on Form 10-K, Item 7, Contractual Obligations, Page 102, and Other Commitments also on Page 102.
Capital Resources
At September 30, 2021, our debt-to-total-capital ratio was 6.7%, considerably below our 35% covenant threshold, with $789 million in long-term debt and $59 million in borrowing on our revolving short-term line of credit. At September 30, 2021, $241 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 September 30, 2021, we do not anticipate a material increase in debt levels exceeding the available line of credit amount during the remainder of 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 September 30, 2021, 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 nine months of 2021. Our debt ratings are discussed in our 2020 Annual Report on Form 10-K, Item 7, Liquidity and Capital Resources, Long-Term Debt, Page 101.
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, 2020, in our 2020 Annual Report on Form 10-K, Item 7, Contractual Obligations, Page 102. There have been no material changes to our estimates of future contractual obligations since our 2020 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 $934 million in the first nine months of 2021. 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 $500 million in the first nine months of 2021.
There were no contributions to our qualified pension plan during the first nine months of 2021.
Cincinnati Financial Corporation Third-Quarter 2021 10-Q
Page 58
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 2021, the board of directors declared regular quarterly cash dividends of 63 cents per share for an indicated annual rate of $2.52 per share. During the first nine months of 2021, we used $295 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 2020 Annual Report on Form 10-K, Item 7, Property Casualty Insurance Loss and Loss Expense Obligations and Reserves, Page 103.
Total gross reserves at September 30, 2021, increased $549 million compared with December 31, 2020. Case loss reserves for losses increased by $204 million, IBNR loss reserves increased by $305 million and loss expense reserves increased by $40 million. The total gross increase was primarily due to our commercial casualty and homeowner lines of business, and also Cincinnati Re.
Cincinnati Financial Corporation Third-Quarter 2021 10-Q
Page 59
Property Casualty Gross Reserves
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in millions)
|
|
Loss reserves
|
|
Loss expense reserves
|
|
Total gross reserves
|
|
|
|
|
Case reserves
|
|
IBNR reserves
|
|
|
|
Percent of total
|
At September 30, 2021
|
|
|
|
|
|
Commercial lines insurance:
|
|
|
|
|
|
|
|
|
|
|
Commercial casualty
|
|
$
|
1,053
|
|
|
$
|
747
|
|
|
$
|
700
|
|
|
$
|
2,500
|
|
|
34.6
|
%
|
Commercial property
|
|
314
|
|
|
132
|
|
|
59
|
|
|
505
|
|
|
7.0
|
|
Commercial auto
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|
414
|
|
|
217
|
|
|
121
|
|
|
752
|
|
|
10.4
|
|
Workers' compensation
|
|
437
|
|
|
501
|
|
|
85
|
|
|
1,023
|
|
|
14.2
|
|
Other commercial
|
|
96
|
|
|
10
|
|
|
106
|
|
|
212
|
|
|
2.9
|
|
Subtotal
|
|
2,314
|
|
|
1,607
|
|
|
1,071
|
|
|
4,992
|
|
|
69.1
|
|
Personal lines insurance:
|
|
|
|
|
|
|
|
|
|
|
Personal auto
|
|
211
|
|
|
66
|
|
|
61
|
|
|
338
|
|
|
4.7
|
|
Homeowner
|
|
196
|
|
|
117
|
|
|
45
|
|
|
358
|
|
|
4.9
|
|
Other personal
|
|
73
|
|
|
94
|
|
|
5
|
|
|
172
|
|
|
2.4
|
|
Subtotal
|
|
480
|
|
|
277
|
|
|
111
|
|
|
868
|
|
|
12.0
|
|
Excess and surplus lines
|
|
211
|
|
|
177
|
|
|
149
|
|
|
537
|
|
|
7.4
|
|
Cincinnati Re
|
|
91
|
|
|
482
|
|
|
4
|
|
|
577
|
|
|
8.0
|
|
Cincinnati Global
|
|
132
|
|
|
117
|
|
|
3
|
|
|
252
|
|
|
3.5
|
|
Total
|
|
$
|
3,228
|
|
|
$
|
2,660
|
|
|
$
|
1,338
|
|
|
$
|
7,226
|
|
|
100.0
|
%
|
At December 31, 2020
|
|
|
|
|
|
|
|
|
|
|
Commercial lines insurance:
|
|
|
|
|
|
|
|
|
|
|
Commercial casualty
|
|
$
|
955
|
|
|
$
|
764
|
|
|
$
|
653
|
|
|
$
|
2,372
|
|
|
35.5
|
%
|
Commercial property
|
|
338
|
|
|
127
|
|
|
69
|
|
|
534
|
|
|
8.0
|
|
Commercial auto
|
|
391
|
|
|
209
|
|
|
141
|
|
|
741
|
|
|
11.1
|
|
Workers' compensation
|
|
402
|
|
|
534
|
|
|
89
|
|
|
1,025
|
|
|
15.4
|
|
Other commercial
|
|
92
|
|
|
13
|
|
|
104
|
|
|
209
|
|
|
3.1
|
|
Subtotal
|
|
2,178
|
|
|
1,647
|
|
|
1,056
|
|
|
4,881
|
|
|
73.1
|
|
Personal lines insurance:
|
|
|
|
|
|
|
|
|
|
|
Personal auto
|
|
205
|
|
|
56
|
|
|
68
|
|
|
329
|
|
|
4.9
|
|
Homeowner
|
|
166
|
|
|
47
|
|
|
41
|
|
|
254
|
|
|
3.8
|
|
Other personal
|
|
61
|
|
|
90
|
|
|
5
|
|
|
156
|
|
|
2.3
|
|
Subtotal
|
|
432
|
|
|
193
|
|
|
114
|
|
|
739
|
|
|
11.0
|
|
Excess and surplus lines
|
|
190
|
|
|
133
|
|
|
123
|
|
|
446
|
|
|
6.7
|
|
Cincinnati Re
|
|
77
|
|
|
287
|
|
|
2
|
|
|
366
|
|
|
5.5
|
|
Cincinnati Global
|
|
147
|
|
|
95
|
|
|
3
|
|
|
245
|
|
|
3.7
|
|
Total
|
|
$
|
3,024
|
|
|
$
|
2,355
|
|
|
$
|
1,298
|
|
|
$
|
6,677
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
LIFE POLICY AND INVESTMENT CONTRACT RESERVES
Gross life policy and investment contract reserves were $2.999 billion at September 30, 2021, compared with $2.915 billion at year-end 2020, reflecting continued growth in life insurance policies in force. We discuss our life insurance reserving practices in our 2020 Annual Report on Form 10-K, Item 7, Life Insurance Policyholder Obligations and Reserves, Page 109.
Cincinnati Financial Corporation Third-Quarter 2021 10-Q
Page 60
OTHER MATTERS
SIGNIFICANT ACCOUNTING POLICIES
Our significant accounting policies are discussed in our 2020 Annual Report on Form 10-K, Item 8, Note 1, Summary of Significant Accounting Policies, Page 133, 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 2020 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.