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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark one)
☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended March 31, 2022.
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
For the transition period from _____________________ to _____________________.
Commission file number 0-4604
CINCINNATI FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
| | | | | | | | | | | | | | | | | | | | |
| Ohio | | 31-0746871 |
(State or other jurisdiction of
incorporation or organization) | | (I.R.S. Employer Identification No.) |
| | | | | | |
| 6200 S. Gilmore Road, | Fairfield, | Ohio | | 45014-5141 |
| (Address of principal executive offices) | | (Zip code) |
Registrant's telephone number, including area code: (513) 870-2000
N/A
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| | | | | | | | | | | | | | |
| Title of each class | | Trading Symbol(s) | | Name of each exchange on which registered |
| Common stock | | CINF | | Nasdaq Global Select Market |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
☑Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
☑Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a nonaccelerated filer, a smaller reporting company or an emerging growth company. See definition of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.
☑ Large accelerated filer ☐ Accelerated filer ☐ Nonaccelerated filer ☐ Smaller reporting company
☐ Emerging growth company
☐ If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act):
☐Yes ☑ No
As of April 22, 2022, there were 160,355,247 shares of common stock outstanding.
CINCINNATI FINANCIAL CORPORATION AND SUBSIDIARIES
FORM 10-Q FOR THE QUARTER ENDED March 31, 2022
TABLE OF CONTENTS
Cincinnati Financial Corporation First-Quarter 2022 10-Q
Page 2
Part I – Financial Information
Item 1. Financial Statements (unaudited)
Cincinnati Financial Corporation and Subsidiaries
Condensed Consolidated Balance Sheets
| | | | | | | | | | | | | | |
| (Dollars in millions, except per share data) | | March 31, | | December 31, |
| | 2022 | | 2021 |
| Assets | | | | |
| Investments | | | | |
Fixed maturities, at fair value (amortized cost: 2022—$12,330; 2021—$12,230) | | $ | 12,376 | | | $ | 13,022 | |
Equity securities, at fair value (cost: 2022—$4,167; 2021—$4,121) | | 10,675 | | | 11,315 | |
| | | | |
| Other invested assets | | 348 | | | 329 | |
| Total investments | | 23,399 | | | 24,666 | |
| Cash and cash equivalents | | 987 | | | 1,139 | |
| | | | |
| Investment income receivable | | 147 | | | 144 | |
| Finance receivable | | 92 | | | 98 | |
| Premiums receivable | | 2,248 | | | 2,053 | |
| Reinsurance recoverable | | 556 | | | 570 | |
| Prepaid reinsurance premiums | | 79 | | | 78 | |
| Deferred policy acquisition costs | | 979 | | | 905 | |
Land, building and equipment, net, for company use (accumulated depreciation: 2022—$309; 2021—$303) | | 203 | | | 205 | |
| Other assets | | 657 | | | 570 | |
| Separate accounts | | 903 | | | 959 | |
| Total assets | | $ | 30,250 | | | $ | 31,387 | |
| | | | |
| Liabilities | | | | |
| Insurance reserves | | | | |
| Loss and loss expense reserves | | $ | 7,366 | | | $ | 7,305 | |
| Life policy and investment contract reserves | | 3,027 | | | 3,014 | |
| Unearned premiums | | 3,560 | | | 3,271 | |
| Other liabilities | | 952 | | | 1,092 | |
| Deferred income tax | | 1,460 | | | 1,744 | |
| Note payable | | 49 | | | 54 | |
| Long-term debt and lease obligations | | 841 | | | 843 | |
| Separate accounts | | 903 | | | 959 | |
| Total liabilities | | 18,158 | | | 18,282 | |
| | | | |
| Commitments and contingent liabilities (Note 12) | | | | |
| | | | |
| Shareholders' Equity | | | | |
Common stock, par value—$2 per share; (authorized: 2022 and 2021—500 million shares; issued: 2022 and 2021—198.3 million shares) | | 397 | | | 397 | |
| Paid-in capital | | 1,354 | | | 1,356 | |
| Retained earnings | | 12,241 | | | 12,625 | |
| Accumulated other comprehensive income | | 59 | | | 648 | |
Treasury stock at cost (2022—38.0 million shares and 2021—38.0 million shares) | | (1,959) | | | (1,921) | |
| Total shareholders' equity | | 12,092 | | | 13,105 | |
| Total liabilities and shareholders' equity | | $ | 30,250 | | | $ | 31,387 | |
| | | | |
Accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.
Cincinnati Financial Corporation First-Quarter 2022 10-Q
Page 3
Cincinnati Financial Corporation and Subsidiaries
Condensed Consolidated Statements of Income
| | | | | | | | | | | | | | | |
| (Dollars in millions, except per share data) | | | Three months ended March 31, |
| | | | | 2022 | | 2021 |
| Revenues | | | | | | | |
| Earned premiums | | | | | $ | 1,690 | | | $ | 1,544 | |
| Investment income, net of expenses | | | | | 185 | | | 174 | |
| Investment gains and losses, net | | | | | (666) | | | 504 | |
| Fee revenues | | | | | 4 | | | 3 | |
| Other revenues | | | | | 2 | | | 2 | |
| Total revenues | | | | | 1,215 | | | 2,227 | |
| Benefits and Expenses | | | | | | | |
| Insurance losses and contract holders' benefits | | | | | 1,039 | | | 1,003 | |
| Underwriting, acquisition and insurance expenses | | | | | 519 | | | 439 | |
| Interest expense | | | | | 13 | | | 13 | |
| Other operating expenses | | | | | 4 | | | 4 | |
| Total benefits and expenses | | | | | 1,575 | | | 1,459 | |
| Income (Loss) Before Income Taxes | | | | | (360) | | | 768 | |
| Provision (Benefit) for Income Taxes | | | | | | | |
| Current | | | | | 41 | | | 36 | |
| Deferred | | | | | (128) | | | 112 | |
| Total provision (benefit) for income taxes | | | | | (87) | | | 148 | |
| Net Income (Loss) | | | | | $ | (273) | | | $ | 620 | |
| Per Common Share | | | | | | | |
| Net income (loss)—basic | | | | | $ | (1.70) | | | $ | 3.85 | |
| Net income (loss)—diluted | | | | | (1.70) | | | 3.82 | |
| | | | | | | |
Accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.
Cincinnati Financial Corporation First-Quarter 2022 10-Q
Page 4
Cincinnati Financial Corporation and Subsidiaries
Condensed Consolidated Statements of Comprehensive Income
| | | | | | | | | | | | | | | | |
| (Dollars in millions) | | | | Three months ended March 31, |
| | | | | | 2022 | | 2021 |
| Net Income (Loss) | | | | | | $ | (273) | | | $ | 620 | |
| Other Comprehensive Income (Loss) | | | | | | | | |
Change in unrealized gains and losses on investments, net of tax (benefit) of $(157) and $(41), respectively | | | | | | (589) | | | (155) | |
Amortization of pension actuarial loss and prior service cost, net of tax of $0 and $1, respectively | | | | | | — | | | 3 | |
Change in life deferred acquisition costs, life policy reserves and other, net of tax of $0 and $2, respectively | | | | | | — | | | 8 | |
| Other comprehensive income (loss) | | | | | | (589) | | | (144) | |
| Comprehensive Income (Loss) | | | | | | $ | (862) | | | $ | 476 | |
| | | | | | | | |
Accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.
Cincinnati Financial Corporation First-Quarter 2022 10-Q
Page 5
Cincinnati Financial Corporation and Subsidiaries
Condensed Consolidated Statements of Shareholders' Equity
| | | | | | | | | | | | | | | | |
| (Dollars in millions) | | | | Three months ended March 31, |
| | | | | | 2022 | | 2021 |
| Common Stock | | | | | | | | |
| Beginning of period | | | | | | $ | 397 | | | $ | 397 | |
| Share-based awards | | | | | | — | | | — | |
| End of period | | | | | | 397 | | | 397 | |
| | | | | | | | |
| Paid-In Capital | | | | | | | | |
| Beginning of period | | | | | | 1,356 | | | 1,328 | |
| Share-based awards | | | | | | (14) | | | (16) | |
| Share-based compensation | | | | | | 11 | | | 9 | |
| Other | | | | | | 1 | | | 1 | |
| End of period | | | | | | 1,354 | | | 1,322 | |
| | | | | | | | |
| Retained Earnings | | | | | | | | |
| Beginning of period | | | | | | 12,625 | | | 10,085 | |
| | | | | | | | |
| | | | | | | | |
| Net income (loss) | | | | | | (273) | | | 620 | |
| Dividends declared | | | | | | (111) | | | (102) | |
| End of period | | | | | | 12,241 | | | 10,603 | |
| | | | | | | | |
| Accumulated Other Comprehensive Income | | | | | | | | |
| Beginning of period | | | | | | 648 | | | 769 | |
| | | | | | | | |
| | | | | | | | |
| Other comprehensive loss | | | | | | (589) | | | (144) | |
| End of period | | | | | | 59 | | | 625 | |
| | | | | | | | |
| Treasury Stock | | | | | | | | |
| Beginning of period | | | | | | (1,921) | | | (1,790) | |
| Share-based awards | | | | | | 9 | | | 12 | |
| Shares acquired - share repurchase authorization | | | | | | (45) | | | (28) | |
| Shares acquired - share-based compensation plans | | | | | | (2) | | | (3) | |
| | | | | | | | |
| End of period | | | | | | (1,959) | | | (1,809) | |
| | | | | | | | |
| Total Shareholders' Equity | | | | | | $ | 12,092 | | | $ | 11,138 | |
| | | | | | | | |
| (In millions, except per common share) | | | | | | | | |
| Common Stock - Shares Outstanding | | | | | | | | |
| Beginning of period | | | | | | 160.3 | | | 160.9 | |
| Share-based awards | | | | | | 0.4 | | | 0.4 | |
| Shares acquired - share repurchase authorization | | | | | | (0.4) | | | (0.3) | |
| | | | | | | | |
| | | | | | | | |
| End of period | | | | | | 160.3 | | | 161.0 | |
| | | | | | | | |
| Dividends declared per common share | | | | | | $ | 0.69 | | | $ | 0.63 | |
| | | | | | | | |
Accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.
Cincinnati Financial Corporation First-Quarter 2022 10-Q
Page 6
Cincinnati Financial Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows
| | | | | | | | | | | | | | |
| (Dollars in millions) | | Three months ended March 31, |
| | 2022 | | 2021 |
| Cash Flows From Operating Activities | | | | |
| Net income (loss) | | $ | (273) | | | $ | 620 | |
| Adjustments to reconcile net income to net cash provided by operating activities: | | | | |
| Depreciation and amortization | | 29 | | | 23 | |
| Investment gains and losses, net | | 674 | | | (501) | |
| Share-based compensation | | 11 | | | 9 | |
| Interest credited to contract holders | | 12 | | | 11 | |
| Deferred income tax expense | | (128) | | | 112 | |
| Changes in: | | | | |
| Investment income receivable | | (3) | | | 2 | |
| Premiums and reinsurance receivable | | (182) | | | (166) | |
| Deferred policy acquisition costs | | (68) | | | (49) | |
| Other assets | | (20) | | | (33) | |
| Loss and loss expense reserves | | 61 | | | 204 | |
| Life policy and investment contract reserves | | 17 | | | 15 | |
| Unearned premiums | | 289 | | | 221 | |
| Other liabilities | | (136) | | | (80) | |
| Current income tax receivable/payable | | (85) | | | (34) | |
| Net cash provided by operating activities | | 198 | | | 354 | |
| Cash Flows From Investing Activities | | | | |
| Sale of fixed maturities | | 55 | | | 30 | |
| Call or maturity of fixed maturities | | 296 | | | 300 | |
| Sale of equity securities | | 56 | | | 65 | |
| Purchase of fixed maturities | | (460) | | | (467) | |
| Purchase of equity securities | | (90) | | | (78) | |
| | | | |
| | | | |
| Investment in finance receivables | | (3) | | | (12) | |
| Collection of finance receivables | | 9 | | | 8 | |
| Investment in building and equipment | | (4) | | | (5) | |
| Change in other invested assets, net | | (21) | | | 6 | |
| Net cash used in investing activities | | (162) | | | (153) | |
| Cash Flows From Financing Activities | | | | |
| Payment of cash dividends to shareholders | | (99) | | | (95) | |
| Shares acquired - share repurchase authorization | | (45) | | | (28) | |
Changes in note payable | | (5) | | | 3 | |
| Proceeds from stock options exercised | | 4 | | | 4 | |
| Contract holders' funds deposited | | 18 | | | 27 | |
| Contract holders' funds withdrawn | | (32) | | | (33) | |
| Other | | (29) | | | (32) | |
| Net cash used in financing activities | | (188) | | | (154) | |
| Net change in cash and cash equivalents | | (152) | | | 47 | |
| Cash and cash equivalents at beginning of year | | 1,139 | | | 900 | |
| Cash and cash equivalents at end of period | | $ | 987 | | | $ | 947 | |
| Supplemental Disclosures of Cash Flow Information: | | | | |
| | | | |
| Income taxes paid | | 121 | | | 66 | |
| Noncash Activities | | | | |
| | | | |
| Equipment acquired under finance lease obligations | | $ | 2 | | | $ | 3 | |
| Share-based compensation | | 16 | | | 16 | |
| Other assets and other liabilities | | 10 | | | 44 | |
| | | | |
Accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.
Cincinnati Financial Corporation First-Quarter 2022 10-Q
Page 7
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1 — Accounting Policies
The condensed consolidated financial statements include the accounts of Cincinnati Financial Corporation and its consolidated subsidiaries, each of which is wholly owned. These statements are presented in conformity with accounting principles generally accepted in the United States of America (GAAP). All intercompany balances and transactions have been eliminated in consolidation.
The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect amounts reported in the financial statements and accompanying notes. Our actual results could differ from those estimates. Certain financial information that is normally included in annual financial statements prepared in accordance with GAAP, but that is not required for interim reporting purposes, has been condensed or omitted.
Our March 31, 2022, condensed consolidated financial statements are unaudited. We believe that we have made all adjustments, consisting only of normal recurring accruals, that are necessary for fair presentation. These condensed consolidated financial statements should be read in conjunction with our consolidated financial statements included in our 2021 Annual Report on Form 10-K. The results of operations for interim periods do not necessarily indicate results to be expected for the full year.
The company continues to monitor the impact of the coronavirus (SARS-CoV-2 or COVID-19) pandemic outbreak. The company cannot predict the impact the pandemic will have on its future consolidated financial position, results of operations and cash flows, however the impact could be material.
Pending Accounting Updates
ASU 2018-12, Financial Services - Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts
In August 2018, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2018-12, Financial Services - Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts. ASU 2018-12 requires changes to the measurement and disclosure of long-duration insurance contracts. In November 2020, the FASB issued an ASU that delayed the effective date of ASU 2018-12 to interim and annual reporting periods beginning after December 15, 2022. We plan to adopt these ASUs on a modified retrospective basis on January 1, 2023, with a transition date of January 1, 2021.
Related to the company's term and whole life products included in life policy and investment contract reserves, the new guidance requires that cash flow assumptions be reviewed at least annually to determine any necessary updates. Additionally, the discount rate assumption is required to be updated quarterly based on upper-medium grade fixed-income instrument yields (market value discount rates). The life policy and investment contract reserves balance is adjusted through insurance losses and contract holders' benefits for cash flow assumption updates and through accumulated other comprehensive income (AOCI) for discount rate updates.
These ASUs also amend the previous guidance related to life deferred policy acquisition costs by requiring amortization of those costs on a constant level basis for a group of contracts that approximates straight-line and the removal of shadow deferred policy acquisition costs for universal life and deferred annuity products. These ASUs also require entities to provide additional disclosures including disaggregated rollforwards of the life policy and investment contract reserves, separate account liabilities and life deferred policy acquisition costs.
Management has identified that the requirement to measure term and whole life policy reserves using updated discount rates is expected to have a material impact on shareholders' equity, through an increase to life policy and investment contract reserves and a decrease to AOCI, at the transition date. The company is in the process of addressing necessary implementation-related items, including modifications to reporting and analysis capabilities as well as actuarial systems and associated data processes. Further, the company continues to refine its accounting policy decisions associated with the new guidance. Additional impacts of these ASUs on our company's consolidated financial position, results of operations and cash flows are being further evaluated by management.
Cincinnati Financial Corporation First-Quarter 2022 10-Q
Page 8
NOTE 2 – Investments
The following table provides amortized cost, gross unrealized gains, gross unrealized losses and fair value for our fixed-maturity securities:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| (Dollars in millions) | | Amortized
cost | | Gross unrealized | | Fair value |
| At March 31, 2022 | | | gains | | losses | |
| Fixed maturity securities: | | | | | | | | |
| Corporate | | $ | 7,131 | | | $ | 184 | | | $ | 166 | | | $ | 7,149 | |
| States, municipalities and political subdivisions | | 4,780 | | | 106 | | | 76 | | | 4,810 | |
| Commercial mortgage-backed | | 267 | | | 1 | | | 2 | | | 266 | |
| United States government | | 113 | | | — | | | 1 | | | 112 | |
| Foreign government | | 25 | | | — | | | — | | | 25 | |
| Government-sponsored enterprises | | 14 | | | — | | | — | | | 14 | |
| | | | | | | | |
| Total | | $ | 12,330 | | | $ | 291 | | | $ | 245 | | | $ | 12,376 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| At December 31, 2021 | | | | | | | | |
| Fixed maturity securities: | | | | | | | | |
| Corporate | | $ | 7,043 | | | $ | 467 | | | $ | 13 | | | $ | 7,497 | |
| States, municipalities and political subdivisions | | 4,768 | | | 330 | | | 3 | | | 5,095 | |
| Commercial mortgage-backed | | 264 | | | 9 | | | — | | | 273 | |
| United States government | | 121 | | | 2 | | | — | | | 123 | |
| Foreign government | | 26 | | | — | | | — | | | 26 | |
| Government-sponsored enterprises | | 8 | | | — | | | — | | | 8 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| Total | | $ | 12,230 | | | $ | 808 | | | $ | 16 | | | $ | 13,022 | |
| | | | | | | | |
The decrease in net unrealized investment gains in our fixed-maturity portfolio at March 31, 2022, is primarily due to an increase in U.S. Treasury yields and a widening of corporate credit spreads. Our commercial mortgage-backed securities had an average rating of Aa2/AA at March 31, 2022, and December 31, 2021.
Cincinnati Financial Corporation First-Quarter 2022 10-Q
Page 9
The table below provides fair values and gross unrealized losses by investment category and by the duration of the securities' continuous unrealized loss positions:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (Dollars in millions) | | Less than 12 months | | 12 months or more | | Total |
| At March 31, 2022 | | Fair
value | | Unrealized
losses | | Fair
value | | Unrealized
losses | | Fair
value | | Unrealized
losses |
| Fixed maturity securities: | | | | | | | | | | | | |
| Corporate | | $ | 2,603 | | | $ | 157 | | | $ | 78 | | | $ | 9 | | | $ | 2,681 | | | $ | 166 | |
| States, municipalities and political subdivisions | | 977 | | | 72 | | | 21 | | | 4 | | | 998 | | | 76 | |
| Commercial mortgage-backed | | 128 | | | 2 | | | 10 | | | — | | | 138 | | | 2 | |
| United States government | | 72 | | | 1 | | | — | | | — | | | 72 | | | 1 | |
| Foreign government | | 7 | | | — | | | — | | | — | | | 7 | | | — | |
| Government-sponsored enterprises | | 10 | | | — | | | 3 | | | — | | | 13 | | | — | |
| Total | | $ | 3,797 | | | $ | 232 | | | $ | 112 | | | $ | 13 | | | $ | 3,909 | | | $ | 245 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| At December 31, 2021 | | | | | | | | | | | | |
| Fixed maturity securities: | | | | | | | | | | | | |
| Corporate | | $ | 861 | | | $ | 13 | | | $ | 15 | | | $ | — | | | $ | 876 | | | $ | 13 | |
| States, municipalities and political subdivisions | | 105 | | | 2 | | | 2 | | | 1 | | | 107 | | | 3 | |
| Commercial mortgage-backed | | 10 | | | — | | | 11 | | | — | | | 21 | | | — | |
| United States government | | 48 | | | — | | | — | | | — | | | 48 | | | — | |
| Foreign government | | 16 | | | — | | | — | | | — | | | 16 | | | — | |
| Government-sponsored enterprises | | 7 | | | — | | | — | | | — | | | 7 | | | — | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| Total | | $ | 1,047 | | | $ | 15 | | | $ | 28 | | | $ | 1 | | | $ | 1,075 | | | $ | 16 | |
| | | | | | | | | | | | |
Contractual maturity dates for fixed-maturities securities were:
| | | | | | | | | | | | | | | | | | | | |
| (Dollars in millions) | | Amortized
cost | | Fair
value | | % of fair
value |
| At March 31, 2022 | | | |
| Maturity dates: | | | | | | |
| Due in one year or less | | $ | 686 | | | $ | 690 | | | 5.6 | % |
| Due after one year through five years | | 3,636 | | | 3,690 | | | 29.8 | |
| Due after five years through ten years | | 3,460 | | | 3,525 | | | 28.5 | |
| Due after ten years | | 4,548 | | | 4,471 | | | 36.1 | |
| Total | | $ | 12,330 | | | $ | 12,376 | | | 100.0 | % |
| | | | | | |
Actual maturities may differ from contractual maturities when there is a right to call or prepay obligations with or without call or prepayment penalties.
Cincinnati Financial Corporation First-Quarter 2022 10-Q
Page 10
The following table provides investment income and investment gains and losses, net:
| | | | | | | | | | | | | | | |
| (Dollars in millions) | | | Three months ended March 31, |
| | | | | 2022 | | 2021 |
| Investment income: | | | | | | | |
| Interest | | | | | $ | 123 | | | $ | 118 | |
| Dividends | | | | | 65 | | | 58 | |
| Other | | | | | 1 | | | 2 | |
| Total | | | | | 189 | | | 178 | |
| Less investment expenses | | | | | 4 | | | 4 | |
| Total | | | | | $ | 185 | | | $ | 174 | |
| | | | | | | |
| Investment gains and losses, net: | | | | | | | |
| Equity securities: | | | | | | | |
| Investment gains and losses on securities sold, net | | | | | $ | 8 | | | $ | 4 | |
| Unrealized gains and losses on securities still held, net | | | | | (683) | | | 487 | |
| | | | | | | |
| Subtotal | | | | | (675) | | | 491 | |
| Fixed maturities: | | | | | | | |
| Gross realized gains | | | | | 4 | | | 3 | |
| Gross realized losses | | | | | (1) | | | — | |
| | | | | | | |
| Subtotal | | | | | 3 | | | 3 | |
| | | | | | | |
| Other | | | | | 6 | | | 10 | |
| | | | | | | |
| Total | | | | | $ | (666) | | | $ | 504 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
The fair value of our equity portfolio was $10.675 billion and $11.315 billion at March 31, 2022, and December 31, 2021, respectively. At March 31, 2022, and December 31, 2021, Apple Inc. (Nasdaq:AAPL), an equity holding, was our largest single investment holding with a fair value of $848 million and $862 million, which was 8.3% and 7.9% of our publicly traded common equities portfolio and 3.7% and 3.5% of the total investment portfolio, respectively.
At March 31, 2022, and December 31, 2021, the allowance for credit losses, including changes in the amount during each period, was less than $1 million. During the three months ended March 31, 2022, there was one fixed-maturity security that was written down to fair value due to an intention to be sold resulting in an impairment charge of less than $1 million. During the three months ended March 31, 2021, there were no fixed-maturity securities that were written down to fair value due to an intention to be sold.
At March 31, 2022, 1,377 fixed-maturity securities with a total unrealized loss of $245 million were in an unrealized loss position. Of that total, no fixed-maturity securities had fair values below 70% of amortized cost. At December 31, 2021, 278 fixed-maturity securities with a total unrealized loss of $16 million were in an unrealized loss position. Of that total, no fixed-maturity securities had fair values below 70% of amortized cost.
Cincinnati Financial Corporation First-Quarter 2022 10-Q
Page 11
NOTE 3 – Fair Value Measurements
In accordance with accounting guidance for fair value measurements and disclosures, we categorized our financial instruments, based on the priority of the observable and market-based data for the valuation technique used, into a three-level fair value hierarchy. The fair value hierarchy gives the highest priority to quoted prices with readily available independent data in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable market inputs (Level 3). When various inputs for measurement fall within different levels of the fair value hierarchy, the lowest observable input that has a significant impact on fair value measurement is used. Our valuation techniques have not changed from those used at December 31, 2021, and ultimately management determines fair value. See our 2021 Annual Report on Form 10-K, Item 8, Note 3, Fair Value Measurements, Page 137, for information on characteristics and valuation techniques used in determining fair value.
Fair Value Disclosures for Assets
The following tables illustrate the fair value hierarchy for those assets measured at fair value on a recurring basis at March 31, 2022, and December 31, 2021. We do not have any liabilities carried at fair value.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| (Dollars in millions) | | Quoted prices in
active markets for
identical assets
(Level 1) | | Significant other
observable inputs (Level 2) | | Significant
unobservable
inputs
(Level 3) | | Total |
| At March 31, 2022 | | | | |
| Fixed maturities, available for sale: | | | | | | | | |
| Corporate | | $ | — | | | $ | 7,149 | | | $ | — | | | $ | 7,149 | |
| States, municipalities and political subdivisions | | — | | | 4,810 | | | — | | | 4,810 | |
| Commercial mortgage-backed | | — | | | 266 | | | — | | | 266 | |
| United States government | | 112 | | | — | | | — | | | 112 | |
| Foreign government | | — | | | 25 | | | — | | | 25 | |
| Government-sponsored enterprises | | — | | | 14 | | | — | | | 14 | |
| | | | | | | | |
| | | | | | | | |
| Subtotal | | 112 | | | 12,264 | | | — | | | 12,376 | |
| Common equities | | 10,245 | | | — | | | — | | | 10,245 | |
| Nonredeemable preferred equities | | — | | | 430 | | | — | | | 430 | |
| | | | | | | | |
| Separate accounts taxable fixed maturities | | — | | | 887 | | | — | | | 887 | |
Top Hat savings plan mutual funds and common
equity (included in Other assets) | | 70 | | | — | | | — | | | 70 | |
| Total | | $ | 10,427 | | | $ | 13,581 | | | $ | — | | | $ | 24,008 | |
| | | | | | | | |
| At December 31, 2021 | | | | | | | | |
| Fixed maturities, available for sale: | | | | | | | | |
| Corporate | | $ | — | | | $ | 7,497 | | | $ | — | | | $ | 7,497 | |
| States, municipalities and political subdivisions | | — | | | 5,095 | | | — | | | 5,095 | |
| Commercial mortgage-backed | | — | | | 273 | | | — | | | 273 | |
| United States government | | 123 | | | — | | | — | | | 123 | |
| Foreign government | | — | | | 26 | | | — | | | 26 | |
| Government-sponsored enterprises | | — | | | 8 | | | — | | | 8 | |
| | | | | | | | |
| Subtotal | | 123 | | | 12,899 | | | — | | | 13,022 | |
| Common equities | | 10,862 | | | — | | | — | | | 10,862 | |
| Nonredeemable preferred equities | | — | | | 453 | | | — | | | 453 | |
| Separate accounts taxable fixed maturities | | — | | | 948 | | | — | | | 948 | |
Top Hat savings plan mutual funds and common
equity (included in Other assets) | | 64 | | | — | | | — | | | 64 | |
| Total | | $ | 11,049 | | | $ | 14,300 | | | $ | — | | | $ | 25,349 | |
| | | | | | | | |
Cincinnati Financial Corporation First-Quarter 2022 10-Q
Page 12
We also held Level 1 cash and cash equivalents of $987 million and $1.139 billion at March 31, 2022, and December 31, 2021, respectively.
Fair Value Disclosures for Assets and Liabilities Not Carried at Fair Value
The disclosures below are presented to provide information about the effects of current market conditions on financial instruments that are not reported at fair value in our condensed consolidated financial statements.
This table summarizes the book value and principal amounts of our long-term debt:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (Dollars in millions) | | | | Book value | | Principal amount |
Interest
rate | | Year of
issue | | | | March 31, | | December 31, | | March 31, | | December 31, |
| | | | 2022 | | 2021 | | 2022 | | 2021 |
| 6.900% | | 1998 | | Senior debentures, due 2028 | | $ | 27 | | | $ | 27 | | | $ | 28 | | | $ | 28 | |
| 6.920% | | 2005 | | Senior debentures, due 2028 | | 391 | | | 391 | | | 391 | | | 391 | |
| 6.125% | | 2004 | | Senior notes, due 2034 | | 371 | | | 371 | | | 374 | | | 374 |