Income Taxes

9 Months Ended

Sep. 30, 2023

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

The differences between the 21% statutory federal income tax rate and our effective income tax rate were as follows:

(Dollars in millions)	Three months ended September 30,								Nine months ended September 30,
	2023				2022				2023				2022
Tax at statutory rate:	$	(31)	21.0	%	$	(122)	21.0	%	$	165	21.0	%	$	(416)	21.0	%
Increase (decrease) resulting from:
Tax-exempt income from municipal bonds	(5)		3.4		(5)		0.9		(15)		(1.9)		(15)		0.8
Dividend received exclusion	(5)		3.4		(5)		0.9		(16)		(2.0)		(15)		0.8
Release of unrecognized tax benefit	—		—		(34)		5.9		—		—		(34)		1.7
Other	(8)		5.3		5		(0.8)		(8)		(1.1)		(1)		—
Provision (benefit) for income taxes	$	(49)	33.1	%	$	(161)	27.9	%	$	126	16.0	%	$	(481)	24.3	%

The provision (benefit) for federal income taxes is based upon filing a consolidated income tax return for the company and its domestic subsidiaries.

We continue to believe that after considering all positive and negative evidence of taxable income in the carryback and carryforward periods as permitted by law, it is more likely than not that all of the deferred tax assets on our U.S. domestic operations will be realized. As a result, we have no valuation allowance for our U.S. domestic operations at September 30, 2023, and December 31, 2022. As more fully discussed below, we do carry a valuation allowance on the deferred tax assets related to Cincinnati Global Underwriting Ltd.SM (Cincinnati Global).

Unrecognized Tax Benefits

During the third quarter of 2022, we received favorable guidance from the Internal Revenue Service (IRS) supporting our tax position related to our unrecognized tax benefit set up in 2018. As a result of this guidance, we released our $34 million gross unrecognized tax benefit liability at September 30, 2022. The $34 million release was recognized as an additional income tax benefit and shown separately in our effective income tax rate reconciliation.

Cincinnati Global

As a result of operations for the three and nine months ended September 30, 2023, Cincinnati Global decreased its net deferred tax assets by $10 million and $20 million, respectively, with an offsetting decrease of $10 million and $20 million, respectively, to the valuation allowance. Cincinnati Global had a net deferred tax asset of $11 million and an offsetting valuation allowance of $11 million at September 30, 2023.

Deferred tax assets are reduced by a valuation allowance when management believes it is more likely than not that some, or all, of the deferred tax assets will not be realized. After considering all positive and negative evidence, we continue to believe it is appropriate to carry a valuation allowance at September 30, 2023.

Cincinnati Global had operating loss carryforwards in the United States of $6 million and $5 million and in the United Kingdom of $99 million and $109 million at September 30, 2023, and December 31, 2022, respectively. These Cincinnati Global losses can only be utilized within the Cincinnati Global group.