Accounting Policies

9 Months Ended

Sep. 30, 2023

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 September 30, 2023, 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 2022 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.

Adopted 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.

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.

We adopted these ASUs on a modified retrospective basis on January 1, 2023, resulting in an after-tax increase to shareholders' equity of $31 million.

The following table illustrates the effect of adopting ASU 2018-12 in the condensed consolidated balance sheets:


(Dollars in millions)	September 30, 2023		December 31, 2022
			As originally reported		As adjusted		Difference
Reinsurance recoverable	$	699	$	640	$	665	$	25
Prepaid reinsurance premiums	69		79		51		(28)
Deferred policy acquisition costs	1,101		1,014		1,013		(1)
Total assets	30,915		29,736		29,732		(4)
Life policy and investment contract reserves	2,920		3,059		3,015		(44)
Deferred income tax	997		1,045		1,054		9
Total liabilities	20,291		19,205		19,170		(35)
Retained earnings	12,018		11,702		11,711		9
Accumulated other comprehensive income	(827)		(636)		(614)		22
Total shareholders' equity	10,624		10,531		10,562		31
Total liabilities and shareholders' equity	30,915		29,736		29,732		(4)

The following table illustrates the effect of adopting ASU 2018-12 in the condensed consolidated statements of income and condensed consolidated statements of comprehensive income:


(Dollars in millions, except per share data)	Three months ended September 30,
	2023		2022
			As originally reported		As adjusted		Difference
Earned premiums	$	2,033	$	1,882	$	1,884	$	2

Insurance losses and contract holders' benefits	1,332		1,418		1,418		—
Underwriting, acquisition and insurance expenses	609		551		551		—

Deferred income tax expense	(106)		(180)		(180)		—

Net Income (Loss)	(99)		(418)		(416)		2
Change in life policy reserves, reinsurance recoverable and other, net of tax	89		—		95		95
Other comprehensive income (loss)	(201)		(405)		(310)		95
Comprehensive Income (Loss)	(300)		(823)		(726)		97
Net income (loss) per share:
Basic	$	(0.63)	$	(2.64)	$	(2.63)	$	0.01
Diluted	(0.63)		(2.64)		(2.63)		0.01

(Dollars in millions, except per share data)	Nine months ended September 30,
	2023		2022
			As originally reported		As adjusted		Difference
Earned premiums	$	5,894	$	5,345	$	5,350	$	5

Insurance losses and contract holders' benefits	4,070		3,766		3,772		6
Underwriting, acquisition and insurance expenses	1,744		1,604		1,604		—

Deferred income tax expense	2		(571)		(571)		—

Net Income (Loss)	660		(1,499)		(1,500)		(1)
Change in life policy reserves, reinsurance recoverable and other, net of tax	76		1		393		392
Other comprehensive income (loss)	(213)		(1,476)		(1,084)		392
Comprehensive Income (Loss)	447		(2,975)		(2,584)		391
Net income (loss) per share:
Basic	$	4.20	$	(9.41)	$	(9.42)	$	(0.01)
Diluted	4.17		(9.41)		(9.42)		(0.01)

The adoption of ASU 2018-12 did not have a material impact on the company's condensed consolidated cash flows.