CINCINNATI FINANCIAL CORP

Cincinnati Financial Corporation operates in the highly competitive U.S. property casualty insurance industry, which includes more than 2,000 stock and mutual companies ¹. The company markets its products through independent insurance agencies, a channel that represents approximately 60% of overall U.S. property casualty insurance premiums and approximately 80% of commercial property casualty insurance premiums ². The company is fully committed to the independent agency channel and had 2,292 property casualty agency relationships at year-end 2025 ³, marketing in 46 states ⁴. Standard market and excess and surplus lines commercial policies were marketed in 44 of those states, with commercial E&S policies also available in California, and personal lines policies were marketed in 45 of those states ⁵.

The company's competitive advantages include its commitment to professional independent insurance agencies, financial strength to fulfill promises and be a consistent market, and an operating structure that supports local decision making ⁶. On average, the company has a 4.2% share of the standard lines property casualty insurance purchased through its reporting agency locations, according to 2024 data from agency surveys ⁷. Its share is 7.4% in reporting agency locations that have represented it for more than 10 years, 3.2% in agencies that have represented it for six to 10 years, 1.5% in agencies that have represented it for two to five years, and 0.4% in agencies that have represented it for one year or less ⁸. The largest single agency relationship accounted for approximately 0.5% of total property casualty earned premiums in 2025 ⁹, and no aggregate locations under a single ownership structure accounted for more than 8% of earned premiums in 2025 ¹⁰. The company's $18.123 billion fixed-maturity portfolio had an average rating of A2/A, and its fair value exceeded total insurance reserve liabilities by approximately 25% at December 31, 2025 ¹¹. The debt-to-total-capital ratio was 4.9% at year-end 2025 ¹², and long-term debt totaled $790 million ¹³.

The company generates revenue primarily through the sale of property casualty and life insurance policies marketed through independent insurance agencies. Revenue is derived from earned premiums, fee revenues, net investment income, and net investment gains and losses. The core business model is built on a long-term, agency-focused strategy that emphasizes managing insurance profitability and driving premium growth through underwriting expertise, technology and analytics, and local decision-making ¹⁴. The company also generates income from its investments segment, which manages portfolios for the holding company and each operating subsidiary, and from noninsurance operations including commercial leasing and financing services through CFC Investment Company ¹⁵.

The commercial lines insurance segment contributed net earned premiums of $4.863 billion in 2025, representing 38.5% of consolidated total revenues, and reported profit before income taxes of $439 million ¹⁶. Commercial lines net earned premiums rose 8% in 2025 and 5% in 2024 ¹⁷. The segment includes commercial casualty, commercial property, commercial auto, workers' compensation, and other commercial lines such as management liability and surety and machinery and equipment ¹⁸. Approximately 70% of commercial in-force policies have annual premiums of $10,000 or less, accounting for approximately 10% of 2025 commercial lines premium volume, while policies with annual premiums greater than $100,000 account for approximately 40% of 2025 commercial lines premium volume ¹⁹. The average commercial lines policy size is approximately $19,000 in annual premiums ²⁰. Approximately 75% of 2025 commercial premiums were subject to annual rating or were written on a one-year policy term ²¹.

The personal lines insurance segment contributed net earned premiums of $3.199 billion to 2025 consolidated total revenues, or 25.3% of the total, and reported a loss before income taxes of $111 million ²². Personal lines net earned premiums rose 22% in 2025 and 28% in 2024 ²³. At the end of 2025, approximately 86% of homeowner policies were accompanied by a personal auto policy in the same account ²⁴. The segment produced approximately 1.3 million personal lines policies in force, representing approximately 550,000 policyholders ²⁵. Cincinnati Private Client represents approximately 60% of personal lines insurance premiums ²⁶. The excess and surplus lines segment contributed net earned premiums of $698 million to 2025 consolidated total revenues, or 5.5% of the total, and reported profit before income taxes of $85 million ²⁷. Excess and surplus lines net earned premium increased 13% in both 2025 and 2024 ²⁸. The average excess and surplus lines policy size is approximately $10,000 in annual premiums, and the majority have coverage limits of $1 million or less ²⁹. Approximately 89% of 2025 earned premiums for the excess and surplus lines insurance segment provided commercial casualty coverages and about 11% provided commercial property coverages ³⁰. The life insurance segment contributed $330 million of net earned premiums, representing 2.6% of 2025 consolidated total revenues, and reported a gain before income taxes of $65 million ³¹. Life insurance net earned premiums increased 3% in both 2025 and 2024 ³². At year-end 2025, approximately 84% of the 2,292 property casualty agency relationships offered Cincinnati Life products to their clients ³³, and the company also develops life business from approximately 489 other independent life insurance agencies ³⁴.

During 2025, the company repurchased 1,354,238 shares at an average price of $151.04 ³⁵. The repurchase program was expanded on January 26, 2018, by 15 million shares ³⁶, and 4,260,268 shares were available for purchase under the programs at December 31, 2025 ³⁷. The company has increased the annual cash dividend rate for 65 consecutive years ³⁸. In 2025, the company had 5,705 associates, including 3,400 headquarters associates, 2,195 field associates, and 110 associates at Cincinnati Global ³⁹. The associate voluntary turnover rate was 5% in 2025, 4% in 2024, and 6% in 2023 ⁴⁰. The company's largest single common stock investment at year-end 2025 was Apple Inc., comprising 7.7% of the publicly traded common stock portfolio and 3.1% of the entire investment portfolio ⁴¹. The five largest holdings in the common stock portfolio were Apple, Microsoft, Broadcom Inc., JPMorgan Chase & Co., and Lam Research Corporation, which had a combined fair value of $3.718 billion or 30.1% of the publicly traded common stock portfolio ⁴².

Total revenues for 2025 were $12.631 billion, compared with $11.337 billion in 2024 and $10.013 billion in 2023 ⁴³. Net income was $2.393 billion in 2025, $2.292 billion in 2024, and $1.843 billion in 2023 ⁴⁴. Diluted net income per share was $15.17 in 2025, $14.53 in 2024, and $11.66 in 2023 ⁴⁵. The value creation ratio was 18.8% for 2025, 19.8% for 2024, and 19.5% for 2023 ⁴⁶. The GAAP combined ratio for consolidated property casualty operations was 94.9% in 2025, 93.4% in 2024, and 94.9% in 2023 ⁴⁷. Underwriting profit was $501 million in 2025, $580 million in 2024, and $401 million in 2023 ⁴⁸. Net written premiums for consolidated property casualty operations were $10.082 billion in 2025, $9.243 billion in 2024, and $8.046 billion in 2023 ⁴⁹. Total investments at fair value were $30.965 billion at year-end 2025 and $27.665 billion at year-end 2024 ⁵⁰. Shareholders' equity was $15.911 billion at year-end 2025 and $13.935 billion at year-end 2024 ⁵¹. Book value per share was $102.35 at year-end 2025 and $89.11 at year-end 2024 ⁵².

The company is targeting an annual value creation ratio averaging 10% to 13% over the next five-year period ⁵³. Management's view of shareholder value creation over the next five years relies on three assumptions: first, property casualty average insurance prices will increase in proportion to, or in excess of, loss cost trends; second, the economy can maintain a long-term growth track; and third, valuations of marketable securities will vary within a typical range over time based on historical trends ⁵⁴. The company anticipates that its GAAP combined ratio over any five-year period will consistently average within the range of 92% to 98% in the future ⁵⁵.

The company's growth strategy includes driving premium growth through further penetration of each market served through appointed independent agencies, with strategies aimed at specific market opportunities and service enhancements to help agents grow and increase the company's share of their business ⁵⁶. This includes increasing opportunities for agencies to cross-serve their clients by providing updated products and services to meet their life insurance needs ⁵⁷. The company continues to increase its capabilities to successfully underwrite both larger commercial policies, referred to as key accounts, and small business accounts that require greater efficiency ⁵⁸. Premium growth initiatives also include expansion of Cincinnati Re and Cincinnati Global, with diversified growth potentially reducing variability of losses from weather-related catastrophes ⁵⁹. The company believes over any five-year period its agency relationships and initiatives can lead to a property casualty written premium growth rate that exceeds the industry average ⁶⁰. The compound annual growth rate of net written premiums was 11.4% over the five-year period 2021 through 2025, exceeding the 8.8% estimated growth rate for the property casualty insurance industry ⁶¹.

The company's initiatives to manage insurance profitability are intended to enhance underwriting expertise and knowledge, thereby increasing the ability to manage the business while also gaining efficiency ⁶². Management believes profit margins can be improved with additional information and expanded pricing capabilities accessed through technology and analytics, including segmentation efforts that emphasize identification and retention of insurance policies believed to have relatively stronger pricing, while seeking more aggressive renewal terms and conditions on policies believed to have relatively weaker pricing ⁶³. The company's GAAP combined ratio averaged 93.9% over the five-year period 2021 through 2025, within the performance target range ⁶⁴. The statutory combined ratio averaged 93.6% over the five-year period 2021 through 2025, compared with an estimated 99.6% for the property casualty industry ⁶⁵.

The company employs 5,705 associates, including 3,400 headquarters associates who provide support to 2,195 field associates and 110 associates at Cincinnati Global ⁶⁶. The field team is coordinated by field marketing representatives responsible for underwriting new commercial lines business, joined by field representatives specializing in claims, loss control, commercial lines key accounts, personal lines, excess and surplus lines, machinery and equipment, management liability and surety, premium audit, and life insurance ⁶⁷. Technology enhances service to agencies, allowing them to more easily access systems and process business transactions, and policyholders can conveniently access pertinent policy information online ⁶⁸. The company continues to develop enhanced, tailored services offered at the time a claim is reported for an insured loss event, including assisting with car rental or towing, arranging temporary housing, and coordinating emergency repairs ⁶⁹.

The company's investment philosophy and initiatives are expected to drive investment income growth and lead to a total return on the equity investment portfolio over a five-year period that exceeds the five-year total return of the S&P 500 Index ⁷⁰. Investment income growth on a pretax basis had a compound annual growth rate of 11.7% over the five-year period 2021 through 2025 ⁷¹. Over the five years ended December 31, 2025, the equity portfolio compound annual total return was 12.4% compared with a compound annual total return of 14.4% for the S&P 500 Index ⁷². For the year 2025, the equity portfolio total return was 15.7%, compared with 17.9% for the S&P 500 Index ⁷³. The company remains committed to its long-term equity focus, which it believes is a key factor to the company's long-term growth and stability ⁷⁴. The board of directors regularly evaluates relevant factors in dividend-related decisions, and the 2025 increase to the regular dividend reflected confidence in the company's outstanding capital, liquidity, and financial flexibility ⁷⁵.

The company's view of shareholder value creation over the next five years relies on the assumption that valuations of marketable securities will vary within a typical range over time based on historical trends ⁷⁶. If those assumptions prove to be inaccurate, the company may not be able to achieve its performance targets even if it accomplishes its strategic objectives ⁷⁷. The company faces challenges including elevated inflation in recent periods that has significantly increased loss costs in auto and property businesses, and it is possible that inflation could remain at high levels for a prolonged period or increase further, leading to additional increases in loss costs ⁷⁸. A significant portion of claims costs consists of medical costs, and an increase in medical inflation could materially and adversely impact loss costs and loss reserves ⁷⁹. Recent changes in the macroeconomic environment have impacted medical labor and materials costs, the potential persistency of which could result in future loss costs that are higher than current expectations ⁸⁰.

The company's ability to achieve its performance objectives could be affected by changes in the financial, credit, and capital markets or the general economy ⁸¹. Events such as global supply chain disruptions, implementation of tariffs, an increasing interest rate environment, and inflationary pressures have contributed to significant disruption and volatility for financial markets and decreased economic activity ⁸². In the event that these conditions occur or continue, recur, or result in a prolonged economic downturn or recession, they could materially and adversely impact the company's financial condition, results of operations, or cash flows ⁸³. The company's geographic concentration links its performance to business, economic, environmental, and regulatory conditions in some states more than others, with business concentrated in the Midwest and Southeast, with a growing presence in California and New York ⁸⁴. The company also has exposure in states where it does not actively market insurance when clients of independent agencies have businesses or properties in multiple states or through Cincinnati Global and Cincinnati Re ⁸⁵.

Loss reserves, the company's largest liability at $11.450 billion gross at year-end 2025 ⁸⁶, are based on estimates and could be inadequate to cover actual losses, with inflationary scenarios outside historical norms or regulatory changes potentially making estimation more difficult ⁸⁷. The company could experience an unusually high level of losses due to natural or man-made catastrophe, terrorism, or epidemic events, with probable maximum loss estimates from a single hurricane event net of reinsurance and income taxes of $632 million for a once-in-a-100-year event and $987 million for a once-in-a-250-year event ⁸⁸. The company's ability to properly underwrite and price risks and increased competition could adversely affect results, as the insurance industry is cyclical and competitive, and the company competes with major U.S., Bermudian, European, and other international insurers and reinsurers, some with greater financial resources ⁸⁹. Financial disruption or a prolonged economic downturn could affect investment performance, as common stock holdings made up 40.0% of the investment portfolio at year-end 2025 ⁹⁰, and adverse news or events affecting equity markets could affect net income, book value, and the ability to pay common stock dividends ⁹¹. The company's status as an insurance holding company with no direct operations could affect its ability to pay dividends in the future, as cash flow to pay dividends and interest on long-term debt depends on dividends from operating subsidiaries, which are restricted by insurance laws ⁹².

Management's message emphasizes the company's long-term perspective, which has allowed it to address immediate challenges while focusing on major decisions that best position the company for success through all market cycles ⁹³. The company defines a measure of value creation called the value creation ratio (VCR), which is made up of the rate of growth in book value per share plus the ratio of dividends declared per share to beginning book value per share ⁹⁴. Management is targeting an annual value creation ratio averaging 10% to 13% over the next five-year period ⁹⁵. At 18.8% for 2025, performance was above the high end of that range ⁹⁶. The company also exceeded the high end of the range for both the three-year and five-year periods that ended in December 2025 ⁹⁷. Management's strategic priorities include meeting the wants and needs of agent customers, attracting and developing talented associates, achieving best-in-class field service, and continually enhancing operational efficiency and effectiveness ⁹⁸. To help guide strategic efforts, the company has placed an emphasis on innovation to accelerate operational improvement and to favorably position for the future ⁹⁹. The company's three primary performance drivers for the value creation ratio are premium growth, combined ratio performance, and investment contribution ¹⁰⁰. The board of directors is committed to rewarding shareholders directly through cash dividends and share repurchase authorizations, and through 2025, the company has increased the annual cash dividend rate for 65 consecutive years, a record matched by only seven other publicly traded U.S. companies ¹⁰¹.