Cincinnati Financial Corporation — 2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023. Cincinnati Financial is an insurance holding company focused on property and casualty insurance distributed through independent agencies, with life insurance, reinsurance, specialty underwriting and investment operations.
Financial results and condition
| Metric | 2023 | 2022 |
|---|---|---|
| Total revenues | $10.013 billion | $6.563 billion |
| Net income (loss) | $1.843 billion | ($487 million) |
| Diluted earnings (loss) per share | $11.66 | ($3.06) |
| Operating cash flow | $2.052 billion | $2.052 billion |
| Total assets | $32.769 billion | $29.732 billion |
| Shareholders’ equity | $12.098 billion | $10.562 billion |
| Book value per share | $77.06 | $67.21 |
| Total debt | $815 million | $839 million |
| Debt-to-total-capital ratio | 6.3% | 7.4% |
Earned premiums rose 10% to $7.958 billion. Net investment income increased 14% to $894 million; net investment gains were $1.127 billion, versus a $1.467 billion loss in 2022. The 2023 result included $1.168 billion of unrealized gains on equity securities still held, making reported earnings materially sensitive to market valuations.
Consolidated property-casualty underwriting profit was $401 million, up from $140 million. The GAAP combined ratio improved to 94.9% from 98.1% (below 100% indicates an underwriting profit). Catastrophe losses remained significant: $663 million net of reinsurance in 2023, versus $632 million in 2022. Favorable prior-year reserve development contributed $215 million to 2023 results, compared with $159 million in 2022.
Segment results were mixed: commercial lines earned $168 million before tax (up from $38 million); personal lines recorded a $4 million loss (versus $18 million profit); excess and surplus lines earned $54 million; and life insurance earned $41 million. Cincinnati Re and Cincinnati Global together reported $183 million of underwriting profit, versus $36 million in 2022.
Total investments were $25.357 billion at year-end. The fixed-maturity portfolio had a fair value of $13.791 billion and the equity portfolio $10.989 billion. Cash and cash equivalents were $907 million. Parent-company cash and marketable securities were reported at $4.858 billion. The company reported $790 million of long-term debt and $25 million drawn on its revolving credit facility; the $300 million facility was extended through February 4, 2026.
Material changes versus 2022
- Net income swung from a loss to a profit, primarily reflecting a $2.594 billion pretax improvement in investment gains and losses, alongside stronger property-casualty underwriting and higher investment income.
- Property-casualty net written premiums increased 10% to $8.046 billion. Personal lines grew especially quickly, with earned premiums up 21%; its combined ratio worsened to 100.4%, reflecting higher catastrophe losses.
- Investment portfolio fair value rose, and fixed-maturity unrealized losses narrowed to $687 million from $908 million. However, 2,840 fixed-maturity securities remained below amortized cost at year-end.
- Shareholders’ equity increased 15%; cash dividends declared per share rose to $3.00 from $2.76.
Outlook, risks and unusual items
- Management targets an average annual value creation ratio of 10%–13% over the next five years; 2023 was 19.5%. Its stated underwriting objective is a five-year average GAAP combined ratio of 92%–98%; the 2019–2023 average was 94.6%.
- Management expects further profitable premium growth and believes pricing, risk selection and claims and loss-control initiatives can support underwriting results. It flags inflation, competition and uncertainty in ultimate loss costs, and intends to reserve prudently while longer-term trends become clearer.
- Management identifies catastrophe frequency and severity, climate-related exposure, social inflation and reserve uncertainty, investment-market volatility, interest rates, reinsurance availability and collectability, and agency and technology risks as important exposures. A 100-basis-point interest-rate change was estimated to alter fixed-maturity portfolio fair value by about 4.3%.
- COVID-19 business-interruption coverage litigation remains unresolved. The company reports favorable appellate rulings to date but says it cannot reasonably estimate a possible loss or range; adverse outcomes could materially affect results, financial position or cash flows.
- The company adopted ASU 2018-12 for long-duration insurance contracts effective January 1, 2023, increasing opening shareholders’ equity by $31 million after tax. Deloitte issued unqualified opinions on the financial statements and internal controls; property-casualty reserves were identified as a critical audit matter.
Important facts for investors to verify
- How much future earnings depend on realized or unrealized investment gains, particularly equity-market performance.
- Whether pricing and premium growth continue to offset inflation, catastrophe losses and elevated claims costs—especially in personal lines and commercial casualty.
- Reserve adequacy and the sustainability of favorable prior-year reserve development; reported net reserves were $8.613 billion, with a disclosed reasonable range of $7.926 billion to $8.704 billion.
- Potential exposure from catastrophe events, the effectiveness and cost of 2024 reinsurance protection, and reinsurer creditworthiness.
- Developments in COVID-19 business-interruption litigation and any material changes to the company’s estimates or disclosures.
- Dividend capacity at the parent company, including regulatory limits on insurance-subsidiary dividends and the effect of market conditions on parent-held investments.