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 ~~June 30, 2019~~March 31, 2020.

☐ 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 ~~CORP~~CORPORATION~~ORATION~~

(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 or former address, 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 and posted 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 ~~July 24, 2019,~~April 22, 2020, there were ~~163,336,240~~160,801,531 shares of common stock outstanding.

CINCINNATI FINANCIAL CORPORATION AND SUBSIDIARIES

FORM 10-Q FOR THE QUARTER ENDED ~~June 30, 2019~~March 31, 2020

TABLE OF CONTENTS



Part I – Financial Information	3

Item 1. Financial Statements (unaudited)	3

Condensed Consolidated Balance Sheets	3

Condensed Consolidated Statements of Income	4

Condensed Consolidated Statements of Comprehensive Income	5

Condensed Consolidated Statements of Shareholders’ Equity	6

Condensed Consolidated Statements of Cash Flows	7

Notes to Condensed Consolidated Financial Statements (unaudited)	8

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	2925

Safe Harbor Statement	2925

Corporate Financial Highlights	3127

Financial Results	4136

Liquidity and Capital Resources	5652

Other Matters	6056

Item 3. Quantitative and Qualitative Disclosures about Market Risk	6056

Item 4. Controls and Procedures	6662

Part II – Other Information	6763

Item 1. Legal Proceedings	6763

Item 1A. Risk Factors	6763

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	6864

Item 6. Exhibits	6965

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)	June 30,			December 31,			March 31,			December 31,
	2019			2018			2020			2019
Assets
Investments
Fixed maturities, at fair value (amortized cost: 2019—$10,832; 2018—$10,643)	$	11,320		$	10,689
Equity securities, at fair value (cost: 2019—$3,471; 2018—$3,368)	7,012			5,920
Fixed maturities, at fair value (amortized cost: 2020—$11,074; 2019—$11,108)							$	11,340		$	11,698
Equity securities, at fair value (cost: 2020—$3,702; 2019—$3,581)							6,225			7,752
Other invested assets	271			123			311			296
Total investments	18,603			16,732			17,876			19,746
Cash and cash equivalents	803			784			486			767
Investment income receivable	130			132			124			133
Finance receivable	76			71			76			77
Premiums receivable	1,913			1,644			1,900			1,777
Reinsurance recoverable	515			484			567			610
Prepaid reinsurance premiums	70			44			57			54
Deferred policy acquisition costs	786			738			827			774
Land, building and equipment, net, for company use (accumulated depreciation: 2019—$267; 2018—$265)	207			195
Land, building and equipment, net, for company use (accumulated depreciation: 2020—$281; 2019—$276)							208			207
Other assets	375			308			388			381
Separate accounts	859			803			858			882
Total assets	$	24,337		$	21,935		$	23,367		$	25,408

Liabilities
Insurance reserves
Loss and loss expense reserves	$	6,009		$	5,707		$	6,206		$	6,147
Life policy and investment contract reserves	2,798			2,779			2,861			2,835
Unearned premiums	2,896			2,516			2,922			2,788
Other liabilities	828			804			858			928
Deferred income tax	932			627			660			1,079
Note payable	37			32			114			39
Long-term debt and lease obligations	847			834			846			846
Separate accounts	859			803			858			882
Total liabilities	15,206			14,102			15,325			15,544

Commitments and contingent liabilities (Note 12)

Shareholders' Equity
Common stock, par value—$2 per share; (authorized: 2019 and 2018—500 million shares; issued: 2019 and 2018—198.3 million shares)	397			397
Common stock, par value—$2 per share; (authorized: 2020 and 2019—500 million shares; issued: 2020 and 2019—198.3 million shares)							397			397
Paid-in capital	1,286			1,281			1,300			1,306
Retained earnings	8,566			7,625			7,932			9,257
Accumulated other comprehensive income	364			22			204			448
Treasury stock at cost (2019—35.0 million shares and 2018—35.5 million shares)	(1,482		)	(1,492		)
Treasury stock at cost (2020—37.5 million shares and 2019—35.4 million shares)							(1,791		)	(1,544		)
Total shareholders' equity	9,131			7,833			8,042			9,864
Total liabilities and shareholders' equity	$	24,337		$	21,935		$	23,367		$	25,408
��

Accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.

Cincinnati Financial Corporation and Subsidiaries

Condensed Consolidated Statements of Income


(Dollars in millions, except per share data)	Three months ended June 30,				Six months ended June 30,					Three months ended March 31,
	2019		2018		2019		2018			2020			2019
Revenues
Earned premiums	$	1,384	$	1,294	$	2,717	$	2,554		$	1,456		$	1,333
Investment income, net of expenses	160		154		317		304			165			157
Investment gains and losses, net	364		105		1,027		(86		)	(1,725		)	663
Fee revenues	3		4		7		8			3			4
Other revenues	2		1		4		2			2			2
Total revenues	1,913		1,558		4,072		2,782			(99		)	2,159
Benefits and Expenses
Insurance losses and contract holders' benefits	936		883		1,796		1,737			1,003			860
Underwriting, acquisition and insurance expenses	430		395		841		798			456			411
Interest expense	13		13		26		26			13			13
Other operating expenses	4		3		12		7			5			8
Total benefits and expenses	1,383		1,294		2,675		2,568			1,477			1,292
Income Before Income Taxes	530		264		1,397		214
Income (Loss) Before Income Taxes										(1,576		)	867
Provision (Benefit) for Income Taxes
Current	28		33		56		61			3			28
Deferred	74		14		218		(33		)	(353		)	144
Total provision for income taxes	102		47		274		28
Net Income	$	428	$	217	$	1,123	$	186
Total provision (benefit) for income taxes										(350		)	172
Net Income (Loss)										$	(1,226	)	$	695
Per Common Share
Net income—basic	$	2.62	$	1.33	$	6.89	$	1.13
Net income—diluted	2.59		1.32		6.81		1.12
Net income (loss)—basic										$	(7.56	)	$	4.27
Net income (loss)—diluted										(7.56		)	4.22

Accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.

Cincinnati Financial Corporation and Subsidiaries

Condensed Consolidated Statements of Comprehensive Income


(Dollars in millions)	Three months ended June 30,						Six months ended June 30,						Three months ended March 31,
	2019			2018			2019			2018			2020			2019
Net Income	$	428		$	217		$	1,123		$	186
Net Income (Loss)													$	(1,226	)	$	695
Other Comprehensive Income (Loss)
Change in unrealized gains on investments, net of tax (benefit) of $43, ($18), $93 and ($64), respectively	157			(62		)	349			(237		)
Amortization of pension actuarial loss and prior service cost, net of tax of $0, $0, $0 and $0, respectively	1			1			1			1
Change in life deferred acquisition costs, life policy reserves and other, net of tax (benefit) of ($1), $1, ($2) and $2, respectively	(4		)	1			(8		)	6
Change in unrealized gains on investments, net of tax (benefit) of $(68) and $50, respectively													(256		)	192
Amortization of pension actuarial loss and prior service cost, net of tax of $0 and $0, respectively													1			—
Change in life deferred acquisition costs, life policy reserves and other, net of tax (benefit) of $3 and $(1), respectively													11			(4		)
Other comprehensive income (loss)	154			(60		)	342			(230		)	(244		)	188
Comprehensive Income (Loss)	$	582		$	157		$	1,465		$	(44	)	$	(1,470	)	$	883

Accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.

Cincinnati Financial Corporation and Subsidiaries

Condensed Consolidated Statements of Shareholders' Equity


(Dollars in millions)	Three months ended June 30,						Six months ended June 30,						Three months ended March 31,
	2019			2018			2019			2018			2020			2019
Common Stock
Beginning of period	$	397		$	397		$	397		$	397
Beginning of year													$	397		$	397
Share-based awards	—			—			—			—			—			—
End of period	397			397			397			397			397			397

Paid-In Capital
Beginning of period	1,277			1,258			1,281			1,265
Beginning of year													1,306			1,281
Share-based awards	1			—			(13		)	(17		)	(16		)	(14		)
Share-based compensation	7			7			16			16			9			9
Other	1			1			2			2			1			1
End of period	1,286			1,266			1,286			1,266			1,300			1,277

Retained Earnings
Beginning of period	8,229			7,565			7,625			5,180
Cumulative effect of change in accounting for equity securities as of January 1, 2018	—			—			—			2,503
Beginning of year													9,257			7,625
Cumulative effect of change in accounting for credit losses as of January 1, 2020													(2		)	—
Adjusted beginning of year	8,229			7,565			7,625			7,683			9,255			7,625
Net income	428			217			1,123			186
Dividends declared (per share of $0.56, $0.53, $1.12 and $1.06, respectively)	(91		)	(86		)	(182		)	(173		)
Net income (loss)													(1,226		)	695
Dividends declared													(97		)	(91		)
End of period	8,566			7,696			8,566			7,696			7,932			8,229

Accumulated Other Comprehensive Income (Loss)
Beginning of period	210			115			22			2,788
Cumulative effect of change in accounting for equity securities as of January 1, 2018	—			—			—			(2,503		)
Adjusted beginning of year	210			115			22			285
Beginning of year													448			22
Other comprehensive income (loss)	154			(60		)	342			(230		)	(244		)	188
End of period	364			55			364			55			204			210

Treasury Stock
Beginning of period	(1,483		)	(1,389		)	(1,492		)	(1,387		)
Beginning of year													(1,544		)	(1,492		)
Share-based awards	3			2			16			16			11			13
Shares acquired - share repurchase authorization	—			(110		)	—			(125		)	(256		)	—
Shares acquired - share-based compensation plans	(2		)	(1		)	(7		)	(3		)	(3		)	(5		)
Other	—			—			1			1			1			1
End of period	(1,482		)	(1,498		)	(1,482		)	(1,498		)	(1,791		)	(1,483		)

Total Shareholders' Equity	$	9,131		$	7,916		$	9,131		$	7,916		$	8,042		$	8,630

(In millions)
(In millions, except per common share)
Common Stock - Shares Outstanding
Beginning of period	163.2			164.1			162.8			163.9
Beginning of year													162.9			162.8
Share-based awards	0.1			0.1			0.5			0.5			0.4			0.4
Shares acquired - share repurchase authorization	—			(1.6		)	—			(1.8		)	(2.5		)	—
End of period	163.3			162.6			163.3			162.6			160.8			163.2

Dividends declared per common share													$	0.60		$	0.56

Accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.

Cincinnati Financial Corporation and Subsidiaries

Condensed Consolidated Statements of Cash Flows


(Dollars in millions)	Six months ended June 30,						Three months ended March 31,
	2019			2018			2020			2019
Cash Flows From Operating Activities
Net income	$	1,123		$	186		$	(1,226	)	$	695
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	36			32			22			19
Investment gains and losses, net	(1,022		)	90			1,729			(660		)
Share-based compensation	16			16			9			9
Interest credited to contract holders'	21			23			11			11
Deferred income tax expense	218			(33		)	(353		)	144
Changes in:
Investment income receivable	2			4			9			4
Premiums and reinsurance receivable	(231		)	(129		)	(86		)	(95		)
Deferred policy acquisition costs	(68		)	(41		)	(31		)	(24		)
Other assets	(47		)	(14		)	(11		)	(25		)
Loss and loss expense reserves	25			195			59			(40		)
Life policy and investment contract reserves	52			47			27			22
Unearned premiums	292			174			134			113
Other liabilities	(8		)	(85		)	(123		)	(93		)
Current income tax receivable/payable	67			(1		)	(3		)	120
Net cash provided by operating activities	476			464			167			200
Cash Flows From Investing Activities
Sale of fixed maturities	52			5			21			1
Call or maturity of fixed maturities	625			674			321			269
Sale of equity securities	142			134			7			31
Purchase of fixed maturities	(765		)	(905		)	(336		)	(289		)
Purchase of equity securities	(212		)	(149		)	(132		)	(26		)
Investment in finance receivables	(17		)	(16		)	(6		)	(8		)
Collection of finance receivables	13			12			7			7
Investment in buildings and equipment	(13		)	(9		)
Investment in building and equipment							(4		)	(5		)
Change in other invested assets, net	(41		)	(11		)	(14		)	(36		)
Net cash used in investing activities	(216		)	(265		)	(136		)	(56		)
Cash Flows From Financing Activities
Payment of cash dividends to shareholders	(175		)	(166		)	(90		)	(85		)
Shares acquired - share repurchase authorization	—			(125		)	(256		)	—
Changes in note payable	5			37			75			—
Proceeds from stock options exercised	7			5			4			3
Contract holders' funds deposited	44			43			21			19
Contract holders' funds withdrawn	(93		)	(88		)	(40		)	(44		)
Other	(29		)	(41		)	(26		)	(19		)
Net cash used in financing activities	(241		)	(335		)	(312		)	(126		)
Net change in cash and cash equivalents	19			(136		)	(281		)	18
Cash and cash equivalents at beginning of year	784			657			767			784
Cash and cash equivalents at end of period	$	803		$	521		$	486		$	802
Supplemental Disclosures of Cash Flow Information:
Interest paid	$	27		$	26
Income taxes received (paid)	13			(60		)
Income taxes paid							—			94
Noncash Activities
Conversion of securities	$	—		$	3
Equipment acquired under capital lease obligations	7			8
Equipment acquired under finance lease obligations							$	6		$	3
Cashless exercise of stock options	7			3			3			5
Other assets and other liabilities	28			28			77			23

Accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.

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). ~~Effective February 28, 2019, the company acquired MSP Underwriting Limited, a London-based, global specialty underwriter. MSP was rebranded as Cincinnati Global Underwriting Ltd.~~^SM (Cincinnati Global) effective May 1, 2019, reflecting its new identity as a subsidiary of the corporation. Refer to Note 14, Acquisition, for additional information. The interim condensed consolidated financial statements include Cincinnati Global's results for the period from February 28, 2019, through June 30, 2019. Foreign exchange rates related to Cincinnati Global's operations did not have a material impact to our condensed consolidated financial statements. 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 ~~June 30, 2019~~March 31, 2020, 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 ~~2018~~2019 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 2016-02, Leases (Topic 842)~~

~~In February 2016,~~The World Health Organization declared the ~~Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-02,~~ ~~Leases(Topic 842)~~.2019 novel coronavirus (SARS-CoV-2 or COVID-19) outbreak a Public Health Emergency of International Concern on January 30, 2020, and a pandemic on March 11, 2020. The ~~main provision~~pandemic outbreak has caused an economic downturn on a global scale, including temporary closures of ~~ASU 2016-02 requires~~many businesses and reduced consumer spending due to shelter-in-place and other governmental regulations, as well as significant market disruption and volatility. The company continues to monitor the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases under previous GAAP. The effective date of ASU 2016-02 is for interim and annual reporting periods beginning after December 15, 2018. In July 2018, the FASB issued ASU 2018-10, ~~Codification Improvements to Topic 842~~ ~~and ASU 2018-11,~~ ~~Targeted Improvements to Topic 842. ASU 2018-10 makes narrow-scope amendments to certain aspects~~impact of the ~~new leasing standard while ASU 2018-11 provides relief from costs of implementing certain aspects of the new leasing standard.~~

pandemic as it unfolds. The company ~~adopted~~cannot, at this ~~ASU effective January 1, 2019, and it did not~~time, predict the impact the pandemic will have ~~a material impact~~ on ~~our company's~~its future consolidated financial position, cash flows or results of ~~operations. As of June 30, 2019, this ASU resulted~~operations, however the impact could be material. The company's future financial results and operations depends in recognizing a right-of-use asset and lease liability each for $15 million recorded in other assets and long-term debt and lease obligations line items, respectively, on our condensed consolidated balance sheets. The company has elected the practical expedient package for carrying forward historical lease classifications, not re-evaluating for embedded leases and not reassessing initial direct costs. The company also elected additional practical expedients to not recognize short-term leasespart on the ~~balance sheet~~duration and severity of the pandemic and what actions are taken to ~~only combine lease and nonlease components for certain asset classes. We also elected not to restate prior periods. In support of our insurance operations,~~mitigate the company leases real estate properties which qualify as operating leases and also leases equipment and autos which qualify as finance leases. The lease term for real estate properties is typically five years while the term for equipment and autos is three to six years.outbreak.

~~ASU 2017-08, Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities~~

~~In March 2017, the FASB issued ASU 2017-08,~~ ~~Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities.~~ ASU 2017-08 amends guidance on the amortization period of premiums on certain purchased callable debt securities. The amendments shorten the amortization period of premiums on certain purchased callable debt securities to the earliest call date. The amendments should be applied on a modified retrospective basis through a cumulative-effect adjustment to beginning retained earnings. The effective date of ASU 2017-08 is for interim and annual reporting periods beginning after December 15, 2018. The company adopted this ASU effective January 1, 2019, and it did not have a material impact on our company's consolidated financial position, cash flows or results of operations.

~~ASU 2018-07, Compensation - Stock Compensation (Topic 718) - Improvements to Nonemployee Share-Based Payment Accounting~~

~~In June 2018, the FASB issued ASU 2018-07,~~ ~~Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting. ASU 2018-07 expands the scope of~~ ~~Topic 718, Compensation - Stock Compensation~~, which currently only includes share-based payments issued to employees, to include share-based payments issued to nonemployees for the acquisition of goods and services. The effective date of ASU 2018-07 is for interim and annual reporting periods beginning after December 15, 2018. The company adopted this ASU effective January 1, 2019, and it did not have a material impact on our company's consolidated financial position, cash flows or results of operations.

~~Pending~~Adopted Accounting Updates

ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments

In June 2016, the ~~FASB~~Financial Accounting Standards Board (FASB) issued ~~ASU~~Accounting Standards Update (ASU) 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,~~. In addition, through June~~as well as additional implementation related ASU's in 2018, 2019 ~~the FASB issued ASU 2018-19,~~ ~~Codification Improvements to Topic 326, ASU 2019-04,~~ ~~Codification Improvements to Topic 326~~ and ~~ASU 2019-05,~~ ~~Targeted Transition Relief.~~2020. These ASU’s amend previous guidance on the impairment of financial instruments by adding an impairment model that allows an entity to recognize expected credit losses as an allowance rather than impairing as they are incurred. The new guidance is intended to reduce complexity of credit impairment models and result in a more timely recognition of expected credit losses. The ~~guidance is effective for reporting periods beginning after December 15, 2019,~~standards require the company to consider all relevant information at the time of estimating the expected credit loss, including past events, the current environment, and for most affected instruments must be adopted using a modified retrospective approach, with a cumulative effect adjustment recorded to beginning retained earnings. These ASU's have not yet been adopted; however, they are not expected to have a material impact on our company's consolidated financial position, cash flows or resultsreasonable and supportable forecasts over the life of ~~operations.~~the asset.

~~ASU 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying~~These ASU's also eliminated the ~~Test~~other-than-temporary impairment model for ~~Goodwill Impairment~~

~~In January 2017,~~available for sale fixed-maturity securities by requiring that credit related impairments be recognized through an allowance account. Changes in the ~~FASB issued ASU 2017-04,~~ ~~Intangibles - Goodwill and Other (Topic 350) - Simplifying~~allowance account are recorded in the ~~Test for Goodwill Impairment. ASU 2017-04 simplifies the subsequent~~period of change as a credit loss expense or reversal of credit loss expense. The measurement of goodwill by eliminating Step 2 from the goodwill impairment test. Instead, an entity should perform its goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount and recognize an impairment charge forcredit losses is not impacted, except that credit losses recognized are limited to the amount by which fair value is below amortized cost and that the ~~carrying amount exceeds the reporting unit's fair value. The loss recognized should not exceed the total amount~~length of ~~goodwill allocated to~~time that ~~reporting unit and income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit should~~a security has been below amortized cost cannot be considered. The effective date of ASU 2017-04 is for interim and annual goodwill impairment tests performed in any fiscal years beginning after December 15, 2019. The ASU has not yet been adopted; however, it is not expectedThese ASU's retain the guidance requiring that impaired securities intended to be sold have ~~a material impact on our company's consolidated financial position, cash flows or results of operations.~~their amortized cost basis written down to fair value through net income.

The company adopted these ASU's on January 1, 2020 and applied them on a modified retrospective basis. As a result of this adoption, an after-tax cumulative effect decrease of $2 million was made to retained earnings representing an increase to the overall valuation allowances for financial instruments measured at amortized cost. These ASU's will be applied to available for sale fixed-maturity securities prospectively with no adjustments to the amortized cost basis of securities for which an other-than-temporary impairment had been previously recognized. The company has elected not to measure expected credit losses for accrued interest receivables related to its finance receivables and fixed-maturity securities.

Pending Accounting Updates

ASU 2018-12, Financial Services - Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts

In August 2018, the FASB issued ASU 2018-12, Financial Services - Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts. ASU 2018-12 is intended to improve the timeliness of recognizing changes in the liability for future policy benefits and modify the rate used to discount future cash flows. The ASU will simplify and improve the accounting for certain market-based options or guarantees associated with deposit or account balance contracts, simplify amortization of deferred acquisition costs while improving and expanding required disclosures. ~~The~~In November 2019, the FASB issued ASU 2019-09, Financial Services - Insurance (Topic 944): Effective Date. ASU 2019-09 delays the effective date of ASU 2018-12 ~~is for~~by one year to interim and annual reporting periods beginning after December 15, ~~2020. The ASU has~~2021. These ASU's have not yet been adopted. Management is currently evaluating the impact on our company's consolidated financial position, cash flows and results of operations.

~~ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement~~

~~In August 2018, the FASB issued ASU 2018-13,~~ ~~Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement~~. ASU 2018-13 clarifies the fair value measurement disclosure requirements of ASC 820 by adding, eliminating and modifying disclosures. The effective date of ASU 2018-13 is for interim and annual reporting periods beginning after December 15, 2019. The ASU has not yet been adopted; however, it is not expected to have a material impact on our company's consolidated financial position, cash flows or results of operations.

~~ASU 2018-14, Compensation - Retirement Benefits - Defined Benefit Plans - General (Topic 715-20): Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans~~

~~In August 2018, the FASB issued ASU 2018-14,~~ ~~Compensation - Retirement Benefits - Defined Benefit Plans - General (Topic 715-20): Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans~~. ASU 2018-14 clarifies the guidance in ASC 715 to add, remove, and clarify disclosure requirements related to defined benefit pension and other postretirement plans. The effective date of ASU 2018-14 is for annual reporting periods ending after December 15, 2020. The ASU has not yet been adopted; however, it is not expected to have a material impact on our company's consolidated financial position, cash flows or results of operations.

~~ASU 2018-15, Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract~~

~~In August 2018, the FASB issued ASU 2018-15,~~ ~~Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract~~. ASU 2018-15 amends ASC 350 to include implementation costs of a cloud computing arrangement that is a service contract and clarifies that a customer should apply ASC 350-40 to determine which implementation costs should be capitalized in a cloud computing arrangement that is considered a service contract. The effective date of ASU 2018-15 is for interim and annual reporting periods beginning after December 15, 2019. The ASU has not yet been adopted; however, it is not expected to have a material impact on our company's consolidated financial position, cash flows or results of operations.

NOTE 2 – Investments

The following table provides ~~cost or~~ amortized cost, gross unrealized gains, gross unrealized losses and fair value for our fixed-maturity securities:


(Dollars in millions)	Cost or amortized cost			Gross unrealized					Fair value		Amortized cost			Gross unrealized						Fair value
At June 30, 2019			gains			losses														Fair value
At March 31, 2020											Amortized cost		Amortized cost			gains			losses			Fair value
Fixed maturity securities:	Cost or amortized cost								Fair value				Amortized cost									Fair value
Corporate	$	5,815		$	269		$	13	$	6,071	$	6,134		$	180		$	181		$	6,133
States, municipalities and political subdivisions	4,331			218			—		4,549		4,445			272			6			4,711
Commercial mortgage-backed	289			12			—		301		290			2			8			284
United States government											96			6			—			102
Government-sponsored enterprises	283			—			1		282		86			1			—			87
United States government	97			3			—		100
Foreign government	17			—			—		17		23			—			—			23
Total	$	10,832		$	502		$	14	$	11,320	$	11,074		$	461		$	195		$	11,340
At December 31, 2018
At December 31, 2019
Fixed maturity securities:
Corporate	$	5,712		$	85		$	87	$	5,710	$	6,074		$	332		$	5		$	6,401
States, municipalities and political subdivisions	4,251			84			31		4,304		4,477			252			1			4,728
Commercial mortgage-backed	287			3			2		288		290			11			—			301
United States government											102			2			—			104
Government-sponsored enterprises	316			1			7		310		137			—			1			136
United States government	67			1			1		67
Foreign government	10			—			—		10		28			—			—			28
Total	$	10,643		$	174		$	128	$	10,689	$	11,108		$	597		$	7		$	11,698

The net unrealized investment gains in our fixed-maturity portfolio at ~~June 30, 2019,~~March 31, 2020, are primarily the result of the continued low interest rate environment that increased the fair value of our fixed-maturity portfolio. Our commercial mortgage-backed securities had an average rating of Aa1/AAAA+ at ~~June 30, 2019,~~March 31, 2020, and December 31, ~~2018. At June 30, 2019, Microsoft Corporation (Nasdaq:MSFT) was our largest single equity holding with a fair value of~~

~~$336 million, which was 4.9% of our publicly traded common equities portfolio and 1.8% of the total investment portfolio.~~2019.

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				Less than 12 months				12 months or more				Total
At June 30, 2019	Fair value		Unrealized losses		Fair value		Unrealized losses		Fair value		Unrealized losses
At March 31, 2020													Fair value		Unrealized losses		Fair value		Unrealized losses		Fair value		Unrealized losses
Fixed maturity securities:
Corporate	$	78	$	2	$	294	$	11	$	372	$	13	$	2,168	$	176	$	52	$	5	$	2,220	$	181
States, municipalities and political subdivisions	13		—		21		—		34		—		76		5		3		1		79		6
Commercial mortgage-backed	—		—		5		—		5		—		163		8		—		—		163		8
United States government													—		—		—		—		—		—
Government-sponsored enterprises	7		—		117		1		124		1		—		—		—		—		—		—
United States government	5		—		4		—		9		—
Foreign government	1		—		—		—		1		—		15		—		—		—		15		—
Total	$	104	$	2	$	441	$	12	$	545	$	14	$	2,422	$	189	$	55	$	6	$	2,477	$	195
At December 31, 2018
At December 31, 2019
Fixed maturity securities:
Corporate	$	2,082	$	51	$	501	$	36	$	2,583	$	87	$	199	$	2	$	118	$	3	$	317	$	5
States, municipalities and political subdivisions	823		18		340		13		1,163		31		98		1		10		—		108		1
Commercial mortgage-backed	77		—		64		2		141		2		6		—		—		—		6		—
United States government													—		—		4		—		4		—
Government-sponsored enterprises	49		1		211		6		260		7		26		1		51		—		77		1
United States government	—		—		33		1		33		1
Foreign government													11		—		—		—		11		—
Total	$	3,031	$	70	$	1,149	$	58	$	4,180	$	128	$	340	$	4	$	183	$	3	$	523	$	7

Contractual maturity dates for fixed-maturities investments were:


(Dollars in millions)	Amortized cost		Fair value		% of fair value		Amortized cost		Fair value		% of fair value
At June 30, 2019					% of fair value		Amortized cost		Fair value		% of fair value
At March 31, 2020							Amortized cost		Fair value		% of fair value
Maturity dates:	Amortized cost		Fair value				Amortized cost		Fair value		% of fair value
Due in one year or less	$	491	$	496	4.4	%	$	502	$	502	4.4	%
Due after one year through five years	3,004		3,097		27.4		3,132		3,137		27.7
Due after five years through ten years	3,750		3,929		34.7		3,833		3,874		34.2
Due after ten years	3,587		3,798		33.5		3,607		3,827		33.7
Total	$	10,832	$	11,320	100.0	%	$	11,074	$	11,340	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.

The following table provides investment income and investment gains and losses, net:


(Dollars in millions)	Three months ended June 30,						Six months ended June 30,						Three months ended March 31,
	2019			2018			2019			2018			2020			2019
Investment income:
Interest	$	111		$	112		$	222		$	222		$	112		$	111
Dividends	50			44			96			86			53			46
Other	2			1			5			2			3			3
Total	163			157			323			310			168			160
Less investment expenses	3			3			6			6			3			3
Total	$	160		$	154		$	317		$	304		$	165		$	157

Investment gains and losses, net:
Equity securities:
Investment gains and losses on securities sold, net	$	11		$	4		$	23		$	7		$	(4	)	$	4
Unrealized gains and losses on securities still held, net	355			101			999			(97		)	(1,649		)	652
Subtotal	366			105			1,022			(90		)	(1,653		)	656
Fixed maturities:
Gross realized gains	1			3			3			7			2			2
Gross realized losses	(2		)	(1		)	(2		)	(1		)
Write-down of impaired securities													(77		)	—
Subtotal	(1		)	2			1			6			(75		)	2

Other	(1		)	(2		)	4			(2		)	3			5
Total	$	364		$	105		$	1,027		$	(86	)	$	(1,725	)	$	663

The fair value of our common equities portfolio was $6.017 billion and $7.518 billion at March 31, 2020 and December 31, 2019, respectively. The financial, information technology, industrials, energy and consumer discretionary sectors experienced the most significant declines in fair value as our common equity portfolio has a similar sector distribution as the S&P 500 industry weightings. At March 31, 2020, Microsoft Corporation (Nasdaq:MSFT) was our largest single equity holding with a fair value of $395 million, which was 6.6% of our publicly traded common equities portfolio and 2.3% of the total investment portfolio.

During the three ~~and six~~ months ended ~~June 30, 2019 and 2018,~~March 31, 2020, there were no0 fixed-maturity securities with an allowance for credit losses and 12 fixed-maturity securities from the energy, real estate, consumer goods and technology & electronics sectors which are intended to be sold and were written down to fair value. During the three months ended March 31, 2019, there were 0 fixed-maturity securities other-than-temporarily impaired. There were no0 credit losses on fixed-maturity securities for which an allowance for credit losses has been recorded in other comprehensive income for the three months ended March 31, 2020. There were 0 credit losses on fixed-maturity securities for which a portion of other-than-temporary impairment (OTTI) has been recognized in other comprehensive income for the three ~~and six~~ months ended ~~June 30, 2019 and 2018.~~March 31, 2019.

At ~~June 30, 2019, 100~~March 31, 2020, 605 fixed-maturity securities with a total unrealized loss of ~~$12~~$195 million were in an unrealized loss position driven primarily by a market value decline of corporate bonds related to economic uncertainty from the pandemic impact. Of that total, 18 fixed-maturity securities from the energy, services, financial services, leisure, real estate and retail sectors had a fair value below 70% of amortized cost. At December 31, 2019, 38 fixed-maturity securities with a total unrealized loss of $3 million had been in an unrealized loss position for 12 months or more. Of that total, one fixed-maturity security had a fair value below 70% of amortized cost. At December 31, 2018, 400 fixed-maturity securities with a total unrealized loss of $58 million had been in an unrealized loss position for 12 months or more. Of that total, no0 fixed-maturity securities had fair values below 70% of amortized cost.

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, ~~2018~~2019, and ultimately management determines fair value. See our ~~2018~~2019 Annual Report on Form 10-K, Item 8, Note 3, Fair Value Measurements, Page ~~141,~~144, 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 ~~June 30, 2019~~March 31, 2020, and December 31, ~~2018~~2019. We do not have any liabilities carried at fair value. ~~There were no transfers between Level 1 and Level 2.~~


(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			Quoted prices in active markets for identical assets (Level 1)			Significant other observable inputs (Level 2)			Significant unobservable inputs (Level 3)				Total
At June 30, 2019						Significant unobservable inputs (Level 3)			Total						Significant other observable inputs (Level 2)			Significant unobservable inputs (Level 3)				Total
At March 31, 2020												Quoted prices in active markets for identical assets (Level 1)			Significant other observable inputs (Level 2)			Significant unobservable inputs (Level 3)				Total
Fixed maturities, available for sale:															Significant other observable inputs (Level 2)							Total
Corporate	$	—	Significant other observable inputs (Level 2)	$	6,070		$	1		$	6,071		$	—		$	6,133	Significant unobservable inputs (Level 3)		$	—			$	6,133
States, municipalities and political subdivisions	—		4,545			4			4,549			—			4,711			—				4,711
Commercial mortgage-backed	—		301			—			301			—			284			—				284
United States government												102			—			—				102
Government-sponsored enterprises	—		282			—			282			—			87			—				87
United States government	100		—			—			100
Foreign government	—		17			—			17			—			23			—				23
Subtotal	100		11,215			5			11,320			102			11,238			—				11,340
Common equities	6,821		—			—			6,821			6,017			—			—				6,017
Nonredeemable preferred equities	—		191			—			191			—			208			—				208
Separate accounts taxable fixed maturities	—		848			—			848			—			845			—				845
Top Hat savings plan mutual funds and common equity (included in Other assets)	43		—			—			43			38			—			—				38
Total	$	6,964	$	12,254		$	5		$	19,223		$	6,157		$	12,291		$	—			$	18,448

At December 31, 2018
At December 31, 2019
Fixed maturities, available for sale:
Corporate	$	—	$	5,709		$	1		$	5,710		$	—		$	6,401		$	—			$	6,401
States, municipalities and political subdivisions	—		4,300			4			4,304			—			4,728			—				4,728
Commercial mortgage-backed	—		288			—			288			—			301			—				301
United States government												104			—			—				104
Government-sponsored enterprises	—		310			—			310			—			136			—				136
United States government	67		—			—			67
Foreign government	—		10			—			10			—			28			—				28
Subtotal	67		10,617			5			10,689			104			11,594			—				11,698
Common equities	5,742		—			—			5,742			7,518			—			—				7,518
Nonredeemable preferred equities	—		178			—			178			—			234			—				234
Separate accounts taxable fixed maturities	—		791			—			791			—			855			—				855
Top Hat savings plan mutual funds and common equity (included in Other assets)	34		—			—			34			45			—			—				45
Total	$	5,843	$	11,586		$	5		$	17,434		$	7,667		$	12,683		$	—			$	20,350

~~Each financial instrument that was deemed to have significant unobservable inputs when determining valuation is identified in the following tables by security type with a summary~~

We also held Level 1 cash and cash equivalents of ~~changes in fair value as of~~ ~~June 30,~~$486 million and $767 million at March 31, 2020 and December 31, 2019,~~. Total~~ respectively. Level 3 assets ~~continue to be less than 1% of financial assets measured~~reported at fair value in ~~the~~our condensed consolidated balance sheets. Assets presented in the table below were valued based primarily on broker/dealer quotes for which there is a lack of transparency as to inputs used to develop the valuations. The quantitative detail of these unobservable inputs is neither provided nor reasonably available to us.

~~There were no changes in Level 3 assets for the three months ended June 30.~~

~~The following table provides the change in Level 3 assets for the six months ended June 30:~~

(Dollars in millions) Asset fair value measurements using significant unobservable inputs

Corporate
fixed
maturities
States,
municipalities
and political
subdivisions
fixed maturities Total
Beginning balance, January 1, 2019 $ 1
$ 4
$ 5
Total gains or losses (realized/unrealized):

Included in net income —
—
—
Included in other comprehensive income —
—
—
Purchases —
—
—
Sales —
—
—
Transfers into Level 3 —
—
—
Transfers out of Level 3 —
—
—
Ending balance, June 30, 2019 $ 1
$ 4
$ 5

Beginning balance, January 1, 2018 $ 1
$ 5
$ 6
Total gains or losses (realized/unrealized):

Included in net income (loss) —
—
—
Included in other comprehensive income (loss) —
(1 ) (1 )
Purchases —
—
—
Sales —
—
—
Transfers into Level 3 —
—
—
Transfers out of Level 3 —
—
—
Ending balance, June 30, 2018 $ 1
$ 4
$ 5

~~With the exception of the above table, additional disclosures for the Level 3 category~~financial statements are not material, and therefore ~~not~~no further disclosures are provided.

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)	(Dollars in millions)			Book value				Principal amount				(Dollars in millions)			Book value				Principal amount
Interest rate	Interest rate	Year of issue		June 30,		December 31,		June 30,		December 31,		Interest rate	Year of issue		March 31,		December 31,		March 31,		December 31,
Interest rate	Interest rate	Year of issue		2019		2018		2019		2018		Interest rate	Year of issue		2020		2019		2020		2019
6.900	%	1998	Senior debentures, due 2028	$	27	$	27	$	28	$	28	%	1998	Senior debentures, due 2028	$	27	$	27	$	28	$	28
6.920	%	2005	Senior debentures, due 2028	391		391		391		391		%	2005	Senior debentures, due 2028	391		391		391		391
6.125	%	2004	Senior notes, due 2034	370		370		374		374		%	2004	Senior notes, due 2034	370		370		374		374
Total															$	788	$	788	$	793	$	793
			Total	$	788	$	788	$	793	$	793

The following table shows fair values of our note payable and long-term debt:


(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				Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)			Total
At June 30, 2019								Significant unobservable inputs (Level 3)				Total						Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)			Total
At March 31, 2020																Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)			Total
Note payable				$	Significant other observable inputs (Level 2)		—			$	37			$	—			Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)		$	Total		37
6.900% senior debentures, due 2028		—			34			—				34				—		35		—			35
6.920% senior debentures, due 2028		—			502			—				502				—		525		—			525
6.125% senior notes, due 2034		—			476			—				476				—		501		—			501
Total		$	—		$	1,049		$	—			$	1,049			$	—	$	1,175	$	—		$	1,175

At December 31, 2018
At December 31, 2019
Note payable		$	—		$	32		$	—			$	32			$	—	$	39	$	—		$	39
6.900% senior debentures, due 2028		—			32			—				32				—		34		—			34
6.920% senior debentures, due 2028	��	—			471			—				471				—		506		—			506
6.125% senior notes, due 2034		—			440			—				440				—		512		—			512
Total		$	—		$	975		$	—			$	975			$	—	$	1,091	$	—		$	1,091

The following table shows the fair value of our life policy loans included in other invested assets and the fair values of our deferred annuities and structured settlements included in life policy and investment contract reserves:


(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				Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)			Total
At June 30, 2019							Significant unobservable inputs (Level 3)				Total						Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)			Total
At March 31, 2020															Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)			Total
Life policy loans			$	Significant other observable inputs (Level 2)		—			$	—			$	42			Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)		$	Total		42

Deferred annuities	—			—			778				778				—		—		752			752
Structured settlements	—			205			—				205				—		201		—			201
Total	$	—		$	205		$	778			$	983			$	—	$	201	$	752		$	953

At December 31, 2018
At December 31, 2019
Life policy loans	$	—		$	—		$	40			$	40			$	—	$	—	$	44		$	44

Deferred annuities	—			—			742				742				—		—		770			770
Structured settlements	—			185			—				185				—		212		—			212
Total	$	—		$	185		$	742			$	927			$	—	$	212	$	770		$	982

Outstanding principal and interest for these life policy loans totaled $33 million and $32 million at

~~June 30, 2019~~March 31, 2020 and

December 31, ~~2018~~2019, respectively.

Recorded reserves for the deferred annuities were ~~$771~~$754 million and ~~$787~~$760 million at ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, respectively. Recorded reserves for the structured settlements were ~~$152 million and $156~~$151 million at ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, respectively.

NOTE 4 – Property Casualty Loss and Loss Expenses

This table summarizes activity for our consolidated property casualty loss and loss expense reserves:


(Dollars in millions)	Three months ended June 30,						Six months ended June 30,						Three months ended March 31,
	2019			2018			2019			2018			2020			2019
Gross loss and loss expense reserves, beginning of period	$	5,886		$	5,293		$	5,646		$	5,219		$	6,088		$	5,646
Less reinsurance recoverable	266			184			238			187			342			238
Net loss and loss expense reserves, beginning of period	5,620			5,109			5,408			5,032			5,746			5,408

Net loss and loss expense reserves related to acquisition of MSP at February 28, 2019	—			—			246			—
Net loss and loss expense reserves related to acquisition of Cincinnati Global at February 28, 2019													—			246

Net incurred loss and loss expenses related to:
Current accident year	947			852			1,804			1,691			963			857
Prior accident years	(84		)	(31		)	(151		)	(79		)	(33		)	(67		)
Total incurred	863			821			1,653			1,612			930			790
Net paid loss and loss expenses related to:
Current accident year	361			341			538			536			186			177
Prior accident years	437			354			1,084			873			631			647
Total paid	798			695			1,622			1,409			817			824
Net loss and loss expense reserves, end of period	5,685			5,235			5,685			5,235			5,859			5,620
Plus reinsurance recoverable	269			188			269			188			294			266
Gross loss and loss expense reserves, end of period	$	5,954		$	5,423		$	5,954		$	5,423		$	6,153		$	5,886

We use actuarial methods, models and judgment to estimate, as of a financial statement date, the property casualty loss and loss expense reserves required to pay for and settle all outstanding insured claims, including incurred but not reported (IBNR) claims, as of that date. The actuarial estimate is subject to review and adjustment by an inter-departmental committee that includes actuarial, claims, underwriting, loss prevention and accounting management. This committee is familiar with relevant company and industry business, claims and underwriting trends, as well as general economic and legal trends that could affect future loss and loss expense payments. The amount we will actually have to pay for claims can be highly uncertain. This uncertainty, together with the size of our reserves, makes the loss and loss expense reserves our most significant estimate. The reserve for loss and loss expenses in the condensed consolidated balance sheets also included ~~$55~~$53 million at ~~June 30, 2019,~~March 31, 2020, and ~~$45~~$58 million at ~~June 30, 2018,~~March 31, 2019, for certain life and health loss and loss expense reserves.

For the three months ended ~~June 30, 2019,~~March 31, 2020, we experienced ~~$84~~$33 million of favorable development on prior accident years, including ~~$58~~$6 million of favorable development in commercial lines, ~~$14~~$28 million of favorable development in personal lines and $5$1 million of ~~favorable~~unfavorable development in excess and surplus lines. Within commercial lines, we recognized favorable reserve development of ~~$27~~$7 million for the workers' compensation line ~~$25~~and $5 million for the commercial casualty line and $6 million for the commercial property line due to reduced uncertainty of prior accident year loss and loss adjustment expense for these lines. Within personal lines, we recognized favorable reserve development of $15 million in personal auto.

For the six months ended June 30, 2019, we experienced $151 million of favorable development on prior accident years, including $120 million of favorable development in commercial lines, $11 million of favorable development in personal lines and $7 million of favorable development in excess and surplus lines. Within commercial lines, we recognized favorable reserve development of $56 million for the commercial casualty line, $42 million for the workers' compensation line, $9 million for the commercial auto line and $8 million for the commercial property line due to reduced uncertainty of prior accident year loss and loss adjustment expense for these lines. Within personal lines, we recognized favorable reserve development of $20 million in personal auto. We recognized unfavorable reserve development of $15 million for the homeowner line of business due primarily to higher-than-anticipated loss development on known claims.

For the three months ended June 30, 2018, we experienced $31 million of favorable development on prior accident years, including $42 million of favorable development in commercial lines, $17 million of unfavorable development in personal lines and $4 million of favorable development in excess and surplus lines. Within commercial lines, we recognized favorable reserve development of $18 million for the workers' compensation line, $14 million for the commercial casualty line, $7 million for the commercial property line and $8 million for the other commercial lines due to reduced uncertainty of prior accident year loss and loss adjustment expense for these lines. This was partially offset by unfavorable reserve development of $5$6 million for the commercial auto line. Within personal lines, we recognized ~~unfavorable~~favorable reserve development of ~~$14~~$18 million for the homeowner line of business ~~due primarily to higher-than-anticipated loss emergence on known claims.~~and $13 million in personal auto.

For the ~~six~~three months ended ~~June 30, 2018,~~March 31, 2019, we experienced ~~$79~~$67 million of favorable development on prior accident years, including ~~$77~~$62 million of favorable development in commercial lines, ~~$16~~$3 million of unfavorable development in personal lines and ~~$14~~$2 million of favorable development in excess and surplus lines. ~~This included $7 million from favorable development of catastrophe losses.~~ Within commercial lines, we recognized favorable reserve development of $31 million for the commercial casualty line, $15 million for the workers' compensation line ~~$28~~and $11 million for the commercial ~~property~~auto line ~~$10 million for the commercial casualty line and $12 million for the other commercial lines~~ due to reduced uncertainty of prior accident year loss and loss adjustment expense for these lines. ~~This was partially offset by unfavorable reserve development of $4 million for the commercial auto line.~~ Within personal lines, we recognized unfavorable reserve development of ~~$17~~$11 million for the homeowner line of business due primarily to higher-than-anticipated loss ~~emergence~~development on known claims.

NOTE 5 – Life Policy and Investment Contract Reserves

We establish the reserves for traditional life insurance policies based on expected expenses, mortality, morbidity, withdrawal rates, timing of claim presentation and investment yields, including a provision for uncertainty. Once these assumptions are established, they generally are maintained throughout the lives of the contracts. We use both our own experience and industry experience, adjusted for historical trends, in arriving at our assumptions for expected mortality, morbidity and withdrawal rates as well as for expected expenses. We base our assumptions for expected investment income on our own experience adjusted for current and future economic conditions.

We establish reserves for the company's deferred annuity, universal life and structured settlement policies equal to the cumulative account balances, which include premium deposits plus credited interest less charges and withdrawals. Some of our universal life policies contain no-lapse guarantee provisions. For these policies, we establish a reserve in addition to the account balance, based on expected no-lapse guarantee benefits and expected policy assessments.

This table summarizes our life policy and investment contract reserves:


(Dollars in millions)	June 30, 2019		December 31, 2018		March 31, 2020		December 31, 2019
Life policy reserves:
Ordinary/traditional life	$	1,187	$	1,149	$	1,245	$	1,226
Other	49		48		50		50
Subtotal	1,236		1,197		1,295		1,276
Investment contract reserves:
Deferred annuities	771		787		754		760
Universal life	633		632		653		640
Structured settlements	152		156		151		151
Other	6		7		8		8
Subtotal	1,562		1,582		1,566		1,559
Total life policy and investment contract reserves	$	2,798	$	2,779	$	2,861	$	2,835

NOTE 6 – Deferred Policy Acquisition Costs

Expenses directly related to successfully acquired insurance policies – primarily commissions, premium taxes and underwriting costs – are deferred and amortized over the terms of the policies. We update our acquisition cost assumptions periodically to reflect actual experience, and we evaluate the costs for recoverability. The table below shows the deferred policy acquisition costs and asset reconciliation.


(Dollars in millions)	Three months ended June 30,						Six months ended June 30,						Three months ended March 31,
	2019			2018			2019			2018			2020			2019
Property casualty:
Deferred policy acquisition costs asset, beginning of period	$	485		$	446		$	464		$	438		$	512		$	464
Capitalized deferred policy acquisition costs	280			251			534			483			280			254
Amortized deferred policy acquisition costs	(239		)	(225		)	(472		)	(449		)	(256		)	(233		)
Deferred policy acquisition costs asset, end of period	$	526		$	472		$	526		$	472		$	536		$	485

Life:
Deferred policy acquisition costs asset, beginning of period	$	266		$	245		$	274		$	232		$	262		$	274
Capitalized deferred policy acquisition costs	15			15			31			28			15			16
Amortized deferred policy acquisition costs	(12		)	(11		)	(25		)	(21		)	(9		)	(13		)
Shadow deferred policy acquisition costs	(9		)	7			(20		)	17			23			(11		)
Deferred policy acquisition costs asset, end of period	$	260		$	256		$	260		$	256		$	291		$	266

Consolidated:
Deferred policy acquisition costs asset, beginning of period	$	751		$	691		$	738		$	670		$	774		$	738
Capitalized deferred policy acquisition costs	295			266			565			511			295			270
Amortized deferred policy acquisition costs	(251		)	(236		)	(497		)	(470		)	(265		)	(246		)
Shadow deferred policy acquisition costs	(9		)	7			(20		)	17			23			(11		)
Deferred policy acquisition costs asset, end of period	$	786		$	728		$	786		$	728		$	827		$	751

No premium deficiencies were recorded in the condensed consolidated statements of income, as the sum of the anticipated loss and loss expenses, policyholder dividends and unamortized deferred acquisition expenses did not exceed the related unearned premiums and anticipated investment income.

NOTE 7 – Accumulated Other Comprehensive Income

Accumulated other comprehensive income (AOCI) includes changes in unrealized gains and losses on investments, changes in pension obligations and changes in life deferred acquisition costs, life policy reserves and other as follows:

(Dollars in millions) Three months ended June 30,
2019 2018
Before tax Income tax Net Before tax Income tax Net
Investments:
AOCI, beginning of period $ 288
$ 59
$ 229
$ 164
$ 35
$ 129
OCI before investment gains and losses, net, recognized in net income 199
43
156
(78 ) (18 ) (60 )
Investment gains and losses, net, recognized in net income 1
—
1
(2 ) —
(2 )
OCI 200
43
157
(80 ) (18 ) (62 )
AOCI, end of period $ 488
$ 102
$ 386
$ 84
$ 17
$ 67

Pension obligations:
AOCI, beginning of period $ (16 ) $ (2 ) $ (14 ) $ (12 ) $ (1 ) $ (11 )
OCI excluding amortization recognized in net income —
—
—
—
—
—
Amortization recognized in net income 1
—
1
1
—
1
OCI 1
—
1
1
—
1
AOCI, end of period $ (15 ) $ (2 ) $ (13 ) $ (11 ) $ (1 ) $ (10 )

Life deferred acquisition costs, life policy reserves and other:
AOCI, beginning of period $ (6 ) $ (1 ) $ (5 ) $ (4 ) $ (1 ) $ (3 )
OCI before investment gains and losses, net, recognized in net income (6 ) (1 ) (5 ) —
—
—
Investment gains and losses, net, recognized in net income 1
—
1
2
1
1
OCI (5 ) (1 ) (4 ) 2
1
1
AOCI, end of period $ (11 ) $ (2 ) $ (9 ) $ (2 ) $ —
$ (2 )

Summary of AOCI:
AOCI, beginning of period $ 266
$ 56
$ 210
$ 148
$ 33
$ 115
Investments OCI 200
43
157
(80 ) (18 ) (62 )
Pension obligations OCI 1
—
1
1
—
1
Life deferred acquisition costs, life policy reserves and other OCI (5 ) (1 ) (4 ) 2
1
1
Total OCI 196
42
154
(77 ) (17 ) (60 )
AOCI, end of period $ 462
$ 98
$ 364
$ 71
$ 16
$ 55


(Dollars in millions)	Six months ended June 30,																		Three months ended March 31,
	2019									2018									2020									2019
	Before tax			Income tax			Net			Before tax			Income tax			Net			Before tax			Income tax			Net			Before tax			Income tax			Net
Investments:
AOCI, beginning of period	$	46		$	9		$	37		$	3,540		$	733		$	2,807		$	590		$	123		$	467		$	46		$	9		$	37
Cumulative effect of change in accounting for equity securities as of January 1, 2018	—			—			—			(3,155		)	(652		)	(2,503		)
Adjusted AOCI, beginning of period	46			9			37			385			81			304
OCI before investment gains and losses, net, recognized in net income	443			93			350			(295		)	(63		)	(232		)	(399		)	(84		)	(315		)	244			51			193
Investment gains and losses, net, recognized in net income	(1		)	—			(1		)	(6		)	(1		)	(5		)	75			16			59			(2		)	(1		)	(1		)
OCI	442			93			349			(301		)	(64		)	(237		)	(324		)	(68		)	(256		)	242			50			192
AOCI, end of period	$	488		$	102		$	386		$	84		$	17		$	67		$	266		$	55		$	211		$	288		$	59		$	229

Pension obligations:
AOCI, beginning of period	$	(16	)	$	(2	)	$	(14	)	$	(12	)	$	(1	)	$	(11	)	$	(9	)	$	—		$	(9	)	$	(16	)	$	(2	)	$	(14	)
OCI excluding amortization recognized in net income	—			—			—			—			—			—			—			—			—			—			—			—
Amortization recognized in net income	1			—			1			1			—			1			1			—			1			—			—			—
OCI	1			—			1			1			—			1			1			—			1			—			—			—
AOCI, end of period	$	(15	)	$	(2	)	$	(13	)	$	(11	)	$	(1	)	$	(10	)	$	(8	)	$	—		$	(8	)	$	(16	)	$	(2	)	$	(14	)

Life deferred acquisition costs, life policy reserves and other:
AOCI, beginning of period	$	(1	)	$	—		$	(1	)	$	(10	)	$	(2	)	$	(8	)	$	(13	)	$	(3	)	$	(10	)	$	(1	)	$	—		$	(1	)
OCI before investment gains and losses, net, recognized in net income	(6		)	(1		)	(5		)	6			1			5			14			3			11			—			—			—
Investment gains and losses, net, recognized in net income	(4		)	(1		)	(3		)	2			1			1			—			—			—			(5		)	(1		)	(4		)
OCI	(10		)	(2		)	(8		)	8			2			6			14			3			11			(5		)	(1		)	(4		)
AOCI, end of period	$	(11	)	$	(2	)	$	(9	)	$	(2	)	$	—		$	(2	)	$	1		$	—		$	1		$	(6	)	$	(1	)	$	(5	)

Summary of AOCI:
AOCI, beginning of period	$	29		$	7		$	22		$	3,518		$	730		$	2,788		$	568		$	120		$	448		$	29		$	7		$	22
Cumulative effect of change in accounting for equity securities as of January 1, 2018	—			—			—			(3,155		)	(652		)	(2,503		)
Adjusted AOCI, beginning of period	29			7			22			363			78			285
Investments OCI	442			93			349			(301		)	(64		)	(237		)	(324		)	(68		)	(256		)	242			50			192
Pension obligations OCI	1			—			1			1			—			1			1			—			1			—			—			—
Life deferred acquisition costs, life policy reserves and other OCI	(10		)	(2		)	(8		)	8			2			6			14			3			11			(5		)	(1		)	(4		)
Total OCI	433			91			342			(292		)	(62		)	(230		)	(309		)	(65		)	(244		)	237			49			188
AOCI, end of period	$	462		$	98		$	364		$	71		$	16		$	55		$	259		$	55		$	204		$	266		$	56		$	210

Investment gains and losses, net, and life deferred acquisition costs, life policy reserves and other investment gains and losses, net, are recorded in the investment gains and losses, net, line item in the condensed consolidated statements of income. Amortization on pension obligations is recorded in the insurance losses and contract holders' benefits and underwriting, acquisition and insurance expenses line items in the condensed consolidated statements of income.

NOTE 8 – Reinsurance

Primary components of our property casualty reinsurance assumed operations include involuntary and voluntary assumed risks as well as contracts from Cincinnati Re, our reinsurance assumed ~~operations, known as Cincinnati Re~~^SM.operations. Primary components of our ceded reinsurance include a property per risk treaty, property excess treaty, casualty per occurrence treaty, casualty excess treaty, property catastrophe treaty ~~and catastrophe bonds~~ and retrocessions on our reinsurance assumed operations. Management's decisions about the appropriate level of risk retention are affected by various factors, including changes in our underwriting practices, capacity to retain risks and reinsurance market conditions.

The table below summarizes our consolidated property casualty insurance net written premiums, earned premiums and incurred loss and loss expenses:


(Dollars in millions)	Three months ended June 30,						Six months ended June 30,						Three months ended March 31,
	2019			2018			2019			2018			2020			2019
Direct written premiums	$	1,472		$	1,336		$	2,807		$	2,583		$	1,458		$	1,335
Assumed written premiums	75			52			162			101			111			87
Ceded written premiums	(71		)	(39		)	(112		)	(77		)	(51		)	(41		)
Net written premiums	$	1,476		$	1,349		$	2,857		$	2,607		$	1,518		$	1,381

Direct earned premiums	$	1,319		$	1,235		$	2,585		$	2,442		$	1,371		$	1,266
Assumed earned premiums	50			36			93			69			66			43
Ceded earned premiums	(52		)	(41		)	(94		)	(81		)	(48		)	(42		)
Earned premiums	$	1,317		$	1,230		$	2,584		$	2,430		$	1,389		$	1,267

Direct incurred loss and loss expenses	$	866		$	821		$	1,653		$	1,602		$	900		$	787
Assumed incurred loss and loss expenses	25			13			50			29			34			25
Ceded incurred loss and loss expenses	(28		)	(13		)	(50		)	(19		)	(4		)	(22		)
Incurred loss and loss expenses	$	863		$	821		$	1,653		$	1,612		$	930		$	790

Our life insurance company purchases reinsurance for protection of a portion of the risks that are written. Primary components of our life reinsurance program include individual mortality coverage, aggregate catastrophe and accidental death coverage in excess of certain deductibles.

The table below summarizes our consolidated life insurance earned premiums and contract holders' benefits incurred:


(Dollars in millions)	Three months ended June 30,						Six months ended June 30,						Three months ended March 31,
	2019			2018			2019			2018			2020			2019
Direct earned premiums	$	86		$	81		$	169		$	158		$	85		$	83
Ceded earned premiums	(19		)	(17		)	(36		)	(34		)	(18		)	(17		)
Earned premiums	$	67		$	64		$	133		$	124		$	67		$	66

Direct contract holders' benefits incurred	87			70			172			146			85			85
Ceded contract holders' benefits incurred	(14		)	(8		)	(29		)	(21		)	(12		)	(15		)
Contract holders' benefits incurred	$	73		$	62		$	143		$	125		$	73		$	70

The ceded benefits incurred can vary depending on the type of life insurance policy held and the year the policy was issued.

NOTE 9 – 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 June 30,										Six months ended June 30,										Three months ended March 31,
	2019					2018					2019					2018					2020					2019
Tax at statutory rate:	$	111		21.0	%	$	56		21.0	%	$	293		21.0	%	$	45		21.0	%	$	(331	)	21.0	%	$	182		21.0	%
Increase (decrease) resulting from:
Tax-exempt income from municipal bonds	(4		)	(0.8	)	(5		)	(1.9	)	(9		)	(0.6	)	(10		)	(4.7	)	(5		)	0.3		(5		)	(0.6	)
Dividend received exclusion	(4		)	(0.8	)	(5		)	(1.5	)	(8		)	(0.6	)	(8		)	(3.7	)	(4		)	0.3		(4		)	(0.5	)
Other	(1		)	(0.2	)	1			0.2		(2		)	(0.2	)	1			0.5		(10		)	0.6		(1		)	(0.1	)
Provision for income taxes	$	102		19.2	%	$	47		17.8	%	$	274		19.6	%	$	28		13.1	%
Provision (benefit) for income taxes																					$	(350	)	22.2	%	$	172		19.8	%

The provision 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, we believe 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 0 valuation allowance for our U.S. domestic operations as of March 31, 2020 and December 31, 2019. As more fully discussed below, we do carry a valuation allowance on the deferred tax assets related to Cincinnati Global.

During the first quarter of 2020, the IRS notified us they would be expanding their audit of tax year 2017 to include the tax year ended December 31, 2018.

In response to the novel coronavirus (SARS-CoV-2 or COVID-19), as more fully discussed in Note 1, Accounting Policies, the Coronavirus Aid, Relief and Economic Security Act (CARES Act) was signed into law on March 27, 2020. We are currently evaluating the CARES Act, but at the present time, believe any impact to our financial statements will be immaterial.

Unrecognized Tax Benefits

As of ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, we had a gross unrecognized tax benefit of $34 million. There were no changes to this amount during the first ~~half~~quarter of ~~2019.~~2020. It is reasonably possible that within the next 12 months, our unrecognized tax benefit could change when the IRS completes its examination of the tax year ended December 31, 2018.

~~Acquisition of~~ Cincinnati Global

~~As more fully discussed in Note 1, Accounting Policies and Note 14, Acquisition, we closed on the acquisition of Cincinnati Global during the first quarter of 2019.~~ As a result of ~~this acquisition, $59~~operations for the three months ended March 31, 2020, Cincinnati Global had a $6 million ofreduction to their net deferred tax assets ~~were acquired or established at the acquisition date~~ with an offsetting $6 million reduction to their valuation allowance. As of March 31, 2020, Cincinnati Global had a net deferred tax asset of $35 million and an offsetting valuation allowance of ~~$55~~$35 million.

~~Accounting guidance requires deferred~~Deferred tax assets ~~to be~~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 related to the Cincinnati Global operations, we continue to believe it ~~was~~is appropriate to ~~set up~~carry a ~~valuation allowance for purposes of our opening Cincinnati Global balance sheet.~~

The purchase price allocation to our Cincinnati Global deferred tax assets and corresponding valuation allowance is subject to further post-closing adjustments based on the actual net asset value (NAV) of Cincinnati Global and its subsidiaries at closing, pursuant to the procedures set forth in the sale and purchase agreement.

~~As a result of the first half year operations, there were immaterial changes to the Cincinnati Global~~ valuation allowance as of ~~June 30, 2019.~~March 31, 2020.

As of ~~June 30, 2019,~~March 31, 2020, Cincinnati Global had operating loss carryforwards of ~~$178~~$118 million ~~which are subject to certain limitations.~~in the United Kingdom. These Cincinnati Global losses can only be utilized within the Cincinnati Global group in the United Kingdom and cannot offset the income of our CFC ~~group.~~group domestic operations in the United States. Other than the Cincinnati Global loss carryforwards, we had no other operating or capital loss carryforwards as of ~~June 30, 2019.~~March 31, 2020.

NOTE 10 – Net Income (Loss) Per Common Share

Basic earnings per share are computed based on the weighted average number of common shares outstanding. Diluted earnings per share are computed based on the weighted average number of common and dilutive potential common shares outstanding using the treasury stock method. The table shows calculations for basic and diluted earnings per share:


(In millions, except per share data)	Three months ended June 30,				Six months ended June 30,				Three months ended March 31,
(In millions, except per share data)	2019		2018		2019		2018		2020			2019
Numerator:
Net income—basic and diluted	$	428	$	217	$	1,123	$	186
Net income (loss)—basic and diluted									$	(1,226	)	$	695
Denominator:
Basic weighted-average common shares outstanding	163.3		163.2		163.1		163.6		162.2			163.0
Effect of share-based awards:
Stock options	1.2		0.8		1.1		0.9		—			0.9
Nonvested shares	0.7		0.5		0.7		0.5		—			0.7
Diluted weighted-average shares	165.2		164.5		164.9		165.0		162.2			164.6
Earnings per share:
Earnings (loss) per share:
Basic	$	2.62	$	1.33	$	6.89	$	1.13	$	(7.56	)	$	4.27
Diluted	$	2.59	$	1.32	$	6.81	$	1.12	$	(7.56	)	$	4.22
Number of anti-dilutive share-based awards	0.4		1.3		0.7		1.3		2.5			0.7

~~The sources~~In accordance with ASC 260, Earnings per Share, the assumed exercise of ~~dilution~~share-based awards in 2020 were excluded from the computation of ~~our common shares are certain equity-based awards.~~diluted loss per share. See our ~~2018~~2019 Annual Report on Form 10-K, Item 8, Note 17, Share-Based Associate Compensation Plans, Page ~~173,~~176, for information about share-based awards. The above table shows the number of anti-dilutive share-based awards for the three ~~and six~~ months ended ~~June 30, 2019~~March 31, 2020 and ~~2018.~~2019. These share-based awards were not included in the computation of net income (loss) per common share (diluted) because their exercise would have anti-dilutive effects.

NOTE 11 – Employee Retirement Benefits

The following summarizes the components of net periodic benefit cost for our qualified and supplemental pension plans:


(Dollars in millions)	Three months ended June 30,						Six months ended June 30,						Three months ended March 31,
	2019			2018			2019			2018			2020			2019
Service cost	$	2		$	2		$	4		$	5		$	2		$	2
Non-service costs (benefit):
Interest cost	3			3			6			6			3			3
Expected return on plan assets	(5		)	(6		)	(10		)	(11		)	(5		)	(5		)
Amortization of actuarial loss and prior service cost	1			1			1			1			1			—
Other	—			—			1			—			—			1
Total non-service benefit	(1		)	(2		)	(2		)	(4		)	(1		)	(1		)
Net periodic benefit cost	$	1		$	—		$	2		$	1		$	1		$	1

See our ~~2018~~2019 Annual Report on Form 10-K, Item 8, Note 13, Employee Retirement Benefits, Page ~~166,~~170, for information on our retirement benefits. Service costs and non-service costs (benefit) are allocated in the same proportion primarily to the underwriting, acquisition and insurance expenses line item with the remainder allocated to the insurance losses and contract holders' benefits line item on the condensed consolidated statements of income for both ~~2019~~2020 and ~~2018.~~2019.

We made matching contributions totaling $4$8 million and $5 million to our 401(k) and Top Hat savings plans during ~~both the second quarters of 2019 and 2018 and contributions of $9 million and $10 million for~~ the first ~~half~~quarter of ~~2019~~2020 and ~~2018,~~2019, respectively.

We made no0 contributions to our qualified pension plan during the first ~~half~~three months of ~~2019.~~2020.

NOTE 12 – Commitments and Contingent Liabilities

In the ordinary course of conducting business, the company and its subsidiaries are named as defendants in various legal proceedings. Most of these proceedings are claims litigation involving the company's insurance subsidiaries in which the company is either defending or providing indemnity for third-party claims brought against insureds or litigating first-party coverage claims. The company accounts for such activity through the establishment of unpaid loss and loss expense reserves. We believe that the ultimate liability, if any, with respect to such ordinary-course claims litigation, after consideration of provisions made for potential losses and costs of defense, is immaterial to our consolidated financial condition, results of operations and cash flows.

The company and its subsidiaries also are occasionally involved in other legal and regulatory proceedings, some of which assert claims for substantial amounts. These actions include, among others, putative class actions seeking certification of a state or national class. Such proceedings have alleged, for example, breach of an alleged duty to search national databases to ascertain unreported deaths of insureds under life insurance policies. The company's insurance subsidiaries also are occasionally parties to individual actions in which extra-contractual damages, punitive damages or penalties are sought, such as claims alleging bad faith handling of insurance claims or writing unauthorized coverage or claims alleging discrimination by former or current associates.

On a quarterly basis, we review these outstanding matters. Under current accounting guidance, we establish accruals when it is probable that a loss has been incurred and we can reasonably estimate its potential exposure. The company accounts for such probable and estimable losses, if any, through the establishment of legal expense reserves. Based on our quarterly review, we believe that our accruals for probable and estimable losses are reasonable and that the amounts accrued do not have a material effect on our consolidated financial condition or results of operations. However, if any one or more of these matters results in a judgment against us or settlement for an amount that is significantly greater than the amount accrued, the resulting liability could have a material effect on the company's consolidated results of operations or cash flows. Based on our most recent review, our estimate for any other matters for which the risk of loss is not probable, but more than remote, is immaterial.

NOTE 13 – Segment Information

We operate primarily in ~~two~~2 industries, property casualty insurance and life insurance. Our chief operating decision maker regularly reviews our reporting segments to make decisions about allocating resources and assessing performance. Our reporting segments are:

Commercial lines insurance

Personal lines insurance

Excess and surplus lines insurance

Life insurance

Investments

We report as Other the noninvestment operations of the parent company and its noninsurer subsidiary, CFC Investment Company. We also report as Other the underwriting results of Cincinnati Re, our reinsurance assumed operation, and Cincinnati Global, our London-based global specialty ~~underwriter, which was acquired on February 28, 2019.~~underwriter. See our ~~2018~~2019 Annual Report on Form 10-K, Item 8, Note 18, Segment Information, Page ~~176,~~179, for a description of revenue, income or loss before income taxes and identifiable assets for each of the ~~five~~5 segments.

Segment information is summarized in the following table:


(Dollars in millions)	Three months ended June 30,						Six months ended June 30,						Three months ended March 31,
	2019			2018			2019			2018			2020			2019
Revenues:
Commercial lines insurance
Commercial casualty	$	277		$	272		$	545		$	537		$	289		$	268
Commercial property	234			231			468			459			249			234
Commercial auto	175			166			345			327			185			170
Workers' compensation	74			85			151			165			75			77
Other commercial	63			58			124			114			65			61
Commercial lines insurance premiums	823			812			1,633			1,602			863			810
Fee revenues	1			—			2			2			1			1
Total commercial lines insurance	824			812			1,635			1,604			864			811

Personal lines insurance
Personal auto	155			153			310			304			154			155
Homeowner	149			139			296			275			159			147
Other personal	44			39			86			77			46			42
Personal lines insurance premiums	348			331			692			656			359			344
Fee revenues	1			2			2			3			1			1
Total personal lines insurance	349			333			694			659			360			345

Excess and surplus lines insurance	67			57			130			113			78			63
Fee revenues	—			1			1			1			1			1
Total excess and surplus lines insurance	67			58			131			114			79			64

Life insurance premiums	67			64			133			124			67			66
Fee revenues	1			1			2			2			—			1
Total life insurance	68			65			135			126			67			67

Investments
Investment income, net of expenses	160			154			317			304			165			157
Investment gains and losses, net	364			105			1,027			(86		)	(1,725		)	663
Total investment revenue	524			259			1,344			218			(1,560		)	820

Other
Earned premiums	79			30			129			59
Premiums													89			50
Other	2			1			4			2			2			2
Total other revenues	81			31			133			61			91			52
Total revenues	$	1,913		$	1,558		$	4,072		$	2,782		$	(99	)	$	2,159

Income (loss) before income taxes:
Insurance underwriting results
Commercial lines insurance	$	12		$	47		$	88		$	62		$	(20	)	$	76
Personal lines insurance	5			(32		)	1			(41		)	21			(4		)
Excess and surplus lines insurance	17			13			28			31			9			11
Life insurance	(2		)	8			(3		)	10			2			(1		)
Investments	499			235			1,295			170			(1,586		)	796
Other	(1		)	(7		)	(12		)	(18		)	(2		)	(11		)
Total income before income taxes	$	530		$	264		$	1,397		$	214
Total income (loss) before income taxes													$	(1,576	)	$	867


Identifiable assets:	June 30, 2019		December 31, 2018		March 31, 2020		December 31, 2019
Property casualty insurance	$	3,441	$	3,285	$	3,444	$	3,437
Life insurance	1,536		1,424		1,517		1,516
Investments	18,464		16,741		17,699		19,583
Other	896		485		707		872
Total	$	24,337	$	21,935	$	23,367	$	25,408

~~NOTE 14 – Acquisition~~

On February 28, 2019 (closing date or acquisition date), pursuant to the agreement (the SPA) for the sale and purchase of the entire issued share capital of MSP Underwriting Limited, dated October 11, 2018, by and between the company and Münchener Rückversicherungs Gesellschaft AG (Munich Re), the company acquired from Munich Re all of the issued and outstanding share capital of MSP and its subsidiaries, including the Lloyd's managing agent, Beaufort Underwriting Agency Limited for Syndicate 318 (the acquisition). MSP was rebranded as Cincinnati Global Underwriting Ltd. (Cincinnati Global) effective May 1, 2019, reflecting its new identity as a subsidiary of the corporation. The acquisition of Cincinnati Global reflects progress toward our long-term objective of diversifying revenue and profitability by expanding our operations geographically and by line of business.

As aggregate consideration for the purchase of the share capital of Cincinnati Global and its subsidiaries, the company paid £48 million, or $64 million, in cash to Munich Re at the closing of the acquisition. The amount paid at closing was calculated as the difference between the target NAV set forth in the SPA and the estimated NAV of Cincinnati Global and its subsidiaries at the closing date. The purchase price is subject to further post-closing adjustments based on the actual NAV of Cincinnati Global and its subsidiaries at closing, pursuant to the procedures set forth in the SPA.

The allocation of the purchase price is based on information included in Cincinnati Global's financial statements at the closing date, which is subject to negotiation per the SPA. The purchase price allocation is subject to change if additional information becomes available within the measurement period, which cannot exceed 12 months from the acquisition date. The fair values of the assets acquired and liabilities assumed may be subject to adjustments, which may impact the amounts recorded for the assets acquired and liabilities assumed as well as the goodwill.

~~The fair value of the assets acquired, liabilities assumed and the allocation of the purchase price on the acquisition date have been summarized in the following table:~~

(Dollars in millions) Amount
Assets
Investments and other invested assets $ 198
Cash and cash equivalents 64
Premiums receivable 45
Reinsurance recoverable 42
Other assets 23
Total assets acquired $ 372

Liabilities
Loss and loss expense reserves $ 277
Unearned premiums 88
Other liabilities 24
Total liabilities assumed $ 389

Fair value of identifiable intangible assets:
Syndicate capacity - indefinite lived $ 31
Syndicate broker relationships - definite lived 12
Value of business acquired - definite lived 4
Internally developed technology - definite lived 3
Total fair value of identifiable intangible assets $ 50

Total purchase price paid $ 64

Total assets acquired (including fair value of identifiable intangible assets) 422
Total liabilities assumed 389
Fair value of net assets acquired prior to allocation of goodwill 33

Excess of purchase price paid over fair value of net assets acquired assigned to goodwill $ 31

Identifiable intangible assets and goodwill are included in other assets in the condensed consolidated balance sheets. The goodwill arose as the fair value of the consideration transferred exceeded the fair value of the net identifiable assets acquired at the acquisition date. The broker relationships and internally developed technology will be amortized straight-line over five and 15 years, respectively. Value of business acquired will be amortized over the remaining coverage period of the underlying insurance contracts. Goodwill and intangibles are tested for impairment on an annual basis or more frequently if events or circumstances indicate the assets might be impaired. The company will perform its annual impairment test on goodwill and intangibles on September 30 of each year.

~~The financial results of Cincinnati Global are included in the condensed consolidated statements of income from the acquisition date and are deemed to be immaterial.~~

~~In connection with the acquisition, the company incurred immaterial transaction related expenses.~~

Item 2. Management’s Discussion and Analysis of Financial Condition and

Results of Operations

The following discussion highlights significant factors influencing the condensed consolidated results of operations and financial position of Cincinnati Financial Corporation. It should be read in conjunction with the consolidated financial statements and related notes included in our ~~2018~~2019 Annual Report on Form 10-K. Unless otherwise noted, the industry data is prepared by A.M. Best Co., a leading insurance industry statistical, analytical and financial strength rating organization. Information from A.M. Best is presented on a statutory basis for insurance company regulation in the United States of America. When we provide our results on a comparable statutory basis, we label it as such; all other company data is presented in accordance with accounting principles generally accepted in the United States of America (GAAP).

We present per share data on a diluted basis unless otherwise noted, adjusting those amounts for all stock splits and dividends. Dollar amounts are rounded to millions; calculations of percent changes are based on dollar amounts rounded to the nearest million. Certain percentage changes are identified as not meaningful (nm).

SAFE HARBOR STATEMENT

This is our ~~"Safe Harbor"~~“Safe Harbor” statement under the Private Securities Litigation Reform Act of 1995. Our business is subject to certain risks and uncertainties that may cause actual results to differ materially from those suggested by the forward-looking statements in this report. Some of those risks and uncertainties are discussed in our ~~2018~~2019 Annual Report on Form 10-K, Item 1A, Risk Factors, Page ~~33.~~35.

Factors that could cause or contribute to such differences include, but are not limited to:

Effects of the COVID-19 pandemic that could affect results for reasons such as:


◦	Securities market disruption or volatility and related effects such as decreased economic activity that affect the company’s investment portfolio and book value


◦	An unusually high level of claims in our insurance or reinsurance operations that increase litigation-related expenses


◦	An unusually high level of insurance losses, including risk of legislation or court decisions extending business interruption insurance to require coverage when there was no direct physical damage or loss to property


◦	Decreased premium revenue and cash flow from disruption to our distribution channel of independent agents, consumer self-isolation, travel limitations, business restrictions and decreased economic activity


◦	Inability of our workforce to perform necessary business functions

Unusually high levels of catastrophe losses due to risk concentrations, changes in weather patterns, environmental events, terrorism incidents or other causes

Increased frequency and/or severity of claims or development of claims that are unforeseen at the time of policy issuance

Inadequate estimates, assumptions or reliance on third-party data used for critical accounting estimates

Declines in overall stock market values negatively affecting the ~~company's~~company’s equity portfolio and book value

Prolonged low interest rate environment or other factors that limit the ~~company's~~company’s ability to generate growth in investment income or interest rate fluctuations that result in declining values of fixed-maturity investments, including declines in accounts in which we hold bank-owned life insurance contract assets

Domestic and global events resulting in capital market or credit market uncertainty, followed by prolonged periods of economic instability or recession, that lead to:


◦	Significant or prolonged decline in the fair value of a particular security or group of securities and impairment of the asset(s)


◦	Significant decline in investment income due to reduced or eliminated dividend payouts from a particular security or group of securities


◦	Significant rise in losses from surety and director and officer policies written for financial institutions or other insured entities

Our inability to integrate Cincinnati Global and its subsidiaries into our on-going operations, or disruptions to our on-going operations due to such integration

Recession or other economic conditions resulting in lower demand for insurance products or increased payment delinquencies

Difficulties with technology or data security breaches, including cyberattacks, that could negatively affect our ability to conduct business; disrupt our relationships with agents, policyholders and others; cause

reputational damage, mitigation expenses and data loss and expose us to liability under federal and state laws

Disruption of the insurance market caused by technology innovations such as driverless cars that could decrease consumer demand for insurance products

Delays, inadequate data developed internally or from third parties, or performance inadequacies from ongoing development and implementation of underwriting and pricing methods, including telematics and other usage-based insurance methods, or technology projects and enhancements expected to increase our pricing accuracy, underwriting profit and competitiveness

Increased competition that could result in a significant reduction in the ~~company's~~company’s premium volume

Changing consumer insurance-buying habits and consolidation of independent insurance agencies that could alter our competitive advantages

Inability to obtain adequate ceded reinsurance on acceptable terms, amount of reinsurance coverage purchased, financial strength of reinsurers and the potential for nonpayment or delay in payment by reinsurers

Inability to defer policy acquisition costs for any business segment if pricing and loss trends would lead management to conclude that segment could not achieve sustainable profitability

Inability of our subsidiaries to pay dividends consistent with current or past levels

Events or conditions that could weaken or harm the ~~company's~~company’s relationships with its independent agencies and hamper opportunities to add new agencies, resulting in limitations on the ~~company's~~company’s opportunities for growth, such as:


◦	Downgrades of the ~~company's~~company’s financial strength ratings


◦	Concerns that doing business with the company is too difficult


◦	Perceptions that the ~~company's~~company’s level of service, particularly claims service, is no longer a distinguishing characteristic in the marketplace


◦	Inability or unwillingness to nimbly develop and introduce coverage product updates and innovations that our competitors offer and consumers expect to find in the marketplace

Actions of insurance departments, state attorneys general or other regulatory agencies, including a change to a federal system of regulation from a state-based system, that:


◦	Impose new obligations on us that increase our expenses or change the assumptions underlying our critical accounting estimates


◦	Place the insurance industry under greater regulatory scrutiny or result in new statutes, rules and regulations


◦	Restrict our ability to exit or reduce writings of unprofitable coverages or lines of business


◦	Add assessments for guaranty funds, other insurance‑related assessments or mandatory reinsurance arrangements; or that impair our ability to recover such assessments through future surcharges or other rate changes


◦	Increase our provision for federal income taxes due to changes in tax law


◦	Increase our other expenses


◦	Limit our ability to set fair, adequate and reasonable rates


◦	Place us at a disadvantage in the marketplace


◦	Restrict our ability to execute our business model, including the way we compensate agents

Adverse outcomes from litigation or administrative proceedings

Events or actions, including unauthorized intentional circumvention of controls, that reduce the ~~company's~~company’s future ability to maintain effective internal control over financial reporting under the Sarbanes-Oxley Act of 2002

Unforeseen departure of certain executive officers or other key employees due to retirement, health or other causes that could interrupt progress toward important strategic goals or diminish the effectiveness of certain longstanding relationships with insurance agents and others

Events, such as an epidemic, natural catastrophe or terrorism, that could hamper our ability to assemble our workforce at our headquarters location

Further, the ~~company's~~company’s insurance businesses are subject to the effects of changing social, global, economic and regulatory environments. Public and regulatory initiatives have included efforts to adversely influence and restrict premium rates, restrict the ability to cancel policies, impose underwriting standards and expand overall regulation. The company also is subject to public and regulatory initiatives that can affect the market value for its common stock, such as measures affecting corporate financial reporting and governance. The ultimate changes and eventual effects, if any, of these initiatives are uncertain.

CORPORATE FINANCIAL HIGHLIGHTS

Net Income and Comprehensive Income Data


(Dollars in millions, except per share data)	Three months ended June 30,					Six months ended June 30,						Three months ended March 31,
	2019		2018		% Change	2019		2018			% Change	2020			2019		% Change
Earned premiums	$	1,384	$	1,294	7	$	2,717	$	2,554		6	$	1,456		$	1,333	9
Investment income, net of expenses (pretax)	160		154		4	317		304			4	165			157		5
Investment gains and losses, net (pretax)	364		105		247	1,027		(86		)	nm	(1,725		)	663		nm
Total revenues	1,913		1,558		23	4,072		2,782			46	(99		)	2,159		nm
Net income	428		217		97	1,123		186			504
Net income (loss)												(1,226		)	695		nm
Comprehensive income (loss)	582		157		271	1,465		(44		)	nm	(1,470		)	883		nm
Net income per share—diluted	2.59		1.32		96	6.81		1.12			508
Net income (loss) per share—diluted												(7.56		)	4.22		nm
Cash dividends declared per share	0.56		0.53		6	1.12		1.06			6	0.60			0.56		7
Diluted weighted average shares outstanding	165.2		164.5		0	164.9		165.0			0	162.2			164.6		(1	)

Total revenues ~~rose 23%~~were negative for the ~~second~~first quarter of ~~2019, compared with second-quarter 2018, primarily due to~~2020, as a reduction in net investment gains offset increases in earned premiums and ~~net~~ investment ~~gains. For the first six months of 2019, compared with the first six months of 2018, total revenues increased 46%, also reflecting higher earned premiums and significant net investment gains.~~income. Premium and investment revenue trends are discussed further in the respective sections of Financial Results.

Investment gains and losses are recognized on the sales of investments, on certain changes in fair values of securities even though we continue to hold the securities or as otherwise required by GAAP. We have substantial discretion in the timing of investment sales, and that timing generally is independent of the insurance underwriting process. The change in fair value of securities is also generally independent of the insurance underwriting process.

~~Net income~~The net loss for the ~~second~~first quarter of ~~2019,~~2020, compared with ~~the same period~~first-quarter 2019 net income, was a change of ~~2018, increased $211 million,~~$1.921 billion, including ~~increases~~a decrease of ~~$204 million~~$1.886 billion in after-tax net investment gains and losses $9and a decrease of $53 million in after-tax property casualty underwriting ~~income and $4 million in after-tax investment~~ income. ~~Second-quarter 2019~~First-quarter 2020 catastrophe losses, mostly weather related, were ~~$34~~$41 million ~~more~~higher after taxes and unfavorably affected both net income and property casualty underwriting income. ~~Life~~After-tax investment income for the first quarter of 2020 increased by $6 million and life insurance segment results on a pretax basis improved $3 million compared with first-quarter 2019.

The recent outbreak of the novel coronavirus (SARS-CoV-2 or COVID-19), recognized as a pandemic by the World Health Organization, caused significant economic effects where we operate, including temporary closures of many businesses and reduced consumer spending due to shelter-in-place, stay-at-home and other governmental regulations. Those orders and the uncertainty surrounding COVID-19 had broad financial market effects in the last few weeks of first-quarter 2020 and caused significant market disruption and volatility. The stock market volatility was a major contributor to the revenue decrease and net loss effects discussed above, and in this quarterly report Item 2, Investments Results, that resulted from a reduction in net investment gains for our investment portfolio.

The COVID-19 pandemic did not have a significant effect on our premium revenues for the first quarter of 2020. Approximately 85% of our net written premiums are from renewals of expiring policies or reinsurance treaties that were generally arranged in advance of the economic slowdown resulting from COVID-19 effects on businesses or consumers, and only a small fraction of premiums written in March were earned during the first quarter. In the last few weeks of March and the first few weeks of April, we saw a reduction in submissions from agents for us to quote premiums for policies that would be new business for us in the second quarter of ~~2019 decreased $10 million compared with~~2020. At the same time, we have seen early signs of a higher ratio of quoted policies that were subsequently issued for certain lines of business, which somewhat offset the decrease in submissions. Regardless of future policy submission volume, new business and renewal premium amounts could decline if the basis for policy premiums, such as sales and payrolls of businesses we insure, decrease as a result of a weakened economy. Early in the second quarter of ~~2018.~~2020, we announced a 15% policyholder credit applied to each personal auto policy for the months of April and May, for an estimated aggregate amount of $16 million. At this time, we are not able to determine other material effects of the pandemic for future periods.

~~For~~

Loss experience for our insurance operations is influenced by many factors, as discussed in our 2019 Annual Report on Form 10-K, Item 7, Property Casualty Insurance Loss and Loss Expense Reserves, page 56. We have not determined any material effect on our loss experience for the first ~~six months~~quarter of ~~2019, net income rose $937 million, compared with~~2020 as a result of the ~~2018 period, including increases~~pandemic. Because of ~~$878 million~~fewer vehicles on the road and other factors that reduce exposure to certain insurance losses, such as reduced sales and payrolls for businesses, there could be a reduction in ~~after-tax investment gains~~future losses that generally correspond to reduced premiums. For example, we saw a reduction in personal auto reported claims as a result of reduced driving in late March and early April. However, there could be losses ~~$58 million~~or legal expenses that occur independent of changes in ~~after-tax~~sales or payrolls of businesses we insure. At this time, we are not able to determine premium or loss effects for future periods.

Virtually all of our commercial property ~~casualty underwriting income~~policies do not provide coverage for business interruption claims unless there is direct physical damage or loss to property. Because a virus does not produce direct physical damage or loss to property, no coverage exists for this peril – rendering an exclusion unnecessary. For this reason, most of our standard market commercial property policies in states where we actively write business do not contain a specific exclusion for COVID-19. While we will evaluate each claim based on the specific facts and ~~$10 million in after-tax investment income. The~~circumstances involved, our commercial property ~~casualty underwriting income improvement included an unfavorable $51 million after-tax effect from higher catastrophe losses. Life insurance segment results decreased by $13 million on a pretax basis.~~policies do not provide coverage for business interruption claims unless there is direct physical damage or loss to property.

Performance by segment is discussed below in Financial Results. As discussed in our ~~2018~~2019 Annual Report on Form 10-K, Item 7, Factors Influencing Our Future Performance, Page ~~53,~~55, there are several reasons why our performance during ~~2019~~2020 may be below our long-term targets. ~~In that annual report, as part of Financial Results, we also discussed the full-year 2019 outlook for each reporting segment.~~

The board of directors is committed to rewarding shareholders directly through cash dividends and through share repurchase authorizations. Through ~~2018,~~2019, the company had increased the annual cash dividend rate for 5859 consecutive years, a record we believe is matched by only seven other publicly traded companies. In ~~February 2019,~~January 2020, the board of directors increased the regular quarterly dividend to 5660 cents per share, setting the stage for our 5960^th consecutive year of increasing cash dividends. During the first ~~six~~three months of ~~2019,~~2020, cash dividends declared by the company increased 6%7% compared with the same period of ~~2018.~~2019. Our board regularly evaluates relevant factors in decisions related to dividends and share repurchases. The ~~2019~~2020 dividend increase reflected our strong earnings performance and signaled management's and the board's positive outlook and confidence in our outstanding capital, liquidity and financial flexibility.

As disclosed in Item 1, Note 14 – Acquisition, we completed our transaction to acquire MSP Underwriting Limited, a London-based global specialty underwriter for Lloyd's Syndicate 318, on February 28, 2019. We rebranded the acquired company to Cincinnati Global Underwriting Ltd.^SM (Cincinnati Global) effective May 1, 2019. We expect the transaction to contribute to future earnings and book value growth as we believe it should provide opportunities to support business produced by our independent agencies in new geographies and lines of business.

Balance Sheet Data and Performance Measures


(Dollars in millions, except share data)	At June 30,			At December 31,			At March 31,			At December 31,
	2019			2018			2020			2019
Total investments	$	18,603		$	16,732		$	17,876		$	19,746
Total assets	24,337			21,935			23,367			25,408
Short-term debt	37			32			114			39
Long-term debt	788			788			788			788
Shareholders' equity	9,131			7,833			8,042			9,864
Book value per share	55.92			48.10			50.02			60.55
Debt-to-total-capital ratio	8.3		%	9.5		%	10.1		%	7.7		%

Total assets at ~~June 30, 2019, increased 11%~~March 31, 2020, decreased 8% compared with year-end ~~2018,~~2019, and included ~~an 11% increase~~a 9% decrease in total investments that reflected ~~a combination of net purchases and higher~~lower fair values for many securities in our portfolio. Shareholders' equity ~~increased 17%~~decreased 18%, and book value per share ~~increased 16%~~decreased 17% during the first ~~six~~three months of ~~2019.~~2020. Our debt-to-total-capital ratio (capital is the sum of debt plus shareholders' equity) ~~decreased~~increased compared with year-end ~~2018.~~2019.

Our value creation ratio is our primary performance metric. That ratio was ~~18.6%~~negative 16.4% for the first ~~six~~three months of ~~2019, more~~2020, and was significantly lower than the same period in ~~2018~~2019, primarily due to a ~~higher amount~~reduction of overall net gains from our investment portfolio. The ~~$7.82 increase~~$10.53 decrease in book value per share during the first ~~six~~three months of ~~2019~~2020 contributed ~~16.3~~negative 17.4 percentage points to the value creation ratio, while dividends declared at ~~$1.12~~$0.60 per share contributed ~~2.3 points.~~1.0 point. Value creation ratios ~~for comparable periods~~ by major components and in total, along with calculations from per-share amounts, are shown in the tables below.


	Three months ended June 30,				Six months ended June 30,				Three months ended March 31,
	2019		2018		2019		2018		2020		2019
Value creation ratio major components:
Net income before investment gains	1.6	%	1.7	%	4.0	%	3.1	%	1.4	%	2.2	%
Change in fixed-maturity securities, realized and unrealized gains	1.8		(0.8	)	4.4		(2.8	)	(3.2	)	2.5
Change in equity securities, investment gains	3.4		1.0		10.3		(0.9	)	(13.4	)	6.6
Other	0.0		(0.3	)	(0.1	)	(0.5	)	(1.2	)	(0.2	)
Value creation ratio	6.8	%	1.6	%	18.6	%	(1.1	)%	(16.4	)%	11.1	%


(Dollars are per share)		Three months ended June 30,						Six months ended June 30,						Three months ended March 31,
		2019			2018			2019			2018			2020			2019
Value creation ratio:
End of period book value*		$	55.92		$	48.68		$	55.92		$	48.68		$	50.02		$	52.88
Less beginning of period book value		52.88			48.42			48.10			50.29			60.55			48.10
Change in book value		3.04			0.26			7.82			(1.61		)	(10.53		)	4.78
Dividend declared to shareholders		0.56			0.53			1.12			1.06			0.60			0.56
Total value creation		$	3.60		$	0.79		$	8.94		$	(0.55	)	$	(9.93	)	$	5.34

Value creation ratio from change in book value**		5.7		%	0.5		%	16.3		%	(3.2		)%	(17.4		)%	9.9		%
Value creation ratio from dividends declared to shareholders***		1.1			1.1			2.3			2.1			1.0			1.2
Value creation ratio		6.8		%	1.6		%	18.6		%	(1.1		)%	(16.4		)%	11.1		%

* Book value per share is calculated by dividing end of period total shareholders' equity by end of period shares outstanding	* Book value per share is calculated by dividing end of period total shareholders' equity by end of period shares outstanding													* Book value per share is calculated by dividing end of period total shareholders' equity by end of period shares outstanding
** Change in book value divided by the beginning of period book value	** Change in book value divided by the beginning of period book value													** Change in book value divided by the beginning of period book value
*** Dividend declared to shareholders divided by beginning of period book value	*** Dividend declared to shareholders divided by beginning of period book value													*** Dividend declared to shareholders divided by beginning of period book value

DRIVERS OF LONG-TERM VALUE CREATION

Operating through The Cincinnati Insurance Company, Cincinnati Financial Corporation is one of the 25 largest property casualty insurers in the nation, based on ~~2018~~2019 net written premiums for approximately 2,000 U.S. stock and mutual insurer groups. We market our insurance products through a select group of independent insurance agencies as discussed in our ~~2018~~2019 Annual Report on Form 10-K, Item 1, Our Business and Our Strategy, Page 5. At ~~June 30, 2019,~~March 31, 2020, we actively marketed through agencies located in 4445 states. We maintain a long-term perspective that guides us in addressing immediate challenges or opportunities while focusing on the major decisions that best position our company for success through all market cycles.

To measure our long-term progress in creating shareholder value, our value creation ratio is our primary financial performance target. As discussed in our ~~2018~~2019 Annual Report on Form 10-K, Item 7, Executive Summary, Page ~~49,~~51, management believes this measure is a meaningful indicator of our long-term progress in creating shareholder value and has three primary performance drivers:

Premium growth – We believe our agency relationships and initiatives can lead to a property casualty written premium growth rate over any five-year period that exceeds the industry average. For the first ~~six~~three months of ~~2019,~~2020, our consolidated property casualty net written premium year-over-year growth was 10%. As of ~~February 2019,~~March 2020, A.M. Best projected the industry's full-year ~~2019~~2020 written premium growth at approximately 4%. For the five-year period ~~2014~~2015 through ~~2018,~~2019, our growth rate ~~slightly~~ exceeded that of the industry. The industry's growth rate excludes its mortgage and financial guaranty lines of business.

Combined ratio – We believe our underwriting philosophy and initiatives can generate a GAAP combined ratio over any five-year period that is consistently within the range of 95% to 100%. For the first ~~six~~three months of ~~2019,~~2020, our GAAP combined ratio was ~~94.8%~~98.5%, including ~~8.4~~9.4 percentage points of current accident year catastrophe losses partially offset by ~~5.9~~2.4 percentage points of favorable loss reserve development on prior accident years. Our statutory combined ratio was ~~93.3%~~96.6% for the first ~~six~~three months of ~~2019.~~2020. As of ~~February 2019,~~March 2020, A.M. Best projected the industry's full-year ~~2019~~2020 statutory combined ratio at approximately ~~101%~~99%, including approximately 5 percentage points of catastrophe losses and a favorable effect of approximately ~~1.5~~1 percentage ~~points~~point of loss reserve development on prior accident years. The industry's ratio again excludes its mortgage and financial guaranty lines of business.

Investment contribution – We believe our investment philosophy and initiatives can drive investment income growth and lead to a total return on our equity investment portfolio over a five-year period that exceeds the five-year return of the Standard & Poor's 500 Index. For the first ~~six~~three months of ~~2019,~~2020, pretax investment income was ~~$317~~$165 million, up 4%5% compared with the same period in ~~2018.~~2019. We believe our investment portfolio mix provides an appropriate balance of income stability and growth with capital appreciation potential.

Highlights of Our Strategy and Supporting Initiatives

Management has worked to identify a strategy that can lead to long-term success, with concurrence by the board of directors. Our strategy is intended to position us to compete successfully in the markets we have targeted while appropriately managing risk. Further description of our long-term, proven strategy can be found in our ~~2018~~2019 Annual Report on Form 10-K, Item 1, Our Business and Our Strategy, Page 5. We believe successful implementation of initiatives that support our strategy will help us better serve our agent customers and reduce volatility in our financial results while we also grow earnings and book value over the long term, successfully navigating challenging economic, market or industry pricing cycles.

Manage insurance profitability – Implementation of these initiatives is intended to enhance underwriting expertise and knowledge, thereby increasing our ability to manage our business while also gaining efficiency. Better profit margins can arise from additional information and more focused action on underperforming product lines, plus pricing capabilities we are expanding through the use of technology and analytics. In addition to enhancing company efficiency, improving internal processes also supports the ability of the independent agencies that represent us to grow profitably by allowing them to serve clients faster and to more efficiently manage agency expenses.

We continue to enhance our property casualty underwriting expertise and to effectively and efficiently underwrite individual policies and process transactions. Ongoing initiatives supporting this work include expanding our pricing and segmentation capabilities through experience and use of predictive analytics and additional data. Our segmentation efforts emphasize identification and retention of insurance policies we believe have relatively stronger pricing, while seeking more aggressive renewal terms and conditions on policies we believe have relatively weaker pricing. In ~~2019,~~2020, we ~~continue~~are continuing to improve underwriting and rate adequacy for our commercial auto and ~~personal auto~~homeowner lines of business. Our commercial auto policies that renewed during the first ~~six~~three months of ~~2019~~2020 experienced an estimated average price increase at percentages in the ~~high-single-digit~~mid-single-digit range, and our ~~personal auto~~homeowner policies that renewed during that period also averaged an estimated price increase at percentages in the ~~high-single-digit~~mid-single-digit range.

•

Drive premium growth – Implementation of these initiatives is intended to further penetrate each market we serve through our independent agencies. Strategies aimed at specific market opportunities, along with service enhancements, can help our agents grow and increase our share of their business. Premium growth initiatives also include expansion of Cincinnati Re^SM, our reinsurance assumed operation, and successful integration of ~~Cincinnati Global.~~

Cincinnati Global Underwriting Ltd.^SM (Cincinnati Global), our London-based global specialty underwriter for Lloyd's Syndicate 318. Diversified growth also may reduce variability of losses from weather-related catastrophes.

We continue to appoint new agencies to develop additional points of distribution. In ~~2019,~~2020, we are planning approximately ~~100~~125 appointments of independent agencies that offer most or all of our property casualty insurance products. During the first ~~six~~three months of ~~2019,~~2020, we appointed 5550 new agencies that meet that criteria.

We also plan to appoint additional agencies that focus on high net worth personal lines clients. In ~~2019,~~2020, we are targeting the appointment of approximately 8035 agencies that market only personal lines products for us. During the first ~~six~~three months of ~~2019,~~2020, we appointed 3711 new agencies that meet that criteria.

As of ~~June 30, 2019,~~March 31, 2020, a total of ~~1,784~~1,814 agency relationships market our property casualty insurance products from ~~2,409~~2,492 reporting locations. The totals do not include Lloyd's brokers or coverholders that source business for Cincinnati Global.

We also continue to grow premiums through the disciplined expansion of Cincinnati Re and the acquisition of Cincinnati Global. During the first ~~six~~three months of ~~2019,~~2020, Cincinnati Re contributed ~~$63~~$21 million of growth in consolidated property casualty insurance net written premiums while Cincinnati Global contributed ~~$65~~$16 million. We also believe that over time Cincinnati Global ~~over time~~ will provide opportunities to support business produced by our independent agencies in new geographies and lines of business.

Financial Strength

An important part of our long-term strategy is financial strength, which is described in our ~~2018~~2019 Annual Report on Form 10-K, Item 1, Our Business and Our Strategy, Financial Strength, Page 8. One aspect of our financial strength is prudent use of reinsurance ceded to help manage financial performance variability due to catastrophe loss experience. A description of how we use reinsurance ceded is included in our ~~2018~~2019 Annual Report on Form 10-K, Item 7, Liquidity and Capital Resources, ~~2019~~2020 Reinsurance Ceded Programs, Page ~~105.~~109. Another aspect of our financial strength is our investment portfolio, which remains well-diversified as discussed in this quarterly report in Item 3, Quantitative and Qualitative Disclosures About Market Risk. Our strong parent-company liquidity and financial strength increase our flexibility to maintain a cash dividend through all periods and to continue to invest in and expand our insurance operations.

At ~~June 30, 2019,~~March 31, 2020, we held ~~$3.026~~$2.670 billion of our cash and invested assets at the parent-company level, of which ~~$2.730~~$2.498 billion, or ~~90.2%~~93.6%, was invested in common stocks, and ~~$174~~$16 million, or ~~5.8%~~0.6%, was cash or cash equivalents. Our debt-to-total-capital ratio was ~~8.3%~~10.1% at ~~June 30, 2019.~~March 31, 2020. Another important indicator of financial strength is our ratio of property casualty net written premiums to statutory surplus, which was ~~1.0-to-1~~1.2-to-1 for the 12 months ended ~~June 30, 2019, matching~~March 31, 2020, compared with 1.0-to-1 at year-end ~~2018.~~2019.

Financial strength ratings assigned to us by independent rating firms also are important. In addition to rating our parent company's senior debt, four firms award insurer financial strength ratings to one or more of our insurance subsidiary companies based on their quantitative and qualitative analyses. These ratings primarily assess an insurer's ability to meet financial obligations to policyholders and do not necessarily address all of the matters that may be important to investors. Ratings are under continuous review and subject to change or withdrawal at any time by the rating agency. Each rating should be evaluated independently of any other rating; please see each rating agency's website for its most recent report on our ratings.

At ~~July 29, 2019,~~April 24, 2020, our insurance subsidiaries continued to be highly rated.



Insurer Financial Strength Ratings
Rating agency	Standard market property casualty insurance subsidiaries			Life insurance subsidiary			Excess and surplus lines insurance subsidiary			Outlook
			Rating tier			Rating tier			Rating tier
A.M. Best Co. ambest.com	A+	Superior	2 of 16	AA+	~~Excellent~~Superior	32 of 16	A+	Superior	2 of 16	~~Stable/ Positive/~~ Stable
Fitch Ratings fitchratings.com	A+	Strong	5 of 21	A+	Strong	5 of 21	-	-	-	Stable
Moody's Investors Service moodys.com	A1	Good	5 of 21	-	-	-	-	-	-	Stable
S&P Global Ratings spratings.com	A+	Strong	5 of 21	A+	Strong	5 of 21	-	-	-	Stable

CONSOLIDATED PROPERTY CASUALTY INSURANCE HIGHLIGHTS

Consolidated property casualty insurance results include premiums and expenses for our standard market insurance segments (commercial lines and personal lines), our excess and surplus lines segment, Cincinnati Re and our London-based global specialty underwriter known as Cincinnati Global.


(Dollars in millions)	Three months ended June 30,								Six months ended June 30,								Three months ended March 31,
	2019			2018			% Change		2019			2018			% Change		2020			2019			% Change
Earned premiums	$	1,317		$	1,230		7		$	2,584		$	2,430		6		$	1,389		$	1,267		10
Fee revenues	2			3			(33	)	5			6			(17	)	3			3			0
Total revenues	1,319			1,233			7		2,589			2,436			6		1,392			1,270			10
Loss and loss expenses from:
Current accident year before catastrophe losses	802			765			5		1,588			1,544			3		832			786			6
Current accident year catastrophe losses	145			87			67		216			147			47		131			71			85
Prior accident years before catastrophe losses	(69		)	(31		)	(123	)	(139		)	(72		)	(93	)	(28		)	(70		)	60
Prior accident years catastrophe losses	(15		)	—			nm		(12		)	(7		)	(71	)	(5		)	3			nm
Loss and loss expenses	863			821			5		1,653			1,612			3		930			790			18
Underwriting expenses	408			376			9		797			759			5		438			389			13
Underwriting profit	$	48		$	36		33		$	139		$	65		114		$	24		$	91		(74	)

Ratios as a percent of earned premiums:							Pt. Change								Pt. Change								Pt. Change
Current accident year before catastrophe losses	60.9		%	62.2		%	(1.3	)	61.5		%	63.5		%	(2.0	)	59.9		%	62.0		%	(2.1	)
Current accident year catastrophe losses	11.1			7.1			4.0		8.4			6.1			2.3		9.4			5.6			3.8
Prior accident years before catastrophe losses	(5.3		)	(2.6		)	(2.7	)	(5.4		)	(3.0		)	(2.4	)	(2.1		)	(5.5		)	3.4
Prior accident years catastrophe losses	(1.1		)	0.0			(1.1	)	(0.5		)	(0.3		)	(0.2	)	(0.3		)	0.2			(0.5	)
Loss and loss expenses	65.6			66.7			(1.1	)	64.0			66.3			(2.3	)	66.9			62.3			4.6
Underwriting expenses	30.9			30.5			0.4		30.8			31.2			(0.4	)	31.6			30.7			0.9
Combined ratio	96.5		%	97.2		%	(0.7	)	94.8		%	97.5		%	(2.7	)	98.5		%	93.0		%	5.5

Combined ratio	96.5		%	97.2		%	(0.7	)	94.8		%	97.5		%	(2.7	)	98.5		%	93.0		%	5.5
Contribution from catastrophe losses and prior years reserve development	4.7			4.5			0.2		2.5			2.8			(0.3	)	7.0			0.3			6.7
Combined ratio before catastrophe losses and prior years reserve development	91.8		%	92.7		%	(0.9	)	92.3		%	94.7		%	(2.4	)	91.5		%	92.7		%	(1.2	)

The COVID-19 pandemic did not have a significant effect on our premiums for the first quarter of 2020. In the last few weeks of March and the first few weeks of April, we saw a reduction in submissions from agents for us to quote premiums for policies that would be new business for us in the second quarter of 2020. At the same time, we have seen early signs of a higher ratio of quoted policies that were subsequently issued for some lines of business, which somewhat offset the decrease in submissions. Regardless of future policy submission volume, new business and renewal premium amounts could decline if the basis for policy premiums, such as sales and payrolls of businesses we insure, decrease as a result of a weakened economy. At this time, we are not able to determine other effects of the pandemic on future periods.

Loss experience for our insurance operations is influenced by many factors. We have not determined any material effect on our loss experience for the first quarter of 2020 as a result of the pandemic. Because of factors that reduce exposure to certain insurance losses, such as fewer vehicles on the road or reduced sales and payrolls for businesses, there could be a reduction in future losses that generally correspond to reduced premiums. However, there could be losses or legal expenses that occur independent of changes in sales or payrolls of businesses we insure. At this time, we are not able to determine premium or loss effects for future periods.

Our consolidated property casualty insurance operations generated an underwriting profit of ~~$48 million for the second quarter of 2019 and $139~~$24 million for the first ~~six~~three months of ~~2019.~~2020. The ~~second-quarter improvement~~decrease of ~~$12~~$67 million, compared with the ~~same period~~first quarter of ~~2018, was partially offset by~~2019, included an unfavorable increase of ~~$43~~$52 million in losses from natural catastrophes, mostly caused by severe weather. ~~The six-month underwriting profit improved $74 million, compared with the first six months of 2018, despite the unfavorable effect of an increase of $64 million in losses from natural catastrophes.~~ We believe future property casualty underwriting results will continue to benefit from price increases and our ongoing initiatives to improve pricing precision and loss experience related to claims and loss control practices.

For all property casualty lines of business in aggregate, ~~excluding Cincinnati Global reserves as of the February 28, 2019, acquisition date,~~ net loss and loss expense reserves at ~~June 30, 2019,~~March 31, 2020, were ~~$31~~$113 million higher than at year-end ~~2018,~~2019, including an increase of ~~$51~~$121 million for the incurred but not reported (IBNR) portion. The ~~$31~~$113 million reserve increase raised year-end ~~2018~~2019 net loss and loss expense reserves by ~~less than 1%~~2%.

We measure and analyze property casualty underwriting results primarily by the combined ratio and its component ratios. The GAAP-basis combined ratio is the percentage of incurred losses plus all expenses per each earned premium dollar – the lower the ratio, the better the performance. An underwriting profit results when the combined ratio is below 100%. A combined ratio above 100% indicates that an insurance company's losses and expenses exceeded premiums.

Our consolidated property casualty combined ratio for the ~~second~~first quarter of ~~2019 improved~~2020 increased by ~~0.7~~5.5 percentage points, compared with the same period of ~~2018, despite~~2019, including an increase of ~~2.9~~3.3 points from higher catastrophe losses and loss expenses. For the first six months of 2019, compared with the same period of 2018, our consolidated property casualty combined ratio improved by 2.7 percentage points, despite an increase of 2.1 points from higher

catastrophe losses and loss expenses.

The combined ratio can be affected significantly by natural catastrophe losses and other large losses as discussed in detail below. The combined ratio can also be affected by updated estimates of loss and loss expense reserves established for claims that occurred in prior periods, referred to as prior accident years. Net favorable development on prior accident year reserves, including reserves for catastrophe losses, benefited the combined ratio by ~~5.9~~2.4 percentage points in the first ~~six~~three months of ~~2019,~~2020, compared with ~~3.3~~5.3 percentage points in the same period of ~~2018.~~2019. Net favorable development is discussed in further detail in Financial Results by property casualty insurance segment.

The ratio for current accident year loss and loss expenses before catastrophe losses improved in the first ~~six~~three months of ~~2019.~~2020. That ~~61.5%~~59.9% ratio was ~~2.0~~2.1 percentage points lower, compared with the ~~63.5%~~62.0% accident year ~~2018~~2019 ratio measured as of ~~June 30, 2018,~~March 31, 2019, including ~~a decrease~~an increase of 0.7 points in the ratio for large losses of $1 million or more per claim, discussed below. The effects of lower noncatastrophe weather-related losses for the first six months of 2019 contributed approximately 0.6 points to the overall decrease in the current accident year ratio. We consider weather-related losses not identified as part of designated catastrophe events for the property casualty industry to be noncatastrophe weather losses.

The underwriting expense ratio increased for the ~~second~~first quarter ~~and decreased for the first six months~~ of ~~2019,~~2020, compared with the same ~~periods~~period a year ago. The ~~current year periods reflect ratios generally in line with our longer-term historical average, as well as~~increase was largely due to higher employee-related expenses and premium taxes, plus the full effect of Cincinnati Global, which partially offset ongoing expense management efforts and higher earned premiums. ~~The ratio for both 2019 periods is within 0.2 percentage points of the average of full-year ratios during 2016 through 2018.~~

Consolidated Property Casualty Insurance Premiums


(Dollars in millions)	Three months ended June 30,								Six months ended June 30,								Three months ended March 31,
	2019			2018			% Change		2019			2018			% Change		2020			2019			% Change
Agency renewal written premiums	$	1,186		$	1,150		3		$	2,316		$	2,233		4		$	1,198		$	1,130		6
Agency new business written premiums	212			181			17		393			340			16		215			181			19
Other written premiums	78			18			333		148			34			335		105			70			50
Net written premiums	1,476			1,349			9		2,857			2,607			10		1,518			1,381			10
Unearned premium change	(159		)	(119		)	(34	)	(273		)	(177		)	(54	)	(129		)	(114		)	(13	)
Earned premiums	$	1,317		$	1,230		7		$	2,584		$	2,430		6		$	1,389		$	1,267		10

The trends in net written premiums and earned premiums summarized in the table above include the effects of price increases. Price change trends that heavily influence renewal written premium increases or decreases, along with other premium growth drivers for ~~2019,~~2020, are discussed in more detail by segment below in Financial Results.

Consolidated property casualty net written premiums for the three ~~and six~~ months ended ~~June 30,~~March 31, 2019, grew ~~$127 million and $250~~$137 million compared with the same ~~periods~~period of ~~2018.~~2019, primarily from our commercial lines insurance segment. Our premium growth initiatives from prior years have provided an ongoing favorable effect on growth during the current year, particularly as newer agency relationships mature over time.

Consolidated property casualty agency new business written premiums increased by ~~$31 million and $53~~$34 million for the ~~second~~first quarter ~~and first six months~~ of ~~2019,~~2020, compared with the same ~~periods~~period of ~~2018.~~2019. The increase ~~for both 2019 periods~~ was ~~primarily from~~driven by our commercial lines ~~and excess and surplus lines~~ insurance ~~segments.~~segment. New agency appointments during ~~2018~~2019 and ~~2019~~2020 produced ~~a $20~~an $18 million increase in standard lines new business for the first ~~six~~three months of ~~2019~~2020 compared with the same period of ~~2018.~~2019. As we appoint new agencies

that choose to move accounts to us, we report these accounts as new business. While this business is new to us, in many cases it is not new to the agent. We believe these seasoned accounts tend to be priced more accurately than business that may be less familiar to our agent upon obtaining it from a competing agent.

Net written premiums for Cincinnati Re, included in other written premiums, increased ~~$24 million and $63~~by $21 million for the three ~~and six~~ months ended ~~June 30, 2019,~~March 31, 2020, compared with the same ~~periods~~period of ~~2018,~~2019, to ~~$72 million and $157 million, respectively.~~$105 million. Cincinnati Re assumes risks through reinsurance treaties and in some cases cedes part of the risk and related premiums to one or more unaffiliated reinsurance companies through transactions known as retrocessions. Cincinnati Re earned premiums were ~~$47 million and $86~~$62 million for the ~~second quarter and~~ first ~~six~~three months of ~~2019,~~2020, compared with ~~$30 million and $59~~$40 million for the same ~~periods~~period a year ago.

Cincinnati Global also contributed to the increase in other written premiums, following ~~its~~our acquisition of it on February 28, 2019. Net written premiums ~~were $45~~increased by $16 million for the ~~second quarter~~three months ended March 31, 2020, compared with $21 million for one month of premiums in 2019, ~~and $65 million since the acquisition, while~~to $37 million. Cincinnati Global earned premiums were ~~$32~~$27 million and ~~$43~~$10 million for those respective periods.

Other written premiums also include premiums ceded to reinsurers as part of our reinsurance ceded program. An increase in ceded premiums ~~including $6 million of reinstatement premiums for our property catastrophe treaty,~~ reduced net written premiums by ~~$9 million and $12~~$2 million for the ~~second~~first quarter ~~and first six months~~ of ~~2019,~~2020, compared with the same ~~periods~~period of ~~2018.~~2019.

Catastrophe losses and loss expenses typically have a material effect on property casualty results and can vary significantly from period to period. Losses from natural catastrophes contributed ~~10.0 and 7.9~~9.1 percentage points to the combined ratio in the ~~second~~first quarter ~~and first six months~~ of ~~2019,~~2020, compared with ~~7.1 and~~ 5.8 percentage points in the same period of 2018. Some of those losses were applicable to annual loss deductible provisions of our collateralized reinsurance funded through catastrophe bonds. For our collateralized reinsurance arrangement that became effective in January 2017, we can recover catastrophe bond funds if aggregate losses, after the $8 million per occurrence deductible, exceed $190 million during an annual coverage period. There were six events between January 1 and June 30, 2019, that met the requirements for recovery, such as occurrences within the specific geographic locations included in the severe convective storm portion of our coverage with losses exceeding our per occurrence deductible. Aggregate losses from those events totaled $141 million, after our per occurrence deductible.

Effective July 1, 2019, we renewed for a period of one year our property catastrophe occurrence and aggregate excess of loss treaty, discussed in our 2018 Annual Report on Form 10-K, Item 7, 2019 Reinsurance Ceded Programs, Page 105. The combined coverage noted below applies to business written on a direct basis and by Cincinnati Re. Cincinnati Global catastrophe losses are not applicable to the treaty. Ceded premiums for the renewal period of coverage from this treaty are estimated to be approximately $9 million, with a total limit of $50 million for all coverages combined. The summary below includes other important changes from the treaty that expired June 30, 2019.

~~Combined – Aggregate net recovery up to $50 million after retaining the first $125 million of each loss~~

~~Cincinnati Re-only – Aggregate net recovery up to $8 million after retaining the first $45 million in aggregate~~

~~Direct business-only in certain Western states – Aggregate net recovery up to $31 million for:~~


◦	~~Earthquake: After retaining the first $20 million of each loss~~


◦	~~Brushfire or wildfire: After retaining the first $40 million of each loss~~

The following table shows consolidated property casualty insurance catastrophe losses and loss expenses incurred, net of reinsurance, as well as the effect of loss development on prior period catastrophe events. We individually list declared catastrophe events for which our incurred losses reached or exceeded $10 million.

Consolidated Property Casualty Insurance Catastrophe Losses and Loss Expenses Incurred


(Dollars in millions, net of reinsurance)	(Dollars in millions, net of reinsurance)	Three months ended June 30,														Six months ended June 30,													(Dollars in millions, net of reinsurance)	Three months ended March 31,
		Comm.			Pers.			E&S								Comm.			Pers.		E&S									Comm.			Pers.			E&S
Dates	Region	lines			lines			lines		Other			Total			lines			lines		lines		Other			Total			Region	lines			lines			lines		Other		Total
2020
Jan. 10-12																													Midwest, Northeast, South	$	6		$	5		$	—	$	—	$	11
Feb. 5-8																													Northeast, South	11			6			—		—		17
Mar. 2-4																													Midwest, South	64			10			—		—		74
Mar. 27-30																													Midwest, Northeast, South	6			16			—		—		22
All other 2020 catastrophes																													All other 2020 catastrophes	1			6			—		—		7
Development on 2019 and prior catastrophes																													Development on 2019 and prior catastrophes	(3		)	(5		)	—		3		(5		)
Calendar year incurred total																													Calendar year incurred total	$	85		$	38		$	—	$	3	$	126

2019
Jan. 29-Feb. 1	Midwest, Northeast	$	(3	)	$	(1	)	$	—	$	1		$	(3	)	$	11		$	10	$	—	$	1		$	22		Midwest, Northeast	$	14		$	11		$	—	$	—	$	25
Feb. 23-26	Midwest, Northeast, South	—			(2		)	—		—			(2		)	11			10		—		—			21			Midwest, Northeast, South	11			12			—		—		23
Mar. 12-17	Midwest, Northeast, West, South	1			(1		)	—		2			2			5			6		—		2			13			Midwest, Northeast, West, South	4			7			—		—		11
May. 16-17	Midwest	6			6			—		—			12			6			6		—		—			12
May. 26-28	Midwest, Northeast, West, South	78			24			—		—			102			78			24		—		—			102
All other 2019 catastrophes	All other 2019 catastrophes	22			12			—		—			34			26			20		—		—			46			All other 2019 catastrophes	4			8			—		—		12
Development on 2018 and prior catastrophes	Development on 2018 and prior catastrophes	(8		)	(3		)	—		(4		)	(15		)	(14		)	5		—		(3		)	(12		)	Development on 2018 and prior catastrophes	(6		)	8			—		1		3
Calendar year incurred total	Calendar year incurred total	$	96		$	35		$	—	$	(1	)	$	130		$	123		$	81	$	—	$	—		$	204		Calendar year incurred total	$	27		$	46		$	—	$	1	$	74

2018
Jan. 8-10	West	$	—		$	(1	)	$	—	$	—		$	(1	)	$	—		$	10	$	—	$	—		$	10
Mar. 1-3	Northeast, South	—			—			—		—			—			6			6		—		—			12
Mar. 18-21	South	4			1			—		—			5			21			7		1		—			29
Apr. 13-17	Midwest, Northeast, South	22			7			—		—			29			22			7		—		—			29
All other 2018 catastrophes		29			25			—		—			54			36			31		—		—			67
Development on 2017 and prior catastrophes		(2		)	2			—		—			—			(9		)	2		—		—			(7		)
Calendar year incurred total		$	53		$	34		$	—	$	—		$	87		$	76		$	63	$	1	$	—		$	140

The following table includes data for losses incurred of $1 million or more per claim, net of reinsurance.

Consolidated Property Casualty Insurance Losses Incurred by Size


(Dollars in millions, net of reinsurance)	Three months ended June 30,								Six months ended June 30,								Three months ended March 31,
	2019			2018			% Change		2019			2018			% Change		2020			2019			% Change
Current accident year losses greater than $5 million	$	14		$	6		133		$	14		$	21		(33	)	$	—		$	—		nm
Current accident year losses $1 million - $5 million	53			62			(15	)	90			94			(4	)	50			37			35
Large loss prior accident year reserve development	5			4			25		21			38			(45	)	26			16			63
Total large losses incurred	72			72			—		125			153			(18	)	76			53			43
Losses incurred but not reported	(14		)	87			nm		33			97			(66	)	79			47			68
Other losses excluding catastrophe losses	547			433			26		1,039			953			9		496			493			1
Catastrophe losses	128			83			54		198			134			48		123			69			78
Total losses incurred	$	733		$	675		9		$	1,395		$	1,337		4		$	774		$	662		17

Ratios as a percent of earned premiums:							Pt. Change								Pt. Change								Pt. Change
Current accident year losses greater than $5 million	1.1		%	0.4		%	0.7		0.5		%	0.8		%	(0.3	)	—		%	—		%	0.0
Current accident year losses $1 million - $5 million	4.0			5.1			(1.1	)	3.5			3.9			(0.4	)	3.6			2.9			0.7
Large loss prior accident year reserve development	0.4			0.3			0.1		0.8			1.6			(0.8	)	1.9			1.2			0.7
Total large loss ratio	5.5			5.8			(0.3	)	4.8			6.3			(1.5	)	5.5			4.1			1.4
Losses incurred but not reported	(1.1		)	7.1			(8.2	)	1.3			4.0			(2.7	)	5.7			3.7			2.0
Other losses excluding catastrophe losses	41.6			35.1			6.5		40.2			39.2			1.0		35.6			38.9			(3.3	)
Catastrophe losses	9.7			6.8			2.9		7.7			5.5			2.2		8.9			5.5			3.4
Total loss ratio	55.7		%	54.8		%	0.9		54.0		%	55.0		%	(1.0	)	55.7		%	52.2		%	3.5

We believe the inherent variability of aggregate loss experience for our portfolio of larger policies is greater than that of our portfolio of smaller policies, and we continue to monitor the variability in addition to general inflationary trends in loss costs. Our analysis continues to indicate no unexpected concentration of large losses and case reserve increases by risk category, geographic region, policy inception, agency or field marketing territory. The ~~second-quarter 2019~~first-quarter 2020 property casualty total large losses incurred of ~~$72~~$76 million, net of reinsurance, were lower than the ~~$83~~$80 million quarterly average during full-year ~~2018 and matched~~2019 but higher than the ~~$72~~$53 million experienced for the ~~second~~first quarter of ~~2018.~~2019. The ratio for these large losses was ~~0.3~~1.4 percentage points ~~lower~~higher compared with last year's ~~second~~first quarter. The second-quarter 2019 amount of total large losses incurred helped contribute to the decrease in the six-month 2019 total large loss ratio, compared with 2018, in addition to a first-quarter 2019 ratio that was 2.7 points lower than the first quarter of 2018. We believe results for the ~~three- and six-month periods~~three-month period largely reflected normal fluctuations in loss patterns and normal variability in large case reserves for claims above $1 million. Losses by size are discussed in further detail in results of operations by property casualty insurance segment.

FINANCIAL RESULTS

Consolidated results reflect the operating results of each of our five segments along with the parent company, Cincinnati Re, Cincinnati Global and other activities reported as "Other." The five segments are:

Commercial lines insurance

Personal lines insurance

Excess and surplus lines insurance

Life insurance

Investments

COMMERCIAL LINES INSURANCE RESULTS


(Dollars in millions)	Three months ended June 30,								Six months ended June 30,								Three months ended March 31,
	2019			2018			% Change		2019			2018			% Change		2020			2019			% Change
Earned premiums	$	823		$	812		1		$	1,633		$	1,602		2		$	863		$	810		7
Fee revenues	1			—			nm		2			2			0		1			1			0
Total revenues	824			812			1		1,635			1,604			2		864			811			7
Loss and loss expenses from:
Current accident year before catastrophe losses	504			497			1		1,014			1,021			(1	)	526			510			3
Current accident year catastrophe losses	104			55			89		137			85			61		88			33			167
Prior accident years before catastrophe losses	(50		)	(40		)	(25	)	(106		)	(68		)	(56	)	(3		)	(56		)	95
Prior accident years catastrophe losses	(8		)	(2		)	(300	)	(14		)	(9		)	(56	)	(3		)	(6		)	50
Loss and loss expenses	550			510			8		1,031			1,029			0		608			481			26
Underwriting expenses	262			255			3		516			513			1		276			254			9
Underwriting profit	$	12		$	47		(74	)	$	88		$	62		42
Underwriting profit (loss)																	$	(20	)	$	76		nm

Ratios as a percent of earned premiums:							Pt. Change								Pt. Change								Pt. Change
Current accident year before catastrophe losses	61.2		%	61.3		%	(0.1	)	62.1		%	63.7		%	(1.6	)	61.0		%	63.0		%	(2.0	)
Current accident year catastrophe losses	12.7			6.8			5.9		8.4			5.3			3.1		10.2			4.1			6.1
Prior accident years before catastrophe losses	(6.1		)	(4.9		)	(1.2	)	(6.5		)	(4.2		)	(2.3	)	(0.3		)	(6.9		)	6.6
Prior accident years catastrophe losses	(1.0		)	(0.3		)	(0.7	)	(0.9		)	(0.6		)	(0.3	)	(0.4		)	(0.8		)	0.4
Loss and loss expenses	66.8			62.9			3.9		63.1			64.2			(1.1	)	70.5			59.4			11.1
Underwriting expenses	31.8			31.3			0.5		31.6			32.0			(0.4	)	32.0			31.4			0.6
Combined ratio	98.6		%	94.2		%	4.4		94.7		%	96.2		%	(1.5	)	102.5		%	90.8		%	11.7

Combined ratio	98.6		%	94.2		%	4.4		94.7		%	96.2		%	(1.5	)	102.5		%	90.8		%	11.7
Contribution from catastrophe losses and prior years reserve development	5.6			1.6			4.0		1.0			0.5			0.5		9.5			(3.6		)	13.1
Combined ratio before catastrophe losses and prior years reserve development	93.0		%	92.6		%	0.4		93.7		%	95.7		%	(2.0	)	93.0		%	94.4		%	(1.4	)

Overview

The COVID-19 pandemic did not have a significant effect on our commercial lines insurance segment premiums for the first quarter of 2020. In the last few weeks of March and the first few weeks of April, we saw a reduction in submissions from agents for us to quote premiums for policies that would be new business for us in the second quarter of 2020. At the same time, we have seen early signs of a higher ratio of quoted policies that were subsequently issued for some lines of business, which somewhat offset the decrease in submissions. Regardless of future policy submission volume, new business and renewal premium amounts could decline if the basis for policy premiums, such as sales and payrolls of businesses we insure, decrease as a result of a weakened economy. At this time, we are not able to determine other effects of the pandemic on future periods.

Loss experience for our insurance operations is influenced by many factors. We have not determined any material effect on our loss experience for the first quarter of 2020 as a result of the pandemic. Because of factors that reduce exposure to certain insurance losses, such as fewer vehicles on the road or reduced sales and payrolls for businesses, there could be a reduction in future losses that generally corresponds to reduced premiums. However, there could be losses or legal expenses that occur independent of changes in sales or payrolls of businesses we insure. At this time, we are not able to determine premium or loss effects for future periods.

Performance highlights for the commercial lines segment include:

Premiums – Earned premiums and net written premiums for the commercial lines segment ~~grew~~rose during the ~~second~~first quarter ~~and first six months~~ of ~~2019,~~2020, compared with the same ~~periods~~period a year ago, reflecting higher new business premiums and renewal written premium growth that continued to include higher average pricing. The table below analyzes the primary components of premiums. We continue to use predictive analytics tools to improve pricing precision and segmentation while leveraging our local relationships with agents through the efforts of our teams that work closely with them. We seek to maintain appropriate pricing discipline for both new and renewal business as our

agents and underwriters assess account quality to make careful decisions on a case-by-case basis whether to write or renew a policy.

Agency renewal written premiums increased by ~~1% during the second quarter and 2%~~5% during the first ~~six~~three months of ~~2019,~~2020, compared with the same ~~periods~~period of ~~2018.~~2019. During the ~~second~~first quarter of ~~2019,~~2020, our overall standard commercial lines policies averaged estimated renewal price increases at percentages in the low-single-digit range, ~~slightly~~ higher than ~~the first~~any quarter ofduring 2019. We continue to segment commercial lines policies, emphasizing identification and retention of policies we believe have relatively stronger pricing. Conversely, we have been seeking stricter renewal terms and conditions on policies we believe have relatively weaker pricing, thus retaining fewer of those policies. We measure average changes in commercial lines renewal pricing as the percentage rate of change in renewal premium for the new policy period compared with the premium for the expiring policy period, assuming no change in the level of insured exposures or policy coverage between those periods for the respective policies.

Our average overall commercial lines renewal pricing change includes the impact of flat pricing for certain coverages within package policies written for a three-year term that were in force but did not expire during the

period being measured. Therefore, our reported change in average commercial lines renewal pricing reflects a blend of three-year policies that did not expire and other policies that did expire during the measurement period. For commercial lines policies that did expire and were then renewed during the ~~second~~first quarter of ~~2019,~~2020, we estimate that our average percentage price increase for commercial auto ~~continued in~~was near the ~~high-single-digit~~high end of the mid-single-digit range. The estimated average percentage price change for our commercial property line of business was an increase in the mid-single-digit range and for commercial casualty it was an increase in the low-single-digit ~~range.~~range, both higher than in 2019. The estimated average percentage price change for workers' compensation was a decrease in the mid-single-digit range.

Renewal premiums for certain policies, primarily our commercial casualty and workers' compensation lines of business, include the results of policy audits that adjust initial premium amounts based on differences between estimated and actual sales or payroll related to a specific policy. Audits completed during the first ~~six~~three months of ~~2019~~2020 contributed ~~$37~~$18 million to net written premiums.

New business written premiums for commercial lines increased ~~$19 million and $35~~$34 million during the ~~second quarter and~~ first ~~six~~three months of ~~2019,~~2020, compared with the same ~~periods~~period of ~~2018.~~2019. The increase reflected growth for each major line of business in our commercial lines insurance ~~segment.~~segment and a higher level of submissions from our agents requesting our quote for prospective policyholders. Trend analysis for year-over-year comparisons of individual quarters is more difficult to assess for commercial lines new business written premiums, due to inherent variability. That variability is often driven by larger policies with annual premiums greater than $100,000.

Other written premiums include premiums ceded to reinsurers as part of our reinsurance ceded program. For our commercial lines insurance segment, an increase in ceded premiums reduced net written premiums by ~~$5 million and $7~~$1 million for the ~~second~~first quarter ~~and first six months~~ of ~~2019,~~2020, compared with the same ~~periods~~period of ~~2018.~~2019.

Commercial Lines Insurance Premiums


(Dollars in millions)	Three months ended June 30,								Six months ended June 30,								Three months ended March 31,
	2019			2018			% Change		2019			2018			% Change		2020			2019			% Change
Agency renewal written premiums	$	767		$	758		1		$	1,566		$	1,529		2		$	842		$	799		5
Agency new business written premiums	137			118			16		257			222			16		154			120			28
Other written premiums	(25		)	(20		)	(25	)	(48		)	(41		)	(17	)	(24		)	(23		)	(4	)
Net written premiums	879			856			3		1,775			1,710			4		972			896			8
Unearned premium change	(56		)	(44		)	(27	)	(142		)	(108		)	(31	)	(109		)	(86		)	(27	)
Earned premiums	$	823		$	812		1		$	1,633		$	1,602		2		$	863		$	810		7

Combined ratio – The commercial lines ~~second-quarter 2019~~first-quarter 2020 combined ratio ~~rose~~increased by ~~4.4~~11.7 percentage points, compared with the same period a year ago, ~~reflecting~~including an increase of 5.2 points in losses from natural catastrophes. For the first six months of 2019, the combined ratio decreased by 1.5 percentage points, compared with the same period a year ago, despite an increase of 2.86.5 points in losses from natural catastrophes. Underwriting results for ~~both periods~~the three-month period included a ~~higher~~lower level of favorable reserve development on prior accident years ~~in addition to~~that offset better loss experience for the current accident year.

The current accident year loss and loss expenses before catastrophe losses ratio for commercial lines improved in the first ~~six~~three months of ~~2019.~~2020. That ~~62.1%~~61.0% ratio was ~~1.6~~2.0 percentage points lower, compared with

the ~~63.7%~~63.0% accident year ~~2018~~2019 ratio measured as of ~~June 30, 2018,~~March 31, 2019, including ~~a decrease~~an increase of ~~0.9~~0.8 percentage points in the ratio for large losses of $1 million or more per claim, discussed below.

Catastrophe losses and loss expenses accounted for ~~11.7 and 7.5~~9.8 percentage points of the combined ratio for the ~~second~~first quarter ~~and first six months~~ of ~~2019,~~2020, compared with ~~6.5 and 4.7~~3.3 percentage points for the same ~~periods~~period a year ago. Through ~~2018,~~2019, the 10-year annual average for that catastrophe measure for the commercial lines segment was ~~5.4~~5.2 percentage points, and the five-year annual average was ~~5.1~~5.5 percentage points.

The net effect of reserve development on prior accident years during the ~~second~~first quarter ~~and first six months~~ of ~~2019~~2020 was favorable for commercial lines overall by ~~$58 million and $120~~$6 million, compared with ~~$42 million and $77~~$62 million for the same ~~periods~~period in ~~2018.~~2019. For the first ~~six~~three months of ~~2019,~~2020, our commercial casualty and workers' compensation lines of business were the largest contributors to the total commercial lines net favorable reserve development on prior accident ~~years, representing approximately 80% of the total.~~years. The net favorable reserve development recognized during the first ~~six~~three months of ~~2019~~2020 for our commercial lines insurance segment was

~~largely~~ primarily for accident years ~~2016 through~~2019 and 2018 and was primarily due to lower-than-anticipated loss emergence on known claims. Reserve estimates are inherently uncertain as described in our ~~2018~~2019 Annual Report on Form 10-K, Item 7, Critical Accounting Estimates, Property Casualty Insurance Loss and Loss Expense Reserves, Page ~~54.~~56.

The commercial lines underwriting expense ratio increased for the ~~second~~first quarter ~~and decreased for the first six months~~ of ~~2019,~~2020, compared with the same ~~periods~~period a year ~~ago.~~ago, largely due to higher employee-related expenses and premium taxes. The ~~ratios for both 2019 periods are within 0.1 percentage points of our full-year 2018~~ ratio ~~and reflect~~also reflects ongoing expense management efforts and higher earned premiums.

Commercial Lines Insurance Losses Incurred by Size


(Dollars in millions, net of reinsurance)	Three months ended June 30,								Six months ended June 30,								Three months ended March 31,
	2019			2018			% Change		2019			2018			% Change		2020			2019			% Change
Current accident year losses greater than $5 million	$	14		$	6		133		$	14		$	21		(33	)	$	—		$	—		nm
Current accident year losses $1 million - $5 million	41			51			(20	)	68			73			(7	)	36			26			38
Large loss prior accident year reserve development	3			1			200		16			30			(47	)	22			13			69
Total large losses incurred	58			58			—		98			124			(21	)	58			39			49
Losses incurred but not reported	(7		)	53			nm		36			69			(48	)	58			43			35
Other losses excluding catastrophe losses	320			247			30		605			572			6		298			286			4
Catastrophe losses	94			51			84		119			73			63		82			25			228
Total losses incurred	$	465		$	409		14		$	858		$	838		2		$	496		$	393		26

Ratios as a percent of earned premiums:							Pt. Change								Pt. Change								Pt. Change
Current accident year losses greater than $5 million	1.7		%	0.7		%	1.0		0.9		%	1.3		%	(0.4	)	—		%	—		%	—
Current accident year losses $1 million - $5 million	5.0			6.2			(1.2	)	4.1			4.6			(0.5	)	4.1			3.3			0.8
Large loss prior accident year reserve development	0.4			0.2			0.2		1.0			1.8			(0.8	)	2.6			1.6			1.0
Total large loss ratio	7.1			7.1			0.0		6.0			7.7			(1.7	)	6.7			4.9			1.8
Losses incurred but not reported	(0.9		)	6.5			(7.4	)	2.2			4.3			(2.1	)	6.8			5.4			1.4
Other losses excluding catastrophe losses	38.9			30.4			8.5		37.0			35.7			1.3		34.5			35.1			(0.6	)
Catastrophe losses	11.4			6.3			5.1		7.3			4.6			2.7		9.5			3.1			6.4
Total loss ratio	56.5		%	50.3		%	6.2		52.5		%	52.3		%	0.2		57.5		%	48.5		%	9.0

We continue to monitor new losses and case reserve increases greater than $1 million for trends in factors such as initial reserve levels, loss cost inflation and claim settlement expenses. Our analysis continues to indicate no unexpected concentration of these large losses and case reserve increases by risk category, geographic region, policy inception, agency or field marketing territory. The ~~second-quarter 2019~~first-quarter 2020 commercial lines total large losses incurred of $58 million, net of reinsurance, were lower than the quarterly average of ~~$71~~$65 million during full-year ~~2018 and matched~~2019 but higher than the ~~$58~~$39 million total large losses incurred for the ~~second~~first quarter of ~~2018.~~2019. The ~~decrease~~increase in commercial lines large losses for the first ~~six~~three months of ~~2019~~2020 was primarily due to our commercial casualty line of business. The ~~second-quarter 2019~~first-quarter 2020 ratio for commercial lines total large losses ~~matched~~was 1.8 percentage points higher than last year's ~~second-quarter~~first-quarter ratio. The second-quarter 2019 amount of total large losses incurred helped contribute to the decrease in the six-month 2019 total large loss ratio, compared with 2018, in addition to a first-quarter 2019 ratio that was 3.5 points lower than the first quarter of 2018. We believe results for the ~~three- and six-month periods~~three-month period largely reflected normal fluctuations in loss patterns and normal variability in large case reserves for claims above $1 million.

PERSONAL LINES INSURANCE RESULTS


(Dollars in millions)	Three months ended June 30,								Six months ended June 30,								Three months ended March 31,
	2019			2018			% Change		2019			2018			% Change		2020			2019			% Change
Earned premiums	$	348		$	331		5		$	692		$	656		5		$	359		$	344		4
Fee revenues	1			2			(50	)	2			3			(33	)	1			1			0
Total revenues	349			333			5		694			659			5		360			345			4
Loss and loss expenses from:
Current accident year before catastrophe losses	216			220			(2	)	425			430			(1	)	216			209			3
Current accident year catastrophe losses	38			32			19		76			61			25		43			38			13
Prior accident years before catastrophe losses	(11		)	15			nm		(16		)	14			nm		(23		)	(5		)	(360	)
Prior accident years catastrophe losses	(3		)	2			nm		5			2			150		(5		)	8			nm
Loss and loss expenses	240			269			(11	)	490			507			(3	)	231			250			(8	)
Underwriting expenses	104			96			8		203			193			5		108			99			9
Underwriting profit (loss)	$	5		$	(32	)	nm		$	1		$	(41	)	nm		$	21		$	(4	)	nm

Ratios as a percent of earned premiums:							Pt. Change								Pt. Change								Pt. Change
Current accident year before catastrophe losses	62.1		%	66.6		%	(4.5	)	61.4		%	65.5		%	(4.1	)	60.0		%	60.6		%	(0.6	)
Current accident year catastrophe losses	11.0			9.6			1.4		10.9			9.3			1.6		12.0			10.9			1.1
Prior accident years before catastrophe losses	(3.2		)	4.3			(7.5	)	(2.3		)	2.1			(4.4	)	(6.5		)	(1.4		)	(5.1	)
Prior accident years catastrophe losses	(1.0		)	0.6			(1.6	)	0.7			0.3			0.4		(1.3		)	2.4			(3.7	)
Loss and loss expenses	68.9			81.1			(12.2	)	70.7			77.2			(6.5	)	64.2			72.5			(8.3	)
Underwriting expenses	30.0			29.0			1.0		29.4			29.5			(0.1	)	30.1			28.8			1.3
Combined ratio	98.9		%	110.1		%	(11.2	)	100.1		%	106.7		%	(6.6	)	94.3		%	101.3		%	(7.0	)

Combined ratio	98.9		%	110.1		%	(11.2	)	100.1		%	106.7		%	(6.6	)	94.3		%	101.3		%	(7.0	)
Contribution from catastrophe losses and prior years reserve development	6.8			14.5			(7.7	)	9.3			11.7			(2.4	)	4.2			11.9			(7.7	)
Combined ratio before catastrophe losses and prior years reserve development	92.1		%	95.6		%	(3.5	)	90.8		%	95.0		%	(4.2	)	90.1		%	89.4		%	0.7

Overview

The COVID-19 pandemic did not have a significant effect on our personal lines insurance segment premiums for the first quarter of 2020. In the last few weeks of March and the first few weeks of April, we saw a reduction in submissions from agents for us to quote premiums for policies that would be new business for us in the second quarter of 2020. Early in the second quarter of 2020, we announced a 15% policyholder credit applied to each personal auto policy for the months of April and May, for an estimated aggregate amount of $16 million. At this time, we are not able to determine other effects of the pandemic on future periods.

Loss experience for our insurance operations is influenced by many factors. We have not determined any material effect on our loss experience for the first quarter of 2020 as a result of the pandemic. Because of factors that reduce exposure to certain insurance losses, there could be a reduction in future losses that generally corresponds to reduced premiums. For example, we saw a reduction in personal auto reported claims as a result of reduced driving in late March and early April. However, there could be losses or legal expenses that occur independent of changes in miles driven for autos we insure. At this time, we are not able to determine premium or loss effects for future periods.

Performance highlights for the personal lines segment include:

Premiums – Personal lines earned premiums and net written premiums continued to grow during the ~~second~~first quarter ~~and first six months~~ of ~~2019, primarily due to~~2020, driven by increases in agency renewal written premiums reflecting higher average pricing. Personal lines net written premiums from high net worth policies totaled approximately ~~$116 million and $193~~$101 million for the ~~second~~first quarter ~~and first six months~~ of ~~2019,~~2020, compared with ~~$86 million and $150~~$77 million for the same ~~periods~~period of ~~2018.~~2019. The table below analyzes the primary components of premiums.

Agency renewal written premiums increased 7%4% for ~~both~~ the ~~second~~first quarter ~~and first six months~~ of ~~2019,~~2020, largely due to rate increases in select states. We estimate that premium rates for our personal auto line of business increased at average percentages in the ~~high-single-digit~~mid-single-digit range during the first ~~six~~three months of ~~2019.~~2020. For our homeowner line of business, we estimate that premium rates for the first ~~six~~three months of ~~2019~~2020 increased at average percentages in the mid-single-digit ~~range.~~range, higher than in 2019. For both our personal auto and homeowner lines of business, some individual policies experienced lower or higher rate changes based on each risk's specific characteristics and enhanced pricing precision enabled by predictive models.

Personal lines new business written premiums ~~increased by 2% during the second quarter of 2019 and~~ decreased by 4%3% during the first ~~six~~three months of ~~2019,~~2020, compared with the same ~~periods~~period of ~~2018,~~2019, reflecting underwriting and pricing discipline, particularly in select states.

Other written premiums include premiums ceded to reinsurers as part of our reinsurance ceded program. For our personal lines insurance segment, an increase in ceded premiums reduced net written premiums by ~~$3 million and $5~~less than $1 million for the ~~second~~first quarter ~~and first six months~~ of ~~2019,~~2020, compared with the same ~~periods~~period of ~~2018.~~

2019.

We continue to implement strategies discussed in our ~~2018~~2019 Annual Report on Form 10-K, Item 1, Strategic Initiatives, Page ~~14,~~15, to enhance our responsiveness to marketplace changes and to help achieve our long-term objectives for personal lines growth and profitability. These strategies include initiatives to more profitably underwrite ~~personal auto~~homeowner policies.

Personal Lines Insurance Premiums


(Dollars in millions)	Three months ended June 30,								Six months ended June 30,								Three months ended March 31,
	2019			2018			% Change		2019			2018			% Change		2020			2019			% Change
Agency renewal written premiums	$	365		$	342		7		$	647		$	606		7		$	294		$	282		4
Agency new business written premiums	47			46			2		82			85			(4	)	34			35			(3	)
Other written premiums	(10		)	(7		)	(43	)	(18		)	(13		)	(38	)	(9		)	(8		)	(13	)
Net written premiums	402			381			6		711			678			5		319			309			3
Unearned premium change	(54		)	(50		)	(8	)	(19		)	(22		)	14		40			35			14
Earned premiums	$	348		$	331		5		$	692		$	656		5		$	359		$	344		4

Combined ratio – Our personal lines combined ratio improved for the ~~second~~first quarter ~~and first six months~~ of ~~2019,~~2020, compared with the same ~~periods~~period a year ago. The first-quarter improvement ~~was primarily due to~~reflected better experience in the ratio for current accident year loss and loss expenses before catastrophe losses and favorable reserve development on prior accident years. ~~That improvement offset a ratio for weather-related natural catastrophe losses and loss expenses that was 2.0 percentage points worse for the first six months of 2019.~~

The current accident year loss and loss expenses before catastrophe losses ratio for personal lines improved in the first ~~six~~three months of ~~2019.~~2020. That ~~61.4%~~60.0% ratio was ~~4.1~~0.6 percentage points lower, compared with the ~~65.5%~~60.6% accident year ~~2018~~2019 ratio measured as of ~~June 30, 2018,~~March 31, 2019, including ~~a decrease~~an increase of ~~0.4~~0.7 percentage ~~point~~points in the ratio for large losses of $1 million or more per claim, discussed below.

Catastrophe losses and loss expenses accounted for ~~10.0 and 11.6~~10.7 percentage points of the combined ratio for the ~~second~~first quarter ~~and first six months~~ of ~~2019,~~2020, compared with ~~10.2 and 9.6~~13.3 percentage points for the same ~~periods~~period of last year. ~~Through 2018, the~~The 10-year annual average catastrophe loss ratio for the personal lines segment through 2019 was ~~10.9~~10.1 percentage points, and the five-year annual average was ~~8.9~~10.5 percentage points.

In addition to the average rate increases discussed above, we continue to refine our pricing to better match premiums to the risk of loss on individual policies. Improved pricing precision and broad-based rate increases are expected to help position the combined ratio at a profitable level over the long term. In addition, greater geographic diversification is expected to reduce the volatility of homeowner loss ratios attributable to weather-related catastrophe losses over time.

Our homeowner line of business, representing ~~42%~~43% of our ~~2018~~2019 personal lines earned premiums, was the only major line in this segment with a ~~six-month 2019~~first-quarter 2020 total loss and loss expense ratio before catastrophe losses significantly higher than we desired, although it improved compared with the prior-year period. ~~Its catastrophe loss experience has been elevated in recent quarters, in part due to wildfire losses that have affected much of the property casualty industry.~~ In recent quarters, our homeowner policies have experienced average renewal price increases at percentages ~~near the high end of~~in the mid-single-digit range. We believe rate increases and other actions to improve pricing precision and reduce loss costs will improve future profitability.

The net effect of reserve development on prior accident years during the ~~second~~first quarter ~~and first six months~~ of ~~2019~~2020 was favorable for personal lines overall by ~~$14 million and $11~~$28 million, compared with $3 million of unfavorable net reserve development ~~of $17 million and $16 million~~ for the ~~same periods~~first three months of ~~2018.~~2019. Our homeowner and personal auto ~~line~~lines of business ~~was~~were the largest ~~contributor~~contributors to the ~~2019~~2020 total personal lines net favorable reserve development on prior accident ~~years, partially offset by net unfavorable reserve development for our homeowner line of business.~~years. The net favorable reserve development was primarily due to lower-than-anticipated loss emergence on known claims. Reserve estimates are inherently uncertain as described in our ~~2018~~2019 Annual Report on Form 10-K, Item 7, Critical Accounting Estimates, Property Casualty Insurance Loss and Loss Expense Reserves, Page ~~54.~~56.

The underwriting expense ratio increased for the ~~second~~first quarter ~~and decreased for the first six months~~ of ~~2019,~~2020, compared with the same ~~periods~~period a year ~~ago.~~ago, largely due higher employee-related expenses and premium taxes. The ratio ~~for both periods~~also reflects ongoing expense management efforts and higher earned premiums. ~~The six-month 2019 ratio is within 0.3 percentage points of our full-year 2018 ratio.~~

Personal Lines Insurance Losses Incurred by Size


(Dollars in millions, net of reinsurance)	Three months ended June 30,								Six months ended June 30,								Three months ended March 31,
	2019			2018			% Change		2019			2018			% Change		2020			2019			% Change
Current accident year losses greater than $5 million	$	—		$	—		nm		$	—		$	—		nm		$	—		$	—		nm
Current accident year losses $1 million - $5 million	10			11			(9	)	19			21			(10	)	12			10			20
Large loss prior accident year reserve development	1			3			(67	)	3			8			(63	)	5			2			150
Total large losses incurred	11			14			(21	)	22			29			(24	)	17			12			42
Losses incurred but not reported	(4		)	31			nm		—			30			(100	)	24			4			500
Other losses excluding catastrophe losses	167			157			6		330			324			2		127			163			(22	)
Catastrophe losses	34			33			3		79			62			27		38			45			(16	)
Total losses incurred	$	208		$	235		(11	)	$	431		$	445		(3	)	$	206		$	224		(8	)

Ratios as a percent of earned premiums:							Pt. Change								Pt. Change								Pt. Change
Current accident year losses greater than $5 million	—		%	—		%	0.0		—		%	—		%	0.0		—		%	—		%	0.0
Current accident year losses $1 million - $5 million	2.8			3.5			(0.7	)	2.8			3.2			(0.4	)	3.5			2.8			0.7
Large loss prior accident year reserve development	0.3			0.8			(0.5	)	0.4			1.2			(0.8	)	1.3			0.6			0.7
Total large loss ratio	3.1			4.3			(1.2	)	3.2			4.4			(1.2	)	4.8			3.4			1.4
Losses incurred but not reported	(1.1		)	9.4			(10.5	)	(0.1		)	4.6			(4.7	)	6.6			1.0			5.6
Other losses excluding catastrophe losses	48.0			47.3			0.7		47.8			49.4			(1.6	)	35.3			47.4			(12.1	)
Catastrophe losses	9.7			10.0			(0.3	)	11.4			9.4			2.0		10.5			13.1			(2.6	)
Total loss ratio	59.7		%	71.0		%	(11.3	)	62.3		%	67.8		%	(5.5	)	57.2		%	64.9		%	(7.7	)

We continue to monitor new losses and case reserve increases greater than $1 million for trends in factors such as initial reserve levels, loss cost inflation and claim settlement expenses. Our analysis continues to indicate no unexpected concentration of these large losses and case reserve increases by risk category, geographic region, policy inception, agency or field marketing territory. In the ~~second~~first quarter of ~~2019,~~2020, the personal lines total large loss ratio, net of reinsurance, was ~~1.2~~1.4 percentage points ~~lower~~higher than last year's ~~second~~first quarter. The ~~decrease~~increase in personal lines large losses for the first ~~six~~three months of ~~2019~~2020 occurred primarily for umbrella coverage in our ~~homeowner and~~ other personal ~~lines~~line of business. The second-quarter 2019 amount of total large losses incurred helped contribute to the decrease in the six-month 2019 total large loss ratio, compared with 2018, in addition to a first-quarter 2019 ratio that was 1.2 points lower than the first quarter of 2018. We believe results for the ~~three- and six-month periods~~three-month period largely reflected normal fluctuations in loss patterns and normal variability in large case reserves for claims above $1 million.

EXCESS AND SURPLUS LINES INSURANCE RESULTS


(Dollars in millions)	Three months ended June 30,								Six months ended June 30,								Three months ended March 31,
	2019			2018			% Change		2019			2018			% Change		2020			2019			% Change
Earned premiums	$	67		$	57		18		$	130		$	113		15		$	78		$	63		24
Fee revenues	—			1			nm		1			1			0		1			1			0
Total revenues	67			58			16		131			114			15		79			64			23

Loss and loss expenses from:
Current accident year before catastrophe losses	34			33			3		69			63			10		44			35			26
Current accident year catastrophe losses	—			—			0		—			1			nm		—			—			0
Prior accident years before catastrophe losses	(5		)	(4		)	(25	)	(7		)	(14		)	50		1			(2		)	nm
Prior accident years catastrophe losses	—			—			0		—			—			0		—			—			0
Loss and loss expenses	29			29			0		62			50			24		45			33			36
Underwriting expenses	21			16			31		41			33			24		25			20			25
Underwriting profit	$	17		$	13		31		$	28		$	31		(10	)	$	9		$	11		(18	)

Ratios as a percent of earned premiums:							Pt. Change								Pt. Change								Pt. Change
Current accident year before catastrophe losses	50.8		%	56.9		%	(6.1	)	53.1		%	55.8		%	(2.7	)	55.7		%	55.5		%	0.2
Current accident year catastrophe losses	0.7			1.0			(0.3	)	0.5			1.4			(0.9	)	0.5			0.3			0.2
Prior accident years before catastrophe losses	(6.2		)	(9.6		)	3.4		(5.2		)	(13.3		)	8.1		0.7			(4.2		)	4.9
Prior accident years catastrophe losses	(0.2		)	0.2			(0.4	)	(0.1		)	0.1			(0.2	)	0.5			(0.1		)	0.6
Loss and loss expenses	45.1			48.5			(3.4	)	48.3			44.0			4.3		57.4			51.5			5.9
Underwriting expenses	31.0			29.1			1.9		31.4			29.3			2.1		31.7			32.0			(0.3	)
Combined ratio	76.1		%	77.6		%	(1.5	)	79.7		%	73.3		%	6.4		89.1		%	83.5		%	5.6

Combined ratio	76.1		%	77.6		%	(1.5	)	79.7		%	73.3		%	6.4		89.1		%	83.5		%	5.6
Contribution from catastrophe losses and prior years reserve development	(5.7		)	(8.4		)	2.7		(4.8		)	(11.8		)	7.0		1.7			(4.0		)	5.7
Combined ratio before catastrophe losses and prior years reserve development	81.8		%	86.0		%	(4.2	)	84.5		%	85.1		%	(0.6	)	87.4		%	87.5		%	(0.1	)

Overview

The COVID-19 pandemic did not have a significant effect on our excess and surplus lines insurance segment premiums for the first quarter of 2020. In the last few weeks of March and the first few weeks of April, we saw a reduction in submissions from agents for us to quote premiums for policies that would be new business for us in the second quarter of 2020. Regardless of future policy submission volume, new business and renewal premium amounts could decline if the basis for policy premiums, such as sales and payrolls of businesses we insure, decrease as a result of a weakened economy. At this time, we are not able to determine other effects of the pandemic on future periods.

Loss experience for our insurance operations is influenced by many factors. We have not determined any material effect on our loss experience for the first quarter of 2020 as a result of the pandemic. Because of factors that reduce exposure to certain insurance losses, such as reduced sales for businesses, there could be a reduction in future losses that generally corresponds to reduced premiums. However, there could be losses or legal expenses that occur independent of changes in sales of businesses we insure. At this time, we are not able to determine premium or loss effects for future periods.

Performance highlights for the excess and surplus lines segment include:

Premiums – Excess and surplus lines net written premiums continued to grow during the ~~second~~first quarter ~~and first six months~~ of ~~2019,~~2020, compared with the same ~~periods~~period a year ago, primarily due to an increase in ~~new business~~agency renewal written premiums. ~~Agency renewal~~Renewal written premiums ~~also grew.~~rose 27% for the three months ended March 31, 2020, compared with the same period of 2019, reflecting the opportunity to renew many accounts for the first time, as well as higher renewal pricing. For the first ~~six~~three months of ~~2019,~~2020, excess and surplus lines policy renewals experienced estimated average price increases at percentages in the ~~low-single-digit~~mid-single-digit range. We measure average changes in excess

and surplus lines renewal pricing as the percentage rate of change in renewal premium for the new policy period compared with the premium for the expiring policy period, assuming no change in the level of insured exposures or policy coverage between those periods for respective policies.

New business written premiums produced by agencies increased by ~~$11 million for the second quarter and $21~~$1 million for the first ~~six~~three months of ~~2019,~~2020, compared with the same ~~periods~~period of ~~2018. We believe the unusually large increases reflect more opportunities~~2019, as we continued to carefully underwrite each policy in ~~the marketplace for insurance companies to obtain higher premium rates, plus our additional marketing efforts.~~a highly competitive market. Some of what we report as new business came from accounts that were not new to our agents. We believe our agents' seasoned accounts tend to be priced more accurately than business that may be less familiar to them.

Excess and Surplus Lines Insurance Premiums


(Dollars in millions)	Three months ended June 30,								Six months ended June 30,								Three months ended March 31,
	2019			2018			% Change		2019			2018			% Change		2020			2019			% Change
Agency renewal written premiums	$	54		$	50		8		$	103		$	98		5		$	62		$	49		27
Agency new business written premiums	28			17			65		54			33			64		27			26			4
Other written premiums	(4		)	(3		)	(33	)	(8		)	(6		)	(33	)	(4		)	(4		)	0
Net written premiums	78			64			22		149			125			19		85			71			20
Unearned premium change	(11		)	(7		)	(57	)	(19		)	(12		)	(58	)	(7		)	(8		)	13
Earned premiums	$	67		$	57		18		$	130		$	113		15		$	78		$	63		24

Combined ratio – The excess and surplus lines combined ratio ~~decreased~~increased by ~~1.5~~5.6 percentage points for the ~~second~~first quarter of ~~2019 and increased by 6.4 points for the first six months,~~2020, compared with the same ~~periods~~period of ~~2018.~~2019. The ~~six-month 2019~~ increase was primarily due to less favorable reserve development on prior accident years.

The current accident year loss and loss expenses before catastrophe losses ratio for excess and surplus lines ~~improved~~increased slightly in the first ~~six~~three months of ~~2019.~~2020. That ~~53.1%~~55.7% ratio was ~~2.7~~0.2 percentage points ~~lower,~~higher, compared with the ~~55.8%~~55.5% accident year ~~2018~~2019 ratio measured as of ~~June 30, 2018, despite~~March 31, 2019, including an increase of ~~2.4~~1.0 percentage ~~points~~point in the ratio for large losses of $1 million or more per claim, discussed below.

Excess and surplus lines net ~~favorable~~ reserve development on prior accident years, as a ratio to earned premiums, was ~~6.4% and 5.3%~~an unfavorable 1.2% for the ~~second~~first quarter ~~and first six months~~ of ~~2019,~~2020, compared with ~~9.4% and 13.2%~~favorable net reserve development of 4.3% for the same ~~periods~~period of ~~2018.~~2019. The 2020 net ~~favorable~~unfavorable reserve development recognized during the first ~~six~~three months of ~~2019~~2020 was ~~primarily attributable to accident year 2018 and primarily~~ due to ~~lower-than-anticipated loss emergence on known claims.~~an unfavorable 2.9% ratio for defense and cost containment expenses, which was 3.2 percentage points higher than the same period in 2019, including 2.8 points for IBNR reserves and 0.4 points for the paid portion of those expenses. Reserve estimates are inherently uncertain as described in our ~~2018~~2019 Annual Report on Form 10-K, Item 7, Critical Accounting Estimates, Property Casualty Insurance Loss and Loss Expense Reserves, Page ~~54.~~56.

The excess and surplus lines underwriting expense ratio for the ~~second~~first quarter ~~and first six months~~ of ~~2019 increased,~~2020 decreased, compared with the same ~~periods~~period of ~~2018, primarily due~~2019, as we continued to ~~higher internal expense allocations that offset~~see higher earned premiums and ongoing expense management efforts.

Excess and Surplus Lines Insurance Losses Incurred by Size


(Dollars in millions, net of reinsurance)	Three months ended June 30,								Six months ended June 30,								Three months ended March 31,
	2019			2018			% Change		2019			2018			% Change		2020			2019			% Change
Current accident year losses greater than $5 million	$	—		$	—		nm		$	—		$	—		nm		$	—		$	—		nm
Current accident year losses $1 million - $5 million	2			—			nm		3			—			nm		2			1			100
Large loss prior accident year reserve development	1			—			nm		2			—			nm		(1		)	1			nm
Total large losses incurred	3			—			nm		5			—			nm		1			2			(50	)
Losses incurred but not reported	(3		)	3			nm		(3		)	(2		)	(50	)	(3		)	—			nm
Other losses excluding catastrophe losses	18			17			6		36			31			16		29			19			53
Catastrophe losses	—			—			nm		1			1			—		1			—			nm
Total losses incurred	$	18		$	20		(10	)	$	39		$	30		30		$	28		$	21		33

Ratios as a percent of earned premiums:							Pt. Change								Pt. Change								Pt. Change
Current accident year losses greater than $5 million	—		%	—		%	0.0		—		%	—		%	0.0		—		%	—		%	0.0
Current accident year losses $1 million - $5 million	3.0			—			3.0		2.4			—			2.4		2.6			1.6			1.0
Large loss prior accident year reserve development	1.5			(0.2		)	1.7		1.3			(0.3		)	1.6		(1.5		)	1.2			(2.7	)
Total large loss ratio	4.5			(0.2		)	4.7		3.7			(0.3		)	4.0		1.1			2.8			(1.7	)
Losses incurred but not reported	(4.5		)	4.5			(9.0	)	(1.9		)	(2.1		)	0.2		(4.4		)	0.8			(5.2	)
Other losses excluding catastrophe losses	26.7			28.6			(1.9	)	27.9			27.4			0.5		37.8			29.1			8.7
Catastrophe losses	0.5			1.0			(0.5	)	0.3			1.4			(1.1	)	0.9			0.2			0.7
Total loss ratio	27.2		%	33.9		%	(6.7	)	30.0		%	26.4		%	3.6		35.4		%	32.9		%	2.5

LIFE INSURANCE RESULTS


(Dollars in millions)	Three months ended June 30,								Six months ended June 30,								Three months ended March 31,
	2019			2018			% Change		2019			2018			% Change		2020			2019			% Change
Earned premiums	$	67		$	64		5		$	133		$	124		7		$	67		$	66		2
Fee revenues	1			1			0		2			2			0		—			1			(100	)
Total revenues	68			65			5		135			126			7		67			67			0
Contract holders' benefits incurred	73			62			18		143			125			14		73			70			4
Investment interest credited to contract holders'	(25		)	(24		)	(4	)	(49		)	(48		)	(2	)	(26		)	(24		)	(8	)
Underwriting expenses incurred	22			19			16		44			39			13		18			22			(18	)
Total benefits and expenses	70			57			23		138			116			19		65			68			(4	)
Life insurance segment profit (loss)	$	(2	)	$	8		nm		$	(3	)	$	10		nm		$	2		$	(1	)	nm

Overview

The COVID-19 pandemic did not have a significant effect on our life insurance segment premiums, benefits or expenses for the first quarter of 2020. However, higher rates of unemployment related to the pandemic could decrease premiums of our life insurance products and cause an increase in policy surrender activity. Specifically, worksite premiums, which originate from enrollments at the workplace, will be negatively impacted in future periods as enrollment activity has been curtailed. At this time, we are not able to determine other premium, benefit or expense effects for future periods, but we may experience higher than projected future death claims due to the pandemic.

Performance highlights for the life insurance segment include:

Revenues – Revenues increased for the ~~six~~three months ended ~~June 30, 2019,~~March 31, 2020, compared with the same period a year ago, primarily due to higher earned premiums from term life insurance, our largest life insurance product line.

Net in-force life insurance policy face amounts increased to ~~$68.311~~$71.044 billion at ~~June 30, 2019,~~March 31, 2020, from ~~$66.142~~$69.984 billion at year-end ~~2018.~~2019.

Fixed annuity deposits received for the three ~~and six~~ months ended ~~June 30, 2019,~~March 31, 2020, were ~~$13 million and $20~~$11 million, compared with ~~$9 million and $16~~$7 million for the same ~~periods~~period of ~~2018.~~2019. Fixed annuity deposits have a minimal impact to earned premiums because deposits received are initially recorded as liabilities. Profit is earned over time by way of interest-rate spreads. We do not write variable or equity-indexed annuities.

Life Insurance Premiums


(Dollars in millions)	Three months ended June 30,						Six months ended June 30,					Three months ended March 31,
	2019		2018		% Change		2019		2018		% Change	2020		2019		% Change
Term life insurance	$	47	$	44	7		$	92	$	85	8	$	47	$	45	4
Universal life insurance	10		9		11		20		18		11	8		10		(20	)
Other life insurance and annuity products	10		11		(9	)	21		21		0	12		11		9
Net earned premiums	$	67	$	64	5		$	133	$	124	7	$	67	$	66	2

Profitability – Our life insurance segment typically reports a small profit or loss on a GAAP basis because profits from investment income spreads are included in our investment segment results. We include only investment income credited to contract holders (including interest assumed in life insurance policy reserve calculations) in our life insurance segment results. A ~~loss~~profit of $3$2 million for our life insurance segment in the first ~~six~~three months of ~~2019,~~2020, compared with a ~~gain~~loss of ~~$10~~$1 million for the same period of ~~2018,~~2019, was primarily due to ~~increased~~higher earned premiums and improved mortality ~~expense and less favorable effects from the unlocking of actuarial assumptions.~~results.

Life insurance segment benefits and expenses consist principally of contract holders' (policyholders') benefits incurred related to traditional life and interest-sensitive products and operating expenses incurred, net of deferred acquisition costs. Total benefits ~~increased~~decreased in the first ~~six~~three months of ~~2019.~~2020. Life policy and investment

contract reserves increased with continued growth in net in-force life insurance policy face amounts. Mortality results ~~increased,~~decreased slightly, compared with the same period of ~~2018,~~2019, and were ~~higher than~~below our ~~2019~~2020 projections.

Underwriting expenses for the first ~~six~~three months of ~~2019 increased~~2020 decreased compared with the same period a year ago. For the first ~~six~~three months of 2020, unlocking of interest rate actuarial assumptions increased the amount of expenses deferred to future periods, decreasing underwriting expenses. For the first three months of 2019, unlocking of interest rate actuarial assumptions decreased the amount of expenses deferred to future periods, increasing underwriting ~~expenses more than occurred in the same period a year ago.~~

expenses.

We recognize that assets under management, capital appreciation and investment income are integral to evaluating the success of the life insurance segment because of the long duration of life products. On a basis that includes investment income and investment gains or losses from life-insurance-related invested assets, the life insurance company reported a net ~~income~~loss of ~~$8 million and $18~~$13 million for the three ~~and six~~ months ended ~~June 30, 2019,~~March 31, 2020, compared with net income of ~~$17 million and $30~~$10 million for the same ~~periods~~period of ~~2018.~~2019. The life insurance company portfolio had net after-tax investment losses of ~~less than $1 million and $1~~$25 million for the three ~~and six~~ months ended ~~June 30, 2019,~~March 31, 2020, compared with ~~less than~~ $1 million of net after-tax investment losses for the three ~~and six~~ months ended ~~June 30, 2018.~~March 31, 2019. The increased after-tax investment losses for the three months ended March 31, 2020 were due to impairments of fixed-maturity securities.

INVESTMENTS RESULTS

Overview

The investments segment contributes investment income and investment gains and losses to results of operations. Investments traditionally are our primary source of pretax and after-tax profits. The effects from the COVID-19 pandemic were a major contributor to the first-quarter 2020 decrease in fair values of securities discussed below in Total Investment Gains and Losses. Our fixed-maturity and equity portfolios experienced a decrease in valuation in large part due to the volatility and economic uncertainty caused by the coronavirus outbreak, affecting various sectors of our portfolio. Already low oil prices and the sudden demand drop in related products due to governmental regulations, such as shelter-in-place orders, contributed to the energy sector accounting for most of the write-downs of impaired securities in the tables below.

Investment Income

Pretax investment income increased 4%5% for ~~both~~ the ~~three and six months ended June 30, 2019,~~first quarter of 2020, compared with the same ~~periods~~period of ~~2018.~~2019. Interest income ~~was essentially flat, reflecting~~increased by $1 million as net purchases of fixed-maturity securities ~~that~~in recent quarters generally offset the continuing effects of the low interest rate environment. Higher dividend income reflected rising dividend rates and net purchases of equity securities in recent quarters.

Investments Results


(Dollars in millions)	Three months ended June 30,								Six months ended June 30,								Three months ended March 31,
	2019			2018			% Change		2019			2018			% Change		2020			2019			% Change
Total investment income, net of expenses	$	160		$	154		4		$	317		$	304		4		$	165		$	157		5
Investment interest credited to contract holders'	(25		)	(24		)	(4	)	(49		)	(48		)	(2	)	(26		)	(24		)	(8	)
Investment gains and losses, net	364			105			247		1,027			(86		)	nm		(1,725		)	663			nm
Investments profit, pretax	$	499		$	235		112		$	1,295		$	170		nm
Investments profit (loss), pretax																	$	(1,586	)	$	796		nm

We continue to position our portfolio considering both the challenges presented by the current low interest rate environment and the risks presented by potential future inflation. As bonds in our generally laddered portfolio mature or are called over the near term, we will be challenged to replace their current yield. The table below shows the average pretax yield-to-amortized cost associated with expected principal redemptions for our fixed-maturity portfolio. The expected principal redemptions are based on par amounts and include dated maturities, calls and prefunded municipal bonds that we expect will be called during each respective time period.

(Dollars in millions) % Yield Principal redemptions
At June 30, 2019
Fixed-maturity pretax yield profile:
Expected to mature during the remainder of 2019 5.15 $ 260
Expected to mature during 2020 4.61 634
Expected to mature during 2021 4.33 991
Average yield and total expected maturities from the remainder of 2019 through 2021 4.54 $ 1,885



(Dollars in millions)	% Yield		Principal redemptions
At March 31, 2020	% Yield		Principal redemptions
Fixed-maturity pretax yield profile:
Expected to mature during the remainder of 2020	4.46	%	$	402
Expected to mature during 2021	4.36		907
Expected to mature during 2022	4.11		931
Average yield and total expected maturities from the remainder of 2020 through 2022	4.28		$	2,240

The table below shows the average pretax yield-to-amortized cost for fixed-maturity securities acquired during the periods indicated. The average yield for total fixed-maturity securities acquired during the first ~~six~~three months of ~~2019~~2020 was ~~higher~~lower than the ~~4.20%~~4.10% average yield-to-amortized cost of the fixed-maturity securities portfolio at the end of ~~2018.~~2019. Our fixed-maturity portfolio's average yield of ~~4.13%~~4.04% for the first ~~six~~three months of ~~2019,~~2020, from the investment income table below, was also lower than that yield for the year-end ~~2018~~2019 fixed-maturities portfolio.


	Three months ended June 30,				Six months ended June 30,				Three months ended March 31,
	2019		2018		2019		2018		2020		2019
Average pretax yield-to-amortized cost on new fixed-maturities:
Acquired taxable fixed-maturities	4.56	%	4.68	%	4.70	%	4.40	%	4.06	%	4.99	%
Acquired tax-exempt fixed-maturities	3.13		3.72		3.22		3.51		3.72		3.52
Average total fixed-maturities acquired	4.14		4.59		4.36		4.30		4.05		4.79

While our bond portfolio more than covers our insurance reserve liabilities, we believe our diversified common stock portfolio of mainly blue chip, dividend-paying companies represents one of our best investment opportunities for the long term. We discussed our portfolio strategies in our ~~2018~~2019 Annual Report on Form 10-K, Item 1, Investments Segment, Page ~~26,~~27, and Item 7, Investments Outlook, Page ~~91.~~95. We discuss risks related to our investment income and our fixed-maturity and equity investment portfolios in this quarterly report Item 3, Quantitative and Qualitative Disclosures About Market Risk.

The table below provides details about investment income. Average yields in this table are based on the average invested asset and cash amounts indicated in the table, using fixed-maturity securities valued at amortized cost and all other securities at fair value.


(Dollars in millions)	Three months ended June 30,								Six months ended June 30,							Three months ended March 31,
	2019			2018			% Change		2019			2018			% Change	2020			2019			% Change
Investment income:
Interest	$	111		$	112		(1	)	$	222		$	222		0	$	112		$	111		1
Dividends	50			44			14		96			86			12	53			46			15
Other	2			1			100		5			2			150	3			3			0
Less investment expenses	3			3			0		6			6			0	3			3			0
Investment income, pretax	160			154			4		317			304			4	165			157			5
Less income taxes	25			23			9		49			46			7	26			24			8
Total investment income, after-tax	$	135		$	131		3		$	268		$	258		4	$	139		$	133		5

Investment returns:
Average invested assets plus cash and cash equivalents	$	18,648		$	17,271				$	18,194		$	17,352			$	19,010		$	17,924
Average yield pretax	3.43		%	3.57		%			3.48		%	3.50		%		3.47		%	3.50		%
Average yield after-tax	2.90			3.03					2.95			2.97				2.92			2.97
Effective tax rate	15.6			15.2					15.6			15.3				15.5			15.5

Fixed-maturity returns:
Average amortized cost	$	10,783		$	10,458				$	10,738		$	10,433			$	11,091		$	10,689
Average yield pretax	4.12		%	4.28		%			4.13		%	4.26		%		4.04		%	4.15		%
Average yield after-tax	3.43			3.58					3.45			3.56				3.37			3.46
Effective tax rate	16.6			16.3					16.6			16.3				16.6			16.7

Total Investment Gains and Losses

Investment gains and losses are recognized on the ~~sales~~sale of investments, for certain changes in fair values of securities even though we continue to hold the securities or as otherwise required by GAAP. The change in fair value for equity securities still held are included in investment gains and losses and also in net income. The change in unrealized gains or losses for fixed-maturity securities are included as a component of other comprehensive income (OCI). Accounting requirements for the allowance for credit losses and other-than-temporary impairment (OTTI) charges for the fixed-maturity portfolio are disclosed in our ~~2018~~2019 Annual Report on Form 10-K, Item 8, Note 1, Summary of Significant Accounting Policies, Page ~~128.~~133 and in this quarterly report Item 1, Note 1, Accounting Policies.

The table below summarizes total investment gains and losses, before taxes.


(Dollars in millions)	Three months ended June 30,						Six months ended June 30,						Three months ended March 31,
	2019			2018			2019			2018			2020			2019
Investment gains and losses:
Equity securities:
Investment gains and losses on securities sold, net	$	11		$	4		$	23		$	7		$	(4	)	$	4
Unrealized gains and losses on securities still held, net	355			101			999			(97		)	(1,649		)	652
Subtotal	366			105			1,022			(90		)	(1,653		)	656
Fixed maturities:
Gross realized gains	1			3			3			7			2			2
Gross realized losses	(2		)	(1		)	(2		)	(1		)
Write-down of impaired securities													(77		)	—
Subtotal	$	(1	)	2			1			6			(75		)	2
Other	(1		)	(2		)	4			(2		)	3			5
Total investment gains and losses reported in net income	364			105			1,027			(86		)	(1,725		)	663
Change in unrealized investment gains and losses:
Fixed maturities	200			(80		)	442			(301		)	(324		)	242
Total	$	564		$	25		$	1,469		$	(387	)	$	(2,049	)	$	905

Of the ~~3,828~~3,945 fixed-maturity securities in the portfolio, ~~one security was~~18 securities were trading below 70% of amortized cost at ~~June 30, 2019,~~March 31, 2020, with a fair value of $5$58 million and an unrealized loss of $2$40 million. Our asset impairment committee regularly monitors the portfolio, including a quarterly review of the entire portfolio for potential ~~OTTI charges.~~credit losses, resulting in charges disclosed in the table below. We believe that if liquidity in the markets were to significantly deteriorate or economic conditions were to significantly weaken, we could experience declines in portfolio values and possibly ~~additional OTTI charges.~~increases in the allowance for credit losses or write-downs to fair value.

The table below provides additional details for write-downs of impaired securities or OTTI charges. We had no ~~OTTI charges~~allowance for ~~either~~credit losses for the first ~~six~~three months of ~~2019 or the first six months of 2018.~~2020.



(Dollars in millions)	Three months ended March 31,
	2020		2019
Fixed maturities:
Energy	$	62	$	—
Real Estate	13		—
Consumer Goods	1		—
Technology & Electronics	1		—
Total fixed maturities	$	77	$	—

OTHER

We report as Other the noninvestment operations of the parent company and a noninsurance subsidiary, CFC Investment Company. We also report as Other the underwriting results of Cincinnati Re, our reinsurance assumed operation, and Cincinnati Global, since its acquisition on February 28, 2019. Underwriting results in the table below for Cincinnati Re and Cincinnati Global include earned premiums, loss and loss expenses and underwriting expenses.

Total revenues for the first ~~six~~three months of ~~2019~~2020 for our Other operations increased, compared with the same period of ~~2018,~~2019, primarily due to earned premiums from Cincinnati Re and Cincinnati Global, with increases of ~~$27~~$22 million and ~~$43~~$17 million, respectively. Total expenses for Other increased for the first ~~six~~three months of ~~2019,~~2020, primarily due to more losses and loss expenses from Cincinnati Re and Cincinnati Global.

Other loss in the table below represents losses before income taxes. For both periods shown, Other loss resulted largely from interest expense from debt of the parent company.


(Dollars in millions)	Three months ended June 30,							Six months ended June 30,							Three months ended March 31,
	2019			2018			% Change	2019			2018			% Change	2020			2019			% Change
Interest and fees on loans and leases	$	1		$	1		0	$	3		$	2		50	$	1		$	2		(50	)
Earned premiums	79			30			163	129			59			119	89			50			78
Other revenues	1			—			nm	1			—			nm	1			—			nm
Total revenues	81			31			161	133			61			118	91			52			75
Interest expense	13			13			0	26			26			0	13			13			0
Loss and loss expenses	44			13			238	70			26			169	46			26			77
Underwriting expenses	21			9			133	37			20			85	29			16			81
Operating expenses	4			3			33	12			7			71	5			8			(38	)
Total expenses	82			38			116	145			79			84	93			63			48
Other loss	$	(1	)	$	(7	)	86	$	(12	)	$	(18	)	33
Total other loss															$	(2	)	$	(11	)	82

TAXES

We had ~~$102~~$350 million ~~and $274~~income tax benefit for the three months ended March 31, 2020, compared with $172 million of income tax expense for the ~~three and six months ended June 30, 2019, compared with $47 million and $28 million for the~~ same ~~periods~~period of ~~2018.~~2019. The effective tax rate for the three ~~and six~~ months ended ~~June 30, 2019,~~March 31, 2020, was ~~19.2% and 19.6%~~22.2% compared with ~~17.8% and 13.1%~~19.8% for the same ~~periods~~period last year. The change in our effective tax rate between periods was primarily due to ~~changes~~large net investment losses included in ~~our~~income for 2020 versus net investment gains ~~and losses~~included in income for the prior-year period, as well as changes in ~~our~~ underwriting income. ~~For the three and six months ended June 30, 2019, there was no material impact to our effective tax rate as a result of our Cincinnati Global acquisition.~~

Historically, we have pursued a strategy of investing some portion of cash flow in tax-advantaged fixed-maturity and equity securities to minimize our overall tax liability and maximize after-tax earnings. See Tax-Exempt Fixed Maturities in this quarterly report Item 3, Quantitative and Qualitative Disclosures About Market Risk for further discussion on municipal bond purchases in our fixed-maturity investment portfolio. For our property casualty insurance subsidiaries, approximately 75% of interest from tax-advantaged fixed-maturity investments and approximately 40% of dividends from qualified equities are exempt from federal tax after applying proration from the 1986 Tax Reform Act. Our noninsurance companies own an immaterial amount of tax-advantaged fixed-maturity investments. For our noninsurance companies, the dividend received deduction exempts 50% of dividends from qualified equities. Our life insurance company does not own tax-advantaged fixed-maturity investments or equities subject to the dividend received deduction. Details about our effective tax rate are in this quarterly report Item 1, Note 9, – Income Taxes.

LIQUIDITY AND CAPITAL RESOURCES

At ~~June 30, 2019,~~March 31, 2020, shareholders' equity was ~~$9.131~~$8.042 billion, compared with ~~$7.833~~$9.864 billion at December 31, ~~2018.~~2019. Total debt was ~~$825~~$902 million at ~~June 30, 2019,~~March 31, 2020, up $5$75 million from December 31, ~~2018.~~2019. At ~~June 30, 2019,~~March 31, 2020, cash and cash equivalents totaled ~~$803~~$486 million, compared with ~~$784~~$767 million at December 31, ~~2018.~~2019.

The effects from COVID-19 were a major contributor to the decrease in shareholders' equity in the first quarter of 2020 due to the decline in fair values of securities. The pandemic did not have a significant effect on our cash flows for the first quarter of 2020. In an effort to support insurance consumers during this pandemic, most states where we market our products have issued mandates or requests such as moratoriums on policy cancellations or nonrenewals for nonpayments of premiums, forbearance on premium collections, waivers of late payment fees and extended periods in which policyholders may make their missed payments.

In April, thus far, we have seen a reduction in cash flows from premium receipts as we work to assist policyholders and follow guidance from each state. Extended moratoriums and deferral of premiums may further disrupt cash flows while also increasing credit risk from policyholders struggling to make timely premium payments.

Because of fewer vehicles on the road and other factors that reduce exposure to certain insurance losses, such as reduced sales and payrolls for businesses, there could be a reduction in future losses that generally correspond to reduced premiums. For example, we saw a reduction in personal auto reported claims as a result of reduced driving in late March and early April.

SOURCES OF LIQUIDITY

Subsidiary Dividends

Our lead insurance subsidiary declared dividends of ~~$300~~$125 million to the parent company in the first ~~six~~three months of ~~2019,~~2020, compared with $200 million for the same period of ~~2018.~~2019. For full-year ~~2018,~~2019, subsidiary dividends declared totaled ~~$500~~$625 million. State of Ohio regulatory requirements restrict the dividends our insurance subsidiary can pay. For full-year ~~2019,~~2020, total dividends that our insurance subsidiary ~~could~~can pay to our parent company without regulatory approval are approximately ~~$626~~$562 million.

Investing Activities

Investment income is a source of liquidity for both the parent company and its insurance ~~subsidiary.~~subsidiaries. We continue to focus on portfolio strategies to balance near-term income generation and long-term book value growth.

Parent company obligations can be funded with income on investments held at the parent-company level or through sales of securities in that portfolio, although our investment philosophy seeks to compound cash flows over the long term. These sources of capital can help minimize subsidiary dividends to the parent company, protecting insurance subsidiary capital.

For a discussion of our historic investment strategy, portfolio allocation and quality, see our ~~2018~~2019 Annual Report on Form 10-K, Item 1, Investments Segment, Page ~~26.~~27.

Insurance Underwriting

Our property casualty and life insurance underwriting operations provide liquidity because we generally receive premiums before paying losses under the policies purchased with those premiums. After satisfying our cash requirements, we use excess cash flows for investment, increasing future investment income.

Historically, cash receipts from property casualty and life insurance premiums, along with investment income, have been more than sufficient to pay claims, operating expenses and dividends to the parent company.

The table below shows a summary of operating cash flow for property casualty insurance (direct method):


(Dollars in millions)	Three months ended June 30,								Six months ended June 30,								Three months ended March 31,
	2019			2018			% Change		2019			2018			% Change		2020			2019			% Change
Premiums collected	$	1,443		$	1,310		10		$	2,792		$	2,579		8		$	1,467		$	1,349		9
Loss and loss expenses paid	(798		)	(695		)	(15	)	(1,622		)	(1,409		)	(15	)	(817		)	(824		)	1
Commissions and other underwriting expenses paid	(383		)	(352		)	(9	)	(897		)	(871		)	(3	)	(591		)	(514		)	(15	)
Cash flow from underwriting	262			263			—		273			299			(9	)	59			11			436
Investment income received	107			103			4		220			211			4		119			113			5
Cash flow from operations	$	369		$	366		1		$	493		$	510		(3	)	$	178		$	124		44

Collected premiums for property casualty insurance rose ~~$213~~$118 million during the first ~~six~~three months of ~~2019,~~2020, compared with the same period in ~~2018.~~2019. Loss and loss expenses paid for the ~~2019~~2020 period ~~increased $213~~decreased $7 million. Commissions and other underwriting expenses paid increased ~~$26~~$77 million, primarily due to higher commissions paid to agencies, reflecting the increase in collected premiums.

We discuss our future obligations for claims payments and for underwriting expenses in our ~~2018~~2019 Annual Report on Form 10-K, Item 7, Contractual Obligations, Page ~~97,~~101, and Other Commitments also on Page ~~97.~~101.

Capital Resources

At ~~June 30, 2019,~~March 31, 2020, our debt-to-total-capital ratio was ~~8.3%~~10.1%, with $788 million in long-term debt and ~~$37~~$114 million in borrowing on our revolving short-term line of credit. ~~That line of credit had a $32~~The additional $75 million in borrowing from the $39 million balance at December 31, ~~2018.~~2019, was used to repurchase shares. At ~~June 30, 2019, $263~~March 31, 2020, $186 million was available for future cash management needs as part of the general provisions of the line of credit agreement, with another $300 million available as part of an accordion feature. Based on our capital requirements at ~~June 30, 2019,~~March 31, 2020, we do not anticipate a material increase in debt levels exceeding the available line of credit amount during the remainder of the year. As a result, we expect changes in our debt-to-total-capital ratio to continue to be largely a function of the contribution of unrealized investment gains or losses to shareholders' equity. As part of our Cincinnati Global acquisition, on February 25, 2019, we entered into an unsecured letter of credit agreement to provide a portion of the capital needed to support its obligations at Lloyd's. The amount of this unsecured letter of credit agreement was ~~$234~~$131 million at ~~June 30, 2019.~~March 31, 2020.

We provide details of our three long-term notes in this quarterly report Item 1, Note 3, – Fair Value Measurements. None of the notes are encumbered by rating triggers.

Four independent ratings firms award insurer financial strength ratings to our property casualty insurance companies and three firms rate our life insurance company. Those firms made no changes to our parent company debt ratings during the first ~~six~~three months of ~~2019.~~2020. Our debt ratings are discussed in our ~~2018~~2019 Annual Report on Form 10-K, Item 7, Liquidity and Capital Resources, Other Sources of Liquidity, Page ~~95.~~99.

Off-Balance Sheet Arrangements

We do not use any special-purpose financing vehicles or have any undisclosed off-balance sheet arrangements (as that term is defined in applicable SEC rules) that are reasonably likely to have a current or future material effect on the company's financial condition, results of operation, liquidity, capital expenditures or capital resources. Similarly, the company holds no fair-value contracts for which a lack of marketplace quotations would necessitate the use of fair-value techniques.

USES OF LIQUIDITY

Our parent company and insurance subsidiary have contractual obligations and other commitments. In addition, one of our primary uses of cash is to enhance shareholder return.

Contractual Obligations

We estimated our future contractual obligations as of December 31, ~~2018,~~2019, in our ~~2018~~2019 Annual Report on Form

10-K, Item 7, Contractual Obligations, Page ~~97.~~101. There have been no material changes to our estimates of future contractual obligations since our ~~2018~~2019 Annual Report on Form 10-K.

Other Commitments

In addition to our contractual obligations, we have other property casualty operational commitments.

Commissions – Commissions paid were ~~$582~~$385 million in the first ~~six~~three months of ~~2019.~~2020. Commission payments generally track with written premiums, except for annual profit-sharing commissions typically paid during the first quarter of the year.

Other underwriting expenses – Many of our underwriting expenses are not contractual obligations, but reflect the ongoing expenses of our business. Noncommission underwriting expenses paid were ~~$315~~$206 million in the first ~~six~~three months of ~~2019.~~

Technology costs – In addition to contractual obligations for hardware and software, we anticipate capitalizing up to $7 million in spending for key technology initiatives in 2019. Capitalized development costs related to key technology initiatives were $4 million in the first six months of 2019. These activities are conducted at our discretion, and we have no material contractual obligations for activities planned as part of these projects.

Funds at Lloyd's – From time to time, we may be required to meet certain cash funding requirements on behalf of Cincinnati Global. During the first half of 2019, the parent company paid $50 million to Lloyd's.

2020.

There were no contributions to our qualified pension plan during the first ~~six~~three months of ~~2019.~~2020.

Investing Activities

After fulfilling operating requirements, we invest cash flows from underwriting, investment and other corporate activities in fixed-maturity and equity securities on an ongoing basis to help achieve our portfolio objectives. We discuss our investment strategy and certain portfolio attributes in this quarterly report Item 3, Quantitative and Qualitative Disclosures About Market Risk.

Uses of Capital

Uses of cash to enhance shareholder return include dividends to shareholders. In ~~February 2019,~~January 2020, the board of directors declared regular quarterly cash dividends of 5660 cents per share for an indicated annual rate of ~~$2.24~~$2.40 per share. During the first ~~six~~three months of ~~2019,~~2020, we used ~~$175~~$90 million to pay cash dividends to shareholders.

PROPERTY CASUALTY INSURANCE LOSS AND LOSS EXPENSE RESERVES

For the business lines in the commercial and personal lines insurance segments, and in total for the excess and surplus lines insurance segment and other property casualty insurance operations, the following table details gross reserves among case, IBNR (incurred but not reported) and loss expense reserves, net of salvage and subrogation reserves. Reserving practices are discussed in our ~~2018~~2019 Annual Report on Form 10-K, Item 7, Property Casualty Insurance Loss and Loss Expense Obligations and Reserves, Page ~~98.~~102.

Total gross reserves at ~~June 30, 2019,~~March 31, 2020, increased ~~$308~~$65 million compared with December 31, ~~2018.~~2019. Case loss reserves for losses ~~increased $161~~decreased by $49 million, IBNR loss reserves increased by ~~$140~~$112 million and loss expense reserves increased by $7$2 million. The total gross increase was primarily due to ~~the inclusion~~our commercial casualty and homeowner lines of ~~reserves for recently acquired~~business and Cincinnati ~~Global.~~Re.

Property Casualty Gross Reserves


(Dollars in millions)	Loss reserves							Loss expense reserves				Total gross reserves							Loss reserves								Loss expense reserves				Total gross reserves
	Case reserves			IBNR reserves							Percent of total					Case reserves				IBNR reserves						Percent of total
At June 30, 2019			Loss expense reserves	IBNR reserves			Total gross reserves				Percent of total									IBNR reserves						Percent of total
At March 31, 2020																Case reserves				Case reserves				IBNR reserves						Loss expense reserves			Total gross reserves		Percent of total
Commercial lines insurance:	Case reserves																			Case reserves															Percent of total
Commercial casualty	$	911			$	676				$	605			$	2,192			36.8	%		$	952		IBNR reserves			$	682								$	632	36.8	%
Commercial property	295				55					63				413				6.9			303				60				62				425			6.9
Commercial auto	390			175				139				704				11.8			396				181				136				713			11.6
Workers' compensation	393			520				92				1,005				16.9			401				522				92				1,015			16.5
Other commercial	108			6				67				181				3.0			97				9				79				185			3.0
Subtotal	2,097			1,432				966				4,495				75.4			2,149				1,454				1,001				4,604			74.8
Personal lines insurance:
Personal auto	228			57				75				360				6.1			226				51				66				343			5.6
Homeowner	158			21				37				216				3.6			131				57				37				225			3.7
Other personal	47			61				5				113				1.9			54				77				5				136			2.2
Subtotal	433			139				117				689				11.6			411				185				108				704			11.5
Excess and surplus lines insurance	133			93				93				319				5.4			158				99				108				365			5.9
Cincinnati Re	45			168				2				215				3.6			56				211				3				270			4.4
Cincinnati Global	177			57				2				236				4.0			141				67				2				210			3.4
Total	$	2,885		$	1,889			$	1,180			$	5,954			100.0	%		$	2,915			$	2,016			$	1,222			$	6,153		100.0	%
At December 31, 2018
At December 31, 2019
Commercial lines insurance:
Commercial casualty	$	981		$	647			$	604			$	2,232			39.5	%		$	937			$	680			$	622			$	2,239		36.8	%
Commercial property	270			12				60				342				6.1			339				20				64				423			7.0
Commercial auto	402			152				141				695				12.3			409				157				143				709			11.6
Workers' compensation	384			542				92				1,018				18.0			404				516				93				1,013			16.6
Other commercial	99			7				73				179				3.2			108				7				70				185			3.0
Subtotal	2,136			1,360				970				4,466				79.1			2,197				1,380				992				4,569			75.0
Personal lines insurance:
Personal auto	240			50				72				362				6.3			233				46				78				357			5.9
Homeowner	152			9				40				201				3.6			134				32				41				207			3.4
Other personal	46			65				5				116				2.1			49				69				5				123			2.0
Subtotal	438			124				117				679				12.0			416				147				124				687			11.3
Excess and surplus lines insurance	118			96				84				298				5.3			149				102				100				351			5.8
Cincinnati Re	32			169				2				203				3.6			47				204				2				253			4.2
Cincinnati Global																			155				71				2				228			3.7
Total	$	2,724		$	1,749			$	1,173			$	5,646			100.0	%		$	2,964			$	1,904			$	1,220			$	6,088		100.0	%

LIFE POLICY AND INVESTMENT CONTRACT RESERVES

Gross life policy and investment contract reserves were ~~$2.798~~$2.861 billion at ~~June 30, 2019,~~March 31, 2020, compared with ~~$2.779~~$2.835 billion at year-end ~~2018,~~2019, reflecting continued growth in life insurance policies in force. We discuss our life insurance reserving practices in our ~~2018~~2019 Annual Report on Form 10-K, Item 7, Life Insurance Policyholder Obligations and Reserves, Page ~~104.~~108.

OTHER MATTERS

SIGNIFICANT ACCOUNTING POLICIES

Our significant accounting policies are discussed in our ~~2018~~2019 Annual Report on Form 10-K, Item 8, Note 1, Summary of Significant Accounting Policies, Page ~~128,~~133, and updated in this quarterly report Item 1, Note 1, Accounting Policies.

In conjunction with those discussions, in the Management's Discussion and Analysis in the ~~2018~~2019 Annual Report on Form 10-K, management reviewed the estimates and assumptions used to develop reported amounts related to the most significant policies. Management discussed the development and selection of those accounting estimates with the audit committee of the board of directors.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Our greatest exposure to market risk is through our investment portfolio. Market risk is the potential for a decrease in securities' fair value resulting from broad yet uncontrollable forces such as: inflation, economic growth or recession, interest rates, world political conditions or other widespread unpredictable events. It is comprised of many individual risks that, when combined, create a macroeconomic impact.

Our view of potential risks and our sensitivity to such risks is discussed in our ~~2018~~2019 Annual Report on Form 10-K, Item 7A, Quantitative and Qualitative Disclosures About Market Risk, Page ~~113.~~117.

The fair value of our investment portfolio was ~~$18.332~~$17.565 billion at ~~June 30, 2019, up $1.723~~March 31, 2020, down $1.885 billion from year-end ~~2018,~~2019, including a ~~$631~~$358 million ~~increase~~decrease in the fixed-maturity portfolio and a ~~$1.092~~$1.527 billion ~~increase~~decrease in the equity portfolio.


(Dollars in millions)	At June 30, 2019								At December 31, 2018								At March 31, 2020								At December 31, 2019
	Cost or amortized cost		Percent of total		Fair value		Percent of total		Cost or amortized cost		Percent of total		Fair value		Percent of total		Cost or amortized cost		Percent of total		Fair value		Percent of total		Cost or amortized cost		Percent of total		Fair value		Percent of total
Taxable fixed maturities	$	7,032	49.1	%	$	7,331	40.0	%	$	6,920	49.4	%	$	6,926	41.7	%	$	7,250	49.0	%	$	7,288	41.4	%	$	7,250	49.4	%	$	7,617	39.1	%
Tax-exempt fixed maturities	3,800		26.6		3,989		21.8		3,723		26.6		3,763		22.6		3,824		25.9		4,052		23.1		3,858		26.3		4,081		21.0
Common equities	3,298		23.1		6,821		37.2		3,195		22.8		5,742		34.6		3,483		23.6		6,017		34.3		3,371		22.9		7,518		38.7
Nonredeemable preferred equities	173		1.2		191		1.0		173		1.2		178		1.1		219		1.5		208		1.2		210		1.4		234		1.2
Total	$	14,303	100.0	%	$	18,332	100.0	%	$	14,011	100.0	%	$	16,609	100.0	%	$	14,776	100.0	%	$	17,565	100.0	%	$	14,689	100.0	%	$	19,450	100.0	%

At ~~June 30, 2019,~~March 31, 2020, substantially all of our consolidated investment portfolio, included $5 million of assets for which values are based on prices or valuation techniques that require significant management judgment (Level 3 assets). This represented less than 1% of investment portfolio assets measured at fair ~~value.~~value, are classified as Level 1 or Level 2. See Item 1, Note 3, Fair Value Measurements, for additional discussion of our valuation techniques. We have generally obtained and evaluated two nonbinding quotes from brokers; then, our investment professionals determined our best estimate of fair value. These investments include private placements, small issues and various thinly traded securities.

In addition to our investment portfolio, the total investments amount reported in our condensed consolidated balance sheets includes Other invested assets. Other invested assets included $33 million of life policy loans, ~~$145~~$165 million in Lloyd's deposits, ~~$63~~$88 million of private equity investments and ~~$30~~$25 million of real estate through direct property ownership and development projects in the United States at ~~June 30, 2019.~~March 31, 2020.

FIXED-MATURITY SECURITIES INVESTMENTS

By maintaining a well-diversified fixed-maturity portfolio, we attempt to reduce overall risk. We invest new money in the bond market on a regular basis, targeting what we believe to be optimal risk-adjusted, after-tax yields. Risk, in this context, includes interest rate, call, reinvestment rate, credit and liquidity risk. We do not make a concerted effort to alter duration on a portfolio basis in response to anticipated movements in interest rates. By regularly investing in the bond market, we build a broad, diversified portfolio that we believe mitigates the impact of adverse economic factors.

In the first ~~six~~three months of ~~2019,~~2020, the ~~increase~~decrease in fair value of our fixed-maturity portfolio reflected ~~both net purchases of securities and an increase~~a decrease in net unrealized gains, primarily due to ~~a decrease in interest rates and a narrowing~~market value decline of corporate ~~credit spreads.~~bonds related to economic uncertainty from effects of the COVID-19 pandemic. At ~~June 30, 2019,~~March 31, 2020, our fixed-maturity portfolio with an average rating of A2/A was valued at ~~104.5%~~102.4% of its amortized cost, compared with ~~100.4%~~105.3% at December 31, ~~2018.~~2019.

At ~~June 30, 2019,~~March 31, 2020, our investment-grade and noninvestment-grade fixed-maturity securities represented ~~86.2%~~84.2% and ~~2.5%~~2.7% of the portfolio, respectively. The remaining ~~11.3%~~13.1% represented fixed-maturity securities that were not rated by Moody's or S&P Global Ratings.

Attributes of the fixed-maturity portfolio include:


	At June 30, 2019		At December 31, 2018		At March 31, 2020		At December 31, 2019
Weighted average yield-to-amortized cost	4.13	%	4.20	%	4.20	%	4.10	%
Weighted average maturity	7.8	yrs	7.6	yrs	7.7	yrs	7.7	yrs
Effective duration	5.0	yrs	5.2	yrs	4.7	yrs	4.8	yrs

We discuss maturities of our fixed-maturity portfolio in our ~~2018~~2019 Annual Report on Form 10-K, Item 8, Note 2, Investments, Page ~~137,~~141, and in this quarterly report Item 2, Investments Results.

TAXABLE FIXED MATURITIES

Our taxable fixed-maturity portfolio, with a fair value of ~~$7.331~~$7.288 billion at ~~June 30, 2019,~~March 31, 2020, included:


(Dollars in millions)	At June 30, 2019		At December 31, 2018		At March 31, 2020		At December 31, 2019
Investment-grade corporate	$	5,799	$	5,464	$	5,831	$	6,137
States, municipalities and political subdivisions	560		541		659		647
Noninvestment-grade corporate					302		264
Commercial mortgage backed	301		288		284		301
United States government					102		104
Government sponsored enterprises	282		310		87		136
Noninvestment-grade corporate	272		246
United States government	100		67
Foreign government	17		10		23		28
Total	$	7,331	$	6,926	$	7,288	$	7,617

Our strategy is to buy, and typically hold, fixed-maturity investments to maturity, but we monitor credit profiles and fair value movements when determining holding periods for individual securities. With the exception of United States agency issues that include government-sponsored enterprises, no individual issuer's securities accounted for more than ~~1.1%~~0.9% of the taxable fixed-maturity portfolio at ~~June 30, 2019.~~March 31, 2020. Our investment-grade corporate bonds had an average rating of Baa2 by Moody's or BBB by S&P Global Ratings and represented ~~79.1%~~80.0% of the taxable fixed-maturity portfolio's fair value at ~~June 30, 2019,~~March 31, 2020, compared with ~~78.9%~~80.6% at year-end ~~2018.~~2019.

The heaviest concentration in our investment-grade corporate bond portfolio, based on fair value at

~~June 30, 2019,~~March 31, 2020, was the financial sector. It represented ~~45.8%~~46.3% of our investment-grade corporate bond portfolio, compared with ~~47.1%~~44.6% at year-end ~~2018.~~2019. No other sector exceeded 10% of our investment-grade corporate bond portfolio.

Our taxable fixed-maturity portfolio at ~~June 30, 2019,~~March 31, 2020, included ~~$301~~$284 million of commercial mortgage-backed securities with an average rating of Aa1/~~AA.~~AA+.

TAX-EXEMPT FIXED MATURITIES

At ~~June 30, 2019,~~March 31, 2020, we had ~~$3.989~~$4.052 billion of tax-exempt fixed-maturity securities with an average rating of Aa2/AA by Moody's and S&P Global Ratings. We traditionally have purchased municipal bonds focusing on general obligation and essential services issues, such as water, waste disposal or others. The portfolio is well diversified among approximately ~~1,450~~1,600 municipal bond issuers. No single municipal issuer accounted for more than 0.6% of the tax-exempt fixed-maturity portfolio at ~~June 30, 2019.~~March 31, 2020.

INTEREST RATE SENSITIVITY ANALYSIS

Because of our strong surplus, long-term investment horizon and ability to hold most fixed-maturity investments until maturity, we believe the company is adequately positioned if interest rates were to rise. Although the fair values of our existing holdings may suffer, a higher rate environment would provide the opportunity to invest cash flow in higher-yielding securities, while reducing the likelihood of untimely redemptions of currently callable securities. While higher interest rates would be expected to continue to increase the number of fixed-maturity holdings trading below 100% of amortized cost, we believe lower fixed-maturity security values due solely to interest rate changes would not signal a decline in credit quality. We continue to manage the portfolio with an eye toward both meeting current income needs and managing interest rate risk.

Our dynamic financial planning model uses analytical tools to assess market risks. As part of this model, the effective duration of the fixed-maturity portfolio is continually monitored by our investment department to evaluate the theoretical impact of interest rate movements.

The table below summarizes the effect of hypothetical changes in interest rates on the fair value of the fixed-maturity portfolio:

(Dollars in millions) Effect from interest rate change in basis points
-200 -100 - 100 200
At June 30, 2019 $ 12,444
$ 11,875
$ 11,320
$ 10,743
$ 10,168
At December 31, 2018 $ 11,793
$ 11,245
$ 10,689
$ 10,121
$ 9,576



(Dollars in millions)	Effect from interest rate change in basis points
	-200		-100		-		100		200
At March 31, 2020	$	12,442	$	11,879	$	11,340	$	10,800	$	10,251
At December 31, 2019	$	12,850	$	12,263	$	11,698	$	11,117	$	10,529

The effective duration of the fixed-maturity portfolio as of ~~June 30, 2019,~~March 31, 2020, was ~~5.0~~4.7 years, down from ~~5.2~~4.8 years at year-end ~~2018.~~2019. The above table is a theoretical presentation showing that an instantaneous, parallel shift in the yield curve of 100 basis points could produce an approximately ~~5.0%~~4.8% change in the fair value of the fixed-maturity portfolio. Generally speaking, the higher a bond is rated, the more directly correlated movements in its fair value are to changes in the general level of interest rates, exclusive of call features. The fair values of average- to lower-rated corporate bonds are additionally influenced by the expansion or contraction of credit spreads.

In our dynamic financial planning model, the selected interest rate change of 100 to 200 basis points represents our view of a shift in rates that is quite possible over a one-year period. The rates modeled should not be considered a prediction of future events as interest rates may be much more volatile in the future. The analysis is not intended to provide a precise forecast of the effect of changes in rates on our results or financial condition, nor does it take into account any actions that we might take to reduce exposure to such risks.

EQUITY INVESTMENTS

Our equity investments, with a fair value totaling ~~$7.012~~$6.225 billion at ~~June 30, 2019,~~March 31, 2020, included ~~$6.821~~$6.017 billion of common stock securities of companies generally with strong indications of paying and growing their dividends. Other criteria we evaluate include increasing sales and earnings, proven management and a favorable outlook. We believe our equity investment style is an appropriate long-term strategy. While our long-term financial position would be affected by prolonged changes in the market valuation of our investments, we believe our strong surplus position and cash flow provide a cushion against short-term fluctuations in valuation. Continued payment of cash dividends by the issuers of our common equity holdings can provide a floor to their valuation.

The table below summarizes the effect of hypothetical changes in market prices on fair value of our equity portfolio.

(Dollars in millions) Effect from market price change in percent
-30% -20% -10% — 10% 20% 30%
At June 30, 2019 $ 4,908
$ 5,610
$ 6,311
$ 7,012
$ 7,713
$ 8,414
$ 9,116
At December 31, 2018 $ 4,144
$ 4,736
$ 5,328
$ 5,920
$ 6,512
$ 7,104
$ 7,696



(Dollars in millions)	Effect from market price change in percent
		-30%		-20%		-10%		—		10%		20%		30%
At March 31, 2020		$	4,358	$	4,980	$	5,603	$	6,225	$	6,848	$	7,470	$	8,093
At December 31, 2019		5,426		6,202		6,977		7,752		8,527		9,302		10,078

At ~~June 30, 2019,~~March 31, 2020, Microsoft Corporation (Nasdaq:MSFT) was our largest single common stock holding with a fair value of ~~$336~~$395 million, or ~~4.9%~~6.6% of our publicly traded common stock portfolio and ~~1.8%~~2.3% of the total investment portfolio. ~~Thirty-eight~~Twenty-six holdings among ~~nine~~7 different sectors each had a fair value greater than $100 million.

Common Stock Portfolio Industry Sector Distribution


	Percent of common stock portfolio								Percent of common stock portfolio
	At June 30, 2019				At December 31, 2018				At March 31, 2020				At December 31, 2019
	Cincinnati Financial		S&P 500 Industry Weightings		Cincinnati Financial		S&P 500 Industry Weightings		Cincinnati Financial		S&P 500 Industry Weightings		Cincinnati Financial		S&P 500 Industry Weightings
Sector:
Information technology	22.5	%	21.5	%	20.9	%	20.1	%	25.2	%	25.5	%	23.7	%	23.2	%
Financial	15.4		13.0		15.6		13.3		14.1		10.9		15.7		13.0
Healthcare									13.9		15.4		12.4		14.2
Industrials	13.0		9.4		12.5		9.2		11.8		8.2		12.6		9.1
Healthcare	12.8		14.2		14.9		15.6
Consumer discretionary	10.3		10.2		10.5		10.0		9.1		9.8		9.7		9.7
Energy	6.9		5.1		6.7		5.3
Consumer staples	5.8		7.3		5.6		7.4		7.0		7.8		6.2		7.2
Materials	4.8		2.8		4.9		2.7		4.8		2.4		5.0		2.7
Energy									4.6		2.7		6.3		4.3
Telecomm services	3.5		10.2		3.5		10.1		3.9		10.7		3.4		10.4
Utilities	2.5		3.3		2.7		3.3		2.8		3.6		2.5		3.3
Real Estate	2.5		3.0		2.2		3.0		2.8		3.0		2.5		2.9
Total	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%

UNREALIZED INVESTMENT GAINS AND LOSSES

At ~~June 30, 2019,~~March 31, 2020, unrealized investment gains before taxes for the fixed-maturity portfolio totaled ~~$502~~$461 million and unrealized investment losses amounted to ~~$14~~$195 million before taxes.

The ~~$488~~$266 million net unrealized gain position in our fixed-maturity portfolio at ~~June 30, 2019, increased~~March 31, 2020, decreased in the first ~~six~~three months of ~~2019,~~2020, primarily due to ~~a decrease in interest rates and a narrowing~~market value decline of corporate ~~credit spreads.~~bonds related to economic uncertainty from effects of the COVID-19 pandemic. The net gain position for our current fixed-maturity holdings will naturally decline over time as individual securities mature. In addition, changes in interest rates can cause rapid, significant changes in fair values of fixed-maturity securities and the net gain position, as discussed in Quantitative and Qualitative Disclosures About Market Risk.

For federal income tax purposes, taxes on gains from appreciated investments generally are not due until securities are sold. We believe that the appreciated value of equity securities, compared with the cost of securities that is generally used as a tax basis, is a useful measure to help evaluate how fair value can change over time. On this basis, the net unrealized investment gains at ~~June 30, 2019,~~March 31, 2020, consisted of a net gain position in our equity portfolio of ~~$3.541~~$2.523 billion. Events or factors such as economic growth or recession can affect the fair value and unrealized investment gains of our equity securities. The five largest holdings in our common stock portfolio were Microsoft, ~~Corporation (Nasdaq:MSFT),~~ Apple Inc. (Nasdaq:AAPL), JP Morgan Chase & Co. (NYSE:JPM), BlackRock, Inc. (NYSE:BLK) and ~~Cisco Systems (Nasdaq:SCO)~~Honeywell (NYSE:HON), which had a combined fair value of ~~$1.285~~$1.312 billion.

Unrealized Investment Losses

We expect the number of fixed-maturity securities trading below amortized cost to fluctuate as interest rates rise or fall and credit spreads expand or contract due to prevailing economic conditions. Further, amortized costs for some securities are revised through ~~OTTI~~write-downs recognized in prior periods. At ~~June 30, 2019, 136~~March 31, 2020, 605 of the ~~3,828~~3,945 fixed-maturity securities we owned had fair values below amortized cost, compared with ~~1,262~~157 of the ~~3,606~~3,911 securities we owned at year-end ~~2018.~~2019. The ~~136~~605 holdings with fair values below ~~cost or~~ amortized cost at ~~June 30, 2019,~~March 31, 2020, represented ~~4.8%~~21.8% of the fair value of our fixed-maturity investment portfolio and ~~$14~~$195 million in unrealized losses.

~~129~~464 of the ~~136~~605 holdings had fair value between 90% and 100% of amortized cost at ~~June 30, 2019.~~March 31, 2020. These primarily consist of securities whose current valuation is largely the result of interest rate factors. The fair value of these ~~129~~464 securities was ~~$516 million,~~$1.966 billion, and they accounted for $7$65 million in unrealized losses.

6123 of the ~~136~~605 fixed-maturity holdings had fair value between 70% and 90% of amortized cost at ~~June 30, 2019.~~March 31, 2020. We believe the ~~six~~123 fixed-maturity securities will continue to pay interest and ultimately pay principal upon

maturity. The issuers of these ~~six~~123 securities have strong cash flow to service their debt and meet their

contractual obligation to make principal payments. The fair value of these securities was ~~$24~~$453 million, and they accounted for $5$90 million in unrealized losses.

118 of the ~~136~~605 fixed-maturity holdings had fair value below 70% of amortized cost at ~~June 30, 2019.~~March 31, 2020. We believe ~~the~~these fixed-maturity ~~security~~securities will continue to pay interest and ultimately pay principal upon maturity. The fair value of ~~this security~~these securities was $5$58 million, and itthey accounted for $2$40 million in unrealized losses.

The table below reviews fair values and unrealized losses by investment category and by the overall duration of the securities' continuous unrealized loss position.


(Dollars in millions)	Less than 12 months				12 months or more				Total				Less than 12 months				12 months or more				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
At June 30, 2019	value		losses		value		losses		value		losses
At March 31, 2020													Fair value		Unrealized losses		Fair value		Unrealized losses		Fair value		Unrealized losses
Fixed maturity securities:
Corporate	$	78	$	2	$	294	$	11	$	372	$	13	$	2,168	$	176	$	52	$	5	$	2,220	$	181
States, municipalities and political subdivisions	13		—		21		—		34		—		76		5		3		1		79		6
Commercial mortgage-backed	—		—		5		—		5		—		163		8		—		—		163		8
United States government													—		—		—		—		—		—
Government-sponsored enterprises	7		—		117		1		124		1		—		—		—		—		—		—
United States government	5		—		4		—		9		—
Foreign government	1		—		—		—		1		—		15		—		—		—		15		—
Total	$	104	$	2	$	441	$	12	$	545	$	14	$	2,422	$	189	$	55	$	6	$	2,477	$	195
At December 31, 2018
At December 31, 2019
Fixed maturity securities:
Corporate	$	2,082	$	51	$	501	$	36	$	2,583	$	87	$	199	$	2	$	118	$	3	$	317	$	5
States, municipalities and political subdivisions	823		18		340		13		1,163		31		98		1		10		—		108		1
Commercial mortgage-backed	77		—		64		2		141		2		6		—		—		—		6		—
United States government													—		—		4		—		4		—
Government-sponsored enterprises	49		1		211		6		260		7		26		1		51		—		77		1
United States government	—		—		33		1		33		1
Foreign government													11		—		—		—		11		—
Total	$	3,031	$	70	$	1,149	$	58	$	4,180	$	128	$	340	$	4	$	183	$	3	$	523	$	7

At June 30, 2019, 100 fixed-maturity securities with a total unrealized loss of $12 million had been in an unrealized loss position for 12 months or more. Of that total, one fixed-maturity security had a fair value below 70% of amortized cost and accounted for $2 million in unrealized losses; five fixed-maturity securities with a fair value of $21 million had a fair value from 70% to less than 90% of amortized cost and accounted for $4 million in unrealized losses; and 94 fixed-maturity securities with a fair value of $415 million had fair values from 90% to less than 100% of amortized cost and accounted for $6 million in unrealized losses.

~~At June 30, 2019,~~March 31, 2020, applying our invested asset impairment policy, we determined that the total of ~~$12~~$195 million, for securities in an unrealized loss position ~~for 12 months or more~~ in the table above, was not ~~other-than-temporarily impaired.~~the result of a credit loss.

During the ~~second~~first quarter of ~~2019, no~~2020, 12 securities were written down to fair value through an impairment charge ~~and none were written down during~~resulting in $77 million of noncash charges. During the first ~~quarter~~three months of ~~2019. Similarly,~~2019, there were no OTTI ~~resulted in no noncash charges for the three and six months ended June 30, 2018.~~charges.

During full-year ~~2018,~~2019, we wrote down ~~one security~~three securities and recorded $5$9 million in OTTI charges. At December 31, ~~2018, 400~~2019, 38 fixed-maturity investments with a total unrealized loss of ~~$58~~$3 million had been in an unrealized loss position for 12 months or more. Of that total, no fixed-maturity investments had fair values below 70% of amortized cost.

The following table summarizes the investment portfolio by severity of decline:


(Dollars in millions)	Number of issues	Cost or amortized cost			Fair value				Gross unrealized gain (loss)				Gross investment income				Number of issues		Amortized cost		Fair value			Gross unrealized gain (loss)				Gross investment income
At June 30, 2019									Gross unrealized gain (loss)				Gross investment income				Number of issues		Amortized cost		Fair value			Gross unrealized gain (loss)				Gross investment income
At March 31, 2020																	Number of issues		Amortized cost		Fair value			Gross unrealized gain (loss)				Gross investment income
Taxable fixed maturities:	Number of issues																Number of issues							Gross unrealized gain (loss)				Gross investment income
Fair valued below 70% of amortized cost	1	Cost or amortized cost	$	7	Fair value		$	5			$	(2	)		$	—		18	Amortized cost		Fair value		$	98			$	58		$	(40	)	$	1
Fair valued at 70% to less than 100% of amortized cost	123	532			520				(12		)		9				536		2,522		2,372			(150		)		27
Fair valued at 100% and above of amortized cost	1,631	6,493			6,806				313				145				1,266		4,630		4,858			228				51
Investment income on securities sold in current year	—	—			—				—				8				—		—		—			—				2
Total	1,755	7,032			7,331				299				162				1,820		7,250		7,288			38				81
Tax-exempt fixed maturities:
Fair valued below 70% of amortized cost	—	—			—				—				—				—		—		—			—				—
Fair valued at 70% to less than 100% of amortized cost	12	20			20				—				—				51		52		47			(5		)		1
Fair valued at 100% and above of amortized cost	2,061	3,780			3,969				189				59				2,074		3,772		4,005			233				30
Investment income on securities sold in current year	—	—			—				—				1				—		—		—			—				—
Total	2,073	3,800			3,989				189				60				2,125		3,824		4,052			228				31
Fixed-maturities summary:
Fair valued below 70% of cost or amortized cost	1	7			5				(2		)		—
Fair valued at 70% to less than 100% of cost or amortized cost	135	552			540				(12		)		9
Fair valued at 100% and above of cost or amortized cost	3,692	10,273			10,775				502				204
Fair valued below 70% of amortized cost																	18		98		58			(40		)		1
Fair valued at 70% to less than 100% of amortized cost																	587		2,574		2,419			(155		)		28
Fair valued at 100% and above of amortized cost																	3,340		8,402		8,863			461				81
Investment income on securities sold in current year	—	—			—				—				9				—		—		—			—				2
Total	3,828	$	10,832		$	11,320			$	488			$	222			3,945		$	11,074	$	11,340		$	266			$	112

At December 31, 2018
At December 31, 2019
Fixed-maturities summary:
Fair valued below 70% of cost or amortized cost	—	$	—		$	—			$	—			$	—
Fair valued at 70% to less than 100% of cost or amortized cost	1,262	4,308			4,180				(128		)		147
Fair valued at 100% and above of cost or amortized cost	2,344	6,335			6,509				174				269
Fair valued below 70% of amortized cost																	—		$	—	$	—		$	—			$	—
Fair valued at 70% to less than 100% of amortized cost																	157		530		523			(7		)		12
Fair valued at 100% and above of amortized cost																	3,754		10,578		11,175			597				401
Investment income on securities sold in current year	—	—			—				—				28				—		—		—			—				33
Total	3,606	$	10,643		$	10,689			$	46			$	444			3,911		$	11,108	$	11,698		$	590			$	446

See our ~~2018~~2019 Annual Report on Form 10-K, Item 7, Critical Accounting Estimates, Asset Impairment, Page ~~58.~~61, and updated in this quarterly report Item 1, Note 1, Accounting Policies.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures – The company maintains disclosure controls and procedures (as that term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (Exchange Act)).

Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. The company's management, with the participation of the company's chief executive officer and chief financial officer, has evaluated the effectiveness of the design and operation of the company's disclosure controls and procedures as of ~~June 30, 2019~~March 31, 2020. Based upon that evaluation, the company's chief executive officer and chief financial officer concluded that the design and operation of the company's disclosure controls and procedures provided reasonable assurance that the disclosure controls and procedures are effective to ensure:

that information required to be disclosed in the company's reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, and

that such information is accumulated and communicated to the company's management, including its chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosures.

Changes in Internal Control over Financial Reporting – During the three months ended ~~June 30, 2019~~,March 31, 2020, there were no changes in our internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. On February 28, 2019, we completed the acquisition of MSP, rebranded as Cincinnati Global effective May 1, 2019. Cincinnati Global's existing disclosure controls and procedures supported our financial reporting as of June 30, 2019. In conducting our evaluation of the effectiveness of our internal control over financial reporting, we have elected to exclude Cincinnati Global from our evaluation as permitted under SEC rules. We are currently in the process of evaluating and integrating Cincinnati Global's internal controls over financial reporting with ours. We expect to complete this integration by December 31, 2019.

Part II – Other Information

Item 1. Legal Proceedings

Neither the company nor any of our subsidiaries are involved in any litigation believed to be material other than ordinary, routine litigation incidental to the nature of our business.

Item 1A. Risk Factors

Our risk factors have not changed materially since they were described in our ~~2018~~2019 Annual Report on Form 10-K filed February ~~22, 2019, and are incorporated herein~~25, 2020, other than as discussed below.

The outbreak of COVID-19 could result in an unusually high level of losses.

In March 2020, the outbreak of COVID-19 caused by ~~reference, except we no longer have risks or uncertainties associated with the timely or successful completion~~a novel strain of the ~~acquisition~~coronavirus was recognized as a pandemic by the World Health Organization. The outbreak has become increasingly widespread in the United States, including in the markets in which we operate. Risks to our business include legislation or court decisions that extend business interruption insurance to require coverage for COVID-19 when there was no direct physical damage or loss to property. These actions would extend coverage beyond the terms and conditions we intended for those policies, meaning we would be forced to pay claims when no coverage was contemplated and for which no premium was collected. These amounts could have a material, adverse impact on our business, financial condition, results of ~~MSP. This transaction was completed~~operations or cash flows.

A weaker economy could result in reduced insurance premium revenue.

The outbreak of COVID-19 could have adverse impacts on economic activity that affect demand for insurance or cause substantial disruption to our distribution channel of independent agents, due to self-isolation, travel limitations, business restrictions, and otherwise. Many areas within the United States have imposed mandatory closures for businesses not deemed to be essential, and it is currently unclear for how long such closures will last. Though most of our employees are able to work remotely, these closures have affected agents, through which we sell our products and services, or their clients, which could result in significant declines in premium revenues. In an effort to support insurance consumers during this pandemic, most states where we market our products have issued mandates or requests such as ~~reported~~moratoriums on ~~Form 8-K filed February 28, 2019.~~policy cancellations or nonrenewals for nonpayments of premiums, forbearance on premium collections, waivers of late payment fees and extended periods in which policyholders may make their missed payments. Such actions may result in delayed premium receipts, disrupting cash flows and increasing credit risk from policyholders unable to make timely premium payments. Cash flows and gross premium receipts may also be affected by mid-term adjustments to exposures on which premium calculations are based to reflect the economic impact of the COVID-19 crisis on insureds’ business operations. The amount or duration of the effects could adversely impact our business, financial condition, results of operations or cash flows. Such adverse impacts may be material.

Financial disruption or a prolonged economic downturn could materially and adversely affect our investment performance.

The outbreak of COVID-19 has contributed to recent significant disruption and volatility for financial markets and decreased economic activity, reducing the valuation of investments. Many companies have experienced reduced liquidity and uncertainty and could cause our investment income or the value of securities we own to decrease.

In the event that these conditions recur or result in a prolonged economic downturn, they could adversely impact our financial condition, results of operations or cash flows. Such adverse impacts may be material.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

We did not sell any of our shares that were not registered under the Securities Act during the first ~~six~~three months of ~~2019.~~2020. Our repurchase program was expanded on October 22, 2007, to increase our repurchase authorization to approximately 13 million shares. Our repurchase program does not have an expiration date. On January 26, 2018, an additional 15 million shares were authorized, ~~resulting in 15,476,785~~which expanded our current repurchase program. We have 12,376,785 shares available for purchase under our programs at ~~June 30, 2019.~~March 31, 2020.

~~Period~~

~~Total number~~

~~of shares~~

~~purchased~~

~~Average~~

~~price paid~~

~~per share~~

~~Total number of shares~~

~~purchased as part of~~

~~publicly announced~~

~~plans or programs~~

~~Maximum number of~~

~~shares that may yet be~~

~~purchased under the~~

~~plans or programs~~

~~April 1-30, 2019~~

—

~~15,476,785~~

~~May 1-31, 2019~~

—

~~15,476,785~~

~~June 1-30, 2019~~

—

~~15,476,785~~

~~Totals~~

—



Period	Total number of shares purchased	Average price paid per share		Total number of shares purchased as part of publicly announced plans or programs	Maximum number of shares that may yet be purchased under the plans or programs
January 1-31, 2020	—	—		—	14,876,785
February 1-29, 2020	1,009,670	$	110.26	1,009,670	13,867,115
March 1-31, 2020	1,490,330	97.44		1,490,330	12,376,785
Totals	2,500,000	102.62		2,500,000

Item 6. Exhibits



Exhibit No.		Exhibit Description
3.1		Amended and Restated Articles of Incorporation of Cincinnati Financial Corporation (incorporated by reference to the company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2017, Exhibit 3.1)
3.2		Amended and Restated Code of Regulations of Cincinnati Financial Corporation, as of May 5, 2018 (incorporated by reference to the company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2018, Exhibit 3.2)
31A		Certification pursuant to Section 302 of the Sarbanes Oxley Act of 2002 – Chief Executive Officer
31B		Certification pursuant to Section 302 of the Sarbanes Oxley Act of 2002 – Chief Financial Officer
32		Certification pursuant to Section 906 of the Sarbanes Oxley Act of 2002
101.INS		The instance document does not appear in the interactive data file because its XBRL tags are embedded within the Inline XBRL document.
101.SCH		XBRL Taxonomy Extension Schema Document
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF		XBRL Taxonomy Extension Definition Linkbase Document
101.LAB		XBRL Taxonomy Extension Label Linkbase Document
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document
104		Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

CINCINNATI FINANCIAL CORPORATION

Date: ~~July 30, 2019~~April 27, 2020

/S/ Michael J. Sewell

Michael J. Sewell, CPA

Chief Financial Officer, Senior Vice President and Treasurer

(Principal Accounting Officer)

Cincinnati Financial Corporation ~~Second-Quarter 2019~~First-Quarter 2020 10-Q

Page 7066



(Dollars in millions)	Asset fair value measurements using significant unobservable inputs
		Corporate fixed maturities		States, municipalities and political subdivisions fixed maturities			Total
Beginning balance, January 1, 2019		$	1	$	4		$	5
Total gains or losses (realized/unrealized):
Included in net income		—		—			—
Included in other comprehensive income		—		—			—
Purchases		—		—			—
Sales		—		—			—
Transfers into Level 3		—		—			—
Transfers out of Level 3		—		—			—
Ending balance, June 30, 2019		$	1	$	4		$	5

Beginning balance, January 1, 2018		$	1	$	5		$	6
Total gains or losses (realized/unrealized):
Included in net income (loss)		—		—			—
Included in other comprehensive income (loss)		—		(1		)	(1		)
Purchases		—		—			—
Sales		—		—			—
Transfers into Level 3		—		—			—
Transfers out of Level 3		—		—			—
Ending balance, June 30, 2018		$	1	$	4		$	5



(Dollars in millions)	Amount
Assets
Investments and other invested assets	$	198
Cash and cash equivalents	64
Premiums receivable	45
Reinsurance recoverable	42
Other assets	23
Total assets acquired	$	372

Liabilities
Loss and loss expense reserves	$	277
Unearned premiums	88
Other liabilities	24
Total liabilities assumed	$	389

Fair value of identifiable intangible assets:
Syndicate capacity - indefinite lived	$	31
Syndicate broker relationships - definite lived	12
Value of business acquired - definite lived	4
Internally developed technology - definite lived	3
Total fair value of identifiable intangible assets	$	50

Total purchase price paid	$	64

Total assets acquired (including fair value of identifiable intangible assets)	422
Total liabilities assumed	389
Fair value of net assets acquired prior to allocation of goodwill	33

Excess of purchase price paid over fair value of net assets acquired assigned to goodwill	$	31