Cincinnati Financial : 2021 Annual Letter to Shareholders

2021 Annual Letter to Shareholders

Serving People

Navigating

Challenges

Rooted in the

Communities We Serve

Answering

the Call

Rooted in the Communities We Serve

The year dawned bright: growth and profitability were on track for another stellar year. And then in March, everything

changed. The novel coronavirus hit the U.S., and we were called to action. We've always been a company focused on the long-term, on building relationships and on putting people first. Those hallmarks served us well as we pivoted to working remotely, serving agents virtually and

rallying to support the communities we call home throughout 2020.

The Cincinnati Ethic, the eight tenets that guide our actions, remained our North Star. We went to work, serving people, navigating challenges and answering the

call of the independent agents who represent us as we all faced remarkable challenges.

Read more about how your company thrived, drawing on the strength of

our relationships, our innovative and experienced associates and our resilient business continuity plans in the sidebars of this letter.

Cincinnati Financial Corporation stands among the 25 largest property casualty insurers in the nation, based on net written premiums. A select group of independent agencies actively markets our business, home and auto insurance in 45 states. Within this select group, we also seek to become the life insurance carrier of choice and to help agents and their clients - our policyholders - by offering leasing and financing services.

Three competitive advantages distinguish your company, positioning us to build shareholder value and long-term success:

1. Commitment to our network of professional independent insurance agencies and to their continued success
2. Operating structure that supports local decision making, showcasing the strength of our field claims service, field underwriting and field support services
3. Financial strength to fulfill our promises and be a consistent market for our agents' business, supporting stability and confidence

Learn more about where we are today and where we are headed by reviewing our publications on cinfin.com/investors.

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Letter to Shareholders

Condensed Balance Sheets and Income Statements

Five-Year Summary Financial Information

Safe Harbor Statement

Subsidiary Officers and Directors

Directors and Officers

Shareholder Information

To Our Shareholders, Friends and Associates:

Highlights

2020 was a year for the ages. We faced a global pandemic, 71 declared catastrophe events, more tropical cyclones hit our coast than the World Meteorological Organization had names for - they had to go to the Greek alphabet - wildfires raged in the West and a powerful derecho pummeled the Midwest.

Staying the course with unwavering determination allowed us to deliver another year of healthy financial results. Shareholders' equity rose to more than $10 billion at year- end 2020. That value on a per-share basis, your book value, increased 10.7% during the year to a record high $67.04.

To return capital to shareholders, we favor cash dividends, increasing them in each of the past 60 years. In January 2021, our board of directors increased the regular quarterly dividend 3 cents, or 5% to 63 cents per share, setting the stage for a 61st consecutive year of increasing shareholder dividends. Only seven other publicly traded companies in the U.S. can claim such a streak.

By balancing profitability and growth, we expect to continue to outperform the industry. A.M. Best Co., a leading insurance industry ratings agency, estimates 2020 industry results at a 99.3% combined ratio on a statutory basis with approximately 2%

net written premium growth.Steven J. Johnston, Chairman, President and Chief Executive Officer

Our property casualty insurance operations achieved a ninth year in a row of

underwriting profit with a combined ratio of 98.1%, even with 12.1 points of catastrophe losses. Reaching nearly a decade of annual insurance profitability reflects the diligent execution of our deliberate growth and profitability strategies, and we expect further benefits from our initiatives to accrue over time.

While the pandemic created a challenging market environment, we grew property casualty net written premiums 6% for the year.

Profitable growth of insurance operations continues to provide fuel for our investment operations. Our long-term, buy and hold equity-investment philosophy focusing on securities with a record of increasing dividends helped compensate for the effects of continuing low interest rates, raising pretax investment income 4% to a record $670 million.

Year after year, we expect our combined ratio five-year annual average to be within the range of 95% to 100%, and we expect to grow net written premium faster than the industry average. As we saw in 2020, performing at these levels generates strong cash flow to expand our investment portfolio and increase investment income, supporting our primary performance target of an annual value creation ratio averaging 10% to 13%. We believe the value creation ratio is an appropriate metric because it considers our ability to increase the book value of your company and your shareholder dividends. For 2020, the ratio reached 14.7%, resulting in a solid 16.5% annual average for the five years beginning with 2016.

Keeping Our Focus

In a year of unprecedented challenges, it's easy to get distracted. We kept our focus on our clearly articulated vision and strategy that has brought us 70 years of success.

As the pandemic picked up speed in the U.S., many agents and policyholders were uncertain about what the future would hold. We responded quickly: extending payment grace periods; waiving restrictions on policyholders that

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virtual training sessions helped agents further their education and better serve clients

693

agencies supported as they transitioned to work from home by Cincinnati's Customer Care Center

9,850

agency visits conducted virtually, strengthening relationships and offering support to help agents meet their goals

Built to Serve

Empowered field associates stationed in communities across

the country have long been a key Cincinnati advantage. In 2020, they again became a beacon of stability in a time of crisis. Experienced and knowledgeable, our field teams found creative ways to support the local independent agents they serve.

Agent Wins Large Account with One Phone Call

Just as the coronavirus shutdowns began, an agent needed a solution for a large commercial real estate account. He found the answer with one call to his Cincinnati field marketing representative. With 21 buildings varying in age, construction type and occupancy, the account needed a team of experts to review the terms and conditions necessary to appropriately manage its risks. Combining the expertise from our standard and excess and surplus companies, along with virtual tools to meet changing safety protocols, our field representative was able to offer a comprehensive solution, supporting the agent's reputation and giving the businessowner peace of mind.

Robbins & Associates, an independent agency in Monroe, NC, presented The Arc of Union/Cabarrus County with $1,000 as part of Cincinnati's 2020 President's Club Funds. The Arc supports individuals with disabilities and their families.

President's Club is an annual event meant to strengthen relationships with top- performing independent agents. This year, we redirected those funds, awarding each agency with $1,000 to donate to the nonprofit of their choice.

Personal Attention Helps Agent

Win First Big Account

A relatively new agent earned the opportunity to present to a profitable contractor. Wanting to impress, she called her Cincinnati field marketing representative who reviewed the proposal, answered all her questions and added further details that could be helpful for this contractor.

The field representative then joined the agent on a videoconference call for the presentation to the prospect. The contractor praised the agent for her thorough review of the account as well as our presence at the meeting. Not only did he purchase Cincinnati insurance, the contractor offered us the opportunity to address his surety needs as well.

2 | 2021 Annual Letter to Shareholders

began performing delivery services; providing

additional risk management advice as businesses

Navigating Challenges

considered transitioning to new operations to

support our country's COVID-response efforts;

Field marketing representative:

waiving vacancy clauses for buildings temporarily

Nicole Buonauito, Sales Field

closed; providing credits on commercial policies for

vehicles not being used; offering a 15% Stay-at-

"Cincinnati has been very

Home credit for personal lines auto policyholders

proactive during

on their April and May premiums; and connecting

agents for roundtable discussions on how to best

this uncertain time for our

serve clients during the COVID-19 outbreak.

businessowner clients!"

As we head into 2021, challenges remain, including

ongoing litigation surrounding business

Agent: Jessica Lamoureux,

interruption claims. We believe we are well prepared

World Insurance Associates, Brewster, NY

to face the headwinds caused by

the pandemic, an unpredictable economy,

increasing catastrophe losses and low interest rates.

Increasing expertise and

focus in key areas give us

confidence that we have

2020 Consolidated Revenues

Total Investments

what it takes to be a

(in millions)

At fair value (in billions)

strong competitor:

Focused on Balancing

16

$15.5

17

$17.1

Growth and Profitability

18

$16.7

2020 brought a fair

19

$19.7

amount of market

20

$21.5

disruption to our industry.

One of our best defenses

Net and Non-GAAP Operating Income

to the increasingly

Commercial Lines

(per share)

competitive property

$3,479 (46.2%)

casualty market is our

Personal Lines

Net Income

strong relationships with

$1,467 (19.5%)

Non-GAAP Operating Income

Excess and Surplus Lines

1,848 of the country's

$327 (4.3%)

16

$3.07

$3.55

premier independent

Life Insurance

17

$2.74

$6.29

$291 (3.9%)

agencies. We do not take

$1.75

$3.35

Investment Income

18

$4.20

these relationships for

$670 (8.9%)

19

$12.10

granted. To continue to

Net Investment Gains and

20

$3.28

$7.49

grow profitability, we must

Losses and Other

* The Definitions of Non-GAAP Information and Reconciliation to

$1.302 (17.2%)

Comparable GAAP Measures are in our quarterly news releases, which are

continue to develop the

Total: $7.536 billion

available at cinfin.com/investors.

products, the expertise

and the pricing

Consolidated revenues declined 5% in 2020, compared with 2019, due to a lower amount of net investment

sophistication to

gains. Earned premiums rose 7% and invested assets grew nearly $2 billion due to higher market valuations

confidently compete for

and net purchases of securities that reflected positive operating cash flows. Pretax investment income grew

4% for the year, reaching a record high $670 million and resulting in the seventh consecutive year of increasing

their best business.

investment income.

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