FinanceLooker

Excrept from filing document 2024-12-31

The aggregate market value of the shares of the registrant s common stock held by non affiliates based upon the closing price of these shares on the New York Stock Exchange as of the last business day of the registrant s most recently completed second fiscal quarter was 9 6 billion As of February 25 2025 there were 176 777 741 shares of the registrant s common stock outstanding
Portions of the information required by Part III of this Form 10 K are incorporated herein by reference from the registrant s definitive proxy statement for its 2025 Annual Meeting of Stockholders which will be filed with the Securities and Exchange Commission pursuant to Regulation 14A under the Securities Exchange Act of 1934 as amended within 120 days after the end of the registrant s fiscal year ended December 31 2024
The Private Securities Litigation Reform Act of 1995 the Act provides a safe harbor to encourage companies to provide prospective information as long as those statements are identified as forward looking and are accompanied by meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those included in the forward looking statements Certain information contained in this Annual Report on Form 10 K including certain statements in the business description in Item 1 Management s Discussion and Analysis in Item 7 and the consolidated financial statements and related notes in Item 8 or in any other written or oral statements made by us in communications with the financial community or contained in documents filed with the Securities and Exchange Commission SEC may be considered forward looking statements within the meaning of the Act Forward looking statements are those not based on historical information but rather relate to our outlook future operations strategies financial results or other developments Forward looking statements speak only as of the date made We undertake no obligation to update these statements even if made available on our website or otherwise These statements may be made directly in this document or may be made part of this document by reference to other documents filed by us with the SEC a practice which is known as incorporation by reference You can find many of these statements by looking for words such as will may should could believes expects anticipates estimates plans assumes intends projects goals objectives or similar expressions in this document or in documents incorporated herein
These forward looking statements are subject to numerous assumptions risks and uncertainties many of which are beyond our control We caution readers that the following factors in addition to other factors mentioned from time to time may cause actual results to differ materially from those contemplated by the forward looking statements
Fluctuation in insurance reserve liabilities claim payments and pricing due to changes in claim incidence recovery rates mortality and morbidity rates and policy benefit offsets due to among other factors the rate of unemployment and consumer confidence the emergence of new diseases epidemics or pandemics new trends and developments in medical treatments the effectiveness of our claims operational processes and changes in governmental programs
Unfavorable economic or business conditions both domestic and foreign that may result in decreases in sales premiums or persistency as well as unfavorable claims activity or unfavorable returns on our investment portfolio
Investment results including but not limited to changes in interest rates defaults changes in credit spreads impairments and the lack of appropriate investments in the market which can be acquired to match our liabilities
Ineffectiveness of our derivatives hedging programs due to changes in forecasted cash flows the economic environment counterparty risk ratings downgrades capital market volatility collateral requirements changes in interest rates and or regulation
All subsequent written and oral forward looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section
Unum Group a Delaware general business corporation and its insurance and non insurance subsidiaries which collectively with Unum Group we refer to as the Company operate in the United States the United Kingdom Poland and to a limited extent in certain other countries The principal operating subsidiaries in the United States are Unum Life Insurance Company of America Unum America Provident Life and Accident Insurance Company Provident The Paul Revere Life Insurance Company Paul Revere Life Colonial Life Accident Insurance Company Unum Insurance Company Starmount Life Insurance Company Starmount in the United Kingdom Unum Limited and in Poland Unum Zycie TUiR S A Unum Poland We are a leading provider of financial protection benefits in the United States and the United Kingdom Our products include disability life accident critical illness dental and vision and other related services We market our products primarily through the workplace
We have three principal operating segments Unum US Unum International and Colonial Life Our other operating segments are the Closed Block and Corporate segments These segments are discussed more fully under Reportable Segments included herein in this Item 1
The benefits we provide help the working world thrive throughout life s moments and protect people from the financial hardship of illness injury or loss of life As a leading provider of employee benefits we offer a broad portfolio of products and services through the workplace that provide support when it is needed most
Specifically we offer disability life and voluntary products on both individual and group bases as well as provide certain fee based services These products and services which can be sold stand alone or combined with other coverages help employers of all sizes attract and retain the talented and capable workforce they need to succeed while protecting the incomes and livelihood of their employees We believe employer sponsored benefits are the most effective way to provide workers with access to information and options to protect their financial stability Working people and their families particularly those at lower and middle incomes are perhaps the most vulnerable in today s economy yet are often overlooked by many providers of financial products and services For many of these workers and families employer sponsored benefits are the primary defense against the potentially catastrophic financial impact of death illness or injury
We have established a corporate culture consistent with the social value of our products and services We see important links between the obligations we have to all of our stakeholders and we place a strong emphasis on operating with integrity and contributing to positive change in our communities Accordingly we are committed not only to meeting the needs of our customers who depend on us but also to being accountable for our actions through sound and consistent business practices a strong internal compliance program a comprehensive risk management strategy and an engaged employee workforce
We believe our disciplined approach to providing financial protection products at the workplace puts us in a position of strength The products and services we provide have never been more important to employers employees and their families Our strategy remains centered on growing our core businesses through investing and transforming our operations and technology to anticipate and respond to the changing needs of the marketplace driving enhanced customer experiences and expanding into new adjacent markets through meaningful partnerships and effective deployment of our capital across our portfolio
We continue to analyze and employ strategies we believe will help us navigate the current environment and allow us to maintain financial flexibility to support the needs of our businesses while also allowing us to return capital to our shareholders As we have seen in the current environment we have substantial leverage to inflation and strong labor markets which generate wage and payroll growth To the extent that our own costs increase as a result of wage inflation we have the ability to adjust our prices on new and renewing business to reflect these higher costs
Our reportable segments are comprised of the following Unum US Unum International Colonial Life Closed Block and Corporate The percentage of consolidated premium income generated by each reportable segment for the year ended December 31 2024 is as follows
Financial information is provided in Management s Discussion and Analysis of Financial Condition and Results of Operations contained herein in Item 7 and Note 15 of the Notes to Consolidated Financial Statements contained herein in Item 8
Our Unum US segment is comprised of group disability group life and accidental death and dismemberment and supplemental and voluntary lines of business The group disability line of business includes long term and short term disability medical stop loss and fee based service products The supplemental and voluntary line of business includes voluntary benefits individual disability and dental and vision products Unum US products are issued primarily by Unum America Provident Starmount and Unum Insurance Company These products excluding medical stop loss which is no longer marketed as of the third quarter of 2024 are marketed through our field sales personnel who work in conjunction with independent brokers and consultants Our market strategy for Unum US is to effectively deliver an integrated offering of employee benefit products in the group core market which we define for Unum US as employee groups with fewer than 2 000 employees the group large case market and the supplemental and voluntary market
Group long term disability provides employees with insurance coverage for loss of income in the event of extended work absences due to sickness or injury We offer services to employers and insureds to encourage and facilitate rehabilitation retraining and re employment Most policies begin providing benefits following 90 or 180 day waiting periods and continue providing benefits until the employee reaches a certain age generally between 65 and 70 or recovers from the disability The benefits are limited to specified maximums as a percentage of income Also included in our long term disability product line is our medical stop loss product which is no longer actively marketed as of the third quarter of 2024 As our medical stop loss contracts were renewable on an annual basis no medical stop loss policies will remain in force as of the third quarter of 2025 This product was designed to protect self insured employers if their employees medical claims exceed certain agreed upon thresholds
Group short term disability insurance generally provides coverage from loss of income due to injury or sickness for up to 26 weeks and is limited to specified maximums as a percentage of income Benefits are typically effective after 0 to 30 days for accidents and after 7 to 30 days for sickness
Our fee based services include leave management and administrative services only ASO business Leave management services provide administrative services on behalf of employers to ensure the protected leave eligibility and status for employees are in accordance with applicable laws and regulations ASO products provide administrative services regarding claims processing and billing for self insured customers for which the responsibility for funding claim payments remains with the customer
Premiums for group long term and short term disability are generally based on expected claims of a pool of similar risks plus provisions for administrative expenses investment income and profit In some cases coverage for large employers will include retrospective experience rating provisions or will be underwritten on an experience rated basis Premiums for experience rated group long term and short term disability business are based on the expected experience of the client given its demographics industry group and location adjusted for the credibility of the specific claim experience of the client Both group long term and short term disability are sold primarily on a basis permitting periodic repricing to address the underlying claims experience Fees for our leave management services and ASO business are generally based on the number of covered employees and an agreed upon per employee per month rate Premiums for our medical stop loss product were generally based on the number of covered employees in self insured employer groups and their estimated overall health risk plus provisions for administrative expenses and profit
We have defined underwriting practices and procedures If the coverage amount for our disability policies exceeds certain prescribed age and amount limits we may require a prospective insured to submit evidence of insurability Our disability policies are typically issued both at inception and renewal with rate guarantees For new group policyholders the usual rate guarantee is one to three years For group policies being renewed the rate guarantee is generally one year but may be longer The profitability of the policy depends on the adequacy of the rate during the rate guarantee period The contracts provide for certain circumstances in which the rate guarantees can be overridden
Profitability of group long term and short term disability insurance is affected by sales persistency investment returns claims experience and the level of administrative expenses Morbidity is an important factor in disability claims experience and many economic and societal factors can affect claim incidence for disability insurance We routinely make pricing adjustments on our group long term and short term disability insurance products when contractually permitted which take into account emerging experience and external factors
Group life and accidental death and dismemberment products are sold to employers as employee benefit products Group life consists primarily of renewable term life insurance with the coverages frequently linked to employees wages and includes a provision for waiver of premium if disabled Accidental death and dismemberment consists primarily of an additional benefit amount payable if death or severe injury is attributable to an accident
Premiums are generally based on expected claims of a pool of similar risks plus provisions for administrative expenses investment income and profit Underwriting practices and rate guarantees are similar to those used for group disability products and evidence of insurability is required for benefits in excess of a specified limit
Profitability of group life and accidental death and dismemberment insurance is affected by persistency investment returns mortality and other claims experience and the level of administrative expenses
Voluntary benefits products are primarily sold to groups of employees through payroll deduction at the workplace and include accident disability life hospital indemnity cancer and critical illness Products are issued on both a group and individual basis
Premiums are generally based on assumptions for morbidity mortality persistency administrative expenses investment income and profit We develop our assumptions based on our own experience and published industry tables Our underwriters may evaluate the medical condition of prospective policyholders prior to the issuance of a policy on a simplified basis However underwriting requirements are often waived for cases that meet certain criteria including participation levels Individual voluntary benefits products other than life insurance are offered on a guaranteed renewable basis which allows us to
reprice in force policies subject to regulatory approval Group voluntary benefits products are offered primarily on an optionally renewable basis which allows us to reprice or terminate in force policies
Profitability of voluntary benefits products is affected by the level of employee participation persistency investment returns mortality and other claims experience and the level of administrative expenses
Individual disability products are offered primarily to multi life employer groups to supplement their group disability plans and may be funded by the employer but the majority of our individual disability policies are entirely owned by the employee and are portable Individual disability insurance provides the insured with a portion of earned income lost as a result of sickness or injury The benefits including the underlying group disability coverage typically range from 30 percent to 75 percent of the insured s monthly earned income We provide various options with respect to length of benefit periods product features and waiting periods before benefit payments begin which permit tailoring of the multi life plan to a specific employer s needs We also market individual disability policies which include payments for the transfer of business ownership between partners and payments for business overhead expenses also on a multi life basis Individual disability products do not provide for the accumulation of cash values
Premium rates for individual disability products vary by age product features industry region and occupation based on assumptions concerning morbidity mortality persistency administrative expenses investment income and profit We develop our assumptions based on our own experience Our underwriting rules issue limits and plan designs reflect risk and the financial circumstances of prospective insureds Individuals in multi life groups may be subject to limited medical underwriting The majority of our individual disability policies are written on a noncancelable basis Under a noncancelable policy as long as the insured continues to pay the fixed annual premium for the policy s duration we cannot cancel the policy or change the premium
Group dental and vision products are sold to employers as employee benefit products Our group dental products include a variety of insured and self insured dental care plans including preferred provider organizations and scheduled reimbursement plans Our group vision products provide coverage that includes a range of both in network and out of network benefits for routine vision services offered either in conjunction with our dental product offerings or as stand alone coverage
Premiums for small case group dental and vision products are generally based on expected claims of a pool of similar risks plus a provision for administrative expenses investment income and profit Premiums for large employer groups are underwritten on an experience rated basis
Our Unum International segment includes our operations in the United Kingdom and Poland Unum UK s business includes insurance for group long term disability group life and supplemental lines of business which include dental individual disability and critical illness products Unum Poland s business primarily includes insurance for individual and group life with accident and health riders Unum International s products are sold primarily through field sales personnel and independent brokers and consultants The market strategy for the segment is to offer benefits to employers and employees through the workplace with a focus on the expansion of the number of employers and employees covered in our Unum UK business and the growth of the existing Unum Poland business through the incorporation of our benefits and distribution expertise
Group long term disability products are sold to employers for the benefit of employees Group long term disability provides employees with insurance coverage for loss of income in the event of extended work absences due to sickness or injury Services are offered to employers and insureds to encourage and facilitate rehabilitation retraining and re employment Most policies begin providing benefits following 90 or 180 day waiting periods and continue providing benefits until the employee reaches a certain age or reaches the end of the limited period specified in the policy terms The benefits are limited to specified maximums as a percentage of income
Premiums for group long term disability are generally based on expected claims of a pool of similar risks plus provisions for administrative expenses investment income and profit Some cases carry experience rating provisions Premiums for experience rated group long term disability business are based on the expected experience of the client given its demographics industry group and location adjusted for the credibility of the specific claim experience of the client Policies are sold primarily on a basis permitting periodic repricing to address the underlying claims experience
We have defined underwriting practices and procedures If the coverage amount exceeds certain prescribed age and amount limits we may require a prospective insured to submit evidence of insurability Policies are typically issued both at inception and renewal with rate guarantees The usual rate guarantee is two years but may vary depending on circumstances The profitability of the policy is dependent upon the adequacy of the rate during the rate guarantee period The contracts provide for certain circumstances in which the rate guarantees can be overridden
Profitability of group long term disability insurance is affected by sales persistency investment returns claims experience and the level of administrative expenses Morbidity is an important factor in disability claims experience We routinely make pricing adjustments on our group insurance products when contractually permitted which take into account emerging experience and external factors
Group life products are sold to employers as employee benefit products Group life consists of two types of products a renewable term life insurance product and a group dependent life product The renewable term life product provides a lump sum benefit to the beneficiary upon the death of an employee The group dependent life product which we discontinued offering to new customers in 2012 provides an annuity to the beneficiary upon the death of an employee Both coverages are frequently linked to employees wages Premiums for group life are generally based on expected claims of a pool of similar risks plus provisions for administrative expenses investment income and profit Underwriting and rate guarantees are similar to those utilized for Unum UK group long term disability products
Supplemental products are sold to employers and groups of employees and include group critical illness and group dental products Group critical illness products provide a lump sum benefit on the occurrence of a covered critical illness event Group dental products generally provide fixed benefits based on specified treatments or a portion of the cost of the treatment Beginning in 2022 supplemental products are no longer actively marketed to individual customers
Premiums for group critical illness products are generally based on expected claims of a pool of similar risks plus provisions for administrative expenses investment income and profit Underwriting and rate guarantees are similar to those utilized for Unum UK group long term disability products Premiums for group dental products are generally based on expected claims of a pool of similar risks plus provisions for administrative expenses and profit with minor pricing variation based on the number of covered employees in the group Profitability of our supplemental products is affected by persistency investment returns claims experience and the level of administrative expenses
Unum Poland products which include both individual and group life products provide renewable term and whole life insurance with accident and health riders Premiums are based on expected claims of a pool of similar risks plus provisions for administrative expenses investment income and profit Profitability of our Unum Poland products is affected by persistency investment returns mortality and other claims experience and the level of administrative expenses
Our Colonial Life segment includes the accident sickness and disability product line life product line and cancer and critical illness product line Products are issued primarily by Colonial Life Accident Insurance Company and marketed to employees on both a group and an individual basis at the workplace through an independent contractor agent sales force and brokers Our market strategy for Colonial Life is to effectively deliver a broad set of voluntary products and services in the public sector and in the commercial sector with a particular focus on the core market which we define for Colonial Life as accounts with fewer than 1 000 employees
Our underwriters evaluate the medical condition of prospective policyholders prior to the issuance of a policy on a simplified basis Underwriting requirements may be waived for cases that meet certain criteria including participation levels
The accident sickness and disability product line consists of short term disability policies accident only policies providing benefits for injuries on a specified loss basis and our dental and vision policies It also includes accident and health policies which cover events such as hospital admissions confinement and surgeries
Premiums are generally based on assumptions for morbidity mortality persistency administrative expenses investment income and profit We develop our assumptions based on our own experience and published industry tables Premiums are primarily individual guaranteed renewable which allows us to change premiums on a state by state basis Some policies are written on a group basis which are offered primarily on an optionally renewable basis which allows us to reprice or terminate in force policies Premiums for our dental and vision products are guaranteed renewable with rates that vary by age and region
Premiums are generally based on assumptions for mortality persistency administrative expenses investment income and profit We develop our assumptions based on our own experience and published industry tables Premiums for the individual
whole life and term life products are guaranteed for the life of the contract Premiums for the individual universal life products are flexible and may vary at the individual policyholder level For the group term life products we retain the right to change premiums at the account level based on the experience of the account
Cancer policies provide various benefits for the treatment of cancer including hospitalization surgery radiation and chemotherapy Critical illness policies provide a lump sum benefit and or fixed payments on the occurrence of a covered critical illness event
Premiums are generally based on assumptions for morbidity mortality persistency administrative expenses investment income and profit We develop our assumptions based on our own experience and published industry tables Premiums are primarily individual guaranteed renewable wherein we have the ability to change premiums on a state by state basis Some policies are written on a group basis and are offered primarily on an optionally renewable basis which allows us to reprice or terminate in force policies
Our Closed Block segment consists of group and individual long term care and other insurance products no longer actively marketed Closed Block segment premium income for 2024 was comprised of approximately 79 percent group and individual long term care and 21 percent other insurance products
We discontinued offering individual long term care in 2009 and group long term care in 2012 Group long term care was previously offered to employers for the benefit of employees Individual long term care was previously marketed on a single life customer basis
Long term care insurance pays a benefit upon the loss of two or more activities of daily living and the insured s requirement of standby assistance or cognitive impairment Payment is generally made on an indemnity basis regardless of expenses incurred up to a lifetime maximum Benefits begin after a waiting period usually 90 days or less and are generally paid for a period of three years six years or lifetime
Our long term care insurance was sold on a guaranteed renewable basis which allows us to reprice in force policies subject to regulatory approval Premium rates for long term care vary by age and are based on assumptions concerning morbidity mortality persistency administrative expenses investment income and profit Premium rate increases continue to be implemented where needed and where approved by state regulators We develop our assumptions based on our own claims and persistency experience and published industry tables
Other insurance products not actively marketed include individual disability group pension individual life and corporate owned life insurance reinsurance pools and management operations and other miscellaneous product lines The majority of these products have been reinsured with approximately 84 percent of reserves at December 31 2024 ceded to other insurance companies
Our Corporate segment includes investment income on corporate assets not specifically allocated to a line of business interest expense on corporate debt and certain other corporate income and expenses not allocated to a line of business
In the normal course of business we assume reinsurance from and cede reinsurance to other insurance companies In a reinsurance transaction a reinsurer agrees to indemnify another insurer for part or all of its liability under a policy or policies it has issued for an agreed upon premium or fee We undertake reinsurance transactions for both risk management and capital management If the assuming reinsurer in a reinsurance agreement is unable to meet its obligations we remain contingently liable In the event that reinsurers do not meet their obligations under the terms of the reinsurance agreement reinsurance recoverable balances could become uncollectible We evaluate the financial condition of reinsurers to whom we cede business and monitor concentration of credit risk to minimize our exposure We may also require assets to be held in trust letters of credit or other acceptable collateral to support reinsurance recoverable balances The collectability of our reinsurance recoverable is primarily a function of the solvency of the individual reinsurers Although we have controls to minimize our exposure the insolvency of a reinsurer or the inability or unwillingness of a reinsurer to comply with the terms of a reinsurance contract could have a material adverse effect on our results of operations
In general the maximum amount of life insurance risk retained by our U S insurance subsidiaries under group or individual life or group or individual accidental death and dismemberment policies during 2024 was 1 million per covered life per policy The retention amount remains at 1 million for 2025 For Unum Limited life insurance risk during 2024 we had reinsurance agreements which provided 20 percent quota share coverage up to 500 thousand per covered life for group lump sum benefits as well as 100 percent coverage per covered life above that amount For Unum Limited during 2025 we have reinsurance agreements which provide 15 percent quota share coverage for group lump sum benefits up to 500 thousand per covered life as well as 80 percent coverage per covered life for benefits above 500 thousand up to 2 million For Unum Limited in both 2024 and 2025 we have reinsured 100 percent of benefits in excess of 2 million for both group dependents and lump sum benefits
We have global catastrophic reinsurance coverage which covers all Unum Group insurance companies and includes four layers of coverage to limit our exposure under life accidental death and dismemberment long term care and disability policies in regard to a catastrophic event Each layer provides coverage for catastrophic events including most acts of war and any type of terrorism As of December 31 2024 we had up to 1 million of coverage per person per policy for each U S and Poland covered line of business and up to 2 million of coverage for each U K covered line of business Effective January 1 2025 we have up to 4 million of coverage per person for each U S and Poland covered line of business and up to 2 million of coverage for each U K covered line of business We have the following coverage for 2025 after a 150 million deductible
In addition to the global catastrophic reinsurance coverage noted above Unum Limited has additional catastrophic coverage via an arms length intercompany reinsurance agreement with Unum America under similar terms as the global catastrophic treaties Unum Limited has the following additional coverage for 2025 after a 77 5 million deductible
Unum Poland had additional global catastrophic reinsurance coverage of up to zł 100 million per event or up to zł 200 million for the year with a maximum retention limit of zł 2 million in 2024 and 2025 Insurable events included passive war as well as nuclear chemical biological and other forms of terrorism
We exited a substantial portion of our Closed Block individual disability product line through two phases of a reinsurance transaction with Commonwealth Annuity and Life Insurance Company Commonwealth in December 2020 and March 2021 As a part of the transaction Provident Paul Revere Life and Unum America the ceding companies each finalized separate reinsurance agreements with Commonwealth to reinsure on a coinsurance and modified coinsurance basis a substantial portion of the Closed Block individual disability business Commonwealth established and maintains collateralized trust accounts for the benefit of the ceding companies to secure its obligations under the reinsurance agreements
Also in December 2020 Provident Life and Casualty Insurance Company PLC a wholly owned domestic insurance subsidiary of Unum Group entered into and subsequently amended in March 2021 an agreement with Commonwealth whereby PLC will provide a 12 year volatility cover to Commonwealth for the active life cohort ALR cohort ceded as a part of the reinsurance transaction described above At the end of the 12 year coverage period Commonwealth will retain the risk for the remaining incidence and claims risk on the ALR cohort of the ceded business Under this volatility cover annual settlements will be made equal to the difference between the actual and estimated cash flows and reserve changes during the year Upon expiration of the 12 year period a terminal settlement will be made based on the final reserves for the ALR cohort Due to the nature of the volatility cover the ALR cohort is accounted for under the deposit method on a U S generally accepted accounting principles GAAP basis
We have a quota share reinsurance agreement under which we cede certain blocks of Unum US group long term disability claims The agreement is on a combination coinsurance with funds withheld and modified coinsurance basis and provides 90 percent quota share reinsurance on the ceded claims We also have five reinsurance agreements that collectively cede approximately 65 percent of Unum US group life risk up to our per person retention limit for our U S insurance subsidiaries These reinsurance agreements for Unum US group disability and group life allow us to more effectively manage capital in conformity with statutory accounting principles but do not meet insurance risk transfer in accordance with applicable GAAP and therefore are not accounted for as reinsurance in our consolidated GAAP financial statements
In 2024 we ceded 20 percent of the risk for certain blocks of recently issued Unum US individual disability policies as well as some related claims development risk on a non proportional modified coinsurance basis with a provision for experience refunds This agreement terminated effective January 1 2025 Effective January 1 2025 we ceded 30 percent of the risk for most of our recently issued Unum US individual disability policies This agreement is on a coinsurance with funds withheld basis with a provision for experience refunds The new agreement allows us to more effectively manage capital in conformity with statutory accounting principles but does not meet insurance risk transfer in accordance with applicable GAAP and therefore will not be accounted for as reinsurance in our consolidated GAAP financial statements
Unum America cedes certain long term care business to Fairwind Insurance Company Fairwind which is an affiliated captive reinsurance subsidiary captive reinsurer domiciled in the United States with Unum Group as the ultimate parent This captive reinsurer was established for the limited purpose of reinsuring risks attributable to specified policies issued or reinsured by Unum America in order to effectively manage risks in connection with this business as well as to enhance our capital efficiency On a consolidated reporting basis for Unum Group financial statement impacts of our reinsurance arrangements with affiliates are eliminated in accordance with GAAP
For further discussion of our reinsurance activities refer to Risk Factors contained herein in Item 1A Executive Summary Consolidated Operating Results Segment Results and Liquidity and Capital Resources Cash Available from Subsidiaries contained herein in Item 7 and Notes 1 14 and 18 of the Notes to Consolidated Financial Statements contained herein in Item 8
The applicable insurance laws under which insurance companies operate require that they report liabilities for future policy benefits to meet future obligations on their outstanding policies These liabilities are the amounts which with the additional premiums to be received and interest thereon compounded annually at certain assumed rates are calculated to be sufficient to meet the various policy and contract obligations as they mature These laws specify that the liabilities shall not be less than liabilities calculated using certain specified mortality and morbidity tables interest rates and methods of valuation required for statutory accounting
The liabilities for future policy benefits reported in our financial statements contained herein are calculated in conformity with GAAP and differ from those specified by the laws of the various states and reported in the statutory financial statements of our insurance subsidiaries These differences result from the use of mortality and morbidity tables which we believe are more representative of the expected experience for these policies than those required for statutory accounting purposes and also result from differences in actuarial reserving methods and interest rate assumptions
The assumptions we use to calculate our liabilities are intended to represent an estimate of experience for the period that policy benefits are payable Some of the key assumptions include the discount rate the claim resolution rate the claim incidence rate and policyholder lapse and mortality There are also some key assumptions that are applicable only to certain product lines Cash flow assumptions are reviewed and updated as needed at least annually Assumptions may be updated more frequently if necessary based on trending experience and future expectations On a quarterly basis cohort level cash flow measures are updated based on the emergence of actual experience
The change in the liability for future policy benefits at the original discount rate as of the beginning of the period resulting from changes in cash flow assumptions and resulting from the emergence of actual experience from expected experience is reflected as the policy benefits remeasurement loss gain in the consolidated statements of income The impact of all other changes in the liability for future policy benefits are reflected as policy benefits in the consolidated statements of income
For further discussion of our liabilities for future policy benefits refer to Risk Factors contained herein in Item 1A Critical Accounting Estimates and the discussion of segment operating results included in Management s Discussion and Analysis of Financial Condition and Results of Operations contained herein in Item 7 and Notes 1 and 6 of the Notes to Consolidated Financial Statements contained herein in Item 8
Investment activities are an integral part of our business and profitability is significantly affected by investment results We segment our invested assets into portfolios that support our various product lines Generally our investment strategy for our portfolios is to match the effective asset cash flows and durations with related expected liability cash flows and durations to consistently meet the liability funding requirements of our businesses and to manage interest rate risk We seek to earn investment income while assuming risk in a prudent and selective manner subject to the constraints of quality liquidity diversification and regulatory considerations Our overall investment philosophy is to invest in a portfolio of high quality assets that provide investment returns consistent with that assumed in the pricing of our insurance products Assets are invested predominately in fixed maturity securities
We may redistribute investments among our different lines of business or sell selected securities and reinvest the proceeds when necessary to adjust the cash flow and or duration of the asset portfolios to better match the cash flow and duration of the liability portfolios Asset and liability portfolio modeling is updated on a quarterly basis and is used as part of the overall interest rate risk management strategy Cash flows from the in force asset and liability portfolios are projected at current interest rate levels and at levels reflecting an increase and a decrease in interest rates to obtain a range of projected cash flows under the different interest rate scenarios These results enable us to assess the impact of projected changes in cash flows and duration resulting from potential changes in interest rates Testing the asset and liability portfolios under various interest rate
scenarios enables us to choose what we believe to be the most appropriate investment strategy as well as to limit the risk of disadvantageous outcomes Although we test the asset and liability portfolios under various interest rate scenarios as part of our modeling the majority of our liabilities related to insurance contracts are not interest rate sensitive and we therefore have minimal exposure to policy withdrawal risk Our determination of investment strategy relies on long term measures such as reserve adequacy analysis and the relationship between the portfolio yields supporting our various product lines and the aggregate discount rate assumptions embedded in the reserves We also use this analysis in determining hedging strategies and utilizing derivative financial instruments to manage interest rate risk and the risk related to matching duration for our assets and liabilities We do not use derivative financial instruments for speculative purposes
Refer to Risk Factors contained herein in Item 1A Critical Accounting Estimates and the discussion of investments in Management s Discussion and Analysis of Financial Condition and Results of Operations contained herein in Item 7 Quantitative and Qualitative Disclosures About Market Risk herein in Item 7A and Notes 1 2 3 and 4 of the Notes to Consolidated Financial Statements contained herein in Item 8 for information on our investments and derivative financial instruments
A M Best Company AM Best Fitch Ratings Fitch Moody s Ratings Moody s and S P Global Ratings S P are among the third parties that assign issuer credit ratings to Unum Group and financial strength ratings to our insurance subsidiaries Issuer credit ratings reflect an agency s opinion of the overall financial capacity of a company to meet its senior debt obligations Financial strength ratings are specific to each individual insurance subsidiary and reflect each rating agency s view of the overall financial strength capital levels earnings growth investments business mix operating performance and market position of the insuring entity and its ability to meet its obligations to policyholders Both the issuer credit ratings and financial strength ratings incorporate quantitative and qualitative analyses by rating agencies and are routinely reviewed and updated on an ongoing basis
Rating agencies assign an outlook statement of positive negative or developing to indicate an intermediate term trend in credit fundamentals which could lead to a rating change Positive means that a rating may be raised negative means that a rating may be lowered and developing means that a rating may be raised or lowered with equal probability Alternatively a rating may have a stable outlook to indicate that the rating is not expected to change
Credit watch or under review highlights the potential direction of a short term or long term rating It focuses on identifiable events and short term trends that cause a rating to be placed under heightened surveillance by a rating agency Events that may trigger this action include mergers acquisitions recapitalizations regulatory actions criteria changes or operating developments Ratings may be placed on credit watch or under review when an event or a change in an expected trend occurs and additional information is needed to evaluate the current rating level This status does not mean that a rating change is inevitable and ratings may change without first being placed on a watch list A rating is not a recommendation to buy sell or hold securities and may be subject to revision or withdrawal at any time by the rating agency Each rating should be evaluated independently of any other rating
See Management s Discussion and Analysis of Financial Condition and Results of Operations Ratings contained herein in Item 7 for our current outlook issuer credit and financial strength ratings See also further discussion in Risk Factors contained herein in Item 1A
There is significant competition among insurance companies for the types of products we sell We are operating in a dynamic competitive environment of both traditional and non traditional competitors with changes in product offerings enrollment services and technology solutions We believe that the principal competitive factors affecting our business are quality of the customer experience regarding service and claims management integrated product choices enrollment capabilities connections to third party platforms deep integration with human capital management systems price financial strength ratings and a solution to allow customers to comply with the changing laws and regulations related to family medical leave benefits
Our principal competitors for our products include the largest employee benefit insurance companies as well as regional companies offering specialty products Some of these companies have more competitive pricing or have higher claims paying ratings Some may also have greater financial resources with which to compete
All areas of the employee benefits markets are highly competitive due to the yearly renewable term nature of certain of our products and the large number of insurance companies offering products in this market As a result there is a risk that our customers may seek coverage from competitors in lieu of renewing coverage with us The effect of competition may as a result adversely affect the persistency of these and other products as well as our ability to sell products in the future
We must attract and retain independent agents and brokers to actively market our products Strong competition exists among insurers for agents and brokers We compete with other insurers for sales agents and brokers primarily on the basis of our product offerings financial strength support services and compensation Sales of our products could be materially adversely affected if we are unsuccessful in attracting and retaining agents and brokers
We and our subsidiaries are subject to extensive and comprehensive supervision and regulation in the United States the United Kingdom and Poland The laws and regulations with which we must comply are complex and subject to change New or existing laws and regulations may become more restrictive or otherwise adversely affect our operations
Our U S insurance subsidiaries are subject to regulation and oversight by insurance regulatory authorities in the jurisdictions in which they do business State insurance regulators in the U S generally have broad powers with respect to all aspects of the insurance business including the power to license and examine insurance companies regulate and supervise sales practices and market conduct license agents and brokers approve policy forms approve premium rates and subsequent increases thereon for certain insurance products establish reserve requirements and solvency standards place limitations on shareholder dividends prescribe the form and content of required financial statements and reports regulate the types and amounts of permitted investments regulate the use and disclosure of personal information and regulate reinsurance transactions Our U S insurance subsidiaries are examined periodically by their states of domicile and by other states in which they are licensed to conduct business The domestic examinations have traditionally emphasized financial matters such as reserve adequacy and investment management as well as market conduct issues such as sales practices including the content and use of advertising materials and the licensing and appointing of agents and brokers and underwriting claims and customer service practices but they can and have covered other subjects such as corporate governance and cybersecurity Examinations by non domestic states typically focus on market conduct Our U S insurance subsidiaries are also subject to assessments by state insurance guaranty associations to cover the proportional cost of insolvent or failed insurers
We are also regulated by the U S Department of Labor DOL on a national basis primarily for the protection of policyholders The DOL enforces a comprehensive federal statute that regulates claims paying fiduciary responsibilities and reporting and disclosure requirements for most employee benefit plans
Our U K insurance subsidiary Unum Limited is subject to dual regulation by the Prudential Regulation Authority PRA and the Financial Conduct Authority FCA The PRA oversees the financial health and stability of financial services firms and is responsible for the prudential regulation and day to day supervision of insurance companies The FCA seeks to protect consumers and oversees the products and practices of financial services companies in the U K including insurance companies
In 2020 an official bill was passed formalizing the withdrawal of the U K from the European Union EU A deal was reached later in 2020 on the future trading relationship with the EU which focused primarily on the trading of goods rather than the U K s service sector A memorandum of understanding on regulatory cooperation was announced in 2021 and signed by the U K and the EU in June 2023 The withdrawal did not have a material impact on our U K business Our Polish business which is in the EU was not impacted by the withdrawal
Our Polish insurance subsidiary Unum Zycie TUiR is subject to regulation by the Komisja Nadzoru Finansowego KNF of the Financial Supervision Authority FSA in Poland The KNF oversees the financial health and stability of financial services
Risk based capital RBC standards for U S life insurance companies are prescribed by the National Association of Insurance Commissioners NAIC The domiciliary states of our U S insurance subsidiaries have all adopted a version of the NAIC RBC Model Act which prescribes a system for assessing the adequacy of statutory capital and surplus for all life and health insurers The basis of the system is a risk based formula that applies prescribed factors to the various risk elements in a life and health insurer s business to report a minimum capital requirement proportional to the amount of risk assumed by the insurer The life and health RBC formula is designed to measure annually i the risk of loss from asset defaults and asset value fluctuations ii the risk of loss from adverse mortality and morbidity experience iii the risk of loss from a mismatch in asset and liability cash flows due to changing interest rates and iv business risks The formula is used as an early warning tool to identify companies that are potentially inadequately capitalized The formula is intended to be used as a regulatory tool only and is not intended as a means to rank insurers generally
The NAIC continues to review the state based solvency regulation framework to identify opportunities to respond to national and international insurance regulatory and solvency developments The topics of its review include capital requirements governance and risk management statutory accounting and financial reporting and reinsurance This ongoing review has resulted in changes to U S insurance regulation and solvency standards including those for our U S insurance subsidiaries
All states where our traditional U S insurance subsidiaries are domiciled require insurers to conduct at least annually an own risk and solvency assessment ORSA which is a group level perspective on the risks of current and future business plans and the sufficiency of capital to support those risks We file an ORSA summary report annually with the applicable insurance regulators
a group capital calculation GCC intended to be used by U S regulators as a tool to assess the risks and financial position of insurance groups including any non insurance subsidiaries The NAIC amended the Model Holding Company Act and Regulation to adopt the GCC and implement an annual GCC filing requirement O
ur lead state regulator the Maine Bureau of Insurance MBOI adopted the NAIC GCC standards and we submit our GCC report to the MBOI annually These standards have not had an impact on our capital management
We are also monitoring the International Association of Insurance Supervisors IAIS development of new capital requirements applicable to Internationally Active Insurance Groups IAIGs While we are not currently subject to the reforms adopted by the IAIS they are a factor influencing the substance and timing of the NAIC s activities around capital
The NAIC and state insurance regulators continue to examine the industry s use of captive insurance companies to transfer insurance risk and reserves required under current regulations No changes in the use or regulation of captive reinsurers have been proposed by the NAIC and we are unable to predict the extent of any changes that might be made Fairwind remains our only captive reinsurer We expect to continue our strategy of using a captive reinsurer to manage risks while monitoring the NAIC s study and proposed changes in regulations See Reinsurance contained herein in this Item 1 for further discussion
The PRA has statutory requirements including capital adequacy and liquidity requirements and minimum solvency margins to which Unum Limited must adhere as part of the provisions of U K Solvency II the system of prudential regulation applying in the U K which prescribes capital requirements and risk management standards Our U K holding company is also subject to the U K Solvency II requirements relevant to insurance holding companies while its subsidiaries the Unum UK Solvency II Group which includes Unum Limited are subject to group and individual supervision under U K Solvency II The Unum UK Solvency II Group received approval from the PRA to use its own internal model for calculating regulatory capital and also received approval for certain associated regulatory permissions including transitional relief which applies until January 2032 For a number of years the U K government has been reviewing the regulatory U K Solvency II framework including transferring the requirements into the PRA Rulebook which contains rules made and enforced by the PRA and other policy materials While this process led to favorable impacts on the solvency position of our U K business in earlier reporting periods the completion of the review at December 31 2024 did not have any further material impacts on the U K business solvency position
See further discussion in Risk Factors contained herein in Item 1A and Executive Summary Liquidity and Capital Resources contained herein in Item 7 and Note 18 of the Notes to Consolidated Financial Statements contained herein in Item 8
We and our U S insurance subsidiaries excluding our captive reinsurer are subject to regulation under the insurance holding company laws in the states in which our insurance subsidiaries are domiciled which currently include Maine Massachusetts New York South Carolina and Tennessee These laws generally require each insurance company that is domiciled in the state and a member of an insurance holding company system to register with the insurance department of that state and to furnish at least annually financial and other information about the operations of companies within the holding company system including information concerning capital structure ownership management financial condition and certain intercompany transactions Transactions between an insurer and affiliates in the holding company system generally must be fair and reasonable and if material require prior notice and approval by the domiciliary state insurance regulator
In addition such laws and regulations restrict the amount of dividends that may be paid by our insurance subsidiaries to their respective shareholders including our Company and certain of our intermediate holding company subsidiaries See further discussion in Risk Factors contained herein in Item 1A and Liquidity and Capital Resources Cash Available from Subsidiaries contained herein in Item 7
The NAIC has adopted the Corporate Governance Annual Disclosure Model Act and the Corporate Governance Annual Disclosure Model Regulation which require U S insurers to disclose detailed information regarding their governance practices The model act and regulation must be adopted by individual state legislatures and insurance regulators in order to be effective in a particular state All of the states in which our insurance subsidiaries are domiciled have adopted a requirement to file a corporate governance annual disclosure similar to the model act and regulation
The laws of most states including the states in which our insurance subsidiaries are domiciled or deemed to be commercially domiciled require regulatory approval of a change in control of an insurance company or its holding company Where these laws apply to us there can be no effective change in control of our Company or of any of our insurance subsidiaries unless the person seeking to acquire control has filed a statement containing specified information with the appropriate insurance regulators and has obtained their prior approval of the proposed change The usual measure for a presumptive change of control pursuant to these laws is the acquisition of 10 percent or more of the voting stock of an insurance company or its holding company although this presumption is rebuttable Consequently a person acquiring 10 percent or more of the voting stock of an insurance company or its holding company without the prior approval of the insurance regulators in the state s of domicile of the insurance company ies sought to be acquired or whose holding company is sought to be acquired will be in violation of these laws Such a person may also be subject to one or more of the following actions i injunctive action requiring the disposition or seizure of those shares by the applicable insurance regulators ii prohibition of voting of such shares and iii other actions determined by the relevant insurance regulators Further many states insurance laws require that prior notification be given to state insurance regulators of a change in control of a non domiciled insurance company doing business in the state These pre notification statutes do not authorize the state insurance regulators to disapprove the change in control however they do authorize regulatory action in the affected state if particular conditions exist such as undue market concentration Any future transactions that would constitute a change in control of our Company or of any of our insurance subsidiaries may require prior notification in those states that have adopted pre notification laws
These laws may discourage potential acquisition proposals and may delay deter or prevent a change in control of our Company including through transactions and in particular unsolicited transactions that some or all of our shareholders might consider to be desirable
A growing number of federal state and foreign laws and regulations require companies including insurance companies to adopt measures designed to protect the security and privacy of personal information collected during the course of operations These laws and regulations vary across jurisdictions
Specifically state insurance laws govern the collection use and disclosure of personal information in the context of providing insurance products and services Certain of our insurance products also are subject to the Health Insurance Portability and
Accountability Act which is enforced by the U S Department of Health and Human Services and regulates the disclosure and use of protected health information Generally these laws require insurers to give policyholders notice about the insurer s privacy practices place restrictions on how the insurer can use and disclose personal information require the insurer to enact certain cybersecurity measures to protect the data and obligate insurers to notify individuals and regulators in certain cases when personal data is compromised
Cybersecurity is an area of significant and increasing focus of insurance regulators For example the NAIC s Insurance Data Security Model Law the Cybersecurity Model Law enacted in over twenty states requires insurers to implement cybersecurity measures and develop cyber incident response plans The New York State Department of Financial Services cybersecurity regulation contains provisions similar to the Cybersecurity Model Law in addition to more prescriptive cybersecurity obligations
States are also adopting laws and regulations that govern the collection processing storage and destruction of personal information outside the context of providing insurance products Several states have enacted comprehensive consumer privacy laws and other states are considering passing similar laws Currently significant portions of our business are exempt from the requirements of these laws but we cannot be certain that will continue to be the case as additional laws are adopted and existing laws are amended
The General Data Protection Regulation of the EU and the U K General Data Protection Regulation collectively referred to as the GDPR establish the legal framework for our EU and U K entities that collect and process information from individuals who reside in the EU and U K respectively The GDPR is a comprehensive set of data protection rules that gives individuals certain rights to their personal data and places obligations on organizations that process personal data
We are subject to income employment premium excise and other taxes related to both our U S and our foreign operations In August 2022 the Inflation Reduction Act IRA was signed into law in the U S and includes certain corporate tax provisions effective January 1 2023 It imposed a 15 percent corporate alternative minimum tax CAMT on adjusted financial statement income AFSI on corporations that have average AFSI over 1 0 billion in any prior three year period Our Company is an applicable corporation but we do not have a CAMT liability as of December 31 2024 or December 31 2023 We do not expect that any CAMT incurred in the future would impact earnings since it would be offset with a credit toward regular income tax in subsequent years We continue to monitor the ongoing guidance issued by the United States Treasury The IRA also imposed a one percent excise tax on the fair market value of corporate stock repurchases effective January 1 2023
See Executive Summary and Liquidity and Capital Resources contained herein in Item 7 and Notes 9 and 12 of the Notes to Consolidated Financial Statements contained herein in Item 8 for discussion of the impact to our financial position and results of operations as a result of these changes
The Organization for Economic Co operation and Development has established model rules to ensure a minimum level of tax of 15 percent Pillar Two for multinational companies Several jurisdictions including the U K Poland and Ireland have adopted Pillar Two for tax years beginning in 2024 Legislation enacted thus far as a result of Pillar Two is not expected to materially impact the Company
Federal foreign and state tax laws and regulations are subject to change and any such change could materially impact our federal foreign or state taxes and affect profitability as well as capital levels in our insurance subsidiaries
We are subject to the U S federal laws and regulations generally applicable to public companies including the rules and regulations of the Securities and Exchange Commission SEC and the New York Stock Exchange relating to public reporting and disclosure accounting and financial reporting corporate governance and securities trading
The USA PATRIOT Act of 2001 Patriot Act contains anti money laundering and financial transparency laws and mandates the implementation of various regulations applicable to broker dealers and other financial services companies including insurance companies The Patriot Act seeks to promote cooperation among financial institutions regulators and law enforcement entities in identifying parties that may be involved in terrorism or money laundering Anti money laundering laws outside of the United States contain some similar provisions Additionally other federal laws and regulations including the Foreign Corrupt Practices Act and regulations issued by the Office of Foreign Assets Control as well as the U K s Bribery Act of 2010 have increased requirements relating to identifying customers prohibiting transactions with certain organizations or individuals watching for and reporting suspicious transactions responding to requests for information by regulatory authorities and law enforcement agencies sharing information with other financial institutions and requiring the implementation and maintenance of internal practices procedures and controls
Regulatory focus on the risks opportunities and impacts posed by climate change is increasing with some regulators now requiring that the Company integrate consideration of these items into our disclosure governance and risk management frameworks which may subject us to increased costs Other regulators have attempted to limit the types of factors that can be incorporated into investment decisions With respect to disclosure requirements California adopted climate related financial risk and emissions related reporting requirements in 2023 which applies to the Company Additionally the EU Corporate Sustainability Reporting Directive CSRD requires in scope companies to report on financial risks due to sustainability related issues as well as companies impacts on society and the environment Unum Poland is in scope for the first phase of CSRD In March 2024 the SEC finalized rules on material climate related disclosures though these rules are subject to stay pending judicial review We expect regulatory activity in this area including the potential for conflicting regulations to continue
U S and international insurance regulators continue to focus on insurers use of artificial intelligence AI automated decision making technologies and external consumer data For example numerous states have adopted the NAIC s Model Bulletin regarding the Use of Artificial Intelligence Systems by Insurers other states have issued their own regulations governing insurance company use of AI and the European Union s Artificial Intelligence Act has come into effect Additionally the NAIC s Innovation Cybersecurity and Technology H Committee has established a Third Party Data and Models H Task Force responsible for developing and proposing a framework for the regulatory oversight of third party data and predictive models These laws and regulations generally focus on companies developing a risk management framework for privacy and data protection and protection against unfair discrimination We expect further regulatory activity in this area including potential regulations governing individual rights with respect to the usage of AI
Adjusted operating revenue which excludes net investment gains and losses for our Unum International segment was approximately 8 percent of our consolidated adjusted operating revenue in 2024 approximately 8 percent in 2023 and approximately 7 percent in 2022 As of December 31 2024 total assets equaled approximately 5 percent of consolidated assets and total liabilities equaled approximately 5 percent of consolidated liabilities for our Unum International segment Fluctuations in the U S dollar relative to the local currencies of our Unum International segment will impact our reported operating results See Risk Factors contained herein in Item 1A and Quantitative and Qualitative Disclosures About Market Risk contained herein in Item 7A for further discussion of fluctuations in foreign currency exchange rates See Reportable Segments contained herein in this Item 1 Management s Discussion and Analysis of Financial Condition and Results of Operations contained herein in Item 7 and Note 15 of the Notes to Consolidated Financial Statements contained herein in Item 8 for further discussion of Unum International s operating results
The Company is built on the promise of helping the working world thrive throughout life s moments an inspiring purpose that requires harnessing the creativity and energy of our employees As of December 31 2024 we employed 11 063 employees of which approximately 10 833 are full time employees Approximately 85 percent of our employees are in the United States and the remaining 15 percent are international
We continue to have a hybrid office schedule with employees in an office for a specified number of days each week This approach supports our focus on customers and commitment to building a workplace where everyone feels welcome valued and supported Our international locations each continue to follow their established strategies based on their local environment
We provide compensation and benefits programs which support our employees health wealth and life In addition to competitive pay other programs which vary by country region include annual bonus and employee recognition stock awards and stock purchase plans life medical pharmacy and health reimbursement accounts telehealth and preventive services dental vision voluntary benefits and disability insurance tuition assistance 401 k plan an industry leading emergency savings program financial education and planning support student debt relief back up and emergency care services employee assistance program and family building resources digital behavioral health support paid time off and paid holidays paid caregiver and parental leave virtual stress management resources onsite and virtual fitness memberships and subsidized healthy food options
Our purpose of helping the working world thrive throughout life s moments starts with our workforce The unique perspectives experiences and backgrounds of our employees empower us to better serve our customers communities and one another Unum is committed to a culture of inclusivity and belonging for all our employees across our enterprise We strive to be a welcoming community for all people to be their authentic selves Our programming and vibrant employee networks that are open to the entire workforce remain focused on helping us live up to our purpose and corporate values
Our ongoing success is dependent on our capacity to attract nurture and retain top tier talent Our programming training and hiring practices help us reach candidates with a wide array of personal and professional experiences and talents Among our 11 063 employees 65 percent identify as female and 20 percent excluding Poland identify as members of an ethnic or racially diverse group
Employees have access to a portfolio of skills and career development offerings to support their growth We offer robust operational training programs targeted skill development programs career development resources tools and workshops dedicated learning time and on demand skill building resources We also offer tuition reimbursement benefits in role leadership development programs and multi year rotational programs
To ensure our employees are engaged and are effectively delivering on our mission and meeting our customers needs we regularly conduct confidential employee surveys to obtain feedback and gain insights from our employees These surveys are thoughtfully considered and actioned by leadership We are committed to our employees growth and development and embrace the diversity of ideas for improvement
We make available free of charge on or through our website our Annual Report on Form 10 K Quarterly Reports on Form 10 Q Current Reports on Form 8 K and amendments to those reports filed or furnished pursuant to Section 13 a or 15 d of the Exchange Act as soon as reasonably practicable after filing such material with the Securities and Exchange Commission
Our executive officers and persons chosen to become executive officers as of the date hereof are listed below Our executive officers who are also executive officers of certain of our principal subsidiaries were appointed by Unum Group s board of directors to serve until their successors are chosen and qualified or until their earlier resignation or removal
Mr McKenney became President in April 2015 and Chief Executive Officer in May 2015 having served as Executive Vice President and Chief Financial Officer from August 2009 until April 2015 Before joining the Company in July 2009 Mr McKenney served as Executive Vice President and Chief Financial Officer of Sun Life Financial Inc an international financial services company from February 2007
Mr Zabel became Executive Vice President Chief Financial Officer in July 2019 He previously served as Senior Vice President and President Closed Block Operations from July 2015 to July 2019 and as Senior Vice President Chief Risk Officer from August 2013 to July 2015
Ms Ahmed was named Executive Vice President People and Communications upon joining the Company in October 2018 She served as Executive Vice President Chief Human Resources Officer at AmTrust Financial Services Inc a multinational insurance holding company from May 2015 to October 2018
Mr Arnold was named Executive Vice President Voluntary Benefits and President Colonial Life in February 2020 Prior to that he served as Executive Vice President President and Chief Executive Officer Colonial Life from January 2015 and before that as Executive Vice President President Colonial Life from July 2014
Ms Leiper was appointed Executive Vice President Chief Investment Officer in October 2019 She joined the Company from USAA a provider of financial services to the military community where she served as Senior Vice President Corporate Finance and Enterprise Money Movement from October 2016 to October 2019 Ms Leiper has notified the Company of her plans to retire in April 2025 and a process is underway to help ensure a smooth transition following her departure
Mr Till was named Executive Vice President and CEO Unum International in April 2021 having served as Executive Vice President and CEO Designate Unum International after joining the Company in February 2021 He served as Managing Director Platform Solutions at Aegon an international financial services organization in the U K Aegon UK from July 2020 to January 2021 and as Managing Director Digital Solutions from May 2018 to July 2020
We face a wide range of risks and our continued success depends on our ability to identify and appropriately manage our risk exposures Discussed below are factors that may adversely affect our business results of operations or financial condition Any one or more of the following factors may cause our actual results for various financial reporting periods to differ materially from those expressed in any forward looking statements made by or on behalf of the Company including those in this document or made by us elsewhere such as in earnings release investor calls investor conference presentations or press releases See Cautionary Statement Regarding Forward Looking Statements contained herein on page 1
We provide a broad array of disability long term care group life and voluntary insurance products that are affected by many factors and changes in any of those factors may adversely affect our results of operations financial condition or liquidity
Historical results may not be indicative of future performance due to among other things changes in our mix of business repricing of certain lines of business or any number of economic cyclical effects on our business Liabilities for future policy benefits whether calculated under GAAP or statutory accounting principles do not represent an exact calculation of future benefit liabilities but are instead estimates made by us using certain cash flow assumptions that are used in our actuarial and statistical procedures Certain of these GAAP cash flow assumptions are also utilized in determining the amortization pattern for deferred acquisition costs DAC Actual experience may differ from our assumptions which would affect our earnings in current and future periods as a result of changes in the liability for future policy benefits and DAC There can be no assurance that our liability for future policy benefits will be sufficient to fund our future liabilities in all circumstances Future loss development may require the liability for future policy benefits to be increased which would adversely affect earnings in current or future periods Life expectancies may increase which could lengthen the time a claimant receives disability or long term care benefits and could result in a change in mortality assumptions and an increase in the liability for future policy benefits for these and other long tailed products Adjustments to the liability for future policy benefits or DAC amounts may also be required in the event of changes from the assumptions regarding future claim incidence rates claim resolution rates policyholder lapses mortality premium rate increases claim costs policy benefit offsets including those for social security and other government based welfare benefits and interest rates used in calculating the liability for future policy benefits which could have a material adverse effect on our results of operations or financial condition
Disability insurance may be affected by a number of social economic governmental competitive and other factors Changes in societal attitudes such as work ethic motivation or stability can significantly affect the demand for and underwriting results from disability products
Both economic and societal factors can affect claim incidence and recoveries for disability insurance Claim incidence and claim recovery rates may be influenced by among other factors the rate of unemployment and consumer confidence Claim incidence and claim recovery rates may also be influenced by the emergence of new infectious diseases or illnesses Medical advances may continue to have an impact on claim duration both favorable and unfavorable and also may have a favorable impact on claim incidence The relationship between these and other factors and overall incidence is very complex and will vary due to contract design features and the degree of expertise within the Company to price underwrite and adjudicate the claims
Within the group disability market pricing and renewal actions can be taken in response to higher claim rates and higher administrative expenses However these actions take time to implement and there is a risk that the market will not sustain increased prices In addition changes in economic and external conditions may not manifest themselves in claims experience
for an extended period of time The pricing actions available in the individual disability market differ among product classes Our individual noncancelable disability policies in which the policy is guaranteed to be renewable through the life of the policy at a fixed premium do not permit us to adjust premiums on our in force business Guaranteed renewable contracts that are not noncancelable can be repriced to reflect adverse experience but rate changes cannot be implemented as quickly as in the group disability market
Long term care insurance which we discontinued offering in 2012 but is guaranteed renewable can be influenced by a number of demographic medical economic governmental competitive and other factors as well as the relative lack of historical data as compared to our other products all of which can affect pricing activities and the establishment of our liability for future policy benefits Long term care insurance can be repriced to reflect adverse experience but the repricing is subject to regulatory approval by our states of domicile and may also be subject to approval by jurisdictions in which our policyholders reside The rate approval process can affect the length of time in which the repricing can be implemented if at all and the rate increases ultimately approved may be unfavorable relative to assumptions initially used to establish our liability for future policy benefits which could result in unfavorable impacts to our financial position and results of operations We monitor our own experience and industry studies concerning morbidity mortality and policyholder terminations to understand emerging trends Changes in actual experience relative to our expectations may adversely affect our profitability and the liability for future policy benefits To the extent mortality improves for the general population and life expectancies increase the period for which a claimant receives long term care benefits may lengthen and the associated impact of advanced aging of policyholders may cause an increase in claims incidence Medical advances may continue to have an impact on claim incidence and duration both favorable and unfavorable Due to the long duration of the product the timing and or amount of our investment cash flows are difficult to match to those of our maturing liabilities
the characteristics of the employees insured the amount of insurance employees may elect voluntarily our risk selection process our ability to retain employer groups with favorable risk characteristics the geographical concentration of employees and mortality rates Claim incidence may also be influenced by unexpected catastrophic events such as terrorist attacks natural disasters and pandemic health events which may also affect the cost of and availability of reinsurance coverage Within the group life market pricing and renewal actions can be taken in response to higher claim rates and higher administrative expenses However these actions take time to implement and there is a risk that the market will not sustain increased prices
Voluntary products sold in the workplace may be affected by the characteristics of the employees insured the level of employee participation and the amount of insurance the employees elect our risk selection process and our ability to retain employer groups with favorable risk characteristics A portion of our voluntary life insurance products include interest sensitive forms of insurance which contain a guaranteed minimum interest crediting rate It is possible that our investment returns could be lower than the guaranteed crediting rate While a significant portion of our non life contracts are optionally renewable some are guaranteed renewable and can be repriced to reflect adverse experience but rate changes cannot be implemented as quickly as for group disability and group life products
If our business does not perform well or as initially anticipated in our assumptions we may be required to accelerate amortization or recognize an impairment loss on intangible assets or long lived assets or to establish a valuation allowance against the deferred income tax asset
We have intangible assets such as value of business acquired VOBA and goodwill VOBA is amortized based primarily upon expected future premium income of the related insurance policies Recoverability testing for VOBA is performed on an annual basis Insurance contracts are grouped on a basis consistent with our manner of acquiring servicing and measuring profitability of the contracts If recoverability testing indicates that VOBA is not recoverable the deficiency is charged to expense
Goodwill is not amortized but on an annual basis or more frequently if necessary we review the carrying amount of goodwill for indications of impairment considering in that review the financial performance and other relevant factors In accordance with accounting guidance we test for impairment at either the operating segment level or one level below In addition certain events including but not limited to a significant adverse change in legal factors or the business environment an adverse action by a regulator or rating agency or unanticipated competition would cause us to review goodwill for impairment more frequently than annually
Long lived assets including assets such as real estate right of use assets and information technology software also may require impairment testing to determine whether changes in circumstances indicate that we may be unable to recover the carrying amount
We assess our deferred tax assets to determine if they are realizable Factors in our determination include the performance of the business including the ability to generate future taxable income and the fair value of our investment portfolio Significant declines in the fair value of our investments could result in the recognition of a valuation allowance on our deferred tax asset If based on available information it is more likely than not that the deferred income tax asset will not be realized a valuation allowance is established
See Critical Accounting Estimates included in Management s Discussion and Analysis of Financial Condition and Results of Operations contained herein in Item 7 and Note 1 6 7 and 8 of the Notes to Consolidated Financial Statements contained herein in Item 8 for further discussion
Sustained periods of low interest rates in the long term investment market may adversely affect our reported net investment income and the discount rates used in pricing our insurance products and projecting our pension obligations which may adversely affect our results of operations or financial condition
Declines in interest rates or sustained periods of low interest rates and yields on fixed income investments may cause the rates of return on our investment portfolio to decrease more than expected leading to lower net investment income than assumed in the pricing for our insurance products An interest or discount rate is used in determining pricing for our insurance products If the discount rate assumed in our pricing is higher than our future investment returns our invested assets may not earn enough investment income to support our future claim payments
Another interest or discount rate is used in calculating the liability for future policy benefits Our liability for future policy benefits is calculated using discount rate assumptions that are reflective of an upper medium grade fixed income instrument which is generally equivalent to a single A interest rate matched to the duration of our insurance liabilities A decline in the single A interest rate could have a material adverse effect on our financial statements
We are also required to perform annual statutory adequacy testing that considers multiple interest rate scenarios to ensure our statutory reserves continue to meet statutory requirements which could require us to increase our statutory reserves and or contribute additional capital to our insurance subsidiaries
Our net periodic benefit costs and the value of our benefit obligations for our pension plans are determined based on a set of economic and demographic assumptions that represent our best estimate of future expected experience Major assumptions used in accounting for these plans include the expected discount interest rate and the long term rate of return on plan assets We set the discount rate assumption at the measurement date for each of our plans to reflect the yield of a portfolio of high quality fixed income corporate debt instruments matched against the timing and amounts of projected future benefits A change in the discount rate impacts the present value of benefit obligations and our costs Our expectations for the future investment returns on plan assets are based on a combination of historical market performance current market conditions and future capital market assumptions obtained from external consultants and economists The actual rate of return on plan assets is determined based on the fair value of the plan assets at the beginning and end of the measurement period Increases or decreases in long term interest rates as well as equity market volatility will impact the fair value of our plan assets and may
Unfavorable economic or market conditions may result in lower sales lower premium growth and persistency higher claims incidence unfavorable mortality longer claims duration and higher expenses which may adversely affect our results of operations or financial condition
We are affected by conditions in the capital markets and the general economy primarily in the United States the United Kingdom Poland and to a lesser extent the broader global financial markets Negative developments in the capital markets and or the general economy could adversely affect our business including our investment portfolio and results of operations
Factors such as unemployment levels consumer confidence levels consumer spending business investment government spending the volatility and strength of the capital markets inflation pandemics and the threat of terrorism all affect the business and economic environment and ultimately the amount and profitability of our businesses In particular high levels of inflation could result in higher expenses and negatively affect the discretionary spending of our customers which could result in lower sales More generally given the nature of our products in an economic environment characterized by higher unemployment lower personal income reduced consumer spending and lower corporate earnings and investment product sales and persistency may be adversely affected Our premium growth may also be negatively impacted by lower premium growth from existing customers due to lower salary growth and lower growth in the number of employees covered under an existing policy In addition during such periods we may experience higher claims incidence longer claims duration and or an increase in policy lapses any of which could have a material adverse effect on our results of operations or financial condition
In addition to interest rate risk as previously discussed we are exposed to other risks related to our investment portfolio which may adversely affect our results of operations financial condition or liquidity
Our investment portfolio consists primarily of fixed maturity securities These securities are issued by both domestic and foreign entities and are backed either by collateral or the credit of the underlying issuer Factors such as an economic downturn or political change in the country of the issuer a regulatory change pertaining to the issuer s industry a significant deterioration in the cash flows of the issuer unforeseen accounting irregularities or fraud committed by the issuer widening risk spreads ratings downgrades a change in the issuer s marketplace or business prospects or other events that adversely affect the issuers of these securities may result in the issuer defaulting on its obligations
Our mortgage loan portfolio has default risk Events or developments such as economic conditions that impact the ability of tenants to pay their rents or limit the availability of refinancing may have a negative effect on our mortgage loan portfolio Events or developments that have a negative effect on any particular geographic region or sector may have a greater adverse effect on an investment portfolio to the extent that the portfolio is concentrated in that region or sector
A default or an expected default results in the recognition of a current expected credit loss on the investment A default may also adversely affect our ability to collect principal and interest due to us The probability of credit downgrades and defaults increases when the fixed income markets experience periods of volatility and illiquidity
Our exposure to credit spreads which is the yield above comparable U S Treasury securities primarily relates to market price and cash flow variability associated with changes in credit spreads A widening of credit spreads may unfavorably impact the net unrealized gain or loss position of the investment portfolio and may adversely impact liquidity Credit spread tightening may reduce net investment income associated with new purchases of fixed income securities
We report our fixed maturity securities and certain other financial instruments at fair value Valuations may include inputs and assumptions that are less observable or require greater estimation particularly during periods of market disruption resulting in values which may be less than the value at which the investments may ultimately be sold Further rapidly changing and unprecedented credit and equity market conditions could materially impact the valuation of securities as reported in our
We evaluate our investment portfolio for credit losses There can be no assurance that we have accurately assessed the level of credit losses taken Additional credit losses may need to be taken in the future and historical trends may not be indicative of future credit losses Any event reducing the value of our securities may have a material adverse effect on our business results of operations or financial condition
While we attempt to match our asset cash flows and durations with expected liability cash flows and durations to meet the funding requirements of our business there may at times be a lack of appropriate investments in the market which can be acquired In particular due to the long duration of our long term care product the timing of our investment cash flows do not match those of our maturing liabilities In addition we may in certain circumstances need to sell investments due to changes in regulatory or capital requirements changes in tax laws rating agency decisions and or unexpected changes in liquidity needs There may also be a limited market for certain of our investments such as our private equity partnerships private placement fixed maturity securities mortgage loans and policy loans which makes them more illiquid In periods of market volatility or disruption other of our securities may also experience reduced liquidity If events occur wherein we need to sell securities in an unfavorable interest rate or credit environment or need to quickly sell securities which are illiquid market prices may be lower than what we might realize under normal circumstances with a resulting adverse effect on our results of operations financial condition or liquidity
The effectiveness and utilization of our derivative hedging programs may be affected by changes in forecasted cash flows the economic environment changes in interest rates capital market volatility non performance by our counterparties changes in the level of required collateral or regulation which may adversely affect our results of operations financial condition or liquidity
We use derivative financial instruments to help us manage various risks related to our business operations including interest rate risk risk related to matching duration for our assets and liabilities foreign currency risk credit risk and equity risk Factors associated with derivative financial instruments could adversely affect our results of operations financial condition or liquidity Ineffectiveness of our hedges due to changes in expected future events such as the risk created by uncertainty in the economic environment changes in forecasted cash flows or if our counterparties fail or refuse to honor their obligations under these derivative instruments may have a material adverse effect on our results of operations or financial condition Capital market turmoil may result in an increase in the risk of non performance by our counterparties many of which are financial institutions Non performance by our counterparties may force us to unwind hedges and we may be unable to replace the hedge thereby leaving the risk unhedged Under the terms of our hedging contracts we are required to post collateral which may adversely affect our liquidity and could subject us to the credit risk of the counterparty to the extent it holds such collateral Sustained periods of elevated interest rates may require a higher level of collateral to be posted to our counterparties which also may have an adverse effect on our liquidity Changes in regulations may have an adverse effect on our ability to execute hedging strategies due to the increased economic cost of derivatives primarily as a result of more restrictive collateral requirements
Reinsurance may not be available or affordable or reinsurers may be unwilling or unable to meet their obligations under our reinsurance contracts which may adversely affect our results of operations or financial condition
As part of our overall risk management and capital management strategies we purchase reinsurance for certain risks underwritten by our various businesses We also utilize reinsurance to exit certain lines of business Market conditions beyond our control determine the availability and cost of reinsurance Any decrease in the amount of reinsurance will increase our risk of loss and may impact the level of capital requirements for our insurance subsidiaries and any increase in the cost of reinsurance will absent a decrease in the amount of reinsurance reduce our results of operations Accordingly we may be forced to incur additional expenses for reinsurance or may be unable to obtain sufficient reinsurance on acceptable terms which may adversely affect our ability to write future business result in the assumption of more risk with respect to the policies we issue and increase our capital requirements The collectability of our reinsurance recoverable is primarily a function of the solvency of the individual reinsurers We cannot provide assurance that our reinsurers will pay the reinsurance recoverables owed to us or that they will pay these recoverables on a timely basis The insolvency of a reinsurer or the inability or
The functional currency of our U K and Polish operations is the British pound sterling and the Polish zloty respectively Fluctuations in exchange rates impact our reported financial results which may be unfavorably affected when the functional currency weakens However it is important to distinguish between translating and converting foreign currency Except for a limited number of transactions we do not actually convert our functional currency into dollars As a result we view foreign currency translation as a financial reporting item and not a reflection of operations or profitability in the U K or Poland
See Liability for Future Policy Benefits contained herein in Item 1 Critical Accounting Estimates included in Management s Discussion and Analysis of Financial Condition and Results of Operations contained herein in Item 7 Interest Rate Risk contained herein in Item 7A and Notes 1 2 3 4 11 and 14 of the Notes to Consolidated Financial Statements contained herein in Item 8 for further discussion
Pandemics and other public health issues can negatively impact certain aspects of our business and depending on severity and duration could have a material adverse effect on our financial position results of operations liquidity and capital resources and overall business operations
If economic conditions worsen as a result of a pandemic or other public health issue that may adversely affect the financial condition of current or potential customers which may result in lower sales or other negative impacts to customer purchasing patterns If we experience unfavorable developments related to our revenues benefits or expenses we may correspondingly experience adverse impacts to our overall future profitability and growth which may alter the timing and magnitude of our plans for overall business growth In addition these unfavorable developments may result in the impairment or write off of certain assets such as premiums receivable goodwill property and equipment VOBA and right of use assets or the establishment of a valuation allowance regarding the realization of our deferred tax assets
If economic conditions worsen as a result of a pandemic or other public health issue that may also result in the inability for companies to make interest and principal payments on their debt securities or mortgage loans that we hold for investment purposes Accordingly although we maintain a disciplined approach regarding our overall investment strategy we may still incur significant losses that can result in a decline in net investment income and or material increases in credit losses on our investment portfolio With respect to commercial real estate there could be potential impacts to estimates of expected losses resulting from lower underlying values reflecting current market conditions at that time
Although we have access to significant amounts of liquidity which include a credit facility Federal Home Loan Bank FHLB arrangements and the ability to liquidate certain investments it may be insufficient or even inaccessible if we are not in compliance with required covenants under our borrowing arrangements or if the associated lenders are unable to provide funds In addition if investment markets become illiquid or severely impaired we may be unable to liquidate our investments in a timely and advantageous manner
From an operational perspective our employees sales associates brokers and distribution partners as well as the workforces of our vendors service providers and counterparties may be adversely affected by a pandemic or other public health issue including government mandated shutdowns requests or orders for employees to work remotely and other social distancing measures These measures could result in an adverse impact on our ability to conduct our business including our ability to sell our policies and our ability to adjudicate and pay claims in a timely manner Additionally our hybrid work environment may expose us to various additional risks such as elevated cybersecurity vulnerability resulting from the wide scale remote usage of our company networks and related risks to the effectiveness of our internal controls over financial reporting
There is no guarantee that processes we have developed in order to adapt to the COVID 19 pandemic would succeed in allowing us to adapt to any future pandemic or other public health issue which may have materially different characteristics than the COVID 19 pandemic
To the extent pandemics or other public health issues adversely affect our business financial position results of operations liquidity and capital resources and overall business operations it may also have the effect of heightening many of the other risks disclosed herein in this Item 1A Risk Factors
See Executive Summary Segment Operating Results and Liquidity and Capital Resources included herein in Part 2 Item 7 under Management s Discussion and Analysis of Financial Condition and Results of Operations for additional discussion
We and our insurance subsidiaries are subject to extensive supervision and regulation Changes in laws and regulations that affect our industry or findings from examinations and investigations may affect the cost or demand for our products increase capital and reserving requirements for our insurance subsidiaries and adversely affect our profitability liquidity or growth
Our insurance subsidiaries are subject to extensive supervision and regulation in the United States and abroad The primary purpose of insurance regulation is to protect policyholders not stockholders To that end regulatory authorities including state insurance departments in the United States the FCA and PRA in the United Kingdom and the KNF in Poland have broad administrative powers over many aspects of the insurance business including requiring various licenses permits authorizations or accreditations which our insurance subsidiaries may not be able to obtain or maintain or may be able to do so only at great cost In addition we and our insurance subsidiaries may not be able to comply fully with or obtain appropriate exemptions from the wide variety of laws and regulations applicable to insurance companies and insurance holding companies These laws and regulations can be complex and subject to differing interpretations and are regularly re examined Existing or future laws and regulations and the manner in which they are interpreted or applied may become more restrictive or otherwise adversely affect our operations For example they may restrict or prohibit the payment of dividends by our subsidiaries to us restrict transactions between subsidiaries and or between us and our subsidiaries and may require contributions of capital by us to our insurance subsidiaries even if we are otherwise in compliance with stated requirements Failure to comply with or to obtain appropriate exemptions under any applicable laws or regulations could result in restrictions on the ability of our insurance subsidiaries to do business in one or more of the jurisdictions in which they operate and could result in fines and other sanctions which may have a material adverse effect on our business or results of operations
Regulatory examinations or investigations could result in among other things an increase to reserving requirements changes in our claims handling or other business practices changes in procedures for the identification and payment to the states of benefits and other property that is not claimed by the owners changes in the use and oversight of reinsurance changes in governance and other oversight procedures assessments by tax authorities or other governing agencies fines and other administrative action which could injure our reputation adversely affect our issuer credit ratings and financial strength ratings place us at a competitive disadvantage in marketing or administering our products impair our ability to sell or retain insurance policies and or have a material adverse effect on our results of operations or financial condition
It is possible that there will be heightened oversight of insurers by regulatory authorities in the jurisdictions in which our insurance subsidiaries are domiciled and operate We cannot predict specific proposals that might be adopted or what impact if any such proposals or if enacted such laws could have on our business results of operations or financial condition For instance the NAIC or state regulators may adopt further revisions to statutory reserving standards or the RBC formula the PRA may revise its capital adequacy requirements and minimum solvency margins the IAIS may adopt capital requirements to which we could be subject or rating agencies may incorporate higher capital thresholds into their quantitative analyses thus requiring additional capital contributions by us to our insurance subsidiaries Increased financial services regulation which could include activities undertaken by the NAIC and regulatory authorities in the U K Poland and the EU may impose greater quantitative requirements supervisory review and disclosure requirements and may impact the business strategies capital requirements and profitability of our insurance subsidiaries The U K government has been reviewing the regulatory U K Solvency II framework including transferring the requirements into the PRA Rulebook which contains rules made and enforced by the PRA and other policy materials While this process led to favorable impacts on the solvency position of our U K business in earlier reporting periods the completion of the review at December 31 2024 did not have any further material impacts on the U K business solvency position The U K s Financial Ombudsman Service which was established to help settle disputes between consumers and businesses providing financial services and the FCA which has rule making investigative and enforcement powers to protect consumers may hamper our ability to do business which could have a material adverse effect on our U K operations
Our financial statements are subject to the application of generally accepted accounting principles in the United States the United Kingdom and Poland which are periodically revised and or expanded Accordingly we are required to adopt new or revised accounting standards issued by recognized authoritative bodies within these countries which may also be influenced by the International Accounting Standards Board Future accounting standards we adopt will change current accounting and disclosure requirements applicable to our financial statements Such changes could have a material effect on our reported results of operations and financial condition and may impact the perception of our business by external stakeholders including the rating agencies that assign the issuer credit rating on Unum Group
We use an affiliated captive reinsurer for the limited purpose of reinsuring risks attributable to specified policies issued or reinsured by one of our insurance subsidiaries in order to effectively manage risks in connection with certain blocks of our business as well as to enhance our capital efficiency If we were required to discontinue use of the captive reinsurer or to alter the structure of the captive reinsurance arrangement our ability to maintain current RBC ratios and or our capital deployment activities could be adversely affected
Changes in U S programs such as healthcare reform the continued emergence of paid family and medical leave legislation and financial services sector reform may compete with or diminish the need or demand for our products particularly as it may affect our ability to sell our products through employers or in the workplace The U S social security disability insurance program may not be sustainable which may adversely affect the level of our disability claim payments and liability for future policy benefits Legislative changes related to pension funding requirements could negatively impact our cash flows from operations and our profitability
Changes in tax laws and other regulations or interpretations of such laws or regulations could unfavorably impact our corporate taxes and statutory surplus In addition changes in tax laws could make some of our products less attractive to consumers
Changes in privacy cybersecurity and artificial intelligence laws and regulations may result in cost increases as a result of system implementations administrative processes effects of potential noncompliance and limitations or constraints of our business models
Most group long term and short term disability plans we administer are governed by the Employee Retirement Income Security Act ERISA Changes to ERISA enacted by Congress or through judicial interpretations may adversely affect the risk to us of managing employee benefit plans increase the premiums associated with such plans and ultimately affect their affordability and our profitability
The insurance departments in jurisdictions wherein our insurance subsidiaries conduct business may limit our ability to obtain rate increases under guaranteed renewable contracts or could require changes in rates and or benefits to meet minimum loss ratio requirements which could negatively impact the profitability of our products Many regulatory and governmental bodies have the authority to review our products and business practices and those of our agents and employees These regulatory or governmental bodies may bring regulatory or other legal actions against us if in their view our practices are improper These actions could result in substantial fines or restrictions on our business activities and could have a material adverse effect on our business or results of operations Determination by regulatory authorities that we have engaged in improper conduct may also adversely affect our defense of various lawsuits
All of our businesses are highly competitive We believe that the principal competitive factors affecting our business are the quality of our customer s experience regarding service and claims management integrated product choices enrollment capabilities price financial strength ratings claims paying ratings and a solution to allow customers to comply with the changing laws and regulations related to family medical leave benefits We compete for new product sales the retention of existing business and the ability to attract and retain independent agents and brokers to market our products all of which affect our profitability All areas of the employee benefits markets are highly competitive due to the yearly renewable term nature of the group products and the large number of insurance companies offering products in this market There is a risk that our customers may be able to obtain more favorable terms or improved technology solutions from competitors in lieu of renewing coverage with us particularly if industry pricing levels do not align with our view of adequate premium rates We are operating in a dynamic competitive environment of both traditional and non traditional competitors with changes in product offerings enrollment capabilities and technology solutions The level and intensity of competition may also grow due to existing competitors becoming more aggressive and an increase in merger and acquisition activity which may result in larger competitors with greater financial resources There are many insurance companies which actively compete with us in our lines of business and there is no assurance that we will be able to compete effectively against these companies and new competitors in the future
A decrease in our financial strength or issuer credit ratings may adversely affect our competitive position our ability to hedge our risks and our cost of capital or ability to raise capital which may adversely affect our results of operations financial condition or liquidity
We compete based in part on the financial strength ratings provided by rating agencies Although we maintain an ongoing dialogue with the rating agencies that assign financial strength ratings to our insurance subsidiaries the rating agencies may revise the criteria that are used to evaluate the financial strength of our insurance subsidiaries which could lead to placing our rating on credit watch or under review and ultimately lead to a downgrade A downgrade of our financial strength ratings may adversely affect us and could potentially among other things adversely affect our relationships with distributors of our products and services and retention of our sales force negatively impact persistency and new sales and generally adversely affect our ability to compete A downgrade in the issuer credit rating assigned to Unum Group can be expected to adversely affect our cost of capital and our ability to raise additional capital If we are downgraded significantly ratings triggers in our derivatives financial instrument contracts may result in our counterparties enforcing their option to terminate the derivative contracts Such an event may have a material adverse effect on our financial condition or our ability to hedge our risks
Unum Group depends on capital from its subsidiaries to meet its obligations and pay dividends The ability of our subsidiaries to transfer capital to Unum Group may be impaired by adverse financial results or a change in capital requirements Accordingly internal sources of capital and liquidity may not always be sufficient If we need to seek external capital adverse market conditions may affect our access to capital or our cost of capital
Unum Group is a holding company for insurance and other subsidiaries and has limited operations of its own Our insurance subsidiaries are subject to insurance laws and regulatory limitations on the payment of dividends and on other transfers of assets to affiliates including to Unum Group The level of earnings and capital in our subsidiaries as well as business conditions and rating agency considerations could impact our insurance and other subsidiaries ability to pay dividends or to make other transfers to Unum Group which could impair our ability to pay dividends to Unum Group s common stockholders meet our debt and other payment obligations and or repurchase shares of Unum Group s common stock
A change in demand for our insurance products or an increase in the incidence of new claims or the duration of existing claims could negatively impact our cash flows from operations Deterioration in the credit market which could delay our ability to sell our positions in certain of our fixed maturity securities in a timely manner could also negatively impact our cash flows Regulatory changes such as those discussed herein in this Item 1A may impose higher capital or reserve requirements on our insurance subsidiaries increase collateral requirements for certain of our derivatives transactions and or implement other requirements which could unfavorably affect our liquidity Without sufficient liquidity our ability to maintain and grow our operations would be limited If our internal sources of liquidity prove to be insufficient we may be unable to successfully obtain additional financing and capital on favorable terms or at all which may adversely affect us
If our financial results are unfavorable we may need to increase our capital in order to maintain our credit ratings or satisfy regulatory requirements Maintaining appropriate levels of statutory surplus is considered important not only by us but by insurance regulatory authorities in the U S the PRA in the U K the KNF in Poland and the rating agencies that rate insurers claims paying abilities and financial strength Failure to maintain certain levels of statutory surplus could result in increased regulatory scrutiny action by regulatory authorities or a downgrade by the rating agencies Need for additional capital may limit a subsidiary s ability to distribute dividends to our holding companies
Obtaining financing for even a small amount of capital could be challenging in unfavorable market conditions and during periods of economic uncertainty The markets may exert downward pressure on availability of liquidity and credit capacity for certain issuers The availability of financing will depend on a variety of factors such as market conditions the general availability of credit the overall availability of credit to the financial services industry our credit ratings and credit capacity and the possibility that customers or lenders could develop a negative perception of our financial prospects Similarly our access to capital may be impaired if regulatory authorities or rating agencies take negative actions against us Raising capital in unfavorable market conditions could increase our interest expense or negatively impact our shareholders through increased dilution of their common stock in Unum Group
We maintain our credit facility as a potential source of liquidity Our right to borrow funds under this facility is subject to financial covenants negative covenants and events of default Our ability to borrow under this facility is also subject to the ability of the lenders to provide funds Our failure to comply with the covenants in the credit facility or the failure of lenders to fund their lending commitments would restrict our ability to access the facility when needed with a resulting adverse effect on our results of operations financial condition or liquidity
There are many events which may harm our reputation including but not limited to those discussed in this Item 1A regarding regulatory investigations legal proceedings social issues and cyber or other information security incidents
In addition being in the business of insurance we are paid to accept certain risks Those who conduct business on our behalf including executive officers and members of management sales managers investment professionals and to some extent independent agents and brokers do so in part by making decisions that involve exposing us to risk These include decisions such as maintaining effective underwriting and pricing discipline maintaining effective claim management and customer service performance managing our investment portfolio and derivatives trading activities delivering effective technology solutions complying with established sales practices executing our capital management strategy exiting a line of business and or pursuing strategic growth initiatives and other decisions Although we employ controls and procedures designed to monitor business decisions and prevent us from taking excessive risks or unintentionally failing to comply with internal policies and practices such that errors occur there can be no assurance that these controls and procedures will be effective If our employees and business associates take excessive risks and or fail to comply with internal policies and practices the impact of those events may damage our market position and reputation
Depending on the severity of the damage to our reputation we may be unable to effectively compete for new products or retain our existing business which could adversely affect our results of operations or financial condition Damage to our reputation may also hinder our ability to raise new capital and or increase our cost of capital
We are and in the future may be defendants in a number of litigation matters and the outcome of this litigation is uncertain Some of these proceedings have been brought on behalf of various alleged classes of complainants Plaintiffs in class action and other lawsuits against us may seek very large and or indeterminate amounts including punitive and treble damages An estimated loss is accrued when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated An adverse outcome in one or more of these actions may depending on the nature scope and amount of the ruling materially and adversely affect our results of operations or financial condition encourage other litigation and limit our ability to write new business particularly if the adverse outcomes negatively impact certain of our ratings
As part of our normal operations in managing claims we are engaged in claim litigation where disputes arise as a result of a denial or termination of benefits Typically those lawsuits are filed on behalf of a single claimant or policyholder and in some
of these individual actions punitive damages are sought such as claims alleging bad faith in the handling of insurance claims For our general claim litigation we maintain reserves based on experience to satisfy judgments and settlements in the normal course We expect that the ultimate liability if any with respect to general claim litigation after consideration of the reserves maintained will not be material to our financial condition Nevertheless given the inherent unpredictability of litigation it is possible that an adverse outcome in certain claim litigation involving punitive damages may from time to time have a material adverse effect on our results of operations We are unable to estimate a range of reasonably possible punitive losses
Investors regulators current and prospective customers employees and other stakeholders may evaluate our business according to certain sustainability standards and expectations To help monitor and meet stakeholder expectations we developed a corporate sustainability strategic framework Our framework aims to create long term value for stakeholders by implementing strategically aligned business practices that incorporate sustainability factors with a focus on accelerating our efforts around responsible investments inclusive products and services and reducing environmental impact We consider environmental and social factors in fundamental analysis of our investments because we believe they are important for analyzing the long term risk reward characteristics of an investment As our framework matures and we continue to integrate sustainability standards in coordination with other business priorities our sustainability related efforts may not prove completely effective or may not satisfy our key stakeholders Additionally local national and international governments and regulators have passed and are likely to continue to propose new sustainability related rules that would apply to our business including regulations focused on increased climate related disclosures and management of investment portfolios Such regulations may require the development of new processes and controls that may be complex and result in increases in expenses to ensure compliance or they may run counter to our corporate sustainability strategic framework conflict with other regulations that apply to us or cause us to forgo business opportunities Stakeholder sustainability related expectations may increase in the short medium and long term and may affect our business and they may also subject us to scrutiny leading to operational reputational or legal challenges
See Liability for Future Policy Benefits Competition Regulation and Ratings contained herein in Item 1 Executive Summary and Critical Accounting Estimates included in Management s Discussion and Analysis of Financial Condition and Results of Operations and Liquidity and Capital Resources contained herein in Item 7 and Notes 1 6 9 10 16 and 18 of the Notes to Consolidated Financial Statements contained herein in Item 8 for further discussion
A cyber attack or other security breach could disrupt our operations result in compromised data the unauthorized disclosure or loss of confidential data damage our reputation or relationships and expose us to significant financial and legal liability which may adversely affect our business results of operations or financial condition
We store confidential information about our business and our policyholders employees agents and others on our information technology systems including proprietary and personally identifiable information As part of our normal business operations we use this information and engage third party providers including outsourcing cloud computing and other business partners that store access process and transmit such information on our behalf We devote significant resources and employ security measures to help protect our information technology systems and confidential information and we have programs in place to detect contain and respond to information security incidents However because the techniques used to obtain unauthorized access disable or degrade service or sabotage systems change frequently and may be difficult to detect for long periods of time we and our third party providers may be unable to anticipate these techniques or implement adequate preventative measures In addition hardware software or applications we develop or procure from third parties or through open source solutions may contain defects in design or manufacture or other problems that could unexpectedly compromise our information security Unauthorized parties whether within or outside our company may disrupt or gain access to our systems or those of third parties with whom we do business through human error misfeasance fraud trickery or other forms of deceit including break ins use of stolen credentials social engineering phishing or other cyber attacks computer viruses malicious codes and similar means of unauthorized and destructive tampering Specifically we have seen an increase in the number and sophistication of phishing attacks that seek access to our systems through emails sent to our employees We have taken action to provide additional training to increase awareness of the potential for these attacks among our workforce
We and our third party providers have experienced and likely will continue to experience information security incidents from time to time Although known incidents have not had a material effect on our business or financial condition there is no assurance that our security systems and measures will be able to prevent mitigate or remediate future incidents that could have such an effect A successful penetration or circumvention of the security of our information technology systems or those of third parties with whom we do business including a ransomware attack that locks or freezes systems until the payment of a ransom could cause serious negative consequences for us including significant disruption of our operations unauthorized disclosure or loss of confidential information harm to our brand or reputation loss of customers and revenues violations of privacy and other laws and exposure to litigation monetary damages regulatory enforcement proceedings fines and potentially criminal proceedings and penalties If we are unaware of the incident for some time after it occurs our exposure could increase In addition the costs to address or remediate systems disruptions or security threats or vulnerabilities whether before or after an incident could be significant As we continue to build our digital capabilities and focus on enhancing the customer experience the amount of information that we retain and share with third parties as well as our reliance on them is likely to grow increasing the cost to prevent data security breaches and the cost and potential consequences of such breaches An information technology systems failure could also interfere with our ability to comply with financial reporting and other regulatory requirements exposing us to potential disciplinary action by regulators Further successful cyber attacks at other large financial institutions or other market participants whether or not we are affected could lead to a general loss of customer and investor confidence in financial institutions that could negatively affect us
Although we have insurance against some cyber risks and attacks we may be subject to litigation and financial losses that exceed our policy limits are subject to deductibles or are not covered under any of our current insurance policies
The failure of our business recovery and incident management processes to resume our business operations in the event of a natural catastrophe cyber attack or other event could adversely affect our profitability results of operations or financial condition
In the event of a disaster such as a natural catastrophe an epidemic a pandemic a cyber attack cybersecurity breach or other information technology systems failure a terrorist attack or war unanticipated problems with our disaster recovery systems could have a material adverse impact on our ability to conduct business and on our results of operations and financial condition particularly if those problems affect our information technology systems and destroy valuable data or result in a significant failure of our internal control environment In addition in the event that a significant number of our employees were unavailable in the event of a disaster our ability to effectively conduct business could be severely compromised
The failure of our information technology and or disaster recovery processes or systems for any reason could cause significant interruptions or malfunctions in our or our customers operations and result in the loss theft or failure to maintain the security confidentiality or privacy of sensitive data including personal information relating to our customers Such a failure could harm our reputation subject us to regulatory sanctions legal claims and increased expenses and lead to a loss of customers and revenues
We currently use and expect to continue using artificial intelligence AI including generative AI in support of our products services and critical business functions either through technology we develop or technology developed and maintained by third parties This increased reliance on AI coupled with the fact that the laws and regulations governing the use of AI are still in a relatively early stage of development may increase regulatory or operational risks discussed elsewhere in this section or create new regulatory or operational risks we are not currently anticipating We or others that we rely on may misuse AI or external data or fail to comply with regulatory requirements or there may be conflicting interpretations of the requirements which could expose us to legal or regulatory risk subject us to adverse regulatory examinations or audits damage customer relationships or cause reputational harm Our development and use of AI could increase the risk or impact of business interruption or a cybersecurity incident Threat actors may use AI maliciously against us which may result in reputational or financial harm or subject us to legal or regulatory risk These risks are increased by the relative speed at which the technology is being developed and adopted At the same time our failure to adopt AI technology quickly enough could put us at a competitive disadvantage
The talent and contributions of our employees are critical to meeting our business needs Our future success depends on our ability to hire and retain qualified personnel In recent periods we have experienced increased competition for qualified talent and higher turnover compared to our historical experience as many employees seek higher wages new careers or choose to exit the workforce entirely The greater opportunities for fully remote or hybrid working arrangements have contributed to this trend as many employees are no longer limited to employers located in their local area We have taken steps to address this challenge including updating compensation structures allowing for more hybrid or remote working arrangements and taking advantage of opportunities to recruit highly skilled employees from other employers However any prolonged stress on our ability to retain or recruit employees may result in increased labor costs and could adversely affect our ability to conduct and manage our business
Our failure to develop digital capabilities or to effectively execute upgrades to or replacements of information technology systems could impair our ability to deliver on our growth initiatives or administer our business which may adversely affect our business results of operations or financial condition
Our business plans increasingly rely on digital capabilities to meet or surpass customer expectations simplify our operations and deliver innovative product and service offerings If we are unable to effectively develop and offer digital capabilities that enhance our customers experience we may not fully achieve our strategic growth initiatives and may also experience the loss of existing business Although we believe we have information technology systems which adequately support our business needs we continually upgrade our existing information technology systems and acquire or develop new systems to keep pace with the rapidly changing business and technology environment There are risks involved with upgrading or replacing information technology systems including but not limited to data loss data errors and disruption to our operations We seek to monitor and control our exposure to the risks arising out of these activities through our risk control framework which encompasses a variety of reporting systems internal controls management review processes and other mechanisms
We utilize third party vendors to provide certain business support services The reliance on these third party vendors exposes us to the risk that we cannot control the information systems facilities or networks of such third party vendors We employ substantial third party risk management measures designed to mitigate this risk which include but are not limited to security and vulnerability assessments of these third party vendors as well as robust contractual protections However if the information systems facilities or networks of a third party vendor are disrupted damaged or fail we are at risk of being unable to meet legal regulatory financial or customer obligations We could also be adversely affected by a third party vendor who fails to provide contracted services In this case this could lead to lower sales increased costs and a disruption to our business operations or damage our reputation Lastly as certain third party vendors may conduct operations outside of the U S political and military events in foreign jurisdictions could have an adverse effect on our operations
We have devoted significant resources to develop our enterprise risk management program which has the objective of managing our strategic market credit public health insurance and operations risks which ultimately impact our reputational risk However our program may not be comprehensive and our methods for monitoring and managing risk may not fully predict or mitigate future exposures In this case there may be a negative impact to our business results of operations or financial condition
See Regulation contained herein in Item 1 Critical Accounting Estimates included in Management s Discussion and Analysis of Financial Condition and Results of Operations contained herein in Item 7 Quantitative and Qualitative Disclosures About Market Risk contained herein in Item 7A and Note 16 of the Notes to Consolidated Financial Statements contained herein in Item 8 for further discussion
We take our responsibility for the privacy and security of the information our customers share with us seriously Through our cybersecurity program we constantly watch for threats to our systems and make real time adjustments to our defenses to protect customer data and minimize service disruptions
We identify and assess cybersecurity risks on an ongoing basis by maintaining a cybersecurity program that involves a defense in depth approach with multiple layers of security controls to protect our environment We have invested in and deployed a security operating model involving people processes and technology that is designed to protect against potential and known cybersecurity risks and threats Our cybersecurity program involves collaboration with partners including financial industry groups to understand and incorporate best practices and engage in cybersecurity threat intelligence sharing Our security operations team includes internal threat hunters such as cybersecurity engineers and analysts who are working directly with third parties to monitor the threat landscape Alerts from monitoring are analyzed by our security teams for preemptive engagement to avoid or minimize the impact of potential cyber threats Additional cybersecurity tools are used to detect and block malicious attacks as well as to govern identity and access management in each case to avoid or minimize risks of unauthorized access to systems and data
We utilize an internal global incident management team comprised of executive and senior management level personnel that is responsible for oversight of our business resiliency and cybersecurity incident response programs Within our information security organization our cybersecurity incident response team works closely with the business resiliency team across business continuity disaster recovery and crisis management functions to plan prepare and practice response to simulated cybersecurity incident scenarios for response readiness In the event of a cybersecurity incident our incident response team would assess whether to engage the support of law enforcement or other third parties In addition to our cybersecurity incident response team we have retainers with leading incident response organizations to augment response activities if needed We also conduct one or more annual cybersecurity incident response tabletop exercises with senior management and third party experts to test our incident response plan and enhance our readiness for a potential cybersecurity incident
Additionally we engage an external firm to conduct an annual System and Organization Controls 2 Type 2 examination of certain cybersecurity controls Our internal audit organization also provides independent assurance of the cybersecurity program through related audit engagements to complement external assessments and reviews Additional third parties are engaged as needed to perform risk assessments penetration testing and other services related to cybersecurity We rely on third party cybersecurity software tools and services to enhance many of our cybersecurity functions such as incident logging network monitoring security operations and data loss prevention among others Additionally we carry cybersecurity insurance to help reduce financial risk posed by cybersecurity incidents
Cybersecurity risks associated with third party service providers are managed in accordance with our Third Party Risk Management TPRM program Components of this program include cybersecurity due diligence and review of contractual terms with third parties that access our network or sensitive information The TPRM program works to conduct appropriate review of all new third parties and performs ongoing monitoring of our existing relationships based on the risk presented by the third party
As part of our cybersecurity program we perform an annual cybersecurity risk assessment to evaluate our cybersecurity program and related controls The cybersecurity risk assessment follows the guidelines published by the National Institute of Standards and Technology which are aimed at identifying and determining the potential impact of threats and vulnerabilities and assessing the controls in place to mitigate those threats and vulnerabilities Risks from cybersecurity threats have not materially affected and are not reasonably likely to materially affect our business strategy operations or financial condition
Management s role in assessing and managing cybersecurity risks is led by our Chief Information Security Officer CISO who is a senior vice president and officer of the Company As of the date of this report our CISO has over twenty years of experience in information security leadership including leading threat and vulnerability management cybersecurity operations and cybersecurity defense cybersecurity incident response and technology risk management He holds a bachelor s degree in computer science and several professional qualifications including Certified Information Systems Security Professional and
Information Systems Security Management Professional The responsibilities of prevention detection mitigation and remediation of cybersecurity incidents are allocated across the CISO s organization and each organizational unit reports risks and incidents to the CISO who in turn informs other senior management of cybersecurity incidents that may be material to the company
Our cybersecurity program is overseen by the Information Security Committee ISC a cross functional management committee whose membership include the CISO Chief Risk Officer CRO Chief Technology Officer Chief Compliance Officer and others Members of the ISC possess substantial experience in risk management finance and information security The ISC is responsible for ensuring that the cybersecurity strategy and program align with our overall risk strategy Our TPRM program is overseen by the Corporate Operational Risk Committee CORC a cross functional management team whose membership includes leaders from our third party risk management corporate services compliance sourcing information technology and business resiliency teams The CORC is responsible for ensuring risks to our non insurance operational functions including those related to third party vendors are identified and managed within our risk appetite and that our TPRM program and strategy align with our overall business objectives
The CORC and the ISC both report risks to our Executive Risk Management Committee ERMC which is comprised of senior management from our corporate functions and business segments and is responsible for overseeing our enterprise wide risk management program The ERMC is chaired by the CRO who maintains a direct line of communication with the Risk and Finance Committee RFC of our board of directors
The RFC is the board committee that oversees our cybersecurity risk management Our CISO makes quarterly reports to the RFC about material cybersecurity risks updates to the cybersecurity program metrics that evaluate the effectiveness of the cybersecurity program material cybersecurity incidents and remediation plans The RFC also receives timely reports from the CISO when there are significant cybersecurity incidents or updates to the cybersecurity risk assessment The board of directors also takes an active role in overseeing cybersecurity risk including receiving an annual report from the CISO that provides an overview of the status and effectiveness of our cybersecurity risk management program and participating in cybersecurity incident response tabletop exercises
See Quantitative and Qualitative Disclosures About Market Risk contained herein in Item 7A for further information Also see Risk Factors included in Item 1A for additional information regarding cybersecurity risk
As of December 31 2024 we owned office space comprised of five campuses located in Chattanooga Tennessee Portland Maine Columbia South Carolina Baton Rouge Louisiana and Dorking in the United Kingdom In addition as of December 31 2024 we leased office space in various locations throughout the United States the United Kingdom Ireland and Poland Substantially all of the properties owned or leased are used by one or more of our reportable segments depending on the location We believe our properties and facilities are suitable and adequate for current operations
Our board of directors has the authority to declare cash dividends on shares of our common stock In determining dividends the board takes into account a number of factors including our financial condition and results of operations regulatory limitations on the payment of dividends from subsidiaries cash requirements general economic conditions and other factors the board may deem relevant For information on restrictions relating to our subsidiaries ability to pay dividends to Unum Group and certain of its intermediate holding company subsidiaries see Liquidity and Capital Resources Cash Available from Subsidiaries contained herein in Item 7 and Note 18 of the Notes to Consolidated Financial Statements contained herein in Item 8
2 In July 2024 our board of directors authorized the repurchase of up to 1 000 0 million of Unum Group s outstanding common stock beginning on August 1 2024 In February 2025 our board of directors authorized the repurchase of up to 1 000 0 million of Unum Group s outstanding common stock beginning on April 1 2025 Concurrent with the announcement of the February 2025 repurchase program we also announced the termination of the July 2024 program as of March 31 2025 and any unused amounts under that program will expire as of that date The repurchase program authorized in February 2025 has no scheduled termination date
3 In October 2024 we entered into an accelerated share repurchase agreement As part of this transaction we paid 150 0 million to a financial counterparty and received an initial delivery of 1 910 665 shares of our common stock which represented
approximately 75 percent of the total delivery under the agreement The final price adjustment settlement along with the delivery of the remaining shares occurred in December 2024 resulting in the delivery of 291 742 additional shares In total we repurchased 2 202 407 shares pursuant to the October 2024 accelerated share repurchase agreement
4 In November 2024 we entered into another accelerated share repurchase agreement As part of this transaction we paid 321 0 million to a financial counterparty and received an initial delivery of 3 751 168 shares of our common stock which represented approximately 75 percent of the total delivery under the agreement The final price adjustment settlement along with the delivery of the remaining shares occurred in February 2025 resulting in the delivery to us of 673 119 additional shares In total we repurchased 4 424 287 shares pursuant to the November 2024 accelerated share repurchase agreement
For information relating to compensation plans under which Unum Group s equity securities are authorized for issuance see Item 12 contained herein For information relating to our accelerated share repurchases and share repurchase programs see Note 12 contained herein Item 8
The discussion and analysis presented in this section should be read in conjunction with the Cautionary Statement Regarding Forward Looking Statements included below the Table of Contents Risk Factors included herein Item 1A and the Consolidated Financial Statements and notes thereto included in Item 8
Excluding these items after tax adjusted operating income for 2024 was 1 588 2 million or 8 44 per diluted common share compared to 1 513 6 million or 7 66 per diluted common share for 2023 See Reconciliation of Non GAAP and Other Financial Measures contained herein in this Item 7 for a reconciliation of these items
Our Unum International segment reported income before income tax and net investment gains and losses of 150 3 million in 2024 compared to 140 2 million in 2023 which include the reserve assumption updates during the third quarters of 2024 and 2023
primarily due to lower net investment income as well as unfavorable benefits experience in the group life and group long term disability product lines partially offset by higher premium income The benefit ratio for our Unum UK line of business excluding the reserve assumption updates was 69 8 percent in 2024 compared to 69 0 percent in 2023 Unum International sales as measured in U S dollars increased 9 4 percent in 2024 compared to 2023 Unum UK sales as measured in local currency increased 6 6 percent in 2024 compared to 2023
Our Colonial Life segment reported income before income tax and net investment gains and losses of 512 7 million in 2024 compared to 480 8 million in 2023 which include the reserve assumption updates during the third quarters of 2024 and 2023 Excluding these items our Colonial Life segment reported adjusted operating income of 466 7 million in 2024 compared to 400 1 million in 2023 primarily due to favorable benefits experience and higher premium income partially offset by higher
commissions and amortization of deferred acquisition costs The benefit ratio excluding the reserve assumption updates for Colonial Life was 47 7 percent in 2024 compared to 50 9 percent in 2023 Colonial Life sales decreased 1 4 percent in 2024 compared to 2023
Our Closed Block segment reported income before income tax and net investment gains and losses of 246 6 million in 2024 compared to a loss before income tax and net investment gains and losses of 282 8 million in 2023 which include the amortization of the cost of reinsurance and the impact of non contemporaneous reinsurance related to the Closed Block individual disability reinsurance transaction as well as the reserve assumption updates Excluding these items our Closed Block segment reported adjusted operating income of 137 8 million in 2024 compared to 164 9 million in 2023 primarily due to unfavorable benefits experience in our long term care and all other product lines partially offset by favorable net investment income The net premium ratio for long term care increased to 94 6 percent at December 31 2024 from 93 5 percent at December 31 2023
A rising interest rate environment could positively impact our yields on new investments but could also increase unrealized losses in our current holdings Alternatively a declining interest rate environment could negatively impact our yields on new investments but could also reduce unrealized losses in our current holdings As of December 31 2024 we do not hold any securities with a decline in fair value below amortized cost which we intend to sell nor any securities for which it is more likely than not that we will be required to sell before recovery in amortized cost The net unrealized loss on our fixed maturity securities was 2 6 billion and 1 6 billion at December 31 2024 and 2023 respectively with the increase due primarily to an increase in U S Treasury Rates The earned book yield on our investment portfolio for 2024 was 4 44 percent which was generally consistent with a yield of 4 45 percent for 2023
Additionally a rising interest rate environment could result in reserve decreases while a declining interest rate environment could result in reserve increases specific to our liability for future policy benefits as the reserve discount rate assumptions used in the calculation of our liability are updated at each reporting date using a yield that is reflective of an upper medium grade fixed income instrument which is generally equivalent to a single A interest rate matched to the duration of certain of our insurance liabilities The change in discount rate assumptions on the liability for future policy benefits net of reinsurance due primarily to the increase in U S Treasury rates during 2024 resulted in a decrease to the liability for future policy benefits net of reinsurance of approximately 2 3 billion
We believe our capital and financial positions are strong At December 31 2024 the RBC ratio for our traditional U S insurance subsidiaries calculated on a weighted average basis using the NAIC Company Action Level formula was approximately 430 percent which is above our long term expectations We repurchased 15 7 million shares of Unum Group common stock under our share repurchase program at a cost of 979 3 million which includes commissions excise tax and 80 3 million related to shares which settled in February 2025 in connection with the November 2024 accelerated share repurchase agreement during 2024 Our weighted average common shares outstanding assuming dilution equaled 188 1 million and 197 6 million for 2024 and 2023 respectively As of December 31 2024 Unum Group and our intermediate holding companies had available holding company liquidity of 1 987 0 million that was held primarily in bank deposits commercial paper money market funds corporate bonds municipal bonds and asset backed securities
On February 26 2025 Unum America entered into a master transaction agreement with Fortitude Reinsurance Company Ltd Fortitude Re which subject to receipt of regulatory approvals and the satisfaction or waiver of other customary closing conditions is expected to result in the execution of a coinsurance agreement anticipated reinsurance agreement during 2025
This anticipated reinsurance agreement is to reinsure a portion of our Closed Block long term care insurance business and a portion of our Unum US individual disability business on a coinsurance basis to Fortitude Re The anticipated reinsurance agreement represents approximately 21 percent of total Closed Block long term care future policy benefits and approximately 15 percent of Unum US individual disability future policy benefits as of December 31 2024 The transaction is expected to result in approximately 430 million pre tax ceding commission paid to Fortitude Re Fortitude Re will establish and maintain a collateralized trust account for the benefit of Unum America to secure its obligations under the anticipated reinsurance agreement
Immediately prior to entering into the anticipated reinsurance agreement with Fortitude Re Unum America will recapture the aforementioned Closed Block long term care business from Fairwind Reinsurance Company Fairwind an affiliated captive reinsurer and assume the aforementioned Unum US individual disability business from Provident Life and Accident Insurance Company an affiliate
During the third quarters of 2024 2023 and 2022 we completed our annual cash flow assumption review and updated certain of our assumptions used to develop the liability for future policy benefits For more information see Critical Accounting Estimates included herein in this Item 7 as well as Note 6 of the Notes to Consolidated Financial Statements contained herein in Item 8
During the third quarter of 2024 we incurred a loss of 15 3 million before tax or 12 1 million after tax within our Corporate segment for the settlement of an employment related matter 4 9 million of the loss is recorded within compensation expense and 10 4 million of the loss is recorded within other expenses in the consolidated statements of income
In August 2022 the Inflation Reduction Act IRA was signed into law in the U S and includes certain corporate tax provisions effective January 1 2023 The IRA imposed a new 15 percent corporate alternative minimum tax CAMT on adjusted financial statement income AFSI on corporations that have average AFSI over 1 0 billion in any prior three year period starting with years 2020 to 2022 Our company is an applicable corporation We have not recorded any CAMT as of December 31 2024 We do not expect that any CAMT incurred would impact earnings since it would be offset with a credit toward regular income tax in subsequent years The IRA also imposed a one percent excise tax on fair market value of corporate stock repurchases after December 31 2022 This excise tax is recorded as part of the cost basis of treasury stock and is assessed on the fair market value of stock purchases reduced by the fair value of any shares issued during the period We have recorded 8 3 million of excise tax in stockholders equity as part of the cost basis of treasury stock in 2024
The Organization for Economic Co operation and Development OECD has established model rules to ensure a minimum level of tax of 15 percent Pillar Two for multinational companies Several jurisdictions including the United Kingdom Ireland and Poland have adopted Pillar Two beginning on or after December 31 2023 We have not recorded material Pillar Two taxes as of December 31 2024 and we do not expect material impacts in 2025 We will continue to monitor legislative developments
We believe our strategy of providing financial protection products at the workplace puts us in a position of strength We continue to fulfill our corporate purpose of helping the working world thrive throughout life s moments by providing excellent service to people at their time of need Our strategy remains centered on growing our core businesses through investing and transforming our operations and technology to anticipate and respond to the changing needs of our customers expanding into new adjacent markets through meaningful partnerships and effective deployment of our capital across our portfolio
In 2024 we experienced increased earnings driven by the underlying strength of our business and expect positive operating trends in our core businesses to continue in 2025 The products and services we provide deliver significant value to employers employees and their families and we believe this will help drive sales and premium growth in 2025
A rising interest rate environment could positively impact our yields on new investments but could also increase unrealized losses in our current holdings Alternatively a declining interest rate environment could negatively impact our yields on new investments but could also reduce unrealized losses in our current holdings We also may continue to experience further volatility in miscellaneous investment income primarily related to changes in partnership net asset values as well as bond calls
As part of our discipline in pricing and reserving we continuously monitor emerging claim trends and interest rates We will continue to take appropriate pricing actions on new business and renewals that are reflective of the current environment and may continue to utilize derivative financial instruments to manage interest rate risk
Our business is well diversified by geography within our markets industry exposures and case size and we continue to analyze and employ strategies that we believe will help us navigate the current environment These strategies allow us to maintain financial flexibility to support the needs of our businesses while also returning capital to our shareholders We have strong core businesses that have a track record of generating significant free cash flow and we will continue to invest in our operations and expand into adjacent markets where we can best leverage our expertise and capabilities to capture market growth opportunities as those opportunities emerge We believe that consistent operating results combined with the implementation of strategic initiatives and the effective deployment of capital will allow us to meet our financial objectives
Further discussion is included in Reconciliation of Non GAAP and Other Financial Measures Consolidated Operating Results Segment Results Investments and Liquidity and Capital Resources contained herein in this Item 7 and in the Notes to Consolidated Financial Statements contained herein in Item 8
We analyze our performance using non GAAP financial measures A non GAAP financial measure is a numerical measure of a company s performance financial position or cash flows that excludes or includes amounts that are not normally excluded or included in the most directly comparable measure calculated and presented in accordance with U S generally accepted accounting principles GAAP The non GAAP financial measure of after tax adjusted operating income differs from net income as presented in our consolidated operating results and income statements prepared in accordance with GAAP due to the exclusion of investment gains or losses the amortization of the cost of reinsurance the impact of non contemporaneous reinsurance and reserve assumption updates as well as certain other items as specified in the reconciliations below Investment gains or losses primarily include realized investment gains or losses expected investment credit losses and gains or losses on derivatives We believe after tax adjusted operating income is a better performance measure and better indicator of the profitability and underlying trends in our business
Investment gains or losses depend on market conditions and do not necessarily relate to decisions regarding the underlying business of our segments Our investment focus is on investment income to support our insurance liabilities as opposed to the generation of investment gains or losses Although we may experience investment gains or losses which will affect future earnings levels a long term focus is necessary to maintain profitability over the life of the business since our underlying business is long term in nature and we need to earn the interest rates assumed in calculating our liabilities
We exited a substantial portion of our Closed Block individual disability product line through the two phases of the reinsurance transaction that were executed in December 2020 and March 2021 As a result we exclude the amortization of the cost of reinsurance that we recognized upon the exit of the business related to the policies on claim status as well as the impact of non contemporaneous reinsurance that resulted from the adoption of ASU 2018 12 We believe that the exclusion of these items provides a better view of our results from our ongoing businesses
Cash flow assumptions used to calculate our liability for future policy benefits are reviewed at least annually and updated as needed with the resulting impact reflected in net income While the effects of these assumption updates are recorded in the reporting period in which the review is completed these updates reflect experience emergence and changes to expectations spanning multiple periods We believe that by excluding the impact of reserve assumption updates we are providing a more comparable and consistent view of our quarterly results
We may at other times exclude certain other items from our discussion of financial ratios and metrics in order to enhance the understanding and comparability of our operational performance and the underlying fundamentals but this exclusion is not an indication that similar items may not recur and does not replace net income or net loss as a measure of our overall profitability
See Executive Summary contained herein in Item 7 and Notes 3 6 14 and 15 of the Notes to Consolidated Financial Statements contained herein in Item 8 for further discussion regarding the items specified in the reconciliations below
We measure and analyze our segment performance on the basis of adjusted operating revenue and adjusted operating income or adjusted operating loss which differ from total revenue and income before income tax as presented in our consolidated statements of income due to the exclusion of investment gains and losses the amortization of the cost of reinsurance the impact of non contemporaneous reinsurance and reserve assumption updates as well as certain other items as specified in the reconciliations below These performance measures are in accordance with GAAP guidance for segment reporting but they should not be viewed as a substitute for total revenue income before income tax or net income
We prepare our financial statements in accordance with GAAP The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect amounts reported in our financial statements and accompanying notes Estimates and assumptions could change in the future as more information becomes known which could impact the amounts reported and disclosed in our financial statements
The accounting estimates deemed to be most critical to our financial position and results of operations are those related to the liability for future policy benefits valuation of investments pension and postretirement benefit plans income taxes and contingent liabilities For additional information refer to our significant accounting policies in Note 1 of the Notes to Consolidated Financial Statements contained herein in Item 8
Liabilities for future policy benefits represent the cost of claims that we estimate we will eventually pay to our policyholders and the related expenses for our non interest sensitive products Liability for future policy benefits includes policy liabilities for claims not yet incurred and for claims that have been incurred or are estimated to have been incurred but not yet reported to us Liability for future policy benefits equaled 36 8 billion and 40 0 billion at December 31 2024 and 2023 or approximately 72 2 percent and 74 6 percent of our total liabilities respectively Liability for future policy benefits ceded to reinsurers was 7 0 billion and 7 8 billion at December 31 2024 and 2023 respectively and are reported as a reinsurance recoverable in our consolidated balance sheets
Liabilities for future policy benefits are initially established in the same period in which we issue a policy and equal the difference between projected future policy benefits and projected future premiums allowing a margin for expenses and profit The liabilities for future policy benefits build up and release over time based on the emergence of cash flows including premiums received and claims paid and updated expectations for future cash flows
Liabilities for future policy benefits are updated at each reporting date to reflect changes in the liability based on policy development over time emerging experience and any assumption updates required to maintain the best estimate basis for expected future cash flows as required by GAAP These future policy benefit liabilities are based on actual known facts regarding the liability such as the benefits available under the applicable policy the covered benefit period the age and as appropriate the occupation and cause of disability of the claimant as well as assumptions derived from our actual historical experience and expected future changes in experience for factors such as the claim duration claim administration expenses discount rate policy benefit offsets including those for social security and other government based welfare benefits The liability for future policy benefits also includes the liabilities for incurred claims
Future policy benefit liabilities primarily relate to our traditional long duration products which include our group individual disability and certain of our voluntary benefits products in our Unum US segment group individual disability and life products in our Unum International segment certain of our voluntary benefits products in our Colonial Life segment and long term care and certain of our other products in our Closed Block segment
In calculating the liability for future policy benefits our long duration contracts are grouped into cohorts by product type and contract issue year Liabilities for future policy benefits for claims not yet incurred are generally determined using the net premium model as prescribed by GAAP At each reporting period the liability for future policy benefits is remeasured at the current discount rate with the change recorded in other comprehensive income
The calculation of the liability for future policy benefits involves numerous assumptions including discount rate lapses mortality and morbidity Certain product lines may utilize additional assumptions in calculating the liability for future policy benefits in addition to those listed above such as premium rate increases for long term care benefit offsets for Unum US long term disability claim costs for Unum US voluntary benefits and Colonial Life and inflation linked benefits for Unum UK group disability and group life Claim costs capture the combined effect of the incidence rate the expected level of benefit to be paid and the claim resolution rate Cash flow assumptions are reviewed and updated as needed at least annually Assumptions may be updated more frequently if necessary based on trending experience
On a quarterly basis cohort level cash flow measures are updated based on the emergence of actual experience The updated cash flows based on experience emergence and any assumption updates are used to determine the updated net premiums the
portion of the gross premium required to provide for all benefits and expenses excluding acquisition costs or any costs that are required to be charged to expense as incurred The updated net premium ratio is used to calculate the updated liability for future policy benefits as of the beginning of year at the original discount rate To the extent the present value of future benefits and expenses exceeds the present value of future gross premiums an immediate charge is recognized in net income such that net premiums are set equal to gross premiums Future policy benefit liabilities are floored at zero at the cohort level in situations where the liabilities for future policy benefits are less than zero The change in the liability for future policy benefits at the original discount rate as of the beginning of the period resulting from cash flow changes including changes in cash flow assumptions is reflected as the change in benefits remeasurement gain or loss in the consolidated statements of income The impact of all other changes in the liability for future policy benefits are reflected as policy benefits in the consolidated statements of income
The calculation of the liability for future policy benefits involves numerous assumptions but the primary assumptions used to calculate the liability are 1 the discount rate 2 the claim resolution rate 3 the claim incidence rate and 4 policyholder lapse and mortality
which is used in calculating the liability for future policy benefits is the interest rate that we use to discount future cash flows including premium and claim payments to determine the present value A higher discount rate produces a lower reserve If the discount rate is higher than our future investment returns our invested assets will not earn enough investment income to support our future claim payments The original discount rates are initially set at the transition date of ASU 2018 12 which was January 1 2021 for policies originally issued before the transition date or at the policy issuance date for policies issued on or after the transition date For policies issued on or after the transition date the original discount rate assumptions reflect an upper medium grade low credit risk fixed income instrument yield based on the currency in which the liabilities are assumed and matched to the duration of the insurance liabilities For all cohorts the liability is then remeasured at each reporting period using the current discount rate reflective of an upper medium grade fixed income instrument We primarily utilize a forward curve which is derived from the underlying spot curve using interpolation to develop an ultimate forward rate
is the probability that a disability or long term care claim will close due to recovery or death of the insured and it is used to estimate how long benefits will be paid for a claim Estimated resolution rates that are set too high will result in liabilities that are lower than they need to be to pay the claim benefits over time Claim resolution assumptions involve many factors including the cause of disability the policyholder s age the type of contractual benefits provided including benefit elections and the time since initial disability We primarily use our own claim experience to develop our claim resolution assumptions These assumptions are established for the probability of death and the probability of recovery from disability Our studies incorporate actual claim resolution experience over a number of years and consider any observed trends over the study period We also consider any expected future changes in claim resolution experience
is the rate at which new claims are submitted to us The incidence rate is affected by many factors including the age of the insured the insured s occupation or industry the benefit plan design and certain external factors such as consumer confidence and levels of unemployment We establish our incidence assumption using a historical review of actual incidence results along with an outlook of future incidence expectations
s reflect the probability that insureds coverage is discontinued due to lapsation or death of the insured For our life insurance products mortality assumptions also reflect the probability that a benefit payment occurs These rates are affected by many factors including the age of the insured the insured s occupation or industry the benefit plan design and the length of time from policy or certificate issue to valuation date We establish our mortality and lapse assumptions using a historical review of actual results along with an outlook of future expectations
Establishing liability for future policy benefit assumptions is complex and involves many factors Liabilities for future policy benefits particularly for policies offering insurance coverage for long term disabilities and long term care are dependent on numerous assumptions other than just those presented in the preceding discussion The impact of internal and external events such as changes in claims operational procedures economic trends such as the rate of unemployment and the level of consumer confidence the emergence of new diseases new trends and developments in medical treatments and legal trends and legislative
changes including changes to social security and other government based welfare benefits programs which provide policy benefit offsets among other factors will influence claim incidence rates claim resolution rates and claim costs In addition for policies offering coverage for disability or long term care at advanced ages the level and pattern of mortality rates at advanced ages will impact overall benefit costs Reserve assumptions differ by product line and by policy type within a product line Additionally in any period and over time our actual experience may have a positive or negative variance from our long term assumptions either singularly or collectively and these variances may offset each other We review our assumptions at least annually with a long term view of our expected experience over the life of a block of business rather than test just one or a few assumptions independently that may be aberrant over a short period of time Based on this review we update our assumptions to reflect our current best estimates Therefore while it is possible to evaluate the sensitivity of overall results in our liability for future policy benefits based upon a change in each individual assumption the actual impacts of changes to a variety of underlying assumptions must be considered in the aggregate by product line in order to judge the overall potential implications to the liability for future policy benefits The following sections present the impacts of our most recent cash flow assumption reviews and an overview of our trend analysis for key assumptions and the results of variability in our assumptions in aggregate for the liabilities for future policy benefits which we believe are reasonably possible to have a material impact on our future financial results if actual claims yield a materially different amount than what we currently expect and have reserved for either favorable or unfavorable
Our cash flow assumption reviews during the years ended December 31 2024 2023 and 2022 resulted in the following impacts to income before income tax as a result of updating certain assumptions related to the liability for future policy benefits
The cash flow assumption updates in our Unum US group long term disability product line reduced our liability for future policy benefits by 90 0 million due primarily to claim resolution assumptions driven by favorable claim recovery trends
The cash flow assumption updates in our Closed Block segment were primarily driven by the long term care product line which reduced our liability for future policy benefits by 174 1 million due primarily to an increase to expected premium rate increase approvals within our existing premium rate increase program partially offset by lower expected persistency on group policies
The cash flow assumption updates in our Unum US group long term disability product line reduced our liability for future policy benefits by 121 0 million due primarily to sustained improvement in claim recovery trends
The cash flow assumption updates in our Colonial Life segment reduced our liability for future policy benefits by 80 7 million due primarily to improvement in certain of our claim cost assumptions and increased policyholder lapse rates
The cash flow assumption updates in our Closed Block segment were primarily driven by the long term care product line which increased our liability for future policy benefits by 368 1 million due primarily to lower expectations for active policy lapse and mortality assumptions partially offset by an increase to expected premium rate increase approvals within our existing premium rate increase program
The cash flow assumption updates in our Unum US group long term disability product line and our waiver of premium benefits for our Unum US group life product line reduced our liability for future policy benefits by 121 0 million and 34 0 million respectively due primarily to sustained improvement in claim recovery trends partially offset by lower social security benefit offsets for our group long term disability product line
The cash flow assumption updates in our Closed Block segment were primarily driven by the all other product line The impact to income before income tax for this product line was 6 8 million and related to the small block of retained individual disability business However there were also updates to the mortality assumptions for the advanced age portion of our individual disability claimant population which was included in the block ceded as a part of the Closed Block individual disability reinsurance transaction with Commonwealth Annuity and Life Insurance Company We increased our liability for future policy benefits by 196 0 million as a result of the assumption updates related to the ceded advanced age claimant block with a corresponding increase in our consolidated balance sheet as a reinsurance recoverable
Generally we do not expect our mortality and morbidity claim incidence trends or our persistency trends to change significantly in the short term and to the extent that these trends do change we expect those changes to be gradual over a longer period of time We have historically experienced an increase in our group long term disability morbidity claim incidence trends during and following a recessionary period and believe claim incidence trends may continue to somewhat follow general economic conditions and demographics of the general workforce
The long term discount rates underlying our liabilities are reflective of rates based on the issue year of the cohort or rates underlying the liabilities at transition to the updated accounting basis as prescribed by ASU 2018 12 The discount rate assumption for new cohorts after the transition date is based on the interest rate of an upper medium grade fixed income instrument for that cohort period
Our claim resolution rate assumption used in determining the liability for future policy benefits is our expectation of the resolution rate we will experience over the life of the block of business and will vary from actual experience in any one period
both favorably and unfavorably Claim resolution rates are very sensitive to operational and environmental changes and have a greater chance of significant variability in a shorter period of time than our other reserve assumptions These rates are reviewed on a quarterly basis for the death and recovery components separately While claim resolution rates in our Unum US group long term disability product line have shown some variability over the last several years they have exhibited an increasing trend
We monitor our key assumptions and test the sensitivity of our liability for future policy benefits under a range of scenarios This sensitivity analysis is completed at least annually and was last completed as of December 31 2024 for our product lines with a higher level of estimation uncertainty and utilizes the liability for future policy benefits valued at the original discount rate See Quantitative and Qualitative Disclosures about Market Risk contained herein in Item 7A for information regarding the sensitivity of the current discount rate used to remeasure the liability for future policy benefits at each reporting date
In our estimation scenarios based on certain variations in each of our assumptions for our Unum US group long term disability product line could produce a change of approximately 100 million which represents 2 1 percent of our Unum US group disability liability for future policy benefits balance Of the assumptions impacting the estimated change in the liability for future policy benefits the largest contributor is the claim resolution rate for which we assumed a change of approximately 10 percent
In our estimation scenarios based on certain possible variations in each of our assumptions for our Colonial Life segment could produce a change of approximately 60 million which represents 3 2 percent of our Colonial Life liability for future policy benefits balance Of the assumptions impacting the estimated change in the liability for future policy benefits the largest contributor is the claim costs for which we assumed a change of approximately 10 percent
We also consider variability in our assumptions related to the long term care liability for future policy benefits In our estimation scenarios based on certain variations in each of our assumptions could produce potential results as illustrated in the chart below The liability for future policy benefits for long term care is based upon a number of key assumptions and each assumption has various factors which may impact the long term outcome Key assumptions with respect to active policy lapses and mortality claim incidence and resolutions and future premium rate increases must incorporate extended views of expectations for many years into the future The liability for future policy benefits is highly sensitive to these estimates Key assumptions and related impacts are also heavily interrelated in both their outcome and in their effects on the liability for future policy benefits For example changes in the view of morbidity and mortality might be mitigated by either potential future premium rate increases and or morbidity improvements due to general improvement in health and or medical breakthroughs There is a potentially wide range of outcomes for each assumption and in totality As a result and given the size of the long term care liability for future policy benefits in relation to the total liability for future policy benefits our sensitivity analysis for long term care reflects the potential impact to the present value of gross liability cash flows for future policy benefits for updates to our key assumptions The sensitivity analysis related to our key assumptions for the long term care liability for future policy benefits is as shown below The impact of changes to these assumptions would partially be reflected in the period in which the assumptions are updated and partially across future periods Given the significant changes in certain assumptions the below sensitivity analysis was completed as of the beginning of the third quarter of 2024 at which point the most recent assumption update review occurred
The impact to current period liability for future benefits would be smaller in magnitude than the present value of gross liability for future policy benefits cash flows due to the updating of the net premium ratio The current period liability for future policy benefits impact may be asymmetrical i e larger for the unfavorable scenario for some sensitivities if the assumption update causes the net premium ratio to be capped at 100 percent for any given cohort
We believe that these sensitivities provide a reasonable estimate of the possible changes in liability for future policy benefit balances for those product lines where we believe it is possible that variability in the assumptions in the aggregate could result in a material impact on our liability for future policy benefit levels but we record our liability for future policy benefits based on our long term best estimate for our cohorts and these assumptions are reviewed and updated annually to reflect the current best estimates Product lines that have long term claim payout periods have a greater potential for significant variability in claim costs either positive or negative We closely monitor emerging experience and use these results to inform our view of long term assumptions
All of our fixed maturity securities which are classified as available for sale and all of our unrestricted equity securities are reported at fair value Our derivative financial instruments including certain derivative instruments embedded in other contracts are reported as either assets or liabilities and measured at fair value We report our investments in private equity partnerships at our share of the partnerships net asset value or its equivalent NAV as a practical expedient for fair value
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date and therefore represents an exit price not an entry price The exit price objective applies regardless of our intent and or ability to sell the asset or transfer the liability at the measurement date We generally use valuation techniques consistent with the market approach and to a lesser extent the income approach The market approach uses prices and other relevant information from market transactions involving identical or comparable assets or liabilities and the income approach converts future amounts such as cash flows or earnings to a single present value amount or a discounted amount We believe the market approach valuation technique provides more observable data than the income approach considering the types of investments we hold
The degree of judgment utilized in measuring the fair value of financial instruments generally correlates to the level of pricing observability Financial instruments with readily available active quoted prices or for which fair value can be measured from actively quoted prices in active markets generally have more pricing observability and less judgment utilized in measuring fair value The market sources from which we obtain or derive the fair values of our assets and liabilities carried at market value include quoted market prices for actual trades price quotes from third party pricing vendors price quotes we obtain from outside brokers discounted cash flow and observable prices for similar publicly traded or privately traded issues that incorporate the credit quality and industry sector of the issuer Our fair value measurements could differ significantly based on the valuation technique and available inputs
Inputs to valuation techniques refer broadly to the assumptions that market participants use in pricing assets or liabilities including assumptions about risk for example the risk inherent in a particular valuation technique used to measure fair value
and or the risk inherent in the inputs to the valuation technique We use observable and unobservable inputs in measuring the fair value of our financial instruments Observable inputs are inputs that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from independent sources Unobservable inputs are developed based on the best information available in the circumstances and reflect our evaluation of the assumptions market participants would use in pricing the asset or liability
Certain of our investments do not have readily determinable market prices and or observable inputs or may at times be affected by the lack of market liquidity For these securities we use internally prepared valuations including valuations based on estimates of future profitability to estimate the fair value Additionally we may obtain prices from independent third party brokers to aid in establishing valuations for certain of these securities Key assumptions used by us to determine fair value for these securities include risk free interest rates risk premiums performance of underlying collateral if any and other factors involving significant assumptions which may or may not reflect those of an active market
As of December 31 2024 approximately 11 7 percent of our fixed maturity securities were categorized as Level 1 87 9 percent as Level 2 and 0 4 percent as Level 3 Level 1 is the highest category of the three level fair value hierarchy classification wherein inputs are unadjusted and represent quoted prices in active markets for identical assets or liabilities The Level 2 category includes assets or liabilities valued using inputs other than those included in the Level 1 category that are either directly or indirectly observable for the asset or liability through correlation with market data at the measurement date and for the duration of the instrument s anticipated life The Level 3 category is the lowest category of the fair value hierarchy and reflects the judgment of management regarding what market participants would use in pricing assets or liabilities at the measurement date using unobservable inputs to extrapolate an estimated fair value
See Quantitative and Qualitative Disclosures about Market Risk for information regarding the sensitivity of the estimated fair value for fixed maturity securities contained herein in Item 7A See Note 2 of the Notes to Consolidated Financial Statements contained herein in Item 8
One of the significant estimates related to investments is our credit loss valuation In determining when a decline in fair value below amortized cost of a fixed maturity security represents a credit loss we evaluate the following factors
We evaluate available information including the factors noted above both positive and negative in reaching our conclusions In particular we also consider the strength of the issuer s balance sheet its debt obligations and near term funding requirements cash flow and liquidity the profitability of its core businesses the availability of marketable assets which could be sold to increase liquidity its industry fundamentals and regulatory environment and its access to capital markets Although all available and applicable factors are considered in our analysis our expectation of recovering the entire amortized cost basis of the security whether we intend to sell the security whether it is more likely than not we will be required to sell the security before recovery of its amortized cost and whether the security is current on principal and interest payments are the most critical
factors in determining whether a credit loss is possible The significance of the decline in value is also an important factor but we generally do not record a credit loss based solely on this factor since often other more relevant factors will impact our evaluation of a security
While determining whether a credit loss exists is a judgmental area we utilize a formal well defined and disciplined process to monitor and evaluate our fixed income investment portfolio supported by issuer specific research and documentation as of the end of each period The process results in a thorough evaluation of investments and the recording of credit losses on a timely basis for investments determined to have credit loss
We use a comprehensive rating system to evaluate the investment and credit risk of our mortgage loans and to identify specific properties for inspection and reevaluation We estimate an allowance for credit losses that we expect to incur over the life of our mortgage loans using a probability of default method For each loan we estimate the probability that the loan will default before its maturity probability of default and the amount of the loss if the loan defaults loss given default These two factors result in an expected loss percentage that is applied to the amortized cost of each loan to determine the expected credit loss Mortgage loans are reported at amortized cost less the allowance for expected credit losses with the change in expected credit losses recognized as an investment gain or loss in our consolidated statements of income
There are a number of significant risks inherent in the process of monitoring our investments for credit losses and determining when and if a credit loss exists These risks and uncertainties include the following possibilities
We sponsor several defined benefit pension and other postretirement benefit OPEB plans for our employees including non qualified pension plans The U S qualified and non qualified defined benefit pension plans comprise the majority of our total benefit obligation and benefit cost We maintain a separate defined benefit plan for eligible employees in our U K operation The U S defined benefit pension plans were frozen and closed to new entrants on December 31 2013 the OPEB plan was frozen and closed to new entrants on December 31 2012 and the U K plan was frozen and closed to new entrants on December 31 2002
Our net periodic benefit costs and the value of our benefit obligations for these plans are determined based on a set of economic and demographic assumptions that represent our best estimate of future expected experience Major assumptions used in accounting for these plans include the expected discount interest rate the long term rate of return on plan assets and mortality rates We also use as applicable expected increases in compensation levels and a weighted average annual rate of increase in the per capita cost of covered benefits which reflects a health care cost trend rate and the U K plan also uses expected cost of living increases to plan benefits
The assumptions chosen for our pension and OPEB plans are reviewed annually using a December 31 measurement date for each of our plans unless we are required to perform an interim remeasurement The discount rate expected long term rate of return and mortality rate assumptions have the most significant effect on our net periodic benefit costs associated with these plans In addition to the effect of changes in our assumptions the net periodic cost or benefit obligation under our pension and OPEB plans may change due to factors such as plan amendments actual experience being different from our assumptions special benefits to terminated employees and or changes in benefits provided under the plans
This interest assumption is based on the yield derived from a portfolio of high quality fixed income corporate debt instruments that reasonably match the timing and amounts of projected future benefits for each of our retirement related benefit plans The rate is determined at the measurement date
This assumption is selected from a range of probable return outcomes from an analysis of the asset portfolio The market related value as it relates to our estimate of long term rate of return equals the fair value of plan assets determined as of the measurement date The return on plan assets recognizes all asset gains and losses including changes in fair value through the measurement date Our expectations for the future investment returns of the asset categories are based on a combination of historical market performance evaluations of investment forecasts obtained from external consultants and economists and current market yields The expected return for the total portfolio is calculated based on the plan s strategic asset allocation The actual rate of return on plan assets is determined based on the fair value of the plan assets at the beginning and the end of the period adjusted for contributions and benefit payments A lower long term rate of return on plan assets increases our net periodic benefit cost
Investment risk is measured and monitored on an ongoing basis through annual liability measurements periodic asset liability studies and quarterly investment portfolio reviews Risk tolerance is established through consideration of plan liabilities plan funded status and corporate financial condition We believe our investment portfolios are well diversified by asset class and sector with no undue risk concentrations in any one category See Note 11 of the Notes to Consolidated Financial Statements contained herein in Item 8 for further discussion of the investment portfolios for our plans
This assumption reflects our best estimate as of the measurement date of the life expectancies of plan participants in order to determine the expected length of time for benefit payments We derive our assumptions from industry mortality tables
During 2024 the fair value of plan assets in our U S qualified defined benefit pension plan decreased from 1 295 9 million to 1 241 6 million or 4 2 percent due to benefits and expenses paid partially offset by a positive return on assets which resulted in a gain of approximately 2 1 percent During 2024 the fair value of plan assets in our U K plan decreased from 114 2 million to 100 1 million or 12 3 percent due primarily to an unfavorable return on assets which resulted in a loss of approximately 14 1 percent Although our rate of return on plan assets for 2024 differed from our assumptions used in the
measurement of our net periodic benefit costs we believe our assumptions appropriately reflect the impact of the current economic environment and our expectations for the future investment returns based on the plan s asset allocation
The fair value of plan assets in our OPEB plan was 7 9 million and 8 2 million at December 31 2024 and 2023 respectively These assets represent life insurance contracts to fund the life insurance benefit portion of our OPEB plan Our OPEB plan represents a non vested non guaranteed obligation and current regulations do not require specific funding levels for these benefits which are comprised of retiree life medical and dental benefits It is our practice to use general assets to pay medical and dental claims as they come due in lieu of utilizing plan assets for the medical and dental benefit portions of our OPEB plan
The U S qualified defined benefit pension plan was in an underfunded position of 120 1 million and 116 2 million at December 31 2024 and December 31 2023 respectively This year over year change was due primarily to an unfavorable return on plan assets compared to the assumption mostly offset by the decrease in the benefit obligation due to the increase in discount rate The U K plan was in an underfunded position of 21 4 million and 21 2 million at December 31 2024 and 2023 respectively
As of December 31 2024 our pension and OPEB plans have an aggregate unrecognized net actuarial loss of 566 5 million and an unrecognized prior service credit of 1 4 million which together represent the cumulative liability and asset gains and losses as well as the portion of prior service credits that have not been recognized in pension expense The unrecognized net actuarial loss for our pension plans which is 587 7 million at December 31 2024 will be amortized over the average remaining life expectancy of the plan which is approximately 23 years for the U S plans and 28 years for the U K plan to the extent that it exceeds the 10 percent corridor as described below The u
to the extent the gain is outside of the corridor The corridor for the pension and OPEB plans is established based on the greater of 10 percent of the plan assets or 10 percent of the benefit obligation
At December 31 2024 344 1 million of the actuarial loss was outside of the corridor for the U S plans and 61 1 million was outside of the corridor for the U K plan At December 31 2024 14 0 million of the actuarial gain was outside of the corridor for the OPEB plan
The amortization of the unrecognized actuarial gain or loss and the unrecognized prior service credit is a component of our net periodic benefit cost and equaled 16 3 million 7 0 million and 15 5 million in 2024 2023 and 2022 respectively
We provide for federal state and foreign income taxes currently payable as well as those deferred due to temporary differences between the financial reporting and tax bases of assets and liabilities Our accounting for income taxes represents our best estimate of various events and transactions The calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax laws in a multitude of jurisdictions both domestic and foreign The amount of income taxes we pay is subject to ongoing audits in various jurisdictions and a material assessment by a governing tax authority could affect profitability
We record a valuation allowance to reduce deferred tax assets to the amount that is more likely than not to be realized Significant judgment is required in determining valuation allowances In evaluating the ability to recover deferred tax assets we consider all available positive and negative evidence including past operating results the existence of cumulative losses in the most recent years forecasted earnings future taxable income and prudent and feasible tax planning strategies We consider our investment strategies when evaluating the ability to recover deferred tax assets on unrealized losses on investments In the event we determine that we more likely than not will not be able to realize all or part of our deferred tax assets in the future an increase to the valuation allowance is recorded in the period such determination is made Likewise if it is later determined that it is more likely than not that those deferred tax assets will be realized the previously provided valuation allowance is reversed
In establishing a liability for unrecognized tax benefits assumptions are made in determining whether and to what extent a tax position may be sustained GAAP prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in income tax returns The evaluation of a tax position is a two step process The first step is to determine whether it is more likely than not that a tax position will be sustained upon examination based on the technical merits of the position The second step is to measure a position that satisfies the recognition threshold at the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate
settlement Tax positions that previously failed to meet the more likely than not threshold but that now satisfy the recognition threshold are recognized in the first subsequent financial reporting period in which that threshold is met Previously recognized tax positions that no longer meet the more likely than not recognition threshold are derecognized in the first subsequent financial reporting period in which that threshold is no longer met
If a previously recognized tax position is settled for an amount that is different from the amount initially measured the difference will be recognized as a tax benefit or expense in the period the settlement is effective
Changes in tax laws tax regulations or interpretations of such laws or regulations could have an impact on our provision for income tax and our effective tax rate which could significantly affect the amounts reported in our financial statements
On a quarterly basis we review relevant information with respect to litigation and contingencies to be reflected in our consolidated financial statements An estimated loss is accrued when it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated It is possible that our results of operations or cash flows in a particular period could be materially affected by an ultimate unfavorable outcome of pending litigation or regulatory matters depending in part on our results of operations or cash flows for the particular period See Note 16 of the Notes to Consolidated Financial Statements contained herein in Item 8
For information on new accounting standards and the impact if any on our financial position or results of operations see Note 1 of the Notes to Consolidated Financial Statements contained herein in Item 8
Fluctuations in exchange rates particularly between the British pound sterling and the U S dollar for our U K operations have an effect on our consolidated financial results In periods when the pound weakens relative to the preceding period translating pounds into dollars decreases current period results relative to the prior period In periods when the pound strengthens translating pounds into dollars increases current period results relative to the prior period
The weighted average pound dollar exchange rate for our Unum UK line of business was 1 278 1 243 and 1 221 for 2024 2023 and 2022 respectively If the 2023 and 2022 results for our U K operations had been translated at the 2024 weighted average exchange rate our adjusted operating revenue would have been approximately 23 million higher and 28 million higher in 2023 and 2022 respectively Additionally our adjusted operating income would have been approximately 4 million higher and 6 million higher in 2023 and 2022 respectively However it is important to distinguish between translating and converting foreign currency Except for a limited number of transactions we do not actually convert pounds into dollars As a result we view foreign currency translation as a financial reporting item and not a reflection of operations or profitability in the U K
Net investment income was higher in 2024 relative to 2023 due primarily to higher miscellaneous investment income primarily related to larger increases in the NAV on our private equity partnerships and an increase in the level of invested assets partially offset by lower investment income from inflation index linked bonds held by Unum UK Net investment
income was lower in 2023 relative to 2022 due to lower miscellaneous investment income primarily related to smaller increases in the NAV on our private equity partnerships and lower investment income from inflation index linked bonds held by Unum UK partially offset by a higher level of invested assets and an increased yield on invested assets
Our investment gains and losses on fixed maturity securities include net losses on sales of 38 2 million 48 7 million and 26 5 million in 2024 2023 and 2022 respectively Credit and impairment losses on fixed maturity securities were 5 5 million 2 2 million and 4 6 million in 2024 2023 and 2022 respectively Credit and impairment losses on mortgage loans were 12 9 million 0 9 million and 1 0 million in 2024 2023 and 2022 respectively Also included in net investment gains and losses were changes in the fair value of an embedded derivative in a modified coinsurance arrangement which resulted in gains of 13 0 million 12 4 million and 16 2 million in 2024 2023 and 2022 respectively The changes in the embedded derivative are primarily driven by movements in credit spreads in the modified coinsurance portfolio See Notes 3 and 4 of the Notes to Consolidated Financial Statements contained herein in Item 8 for further discussion
Other income is primarily comprised of fee based service products in the Unum US segment which include leave management services and administrative services only business and the underlying results and associated net investment income of certain assumed blocks of reinsured business in the Closed Block segment
Overall benefits experience was favorable in 2024 relative to 2023 and 2022 with a consolidated benefit ratio of 65 9 percent in 2024 compared to 72 2 percent and 72 7 percent in 2023 and 2022 respectively Excluding the impacts of the reserve assumption updates and non contemporaneous reinsurance the consolidated adjusted benefit ratios were 69 1 percent 70 1 percent and 74 9 percent in 2024 2023 and 2022 respectively For further discussion on the reserve assumption updates and non contemporaneous reinsurance see the Executive Summary contained herein in this Item 7 and Notes 1 6 and 15 of the Notes to Consolidated Financial Statements contained herein in Item 8 The underlying benefits experience for each of our operating segments is discussed more fully in Segment Results contained herein in this Item 7
Commissions and the deferral of acquisition costs were higher in 2024 compared to 2023 driven primarily by higher overall sales in our Unum US segment and higher prior period sales in our Colonial Life segment The increase in the amortization of deferred acquisition costs in 2024 compared to 2023 is due primarily to growth in the level of the deferred asset in our Unum US supplemental and voluntary product lines Colonial Life segment and Unum US group disability product line and the impact of increased policyholder lapses in certain of our Unum US supplemental and voluntary product line Commissions and the deferral of acquisition costs were higher in 2023 compared to 2022 driven primarily by higher overall sales and in force block growth in our principal operating segments The increase in the amortization of deferred acquisition costs in 2023 compared to 2022 is due primarily to growth in the level of the deferred asset and the impact of policyholder lapses in our Colonial Life segment and in our Unum US supplemental and voluntary product lines
In 2022 cost related to early retirement of debt includes costs associated with the redemption of 350 0 million aggregate principal amount of our 4 000 senior notes due 2024 and costs related to the retirement of 14 0 million aggregate liquidation amount of the 7 405 capital securities due 2038 issued by Provident Financing Trust I the Trust which resulted in the reduction of a corresponding principal amount of our 7 405 junior subordinated debt securities due 2038 then held by the Trust See Note 10 of the Notes to Consolidated Financial Statements contained herein in Item 8 for further information
We reported year over year increases in other expenses and compensation expenses on a combined basis in 2024 compared to 2023 due primarily to a loss from a legal settlement an increase in operational investments in our business and growth in our fee based service products Other expenses and compensation expenses on a combined basis increased in 2023 compared to 2022 due primarily to increases in employee related costs operational investments in our business and growth in our fee based service products partially offset by a reduction in the amortization of the cost of reinsurance
Our effective income tax rate for 2024 was 21 0 percent compared to 21 7 percent in 2023 and 19 6 percent in 2022 Our 2024 and 2023 effective tax rates were generally consistent with the U S statutory rate Our 2022 effective tax rate differed from the U S statutory rate due to the foreign tax rate differential See Note 9 in the Notes to Consolidated Financial Statements contained herein in Item 8 for further discussion
Sales shown in the preceding chart generally represent the annualized premium income on new sales which we expect to receive and report as premium income during the next 12 months following or beginning in the initial quarter in which the sale is reported depending on the effective date of the new sale Sales do not correspond to premium income reported as revenue in accordance with GAAP This is because new annualized sales premiums reflect current sales performance and what we expect to recognize as premium income over a 12 month period while premium income reported in our financial statements is reported on an as earned basis rather than an annualized basis and also includes renewals and persistency of in force policies written in prior years as well as current new sales
Sales persistency of the existing block of business employment and salary growth and the effectiveness of a renewal program are indicators of growth in premium income Trends in new sales as well as existing market share also indicate the potential for growth in our respective markets and the level of market acceptance of price levels and new product offerings Sales results may fluctuate significantly due to case size and timing of sales submissions
In describing our results we may at times note certain items and exclude the impact on financial ratios and metrics to enhance the understanding and comparability of our operational performance and the underlying fundamentals but this exclusion is not an indication that similar items may not recur We also measure and analyze our segment performance on the basis of adjusted operating revenue and adjusted operating income or adjusted operating loss which differ from total revenue and income before income tax as presented in our consolidated statements of income due to the exclusion of investment gains and losses and certain other items These performance measures are in accordance with GAAP guidance for segment reporting but they should not be viewed as a substitute for total revenue income before income tax or net income See Reconciliation of Non GAAP Financial Measures contained herein in this Item 7
The Unum US segment is comprised of the group disability group life and accidental death and dismemberment and supplemental and voluntary lines of business The group disability line of business includes long term and short term disability medical stop loss and fee based service products The supplemental and voluntary line of business includes voluntary benefits individual disability and dental and vision products These products excluding medical stop loss which is no longer actively marketed as of the third quarter of 2024 are marketed through our field sales personnel who work in conjunction with independent brokers and consultants
Premium income was higher compared to 2023 driven primarily by favorable persistency and higher sales excluding medical stop loss Net investment income was lower compared to 2023 due to a decrease in the level of invested assets and lower miscellaneous investment income partially offset by an increase in the yield on invested assets Other income increased relative to 2023 due to growth in our fee based service products
The benefit ratio excluding the impacts of the reserve assumption updates was generally consistent compared to 2023 with favorable medical stop loss benefits experience and favorable recoveries in the long term disability product line mostly offset by higher incidence in our long term and short term disability product lines
Commissions and the deferral of acquisition costs were higher compared to 2023 due to higher sales excluding medical stop loss The amortization of deferred acquisition costs was higher compared to 2023 due to growth in the level of the deferred asset The other expense ratio which includes other income that is primarily related to fee based service products was generally consistent compared to 2023
Premium income was higher compared to 2022 driven primarily by in force block growth and higher sales Net investment income was lower compared to 2022 primarily due to a lower level of invested assets Other income increased relative to 2022 due to growth in our fee based service products
The benefit ratio excluding the impacts of the reserve assumption updates was favorable compared to 2022 due primarily to lower claim incidence favorable recoveries and favorable discount rate impacts on new claims in our group long term disability product line
Commissions and the deferral of acquisition costs were higher compared to 2022 due primarily to in force block growth and higher sales The amortization of deferred acquisition costs was higher compared to 2022 due to growth in the level of the deferred asset The other expense ratio was consistent compared to 2022
Premium income was higher compared to 2023 driven primarily by favorable persistency and higher sales Net investment income was lower compared to 2023 due to a decrease in the level of invested assets partially offset by an increase in the yield on invested assets
Commissions and the deferral of acquisition costs were higher compared to 2023 due primarily to higher sales The amortization of deferred acquisition costs was generally consistent compared to 2023 The other expense ratio was consistent compared to 2023
Premium income was higher compared to 2022 due primarily to higher sales and favorable persistency Net investment income was lower compared to 2022 due to a decrease in the level of invested assets and lower miscellaneous investment income partially offset by an increase in the yield on invested assets
The benefit ratio excluding the impact of the reserve assumption update in 2022 was favorable compared to 2022 due primarily to lower mortality resulting primarily from lessening impacts of COVID 19 on our insured population
Commissions were higher compared to 2022 due primarily to higher sales The deferral of acquisition costs and the amortization of deferred acquisition costs were generally consistent compared to 2022 The other expense ratio was generally consistent compared to 2022
Premium income was higher compared to 2023 due to favorable persistency and higher sales in the voluntary benefits and dental and vision product lines Also impacting the comparison was the impacts from the partial recapture of a previously ceded block of business in the individual disability product line in the third quarter of 2023 Net investment income was higher compared to 2023 primarily due to an increase in the yield on invested assets Other income was lower compared to 2023 due primarily to a prior year net gain on the partial recapture of a previously ceded block of business in the individual disability product line in the third quarter of 2023
The benefit ratio for voluntary benefits excluding the impacts of the reserve assumption updates was unfavorable compared to 2023 due primarily to unfavorable benefit experience in the accident critical illness and hospital indemnity products The benefit ratio for the individual disability product line excluding the impacts of the reserve assumption updates was favorable compared to 2023 due primarily to favorable recoveries partially offset by higher claim size The benefit ratio for the dental and vision product line was unfavorable compared to 2023 due primarily to higher claims incidence and higher average claim size
Commissions and the deferral of acquisition costs were higher compared to 2023 due primarily to higher sales in the voluntary benefits product line Commissions were also higher compared to 2023 due to the continued impacts from the partial recapture of a previously ceded block of business in the individual disability product line in the third quarter of 2023 The amortization of deferred acquisition costs was higher compared to 2023 due primarily to the increased lapses in certain older voluntary benefits products and growth in the level of the deferred asset in all product lines The other expense ratio was generally consistent compared to 2023
Premium income was higher compared to 2022 due primarily to higher sales across all product lines as well as the partial recapture of a previously ceded block of business in the individual disability product line partially offset by lower persistency across all product lines Net investment income was generally consistent compared to 2022 with a decline in the yield on invested assets and lower miscellaneous investment income mostly offset by an increase in the level of invested assets Other income was higher compared to 2022 due primarily to a net gain on the partial recapture of a previously ceded block of business in the individual disability product line
The benefit ratio for voluntary benefits excluding the impacts of the reserve assumption updates was favorable compared to 2022 due primarily to the impact of policyholder lapses in our disability products and lower mortality in our life products The benefit ratio for the individual disability product line excluding the impacts of the reserve assumption updates was favorable compared to 2022 due primarily to higher mortality and lower claims incidence The benefit ratio for the dental and vision product line was unfavorable compared to 2022 due primarily to higher claims incidence
Commissions and the deferral of acquisition costs were higher compared to 2022 due primarily to higher sales in the individual disability and voluntary benefits product lines The amortization of deferred acquisition costs was higher compared to 2022 due to growth in the level of the deferred asset and the impact of the policyholder lapses in the voluntary benefits product line The other expense ratio increased compared to 2022 due primarily to an increase in employee related costs and an increase in operational investments in our business
Group sales increased compared to 2023 primarily due to higher sales to new customers in both the large case market and the core market which we define as employee groups with fewer than 2 000 employees partially offset by the decline in sales of our medical stop loss product which was no longer actively marketed as of the third quarter of 2024 The sales mix in the group market sector for 2024 was approximately 58 percent core market and 42 percent large case market
Voluntary benefits sales increased compared to 2023 primarily due to higher sales to new customers in both the large case and the core market Individual disability sales which are primarily concentrated in the multi life market decreased compared to 2023 due to lower sales to new customers partially offset by higher sales to existing customers Dental and vision sales increased compared to 2023 driven by higher sales to new and existing customers
Group sales increased compared to 2022 primarily due to higher sales to new customers in both the large case market and the core market The sales mix in the group market sector for 2023 was approximately 63 percent core market and 37 percent large case market
Voluntary benefits sales increased compared to 2022 due to higher sales to new and existing customers in both the large case and core markets Individual disability sales increased compared to 2022 due to higher sales to both new and existing customers Dental and vision sales increased compared to 2022 driven by higher sales to new customers
We remain committed to offering consumers a broad set of financial protection benefit products at the worksite During 2025 we will continue to invest in a unique customer experience defined by simplicity empathy and deep industry expertise through the increased utilization of digital capabilities and technology to enhance enrollment underwriting the client administration experience and claims processing In addition we will focus on strategically driven sales by enhancing the connectivity alignment and support for brokers and technology partners including integration with human capital management systems With respect to smaller employers we will continue to provide a comprehensive set of consumer focused products enhance our distribution model and utilize our digital tools to bring industry leading enrollment capabilities and a fully integrated customer experience Our differentiated offerings and market leading leave management services provide substantial growth opportunities particularly with larger employers and stronger persistency in our core products We believe our active client management integrated customer experience across our product lines and strong risk management will enable us to continue to grow our market over the long term
We expect strong adjusted operating income in 2025 with continued sales and premium growth We expect the group disability market to remain competitive which may impact our pricing and renewal premium levels We expect favorable group disability claim experience to continue in 2025 driven by strong operational performance We also expect group life claim experience to be mostly stable but may experience some quarterly claims volatility We expect a decline in our supplemental and voluntary line of business adjusted operating income as a result of the reinsurance transaction with Fortitude Re We expect a slight increase in our operating expense ratio as we continue to invest in our people and capabilities
A rising interest rate environment could positively impact our yields on new investments but could also increase unrealized losses in our current holdings Alternatively a declining interest rate environment could negatively impact yields on new investments but could also reduce unrealized losses in our current holdings Our net investment income may continue to be impacted by volatility in miscellaneous investment income
As part of our discipline in pricing and reserving we continuously monitor emerging claim trends and interest rates We will continue to take appropriate pricing actions on new business and renewals that are reflective of the current environment
As previously discussed we anticipate entering into a reinsurance agreement with Fortitude Re to cede a portion of our individual disability business during 2025 For further discussion see Executive Summary contained herein in Item 7 and Note 14 of the Notes to Consolidated Financial Statements contained herein in Item 8
The Unum International segment is comprised of our operations in both the United Kingdom and Poland Our Unum UK products include insurance for group long term disability group life and supplemental lines of business which includes dental critical illness and individual disability products Our Unum Poland products include insurance for individual and group life with accident and health riders Unum International s products are sold primarily through field sales personnel and independent brokers and consultants
The functional currencies of Unum UK and Unum Poland are the British pound sterling and Polish zloty respectively Premium income net investment income claims and expenses are received or paid in the functional currency and we hold functional currency denominated assets to support functional currency denominated policy liabilities We translate functional currency denominated financial statement items into dollars for our consolidated financial reporting We translate income statement items using an average exchange rate for the reporting period and we translate balance sheet items using the exchange rate at the end of the period We report unrealized foreign currency translation gains and losses in accumulated other comprehensive income loss in our consolidated balance sheets
Fluctuations in exchange rates impact Unum International s reported financial results and our consolidated financial results In periods when the functional currency strengthens relative to the preceding period translation increases current period results relative to the prior period In periods when the functional currency weakens translation decreases current period results relative to the prior period
Net investment income was lower in 2024 compared to 2023 due to lower investment income from inflation index linked bonds partially offset by an increase in the yield on invested assets Our investments in inflation index linked bonds support the claim liabilities associated with certain group policies that provide for inflation linked increases in policy benefits The change in net investment income attributable to these index linked bonds is partially offset by a change in policy benefits related to the inflation index linked group long term disability and group life policies
The benefit ratio excluding the impacts of the reserve assumption updates was unfavorable relative to 2023 due to unfavorable claim incidence in the group life and group long term disability product lines partially offset by favorable claim recoveries in group long term disability and favorable claim incidence in the supplemental product line
Commissions increased relative to 2023 due primarily to in force block growth The deferral of acquisition costs and the amortization of deferred acquisition costs were generally consistent relative to 2023 The other expense ratio was favorable relative to 2023 due to our focus on expense management and operating efficiencies
The benefit ratio excluding the impacts of the reserve assumption updates was favorable relative to 2022 due to favorable claim incidence favorable claim resolution higher discount rates on new claims in the group long term disability product line and lower inflation linked experience in benefits This favorability was partially offset by higher incidence in the supplemental product line and higher mortality in the group life product line
Commissions increased relative to 2022 due primarily to in force block growth and higher sales The deferral of acquisition costs and the amortization of deferred acquisition costs were generally consistent relative to 2022 The other expense ratio was higher relative to 2022 due to an increase in employee related costs and operational investments in the business
Group long term disability sales decreased compared to 2023 driven by lower sales to new and existing customers in the core market which we define as employee groups with fewer than 500 employees partially offset by an increase in sales to new and existing customers in the large case market
We had total goodwill of 41 4 million for the Unum International segment at December 31 2024 of which 36 8 million is attributed to the Unum UK reporting unit and 4 6 million is attributed to the Unum Poland reporting unit none of which is currently believed to be at risk for future impairment
We are committed to driving growth in the Unum International segment and will build on the capabilities that we believe will generate growth and profitability in our businesses over the long term In 2025 we will focus on scaling our business and broadening our product portfolio For our Unum UK line of business we will continue to focus on delivering a best in class health and wellbeing service to improve retention of our key customers and drive growth across our product offerings We will also accelerate premium growth by focusing on both the broker experience and customer engagement while maintaining our disciplined approach to pricing Within our Unum Poland line of business we will drive growth by continuing to expand our existing distribution channels We will also continue to invest in digital capabilities technology and product enhancements which we believe will drive sustainable growth over the long term
In 2025 we expect growth in adjusted operating income with continued sales and premium growth Lower inflation is expected to lead to more stability in net investment income and the benefit ratio We continuously monitor key indicators to assess our risks and adjust our business plans accordingly
The Colonial Life segment includes insurance for accident sickness and disability products which includes dental and vision products life products and cancer and critical illness products These products are marketed to employees on both a group and an individual basis at the workplace through an independent contractor agent sales force and brokers
Premium income was favorable compared to 2023 due to higher prior period sales and generally stable persistency Net investment income was higher in 2024 compared to 2023 due primarily an increase in the yield on invested assets as well as an increase in the level of invested assets
Commissions and the deferral of acquisition costs were higher compared to 2023 due to higher prior period sales The amortization of deferred acquisition costs was higher compared to 2023 primarily due to growth in the level of the deferred asset The other expense ratio was favorable relative to 2023 due to our focus on expense management and operating efficiencies
Premium income was favorable compared to 2022 due to higher prior period sales particularly in the life product line and favorable persistency Net investment income was generally consistent in 2023 compared to 2022 with an increase in the level of invested assets and an increase in the yield on invested assets mostly offset by lower miscellaneous investment income
The benefit ratio excluding the impacts of the reserve assumption updates was favorable relative to 2022 due primarily to lower claim costs in the cancer and critical illness product line and favorable mortality experience as a result of lessening impacts of COVID 19 on our insured population in the life product line partially offset by an increase in reserves due to model refinements in the life product line
Commissions and the deferral of acquisition costs were higher compared to 2022 due to higher prior period sales The amortization of deferred acquisition costs was higher compared to 2022 primarily due to growth in the level of the deferred asset and the impact of the policyholder lapses The other expense ratio was higher relative to 2022 due primarily to an increase in employee related costs and an increase in operational investments in our business
During 2024 we saw a decrease in sales in our accident sickness and disability and life product lines relative to 2023 while sales in our cancer and critical illness product line remained consistent Commercial sector sales decreased compared to 2023 driven by lower sales to new and existing customers in the core market which we define as accounts with fewer than 1 000 employees partially offset by higher sales to new and existing customers in the large case market Public sector sales increased compared to 2023 due to higher sales to new customers
During 2023 we saw an increase in sales for each of our product lines relative to 2022 Commercial sector sales increased compared to 2022 driven by higher sales to new and existing customers in both the core and large case markets Public sector sales increased compared to 2022 due to higher sales to existing customers
We remain committed to providing employees and their families with simple modern and personal benefit solutions During 2025 we will continue to utilize our strong distribution system of independent agents benefit counselors and broker partnerships We will also continue to invest in solutions and digital capabilities to expand our reach and effectiveness driving growth and improving productivity while enhancing the customer experience In 2025 we will continue to bring an enhanced engagement and enrollment platform to market enabling deeper connections with employees through the enrollment process as well as maintaining stronger relationships throughout the customer lifecycle We believe our distribution system customer service capabilities digital and virtual tools and ability to serve all market sizes position us well for future growth
In 2025 we expect growth in adjusted operating income for the full year with strong sales growth continued premium growth and stable claim experience We continuously monitor key indicators to assess our risks and adjust our business plans accordingly
The Closed Block segment consists of group and individual long term care and other insurance products no longer actively marketed We discontinued offering individual long term care in 2009 and group long term care in 2012 Other insurance products include individual disability group pension individual life and corporate owned life insurance reinsurance pools and management operations and other miscellaneous product lines
Net investment income was higher relative to 2023 due to an increase in the level of invested assets and higher miscellaneous investment income primarily related to larger increases in the NAV on our private equity partnerships
Policy benefits including remeasurement loss gain excluding the impacts of the reserve assumption updates and non contemporaneous reinsurance were higher in 2024 relative to 2023 driven primarily by the increase in the current period benefit expense resulting from the higher net premium ratio and the impact of capped cohorts in the long term care product line The net premium ratio for long term care increased to 94 6 percent at December 31 2024 from 93 5 percent at December 31 2023 due primarily to policyholder terminations and the assumption updates in the third quarter of 2024
The other expense ratio excluding the amortization of the cost of reinsurance was higher than 2023 due primarily to an increase in employee related costs operational investments in our business and a decline in expense allowances related to the ceded block of individual disability business
Net investment income was generally consistent with 2022 primarily due to lower miscellaneous investment income partially related to smaller increases in the NAV on our private equity partnerships and a decline in the yield on invested assets partially offset by an increase in the level of invested assets
Policy benefits including remeasurement loss gain excluding the impacts of the reserve assumption updates and non contemporaneous reinsurance were higher in 2023 relative to 2022 driven primarily by the increase in the current period benefit expense in the long term care product line due to higher claim incidence and a higher net premium ratio resulting from the reserve assumption updates in the third quarter of 2023 The net premium ratio for long term care increased to 93 5 percent at December 31 2023 from 85 1 percent at December 31 2022 due primarily to the impacts of the reserve assumption update in the third quarter of 2023 and higher claim incidence
The other expense ratio excluding the amortization of the cost of reinsurance was higher than 2022 due primarily to a decline in expense allowances related to the ceded block of individual disability business and an increase in employee related costs
As shown in the chart above we exclude from income before income tax and net investment gains and losses the amortization of the cost of reinsurance and the impact of non contemporaneous reinsurance related to the Closed Block individual disability reinsurance transaction where we ceded a significant portion of this business The cost of reinsurance continues to be amortized over a remaining period of approximately 21 years on a declining trajectory generally consistent with the expected run off pattern of the ceded reserves As a result of the execution of the second phase of the reinsurance transaction occurring after January 1 2021 the transition date of ASU 2018 12 in accordance with the provisions of the ASU related to non contemporaneous reinsurance we were required to establish the ceded reserves using an upper medium grade fixed income instrument as of the reinsurance transaction date in March 2021 which resulted in higher ceded reserves compared to that which was reported historically However the direct reserves for the block reinsured in the second phase were calculated using the original discount rate utilized as of the transition date Both the direct and ceded reserves are then remeasured at each reporting period using a current discount rate reflective of an upper medium grade fixed income instrument with the changes recognized in OCI While the total equity impact is neutral the different original discount rates utilized for direct and ceded reserves result in disproportionate earnings impacts The impact of non contemporaneous reinsurance will fluctuate depending on the magnitude of reserve changes during the period The decrease in the effects of non contemporaneous reinsurance treatment in 2024 compared to 2023 is due to expected run out of the ceded block which resulted in a smaller net change in reserves in 2024
compared to 2023 The increase in the effects of non contemporaneous reinsurance treatment in 2023 compared to 2022 is due to favorable experience in this block which resulted in a larger net change in reserves in 2023 compared to 2022
We will continue to execute on our well defined strategy of implementing long term care premium rate increases efficient capital management improved financial analysis and operational effectiveness In regard to capital management we will continue to explore and execute where appropriate structural and reinsurance options to enhance financial flexibility We continue to file requests with various state insurance departments for premium rate increases on certain of our individual and group long term care policies which reflect assumptions as of the date of filings In states for which a rate increase is submitted and approved we routinely provide customers options for coverage changes or other approaches that might fit their current financial and insurance needs Despite continued anticipated premium rate increases in our long term care business we expect overall premium income and adjusted operating revenue to decline over the long term as these closed blocks of business wind down We will likely experience volatility in net investment income due to fluctuations of miscellaneous investment income driven by the allocation towards alternative assets primarily private equity partnership investments in the long term care product line portfolio We record changes in our share of the NAV of the partnerships in net investment income We receive financial information related to our investments in partnerships and generally record investment income on a one quarter lag in accordance with our accounting policy As these NAVs are volatile and can fluctuate materially with changes in market economic conditions there may possibly be significant movements up or down in future periods as conditions change We continuously monitor key indicators to assess our risks and adjust our business plans including utilization of derivative financial instruments to manage interest rate risk
Profitability of our long tailed products is affected by claims experience related to mortality morbidity resolutions investment returns premium rate increases and persistency The net premium ratio represents the ratio of future expected benefits and related expenses to future expected gross premiums using the original discount rate Long term care benefits experience may continue to have quarterly volatility particularly in the near term as our claim block matures and as we continue the implementation of premium rate increases Claim resolution rates which reflect the probability that a disability or long term care claim will close due to recovery or death of the insureds are very sensitive to operational and external factors and can be volatile Our claim resolution rate assumption used in determining reserves is our expectation of the resolution rate we will experience over the life of the block of business and will vary from actual experience in any one period It is possible that variability in any of our reserve assumptions including but not limited to mortality morbidity resolutions premium rate increases benefit change elections and persistency could result in a material impact to our reserves
As previously discussed we anticipate entering into a reinsurance agreement with Fortitude Re to cede a portion of our long term care business during 2025 For further discussion see Executive Summary contained herein in Item 7 and Note 14 of the Notes to Consolidated Financial Statements contained herein in Item 8
The Corporate segment includes investment income on corporate assets not specifically allocated to a line of business interest expense on corporate debt and certain other corporate income and expenses not allocated to a line of business
Adjusted operating loss excluding the loss on legal settlement increased in 2024 relative to 2023 due primarily to decreased net investment income which was driven by increased allocations to our lines of business
Adjusted operating loss decreased in 2023 relative to 2022 due primarily to higher net investment income which was driven by an increase in the yield on invested assets partially offset by higher pension expenses
We expect to continue to generate excess capital on an annual basis through the statutory earnings in our insurance subsidiaries and believe we are well positioned with flexibility to preserve our capital strength while also returning capital to our shareholders We may experience volatility in net investment income due to changes in the prevailing interest rates as well as both the composition and level of invested assets
Our investment portfolio is well diversified by type of investment and industry sector We have established an investment strategy that we believe will provide for adequate cash flows from operations and allow us to hold our securities through periods where significant decreases in fair value occur We believe our emphasis on risk management in our investment portfolio has positioned us well and generally reduced the volatility in our results
We and our insurance subsidiaries each have a formal investment policy that includes overall quality and diversification objectives and establishes asset class investment rating single issuer and derivative limits for the entity We also have formal enterprise investment guidelines that set forth aggregate limits by asset class and investment rating across all entities The majority of our investments are in investment grade publicly traded securities This ensures the desired liquidity and preserves the capital value of our portfolios Due to the long term nature of our insurance liabilities we are also able to invest in less liquid investments to obtain additional returns within the limits of our investment policy The asset mix guidelines and limits are reviewed and approved by the risk and finance committee of Unum Group s board of directors as they relate to Unum Group and the enterprise as a whole and by the boards of directors of our insurance subsidiaries as they relate to the respective entities We review our policies and guidelines annually or more frequently if deemed necessary and recommend adjustments as appropriate
The following two tables show the length of time our investment grade and below investment grade fixed maturity securities portfolios had been in a gross unrealized loss position as of December 31 2024 and at the end of the prior four quarters The relationships of the current fair value to amortized cost are not necessarily indicative of the fair value to amortized cost relationships for the securities throughout the entire time that the securities have been in an unrealized loss position nor are they necessarily indicative of the relationships after December 31 2024 The increase in the unrealized loss on fixed maturity securities during 2024 was due primarily to an increase in U S Treasury rates
At December 31 2024 we held one below investment grade fixed maturity security with a gross unrealized loss greater than 10 0 million The security is a utilities company and had a fair value of 32 7 million and a gross unrealized loss of 12 7 million
Unrealized losses on investment grade fixed maturity securities principally relate to changes in interest rates or changes in market or sector credit spreads which occurred subsequent to the acquisition of the securities Below investment grade fixed maturity securities are generally more likely to develop credit concerns than investment grade securities At December 31 2024 the unrealized losses in our below investment grade fixed maturity securities were generally due to higher interest rates wider credit spreads in certain industries or sectors and to a lesser extent credit concerns related to specific securities For each specific security in an unrealized loss position we believe that there are positive factors which mitigate credit concerns and that the securities for which we have not recorded a credit loss will recover in value We have the ability and intent to continue to hold these securities to recovery of amortized cost and believe that no credit losses have occurred
We had no individual net investment losses of 10 0 million or greater from credit losses or sales of fixed maturity securities during 2024 and 2023 During 2022 we recognized a realized loss of 12 6 million on the sale of securities of a pharmaceutical company that was impacted by an adverse ruling surrounding a patent held for its largest drug We had no other individual investment losses of 10 0 million or greater from credit losses or sales of fixed maturity securities during 2022
As of December 31 2024 the amortized cost net of allowance for credit losses and fair value of our below investment grade fixed maturity securities was 1 498 8 million and 1 436 0 million respectively and our below investment grade fixed maturity securities as a percentage of our total investment portfolio decreased from 3 3 percent at December 31 2023 to 3 1 percent at December 31 2024 on a fair value basis Below investment grade securities are inherently riskier than investment grade securities since the risk of default by the issuer by definition and as exhibited by bond rating is higher Also the secondary market for certain below investment grade issues can be highly illiquid Additional downgrades may occur but we do not anticipate any liquidity problems resulting from our investments in below investment grade securities nor do we expect these investments to adversely affect our ability to hold our other investments to maturity
Our investments in issuers in foreign countries are chosen for specific portfolio management purposes including asset and liability management and portfolio diversification across geographic lines and sectors to minimize non market risks In our approach to investing in fixed maturity securities specific investments within approved countries and industry sectors are evaluated for their market position and specific strengths and potential weaknesses For each security we consider the political legal and financial environment of the sovereign entity in which an issuer is domiciled and operates The country of domicile is based on consideration of the issuer s headquarters in addition to location of the assets and the country in which the majority of sales and earnings are derived We do not have exposure to foreign currency risk as the cash flows from these investments are either denominated in currencies or hedged into currencies to match the related liabilities We continually evaluate our foreign investment risk exposure
rtfolio was 2 224 5 million and 2 318 2 million at December 31 2024 and 2023 respectively Our investments in mortgage loans are carried at amortized cost less an allowance for expected credit losses which was 16 1 million and 10 2 million at December 31 2024 and 2023 respectively Our mortgage loan portfolio is comprised entirely of commercial mortgage loans Our mortgage loan portfolio is well diversified geographically and among property types
Due to conservative underwriting the incidence of non performing mortgage loans and foreclosure activity continues to be low Other than our allowance for expected credit losses we held one specifically identified impaired mortgage loan at December 31 2024 with an aggregate carrying value of 9 2 million We held no specifically identified impaired mortgage loans at December 31 2023 See Notes 1 and 3 in the Notes to Consolidated Financial Statements contained herein in Item 8 for further discussion of our mortgage loan portfolio and the allowance for expected credit losses
The carrying value of our investments in private equity partnerships was 1 450 6 million and 1 326 2 million at December 31 2024 and 2023 respectively These partnerships are passive in nature and represent funds that are primarily invested in private credit private equity and real assets The carrying value of the partnerships is based on our share of the partnership s NAV and changes in the carrying value are recorded as a component of net investment income We receive financial information related to our investments in partnerships and generally record investment income on a one quarter lag in accordance with our accounting policy We recorded net investment income totaling 103 1 million 78 1 million and 110 1 million for the years ended December 31 2024 2023 and 2022 respectively The majority of our investments in partnerships are not redeemable Distributions received from the funds arise from income generated by the underlying investments as well as the liquidation of the underlying investments There is generally not a public market for these investments We had 768 5 million of commitments for additional investments in the partnerships at December 31 2024 which may or may not be funded See Note 2 in the Notes to Consolidated Financial Statements contained herein in Item 8 for further discussion of our private equity partnerships
We use derivative financial instruments primarily to manage interest rate risk risk related to matching duration for our assets and liabilities foreign currency risk and equity risk Historically we have utilized current and forward interest rate swaps current and forward currency swaps forward benchmark interest rate locks currency forward contracts forward contracts on specific fixed income securities credit default swaps and total return swaps As of December 31 2024 we had 3 751 4 million in notional amount of derivatives outstanding of which 2 570 0 million is related to management of reinvestment risk in our long term care product line 1 052 5 million is related to management of foreign currency risk related to foreign denominated investments and 128 9 million is hedging a portion of the liability related to our non qualified defined contribution plan Credit exposure on derivatives is limited to the value of those contracts in a net gain position including accrued interest receivable less collateral held Our credit exposure on derivatives was 0 5 million at December 31 2024 The carrying value of fixed maturity securities and cash collateral received from our counterparties was 8 4 million and 3 6 million respectively at December 31 2024 The carrying value of fixed maturity securities and cash posted as collateral to our counterparties was 196 7 million and 4 0 million respectively at December 31 2024 We believe that our credit risk is mitigated by our use of multiple counterparties all of which have an investment grade credit rating and by our use of cross collateralization agreements See Note 4 in the Notes to Consolidated Financial Statements contained herein in Item 1 for further discussion of our derivatives
Our exposure to non current investments defined as investments which are delinquent as to interest and or principal payments had a total carrying value of 13 0 million as of December 31 2024 We had no exposure to non current investments at December 31 2023
Our liquidity requirements are met primarily by cash flows provided from operations principally in our insurance subsidiaries Premium and investment income as well as maturities and sales of invested assets provide the primary sources of cash Debt and or securities offerings provide additional sources of liquidity Cash is applied to the payment of policy benefits costs of acquiring new business principally commissions operating expenses and taxes as well as purchases of new investments
We have established an investment strategy that we believe will provide for adequate cash flows from operations We attempt to match our asset cash flows and durations with expected liability cash flows and durations to meet the funding requirements of our business However deterioration in the credit market may delay our ability to sell our positions in certain of our fixed maturity securities in a timely manner and adversely impact the price we receive for such securities which may negatively impact our cash flows Furthermore if we experience defaults on securities held in the investment portfolios of our insurance subsidiaries this will negatively impact statutory capital which could reduce our insurance subsidiaries capacity to pay dividends to our holding companies A reduction in dividends to our holding companies could force us to seek external financing to avoid impairing our ability to pay dividends to our stockholders or meet our debt and other payment obligations
Our policy benefits are primarily in the form of claim payments and we have minimal exposure to the policy withdrawal risk associated with deposit products such as individual life policies or annuities A decrease in demand for our insurance products or an increase in the incidence of new claims or the duration of existing claims could negatively impact our cash flows from operations However our historical pattern of benefits paid to revenues is generally consistent even during cycles of economic downturns which serves to minimize liquidity risk
The liquidity requirements of the holding company Unum Group include common stock dividends interest and debt service and ongoing investments in our businesses Unum Group s liquidity requirements are met by assets held by Unum Group and our intermediate holding companies dividends from primarily our insurance subsidiaries and issuance of common stock debt or other capital securities and borrowings from our existing credit facility as needed As of December 31 2024 Unum Group and our intermediate holding companies had available holding company liquidity of 1 987 0 million that was held primarily in bank deposits commercial paper money market funds corporate bonds municipal bonds and asset backed securities No
significant restrictions exist on our ability to use or access funds in any of our U S or foreign intermediate holding companies Dividends repatriated from our foreign subsidiaries are eligible for 100 percent exemption from U S income tax but may be subject to withholding tax and or tax on foreign currency gain or loss
As part of our capital deployment strategy we may repurchase shares of Unum Group s common stock as authorized by our board of directors The timing and amount of repurchase activity is based on market conditions and other considerations including the level of available cash alternative uses for cash and our stock price During the twelve months ended December 31 2024 we repurchased 15 7 million shares at a cost of 971 0 million excluding commissions and excise tax
Concurrent with the announcement of the February 2025 repurchase program we also announced the termination of the July 2024 program as of March 31 2025 and any unused amounts under that program will expire as of that date
Concurrent with the announcement of the July 2024 repurchase program we also announced the termination of the October 2023 program as of July 31 2024 and all unused amounts under that program expired as of that date
Unum Group and certain of its intermediate holding company subsidiaries depend on payments from subsidiaries to pay dividends to stockholders to pay debt obligations and or to pay expenses These payments by our insurance and non insurance subsidiaries may take the form of dividends operating and investment management fees and or interest payments on loans from the parent to a subsidiary
Restrictions under applicable state insurance laws limit the amount of dividends that can be paid to a parent company from its insurance subsidiaries in any 12 month period without prior approval by regulatory authorities For life insurance companies domiciled in the U S that limitation generally equals depending on the state of domicile either ten percent of an insurer s statutory surplus with respect to policyholders as of the preceding year end or the statutory net gain from operations excluding realized capital gains and losses of the preceding year The payment of dividends to a parent company from a life insurance subsidiary is generally further limited to the amount of unassigned funds
Unum America cedes blocks of long term care business to Fairwind Insurance Company Fairwind which is an affiliated captive reinsurance subsidiary domiciled in the United States The ability of Fairwind to pay dividends to Unum Group will depend on its satisfaction of applicable regulatory requirements and on the performance of the business reinsured by Fairwind Fairwind did not pay dividends in 2024 Unum Group did not make any contributions to Fairwind in 2024 and we do not expect to make any contributions to Fairwind during 2025
The ability of Unum Group and certain of its intermediate holding company subsidiaries to continue to receive dividends from their insurance subsidiaries also depends on additional factors such as RBC ratios and capital adequacy and or solvency
requirements funding growth objectives at an affiliate level and maintaining appropriate capital adequacy ratios to support desired ratings The RBC ratios for our U S insurance subsidiaries at December 31 2024 are in line with our expectations and are significantly above the level that would require state regulatory action
Unum Group and or certain of its intermediate holding company subsidiaries may also receive dividends from our U K subsidiaries the payment of which may be subject to applicable insurance company regulations and capital guidance in the U K Unum Limited is subject to the requirements of U K Solvency II the system of prudential regulation applying in the U K which prescribes capital requirements and risk management standards for the U K insurance industry Our U K holding company is also subject to the U K Solvency II requirements relevant to insurance holding companies while together with certain of its subsidiaries including Unum Limited the group the Unum UK Solvency II Group is subject to group supervision under U K Solvency II The Unum UK Solvency II Group received approval from the U K Prudential Regulation Authority PRA to use its own internal model for calculating regulatory capital and also received approval for certain associated regulatory permissions including transitional relief as the U K Solvency II capital regime continues to be implemented For a number of years the U K government has been reviewing the regulatory U K Solvency II framework including transferring the requirements into the PRA Rulebook which contains rules made and enforced by the PRA and other policy materials While this process led to favorable impacts on the solvency position of our U K business in earlier reporting periods the completion of the review at December 31 2024 did not have any further material impacts on the U K business solvency position
The amount available during 2024 for the payment of ordinary dividends from Unum Group s traditional U S insurance subsidiaries which excludes Fairwind was approximately 1 289 million During 2024 we declared and paid 1 278 0 million in dividends including 1 245 0 paid in cash and 33 0 million paid in fixed maturity securities none of which was considered an extraordinary dividend During 2024 Unum Limited declared and paid dividends of 60 0 million to Unum Group through our U K holding company Unum European Holding Company Limited UEHC During 2024 UEHC also paid cash of 14 0 million to Unum Group in connection with the return of preferred shares of UEHC
During 2025 we intend to maintain a level of capital in our insurance subsidiaries above the applicable capital adequacy requirements and minimum solvency margins As a result of our consideration of overall capitalization needs we may not utilize the entire amount of dividends available in 2025 which are based on applicable restrictions under current law Approximately 1 383 million is available without prior approval by regulatory authorities during 2025 for the payment of dividends from Unum Group s traditional U S insurance subsidiaries which excludes our captive reinsurer In February 2025 First Unum Life Insurance Company First Unum entered into a reinsurance agreement with Provident Life and Accident Insurance Company to cede on a coinsurance with funds withheld basis 100 percent of the long term care business of First Unum effective January 1 2025 Also in February 2025 First Unum received regulatory approval for and paid an extraordinary dividend of 630 million to Unum Group
Approximately 140 million is available to be distributable from Unum Limited during 2025 The actual amount distributable during 2025 will depend on experience including the impact of market movements and is subject to local requirements as well as regulatory and other business considerations
Insurance regulatory restrictions do not limit the amount of dividends available for distribution from non insurance subsidiaries except where the non insurance subsidiaries are held directly or indirectly by an insurance subsidiary and only indirectly by Unum Group which does not apply to our current entity structure
During the twelve months ended December 31 2024 we made contributions of 79 5 million and 5 2 million to our U S and U K defined contribution plans respectively and expect to make contributions of approximately 89 million and 6 million during 2025 We had no regulatory contribution requirements for our U S and U K qualified defined benefit pension plans and made no voluntary contributions during the twelve months ended December 31 2024 We do not expect to have regulatory contribution requirements for our U S and U K qualified defined benefit pension plans in 2025 but we reserve the right to make voluntary contributions during 2025 We have met all minimum pension funding requirements set forth by the Employee Retirement Income Security Act We have estimated our future funding requirements under the Pension Protection Act of 2006 and under applicable U K law and do not believe that any future funding requirements will cause a material adverse effect on our liquidity
Our long term debt balance at December 31 2024 was 3 465 2 million net of a net discount of 131 3 million and deferred debt issuance costs of 37 0 million and is comprised of our unsecured senior notes unsecured medium term notes and junior subordinated debt securities Our short term debt balance at December 31 2024 was 274 6 million net of a net discount of 0 2 million and deferred debt issuance costs of 0 2 million and is comprised of unsecured senior notes
In June 2024 we issued 400 0 million of 6 000 senior notes due 2054 The notes are callable at or above par and rank equally in the right of payment with all of our other unsecured and unsubordinated debt A portion of the net proceeds of the offering were used to repay the 350 0 million aggregate principal amount of outstanding indebtedness under our senior unsecured delayed draw term loan facility which was terminated upon repayment The remaining balance of the net proceeds is expected to be used for general corporate purposes
During November 2021 we entered into a 20 year facility agreement with a Delaware statutory trust the P Caps Trust in connection with the sale by the P Caps Trust of 400 0 million of pre capitalized trust securities P Caps in a Rule 144A private placement The P Caps Trust invested the proceeds from the sale of the P Caps in a portfolio of principal and interest strips of U S Treasury securities the Trust Assets The facility agreement gave us the right to issue and require the P Caps Trust to purchase on one or more occasions up to 400 0 million of our 4 046 senior notes due 2041 the 2041 Senior Notes in exchange for the Trust Assets Under the facility agreement we agreed to pay a semi annual facility fee to the P Caps Trust at a rate of 2 225 per year on the unexercised portion of the maximum amount of 2041 senior notes that we could issue and sell to the P Caps Trust and to reimburse the P Caps Trust for its expenses
In October 2024 we exercised our issuance right in full under the facility agreement and issued 400 0 million of the 2041 Senior Notes to the P Caps Trust in exchange for the Trust Assets thereby triggering our recognition of the 2041 Senior Notes on our consolidated balance sheets The Trust Assets had a fair value of 273 5 million when the 2041 Senior Notes were issued We directed the trustee of the P Caps Trust to dissolve the P Caps Trust and to deliver the 2041 Senior Notes to the beneficial holders of the P Caps pro rata in respect of each P Cap The 2041 Senior Notes are callable at or above par and rank equally in the right of payment with all of our other unsecured and unsubordinated debt The net proceeds from the issuance of the 2041 Senior Notes and subsequent sale of the Trust Assets were used for share repurchases
We have a five year 500 million senior unsecured revolving credit facility with a syndicate of lenders which is currently scheduled to expire in April 2027 We may request that the lenders aggregate commitments of 500 0 million under the facility be increased by up to an additional 200 0 million Certain of our traditional U S life insurance subsidiaries may also borrow under the credit facility subject to an unconditional guarantee by Unum Group At December 31 2024 there were no borrowed amounts outstanding under the revolving credit facility and letters of credit totaling 0 4 million had been issued
We have a five year 75 million senior unsecured standby letter of credit facility with a different syndicate of lenders pursuant to which a syndicated letter of credit was issued in favor of Unum Limited as beneficiary our U K insurance subsidiary and is available for drawings up to 75 million until its scheduled expiration in July 2026 We have an additional five year 75 million senior standby letter of credit facility pursuant to which a standby letter of credit was issued in favor of Unum Limited as beneficiary our U K insurance subsidiary and is available for drawings up to 75 0 million until its scheduled expiration
in December 2028 In connection with and as security for the senior standby letter of credit facility we granted to the issuer of the standby letter of credit the right to exercise if an event of default occurred and was continuing the issuance right under the facility agreement with the P Caps Trust up to a maximum of 200 0 million In October 2024 prior to our exercise of the issuance right under the facility agreement the assigned issuance right was forfeited in its entirety
There are no significant financial covenants associated with any of our debt obligations other than our borrowings under the credit facilities which are subject to financial covenants negative covenants and events of default that are customary Each credit facility includes financial covenants based on our leverage ratio and consolidated net worth as well as covenants that limit subsidiary indebtedness We continually monitor our debt covenants to ensure we remain in compliance We have not observed any current trends that would cause a breach of any debt covenants
We maintain a shelf registration with the Securities and Exchange Commission to issue various types of securities including common stock preferred stock debt securities depository shares stock purchase contracts units and warrants The shelf registration enables us to raise funds from the offering of any securities covered by the shelf registration as well as any combination thereof subject to market conditions and our capital needs
As previously discussed cash is applied primarily to the payment of policy benefits costs of acquiring new business principally commissions operating expenses and taxes as well as purchases of investments We have established an investment strategy that we believe will provide for adequate cash flows from operations to meet cash payment requirements Summarized below are our estimated material cash requirements both in the short term within 12 months and the long term beyond 12 months resulting from contractual obligations as of December 31 2024
Policyholder liabilities which exclude the effect of change in discount rate assumptions and therefore differs from the amount shown in the consolidated balance sheet totaled 45 855 1 million of which 4 479 3 million is estimated to be paid in 2025 We also maintain reinsurance agreements for which the recoverable under those agreements totaled 12 385 4 million of which 1 314 5 million is estimated to offset related policyholder liability payments in 2025 Policyholder liabilities and the related reinsurance recoverable represent the projected payout of the current in force policyholder liabilities and the expected cash inflows from reinsurers for liabilities ceded and therefore incorporate uncertainties as to the timing and amount of claim payments We utilize extensive liability modeling to project future cash flows from the in force business The primary assumptions used to project future cash flows are discount rate claim resolution rate incidence rate and policyholder lapse and mortality These cash flows are discounted to determine the current value of the projected claim payments The timing and amount of payments on policyholder liabilities may vary significantly over time
Payments related to our debt and our facility agreements which include contractual principal and interest payments and therefore exceeds the amount shown in the consolidated balance sheets totaled 7 563 7 million of which 478 0 million in interest and principal payments is estimated to be paid in 2025
Investment commitments include 17 9 million to fund certain commercial mortgage loans and 96 5 million to fund certain private placement fixed maturity securities both of which are estimated to be paid in 2025 based on the expiration date of the commitments In addition 768 5 million is committed in additional capital contributions to certain private equity partnerships which are due upon satisfaction of contractual notice from the partnership These commitments may or may not be funded and are therefore not recorded on our consolidated balance sheets
Pensions and OPEB which include commitments related to our defined benefit pension and postretirement plans for our employees including our non qualified pension plan totaled 580 4 million of which 21 5 million is estimated to be paid in 2025 Pension plan obligations other than the non qualified plan represent our contributions to the pension plans and are projected based on the expected future minimum contributions as required under current U S and U K legislative funding requirements Non qualified pension plan and other postretirement benefit obligations represent the expected benefit payments related to these plans which we expect to pay as incurred from our general assets
Obligations to return advances received from the FHLB and to return unrestricted cash collateral to our securities lending and derivative counterparties totaled 390 5 million of which 112 9 million is estimated to be repaid in 2025
We also have obligations with outside parties for computer data processing services software maintenance agreements and consulting services of 193 7 million of which 106 5 million is estimated to be paid in 2025
See Critical Accounting Estimates and Investments contained herein in this Item 7 and Notes 2 3 4 6 10 11 14 and 17 of the Notes to Consolidated Financial Statements contained herein in Item 8 for additional information on our various commitments and obligations
ixed maturity securities to unaffiliated financial institutions in short term securities lending agreements which increases our investment income with minimal risk We account for all of our securities lending agreements and repurchase agreements as secured borrowings As of December 31 2024 w
f off balance sheet securities lending agreements which were collateralized by securities that we were neither permitted to sell nor control The average balance of these off balance sheet transactions during the year ended December 31 2024 w
To manage our cash position more efficiently we may enter into securities repurchase agreements with unaffiliated financial institutions We generally use securities repurchase agreements as a means to finance the purchase of invested assets or for short term general business purposes until projected cash flows become available from our operations or existing investments We ha
we utilize any securities repurchase agreements during 2024 Our use of securities repurchase agreements and securities lending agreements can fluctuate during any given period and will depend on our liquidity position the availability of long term investments that meet our purchasing criteria and our general business needs
from the regional FHLBs which were used for the purpose of investing in either short term investments or matched fixed maturity securities As of December 31 2024 we have additional borrowing capacity of approximately 558 1 million from the FHLBs
Operating cash flows are primarily attributable to the receipt of premium and investment income offset by payments of claims commissions expenses and income taxes Premium income growth is dependent not only on new sales but on policy renewals and growth of existing business renewal price increases and persistency Investment income growth is dependent on the growth in the underlying assets supporting our insurance liabilities and capital and on the earned yield The level of commissions and operating expenses is attributable to the level of sales and the first year acquisition expenses associated with new business as well as the maintenance of existing business The level of paid claims is affected partially by the growth and aging of the block of business and also by the general economy as previously discussed in the operating results by segment
Investing cash inflows consist primarily of the proceeds from the sales and maturities of investments Investing cash outflows consist primarily of payments for purchases of investments Our investment strategy is to match the cash flows and durations of our assets with the cash flows and durations of our liabilities to meet the funding requirements of our business When market opportunities arise we may sell selected securities and reinvest the proceeds to improve the yield and credit quality of our portfolio We may at times also sell selected securities and reinvest the proceeds to improve the duration matching of our assets and liabilities and or re balance our portfolio As a result sales before maturity may vary from period to period The sale and purchase of short term investments is influenced by proceeds received from FHLB funding advances issuance of debt our securities lending program and by the amount of cash which is at times held in short term investments to facilitate the availability of cash to fund the purchase of appropriate long term investments repay maturing debt and or to fund our capital deployment program
During 2023 we sold over 700 0 million of shorter duration bonds in our long term care portfolio and reinvested the proceeds in higher quality higher yielding and longer duration bonds that better match our liability cash flows As a result of this activity both sales and purchases of fixed maturity securities were higher during 2023 compared to 2024 and 2022
Cash used to repurchase shares of Unum Group s common stock during 2024 2023 and 2022 was 972 9 million 250 1 million and 200 1 million respectively During 2024 2023 and 2022 we paid dividends of 296 5 million 277 1 million and 254 2 million respectively to holders of Unum Group s common stock
During 2024 we issued 400 0 million of 6 000 senior notes due 2054 and received proceeds of 391 6 million A portion of the net proceeds of the offering were used to repay the outstanding indebtedness under our senior unsecured delayed draw term loan facility resulting in a cash outflow of 350 0 million
During 2022 we purchased and the Trust retired 14 0 million aggregate liquidation amount of our 7 405 capital securities due 2038 for which we paid an additional 1 2 million in cash associated with the early retirement of this debt
During 2022 we entered into a five year 350 0 million senior unsecured delayed draw term loan facility with a syndicate of lenders Also in 2022 we drew the entire amount of the term loan facility for which we received total proceeds of 349 2 million and used the proceeds to redeem 350 0 million aggregate principal amount of our 4 000 senior notes due 2024 for which we paid an additional 2 4 million in cash associated with the early retirement of this debt
See Debt Term Loan Facility Credit Facilities and Other Sources of Liquidity contained herein in this Item 7 and Notes 10 12 and 14 of the Notes to Consolidated Financial Statements contained herein in Item 8 for further information
A M Best Company AM Best Fitch Ratings Fitch Moody s Ratings Moody s and S P Global Ratings S P are among the third parties that assign issuer credit ratings to Unum Group and financial strength ratings to our insurance subsidiaries We compete based in part on the financial strength ratings provided by rating agencies
A downgrade of our financial strength ratings can be expected to adversely affect us and could potentially among other things adversely affect our relationships with distributors of our products and services and retention of our sales force negatively impact persistency and new sales particularly large case group sales and individual sales and generally adversely affect our ability to compete
We maintain an ongoing dialogue with the four rating agencies that evaluate us in order to inform them of progress we are making regarding our strategic objectives and financial plans as well as other pertinent issues A significant component of our communications involves our annual review meeting with each of the four agencies We hold other meetings throughout the year regarding our business including but not limited to quarterly updates
Agency ratings are not directed toward the holders of our securities and are not recommendations to buy sell or hold our securities Each rating is subject to revision or withdrawal at any time by the assigning rating organization and each rating should be regarded as an independent assessment not conditional on any other rating Given the dynamic nature of the ratings process changes by these or other rating agencies may or may not occur in the near term We have ongoing dialogue with the rating agencies concerning our insurance risk profile our financial flexibility our operating performance and the quality of our investment portfolios The rating agencies provide specific criteria and depending on our performance relative to the criteria will determine future negative or positive rating agency actions
The table below reflects the outlook as well as the senior unsecured debt ratings for Unum Group and the financial strength ratings for each of our traditional insurance subsidiaries as of the date of this filing
In May 2024 Moody s upgraded its senior unsecured debt ratings to Baa2 from Baa3 and also upgraded its financial strength ratings of our rated domestic insurance subsidiaries to A2 from A3 The ratings upgrade reflects strong capital levels a reduction in asset risk increasing profitability in the core business and an improved long term care position
In September 2024 Fitch revised its outlook to positive from stable The revision reflects strong capital and liquidity positions sustained levels of improved profitability and actions taken to mitigate risk in long term care
We are subject to various market risk exposures including interest rate risk and foreign exchange rate risk The following discussion regarding our risk management activities includes forward looking statements that involve risk and uncertainties Estimates of future performance and economic conditions are reflected assuming certain changes in market rates and prices were to occur sensitivity analysis Caution should be used in evaluating our overall market risk from the information presented below as actual results may differ See Risk Factors contained herein in Item 1A Investments contained herein in Item 7 and Notes 2 3 and 4 of the Notes to Consolidated Financial Statements contained herein in Item 8 for further discussion of the qualitative aspects of market risk including derivative financial instrument activity
Our exposure to interest rate changes results from our holdings of financial instruments such as fixed rate investments forward benchmark interest rate locks and interest sensitive liabilities Fixed rate investments include fixed maturity securities mortgage loans policy loans and short term investments Fixed maturity securities include U S and foreign government bonds securities issued by government agencies public utility bonds corporate bonds mortgage backed securities and redeemable preferred stock all of which are subject to risk resulting from interest rate fluctuations Certain of our financial instruments such as fixed maturity securities are carried at fair value in our consolidated balance sheets The fair value of these financial instruments can be affected by changes in interest rates A rise in interest rates may further increase the net unrealized loss related to these financial instruments but may improve our ability to earn higher rates of return on new purchases of fixed maturity securities Conversely a decline in interest rates may decrease the net unrealized loss but new securities may be purchased at lower rates of return Although changes in fair value of fixed maturity securities due to changes in interest rates may impact amounts reported in our consolidated balance sheets these changes will not cause an economic gain or loss unless we sell investments or determine that an investment is impaired Our forward benchmark interest rate locks are also carried at fair value on our consolidated balance sheets The fair value of these derivatives can also be affected by changes in interest rates as a rise in interest rates may further increase the net unrealized loss related to these derivatives and conversely a decline in interest rates may decrease the net unrealized loss related to these derivatives Although changes in the fair value of our forward benchmark interest rate locks due to changes in interest rates may impact amounts reported in our consolidated balance sheets and ultimately the amounts we owe or will receive at the termination or maturity of the derivative our usage of these derivatives allows us to reduce uncertainty in the reinvestment of future cash flows associated with certain of our product lines
Other fixed rate investments such as policy loans and mortgage loans are carried at unpaid balances and amortized cost less the allowance for expected credit losses respectively rather than fair value in our consolidated balance sheets These investments may have fair values substantially higher or lower than the carrying values reflected in our balance sheets A change in interest rates could impact our financial position if we sold our mortgage loan investments at times of low market value A change in interest rates would not impact our financial position at repayment of policy loans as ultimately the cash surrender values or death benefits would be reduced for the carrying value of any outstanding policy loans Carrying amounts for short term investments approximate fair value and we believe we have minimal interest rate risk exposure from these investments
We believe that the risk of being forced to liquidate investments or terminate derivative positions ahead of scheduled maturity dates is minimal primarily due to the level of capital at our insurance subsidiaries the level of cash and marketable securities at our holding companies and our investment strategy which we believe provides for adequate cash flows to meet the funding requirements of our business We may in certain circumstances however need to sell investments due to changes in regulatory or capital requirements changes in tax laws rating agency decisions and or unexpected changes in liquidity needs
Although our policy benefits are primarily in the form of claim payments and we therefore have minimal exposure to the policy withdrawal risk associated with deposit products such as individual life policies or annuities the fair values of liabilities under all insurance contracts are taken into consideration in our overall management of interest rate risk which minimizes exposure to changing interest rates through the matching of investment cash flows with amounts due under insurance contracts Changes in interest rates and individuals behavior affect the amount and timing of asset and liability cash flows We actively monitor our asset and liability cash flow match and our asset and liability duration match to manage interest rate risk Due to the long duration of our long term care product the timing of our investment cash flows do not match those of our maturing liabilities We model and test asset and liability portfolios to improve interest rate risk management and net yields Testing the asset and liability portfolios under various interest rate and economic scenarios enables us to choose what we believe to be the most appropriate investment strategy as well as to limit the risk of disadvantageous outcomes We use this analysis in determining hedging strategies and utilizing derivative financial instruments We have and may continue to use current and forward interest rate swaps options on forward interest rate swaps and forward treasury locks to hedge interest rate risks and to match asset durations and cash flows with corresponding liabilities
Debt is not carried at fair value in our consolidated balance sheets If we modify or replace existing debt instruments at current market rates we may incur a gain or loss on the transaction We believe our debt related risk to changes in interest rates is relatively minimal
We measure our insurance liabilities and financial instruments market risk related to changes in interest rates using a sensitivity analysis This analysis estimates potential changes in fair values as of December 31 2024 and 2023 based on a hypothetical immediate increase of 100 basis points in interest rates from year end levels The selection of a 100 basis point immediate parallel change in interest rates should not be construed as our prediction of future market events but only as an illustration of the potential effect of such an event
These financial instruments are carried at fair value in our consolidated balance sheets Changes in fair value resulting from changes in interest rates may affect the fair value at which the item is reported in our consolidated balance sheets The corresponding offsetting change is reported in other comprehensive income or loss net of income tax
We are required to update the discount rate assumptions related to our liability for future policy benefits at each reporting date using a yield that is reflective of an upper medium grade fixed income instrument which is generally equivalent to a single A interest rate matched to the duration of certain of our insurance liabilities As such the value of certain of our insurance liabilities may be adversely affected by changes in the single A interest rate environment which could impact the valuation of our liability for future policy benefits and related reinsurance recoverable
The effect of a change in interest rates on asset prices was determined using a duration implied methodology for the fixed maturity securities whereby the duration of each security was used to estimate the change in price for the security assuming an increase of 100 basis points in interest rates These hypothetical prices were compared to the actual prices for the period to compute the overall change in market value The changes in the fair values shown in the chart above for all other items were determined using discounted cash flow analyses Because we actively manage our investments and liabilities actual changes could differ from those estimated above
Our overall investment philosophy is to invest in a portfolio of high quality assets that provide investment returns consistent with those assumed in the pricing of our insurance products Assets are invested predominately in fixed maturity securities We estimate that we will have approximately 2 2 billion of investable cash flows in 2025 Assuming interest rates and credit spreads remain constant at the January 2025 market levels throughout the remainder of 2025 and 2026 our net investment income would increase by an immaterial amount in both 2025 and 2026 as a result of the investment of cash flows at levels above our current portfolio rate This interest rate scenario does not give consideration to the effect of other factors which could impact these results such as changes in the bond market and changes in hedging strategies and positions nor does it consider the potential change to our discount rate reserve assumptions and any mitigating factors such as pricing adjustments
The functional currency of our U K operations is the British pound sterling The functional currency of our operations in Poland is the Polish zloty We are exposed to foreign currency risk arising from fluctuations in the British pound sterling and Polish zloty to U S dollar exchange rates primarily as they relate to the translation of the financial results of our U K and Polish operations Fluctuations in exchange rates impact reported financial results We do not hedge against the possible impact of this risk Because we do not actually convert our functional currency into dollars except for a limited number of transactions we view foreign currency translation as a financial reporting issue and not a reflection of operations or profitability in our U K or Polish operations
Assuming the pound to dollar year end exchange rate decreased 10 percent from the December 31 2024 and 2023 levels accumulated other comprehensive income or loss as reported in U S dollars would have been lower by approximately 120 million in each year Assuming the pound to dollar average exchange rate decreased 10 percent from the actual average exchange rates for 2024 and 2023 net income as reported in U S dollars would have decreased approximately 10 million in each year Our Polish operations are currently not a significant portion of our overall operations and any changes in the dollar exchange rate would not represent a material impact to our reported financial results in U S dollars
Dividends paid by Unum Limited are paid to our U K holding company When these funds are repatriated to our U S holding company we are subject to foreign currency risk as the value of the dividend when converted into U S dollars is dependent upon the foreign exchange rate at the time of conversion
We are also exposed to foreign currency risk related to certain foreign investment securities denominated in local currencies We use foreign currency interest rate swaps to hedge or minimize the foreign exchange risk associated with these instruments
See Risk Factors contained herein in Item 1A and Consolidated Operating Results and Unum International Segment contained herein in Item 7 for further information concerning foreign currency translation
Effectively taking and managing risks is essential to the success of our Company To facilitate this effort we have a formal Enterprise Risk Management ERM program with a framework comprising these key components
Our ERM framework is the ongoing system of people processes and tools across our Company under which we intend to function consistently and collectively to identify and assess risks and opportunities to manage all material risks within our risk appetite and to contribute to strategic decision making With the goal of maximizing shareholder value the primary objectives
We employ a risk management model under which risk based decisions are made daily on a local level To achieve long term success we believe risk management must be the responsibility of all employees The individual and collective decisions of our employees play a key role in successfully managing our overall risk profile We strive for a culture of integrity commitment and accountability and we believe these values allow our employees to feel comfortable identifying issues and taking ownership for addressing potential problems To reinforce the risk aware culture we offer risk education to employees
Our employees have an obligation to report issues that they believe will have a material financial operational reputational or regulatory impact to the Company We offer several channels for employees to report their issues or concerns and encourage employees to use the channel that is most appropriate for their situation We recommend that an employee initially discuss their concerns with their manager however if that channel is not appropriate an employee may use any of the other reporting channels available By employing various approaches we foster a culture intended to support candid discussion and reporting of risks and empowerment of our employees to take ownership for risk management
Business units are primarily responsible for managing their principal risks Our risk committees and other governing bodies serve as risk control functions responsible for providing risk oversight or the second line of risk control Our internal audit team provides periodic independent reviews and assurance activities serving as our third line of risk control
In addition our board has an active role as a whole and through its committees in overseeing management of our risks The board is responsible for the oversight of strategic risk and regularly reviews information regarding our capital liquidity and operations as well as the risks associated with each The risk and finance committee of the board is responsible for oversight of our risk management process including financial risk operational risk strategic risk and cybersecurity risk though other board committees also oversee risks associated with their responsibilities
Our executive risk management committee is responsible for overseeing our enterprise wide risk management program The chief risk officer who is a member of the executive risk management committee has primary responsibility for our ERM program and is supported by management committees and other governing bodies These committees are responsible for identifying measuring reporting and managing strategic insurance and operational risks within their respective areas consistent with enterprise risk management guidance
Our risk appetite as set forth in a risk appetite statement reflects acceptable boundaries for the risks we are willing to assume and the acceptable boundaries for uncertainty in achieving our strategic objectives The risk appetite statement defines our approach to risk taking and guides decision making as to the amount and types of risks we assume in fulfilling our purpose and advancing our strategy
We regularly use assessment techniques that are suitable for the specific nature of the risk being assessed The discussion is at the enterprise level and often qualitative and principles based Quantitative specifications are made where possible generally regarding aggregate capital metrics Business segments align with the risk appetite through process policies and operating procedures and through monitoring of operational metrics Where appropriate specific quantitative boundaries are used to establish and measure against risk appetite articulated in the statement
Key measures of our risk profile are monitored against risk tolerances and limits on a quarterly basis and are communicated to their respective governing body For risks falling outside of our risk tolerance and limits the respective governing body assesses the appropriate risk response including implementation of remediation plans or corrective actions Collectively management is responsible for monitoring its adherence to the risk appetite statement throughout its operations and in accordance with the ERM framework
Risk identification and prioritization is an ongoing process whereby we identify and assess our risk positions and exposures including notable risk events Additionally we identify emerging risks and analyze how material future risks might affect us Knowing the potential risks we face allows us to monitor and manage their potential effects including adjusting our strategies as appropriate and holding capital levels which provide financial flexibility Business process owners supported by the ERM program have primary responsibility for identifying and prioritizing risks within their respective areas
We face a wide range of risks and our continued success depends on our ability to identify and appropriately manage our risk exposures For additional information on certain risks that may adversely affect our business operating results or financial condition see Cautionary Statement Regarding Forward Looking Statements contained herein on page 1 and Risk Factors contained herein in Item 1A
Regular internal and external risk reporting is an integral part of our ERM framework Internally ERM reports are a standard part of our quarterly senior management and board meetings The reports summarize our existing and emerging risk exposures as well as report against the tolerances and limits defined by our risk appetite policy
Externally we are subject to a number of regulatory and rating agency risk examinations and risk reports are often included Annually we file our Own Risk and Solvency Assessment ORSA summary report with the applicable insurance regulators for our U S insurance subsidiaries This report provides strong evidence of the strengths of our ERM framework measurement approaches key assumptions utilized in assessing our risks and prospective solvency assessments under both normal and stressed conditions See Regulation contained herein in Item 1 for additional information regarding the ORSA
The ERM framework takes a decentralized approach to risk management that relies on the three lines of defense described above The second line plays an important role in providing reliable current timely and actionable information about the uncertainties that might affect the achievement of our objectives The ERM framework utilizes a combination of qualitative and quantitative measures to inform our assessment at the enterprise level
Both are key components of our risk appetite framework and play an important role in monitoring assessing managing and mitigating our primary risk exposures which we evaluate over multiple time horizons
Our ability to manage our baseline risks and run stress and scenario analysis relies on numerous capital and financial models These models aid us in making significant business decisions including strategic planning capital management risk limit determinations reinsurance purchases hedging activities asset allocation pricing and corporate development We aim to constantly improve the capital modeling techniques and methodologies we use to determine a level of capital that is commensurate with our risk profile and to ensure compliance with evolving regulatory and rating agency requirements To provide controls on development and use of our key models we maintain a model risk framework for all financial models
We have audited the accompanying consolidated balance sheets of Unum Group and Subsidiaries the Company as of December 31 2024 and 2023 the related consolidated statements of income comprehensive income stockholders equity and cash flows for each of the three years in the period ended December 31 2024 and the related notes and financial statement schedules listed in the Index at Item 15 a 2 collectively referred to as the consolidated financial statements In our opinion the consolidated financial statements present fairly in all material respects the financial position of the Company at December 31 2024 and 2023 and the results of its operations and its cash flows for each of the three years in the period ended December 31 2024 in conformity with U S generally accepted accounting principles
We also have audited in accordance with the standards of the Public Company Accounting Oversight Board United States PCAOB the Company s internal control over financial reporting as of December 31 2024 based on criteria established in Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission 2013 framework and our report dated February 27 2025 expressed an unqualified opinion thereon
These financial statements are the responsibility of the Company s management Our responsibility is to express an opinion on the Company s financial statements based on our audits We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U S federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB
We conducted our audits in accordance with the standards of the PCAOB Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement whether due to error or fraud Our audits included performing procedures to assess the risks of material misstatement of the financial statements whether due to error or fraud and performing procedures that respond to those risks Such procedures included examining on a test basis evidence regarding the amounts and disclosures in the financial statements Our audits also included evaluating the accounting principles used and significant estimates made by management as well as evaluating the overall presentation of the financial statements We believe that our audits provide a reasonable basis for our opinion
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that 1 relates to accounts or disclosures that are material to the financial statements and 2 involved our especially challenging subjective or complex judgments The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements taken as a whole and we are not by communicating the critical audit matter below providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates
The Company s liability for individual and group long term care future policy benefits is 15 3 billion of the 36 8 billion of Future Policy Benefits on the consolidated balance sheet as of December 31 2024
The liability for future policy benefits related to long term care insurance contracts is based on estimates of how much the Company will need to pay for future benefits and the amount of premiums to be collected from policyholders for these policy features As described in Note 1 and Note 6 to the consolidated financial statements there is significant uncertainty in estimating this liability given the extended period over which claims are paid and sensitivity of the estimate to assumptions including morbidity mortality claims incidence and resolutions active policy lapses and future premium rate increases
Auditing the long term care liability for future policy benefits was complex due to the highly judgmental nature of the significant assumptions including morbidity mortality claims incidence and resolutions active policy lapses and future premium rate increases used in the measurement process The significant judgment and the sensitivity of the estimate to these assumptions can have a material effect on the valuation of the liability
We obtained an understanding evaluated the design and tested the operating effectiveness of the Company s internal controls over the long term care liability for future benefits process including controls over the review and approval of assumptions which incorporate the Company s most recent experience
To test the long term care liability for future policy benefits we performed audit procedures with the assistance of our actuarial specialists that included among others an evaluation of the methodologies applied by management s actuarial specialists with those methods used in prior periods We evaluated the significant assumptions used by management in determining the liability for future policy benefits by comparing the significant assumptions including expected morbidity mortality claims incidence and resolutions active policy lapses and future premium rate increases to historical assumptions prior actual experience policyholder experience studies performed by management available industry information or management s estimates of prospective changes in these assumptions In addition we performed a review of the historical results of the development of the estimate assessed management s annual reserve assumption study and performed an independent recalculation of the liability for future policy benefits for a sample of contracts which we compared to the actuarial model used by management
The accompanying consolidated financial statements of Unum Group and its subsidiaries the Company have been prepared in accordance with U S generally accepted accounting principles GAAP Such accounting principles differ from statutory accounting principles see Note 18 Intercompany transactions have been eliminated
We are a leading provider of financial protection benefits in the United States the United Kingdom and Poland Our products include disability life accident critical illness dental and vision and other solutions based services We market our products primarily through the workplace
We have three principal operating segments Unum US Unum International and Colonial Life Our other operating segments are Closed Block and Corporate See Note 15 for further discussion of our operating segments
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 Such estimates and assumptions could change in the future as more information becomes known which could impact the amounts reported and disclosed herein
In accordance with standard practice we regularly review the methodology used in the development of all key estimates As a result of this review in 2022 we updated our estimate of the unearned premium reserve for certain of our product lines to utilize a gross unearned premium reserve rather than a net unearned premium reserve The effect of this change in estimate was to decrease 2022 premium income by 13 4 million and decrease commissions by 1 0 million This resulted in a decrease to net income of 9 8 million and a decrease to both basic and diluted earnings per share by 0 05
Fixed maturity securities include long term bonds and redeemable preferred stocks Our fixed maturity securities are classified as available for sale and reported at fair value Changes in the fair value of available for sale fixed maturity securities except for amounts related to impairment and credit losses recognized in earnings are reported as a component of other comprehensive income net of income tax Realized investment gains or losses are based upon specific identification of the investments sold
Interest income is recorded as part of net investment income when earned using an effective yield method giving effect to amortization of premium and accretion of discount Included within fixed maturity securities are mortgage backed and asset backed securities We recognize investment income on these securities using a constant effective yield based on projected prepayments of the underlying loans and the estimated economic life of the securities Actual prepayment experience is reviewed periodically and effective yields are recalculated when differences arise between prepayments originally projected and the actual prepayments received and currently projected The effective yield is recalculated on a retrospective basis and the adjustment is reflected in net investment income For fixed maturity securities on which collection of investment income is uncertain we discontinue the accrual of investment income and recognize investment income when interest and dividends are received Payment terms specified for fixed maturity securities may include a prepayment penalty for unscheduled payoff of the investment Prepayment penalties are recognized as investment income when received
In determining when a decline in fair value below amortized cost of a fixed maturity security is a credit loss we evaluate available information both positive and negative in reaching our conclusions In particular we consider the strength of the issuer s balance sheet its debt obligations and near term funding requirements cash flow and liquidity the profitability of its core businesses the availability of marketable assets which could be sold to increase liquidity its industry fundamentals and regulatory environment and its access to capital markets Although all available and applicable factors are considered in our analysis our expectation of recovering the entire amortized cost basis of the security whether we intend to sell the security whether it is more likely than not that we will be required to sell the security before recovery of its amortized cost and whether the security is current on principal and interest payments are the most critical factors in determining whether impairments represent credit losses The significance of the decline in value is also an important factor but we generally do not record an impairment loss based solely on this factor since often other more relevant factors will impact our evaluation of a security
For securities with a decline in fair value below amortized cost which we intend to sell or more likely than not will be required to sell before recovery in value the amortized cost of the investment is written down to fair value through earnings and an impairment loss is recognized in the current period For securities that we believe are impaired and which we do not intend to
sell and it is not more likely than not that we will be required to sell before recovery in value we calculate an allowance for credit losses recognized in earnings which generally represents the difference between the amortized cost of the security and the present value of our best estimate of cash flows expected to be collected discounted using the effective interest rate implicit in the security at the date of acquisition and limited by the difference between amortized cost and fair value of the security For fixed maturity securities for which we have recognized an allowance for credit loss through earnings if through subsequent evaluation there is a significant increase in expected cash flows the allowance is reduced and is recognized as a reduction to credit losses in the current period When an allowance for credit losses on a fixed maturity security is recognized we designate non accrual status for those securities We reverse all previously accrued interest through interest income and use a cash basis method for recognizing any future payments received See Notes 2 and 3
Mortgage loans are generally held for investment and are carried at amortized cost less an allowance for expected credit losses Interest income is accrued on the principal amount of the loan based on the loan s contractual interest rate Prepayment penalties are recognized as investment income when received For mortgage loans on which collection of interest income is uncertain we discontinue the accrual of interest and recognize it in the period when an interest payment is received We typically do not resume the accrual of interest on mortgage loans on nonaccrual status until there are significant improvements in the underlying financial condition of the borrower We consider a loan to be delinquent if full payment is not received in accordance with the contractual terms of the loan
We evaluate each of our mortgage loans individually for impairment and assign an internal credit quality rating based on a comprehensive rating system used to evaluate the credit risk of the loan Although all available and applicable factors are considered in our analysis loan to value and debt service coverage ratios are the most critical factors in determining impairment We estimate an allowance for credit losses that we expect to incur over the life of our mortgage loans using a probability of default method For each loan we estimate the probability that the loan will default before its maturity probability of default and the amount of the loss if the loan defaults loss given default These two factors result in an expected loss percentage that is applied to the amortized cost of each loan to determine the expected credit loss As we are typically the original underwriter of the mortgage loans the amortized cost generally equals the principal amount of the loan We measure losses on defaults of our mortgage loans as the excess amortized cost of the mortgage loan over the fair value of the underlying collateral in the event that we foreclose on the loan or over the expected future cash flows of the loan if we retain the mortgage loan until payoff We do not purchase mortgage loans with existing credit impairments
In estimating the probability of default we consider historical experience current market conditions and reasonable and supportable forecasts about the future market conditions We utilize our historical loan experience in combination with a large third party industry database for a period of time that aligns with the average life of our loans based on the maturity dates of the loans and prepayment experience Our model utilizes an industry database of the historical loss experience based on our actual portfolio characteristics such as loan to value debt service coverage collateral type geography and late payment history In addition because we actively manage our portfolio we may extend the term of a loan in certain situations and will accordingly extend the maturity date in the estimate of probability of default In estimating the loss given default we primarily consider the type and value of collateral and secondarily the expected liquidation costs and time to recovery
The primary market factors that we consider in our forecast of future market conditions are gross domestic product unemployment rates interest rates inflation commercial real estate values household formation and retail sales We also forecast certain loan specific factors such as growth in the fair value and net operating income of collateral by property type We include our estimate of these factors over a two year period and for the remainder of the loans estimated lives adjusted for estimated prepayments Past the two year forecast period we revert to the historical assumptions ratably by the end of the fifth year of the loan after which we utilize only historical assumptions
We utilize various scenarios to estimate our allowance for expected losses ranging from a base case scenario that reflects normal market conditions to a severe case scenario that reflects adverse market conditions We will adjust our allowance each period to utilize the scenario or weighting of the scenarios that best reflects our view of current market conditions Additions and reductions to our allowance for credit losses on mortgage loans are reported as a component of net investment gains and losses See Note 3
are presented at the unpaid balances directly related to policyholders Interest income is accrued on the principal amount of the loan based on the loan s contractual interest rate Included in policy loans are 3 313 6 million and 3 322 5 million of policy loans ceded to reinsurers at December 31 2024 and 2023 respectively
Other long term investments are comprised primarily of private equity partnerships real estate perpetual preferred stock common stock tax credit partnerships and derivatives which are described in Derivative Financial Instruments below
Our investments in private equity partnerships are passive in nature and represent funds that are primarily invested in private credit private equity and real assets We account for our investments in these partnerships using either the equity method or at fair value through net income depending on the level of ownership and the degree of our influence over partnership operating and financial policies For investments in partnerships accounted for under the equity method we report our investments at our share of the partnership s net asset value NAV and record our portion of partnership earnings as a component of net investment income For investments in partnerships accounted for at fair value through net income we also report our investments at our share of the partnership s NAV as a practical expedient for fair value with increases or decreases recorded as a component of net investment income Distributions received from the funds arise from income generated by the underlying investments as well as the liquidation of the underlying investments and there is generally not a public market for these investments
Investment real estate is primarily comprised of property held for the production of income and property held for sale Property held for the production of income is carried at cost less accumulated depreciation and any write downs to fair value for impairment losses Depreciation is recorded on a straight line basis over the estimated useful life of the asset A review for impairment is made whenever events or circumstances indicate that the carrying value may not be recoverable An impairment loss is recognized when the carrying value of the property exceeds the expected undiscounted cash flows generated from the property at which point the carrying value is written down to an estimated fair value Real estate held for sale is carried at the lower of depreciated cost or fair value less estimated selling costs and is not further depreciated once classified as such
Our perpetual preferred stocks are valued at fair value based on quoted market prices where available For preferred stocks not actively traded fair values are estimated using values obtained from independent pricing services Our investments in common stock are valued at fair value Our shares of Federal Home Loan Bank FHLB common stock are carried at cost which approximates fair value
Tax credit partnerships in which we have invested were formed for the purpose of investing in the construction and rehabilitation of low income housing Because the partnerships are structured such that there is no return of principal the primary sources of investment return from our tax credit partnerships are tax credits and tax benefits derived from passive losses on the investments both of which may exhibit variability over the life of the investment These partnerships are accounted for using either the proportional or the effective yield method depending primarily on whether the tax credits are guaranteed through a letter of credit a tax indemnity agreement or another similar arrangement Tax credits received from these partnerships are reported in our consolidated statements of income as either a reduction of premium tax or a reduction of income tax The amortization of the principal amount invested in these partnerships is reported as a component of either premium tax or income tax
Short term investments are carried at cost Short term investments include investments maturing within one year of purchase such as corporate commercial paper and Treasury bills bank term deposits and other cash accounts and cash equivalents earning interest
Derivative financial instruments including certain derivative instruments embedded in other contracts are recognized as either other long term investments or other liabilities in our consolidated balance sheets and are reported at fair value The accounting for a derivative depends on whether it has been designated and qualifies as part of a
hedging relationship and further on the type of hedging relationship To qualify for hedge accounting at the inception of the hedging transaction we formally document the risk management objective and strategy for undertaking the hedging transaction as well as the designation of the hedge as either a fair value hedge or a cash flow hedge Included in this documentation is how the hedging instrument is expected to hedge the designated risk related to specific assets or liabilities on the balance sheet or to specific forecasted transactions as well as a description of the method that will be used to retrospectively and prospectively assess the hedging instrument s effectiveness
A derivative designated as a hedging instrument must be assessed as being highly effective in offsetting the designated risk of the hedged item Hedge effectiveness is formally assessed at inception and periodically throughout the life of the designated hedging relationship using qualitative and quantitative methods Qualitative methods include comparison of critical terms of the derivative to the hedged item Quantitative methods include regression or other statistical analysis of changes in fair value or cash flows associated with the hedge relationship
Changes in the fair value of a derivative designated as a fair value hedge and changes in the fair value of the hedged item attributable to the risk being hedged are recognized in earnings as a component of net investment gain or loss during the period of change in fair value For gains or losses on the derivative instrument that are excluded from the assessment of hedge effectiveness those gains and losses are recognized in other comprehensive income or loss and amortized into earnings in the same income statement line as the related hedged item The gain or loss on the termination of a fair value hedge is recognized in earnings as a component of net investment gain or loss during the period in which the termination occurs When interest rate swaps are used in hedge accounting relationships periodic settlements are recorded in the same income statement line as the related settlements of the hedged items
Changes in the fair value of a derivative designated as a cash flow hedge are reported in other comprehensive income and reclassified into earnings and reported on the same income statement line item as the hedged item and in the same period or periods during which the hedged item affects earnings The gain or loss on the termination of an effective cash flow hedge is reported in other comprehensive income and reclassified into earnings and reported on the same income statement line item as the hedged item and in the same period or periods during which the hedged item affects earnings
Gains or losses on the termination of ineffective fair value or cash flow hedges are reported in earnings as a component of net investment gain or loss In the event a hedged item is disposed of or the anticipated transaction being hedged is no longer likely to occur we will terminate the related derivative and recognize the gain or loss on termination in current earnings as a component of net investment gain or loss In the event a hedged item is disposed of subsequent to the termination of the hedging transaction we reclassify any remaining gain or loss on the hedge out of accumulated other comprehensive income loss AOCI into earnings as a component of the same income statement line item wherein we report the gain or loss on disposition of the hedged item
For a derivative not designated as a hedging instrument changes in the fair value of the derivative together with the payment of periodic fees if applicable are recognized in the same income statement line item as the hedged item during the period of change in fair value
Cash flows related to derivative contracts are included in the consolidated statements of cash flows coinciding with the timing of the underlying exposure Cash inflows are included as a component of proceeds from sales and maturities of other investments Cash outflows are included as a component of purchases of other investments
In our consolidated balance sheets we do not offset fair value amounts recognized for derivatives executed with the same counterparty under a master netting agreement and fair value amounts recognized for the right to reclaim cash collateral or the obligation to return cash collateral arising from those master netting agreements See Notes 2 3 and 4
Certain assets and liabilities are reported at fair value in our consolidated balance sheets and in our notes to our consolidated financial statements We define fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date Therefore fair value represents an exit price not an entry price The exit price objective applies regardless of our intent and or ability to sell the asset or transfer the liability at the measurement date Assets or liabilities with readily available actively quoted prices or for
which fair value can be measured from actively quoted prices in active markets generally have more pricing observability and less judgment utilized in measuring fair value When actively quoted prices are not available fair values are based on quoted prices in markets that are not active quoted prices for similar but not identical assets or liabilities or other observable inputs If observable inputs are not available unobservable inputs and or adjustments to observable inputs requiring management judgment are used to determine fair value We categorize our assets and liabilities measured at estimated fair value into a three level hierarchy based on the significance of the inputs The fair value hierarchy gives the highest priority to inputs which are unadjusted and represent quoted prices in active markets for identical assets or liabilities Level 1 and the lowest priority to unobservable inputs Level 3 See Note 2
We establish an allowance for credit losses on premiums receivable which is deducted from the gross amount of our receivable balance to present the net amount we expect to collect on this asset The allowance is forward looking in nature and is calculated based on considerations regarding both historical events and future expectations Periodic changes in the allowance are recorded through earnings
The allowance on our premiums receivable is primarily determined using an aging analysis as well as historical lapse and delinquency rates by product line adjusted for key factors that may impact our future expectation of premium receipts such as changes in customer demographics business practices economic conditions and product offerings We write off premiums receivable amounts when determined to be uncollectible which is based on various factors including the aging of premiums receivable past the due date and specific communication with customers At December 31 2024 and 2023 the allowance for expected credit losses on premiums receivable was 26 8 million and 29 5 million respectively on gross premiums receivable of 584 1 million and 612 4 million respectively The decrease in the allowance of 2 7 million during the year ended December 31 2024 was driven primarily by the decrease in gross premiums receivable The decrease in the allowance of 3 0 million during the year ended December 31 2023 was driven primarily by improvements in the age of premiums receivable
Incremental direct costs associated with the successful acquisition of new or renewal insurance contracts have been deferred Such costs include non level commissions other agency compensation certain selection and policy issue expenses and certain field expenses Acquisition costs that do not vary with the production of new business such as commissions on group products which are generally level throughout the life of the policy are excluded from deferral
Our insurance contracts are grouped by product type and contract issue year into cohorts consistent with the grouping used to estimate the related contract liabilities Deferred acquisition costs DAC are amortized on a constant level basis over the life of the policy For all products in force volume metrics are used as the constant level basis The lapse and mortality assumptions used to amortize DAC for our traditional long duration products are consistent with the assumptions used to estimate the liability for future policy benefits The underlying assumptions used to determine DAC amortization are updated concurrently with any related assumption changes for the liability for future policy benefits and changes in estimates are recognized prospectively over the remaining expected term of the related contracts Amortization expense is adjusted based on actual versus expected experience through an adjustment to the prospective rate of amortization
For certain products policyholders can elect to modify product benefits features rights or coverages by exchanging a contract for a new contract or by amendment endorsement or rider to a contract or by the election of a feature or coverage within a contract These transactions are known as internal replacement transactions principally on group contracts Internal replacement transactions wherein the modification does not substantially change the policy are accounted for as continuations of the replaced contracts The original policy continues to be reflected as an in force policy within its original cohort The policy s expected life then impacts the amortization of remaining unamortized deferred acquisition costs within its cohort The costs of replacing the policy are accounted for as policy maintenance costs and expensed as incurred Internal replacement transactions that result in a policy that is substantially changed are accounted for as an extinguishment of the original policy and the issuance of a new policy The original policy that was replaced is terminated from its original cohort and this termination is reflected in the amortization rate of remaining unamortized deferred acquisition costs for the cohort The costs of acquiring the new policy are capitalized and amortized as part of a new cohort See Note 8
Goodwill is the excess of the amount paid to acquire a business over the fair value of the net assets acquired We review the carrying amount of goodwill for impairment on an annual basis or more frequently if events or changes in
circumstances indicate that the carrying amount might not be recoverable Goodwill impairment testing compares the fair value of a reporting unit with its carrying amount including goodwill If the fair value of the reporting unit to which the goodwill relates is less than the carrying amount of the reporting unit an impairment charge is recognized for the amount by which the carrying amount exceeds the fair value of the reporting unit in an amount not to exceed the total amount of goodwill allocated to the reporting unit
Property and equipment is reported at cost less accumulated depreciation which is calculated on the straight line method over the estimated useful life The accumulated depreciation for property and equipment was 1 501 3 million and 1 422 8 million as of December 31 2024 and 2023 respectively
Value of business acquired represents the present value of future profits recorded in connection with the acquisition of a block of insurance policies The asset is amortized based upon expected future premium income for non interest sensitive insurance policies and estimated future gross profits from surrender charges mortality margins investment returns and expense margins for interest sensitive insurance policies The value of business acquired which is included in other assets in our consolidated balance sheets was 55 1 million and 63 9 million at December 31 2024 and 2023 respectively The accumulated amortization for value of business acquired was 165 5 million and 161 8 million as of December 31 2024 and 2023 respectively
The amortization of value of business acquired which is included in other expenses in the consolidated statements of income was 6 2 million 5 2 million and 4 9 million for the years ended December 31 2024 2023 and 2022 respectively We
Liabilities for future policy benefits represent the cost of claims that we estimate we will eventually pay to our policyholders which includes policy liabilities for claims not yet incurred and for claims that have been incurred or are estimated to have been incurred but not yet reported to us Liabilities for future policy benefits also include the related expenses for our non interest sensitive life and accident and health products The liability for future policy benefits is calculated based on the present value of the estimated future policy benefits less the present value of estimated future net premiums collected Net premiums represent the portion of the gross premium required to provide for all benefits and expenses excluding acquisition costs or any costs that are required to be charged to expense as incurred In calculating the liability for future policy benefits our long duration contracts are grouped into cohorts by product type and contract issue year
The calculation of the liability for future policy benefits involves numerous assumptions including assumptions related to discount rate lapses mortality and morbidity The discount rate assumptions were initially set based on the expected investment yield of the assets supporting the reserves at the transition date of accounting standards update ASU 2018 12 which was January 1 2021 for policies originally issued before the transition date The discount rate assumptions for new cohorts established after the transition date are initially set based on the policy issuance date or policy renewal date and are based on an upper medium grade fixed income instrument which is generally equivalent to a single A interest rate matched to the duration of our insurance liabilities As cohorts are grouped by product type and issue year a weighted average discount rate is utilized as policies are issued or renewed throughout the year We utilize a reference portfolio of fixed income instruments that have been A rated by one of the major credit rating agencies For products with liability cash flows that exceed the duration of observable single A fixed income instruments we use the last market observable yield and use extrapolation approaches to determine yield assumptions for durations beyond the last market observable duration For the discount rate assumptions for products in our Unum International segment we utilize observable market data in the local debt markets in the UK and Poland
The initial also referred to as the original discount rate assumptions established for each cohort are used to determine interest accretion which is reported as a component of policy benefits on the statements of income After policy issuance or policy renewal the discount rate assumptions are updated quarterly and used to update the liability at each reporting date to the current discount rate with the corresponding change reflected as the change in the effect of discount rate assumptions on the liability for future policy benefits net of reinsurance on the statement of changes in other comprehensive income loss Policyholder lapse and mortality assumptions reflect the probability that an insureds coverage is discontinued due to lapsation or death of the insured For our life insurance products mortality assumptions also reflect the probability that a benefit payment occurs Policyholder lapse and mortality assumptions are based on our actual historical experience adjusted for future expectations Claim incidence and claim resolution rate assumptions related to morbidity and mortality are based on actual experience or industry standards adjusted as appropriate to reflect our actual experience and future expectations The claim incidence rate assumption is the rate at which new claims are submitted and the development of this assumption may involve many factors including the age of the insured the insured s occupation or industry the benefit plan design and certain external factors such as consumer confidence and levels of unemployment The claim resolution rate assumption is the probability that a claim will close due to recovery or death of the insured and is used to estimate how long benefits will be paid on an open claim Certain product lines may utilize additional assumptions in calculating the liability for future policy benefits in addition to those listed above such as premium rate increases for long term care benefit offsets for long term disability and claim costs for voluntary benefits Claim costs capture the combined effect of the incidence rate the expected level of benefit to be paid and the claim resolution rate
Cash flow assumptions are reviewed and updated as needed at least annually Assumptions may be updated more frequently if necessary based on trending experience and future expectations On a quarterly basis cohort level cash flow measures are updated based on the emergence of actual experience The updated cash flows are used to determine the updated net premiums and the net premium ratio which is the present value of benefits and related expenses divided by the present value of gross premiums The updated net premium ratio is used to calculate the updated liability for future policy benefits as of the beginning of the year at the original discount rate The change in the liability for future policy benefits at the original discount rate as of the beginning of the period resulting from changes in cash flow assumptions and resulting from the emergence of actual experience from expected experience is reflected as the policy benefits remeasurement loss gain in the consolidated statements of income The impact of all other changes in the liability for future policy benefits are reflected as policy benefits in the consolidated statements of income
For most products a net premium methodology is applied to each cohort to estimate the liability for claims not yet incurred in which discounted gross benefits are compared to discounted gross premiums In this methodology actual experience to date is combined with projected future cash flows to determine a net premium ratio for each cohort The future cash flows include the costs of future expected claims as well as future cash flows on claims that have already been incurred The net premium ratio is then used to estimate the liability for future policy benefits The liability for future policy benefits represents the present value of future claims and associated expenses less the present value of future net premiums which is derived by multiplying the present value of future gross premium by the net premium ratio
For our group products in the Unum US and Unum International segments we evaluate the liability for future policy benefits required for active policies in comparison to incurred claims Given the term nature of the products their renewal features and level funding nature of the premium for these products we have determined that the liability value is generally zero for policies that are not on claim For these products our liability for future policy benefit values are limited to the liability associated with claims incurred as of the valuation date
Multiple estimation methods exist to establish liabilities for the incurred claim component of future policy benefits Available reserving methods utilized to calculate these liabilities include the tabular reserve method the paid loss development method the incurred loss development method the count and severity method and the expected claim cost method No single method is better than the others in all situations and for all product lines The estimation methods we have chosen are those that we believe produce the most accurate and reliable liability
We use a tabular reserve methodology on reported claims for our Unum US group long term disability and individual disability claims as well as for our Closed Block long term care claims Under the tabular reserve methodology the liability for reported claims is based on certain characteristics of the actual reported claimants and their related policy provisions such
as age length of time disabled and medical diagnosis as well as assumptions regarding claim duration discount rate and policy benefit offsets We believe the tabular reserve method is the most accurate to calculate long term liabilities and allows us to use the most available known facts about each claim Incurred but not reported IBNR liabilities for future policy benefits for our longer term products are calculated using the count and severity method using historical patterns of the claims to be reported and the associated claim costs For Unum US group short term disability products an estimate of the value of future payments to be made on claims already submitted as well as on IBNR claims is determined in aggregate using a paid loss development method rather than on the individual claimant basis that we use for reported claims on longer term products The average length of time between the event triggering a claim under a policy and the final resolution of those claims is much shorter for these products and results in less estimation variability
Liabilities for claims for Unum US group life and accidental death and dismemberment products are related primarily to death claims reported but not yet paid IBNR death claims and a liability for waiver of premium benefits in the event the policyholder becomes disabled The death claim liability is based on the actual face amount to be paid the IBNR liability is calculated using the count and severity method based on historical patterns of the claims and the waiver of premium benefits liability is calculated using the tabular reserve methodology
Liabilities for claims related to the group and individual dental and vision products reported in our Unum US and Colonial Life segments have a short claim payout period As a result the liabilities which primarily represent IBNR and a small amount of claims pending payment are calculated using the paid loss development method
Liabilities for future policy benefits supporting the group products within our Unum International segment are calculated using generally the same methodology that we use for Unum US group disability and group life liabilities Liabilities for future policy benefits for our Unum UK group life dependent product which provides an annuity to the beneficiary upon the death of an employee are calculated using discounted cash flows based on our assumptions for claim duration and discount rates The assumptions used in calculating liabilities for future policy benefits for this segment are based on standard country specific industry experience adjusted for our own experience
Certain products in the Colonial Life segment and the Unum US voluntary benefits product line have shorter term benefits which generally have less estimation variability than our longer term products because of the shorter claim payout period Our liabilities for future policy benefits for these lines of business are predominantly determined using the incurred loss development method based on our own experience The incurred loss development method uses the historical patterns of payments by loss date to predict future claim payments for each loss date Where the incurred loss development method may not be appropriate we estimate the incurred claims using an expected claim cost per policy or other measure of exposure See Note 6
Policyholders account balances primarily include our universal life and corporate owned life insurance products Policyholders account balances reflect customer deposits and interest credited less cost of insurance administration expenses surrender charges and customer withdrawals Our unearned revenue reserve claim reserves and certain other reserves related to our universal life products and corporate owned life insurance products are also reported as a component of policyholders account balances Policyholders account balances require loss recognition testing We perform loss recognition tests on these reserves annually or more frequently if appropriate using best estimate assumptions as of the date of the test without a provision for adverse deviation We group the policy reserves for each major product line within a reportable segment when we perform the loss recognition tests If the excess of the present value of projected future benefits and claim settlement expenses over the present value of projected future gross premiums is greater than the existing policy reserves less any unearned revenue reserve or value of business acquired the existing policy reserves would be increased to immediately recognize the insufficiency This becomes the new basis for reserves going forward subject to future loss recognition testing Anticipated investment income based on our anticipated portfolio yield rates after consideration for defaults and investment expenses is considered when performing loss recognition testing for long duration contracts See note 7
Other policyholders funds represent customer deposits plus interest credited at contract rates We control interest rate risk by investing in quality assets which have an aggregate duration that closely matches the expected duration of the liabilities
Deferred taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial statement purposes and the amounts used for income tax purposes Deferred taxes have been measured using enacted statutory income tax rates and laws that are currently in effect We record adjustments to our deferred taxes resulting from tax rate changes through income as of the date of enactment We record deferred tax assets for tax positions taken in the U S and other tax jurisdictions based on our assessment of whether a position is more likely than not to be sustained upon examination based solely on its technical merits A valuation allowance is established for deferred tax assets when it is more likely than not that an amount will not be realized We record tax expense related to Global Intangible Low Taxed Income in the period in which it is incurred We follow an aggregate portfolio approach to release disproportionate tax effects from AOCI upon disposal of an entire portfolio See Note 9
Debt is generally carried at the unpaid principal balance net of unamortized discount or premium and deferred debt issuance costs Short term debt consists of debt due within the next twelve months including that portion of debt otherwise classified as long term The amortization of the original issue discount or premium as well as deferred debt issuance costs are recognized as a component of interest expense over the period the debt is expected to be outstanding See Note 10
ROU assets represent our right to use an underlying asset for a specified lease term and are included in other assets in our consolidated balance sheet Lease liabilities represent the present value of lease payments that we are obligated to pay arising from a lease and are included in other liabilities in our consolidated balance sheets
We determine if an arrangement is a lease at inception through a formal process that evaluates our right to control the use of an identified asset for a period of time in exchange for consideration We account for the lease and non lease components of our building leases separately and have elected to use the available practical expedient to account for the lease and non lease components of our equipment leases as a single component All of our leases are classified as operating For each operating lease we calculate a lease liability at commencement date based on the present value of lease payments over the lease term and a corresponding ROU asset adjusted for lease incentives We do not recognize ROU assets and lease liabilities that arise from short term leases for any class of underlying asset
We consider the likelihood of renewal in determining the lease terms for the calculation of the ROU asset and lease liability As most of our leases do not provide an implicit rate of interest we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments We use the implicit rate of interest when readily determinable
Operating lease cost is calculated on a straight line basis over the lease term and is included in other expenses in our consolidated statements of income We amortize the ROU asset over the lease term on a pattern determined by the difference between the straight line lease liability expense and the accretion of the imputed interest calculated on the lease liability See Note 17
Treasury stock is reflected as a reduction of stockholders equity at cost when repurchased shares are settled When shares are retired the par value is removed from common stock and the excess of the repurchase price over par is allocated between additional paid in capital and retained earnings See Note 12
Our non interest sensitive life and accident and health products are long duration contracts and premium income is recognized as revenue when due from policyholders If the contracts are experience rated the estimated ultimate premium is recognized as revenue over the period of the contract The estimated ultimate premium which is revised to reflect current experience is based on estimated claim costs expenses and profit margins
For interest sensitive products the amounts collected from policyholders are considered deposits and only the deductions during the period for cost of insurance policy administration and surrenders are included in revenue Policyholders funds represent funds deposited by contract holders and are not included in revenue
We routinely enter into reinsurance agreements with other insurance companies to spread risk and thereby limit losses from large exposures For each of our reinsurance agreements we determine if the agreement provides indemnification against loss or liability relating to insurance risk in accordance with applicable accounting standards If we determine that a reinsurance agreement does not expose the reinsurer to a reasonable possibility of a significant loss from insurance risk we record the agreement using the deposit method of accounting
Reinsurance activity is accounted for on a basis consistent with the terms of the reinsurance contracts and the accounting used for the original policies issued Premium income policy benefits and policy benefits remeasurement gain or loss are presented in our consolidated statements of income net of reinsurance ceded Ceded liabilities for future policy benefits policyholders account balances and unearned premiums are reported on a gross basis in our consolidated balance sheets as are ceded policy loans Our reinsurance recoverable includes the balances due from reinsurers under the terms of the reinsurance agreements for these ceded balances as well as settlement amounts currently due
For ceded reinsurance transactions occurring after January 1 2021 the transition date of ASU 2018 12 in accordance with the provisions of the ASU related to non contemporaneous reinsurance we are required to establish the ceded reserves using an upper medium grade fixed income instrument as of the reinsurance transaction date However the direct reserves for the reinsured block are calculated using the original discount rate utilized as of the transition date Both the direct and ceded reserves are then remeasured at each reporting period using a current discount rate reflective of an upper medium grade fixed income instrument with the changes recognized in other comprehensive income loss While the total equity impact is neutral the different original discount rates utilized for direct and ceded reserves result in disproportionate earnings impacts
Where applicable gains or costs recognized on reinsurance transactions are generally deferred and amortized into earnings based upon expected future premium income for non interest sensitive insurance policies and estimated future gross profits for interest sensitive insurance policies Gains or costs recognized on reinsurance transactions for non interest sensitive products for which we no longer receive premiums are generally deferred and amortized into earnings based upon expected claim reserve patterns The cost of reinsurance included in other assets in our consolidated balance sheets at December 31 2024 and 2023 was 508 0 million and 549 4 million The deferred gain on reinsurance included in other liabilities in our consolidated balance sheets at December 31 2024 and 2023 was 4 9 million and 8 8 million respectively
Under ceded reinsurance agreements wherein we are not relieved of our legal liability to our policyholders if the assuming reinsurer is unable to meet its obligations we remain contingently liable We evaluate the financial condition of reinsurers and monitor concentration of credit risk to minimize this exposure We may also require assets in trust letters of credit or other acceptable collateral to support our reinsurance recoverable balances We estimate an allowance for expected credit losses for our reinsurance recoverable balance using a probability of default approach which incorporates key inputs and assumptions regarding market factors counterparty credit ratings and collateral received When calculating our allowance we apply these market factors to the net amount of our credit exposure which considers collateral arrangements such as letters of credit and trust accounts We evaluate the factors used to determine our allowance on a quarterly basis to consider material changes in our assumptions and make adjustments accordingly The allowance for expected credit losses on reinsurance recoverable was 1 5 million at December 31 2024 and 1 7 million at December 31 2023 See Note 14
Premium tax expense is included in other expenses in the consolidated statements of income For the years ended December 31 2024 2023 and 2022 premium tax expense was 194 5 million 183 5 million and 169 3 million respectively
Restricted stock units and stock success units are valued based on the fair value of common stock at the grant date The fair value of performance units and cash incentive units is based on the Monte Carlo valuation model We evaluate whether there are any events which would require an adjustment to the price of common stock at the grant
date No adjustments have been made to any grant date prices for any awards as of December 31 2024 or 2023 Stock based awards are expensed over the requisite service period or for performance units over the requisite service period or remaining service period if and when it becomes probable that the performance conditions will be satisfied with an offsetting increase to additional paid in capital in stockholders equity The expense for certain of our awards is subject to accelerated recognition over the implicit service period for employees who have met the criteria for retirement eligibility Forfeitures of stock based awards are recognized as they occur See Note 13
We compute basic earnings per share by dividing net income by the weighted average number of common shares outstanding for the period Earnings per share assuming dilution is computed by dividing net income by the weighted average number of shares outstanding for the period plus the shares representing the dilutive effect of stock based awards In computing earnings per share assuming dilution only potential common shares resulting from stock based awards that are dilutive those that reduce earnings per share are included We use the treasury stock method to account for the effect of nonvested stock awards on the computation of earnings per share assuming dilution See Note 12
Revenues and expenses of our foreign operations are translated at average exchange rates Assets and liabilities are translated at the rate of exchange on the balance sheet dates The translation gain or loss is generally reported in AOCI net of income tax We do not provide for deferred taxes to the extent unremitted foreign earnings are deemed permanently invested
Participating policies issued by one of our subsidiaries prior to its 1986 conversion from a mutual to a stock life insurance company will remain participating as long as the policies remain in force A Participation Fund Account PFA was established for the benefit of all such individual participating life and annuity policies and contracts The assets of the PFA provide for the benefit dividend and certain expense obligations of the participating individual life insurance policies and annuity contracts The assets of the PFA were 231 3 million and 244 4 million at December 31 2024 and 2023 respectively
The amendments in this update enhanced disclosures of significant expenses for reportable segments Specifically the update added a requirement to disclose significant expenses that are regularly provided to the Chief Operating Decision Maker CODM and are included in each reported measure of segment profit or loss This update required the disclosure of the title and position of the CODM as well as an explanation of how they use the reported measure s to assess segment performance and make decisions about allocating resources The update also required the disclosure of the amount and composition of other segment items which is the difference between reported segment revenues less the significant segment expenses The amendments in this update allow for the disclosure of more than one measure of segment profit or loss provided that at least one of the reported measures includes the segment profit or loss measure that is most consistent with GAAP measurement principles
The amendments in this update were applied retrospectively in the annual period ended as of December 31 2024 and will be applied retrospectively for interim periods beginning January 1 2025 The adoption of this update modified our disclosures but did not have an impact on our financial position or results of operations
The amendments in this update provided optional guidance for a limited period of time to ease the potential burden in accounting for and recognizing the effects of reference rate reform on financial reporting The guidance allowed for various practical expedients and exceptions when applying GAAP to contracts hedging relationships and other transactions affected either by discontinued rates as a direct result of reference rate reform or a market wide change in interest rates used for discounting margining or contract price alignment if certain criteria are met Specifically the guidance provided certain practical expedients for contract modifications fair value hedges and cash flow hedges and also provided certain exceptions related to changes in the critical terms of a hedging relationship The guidance also allowed for a one time election to sell or transfer debt securities that were both classified as held to maturity prior to January 1 2020 and referenced a rate affected by the reform
The adoption of this update was permitted as of the beginning of the interim period that includes March 12 2020 the issuance date of the update or any date thereafter through December 31 2024 at which point the guidance sunset We have elected practical expedients for contracts impacted by reference rate reform which did not result in a material impact on our financial position or results of operations
The amendments in this update eliminated the troubled debt restructuring recognition and measurement guidance and instead required that an entity evaluate whether the modification represents a new loan or the continuation of an existing loan The amendments also enhanced the disclosure requirements related to certain modifications of receivables made to borrowers experiencing financial difficulty In addition the amendments in this update required that an entity disclose current period gross write offs by year of origination for financing receivables and net investment in leases
The amendments in this update were applied prospectively in the period of adoption as of January 1 2023 The adoption of this update modified our disclosures but did not have an impact on our financial position or results of operations
This update significantly amended the accounting and disclosure requirements for long duration insurance contracts These changes included a requirement to review and if necessary update cash flow assumptions used to measure the liability for future policy benefits for traditional and limited payment contracts at least annually with changes recognized in earnings In addition an entity is required to update the discount rate assumption at each reporting date using a yield that is reflective of an upper medium grade fixed income instrument with changes recognized in other comprehensive income loss OCI These changes resulted in the elimination of the provision for risk of adverse deviation and premium deficiency or loss recognition testing for traditional long duration insurance contracts The update also required that an entity measure all market risk benefits associated with deposit contracts at fair value with changes recognized in earnings except for the portion attributable to a change in the instrument specific credit risk which is to be recognized in OCI This update also simplified the amortization of deferred acquisition costs by requiring amortization on a constant level basis over the expected term of the related contracts Deferred acquisition costs are required to be written off for unexpected contract terminations but are no longer subject to an impairment test Significant additional disclosures are required which include disaggregated rollforwards of certain liability balances and the disclosure of qualitative and quantitative information about expected cash flows estimates and assumptions We do not have products with market risk benefits
We adopted this guidance effective January 1 2023 using the modified retrospective approach with changes applied as of January 1 2021 also referred to as the transition date All historically reported information included in our consolidated financial statements and accompanying footnotes were adjusted as of the transition date to reflect the modified retrospective adoption of ASU 2018 12
ASU 2020 06 Debt Debt with Conversion and Other Options Subtopic 470 20 and Derivatives and Hedging Contracts in Entity s Own Equity Subtopic 815 40 Accounting for Convertible Instruments and Contracts in an Entity s Own Equity
The amendments in this update simplified the accounting for convertible instruments by removing certain separation models in the guidance related to convertible instruments and expanded related disclosure requirements The amendments also revised the requirements for a contract or embedded derivative that is potentially settled in an entity s own stock to be classified as equity and also amended certain guidance related to the computations of earnings per share for convertible instruments and contracts in an entity s own stock This guidance was applied in the period of adoption as of January 1 2022 The adoption of this update did not have an effect on our financial position or results of operations and did not expand our disclosures
The amendments in this update require greater disaggregation of income tax disclosures related to the income tax rate reconciliation and income taxes paid Specifically the guidance requires additional information that meet a quantitative threshold in specified categories with respect to the reconciliation of the effective tax rate to the statutory tax rate for federal state and foreign income taxes The specified categories are the following state and local income taxes foreign tax effects effect of cross border tax laws enactment of new tax laws nontaxable or nondeductible items tax credits changes in valuation allowances and changes in unrecognized tax benefits The quantitative threshold for each category is five percent of the amount computed by multiplying income or loss from continuing operations before income taxes by the statutory federal income tax rate In addition the amendments require additional information pertaining to income taxes paid net of refunds to be disaggregated by federal state and foreign jurisdictions and further disaggregated for specific jurisdictions to the extent the related amounts exceed a quantitative threshold of five percent of total income taxes paid The amendments also require disclosures of income or loss before income tax expense or benefit as domestic or foreign for each annual reporting period
The amendments eliminate the historic requirement to disclose information regarding unrecognized tax benefits having a reasonable possibility of significantly increasing or decreasing in the twelve months following the reporting date as well as the requirement to disclose the cumulative temporary differences when a deferred tax liability is not recognized due to certain exceptions under ASC 740
We will adopt this update effective for the annual period beginning January 1 2025 The adoption of this update is permitted on a prospective basis or a retrospective basis The adoption of this update will not have an impact on our financial position or results of operations but will expand our disclosures effective for the annual period beginning January 1 2025
ASU 2024 03 Disaggregation of Income Statement Expenses Income Statement Reporting Comprehensive Income Expense Disaggregation Disclosures Subtopic 220 40 Disaggregation of Income Statement Expenses and related amendment
The amendments in this update require the disclosure of disaggregation of certain income statement expense line items Specifically the guidance requires the disclosure of additional information related to certain expenses including employee compensation depreciation and amortization and certain other expenses included in each income statement line item The amendments also require the disclosure of both the total amount of selling expenses and a definition of selling expenses
We will adopt this update effective for the annual period beginning January 1 2027 and interim periods beginning January 1 2028 The adoption of this update is permitted on a prospective basis or a retrospective basis The adoption of this update will expand our disclosures but will not have an impact on our financial position or results of operations
We report fixed maturity securities which are classified as available for sale securities derivative financial instruments and unrestricted equity securities at fair value in our consolidated balance sheets We report our investments in private equity partnerships at our share of the partnerships NAV per share or its equivalent as a practical expedient for fair value See Note 1
The degree of judgment utilized in measuring the fair value of financial instruments generally correlates to the level of pricing observability Financial instruments with readily available active quoted prices or for which fair value can be measured from actively quoted prices in active markets generally have more pricing observability and less judgment utilized in measuring fair value An active market for a financial instrument is a market in which transactions for an asset or a similar asset occur with sufficient frequency and volume to provide pricing information on an ongoing basis A quoted price in an active market provides the most reliable evidence of fair value and should be used to measure fair value whenever available Conversely financial instruments rarely traded or not quoted have less observability and are measured at fair value using valuation techniques that require more judgment Pricing observability is generally impacted by a number of factors including the type of financial instrument whether the financial instrument is new to the market and not yet established the characteristics specific to the transaction and overall market conditions
Level 1 the highest category of the fair value hierarchy classification wherein inputs are unadjusted and represent quoted prices in active markets for identical assets or liabilities at the measurement date
Level 2 valued using inputs other than prices included in Level 1 that are either directly or indirectly observable for the asset or liability through correlation with market data at the measurement date and for the duration of the instrument s anticipated life
Level 3 the lowest category of the fair value hierarchy and reflects the judgment of management regarding what market participants would use in pricing assets or liabilities at the measurement date Financial assets and liabilities categorized as Level 3 are generally those that are valued using unobservable inputs to extrapolate an estimated fair value
Valuation techniques used for assets and liabilities accounted for at fair value are generally categorized into three types The market approach uses prices and other relevant information from market transactions involving identical or comparable assets or liabilities The income approach converts future amounts such as cash flows or earnings to a single present amount or a discounted amount The cost approach is based upon the amount that currently would be required to replace the service capacity of an asset or the current replacement cost
We use valuation techniques that are appropriate in the circumstances and for which sufficient data are available that can be obtained without undue cost and effort In some cases a single valuation technique will be appropriate for example when valuing an asset or liability using quoted prices in an active market for identical assets or liabilities In other cases multiple valuation techniques will be appropriate If we use multiple valuation techniques to measure fair value we evaluate and weigh the results as appropriate considering the reasonableness of the range indicated by those results A fair value measurement is the point within that range that is most representative of fair value in the circumstances
The selection of the valuation method s to apply considers the definition of an exit price and depends on the nature of the asset or liability being valued For assets and liabilities accounted for at fair value we generally use valuation techniques consistent with the market approach and to a lesser extent the income approach We believe the market approach provides more observable data than the income approach considering the type of investments we hold Our fair value measurements could differ significantly based on the valuation technique and available inputs When using a pricing service we obtain the vendor s pricing documentation to ensure we understand their methodologies We periodically review and approve the selection of our
pricing vendors to ensure we are in agreement with their current methodologies When markets are less active brokers may rely more on models with inputs based on the information available only to the broker Our internal investment management professionals which include portfolio managers and analysts monitor securities priced by brokers and evaluate their prices for reasonableness based on benchmarking to available primary and secondary market information In weighing a broker quote as an input to fair value we place less reliance on quotes that do not reflect the result of market transactions We also consider the nature of the quote particularly whether it is a bid or market quote If prices in an inactive market do not reflect current prices for the same or similar assets adjustments may be necessary to arrive at fair value When relevant market data is unavailable which may be the case during periods of market uncertainty the income approach can in suitable circumstances provide a more appropriate fair value During 2024 we have applied valuation approaches and techniques on a consistent basis to similar assets and liabilities and consistent with those approaches and techniques used at year end 2023
We use observable and unobservable inputs in measuring the fair value of our fixed maturity and equity securities For securities categorized as Level 1 fair values equal active Trade Reporting and Compliance Engine TRACE pricing or unadjusted market maker prices For securities categorized as Level 2 or Level 3 inputs that may be used in valuing each class of securities at any given time period are disclosed below Actual inputs used to determine fair values will vary for each reporting period depending on the availability of inputs which may at times be affected by the lack of market liquidity
The management of our investment portfolio includes establishing pricing policy and reviewing the reasonableness of sources and inputs used in developing pricing We review all prices that vary between multiple pricing vendors by a threshold that is outside a normal market range for the asset type In the event we receive a vendor s market price that does not appear reasonable based on our market analysis we may challenge the price and request further information about the assumptions and methodologies used by the vendor to price the security We may change the selected price based on a better data source such as
an actual trade We also review all prices that did not change from the prior month to ensure that these prices are within our expectations The overall valuation process for determining fair values may include adjustments to valuations obtained from our pricing sources when they do not represent a valid exit price These adjustments may be made when in our judgment and considering our knowledge of the financial conditions and industry in which the issuer operates certain features of the financial instrument require that an adjustment be made to the value originally obtained from our pricing sources These features may include the complexity of the financial instrument the market in which the financial instrument is traded counterparty credit risk credit structure concentration or liquidity Additionally an adjustment to the price derived from a model typically reflects our judgment of the inputs that other participants in the market for the financial instrument being measured at fair value would consider in pricing that same financial instrument In the event an asset is sold we test the validity of the fair value determined by our valuation techniques by comparing the selling price to the fair value determined for the asset in the immediately preceding month end reporting period
Certain of our investments do not have readily determinable market prices and or observable inputs or may at times be affected by the lack of market liquidity For these securities we use internally prepared valuations including valuations based on estimates of future profitability to estimate the fair value Additionally we may obtain prices from independent third party brokers to aid in establishing valuations for certain of these securities Key assumptions used by us to determine fair value for these securities include risk free interest rates risk premiums performance of underlying collateral if any and other factors involving significant assumptions which may or may not reflect those of an active market
The parameters and inputs used to validate a price on a security may be adjusted for assumptions about risk and current market conditions on a quarter to quarter basis as certain features may be more significant drivers of valuation at the time of pricing Changes to inputs in valuations are not changes to valuation methodologies rather the inputs are modified to reflect direct or indirect impacts on asset classes from changes in market conditions
At December 31 2024 approximately 11 7 percent of our fixed maturity securities were valued using active trades from TRACE pricing or market maker prices for which there was current market activity in that specific security comparable to receiving one binding quote The prices obtained were not adjusted and the assets were classified as Level 1
72 3 percent of our fixed maturity securities were valued based on prices from pricing services that generally use observable inputs such as prices for securities or comparable securities in active markets in their valuation techniques These assets were classified as Level 2
15 3 percent of our fixed maturity securities were valued based on one or more non binding broker quotes if validated by observable market data When only one price is available it is used if observable inputs and analysis confirms that it is appropriate These assets for which we were able to validate the price using other observable market data were classified as Level 2
0 7 percent of our fixed maturity securities were valued based on prices of comparable securities internal models or pricing services or other non binding quotes with no other observable market data These assets were classified as either Level 2 or Level 3 with the categorization dependent on whether there was other observable market data
Fair values for derivatives other than embedded derivatives in modified coinsurance arrangements are based on market quotes or pricing models and represent the net amount of cash we would have paid or received if the contracts had been settled or closed as of the last day of the period Credit risk related to the counterparty and the Company is considered in determining the fair values of these derivatives However since we have collateralization agreements in place with each counterparty which limits our exposure any credit risk is immaterial Therefore we determined that no adjustments for credit risk were required as of December 31 2024 or 2023
Fair values for our embedded derivative in a modified coinsurance arrangement are estimated using internal pricing models and represent the hypothetical value of the duration mismatch of assets and liabilities interest rate risk and third party credit risk embedded in the modified coinsurance arrangement
We consider transactions in inactive markets to be less representative of fair value We use all available observable inputs when measuring fair value but when significant unobservable inputs are used we classify these assets or liabilities as Level 3
Our private equity partnerships represent funds that are primarily invested in private credit private equity and real assets as described below Distributions received from the funds arise from income generated by the underlying investments as well as the liquidation of the underlying investments There is generally not a public market for these investments
The limited partnerships described in this category employ various investment strategies generally providing direct lending or other forms of debt financing including first lien second lien mezzanine and subordinated loans The limited partnerships have credit exposure to corporates physical assets and or financial assets within a variety of industries including manufacturing healthcare energy business services technology materials and retail in North America and to a lesser extent outside of North America As of December 31 2024 the estimated remaining life of the investments that do not allow for redemptions is approximately 78 percent in the next 3 years 12 percent during the period from 3 to 5 years and 10 percent during the period from 5 to 10 years
The limited partnerships described in this category employ various strategies generally investing in controlling or minority control equity positions directly in companies and or assets across various industries including manufacturing healthcare energy business services technology materials and retail primarily in private markets within North America and to a lesser extent outside of North America As of December 31 2024 the estimated remaining life of the investments that do not allow for redemptions is approximately 36 percent in the next 3 years 27 percent during the period from 3 to 5 years 36 percent during the period from 5 to 10 years and 1 percent during the period from 10 to 15 years
The limited partnerships described in this category employ various strategies which include investing in the equity and or debt financing of physical assets including infrastructure energy power water wastewater communications transportation including airports ports toll roads aircraft railcars and real estate in North America Europe South America and Asia As of December 31 2024 the estimated remaining life of the investments that do not allow for redemptions is approximately 36 percent in the next 3 years 26 percent during the period from 3 to 5 years and 38 percent during the period from 5 to 10 years
We record changes in our share of NAV of the partnerships in net investment income We receive financial information related to our investments in partnerships and generally record investment income on a one quarter lag in accordance with our accounting policy Our partnerships are subject to transfer restrictions which extend over the life of the investment There are no circumstances in which the transfer restrictions would lapse
Realized and unrealized investment gains and losses presented in the preceding tables represent gains and losses only for the time during which the applicable financial instruments were classified as Level 3 The transfers between levels resulted primarily from a change in observability of three inputs used to determine fair values of the securities transferred 1 transactional data for new issuance and secondary trades 2 broker dealer quotes and pricing primarily related to changes in the level of activity in the market and whether the market was considered orderly and 3 comparable bond metrics from which to perform an analysis For fair value measurements of financial instruments that were transferred either into or out of Level 3 we reflect the transfers using the fair value at the beginning of the period We believe this allows for greater transparency as all changes in fair value that arise during the reporting period of the transfer are disclosed as a component of our Level 3 reconciliation
The table below provides quantitative information regarding the significant unobservable inputs used in Level 3 fair value measurements derived from internal models Unobservable inputs for fixed maturity securities are weighted by the fair value of the securities Certain securities classified as Level 3 are excluded from the table below due to limitations in our ability to obtain the underlying inputs used by external pricing sources
Represents various actuarial assumptions required to derive the liability cash flows Fair value of embedded derivative is most often driven by the change in the weighted average credit spread to the swap curve for the assets backing the hypothetical loan
Other than market convention the impact of isolated decreases in unobservable inputs will result in a higher estimated fair value whereas isolated increases in unobservable inputs will result in a lower estimated fair value The unobservable input for market convention is not sensitive to input movements The projected liability cash flows used in the fair value measurement of our Level 3 embedded derivative are based on expected claim payments If claim payments increase the projected liability cash flows will increase resulting in a decrease in the fair value of the embedded derivative Decreases in projected liability cash flows will result in an increase in the fair value of the embedded derivative
Fair value of newly originated seasoned performing or sub performing but likely to continue cash flowing loans are calculated using a discounted cash flow analysis Loans cash flows are modeled and appropriately discounted by a rate based on current yields and credit spreads For sub and non performing loans where there is some probability the loan will not continue to pay a price based approach would be used to estimate the loan s value in the open market utilizing current transaction information from similar loans
Fair values for policy loans net of reinsurance ceded are estimated using discounted cash flow analyses and interest rates currently being offered to policyholders with similar policies Carrying amounts for ceded policy loans which equal 3 313 6 million and 3 322 5 million as of December 31 2024 and 2023 respectively approximate fair value and are reported on a gross basis in our consolidated balance sheets A change in interest rates for ceded policy loans will not impact our financial position because the benefits and risks are fully ceded to reinsuring counterparties
Carrying amounts for tax credit partnerships equal the unamortized balance of our contractual commitments and approximate fair value Our shares of Federal Home Loan Bank FHLB common stock are carried at cost which approximates fair value
Unfunded equity commitments represent amounts that we have committed to fund certain investment partnerships These commitments are legally binding subject to the partnerships meeting specified conditions Carrying amounts of these financial instruments approximate fair value
The following table presents the carrying amounts and estimated fair values of our financial instruments not measured at fair value and indicates the level in the fair value hierarchy of the estimated fair value measurement based on the observability of the inputs used
The carrying values of financial instruments such as short term investments cash and bank deposits accounts and premiums receivable accrued investment income securities lending agreements and short term debt approximate fair value due to the short term nature of the instruments As such these financial instruments are not included in the above chart
Fair values for insurance contracts other than investment contracts are not required to be disclosed However the fair values of liabilities under all insurance contracts are taken into consideration in our overall management of interest rate risk which seeks to minimize exposure to changing interest rates through the matching of investment maturities with amounts due under insurance contracts
The unrealized losses on investment grade fixed maturity securities principally relate to changes in interest rates or changes in market or sector credit spreads which occurred subsequent to the acquisition of the securities Below investment grade fixed maturity securities are generally more likely to develop credit concerns than investment grade securities At December 31 2024 the unrealized losses in our below investment grade fixed maturity securities were generally due to credit spreads in certain industries or sectors and to a lesser extent credit concerns related to specific securities For each specific security in an unrealized loss position we believe that there are positive factors which mitigate credit concerns and that the securities for
d 924 individual investment grade fixed maturity securities and 75 individual below investment grade fixed maturity securities that were in an unrealized loss position of which 785 investment grade fixed maturity securities and 47 below in
While determining whether a credit loss exists is a judgmental area we utilize a formal well defined and disciplined process to monitor and evaluate our fixed income investment portfolio supported by issuer specific research and documentation as of the end of each period The process results in a thorough evaluation of investments and the recording of credit losses on a timely basis for investments determined to have a credit loss We calculate the allowance for credit losses of fixed maturity securities based on the present value of our best estimate of cash flows expected to be collected discounted using the effective interest rate implicit in the security at the date of acquisition When estimating future cash flows we analyze the strength of the issuer s balance sheet its debt obligations and near term funding arrangements cash flow and liquidity the profitability of its core businesses the availability of marketable assets which could be sold to increase liquidity its industry fundamentals and regulatory environment and its access to capital
The following tables present a rollforward of the allowance for credit losses on available for sale fixed maturity securities which were classified as all other corporate bonds during the years ended December 31 2024 and December 31 2023
We invest in variable interests issued by variable interest entities These investments which are passive in nature include minority ownership interests in private equity partnerships tax credit partnerships and special purpose entities Our maximum exposure to loss is limited to the carrying value of these investments in private equity partnerships tax credit partnerships and special purpose entities For those variable interests that are not consolidated in our financial statements we are not the primary beneficiary because we have neither the power to direct the activities that are most significant to economic performance nor the responsibility to absorb a majority of the expected losses The determination of whether we are the primary beneficiary is performed at the time of our initial investment and at the date of each subsequent reporting period
As of December 31 2024 the carrying amount of our variable interest entity investments that are not consolidated in our financial statements was 1 450 8 million comprised of 0 2 million of tax credit partnerships and 1 450 6 million of private equity partnerships At December 31 2023 the carrying amount of our variable interest entity investments that are not consolidated in our financial statements was 1 326 5 million comprised of 0 3 million of tax credit partnerships and 1 326 2 million of private equity partnerships These variable interest entity investments are reported as other long term investments in our consolidated balance sheets
The Company invests in tax credit partnerships primarily for the receipt of income tax credits and tax benefits derived from passive losses on the investments Amounts recognized in the consolidated statements of income are as follows
Contractually we are a limited partner in these tax credit partnerships and our maximum exposure to loss is limited to the carrying value of our investment which includes 0 2 million of unfunded unconditional commitments at December 31 2024 See Note 2 for commitments to fund private equity partnerships
Our mortgage loan portfolio is well diversified by both geographic region and property type to reduce risk of concentration All of our mortgage loans are collateralized by commercial real estate When issuing a new loan our general policy is not to exceed a loan to value ratio or the ratio of the loan balance to the estimated fair value of the underlying collateral of 75 percent We update the loan to value ratios based on internal valuation of the collateral at least every three years for each loan and properties undergo a general inspection at least every two years Our general policy for newly issued loans is to have a debt service coverage ratio greater than 1 25 times on a normalized 25 year amortization period We update our debt service coverage ratios annually
We carry our mortgage loans at amortized cost less an allowance for expected credit losses The amortized cost of our mortgage loans was 2 240 6 million and 2 328 4 million at December 31 2024 and 2023 respectively The allowance for expected credit losses was 16 1 million and 10 2 million at December 31 2024 and 2023 respectively Interest income is accrued on the principal amount of the loan based on the loan s contractual interest rate We report accrued interest income for our mortgage loans as accrued investment income on our consolidated balance sheets and the amount of the accrued income was 7 0 million and 7 2 million at December 31 2024 and 2023 respectively
The risk in our mortgage loan portfolio is primarily related to vacancy rates Events or developments such as economic conditions that impact the ability of the borrowers to ensure occupancy of the property may have a negative effect on our mortgage loan portfolio particularly to the extent that our portfolio is concentrated in an affected region or property type An increase in vacancies increases the probability of default which would negatively affect our expected losses in our mortgage loan portfolio
We evaluate each of our mortgage loans individually for impairment and assign an internal quality rating based on a comprehensive rating system used to evaluate the risk of the loan The factors we use to derive our internal quality ratings may include the following
Although all available and applicable factors are considered in our analysis loan to value and debt service coverage ratios are the most critical factors in determining whether we will initially issue the loan and also in assigning values and determining impairment We assign an overall rating to each loan using an internal rating scale of AA highest quality to B lowest quality We review and adjust as needed our internal quality ratings on an annual basis This review process is performed more frequently for mortgage loans deemed to have a higher risk of delinquency
For the year ended December 31 2024 we identified one impaired commercial mortgage loan resulting in a 7 0 million write off This adjustment reduced the carrying value of the investment to 9 2 million as of December 31 2024 No interest income was recognized on this loan following impairment This single commercial mortgage loan was also past due as to principal and interest payments as of December 31 2024 We did not hold any specifically identified impaired commercial mortgage loans for the years ended December 31 2023 and 2022 nor did we recognize any interest income on impaired commercial mortgage loans during these periods There were no commercial mortgage loans past due as to principal and or interest payments for the years ended December 31 2023 or 2022
December 31 2023 we granted an other than insignificant payment delay for a commercial mortgage loan with a carrying value of 14 2 million which deferred the principal payment for 18 months This modification represented less than one percent of the commercial mortgage loan portfolio balance for the years ending December 31 2024 and December 31 2023 Additionally we had no loan foreclosures for the years ended December 31 2024 2023 or 2022
At December 31 2024 we had 17 9 million of commitments to fund certain commercial mortgage loans At December 31 2023 we had no commitments to fund certain commercial mortgage loans Consistent with how we determine the estimate of current expected credit losses for our funded mortgage loans each period we estimate expected credit losses for loans that have not been funded but we are committed to fund at the end of each period
At December 31 2024 we had 0 1 million expected credit losses related to unfunded commitments on our consolidated balance sheets At December 31 2023 we had no expected credit losses related to unfunded commitments on our consolidated balance sheets
Our investment real estate held for the production of income balance was 59 5 million and 64 4 million at December 31 2024 and 2023 respectively and the associated accumulated depreciation was 129 7 million and 127 2 million at December 31 2024 and 2023 respectively We did not recognize any impairments related to our real estate during the years ended December 31 2024 or December 31 2022 For the year ended December 31 2023 we recognized a 3 0 million impairment related to certain of our real estate held for investment
Our held for sale real estate balance was 41 9 million and 40 9 million at December 31 2024 and December 31 2023 respectively The associated accumulated depreciation was 57 5 million and 54 2 million at December 31 2024 and December 31 2023 respectively The estimated fair values less costs to s
To manage our cash position more efficiently we may enter into repurchase agreements with unaffiliated financial institutions We generally use repurchase agreements as a means to finance the purchase of invested assets or for short term general business purposes until projected cash flows become available from our operations or existing investments Our repurchase agreements are typically outstanding for less than 30 days We post collateral through our repurchase agreement transactions whereby the counterparty commits to purchase securities with the agreement to resell them to us at a later specified date The fair value of collateral posted is generally 102 percent of the cash received
Our investment policy also permits us to lend fixed maturity securities to unaffiliated financial institutions in short term securities lending agreements These agreements increase our investment income with minimal risk Our securities lending policy requires that a minimum of 102 percent of the fair value of the securities loaned be maintained as collateral We may receive cash and or securities as collateral under these agreements Cash received as collateral is typically reinvested in short term investments If securities are received as collateral we are not permitted to sell or re post them
As of December 31 2024 the carrying amount of fixed maturity securities loaned to third parties under our securities lending program was 94 0 million for which we received collateral in the form of cash and securities of 62 7 million and 34 8 million respectively As of December 31 2023 the carrying amount of fixed maturity securities loaned to third parties under our securities lending program was 72 0 million for which we received collateral in the form of cash and securities of 63 1 million and 12 5 million respectively We had no outstanding repurchase agreements at December 31 2024 or
Certain of our U S insurance subsidiaries are members of regional FHLBs As members of the FHLBs our insurance subsidiaries have the ability to borrow on a collateralized basis from the FHLBs Each member is required to hold certain minimum amount of FHLB common stock as a condition of membership and additional amounts based on the amount of the borrowings Advances received from the FHLB are primarily used for the purchase of matched fixed maturity securities The carrying value of common stock owned collateral posted and advances received are as follows
We enter into master netting agreements with each of our derivative s counterparties These agreements provide for conditional rights of set off upon the occurrence of an early termination event An early termination event is considered a default and it allows the non defaulting party to offset its contracts in a loss position against any gain positions or payments due to the defaulting party Under our agreements default type events are defined as failure to pay or deliver as contractually agreed misrepresentation bankruptcy or merger without assumption See Note 4 for further discussion of collateral related to our derivative contracts
We have securities lending agreements with unaffiliated financial institutions that post collateral to us in return for the use of our fixed maturity securities A right of set off exists that allows us to keep and apply collateral received in the event of default by the counterparty Default within a securities lending agreement would typically occur if the counterparty failed to return the securities borrowed from us as contractually agreed In addition if we default by not returning collateral received the counterparty has a right of set off against our securities or any other amounts due to us
Shown below are our financial instruments that either meet the accounting requirements that allow them to be offset in our balance sheets or that are subject to an enforceable master netting arrangement or similar agreement Our accounting policy is to not offset these financial instruments in our balance sheets Net amounts disclosed below have been reduced by the amount of collateral pledged to or received from our counterparties
The net unrealized gain recognized in net investment income for the year ended December 31 2024 related to private equity partnerships still held at December 31 2024 was 127 1 million reduced by net management fees and partnership expenses of 24 0 million For the years ended December 31 2023 and 2022 the net unrealized gain recognized in net investment income related to private equity partnerships still held at year end was 102 9 million and 124 1 million respectively reduced by net management fees and partnership expenses of
We are exposed to certain risks relating to our ongoing business operations The primary risks managed by using derivative instruments are interest rate risk risk related to matching duration for our assets and liabilities foreign currency risk and equity risk
Historically we have utilized current and forward interest rate swaps current and forward currency swaps forward benchmark interest rate locks currency forward contracts forward contracts on specific fixed income securities and total return swaps Transactions hedging interest rate risk are primarily associated with our individual and group long term care and individual and group disability products All other product portfolios are periodically reviewed to determine if hedging strategies would be appropriate for risk management purposes We do not use derivative financial instruments for speculative purposes
were used to hedge interest rate risks and to improve the matching of assets and liabilities An interest rate swap is an agreement in which we agree with other parties to exchange at specified intervals the difference between fixed rate and variable rate interest amounts We used interest rate swaps to hedge the anticipated purchase of fixed maturity securities thereby protecting us from the potential adverse impact of declining interest rates on the associated policy reserves We also used interest rate swaps to hedge the potential adverse impact of rising interest rates in anticipation of issuing fixed rate long term debt
are used to minimize interest rate risk associated with the anticipated purchase or associated future coupons of fixed maturity securities or the anticipated issuance of fixed rate long term debt A forward benchmark interest rate lock is a derivative contract without an initial investment where we and the counterparty agree to purchase or sell a specific benchmark interest rate fixed maturity bond at a future date at a predetermined price or yield
are used to hedge the currency risk of certain foreign currency denominated fixed maturity securities owned for portfolio diversification Under these swap agreements we agree to pay at specified intervals fixed rate foreign currency denominated principal and interest payments in exchange for fixed rate payments in the functional currency of the operating segment
Derivatives not designated as hedging instruments and used to reduce our exposure to foreign currency risk and volatility of the underlying deferred assets in our non qualified defined contribution plan are as follows
previously designated as hedges were used to hedge the currency risk of certain foreign currency denominated fixed maturity securities owned for portfolio diversification These derivatives were effective hedges prior to novation to a new counterparty In conjunction with the novation these derivatives were de designated as hedges We agree to pay at specified intervals fixed rate foreign currency denominated principal and interest payments in exchange for fixed rate payments in the functional currency of the operating segment We hold offsetting swaps wherein we agree to pay fixed rate principal and interest payments in the functional currency of the operating segment in exchange for fixed rate foreign currency denominated payments
contracts are used to minimize foreign currency risk A foreign currency forward is a derivative without an initial investment where we and the counterparty agree to exchange a specific amount of currencies at a specific exchange rate on a specific date We use these forward contracts to hedge the currency risk arising from foreign currency denominated investments
are used to economically hedge a portion of the liability related to our non qualified defined contribution plan A total return swap is an agreement in which we pay a floating rate of interest to the counterparty
and receive the total return on a portfolio of mutual funds and exchange traded funds These swaps are cash settled on the last day of every month and the notional is re established each month based on plan participant actions
The basic types of risks associated with derivatives are market risk that the value of the derivative will be adversely impacted by changes in the market primarily changes in interest rates exchange rates and equity prices and credit risk that the counterparty will not perform according to the terms of the contract The market risk of the derivatives should generally offset the market risk associated with the hedged financial instrument or liability To help limit the credit exposure of the derivatives we enter into master netting agreements with our counterparties whereby contracts in a gain position can be offset against contracts in a loss position We also typically enter into bilateral cross collateralization agreements with our counterparties to help limit the credit exposure of the derivatives These agreements require the counterparty in a loss position to submit acceptable collateral with the other counterparty in the event the net loss position meets or exceeds an agreed upon amount Credit exposure on derivatives is limited to the value of those contracts in a net gain position including accrued interest receivable less collateral held At December 31 2024 and 2023 we had 0 5 million and 1 6 million credit exposure on derivatives respectively The table below summarizes the nature and amount of collateral received from and posted to our derivative counterparties
All of our derivative instruments contain provisions that require us to maintain specified issuer credit ratings and financial strength ratings Should our ratings fall below these specified levels we would be in violation of the provisions and our derivatives counterparties could terminate our contracts and request immediate payment The aggregate fair value of all derivative instruments with credit risk related contingent features that were in a liability position was 255 7 million and 116 2 million at December 31 2024 and 2023 respectively
As of December 31 2024 and 2023 we had 139 1 million and 149 5 million respectively notional amount of receive fixed pay fixed open current and forward foreign currency interest rate swaps to hedge fixed income foreign currency denominated securities
As of December 31 2024 and 2023 we had 2 570 0 million and 1 905 0 million respectively notional amount of forward benchmark interest rate locks to hedge the anticipated purchase or associated future coupons of fixed maturity securities
As of December 31 2024 we expect to amortize approximately 9 2 million of net deferred gains on derivative instruments during the next twelve months This amount will be reclassified from AOCI into earnings and reported on the same income statement line item as the hedged item The income statement line items that will be affected by this amortization are net
investment income and interest and debt expense Additional amounts that may be reclassified from AOCI into earnings to offset the earnings impact of foreign currency translation of hedged items are not estimable
As of December 31 2024 and 2023 we had 736 4 million and 642 5 million notional amount of receive fixed pay fixed open current and forward foreign currency interest rate swaps to hedge fixed income foreign currency denominated securities
For the years ended December 31 2024 2023 and 2022 22 0 million 21 1 million and 17 6 million respectively of the derivative instruments gain loss related to cross currency basis spread and forward points was excluded from the assessment of hedge effectiveness There were no instances wherein we discontinued fair value hedge accounting due to a hedged firm commitment no longer qualifying as a fair value hedge
As of December 31 2024 and 2023 we held 125 9 million and 132 0 million respectively notional amount of receive fixed pay fixed foreign currency interest rate swaps These derivatives are not designated as hedges and as such changes in fair value related to these derivatives are reported in earnings as a component of net investment gain or loss
As of December 31 2024 and 2023 we held 51 1 million and 52 5 million respectively notional amount of foreign currency forwards to mitigate the foreign currency risk associated with specific securities owned These derivatives are not designated as hedges and as such changes in fair value related to these derivatives are reported in earnings as a component of net investment gain or loss
As of December 31 2024 and 2023 we held 128 9 million and 102 2 million respectively notional amount of total return swaps to mitigate the volatility associated with changes in the fair value of the underlying notional assets in our non qualified
We have an embedded derivative in a modified coinsurance arrangement for which we include in our net investment gains and losses a calculation intended to estimate the value of the option of our reinsurance counterparty to cancel the reinsurance contract with us However neither party can unilaterally terminate the reinsurance agreement except in extreme circumstances resulting from regulatory supervision delinquency proceedings or other direct regulatory action Cash settlements or collateral related to this embedded derivative are not required at any time during the reinsurance contract or at termination of the reinsurance contract There are no credit related counterparty triggers and any accumulated embedded derivative gain or loss reduces to zero over time as the reinsured business winds down
The following tables summarize the notional amounts and fair values of derivative financial instruments as reported in our consolidated balance sheets Derivative assets are included in other long term investments while derivative liabilities are included in other liabilities within our consolidated balance sheets The notional amounts represent the basis upon which our counterparty pay and receive amounts are calculated
The following table summarizes the location of gains and losses of derivative financial instruments designated as cash flow hedging instruments as reported in our consolidated statements of comprehensive income loss
Liabilities for future policy benefits represent the cost of claims that we estimate we will eventually pay to our policyholders which includes policy liabilities for claims not yet incurred and for claims that have been incurred or are estimated to have been incurred but not yet reported to us Liabilities for future policy benefits also include the related expenses for our non interest sensitive life and accident and health products The liability for future policy benefits is calculated based on the present value of the estimated future policy benefits less the present value of estimated future net premiums collected Net premiums represent the portion of the gross premium required to provide for all benefits and expenses excluding acquisition costs or any costs that are required to be charged to expense as incurred In calculating the liability for future policy benefits our long duration contracts are grouped into cohorts by product type and contract issue year
The calculation of the liability for future policy benefits involves numerous assumptions including assumptions related to discount rate lapses mortality and morbidity Cash flow assumptions are reviewed and updated as needed at least annually Assumptions may be updated more frequently if necessary based on trending experience and future expectations On a quarterly basis cohort level cash flow measures are updated based on the emergence of actual experience
The initial also referred to as the original discount rate assumptions established for each cohort are used to determine interest accretion After policy issuance or policy renewal the discount rate assumptions are updated quarterly and used to update the liability at each reporting date to the current discount rate The weighted average current discount rate was 5 3 percent at December 31 2024 4 8 percent at December 31 2023 and 5 0 percent at December 31 2022 The discount rate was higher at December 31 2024 relative to December 31 2023 due to an increase in U S Treasury rates The discount rate was lower at December 31 2023 relative to December 31 2022 due primarily to a decrease in credit spreads
During the third quarter of 2024 we completed our annual cash flow assumption review and we updated certain of our assumptions used to develop the liability for future policy benefits which resulted in a net decrease to the liability The decrease to the liability for future policy benefits was driven primarily by assumption updates in our Closed Block long term care product line Unum US group disability product line Unum US individual disability product line and the Colonial Life segment The Closed Block long term care assumption updates were primarily driven by an increase to expected premium rate increase approvals within our existing premium rate increase program partially offset by lower than expected persistency on group policies The Unum US group disability product line assumption updates were primarily related to claim resolution assumptions driven by favorable claim recovery trends while the Unum US individual disability product line assumption updates were primarily driven by favorable claim incidence trends The Colonial Life segment assumption updates were driven by improved claim cost assumptions
During the third quarter of 2023 we completed our annual cash flow assumption review and updated certain of our assumptions used to develop the liability for future policy benefits which resulted in a net increase to the liability The increase to the liability for future policy benefits was driven primarily by assumption updates in our Closed Block long term care product line partially offset by assumption updates in the Unum US group disability product line and in the Colonial Life segment The long term care assumption updates were primarily driven by lower expectations for active policy lapse and mortality assumptions partially offset by an increase to expected premium rate increase approvals within our existing premium rate increase program The Unum US group disability product line assumption updates were primarily related to claim resolution assumptions driven by favorable claim recovery trends while the Colonial Life segment assumption updates were driven by improved claim cost assumptions and increases in policyholder lapse rates
During the third quarter of 2022 we completed our annual cash flow assumption review and updated certain of our assumptions used to develop the liability for future policy benefits which resulted in a net increase to the liability The increase to the liability for future policy benefits was driven primarily by assumption updates related to the reinsured portion of our Closed Block segment mostly offset by assumption updates in the Unum US segment and the Colonial Life segment The Closed Block segment assumption updates related to the reinsured portion of our all other product line primarily included updates to mortality assumptions for the advanced age portion of our individual disability claimant population This advanced age claimant population was included in the block ceded as a part of the Closed Block individual disability reinsurance transaction with Commonwealth Annuity and Life Insurance Company As a result a corresponding increase was reported in our consolidated balance sheet as a reinsurance recoverable related to these assumption updates The Unum US segment assumption updates were primarily driven by sustained improvement in claim recovery trends in our group disability and group life product lines partially offset by lower social security benefit offsets in our group disability product line The Colonial Life segment assumption updates were primarily driven by improved claim cost assumptions
Actual variance from expected experience for 2024 was due primarily to the Unum US group disability Closed Block long term care and the Unum US group life and accidental death and dismemberment product lines as well as the Unum International and Colonial Life segments The variance in the Unum US group disability product line was primarily due to higher than expected claim resolutions driven by recoveries The variance in our Closed Block long term care product line was driven primarily by higher than expected claim incidence as well as lower than expected policy terminations partially offset by higher than expected claim resolutions The variance in the Unum US group life and accidental death and dismemberment product line was driven primarily by higher than expected claim resolutions driven by recoveries for waiver of premium benefits and lower than expected mortality experience The variance in the Unum International segment was driven by higher than expected recoveries The variance in the Colonial Life segment was driven by lower than expected claim costs
Actual variance from expected experience for 2023 was due primarily to the Unum US group disability Unum US group life and accidental death and dismemberment Unum US individual disability and Closed Block long term care product lines The variance for the Unum US group disability product line was driven by higher than expected claim resolutions driven by recoveries and the variance in the group life and accidental death and dismemberment product line was driven by lower than expected mortality experience and higher than expected recovery experience for waiver of premium benefits The variance in the Unum US individual disability product line was driven primarily by lower than expected new claim incidence while the variance for the Closed Block long term care product line was driven by higher than expected claim incidence
Actual variance from expected experience for 2022 was due primarily to the Unum US group disability Unum US group life and accidental death and dismemberment and the Unum UK group product lines as well as the Colonial Life segment The variance for the Unum US group disability product line was driven by higher than expected claim resolutions driven by recoveries and the variance in the group life and accidental death and dismemberment product line was driven by lower than expected new claim incidence for waiver of premium benefits The variance in the Unum UK group product lines was driven by an increase in inflation linked experience compared to expectations The variance for the Colonial Life segment was driven primarily by lower claim costs
For the years ended December 31 2024 2023 and 2022 there were certain cohorts within the Colonial Life segment related to our cancer and critical illness product line and within the Closed Block segment related to our long term care product line for which net premiums exceeded gross premiums The cohorts for which net premiums exceeded gross premiums within the Closed Block segment resulted in a 46 2 million increase to income before income tax for the year ended December 31 2024 and resulted in a 226 5 million reduction to income before income tax for the year ended December 31 2023 For the years ended December 31 2024 2023 and 2022 the cohorts for which net premiums exceeded the gross premiums within the Colonial Life segment had an immaterial impact to income before income tax The impact to income for capped cohorts includes the impact of assumption updates There were no other product lines with cohorts for which net premiums exceeded gross premiums for the years ended December 31 2024 2023 and 2022
Issuances include new policy issuances for most product lines For our Unum US group disability Unum US group life and AD D and Closed Block All Other product lines and certain of our Unum International product lines this line represents new claim incurrals
The following tables summarize the amount of gross premiums and interest accretion reflected in the statements of income as well as the undiscounted and discounted expected gross premiums and expected future benefit payments and the weighted average interest rates for traditional long duration products presented in the rollforward activity above
The following tables summarize the amount of gross premiums and interest accretion reflected in the statements of income as well as the undiscounted and discounted expected gross premiums and expected future benefit payments and the weighted average interest rates for traditional long duration products in the Unum US segment presented in the rollforward activity above
The following tables summarize the amount of gross premiums and interest accretion reflected in the statements of income as well as the undiscounted and discounted expected gross premiums and expected future benefit payments and the weighted average interest rates for traditional long duration products in the Unum International segment presented in the rollforward activity above
The following tables summarize the amount of gross premiums and interest accretion reflected in the statements of income as well as the undiscounted and discounted expected gross premiums and expected future benefit payments and the weighted average interest rates for traditional long duration products in the Colonial Life segment presented in the rollforward activity above
The following tables summarize the amount of gross premiums and interest accretion reflected in the statements of income as well as the undiscounted and discounted expected gross premiums and expected future benefit payments and the weighted average interest rates for traditional long duration products in the Closed Block segment presented in the rollforward activity above
Unum US excludes the dental and vision product line and medical stop loss products and Closed Block excludes our participating fund account which represents policies issued by one of our subsidiaries prior to its 1986 conversion from a mutual stock life insurance company The liabilities associated with these products are included within Other products
Policyholders account balances primarily include our universal life and corporate owned life insurance products Policyholders account balances reflect customer deposits and interest credited less cost of insurance administration expenses surrender charges and customer withdrawals
For those guarantees of benefits that are payable in the event of death the net amount at risk is generally defined as the current guaranteed minimum death benefit in excess of the current account balance at the balance sheet date
For those guarantees of benefits that are payable in the event of death the net amount at risk is generally defined as the current guaranteed minimum death benefit in excess of the current account balance at the balance sheet date
For those guarantees of benefits that are payable in the event of death the net amount at risk is generally defined as the current guaranteed minimum death benefit in excess of the current account balance at the balance sheet date
The balance of the account values by range of guaranteed minimum crediting rates and the related range of difference in basis points between rates being credited to policyholders and the respective guaranteed minimums is as follows
During the third quarters of 2024 and 2023 we updated our policyholder lapse and mortality assumptions used to develop the future amortization for DAC for the Unum US voluntary benefits product line and the Colonial Life segment During the third quarter of 2022 we updated our policyholder lapse and mortality assumptions used to develop the future amortization for DAC for the Unum US individual disability and voluntary benefits product lines as well as for the Colonial Life segment These assumption updates were consistent with the related assumption updates for the liability for future policy benefits
As of December 31 2024 our plans for future repatriations of cash from our foreign subsidiaries can include no more than the amount of capital above that which is required by foreign regulatory capital requirements The remainder of our investment in our foreign subsidiaries is indefinitely reinvested
In 2018 we recorded 261 1 million gross unrecognized tax benefits for a policyholder reserves position taken on our 2017 federal tax return which if recognized would decrease our tax expense by 112 9 million The balances of unrecognized tax benefits for which the ultimate deductibility is highly certain but for which there is uncertainty about the timing of such deductibility are 21 2 million at December 31 2024 42 4 million at December 31 2023 and 63 5 million at December 31 2022 It is reasonably possible that this item could reverse in the next 12 months following review by the IRS We recognize interest expense and penalties if applicable related to unrecognized tax benefits in tax expense We recognized 13 2 million 12 2 million and 7 8 million of interest expense related to unrecognized tax benefits during 2024 2023 and 2022 respectively The liability for net interest expense on uncertain tax positions was approximately 59 4 million 46 2 million and 34 0 million as of December 31 2024 2023 and 2022 respectively
We file federal and state income tax returns in the United States and in foreign jurisdictions Tax year 2017 and tax years subsequent to 2018 remain subject to examination by the IRS All major foreign jurisdictions remain subject to examination for tax years subsequent to 2022 with the exception of Poland for which tax years subsequent to 2018 remain subject to examination We believe sufficient provision has been made for all potential adjustments for years that are not closed by the statute of limitations in all major tax jurisdictions and that any such adjustments would not have a material adverse effect on our financial position liquidity or results of operations
We file state income tax returns in nearly every state in the United States Tax years subsequent to 2019 remain subject to examination depending on the statute of limitation established by the various states which is generally three to four years
As of December 31 2024 we have no federal net operating loss or capital loss carryforwards We have net operating loss carryforwards for state and local income tax of approximately 182 9 million most of which is expected to expire unused between 2025 and 2044
We record valuation allowances to reduce deferred tax assets to the amount that is more likely than not to be realized Our valuation allowance was 12 1 million and 11 0 million at December 31 2024 and 2023 respectively the majority of which related to our cumulative deferred state income tax benefits The de minimis remaining amount of our valuation allowance relates to unrealized tax losses on buildings which we own and occupy in the U K We recorded an increase in our valuation allowance of 1 1 million during 2024 and 0 7 million in 2023 primarily in other comprehensive income
Debt is comprised of our unsecured notes which consist of our senior notes and medium term notes and rank highest in priority followed by our junior subordinated debt securities The senior notes are callable and may be redeemed in whole or in part at any time
In August 2022 we entered into a five year 350 0 million senior unsecured delayed draw term loan facility with a syndicate of lenders Also in August 2022 we drew the entire amount of the term loan facility which was scheduled to mature in August 2027 and was callable and could be redeemed at par at any time Amounts due under the term loan facility incurred interest based on the prime rate the federal funds rate or the Secured Overnight Financing Rate SOFR The proceeds from the term loan facility were used to redeem 350 0 million aggregate principal amount of our 4 000 senior notes due 2024 In June 2024 in tandem with the issuance of our 6 000 senior notes the aggregate principal amount of outstanding indebtedness under our senior unsecured delayed draw term loan facility was repaid and subsequently terminated
Prior to the termination of our term loan facility the borrowings on the facility were subject to financial covenants negative covenants and events of default that are customary The two primary financial covenants included limitations based on our leverage ratio and consolidated net worth but we were also subjected to covenants that limit subsidiary indebtedness
In 1998 Provident Financing Trust I the Trust a 100 percent owned finance subsidiary of Unum Group issued 300 0 million of 7 405 capital securities due 2038 in a public offering These capital securities are fully and unconditionally guaranteed by Unum Group have a liquidation value of 1 000 per capital security and have a mandatory redemption feature under certain circumstances In connection with the capital securities offering Unum Group issued to the Trust 7 405 junior subordinated deferrable interest debentures due 2038 The Trust is a variable interest entity of which Unum Group is not the primary beneficiary Accordingly the capital securities issued by the Trust are not included in our consolidated financial statements and our liability represents the junior subordinated debt securities owed to the trust which is recorded in long term debt The sole assets of the Trust are the junior subordinated debt securities The retirement of any liquidation amount regarding the capital securities by the Trust results in a corresponding retirement of principal amount of the junior subordinated debt securities
In September 2022 pursuant to privately negotiated transactions we purchased and the Trust retired 14 0 million aggregate liquidation amount of the Trust s 7 405 capital securities due 2038 which resulted in the reduction of a corresponding principal amount of our 7 405 junior subordinated debt securities due 2038 then held by the Trust We incurred costs of 1 2 million related to the early retirement of the junior subordinated debt securities
During November 2021 we entered into a 20 year facility agreement with a Delaware statutory trust the P Caps Trust in connection with the sale by the P Caps Trust of 400 0 million of pre capitalized trust securities P Caps in a Rule 144A private placement The P Caps Trust invested the proceeds from the sale of the P Caps in a portfolio of principal and interest strips of U S Treasury securities the Trust Assets The facility agreement gave us the right to issue and require the P Caps Trust to purchase on one or more occasions up to 400 0 million of our 4 046 senior notes due 2041 the 2041 Senior Notes in exchange for the Trust Assets Under the facility agreement we agreed to pay a semi annual facility fee to the P Caps Trust at a rate of 2 225 per year on the unexercised portion of the maximum amount of 2041 senior notes that we could issue and sell to the P Caps Trust and to reimburse the P Caps Trust for its expenses
In October 2024 we exercised our issuance right in full under the facility agreement and issued 400 0 million of the 2041 Senior Notes to the P Caps Trust in exchange for the Trust Assets thereby triggering our recognition of the 2041 Senior Notes on our consolidated balance sheets The Trust Assets had a fair value of 273 5 million when the 2041 Senior Notes were issued We directed the trustee of the P Caps Trust to dissolve the P Caps Trust and to deliver the 2041 Senior Notes to the beneficial holders of the P Caps pro rata in respect of each P Cap which was a non cash financing transaction The 2041 Senior Notes are callable at or above par and rank equally in the right of payment with all of our other unsecured and unsubordinated debt The net proceeds from the issuance of the 2041 Senior Notes and subsequent sale of the Trust Assets were used for share repurchases
In April 2022 we amended and restated our existing credit agreement providing for a five year 500 0 million senior unsecured revolving credit facility with a syndicate of lenders The credit facility which was previously set to expire in April 2024 was extended through April 2027 We may request that the lenders aggregate commitments of 500 0 million under the facility be increased by up to an additional 200 0 million Certain of our traditional U S life insurance subsidiaries Unum Life Insurance Company of America Unum America Provident Life and Accident Insurance Company Provident and Colonial Life Accident Insurance Company joined the agreement and may borrow under the credit facility and we can elect to add additional insurance subsidiaries to the facility at any later date Any obligation of a subsidiary under the credit facility is several only and not joint and is subject to an unconditional guarantee by Unum Group We may also request on up to two occasions that the lenders commitment termination dates be extended by one year The credit facility also provides for the issuance of letters of credit subject to certain terms and limitations The credit facility provides for borrowings at an interest rate based on the prime rate the federal funds rate or the SOFR At December 31 2024 there were no borrowed amounts outstanding under the credit facility and letters of credit totaling 0 4 million had been issued
We have a five year 75 0 million senior unsecured standby letter of credit facility with a different syndicate of lenders pursuant to which a syndicated letter of credit was issued in favor of Unum Limited as beneficiary our U K insurance subsidiary and is available for drawings up to 75 million until its scheduled expiration in July 2026 The credit facility provides for borrowings at an interest rate based on the prime rate or the federal funds rate
We have an additional five year 75 0 million senior unsecured standby letter of credit facility pursuant to which a standby letter of credit was issued in favor of Unum Limited as beneficiary our U K insurance subsidiary and is available for drawings up to 75 0 million until its scheduled expiration in December 2028 In December 2023 as security for the senior standby letter of credit facility we had granted to the issuer of the standby letter of credit the right to exercise if an event of default had occurred and was continuing the issuance right under the facility agreement with the P Caps Trust up to a maximum of 200 0 million In October 2024 prior to our exercise of the issuance right under the facility agreement with the P Caps Trust the assigned issuance right was forfeited in its entirety The standby letter of credit facility provides for borrowings at an interest rate based on Sterling Overnight Index Average rate
At December 31 2024 there were no borrowed amounts outstanding under the standby letter of credit facilities or letters of credit If drawings are made in the future we may elect to borrow such amounts from the lenders pursuant to term loans made under the credit facilities
Borrowings under the three credit facilities are subject to financial covenants negative covenants and events of default that are customary The two primary financial covenants include limitations based on our leverage ratio and consolidated net worth We are also subject to covenants that limit subsidiary indebtedness
We sponsor several defined benefit pension and OPEB plans for our employees including non qualified pension plans The U S qualified and non qualified defined benefit pension plans comprise the majority of our total benefit obligation and benefit cost We maintain a separate defined benefit plan for eligible employees in our U K operation The U S defined benefit pension plans were frozen and closed to new entrants on December 31 2013 the OPEB plan was frozen and closed to new entrants on December 31 2012 and the U K plan was frozen and closed to new entrants on December 31 2002
In November 2023 we purchased a group annuity contract which transferred a portion of our U S qualified defined benefit pension plan obligation to a third party Under the transaction which was funded with plan assets we transferred the responsibility for pension benefits and annuity administration for approximately 1 275 retirees or their beneficiaries receiving less than 700 in monthly benefit payments from the plan This transfer resulted in a reduction in our U S qualified defined benefit pension plan obligation of approximately 72 million and is reflected in the Benefits and Expenses Paid line item within the following table regarding changes in our benefit obligation
Because all participants in the U S OPEB and U K pension plans are considered inactive we amortize the net actuarial gain or loss and prior service credit or cost for these plans over the average remaining life expectancy of the plans As of December 31 2024 the estimate of the average remaining life expectancy of the plans was approximately 23 years for the U S 12 years for the OPEB plan and 28 years for the U K plan Prior to 2024 we amortized the net actuarial gain or loss and prior service credit or cost for the OPEB plan over the average remaining future working lifetime for active participants in the plan
The actuarial gains recognized in 2024 for the U S U K and OPEB plans were driven by increases in the discount rate assumption The actuarial losses recognized in 2023 for the U S and U K plans were driven by decreases in the discount rate assumption Also contributing to the actuarial loss for the U K plan in 2023 was unfavorable plan experience resulting from a higher than expected rate of inflation The actuarial gain recognized in 2023 for the OPEB plan was driven by favorable plan experience mostly offset by a decrease in the discount rate assumption
The objective of our U S pension and OPEB plans is to maximize long term return within acceptable risk levels in a manner that is consistent with the fiduciary standards of the Employee Retirement Income Security Act ERISA while maintaining sufficient liquidity to pay current benefits and expenses
Our U S qualified defined benefit pension plan assets include a diversified blend of domestic international global and emerging market equity securities fixed income securities opportunistic credit securities real estate investments alternative investments and cash equivalents Equity securities are comprised of funds and individual securities that are benchmarked against the respective indices specified below International and global equity funds may allocate a certain percentage of assets to forward currency contracts Fixed income securities include funds and U S government and agency asset backed securities treasury futures contracts corporate investment grade bonds private placement securities and bonds issued by states or other
municipalities Opportunistic credits consist of investments in funds that hold varied fixed income investments purchased at depressed values with the intention to later sell those investments for a gain Real estate investments consist primarily of funds that hold commercial real estate investments Alternative investments which include private equity direct investments and private equity funds of funds utilize proprietary strategies that are intended to have a low correlation to the U S stock market Prohibited investments include but are not limited to unlisted securities options short sales and investments in securities issued by Unum Group or its affiliates We target approximately 38 percent to equity securities 30 percent to fixed income securities and 32 percent to opportunistic credits alternative and real estate investments The invested asset classes asset types and benchmark indices for our U S qualified defined benefit pension plan is as follows
The investment strategy for our U K plan includes increasing the funded ratio in a risk controlled manner where the risk taken in the investment strategy reduces as the funded status of the plan increases Assets for our U K plan are invested in a portfolio of diversified growth assets as well as a portfolio of fixed income and index linked securities The portfolio of growth assets consists of funds invested primarily in global equity securities investment grade and below investment grade fixed interest securities including emerging market securities as well as diversified alternatives The portfolio of fixed interest and index linked securities are invested primarily in leveraged interest rate and inflation linked gilt funds of varying durations designed to broadly match the interest rate and inflation sensitivities of the plan s liabilities At December 31 2024 our portfolio allocation was approximately 58 percent to growth assets and 42 percent to fixed interest and index linked securities as we target a specified return on our plan assets When the funded status of the plan increases the hedge ratio of interest rate and inflation risk will increase with the intention of reducing funding level volatility There are no categories of investments that are specifically prohibited by the U K plan but there are general guidelines that ensure prudent investment action is taken Such guidelines include the prevention of the plan from using derivatives for speculative purposes and limiting the concentration of risk in any one type of investment
Assets for the OPEB plan are invested in life insurance contracts issued by one of our insurance subsidiaries The assets support life insurance benefits payable to certain former retirees covered under the OPEB plan The terms of these contracts are consistent in all material respects with those the subsidiary offers to unaffiliated parties that are similarly situated There are no categories of investments specifically prohibited by the OPEB plan
The categorization of fair value measurements by input level for the invested assets in our U S plans is shown below The carrying values of investment related receivables and payables approximate fair value due to the short term nature of the securities and are not included in the following chart Investments valued using NAV as a practical expedient are not required to be categorized by input level but these investments are included as follows to reconcile to total invested assets
Level 1 investments consist of individual holdings that are valued based on unadjusted quoted prices from active markets for identical securities Level 2 investments consist of individual holdings that are valued using either directly or indirectly observable inputs other than quoted prices from active markets
Certain equity opportunistic credit and fixed income securities are valued based on the NAV of the underlying holdings as of the reporting date We made no adjustments to the NAV for 2024 or 2023 These investments have no unfunded commitments and no specific redemption restrictions
Alternative investments are valued based on NAV one quarter in arrears and our real estate investments are valued based on NAV one month in arrears We evaluate the need for adjustments to the NAV based on market conditions and discussions with fund managers in the period subsequent to the valuation date and prior to issuance of the financial statements We made no adjustments to the NAV for 2024 or 2023 The private equity direct investments and private equity funds of funds generally cannot be redeemed by investors Distributions of capital from the sale of underlying fund assets may occur at any time but are generally concentrated between five and eight years from the formation of the fund At December 31 2024 and 2023 these investments had unfunded commitments of 15 2 million and 17 5 million respectively
The categorization of fair value measurements by input level for the invested assets in our U K plan is shown below Investments valued using NAV as a practical expedient are not required to be categorized by input level but these investments are included as follows to reconcile to total invested assets
The level 1 diversified growth assets and fixed interest and index linked securities consist of individual funds that are valued based on unadjusted quoted prices from active markets for identical securities Certain diversified growth assets were valued based on the NAV of the underlying holdings as of the reporting date Alternative investments are valued based on NAV one quarter in arrears We evaluate the need for adjustments to the NAV of the alternative investments based on an evaluation of cash flows in the period subsequent to the valuation date and prior to issuance of the financial statements We made no adjustments to the NAV for 2024 or 2023 These investments generally cannot be redeemed by investors These investments had unfunded commitments at December 31 2024 and 2023 of 7 1 million and 9 9 million respectively
For the years ended December 31 2024 and 2023 the actual return on plan assets relates solely to investments still held at the reporting date There were no transfers into or out of Level 3 during 2024 or 2023
We set the discount rate assumption annually for each of our retirement related benefit plans at the measurement date to reflect the yield on a portfolio of high quality fixed income corporate debt instruments matched against projected cash flows for future benefits
Our long term rate of return on plan assets assumption is selected from a range of probable return outcomes from an analysis of the asset portfolio Our expectations for the future investment returns of the asset categories are based on a combination of historical market performance evaluations of investment forecasts obtained from external consultants and economists and current market yields The methodology underlying the return assumption includes the various elements of the expected return for each asset class such as long term rates of return volatility of returns and the correlation of returns between various asset classes The expected return for the total portfolio is calculated based on the plan s strategic asset allocation Investment risk is measured and monitored on an ongoing basis through annual liability measurements periodic asset liability studies and quarterly investment portfolio reviews Risk tolerance is established through consideration of plan liabilities plan funded status and corporate financial condition
Our mortality rate assumption reflects our best estimate as of the measurement date of the life expectancies of plan participants in order to determine the expected length of time for benefit payments We derive our assumptions from industry mortality tables
The expected return assumption for the life insurance reserve for our OPEB plan is based on full investment in fixed income securities with an average book yield of 5 01 percent and 4 46 percent in 2024 and 2023 respectively
For our OPEB plan at December 31 2024 and 2023 the annual rates of increase in the per capita cost of covered postretirement health care benefits assumed for the next calendar year are 7 00 percent and 6 75 percent respectively for benefits payable to both retirees prior to Medicare eligibility as well as Medicare eligible retirees The rates are assumed to change gradually to 5 00 percent by 2033 for measurement at December 31 2024 and remain at that level thereafter The annual rates of increase in the per capita cost of covered postretirement health benefits do not apply to retirees whose postretirement health care benefits are provided through an exchange
The service cost component of net periodic pension and postretirement benefit cost credit is included as a component of compensation expense in our consolidated statements of income All other components of net periodic pension and postretirement benefit cost credit are included in other expenses
The funding policy for our U S qualified defined benefit pension plan is to contribute an amount at least equal to the minimum contributions required under ERISA and other applicable laws but generally not greater than the maximum amount that can be deducted for federal income tax purposes During 2024 we had no regulatory contribution requirements for our U S qualified defined benefit pension plan and made no voluntary contributions
We do not expect to have regulatory contribution requirements for our U S qualified defined benefit pension plan in 2025 but we reserve the right to make voluntary contributions during 2025 The funding policy for our U S non qualified defined benefit pension plan which is not subject to ERISA is to contribute the amount necessary to satisfy the liabilities of the plan as they come due to participants We expect to make contributions to the U S non qualified defined benefit pension plan of approximately 10 million to fund the benefit payments in 2025
Our OPEB plan represents a non vested non guaranteed obligation and current regulations do not require specific funding levels for these benefits which are comprised of retiree life medical and dental benefits It is our practice to use general assets to pay medical and dental claims as they come due in lieu of utilizing plan assets for the medical and dental benefit portions of our OPEB plan
We offer a 401 k plan to all eligible U S employees under which a portion of employee contributions is matched We match dollar for dollar up to 5 0 percent of base salary and any recognized sales and performance based incentive compensation for employee contributions into the plan We also make an additional non elective contribution of 4 5 percent of earnings for all eligible employees The 401 k plan remains in compliance with ERISA guidelines and continues to qualify for a safe harbor from most annual discrimination testing
We also offer a defined contribution plan to all eligible U K employees and offer related employer contributions If an employee elects to make a minimum contribution of at least 1 0 percent of their base salary we match with a contribution of 8 0 percent We increase our contribution to a maximum of 12 0 percent as the employee increases their contribution from 1 0 percent to 5 0 percent We do not increase our contribution percentage on employee contributions in excess of 5 0 percent
During the years ended December 31 2024 2023 and 2022 we recognized costs of 81 6 million 74 3 million and 70 9 million respectively for our U S defined contribution plan We recognized costs of 6 6 million 5 7 million and 4 9 million in 2024 2023 and 2022 respectively for our U K defined contribution plan
We compute basic earnings per share by dividing net income by the weighted average number of common shares outstanding for the period In computing earnings per share assuming dilution we include potential common shares that are dilutive those that reduce earnings per share We use the treasury stock method to account for the effect of nonvested stock success units and
nonvested restricted stock units on the computation of diluted earnings per share Under this method the potential common shares from nonvested stock success units and nonvested restricted stock units will each have a dilutive effect as individually measured when the average market price of Unum Group common stock during the period exceeds the grant price of the nonvested stock success units and nonvested restricted stock units Potential common shares not included in the computation of diluted earnings per share because the impact would be antidilutive approximated 0 1 million 0 5 million and 0 1 million for the years ended December 31 2024 2023 and 2022 respectively See Note 13 for further discussion of our stock based compensation plans
As part of our capital deployment strategy we may repurchase shares of Unum Group s common stock as authorized by our board of directors The timing and amount of repurchase activity is based on market conditions and other considerations including the level of available cash alternative uses for cash and our stock price
Concurrent with the announcement of the February 2025 repurchase program we also announced the termination of the July 2024 program as of March 31 2025 and any unused amounts under that program will expire as of that date
Concurrent with the announcement of the July 2024 repurchase program we also announced the termination of the October 2023 program as of July 31 2024 and all unused amounts under that program expired as of that date
In August 2022 the Inflation Reduction Act was signed into law in the U S and imposed a one percent excise tax on corporate stock repurchases effective January 1 2023 This excise tax is recorded as part of the cost basis of treasury stock and is assessed on the fair market value of stock repurchases reduced by the fair market value of any shares issued during the period
Includes 80 3 million related to shares which settled in February 2025 in connection with the November 2024 accelerated share repurchase agreement ASR a de minimis amount of commissions for the year ended December 31 2024 and 0 1 million of commissions for the years ended December 31 2023 and 2022 Also includes 8 3 million and 1 9 million of excise tax for the years ended December 31 2024 and 2023 respectively There were no excise taxes during the year ended December 31 2022
As a part of our share repurchase program we periodically enter into ASRs Under the terms of these agreements we make a prepayment to a financial counterparty for which we receive an initial delivery of approximately 75 percent of the total Unum Group common stock to be delivered under the agreement We simultaneously enter into a forward contract indexed to the price of Unum Group common stock which subjects the transactions to a future price adjustment Under the terms of the agreements we are to receive or be required to pay a price adjustment based on the volume weighted average price of Unum Group common stock during the term of the agreement less a discount Any price adjustment payable to us is settled in shares of Unum Group common stock Any price adjustment we would be required to pay may be settled in either cash or common stock at our option Details of our ASRs are as follows
The final price adjustment settlement along with the delivery of the remaining shares occurred in February 2025 resulting in the delivery to us of 0 7 million additional shares As a result of the final settlement occurring subsequent to December 31 2024 we recorded a decrease to additional paid in capital within stockholders equity on our consolidated balance sheet for the value of the shares held back by the counterparty as of December 31 2024 which was reclassified to treasury stock in the first quarter of 2025 in connection with the final settlement of the agreement
Under the 2022 Stock Incentive Plan the 2022 Plan up to 6 8 million shares of common stock are available for awards to our employees officers consultants and directors Awards may be in the form of stock options stock appreciation rights restricted stock restricted stock units performance share units and other stock based awards Each award under the 2022 plan is counted as 1 00 share The exercise price for stock options issued cannot be less than the fair value of the underlying common stock as of the grant date The maximum term of each stock option or stock appreciation right is ten years after the date of grant At December 31 2024 approximately 5 0 million shares were available for future grants under the 2022 Plan
Under the Stock Incentive Plan of 2017 the 2017 Plan which was terminated in May 2022 for the purposes of any further grants up to 17 0 million shares of common stock were available for awards to our employees officers consultants and directors Awards could be in the form of stock options stock appreciation rights restricted stock restricted stock units performance share units and other stock based awards Each full value award under the 2017 plan defined as any award other than a stock option or stock appreciation right were counted as 1 76 shares Awards granted before the termination of the 2017 Plan remain outstanding in accordance with the plan s terms Any shares subject to an outstanding award under the 2017 Plan that after March 15 2022 is not issued because the award is forfeited terminates expires or lapses without being exercised as applicable or is settled for cash becomes available for issuance under the 2022 Plan Stock options had a term of eight years after the date of grant and fully vested after three years
SSUs are classified as equity As of December 31 2024 and 2023 there were 86 thousand and 105 thousand shares of SSUs outstanding respectively with a weighted average grant date fair value of 18 78 per share There were no issuances of SSUs during 2024 2023 or 2022 During 2024 19 thousand shares of SSUs were forfeited SSUs vest over a six year period beginning at the date of grant One third of the SSUs are eligible for accelerated vesting on a cumulative basis at the end of each of the one three and five year service periods that began on January 1 2021 if certain performance goals are achieved Forfeitable dividends on SSUs are accrued in the form of cash Compensation cost for SSUs subject to accelerated vesting due to the achievement of certain performance conditions at the end of the one three and five year service periods is recognized over the implicit service period
No SSUs vested during 2024 or 2022 The total fair value of SSUs that vested during 2023 was 1 9 million At December 31 2024 we had 0 3 million of unrecognized compensation cost related to SSUs that will be recognized over a remaining weighted average period of 0 5 years
PSUs are classified as equity There were no new tranches of PSUs issued during 2024 2023 or 2022 Vesting for the PSUs occurred at the end of a three year period and was contingent upon our achievement of prospective company performance goals and our total shareholder return relative to a board approved peer group during the three year period Actual performance including modification for relative total shareholder return could have resulted in the ultimate award of 40 percent to 180 percent of the initial number of PSUs issued with the potential for no award if company performance goals had not been achieved during the three year period Forfeitable dividend equivalents on PSUs were accrued as cash
PSU shares represent aggregate initial target awards and accrued dividend equivalents and do not reflect potential increases or decreases resulting from the application of the performance factor determined after the end of the performance periods At December 31 2022 the three year performance period for the 2020 PSU grant was completed and the related shares vested but the performance factor had not yet been applied The performance factor which exceeded 100 percent was applied during the first quarter of 2023 and resulted in the granting and vesting of an additional 245 thousand shares We had no outstanding PSUs at December 31 2024 2023 or 2022 and there were no PSUs forfeited during 2024
No PSUs vested during 2024 and the total fair value of PSUs vested during 2023 and 2022 was 5 8 million and 4 2 million respectively At December 31 2024 we had no unrecognized compensation cost related to PSUs as there are no remaining PSUs outstanding The estimated compensation expense was adjusted for actual performance experience and was recognized ratably during the service period when it became probable that the performance conditions would be satisfied Compensation cost for PSUs subject to accelerated vesting at the date of retirement eligibility was recognized over the implicit service period
CIUs are denominated and settled in cash with each unit representing the right to receive one dollar Vesting for the CIUs occurs at the end of a three year period and is based upon prospective company performance measures and our total shareholder return relative to a board approved peer group during the three year period We issued 9 5 million 9 0 million and 8 0 million CIUs during 2024 2023 and 2022 respectively However actual performance including the modification for relative total shareholder return may result in an award of up to 200 percent of the initial number of CIUs issued
At December 31 2024 the three year performance period for the 2022 CIU grant was completed and the related shares vested but the performance factor had not yet been applied The performance factor will be applied during the first quarter of 2025 with payments of awards at that time Granted and vested amounts in the preceding table also include an adjustment to reflect the application of the performance factor to the 2021 CIU grant which occurred during the first quarter of 2024
At December 31 2024 and 2023 the liability for CIUs was 36 2 million and 37 7 million respectively CIU payments made during 2024 totaled 13 9 million There were no CIU payments made during 2023 and 2022 At December 31 2024 we had approximately 1 1 million of unrecognized compensation cost related to CIUs that will be recognized over a weighted average period of 1 7 years The estimated compensation expense is adjusted for actual performance experience and is recognized ratably during the service period or remaining service period if and when it becomes probable that the performance conditions will be satisfied Compensation cost for CIUs subject to accelerated vesting at the date of retirement eligibility is recognized over the implicit service period
RSUs vest over a one to three year service period beginning at the date of grant and the compensation cost is recognized ratably during the vesting period Forfeitable dividend equivalents on RSUs are accrued as cash Compensation cost for RSUs subject to accelerated vesting at the date of retirement eligibility is recognized over the implicit service period
The total fair value of shares vested during 2024 2023 and 2022 was 34 8 million 49 9 million and 28 0 million respectively At December 31 2024 we had 26 5 million of unrecognized compensation cost related to RSUs that will be recognized over a weighted average period of 0 9 years
Cash settled RSUs vested over a one to three year service period beginning at the date of grant and the compensation cost was recognized ratably during the vesting period Forfeitable dividends on cash settled RSUs were accrued in the form of cash Compensation cost for cash settled RSUs subject to accelerated vesting at the date of retirement eligibility was recognized over the implicit service period
The amount payable per unit awarded is equal to the price per share of Unum Group s common stock at settlement of the award and as such we measured the value of the award each reporting period based on the current stock price The effects of changes in the stock price during the service period were recognized as compensation cost over the service period Changes in the amount of the liability due to stock price changes after the service period were recognized as compensation cost during the period in which the changes occurred There was no remaining liability for cash settled RSUs at December 31 2024 and 2023 There were no cash settled RSU payments during 2024 Cash settled RSU payments made during 2023 and 2022 were 1 1 million and 0 6 million respectively At December 31 2024 we had no unrecognized compensation cost related to cash settled RSUs as there are no remaining cash settled RSUs outstanding
We exited a substantial portion of our Closed Block individual disability product line through two phases of a coinsurance and modified coinsurance reinsurance transaction with Commonwealth Annuity and Life Insurance Company Commonwealth that were executed in December 2020 and March 2021 In addition we also entered into an agreement with Commonwealth whereby we will provide a 12 year volatility cover to Commonwealth for the active life cohort ALR cohort ceded as a part of the reinsurance transaction described above At the end of the 12 year coverage period Commonwealth will retain the risk for the remaining incidence and claims risk on the ALR cohort of the ceded business Due to the nature of the volatility cover the ALR cohort is accounted for under the deposit method on a GAAP basis Reserves ceded to Commonwealth were 4 698 4 million and 5 143 4 million at December 31 2024 and 2023 respectively The deposit asset as of December 31 2024 and 2023 was 282 3 million and 296 5 million respectively The unamortized cost of reinsurance related to the reinsurance transaction with Commonwealth was 508 1 million and 549 5 million at December 31 2024 and 2023 respectively We amortized the cost of reinsurance related to this transaction of 41 4 million 44 1 million and 50 3 million in 2024 2023 and 2022 respectively
As of December 31 2024 Commonwealth accounted for 56 percent of the total reinsurance recoverable and the majority of our total cost of reinsurance Commonwealth has an A rating by A M Best Company AM Best and has also established collateralized trust accounts for our benefit to secure its obligations In addition nine other major companies which account for approximately 39 percent of our reinsurance recoverable are also rated A or better by either AM Best or Standard Poor s Ratings Services S P or are fully securitized by letters of credit or investment grade fixed maturity securities held in trust Approximately 4 percent of our reinsurance recoverable is primarily related to business reinsured with other companies also rated A or better by AM Best or S P with overseas entities with equivalent ratings or backed by letters of credit or trust agreements or through reinsurance arrangements wherein we retain the assets in our general account Less than one percent of our reinsurance recoverable is held by companies either rated below A by AM Best or S P or not rated
On February 26 2025 Unum America entered into a master transaction agreement with Fortitude Reinsurance Company Ltd Fortitude Re which subject to receipt of regulatory approvals and the satisfaction or waiver of other customary closing conditions is expected to result in the execution of a coinsurance agreement anticipated reinsurance agreement during 2025
This anticipated reinsurance agreement is to reinsure a portion of our Closed Block long term care insurance business and a portion of our Unum US individual disability business on a coinsurance basis to Fortitude Re The anticipated reinsurance agreement represents approximately 21 percent of total Closed Block long term care future policy benefits and approximately 15 percent of Unum US individual disability future policy benefits as of December 31 2024 The transaction is expected to result in approximately 430 million pre tax ceding commission paid to Fortitude Re Fortitude Re will establish and maintain a collateralized trust account for the benefit of Unum America to secure its obligations under the anticipated reinsurance agreement
Immediately prior to entering into the anticipated reinsurance agreement with Fortitude Re Unum America will recapture the aforementioned Closed Block long term care business from Fairwind Reinsurance Company Fairwind an affiliated captive reinsurer and assume the aforementioned Unum US individual disability business from Provident an affiliate
The Unum US segment is comprised of group disability group life and accidental death and dismemberment and supplemental and voluntary lines of business The group disability line of business includes long term and short term disability medical stop loss and fee based service products The supplemental and voluntary line of business includes voluntary benefits individual disability and dental and vision products These products excluding medical stop loss which is no longer actively marketed as of the third quarter of 2024 are marketed through our field sales personnel who work in conjunction with independent brokers and consultants
The Unum International segment is comprised of our operations in both the United Kingdom and Poland Our Unum UK products include insurance for group long term disability group life and supplemental lines of business which include dental critical illness and individual disability products Our Unum Poland products include insurance for individual and group life with accident and health riders Unum International s products are sold primarily through field sales personnel and independent brokers and consultants
The Colonial Life segment includes insurance for accident sickness and disability products which includes dental and vision products life products and cancer and critical illness These products are marketed to employees on both a group and an individual basis at the workplace through an independent contractor agent sales force and brokers
The Closed Block segment consists of group and individual long term care and other insurance products no longer actively marketed We discontinued offering individual long term care in 2009 and group long term care in 2012 Other insurance products include individual disability group pension individual life and corporate owned life insurance reinsurance pools and management operations and other miscellaneous product lines
The Corporate segment includes investment income on corporate assets not specifically allocated to a line of business interest expense on corporate debt and certain other corporate income and expenses not allocated to a line of business
Premium income is primarily derived from sources in the United States the United Kingdom and Poland There are no material revenues or assets attributable to foreign operations other than those reported in our Unum International segment
Our Chief Executive Officer is the Chief Operating Decision Maker CODM Our CODM evaluates the performance of our segments on the basis of adjusted operating revenue and adjusted operating income or adjusted operating loss The significant expense categories and amounts included within adjusted operating income or adjusted operating loss align with the segment level information that is regularly provided to the CODM We believe adjusted operating revenue and adjusted operating income or loss are better performance measures and better indicators of the revenue and profitability and underlying trends in our business As such the CODM uses these performance measures to evaluate profitability assist in resourcing decisions and monitor budgeted versus actual results These performance measures are in accordance with GAAP guidance for
Excludes the amortization of the cost of reinsurance in the Closed Block segment and the loss on legal settlement in the Corporate segment For each reportable segment other segment items includes compensation other personnel expenses taxes licenses and fees depreciation intangible asset amortization and other expenses Depreciation and intangible asset amortization during 2024 was 85 0 million 17 9 million 15 1 million 5 4 million and 0 1 million for our Unum US Unum International Colonial Life Closed Block and Corporate segments respectively
Excludes the amortization of the cost of reinsurance in the Closed Block segment For each reportable segment other segment items includes compensation other personnel expenses taxes licenses and fees depreciation intangible asset amortization and other expenses Depreciation and intangible asset amortization during 2023 was 76 3 million 14 6 million 13 6 million 5 2 million and 0 6 million for our Unum US Unum International Colonial Life Closed Block and Corporate segments respectively
Excludes the reserve assumption updates for each reportable segment except for the Corporate segment that occurred during the third quarter and the impact of non contemporaneous reinsurance in the Closed Block segment
Excludes the amortization of the cost of reinsurance in the Closed Block segment For each reportable segment other segment items includes compensation other personnel expenses taxes licenses and fees depreciation intangible asset amortization and other expenses Depreciation and intangible asset amortization during 2022 was 75 7 million 14 4 million 15 0 million 4 7 million and 0 6 million for our Unum US Unum International Colonial Life Closed Block and Corporate segments respectively
We report goodwill in our Unum US Unum International and Colonial Life segments which are the segments expected to benefit from the originating business combinations At December 31 2024 and 2023 goodwill was 349 1 million and 349 9 million respectively with 280 0 million attributable to Unum US in each year 41 4 million and 42 2 million respectively attributable to Unum International and 27 7 million attributable to Colonial Life in each year
We measure and analyze our segment performance on the basis of adjusted operating revenue and adjusted operating income or adjusted operating loss which differ from total revenue and income before income tax as presented in our consolidated statements of income due to the exclusion of investment gains or losses the amortization of the cost of reinsurance the impact of non contemporaneous reinsurance and reserve assumption updates as well as certain other items as specified in the reconciliations below We believe adjusted operating revenue and adjusted operating income or loss are better performance measures and better indicators of the revenue and profitability and underlying trends in our business These performance measures are in accordance with GAAP guidance for segment reporting but they should not be viewed as a substitute for total revenue income before income tax net income or net loss
Investment gains or losses primarily include realized investment gains or losses expected investment credit losses and gains or losses on derivatives Investment gains or losses depend on market conditions and do not necessarily relate to decisions regarding the underlying business of our segments Our investment focus is on investment income to support our insurance liabilities as opposed to the generation of investment gains or losses Although we may experience investment gains or losses which will affect future earnings levels a long term focus is necessary to maintain profitability over the life of the business since our underlying business is long term in nature and we need to earn the interest rates assumed in calculating our liabilities
We exited a substantial portion of our Closed Block individual disability product line through the two phases of the reinsurance transaction that were executed in December 2020 and March 2021 As a result we exclude the amortization of the cost of reinsurance that we recognized upon the exit of the business related to the policies on claim status as well as the impact of non contemporaneous reinsurance that resulted from the adoption of ASU 2018 12 We believe that the exclusion of these items provides a better view of our results from our ongoing businesses
During the third quarter of 2024 we incurred a loss of 15 3 million within our Corporate segment for the settlement of an employment related matter 4 9 million of the loss is recorded within compensation expense and 10 4 million of the loss is recorded within other expenses within the consolidated statements of income
Cash flow assumptions used to calculate our liability for future policy benefits are reviewed at least annually and updated as needed with the resulting impact reflected in net income While the effects of these assumption updates are recorded in the reporting period in which the review is completed these updates reflect experience emergence and changes to expectations spanning multiple periods We believe that by excluding the impact of reserve assumption updates we are providing a more comparable and consistent view of our quarterly results
We may at other times exclude certain other items from our discussion of financial ratios and metrics in order to enhance the understanding and comparability of our operational performance and the underlying fundamentals but this exclusion is not an indication that similar items may not recur and does not replace net income or net loss as a measure of our overall profitability
We are a defendant in a number of litigation matters that have arisen in the normal course of business including the matters discussed below Further state insurance regulatory authorities and other federal and state authorities regularly make inquiries and conduct investigations concerning our compliance with applicable insurance and other laws and regulations Given the complexity and scope of our litigation and regulatory matters it is not possible to predict the ultimate outcome of all pending investigations or legal proceedings or provide reasonable estimates of potential losses except if noted in connection with specific matters
In some of these matters no specified amount is sought In others very large or indeterminate amounts including punitive and treble damages are asserted There is a wide variation of pleading practice permitted in the United States courts with respect to requests for monetary damages including some courts in which no specified amount is required and others which allow the plaintiff to state only that the amount sought is sufficient to invoke the jurisdiction of that court Further some jurisdictions permit plaintiffs to allege damages well in excess of reasonably possible verdicts Based on our extensive experience and that of others in the industry with respect to litigating or resolving claims through settlement over an extended period of time we believe that the monetary damages asserted in a lawsuit or claim bear little relation to the merits of the case or the likely disposition value Therefore the specific monetary relief sought is not stated
Unless indicated otherwise reserves have not been established for litigation and contingencies An estimated loss is accrued when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated
We and our insurance subsidiaries in the ordinary course of our business are engaged in claim litigation where disputes arise as a result of a denial or termination of benefits Most typically these lawsuits are filed on behalf of a single claimant or policyholder and in some of these individual actions punitive damages are sought such as claims alleging bad faith in the handling of insurance claims For our general claim litigation we maintain reserves based on experience to satisfy judgments and settlements in the normal course We expect that the ultimate liability if any with respect to general claim litigation after consideration of the reserves maintained will not be material to our consolidated financial condition Nevertheless given the inherent unpredictability of litigation it is possible that an adverse outcome in certain claim litigation involving punitive damages could from time to time have a material adverse effect on our consolidated results of operations in a period depending on the results of operations for the particular period
From time to time class action allegations are pursued where the claimant or policyholder purports to represent a larger number of individuals who are similarly situated Since each insurance claim is evaluated based on its own merits there is rarely a single act or series of actions which can properly be addressed by a class action Nevertheless we monitor these cases closely and defend ourselves appropriately where these allegations are made
We lease certain buildings and equipment under various noncancellable operating lease agreements In addition we have sub lease agreements on a limited number of our building lease agreements We have the option to renew the majority of our building leases and equipment leases at the end of the lease term at the fair rental value at the time of renewal
We do not have any lease agreements or sub lease agreements that contain variable lease payments In addition we do not have lease agreements or sub lease agreements that contain residual value guarantees or impose any financial restrictions or covenants with the lessors
Statutory net income for U S life insurance companies is reported in conformity with statutory accounting principles prescribed by the National Association of Insurance Commissioners NAIC and adopted by applicable domiciliary state laws The commissioners of the states of domicile have the right to permit other specific practices that may deviate from prescribed practices In connection with a financial examination of Unum America which closed at the end of the second quarter of 2020 the Maine Bureau of Insurance MBOI concluded that Unum America s long term care statutory reserves were deficient by 2 100 0 million as of December 31 2018 the financial statement date of the examination period The amount reserves were deficient by changed over time based on changes in assumed reinvestment rates policyholder inventories premium rate increase activity and the underlying growth in the locked in statutory reserve basis as well as updates to other long term actuarial assumptions The MBOI granted permission to Unum America on May 1 2020 to phase in the additional statutory reserves over seven years beginning with year end 2020 and ending with year end 2026
The calculation of the premium deficiency reserve PDR reflects specific assumptions set by MBOI and has resulted in a significant margin above Unum America s best estimate assumptions As of December 31 2022 the gross PDR was 2 851 million and Unum America recognized a cumulative gross PDR of 1 191 million resulting in 1 660 million remaining to be recognized As of December 31 2023 the gross PDR was 1 604 million which was fully recognized by Unum America As a result Unum America submitted a withdrawal request to the MBOI for the permitted practice and the withdrawal request was approved effective December 31 2024
If the permitted practice was not granted by the MBOI to phase in these additional statutory reserves the impact to the risk based capital ratio would have triggered a regulatory event for the years under examination prior to the year ended December 31 2023 Our other traditional U S life insurance subsidiaries have no prescribed or permitted statutory accounting practices that differ materially from statutory accounting principles prescribed by the NAIC
Unum America cedes blocks of long term care business to Fairwind which is an affiliated captive reinsurance subsidiary captive reinsurer domiciled in the United States with Unum Group as the ultimate parent This captive reinsurer was established for the limited purpose of reinsuring risks attributable to specified policies issued or reinsured by Unum America
Fairwind which is domiciled in the state of Vermont is required to follow GAAP in accordance with Vermont reporting requirements for pure captive insurance companies unless the commissioner permits the use of some other basis of accounting Fairwind has permission from Vermont to follow accounting practices that are generally consistent with current NAIC statutory accounting principles for its insurance reserves and invested assets supporting reserves All other assets and liabilities are accounted for in accordance with GAAP as prescribed by Vermont which includes the full recognition of deferred tax assets which are more likely than not to be realized Statutory accounting principles have a stricter limitation for the recognition of deferred tax assets The impact of following the prescribed and permitted practices of Vermont rather than statutory accounting principles prescribed by the NAIC resulted in higher capital and surplus for Fairwind of approximately 334 million and 469 million as of December 31 2024 and 2023 respectively
The operating results and capital and surplus of our traditional U S life insurance subsidiaries and our captive reinsurer prepared in accordance with prescribed or permitted accounting practices of the NAIC or states of domicile are presented separately below
U K Solvency II the system of prudential regulation applying in the U K prescribes capital requirements and risk management standards for the U K insurance industry As derived from the most recent annual financial statements for December 31 2023 based on U K Solvency II requirements regulatory net income and eligible own funds available of our U K insurance subsidiary Unum Limited were 45 7 million and 767 1 million respectively
Risk based capital RBC standards for U S life insurance companies are prescribed by the NAIC The domiciliary states of our U S insurance subsidiaries have all adopted a version of the RBC model formula of the NAIC which prescribes a system for assessing the adequacy of statutory capital and surplus for all life and health insurers The basis of the system is a risk based formula that applies prescribed factors to the various risk elements in a life and health insurer s business to report a minimum capital requirement proportional to the amount of risk assumed by the insurer The life and health RBC formula is designed to measure annually i the risk of loss from asset defaults and asset value fluctuations ii the risk of loss from adverse mortality and morbidity experience iii the risk of loss from mismatching of asset and liability cash flow due to changing interest rates and iv business risks The formula is used as an early warning tool to identify companies that are potentially inadequately capitalized State insurance laws grant insurance regulators the authority to require various actions by or take various actions against insurers whose total adjusted capital does not meet or exceed certain RBC levels The total adjusted capital of each of our U S insurance subsidiaries at December 31 2024 is in excess of those RBC levels
Restrictions under applicable state insurance laws limit the amount of dividends that can be paid to a parent company from its insurance subsidiaries in any 12 month period without prior approval by regulatory authorities For life insurance companies domiciled in the U S that limitation generally equals depending on the state of domicile either ten percent of an insurer s statutory surplus with respect to policyholders as of the preceding year end or the statutory net gain from operations excluding net realized capital gains and losses of the preceding year The payment of dividends to a parent company from a life insurance subsidiary is generally further limited to the amount of unassigned funds
Based on the restrictions under current law approximately 1 383 million is available without prior approval by regulatory authorities during 2025 for the payment of dividends to Unum Group from its traditional U S life insurance subsidiaries The ability of our captive insurer to pay dividends to Unum Group will depend on the satisfaction of applicable regulatory requirements and on the performance of the business reinsured by Fairwind
We also have the ability to receive dividends from our foreign subsidiaries primarily in the U K for which the payment may be subject to applicable insurance company regulations and capital guidance Approximately 140 million is considered distributable from Unum Limited during 2025 subject to local solvency standards and regulatory approval
At December 31 2024 and 2023 our U S life insurance subsidiaries had on deposit with U S regulatory authorities securities with a book value of 119 3 million and 119 1 million respectively held for the protection of policyholders
Under the supervision and with the participation of our management including our Chief Executive Officer and Chief Financial Officer we have evaluated the effectiveness of our disclosure controls and procedures as defined in Rule 13a 15 e under the Securities Exchange Act of 1934 as amended as of the end of the period covered by this report We evaluated those controls based on the 2013 Internal Control Integrated Framework from the Committee of Sponsoring Organizations of the Treadway Commission Based on that evaluation these officers concluded that our disclosure controls and procedures were effective as of December 31 2024
There have been no changes in our internal control over financial reporting as defined in Rule 13a 15 f under the Securities Exchange Act of 1934 as amended during the quarter ended December 31 2024 that have materially affected or are reasonably likely to materially affect our internal control over financial reporting
The Company s management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a 15 f under the Securities Exchange Act of 1934 as amended The Company s internal control over financial reporting encompasses the processes and procedures management has established to i maintain records that in reasonable detail accurately and fairly reflect the Company s transactions and dispositions of assets ii provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U S generally accepted accounting principles iii provide reasonable assurance that receipts and expenditures are appropriately authorized and iv provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition use or disposition of the Company s assets that could have a material effect on the financial statements
Because of its inherent limitations internal control over financial reporting may not prevent or detect misstatements In addition any projection of the evaluation of effectiveness to future periods is subject to the risks that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate
We assessed the effectiveness of our internal control over financial reporting based on criteria established in the 2013 Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and concluded that as of December 31 2024 we maintained effective internal control over financial reporting
Ernst Young LLP the independent registered public accounting firm that audited our consolidated financial statements included herein audited the effectiveness of our internal control over financial reporting as of December 31 2024 and issued the attestation report included as follows
We have audited Unum Group and Subsidiaries internal control over financial reporting as of December 31 2024 based on criteria established in Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission 2013 framework the COSO criteria In our opinion Unum Group and Subsidiaries the Company maintained in all material respects effective internal control over financial reporting as of December 31 2024 based on the COSO criteria
We also have audited in accordance with the standards of the Public Company Accounting Oversight Board United States PCAOB the consolidated balance sheets of the Company as of December 31 2024 and 2023 the related consolidated statements of income comprehensive income stockholders equity and cash flows for each of the three years in the period ended December 31 2024 and the related notes and financial statement schedules listed in the Index at Item 15 a 2 and our report dated February 27 2025 expressed an unqualified opinion thereon
The Company s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management s Annual Report on Internal Control over Financial Reporting Our responsibility is to express an opinion on the Company s internal control over financial reporting based on our audit We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U S federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB
We conducted our audit in accordance with the standards of the PCAOB Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects
Our audit included obtaining an understanding of internal control over financial reporting assessing the risk that a material weakness exists testing and evaluating the design and operating effectiveness of internal control based on the assessed risk and performing such other procedures as we considered necessary in the circumstances We believe that our audit provides a reasonable basis for our opinion
A company s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles A company s internal control over financial reporting includes those policies and procedures that 1 pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company 2 provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company and 3 provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition use or disposition of the company s assets that could have a material effect on the financial statements
Because of its inherent limitations internal control over financial reporting may not prevent or detect misstatements Also projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate
The information required by this Item with respect to directors is included under the caption Information About the Board of Directors in our definitive proxy statement for the 2025 Annual Meeting of Shareholders and is incorporated herein by reference
The information required by this Item with respect to our executive officers is included under the caption Information about our Executive Officers contained herein in Item 1 and is incorporated herein by reference
We have adopted corporate governance guidelines a code of conduct applicable to all of our directors officers and employees and charters for the audit human capital governance risk and finance and regulatory compliance committees of our board of directors in accordance with the requirements of the New York Stock Exchange NYSE
The information required by this Item with respect to a code of ethics for our chief executive officer and certain senior financial officers is included under the caption Board and Committee Governance sub caption Codes of Conduct and Ethics in our definitive proxy statement for the 2025 Annual Meeting of Shareholders and is incorporated herein by reference
The information required by this Item with respect to the audit committee and audit committee financial experts is included under the caption Board and Committee Governance sub caption Committees of the Board in our definitive proxy statement for the 2025 Annual Meeting of Shareholders and is incorporated herein by reference In addition information relating to the procedures by which our shareholders may recommend nominees to our board of directors is included under the caption Corporate Governance sub caption Process for Selecting and Nominating Directors in our definitive proxy statement for the 2025 Annual Meeting of Shareholders and is incorporated herein by reference
We have adopted an Insider Trading Policy governing the purchase sale and or other dispositions of our securities by directors officers and employees and open market purchases by the Company which we believe is reasonably designed to promote compliance with insider trading laws rules and regulations and any applicable listing standards A copy of our Insider Trading Policy is filed with this report as Exhibit 19
The information required by this Item with respect to executive compensation and compensation committee matters is included under the caption Director Compensation under the caption Board and Committee Governance sub caption Compensation Committee Interlocks and Insider Participation and sub captions The Board s Role in Risk Oversight and Compensation Risk and under the captions Compensation Discussion and Analysis Compensation Committee Report Compensation Tables Post Employment Compensation CEO Pay Ratio and Pay Versus Performance in our definitive proxy statement for the 2025 Annual Meeting of Shareholders and is incorporated herein by reference
The information required by this Item with respect to security ownership of certain beneficial owners and management is included under the captions Ownership of Company Securities including sub caption Security Ownership of Certain Shareholders in our definitive proxy statement for the 2025 Annual Meeting of Shareholders and is incorporated herein by reference
The information required by this Item with respect to equity compensation plan information is included under the caption Equity Compensation Plan Information in our definitive proxy statement for the 2025 Annual Meeting of Shareholders and is incorporated herein by reference
The information required by this Item with respect to director independence and transactions with related persons is included under the caption Corporate Governance sub caption Director Independence and under the caption Board and Committee Governance sub caption Related Party Transactions and Policy in our definitive proxy statement for the 2025 Annual Meeting of Shareholders and is incorporated herein by reference
The information required by this Item with respect to fees paid to Ernst Young LLP in 2024 and 2023 and our audit committee s pre approval policies and procedures are included under the caption Items to Be Voted On sub captions Independent Auditor Fees and Policy for Pre Approval of Audit and Non Audit Services in our definitive proxy statement for the 2025 Annual Meeting of Shareholders and is incorporated herein by reference
The amortized cost for fixed maturity securities and mortgage loans represents original cost reduced by repayments write downs from declines in fair value amortization of premiums and or accretion of discounts The amortized cost for these investments does not include allowance for credit losses
The difference between amortized cost and carrying value for private equity partnerships and perpetual preferred and equity securities primarily results from changes in the partnership owner s equity and the security s market valuation since acquisition respectively
In 2024 reserve assumption updates resulting in a net decrease in policy benefits including remeasurement gain or loss in the Unum US Colonial Life and Closed Block segments of 143 6 million 46 0 million 175 3 million respectively and a net increase in policy benefits including remeasurement gain or loss in the Unum International segment of 7 5 million
In 2023 reserve assumption updates resulting in a net decrease in policy benefits including remeasurement gain or loss in the Unum US and Colonial Life segments of 128 8 million and 80 7 million respectively and a net increase in policy benefits including remeasurement gain or loss in the Unum International and Closed Block segments of 17 9 million and 368 8 million respectively
In 2022 reserve assumption updates resulting in a net decrease in policy benefits including remeasurement gain or loss in the Unum US Unum International Colonial Life and Closed Block segments of 170 8 million 7 6 million and 55 2 million and 9 7 million respectively
Includes commissions interest and debt expense deferral of acquisition costs compensation expense and other expenses Where not directly attributable to a segment expenses are generally allocated based on activity levels time information and usage statistics Also included in all other expenses were the following
Deductions include amounts deemed to reduce exposure of expected losses on premium and accounts receivables and reinsurance recoverable amounts deemed uncollectible and amounts related to fluctuations in the foreign currency exchange rate
Certain items not reported above include the allowance for expected credit losses on mortgage loans the allowance for credit losses on fixed maturity securities and the deferred tax asset valuation allowance See Notes 3 and 9 of the Notes to Consolidated Financial Statements contained herein in Item 8 for a discussion of these items
With regard to applicable cross references in this report our current quarterly and annual reports dated on or after May 1 2003 are filed with the Securities and Exchange Commission under File No 1 11294 and such reports dated prior to May 1 2003 are filed with the Securities and Exchange Commission under File No 1 11834 except as otherwise noted below Our registration statements have the file numbers noted wherever such statements are identified below
Master Transaction Agreement dated December 16 2020 by and among Provident Life and Accident Insurance Company The Paul Revere Life Insurance Company Unum Life Insurance Company of America and Commonwealth Annuity and Life Insurance Company incorporated by reference to Exhibit 2 1 of Unum Group s Form 8 K filed on December 17 2020
Amended and Restated Reinsurance Agreement dated March 31 2021 by and between Provident Life and Accident Insurance Company and Commonwealth Annuity and Life Insurance Company incorporated by reference to Exhibit 2 1 of Unum Group s Form 8 K filed on April 5 2021
Amended and Restated Reinsurance Agreement dated March 31 2021 by and between The Paul Revere Life Insurance Company and Commonwealth Annuity and Life Insurance Company incorporated by reference to Exhibit 2 2 of Unum Group s Form 8 K filed on April 5 2021
Amended and Restated Reinsurance Agreement dated March 31 2021 by and between Unum Life Insurance Company of America and Commonwealth Annuity and Life Insurance Company incorporated by reference to Exhibit 2 3 of Unum Group s Form 8 K filed on April 5 2021
Indenture for Senior Debt Securities dated as of August 23 2012 between Unum Group and The Bank of New York Mellon Trust Company N A as Trustee incorporated by reference to Exhibit 4 2 of our Form 8 K filed on August 23 2012
First Supplemental Indenture for Senior Debt Securities between Unum Group and The Bank of New York Mellon Trust Company N A dated as of August 20 2020 incorporated by reference to Exhibit 4 4 to Unum Group s Registration Statement on Form S 3ASR Registration No 333 248208 filed on August 20 2020
Indenture for Subordinated Debt Securities dated as of May 29 2018 between Unum Group and The Bank of New York Mellon Trust Company N A as Trustee incorporated by reference to Exhibit 4 2 of Unum Group s Form 8 K filed on May 29 2018
Certain instruments defining the rights of holders of long term debt securities of our company and our subsidiaries are omitted pursuant to Item 601 b 4 iii of Regulation S K We hereby undertake to furnish to the Securities and Exchange Commission upon request copies of any such instruments
Agreement between Provident Companies Inc and certain subsidiaries and American General Corporation and certain subsidiaries dated as of December 8 1997 incorporated by reference to Exhibit 10 18 of Provident Companies Inc s Form 10 Q for fiscal quarter ended September 30 1998
Second Amendment to the Unum Group Supplemental Pension Plan effective as of December 31 2013 incorporated by reference to Exhibit 10 8 of Unum Group s Form 10 K for the fiscal year ended December 31 2013
Third Amendment to the Unum Group Supplemental Pension Plan effective as of January 1 2013 incorporated by reference to Exhibit 10 8 of Unum Group s Form 10 K for the fiscal year ended December 31 2015
Administrative Reinsurance Agreement between Provident Life and Accident Insurance Company and Reassure America Life Insurance Company dated to be effective July 1 2000 incorporated by reference to Exhibit 10 1 of our Form 8 K filed on March 2 2001
Unum Group Amended and Restated Non Employee Director Compensation Plan of 2004 as amended incorporated by reference to Exhibit 10 19 of Unum Group s Form 10 K for the fiscal year ended December 31 2008
First Amendment to Unum Group Non Qualified Defined Contribution Retirement Plan effective as of January 1 2019 incorporated by reference to exhibit 10 19 of Unum Group s Form 10 K filed on February 17 2021
Second Amendment to Unum Group Non Qualified Defined Contribution Retirement Plan effective as of January 1 2020 incorporated by reference to Exhibit 10 20 to Unum Group s Form 10 K filed on February 17 2021
Second Amended and Restated Credit Agreement dated as of April 15 2022 among Unum Group Unum Life Insurance Company of America Provident Life and Accident Insurance Company and Colonial Life Accident Insurance Company as Borrowers the Lenders named therein and Wells Fargo Bank National Association as Administrative Agent L C Agent Fronting Bank and Swingline Lender incorporated by reference to Exhibit 10 1 of Unum Group s Form 8 K filed on April 21 2022
First Amendment to Second Amended and Restated Credit Agreement dated as of November 30 2023 among Unum Group Unum Life Insurance Company of America Provident Life and Accident Insurance Company and Colonial Life Accident Insurance Company as Borrowers the Lenders party thereto and Wells Fargo Bank National Association as Administrative Agent for the Lenders incorporated by reference to Exhibit 10 21 of Unum Group s Form 10 K for the fiscal year ended December 31 2023
Form of Restricted Stock Unit Agreement with Non Employee Director for awards under the Unum Group Stock Incentive Plan of 2017 incorporated by reference to Exhibit 10 2 of Unum Group s Form 8 K filed on May 25 2017
Form of Restricted Stock Unit Agreement with Non Employee Director for awards under the Unum Group 2022 Stock Incentive Plan incorporated by reference to Exhibit 10 2 of Unum Group s Form 10 Q filed on August 3 2022
The following financial statements from Unum Group s Annual Report on Form 10 K for the year ended December 31 2024 filed on February 27 2025 formatted in XBRL i Consolidated Balance Sheets ii Consolidated Statements of Income iii Consolidated Statements of Comprehensive Income Loss iv Consolidated Statements of Stockholders Equity v Consolidated Statements of Cash Flows vi the Notes to Consolidated Financial Statements vii Financial Statement Schedules
Certain confidential information contained in this exhibit has been omitted because it i is not material and ii would likely cause competitive harm to Unum Group or its subsidiaries if it were to be publicly disclosed
Pursuant to the requirements of Section 13 or 15 d 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
Pursuant to the requirements of the Securities Exchange Act of 1934 this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated

Company Name	Unum Group Vist SEC web-site
Category	ACCIDENT & HEALTH INSURANCE
Trading Symbol	UNM