Unum Group

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 1.266 and 1.213 for the three months ended March 31, 2024 and 2023, respectively. If the first quarter 2023 results for our U.K. operations had been translated at the higher exchange rate of 2024, our adjusted operating revenue and adjusted operating income by segment would have both been higher by approximately $8 million and $2 million, respectively, in the first quarter of 2023. 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.

Premium income increased in the first quarter of 2024 relative to the same period of 2023 in each of our principal operating business segments, primarily due to favorable persistency and higher prior period sales. Premium income continues to decline, as expected, in our Closed Block segment.

Net investment income was slightly higher in the first quarter of 2024 compared to the same period of 2023 with an increase in the level of invested assets and higher miscellaneous investment income, primarily related to larger increases in the net asset values (NAV) on our private equity partnerships, mostly offset by lower investment income from inflation index-linked bonds held by Unum UK.

We did not recognize any credit losses on fixed maturity securities during the first quarters of 2024 or 2023. 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 $6.1 million and $0.3 million in the first quarter of 2024 and 2023, respectively. The changes in the embedded derivative are primarily driven by movements in credit spreads in the overall investment market. See Note 4 in the "Notes to Consolidated Financial Statements" contained herein in Item 1 for further information on investment gains and losses.

Other income is primarily comprised of fee-based service products in the Unum US segment, which include leave management services and administrative services only (ASO) 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 in thefirst quarter of 2024 was favorable relative to the same period of 2023 with a consolidated benefit ratio, which includes the remeasurement gain or loss, of 68.4 percent and 70.6 percent, respectively. Excluding the impact of non-contemporaneous reinsurance, the consolidated benefit ratios were 68.1 percent and 70.3 percent in the first quarter of 2024 and 2023, respectively. The benefit ratio, which includes the remeasurement gain or loss, for each of our operating business segments is discussed more fully in "Segment Results" as follows.

Commissions and the deferral of acquisition costs were higher during the first quarter of 2024 compared to the same period of 2023 primarily driven by higher prior period sales and in-force block growth in our principal operating business segments. The increase in amortization of deferred acquisition costs in the first quarter of 2024 compared to the same period of 2023 is due primarily to growth in the level of the deferred asset in our Unum US supplemental and voluntary product line and in our Colonial Life segment.

Other expenses and compensation expense, on a combined basis, increased in the first quarter of 2024 compared to the same period of 2023 due primarily to an increase in employee-related costs, an increase in operational investments in our business, and growth in our fee-based service products.

Our effective income tax rate for the first quarter of 2024 was 20.3 percent, compared to 20.6 percent for the same prior year period. Our effective income tax rate differed from the U.S. statutory rate of 21 percent for the first quarter of 2024 primarily due to prior year state taxes. Our effective income tax rate differed from the U.S. statutory rate of 21 percent for the first quarter of 2023 primarily due to foreign tax rate differential.

Consolidated Sales Results

Shown below are sales results for our three principal operating business segments.

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.

See "Segment Results" as follows for a discussion of sales by segment.