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 1.278, 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.

We reported year-over-year premium growth in 2024 and 2023 in each of our principal operating segments, primarily due to favorable persistency and higher overall sales. Premium income continues to decline, as expected, in our Closed Block segment.

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.

Consolidated Sales Results

Shown below are sales results for our three principal operating 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.