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Text: Our SEC filings can be found in the Investors section of our website at unum.com.
Net income for the fourth quarter of 2021 included the aftertax amortization of the cost of reinsurance of $15.5 million or $0.08 per diluted common share and a net aftertax investment loss on the company's investment portfolio of $6.8 million or $0.03 per diluted common share.
Net income in the fourth quarter of 2020 included a net aftertax gain from the closed block individual disability reinsurance transaction of $32 million or $0.16 per diluted common share.
A net aftertax reserve increase related to assumption updates of $133.5 million, which is $0.66 per diluted common share; and a net aftertax investment gain on the company's investment portfolio, excluding the net aftertax realized investment gain associated with the closed block individual disability reinsurance transaction of $1.6 million or $0.01 per diluted common share.
So excluding these items, aftertax adjusted operating income in the fourth quarter of 2021 was $182 million or $0.89 per diluted common share compared to $235.3 million or $1.15 per diluted common share in the year ago quarter.
As we wrap up 2021, what we saw in the fourth quarter is a continuation of the good performance of our business model, impacted by the difficult environment of ongoing COVID-related claims.
Before getting to the quarter, I'd like to recognize the extraordinary work of our teams in serving our customers in this challenging time through their empathy, passion and resilience.
Throughout the pandemic, they have not wavered in fulfilling our purpose, while still positioning the company for the future.
As we turn to our financial results, our fourth quarter played out largely as we anticipated, with aftertax adjusted operating earnings per share at $0.89 for the fourth quarter.
I'll come back to the COVID impacts in a minute, but as we look beyond these areas of our business directly impacted by COVID, I'm very pleased with many of our product lines that performed well in the quarter.
Adjusted operating income for the Unum US supplemental and voluntary line this quarter was among the highest in our history, with strong results in the IDI recently issued and voluntary benefit lines, as well as more stable performance in the dental and vision line.
colonial life produced a solid level of income this quarter, with a strong adjusted operating return on equity of approximately 16%.
In addition, adjusted operating income in our international business continues to build momentum and the overall performance in the closed block remains strong.
We saw a favorable benefits experience in both long-term care and individual disability and continued excellent returns from our alternative investment portfolio.
In addition to the favorable returns from the alternative investments more broadly, our investment portfolio is in great shape as we continue to see very healthy credit trends.
Looking at the top line, we are also very pleased with the trend in premium income growth for our core business segments.
This includes the acceleration in year-over-year growth that we have seen in recent quarters.
Premium growth in the fourth quarter on a year-over-year basis was just under 3% for our core businesses in aggregate, with growth of 3% for Unum US, 7% for international businesses and 1% for colonial life.
Persistency levels have remained healthy.
We are also seeing a growing benefit to our top line from natural growth, with strong employment levels and wage growth coming through in our in-force block.
From a benefits perspective, our results were significantly impacted by COVID claims.
We saw continued elevated mortality in the group life business.
COVID-related mortality remained elevated at the national level and the age demographics continued to show a high impact among working-aged individuals.
As in the third quarter, the fourth quarter was due to the Delta variant.
The age demographics are a key driver for our business and there was a slight decrease to 35% of national deaths in the fourth quarter from 40% in the prior quarter.
We will continue to watch this dynamic as new variants like omicron emerge.
In addition, we continue to see pressure on our short-term disability results from the high levels of infection rates and hospitalizations.
These also lead to an increase in leave request volumes, which pressure expenses in the group disability line.
These COVID impacts are clear in our results and will linger into 2022.
But as the impact from the pandemic lessens, we anticipate seeing recovery from the underlying strength of the business.
And finally, our capital position remains in a very, in very healthy shape, even after paying more than $0.5 billion in life claims through the pandemic.
The weighted average risk-based capital ratio for our traditional U.S.-based life insurance companies was approximately 395% to close the year and holding company cash totaled $1.5 billion.
Both of these metrics are well ahead of our long-term targets and relative to year-end 2020, holding company cash remained stable and RBC improved by approximately 30 points.
This is the highest year-end RBC level since year-end 2016 and also reflects the impacts from the C1 factor changes that were implemented in 2021.
In addition, we added $400 million of pre-capitalized trust securities, which gives us contingent capital on top of our pre-existing credit lines.
All of this points to broad financial flexibility moving into 2022.
Steve will get into our total LTC funding actions, but one area to highlight is our First Unum subsidiary, where we have been adding reserves and capital for the last decade.
For the first time in many years, we released reserves at year-end and we're able to pay a dividend to our holding company.
This is an example that the funding needs for LTC can turn, particularly as interest rates move up.
Overall, we wrapped the year with a very strong capital picture.
Looking forward, our outlook in the near term will be influenced by COVID trends, specifically the level of mortality, its demographics and the rate and severity of COVID infections.
We expect improvement in these trends over time, but it has proven difficult to forecast these trends and their impacts.
Our focus remains the same, that is to ensure that we are taking the appropriate actions to rebuild profit margins and the overall level of earnings back to pre-pandemic levels.
This will take several quarters, assuming diminishing COVID-related impacts over time.
An important step in this process is to take the appropriate pricing actions with our new sales and renewals.
That disciplined approach can have near-term implications for sales and persistency, but we have worked hard to be known in the market as a disciplined and consistent price when we work with our customers through these pricing actions.
We experienced that, to some extent, with fourth quarter sales in Unum US, particularly large case and mid-market sales in the group disability and lifelines, but we think it is the appropriate path to take.
As we take these actions, we were pleased with the multiple business lines that showed very good sales trends, particularly colonial life, the Unum US voluntary benefits and individual disability benefits businesses and our international segment.
The breadth of our offerings allow us to manage through challenges in some lines as we look to overall growth.
Looking ahead, we plan to connect with you later in February on the 25th to provide our outlook for the full year 2022 and give you insights into the strategic actions we're taking to deliver on our purpose, to protect more people and position ourselves for good profitable growth.
To wrap up, I'm very pleased with our position as we move into 2022.
It's a testimony to the strength of our franchise that despite the impacts from COVID in the past two years, the primary measure to the top-line growth and capital strength have improved over the course of the year, providing us with optimism for growth and the underpinnings of a strong capital base.
Now, I'll ask Steve to cover the details of the fourth quarter results.
I will also describe our adjusted operating results by segment, excluding the impacts from our GAAP reserve assumption updates that did occur last quarter.
I'll start the discussion of our operating results with the Unum US segment, where COVID again significantly impacted our results this quarter, driving high mortality and a high average claim size in the group life business and higher claims in the group disability business.
For the fourth quarter in the Unum US segment, adjusted operating income was $81.4 million compared to $88.5 million in the third quarter.
Within the Unum US segment, the group disability line reported adjusted operating income of $34.1 million in the fourth quarter compared to $39.5 million in the third quarter.
We saw promising trends in premium income, which increased 2.9% relative to the third quarter and 5% on a year-over-year basis, with increasing levels of natural growth as we benefit from improving employment levels along with rising wages.
The expense ratio was elevated this quarter at 29.9% compared to 28.1% in the third quarter, which reflected higher people-related costs and technology spend to support our digital strategies.
The benefit ratio for group disability and the underlying drivers were generally steady in the fourth quarter relative to the third quarter.
The ratio did improve slightly to 78.3% from 78.9% in the third quarter, primarily driven by a lower level of incidence in the short-term disability line.
While short-term disability results did improve this quarter, STD continues to be impacted by high COVID-related claims and, therefore, remains a drag on the overall profitability of this line relative to our pre-COVID trends.
The LTD line experienced generally stable incidence in the fourth quarter relative to the third and claim recoveries remain strong.
We expect to continue to see an elevated overall group disability benefit ratio as COVID and the current external environment continue to impact our results.
We do feel that COVID is a key driver of the high benefit ratio for the group disability line and that as direct COVID impacts lessen over time, we will see improvement in the benefit ratio back toward prepandemic levels.
Adjusted operating income for Unum US group life and AD&D declined to a loss of $71.7 million for the fourth quarter from a loss of $67.1 million in the third quarter.
This quarter-to-quarter decline was primarily impacted by a decrease in the deferral of acquisition costs in the quarter due to lower expected recoverability in the short term as a result of the losses driven by COVID-related life claims for the full year.
This impacted the quarter by approximately $15 million.
The benefit ratio improved to 98.3% for the fourth quarter compared to 100.6% in the third quarter.
We were impacted by the continued high level of national COVID-related mortality, which was a reported 94,000 in the third quarter and increased to a reported 127,000 in the fourth quarter.
Age demographics continue to show a high impact on younger, working-aged individuals though this impact is lessened in the fourth quarter.
For our group life block, we estimate that COVID-related excess mortality claims declined from over 1,900 claims in the third quarter to an estimated 1,725 claims in the fourth quarter.
Accordingly, our results reflect an improvement to approximately 1.4% of the reported national figure in the fourth quarter compared to approximately 2% of the reported national figures in the third quarter.
We also experienced a higher average benefit size, which increased to around $65,000 in the fourth quarter from just over $60,000 in the third quarter.
And then finally, non-COVID-related mortality did not materially impact results in the fourth quarter relative to the experience in the third quarter.
So looking ahead, the level of composition of COVID-related mortality will heavily influence our group life results.
While we are waiting until later this month to hold our 2022 outlook meeting when we expect to have a more informed view of potential trends for the year, it is clear that first quarter mortality will continue to impact our group life results and we suggest that you follow the national trends as a basis for your projections and estimates.
Now, looking at the Unum US supplemental and voluntary lines, adjusted operating income totaled $119 million in the fourth quarter compared to $116.1 million in the third quarter, both of which are very strong quarters that generated adjusted operating returns on equity in the range of 17% to 18%.
Looking at the three primary business lines.
First, we remain very pleased with the performance of the individual disability recently issued block of business, which has generated strong results throughout the pandemic.
The benefit ratio was generally stable at favorable overall levels from the third quarter to the fourth quarter, with strong recoveries offsetting an increased level of incidents.
The voluntary benefits line reported a strong level of income as well, with a benefit ratio in the fourth quarter declining to 42.9% from 46.6% in the third quarter, primarily reflecting strong performance across the A&H products.
And finally, utilization in the dental and vision line decreased relative to the third quarter leading to an improvement in the benefit ratio to 65.6% compared to 75% in the third quarter.
Now, looking at premium trends and drivers, we were pleased to see an acceleration in premium income growth for Unum US in the fourth quarter, with a year-over-year growth of 3%.
For full year 2021, premium income increased 1%.
The group disability product line had a very positive quarter, with premium increasing 5% year over year, with strong growth in the STD line as well as the benefit of natural growth on the in-force block.
We estimate the benefit we're seeing from natural growth across our businesses to be in the 3% to 3.5% range measured on a year-over-year basis, with different impacts to our various product lines.
To date, we've seen more of a benefit from rising wages overall, with the benefit from higher employment levels being more pronounced in the less than 2,000 lives sector of our blocks than in our larger case business.
Persistency levels were slightly lower year over year, but remain at strong overall levels.
New sales were down for both the STD and LTD lines reflecting the pricing actions we are taking in the market and increased competition.
For the group life and AD&D line, premium income increased 2.1% year over year, benefiting from higher persistency and favorable trends and natural growth.
Compared to a year ago, fourth quarter sales were lower by 4.7%.
Finally, in the supplemental voluntary lines, premium income increased 0.6% in the fourth quarter relative to last year, with strong sales growth in both the voluntary benefits and the individual disability recently issued lines, a year-over-year increase of 8.3% in dental and vision premium income, as well as strong improvement in persistency in the voluntary benefits line.
Now, moving to the Unum international segment.
We had a very good quarter, with adjusted operating income for the fourth quarter of $27.1 million compared to $27.4 million in the third quarter.
The primary driver of our international segment results is our Unum UK business, which generated adjusted operating income of GBP 18.7 million in the fourth quarter compared to GBP 18.4 million in the third quarter.
The reported benefit ratio for Unum U.K. was 81.4% in the fourth quarter compared to 79.2% in the third quarter.
The underlying benefits experience was generally consistent between the two quarters, with favorable experience in group life offsetting a slightly higher benefit ratio in group disability.
The quarter-to-quarter increase in the benefit ratio was largely driven by the impact of rising inflation in the U.K. As we have outlined in previous quarters, the higher benefit payments we make that are linked to inflation are offset with higher income that we received from inflation index-linked yields in the investment portfolio.
Benefits experienced in Unum Poland continued to trend favorably and adjusted operating income was generally consistent from quarter to quarter.
The year-over-year premium growth for our international business segment was also strong this quarter.
On a local currency basis to neutralize the impact from changes in exchange rates, Unum UK generated growth of 5.1% with strong persistency, good sales and the continued successful placement of rate increases on our in-force block.
Additionally, sales in Unum UK were strong in the fourth quarter, increasing 28.1% over last year.
Unum Poland generated sales growth of 43.6%, a continuation of the strong growth trend this business has been producing.
So next, I'll move to the colonial life results.
They remain at healthy levels and in line with our expectations, with adjusted operating income of $80 million in the fourth quarter and $80.1 million in the third quarter.
One of the primary drivers of results between the third and fourth quarters was an improvement in the benefit ratio in the fourth quarter to 52.5% compared to 55.9% in the third quarter.
This was largely driven by lower cancer and life insurance claims.
Offsetting this improvement was a lower level of miscellaneous investment income, with the fourth quarter at an average level for bond calls compared to the unusually high income we saw in the third quarter from calls.
We were pleased to see a continuation in the improving trend in premium growth for colonial life, which did increase 1.1% on a year-over-year basis after being flat to negative over the past four quarters.
Driving this improving trend in premiums is the improvement in persistency and sales activity.
For the fourth quarter, sales for colonial life increased 7.8% compared to a year ago and for the full year 2021, sales increased 16.1%.
Persistency for colonial life ended the year in a strong position, increasing to 79.3% for the full year compared to 77.8% in 2020.
In the closed block segment, adjusted operating income, excluding the amortization of cost of reinsurance related to the closed block individual disability reinsurance transaction and the items related to the reserve assumption update in the prior quarter, was $76.7 million in the fourth quarter compared to $109.8 million in the third quarter.
For both the long-term care and closed block individual disability lines, we saw favorable results relative to our long-term assumptions, but we did see benefits experience continuing to return to more historic levels of performance.
For LTC, the move in the interest adjusted loss ratio to 82.2% in the fourth quarter from 74.8% in the third quarter was driven by less favorable terminations and recoveries, partially offset by lower submitted new claims.
For the closed block individual disability line, the move in the interest adjusted loss ratio to 75.4% in the fourth quarter from 58.2% in the third quarter was driven by higher submitted claims.
Again, the experience for both lines in the fourth quarter remained favorable relative to our long-term assumptions.
Higher miscellaneous investment income continues to contribute to the strong adjusted operating income for the closed block segment.
However, we did experience a reduction of approximately $10 million in total miscellaneous investment income from the third quarter to the fourth quarter, with the reduction driven by a lower level of bond calls.
The contribution to income from our alternative asset portfolio remained approximately the same between the two quarters, with improved results from our exposure to real asset partnerships.
Looking ahead, I'll reiterate from our messaging in prior calls with you that we estimate quarterly adjusted operating income for this segment will, over time, run within a $45 million to $55 million range, assuming more normal trends for investment income and claim results in the LTC and closed disability lines.
So then wrapping up my commentary on the quarter's financial results, the adjusted operating loss in the corporate segment was $45.1 million in the fourth quarter and $45.4 million in the third quarter, which are both generally in line with our expectations for this segment.
I'd also mention that the tax rate for the fourth quarter of 2021 was lower than we historically reported at 17.3%, with the favorability as compared to the U.S. statutory tax rate, driven primarily by tax exempt income and various credits.
The comparable full year tax rate of 20.2% is consistent with our expectations and in line with the past two years.
Moving now to investments and net investment income.
Miscellaneous investment income has had a meaningful impact on our financial results and quarterly comparisons.
For the fourth quarter, we saw a decline of approximately $16 million relative to the third quarter, driven by a significant reduction in bond call activity, which was unusually high in the third quarter, but was still elevated above average levels for us in the fourth quarter.
Our alternative investment portfolio remained very strong, generating income of $39.4 million in the fourth quarter compared to $38.2 million in the third quarter.
The closed block segment continues to be the primary beneficiary of the strong performance of the alternatives portfolio, while the reduced level of net investment income from bond call activity primarily impacted colonial's sequential results.
For the full year 2021, miscellaneous investment income generated unusually high levels of income, which we expect to moderate in 2021.
Moving now to capital.
The financial position of the company continues to be in great shape, providing us significant financial flexibility.
insurance companies improved to approximately 395% and holding company cash was $1.5 billion at the end of the year, both well above our targeted levels.
In addition, leverage has again trended lower with equity growth and is now 25.3%.
During the fourth quarter, we successfully added $400 million of contingent capital through pre-capitalized trust securities, with a 4.046% coupon and 20-year tenor, which we view as a cost-effective way to enhance our balance sheet strength and flexibility.
In terms of capital deployment in the fourth quarter, we executed an accelerated share repurchase transaction to buy back $50 million of our shares.
We continue to anticipate repurchasing approximately $200 million of our shares during 2022.
And looking at the capital contribution to support the LTC business, we were really pleased with the improvements in the fourth quarter outcomes.
Capital contributions in the Fairwind subsidiary were $165 million for the fourth quarter and totaled $285 million for the full year 2021, which was a decline from $424 million in 2020.
The recognition of the premium deficiency reserve for LTC, which is included in the Fairwind capital contributions, totaled $346 million after tax for full year 2021.
A portion of the funding for the PDR was generated from the favorable operating earnings in the Fairwind subsidiary and its high capital levels.
Moving to First Unum, given the better position of the LTC Block in that subsidiary, resulting from higher interest rates and the benefit of rate increase approvals for that block during 2021, we were in a position to release $75 million of the asset adequacy reserve after many years of additions to that reserve.
With this reserve release, we were able to take a $30 million dividend out of First Unum in the quarter, the first in several years.
Finally, we have a small portion of our LTC business in the provident life and accident subsidiary.
And with the increase in interest rates and repositioning our investment portfolio, the premium deficiency reserve in that block was reduced by $66 million after tax.
To summarize, we experienced favorable outcomes for LTC contributions given the improved interest rate environment, recent underlying performance of the block and rate increases on the in-force block.
So in closing, I wanted to give you an update on our progress in adopting ASC 944 or long-duration targeted improvements.
As I mentioned in October, this accounting pronouncement applies only to GAAP basis financial statements and has no economic, statutory accounting or cash flow impacts to the business.
We continue to feel good about our readiness to adopt the pronouncement as of January 1, 2023 and began to communicate some qualitative information with the filing of our third quarter Form 10-Q.
Although we continue to evaluate the effects of complying with this update, we expect that the most significant impact of the transition date will be the requirement to update our liability discount rate with one that is generally equivalent to a single A interest rate.
As we stated in the 10-Q, we expect this will result in a material decrease to accumulated other comprehensive income and primarily being driven by the difference between the expected interest rates from our investment strategy and interest rates indicative of a single A rated portfolio.
We plan to provide updates to you in 2022 as we near adoption.
Specifically, we plan to provide an update on the impact at the transition date as well as our 2022 outlook with a conference call on February 25.
We'll release details on the logistics for that call in the next several days.
I'd reiterate, we continue to be pleased with the operational performance of the company through what continues to be an extraordinary environment.
We believe we're well positioned to benefit from today's business environment, but remain vigilant as COVID-related mortality and infection rates continue to persist.

user
compname reports q4 adjusted operating earnings per share of $0.89.
q4 adjusted operating earnings per share $0.89.
anticipates hosting a conference call on february 25, 2022 to provide its outlook for 2022.
qtrly total revenue $2,979.1 million versus $4,273.5 million.

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