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Text: Our SEC filings can be found in the Investors section on our website at unum.com.
Net income for the fourth quarter of 2020 included the following items, a net after-tax gain from the Closed Block individual disability reinsurance transaction of $32 million, an increase to the reserves backing the Closed Block long-term care product line of $119.7 million after tax, an increase to reserves backing the group pension block, which is a part of the other product line within the Closed Block of $13.8 million after-tax, and a net after-tax realized investment gain on our investment portfolio, excluding the net realized investment gain associated with the Closed Block individual disability reinsurance transaction of $1.6 million.
So net income in the fourth quarter 2019 included a net after-tax realized investment gain of $7.2 million and after tax debt extinguishment cost of $1.7 million.
So excluding these items, after tax adjusted operating income in the fourth quarter of 2020 was $235.3 million or $1.15 per diluted common share compared to $290.7 million or $1.41 per diluted common share in a year ago quarter.
We certainly appreciate you all joining us today.
And today, we will take you through our financial and operating results for the fourth quarter which finalized many of the items we shared with you on our Investor Day back in our Investor meeting in December.
This will be inclusive our Closed individual disability reinsurance transaction, which we are very happy about.
So let me start by saying, we closed out a very tumultuous year in a very strong position, as we continue to navigate the challenges of the pandemic.
But I'd also like to recognize the entire Unum team who have shown great resilience through the year and ensuring that our customers are well cared for and that we continue to build a dynamic employee benefits franchise.
Many of these factors including COVID-related mortality, saw a resurgence in the fourth quarter that is carried over into the early weeks of 2021.
These factors will help frame up our financial results during our discussion today, as well as our views for 2021.
First of all, the impacts from COVID-19 and related economic challenges in 2020.
Have been very transparent in our financial results.
And those impacts were amplified in our fourth quarter results by this resurgence that I mentioned with related deaths and infections specifically in December.
As we'll discuss in greater detail COVID-related deaths in the US for the full year totaled 345,000 with 138,000 occurring in the fourth quarter.
Further, over half of these fourth quarter deaths occurred in December alone, making it the deadliest month that we saw in the pandemic in 2020.
Since we met with you at our Investor meeting in mid December, death counts have increased significantly.
Sadly, that trend has continued into January and we will no doubt -- and it will no doubt impact our first quarter results even more than what we've seen in previous quarters.
To detail that high mortality in our life insurance business lines high-claim rates in short-term disability and high expenses from leave volumes with partial offsets from high claim terminations caused by mortality and the closed of long-term care block.
As we look forward, we are very optimistic that this will turn.
Recently, we have seen infection rates declining coupled with the rollout of vaccines.
The CDC reports that approximately 80% of the COVID-related deaths have been over the age of 65 and this population will be vaccinated in the coming months.
This same group also represented about 50% of our group life deaths by count, many of whom are retirees who maintain some level of their coverage.
This in turn is expected to drive a strong rebound in our results, likely in the second half of 2021, and cause us to expect to get back to our historic levels of growth and profitability in 2022.
There will be some volatility in our results as we progressed through this rollout period, but we remain highly confident in a full recovery as we get the pandemic behind us.
The pandemic and related impacts on the economy have also had significant impacts on our top-line premium income.
Our premiums in our core businesses for several years have seen growth in the 5% range.
But this year, it only grew by 0.6%.
And in the fourth quarter, it was down by 1.4%.
This outcome was consistent with the revised outlook we provided when the pandemic first hit that premium income would be flat to up slightly for the full year with declining year-over-year comparisons throughout 2020.
So to give perspective on the drivers of premium headwinds, there are three macro factors to highlight.
First, the immediate shift to work from -- to a work from home environment in March, resulting from the onset of the pandemic has significant impacts on new sales.
Full year sales for our core business segments, all declined in 2020, Unum US by 10%, Colonial Life by 27% and Unum International by 9.5%.
The most impacted were the voluntary benefit lines, which have a heavier emphasis on face to face sales and enrollments which require active selection.
Looking forward, this has created an acceleration of the trends we were seeing with an increased adoption of digital sales and enrollment tools, that we have invested in over the past few years, especially for our Colonial Life agents, where we saw a 240% increase in the number of agents utilizing these digital tools.
Looking at the group market, we are encouraged by the momentum, which was initially impacted by the dramatic economic shock of the pandemic, but is recovering to a more normal pace of activity as people have slowly returned to work.
Also helping our premium is how persistency is held up well in the face of the pandemic across most of our business lines.
The benefits and services we provide are highly valued by employers and [Technical Issues] they're -- came through and the retention of benefit plans, despite the financial stress many employers were facing.
I believe it also reflects the investments we have made in our customer service and the dedication of our employees to serve these customers in this time.
And finally, natural growth had a significant impact and a slowdown in premium growth in 2020.
The shock to employment levels in the spring, rising from 3.5% to a peak of 14.7% virtually wiped out all the benefit we usually see from growth in employee count and wages for existing customers.
We expect to see the benefits of natural growth reemerge as the pandemic slows and employment levels improve throughout 2021 with a more complete recovery in 2022.
The next broad factor to highlight is the interest rate environment, which continues to be a headwind for all insurance and financial services companies.
Over the course of 2020, the yield on a 10-year treasury fell from its peak of 1.92% at the beginning of the year to a low of 50 basis points in March and ended the year at 92 basis points.
These levels coupled with historically tight credit spreads continue to create challenges for achieving attractive new money yields for our investment portfolio.
Our strategy to gradually build out our alternative investment portfolio has benefited us with a well-diversified portfolio that focuses on consistent, predictable cash flows.
In addition, we have also taken the necessary steps to lower our interest rate assumptions as part of our annual reserve adequacy assumption updates.
In the tragedy of the pandemic, we see the economic effects on Unum is a once in a lifetime event.
Unlike what you might see in a P&C CAT event.
This impact has been spread out over the course of a year.
It will impact our growth and profitability for a period of time, but we will come back strong.
We would also note that through this period, our capital remained in excellent shape, as we ended the year in a strong financial position with healthy capital levels above our targets and holding company cash almost 4 times our target.
This speaks to the financial resiliency of our franchise.
And just as importantly the pandemic will be looked at as an event which we have successfully met our purpose, which is helping people through lifes challenging moments and reinforce the social value of the benefits we provide to working people and their families.
We have paid out over $150 million in COVID claims, mostly in small face amounts and provided by a company as a benefit.
I continue to be very proud of the work of our employees to provide excellent service to our customers, while we have navigated through this disruptive year.
In our most recent surveys, we have seen strong improvements in both overall Unum employee engagement and claim and satisfaction scores over 2019.
I'm also very pleased that despite disruption is presented in 2020.
Our teams were able to complete an important transaction which was the sale through reinsurance of our Closed Block of individuals disability business.
Once fully executed, it will have the benefit of freeing up approximately $650 million of capital, primarily to holding company cash, part of which we see in our fourth quarter numbers.
The transaction is a culmination of many years of effectively managing this book of business and helps us move our capital to more effective uses.
Well, the numerous disruptions of 2020 have masked the progress we are making in growing many of our more capital efficient businesses such as Voluntary Benefits, Dental and Vision and Medical Stop Loss, we are well positioned strategically and competitively in these product lines and I'm very optimistic about their long-term growth potential.
So to wrap up the year, we will look back on 2020 as the year of COVID.
It changed so much of our world, it changed a lot in how we operate our business, but it only reinforced our purpose as a company.
We saw high mortality rates, short-term claims volatility and the unprecedented disruption to the economy and the workplace.
But these are times when we step-up and deliver on our promises.
And we did, as our highly engaged and dedicated employees provided excellent service to our customers when they most needed it.
In a year of unprecedented challenges from the economy, interest rates, credit markets and the health crisis, the strength of our capital metrics improved year end in 2020 compared to a year ago, with holding company cash increasing $650 million to $1.5 billion, risk-based capital holding steady at 365% and leverage declining almost 3 points to 26%, the measures of strength and stability of the company combined with the know-how of our team give us great confidence as we work through what we all hope are the last stages of the pandemic to a more stable environment ahead.
[Technical Issues] cover the details of the fourth quarter results.
This will allow us to show how the company's business lines are progressing through the pandemic and resulting economic challenges, and outline for you the impacts it has had on our results.
Before I do so, I want to level set our reported adjusted operating income of $1.15 per share for the fourth quarter against the outlook we provided at our December 17, outlook meeting, which did call for adjusted operating earnings per share within a range of $1.14 to $1.24.
Looking back on those assumptions we provided in December actual fourth quarter results for premium growth sales, persistency, year end capital metrics and investment income impacts were consistent with the expectations we discussed.
In addition, the capital benefits from the Closed Block individual disability reinsurance transaction which were realized Phase one were slightly better and the reserve increased for LTC as well as the capital contributions we made to back this block were consistent.
The one area that did diverge significantly from our expectations with late quarter mortality, for setting [Phonetic] expectations for benefits experience, our outlook was based on an assumption of fourth quarter mortality from COVID-19 of 92,000 deaths nationwide.
Actual mortality turned out to be substantially higher at approximately 138,000 excess deaths with December accounting for over 50% of those deaths.
More specifically 25% of the quarter's excess deaths occurred in the last two weeks of the year with the average daily death count approaching 2600 pushing our reported income toward the lower end of our expected range.
The year-end surge that occurred negatively impacted our deferred tax operating income by approximately $22 million relative to the midpoint of our expectation, primarily in Unum US Group Life with minor impacts to short-term disability, Voluntary Benefits and Colonials Life Insurance business.
This was offset in part by approximately $10 million favorable before tax operating income in long-term care from higher claim claimant mortality.
This $12 million net impact late in the quarter impacted our operating income by $0.05 per share.
As Tom outlined in his opening after tax adjusted operating income in the fourth quarter was $235.3 million or $1.15 per common share.
By comparison in the third quarter of this year, after-tax operating income was $245.9 million or $1.21 per common share.
So we saw about an $11 million decline in sequential quarterly earnings.
As I'll outline in my comments in more detail, the primary drivers of that quarter-to-quarter change were higher mortality impacts in US Group Life and Colonial, higher short-term disability claims and leave volumes and group disability, and lower levels of miscellaneous investment income from bond call premiums.
We did experience some favorable offsets from long-term care claims experience and positive marks on the alternative investment portfolio.
Before I begin my discussion of operating results this quarter, let me summarize for you the economic and business conditions that existed in the quarter and outline the impacts that it had on our results.
First, as I mentioned, COVID-19 continues to have a significant impact on the external environment, driving a high level of mortality plus a continued high level of infections.
These count showed a significant resurgence in the fourth quarter as excess deaths in the US from COVID totaled an estimated 138,000 compared to 80,000 in the third quarter.
The impacts to our business are higher mortality across our Life Insurance business lines and increased short-term disability claims, which increased by 3% relative to the third quarter.
Second, employment conditions remain challenging.
Fortunately, the unemployment rate is gradually improved to 6.7% for December compared to 7.8% for September and the peak level in April of 14.8%.
However, today's rate is higher than the 3.5% level, the US economy was experiencing heading into the pandemic a year ago, high unemployment rates negatively impacted premium growth in our core business lines it a negated the benefit we usually experienced from natural growth in the in-force blocks.
We are seeing signs in our results as the impact is leveling out supporting our view that premium growth in 2021 for our core segments is expected to show a slight increase with group line increases offsetting small declines in the voluntary businesses.
With a resurgence of infections and mortality in the fourth quarter, the reopening in the economy, with some people returning to more normal activity in their [Technical Issues] day -- generate some inconsistencies [Technical Issues] COVID-related STD claims increased with the resurgence of infections pressuring overall STD benefits experience.
Leave requests continued to run significantly above year-ago levels and on a quarter-to-quarter basis, driving continued expense pressure in the group disability line.
Providing a small offset that was dental utilization in the fourth quarter, which was somewhat lower than we experienced in the third quarter.
The net impact to our fourth quarter results from these trends was negative, related to what we experienced in the third quarter.
Finally, financial market conditions were generally favorable in the quarter.
This is most impactful to Unum in the credit markets where corporate bond spreads continue to tighten while US Treasury rates did increase.
This combination continues to create a challenge for achieving attractive new money yields on investment opportunities, but it is favorable for overall credit quality and our outlook going forward for potential credit impacts.
We've seen a dramatic reduction in downgrades and impairments in the first quarter 2020, as well as the significant decline in our watchlist for potential credit concerns.
In addition, the marks on our alternative asset investment portfolio showed a strong improvement in the fourth quarter and we estimate the portfolios recovered roughly half of the valuation decline experienced in the second quarter.
Against this high level backdrop, I'll now focus on our business lines, beginning with Unum US group disability.
Adjusted operating income for the fourth quarter was $64.7 million compared to $73 million in the third quarter.
There were three primary factors that impacted these results.
First, we experienced pressure on STD claims from the resurgence in COVID infection rates with the volume of COVID-related stand-alone STD claims, increasing 45% by count from the third quarter to the fourth quarter.
Second, pressure on expenses from leave request volumes remains high and continued to impact results, with those volumes running approximately 6% higher relative to the third quarter.
And third, pressure on net investment income impacted operating income as miscellaneous investment income was $10 million lower due to lower levels of bond call premiums.
Miscellaneous investment income from bond calls was unusually high in the third quarter at $12 million and slightly below average in the fourth quarter at $2 million.
These trends were partly offset by continued favorable results in the long-term disability block with generally stable new claims incidents and continued strong claim recoveries.
We continue to be very pleased with the consistency of the results and LTD throughout this volatile environment as demonstrated by the group disability benefit ratio of 72.5% this quarter, the lowest in recent history, compared to 74.1% in the prior quarter.
Adjusted operating income for Unum US Group Life and AD&D remained depressed with a loss of $21.9 million in the fourth quarter compared to income of $13.9 million for the third quarter, with the change driven primarily by unfavorable claims experience.
The pandemic clearly impacted results.
Though our analysis continues to show a consistent pattern between our mortality trends and the National COVID mortality statistics.
That is we continue to see approximately 1% of the excess mortality by count in our Group Life results.
Specifically, in the fourth quarter, we had approximately 1,300 excess claims by count or slightly under 1% of the 138,000 reported deaths nationwide.
In the third quarter, we reported slightly more than 900 excess life claims benchmark against the base of approximately 80,000 COVID related deaths nationwide, a higher claim count of approximately 350 at an average claim size of $50,000 in the fourth quarter, accounts for part of the decline in operating earnings.
Looking ahead to the first quarter, the national mortality rate in January has exceeded the experience of December and will likely further pressure results in Group Life in the first quarter.
We believe this 1% mortality relationship to national trend will continue in the early part of 2021 and suggest that you use that as a basis for your projections and estimates in future quarters.
Over time this relationship could change and potentially exceed 1% on what we expect to be a declining overall mortality count as vaccinations rollout to different sectors of the population, initially to the elderly, teachers, medical personnel and first responders, but we will update you as these trends evolve.
The Unum US supplemental and voluntary lines experienced consistent -- generally consistent results in the fourth quarter with adjusted operating income of $100.7 million compared to a $101.3 million in the third quarter.
While consistent in total, there were some different trends for each of the primary product lines.
The voluntary benefits results were softer in the fourth quarter driven by worse experience in the individual life and short-term disability [Technical Issues] higher by COVID related claims.
The IDI line had favorable results with the benefit ratio declining to 42% in the fourth quarter from 48.6% in the third quarter, driven primarily by favorable incidence and mortality trends in the block.
Finally, results in the Dental and Vision business improved in the fourth quarter with the benefit ratio declining to 65.4% from 76.8% primarily driven by lower utilization.
Sales for Unum US declined 7% in the fourth quarter compared to the year ago quarter, sequentially though we see sales momentum building with improvement in the year-over-year decline from 18.5% in the third quarter to 7% in the fourth quarter.
Reflecting there is still -- there is still difficult yet improving commercial environment.
Total sales for group lines meaning LTD, STD and Group Life combined decreased 4.3% as the fourth quarter experience the impact of a higher than normal level of large case sales recorded in the third quarter.
Although new sales were down in total, we continue to be encouraged by the success from our HR Connect platform, which provides the differentiated experience on leading HCM platforms.
Sales on this platform increased 6% in the fourth quarter over the year ago quarter and increased 17% for the full year.
On the persistency front all group products saw an uptick from the third quarter.
As discussed throughout 2020 and on our outlook call, the supplemental lines show more pressure than the group lines, voluntary, benefits sales declined 24.2% compared to the year ago quarter, but did improve their sequential year-over-year decline, which is 35.8% in the third quarter.
Dental and Vision sales declined 9.4% as we continue to see disruption in group sales stemming from discounts and other incentives carriers are providing in response to the unusually favorable claim trends, the industry experienced in the second quarter.
This dynamic is evident in our persistence results as well, which improved to 85% versus 82.6% in the year ago quarter.
Similar to VB, we also see momentum building in the sequential year-over-year sales decline improved in dental and vision from down 33.1% in 3Q to down 9.4% in 4Q.
Finally, stop-loss sales continue to grow from a small base, up over 140% for the fourth quarter and full year providing a good long-term growth opportunity for us in a very capital efficient product line.
Moving to Unum International segment.
Adjusted operating income for the fourth quarter remained generally consistent at $20.7 million compared to $21.4 million in the third quarter.
Income for Unum UK was GBP15.4 million this quarter compared to GBP15.2 million in the prior quarter.
Overall benefits experience was slightly favorable quarter-to-quarter, so premium income was slightly lower due to persistency and an increase in reinsurance ceded.
Unum Poland saw more pressure on its results in the fourth quarter relative to prior quarters due to impacts from COVID, which began to emerge late in the year.
Although, we are encouraged by the improved income in the second half of 2020 in the international operations.
We are cautious with our near-term outlook as both the UK and Poland and deal with COVID impacts and related economic shutdowns.
Colonial Life had a more challenging fourth quarter with adjusted operating income of $71.2 million compared to $92.2 million in the third quarter.
These results were primarily impacted by a higher benefit ratio of 56.6% compared to 52.2% in the third quarter, which was primarily driven by higher COVID-related life insurance and disability claims as well as weaker results in the cancer and critical illness products.
In previous quarters, the negative impacts on our life block from COVID claims had been partially offset in favor -- by favorable results in our other two product lines.
However, in the fourth quarter, those favorable offsets were negated by a pickup and utilization of many of our health and wellness, and accident products where performance had been favorable.
Premium income for the fourth quarter was in line with the third quarter.
As we indicated in our prior meetings, it will take a return to more normal sales growth before we see growth reemerge in premium income.
I'd also point out the fourth quarter net investment income was lower than third quarter, reflecting the unusually large $8.1 million of miscellaneous investment income we did record in the third quarter.
Sales for Colonial Life declined 26.5% in the fourth quarter relative to year ago.
This represents some improvement related to year-over-year trends we saw in the second and third quarters, which were down 43% and 27.6% respectively.
The sales environment remains challenging, but we are encouraged by the adoption of the digital sales tools we have developed.
While our traditional agent assisted sales remained pressured, we saw a 30% increase in telephonic enrollment and a 25% increase in our digital self service platforms.
In addition, agent recruiting remains strong with a 10% increase year-over-year.
In the Closed Block segment, adjusted operating earnings increased to $104.2 million in the fourth quarter, which did exclude the significant items that I'll cover in just a moment.
This compares with $70.8 million in the third quarter, largely driven by the impact of higher climate mortality on the LTC block and positive marks on the alternative investment portfolio following the significant decline that we saw in value as of the end of the second quarter.
The positive mark on the alts was $29.4 million in the fourth quarter compared to $11.3 million in the third quarter and a loss of $31.3 million in the second quarter, which did reflect the negative market conditions at the end of the first quarter.
We estimate that we have recovered about half of the valuation hit we saw in the second quarter, focused mostly on the equity based and credit segment of the portfolio, and we anticipate additional recovery in future quarters.
For the long-term care block the interest adjusted loss ratio was 60.2% in the fourth quarter, excluding the impact of the reserve assumption update, which I'll cover separately in a moment.
[Technical Issues] the results of both quarters remain well below our expected long-term range of 85% to 90%.
The underlying results this quarter continued to be highly favorable relative [Technical Issues] driven by higher mortality on the claimant block.
Claimant mortality by count was approximately 15% higher than expected in the fourth quarter.
As a reminder, claimant mortality was approximately 15% higher than expected in the third quarter and 30% higher in the second quarter.
For the Closed Disability Block, the interest adjusted loss ratio was 79.5% in the fourth quarter, excluding the impacts from the reinsurance transaction, compared to 86.6% in the third quarter.
Fourth quarter experience was more consistent with our expectations as the reinsurance transaction closed in mid December, our results reflect the performance of this block for the majority of the fourth quarter.
Then wrapping up my commentary on the quarter's financial results, the adjusted operating loss in the corporate segment was $42.7 million in the fourth quarter.
This is favorable to the run rate of losses of $45 million to $50 million per quarter that we did outline for you back in our December meeting, primarily due to lower expenses in this quarter.
Now I'd like to cover the significant items recorded in the quarter, beginning with the Closed Block individual disability reinsurance transaction that we announced at our December outlook meeting.
While the accounting treatment for the transaction is complex, the primary economic impact is the ultimate release of approximately $650 million of capital backing this block, primarily as holding company cash.
This occurs with the closing of the first phase of the transaction we're reporting today with our fourth quarter results and the completion of Phase two, which we're making very good progress on here in the first quarter and we will discuss at our first quarter earnings call.
From a balance sheet perspective, the active life cohort of the block is being accounted for under deposit accounting rules and then the disabled life cohort is being accounted for as reinsurance.
As a result of accounting under different accounting model we are separating the transaction components, which results in recognizing a prepaid cost of reinsurance on the DLR component and a deposit asset on the ALR cohort.
The prepaid cost of reinsurance of $815.7 million, which largely reflects the negative ceding commission and difference between GAAP and statutory reserves held on the block, will be amortized over the life of the block with the amortization reported as a non-GAAP measure and excluded from our adjusted operating earnings.
The deposit asset related to the ALR cover is initially $88.2 million and will be adjusted going forward to reflect the net cash flows related to the performance and accretion of interest.
As I mentioned, there is a lot of complexity in the accounting of the transaction, but the economic impact driving the rationale for the transaction is the release of capital back in the block, primarily to holding company cash and the financial flexibility it provides us.
As we also just discussed back in our December meeting, we completed an update of our GAAP reserve adequacy for the LTC block and did record a reserve increase of $119.7 million on an after-tax basis which was really at a midpoint of our expected range.
The assumptions we implemented with this review were generally consistent with what we described previously.
As we mentioned, we lower the interest rate assumption for the 10-year treasury yield to an ultimate rate of 3.25% and extended the mean reversion period to seven years.
This change added approximately $500 million to reserves, but we also had favorable offsets with the success of our rate increase approval program lower expense expectations and movements in our group LTC inventories.
Cash contributions for the LTC blocks ended 2020 consistent with the expectations we provided at our outlook meeting.
The amounts contributed for full year 2020 were $411 million for Fairwind and $55 million for First Unum.
The Fairwind contribution includes funding $181 million after-tax for the LTC premium deficiency reserve in conjunction with the Maine Bureau of Insurance Examination.
These are all reflected in the capital metrics I'll outline in the capital discussion.
Also in the fourth quarter, as part of our GAAP reserve adequacy review, we did record a reserve increase of $13.8 million after tax in the group pension block, which is included in the other product line within Closed Block segments.
This Closed Block has reserves of approximately $700 million and runs off at a rate of approximately $40 million annually.
The reserve increase was really driven by lowering the interest rate assumption for this block to be more consistent with that of the LTC block.
I'd like to now turn to our investment portfolio with a few points to highlight.
First, we recorded a large after-tax realized investment gain of over $1 billion in the quarter.
This is largely related to the reinsurance transaction as the assets being transferred to the reinsurer were mark to market before being transfered as part of Phase one of the transaction.
These assets had large and unrealized gains, which were realized and the assets were transferred to the reinsurer at market.
Second, and related to the reinsurance transaction, we were able [Technical Issues] assets, which had [Technical Issues] to the Closed Disability Block, but were not transferred to the reinsurer as part of the transaction.
This quarter we allocated $360 million of these securities with a 7.4% yield and BBB rating to the LTC investment portfolio.
These above market yields add strength to the balance sheet and represent additional economics of the transaction.
Third, the overall quality of the portfolio remains in very good shape.
During the fourth quarter, we saw only $85 million of investment grade bonds downgraded to below investment grade, and $52 million of which will be upgraded back to investment grade status when the acquisition of that company is completed this year.
Our watch list is of potentially troubled investments has declined, a very low levels and we have taken -- as we have taken advantage of the rebound in the credit markets to trade out of these positions.
A final point I'll make is that we saw a strong recovery in the valuation mark on our alternative investment assets of $29.4 million this quarter.
Given the current portfolio size, we would expect quarterly positive marks on the portfolio between $8 million and $10 million.
We estimate we have recovered about half of the valuation loss from the market decline in early 2020 and continue to expect a full recovery over time.
I'd also note that it was an unusually low quarter for traditional miscellaneous investment income from bond calls.
Following an unusually high amount in the third quarter, you will see that impact in many of our core business lines.
Now looking to our capital position, we finished the year in very good shape with a risk-based capital ratio for our traditional US insurance companies at approximately 365% and holding company cash at $1.5 billion, which are both comfortably above our targeted levels.
The cash balance, includes the capital released from the Phase one of the reinsurance transaction of approximately $400 million and we'll have an additional benefit at Phase two of the transaction is completed in the first quarter.
So in total, once the reinsurance transaction was fully executed in the first quarter, we anticipate releasing over $650 million of capital, primarily to the holding company.
In addition, our leverage ratio has declined to 26.2%.
So now I'll close my comments with an update to our expectations regarding our outlook for 2021.
At our outlook meeting back in December, we indicated that we expected 2021 after tax adjusted operating income to be relatively flat with our expected income for 2020.
We also outlined a pattern for expected income of the first half 2021, mirroring the second half of 2020 with then the second half of 2021 beginning to rebound to more historic levels of growth and profitability.
So now based on the higher than estimated COVID-related mortality we experienced in the fourth quarter of 2020 and our revised assumption of a 30% increase in mortality accounts in the first quarter of 2021.
We now expect a modest decline of 5% to 6% for full year 2021 adjusted operating income per share.
We anticipate COVID having a more negative impact on our first quarter results with mortality in January being the worst month of the pandemic.
However, we continue to expect second half 2021 income to be in line with our previous outlook producing a stronger recovery as the impacts of the pandemic subside.
As for our outlook for capital metrics, we anticipate year end 2021 level of holding company cash and risk-based capital to be very in line with our year-end 2020 metrics of 365% RBC and $1.5 billion of holding company liquidity, which will provide a strong stable capital base as we work through the remaining impacts from the pandemic.
I I'll summarize by saying that we continue to be pleased with the operational performance of the company through continues to be an extraordinary environment.
And we do believe we are well positioned to benefit from improving business conditions as vaccines take hold and we move past the December and January surge in mortality and new COVID infections.
In the meantime, we'll continue to focus on the crisp execution and managed through the challenges we see today.
We will be -- this will be his last quarterly earnings call.
So I just want to recognize Peadar.
Peadar has been a great part of our executive team and we will certainly miss his leadership and expertise.
I will ask the operator to begin the Q&A session.

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q4 adjusted operating earnings per share $1.15 excluding items.
anticipates a strong recovery in after-tax adjusted operating income per share in second half of 2021.
qtrly total revenue $4,273.5 million versus $3,034.6 million.

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