Unum Group (NYSE: UNM) reported net income of $392.9 million ($1.98 per diluted common share) for the second quarter of 2023, compared to net income of $367.3 million ($1.81 per diluted common share) for the second quarter of 2022.
Included in net income for the second quarter of 2023 are the after-tax amortization of the cost of reinsurance of $8.7 million ($0.04 per diluted common share), the after-tax impact of non-contemporaneous reinsurance of $7.9 million ($0.04 per diluted common share), and a net after-tax investment gain on the Company's investment portfolio of $0.7 million (de minimis amount per diluted common share). Included in net income for the second quarter of 2022 are the after-tax amortization of the cost of reinsurance of $10.5 million ($0.05 per diluted common share), the after-tax impact of non-contemporaneous reinsurance of $7.9 million ($0.04 per diluted common share), and a net after-tax investment loss on the Company's investment portfolio of $3.1 million ($0.02 per diluted common share). Excluding the items above, after-tax adjusted operating income was $408.8 million ($2.06 per diluted common share) in the second quarter of 2023, compared to $388.8 million ($1.92 per diluted common share) in the second quarter of 2022.
Effective January 1, 2023, the company adopted Accounting Standards Update 2018-12 (ASU 2018-12) which amended the accounting and disclosure requirements for long-duration insurance contracts, with changes applied as of January 1, 2021. All prior period operating results and related metrics throughout this document have been adjusted for the impacts of the adoption.
"We saw excellent enterprise-wide performance continue this quarter, including exceptional results within our group disability business and solid margins on a growing premium base," said Richard P. McKenney, president and chief executive officer. "The macroeconomic environment remains favorable for our business and our strong sales performance reflects employers' growing recognition of the differentiation of our offerings. We are well-positioned for growth at the higher end of our expected earnings range and continue to operate from a robust capital position, providing the flexibility to execute our growth strategy and return capital to shareholders."
RESULTS BY SEGMENT
We measure and analyze our segment performance on the basis of "adjusted operating income" or "adjusted operating loss", which differ from income before income tax as presented in our consolidated statements of income due to the exclusion of investment gains and losses, amortization of cost of reinsurance, and the impact of non-contemporaneous reinsurance. Investment gains or losses primarily include realized investment gains or losses, expected investment credit losses, and gains or losses on derivatives. These performance measures are in accordance with GAAP guidance for segment reporting, but they should not be viewed as a substitute for income before income tax or net income.
Unum US Segment
Unum US reported adjusted operating income of $343.1 million in the second quarter of 2023, an increase of 17.5 percent from $291.9 million in the second quarter of 2022. Premium income increased 4.5 percent to $1,641.4 million in the second quarter of 2023, compared to $1,571.0 million in the second quarter of 2022. Net investment income decreased 5.8 percent to $158.0 million in the second quarter of 2023, compared to $167.8 million in the second quarter of 2022.
Within the Unum US operating segment, the group disability line of business reported a 51.5 percent increase in adjusted operating income to $159.8 million in the second quarter of 2023, compared to $105.5 million in the second quarter of 2022. Premium income for the group disability line of business increased 9.3 percent to $772.3 million in the second quarter of 2023, compared to $706.5 million in the second quarter of 2022, driven by in-force block growth and higher sales, partially offset by lower persistency in the group short-term disability product line. Net investment income decreased 7.3 percent to $81.1 million in the second quarter of 2023, compared to $87.5 million in the second quarter of 2022, due to a decrease in the level of invested assets and lower miscellaneous investment income. The benefit ratio for the second quarter of 2023 was 59.4 percent, compared to 66.7 percent in the second quarter of 2022, due to lower claim incidence in our group long-term disability product line and favorable discount rate impacts on new claims. Group long-term disability sales were $65.6 million in the second quarter of 2023, an increase of 3.8 percent from $63.2 million in the second quarter of 2022. Group short-term disability sales were $49.6 million in the second quarter of 2023, an increase of 36.6 percent from $36.3 million in the second quarter of 2022. Persistency in the group long-term disability product line was 91.0 percent for the first half of 2023, compared to 90.9 percent for the first half of 2022. Persistency in the group short-term disability product line was 88.6 percent for the first half of 2023, compared to 89.2 percent for the first half of 2022.
The group life and accidental death and dismemberment line of business reported a 20.2 percent decrease in adjusted operating income to $51.6 million in the second quarter of 2023, compared to $64.7 million in the second quarter of 2022. Premium income for this line of business was $461.8 million in the second quarter of 2023, which was generally consistent to the $463.4 million in the second quarter of 2022. Net investment income decreased 12.0 percent to $21.9 million in the second quarter of 2023, compared to $24.9 million in the second quarter of 2022, due primarily to a decrease in the level of invested assets and lower miscellaneous investment income. The benefit ratio in the second quarter of 2023 was 73.0 percent, compared to 70.8 percent in the second quarter of 2022, due primarily to higher incidence in both the group life and accidental death and dismemberment product lines, partially offset by lower average claim size in the group life product line. Sales of group life and accidental death and dismemberment products increased 15.1 percent in the second quarter of 2023 to $88.6 million, compared to $77.0 million in the second quarter of 2022. Persistency in the group life product line was 89.3 percent for the first half of 2023, compared to 89.4 percent for the first half of 2022. Persistency in the accidental death and dismemberment product line was 88.1 percent for the first half of 2023, compared to 88.2 percent for the first half of 2022.
The supplemental and voluntary line of business reported an increase of 8.2 percent in adjusted operating income to $131.7 million in the second quarter of 2023, compared to $121.7 million in the second quarter of 2022. Premium income for the supplemental and voluntary line of business increased 1.5 percent to $407.3 million in the second quarter of 2023, compared to $401.1 million in the second quarter of 2022, with higher sales in the individual disability product line, partially offset by lower persistency in the voluntary benefits and dental and vision product lines. Net investment income decreased 0.7 percent to $55.0 million in the second quarter of 2023, compared to $55.4 million in the second quarter of 2022, due primarily to a decline in yield on invested assets and lower miscellaneous investment income, partially offset by an increase in the level of invested assets. The benefit ratio for the voluntary benefits product line was 39.2 percent in the second quarter of 2023, compared to 42.4 percent in the second quarter of 2022, due to favorable reserve development and increased lapses. The benefit ratio for the individual disability product line was 42.1 percent for the second quarter of 2023, compared to 50.3 percent in the second quarter of 2022, due primarily to higher mortality. The benefit ratio for the dental and vision product line was 76.2 percent for the second quarter of 2023, compared to 72.9 percent in the second quarter of 2022, due primarily to higher average claim size and higher claim incidence. Relative to the second quarter of 2022, sales in the voluntary benefits product line increased 15.9 percent in the second quarter of 2023 to $62.6 million. Sales in the individual disability product line increased 53.5 percent in the second quarter of 2023 to $28.7 million. Sales in the dental and vision product line increased 51.2 percent in the second quarter of 2023 to $19.5 million. Persistency in the voluntary benefits product line was 74.4 percent for the first half of 2023, compared to 75.8 percent for the first half of 2022. Persistency in the individual disability product line was 89.3 percent for the first half of 2023, compared to 89.4 percent for the first half of 2022. Persistency in the dental and vision product line was 76.1 percent for the first half of 2023, compared to 82.0 percent for the first half of 2022.
Unum International Segment
The Unum International segment reported adjusted operating income of $43.5 million in the second quarter of 2023, an increase of 54.8 percent from $28.1 million in the second quarter of 2022. Premium income increased to $207.9 million in the second quarter of 2023, compared to $179.4 million in the second quarter of 2022. Net investment income decreased 9.8 percent to $45.8 million in the second quarter of 2023, compared to $50.8 million in the second quarter of 2022. Sales increased 69.3 percent to $60.6 million in the second quarter of 2023, compared to $35.8 million in the second quarter of 2022.
The Unum UK line of business reported adjusted operating income, in local currency, of £34.3 million in the second quarter of 2023, an increase of 59.5 percent from £21.5 million in the second quarter of 2022. Premium income was £143.1 million in the second quarter of 2023, an increase of 14.5 percent from £125.0 million in the second quarter of 2022, due to in-force block growth and higher sales. Net investment income was £34.5 million in the second quarter of 2023, a decrease of 12.0 percent from £39.2 million in the second quarter of 2022, due to lower investment income from inflation index-linked bonds. The benefit ratio in the second quarter of 2023 was 72.3 percent, compared to 87.9 percent in the second quarter of 2022, due to favorable claim resolutions primarily driven by higher mortality and higher discount rates on new claims in the group long-term disability product line, and lower inflation-linked experience in benefits, partially offset by higher mortality in the group life product line. Sales increased 64.3 percent to £41.9 million in the second quarter of 2023, compared to £25.5 million in the second quarter of 2022. Persistency in the group long-term disability product line was 90.9 percent for the first half of 2023, compared to 87.4 percent for the first half of 2022. Persistency in the group life product line was 82.6 percent for the first half of 2023, compared to 88.1 percent for the first half of 2022. Persistency in the supplemental product line was 90.0 percent for the first half of 2023, compared to 91.5 percent for the first half of 2022.
Colonial Life Segment
Colonial Life reported adjusted operating income of $115.5 million in the second quarter of 2023, a 19.6 percent increase compared to $96.6 million in the second quarter of 2022. Premium income increased to $430.6 million in the second quarter of 2023, compared to $427.6 million in the second quarter of 2022, due to higher sales in prior periods, partially offset by lower persistency. Net investment income decreased to $38.0 million in the second quarter of 2023, compared to $38.7 million in the second quarter of 2022, due primarily to lower miscellaneous investment income. The benefit ratio was 48.3 percent in the second quarter of 2023, compared to 53.8 percent in the second quarter of 2022, and was favorable across all product lines primarily due to lower claim costs in the accident, sickness and disability and cancer and critical illness product lines. Sales increased 3.2 percent to $122.0 million in the second quarter of 2023, compared to $118.2 million in the second quarter of 2022. Persistency in the Colonial Life segment was 77.5 percent for the first half of 2023, compared to 78.6 percent for the first half of 2022.
Closed Block Segment
The Closed Block segment reported adjusted operating income of $51.2 million in the second quarter of 2023, which excludes the amortization of cost of reinsurance of $11.0 million and the impact of non-contemporaneous reinsurance of $9.9 million related to the Closed Block individual disability reinsurance transaction, compared to $86.9 million in the second quarter of 2022, which excludes the amortization of cost of reinsurance of $13.3 million and the impact of non-contemporaneous reinsurance of $10.0 million related to the Closed Block individual disability reinsurance transaction. Premium income for this segment is largely driven by our long-term care product line, and in the second quarter of 2023, premium income for long-term care was generally consistent with the same period of 2022. Net investment income decreased 9.5 percent to $263.9 million in the second quarter of 2023, compared to $291.5 million in the second quarter of 2022, due to lower miscellaneous investment income, primarily related to smaller increases in the net asset values on our private equity partnerships, partially offset by an increase in the level of invested assets.
The interest adjusted loss ratio for the long-term care line of business was 92.4 percent in the second quarter of 2023, compared to an interest adjusted loss ratio of 84.9 percent in the second quarter of 2022, driven primarily by higher claim incidence. The interest adjusted loss ratio for long-term care for the rolling twelve months ended June 30, 2023 was 86.6 percent.
Corporate Segment
The Corporate segment reported an adjusted operating loss of $34.9 million in the second quarter of 2023, compared to an adjusted operating loss of $36.9 million in the second quarter of 2022, due primarily to increased net investment income, which was driven by an increase in yield on invested assets, partially offset by higher pension expenses.
OTHER INFORMATION
Shares Outstanding
The Company's weighted average number of shares outstanding, assuming dilution, was 198.1 million for the second quarter of 2023, compared to 202.4 million for the second quarter of 2022. Shares outstanding totaled 196.5 million at June 30, 2023. During the second quarter of 2023, the Company repurchased 1.1 million shares at a total cost of $47.0 million.
Capital Management
At June 30, 2023, the weighted average risk-based capital ratio for the Company's traditional U.S. insurance companies was approximately 450 percent, and the holding companies had available holding company liquidity of $1,072.0 million.
Book Value
Book value per common share as of June 30, 2023 was $47.06, compared to $38.89 at June 30, 2022. Book value per common share excluding AOCI as of June 30, 2023 was $64.66, compared to $57.92 at June 30, 2022.
Effective Tax Rate
The effective tax rate on adjusted operating earnings was 21.1 percent in the second quarter of 2023.
Outlook
Full-year 2023 outlook of an increase in after-tax adjusted operating income per share of 20 percent to 25 percent when comparing historically reported 2022 results, or an increase of 10 percent to 15 percent on a consistent basis under ASU 2018-12.