Our Unum US segment reported a decrease in adjusted operating income of 19.9 percent in 2020 compared to 2019, due to unfavorable benefits experience, particularly in the group life product line, and higher operating expenses. The benefit ratio for our Unum US segment for 2020 was 68.8 percent, compared to 66.9 percent in 2019. Unum US sales decreased 10.0 percent in 2020 compared to 2019. Overall persistency was lower relative to the prior year period.
Our Unum International segment reported a decrease in adjusted operating income of 29.0 percent in 2020 compared to 2019, as measured in U.S. dollars. Our Unum UK line of business reported a decrease in adjusted operating income of 32.3 percent compared to 2019, as measured in local currency, due primarily to unfavorable benefits experience and lower net investment income, partially offset by an increase in premium income. The benefit ratio for our Unum UK line of business was 78.9 percent in 2020 compared to 76.7 percent in 2019. Unum International sales, as measured in U.S. dollars, decreased 9.5 percent in 2020 compared to 2019. Unum UK sales, as measured in local currency, decreased 10.8 percent in 2020 compared to 2019. Overall persistency was lower relative to the prior year period.
Our Colonial Life segment reported a decrease in adjusted operating income of 2.6 percent in 2020 compared to 2019 due to unfavorable benefits experience, partially offset by premium growth, higher net investment income, and lower operating expenses. The 2020 benefit ratio for Colonial Life was 52.9 percent, compared to 51.3 percent in 2019. Colonial Life sales decreased 27.0 percent in 2020 compared to 2019. Overall persistency was higher relative to the prior year period.
Our net investment income yields continue to be pressured by the low interest rate environment as we maintain consistent credit quality in our invested asset portfolio. The net unrealized gain on our fixed maturity securities was $7.6 billion at December 31,
In December 2020, Provident Life and Casualty Insurance Company (PLC), also a wholly-owned domestic insurance subsidiary of Unum Group, entered into an agreement with Commonwealth whereby PLC will provide a 12-year volatility cover to Commonwealth for the active life cohort (ALR cohort), which represents approximately five percent of the reserves ceded to Commonwealth. As part of this agreement, PLC received a payment from Commonwealth of approximately $62 million. PLC will provide similar coverage to Commonwealth related to the additional business that will be ceded as part of the second phase of the transaction. At the end of the 12-year coverage period, Commonwealth will retain the remaining incidence and claims risk on the ALR cohort of the ceded business.
In connection with the first phase of the coinsurance agreement that closed in December 2020, the ceding companies paid a total cash ceding commission to Commonwealth of approximately $438 million and transferred additional assets consisting primarily of fixed maturity securities and cash totaling $6,669.8 million. As a result of this reinsurance agreement, we recognized the following in the fourth quarter of 2020:
•Net realized investment gains totaling $1,302.3 million, or $1,028.8 million after tax, related to the transfer of investments.
•Reinsurance recoverable of $6,141.5 million related to the policies on claim status (DLR cohort).
During the fourth quarter of 2020, we completed a review of policy reserve adequacy, which incorporated our most recent experience and included a review of all material assumptions. Based on our analysis, during the fourth quarter of 2020, we updated our reserve assumptions and determined that our gross policy and claim reserves should be increased by $151.5 million to reflect our current estimate of future benefit obligations. This increase was primarily driven by an update to our interest rate assumption, partially offset by favorable premium rate increase approvals and inventory updates. See "Trends in Key Assumptions" contained herein in the "Critical Accounting Estimates" of this Item 7 for further discussion of the assumptions used in our long-term care reserve update.
During the second quarter of 2020, we recognized an impairment loss of $12.7 million on the ROU asset related to one of our operating leases for office space that we do not plan to continue using to support our general operations. The impairment loss was recorded as a result of a decrease in the fair value of the ROU asset compared to its carrying value.
On January 31, 2020, an official bill was passed formalizing the withdrawal of the U.K. from the European Union (EU). A deal was reached on December 24, 2020 on the future trading relationship with the EU. The deal focused primarily on the trading of goods rather than the U.K.’s service sector, which will be subject to further negotiations in 2021 and will focus on financial services and future regulation. In addition, the U.K. government is reviewing the regulatory framework of financial services companies which may result in changes to U.K. regulatory capital or U.K. tax regulations. We do not expect that the underlying operations of our U.K. business, nor the Polish business which is in the EU, will be significantly impacted by the withdrawal, but we may see some continued dampening of growth in the U.K. as well as earnings volatility due to the current disruption and uncertainty in the U.K. economy. We may also experience volatility in the fair values of our investments in U.K. and EU-based issuers, but we do not expect a material increase in impairments or defaults, nor do we believe this volatility will impact our ability to hold these investments. In addition, the current economic conditions may also cause volatility in our solvency ratios. Our reported consolidated financial results may continue to be impacted by fluctuations in the British pound sterling to dollar exchange rate. See "Regulation" contained herein in Item 1, "Risk Factors" contained herein Item 1A, and "Unum International Segment" contained herein this Item 7.
We have identified activity in certain of our products that is inconsistent with historical experience that is due to COVID-19 and the related environment. In particular, we have experienced higher mortality in our life product lines, higher claim incidence in certain of our disability product lines, and lower claim resolutions in our Unum UK group long-term disability product line due to disruptions in our claims processes. Conversely, we experienced lower claims utilization in our dental and vision products, particularly in the second quarter of 2020, resulting from the impact of stay-at-home orders and general quarantine measures. With respect to our long-term care product line, we have experienced higher claimant mortality and lower submitted incidence.
We have experienced a disruption in sales activity related to certain of our product lines due to some potential new customers deferring their purchasing decisions given the current economic environment and challenges in our ability to meet with potential new customers for policies that are traditionally sold in person mitigated somewhat by our investment in digital tools and capabilities. If we continue to experience this disruption, our premium income may decline. In addition, in certain of our product lines, we are also experiencing a decline in the number of lives insured by our customers as they navigate the current environment. Although we have not experienced a material decline in the collectability of premiums due from our customers, we have increased the allowance for credit losses on our premium receivable balances to consider higher unemployment levels and the general uncertainty regarding the financial condition of our customers. We continue to work with our customers to understand their respective financial conditions and develop solutions on a case-by-case basis to allow for additional payment flexibility to enhance the likelihood of premium collection and avoid disruptions in coverage. However, circumstances may deteriorate quickly which could result in the decline of persistency levels and sales growth in the near term, and potentially longer if the current situation persists, which may materially impact our results of operations through continued increases in our allowances for credit losses and lower premium income.
See Note 1 of the "Notes to Consolidated Financial Statements" contained herein in Item 8 for further information on our allowances for credit losses.
If we continue to experience unfavorable trends in the above areas of focus, we may also experience certain additional, correlated impacts such as an increase in the amortization of deferred acquisition costs if we have a decline in persistency. We may also be required to write-off or impair certain intangible/long-lived assets such as value of business acquired and goodwill if we experience declines in the overall profitability of our businesses. Furthermore, if the profitability of our businesses declines, we may also be required to establish a valuation allowance regarding the realization of our deferred tax assets.
We have strengthened our liquidity position through actions such as maintaining a higher level of short-term investments and posting additional collateral from certain of our U.S. insurance subsidiaries to the regional Federal Home Loan Banks (FHLB). As a result, we believe we have the appropriate liquidity and access to capital to avoid significant disruption to our operations. We have not yet experienced a significant impact to our liquidity as a result of the collection of premiums and submitted claims activity; however, we continually monitor the developments of these items.
Other than disruption to sales processes in certain of our product lines, we have not experienced a significant disruption to our operational processes as we have been able to successfully implement our business continuation plans to accommodate remote work arrangements for the safety of our employees and customers. We also have not experienced significant disruption to our financial reporting systems or internal control over financial reporting and disclosure controls and procedures as a result of COVID-19. We have implemented travel restrictions for the safety of our employees and customers, but do not expect those restrictions to significantly disrupt our operations.
Policy reserves for our long-term care block of business are determined using the gross premium valuation method and, prior to the third quarter of 2018, were valued based on assumptions established as of December 31, 2014, the date of our last assumption update under loss recognition. Gross premium valuation assumptions do not change after the date of loss recognition unless reserves are again determined to be deficient. We undertake a review of policy reserve adequacy annually during the fourth quarter of each year, or more frequently if appropriate, using best estimate assumptions as of the date of the review.
During the third quarter of 2018, we completed our annual review of policy reserve adequacy, which incorporated our most recent experience and included a review of all assumptions. The review utilized internal and external data and outside consulting firms for quality assurance and industry benchmarking. Based on our analysis, during the third quarter of 2018, we updated our reserve assumptions and determined that our policy and claim reserves should be increased by $750.8 million, or $593.1 million after-tax, to reflect our current estimate of future benefit obligations. This increase was primarily driven by the update to our liability and interest rate assumptions, particularly claims incidence and claim termination rates, which resulted in an increase to reserves of approximately $2.2 billion. Partially offsetting the increase was the update to our assumptions for premium rate increases which decreased reserves approximately $1.4 billion, resulting in the net increase to reserves of $750.8 million.
In October 2018, we acquired 100 percent of the shares and voting interests in Pramerica Zycie TUiR S.A. (which we have subsequently renamed Unum Zycie TUiR S.A. and refer to as Unum Poland), a financial protection benefits provider in Poland. This acquisition will expand our European presence, which we believe to be an attractive market for financial protection benefits.
We believe our disciplined approach to providing financial protection products at the workplace puts us in a position of strength. The products and services we provide have never been more important to employers, employees and their families, especially given the emergence of the COVID-19 pandemic. We continue to fulfill our corporate purpose of helping the working world thrive throughout life’s moments by providing excellent service to people at their time of need. Our strategy remains centered on growing our core businesses through investing and transforming our operations and technology to anticipate and respond to the changing needs of our customers, expand into new adjacent markets through meaningful partnerships and effective deployment of our capital across our portfolio.
Realized investment gains or losses depend on market conditions and do not necessarily relate to decisions regarding the underlying business of our segments. Our investment focus is on investment income to support our insurance liabilities as opposed to the generation of realized investment gains or losses. Although we may experience realized investment gains or losses which will affect future earnings levels, a long-term focus is necessary to maintain profitability over the life of the business since our underlying business is long-term in nature, and we need to earn the interest rates assumed in calculating our liabilities.
We measure and analyze our segment performance on the basis of "adjusted operating revenue" and "adjusted operating income" or "adjusted operating loss", which differ from total revenue and income before income tax as presented in our consolidated statements of income due to the exclusion of net realized investment gains and losses and amortization of the cost of reinsurance as well as and certain other items as specified in the reconciliations below. These performance measures are in accordance with GAAP guidance for segment reporting, but they should not be viewed as a substitute for total revenue, income before income tax, or net income.
Because the key policy reserve assumptions for policy persistency, mortality and morbidity, and discount rates are all locked in at policy issuance based on assumptions appropriate at that time, policy reserve assumptions are generally not changed due to a change in claim status from active to disabled subsequent to policy issuance. Depending on the funding mechanism, a full policy reserve is held during disability reflecting continued funding of the full policy reserve during a disability claim, or a fractional policy reserve is held reflecting that the individual policyholder would need to recover before he or she can again generate future claims for a separate occurrence. The policy reserves build up and release over time based on assumptions made at the time of policy issuance such that the reserve is eliminated as policyholders either reach the terminal age for coverage, die, or voluntarily lapse the policy. Policy reserves for Unum US, Unum International, and Colonial Life products are determined using the net
Policy reserves for certain other products, excluding individual disability and individual and group long-term care, which are no longer actively marketed and are reported in our Closed Block segment represent $5.7 billion on a gross basis. We have ceded $5.0 billion of reserves related to the other products, which are primarily comprised of policy reserves, to reinsurers. The ceded reserve balance is reported in our consolidated balance sheets as a reinsurance recoverable. We continue to service a block of group pension products, which we have not ceded, and the policy reserves for these products are based on expected mortality rates and retirement rates. Expected future payments are discounted at interest rates reflecting the anticipated investment returns for the assets supporting the liabilities.
The following table displays policy reserves, incurred claim reserves, and IBNR claim reserves by major product line, with the summation of the policy reserves and claim reserves shown both gross and net of the associated reinsurance recoverable. Incurred claim reserves represent the expected benefits payable under each incurred claim, along with other expenses associated with the payment of the claims. IBNR claim reserves include provisions for incurred but not reported claims and a provision for reopened claims for our disability products. The IBNR and reopened claim reserves for our disability products are developed and maintained in aggregate based on historical monitoring. Impacting year over year comparability of policy and claim reserves in the following chart are the 2020 long-term care and group pension reserve increases as well as the Closed Block individual disability reinsurance transaction that we entered into in December 2020. See "Executive Summary" contained herein in this Item 7 and Notes 6 and 12 of the "Notes to Consolidated Financial Statements" contained herein in Item 8 for further discussion.
Generally, we do not expect our mortality and morbidity claim incidence trends or our persistency trends to change significantly in the short-term, and to the extent that these trends do change, we expect those changes to be gradual over a longer period of time. We have historically experienced an increase in our group long-term disability morbidity claim incidence trends during and following a recessionary period and believe claim incidence trends may continue to somewhat follow general economic conditions and demographics of the general workforce. Regarding the 2020 COVID-19 pandemic, in the short-term we have experienced elevated mortality and anticipate continuation through part of 2021. However, at this time, our view on our long-term mortality and morbidity expectations has not been impacted by this limited experience.
Claim incidence rates for Unum US group long-term disability were generally consistent in 2020 compared to the prior year.
Our claim resolution rate assumption used in determining reserves is our expectation of the resolution rate we will experience over the life of the block of business and will vary from actual experience in any one period, both favorably and unfavorably. Claim resolution rates are very sensitive to operational and environmental changes and have a greater chance of significant variability in a shorter period of time than our other reserve assumptions. These rates are reviewed on a quarterly basis for the death and recovery components separately. Claim resolution rates in our Unum US group long-term disability product line have
Key assumptions and related impacts are also heavily interrelated in both their outcome and in their effects on reserves. For example, changes in the view of morbidity and mortality might be mitigated by either potential future premium rate increases and/or morbidity improvements due to general improvement in health and/or medical breakthroughs. There is potentially a wide range of outcomes for each assumption and in totality.
Approximately 93.4 percent of our DAC relates to non-interest sensitive products, and we amortize DAC for these products in proportion to the premium income we expect to receive over the life of the policies. DAC related to interest sensitive policies is amortized over the lives of the policies in relation to the present value of estimated gross profits from surrender charges, mortality margins, investment returns, and expense margins. Key assumptions used in developing the future amortization of DAC are persistency, premium income, and for our interest sensitive products, mortality margins and investment returns. We use our own historical experience and expectation of the future performance of our businesses in determining our assumptions. For non-interest sensitive products, the estimated premium income in the early years of the amortization period is generally higher than in the later years due to the anticipated cumulative effect of policy persistency in the early years, which results in a greater proportion of the costs being amortized in the early years of the life of the policy. Our key assumptions used to develop the future amortization of acquisition costs deferred during 2020 did not change materially from those used in 2019. Generally, we do not expect our key assumptions to change significantly in the short-term, and to the extent that these trends do change, we expect those changes to be gradual over a longer period of time.
See Note 1 of the "Notes to Consolidated Financial Statements" contained herein in Item 8 for further discussion of our DAC accounting policy.
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date and therefore represents an exit price, not an entry price. The exit price objective applies regardless of our intent and/or ability to sell the asset or transfer the liability at the measurement date. We generally use valuation techniques consistent with the market approach, and to a lesser extent, the income approach. The market approach uses prices and other relevant information from market transactions involving identical or comparable assets or liabilities and the income approach converts future amounts, such as cash flows or earnings, to a single present amount, or a discounted amount. We believe the market approach valuation technique provides more observable data than the income approach, considering the types of investments we hold.
The degree of judgment utilized in measuring the fair value of financial instruments generally correlates to the level of pricing observability. Financial instruments with readily available active quoted prices or for which fair value can be measured from actively quoted prices in active markets generally have more pricing observability and less judgment utilized in measuring fair value. The market sources from which we obtain or derive the fair values of our assets and liabilities carried at market value include quoted market prices for actual trades, price quotes from third party pricing vendors, price quotes we obtain from outside brokers, discounted cash flow, and observable prices for similar publicly traded or privately traded issues that incorporate the credit quality and industry sector of the issuer. Our fair value measurements could differ significantly based on the valuation technique and available inputs.
As of December 31, 2020, approximately 9.6 percent of our fixed maturity securities were categorized as Level 1, 87.6 percent as Level 2, and 2.8 percent as Level 3. Level 1 is the highest category of the three-level fair value hierarchy classification wherein inputs are unadjusted and represent quoted prices in active markets for identical assets or liabilities. The Level 2 category includes assets or liabilities valued using inputs (other than those included in the Level 1 category) that are either directly or indirectly observable for the asset or liability through correlation with market data at the measurement date and for the duration of the instrument's anticipated life. The Level 3 category is the lowest category of the fair value hierarchy and reflects the judgment of management regarding what market participants would use in pricing assets or liabilities at the measurement date using unobservable inputs to extrapolate an estimated fair value.
One of the significant estimates related to investments is our credit loss valuation. In determining when a decline in fair value below amortized cost of a fixed maturity security represents a credit loss, we evaluate the following factors:
While determining whether a credit loss exists is a judgmental area, we utilize a formal, well-defined, and disciplined process to monitor and evaluate our fixed income investment portfolio, supported by issuer specific research and documentation as of the end of each period. The process results in a thorough evaluation of problem investments and the recording of credit losses on a timely basis for investments determined to have credit loss.
We use a comprehensive rating system to evaluate the investment and credit risk of our mortgage loans and to identify specific properties for inspection and reevaluation. We estimate an allowance for credit losses that we expect to incur over the life of our mortgage loans using a probability of default method. For each loan, we estimate the probability that the loan will default before its maturity (probability of default) and the amount of the loss if the loan defaults (loss given default). These two factors result in an expected loss percentage that is applied to the amortized cost of each loan to determine the expected credit loss. Mortgage loans are reported at amortized cost less the allowance for expected credit losses with the change in expected credit losses recognized as a realized investment loss in our consolidated statements of income.
There are a number of significant risks inherent in the process of monitoring our investments for credit losses and determining when and if a credit loss exists. These risks and uncertainties include the following possibilities:
•The economic outlook, either domestic or foreign, may be less favorable or may have a more significant impact on the borrower than anticipated, and as such, the investment may not recover in value.
The weighted average assumptions used in the measurement of our net periodic benefit costs for the years ended December 31 are as follows:
During 2020, the fair value of plan assets in our U.S. qualified defined benefit pension plan increased $110.9 million, or 6.9 percent due to a favorable return on assets which resulted in a gain of approximately 14.2 percent, partially offset by the payment of benefits and expenses. The fair value of plan assets in our U.K. pension plan increased £24.4 million, or 12.8 percent, due primarily to a favorable return on assets which resulted in a gain of approximately 14.9 percent. Although our rate of return on plan assets for 2020 exceeded our assumptions used in the measurement of our net periodic benefit costs, we believe our assumptions appropriately reflect the impact of the current economic environment and our expectations for the future investment returns based on the plan's asset allocation.
The fair value of plan assets in our U.S. qualified defined benefit pension plan was $1,710.9 million at December 31, 2020, compared to $1,600.0 million at December 31, 2019. The plan was in an underfunded position of $339.0 million and $300.8 million at December 31, 2020 and December 31, 2019, respectively. This year-over-year change was due primarily to the increase in period benefit obligations due to the decrease in discount rate, partially offset by higher than expected asset returns.
The fair value of plan assets in our U.K. pension plan was £215.1 million at December 31, 2020, compared to £190.7 million at December 31, 2019. The U.K. pension plan was in an underfunded position of £4.3 million and £3.1 million at December 31, 2020 and 2019, respectively. This year-over-year change was due primarily to the increase in period benefit obligations due to the decrease in discount rate, partially offset by higher than expected asset returns.
The fair value of plan assets in our OPEB plan was $9.3 million and $9.9 million at December 31, 2020 and 2019, respectively. These assets represent life insurance contracts to fund the life insurance benefit portion of our OPEB plan. Our OPEB plan represents a non-vested, non-guaranteed obligation, and current regulations do not require specific funding levels for these benefits, which are comprised of retiree life, medical, and dental benefits. It is our practice to use general assets to pay medical and dental claims as they come due in lieu of utilizing plan assets for the medical and dental benefit portions of our OPEB plan.
In 2018, we refined our calculations during the one-year measurement period after the enactment date of TCJA as allowed by Staff Accounting Bulletin No. 118 and increased our provisional Repatriation Tax estimate by $11.5 million to $77.9 million.
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.
Net investment income was lower in 2020, relative to 2019, due to a decline in the yield on invested assets, a decrease in the level of invested assets supporting the Closed Block individual disability product line resulting from the reinsurance transaction that closed in December 2020, and lower income on our private equity partnerships. Partially offsetting the decline was an increase in the level of invested assets for our remaining product lines and higher miscellaneous investment income. Net investment income in 2019 was slightly lower than 2018 due to lower miscellaneous investment income and a decline in the yield on invested assets, partially offset by an increase in the level of invested assets.
We recognized a net realized investment gain totaling $1,302.3 million in 2020 related to the transfer of investments in the Closed Block individual disability reinsurance transaction. Credit losses on fixed maturity securities of $53.6 million were recognized in net realized investment gains and losses in 2020 compared to $25.3 million and $17.5 million in 2019 and 2018. We also recognized $36.6 million of impairment losses in 2020 related to certain of our home office buildings available for lease and classified as investment real estate. Also, included in net realized investment gains and losses were changes in the fair value of an embedded derivative in a modified coinsurance arrangement, which resulted in realized gains (losses) of $(17.0) million, $8.3 million, and $(15.2) million in 2020, 2019, and 2018, respectively. 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 only (ASO) business, and the underlying results and associated net investment income of certain assumed blocks of individual disability reinsured business in the Closed Block segment.
Commissions and the deferral of acquisition costs were lower in 2020 compared to 2019 driven primarily by lower sales in our Unum US voluntary benefits product line and Colonial Life segment. Commissions increased in 2019 compared to 2018 driven primarily by sales growth. The deferral of acquisition costs was lower during 2019 relative to 2018 due primarily to a shift in product mix that resulted in lower first-year commissions and a lower corresponding deferral of acquisition costs in the Unum US supplemental and voluntary product line. The amortization of deferred acquisition costs was generally consistent with 2019. Growth in the level of the deferred asset in our Unum US and Colonial Life segments resulted in higher amortization of deferred acquisition costs in 2019 compared to 2018. Also contributing to the increase in the amortization of deferred acquisition costs in 2019 was a higher level of policy terminations experienced in the Unum US voluntary benefits product line and the impact of the prospective unlocking for future experience relative to assumptions in certain of our Colonial life products.
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. Given the uncertainty caused by the COVID-19 pandemic, we expect to experience further disruption in our sales activity in 2021.
The Unum US segment is comprised of group disability insurance, which includes our long-term and short-term disability products, our medical stop-loss product, and our fee-based leave management services and ASO business, group life and accidental death and dismemberment products, and supplemental and voluntary lines of business, which are comprised of individual disability, voluntary benefits, and dental and vision products.
Premium income increased compared to 2019, driven primarily by growth in the in-force block resulting from higher prior period sales, partially offset by lower persistency in the short-term disability product line. Net investment income was lower relative to 2019 due to a decline in yield on invested assets and a lower level of invested assets, partially offset by higher miscellaneous investment income. Other income increased relative to 2019 due to continued growth in our fee-based service products.
Benefits experience was favorable compared to 2019 due primarily to favorable claim recovery experience in our group long-term disability product line, partially offset by higher claims incidence in the short-term disability product line, resulting from the impacts of COVID-19.
Commissions and the deferral of acquisition costs were slightly lower compared to 2019 due to lower sales. The amortization of deferred acquisition costs increased relative to 2019 due to growth in the level of the deferred asset. Our other expense ratio for 2020 increased compared to 2019 due primarily to an increase in expenses associated with the administration of our fee-based service products, partially elevated from higher volumes due to the current COVID-19 environment. Also contributing to the higher expense ratio was an increase in operational investments in our business which was balanced with our continued focus on expense management and operating efficiencies.
We had goodwill of $8.9 million at December 31, 2020, none of which is currently believed to be at risk for future impairment.
Premium income increased compared to 2018, driven primarily by growth in the in-force block resulting from higher prior period sales and higher persistency in the group short-term disability product line. Net investment income was lower relative to 2018 due to lower miscellaneous investment income, a decline in yield on invested assets, and a lower level of invested assets. Other income increased relative to 2018 due to growth in our fee-based service products.
Premium income decreased compared to 2019 due to lower sales and persistency. Net investment income was lower compared to 2019 due to a decline in yield on invested assets and a lower level of invested assets.
Benefits experience was unfavorable compared to 2019 due primarily to higher claims incidence in the group life product line, resulting from the impacts of COVID-19, partially offset by favorable experience in the accidental death and dismemberment product line.
Commissions and the deferral of acquisition costs were lower compared to 2019 due to lower sales. The amortization of deferred acquisition costs increased relative to 2019 due to growth in the level of the deferred asset. The other expense ratio was consistent with 2019.
Commissions and the deferral of acquisition costs were lower in 2020 compared to 2019 due primarily to lower sales in the voluntary benefits product line. The amortization of deferred acquisition costs decreased in 2020 relative to 2019 due primarily to a decline in the level of the deferred asset in the voluntary benefits product line. The other expense ratio was consistent compared to 2019 due to our continued focus on expense management and operating efficiencies.
Year Ended December 31, 2020 Compared with Year Ended December 31, 2019
Group sales increased in the core market, which we define as employee groups with fewer than 2,000 employees, compared to 2019 due to growth in our medical stop-loss product, partially offset by lower sales to new and existing customers in our group disability and group life products. Group sales declined in the large case market compared to 2019 due to lower sales to new and existing customers in all products. The sales mix in the group market sector for 2020 was approximately 61 percent core market and 39 percent large case market.
We believe the lower sales levels during 2020 compared to 2019 are driven by the impact of COVID-19, which has caused higher unemployment levels and general uncertainty around the financial condition of our customers as well as disruption in our sales processes. Further discussion of COVID-19 is contained herein in "Executive Summary" in this Item 7.
Group sales declined slightly compared to 2018 due to lower new customer sales in both the core market and large case markets, partially offset by higher sales to existing customers in both the core and large case markets and growth in our medical stop-loss product. The sales mix in the group market sector for 2019 was approximately 56 percent core market and 44 percent large case market.
results relative to the prior period. In periods when the functional currency weakens, translation decreases current period results relative to the prior period.
Premium income was higher compared to 2019 due to growth in the in-force blocks and the impact of rate increases in the group long-term disability product line.
Net investment income was lower compared to 2019 due to lower miscellaneous investment income resulting from a higher than normal level of bond calls in 2019, a decline in the yield on fixed-rate bonds, and lower investment income from inflation index-linked bonds. Our investments in inflation index-linked bonds support the claim reserves associated with certain group policies that provide for inflation-linked increases in benefits. The change in net investment income attributable to these index-linked bonds is generally offset by a change in the reserves for future claim payments related to the inflation index-linked group long-term disability and group life policies.
Commissions and the deferral of acquisition costs were lower relative to 2019 due to lower sales. The amortization of acquisition costs was generally consistent with the prior year. The other expense ratio increased relative to 2019 with certain expenses related to COVID-19 mostly offset by our continued focus on expense management and operating efficiencies.
Group long-term disability sales were lower in 2020 compared to 2019, with lower sales to new and existing customers in both the core market, which we define as employee groups with fewer than 500 employees, and the large case market.
Group life sales declined in 2020 compared to 2019 due to a decrease in sales to new customers in both our core and large case markets and lower sales to existing customers in the large case market, partially offset by higher sales to existing customers in our core market.
We are committed to driving growth in the Unum International segment and will build on the capabilities that we believe will generate growth and profitability in our businesses over the long term. Within our Unum UK line of business, expanding our group long-term disability market position remains a priority. In addition, we will continue to focus on increasing participation levels while also developing new distribution and services to reach new small case clients, such as utilizing our Help@hand application. We will also continue the implementation of price increases and will maintain our disciplined sales approach. Within our Unum Poland line of business, we will leverage our U.S. and U.K. expertise to grow existing distribution channels and expand our current product offerings. We continue to invest in digital capabilities, technology, and product enhancements which we believe will drive sustainable growth over the long term.
Commissions and the deferral of acquisition costs declined relative to 2019 due to lower sales. The amortization of deferred acquisition costs was consistent with 2019. The other expense ratio improved relative to 2019 due to a decline in sales-related expenses and our continued focus on expense management and operating efficiencies.
Premium income increased compared to 2018 as a result of growth in the in-force block resulting from prior period sales growth, which includes the expansion of our dental and vision products, offset partially by lower persistency. Net investment income decreased relative to 2018 due to a lower yield on invested assets and lower miscellaneous investment income, partially offset by an increase in the level of invested assets.
Commissions and the deferral of acquisition costs were generally consistent with 2018 due to stable sales results relative to the prior year. The amortization of deferred acquisition costs increased compared to 2018 due primarily to overall growth in the level of the deferred asset and the impact of the prospective unlocking for future experience relative to assumptions for our interest-sensitive voluntary life products. The other expense ratio improved relative to 2018 due to an increase in premium income and our continued focus on expense management and operating efficiencies.
We remain committed to providing employees and their families with simple, modern, and personal benefit solutions. During 2021, we will continue to utilize our strong distribution system of agency sales personnel, benefit counselors and broker partnerships. We will also continue to invest in new solutions and digital capabilities to expand our reach and effectiveness, driving growth and improving productivity while enhancing the customer experience. In 2021, we will also bring an enhanced engagement and enrollment platform to market enabling deeper connections with employees through the enrollment process as well as maintaining stronger relationships throughout the customer lifecycle. We believe our distribution system, customer service capabilities, digital and virtual tools, and ability to serve all market sizes position us well for future growth in the long-term.
The Closed Block segment consists of group and individual long-term care, individual disability, and other insurance products no longer actively marketed. We discontinued offering individual long-term care in 2009 and group long-term care in 2012. Individual disability in this segment generally consists of policies we sold prior to the mid-1990s and entirely discontinued selling in 2004. In December 2020, we ceded a significant portion of this individual disability business to a third party reinsurer. See "Executive Summary" herein Item 7 for further discussion. Other insurance products include group pension, individual life and corporate-owned life insurance, reinsurance pools and management operations, and other miscellaneous product lines.
The interest adjusted loss ratio for long-term care, excluding the previously discussed reserve increase, was favorable to our expectations driven primarily by higher claimant mortality and lower submitted claims. The interest adjusted loss ratio for individual disability, excluding the impacts from the reinsurance transaction that closed in December 2020, was unfavorable relative to 2019 driven by overall unfavorable claims activity and the impact of the one-time reinsurance cost during the first quarter of 2020.
Net investment income was higher relative to 2018 primarily due to an increase in the level of invested assets, partially offset by lower miscellaneous investment income. Other income continues to decline due to expected terminations and maturities.
The other expense ratio was higher than 2018 due to the expected decline in premium income for individual disability, partially offset by our continued focus on expense management and operating efficiencies.
As a result of the execution of the first phase of the reinsurance agreement related to our individual disability line of business in December 2020 where we have fully ceded a significant portion of this business, we expect that the primary impact on earnings will be the amortization of the cost of reinsurance for that agreement which we expect to be in the range of $75 million to $85 million for 2021 and will continue to be amortized on a declining trajectory consistent with the expected run-off pattern of the ceded reserves, which we estimate to be approximately 25 years. We expect that the second phase of this transaction will be executed in the first quarter of 2021. Due to the relatively small amount of business that will be retained following completion of the second phase of this transaction, we expect that the interest adjusted loss ratio will be more volatile from period to period, however, should remain within our historical experience over the long-term and we expect minimal earnings related to the retained business.
Interest, debt, and other expenses were higher in 2019 relative to 2018, driven primarily by costs related to the early retirement of debt, higher pension costs, and a higher level of outstanding debt, partially offset by acquisition and restructuring costs in 2018 that did not recur. See "Liquidity and Capital Resources - Debt” contained herein in Item 7 for further discussion.
Our investment portfolio is well diversified by type of investment and industry sector. We have established an investment strategy that we believe will provide for adequate cash flows from operations and allow us to hold our securities through periods where significant decreases in fair value occur. We believe our emphasis on risk management in our investment portfolio has positioned us well and generally reduced the volatility in our results.
As part of the Closed Block individual disability reinsurance agreement entered into in December 2020 with Commonwealth, we transferred fixed maturity securities of $4,686.8 million on an amortized cost basis and $5,958.4 million on a fair value basis and we recorded a total realized investment gain from the transfer of these securities, including a related net gain from cash flow hedges of $1,302.3 million. Although we transferred a significant portion of our fixed maturity security portfolio as part of this agreement, the overall credit profile of our remaining portfolio has not changed. See "Executive Summary" for further information on the reinsurance transaction contained herein in this Item 7.
At December 31, 2020, we held no fixed maturity securities with a gross unrealized loss greater than $10.0 million.
•$17.1 million on fixed maturity securities issued by an oil and gas producer. The profitability of the company has been impacted by the decline in oil prices and the company has a high level of debt. The company filed for bankruptcy as expected in early April 2020. We changed our intent to hold this security in the third quarter of 2020 and recognized a $1.0 million loss on the sale of the security in addition to the credit loss previously recorded.
•$10.2 million on fixed maturity securities issued by a paper company whose sales of lumber and other products have been impacted by the slowdown in the economy. As a result of an improvement in lumber and other products, during
the fourth quarter of 2020, we reversed the remainder of the allowance for credit losses that we had recognized in the previous quarters of 2020.
During the remainder of 2020, we did not experience any credit losses exceeding $10 million.
As of December 31, 2020, the amortized cost net of allowance for credit losses and fair value of our below-investment-grade fixed maturity securities was $3,256.0 million and $3,500.1 million, respectively. Below-investment-grade securities are inherently riskier than investment-grade securities since the risk of default by the issuer, by definition and as exhibited by bond rating, is higher. Also, the secondary market for certain below-investment-grade issues can be highly illiquid. Additional downgrades may occur, but we do not anticipate any liquidity problems resulting from our investments in below-investment-grade securities, nor do we expect these investments to adversely affect our ability to hold our other investments to maturity.
At December 31, 2020, approximately 51 percent of our exposure to the energy sector was represented by the midstream (pipeline) subsector which tends to be more correlated to product volume sales than to commodity prices. Approximately 24 percent of our exposure is in the oil and gas independent exploration and production subsector where underlying profitability is highly correlated with oil and gas prices. Approximately 16 percent of our exposure is in the integrated subsector which is comprised of large highly rated companies. The majority of our energy sector holdings are investment-grade fixed maturity securities.
The carrying value of our mortgage loan portfolio was $2,432.1 million and $2,397.0 million at December 31, 2020 and 2019, respectively. Our investments in mortgage loans are carried at amortized cost less an allowance for credit losses. Our mortgage loan portfolio is comprised entirely of commercial mortgage loans. Our mortgage loan portfolio is well diversified geographically and among property types. Due to conservative underwriting, the incidence of problem mortgage loans and foreclosure activity continues to be low. We held no impaired mortgage loans at December 31, 2020 or December 31, 2019. Effective January 1, 2020, we adopted a new accounting standard requiring the estimation of an allowance for expected credit losses which was $13.1 million at December 31, 2020. See Notes 1 and 3 in the "Notes to Consolidated Financial Statements" contained herein in Item 8 for further discussion of our mortgage loan portfolio and the allowance for expected credit losses.
The carrying value of our investments in private equity partnerships was $747.5 million and $616.7 million at December 31, 2020 and December 31, 2019, respectively. These partnerships are passive in nature and represent funds that are primarily invested in private credit, private equity, and real assets. The carrying value of the partnerships is based on our share of the partnership's NAV and changes in the carrying value are recorded as a component of net investment income. We receive financial information related to our investments in partnerships and generally record investment income on a one-quarter lag in accordance with our accounting policy. We recorded net investment income totaling $19.8 million for the year ended December 31, 2020 for the partnerships, which included net investment income of $29.4 million in the fourth quarter of 2020
In 2020, we recognized impairment losses totaling $36.6 million on real estate held for investment.
other capital securities and borrowings from existing credit facilities, as needed. As of December 31, 2020, Unum Group and our intermediate holding companies had available holding company liquidity of $1,512 million that was held primarily in bank deposits, commercial paper, money market funds, corporate bonds, and asset backed securities. No significant restrictions exist on our ability to use or access funds in any of our U.S. or foreign intermediate holding companies. Dividends repatriated from our foreign subsidiaries are eligible for 100 percent exemption from U.S. income tax but may be subject to withholding tax and/or tax on foreign currency gain or loss. See "Closed Block Individual Disability Reinsurance Agreement" and "Cash Available from Subsidiaries" below for further discussion regarding the Northwind assets.
We have strengthened our liquidity position through actions such as maintaining a higher level of short-term investments and posting additional collateral from certain of our U.S. insurance subsidiaries to the regional FHLBs. As a result, we believe we have the appropriate liquidity and access to capital to avoid significant disruption to our operations. We have not yet experienced a significant impact to our liquidity as a result of the collection of premiums and submitted claims activity; however, we continually monitor the development of these items.
See "Debt" and "Transfers of Financial Assets" for further discussion of our debt arrangements, credit facilities, and of our FHLB arrangements contained herein in this Item 7. For further discussion of the key considerations regarding the impacts of COVID-19 see "Executive Summary" herein in this Item 7.
In December 2020, Provident Life and Accident Insurance Company, The Paul Revere Life Insurance Company, and Unum Life Insurance Company of America (Unum America), wholly-owned domestic insurance subsidiaries of Unum Group and collectively referred to as "the ceding companies", entered into a series of agreements (collectively referred to as the "reinsurance agreement") with Commonwealth to reinsure effective as of July 1, 2020, approximately 75 percent of the Closed Block individual disability insurance business, primarily direct business written by the ceding companies. Commonwealth has established and will maintain collateralized trust accounts for the benefit of the ceding companies to secure its obligations under the reinsurance agreement. As part of the agreement, additional Closed Block individual disability business consisting of direct business not ceded in December 2020 and business assumed by the ceding companies from third parties, is expected to be reinsured in the first quarter of 2021, subject to receipt of required consents and regulatory approvals and the satisfaction or waiver of other customary closing conditions and is considered the second phase of this transaction.
Also in December 2020, prior to entering into this agreement with Commonwealth, the ceding companies recaptured their respective reinsurance agreements with Northwind Reinsurance Company (Northwind Re) where substantially all of the ceding
Unum Group and certain of its intermediate holding company subsidiaries depend on payments from subsidiaries to pay dividends to stockholders, to pay debt obligations, and/or to pay expenses. These payments by our insurance and non-insurance subsidiaries may take the form of dividends, operating and investment management fees, and/or interest payments on loans from the parent to a subsidiary.
In connection with a financial examination of Unum Life Insurance Company of America, which closed at the end of the second quarter of 2020, the Maine Bureau of Insurance (MBOI) concluded that Unum America’s long-term care statutory reserves are deficient by $2.1 billion as of December 31, 2018, the financial statement date of the examination period. The MBOI granted permission to Unum America on May 1, 2020, to phase in the additional statutory reserves over seven years beginning with year-end 2020 and ending with year-end 2026. The 2020 phase-in amount was approximately $229 million and was funded using cash flows from operations. This strengthening will be incorporated by using explicitly agreed upon margins into our existing assumptions for annual statutory reserve adequacy testing. These actions will add margin to Unum America's best estimate assumptions. Our long-term care reserves and financial results reported under generally accepted accounting principles are not affected by the MBOI’s examination conclusion. We plan to fund the additional statutory reserves with expected cash flows.
Unum Group and/or certain of its intermediate holding company subsidiaries may also receive dividends from our U.K. subsidiaries, the payment of which may be subject to applicable insurance company regulations and capital guidance in the U.K. Unum Limited is subject to the requirements of Solvency II, an European Union (EU) directive, which prescribes capital requirements and risk management standards for the European insurance industry. Our European holding company is also subject to the Solvency II requirements relevant to insurance holding companies, while its subsidiaries (the Unum European Economic Area (EEA) Group), which includes Unum Limited, are subject to group supervision under Solvency II. The Unum EEA Group received approval from the U.K. Prudential Regulation Authority to use its own internal model for calculating
regulatory capital and also received approval for certain associated regulatory permissions including transitional relief as the Solvency II capital regime continues to be implemented. In connection with the recent exit from the EU, the U.K. government is reviewing the regulatory framework of financial services companies which may result in changes to U.K. regulatory capital or U.K. tax regulations. Recent economic conditions contributed to volatility in our solvency ratios used to monitor capital adequacy.
We filed a shelf registration with the Securities and Exchange Commission in 2020 to issue various types of securities, including common stock, preferred stock, debt securities, depository shares, stock purchase contracts, units and warrants. The shelf registration enables us to raise funds from the offering of any securities covered by the shelf registration as well as any combination thereof, subject to market conditions and our capital needs.
See "Critical Accounting Estimates" contained herein in this Item 7 and Notes 3, 4, 6, 8, 9, 12, and 15 of the "Notes to Consolidated Financial Statements" contained herein in Item 8 for additional information on our various commitments and obligations.
To help limit the credit exposure of derivatives, we enter into master netting agreements with our counterparties whereby contracts in a gain position can be offset against contracts in a loss position. We also typically enter into bilateral, cross-collateralization agreements with our counterparties to help limit the credit exposure of the derivatives. These agreements require the counterparty in a loss position to submit acceptable collateral with the other counterparty in the event the net loss position meets or exceeds an agreed upon amount. Credit exposure on derivatives is limited to the value of those contracts in a net gain position, including accrued interest receivable less collateral held. At December 31, 2020, we had $0.7 million credit exposure on derivatives. We held cash collateral from our counterparties of $8.7 million at December 31, 2020 and had posted fixed maturity securities with a carrying value of $54.0 million as collateral to our counterparties.
To manage our cash position more efficiently, we may enter into repurchase agreements with unaffiliated financial institutions. We generally use repurchase agreements as a means to finance the purchase of invested assets or for short-term general business purposes until projected cash flows become available from our operations or existing investments. We had no repurchase agreements outstanding at December 31, 2020, nor did we utilize any repurchase agreements during 2020. Our use of repurchase agreements and securities lending agreements can fluctuate during any given period and will depend on our liquidity position, the availability of long-term investments that meet our purchasing criteria, and our general business needs.
During 2020, we issued $500.0 million of 4.50% senior notes due 2025 and received total proceeds of $494.1 million. During 2019, we issued $450.0 million of 4.50% senior notes due 2049 and $400.0 million of 4.00% senior notes due 2029 and received total proceeds of $841.9 million. During 2018, we issued $300.0 million of 6.25% junior subordinated notes due 2058 and received total proceeds of $290.7 million.
See "Debt" contained herein in this Item 7, and Notes 8, 10, and 12 of the "Notes to Consolidated Financial Statements" contained herein in Item 8 for further information.
We maintain an ongoing dialogue with the four rating agencies that evaluate us in order to inform them of progress we are making regarding our strategic objectives and financial plans as well as other pertinent issues. A significant component of our communications involves our annual review meeting with each of the four agencies. We hold other meetings throughout the year regarding our business, including, but not limited to, quarterly updates.
On April 16, 2020, Fitch downgraded the financial strength rating on our rated domestic insurance subsidiaries from A to A- and the issuer credit rating on our senior debt obligations from BBB to BBB- due to ongoing concerns regarding our long-term care exposure and the adequacy of those reserves. In addition, Fitch also maintained a negative outlook following the downgrade due
On May 4, 2020, Moody's downgraded the financial strength rating on our rated domestic insurance subsidiaries from A2 to A3 and the issuer credit rating on our senior debt obligations from Baa2 to Baa3 due to concerns around capital flexibility related to future funding requirements for our long-term care reserves. In addition, Moody's updated their outlook from stable to negative due to concerns over the current COVID-19 pandemic and the impact it may have on our financial position and operating results.
On May 27, 2020, AM Best revised their outlook from stable to negative while affirming both the financial strength ratings on our domestic insurance subsidiaries and the long-term issuer ratings on our senior debt obligations. The negative outlook reflects concerns related to future capital contributions required to support our long-term care reserves as well as the impacts from current economic conditions on our operating results and investment portfolio.
There have been no other changes in the rating agencies' outlooks or ratings during 2020 or in 2021 prior to the date of this filling.
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Auditing the reinsurance of the closed block individual disability insurance was complex due to multiple elements of the transaction including the assessment of risk transfer, determination of the cost of reinsurance asset, accounting for transfers of assets and liabilities and recording of the reinsurance recoverable amounts.
In determining when a decline in fair value below amortized cost of a fixed maturity security is a credit loss, we evaluate available information, both positive and negative, in reaching our conclusions. In particular, we consider the strength of the issuer's balance sheet, its debt obligations and near-term funding requirements, cash flow and liquidity, the profitability of its core businesses, the availability of marketable assets which could be sold to increase liquidity, its industry fundamentals and regulatory environment, and its access to capital markets. Although all available and applicable factors are considered in our analysis, our expectation of recovering the entire amortized cost basis of the security, whether we intend to sell the security, whether it is more likely than not that we will be required to sell the security before recovery of its amortized cost, and whether the security is current on principal and interest payments are the most critical factors in determining whether impairments represent credit losses. The significance of the decline in value is also an important factor, but we generally do not record an impairment loss based solely on this factor, since often other more relevant factors will impact our evaluation of a security.
For securities with a decline in fair value below amortized costs which we intend to sell or more likely than not will be required to sell before recovery in value, the amortized cost of the investment is written down to fair value through earnings, and an impairment loss is recognized in the current period. For securities that we believe are impaired and which we do not intend to sell and it is not more likely than not that we will be required to sell before recovery in value, we calculate an allowance for credit losses recognized in earnings which generally represents the difference between the amortized cost of the security and the present value of our best estimate of cash flows expected to be collected, discounted using the effective interest rate implicit in the security at the date of acquisition and limited by the difference between amortized cost and fair value of the security. For fixed maturity securities for which we have recognized an allowance for credit loss through earnings, if through subsequent evaluation there is a significant increase in expected cash flows, the allowance is reduced and is recognized as a reduction to credit losses in the current period. See Notes 2 and 3.
The primary market factors that we consider in our forecast of future market conditions are gross domestic product, unemployment rates, interest rates, inflation, commercial real estate values, household formation, and retail sales. We also forecast certain loan specific factors such as growth in the fair value and net operating income of collateral by property type. We include our estimate of these factors over a two-year period and for the remainder of the loans’ estimated lives, adjusted for estimated prepayments. Past the two-year forecast period, we revert to the historical assumptions ratably by the end of the fifth year of the loan after which we utilize only historical assumptions.
Tax credit partnerships in which we have invested were formed for the purpose of investing in the construction and rehabilitation of low-income housing. Because the partnerships are structured such that there is no return of principal, the primary sources of investment return from our tax credit partnerships are tax credits and tax benefits derived from passive losses on the investments, both of which may exhibit variability over the life of the investment. These partnerships are accounted for using either the proportional or the effective yield method, depending primarily on whether the tax credits are guaranteed through a letter of
credit, a tax indemnity agreement, or another similar arrangement. Tax credits received from these partnerships are reported in our consolidated statements of income as either a reduction of premium tax or a reduction of income tax. The amortization of the principal amount invested in these partnerships is reported as a component of either premium tax or income tax.
Investment real estate is primarily comprised of property held for the production of income and property held for sale. Property held for the production of income is carried at cost less accumulated depreciation and any write-downs to fair value for impairment losses. Depreciation is recorded on a straight-line basis over the estimated useful life of the asset. A review for impairment is made whenever events or circumstances indicate that the carrying value may not be recoverable. An impairment loss is recognized when the carrying value of the property exceeds the expected undiscounted cash flows generated from the property, at which point the carrying value is written down to an estimated fair value. Real estate held for sale is carried at the lower of depreciated cost or fair value less estimated selling costs and is not further depreciated once classified as such.
Changes in the fair value of a derivative designated as a fair value hedge and changes in the fair value of the hedged item attributable to the risk being hedged are recognized in earnings as a component of net realized investment gain or loss during the period of change in fair value. For gains or losses on the derivative instrument that are excluded from the assessment of hedge effectiveness, those gains and losses are recognized in other comprehensive income or loss and amortized into earnings in the same income statement line as the related hedged item. The gain or loss on the termination of a fair value hedge is recognized in earnings as a component of net realized investment gain or loss during the period in which the termination occurs. When interest rate swaps are used in hedge accounting relationships, periodic settlements are recorded in the same income statement line as the related settlements of the hedged items.
The allowance on our premiums receivable is primarily determined using an aging analysis as well as historical lapse and delinquency rates by line of business, adjusted for key factors that may impact our future expectation of premium receipts such as changes in customer demographics, business practices, economic conditions, and product offerings. We write off premiums receivable amounts when determined to be uncollectible, which is based on various factors, including the aging of premiums receivable past the due date and specific communication with customers. At January 1, 2020 and December 31, 2020, the allowance for expected credit losses on premium receivables was $23.8 million and $38.8 million, respectively, on gross premium receivables of $543.0 million and $525.8 million, respectively. The allowance at January 1, 2020 includes amounts
Property and Equipment: Property and equipment is reported at cost less accumulated depreciation, which is calculated on the straight-line method over the estimated useful life. The accumulated depreciation for property and equipment was $1,239.9 million and $1,195.3 million as of December 31, 2020 and 2019, respectively.
Value of Business Acquired: Value of business acquired represents the present value of future profits recorded in connection with the acquisition of a block of insurance policies. The asset is amortized based upon expected future premium income for non-interest sensitive insurance policies and estimated future gross profits from surrender charges, mortality margins, investment returns, and expense margins for interest sensitive insurance policies. The value of business acquired, which is included in other assets in our consolidated balance sheets, was $83.8 million and $88.7 million at December 31, 2020 and 2019, respectively. The accumulated amortization for value of business acquired was $153.7 million and $144.1 million as of December 31, 2020 and 2019, respectively.
The amortization of value of business acquired, which is included in other expenses in the consolidated statements of income, was $6.1 million, $7.1 million, and $6.4 million for the years ended December 31, 2020, 2019, and 2018, respectively. We periodically review the carrying amount of value of business acquired using the same methods used to evaluate deferred acquisition costs.
Income Tax: Deferred taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial statement purposes and the amounts used for income tax purposes. Deferred taxes have been measured using enacted statutory income tax rates and laws that are currently in effect. We record adjustments to our deferred taxes resulting from tax rate changes through income as of the date of enactment. We record deferred tax assets for tax positions taken in the U.S. and other tax jurisdictions based on our assessment of whether a position is more likely than not to be sustained upon examination based solely on its technical merits. A valuation allowance is established for deferred tax assets when it is more
For interest sensitive products, the amounts collected from policyholders are considered deposits, and only the deductions during the period for cost of insurance, policy administration, and surrenders are included in revenue. Policyholders' funds represent funds deposited by contract holders and are not included in revenue.
Under ceded reinsurance agreements wherein we are not relieved of our legal liability to our policyholders, if the assuming reinsurer is unable to meet its obligations, we remain contingently liable. We evaluate the financial condition of reinsurers and monitor concentration of credit risk to minimize this exposure. We may also require assets in trust, letters of credit, or other acceptable collateral to support our reinsurance recoverable balances. We estimate an allowance for expected credit losses for our reinsurance recoverable balance using a probability of default approach which incorporates key inputs and assumptions regarding historical insurer liquidation rates, counterparty credit ratings, and collateral received. Liquidation rates are derived from rating agency studies covering domestic insurers and are based on historical liquidation trends according to their respective credit ratings. When calculating our allowance, we apply these liquidation rates to the net amount of our credit exposure, which considers collateral arrangements such as letters of credit and trust accounts. We evaluate the factors used to determine our allowance on a quarterly basis to consider material changes in our assumptions and make adjustments accordingly. At January 1, 2020 and December 31, 2020, the allowance for expected credit losses on reinsurance recoverables was $1.8 million and $11.7 million, respectively. The allowance increased $9.9 million during the year ended December 31, 2020, primarily due to an increase in the reinsurance recoverable balance, changes in certain counterparty credit ratings, and changes in our assumptions about the recoverability of receivables from certain counterparties. See Note 12.
Premium Tax Expense: Premium tax expense is included in other expenses in the consolidated statements of income. For the years ended December 31, 2020, 2019, and 2018, premium tax expense was $175.5 million, $170.1 million, and $155.8 million, respectively.
Stock-Based Compensation: The cost of stock-based compensation is generally measured based on the grant-date fair value of the award. The Black-Scholes options valuation model is used for estimating the fair value of stock options, and the Monte-Carlo valuation model is used for estimating the fair value of performance units. Restricted stock units and stock success units are valued based on the fair value of common stock at the grant date. Stock-based awards are expensed over the requisite service period, or for performance units over the requisite service period, or remaining service period, if and when it becomes probable that the performance conditions will be satisfied, with an offsetting increase to additional paid-in capital in stockholders' equity. Forfeitures of stock-based awards are recognized as they occur. See Note 11.
Accounting for Participating Individual Life Insurance: Participating policies issued by one of our subsidiaries prior to its 1986 conversion from a mutual to a stock life insurance company will remain participating as long as the policies remain in-force. A Participation Fund Account (PFA) was established for the benefit of all such individual participating life and annuity policies and contracts. The assets of the PFA provide for the benefit, dividend, and certain expense obligations of the participating individual life insurance policies and annuity contracts. The assets of the PFA were $319.8 million and $311.2 million at December 31, 2020 and 2019, respectively.
ASC 350 "Intangibles - Goodwill and Other" This update eliminated the requirement to calculate the implied fair value of goodwill (the second step in the current two-step test) to measure a goodwill impairment charge. Instead, entities should perform the goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount and recognize an impairment charge for the excess of the carrying amount over the fair value, with the loss not to exceed the total amount of goodwill allocated to that reporting unit. This guidance was applied in the period of adoption. January 1, 2020 The adoption of this update did not have an effect on our financial position or results of operations.
Accounting Standards Codification (ASC) Description Date of Adoption Effect on Financial Statements
ASC 825 "Financial Instruments - Overall" This update changed the accounting and disclosure requirements for certain financial instruments. These changes include a requirement to measure equity investments, other than those that result in consolidation or are accounted for under the equity method, at fair value through net income unless the investment qualifies for certain practicability exceptions. In addition, the update clarified guidance related to the valuation allowance assessment when recognizing deferred tax assets resulting from unrealized losses on available-for-sale fixed maturity securities. Changes also included the modification of certain disclosures around the fair value of financial instruments, including the requirement for separate presentation of financial assets and liabilities by measurement category, as well as the elimination of certain disclosures around methods and significant assumptions used to estimate fair value. The guidance was applied using a modified retrospective approach through a cumulative-effect adjustment to accumulated other comprehensive income with a corresponding adjustment to retained earnings as of the beginning of the fiscal year of adoption. January 1, 2018 The adoption of this update resulted in a cumulative-effect reduction to accumulated other comprehensive income of $17.5 million with a corresponding increase to retained earnings of $14.5 million, a decrease to other long-term investments of $3.8 million, and a decrease to deferred income tax liability of $0.8 million.
ASC 848 "Reference Rate Reform" The amendments in this update provide optional guidance, for a limited period of time, to ease the potential burden in accounting for and recognizing the effects of reference rate reform on financial reporting. The guidance allows for various practical expedients and exceptions when applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. Specifically, the guidance provides certain practical expedients for contract modifications, fair value hedges, and cash flow hedges and also provides certain exceptions related to changes in the critical terms of a hedging relationship. The guidance also allows for a one-time election to sell or transfer debt securities that were both classified as held-to-maturity prior to January 1, 2020 and reference a rate affected by the reform. Adoption is permitted as of the beginning of the interim period that includes March 12, 2020 (the issuance date of the update), or any date thereafter, through December 31, 2022, at which point the guidance will sunset. We have not yet determined the impact on our financial position or results of operations if we elect to adopt this guidance.
The selection of the valuation method(s) to apply considers the definition of an exit price and depends on the nature of the asset or liability being valued. For assets and liabilities accounted for at fair value, we generally use valuation techniques consistent with the market approach, and to a lesser extent, the income approach. We believe the market approach provides more observable data than the income approach, considering the type of investments we hold. Our fair value measurements could differ significantly based on the valuation technique and available inputs. When using a pricing service, we obtain the vendor's pricing documentation to ensure we understand their methodologies. We periodically review and approve the selection of our
The management of our investment portfolio includes establishing pricing policy and reviewing the reasonableness of sources and inputs used in developing pricing. We review all prices that vary between multiple pricing vendors by a threshold that is outside a normal market range for the asset type. In the event we receive a vendor's market price that does not appear reasonable based on our market analysis, we may challenge the price and request further information about the assumptions and methodologies used by the vendor to price the security. We may change the vendor price based on a better data source such as an actual trade. We also review all prices that did not change from the prior month to ensure that these prices are within our expectations. The overall valuation process for determining fair values may include adjustments to valuations obtained from our pricing sources when they do not represent a valid exit price. These adjustments may be made when, in our judgment and considering our knowledge of the financial conditions and industry in which the issuer operates, certain features of the financial instrument require that an adjustment be made to the value originally obtained from our pricing sources. These features may include the complexity of the financial instrument, the market in which the financial instrument is traded, counterparty credit risk, credit structure, concentration, or liquidity. Additionally, an adjustment to the price derived from a model typically reflects our judgment of the inputs that other participants in the market for the financial instrument being measured at fair value would consider in pricing that same financial instrument. In the event an asset is sold, we test the validity of the fair value determined by our valuation techniques by comparing the selling price to the fair value determined for the asset in the immediately preceding month end reporting period.
Certain of our investments do not have readily determinable market prices and/or observable inputs or may at times be affected by the lack of market liquidity. For these securities, we use internally prepared valuations, including valuations based on estimates of future profitability, to estimate the fair value. Additionally, we may obtain prices from independent third-party brokers to aid in establishing valuations for certain of these securities. Key assumptions used by us to determine fair value for
The remaining 90.4 percent of our fixed maturity securities were valued based on non-binding quotes or other observable and unobservable inputs, as discussed below:
The following tables present additional information about our private equity partnerships, including commitments for additional investments which may or may not be funded:
(b)Private Equity - The limited partnerships described in this category employ various strategies generally investing in controlling or minority control equity positions directly in companies and/or assets across various industries (including manufacturing, healthcare, energy, business services, technology, materials, and retail), primarily in private markets within North America and, to a lesser extent, outside of North America. As of December 31, 2020, the estimated remaining life of the investments that do not allow for redemptions is approximately 20 percent in the next 3 years, 35 percent during the period from 3 to 5 years, 44 percent during the period from 5 to 10 years, and 1 percent during the period from 10 to 15 years.
We record changes in our share of net asset value of the partnerships in net investment income. We receive financial information related to our investments in partnerships and generally record investment income on a one-quarter lag in accordance with our accounting policy.
Realized and unrealized investment gains and losses presented in the preceding tables represent gains and losses only for the time during which the applicable financial instruments were classified as Level 3. The transfers between levels resulted primarily from a change in observability of three inputs used to determine fair values of the securities transferred: (1) transactional data for new issuance and secondary trades, (2) broker/dealer quotes and pricing, primarily related to changes in the level of activity in the market and whether the market was considered orderly, and (3) comparable bond metrics from which to perform an analysis. For fair value measurements of financial instruments that were transferred either into or out of Level 3, we reflect the transfers using the fair value at the beginning of the period. We believe this allows for greater transparency, as all changes in fair value that arise during the reporting period of the transfer are disclosed as a component of our Level 3 reconciliation.
The table below provides quantitative information regarding the significant unobservable inputs used in Level 3 fair value measurements derived from internal models. Unobservable inputs for fixed maturity securities are weighted by the fair value of the securities. Certain securities classified as Level 3 are excluded from the table below due to limitations in our ability to obtain the underlying inputs used by external pricing sources.
(c)Represents a decision to price based on par value, cost, or owner's equity when limited data is available
The following chart depicts an analysis of our fixed maturity security portfolio between investment-grade and below-investment-grade categories as of December 31, 2020:
In determining when a decline in fair value below amortized cost of a fixed maturity security represents a credit loss, we evaluate the following factors:
While determining whether a credit loss exists is a judgmental area, we utilize a formal, well-defined, and disciplined process to monitor and evaluate our fixed income investment portfolio, supported by issuer specific research and documentation as of the end of each period. The process results in a thorough evaluation of problem investments and the recording of credit losses on a timely basis for investments determined to have a credit loss. We calculate the allowance for credit losses of fixed maturity securities based on the present value of our best estimate of cash flows expected to be collected, discounted using the effective interest rate implicit in the security at the date of acquisition. When estimating future cash flows, we analyze the strength of the issuer’s balance sheet, its debt obligations and near-term funding arrangements, cash flow and liquidity, the profitability of its core businesses, the availability of marketable assets which could be sold to increase liquidity, its industry fundamentals and regulatory environment, and its access to capital markets. As of December 31, 2020, with respect to the fixed maturity securities for which an allowance for credit losses was recognized, we do not intend to sell these securities, and it is not more likely than not that we will be required to sell these securities before recovery of our estimated value.
The following table presents a rollforward of the allowance for credit losses on available-for-sale fixed maturity securities, all of which are classified as "all other corporate bonds" in the preceding tables, at December 31, 2020:
Contractually, we are a limited partner in these tax credit partnerships, and our maximum exposure to loss is limited to the carrying value of our investment, which includes $0.9 million of unfunded unconditional commitments at December 31, 2020. See Note 2 for commitments to fund private equity partnerships.
The following table presents the amortized cost of our mortgage loans by year of origination and credit quality indicators at December 31, 2020:
The increase in our estimate of expected losses during the year ended December 31, 2020 is primarily due to the expected impact of COVID-19, specifically impacts to underlying commercial real estate values, and reflects market conditions at December 31, 2020.
For the year ended December 31, 2020, we had no impaired mortgage loans. Our average investment in impaired mortgage loans was $0.6 million, and $2.3 million for the years ended December 31, 2019 and 2018, respectively. We did not recognize any interest income during 2020, 2019 or 2018 on mortgage loans subsequent to impairment.
At December 31, 2020, we had commitments of $11.4 million to fund certain commercial mortgage loans. Consistent with how we determine the estimate of current expected credit losses for our funded mortgage loans each period, we estimate expected credit losses for loans that have not been funded but we are committed to fund at the end of each period. At December 31, 2020, we had $0.1 million of expected credit losses related to unfunded commitments on our consolidated balance sheets.
Our investment real estate balance was $106.3 million and $90.5 million at December 31, 2020 and 2019, respectively, and the associated accumulated depreciation was $97.7 million and $49.8 million at December 31, 2020 and 2019, respectively. For the year ended December 31, 2020, we recognized $36.6 million in impairments related to certain of our real estate held for investment. We did not recognize any impairments on investment real estate during 2019 and we recognized $0.6 million in impairments in 2018.
Net investment income reported in our consolidated statements of income is presented below. Certain prior period amounts have been reclassified to conform to the current period presentation.
2 The net unrealized gain (loss) recognized in net investment income for the year ended December 31, 2020 related to private equity partnerships still held at December 31, 2020 was $(8.7) million. The net unrealized gain (loss) recognized in net investment income for the year ended December 31, 2019 related to private equity partnerships still held at December 31, 2019 was $6.8 million. See Note 2 for further discussion of private equity partnerships.
We are exposed to certain risks relating to our ongoing business operations. The primary risks managed by using derivative instruments are interest rate risk, risk related to matching duration for our assets and liabilities, foreign currency risk, and credit risk. Historically, we have utilized current and forward interest rate swaps, current and forward currency swaps, forward benchmark interest rate locks, currency forward contracts, forward contracts on specific fixed income securities, and credit default swaps. Transactions hedging interest rate risk are primarily associated with our individual and group long-term care and individual and group disability products. All other product portfolios are periodically reviewed to determine if hedging strategies would be appropriate for risk management purposes. We do not use derivative financial instruments for speculative purposes.
•Forward benchmark interest rate locks are used to minimize interest rate risk associated with the anticipated purchase or disposal of fixed maturity securities or debt. A forward benchmark interest rate lock is a derivative contract without an initial investment where we and the counterparty agree to purchase or sell a specific benchmark interest rate fixed maturity bond at a future date at a pre-determined price.
•Interest rate swaps are used to effectively convert certain of our fixed rate securities into floating rate securities which are used to fund our floating rate long-term debt. Under these swap agreements, we receive a variable rate of interest and pay a fixed rate of interest. Additionally, we use interest rate swaps to effectively convert certain fixed rate, long-term debt into floating rate long-term debt. Under these swap agreements, we receive a fixed rate of interest and pay a variable rate of interest.
Derivatives designated as either cash flow or fair value hedges and used to reduce our exposure to foreign currency risk are as follows:
•Foreign currency interest rate swaps are used to hedge the currency risk of certain foreign currency-denominated fixed maturity securities owned for portfolio diversification. Under these swap agreements, we agree to pay, at specified intervals, fixed rate foreign currency-denominated principal and interest payments in exchange for fixed rate payments in the functional currency of the operating segment.
Derivatives not designated as hedging instruments and used to reduce our exposure to foreign currency risk and credit losses on securities owned are as follows:
•Credit default swaps are used as economic hedges against credit risk but do not qualify for hedge accounting. A credit default swap is an agreement in which we agree with another party to pay, at specified intervals, a fixed-rate fee in exchange for insurance against a credit event on a specific investment. If a defined credit event occurs, our counterparty may either pay us a net cash settlement, or we may surrender the specific investment to them in exchange for cash equal to the full notional amount of the swap. Credit events typically include events such as bankruptcy, failure to pay, or certain types of debt restructuring.
As of December 31, 2020, we expect to amortize approximately $60.3 million of net deferred gains on derivative instruments during the next twelve months. This amount will be reclassified from accumulated other comprehensive income into earnings and reported on the same income statement line item as the hedged item. The income statement line items that will be affected by this amortization are net investment income and interest and debt expense. Additional amounts that may be reclassified from accumulated other comprehensive income into earnings to offset the earnings impact of foreign currency translation of hedged items are not estimable.
As of December 31, 2020, we are hedging the variability of future cash flows associated with forecasted transactions through the year 2045.
At December 31, 2019, we had $250.0 million notional amount of receive fixed, pay variable interest rate swaps to hedge the changes in the fair value of certain fixed rate long-term debt which matured in the third quarter of 2020 along with the hedged debt. These swaps effectively converted the associated fixed rate long-term debt into floating rate debt and provided for a better matching of interest rates with our short-term investments, which have frequent interest rate resets similar to a floating rate security.
For the years ended December 31, 2020, 2019, and 2018, $(1.8) million, $2.0 million, and $2.5 million respectively, of the derivative instruments' gain (loss) was excluded from the assessment of hedge effectiveness. There were no instances wherein we discontinued fair value hedge accounting due to a hedged firm commitment no longer qualifying as a fair value hedge.
As of December 31, 2020 and 2019, we held $11.9 million and $8.9 million, respectively, notional amount of foreign currency forwards to mitigate the foreign currency risk associated with specific securities owned.
In connection with the first phase of the Closed Block individual disability coinsurance agreement that closed in December 2020, we recorded a reinsurance recoverable of $6,141.5 million representing the ceded reserves related to the cohort of policies on claim status as of July 1, 2020 (DLR cohort) and an increase in benefits and change in reserves for future benefits of $1,284.5 million resulting from the realization of previously unrealized investment gains and losses recorded in accumulated other comprehensive income. These impacts are reflected in the chart shown above and the reconciliation shown below.
During the third quarter of 2018, we completed our annual review of policy reserve adequacy, which incorporated our most recent experience and included a review of all assumptions. Based on our analysis, during the third quarter of 2018, we updated our reserve assumptions and determined that our policy and claim reserves should be increased by $750.8 million of which, approximately $236 million was related to our liability for unpaid claims and claims adjustment expenses, which can be primarily attributed to prior year incurred claims, thereby impacting the results shown in the preceding chart.
Our consolidated statements of income include the following changes in unrecognized tax benefits.
We have no accumulated federal net operating loss carryforwards as of December 31, 2020. Our federal capital loss carryforward, related to subsidiaries not included in the consolidated U.S. federal return, was $0.6 million at December 31, 2020 and is expected to be utilized by the time it expires in 2022. We have net operating loss carryforwards for state and local income tax of approximately $191 million, most of which is expected to expire unused between 2021 and 2040.
In September 2020, our $400.0 million 5.625% senior unsecured notes matured.
During 2019, the Trust purchased and retired $22.8 million aggregate liquidation amount of the 7.405% capital securities due 2038, which resulted in our purchase and retirement of a corresponding principal amount of our 7.405% junior subordinated debt securities due 2038.
Interest paid on long-term and short-term debt and related securities during 2020, 2019, and 2018 was $178.1 million, $172.9 million, and $167.3 million, respectively.
We have access to two separate unsecured revolving credit facilities, each with a different syndicate of lenders. One of our credit facilities is under a five-year agreement and is effective through April 2024. The terms of this agreement provide for a borrowing capacity of $500.0 million with an option to be increased up to $700.0 million. We may also request, on up to two occasions, that the lenders' commitment termination dates be extended by one year. The credit facility provides for the issuance of letters of credit subject to certain terms and limitations. At December 31, 2020, letters of credit totaling $0.6 million had been issued from this credit facility, but there were no borrowed amounts outstanding.
Our other credit facility is under a three-year agreement and is effective until April 2022. The terms of this agreement provide for a borrowing capacity of $100.0 million with an option to be increased up to $140.0 million. We may also request that the lenders' commitment termination dates be extended by one year. The credit facility provides for the issuance of letters of credit subject to certain terms and limitations. At December 31, 2020, there have been no letters of credit issued from the credit facility and there were no borrowed amounts outstanding.
On December 26, 2019, we purchased a group annuity contract which transferred a portion of our U.S. qualified defined benefit pension plan obligation to a third party. Under the transaction, which was funded with plan assets, we transferred the responsibility for pension benefits and annuity administration for approximately 1,900 retirees or their beneficiaries receiving less than $350 in monthly benefit payments from the plan. This transfer resulted in a reduction in our U.S. qualified defined benefit pension plan obligation of $59.5 million at December 31, 2019 and is reflected in the Benefits and Expenses Paid line item within the following table regarding changes in our benefit obligation.
(1) The actuarial losses recognized for the U.S. and U.K. pension plans were primarily driven by decreases in the discount rate assumption.
The amounts recognized in our consolidated balance sheets for our pension and OPEB plans at December 31, 2020 and 2019 are as follows.
The following table provides the changes recognized in other comprehensive income for the years ended December 31, 2020 and 2019.
Changes in our OPEB plan assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the years ended December 31, 2020 and 2019 are as follows:
The expected return assumption for the life insurance reserve for our OPEB plan is based on full investment in fixed income securities with an average book yield of 4.87 percent and 4.74 percent in 2020 and 2019, respectively.
We offer a 401(k) plan to all eligible U.S. employees under which a portion of employee contributions is matched. We match dollar-for-dollar up to 5.0 percent of base salary and any recognized sales and performance-based incentive compensation for employee contributions into the plan. We also make an additional non-elective contribution of 4.5 percent of earnings for all eligible employees and a separate transition contribution for eligible employees who met certain age and years of service criteria as of December 31, 2013. The separate transition contributions continued through December 31, 2020, at which point they expired. The 401(k) plan remains in compliance with ERISA guidelines and continues to qualify for a “safe harbor” from annual discrimination testing.
During the second quarter of 2019, our board of directors authorized the repurchase of up to $750.0 million of Unum Group's outstanding common stock through November 23, 2020, at which point the authorization expired. This authorization replaced the previous authorization of $750.0 million that was scheduled to expire on November 24, 2019. As of December 31, 2020, we did not authorize a new share repurchase program and there were no remaining amounts to be repurchased under either plan at December 31, 2020.
(1) Includes commissions of $0.4 million and $0.7 million for the years ended December 31, 2019 and 2018, respectively.
During 2020, we issued SSUs with a weighted average grant date fair value per share of $18.78. SSUs vest over a six year period, beginning at the date of grant, and the compensation cost is recognized ratably during the vesting period. SSUs are eligible for accelerated vesting at the end of the first, third, and fifth years of the service period if certain performance goals are achieved. Forfeitable dividends on SSUs are accrued in the form of cash. Compensation cost for SSUs subject to accelerated vesting due to the achievement of certain performance conditions at the end of the first, third, and fifth years of the service period is recognized over the implicit service period.
At December 31, 2020, we had approximately $6.5 million of unrecognized compensation cost related to PSUs that will be recognized over a weighted average period of 1.6 years. The estimated compensation expense is adjusted for actual performance experience and is recognized ratably during the service period, or remaining service period, if and when it becomes probable that the performance conditions will be satisfied. Compensation cost for PSUs subject to accelerated vesting at the date of retirement eligibility is recognized over the implicit service period.
The total fair value of shares vested during 2020, 2019, and 2018 was $25.1 million, $19.5 million, and $18.1 million, respectively. At December 31, 2020, we had $21.2 million of unrecognized compensation cost related to RSUs that will be recognized over a weighted average period of 0.9 years.
Activity for cash-settled RSUs classified as a liability is as follows:
The amount payable per unit awarded is equal to the price per share of Unum Group's common stock at settlement of the award, and as such, we measure the value of the award each reporting period based on the current stock price. The effects of changes in the stock price during the service period are recognized as compensation cost over the service period. Changes in the amount of the liability due to stock price changes after the service period are recognized as compensation cost during the period in which the changes occur. At December 31, 2020, we had $1.1 million of unrecognized compensation cost related to cash-settled RSUs that will be recognized over a weighted average period of 1.1 years.
All outstanding stock options at December 31, 2020 have vested. Stock options vest over a one to three-year service period, beginning at the date of grant, and the compensation cost is recognized ratably during the vesting period. Compensation cost for stock options subject to accelerated vesting at the date of retirement eligibility is recognized over the implicit service period. At December 31, 2020, we had no unrecognized compensation cost related to stock options.
The intrinsic value of options exercised in 2020, 2019, and 2018 was $0.1 million, $0.3 million, and $0.7 million, respectively. There were no stock options granted or vested in the years 2018 through 2020.
Reinsurance activity related to both our premium income and changes in reserves for future benefits are as follows:
As a result of this reinsurance agreement, we recognized the following as of the date of the agreement:
•Net realized investment gains totaling $1,302.3 million related to the transfer of investments.
The Colonial Life segment includes insurance for accident, sickness, and disability products, which includes our dental and vision products, life products, and cancer and critical illness products marketed to employees, on both a group and an individual basis, at the workplace through an independent contractor agency sales force and brokers.
We report goodwill in our Unum US, Unum International, and Colonial Life segments, which are the segments expected to benefit from the originating business combinations. At December 31, 2020 and 2019 goodwill was $353.0 million and $351.7 million, respectively, with $280.0 million attributable to Unum US in each year, $45.3 million and $44.0 million, respectively, attributable to Unum International, and $27.7 million attributable to Colonial Life in each year.
See above and Notes 6, 8, 12, and 15 for further discussion regarding the impacts of the 2018 and 2020 long-term care reserve increases, the group pension reserve increase, the impacts from of the Closed Block individual disability reinsurance transaction, the amortization of the cost of reinsurance, the net tax benefit from the reinsurance transaction, costs related to the organizational design update, the impairment loss on the ROU asset related to one of our operating leases for office space, and the cost related to the early retirement of debt.
In some of these matters, no specified amount is sought. In others, very large or indeterminate amounts, including punitive and treble damages, are asserted. There is a wide variation of pleading practice permitted in the United States courts with respect to requests for monetary damages, including some courts in which no specified amount is required and others which allow the plaintiff to state only that the amount sought is sufficient to invoke the jurisdiction of that court. Further, some jurisdictions permit plaintiffs to allege damages well in excess of reasonably possible verdicts. Based on our extensive experience and that of others in the industry with respect to litigating or resolving claims through settlement over an extended period of time, we believe that the monetary damages asserted in a lawsuit or claim bear little relation to the merits of the case, or the likely disposition value. Therefore, the specific monetary relief sought is not stated.
•On June 13, 2018, an alleged securities class action lawsuit entitled Cynthia Pittman v. Unum Group, Richard McKenney, John McGarry, and Daniel Waxenberg was filed in the United States District Court for the Eastern District of Tennessee. The plaintiff seeks to represent purchasers of Unum Group publicly traded securities between January 31, 2018 and May 2, 2018. The plaintiff alleges the Company caused its shares to trade at artificially high levels by failing to disclose information about the rate of long-term care policy terminations and long-term care claim incidence resulting in misleading statements about capital management plans and long-term care reserves. The complaint asserts claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder and seeks compensatory damages in an amount to be proven at trial. The Company strongly denies these allegations and will vigorously defend the litigation.
On November 9, 2018, the court consolidated the Pittman, Cunningham, and City of Taylor Police and Fire Retirement System cases into one matter entitled In re Unum Group Securities Litigation, appointed a lead plaintiff and lead plaintiff’s counsel, and directed the plaintiff to file a consolidated amended complaint. On January 15, 2019, the plaintiff filed a consolidated amended complaint asserting claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder and seeks compensatory damages in an amount to be proven at trial as well as costs, expenses, and attorney’s fees. On March 18, 2019, the Company filed a motion to dismiss the consolidated amended complaint. On November 4, 2019 the court heard oral argument on the motion. On June 1, 2020, the court granted the Company's motion and dismissed the cases with prejudice. On June 26, 2020, the plaintiffs filed a notice of appeal with the Sixth Circuit Court of Appeals. The court has scheduled oral argument for March 2, 2021.
We believe the appeal and the underlying claims lack merit and reserves have not been established for these matters as we are unable to estimate a range of reasonably possible losses. However, an adverse outcome in one or more of these actions could, depending on the nature, scope, and amount of any ruling, materially adversely affect our consolidated results of operations in a period.
We do not have any lease agreements or sub-lease agreements that contain variable lease payments. In addition, we do not have lease agreements or sub-lease agreements that contain residual value guarantees or impose any financial restrictions or covenants with the lessors.
Operating lease cost as calculated prior to the adoption of ASC 842 was $29.2 million for the year ended December 31, 2018.
During 2020, we recognized an impairment loss of $12.7 million on the ROU asset related to one of our operating leases for office space that we do not plan to continue using to support our general operations. The impairment loss was recorded as a result of a decrease in the fair value of the ROU asset compared to its carrying value. The fair value of the ROU asset was determined based on a discounted cash flow model utilizing estimated market rates for sub-lease rentals. The impairment loss is recorded within other expenses in the consolidated statements of income and is included within our Corporate segment.
Unum America cedes certain blocks of business to Fairwind Insurance Company (Fairwind), which is an affiliated captive reinsurance subsidiary (captive reinsurer) domiciled in the United States, with Unum Group as the ultimate parent. This captive reinsurer was established for the limited purpose of reinsuring risks attributable to specified policies issued or reinsured by Unum America.
In December 2020, prior to entering into the reinsurance transaction with Commonwealth, Provident, Paul Revere Life, and Unum America recaptured their respective reinsurance agreements with Northwind Reinsurance Company, a wholly-owned domestic special purpose reinsurance subsidiary (Northwind Re). Northwind Re was established for the limited purpose of reinsuring risks attributable to specified policies issued or reinsured by the aforementioned companies, and has no material state prescribed accounting practices that differ from statutory accounting principles prescribed by the NAIC. See Note 12 for further discussion regarding the reinsurance transaction with Commonwealth.
Risk-based capital (RBC) standards for U.S. life insurance companies are prescribed by the NAIC. The domiciliary states of our U.S. insurance subsidiaries have all adopted a version of the RBC model formula of the NAIC, which prescribes a system for assessing the adequacy of statutory capital and surplus for all life and health insurers. The basis of the system is a risk-based formula that applies prescribed factors to the various risk elements in a life and health insurer's business to report a minimum capital requirement proportional to the amount of risk assumed by the insurer. The life and health RBC formula is designed to measure annually (i) the risk of loss from asset defaults and asset value fluctuations, (ii) the risk of loss from adverse mortality and morbidity experience, (iii) the risk of loss from mismatching of asset and liability cash flow due to changing interest rates, and (iv) business risks. The formula is used as an early warning tool to identify companies that are potentially inadequately capitalized. State insurance laws grant insurance regulators the authority to require various actions by, or take various actions against, insurers whose total adjusted capital does not meet or exceed certain RBC levels. The total adjusted capital of each of our U.S. insurance subsidiaries at December 31, 2020 is in excess of those RBC levels.
Based on the restrictions under current law, approximately $974 million is available, without prior approval by regulatory authorities, during 2021 for the payment of dividends to Unum Group from its traditional U.S. life insurance subsidiaries. The ability of our captive insurers to pay dividends to their respective parent companies will depend on their satisfaction of applicable regulatory requirements and on the performance of the business reinsured.
The following is a summary of our unaudited quarterly results of operations for 2020 and 2019:
•Fourth quarter of 2020 impacts from the Closed Block individual disability reinsurance transaction of $1,305.5 million before tax and $1,031.3 million after tax.
•Fourth quarter of 2020 net tax benefit from the Closed Block individual disability reinsurance transaction of $36.5 million.
See Notes 6, 7, 8, 12, 13, and 15 for further discussion of the above items.