(1) Includes a reserve increase of $698.2 million in 2014 related to our long-term care closed block business.
(2) Includes the net change in deferred acquisition costs as well as compensation expense and other expenses. Includes $64.4 million in 2014 related to a settlement loss for a pension plan amendment.
For 2017, we reported net income of $994.2 million, or $4.37 per diluted common share, compared to net income of $931.4 million, or $3.95 per diluted common share, in 2016. Included in the results for 2017 and 2016 are net realized investment gains and losses. Also included in the 2017 results are a loss from a guaranty fund assessment related to an unaffiliated insurer that was declared insolvent of $20.6 million before tax and $13.4 million after tax, or $0.06 per diluted common share, a 2017 reserve increase related to unclaimed death benefits of $39.0 million before tax and $25.4 million after tax, or $0.11 per diluted common share, and a net tax benefit related to U.S. tax reform of $31.5 million, or $0.14 per diluted common share. Excluding these items, after-tax adjusted operating income for 2017 was $976.2 million, or $4.29 per diluted common share, compared to $915.6 million, or $3.88 per diluted common share, in 2016. See "Unclaimed Death Benefits Reserve Increase," "U.S. Tax Reform," "Reconciliation of Non-GAAP and Other Financial Measures," and "Consolidated Operating Results" contained herein in this Item 7 for further discussion and a reconciliation of these items.
Our Unum US segment reported an increase in adjusted operating income, including the 2017 unclaimed death benefits reserve increase, of 7.5 percent in 2017 compared to 2016. Excluding the reserve increase, adjusted operating income increased 10.4 percent with growth in premium income and overall favorable benefits experience, partially offset by lower net investment income. The benefit ratio for our Unum US segment for 2017 was 67.8 percent, or 67.4 percent excluding the unclaimed death benefit reserve increase, compared to 69.2 percent in 2016. Unum US sales increased 19.6 percent in 2017 compared to 2016, aided by our addition of the dental and vision product offering in the third quarter of 2016. Persistency declined relative to the prior year but remains within our expectations.
reduced U.S. statutory tax rate as well as the elimination of net operating loss carryback provisions for life insurance companies. During 2017, we repurchased 8.2 million shares of Unum Group common stock under our share repurchase program, at a cost of approximately $400 million. Our weighted average common shares outstanding, assuming dilution, equaled 227.3 million for 2017 compared to 236.0 million for 2016, reflecting our capital management strategy of returning capital to shareholders through repurchases of our common stock. As of December 31, 2017, Unum Group and our intermediate holding companies held fixed maturity securities, short-term investments, and cash of $864 million.
On December 22, 2017, the U.S. Federal government enacted a tax bill, H.R.1, An Act to Provide Reconciliation Pursuant to Titles II and V of the Concurrent Resolution on the Budget for Fiscal Year 2018, more commonly known as the Tax Cuts and Jobs Act (TCJA). The TCJA, among other things, included a reduction to the U.S. corporate statutory tax rate from 35 percent to 21 percent and a tax on undistributed and previously untaxed foreign earnings and profits at reduced rates. As a result of these changes, we recognized a tax benefit of $97.9 million in 2017 related to the revaluation of our net deferred tax liabilities associated with our U.S. operations to the newly enacted U.S. corporate tax rate and a tax expense of $66.4 million resulting from the tax on undistributed and previously untaxed foreign earnings and profits. See "Regulation" contained herein in Item 1 and Note 7 of the "Notes to Consolidated Financial Statements" contained herein in Item 8 for further details.
During 2016, the U.K. held a referendum and voted to leave the EU. The U.K. subsequently invoked Article 50 of the Treaty on European Union and is due to leave the EU on March 29, 2019. We may see some continued dampening of growth in the U.K. as well as claims 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 other-than-temporary impairments or defaults, nor do we believe this volatility will impact our ability to hold these investments. The magnitude and longevity of potential negative economic impacts on our growth will depend on the agreements reached by the U.K. and EU as a result of exit negotiations and the resulting response of the U.K. marketplace. There are currently no indications that capital requirements for our U.K. operations will change, but economic conditions may 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. Further discussion is contained herein in "Unum UK Segment" this Item 7.
Our outlook for 2018 is for continued solid premium growth trends in our core businesses, with stable persistency and a disciplined approach to sales growth. We expect to have generally stable benefits experience due to our focus on disciplined pricing, risk selection, and management of renewals. We will maintain our commitment to expense discipline and improving our operational efficiencies.
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 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. A reconciliation of total revenue to "adjusted operating revenue" and income before income tax to "adjusted operating income" is as follows:
Reserves for policy and contract benefits are our largest liabilities and represent claims that we estimate we will eventually pay to our policyholders. The two primary categories of reserves are policy reserves for claims not yet incurred and claim reserves for claims that have been incurred or are estimated to have been incurred but not yet reported to us. Reserves for policy and contract benefits equaled $42.1 billion and $41.5 billion at December 31, 2017 and 2016, respectively, or approximately 77.4 percent and 78.3 percent of our total liabilities, respectively. Reserves ceded to reinsurers were $7.2 billion and $7.1 billion at December 31, 2017 and 2016, respectively, and are reported as a reinsurance recoverable in our consolidated balance sheets.
net level premium method as prescribed by GAAP. In applying this method, we use, as applicable by product type, morbidity and mortality incidence rate assumptions, claim resolution rate assumptions, and policy persistency assumptions, among others, to determine our expected future claim payments and expected future premium income. We then apply an interest, or discount, rate to determine the present value of the expected future claims and claim expenses we will pay and the expected future premiums we will receive, with a provision for profit allowed.
Claim reserves supporting our Unum UK segment are calculated using generally the same methodology that we use for Unum US disability and group term life reserves. Claim reserves for our Unum UK group dependent life product are calculated using discounted cash flows, based on our assumptions for claim duration and discount rates. The assumptions used in calculating claim reserves for this segment are based on standard United Kingdom industry experience, adjusted for Unum UK's own experience.
Establishing reserve assumptions is complex and involves many factors. Reserves, particularly for policies offering insurance coverage for long-term disabilities and long-term care, are dependent on numerous assumptions other than just those presented in the preceding discussion. The impact of internal and external events, such as changes in claims operational procedures, economic trends such as the rate of unemployment and the level of consumer confidence, the emergence of new diseases, new trends and developments in medical treatments, and legal trends and legislative changes, including changes to social security and other government-based welfare benefits programs which provide policy benefit offsets, among other factors, will influence claim incidence rates, claim resolution rates, and claim costs. In addition, for policies offering coverage for disability or long-term care at advanced ages, the level and pattern of mortality rates at advanced ages will impact overall benefit costs. Reserve assumptions differ by product line and by policy type within a product line. Additionally, in any period and over time, our actual experience may have a positive or negative variance from our long-term assumptions, either singularly or collectively, and these variances may offset each other. We test the overall adequacy of our reserves using all assumptions and with a long-term view of our expected experience over the life of a block of business rather than test just one or a few assumptions independently that may be aberrant over a short period of time. Therefore, it is not possible to bifurcate the assumptions to evaluate the sensitivity of a change in each assumption, but rather in the aggregate by product line. The following section presents an overview of our trend analysis for key assumptions and the results of variability in our assumptions, in aggregate, for the reserves which we believe are reasonably possible to have a material impact on our future financial results if actual claims yield a materially different amount than what we currently expect and have reserved for, either favorable or unfavorable.
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 and in our Closed Block individual disability product line have over the last several years exhibited some variability. Relative to the resolution rate we expect to experience over the life of the block of business, actual quarterly rates during 2016 and 2017 have varied between -15 and +17 percent in our Closed Block individual disability line of business. Actual quarterly rates during 2016 and 2017 have varied by -8 and +5 percent in our Unum US group long-term disability line of business, which, along with the Closed Block individual disability line, represents the majority of our claim reserves. During 2017, claim resolution rates pertaining to life and overall mortality experience were relatively consistent with the levels of 2016 and 2015. On an annual basis for the years 2015 to 2017, our overall claim resolution rates were fairly consistent with or slightly favorable to our long-term assumptions.
Risk-free interest rates of 2.21 percent for five-year maturities to 2.74 percent for 30-year maturities were derived from the December 31, 2017 yield curve for U.S. Treasury Bonds with similar maturities. This compares to interest rates of 1.93 percent for five-year maturities to 3.07 percent for 30-year maturities used at December 31, 2016.
Rapidly changing credit and equity market conditions can materially impact the valuation of securities, and the period to period changes in value can vary significantly.
Significant increases in interest rates may occur and may not return to levels similar to when securities were initially purchased.
Discount rate - This interest assumption is based on the yield derived from a portfolio of high quality fixed income corporate debt instruments that reasonably match the timing and amounts of projected future benefits for each of our retirement-related benefit plans. The rate is determined at the measurement date. A lower discount rate increases the present value of benefit obligations and increases our net periodic benefit cost.
Long-term rate of return - This assumption is selected from a range of probable return outcomes from an analysis of the asset portfolio. The market-related value as it relates to our estimate of long-term rate of return equals the fair value of plan assets, determined as of the measurement date. The return on plan assets recognizes all asset gains and losses, including changes in fair value, through the measurement date. Our expectations for the future investment returns of the asset categories are based on a combination of historical market performance, evaluations of investment forecasts obtained from external consultants and economists, and current market yields. The expected return for the total portfolio is calculated based on the plan's current asset holdings. The actual rate of return on plan assets is determined based on the fair value of the plan assets at the beginning and the end of the period, adjusted for contributions and benefit payments. A lower long-term rate of return on plan assets increases our net periodic benefit cost.
Consolidated Financial Statements" contained herein in Item 8 for further discussion of the investment portfolios for our plans.
During 2017, the fair value of plan assets in our U.S. qualified defined benefit pension plan increased $128.5 million, or 8.8 percent due to a favorable return on assets of approximately 13.7 percent, partially offset by the payment of benefits and expenses. The fair value of plan assets in our U.K. pension plan increased £2.6 million, or 1.4 percent, due to a favorable return on assets of approximately 4.9 percent, partially offset by the payment of benefits and expenses. Although our rate of return on plan assets for 2017 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.
As of December 31, 2017, our pension and OPEB plans have an aggregate unrecognized net actuarial loss of $779.0 million and an unrecognized prior service credit of $2.8 million, which together represent the cumulative liability and asset gains and losses as well as the portion of prior service credits that have not been recognized in pension expense. The unrecognized net actuarial loss for our pension plans, which is $792.7 million at December 31, 2017, will be amortized over the average remaining life expectancy of the plan, which is approximately 25 years for the U.S. plan and 32 years for the U.K. plan, to the extent that it exceeds the 10 percent corridor, as described below. The unrecognized net actuarial gain of $13.7 million for our OPEB plan will be amortized over the average future working life of OPEB plan participants, estimated at four years, to the extent the loss is outside of the corridor. The corridor for the pension and OPEB plans is established based on the greater of 10 percent of the plan assets or 10 percent of the benefit obligation. At December 31, 2017, $532.6 million of the actuarial loss was outside of the corridor for the U.S. plans and £15.5 million was outside of the corridor for the U.K. plan. At December 31, 2017, none of the actuarial gain was outside of the corridor for the OPEB plan.
The fair value of plan assets in our U.S. qualified defined benefit pension plan was $1,582.6 million at December 31, 2017, compared to $1,454.1 million at December 31, 2016. The plan was in an underfunded position of $348.8 million and $312.1 million at December 31, 2017 and December 31, 2016, 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.
On a quarterly basis, we review relevant information with respect to litigation and contingencies to be reflected in our consolidated financial statements. An estimated loss is accrued when it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. It is possible that our results of operations or cash flows in a particular period could be materially affected by an ultimate unfavorable outcome of pending litigation or regulatory matters depending, in part, on our results of operations or cash flows for the particular period. See Note 14 of the "Notes to Consolidated Financial Statements" contained herein in Item 8.
Our weighted average pound/dollar exchange rate was 1.290, 1.357, and 1.528 for years ended 2017, 2016, and 2015, respectively. If the 2016 and 2015 results for our U.K. operations had been translated at the lower exchange rate of 2017, our adjusted operating revenue by segment in 2016 and 2015 would have been lower by approximately $32 million and $109 million, respectively, and our adjusted operating income in 2016 and 2015 would have been lower by approximately $6 million and $22 million, respectively. However, it is important to distinguish between translating and converting foreign currency. Except for a limited number of transactions, we do not actually convert pounds into dollars. As a result, we view foreign currency translation as a financial reporting item and not a reflection of operations or profitability in the U.K.
Net investment income decreased slightly in 2017 relative to 2016 due primarily to a decrease in yield on invested assets and the unfavorable impact of the lower foreign currency exchange rate on translated financial results, mostly offset by an increase in the level of invested assets, higher income from inflation index-linked bonds in our Unum UK segment, and higher miscellaneous income. Net investment income declined slightly in 2016 relative to 2015 due primarily to a decrease in yield on invested assets and the unfavorable impact of the lower foreign currency exchange rate on translated financial results for 2016, partially offset by higher levels of invested assets.
Overall benefits experience was favorable in 2017 relative to the prior periods, with a consolidated benefit ratio of 82.1 percent in 2017 compared to 83.1 percent in 2016 and 83.9 percent in 2015. Excluding the 2017 unclaimed death benefits reserve increase, the benefit ratio for 2017 was 81.6 percent. The underlying benefits experience for each of our operating business segments is discussed more fully in "Segment Results" contained herein in this Item 7.
In describing our results, we may at times note certain items and exclude the impact on financial ratios and metrics to enhance the understanding and comparability of our operational performance and the underlying fundamentals, but this exclusion is not an indication that similar items may not recur. We also 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 certain other items. 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. See "Reconciliation of Non-GAAP Financial Measures" contained herein in this Item 7. See also "Segment Results" contained herein in this Item 7 for further discussion of operating and sales results for each of our segments and major product lines.
Sales shown in the preceding chart generally represent the annualized premium income on new sales which we expect to receive and report as premium income during the next 12 months following or beginning in the initial quarter in which the sale is reported, depending on the effective date of the new sale. Sales do not correspond to premium income reported as revenue in accordance with GAAP. This is because new annualized sales premiums reflect current sales performance and what we expect to recognize as premium income over a 12 month period, while premium income reported in our financial statements is reported on an "as earned" basis rather than an annualized basis and also includes renewals and persistency of in-force policies written in prior years as well as current new sales.
Benefits experience was favorable compared to 2016 due primarily to continued favorable claims incidence trends in our group long-term disability product line and lower prevalence rates in our group short-term disability product line. Partially offsetting the favorable claims experience was a 50 basis point decrease in the discount rate for group long-term disability claim incurrals which we implemented in the fourth quarter of 2016.
Premium income increased compared to 2016 with growth in the in-force block due to higher sales, partially offset by a decline in persistency. Net investment income was lower compared to 2016 due to a decline in yield and a lower level of invested assets, partially offset by higher miscellaneous income.
Benefits experience was unfavorable compared to 2016 due to the previously discussed reserve increase for unclaimed death benefits in the group life product line. Excluding this reserve increase, benefits experience was favorable due primarily to favorable average claim size in our group life product line, partially offset by higher incidence in the accidental death and dismemberment product line.
Commissions and the deferral of acquisition costs were higher compared to 2016 due to sales growth. The amortization of deferred acquisition costs increased relative to 2016 due to growth in the level of the deferred asset. The other expense ratio was favorable to 2016 due to growth in premium income and a continued focus on expense management and operating efficiencies.
Net investment income was higher compared to 2016 due to an increase in the level of invested assets and higher miscellaneous income, partially offset by a decline in yield. Other income is comprised primarily of surrender fees in our voluntary benefits product line, which continue to decline as our interest sensitive life products mature.
Commissions were slightly higher compared to 2016 due primarily to sales growth in the dental and vision and voluntary benefits product lines, mostly offset by commissions ceded in the individual disability product line related to the fourth quarter of 2016 reinsurance agreement. The deferral of acquisition costs increased relative to 2016 due primarily to sales growth in our voluntary benefits and dental and vision product lines. Amortization of deferred acquisition costs increased year over year due to growth in the level of the deferred asset and less favorable persistency in our individual disability product line. Our other expense ratio improved relative to 2016 due to growth in premium income as well as expense allowances received related to the individual disability product line reinsurance agreement and our continued focus on expense management and operating efficiencies.
We had goodwill of $271.1 million at December 31, 2017, none of which is currently believed to be at risk for future impairment.
Group sales increased compared to 2016 due to higher sales to new customers in both the core market segment, which we define as employee groups with fewer than 2,000 employees, and in the large case market segment. The sales mix in the group market sector for 2017 was approximately 58 percent core market and 42 percent large case market.
Individual disability sales decreased compared to 2015 due to lower sales to large case customers. Voluntary benefits sales were generally consistent with 2015, with an increase in sales in the core market offset by lower sales to new customers in the large case market. We also reported sales of $14.5 million for the Starmount dental and vision products for the period subsequent to the date of acquisition.
We remain committed to offering consumers a broad set of financial protection benefit products at the worksite. During 2018, we will continue to focus on client expansion, consumer engagement, and collaborative partnerships, all underpinned by strong risk management. We intend to broaden our client relationships and build additional partnerships to open new digital channels. We also aim to enhance the customer experience through the expansion of our dental and vision business and the introduction of our medical stop-loss product, investing in processes with a focus on quality and simplification, and the utilization of technology to enhance enrollment, underwriting, and online claims. We believe our active client management and differentiated integrated customer experience across our product lines will continue to enable us to grow our market.
We anticipate solid adjusted operating income growth in 2018, with disciplined sales and premium growth, consistent risk management, and improving operational efficiency. We believe further improvement in our premium and sales growth rates is possible if overall economic conditions continue to improve and/or industry pricing levels increase to better align with our view of adequate premium rates. We believe our underlying profitability will remain strong throughout the year, driven primarily by our continued product mix shift, expense efficiencies, and consistent operating effectiveness. Underpinning our strategy is our continued commitment to risk management discipline, talent development, and our core values.
The low interest rate environment continues to place pressure on our profit margins by impacting net investment income yields as well as discount rates on our insurance liabilities. Our net investment income may be impacted, either favorably or unfavorably, by fluctuations in miscellaneous investment income. As part of our continued pricing discipline and our reserving strategy, we continuously monitor emerging interest rate experience and adjust our pricing and reserve discount rates, as appropriate. We expect that our group disability benefit ratio will remain generally consistent with 2017 and that our voluntary benefits benefit ratio will gradually increase back to long-term trends. We continuously monitor key indicators to assess our risks and attempt to adjust our business plans accordingly.
Premium income was higher compared to 2015 due primarily to growth in the supplemental product line resulting from the acquisition of the dental product offering in September 2015. Sales growth and favorable persistency in the group long-term disability product line also contributed to the growth in premium income.
Group long-term disability sales decreased compared to 2016 due to lower sales to new customers in our core market, or employee groups with fewer than 500 employees, and to existing customers in our large case market, mostly offset by higher sales to new customers in our large case market.
We expect the lower interest rate environment and unfavorable economic conditions to continue to have a negative impact on our growth expectations in the near-term and may also lead to a higher rate of claim incidence, lower levels of claim recoveries, or lower claim discount rates. As part of our continued pricing discipline and our reserving strategy, we continuously monitor emerging interest rate experience and adjust our pricing and reserve discount rates, as appropriate. We will likely continue to experience volatility in net investment income and our benefit ratio due to fluctuations in the level of inflation in the U.K., however, we do not expect this to have a significant impact on adjusted operating income. There are no indications currently that capital requirements for our U.K. operations will change, but economic conditions may in the near term cause volatility in our solvency ratios. We continuously monitor key indicators to assess our risks and attempt to adjust our business plans accordingly.
Premium income increased in 2017 relative to 2016 as a result of sales growth and overall stable persistency. Net investment income increased relative to the prior year due to an increase in the level of invested assets, partially offset by a decline in yield and lower miscellaneous investment income.
Benefits experience was less favorable in 2017 compared to 2016 due to the previously discussed reserve increase for unclaimed death benefits. Excluding the reserve increase, benefits experience was generally consistent with prior year, with marginally less favorable experience in each line of business.
We had goodwill of $27.7 million at December 31, 2017 related to the acquisition of Starmount, none of which is currently believed to be at risk for future impairment.
We remain committed to providing employees and their families with simple, modern, and personal benefit solutions. During 2018, we intend to focus on expanding our distribution, introducing new products and services, enhancing the customer experience, and investing in new solutions and digital capabilities to further improve productivity. We believe there is significant opportunity for growth in our core market, particularly those employers with fewer than 100 employees. This market is currently underserved, and we believe having a large national distribution system is critical to reaching those markets. We will continue to focus on accelerating growth during 2018 through territory expansion, territory growth, persistency investments, and increased participation rates. We believe our distribution system, enrollment capabilities, public sector expertise, the introduction of our new individual dental and vision products, and ability to serve all market sizes position us well for future growth.
We expect to see continued favorable sales and premium growth trends in 2018 and a consistent level of adjusted operating earnings growth as a result of accelerating investments in our future growth. The lower interest rate environment will continue to have an unfavorable impact on our profit margins, and volatility in miscellaneous investment income is likely to continue. We expect our annual benefit ratio for 2018 to be generally consistent with the level of 2017. While we believe our underlying profitability will remain strong, current economic conditions and increasing competition in the voluntary workplace market are seen as external risks to achievement of our business plans. We continuously monitor key indicators to assess our risks and attempt to adjust our business plans accordingly.
Individual disability benefits experience was favorable relative to 2016 due to lower new claim volumes and a reduction in the claim reserve discount rate taken in the prior year to recognize the impact on future portfolio yields from increased levels experienced for bond tenders and calls. Long-term care benefits experience was consistent with the prior year as unfavorable policyholder terminations, due primarily to mortality experience, offset by the impact of a large group case moving to an individual policy ported status during 2016. Also impacting benefits experience relative to 2016 was unfavorable mortality experience in our group pension product.
Premium income for individual disability decreased compared to 2015 due to expected policy terminations and maturities. Premium income for long-term care increased due to rate increases, partially offset by policy terminations.
Net investment income was higher relative to 2015 due to increased invested asset levels and higher miscellaneous investment income. Other income was lower compared to 2015 primarily due to lower investment income from the investment portfolios held by the ceding companies driven by a decrease in the level of invested assets.
Interest and debt expense was slightly higher compared to 2015 due to an increase in the underlying floating rate of interest, partially offset by a lower level of outstanding debt resulting from principal repayments. The other expense ratio was lower than 2015 due to lower litigation expenses and our continued focus on operating effectiveness and expense management.
During 2018, we will continue to execute on our well-defined strategy of implementing long-term care premium rate increases, efficient capital management, improved financial analysis, and operational effectiveness. Despite continued premium rate increases in our long-term care business, we expect overall premium income and adjusted operating revenue to decline over time as these closed blocks of business wind down. We will likely experience volatility in net investment income due to fluctuations of miscellaneous investment income and the continued increase in our allocation towards high yield and alternative assets in the long-term care product line. We expect the low interest rate environment to continue to place pressure on our earnings and the adequacy of our reserves. We continuously monitor key indicators to assess our risks and attempt to adjust our business plans accordingly.
Profitability of our long-tailed products is affected by claims experience related to mortality and morbidity, investment returns, premium rate increases, and persistency. We believe that the interest adjusted loss ratios for the individual disability and long-term care lines of business will be relatively flat over the long term, but these product lines may continue to experience quarterly volatility, particularly in the near term for our long-term care product lines as our claim block matures. For 2018, although premium rate increases and higher investment margins have contributed positively to the interest adjusted loss ratios for our long-term care product lines, we expect that they will remain in the low 90 percent range. We also believe the implementation of our long-term care rate increases may continue to contribute to higher claim submissions in the near term. Claim resolution rates, which measure the resolution of claims from recovery, deaths, settlements, and benefit expirations, are very sensitive to operational and external factors and can be volatile. 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. It is possible that variability in any of our reserve assumptions, including, but not limited to, interest rates, mortality, morbidity, premium rate increases, benefit change elections, and persistency, could result in a material impact on the adequacy of our reserves, including adjustments to reserves established under loss recognition.
The Corporate segment includes investment income on corporate assets not specifically allocated to a line of business, interest expense on corporate debt other than non-recourse debt, and certain other corporate income and expenses not allocated to a line of business. We previously excluded the amortization of prior period actuarial gains or losses, a component of the net periodic benefit cost for our pension and other postretirement benefit plans, from the results of our Corporate segment. Effective January 1, 2017, the amortization of prior period actuarial gains or losses is now reported in our Corporate segment as a component of "interest and other expenses" in the following chart. Amounts for periods prior to January 1, 2017 have been adjusted to conform to current year reporting.
Net investment income was higher relative to 2016 due primarily to a higher yield on invested assets, partially offset by a lower asset level.
Interest and other expenses were higher relative to 2016 due primarily to a guaranty fund assessment related to an unaffiliated insurer that was declared insolvent and an increase in the amortization of prior period actuarial losses for our pension and other postretirement benefit plans, partially offset by lower levels of outstanding debt and expenses incurred in 2016 related to the acquisition of Starmount. See Note 14 of the "Notes to Consolidated Financial Statements" contained herein in Item 8 for further discussion on the loss from a guaranty fund assessment.
estimated economic life of the securities. Actual prepayment experience is reviewed periodically, and effective yields are recalculated when differences arise between prepayments originally projected and the actual prepayments received and currently projected. The effective yield is recalculated on a retrospective basis, and the adjustment is reflected in net investment income.
Our monitoring is heightened for investments in certain countries due to our concerns over the current economic and political environments, and we believe these investments are more vulnerable to potential credit problems. At December 31, 2017, we had minimal exposure in those countries and had no direct exposure to financial institutions of those countries.
Our mortgage loan portfolio was $2,213.2 million and $2,038.9 million on an amortized cost basis at December 31, 2017 and 2016, respectively. Our mortgage loan portfolio is comprised entirely of commercial mortgage loans. We believe our mortgage loan portfolio is well diversified geographically and among property types. The incidence of problem mortgage loans and foreclosure activity continues to be low. Due to conservative underwriting, we expect the level of problem loans to remain low relative to the industry. We held no impaired mortgage loans at December 31, 2017 or 2016.
During 2018, we intend to maintain a level of capital in our U.S. and U.K. insurance subsidiaries above the applicable capital adequacy requirements and minimum solvency margins. Although we may not utilize the entire amount of available dividends, based on applicable restrictions under current law, approximately $797 million is available, without prior approval by regulatory authorities, during 2018 for the payment of dividends from Unum Group's traditional U.S. insurance subsidiaries, which excludes our captive reinsurers. Following the changes established by Solvency II regarding dividend capacity, approximately £260 million is available for the payment of dividends from Unum Limited during 2018, subject to regulatory approval.
Insurance regulatory restrictions do not limit the amount of dividends available for distribution from non-insurance subsidiaries except where the non-insurance subsidiaries are held directly or indirectly by an insurance subsidiary and only indirectly by Unum Group.
In June 2017, we purchased and retired the remaining $3.4 million of principal on our senior secured floating rate notes acquired through our purchase of Starmount.
In 2016, we issued a total of $600.0 million aggregate principal amount of senior notes: (i) $350.0 million aggregate principal amount of senior notes due in 2021 with an annual coupon rate of 3.00%, and (ii) $250.0 million aggregate principal amount of senior notes due in 2042 with an annual coupon rate of 5.75%, pursuant to a reopening of the $250.0 million aggregate principal amount outstanding of our 5.75% senior notes due 2042 issued in 2012. Both issuances are callable at or above par and rank equally in right of payment with all of our other unsecured and unsubordinated debt. A portion of the net proceeds of the offering were used for repayment of the debt which matured in 2016.
In 2015, we issued $275.0 million of unsecured senior notes. These notes, due 2025, bear interest at a fixed rate of 3.875% and are payable semi-annually. The notes are callable at or above par and rank equally in right of payment with all of our other unsecured and unsubordinated debt.
The following table summarizes contractual obligations and our reinsurance recoverable by period as of December 31, 2017:
legislative funding requirements. Non-qualified pension plan and other postretirement benefit obligations represent the expected benefit payments related to these plans which we expect to pay, as incurred, from our general assets.
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, 2017, we had no credit exposure on derivatives. We held cash collateral from our counterparties of $15.7 million at December 31, 2017 and had posted fixed maturity securities with a carrying value of $46.4 million as collateral to our counterparties.
We had no repurchase agreements outstanding at December 31, 2017, nor did we utilize any repurchase agreements during 2017. 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.
Operating cash flows are primarily attributable to the receipt of premium and investment income, offset by payments of claims, commissions, expenses, and income taxes. Premium income growth is dependent not only on new sales, but on policy renewals and growth of existing business, renewal price increases, and persistency. Investment income growth is dependent on the growth in the underlying assets supporting our insurance reserves and capital and on the earned yield. The level of commissions and operating expenses is attributable to the level of sales and the first year acquisition expenses associated with new business as well as the maintenance of existing business. The level of paid claims is affected partially by the growth and aging of the block of business and also by the general economy, as previously discussed in the operating results by segment.
See "Debt" contained herein in this Item 7, and Notes 8 and 10 of the "Notes to Consolidated Financial Statements" contained herein in Item 8 for further information.
Agency ratings are not directed toward the holders of our securities and are not recommendations to buy, sell, or hold our securities. Each rating is subject to revision or withdrawal at any time by the assigning rating organization, and each rating should be regarded as an independent assessment, not conditional on any other rating. Given the dynamic nature of the ratings
process, changes by these or other rating agencies may or may not occur in the near-term. Based on our ongoing dialogue with the rating agencies concerning our insurance risk profile, our financial flexibility, our operating performance, and the quality of our investment portfolio, we do not expect any negative actions from any of the four rating agencies related to either Unum Group's current issuer credit ratings or the financial strength ratings of our insurance subsidiaries. However, in the event that we are unable to meet the rating agency specific guideline values to maintain our current ratings, including but not limited to maintenance of our capital management metrics at the threshold values stated and maintenance of our financial flexibility and operational consistency, we could be placed on a negative credit watch, with a potential for a downgrade to both our issuer credit ratings and our financial strength ratings.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control -Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 21, 2018 expressed an unqualified opinion thereon.
Basis of Presentation: The accompanying consolidated financial statements of Unum Group and its subsidiaries (the Company) have been prepared in accordance with U.S. generally accepted accounting principles (GAAP). Such accounting principles differ from statutory accounting principles (see Note 15). Intercompany transactions have been eliminated.
Short-term Investments: Short-term investments are carried at cost. Short-term investments include investments maturing within one year of purchase, such as corporate commercial paper and U.S. Treasury bills, bank term deposits, and other cash accounts and cash equivalents earning interest. See Note 2.
Realized Investment Gains and Losses: Realized investment gains and losses are reported as a component of revenue in the consolidated statements of income and are based upon specific identification of the investments sold. See Note 3.
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 $1,067.7 million and $989.4 million as of December 31, 2017 and 2016, respectively.
The amortization of value of business acquired, which is included in other expenses in the consolidated statements of income, was $4.8 million, $5.1 million, and $4.6 million for the years ended December 31, 2017, 2016, and 2015, respectively. We periodically review the carrying amount of value of business acquired using the same methods used to evaluate deferred acquisition costs.
Policy reserves for interest sensitive products are principally policyholder account values.
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 likely than not that an amount will not be realized. See Note 7.
Where applicable, gains or losses on reinsurance transactions are deferred and amortized into earnings based upon expected future premium income for non-interest sensitive insurance policies and estimated future gross profits for interest sensitive insurance policies. The deferred gain on reinsurance included in other liabilities in our consolidated balance sheets at December 31, 2017 and 2016 was $17.7 million and $23.8 million, respectively.
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 $328.3 million and $331.1 million at December 31, 2017 and 2016, respectively.
This update changed the accounting and disclosure requirements for certain aspects of share-based payments to employees. The update required all income tax effects of stock-based compensation awards to be recognized in the income statement when the awards vest or are settled. The update also allows an employer to repurchase more of an employee's shares than it can today for tax withholding purposes without triggering liability accounting and to make a policy election to account for forfeitures as they occur. Additionally, the update required reclassification of tax-related cash flows resulting from share-based payments to be classified as operating activities instead of financing activities on the statement of cash flows. Transition guidance for the amendments varies between the retrospective, modified retrospective, and prospective methods depending on the specific requirement of the update.
January 1, 2015, except for certain disclosures, which were effective April 1, 2015.
The adoption of this update resulted in the retrospective adjustment of all prior periods in our consolidated financial statements and accompanying notes.
This update provides clarifying guidance intended to reduce the diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The update addresses eight specific cash flow issues that relate to various transactions. The guidance is to be applied retrospectively, with early adoption permitted.
The adoption of these updates will not have a material effect on our financial position or results of operations.
This update eliminates the exception that requires the tax effect of intra-entity asset transfers other than inventory to be deferred until the transferred asset is sold to a third party or otherwise recovered through use. It requires recognition of tax expense from the sale of the asset in the seller’s tax jurisdiction when the transfer occurs, even though the pre-tax effects of that transaction are eliminated in consolidation. The guidance is to be applied retrospectively, with early adoption permitted.
We intend to early adopt this update. The adoption of this update will have no impact on our financial position or results of operations, however, it will simplify hedge documentation requirements, potentially expand available hedging strategies, and will expand disclosures.
This update allows entities to make an accounting policy election to reclassify the stranded tax effects arising as a result of the recognition of the enactment of the tax bill, H.R.1, An Act to Provide Reconciliation Pursuant to Titles II and V of the Concurrent Resolution on the Budget for Fiscal Year 2018, more commonly known as the Tax Cuts and Jobs Act (TCJA) from accumulated other comprehensive income to retained earnings. Tax effects that are stranded in accumulated other comprehensive income for reasons other than the TCJA may not be reclassified. This update requires additional disclosures on whether an entity elects to reclassify the stranded tax effects and its policy for releasing tax effects from accumulated other comprehensive income. This guidance may be applied in the period of adoption or retrospectively to each period in which the effect of the change in federal income tax rate in the TCJA is recognized. This update is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018; however, early adoption is permitted.
We intend to early adopt this update and will elect to reclassify stranded tax effects resulting from our enactment of the TCJA. We will apply the amendments as of January 1, 2018 or the beginning of the period of adoption. We expect this update to result in a decrease to our January 1, 2018 retained earnings within a range of $65 million to $85 million, with an offsetting increase to accumulated other comprehensive income, resulting in no impact to total stockholders' equity. In addition, we will be required to expand our disclosures.
Fair Value Measurements for Financial Instruments Not Carried at Fair Value
Policy Loans: Fair values for policy loans, net of reinsurance ceded, are estimated using discounted cash flow analyses and interest rates currently being offered to policyholders with similar policies. Carrying amounts for ceded policy loans, which equal $3,307.5 million and $3,206.1 million as of December 31, 2017 and 2016, respectively, approximate fair value and are reported on a gross basis in our consolidated balance sheets. A change in interest rates for ceded policy loans will not impact our financial position because the benefits and risks are fully ceded to reinsuring counterparties. These financial instruments are classified within Level 3 of the fair value hierarchy.
Long-term Debt: Fair values for long-term debt are obtained from independent pricing services or discounted cash flow analyses based on current incremental borrowing rates for similar types of borrowing arrangements. Debt instruments valued by pricing services using active trades for which there was current market activity in that specific debt instrument have fair values of $1,171.8 million and $709.8 million as of December 31, 2017 and 2016, respectively, and are classified within Level 1 of the fair value hierarchy. Debt instruments valued by pricing services that generally use observable inputs for securities or comparable securities in active markets in their valuation techniques have fair values of $1,876.9 million and $2,466.0 million as of December 31, 2017 and 2016, respectively, and are classified within Level 2 of the fair value hierarchy.
FHLB Funding Agreements: Funding agreements with the FHLB represent cash advances used for the purpose of investing in fixed maturity securities. Carrying amounts approximate fair value and are classified within Level 2 of the fair value hierarchy.
Unfunded Commitments to Investment Partnerships: Unfunded equity commitments represent amounts that we have committed to fund certain investment partnerships. These commitments are legally binding, subject to the partnerships meeting specified conditions. Carrying amounts of these financial instruments approximate fair value. These financial instruments are classified within Level 2 of the fair value hierarchy.
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 pricing vendors to ensure we are in agreement with their current methodologies. When markets are less active, brokers may rely more on models with inputs based on the information available only to the broker. Our internal investment management professionals, which include portfolio managers and analysts, monitor securities priced by brokers and evaluate their prices for reasonableness based on benchmarking to available primary and secondary market information. In weighing a broker quote as an input to fair value, we place less reliance on quotes that do not reflect the result of market transactions. We also consider the nature of the quote, particularly whether the quote is a binding offer. If prices in an inactive market do not reflect current prices for the same or similar assets, adjustments may be necessary to arrive at fair value. When relevant market data is unavailable, which may be the case during periods of market uncertainty, the income approach can, in suitable circumstances, provide a more appropriate fair value. During 2017, we have applied valuation approaches and techniques on a consistent basis to similar assets and liabilities and consistent with those approaches and techniques used at year end 2016.
We use observable and unobservable inputs in measuring the fair value of our fixed maturity and equity securities. For securities categorized as Level 1, fair values equal active Trade Reporting and Compliance Engine (TRACE) pricing or unadjusted broker market maker prices. For securities categorized as Level 2 or Level 3, inputs that may be used in valuing each class of securities at any given time period are presented as follows. Actual inputs used to determine fair values will vary for each reporting period depending on the availability of inputs which may, at times, be affected by the lack of market liquidity.
At December 31, 2017, approximately 9.2 percent of our fixed maturity securities were valued using active trades from TRACE pricing or broker market maker prices for which there was current market activity in that specific security (comparable to receiving one binding quote). The prices obtained were not adjusted, and the assets were classified as Level 1, 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.
Approximately 77.6 percent of our fixed maturity securities were valued based on prices from pricing services that generally use observable inputs such as prices for securities or comparable securities in active markets in their valuation techniques. These assets were classified as Level 2. Level 2 assets or liabilities are those valued using inputs (other than prices included in Level 1) 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.
Approximately 10.7 percent of our fixed maturity securities were valued based on prices of comparable securities, matrix pricing, market models, and/or internal models or were valued based on non-binding quotes with no other observable market data. These assets were classified as either Level 2 or Level 3, with the categorization dependent on whether there was other observable market data. Level 3 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. Financial assets and liabilities categorized as Level 3 are generally those that are valued using unobservable inputs to extrapolate an estimated fair value.
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. Gains which are included in earnings and are attributable to the change in fair value of assets or liabilities valued using significant unobservable inputs and still held at each year end were $30.8 million and $40.9 million for the years ended December 31, 2017 and 2016, respectively. These amounts relate entirely to the change in fair value of an embedded derivative in a modified coinsurance arrangement and are reported as a component of realized investment gains and losses.
We are the sole beneficiary of a special purpose entity which is consolidated in our financial statements. This entity is a securitized asset trust containing a highly rated bond for principal protection which we contributed into the trust at the time it was established. There are no restrictions on the asset held in this trust, and the trust is free to dispose of the asset at any time. The fair values of the bond were $154.1 million and $151.9 million as of December 31, 2017 and 2016, respectively. The bond is reported as a component of fixed maturity securities in our consolidated balance sheets. At December 31, 2016, the trust also contained a private equity partnership which we contributed into the trust at the time it was established with a fair value of $1.0 million. During the first quarter of 2017, we received the final distribution from the private equity partnership and recorded a loss of $0.2 million on the disposal. The loss is reported as a component of net realized investments gains and losses in our consolidated statements of income.
Mortgage loans by property type and geographic region are presented below.
There were no troubled debt restructurings during 2017 or 2015. We had no realized losses on loan foreclosures for the years ended December 31, 2017, 2016, and 2015 other than any initial impairment loss recognized prior to foreclosure. During 2016, we foreclosed on a mortgage loan with a carrying value of $5.4 million. We did not recognize a loss at foreclosure as the value of the underlying property exceeded the carrying value of the loan.
There have been no changes to our accounting policies or methodology from the prior period regarding estimating the allowance for credit losses on our mortgage loans. There was no activity in the allowance for credit losses for the years ended December 31, 2017 or 2016. We had one impaired mortgage loan during 2015 with a carrying value of $14.6 million in which we increased the allowance for credit losses by $0.5 million for a total allowance of $2.0 million and recognized a corresponding investment loss. The loan was repaid in a subsequent quarter of 2015, with an additional de minimis loss recognized at repayment at which time the $2.0 million allowance was charged off.
We did not hold any impaired mortgage loans during the year ended December 31, 2017. Our average investment in impaired mortgage loans was $2.2 million and $8.6 million for the years ended December 31, 2016 and 2015, respectively. We did not recognize any interest income during 2017 or 2016 on mortgage loans subsequent to impairment. Interest income recognized on mortgage loans subsequent to impairment was $0.6 million, for the year ended December 31, 2015.
At December 31, 2017, we had commitments of $45.3 million to fund certain commercial mortgage loans, the amount of which may or may not be funded.
As of December 31, 2017, the carrying amount of fixed maturity securities loaned to third parties under our securities lending program was $159.2 million, for which we received collateral in the form of cash and securities of $30.5 million and $135.6 million, respectively. As of December 31, 2016, the carrying amount of fixed maturity securities loaned to third parties under our securities lending program was $178.5 million, for which we received collateral in the form of cash and securities of $29.9 million and $155.3 million, respectively. We had no outstanding repurchase agreements at December 31, 2017 or 2016.
Certain of our U.S. insurance subsidiaries are members of regional FHLBs. Membership, which requires that we purchase a minimum amount of FHLB common stock on which we receive dividends, provides access to low-cost funding. As of December 31, 2017 and 2016, we owned $34.1 million and $31.6 million of FHLB common stock, respectively. Advances from the regional FHLBs for the purpose of purchasing fixed maturity securities totaled $350.0 million as of December 31, 2017 and 2016. The carrying values of fixed maturity securities and commercial mortgage loans posted as collateral to the regional FHLBs were $213.3 million and $331.5 million, respectively as of December 31, 2017, and $323.7 million and $288.5 million, respectively as of December 31, 2016. Additional common stock purchases may be required, based on the amount of funds we borrow from the FHLBs.
Shown below are our financial instruments that either meet the accounting requirements that allow them to be offset in our balance sheets or that are subject to an enforceable master netting arrangement or similar agreement. Our accounting policy is to not offset these financial instruments in our balance sheets. Net amounts disclosed below have been reduced by the amount of collateral pledged to or received from our counterparties.
For the years ended December 31, 2017, 2016, and 2015 there was no material ineffectiveness related to our cash flow hedges, and no component of the derivative instruments' gain or loss was excluded from the assessment of hedge effectiveness.
loss of $3.2 million, $5.9 million, and $5.3 million for the years ended December 31, 2017, 2016, and 2015, respectively, with an offsetting gain on the related interest rate swaps. During 2016, we terminated $24.0 million notional amount of receive variable, pay fixed interest rate swaps in connection with the sale of the hedged securities and recorded a loss on the swap terminations of $1.2 million in our consolidated statements of income as a component of net realized investment gains and losses.
As of December 31, 2017 and 2016, we held $70.0 million notional amount of single name credit default swaps. We entered into these swaps in order to mitigate the credit risk associated with specific securities owned.
Note 6 - Liability for Unpaid Claims and Claim Adjustment Expenses
On December 22, 2017, the U.S. Federal government enacted the TCJA, which reduces the federal corporate tax rate from 35 percent to 21 percent effective January 1, 2018. Although the TCJA's 21 percent corporate tax rate will become effective on January 1, 2018, we are required to adjust deferred tax assets and liabilities through continuing operations on the date of enactment. As a result, in 2017 we recorded an income tax benefit of $97.9 million for the TCJA's corporate tax rate reduction and an income tax expense of $66.4 million for the deemed repatriation transition tax on accumulated foreign E&P.
At December 31, 2016, the unremitted earnings of our non-U.S. subsidiaries were considered to be permanently invested in the ongoing operations of our non-U.S. subsidiaries and therefore we did not provide U.S. deferred taxes on those cumulative earnings. Under the TCJA, a territorial tax system was adopted that requires a one-time deemed repatriation tax on accumulated foreign E&P. Future repatriation of foreign E&P subject to the one-time deemed repatriation tax will not be subject to further
U.S. taxation other than tax on the foreign currency translation gain or loss. We view the investment in our non-U.S. subsidiaries as permanent, and therefore, as of December 31, 2017, we have not recorded a deferred tax liability on approximately $0.7 billion of the excess of the U.S. GAAP carrying values over the tax basis of investments in our non-U.S. subsidiaries.
We recognize interest expense and penalties, if applicable, related to unrecognized tax benefits in tax expense net of federal income tax. We recognized a de minimis amount of interest expense related to unrecognized tax benefits during 2017 and 2016. We recognized a reduction in interest expense related to unrecognized tax benefits of $1.0 million during 2015. We held a de minimis liability in our consolidated balance sheets for accrued interest and penalties related to unrecognized tax benefits at December 31, 2017, 2016, and 2015. There are no positions for which it is reasonably possible that unrecognized tax benefits could materially increase or decrease within the next 12 months.
We file state income tax returns in nearly every state in the United States. Tax years subsequent to 2012 remain subject to examination depending on the statute of limitation established by the various states, which is generally three to four years. Tax years subsequent to 2009 remain subject to examination in California.
Total income taxes paid net of refunds during 2017, 2016, and 2015 were $377.0 million, $384.3 million, and $189.1 million, respectively.
The aggregate contractual principal maturities are $200.0 million in 2018, $400.0 million in 2020, $350.0 million in 2021, and $2,007.6 million thereafter.
Recourse for the payment of principal, interest and other amounts due on the Northwind notes is limited to the collateral for the Northwind notes and the other assets, if any, of Northwind Holdings. The collateral consists of a first priority, perfected security interest in (a) the debt service coverage account (DSCA) that Northwind Holdings is required to maintain in accordance with the indenture pursuant to which the Northwind notes were issued (the Northwind indenture), (b) the capital stock of Northwind Re and the dividends and distributions on such capital stock, and (c) Northwind Holdings' rights under the transaction documents related to the Northwind notes to which Northwind Holdings is a party. At December 31, 2017, the amount in the DSCA was $40.9 million. None of Unum Group, the ceding insurers, Northwind Re, or any other affiliate of Northwind Holdings is an obligor or guarantor with respect to the Northwind notes.
Northwind Holdings is required to repay a portion of the outstanding principal under the Northwind notes at par on the quarterly scheduled payment dates under the Northwind notes in an amount equal to the lesser of (i) a targeted amortization amount as defined in the Northwind indenture and (ii) the amount of the remaining available funds in the DSCA minus an amount equal to the minimum balance that is required to be maintained in the DSCA under the Northwind indenture, provided that Northwind Holdings has sufficient funds available to pay its other expenses, including interest payments on the Northwind notes, and to maintain the minimum balance in the DSCA as required under the Northwind indenture. During 2017, 2016, and 2015, Northwind Holdings made principal payments of $60.0 million, $64.0 million, and $74.4 million, respectively, on the Northwind notes.
In September 2016, our $350.0 million 7.125% senior unsecured notes matured.
As of December 31, 2017 and 2016, we had $250.0 million notional amount of an interest rate swap which effectively converts certain of our unsecured senior notes into floating rate debt. Under this agreement, we receive a fixed rate of interest and pay a variable rate of interest, based off of three-month LIBOR. See Note 4 for further information on the interest rate swap.
In March 2016, we amended the terms of our five-year, $400.0 million unsecured revolving credit facility, which was previously set to expire in 2018, to extend through March 2021. Under the terms of the agreement, we may request that the credit facility be increased up to $600.0 million. Borrowings under the credit facility are for general corporate uses and are subject to financial covenants, negative covenants, and events of default that are customary. The credit facility provides for borrowing at an interest rate based either on the prime rate or LIBOR. In addition, the credit facility provides for the issuance of letters of credit subject to certain terms and limitations. At December 31, 2017 and 2016, letters of credit totaling $2.1 million had been issued from the credit facility, but there were no borrowed amounts outstanding.
We sponsor several defined benefit pension and OPEB plans for our employees, including non-qualified pension plans. The U.S. qualified and non-qualified defined benefit pension plans comprise the majority of our total benefit obligation and benefit cost. We maintain a separate defined benefit plan for eligible employees in our U.K. operation. The U.S. defined benefit pension plans were closed to new entrants on December 31, 2013, the OPEB plan was closed to new entrants on December 31, 2012, and the U.K. plan was closed to new entrants on December 31, 2002.
The amounts recognized in our consolidated balance sheets for our pension and OPEB plans at December 31, 2017 and 2016 are as follows. Certain prior year amounts have been reclassified to conform to current presentation.
Alternative investments are valued based on NAV in a period ranging from one month to one quarter in arrears. We evaluate the need for adjustments to the NAV based on market conditions and discussions with fund managers in the period subsequent to the valuation date and prior to issuance of the financial statements. We made no adjustments to the NAV for 2017 or 2016. The private equity direct investments and private equity funds of funds generally cannot be redeemed by investors. Distributions of capital from the sale of underlying fund assets may occur at any time, but are generally concentrated between five and eight years from the formation of the fund. Redemptions on the hedge funds of funds can be made on either a quarterly or bi-annual basis, depending on the fund, with prior notice of at least 90 calendar days.
The expected return assumption for the life insurance reserve for our OPEB plan at December 31, 2017 and 2016 is 5.75 percent, which is based on full investment in fixed income securities with an average book yield of 4.76 percent and 4.99 percent in 2017 and 2016, respectively.
The funding policy for our U.S. qualified defined benefit plan is to contribute annually an amount at least equal to the minimum annual contribution required under ERISA and other applicable laws, but generally not greater than the maximum amount that can be deducted for federal income tax purposes. We had no regulatory contribution requirements for our U.S. qualified defined benefit plan in 2017 and made a de minimis amount of voluntary contributions during 2017. We do not expect to make any contributions in 2018. The funding policy for our U.S. non-qualified defined benefit pension plan is to contribute the amount of the benefit payments made during the year. Our expected return on plan assets and discount rate will not affect the cash contributions we are required to make to our U.S. pension plan because such contributions are determined under the minimum funding requirements as set forth in ERISA.
We made no contributions to our U.K. plan during 2017, nor do we expect to make any contributions in 2018, either voluntary or those required to meet the minimum funding requirements under U.K. legislation.
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 401(k) plan remains in compliance with ERISA guidelines and continues to qualify for a “safe harbor” from annual discrimination testing.
We also offer a defined contribution plan to all eligible U.K. employees under which a portion of employee contributions is matched. We match two pounds for every one pound on the first 1.0 percent of employee contributions into the plan and match additional employee contributions pound-for-pound up to 5.0 percent of base salary. We also make an additional non-elective contribution of 6.0 percent of base salary for all eligible employees and a separate transition contribution for all eligible employees who met certain age and years of service criteria as of March 31, 2016.
During the years ended December 31, 2017, 2016, and 2015, we recognized costs of $78.4 million, $72.2 million, and $71.5 million, respectively, for our U.S. defined contribution plan and $4.2 million, $4.9 million, and $5.7 million, respectively, for our U.K. defined contribution plan.
In computing earnings per share assuming dilution, only potential common shares that are dilutive (those that reduce earnings per share) are included. Potential common shares not included in the computation of diluted earnings per share because the impact would be antidilutive, based on then current market prices, approximated a de minimis amount for the year ended December 31, 2017, and 0.4 million, and 0.3 million for the years ended December 31, 2016, and 2015, respectively.
The May 2017 share repurchase program has an expiration date of November 25, 2018.
Under the Stock Incentive Plan of 2017 (the 2017 Plan), up to 17 million shares of common stock are available for awards to our employees, officers, consultants, and directors. Awards may be in the form of stock options, stock appreciation rights, restricted stock, restricted stock units, performance share units, and other stock-based awards. Each full-value award, defined as any award other than a stock option or stock appreciation right, is counted as 1.76 shares. The exercise price for stock options issued cannot be less than the fair value of the underlying common stock as of the grant date. Stock options generally have a term of eight years after the date of grant and fully vest after three years. At December 31, 2017, approximately 16.9 million shares were available for future grants under the 2017 Plan.
Under the Stock Incentive Plan of 2012 (the 2012 Plan), which was terminated in May 2017 for the purposes of any further grants, up to 20 million shares of common stock were available for awards to our employees, officers, consultants, and directors. Awards could be in the form of stock options, stock appreciation rights, restricted stock, restricted stock units, performance share units, and other stock-based awards. Each full-value award, defined as any award other than a stock option or stock
appreciation right, is counted as 1.76 shares. Awards granted before the termination of the 2012 Plan remain outstanding in accordance with the plan's terms. Stock options generally have a term of eight years after the date of grant and fully vest after three years.
Under the Stock Incentive Plan of 2007 (the 2007 Plan), which was terminated in May 2012 for purposes of any further grants, up to 35 million shares of common stock were available for awards to our employees, officers, consultants, and directors. Awards could be in the form of stock options, stock appreciation rights, restricted stock, restricted stock units, performance share units, and other stock-based awards. Each full-value award, defined as any award other than a stock option or stock appreciation right, is counted as 2.7 shares. Awards granted before the termination of the 2007 Plan remain outstanding in accordance with the plan's terms. Stock options generally have a term of eight years after the date of grant and fully vest after three years.
PSU shares in the preceding table represent aggregate initial target awards and accrued dividend equivalents and do not reflect potential increases or decreases resulting from the performance factor determined after the end of the performance periods. At December 31, 2017, the three-year performance period for the 2015 PSU grant was completed, but the performance factor had not yet been applied. Vested amounts in the preceding table represent vested PSUs for which the 2015 through 2017 performance factor will be applied during the first quarter of 2018, with distribution of the stock thereafter.
At December 31, 2017, we had approximately $5.9 million of unrecognized compensation cost related to PSUs that will be recognized over a weighted average period of 1.4 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.
During 2017, 2016, and 2015, we issued RSUs with a weighted average grant date fair value per share of $48.92, $28.80, and $34.08, respectively. RSUs 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. Forfeitable dividend equivalents on RSUs are accrued in the form of additional RSUs. Compensation cost for RSUs 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 2017, 2016, and 2015 was $13.3 million, $18.3 million, and $21.4 million, respectively. At December 31, 2017, we had $15.1 million of unrecognized compensation cost related to RSUs that will be recognized over a weighted average period of 0.9 years.
There were no outstanding cash-settled awards at December 31, 2017 and 2016. All cash-settled awards were fully vested at December 31, 2015. Fully vested awards not distributed in 2015 were paid in 2016.
Cash received under all share-based payment arrangements for the years ended December 31, 2017, 2016, and 2015 was $10.8 million, $8.5 million, and $6.4 million, respectively.
The Colonial Life segment includes insurance for accident, sickness, and disability 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.
The Closed Block segment consists of individual disability, group and individual long-term care, and other insurance products no longer actively marketed. Individual disability in this segment generally consists of policies we sold prior to the mid-1990s and entirely discontinued selling in 2004, other than update features contractually allowable on existing policies. We discontinued offering individual long-term care in 2009 and group long-term care in 2012. Other insurance products include group pension, individual life and corporate-owned life insurance, reinsurance pools and management operations, and other miscellaneous product lines.
Total assets were valued at $93.1 million as of the acquisition date and were primarily comprised of bonds, cash, accounts receivable, and intangible assets attributable to the value of business acquired and the value of existing state licenses. Total liabilities were valued at $55.7 million as of the acquisition date and were primarily comprised of outstanding claim liabilities and reserves for future claims. The total purchase price exceeded the fair value of the identifiable net assets by $111.2 million and has been identified as goodwill, primarily attributable to the value of adding dental and vision to our current employee benefit offerings. Goodwill was allocated to the reporting units expected to benefit from the acquisition. Approximately 75 percent was allocated to our Unum US supplemental and voluntary product lines and approximately 25 percent to Colonial Life. The goodwill is not deductible for income tax purposes except upon disposition of the acquired entity. This acquisition, the results of which are included in our consolidated financial statements for the period subsequent to the date of acquisition, did not have a material impact on revenue or operating results for 2016.
In September 2015, we acquired 100 percent of the common shares and voting interests in National Dental Plan Limited and associated companies (National Dental) for a total cash purchase price of £35.9 million or $54.3 million. National Dental, a provider of dental insurance in the U.K. workplace, is reported in our Unum UK segment as part of our supplemental product line. The acquisition of National Dental extends our market reach, broadening our employee benefit offerings in the U.K. Total assets were £18.6 million, or $28.1 million as of the acquisition date, and were primarily comprised of short-term investments, accounts receivable, and intangible assets attributable to benefits derived from National Dental's customer relationships and dental provider network. Total liabilities were £5.0 million, or $7.5 million as of the acquisition date, and were primarily comprised of outstanding claims liabilities, unearned premiums, and a deferred tax liability. The purchase price exceeded the fair value of the identifiable net assets by £22.3 million, or $33.7 million, and has been identified as goodwill, primarily attributable to the value of adding dental to our current employee benefit offerings. The goodwill is not deductible for income tax purposes except upon disposition of the acquired entity. This acquisition, the results of which are included in our consolidated financial statements for the period subsequent to the date of acquisition, did not have a material impact on revenue or operating results for 2015.
In January of 2018, we entered into a definitive agreement to acquire Pramerica Zycie TUiR SA ("Pramerica"), a financial protection benefits provider in Poland. The acquisition of Pramerica will expand our European presence, which we believe to be an attractive market for financial protection benefits. The transaction is expected to close by the end of 2018 subject to customary approvals and closing conditions.
We report goodwill in our Unum US, Unum UK, and Colonial Life segments, which are the segments expected to benefit from the originating business combinations. At December 31, 2017 and 2016, goodwill was $338.6 million and $335.1 million, respectively, with $271.1 million attributable to Unum US in each year, $39.8 million and $36.3 million, respectively, attributable to Unum UK, and $27.7 million attributable to Colonial Life in each year. Changes in the goodwill balance for our Unum UK segment result from fluctuation in foreign currency exchange rates.
We previously excluded the amortization of prior period actuarial gains or losses, a component of the net periodic benefit cost for our pension and other postretirement benefit plans. Effective January 1, 2017, the amortization of prior period actuarial gains or losses is now reported as a component of "adjusted operating income" in the following chart. Amounts for periods prior to January 1, 2017 have been adjusted to conform to current year reporting.
At December 31, 2017, we had unfunded commitments of $444.0 million for certain of our investments, the amount of which may or may not be funded.
Beginning in 2011, a number of state regulators began requiring insurers to cross-check specified insurance policies with the Social Security Administration’s Death Master File (SSDMF) to identify potential matches. If a potential match was identified, insurers were requested to determine if benefits were due, locate beneficiaries, and make payments where appropriate. We initiated this process where requested, and in 2012 we began implementing this process in all states on a forward-looking basis. In addition to implementing this on a forward-looking basis, in 2013 we began an initiative to search for potential claims from previous years. During 2013, we completed our assessment of benefits which we estimated would be paid under this initiative, and as such, established additional reserves for payment of these benefits.
In December 2012, State of West Virginia ex rel. John D. Perdue v. Provident Life and Accident Insurance Company and State of West Virginia ex rel. John D. Perdue v. Colonial Life & Accident Insurance Company were filed in the Circuit Court of Putnam County, West Virginia. These two separate complaints alleged violations of the West Virginia Uniform Unclaimed Property Act by failing to identify and report all unclaimed insurance policy proceeds due to be escheated to West Virginia. The complaints sought to examine company records and assess penalties and costs in an undetermined amount. In December 2013, the court dismissed both complaints, holding that the West Virginia Uniform Unclaimed Property Act does not require insurance companies to periodically search the Social Security Administrations' Death Master File or escheat unclaimed life insurance benefits until a claim has been submitted. In January 2014, the plaintiff appealed the dismissal of both complaints. In June 2015, the appellate court reinstated the case, holding that the West Virginia Uniform Unclaimed Property Act requires insurers to make reasonable efforts to determine whether their insureds are still living. The case was remanded to the trial court where we answered the complaints. In 2016, the West Virginia Legislature enacted a law defining insurers’ duties with regard to unclaimed benefits for life insurance policies, annuity contracts, and retained asset accounts issued in West Virginia. In December 2016, we filed a motion to dismiss the complaints in light of this law. In June 2017, the court denied the motion. The case is proceeding through the discovery phase.
of Pennsylvania. Under Pennsylvania law, payment of covered claims and other related insurance obligations are provided, within prescribed limits, by state guaranty associations. These guaranty associations assess fees to meet these obligations on insurance companies that sell insurance within the state, which are generally based on a company's pro rata portion of average premiums written or received for several years prior to the insolvency. Under Pennsylvania statutes, an insurer is declared insolvent only after it is placed under an order of liquidation by a court of competent jurisdiction with a finding for insolvency. In March 2017, a formal order of liquidation was issued, and as such, we were subject to an assessment by those guaranty associations that are responsible for policyholder claims, and accordingly accrued, in the first quarter of 2017, an estimated loss contingency of $13.4 million. This amount is net of expected recoverable premium tax offsets of $44.0 million and net of income tax of $7.2 million.
Based on the restrictions under current law, $796.6 million is available, without prior approval by regulatory authorities, during 2018 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.
We also have the ability to receive dividends from Unum Limited, subject to applicable insurance company regulations and capital guidance in the United Kingdom. We have £260.0 million available for the payment of dividends from Unum Limited during 2018, subject to regulatory approval.
The following is a summary of our unaudited quarterly results of operations for 2017 and 2016: