As of December 31, 2018, we owned approximately 2.3 million square feet of office space, comprised of five campuses located in Chattanooga, Tennessee; Portland, Maine; Columbia, South Carolina; Baton Rouge, Louisiana; and Dorking in the United Kingdom. In addition, as of December 31, 2018, we leased approximately 0.2 million square feet of office space in Worcester, Massachusetts and approximately 0.7 million square feet in various other locations throughout the United States, the United Kingdom, Ireland, and Poland. All of the properties owned or leased are used by one or more of all five reporting segments, depending on the location. We believe our properties and facilities are suitable and adequate for current operations.
Our Colonial Life segment reported an increase in adjusted operating income of 3.1 percent in 2018 compared to 2017 due to growth in premium income and net investment income. The 2018 benefit ratio for Colonial Life was 51.4 percent, which was consistent with 2017. Colonial Life sales increased 8.0 percent in 2018 compared to 2017. Persistency was unfavorable relative to the prior year but is consistent with our expectations.
approximately 370 percent, which is in line with our expectations but lower relative to the prior year as a result of the higher RBC factors adopted by the NAIC in 2018 in response to the lower U.S. statutory income tax rate. During 2018, we repurchased 8.7 million shares of Unum Group common stock under our share repurchase program, at a cost of approximately $351 million. Our weighted average common shares outstanding, assuming dilution, equaled 220.1 million for 2018 compared to 227.3 million for 2017, reflecting our capital management strategy of returning capital to shareholders through repurchases of our common stock. As of December 31, 2018, Unum Group and our intermediate holding companies held fixed maturity securities, short-term investments, and cash of $602 million.
During the third quarter of 2018, we completed our annual review of policy reserve adequacy, which incorporated our most recent experience and included a review of all assumptions. The review utilized internal and external data and outside consulting firms for quality assurance and industry benchmarking. Based on our analysis, during the third quarter of 2018, we updated our reserve assumptions and determined that our policy and claim reserves should be increased by $750.8 million, or $593.1 million after-tax, to reflect our current estimate of future benefit obligations. This increase was primarily driven by the update to our liability and interest rate assumptions, particularly claims incidence and claim termination rates, which resulted in an increase to reserves of approximately $2.2 billion. Partially offsetting the increase was the update to our assumptions for premium rate increases which decreased reserves approximately $1.4 billion, resulting in the net increase to reserves of $750.8 million. See "Trends in Key Assumptions" contained herein in the "Critical Accounting Estimates" of this Item 7 for further discussion of the assumptions used in our long-term care reserve update.
In November 2018, we acquired 100 percent of the shares and voting interests in Jaimini Health, Inc. (Jaimini Health), a dental health maintenance organization. The acquisition of Jaimini Health will broaden our employee benefit dental offerings in the U.S., particularly in the state of California and is reported in our Unum US segment.
The low interest rate environment continues to place pressure on our profit margins. Our reported consolidated financial results may also continue to be unfavorably impacted by political and economic uncertainty in the U.K., specifically lower interest rates, wage inflation and employer spending, and claims volatility. We expect our effective tax rate for 2019 to be approximately 20 percent. The reduction in the corporate tax rate resulting from tax reform has improved the statutory earnings and cash generation of our insurance subsidiaries and our capital position remains strong.
A reconciliation of total revenue to "adjusted operating revenue" and income before income tax to "adjusted operating income" is as follows:
Because the key policy reserve assumptions for policy persistency, mortality and morbidity, and discount rates are all locked in at policy issuance based on assumptions appropriate at that time, policy reserve assumptions are generally not changed due to a change in claim status from active to disabled subsequent to policy issuance. Depending on the funding mechanism, a full policy reserve is held during disability reflecting continued funding of the full policy reserve during a disability claim, or a fractional policy reserve is held reflecting that the individual policyholder would need to recover before he or she can again generate future claims for a separate occurrence. The policy reserves build up and release over time based on assumptions made at the time of policy issuance such that the reserve is eliminated as policyholders either reach the terminal age for coverage, die, or voluntarily lapse the policy. Policy reserves for Unum US, Unum International, and Colonial Life products are determined
using the net 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.
Policy reserves for certain other products, excluding individual disability and individual and group long-term care, which are no longer actively marketed and are reported in our Closed Block segment represent $5.9 billion on a gross basis. We have ceded $5.1 billion of reserves related to the other products, which are primarily comprised of policy reserves, to reinsurers. The ceded reserve balance is reported in our consolidated balance sheets as a reinsurance recoverable. We continue to service a block of group pension products, which we have not ceded, and the policy reserves for these products are based on expected mortality rates and retirement rates. Expected future payments are discounted at interest rates reflecting the anticipated investment returns for the assets supporting the liabilities.
The following table displays policy reserves, incurred claim reserves, and IBNR claim reserves by major product line, with the summation of the policy reserves and claim reserves shown both gross and net of the associated reinsurance recoverable. Incurred claim reserves represent the expected benefits payable under each incurred claim, along with other expenses associated with the payment of the claims. IBNR claim reserves include provisions for incurred but not reported claims and a provision for reopened claims for our disability products. The IBNR and reopened claim reserves for our disability products are developed and maintained in aggregate based on historical monitoring. Impacting year over year comparability of policy and claim reserves in the following chart is the 2018 long-term care reserve increase. See "Executive Summary" contained herein in this Item 7 and Note 6 of the "Notes to Consolidated Financial Statements" contained herein in Item 8 for further discussion.
Claim incidence rates for Unum US group long-term disability were generally consistent in 2018 compared to the prior year.
We updated our claim termination assumptions, which are primarily affected by the death, and to a lesser extent, the recovery of the insured to largely reflect our experience. A three percent unfavorable change in the claim termination assumption would result in approximately a $370 million decrease to reserve margin and a three percent favorable change would result in approximately a $360 million increase to reserve margin.
We updated our premium rate increase assumptions to reflect both our estimate of previously filed rate increases, informed by our historical approval rates, and our anticipated future rate filings. The impact of the update to the premium rate increase assumptions resulted in approximately a $1.4 billion decrease to reserves, of which approximately $700 million relates to currently outstanding requests pending approval with the remaining $700 million related to future rate increase submissions, with a focus on group policies, that will be completed and filed during the next several quarters. A ten percent change in the premium rate increase success rate assumption would result in an approximately $140 million change in reserve margin depending on whether the change was favorable or unfavorable.
We updated our discount rate assumption to reflect our expectation for the low interest rate environment to persist and our expected impact on future long-term care new money yield rates. Our updated expectation for long-term care new money yield rates assumes a rate of 5.5 percent through 2021 and then a gradual increase to 6.25 percent by 2025, when we assume no further increase. A 0.25 percent change in the new money yield rate assumption would result in an approximately $250 million change in reserve margin depending on whether the change was favorable or unfavorable. Alternatively, a 0.25 percent change in the overall assumed discount rate, which includes the new money yield rate assumption, would impact the reserve margin within an approximate range of $450 million to $500 million, assuming all other factors held constant.
We believe that these ranges provide a reasonable estimate of the possible changes in reserve balances for those product lines where we believe it is possible that variability in the assumptions, in the aggregate, could result in a material impact on our reserve levels, but we record our reserves based on our long-term best estimate. Because these product lines have long-term claim payout periods, there is a greater potential for significant variability in claim costs, either positive or negative. We closely monitor emerging experience and use these results to inform our view of long-term assumptions.
Approximately 89.4 percent of our DAC relates to non-interest sensitive products, and we amortize DAC for these products in proportion to the premium income we expect to receive over the life of the policies. DAC related to interest sensitive policies is amortized over the lives of the policies in relation to the present value of estimated gross profits from surrender charges, mortality margins, investment returns, and expense margins. Key assumptions used in developing the future amortization of DAC are persistency, premium income, and for our interest sensitive products, mortality margins and investment returns. We use our own historical experience and expectation of the future performance of our businesses in determining our assumptions. For non-interest sensitive products, the estimated premium income in the early years of the amortization period is generally higher than in the later years due to the anticipated cumulative effect of policy persistency in the early years, which results in a greater proportion of the costs being amortized in the early years of the life of the policy. During 2018, our key assumptions used to develop the future amortization of acquisition costs deferred during 2018 did not change materially from those used in 2017. Generally, we do not expect our key assumptions to change significantly in the short-term, and to the extent that these trends do change, we expect those changes to be gradual over a longer period of time.
The following are our current assumptions regarding the length of our amortization periods, the approximate DAC balance that remains at the end of years 3, 10, and 15 as a percentage of the cost initially deferred, and our DAC balances as of December 31, 2018 and 2017.
All of our fixed maturity securities, which are classified as available-for-sale, and all our unrestricted equity securities are reported at fair value. Our derivative financial instruments, including certain derivative instruments embedded in other contracts, are reported as either assets or liabilities and measured at fair value. We report our investments in private equity partnerships at our share of the partnerships' net asset value per share or its equivalent (NAV), as a practical expedient for fair value.
Inputs to valuation techniques refer broadly to the assumptions that market participants use in pricing assets or liabilities, including assumptions about risk, for example, the risk inherent in a particular valuation technique used to measure fair value and/or the risk inherent in the inputs to the valuation technique. We use observable and unobservable inputs in measuring the fair value of our financial instruments. Observable inputs are inputs that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from independent sources. Unobservable inputs are inputs that reflect our own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances.
Baa corporate bond spread adjustments ranging from 1.23 percent to 2.68 percent were added to the risk-free rate to reflect additional credit risk and the lack of liquidity. We used spread adjustments ranging from 0.83 percent to 1.97 percent at December 31, 2017. The changes were based on observable market spreads. Newly issued private placement securities have historically offered yield premiums higher than a similar interest rate spread on comparable newly issued public securities.
As of December 31, 2018, approximately 11.7 percent of our fixed maturity securities were categorized as Level 1, 84.5 percent as Level 2, and 3.8 percent as Level 3. Level 1 is the highest category of the three-level fair value hierarchy classification wherein inputs are unadjusted and represent quoted prices in active markets for identical assets or liabilities. The Level 2 category includes assets or liabilities valued using inputs (other than those included in the Level 1 category) that are either directly or indirectly observable for the asset or liability through correlation with market data at the measurement date and for the duration of the instrument's anticipated life. The Level 3 category is the lowest category of the fair value hierarchy and reflects the judgment of management regarding what market participants would use in pricing assets or liabilities at the measurement date using unobservable inputs to extrapolate an estimated fair value.
Our net periodic benefit costs and the value of our benefit obligations for these plans are determined based on a set of economic and demographic assumptions that represent our best estimate of future expected experience. Major assumptions used in accounting for these plans include the expected discount (interest) rate, the long-term rate of return on plan assets, and mortality rates. We also use, as applicable, expected increases in compensation levels and a weighted average annual rate of increase in the per capita cost of covered benefits, which reflects a health care cost trend rate, and the U.K. pension plan also uses expected cost of living increases to plan benefits.
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 strategic asset allocation. 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.
During 2018, the fair value of plan assets in our U.S. qualified defined benefit pension plan decreased $127.7 million, or 8.1 percent due to an unfavorable return on assets which resulted in a loss of approximately 3.4 percent and the payment of benefits and expenses. The fair value of plan assets in our U.K. pension plan decreased £17.5 million, or 9.3 percent, due to an unfavorable return on assets which resulted in a loss of approximately 6.4 percent, as well as the payment of benefits and expenses. Although our rate of return on plan assets for 2018 did not meet 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, 2018, our pension and OPEB plans have an aggregate unrecognized net actuarial loss of $700.6 million and an unrecognized prior service credit of $2.3 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 $721.5 million at December 31, 2018, will be amortized over the average remaining life expectancy of the plan, which is approximately 24 years for the U.S. plan and 31 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 $20.9 million for our OPEB plan will be amortized over the average future working life of OPEB plan participants, estimated at three 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, 2018, $479.3 million of the actuarial loss was outside of the corridor for the U.S. plans and £21.3 million was outside of the corridor for the U.K. plan. At December 31, 2018, $8.3 million of the actuarial gain was outside of the corridor for the OPEB plan.
million at December 31, 2018 and December 31, 2017, respectively. This year-over-year change was due primarily to the decrease in period benefit obligations due to the increase in discount rate, partially offset by lower than expected asset returns.
The fair value of plan assets in our U.K. pension plan was £170.2 million at December 31, 2018, compared to £187.6 million at December 31, 2017. The U.K. pension plan was in an overfunded position of £4.7 million and £7.2 million at December 31, 2018 and 2017, respectively.
The fair value of plan assets in our OPEB plan was $10.1 million and $10.5 million at December 31, 2018 and 2017, respectively. These assets represent life insurance contracts to fund the life insurance benefit portion of our OPEB plan. Our OPEB plan represents a non-vested, non-guaranteed obligation, and current regulations do not require specific funding levels for these benefits, which are comprised of retiree life, medical, and dental benefits. It is our practice to use general assets to pay medical and dental claims as they come due in lieu of utilizing plan assets for the medical and dental benefit portions of our OPEB plan.
Changes in tax laws, tax regulations, or interpretations of such laws or regulations, could have an impact on our provision for income tax and our effective tax rate, which could significantly affect the amounts reported in our financial statements. The TCJA did not significantly change our process for evaluating the above items.
In connection with the TCJA, 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. During 2018, we continued to refine our calculations during the one-year measurement period after the enactment date as allowed by SAB 118 and increased our provisional Repatriation Tax estimate by $11.5 million to $77.9 million.
We recognized $17.5 million of other-than-temporary impairment losses on fixed maturity securities in 2018 compared to losses of $8.1 million and $30.5 million in 2017 and 2016, respectively. Also included in net realized investment gains and losses were
changes in the fair value of an embedded derivative in a modified coinsurance arrangement, which resulted in realized gains (losses) of $(15.2) million, $30.8 million, and $40.9 million in 2018, 2017, and 2016, respectively. See Notes 3 and 4 of the "Notes to Consolidated Financial Statements" contained herein in Item 8 for further discussion.
Interest and debt expense was higher in 2018 relative to 2017 due primarily to a higher level of outstanding debt and a higher overall rate of interest. Interest and debt expense was lower in 2017 relative to 2016 due primarily to a lower level of outstanding debt, partially offset by a higher overall rate of interest. See Note 8 of the "Notes to Consolidated Financial Statements" contained herein in Item 8 for further discussion.
Our reporting segments are comprised of the following: Unum US, Unum International, Colonial Life, Closed Block, and Corporate. Financial information for each of our reporting segments is as follows.
The Unum US segment includes group long-term and short-term disability insurance, group life and accidental death and dismemberment products, and supplemental and voluntary lines of business, which are comprised of individual disability, voluntary benefits, and dental and vision products.
Premium income increased compared to 2017, driven primarily by growth in the in-force block due to higher prior period sales and improved persistency. Net investment income was lower relative to 2017 due to a decrease in the level of invested assets and a decline in yield on invested assets, partially offset by higher miscellaneous investment income. Other income is comprised primarily of fees from administrative services products.
Benefits experience was favorable compared to 2017 due primarily to favorable claim recovery experience in our group long-term disability product line, partially offset by higher claims incidence in certain of our group short-term disability products.
Premium income increased compared to 2017 with growth in the in-force block due to prior period sales growth and favorable persistency. Net investment income was lower compared to 2017 due to a decline in yield on invested assets, partially offset by an increase in the level of invested assets and higher miscellaneous investment income.
Commissions and the deferral of acquisition costs were higher compared to 2017 due to prior period sales growth. The amortization of deferred acquisition costs increased relative to 2017 due to growth in the level of the deferred asset. The other expense ratio improved compared to 2017 due to growth in premium income and a continued focus on expense management and operating efficiencies balanced with continued investment in the growth of our business.
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 investment income.
Premium income increased compared to 2017 driven by higher sales, including dental and vision where we continue to expand its distribution, partially offset by unfavorable persistency. Net investment income was slightly lower compared to 2017 due to a decline in yield on invested assets and lower miscellaneous investment income, partially offset by a higher level of invested assets. 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.
Group sales decreased compared to 2017 due to lower sales to new and existing 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 2018 was approximately 59 percent core market and 41 percent large case market.
Individual disability sales, which are primarily concentrated in the multi-life market, increased compared to 2017 due to higher sales to both new and existing customers. Voluntary benefits sales increased compared to 2017, primarily driven by higher sales to existing customers in both the core and large case markets, partially offset by lower sales to new customers in the large case market. Dental and vision sales increased compared to 2017 driven by higher sales to both new and existing customers resulting from our continued expansion.
We remain committed to offering consumers a broad set of financial protection benefit products at the worksite. During 2019, we will continue to invest in a unique customer experience defined by simplicity, empathy, and deep industry expertise through the re-design of our processes and the increased utilization of digital capabilities and technology to enhance enrollment, underwriting, and claims processing. We will continue to focus on the expansion of products, which includes dental and vision, medical stop-loss, and leave management services, while also introducing new voluntary benefits products. Additionally, we will focus on client expansion, consumer engagement, and collaborative partnerships, all underpinned by strong risk management. 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 stable adjusted operating income growth in 2019, with disciplined sales and premium growth, consistent risk management, and improving operational efficiency. 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.
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 unfavorably impacted by fluctuations in miscellaneous investment income and lower asset levels resulting from improved capital efficiency. As part of our continued pricing discipline and our reserving methodology, we continuously monitor emerging interest rate experience and adjust our pricing and reserve discount rates, as appropriate. We expect that our underwriting results in 2019 will continue at a level generally consistent with 2018. We continuously monitor key indicators to assess our risks and attempt to adjust our business plans accordingly.
We had total goodwill of $42.6 million for the Unum International segment at December 31, 2018, none of which is currently believed to be at risk for future impairment.
Shown below are financial results and key performance indicators for the Unum UK product lines.
Benefits experience was consistent with 2017 as favorable claims recoveries in our group long-term disability product line were offset by unfavorable claims activity in our group life and supplemental product lines and the impact of inflation-linked increases in benefits.
Net investment income increased compared to 2016 due primarily to higher investment income from inflation index-linked bonds and the growth in the level of invested assets, partially offset by a decline in yield on our fixed-rate bonds. The increase in net investment income attributable to these index-linked bonds was mostly offset by an increase in the reserves for future claims payments related to the inflation index-linked group long-term disability and group life policies.
Commissions were lower compared to 2016 due to certain commissions costs in 2016 that did not recur in 2017. The deferral of acquisition costs was lower compared to 2016 due to lower deferrable commissions and operating expenses. The amortization of acquisition costs was lower in 2017 compared to 2016 due to a decline in the deferred asset. The other expense ratio was lower relative to 2016 due to higher premiums and our continued focus on expense management and operating efficiencies.
We are committed to driving growth in the Unum International segment, and during 2019, we will build on those capabilities that we believe will generate growth and profitability in our businesses. Expanding our Unum UK group long-term disability market position remains a significant opportunity and priority. Completing the integration of our Unum Poland business and growing that business through the expansion of its product offerings is also a significant priority and opportunity. Other key priorities in 2019, specifically for our Unum UK business, include the continued disciplined implementation of price increases across interest sensitive product lines, which has been successful in offsetting pressure from lower interest rates and heightened disability claims experience, while maintaining solid persistency results and continuing to follow a disciplined approach to new sales activity in the competitive pricing environment. We intend to build upon the strong sales momentum we have seen in our group critical illness and dental products through increased participation rates as well as accelerate growth in our group life line of business. We have simplified our processes and operations to deliver efficiencies and further improvements to customer service and remain focused on risk discipline. The investments that we have made in the operating model for our UK business have significantly improved our operational effectiveness and we plan to reinvest a portion of these expense savings to build marketing and digital capabilities, which we believe will drive sustainable growth through the development of new distribution capabilities and reaching new customers.
Negotiations regarding the U.K.'s formal notice to withdraw from the EU are continuing to generate uncertainty in the U.K. economy. 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, but we believe we are well positioned to capitalize on future growth opportunities as these negotiations are resolved and the operating environment improves. Overall, we expect the economic conditions experienced in 2018 to continue into 2019 for the U.K., with lower economic growth, wage inflation, and interest rates presenting challenges in the short to medium term.
The Colonial Life segment includes insurance for accident, sickness, and disability products, which includes our expanded dental and vision products, life products, and cancer and critical illness products issued primarily by Colonial Life & Accident Insurance Company and marketed to employees, on both a group and an individual basis, at the workplace through an independent contractor agency sales force and brokers.
Premium income increased in 2018 relative to 2017 as a result of sales growth. Net investment income increased relative to the prior year due to an increase in the level of invested assets and higher miscellaneous investment income, partially offset by a decline in yield on invested assets.
Benefits experience was favorable in 2018 compared to 2017 due to the previously discussed 2017 reserve increase for unclaimed death benefits. Excluding this reserve increase, benefits experience was consistent with 2017.
Commissions and the deferral of acquisition costs were higher relative to 2017 due to sales growth. The amortization of deferred acquisition costs increased compared to the prior year due primarily to growth in the level of the deferred asset. The other expense ratio was higher relative to 2017 due to costs related to our territory expansion initiatives, investments in our business, and the roll-out of our dental and vision products.
We had goodwill of $27.7 million at December 31, 2018, none of which is currently believed to be at risk for future impairment.
Premium income increased in 2017 relative to 2016 as a result of sales growth and overall stable persistency. Net investment income increased relative to 2016 due to an increase in the level of invested assets, partially offset by a decline in yield and lower miscellaneous investment income.
Sales were higher in 2017 due to growth in both new and existing customer account sales. Commercial market sales increased due to higher new and existing customer account sales in both the core market and the large case market. The slight increase in our public sector market for 2017 was primarily driven by higher new customer account sales. The number of new accounts increased 9.1 percent in 2017 compared to 2016, and the average new case size increased 1.1 percent.
Net investment income was higher relative to 2017 primarily due to an increase in the level of invested assets and higher miscellaneous investment income, partially offset by a decline in yield on invested assets. Other income, which includes the underlying results and associated net investment income of certain blocks of individual disability reinsured business, continues to decline due to expected terminations and maturities.
Individual disability benefits experience was favorable relative to 2017 due primarily to lower claims incidence and a lower average size of new claims. The interest adjusted loss ratio for long-term care, excluding the previously discussed reserve increase, was not comparable to 2017 due to the update in our assumptions during the third quarter of 2018, but was generally consistent with our expectations in the second half of 2018, with an interest adjusted loss ratio of 85.4 percent.
Premium income for individual disability decreased compared to 2016 due to expected policy terminations and maturities. Premium income for long-term care increased slightly due to rate increases.
Net investment income was slightly higher relative to 2016 due to a higher level of invested assets, partially offset by a lower yield and lower miscellaneous investment income. Other income declined due to expected terminations and maturities.
Profitability of our long-tailed products is affected by claims experience related to mortality and morbidity, resolutions, 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 and as we continue the implementation of premium rate increases. Specific to our long-term care line of business, which is in loss recognition and should report levels of benefits plus operating expenses that equal the gross premium reported, we expect the long term interest adjusted loss ratio to be in the 85 to 90 percent range with some quarterly volatility. 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, resolutions, 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.
Net investment income was higher relative to 2017 due primarily to an increase in the level of invested assets and a higher yield.
The fair values and associated unrealized gains and losses of our fixed maturity securities portfolio, by industry classification, are as follows:
The following two tables show the length of time our investment-grade and below-investment-grade fixed maturity securities had been in a gross unrealized loss position as of December 31, 2018 and at the end of the prior four quarters. The relationships of the current fair value to amortized cost are not necessarily indicative of the fair value to amortized cost relationships for the securities throughout the entire time that the securities have been in an unrealized loss position nor are they necessarily indicative of the relationships after December 31, 2018. The increase in the unrealized loss on fixed maturity securities during 2018 was due to an increase in credit spreads and U.S. Treasury rates.
As of December 31, 2018, the amortized cost and fair value of our below-investment-grade fixed maturity securities was $3,236.8 million and $3,038.6 million, respectively. Below-investment-grade securities are inherently riskier than investment-grade securities since the risk of default by the issuer, by definition and as exhibited by bond rating, is higher. Also, the secondary market for certain below-investment-grade issues can be highly illiquid. Additional downgrades may occur, but we do not anticipate any liquidity problems resulting from our investments in below-investment-grade securities, nor do we expect these investments to adversely affect our ability to hold our other investments to maturity.
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, 2018, we had minimal exposure in those countries and had no direct exposure to financial institutions of those countries.
Our mortgage loan portfolio was $2,295.0 million and $2,213.2 million on an amortized cost basis at December 31, 2018 and 2017, 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 one impaired mortgage loan at December 31, 2018 with a net realizable value of $3.4 million, net of a valuation allowance of $0.2 million. We held no impaired mortgage loans at December 31, 2017.
Our exposure to non-current investments, defined as foreclosed real estate and invested assets which are delinquent as to interest and/or principal payments, totaled $36.0 million and $32.9 million on a fair value basis at December 31, 2018 and 2017, respectively.
Our liquidity requirements are met primarily by cash flows provided from operations, principally in our insurance subsidiaries. Premium and investment income, as well as maturities and sales of invested assets, provide the primary sources of cash. Debt and/or securities offerings provide additional sources of liquidity. Cash is applied to the payment of policy benefits, costs of acquiring new business (principally commissions), operating expenses, and taxes, as well as purchases of new investments.
Unum Group and/or certain of its intermediate holding company subsidiaries may also receive dividends from our U.K. subsidiaries, the payment of which may be subject to applicable insurance company regulations and capital guidance in the U.K. Unum Limited is subject to the requirements of Solvency II, a European Union (EU) directive, which prescribes capital requirements and risk management standards for the European insurance industry. Our European holding company is also subject to the Solvency II requirements relevant to insurance holding companies, while its subsidiaries (the Unum European Economic Area (EEA) Group), which includes Unum Limited, are subject to group supervision under Solvency II. The Unum EEA Group received approval from the U.K. Prudential Regulation Authority to use its own internal model for calculating regulatory capital and also received approval for certain associated regulatory permissions including transitional relief as the Solvency II capital regime continues to be implemented. There are currently no indications that capital requirements for the Unum EEA Group will change as a result of the U.K.'s exit from the EU, but economic conditions may in the near term cause volatility in our solvency ratios.
During 2019, we intend to maintain a level of capital in our 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 $995 million is available, without prior approval by regulatory authorities, during 2019 for the payment of dividends from Unum Group's traditional U.S. insurance subsidiaries, which excludes our captive reinsurers. Approximately £140 million is available for the payment of dividends from Unum Limited during 2019, subject to regulatory approval.
We made contributions of $69.3 million and £3.1 million to our U.S. and U.K. defined contribution plans, respectively, in 2018 and expect to make contributions of approximately $75 million and £3 million during 2019. We made a de minimis amount of contributions to our U.S. qualified defined benefit pension plan and no contribution to our U.K. defined benefit pension plan during 2018. We do not expect to make any contributions to either plan during 2019. We have met all minimum pension funding requirements set forth by the Employee Retirement Income Security Act. We have estimated our future funding requirements under the Pension Protection Act of 2006 and under applicable U.K. law and do not believe that any future funding requirements will cause a material adverse effect on our liquidity. See Note 9 of the "Notes to Consolidated Financial Statements" contained herein in Item 8 for further discussion of our employee benefit plans.
Northwind Holdings made principal payments on its floating rate, senior secured notes of $60.0 million, in both 2018 and 2017, and $64.0 million in 2016.
In 2016, we amended the terms of our five-year, $400 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 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, 2018, letters of credit totaling $2.1 million had been issued from the credit facility, but there was no borrowed amount outstanding. Our credit facility's financial covenants contain provisions regarding our leverage and net worth. We do not anticipate any violation of these covenants. However, if economic conditions worsen and we incur unexpected losses, we could violate certain of the financial covenants imposed by the credit facility and lose access to available funds or lines of credit through the facility. While maintenance of the unsecured, revolving credit facility provides a valuable source of contingent liquidity, we believe operating cash flows are sufficient to support our short-term liquidity needs.
force business. The primary assumptions used to project future cash flows are claim incidence rates for mortality and morbidity, claim resolution rates, persistency rates, and interest rates. These cash flows are discounted to determine the current value of the projected claim payments. The timing and amount of payments on policyholder liabilities may vary significantly from the projections above.
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. Our credit exposure on derivatives, which is limited to the value of those contracts in a net gain position, including accrued interest receivable less collateral held, was $0.9 million at December 31, 2018. We held cash collateral from our counterparties of $24.0 million at December 31, 2018 and had posted fixed maturity securities with a carrying value of $33.4 million as collateral to our counterparties.
Certain of our U.S. insurance subsidiaries are members of regional Federal Home Loan Banks (FHLB). As of December 31, 2018, we owned $24.1 million of FHLB common stock and had obtained $104.0 million in advances from the regional FHLBs for the purpose of purchasing fixed maturity securities.
Investing cash inflows consist primarily of the proceeds from the sales and maturities of investments. Investing cash outflows consist primarily of payments for purchases of investments. Our investment strategy is to match the cash flows and durations of our assets with the cash flows and durations of our liabilities to meet the funding requirements of our business. When market opportunities arise, we may sell selected securities and reinvest the proceeds to improve the yield and credit quality of our portfolio. We may at times also sell selected securities and reinvest the proceeds to improve the duration matching of our assets and liabilities and/or re-balance our portfolio. As a result, sales before maturity may vary from period to period. The sale and purchase of short-term investments is influenced by proceeds received from issuance of debt, our securities lending program, and by the amount of cash which is at times held in short-term investments to facilitate the availability of cash to fund the purchase of appropriate long-term investments, repay maturing debt, and/or to fund our capital deployment program. Our 2018 cash outflows include a combined purchase amount of $145.4 million, net of cash acquired, for all of our acquisitions during the year. Our 2016 cash outflows include $129.2 million related to our purchase of Starmount.
During 2018, our $200.0 million 7.00% senior unsecured notes matured. During 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. During 2016, we repaid $350.0 million principal upon maturity of our 7.125% notes. We made principal payments of $60.0 million in both 2018 and 2017 and $64.0 million in 2016, on our senior secured non-recourse notes issued by Northwind Holdings.
During 2018, we issued $300.0 million of 6.25% junior subordinated notes due 2058 and received total proceeds of $290.7 million. During 2016, we issued $350.0 million of 3.00% unsecured senior notes due in 2021 and $250.0 million of 5.75% unsecured senior notes due in 2042 and received total proceeds of $609.1 million, excluding the associated debt issuance costs and discounts.
Fitch, Moody's, and S&P affirmed their ratings for our domestic insurance subsidiaries and issuer credit ratings for Unum Group during 2018. Fitch also revised their outlook to negative from stable, citing the adverse reserve development in our long-term care business. There have been no other changes in any of the rating agencies' outlook statements or ratings during 2018 or in 2019 prior to the date of this filing.
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. Although the outlook for capital requirements has become more clear, there remains some uncertainty in the industry on how rating agencies will incorporate recently announced NAIC RBC formula changes in response to tax reform. We continue to work closely with the rating agencies on these changes. 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 have three principal operating business segments: Unum US, Unum International, and Colonial Life. Our other reporting segments are Closed Block and Corporate. See Note 13 for further discussion of our operating segments.
earnings, if through subsequent evaluation there is a significant increase in expected cash flows, the difference between the new amortized cost basis and the cash flows expected to be collected is accreted as net investment income over the remaining life of the investment. See Notes 2 and 3.
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.
A derivative designated as a hedging instrument must be assessed as being highly effective in offsetting the designated risk(s) of the hedged item. Hedge effectiveness is formally assessed at inception and periodically throughout the life of the designated hedging relationship, using qualitative and quantitative methods. Qualitative methods include comparison of critical terms of the derivative to the hedged item. Quantitative methods include regression or other statistical analysis of changes in fair value or cash flows associated with the hedge relationship.
Changes in the fair value of a derivative designated as a cash flow hedge are reported in other comprehensive income and reclassified into earnings and reported on the same income statement line item as the hedged item and in the same period or periods during which the hedged item affects earnings. The gain or loss on the termination of an effective cash flow hedge is reported in other comprehensive income and reclassified into earnings and reported on the same income statement line item as the hedged item and in the same period or periods during which the hedged item affects earnings.
Fair Value Measurement: Certain assets and liabilities are reported at fair value in our consolidated balance sheets and in our notes to our consolidated financial statements. We define fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Therefore, fair value represents an exit price, not an entry price. The exit price objective applies regardless of our intent and/or ability to sell the asset or transfer the liability at the measurement date. Assets or liabilities with readily available actively quoted prices or for which fair value can be measured from actively quoted prices in active markets generally have more pricing observability and less judgment utilized in measuring fair value. When actively quoted prices are not available, fair values are based on quoted prices in markets that are not active, quoted prices for similar but not identical assets or liabilities, or other observable inputs. If observable inputs are not available, unobservable inputs and/or adjustments to observable inputs requiring management judgment are used to determine fair value. We categorize our assets and liabilities measured at estimated fair value into a three-level hierarchy, based on the significance of the inputs. The fair value hierarchy gives the highest priority to inputs which are unadjusted and represent quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). See Note 2.
Deferred Acquisition Costs: Incremental direct costs associated with the successful acquisition of new or renewal insurance contracts have been deferred. Such costs include commissions, other agency compensation, certain selection and policy issue expenses, and certain field expenses. Acquisition costs that do not vary with the production of new business, such as commissions on group products which are generally level throughout the life of the policy, are excluded from deferral. Deferred acquisition costs are subject to recoverability testing at the time of policy issue and loss recognition testing in subsequent years.
determined by calculating the implied fair value of goodwill by assigning the fair value of a reporting unit to all of its assets and liabilities. The carrying amount of goodwill is then reduced with a corresponding charge to expense.
Value of Business Acquired: Value of business acquired represents the present value of future profits recorded in connection with the acquisition of a block of insurance policies. The asset is amortized based upon expected future premium income for non-interest sensitive insurance policies and estimated future gross profits from surrender charges, mortality margins, investment returns, and expense margins for interest sensitive insurance policies. The value of business acquired, which is included in other assets in our consolidated balance sheets, was $96.7 million and $27.9 million at December 31, 2018 and 2017, respectively. The accumulated amortization for value of business acquired was $133.0 million and $130.4 million as of December 31, 2018 and 2017, respectively.
The amortization of value of business acquired, which is included in other expenses in the consolidated statements of income, was $6.4 million, $4.8 million, and $5.1 million for the years ended December 31, 2018, 2017, and 2016, 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 group single premium annuities are developed on a net single premium method. The reserves are calculated based on assumptions as to interest, mortality, and retirement that were appropriate at the date of issue. Mortality assumptions are based upon industry standards adjusted as appropriate to reflect our actual experience and future expectations. The assumptions vary by year of issue.
Claim reserves represent future policy and contract benefits for claims that have been incurred or are estimated to have been incurred but not yet reported to us. Our claim reserves relate primarily to disability and long-term care policies and are calculated based on assumptions as to interest and claim resolution rates that are currently appropriate. Claim resolution rate assumptions are based on our actual experience. The interest rate assumptions used for discounting claim reserves are based on projected portfolio yield rates, after consideration for defaults and investment expenses, for the assets supporting the liabilities
Policyholders' Funds: Policyholders' funds represent customer deposits plus interest credited at contract rates. We control interest rate risk by investing in quality assets which have an aggregate duration that closely matches the expected duration of the liabilities.
Treasury Stock and Retirement of Common Stock: Treasury stock is reflected as a reduction of stockholders' equity at cost. When shares are retired, the par value is removed from common stock, and the excess of the repurchase price over par is allocated between additional paid-in capital and retained earnings. See Note 10.
Under ceded reinsurance agreements wherein we are not relieved of our legal liability to our policyholders, if the assuming reinsurer is unable to meet its obligations, we remain contingently liable. We evaluate the financial condition of reinsurers and monitor concentration of credit risk to minimize this exposure. We may also require assets in trust, letters of credit, or other acceptable collateral to support our reinsurance recoverable balances. In the event that reinsurers do not meet their obligations to us under the terms of the reinsurance agreements, certain amounts reported in our reinsurance recoverable could become uncollectible, in which case the reinsurance recoverable balances are stated net of allowances for uncollectible reinsurance. See Note 12.
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 $301.2 million and $328.3 million at December 31, 2018 and 2017, respectively.
The adoption of this update resulted in the reclassification of certain cash inflows between investing activities and operating activities within our consolidated statements of cash flows. The reclassification primarily related to cash distributions from equity method investees and the bifurcation of those distributions as either returns on investment or returns of investment which resulted in a reclassification of cash inflows from investing activities to operating activities. The remaining portion of the reclassification related to the receipt of proceeds from corporate-owned life insurance benefits which resulted in a reclassification of cash inflows from operating activities to investing activities. The adoption of this update had no effect on our financial position or results of operations. See the summary tables contained herein for the financial statement impacts of this retrospective adoption.
These updates superseded virtually all existing guidance regarding the recognition of revenue from customers. Specifically excluded from the scope of these updates are insurance contracts, although our fee-based service products are included within the scope. Our fee-based service products, which are primarily sold in our Unum US segment, are reported in other income within our consolidated statements of income and represent less than one percent of our total revenue. The core principle of this guidance is that revenue recognition should depict the transfer of goods or services to customers in an amount that reflects the consideration to which an entity expects to be entitled in exchange for those goods or services. Accordingly, we continue to recognize revenue for these fee-based service products as services are rendered. The guidance was applied retrospectively for all periods presented or retrospectively with a cumulative-effect adjustment at the date of adoption.
This update required the service cost component of net periodic pension and postretirement benefit costs to be included as a component of compensation costs in an entity's statement of income. Other components of net periodic pension and postretirement benefit costs are required to be presented separately from the service cost along with a disclosure identifying the line items in which these costs are presented in the statement of income. The amendments in this update were applied retrospectively or prospectively depending on the specific requirement of the update.
We elected to early adopt the removal and modification of disclosures, as permitted by the update. We have elected to delay the adoption of the additional disclosures until the effective date. The adoption of this update will modify our disclosures but will not have an impact on our financial position or results of operations.
This update changed the accounting and disclosure requirements for certain financial instruments. These changes include a requirement to measure equity investments, other than those that result in consolidation or are accounted for under the equity method, at fair value through net income unless the investment qualifies for certain practicability exceptions. In addition, the update clarified guidance related to the valuation allowance assessment when recognizing deferred tax assets resulting from unrealized losses on available-for-sale fixed maturity securities. Changes also included the modification of certain disclosures around the fair value of financial instruments, including the requirement for separate presentation of financial assets and liabilities by measurement category, as well as the elimination of certain disclosures around methods and significant assumptions used to estimate fair value. The guidance was applied using a modified retrospective approach through a cumulative-effect adjustment to accumulated other comprehensive income with a corresponding adjustment to retained earnings as of the beginning of the fiscal year of adoption.
See the summary tables contained herein for the financial statement impacts of this modified retrospective adoption on our financial statement line items at January 1, 2018.
This update changed the disclosure requirements for certain insurance contracts. These changes included a requirement to disclose the rollforward of the liability for unpaid claims and claim adjustment expenses in both interim and annual reporting periods for long-duration and short-duration insurance contracts. Additional claims disclosures were also required for short-duration contracts. The guidance was applied retrospectively.
This update eliminated the requirement to categorize within the fair value hierarchy table investments whose fair value is measured at net asset value using the practical expedient. Instead, entities are required to disclose the fair value of these investments so that financial statement users can reconcile amounts reported in the fair value hierarchy table to the amounts reported on the consolidated balance sheets. The guidance was applied retrospectively.
The adoption of this update modified certain of our annual reporting period disclosures for invested assets held in our employee benefit plans but had no effect on our financial position or results of operations.
This update allows entities to make an optional 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, with early adoption permitted.
The adoption of this update will not have an impact on our financial position or results of operations.
We have not yet determined the expected impact on our disclosures.
We have not yet determined the expected impact on our financial position or results of operations.
Level 2 - 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.
Level 3 - 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.
At December 31, 2018, approximately 11.7 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 remaining 88.3 percent of our fixed maturity securities were valued based on non-binding quotes or other observable and unobservable inputs, as discussed below:
75.0 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.
Our private equity partnerships represent funds that are primarily invested in private credit, private equity, and real assets, as described below. Distributions received from the funds arise from income generated by the underlying investments as well as the liquidation of the underlying investments. There is generally not a public market for these investments.
The following table presents additional information about our private equity partnerships as of December 31, 2018, including commitments for additional investments which may or may not be funded:
Private Credit - The limited partnerships described in this category employ various investment strategies, generally providing direct lending or other forms of debt financing including first-lien, second-lien, mezzanine, and subordinated loans. The limited partnerships have credit exposure to corporates, physical assets, and/or financial assets within a variety of industries (including manufacturing, healthcare, energy, business services, technology, materials, and retail) in North America and, to a lesser extent, outside of North America. As of December 31, 2018, the estimated remaining life of the investments that do not allow for redemptions is approximately 20 percent in the next 3 years, 46 percent during the period from 3 to 5 years, 30 percent during the period from 5 to 10 years, and 4 percent after the period of 15 years.
Private Equity - The limited partnerships described in this category employ various strategies generally investing in controlling or minority control equity positions directly in companies and/or assets across various industries (including manufacturing, healthcare, energy, business services, technology, materials, and retail), primarily in private markets within North America and, to a lesser extent, outside of North America. As of December 31, 2018, the estimated remaining life of the investments that do not allow for redemptions is approximately 40 percent in the next 3 years, 9 percent during the period from 3 to 5 years, 49 percent during the period from 5 to 10 years, 1 percent during the period from 10 to 15 years, and 1 percent after the period of 15 years.
Real Assets - The limited partnerships described in this category employ various strategies, which include investing in the equity and/or debt financing of physical assets, including infrastructure (energy, power, water/wastewater, communications), transportation (including airports, ports, toll roads, aircraft, railcars) and real estate in North America, Europe, South America, and Asia. As of December 31, 2018, the estimated remaining life of the investments that do not allow for redemptions is approximately 2 percent in the next 3 years, 19 percent during period from 3 to 5 years, 75 percent during the period from 5 to 10 years, and 4 percent during the period from 10 to 15 years.
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 (losses) 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 $(15.2) million and $30.8 million for the years ended December 31, 2018 and 2017, 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.
The methods and assumptions used to estimate fair values of financial instruments not carried at fair value are discussed as follows:
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.
The carrying values of financial instruments such as short-term investments, cash and bank deposits, accounts and premiums receivable, accrued investment income, securities lending agreements, and short-term debt approximate fair value due to the short-term nature of the instruments. As such, these financial instruments are not included in the above chart.
The following chart depicts an analysis of our fixed maturity security portfolio between investment-grade and below-investment-grade categories as of December 31, 2018:
The unrealized losses on investment-grade fixed maturity securities principally relate to changes in interest rates or changes in market or sector credit spreads which occurred subsequent to the acquisition of the securities. Below-investment-grade fixed maturity securities are generally more likely to develop credit concerns than investment-grade securities. At December 31, 2018, the unrealized losses in our below-investment-grade fixed maturity securities were generally due to credit spreads in certain industries or sectors and, to a lesser extent, credit concerns related to specific securities. For each specific security in an unrealized loss position, we believe that there are positive factors which mitigate credit concerns and that the securities for which we have not recorded an other-than-temporary impairment will recover in value.
At December 31, 2018, we had commitments of $117.3 million to fund private placement fixed maturity securities, the amount of which may or may not be funded.
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 $156.7 million and $154.1 million as of December 31, 2018 and 2017, 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 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.
At December 31, 2018, we held one mortgage loan that was greater than 90 days past due regarding principal and/or interest payments which was modified in a troubled debt restructuring during the second quarter of 2018. The loan had a principal balance of $3.6 million prior to the restructuring, wherein the terms of the loan were modified to reduce monthly payments to interest-only at the current note rate and to permit a discounted payoff by September 2018. At the time of restructuring in the second quarter of 2018, we recorded an allowance for credit losses and recognized an impairment loss of $0.2 million resulting in a net realizable value for the loan of $3.4 million. The payoff of the loan did not occur in September 2018 and therefore, the loan was considered impaired as of December 31, 2018. At December 31, 2017, we held no mortgage loans that were greater than 90 days past due regarding principal and/or interest payments.
There were no troubled debt restructurings during 2017. 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. We had no realized losses on loan foreclosures for the years ended December 31, 2018, 2017, and 2016 other than any initial impairment loss recognized prior to foreclosure.
At December 31, 2018, we had commitments of $13.0 million to fund certain commercial mortgage loans, the amount of which may or may not be funded.
2 The net unrealized gain recognized in net investment income for the year ended December 31, 2018 related to private equity partnerships still held at December 31, 2018 was $7.1 million.
Derivatives designated as cash flow hedges and used to reduce our exposure to interest rate and duration risk are as follows:
Derivatives designated as fair value hedges and used to reduce our exposure to interest rate and duration risk are as follows:
Credit default swaps are used as economic hedges against credit risk but do not qualify for hedge accounting. A credit default swap is an agreement in which we agree with another party to pay, at specified intervals, a fixed-rate fee in exchange for insurance against a credit event on a specific investment. If a defined credit event occurs, our counterparty may either pay us a net cash settlement, or we may surrender the specific investment to them in exchange for cash equal to the full notional amount of the swap. Credit events typically include events such as bankruptcy, failure to pay, or certain types of debt restructuring.
The basic types of risks associated with derivatives are market risk (that the value of the derivative will be adversely impacted by changes in the market, primarily the change in interest and exchange rates) and credit risk (that the counterparty will not perform according to the terms of the contract). The market risk of the derivatives should generally offset the market risk associated with the hedged financial instrument or liability. To help limit the credit exposure of the 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. Our credit exposure on derivatives, which is limited to the value of those contracts in a net gain position, including accrued interest receivable less collateral held, was $0.9 million at December 31, 2018. As of December 31, 2017 we did not have any credit exposure on derivatives. The table below summarizes the nature and amount of collateral received from and posted to our derivative counterparties.
As of December 31, 2018, we are hedging the variability of future cash flows associated with forecasted transactions through the year 2038.
As of December 31, 2017, we had $48.0 million of notional amount of receive variable, pay fixed interest rate swaps to hedge the changes in fair value of certain fixed rate securities held which matured in 2018 along with the hedged securities. These swaps effectively converted the associated fixed rate securities into floating rate securities, which were used to fund our floating rate long-term debt. 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.
fixed, pay variable interest rate swaps matured in conjunction with the maturity of the $350.0 million hedged fixed rate debt. See Note 8.
For the year ended December 31, 2018, $2.5 million of the derivative instruments' gain was excluded from the assessment of hedge effectiveness. For the year ended December 31, 2017, no component of the derivative instruments' gain or loss was excluded from the assessment of hedge effectiveness. There were no instances wherein we discontinued fair value hedge accounting due to a hedged firm commitment no longer qualifying as a fair value hedge.
As of December 31, 2018 and 2017, we held $173.7 million and $192.6 million, respectively, notional amount of receive fixed, pay fixed, foreign currency interest rate swaps. These derivatives are not designated as hedges, and as such, changes in fair value related to these derivatives are reported in earnings as a component of net realized investment gain or loss.
As of December 31, 2018 and 2017, we held $11.0 million and $70.0 million, respectively, 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.
As of December 31, 2016, we held $3.5 million notional amount of a receive variable, pay fixed interest rate swap acquired through our purchase of Starmount during 2016. This swap effectively converted Starmount's floating rate long-term debt into fixed rate debt. During 2017, we purchased and retired the debt and terminated the interest rate swap. We recorded a loss of $0.1 million on the swap termination in our consolidated statements of income as a component of net realized investment gains and losses. See Note 8.
The following tables summarize the location of gains and losses of derivative financial instruments designated as hedging instruments, as reported in our consolidated statements of income.
The majority of the net balances are related to disability claims with long-tail payouts on which interest earned on assets backing liabilities is an integral part of pricing and reserving. Interest accrued on prior year reserves has been calculated on the opening reserve balance less one-half of the year’s claim payments relative to prior years at our average reserve discount rate for the respective periods.
During the third quarter of 2018, we completed our annual review of policy reserve adequacy, which incorporated our most recent experience and included a review of all assumptions, including active policy terminations, claims incidence, claim terminations, morbidity, premium rate increases, and new money yield rates. The review utilized internal and external data and outside consulting firms for quality assurance and industry benchmarking. Based on our analysis, during the third quarter of 2018, we updated our reserve assumptions and determined that our policy and claim reserves should be increased by $750.8 million, or $593.1 million after tax, to reflect our current estimate of future benefit obligations. This increase was primarily
driven by the update to our liability and interest rate assumptions, particularly claims incidence and claim termination rates, which resulted in an increase to reserves of approximately $2.2 billion. Partially offsetting the increase was the update to our assumptions for premium rate increases which decreased reserves approximately $1.4 billion, resulting in the net increase to reserves of $750.8 million. Of this amount, approximately $236.0 million was related to our liability for unpaid claims and claims adjustment expenses, which can be primarily attributed to prior year incurred claims, thereby impacting the results shown in the preceding chart.
Similar to other insurers, we are undergoing an examination by a third party acting on behalf of a number of state treasurers concerning our compliance with the unclaimed property laws of the participating states. In the fourth quarter of 2017, we started the process to reach a Global Resolution Agreement with the third party regarding settlement of the examination, which we finalized in January of 2018. During the fourth quarter of 2017, we established reserves which reflect our estimate of the liability expected to be paid as we execute on the terms of the settlement. Claim reserves were increased $18.5 million for Unum US group life, $8.1 million for Unum US voluntary life, and $12.4 million for Colonial Life voluntary life, for a total reserve increase of $39.0 million before tax. The reserves established were attributed to prior years incurred claims, thereby impacting the results shown in the preceding chart.
TCJA brought a large number of complex changes to many areas of the tax code. The Securities and Exchange Commission issued Staff Accounting Bulletin No. 118 (SAB 118) allowing a one-year measurement period after the enactment date of TCJA to finalize the calculation and record the related tax impacts. We finalized and recorded adjustments to our initial estimates during 2018. As a result of guidance from the IRS, we recorded additional deemed repatriation transition tax on accumulated foreign E&P of $11.5 million, for a total of $77.9 million. We recorded no other material changes to our calculations of the impact of the TCJA during the one-year measurement period after the enactment period as allowed by SAB 118.
Our consolidated statements of income include the following changes in unrecognized tax benefits. Certain prior year amounts have been reclassified to conform to current year reporting.
During 2018 we recorded $261.1 million gross unrecognized tax benefits for a policyholder reserves position taken on our 2017 federal tax return, which if recognized, would decrease our tax expense by $112.9 million. Included in the balance at December 31, 2018, is $148.2 million of unrecognized tax benefits for which the ultimate deductibility is highly certain but for which there is uncertainty about the timing of such deductibility. It is reasonably possible that this item could reverse in the next 12 months following review by the Internal Revenue Service (IRS).
We file federal and state income tax returns in the United States and in foreign jurisdictions. Tax years subsequent to 2014 remain subject to examination by the IRS. All other major foreign jurisdictions remain subject to examination for tax years subsequent to 2016 with the exception of Poland for which tax years subsequent to 2013 remain subject to examination. We believe sufficient provision has been made for all potential adjustments for years that are not closed by the statute of limitations in all major tax jurisdictions and that any such adjustments would not have a material adverse effect on our financial position, liquidity, or results of operations.
The aggregate contractual principal maturities are $400.0 million in 2020, $350.0 million in 2021, $2.0 million in 2023, and $2,245.6 million thereafter.
Northwind Holdings’ ability to meet its obligations to pay principal, interest, and other amounts due on the Northwind notes will be dependent principally on its receipt of dividends from Northwind Reinsurance Company (Northwind Re), the sole subsidiary of Northwind Holdings. Northwind Re reinsured the risks attributable to specified individual disability insurance policies issued
by or reinsured by Provident Life and Accident Insurance Company, Unum Life Insurance Company of America, and The Paul Revere Life Insurance Company (collectively, the ceding insurers) pursuant to separate reinsurance agreements between Northwind Re and each of the ceding insurers. The ability of Northwind Re to pay dividends to Northwind Holdings will depend on its satisfaction of applicable regulatory requirements and the performance of the reinsured policies.
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, 2018, the amount in the DSCA was $73.8 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.
In 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 Life Insurance Company. In conjunction with this retirement, we also terminated the interest rate swap associated with the hedge of these notes and recorded a $0.1 million loss in our consolidated statements of income as a component of net realized investment gains and losses. See Note 4 for further discussion on the interest rate swap.
In July 2018, our $200.0 million 7.00% senior unsecured notes matured.
Interest paid on long-term and short-term debt and related securities during 2018, 2017, and 2016 was $167.3 million, $154.4 million, and $153.6 million, respectively.
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, 2018 and 2017, letters of credit totaling $2.1 million had been issued from the credit facility, but there were no borrowed amounts outstanding.
Because all participants in the U.S. and U.K. pension plans are considered inactive, we amortize the net actuarial loss and prior service credit for these plans over the average remaining life expectancy of the plans. As of December 31, 2018, the estimate of the average remaining life expectancy of the plans was approximately 24 years for the U.S. plan and 31 years for U.K. plan.
The following table provides the changes recognized in other comprehensive income for the years ended December 31, 2018 and 2017.
Our U.S. qualified defined benefit pension plan assets include a diversified blend of domestic, international, global, and emerging market equity securities, fixed income securities, opportunistic credit securities, real estate investments, alternative investments, and cash equivalents. Equity securities are comprised of funds and individual securities that are benchmarked against the respective indices specified below. International and global equity funds may allocate a certain percentage of assets to forward currency contracts. Fixed income securities include U.S. government and agency asset-backed securities, corporate investment-grade bonds, private placement securities, and bonds issued by states or other municipalities. Opportunistic credits consist of investments in funds that hold varied fixed income investments purchased at depressed values with the intention to
Changes in our OPEB plan assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the years ended December 31, 2018 and 2017 are as follows:
For the years ended December 31, 2018 and 2017, the actual return on plan assets relates solely to investments still held at the reporting date. There were no transfers into or out of Level 3 during 2018 or 2017.
Our mortality rate assumption reflects our best estimate, as of the measurement date, of the life expectancies of plan participants in order to determine the expected length of time for benefit payments. We derive our assumptions from industry mortality tables.
The service cost component of net periodic pension and postretirement benefit cost is included as a component of compensation expense in our consolidated statements of income. All other components of net periodic pension and postretirement benefit cost are included in other expenses.
The unrecognized net actuarial loss and the prior service credit included in accumulated other comprehensive income and expected to be amortized and included in net periodic pension cost during 2019 is $18.4 million and $0.2 million before tax, respectively.
Our OPEB plan represents a non-vested, non-guaranteed obligation, and current regulations do not require specific funding levels for these benefits, which are comprised of retiree life, medical, and dental benefits. It is our practice to use general assets to pay medical and dental claims as they come due in lieu of utilizing plan assets for the medical and dental benefit portions of our OPEB plan.
Common stock repurchases, which are accounted for using the cost method and classified as treasury stock until otherwise retired, were as follows:
(1) Includes commissions of $0.7 million, $0.3 million, and $0.2 million for the years ended December 31, 2018, 2017, and 2016, respectively.
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, 2018, approximately 15.7 million shares were available for future grants under the 2017 Plan.
During 2018, 2017, and 2016, we issued RSUs with a weighted average grant date fair value per share of $47.76, $48.92, and $28.80, 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 2018, 2017, and 2016 was $18.1 million, $13.3 million, and $18.3 million, respectively. At December 31, 2018, we had $16.5 million of unrecognized compensation cost related to RSUs that will be recognized over a weighted average period of 0.9 years.
Effective October 1, 2016, we entered into a reinsurance agreement under which we ceded 30 percent of the risk for certain blocks of Unum US individual disability policies, as well as some related claims development risk for a limited period of time. The agreement is on a non-proportional modified coinsurance basis with a provision for experience refunds.
Aggregate revenues for all three acquired entities totaled approximately $61 million in 2017. Aggregate assets were valued at approximately $344 million as of the respective acquisition dates and were primarily comprised of bonds, short-term
investments, and intangible assets attributable to the value of business acquired, the value of distribution networks, and licenses. Aggregate liabilities were valued at approximately $206 million as of the respective acquisition dates and were primarily comprised of outstanding claim liabilities, reserves for future claims, and income tax liabilities. The aggregate purchase price for all three transactions was approximately $151 million and exceeded the fair value of the identifiable net assets by approximately $13 million, which was identified as goodwill, primarily attributable to the value of adding individual and group financial protection products in Poland to our current employee benefit offerings and the value of enhancing our technology capabilities around our leave management offerings. The goodwill is not deductible for income tax purposes except upon disposition of the acquired entities. These acquisitions, the results of which are included in our consolidated financial statements for the periods subsequent to the respective dates of acquisition, did not have a material impact on revenue or results of operations for 2018.
We report goodwill in our Unum US, Unum International, and Colonial Life segments, which are the segments expected to benefit from the originating business combinations. At December 31, 2018 and 2017 goodwill was $350.3 million and $338.6 million, respectively, with $280.0 million and $271.1 million, respectively, attributable to Unum US, $42.6 million and $39.8 million, respectively, attributable to Unum International, and $27.7 million attributable to Colonial Life in each year.
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 specified in the reconciliations below. We believe adjusted operating revenue and adjusted operating income or loss are better performance measures and better indicators of the revenue and profitability and underlying trends in our business. 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.
In 2009, a Pennsylvania-based insurance company and its affiliates were ordered into rehabilitation, and the Pennsylvania
On July 13, 2018, an alleged securities class action lawsuit entitled Scott Cunningham v. Unum Group, Richard McKenney, John McGarry, and Daniel Waxenberg was filed in the United States District Court for the Eastern District of Tennessee. The allegations, class period, and damages claimed mirror those in the Pittman matter. The Company strongly denies these allegations and will vigorously defend the litigation.
On November 9, 2018, the court consolidated the Pittman, Cunningham, and City of Taylor Police and Fire Retirement System cases into one matter entitled In re Unum Group Securities Litigation, appointed a lead plaintiff and lead plaintiff’s counsel, and directed the plaintiff to file a consolidated amended complaint. On January 15, 2019, the plaintiff filed a consolidated amended complaint asserting claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder
On September 27, 2018, a purported shareholder derivative lawsuit entitled Vladimir Gusinsky Revocable Trust, Derivatively on Behalf of Unum Group v. Richard P. McKenney, John F. McGarry, Daniel J. Waxenberg, Steve Zabel, Kevin T. Kabat, E. Michael Caulfield, Gloria C. Larson, Timothy F. Keaney, Theodore H. Bunting, Jr., Cynthia L. Egan, Ronald P. O'Hanley, Francis L. Shammo, Joseph J. Echevarria, Thomas R. Watjen, Pamela H. Godwin, Edward J. Muhl, and Unum Group as nominal defendant was filed in the United States District Court for the District of Delaware. The complaint purports to assert claims on behalf of the Company against certain current and past members of our Board of Directors and Mr. McKenney for alleged misleading statements about the Company's long-term care business in the Company's proxy statement filed with the Securities and Exchange Commission on April 13, 2017 in violation of Section 14(a) of the Securities Exchange Act of 1934. The complaint also purports to assert claims on behalf of the Company against all individual defendants arising out of the Company's long-term care business for breach of fiduciary duties, waste of corporate assets and unjust enrichment. The complaint seeks compensatory damages in an amount to be proven at trial, changes to corporate governance and internal procedures, equitable and injunctive relief, restitution, costs, expenses, and attorney's fees. The Company strongly denies these allegations and will vigorously defend the litigation.
On November 1, 2018, a purported shareholder derivative lawsuit entitled Julie Nguyen, Derivatively on Behalf of Unum Group v. Richard P. McKenney, John F. McGarry, Daniel J. Waxenberg, Steve Zabel, Kevin T. Kabat, E. Michael Caulfield, Gloria C. Larson, Timothy F. Keaney, Theodore H. Bunting, Jr., Cynthia L. Egan, Ronald P. O'Hanley, Francis J. Shammo, Joseph J. Echevarria, Thomas R. Watjen, Pamela H. Godwin, Edward J. Muhl, and Unum Group as nominal defendant was filed in the United States District Court for the District of Delaware. The defendants, allegations, and damages claimed mirror those in the Gusinsky matter. The Company strongly denies these allegations and will vigorously defend the litigation.
On December 10, 2018, the court consolidated the Gusinsky, Jenkins, and Nguyen cases into one matter entitled In re Unum Group Stockholder Derivative Litigation, appointed co-lead counsel and liaison counsel for plaintiffs and directed the parties to propose a schedule of proceedings for the consolidated matter.
These lawsuits are in a very preliminary stage, the outcome is uncertain, and the Company is unable to estimate a range of reasonably possible losses. Reserves have not been established for these matters. Although we believe these claims lack merit, an adverse outcome in one or more of these actions could, depending on the nature, scope, and amount of the ruling, materially adversely affect our consolidated results of operations in a period.
net income and own funds available of our United Kingdom insurance subsidiary, Unum Limited, were £78.7 million and £672.3 million, respectively.
We also have the ability to receive dividends from our foreign subsidiaries, primarily in the U.K., for which the payment may be subject to applicable insurance company regulations and capital guidance. We have £140.0 million available for the payment of dividends from Unum Limited during 2019, subject to regulatory approval.
Our U.S. insurance subsidiaries had on deposit with U.S. regulatory authorities securities with a book value of $155.7 million at both December 31, 2018 and 2017, held for the protection of policyholders.
Fourth quarter of 2017 reserve increase of $39.0 million before tax and $25.4 million after tax related to unclaimed death benefits.