As of December 31, 2020, we owned 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, 2020, we leased office space in Worcester, Massachusetts and various other locations throughout the United States, the United Kingdom, Ireland, and Poland. Substantially 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.
1 Includes net realized investment gains of $1,302.3 million in 2020 related to the transfer of investments in the Closed Block individual disability reinsurance transaction. See Notes 3 and 12 of the "Notes to Consolidated Financial Statements" contained herein in Item 8 for further discussion of the reinsurance transaction.
The discussion and analysis presented in this section should be read in conjunction with the "Cautionary Statement Regarding Forward-Looking Statements" included below the Table of Contents, "Risk Factors" included herein Item 1A, "Selected Financial Data" included herein this Item 6, and the Consolidated Financial Statements and notes thereto included in Item 8.
For 2020, we reported net income of $793.0 million, or $3.89 per diluted common share, compared to net income of $1,100.3 million, or $5.24 per diluted common share, in 2019. Included in our results for 2020 are: (i) the impact from the Closed Block individual disability reinsurance agreement, which resulted in a net loss of $5.8 million before tax and a net gain of $32.0 million after tax, or $0.16 per diluted common share, (ii) a reserve increase related to our long-term care block of business of $151.5 million before tax and $119.7 million after tax, or $0.59 per diluted common share, (iii) a reserve increase related to our group pension block of business of $17.5 million before tax and $13.8 million after tax, or $0.07 per diluted common share, (iv) costs related to an organizational design update in the amount of $23.3 million before tax and $18.6 million after tax, or $0.09 per diluted common share, (v) an impairment loss on the right-of-use (ROU) asset related to one of our operating leases of $12.7 million before tax and $10.0 million after tax, or $0.05 per diluted common share, and (vi) a net realized investment loss, excluding the net realized investment gain related to the reinsurance transaction, of $103.2 million before tax and $82.3 million after tax, or $0.40 per diluted common share. Included in our 2019 results are costs related to the early retirement of debt of $27.3 million before tax and $21.6 million after tax, or $0.11 per diluted common share and a net realized investment loss of $23.2 million before tax and $18.7 million after tax, or $0.09 per diluted common share. Adjusting for these items, after-tax adjusted operating income for 2020 was $1,005.4 million, or $4.93 per diluted common share compared to $1,140.6 million, or $5.44 per diluted common share for 2019. See "Closed Block Individual Disability Reinsurance Agreement," "Long-term Care Reserve Increase," "Group Pension Reserve Increase," "Costs Related to Organizational Design Update," "Impairment Loss on ROU Asset," "Reconciliation of Non-GAAP and Other Financial Measures," and "Consolidated Operating Results" contained herein in this Item 7 for further discussion and a reconciliation of these items.
Our Closed Block segment reported a loss before income tax and net realized investment gains and losses of $1,235.7 million, which includes the impacts related to the Closed Block individual disability reinsurance agreement and the reserve increases related to our long-term care and group pension blocks of business. Excluding these items, our Closed Block segment reported adjusted operating income of $241.4 million in 2020 compared to $137.7 million in 2019. The long-term care interest adjusted loss ratio for 2020 was favorable relative to our range of expectations. The individual disability interest adjusted loss ratio, excluding the reserve recognition impact from the Closed Block individual disability reinsurance agreement, was unfavorable in 2020 compared to 2019 but generally remained within our expectations.
In December 2020, Provident Life and Accident Insurance Company, The Paul Revere Life Insurance Company, and Unum Life Insurance Company of America, wholly-owned domestic insurance subsidiaries of Unum Group and collectively referred to as "the ceding companies", entered into a series of agreements (collectively referred to as the "reinsurance agreement") with Commonwealth Annuity and Life Insurance Company (Commonwealth), a subsidiary of Global Atlantic Financial Group, to reinsure on a coinsurance basis effective as of July 1, 2020, approximately 75 percent of the Closed Block individual disability insurance business, primarily direct business written by the ceding companies. Commonwealth has established and will maintain collateralized trust accounts for the benefit of the ceding companies to secure its obligations under the reinsurance agreement. As part of the agreement, additional Closed Block individual disability business consisting of direct business not ceded in December 2020 and business assumed by the ceding companies from third parties, is expected to be reinsured in the first quarter of 2021, subject to receipt of required consents and regulatory approvals and the satisfaction or waiver of other customary closing conditions and is considered the second phase of this transaction.
•Increase in benefits and change in reserves for future benefits of $1,284.5 million, or $1,014.7 million after tax, resulting from the realization of previously unrealized investment gains and losses recorded in accumulated other comprehensive income.
During the third quarter of 2020, we realigned certain parts of our organizational structure by shifting resources to accelerate growth, fund priority investments, and simplify and improve our business practices. In connection with this update, we incurred charges of $23.3 million, which primarily consisted of employee severance and benefit costs as well as costs related to lease terminations and the disposal of certain fixed assets. This update did not result in the exit or disposal of any of our lines of business and we do not expect material additional costs associated with this update in the future.
On July 22, 2020, the Finance Bill 2019-21 was enacted, resulting in a U.K. tax rate increase from 17 percent to 19 percent, retroactively effective April 1, 2020, which resulted in tax expense of $9.3 million for the revaluation of our tax assets and liabilities.
We continue to monitor the benefits experience across all of our products for trends potentially correlated with COVID-19. For further discussion regarding the benefits experience for each of our operating business segments, see "Segment Results" herein in this Item 7.
During 2020, we have experienced a decline in our net investment income as a result of the current economic conditions. The current economic conditions have sustained the low interest rate environment, which has and will continue to impact the yield on our invested assets, particularly related to the investment of new cash flows. The net asset values of our partnership investments continued to improve in the fourth quarter of 2020 from the depressed values experienced earlier in the year reflecting the improved market conditions of the third quarter of 2020 and resulted in overall positive earnings in 2020 for our partnership investments although lower than the level of earnings we experienced in 2019. We have also worked with certain of our commercial mortgage loan borrowers that have requested temporary payment deferrals but these instances have not resulted in a significant number of loans with deferrals or a significant impact on our net investment income. For further information on our investment portfolio, see "Investments" contained herein in this Item 7 and Notes 2 and 3 of the "Notes to Consolidated Financial Statements" contained herein in Item 8.
Regarding our fixed maturity security portfolio, the current economic conditions have increased volatility in the capital markets and have caused significant pressure on the profitability of many companies. The sharp decline in oil prices experienced earlier in the year and decrease in demand due to COVID-19, which began in the first quarter of 2020, also caused pressure on the profitability of companies in the energy sector. We recorded credit losses during the first quarter of 2020 primarily related to fixed maturity securities issued by companies in the energy sector, but recorded minimal credit losses related to energy securities in the remainder of 2020 primarily as a result of the improvement in oil prices. Our exposure to consumer cyclicals which have been stressed due to COVID-19 related shutdowns is a small portion of our portfolio and our exposure to other stressed industries such as airlines and restaurants is minimal. We continue to monitor capital market activity on a regular basis and to the extent that there are continued volatility and ratings downgrades related to the issuers of our fixed maturity securities, we could experience further credit losses, an increase in defaults, and the need for additional capital in our insurance subsidiaries. However, we remain confident in the overall strength and credit quality of our investment portfolio.
As of December 31, 2020, we have borrowed $312.2 million of funds through our memberships with the regional FHLBs and those funds are used for the purpose of investing in either short-term investments or fixed maturity securities. Although we did increase FHLB borrowings at December 31, 2020, we have additional borrowing capacity of approximately $1,093 million that can be utilized for liquidity if the need arises. Additionally, we have access to two unsecured revolving credit facilities under separate syndicates of lenders that allow us to borrow up to a total of $600 million. There are currently no outstanding borrowings on these facilities but we remain in compliance with required covenants should we choose to borrow in the future. In May 2020, we issued $500.0 million of 4.500% senior notes due 2025 which strengthened our liquidity and demonstrated our ability to raise capital in a strained economic environment.
Following the maturity of our $400.0 million aggregate principal amount of 5.625% unsecured notes in the third quarter of 2020, which was funded through an issuance of debt during the second quarter of 2019, we have no significant upcoming debt maturities until 2024. We continue to meet the financial covenants contained in our current debt agreements and credit facilities, and we expect that we will continue to meet those covenants in subsequent periods.
To the extent that we begin to experience a significant impact to our liquidity, we would likely sell highly liquid invested assets or borrow funds on our credit facilities to meet operational cash flow requirements.
In consideration of the recent COVID-19 pandemic, in the near term, we expect top line growth to be challenging, and we may also continue to experience increased claims volatility. The low interest rate environment continues to place pressure on our profit margins by impacting net investment income yields as well as potentially discount rates on our insurance liabilities. We would also expect to experience further investment volatility through net investment income, particularly for partnership net asset value changes. 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.
Our business is well-diversified by geography, industry exposures and case size, and we continue to analyze and employ strategies that we believe will help us navigate the current environment. These strategies allow us to maintain financial flexibility to support the needs of our businesses, while also returning capital to our shareholders. We have strong core businesses that have a track record of generating significant capital, and we will continue to invest in our operations and expand into adjacent markets where we can best leverage our expertise and capabilities to capture market growth opportunities as those opportunities re-emerge. Long-term, we believe that consistent operating results, combined with the implementation of strategic initiatives and the effective deployment of capital, will allow us to meet our financial objectives.
Further discussion is included in "Reconciliation of Non-GAAP Financial Measures," "Consolidated Operating Results," "Segment Results," "Investments," and "Liquidity and Capital Resources" contained herein in this Item 7 and in the "Notes to Consolidated Financial Statements" contained herein in Item 8.
We analyze our performance using non-GAAP financial measures. A non-GAAP financial measure is a numerical measure of a company's performance, financial position, or cash flows that excludes or includes amounts that are not normally excluded or included in the most directly comparable measure calculated and presented in accordance with GAAP. The non-GAAP financial measure of "after-tax adjusted operating income" differs from net income as presented in our consolidated operating results and income statements prepared in accordance with GAAP due to the exclusion of net realized investment gains and losses and amortization of the cost of reinsurance as well as certain other items as specified in the reconciliations below. We believe after-tax adjusted operating income is a better performance measure and better indicator of the profitability and underlying trends in our business.
As previously discussed, we have exited a substantial portion of our closed block individual disability product line through the reinsurance agreement that was executed in December 2020. As a result, we exclude the amortization of the cost of reinsurance that was recognized as a result of the exit of the business related to the DLR cohort of policies. We believe that the exclusion of the amortization of the cost of reinsurance provides a better view of our results from our ongoing businesses.
Reserves for policy and contract benefits are our largest liabilities and represent claims that we estimate we will eventually pay to our policyholders. The two primary categories of reserves are policy reserves for claims not yet incurred and claim reserves for claims that have been incurred or are estimated to have been incurred but not yet reported to us. Reserves for policy and contract benefits equaled $45.3 billion and $43.7 billion at December 31, 2020 and 2019, respectively, or approximately 75.8 percent and 76.6 percent of our total liabilities, respectively. Reserves ceded to reinsurers were $13.2 billion and $7.2 billion at December 31, 2020 and 2019 and are reported as a reinsurance recoverable in our consolidated balance sheets.
•Claim incidence and claim resolution rate assumptions related to mortality and morbidity are based on actual experience or industry standards adjusted as appropriate to reflect our actual experience and future expectations.
Claim reserves supporting our Unum International segment are calculated using generally the same methodology that we use for Unum US disability and group term life reserves. Claim reserves for our Unum UK group dependent life product are calculated using discounted cash flows, based on our assumptions for claim duration and discount rates. The assumptions used in calculating claim reserves for this segment are based on standard country-specific industry experience, adjusted for our own experience.
The majority of the Colonial Life segment lines of business have short-term benefits, which generally have less estimation variability than our long-term products because of the shorter claim payout period. Our claim reserves for Colonial Life's lines of business are predominantly determined using the incurred loss development method based on our own experience. The incurred loss development method uses the historical patterns of payments by loss date to predict future claim payments for each loss date. Where the incurred loss development method may not be appropriate, we estimate the incurred claims using an expected claim cost per policy or other measure of exposure. The key assumptions for claim reserves for the Colonial Life segment lines of business are the timing, rate, and amount of estimated future claim payments; and the estimated expenses associated with the payment of claims.
2.The claim resolution rate, used for both policy reserves and incurred and IBNR claim reserves, is the probability that a disability or long-term care claim will close due to recovery or death of the insured. It is important because it is used to estimate how long benefits will be paid for a claim. Estimated resolution rates that are set too high will result in reserves that are lower than they need to be to pay the claim benefits over time. Claim resolution assumptions involve many factors, including the cause of disability, the policyholder's age, the type of contractual benefits provided, and the time since initial disability. We primarily use our own
Establishing reserve assumptions is complex and involves many factors. Reserves, particularly for policies offering insurance coverage for long-term disabilities and long-term care, are dependent on numerous assumptions other than just those presented in the preceding discussion. The impact of internal and external events, such as changes in claims operational procedures, economic trends such as the rate of unemployment and the level of consumer confidence, the emergence of new diseases, new trends and developments in medical treatments, and legal trends and legislative changes, including changes to social security and other government-based welfare benefits programs which provide policy benefit offsets, among other factors, will influence claim incidence rates, claim resolution rates, and claim costs. In addition, for policies offering coverage for disability or long-term care at advanced ages, the level and pattern of mortality rates at advanced ages will impact overall benefit costs. Reserve assumptions differ by product line and by policy type within a product line. Additionally, in any period and over time, our actual experience may have a positive or negative variance from our long-term assumptions, either singularly or collectively, and these variances may offset each other. We test the overall adequacy of our reserves using all assumptions and with a long-term view of our expected experience over the life of a block of business rather than test just one or a few assumptions independently that may be aberrant over a short period of time. Therefore, while it is possible to evaluate the sensitivity of overall adequacy results in our reserves based upon a change in each individual assumption, the actual impacts of changes to a variety of underlying assumptions must be considered in the aggregate by product line in order to judge the overall potential implications to reserve adequacy. The following section presents an overview of our trend analysis for key assumptions and the results of variability in our assumptions, in aggregate, for the reserves which we believe are reasonably possible to have a material impact on our future financial results if actual claims yield a materially different amount than what we currently expect and have reserved for, either favorable or unfavorable. In December 2020, we reinsured approximately 75 percent of our Closed Block individual disability business pursuant to a reinsurance agreement with Commonwealth and expect that we will complete the second phase of this transaction in the first quarter of 2021 to cede a significant portion of the remaining business. As a result, we are no longer incorporating this block of business into our discussion of trends in key assumptions below.
In 2020, both short-term and long-term interest rates decreased. The long-term interest rates supporting the majority of our lines of business remain below historical norms. The assumptions we used to discount reserves during this period were slightly lower for certain of our product lines. Reserve discount rate assumptions for new policies and new claims are periodically adjusted to reflect our current and expected net investment returns. Changes in our average discount rate assumptions tend to occur gradually over a longer period of time because of the long-duration investment portfolios which support the reserves for the majority of our lines of business.
exhibited some variability over the last several years. Relative to the resolution rate we expect to experience over the life of the block of business, actual quarterly rates during 2019 and 2020 have remained within 5 percent of our long-term assumptions in our Unum US group long-term disability line of business. Claim resolution rates for our group long-term disability product line have generally exhibited an increasing trend.
We monitor and test our reserves for adequacy relative to all of our assumptions in the aggregate. In our estimation, scenarios based on reasonably possible variations in each of our reserve assumptions for our Unum US group long-term disability product, when modeled together in aggregate, could produce a change in our reserve balance of $201 million based on a 3.3 percent variation, favorable or unfavorable, in our assumptions. The major contributor to the variance is the claim resolution rate.
In addition to our Unum US group long-term disability line of business, we consider variability in our reserve assumptions related to long-term care policy reserves. These reserves are held under the gross premium valuation method and do not change after the date of loss recognition unless reserves are again determined to be deficient. As such, positive developments will result in the accumulation of reserve margin, while adverse developments would result in an additional reserve charge. Policy reserves for long-term care are based upon a number of key assumptions, and each assumption has various factors which may impact the long-term outcome. Key assumptions with respect to morbidity, mortality, claims incidence and resolutions, persistency, interest rates, and future premium rate increases must incorporate extended views of expectations for many years into the future. Reserves are highly sensitive to these estimates.
During the fourth quarter of 2020, we completed a review of policy reserve adequacy, which incorporated our most recent experience and included a review of all material assumptions. Based on our analysis, during the fourth quarter of 2020, we updated our interest rate and premium rate increase reserve assumptions from those established at our prior loss recognition in the third quarter of 2018 and determined that our gross long-term care policy and claim reserves should be increased by $151.5 million.
Our long-term care discount rate assumption reflects our expectation that the low interest rate environment will continue 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 10-year treasury rate grading over 7 years to a rate of 3.25 percent, when we assume no further increase. Partially offsetting the impact from the discount rate assumption was a favorable update to our assumptions for premium rate increases based on approvals and inventory updates since the third quarter of 2018. The remaining key assumptions for our long-term care policy reserves remain materially unchanged from the third quarter of 2018.
Sensitivity analysis related to our key assumptions for long-term care reserves along with the potential impact to our reserve balance is as follows. This sensitivity analysis was completed as of the date of our assumption update in the fourth quarter of 2020 and will not be updated unless reserves are again determined to be deficient in the future.
See Note 2 of the "Notes to Consolidated Financial Statements" contained herein in Item 8.
We evaluate available information, including the factors noted above, both positive and negative, in reaching our conclusions. In particular, we also consider the strength of the issuer’s balance sheet, its debt obligations and near term funding requirements, cash flow and liquidity, the profitability of its core businesses, the availability of marketable assets which could be sold to increase liquidity, its industry fundamentals and regulatory environment, and its access to capital markets. Although all available and applicable factors are considered in our analysis, our expectation of recovering the entire amortized cost basis of the security, whether we intend to sell the security, whether it is more likely than not we will be required to sell the security before recovery of its amortized cost, and whether the security is current on principal and interest payments are the most critical factors in determining whether a credit loss is possible. The significance of the decline in value is also an important factor, but we generally do not record a credit loss based solely on this factor, since often other more relevant factors will impact our evaluation of a security.
•Discount rate - This interest assumption is based on the yield derived from a portfolio of high quality fixed income corporate debt instruments that reasonably match the timing and amounts of projected future benefits for each of our retirement-related benefit plans. The rate is determined at the measurement date. A lower discount rate increases the present value of benefit obligations and increases our net periodic benefit cost.
•Long-term rate of return - This assumption is selected from a range of probable return outcomes from an analysis of the asset portfolio. The market-related value as it relates to our estimate of long-term rate of return equals the fair value of plan assets, determined as of the measurement date. The return on plan assets recognizes all asset gains and losses, including changes in fair value, through the measurement date. Our expectations for the future investment returns of the asset categories are based on a combination of historical market performance, evaluations of investment forecasts obtained from external consultants and economists, and current market yields. The expected return for the total portfolio is calculated based on the plan's 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.
As of December 31, 2020, our pension and OPEB plans have an aggregate unrecognized net actuarial loss of $827.4 million and an unrecognized prior service credit of $2.1 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 $838.4 million at December 31, 2020, will be amortized over the average remaining life expectancy of the plan, which is approximately 25 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 $11.0 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 gain 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, 2020, $539.4 million of the actuarial loss was outside of the corridor for the U.S. plans and £29.6 million was outside of the corridor for the U.K. plan. At December 31, 2020, none of the actuarial gain was outside of the corridor for the OPEB plan.
The amortization of the unrecognized actuarial gain or loss and the unrecognized prior service credit is a component of our net periodic benefit cost and equaled $19.7 million, $18.4 million, and $22.1 million in 2020, 2019, and 2018, respectively.
We record a valuation allowance to reduce deferred tax assets to the amount that is more likely than not to be realized. Significant judgment is required in determining valuation allowances. In evaluating the ability to recover deferred tax assets, we consider all available positive and negative evidence including past operating results, the existence of cumulative losses in the most recent years, forecasted earnings, future taxable income, and prudent and feasible tax planning strategies. In the event we determine that we most likely will not be able to realize all or part of our deferred tax assets in the future, an increase to the valuation allowance is charged to earnings in the period such determination is made. Likewise, if it is later determined that it is more likely than not that those deferred tax assets will be realized, the previously provided valuation allowance is reversed.
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 weighted average pound/dollar exchange rate for our Unum UK line of business was 1.287, 1.279, and 1.336 for 2020, 2019, and 2018, respectively. If the 2019 and 2018 results for our U.K. operations had been translated at the 2020 exchange rate, our adjusted operating revenue by segment would have been higher by approximately $5 million in 2019, but lower by approximately $24 million in 2018. Additionally, our adjusted operating income would have been higher by approximately $1 million in 2019, but lower by approximately $4 million in 2018. However, it is important to distinguish between translating and converting foreign currency. Except for a limited number of transactions, we do not actually convert pounds into dollars. As a result, we view foreign currency translation as a financial reporting item and not a reflection of operations or profitability in the U.K.
Premium income increased in 2020 and 2019 in each of our principal operating business segments, while premium income continues to decline, as expected, in our Closed Block segment.
Overall benefits experience was unfavorable in 2020 relative to the prior periods, with a consolidated benefit ratio of 95.7 percent in 2020 compared to 80.0 percent in 2019 and 89.3 percent in 2018. Excluding the 2020 long-term care reserve increase, group pension reserve increase and impacts from the Closed Block individual disability reinsurance transaction the benefit ratio for 2020 was 80.2 percent. Excluding the 2018 long-term care reserve increase, the benefit ratio for 2018 was 80.9 percent. The underlying benefits experience for each of our operating business segments is discussed more fully in "Segment Results" contained herein in this Item 7.
Interest and debt expense increased year-over-year in 2020 and 2019 due primarily to a higher level of outstanding debt. Cost related to early retirement of debt includes costs associated with the purchase and retirement of $433.1 million aggregate liquidation/principal amount of our outstanding capital and debt securities in 2019. See Note 8 of the "Notes to Consolidated Financial Statements" contained herein in Item 8 for further discussion.
Premium income increased compared to 2018 due to growth in the in-force block resulting from prior period sales growth. Net investment income was slightly higher in 2019 compared to 2018 due to a higher level of invested assets, partially offset by lower miscellaneous income and a decline in yield on invested assets.
Premium income decreased compared to 2019, with a decline in the voluntary benefits product line, mostly offset by growth in the individual disability and dental and vision product lines. Net investment income was higher compared to 2019 due to higher miscellaneous investment income and an increase in the level of invested assets, partially offset by a decline in yield on invested assets.
Benefits experience for the individual disability product line was favorable compared to 2019 due to both favorable claim recoveries and mortality experience. Benefits experience for voluntary benefits was unfavorable compared to 2019 due primarily to higher claims incidence in the life and disability product line, resulting from the impacts of COVID-19. Benefits experience for the dental and vision product line was favorable compared to 2019 driven by lower claims incidence resulting from the impacts of COVID-19.
We had goodwill of $271.1 million at December 31, 2020, none of which is currently believed to be at risk for future impairment.
Year Ended December 31, 2019 Compared with Year Ended December 31, 2018
Benefits experience for the individual disability product line was slightly less favorable compared to 2018 due to less favorable mortality experience, mostly offset by lower claims incidence and favorable claim recovery experience. Benefits experience for voluntary benefits was favorable compared to 2018 due primarily to the release of active life reserves resulting from a higher level of policy terminations during 2019. Benefits experience for the dental and vision product line was unfavorable compared to 2018 driven by higher claims utilization.
Individual disability sales, which are primarily concentrated in the multi-life market, decreased compared to 2019 due to lower sales to both new and existing customers. Voluntary benefits sales decreased compared to 2019, driven by lower new and existing customer sales in both the core and large case markets. Dental and vision sales decreased compared to 2019 driven by lower sales to both new and existing customers.
Individual disability sales decreased compared to 2018 due to lower sales to new customers. Voluntary benefits sales decreased slightly compared to 2018, primarily driven by lower sales to new customers in the core market, partially offset by higher sales
to new customers in the large case market. Dental and vision sales increased compared to 2018 driven by higher sales to both new and existing customers.
Given the uncertainty caused by the COVID-19 pandemic, we expect to experience further disruption in our sales activity and ultimately premium income in 2021, particularly in the first half of the year. We could also continue to experience claims volatility, particularly in our short-term disability and group and voluntary life products as well as potential disruption in our overall claims processing activity which can result in short-term unfavorable experience. In addition, we could continue to experience an increase in the volume of activity associated with our leave management product which would lead to an increase in expenses. The low interest rate environment continues to place pressure on our profit margins by impacting net investment income yields as well as potentially discount rates on our insurance liabilities. Our net investment income may continue to be unfavorably impacted by fluctuations in miscellaneous investment income. 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 continuously monitor key indicators to assess our risks and adjust our business plans accordingly.
The Unum International segment is comprised of our operations in both the United Kingdom and Poland. Our Unum UK products include insurance for group long-term disability, group life, and supplemental lines of business, which includes dental, individual disability, and critical illness products. Our Unum Poland products include insurance for individual and group life with accident and health riders. Unum International's products are sold primarily through field sales personnel and independent brokers and consultants.
Shown below are financial results and key performance indicators for the Unum UK product lines in functional currency.
Premium income increased compared to 2018 due to higher overall persistency, sales growth, and the impact of rate increases in the group long-term disability product line.
Net investment income increased compared to 2018 due to higher miscellaneous investment income that resulted from a higher than normal level of bond calls, and a higher level of invested assets, partially offset by a lower yield on fixed-rate bonds and lower investment income from inflation index-linked bonds. The decrease in net investment income attributable to these index-linked bonds was offset by a decrease in the reserves for future claim payments related to the inflation index-linked group long-term disability and group life policies.
Commissions and the deferral of acquisition costs increased relative to 2018 due to higher sales. The amortization of acquisition costs was lower in 2019 compared to 2018 due to a decline in the level of the deferred asset. The other expense ratio was lower relative to 2018 due to higher premiums and our continued focus on expense management.
Supplemental sales were lower in 2020 compared to 2019 due primarily to a decline in dental product sales, partially offset by an increase in the group critical illness product line.
Group long-term disability sales were generally consistent with 2018, with higher sales to new customers in our core market, mostly offset by a decline in sales to both new and existing customers in our large case market.
Given the uncertainty caused by the COVID-19 pandemic, we expect to experience further disruption to our financial results in 2021. Sales activity could be lower and we could also continue to experience claims volatility in our group life and disability product lines. Uncertainty in the U.K. economy may continue to pressure our growth expectations in the near-term and may also lead to lower claim discount rates. However, we believe we are well positioned to capitalize on future growth opportunities as the operating environment improves. As part of our continued pricing discipline and our reserving strategy, we continuously monitor emerging interest rate experience and adjust our pricing and reserve discount rates, as appropriate. We will likely continue to experience volatility in net investment income and our benefit ratio due to fluctuations in the level of inflation in the U.K.; however, we do not expect this to have a significant impact on adjusted operating income We continuously monitor key indicators to assess our risks and adjust our business plans accordingly to respond to external challenges.
Premium income increased compared to 2019 due to growth in the in-force block resulting from prior period sales growth and stable persistency. Net investment income was higher in 2020 compared to 2019 due to higher miscellaneous investment income and an increase in the level of invested assets, partially offset by a decline in the yield on invested assets.
Benefits experience was unfavorable relative to 2019, with unfavorable experience in the life product line, resulting from the impacts of COVID-19, partially offset by favorable experience in the cancer and critical illness and accident, sickness, and disability product lines.
We had goodwill of $27.7 million at December 31, 2020, none of which is currently believed to be at risk for future impairment.
The impact of COVID-19 has caused higher unemployment levels and general uncertainty around the financial condition of our customers as well as disruption in our sales processes. As a result, sales for each of our product lines and market sectors have declined during 2020 compared to 2019. The number of new accounts and average new case size decreased 27.9 percent and 1.9 percent, respectively, in 2020 compared to 2019.
Commercial market sales decreased primarily due to lower new customer account sales in both the core market, which we define as accounts with fewer than 1,000 employees, and the large case market, partially offset by higher existing customer account sales in the core market and the continued expansion of our dental and vision products. The increase in our public sector market for 2019 was driven by an increase in both new and existing customer account sales. The number of new accounts and average new case size decreased 4.5 percent and 4.7 percent, respectively, in 2019 compared to 2018.
Premium income for long-term care was higher compared to 2019, with rate increases more than offsetting policy terminations. We continue to file requests with various state insurance departments for premium rate increases on certain of our individual and group long-term care policies which reflect assumptions as of the date of filings. In states for which a rate increase is submitted and approved, we routinely provide customers options for coverage changes or other approaches that might fit their current financial and insurance needs. Premium income for individual disability was lower compared to 2019 due to policy terminations and maturities as well as a one-time reinsurance cost related to a small block of policies during the first quarter of 2020.
Net investment income was lower relative to 2019 primarily due to a lower yield on invested assets, a decrease in the level of invested assets supporting individual disability resulting from the reinsurance transaction that closed in December 2020, and fluctuations in the net asset values (NAV) on our private equity partnerships that reflect the impact of COVID-19 on economic conditions throughout the year. These impacts are partially offset by an increase in the level of invested assets supporting long-term care. Other income, which includes the underlying results and associated net investment income of certain assumed blocks of individual disability business, continues to decline due to expected terminations and maturities.
The other expense ratio, excluding certain costs incurred and the amortization of cost of reinsurance related to the previously discussed reinsurance transaction in the fourth quarter of 2020, was lower than 2019 due to our continued focus on expense management and operating efficiencies, partially offset by a decline in premium income for individual disability.
Premium income for long-term care was generally consistent with 2018, with rate increases offsetting policy terminations. Premium income for individual disability decreased compared to 2018 due to policy terminations and maturities.
We will continue to execute on our well-defined strategy of implementing long-term care premium rate increases, efficient capital management, improved financial analysis, and operational effectiveness. We will continue to explore structural options to enhance financial flexibility. Despite continued anticipated premium rate increases in our long-term care business, we expect overall premium income and adjusted operating revenue to decline over time as these closed blocks of business wind down. We will likely experience volatility in net investment income due to fluctuations of miscellaneous investment income and the increased allocation towards alternative assets, primarily private equity partnership investments, in the long-term care product line portfolio. We record changes in our share of the NAV of the partnerships in net investment income. We receive financial information related to our investments in partnerships and generally record investment income on a one-quarter lag in accordance with our accounting policy. As these net asset values are volatile and can fluctuate materially with changes in market economic conditions, there may possibly be significant movements up or down in future periods as conditions change. We continuously monitor key indicators to assess our risks and adjust our business plans accordingly.
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 ratio for long-term care will be relatively flat over the long term, but may continue to experience quarterly volatility, particularly in the near term 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.
In consideration of the recent COVID-19 pandemic and related impacts, we expect our Closed Block segment could temporarily experience greater than normal volatility across multiple risk factors. Specific to our long-term care line of business, we expect that we may experience an increase in mortality as well as a decrease in incidence and interest rates.
Net investment income was lower in 2020 compared to 2019 primarily driven by a decline in the yield on invested assets.
Interest, debt, and other expenses were higher in 2020 relative to 2019. Interest, debt, and other expenses includes the costs related to an organizational design update and the impairment loss on ROU asset during 2020, and the early retirement of debt during 2019. Excluding these items, interest, debt, and other expenses in 2020 were generally consistent with 2019 with higher interest expense resulting from a higher level of outstanding debt, mostly offset by lower pension costs in 2020. See "Executive Summary” contained herein in Item 7 for further discussion.
Net investment income was lower in 2019 due primarily to both a lower yield and a lower level of invested assets.
We expect to continue to generate excess capital on an annual basis through the statutory earnings in our insurance subsidiaries and believe we are well positioned with flexibility to preserve our capital strength while also returning capital to our shareholders.
The current economic conditions have increased volatility in the capital markets and have caused significant pressure on the profitability of many companies. The sharp decline in oil prices experienced earlier in the year and lack of demand due to COVID-19, which began to occur in the first quarter of 2020, also caused pressure on the profitability of companies in the energy sector. We recorded credit losses during the first quarter of 2020 primarily related to fixed maturity securities issued by companies in the energy sector, but recorded minimal credit losses related to energy securities in the second, third, and fourth quarters of 2020 primarily as a result of the improvement in oil prices. Our fixed income exposure to consumer cyclicals, which have been stressed due to COVID-19 related shutdowns, is 3.6 percent of our fixed maturity security portfolio. Our exposure to other stressed industries such as airlines is minimal at 0.2 percent of our fixed maturity security portfolio. During the year ended December 31, 2020, we had $759.4 million of downgrades of investment-grade securities to below investment grade. These downgrades and the reduction in invested assets due to the reinsurance agreement with Commonwealth contributed to the increase in our holdings of below-investment-grade securities as a percentage of our total investments from 5.8 percent at December 31, 2019 to 6.7 percent at December 31, 2020 on a fair value basis.
We continue to monitor capital market activity on a regular basis and to the extent that there is continued volatility and ratings downgrades related to the issuers of our fixed maturity securities, we could experience further credit losses, an increase in defaults, and the need for additional capital in our insurance subsidiaries. However, we remain confident in the overall strength and credit quality of our investment portfolio. Net investment income may decline as a result of the current economic conditions, as the sustained low interest rate environment will continue to impact the yield on our invested assets, particularly related to the investment of new cash flows. For further discussion, see "Fixed Maturity Securities" contained herein in this Item 7.
Improvements in the net asset values (NAV) of our partnership investments in the fourth quarter of 2020, which reflect the market conditions of the third quarter of 2020, resulted in net investment income of $29.4 million. During the fourth quarter of 2020, U.S. equity and credit markets continued to improve from the severe decline experienced during the first quarter of 2020 due to COVID-19, and although our partnership investments are not directly correlated with those markets, their results were positively impacted and have driven higher asset fair values. In addition to our partnership investment activity, the current economic conditions and sustained low interest rate environment have and will continue to impact the yield on our invested assets, particularly related to the investment of new cash flows. We have also worked with certain of our commercial mortgage
The following two tables show the length of time our investment-grade and below-investment-grade fixed maturity securities have been in a gross unrealized loss position as of December 31, 2020 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, 2020. The decrease in the unrealized loss on fixed maturity securities during 2020 was due primarily to a decrease in U.S. Treasury rates.
During the first quarter of 2020, we recognized the following credit losses greater than $10 million:
•$20.8 million on fixed maturity securities issued by an oil and gas producer. The profitability of the company has been impacted by the decline in oil prices. Given the current environment, near term debt maturities may be difficult to refinance. We changed our intent to hold this security in the second quarter of 2020 and recognized a $1.4 million loss on the sale of the security in addition to the credit loss previously recorded.
At December 31, 2020, our mortgage/asset-backed securities had an average life of 3.8 years, effective duration of 2.7 years, and a weighted average credit rating of AAA. The mortgage/asset-backed securities are valued on a monthly basis using valuations supplied by the brokerage firms that are dealers in these securities as well as independent pricing services. One of the risks involved in investing in mortgage/asset-backed securities is the uncertainty of the timing of cash flows from the underlying loans due to prepayment of principal with the possibility of reinvesting the funds in a lower interest rate environment. We use models which incorporate economic variables and possible future interest rate scenarios to predict future prepayment rates. The timing of prepayment cash flows may also cause volatility in our recognition of investment income. We recognize investment income on these securities using a constant effective yield based on projected prepayments of the underlying loans and the estimated economic life of the securities. Actual prepayment experience is reviewed periodically, and effective yields are recalculated when differences arise between prepayments originally projected and the actual prepayments received and currently projected. The effective yield is recalculated on a retrospective basis, and the adjustment is reflected in net investment income.
Our investment portfolio has exposure to companies whose businesses are negatively impacted by lower oil and natural gas prices. These include exploration and production companies, refineries, midstream pipeline companies, and oilfield service businesses. The sharp decline in energy prices and decrease in demand due to COVID-19, which began to occur in the first quarter of 2020, put pressure on the earnings and cash flows of these businesses. Oil prices did improve during the remainder of 2020; however, we continue to monitor this sector closely. The degree to which a business is affected by energy prices can vary greatly depending on, among other things, its energy subsector, geographic locations, cost structure flexibility, capital structure, and hedging policies.
At December 31, 2020, the fair value of investment-grade fixed maturity securities in the energy sector was $3,112.2 million, with a gross unrealized gain of $571.3 million and a gross unrealized loss of $0.1 million. The fair value of below-investment-grade fixed maturity securities in the energy sector was $626.3 million, with a gross unrealized gain of $33.4 million and a gross unrealized loss of $13.5 million. The following table shows additional information related to our holdings in the energy sector.
We use derivative financial instruments primarily to manage reinvestment, duration, foreign currency, and credit risks. Historically, we have utilized current and forward interest rate swaps and options on forward interest rate swaps and U.S. Treasury rates, current and forward currency swaps, forward treasury locks, currency forward contracts, forward contracts on specific fixed income securities, and credit default swaps. Credit exposure on derivatives is limited to the value of those contracts in a net gain position, including accrued interest receivable less collateral held. At December 31, 2020, we had no credit exposure on derivatives. We held $8.7 million of cash collateral from our counterparties at December 31, 2020. The carrying value of fixed maturity securities posted as collateral to our counterparties was $54.0 million at December 31, 2020. We had no cash collateral posted to our counterparties at December 31, 2020. We believe that our credit risk is mitigated by our use of multiple counterparties, all of which have an investment-grade credit rating, and by our use of cross-collateralization agreements.
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 $16.6 million and $30.5 million on a fair value basis at December 31, 2020 and 2019, respectively.
We have established an investment strategy that we believe will provide for adequate cash flows from operations. We attempt to match our asset cash flows and durations with expected liability cash flows and durations to meet the funding requirements of our business. However, deterioration in the credit market may delay our ability to sell our positions in certain of our fixed maturity securities in a timely manner and adversely impact the price we receive for such securities, which may negatively impact our cash flows. Furthermore, if we experience defaults on securities held in the investment portfolios of our insurance subsidiaries, this will negatively impact statutory capital, which could reduce our insurance subsidiaries' capacity to pay dividends to our holding companies. A reduction in dividends to our holding companies could force us to seek external financing to avoid impairing our ability to pay dividends to our stockholders or meet our debt and other payment obligations.
The liquidity requirements of the holding company Unum Group include common stock dividends, interest and debt service, and ongoing investments in our businesses. Unum Group's liquidity requirements are met by assets held by Unum Group and our intermediate holding companies, dividends from primarily our insurance subsidiaries, and issuance of common stock, debt, or
As part of our capital deployment strategy, we repurchase shares of Unum Group's common stock, as authorized by our board of directors. In the second quarter of 2019, the board authorized the repurchase of up to $750 million of common stock through November 2020, at which point the authorization expired. We did not repurchase any shares during 2020 and as of December 31, 2020, we had not authorized a new share repurchase program. See Note 10 of the "Notes to Consolidated Financial Statements" contained herein in Item 8.
As of December 31, 2020, we have borrowed $312.2 million of funds through our memberships with the regional FHLBs and similar to our previous advances, these funds are used for the purpose of investing in either short-term investments or fixed maturity securities. Although we did increase FHLB borrowings at December 31, 2020, we have additional borrowing capacity of approximately $1,093 million that can be utilized for liquidity if the need arises. Additionally, we have access to two unsecured revolving credit facilities under separate syndicates of lenders that allow us to borrow up to a total of $600 million. There are currently no outstanding borrowings on these facilities but we remain in compliance with required covenants should we choose to borrow in the future. During 2020, we also issued $500.0 million of 4.500% senior notes due 2025 which strengthened our liquidity and demonstrated our ability to raise capital in a strained economic environment.
companies' closed block individual disability business had previously been fully ceded to Northwind Re, an affiliated captive reinsurance subsidiary domiciled in the United States, with Unum Group as the ultimate parent.
In connection with the first phase of the reinsurance agreement that closed in December 2020, the ceding companies paid a total cash ceding commission to Commonwealth of approximately $438 million and transferred additional assets consisting primarily of fixed maturity securities and cash totaling $6,669.8 million. In the fourth quarter of 2020, we released approximately $400 million of capital as a result of the reinsurance agreement and we expect to release approximately $250 million of additional capital in the first quarter of 2021 assuming the second phase of the transaction is fully executed, which is dependent on the receipt of required consents and regulatory approvals and the satisfaction or waiver of other customary closing conditions.
See "Reinsurance" contained herein in Item 1; "Segment Results," contained herein in Item 7, and Notes 12 and 16 of the "Notes to Consolidated Financial Statements" contained herein in Item 8 for further discussion on the impacts related to this reinsurance agreement.
Unum America cedes blocks of business to Fairwind Insurance Company (Fairwind), which is an affiliated captive reinsurance subsidiary domiciled in the United States. The ability of Fairwind to pay dividends to Unum Group will depend on its satisfaction of applicable regulatory requirements and on the performance of the business reinsured by Fairwind. We do not anticipate that Fairwind will pay dividends in 2021. As previously discussed, due to the recapture of the reinsurance agreements with Northwind Re, as of December 31, 2020, no insurance risk remains in Northwind Re and therefore Fairwind remains the only active reinsurance captive.
The ability of Unum Group and certain of its intermediate holding company subsidiaries to continue to receive dividends from their insurance subsidiaries also depends on additional factors such as RBC ratios and capital adequacy and/or solvency requirements, funding growth objectives at an affiliate level, and maintaining appropriate capital adequacy ratios to support desired ratings. The RBC ratios for our U.S. insurance subsidiaries at December 31, 2020 are in line with our expectations and are significantly above the level that would require state regulatory action.
The amount available during 2020 for the payment of ordinary dividends from Unum Group's traditional U.S. insurance subsidiaries, which excludes our captive reinsurers, was approximately $1,035 million, of which $831.5 million was declared and paid. The amount available during 2020 from Unum Limited was approximately £180 million, of which £30.0 million was declared and paid to Unum Group through one of our U.K. holding companies. During 2020, Northwind Re paid dividends of $58.4 million to Northwind Holdings. Fairwind paid no dividends during 2020.
During 2021, we intend to maintain a level of capital in our insurance subsidiaries above the applicable capital adequacy requirements and minimum solvency margins. As a result of our consideration of overall capitalization needs, we may not utilize the entire amount of dividends available in 2021, which are based on applicable restrictions under current law. Approximately $974 million is available, without prior approval by regulatory authorities, during 2021 for the payment of dividends from Unum Group's traditional U.S. insurance subsidiaries, which excludes our captive reinsurers. Approximately £170 million is considered distributable from Unum Limited during 2021, subject to local solvency standards and regulatory approval.
We made contributions of $66.4 million and £3.7 million to our U.S. and U.K. defined contribution plans, respectively, in 2020 and expect to make contributions of approximately $67 million and £3.8 million during 2021. 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 2020. We do not expect to make any contributions to either plan during 2021. 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.
In May 2020, we issued $500.0 million of 4.500% senior notes due 2025. The notes are callable at or above par and rank equally in the right of payment with all of our other unsecured and unsubordinated debt.
In June 2019, we issued $400.0 million of 4.000% senior notes due 2029. The notes are callable at or above par and rank equally in the right of payment with all of our other unsecured and unsubordinated debt.
Borrowings under the credit facilities are for general corporate uses and are subject to financial covenants, negative covenants, and events of default that are customary. The two primary financial covenants include limitations based on our leverage ratio and consolidated net worth. We are also subject to covenants that limit subsidiary indebtedness. The credit facilities provide for borrowings at an interest rate based either on the prime rate or LIBOR.
The following table summarizes contractual obligations and our reinsurance recoverable by period as of December 31, 2020:
Miscellaneous liabilities include commissions due and accrued, deferred compensation liabilities, contingent considerations, state premium taxes payable, amounts due to reinsurance companies, legally binding commitments to fund investments, obligations to return unrestricted cash collateral to our securities lending and derivative counterparties, advances received from the FHLB, and various other liabilities that represent contractual obligations. Obligations where the timing of the payment is uncertain are included in the one year or less category.
Purchase obligations include commitments of $624.0 million to fund certain of our investments. These are included in the preceding table based on the expiration date of the commitments. The funds are due upon satisfaction of contractual notice from appropriate external parties and may or may not be funded. Also included are obligations with outside parties for computer data processing services, software maintenance agreements, and consulting services. The aggregate obligation remaining under these agreements was $104.5 million at December 31, 2020.
Our investment policy permits us to lend fixed maturity securities to unaffiliated financial institutions in short-term securities lending agreements, which increases our investment income with minimal risk. We account for all of our securities lending agreements and repurchase agreements as secured borrowings. As of December 31, 2020, we held $17.6 million of cash collateral from securities lending agreements. The average balance for securities lending agreements which were collateralized by cash during the year ended December 31, 2020 was $3.6 million, and the maximum amount outstanding at any month end was $17.6 million. In addition, at December 31, 2020, we had $82.8 million of off-balance sheet securities lending agreements which were collateralized by securities that we were neither permitted to sell nor control. The average balance of these off-balance sheet transactions during the year ended December 31, 2020 was $56.8 million, and the maximum amount outstanding at any month end was $234.3 million.
Certain of our U.S. insurance subsidiaries are members of regional Federal Home Loan Banks (FHLB). As of December 31, 2020, we owned $28.2 million of FHLB common stock and had outstanding advances of $312.2 million from the regional FHLBs.
The variance in the change in insurance reserves and liabilities and net realized investment (gain) loss to reconcile net income to net cash provided by operating activities as reported in our consolidated statements of cash flows for 2020 was due primarily to the 2020 Closed Block individual disability reinsurance transaction. Also included in operating cash flows for 2020 was $1,084.6 million of cash paid to the reinsurer in the Closed Block individual disability reinsurance agreement.
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 FHLB funding advances, 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 cash flows for 2018 include cash outflows, net of cash acquired, of $145.4 million related to all of our acquisitions during the year.
During 2020, our $400.0 million 5.625% senior unsecured notes matured and we repaid the remaining $80.0 million of principal on our senior secured non-recourse notes issued by Northwind Holdings. During 2019, we purchased and retired $433.1 million aggregate liquidation/principal amount of our outstanding capital and debt securities, including debt repurchase costs of $25.9 million for a total cash outflow of $459.0 million. During 2018, our $200.0 million 7.00% senior unsecured notes matured. During each of the years 2019 and 2018, we made principal payments of $60.0 million on the Northwind notes.
Cash used to repurchase shares of Unum Group's common stock during 2019 and 2018 was $400.3 million and $356.2 million, respectively. During 2020, 2019, and 2018 we paid dividends of $231.9 million, $229.2 million, and $215.6 million, respectively, to holders of Unum Group's common stock.
Included in financing cash flows during 2020 was $62.1 million of cash received related to the ALR cohort volatility agreement with Commonwealth.
The table below reflects the outlook as well as the issuer credit ratings for Unum Group and the financial strength ratings for each of our traditional insurance subsidiaries as of the date of this filing.
to concerns over the current COVID-19 pandemic and the impact it may have on our financial position and operating results, particularly as it relates to investment returns and claims incidence.
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. We have ongoing dialogue with the rating agencies concerning our insurance risk profile, our financial flexibility, our operating performance, and the quality of our investment portfolios. The rating agencies provide specific criteria and, depending on our performance relative to the criteria, will determine future negative or positive rating agency actions.
We have audited the accompanying consolidated balance sheets of Unum Group and subsidiaries (the Company) as of December 31, 2020 and 2019, the related consolidated statements of income, comprehensive income (loss), stockholders' equity and cash flows for each of the three years in the period ended December 31, 2020, and the related notes and financial statement schedules listed in the Index at Item 15(a)(2) (collectively referred to as the "consolidated financial statements"). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with U.S. generally accepted accounting principles.
Policy reserves are established based on a gross premium valuation method to estimate the difference between projected future policy benefits and future premiums utilizing assumptions established as of the most recent loss recognition. Claim reserves are established based on a tabular reserve methodology representing assumptions reflecting the best estimate of the present value of the liability for future claim payments and claim adjustment expenses. Management is required to evaluate its long-term care reserves each period to determine if a reserve deficiency exists. There is significant uncertainty in estimating long-term care reserves given the extended period over which claims are paid and sensitivity of the estimate to assumptions, including morbidity, mortality, claims incidence and resolutions, persistency, interest rates, and future premium rate increases. In connection with the annual review of long-term care policy and claim reserve adequacy, the Company increased its long-term care policy and claim reserves by $151.5 million as of December 31, 2020.
Auditing the long-term care policy and contract benefits reserves was complex due to the highly judgmental nature of the significant assumptions including morbidity, mortality, claims incidence and resolutions, persistency, interest rates and future premium rate increases used in the measurement process. The significant judgment and the sensitivity of the estimate to these assumptions can have a material effect on the valuation of the liability.
To test long-term care policy and contract benefits liability we performed audit procedures, with the assistance of our actuarial specialists, that included, among others, an evaluation of the methodologies applied by management’s actuarial specialists with those methods used in prior periods. We evaluated the significant assumptions used by management in determining the policy and claims reserves by comparing the significant assumptions, including expected morbidity, mortality, claims incidence and resolutions, persistency, interest rates, and future premium rate increases to historical assumptions, prior actual experience, policyholder experience studies performed by management, available industry information, observable market data, or management’s estimates of prospective changes in these assumptions. In addition, we performed a review of the historical results of the development of the estimate, assessed management’s annual reserve adequacy test, evaluated the reasonableness of the additional reserves resulting from the reserve adequacy test, and performed an independent recalculation of policy and contract benefit reserves for a sample of contracts which we compared to the actuarial model used by management.
Description of the Matter As discussed in Note 12 to the consolidated financial statements, in December 2020, the Company entered into a series of agreements (collectively referred to as the "reinsurance agreement") to reinsure a substantial portion of the closed block individual disability insurance business (IDI Closed Block) to Commonwealth Annuity and Life Insurance Company (Commonwealth) with a reinsurance effective date of July 1, 2020. The Company ceded $6.1 billion of disabled life reserves on a coinsurance basis along with transferring $6.7 billion of fixed maturity securities and cash supporting the reserves and payment of a $438 million ceding commission to Commonwealth. In addition, the Company provided a 12-year volatility cover for the active life reserve cohort of the IDI Closed Block in exchange for a payment of $62 million from Commonwealth. The transfer of the disabled life reserves were accounted for as reinsurance and the active life cohort was accounted for using the deposit method. The Company recorded a cost of reinsurance asset of $815.7 million for this transaction that will be amortized over the remaining life of the IDI Closed Block.
How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design, and tested the operating effectiveness of the controls over the reinsurance agreement process including, among others, controls related to whether the agreement passes risk transfer, the determination of the cost of reinsurance, and the accounting for transfers of assets and liabilities and recording of the reinsurance recoverable amounts.
Fixed Maturity Securities: Fixed maturity securities include long-term bonds and redeemable preferred stocks. Our fixed maturity securities are classified as available-for-sale and reported at fair value. Changes in the fair value of available-for-sale fixed maturity securities, except for amounts related to impairment and credit losses recognized in earnings, are reported as a component of other comprehensive income. These amounts are net of income tax and valuation adjustments to deferred acquisition costs and reserves for future policy and contract benefits which would have been recorded had the related unrealized gain or loss on these securities been realized.
Mortgage Loans: Mortgage loans are generally held for investment and are carried at amortized cost less an allowance for expected credit losses. Interest income is accrued on the principal amount of the loan based on the loan's contractual interest rate. Prepayment penalties are recognized as investment income when received. For mortgage loans on which collection of interest income is uncertain, we discontinue the accrual of interest and recognize it in the period when an interest payment is received. We typically do not resume the accrual of interest on mortgage loans on nonaccrual status until there are significant improvements in the underlying financial condition of the borrower. We consider a loan to be delinquent if full payment is not received in accordance with the contractual terms of the loan.
We evaluate each of our mortgage loans individually for impairment and assign an internal credit quality rating based on a comprehensive rating system used to evaluate the credit risk of the loan. Although all available and applicable factors are considered in our analysis, loan-to-value and debt service coverage ratios are the most critical factors in determining impairment. We estimate an allowance for credit losses that we expect to incur over the life of our mortgage loans using a probability of default method. For each loan, we estimate the probability that the loan will default before its maturity (probability of default) and the amount of the loss if the loan defaults (loss given default). These two factors result in an expected loss percentage that is applied to the amortized cost of each loan to determine the expected credit loss. As we are the original underwriter of the mortgage loans, the amortized cost generally equals the principal amount of the loan. We measure losses on defaults of our mortgage loans as the excess amortized cost of the mortgage loan over the fair value of the underlying collateral in the event that we foreclose on the loan or over the expected future cash flows of the loan if we retain the mortgage loan until payoff. We do not purchase mortgage loans with existing credit impairments.
In estimating the probability of default, we consider historical experience, current market conditions, and reasonable and supportable forecasts about the future market conditions. We utilize our historical loan experience in combination with a large third-party industry database for a period of time that aligns with the average life of our loans based on the maturity dates of the loans and prepayment experience. Our model utilizes an industry database of the historical loss experience based on our actual portfolio characteristics such as loan-to-value, debt service coverage, collateral type, geography, and late payment history. In addition, because we actively manage our portfolio, we may extend the term of a loan in certain situations and will accordingly extend the maturity date in the estimate of probability of default. In estimating the loss given default, we primarily consider the type and value of collateral and secondarily the expected liquidation costs and time to recovery.
We utilize various scenarios to estimate our allowance for expected losses ranging from a base case scenario that reflects normal market conditions to a severe case scenario that reflects adverse market conditions. We will adjust our allowance each period to utilize the scenario or weighting of the scenarios that best reflects our view of current market conditions. Additions and reductions to our allowance for credit losses on mortgage loans are reported as a component of net realized investment gains and losses. See Note 3.
Policy Loans: Policy loans are presented at unpaid balances directly related to policyholders. Interest income is accrued on the principal amount of the loan based on the loan's contractual interest rate. Included in policy loans are $3,390.6 million and $3,490.6 million of policy loans ceded to reinsurers at December 31, 2020 and 2019, respectively.
In our consolidated balance sheets, we do not offset fair value amounts recognized for derivatives executed with the same counterparty under a master netting agreement and fair value amounts recognized for the right to reclaim cash collateral or the obligation to return cash collateral arising from those master netting agreements. See Notes 2, 3, and 4.
Allowance for Credit Losses on Premiums Receivable: We establish an allowance for credit losses on premiums receivable, which is deducted from the gross amount of our receivable balance, to present the net amount we expect to collect on this asset. The allowance is forward-looking in nature and is calculated based on considerations regarding both historical events and future expectations. Periodic changes in the allowance are recorded through earnings.
that were previously established at December 31, 2019. The allowance increased $15.0 million during the year ended December 31, 2020, primarily due to the uncertainty of collectability resulting from the impacts of COVID-19, partially offset by premium due write-offs and a decrease in the premium due balance. The primary factors considered in establishing the additional allowance were the recent increase in unemployment levels and the general uncertainty around the financial condition of some of our customers.
Goodwill: Goodwill is the excess of the amount paid to acquire a business over the fair value of the net assets acquired. We review the carrying amount of goodwill for impairment on an annual basis, or more frequently if events or changes in circumstances indicate that the carrying amount might not be recoverable. Goodwill impairment testing compares the fair value of a reporting unit with its carrying amount, including goodwill. If the fair value of the reporting unit to which the goodwill relates is less than the carrying amount of the reporting unit, an impairment charge is recognized for the amount by which the carrying amount exceeds the fair value of the reporting unit in an amount not to exceed the total amount of goodwill allocated to the reporting unit.
likely than not that an amount will not be realized. We follow an aggregate portfolio approach to release disproportionate tax effects from accumulated other comprehensive income upon disposal of an entire business segment's portfolio. See Note 7.
We determine if an arrangement is a lease at inception through a formal process that evaluates our right to control the use of an identified asset for a period of time in exchange for consideration. We account for the lease and non-lease components of our building leases separately and have elected to use the available practical expedient to account for the lease and non-lease components of our equipment leases as a single component. All of our leases are classified as operating. For each operating lease, we calculate a lease liability at commencement date based on the present value of lease payments over the lease term and a corresponding ROU asset, adjusted for lease incentives. We do not recognize right-of-use assets and lease liabilities that arise from short-term leases for any class of underlying asset.
Reinsurance: We routinely enter into reinsurance agreements with other insurance companies to spread risk and thereby limit losses from large exposures. For each of our reinsurance agreements, we determine if the agreement provides indemnification against loss or liability relating to insurance risk in accordance with applicable accounting standards. If we determine that a reinsurance agreement does not expose the reinsurer to a reasonable possibility of a significant loss from insurance risk, we record the agreement using the deposit method of accounting.
ASC 820 "Fair Value Measurement" This update amended the fair value measurement guidance by removing or clarifying certain existing disclosure requirements, while also adding new disclosure requirements. Specifically, this update removed certain disclosures related to Level 1 and Level 2 transfers and removed the discussion regarding valuation processes of Level 3 fair value measurements. The update modified guidance related to investments in certain entities that calculate net asset value to explicitly require disclosure regarding timing of liquidation of the investee's assets and timing of redemption restrictions. The update added disclosures around the changes in unrealized gains and losses in other comprehensive income for recurring Level 3 investments held at the end of the reporting period and adds disclosures regarding certain unobservable inputs on Level 3 fair value measurements. The guidance was applied both retrospectively and prospectively, depending on the specific requirement of the update. December 31, 2018 for the removal and modification of certain disclosures and January 1, 2020 for the addition of certain disclosures. The adoption of this update modified our disclosures but did not have an impact on our financial position or results of operations.
ASC 715 "Compensation - Retirement Benefits" This update amends the defined benefit pension and other postretirement benefit guidance by removing or clarifying certain existing disclosure requirements, while also adding new disclosure requirements. Specifically, this update removes the requirement to disclose the effects of a one-percentage point change in the assumed healthcare cost trend and the requirement to disclose amounts in accumulated other comprehensive income expected to be recognized as part of net periodic benefit cost of the next year. This update adds a requirement to describe the reasons for significant gains and losses related to changes in the benefit obligation for the period. The update also clarifies that the projected benefit obligation (PBO) and accumulated benefit obligation (ABO) and fair value of plan assets are to be disclosed for plans with PBOs or ABOs in excess of plan assets. The guidance is to be applied retrospectively and early adoption is permitted. December 31, 2020 The adoption of this update modified our disclosures but did not have an impact on our financial position or results of operations.
ASC 326 "Financial Instruments - Credit Losses" This update amended the guidance on the impairment of financial instruments. The update added an impairment model known as the current expected credit loss model that is based on expected losses rather than incurred losses and will generally result in earlier recognition of allowances for losses. The current expected credit loss model applies to financial instruments such as mortgage loans, fixed maturity securities classified as held-to-maturity, and certain receivables. The update also modified the other-than-temporary impairment model used for available-for-sale fixed maturity securities such that credit losses are recognized as an allowance rather than as a reduction in the amortized cost of the security. The reversal of previously recognized credit losses on available-for-sale fixed maturity securities is allowed under specified circumstances. Additional disclosures are also required, including information used to develop the allowance for losses. The guidance was applied using a modified retrospective approach through a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption. For available-for-sale fixed maturity securities, the update was applied prospectively. Other-than-temporary impairment losses recognized on available-for-sale fixed maturity securities prior to adoption of the update cannot be reversed. This guidance was applied in the period of adoption. January 1, 2020 See the summary table below for the financial statement impacts of this adoption on our financial statement line items at January 1, 2020. In addition, see Note 3 of the "Notes to Consolidated Financial Statements" contained herein in this Item 1 for the additional disclosures required by the update.
Summary of Financial Statement Impacts of Accounting Updates Adopted in 2020:
ASC 220 "Income Statement - Reporting Comprehensive Income" This update allowed entities to make an accounting policy election to reclassify the disproportionate 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 TCJA, from accumulated other comprehensive income to retained earnings. Tax effects that are disproportionate in accumulated other comprehensive income for reasons other than the TCJA may not be reclassified. This update required additional disclosures on whether an entity elects to reclassify the disproportionate tax effects and its policy for releasing tax effects from accumulated other comprehensive income. January 1, 2019 The adoption of this update expanded certain of our disclosures but had no impact on our financial position or results of operations because we did not make the optional accounting policy election to reclassify the disproportionate tax effects resulting from the TCJA from accumulated other comprehensive income to retained earnings.
ASC 842 "Leases" This update changed the accounting for leases, requiring lessees to report most leases on their balance sheets, regardless of whether the lease is classified as a finance lease or an operating lease. For lessees, the initial lease liability is equal to the present value of lease payments, and a corresponding asset, adjusted for certain items, is also recorded. Expense recognition for lessees remained similar to previous accounting requirements for capital and operating leases. For lessors, the guidance modified the classification criteria and the accounting for sales-type and direct financing leases. The guidance was applied using a modified retrospective approach through a cumulative-effect adjustment to retained earnings at the beginning of the period of adoption. In addition, the package of practical expedients available to leases that commenced prior to the date of adoption was applied. January 1, 2019 The adoption of this update resulted in the recognition of a lease liability of $122.0 million, with a corresponding right-of-use asset of $117.7 million, less an immaterial cumulative-effect decrease to retained earnings of $3.4 million related to our operating leases. There were also immaterial impacts to deferred income tax and income tax payable. This update did not have an impact on our results of operations, but it expanded our disclosures.
ASC 715 "Compensation - Retirement Benefits" 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. January 1, 2018 The adoption of this update resulted in the reclassification of service cost from the other expenses line item to the compensation expense line item on our consolidated statements of income but had no effect on our financial position or results of operations. We elected to use the practical expedient for the retrospective application of this update.
ASC 740 "Income Taxes" This update eliminated the exception that required the tax effect of intra-entity asset transfers other than inventory to be deferred until the transferred asset is sold to a third party or otherwise recovered through use. It required recognition of tax expense from the sale of the asset in the seller’s tax jurisdiction when the transfer occurs, even though the pre-tax effects of that transaction are eliminated in consolidation. January 1, 2018 The adoption of this update did not have an impact on our financial position or results of operations.
ASC 740 "Income Taxes" The amendments in this update simplify the accounting for income taxes by removing certain exceptions in the guidance related to the following: 1. losses in continuing operations when there is income in other items, 2. foreign subsidiaries becoming equity method investments and vice versa, and 3. year-to-date interim period losses exceeding anticipated loss for the year. The amendments also simplify the accounting for income taxes related to the following: 1. franchise taxes partially based on income, 2. step up in the tax basis of goodwill, 3. allocation of tax expense to entities not subject to tax, 4. enacted changes in tax law or rates in interim periods, and 5. employee stock ownership programs and investments in qualified affordable housing projects accounted for using the equity method. January 1, 2021 The adoption of this update will not have a material effect on our financial position or results of operations.
ASC 944 "Financial Services - Insurance" This update significantly amends the accounting and disclosure requirements for long-duration insurance contracts. These changes include a requirement to review, and if necessary, update cash flow assumptions used to measure the liability for future policy benefits for traditional and limited-payment contracts at least annually, with changes recognized in earnings. In addition, an entity will be required to update the discount rate assumption at each reporting date using a yield that is reflective of an upper-medium grade fixed-income instrument, with changes recognized in other comprehensive income. These changes result in the elimination of the provision for risk of adverse deviation and premium deficiency (or loss recognition) testing. The update also requires that an entity measure all market risk benefits associated with deposit contracts at fair value, with changes recognized in earnings except for the portion attributable to a change in the instrument-specific credit risk, which is to be recognized in other comprehensive income. This update also simplifies the amortization of deferred acquisition costs by requiring amortization on a constant level basis over the expected term of the related contracts. Deferred acquisition costs are required to be written off for unexpected contract terminations but are no longer subject to an impairment test. Significant additional disclosures will also be required, which include disaggregated rollforwards of certain liability balances and the disclosure of qualitative and quantitative information about expected cash flows, estimates, and assumptions. The application of this guidance will vary based upon the specific requirements of the update but will generally result in either a modified retrospective or full retrospective approach with changes applied as of the beginning of the earliest period presented. Early adoption is permitted. January 1, 2023 We are currently evaluating the impact of the update and expect that the adoption may have a material impact on our financial position and results of operations. The update will also significantly expand our disclosures.
We report fixed maturity securities, which are classified as available-for-sale securities, derivative financial instruments, and unrestricted equity securities at fair value in our consolidated balance sheets. 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. See Note 1.
pricing vendors to ensure we are in agreement with their current methodologies. When markets are less active, brokers may rely more on models with inputs based on the information available only to the broker. Our internal investment management professionals, which include portfolio managers and analysts, monitor securities priced by brokers and evaluate their prices for reasonableness based on benchmarking to available primary and secondary market information. In weighing a broker quote as an input to fair value, we place less reliance on quotes that do not reflect the result of market transactions. We also consider the nature of the quote, particularly whether it is a bid or market quote. If prices in an inactive market do not reflect current prices for the same or similar assets, adjustments may be necessary to arrive at fair value. When relevant market data is unavailable, which may be the case during periods of market uncertainty, the income approach can, in suitable circumstances, provide a more appropriate fair value. During 2020, we have applied valuation approaches and techniques on a consistent basis to similar assets and liabilities and consistent with those approaches and techniques used at year end 2019.
At December 31, 2020, approximately 9.6 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.
•74.9 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.
•10.4 percent of our fixed maturity securities were valued based on one or more non-binding broker quotes, if validated by observable market data. When only one price is available, it is used if observable inputs and analysis confirms that it is appropriate. These assets, for which we were able to validate the price using other observable market data, were classified as Level 2.
•5.1 percent of our fixed maturity securities were valued based on prices of comparable securities, internal models, or pricing services or other non-binding quotes with no other observable market data. These assets were classified as either Level 2 or Level 3, with the categorization dependent on whether there was other observable market data.
(a)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, 2020, the estimated remaining life of the investments that do not allow for redemptions is approximately 37 percent in the next 3 years, 38 percent during the period from 3 to 5 years, 22 percent during the period from 5 to 10 years, and 3 percent during the period from 10 to 15 years.
(c)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, 2020, the estimated remaining life of the investments that do not allow for redemptions is approximately 12 percent in the next 3 years, 23 percent during period from 3 to 5 years, 64 percent during the period from 5 to 10 years, and 1 percent during the period from 10 to 15 years.
(a)Represents basis point adjustments to apply a discount due to the illiquidity of an investment
(d)Represents various actuarial assumptions required to derive the liability cash flows. Fair value of embedded derivative is most often driven by the change in the weighted average credit spread to the swap curve for the assets backing the hypothetical loan.
Policy Loans: Fair values for policy loans, net of reinsurance ceded, are estimated using discounted cash flow analyses and interest rates currently being offered to policyholders with similar policies. Carrying amounts for ceded policy loans, which equal $3,390.6 million and $3,490.6 million as of December 31, 2020 and 2019, respectively, approximate fair value and are reported on a gross basis in our consolidated balance sheets. A change in interest rates for ceded policy loans will not impact our financial position because the benefits and risks are fully ceded to reinsuring counterparties.
Fair values for insurance contracts other than investment contracts are not required to be disclosed. However, the fair values of liabilities under all insurance contracts are taken into consideration in our overall management of interest rate risk, which seeks to minimize exposure to changing interest rates through the matching of investment maturities with amounts due under insurance contracts.
At December 31, 2020 and 2019, all fixed maturity securities were classified as available-for-sale. The amortized cost and fair values of securities by security type are shown as follows:
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, 2020, 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 a credit loss will recover in value. We have the ability and intent to continue to hold these securities to recovery of amortized cost and believe that no credit losses have occurred.
As of December 31, 2020, we held 47 individual investment-grade fixed maturity securities and 21 individual below-investment-grade fixed maturity securities that were in an unrealized loss position, of which 5 investment-grade fixed maturity securities and 13 below-investment-grade fixed maturity securities had been in an unrealized loss position continuously for over one year.
•Whether we intend to sell the security or will be required to sell the security before the recovery of its amortized cost basis
At December 31, 2020, we had commitments of $21.0 million to fund private placement fixed maturity securities, the amount of which may or may not be funded.
As of December 31, 2020, the carrying amount of our variable interest entity investments that are not consolidated in our financial statements was $776.8 million, comprised of $29.3 million of tax credit partnerships and $747.5 million of private equity partnerships. At December 31, 2019, the carrying amount of our variable interest entity investments that are not consolidated in our financial statements was $675.1 million, comprised of $58.4 million of tax credit partnerships and $616.7 million of private equity partnerships. These variable interest entity investments are reported as other long-term investments in our consolidated balance sheets.
We adopted new accounting guidance that requires us to estimate an allowance for expected credit losses effective January 1, 2020. We carry our mortgage loans at amortized cost less the allowance for expected credit losses. The amortized cost of our mortgage loans was $2,445.2 million and $2,397.0 million at December 31, 2020 and December 31, 2019, respectively. The allowance for expected credit losses was $13.1 million at December 31, 2020. Interest income is accrued on the principal amount of the loan based on the loan's contractual interest rate. We report accrued interest income for our mortgage loans as accrued investment income on our consolidated balance sheets, and the amount of the accrued income was $8.0 million and $8.3 million at December 31, 2020 and December 31, 2019, respectively.
The carrying amount of mortgage loans by property type and geographic region are presented below.
The risk in our mortgage loan portfolio is primarily related to vacancy rates. Events or developments, such as economic conditions that impact the ability of the borrowers to ensure occupancy of the property, may have a negative effect on our mortgage loan portfolio, particularly to the extent that our portfolio is concentrated in an affected region or property type. An increase in vacancies increases the probability of default, which would negatively affect our expected losses in our mortgage loan portfolio.
The following table presents a rollforward of allowance for expected credit losses by loan-to-value ratio:
We had no loan foreclosures for the years ended December 31, 2020, 2019, or 2018.
As of December 31, 2020, the carrying amount of fixed maturity securities loaned to third parties under our securities lending program was $96.6 million, for which we received collateral in the form of cash and securities of $17.6 million and $82.8 million, respectively. As of December 31, 2019, the carrying amount of fixed maturity securities loaned to third parties under our securities lending program was $176.4 million, for which we received collateral in the form of securities of $186.5 million. We had no outstanding repurchase agreements at December 31, 2020 or 2019.
Certain of our U.S. insurance subsidiaries are members of regional FHLBs. Membership, which requires that we purchase a minimum amount of FHLB common stock on which we receive dividends, provides access to low-cost funding. Advances received from the FHLB are used for the purchase of fixed maturity securities. Additional common stock purchases may be required, based on the amount of funds we borrow from the FHLBs. The carrying value of common stock owned, collateral posted, and advances received are as follows:
1 The net unrealized gain (loss) recognized in net investment income for the year ended December 31, 2020 related to perpetual preferred securities still held at December 31, 2020 was $(4.6) million. The net unrealized gain (loss) recognized in net investment income for the year ended December 31, 2019 related to perpetual preferred securities still held at December 31, 2019 was $3.3 million.
1Gross gains on sales of fixed maturity securities includes gains of $1,302.3 million as a result of the reinsurance transaction that we entered into during the fourth quarter of 2020. See Note 12 for further discussion.
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. Credit exposure on derivatives is limited to the value of those contracts in a net gain position, including accrued interest receivable less collateral held. At December 31, 2020, we had $0.7 million credit exposure on derivatives. At December 31, 2019, we had no credit exposure on derivatives. The table below summarizes the nature and amount of collateral received from and posted to our derivative counterparties.
The majority of our derivative instruments contain provisions that require us to maintain specified issuer credit ratings and financial strength ratings. Should our ratings fall below these specified levels, we would be in violation of the provisions, and our derivatives counterparties could terminate our contracts and request immediate payment. The aggregate fair value of all derivative instruments with credit risk-related contingent features that were in a liability position was $59.7 million and $34.6 million at December 31, 2020 and 2019, respectively.
As of December 31, 2020 and 2019, we had $210.2 million and $213.5 million, respectively, notional amount of receive fixed, pay fixed, open current and forward foreign currency interest rate swaps to hedge fixed income foreign currency-denominated securities.
During the fourth quarter of 2020, in connection with the Closed Block individual disability reinsurance transaction, we reclassified $30.7 million of deferred gains from accumulated other comprehensive income into earnings included in the net realized investment gain line item on our income statement. The deferred gains were related to previously terminated interest rate swaps designated as hedging instruments of fixed maturity securities in the Closed Block individual disability product line. See Note 12 for further discussion.
As of December 31, 2020 and 2019, we had $362.4 million and $249.4 million notional amount of receive fixed, pay fixed, open current and forward foreign currency interest rate swaps to hedge fixed income foreign currency-denominated securities.
As of December 31, 2020 and 2019, we held $148.2 million 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, 2020 and 2019, we held $11.7 million and $11.4 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.
The following table summarizes the location of gains and losses of derivative financial instruments designated as cash flow hedging instruments, as reported in our consolidated statements of comprehensive income (loss).
"Incurred Related to Prior Years - All Other Incurred" shown in the preceding chart includes the increase in benefits and change in reserves for future benefits resulting from the realization of previously unrealized investment gains and losses as a result of the Closed Block individual disability reinsurance agreement and reserve adjustments as discussed in the following paragraphs, which impact the comparability between the years presented. Excluding those adjustments, the variability exhibited year over year is primarily caused by the level of claim resolutions in the period relative to the long-term expectations reflected in the reserves. Our claim resolution rate assumption used in determining reserves is our expectation of the resolution rate we will experience over the life of the block of business and will vary from actual experience in any one period, both favorably and unfavorably.
During the fourth quarter of 2020, we completed a review of policy reserve adequacy, which incorporated our most recent experience and included a review of all material assumptions. Based on our analysis, during the fourth quarter of 2020, we updated our interest rate and premium rate increase reserve assumptions and determined that our gross long-term care policy and claim reserves should be increased by $151.5 million, of which $7.0 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.
Our net deferred tax asset (liability) consists of the following. Certain prior year amounts have been reclassified to conform to current year reporting.
On December 22, 2017, the U.S. Federal government enacted the TCJA, which reduced the federal corporate tax rate from 35 percent to 21 percent effective January 1, 2018. 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 Internal Revenue Service (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. In 2020, we recorded a tax benefit of $36.5 million for 2020 tax losses that will be carried back to a 35 percent tax year pursuant to the Coronavirus Aid, Relief, and Economic Security Act (CARES Act).
On July 22, 2020, the Finance Bill 2019-21 was enacted, resulting in a U.K. tax rate increase from 17 percent to 19 percent, retroactively effective April 1, 2020, which resulted in tax expense of $9.3 million for the revaluation of our tax assets and liabilities, primarily deferred tax liabilities related to policyholder reserves. As of December 31, 2020, our plans for the future repatriations of cash from our foreign subsidiaries can include no more than the amount of capital above that which is required by U.K. regulatory capital requirements. The remainder of our investment in our foreign subsidiaries is indefinitely reinvested and we have not recorded any deferred taxes on the approximately $0.7 billion of the excess of the U.S. GAAP carrying values over the tax basis of investments in our foreign subsidiaries.
In 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. The balances of unrecognized tax benefits for which the ultimate deductibility is highly certain but for which there is uncertainty about the timing of such deductibility are $105.9 million at December 31, 2020, $127.1 million at December 31, 2019, and $148.2 million at December 31, 2018. It is reasonably possible that this item could reverse in the next 12 months following review by the IRS. We recognize interest expense and penalties, if applicable, related to unrecognized tax benefits in tax expense. We recognized $7.8 million and $12.8 million of interest expense related to unrecognized tax benefits during 2020 and 2019, respectively, and a de minimis amount in 2018. The liability for net interest expense on uncertain tax positions was approximately $20.6 million and $12.8 million as of December 31, 2020 and 2019, respectively, and a de minimis amount in 2018.
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. Tax years subsequent to 2016 remain subject to examination by the IRS for the subsidiaries not included in the consolidated tax return. All other major foreign jurisdictions remain subject to examination for tax years subsequent to 2018 with the exception of Poland for which tax years subsequent to 2014 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.
We file state income tax returns in nearly every state in the United States. Tax years subsequent to 2015 remain subject to examination depending on the statute of limitation established by the various states, which is generally three to four years.
We record valuation allowances to reduce deferred tax assets to the amount that is more likely than not to be realized. Our valuation allowance was $14.5 million and $28.3 million at December 31, 2020 and 2019, the majority of which related to our cumulative deferred state income tax benefits. The de minimis remaining amount of our valuation allowance relates to unrealized tax losses on buildings which we own and occupy in the U.K. We recorded a decrease in our valuation allowance of $13.8 million during 2020 and an increase of $9.9 million in 2019, primarily in other comprehensive income.
Total income taxes paid net of refunds during 2020, 2019, and 2018 were $200.0 million, $35.1 million, and $139.7 million, respectively.
Northwind Holdings made periodic principal payments on the Northwind notes of $45.0 million in 2020 and $60.0 million in both 2019 and 2018. In December 2020, Northwind Holdings redeemed the remaining $35.0 million of principal on the Northwind notes, and was released of any contractual collateral requirements.
During 2019 we purchased and retired (i) $30.3 million aggregate principal amount of our 7.190% medium-term notes due 2028; (ii) $30.0 million aggregate principal amount of our 7.250% senior notes due 2028; and (iii) $350.0 million aggregate principal amount of our 3.000% senior notes due 2021.
As of December 31, 2019, we had $250.0 million notional amount of an interest rate swap which effectively converted certain of our unsecured senior notes into floating rate debt. Under this agreement, we received a fixed rate of interest and paid a variable rate of interest, based off of three-month LIBOR. During 2020, the $250.0 million notional amount of the interest rate swap matured in conjunction with the maturity of the hedged debt. See Note 4 for further information on the interest rate swap.
In 1998, Provident Financing Trust I (the Trust), a 100 percent-owned finance subsidiary of Unum Group, issued $300.0 million of 7.405% capital securities due 2038 in a public offering. These capital securities are fully and unconditionally guaranteed by Unum Group, have a liquidation value of $1,000 per capital security, and have a mandatory redemption feature under certain circumstances. In connection with the capital securities offering, Unum Group issued to the Trust 7.405% junior subordinated deferrable interest debentures due 2038. The Trust is a variable interest entity of which Unum Group is not the primary beneficiary. Accordingly, the capital securities issued by the Trust are not included in our consolidated financial statements and our liability represents the junior subordinated debt securities owed to the trust which is recorded in long-term debt. The sole assets of the Trust are the junior subordinated debt securities. The retirement of any liquidation amount regarding the capital securities by the Trust results in a corresponding retirement of principal amount of the junior subordinated debt securities.
On January 2, 2020, in a separate transaction, we purchased a second group annuity contract which transferred an additional portion of our U.S. qualified defined benefit pension plan obligation to the same third party. Under the transaction, which was funded with plan assets, we transferred the responsibility for pension benefits and annuity administration for approximately 600 retirees or their beneficiaries receiving between $350 and $500 in monthly benefit payments from the plan. This transfer resulted in a reduction in our U.S. qualified benefit pension plan obligation of $44.0 million at December 31, 2020 and is reflected in the Benefits and Expenses Paid line item within the following table regarding changes in our benefit obligation.
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, 2020, the estimate of the average remaining life expectancy of the plans was approximately 25 years for the U.S. plan and 31 years for U.K. plan.
The following table provides the changes in the benefit obligation and fair value of plan assets and the funded status of the plans.
Assets for our U.K. pension plan are primarily invested in a pooled diversified growth fund. This fund invests in assets such as global equities, hedge funds, commodities, below-investment-grade fixed income securities, and currencies. The objectives of the fund are to generate capital appreciation over the course of a complete economic and market cycle and to deliver equity-like returns in the medium-to-long term while maintaining approximately two thirds of the volatility of equity markets. Performance of this fund is measured against LIBOR plus four and a half percent. The remaining assets in the U.K. plan are invested in leveraged interest rate and inflation gilt funds of varying durations designed to broadly match the interest rate and inflation sensitivities of the plan's liabilities. The current target allocation for the assets is 65 percent diversified growth assets and 35 percent interest rate and inflation gilt funds. There are no categories of investments that are specifically prohibited by the U.K. plan, but there are general guidelines that ensure prudent investment action is taken. Such guidelines include the prevention of the plan from using derivatives for speculative purposes and limiting the concentration of risk in any one type of investment.
Certain equity, opportunistic credit, and real estate investments are valued based on the NAV of the underlying holdings. We made no adjustments to the NAV for 2020 or 2019. These investments have no unfunded commitments and no specific redemption restrictions.
Level 1 fixed interest and index-linked securities consist of individual funds that are valued based on unadjusted quoted prices from active markets for identical securities. Diversified growth assets are valued based on the NAV of the underlying holdings. We made no adjustments to the NAV for 2020 or 2019. These investments have no unfunded commitments and no specific redemption restrictions.
For the years ended December 31, 2020 and 2019, 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 2020 or 2019.
At December 31, 2020 and 2019, the annual rates of increase in the per capita cost of covered postretirement health care benefits assumed for the next calendar year are 6.50 percent for benefits payable to both retirees prior to Medicare eligibility as well as Medicare eligible retirees. The rates are assumed to change gradually to 5.00 percent by 2027 for measurement at December 31, 2020 and remain at that level thereafter. The annual rates of increase in the per capita cost of covered postretirement health benefits do not apply to retirees whose postretirement health care benefits are provided through an exchange.
The funding policy for our U.S. qualified defined benefit plan is to contribute annually an amount at least equal to the minimum annual contribution required under ERISA and other applicable laws, but generally not greater than the maximum amount that can be deducted for federal income tax purposes. We had no regulatory contribution requirements for our U.S. qualified defined benefit plan in 2020 and made a de minimis amount of voluntary contributions during 2020. We do not expect to make any contributions in 2021. The funding policy for our U.S. non-qualified defined benefit pension plan is to contribute the amount of the benefit payments made during the year. Our expected return on plan assets and discount rate will not affect the cash contributions we are required to make to our U.S. pension plan because such contributions are determined under the minimum funding requirements as set forth in ERISA.
We made no contributions to our U.K. plan during 2020, nor do we expect to make any contributions in 2021, either voluntary or those required to meet the minimum funding requirements under U.K. legislation.
During the years ended December 31, 2020, 2019, and 2018, we recognized costs of $83.4 million, $77.3 million, and $72.7 million, respectively, for our U.S. defined contribution plan. We recognized costs of $5.0 million, $4.4 million, and $4.2 million in 2020, 2019, and 2018, respectively, for our U.K. defined contribution plan.
We compute basic earnings per share by dividing net income by the weighted average number of common shares outstanding for the period. In computing earnings per share assuming dilution, we include potential common shares that are dilutive (those that reduce earnings per share). We use the treasury stock method to account for the effect of outstanding stock options, nonvested stock success units, nonvested restricted stock units, and nonvested performance share units on the computation of diluted earnings per share. Under this method, the potential common shares from stock options, nonvested stock success units, and nonvested restricted stock units will each have a dilutive effect, as individually measured, when the average market price of Unum Group common stock during the period exceeds the exercise price of the stock options and the grant price of the nonvested stock success units and nonvested restricted stock units. Potential common shares from performance based share units will have a dilutive effect as the attainment of performance conditions is progressively achieved during the vesting period. Potential common shares not included in the computation of diluted earnings per share because the impact would be antidilutive, approximated 1.6 million, 1.1 million, and 0.6 million for the years ended December 31, 2020, 2019, and 2018, respectively. See Note 11 for further discussion of our stock-based compensation plans.
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, 2020, approximately 10.1 million shares were available for future grants under the 2017 Plan.
There were no shares that vested during 2020. At December 31, 2020, we had $5.7 million of unrecognized compensation cost related to SSUs that will be recognized over a weighted average period of 2.9 years.
During 2020, 2019, and 2018, we issued PSUs with a weighted average grant date fair value per share of $23.49, $41.57, and $44.19, respectively. Vesting for the PSUs occurs at the end of a three-year period and is contingent upon our achievement of prospective company performance goals and our total shareholder return relative to a board-approved peer group during the three-year period. Actual performance, including modification for relative total shareholder return, may result in the ultimate award of 40 to 180 percent of the initial number of PSUs issued, with the potential for no award if company performance goals are not achieved during the three-year period. Forfeitable dividend equivalents on PSUs have previously been accrued in the form of additional PSUs. Beginning with the March 1, 2020 grant, forfeitable dividends are accrued as cash.
PSU shares in the preceding table represent aggregate initial target awards and accrued dividend equivalents and do not reflect potential increases or decreases resulting from the application of the performance factor determined after the end of the performance periods. At December 31, 2020, the three-year performance period for the 2018 PSU grant was completed and the related shares vested, but the performance factor had not yet been applied. The performance factor will be applied during the first quarter of 2021, with distribution of the stock at that time. Granted and vested amounts in the preceding table also include
an adjustment to reflect the application of the performance factor to the 2017 PSU grant, which occurred during the first quarter of 2020.
During 2020, 2019, and 2018, we issued RSUs with a weighted average grant date fair value per share of $22.71, $37.07, and $47.76, 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 have previously been accrued in the form of additional RSUs. Beginning with the March 1, 2020 grant, forfeitable dividends are accrued as cash. Compensation cost for RSUs subject to accelerated vesting at the date of retirement eligibility is recognized over the implicit service period.
Cash-settled 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 dividends on cash-settled RSUs are accrued in the form of cash. Compensation cost for cash-settled RSUs subject to accelerated vesting at the date of retirement eligibility is recognized over the implicit service period.
The cash-settled RSUs have a weighted average grant date fair value per unit granted of $22.94. As of December 31, 2020, no amount of cash-settled RSUs have vested or been paid.
Cash received under all share-based payment arrangements for the years ended December 31, 2020, 2019, and 2018 was $4.4 million, $6.1 million, and $4.6 million, respectively.
In December 2020, Provident Life and Casualty Insurance Company (PLC), also a wholly-owned domestic insurance subsidiary of Unum Group, entered into an agreement with Commonwealth whereby PLC will provide a 12-year volatility cover to
Commonwealth for the active life cohort (ALR cohort), which represents approximately five percent of the reserves ceded to Commonwealth. As part of this agreement, PLC received a payment from Commonwealth of approximately $62 million. PLC will provide similar coverage to Commonwealth related to additional business ceded as part of the second phase of the transaction. At the end of the 12-year coverage period, Commonwealth will retain the remaining incidence and claims risk on the ALR cohort of the ceded business. Under this volatility cover, annual settlements will be made equal to the difference between the actual and estimated cash flows and reserve changes during the year. Upon expiration of the 12-year period, a terminal settlement will be made based on the final disabled life reserves. As a result of the volatility cover, the reinsurance agreement covering the ALR cohort, does not pass risk transfer requirements under GAAP and is accounted for under the deposit method.
•Increase in benefits and change in reserves for future benefits of $1,284.5 million resulting from the realization of previously unrealized investment gains and losses recorded in accumulated other comprehensive income.
•Cost of reinsurance, or the prepaid reinsurance premium, of $815.7 million related to the DLR cohort.
As of December 31, 2020, Commonwealth accounted for approximately 59 percent of the total reinsurance recoverable and the majority of our total cost of reinsurance. Commonwealth has an A rating by A.M. Best Company (AM Best) and has also established collateralized trust accounts for our benefit to secure its obligations. In addition, nine other major companies, which account for approximately 35 percent of our reinsurance recoverable at December 31, 2020, are also rated A or better by either AM Best or Standard & Poor's Ratings Services (S&P), or are fully securitized by letters of credit or investment-grade fixed maturity securities held in trust. Approximately five percent of our reinsurance recoverable relates to business reinsured either with companies rated A- or better by AM Best or S&P, with overseas entities with equivalent ratings, or backed by letters of credit or trust agreements, or through reinsurance arrangements wherein we retain the assets in our general account. The remaining one percent of our reinsurance recoverable is held by companies either rated below A- by AM Best or S&P, or not rated.
The Unum US segment is comprised of group long-term and short-term disability insurance, which includes our medical stop-loss product as well as our fee-based leave management services and ASO business, group life and accidental death and dismemberment products, and supplemental and voluntary lines of business, which are comprised of individual disability, voluntary benefits, and dental and vision products. These products are marketed through our field sales personnel who work in conjunction with independent brokers and consultants.
During the third quarter of 2020, we realigned certain parts of our organizational structure by shifting resources to accelerate growth, fund priority investments, and simplify and improve our business practices. In connection with this update, we incurred charges of $23.3 million, which primarily consisted of employee severance and benefit costs as well as certain costs related to lease terminations and the disposal of certain fixed assets. These costs were recorded within either compensation expense or other expenses in the consolidated statements of income and were included within our Corporate segment. This update did not result in the exit or disposal of any of our lines of business and we do not expect material additional costs associated with this update in the future.
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 measure and analyze our segment performance on the basis of "adjusted operating revenue" and "adjusted operating income" or "adjusted operating loss", which differ from total revenue and income before income tax as presented in our consolidated statements of income due to the exclusion of net realized investment gains and losses and amortization of the cost of reinsurance as well as 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.
As previously discussed in Note 12, we have exited a substantial portion of our closed block individual disability product line through the reinsurance agreement that was executed in December 2020. As a result, we exclude the amortization of the cost of reinsurance that was recognized as a result of the exit of the business related to the DLR cohort of policies. We believe that the exclusion of the amortization of the cost of reinsurance provides a better view of our results from our ongoing businesses.
We may at other times exclude certain other items from our discussion of financial ratios and metrics in order to enhance the understanding and comparability of our operational performance and the underlying fundamentals but this exclusion is not an indication that similar items may not recur and does not replace net income or net loss as a measure of our overall profitability.
We are a defendant in a number of litigation matters that have arisen in the normal course of business, including the matters discussed below. Further, state insurance regulatory authorities and other federal and state authorities regularly make inquiries and conduct investigations concerning our compliance with applicable insurance and other laws and regulations. Given the complexity and scope of our litigation and regulatory matters, it is not possible to predict the ultimate outcome of all pending investigations or legal proceedings or provide reasonable estimates of potential losses, except if noted in connection with specific matters.
We lease certain buildings and equipment under various noncancellable operating lease agreements. In addition, we have sub-lease agreements on a limited number of our building lease agreements. The majority of our building leases and sub-leases expire within a five to ten year period and we generally have the option to renew at the end of the lease term at the fair rental value at the time of renewal. The majority of our equipment leases expire within a one to three year period and we generally have the option to renew at the end of the lease term at the fair rental value at the time of renewal.
As of December 31, 2020, aggregate undiscounted minimum net lease payments and the reconciliation to our lease liability are as follows (in millions of dollars):
The right-of-use asset was $82.9 million and $108.6 million at December 31, 2020 and 2019, respectively.
Statutory net income for U.S. life insurance companies is reported in conformity with statutory accounting principles prescribed by the National Association of Insurance Commissioners (NAIC) and adopted by applicable domiciliary state laws. The commissioners of the states of domicile have the right to permit other specific practices that may deviate from prescribed practices. In connection with a financial examination of Unum America, which closed at the end of the second quarter of 2020, the Maine Bureau of Insurance (MBOI) concluded that Unum America’s long-term care statutory reserves are deficient by $2.1 billion as of December 31, 2018, the financial statement date of the examination period. The MBOI granted permission to Unum America on May 1, 2020, to phase in the additional statutory reserves over seven years beginning with year-end 2020 and ending with year-end 2026. This strengthening will be incorporated using explicitly agreed upon margins into our existing assumptions for annual statutory reserve adequacy testing. These actions will add margin to Unum America's best estimate assumptions. Our long-term care reserves and financial results reported under generally accepted accounting principles are not affected by the MBOI’s examination conclusion. We plan to fund the additional statutory reserves with expected cash flows. If the permitted practice was not granted by the MBOI to phase in these additional statutory reserves, the impact to the risk-based capital ratio would have triggered a regulatory event. The 2020 phase-in amount was recorded in the fourth quarter of 2020 and was approximately $229 million. Our other traditional U.S. life insurance subsidiaries have no prescribed or permitted statutory accounting practices that differ materially from statutory accounting principles prescribed by the NAIC.
Fairwind, which is domiciled in the state of Vermont, is required to follow GAAP in accordance with Vermont reporting requirements for pure captive insurance companies, unless the commissioner permits the use of some other basis of accounting. Fairwind has permission from Vermont to follow accounting practices that are generally consistent with current NAIC statutory accounting principles for its insurance reserves and invested assets supporting reserves. All other assets and liabilities are accounted for in accordance with GAAP, as prescribed by Vermont, which includes the full recognition of deferred tax assets which are more likely than not to be realized. Statutory accounting principles have a stricter limitation for the recognition of deferred tax assets. The impact of following the prescribed and permitted practices of Vermont rather than statutory accounting principles prescribed by the NAIC resulted in higher capital and surplus for Fairwind of approximately $287 million and $194 million as of December 31, 2020 and 2019 respectively. Included in the 2020 results for Fairwind was the $229 million increase to long-term care statutory reserves assumed from Unum America. Included in the 2018 results for Fairwind was the assumed portion of the statutory impact of the 2018 long-term care reserve increase.
Solvency II, a European Union directive prescribes capital requirements and risk management standards for the European insurance industry. As derived from the most recent annual financial statements for December 31, 2019, based on Solvency II requirements, regulatory net income and own funds available of our United Kingdom insurance subsidiary, Unum Limited, were £91.0 million and £656.1 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. Approximately £170.0 million is considered distributable from Unum Limited during 2021, subject to local solvency standards and regulatory approval.
At December 31, 2020 and 2019, our U.S. insurance subsidiaries had on deposit with U.S. regulatory authorities securities with a book value of $135.5 million and $135.2 million, respectively, held for the protection of policyholders.
•Fourth quarter of 2020 net realized investment gain of $1,302.3 million before tax and $1,028.8 million after tax, related to the transfer of investments for the Closed Block individual disability reinsurance transaction.
•Fourth quarter of 2020 amortization of the cost of reinsurance related to the Closed Block individual disability reinsurance transaction of $2.6 million before tax and $2.0 million after tax.
•Fourth quarter of 2020 reserve increases of $151.5 million and $17.5 million before tax and $119.7 million and $13.8 million after tax related to long-term care and group pension, respectively.
•Third quarter of 2020 costs related to organizational design update of $23.3 million before tax and $18.6 million after tax.
•Second quarter of 2020 impairment on ROU asset related to an operating lease for office space that we do not plan to continue using to support our general operations of $12.7 million before tax and $10.0 million after tax.