Chief Financial Officer at Unum Group
Great. Thank you, Rick, and good morning, everyone. As Rick outlined for you, the first quarter was a very strong quarter for the company, as we benefited from both a favorable shift in the COVID-related trends this quarter and strong operating performance in many parts of our business. As I cover our first quarter results, I will primarily focus on a discussion of our first quarter results relative to the fourth quarter of 2021, which will allow us to demonstrate how the company's business lines have been progressing through the pandemic.
To start and to provide some broader context on the quarter, there were two significant shifts in the COVID trends this quarter that had important impact on our first quarter results. First, COVID-related mortality increased in the US in the first quarter of 2022 compared to the fourth quarter of 2021, and was also higher than our estimate coming into the year.
Additionally, the shift in the age demographics of the mortality back to a greater relative impact on the elderly population, and less in the working-age population had important implications on our business. If you recall, for most of 2020 and the early months of 2021, COVID-related mortality impacted the elderly population more so than the working-age population.
In the second half of 2021, the age demographic shifted and COVID-related mortality showed an increased level of impact amongst the working-age population, and less so among the elderly population. In the first quarter of 2022, the age demographic shifted back and was more consistent with what the US experienced in 2020, that is, less impact among the working-age population and more in the elderly population. This shift is significant to our business and it drove lower mortality experience in our group life block, which primarily covers working-age individuals.
This is evident, both in terms of the percentage of the national COVID-related mortality that we see in our book and the average benefit size. In addition, the higher mortality among the elderly population resulted in higher mortality in the Claimant Block for our long-term care business, which drove a lower interest adjusted loss ratio in the first quarter of 2022.
The second trend we saw was a rapid decline in COVID infection rates and hospitalization rates through the first quarter. This had a favorable impact on our short-term disability results, which helped drive the improvement we saw in our Unum US group disability benefit ratio this quarter. I'll dig into these two trends more deeply as I discuss the performance of these lines, but the age demographics of our mortality and the declining infection rates were important factors in our first quarter results.
I'll begin my review of our operating performance with the Unum US segment. Adjusted operating income showed a sharp increase to $171.6 million in the first quarter of 2022 compared to $81.4 million in the fourth quarter of 2021, primarily driven by strong sequential quarter improvement in the group disability and group life and AD&D lines, as well as continued high levels of operating income from the supplemental and voluntary lines.
So within the Unum US segment, the group disability line reported a strong rebound in adjusted operating income to $62.6 million in the first quarter from $34.1 million in the fourth quarter. The biggest driver of the earnings improvement was the benefit ratio for group disability, which improved in the first quarter to 73.8% compared to 78.3% for the fourth quarter of 2021. This improvement was driven in large part by strong performance in the long-term disability line, as claim recoveries were very favorable.
Additionally, new claim incidence for LTD declined on a sequential quarter basis, though, this was offset somewhat by higher average claim size. As I mentioned previously, results in the short-term disability line also improved relative to the fourth quarter. So looking forward, we expect the group disability benefit ratio to average in the mid- 70% area, consistent with the range we provided at our outlook meeting.
Adjusted operating income for Unum US Group life and AD&D also showed strong improvement with an operating loss of $9.4 million in the first quarter compared to a loss of $71.7 million in the fourth quarter. This quarter-to-quarter improvement was primarily the result of an improvement in the benefit ratio, mostly driven by the shift in the age demographics of the COVID-related mortality, which I described earlier.
In the fourth quarter of 2021, COVID-related mortality in the US population was an estimated 127,000 with approximately 35% of those deaths among the working-age population. In the first quarter of 2022, while the mortality count increased to approximately 153,000, the impact to the working-age population declined to approximately 24%. For our group life block, we estimate the COVID-related mortality claims declined from an estimated 1,725 claims in the fourth quarter to an estimated 1,400 claims in the first quarter.
Accordingly, our results reflect a lessening in our exposure to the national mortality count to slightly less than 1% of the reported national figures in the first quarter compared to approximately 1.4% in the fourth quarter and 2% in the third quarter of last year. Looking back to 2020, we saw similar exposure to national mortality count of about 1% when the age demographics were generally similar. In addition, we also saw a lower average benefits size, which declined to slightly less than $55,000 in the first quarter compared to around $65,000 in the fourth quarter of last year.
Finally, non-COVID-related mortality did not materially impact results in the first quarter relative to the experience of the fourth quarter. Over the course of the pandemic, the count in age demographics of COVID-related mortality heavily influenced our group life results. In our plans, we have assumed that national mortality related to COVID will decline significantly in the second quarter and remain at lower levels for the balance of 2022. For the second quarter, we can see the group life and AD&D benefit ratio decline further to around 80%. However, these measures have historically been very difficult to predict, so we suggest that you follow the national trends as a basis for your projections and estimates.
Now looking at the Unum US supplemental and voluntary lines, earnings remain at very healthy levels with adjusted operating income of $118.4 million in the first quarter compared to $119 million in the fourth quarter. Looking at the three primary business lines, first, we remain very pleased with the performance of the individual disability recently issued block of business, which have generated strong results throughout the pandemic. The benefit ratio was slightly higher on a sequential quarter basis, but remain well within the experience we have seen over the past two years. Like clients, the voluntary benefits line reported a strong level of income as well, with the benefit ratio declining slightly on a sequential quarter basis, primarily reflecting strong performance across the A&H and disability products.
Finally, utilization in the dental and vision line increased relative to the fourth quarter, and the average cost per procedure was also somewhat higher, leading to an increase in the benefit ratio for that line on a sequential quarter basis. All in all, though, the supplemental and voluntary lines continue to perform very well and remain a strong income generator for us.
Then looking at premium trends and drivers, we were pleased to see additional momentum building for Unum US with growth in premium income of 1.3% in the first quarter on a year-over-year basis. For full year 2021, premium income for Unum US increased by 1% compared to 2020.
Looking at the group disability line, growth in premium income is closely tracking our outlook increasing 1.9% on a year-over-year basis, with increasing levels of natural growth as we benefit from high employment levels and rising wages, solid business and persistency trends and careful management of our renewal programs. Sales growth for Unum US was encouraging with growth of 6.8% year-over-year as growth in the group lines and individual disability offset softer sales in voluntary benefits.
Overall, we are pleased with persistency trends this quarter which showed some variation by line of business, but our total group block was stable at 89.6% in the first quarter. Natural growth continues to develop as a tailwind for us increasing 3.5% to 4% year-over-year as we continue to benefit from strong employment levels in the US, as well as higher wage levels, particularly in our core market segment. And finally, we have been encouraged by the progress we are seeing with our pricing strategy, particularly in the large employer group disability group life and services market, where pricing action is appropriate.
Then moving to the international -- Unum International segment, we had another very good quarter with adjusted operating income for the first quarter of $27.2 million, in line with the $27.1 million reported in the fourth quarter. The primary driver of our International segment results is our Unum UK business, which generated adjusted operating income of GBP19.2 million in the first quarter compared to GBP18.7 million in the fourth quarter. The reported benefit ratio for Unum UK was 80.7% in the first quarter compared to 81.4% in the fourth quarter. And as we have outlined in the past, inflationary trends in the UK will impact our reported benefit ratio and can mask the underlying claims experience we are seeing.
For the first quarter, excluding the impact of inflation, our overall benefits experience was slightly unfavorable compared to the fourth quarter with favorable experience in group life offset by unfavorable experience in the group disability line. All in all, we are pleased to see the Unum UK results continue to improve towards the GBP20 million per quarter goal.
Similarly, benefits experience in Unum Poland trended slightly higher on a sequential quarter basis, though, adjusted operating income was generally consistent by quarter-to-quarter. So the year-over-year premium growth in our International business segment was very strong this quarter increasing 7.7% on a year-over-year basis in dollars.
On a local currency basis to neutralize the impact from changes in exchange rates, Unum UK generated growth of 11% year-over-year, the strongest rate of growth in Unum UK in several years, driven by strong persistency, improving sales trend and the continued successful placement of rate increases on our in-force block. Sales in Unum UK were very strong in the first quarter increasing 55% over the year ago quarter. Unum Poland generated sales growth of 35% in local currency, a continuation of the strong growth trend this business has been producing.
Next, results for our Colonial Life were also very strong with adjusted operating income of $90.1 million in the first quarter compared to $80 million in the fourth quarter. While the primary drivers of these results was an improvement in the benefit ratio in the first quarter to 49.3% compared to 52.5% in the fourth quarter. This was largely driven by very favorable experience in the cancer and critical illness line, as well as improved performance in the accident, sickness and disability line.
We are pleased to see a continuation in the improving trend in premium growth for Colonial Life, which increased 1% on a year-over-year basis after declining 1.3% in full year 2021. Driving this improving trend in premium is the rebound we have seen in new sales over the past four quarters, and generally stable persistency.
For the first quarter sales for Colonial Life increased 15.3% compared to the year ago first quarter, following an increase of 16.1% for the full year 2021. Persistency for Colonial Life was 78.7% for the first quarter compared to 78.4% for the year ago quarter. It will take a couple of years to return to pre-pandemic levels of premium growth in the Colonial Life segment, but we are encouraged that the level of absolute quarterly premium income has recovered for Colonial to pre-pandemic levels.
In the Closed Block segment, adjusted operating income excluding the amortization of cost of reinsurance related to the Closed Block individual disability reinsurance transaction was $94.1 million in the first quarter, compared to $76.7 million in the fourth quarter. The increase in the segment earnings was largely driven by higher earnings in the long-term care line as a result of favorable benefits experience.
The interest adjusted loss ratio for LTC declined to 70.2% in the first quarter from 82.2% in the fourth quarter, primarily driven by a higher claimant mortality, which was approximately 10% higher than we expected on a seasonally adjusted basis by claim count, and by favorable new claim incidents. For the Closed Block individual disability line, the interest adjusted loss ratio increased to 78.7% in the first quarter compared to 75.4% in the fourth quarter, but remain within our long-term expectations.
Healthy levels of miscellaneous investment income continue to contribute to the strong adjusted operating income we have seen in the Closed Block segment over the past several quarters. In the past two quarters, however, we have seen some moderation in the contribution compared to the recent peak levels we were experiencing in 2021. More specifically, total miscellaneous investment income in the Closed Block declined by approximately $4 million in the first quarter compared to the fourth quarter.
As a reminder, we saw a reduction of approximately $10 million in total miscellaneous investment income from the third quarter to the fourth quarter, driven primarily by a lower level of bond calls. The current level of miscellaneous investment income remains well above what we expect to generate on an ongoing basis, as the returns from our alternative investment portfolio continues to outperform our long-term expectations.
Wrapping up my commentary on the quarter's financial results. The adjusted operating loss in the Corporate segment was $40.4 million in the first quarter and $45.1 million in the fourth quarter. Going forward, we anticipate quarterly losses in this segment to be consistent with this quarter's results.
Moving now to investments and net investment income. We are seeing a much better environment for new money yield opportunities given the rise in interest rates and widening in the corporate bond spreads so far this year. In the first quarter, our new money purchases exceeded our fourth quarter purchases by 110 basis points. While current new money yields remain below our portfolio yields, the gap has narrowed significantly so far in 2022.
Miscellaneous investment income in the first quarter for the company overall totaled $41 million, and this compares to approximately $58 million in the fourth quarter and was below what we saw in 2021. Miscellaneous investment income from bond calls declined by about $10 million on a sequential quarter basis, with most of the decline impacting net investment income in our core business lines. We expect income from bond calls to remain below the elevated levels we experienced in 2020 and 2021, as higher interest rates reduces the economic incentive for many companies to refinance their outstanding debt. While this will likely have a negative impact on current net investment income, it will help support the current portfolio yields as we retain a higher yielding securities in the portfolio.
Income from our alternative investments portfolio remain well above our long-term expectations, but declined to $32.4 million in the first quarter compared to $39.4 million in the fourth quarter. Our current run rate expectation for quarterly income from alternatives is in the low $20 million range. So our current result show continued strong outperformance from the portfolio.
The Closed Block segment continues to be the primary beneficiary of the favorable performance in our alternatives portfolio. For full year 2022, we expect total miscellaneous income to run the below the very strong results generated in 2021.
So then moving now to capital. The financial position of the company continues to be in excellent shape, providing a significant financial flexibility. The weighted average risk-based capital ratio for our traditional US insurance companies improved to approximately 400%, and holding company liquidity was $1.3 billion at the end of the first quarter, both well above our targeted levels.
In addition, leverage has again trended lower and ended the quarter at 25.1%, statutory after-tax operating income was $200.5 million for the first quarter, which is a sharp improvement from the first quarter of 2021, which was a $136.7 million. Similar to our strong GAAP performance, statutory results benefited from improved results in Group Life, Group Disability, Colonial Life and LTC.
So then, looking at capital deployment in the first quarter. We executed a $50 million accelerated share agreement and continue to anticipate repurchasing approximately $200 million of our shares for the full year. Capital contributions in the Fairwind subsidiary were $215 million in the quarter. With favorable performance in the LTC Block and the rise in interest rates this quarter, we are trending favorably within the range of full year capital contributions to Fairwind of $550 million to $650 million that we guided to at our Investor meeting.
So then wrapping up with a comment on our outlook for the year. We initially set our expectation for growth in after-tax adjusted operating income per share in a range of 4% to 7% for 2022. We are raising our outlook to an expectation for growth in the range of 15% to 20%. This improvement reflects our strong performance in the first quarter, and our expectations for additional upside to our original outlook for the balance of the year, which will be really focused in the second quarter of 2022.
Recall that our -- at our Investor meeting in February, we also provided an outlook for after-tax adjusted operating income per share to increase within a range of 45% to 55% by 2024 [Indecipherable] 2021 earnings per share of $4.35 per share. We are not, at this time changing that outlook.
Now I'll turn the call back to Rick, for his closing comments, and I look forward to your questions.