Steven A. Zabel
Executive Vice President and Chief Financial Officer at Unum Group
Great. Thank you, Rick, and good morning, everyone. The third quarter was another very good quarter for the company as we saw the continuation of our strong first half operating performance, particularly across all of our disability product lines. Disability results in the third quarter were highlighted by strong sales and underwriting performance across the board, including benefit ratios of 57.5% for Unum U.S. Group disability, 45.4% for Unum U.S. individual disability and 67.4% for Unum U.K., all below our long-term expectations.
Sales were strong across most areas of the company, specifically with our various disability products performing very well. Consolidated sales grew 1.8% across our core operations highlighted by 8.5% growth in Unum U.S. and 4.7% growth in Colonial Life. While the third quarter is a relatively small quarter for sales, we are pleased with the growth path that we are on and are positioning for our biggest sales quarter in the fourth quarter. Core operations premium grew at a healthy rate of 6.1% in the third quarter as we continue to see tailwinds from natural growth.
Natural growth continued to exceed our historic levels, but fell below the 5% mark that we experienced for the past few quarters. Persistency was generally improved from 2Q results and within our expectations. Year-to-date, core operations earned premium grew 4.9%, just below the top end of our full year outlook of 3% to 5%, which we now expect to exceed. As I review our results by segment, I will describe our adjusted operating income results and benefit ratios excluding the impacts from the annual GAAP reserve assumption updates in the third quarter of 2023 and 2022.
Starting with Unum U.S., adjusted operating income increased 27.4%to $357.8 million in the third quarter of 2023 compared to $280.8 million in the third quarter of 2022. Results finished above prior year, primarily due to favorable benefits experience and long-term disability and higher premium income, partially offset by higher operating expenses. The group disability line reported another robust quarter with adjusted operating income of $170.1 million compared to $130.7 million in the third quarter of 2022 with the increase driven by higher earned premium and a strong benefit ratio of 57.5%.
The improvement from second quarter was driven by lower average claim size coupled with continued strength in both recoveries and incidents. Looking ahead to the fourth quarter, we expect the benefit ratio in the low 60% range. Results for Unum U.S. Group Life and AD&D increased compared to the third quarter of last year with adjusted operating income of $52 million for the third quarter of 2023 compared to $28.2 million in the same period a year ago. The benefit ratio decreased to 73.3% compared to 78% in the third quarter of 2022 due to lower COVID-related mortality and lower average claim size.
Adjusted operating income for the Unum U.S. supplemental and voluntary lines in the third quarter was $135.7 million, an increase from $121.9 million in the third quarter of 2022. The increase was driven predominantly by improved voluntary benefits results. The voluntary benefits loss ratio of 39.1% was favorable to the prior year, primarily due to lower benefits in both the disability and life product lines. The individual disability benefit ratio of 45.4% was unfavorable to the prior year mainly driven by higher average size of submitted claims, but still favorable to our expectations.
Turning to premium trends. Unum U.S. results included strong year-over-year premium growth of 6.5% supported by a declining rate of natural growth. Sales trends for Unum U.S. were also solid with sales increasing 8.5% year-over-year in the third quarter. Persistency for total group of 89.8% remained stable in the third quarter with similar stable results within most of our supplemental and voluntary lines.
Now moving to Unum International. The segment continued to show strong trends in its underlying earnings power with adjusted operating income for the third quarter increasing to $36.8 million from $24.9 million in the third quarter of 2022. Adjusted operating income for the Unum U.K. business improved in the third quarter to GBP28.4 million compared to GBP23.3 million in the third quarter of 2022. The reported benefit ratio for Unum U.K. decreased to 67.4% in the third quarter compared to 78.7% in the same period a year ago.
As you may recall, a portion of our policies in the U.K. have an inflation rider, which are backed by inflation-linked gilts. The inflation-linked benefits are capped, but the income we receive from linked gilt is not, which does increase earnings levels in periods of very high inflation. This inflation benefit has dissipated from recent highs. Without this impact, in the third quarter, Unum U.K. adjusted operating income was in the mid GBBP20 million range reflecting another quarter of strong underlying claims performance.
So then looking ahead to the fourth quarter, we expect underlying earnings at a similar level with the inflation benefit at or maybe slightly below third quarter levels. International premiums continue to show strong growth. Unum U.K. generated premium growth of 9.9% on a year-over-year basis in the third quarter, while our Poland operation grew 27.3%. U.K. sales in the third quarter were GBP18.2 million, down from third quarter 2022 sales of GBP30.9 million, which did include a higher than normal amount of large case sales. Unum Poland sales in the third quarter were nearly twice the year ago period.
So then moving to Colonial Life. Adjusted operating income for this segment was $102.9 million in the third quarter compared to $117.9 million in the third quarter of 2022. The decrease was driven primarily by higher DAC amortization due to increased lapses. The benefit ratio of 49.1% increased from 48.7% in the year-ago period, but did remain within our expectations.
Colonial premium income of $431.2 million finished 1.9% higher than the prior year, primarily driven by higher sales, partially offset by lower persistency compared to the year ago period. Momentum has been building for Colonial top line growth throughout the year and with the year-to-date premium growth just under 1%, we are positioned to meet our growth outlook for the segment of 1% to 3% for the full year. Sales in the third quarter of $121.3 million increased 4.7% from the prior year with sales across all product lines.
So then in the Closed Block segment, adjusted operating income excluding adjustments related to the Closed Block individual disability reinsurance transaction was $34.2 million compared to $42.1 million in the third quarter of 2022. The decline was driven primarily by higher long-term care benefits experience and a lower long-term care earnings trajectory post assumption update, which I will describe in more detail in a moment.
So quickly wrapping up my commentary on the quarter's financial results, the adjusted operating loss in the corporate segment was $41.5 million compared to a $49.5 million loss in the third quarter of 2022, primarily driven by higher net investment income and lower expenses. For the fourth quarter, we expect the segment's operating loss to remain generally consistent with this level. So reflecting on these results as well as those from the first and second quarter, the first nine months of the year have been very strong and we continue to have confidence in our ability to grow our full year operating earnings per share towards the upper end of our expected range of 20% to 25% over historically reported results.
Now let me dive into the assumption update and provide additional details on updates made to LTC, including the LDTI dynamics that Rick did mention earlier. We completed our annual review assumption in the third quarter with a generally modest impact on financial results. This resulted in a net increase in reserves of $177.2 million or approximately $139.3 million after tax. While most product lines saw changes, this year's assumption updates were highlighted by favorable adjustments in our group disability line and for Colonial Life. For group disability, since last year's GAAP reserve review, continued high levels of performance and investment in our operations give us confidence that current recovery trends are sustainable leading to $121 million favorable adjustment before tax.
For Colonial Life, favorable claims experience as well as lapse trends drove reserve releases of $80.7 million before tax. In addition, with two prior updates to our group disability GAAP recovery assumption in both 2021 and 2022 and the continued favorability we are seeing, we made an update to our statutory reserve recovery assumption, which led to a statutory reserve release of $205 million pre-tax, an incremental source of capital that further boosts our strong financial position.
Moving to LTC. The GAAP assumption updates resulted in an increase in reserves of $368.1 million before tax reflecting strengthening of lapse and mortality assumption in the older age population within the active life reserve, which was partially offset by a refresh of our premium rate increase program. It is important to note that under current GAAP, our LTC reserve update reflects locked-in interest rate assumptions as of year-end 2020. As such, the LTC assumption updates do not reflect changes in interest rate margins since the LDTI adoption date of January 1, 2021. Thus, unlike prior years, changes in interest margins cannot offset changes in liability assumptions for reporting -- financial reporting purposes.
As an example, using a 4.5% 30 year treasury yield as our long-term expectation for new money in setting reserving levels, it would have nearly offset the entire LTC assumption update impact. Furthermore, consideration of today's long-term rates would indicate additional margins. While interest margin is no longer reflected in our GAAP reserve analysis, we will still see the benefit of higher earned portfolio yields compared to the locked-in discount rates as interest margins in earnings over the life of the block. The assumption updates also impacted both the future lifetime loss ratio expectation or net premium ratio and the buffering effects of periodic experience volatility.
The new reserve basis includes an increase of future expected benefits. As a result, the net premium ratio or NPR for the block is now in the low to mid-90s. In addition, we will experience less quarterly buffering driving increased quarterly volatility. These dynamics can be seen in our third quarter results. The quarterly LTC interest adjusted loss ratio was 105.3% compared to the new net premium ratio in the low to mid-90s. This elevated interest adjusted loss ratio was due to claims incidents remaining at a higher level -- higher than expected levels, but were favorable compared to the second quarter. While the overall claims experience in this period was improved from the second quarter, less of the unfavorable impact was buffered in the third quarter.
Given the increase in NPR to the low to mid-90s, we expect GAAP earnings in the Closed Block to be in the $30 million to $40 million range per quarter going forward compared to prior expectations of $45 million to $55 million. To be clear, this assumption update does not impact our plan for capital deployment or lower our expectations of significant margins between our statutory reserves and best estimate of approximately $3 billion at year-end. We remain on track to fully recognize the premium deficiency reserve by year-end without contributing additional capital into Fairwind in the fourth quarter as we have benefited from actions taken to de-risk the block in today's higher rate environment.
And from a subsidiary perspective, First Unum holds a greater proportion of reserves impacted by the underlying assumption updates. As a result, we do expect an increase to our asset adequacy reserve in that entity in the fourth quarter. Therefore, we expect to reallocate $200 million to $300 million of expected capital contributions from Fairwind to First Unum for the full year 2023. Importantly, while this changes the geography of our planned capital contributions, it does not impact our overall capital deployment plans of contributing $800 million to $900 million to LTC for the full year followed by no further contributions as we detailed at our outlook meeting in February.
Moving now to investments. We continue to see a good environment for new money yields and risk management. Purchases made in the quarter were yet again at levels above our earned portfolio yield, which was 4.45% for the first nine months of 2023. In addition, our interest rate hedge program for LTC is performing as expected. Since inception of the program last year, we've now entered into nearly $2.6 billion of treasury forwards, including hedges entered into since quarter-end. Given favorable market conditions, we have expanded the horizon of the hedged cash flows from five to seven years.
In addition, we took the opportunity to further de-risk the balance sheet by selling over $700 million of shorter duration bonds in our LTC portfolio and reinvesting these proceeds in higher credit quality, higher yielding and longer-duration bonds that better match our liability profile. While this was capital neutral, it did generate after tax GAAP realized losses of $35 million in the quarter. While these are prudent risk management and economic decisions, the benefits are not reflected in the current GAAP treatment of interest margins. So to round out the investment discussion, miscellaneous investment income increased in the third quarter to $24 million compared to $18 million a year ago as alternative investment income increased. Income from our alternative invested assets was $22.6 million within our longer-term expectation of $20 million to $25 million.
So I'll wrap up my commentary with an update of our capital position, which remains very strong. The weighted average risk-based capital ratio for our traditional U.S. insurance companies is approximately 470% and holding company liquidity remains robust at $1.2 billion. Capital metrics again benefited in the third quarter from the strong statutory results with statutory after tax operating income of $532.7 million, which includes the impact from the LTD statutory reserve release described earlier. This brings year-to-date statutory after tax operating income to $1.1 billion, which will enhance dividend capacity in 2024.
Our strong cash generation model drives our ability to return capital to shareholders and in the third quarter, we paid $71.4 million in common stock dividends and repurchased 1.5 million shares at a total cost of $74.8 million, an increase to the pace of share repurchase from the first half of the year. As Rick mentioned, the pace will increase again in 2024 as our Board recently authorized a new share repurchase program of $500 million beginning on January 1, 2024. As planned, we contributed $200 million of capital in the Fairwind in the third quarter bringing the full year total to $600 million. Our expectation is that this amount is sufficient to fully recognize the premium deficiency reserve in 2023 without additional capital contributions.
Given the impact of our LTC best estimate assumption changes on the First Unum block, as described earlier, we plan to contribute $200 million to $300 million of capital to First Unum. In total, our 2023 capital contributions to support LTC will total $800 million to $900 million consistent with our expectations coming into the year. Full recognition of the premium deficiency reserve is expected to result in significant excess margin of approximately $3 billion over our updated best estimate for the entire block and supports our plans of not contributing capital for LTC in the coming years.
Our focus in 2023 has been completing the accelerated recognition of the PDR as outlined in our February outlook meeting. Considering our position today with a strong year-to-date earnings, robust capital position and clarity on our premium deficiency reserve balance, we're pleased with our ability to put the PDR funding behind us and to increase free cash flow available for deployment in 2024 and beyond.
Now I'll turn the call back to Rick for his closing comments and I look forward to your questions.
