Steven A. Zabel
Executive Vice President, Chief Financial Officer at Unum Group
Great. Thank you, Rick, and good morning, everyone. As Rick described, the second quarter was another very good quarter for the company as we benefited from strong operating performance in many parts of our business, particularly across all of our disability lines, where trends support the upper end of our most recent full year after-tax adjusted operating EPS outlook. Disability results in the second quarter were highlighted by strong sales and underwriting performance across the board, including benefit ratios of 59.4% for Unum US group disability, 42.1% for individual disability and 72.3% for Unum UK or in the mid-60s when removing inflationary impacts, all below our long-term expectations. Sales were strong across most areas of the company with our various disability products performing very well. Consolidated sales grew 19.5% across our core operations, highlighted by 20% growth in Unum U.S., including 53.5% in individual disability and 70.2% for Unum International. Core operations premium grew at a healthy rate of 4.6% in the second quarter. Persistency was generally improved from first quarter results and within our expectations. However, most lines were unfavorable relative to prior year. Let's review our quarterly operating results across the segment, beginning with Unum US.
Adjusted operating income in the Unum US segment increased 17.5% to $343.1 million in the second quarter of 2023 compared to $291.9 million in the second quarter of 2022. Results finished significantly above prior year, primarily due to favorable benefits experienced, partially offset by higher operating expenses. The group disability line reported another robust quarter with adjusted operating income of $159.8 million compared to $105.5 million in the second quarter of 2022, with the increase driven by improved incidents, a higher discount rate on new claims and higher earned premium. These drivers contributed to an exceptional benefit ratio of 59.4% for the second quarter. This now marks a full year of the benefit ratio being below our long-term expectations, driven primarily by improving recoveries and incidents. The trailing 12-month group disability benefit ratio is in the low 60s, and it has contributed to strong operating earnings. We continue to expect the full year benefit ratio to be in the low 60s, driven by strong recoveries and incidence levels. Results for Unum US Group Life and AD&D decreased compared to the second quarter of last year, with adjusted operating income of $51.6 million for the second quarter of 2023 compared to $64.7 million in the same period a year ago. The benefit ratio increased to 73% compared to 70.8% in the second quarter of 2022 due to higher underlying claims incident.
The benefit ratio was also at the low end of our expectation due to minimal COVID-related mortality in the current period. Adjusted operating earnings for the Unum US supplemental and voluntary lines in the second quarter were $131.7 million, an increase from $121.7 million in the second quarter of 2022. The increase is driven by strong underlying benefits experience in both the individual disability and voluntary benefits. The individual disability benefit ratio of 42.1% was driven by favorable mortality, while the voluntary benefits results of 39.2% was favorable to prior year, primarily due to favorable reserve development and lapses. Turning to premium trends and drivers. Natural growth, a tailwind for our group products, continued to contribute to strong year-over-year premium growth of 4.5% in Unum US. Sales trends for Unum US were also solid, with sales increasing 20% year-over-year in the second quarter. Persistency for total group at 89.8% remained generally stable in the second quarter with less favorable results within our supplemental and voluntary lines. Now moving to Unum International. The segment experienced exceptional overall earnings results, with adjusted operating income for the second quarter increasing to $43.5 million from $28.1 million in the second quarter of 2022. Adjusted operating income for the Unum UK business improved in the second quarter to GBP34.3 million compared to GBP21.5 million in the second quarter of 2022.
The reported benefit ratio for Unum UK decreased to 72.3% in the second quarter, which compares to 87.9% in the same period a year ago. You may recall, a portion of our policies in the U.K. have an inflation rider, which is backed by inflation-linked gilts. The inflation-linked benefits are capped, but the income we receive from the linked gilts is not, which does benefit earnings levels in periods of very high inflation. When you remove direct inflationary impacts, Unum U.K. adjusted operating income was in the GBP mid-20 million range, reflecting strong underlying claims performance. International premiums continue to show strong growth. Unum UK generated premium growth of 14.5% on a year-over-year basis in the second quarter, while our Poland operation grew 22%. Both businesses continued to generate positive levels of year-over-year sales growth, with Unum UK up 64.3% and Unum Poland up nearly double. Next, adjusted operating income for the Colonial Life segment was $115.5 million in the second quarter compared to $96.6 million in the second quarter of 2022, with the increase driven by favorable benefits, partially offset by higher operating expenses. The benefit ratio of 48.3% improved from 53.8% in the year-ago period and was within our expectations. Colonial premium income of $430.6 million finished slightly higher than prior year, primarily driven by sales momentum, partially offset by lower persistency.
Premium income was higher than our expectation. Expectations is on the full year growth trajectory of 1% to 3%, which we laid out in February. Sales in the second quarter of $122 million increased 3.2% from prior year, primarily driven by healthy agent recruiting and productive small case sales, partially offset by a decrease in new account sales across larger-sized segments. Now in the Closed Block segment, adjusted operating income, excluding adjustments related to the Closed Block individual disability reinsurance transaction, was $51.2 million compared to $86.9 million in the second quarter of 2022. This decline was primarily due to a year-over-year decrease in the segment's miscellaneous net investment income of $32.3 million. This was driven by less favorable income from our alternative asset portfolio year-over-year. For benefits experience, the LTC interest-adjusted loss ratio was 92.4% compared to 84.9% in the year-ago period, driven by higher claims incidents. Claims incidents remained at elevated levels, which also impacted first quarter results, but the favorable climate mortality in the first quarter did not persist in the second quarter. Notably, the monthly trend of new claims improved towards the end of the second quarter and has continued to improve early into the third quarter. The interest adjusted loss ratio on a rolling 12-month basis was 86.6%, which is within our range of expectations.
Wrapping up my commentary on the quarter's financial results, the adjusted operating loss in the Corporate segment was $34.9 million compared to a $36.9 million loss in the second quarter of 2022, primarily driven by higher investment income on shorter-duration corporate-owned assets, a dynamic that should continue while short-term rates remain elevated. Moving now to investments. We continue to see a good environment for new money yields and risk management. Purchases made in the quarter were again at levels above our earned portfolio yield, which is 4.43% for the first six months of 2023. As expected, we experienced net upgrades of high yield to investment-grade fixed maturity securities of $107.5 million and an improvement in the overall portfolio credit quality. In addition, our interest rate hedge program for LTC is performing as expected. Since inception of the program last year, we've entered into nearly $1.9 billion of treasury forwards with more than $300 million closed out and applied to recent bond purchases. Miscellaneous investment income decreased in the second quarter to $21.2 million compared to $57.2 million a year ago, as both traditional bond call premiums and alternative investment income declined. Income from our alternative invested assets was $19.9 million, which is right at the lower end of our long-term expectation of $20 million to $25 million. We continue to be pleased with and benefit from the composition of the portfolio.
As of the end of the second quarter, our total alternative invested assets were valued at just under $1.3 billion, with 41% in private equity partnerships, 37% in real asset partnerships and 22% in private credit partnerships. As we discussed last quarter, our commercial real estate investment portfolio, which is substantially underweight office properties compared to industry averages, is thoughtfully constructed and well positioned to manage through cycles. Our rigorous origination process and multitiered approach to monitoring loan performance and valuations does not waver in volatile periods. Earlier this year, we began an accelerated revaluation process for our office CML portfolio and expect to complete reviews of 100% of our office holdings over the next several months. Currently, with just under half completed, our office LTV has modestly increased and has not meaningfully impacted overall CML LTVs, which remain around 60%. While not immune to secular pressure and rising cap rates, our office loan exposure profile consists of low levels of major metropolitan locations, healthy debt service coverage ratios and very few maturities through 2026. And as a reminder, our office portfolio accounts for just under 18% of our $2.4 billion commercial mortgage loan portfolio. So now I'll end my commentary with an update on our capital position. As expected, our capital levels remain well in excess of our targets and operational needs, offering tremendous protection and flexibility.
The weighted average risk-based capital ratio for our traditional U.S. insurance companies is approximately 450%, and holding company liquidity remains robust at $1.1 billion. We are comfortably on track to end the year at or above our expected levels of 400% RBC and $1.5 billion of holding company liquidity following execution of planned capital deployment. Capital metrics benefited in the second quarter from the strong statutory results, with statutory after-tax operating income of $313.7 million for the second quarter. This puts us on pace for generating well over $1 billion for the full year, which translates to strong free cash flow generation at the holding company in the coming year. Our strong cash generation model drives our ability to return capital to shareholders. And in the second quarter, we paid $65.2 million in common stock dividends and repurchased 1.1 million shares at a total cost of $47 million. We expect to increase the pace of share repurchases in the second half of the year. Other capital plans, such as fully recognizing the premium deficiency reserve by year-end, also remain on track. As planned, we contributed $200 million of capital into our Fairwind subsidiary in the second quarter, which brings the total for the year to $400 million.
As a reminder, we expect to contribute $800 million to $900 million of capital in the Fairwind over the course of the year and fully recognize the premium deficiency reserve. Full recognition of the PDR results in significant excess margin over our current best estimate and supports our plans of not contributing capital in the Fairwind, as we discussed at our outlook meeting. So to close, we're encouraged by the momentum that is built throughout the first half of the year and expect similar operating trends to persist in the second half, driving strong sales, premium and earnings growth across our corporate businesses. For the past 12 months, group disability results have been a focal point in driving higher earnings power, and we expect this to continue for the foreseeable future, supporting our expectation of being at the top end of our outlook for the full year for EPS growth.
Now I'll turn the call back to Rick for his closing comments, and I look forward to your questions.
