Steven Zabel
Executive Vice President and Chief Financial Officer at Unum Group
Great, thanks, Rick, and good morning to everyone. As Rick mentioned, we were extremely pleased with the strong finish to the year across the board. This caps two years of continued momentum building in our core operating segments. This is evident in both our sales and operating results. For the full-year sales, were up 15.1% in Unum US, 26.7% in Unum International, and 6.2% in Colonial Life, where we saw accelerating growth each quarter, including 11.5% growth in the fourth quarter, compared to the same period a year ago.
Premium for our core operations increased 6.1% in the quarter, compared to a year ago and finished up 5.2% for the full-year, exceeding the expectation laid out last February and more consistent with our long-term expectation. Disability results were favorable across the company as well, highlighted by a group disability benefit ratio of 59.1% for the full-year and 59.5% in the quarter. We do expect benefit ratios in the low-60s to continue in the near to mid-term as we continue to see support for these levels in both our operations and in the market. These same trends are also supporting strong performance in our individual disability and UK Group income protection product lines.
We ended the year with after-tax adjusted operating income at $1.5 billion and after-tax adjusted operating EPS of $7.66, which represents growth of 23.3% over historically reported full-year 2022. The fourth quarter's results of reported after-tax adjusted operating EPS of $1.79 was impacted by two items that I would like to mention. First, the effective tax rate in the fourth quarter was elevated at 22.8%. We expect the long-term rate to be between 21.5% to 22% and vary some from period-to-period due to foreign tax dynamics. The variance in the fourth quarter lowered EPS by approximately $0.03.
Further, Colonial Life benefits were higher by $21.7 million or $0.09 of EPS pressure due to a one-time reserve model refinement. When adjusting for these two items, which represents a better view of underlying earnings power, adjusted operating EPS in the quarter would have been $0.12 higher. The strong earnings power for GAAP was also apparent in our statutory results, with full-year after-tax operating earnings of over $1.3 billion, well ahead of our outlook last year of roughly $1 billion. These results drove significant upside to our original expectation of capital generation and as a result, our capital position.
Topline results were also notable this year with both sales and premium for our core operations outperforming the top end of their outlook ranges at 13.4% and 5.2% respectively. Fourth quarter's results also show that momentum isn't slowing, which we believe will set us up nicely for continued growth in 2024. These strong growth metrics are a testament to the value of our offering in the market and the success we are seeing with our key strategic initiatives that Rick discussed. Investing in these capabilities to grow our core business is a key capital priority, and as a result, the full-year 2023 adjusted operating expense ratio increased to 21.7%, slightly above our expectations coming into the year.
We continue to expect the expense ratio to taper off over time as the impact of our investments take further hold. For full-year 2024, we expect our adjusted operating expense ratio to be slightly lower than 2023. Now let me briefly review our 2023 results by segment. For Unum US, adjusted operating income increased 39.4% to $1.36 billion in 2023, compared to $972.6 million in 2022. As mentioned earlier, these results were bolstered by disability performance with group disability experiencing full-year adjusted operating earnings growth of 56.1% and our individual disability line of business, driving overall supplemental and voluntary growth of 11.7% for the year. Further, group disability ended the year with an ROE of 30.8%.
The Group Life and AD&D lines experienced adjusted operating earnings growth of 94.8% as the impacts from the pandemic waned. The fourth quarter's results of $68 million were the highest since the beginning of the pandemic and were driven by favorable labor experience, lower incidence in AD&D with continued lower mortality results. From a growth perspective, Unum U.S. earned premium grew 5.2% to $6.6 billion due to natural growth, higher sales and solid persistency. This result was in line with our expected premium growth rate of 4% to 6%. Now moving to Unum International, the segment continued to show strong trends in its underlying earnings power, with adjusted operating income of $158.1 million for the year of 18%, compared to the prior year.
Fourth quarter U.K. results were in line with our outlook for adjusted operating earnings levels in the mid-GBP20 million range excluding the impacts of inflation. Inflation has moderated since last year's highs, and we expect this will continue as the environment normalizes, but still benefited the U.K. this quarter by approximately GBP5 million. We are extremely pleased with the growth levels in the UK highlighted by full-year sales growth of 18.6% and premium growth of 11.6% well ahead of our original expectations of 2% to 5% and 2% to 4% respectively. While the UK business is the major driver of this segment, Poland saw significant levels of growth, increasing sales 76% and premium 24.2% for the year. Now turning to Colonial, the segment saw growth return after a couple years of challenged results due to the impacts of the pandemic on our sales process and agent productivity.
Sales growth of 6.2% and premium growth of 1.4% for the full-year does drive optimism for the further growth in 2024 and our ultimate target to return to the high-single-digits level of growth that this segment historically achieved. From an adjusted operating earnings perspective full-year results of $400.1 million were lower than $412.9 million a year ago largely due to a number of unique items throughout the year, including the reserve model refinement in 4Q. That said, full-year ROE was impressive at 18.1% and we expect a high level of earnings power from this line as we enter 2024. Switching gears to the Closed Block of business and focusing on this quarter, adjusted operating earnings of $21.3 million or below our expected run rate of $30 million to $40 million and last quarter's results of $34.2 million, as both long-term care and the remainder of our Closed disability block saw sequential declines.
The net premium ratio which is indicative of the lifetime benefit ratio expectations increased slightly to 93.5% from 93.4% in the third quarter of 2023. Under LDTI, the combination of earnings results and movements in the net premium ratio provides a more comprehensive view of long-term care claims performance, compared to the previously reported interest adjusted loss ratio, which we observed could distort underlying claims experience trends and focus solely on experience in that quarter. Overall underlying claims experience for the Block was largely in line with third quarter.
Incidents remained above long-term expected levels, but has improved from the higher levels seen earlier in 2023. We continue to believe that the elevated incidence rates in 2023 were a function of inventory levels normalizing in the environment following the pandemic. We expect to see a continuation of claims catch up in 2024, albeit at a dissipating rate. Lastly, for the Closed Block, our alternative investment portfolio, which largely backs LTC, produced income of $21.5 million in the quarter. Since inception, our diversified alternative portfolio has produced these returns in line with our long-term expectation of 8% to 10%.
Rounding out the segments, the corporate segment produced a loss of $36.5 million in the quarter and we expect this level loss to continue at slightly higher levels in 2024. So then stepping back 2023 was an incredible year for the company and as we turn to 2024 we see many of the same tailwinds and opportunities to win. So with all that considered it's time to talk about our outlook for this year and I'll start with our view of business growth and earnings power discuss how that plays in the capital generation and then I'll end with a little bit of a discussion on how we're executing on our strategy for long-term care. So just to orient everyone on the slides and make sure that we're following along we're on page seven and I want to kick off this discussion.
I really reflect back to a year ago at our last Outlook meeting and in summary we have delivered what we described last February when we were in New York city and are poised to deliver even stronger performance in 2024. We let off that discussion with a key message and that message was that we have the ability and capacity to chart our course in 2023, and I believe that is even more true as we go into 2024. So four key messages for the outlook discussion. Number one is topline growth. It is very strong and it's fueled by momentum and the digital capabilities that Rick mentioned. Number two, the earning growth rates really stabilizing back to our long-term expected range after two years of very high levels of growth coming out of the pandemic, and specifically some highlights that I'd like to note.
First, group disability is back to pre-pandemic incidence rates with historically favorable levels of recovery. The second thing to note is Group Life is back to pre-pandemic levels of earnings. Third, we have a full recovery of our U.K. business model with double-digit growth rates. And lastly, momentum continuing to build in Colonial Life and the franchise that we have there. The third message for the outlook is we're at an inflection point in free cash flow and that's due to no contributions needed for long-term care in 2024, which will allow us to return more capital to shareholders, while maintaining significant capital buffers and I would end with a key message of our capital generation is really at full strength with all capital metrics well in excess of targets.
Then I'll move on to page eight and I just want to briefly hit on some highlights for top line expectations. We have healthy core businesses, which will deliver strong levels of growth in 2024, but I want to reflect a little bit that we just came off a really good growth story in 2023 in Unum U.S. sales grew 15% with premium growing over 5% in international sales, we're close to 30% premium growing over 14% and in Colonial sales growing at 6.2% with premium close to 1.5% growth. And then I would say the top this all off, we have maintained industry leading margins.
Our secret sauce is really to grow in a disciplined way that is sustainable and leads ultimately to earnings growth and capital generation for future growth and deployment to our shareholders. Moving on to page nine, talk a little bit more about earnings growth. So the top of the house view here is with most of our 2024 metrics they are in or relatively in line with our long-term expectations. Long-term expectations for sales increased as we see the benefits of our investments in technology. We have strong projected earnings growth, despite record levels of earnings power in 2023. It really shows the strength of the franchise.
But what I'm most optimistic about is our premium growth story as we believe that growth rates of our core businesses can surpass the growth we saw in 2023, which was still a year of recovery in some ways. Then transitioning to page 10, talk a little bit about our sources and uses of capital and I'll orient you on the left side of the page around capital generation and really start with statutory earnings. Similar to the GAAP earnings that we just discussed, U.S. Statutory earnings are also projected to be robust. But the one thing just to remind the audience is that these earnings will be available for dividends up to the holding company in the following year or 2025. But 2023 Statutory earnings of over $1.3 billion are available to us this year in 2024.
I'd move next to International dividends. Given the recent performance in the U.K., they are now able to contribute their fair share of earnings through dividends to the holding company. Next, our service agreements. Those are mainly through investment management agreements and they continue to be a strong source of free cash flow to the holding company. And so our capital generation capacity remains strong and in line with our 2023 actuals, but well above last year's outlook. So considering our interest expense expectation of $200 million, our free cash flow generation is a healthy $1.2 billion to $1.4 billion as we move past the period of capital contributions being needed for LTC.
So then we arrive at capital deployment back to our shareholders and that is also increasing significantly with an expected increase in the dividend of 10% to 15%, which we will discuss with our board later this spring and announce in the coming months. And doubling the amount of dollars spent on share repurchase consistent with the authorization we received at the end of last year. I would note that these repurchases in 2024 may not be straight line throughout the year if we do see opportunities in the market to maximize this authorization throughout the year. And then our use of excess capital generated will follow our capital priorities, grow core businesses either through organic investment or inorganically, shareholder dividends and then share repurchase.
So then moving on to slide 11 talk a little bit about capital targets I'm not going to spend too much time here as you will see consistency in our targets and our company performance. 2023 saw capital levels well in excess of our targets and 2024 projections to be similar, providing a substantial financial flexibility. I will add that these levels of flexibility are supportive of our goal of maintaining a single A financial rating. We continue to make progress on that front in 2023 with our upgrade by Fitch towards the end of last year. Okay, let's move on to a few topics regarding long-term care, and I will move to page 13.
So to recap our strategy, we have a focused strategy for managing the Closed Block, which we have progressed and continue to progress, and is focused on three things: creating value; reducing the footprint; and increasing predictability of outcomes. In line with this strategy, we executed on a number of items we teed up as priorities with you in early 2023, and we continue to use a number of actions as we enter 2024. We have continued to mitigate interest rate risk and have done so at the current favorable interest rate environment. By repositioning cash flows and hedging, we've been able to reduce interest rate sensitivity to date by 25% and how we measure that is with a basic DV01 measurement, which is really the dollar duration impact to surplus. So think about the sensitivity of our surplus to 100 basis point movement in prevailing interest rates.
We continue to pursue justified rate increases. Last year we achieved over $450 million in GPV of increases and are nearing $4.5 billion of rate increase value since we started our program. And then we are using our strong capital position to create capital capacity and flexibility, providing the ability to navigate adverse events and creating confidence in our go forward free cash flows. As committed last year, we fully recognized the premium deficiency reserve at year end. This was an important step in protecting our future cash flows, and we will talk more on this in a moment.
And finally, we remain active and will continue to look for risk transfer solutions. So then moving on to page 14, I want to spend a little bit of time talking about our interest rate risk management and really want to cover three topics here. One, discuss where we've been and accomplished over the last year. Two, what the benefit of those actions were. And three, how that has helped to mitigate any capital requirements in a downside interest rate scenario. So first of all, I'll talk about hedging and repositioning and how that's allowed us to better match duration, improve quality and reduce interest sensitivity.
So we kicked off our more recent hedging program at the end of last year. Since then, we have entered into $2.6 billion of notional treasury fords, and those do have an average treasury yield of 4%. And as you know, we look out and take a seven-year horizon and it's really to try to de-risk the yields at which we can invest those cash flows as we look to the near to medium term. Secondly, in the third quarter of last year, we executed on a $700 million repositioning program within the LTC portfolio and the objective of that was really to look at shorter duration assets and de-risk the new money rate that we would be able to invest those on and extend the duration to longer duration assets.
We took the opportunity to do that at a nice place in the interest rate environment. We improved portfolio quality, we increased yield, and we did extend duration with no capital impact. And so the results of that is we were able, as I mentioned, we were able to improve our duration matching measures by 25%, but we also reduced the PDR in Unum America, the sensitivity to interest rate movements by 30%. And that's really demonstrated then in the chart on the right side of the page and so let me explain the table on the right quickly.
It's really the same concept that we used in our investor day materials last year, but I just want to orient you on it. At year-end, the premium deficiency reserve that was recorded was at $1.6 billion, and then the sensitivities that we're showing here are for the 30-year treasury yield and the impact that those would have over time with our new money rate assumption that then is incorporated into our liability discount rate. And so as an example at a 4% assumption, the $1.6 billion of PDR would be reduced by $1.1 billion, assuming that the 4% assumption worked its way all the way into our three-year trailing average that we use for that construct.
So [indecipherable], it really provides flexibility and appropriately manage our LTC commitments. And so I think it's key two concepts here. One, we do have time to adapt as those rates work into our assumption. But I think the other thing that's very important, and we have a note on the page, is that our interest rate management actions have significantly dampened any downside risk of interest rate movements on the PDR and I'll call out the 2% assumption here and highlight the fact that that sensitivity has been reduced by $450 million, because of the actions that we have taken over the last couple years around both hedging and our repositioning of the portfolio.
Alright then I'll move on to page 15. And we wanted to give a little bit more information about both how we think about reserve sufficiency, but also some sensitivities. And so the orientation for this page is we talk about $2.8 billion of protection, what that really represents is our view of our current level of statutory reserves in excess of our view of the best estimate of that liability for the liability that's within Unum America and reinsured to fair win. Plus the excess capital that we have within the fair win entity in excess of those targets that we set. Then when you go to the table, those are really sensitivities independent of that protection where we look at the assumptions built into our best estimate and we look at the dollar amount impact to our best estimate given the sensitivities.
And so specifically, I would say these are liability assumption sensitivities. We addressed interest rate sensitivities on the previous page. So let me walk you through a little bit the sensitivities themselves. So on the premium rate increase, the $1 billion really represents the full amount of value we have currently in our best estimate assumption. And so the sensitivity is to completely remove that. I would say from my perspective, we have had a great track record over the years to be able to deliver on achieving our premium rate targets. In fact, we've already made very good progress in the achievement of that $1 billion just since we've launched the program back in the fall.
Secondly, morbidity and mortality improvement, the assumption within the best estimate reserve is $700 million. And so this sensitivity would be to fully remove that. We do believe, and we've seen over time, improvement in both morbidity and mortality in our experience. So we do believe that, that assumption is backed up by the data and the experience that we've seen, but we've gone ahead just for purposes of the presentation to fully remove that, to give an indication of the size of that assumption. And then we have three more assumptions, which are policy lapse mortality or claim and incidence and our claim resolutions.
We've given sensitivities here down 7.5% for the level of lapses and mortalities, an increase in claim incidence of 3%, and a decrease in claim resolutions mostly due to mortality of 2%. And the way to think about that is that those roughly approximate a one standard deviation difference over the entire life of the business for the sensitivities. And you can see the resultant impacts to our best estimate. The one thing to also remember, though, when it comes to those last three assumptions, it's critical to remember that we still do have the ability to increase our rate increase actions as a form to mitigate those adverse developments and the impact of those additional rate increases are not reflected in these individual liability sensitivities.
So then two other items to note on this page. First of all, excess capital as it emerges, which we do think will emerge in Fairwind over time, it can be used to meet LTC needs across all legal entities. And the point there is we do have the ability over time to make decisions about how to use that excess capital that over time we believe will build in Fairwind. And then the second item note is given our current position along with the PDR balance dynamics described above would be expected to meet the capital needs of the book as it does progress to peak reserves in the next 10-years.
So just to reiterate, under our current assumptions and in a current interest rate environment, the actions we have taken create confidence that future cash flows of the enterprise will be insulated from LTC needs. And then I'll finish off on page 16. So to close this out, let's discuss some key indicators of long-term health of the business. And we look at four metrics. First, the net NPR or net premium ratio. With the shift to LBTI, we believe that NPR provides a long-term outlook for block claim experience. And we will look at the movement in that metric over time. We gave that movement in our comments this quarter, and we'll continue to do that over time.
Secondly, Closed Block earnings. While we expect quarterly volatility, we would expect an annualized run rate in the $130 million to $160 million range in an environment where experience may vary quarter-to-quarter, assuming alternative asset yields are near longer-term ranges.
The third, metric would be rate increase progress, and this is a key element of our strategy, and we monitor progress against our best estimate assumptions. Recall that we increase the scope of the program with our latest assumption review, and so we'll give information over time how we're progressing as a percentage against that best estimate assumption within the reserve liability.
And then lastly, the 30-year treasury rate. And in particular, we will look for the three-year average to remain above the 2.84% rate, which represents the current three-year average. That rate underlines our new money assumption that feeds into our liability discount rate for the premium deficiency reserve. Rates above this would signal a positive impact on the overall discount rate and related balance of the premium deficiency reserve as we represented on page 14 of this stack.
So, to wrap-up, we have very exciting top and bottom line expectations for 2024. We think our financial flexibility has never been stronger and we look forward to the year ahead.
Thank you again for attending today's call and I look forward to your questions. And now I'll turn the call back over to Rick to close.
