UNUM GROUP Executive Summary
Unum Group , aDelaware general business corporation, and its insurance and non-insurance subsidiaries, which collectively withUnum Group we refer to as the Company, operate inthe United States , theUnited Kingdom , Poland and, to a limited extent, in certain other countries. The principal operating subsidiaries inthe United States areUnum Life Insurance Company of America (Unum America ),Provident Life and Accident Insurance Company (Provident),The Paul Revere Life Insurance Company (Paul Revere),Colonial Life & Accident Insurance Company ,Starmount Life Insurance Company , in theUnited Kingdom ,Unum Limited , and inPoland ,Unum Zycie TUiR S.A. (Unum Poland ). We are a leading provider of financial protection benefits inthe United States and theUnited Kingdom . Our products include disability, life, accident, critical illness, dental and vision, and other related services. We market our products primarily through the workplace.
We have three principal operating business segments: Unum US,
The benefits we provide help the working world thrive throughout life's moments and protect people from the financial hardship of illness, injury, or loss of life by providing support when it is needed most. As a leading provider of employee benefits, we offer a broad portfolio of products and services through the workplace. Specifically, we offer group, individual, voluntary, and dental and vision products as well as provide certain fee-based services. These products and services, which can be sold stand-alone or combined with other coverages, help employers of all sizes attract and retain a stronger workforce while protecting the incomes and livelihood of their employees. We believe employer-sponsored benefits are the most effective way to provide workers with access to information and options to protect their financial stability. Working people and their families, particularly those at lower and middle incomes, are perhaps the most vulnerable in today's economy yet are often overlooked by many providers of financial services and products. For many of these people, employer-sponsored benefits are the primary defense against the potentially catastrophic fallout of death, illness, or injury. We have established a corporate culture consistent with the social values our products provide. Because we see important links between the obligations we have to all of our stakeholders, we place a strong emphasis on operating with integrity and contributing to positive change in our communities. Accordingly, we are committed not only to meeting the needs of our customerswho depend on us, but also to being accountable for our actions through sound and consistent business practices, a strong internal compliance program, a comprehensive risk management strategy, and an engaged employee workforce. This discussion and analysis should be read in conjunction with the consolidated financial statements and notes thereto in Part I, Item 1 contained in this Form 10-Q and with the "Cautionary Statement Regarding Forward-Looking Statements" included below the Table of Contents, as well as the discussion, analysis, and consolidated financial statements and notes thereto in Part I, Items 1 and 1A, and Part II, Items 6, 7, 7A, and 8 of our annual report on Form 10-K for the year endedDecember 31, 2020 .
Operating Performance and Capital Management
For the second quarter of 2021, we reported net income of$182.9 million , or$0.89 per diluted common share, compared to net income of$265.5 million , or$1.30 per diluted common share, in the second quarter of 2020. For the first six months of 2021, we reported net income of$335.9 million , or$1.64 per diluted common share, compared to net income of$426.5 million , or$2.10 per diluted common share in the same period of 2020.
Included in our results for the second quarter of 2021 are:
•A net realized investment gain of$0.9 million before tax and$0.6 million after tax, or$0.01 per diluted common share, •Amortization of the cost of reinsurance of$19.7 million before tax and$15.5 million after tax, or$0.08 per diluted common share, •Cost related to the early retirement of debt of$67.3 million before tax and$53.2 million after tax, or$0.26 per diluted common share, 65 -------------------------------------------------------------------------------- •An impairment loss on the right-of-use (ROU) asset related to one of our operating leases of$13.9 million before tax and$11.0 million after tax, or$0.05 per diluted common share, and •Tax expense related to aU.K. tax rate increase of$24.2 million , or$0.12 per diluted common share.
Included in our results for the first six months of 2021 are:
•A net realized investment gain, excluding the net realized investment gain related to the Closed Block individual disability reinsurance transaction, of$17.9 million before tax and$14.2 million after tax, or$0.07 per diluted common share. •Amortization of the cost of reinsurance of$39.7 million before tax and$31.3 million after tax, or$0.16 per diluted common share. •Cost related to the early retirement of debt of$67.3 million before tax and$53.2 million after tax, or$0.26 per diluted common share, •An impairment loss on the ROU asset of$13.9 million before tax and$11.0 million after tax, or$0.05 per diluted common share, •Tax expense related to aU.K. tax rate increase of$24.2 million , or$0.12 per diluted common share, and •The impact from the second phase of the Closed Block individual disability reinsurance transaction that closed in the first quarter of 2021, which resulted in a net loss of$71.7 million before tax and$56.7 million after tax, or$0.27 per diluted common share
Included in our results for the second quarter and first six months of 2020 are:
•Net realized investment gains (losses) of$33.8 million before tax and$25.4 million after tax or$0.12 per diluted common share, and$(110.2) million before tax and$(87.7) million after tax, or$0.43 per diluted common share, respectively, and •An impairment loss on the ROU asset of$12.7 million before tax and$10.0 million after tax, or$0.05 per diluted common share for both the second quarter and first six months of 2020. Adjusting for these items, after-tax adjusted operating income for the second quarter of 2021 was$286.2 million , or$1.39 per diluted common share compared to$250.1 million , or$1.23 per diluted common share, for the same period of 2020. After-tax adjusted operating income was$498.2 million , or$2.43 per diluted common share, in the first six months of 2021, compared to$524.2 million , or$2.58 per diluted common share, in the first six months of 2020. See "Reconciliation of Non-GAAP and Other Financial Measures" contained in this Item 2 for a reconciliation of these items. Our Unum US segment reported a decrease in adjusted operating income of 22.7 percent and 40.2 percent in the second quarter and first six months of 2021, respectively, compared to the same periods of 2020, due primarily to unfavorable benefits experience. The benefit ratio for our Unum US segment was 71.7 percent and 73.0 percent in the second quarter and first six months of 2021, respectively, compared to 68.1 percent and 66.3 percent in second quarter and first six months of 2020. Unum US sales decreased 3.1 percent and 6.9 percent in the second quarter and first six months of 2021, respectively, compared to the same periods of 2020. Overall persistency was higher relative to the prior year period. OurUnum International segment reported an increase in adjusted operating income, as measured inU.S. dollars, of 64.2 percent and 48.4 percent in the second quarter and first six months of 2021, respectively, compared to the same periods of 2020. As measured in local currency, our UnumUK line of business reported an increase in adjusted operating income of 66.3 percent and 48.7 percent in the second quarter and first six months of 2021, respectively, compared to the same periods of 2020 due to higher net investment income and lower operating expenses. Also contributing to the increase in adjusted operating income was higher premium income during the second quarter of 2021 compared to the same period of 2020 and favorable benefits experience during the first six months of 2021 compared to the same period of 2020. The benefit ratio for our UnumUK line of business was 82.5 percent and 79.0 percent in the second quarter and first six months of 2021, respectively, compared to 82.5 percent and 81.5 percent in the same periods of 2020.Unum International sales, as measured inU.S. dollars, increased 10.0 percent and 4.3 percent in the second quarter and first six months of 2021 compared to the same periods of 2020. UnumUK sales, as measured in local currency decreased 3.2 percent and 7.6 percent in the second quarter and first six months of 2021 relative to the same periods of 2020. Overall persistency was higher relative to the prior year period. Our Colonial Life segment reported an increase in adjusted operating income of 5.4 percent in the second quarter of 2021 and a decrease of 1.7 percent in the first six months of 2021, respectively, compared to the same periods of 2020. Impacting the results in each period was a decline in premium income, higher net investment income, unfavorable benefits experience, and lower operating expenses. The benefit ratio for Colonial Life was 51.7 percent and 53.5 percent in the second quarter and first 66 -------------------------------------------------------------------------------- six months of 2021, respectively, compared to 50.7 percent and 51.6 percent in the same periods of 2020. Colonial Life sales increased 53.7 percent and 17.3 percent in the second quarter and first six months of 2021, respectively, compared to the same periods of 2020. Persistency was higher relative to the prior year period. Our Closed Block segment reported income before income tax and net realized investment gains and losses of$91.5 million and$29.2 million in the second quarter and first six months of 2021, which includes the impacts related to the second phase of the Closed Block individual disability reinsurance transaction during the first quarter of 2021 and the amortization of the cost of reinsurance. Excluding these items, our Closed Block segment reported adjusted operating income of$111.2 million and$208.2 million in the second quarter and first six months of 2021 compared to$36.7 million and$66.4 million in the same periods of 2020. The long-term care interest adjusted loss ratio was less favorable in the second quarter and first six months of 2021 relative to the same periods of 2020 but continues to be lower than our long-term expectations. The interest adjusted loss ratio for individual disability, excluding the reserve recognition impact from the reinsurance transaction during the first quarter of 2021, was favorable during the second quarter and first six months of 2021 relative to the same periods of 2020. See "Closed Block Individual Disability Reinsurance Transaction" contained herein for further discussion. Our net investment income yields continue to be pressured by the low interest rate environment as we maintain consistent credit quality in our invested asset portfolio. The net unrealized gain on our fixed maturity securities was$6.6 billion atJune 30, 2021 , compared to$7.6 billion atDecember 31, 2020 , with the decrease due primarily to an increase inU.S. Treasury rates. The earned book yield on our investment portfolio was 4.91 percent for the first six months of 2021 compared to a yield of 4.75 percent for full year 2020. We believe our capital and financial positions are strong. AtJune 30, 2021 , the risk-based capital (RBC) ratio for our traditionalU.S. insurance subsidiaries, calculated on a weighted average basis using the NAIC Company Action Level formula, was approximately 375 percent, which is in line with our expectations. We did not repurchase shares during the first six months of 2021. Our weighted average common shares outstanding, assuming dilution, equaled 205.3 million and 203.7 million for the second quarters of 2021 and 2020, respectively, and 205.0 million and 203.5 million for the first six months of 2021 and 2020, respectively. As ofJune 30, 2021 ,Unum Group and our intermediate holding companies had available holding company liquidity of$1,717 million that was held primarily in bank deposits, commercial paper, money market funds, corporate bonds, and asset-backed securities.
Impairment Loss on Right-of-Use Asset
During the second quarters of 2021 and 2020, we recognized impairment losses of$13.9 million and$12.7 million before tax, respectively, or$11.0 million and$10.0 million after tax, on the ROU asset related to one of our operating leases for office space that we do not plan to continue using to support our general operations. The impairment losses were recorded as a result of a decrease in the fair value of the ROU asset compared to its carrying value. For further information related to the impairment losses on the ROU asset, see Note 12 of the "Notes to Consolidated Financial Statements" contained in Item 1.
Closed Block Individual Disability Reinsurance Transaction
InDecember 2020 , we completed the first phase of a reinsurance transaction, pursuant to which Provident, Paul Revere, andUnum America , wholly-owned domestic insurance subsidiaries ofUnum Group , and collectively referred to as "the ceding companies", each entered into separate reinsurance agreements withCommonwealth Annuity and Life Insurance Company (Commonwealth), to reinsure on a coinsurance basis effective as ofJuly 1, 2020 , approximately 75 percent of the Closed Block individual disability business, primarily direct business written by the ceding companies. OnMarch 31, 2021 , we completed the second phase of the reinsurance transaction, pursuant to which the ceding companies and Commonwealth amended and restated their respective reinsurance agreements to reinsure on a coinsurance and modified coinsurance basis effective as ofJanuary 1, 2021 , a substantial portion of the remaining Closed Block individual disability business that was not ceded inDecember 2020 , primarily business previously assumed by the ceding companies. Commonwealth established and will maintain collateralized trust accounts for the benefit of the ceding companies to secure its obligations under the reinsurance agreements. InDecember 2020 ,Provident Life and Casualty Insurance Company (PLC), also a wholly-owned domestic insurance subsidiary ofUnum 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). OnMarch 31, 2021 , PLC and Commonwealth amended and restated this agreement to incorporate the ALR cohort related to the additional business that was reinsured between the ceding companies and Commonwealth as part of the second phase of the transaction. As part of the amended and restated volatility cover, PLC received a payment from Commonwealth of approximately$18 million . At the end of the 12-year coverage period, 67 --------------------------------------------------------------------------------
Commonwealth will retain the remaining incidence and claims risk on the ALR cohort of the ceded business.
In connection with the second phase of the reinsurance transaction, Commonwealth paid a total ceding commission to the ceding companies of$18.2 million . The ceding companies transferred assets of$767.0 million , which consisted primarily of cash and fixed maturity securities. In addition, we recognized the following in the first quarter of 2021 related to the second phase: •Net realized investment gains totaling$67.6 million , or$53.4 million after tax, related to the transfer of investments. •Increase in benefits and change in reserves for future benefits of$133.1 million , or$105.1 million after tax, resulting from the realization of previously unrealized investment gains and losses recorded in accumulated other comprehensive income. •Transaction costs totaling$6.2 million , or$5.0 million after tax. •Reinsurance recoverable of$990.0 million related to the policies on claim status (DLR cohort). •Payable of$307.2 million related to the portfolio of invested assets associated with the business ceded on a modified coinsurance basis. •Cost of reinsurance, or prepaid reinsurance premium, of$43.1 million related to the DLR cohort. The total cost of reinsurance recognized on a combined basis for the first and second phases was$854.8 million for which we amortized$19.7 million , or$15.5 million after tax, and$39.7 million , or$31.3 million after tax, during the three and six month periods endedJune 30, 2021 , respectively. •Deposit asset of$5.0 million related to the ALR cohort. The total deposit asset recognized on a combined basis for the first and second phases was$91.8 million . We released approximately$200 million of capital during the first quarter of 2021 in addition to the$400 million that was released inDecember 2020 . See Note 12 of the "Notes to Consolidated Financial Statements" contained herein in Item 1 for further discussion on the impacts related to this reinsurance transaction.
2020 Long-term Care Reserve Increase
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 reserve assumptions and determined that our gross policy and claim reserves should be increased by$151.5 million to reflect our current estimate of future benefit obligations. This increase was primarily driven by an update to our interest rate assumption, partially offset by favorable premium rate increase approvals and inventory updates.
OnJanuary 31, 2020 , an official bill was passed formalizing the withdrawal of theU.K. from theEuropean Union (EU). A deal was reached onDecember 24, 2020 on the future trading relationship with the EU. The deal focused primarily on the trading of goods rather than theU.K.'s service sector, which will be subject to further negotiations in 2021 and will focus on financial services and future regulation. In addition, theU.K. government is reviewing the regulatory framework of financial services companies which may result in changes toU.K. regulatory capital orU.K. tax regulations. We do not expect that the underlying operations of ourU.K. business, nor the Polish business which is in the EU, will be significantly impacted by the withdrawal, but it is possible that we may experience some short-term volatility in financial markets, which could impact the fair value of investments, our solvency ratios, or the British pound sterling to dollar exchange rate. Further discussion is contained herein in "Unum International Segment" in this Item 2.
Coronavirus Disease 2019 (COVID-19)
OnMarch 11, 2020 , theWorld Health Organization identified the spread of COVID-19 as a pandemic. COVID-19 has caused significant disruption to the global economy and has unfavorably impacted our company as well as the overall insurance industry. Due to the unprecedented nature of these events and the current pace of change in this environment, we cannot fully estimate the ultimate impact of the COVID-19 pandemic at this time. We are closely monitoring emerging pandemic trends that have and may continue to have adverse impacts on our business. Results of Operations We have experienced a disruption in sales activity related to certain of our product lines due to some potential new customers deferring their purchasing decisions given the current economic environment. If we continue to experience this disruption, our 68 -------------------------------------------------------------------------------- premium income in our principal operating segments may continue to be impacted. In addition, in certain of our product lines, we have seen pressure in the number of lives insured with our customers as they navigate the current environment. With respect to premium collectability, as our outlook regarding the economic environment and the financial condition of our customers has improved, we have begun to reduce the allowance for expected credit losses on our premiums receivable balances that we established during 2020. However, circumstances may deteriorate quickly which could result in the decline of persistency levels and sales growth in the near term, and potentially longer if the current situation persists, which may materially impact our results of operations. We have experienced higher mortality in our life product lines and higher claim incidence in certain of our disability product lines. With respect to our long-term care product line, we have experienced higher claimant mortality. Although our results within these product lines have begun to reflect a return to pre-pandemic levels, we continue to monitor the benefits experience of all our products for trends potentially correlated with COVID-19. For further information on our allowance for expected credit losses see Note 12 of the "Notes to Consolidated Financial Statements" contained herein in Item 1. For further discussion regarding the benefits experience for each of our operating business segments, see "Segment Results" herein in this Item 2.
Financial Condition
Investments
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. Our fixed income 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. Other If we experience unfavorable trends in the above areas of focus, we may also experience certain additional, correlated impacts such as an increase in the amortization of deferred acquisition costs if we have a decline in persistency. We may also be required to write-off or impair certain intangible/long-lived assets such as value of business acquired and goodwill if we experience declines in the overall profitability of our businesses. Furthermore, if the profitability of our businesses declines, we may also be required to establish a valuation allowance regarding the realization of our deferred tax assets.
Liquidity and Capital Resources
We have strengthened our liquidity position through actions such as maintaining a higher level of short-term investments and posting additional collateral from certain of ourU.S. insurance subsidiaries to the regional Federal Home Loan Banks (FHLB). As a result, we believe we have the appropriate liquidity and access to capital to avoid significant disruption to our operations. We have not yet experienced a significant impact to our liquidity as a result of the collection of premiums and submitted claims activity; however, we continually monitor the developments of these items. As ofJune 30, 2021 , we have borrowed$286.6 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 and have additional borrowing capacity of approximately$906 million that can be utilized for liquidity if the need arises. Additionally, we have access to an unsecured revolving credit facility that allows us to borrow up to a total of$500 million . There are currently no outstanding borrowings on this facility, but we remain in compliance with required covenants should we choose to borrow in the future. 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. 69 --------------------------------------------------------------------------------
Business Operations
Other than disruption to sales processes in certain of our product lines, we have not experienced a significant disruption to our operational processes as we have been able to successfully implement our business continuation plans to accommodate remote work arrangements for the safety of our employees and customers. We also have not experienced significant disruption to our financial reporting systems or internal control over financial reporting and disclosure controls and procedures as a result of COVID-19. We have implemented certain travel restrictions on international travel for the safety of our employees and customers, but do not expect those restrictions to significantly disrupt our operations. Consolidated Company Outlook We believe our disciplined approach to providing financial protection products at the workplace puts us in a position of strength. The products and services we provide have never been more important to employers, employees and their families, especially given the COVID-19 pandemic. We continue to fulfill our corporate purpose of helping the working world thrive throughout life's moments by providing excellent service to people at their time of need. Our strategy remains centered on growing our core businesses, through investing and transforming our operations and technology to anticipate and respond to the changing needs of our customers, expand into new adjacent markets through meaningful partnerships and effective deployment of our capital across our portfolio. Given the disruption and uncertainty caused by the COVID-19 pandemic, we expect full year premium income to grow slightly from the prior year, but at a rate that is below our historical levels. In addition, 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 also may continue to experience further volatility in miscellaneous investment income primarily related to changes in partnership net asset values and bond call activity. 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 2 and in the "Notes to Consolidated Financial Statements" contained herein in Item 1.
Reconciliation of Non-GAAP and Other Financial Measures
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 the
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.
Realized investment gains or losses depend on market conditions and do not
necessarily relate to decisions regarding the underlying business of our
segments. Our investment focus is on investment income to support our insurance
liabilities as opposed to the generation of realized investment gains or losses.
Although we may experience realized investment gains or losses which will affect
future earnings levels, a long-term focus is necessary to maintain profitability
over the life of the business since our underlying business is long-term in
nature, and we need to earn the interest rates assumed in calculating our
liabilities.
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As previously discussed, we have exited a substantial portion of our Closed
Block individual disability product line through the two phases of the
reinsurance agreement that were executed in December 2020 and March 2021 ,
respectively. As a result, we exclude the amortization of the cost of
reinsurance that was recognized upon 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. See "Executive Summary" contained herein in Item 2 and Notes 7
and 12 of the "Notes to Consolidated Financial Statements" contained herein in
Item 1 for further discussion regarding the total impacts of the Closed Block
individual disability reinsurance transaction, the amortization of the cost of
reinsurance, the cost related to the early retirement of debt, the impairment
losses on the ROU asset, and the U.K. tax rate increase.
A reconciliation of GAAP financial measures to our non-GAAP financial measures
is as follows:
Three Months Ended June 30
2021 2020
(in millions) per share * (in millions) per share *
Net Income $ 182.9 $ 0.89 $ 265.5 $ 1.30
Excluding:
Net Realized Investment Gain (net of tax
expense of $0.3 ; $8.4 ) 0.6 0.01 25.4 0.12
Amortization of the Cost of Reinsurance (net of
tax benefit of $4.2 ; $-) (15.5) (0.08) - -
Cost Related to Early Retirement of Debt (net
of tax benefit of $14.1 ; $-) (53.2) (0.26) - -
Impairment Loss on ROU Asset (net of tax
benefit of $2.9 ; $2.7 ) (11.0) (0.05) (10.0) (0.05)
Impact of U.K. Tax Rate Increase (24.2) (0.12) - -
After-tax Adjusted Operating Income $ 286.2 $ 1.39 $ 250.1 $ 1.23
* Assuming Dilution
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Six Months Ended June 30
2021 2020
(in millions) per share * (in millions) per share *
Net Income $ 335.9 $ 1.64 $ 426.5 $ 2.10
Excluding:
Net Realized Investment Gains and Losses
Net Realized Investment Gain Related to
Reinsurance Transaction (net of tax expense of
$14.2 ; $-) 53.4 0.26 - -
Net Realized Investment Gain (Loss), Other (net
of tax expense (benefit) of $3.8 ; $(22.5) ) 14.1 0.07 (87.7) (0.43)
Total Net Realized Investment Gain (Loss) 67.5 0.33 (87.7) (0.43)
Items Related to Closed Block Individual
Disability Reinsurance Transaction
Change in Benefit Reserves and Transaction Costs
(net of tax benefit of $29.2 ; $-) (110.1) (0.53) - -
Amortization of the Cost of Reinsurance (net of
tax benefit of $8.4 ; $-) (31.3) (0.16) - -
Total Items Related to Closed Block Individual
Disability Reinsurance Transaction (141.4) (0.69) - -
Cost Related to Early Retirement of Debt (net of
tax benefit of $14.1 ; $-) (53.2) (0.26) - -
Impairment Loss on ROU Asset (net of tax benefit
of $2.9 ; $2.7 ) (11.0) (0.05) (10.0) (0.05)
Impact of U.K. Tax Rate Increase (24.2) (0.12) - -
After-tax Adjusted Operating Income $ 498.2 $ 2.43 $ 524.2 $ 2.58
* Assuming Dilution
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 the amortization of the cost of reinsurance as
well as certain other items as specified in the reconciliations below. 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.
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--------------------------------------------------------------------------------A reconciliation of total revenue to "adjusted operating revenue" and income before income tax to "adjusted operating income" is as follows:
Three Months Ended June 30 Six Months Ended June 30
2021 2020 2021 2020
(in millions of dollars)
Total Revenue $ 2,993.0 $ 3,021.2 $ 6,065.0 $ 5,892.3 Excluding:
Net Realized Investment Gain (Loss) 0.9 33.8 85.5 (110.2) Adjusted Operating Revenue$ 2,992.1 $ 2,987.4 $ 5,979.5 $ 6,002.5 Income Before Income Tax$ 262.6 $ 337.6 $ 461.4 $ 539.7
Excluding:
Net Realized Investment Gains and Losses Net Realized Investment Gain Related to Reinsurance Transaction - - 67.6 - Net Realized Investment Gain (Loss), Other 0.9 33.8 17.9 (110.2) Total Net Realized Investment Gain (Loss) 0.9 33.8 85.5 (110.2) Items Related to Closed Block Individual Disability Reinsurance Transaction Change in Benefit Reserves and Transaction Costs - - (139.3) - Amortization of the Cost of Reinsurance (19.7) - (39.7) - Total Items Related to Closed Block Individual Disability Reinsurance Transaction (19.7) - (179.0) - Cost Related to Early Retirement of Debt (67.3) - (67.3) - Impairment Loss on ROU Asset (13.9) (12.7) (13.9) (12.7) Adjusted Operating Income$ 362.6 $ 316.5 $ 636.1 $ 662.6 Critical Accounting Estimates We prepare our financial statements in accordance with GAAP. The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect amounts reported in our financial statements and accompanying notes. Estimates and assumptions could change in the future as more information becomes known, which could impact the amounts reported and disclosed in our financial statements. The accounting estimates deemed to be most critical to our financial position and results of operations are those related to reserves for policy and contract benefits, deferred acquisition costs, valuation of investments, pension and postretirement benefit plans, income taxes, and contingent liabilities. There have been no significant changes in our critical accounting estimates during the six months endedJune 30, 2021 . For additional information, refer to our significant accounting policies in Note 1 of the "Notes to Consolidated Financial Statements" in Part II, Item 8 and "Critical Accounting Estimates" in Part II, Item 7 of our annual report on Form 10-K for the year endedDecember 31, 2020 .
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