Reinsurance

12 Months Ended

Dec. 31, 2021

Reinsurance activity related to both our premium income and changes in reserves for future benefits are as follows:


	Year Ended December 31
	2021		2020		2019
	(in millions of dollars)
Direct Premium Income	$	9,742.8	$	9,621.9	$	9,576.3
Reinsurance Assumed	90.6		94.1		116.5
Reinsurance Ceded	(352.4)		(337.9)		(327.2)
Net Premium Income	$	9,481.0	$	9,378.1	$	9,365.6

Ceded Benefits and Change in Reserves for Future Benefits	$	862.5	$	628.8	$	650.1

In December 2020, Provident Life and Accident Insurance Company (Provident), The Paul Revere Life Insurance Company (Paul Revere Life), and Unum Life Insurance Company of America (Unum America), wholly-owned domestic insurance subsidiaries of Unum Group and collectively referred to as "the ceding companies", each entered into a separate reinsurance agreements with Commonwealth Annuity and Life Insurance Company (Commonwealth), to reinsure on a coinsurance basis effective as of July 1, 2020 approximately 75 percent of the Closed Block individual disability business, primarily direct business written by the ceding companies. In March 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 of January 1, 2021, a substantial portion of the remaining Closed Block individual disability business that was not ceded in December 2020, primarily business previously assumed by the ceding companies. Commonwealth has established and will maintain collateralized trust accounts for the benefit of the ceding companies to secure its obligations under the relevant reinsurance agreement. In connection with the first phase of the reinsurance transaction which occurred in December 2020, the ceding companies paid a total ceding commission to Commonwealth of $437.7 million and transferred additional assets consisting primarily of fixed maturity securities and cash totaling $6,669.8 million. In connection with the second phase of the reinsurance transaction which occurred in March 2021, Commonwealth paid a total ceding commission to the ceding companies of $18.2 million. Also in connection with the second

phase, the ceding companies transferred additional assets consisting primarily of fixed maturity securities and cash to Commonwealth of $767.0 million.

In December 2020, Provident Life and Casualty Insurance Company (PLC), also a wholly-owned domestic insurance subsidiary of Unum 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). As part of this agreement, PLC received a payment from Commonwealth of approximately $62 million. In March 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 in 2032, Commonwealth will retain the remaining incidence and claims risk on the ALR cohort of the ceded business. Under this volatility cover, annual settlements will be made equal to the difference between the actual and estimated cash flows and reserve changes during the year. Upon expiration of the 12-year period, a terminal settlement will be made based on the final disabled life reserves. As a result of the volatility cover, the reinsurance agreement covering the ALR cohort, does not pass risk transfer requirements under GAAP and is accounted for under the deposit method.

As a result of the reinsurance transaction, we recognized the following items for the first phase in December 2020 and the second phase in March 2021, respectively:

•Net realized investment gains totaling $1,302.3 million and $67.6 million related to the transfer of investments.

•Increase in benefits and change in reserves for future benefits of $1,284.5 million and $133.1 million resulting from the realization of previously unrealized investment gains and losses recorded in accumulated other comprehensive income.

•Transaction costs totaling $21.0 million and $6.2 million.

•Reinsurance recoverable of $6,141.5 million and $990.0 million related to the policies on claim status (DLR cohort).

•Cost of reinsurance, or prepaid reinsurance premium, of $815.7 million and $43.1 million related to the DLR cohort.

•Deposit asset of $88.2 million and $5.0 million related to the ALR cohort.

•Tax benefit of $36.5 million, in connection with the first phase.

•Payable of $307.2 million related to the portfolio of invested assets associated with the business ceded on a modified coinsurance basis, in connection with the second phase.

The cost of reinsurance is amortized over the expected run-off pattern of the ceded reserves for the DLR cohort and we recognized $79.1 million and $2.6 million in amortization expense for 2021 and 2020, respectively. The deposit asset is adjusted over the 12-year period of the volatility cover based on cash flows related to the ALR cohort, settlement payments as determined above, and accretion of interest and will result in an amount equal to the expected disabled life reserve for the ALR cohort at the expiration of the volatility cover. Both the cost of reinsurance and the deposit asset are reported in Other Assets within our Consolidated Balance Sheets.

As of December 31, 2021, Commonwealth accounted for approximately 60 percent of the total reinsurance recoverable and the majority of our total cost of reinsurance. Commonwealth has an A rating by A.M. Best Company (AM Best) and has also established collateralized trust accounts for our benefit to secure its obligations. In addition, nine other major companies, which account for approximately 35 percent of our reinsurance recoverable at December 31, 2021, are also rated A or better by either AM Best or Standard & Poor's Ratings Services (S&P), or are fully securitized by letters of credit or investment-grade fixed maturity securities held in trust. The remaining 5 percent of our reinsurance recoverable is primarily related to business reinsured with other companies also rated A- or better by AM Best or S&P, with overseas entities with equivalent ratings, or backed by letters of credit or trust agreements, or through reinsurance arrangements wherein we retain the assets in our general account. Less than one percent of our reinsurance recoverable is held by companies either rated below A- by AM Best or S&P, or not rated.