Discontinued Operations

Sale of life and annuity run-off business

On December 3, 2017, the Company’s wholly-owned subsidiary, Hartford Holdings, Inc. (HHI) entered into a definitive agreement to sell the Company's life and annuity run-off business, to a group of investors led by Cornell Capital LLC, Atlas Merchant Capital LLC, TRB Advisors LP, Global Atlantic Financial Group, Pine Brook and J. Safra Group. Under the terms of the sale agreement, the investor group will form a limited partnership that will acquire Hartford Life, Inc. (HLI), a holding company, and its life and annuity operating subsidiaries, for cash of approximately $1.4 billion after a pre-closing dividend to The Hartford of $300 and The Hartford will receive a 9.7% ownership interest in the limited partnership valued at a cost of $164. In addition, as part of the terms of the sale agreement, The Hartford will reduce its long-term debt by $142 because the debt, which was issued by HLI, will be included as part of the sale. Including cash proceeds and the retained equity interest and net of transaction costs, net proceeds for the sale are approximately $1.5 billion.

The transaction completes The Hartford’s exit from the life and annuity run-off businesses and is anticipated to close by June 30, 2018, subject to regulatory approval and other closing conditions. The life and annuity run-off operations meet the criteria for reporting as discontinued operations and are reported in the Corporate category.

The Company has recognized an estimated loss on sale within discontinued operations of approximately $3.2 billion including $3.3 billion in the fourth quarter of 2017 and a reduction of loss on sale of $62 in the first quarter of 2018. The reduction in loss in the first quarter of 2018 was largely due to the reclassification to retained earnings of $193 of tax effects stranded in AOCI due to the accounting for tax reform, less $107 of operating income from discontinued operations in the first quarter of 2018 and a reclassification of $10 of net unrealized gains net of shadow DAC from AOCI to retained earnings. See Note 1 - Adoption of New Accounting Standards within Basis of Presentation and Significant Accounting Policies, for additional information about the reclassifications from AOCI to retained earnings. Under the agreement, results from the discontinued operations inure to the buyer; therefore, apart from the effect of the reclassification of amounts from AOCI to retained earnings, the loss from discontinued operations during the period between signing and closing will remain largely unchanged as any income earned by the life and annuity run-off business will be offset by a higher loss on sale. At closing, shareholders’ equity will be further reduced for the amount of accumulated other comprehensive income (AOCI) of the life and annuity run-off business, which was approximately $892 and $1 billion as of March 31, 2018 and December 31, 2017, respectively, largely consisting of net unrealized gains on investments, net of shadow DAC.

Following the sale, the Company will manage invested assets of the life and annuity run-off business for an initial term of five years and provide transition services for an estimated period of 12 to 24 months.

The following table summarizes the major classes of assets and liabilities of discontinued operations.

Major Classes of Assets and Liabilities to be Transferred to the Buyer in Connection with the Sale



	Carrying Value as of 3/31/2018			Carrying Value as of 12/31/2017
Assets
Cash and investments	$	29,227		$	30,135
Reinsurance recoverables	20,701			20,785
Loss accrual [1]	(3,195		)	(3,257		)
Other assets	1,425			1,439
Separate account assets	108,393			115,834
Total assets held for sale	156,551			164,936
Liabilities
Reserve for future policy benefits and unpaid loss and loss adjustment expenses	$	14,282		$	14,482
Other policyholder funds and benefits payable	28,921			29,228
Long-term debt	142			142
Other liabilities	2,456			2,756
Separate account liabilities	108,393			115,834
Total liabilities held for sale	$	154,194		$	162,442


[1]	Represents the estimated accrued loss on sale of the Company's life and annuity run-off business.

Reconciliation of the Major Line Items Constituting Pretax Profit (Loss) of Discontinued Operations



	For the periods ended March 31,
	2018		2017
Revenues
Earned premiums	$	27	$	36
Fee income and other	232		223
Net investment income	312		318
Net realized capital losses	21		(45		)
Total revenues	592		532
Benefits, losses and expenses
Benefits, losses and loss adjustment expenses	328		333
Amortization of DAC	41		19
Insurance operating costs and other expenses [1]	101		94
Total benefits, losses and expenses	470		446
Income before income taxes	122		86
Income tax expense	15		11
Income from operations of discontinued operations, net of tax	107		75
Net realized capital gain on disposal, net of tax	62		—
Income from discontinued operations, net of tax	$	169	$	75

[1]Corporate allocated overhead has been included in continuing operations.

Cash flows from discontinued operations included in the Consolidated Statement of Cash Flows were as follows:

Cash Flows from Discontinued Operations



	Three Months Ended March 31,
	2018			2017
Net cash provided by operating activities from discontinued operations	$	267		$	342
Net cash (used in) provided by investing activities from discontinued operations	$	(187	)	$	(467	)
Net cash (used in) provided by financing activities from discontinued operations [1]	$	(340	)	$	105
Cash paid for interest	$	2		$	2

[1] Excludes return of capital to parent of $300 for the three months ended March 31, 2017.