Discontinued Operations

Sale of life and annuity run-off business

On May 31, 2018, the Company’s wholly-owned subsidiary, Hartford Holdings, Inc. (HHI), completed the sale of its 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 signed December 3, 2017, the investor group formed a limited partnership, Hopmeadow Holdings LP, that acquired Hartford Life, Inc. (HLI), and its life and annuity operating subsidiaries, for cash of approximately $1.4 billion after a pre-closing dividend to The Hartford of $300. The Hartford received 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 reduced its long-term debt by $142 because the debt, which was issued by HLI, was included as part of the sale. Including cash proceeds and the retained equity interest and net of transaction costs, net proceeds for the sale were approximately $1.5 billion. The life and annuity run-off operations met the criteria for reporting as discontinued operations and are reported in the Corporate category through the date of sale.

The Company has recognized a loss on sale within discontinued operations of approximately $3.0 billion including $3.3 billion in the fourth quarter of 2017 and a reduction in loss on sale of $213 in the first six months of 2018. The reduction in loss on sale in 2018 primarily resulted from the reclassification to retained earnings of $193 of tax effects stranded in AOCI due to the accounting for Tax Reform and a $133 increase in estimated retained tax benefits, primarily net operating loss carryovers, partially offset by $104 of operating income from discontinued operations during the period up until the closing date and a reclassification of $10 of net unrealized capital gains 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. The estimated amount of retained net operating loss carryovers depends on the estimated tax basis of the business sold which has increased since the date the Company entered into the sale agreement. At closing, shareholders’ equity was further reduced for the amount of AOCI of the life and annuity run-off business, which was approximately $758 largely consisting of net unrealized gains on investments, net of shadow DAC. The AOCI balance was $1 billion as of December 31, 2017.

Cash inflows and outflows from and to the life and annuity run-off business after closing were immaterial to the overall inflows and outflows the Company. Additionally, the revenues and expenses presented in continuing operations related to pre-disposal operations were immaterial.

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 Hartford reported its 9.7% ownership interest in Hopmeadow Holdings LP in other assets in the Consolidated Balance Sheet, to be accounted for under the equity method. The Hartford will recognize its share of income in other revenues in the Consolidated Statement of Operations. Information about before tax income of Hopmeadow Holdings LP after the disposition and recognition of the Company's share of that income will be reported on a delayed-basis when financial information from the investee becomes available, as private equity partnerships are generally reported on a three-month delay. Before tax income (loss) of Talcott Resolution for the period the business was wholly-owned by the Company was $(9) and $113 for the three and six months ended June 30, 2018 and $143 and $227 for the three and six months ended June 30, 2017.

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



	Carrying Value as of Closing			Carrying Value as of 12/31/2017
Assets
Cash and investments	$	27,058		$	30,135
Reinsurance recoverables	20,718			20,785
Loss accrual [1]	(3,044		)	(3,257		)
Other assets	2,907			1,439
Separate account assets	110,773			115,834
Total assets held for sale	158,412			164,936
Liabilities
Reserve for future policy benefits and unpaid loss and loss adjustment expenses	$	14,308		$	14,482
Other policyholder funds and benefits payable	28,680			29,228
Long-term debt	142			142
Other liabilities	2,222			2,756
Separate account liabilities	110,773			115,834
Total liabilities held for sale	$	156,125		$	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



	Three Months Ended June 30,					Six Months Ended June 30,
	2018			2017		2018			2017
Revenues
Earned premiums	$	12		$	35	$	39		$	70
Fee income and other	150			226		382			448
Net investment income	207			320		519			639
Net realized capital losses	(93		)	21		(72		)	(25		)
Total revenues	276			602		868			1,132
Benefits, losses and expenses
Benefits, losses and loss adjustment expenses	207			346		535			679
Amortization of DAC	17			24		58			43
Insurance operating costs and other expenses [1]	61			89		162			183
Total benefits, losses and expenses	285			459		755			905
Income before income taxes	(9		)	143		113			227
Income tax expense	(6		)	30		9			41
Income from operations of discontinued operations, net of tax	(3		)	113		104			186
Net realized capital gain on disposal, net of tax	151			—		213			—
Income from discontinued operations, net of tax	$	148		$	113	$	317		$	186

[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



	Six Months Ended June 30,
	2018			2017
Net cash provided by operating activities from discontinued operations	$	603		$	525
Net cash provided by (used in) investing activities from discontinued operations	$	463		$	(316	)
Net cash used in financing activities from discontinued operations [1]	$	(737	)	$	(203	)
Cash paid for interest	$	—		$	2

[1] Excludes return of capital to parent of $619 and $299 for the six months ended June 30, 2018 and 2017, respectively.