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 $3.1 billion including $3.3 billion in the fourth quarter of 2017 and a reduction in loss on sale of $202 in the first nine 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 $141 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 up to 24 months.

The Hartford reported its 9.7% ownership interest in Hopmeadow Holdings LP in other assets in the Consolidated Balance Sheet, which is accounted for under the equity method. The Hartford recognizes its share of income in other revenues in the Condensed Consolidated Statement of Operations on a three month delay when financial information from the investee becomes available. The Company recognized $2 of income for the three and nine months ended September 30, 2018. The post-sale period amount represents month of June 2018 results as the Company's share of net income is dependent on the availability of financial information from the investee.

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 September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017
Revenues
Earned premiums	$	—		$	27		$	39		$	97
Fee income and other	—			217			382			665
Net investment income	—			326			519			964
Net realized capital gains (losses)	4			(29		)	(68		)	(53		)
Total revenues	4			541			872			1,673
Benefits, losses and expenses
Benefits, losses and loss adjustment expenses	—			356			535			1,036
Amortization of DAC	—			15			58			58
Insurance operating costs and other expenses [1]	(5		)	93			157			275
Total benefits, losses and expenses	(5		)	464			750			1,369
Income before income taxes	9			77			122			304
Income tax expense (benefit)	(7		)	(12		)	2			28
Income from operations of discontinued operations, net of tax	16			89			120			276
Net realized capital gain (loss) on disposal, net of tax	(11		)	—			202			—
Income from discontinued operations, net of tax	$	5		$	89		$	322		$	276

[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



	Nine Months Ended September 30,
	2018			2017
Net cash provided by operating activities from discontinued operations	$	603		$	612
Net cash provided by investing activities from discontinued operations	$	463		$	266
Net cash used in financing activities from discontinued operations [1]	$	(737	)	$	(595	)
Cash paid for interest	$	—		$	2

[1] Excludes return of capital to parent of $619 and $598 for the nine months ended September 30, 2018 and 2017, respectively.