Discontinued Operations (Tables)

12 Months Ended

Dec. 31, 2018

Components of Estimated Gain From Disposal of Chaucer Business

The following table summarizes the components of the estimated gain related to the sale of the Chaucer business as of December 28, 2018. This gain below excludes an expected gain on the Irish and Australian entities associated with the Chaucer business. The Company subsequently completed the sale of its Chaucer-related Irish entity on February 14, 2019. The sale of the Australian entities is pending, subject only to local regulatory approval, and is expected to close in the first quarter of 2019. The Company received $28 million of additional consideration for the Irish entity, and it expects to receive $13 million of additional consideration related to the Australian entities.

YEAR ENDED DECEMBER 31	2018
(in millions)
Initial consideration received from sale (1)	$	779.0
Adjustment(1)		(17.0	)
Contingent proceeds (1) (2)		31.7
Total cash proceeds expected from sale of Chaucer Holdings Limited (1)		793.7
Less:
Carrying value of Chaucer business (3)		530.0
Transaction and other sale related costs (4)		30.6
Net realized losses on securities, pension and currency translation obligations related to Chaucer business (5)		58.7
Total pre-tax reductions		619.3
Pre-tax gain on sale		174.4
Income tax expense (6)		42.5
Gain on sale	$	131.9

(1) Initial consideration for Chaucer Holdings Limited as determined in the sales and purchase agreement was $779 million.  This amount, along with $28 million in cash proceeds received for the sale of the Irish entity on February 14, 2019, $13 million in cash proceeds to be received upon the closing of the sale of the Australian entities, estimated contingent consideration of $31.7 million, and an $85 million pre-signing dividend from Chaucer that was received in the second quarter of 2018, results in expected total proceeds from the entire transaction of $936.7 million.  These amounts were partially offset by $17.0 million paid to China Re to adjust the purchase price for amounts received by the Company from Chaucer prior to December 28, 2018.

(2) Contingent proceeds, as reflected in the sales and purchase agreement, may be up to $45 million and is determined based upon 2018 catastrophe losses.  Based upon the Company’s best estimate of Chaucer’s 2018 catastrophe losses, expected contingent consideration is $31.7 million.

(3) The carrying value of the Chaucer business reflects its U.S. GAAP book value at December 28, 2018, excluding $7.9 million of U.S.-related deferred tax assets that are no longer likely to be realized and therefore are reflected in the income tax expense category.

(4) Transaction and other sale related costs primarily include brokerage, legal, actuarial, tax and other professional fees, employee retention costs, costs for the purchase of aggregate excess of loss catastrophe coverage in consideration of the contingent proceeds provision, along with certain other miscellaneous charges related to the execution of the transaction.

(5) As part of the transaction, investments held by Chaucer were transferred to China Re resulting in the recognition of net realized investment losses that were previously reflected in accumulated other comprehensive income.  Additionally, Chaucer’s deferred pension obligations and currency translation obligations previously recognized in accumulated other comprehensive income were recognized as losses associated with the transaction.  

(6) The income tax expense represents the current tax obligation on the sale and the derecognition of deferred tax assets that are no longer likely to be realized.

Summary of Carrying Amounts of Major Assets and Liabilities Reflected in Consolidated Balance Sheets

The following table details the carrying amounts of major assets and liabilities reflected in the Consolidated Balance Sheets under the caption “Assets held-for-sale” and “Liabilities held-for-sale”, respectively.

DECEMBER 31	2018		2017
(in millions)
Assets:
Investments	$	24.5	$	2,153.5
Cash and cash equivalents		3.3		78.5
Premiums and accounts receivable, net		2.8		471.9
Deferred acquisition costs		1.4		120.2
Reinsurance recoverable on paid and unpaid losses and unearned premiums		2.3		1,431.5
Goodwill		6.5		13.8
Other assets		16.6		197.2
Total assets	$	57.4	$	4,466.6
Liabilities:
Loss and loss adjustment expense reserves	$	2.0	$	2,686.5
Unearned premiums		7.1		631.9
Reinsurance premium payable		1.5		293.3
Other liabilities		11.6		95.5
Total liabilities	$	22.2	$	3,707.2

Schedule of Effects of Reinsurance

The following table provides the effects of reinsurance.

YEARS ENDED DECEMBER 31	2018			2017			2016
(in millions)
Premiums written:
Direct	$	625.3		$	597.6		$	560.3
Assumed		685.3			646.9			546.3
Ceded (1)		(459.9	)		(395.4	)		(290.5	)
Net premiums written	$	850.7		$	849.1		$	816.1
Premiums earned:
Direct	$	611.9		$	568.7		$	584.0
Assumed		667.2			628.3			577.3
Ceded (1)		(429.1	)		(344.0	)		(322.7	)
Net premiums earned	$	850.0		$	853.0		$	838.6
Losses and LAE:
Direct	$	362.2		$	365.2		$	403.1
Assumed		568.7			570.7			258.8
Ceded (2)		(415.4	)		(386.8	)		(243.2	)
Net losses and LAE	$	515.5		$	549.1		$	418.7

YEARS ENDED DECEMBER 31	2018				2017				2016
(in millions)
Premiums written:
Direct	$	4,816.0			$	4,540.0			$	4,265.7
Assumed		27.6				23.6				25.1
Ceded		(458.8	)			(454.5	)			(408.1	)
Net premiums written	$	4,384.8			$	4,109.1			$	3,882.7
Premiums earned:
Direct	$	4,673.6			$	4,399.9			$	4,162.6
Assumed		26.6				23.6				24.4
Ceded		(445.8	)			(443.1	)			(397.5	)
Net premiums earned	$	4,254.4			$	3,980.4			$	3,789.5
Percentage of assumed to net premiums earned		0.6		%		0.6		%		0.6		%
Losses and LAE:
Direct	$	2,986.2			$	2,934.6			$	2,785.1
Assumed		25.2				20.5				30.6
Ceded (1)		(286.8	)			(375.5	)			(269.7	)
Net losses and LAE	$	2,724.6			$	2,579.6			$	2,546.0

(1) The higher level of ceded losses and LAE in 2017 as compared to 2016 and 2018 is primarily due to higher non-catastrophe large loss activity occurring in certain domestic lines.

Chaucer [Member]

Summary of Discontinued Chaucer Business

Income (loss) from Chaucer Business

The following table summarizes the results of Chaucer’s operations:

YEARS ENDED DECEMBER 31	2018 (1)			2017			2016
(in millions)
Revenues
Net premiums earned	$	850.0		$	853.0		$	838.6
Net investment income		54.9			52.0			45.7
Other income		7.5			6.7			7.1
		912.4			911.7			891.4
Losses and operating expenses
Losses and LAE		515.5			549.5			419.3
Amortization of deferred acquisition costs		252.5			245.9			231.6
Other expenses		115.0			109.2			113.7
		883.0			904.6			764.6
Income from Chaucer business before income taxes and other items     (previously presented as Chaucer's operating income)		29.4			7.1			126.8
Other items:
Interest expense		(3.8	)		(3.3	)		(3.5	)
Net realized and unrealized investment gains (losses)		(1.3	)		2.6			(1.6	)
Other income		0.4			2.2			4.6
Income from Chaucer business before income taxes		24.7			8.6			126.3
Income tax expense		(4.7	)		(21.7	)		(37.2	)
Income (loss) from Chaucer business, net of taxes	$	20.0		$	(13.1	)	$	89.1

(1) 2018 reflects the results of operations for the period in which THG owned Chaucer, which concluded with the sale of the Chaucer business on December 28, 2018.

Summary of Cash Flows Associated with the Discontinued Chaucer Business

The following table details the cash flows associated with the Chaucer business:

DECEMBER 31	2018			2017			2016
(in millions)
Net cash (used in) provided by operating activities		(22.8	)		28.8			95.9
Net cash provided by (used in) investing activities		131.1			(96.9	)		(104.7	)