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Business Acquisitions | 12 Months Ended
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Dec. 31, 2019
Business Combinations [Abstract] |
Business Acquisitions | 2. BUSINESS ACQUISITIONS Navigators Group On May 23, 2019, The Hartford acquired 100% of the outstanding shares of Navigators Group for $70 a share, or $2.121 billion in cash, comprised of cash of $2.098 billion and a liability for cash awards to replace share-based awards of $23. The acquisition of the specialty underwriter expands product offerings and geographic reach, and adds underwriting and industry talent to strengthen the Company’s value proposition to agents and customers. Fair Value of Assets Acquired and Liabilities Assumed at the Acquisition Date
| As of May 23, 2019
Assets |
Cash and invested assets | $ | 3,848 |
Premiums receivable | 492 |
Reinsurance recoverables | 1,100 |
Prepaid reinsurance premiums | 238 |
Other intangible assets | 580 |
Property and equipment | 83 |
Other assets | 99 |
Total Assets Acquired | 6,440 |
Liabilities |
Unpaid losses and loss adjustment expenses | 2,823 |
Unearned premiums | 1,219 |
Long-term debt | 284 |
Deferred income taxes, net | 48 |
Other liabilities | 568 |
Total Liabilities Assumed | 4,942 |
Net identifiable assets acquired | 1,498 |
Goodwill [1] | 623 |
Net Assets Acquired | $ | 2,121 |
[1] Non-deductible for income tax purposes. Intangible Assets Recorded in Connection with the Acquisition
Asset | Amount | Weighted Average Expected Life
Value of in-force contracts - Property and Casualty ("P&C") | $ | 180 |  | 1
Distribution relationships | 302 |  | 15
Trade name | 17 |  | 10
Total finite life intangibles | 499 |  | 10
Capacity of Lloyd's Syndicate | 66 |  |
Licenses | 15 |  |
Total indefinite life intangibles | 81 |  |
Total other intangible assets | $ | 580 |  |
The value of in-force contracts represents the estimated profits relating to the unexpired contracts in force net of related prepaid reinsurance at the acquisition date through expiry of the contracts. The value of distribution relationships was estimated using net cash flows expected to come from the renewals of in-force contracts and new business sold through existing distribution partners less costs to service the related policies. The value of the trade name was estimated using an assumed cost of a market-based royalty fee applied to net cash flows expected to come from business marketed as Navigators, a brand of The Hartford. Lloyd's of London is an insurance market-place operating worldwide ("Lloyd's"). Lloyd's does not underwrite risks. Corporate members accept underwriting risks through the syndicates that they form. The Company accepts risks as the sole corporate member of the Lloyd's Syndicate. The value of the capacity of Lloyd’s Syndicate was estimated using net cash flows attributable to Navigators Group's right to underwrite business up to an approved level of premium in the Lloyd’s market. The values for in-force contracts, the distribution relationships, trade name and the capacity of the Lloyd's Syndicate were estimated using a discounted cash flow method. Significant inputs to the valuation models include estimates of expected new business, premium retention rates, investment returns, claim costs, expenses and discount rates based on a weighted average cost of capital. The value of licenses to write insurance in over 50 U.S. jurisdictions was estimated based on recent transactions for shell companies. Property and equipment includes real estate owned and right of use assets under leases that were valued based on current values and market rental rates, software that was valued based on estimated replacement cost and furniture and equipment. These will be amortized over periods consistent with the Company’s policy. The fair value of unpaid losses and loss adjustment expenses net of related reinsurance recoverables was estimated based on the present value of expected future net unpaid loss and loss adjustment expense payments discounted using a risk-free interest rate as of the acquisition date plus a risk margin. The discount and risk margin amounts substantially offset. Debt assumed in the transaction was valued based on the principal and interest payments discounted at the current market yield. This debt was paid off in August 2019. For further discussion of this transaction, see Note 13 - Debt of Notes to Consolidated Financial Statements. The $623 of goodwill recognized is largely attributable to the acquired employee workforce and underwriting talent, leverageable operating platform, improved investment yield and economies of scale. Goodwill is allocated to the Company's Commercial Lines reporting segment. Immediately after closing on the acquisition of Navigators Group, effective May 23, 2019, the Company purchased an aggregate excess of loss reinsurance agreement covering adverse reserve development (“Navigators ADC”) from National Indemnity Company ("NICO") on behalf of Navigators Insurance Company and certain of its affiliates (collectively, “Navigators Insurers”). Under the Navigators ADC, the Navigators Insurers paid NICO a reinsurance premium of $91 in exchange for reinsurance coverage of $300 of adverse net loss reserve development that attaches $100 above the Navigators Insurers' existing net loss and allocated loss adjustment reserves as of December 31, 2018 subject to the treaty of $1.816 billion for accidents and losses prior to December 31, 2018. In addition to recognizing a $91 before tax charge to earnings in 2019 for the Navigators ADC reinsurance premium, the Company recognized a charge against earnings of $97 before tax in the second quarter of 2019 as a result of a review of Navigators Insurers’ net acquired reserves upon acquisition of the business. Navigators Insurers had previously recognized $52 before tax of adverse reserve development in the first quarter of 2019, including $32 of adverse development subject to the Navigators ADC. As such, reserve development of $97 before tax recognized upon acquisition of the business included $68 remaining of the $100 Navigators ADC retention for 2018 and prior accident years and $29 of adverse reserve development related to the 2019 accident year which is not covered by the Navigators ADC. On 2018 and prior accident year reserves subject to the Navigators ADC, the Company recognized a total of $84 of adverse development in 2019, including the $68 of reserve development recorded upon acquisition of the business. The $84 of prior accident year reserve development was net of a $91 net reinsurance benefit recognized under the Navigators ADC. While the Company has ceded $107 of losses to the ADC through December 31, 2019, which has been recognized as a reinsurance recoverable, $16 of the ceded losses has been recognized as a deferred gain within other liabilities since the Navigators ADC has been accounted for as retroactive reinsurance and cumulative losses ceded of $107 exceed the ceded premium paid of $91. As the Company has ceded $107 of the $300 available limit, there is $193 of remaining limit available as of December 31, 2019. Since the acquisition date of May 23, 2019, the revenues and net losses of the business acquired have been included in the Company's Consolidated Statements of Operations in the Commercial Lines reporting segment with revenues of $1.0 billion and net losses of $167 during the period from the acquisition date to December 31, 2019, including the $91 before tax ($72 net of tax) of premium paid for the Navigators ADC, a charge of $97 before tax ($77 net of tax) for the increase in acquired reserves following the acquisition, a charge of $16 before tax ($13 net of tax) for the deferred gain on retroactive reinsurance and net investment income of $67 before tax ($54 net of tax). The Company recognized $17 of acquisition related costs for the twelve months ended December 31, 2019. These costs are included in insurance operating costs and other expenses in the Consolidated Statement of Operations. The acquisition date fair values of assets and liabilities, including insurance reserves and intangible assets, as well as the related estimated useful lives of intangibles, are provisional and are subject to revision within one year of the acquisition date. The following table presents supplemental unaudited pro forma amounts of revenue and net income for the year ended December 31, 2019 and 2018 for the Company as though the business was acquired on January 1, 2018. Pro forma adjustments include the revenue and earnings of Navigators Group for each period as well as amortization of identifiable intangible assets acquired. Pro Forma Results for the Year Ended December 31
| Revenue | Earnings
2019 Supplemental (unaudited) combined pro forma | $ | 21,416 |  | $ | 2,080 |
2018 Supplemental (unaudited) combined pro forma | $ | 20,398 |  | $ | 1,828 |
Aetna Group Insurance On November 1, 2017, The Hartford acquired Aetna's U.S. group life and disability business through a reinsurance transaction for total consideration of $1.452 billion, comprised of cash of $1.450 billion and share-based awards of $2, and recorded provisional estimates of the fair value of the assets acquired and liabilities assumed. The acquisition enables the Company to increase its market share in the group life and disability industry. In 2018, The Hartford and Aetna agreed on the final assets acquired and liabilities assumed as of the acquisition date and The Hartford finalized its provisional estimates with a final cash settlement within the one year measurement period allowed under U.S. GAAP. As a result, in the third quarter of 2018, The Hartford recorded additional assets and liabilities at fair value of $80 and $80, respectively, with no change in goodwill. The following table presents the preliminary allocation of the purchase price to the assets acquired and liabilities assumed as of the acquisition date, the measurement period adjustments recorded, and the final purchase price allocation. Fair Value of Assets Acquired and Liabilities Assumed at the Acquisition Date
| Preliminary Value as of November 1, 2017 (as previously reported as of December 31, 2017) | Measurement Period Adjustments | As Adjusted Value as of November 1, 2017
Assets |  |  |
Cash and invested assets | $ | 3,360 |  | $ | 45 |  | $ | 3,405 |
Premiums receivable | 96 |  | 7 |  | 103 |
Deferred income taxes, net | 56 |  | 13 |  | 69 |
Other intangible assets | 629 |  | — |  | 629 |
Property and equipment | 68 |  | — |  | 68 |
Reinsurance recoverables | — |  | 31 |  | 31 |
Other assets | 16 |  | (16 | ) | — |
Total Assets Acquired | 4,225 |  | 80 |  | 4,305 |
Liabilities |  |  |
Unpaid losses and loss adjustment expenses | 2,833 |  | 71 |  | 2,904 |
Reserve for future policy benefits payable | 346 |  | 1 |  | 347 |
Other policyholder funds and benefits payable | 245 |  | 1 |  | 246 |
Unearned premiums | 3 |  | 1 |  | 4 |
Other liabilities | 69 |  | 6 |  | 75 |
Total Liabilities Assumed | 3,496 |  | 80 |  | 3,576 |
Net identifiable assets acquired | 729 |  | — |  | 729 |
Goodwill [1] | 723 |  | — |  | 723 |
Net Assets Acquired | $ | 1,452 |  | $ | — |  | $ | 1,452 |
[1] | Approximately $610 is deductible for income tax purposes.
The effect of measurement period adjustments on the Consolidated Statements of Operations for the year ended December 31, 2018 was immaterial and was determined as if the accounting had been completed as of the acquisition date. Intangible Assets Recorded in Connection with the Acquisition
Asset | Amount | Estimated Useful Life
Value of in-force contracts | $ | 23 |  | 1 year
Customer relationships | 590 |  | 15 years
Marketing agreement with Aetna | 16 |  | 15 years
Total | $ | 629 |  |
The value of in-force contracts represents the estimated profits relating to the unexpired contracts in force at the acquisition date through expiry of the contracts. The value of customer relationships was estimated using net cash flows expected to come from the renewals of in-force contracts acquired less costs to service the related policies. The value of the marketing agreement with Aetna was estimated using net cash flows expected to come from incremental new business written during the three years duration of the agreement, less costs to service the related contracts. The value for each of the identifiable intangible assets was estimated using a discounted cash flow method. Significant inputs to the valuation models include estimates of expected premiums, persistency rates, investment returns, claim costs, expenses and discount rates based on a weighted average cost of capital. Property and equipment represents an internally developed integrated absence management software acquired that was valued based on estimated replacement cost. The software is amortized over 5 years on a straight-line basis. Unpaid losses and loss adjustment expenses acquired were recorded at estimated fair value equal to the present value of expected future unpaid loss and loss adjustment expense payments discounted using the net investment yield estimated as of the acquisition date plus a risk margin. The fair value adjustment for the risk margin is amortized over 12 years based on the payout pattern of losses and loss expenses as estimated as of the acquisition date. The revenues and earnings of the business acquired are included in the Company's Consolidated Statements of Operations in the Group Benefits reporting segment and were $370 and $(37) in the year of acquisition, respectively. The $723 of goodwill recognized is largely attributable to the acquired employee workforce, expected expense synergies, economies of scale, and tax benefits not included within the value of identifiable intangibles. Goodwill is allocated to the Company's Group Benefits reporting segment. The Company recognized $17 of acquisition related costs in the year of acquisition. These costs are included in insurance operating costs and other expenses in the Consolidated Statement of Operations. The following table presents supplemental pro forma amounts of revenue and net income for the Company in 2017 as though the business was acquired on January 1, 2016. Pro Forma Results (Unaudited)
| Twelve months ended December 31, 2017 [1]
Total Revenue | $ | 18,899 |
Net Income | $ | (3,077 | )
[1]Pro forma adjustments include the revenue and earnings of the Aetna U.S. group life and disability business as well as amortization of identifiable intangible assets acquired and the fair value adjustment to acquired insurance reserves. Pro forma adjustments do not include retrospective adjustments to defer and amortize acquisition costs as would be recorded under the Company’s accounting policy.

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- Definition The entire disclosure for business combinations, including leverage buyout transactions (as applicable), and divestitures. This may include a description of a business combination or divestiture (or series of individually immaterial business combinations or divestitures) completed during the period, including background, timing, and assets and liabilities recognized and reclassified or sold. This element does not include fixed asset sales and plant closings. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 205 -SubTopic 20 -URI http://asc.fasb.org/subtopic&trid=2122178 Reference 2: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -URI http://asc.fasb.org/topic&trid=2303972 + Details
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