3. Discontinued Chaucer Business

On September 13, 2018, the Company entered into a definitive agreement to sell Chaucer to China Re, for cash consideration of up to $865 million, consisting of initial consideration of $820 million, payable at closing, and contingent consideration of $45 million to be held in escrow. This contingent consideration may be adjusted downward if catastrophe losses incurred in 2018 are above a certain threshold. The Company anticipates that this transaction will result in a net gain. Several factors will affect the ultimate amount of the net gain recognized at the completion of the transaction, including the future earnings of the Chaucer business, the level of catastrophe losses incurred during 2018, the value of investment securities at closing and various tax attributes. The transaction is anticipated to close late this year or in the first quarter of next year, subject to regulatory approvals and other customary closing conditions. THG has agreed to indemnify China Re for certain litigation, regulatory matters and other liabilities related to pre-closing activities of the business being sold.

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

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
(in millions)	2018			2017			2018			2017
Revenues
Net premiums earned	$	212.4		$	222.5		$	648.2		$	632.4
Net investment income		12.8			13.4			41.7			37.1
Other income		1.9			2.7			5.4			5.0
		227.1			238.6			695.3			674.5
Losses and operating expenses
Losses and LAE		137.0			221.7			364.3			431.7
Amortization of deferred acquisition costs		60.1			63.7			196.7			180.5
Other expenses		26.2			27.0			85.7			81.5
		223.3			312.4			646.7			693.7
Income (loss) from discontinued Chaucer business before income taxes and other items (previously presented as Chaucer's operating income (loss))		3.8			(73.8	)		48.6			(19.2	)
Other items:
Interest expense		(1.5	)		(0.8	)		(2.8	)		(2.4	)
Net realized and unrealized investment gains (losses)		0.1			0.1			(0.4	)		0.7
Expenses related to the anticipated sale of Chaucer		(6.9	)		-			(8.7	)		-
Other income (expense)		(0.2	)		0.7			0.4			2.2
Income (loss) from discontinued Chaucer business before income taxes	$	(4.7	)	$	(73.8	)	$	37.1		$	(18.7	)
Income tax benefit (expense)		1.1			26.6			(6.6	)		10.4
Income (loss) from discontinued Chaucer business, net of income taxes	$	(3.6	)	$	(47.2	)	$	30.5		$	(8.3	)

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.

(in millions)	September 30, 2018		December 31, 2017
Assets:
Investments	$	1,923.4	$	2,153.5
Cash and cash equivalents		133.4		78.5
Accrued investment income		12.7		14.5
Premiums and accounts receivable, net		558.3		471.9
Deferred acquisition costs		121.4		120.2
Reinsurance recoverable on paid and unpaid losses and unearned premiums		1,278.8		1,431.5
Goodwill		13.0		13.8
Other assets		206.2		182.7
Total assets held-for-sale	$	4,247.2	$	4,466.6
Liabilities:
Loss and loss adjustment expense reserves		2,472.5		2,686.5
Unearned premiums		706.7		631.9
Reinsurance premium payable		375.7		293.3
Other liabilities		105.5		95.5
Total liabilities held-for-sale	$	3,660.4	$	3,707.2

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

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
(in millions)	2018			2017			2018		2017
Net cash provided by operating activities	$	60.2		$	39.9		$	46.2	$	68.9
Net cash (used in) provided by investing activities	$	(31.7	)	$	(97.2	)	$	64.3	$	(104.4	)