THG 2018 Annual Report

used in the valuation of fixed maturities, the internally-developed discount rate was adjusted by the significant unobservable inputs shown in the table. DECEMBER 31, 2018 2017 Valuation Significant Fair Range Fair Range (in millions) Technique Unobservable Inputs Value (Wtd Average) Value (Wtd Average) Fixed maturities: Municipal Discounted Discount for: $ 21.1 $ 24.6 cash flow Small issue size 0.7 - 6.8% (3.4%) 0.7 - 6.8% (3.5%) Credit stress 1.3% (1.3%) 0.9 - 1.5% (1.2%) Above-market coupon 0.3 - 0.5% (0.5%) 0.3 - 0.5% (0.4%) Corporate Discounted Discount for: 0.8 0.9 cash flow Small issue size 2.5% (2.5%) 2.5% (2.5%) Above-market coupon 0.3% (0.3%) 0.3% (0.3%) Commercial Discounted Discount for: 13.1 14.2 mortgage-backed cash flow Small issue size 1.9 - 3.1% (2.7%) 1.9 - 3.1% (2.6%) Above-market coupon 0.5% (0.5%) 0.5% (0.5%) Lease structure 0.3% (0.3%) 0.3% (0.3%) Equity securities Market comparables Net tangible asset market multiples 1.1 1.0X (1.0X) 1.1 1.0X (1.0X) Other Discounted cash flow Discount rate 3.5 18.0% (18.0%) 3.6 18.0% (18.0%) Significant increases (decreases) in any of the above inputs in isolation would result in a significantly lower (higher) fair value measurement. There were no interrelationships between these inputs which might magnify or mitigate the effect of changes in unobservable inputs on the fair value measurement. 6. DEBT AND CREDIT ARRANGEMENTS Debt consists of the following: DECEMBER 31 2018 2017 (in millions) $ 375.0 $ 375.0 Senior debentures maturing October 15, 2025 62.6 62.6 Subordinated debentures maturing March 30, 2053 175.0 175.0 Subordinated debentures maturing February 3, 2027 50.1 59.7 FHLB borrowings (secured) 125.0 125.0 Total principal debt 787.7 797.3 Unamortized debt issuance costs (9.8) (10.4) Total $ 777.9 $ 786.9 The Company has outstanding 7.625% unsecured senior debentures with a par value of $62.6 million as of December 31, 2018 and 2017 and mature on October 15, 2025. Additionally, the Company has outstanding unsecured senior debentures that were issued on April 8, 2016 with a par value of $375.0 million, as of December 31, 2018 and 2017 and mature on April 15, 2026. %RWK RI WKH &RPSDQ\¶V outstanding senior debentures are subject to certain restrictive covenants, including limitations on the issuance or disposition of stock of restricted subsidiaries and limitations on liens, and pay interest semi-annually. The Company has outstanding $175.0 million aggregate principal amount of 6.35% subordinated unsecured debentures due March 30, 2053. These debentures pay interest quarterly. The Company may redeem these debentures in whole at any time, or in part from time to time, on or after March 30, 2018, at a redemption price equal to their principal amount plus accrued and unpaid interest. In addition, the &RPSDQ\¶V VXER rdinated debentures maturing February 3, 2027 have a par value of $50.1 million as of December 31, 2018 and $59.7 million as of December 31, 2017 and pay cumulative dividends semi-annually at 8.207%. 102 THE HANOVER INSURANCE GROUP | 2018 ANNUAL REPORT