THG 2018 Annual Report

borrowing capacity of $90.1 million. There were no borrowings outstanding under this short-term facility at December 31, 2018; however, we have borrowed and may continue to borrow, from time to time, through this facility to provide short-term liquidity. We have a $200.0 million credit agreement which expires in May 2019. Borrowings, if any, under the agreement are unsecured and incur interest at a rate per annum equal to, the higher of (a) the prime commercial lending rate of the administrative agent, (b) the Federal Funds Rate plus half a percent, or (c) the one month Adjusted LIBOR plus one percent and any applicable margin. The agreement contains financial covenants including, but not limited to, maintaining at least specified levels of consolidated equity and leverage ratios, and requires certain of our subsidiaries to maintain minimum RBC ratios. We had no borrowings under this agreement during 2018. At December 31, 2018, we were in compliance with the covenants of our debt and credit agreements. CONTRACTUAL OBLIGATIONS Financing obligations generally include repayment of our senior debentures, subordinated debentures, borrowings from the FHLB, and operating lease payments. The following table represents our annual payments related to the contractual principal and interest payments of these financing obligations as of December 31, 2018, unless otherwise noted, and operating lease payments reflect expected cash payments based upon lease terms. In addition, we also have included our estimated payments related to our loss and LAE obligations and our current expectation of payments to be made to support the obligations of our benefit plans. The following table also includes commitments to purchase investment securities at a future date. Actual payments may differ from the contractual and/or estimated payments in the table. DECEMBER 31, 2018 Maturity less than 1 year Maturity 1-3 years Maturity 4-5 years Maturity in excess of 5 years Total (in millions) Debt (1) $ 125.0 $ ² $ ² $ 662.7 $ 787.7 Interest associated with debt (1) 36.9 73.8 73.8 390.9 575.4 Operating lease commitments (2) 13.5 19.3 8.3 ² 41.1 Defined benefit pension and post-retirement benefit obligation (3) 1.3 2.4 2.3 5.2 11.2 Investment commitments (4) 56.7 69.8 16.5 ² 143.0 Loss and LAE obligations (5) 1,656.0 1,586.3 659.4 1,402.4 5,304.1 (1) Debt included in the maturity less than 1 year category reflects our advances from the FHLB that were repaid on January 2, 2019. No interest payments are provided for this item. Debt in the maturity in excess of 5 years category includes our senior debentures due in 2026, which pay annual interest at a rate of 4.50%, our senior debentures due in 2025, which pay annual interest at a rate of 7.625%, our subordinated debentures due in 2053, which pay annual interest at a rate of 6.35%, and our subordinated debentures due in 2027, which pay cumulative dividends at an annual rate of 8.207%. Payments related to the principal amounts of these agreements represent contractual maturity; therefore, principal and interest associated with these obligations are reflected in the above table based upon the contractual maturity dates. (2) Our subsidiaries are lessees with a number of operating leases. (3) Amounts represent non-qualified defined benefit pension and postretirement benefit obligations and reflect estimated payments to be made through plan year 2028 for pension, postretirement, and postemployment benefits, although it is likely that payments will be made beyond 2028. Estimates of these payments and the payment patterns are based upon historical experience. We do not expect to make any significant contributions to our qualified plan in order to meet our minimum funding requirements for the next several years; therefore, no contributions for this plan are included in this schedule. However, additional contributions may be required in the future based on the level of pension assets and liabilities in future periods. The ultimate payment amount for our pension plan is based on several assumptions, including, but not limited to, the rate of return on plan assets, the discount rate for benefit obligations, mortality experience, interest crediting rates and the ultimate valuation of benefit obligations. Differences between actual plan experience and our assumptions are likely and will likely result in changes to our funding obligations in future periods. (4) Investment commitments relate primarily to limited partnerships. (5) Unlike many other forms of contractual obligations, loss and LAE reserves do not have definitive due dates and the ultimate payment dates are subject to a number of variables and uncertainties. As a result, the total loss and LAE reserve payments to be made by period, as shown in the table, are estimates based principally on historical experience. OFF-BALANCE SHEET ARRANGEMENTS We currently do not have any material off-balance sheet arrangements that are reasonably likely to have an effect on our financial position, revenues, expenses, results of operations, liquidity, capital expenditures, or capital resources. 71 2018 ANNUAL REPORT | THE HANOVER INSURANCE GROUP