Debt

12 Months Ended

Dec. 31, 2018

13. DEBT

The Company’s long-term debt securities are issued by HFSG Holding Company, and are unsecured obligations of HFSG Holding Company, and rank on a parity with all other unsecured and unsubordinated indebtedness of HFSG Holding Company.

Debt is carried net of discount and issuance cost.

Interest expense on debt is included in the corporate category for segment reporting.

Short-term and Long-term Debt by Issuance



	As of December 31,
	2018			2017
Revolving Credit Facilities	$	—		$	—
Senior Notes and Debentures
6.3% Notes, due 2018	—			320
6.0% Notes, due 2019	413			413
5.5% Notes, due 2020	500			500
5.125% Notes, due 2022	800			800
5.95% Notes, due 2036	300			300
6.625% Notes, due 2040	295			295
6.1% Notes, due 2041	409			409
6.625% Notes, due 2042	178			178
4.4% Notes, due 2048	500			—
4.3% Notes, due 2043	300			300
Junior Subordinated Debentures
7.875% Notes, due 2042	600			600
3 month Libor + 2.125% Notes, due 2067 [1]	500			500
8.125% Notes, due 2068	—			500
Total Notes and Debentures	4,795			5,115
Unamortized discount and debt issuance cost [2]	(117		)	(117		)
Total Debt	4,678			4,998
Less: Current maturities	413			320
Long-Term Debt	$	4,265		$	4,678


[1]	In April 2017, the Company entered into an interest rate swap agreement expiring February 15, 2027 to effectively convert the variable interest payments for this debenture into fixed interest payments of approximately 4.39%.


[2]	The amount primarily consists of $78 and $79 as of December 31, 2018 and 2017, respectively, on the 6.1% Notes, due 2041.

The effective interest rate on the 6.1% senior notes due 2041 is 7.9%. The effective interest rate on the remaining notes does not differ materially from the stated rate. The Company incurred interest expense of $298, $316 and $327 on debt for the years ended December 31, 2018, 2017 and 2016, respectively.

Senior Notes

On March 15, 2018, The Hartford issued $500 of 4.4% senior notes ("4.4% Notes") due March 15, 2048 for net proceeds of approximately $490, after deducting underwriting discounts and expenses from the offering. Interest is payable semi-annually in arrears on March 15 and September 15, commencing September 15, 2018. The Hartford, at its option, can redeem the 4.4% Notes at any time, in whole or in part, at a redemption price equal to the greater of 100% of the principal amount being redeemed or a make-whole amount based on a comparable maturity US Treasury plus 25 basis points, plus any accrued and unpaid interest, except the option of a make-whole payment is not applicable within the final six months before maturity.

On March 15, 2018, The Hartford repaid at maturity the $320 principal amount of its 6.3% senior notes.

Junior Subordinated Debentures

Junior Subordinated Debentures by Issuance



Issue	7.875% Debentures				3 Month Libor + 2.125%
Face Value	$	600			$	500
Interest Rate [1]	7.875		%	[2]	N/A		[3]
Call Date	April 15, 2022				February 15, 2022		[4]
Interest Rate Subsequent to Call Date [2]	3 Month Libor + 5.596%				3 Month Libor + 2.125%		[5]
Final Maturity	April 15, 2042				February 12, 2067


[1]	Interest rate in effect until call date.


[2]	Payable quarterly in arrears.


[3]	Debentures were issued on call date.


[4]	The original call date was February 15, 2017. Replacement Capital Covenant associated with the debenture prohibits the Company from redeeming all or any portion of the notes on or prior to February 15, 2022.


[5]	In April, 2017 the company entered into an interest rate swap agreement expiring February 15, 2027 to effectively convert the interest payments for the 3 month Libor + 2.125% debenture into fixed interest payments of approximately 4.39%.

The debentures are unsecured, subordinated and junior in right of payment and upon liquidation to all of the Company’s existing and future senior indebtedness. In addition, the debentures are effectively subordinated to all of the Company’s subsidiaries’ existing and future indebtedness and other liabilities, including obligations to policyholders. The debentures do not limit the Company’s or the Company’s subsidiaries’ ability to incur additional debt, including debt that ranks senior in right of payment and upon liquidation to the debentures.

The Company has the right to defer interest payments for up to a consecutive ten years without giving rise to an event of default. Deferred interest will continue to accrue and will accrue additional interest at the then applicable interest rate. If the Company defers interest payments, the Company generally may not make payments on or redeem or purchase any shares of its capital stock or any of its debt securities or guarantees that rank upon liquidation, dissolution or winding up equally with or junior to the debentures, subject to certain limited exceptions.

On June 15, 2018, The Hartford redeemed $500 aggregate principal amount of its 8.125% Fixed-to-Floating Rate Junior Subordinated Debentures due 2068. During the initial offering of the 8.125% debentures, the Company entered into a replacement capital covenant ("RCC"), and under the terms of the RCC, if the Company redeemed the 8.125% debentures at any time prior to June 15, 2048 it could only do so with the proceeds from the sale of certain qualifying replacement securities. The 3 month Libor plus 2.125% debentures issued February 15, 2017 are qualifying replacement securities within the definition of RCC. In connection with this redemption, the Company recognized a $6 loss on extinguishment of debt for unamortized deferred debt issuance costs.

The 7.875% and 3 month Libor plus 2.125% debentures may be redeemed in whole prior to the call date upon certain tax or rating agency events, at a price equal to the greater of 100% of the principal amount being redeemed and the applicable make-whole

amount plus any accrued and unpaid interest. The Company may elect to redeem the 7.875% and 3 month Libor plus 2.125% debentures in whole or in part on or after the call date for the principal amount being redeemed plus accrued and unpaid interest to the date of redemption.

In connection with the offering of the three month LIBOR plus 2.125% debenture, the Company entered into a RCC for the benefit of holders of one or more designated series of the Company's indebtedness, initially the Company's 4.3% notes due 2043. Under the terms of the RCC, if the Company redeems the debenture any time prior to February 12, 2047 (or such earlier date on which the RCC terminates by its terms) it can only do so with the proceeds from the sale of certain qualifying replacement securities. The RCC also prohibits the Company from redeeming all or any portion of the notes on or prior to February 15, 2022.

In April, 2017 the company entered into an interest rate swap agreement expiring February 15, 2027 to effectively convert the variable interest payments for the 3 month Libor plus 2.125% debenture into fixed interest payments of approximately 4.39%.

Long-Term Debt

Long-term Debt Maturities (at par value) as of December 31, 2018



2019 - Current maturities	$	413
2020	$	500
2021	$	—
2022	$	800
2023	$	—
Thereafter	$	3,082

Shelf Registrations

On July 29, 2016, the Company filed with the Securities and Exchange Commission (the “SEC”) an automatic shelf registration statement (Registration No. 333-212778) for the potential offering and sale of debt and equity securities. The registration statement allows for the following types of securities to be offered: debt securities, junior subordinated debt securities, preferred stock, common stock, depositary shares, warrants, stock purchase contracts, and stock purchase units. In that The Hartford is a well-known seasoned issuer, as defined in Rule 405 under the Securities Act of 1933, the registration statement went effective immediately upon filing and The Hartford may offer and sell an unlimited amount of securities under the registration statement during the three-year life of the registration statement.

Revolving Credit Facilities

On March 29, 2018, the Company entered into an amendment (the "Amendment") to its Five-Year Credit Agreement dated October 31, 2014. The Amendment reset the level of the Company's minimum consolidated net worth financial covenant to $9 billion, excluding AOCI, from its former $13.5 billion (where net worth was defined as stockholders' equity excluding AOCI and including junior subordinated debt), among other updates. Among other changes, under an amended and restated credit agreement that became effective in June 2018 after the closing of the sale of the Company's life and annuity business, the aggregate

amount of principal of the credit facility decreased from $1 billion to $750, including a reduction to the amount available for letters of credit from $250 to $100, the maturity date was extended to March 29, 2023, and the liens covenant and certain other covenants were modified.

Revolving loans from the Credit Facility may be in multiple currencies. U.S. dollar loans will bear interest at a floating rate equivalent to an indexed rate depending on the type of borrowing and a basis point spread based on The Hartford's credit rating and will mature no later than March 29, 2023. Letters of credit issued from the Credit Facility bear a fee based on The Hartford's credit rating and expire no later than March 29, 2024. The Credit Facility requires the Company to maintain a minimum consolidated net worth, excluding AOCI, of $9 billion, limit the ratio of senior debt to capitalization, excluding AOCI, at 35% and meet other customary covenants. The Credit Facility is for general corporate purposes.

As of December 31, 2018, no borrowings were outstanding, $3 in letters of credit were issued under the Credit Facility and the Company was in compliance with all financial covenants

Commercial Paper

As of December 31, 2018, the Hartford's maximum borrowings available under its commercial paper program was $750 and there was no commercial paper outstanding. The Company is dependent upon market conditions to access short-term financing through the issuance of commercial paper to investors. On July 19, 2018, the Board of Directors revised the Company's commercial paper issuance authorization from $1 billion to $750 to align the program with the Company's $750 five year revolving credit facility which became effective on June 11, 2018.

Collateralized Advances with Federal Home Loan Bank of Boston

In August 2018, the Company’s subsidiaries, Hartford Fire Insurance Company (“Hartford Fire”) and Hartford Life and Accident Insurance Company (“HLA”), became members of the Federal Home Loan Bank of Boston (“FHLBB”). Membership allows these subsidiaries access to collateralized advances, which may be short- or long-term with fixed or variable rates. FHLBB membership required the purchase of member stock and requires additional member stock ownership of 3% or 4% of any amount borrowed. Acceptable forms of collateral include real estate backed fixed maturities and mortgage loans and the amount of advances that can be taken is limited to a percentage of the fair value of the assets that ranges from a high of 97% for US government-backed fixed maturities maturing within 3 years to a low of 40% for A-rated commercial mortgage-backed fixed maturities maturing in 5 years or more. In its consolidated balance sheets, The Hartford would present the liability for advances taken based on use of the funds with advances for general corporate purposes presented in short- or long-term debt and advances to earn incremental investment income presented in other liabilities, consistent with other collateralized financing transactions such as securities lending and repurchase agreements. The Connecticut Department of Insurance (“CTDOI”) permits Hartford Fire and HLA to pledge up to $1.1 billion and $0.6 billion in qualifying assets, respectively, without prior approval, to secure FHLBB advances in 2019. The pledge

limit is determined annually based on statutory admitted assets and capital and surplus of Hartford Fire and HLA, respectively. As of December 31, 2018, there were no advances outstanding under the FHLBB facility.