We have also experienced some adverse development on our short-tail lines in the periods indicated above, the most significant of which was in 2006, when we strengthened our KRW reserves from accident year 2005 by $105 million. The size and complexity of KRW resulted in claims that increased over previously reported damage estimates.
Our current year loss ratio in 2007 was relatively flat compared with 2006. Although changes in business mix increased our current year ratio in 2007, this was largely offset by lower attritional losses in the year, most notably on our energy onshore account. During 2007, we experienced a shift in business mix from aviation and terrorism lines to our professional lines account. Our professional lines business typically has a higher initial expected loss ratio than our aviation and terrorism lines.
$147 million of net favorable prior period reserve development on our property ($90 million), aviation ($30 million) and marine ($27 million) lines of business, the majority of which have short to medium tail exposures. This development was largely generated from accident years 2007 ($67 million), 2006 ($40 million) and 2005 ($18 million).
While we believe that our reserves for losses and loss expenses are sufficient to pay losses that fall within the coverages we provide, actual losses and loss expenses may be materially greater or less than the reserve provided. Our losses and loss expense reserves are reviewed quarterly, and any adjustments are reflected in earnings in the period in which they become known.
To qualify for hedge accounting treatment, a derivative must be highly effective in mitigating the designated changes in value of the hedged item. Further, the hedge relationship must be designated and formally documented at the inception, detailing the particular risk management objective and strategy for the hedge, including the item and risk that is being hedged, the derivative that is being used, and how effectiveness is being assessed. We formally measure the hedge
The following tables summarize fixed maturities and equities in an unrealized loss position and the aggregate fair value and gross unrealized loss by length of time the security has continuously been in an unrealized loss position:
At December 31, 2008, we held insurance enhanced bonds (mortgage-backed, asset-backed and municipal securities), in the amount of approximately $215 million, which represented approximately 2.4% of our total invested assets. If we exclude the insurance enhancement, the overall credit quality of our insured bond portfolio was an average rating of “Aa2” by Moody’s. The financial guarantors of our $215 million of insurance enhanced bonds include Financial Security Assurance Inc. ($72 million), Ambac Financial Group, Inc. ($60 million), and MBIA Insurance Corporation ($70 million). We do not have any significant investments in companies which guarantee securities at December 31, 2008.
In 2008, we also recorded $65 million of net favorable prior period development on the credit and political risk lines in our insurance segment. This was primarily generated from our credit related classes, partially in recognition of lower than expected loss activity and also due to adopting a more accelerated loss development profile on these lines. We also recognized favorable prior period reserve development from our traditional political risk book of business from accident years 2004 and prior.
During 2008, we granted 2,747,630 restricted shares (2007: 1,596,400; 2006: 1,299,332) to our employees and non-management directors with a weighted average grant-date fair value per share of $37.23 (2007: $33.02; 2006: $31.01), including 1,000,000 shares with a grant date fair value of $35.17 per share to our CEO in connection with an amendment to his employment agreement. The grant made to our CEO will vest as follows: 500,000 shares on January 31, 2009; 166,667 shares on January 1, 2010; 166,667 shares on January 1, 2012; and 166,666 shares on January 1, 2013. We have elected the straight-line recognition method for awards subject to graded vesting based on a service condition.
During 2008, we incurred $67 million (2007: $34 million; 2006: $21 million) in respect of restricted stock, and recorded tax benefits thereon of $7 million (2007: $6 million; 2006: $3 million). The compensation costs incurred in 2008 include $15 million for the above grant made to our CEO, $3 million for modified grants, and $3 million incremental charge associated with the shorter vesting period for certain employees that have reached retirement eligibility under our 2007 Plan. The total fair value of shares vested during 2008 was $24 million (2007: $13 million; 2006: $3 million). At December 31, 2008, there was $84 million of unrecognized compensation cost related to restricted stock awards, which is expected to be recognized over the weighted average period of 2.4 years.