portfolio market risk exposure. The Company’s investments are held for purposes other than trading and consist of diversified issuers and issues.
the rate of interest on these securities and borrowing rates. At December 31, 2004 the insurance subsidiaries’ unused borrowing capacity was $248.1 million. The remaining borrowing capacity will provide an immediately available line of credit. Borrowings aggregated $33.4 million at December 31, 2004, bear interest at adjusted LIBOR, mature twelve months or less from inception and are collateralized by $46.8 million of the Company’s fixed maturity securities. The weighted-average interest rate on borrowings outstanding as of December 31, 2004 was 2.52%.
(5) Under the terms of an employment agreement with James J. Maguire, Philadelphia Insurance’s Chairman, the Company is required to pay a bonus of two million dollars ($2,000,000) in the event that the closing price on any five consecutive trading days prior to May 1, 2009 of Philadelphia Insurance’s common stock is equal to or greater than $80 per share (such price shall be appropriately adjusted in the event of any stock split, stock dividend or stock combinations affecting the shares of Philadelphia Insurance’s common stock generally) and at such time the employee is still an employee of MIA or any affiliate thereof. Notwithstanding the foregoing, if such employment is terminated subsequent to a Hostile Change Of Control, as that term is defined in the employment agreement, then the employee need not be employed by Philadelphia Insurance or an affiliate when the closing price reaches such amount. The employee would also receive such bonus if prior to May 1, 2009 there has been a Hostile Change of Control and subsequent thereto Philadelphia Insurance’s common stock is no longer publicly traded. This payment, if any, has been excluded from the table as the timing of such is uncertain.
Also, in our opinion, management’s assessment, included in the accompanying Management’s Report on Internal Control Over Financial Reporting, that the Company maintained effective internal control over financial reporting as of December 31, 2004 based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), is fairly stated, in all material respects, based on those criteria. Furthermore, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2004, based on criteria established in Internal Control - Integrated Framework issued by the COSO. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express opinions on management’s assessment and on the effectiveness of the Company’s internal control over financial reporting based on our audit. We conducted our audit of internal control over financial reporting in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. An audit of internal control over financial reporting includes obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we consider necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.
The Insurance Subsidiaries are subject to state guaranty fund assessments, which provide for the payment of covered claims or meet other insurance obligations from insurance company insolvencies, and other assessments related to its insurance activities. Each state has enacted legislation establishing guaranty funds and other insurance activity related assessments resulting in a variety of assessment methodologies. Expense for guaranty fund and insurance activity related assessments are recognized when it is probable that an assessment will be imposed, the obligatory event has occurred and the amount of the assessment is reasonably estimatable. As of December 31, 2004 and 2003, included in Other Liabilities in the Consolidated Balance Sheets were $12.4 million and $10.3 million, respectively, of liabilities for state guaranty fund and other assessments. As of December 31, 2004 and 2003, included in other assets were $0.4 million and $0.1 million, respectively, of related assets for premium tax offsets or policy surcharges. The related asset is limited to the amount that is determined based upon future premium collections or policy surcharges from policies in force.
• Under SAP, investments in debt securities are carried at amortized cost, while under GAAP, investments in debt securities classified as Available for Sale are carried at fair value.
The sources of net investment income for the years ended December 31, 2004, 2003, and 2002 are as follows (in thousands):
At December 31, 2004 the Company has open commitments of $2.9 million under certain limited partnership and information technology development agreements.