The following table provides a reconciliation of stockholders' equity per share to reflect the impact of net unrealized investment gains (losses) after tax:
The table below sets forth the amounts of our contractual obligations, including interest payable, at December 31, 2009:
The fair value of restricted stock awards is measured using the closing price of Zenith National's common stock on the grant date. Compensation expense is recognized ratably over the vesting period for time-based restricted stock awards. For performance-based awards, compensation expense is not recognized until it is probable that the performance criteria will be met. At that time, an expense for the pro-rated amount from the date of grant is recognized with the remaining amount recognized over the remaining vesting period of the awards.
In May 2009, the FASB issued guidance that is consistent with existing auditing standards in defining subsequent events as events or transactions that occur after the balance sheet date but before the financial statements are issued or are available to be issued. This guidance was effective for periods ending after June 15, 2009.
During 2009, net realized gains were reduced by $19.1 million of impairments on certain securities, with a fair value of $19.6 million at the date of impairment, in accordance with our other-than-temporary impairments accounting policy discussed previously. These securities had unrealized losses continually for six months prior to the impairments. Most of these securities, representing $17.2 million of the impairment charge, were sold during 2009 and we realized gains of $1.7 million at the time of sale. At December 31, 2009, we owned only one impaired security with a credit-related impairment of $1.9 million for which the original non-credit related loss recovered to an unrealized gain and is included in other comprehensive income. During 2008, net realized losses included $23.8 million of impairment losses on certain securities, with a fair value of $16.5 million at the date of impairment, in accordance with our other-than-temporary impairments accounting policy at that time. These securities had unrealized losses continually for six months or had issuer-specific credit and equity events prior to the impairment. All of these impaired securities were sold during 2008 and we realized additional losses of $8.4 million at the time of sale. There were no other-than-temporary impairments in 2007.
Level 1 - Valuations based on unadjusted quoted market prices in active markets for identical securities. The fair values of fixed maturity and equity securities and short-term investments included in the Level 1 category were based on quoted prices that were readily and regularly available in an active market. Our Level 1 category includes publicly traded equity securities; highly liquid U.S. Government notes and treasury bills; GNMA's (at December 31, 2008); highly liquid cash management funds; and short-term certificates of deposit.
The following table presents our available-for-sale investments measured at fair value on a recurring basis as of December 31, 2009 and 2008 classified by valuation hierarchy discussed previously:
Property-casualty loss reserves are not discounted in our consolidated financial statements; however, our loss reserves are required to be discounted for tax purposes. Our net deferred tax asset is expected to be fully recoverable because all future deductible amounts associated with deferred tax assets can be offset by recovery of income taxes paid within the statutory carry-back period or anticipated future taxable income, including investment income.
In December 2009, we received the Internal Revenue Service ("IRS") audit report related to the examination of our federal income tax returns filed for years 2005 through 2007. The IRS has proposed adjustments to the timing of our loss reserves deductions that would require us to ultimately pay interest but not additional tax. We are protesting these adjustments to the Appeals Division of the IRS. Any adjustments that may result from the IRS examination of tax returns are not expected to have a material effect on our consolidated financial position, results of operations or cash flows. In addition, tax years 2005 through 2008 are subject to examination by state taxing authorities.
Of the restricted shares outstanding at December 31, 2009, 323,000 shares have nonforfeitable rights to dividends whereby dividends are paid during the restricted period and 75,000 shares have forfeitable rights whereby dividends accumulate during the vesting period and are paid only if the shares vest.
From time to time, Zenith National may make repurchases of its outstanding common shares. At December 31, 2009, Zenith National was authorized to repurchase up to 929,000 shares of its common stock at prevailing market prices pursuant to a share repurchase program authorized by our Board of Directors on February 24, 1998. Any purchases are discretionary and can be adequately funded from Zenith National's existing sources of liquidity. No shares were repurchased under the share repurchase program during the three years ended December 31, 2009.
The California Insurance Holding Company System Regulatory Act limits the ability of Zenith Insurance to pay dividends to Zenith National and for Zenith Insurance to receive dividends from its insurance subsidiary, by providing that the appropriate insurance regulatory authorities in the state of California must approve any dividend that, together with all other such dividends paid during the preceding twelve months, exceeds the greater of: (a) 10% of the paying company's statutory surplus as regards policyholders at the preceding December 31; or (b) 100% of the net income for the preceding year. In addition, any such dividend must be paid from policyholders' surplus attributable to accumulated earnings. Such restrictions on dividends are not cumulative. Zenith Insurance paid dividends to Zenith National of $110.0 million, $95.0 million, and $115.0 million in 2009, 2008, and 2007, respectively. In 2010, $97.9 million can be paid to Zenith National in dividends without prior approval of the California Department of Insurance. Dividend payments from Zenith Insurance to Zenith National must also be in compliance with the California Corporations Code that permit dividends to be paid only out of retained earnings and only if specified ratios between assets and liabilities and between current assets and current liabilities exist after payment. The restrictions on the payment of dividends have not had, and under current regulations are not expected to have, a material adverse impact on the ability to pay dividends.
The insurance business is subject to state-by-state regulation and legislation focused on solvency, pricing, market conduct, claims practices, underwriting, accounting, investment criteria, and other areas. Such regulation and legislation changes frequently. Compliance is essential and is an inherent risk and cost of the business.