We own our 45,000 square foot executive offices located in DeRidder, Louisiana. A project to add approximately 12,500 square feet of office space and 3,000 square feet of warehouse space to our existing headquarters building in underway and is scheduled to be completed by the end of 2010. In addition, we lease an additional 12,808 square feet of office space in DeRidder, Louisiana, pursuant to a lease agreement that has been extended for fifteen months to March 31, 2011 at a rental rate of $12,300 per month. We also lease space at other locations for certain of our service and claims representatives.
The following tables summarize certain selected financial data that should be read in conjunction with our audited financial statements and accompanying notes thereto for the year ended December 31, 2009 included in this report and “Item. 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
(7) The net dividend ratio is calculated by dividing policyholder dividends by the current year’s net premiums earned.
(9) Represents our Series C and Series D redeemable preferred stock. In November 2006, 250,000 shares of Series C preferred stock were converted into shares of common stock by the holders in connection with a secondary public offering of our common stock. Effective as of December 31, 2009, we redeemed all then-outstanding shares of Series C and Series D redeemable preferred stock.
One of the key financial measures that we use to evaluate our operating performance is return on average equity. We calculate return on average equity by dividing annual net income by the average of annual shareholders’ equity plus redeemable preferred stock. Our return on average equity was 16.0% in 2009, 17.1% in 2008 and 24.1% in 2007.
The use of reinsurance is an important component of our business strategy. We purchase reinsurance to protect us from the impact of large losses. Our reinsurance program for 2010 includes 16 reinsurers that provide coverage to us in excess of a certain specified loss amount, or retention level. Our 2010 reinsurance program provides us with reinsurance coverage for each loss occurrence up to $50.0 million, subject to applicable deductibles, retentions and aggregate limits. However, for any loss occurrence involving only one claimant, our reinsurance coverage is limited to $10.0 million for any single claimant, subject to applicable deductibles, retentions and aggregate limits. Our 2010 program calls for us to retain the first $1.0 million of each loss. For losses between $1.0 million and $5.0 million, we are subject to an annual aggregate deductible of $20.0 million
For example, for the five-year period ended December 31, 2009 we had recorded 166 severe claims, or an average of 33 severe claims per year for accident years 2005 through 2009. The number of severe claims reported in any one accident year as of December 31, 2009 ranged from a low of 26 in 2008 to a high of 39 in 2007. The average reported severity for these claims ranged from $830,000 for the 2006 accident year to $1.3 million for the 2009 accident year. For the five accident years, these severe claims by themselves accounted for an average of 11.8 percentage points of our overall loss and loss adjustment expense (“LAE”) ratio, measured at December 31, 2009.
impacted by external forces, principally frequency and severity of unreported claims, length of time to achieve ultimate settlement of claims, inflation in medical costs and wages, insurance policy coverage interpretations, jury determinations and legislative changes. Accordingly, our reserves may prove to be inadequate to cover our actual losses. If we change our estimates, these changes would be reflected in our results of operations during the period in which they are made, with increases in our reserves resulting in decreases in our earnings.
Our gross reserves for loss and loss adjustment expenses at December 31, 2009, 2008 and 2007 were $534.7 million, $531.3 million and $537.4 million, respectively. As a percentage of gross reserves at year end, IBNR represented 20.9% in 2009, 26.2% in 2008 and 23.8% in 2007.
The workers’ compensation insurance industry is cyclical in nature and influenced by many factors, including price competition, medical cost increases, natural and man-made disasters, changes in interest rates, changes in state laws and regulations, and general economic conditions. A hard market cycle in our industry is characterized by decreased competition that results in higher premium rates, more restrictive policy coverage terms, and lower commissions paid to agencies. In contrast, a soft market cycle is characterized by increased competition that results in lower premium rates, expanded policy coverage terms, and higher commissions paid to agencies. We believe that the workers’ compensation insurance industry is in a soft market cycle. Our strategy in a soft market is to focus on maintaining underwriting profitability, even if this results in premium contraction.
Premiums are earned on a daily pro rata basis over the term of the policy. At the end of each reporting period, premiums written that are not earned are classified as unearned premiums and are earned in subsequent periods over the remaining term of the policy. Our insurance policies typically have a term of one year. Thus, for a one-year policy written on July 1, 2009 for an employer with constant payroll during the term of the policy, we would earn half of the premiums in 2009 and the other half in 2010. On a monthly basis, we also recognize net premiums earned from mandatory pooling arrangements.
Net Investment Income and Net Realized Gains and Losses on Investments. We invest our statutory surplus funds and the funds supporting our insurance liabilities in fixed maturity and equity securities. In addition, a portion of these funds are held in cash and cash equivalents to pay current claims. Our net investment income includes interest and dividends earned on our invested assets, and amortization of premiums and discounts on our fixed-maturity securities. We assess the performance of our investment portfolio using a standard tax equivalent yield metric. Investment income that is tax-exempt is increased by our marginal federal tax rate of 35% to express yield on tax-exempt securities on the same basis as taxable securities. Net realized gains and losses on our investments are reported separately from our net investment income. Net realized gains occur when our investment securities are sold for more than their costs or amortized costs, as applicable. Net realized losses occur when our investment securities are sold for less than their costs or amortized costs, as applicable, or are written down as a result of other-than-temporary impairment. We classify our fixed maturity securities as held-to-maturity and our equity securities as available-for-sale. Net unrealized gains or losses on our equity securities are reported separately within accumulated other comprehensive income on our balance sheet.
costs include general and administrative expenses, excluding commissions and salaries and benefits, incurred at both the insurance company and corporate level.
In establishing our reserves, we review the results of analyses using actuarial methods that utilize historical loss data from our more than 24 years of underwriting workers’ compensation insurance. The actuarial analysis of our historical data provides the factors we use in estimating our loss reserves. These factors are primarily
Net Investment Income. Net investment income in 2009 was $28.0 million, compared to $31.0 million in 2008, a decrease of 9.6%. The change was attributable to a decrease in the tax-equivalent yield on our investment portfolio to 3.7% per annum for 2009 from 5.3% per annum for 2008. The pre-tax investment yield on our investment portfolio was 3.5% per annum for 2009, compared to 4.0% per annum for 2008. Average invested assets, including cash and cash equivalents, increased 4.3%, from a monthly average of $778.4 million for 2008 to a monthly average of $811.9 million for 2009.
from $1.7 million in gains from the sale of certain equities and $0.3 million in gains from the sale of one asset-backed security. Net realized losses in 2008 were attributable to $1.6 million in realized losses, primarily on the sale of equity securities, and $17.3 million in other-than-temporary impairments of certain equities and asset-backed securities.
Interest expense. Interest expense for 2009 was $1.8 million, compared to $2.5 million for 2008. Weighted average borrowings for both periods were $36.1 million. The weighted average interest rate decreased to 4.9% per annum for 2009 from 7.2% per annum for 2008.
Income tax expense. Income tax expense for 2009 was $15.9 million, compared to $20.2 million for 2008. The decrease was primarily attributable to a decrease in our effective tax rate to 25.5% for 2009, compared to 31.6% for 2008. The rate decrease included a $0.7 million expense reduction in 2009 for the change in valuation allowance for deferred tax assets related to unrealized losses on our investment portfolio. In 2008, the effective rate included a $3.0 million expense for deferred tax assets related to unrealized losses on our investment portfolio. In addition, pre-tax income decreased $1.7 million, from $64.1 million for 2008 to $62.4 million for 2009, lowering our income tax expense.
Net Investment Income. Net investment income in 2008 was $31.0 million, compared to $30.2 million in 2007, an increase of 2.6%. The change was attributable to a 9.2% increase in our average invested assets,
Net Realized Gains (Losses) on Investments. Net realized losses on investments in 2008 totaled $18.9 million, compared to gains of $0.1 million in 2007. Net realized losses in 2008 were attributable to $1.6 million in realized losses, primarily on the sale of equity securities, and $17.3 million in other-than-temporary impairments of certain equities and asset-backed securities. Other-than-temporary impairments are discussed below in “Investment Portfolio.” Net realized gains in 2007 were the result of sales of equity securities and calls on fixed maturity securities.
Underwriting and Certain Other Operating Costs, Commissions and Salaries and Benefits. Underwriting and certain other operating costs, commissions and salaries and benefits for 2008 were $55.9 million, compared to $65.5 million for 2007, a decrease of 14.6%. This decrease was primarily due to $9.5 million of experience-rated commissions from our 2008 reinsurance agreement, covering the $4 million excess of $1 million reinsured layer. This $9.5 million is recorded as an offset to expenses. Additionally, we realized a $4.4 million decrease in insurance-related assessments. Offsetting these expense decreases, accounts receivable write-offs increased $2.2 million, salary and benefits increased $1.5 million and commissions increased $0.2 million. Our underwriting expense ratio declined from 21.3% in 2007 to 19.3% in 2008.
Interest Expense. Interest expense for 2008 was $2.5 million, compared to $3.5 million for 2007. Weighted average borrowings for both periods were $36.1 million. The weighted average interest rate decreased to 7.2% per annum for 2008 from 9.4% per annum for 2007.
We forecast claim payments based on our historical trends. We seek to manage the funding of claim payments by actively managing available cash and forecasting cash flows on a short-and long-term basis. Cash payments, net of reinsurance, for claims were $163.8 million in 2009, $164.2 million in 2008 and $148.4 million in 2007. We fund claim payments out of cash flow from operations, principally premiums, net of amounts ceded to our reinsurers, and net investment income. Our investment portfolio has increased from $582.9 million at December 31, 2005 to $800.5 million at December 31, 2009. We do not presently anticipate selling securities in
Net cash provided by operating activities was $27.3 million in 2009, as compared to $64.9 million in 2008, and $100.4 million in 2007. Major components of cash provided by operating activities in 2009 were net premiums collected of $239.7 million, investment income collected of $32.1 million and amounts recovered from reinsurers of $5.4 million, offset by claim payments of $171.1 million, $59.1 million of operating expenditures, federal taxes paid of $18.8 million, and dividends to policyholders paid of $1.0 million. Major components of cash provided by operating activities in 2008 were net premiums collected of $282.3 million, investment income collected of $33.7 million and amounts recovered from reinsurers of $20.4 million, offset by claim payments of $183.4 million, $58.6 million of operating expenditures, federal taxes paid of $25.0 million, and dividends to policyholders paid of $4.5 million. Major components of cash provided by operating activities in 2007 were net premiums collected of $299.1 million, investment income collected of $31.9 million and amounts recovered from reinsurers of $33.7 million, offset by claim payments of $181.8 million, operating expenditures of $63.6 million and federal taxes paid of $19.6 million.
In 2008, we commuted certain reinsurance agreements which resulted in pre-tax income of approximately $2.2 million. In total, we received $17.6 million in cash from commutations in 2008. The majority of that cash has been invested in tax-exempt fixed maturity securities.
obligations of the U.S. corporations, U.S. agency-based mortgage-backed securities, commercial mortgage-backed securities and asset-backed securities. Our equity securities principally consist of three value-based exchange traded funds.
(1) Equity securities represented 5.5% of shareholders’ equity as of December 31, 2009.
We reviewed all securities with unrealized losses in accordance with the impairment policy described above. We determined that the unrealized losses in the fixed maturity securities portfolio related primarily to
The pre-tax investment yield on our investment portfolio was 3.5% per annum during the twelve months ended December 31, 2009, compared to 4.0% per annum during the same period in 2008.
The Company recorded favorable prior accident year loss and loss adjustment expense development of $21.9 million in 2009 and $20.4 million in 2008. The table below sets forth the favorable or unfavorable development for accident years 2004 through 2008 and, collectively, all accident years prior to 2004.
The table below sets forth the number of open claims as of December 31, 2009, 2008 and 2007, and the numbers of claims reported and closed during the years then ended.
We manage risk on certain long-duration claims by settling these claims through the purchase of annuities from unaffiliated life insurance companies. In the event these companies are unable to meet their obligations under these annuity contracts, we could be liable to the claimants, but our reinsurers remain obligated to indemnify us for all or part of these obligations in accordance with the terms of our reinsurance contracts. As of December 31, 2009, the present value of these annuities was $89.4 million, as estimated by our annuity providers. Substantially all of the annuities are issued or guaranteed by life insurance companies that have an A.M. Best rating of “A” (Excellent) or better. For additional information, see Note 17 to our consolidated financial statements in Item 8 of this report.
We lease equipment and office space under noncancelable operating leases. Future minimum lease payments at December 31, 2009, were as follows:
The table below provides information with respect to our long-term debt and contractual commitments as of December 31, 2009.
(2) The loss and loss adjustment expense payments due by period in the table above are based upon the loss and loss adjustment expense estimates as of December 31, 2009 and actuarial estimates of expected payout patterns and are not contractual liabilities as to a time certain. Our contractual liability is to provide benefits under the policy. As a result, our calculation of loss and loss adjustment expense payments due by period is subject to the same uncertainties associated with determining the level of loss and loss adjustment expenses generally and to the additional uncertainties arising from the difficulty of predicting when claims (including claims that have not yet been reported to us) will be paid. For a discussion of our loss and loss adjustment expense process, see “Business-Loss Reserves” in Item 1 of this report. Actual payments of loss and loss adjustment expenses by period will vary, perhaps materially, from the amounts shown in the table above to the extent that current estimates of loss and loss adjustment expenses vary from actual ultimate claims amounts and as a result of variations between expected and actual payout patterns. See “Risk Factors- Risks Related to Our Business-Our loss reserves are based on estimates and may be inadequate to cover our actual losses” in Item 1A of this report for a discussion of the uncertainties associated with estimating loss and loss adjustment expenses.
(3) We are subject to various annual assessments imposed by certain of the states in which we write insurance policies. These assessments are generally based upon the amount of premiums written or losses paid during the applicable year. Assessments based on premiums are generally paid within one year after the calendar year in which the policies are written, while assessments based on losses are generally paid within one year
after the loss is paid. When we establish a reserve for loss and loss adjustment expenses for a reported claim, we accrue our obligation to pay any applicable assessments. If settlement of the claim is to be paid out over more than one year, our obligation to pay any related loss-based assessments extends for the same period of time. Because our reserves for loss and loss adjustment expenses are based on estimates, our accruals for loss-based insurance assessments are also based on estimates. Actual payments of loss and loss adjustment expenses may differ, perhaps materially, from our reserves. Accordingly, our actual loss-based insurance assessments may vary, perhaps materially, from our accruals.
We have audited the accompanying consolidated balance sheets of AMERISAFE, Inc. and Subsidiaries as of December 31, 2009 and 2008, and the related consolidated statements of income, changes in shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2009. Our audits also include the financial statement schedules listed in the Index at Item 15. These financial statements and schedules are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedules based on our audits.
The Company regularly reviews the fair value of its investments. Impairment of an investment security results in a reduction of the carrying value of the security and the realization of a loss when the fair value of the security declines below the cost or amortized cost, as applicable, for the security and the impairment is deemed to be other-than-temporary. The Company regularly reviews its investment portfolio to evaluate the existence of other-than-temporary declines in the fair value of investments. The Company considers various factors in determining if a decline in the fair value of an individual security is other-than-temporary, including but not limited to a reduction or interruption in scheduled cash flows, the financial condition of the issuer, how long and how much the fair value has been below amortized cost, downgrades, and the Company’s intent to sell or ability to hold the security.
Cash equivalents include commercial paper, pooled short-term money market funds, municipal securities with an original maturity of three months or less and certificates of deposit with an original maturity of three months or less.
Short-term investments include municipal securities, mortgage-backed securities and certificates of deposit with an original maturity greater than three months but less than one year.
Company evaluates deferred policy acquisition costs for recoverability by comparing the unearned premiums to the estimated total expected claim costs and related expenses, offset by anticipated investment income. The Company would reduce the deferred costs if the unearned premiums were less than expected claims and expenses after considering investment income, and report any adjustments in amortization of deferred policy acquisition costs. There were no adjustments necessary in 2009, 2008 or 2007.
The Company reviews its estimate of EBUB premiums on a quarterly basis and records an adjustment to premium, related losses, and expenses as warranted.
All advertising expenditures incurred by the Company are charged to expense in the period to which they relate and are included in underwriting and other operating costs in the consolidated statements of income. Total advertising expenses incurred were $444,000 in 2009, $469,000 in 2008 and $493,000 in 2007.
In April 2004, the Company formed Amerisafe Capital Trust II (“ACT II”) for the sole purpose of issuing $25,000,000 in trust preferred securities. ACT II used the proceeds from the sale of these securities and the Company’s initial capital contribution to purchase $25,780,000 of subordinated debt securities from the Company. The debt securities are the sole assets of ACT II, and the payments under the debt securities are the sole revenues of ACT II.
The Company recognizes the impact of its share-based compensation in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 718, Compensation-Stock Compensation. All share-based grants are recognized as compensation expense over the vesting period.
operations, but will impact our financial reporting process by eliminating all references to pre-codification standards. On the effective date of the Statement, the Codification superseded all then-existing non-SEC accounting and reporting standards, and all other non-grandfathered non-SEC accounting literature not included in the Codification became non-authoritative.
A summary of the cost or amortized cost and fair value of investments in fixed maturity securities, classified as held-to-maturity at December 31, 2009, by contractual maturity, is as follows:
At December 31, 2009, there were $25,000 of cash and short-term investments and $18,528,334 of held-to-maturity investments on deposit with regulatory agencies of states in which the Company does business.
A summary of the Company’s realized gains and losses on sales, calls or redemptions of investments for 2009, 2008 and 2007 is as follows:
There were no impairment charges recorded by the Company in 2009. In order to recapture realized capital gains for income tax purposes, the Company sold certain equity securities and one fixed-maturity security which was classified as held-to-maturity. These particular securities had been impaired in 2008. The held-to-maturity security was eligible for sale because the security had been downgraded below investment grade. With limited
securities classified as available-for-sale, the sale of this fixed-maturity security was needed to maximize carryback potential. A realized gain of $1.9 million was recorded on the sale of these previously impaired securities.
The Company received reinsurance recoveries of $6,376,000 in 2009, $19,852,000 in 2008 and $33,745,000 in 2007.
At December 31, 2009, unsecured reinsurance recoverables from reinsurers that exceeded 1.5% of statutory surplus of the Company’s insurance subsidiary are shown below (in thousands). The A.M. Best Company rating for the reinsurer is shown parenthetically.
In 2009, the Company recorded a reduction of $1.5 million in the valuation allowance of $3.0 million established in 2008 for unrealized losses resulting from other-than-temporary impairments.
In October 2007, the Company entered into an agreement providing for a line of credit in the maximum amount of $20 million. The agreement expires in October 2010. Under the agreement, advances may be made either in the form of loans or letters of credit. Borrowings under the agreement accrue interest at rates based either on the prime rate or LIBOR. Letters of credit issued under the arrangement accrue fees on undrawn amounts as long as the letters are outstanding. The Company does not pay a facility fee on amounts available under the line of credit unless they are advanced and outstanding. The facility is unsecured. No borrowings or letters of credit were outstanding under the line of credit arrangement at December 31, 2009 or 2008.
On December 16, 2003, the Company entered into a trust preferred securities transaction pursuant to which it issued $10,310,000 aggregate principal amount of subordinated debt securities due in 2034. To effect the transaction, the Company formed a Delaware statutory trust, Amerisafe Capital Trust I (“ACT I”). ACT I issued $10,000,000 of preferred securities to investors and $310,000 of common securities to the Company. ACT I used the proceeds from these issuances to purchase the subordinated debt securities. The Company pays interest on its ACT I subordinated debt securities quarterly at a rate equal to LIBOR plus 4.10% per annum (4.4% at December 31, 2009). ACT I pays interest on its preferred securities at the same rate. The Company subordinated debt securities and ACT I preferred securities were repayable on or after January 8, 2009. Payments of principal, interest and premium, if any, on the ACT I preferred securities are guaranteed by the Company.
The Company’s insurance subsidiaries file financial statements prepared in accordance with statutory accounting principles prescribed or permitted by the insurance regulatory authorities of the states in which the subsidiaries are domiciled. Statutory-basis shareholder’s capital and surplus at December 31, 2009, 2008 and 2007 of the directly owned insurance subsidiary, AIIC, and the combined statutory-basis net income and realized investment gains for all AMERISAFE’s insurance subsidiaries for the three years in the period ended December 31, 2009, were as follows (in thousands):
Pursuant to regulatory requirements, AIIC cannot pay dividends to the Company in excess of the lesser of 10% of statutory surplus, or statutory net income, excluding realized investment gains, for the preceding 12-month period, without the prior approval of the Louisiana Commissioner of Insurance. However, for purposes of this dividend calculation, net income from the previous two calendar years may be carried forward to the extent that it has not already been paid out as dividends. AIIC paid $10.0 million in dividends to the Company in 2009, $10.0 million in 2008 and $9.0 million in 2007. Based upon the above described calculation, AIIC could pay to the Company dividends of up to $22.3 million in 2009 without seeking regulatory approval.
The Company is authorized to issue 50,000,000 shares of common stock, par value $0.01 per share. At December 31, 2009, there were 18,895,246 shares of common stock issued and outstanding.
The Company is authorized to issue 5,000,000 shares of convertible non-voting common stock, par value $0.01 per share. There were no shares of non-voting common stock outstanding at December 31, 2009 and 2008 or issued during the three-year period ended December 31, 2009.
The Company is authorized to issue 500,000 shares of convertible preferred stock, par value $0.01 per share, of which 300,000 shares are designated as Series C convertible deferred pay preferred stock and 200,000 shares are designated as Series D non-voting convertible deferred pay preferred stock (collectively, the “Convertible Preferred Stock”). In November, 2006, 250,000 shares of Series C preferred stock were converted into shares of common stock by the holders in connection with a secondary public offering of the Company’s common stock. Effective as of December 31, 2009, all then-outstanding Series C and Series D shares have been canceled and cannot be reissued.
In the event of any liquidation or dissolution of the Company, assets will be distributed first to holders of common stock and non-voting common stock, subject to any other preferential amounts payable to holders of any then-outstanding series of junior preferred stock.
The AMERISAFE 2005 Equity Incentive Plan (the “2005 Incentive Plan”) is administered by the Compensation Committee of the Board and is designed to provide incentive compensation to executive officers and other key management personnel. The 2005 Incentive Plan permits awards in the form of incentive stock options, as defined in Section 422(b) of the Internal Revenue Code of 1986, non-qualified stock options, restricted shares of common stock and restricted stock units. The maximum number of shares of common stock that may be issued pursuant to option grants and restricted stock and restricted stock unit awards under the 2005 Incentive Plan is 1,900,000 shares, subject to the authority of the Board to adjust this amount in the event of a merger, consolidation, reorganization, stock dividend, stock split, combination of shares, recapitalization or
similar transaction affecting the common stock. Officers, other key employees, consultants and other persons performing services for the Company that are equivalent to those typically provided by Company employees are eligible to participate in the 2005 Incentive Plan. However, only employees (including Company officers) can receive grants of incentive stock options.
As of December 31, 2009, the Company had made awards of stock options under the 2005 Incentive Plan on September 1, 2006, September 25, 2006, March 2, 2007, January 24, 2008, November 10, 2008, August 7, 2009 and November 19, 2009. At December 31, 2009, 198,009 shares of common stock were available for future awards under the 2005 Incentive Plan.
The following table summarizes information about the stock options outstanding under the 2005 Incentive Plan at December 31, 2007, 2008 and 2009:
The weighted-average grant date fair values of options granted during 2009, 2008 and 2007 were $7.47, $5.38 and $6.71, respectively. Cash received from option exercises was $295,000, $251,000 and $810,000 in 2009, 2008 and 2007, respectively. Total tax benefits realized for tax deductions from option exercises were $47,000, $48,000 and $164,000 in 2009, 2008 and 2007, respectively. The total intrinsic value of options exercised during 2009, 2008 and 2007 was $252,000, $237,000 and $791,000, respectively. The fair value of shares vested during 2009, 2008 and 2007 was $1,160,000, $1,072,000 and $1,005,000, respectively. The aggregate intrinsic value of vested shares outstanding as of December 31, 2009, 2008 and 2007 was $8,360,000, $8,010,000 and $2,879,000, respectively.
The AMERISAFE 2005 Non-Employee Director Restricted Stock Plan (the “2005 Restricted Stock Plan”) is administered by the Compensation Committee of the Board and provides for the automatic grant of restricted stock awards to non-employee directors of the Company. Restricted stock awards to non-employee directors are generally subject to terms including non-transferability, immediate vesting upon death or total disability of a director, forfeiture of unvested shares upon termination of service by a director and acceleration of vesting upon a change of control of the Company. The maximum number of shares of common stock that may be issued pursuant to restricted stock awards under the 2005 Restricted Stock Plan is 50,000 shares, subject to the authority of the Board to adjust this amount in the event of a merger, consolidation, reorganization, stock split, combination of shares, recapitalization or similar transaction affecting the common stock. At December 31, 2009, there were 23,383 shares of common stock available for future awards under the 2005 Restricted Stock Plan.
As of December 31, 2009, there were 5,844 shares of restricted stock outstanding under the 2005 Restricted Stock Plan, all of which will vest on the date of the annual meeting of shareholders in 2010.
The following table summarizes information about the restricted stock outstanding under the 2005 Restricted Stock Plan at December 31, 2009:
The Company recognized compensation expense of $101,000 in 2009, $108,000 in 2008 and $70,000 in 2007 related to the 2005 Restricted Stock Plan. In 2009 and 2008, total tax expense realized for tax from vesting of restricted stock was $2,000 and $9,000, respectively. In 2007, total tax benefits realized for tax deductions from vesting of restricted stock was $15,000.
The table below sets forth the calculation of the percentage of net income allocable to common shareholders, or the “portion allocable to common shareholders.” Under the two-class method, unvested stock options, and out-of-money vested stock options are not considered to be participating securities.
The Company leases equipment and office space under noncancelable operating leases. At December 31, 2009, future minimum lease payments are as follows (in thousands):
Net premiums earned during 2009, 2008 and 2007 for the top ten states in 2009 and all others are shown below:
Observable inputs are inputs that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the reporting entity.
Securities classified by the Company as available-for-sale investments were reported at fair value utilizing Level 1 inputs. The fair value measurements consider quoted prices in active markets for identical assets. Level 2 inputs such as previous day and subsequent day trade prices were used if a trade for the security was not made on the date of measurement.
At December 31, 2009, assets and liabilities measured at fair value on a recurring basis are summarized below:
The following table represents unaudited quarterly financial data for the years ended December 31, 2009 and 2008.