The following table shows the estimated liability as of December 31, 2008 for unpaid claims applicable to reported claims and to IBNR (dollars in thousands) for each sub-line of business:
As discussed below, the Company’s credit facility matured in 2008. The Company chose not to seek renewal of this facility as there was not, nor is there currently, an expected need for this source of liquidity and capital. The Company continually monitors its projected liquidity and capital requirements and may pursue a new credit facility based on anticipated need, market conditions and other factors.
The term of borrowings under the 2005 Credit Facility was fixed, at the Company’s option, for a period of one, two, three, or six months. The interest rate was based on, among other rates, LIBOR plus the applicable margin. The margin, including a utilization fee, varied based on the Company’s leverage ratio (debt to total capitalization) from 0.80% to 1.00%. There was no outstanding balance under the 2005 Credit Facility at December 31, 2007 and the six months ended June 30, 2008. As such, the Company incurred only the facility fee of 0.325% for 2007 and incurred only the facility fee of 0.300% through the first six months of 2008.
In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (“SFAS 159”), which provides companies with an option to report selected financial assets and liabilities at fair value, with changes in fair value recorded in earnings. SFAS 159 helps to mitigate this type of accounting-induced earnings volatility by enabling companies to report related assets and liabilities at fair value, which would likely reduce the need for companies to comply with detailed rules for hedge accounting. SFAS 159 also establishes presentation and disclosure requirements designed to facilitate comparisons between companies that choose different measurement attributes for similar types of assets and liabilities. SFAS 159 requires companies to provide additional information that will help investors and other users of financial statements to more easily understand the effect of the company’s choice to use fair value on its earnings. It also requires entities to display the fair value of those assets and liabilities for which the company has chosen to use fair value on the face of the balance sheet. SFAS 159 does not eliminate disclosure requirements included in other accounting standards, including requirements for disclosures about fair value measurements included in SFAS No. 157, “Fair Value Measurements” (“SFAS 157”), discussed below, or SFAS No. 107, “Disclosures about Fair Value of Financial Instruments”. SFAS 159 is effective for fiscal years ending after November 15, 2007. The Company adopted SFAS 159 on January 1, 2008 and did not elect the fair value option for any assets or liabilities under SFAS 159. The adoption of SFAS 159 did not and is not expected to have a material impact on the Company’s financial condition or results of operations.
At December 31, 2008, the Company holds 175 securities in an unrealized gain position with a total estimated fair value of $688.4 million and an aggregate gross unrealized gain of $28.6 million.
The components of deferred income taxes as of December 31, 2008 and 2007 were as follows (dollars in thousands):
The 2006 Plan is administered by a committee (the “Committee”) of the Board of Directors, consisting of two or more directors of the Company. Subject to the provisions set forth in the 2006 Plan, all of the members of the Committee shall be independent members of the Board of Directors. The Committee determines the option exercise prices. Exercise prices may not be less than the fair market value of the Company’s common stock on the date of grant for incentive stock options and may not be less than the par value of the Company’s common stock for nonqualified stock options.
On February 13, 2007, 334,100 options were granted under the 2006 Plan. The fair market value (at grant date) per option granted was $9.04 for these options. The fair value of these options was estimated at grant date using a Black-Scholes option pricing model with the following weighted average assumptions: risk free interest rate of 4.8%; dividend yield of 0.0%; expected option life of 6.3 years; and volatility of 34.7%;. The Company estimated the expected option life using the simplified method allowed under the Securities and Exchange Commission’s Staff Accounting Bulletin (“SAB”) No. 107 (“SAB 107”). The Company’s stock options qualify for this method based on the criteria defined in SAB 107. No options were granted during 2006.
Also, in 2008, the Company, through the Quota Share Treaty, assumed one bond issued by an affiliate for Mexdrill Offshore. The penal sum of this bond was $4.7 million and the premium for this bond was less than $0.1 million. This bond was also issued with Audit Committee approval.