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Stock based Compensation
 12 Months Ended
Dec. 31, 2011
Stock based Compensation [Abstract]  
Stock based Compensation

(11) Stock-Based Compensation 

 

Our stock-based compensation plan, the 2008 Flexible Incentive Plan, is administered by the Compensation Committee of the Board of Directors. We currently have stock options, restricted stock awards and restricted stock units outstanding under this plan. Each option granted under the plan may be used to purchase one share of our common stock. Outstanding options vest over a period of up to five years, which is the requisite service period, and expire four to ten years after the grant date. Each restricted stock award and unit entitles the recipient to one share or equivalent unit of our common stock. Outstanding restricted stock awards and units vest over a period of up to ten years, which is the requisite service period.

 

The consolidated statements of earnings reflect total stock-based compensation expense of $12.4 million, $13.6 million and $16.0 million in 2011, 2010 and 2009, respectively, after the effect of the deferral and amortization of policy acquisition costs related to stock-based compensation for our underwriters. The total tax benefit recognized in earnings from stock-based compensation arrangements was $4.4 million, $4.8 million and $5.5 million in 2011, 2010 and 2009, respectively. At December 31, 2011, there was approximately $25.7 million of total unrecognized compensation expense related to unvested options and restricted stock awards and units that is expected to be recognized over a weighted-average period of 3.0 years. At December 31, 2011, 7.8 million shares of our common stock were authorized and reserved for the exercise of options and release of restricted stock units, of which 4.0 million shares were reserved for awards previously granted and 3.8 million shares were reserved for future issuance.

 

Common Stock Grants

 

In each of the past three years, we granted fully-vested common stock valued at $80,000 to each non-management director as part of their annual compensation for serving on our Board of Directors. In 2010 and 2011, we granted up to $200,000 of fully vested common stock to the chairman of our Board. The number of shares granted was based on our closing stock price on the grant date, which was the day of the Annual Meeting of Shareholders or the day the director became chairman or joined the Board.

  

Stock Options

 

The table below shows the weighted-average fair value of options granted and the related weighted-average assumptions used in the Black-Scholes model, which we use to determine the fair value of an option on its grant date. The risk-free interest rate is based on the U.S. Treasury rate that most closely approximates each option's expected term. We based our expected volatility on the historical volatility of our stock over a period matching each option's expected term. Our dividend yield is based on an average of our historical dividend payments divided by the stock price. We used historical exercise patterns by grant type to estimate the expected option life.

 

  2011 2010 2009 
           
Fair value of options granted$7.84 $6.11 $5.89 
Risk free interest rate 1.4% 1.7% 2.0%
Expected volatility 34.1% 33.9% 34.9%
Expected dividend yield 2.0% 2.1% 2.0%
Expected option life 5.8 years  3.6 years  3.5 years 

The following table details our stock option activity during 2011.

 

    Weighted- Weighted-  
    average average Aggregate
  Number exercise contractual intrinsic
  of shares price life value
             
Outstanding, beginning of year   5,499 $ 28.24      
Granted   396   29.19      
Exercised   (1,458)   27.28      
Forfeited and expired   (630)   30.68      
Outstanding, end of year   3,807   28.29  2.5 years $ 4,841
Vested or expected to vest, end of year   3,559   28.37  2.4 years   4,424
Exercisable, end of year   2,397   29.00  1.4 years   2,600

The aggregate intrinsic value (the amount by which the fair value of the underlying stock exceeds the exercise price) of options exercised during 2011, 2010 and 2009 was $5.9 million, $8.7 million and $6.4 million, respectively. Exercise of options during 2011, 2010 and 2009 resulted in cash receipts of $39.8 million, $29.9 million and $19.3 million, respectively. The tax benefits realized from stock options exercised during 2011, 2010 and 2009 were $2.1 million, $3.1 million and $2.4 million, respectively.

 

Restricted Stock

 

We measure the fair value of our restricted stock awards and units based on the closing price of our common stock on the grant date. All outstanding restricted stock awards and units earn dividends or dividend equivalent units during the vesting period. The fair value of restricted stock awards that vested during 2011 was $1.1 million. No restricted stock awards vested during 2010 and 2009.

The following table details activity for our restricted stock awards and units during 2011.

 

    Weighted- Weighted-  
    average average Aggregate
  Number grant date contractual intrinsic
  of shares fair value life value
Restricted Stock Awards            
             
Outstanding, beginning of year   1,289 $ 26.15      
Awarded   395   30.17      
Vested   (35)   23.39      
Forfeited    (86)   27.65      
Outstanding, end of year   1,563   27.14  2.9 years $ 42,975
Expected to vest, end of year   1,233   27.09  2.9 years   33,912
             
Restricted Stock Units            
             
Outstanding, beginning of year   157 $ 24.66      
Awarded   56   30.25      
Outstanding, end of year   213   26.38  2.0 years $ 5,871
Expected to vest, end of year   173   26.34  2.0 years   4,762

The fair value of restricted stock awards that vested during 2011 was $1.1 million. No restricted stock awards vested during 2010 and 2009.