o Favorable net loss reserve development reported on prior year loss reserves of $15 million
General and administrative expenses increased by 19.7% to $23.2 million for the year ended December 31, 2004 from $19.4 million for the year ended December 31, 2003. The increase in 2004 was largely attributable to an increase in employee related expenses to service the growth in the Company's business operations. Contributing to the increase in 2004 were higher administrative expenses resulting from the implementation of computer systems and Sarbanes-Oxley related expenses.
Gross premiums written, net premiums written and net premiums earned for the year ended December 31, 2003 declined by 6%, 8% and 15%, respectively, when compared to the year ended December 31, 2002 as a result of the Company's decisions to cease writing aircraft business and to withdraw from operations in London. However, gross premiums written, net premiums written and net premiums earned from the Company's core segments (ocean marine, inland marine/fire and other liability) increased by 20%, 14% and 31%, respectively, in 2003 over 2002.
Other liability gross premiums written rose by 105% for the year ended December 31, 2003 when compared to 2002 due to production increases from existing classes and new classes (commercial automobile liability and excess workers compensation) and higher premium rates on policy renewals. Average rate increases achieved in 2003 were approximately 10% to 20%. Although additional production was achieved in the contractors' liability class, policy count was reduced in the professional liability classes to mitigate exposure in certain classes of errors and omission policies. New sources of production include underwriting a programmed book of commercial automobile liability insurance written primarily in New York area, which contributed $3.3 million in gross premiums written in 2003. In addition, gross premiums written in 2003 also include $6.2 million of excess workers' compensation insurance, which focuses on smaller companies in the New York area. Net premiums written and net premiums earned grew by 131% and 134%, respectively over the prior year due to the premium rate and production increases as well as higher net loss retention levels in the contractors' liability and errors and omission classes.
Aircraft gross written premiums decreased 90% in 2003 from $35.9 million to $3.5 million as a result of the Company having ceased writing new aircraft policies subsequent to March 31, 2002. Net premiums written and net premiums earned decreased in 2003 for the same reasons.
MMO London premiums earned were zero in 2003, down from $4.2 million in 2002, because the Company did not provide capacity to any Lloyd's syndicate for the 2002 and subsequent underwriting years.
Policy acquisition costs as a percentage of net premiums earned for the year ended December 31, 2003 were 20.2% as compared with 16.7% for the year ended December 31, 2002. Net premiums earned in the prior year reflected larger amounts of aircraft premiums, which have a lower acquisition cost ratio than other lines of business. Accordingly, a large part of the aircraft premium written in 2002 reflected premium surcharges for terrorism coverage, which were recorded with a nominal processing charge. Premiums earned in 2003 included amounts from new sources of production, including commercial auto and cargo premiums, which have higher acquisition costs than other classes of business.
Reinsurance receivables on paid and unpaid losses, net, decreased to $4.2 million and $276.6 million, respectively, as of December 31, 2003 from $19.4 million and $307.0 million, respectively, as of December 31, 2002 due mainly to collections of reinsurance receivables on paid losses and the commutation of certain receivables.
Under the Amended and Restated 2004 Long-Term Incentive Plan, the Company granted 14,100 shares of common stock to certain officers and directors of the Company in 2004 for a total compensation expense of approximately $369,000. The Company also granted 8,557 deferred share units to certain directors in 2004 for a total expense of approximately $185,000.
The allowance for doubtful accounts is based on management's review of amounts due from insolvent or financially impaired companies. Allowances are estimated for both premium receivables and reinsurance receivables. Management continually reviews and updates such estimates for any changes in the financial status of companies. For a further discussion concerning reinsurance receivables see "Reinsurance Ceded." The allowance for doubtful accounts on reinsurance receivables amounted to $12.4 million and $12.8 million at December 31, 2004 and 2003, respectively. The allowance for doubtful accounts on premiums and other receivables amounted to $450,000 as of December 31, 2004 and 2003, respectively.