In July, 2005, the common stock the Company was listed for trading on the American Stock Exchange with the symbol “GAN.” Prior to that date, the Company’s common stock was quoted on the OTC Bulletin Board with the symbol “GNAC.”
The Company limited its business to Florida until the fourth quarter of 2003, when it began writing policies in Texas. The Company began writing policies in Arizona and Nevada in 2004 and in California with an independent managing general agency in the first quarter of 2005. The Company markets its policies through over 2,200 independent retail agencies in Arizona, California, Florida, Nevada and Texas and one general agency in California that markets through approximately 900 independent retail agents. Significant growth was realized in each of these states in 2005 as a result of these expansion activities, which has increased the operating leverage, the claims ratio and overall risk profile of the Company.
Each of the regions achieved significant premium growth in 2005. For 2005 the contribution to the premium increase by region is: Southeast 49%, South Central 21%, Southwest 15% and West 15%. Net premiums earned increased 120% in 2005 primarily as a result of the growth in gross premiums written. Beginning in the fourth quarter of 2005, policy fees are recorded as premiums and recognized over the period of the policy; previously they were recorded in Other income and recognized as written. This change was not considered material in 2005.
Premiums receivable increased due to the increase in premium writings. This balance is comprised primarily of premiums due from insureds. Most of the policies are written with a down payment and monthly payment terms of up to four months on six month policies. The Company has recorded an allowance for doubtful accounts of $440,000, which it considers adequate.
As of December 31, 2005, in respect of its nonstandard personal auto line, the Company had $27,178,000 in net unpaid C & CAE. These claims generally are of shorter duration than the Company’s runoff lines claims. At December 31, 2005, the Company had 3,183 nonstandard personal auto claims versus 1,568 at December 31, 2004. The average nonstandard personal auto claim reserve was approximately $8,500 per claim and $9,000 per claim at December 31, 2005 and December 31, 2004, respectively.
Additional paid-in capital increased primarily as a result of the 2005 Recapitalization, the 2005 Rights Offering and the 2005 One-for-Four Reverse Split of Common Stock, see “Capital Transactions” for detailed discussion. The restricted stock and the restricted stock units granted under the 2005 Long-Term Incentive Compensation Plan also contributed to the increase. Offsetting these items, to some extent, was the cancellation of the Treasury stock in December, 2005.
Unearned compensation on restricted stock was recorded on issuance of 100,000 shares (adjusted for the reverse stock split previously described) of restricted Common Stock to Mr. Anderson at fair value of $6.60 per share (adjusted for the reverse stock split previously described) in conjunction with the 2005 recapitalization. These shares will vest over 5 years at 20,000 shares (adjusted for the reverse stock split previously described) per year and the value will be amortized against income over the vesting period.