Direct General Corporation Announces Fourth Quarter Results.

NASHVILLE, Tenn. -- Direct General Corporation (Nasdaq: DRCT) today announced fourth quarter 2006 net income of $4.7 million or $0.23 per share, on a diluted basis. Comparatively, net income for the fourth quarter of 2005 was $6.7 million or $0.33 per diluted share. Operating results for the current quarter were adversely impacted by certain non-recurring expenses, primarily for litigation and costs related to the pending merger transaction that was announced in early December. These non-recurring expenses totaled approximately $2.4 million after tax or $0.12 per diluted share.

For the three months ended December 31, 2006, gross premiums written increased 6.5% to $102.6 million, as compared to the same period in 2005. The Company experienced increasing premium volumes in most of its states with over half of the increase coming from the expansion states of Texas, Missouri, and Virginia. For the quarter, the Company reported a small decline in Florida premiums, which was more than offset by growth in Tennessee. The Company continues to be encouraged with the overall growth in premium volumes and anticipates that this trend will continue in 2007.

During the three months ended December 31, 2006, gross revenues, a non-GAAP financial measure that the Company uses as the primary measure of the underlying growth of its revenue streams from period to period, increased 6.6% to $128.5 million from $120.6 million in the corresponding period in 2005. Gross revenues are reconciled to total revenues in the Selected Financial Data and Key Ratios Table accompanying this press release. Net premiums written for the fourth quarter of 2006 increased 20.6% to $102.3 million as compared to the fourth quarter of 2005, due to the increase in gross premiums written and an increase in the percentage of business retained. As a result of the Company's elimination of quota share reinsurance in 2006, nearly all of the business written in the current quarter was retained as compared to the fourth quarter of 2005, when the Company only retained 88.1% of its business. Net premiums earned, a function of net premiums written in the current and prior periods, were $108.4 million and $96.7 million in the three months ended December 31, 2006 and 2005, respectively.

Net loss ratios, which include both loss and loss adjustment expenses, were 74.9% and 77.2% for the fourth quarter of 2006 and 2005, respectively. The Company's reserves developed favorably in the current quarter, resulting in a 2-point reduction in the loss ratio and a $0.06 increase in diluted earnings per share. The majority of the favorable development related to continued improvement in loss trends for the personal injury protection coverage in Florida. Comparatively, the impact of reserve development in the fourth quarter of 2005 was insignificant. However, the loss ratio in the fourth quarter of 2005 was adversely impacted by 1.1 points of catastrophic losses associated with Hurricane Wilma. There were no storm losses in the current quarter.

The combined ratio was 98.0% in the fourth quarter of 2006, as compared to 93.7% for the corresponding period in 2005. The increase in the combined ratio reflected the higher net expense ratio, which more than offset the decline in the loss ratio. The increase in the net expense ratio is driven primarily by the non-recurring costs for litigation and the pending merger transaction, a higher level of advertising costs, and higher interest expenses.

Pending Merger Transaction

On December 5, 2006, Direct General Corporation announced its execution of a definitive agreement to merge with Elara Holdings, Inc., an affiliate of Fremont Partners and Texas Pacific Group, under which Elara will acquire all of the outstanding common stock of Direct General. In the transaction, Direct General's shareholders will receive $21.25 in cash

for each share of Direct General common stock that they hold. The transaction is subject to receipt of shareholder approval and required regulatory approvals, as well as satisfaction of other closing conditions. A special meeting of the shareholders to consider the merger has been set to occur at Direct General Corporation's corporate headquarters located at 1281 Murfreesboro Rd, Nashville, Tennessee 37217 on March 8, 2007 at 11:00 am local time. Due to this merger agreement, the Company will not be holding a conference call or webcast to discuss its fourth quarter 2006 results.

Important Additional Information Regarding the Proposed Merger has been Filed with the SEC

In connection with the proposed merger, Direct General Corporation has filed a proxy statement with the Securities and Exchange Commission. INVESTORS AND SECURITY HOLDERS ARE STRONGLY ADVISED TO READ THE PROXY STATEMENT BECAUSE IT CONTAINS IMPORTANT INFORMATION ABOUT THE MERGER AND THE PARTIES THERETO. Investors and security holders may obtain a free copy of the proxy statement and other documents filed by Direct General at the Securities and Exchange Commission's web site at http://www.sec.gov/. The proxy statement and such other documents may also be obtained for free by directing such request to Direct General Investor Relations, telephone: [phone] or on the investor relations page of Direct General's website at http://www.directgeneral.com/.

Direct General and its directors, executive officers and certain other members of its management and employees may be deemed to be participants in the solicitation of proxies from its shareholders in connection with the proposed merger. Information regarding the interests of such directors and executive officers, which may be different than those of Direct General's shareholders generally, is included in Direct General's proxy statements and Annual Reports on Form 10-K, previously filed with the Securities and Exchange Commission, and in the proxy statement relating to the merger.

GENERAL INFORMATION

Direct General Corporation, headquartered in Nashville, Tennessee, is a financial services holding company whose principal operating subsidiaries provide non-standard personal automobile insurance, term life insurance, premium finance and other consumer products and services through neighborhood sales offices staffed predominantly by its own employee-agents. Direct General's current operations are concentrated primarily in the southeastern part of the United States. Additional information about Direct can be found online at www.directgeneral.com.

Safe Harbor Statement

This press release contains statements that may constitute "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.

These statements can be identified from the use of the words "may," "should," "could," "potential," "continue," "plan," "forecast," "estimate," "project," "believe," "intend," "anticipate," "expect," "target," "is likely," "will" or the negative of these terms and similar expressions. Forward-looking statements include, but are not limited to, discussions regarding our operating strategy, growth strategy, acquisition strategy, cost savings initiatives, industry, economic conditions, financial condition, liquidity and capital resources and results of operations. All statements in this press release not dealing with historical results are forward-looking and are based on estimates, assumptions and projections.

Forward-looking statements are subject to certain risks and uncertainties that could cause actual events and results to differ materially from those discussed in this press release. These risks and uncertainties include, without limitation, uncertainties related to fluctuations in interest rates and stock indices; claims frequency and severity experience; cyclical changes in the personal automobile insurance market; the effects of competition in the areas in which the Company operates; changes in economic and regulatory conditions; estimates, assumptions and projections generally; inflation and changes in financial markets; the accuracy and adequacy of the Company's pricing methodologies; the outcome of litigation pending against the Company; court decisions and trends in litigation; the ability to obtain timely approval for requested rate changes; weather conditions including severity and frequency of storms, hurricanes, snowfalls, hail and winter conditions; changes in driving patterns and loss trends; and acts of war and terrorist activities.

In addition, the Company's past results of operations do not necessarily indicate its future results. The Company undertakes no obligation to publicly update or revise any use of the forward-looking statements. For more detailed discussion of some of the foregoing risks and uncertainties, please see the Company's filings with the Securities and Exchange Commission.

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