Direct General Corporation Announces Third Quarter Results.

NASHVILLE, Tenn. -- Direct General Corporation (Nasdaq: DRCT) today announced third quarter 2006 net income of $7.0 million or $0.35 per share, on a diluted basis. Comparatively, net income for the third quarter of 2005 was $7.3 million or $0.34 per diluted share. Increasing premium volumes and lower frequency on claims favorably impacted the Company's results for the quarter.

For the three months ended September 30, 2006, gross premiums written increased 6.6% to $103.5 million, as compared to the same period in 2005. The Company experienced increasing premium volumes in nearly all of its states with over half of the increase coming from the expansion states of Texas, Missouri and Virginia.

William Adair, Chairman and CEO, stated, "The nonstandard automobile insurance market remains very competitive. However, we are beginning to see some benefits from our sales and marketing initiatives. We are on target to launch our Independent Agency program in Tennessee before year-end and the project to enhance our Internet program continues. Early in October, we commenced writing new business in Illinois, our thirteenth state, on a limited basis. We are encouraged with the current trends in premium volumes and anticipate that these trends will continue."

During the three months ended September 30, 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 6.3% to $129.8 million from $122.1 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 third quarter of 2006 increased 20.8% to $103.3 million as compared to the third 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 third 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 $107.0 million and $100.7 million in the three months ended September 30, 2006 and 2005, respectively.

Net loss ratios, which include both loss and loss adjustment expenses, were 75.2% and 78.2% for the third quarter of 2006 and 2005, respectively. There were no storm losses in the current quarter; however, the loss ratio in the third quarter of 2005 included 2.5 points of catastrophic losses associated with Hurricanes Katrina and Rita. The Company's reserves continue to develop favorably. In the current quarter, the Company recognized a slight reduction in prior years' reserves, which reduced the loss and combined ratios by 0.5 points. Comparatively, the Company recognized 2.0 points of adverse reserve development in the third quarter of 2005.

The combined ratio was 94.1% in the third quarter of 2006, as compared to 92.2% 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 by increased costs associated with the expansions in Texas, Missouri and Virginia and a higher level of advertising costs and interest expense.

Conference Call

The Company will hold a conference call to discuss its third quarter 2006 results at 11:00 a.m. (EST), November 1, 2006. The conference call will be broadcast over the Internet. To listen to the call via the Internet, go to Direct's website, www.direct-general.com, click on Investors and follow the instructions at the webcast link. Institutional investors can access the call via CCBN's password-protected event management site, StreetEvents (www.streetevents.com). The archived webcast will be available shortly after the call on the Company's website until the Company's next conference call.

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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NM = Not Meaningful

(1) Gross Revenues (a non-GAAP financial measure).  Gross revenues is
    the sum of gross premiums written plus ancillary income (finance
    income and commission and service fee income) plus net investment
    income (excluding realized gains and losses). We use gross
    revenues as the primary measure of the underlying growth of our
    revenue streams from period to period. Gross revenues are
    reconciled to total revenues in the table above.

(2) Loss ratio.  Loss ratio is the ratio (expressed as a percentage)
    of losses and loss adjustment expenses incurred to premiums earned
    and measures the underwriting profitability of a company's
    insurance business.

(3) Expense ratio.  Expense ratio is the ratio (expressed as a
    percentage) of net operating expenses to premiums earned and
    measures a company's operational efficiency in producing,
    underwriting and administering its insurance business.  For
    statutory accounting purposes, operating expenses of an insurance
    company exclude investment expenses, and are reduced by other
    income.  There is no such industry definition for determining an
    expense ratio for GAAP purposes.  As a result, we apply the
    statutory concept of net operating expenses in calculating our
    expense ratio on a GAAP basis.  We reduce our operating expenses
    by ancillary income (excluding net investment income and realized
    gains (losses) on securities) to calculate our net operating
    expenses.

(4) Combined ratio. Combined ratio is the sum of the loss ratio and
    the expense ratio and measures a company's overall underwriting
    profit.  If the combined ratio is at or above 100, an insurance
    company cannot be profitable without investment income (and may
    not be profitable if investment income is insufficient). We use
    the GAAP combined ratio in evaluating our overall underwriting
    profitability and as a measure for comparison of our profitability
    relative to the profitability of our competitors.