Affirmative Insurance Announces 2007 First Quarter Results and Quarterly Cash Dividend of Two Cents Per Share

ADDISON, Texas, May 11, 2007 (PRIME NEWSWIRE) — Affirmative Insurance Holdings, Inc. (Nasdaq:AFFM), a distributor and producer of non-standard personal automobile insurance, today announced financial results for the quarter ended March 31, 2007.

Key Financial Results for the Quarter Ended March 31, 2007

Three months ended March 31,——————————————–20072006% Change———————(dollars in millions, except per share data)Gross premiums written$ 143.2$ 88.761.3% Net premiums written$ 102.1$ 87.117.3% Net premiums earned$ 82.8$ 73.013.3% Total revenues$ 109.9$ 92.219.2% Net income$2.2$6.2-64.0% Net income per commonshare – diluted$ 0.15$ 0.40-62.5%

First Quarter Financial Results

In the first quarter of 2007, Affirmative’s net income was $2.2 million or $0.15 per diluted share, as compared to the net income of $6.2 million or $0.40 income per diluted share for the same period in 2006. Weighted average diluted shares outstanding remained unchanged at 15.5 million shares.

On January 31, 2007, Affirmative completed the acquisition of USAgencies L.L.C. in a fully financed all cash transaction valued at approximately $199.2 million. USAgencies is a non-standard personal automobile insurance distributor and provider with retail sales locations in Louisiana, Illinois and Alabama. For accounting purposes, the transaction was effective as of January 1, 2007, so the company’s reported results for the first quarter of 2007 include USAgencies’ first quarter 2007 operating results as adjusted to reflect purchase accounting treatment.

Net premiums earned for the three months ended March 31, 2007 were $82.8 million, an increase of $9.8 million or 13.3% as compared to net premiums earned of $73.0 million for the three months ended March 31, 2006. The increase was primarily due to the inclusion of the operating results of USAgencies in the first quarter 2007 financial statements. In the first quarter of 2007, Affirmative’s gross premiums written increased to $143.2 million or 61.3% as compared to the first quarter of 2006 and net premiums written increased 17.3% to $102.1 million.

The revenue from commission income and fees included in Affirmative’s consolidated financial statements increased 33.6% to $23.4 million in the first quarter of 2007 from $17.5 million in the comparable period in 2006.

For the quarter ended March 31, 2007, Affirmative’s loss and loss adjustment expense ratio was 70.0% as compared to 65.2% for the first quarter of 2006. The increase in the loss and loss adjustment expense ratio is primarily a result of the addition of USAgencies’ book of business, which operates at a higher loss and loss adjustment expense ratio than Affirmative’s other operations have experienced. Moreover, in the first quarter of 2007, Affirmative’s insurance companies experienced a modest increase in the 2007 loss and loss adjustment expense ratio due to slightly negative premium trends resulting from selected rate and product changes during 2006.

For the quarter ended March 31, 2007, the company’s expense ratio was 22.4% as compared to 22.1% in the prior year and the combined ratio (the sum of the loss and loss adjustment expense ratio and the expense ratio) for the first quarter of 2007 was 92.4% as compared to 87.4% for the comparable quarter in 2006.

Affirmative Insurance Holdings, Inc.Consolidated Statements of Operations – Unaudited(dollars in thousands, except per share data)Three months ended March 31,——————————–20072006% Change——————- ——– Revenues Net premiums earned$ 82,770$73,03813.3% Commission income and fees23,38317,49933.6% Net investment income3,9612,06092.3% Realized losses(169)(367) -54.0%——————-Total revenues109,94592,23019.2%——————- Expenses Losses and loss adjustment expenses57,95247,65221.6% Selling, general and administrativeexpenses38,62532,60118.5% Depreciation and amortization3,2881,060210.2% Interest expense6,6321,085511.2%——————-Total expenses106,49782,39829.2%——————-Income before income taxes,minority interest and equityinterest in unconsolidatedsubsidiaries3,4489,832-64.9% Income tax expense1,2023,520-65.9% Minority interest, net ofincome taxes–81NM——————-Net income (loss)$2,246$6,231-64.0%====================Net income (loss) per commonshare – Basic$0.15$0.40-62.5%====================Net income (loss) per commonshare – Diluted$0.15$0.40-62.5%====================Weighted average sharesoutstanding – Basic15,358,05015,432,557Weighted average sharesoutstanding – Diluted15,467,04515,463,132Operational Information Gross premiums written$ 143,153$88,74961.3% Net premiums written$ 102,112$87,05817.3%Percentage retained71.3%98.1%Loss Ratio70.0%65.2% Expense Ratio22.4%22.1%——————–Combined Ratio92.4%87.4%====================Affirmative Insurance Holdings, Inc.Condensed Consolidated Balance Sheets(dollars in thousands, except share and per share data)March 31,December 31,20072006——————–(Unaudited) Assets Fixed maturities – available for sale$ 324,192$ 219,960 Short-term investments18,5121,810——————–Total invested assets342,704221,770 Cash and cash equivalents55,93352,484 Fiduciary and restricted cash25,21435,582 Premiums and fees receivable92,83278,307 Premium finance receivable44,237– Commissions receivable2,373909 Receivable from reinsurers113,31124,795 Deferred acquisition costs30,03923,865 Deferred tax asset, net10,3198,880 Goodwill and other intangible assets, net190,73083,443 Other assets47,62227,232——————–Total assets$ 955,314$ 557,267==================== Liabilities and Stockholders’ Equity LiabilitiesReserves for losses and lossadjustment expenses239,579162,569Unearned premium164,34792,124Amounts due reinsurers4,8995,089Deferred revenue17,4957,877Senior secured credit facility199,500–Notes payable76,94656,702Other liabilities43,84926,513——————–Total liabilities746,615350,874——————– Stockholders’ equityCommon stock177177Additional paid-in capital161,101160,862Treasury stock, at cost(32,880)(32,880)Accumulated other comprehensiveincome (loss)(320)(448)Retained earnings80,62178,682——————–Total stockholders’ equity208,699206,393——————–Total liabilities andstockholders’ equity$ 955,314$ 557,267====================Debt as % of capitalization57.0%21.6% Actual shares outstanding15,361,84815,354,575 Book value per share$13.59$13.44

Declaration of Dividend

Affirmative’s board of directors declared a quarterly cash dividend on its common stock of two cents ($0.02) per share, payable on June 29, 2007, to shareholders of record at the close of business on June 15, 2007.

Forward-Looking Statements Disclosure

Certain information in this news release and other statements or materials are not historical facts but are forward-looking statements relating to such matters as future results of Affirmative’s business, financial condition, liquidity, results of operations, plans, and objectives. In connection with the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, the company provides the following cautionary remarks regarding important factors that, among others, could cause Affirmative’s actual results and experience to differ materially from the anticipated results or other expectations expressed in the forward-looking statements. The risks and uncertainties that may affect the operations, performance, results of the company’s business, and the other matters referred to above include, but are not limited to: general volatility of the non-standard personal automobile and reinsurance markets; the market price of Affirmative’s common stock; changes in the company’s business strategy; severe weather conditions; availability, terms and deployment of capital; the degree and nature of competitor product and pricing activity; changes in the non-standard personal automobile insurance industry, interest rates or the general economy; identification and integration of potential acquisitions; claims experience; and availability of qualified personnel.

About Affirmative Insurance Holdings, Inc.

Affirmative Insurance Holdings, Inc. is a distributor and producer of non-standard personal automobile insurance policies for individual consumers in targeted geographic markets. The company currently offers products and services in 13 states, including Louisiana, Texas, Illinois, California and Florida.

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CONTACT: Affirmative Insurance Holdings, Inc.Mark Pape, Chief Financial Officer(972) 728-6481