Consolidated Highlights

Three Months Ended

March 31,__ Change

------

2009__ 2008__ $__ %

----__ ----__ ----__ ----

(000's except per-share amounts and ratios)

Net premiums written (1)__ $670,892 $729,266 $(58,374)__ (8.0)

Net income (loss)__ $96,653__ $(3,961) $100,614__ NM

Net income (loss) per diluted

share (2)__ $1.75__ $(0.07)__ $1.82__ NM

Operating income (1)__ $45,999__ $55,928__ $(9,929)__ (17.8)

Operating income per diluted

share (1)__ $0.83__ $1.02__ $(0.19)__ (18.6)

Positive development on

prior periods' loss

reserves (3)__ $21,000__ $5,000__ $16,000__ --

Severance related expenses

(3) (5)__ $8,000__ $--__ $8,000__ --

Expense related to

amortization of AIS deferred

policy acquisition costs (3)

(4) (5)__ $12,000__ NA__ NA__ NA

Combined ratio__ 96.9%__ 95.4%__ -- 1.5 pts

Combined ratio-accident period

basis (1)__ 100.1%__ 96.1%__ -- 4.0 pts

(1) These measures are not based on U.S. generally accepted accounting

principles ("GAAP") and are defined and reconciled to the most

directly comparable GAAP measures in "Information Regarding Non- GAAP

Measures."

(2) The dilutive impact of incremental shares is excluded from loss

positions in 2008 in accordance with GAAP.

(3) The amounts are estimated and rounded to the nearest million.

(4) Represents the net expense related to Auto Insurance Specialists,

LLC ("AIS") deferred commissions at December 31, 2008 amortized in

2009 partially offset by deferred costs related to policy sales made

by AIS in 2009. The Company expects an additional $3 million impact

in the second quarter of 2009 and no material impact thereafter.

(5) The impact of these two items is a 3 point increase to the 2009

combined ratio.

(NM) Not meaningful

(NA) Not applicable__

Net income in the first quarter 2009 was $96.7 million ($1.75 per share-diluted) compared with net loss of $4.0 million ($0.07 per share) for the same period in 2008. Included in net income are net realized investment gains, net of tax, of $50.7 million ($0.92 per share-diluted) in the first quarter of 2009 compared with net realized investment losses, net of tax, of $59.9 million ($1.09 per share) for the same period in 2008. Operating income was $46.0 million ($0.83 per share-diluted) for the first quarter of 2009, down 17.8% from the same period in 2008.

As a result of the adoption of SFAS No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities" ("SFAS No. 159"), changes in unrealized gains and losses on all investments that prior to January 1, 2008 were recorded as changes to accumulated other comprehensive income on the balance sheet are now recorded as realized gains and losses on the statement of operations. During the first quarter of 2009, the Company recorded approximately $101 million of pre-tax gains due to changes in the fair value of its fixed maturity portfolio and approximately $10 million of pre-tax losses due to changes in the fair value of its equity security portfolio. Net realized investment gains, net of tax of $50.7 million, in the first quarter of 2009 include the changes in the fair value of the investment portfolio and approximately $9 million, net of tax, in losses realized from the sale of equity securities.

Company-wide net premiums written were $670.9 million in the first quarter 2009, an 8.0% decrease over the first quarter 2008 net premiums written of $729.3 million. California net premiums written were $526.9 million in the first quarter of 2009, a decrease of 8.5% over the same period in 2008. Non-California net premiums written were $144.0 million in the first quarter of 2009, a 6.3% decrease over the same period in 2008.

Net investment income of $37.9 million (after tax $33.4 million) in the first quarter of 2009 decreased by 3.5% over the same period in 2008. The after-tax yield on investment income was 4.1% on average investments of $3.3 billion (fixed maturities, equities and short-term investments at cost) for the quarter. This compares with an after-tax yield on investment income of 3.9% on average investments of $3.5 billion (fixed maturities, equities and short- term investments at cost) for the same period in 2008.

Effective January 1, 2009, the Company acquired all of the membership interests of AIS Management LLC, a California limited liability company, which is the parent company of AIS and PoliSeek AIS Insurance Solutions, Inc. for $120 million. Prior to the acquisition, the Company deferred the recognition of commissions paid to AIS to match the earnings of the related premiums. As AIS is now a wholly-owned subsidiary, commissions paid are no longer deferrable. During the first quarter of 2009, the amortization of deferred commissions offset by deferrable direct sales cost impacted the statement of operations by $12 million. The Company expects an additional $3 million impact in the second quarter of 2009 and no material impact thereafter.

To improve profitability, the Company has implemented several cost reduction programs, including a salary freeze, a suspension of the employee 401(k) matching program, and a workforce reduction of approximately 360 employees (7% of workforce) primarily located in California. As a result of the workforce reduction, an $8 million expense was recorded in the first quarter of 2009. The annualized cost savings from these cost reduction programs are expected to be over $20 million, which will begin to be realized in the second quarter of 2009.

The Board of Directors declared a quarterly dividend of $0.58 per share. The dividend is to be paid on June 29, 2009 to shareholders of record on June 15, 2009.