##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2006
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission
File Number: 000-50360
 DIRECT GENERAL CORPORATION
  Tennessee
    
    62-1564496(State or other jurisdiction of 
incorporation or organization)
    
    (I.R.S. Employer Identification No.)1281 Murfreesboro Road, Nashville, TN
    
    37217(Address of principal executive offices)
    
    (Zip Code)
 
 þ o
  o þ o
  o þ




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TABLE OF CONTENTS  PART I  FINANCIAL INFORMATIONItem 1. Financial StatementsItem 2. Managements Discussion and Analysis of Financial Condition and Results of OperationsItem 3. Quantitative and Qualitative Disclosures About Market RiskItem 4. Controls and ProceduresPART II  OTHER INFORMATIONItem 1. Legal ProceedingsItem 2. Unregistered Sales of Equity Securities and Use of ProceedsItem 6. ExhibitsSIGNATURESEx-31.1 Section 302 CertificationEx-31.2 Section 302 CertificationEx-32.1 Section 906 CertificationEx-32.2 Section 906 Certification    Table of Contents  
 PART I  FINANCIAL INFORMATION
 
 Item 1. Financial Statements.
 DIRECT GENERAL CORPORATION AND SUBSIDIARIES
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005(In thousands  except per share amounts)RevenuesPremiums earned
    
    $
    107,002
    
    
    $
    100,716
    
    
    $
    316,348
    
    
    $
    307,366Finance income
    
    
    10,648
    
    
    
    10,379
    
    
    
    33,502
    
    
    
    34,680Commission and service fee income
    
    
    10,721
    
    
    
    10,906
    
    
    
    35,157
    
    
    
    36,289Net investment income
    
    
    4,950
    
    
    
    3,741
    
    
    
    13,878
    
    
    
    10,616Net realized gains (losses) on securities and other
    
    
    73
    
    
    
    188
    
    
    
    (561
    )
    
    
    (67
    )Total revenues
    
    
    133,394
    
    
    
    125,930
    
    
    
    398,324
    
    
    
    388,884ExpensesInsurance losses and loss adjustment expenses
    
    
    80,466
    
    
    
    78,725
    
    
    
    239,629
    
    
    
    231,092Selling, general and administrative costs
    
    
    38,626
    
    
    
    33,127
    
    
    
    112,398
    
    
    
    100,233Interest expense
    
    
    2,984
    
    
    
    2,259
    
    
    
    8,780
    
    
    
    5,519Total expenses
    
    
    122,076
    
    
    
    114,111
    
    
    
    360,807
    
    
    
    336,844Income before income taxes
    
    
    11,318
    
    
    
    11,819
    
    
    
    37,517
    
    
    
    52,040Income tax expense
    
    
    4,283
    
    
    
    4,559
    
    
    
    14,170
    
    
    
    19,701Net income
    
    $
    7,035
    
    
    $
    7,260
    
    
    $
    23,347
    
    
    $
    32,339Earnings per ShareBasic earnings per common share
    
    $
    0.35
    
    
    $
    0.34
    
    
    $
    1.15
    
    
    $
    1.49Diluted earnings per common share
    
    $
    0.35
    
    
    $
    0.34
    
    
    $
    1.15
    
    
    $
    1.49
  2




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##### Table of Contents



DIRECT GENERAL CORPORATION AND SUBSIDIARIES
 CONDENSED CONSOLIDATED BALANCE SHEETS
 (Unaudited)September 30,
    
    
    December 31,2006
    
    
    2005(In thousands)AssetsInvestments:Debt securities available-for-sale at fair value
(amortized cost $427,559 and $395,159 at September
30, 2006 and December 31, 2005, respectively)
    
    $
    421,837
    
    
    $
    388,032Short-term investments and other invested assets
    
    
    4,327
    
    
    
    3,688Total investments
    
    
    426,164
    
    
    
    391,720Cash and cash equivalents
    
    
    70,389
    
    
    
    64,527Finance receivables, net
    
    
    231,452
    
    
    
    214,796Reinsurance balances receivable
    
    
    15,552
    
    
    
    27,083Prepaid reinsurance premiums
    
    
    1,223
    
    
    
    24,440Goodwill and other intangible assets, net
    
    
    31,621
    
    
    
    31,621Deferred policy acquisition costs
    
    
    20,900
    
    
    
    13,804Income taxes recoverable
    
    
    1,652
    
    
    
    4,692Deferred income taxes
    
    
    21,467
    
    
    
    21,915Property and equipment, net
    
    
    16,068
    
    
    
    18,346Other assets
    
    
    26,586
    
    
    
    28,068Total assets
    
    $
    863,074
    
    
    $
    841,012Liabilities and Shareholders EquityLoss and loss adjustment expense reserves
    
    $
    136,356
    
    
    $
    131,408Unearned premiums
    
    
    231,440
    
    
    
    214,715Reinsurance balances payable and funds held
    
    
    10,199
    
    
    
    32,024Accounts payable and accrued expenses
    
    
    16,082
    
    
    
    12,550Notes payable
    
    
    153,345
    
    
    
    153,009Debentures payable
    
    
    41,238
    
    
    
    41,238Capital lease obligations
    
    
    1,673
    
    
    
    2,636Payable for securities
    
    
    
    
    
    
    3,187Other liabilities
    
    
    12,313
    
    
    
    12,713Total liabilities
    
    
    602,646
    
    
    
    603,480Shareholders equityCommon stock, no par; authorized shares  100,000.0;
issued shares  20,347.7 and 20,339.2 at September 30,
2006 and December 31, 2005, respectively
    
    
    70,685
    
    
    
    69,700Retained earnings
    
    
    192,685
    
    
    
    171,780Accumulated other comprehensive (loss) income:Net unrealized depreciation on investment securities
    
    
    (3,719
    )
    
    
    (4,633
    )Net gain on cash flow hedge
    
    
    777
    
    
    
    685Total shareholders equity
    
    
    260,428
    
    
    
    237,532Total liabilities and shareholders equity
    
    $
    863,074
    
    
    $
    841,012
  3




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DIRECT GENERAL CORPORATION AND SUBSIDIARIES
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 Nine Months Ended September 30,2006
    
    
    2005(In thousands)Operating activitiesNet income
    
    $
    23,347
    
    
    $
    32,339Adjustments to reconcile net income to net cash provided by operating activities:Net realized losses on securities and other
    
    
    561
    
    
    
    67Depreciation and amortization
    
    
    6,505
    
    
    
    5,007Deferred income taxes
    
    
    (94
    )
    
    
    (436
    )Changes in operating assets and liabilities:Finance receivables, net
    
    
    (16,656
    )
    
    
    (11,776
    )Reinsurance balances receivable
    
    
    11,531
    
    
    
    942Prepaid reinsurance premiums
    
    
    23,217
    
    
    
    3,927Deferred policy acquisition costs
    
    
    (7,096
    )
    
    
    (689
    )Income taxes recoverable/payable
    
    
    3,040
    
    
    
    2,447Loss and loss adjustment expense reserves
    
    
    4,948
    
    
    
    5,958Unearned premiums
    
    
    16,725
    
    
    
    4,493Reinsurance balances payable and funds held
    
    
    (21,825
    )
    
    
    3,269Accounts payable and accrued expenses
    
    
    3,532
    
    
    
    2,140Other
    
    
    2,189
    
    
    
    2,974Net cash provided by operating activities
    
    
    49,924
    
    
    
    50,662Investing activitiesProceeds from sales and maturities of debt securities available-for-sale
    
    
    55,195
    
    
    
    67,235Purchase of debt securities available-for-sale
    
    
    (89,710
    )
    
    
    (115,825
    )Payable for securities
    
    
    (3,187
    )
    
    
    6,183Net sales of short-term investments
    
    
    (525
    )
    
    
    (375
    )Purchase of common stock in trust
    
    
    
    
    
    
    (1,238
    )Purchase of property and equipment, net
    
    
    (2,789
    )
    
    
    (5,920
    )Purchase of insurance agency assets
    
    
    
    
    
    
    (5,560
    )Purchase of property and casualty insurance company
    
    
    
    
    
    
    (10,432
    )Net cash used in investing activities
    
    
    (41,016
    )
    
    
    (65,932
    )Financing activitiesRepurchase of common stock
    
    
    
    
    
    
    (38,228
    )Issuance of common stock
    
    
    23
    
    
    
    557Net proceeds from borrowings
    
    
    2,123
    
    
    
    25,315Proceeds from debentures issued
    
    
    
    
    
    
    41,238Payment of principal on borrowings
    
    
    (2,750
    )
    
    
    (1,231
    )Payment of dividends on common stock
    
    
    (2,442
    )
    
    
    (2,597
    )Net cash (used) provided by financing activities
    
    
    (3,046
    )
    
    
    25,054Net increase in cash and cash equivalents
    
    
    5,862
    
    
    
    9,784Cash and cash equivalents at beginning of period
    
    
    64,527
    
    
    
    70,988Cash and cash equivalents at end of period
    
    $
    70,389
    
    
    $
    80,772
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##### Table of Contents



DIRECT GENERAL CORPORATION AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 1. Nature of Operations
  2. Basis of Presentation
  3. Notes Payable
  4. Earnings Per Share
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005(In thousands, except per share amounts)Numerator:Net income
    
    $
    7,035
    
    
    $
    7,260
    
    
    $
    23,347
    
    
    $
    32,339Denominator:Weighted average common shares outstanding
    
    
    20,347.7
    
    
    
    21,229.8
    
    
    
    20,346.3
    
    
    
    21,708.4Dilutive stock options
    
    
    36.9
    
    
    
    45.6
    
    
    
    38.6
    
    
    
    65.2Weighted average common shares
outstanding for purposes of computing
diluted earnings per common share
    
    
    20,384.6
    
    
    
    21,275.4
    
    
    
    20,384.9
    
    
    
    21,773.6Basic earnings per common share
    
    $
    0.35
    
    
    $
    0.34
    
    
    $
    1.15
    
    
    $
    1.49Diluted earnings per common share
    
    $
    0.35
    
    
    $
    0.34
    
    
    $
    1.15
    
    
    $
    1.49
 5




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5. Stock Options
     Three Months
    
    
    Nine MonthsEnded
    
    
    EndedSeptember 30,
    
    
    September 30,2005
    
    
    2005(In thousands, except per share amounts)Net income, as reported
    
    $
    7,260
    
    
    $
    32,339Deduct: Total
stock-based employee
compensation expense
determined under the
fair value based
method, net of related
tax effects
    
    
    (217
    )
    
    
    (649
    )Net income, pro forma
    
    $
    7,043
    
    
    $
    31,690Income for purposes of
computing diluted
earnings per share
common, as reported
    
    $
    7,260
    
    
    $
    32,339Deduct: Total
stock-based employee
compensation expense
determined under the
fair value based
method, net of related
tax effects
    
    
    (217
    )
    
    
    (649
    )Income for purposes of
computing diluted
earnings per share
common, pro forma
    
    $
    7,043
    
    
    $
    31,690Earnings per shareBasic  as reported
    
    $
    0.34
    
    
    $
    1.49Basic  pro forma
    
    $
    0.33
    
    
    $
    1.46Diluted  as reported
    
    $
    0.34
    
    
    $
    1.49Diluted  pro forma
    
    $
    0.33
    
    
    $
    1.46
 6




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##### Table of Contents



Number ofSharesOptions outstanding January 1, 2006 (385,300 exercisable)
    
    
    970,700Granted
    
    
    50,000Exercised
    
    
    8,500Forfeited
    
    
    60,000Options outstanding September 30, 2006 (529,700 exercisable)
    
    
    952,200
  2006
    
    2005Expected option term
    
    5 years
    
    5 yearsAnnualized volatility rate
    
    
    14%-21.0
    %
    
    
    31.5
    %Risk-free rate of return
    
    
    4.57%-5.00
    %
    
    
    4.12
    %Fair value at the date of grant
    
    $
    15.57-$18.79
    
    
    $
    18.06Dividend yield
    
    
    0.63%-0.77
    %
    
    
    0.66
    %Black-Scholes value
    
    
    22.9%-26.0
    %
    
    
    32.9
    %
 6. Comprehensive Income
  7. Contingencies
  8. Recent Accounting Pronouncements
  Accounting for Uncertainty in Income Taxes  An Interpretation of FASB
Statement No. 109
 7




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
 This Managements Discussion and Analysis of Financial Condition and Results of Operations
should be read in conjunction with the Companys discussion presented under the caption
Managements Discussion and Analysis of Financial Condition and Results of Operations that is
available in the Annual Report on Form 10-K for the year ended December 31, 2005 filed with the
Securities and Exchange Commission. Some tables may not foot or cross foot due to rounding.
 Overview of Operating Results
    Summary of Key Measures of Financial Results
  (Unaudited)
    
    (Unaudited)Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,($ in millions)
    
    2006
    
    2005
    
    % Change
    
    2006
    
    2005
    
    % ChangeSelected Financial DataGross premiums written
    
    $
    103.5
    
    
    $
    97.1
    
    
    
    6.6
    
    
    $
    353.3
    
    
    $
    356.7
    
    
    
    (1.0
    )Ancillary income
    
    
    21.3
    
    
    
    21.3
    
    
    
    
    
    
    
    68.7
    
    
    
    71.0
    
    
    
    (3.2
    )Net investment income
    
    
    5.0
    
    
    
    3.7
    
    
    
    35.1
    
    
    
    13.9
    
    
    
    10.6
    
    
    
    31.1Gross revenues
    
    $
    129.8
    
    
    $
    122.1
    
    
    
    6.3
    
    
    $
    435.9
    
    
    $
    438.3
    
    
    
    (0.5
    )Ceded premiums written
    
    
    (0.2
    )
    
    
    (11.6
    )
    
    
    (98.3
    )
    
    
    3.0
    
    
    
    (40.9
    )
    
    
    (107.3
    )Change in net unearned premiums
    
    
    3.7
    
    
    
    15.2
    
    
    
    (75.7
    )
    
    
    (40.0
    )
    
    
    (8.5
    )
    
    NMNet realized gains (losses) on investments
    
    
    0.1
    
    
    
    0.2
    
    
    
    (50.0
    )
    
    
    (0.6
    )
    
    
    (0.1
    )
    
    NMTotal revenues
    
    $
    133.4
    
    
    $
    125.9
    
    
    
    5.9
    
    
    $
    398.3
    
    
    $
    388.8
    
    
    
    2.4Net income
    
    $
    7.0
    
    
    $
    7.3
    
    
    
    (3.1
    )
    
    $
    23.3
    
    
    $
    32.3
    
    
    
    (27.8
    )Key Financial RatiosLoss ratio
 net
    
    
    75.2
    %
    
    
    78.2
    %
    
    
    
    
    
    
    75.7
    %
    
    
    75.2
    %Expense
ratio  net
    
    
    18.9
    %
    
    
    14.0
    %
    
    
    
    
    
    
    16.6
    %
    
    
    11.3
    %Combined
ratio  net
    
    
    94.1
    %
    
    
    92.2
    %
    
    
    
    
    
    
    92.3
    %
    
    
    86.5
    %Ancillary income to gross premiums earned
    
    
    19.2
    %
    
    
    18.6
    %
    
    
    
    
    
    
    20.4
    %
    
    
    20.2
    %Ancillary income to net operating expenses
    
    
    51.2
    %
    
    
    60.2
    %
    
    
    
    
    
    
    56.7
    %
    
    
    67.2
    %
 
 NM = Not meaningful Explanation of Key Measures
  8




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##### Table of Contents



Gross Premiums Written
 Net Premiums Written.
 Gross Revenues (a non-GAAP financial measure).
 Loss Ratio
 Expense Ratio
 Combined Ratio
 Ancillary Income Measures.
 Seasonality
 9




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##### Table of Contents



Results of Operations
 Revenues
 Premiums
  (Unaudited)
    
    (Unaudited)Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,($ in millions)
    
    2006
    
    2005
    
    % Change
    
    2006
    
    2005
    
    % ChangeGross premiums writtenFlorida
    
    $
    48.4
    
    
    $
    51.8
    
    
    
    (6.6
    )
    
    $
    160.6
    
    
    $
    176.5
    
    
    
    (9.0
    )Tennessee
    
    
    12.8
    
    
    
    12.9
    
    
    
    (0.8
    )
    
    
    43.2
    
    
    
    47.7
    
    
    
    (9.4
    )Texas
    
    
    9.3
    
    
    
    7.9
    
    
    
    17.7
    
    
    
    34.3
    
    
    
    30.9
    
    
    
    11.0Georgia
    
    
    6.5
    
    
    
    6.3
    
    
    
    3.2
    
    
    
    23.0
    
    
    
    22.5
    
    
    
    2.2Louisiana
    
    
    6.3
    
    
    
    2.7
    
    
    
    133.3
    
    
    
    20.1
    
    
    
    19.8
    
    
    
    1.5Mississippi
    
    
    5.1
    
    
    
    4.4
    
    
    
    15.9
    
    
    
    22.1
    
    
    
    19.4
    
    
    
    13.9All other states
    
    
    15.1
    
    
    
    11.1
    
    
    
    36.0
    
    
    
    50.0
    
    
    
    39.9
    
    
    
    25.3Gross premiums written
    
    $
    103.5
    
    
    $
    97.1
    
    
    
    6.6
    
    
    $
    353.3
    
    
    $
    356.7
    
    
    
    (1.0
    )Ceded premiums written
    
    
    (0.2
    )
    
    
    (11.6
    )
    
    
    (98.3
    )
    
    
    3.0
    
    
    
    (40.9
    )
    
    
    (107.3
    )Net premiums written
    
    $
    103.3
    
    
    $
    85.5
    
    
    
    20.8
    
    
    $
    356.3
    
    
    $
    315.8
    
    
    
    12.8Gross premiums earned
    
    $
    111.0
    
    
    $
    114.3
    
    
    
    (2.9
    )
    
    $
    336.6
    
    
    $
    352.2
    
    
    
    (4.4
    )Ceded premiums earned
    
    
    (4.0
    )
    
    
    (13.6
    )
    
    
    (70.6
    )
    
    
    (20.3
    )
    
    
    (44.8
    )
    
    
    (54.7
    )Net premiums earned
    
    $
    107.0
    
    
    $
    100.7
    
    
    
    6.2
    
    
    $
    316.3
    
    
    $
    307.4
    
    
    
    2.9Net premiums written to gross premiums written
    
    
    99.8
    %
    
    
    88.1
    %
    
    
    
    
    
    
    100.8
    %
    
    
    88.5
    %Gross premiums earned to gross premiums written
    
    
    107.2
    %
    
    
    117.7
    %
    
    
    
    
    
    
    95.4
    %
    
    
    98.7
    %Net premiums earned to net premiums written
    
    
    103.6
    %
    
    
    117.8
    %
    
    
    
    
    
    
    88.8
    %
    
    
    97.3
    %
    10




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Ancillary Income
   Net Investment Income
  Realized Gains on Securities and Other
   Expenses
 Insurance Losses and Loss Adjustment Expenses
  11




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Operating Expenses
    Income Taxes
  12




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Financial Condition
 Liquidity and Capital Resources
 Sources and Uses of Funds
   Financing and Capital
   Reinsurance
  Investments
 Debt securities
  13




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##### Table of Contents



Gross
    
    Gross Unrealized LossesAmortized
    
    Unrealized
    
    Less than
    
    Greater than
    
    Fair($ in millions)
    
    Cost
    
    Gains
    
    12 months
    
    12 months
    
    ValueU.S. Treasury securities and
obligations of U.S. government
corporations and agencies
    
    $
    89.1
    
    
    $
    0.5
    
    
    $
    0.2
    
    
    $
    1.2
    
    
    $
    88.2Obligations of states and
political subdivisions
    
    
    71.9
    
    
    
    0.5
    
    
    
    
    
    
    
    0.5
    
    
    
    71.9Corporate debt securitiesBanks and financial institutions
    
    
    104.7
    
    
    
    0.3
    
    
    
    0.1
    
    
    
    2.1
    
    
    
    102.8Credit cards and auto loans
    
    
    79.2
    
    
    
    0.2
    
    
    
    0.1
    
    
    
    1.1
    
    
    
    78.2Industrial
    
    
    50.3
    
    
    
    0.2
    
    
    
    0.1
    
    
    
    1.2
    
    
    
    49.1Telecommunications
    
    
    17.9
    
    
    
    
    
    
    
    
    
    
    
    0.4
    
    
    
    17.5Utilities and Electric Services
    
    
    14.5
    
    
    
    
    
    
    
    
    
    
    
    0.4
    
    
    
    14.1Corporate debt securities
    
    
    266.6
    
    
    
    0.7
    
    
    
    0.3
    
    
    
    5.2
    
    
    
    261.7Total
    
    $
    427.6
    
    
    $
    1.7
    
    
    $
    0.5
    
    
    $
    6.9
    
    
    $
    421.8
  ($ in millions)
    
    Amortized Cost
    
    Fair ValueYears to maturity:One or less
    
    $
    17.5
    
    
    $
    17.3After one through five
    
    
    188.2
    
    
    
    185.1After five through ten
    
    
    130.8
    
    
    
    129.5After ten
    
    
    91.1
    
    
    
    89.9Total
    
    $
    427.6
    
    
    $
    421.8
  14




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##### Table of Contents



NAIC
    
    S&P
    
    AmortizedRating
    
    Rating
    
    Cost
    
    Fair Value
    
    %1
    
    AAA
    
    $
    164.5
    
    
    $
    162.8
    
    
    
    38.6
    %1
    
    AA
    
    
    47.0
    
    
    
    46.5
    
    
    
    11.0
    %1
    
    A
    
    
   92.9
    
    
    
    91.0
    
    
    
    21.6
    %2
    
    BBB
    
    
    35.5
    
    
    
    34.7
    
    
    
    8.2
    %3
    
    BB
    
    
    0.0
    
    
    
    0.0
    
    
    
    0.0
    %1
    
    Agency
    
    
    87.7
    
    
    
    86.8
    
    
    
    20.6
    %$
    427.6
    
    
    $
    421.8
    
    
    
    100.0
    %
   -100 Basis Point
    
    
    
    
    
    +100 Basis Point($ in millions)
    
    Change
    
    Fair Value
    
    ChangeDebt securities, available-for-sale
    
    $
    438.4
    
    
    $
    421.8
    
    
    $
    405.3
 Short-term investments.
 Cash and cash equivalents
 Forward-Looking Statements
  
    
    statements and assumptions relating to future growth, earnings, earnings per
share and other financial performance measures, as well as managements short-term and
long-term performance goals;
    
    statements relating to the anticipated effects on results of operations or
financial condition from recent and expected developments or events;
    
    statements relating to our business and growth strategies; and
    
    any other statements or assumptions that are not historical facts.
 15




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##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures About Market Risk.
  
 Item 4. Controls and Procedures.
  16




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##### Table of Contents



PART
II  OTHER INFORMATION
 
 Item 1. Legal Proceedings.
   Julie Buell vs. Direct
General Insurance Agency, Inc. and Direct General Insurance Company, th
 
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
  17




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##### Table of Contents



Item 6. Exhibits.
 31.1
    
    Rule 13a-14(a) Certifications of CEO (pursuant to Section 302 of the Sarbanes-Oxley Act of 2002).31.2
    
    Rule 13a-14(a) Certifications of CFO (pursuant to Section 302 of the Sarbanes-Oxley Act of 2002).32.1
    
    Rule 1350 Certifications of CEO (pursuant to Section 906 of the Sarbanes-Oxley Act of 2002).32.2
    
    Rule 1350 Certifications of CFO (pursuant to Section 906 of the Sarbanes-Oxley Act of 2002).
 18




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##### Table of Contents



SIGNATURES
  DIRECT GENERAL CORPORATION(Registrant)November 7, 2006
    
    By:
    
    /s/ William C. Adair, Jr.Date
    
    
    
    (Signature)Name:
    

William
C. Adair, Jr.Title:
    

Chairman
and Chief Executive OfficerNovember 7, 2006
    
    By:
    
    /s/ J. Todd HagelyDate
    
    
    
    (Signature)Name:
    

J.
Todd HagelyTitle:
    

Senior
Vice President and Chief Financial Officer