##### 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
 June 30, 2006
  o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
  000-50360
 DIRECT GENERAL CORPORATION
  Tennessee
    
    62-1564496(State or other jurisdiction of
    
    (I.R.S. Employer Identification No.)incorporation or organization)1281 Murfreesboro Road, Nashville, TN
    
    37217(Address of principal executive offices)
    
    (Zip Code)
 
 x o
  o x o
  o x




---



TABLE OF CONTENTS  PART I  FINANCIAL INFORMATIONCONDENSED CONSOLIDATED STATEMENTS OF OPERATIONSCONDENSED CONSOLIDATED BALANCE SHEETSCONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWSNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTSPART II  OTHER INFORMATIONSIGNATURESEX-10.1 EIGHTH AMENDMENT TO EIGHTH AMENDED AND RESTATED LOAN AGREEMENTEX-10.2 FIFTEENTH AMENDED AND RESTATED GUARANTY AGREEMENTEX-10.3 SEVENTH AMENDMENT TO SEVENTH AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENTEX-10.4 SEVENTH AMENDMENT TO SEVENTH AMENDED AND RESTATED SECURITY AGREEMENTEX-31.1 SECTION 302 CERTIFICATION OF THE CEOEX-31.2 SECTION 302 CERTIFICATION OF THE CFOEX-32.1 SECTION 906 CERTIFICATION OF THE CEOEX-32.2 SECTION 906 CERTIFICATION OF THE CFO    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
    
    
    Six Months EndedJune 30,
    
    
    June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005(In thousands - except per share amounts)RevenuesPremiums earned
    
    $
    107,458
    
    
    $
    104,737
    
    
    $
    209,346
    
    
    $
    206,650Finance income
    
    
    11,091
    
    
    
    12,130
    
    
    
    22,854
    
    
    
    24,301Commission and service fee income
    
    
    10,383
    
    
    
    11,116
    
    
    
    24,436
    
    
    
    25,383Net investment income
    
    
    4,804
    
    
    
    3,546
    
    
    
    8,928
    
    
    
    6,875Net realized gains (losses) on securities and other
    
    
    381
    
    
    
    (286
    )
    
    
    (634
    )
    
    
    (255
    )Total revenues
    
    
    134,117
    
    
    
    131,243
    
    
    
    264,930
    
    
    
    262,954ExpensesInsurance losses and loss adjustment expenses
    
    
    81,946
    
    
    
    76,485
    
    
    
    159,163
    
    
    
    152,367Selling, general and administrative costs
    
    
    37,566
    
    
    
    34,322
    
    
    
    73,772
    
    
    
    67,106Interest expense
    
    
    3,118
    
    
    
    1,950
    
    
    
    5,796
    
    
    
    3,260Total expenses
    
    
    122,630
    
    
    
    112,757
    
    
    
    238,731
    
    
    
    222,733Income before income taxes
    
    
    11,487
    
    
    
    18,486
    
    
    
    26,199
    
    
    
    40,221Income tax expense
    
    
    4,335
    
    
    
    6,990
    
    
    
    9,887
    
    
    
    15,142Net income
    
    $
    7,152
    
    
    $
    11,496
    
    
    $
    16,312
    
    
    $
    25,079Earnings per ShareBasic earnings per common share
    
    $
    0.35
    
    
    $
    0.53
    
    
    $
    0.80
    
    
    $
    1.14Diluted earnings per common share
    
    $
    0.35
    
    
    $
    0.53
    
    
    $
    0.80
    
    
    $
    1.14
  2




---



##### Table of Contents



DIRECT GENERAL CORPORATION AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 (Unaudited)June 30,
    
    
    December 31,2006
    
    
    2005(In thousands)AssetsInvestments:Debt securities available-for-sale at fair value
(amortized cost $422,451 and $395,159 at June 30, 2006
and December 31, 2005, respectively)
    
    $
    408,654
    
    
    $
    388,032Short-term investments and other invested assets
    
    
    4,604
    
    
    
    3,688Total investments
    
    
    413,258
    
    
    
    391,720Cash and cash equivalents
    
    
    71,853
    
    
    
    64,527Finance receivables, net
    
    
    237,693
    
    
    
    214,796Reinsurance balances receivable
    
    
    21,910
    
    
    
    27,083Prepaid reinsurance premiums
    
    
    5,034
    
    
    
    24,440Goodwill and other intangible assets, net
    
    
    31,621
    
    
    
    31,621Deferred policy acquisition costs
    
    
    20,191
    
    
    
    13,804Income taxes recoverable
    
    
    6,609
    
    
    
    4,692Deferred income taxes
    
    
    21,928
    
    
    
    21,915Property and equipment, net
    
    
    17,367
    
    
    
    18,346Other assets
    
    
    23,663
    
    
    
    28,068Total assets
    
    $
    871,127
    
    
    $
    841,012Liabilities and Shareholders EquityLoss and loss adjustment expense reserves
    
    $
    136,234
    
    
    $
    131,408Unearned premiums
    
    
    238,938
    
    
    
    214,715Reinsurance balances payable and funds held
    
    
    16,806
    
    
    
    32,024Accounts payable and accrued expenses
    
    
    14,621
    
    
    
    12,550Notes payable
    
    
    158,233
    
    
    
    153,009Debentures payable
    
    
    41,238
    
    
    
    41,238Capital lease obligations
    
    
    1,979
    
    
    
    2,636Payable for securities
    
    
    119
    
    
    
    3,187Other liabilities
    
    
    13,622
    
    
    
    12,713Total liabilities
    
    
    621,790
    
    
    
    603,480Shareholders equityCommon stock, no par; authorized shares  100,000.0;
issued shares  20,347.7 and 20,339.2 at June 30,
2006 and December 31, 2005, respectively
    
    
    70,361
    
    
    
    69,700Retained earnings
    
    
    186,465
    
    
    
    171,780Accumulated other comprehensive (loss) income:Net unrealized depreciation on investment securities
    
    
    (8,968
    )
    
    
    (4,633
    )Net gain on cash flow hedge
    
    
    1,479
    
    
    
    685Total shareholders equity
    
    
    249,337
    
    
    
    237,532Total liabilities and shareholders equity
    
    $
    871,127
    
    
    $
    841,012
  3




---



##### Table of Contents



DIRECT GENERAL CORPORATION AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Unaudited)
 Six Months Ended June 30,2006
    
    
    2005(In thousands)Operating activitiesNet income
    
    $
    16,312
    
    
    $
    25,079Adjustments to reconcile net income to net cash provided by operating activities:Net realized losses on securities and other
    
    
    634
    
    
    
    255Depreciation and amortization
    
    
    4,431
    
    
    
    3,334Deferred income taxes
    
    
    1,894
    
    
    
    (2,256
    )Changes in operating assets and liabilities:Finance receivables, net
    
    
    (22,897
    )
    
    
    (27,361
    )Reinsurance balances receivable
    
    
    5,173
    
    
    
    3,569Prepaid reinsurance premiums
    
    
    19,406
    
    
    
    1,893Deferred policy acquisition costs
    
    
    (6,387
    )
    
    
    (1,348
    )Income taxes recoverable/payable
    
    
    (1,917
    )
    
    
    3,626Loss and loss adjustment expense reserves
    
    
    4,826
    
    
    
    1,197Unearned premiums
    
    
    24,223
    
    
    
    21,773Reinsurance balances payable and funds held
    
    
    (15,218
    )
    
    
    2,456Accounts payable and accrued expenses
    
    
    2,071
    
    
    
    3,852Other
    
    
    7,175
    
    
    
    4,691Net cash provided by operating activities
    
    
    39,726
    
    
    
    40,760Investing activitiesProceeds from sales and maturities of debt securities available-for-sale
    
    
    43,546
    
    
    
    51,409Purchase of debt securities available-for-sale
    
    
    (72,505
    )
    
    
    (74,532
    )Payable for securities
    
    
    (3,068
    )
    
    
    9,494Net purchases of short-term investments
    
    
    (938
    )
    
    
    40Purchase of property and equipment, net
    
    
    (2,399
    )
    
    
    (3,863
    )Purchase of insurance agency assets
    
    
    
    
    
    
    (5,560
    )Net cash used in investing activities
    
    
    (35,364
    )
    
    
    (23,012
    )Financing activitiesRepurchase of common stock
    
    
    
    
    
    
    (20,037
    )Issuance of common stock
    
    
    23
    
    
    
    557Net proceeds from borrowings
    
    
    6,543
    
    
    
    43,800Payment of principal on borrowings
    
    
    (1,975
    )
    
    
    (766
    )Payment of dividends on common stock
    
    
    (1,627
    )
    
    
    (1,749
    )Net cash provided by financing activities
    
    
    2,964
    
    
    
    21,805Net increase in cash and cash equivalents
    
    
    7,326
    
    
    
    39,553Cash and cash equivalents at beginning of period
    
    
    64,527
    
    
    
    70,988Cash and cash equivalents at end of period
    
    $
    71,853
    
    
    $
    110,541
  4




---



##### 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
    
    
    Six Months EndedJune 30,
    
    
    June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005(In thousands, except per share amounts)Numerator:Net income
    
    $
    7,152
    
    
    $
    11,496
    
    
    $
    16,312
    
    
    $
    25,079Denominator:Weighted average common shares outstanding
    
    
    20,347.7
    
    
    
    21,634.5
    
    
    
    20,345.6
    
    
    
    21,951.6Dilutive stock options
    
    
    37.9
    
    
    
    48.4
    
    
    
    39.6
    
    
    
    75.4Weighted average common shares
outstanding for purposes of computing
diluted earnings per common share
    
    
    20,385.6
    
    
    
    21,682.9
    
    
    
    20,385.2
    
    
    
    22,027.0Basic earnings per common share
    
    $
    0.35
    
    
    $
    0.53
    
    
    $
    0.80
    
    
    $
    1.14Diluted earnings per common share
    
    $
    0.35
    
    
    $
    0.53
    
    
    $
    0.80
    
    
    $
    1.14
 5




---



##### Table of Contents



5. Stock Options
     Three Months Ended
    
    
    Six Months EndedJune 30, 2005
    
    
    June 30, 2005(In thousands, except per share amounts)Net income, as reported
    
    $
    11,496
    
    
    $
    25,079Deduct: Total
stock-based employee
compensation expense
determined under the
fair value based
method, net of related
tax effects
    
    
    (213
    )
    
    
    (431
    )Net income, pro forma
    
    $
    11,283
    
    
    $
    24,648Income for purposes of
computing diluted
earnings per share
common, as reported
    
    $
    11,496
    
    
    $
    25,079Deduct: Total
stock-based employee
compensation expense
determined under the
fair value based
method, net of related
tax effects
    
    
    (213
    )
    
    
    (431
    )Income for purposes of
computing diluted
earnings per share
common, pro forma
    
    $
    11,283
    
    
    $
    24,648Earnings per shareBasic  as reported
    
    $
    0.53
    
    
    $
    1.14Basic  pro forma
    
    $
    0.52
    
    
    $
    1.12Diluted  as reported
    
    $
    0.53
    
    
    $
    1.14Diluted  pro forma
    
    $
    0.52
    
    
    $
    1.12
 6




---



##### Table of Contents



Number ofSharesOptions outstanding January 1, 2006 (385,300 exercisable)
    
    
    970,700Granted
    
    
    50,000Exercised
    
    
    8,500Forfeited
    
    
    48,000Options outstanding June 30, 2006 (365,700 exercisable)
    
    
    964,200
  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
  7




---



##### 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.
 Overview of Operating Results
  Summary of Key Measures of Financial Results
  (Unaudited)
    
    
    (Unaudited)Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,($ in millions)
    
    2006
    
    
    2005
    
    
    % Change
    
    
    2006
    
    
    2005
    
    
    % ChangeSelected Financial DataGross premiums written
    
    $
    89.2
    
    
    $
    98.4
    
    
    
    (9.3
    )
    
    $
    249.8
    
    
    $
    259.7
    
    
    
    (3.8
    )Ancillary income
    
    
    21.4
    
    
    
    23.2
    
    
    
    (7.8
    )
    
    
    47.3
    
    
    
    49.7
    
    
    
    (4.8
    )Net investment income
    
    
    4.8
    
    
    
    3.6
    
    
    
    33.3
    
    
    
    8.9
    
    
    
    6.9
    
    
    
    29.0Gross revenues
    
    $
    115.4
    
    
    $
    125.2
    
    
    
    (7.8
    )
    
    $
    306.0
    
    
    $
    316.3
    
    
    
    (3.3
    )Ceded premiums written
    
    
    0.6
    
    
    
    (11.4
    )
    
    
    (105.3
    )
    
    
    3.2
    
    
    
    (29.4
    )
    
    
    (110.9
    )Change in net unearned premiums
    
    
    17.7
    
    
    
    17.7
    
    
    
    0.0
    
    
    
    (43.7
    )
    
    
    (23.6
    )
    
    
    85.2Net realized gains (losses) on securities
and other
    
    
    0.4
    
    
    
    (0.3
    )
    
    NM
    
    
    (0.6
    )
    
    
    (0.3
    )
    
    NMTotal revenues
    
    $
    134.1
    
    
    $
    131.2
    
    
    
    2.2
    
    
    $
    264.9
    
    
    $
    263.0
    
    
    
    0.8Net income
    
    $
    7.2
    
    
    $
    11.5
    
    
    
    (37.4
    )
    
    $
    16.3
    
    
    $
    25.1
    
    
    
    (35.1
    )Key Financial RatiosLoss ratio  net
    
    
    76.3
    %
    
    
    73.0
    %
    
    
    
    
    
    
    76.0
    %
    
    
    73.7
    %Expense ratio  net
    
    
    17.9
    %
    
    
    12.4
    %
    
    
    
    
    
    
    15.4
    %
    
    
    10.0
    %Combined ratio  net
    
    
    94.2
    %
    
    
    85.4
    %
    
    
    
    
    
    
    91.4
    %
    
    
    83.7
    %Ancillary income to gross premiums earned
    
    
    18.8
    %
    
    
    19.4
    %
    
    
    
    
    
    
    21.0
    %
    
    
    20.9
    %Ancillary income to net operating expenses
    
    
    52.6
    %
    
    
    64.1
    %
    
    
    
    
    
    
    59.4
    %
    
    
    70.6
    %
 Explanation of Key Measures
  8




---



##### 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




---



##### Table of Contents



Results of Operations
 Revenues
 Premiums
  (Unaudited)
    
    
    (Unaudited)Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,($ in millions)
    
    2006
    
    
    2005
    
    
    % Change
    
    
    2006
    
    
    2005
    
    
    % ChangeGross premiums writtenFlorida
    
    $
    41.2
    
    
    $
    46.6
    
    
    
    (11.6
    )
    
    $
    112.2
    
    
    $
    124.7
    
    
    
    (10.0
    )Tennessee
    
    
    10.7
    
    
    
    12.5
    
    
    
    (14.4
    )
    
    
    30.4
    
    
    
    34.8
    
    
    
    (12.6
    )Texas
    
    
    10.1
    
    
    
    14.5
    
    
    
    (30.3
    )
    
    
    25.0
    
    
    
    23.0
    
    
    
    8.7Georgia
    
    
    5.2
    
    
    
    5.5
    
    
    
    (5.5
    )
    
    
    16.5
    
    
    
    16.1
    
    
    
    2.5Louisiana
    
    
    5.0
    
    
    
    5.3
    
    
    
    (5.7
    )
    
    
    13.8
    
    
    
    17.1
    
    
    
    (19.3
    )Mississippi
    
    
    5.8
    
    
    
    5.0
    
    
    
    16.0
    
    
    
    17.0
    
    
    
    15.0
    
    
    
    13.3All other states
    
    
    11.2
    
    
    
    9.0
    
    
    
    24.4
    
    
    
    34.9
    
    
    
    29.0
    
    
    
    20.3Gross premiums written
    
    $
    89.2
    
    
    $
    98.4
    
    
    
    (9.3
    )
    
    $
    249.8
    
    
    $
    259.7
    
    
    
    (3.8
    )Ceded premiums written
    
    
    0.6
    
    
    
    (11.4
    )
    
    
    (105.3
    )
    
    
    3.2
    
    
    
    (29.4
    )
    
    
    (110.9
    )Net premiums written
    
    $
    89.8
    
    
    $
    87.0
    
    
    
    3.2
    
    
    $
    253.0
    
    
    $
    230.3
    
    
    
    9.9Gross premiums earned
    
    $
    114.0
    
    
    $
    119.7
    
    
    
    (4.8
    )
    
    $
    225.7
    
    
    $
    237.9
    
    
    
    (5.1
    )Ceded premiums earned
    
    
    (6.5
    )
    
    
    (15.0
    )
    
    
    (56.7
    )
    
    
    (16.4
    )
    
    
    (31.2
    )
    
    
    (47.4
    )Net premiums earned
    
    $
    107.5
    
    
    $
    104.7
    
    
    
    2.7
    
    
    $
    209.3
    
    
    $
    206.7
    
    
    
    1.3Net premiums written to gross premiums written
    
    
    100.7
    %
    
    
    88.4
    %
    
    
    
    
    
    
    101.3
    %
    
    
    88.7
    %Gross premiums earned to gross premiums written
    
    
    127.8
    %
    
    
    121.6
    %
    
    
    
    
    
    
    90.4
    %
    
    
    91.6
    %Net premiums earned to net premiums written
    
    
    119.7
    %
    
    
    120.3
    %
    
    
    
    
    
    
    82.7
    %
    
    
    89.8
    %
     10




---



##### Table of Contents



Ancillary Income
 ®
  Net Investment Income
  11




---



##### Table of Contents



Realized Gains on Securities and Other
   Expenses
 Insurance Losses and Loss Adjustment Expenses
   Operating Expenses
   Income Taxes
  12




---



##### Table of Contents



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




---



##### 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
    
    $
    85.8
    
    
    $
    
    
    
    $
    1.8
    
    
    $
    1.0
    
    
    $
    83.0Obligations of states and
political subdivisions
    
    
    70.8
    
    
    
    0.2
    
    
    
    0.7
    
    
    
    0.5
    
    
    
    69.8Corporate debt securitiesBanks and financial institutions
    
    
    103.7
    
    
    
    
    
    
    
    2.0
    
    
    
    2.2
    
    
    
    99.5Credit cards and auto loans
    
    
    82.2
    
    
    
    
    
    
    
    0.9
    
    
    
    1.1
    
    
    
    80.2Industrial
    
    
    47.6
    
    
    
    
    
    
    
    0.9
    
    
    
    1.4
    
    
    
    45.3Telecommunications
    
    
    17.5
    
    
    
    
    
    
    
    0.4
    
    
    
    0.4
    
    
    
    16.7Utilities and Electric Services
    
    
    14.9
    
    
    
    
    
    
    
    0.4
    
    
    
    0.3
    
    
    
    14.2Corporate debt securities
    
    
    265.9
    
    
    
    
    
    
    
    4.6
    
    
    
    5.4
    
    
    
    255.9Total
    
    $
    422.5
    
    
    $
    0.2
    
    
    $
    7.1
    
    
    $
    6.9
    
    
    $
    408.7
  ($ in millions)
    
    Amortized Cost
    
    
    Fair ValueYears to maturity:One or less
    
    $
    12.2
    
    
    $
    12.1After one through five
    
    
    188.2
    
    
    
    182.8After five through ten
    
    
    132.7
    
    
    
    127.4After ten
    
    
    89.4
    
    
    
    86.4Total
    
    $
    422.5
    
    
    $
    408.7
   ($ in millions)NAIC Rating
    
    S&P Rating
    
    
    Amortized Cost
    
    
    Fair Value
    
    
    %1
    
    AAA
    
    $
    154.4
    
    
    $
    150.5
    
    
    
    36.8
    %1
    
    AA
    
    
    33.6
    
    
    
    32.7
    
    
    
    8.0
    %1
    
    
    A
    
    
    
    111.1
    
    
    
    106.7
    
    
    
    26.2
    %2
    
    BBB
    
    
    37.8
    
    
    
    36.1
    
    
    
    8.8
    %1
    
    Agency
    
    
    85.6
    
    
    
    82.7
    
    
    
    20.2
    %Total
    
    
    
    
    
    $
    422.5
    
    
    $
    408.7
    
    
    
    100.0
    %
 14




---



##### Table of Contents



-100 Basis Point
    
    
    
    
    
    
    +100 Basis Point($ in millions)
    
    Change
    
    
    Fair Value
    
    
    ChangeDebt securities, available-for-sale
    
    $
    423.1
    
    
    $
    408.7
    
    
    $
    394.3
 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




---



##### Table of Contents



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




---



##### Table of Contents



PART II  OTHER INFORMATION
 Item 1. Legal Proceedings.
   Item 4. Submission of Matters to a Vote of Security Holders.
   Item 5. Other Information.
     Item 6. Exhibits.
 10.1
    
    
    Eighth Amendment to Eighth Amended and Restated Loan Agreement10.2
    
    
    Fifteenth Amended and Restated Guaranty Agreement10.3
    
    
    Seventh Amendment to Seventh Amended and Restated Pledge and Security Agreement10.4
    
    
    Seventh Amendment to Seventh Amended and Restated Security Agreement
 17




---



##### Table of Contents



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




---



##### Table of Contents



SIGNATURES
  DIRECT GENERAL CORPORATION
(Registrant)August 8, 2006

Date
    
    By:
    
    /s/ William C. Adair, Jr.

(Signature)Name:
Title:
    
    William C. Adair, Jr.

Chairman and Chief Executive Officer
 August 8, 2006

Date
    
    By:
    
    /s/ J. Todd Hagely

(Signature)Name:
Title:
    
    J. Todd Hagely

Senior Vice President and Chief Financial Officer
 19