PAULA Financial Nets Profit, Names New CEO

November 12, 2001

California-based PAULA Financial announced net income of $0.20 per share for the third quarter of 2001 compared to a net loss of ($0.26) per share for the 2000 period. Year to date the Company reported net income of $0.27 per share, compared to a net loss of ($0.53) for the 2000 period.

Operating earnings for the third quarter of 2001 were $0.09 per share compared to an operating loss of ($0.10) per share for the 2000 period. Year to date the Company reported operating income of $0.15 per share compared to an operating loss of ($0.27) for the 2000 period. Operating earnings per share exclude the impact of realized investment gains and losses and the impact of gains and losses of unconsolidated affiliates. In the third quarter of 2001, the Company selectively realized a portion of the unrealized gains imbedded in its fixed income portfolio.

In a personnel move, Ray Jacobsen was named as president and CEO of the company’s underwriting subsidiary, PAULA Insurance Company (PICO). Jacobsen will also serve as a member of the PAULA Financial Board of Directors.

Jacobsen joins PAULA from Royal SunAlliance where he served as the president and COO of their Middle Market Commercial Business Division which had revenues in excess of $1 billion. Prior to that, Jacobsen was president and CEO of the EBI Companies, a subsidiary of the Orion Group, which was acquired by Royal SunAlliance in 1999. At EBI, he was responsible for repositioning EBI from a regional to a national carrier, growing the business to almost $600 million in premiums.

During the third quarter, PICO continued to achieve rate increases on its California book of business. Premium rate increases on the California renewals for the first nine months of 2001 averaged 19 percent.

Gross written premiums in the first nine months of 2001 declined to $53.1 million from $81.6 million in the 2000 period. The decline in premium is primarily related to geographic regions which the Company has exited, principally Texas and Florida. In 2000, 24 percent of gross written premiums came from these geographic regions; today these regions represent only 2 percent of gross written premium.

PICO has continued to actively manage fixed expense levels consistent with the direction of premium volume. Fixed expenses, including unallocated loss adjustment expenses, at the insurance company operation are 19 percent less than 2000 levels.

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