21St Century Insurance Group 10-Q Quarterly Report July 2006

(WOODLAND HILLS, CA) - 21st Century Insurance Group (NYSE: TW) today reported net income of $28.3 million ($0.33 per basic share) for the second quarter of 2006, compared to $20.5 million ($0.24 per basic share) for the same period in 2005. The second quarter results include decreases to prior accident year loss and LAE reserves totaling $18.1 million, versus decreases of $11.9 million in the second quarter of 2005. The second quarter results also include no net realized capital gains or losses, compared to net realized capital losses of $1.3 million in the second quarter of 2005.

The Company began operations in Florida, Georgia and Pennsylvania during the second quarter of 2006, increasing the percentage of the U.S. personal auto market in which the Company operates from 34% to 49% (see table below - “21st Market Footprint”).

“We are on track with our national expansion strategy,” said Chief Executive Officer & President Bruce Marlow.

Table 1 - "21st Market Footprint"
U.S. Private Passenger Automobile
State	Direct Written Premium - 2005 (in $Bs)		% of U.S.			Cumulative % of U.S.			U.S. Rank (DWP)
Total DWP for the Markets in which 21st Operates:	$	79.5		49.2	%
CALIFORNIA	$	19.3		12.0	%
NON-CALIFORNIA STATES	$	60.2		37.2	%
TOTAL MARKETS FOR 21ST	$	79.5		49.2	%
Total DWP for the Markets in which 21st Does Not Operate:	$	82.0		50.8	%
TOTAL U.S. MARKET	$	161.5		100.0	%

Regional Detail:
CALIFORNIA	$	19.3		12.0	%		12.0	%		1
Arizona	$	3.4		2.1	%		14.1	%		16
Nevada	$	1.6		1.0	%		15.0	%		30
Oregon	$	1.9		1.2	%		16.2	%		28
Washington	$	3.5		2.2	%		18.4	%		15
Western States	$	10.4		6.4	%
Illinois	$	5.7		3.5	%		21.9	%		8
Indiana	$	2.8		1.7	%		23.7	%		19
Ohio	$	5.3		3.3	%		26.9	%		9
Texas	$	11.6		7.2	%		34.1	%		3
Central States	$	25.4		15.7	%
Florida	$	12.2		7.6	%		41.7	%		2
Georgia	$	5.1		3.2	%		44.8	%		10
Pennsylvania	$	7.1		4.4	%		49.2	%		5
Eastern States	$	24.4		15.1	%
NON-CALIFORINIA STATES	$	60.2		37.2	%
Source - 2005 Highline Data (NAIC)

Other second quarter financial highlights:

Direct premiums written of $316.8 million, versus $328.7 million in the second quarter of 2005 (3.6% decrease)

California direct premiums written of $287.4 million, versus $309.2 million in the second quarter of 2005 (7.1% decrease)

Non-California direct premiums written of $29.4 million, versus $19.5 million in the second quarter of 2005 (51.8% increase)

GAAP combined ratio of 91.4% was favorably impacted by 5.6 points of prior accident year loss and LAE reserve decreases, versus 95.2% for the second quarter of 2005, which was favorably impacted by 3.5 points

For the six months ended June 30, 2006, net income was $49.6 million ($0.58 per basic share), compared to $39.9 million ($0.47 per basic share) for the same six-month period in 2005. The 2006 six-month results include decreases to prior accident year loss and LAE reserves totaling $25.1 million, versus decreases of $19.6 million for the same six-month period in 2005. The 2006 six-month results also include net realized capital losses of $1.0 million, compared to net realized capital losses of $1.7 million for the same six-month period in 2005. Other six-month financial highlights:

Direct premiums written of $655.4 million, versus $680.8 million for the same six-month period in 2005 (3.7% decrease)

California direct premiums written of $599.2 million, versus $641.8 million for the same six-month period in 2005 (6.6% decrease)

Non-California direct premiums written of $56.2 million, versus $39.0 million for the same six-month period in 2005 (44.1% increase)

GAAP combined ratio of 93.0% was favorably impacted by 3.9 points of prior accident year loss and LAE reserve decreases, versus 95.6% for the same six-month period in 2005, which was favorably impacted by 2.9 points

Stockholders’ equity at June 30, 2006 increased to $855.2 million, compared to $810.0 million at June 30, 2005. Book value per share at June 30, 2006 improved to $9.91 per share from $9.45 per share at June 30, 2005. Operating cash flow for the second quarter of 2006 was $25.7 million, compared to $30.8 million in the same period of 2005. Operating cash flow for the six months ended June 30, 2006 was $64.4 million, compared to $70.2 million for the same six-month period of 2005.

“I am pleased we have been able to maintain our profitability as we have continued to put the components into place to become a strong national competitor,” said the Company’s Senior Vice President and Chief Financial Officer, Steve Erwin. “Our strong capital position provides a solid foundation to support our growth strategy,“ added Erwin.

About 21st: Good people to call

Founded in 1958, 21st Century Insurance Group is a direct-to-consumer provider of personal auto insurance. With $1.4 billion of revenue in 2005, the Company insures over 1.5 million vehicles in Arizona, California, Florida, Georgia, Illinois, Indiana, Nevada, Ohio, Oregon, Pennsylvania, Texas and Washington. 21st provides superior policy features and 24/7 customer service at a competitive price. Customers can purchase insurance, service their policy or report a claim at 21st.com or on the phone with our licensed insurance professionals at 1-800-211-SAVE, 24 hours a day, 365 days a year. Service is offered in English and Spanish, both on the phone and on the web. 21st Century Insurance Company, 21st Century Casualty Company, and 21st Century Insurance Company of the Southwest are rated A+ by A. M. Best, Fitch Ratings and Standard & Poor’s. The Company’s A+ rating was affirmed by A.M. Best on June 13, 2006.

21st Century Insurance Group is traded on the New York Stock Exchange under the trading symbol “TW” and is headquartered at 21st Century Plaza, 6301 Owensmouth Avenue, Woodland Hills, CA 91367.

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21st Century Insurance Group (NYSE: TW) will hold an earnings teleconference for investors on Thursday, July 27, 2006 at 10:00 a.m. EST. The public can find information about the call in the Investor Relations section of 21st.com. The call will be broadcast over the Internet via a webcast, as well.

Teleconference Details:

Dial in number - 1-800-659-2037

International dial in number - 1-617-614-2713

Passcode - 975-122-79

Teleconference Replay Details:

Available from 12pm (EST) on July 27th, 2006 until 12pm (EST) on August 10th, 2006

Dial in number - 1-888-286-8010

International dial in number - 1-617-801-6888

Passcode - 468-792-15

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Cautionary Statement:

Statements contained herein and within other publicly available documents may include, and the Company's officers and representatives may from time to time make, statements that may constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are not historical facts, but instead represent only the Company's belief regarding future events, many of which, by their nature, are inherently uncertain and outside of the Company's control. These statements may address, among other things, the Company's strategy for growth, underwriting results, expected combined ratio and growth of written premiums, product development, computer systems, litigation, regulatory environment and approvals, market position, financial results, dividend policy and reserves. It is possible that the Company's actual results, actions and financial condition may differ, possibly materially, from the anticipated results, actions and financial condition indicated in these forward-looking statements. Other important factors that could cause the Company's actual results and actions to differ, possibly materially, from those in the specific forward-looking statements include the effects of competition and competitors' pricing actions; changes in consumer preferences or buying habits; adverse underwriting and claims experience; customer service problems; the impact on Company operations of natural disasters, principally earthquake, or civil disturbance, due to the concentration of Company facilities and employees in Southern California; information system problems; control environment failures; adverse developments in financial markets or interest rates; results of legislative, regulatory or legal actions, including the inability to obtain regulatory approval for necessary licenses, rate changes and product changes and possible adverse actions by state regulators in market conduct examinations and rate proceedings; and the Company’s ability to service its debt, including its ability to receive dividends and/or sufficient payments from its subsidiaries to service its obligations. The Company is not under any obligation (and expressly disclaims any such obligation) to update or alter any forward-looking statement, whether written or oral, that may be made from time to time, whether as a result of new information, future events or otherwise. Additional financial information is available on the Company's website at 21st.com (which shall not be deemed to be incorporated in or a part of this release) or by request to the Investor Relations Department.

Disclosure of Non-GAAP Measures:

The Company may have included financial measures and other information in this document that may not be presented in accordance with accounting principles generally accepted in the United States of America (“GAAP”). Management believes these financial measures and other information may enhance investors’ understanding of the Company’s operations or enhance their understanding of the industry, in general. However, these financial measures and other information are not intended to replace, and should be read in conjunction with, the GAAP financial results. When possible, the Company has made efforts to reconcile these financial measures and other information to the most directly comparable GAAP financial measures available.

Premiums Written represent the premiums charged on policies issued and in effect during a fiscal period. Premiums Earned, the most directly comparable GAAP measure, represents the portion of premiums written that is recognized as income in the financial statements for the periods presented and earned on a pro-rata basis over the terms of the policies. Premiums Written are meant as supplemental information and are not intended to replace Premiums Earned. Statutory Surplus represents equity as of the end of a fiscal period for the Company’s insurance entities, determined in accordance with Statutory Accounting Principles, as prescribed by insurance regulatory authorities. Stockholders’ Equity is the most directly comparable GAAP measure. Statutory Surplus is presented as supplemental information and is not intended to replace Stockholders’ Equity.

These non-GAAP, financial measures should be read in conjunction with the GAAP financial results. The Company has reconciled these financial measures with the most directly comparable GAAP financial measures in the supplemental schedules.

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Exhibit A

21st Century Insurance Group and Subsidiaries

Condensed Consolidated Statements of Operations - All Lines

(Amounts in thousands, except share data)

(Unaudited)

	Q2'05			Q3'05			Q4'05			Q1'06			Q2'06
Total All Lines
Direct premiums written	$	328,669		$	349,118		$	316,466		$	338,569		$	316,837
Net premiums written	$	327,479		$	347,827		$	315,172		$	337,223		$	315,476

Net premiums earned	$	336,845		$	344,102		$	335,626		$	325,824		$	325,512
Net losses and loss adjustment expenses		248,284			258,105			241,513			236,496			223,094
Underwriting expenses		72,520			69,638			70,495			71,933			74,391
Underwriting profit		16,041			16,359			23,618			17,395			28,027

Net investment income		17,006			17,042			18,011			17,755			17,174
Other (expenses)/income		367			(3	)		(407	)		-			(913	)
Realized investment gains (losses)		(1,267	)		(939	)		(606	)		(1,067	)		30
Interest and fees expense		(2,031	)		(1,988	)		(1,943	)		(1,898	)		(1,854	)
Income before provision for taxes		30,116			30,471			38,673			32,185			42,464
Provision for income taxes		(9,621	)		(9,369	)		(12,281	)		(10,868	)		(14,143	)
Net income	$	20,495		$	21,102		$	26,392		$	21,317		$	28,321

Net income per common share - basic	$	0.24		$	0.25		$	0.31		$	0.25		$	0.33
Net income per common share - diluted	$	0.24		$	0.24		$	0.31		$	0.25		$	0.33

Weighted average shares outstanding - basic		85,704,165			85,793,904			85,799,397			85,868,878			85,968,155
Weighted average shares outstanding - diluted		85,890,984			86,205,599			86,427,724			86,517,163			86,232,103

Net losses and loss adjustment expense ratio		73.7	%		75.0	%		72.0	%		72.6	%		68.5	%
Underwriting expense ratio		21.5	%		20.2	%		21.0	%		22.1	%		22.9	%
Combined ratio		95.2	%		95.2	%		93.0	%		94.7	%		91.4	%

Reconciliation of direct premiums writtento net premiums earned
Direct premiums written	$	328,669		$	349,118		$	316,466		$	338,569		$	316,837
Ceded premiums written		(1,190	)		(1,291	)		(1,294	)		(1,346	)		(1,361	)
Net premiums written		327,479			347,827			315,172			337,223			315,476
Net change in unearned premiums		9,366			(3,725	)		20,454			(11,399	)		10,036
Net premiums earned	$	336,845		$	344,102		$	335,626		$	325,824		$	325,512

Net losses and loss adjustment expenses
Current accident year	$	260,200		$	259,301		$	245,870		$	243,511		$	241,215
Prior accident years		(11,916	)		(1,196	)		(4,357	)		(7,015	)		(18,121	)
Net losses and loss adjustment expenses	$	248,284		$	258,105		$	241,513		$	236,496		$	223,094

Exhibit B

21st Century Insurance Group and Subsidiaries

Condensed Consolidated Balance Sheets

(Amounts in thousands, except share data)

(Unaudited)

	June 30, 2005		September 30, 2005			December 31, 2005			March 31, 2006			June 30, 2006
Assets
Investments, available-for-sale, at fair value:
Fixed maturities:	$	1,369,612	$	1,350,411		$	1,354,707		$	1,434,761		$	1,426,728
Equity securities		49,088		46,380			47,367			850			-
Total Investments		1,418,700		1,396,791			1,402,074			1,435,611			1,426,728
Cash and cash equivalents		41,322		65,264			68,668			35,146			40,188
Accrued investment income		16,435		16,183			16,585			17,333			17,304
Premiums receivable		105,580		116,980			100,900			107,231			98,887
Reinsurance receivables and recoverables		5,760		5,914			6,539			6,223			6,521
Prepaid reinsurance premiums		1,784		1,870			1,946			2,023			2,072
Deferred income taxes		50,003		53,798			56,209			59,307			57,321
Deferred policy acquisition costs		62,205		63,760			59,939			62,919			68,248
Leased property under capital lease		28,094		25,339			22,651			21,587			20,568
Property and equipment, net of accumulated depreciation		132,376		145,841			145,811			147,047			148,213
Other assets		30,158		29,930			38,907			42,183			41,323

Total assets	$	1,892,417	$	1,921,670		$	1,920,229		$	1,936,610		$	1,927,373

Liabilities and Stockholders' Equity
Liabilities
Unpaid losses and loss adjustment expenses	$	495,522	$	517,614		$	523,835		$	508,428		$	495,092
Unearned premiums		336,243		340,055			319,676			331,152			321,166
Debt		134,242		131,095			127,972			124,796			121,619
Claim checks payable		38,567		40,711			42,681			40,609			38,363
Reinsurance payable		606		663			643			755			748
Other liabilities		77,234		78,514			75,450			94,057			95,220
Total liabilities		1,082,414		1,108,652			1,090,257			1,099,797			1,072,208

Stockholders' Equity
Common stock		86		86			86			86			86
Additional paid-in capital		422,514		423,795			425,454			430,360			435,889
Accumulated other comprehensive income (loss)		13,122		(2,812	)		(10,382	)		(22,892	)		(31,500	)
Treasury stock		-		-			(84	)		(84	)		(84	)
Retained earnings		374,281		391,949			414,898			429,343			450,774
Total stockholders' equity		810,003		813,018			829,972			836,813			855,165

Total liabilities and stockholders' equity	$	1,892,417	$	1,921,670		$	1,920,229		$	1,936,610		$	1,927,373

Book Value Per Common Share	$	9.45	$	9.47		$	9.66		$	9.72		$	9.91

Outstanding Common Shares		85,744,970		85,835,038			85,933,960			86,095,739			86,335,335

Exhibit C

21st Century Insurance Group and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Amounts in thousands)

(Unaudited)

	Q2'05			Q3'05			Q4'05			Q1'06			Q2'06
Operating activities
Net Income	$	20,495		$	21,102		$	26,392		$	21,317		$	28,321

Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		8,393			9,507			9,258			6,661			6,643
Net amortization of investment premiums and discounts		2,469			2,365			2,165			2,007			2,489
Amortization of stock compensations, net of tax		104			100			81			4,099			2,379
Provision for deferred income taxes		2,444			4,784			1,664			2,820			6,611
Realized losses (gains) on sale of investments		1,263			1,062			493			1,067			(30	)

Changes in assets and liabilities:
Premium receivable		8,730			(11,400	)		16,080			(6,331	)		8,344
Deferred policy acquisition costs		5,190			(1,555	)		3,821			(2,980	)		(5,329	)
Reinsurance balances		196			(184	)		(722	)		352			(355	)
Federal income taxes		(10,476	)		(1,019	)		678			4,529			(1,743	)
Other assets		2,352			1,482			(10,307	)		(2,880	)		1,015
Unpaid losses and loss adjustment expenses		5,351			22,092			6,221			(15,407	)		(13,336	)
Unearned premiums		(9,372	)		3,812			(20,379	)		11,476			(9,986	)
Claims checks payable		(1,447	)		2,144			1,970			(2,072	)		(2,246	)
Other liabilities		(4,895	)		(2,164	)		477			14,079			2,904
Net cash provided by operating activities		30,797			52,128			37,892			38,737			25,681

Investing Activities
Purchases of:
Fixed maturities available-for-sale		(44,815	)		(17,446	)		(42,102	)		(146,738	)		(33,441	)
Equity securities available-for-sale		(89,829	)		(78,762	)		(77,847	)		(35,627	)		-
Property and equipment		(4,962	)		(19,948	)		(6,544	)		(6,627	)		(6,719	)
Maturities and calls of fixed maturities available-for-sale		6,450			7,236			13,768			21,139			(8,521	)
Sales of:
Fixed maturities available-for-sale		24,996			1,751			11,181			21,022			34,324
Equity securities available-for-sale		83,149			81,196			75,696			83,989			847
Net cash used in investing activities		(25,011	)		(25,973	)		(25,848	)		(62,842	)		(13,510	)

Financing Activities
Repayment of debt		(2,999	)		(3,390	)		(3,260	)		(3,352	)		(3,388	)
Dividends paid		(3,425	)		(3	)		(6,874	)		(6,872	)		(6,891	)
Proceeds from exercise of stock options		667			1,180			1,494			718			3,126
Excess tax benefits from stock-based compensation		-			-			-			89			24
Net cash used in financing activities		(5,757	)		(2,213	)		(8,640	)		(9,417	)		(7,129	)

Net increase (decrease) in cash and cash equivalents		29			23,942			3,404			(33,522	)		5,042

Cash & cash equivalents at beginning of period		41,293		$	41,322		$	65,264		$	68,668		$	35,146
Cash & cash equivalents at end of period	$	41,322		$	65,264		$	68,668		$	35,146		$	40,188

Exhibit D

21st Century Insurance Group and Subsidiaries

Supplemental Operational Information

(Amounts in thousands, except ratios)

(Unaudited)

	Q2'05			Q3'05			Q4'05			Q1'06			Q2'06
Direct Premiums Written
California		309,231			326,048			294,472			311,820			287,389
Non - California		19,438			23,070			21,994			26,749			29,449
Total direct premiums written	$	328,669		$	349,118		$	316,466		$	338,569		$	316,838

% of Direct Premiums Written
California		94.1	%		93.4	%		93.1	%		92.1	%		90.7	%
Non - California		5.9	%		6.6	%		6.9	%		7.9	%		9.3	%
Total		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%

Vehicles in-force
California		1,462,669			1,447,471			1,413,909			1,382,296			1,359,217
Non-California		103,668			117,760			127,001			138,257			157,386
Total Vehicles In-force at end of quarter		1,566,337			1,565,231			1,540,910			1,520,553			1,516,603

Other Information
Statutory surplus	$	637,462		$	657,666		$	704,671		$	725,144		$	755,326
Ratio of net premiums written to statutory surplus		2.1			2.1			1.9			1.8			1.7
Auto renewal ratio		92	%		92	%		91	%		91	%		91	%

Reconciliation of stockholders' equity to statutory surplus
Stockholders' equity - GAAP	$	810,003		$	813,018		$	829,972		$	836,813		$	855,165
Condensed adjustments to reconcile GAAP stockholders' equity to statutory surplus:
Equity in non-insurance entities		17,597			22,073			26,798			31,728			39,558
Capital lease obligation		3,171			3,095			2,975			1,178			(662	)
Net unrealized (gains) losses on investments		(23,304	)		644			10,788			31,683			44,778
Deferred policy acquisition costs		(62,205	)		(63,760	)		(59,939	)		(62,919	)		(68,248	)
Net deferred tax assets related to items nonadmitted under SAP		47,401			38,394			38,544			24,137			24,438
Assets nonadmitted for statutory purposes		(155,201	)		(155,798	)		(144,467	)		(137,476	)		(139,703	)
Statutory surplus	$	637,462		$	657,666		$	704,671		$	725,144		$	755,326

The following information was filed by 21St Century Insurance Group on Thursday, July 27, 2006 as an 8K 2.02 statement, which is an earnings press release pertaining to results of operations and financial condition. It may be helpful to assess the quality of management by comparing the information in the press release to the information in the accompanying 10-Q Quarterly Report statement of earnings and operation as management may choose to highlight particular information in the press release.

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CIK: 100331
Form Type: 10-Q Quarterly Report
Accession Number: 0001140361-06-010736
Submitted to the SEC: Thu Jul 27 2006 5:15:44 PM EST
Accepted by the SEC: Thu Jul 27 2006
Period: Friday, June 30, 2006
Industry: Fire Marine And Casualty Insurance

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21St Century Insurance Group (100331) SEC Filing 10-Q Quarterly report for the period ending Friday, June 30, 2006

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