It is in Los Angeles that we developed and continue to refine our operating model. The keys to our successful strategy include:

• A focus on the urban, Hispanic and uninsured driver markets
• Maintaining a low expense structure
• Accurate and adequate pricing
• Having a local, in the field, claims presence
• Supporting the local agency network
• Creating innovative products that fit the needs of our diverse policyholders
• Targeted advertising

Why focus on the Urban, Hispanic and Uninsured Driver markets?

• 30% of the population in our target markets live in urban areas
• By 2020, 18% of the overall population is expected to be Hispanic and in our 19 Focus States, 49% of Hispanics live in urban areas.
• The Insurance Research Council estimates that nearly 15% of all drivers are uninsured. States like Georgia, California and Texas are actively working to lower the number of uninsured motorists through electronic enforcement of compulsory auto insurance laws.

A low expense ratio allows us to offer more affordable rates to our policyholders.
We have several initiatives underway to help us reach our long-term goal of an expense ratio of 20% or below. In 2006, we announced plans to consolidate certain of our customer service, centralized claims and information technology departments. This will allow us to more cost-effectively manage our operations and to provide better service to our policyholders.

An urban focus enables us to more accurately price the risks we insure.
With a concentration of business in an urban market, we have an advantage over competitors with smaller market shares. We can use our own data to price our business, often with 100% credibility, instead of relying on industry trends.

A local claims operation is critical to a successful urban strategy.
We believe in using our own local adjusters and appraisers for settlement of claims with more than 80% of claims handled face-to-face in our Top Five Focus States. In addition we deploy special investigative (SIU) fraud units and house counsel operations in the field. SIU teams are critical to early detection of fraud while local house counsel operations allow for better service and more control over settlement of claims involving litigation.

We are committed to supporting our 14,000 independent agencies by providing hassle-free service.
Our P.A.S.S. program (Providing Agents Service and Support) provides our agents with support such as training, business development, advertising and technology support. And with an urban focus, our business development representatives spend less time traveling between appointments and more time calling on our agents. More frequent visits yield better relationships which in turn yield more premium production from each agent.