PAULA Financial Reports Net Income for 1stQ 2003

May 15, 2003

PAULA Financial announced net income for the first quarter of 2003 of $0.05 per share compared to $0.03 per shares for the 2002 period. Total revenue for the first quarter of 2003 was $4.6 million compared to $3.3 million for the 2002 period. Total pre-tax income from continuing operations for the first quarter of 2003 was $522,000 compared to $447,000 in 2002. Weighted average shares outstanding assuming dilution were 6.3 million in the 2003 period compared to 6.1 million for the 2002 period.

Pan American Underwriters (PAU), the Company’s agency subsidiary, continued its pattern of profitability in the first quarter of 2003. Jeff Snider, Chairman and CEO, observed, “The 2003 year is off to a solid start with agency policy retention rates in the mid to high 90s and robust new business activity in workers’ compensation, commercial package and health lines of business. Additionally, in the first quarter we completed some exciting producer recruiting efforts that solidify our position as the largest crop insurance producer in the western United States.”

Snider continued, “In the second quarter, our attention is focused on managing the implications of the operating changes made by the California State Compensation Insurance Fund (SCIF). Insurance Commissioner Garamendi and SCIF management have announced a plan to reduce commission rates to all approved agents beginning August 2003. Our effort in 2002 to dramatically expand crop insurance sales is going to help absorb some of the recently announced changes by SCIF.”

Cash flows from operations were $1.4 million in the first quarter of 2003 compared to $1.0 million in the 2002 period. “With operating cash flow momentum heading to an annual $4.0 million level, we feel very comfortable with our current bank obligation which now stands at $2.4 million and is scheduled to be fully retired in late 2004,” commented Snider.

The PAU agency is the exclusive manager of an alternative risk Bermuda based workers’ compensation captive called AGGCAP. AGGCAP has completed its first full year of operation and has successfully renewed all reinsurance agreements to launch year number two. PAU services include loss control, claims advocacy and other services to AGGCAP members. Through PAU, AGGCAP has been able to create access to quality reinsurance facilities for California employers seeking self-funded alternatives to conventional workers’ compensation insurance. Neither PAU nor PFCO participate in the underwriting outcomes of AGGCAP members.

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