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AFFIRMATIVE INSURANCE HOLDINGS, INC. ANNOUNCES FOURTH QUARTER AND FULL YEAR RESULTS FOR 2004

Period produces continuing strong net income, and revenue growth, contributing to excellent full
year results

ADDISON, Texas (February 24, 2005) – Affirmative Insurance Holdings, Inc. (Nasdaq: AFFM), a producer and provider of personal non-standard automobile insurance, today announced financial results for the quarter and year ended December 31, 2004.

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Earnings per share for the fourth quarter of 2004 were $0.33 per diluted share and $1.72 per diluted share for the full year;

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Total revenues for the fourth quarter of 2004 were $76.7 million, an increase of 19.7% as compared to pro forma total revenue for the same period of 2003. For the full year 2004, total revenues were $288.7 million, an increase of 19.0% from the prior year pro forma results;

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Net income for the fourth quarter of 2004 was $5.7 million, even with pro forma net income for the same period of 2003. The fourth quarter of 2003 was favorably impacted by one time adjustments to revenue deferrals. Without these one time adjustments, net income for the fourth quarter of 2004 would have increased 15.9% as compared to the same period of 2003. For the full year net income was $24.4 million, an increase of 32.3% from the prior year pro forma results;

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In the quarter the Company raised $30.0 million in an offering of trust preferred securities and contributed the net proceeds to its insurance subsidiaries. At December 31, 2004 the statutory surplus of the insurance companies was $139.3 million, up from $36.7 million at December 31 2003, and the Company significantly reduced its purchase of reinsurance for 2005; and,

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Affirmative completed the acquisition of the assets of 24 retail stores and a franchise operation with 42 locations in Florida at the end of December 2004.

“We are pleased to announce solid financial results in the face of softening market conditions,” said Thomas E. Mangold, president and chief executive officer of Affirmative Insurance Holdings, Inc. “We continue to focus on our plan of increasing total controlled premium by leveraging and developing our multiple distribution channel strategy, as well as making strategic acquisitions to drive additional growth and earnings. We accomplished this in 2004 while improving margins in both of our operating segments.”

Mangold also commented that as a result of increasing the surplus in the insurance companies following the initial public offering and the issuance of trust preferred securities, Affirmative plans to increase its retention of business to capture a larger share of its favorable underwriting results. In 2005, the Company expects to retain approximately 90.0% of its total controlled premiums, as compared to 52.8% for the full year 2004. The Company was able to achieve a 15.3% return on equity for the full year 2004 and ended the year with 13.1% debt to total capitalization.

Fourth Quarter Financial Results
Fourth quarter net income was $5.7 million or $0.33 per diluted share, even with the pro forma net income of $5.7 million or $0.56 per diluted share for the same period in 2003. Without the previously mentioned one time adjustments in the fourth quarter of 2003, net income for the fourth quarter of 2004 would have increased 15.9% as compared to the same period of 2003. Weighted average diluted shares for the fourth quarter were 17.1 million compared to 10.1 million for the year-ago period, as a result of the Company’s initial public offering in July of 2004.

Revenues for the three months ended December 31, 2004 were $76.7 million, an increase of $12.6 million or 19.7% compared to pro forma revenues for the three months ended December 31, 2003. The increase was primarily due to Affirmative’s increased retention of gross premiums written as a result of the increased surplus in our insurance companies and increases in commission and fee income in the Company’s Agency Segment.

Fourth quarter revenues from agency operations increased 4.0% to $40.7 million with a pre-tax margin of 11.5%, compared to revenues of $39.1 million with a pre-tax margin of 20.0% for the fourth quarter of 2003. Revenues from insurance company operations for the fourth quarter of 2004 were $61.3 million, an increase of 22.9% as compared to fourth quarter 2003 pro forma revenues of $49.8 million. Combined ratio for the fourth quarter of 2004 was 92.5% compared to 96.8% for the fourth quarter of 2003.

Full Year Financial Results
For the twelve months ended December 31, 2004 net income was $24.4 million or $1.72 per diluted share, compared to pro forma net income of $18.5 million or $1.83 per diluted share for the twelve months ended December 31, 2003. As a result of the Company’s initial public offering in July of 2004, weighted average diluted shares for 2004 were 14.2 million compared to 10.1 million for 2003. Growth in net income during 2004 was driven by greater retention of premiums and improved production and operating margins as compared to 2003.

Consolidated revenues for the fiscal year ended December 31, 2004 were $288.7 million compared to 2003 pro forma revenues of $242.7 million for the fiscal year ended December 31, 2003, an increase of 19.0%. The increase was primarily due to Affirmative’s increased retention of gross premiums written as a result of the increased surplus in our insurance companies and increases in commission and fee income in the Company’s Agency Segment.

For the full year 2004, agency operations revenue increased 13.1% to $165.8 million with a pre-tax margin of 15.8% compared to full year 2003 revenue of $146.5 million with a pre-tax margin of 14.3%. For the full year, revenues from insurance company operations were $225.1 million, up 16.7% from pro forma revenues of $193.0 million for full year 2003. Combined ratio for the full year 2004 was 93.6% compared to 95.2% for 2003.

Recent Events
As previously announced, Affirmative completed the acquisition of the assets of 24 retail stores and a franchise operation with 42 locations in Florida at the end of December 2004. In addition, in January 2005 Affirmative closed two separate transactions and acquired the assets of 12 retail stores, 11 of which are in the Houston DMA. These acquisitions were purchased with cash on hand.

Guidance and Supplemental Information
Affirmative maintains a positive outlook for 2005 and has increased its earlier guidance for full year earnings to be in the range of $1.90 to $2.10 per diluted share from previous guidance of $1.85 to $2.05 per diluted share.

To provide a more complete understanding of Affirmative’s financial results, the Company has posted supplemental financial data on the investor relations portion of the Company’s website, www.affirmativeholdings.com. The data pertains to fourth quarter and full year financial results for 2003 and 2004. The supplemental financial data also contains a reconciliation of 2003 pro forma financial results contained in this release to 2003 GAAP financial results.

Conference call
Affirmative will hold a conference today, Thursday, February 24^th, at 11:00 a.m. Eastern Time, 10:00 a.m. Central Time. Following a brief presentation, participants will have the opportunity to ask questions. To participate in the call, dial 1-888-396-2356 (international dial 1-617-847-8709), ten minutes before the conference call begins and dial pass code 26111696.

There will also be a real-time audio webcast of the conference call by CCBN. To listen to the live call, select the webcast icon from the investor relations section of Affirmative’s website http://www.affirmativeholdings.com at least 15 minutes before the start of the call to register, download, and install any necessary audio software. Individuals accessing the audio webcast will be “listen only” and will not have the ability to take part in the Q&A session.

A digital replay will be available one hour after the conclusion of the call. Interested individuals can access the webcast replay at http://www.affirmativeholdings.com, by clicking on the webcast link. The webcast replay will be available for 30 days after the call. Phone replay will be available through March 3^rd and may be accessed by dialing 1-888-286-8010 (international dial 1-617-801-6888), then enter pass code 34228496.

About Affirmative Insurance Holdings, Inc.
Headquartered in Addison, Texas, Affirmative Insurance Holdings, Inc., is a producer and provider of personal non-standard automobile insurance policies to individual consumers in highly targeted geographic markets. Affirmative currently offers products and services in 11 states, including Texas, Illinois, California and Florida.

Forward-Looking Statements Disclosure
Certain information in this news release and other statements or materials are not historical facts but are forward-looking statements relating to such matters as: assumed future results of the Company’s business; financial condition; liquidity; results of operations; plans; and objectives. In connection with the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, the Company provides the following cautionary remarks regarding important factors which, among others, could cause the Company’s actual results and experience to differ materially from the anticipated results or other expectations expressed in the Company’s forward-looking statements. The risks and uncertainties that may affect the operations, performance, results of the Company’s business, and the other matters referred to above include, but are not limited to: general volatility of the non-standard personal automobile and reinsurance markets; the market price of our common stock; changes in business strategy; severe weather conditions; availability, terms and deployment of capital; the degree and nature of competitor product and pricing activity; changes in the non-standard personal automobile insurance industry, interest rates or the general economy; identification and integration of potential acquisitions; claims experience; availability of qualified personnel; and the loss of one or more members of the Company’s management team.

Affirmative Insurance Holdings, Inc.
Consolidated Statements of Operations — Unaudited
(dollars in thousands, except per share data)


	Three months ended December 31,
	Actual		Actual		Pro Forma
	2004		2003		2003
Revenues
Net premiums earned	$	53,065	$	—	$	43,602
Commissions and fees		22,706		28,700		19,929
Net investment income		938		41		41
Realized gains (losses)		1		—		—
Other		—		—		538

Total revenues		76,710		28,741		64,110


Expenses
Losses and loss adjustment expenses		33,644		—		29,501
Policy acquisition and operating expenses		33,120		18,315		25,155
Interest expense		62		212		212

Total expenses		66,826		18,527		54,868

Net income before income taxes, minority interest and equity interest in unconsolidated subsidiaries		9,884		10,214		9,242
Income tax expense		3,651		3,653		3,314
Minority interest, net of income taxes		223		58		58
Equity interest in unconsolidated subsidiaries, net of income taxes		317		174		174

Net income	$	5,693	$	6,329	$	5,696


Net income per common share — Basic	$	0.34	$	0.63	$	0.56

Net income per common share — Diluted	$	0.33	$	0.62	$	0.56


Weighted average shares — Basic		16,836,663		10,101,230		10,101,230
Weighted average shares — Diluted		17,130,371		10,138,266		10,138,266

Affirmative Insurance Holdings, Inc.
Consolidated Statements of Operations — Unaudited
(dollars in thousands, except per share data)


	Twelve months ended December 31,
	Actual			Actual		Pro Forma
	2004			2003		2003
Revenues
Net premiums earned	$	194,341		$	—	$	167,411
Commissions and fees		92,014			103,344		71,709
Net investment income		2,327			189		189
Realized gains (losses)		(8	)		451		451
Other		—			—		2,890

Total revenues		288,674			103,984		242,650


Expenses
Losses and loss adjustment expenses		128,969			—		114,426
Policy acquisition and operating expenses		117,648			72,330		97,478
Interest expense		588			821		821

Total expenses		247,205			73,151		212,725

Net income before income taxes, minority interest and equity interest in unconsolidated subsidiaries		41,469			30,833		29,925
Income tax expense		15,319			11,025		10,707
Minority interest, net of income taxes		804			403		403
Equity interest in unconsolidated subsidiaries, net of income taxes		913			348		348

Net income	$	24,433		$	19,057	$	18,467


Net income per common share — Basic	$	1.74		$	1.89	$	1.83

Net income per common share — Diluted	$	1.72		$	1.88	$	1.83


Weighted average shares — Basic		14,018,530			10,082,794		10,082,794
Weighted average shares — Diluted		14,213,682			10,112,585		10,112,585

Affirmative Insurance Holdings, Inc.
Condensed Consolidated Balance Sheets
(dollars in thousands)


	December 31,		December 31,
	2004		2003
Assets
Fixed maturities — available for sale	$	157,666	$	6,610
Short-term investments		1,995		—
Other invested assets		—		928

		159,661		7,538
Cash and cash equivalents		24,096		15,358
Fiduciary and restricted cash		16,267		9,467
Premiums and fees receivable		117,978		75,596
Commissions receivable		11,890		7,043
Receivable from reinsurers		84,332		94,526
Deferred acquisition costs		19,118		14,371
Other assets		106,855		91,309

Total assets	$	540,197	$	315,208

Liabilities and Stockholders’ Equity
Liabilities
Reserves for losses and loss adjustment expenses		99,746		58,507
Unearned premium		90,695		71,226
Amounts due reinsurers		55,728		19,633
Deferred revenue		24,478		15,451
Other liabilities		64,244		37,014

Total liabilities		334,891		201,831

Stockholders’ equity
Common stock		168		116
Warrants		—		157
Additional paid-in capital		151,752		84,074
Accumulated other comprehensive income (loss)		251		(9	)
Retained earnings		53,135		29,039

Total stockholders’ equity		205,306		113,377

Total liabilities and stockholders’ equity	$	540,197	$	315,208