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Alfa CorporationAlfa CorporationPresentation For The Presentation For The
SunTrust Robinson Humphrey Financial Services SunTrust Robinson Humphrey Financial Services UnconferenceUnconferenceThe Waldorf Astoria The Waldorf Astoria –– New YorkNew York
May 23, 2007May 23, 2007
SAFE HARBOR STATEMENT
This presentation may contain forward-looking statements. Forward-looking statements are those that do not relate to strictly historical or current facts. We assume no obligation to update forward-looking statements. Each forward-looking statement, including each such statement about operating income per share, was current only as of the date and time of the presentation in which it was made. Actual results might differ materially from those projected in the forward-looking statements. Information regarding factors that could cause results to differ from those projected may be found in Alfa Corporation’s filings with the Securities and Exchange Commission. This presentation may also contain some non-GAAP financial measures. Information regarding the definitions of these measures can be found in the Invest in Alfa section of our website.
Let’s Talk About
Who We Are
Formed Alfa Mutual Fire Company, with $10,000 borrowed capital, to deliver insurance to rural
Alabama
Affiliated with Virginia Mutual Insurance
Company (Added to pool 2005)
Acquired Vision Insurance Group and started Alfa Vision Insurance
Corporation
Our History
Began Federated Guaranty Life
(Origin of public company)
Expanded into Georgia and Mississippi
FormationOf Holding Company
Alfa Corporation
Mutual Group and Alfa Corporation
formed Property/Casualty Pool
Formed non-standard auto company, Alfa
Specialty (Added to pool 2001)
1946 1972 1978 1983 1987 2000 2001 2005 2007
Demutualization of Virginia Mutual
On 1/1/07(Alfa Alliance)
Note: Timeline not drawn to scale
55%
Property CasualtyAlfa InsuranceCorporation
Alfa General Insurance Corp
Alfa Life InsuranceCorporation
Alfa FinancialCorporation
Alfa Specialty
Alfa Vision Insurance Corp
Alfa Alliance Insurance Corp.*
Alfa Corporation
* Renamed from Virginia Mutual Insurance Company after demutualization effective 01/01/07
Alfa Mutual Group
Corporate Structure
Alfa Mutual General Insurance Company
3%
Alfa Vision Insurance Corp.
5%Reinsurance Pool
Alfa Mutual Insurance Company 18%
Alfa Specialty Insurance Corporation
1%
Alfa General Insurance Corp.
29%
Alfa Insurance Corp.
29%
Alfa Mutual Fire Insurance Company
13%
Alfa Alliance InsuranceCorporation
2%
Mutual Companies
Stock Companies
Inter-Company Pooling Agreement
28 Years of Industry ExperienceHead of Product Development Team with 20 Years with Progressive
PresidentAlfa Alliance
Doug Joyce
14 Years with AlfaSenior Vice President, Legal CounselAl Scott
24 Years of Industry Experience7 Years with Progressive
PresidentAlfa Vision
John Russell
38 Years with AlfaSenior Vice President, Life Operations / LoansWilliam B. Harper, JR.
49 Years with AlfaSenior Vice President, Audit & Risk ManagementJimmy Azar
25 Years with AlfaSenior Vice President, UnderwritingWyman Cabaniss
27 Years with AlfaSenior Vice President, ClaimsJerry Johnson
22 Years with AlfaSenior Vice President, Chief Financial Officer & Chief Investment Officer
Steve Rutledge
31 Years with AlfaExecutive Vice President, MarketingHerman Watts
29 Years with AlfaExecutive Vice President, OperationsC. Lee Ellis
17 Years with AlfaChairman, President & Chief Executive OfficerJerry A. Newby
BackgroundTitleName
Strong Management Team With Deep Experience (Average 30 Years)
Senior Management Team
Let’s Talk About
Property & Casualty
Build on Strong Franchise−Low Cost Producer−Competitive Position−Multiple Distribution Channels
Property & Casualty Strategy
28.5%33.4%38.0%35.4%32.5%Total
7.9%
2.1%
2.3%
4.6%
11.1%
0.5%
10.9%
2.2%
2.3%
8.3%
2.7%
7.1%
11.8%
2.2%
2.5%
4.7%
4.8%
12.0%
11.5%
2.1%
2.2%
4.7%
7.3%
9.3%
4.5%
0.7%
2.3%
9.9%
7.9%
7.1%
168,8021,530,4253,134,2055,573,40339,067A&O
45,237304,530586,8051,030,6756,392D&CC
52,449325,339671,5581,075,53220,544Taxes, etc.
97,7331,163,4081,252,2331,381,66086,027General Exp
236,501380,1281,266,6483,543,03169,019Other Acq
$12,039$1,011,670$3,296,499$4,550,429$64,448Comm & Broke
$2,135,715
GEICO
$14,070,638
Progressive
$26,543,556
Allstate
$48,332,946
State Farm
$868,975Direct EP
Alfa
Source: Insurance Expense Exhibit, pages 6-7 Annual Statement (As reported in Thomson Financial Database)
Low Expense Ratio Is A Source Of Competitive Advantage vs. Major Competitors
Expense Ratio (including LAE)
Consistently Less Than The Industry Average
Source: AM Best Estimate
4%
13%
4%
13%
4%
14%
5%
12%
2003 2004 2005 2006
AlfaIndustry
Loss Adjustment Expense
1999 2000 2001 2002 2003 2004 2005 2006
88.5% 89.9%92.1% 92.2% 92.2%
89.7% 90.0% 90.8%
Consistent Results = Increased value for shareholders
P&C Combined Ratio
Excellent customer serviceLoyal exclusive agency forceStrong capitalizationDiversified regional presence (Three key markets)− Core States (AL, MS and GA)− Alfa Alliance (3 states)− Alfa Vision (9 states)
Aggressive In Technology
Multiple Distribution Systems
Alfa Has a Strong Competitive Position
Competitive Position
• Unique Business Model• Except for Alfa Vision, adjusters are
employees who live in the areas they service.
• Provide “one touch claims service” with most claims handled from inception to resolution by local adjuster.
• Successfully exported model to Alfa Alliance
• Enhanced technology and improved business processes
Outstanding Claims Service
Claims Service Receives Top Approval Ratings From Customers
87%
11% 1% 1%
ExcellentGoodAveragePoor
Claims Satisfaction Survey
Expanded Distribution ChannelsExpanded Distribution Channels
Employee Independent Exclusive Independent Internet QuoteType of Agent
AlabamaAlabama GeorgiaGeorgiaMississippiMississippi
GeorgiaGeorgiaVirginiaVirginiaNorth CarolinaNorth CarolinaOhioOhioIndianaIndianaKentuckyKentuckyTennesseeTennesseeMissouriMissouriArkansasArkansasTexasTexasFloridaFlorida
LoansLoansTerm LifeTerm Life
As of March 31, 2007As of March 31, 2007
500 Employee Agents500 Employee Agents
158 Independent Exclusive 158 Independent Exclusive
4,400 Independent Agents4,400 Independent Agents
Exclusive Agent PersistencyExclusive Agent Persistency
91.9% 90.7%
64.1%
90.7%
0%
20%
40%
60%
80%
100%
New Hires AfterOne Year
New Hires AfterTwo Years
New Hires AfterFour Years
Overall
New Hires After One Year New Hires After Two YearsNew Hires After Four Years Overall
Build on Strong Franchise− Low Cost Producer− Competitive Position− Multiple Distribution Channels
Create a more balanced underwriting portfolio−Enter new states−Expand product offerings
Property & Casualty Strategy
Alabama486 career agents
262 service centers
$459 million DWP
Georgia62 independent exclusive agents
21 independent agents
$35 million DWP
Mississippi76 independent exclusive agents
73 service centers
$46 million DWP
Distribution In Core States
Total Advertising Dollars More Than Doubled In 2006 To Increase Brand Awareness
AlabamaStrong market position in personal lines2nd largest writer (20% market share)Leading presence in farmowners communityExclusive agency forceExcellent customer service
Georgia & MississippiSpending on advertising (e.g., sports marketing) to increase brand awarenessIndependent Agent expansion effort underway in Georgia
Competitive Position Core States
Agents
Virginia 112
North Carolina 110
Tennessee (1/07) 23
$20.7 million WP to Alfa Corp.
Agents
Virginia 112
North Carolina 110
Tennessee (1/07) 23
$20.7 million WP to Alfa Corp.
Alfa Alliance Insurance
Formerly known as Virginia Mutual Insurance CompanyTarget Market: Preferred / Standard (35% Commercial)− Low to medium commercial risk business (artisan contractors, etc…)
Product Management Focus− Head of Product Development with 21 years experience with Progressive− Product manager responsible for VA− Product manager responsible for NC and TN (rolled out 1/1/07)
Independent Agent Business Model with emphasis on ease of doing business− People (underwriters assigned by agency)− Accessibility (customer service)− Use of significant technological investments
Brand Awareness− Creation of website (“look and feel” of Alfa Group)− Targeted Co-op advertisement − Enhanced marketing effort to build brand awareness and agent relationships− Incentive trips− Regional meetings
Competitive Advantages− Ongoing investment in technology (e.g., Alfa ASAP)− Web-based payment system (30% payments online)− Flexible payment options (10 options)
Alfa Alliance Provides a Diversification Benefit Both Geographically And By Product Line
Alfa Alliance Insurance
January 1, 2007Personal Auto and HomeownersHired Territory Sales Manager –September 2006Identified agency prospects
Professional ReputationAgency SizeProduct FocusGeography
Appointed 24 agencies with goal of 45 by year end
Alfa Alliance InsuranceTennessee Expansion
Agents
Florida 349
Virginia 383
Arkansas 639
Kentucky 520
Ohio 263
Texas 491
Missouri 271
Indiana 366
Tennessee 234
Total 3,514
$61 million WP to Alfa Corp.
Alfa Vision Insurance
Alfa’s primary nonstandard auto companyHeaded by John Russell− 24 years industry experience− 7 years with Progressive
Target Market: Low to average risk (nonstandard auto)− Basic limits (~95%)− Cash flow based business
Independent Agent Business Model with emphasis on ease of doing business− Internet based (e.g., applications, endorsements, payments, etc.)− 24/7 service− Bilingual customer service
Creating brand awareness through Alfa’s strong credit rating
Competitive Advantages− Alternative market to Progressive− High technology − Multiple payment options (i.e., 10 options)− Ease of endorsement changes
Alfa Vision Provides a Diversification Benefit Both Geographically And By Product Line
Alfa Vision Insurance
• January 2006
• Alfa Vision partnered with Kentucky, Arkansas and Missouri Farm Bureaus to distribute non-standard automobile product
• Added over 700 additional agents
• Exploring possibilities with other Farm Bureau groups
Provides New Distribution And Geographic Expansion Opportunities
American Farm BureauAmerican Farm Bureau
2001 2005 2007
596 Agents
Three states
2000
Acquired Vision Insurance
3,272 Agents
Thirteen states
Affiliated with Virginia Mutual
795 Agents
Five states
Expanded Alfa Alliance to Tennessee and Alfa Vision partnered with
Farm Bureau Companies
4,404 Agents
Thirteen states
Ongoing Expansion Initiatives
Timeline not to scale
Geographic DiversificationGeographic Diversification
Geographic Footprint And Distribution Channels Have Changed Significantly
88%
12%
82%
18%
82%
18%
82%
18%
77%
23%
73%
27%
69%
31%
66%
34%
63%
37%
2001 2002 2003 2004 2005 2006 2007E 2008E 2009E
Alabama Other States
Addition of Alfa Alliance and Alfa Vision Has Allowed for More Geographic and Product Spread
Geographic DiversificationGeographic Diversification
Decreasing Concentration
Build on Strong Franchise− Low Cost Producer− Competitive Position− Multiple Distribution Channels
Create a more balanced underwriting portfolio− Enter new states− Expand product offerings
Focus on property underwriting profitability−Reduce Property Probable Maximum
Losses (PMLs)−Property profitability
Property & Casualty Strategy
Reduce Coastal Wind PML– Carve Wind Exposure: Mobile & Baldwin Counties – Strengthen Deductibles – Roll Out Marketing Restrictions
Portfolio Fine Tuning– Underwriting Guideline Initiatives
▪ Modifications▪ Heightened Emphases
– Strengthen Rate Adequacy – Curtail Coverage
Underwriting StrategiesUnderwriting Strategies
Dynamic Portfolio Optimization (DPO) is a catastrophe exposure management tool
Goal: Significant PML reduction with minimal premium decrease
Uses of DPO– Identify key catastrophe risk
drivers in portfolio– Identify where to grow business
with minimal increase in PML
Portfolio Optimization Process– Analyze loss correlation policy by
policy and / or risk by risk– Evaluate all relevant
combinations to derive optimal portfolio
$290
$340
$390
$440
$490
$540
$475$485$495$505$515
100-
year
PM
L Premium
Strategic DPO Reduction Market Share Reduction
HYPOTHERICAL PML IMPACT OF USING DPO (Millions)
Alfa Uses DPO To Manage Its Catastrophe RiskAnd Evaluate Its Growth Options
Catastrophe ManagementCatastrophe Management
0
200,000
400,000
600,000
800,000
1,000,000
1,200,000
AIRv6.2 Blend Blend Blend Blend
Net Gross
DPO Results In A More Balanced Portfolio Relative To Risk
200 Year Blended PML Trend ($000’s)
IIF as of:
Program as of:
3/31/2005
6/1/2005
12/31/2006
6/1/2007p
12/31/2007p
6/1/2009p
12/31/2008p
6/1/2008p
545,438
1,017,164
894,017
679,062
500,000
204,406288,537 260,341
171,048
Net PML / PHS (Pre-tax): 15.8% 8.0%13.2%
000’
s O
mitt
edImpact Of DPO On P&C PortfolioImpact Of DPO On P&C Portfolio
78%22%$530.5
100%0%
35%
MutualGroup
65%$21.4
StockGroup
CatastropheLosses ($M)
Note: Catastrophe losses are accumulated during each annual calendar period
Split 65% / 35% (Stock / Mutual) for relatively low level of annual aggregate catastrophe losses
Split based on surplus allocation for relatively high level of annual aggregate catastrophe losses
Catastrophe Risk Strategy Recognizes Excess Capital Of Mutual Companies
Catastrophe Risk Sharing PlanCatastrophe Risk Sharing Plan
Build on Strong Franchise− Low Cost Producer− Competitive Position− Multiple Distribution Channels
Create a more balanced underwriting portfolio− Enter new states
− Expand product offerings
Focus on property underwriting profitability− Reduce Property Probable Maximum Losses (PMLs)− Property profitability
Focus on Personal Auto−Target Market: Preferred
Property & Casualty Strategy
Multi-step approach for upgrading risk segmentationStep 1: Exceed filing is introducing
− Credit-based tiers, and− More refined driving record tiers (we have added rating factors
based on violations)Step 2: Upgrading our actuarial approach to classification ratemaking through predictive modeling (multivariate analysis). This upgrade is being accomplished on four fronts:
− Purchase of state-of-the-art statistical software for applying methods (Emblem)
− Increasing actuarial staff to conduct new analysis− Enterprise-wide emphasis on business intelligence to develop
data warehouse− Flexible algorithm functionality in Exceed software so that we can
more easily apply results of this analysis in our rate structure
This upgrade in approach to rate development is a lifestyle, not a one-time adjustment
Automobile ProfitabilityAutomobile Profitability
Build on Strong Franchise− Low Cost Producer− Brand− Multiple Distribution Channels
Create a more balanced underwriting portfolio− Enter new states− Expand product offerings
Focus on property underwriting profitability− Reduce Property Probable Maximum Losses (PMLs)− Property profitability
Focus on Personal Auto− Target Market: Preferred
Invest in technology−PeopleSoft Financials−Exceed−Solcorp/Ingenium®
−Claims Mobile Office
Property & Casualty Strategy
Tiered RatingFlexible Payment OptionsMulti-car PoliciesLower Down PaymentsCommon Screen Look For AgentsPaperless EnvironmentEnhanced Claims Processing
4th Qtr2006
1st Qtr2007
2nd Qtr2007
3rd Qtr2007
4th Qtr2007
2006 2007
1st Qtr2006
2nd Qtr2006
3rd Qtr2006
Mississippi
Alabama
Technology: ExceedTechnology: Exceed
Enhanced Claims TechnologyEnhanced Claims Technology
Mobile OfficeWireless technology allows adjusters to resolve claims quicker and more efficiently.
Mobile Response VehiclesEquipped with the latest technology. Move quickly into a disaster area to keep service center and claims operations running after a major weather event.
Competitive Position− Alfa is a Regional Personal Lines Writer with Solid
Growth Prospects• Low Cost Producer Relative To Major Competitors• Strong Brand Awareness in Alabama• Creating Same Awareness in Other Key Markets
– Alfa Alliance– Alfa Vision– Core States
− Multiple Distribution Channel Strategy• High Agent Retention• High Policyholder Persistency
Diversification Strategy− Alabama: Decreased Concentration From 90% to 73%
of Premium Over 5 Years− Growth by Acquisition Led to Diversification by
Product Line
Underwriting Profitability
P&C Wrap Up P&C Wrap Up –– Key IssuesKey Issues
Let’s Talk About
Life & Finance
Universal Life
Interest Sensitive Plan
Ordinary Life
Level Term (10, 15, 20, 25 or 30 years)
Decreasing Term (10, 15, 20, 25 or 30 years)
Internal COLI (DBO)
20 year Level Term Return of Premium
Non-Qualified Fixed Annuities
Alfa Life Insurance CompanyAlfa Life Insurance CompanyProduct OfferingsProduct Offerings
AlfaPeer Group
Source: LIMRA Estimate
$23,076
$12,839
$22,247
$18,328
$23,058
$14,895
2003 2004 2005
Alfa Life Insurance CompanyAlfa Life Insurance CompanyAverage Paid Premium Per AgentAverage Paid Premium Per Agent
$23,078
$16,311
2006
1999 2006 YTD 2007
Law
suits
Successfully Managed Litigation Count
Alfa Life Insurance CompanyAlfa Life Insurance CompanyLitigation CountLitigation Count
$0
$20
$40
$60
$80
$100
$120
$140
1999 2000 2001 2002 2003 2004 2005 2006
Solid In Force Premium Growth of 6.3% in 2006
Alfa Life Insurance CompanyAlfa Life Insurance CompanyIn Force PremiumIn Force Premium
$0
$2
$4
$6
$8
$10
$12
$14
$16
$18
1999 2000 2001 2002 2003 2004 2005 2006
Outstanding New Business Growth of 29% in 2006
Alfa Life Insurance CompanyAlfa Life Insurance CompanyNew Business IssuedNew Business Issued
020,000,00040,000,00060,000,00080,000,000
100,000,000120,000,000140,000,000
1999 2000 2001 2002 2003 2004 2005 2006
Outstanding Loan Portfolio
0.0%
0.5%
1.0%
1.5%
2.0%
1999 2000 2001 2002 2003 2004 2005
Deliquency Ratio
0%10%20%30%40%50%60%
New Auto 1stMortage
New MH Personal
Consumer Loan Portfolio
Consistent, Profitable Operating Performance Which Fulfilling Our Customers’ Need
$277,041
$208,771
$339,837 $343,122$307,284
$340,124$292,923
$408,217
0
100,000
200,000
300,000
400,000
500,000
1999 2000 2001 2002 2003 2004 2005 2006*
Loan Losses
Loan Losses Recoveries Net Loan Losses
* Excludes $5.5 million agent fraud20052006
Alfa Financial CorporationAlfa Financial CorporationConsumer Loan PortfolioConsumer Loan Portfolio
• MidCountry assets total $1.3 billion.
• Added $3.2 million to Alfa Corporation’s bottom line in 2006.
• Signed agreement to purchase Pioneer Financial - $300 million consumer finance company serving active duty military
Alfa’s Investment In MidCountry Adds Value To Our Shareholders
MidCountryMidCountry FinancialFinancial
Let’s Talk About
The Bottom Line
1999 2000 2001 2002 2003 2004 2005 2006
$0.76 $0.80 $0.83 $0.86$0.93
$1.06
$1.18 $1.28
Compound Growth Rate 7.7%
Alfa CorporationAlfa CorporationOperating Earnings Per ShareOperating Earnings Per Share
1998 2000 2002 2006
33.6% Dividend Payout Rate in 2006
2004
$0.43
1996
$0.19375
Dividend GrowthDividend GrowthCGR 8.3%CGR 8.3%
Thank you for your interest in Thank you for your interest in Alfa Corporation Alfa Corporation
If you should have additional questions please contact us at our corporate offices:
Stephen G. Rutledge, CPA SVP, CFO & CIO Direct: 334-613-4500
Rhonda W. Sikes, CPA Investor Relations Specialist Direct: 334-613-4332
Alfa CorporationP.O. Box 110002108 East South Blvd.Montgomery, AL 36191
