Alfa Corporation Presentation For The SunTrust Robinson Humphrey Financial Services Unconference The Waldorf Astoria New York May 23, 2007

Transcription

1 Alfa Corporation Presentation For The SunTrust Robinson Humphrey Financial Services Unconference The Waldorf Astoria New York May 23, 2007

2 SAFE HARBOR STATEMENT This presentation may contain forward-looking statements. Forwardlooking 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.

3 Let s Talk About Who We Are

4 Our History Began Federated Guaranty Life (Origin of public company) Formation Of Holding Company Alfa Corporation Formed nonstandard auto company, Alfa Specialty (Added to pool 2001) Acquired Vision Insurance Group and started Alfa Vision Insurance Corporation Formed Alfa Mutual Fire Company, with $10,000 borrowed capital, to deliver insurance to rural Alabama Expanded into Georgia and Mississippi Mutual Group and Alfa Corporation formed Property/Casualty Pool Affiliated with Virginia Mutual Insurance Company (Added to pool 2005) Demutualization of Virginia Mutual On 1/1/07 (Alfa Alliance) Note: Timeline not drawn to scale

5 Corporate Structure Alfa Mutual Group 55% Alfa Corporation Alfa Specialty Alfa Insurance Property Casualty Corporation Alfa General Insurance Corp Alfa Life Insurance Corporation Alfa Financial Corporation Alfa Vision Insurance Corp Alfa Alliance Insurance Corp.* * Renamed from Virginia Mutual Insurance Company after demutualization effective 01/01/07

6 Inter-Company Pooling Agreement Alfa Insurance Corp. Alfa Mutual Insurance Company 18% 29% 29% Alfa General Insurance Corp. Alfa Mutual Fire Insurance Company 13% Reinsurance Pool 5% Alfa Vision Insurance Corp. 3% 2% Alfa Mutual General Insurance Company 1% Alfa Specialty Insurance Corporation Alfa Alliance Insurance Corporation Mutual Companies Stock Companies

7 Senior Management Team Name Jerry A. Newby Title Chairman, President & Chief Executive Officer Background 17 Years with Alfa C. Lee Ellis Executive Vice President, Operations 29 Years with Alfa Herman Watts Executive Vice President, Marketing 31 Years with Alfa Steve Rutledge Jerry Johnson Wyman Cabaniss Senior Vice President, Chief Financial Officer & Chief Investment Officer Senior Vice President, Claims Senior Vice President, Underwriting 22 Years with Alfa 27 Years with Alfa 25 Years with Alfa Jimmy Azar Senior Vice President, Audit & Risk Management 49 Years with Alfa William B. Harper, JR. Senior Vice President, Life Operations / Loans 38 Years with Alfa Al Scott Senior Vice President, Legal Counsel 14 Years with Alfa Doug Joyce John Russell President Alfa Alliance President Alfa Vision 28 Years of Industry Experience Head of Product Development Team with 20 Years with Progressive 24 Years of Industry Experience 7 Years with Progressive Strong Management Team With Deep Experience (Average 30 Years)

8 Let s Talk About Property & Casualty

9 Property & Casualty Strategy Build on Strong Franchise Low Cost Producer Competitive Position Multiple Distribution Channels

10 Expense Ratio (including LAE) Alfa State Farm Allstate Progressive GEICO Direct EP $868,975 $48,332,946 $26,543,556 $14,070,638 $2,135,715 Comm & Broke $64, % $4,550, % $3,296, % $1,011, % $12, % Other Acq 69, % 3,543, % 1,266, % 380, % 236, % General Exp 86, % 1,381, % 1,252, % 1,163, % 97, % Taxes, etc. 20, % 1,075, % 671, % 325, % 52, % D&CC 6, % 1,030, % 586, % 304, % 45, % A&O 39, % 5,573, % 3,134, % 1,530, % 168, % Total 32.5% 35.4% 38.0% 33.4% 28.5% 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

11 Loss Adjustment Expense 13% 13% 14% 12% Alfa 4% 4% 4% 5% Industry Source: AM Best Estimate Consistently Less Than The Industry Average

12 P&C Combined Ratio 88.5% 89.9% 92.1% 92.2% 92.2% 89.7% 90.0% 90.8% Consistent Results = Increased value for shareholders

13 Competitive Position Excellent customer service Loyal exclusive agency force Strong capitalization Diversified 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

14 Outstanding Claims Service 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

15 Claims Satisfaction Survey 11% 1% 1% Excellent Good Average Poor 87% Claims Service Receives Top Approval Ratings From Customers

16 Expanded Distribution Channels Type of Agent Employee Independent Exclusive Independent Internet Quote Alabama As of March 31, Employee Agents 158 Independent Exclusive 4,400 Independent Agents Georgia Mississippi Georgia Virginia North Carolina Ohio Indiana Kentucky Tennessee Missouri Arkansas Texas Florida Loans Term Life

17 Exclusive Agent Persistency 100% 80% 91.9% 90.7% 90.7% 60% 64.1% 40% 20% 0% New Hires After One Year New Hires After Two Years New Hires After Four Years Overall New Hires After One Year New Hires After Four Years New Hires After Two Years Overall

18 Property & Casualty Strategy Build on Strong Franchise Low Cost Producer Competitive Position Multiple Distribution Channels Create a more balanced underwriting portfolio Enter new states Expand product offerings

19 Distribution In Core States Mississippi 76 independent exclusive agents 73 service centers $46 million DWP Alabama 486 career agents 262 service centers $459 million DWP Georgia 62 independent exclusive agents 21 independent agents $35 million DWP

20 Competitive Position Core States Alabama Strong market position in personal lines 2 nd largest writer (20% market share) Leading presence in farmowners community Exclusive agency force Excellent customer service Georgia & Mississippi Spending on advertising (e.g., sports marketing) to increase brand awareness Independent Agent expansion effort underway in Georgia Total Advertising Dollars More Than Doubled In 2006 To Increase Brand Awareness

21 Alfa Alliance Insurance Agents Agents Virginia 112 Virginia 112 North Carolina 110 North Carolina 110 Tennessee (1/07) 23 Tennessee (1/07) 23 $20.7 million WP to Alfa Corp. $20.7 million WP to Alfa Corp.

22 Alfa Alliance Insurance Formerly known as Virginia Mutual Insurance Company Target 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

23 Alfa Alliance Insurance Tennessee Expansion January 1, 2007 Personal Auto and Homeowners Hired Territory Sales Manager September 2006 Identified agency prospects Professional Reputation Agency Size Product Focus Geography Appointed 24 agencies with goal of 45 by year end

24 Alfa Vision Insurance 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.

25 Alfa Vision Insurance Alfa s primary nonstandard auto company Headed 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

26 American Farm Bureau 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

27 Geographic Diversification Ongoing Expansion Initiatives 596 Agents Three states Affiliated with Virginia Mutual 795 Agents Five states Acquired Vision Insurance 3,272 Agents Thirteen states Expanded Alfa Alliance to Tennessee and Alfa Vision partnered with Farm Bureau Companies 4,404 Agents Thirteen states Geographic Footprint And Distribution Channels Have Changed Significantly Timeline not to scale

28 Geographic Diversification Decreasing Concentration 88% 82% 82% 82% 77% 73% 69% 66% 63% 12% 18% 18% 18% 23% 27% 31% 34% 37% E 2008E 2009E Alabama Other States Addition of Alfa Alliance and Alfa Vision Has Allowed for More Geographic and Product Spread

29 Property & Casualty Strategy 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

30 Underwriting Strategies 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

31 Catastrophe Management Dynamic Portfolio Optimization (DPO) is a catastrophe exposure management tool HYPOTHERICAL PML IMPACT OF USING DPO (Millions) $540 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 100-year PML $490 $440 $390 $340 Portfolio Optimization Process Analyze loss correlation policy by policy and / or risk by risk Evaluate all relevant combinations to derive optimal portfolio $290 $515 $505 $495 Premium Strategic DPO Reduction $485 Market Share Reduction $475 Alfa Uses DPO To Manage Its Catastrophe Risk And Evaluate Its Growth Options

32 Impact Of DPO On P&C Portfolio 200 Year Blended PML Trend ($000 s) 1,200,000 1,017,164 Net Gross 1,000, , , , s Omitted 600, , , , , , , , ,048 0 AIRv6.2 Blend Blend Blend Blend IIF as of: Program as of: 3/31/2005 6/1/ /31/2006 6/1/2007p 12/31/2007p 6/1/2008p 12/31/2008p 6/1/2009p Net PML / PHS (Pre-tax): 15.8% 8.0% 13.2% DPO Results In A More Balanced Portfolio Relative To Risk

33 Catastrophe Risk Sharing Plan 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 Losses ($M) Stock Group Mutual Group $ % 0% 35% 100% $ % 78% Note: Catastrophe losses are accumulated during each annual calendar period Catastrophe Risk Strategy Recognizes Excess Capital Of Mutual Companies

34 Property & Casualty Strategy 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

35 Automobile Profitability Multi-step approach for upgrading risk segmentation Step 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

36 Property & Casualty Strategy 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

37 Technology: Exceed Tiered Rating Flexible Payment Options Multi-car Policies Lower Down Payments Common Screen Look For Agents Paperless Environment Enhanced Claims Processing st Qtr nd Qtr rd Qtr th Qtr st Qtr nd Qtr rd Qtr th Qtr 2007 Mississippi Alabama

38 Enhanced Claims Technology Mobile Response Vehicles Equipped with the latest technology. Move quickly into a disaster area to keep service center and claims operations running after a major weather event. Mobile Office Wireless technology allows adjusters to resolve claims quicker and more efficiently.

39 P&C Wrap Up Key Issues 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

40 Let s Talk About Life & Finance

41 Alfa Life Insurance Company Product Offerings 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

42 Alfa Life Insurance Company Average Paid Premium Per Agent $23,076 $22,247 $23,058 $23,078 $18,328 $16,311 $14,895 $12,839 Alfa Peer Group Source: LIMRA Estimate

43 Alfa Life Insurance Company Litigation Count Lawsuits YTD 2007 Successfully Managed Litigation Count

44 Alfa Life Insurance Company In Force Premium $140 $120 $100 $80 $60 $40 $20 $ Solid In Force Premium Growth of 6.3% in 2006

45 Alfa Life Insurance Company New Business Issued $18 $16 $14 $12 $10 $8 $6 $4 $2 $ Outstanding New Business Growth of 29% in 2006

46 Alfa Financial Corporation Consumer Loan Portfolio Outstanding Loan Portfolio Deliquency Ratio 140,000, ,000, ,000, % 1.5% 80,000,000 60,000, % 40,000,000 20,000, % % Consumer Loan Portfolio Loan Losses 60% 50% 40% 30% 20% 10% 0% New Auto 1st Mortage 2006 New MH 2005 Personal 500, , , , ,000 0 $408,217 $339,837 $343,122 $340,124 $307,284 $277,041 $292,923 $208, * Loan Losses Recoveries Net Loan Losses * Excludes $5.5 million agent fraud Consistent, Profitable Operating Performance Which Fulfilling Our Customers Need

47 MidCountry Financial MidCountry assets total $1.3 billion. Added $3.2 million to Alfa Corporation s bottom line in 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

48 Let s Talk About The Bottom Line

49 Alfa Corporation Operating Earnings Per Share $1.18 $1.28 $1.06 $0.76 $0.80 $0.83 $0.86 $ Compound Growth Rate 7.7%

50 Dividend Growth CGR 8.3% $0.43 $ % Dividend Payout Rate in 2006

51 Thank you for your interest in Alfa Corporation If you should have additional questions please contact us at our corporate offices: Stephen G. Rutledge, CPA SVP, CFO & CIO Direct: Rhonda W. Sikes, CPA Investor Relations Specialist Direct: Alfa Corporation P.O. Box East South Blvd. Montgomery, AL 36191