Alfa Corporation

2108 East South Boulevard
Montgomery, Alabama 36191-0001
U.S.A.
Telephone: (334) 288-3900
Fax: (334) 288-0905
Web site: http://www.alfains.com

Public Company
Incorporated: 1946
Employees: 618
Sales: $587.5 million (2002)
Stock Exchanges: NASDAQ
Ticker Symbol: ALFA
NAIC: 524126 Direct Property and Casualty Insurance Carriers; 524113 Direct Life Insurance Carriers

With headquarters in Montgomery, Alabama, Alpha Corporation is a financial services holding company for Alfa Insurance Group (AIG). Over 50 percent of Alpha Corporation's common stock is owned by it affiliates, known collectively as the Alfa Mutual Insurance Companies. That majority holding and corporate structure guarantees that Alfa Mutual Insurance and Alfa Mutual Fire policy-holders maintain control of the company. The primary business of AIG is insurance, including property, casualty, and life. AIG writes life insurance in Alabama, Georgia, and Mississippi and property and casualty insurance in Georgia and Mississippi. Also, in Alabama, Alfa Corporation's insurance subsidiaries pool their property and casualty business with Alfa Specialty Insurance Corporation, which primarily writes nonstandard risk auto insurance. The corporation also offers non-insurance financial services, including real estate sales and investment, consumer lending, and construction. Alfa's property and casualty insurance company enjoys an A.M. Best A++ (Superior) rating and its life insurance company an A+ (Superior) rating.

1946–77: From Fire Insurance to a Full Range of Protection

The Alfa Mutual Insurance Companies, the primary owners of Alfa Corporation, first entered the insurance market in 1946, founded by what later became known as the Alabama Farmers Federation (AFF), which itself was first formed in 1921. AFF's purpose was to serve the state's farmers and the needs of the state's agribusiness, one of which was affordable insurance. Over time, it became the farmers' lobbyist, their professional society, information source, and public outreach manager. It also became a social and civic club, professional organization, and support group for farmers and their families.

As an extension of its services to its members, AFF first created Alfa Insurance to provide fire insurance for federation members, most of whom were farmers. John Tucker Harris, a prominent Lee County, Alabama, farmer who had been president of the Lee County farm organization, submitted the initial preinsurance application, and the company was up and running.

Over the next three decades, Alfa expanded its business through diversifying the types of insurance that it underwrote and services it offered. In that period, it developed a structure of interlocking affiliates and subsidiaries which, collectively, sold most kinds of ordinary insurance, including life; home, mobile home, and farm; fire and other casualty; and preferred risk automobile policies. Subsidiaries were formed to oversee operations, including Alfa Life Insurance Corporation, Alfa General Insurance Corporation, Alfa Agency Mississippi, and Alfa Agency Georgia, Inc. Non-insurance subsidiaries evolved as well, including Alfa Financial Corporation, Alfa Investment Corporation, Alfa Builders, Inc., Alfa Realty, Inc., and Alfa Benefits Corporation. Alfa Corporation was also affiliated with the Alfa Mutual Insurance Company, Alfa Mutual Fire Insurance Company, and Alfa Mutual General Insurance Company. These affiliates, holding a 52.3 percent majority, controlling share of Alfa Corporation, made up the Alfa Mutual Group.

1978–98: Alfa Prospers under the Leadership of Goodwin L. Myrick

At the time that Goodwin L. Myrick became CEO, president, and chairman of the Alfa Corporation and Alfa Mutual Group in 1978, the companies, respectively, had total assets of $62 million and $276 million. Myrick would hold his position until his retirement 20 years later, in 1998, and oversee the growth of those assets to, respectively, $1.2 billion and $2.7 billion. Myrick, a dairy farmer who live in Etowah County, Alabama, started out with a herd of just eight cows in 1944, which over time he developed into a major cattle and dairy operation on two farms in Etowah and Talledega Counties. From 1973 until his election to the posts of chairman and president, Myrick had served as president of Alfa's subsidiaries and its affiliated companies. He also served as president of AFF.

Under Myrick's tutelage, Alfa Corporation transformed itself from a life insurance holding company into a comprehensive insurance holding company, with almost 80 percent of its insurance premium revenue coming from property and casualty insurance. One major move was made in 1987, when, effective in August, Alfa's principal property and casualty subsidiaries entered a pooling agreement designed to allow for the redistribution of income and expenses among its three subsidiary affiliates of the Mutual Group. Under the terms of the agreement, premiums, losses, and other expenses attributable to these companies' property and casualty business were pooled and reallocated among the companies. In accordance with the agreed upon terms, 65 percent of the Group's pooled business was allocated to Alfa's subsidiaries, Alfa Corporation and Alfa General Insurance Corporation. Up until the pooling agreement was made, Alfa's life insurance subsidiary was its main source of revenue, but that would quickly change.

As more and more of its income was derived from property insurance, Alfa faced increasing risks entirely outside its control, particularly severe weather, which, in its tri-state marketing area, had at times been catastrophic. In 1995, when Hurricane Opal hit eastern Alabama, it caused very extensive property damage and proved to be the costliest storm in Alfa's history. The Alfa Group processed over 31,000 claims representing over $76 million in damage. Opal had hit in the wake of another hurricane, Erin, which, with hail and other wind damage caused earlier in the year, brought the total damage claim liability for the Group to over $99 million. The result was that for 1995, Alfa failed to make a profit from its insurance underwriting for only the fourth time in a three-decade span. Prior to 1995, the greatest weather related claims liability Alfa faced totaled $22.5 million in 1979, the result of the ravages of Hurricane Frederic.

The impact of Hurricane Opal encouraged Alfa, in 1996, to amend its 1987 Pooling Agreement and restructure its catastrophic protection program. Under the terms of the new amendment, Alfa Corporation's participation in a single catastrophic occurrence or a series of lesser occurrences was limited to its $10 million pool share (65 percent) unless the loss was in excess of $249 million. The amended plan did provoke a legal challenge three years later, when a former Alfa Mutual Fire premium holder attempted to bring suit against Alfa Corporation for liquidating Alfa Mutual Fire under the Pooling Agreement allegedly for its own benefit rather than that of policy holders. Alfa successfully fended off the class action suit.

1998 and Beyond: Newby Guides Alfa to Continued Growth and Success

In 1998, Myrick retired and was replaced as CEO and president by Jerry A. Newby, who also became president of the AFF. A native of Athens, Alabama, Newby had previously served as a vice-president and a state board member for both Alfa Corporation and the AFF. From 1990 to 1998, he had also served on the Alabama Board of Agriculture and Industries, and served also, as the treasurer of the Southeast Cotton Growers. A partner in his family's farming operation in Limestone County, for 14 years he had additionally served as president of the Limestone County Farmers Federation. His appointment continued the tradition of naming presidents with a farming heritage and long association with AFF.

Throughout the 1990s, Alfa enjoyed a steady growth in revenue. Its total income in 1991 was about $232.9 million, and by 2000 this had increased to just over $510.3 million, representing an average annual increase of over $27.7 million. Its net income in the same period grew from $28.4 to $69.5 million. Thanks largely to Hurricane Opal, the corporation's net income did drop to $22.3 million in 1995, but that was the only year in that stretch in which it fell below the 1991 figure; thus, with that exception, the decade was one of steady growth for Alfa, unlike the three years immediately preceding the period, when, between 1988 and 1990, Alfa's net income only increased from $22.8 million to $22.9 million. Moreover, its stability was confirmed by Standard & Poor's, which in September 2000 affirmed its "AA" credit and financial strength ratings of the Alfa Insurance Group member companies and its "A-1 plus" commercial paper rating of Alfa Corporation. At that point, commanding approximately 20 percent of the market share, the Alfa Insurance Group was the second largest underwriter of personal insurance in Alabama.

In 2001, Alfa's gross income from premiums and other revenue sources, including non-insurance operations, reached $546.3 million. Of that total, life insurance premiums generated close to $109.4 million in revenues (19.2 percent), while property and casualty insurance premiums brought in $427.4 million (78.2 percent). That is, the Alfa Group continued to derived about four-fifths of its revenue from property and casualty insurance and one-fifth from life insurance.

At a time when, increasingly, corporate feet have been held to disclosure fires, Alfa has had to weather some bad press. For example, in April 2003, an article in the New York Times disclosed that over three years Alfa Mutual Fire Insurance avoided a $58 million federal income tax assessment by taking advantage of a 50-year old provision allowing the creation of small, tax-exempt insurance companies. Its intent was to help farmers and others having difficulty finding insurance, but over time it became a loophole for large companies that needed only to limit their revenue from premiums to $350,000. However, no caveat prevented such companies from setting aside large reserves to invest tax free, which Alfa has done. It was an entirely legal accounting procedure, but critics, seeing it as a tax dodge, questioned its propriety.

Company Perspectives:

To our family of customers, we are committed to excellence, integrity, and exceeding customer expectations in both sales and service by providing profitable multi-line insurance and other financial services. Alfa will focus on effective use of technology to enhance the productivity of our people and increase our knowledge of, and service to, our customers, while investing resources in product and geographic expansion.

The disclosure certainly did no serious harm to Alfa's reputation. One of the corporation's great strengths was its close identity with AFF, its ultimate roots. Farmers and related businessmen trusted the Alfa name for decades, and the symbiotic relationship of the corporation and AFF remained strong. Notably, the men who have served as CEO and president of Alfa came from farming backgrounds in Alabama and served as presidents of AFF and other farming organizations. Furthermore, the Alfa and AFF names have been closely linked in other ways, including partnered donations made to non-profit charities and agencies. For example, in 1996, in celebrating the 75th anniversary of AFF, it and Alfa made a joint $5 million donation to Auburn University. Given the fact that close to 90 percent of Alfa Insurance Group's earnings derive from the sale of personal insurance and products in Alabama, Alfa's high profile there was a tremendous marketing asset. However, it is worth noting that the Alfa Group, as reported in a PR Newswire in 2000, "continues to make a modicum of progress in growing its business model in Mississippi and Georgia. …" More ex pansion in these contiguous states may be necessary to offset a shrinking profit margin arising from competition and increasing loss costs in Alabama. The corporation has itself indicated that geographic expansion is a part of its mission and vision.

As major underwriters of insurance against property and casualty damage from fire and weather, the Alfa Group companies must deal with what part both nature and human error play in their annual, bottom line performance, a fact once more brought home to them when a series of spring storms in 2003 wreaked havoc in the Southeast. Total claims estimates made in May of that year were $40 million, cutting a fair way into Alfa's profit margin. Such is the business risk that Alfa and, of course, all its competitors must take. The risk is particularly troublesome for companies, like Alfa, whose business is largely limited to a particular region, and is therefore reason enough for the corporation to seek a wider geographic market.

Key Dates:

1946:

Alfa founded by the Alabama Farmers Federation.

1978:

Goodwin L. Myrick becomes Alfa's CEO, chairman, and president.

1987:

Alfa Mutual Group enters a pooling agreement.

1996:

Alfa amends pooling agreement for catastrophic contingencies.

1998:

Myrick retires and is succeeded by Jerry A. Newby as CEO, chairman, and president.

Principal Subsidiaries

Alfa Financial Corporation; Alfa Investment Corporation; Alfa Builders, Inc.; Alfa Realty, Inc.; Alfa Agency Mississippi, Inc.; Alfa Benefits Corporation.

Principal Affiliates

Alfa Realty; Alfa Farmers Federation; Bay Point Resort Village, Marriott's Golf & Yacht Club; OFC Capital; Virginia Mutual Insurance Company.

Principal Competitors

The Allstate Corporation; American International Group, Inc.; Atlantic American Corporation; Cotton States Life Insurance Company; GEICO; Prudential Financial, Inc.; State Farm Insurance Companies.

Further Reading

"Alfa Insurance Group Catastrophic Loss Plan Attacked in Lawsuit," Business Wire, June 15, 1999.

Johnston, David Cay, "From Tiny Insurers, Big Tax Breaks," New York Times, April 1, 2003, p. 1C.

"Standard & Poor's Affirms Alfa Insurance Group 'AA' Ratings; Out-look Stable," PR Newswire, September 8, 2000.

Summerford, Roy, "AFF/ALFA Marks 75th Anniversary with $5 Million Gift to AU," Auburn University News, January 31, 1996.

"Vesta Announces Strategic Alliance with Alfa Insurance Group," PR Newswire, November 9, 1998.

—John W. Fiero