<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended June 30, 2000 Commission File Number 0-11773
ALFA CORPORATION
----------------
(Exact name of registrant as specified in its charter)
Delaware 063-0838024
-------- -----------
(State of Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
2108 East South Boulevard, Montgomery, Alabama 36116
(Mail: P. O Box 11000, Montgomery, Alabama 36191-0001)
-------------------------------------------------------
(Address and Zip Code of Principal Executive Offices)
Registrant's Telephone Number
Including Area Code (334) 288-3900
--------------
None
------------------------------
Former name, former address and former fiscal year if changed since last report
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
-------- -------
Indicate the number of shares outstanding of each of the issuer's classes of
Common Stock, as of the close of the period covered by this report.
Class Outstanding June 30, 2000
----------------------------- -------------------------
Common Stock, $1.00 par value 39,062,594 shares
----------
<PAGE>
ALFA CORPORATION
INDEX
Part I. Financial Information Page No.
(Consolidated Unaudited) --------
Item 1. Financial Statements
Balance Sheets - June 30, 2000 and
December 31, 1999 3
Statements of Income, Six Months and Three Months
ended June 30, 2000 and 1999 4
Statements of Comprehensive Income, Six Months and Three
Months ended June 30, 2000 and 1999 5
Statements of Cash Flows, Six Months
ended June 30, 2000 and 1999 6
Notes to Financial Statements 7
Independent Auditors' Report 11
Item 2.
Management's Discussion and Analysis of
Financial Condition and Results of Operations 12
Item 3.
Market Risk Disclosures 21
Part II. Other Information
Item 4.
Submission of Matters to a Vote of Security Holders 22
Item 6.
Exhibits and Reports on Form 8-K 22
2
<PAGE>
ALFA CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
-------------- --------------
(Unaudited)
<S> <C> <C>
Assets
Investments:
Fixed Maturities Held for Investment, at amortized cost
(fair value $897,772 in 2000 and $1,079,667 in 1999) $ 860,702 $ 1,030,931
Fixed Maturities Available for Sale, at fair value
(amortized cost $924,585,151 in 2000 and $847,589,381 in 1999) 891,427,943 812,871,523
Equity Securities, at fair value (cost $57,278,101
in 2000 and $53,053,370 in 1999) 115,802,344 113,175,338
Mortgage Loans on Real Estate 271,927 305,079
Investment Real Estate (net of accumulated
depreciation of $1,271,415 in 2000 and
$1,198,489 in 1999) 2,006,312 2,004,405
Policy Loans 44,543,146 42,820,247
Other Long-term Investments 176,312,229 129,629,607
Short-term Investments 35,872,540 53,376,923
-------------- --------------
Total Investments 1,267,097,143 1,155,214,053
Cash 6,691,685 6,649,914
Accrued Investment Income 14,297,342 12,828,094
Accounts Receivable 13,136,344 12,977,124
Reinsurance Balances Receivable 3,238,801 2,152,839
Due from Affiliates 9,703,712 2,199,863
Deferred Policy Acquisition Costs 145,555,835 136,016,688
Other Assets 6,725,192 7,308,110
-------------- --------------
Total Assets $1,466,446,054 $1,335,346,685
============== ==============
Liabilities
Policy Liabilities and Accruals - Property and Casualty Insurance $ 144,278,423 $ 143,148,690
Policy Liabilities and Accruals - Life Insurance 490,221,308 458,830,168
Unearned Premiums 126,099,191 114,802,464
Dividends to Policyholders 9,822,724 9,723,114
Premium Deposit and Retirement Deposit Funds 5,618,139 5,758,230
Deferred Income Taxes 25,462,404 24,360,697
Other Liabilities 71,254,567 52,698,161
Due to Affiliates 14,402,210 13,921,769
Commercial Paper 133,818,749 90,289,198
Notes Payable 104,565 105,162
Notes Payable to Affiliates 17,162,647 13,041,571
-------------- --------------
Total Liabilities 1,038,244,927 926,679,224
-------------- --------------
Commitments and Contingencies (Note 3)
Stockholders' Equity
Preferred Stock, $1 par value
Shares authorized: 1,000,000
Issued: None
Common Stock, $1 par value
Shares authorized: 110,000,000
Issued: 41,891,512
Outstanding: 2000 - 39,062,594; 1999 - 39,542,294 41,891,512 41,891,512
Capital in Excess of Par Value 23,044,401 22,820,889
Accumulated Other Comprehensive Income 20,937,375 20,407,812
Retained Earnings 378,936,815 351,923,507
Treasury Stock: at cost (2000-2,828,918 shares; 1999-2,349,218 shares) (36,608,976) (28,376,259)
-------------- --------------
Total Stockholders' Equity 428,201,127 408,667,461
-------------- --------------
Total Liabilities and
Stockholders' Equity $1,466,446,054 $1,335,346,685
============== ==============
</TABLE>
The accompanying notes are an integral part of these consolidated unaudited
financial statements.
3
<PAGE>
ALFA CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
June 30, June 30,
-------------------------- --------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues
Premiums - Property and Casualty Insurance $185,395,246 $176,518,203 $ 93,798,578 $ 88,813,579
Premiums and Policy Charges - Life Insurance 26,816,538 24,853,426 12,926,310 12,180,980
Net Investment Income 34,690,547 32,664,773 17,558,717 16,270,579
Realized Investment Gains 5,618,755 5,495,441 4,752,791 16,357
Other Income 1,549,446 1,264,244 747,330 690,736
------------ ------------ ------------ ------------
Total Revenues 254,070,532 240,796,087 129,783,726 117,972,231
------------ ------------ ------------ ------------
Benefits and Expenses
Benefits & Settlement Expenses 145,954,192 140,134,172 71,829,975 70,308,367
Dividends to Policyholders 1,849,121 1,758,413 876,887 834,262
Amortization of Deferred Policy
Acquisition Costs 32,002,272 29,840,636 16,749,561 15,007,798
Other Operating Expenses 21,694,494 24,031,606 10,819,553 10,385,510
------------ ------------ ------------ ------------
Total Expenses 201,500,079 195,764,827 100,275,976 96,535,937
------------ ------------ ------------ ------------
Income Before Provision for Income Taxes 52,570,453 45,031,260 29,507,750 21,436,294
Provision for Income Taxes 15,385,024 12,833,516 8,672,496 5,519,127
------------ ------------ ------------ ------------
Net Income $ 37,185,429 $ 32,197,744 $ 20,835,254 $ 15,917,167
============ ============ ============ ============
Net Income Per Share - Basic $0.95 $0.80 $0.53 $0.40
Net Income Per Share - Diluted $0.94 $0.79 $0.53 $0.40
============ ============ ============ ============
Operating Income $ 33,533,238 $ 28,625,707 $ 17,745,940 $ 15,906,535
Operating Income Per Share - Basic $0.85 $0.71 $0.45 $0.40
Operating Income Per Share - Diluted $0.85 $0.71 $0.45 $0.40
============ ============ ============ ============
Average Shares Outstanding - Basic 39,267,605 40,329,016 39,097,428 39,927,689
Average Shares Outstanding - Diluted 39,483,252 40,600,606 39,329,185 40,152,132
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated unaudited
financial statements.
4
<PAGE>
ALFA CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
June 30, June 30,
-------------------------- -------------------------
2000 1999 2000 1999
------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
Net Income $ 37,185,429 $ 32,197,744 $20,835,254 $15,917,167
Other Comprehensive Income (Loss), net of tax:
Unrealized Investment Gains (Losses) on Securities Available for Sale 4,181,754 (14,378,453) (1,945,906) (6,576,078)
Less: Realized Investment Gains 3,652,191 3,572,037 3,089,314 10,632
------------ ------------ ----------- -----------
Total Other Comprehensive Income (Loss) 529,563 (17,950,490) (5,035,220) (6,586,710)
------------ ------------ ----------- -----------
Total Comprehensive Income $ 37,714,992 $ 14,247,254 $15,800,034 $ 9,330,457
============ ============ =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated unaudited
financial statements.
5
<PAGE>
ALFA CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30,
----------------------------
2000 1999
------------- -------------
<S> <C> <C>
Cash Flows From Operating Activities:
Net Income $ 37,185,429 $ 32,197,744
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Policy Acquisition Costs Deferred (40,411,716) (36,238,906)
Amortization of Deferred Policy Acquisition Costs 32,002,272 29,840,636
Depreciation and Amortization 375,954 227,163
Provision for Deferred Taxes 1,125,522 1,842,645
Interest on Policyholders' Funds 9,870,666 8,946,987
Net Realized Investment Gains (5,618,755) (5,484,543)
Other (1,730,236) (69,441)
Changes in Operating Assets and Liabilities:
(Increase) in Accrued Investment Income (1,469,248) (1,594,195)
Decrease in Accounts Receivable 1,603,809 72,203
(Increase) in Reinsurance Balances Receivable (1,085,962) (727,704)
(Increase) in Amounts Due From Affiliates (7,503,849) (5,862,151)
Increase in Amounts Due to Affiliates 480,441 14,023,329
Decrease (Increase) in Other Assets 582,918 (900,497)
Increase in Liability for Policy Liabilities and Accruals 5,969,280 11,981,745
Increase in Liability for Unearned Premiums 11,296,727 7,619,670
(Decrease) Increase in Amounts Held for Others (40,481) 33,834
Increase in Other Liabilities 21,177,966 7,209,022
------------- -------------
Net Cash Provided by Operating Activities 63,810,737 63,117,541
------------- -------------
Cash Flows From Investing Activities:
Maturities and Redemptions of Fixed Maturities Held for Investment 169,882 296,021
Maturities and Redemptions of Fixed Maturities Available for Sale 29,509,292 61,507,161
Maturities and Redemptions of Other Investments 109,727,298 63,377,699
Sales of Fixed Maturities Available for Sale 29,014,745 9,392,842
Sales of Other Investments 26,016,544 31,195,925
Purchase of Fixed Maturities Available for Sale (134,878,670) (130,983,243)
Purchase of Other Investments (187,238,378) (129,217,259)
Net Decrease (Increase) in Short-term Investments 19,131,679 (12,837,825)
Net (Increase) Decrease in Receivable/Payable on Securities (2,236,399) 18,783,194
------------- -------------
Net Cash (Used in) Investing Activities (110,784,007) (88,485,485)
------------- -------------
Cash Flows From Financing Activities:
Increase in Commercial Paper 43,529,551 35,458,368
(Decrease) in Notes Payable (597) (891)
Increase (Decrease) in Notes Payable to Affiliates 4,121,076 (535,100)
Stockholder Dividends Paid (9,865,160) (9,375,951)
Purchase of Treasury Stock (8,360,394) (21,529,795)
Proceeds from Exercise of Stock Options 296,100 544,992
Deposits of Policyholders' Funds 39,527,051 38,304,300
Withdrawal of Policyholders' Funds (22,232,586) (20,132,701)
------------- -------------
Net Cash Provided by Financing Activities 47,015,041 22,733,222
------------- -------------
Net Increase (Decrease) in Cash 41,771 (2,634,722)
Cash - Beginning of Period 6,649,914 5,948,409
------------- -------------
Cash - End of Period $ 6,691,685 $ 3,313,687
============= =============
Supplemental Disclosures of Cash Flow Information
Cash Paid During the Year for:
Interest $ 4,370,567 $ 1,707,968
Income Taxes $ 13,756,000 $ 13,104,000
</TABLE>
The accompanying notes are an integral part of these consolidated unaudited
financial statements.
6
<PAGE>
ALFA CORPORATION
NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
June 30, 2000
1. Significant Accounting Policies
-------------------------------
In the opinion of the Company, the accompanying consolidated unaudited
financial statements contain all adjustments (consisting of only normal
recurring accruals) necessary to present fairly its financial position, results
of operations and cash flows. The accompanying financial statements have been
prepared on the basis of generally accepted accounting principles. A summary of
the more significant accounting policies related to the Company's business is
set forth in the notes to its audited consolidated financial statements for the
fiscal year ended December 31, 1999. The results of operations for the six month
and three month periods ended June 30, 2000 are not necessarily indicative of
the results to be expected for the full year. For purposes of this report, the
Company has defined operating income as income excluding realized investment
gains, net of related tax effects. Certain reclassifications have been made to
conform previous classifications to June 30, 2000 classifications and
descriptions.
2. Pooling Agreement
-----------------
Effective August 1, 1987, the Company entered into a property and casualty
insurance Pooling Agreement (the "Pooling Agreement") with Alfa Mutual Insurance
Company (Mutual), and other members of the Mutual Group. The Mutual Group is a
direct writer primarily of personal lines of property and casualty insurance in
Alabama. The Company's subsidiaries similarly are direct writers in Georgia and
Mississippi. Both the Mutual Group and the Company write preferred risk
automobile, homeowner, farmowner and mobile home insurance, fire and allied
lines, standard risk automobile and homeowner insurance, and a limited amount of
commercial insurance, including church, and businessowner insurance. Under the
terms of the Pooling Agreement, the Company cedes to Mutual all of its property
and casualty business. All of the Mutual Group's direct property and casualty
business (together with the property and casualty business ceded by the
Company) is included in the pool. Until September 30, 1994, Mutual retroceded
50% of the pooled premiums, losses, loss adjustment expenses and other
underwriting expenses to the Company while retaining 50% of these amounts
itself. On October 1, 1994, the Company increased its participation in the
Pooling Agreement. Mutual currently retrocedes 65% of the pool to the Company
and retains 35% within the Mutual Group. On October 1, 1996, the Pooling
Agreement was amended in conjunction with the restructuring of the Alfa
Insurance Group's catastrophe protection program. Effective November 1, 1996,
the allocation of catastrophe costs among the members of the pool was changed to
better reflect the economics of catastrophe finance. The amendment limits Alfa
Corporation's participation in any single catastrophic event or series of
disasters to its pool share (65%) of $10 million unless the loss exceeds $249
million on a 100% basis in which case the Company's share in the loss would be
based upon its amount of surplus relative to the other members of the group.
Currently, the Company's share of losses exceeding $249 million would be 13%.
Effective July 1, 1999, due to increases in insured property risks, an amendment
was made increasing Alfa Corporation's participation limits from its pool share
of the $10 million level to $11 million. The Company's participation in the
Pooling Agreement may be changed or terminated without the consent or approval
of the Company's shareholders, and the Pooling Agreement may be terminated by
any party thereto upon 90 days notice.
7
<PAGE>
(Note 2. Continued)
The following table sets forth the premiums and losses ceded to and assumed
from the pool for the six and three month periods ended June 30, 2000 and 1999:
<TABLE>
<CAPTION>
Six Months Ended June 30, Three Months Ended June 30,
-------------------------- ---------------------------
2000 1999 2000 1999
-------- -------- ------- -------
(in thousands)
<S> <C> <C> <C> <C>
Premiums ceded to pool $ 31,534 $ 29,205 $15,996 $14,424
Premiums assumed from pool $186,063 $177,118 $94,138 $88,011
Losses ceded to pool $ 20,734 $ 19,739 $ 9,865 $10,211
Losses assumed from pool $113,114 $107,747 $54,418 $54,620
</TABLE>
The Company incurred $2.5 million in storm losses in the first three months
of 2000. No storm losses were incurred during the second quarter of 2000 or
during either of the first two quarters of 1999.
3. Contingent Liabilities
-----------------------
The property and casualty subsidiaries have entered into the reinsurance
pooling agreement with Alfa Mutual Insurance Company and its affiliates as
discussed in Note 2. Should any member of the affiliated group be unable to meet
its obligation on a claim for a policy written by the Company's property and
casualty subsidiaries, the obligation to pay the claim would remain with the
Company's subsidiaries.
The liability for estimated unpaid property and casualty losses and loss
adjustment expenses is based upon an evaluation of reported losses and on
estimates of incurred but not reported losses. Adjustments to the liability
based upon subsequent developments are included in current operations.
Thus far, in 2000, the Company has experienced no interruption in its
ability to process its business and pay its claims on a timely basis and
believes all its mission critical systems are year 2000 compliant. The Company
developed a contingency plan to allow it to conduct its business should either
limited or extensive adverse conditions have occurred from year 2000 issues and
will continue to be able to utilize such a plan should any unforeseen
circumstances arise. The resources utilized to address year 2000 issues caused
some normal operational enhancements and systems development to be deferred or
delayed. However, any systems maintenance or statutory required updates were
performed on a timely basis.
Certain legal proceedings are in process at June 30, 2000. Costs for these
and similar legal proceedings, including accruals for outstanding cases, totaled
approximately $291,000 in the first six months of 2000, $6.5 million in 1999,
$5.2 million in 1998 and $3.6 million in 1997. These proceedings involve alleged
breaches of contract, torts, including bad faith and fraud claims, and
miscellaneous other causes of action. These lawsuits involve claims for mental
anguish and punitive damages. Approximately 19 legal proceedings against Alfa
Life Insurance Corporation are in process at June 30, 2000. Of the 19
proceedings, 3 were filed in 2000, 12 were filed in 1999, 1 was filed in 1998, 2
were filed in 1997 and 1 was filed in 1996. Three of the legal proceedings were
filed as purported class action lawsuits, but at present, no class has been
certified. In addition, one purported class action lawsuit is pending against
Alfa Builders and Alfa Mutual Fire Insurance Company. Additionally, seven
purported class action lawsuits are pending against the property and casualty
mutual companies involving a number of issues and allegations, which could
affect Alfa Corporation because of a pooling agreement between the companies. No
class has been certified in any
8
<PAGE>
(Note 3. Continued)
of these purported class action cases. It should be noted that in Alabama, where
the company has substantial business, the likelihood of a judgement in any given
suit, including a large mental anguish and/or punitive damage award by a jury,
bearing little or no relation to actual damages, continues to exist, creating
the potential for unpredictable material adverse financial results.
4. Segment Information
--------------------
The following table sets forth the components of property and casualty
insurance earned premiums, net underwriting income, GAAP basis loss, expense and
combined ratios, underwriting margin, net investment income and operating income
for the six and three month periods ended June 30, 2000 and 1999:
<TABLE>
<CAPTION>
Six Months Ended June 30, Three Months Ended June 30,
------------------------------- -------------------------------
2000 1999 % Change 2000 1999 % Change
------------------------------- -------------------------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Earned premiums
Personal lines $177,338 $168,733 5% $89,731 $84,838 6%
Commercial lines 6,709 6,421 4% 3,385 3,295 3%
Pools, associations and fees 2,016 1,964 3% 1,023 974 5%
Reinsurance ceded (668) (600) 11% (340) (293) 16%
-------- -------- -- ------- ------- --
Total $185,935 $176,518 5% $93,799 $88,814 6%
======== ======== == ======= ======= ==
Net underwriting income $ 21,078 $ 18,703 13% $11,636 $12,174 (4%)
======== ======== == ======= ======= ==
Loss ratio 60.4% 60.6% 58.0% 59.3%
LAE ratio 5.7% 5.1% 6.4% 4.7%
Expense ratio 22.6% 23.8% 23.2% 22.3%
-------- -------- ------- -------
GAAP basis combined ratio 88.6% 89.4% 87.6% 86.3%
======== ======== ======= =======
Underwriting margin 11.4% 10.6% 12.4% 13.7%
======== ======== ======= =======
Net investment income $ 14,000 $ 13,230 6% $ 7,016 $ 6,721 4%
======== ======== == ======= ======= ==
Pre-tax operating income $ 35,250 $ 31,827 11% $18,753 $18,858 (1%)
======== ======== == ======= ======= ==
Operating income, net of tax $ 26,379 $ 22,790 16% $14,433 $13,274 9%
======== ======== == ======= ======= ==
</TABLE>
9
<PAGE>
(Note 4. Continued)
The following table sets forth life insurance premiums and policy charges,
by type of policy, net investment income, benefits and expenses and life
insurance operating income for the six and three month periods ended June 30,
2000 and 1999:
<TABLE>
<CAPTION>
Six Months Ended June 30, Three Months Ended June 30,
------------------------------- -------------------------------
2000 1999 % Change 2000 1999 % Change
------------------------------- -------------------------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Premiums and policy charges
Universal life policy charges $ 7,305 $ 6,658 10% $ 3,712 $ 3,434 8%
Universal life policy charges - COLI 1,610 1,511 7% 426 355 20%
Interest sensitive life policy charges 5,018 4,951 1% 2,516 2,464 2%
Traditional life insurance premiums 12,682 11,523 10% 6,273 5,927 6%
Group life insurance premiums 202 210 (4%) 0 1 (100%)
------- ------- -- ------- ------- ----
Total $26,817 $24,853 8% $12,927 $12,181 6%
======= ======= == ======= ======= ====
Net investment income $20,225 $18,150 11% $10,269 $ 9,055 13%
======= ======= == ======= ======= ====
Benefits and expenses $30,297 $30,741 (1%) $14,454 $13,983 3%
======= ======= == ======= ======= ====
Pre-tax operating income $13,112 $ 8,879 48% $ 6,926 $ 5,556 25%
======= ======= == ======= ======= ====
Operating income, net of tax $ 9,551 $ 6,720 42% $ 5,064 $ 4,302 18%
======= ======= == ======= ======= ====
</TABLE>
5. Acquisition of Commercial Lease Portfolio
-----------------------------------------
During the first quarter of 2000, the Company signed a definitive agreement
and completed the transaction to acquire the leasing portfolio and assets of OFC
Capital (OFC), an Atlanta-based business unit of First Liberty Bank, that
provides financing for commercial equipment leases. The transaction involved a
cash purchase price of approximately $23.1 million, which is primarily for the
portfolio of leases. OFC operates as a business unit of Alfa Financial
Corporation, a subsidiary of the Company. The impact of OFC's operating results
for the three-month period ended June 30, 2000 was a loss of approximately
$201,000.
6. Financial Accounting Developments
---------------------------------
The Financial Accounting Standards Board (FASB) issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities" in June 1998.
This Statement establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in investment
securities and other contracts, and for hedging activities. It requires that
an entity recognize all derivatives as either assets or liabilities in the
balance sheet and measure those instruments at fair value. The accounting for
changes in the fair value of a derivative will be included in either earnings or
other comprehensive income depending on the intended use of the derivative
instrument. The Company is currently evaluating this standard, which, as amended
by SFAS No. 137 and SFAS No. 138, is effective for the Company January 1, 2001.
10
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Board of Directors
Alfa Corporation:
We have reviewed the consolidated balance sheet of Alfa Corporation and
subsidiaries as of June 30, 2000, and the related consolidated statements of
income and comprehensive income for the three-month and six-month periods ended
June 30, 2000 and 1999, and the consolidated statements of cash flows for the
six-month periods ended June 30, 2000 and 1999. These consolidated financial
statements are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with auditing standards generally accepted in the United States of America, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the consolidated financial statements referred to above for them to
be in conformity with accounting principles generally accepted in the United
States of America.
We have previously audited, in accordance with generally accepted auditing
standards, the accompanying consolidated balance sheet of Alfa Corporation and
subsidiaries as of December 31, 1999, and the related consolidated statements of
income, stockholders' equity, cash flows and comprehensive income for the year
then ended (not presented herein); and in our report dated February 3, 2000, we
expressed an unqualified opinion on those consolidated financial statements.
KPMG LLP
August 14, 2000
Birmingham, Alabama
11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
---------------------
The following table sets forth consolidated summarized income statement
information for the six and three month periods ended June 30, 2000 and 1999:
<TABLE>
<CAPTION>
Six Months Ended June 30, Three Months Ended June 30,
------------------------------------ ---------------------------------------
2000 1999 % Change 2000 1999 % Change
----------- ----------- -------- -------- ----------- ---------
(in thousands, except share and per share data)
<S> <C> <C> <C> <C> <C> <C>
Revenues
Property and casualty
insurance premiums $ 185,395 $ 176,518 5% $ 93,798 $ 88,814 6%
Life insurance premiums
and policy charges 26,817 24,853 8% 12,927 12,181 6%
----------- ----------- --- -------- ----------- ---
Total premiums and
policy charges $ 212,212 $ 201,372 5% $106,725 $ 100,995 6%
=========== =========== === ======== =========== ===
Net Investment income $ 34,691 $ 32,665 6% $ 17,559 $ 16,271 8%
=========== =========== === ======== =========== ===
Total Revenues $ 254,071 $ 240,796 6% $129,784 $ 117,972 10%
=========== =========== === ======== =========== ===
Net income
Property and casualty
insurance $ 26,379 $ 22,790 16% $ 14,433 $ 13,274 9%
Life insurance 9,551 6,720 42% 5,064 4,302 18%
----------- ----------- --- -------- ----------- ---
Total insurance
operations 35,930 29,510 22% 19,497 17,576 11%
Noninsurance operations 1,045 1,512 (31%) 464 690 (33%)
Net realized investment gains 3,652 3,572 2% 3,089 11 NM
Corporate expenses (3,442) (2,396) (44%) (2,215) (2,360) (6%)
----------- ----------- --- -------- ----------- ---
Net income $ 37,185 $ 32,198 15% $ 20,835 $ 15,917 31%
=========== =========== === ======== =========== ===
Net income per share-
Basic $0.95 $0.80 19% $0.53 $0.40 34%
=========== =========== === ======== =========== ===
Diluted $0.94 $0.79 19% $0.53 $0.40 34%
=========== =========== === ======== =========== ===
Weighted average
shares outstanding - Basic 39,267,605 40,329,016 39,097,428 39,927,689
=========== =========== =========== ===========
Diluted 39,483,252 40,600,606 39,329,185 40,152,132
=========== =========== =========== ===========
</TABLE>
12
<PAGE>
Total premiums and policy charges increased 5% in the first six months of
2000 as a result of increased production in both property casualty and life
business and continued good persistency. Net investment income increased 6% in
the first six months of 2000 while invested assets have grown 10% in the six
months since December 31, 1999 resulting from positive cash flows.
Operating income, net of tax, increased by 16% in the property casualty
subsidiaries due primarily to a continuation of increased underwriting profits.
The 42% increase in operating income, net of tax, in the life subsidiary is due
to both improved operating results for the first two quarters and to a reduction
in expenses incurred related to a significant level of non-recurring legal,
technology and administrative costs incurred in the first quarter of 1999.
Noninsurance operations were down 31% due primarily to a reduction in fees
related to premium financing. Such fees have been reduced and the premium
financing activities are now provided by the property casualty subsidiaries. The
overall impact of this change is insignificant to the Company's earnings. The
decline in the finance subsidiary's earnings were partially offset by favorable
results from the construction subsidiary which produced increased earnings from
improved performance in the commercial sector.
The Company's net income was positively impacted by a significant increase
in realized investment gains in the second quarter of 2000. Corporate expenses
increased in the first six months of 2000 due to increased interest expense on
corporate-related debt used to fund the Company's stock repurchase program.
PROPERTY AND CASUALTY INSURANCE OPERATIONS
------------------------------------------
The following table sets forth the components of property and casualty
insurance earned premiums, net underwriting income, GAAP basis loss, expense and
combined ratios, underwriting margin, net investment income and operating income
for the six month and three month periods ended June 30, 2000 and 1999:
<TABLE>
<CAPTION>
Six Months Ended June 30, Three Months Ended June 30,
--------------------------------- -------------------------------
2000 1999 % Change 2000 1999 % Change
-------- -------- -------- ------- ------- --------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Earned premiums
Personal lines $177,338 $168,733 5% $89,731 $84,838 6%
Commercial lines 6,709 6,421 4% 3,385 3,295 3%
Pools, associations and fees 2,016 1,964 3% 1,023 974 5%
Reinsurance ceded (668) (600) 11% (340) (293) 16%
-------- -------- ----- ------- ------- --
Total $185,395 $176,518 5% $93,799 $88,814 6%
======== ======== ===== ======= ======= ==
Net underwriting income $ 21,078 $ 18,703 13% $11,636 $12,174 (4%)
======== ======== ===== ======= ======= ==
Loss ratio 60.4% 60.6% 58.0% 59.3%
LAE ratio 5.7% 5.1% 6.4% 4.7%
Expense ratio 22.6% 23.8% 23.2% 22.3%
======== ======== ======= =======
GAAP basis combined ratio 88.6% 89.4% 87.6% 86.3%
======== ======== ======= =======
Underwriting margin 11.4% 10.6% 12.4% 13.7%
======== ======== ======= =======
Net investment income $ 14,000 $ 13,230 6% $ 7,016 $ 6,721 4%
======== ======== ===== ======= ======= ==
Pre-tax operating income $ 35,250 $ 31,827 11% $18,753 $18,858 (1%)
======== ======== ===== ======= ======= ==
Operating income, net of tax $ 26,379 $ 22,790 16% $14,433 $13,274 9%
======== ======== ===== ======= ======= ==
</TABLE>
13
<PAGE>
Earned premiums increased 6% in the second quarter of 2000 and 5% for
the first six months of 2000 due to increased production in the automobile line
and improved homeowner premiums from continued production and good persistency.
The Company's underwriting results continued to be favorable due in part to
a continued good loss ratio in the automobile line of 59% compared to 62% in the
first six months of 1999. The six-month overall loss ratio decreased slightly by
20 basis points despite $2.5 million of storm losses in the first quarter of
2000. No storm losses were incurred in the second quarter of 2000 or during the
first six months of 1999. The other factor in the improved underwriting results
was a reduction in expenses from 1999 levels which had been impacted by
increased costs related to technology, litigation and administrative expenses
associated with the retirement of two executives.
Another significant factor affecting results in the second quarter was the
impact of compulsory insurance in Alabama which became effective June 1, 2000.
As a result, the growth rate in automobile written premiums was 11% in the
second quarter of 2000 compared to a first quarter of 2000 rate of 6%, although
the impact on earned premiums in the second quarter was not significant. In
addition, LAE reserves were increased as a result of the growth in new business
which led to an LAE ratio of 6.4% for the second quarter of 2000 compared to
4.9% in the first quarter of 2000.
Net investment income increased 6% in the first six months of 2000 in the
property casualty subsidiaries due to continued positive cash flow from
profitable underwriting results which increased invested assets 10% since June
30, 1999.
LIFE INSURANCE OPERATIONS
-------------------------
The following table sets forth life insurance premiums and policy charges,
by type of policy, net investment income, benefits and expenses and life
insurance operating income for the six month and three month periods ended June
30, 2000 and 1999:
<TABLE>
<CAPTION>
Six Months Ended June 30, Three Months Ended June 30,
---------------------------- -----------------------------
2000 1999 % Change 2000 1999 % Change
------- ------- -------- ------- ------- --------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Premiums and policy charges
Universal life policy charges $ 7,305 $ 6,658 10% $ 3,712 $ 3,434 8%
Universal life policy charges - COLI 1,610 1,511 7% 426 355 20%
Interest sensitive life policy charges 5,018 4,951 1% 2,516 2,464 2%
Traditional life insurance premiums 12,682 11,523 10% 6,273 5,927 6%
Group life insurance premiums 202 210 (4%) 0 1 (100%)
------- ------- -- ------- ------- ----
Total $26,817 $24,853 8% $12,927 $12,181 6%
======= ======= == ======= ======= ====
Net investment income $20,225 $18,150 11% $10,269 $ 9,055 13%
======= ======= == ======= ======= ====
Benefits and expenses $30,297 $30,741 (1%) $14,454 $13,983 3%
======= ======= == ======= ======= ====
Pre-tax operating income $13,112 $ 8,879 48% $ 6,926 $ 5,556 25%
======= ======= == ======= ======= ====
Operating income, net of tax $ 9,551 $ 6,720 42% $ 5,064 $ 4,302 18%
======= ======= == ======= ======= ====
</TABLE>
14
<PAGE>
The Company's life insurance premiums and policy charges increased 8% in
the first six months of 2000 due to new business and good persistency. First
year collected premiums have increased over 17% in the first six months of 2000
due to a continuation of increases in sales of term products and from increased
sales of universal life policies following the introduction of a new universal
life product in January 2000. Total new annualized premium increased 14% in
the first six months of 2000 and 6% in all of 1999.
Life insurance operating income, net of tax, increased approximately 42%
in the first six months of 2000. This increase was the result of continuing
increases in production, good persistency and a reduction in legal expenses and
policy reserves related to the Company's decision in the first quarter of 1999
to adjust the values and related reserves of certain whole life policies sold
more than 10 years ago. Partially offsetting these expense reductions was an
increase in death claims of approximately $1.8 million. The mortality ratio of
actual to expected death claims increased to 97% in the first six months of 2000
from 88% in the first six months of 1999. As a result of the increase in
earnings, positive cash flows resulted in a 7% increase in invested assets which
increased investment income approximately 11%.
NONINSURANCE OPERATIONS
-----------------------
Noninsurance operations were down 31% due primarily to a reduction in fees
associated with premium financing. These fees have been reduced and the premium
financing activities are now provided by the property casualty subsidiaries. The
overall impact of this change is insignificant to the Company's earnings.
Partially offsetting the finance subsidiary's decline in earnings were favorable
results from the construction subsidiary which increased net income 21% to
approximately $276,000. The real estate sales subsidiary had a net income of
approximately $26,000, a reduction of 54%, due primarily to increased legal
expenses in the first quarter.
CORPORATE
---------
Interest expense on corporate debt is the primary corporate expense
incurred. Interest expense in the first six months of 2000 was approximately
$2,117,000 compared to approximately $1,057,000 for the similar period in 1999.
The increase in interest expense is due to the increase in the average balance
outstanding and the increase in interest rates. Increased corporate borrowings
have been used to repurchase shares of the Company's stock and to cover general
operating expenses which may fluctuate from time to time. The decrease in other
corporate expenses in the first six months is due to a decline of $1,500,000 in
legal expenses from 1999 levels.
15
<PAGE>
INVESTMENTS
-----------
The Company has historically produced positive cash flow from operations
which has resulted in increasing amounts of funds available for investment and,
consequently, higher investment income. Investment income is also affected by
yield rates. Information about cash flows, invested assets and yield rates is
presented below for the six months ended June 30, 2000 and 1999:
<TABLE>
<CAPTION>
Six Months Ended
June 30,
------------------
<S> <C> <C>
2000 1999
---- ----
Increase in invested assets since January 1, 2000 and 1999 9.7% 6.4%
Investment yield rate (annualized) 6.6% 6.9%
Increase in net investment income since June 30, 1999 and 1998 6.2% 6.0%
</TABLE>
The marginal increase in positive cash flow from operations is due
primarily to continued profitable operating results in the Company's property
and casualty subsidiaries, which had $21.1 million in underwriting income in
the first six months of 2000. The premium from the COLI plan in the life
insurance subsidiary is collected in February and provided positive cash flow in
the first quarter of both years. Increases in cash resulting from increased
commercial paper borrowings were primarily used in March 2000 to purchase the
lease portfolio of OFC Capital, a division of the finance subsidiary, and to
fund the Company's stock repurchase program throughout the first six months of
2000. As a result of the overall positive cash flows from operations, invested
assets grew 10% since January 1, 2000 and 10% since June 30, 1999 (based on
amortized cost, which excludes the impact of SFAS 115), and net investment
income increased 6%. The overall yield rate, calculated using amortized cost,
has declined slightly to 6.6%. The Company had net realized investment gains of
approximately $5.6 million in the first six months of 2000 and $5.5 million in
the similar period in 1999. These net gains are primarily from sales of equity
securities. Such realized gains are the result of market conditions and
therefore can fluctuate from period to period.
The composition of the Company's investment portfolio is as follows at June
30, 2000 and December 31, 1999:
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
-------- ------------
<S> <C> <C>
Fixed maturities
Taxable
Mortgage backed (CMO's) 25.4% 26.6%
Corporate bonds 30.3 28.2
----- -----
Total taxable 55.7 54.8
Tax exempts 14.8 15.7
----- -----
Total fixed maturities 70.5 70.5
----- -----
Equity securities 9.1 9.8
Mortgage loans - -
Real estate 0.2 0.2
Policy loans 3.5 3.7
Other long term investments 13.9 11.2
Short term investments 2.8 4.6
----- -----
100.0% 100.0%
===== =====
</TABLE>
16
<PAGE>
The majority of the Company's investment portfolio consists of fixed
maturities which are diverse as to both industry and geographic concentration.
Since year-end, the overall mix of investments has remained relatively stable
with changes due to a shift from short term investments to fixed maturities and
to market value fluctuations in fixed maturities.
The rating of the Company's portfolio of fixed maturities using the
Standard & Poor's rating categories is as follows at June 30, 2000 and December
31, 1999:
June 30, December 31,
2000 1999
------- ------------
RATING
------
AAA to A- 91.2% 89.8%
BBB+ to BBB- 7.7 9.2
BB+ and Below (Below investment grade) 1.1 1.0
----- -----
100.0% 100.0%
===== =====
One hundred percent of the fixed maturity portfolio was rated by an outside
rating service. No securities were rated by Company management. The Company
considers bonds with a quality rating of BB+ and below to be below investment
grade or high yield bonds (also called junk bonds).
At June 30, 2000, approximately 36% of fixed maturities were mortgage-
backed securities. Such securities are comprised of Collateralized Mortgage
Obligations (CMO's) and pass through securities. Based on reviews of the
Company's portfolio of mortgage-backed securities, the impact of prepayment
risk on the Company's financial position is not believed to be significant. At
June 30, 2000 the Company's total portfolio of fixed maturities had gross
unrealized gains of $9,999,314 and gross unrealized losses of $43,119,452.
Securities are priced by nationally recognized pricing services or by
broker/dealer securities firms. No securities were priced by the Company.
During the first six months of 2000, the Company sold approximately $29.0
million in fixed maturities available for sale. These sales resulted in gross
realized gains of $120,365 and gross realized losses of $982,019. During the
first six months of 1999 the Company sold approximately $9.4 million in fixed
maturities available for sale. These sales resulted in gross realized gains of
$12,779 and gross realized losses of $812,408.
The Company monitors its level of investments in high yield fixed
maturities and equity investments held in issuers of high yield debt securities.
Management believes the level of such investments is not significant to the
Company's financial condition. At June 30, 2000, the Company had unrealized
gains of approximately $831,000 in such investments.
In the second quarter of 2000, the Company wrote down two equity securities
totaling $612,194, whose declines in value were deemed to be other than
temporary. In addition, the Company wrote down five bonds during the second
quarter of 2000 totaling $1,359,013, whose declines in value were also deemed to
be other than temporary.
The Company's investment in other long term investments consists primarily
of loans originated by the consumer finance subsidiary and the commercial lease
portfolio purchased during the first quarter of 2000.
17
<PAGE>
These loans and leases are collateralized by automobiles, equipment and other
property. At June 30, 2000 the delinquency ratio on the loan portfolio was
1.66%, down from 1.79% at December 31, 1999. The delinquency ratio on the
commercial lease portfolio at June 30, 2000 was 2.36%. Credit losses of $328,000
were incurred in the first six months of 2000 including an increase of
approximately $142,386 in general reserves attributable to growth of the
consumer loan and commercial lease portfolios. At June 30, 2000, the Company
maintained an allowance for consumer loan losses of $647,283 or approximately
1.1% of the outstanding loan balance. In addition, the Company maintained an
allowance for commercial lease losses of $415,944 or approximately 1.4% of the
outstanding commercial lease balance. Long term investments also include assets
leased under capital and operating leases, partnership investments and certain
other investments.
INCOME TAXES
------------
The effective tax rate in the first six months of 2000 was 29.3% compared
to 29.9% for the full year 1999 and 28.5% for the first six months of 1999. The
change in the effective tax rate in the first six months of 2000 is due
primarily to the relative mix of taxable versus tax-exempt income. The
effective rate has also been impacted by increased tax preference credits on
certain investments.
IMPACT OF INFLATION
-------------------
Inflation increases consumers' needs for both life and property and
casualty insurance coverage. Inflation increases claims incurred by property
and casualty insurers as property repairs, replacements and medical expenses
increase. Such cost increases reduce profit margins to the extent that rate
increases are not maintained on an adequate and timely basis. Since inflation
has remained relatively low in recent years, financial results have not been
significantly impacted by inflation.
LIQUIDITY AND CAPITAL RESOURCES
--------------------------------
The Company receives funds from its subsidiaries consisting of dividends,
payments for funding federal income taxes, and reimbursement of expenses
incurred at the corporate level for the subsidiaries. These funds are used for
paying dividends to stockholders, corporate interest and expenses, federal
income taxes, and for funding additional investments in its subsidiaries'
operations.
The Company's subsidiaries require cash in order to fund policy acquisition
costs, claims, other policy benefits, interest expense, general operating
expenses, and dividends to the Company. The major sources of the Company's
liquidity are operations and cash provided by maturing or liquidated
investments. A significant portion of the Company's investment portfolio
consists of readily marketable securities which can be sold for cash. Based on
a review of the Company's matching of asset and liability maturities and on the
interest sensitivity of the majority of policies in force, management believes
the ultimate exposure to loss from interest rate fluctuations is not
significant.
18
<PAGE>
On October 25, 1993, the Company established a Stock Inventive Plan,
pursuant to which a maximum aggregate of 2,000,000 shares of common stock have
been reserved for grant to key personnel. The plan expires on October 24, 2003.
Under the plan, options ratably become exercisable annually over three years,
and may not be exercised after ten years after the date of the award. The
following table summarizes the stock option activity of the Company's plan.
<TABLE>
<CAPTION>
Cumulative through June 30, 2000
------------------------------------------
Options Options Options
Cancelled Exercised Exercisable
--------- --------- -----------
<S> <C> <C> <C> <C>
Options Authorized 2,000,000
---------
Options Granted During
October 1993 783,400 60,200 159,250 563,950
March 1994 80,000 9,500 70,500
March 1995 80,000 9,500 70,500
April 1996 80,000 1,667 6,999 71,334
February 1997 75,000 4,000 8,833 62,167
March 1998 452,500 12,400 100 294,155
April 1999 167,500 1,666 55,839
October 1999 8,000
April 2000 193,000 10,000
--------- ------ ------- ---------
Less: Total Options Granted 1,919,400 89,933 194,182 1,188,445
====== ======= =========
Add: Options Cancelled 89,933
---------
Available for Grant under
Plan at June 30, 2000 170,533
=========
</TABLE>
In October 1989, the Company's Board of Directors approved a stock
repurchase program authorizing the repurchase of up to 2,000,000 shares of its
outstanding common stock in the open market or in negotiated transactions in
such quantities and at such times and prices as management may decide. In March
1999, the Board increased the number of shares authorized for repurchase by
2,000,000. During the first six months of 2000 the Company repurchased 506,100
shares at a cost of $8,360,394. At June 30, 2000 the total repurchased was
3,015,100 shares at a cost of $37,567,841. The Company has reissued 194,182
treasury shares as a result of option exercises.
Total borrowings increased $47.7 million in the first six months of 2000 to
$151.1 million. At June 30, 2000 the Company had approximately $133.8 million
in commercial paper at rates ranging from 6.58% to 6.61% with maturities ranging
from July 5, 2000 to August 10, 2000. The Company intends to continue to use
the commercial paper program to fund the consumer loan portfolio, commercial
lease portfolio and other corporate short term needs. Backup lines of credit
are in place up to $135 million. The Company has an A-1+, P-1 commercial
paper rating from Standard & Poor's and Moody's Investors Service. The
commercial paper is guaranteed by an affiliate, Alfa Mutual Insurance Company.
In addition, the Company had $17.2 million in
19
<PAGE>
short-term debt outstanding to affiliates at June 30, 2000 with interest equal
to commercial paper rates payable monthly and $104,565 outstanding in other
short-term debt at a rate of 7.0%.
Cash surrenders paid to policyholders on a statutory basis totaled $8.5
million in the first six months of 2000 and $6.4 million for the first six
months of 1999. This level of surrenders is within the Company's pricing
expectations. Historical persistency rates indicate a normal pattern of
surrender activity. The structure of the surrender charges is such that
persistency is encouraged. The majority of the policies in force have surrender
charges which grade downward over a 12 to 15 year period. In addition, the
majority of the in-force business is interest sensitive type policies which
generally have lower rates of surrender. At June 30, 2000 the total amount of
cash that would be required to fund all amounts subject to surrender was
approximately $384.5 million.
The Company's business is concentrated geographically in Alabama, Georgia
and Mississippi. Accordingly, unusually severe storms or other disasters in
these contiguous states might have a more significant effect on the Company than
on a more geographically diversified insurance company. Unusually severe
storms, other natural disasters and other events could have an adverse impact on
the Company's financial condition and operating results. However, the Company's
current catastrophe protection program, which began November 1, 1996, reduced
the earnings volatility caused by such catastrophe exposures.
Increasing public interest in the availability and affordability of
insurance has prompted legislative, regulatory and judicial activity in several
states. This includes efforts to contain insurance prices, restrict
underwriting practices and risk classifications, mandate rate reductions and
refunds, eliminate or reduce exemptions from antitrust laws and generally expand
regulation. Because of Alabama's low automobile rates as compared to rates in
most other states, the Company does not expect the type of punitive legislation
and initiatives found in some states to be a factor in its primary market in the
immediate future. During the second quarter of 1999, the Alabama legislature
passed a tort reform package that should help to curb some of the excessive
litigation experienced in recent years. In addition, a mandatory insurance bill
was passed to require motorists to obtain insurance coverage beginning in June
2000. Such a requirement could affect both the revenues and losses incurred by
the Company in the future. Although the full extent or impact is not possible
to predict, the Company believes any impact on future results will not be
significant.
YEAR 2000
---------
Thus far, in 2000, the Company has experienced no interruption in its
ability to process its business and pay its claims on a timely basis and
believes all its mission critical systems are year 2000 compliant. The Company
developed a contingency plan to allow it to conduct its business should either
limited or extensive adverse conditions have occurred from year 2000 issues and
will continue to be able to utilize such a plan should any unforeseen
circumstances arise. The resources utilized to address year 2000 issues caused
some normal operational enhancements and systems development to be deferred or
delayed. However, any systems maintenance or statutory required updates were
performed on a timely basis.
FINANCIAL ACCOUNTING DEVELOPMENTS
---------------------------------
The Financial Accounting Standards Board (FASB) issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities" in June 1998.
This Statement establishes accounting and reporting
20
<PAGE>
standards for derivative instruments, including certain derivative instruments
embedded in investment securities and other contracts, and for hedging
activities. It requires that an entity recognize all derivatives as either
assets or liabilities in the balance sheet and measure those instruments at fair
value. The accounting for changes in the fair value of a derivative will be
included in either earnings or other comprehensive income depending on the
intended use of the derivative instrument. The Company is currently evaluating
this standard, which, as amended by SFAS No. 137 and SFAS No. 138, is effective
for the Company January 1, 2001.
INFORMATION ABOUT FORWARD-LOOKING STATEMENTS
--------------------------------------------
Any statement contained in this report which is not a historical fact, or
which might otherwise be considered an opinion or projection concerning the
Company or its business, whether express or implied, is meant as and should be
considered a forward-looking statement as that term is defined in the Private
Securities Litigation Reform Act of 1995. Forward-looking statements are based
on assumptions and opinions concerning a variety of known and unknown risks,
including but not necessarily limited to changes in market conditions, natural
disasters and other catastrophic events, increased competition, changes in
availability and cost of reinsurance, changes in governmental regulations,
technological changes, political and legal contingencies and general economic
conditions, as well as other risks and uncertainties more completely described
in the Company's filings with the Securities and Exchange Commission. If any of
these assumptions or opinions prove incorrect, any forward-looking statements
made on the basis of such assumptions or opinions may also prove materially
incorrect in one or more respects and may cause actual future results to differ
materially from those contemplated, projected, estimated or budgeted in such
forward-looking statements.
Item 3.
-------
MARKET RISK DISCLOSURES
-----------------------
The Company's objectives in managing its investment portfolio are to
maximize investment income and investment returns while minimizing overall
credit risk. Investment strategies are developed based on many factors including
underwriting results, overall tax position, regulatory requirements, and
fluctuations in interest rates. Investment decisions are made by management and
approved by the Board of Directors. Market risk represents the potential for
loss due to adverse changes in the fair value of securities. The market risk
related to the Company's fixed maturity portfolio are primarily interest rate
risk and prepayment risk. The market risk related to the Company's equity
portfolio is equity price risk. There have been no material changes to the
Company's market risk for the six months ended June 30, 2000. For further
information, reference is made to Management's Discussion and Analysis of
Results of Operations in Alfa Corporation's Annual Report on Form 10-K for the
year ended December 31, 1999.
21
<PAGE>
PART II. OTHER INFORMATION
Item 4.
-------
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
The Annual Meeting of Stockholders was held April 27, 2000. The
following individuals were elected to the Board of Directors to serve until the
next annual meeting of stockholders.
Jerry A. Newby
Boyd E. Christenberry
Steve Dunn
C. Lee Ellis
James I. Harrison, Jr.
Hal F. Lee
B. Phil Richardson
John R. Thomas
James A. Tolar, Jr.
Russell R. Wiggins
Dean Wysner
Item 6.
-------
EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
None.
22
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ALFA CORPORATION
Date 8/14/00 By: /S/ Jerry A. Newby
----------------------------- -----------------------------------------
Jerry A. Newby
President
Date 8/14/00 By: /S/ Stephen G. Rutledge
----------------------------- ---------------------------------------
Stephen G. Rutledge
Senior Vice President
(Chief Financial Officer and
Chief Investment Officer)
Date 8/14/00 By: /S/ John Holley
----------------------------- ----------------------------------------
John Holley
Vice President, Finance
(Chief Accounting Officer)
23
