S&P: Alfa Mutual Insurance Co., Affiliates Ratings Lowered, Outlook Stable

April 13, 2004

Standard & Poor’s has lowered its counterparty credit and financial
strength ratings on the members of Alabama-based Alfa Insurance Group (Alfa) to ‘AA-‘ from ‘AA’.

Standard & Poor’s also said that it affirmed its ‘A-1+’ commercial paper rating on Alfa Corp. The outlook on all these companies is stable.

“The ratings were lowered because of the group’s geographic
concentration, which resulted in the fourth consecutive year of
underwriting losses, primarily because of catastrophe exposures,”
explained Standard & Poor’s credit analyst Polina Chernyak. “In addition, Alfa faces competitive market conditions as it continues to be challenged by large national competitors.” These weaknesses are partially offset by the group’s leading position as a personal lines insurance provider in Alabama, extremely strong capitalization, and consistently good investment results.

Standard & Poor’s expects that Alfa will reduce the earnings volatility
arising from its property catastrophe losses. Alfa is expected to maintain its extremely strong capital position and its strong operating
performance, with an ROR of 13 percent-17 percent in 2004 and 2005. It is also expected to mitigate its earnings volatility by diversifying its geographic concentration and business risk.

Alfa is a market leader in Alabama, with the majority of its business
generated from personal auto and homeowners lines. In addition, Alfa has a leading presence within Alabama’s farm owners community, where it captured about 80 percent of the market at year-end 2003.

Its track record of excellent customer service has allowed it to capture about 20 percent share of Alabama’s homeowners and personal auto insurance market, which is the second largest share.

Alfa has historically generated solid earnings from operations, but the
group’s underwriting performance deteriorated in 2002 and 2003. The
decrease stemmed from Alfa’s susceptibility to catastrophes because of its significant business concentration in Alabama and its increased technology expenditures.

Standard & Poor’s believes operating performance will improve somewhat, with rate increases and other underwriting actions improving profitability.

However, Alfa’s performance will lag that of some of its peers, as private passenger auto carriers have witnessed significantly improved underwriting margins for the last couple of years.

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