Fitch Ratings Affirms ALFA.

CHICAGO -- Fitch Ratings has affirmed the 'F1+' commercial paper rating and 'A+' long-term issuer rating of Alfa Corporation (Alfa Corp.). Fitch has also affirmed the insurer financial strength (IFS) ratings of 'AA' to the Alfa insurance companies (Alfa Group) (see list below). The Rating Outlook for all ratings is Stable.

The debt ratings are based on Alfa Corp.'s steady operating performance, sound balance sheet, strong capitalization at the operating company level, and adequate loss-reserving levels. Additionally, investors in Alfa Corp.'s commercial paper have the added benefit of a guarantee commitment from Alfa Mutual Insurance Company and Alfa Mutual Fire Insurance Company.

The affirmation of Alfa Group's 'AA' IFS rating is, in part, based on Alfa Group's strong capitalization as measured by high risk based capital (RBC) ratios and low leverage ratios. Alfa Mutual Insurance Company, the pool's largest member as measured by statutory surplus, had an RBC ratio of 475% for year-end 2003 and a five-year average of 513%. Alfa Group also has very low operating leverage for a personal lines insurer, as statutory net premiums written to surplus was 0.47 times (x) for 2003.

Traditionally, Alfa Group has experienced stable underwriting performance for the past several years as experienced with a five-year average combined ratio of 100.3% and 101.8% for year-end 2003. However, Hurricane Ivan will negatively affect Alfa Group's underwriting results for year-end 2004 by adding approximately 19 points to the loss ratio, according to recent estimates.

Although Hurricane Ivan was a significant event to Alfa Group, Fitch notes that the total insured losses are not expected to exceed the gross loss limit of $410 million for the group's catastrophe reinsurance program. Fitch believes that Hurricane Ivan estimates will be less than $300 million. Fitch notes that a catastrophe loss of $410 million would produce an estimated pretax net of reinsurance loss of approximately $128 million. On an after-tax basis, this loss would correspond to approximately 5% of the Alfa Group's combined policyholders' surplus of $1.6 billion at year-end 2003.

Additionally, an intercompany pooling agreement among members of the Alfa Group allocates the bulk of catastrophe-related losses to the mutual insurance company members of the Alfa Group, with a very modest portion of losses retained by stock insurers owned by Alfa Corp.

Alfa Group is the second largest personal automobile and homeowners insurance writer in Alabama based on premiums written. The company provides a full array of personal lines insurance coverage in Alabama, Mississippi, Georgia, and Virginia. Primary operations are concentrated in personal automobile insurance. The company also has a life insurance operation.

In addition to the insurance operations, Alfa Corp. owns and operates Alfa Financial, a consumer lending and commercial leasing operation. Alfa has acknowledged that it is looking to divest the commercial leasing operations, OFC Capital. Fitch anticipates an OFC Capital divestiture will decrease Alfa Corp.'s financial leverage and reduce the volatility in earnings, thus Fitch views this action favorably.

Alfa Corp. reported GAAP consolidated assets of $2.2 billion and total shareholder equity of $665.6 million, as of Sept. 30, 2004. The corporation had premium revenues of $419 million for the first nine months of 2004. Alfa Corp.'s net income for the first nine months of 2004 was $67 million, up 18% from the first nine months of 2003's results.

Alfa Corp.'s debt to capital ratio at Sept. 30, 2004 was 31.6% (including affiliated debt). One of Alfa's strengths is its interest coverage capacity, which was 18.9x interest expense for the first nine months of 2004.

Fitch assigns the following rating to Alfa Corporation:

-- $70 million variable-rate note due June 1, 2017 rated 'A+'/Stable Outlook.

Alfa Corporation

-- Commercial paper affirmed at 'F1+';

-- Long-term issuer affirmed at 'A+'/Stable Outlook.

The 'AA' insurer financial strength ratings have been affirmed by Fitch for the following entities with a Stable Outlook.

Alfa Insurance Corporation

Alfa General Insurance Corporation

Alfa Mutual Fire Insurance Company

Alfa Mutual General Insurance Company

Alfa Mutual Insurance Company

Alfa Specialty Insurance Corporation

Virginia Mutual Insurance Company

Alfa Life Insurance Corporation