A.M. Best Downgrades Ratings of Alfa Insurance Group and Alfa Life Insurance Corporation

A.M. Best Co. has downgraded the financial strength ratings (FSR) to A (Excellent) from A+ (Superior) and the issuer credit ratings (ICR) to “a+” from “aa-” for Alfa Insurance Group (Alfa or the Alfa Group), its members and Alfa Life Insurance Corporation (Alfa Life). The outlook for all FSRs has been revised to stable from negative, and the outlook for Alfa Life’s ICRs also has been revised to stable from negative. The outlook for the ICRs of Alfa Group remains negative. All companies are domiciled in Montgomery, AL, with the exception of Alfa Specialty Insurance Corporation, Alfa Alliance Insurance Corporation and Alfa Vision Insurance Corporation, which are domiciled in Virginia. (See below for a detailed list of the companies and ratings.)

The ratings for the Alfa Group reflect its supportive risk-adjusted capitalization, strong business profile in Alabama and actions taken by management to reduce catastrophic exposure and improve earnings.

These strengths are partially offset by a concentration of risk in Alabama and unfavorable operating performance, which has contributed to a decline in capitalization and led to the current rating actions. This is due primarily to losses from an increase in catastrophic weather events in recent years. Additionally, earnings in 2011 have fallen significantly below expectations due to increased frequency of storm activity and the devastating tornados that struck Alabama and other southern states in April. While the outlook for the FSRs was revised to stable, the outlook for Alfa Group’s ICRs remains negative and is reflective of the pressure on the ratings due to the company’s exposure to hurricanes and other severe weather events in the Southern Gulf states, as well as the current trend of unfavorable earnings and loss of capital.

Management has taken significant steps to reduce Alfa’s exposure to catastrophic events and improve earnings. Pressure on the ratings could be relieved by a favorable earnings trend; however; downward pressure on the ratings could intensify if earnings continue to deteriorate or capital is adversely impacted by catastrophes.

The ratings for Alfa Life have been downgraded as a result of weakening of the Alfa organization, which was driven by the much larger property/casualty segment. The ratings also recognize the company’s strong risk-adjusted capitalization, its positive operating results and its strategic role within the Alfa group of companies. Partially offsetting these strengths are Alfa Life’s exposure to mortgage-backed securities, which has been lessened significantly by company actions, relatively flat premium growth in recent years and its geographic concentration in a few states, which exposes the company to regulatory risks.

The FSR has been downgraded to A (Excellent) from A+ (Superior) and the ICRs to “a+” from “aa-” for Alfa Insurance Group and its following members:

-- Alfa Mutual Insurance Company

-- Alfa Mutual Fire Insurance Company

-- Alfa Mutual General Insurance Company

-- Alfa Alliance Insurance Corporation

-- Alfa General Insurance Corporation

-- Alfa Insurance Corporation

-- Alfa Specialty Insurance Corporation

-- Alfa Vision Insurance Corporation

The principal methodology used in determining these ratings is Best’s Credit Rating Methodology -- Global Life and Non-Life Insurance Edition, which provides a comprehensive explanation of A.M. Best’s rating process and highlights the different rating criteria employed. Additional key criteria utilized include: “Catastrophe Analysis in A.M. Best Ratings”; “Risk Management and the Rating Process for Insurance Companies”; “Understanding BCAR for Property/Casualty Insurers”; “Understanding BCAR for Life/Health Insurers”; and “Rating Members of Insurance Groups.” Methodologies can be found at www.ambest.com/ratings/methodology.