ALFA CORP - 10-K Annual Report

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SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 or 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934

For Fiscal Year Ended December 31, 1997 Commission File Number 0-11773
- --------------------------------------- ------------------------------
ALFA CORPORATION
----------------
(Exact name of registrant as specified in its charter)

Delaware 63-0838024
- ------------------------------------------------------------------------------------------

(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)

2108 East South Boulevard
P. O Box 11000, Montgomery, Alabama 36191-0001
- ------------------------------------------------------------------------------------------
(Address of principal executive offices) (Zip-Code)

Registrant's Telephone Number including Area Code (334) 288-3900
-------------------------------

Securities registered pursuant to Section 12 (b) of the Act:

None
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Securities registered pursuant to Section 12 (g) of the Act:

Common Stock, par value $1.00 per share
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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
------ ------

The aggregate market value of the voting stock held by nonaffiliates of the
Registrant as of February 28, 1998, was $361,509,984.

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 December 31, 1997
- ------------------ -----------------------------
Common Stock, $1.00 par value 40,789,712 shares

DOCUMENTS INCORPORATED BY REFERENCE

Portions of Registrant's annual report to security holders for the fiscal year
ended December 31, 1997, and proxy statement for the annual meeting of
stockholders to be held April 16, 1998, are incorporated by reference into Part
II and Part III.

Total pages included in this filing - 24 pages
Exhibit index - Page IV-2

Part I
- ------

Item 1.

Alfa Corporation is a financial services holding company which operates
predominantly in the insurance industry through its wholly-owned subsidiaries
Alfa Life Insurance Corporation (Life), Alfa Insurance Corporation (AIC), Alfa
General Insurance Corporation (AGIC) and Alfa Agency Mississippi, Inc. Other
wholly-owned noninsurance subsidiaries include Alfa Financial corporation
(Financial), Alfa Investment Corporation, Alfa Builders, Inc. (Builders) and
Alfa Realty, Inc. (Realty), which are engaged in consumer financing, leasing,
real estate investments, residential and commercial construction and real estate
sales.

Alfa Corporation is affiliated with the Alfa Mutual Companies, which own 50.8%
of Alfa Corporation's common stock, their largest single investment. Alfa
Corporation and its subsidiaries (the Company) together with the Mutual
Companies comprise the Alfa Group (Alfa). The Company's common stock is traded
on the NASDAQ Stock Market's National Market under the symbol ALFA.

Alfa Corporation's insurance subsidiaries write life insurance in Alabama,
Georgia and Mississippi and property and casualty insurance in Georgia and
Mississippi. Its property and casualty business is pooled with that of the Alfa
Mutual Insurance Companies which write property and casualty business in
Alabama. Approximately 83.8% of the Company's property and casualty premium
income and 74.6% of its total premium income for 1997 was derived from the
Company's participation with the Mutual Companies in a Pooling Agreement. The
Company entered into the property and casualty insurance Pooling Agreement (the
"Pooling Agreement") effective August 1, 1987 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%.
The change allows the catastrophe reinsurance buying decision to be made on a
group basis which benefits each member of the group.

The Boards of Directors of the Mutual Group and of the Company's property and
casualty insurance subsidiaries have established the pool participation
percentages and must approve any changes in such participation. The Alabama
Insurance Department reviewed the Pooling Agreement and determined that its
implementation did not require its approval.

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A committee consisting of two members of the Boards of Directors of the Mutual
Group, two members of the Board of Directors of the Company and Goodwin Myrick,
as chairman of each such Board, has been established to review and approve any
changes in the Pooling Agreement. The committee is responsible for matters
involving actual or potential conflicts of interest between the Company and the
Mutual Group and for attempting to ensure that, in operation, the Pooling
Agreement is equitable to all parties. Conflicts in geographic markets are
currently minimal because the Mutual Group writes property and casualty
insurance only in Alabama and at present all of such insurance written by the
Company is outside of Alabama. The Pooling Agreement is intended to reduce
conflicts which could arise in the selection of risks to be insured by the
participants by making the results of each participant's operations dependent on
the results of all of the Pooled Business. Accordingly, the participants should
have substantially identical direct underwriting ratios for the Pooled Business
as long as the Pooling Agreement remains in effect.

The participation of the Company in the Pooling Agreement may be changed or
terminated without the consent or approval of the shareholders, and the Pooling
Agreement may be terminated by any party thereto upon 90 days notice. Any such
termination, or a change in the Company's allocated share of the Pooled
Business, inclusion of riskier business or certain types of reinsurance assumed
in the pool, or other changes to the Pooling Agreement, could have a material
adverse impact on the Company's earnings. Participants' respective abilities to
share in the Pooled Business are subject to regulatory capital requirements.

Alfa Corporation's operations include life insurance, property and casualty
insurance and noninsurance segments. Presented below is summarized financial
information for the Company's three business segments as of and for the years
ended December 31, 1997, 1996 and 1995:

1997 1996 1995
----------- ----------- -----------
(in thousands)

Revenues
Life $ 73,224 $ 70,284 $ 63,517
Property and casualty 356,834 321,284 294,363
Noninsurance operations and corporate 3,952 4,768 4,883
---------- ---------- --------
$ 434,010 $ 396,336 $362,763
========== ========== ========
Net Income
Life $ 15,177 $ 16,761 $ 13,723
Property and casualty 38,156 15,205 8,428
Noninsurance operations and corporate (539) 223 167
---------- ---------- --------
$ 52,794 $ 32,189 $ 22,318
========== ========== ========
Assets
Life $ 607,266 $ 533,435 $490,926
Property and casualty 463,171 396,054 379,347
Noninsurance operations and corporate 99,629 89,841 95,160
---------- ---------- --------
$1,170,066 $1,019,330 $965,433
========== ========== ========

Property and Casualty Business:
- -------------------------------

The Alfa Insurance Group's primary business is personal lines property and
casualty insurance, which accounts for over 75% of total revenues. Automobile
and homeowners insurance account for approximately 85% of property and casualty
premiums. In Alabama, the Alfa Insurance Group enjoys a 20% share of the
personal automobile and homeowners markets, second only to State Farm. The

I-2

company is a direct writer and distributes its products utilizing the
employee/agent sales force of Mutual.

The following table shows the Company's premium distribution by product in
property and casualty insurance for 1997:

Automobile 66.1%
Homeowner 18.3%
Farmowner 5.4%
Commercial 4.7%
Manufactured Home 3.3%
Other 2.2%
------
100.0%
======

The following table sets forth the components of property and casualty
insurance earned premiums, net underwriting income, underwriting margin and
operating income for the years ended December 31, 1997, 1996 and 1995 including
the business written through the property and casualty pooling agreement:

Years Ended December 31,
---------------------------------
1997 1996 1995
--------- ---------- ----------
(in thousands)

Earned Premiums
Personal lines $315,650 $292,330 $270,109
Commercial lines 11,772 11,231 10,606
Pools, associations
and fees 4,014 3,905 3,709
Reinsurance ceded (1,130) (8,527) (11,435)
-------- -------- --------
Total $330,306 $298,939 $272,989
======== ======== ========
Net Underwriting Income (Loss) $ 28,061 $ (2,235) $(12,198)
======== ======== ========
Underwriting Margin 8.5% (0.7%) (4.5%)
======== ======== ========
Operating Income $ 36,464 $ 15,143 $ 8,182
======== ======== ========

The Company's strategy in property and casualty business has been to operate
primarily in its niche, personal lines insurance, and to strive to be the low-
cost producer, thereby attracting and underwriting to achieve a preferred,
profitable book of business. The Company's objective is to operate with an
underwriting profit. Historically, this objective has been met except for five
years, which were primarily impacted by catastrophic weather. In the wake of
Hurricanes Opal and Erin, Alfa initiated intense studies of its catastrophe
management strategy. Effective November 1, 1996, Alfa restructured the
catastrophe program and amended the intercompany pooling agreement to allocate
catastrophe losses among the members of the pool in a fashion that more
equitably reflects the realities of catastrophe finance. As a result, Alfa
Corporation's share of the Alfa Group's storm-related losses has been
substantially reduced, thus providing much greater earnings stability and growth
potential. The lower exposure also means a substantial reduction in reinsurance
costs.

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

I-3

Company's financial condition and operating results. However, the Company
believes that its current catastrophe protection program, which began November
1, 1996, will reduce the earnings volatility caused by such catastrophe
exposures.

Life Insurance:
- --------------

Life directly writes individual life insurance policies consisting primarily
of ordinary whole life, term life, interest sensitive whole life and universal
life products in Alabama, Georgia and Mississippi and distributes these products
utilizing the same employee/agent sales force used in the property and casualty
business. In the highly fragmented life insurance market in Alabama, Alfa ranks
second in market share.

Life offers several different types of whole life and term insurance products.
As of December 31, 1997, Life had in excess of $10.2 billion of life insurance
in force. As of December 31, for each year indicated the Company had insurance
in force as follows:

1997 1996 1995
----------- ---------- ----------
(in thousands)

Ordinary Life $10,201,001 $9,126,335 $8,313,698
Credit Life $ 8,296 $ 11,016 $ 14,382
Group Life $ 37,103 $ 325,704 $ 314,826

The following table shows Life's premiums and policy charges by type of policy
and life insurance operating income for the years ended December 31, 1997, 1996,
and 1995:

Years Ended December 31,
--------------------------
1997 1996 1995
-------- ------- -------
(in thousands)

Premiums and Policy Charges
Universal life $11,296 $10,075 $ 8,789
Universal life - COLI 1,858
Interest sensitive life 9,306 8,589 7,991
Traditional life 19,958 18,931 17,700
Group Life (1,759) 653 620
------- ------- -------
Total $40,659 $38,248 $35,100
======= ======= =======
Operating income $14,580 $14,952 $13,205
======= ======= =======

Life generally reinsures all life insurance risks in excess of $350,000 on any
one life for the purpose of limiting the liability of Life with respect to any
one risk and providing greater diversification of its exposure. When Life
reinsures a portion of its risk it must cede the premium income to the Company
who reinsures the risk, thereby decreasing the income of the Company.

Life performs various underwriting procedures and blood testing for AIDS and
other diseases before issuance of insurance.

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Investments:
- ------------

The Company's income is directly affected by its investment income or loss
from its investment portfolio. The capital and reserves of the Company are
invested in assets comprising its investment portfolio. The insurance laws
prescribe the nature and quality of investments that may be made, and included
in its investment portfolio are qualified state, municipal and federal
obligations, high quality corporate bonds and stocks, mortgage backed
securities, mortgages and certain other assets.

The Company's investment philosophy is long-term and value oriented with focus
on total return for both yield and growth potential. During the past ten years,
invested assets have grown from $277.7 million to over $1.0 billion at the end
of 1997, a compound annual growth rate of 14.0%. During that same period
investment income has tripled, growing from $19.3 million to over $57.5 million.
At year-end, the value of unrealized gains in Alfa's portfolio was $56.9
million, net of tax. The portfolio was invested 71.4% in fixed income,
securities, 11.3% in equities, 2.4% in short-term marketable securities, and
14.9% in other investments, which include consumer loans, leases and
partnerships and less than 0.3% in real estate and mortgage loans.

The rating of the Company's portfolio of fixed maturities using the Standard &
Poor's rating categories is as follows at December 31, 1997 and 1996:

DECEMBER 31,
--------------
1997 1996
--------------

AAA to A- 87.1% 87.7%
BBB+ to BBB- 12.3 11.6
BB+ and below (below investment grade) 0.6 0.7
--------------
100.0% 100.0%
==============

For more information about the Company's investments, see the investment
section of Management's Discussion and Analysis of Financial Condition and
Results of Operating on pages 18 and 19 of the Company's annual report to
security holders for the fiscal year ended December 31, 1997, which is
incorporated herein by reference in
Item 7.

Reserves
- ---------

The Company's property and casualty insurance subsidiaries are required to
maintain reserves to cover their estimated ultimate liability for losses and
loss adjustment expenses with respect to reported and unreported claims
incurred. The Company's life insurance subsidiary is required to maintain
reserves for future policy benefits. To the extent that reserves prove to be
inadequate in the future, the Company would have to increase such reserves and
incur a charge to earnings in the period such reserves are increased which could
have a material adverse effect on the Company's results of operations and
financial condition. The establishment of appropriate reserves is an inherently
uncertain process and there can be no assurance that ultimate losses will not
materially exceed the Company's loss reserves. Reserves are estimates
involving actuarial and statistical projections at a given time of what the
Company expects to be the cost of the ultimate settlement and administration of
claims based on facts and circumstances then known, estimates of future trends
in claims severity and other variable factors.

I-5

Property and Casualty Reserves: With respect to reported claims, reserves are
established on a case-by-case basis. The reserve amounts on each reported claim
are determined by taking into account the circumstances surrounding each claim
and policy provision relating to the type of loss. Loss reserves are reviewed on
a regular basis, and as new data becomes available, appropriate adjustments are
made to reserves.

For incurred but not reported ("IBNR") losses, a variety of methods have been
developed in the insurance industry for determining estimates of loss reserves.
One common method of actuarial evaluation, which is used by the Company, is the
loss development method. This method uses the pattern by which losses have been
reported over time and assumes that each accident year's experience will develop
in the same pattern as the historical loss development.

Reserves are computed by the Company based upon actuarial principles and
procedures applicable to the lines of business written by the Company. These
reserve calculations are reviewed regularly by management and as required by
state law, the Company periodically engages an independent actuary to render an
opinion as to the adequacy of statutory reserves established by management,
which opinions are filled with the various jurisdictions in which the Company is
licensed. Based upon practice and procedures employed by the Company, without
regard to independent actuarial opinions, management believes that the Company's
reserves are adequate.

Life Reserves: The life insurance policy reserves reflected in Life's
financial statements as future policy benefits are calculated based on generally
accepted accounting principles. These reserves, with the addition of premiums
to be received and the interest thereon compounded annually at assumed rates,
must be sufficient to cover policy and contract obligations as they mature.
Generally, the mortality and persistency assumptions used in the calculation of
reserves are based on company experience. A list of the assumptions used in the
calculation of Life's reserves are reported in the financial statements (See
Note 6 - Future Policy Benefits, Losses and Loss Expenses in the Notes to
Consolidated Financial Statements on page 32 of the Company's annual report to
security holders for the year ended December 31, 1997, incorporated herein by
reference).

I-6

Activity in the liability for unpaid losses and loss adjustment expenses,
prepared in accordance with generally accepted accounting principles, is
summarized as follows:

1997 1996 1995
-----------------------------------------------------------------------------------
PROPERTY AND PROPERTY AND PROPERTY AND
CASUALTY LIFE CASUALTY LIFE CASUALTY LIFE
------------- ------------ ------------- ----------- ------------- -----------

Balance at January 1, $117,672,492 $ 3,095,914 $108,303,253 $2,065,462 $ 88,486,091 $1,221,676
Less Reinsurance
recoverables
on unpaid losses (745,156) (801,496) (2,293,048) (717,018) (1,331,358) (168,665)
------------ ----------- ------------ ---------- ------------ ----------
Net balance at
January 1, 116,927,336 2,294,418 106,010,205 1,348,444 87,154,733 1,053,011
------------ ----------- ------------ ---------- ------------ ----------
Incurred related to:
Current year 240,327,428 11,600,573 241,879,860 8,717,628 222,060,992 9,627,020
Prior years (8,928,409) ( 7,995) (4,702,409) 151,950 (1,698,077) (187,383)
------------ ----------- ------------ ---------- ------------ ----------
Total incurred 231,399,019 11,592,578 237,177,451 8,869,578 220,362,915 9,439,637
------------ ----------- ------------ ---------- ------------ ----------
Paid related to:
Current year 164,640,000 10,605,018 172,087,000 7,363,636 161,526,000 8,757,344
Prior years 52,560,523 1,162,411 54,173,320 559,968 39,981,443 386,860
------------ ----------- ------------ ---------- ------------ ----------
Total paid 217,200,523 11,767,429 226,260,320 7,923,604 201,507,443 9,144,204
------------ ----------- ------------ ---------- ------------ ----------
Net balance at
December 31, 131,125,832 2,119,567 116,927,336 2,294,418 106,010,205 1,348,444
Plus reinsurance
coverables
on unpaid losses 960,376 123,474 745,156 801,496 2,293,048 717,018
------------ ----------- ------------ ---------- ------------ ----------
Balance at
December 31, $132,086,208 $ 2,243,041 $117,672,492 $3,095,914 $108,303,253 $2,065,462
============ =========== ============ ========== ============ ==========

Other Business
- --------------

The Company operates five other subsidiaries which are not considered to be
significant by SEC Regulations. These subsidiaries are Alfa Financial
Corporation (AFC), a lending institution, Alfa Investment Corporation, a real
estate investment business and its wholly owned subsidiary, Alfa Builders, Inc.,
a construction company, Alfa Realty, Inc., a real estate sales agency, and Alfa
Agency Mississippi, Inc.

Financial is a lending institution engaged principally in making consumer
loans. These loans are available through substantially all agency offices of
the Company. These loans are collateralized by automobiles and other property.
At December 31, 1997, the delinquency ratio on the loan portfolio was 2.19%, or
$1.1 million. Loans charged off in 1997 totaled $416,267 or 0.8% of the average
outstanding loan portfolio. At December 31, 1997, the Company maintained an
allowance for loan losses of $584,178 or approximately 1.1% of the outstanding
loan balance.

I-7

Alfa Investment Corporation is a Florida corporation engaged in the real
estate investment business. Alfa Builders, Inc. is engaged in the construction
business in Alabama and is also engaged in real estate investments.

Alfa Realty, Inc., is engaged in the business of listing and selling real
estate in the Montgomery and Autauga County, Alabama, areas.

Alfa Agency Mississippi Inc. places substandard insurance risks with third
party insurers for a commission.

Relationship with Mutual Group.
- ------------------------------

The Company's business and operations are substantially integrated with and
dependent upon the management, personnel and facilities of Mutual. Under a
Management and Operating Agreement with Mutual all management personnel are
provided by Mutual and the Company reimburses Mutual for field office expenses
and operations services rendered by Mutual in the areas of advertising, sales
administration, underwriting, legal, sales, claims, management, accounting,
securities and investment, and other services rendered by Mutual to the Company.

Mutual periodically conducts time usage and related expense allocation
studies. Mutual charges the Company for its allocable and directly attributable
salaries and other expenses, including office facilities in Montgomery, Alabama.

The Board of Directors of the Company consisted at year end of eleven members,
six of whom serve on the Executive Committee of the Boards of the Mutual Group
and two of whom are Executive Officers of the Company.

Mutual owns 16,201,538 shares, or 39.72%, and Alfa Mutual Fire Insurance
Company owns 4,515,286 shares, or 11.07%, of the Company's Outstanding Common
Stock.

Competition
- -----------

Both the life and property and casualty insurance businesses are highly
competitive. There are numerous insurance companies in the Company's area of
operation and throughout the United States. Many of the companies which are in
direct competition with the Company have been in business for a much longer
period of time, have a larger volume of business, offer a more diversified line
of insurance coverage, and have greater financial resources than the Company. In
its life and property and casualty insurance businesses, the Company competes
with other insurers in the sale of insurance products to consumers and the
recruitment and retention of qualified agents. The company believes that the
main competitive factors in its business are price, name recognition and
service. The Company believes that it competes effectively in these areas in
Alabama. In Georgia and Mississippi, however, the Company's name is not as well
recognized, but such recognition is improving.

Financial Ratings:
- ------------------

The Company's property and casualty subsidiaries have the highest A.M. Best
rating of A++ and life has an A+ rating. The Company's commercial paper program
is rated A-1+ by Standard and Poor's and P-1 by Moody's, both the highest
ratings for commercial paper.

I-8

Regulation:
- -----------

The Company's insurance subsidiaries are subject to licensing and supervision
by the governmental agencies in the jurisdictions in which they do business.
The nature and extent of such regulation varies, but generally has its source in
State Statutes which delegate regulatory, supervisory and administrative powers
to State Insurance Commissioners. Such regulation, supervision and
administration relate, among other things, to standards of solvency which must
be met and maintained, licensing of the companies and the benefit of
policyholders, periodic examination of the affairs and financial condition of
the Company, annual and other reports required to be filed on the financial
condition and operation of the Company. Life insurance rates are generally
not subject to prior regulatory approval. Rates of property and casualty
insurance are subject to regulation and approval of regulatory authorities.

The Mutual Group and the Company's insurance subsidiaries are subject to the
Alabama Insurance Holding Company Systems Regulatory Act and are subject to
reporting to the Alabama Insurance Department and to periodic examination of
their transactions and regulation under the Act with Mutual being considered the
controlling party.

Restrictions on Dividends to Stockholders: The Company's insurance
subsidiaries are subject to various state statutory and regulatory restrictions,
generally applicable to each insurance company in its state of incorporation,
which limit the amount of dividends or distributions by an insurance company to
its stockholders. The restrictions are generally based on certain levels of
surplus, investment income and operating income, as determined under statutory
accounting practices. Alabama law permits dividends in any year which, together
with other dividends or distributions made within the preceding 12 months that
do not exceed the greater of (i) 10% of statutory surplus as of the end of the
preceding year or (ii) for property and casualty companies - the net income for
the preceding year, or for life companies - the net gain from operations. Larger
dividends are payable only after receipt of prior regulatory approval. Future
dividends from the Company's subsidiaries may be limited by business and
regulatory considerations. However, based upon restrictions presently in effect,
the maximum amount available for payment of dividends to the Company by its
insurance subsidiaries in 1998 without prior approval of regulatory authorities
is approximately $49.7 million based on December 31, 1997 financial condition
and results of operations.

Risk-Based Capital Requirements: The NAIC adopted risk-based capital
requirements that require insurance companies to calculate and report
information under a risk-based formula which attempts to measure statutory
capital and surplus needs based on the risks in a company's mix of products and
investment portfolio. The formula is designed to allow state insurance
regulators to identify potential weakly capitalized companies. Under the
formula, a company determines it "risk-based capital" ("RBC") by taking into
account certain risks related to the insurer's assets (including risks related
to its investment portfolio and ceded reinsurance) and the Insurer's liabilities
(including underwriting risks related to the nature and experience of its
insurance business). Risk-based capital rules provide for different levels of
regulatory attention depending on the ratio of a company's total adjusted
capital to its "authorized control level" ("ACL") of RBC. Based on calculations
made by the Company, the risk-based capital levels for each of the Company's
insurance subsidiaries significantly exceed that which would require regulatory
attention.

I-9

Year 2000: The Company has devoted resources to evaluating, testing and
----------
determining that its internally developed and purchased software systems for its
mainframe and personal computer applications are year 2000 compliant before
January 1, 2000. This critical data management issue could have substantial
consequences for companies worldwide. Because of the use of only two digits in
the date field, many computer applications could fail completely or create
erroneous results by the year 2000 unless corrective measures are taken. The
Company has begun projects to address this issue and believes all its systems
will be successfully compliant when completed prior to the year 2000. The costs
the Company has incurred and will incur until this project is completed is in
the form of incremental payroll costs of current personnel. As a result, it is
difficult to quantify the total estimate of costs, however the Company believes
such costs will not have a significant impact on its financial condition or
results of operations. However, to the extent the problem is not corrected
timely and successfully, material adverse consequences could occur which could
affect future financial conditions or results of operations.

Personnel:
- ---------

The Company has no management or operational employees. The Company and its
subsidiaries have a Management and Operating Agreement with Mutual whereby it
reimburses Mutual for salaries and expenses of employees provided to the Company
under the Agreement. Involved are employees in the areas of Life Underwriting,
Life Processing, Accounting, Sales, Administration, Legal, Files, Data
Processing, Programming, Research, Policy Issuing, Claims, Investments, and
Management. At December 31, 1997, the Company was represented by 476 agents in
Alabama who are employees of Mutual. The Company's property and casualty
subsidiaries had 98 independent exclusive agents in Georgia and Mississippi at
December 31, 1997.

Item 2. Properties.
----------

(a) Physical Properties of the Company and Its Subsidiaries. The Company
--------------------------------------------------------
leases it home office facilities in Montgomery, Alabama,from Mutual.

The Company and its subsidiaries own several investment properties, none of
which are material.

Item 3. Legal Proceedings.
-----------------

Certain legal proceedings involving policyholders and agents are in process at
December 31, 1997. Costs for these and similar legal proceedings including
accruals for outstanding cases was $3.6 million in 1997, $2.7 million in 1996
and $1.3 million in 1995. These proceedings involve alleged breaches of
contract, torts, including bad faith and fraud claims based on alleged wrongful
or fraudulent acts of agents and miscellaneous other causes of action. Many of
these lawsuits involve claims for punitive damages. The likelihood or extent of
a punitive damage award in any one of these cases is difficult to predict.
Based upon information presently available, applicable law and defenses
available to the Company, management does not consider material losses which
might arise from pending litigation to be probable of occurrence . Management's
opinion is based upon the Company's experience in dealing with such claims and
the historical results of such claims against the Company. However, it should be
noted that in Alabama, where the Company has substantial business, the frequency
and severity of large punitive damage awards by juries, bearing little or no
relation to actual damages, continues to exist, creating the potential for
unpredictable material adverse judgments in any given suit.

Item 4. Submission of Matters to Vote of Security Holders. Not applicable.
-------------------------------------------------

I-10

Executive Officers of the Company:
- ---------------------------------

Pursuant to General Instruction G(3) of Form 10-K, the following is included
as an unnumbered item in part I of this report in lieu of being included in the
proxy statement for the annual meeting of stockholders to be held April 16,
1998.

The following is a list of name and ages of all of the executive officers of
the Company indicating all positions and offices with the Company held by such
person and each such person's principal occupation or employment during the past
five years. No person other than those listed below has been chosen to become
an executive officer of the Company.

NAME AGE POSITION SINCE
- ---- --- -------

Goodwin L. Myrick 72 Director; Chairman of the Board and President, since 1978; 1973
President of its Subsidiaries and associated
companies; President Alabama Farmers Federation.

Ken Wallis 56 Director; Executive Vice President, Operations 1993
of Alfa Corporation and its subsidiaries, Assistant
to the President and Vice President, Treasurer.

C. Lee Ellis 46 Executive Vice President, Investments. 1983
Prior to 1993, Senior Vice President, Investments.

Al Dees 51 Executive Vice President, Marketing 1993
Prior to 1993 Vice President Georgia and
Mississippi Marketing.

Donald Price 46 Senior Vice President, Finance and 1984
Chief Financial Officer.

Al Scott 42 Secretary and General Counsel 1997
Prior to 1997, Assistant General Counsel

John Holley 42 Vice President and Controller, Director Financial Relations 1986
Chief Accounting Officer.

James Azar 61 Senior Vice President, Planning 1979

Terry McCollum 61 Senior Vice President, Claims 1979

Bill Harper, Jr. 53 Senior Vice President, Life Operations of Alfa Life 1986
Insurance Corporation, Vice President of Alfa
Financial Corporation since 1978.

Wyman Cabaniss 46 Senior Vice President, Underwriting 1998
Prior to 1998, Vice President Underwriting

I-11

Part II
-------

Item 5. Market for the Company's Common Stock and Related Security Holder
-----------------------------------------------------------------
Matters.
--------

The "Stockholder Information" section on the Inside Back Cover of the
Company's annual report to security holders for the fiscal year ended December
31, 1997, is incorporated herein by reference.

Item 6. Selected Financial Data.
------------------------

The "Selected Financial Data" section on pages 6 and 7 of the Company's annual
report to security holders for the year ended December 31, 1997, is incorporated
herein by reference.

Item 7. Management's Discussion and Analysis of Financial Condition and Results
-----------------------------------------------------------------------
of Operations.
--------------

The "Management's Discussion and Analysis" section on pages 15 through 20 of
the Company's annual report to security holders for the fiscal year ended
December 31, 1997, is incorporated herein by reference.

Item 8. Financial Statements and Supplementary Data.
--------------------------------------------

The Financial Statements on pages 21 through 40 of the Company's annual report
to security holders for the fiscal year ended December 31, 1997, are
incorporated herein by reference.

Item 9. Disagreements on Accounting and Financial Disclosure.
----------------------------------------------------

None.

II-1

Part III
--------

Item 10. Directors and Executive Officers of the Company.
-----------------------------------------------

For information with respect to the Executive Officers of the Company see
Executive Officers of the Company at the end of Part I of this Report. For
information with respect to the Directors of the Company, see Election of
Directors on Page 2 of the Proxy statement for the annual meeting of
stockholders to be held April 16, 1998 which is incorporated herein by
reference.

Item 11. Executive Compensation.
----------------------

The information set forth under the caption "Executive Compensation" on Page 6
of the Proxy Statement for the annual meeting of stockholders to be held April
16, 1998, except for the report of the Compensation Committee and Performance
Graph, is incorporated herein by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management.
--------------------------------------------------------------

The information appearing on Pages 2 through 4 of the Proxy Statement for the
annual meeting of stockholders to be held April 16, 1998, relating to the
security ownership of certain beneficial owners and management is incorporated
herein by reference.

Item 13. Certain Relationships and Related Transactions.
----------------------------------------------

The information set forth under the caption "Executive Compensation" on Page 6
of the Proxy Statement for the annual meeting of stockholders to be held April
16, 1998, is incorporated herein by reference.

III-1

Part IV
-------

Item 14. Exhibits, Financial Statement Schedules, Reports on Form 8-K.
------------------------------------------------------------

(a) The following documents are filed as part of this report:
1. Financial Statements. (incorporated by reference from page 21 through
--------------------
40 of the Company's annual report to security holders for the year ended
December 31, 1997)

Report of Independent Certified Public
Accountants for 1997 and 1996.

Consolidated Balance Sheets as of
December 31, 1997 and 1996.

Consolidated Statements of Income for the three years ended
December 31, 1997, 1996 and 1995.

Consolidated Statements of Stockholders' Equity for the three years
ended December 31, 1997, 1996 and 1995.

Consolidated Statements of Cash Flows for the three years ended
December 31, 1997, 1996 and 1995.

Notes to Consolidated Financial Statements.

Selected Quarterly Financial Data.

2. Financial Statement Schedules.
-----------------------------

Included in Part IV of this report Page
----

Report on Financial Statements and Financial Statement Schedules
of Independent Certified Public Accountants for 1997, 1996 and 1995. IV-3

Schedule I - Summary of Investments Other Than Investments
in Related Parties for the year ended December 31, 1997 IV-4

Schedule II - Condensed Financial Information IV-5-7

Schedule III - Supplementary Insurance Information IV-8

Schedule IV - Reinsurance for the years ended December 31, 1997,
1996 and 1995 IV-9

Schedule V - Valuation and Qualifying Accounts IV-10

IV-1

Schedules other than those listed above have been omitted because the required
information is contained in the financial statements and notes thereto, or
because such schedules are not required or applicable.

3. Exhibits.
--------

Exhibit (3) - Articles of Incorporation and By-Laws
of the Company are incorporated by
reference from the Company's 10-K for the
year ended December 31, 1987.

Exhibit (10(a)) Amendment No. 2 to Management and
Operating Agreement effective January 1,
1992 is incorporated by reference from the
Company's 10-K for the year ended
December 31, 1992.

(10(b)) Insurance Pooling Agreement is
incorporated by reference from the
Company's 10-K for the year ended December
31, 1987.

Exhibit (13) The Company's Annual Report to Security
Holders for the fiscal year ended December
31, 1996. Such report, except for the
portions incorporated herein by reference,
is furnished to the Commission for
information only and is not deemed filed as
part of this report.

Exhibit (19) Employee Stock Purchase Plan and 1993
Stock Incentive Plan are incorporated by
reference from the Company's 10-K for the
year ended December 31, 1993.

Exhibit (23) Consent of Independent Accountants

(b) Reports on Form 8-K.
-------------------

An 8-K report was filed on February 19, 1997 reporting
the retirement of Phil Richardson effective April 1, 1997
and the promotion of Ken Wallis to the position of
Executive Vice President, Operations and Assistant to the
President.

IV-2

INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENT SCHEDULES
-------------------------------------------------------------

The Board of Directors
Alfa Corporation:

We have audited and reported separately on the financial statements of Alfa
Corporation as of December 31, 1997 and 1996, and for each of the years in the
three-year period ended December 31, 1997. Our report and the financial
statements of Alfa Corporation are incorporated by reference in the Form 10-K.

Our audits were made for the purpose of forming an opinion on the basic
financial statements of Alfa Corporation taken as a whole. The supplementary
information included in financial statement Schedules I through V is presented
for purposes of additional analysis and is not a required part of the basic
financial statements. Such information has been subjected to the auditing
procedures applied in the audits of the basic financial statements and, in our
opinion, is fairly stated in all material respects in relation to the basic
financial statements taken as a whole.

KPMG Peat Marwick LLP

Birmingham, Alabama
February 5, 1998

IV-3

ALFA CORPORATION AND SUBSIDIARIES
SCHEDULE I - SUMMARY OF INVESTMENTS - OTHER THAN
INVESTMENTS IN RELATED PARTIES
FOR THE YEAR ENDED DECEMBER 31, 1997

Amount At
Cost Or Which Shown
Amortized Market In Balance
Type Of Investment Cost Value Sheet
- ------------------ ------------ -------------- --------------

Fixed maturities:
Bonds:
United States Government
and government agencies $ 67,833,619 $ 72,387,819 $ 72,387,819
States, municipalities and
political subdivisions 141,088,695 147,829,741 147,829,741
Public utilities 25,946,399 26,947,330 26,947,330
All other corporate bonds 162,145,589 172,478,618 172,478,618
Mortgage-backed securities 299,928,078 309,795,919 309,652,447
Redeemable preferred stocks 4,088,034 4,266,238 4,266,238
------------ -------------- --------------

Total fixed maturities 701,030,414 733,705,665 733,562,193
------------ -------------- --------------

Equity securities:
Common stocks:
Public utilities 6,678,063 9,329,728 9,329,728
Banks, trusts and insurance
companies 5,794,148 26,207,487 26,207,487
Industrial, miscellaneous and all other 41,720,726 79,022,507 79,022,507
Nonredeemable preferred stocks 1,700,994 1,573,750 1,573,750
------------ -------------- --------------

Total equity securities 55,893,931 116,133,472 116,133,472
------------ -------------- --------------

Mortgage loans on real estate 566,783 566,783 566,783

Real estate 1,718,175 1,718,175 1,718,175

Policy loans 34,900,547 34,900,547 34,900,547

Other long-term investments 115,727,331 116,883,066 115,727,331

Short-term investments 25,051,026 25,051,026 25,051,026
------------ -------------- --------------

Total investments $934,888,207 $1,028,958,734 $1,027,659,527
============ ============== ==============

IV-4

ALFA CORPORATION (PARENT COMPANY)
SCHEDULE II - CONDENSED FINANCIAL INFORMATION OF THE COMPANY
BALANCE SHEETS
DECEMBER 31, 1997 AND 1996

1997 1996
------------- -------------
ASSETS

Cash $ 41,334 $ 48,082

Short-term investments 1,995,321 374,058

Investment in subsidiaries 416,815,803 357,237,941

Note receivable from subsidiaries 60,646,539 46,358,539

Accounts receivable and other assets 233,939 218,054
------------ ------------

Total assets $479,732,936 $404,236,674
============ ============

LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Commercial paper $ 89,521,729 $ 73,580,962
Notes payable 4,600,000 4,600,000
Other liabilities 2,679,013 2,743,903
------------ ------------

Total liabilities 96,800,742 80,924,865
------------ ------------
Common stock, $1 par value, shares
authorized - 110,000,000;
issued - 41,891,512
outstanding - 1997 - 40,789,712; 1996 - 40,786,712 41,891,512 41,891,512

Capital in excess of par value 21,301,198 21,281,323

Net unrealized investment gains 56,929,966 33,926,747

Retained earnings 267,420,813 230,839,897
Treasury stock, at cost, 1997 - 1,101,800; 1996 - 1,104,800 shares (4,611,295) (4,627,670)
------------ ------------

Total stockholders' equity 382,932,194 323,311,809
------------ ------------

Total liabilities and stockholders' equity $479,732,936 $404,236,674
============ ============
IV-5

SCHEDULE II - CONDENSED FINANCIAL INFORMATION OF ALFA CORPORATION
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

1997 1996 1995
----------- ----------- -----------

Revenues:
Dividends from subsidiaries $18,956,247 $18,671,103 $19,415,006

Interest from subsidiaries 2,208,548 2,642,730 2,708,256

Other interest 21,777 12,911 25,171

Expenses:
Other expenses 5,310,031 5,667,475 6,071,779
----------- ----------- -----------

Income before equity in
undistributed income
of subsidiaries 15,876,541 15,659,269 16,076,654

Equity in undistributed income
of subsidiaries 36,917,092 16,529,946 6,241,297
----------- ----------- -----------

Net income $52,793,633 $32,189,215 $22,317,951
=========== =========== ===========

IV-6

SCHEDULE II - CONDENSED FINANCIAL INFORMATION OF ALFA CORPORATION
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

1997 1996 1995
----------------------------------------------------------------------

Cash flows from operating activities:
Net income $52,793,633 $ 32,189,215 $ 22,317,951
----------------------------------------------------------------------

Adjustments to reconcile net
income to net cash provided by
operating activities:
Undistributed earnings of
subsidiaries (36,917,092) (16,529,946) (6,241,297)
(Increase) decrease in other assets
and accounts receivable (15,885) 65,220 (255,113)
Increase (decrease) in other
liabilities (64,890) 417,666 (450,428)
----------------------------------------------------------------------

Total adjustments (36,997,867) (16,047,060) (6,946,838)
----------------------------------------------------------------------

Net cash provided by
operating activities 15,795,766 16,142,155 15,371,113
----------------------------------------------------------------------

Cash flows from investing activities:
(Increase) decrease in note receivable from subsidiaries (14,288,000) 8,086,461 (54,445,000)
Net (increase) decrease in short-term investments (1,621,263) 63,032 (354,574)
Other 343,449 (110,149) (272,790)
----------------------------------------------------------------------

Net cash provided by (used in) investing activities (15,565,814) 8,039,344 (55,072,364)
----------------------------------------------------------------------

Cash flows from financing activities:
Increase (decrease) in commercial paper 15,940,767 (8,368,654) 81,949,616
(Decrease) in notes payable (27,013,665)
Proceeds from exercise of stock options 35,250 9,400
Dividends to stockholders (16,212,717) (15,802,434) (15,294,718)
----------------------------------------------------------------------

Net cash provided by (used in) financing activities (236,700) (24,161,688) 39,641,233
----------------------------------------------------------------------

Net increase (decrease) in cash (6,748) 19,811 (60,018)

Cash, beginning of year 48,082 28,271 88,289
----------------------------------------------------------------------

Cash, end of year $ 41,334 $ 48,082 $ 28,271
======================================================================

Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 4,132,679 $ 4,415,649 $ 4,470,881
======================================================================

Income taxes $20,529,974 $ 5,418,000 $ 7,888,000
======================================================================

IV-7

ALFA CORPORATION
SCHEDULE III - SUPPLEMENTAL INSURANCE INFORMATION
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

Future Policy
Deferred Benefits,
Policy Losses,
Acquisition Claims And Unearned
Segment Costs Loss Expenses Premium
- ------- ----------- ------------- --------

1997
----
Life Insurance $ 90,130,439 $366,301,110 $ 0

Property &
casualty
insurance 15,725,146 132,086,208 97,669,270

Noninsurance
and corporate 0 0 0
------------ ------------ -----------
Total $105,855,585 $498,387,318 $97,669,270
============ ============ ===========

1996
----
Life Insurance $ 84,711,419 $325,206,008 $ 0

Property &
casualty
insurance 15,382,660 117,672,492 92,945,366

Noninsurance
and corporate 0 0 0
------------ ------------ -----------

Total $100,094,079 $442,878,500 $92,945,366
============ ============ ===========

1995
----
Life Insurance $ 75,410,879 $294,049,256 $ 0

Property &
casualty
insurance 13,745,663 108,303,253 85,306,194

Noninsurance
and corporate 0 0 0
------------ ------------ -----------
Total $ 89,156,542 $402,352,509 $85,306,194
============ ============ ===========

Other
Policy Benefits Amortization
Claims Premiums Claims, Of Deferred
And And Net Losses And Policy Other
Benefits Policy Investment Settlement Acquisition Operating Premiums
Segment Payable Charges Income Expenses Costs Expenses Written
- ------- ------- --------- -------- ----------- ------------ ---------- ------------

1997
----
Life Insurance $ 0 $ 40,659,098 $31,646,118 $ 33,407,772 $ 6,514,175 $ 7,209,933 $ 0

Property &
casualty
insurance 0 330,305,948 23,935,303 232,670,184 49,483,552 21,544,277 332,192,026

Noninsurance
and corporate 0 0 1,947,248 0 0 3,215,022 0
-------- ------------- ------------ ------------ ------------ ------------ ------------
Total $ 0 $370,965,046 $57,528,669 $266,077,956 $55,997,727 $31,969,232 $332,192,026
======== ============ ============ ============ =========== =========== ============

1996
----
Life Insurance $ 0 $ 38,247,600 $29,253,591 $ 30,589,901 $ 6,061,063 $ 6,750,449 $ 0

Property &
casualty
insurance 0 298,938,818 22,250,871 236,721,425 45,050,788 19,653,730 311,251,916

Noninsurance
and corporate 0 0 2,689,872 0 0 2,599,112 0
-------- ------------ ----------- ------------ ----------- ----------- ------------

Total $ 0 $337,186,418 $54,194,334 $267,311,326 $51,111,851 $29,003,291 $311,251,916
======== ============ =========== ============ =========== =========== ============

1995
----
Life Insurance $ 0 $ 35,099,995 27,620,913 $ 29,401,615 $ 5,504,517 $ 5,977,846 $ 0

Property &
casualty
insurance 0 272,988,974 20,996,611 220,841,822 41,857,226 24,445,381 286,483,508

Noninsurance
and corporate 0 0 2,305,583 150,000 0 577,145 0
-------- ------------ ----------- ------------ ----------- ----------- ------------
Total $ 0 $308,088,969 $50,923,107 $250,393,437 $47,361,743 $31,000,372 $286,483,508
======== ============ =========== ============ =========== =========== ============

IV-8

ALFA CORPORATION AND SUBSIDIARIES
SCHEDULE IV - REINSURANCE
FOR YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

Percentage of
Ceded to Amount Assumed from Assumed From
Gross Amount Other Companies Other Companies Net Amount to Net
------------ --------------- -------------------- ----------------- -------------

1997
----
Life insurance in force $11,388,494,076 $1,142,094,000 $ 0 $10,246,400,076 0%
====================================================================================================

Premiums and policy
charges:
Life Insurance $ 43,917,690 $ 3,343,116 $ 0 $ 40,574,574 0%
Accident and health
insurance 84,524 0 0 84,524 0%
Property and liability
insurance 53,854,336 53,919,118* 330,370,730* 330,305,948 100%
----------------------------------------------------------------------------------------------------
$ 97,856,550 $ 57,262,234 $ 330,370,730 $ 370,965,046 89%
====================================================================================================
1996
----

Life insurance in force $10,480,723,907 $1,017,669,000 0 $ 9,463,054,907 0%
===================================================================================================

Premiums and policy
charges:
Life insurance $ 41,244,357 $ 3,086,247 $ 0 $ 38,158,110 0%
Accident and health
insurance 89,490 0 0 89,490 0%
Property and liability
insurance 47,939,310 55,523,791* 306,523,299* 298,938,818 103%
---------------------------------------------------------------------------------------------------
$ 89,273,157 $ 58,610,038 $ 306,523,299 $ 337,186,418 91%
===================================================================================================
1995
----

Life insurance in force $ 9,534,858,844 $ 891,952,000 $ 0 $ 8,642,906,844 0%
===================================================================================================

Premiums and policy
charges:
Life Insurance $ 37,735,370 $ 2,735,919 0 $ 34,999,451 0%
Accident and health
insurance 100,544 0 0 100,544 0%
Property and liability
insurance 42,029,253 52,264,315* $ 283,224,036* 272,988,974 104%
---------------------------------------------------------------------------------------------------
$ 79,865,167 $ 55,000,234 $ 283,224,036 $ 308,088,969 92%
===================================================================================================

*These amounts are subject to the pooling agreement.

IV-9

ALFA CORPORATION AND SUBSIDIARIES
SCHEDULE V - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996

ADDITIONS
BALANCE ---------------------------------
AT BEGINNING CHARGED TO COSTS CHARGED TO BALANCE
DESCRIPTION OF PERIOD AND EXPENSES OTHER ACCOUNTS DEDUCTIONS END OF PERIOD
-------------------------------------------------------------------------------------------------------------

1997 Reserve for Loan losses $633,479 $642,023 $691,324 $584,178
=======================================================================

1996 Reserve for loan losses $750,241 $318,851 $435,613 $633,479
=======================================================================

IV-10

SIGNATURES

Pursuant to the requirements of Section 13 or 15 (d) 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

BY /S/
---------------------------
Goodwin L. Myrick
President

Pursuant to the requirement of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.

Chairman of the Board
Director and Principal
/s/ Executive Officer March 31, 1998
- ----------------------------- --------------------
(Goodwin L. Myrick) (Date)

Senior Vice President
Finance, (Principal
/s/ Financial Officer) March 31, 1998
- ----------------------------- --------------------
(Donald Price) (Date)

Vice President and
Controller (Principal
/s/ Accounting Officer) March 31, 1998
- ----------------------------- --------------------
(John D. Holley) (Date)

/s/ Director March 31, 1998
- ----------------------------- --------------------
(Jerry A. Newby) (Date)

/s/ Director March 31, 1998
- ----------------------------- --------------------
(James E. Mobley) (Date)

/s/ Director March 31, 1998
- ------------------------------ --------------
(James A. Tolar, Jr.) (Date)

/s/ Director March 31, 1998
- ------------------------------ --------------
(John W. Morris) (Date)

/s/ Director March 31, 1998
- ------------------------------ --------------
(Milborn N. Chesser) (Date)

/s/ Director March 31, 1998
- ------------------------------ --------------
(James I. Harrison, Jr.) (Date)

/s/ Director March 31, 1998
- ------------------------------ --------------
(Young J. Boozer) (Date)

/s/ Director March 31, 1998
- ------------------------------ --------------
(John R. Thomas) (Date)

/s/ Director March 31, 1998
- ------------------------------ --------------
(B. Phil Richardson) (Date)

/s/ Director March 31, 1998
- ------------------------------ --------------
(Boyd E. Christenberry) (Date)

/s/ Director March 31, 1998
- ------------------------------ --------------
(Ken Wallis) (Date)

Alfa Corporation
Consolidated Balance Sheets

December 31,
-------------------------------
1997 1996
-------------------------------

ASSETS
Investments:
Fixed maturities held for investment, at amortized cost
(market value $2,154,921 in 1997 and $2,998,688 in 1996) $ 2,011,449 $ 2,817,964
Fixed maturities available for sale, at market value
(amortized cost $699,018,965 in 1997 and $591,859,469 in 1996) 731,550,744 610,324,605
Equity securities, at market (cost $55,893,931 in 1997 and $59,763,634 in 1996) 116,133,472 96,007,650
Mortgage loans on real estate 566,783 826,480
Investment real estate (net of accumulated depreciation
of $1,514,117 in 1997 and $1,356,829 in 1996) 1,718,175 1,855,972
Policy loans 34,900,547 31,680,254
Other long-term investments 115,727,331 102,297,440
Short-term investments 25,051,026 40,206,951
-------------------------------
Total investments 1,027,659,527 886,017,316
Cash 5,820,597 4,424,123
Accrued investment income 11,114,372 10,032,275
Accounts receivable 11,472,193 9,498,914
Reinsurance balances receivable 1,132,011 1,689,654
Due from affiliates 2,505,157 2,709,492
Deferred policy acquisition costs 105,855,585 100,094,079
Other assets 4,506,360 4,864,302
-------------------------------
Total assets $1,170,065,802 $1,019,330,155
===============================
LIABILITIES AND STOCKHOLDERS' EQUITY
Policy liabilities and accruals $ 498,387,318 $ 442,878,500
Unearned premiums 97,669,270 92,945,366
Dividends to policyholders 9,024,751 8,988,574
Premium deposit and retirement deposit funds 6,488,037 6,925,786
Deferred income taxes 38,812,842 24,686,336
Other liabilities 35,120,449 32,974,237
Commercial paper 89,521,729 73,580,963
Notes payable 1,978,024 2,209,958
Notes payable to affiliates 10,132,188 10,828,626
-------------------------------
Total liabilities 787,134,608 696,018,346
-------------------------------
Commitments and contingencies (Notes 1, 9 and 12)

Stockholders' equity:
Preferred stock, $1 par value, 1,000,000 shares authorized; none issued
Common stock, $1 par value,
Shares authorized: 110,000,000
Issued: 41,891,512
Outstanding: 1997 - 40,789,712; 1996 - 40,786,712 41,891,512 41,891,512
Capital in excess of par value 21,301,198 21,281,323
Net unrealized investment gains, net of tax 56,929,966 33,926,747
Retained earnings 267,420,813 230,839,897
Treasury stock: at cost, 1997 - 1,101,800; 1996 - 1,104,800 shares (4,612,295) (4,627,670)
-------------------------------
Total stockholders' equity 382,931,194 323,311,809
-------------------------------
Total liabilities and stockholders' equity $1,170,065,802 $1,019,330,155
===============================

The accompanying notes are an integral part of these financial statements.

Alfa Corporation 1997 21

Alfa Corporation
Consolidated Statements Of Income

For the years ended December 31,
----------------------------------------
1997 1996 1995
----------------------------------------

Revenues:
Premiums and policy charges $370,965,046 $337,186,418 $308,088,969
Net investment income 57,528,669 54,194,334 50,923,107
Net realized investment gains 3,356,231 2,807,588 1,106,016
Other income 2,159,683 2,147,688 2,645,243
----------------------------------------
Total revenues 434,009,629 396,336,028 362,763,335
----------------------------------------
Benefits and expenses:
Benefits and settlement expenses 266,077,956 267,311,326 250,393,437
Dividends to policyholders 3,165,092 3,055,700 3,015,079
Amortization of deferred policy acquisition costs 55,997,727 51,111,851 47,361,743
Other operating expenses 31,969,232 29,003,291 31,000,372
----------------------------------------
Total expenses 357,210,007 350,482,168 331,770,631
----------------------------------------

Income before provision for income taxes 76,799,622 45,853,860 30,992,704
Provision for income taxes 24,005,989 13,664,645 8,674,753
----------------------------------------
Net income $ 52,793,633 $ 32,189,215 $ 22,317,951
========================================

Net income per share - Basic and Diluted $1.29 $0.79 $0.55
========================================

Weighted average shares outstanding - Basic 40,787,047 40,786,561 40,785,912
========================================

Weighted average shares outstanding - Diluted 40,930,894 40,843,458 40,810,979
========================================

The accompanying notes are an integral part of these financial statements.

22 Alfa Corporation 1997

Alfa Corporation
Consolidated Statements Of Stockholders' Equity

NET
UNREALIZED
CAPITAL IN INVESTMENT
COMMON EXCESS OF GAINS RETAINED TREASURY
STOCK PAR VALUE (LOSSES) EARNINGS STOCK TOTAL
-----------------------------------------------------------------------------------

Balance, December 31, 1994 $41,891,512 $ 21,276,023 $(10,980,201) $207,429,882 $(4,631,770) $254,985,446

Change in net unrealized
investment gains/losses 46,601,064 46,601,064

Dividends to stockholders
($.375 per share) (15,294,717) (15,294,717)

Net income 22,317,951 22,317,951
-----------------------------------------------------------------------------------
Balance, December 31, 1995 41,891,512 21,276,023 35,620,863 214,453,116 (4,631,770) 308,609,744

Change in net unrealized
investment gains/losses (1,694,116) (1,694,116)

Dividends to stockholders
($.3875 per share) (15,802,434) (15,802,434)

Exercise of stock options 5,300 4,100 9,400

Net income 32,189,215 32,189,215
-----------------------------------------------------------------------------------
Balance, December 31, 1996 41,891,512 21,281,323 33,926,747 230,839,897 (4,627,670) 323,311,809

Change in net unrealized
investment gains/losses 23,003,219 23,003,219

Dividends to stockholders
($.3975 per share) (16,212,717) (16,212,717)

Exercise of stock options 19,875 15,375 35,250

Net income 52,793,633 52,793,633
-----------------------------------------------------------------------------------
Balance, December 31, 1997 $41,891,512 $ 21,301,198 $ 56,929,966 $267,420,813 $(4,612,295) $382,931,194
===================================================================================

The accompanying notes are an integral part of these financial statements.

Alfa Corporation 1997 23

Alfa Corporation
Consolidated Statements Of Cash Flows

For the years ended December 31,
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1997 1996 1995
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Cash flows from operating activities:
Net income $ 52,793,633 $ 32,189,215 $ 22,317,951
Adjustments to reconcile net income to net cash
provided by operating activities:
Policy acquisition costs deferred (63,576,796) (59,234,604) (54,231,803)
Amortization of deferred policy acquisition costs 55,997,727 51,111,851 47,361,743
Depreciation and amortization 4,488,679 4,447,490 4,781,522
Provision for deferred taxes 1,411,344 1,859,058 471,030
Interest on policyholders' funds 14,127,507 12,273,381 10,715,806
Net realized investment gains (3,356,231) (2,807,588) (1,106,016)
Other 2,306,276 2,460,366 1,127,332
Changes in operating assets and liabilities:
(Increase) in accrued investment income (1,082,097) (691,295) (270,152)
(Increase) decrease in accounts receivable (1,616,291) 4,077,468 (6,656,298)
(Increase) decrease in reinsurance balances receivable 557,643 3,745,010 (1,101,267)
(Increase) decrease in amounts due from affiliates 204,335 (1,302,763) 393,581
Increase (decrease) in amounts due to affiliates (6,135,599) 5,955,949
(Increase) decrease in other assets 357,942 (102,851) (20,490)
Increase in liability for policy reserves 17,694,934 14,161,376 25,492,677
Increase in liability for unearned premiums 4,723,904 7,639,172 5,880,022
(Decrease) in amounts held for others (401,572) (810,343) (1,020,983)
Increase (decrease) in other liabilities 4,075,892 2,394,885 (2,834,047)
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Net cash provided by operating activities 88,706,829 65,274,229 57,256,557
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Cash flows from investing activities:
Maturities and redemptions of fixed maturities held for investment 810,279 912,250 1,014,623
Maturities and redemptions of fixed maturities available for sale 46,658,709 37,623,173 32,053,653
Maturities and redemptions of other investments 105,534,625 86,205,777 85,578,545
Sales of fixed maturities available for sale 26,157,682 85,651,625 12,972,473
Sales of other investments 47,218,250 54,618,422 19,752,645
Purchase of fixed maturities available for sale (193,675,998) (175,124,345) (74,324,150)
Purchase of other investments (154,426,039) (135,251,325) (117,676,379)
Net (increase) decrease in short-term investments 15,050,033 (12,482,017) (2,759,648)
Net (increase) decrease in receivable/payable on securities (2,180,776) 7,304,553 (5,540,774)
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Net cash used in investing activities (108,853,235) (50,541,887) (48,929,012)
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Cash flows from financing activities:
Increase (decrease) in commercial paper 15,940,766 (8,368,653) 81,949,616
(Decrease) in notes payable (231,934) (113,404) (90,804,780)
(Decrease) in notes payable to affiliates (696,438) (88,336) (9,537,780)
Stockholder dividends paid (16,212,717) (15,802,434) (15,294,717)
Proceeds from exercise of stock options 35,250 9,400
Deposits of policyholders' funds 55,798,414 40,369,961 38,106,083
Withdrawal of policyholders' funds (33,090,461) (27,641,038) (23,169,879)
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Net cash provided by (used in) financing activities 21,542,880 (11,634,504) (18,751,457)
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Net increase (decrease) in cash 1,396,474 3,097,838 (10,423,912)
Cash at beginning of year 4,424,123 1,326,285 11,750,197
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Cash at end of year $ 5,820,597 $ 4,424,123 $ 1,326,285
=============================================
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 4,978,901 $ 4,976,921 $ 6,254,471
Income taxes $ 24,642,566 $ 10,536,000 $ 20,376,776

The accompanying notes are an integral part of these financial statements.

24 Alfa Corporation 1997

Alfa Corporation
Notes to Consolidated Financial Statements

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accompanying consolidated financial statements are prepared on the basis of
generally accepted accounting principles. Such principles differ from statutory
reporting practices prescribed by the National Association of Insurance
Commissioners (NAIC) and state regulatory authorities.

The accompanying consolidated financial statements include, after intercompany
eliminations, Alfa Corporation and its wholly-owned subsidiaries, Alfa Life
Insurance Corporation (Life), Alfa Insurance Corporation, Alfa General Insurance
Corporation, Alfa Financial Corporation (Financial), Alfa Investment
Corporation, Alfa Builders, Inc. (Builders), Alfa Realty, Inc. (Realty) and Alfa
Agency Mississippi, Inc. The Company's primary market area is Alabama, Georgia
and Mississippi.

Nature of Operations

Alfa Corporation operates predominantly in the insurance industry. Its
insurance subsidiaries write life insurance in Alabama, Georgia and Mississippi
and property and casualty insurance in Georgia and Mississippi. The Company's
noninsurance subsidiaries are engaged in consumer financing, leasing, real
estate investments, residential and commercial construction, and real estate
sales. As more fully discussed in Note 2, its property and casualty insurance
business is pooled with that of the Alfa Mutual Insurance Companies which write
property and casualty business in Alabama. The Company's business is
concentrated geographically in Alabama, Georgia and Mississippi. Approximately
$333 million of premiums and policy charges representing 90% of such amounts in
1997 were from policies written in Alabama. Accordingly, unusually severe
storms or other disasters in this state might have a more significant effect on
the Company than on a more geographically diversified insurance company and
could have an adverse impact on the Company's financial condition and operating
results. 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.

Revenues, Benefits, Claims and Expenses

Traditional Life Insurance Products: Traditional life insurance products
include those products with fixed and guaranteed premiums and benefits and
consist principally of whole life insurance policies, term life insurance
policies, and certain annuities with life contingencies. Premiums are
recognized over the premium-paying period of the policy. The liability for
future policy benefits are computed using a net level method including
assumptions as to investment yields, mortality, withdrawals, and other
assumptions based on the Company's experience, modified as necessary, to reflect
anticipated trends and to include provisions for possible unfavorable
deviations. Policy benefit claims are charged to expense in the period that the
claims are incurred.

Universal Life Products: Universal life products include universal life
insurance and other interest-sensitive life insurance policies. Universal life
revenues, which are considered operating cash flows, consist of policy charges
for the cost of insurance, policy administration, and surrender charges that
have been assessed against policy account balances during the period. Benefit
reserves for universal life represent policy account balances before applicable
surrender charges. Benefit claims incurred in the period in excess of related
policy account balances and interest credited to policy account balances are
charged to expense.

Property and Casualty Products: Property and casualty premiums are earned
ratably over the term of the policies. The liability for unearned premiums
represents the portion of premiums written which is applicable to the unexpired
term of the policies.

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.

Policy Acquisition Costs

Commissions and other costs of acquiring insurance that vary with and are
primarily related to the production of new and renewal business have been
deferred. Traditional life insurance acquisition costs are being amortized over
the premium-payment period of the related policies using assumptions consistent
with those used in computing policy benefit reserves. Acquisition costs for
universal life type policies are being amortized over the lives of the policies
in relation to the present value of estimated gross profits which are determined
based upon surrender charges and investment, mortality, and expense margins.
Acquisition costs for property and casualty insurance are amortized over the
period in which the related premiums are earned.

Alfa Corporation 1997 25

Alfa Corporation
Notes to Consolidated Financial Statements

(Note 1. continued)

Investments

Fixed maturities held to maturity include investments which the Company has both
the ability and positive intent to hold until maturity; such securities are
reported at amortized cost. Securities available for sale include investments
which the Company may elect to sell prior to maturity and are reported at their
current market value. The unrealized gains or losses on these securities are
recorded as a component of stockholders' equity, net of taxes. Furthermore,
deferred acquisition costs are adjusted to reflect the effect that would have
been recognized had the unrealized holding gains and losses been realized. This
adjustment to deferred acquisition costs results in a corresponding adjustment
to stockholders' equity.

Equity securities (common and non-redeemable preferred stocks) are carried at
market value, real estate is carried at cost less accumulated depreciation and
mortgage loans and policy loans are carried at unpaid principal balances.
Longterm investments include installment loans, carried at unpaid principal
balances, leased assets, carried at cost less accumulated depreciation and
partnerships, accounted for on the equity method.

Declines in market values of fixed maturities and equity securities deemed to be
other than temporary are recognized in the determination of net income.
Realized gains and losses on sales of investments are recognized in net income
using the specific identification method. Depreciation on real estate is
calculated using the straight-line method over the estimated useful lives of the
assets.

The Company has a covered call option writing program. Call premiums received
from options written are carried at market value as a liability with net
unrealized gains or losses reflected in stockholders' equity. Realized gains
and losses on options written are recognized in net income upon settlement of
the option contract. While the covered call option program involves elements of
off-balance-sheet risk, the Company had only $354,013 in options outstanding at
December 31, 1997.

Realized investment gains and losses are reported on a pre-tax basis as a
component of revenues. Income taxes applicable to net realized investment gains
and losses are included in the provision for income tax.

Income Taxes

The Company's method of accounting for income taxes is the liability method.
Under the liability method, deferred tax assets and liabilities are adjusted to
reflect changes in statutory tax rates resulting in income adjustments in the
period such changes are enacted.

Reinsurance

Amounts recoverable from property and casualty reinsurers are estimated in a
manner consistent with the claim liability associated with the reinsured policy.
Amounts paid for reinsurance contracts are expensed over the contract period
during which insured events are covered by the reinsurance contracts.

Use of Estimates in the Preparation of the Financial Statements

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period. The
estimates and assumptions are particularly important in determining the reserves
for future policy benefits, losses and loss expenses and deferred policy
acquisition costs. Actual results could differ from those estimates.

Earnings Per Share

The Company has adopted Statement of Financial Accounting Standards (SFAS) No.
128, "Earnings per Share" (EPS) in accordance with the provisions of the
statement. SFAS No. 128 specifies the computation, presentation and disclosure
requirements for both basic EPS and diluted EPS. Basic EPS is computed by
dividing net income by the weighted average number of shares outstanding.
Diluted EPS is computed similarly except that the shares outstanding is
increased to give effect to all potentially dilutive shares that would have been
outstanding if such shares had been issued. For Alfa Corporation, basic and
diluted computations are the same amount for all periods presented. The
weighted average diluted shares outstanding include the potentially diluted
shares which total 143,847 shares in 1997, 56,897 shares in 1996 and 25,067
shares in 1995, and are based on the employee stock options outstanding during
each period presented. (See Note 14).

Cash
Cash consists of demand deposits at banks. Short-term investments with
maturities of three months or less are considered to be investments and are not
considered to be cash or cash equivalents for the purposes of the statements of
cash flows.

Other
Certain reclassifications have been made to 1996 and 1995 amounts in order to
conform to 1997 classifications and descriptions.

26 Alfa Corporation 1997

Alfa Corporation
Notes to Consolidated Financial Statements

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 (See Note 3). 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%. The change allows the catastrophe reinsurance buying decision to
be made on a group basis which benefits each member of the group. 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.

As a result of the Pooling Agreement, the Company had a receivable of $1,255,157
and $1,983,832 from the Mutual Group at December 31, 1997 and December 31, 1996,
respectively, for cash transactions originating in December and settled the
following month. Approximately 83.8% of the Company's property and casualty
premium income and 74.6% of its total premium income for 1997 was derived from
the Company's participation in the Pooling Agreement.

3. RELATED PARTY TRANSACTIONS

Mutual owns 39.72% and Alfa Mutual Fire (Fire) owns 11.07% of the Company's
common stock. The Board of Directors of the Company consists of twelve members,
six of whom serve as Directors of Mutual, Fire and Alfa Mutual General (General)
(collectively, the Mutual Group) and two of whom at December 31, 1997 were
executive officers of the Company. Two of the Company's directors and most of
the Company's executive officers, including the Company's President also hold
the same positions with Mutual, Fire and General. The Company paid stockholder
dividends to Mutual and Fire totaling $8,234,938 in 1997, $8,027,769 in 1996
and $7,768,809 in 1995.

The Mutual Group and the Company's insurance subsidiaries are considered an
insurance company holding system with Mutual being the controlling party under
the Alabama Insurance Holding Company Systems Regulatory Act and their
activities and transactions are subject to reporting, examination and regulation
thereunder.

Under a Management and Operating Agreement, Mutual provides substantially all
facilities, management and other operational services to the Company and its
subsidiaries and to other companies associated with Mutual. Most of the
personnel providing management services to the Company are full-time employees
of, and are directly compensated by Mutual. The Company's business is
substantially integrated with that of Mutual, Fire and General. Mutual
periodically conducts time usage and other special expense allocation studies.
Mutual charges the Company for both its allocated and direct salaries, employee
benefits and other expenses, including those for the use of office facilities.
The amounts paid by the Company to Mutual under the Management and Operating
Agreement were approximately $27.7 million in 1997, $27.1 million in 1996 and
$26.0 million in 1995. In Alabama, the Company's life insurance agents are
career employees of Mutual. The Company reimburses Mutual for the full amount
of all its agents' commissions paid by Mutual for the sale of the Company's
insurance products.

Until January 31, 1997, Mutual's employees were covered by a group life
insurance plan provided by Life. Group life insurance premiums paid to Life
were approximately $1.7 million in 1996 and $1.6 million in 1995. On February
1, 1997, Mutual began covering its employees with a Corporate Owned Life
Insurance (COLI) plan utilizing Life's universal life product.