
<PAGE>
 
                      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, 1998           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
                    ---------------------------------------

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

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

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, 1999, was $337,529,032.

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, 1998
------------------                            -----------------------------
Common Stock, $1.00 par value                        40,879,911 shares

                      DOCUMENTS INCORPORATED BY REFERENCE

Portions of Registrant's annual report to security holders for the fiscal year
ended December 31, 1998, and proxy statement for the annual meeting of
stockholders to be held April 22, 1999, are incorporated by reference into Part
II and Part III.
<PAGE>
 
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 Insurance Companies
(the Mutual Group), which collectively own 50.7% of Alfa Corporation's common
stock, their largest single investment. Alfa Corporation and its subsidiaries
(the Company) together with the Mutual Group 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 83.5% of the Company's property and casualty premium
income and 73.7% of its total premium income for 1998 was derived from the
Company's participation with the Mutual Group in a Pooling Agreement. The
Company entered into a 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. 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 and reduces the Company's
earnings volatility.

     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 the Department
determined that the implementation of the Pooling Agreement did not require the
Department's approval.

                                      I-1
<PAGE>
 
     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 Jerry A.
Newby, 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 underwriting ratios for the Pooled Business
excluding catastrophes as long as the Pooling Agreement remains in effect. See
"Property and Casualty Business" section regarding impact of catastrophes.

     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.



                                      I-2
<PAGE>
 
Alfa Corporation's operations include property and casualty insurance, life
insurance, noninsurance and corporate segments.  Presented below is summarized
financial information for the Company's four business segments as of and for the
years ended December 31, 1998, 1997 and 1996:
<TABLE>
<CAPTION>
 
 
                                               Years Ended December 31,
                                  --------------------------------------------------
                                        1998             1997             1996
                                  ----------------  ---------------  ---------------
                                   (in thousands, except share and per share data)
<S>                               <C>               <C>              <C>
Revenues
 Life insurance premiums
  and policy charges                  $    46,099      $    40,659      $    38,248
                                      ===========      ===========      ===========
 
Property and casualty
 insurance premiums                   $   345,740      $   330,306      $   298,939
                                      ===========      ===========      ===========
 
Net investment
  income                              $    62,512      $    57,529      $    54,194
                                      ===========      ===========      ===========
 
Total revenues                        $   460,986      $   434,010      $   396,336
                                      ===========      ===========      ===========
 
Net income
  Insurance operations
    Life insurance                    $    15,645      $    14,580      $    14,952
    Property and casualty
         insurance                         41,581           36,571           15,189
  Noninsurance operations                   2,192            2,628            3,339
  Net realized
    investment gains                        2,858            2,182            1,825
  Corporate                                (5,560)          (3,167)          (3,116)
                                      -----------      -----------      -----------
 
    Net income                        $    56,716      $    52,794      $    32,189
                                      ===========      ===========      ===========
 
    Net income per share
       Basic                                $1.39            $1.29             $.79
                                      ===========      ===========      ===========
       Diluted                              $1.38            $1.29             $.79
                                      ===========      ===========      ===========
 
Weighted average shares
    outstanding-Basic                  40,834,232       40,787,047       40,786,561
                                      ===========      ===========      ===========
               Diluted                 41,148,258       40,930,894       40,843,548
                                      ===========      ===========      ===========
 
</TABLE>

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 premiums and over 70%
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 Company is a direct writer and distributes its products
utilizing the employee/agent sales force of Mutual.


                                      I-3
<PAGE>
 
The following table shows the Company's premium distribution by product in
property and casualty insurance for 1998:

                    Automobile               65.6%
                    Homeowner                18.6%
                    Farmowner                 5.6%
                    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 (loss), GAAP basis loss,
expense and combined ratios, underwriting margin, net investment income and
operating income for the years ended December 31, 1998, 1997 and 1996:
<TABLE>
<CAPTION>
 
                                      Years ended December 31,
                                  --------------------------------
                                    1998       1997        1996
                                  ---------  ---------  ----------
<S>                               <C>        <C>        <C>
                                           (in thousands)
Earned premiums
 Personal lines                   $330,511   $315,650   $292,330
 Commercial lines                   12,354     11,772     11,231
 Pools, associations
  and fees                           4,036      4,014      3,905
 Reinsurance ceded                  (1,161)    (1,130)    (8,527)
                                  --------   --------   --------
   Total                          $345,740   $330,306   $298,939
                                  ========   ========   ========
Net underwriting income (loss)    $ 33,183   $ 28,061   $ (2,235)
                                  ========   ========   ========
Loss ratio                            62.8%      65.0%      73.8%
LAE ratio                              5.0%       5.0%       5.3%
Expense ratio                         22.6%      21.5%      21.6%
                                  --------   --------   --------
GAAP basis combined ratio             90.4%      91.5%     100.7%
                                  ========   ========   ========
Underwriting margin                    9.6%       8.5%      (0.7%)
                                  ========   ========   ========
Net investment income             $ 25,992   $ 23,935   $ 22,251
                                  ========   ========   ========
Operating income before tax       $ 59,156   $ 51,955   $ 19,585
                                  ========   ========   ========
Operating income, net of tax      $ 41,581   $ 36,571   $ 15,189
                                  ========   ========   ========
</TABLE>

     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


                                      I-4
<PAGE>
 
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 Alfa Group had approximately
$45 million in gross catastrophe losses during 1998 due to Hurricane Georges in
September 1998 and due to the impact of tornadoes, hail and other severe weather
which occurred in April and June 1998.  The effect of claims from these events
impacted second quarter underwriting results by $6.5 million pre-tax, or $0.10
per share, net of taxes, based upon the intercompany pooling arrangement and
Alfa group-wide reinsurance protection. The Company had no significant storm
related losses in 1997.  Group wide catastrophe losses in 1996 were $27 million,
and the Company's share was $11.4 million.

     The Company's business is concentrated geographically in Alabama, Georgia
and Mississippi. Accordingly, unusually severe storms or other disasters in
these contiguous states might have a more significant effect on the Company than
on a more geographically diversified insurance company. Unusually severe storms,
other natural disasters and other events could have an adverse impact on the
Company's financial condition and operating results. However, the Company
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, 1998, Life had in excess of $11.0 billion of life
insurance in force.  As of December 31, for each year indicated the Company had
insurance in force as follows:
 
                     1998         1997         1996
                  -----------  -----------  ----------
                              (in thousands)
Ordinary Life     $10,955,347  $10,201,001  $9,126,335
Credit Life       $     6,990  $     8,296  $   11,016
Group Life        $    37,712  $    37,103  $  325,704
 

                                      I-5
<PAGE>
 
The following table sets forth life insurance premiums and policy charges, by
type of policy, net investment income, benefits and expenses and life insurance
operating income for the years ended December 31, 1998, 1997 and 1996:

 
                                             Years Ended December 31,
                                            --------------------------
                                             1998      1997     1996
                                            -------  --------  -------
                                                  (in thousands)
Premiums and Policy Charges
 Universal life policy charges              $12,381  $11,296   $10,075
 Universal life policy charges- COLI          2,133    1,858         -
  Interest sensitive life policy charges      9,727    9,306     8,589
  Traditional life insurance premiums        21,494   19,958    18,931
  Group life insurance premiums                 364   (1,759)      653
                                            -------  -------   -------
   Total                                    $46,099  $40,659   $38,248
                                            =======  =======   =======
Net investment income                       $34,890  $31,646   $29,254
                                            =======  =======   =======
Benefits and expenses                       $52,980  $45,041   $39,610
                                            =======  =======   =======
Operating income before tax                 $21,988  $20,750   $21,830
                                            =======  =======   =======
Operating income, net of tax                $15,645  $14,580   $14,952
                                            =======  =======   =======

     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 reinsurer
who reinsures the risk, thereby decreasing the income of Life.

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

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 $363.4 million to over $1.0 billion at
the end of 1998, a compound annual growth rate of 11.6%.  During that same
period investment income has more than doubled, growing from $26.2 million to
over $62.5 million.   At year-end, the value of unrealized gains in Alfa's
portfolio was $57.6 million, net of tax.  The portfolio was invested 71.6% in
fixed income securities, 9.5% in equities, 5.0% in short-term marketable
securities, and 13.9% in other investments, which include consumer loans, leases
and partnerships and less than 0.1% in real estate and mortgage loans.


                                      I-6
<PAGE>
 
     The rating of the Company's portfolio of fixed maturities using the
Standard & Poor's rating categories is as follows at December 31, 1998 and 1997:
 
                                           December 31,
                                           -------------
                                           1998     1997
                                           ----     ----
AAA to A-                                   89.2%   87.1%
BBB+ to BBB-                                 9.8    12.3
BB+ and below (below investment grade)       1.0     0.6
                                           -----   -----
                                           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 Operations on pages 15 through 17 of the Company's annual report to
security holders for the fiscal year ended December 31, 1998, 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.

     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 filed 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.

                                      I-7
<PAGE>
 
     Life Reserves: The life insurance policy reserves reflected in the
Company'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 33 of the
Company's annual report to security holders for the year ended December 31,
1998, incorporated herein by reference).

     Activity in the liability for unpaid losses and loss adjustment expenses,
prepared in accordance with generally accepted accounting principles, is
summarized as follows:
<TABLE>
<CAPTION>
 
                                      1998                         1997                        1996
                           -----------------------------------------------------------------------------------
                            Property and                 Property and                 Property and
                            Casualty         Life        Casualty         Life        Casualty        Life
                          -------------  ------------  -------------  ------------  -------------  -----------
<S>                       <C>            <C>           <C>            <C>           <C>            <C>
Balance at January 1,     $132,086,208   $ 2,243,041   $117,672,492   $ 3,095,914   $108,303,253   $2,065,462
  Less Reinsurance
      recoverables
      on unpaid losses        (960,376)     (123,474)      (745,156)     (801,496)    (2,293,048)    (717,018)
                          ------------   -----------   ------------   -----------   ------------   ----------
Net balance at
  January 1,               131,125,832     2,119,567    116,927,336     2,294,418    106,010,205    1,348,444
                          ------------   -----------   ------------   -----------   ------------   ----------
Incurred related to:
  Current year             253,369,653    15,160,885    240,327,428    11,600,573    241,879,860    8,717,628
  Prior years              (18,725,403)      (17,517)    (8,928,409)      ( 7,995)    (4,702,409)     151,950
                          ------------   -----------   ------------   -----------   ------------   ----------
   Total incurred          234,644,250    15,143,368    231,399,019    11,592,578    237,177,451    8,869,578
                          ------------   -----------   ------------   -----------   ------------   ----------
Paid related to:
  Current year             175,544,000    14,010,044    164,640,000    10,605,018    172,087,000    7,363,636
  Prior years               52,955,344       793,382     52,560,523     1,162,411     54,173,320      559,968
                          ------------   -----------   ------------   -----------   ------------   ----------
    Total paid             228,499,344    14,803,426    217,200,523    11,767,429    226,260,320    7,923,604
                          ------------   -----------   ------------   -----------   ------------   ----------
Net balance at
   December 31,            137,270,738     2,459,509    131,125,832     2,119,567    116,927,336    2,294,418
  Plus reinsurance
   recoverables
   on unpaid losses            759,568       353,195        960,376       123,474        745,156      801,496
                          ------------   -----------   ------------   -----------   ------------   ----------
Balance at
   December 31,           $138,030,306   $ 2,812,704   $132,086,208   $ 2,243,041   $117,672,492   $3,095,914
                          ============   ===========   ============   ===========   ============   ==========
</TABLE>

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

     The Company operates five other subsidiaries which are not considered to be
significant by SEC Regulations for purposes of separate disclosure.  These
subsidiaries are Alfa Financial Corporation (Financial), 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.


                                      I-8
<PAGE>
 
     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, 1998, the delinquency ratio on the loan portfolio was 2.04%, or
$1.0 million. Loans charged off in 1998 totaled $562,173 or 1.1% of the average
outstanding loan portfolio. At December 31, 1998, the Company maintained an
allowance for loan losses of $584,178 or approximately 1.2% of the outstanding
loan balance.

     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 16,190,538 shares, or 39.61%, and Alfa Mutual Fire Insurance
Company owns 4,515,286 shares, or 11.05%, 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.


                                      I-9
<PAGE>
 
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.

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

     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.

     Additionally, 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,  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.   Rates of property and casualty insurance are subject to
regulation and approval of regulatory authorities.  Life insurance rates are
generally not subject to prior regulatory approval.


     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 1999 without prior approval of regulatory
authorities is approximately $53.2 million based on December 31, 1998 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 "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-10
<PAGE>
 
Year 2000:      
----------                                                                   
The Company initially started the identification of year 2000 issues in 1994 and
began its internal programming modifications in 1995. These phases along with
the testing have continued during the last three years. The Company believes it
has substantially completed the identification and programming steps and at
December 31, 1998 is approximately 90% complete with actual application and
scenario testing, whereby dates are manipulated and results are compared for
accuracy. Such testing and completion of internal programming is currently
scheduled to be completed in the second quarter of 1999. A summary of mission
critical systems is shown below indicating the status of the Company's
remediation and testing efforts at December 31, 1998. In 1998, the Company
addressed the issues related to year 2000 in regards to material relationships
with third parties, vendors, suppliers, etc. and has identified such providers,
surveying their efforts and requesting written assurances that year 2000 issues
have been addressed. Of the vendor operating system software identified during
this process, approximately 90% of the programs have been labeled as "year 2000
compliant" by the vendors. In the event that such software fails despite written
assurances and internal testing, the Company expects to work closely with the
vendors to find a remedy in a timely fashion. Also, the Company is continuing to
review all significant non-information technology systems for year 2000
compliance. The most significant such system, the telephone system, has already
been determined to be year 2000 compliant. These efforts as well as the final
phase, follow-up on any unresolved year 2000 issues, are expected to be
completed during the first half of 1999.

     The Company has not utilized any year 2000 solution providers in addressing
compliance of its mainframe systems.  To date, the issues have been addressed
with internal resources.  However, the Company has contracted with external
consultants to assist in the review and updating of its personal computer
systems and associated hardware and software.  Due to the longevity of the
process, the number of employees and resources devoted to the efforts and the
time spent, it is not practicable to determine precisely the total costs
attributable to the year 2000 issue.  These costs have been expensed as incurred
throughout the process.  However, the Company estimates that to date,
approximately $1.7 million has been spent on year 2000 efforts, with almost
$900,000 expensed in 1998.  Future costs, including $500,000 for the external
consultant costs of the personal computer systems reviews and $400,000 for
payment processing software, are currently anticipated to total $1.2 million,
for a total estimated cost of year 2000 efforts of $2.9 million.  The Company
has absorbed the costs into its operations with no significant adverse impact on
its financial condition or results of operations.  The resources utilized have
caused some normal operational enhancements and systems development to be
deferred or delayed. However, any systems maintenance or statutory required
updates have not been affected.

     To the extent the year 2000 issues are not corrected timely and
successfully, the Company's ability to process its business and pay its claims
timely could be impacted.  Such an event could have material adverse
consequences on future financial condition and results of operations.  The
Company has begun the process of developing a contingency plan should an adverse
year 2000 issue occur.  As part of the contingency plan, the Company expects to
address its ability to conduct business in environments experiencing both
limited and extensive adverse conditions resulting from the year 2000 issue.
The Company expects to have such a plan in place by the end of the third quarter
of 1999.

                                     I-11
<PAGE>
 
                      SUMMARY OF MISSION CRITICAL SYSTEMS

<TABLE>
<CAPTION>
                                                       Remediation/   System     Goal
         Mission Critical Systems           Research   Programming    Testing    Date
---------------------------------------------------------------------------------------
Accounting                                  Completed   Completed    Completed    N/A
---------------------------------------------------------------------------------------
<S>                                         <C>        <C>           <C>        <C>
Agent Compensation                          Completed   Completed     Started   4/30/99
---------------------------------------------------------------------------------------
Claims                                      Completed   Completed    Completed    N/A
---------------------------------------------------------------------------------------
Investment Management                       Completed   Completed    Completed    N/A
---------------------------------------------------------------------------------------
Life Policy Administration                  Completed   Completed     Started   4/30/99
---------------------------------------------------------------------------------------
Loan Processing                             Completed   Completed     Started   4/30/99
---------------------------------------------------------------------------------------
Payment Processing                          Completed   Completed     Started   4/30/99
---------------------------------------------------------------------------------------
Payroll Processing                          Completed   Completed    Completed    N/A
---------------------------------------------------------------------------------------
Personal Computers - Field                  Completed   Completed    Completed    N/A
---------------------------------------------------------------------------------------
Personal Computer - Based Field Programs    Completed   Completed     Started   4/30/99
---------------------------------------------------------------------------------------
Personal Computers - Home Office            Completed    Started      Started   6/25/99
---------------------------------------------------------------------------------------
Postal Software                             Completed   Completed    Completed    N/A
---------------------------------------------------------------------------------------
Property/Casualty Policy Administration     Completed   Completed    Completed    N/A
---------------------------------------------------------------------------------------
</TABLE>

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, 1998, the Company was represented by 471 agents  in
Alabama who are employees of Mutual.  The Company's property and casualty
subsidiaries had 104 independent exclusive agents in Georgia and Mississippi at
December 31, 1998.

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.


                                     I-12
<PAGE>
 
Item 3.  Legal Proceedings.
         ----------------- 

    Certain legal proceedings involving policyholders and agents are in process
at December 31, 1998.  Costs for these and similar legal proceedings including
accruals for outstanding cases were $5.2 million in 1998, $3.6 million in 1997
and $2.7 million in 1996.  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 not possible to predict.
Approximately 80 legal proceedings against Alfa Life Insurance Corporation
involving policyholders and agents are in process at December 31, 1998.  Of the
80 proceedings, 50 were filed in 1998, 13 were filed 1997, 12 were filed in
1996, and 5 were filed in 1995.  Of the 50 legal proceedings filed in 1998, two
plaintiff law firms accounted for 47 of the filings.  Currently, three of the
proceedings against Alfa Life Insurance Corporation have gone to trial. In two
of the proceedings, the jury awarded the plaintiffs compensatory and punitive
damages against Alfa Life Insurance Corporation. The first jury verdict has been
appealed and the second verdict will be appealed to the Alabama Supreme Court.
In the third proceeding, the jury returned a verdict for Alfa Life Insurance
Corporation.  Based upon information presently available, applicable law and
defenses available to the Company, management does not consider material losses
which might arise from a particular lawsuit beyond amounts accrued in the
financial statements 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 judgements in any given suit.

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


                                     I-13
<PAGE>
 
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 22, 1999.

     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.
<TABLE>
<CAPTION>
 
Name                               Age      Position                                                    Since
----                               ---      --------                       
<S>                                <C>      <C>                                                         <C>
                              
Jerry A. Newby                      51      Director; Chairman of the Board and President, since 1998;   1986
                                            President of its Subsidiaries and associated
                                            companies; President Alabama Farmers Federation,
                                            and farmer.
                              
C. Lee Ellis                        47      Executive Vice President, Operations and Treasurer of        1983
                                            Alfa Corporation and its subsidiaries since February 1999
                                            Prior to 1999, Executive Vice President, Investments.
                              
Ken Wallis                          57      Director; Executive Vice President, Operations               1993
                                            of Alfa Corporation and its subsidiaries, Assistant
                                            to the President and Vice President, Treasurer. Retired
                                            in March 1999.
                              
Al Dees                             52      Executive Vice President, Marketing                          1993
                                            Prior to 1993, Vice President, Georgia and
                                            Mississippi Marketing.
                              
Donald Price                        47      Senior Vice President, Finance and                           1984
                                            Chief Financial Officer.
                              
Marcia Martin                       61      Senior Vice President, Personnel                             1976
                              
Al Scott                            43      Senior Vice President, Secretary and General Counsel         1997
                                            Prior to 1997, Assistant General Counsel
                              
John Holley                         43      Vice President, Finance, Director Financial Relations        1986
                                            Chief Accounting Officer.
                              
Terry McCollum                      62      Senior Vice President, Claims                                1979
 
</TABLE>

                                     I-14
<PAGE>
 
<TABLE>
<CAPTION>
<S>                                 <C>     <C>                                                          <C>
Bill Harper, Jr.                    54      Senior Vice President, Life Operations of Alfa Life          1986
                                            Insurance Corporation, Vice President of Alfa
                                            Financial Corporation since 1978.

Wyman Cabaniss                      47      Senior Vice President, Underwriting                          1998
                                            Prior to 1998, Vice President, Underwriting
 
Stephen G. Rutledge                 40      Senior Vice President, Investments since 1999.               1984
                                            Prior to that time, Vice President, Investments
 
Cheryl Price                        45      Vice President, Finance, Alfa Property and                   1991
                                            Casualty Companies.
</TABLE>



                                     I-15
<PAGE>
 
                                    Part II
                                    -------

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

     The "Stockholder Information" section on page 36 of Exhibit 13 representing
the Inside Back Cover of the Company's annual report to security holders for the
fiscal year ended December 31, 1998, is incorporated herein by reference.

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

     The "Selected Financial Data" section on pages 1 and 2 of Exhibit 13
representing pages 6 and 7 of the Company's annual report to security holders
for the year ended December 31, 1998, 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 3 through 11 of
Exhibit 13 representing pages 12 through 20 of the Company's annual report to
security holders for the fiscal year ended December 31, 1998, is incorporated
herein by reference.

Item 7A.  Quantitative and Qualitative Disclosures about Market Risk.
          -----------------------------------------------------------
 
     The "Quantitative and Qualitative Disclosures about Market Risk" section on
pages 7 and 8 of Exhibit 13 representing pages 16 and 17 of the Company's annual
report to security holders for the fiscal year ended December 31, 1998, is
incorporated herein by reference.

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

     The Financial Statements on pages 12 through 35 of Exhibit 13 representing
pages 21 through 44 of the Company's annual report to security holders for the
fiscal year ended December 31, 1998, are incorporated herein by reference.

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

     None.


                                     II-1
<PAGE>
 
                                    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 22, 1999 which is incorporated herein by
reference.

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

     The information set forth under the caption "Executive Compensation" on
Page 5 of the Proxy Statement for the annual meeting of stockholders to be held
April 22, 1999, 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 22, 1999, 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 5 of the Proxy Statement for the annual meeting of stockholders to be held
April 22, 1999, is incorporated herein by reference.



                                     III-1
<PAGE>
 
                                    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 pages 12 through
         --------------------
      35 of Exhibit 13 representing pages 21 through 44 of the Company's annual
      report to security holders for the year ended December 31, 1998)
 
          Report of Independent Auditors for 1998 and 1997.

          Consolidated Balance Sheets as of
          December 31,  1998 and 1997.

          Consolidated Statements of Income for the three years ended
          December 31, 1998, 1997 and 1996.

          Consolidated Statements of Comprehensive Income for the three years
          ended December 31, 1998, 1997 and 1996.

          Consolidated Statements of Stockholders' Equity for the three years
          ended December 31, 1998, 1997 and 1996.

          Consolidated Statements of Cash Flows for the three years ended
          December 31, 1998, 1997 and 1996.

          Notes to Consolidated Financial Statements.

          Selected Quarterly Financial Data.


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

          Included in Part IV of this report          
                                                      
<TABLE>
<CAPTION>
                                                                                      Page
                                                                                      ----
<S>                                                                                   <C> 
 
Report on  Financial Statement Schedules          
of Independent Auditors                                                               IV-3
 
          Schedule I -   Summary of Investments Other Than Investments
                         in Related Parties for the year ended December 31, 1998      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, 1998,
                         1997 and 1996                                                IV-9
 
          Schedule V -   Valuation and Qualifying Accounts                           IV-10
</TABLE>
                                      IV-1
<PAGE>
 
     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, 1998. 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

               Exhibit (27)    Financial Data Schedule


          (b)  Reports on Form 8-K.
               ------------------- 
 
               None

 

                                      IV-2
<PAGE>
 
         INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENT SCHEDULES
         -------------------------------------------------------------



The Board of Directors
Alfa Corporation:

Under date of February 9, 1999, we reported on the consolidated balance sheets
of Alfa Corporation and subsidiaries (the "Company") as of December 31, 1998 and
1997, and the related consolidated statements of income, comprehensive income,
stockholders' equity, and cash flows for each of the years in the three-year
period ended December 31, 1998, as contained in the 1998 annual report to
stockholders.  Those consolidated financial statements and our report thereon
are incorporated by reference in the annual report on Form 10-K for the year
1998.  In connection with our audits of the aforementioned consolidated
financial statements, we also audited the related financial statement schedules
as listed in item 14.  These financial statement schedules are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these financial statement schedules based on our audits.

In our opinion, such financial statement schedules, when considered in relation
to the basic consolidated financial statements taken as a whole, present fairly,
in all material respects, the information set forth therein.


                                     /s/ KPMG PEAT MARWICK LLP

Birmingham, Alabama
February 9, 1999


                                      IV-3
<PAGE>
 
                      ALFA CORPORATION  AND  SUBSIDIARIES
               SCHEDULE I - SUMMARY OF  INVESTMENTS - OTHER THAN
                        INVESTMENTS  IN RELATED  PARTIES
                               December 31, 1998

                                ---------------

<TABLE>
<CAPTION>
 
 
                                                                                Amount At
                                                   Cost Or                     Which Shown
                                                  Amortized       Market        In Balance
Type Of Investment                                  Cost           Value           Sheet
------------------                              ------------  --------------  --------------
<S>                                             <C>           <C>             <C>
Fixed maturities:
   Bonds:
      United States Government
        and government agencies                 $ 50,171,484  $   56,357,985  $   56,357,985
      States, municipalities and
        political subdivisions                   163,555,285     171,790,838     171,790,838
      Public utilities                            23,616,916      24,001,365      24,001,365
      All other corporate bonds                  209,382,205     217,453,175     217,453,175
   Mortgage-backed securities                    292,829,171     302,595,150     302,505,360
   Redeemable preferred stocks                     3,500,000       3,708,750       3,708,750
                                                ------------  --------------  --------------
 
                Total fixed maturities           743,055,061     775,907,263     775,817,473
                                                ------------  --------------  --------------
Equity securities:
   Common stocks:
      Public utilities                             3,761,765       5,291,801       5,291,801
      Banks, trusts and insurance
        companies                                  5,331,432      23,152,710      23,152,710
      Industrial, miscellaneous and all other     30,288,959      73,390,954      73,390,954
   Nonredeemable preferred stocks                  1,450,994       1,220,000       1,220,000
                                                ------------  --------------  --------------
 
                Total equity securities           40,833,150     103,055,465     103,055,465
                                                ------------  --------------  --------------
 
Mortgage loans on real estate                        404,432         404,432         404,432
 
Real estate                                        1,482,647       1,482,647       1,482,647
 
Policy loans                                      38,645,185      38,645,185      38,645,185
 
Other long-term investments                      110,022,016     111,217,901     110,022,016
 
Short-term investments                            54,637,029      54,637,029      54,637,029
                                                ------------  --------------  --------------
 
                Total investments               $989,079,520  $1,085,349,922  $1,084,064,247
                                                ============  ==============  ==============
 
</TABLE>
See accompanying independent auditors report  
                                              IV-4
<PAGE>
 
                  ALFA  CORPORATION  (PARENT COMPANY)
             SCHEDULE II - CONDENSED FINANCIAL  INFORMATION
                           BALANCE  SHEETS
                     December 31, 1998 and 1997

                              ---------
<TABLE>
<CAPTION>
                                            1998          1997
                                        ------------  ------------
                            ASSETS
<S>                                     <C>           <C>
Cash                                    $    310,617  $     41,334
 
Short-term investments                       867,393     1,995,321
 
Investment in subsidiaries               459,187,150   416,815,803
 
Note receivable from subsidiaries         30,089,539    60,646,539
 
Accounts receivable and other assets         162,916       233,939
                                        ------------  ------------
 
        Total assets                    $490,617,615  $479,732,936
                                        ============  ============
</TABLE>
             LIABILITIES  AND  STOCKHOLDERS'  EQUITY
<TABLE>
<CAPTION>
Liabilities:
<S>                                     <C>            <C>
   Commercial paper                     $ 57,259,519  $ 89,521,729
   Notes payable                           4,600,000     4,600,000
   Other liabilities                       5,135,111     2,679,013
                                        ------------   ------------
 
        Total liabilities                 66,994,630     96,800,742
                                        ------------   ------------
 
Stockholders' Equity:
Common stock, $1 par value, shares
   authorized - 110,000,000;
   issued -  41,891,512
   outstanding - 1998 - 40,887,911; 
   1997 - 40,797,712                      41,891,512     41,891,512
 
Capital in excess of par value            22,355,934     21,301,198
 
Accumulated other comprehensive income    57,577,202     56,929,966
 
Retained earnings                        306,268,833    267,420,813
Treasury stock, at cost, 
1998 - 1,003,601; 
1997 - 1,093,800 shares                   (4,470,496)    (4,611,295)
                                        ------------   ------------
 
        Total stockholders' equity       423,622,985    382,932,194
                                        ------------   ------------
 
        Total liabilities and
        stockholders' equity            $490,617,615   $479,732,936
                                        ============   ============
 
See accompanying independent auditors report                              
                               IV-5
</TABLE>
<PAGE>
 
                      ALFA  CORPORATION  (PARENT COMPANY)
                 SCHEDULE II - CONDENSED FINANCIAL  INFORMATION
                             STATEMENTS  OF  INCOME
              for the years ended December 31, 1998, 1997 and 1996

                                 -------------
<TABLE>
<CAPTION>
                                     1998         1997         1996
                                  -----------  -----------  -----------
<S>                               <C>          <C>          <C>
Revenues:
   Dividends from subsidiaries    $20,602,953  $18,956,247  $18,671,103
 
   Interest from subsidiaries       2,047,057    2,208,548    2,642,730
 
   Other interest                      53,192       21,777       12,911
                                  -----------  -----------  -----------
 
   Total revenues                  22,703,202   21,186,572   21,326,744
 
Expenses:
   Other expenses                   7,608,341    5,310,031    5,667,475
                                  -----------  -----------  -----------
 
      Income before equity in
      undistributed income
      of subsidiaries              15,094,861   15,876,541   15,659,269
 
Equity in undistributed income
   of subsidiaries                 41,620,830   36,917,092   16,529,946
                                  -----------  -----------  -----------
 
      Net income                  $56,715,691  $52,793,633  $32,189,215
                                  ===========  ===========  ===========
</TABLE>



See accompanying independent auditors report  
                                IV-6
<PAGE>
 
                      ALFA  CORPORATION  (PARENT COMPANY)
                SCHEDULE II - CONDENSED  FINANCIAL  INFORMATION
                          STATEMENTS  OF  CASH  FLOWS
              for the years ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
                                                                   1998           1997           1996
                                                               -------------  -------------  -------------
<S>                                                            <C>            <C>            <C>
Cash flows from operating activities:
  Net income                                                   $ 56,715,691   $ 52,793,633   $ 32,189,215
                                                               ------------   ------------   ------------
  Adjustments to reconcile net
    income to net cash provided by
    operating activities:
      Undistributed earnings of
        subsidiaries                                            (41,620,830)   (36,917,092)   (16,529,946)
      Decrease (increase) in other assets
        and accounts receivable                                      71,023        (15,885)        65,220
      Increase (decrease) in other
        liabilities                                               2,456,098        (64,890)       417,666
                                                               ------------   ------------   ------------
        Total adjustments                                       (39,093,709)   (36,997,867)   (16,047,060)
                                                               ------------   ------------   ------------
 
        Net cash provided by
         operating activities                                    17,621,982     15,795,766     16,142,155
                                                               ------------   ------------   ------------
 
Cash flows from investing activities:
  Decrease (increase) in note receivable from subsidiaries       30,557,000    (14,288,000)     8,086,461
  Net decrease (increase) in short-term investments               1,127,928     (1,621,263)        63,032
  Other                                                             212,396        343,449       (110,149)
                                                               ------------   ------------   ------------
        Net cash provided by (used in) investing activities      31,897,324    (15,565,814)     8,039,344
                                                               ------------   ------------   ------------
 
Cash flows from financing activities:
  Increase (decrease) in commercial paper                       (32,262,210)    15,940,767     (8,368,654)
  Purchase of treasury stock                                       (419,471)
  Proceeds from exercise of stock options                         1,299,329         35,250          9,400
  Dividends to stockholders                                     (17,867,671)   (16,212,717)   (15,802,434)
                                                               ------------   ------------   ------------
 
        Net cash (used in) financing activities                 (49,250,023)      (236,700)   (24,161,688)
                                                               ------------   ------------   ------------
 
        Net increase (decrease) in cash                             269,283         (6,748)        19,811
Cash, beginning of year                                              41,334         48,082         28,271
                                                               ------------   ------------   ------------
 
Cash, end of year                                              $    310,617   $     41,334   $     48,082
                                                               ============   ============   ============
 
Supplemental disclosures of cash flow information:
  Cash paid during the year for:
     Interest                                                  $  4,082,710   $  4,132,679   $  4,415,649
                                                               ============   ============   ============
 
     Income taxes                                              $ 20,487,000   $ 20,529,974   $  5,418,000
                                                               ============   ============   ============
 
See accompanying independent auditors report                                     
                                                IV-7
<PAGE>
 
                                ALFA CORPORATION
              SCHEDULE III - SUPPLEMENTAL  INSURANCE  INFORMATION
              for the years ended December 31, 1998, 1997 and 1996

</TABLE>
<TABLE>
<CAPTION>
                                                                     Other                          
                                    Future Policy                    Policy                                
                     Deferred        Benefits,                      Claims       Premiums                  
                      Policy          Losses,                         And           And            Net     
                    Acquisition     Claims And        Unearned     Benefits       Policy       Investment 
Segment                Costs       Loss Expenses       Premium      Payable       Charges        Income    
-------             -----------    -------------     ----------     -------    ------------    ----------- 
<S>                 <C>            <C>               <C>            <C>        <C>             <C>        
1998                                                                                                      
----                                                                                                      
Life Insurance      $ 97,616,878    $410,398,102    $          0     $    0    $ 46,098,666    $34,890,182
                                                                                                          
Property & casualty                                                                                       
  insurance           16,524,992     138,030,306     105,464,480          0     345,739,616     25,992,335
                                                                                                          
Noninsurance and                                                                                         
  corporate                    0               0               0          0               0      1,629,141
                    ------------    ------------     -----------     ------    ------------    -----------
Total               $114,141,870    $548,428,408    $105,464,480     $    0    $391,838,282    $62,511,658
                    ============    ============    ============     ======    ============    ===========
1997                                                                                       
----                                                                                                      
Life Insurance      $ 90,130,439    $366,301,110    $          0     $    0    $ 40,659,098    $31,646,118
                                                                                                          
Property & casualty                                                                                       
  insurance           15,725,146     132,086,208      97,669,270          0     330,305,948     23,935,303 
                                                                                                          
Noninsurance and                                                                                              
  corporate                    0               0               0          0               0      1,947,248 
                    ------------    ------------     -----------     ------    ------------    ----------- 
Total               $105,855,585    $498,387,318     $97,669,270     $    0    $370,965,046    $57,528,669 
                    ============    ============     ===========     ======    ============    =========== 
                                                                                            
1996                                                                                        
----                                                                                             
Life Insurance      $ 84,711,419    $325,206,008    $          0     $    0    $ 38,247,600    $29,253,591 
                                                                                                           
Property & casualty                                                                                                 
  insurance           15,382,660     117,672,492      92,945,366          0     298,938,818     22,250,871 
                                                                                                           
Noninsurance and
  corporate                    0               0               0          0               0      2,689,872 
                    ------------    ------------    ------------     ------    ------------    ----------- 
                                                                                                           
Total               $100,094,079    $442,878,500    $ 92,945,366     $    0    $337,186,418    $54,194,334 
                    ============    ============    ============     ======    ============    =========== 

</TABLE> 

<TABLE> 
<CAPTION> 
                       Benefits       Amortization                           
                       Claims,       Of Deferred                             
                      Losses And        Policy            Other              
                      Settlement      Acquisition       Operating         Premiums   
                       Expenses         Costs           Expenses          Written      
                     ----------      -----------      -----------       -----------                        
<S>                 <C>              <C>               <C>               <C> 
1998                                     
----                                     
Life Insurance      $ 40,629,378     $ 6,021,001      $ 9,114,135       $          0
                                                                     
Property & casualty                                                  
  insurance          234,971,258      51,800,042       25,960,651        350,684,046
                                                                     
Noninsurance and                                                     
  corporate            2,300,000               0        3,688,097                  0
                    ------------     -----------      -----------       ------------
Total               $277,900,636     $57,821,043      $38,762,883       $350,684,046
                    ============     ===========      ===========       ============
1997                                                                 
----                                                                 
Life Insurance      $ 33,407,772     $ 6,514,175      $ 7,209,933       $          0
                                                                     
Property & casualty                                                  
  insurance          232,670,184      49,483,552       21,544,277        332,192,026
                                                                     
Noninsurance and                                                         
  corporate                    0               0        3,215,022                  0
                    ------------     -----------      -----------       ------------
Total               $266,077,956     $55,997,727      $31,969,232       $332,192,026
                    ============     ===========      ===========       ============
                                                                     
1996                                                                 
----                                                                 
Life Insurance      $ 30,589,901     $ 6,061,063      $ 6,750,449       $          0
                                                                     
Property & casualty                                                           
  insurance          236,721,425      45,050,788       19,653,730        311,251,916
                                                                     
Noninsurance and                                                        
  corporate                    0               0        2,599,112                  0
                    ------------     -----------      -----------       ------------
                                                                     
Total               $267,311,326     $51,111,851      $29,003,291       $311,251,916
                    ============     ===========      ===========       ============

                                                                                              
</TABLE> 
See accompanying independent auditors report 

                                     IV-8
<PAGE>
 
                                      IV-8   
                                             
                      ALFA  CORPORATION  AND  SUBSIDIARIES                   
                           SCHEDULE IV - REINSURANCE                         
                for years ended December 31, 1998, 1997 and 1996             
                                                                             
<TABLE>                                                                      
<CAPTION>                                                                    
                                                                                             
                                                                                                                 Percentage of
                                                             Ceded to      Amount Assumed from                    Assumed From  
                                       Gross Amount        Other Companies  Other Companies     Net Amount          to Net
-----------------------------------  ----------------  -------------------  -------------    ----------------    -------------
<S>                                  <C>               <C>                  <C>             <C>                  <C> 
1998                                                                                        
----
Life insurance in force               $12,296,742,073       $1,296,693,235   $          0    $11,000,048,838             0%     
                                      ===============       ==============   ============    ===============           ===      
                                                                                                                                
Premiums and policy charges:                                                                                                    
 Life Insurance                       $    49,413,822       $    3,389,040   $          0   $     46,024,782             0%     
 Accident and health insurance                 73,884                    0              0             73,884             0%     
 Property and liability insurance          57,290,195           57,380,699*   345,830,120*       345,739,616           100%     
                                      ---------------       --------------   ------------    ---------------           ---      
                                      $   106,777,901       $   60,769,739   $345,830,120    $   391,838,282            88%     
                                      ===============       ==============   ============    ===============           ===      
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%     
                                      ===============       ==============   ============  ===============             ===      
</TABLE>
*These amounts are subject to the pooling agreement.

See accompanying independent auditors report

                                      IV-9
<PAGE>
 
                       ALFA CORPORATION AND SUBSIDIARIES
                 SCHEDULE V - VALUATION AND QUALIFYING ACCOUNTS
                 FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997



<TABLE>
<CAPTION>
                                                           Additions
                                     Balance    --------------------------------
                                  at beginning  Charged to Costs     Charged to                 Balance
             Description           of period      and expenses    other accounts  Deductions  End of Period
       -------------------------  ------------  ----------------  --------------  ----------  -------------
<S>                               <C>           <C>               <C>             <C>         <C>
 
1998   Reserve for Loan losses      $584,178       $588,780                         $588,780     $584,178
                                  ==========     ==========       ==============  ==========   ========== 
 
1997   Reserve for Loan losses      $633,479       $642,023                         $691,324     $584,178
                                  ==========     ==========       ==============  ==========   ==========  
</TABLE>



See accompanying independent auditors report  

                                     IV-10
<PAGE>
 
                                   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/ Jerry A. Newby 
                                        -------------------------
                                        Jerry A. Newby 
                                        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
/s/ Jerry A. Newby           Director and Principal     3/30/99   
-------------------------    Executive Officer       ------------     
(Jerry A. Newby)                                        (Date)        
                                                                    
                             Senior Vice President,                 
/s/ Donald Price             Finance, (Principal        3/30/99     
-------------------------    Financial Officer)      ------------   
(Donald Price)                                          (Date)      
                                                                    
                                                                    
/s/ John D. Holley           Vice President, Finance    3/30/99     
-------------------------    (Principal Accounting   ------------   
(John D. Holley)              Officer)                  (Date)      
                                                                    
/s/ Hal F. Lee                                          3/30/99     
--------------------------   Director                ------------   
(Hal F. Lee)                                            (Date)      
                                                                    
/s/ James E. Mobley                                     3/30/99     
--------------------------   Director                ------------   
(James E. Mobley)                                       (Date)      

/s/ James A. Tolar, Jr.                                 3/30/99    
--------------------------   Director                ------------  
(James A. Tolar, Jr.)                                   (Date)     

/s/ John W. Morris                                      3/30/99   
-------------------------    Director                ------------ 
(John W. Morris)                                        (Date)     
<PAGE>
 
/s/ Milborn N. Chesser                                  3/30/99   
-------------------------    Director                ------------ 
(Milborn N. Chesser)                                    (Date)     
                                              
/s/ James I. Harrison, Jr.                              3/30/99   
--------------------------   Director                ------------ 
(James I. Harrison, Jr.)                                (Date)     
                                                     
/s/ Young J. Boozer                                     3/30/99   
--------------------------   Director                ------------ 
(Young J. Boozer)                                       (Date)     
                                                     
/s/ John R. Thomas                                      3/30/99   
--------------------------   Director                ------------ 
(John R. Thomas)                                        (Date)     
                                                     
/s/ B. Phil Richardson                                  3/30/99   
--------------------------   Director                ------------ 
(B. Phil Richardson)                                    (Date)     
                                                     
/s/ Boyd E. Christenberry                               3/30/99   
--------------------------   Director                ------------ 
(Boyd E. Christenberry)                                 (Date)     
