EXHIBIT (C)(2)
CONFIDENTIAL 4 NOVEMBER 2007
21st Century Insurance
PRESENTATION TO THE SPECIAL COMMITTEE OF THE BOARD OF DIRECTORS
ALFA
C O R P O RAT I O N
CONFIDENTIAL
Table of Contents
I TRANSACTION SUMMARY 1
II MARKET PERSPECTIVES ON ALFA 3
III SUMMARY VALUATION 8
Appendix
21st Century A Supplementary Financial Information 20
Insurance ALFA
C O R P O RAT I O N
I Transaction Summary
ALFA
C O R P O RAT I O N
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21ST CENTURY INSURANCE I TRANSACTION SUMMARY ALFA
C O R P O RAT I O N
Summary of Transaction
CONSIDERATION ?$22.00 per share in cash
FINANCING
?Alfa Mutual Group will fund the consideration to shareholders from the following sources:
?Cash dividends from the insurance subsidiaries of Alfa Corporation after amendment of the pooling agreement to reflect the relative
statutory surplus of the members of Alfa Mutual Group and the insurance subsidiaries of Alfa Corporation after giving effect to the
transaction
?Borrowings from existing credit facilities of Alfa Corporation
?Cash on hand of Alfa Mutual Group, including from the sale of investment portfolio assets
?Issuance of surplus notes by Alfa Mutual Group, if necessary
CONDITIONS
TO CLOSING
?Customary conditions to closing, including:
?Alfa Corporation shareholder approval
?Regulatory consents and approvals, including for the pooling agreement amendment and cash dividends described above
?Accuracy of representations and warranties and compliance with covenants
Alfa Corporation has minimal business representations and limited covenants
?No order enjoining the transaction
?The following also represent conditions to Alfa Mutual Group’s obligation to close:
?No material adverse effect to the Alfa Mutual Group, including Alfa Corporation
?No law or governmental proceeding that is reasonably likely to materially and adversely affect the benefits that Alfa Mutual Group is
reasonably expected to derive from the transaction
DEAL
PROTECTION
?No-shop provision
?Ability to respond to an unsolicited proposal if the Special Committee determines that not doing so would reasonably be expected to result in
a violation of its fiduciary duties and the proposal is reasonably likely to result in a “Superior Proposal”
TERMINATION
?Customary termination provisions
?Outside date of June 30, 2008 subject to three months extension in order to forestall any governmental action to prohibit the merger
?Termination in connection with a “Superior Proposal” (Company would remain public)
| 1 |
|
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21ST CENTURY INSURANCE I TRANSACTION SUMMARY ALFA
C O R P O RAT I O N
Transaction Analysis
($ in millions, except per share amounts)
| 2 |
|
Source: FactSet (11/2/07) and company filings.
(a) Includes Allstate, Hanover, Horace Mann, Infinity Property & Casualty, Mercury General, Progressive, Safeco, Safety and State Auto.
| (b) |
|
Includes selected transactions since 2002. |
(c) Includes pending and completed minority buy-ins with U.S. targets and transaction values greater than $50 mm. 100% cash transactions only.
| (d) |
|
Includes losses incurred during Q3 2007 related to ownership of MidCountry Financial Corporation. |
| (e) |
|
Excludes accumulated other comprehensive income. |
(f) Excludes shares held by Alfa Mutual Insurance Company, Alfa Mutual Fire Insurance Company and Alfa Mutual General Insurance Company.
x x
Public Minority
Alfa Final Trading Precedent Buy-In
Statistic Price Comparables (a) Transactions (b) Premiums (c)
Per Share $22.00 Financial All
Aggregate Equity Value $1,811 Mean Median Mean Median Services Transactions
Price as a Multiple of:
Operating EPS:
LTM $1.30 17.0x — — 13.6x 13.1x — —
2007E (IBES Median) 1.26 17.5 9.5x 10.2x — — — —
2007E (Management) 1.29 (d) 17.1 — — 16.0 15.0 — —
2008E (IBES Median) 1.30 17.0 9.9 10.2 — — — —
2008E (Management) 1.45 15.2 — — — — — —
Book Value (9/30/07):
Reported $872.3 2.08x 1.37x 1.22x 1.95x 2.00x — —
Adjusted (e) 866.5 2.09 1.43 1.19 1.92 1.97 — —
Premium to Unaffected Price:
1-Day Share Price (7/17/07) $15.20 45% — — — — 25% 27%
1-Week Share Price (7/10/07) 15.18 45% — — — — 39% 33%
4-Week Share Price (6/19/07) 16.73 32% — — — — 33% 35%
52-Week High (11/16/06) 19.85 11% — — — — — —
Memo:
Equity Value to Minority Shareholders (f) $840
x x
II Market Perspectives on Alfa
ALFA
C O R P O RAT I O N
21ST CENTURY INSURANCE II MARKET PERSPECTIVES ON ALFA ALFA
C O R P O RAT I O N
Alfa Historical Trading Performance
| 3 |
|
Source: FactSet (11/2/07).
(a) Includes Allstate, Commerce Group, Hanover Insurance, Horace Mann, Infinity Property & Casualty, Mercury General, Progressive, Safeco, Safety and State Auto. Commerce
Group excluded after 10/30/07 due to announced sale to Mapfre.
PRICE/VOLUME HISTORY INDEXED PRICE HISTORY
12.00
14.00
16.00
18.00
$20.00
16 Jul 04 13 Mar 05 9 Nov 05 8 Jul 06 6 Mar 07 2 Nov 07
0
500,000
1,000,000
1,500,000
2,000,000
2,500,000
3,000,000
Price Volume
17 Jul 07
Alfa announces receipt of $17.60 per
share cash offer from Alfa Mutual
Average Price Pre-Offer Price Post-Offer
| 1 |
|
Week $15.23 1 Year $17.78 |
| 1 |
|
Month 15.87 2 Years 17.12 |
| 3 |
|
Month 16.84 3 Years 16.18 |
Price Post-Offer
Current $17.52
Avg. Since Offer 17.99
90
100
110
120
130
140
150
$160
16 Jul 04 13 Mar 05 9 Nov 05 8 Jul 06 6 Mar 07 2 Nov 07
Alfa Personal Lines (a) S&P 500
Indexed Price
43%
30%
37%
Alfa Pre-Offer
Return CAGR
| 1 |
|
Year (2.9%) (2.9%) |
| 2 |
|
Years 5.6% 2.8% |
| 3 |
|
Years 22.9% 7.1% |
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21ST CENTURY INSURANCE II MARKET PERSPECTIVES ON ALFA ALFA
C O R P O RAT I O N
Historical Valuation: Price/Earnings (Next Twelve Months)
| 4 |
|
Source: FactSet (11/2/07).
(a) Includes Allstate, Commerce Group, Hanover, Horace Mann, Infinity Property & Casualty, Mercury General, Progressive, Safeco, Safety and State Auto. Commerce Group
excluded after 10/30/07 due to announced sale to Mapfre.
1st Quartile 2nd Quartile 3rd Quartile 4th Quartile
Personal Lines (a)
13.4x
10.3x
6.0
12.0
18.0
24.0x
16 Jul 04 4 Jan 05 25 Jun 05 14 Dec 05 4 Jun 06 23 Nov 06 14 May 07 2 Nov 07
Alfa Median
Post-Offer Pre-Offer
Avg. Since As of Average
Current 7/17/07 7/17/07 1 Year 2 Year 3 Year
Alfa: 13.4x 13.5x 11.7x 13.5x 13.3x 13.0x
Personal Lines (a):
High 12.8 13.1 13.5 13.1 14.0 13.8
75th Percentile 10.9 11.4 12.0 11.7 11.7 11.6
Median 10.3 10.5 11.1 10.8 10.7 10.7
25th Percentile 8.3 9.6 10.1 10.2 10.1 9.9
Low 7.0 7.1 7.6 8.7 8.8 8.8
7/17/07
Alfa Mutual
Group Offer
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21ST CENTURY INSURANCE II MARKET PERSPECTIVES ON ALFA ALFA
C O R P O RAT I O N
Historical Valuation: Price/Reported Book Value
| 5 |
|
Source: FactSet (11/2/07).
(a) Includes Allstate, Commerce Group, Hanover, Horace Mann, Infinity Property & Casualty, Mercury General, Safeco, Safety and State Auto. Excludes Progressive, as Progressive is primarily a
direct writer of automobile insurance with no homeowners or life insurance exposure. Progressive operates with substantial operating leverage and exhibits higher return-on-equity
characteristics. Commerce Group excluded after 10/30/07 due to announced sale to Mapfre.
1st Quartile 2nd Quartile 3rd Quartile 4th Quartile
Personal Lines (a)
1.64x
1.22x
0.50
1.00
1.50
2.00
2.50
3.00x
16 Jul 04 4 Jan 05 25 Jun 05 14 Dec 05 4 Jun 06 23 Nov 06 14 May 07 2 Nov 07
Alfa Median
Post-Offer Pre-Offer
Avg. Since As of Average
Current 7/17/07 7/17/07 1 Year 2 Year 3 Year
Alfa: 1.64x 1.69x 1.44x 1.77x 1.77x 1.74x
Personal Lines (a):
High 1.60 1.64 1.65 1.80 1.88 1.94
75th Percentile 1.39 1.49 1.58 1.68 1.71 1.71
Median 1.22 1.35 1.43 1.53 1.57 1.57
25th Percentile 1.09 1.19 1.39 1.38 1.38 1.36
Low 1.06 1.04 1.15 1.21 1.18 1.04
7/17/07
Alfa Mutual
Group Offer
21ST CENTURY INSURANCE II MARKET PERSPECTIVES ON ALFA ALFA
C O R P O RAT I O N
Comparative Valuation Statistics
| 6 |
|
Source: FactSet (11/2/07) and company filings.
| (a) |
|
Based on IBES consensus. |
| (b) |
|
Excludes accumulated other comprehensive income. |
PRICE/2007E EPS (a) PRICE/2008E EPS (a)
10.2x
11.0x 11.3x
7.4x
11.5x
8.9x 8.6x
6.3x
10.2x
0.0
3.0
6.0
9.0
12.0
15.0x
Progress. Mercury
General
State Auto Hanover Infinity
P&C
Safeco Horace
Mann
Allstate Safety
Median: 10.2x
11.7x
11.0x
7.0x
10.8x
10.2x
7.7x 8.3x
9.1x
12.9x
0.0
3.0
6.0
9.0
12.0
15.0x
Progress. Mercury
General
Hanover Infinity
P&C
State Auto Safeco Horace
Mann
Allstate Safety
Median: 10.2x
PRICE/ADJUSTED BOOK VALUE (b) LONG-TERM GROWTH RATE (a)
1.66x
1.01x 1.04x 1.06x 1.11x 1.19x
1.60x
1.40x
2.77x
0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50x
Progress. Safeco Mercury
General
Allstate State Auto Infinity
P&C
Safety Hanover Horace
Mann
Median: 1.19x
12.5%
7.3%
8.0%
9.0%
10.0% 10.0%
15.0%
0.0%
5.0%
10.0%
15.0%
20.0%
Safety Hanover Safeco Infinity P&C State Auto Allstate Progress.
Median: 10.0%
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21ST CENTURY INSURANCE II MARKET PERSPECTIVES ON ALFA ALFA
C O R P O RAT I O N
Summary of Analyst Views
| 7 |
|
Source: FactSet (11/2/07), Bloomberg and equity research.
| (a) |
|
Price target given prior to announcement of offer from Alfa Mutual. |
SELECTED OBSERVATIONS
?Analyst coverage is extremely limited
?No large capital markets banks cover the stock
?Only one price target, which is $19.00 per share (a)
?Takeover price target from FTN Midwest of $19.00 to $22.00 per share
ANALYST CONSENSUS RATING TREND
x x
Price Target Operating EPS
Firm Name Rating Unaffected Takeover 2007E 2008E Date
FTN Midwest Neutral $19.00 $19.00—$22.00 $1.22 $1.27 10/25/07
Fox-Pitt Underperform — — 1.29 1.32 10/24/07
High $1.29 $1.32
Mean 1.26 1.30
Median 1.26 1.30
Low 1.22 1.27
Buy 0% Current Price:
Hold 50% $17.52
Sell 50%
x x
Consensus
RECOMMENDATION SUMMARY
Sell
50%
Hold
50%
CONSENSUS RATING TREND
| 1 |
|
| 2 |
|
| 3 |
|
| 4 |
|
| 5 |
|
| 2 |
|
Nov 06 14 Jan 07 28 Mar 07 9 Jun 07 21 Aug 07 2 Nov 07 |
Rating
15
16
17
18
19
$20
Rating Consensus Share Price
5=Buy 3=Hold 1=Sell
52-Week Total Return
(0.7%)
Price
III Summary Valuation
ALFA
C O R P O RAT I O N
21ST CENTURY INSURANCE III SUMMARY VALUATION ALFA
C O R P O RAT I O N
Management Projections Overview
($ in millions)
The management and employees of Alfa Mutual Group also act as the management and employees of the Company
and provide all services to the Company through an operating agreement
Management does not typically prepare formal projections beyond the upcoming year budget
An annual budget for the upcoming year is usually prepared in November and typically shared with the board of
directors in early December
Management has indicated that a more informal three-year plan is used by management for internal purposes
The financial projections summarized on the following pages were prepared by management specifically in
connection with the current proposal
Alfa Mutual Group’s financial advisor indicated that these projections were used by Alfa Mutual Group in preparing its offer
for the Company, except that management updated the projections based on second quarter results
The financial projections prepared by management include approximately $17.5 mm in technology costs from 2008 – 2012
Most of this amount (~$15 mm) is related to the rollout of the Exceed platform for the auto business
Less than $1 mm is included for business intelligence development
Additional discretionary technology investments of $31 mm are not included in the financial projections
| 8 |
|
SUMMARY OF MANAGEMENT PROJECTIONS
2007E 2008E 2009E 2010E 2011E 2012E
Net Operating Income $105.7 (a) $118.6 $127.4 $139.2 $148.5 $161.5
Net Income 108.3 (a) 112.3 122.2 134.7 144.8 158.1
| (a) |
|
Includes losses incurred during Q3 2007 related to ownership of MidCountry Financial Corporation. |
21ST CENTURY INSURANCE III SUMMARY VALUATION ALFA
C O R P O RAT I O N
Management Projections vs. Analyst Estimates
9
Source: FactSet (11/2/07) and management projections.
| (a) |
|
Includes losses incurred during Q3 2007 related to ownership of MidCountry Financial Corporation. |
| (b) |
|
Based on 2007E-2012E compound annual growth rate of operating EPS. |
Alfa Projections (b)
| (b) |
|
| (a) |
|
2007 – OPERATING EPS 2008 – OPERATING EPS
$1.22 $1.29 $1.29
0.00
0.25
0.50
0.75
1.00
1.25
1.50
$1.75
Alfa
Projection
Fox-Pitt,
Kelton
FTN
Midwest
$1.27 $1.32
$1.45
0.00
0.25
0.50
0.75
1.00
1.25
1.50
$1.75
Alfa
Projection
Fox-Pitt,
Kelton
FTN
Midwest
LONG -TERM GROWTH RAT E (P&C) LONG -TERM GROWTH RAT E (LIFE)
6.4%
8.5%
7.3% 8.0% 9.0% 10.0% 10.0%
12.5%
15.0%
0.0%
5.0%
10.0%
15.0%
20.0%
Safety
Hanover
Safeco
Infinity P&C
State Auto
Allstate
Progressive
Total
P&C
9.0% 9.0%
10.0% 10.4%
0.0%
5.0%
10.0%
15.0%
Alfa Life
Projection
FBL Financial Torchmark Protective
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21ST CENTURY INSURANCE III SUMMARY VALUATION ALFA
C O R P O RAT I O N
Valuation Summary
10
PER SHARE EQUITY VALUATION
IBES
Estimates
Comparable Company
Public Market
Management
Estimates
Precedent
Transactions
Discounted
Dividend
Minority Buy-in
Premiums
52-Week Range
$19.00
$19.85
$14.00
$15.10
$19.00
$17.00
$13.00
$22.50
$23.25
$20.00
$18.50
$17.50
$12 $14 $16 $18 $20 $22 $24
Final Price:
$22.00 per share
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21ST CENTURY INSURANCE III SUMMARY VALUATION ALFA
C O R P O RAT I O N
Public Market Trading Analysis
($ in millions, except per share amounts)
11
Source: FactSet (11/2/07).
| (a) |
|
Based on IBES median estimates. |
| (b) |
|
Excludes accumulated other comprehensive income. |
| (c) |
|
As of 7/17/07. |
x x
Selected Market Statistics
Share FD Equity % 52 Price/GAAP EPS Price/Adj. EPS Growth ROAE Dividend
Price Mkt. Cap Week High 2007E (a) 2008E (a) Book (b) ‘07E—‘08E LTGR (a) 2007E (a) 2008E (a) Yield
Allstate $51.25 $29,454 77.7% 7.4x 7.7x 1.40x (4.3%) 8.0% 19.2% 16.9% 3.0%
Progressive 18.21 12,862 73.7% 11.5 12.9 2.77 (10.8%) 7.3% 19.2% 19.3% 0.2%
Safeco 56.66 5,374 82.2% 8.9 9.1 1.66 (1.6%) 10.0% 17.4% 15.7% 2.8%
Mercury General 50.32 2,761 87.4% 11.3 11.7 1.60 (3.4%) — 13.7% 13.0% 4.1%
Hanover Insurance 44.98 2,360 89.5% 10.2 11.0 1.04 (6.8%) 12.5% 11.0% 9.3% 0.9%
State Auto 26.30 1,094 74.8% 11.0 10.2 1.19 7.3% 9.0% 11.6% 11.0% 2.3%
Horace Mann 16.35 724 72.4% 8.6 8.3 1.01 3.7% — 12.3% 11.8% 2.6%
Infinity P&C 38.92 648 70.8% 10.2 10.8 1.11 (5.9%) 10.0% 11.0% 9.7% 0.9%
Safety 35.12 573 65.1% 6.3 7.0 1.06 (10.9%) 15.0% 16.9% 13.2% 4.6%
High 89.5% 11.5x 12.9x 2.77x 7.3% 15.0% 19.2% 19.3% 4.6%
Mean 77.1% 9.5 9.9 1.43 (3.6%) 10.3% 14.7% 13.3% 2.4%
Median 74.8% 10.2 10.2 1.19 (4.3%) 10.0% 13.7% 13.0% 2.6%
Low 65.1% 6.3 7.0 1.01 (10.9%) 7.3% 11.0% 9.3% 0.2%
Pre-Offer Alfa (IBES) (c) $15.20 $1,240 76.6% 12.0x 11.3x 1.51x 5.9% — 11.6% 11.8% 3.1%
Current Alfa (IBES) 17.52 1,432 88.3% 14.0 13.5 1.65 3.2% — 11.9% 11.4% 2.7%
x 3/31/07 EPS: Book Value: x
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21ST CENTURY INSURANCE III SUMMARY VALUATION ALFA
C O R P O RAT I O N
Public Market Trading Analysis (cont’d)
($ in millions, except per share amounts)
12
Source: FactSet (11/2/07).
| (a) |
|
Based on IBES median estimates. |
(b) Excludes accumulated other comprehensive income. Significant weight was not placed on Progressive in selecting the Price/Book relevant multiple range. Progressive is primarily a direct
writer of automobile insurance with no homeowners or life insurance exposure. Progressive operates with substantial operating leverage and exhibits higher return-on-equity characteristics.
| (c) |
|
Includes losses incurred during Q3 2007 related to ownership of MidCountry Financial Corporation. |
x Selected Market Statistics x
Share FD Equity % 52W Price/GAAP EPS Price/Adj. EPS Growth ROAE Dividend
Price Mkt. Cap High 2007E (a) 2008E (a) Book (b) ‘07E—‘08E LTGR (a) 2007E (a) 2008E (a) Yield
High 89.5% 11.5x 12.9x 2.77x 7.3% 15.0% 19.2% 19.3% 4.6%
Mean 77.1% 9.5 9.9 1.43 (3.6%) 10.3% 14.7% 13.3% 2.4%
Median 74.8% 10.2 10.2 1.19 (4.3%) 10.0% 13.7% 13.0% 2.6%
Low 65.1% 6.3 7.0 1.01 (10.9%) 7.3% 11.0% 9.3% 0.2%
Pre-Offer Alfa (IBES) $15.20 $1,240 76.6% 12.0x 11.3x 1.51x 5.9% — 11.6% 11.8% 3.1%
Current Alfa (IBES) 17.52 1,432 88.3% 14.0 13.5 1.65 3.2% — 11.9% 11.4% 2.7%
Relevant Multiple Range:
Low 10.0x 10.0x 1.20x
High 11.5 13.0 1.70
Based on IBES EPS Estimates
Alfa Statistic (IBES): $1.26 $1.30 $866.5 3.2% — 11.9% 11.4%
Implied Equity Value per Share:
Low $12.55 $12.95 $12.80
High 14.43 16.84 17.99
Reference Equity Value per Share Range $13.00—$17.50
Implied Aggregate Equity Value $1,056—$1,433
Based on Management Projections
Alfa Statistic (Management Projections): $1.29 (c) $1.45 $866.5 12.4% 8.5% 12.8% 12.8%
Implied Equity Value per Share:
Low $12.90 $14.50 $12.80
High 14.84 18.85 17.99
Reference Equity Value per Share Range $14.00—$18.50
Implied Aggregate Equity Value $1,137—$1,515
x x
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21ST CENTURY INSURANCE III SUMMARY VALUATION ALFA
C O R P O RAT I O N
Comparable Company Operating Performance
13
Source: Company filings, SNL Financial and A.M. Best.
Note: Leverage ratios calculated based on Moody’s hybrid security rating guidelines.
| (a) |
|
Excludes accumulated other comprehensive income. |
| (b) |
|
Excludes Alfa Alliance. |
| (c) |
|
Excludes debt associated with consumer finance operations. Source: Company management. |
x x
Selected Operating Statistics
GAAP P&C NPW Growth GAAP Loss Ratio GAAP Combined Ratio SAP NPW/ Debt/ A.M. Best
YTD ‘03 -’06 CAGR YTD ‘04 -’06 Avg. YTD ‘04 -’06 Avg. Surplus Capital (a) Rating
Allstate (1.4%) 1.7% 63.3% 68.5% 87.7% 93.0% 1.39x 18.2% A+
Progressive (2.3%) 5.9% 70.7% 66.5% 91.8% 86.6% 2.84 21.0% A+
Safeco (0.0%) 3.4% 62.7% 61.5% 90.7% 90.0% 1.49 17.6% A
Mercury General (0.3%) 10.3% 67.2% 65.2% 94.3% 92.2% 1.91 6.9% A+
Hanover Insurance 4.4% 1.1% 61.5% 68.5% 94.5% 100.9% 1.58 18.5% A State
Auto (0.4%) 1.0% 61.8% 59.1% 95.3% 91.1% 1.19 11.4% A+
Horace Mann (1.1%) (0.4%) 67.7% 71.3% 91.8% 94.6% 1.68 21.7% AInfinity
P&C 9.6% 6.3% 70.2% 68.7% 93.8% 91.6% 1.99 25.6% A
Safety (1.5%) 3.1% 60.3% 63.4% 87.5% 88.1% 1.36 0.0% A
High 9.6% 10.3% 70.7% 71.3% 95.3% 100.9% 2.84x 25.6%
Mean 0.8% 3.6% 65.0% 65.8% 91.9% 92.0% 1.71 15.7%
Median (0.4%) 3.1% 63.3% 66.5% 91.8% 91.6% 1.58 18.2%
Low (2.3%) (0.4%) 60.3% 59.1% 87.5% 86.6% 1.19 0.0%
Current Alfa 0.8% 10.0% 64.0% 64.3% 92.2% 90.2% 1.38x (b) 10.3% (c) A+
x x
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21ST CENTURY INSURANCE III SUMMARY VALUATION ALFA
C O R P O RAT I O N
Precedent Transactions Analysis
($ in millions)
14
Source: FactSet and company filings.
Note: Minority buy-in transactions shown in bold.
| (a) |
|
Announcement date of final offer. |
| (b) |
|
Fully diluted equity value assuming acquisition of 100% of target. |
| (c) |
|
Excludes accumulated other comprehensive income. |
(d) Excludes net realized investment gains/losses and non-recurring charges. Assumes 35% tax rate for adjustments when no disclosure is available.
| (e) |
|
Based on IBES median estimates. |
x x
Announce % Equity Price/Book Price/Earnings
Date Acquiror Target Acquired Value (b) Reported Adjusted (c) LTM (d) FY1 (e)
10/30/2007 Mapfre The Commerce Group 100.0% $2,275 1.70x 1.65x 11.7x 12.3x
5/15/2007 (a) AIG 21st Century 39.2% 1,988 2.14 2.08 19.5 23.2
5/7/2007 Liberty Mutual Ohio Casualty 100.0% 2,740 1.72 1.95 13.1 15.2
3/2/2007 Zurich Financial Services Bristol West 100.0% 716 2.01 2.00 16.1 15.0
12/5/2006 Fremont Partners/TPG Capital Direct General 100.0% 434 1.67 1.65 14.3 14.2
10/17/2006 Affirmative Insurance USAgencies 100.0% 200 2.19 2.21 10.3 —
11/7/2005 GMAC Insurance MEEMIC Insurance 100.0% 327 2.18 — 10.2 —
7/29/2005 Sentry Insurance Viking Insurance 100.0% 316 2.00 — — —
6/25/2003 AIG GE U.S. Auto & Home 100.0% 250 — — — —
10/31/2000 American National Insurance Farm Family Holdings 100.0% 272 1.32 1.31 13.9 14.0
10/25/2000 State Auto Financial Meridian Insurance 100.0% 246 1.86 1.91 NM NM
7/12/1999 MetLife St. Paul Personal Lines 100.0% 600 — — — —
6/9/1999 Allstate CNA Financial Personal Lines 100.0% 1,165 1.25 — — —
11/16/1998 (a) Allmerica Financial Citizens Corporation 16.8% 1,164 1.27 1.39 15.7 15.8
6/4/1998 (a) Nationwide Mutual ALLIED Group 100.0% 1,512 3.69 3.94 23.4 22.0
6/9/1997 Safeco American States Financial 100.0% 2,827 2.13 2.33 17.4 16.5
2/19/1997 (a) Allmerica Financial Allmerica Property & Casualty 40.5% 1,955 1.27 1.34 16.6 15.2
8/25/1995 Berkshire Hathaway GEICO Corporation 49.4% 4,783 2.88 3.44 21.5 20.7
Since 2002:
High 2.19x 2.21x 19.5x 23.2x
Mean 1.95 1.92 13.6 16.0
Median 2.00 1.97 13.1 15.0
Low 1.67 1.65 10.2 12.3
All Transactions:
High 3.69x 3.94x 23.4x 23.2x
Mean 1.95 2.09 15.7 16.7
Median 1.93 1.95 15.7 15.2
Low 1.25 1.31 10.2 12.3
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21ST CENTURY INSURANCE III SUMMARY VALUATION ALFA
C O R P O RAT I O N
Precedent Transactions Analysis (cont’d)
($ in millions, except per share amounts)
15
Source: FactSet and company filings.
| (a) |
|
Excludes accumulated other comprehensive income. |
(b) Excludes net realized investment gains/losses and non-recurring charges. Assumes 35% tax rate for adjustments when no disclosure is available.
| (c) |
|
Based on IBES median estimates. |
| (d) |
|
Includes losses incurred during Q3 2007 related to ownership of MidCountry Financial Corporation. |
x Price/Book Price/Earnings x
Reported Adjusted (a) LTM (b) FY1 (c)
Since 2002:
High 2.19x 2.21x 19.5x 23.2x
Mean 1.95 1.92 13.6 16.0
Median 2.00 1.97 13.1 15.0
Low 1.67 1.65 10.2 12.3
All Transactions:
High 3.69x 3.94x 23.4x 23.2x
Mean 1.95 2.09 15.7 16.7
Median 1.93 1.95 15.7 15.2
Low 1.25 1.31 10.2 12.3
Relevant Multiple Range:
Low 2.00x 2.00x 14.0x 15.0x
High 2.20 2.20 17.0 18.0
Alfa Statistic (Management Projections) $872.3 $866.5 $1.30 $1.29 (d)
Implied Equity Value Per Share:
Low $21.21 $21.08 $18.16 $19.35
High 23.28 23.13 22.05 23.22
Reference Equity Value Per Share Range $19.00—$23.25
Implied Aggregate Equity Value $1,558—$1,917
x x
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21ST CENTURY INSURANCE III SUMMARY VALUATION ALFA
C O R P O RAT I O N
Discounted Dividend Analysis
($ in millions, except per share amounts)
Management Projections
16
Source: Company information.
Note: Cash flows discounted to 9/30/07.
| (a) |
|
Assumed pre-tax annual cost savings of $5 million, tax-effected at 35% and capitalized at 10.0x. |
(b) Excludes shares held by Alfa Mutual Insurance Company, Alfa Mutual Fire Insurance Company and Alfa Mutual General Insurance Company.
Projected
For the Fiscal Year Ended December 31,
4Q 07E 2008E 2009E 2010E 2011E 2012E
Free Cash Flows
P&C Segment Dividends to Hold Co. $7.9 $36.0 $39.1 $43.1 $46.3 $50.6
Life Segment Dividends to Hold Co. 0.0 0.0 0.0 0.0 0.0 0.0
Other Cash Flows 0.0 0.0 0.0 0.0 0.2 1.1
Total Free Cash Flows $7.9 $36.0 $39.1 $43.1 $46.5 $51.7
Discounted Cash Flows
Equity Value Equity Value per Share
Discount P/E Exit Multiple P/E Exit Multiple
Rate # 12.5x 13.0x 13.5x 12.5x 13.0x 13.5x
8.0% # $1,529.7 # $1,583.6 # $1,637.6 $18.67 $19.31 $19.95
Standalone 9.0% # 1,461.5 # 1,512.9 # 1,564.3 17.85 18.47 19.08
10.0% # 1,397.1 # 1,446.1 # 1,495.0 17.09 17.67 18.25
Allocation of Capitalized Value to Equity Equity Value
Alfa Corporation Shareholders Value (a) per Share
Public Company All Shareholders $32.5 $0.40
Cost Savings Minority Shareholders (b) 32.5 $0.86
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21ST CENTURY INSURANCE III SUMMARY VALUATION ALFA
C O R P O RAT I O N
Discounted Dividend Analysis (cont’d)
($ in millions, except per share amounts)
P&C Operating Leverage Sensitivities
17
Management projections contemplate delevering of the P&C operations over the projection period
P&C operating leverage sensitivities based on constant NPW/Surplus ratio throughout projection period
Range of leverage ratios selected based on historical Alfa leverage and leverage of public comparables
Subject to statutory dividend limitations
Assumes 9.0% discount rate
Discounted Cash Flows
Equity Value Equity Value per Share
P/E Exit Multiple P/E Exit Multiple
12.5x 13.0x 13.5x 12.5x 13.0x 13.5x
Management Projections $1,461.5 $1,512.9 $1,564.3 $17.85 $18.47 $19.08
Discounted Cash Flows
Equity Value Equity Value per Share
NPW/ P/E Exit Multiple P/E Exit Multiple
Surplus # 12.5x 13.0x 13.5x 12.5x 13.0x 13.5x
Operating 1.40x # $1,560.3 # $1,609.1 # $1,657.8 $19.03 $19.61 $20.18
Leverage 1.50x # 1,577.6 # 1,625.9 # 1,674.1 19.24 19.81 20.38
Sensitivities 1.60x # 1,590.7 # 1,638.6 # 1,686.4 19.39 19.96 20.52
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21ST CENTURY INSURANCE III SUMMARY VALUATION ALFA
C O R P O RAT I O N
Discounted Dividend Analysis (cont’d)
($ in millions, except per share amounts)
18
Sensitivities assume annual changes in growth rate of net premiums written and combined ratio for 2009E to 2012E
Assumes 9.0% discount rate
Assumes 13.0x P/E exit multiple
P&C NPW Growth and Combined Ratio Sensitivities
Management Projections
Equity Value per Share
Change in NPW Growth Rate
# (1.0%) 0.0% 1.0% 2.0%
(2.0%) # $19.52 $19.88 $20.26 $20.65
Change in (1.0%) # 18.83 19.18 19.53 19.89
Combined 0.0% # 18.15 18.47 18.79 19.13
Ratio 1.0% # 17.46 17.75 18.05 18.36
2.0% # 16.77 17.04 17.32 17.60
Constant Leverage at 1.40x
Equity Value per Share
Change in NPW Growth Rate
(1.0%) 0.0% 1.0% 2.0%
$20.89 $21.18 $21.47 $21.77
20.13 20.39 20.66 20.93
19.38 19.61 19.85 20.09
18.61 18.82 19.03 19.25
17.85 18.03 18.22 18.41
Constant Leverage at 1.50x
Equity Value per Share
Change in NPW Growth Rate
# (1.0%) 0.0% 1.0% 2.0%
(2.0%) # $21.08 $21.37 $21.68 $21.99
Change in (1.0%) # 20.32 20.59 20.87 21.15
Combined 0.0% # 19.57 19.81 20.05 20.31
Ratio 1.0% # 18.81 19.02 19.24 19.47
2.0% # 18.04 18.23 18.42 18.62
Constant Leverage at 1.60x
Equity Value per Share
Change in NPW Growth Rate
(1.0%) 0.0% 1.0% 2.0%
$21.22 $21.53 $21.83 $22.15
20.48 20.74 21.02 21.31
19.71 19.96 20.21 20.48
18.95 19.18 19.41 19.64
18.19 18.39 18.59 18.80
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21ST CENTURY INSURANCE III SUMMARY VALUATION ALFA
C O R P O RAT I O N
Summary Minority Buy-In Premiums
19
Source: SDC (11/2/07).
Key assumptions for precedents include:
Pending and completed transactions announced since January 1, 1997
Minority buy-in transactions (U.S. public targets) with offer value in excess of $50 million
100% cash consideration
At least 51% held at announcement and 100% ownership after transaction
x x
SUMMARY MINORITY BUY-IN PREMIUMS
Number of 1-Day 1-Week 4-Week
Transactions Mean Median Mean Median Mean Median
Implied Equity Value Per Share
1-Day 1-Week 4-Week
Premium to Unaffected Alfa Share Price:
25% $19.00 $18.98 $20.91
30% 19.76 19.73 21.75
35% 20.52 20.49 22.59
x x
FINANCIAL
SERVICES 15 33% 25% 36% 39% 34% 33%
ALL OTHER
INDUSTRIES 46 40% 28% 42% 32% 49% 37%
TOTAL 61 38% 27% 40% 33% 46% 35%
Appendix
ALFA
C O R P O RAT I O N
A Supplementary Financial Information
ALFA
C O R P O RAT I O N
21ST CENTURY INSURANCE A SUPPLEMENTARY FINANCIAL INFORMATION ALFA
C O R P O RAT I O N
Cost of Equity Analysis
20
| (a) |
|
Source: Ibbotson Associates. Based on geometric mean. |
x x
Levered Cost of Debt/ Debt/ Unlevered
Public Comparables Beta Equity Mkt. Cap. Total Cap. Beta
Allstate 0.98 9.3% 19.1% 16.1% 0.87
Hanover 0.92 9.0% 21.8% 17.9% 0.81
Horace Mann 0.97 9.2% 27.5% 21.6% 0.82
Infinity Property & Casualty 0.88 8.8% 30.8% 23.5% 0.73
Mercury General 0.67 7.7% 4.6% 4.4% 0.65
Progressive 1.13 10.0% 16.9% 14.5% 1.01
Safeco 0.80 8.4% 13.1% 11.6% 0.73
Safety 0.93 9.0% 0.0% 0.0% 0.93
State Auto 0.96 9.2% 10.8% 9.7% 0.90
Mean 0.91 9.0% 16.1% 13.3% 0.83
Median 0.93 9.0% 16.9% 14.5% 0.82
Alfa 0.78 8.3% 7.0% 6.5% 0.75
Debt/ Debt/ Relevered Cost of
Total Cap. Equity Beta Equity Assumptions
0% 0% 0.82 8.5% Risk Free Rate (U.S. 10-Year Note as of 11/2/07) 4.3%
5% 5% 0.85 8.6% Market Risk Premium 5.1% (a)
10% 11% 0.88 8.8% Marginal Tax Rate 35.0%
15% 18% 0.91 9.0% Definitions
20% 25% 0.95 9.2% Debt: Financial Debt + Minority Interest
25% 33% 1.00 9.4% Total Capital: Debt (Book Value) + Equity (Market Capitalization)
30% 43% 1.05 9.6% Levered Beta: Barra’s predicted beta, from U.S. long-term equity model (10/31/07)
x x
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21ST CENTURY INSURANCE A SUPPLEMENTARY FINANCIAL INFORMATION ALFA
C O R P O RAT I O N
Minority Buy-In Premiums
21
Source: SDC (11/2/07).
x x
Financial Services
Announ. Effective Acquisition Premiums
Date Date Acquiror Target 1-Day 1-Week 4-Week
2/22/2007 9/28/2007 American Financial Group Great American Financial Resources 13% 15% 12%
1/24/2007 9/27/2007 AIG 21st Century Insurance 33% 31% 23%
11/20/2006 4/20/2007 Toronto-Dominion Bank TD Banknorth 7% 8% 7%
3/21/2006 5/24/2006 Erie Indemnity Erie Family Life Insurance 7% 17% 21%
10/10/2001 11/27/2001 Toronto-Dominion Bank TD Waterhouse Group 53% 49% 33%
6/6/2001 12/13/2001 Liberty Mutual Insurance Liberty Financial 25% 40% 40%
3/26/2001 8/21/2001 CSFB CSFBdirect 140% 102% 74%
7/24/2000 1/11/2001 Phoenix Home Life Mutual Phoenix Investment Partners 44% 40% 63%
3/27/2000 6/27/2000 Hartford Fin Services Group Hartford Life (ITT Hartford) 19% 40% 43%
3/21/2000 4/20/2000 Citigroup Travelers Property Casualty 25% 39% 35%
1/19/2000 4/19/2000 Metropolitan Life Insurance Conning Corporation 16% 39% 52%
10/27/1998 12/14/1998 Allmerica Financial Citizens (Hanover Insurance) 21% 17% 21%
10/22/1998 4/29/1999 Bank of America National Trust BA Merchant Services (Bank of America) 47% 56% 42%
6/2/1997 7/15/1997 Associated Insurance Acordia 13% 12% 26%
1/13/1997 9/2/1997 Zurich Versicherungs GmbH Zurich Reinsurance Centre 28% 28% 23%
Mean 33% 36% 34%
Median 25% 39% 33%
x x
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21ST CENTURY INSURANCE A SUPPLEMENTARY FINANCIAL INFORMATION ALFA
C O R P O RAT I O N
Minority Buy-In Premiums (cont’d)
22
Source: SDC (11/2/07).
x x
All Other Industries
Announ. Effective Acquisition Premiums
Date Date Acquiror Target 1-Day 1-Week 4-Week
10/9/2006 6/22/2007 VNU NV NetRatings 44% 45% 46%
2/6/2006 5/16/2006 Lafarge SA Lafarge North America 33% 34% 38%
9/1/2005 11/9/2005 IYG Holding 7-Eleven 32% 31% 14%
7/8/2005 3/22/2006 Absolut Spirits Cruzan International 12% 9% 9%
7/1/2005 10/28/2005 Santos Ltd. Tipperary 19% 16% 36%
2/21/2005 7/26/2005 Novartis AG Eon Labs 11% 8% 23%
1/27/2005 4/21/2005 Danisco A/S Genencor International 24% 22% 16%
8/2/2004 12/8/2004 Cox Enterprises Cox Communications 26% 25% 25%
6/2/2003 8/22/2003 ICN Pharmaceuticals Ribapharm 23% 24% 50%
12/13/2002 9/29/2003 Savia SA de CV (Pulsar) Seminis 48% 45% 45%
7/26/2002 2/28/2003 Samuel J. Heyman International Specialty Products 4% 2% 34%
2/19/2002 4/11/2002 Sabre Holdings Travelocity.com 46% 40% 22%
8/21/2001 2/26/2002 Thermo Electron Spectra Physics 28% (1%) (8%)
5/30/2001 9/6/2001 Bacou SA Bacou USA 22% 17% 11%
5/23/2001 9/28/2001 Electronic Data Systems Unigraphics Solutions 53% 69% 81%
5/14/2001 10/31/2001 Seneca Investments Agency.com 63% 45% 162%
12/29/2000 7/2/2001 Benesse Corporation Berlitz International 106% 103% 113%
12/14/2000 8/31/2001 O. Gene Bicknell NPC International 11% 7% 32%
10/27/2000 3/16/2001 Enron Azurix Corporation (Enron) 135% 135% 135%
9/21/2000 3/9/2001 Ford Motor Hertz 46% 43% 12%
3/17/2000 9/15/2000 BP Amoco PLC Vastar Resources 16% 35% 69%
3/14/2000 6/20/2000 Alcoa Howmet International 14% 13% 14%
1/31/2000 4/20/2000 Thermo Instrument Systems Thermo BioAnalysis (Thermo) 51% 56% 53%
1/31/2000 5/12/2000 Thermo Instrument Systems ThermoQuest 36% 47% 62%
1/31/2000 5/12/2000 Thermo Instrument Systems Thermo Optek 7% (5%) 41%
1/19/2000 2/9/2000 Elyo Trigen Energy 38% 42% 32%
12/8/1999 6/19/2000 Heico Cos. Robertson-Ceco 46% 44% 42%
x x
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C O R P O RAT I O N
Minority Buy-In Premiums (cont’d)
23
Source: SDC (11/2/07).
x x
All Other Industries (cont’d)
Announ. Effective Acquisition Premiums
Date Date Acquiror Target 1-Day 1-Week 4-Week
12/1/1999 4/19/2000 Boise Cascade Boise Cascade Office Products 43% 55% 60%
10/20/1999 6/6/2000 Thermo Electron Thermoretec 27% 33% 35%
6/3/1999 6/16/1999 Roche Holding AG Genentech 279% 282% 279%
5/7/1999 7/30/1999 McDermott International J. Ray McDermott SA 17% 13% 19%
4/12/1999 6/30/1999 Investor Group Meadowcraft 65% 63% 78%
4/1/1999 8/15/1999 Vivendi SA Aqua Alliance 29% 19% 102%
3/24/1999 11/4/1999 Warburg Pincus Ventures Knoll Inc. (Warburg Pincus) 84% 52% 46%
3/21/1999 7/1/1999 Viacom Spelling Entertainment Group 8% 43% 55%
10/16/1998 2/12/1999 Affiliated Computer Services BRC Holdings 17% 17% 15%
9/23/1998 12/17/1998 Usinor SA J&L Specialty Steel 100% 113% 38%
4/30/1998 11/2/1998 Dow AgroSciences Mycogen (Dow AgroSciences) 42% 40% 52%
3/17/1998 7/31/1998 Investor Group BET Holdings 4% 14% 18%
3/5/1998 5/20/1998 Xerox XLConnect Solutions (11%) 15% 22%
1/22/1998 9/29/1998 Koninklijke KNP BT NV BT Office Products International 33% 79% 79%
1/8/1998 1/30/1998 Rayonier Rayonier Timberlands LP 11% 25% 18%
6/26/1997 11/26/1997 Rhone-Poulenc SA Rhone-Poulenc Rorer 22% 23% 29%
6/20/1997 3/30/1998 Waste Management Wheelabrator Technologies 27% 28% 31%
6/3/1997 1/15/1998 FH Faulding & Co. Faulding Inc. (FH Faulding & Co.) 26% 23% 46%
5/22/1997 7/9/1998 Texas Industries Chaparral Steel 20% 25% 34%
Mean 40% 42% 49%
Median 28% 32% 37%
All Transactions:
Mean 38% 40% 46%
Median 27% 33% 35%
x x