A.M. Best Downgrades and Assigns Ratings to Vesta Insurance Group; Ratings Remain Under Review

OLDWICK, N.J. March 08 (BestWire) — A.M. Best Co. has downgraded the financial strength rating (FSR) to C++ (Marginal) from B (Fair) and has assigned issuer credit ratings (ICR) of “b” to Vesta Insurance Group (Vesta) and its property/casualty affiliates. Concurrently, A.M. Best has downgraded the ICR to “cc” from “b” of Vesta’s parent, Vesta Insurance Group, Inc. [Other OTC: VTA.PK].  
 
Additionally, A.M. Best has downgraded the senior debt ratings to “cc” from “b” of the parent company’s $100 million 8.75% senior unsecured debentures, due 2025 and to “c” from “ccc+” of Vesta Capital Trust I’s $100 million 8.525% deferrable capital securities, due 2027. All ratings are under review with negative implications. All companies are located in Birmingham, Ala. 
 
These rating actions reflect Vesta’s continued deterioration in risk-adjusted capitalization through year-end 2005 due to higher than anticipated losses associated with hurricanes in 2005, combined with other reductions of statutory surplus, including changes in accounting estimates due to an adverse arbitration decision, changes in estimates of reinsurance recoverables and reserve strengthening in discontinued operations. Vesta has recently appointed a new chief executive officer and a new chief financial officer, and new management is actively working with third parties to structure a solution to the capital shortfalls. Although Vesta has previously executed capital enhancement plans, there is execution risk associated with new management’s capital initiatives. Previous capital initiatives included the sale of its nonstandard automobile operation through an initial public offering; its subsequent sale to private equity funds and the sale of its life operations to private equity funds. However, the hurricane losses experienced in 2005 largely offset the surplus enhancements realized through those transactions and Vesta’s current capital position is inadequate relative to its current rating level. 
 
In addition, uncertainty exists with the holding company’s financial position, pending the filing of its outstanding 2004 annual statement filing and various 2005 quarterly statement filings. The ratings were previously placed under review primarily due to a deterioration of Vesta’s risk-adjusted capitalization due to losses associated with hurricanes in 2004 and uncertainty regarding the execution of management’s capital enhancement plans. 
 
The ratings will remain under review pending filing of the 2004 and subsequent parent company financials as well as A.M. Best’s meeting with management regarding ongoing strategic and capital-raising initiatives. 
 
The FSR has been downgraded to C++ (Marginal) from B (Fair) and ICRs of “b” have been assigned to Vesta Insurance Group and its following property/casualty affiliates: 
 
— Vesta Fire Insurance Corp. 
 
— Florida Select Insurance Co. 
 
— The Hawaiian Insurance & Guaranty Co. Ltd. 
 
— Shelby Casualty Insurance Co. 
 
— The Shelby Insurance Co. 
 
— Texas Select Lloyds Insurance Co. 
 
— Vesta Insurance Corp. 
 
The ICR has been downgraded to “cc” from “b” for Vesta Insurance Group Inc.  
 
The following debt ratings have been downgraded: 
 
Vesta Insurance Group— 
 
— to “cc” from “b” on $100 million 8.75% senior unsecured debentures, due 2025 
 
Vesta Capital Trust I— 
 
— to “c” from “ccc+” on $100 million 8.525% deferrable capital securities, due 2027