The rating actions follow VTA's announcement of several events including: an adverse jury verdict in a reinsurance dispute with an estimated cost of $10 million to $15 million, an increase in its estimate of third-quarter hurricane losses to $60.6 million and a cancellation of the planned sale of its life insurance subsidiary, American Founders Financial Corporation. The sale of the life insurance subsidiary had been expected to generate a gain for statutory accounting purposes. Additionally, Fitch had previously been anticipating net hurricane losses in a range from $45 million to $55 million. The losses recognized from these recent events will likely offset the previously announced gain from the IPO of Vesta's nonstandard auto insurance subsidiary, Affirmative Insurance Holdings (AFFM), and the $3 million gain on the resolution of another reinsurance dispute, with Dorinco Reinsurance Company. Fitch now expects that statutory surplus has declined moderately in the third quarter of 2004.
Fitch understands that VTA is developing a plan to improve the statutory capitalization of its insurance subsidiaries and is evaluating its alternatives related to its life insurance business.
Key factors in resolving the Rating Watch will be VTA's success in its efforts to restore statutory capital and the economic impact of its ultimate decision regarding the life insurance subsidiary.
Vesta Insurance Group, Inc., headquartered in Birmingham, AL, is a holding company for a group of insurance companies.
The following ratings are downgraded and placed on Rating Watch Negative by Fitch:
Florida Select Insurance Co.
Hawaiian Ins. & Guaranty Co.
Shelby Casualty Insurance Co.
The Shelby Insurance Co.
Vesta Fire Insurance Corporation
Vesta Insurance Corporation
Texas Select Lloyds Insurance Co.
-- Insurer financial strength downgraded to 'BB-' from 'BB'.
Vesta Insurance Group, Inc.
-- Long-term issuer affirmed downgraded to 'CCC' from 'B-';
-- Senior debentures 8.75% due July 15, 2025 downgraded to 'CCC' from 'B-'.
Vesta Capital Trust I
-- Deferrable capital securities 8.525% due Jan. 15, 2027 downgraded to 'CCC-' from 'CCC'.
Contacts
Fitch Ratings, Chicago