Best Says Vesta No Longer Secure

NU Online News Service, April 1, 3:02 p.m. EST?Vesta Insurance said yesterday that it might divest itself of someproperty-casualty subsidiaries after A.M. Best Co. announced it haddowngraded the ratings of Vesta p-c affiliates.

A.M. Best said it dropped the Birmingham, Ala. Group'ssubsidiaries rating from "B-plus" (very good) to "B" (fair). Itsaid the group's existing senior debt had been assigned a "b-''rating and its deferrable capital securities were rated "ccc."

Best said the ratings are stable.

The revision reflects "deterioration in the group'srisk-adjusted capitalization, volatile operating performance trendsand uncertainty associated with management's capital enhancementinitiatives," Best said. Best also questioned how successful a planto sell off business might be.

Vesta earlier said it is examining selling off some lifeinsurance business.

Norman W. Gayle, III, president and chief executive officer ofVesta said the company was disappointed with the Oldwick, N.J.rating firm's action.

He said Vesta does not "believe that the rating fully reflectsour continued improvement in operating trends, and theprofitability of our continuing operations.

Best said that the company's recent results had been negativedue to the private passenger automobile line, adverse developmentin reserves on discontinued lines and poor homeowner's results inthe book acquired from Shelby Insurance in 1997.

The rating firm found the insurer has an above average expensestructure. It cited lackluster operating performance and anunfavorable arbitration decision last year that Best said createddouble digit surplus declines.

Premium growth coupled with a surplus drop left the company witha capitalization that "no longer supports a Secure rating," Bestsaid.

Mr. Gayle said Vesta management is "committed to improving oursurplus leverage ratios, capital position and maximizingshareholder value.

"From May, 1999 to February, 2000, Vesta operated with a 'B'rating from A.M. Best, and we intend to regain a 'B-plus' ratingfrom A.M. Best within the same timetable as before," Mr. Gaylevowed.

The company said it has hired financial advisor, Cochran,Caronia & Co., to evaluate alternatives for its property andcasualty businesses.

Vesta noted its earlier announcement that it has engaged WilliamBlair & Co. to pursue capital raising alternatives, including apossible divestiture, for Vesta's primary life insurancesubsidiary, American Founders.

Vesta said since 2000 its statutory capital and surplus declineddue to lower than expected arbitration awards and changes inestimates of disputed reinsurance recoverables, reservestrengthening in discontinued operations, and significant premiumgrowth.

The Vesta affiliates downgraded were, Vesta Fire InsuranceCorporation, Affirmative Insurance Company, Florida SelectInsurance Company, Hawaiian Insurance & Guar Co Ltd., InsuraProperty & Casualty Ins Co Inc., Shelby Casualty InsuranceCompany, Shelby Insurance Company, Texas Select Lloyds InsuranceCompany, Vesta Insurance Corporation.