Best Says Vesta No Longer Secure

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 some property-casualty subsidiaries after A.M. Best Co. announced it had downgraded the ratings of Vesta p-c affiliates.

A.M. Best said it dropped the Birmingham, Ala. Group's subsidiaries rating from "B-plus" (very good) to "B" (fair). It said 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's risk-adjusted capitalization, volatile operating performance trends and uncertainty associated with management's capital enhancement initiatives," Best said. Best also questioned how successful a plan to sell off business might be.

Vesta earlier said it is examining selling off some life insurance business.

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

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

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

The rating firm found the insurer has an above average expense structure. It cited lackluster operating performance and an unfavorable arbitration decision last year that Best said created double digit surplus declines.

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

Mr. Gayle said Vesta management is "committed to improving our surplus leverage ratios, capital position and maximizing shareholder 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' rating from A.M. Best within the same timetable as before," Mr. Gayle vowed.

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

Vesta noted its earlier announcement that it has engaged William Blair & Co. to pursue capital raising alternatives, including a possible divestiture, for Vesta's primary life insurance subsidiary, American Founders.

Vesta said since 2000 its statutory capital and surplus declined due to lower than expected arbitration awards and changes in estimates of disputed reinsurance recoverables, reserve strengthening in discontinued operations, and significant premium growth.

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