Fitch: Vesta On ?Watch Negative'

Fitch: Vesta On ?Watch Negative'

NU Online News Service, March 5, 4:20 p.m. EST?Fitch Ratings today placed Vesta Insurance Group Inc. on "Rating Watch Negative" following the insurer's announcement earlier in the week that it will take a $33.5 million charge to reflect an adverse reinsurance arbitration ruling.[@@]

The New York-based Fitch noted that the reinsurance arbitration decision will have a negative effect on Vesta's earnings as well as its insurance units' 2003 year-end capital and the statutory surplus. Vesta is expected to report its 2003 fourth-quarter earnings March 15.

Fitch also said it is concerned about Vesta's statement that it is reviewing the implication of the ruling on other reinsurance recoverables as well as the recoverability of its deferred tax and goodwill assets. "Any impairment of the remaining reinsurance recoverables, the deferred tax asset or the goodwill asset would aggravate [the negative] effect," according to Fitch.

Fitch noted as a positive that Vesta is continuing to review capital alternatives for its life insurance business and that the insurer plans to sell part of its non-standard auto business through an initial public offering. These transactions are expected to generate additional cash, equity and statutory surplus.

The "Watch Negative" status will affect the "B-minus" long-term issuer and debt ratings of the Vesta Insurance Group, "double-B" insurer financial strength ratings of Vesta's property-casualty insurance units, and the "triple-C" capital securities rating of Vesta Capital Trust I.

Vesta Insurance Group said earlier this week it has lost an Australian arbitration case involving a quota-share reinsurance dispute with NRMA Insurance, and that as a result it will take a $33.5 million charge for its 2003 fourth quarter.

Commenting on the dispute, which dates back to July 1997, Chief Executive Norman Gayle said he vehemently disagrees with the panel's final ruling, "and we are evaluating all remaining legal options to fight this decision."

Mr. Gayle said that excluding the financial implications of this ruling, Vesta expects to report positive income from continuing operations for the 2003 fourth quarter as well as for full-year 2003.