Vesta Put Under A.M. Best Review

NU Online News Service, Nov. 15, 3:43 p.m.EDT?Four days before Vesta Insurance Group Inc. was due toreport its earnings, A.M. Best Co. announced it had placed thefinancial strength ratings of the property-casualty affiliates ofthe Birmingham, Ala.-based company under review with negativeimplications.[@@]

Vesta management did not immediately respond to a request forcomment.

The Best rating firm in Oldwick, N.J. currently has the group'sinsurers rated "B" (Fair).

Best said it also assigned an issuer credit rating of "b" toVesta Insurance Group, placing it under review with negativeimplications. At the same time, various debt ratings were also putunder review--the senior debt ratings of "b" on $100 million 8.75percent senior unsecured debentures, due 2025, and "triple-c-plus"on $100 million 8.525 percent deferrable capital securities, due2027.

The rating actions, Best said, reflect Vesta's significantdeterioration in capital and its ongoing uncertainty regardingmanagement's capital enhancement initiatives.

Vesta's reduction in capital was driven primarily by a $60.6million loss stemming from the four Florida hurricanes in Augustand September and a recent jury verdict received on a previouslydisclosed litigation case, Muhl v. Vesta.

On Nov. 9 a jury in New York Supreme Court Manhattan, a countylevel court, ruled against the company in a case involving areinsurance claims dispute with Midland Insurance Company, which isin liquidation. (Editor's Note: This decision does not involveMidland Company, an active, unrelated Cincinnati-basedinsurer.)

Vesta has estimated that the verdict could cost it between $10million to $15 million and will result in a loss from discontinuedoperations in the third quarter. This means Vesta's risk-adjustedcapitalization has fallen below its current rating level, Bestsaid.

The rating firm also noted that Vesta recently announced that ithas terminated the agreement to sell its life insurance operationsto an unaffiliated investor group.

Vesta terminated the agreement Nov. 5, following the buyers'failure to close after the transaction received regulatory approvalon Oct. 11.

As a consequence, Best said the financial strength rating of "B"(fair) of American Founders Life Insurance Company, Texas, remainsunder review with negative implications. Vesta is currentlyevaluating its alternatives related to American Founders Life,including retaining and growing the business or pursuing adivestiture, Best said.

Best said the Vesta ratings will remain under review pendingA.M. Best's meeting with management as well as completion ofVesta's capital enhancement initiatives.

While the holding company has access to additional funds for theinsurance operations, execution risk remains. In the absence ofimproved risk-adjusted capitalization, the ratings will likely bedowngraded, Best said.