Additionally, A.M. Best has assigned a "b-" rating to the existing senior debt issued by Vesta Insurance Group Inc. and "ccc" on its deferrable capital securities. The rating outlooks are stable.
The downgrade reflects deterioration in the group's risk-adjusted capitalization, volatile operating performance trends and uncertainty associated with the success of management's capital enhancement initiatives.
Recent results have been negative due to unanticipated severity in the private passenger automobile line, adverse development in reserves on discontinued lines of business and continuing poor homeowner's results in the insurance portfolio acquired from Shelby Insurance in 1997.
Moreover, results continue to be impacted by Vesta's above average expense structure. This lackluster operating performance coupled with an unfavorable arbitration decision in 2002 contributed to double digit declines in surplus in each of the last two years. When combined with significant premium growth, Vesta's premium leverage has increased considerably resulting in capitalization that no longer supports a Secure rating.
In response to these trends, Vesta management has taken steps to improve the financial position of the entire organization including the possible sale of certain of its insurance subsidiaries, debt restructuring, reduced overhead costs, significant rate increases and exiting a number of states where underwriting results have been poor.
Furthermore, the group entered into a 50% quota share agreement on its Texas property business. While these initiatives may potentially stabilize Vesta's capitalization, considerable uncertainty remains over the intermediate term with regards to the sustained success of these initiatives.
The financial strength rating has been lowered to B (Fair) for the following Vesta Insurance Group property/casualty affiliates:
-- 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
A.M. Best Co., established in 1899, is the world's oldest and most authoritative insurance rating and information source. For more information, visit A.M. Best's Web site at www.ambest.com.