VESTA RELEASES Q4 NUMBERS:

Alabama-based Vesta Insurance Group Inc. reported results for its fourth quarter and full year ended Dec. 31, 2003 that included a $118.8 million charge—$28.9 million cash and $89.9 million non-cash—to write-off recoverables associated with a reinsurance arbitration ruling, and to establish a full valuation allowance for its entire net deferred tax asset in accordance with Statement of Financial Accounting Standards (SFAS) No. 109, “Accounting for Income Taxes.” The company also announced that its Board of Directors has deferred consideration of cash dividends on its common stock until the company’s upcoming capital initiatives have been completed. In addition, Vesta announced that it has entered into a definitive agreement to sell American Founders Financial Corporation for approximately $63.5 million dollars. The transaction is subject to regulatory approval and is expected to close in the second quarter. The closing of the sale of American Founders will result in an estimated GAAP gain of $5 million and a statutory gain of approximately $19.5 million. On a statutory basis, the impact of writing down the reinsurance recoverables associated with the arbitration rulings is approximately $55.8 million. Including the impact of the potential sale of American Founders, statutory capital was estimated to be approximately $165 million at March 31, 2004, which is approximately 7 percent below the statutory capital level as of Sept. 30, 2003. As disclosed on March 2, 2004, an arbitration panel ruled against Vesta in a 6-year reinsurance dispute with NRMA Insurance Ltd. concerning the 1997 20 percent whole account quota share contract. As a result of the ruling, Vesta incurred a previously announced $33.5 million pre-tax charge to fourth quarter earnings associated with the NRMA ruling. Vesta considered the NRMA ruling in the evaluation of the recoverability of other amounts due from the other participants on the same reinsurance treaty as well as another, unrelated treaty. Although there are reportedly distinct facts and circumstances underlying and affecting Vesta’s disputes with those other participants, for financial reporting purposes, the company concluded that those amounts may not ultimately be collected. Accordingly, Vesta recorded an additional pre-tax charge of $32.4 million in the fourth quarter of 2003, $30.1 million of which was related to other balances recoverable from other participants in the 20 percent whole account quota share contract. The total after-tax charge related to the reinsurance recoverables write-down in the fourth quarter is $43.4 million. The recording of this charge does not impact Vesta’s intention to actively arbitrate with the other participants on the 20 percent whole account quota share contract. Additionally, the company has filed a motion to vacate the NRMA arbitration award in U.S. District Court on the grounds of the evident partiality of the umpire.

Topics Reinsurance