Fitch Withdraws Vesta's Preferred Rtg; Rtg Outlook To Evolving.

Business Editors

CHICAGO--(BUSINESS WIRE)--Feb. 9, 2001

Fitch commented today on a series of transactions recently announced by the Vesta Insurance Group (NYSE:VTA). As the result of VTA's retirement of all outstanding shares of its Series A convertible preferred stock, Fitch also withdraws its `B+' rating on the retired securities.

On Jan. 5, VTA announced that it had acquired a 52% economic interest in Instant Insurance Holdings, Inc., a company that uses Internet and telephone platforms to distribute non-standard auto insurance for a combination of cash and VTA common stock. VTA also announced the acquisition of Aegis Financial Corporation, the parent company of States General Life Insurance Company, for a combination of cash and stock. Additionally, VTA announced its intent to create an incentive stock plan for its agency force and the exchange of $8 million face amount of its trust-preferred securities for VTA common stock.

On Jan. 30, VTA announced the exchange of an additional $3.5 million of trust-preferred securities for its common stock. VTA also announced the retirement of its series A convertible preferred stock. The convertible preferred stock was converted into VTA common stock, which was then repurchased by VTA for $47.2 million, $15 million of which was paid in cash and $32.2 million in the form of a 120-day note. Concurrent with the repurchase, VTA filed to amend its registration statement so that it could offer the repurchased shares for sale.

Fitch notes that the two acquisitions are consistent with VTA's previously announced strategies and sees potentially positive implications from the transactions, including a more diversified, stable stream of earnings and enhanced financial flexibility if VTA's common stock price rises as a result. Offsetting these positives are the implementation risks associated with any acquisition.

Additionally, Fitch views the transactions where VTA exchanged its common stock for trust-preferred securities as positively impacting its credit ratings as both actions reduce the company's financial leverage and increase its fixed-charge coverage.

However, Fitch notes that the repurchase of the common shares issued upon the conversion of the convertible preferred stock has potentially negative implications to the company's credit ratings because it removes capital from the company and increases its financial leverage. Fitch views the amended registration statement as an indication that management expects these changes in capital and leverage to be temporary. However, there is a risk that VTA will not be successful in reselling the shares, or will receive less than the $8 per share price it paid in the repurchase. Fitch is currently taking no action on the remaining ratings, but will continue to monitor VTA's capital position and may make changes to the ratings if it is determined that the change is other than temporary. As a result of these uncertainties, the Rating Outlook was changed to Evolving.

Vesta Insurance Group, Inc., headquartered in Birmingham, Ala., is a holding company for a group of insurance companies.

Entity/Issue/Type                Action     Rating/Outlook

Vesta Insurance Group, Inc.
--Convertible preferred stock    Withdrawn   `B+'.

  Fitch ratings unchanged, but Rating Outlook changed to Evolving:

Affirmative Insurance Co.
--Financial strength rating                 `BBB-'/Evolving;

Hawaiian Ins. & Guaranty Co.
--Financial strength rating                 `BBB-'/Evolving;

Insura Property and Casualty Ins. Co.
--Financial strength rating                 `BBB-'/Evolving;

Sheffield Insurance Corporation
--Financial strength rating                 `BBB-'/Evolving;

Shelby Casualty Insurance Co.
--Financial strength rating                 `BBB-'/Evolving;

The Shelby Insurance Co.
--Financial strength rating                 `BBB-'/Evolving;

Vesta Fire Insurance Corporation
--Financial strength rating                 `BBB-'/Evolving;

Vesta Insurance Corporation
--Financial strength rating                 `BBB-'/Evolving;

Vesta Lloyds Insurance Company
--Financial strength rating                 `BBB-'/Evolving;

Fixed-income securities ratings:

Vesta Insurance Group, Inc.
--Senior debt                               `BB-'/Evolving;

Vesta Capital Trust I
--Preferred stock                           `B+'/Evolving.