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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1996
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ______________________TO _______________________
COMMISSION FILE NUMBER 1-12338
VESTA INSURANCE GROUP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 63-1097283
(STATE OF OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
3760 RIVER RUN DRIVE 35243
BIRMINGHAM, ALABAMA (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE
OFFICES)
(205) 970-7000
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
NOT APPLICABLE
(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR, IF CHANGED SINCE LAST
REPORT)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. [X] Yes [_] No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
The number of shares outstanding of the registrant's common stock,
$.01 par value, as of June 30, 1996
18,919,939
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VESTA INSURANCE GROUP, INC.
INDEX
<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION
<C> <S> <C>
Item 1. Financial Statements:
Consolidated Balance Sheet at June 30, 1996 and
December 31, 1995................................................. 1
Consolidated Statement of Operations for the Three
Months and Six Months Ended June 30, 1996 and 1995................ 2
Consolidated Statement of Cash Flows for the Six
Months Ended June 30, 1996 and 1995............................... 3
Notes to Consolidated Financial Statements........................ 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations............................... 5
<CAPTION>
PART II OTHER INFORMATION
<C> <S> <C>
Item 1. Legal Proceedings................................................. 10
Item 2. Changes in Securities............................................. 10
Item 3. Defaults Upon Senior Securities................................... 10
Item 4. Submission of Matters to a Vote of Security Holders............... 10
Item 5. Other Information................................................. 11
Item 6. Exhibits and Reports on Form 8-K.................................. 12
</TABLE>
<PAGE>
PART I
ITEM 1. FINANCIAL STATEMENTS
VESTA INSURANCE GROUP, INC.
CONSOLIDATED BALANCE SHEET
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31
1996 1995
----------- -----------
<S> <C> <C>
(UNAUDITED)
Assets:
Investments:
Fixed maturities available for sale--at market
(cost: 1996--$301,792; 1995--$244,470)............ $ 297,119 $316,551
Equity securities--at market: (cost: 1996--$1,497;
1995--$595)........................................... 7,028 3,208
Real estate......................................... -- --
Short-term investments.............................. 155,250 95,927
----------- --------
Total investments.................................. 459,397 415,686
Cash................................................. 3,291 6,832
Accrued investment income............................ 5,476 5,548
Premiums in course of collection .................... 198,701 184,717
Reinsurance balances receivable...................... 58,867 74,153
Reinsurance recoverable on paid losses............... 55,185 44,335
Deferred policy acquisition costs.................... 69,766 67,831
Property and equipment............................... 3,346 3,682
Other assets......................................... 3,575 7,318
Goodwill............................................. 7,568 7,522
----------- --------
Total assets....................................... $ 865,172 $817,624
=========== ========
Liabilities:
Reserves for:
Losses and loss adjustment expenses................. 227,811 199,314
Unearned premiums................................... 175,564 168,512
----------- --------
403,375 367,826
Accrued income taxes................................. 15,969 15,969
Reinsurance balances payable......................... 24,690 27,748
Other liabilities.................................... 5,017 12,299
Short term debt...................................... 15,000 15,000
Long term debt....................................... 98,206 98,163
----------- --------
Total liabilities.................................. 562,257 537,005
Commitments and contingencies
Stockholders' equity
Preferred stock, 5,000,000 shares authorized, none
issued................................................ -- --
Common stock, $.01 par value, 32,000,000 shares
authorized,
issued: 1996--18,919,939 shares; 1995--18,878,190... 189 189
Additional paid-in capital........................... 160,537 159,449
Unrealized investment gains (losses), net of
applicable taxes.................................... 2,239 5,205
Retained earnings.................................... 143,628 119,458
Receivable from issuance of restricted stock......... (2,803) (3,162)
Treasury stock....................................... (875) (520)
----------- --------
Total stockholders' equity......................... 302,915 280,619
----------- --------
Total liabilities and stockholders' equity......... $ 865,172 $817,624
=========== ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
1
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VESTA INSURANCE GROUP, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30 SIX MONTHS ENDED JUNE 30
-------------------------- --------------------------
1996 1995 1996 1995
------------- ------------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues:
Net premiums written... $ 165,494 $ 97,890 $ 318,003 $ 188,281
Decrease (Increase) in
unearned premiums..... 1,641 (19,558) (5,732) (34,050)
------------- ------------- ------------ ------------
Net premiums earned.... 167,135 78,332 312,271 154,231
Net investment income.. 6,057 4,389 11,003 8,242
Other.................. 41 46 85 95
------------- ------------- ------------ ------------
Total revenues...... 173,233 82,767 323,359 162,568
Expenses:
Losses incurred........ 95,709 38,837 175,784 82,529
Loss adjustment ex-
penses incurred....... 3,517 2,121 7,220 3,783
Policy acquisition ex-
penses................ 41,204 18,362 81,371 34,482
Operating expenses..... 6,273 4,662 11,923 9,535
Premium taxes and fees. 1,047 1,103 3,417 2,669
Interest on debt....... 2,520 427 4,990 854
Goodwill............... 129 -- 254 --
------------- ------------- ------------ ------------
Total expenses...... 150,399 65,512 284,959 133,852
Net income before income
taxes.................. 22,834 17,255 38,400 28,716
Income taxes............ 7,693 5,610 12,750 9,264
------------- ------------- ------------ ------------
Net income.......... $ 15,141 $ 11,645 $ 25,650 $ 19,452
============= ============= ============ ============
Per share amounts:
Net income.......... $ .80 $ .62 $ 1.36 $ 1.03
============= ============= ============ ============
</TABLE>
See accompanying Notes to Consolidated Financial Statements
2
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VESTA INSURANCE GROUP, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE
30
---------------------
1996 1995
---------- -----------
(UNAUDITED)
<S> <C> <C>
Operating Activities:
Net Income....................................... $ 25,650 $ 19,452
Adjustments to reconcile net income to cash pro-
vided from operations:
Change in:
Loss and LAE reserves.......................... 8,316 24,186
Unearned premium reserve....................... 7,052 53,226
Reinsurance balances payable................... (3,057) (23,610)
Accrued income taxes........................... 1,597 (669)
Other liabilities.............................. 12,899 14,189
Premiums in course of collection............... (13,985) (8,450)
Reinsurance balances receivable................ 15,286 (26,704)
Reinsurance recoverable on paid losses......... (10,849) 5,454
Other assets................................... 3,762 (14,106)
Policy acquisition costs deferred............... (27,146) (30,778)
Policy acquisition costs amortized.............. 25,211 11,526
Amortization and depreciation................... 1,804 1,360
Investment (gains) losses....................... 2 (318)
Gain (Loss) on disposition of property, plant
and equipment.................................. (40) (155)
---------- -----------
Net cash provided from (used in) operations.... 46,502 24,603
Investing Activities:
Investments sold or matured:
Fixed maturities held to maturity-matured,
called......................................... -- 4,121
Fixed maturities available for sale-matured,
called......................................... 14,926 2,849
Equity Securities............................... -- 474
Real Estate..................................... -- 554
---------- -----------
Total investments sold or matured.............. 14,926 7,998
Investments acquired:
Fixed maturities available for sale............. (1,216) (25,459)
Equity Securities............................... (3,770) (2,684)
Real Estate..................................... -- (855)
---------- -----------
Total investments acquired..................... (4,986) (28,998)
Net decrease in short-term investments............ (59,325) 3,200
Additions to property, plant and equipment........ (444) (952)
Dispositions of property, plant and equipment..... 130 438
---------- -----------
Net cash provided from (used in) investing ac-
tivities...................................... (49,699) (18,314)
Financing Activities:
Dividends paid................................... (1,417) (628)
Capital contributions............................ 1,030 269
Increase in long-term debt....................... 42 --
---------- -----------
Net cash used in financing activities.......... (345) (359)
Increase (decrease) in cash....................... (3,542) 5,930
Cash at beginning year............................ 6,833 21,399
---------- -----------
Cash at end of year............................... $ 3,291 $ 27,329
========== ===========
</TABLE>
See accompanying Notes to Consolidated Financial Statements
3
<PAGE>
VESTA INSURANCE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS)
Basis of Presentation: The accompanying unaudited financial statements have
been prepared in conformity with generally accepted accounting principles and,
in the opinion of management, reflect all adjustments (consisting of normal
recurring accruals) necessary for a fair presentation of results for such
periods. The results of operations and cash flows for any interim period are
not necessarily indicative of results for the full year. These financial
statements should be read in conjunction with the financial statements and
related notes in the Company's 1995 Annual Report. Certain amounts in the
financial statements presented have been reclassified from amounts previously
reported in order to be comparable between years. These reclassifications have
no effect on previously reported stockholders' equity or net income during the
period involved.
Stock Split: On January 22, 1996 Vesta Insurance distributed one share for
every two shares owned by shareholders of record as of January 5, 1996 in the
form of a stock dividend. All prior year share and per share data has been
restated to give effect for the dividend.
Earnings Per Share: Net earnings per share is calculated by dividing net
income by weighted average number of common share and common equivalent shares
outstanding including the net effect of the restricted stock grants. The
weighted average number of common shares and common equivalent shares
outstanding for the six month period ended June 30, 1996 and 1995 was
18,915,581 and 18,824,043, respectively. The weighted average number of common
shares and common equivalent shares outstanding for the three month period
ended June 30, 1996 and 1995 was 18,919,939 and 18,818,784.
4
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Vesta Insurance Group, Inc. (the "Company" or "Vesta") is a holding company
for a group of property and casualty insurance companies (the "Vesta Group")
that offer treaty reinsurance and primary insurance on personal and commercial
risks. In both its reinsurance and primary insurance operations, the Company
focuses principally on property coverages, for which ultimate losses generally
can be more promptly determined than on casualty risks. The Company's revenues
from operations are derived primarily from net premiums earned on risks
written and reinsured by the Company, investment income and investment gains
or losses, while expenses consist primarily of payments for claims losses and
underwriting expenses, including agents' commissions and operating expenses.
Comparison of Second Quarter 1996 to Second Quarter 1995
Net income increased by $3.5 million, or 30.2%, to $15.1 million for the
quarter ended June 30, 1996, from $11.6 million for the quarter ended June 30,
1995. On a per share basis, net income for the second quarter of 1996 was $.80
per share versus net income of $.62 per share for the second quarter of 1995.
Gross Premiums Written; Net Premiums Written; Net Premiums Earned. Gross
premiums written increased by $69.7 million, or 60.1%, to $185.6 million for
the quarter ended June 30, 1996, from $115.9 million for the quarter ended
June 30, 1995, as gross premiums written on reinsurance risks increased by
$63.9 million and gross premiums written on primary insurance risks increased
by $6.7 million. Net premiums written increased by $67.6 million, or 69.1%, to
$165.5 million for the quarter ended June 30, 1996, from $97.9 million for the
quarter ended June 30, 1995.
Gross premiums written for reinsurance increased by $63.9 million, or 74.1%,
to $150.1 million for the quarter ended June 30, 1996, from $86.2 million for
the quarter ended June 30, 1995. This growth was attributable to an increase
in gross premiums written on pro rata business. The growth in pro-rata
reinsurance gross premiums written was due to growth in existing accounts as
well as the addition of new accounts in 1996 as compared to 1995. Net premiums
written for reinsurance increased $64.5 million, or 81.7%, to $143.4 million
for the quarter ended June 30, 1996, from $78.9 million for the quarter ended
June 30, 1995.
Gross premiums written for primary insurance increased by $6.7 million, or
23.3%, to $35.5 million for the quarter ended June 30, 1996, from $28.8
million for the quarter ended June 30, 1995 due to a $10.8 million increase in
personal lines premiums. Gross premiums written for personal products
increased 75.0%, to $25.2 million for the quarter ended June 30, 1996,
compared to $14.4 million for the quarter ended June 30, 1995. The growth was
primarily attributable to the acquisition of the Hawaiian Insurance and
Guaranty Company, Ltd. in June 1995. Gross premiums on commercial lines
decreased 28.5%, from $14.4 million for the quarter ended June 30, 1995 to
$10.3 million for the quarter ended June 30, 1996.
Net premiums written for primary insurance increased by $3.1 million, or
16.3%, to $22.1 million for the quarter ended June 30, 1996, from $19.0
million for the quarter ended June 30, 1995.
Net premiums earned increased by $88.8 million, or 113.4%, to $167.1 million
for the quarter ended June 30, 1996, from $78.3 million for the quarter ended
June 30, 1995. The increase in earned premiums is primarily attributable to
the increase in net written premiums for the quarter ended June 30, 1996.
5
<PAGE>
Net Investment Income. Net investment income increased by $2.0 million, or
48.8%, to $6.1 million for the quarter ended June 30, 1996, from $4.1 million
for the quarter ended June 30, 1995. The weighted average yield on invested
assets (excluding realized and unrealized gains) was 5.6% for the quarter
ended June 30, 1996, compared with 5.8% for the quarter ended June 30, 1995.
The increase in net investment income is primarily attributable to the
increase in average invested assets relating to the receipt of proceeds from
the sale by the Company of $100 million of its 8.75% Senior Debentures due
2025 and cash flow from operations.
Losses and Loss Adjustment Expenses Incurred. Losses and loss adjustment
expenses ("LAE") increased by $38.0 million, or 92.7%, to $79.0 million for
the quarter ended June 30, 1996, from $41.0 million for the quarter ended June
30, 1995. The loss and LAE ratio for the quarter ended June 30, 1996 was 47.3
% as compared to 52.3% for the quarter ended June 30, 1995. This decreased
loss and LAE ratio for 1996 was due principally to better overall results in
the Company's personal lines which is partly attributable to the acquisition
of HIG, and better loss results in the commercial lines.
Policy Acquisition and Other Underwriting Expenses. Policy acquisition and
other underwriting expenses increased by $44.6 million, or 185.1%, to $68.7
million for the quarter ended June 30, 1996, from $24.1 million for the
quarter ended June 30, 1995. The underwriting expense ratio for the quarter
ended June 30, 1996, was 41.1%, as compared to 30.8% for the quarter ended
June 30, 1995. The increase in the underwriting expense ratio resulted
principally from increased contingent commissions on the Company's pro-rata
reinsurance business.
Federal Income Taxes. Federal income taxes increased by $2.1 million, or
37.5%, to $7.7 million for the quarter ended June 30, 1996. The effective rate
on pre-tax income increased from 32.5% to 33.7 % for the quarter ended June
30, 1996. This increase was due primarily to a smaller portion of income from
tax free municipal bonds in 1996 versus 1995.
Comparison of Six Months Ended June 30, 1996 with Six Months Ended June 30,
1995
The first six months of 1996 resulted in net income of $25.7 million, an
increase of $6.2 million from the $19.5 million reported for the same period
in 1995. On a per share basis, net income for the first six months of 1996 was
$1.36 per share.
Gross Premiums Written; Net Premiums Written; Net Premiums Earned. Gross
premiums written increased by $152.7 million, or 67.2% to $380.0 million for
the six month period ended June 30, 1996, from $227.3 million for the six
month period ended June 30, 1995, as gross premiums written on reinsurance
risks increased by $135.4 million and gross premiums written on primary
insurance risks increased by $18.2 million. Net premiums written increased by
$129.7 million, or 68.9%, to $318.0 million for the six month period ended
June 30, 1996, from $188.3 million for the six month period June 30, 1995.
Gross premiums written for reinsurance increased by $135.4 million, or 80%,
to $304.6 million for the first six months of 1996, from $169.2 million for
the first six months of 1995. This growth was attributable to an increase in
gross premiums written on pro rata business. The Company has continued to
follow its strategy of increasing its writings in these areas. The growth in
pro rata reinsurance premiums written was due to growth in existing accounts
as well as the addition of new accounts during the first six months of 1996 as
compared with the first six months of 1995. Net
6
<PAGE>
premiums written for reinsurance increased by $110.4 million, or 72.8% to
$262.1 million for the first six months of 1996, from $151.7 million for the
first six months of 1995 due to both the increased volume of gross premiums
written and changes in the Company's ceded reinsurance program that reduced
the percentage of premiums ceded.
Gross premiums written for primary insurance increased by $17.3 million, or
29.8%, to 75.4 million for the six month period ended June 30, 1996, from
$58.1 million for the six month period ended June 30, 1995 due principally to
a $15.7 million increase in personal lines premiums. Gross premiums written
for personal products increased 68.3%, to $52.0 million for the quarter ended
June 30, 1996, compared to $30.9 million for the quarter ended June 30, 1995.
The growth was primarily attributable to the acquisition of the Hawaiian
Insurance and Guaranty Company, Ltd. in June 1995. Gross premiums on
commercial lines decreased by 14.0%, from $27.2 million for the six month
period ended June 30, 1995 to $23.4 million for the six month period ended
June 30, 1996.
Net premiums written for primary insurance increased by $19.3 million, or
52.7%, to $55.9 million for the six month period ended June 30, 1996, from
$36.6 million for the six month period ended June 30, 1995.
Net premiums earned increased by $158.1 million, or 102.5%, to $312.3
million for the six month period ended June 30, 1996, from $154.2 million for
the six month period ended June 30, 1995.
Net Investment Income. Net investment income increased by $3.1 million, or
39.2%, to $11.0 million for the first six months of 1996, from $7.9 million
for the first six months of 1995. The weighted average pre-tax yield on
invested assets (excluding realized and unrealized gains) was 5.6% for the six
month period ended June 30, 1996, compared with 5.8% for the six month period
ended June 30, 1995. The decrease in net investment income is primarily
attributable to the increase in average invested assets relating to the
receipt of proceeds from the sale by the Company of $100 million of its 8.75%
Senior Debentures due. 2,025 and cash flow from operations.
Loss and Loss Adjustment Expenses Incurred. Losses and loss adjustment
expenses ("LAE") increased $76.5 million, or 88.6%, to $162.8 million at June
30, 1996 from $86.3 million at June 30, 1995 due to a significant increase in
gross premiums written. The loss and LAE ratio for the six month period ended
June 30, 1996 was 52.1% as compared to 56.0% at June 30, 1995. During the
first six months of 1996, the Company incurred catastrophe losses of
approximately $9.9 million as compared to $5.4 million during the first six
months of 1995. The decreased loss and LAE ratio was due princiaplly to better
overall results in the Company's personal lines operation which is partly
attributable to the acquisition of HIG.
Policy Acquisition and Other Underwriting Expenses. Policy acquisition and
other underwriting expenses increased by $70.2 million, or 150.3%, to $116.9
million for the six months ended June 30, 1996, from $46.7 million for the six
months ended June 30, 1995. The underwriting expense ratio for the six months
ended June 30, 1996 was 37.4%, as compared to 30.3% for the six months ended
June 30, 1995. The increase in the underwriting expense ratio resulted
principally from increased contingent commissions on the Company's pro-rata
reinsurance business.
Federal Income Taxes. Federal income taxes increased by $3.5 million, or
37.6%, to $12.8 million for the six month period ended June 30, 1996. The
effective rate on pre-tax income increased from 32.3% for the first six months
of 1995 to 33.2% for the first six months of 1996.
7
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company is a holding company whose principal asset is its investment in
the capital stock of the companies constituting the Vesta Group, a group of
wholly-owned property and casualty insurance companies including Vesta Fire.
The several insurance company subsidiaries comprising Vesta Group are
individually supervised by state insurance regulators. Vesta Fire is the
principal operating subsidiary of the Company.
As a holding company with no other business operations, the Company relies
primarily upon dividend payments from Vesta Fire to meet its cash requirements
(including its debt service) and to pay dividends to its stockholders.
Transactions between Vesta Fire and the Company, including the payment of
dividends by Vesta Fire, are subject to certain limitations under the
insurance laws of Alabama. Specifically, Alabama law permits the payment of
dividends in any year which, together with other dividends or distributions
made within the preceding 12 months, do not exceed the greater of 10% of
statutory surplus as of the end of the preceding year or the net income for
the preceding year, with larger dividends payable only after receipt of prior
regulatory approval. Based upon restrictions presently in effect, the maximum
amount available for payment of dividends to the Company by its insurance
subsidiaries in 1996 without prior approval of regulatory authorities is
approximately $32 million.
The principal uses of funds at the holding company level are to pay
operating expenses, interest on outstanding indebtedness and dividends to
stockholders. During the last three years, the insurance subsidiaries of the
Company have produced operating results sufficient to fund the needs of the
Company. There can be no assurance as to the ability of the Company's
insurance subsidiaries to continue to pay dividends at current levels.
However, the Company is not aware of any demands or commitments of the
insurance subsidiaries that would prevent the payment of dividends to the
Company sufficient to meet the anticipated needs (including debt service) of
the Company over the next twelve months.
During the first six month period of 1996, the Company paid approximately
$1.4 million in dividends on its common stock, and it is expected that the
Company will pay approximately $2.8 million for all of 1996. The Company is
also required to make semi-annual interest payments of $4.4 million on its
$100 million of 8.75% Senior Debentures due 2025.
The principal sources of funds for the Company's insurance subsidiaries are
premiums, investment income and proceeds from the sale or maturity of invested
assets. Such funds are used principally for the payment of claims, operating
expenses, commissions and the purchase of investments. In order to provide
further liquidity, the Company secured a $40 million Line of Credit with a
group of domestic banks pursuant to a Credit Agreement, dated August 11, 1994
(the "Credit Agreement"). To date, the Company has borrowed $15 million under
this line of credit for general corporate purposes. The Credit Agreement
relating to this line of credit contains certain covenants that require, among
other things, the Company to maintain a certain consolidated net worth,
maintain a certain amount of investment income available for the payment of
interest expense, cause each insurance subsidiary to maintain a certain total
adjusted capital and which limit the amount of indebtedness the Company can
have. The Company is in compliance with these covenants.
On a consolidated basis, net cash provided from (used in) operations for the
six month period ended June 30, 1996 and 1995 was $46.5 million and $24.6
million, respectively. Net cash provided from operations for the six months
ended June 30, 1995 and 1996 was principally due to a significant increase in
premiums.
Total assets of the Company increased by 5.8% to $865.2 million in 1996,
from $817.6 million in 1995. Cash and invested assets were $462.7 million at
June 30, 1996, increasing 9.5% from December 31, 1995.
8
<PAGE>
As of June 30, 1996, the Company's investment portfolio consisted of cash
and short-term investments (34.3%), U.S. Government securities (6.8%),
mortgage-backed securities (1.8%), corporate bonds (19.8%), foreign government
securities (0.4%), municipal bonds (35.3%) and equity securities (1.5%).
According to Moody's rating, 97.2% of the Company's portfolio is rated A or
better. The Company expects current cash flow to be sufficient to meet
operating needs, although, a certain amount of invested assets has been
categorized as available for sale in the event short-term cash needs exceed
available resources. The Company adjusts its holdings of cash, short-term
investments and invested assets available for sale according to its seasonal
cash flow needs. Beginning in June of each year, the Company begins to
increase its holdings of cash and short-term investments. This practice
facilitates the Company's ability to meet its higher short-term cash needs
during the hurricane season.
During July, 1995, the Company completed a public offering of $100 million
of 30-year senior debentures bearing interest at 8.75%. A portion of the
proceeds from the sale of the debentures has been used to repay the $28
million loan from United Investors Management Company, a wholly owned
subsidiary of Torchmark Corporation. The remaining proceeds were used to
increase the capital and surplus of Vesta Fire Insurance Corporation, the
Company's primary insurance subsidiary.
9
<PAGE>
PART II
ITEM 1. LEGAL PROCEEDINGS
The Company, through its subsidiaries, is routinely a party to pending or
threatened legal proceedings and arbitrations. These proceedings involve
alleged breaches of contract, torts, including bad faith and fraud claims and
miscellaneous other specified relief. Based upon information presently
available, and in light of legal and other defenses available to the Company
and its subsidiaries, management does not consider liability from any
threatened or pending litigation to be material.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
10
<PAGE>
EXHIBITS INDEX
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<C> <S> <C>
3.1 Restated Certificate of Incorporation of the Company, dated
September 1, 1993 (filed as an exhibit to Amendment No. 1 to
the Registration Statement on Form S-1 (Registration No. 33-
68114) of Vesta Insurance Group, Inc., filed on October 18,
1993 and incorporated herein by reference (File No. 1-12338)).
3.2 By-Laws of the Company (Amended and Restated as of October 1,
1993) (filed as an exhibit to Amendment No. 1 to the Registra-
tion Statement on Form S-1 (Registration No. 33-68114) of
Vesta Insurance Group, Inc., filed on October 18, 1993 and in-
corporated herein by reference (File No. 1-12338)).
4.1 Indenture between the Company and Southtrust Bank of Alabama,
National Association, dated as of July 19, 1995 (filed as an
exhibit to the Company's Form 10-K for the year ended December
31, 1995, filed on March 28, 1996 and incorporated herein by
reference (File No. 1-12338)).
4.2 Supplemental Indebenture between the Company and Southtrust
Bank of Alabama, National Association, dated July 19, 1995
(filed as an exhibit to the Company's Form 10-K for the year
ended December 31, 1995, filed on March 28, 1996 and incorpo-
rated herein by reference (File No. 1-12338)).
10.1 Separation and Public Offering Agreement between Torchmark
Corporation and the Company dated September 13, 1993 (filed as
an exhibit to the Company's Form 10-K for the year ended De-
cember 31, 1993, filed on March 28, 1994 and incorporated
herein by reference (File No. 1-2338)).
10.2 Marketing and Administrative Services Agreement between Lib-
erty National Fire Insurance Company, Liberty National Insur-
ance Corporation and Liberty National Life Insurance Company
dated September 13, 1993 (filed as an exhibit to the Company's
Form 10-K for the year ended December 31, 1993, filed on March
28, 1994 and incorporated herein by reference (File No. 1-
2338)).
10.3 Investment Services Agreement between Waddell & Reed Asset
Management Company and the Company (filed as an exhibit to
Amendment No. 1 to the Registration Statement on Form S-1
(Registration No. 33-68114) of Vesta Insurance Group, Inc.,
filed on October 18, 1993 and incorporated herein by reference
(File No. 1-12338)) dated September 13, 1993.
10.5 Management Agreement between J. Gordon Gaines, Inc., Liberty
National Fire Insurance Company, Sheffield Insurance Corpora-
tion, Liberty National Insurance Corporation and Vesta Insur-
ance Corporation dated November 15, 1994 (filed as an exhibit
to the Company's Form 10-K for the year ended December 31,
1993, filed on March 28, 1994 and incorporated herein by ref-
erence (File No. 1-2338)).
10.6 Form of Restricted Stock Agreement (filed as an exhibit to the
Registration Statement on Form S-1 (Registration No. 33-68114)
of Vesta Insurance Group, Inc., filed on August 31, 1993 and
incorporated herein by reference (File No. 1-12338)).
10.7* The Company's Long Term Incentive Plan as amended effective as
of May 16, 1995 (filed as an exhibit to the Company's Form 10Q
for the quarter ended June 30, 1995, filed on August 14, 1995
and incorporated herein by reference (File No. 1-12338)).
10.8* Form of Non-Qualified Stock Option Agreement entered into by
and between the Company and certain of its executive officers
and directors (filed as an exhibit to the Company's Form 10-K
for the year ended December 31, 1995, filed on March 28, 1996
and incorporated herein by reference (File No. 1-12338)).
10.9* Cash Bonus Plan of the Company (filed as an exhibit to the
Company's Form 10-K for the year ended December 31, 1993,
filed on March 28, 1994 and incorporated herein by reference
(File No. 1-2338)).
10.10* J. Gordon Gaines, Inc. Post Retirement Benefits Plan (filed as
an exhibit to the Company's Form 10-K for the year ended De-
cember 31, 1994, filed on March 29, 1995 and incorporated
herein by reference (File No. 1-12338)).
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<C> <S>
10.11* J. Gordon Gaines, Inc. Retirement Savings Plan (filed as an
exhibit to the Company's Form 10-K for the year ended December
31, 1994, filed on March 29, 1995 and incorporated herein by
reference (File No. 1-12338)).
10.12* The Company's Non-Employee Director Stock Plan (filed as an
exhibit to the Company's
10-Q for the quarter ended June 30, 1995, filed on August 14,
1995 and incorporated herein by reference (File No. 1-12338)).
10.13 Office Lease between the Company and Torchmark Development
Corporation, dated as of April 20, 1992 (filed as an exhibit
to the Company's Form 10-K for the year ended December 31,
1993, filed on March 28, 1994 and incorporated herein by ref-
erence (File No. 1-12338)).
10.14 Agency Agreement between Liberty National Fire Insurance Com-
pany, Vesta Insurance Corporation, Sheffield Insurance Corpo-
ration, and Overby-Seawell Company (filed as an exhibit to
Amendment No. 1 to the Registraion Statement on Form S-1 (Reg-
istration No. 33-68114) of Vesta Insurance Group, Inc., filed
on October 18, 1993 and incorporated herein by reference (File
No. 1-12338)).
10.15 Commercial/Personal Property Risk Excess Reinsurance Con-
tracts, dated July 1, 1993,
constituting the Company's Direct Per Risk Treaty Program, be-
tween Vesta Fire Insurance Corporation, Sheffield Insurance
Corporation, Vesta Insurance Corporation, Vesta Lloyds Insur-
ance Company and various reinsurers (filed as an exhibit to
Amendment No. 1 to the Registration Statement on Form S-1
(Registration No. 33-68114) of Vesta Insurance Group, Inc.,
filed on October 18, 1993 and incorporated herein by reference
(File No. 1-12338)) Renewed July 1, 1995.
10.16 Catastrophe Reinsurance Contracts, dated July 1, 1995, consti-
tuting the Company's Direct Property Catastrophe Program, be-
tween Vesta Fire Insurance Corporation, Vesta Insurance Corpo-
ration, Sheffield Insurance Corporation, Vesta Lloyds Insur-
ance Company and various reinsurers (filed as an exhibit to
the Company's Form 10-K for the year ended December 31, 1994,
filed on March 29, 1995 and incorporated herein by reference
(File No. 1-12338)).
10.17 Specific Regional Castastrophe Excess Contracts, dated January
1, 1996, constituting the Company's Regional Property Catas-
trophe Program, between Vesta Fire Insurance Corporation and
various reinsurers (filed as an exhibit to the Company's Form
10-K for the year ended December 31, 1995, filed on March 28,
1996 and incorporated herein by reference (File No. 1-12338)).
10.18 Casualty Excess of Loss Reinsurance Agreements, dated January
1, 1994, constituting the Company's Casualty Excess of Loss
Reinsurance Program, between Vesta Fire Insurance Corporation,
Vesta Insurance Corporation, Sheffield Insurance Corporation,
Vesta Lloyds Insurance Company and various reinsurers (filed
as an exhibit to the Company's Form 10-K for the year ended
December 31, 1993, filed on March 28, 1994 and incorporated
herein by reference (File No. 1-12338)). Renewed January 1,
1996.
10.19 Quota Share Reinsurance Contract, dated December 31,1994, cov-
ering the Company's Personal Lines Property and Mortgage Secu-
rity Property business between Vesta Fire Insurance Corpora-
tion, Sheffield Insurance Corporation, Vesta Insurance Corpo-
ration, Vesta Lloyds Insurance Company and various reinsurers.
(filed as an exhibit to the Company's Form 10-K for the year
ended December 31, 1994, filed on March 29, 1995 and incorpo-
rated herein by reference (File No. 1-12338)). Renewed January
1, 1996.
10.20 Credit Agreement between Vesta Insurance Group, Inc. and Com-
pass Bank, Southtrust Bank of Alabama, N.A., First Union Bank
and Compass Bank, as agent dated August 11, 1994 (filed as an
exhibit to the Company's Form 10-Q for the quarter-ended Sep-
tember 30, 1994, filed on November 9, 1994 and incorporated
herein by reference (File No. 1-12338)).
10.21 Amendment to Catastrophe Reinsurance Contracts, dated July 1,
1995, constituting the Company's Direct Property Catastrophe
Program, between Vesta Fire Insurance Corporation, Vesta In-
surance Corporation, Sheffield Insurance Corporation, Vesta
Lloyds Insurance Company, Hawaiian Insurance & Guaranty Compa-
ny, Limited and various reinsurers. (Filed as an exhibit to
the Company's Form 10-Q for the quarter ended September 30,
1995, filed on November 14, 1995 and incorporated herein by
reference (File No. 1-12338)).
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<C> <S> <C>
10.22 Amendment to Catastrophe Reinsurance Contracts, dated January
1, 1996, constituting the Company's Direct Property Catastro-
phe Program, between Vesta Fire Insurance Corporation, Vesta
Insurance Corporation, Sheffield Insurance Corporation, Vesta
Lloyds Insurance Company, Hawaiian Insurance & Guaranty Compa-
ny, Limited and various reinsurers (filed as an exhibit to the
Company's Form 10-K for the year ended December 31, 1995,
filed on March 28, 1996 and incorporated herein by reference
(File No. 1-12338)).
</TABLE>
- --------
*These are the Company's compensatory plans.
B) REPORTS ON FORM 8-K.
None.
13
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED
THEREUNTO DULY AUTHORIZED.
VESTA INSURANCE GROUP, INC.
Date: July 14, 1996 /s/ Robert Y. Huffman
_______________________________________
Robert Y. Huffman
President and CEO
Duly Authorized Officer
/s/ Brian R. Meredith
_______________________________________
Brian R. Meredith
Vice President, Finance
(Principal Financial Officer)
14
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0
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