VESTA INSURANCE GROUP INC, S-3, 1996-09-03

VESTA INSURANCE GROUP INC
S-3, 1996-09-03
FIRE, MARINE & CASUALTY INSURANCE

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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 3, 1996

REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
VESTA INSURANCE GROUP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

DELAWARE 63-1097283
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION)
3760 RIVER RUN DRIVE
BIRMINGHAM, ALABAMA 35243
(205) 970-7000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
DONALD W. THORNTON, ESQ.
GENERAL COUNSEL
VESTA INSURANCE GROUP, INC.
3760 RIVER RUN DRIVE
BIRMINGHAM, ALABAMA 35243
(205) 970-7000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)

COPIES TO:

CAROLYN L. DUNCAN, ESQ. JOHN M. BRANDOW, ESQ.
RITCHIE & REDIKER, L.L.C. DAVIS POLK & WARDWELL
312 NORTH 23RD STREET 450 LEXINGTON AVENUE
BIRMINGHAM, ALABAMA 35222 NEW YORK, NEW YORK 10017
(205) 592-6044 (212) 450-4000
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.

If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [_]

If the only securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities being offered only in connection with dividend or
interest reinvestment plans, please check the following box. [_]

If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]

If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, please check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]

CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED PROPOSED
TITLE OF EACH CLASS MAXIMUM MAXIMUM AMOUNT OF
OF SECURITIES AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
TO BE REGISTERED REGISTERED (1) PER SHARE (2) OFFERING PRICE (2) FEE (2)(3)
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<S> <C> <C> <C> <C>
Common Stock............ 4,130,000 shares $38.50 $159,005,000 $54,829.31
</TABLE>
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(1) Represents the maximum number of shares of Common Stock, par value $.01 per
share ("Vesta Common Stock"), that may be offered by Torchmark Corporation
pursuant to the terms of those certain % Participating Exchangeable
Premium Securities due , 2000, (the "PEPS") issued by Torchmark
Corporation.
(2) Estimated solely for purposes of calculating the Registration Fee.
(3) The Registration Fee has been previously paid by Torchmark Corporation in
accordance with Rule 457(i) in connection with the Registration Statement
filed by Torchmark Corporation (Registration No. 333-11263) with respect to
the PEPS which are exchangeable for the Common Stock offered hereby.
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE>

++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS (Subject to Completion)
Issued August , 1996

Vesta Insurance Group, Inc.

LOGO
Up to
4,130,000 Shares
of
Common Stock
(par value $.01 per share)

-----------

This Prospectus relates to up to 4,130,000 shares of common stock, par value
$.01 per share (the "Common Stock") of Vesta Insurance Group, Inc. ("Vesta" or
the "Company"), which may be delivered by Torchmark Corporation ("Torchmark"),
at its option, pursuant to the terms of the % Participating Exchangeable
Premium SecuritiesSM due , 2000 (the "PEPS") of Torchmark, subject to
Torchmark's right to deliver an amount in cash in lieu thereof, or a
combination of shares and cash. This Prospectus is being delivered as Appendix
A to a prospectus of Torchmark of even date herewith covering the sale of
4,130,000 PEPSSM (the "Torchmark Prospectus") and may not be delivered unless
accompanied by and as an appendix to the Torchmark PROSPECTUS. Information
relating to Torchmark set forth herein and in the Torchmark Prospectus was
prepared by and is the sole responsibility of Torchmark. Vesta makes no
representation or warranty with respect thereto and the Torchmark Prospectus
does not constitute a part of this Prospectus and is not incorporated herein by
reference. For a detailed description of the PEPS, see the Torchmark
Prospectus. All of the shares of Common Stock covered hereby are indirectly
owned by Torchmark. Vesta will not receive any of the proceeds from the sale of
the PEPS or the delivery thereunder of shares of Common Stock covered hereby.

SEE "RISK FACTORS" BEGINNING ON PAGE 7 HEREOF FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CAREFULLY CONSIDERED BY A PROSPECTIVE INVESTOR IN THE
COMMON STOCK.

The Common Stock is traded on the New York Stock Exchange, Inc. ("NYSE")
under the symbol "VTA." On August , 1996, the last reported sale price of
Common Stock on the NYSE Composite Tape was $ per share. See "Price Range of
Common Stock and Dividends."

-----------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

-----------

SMService Mark of Morgan Stanley & Co. Incorporated

, 1996.
<PAGE>

NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY
SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF VESTA SINCE THE DATE HEREOF OR THAT THE INFORMATION
CONTAINED HEREIN OR THEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
OF SUCH INFORMATION.

ALL INFORMATION CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS
WITH RESPECT TO TORCHMARK HAS BEEN SUPPLIED BY TORCHMARK, AND ALL INFORMATION
CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS WITH RESPECT TO
VESTA HAS BEEN SUPPLIED BY VESTA.

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TABLE OF CONTENTS

<TABLE>
<S> <C>
Available Information............... 4
Incorporation of Certain Documents
by Reference....................... 4
Prospectus Summary.................. 5
Risk Factors........................ 7
Selected Consolidated Financial Da-
ta................................. 12
The Company......................... 14
Recent Developments................. 15
Use of Proceeds..................... 15
</TABLE>
<TABLE>
<S> <C>
Capitalization...................... 16
Price Range of Common Stock and Div-
idends............................. 17
Business............................ 18
Security Ownership by Torchmark..... 32
Selling Stockholder................. 32
Plan of Distribution................ 32
Certain Legal Matters............... 33
Experts............................. 33
Glossary of Selected Insurance
Terms.............................. 34
</TABLE>

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NO PURCHASER MAY ACQUIRE DIRECTLY OR INDIRECTLY 5% OR MORE OF THE COMPANY'S
OUTSTANDING COMMON STOCK WITHOUT PRIOR REGULATORY ACTION OR WAIVER BY THE
ALABAMA INSURANCE COMMISSIONER AND NO PURCHASER MAY ACQUIRE DIRECTLY OR
INDIRECTLY 10% OR MORE OF THE COMPANY'S OUTSTANDING COMMON STOCK WITHOUT PRIOR
REGULATORY ACTION OR WAIVER BY THE TEXAS AND HAWAII INSURANCE COMMISSIONERS.
FOR THESE PURPOSES, PURCHASERS OF PEPS MAY BE DEEMED TO BE HOLDERS OF VESTA
COMMON STOCK AS A RESULT OF THEIR HOLDINGS OF PEPS. TORCHMARK HAS INFORMED
VESTA THAT THE ALABAMA INSURANCE COMMISSIONER HAS ADVISED TORCHMARK THAT ANY
PERSON, WHO HAS THE RIGHT TO ACQUIRE VESTA COMMON STOCK AS A RESULT OF HOLDING
PEPS, AND WHO HOLDS MORE THAN 5% OF VESTA COMMON STOCK, INCLUDING SHARES
RECEIVABLE UPON SETTLEMENT OF THE PEPS MUST AGREE IN WRITING AT THE TIME OF
PURCHASE OF SUCH PEPS THAT IT CANNOT DIRECTLY OR INDIRECTLY OWN, CONTROL, HOLD
OR HAVE THE RIGHT TO ACQUIRE IN ANY MANNER 10% OR MORE OF THE TOTAL
OUTSTANDING SHARES OF VESTA COMMON STOCK WITHOUT PRIOR REGULATORY APPROVAL BY
THE ALABAMA INSURANCE COMMISSIONER.

----------------

FOR NORTH CAROLINA INVESTORS: THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE COMMISSIONER OF INSURANCE FOR THE STATE OF NORTH CAROLINA,
NOR HAS THE COMMISSIONER OF INSURANCE RULED UPON THE ACCURACY OR THE ADEQUACY
OF THIS DOCUMENT.

----------------

VESTA HAS BEEN ADVISED THAT IN CONNECTION WITH THE OFFERING OF THE PEPS BY
TORCHMARK, THE UNDERWRITER OF THE PEPS MAY OVER-ALLOT OR EFFECT TRANSACTIONS
WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE PEPS OR THE COMMON STOCK
OF VESTA, OR EACH OF THEM, AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL
IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK
EXCHANGE, IN THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF
COMMENCED, MAY BE DISCONTINUED AT ANY TIME.

2
<PAGE>

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain of the matters discussed in this Prospectus or in the information
incorporated by reference herein may constitute forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995 (the
"Reform Act") and as such may involve known and unknown risks, uncertainties
and other factors that may cause the actual results, performance or
achievements of Vesta to be materially different from any future results,
performance or achievements expressed or implied by such forward-looking
statements. Some of the factors that may cause such material differences are
set forth herein under the caption "Risk Factors."

3
<PAGE>

AVAILABLE INFORMATION

Vesta is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements, and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information can be inspected and copied at the public
reference facilities of the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549; and at the Commission's regional offices at 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661 and Seven World Trade Center, New
York, New York 10048. Copies of such material can be obtained from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549 at prescribed rates. The shares of Vesta's Common Stock are listed
on the New York Stock Exchange Inc. ("NYSE"). Reports, proxy statements and
other information concerning Vesta can also be inspected at the offices of the
NYSE, 20 Broad Street, New York, New York 10005. In addition, the Commission
maintains a site on the World Wide Web at http://www.sec.gov that contains
reports, proxy and information statements and other information regarding
Vesta and other registrants that file electronically with the Commission.

This Prospectus, which constitutes a part of the registration statement on
Form S-3 (the "Registration Statement") filed by Vesta with the Commission
under the Securities Act of 1933, as amended (the "Securities Act"), omits
certain of the information set forth in the Registration Statement, as
permitted by the rules and regulations of the Commission. Reference is hereby
made to the Registration Statement and to exhibits thereto for further
information with respect to Vesta and the securities offered hereby.
Statements contained herein concerning the provisions of such documents are
necessarily summaries of such documents, and each such statement is qualified
in its entirety by reference to the copy of the applicable document filed with
the Commission. Copies of the Registration Statement and the exhibits thereto
are on file at the offices of the Commission and may be obtained from the
Commission upon payment of the fee prescribed by the Commission, or may be
examined without charge at the public reference facilities of the Commission
described above. Reference is also hereby made to the Torchmark Prospectus and
Exhibits thereto for further information with respect to Torchmark and the
securities being offered by the Torchmark Prospectus. The Torchmark Prospectus
does not constitute a part of this Prospectus and is not incorporated by
reference herein.

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

The following documents filed by Vesta with the Commission are incorporated
herein by reference: (i) Annual Report on Form 10-K for the year ended
December 31, 1995; (ii) Quarterly Report on Form 10-Q for the three months
ended March 31, 1996; (iii) Quarterly Report on Form 10-Q for the six months
ended June 30, 1996; (iv) Current Report on Form 8-K, dated June 19, 1995; and
(v) the description of Vesta Common Stock set forth in Vesta's Registration
Statements filed pursuant to Section 12 of the Exchange Act, and any amendment
or report filed for the purpose of updating any such description.

Each document or report filed by Vesta with the Commission pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date
of this Prospectus and prior to the termination of the offering of the PEPS
shall be deemed to be incorporated by reference into this Prospectus and to be
a part of this Prospectus from the date of filing of such document. Any
statement contained herein, or in a document all or a portion of which is
incorporated or deemed to be incorporated by reference herein, shall be deemed
to be modified or superseded for purposes of the Registration Statement and
this Prospectus to the extent that a statement contained herein or in any
other subsequently filed document or in any accompanying prospectus supplement
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.

Vesta will provide without charge to any person to whom this Prospectus is
delivered, on the written or oral request of such person, a copy of any or all
of the foregoing documents incorporated by reference, other than exhibits to
such documents (unless such exhibits are specifically incorporated by
reference into such documents). Written requests should be directed to: Donald
W. Thornton, Senior Vice President, General Counsel and Secretary, Vesta
Insurance Group, Inc., 3760 River Run Drive, Birmingham, Alabama 35243.
Telephone requests may be directed to Vesta at (205) 970-7000.

4
<PAGE>

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by reference to, and
should be read in connection with, the more detailed information and the
consolidated financial statements (including the notes thereto) appearing
elsewhere in this Prospectus as well as the information incorporated herein by
reference. See "Glossary of Selected Insurance Terms" for definitions of
certain terms used in this Prospectus. Unless otherwise indicated or required
by the context, references to "Vesta" or the "Company" include Vesta's
consolidated subsidiaries and references to "Torchmark" include Torchmark's
consolidated subsidiaries.

COMPANY OVERVIEW

Vesta is a holding company for a group of property and casualty insurance
subsidiaries, including Vesta Fire Insurance Corporation ("Vesta Fire"), which
offers treaty reinsurance and primary insurance on personal and commercial
risks. In both its reinsurance and primary insurance operations, the Company
focuses primarily on property coverages. Gross premiums written by the Company
in 1995 and the six months ended June 30, 1996 totaled $586.8 million and
$380.0 million, respectively. The Company's consolidated stockholders' equity
was $280.6 million at December 31, 1995 and $302.9 million at June 30, 1996.

The Company provides treaty reinsurance, principally through reinsurance
intermediaries, to small and medium-sized regional insurance companies located
primarily in the southwestern, midwestern and northeastern United States. The
reinsurance of personal and commercial property risks accounted for
approximately 88% of the Company's gross reinsurance premiums written in 1995.
The principal lines of business reinsured by the Company include homeowner and
commercial property coverages, non-standard automobile insurance and collateral
protection insurance. With respect to the Company's reinsurance operations,
gross premiums written were $422.7 million for the year ended December 31,
1995, compared with $242.0 million for the year ended December 31, 1994, while
net premiums earned were $290.7 million and $191.7 million during the same
periods, respectively. For the six months ended June 30, 1996, gross premiums
written were $304.6 million while net premiums earned were $260.4 million,
compared to $169.2 million and $116.9 milion, respectively, for the first six
months of 1995.

In its primary insurance operations, the Company has developed insurance
products and programs to meet particular market needs. Primary insurance
products offered by the Company include a variety of homeowner and dwelling
insurance products, specialty commercial transportation products, commercial
business coverages and certain financial services products designed to protect
the interests of financial institutions in real and personal property
collateral. Primary insurance products are distributed through independent
agents and brokers, with the exception of certain financial services products,
which are distributed through specialist agents and two managing agents. With
respect to the Company's primary insurance operations, gross premiums written
were $164.1 million for the year ended December 31, 1995, compared with $112.7
million for the year ended December 31, 1994, while net premiums earned were
$91.1 million and $68.3 million during the same periods, respectively. For the
six months ended June 30, 1996, gross premiums written were $75.4 million while
net premiums earned were $51.9 million, compared to $58.1 million and $37.3
million, respectively, for the first six months of 1995.

A comparison of statutory combined ratios indicates that the Company has
experienced more favorable underwriting results than the average for the
property and casualty insurance industry over the past three years. The
Company's statutory combined ratios for 1993, 1994 and 1995 were 91.8%, 89.4%
and 90.6%, respectively, while according to data published by A.M. Best
Company, Inc. ("A.M. Best"), the statutory combined ratios for the property and
casualty insurance industry as a whole were 106.9%, 108.4% and 106.3%,
respectively, for the same three years.

As of June 30, 1996, the Company held cash and investments in the amount of
$462.7 million. The Company's investment portfolio at such date included $296.3
million of investment grade fixed income securities, representing 100% of its
total bond portfolio. Investments in equity securities comprised 1.5% of the
Company's investment portfolio as of such date. As of June 30, 1996, the
Company holds no real estate in its investment portfolio. The duration of the
Company's portfolio at June 30, 1996 was 2.79 years. See "Business--
Investments."

5
<PAGE>

Vesta's insurance subsidiaries are rated "A" (Excellent) by A.M. Best, which
is A.M. Best's third highest rating category. A.M. Best ratings are based upon
factors of concern to policyholders and are not directed toward the protection
of investors including holders of securities of Vesta, and should not be relied
upon with respect to making an investment decision regarding the Common Stock
of Vesta. No assurance can be given that in the future, A.M. Best will not
reduce or withdraw the ratings of the Company's insurance subsidiaries because
of factors, including material losses, that may or may not be within the
Company's control.

The Company's principal executive offices are located at 3760 River Run
Drive, Birmingham, Alabama 35243, and its telephone number is (205) 970-7000.

BUSINESS STRATEGY

The Company contributed a majority of the proceeds from the initial public
offering of its Common Stock in 1993 and the sale of $100 million of its 8 3/4%
Senior Debentures due 2025 on July 19, 1995, to the capital and surplus of its
insurance subsidiaries. Increasing the surplus of its insurance subsidiaries
enabled the Company to increase its sales of insurance and reinsurance. In
particular, the Company has significantly increased its writings of pro rata
reinsurance to capitalize on the increased demand for such reinsurance in
recent years. In addition, since the end of 1992, higher prices for property
catastrophe reinsurance have enabled the Company to increase and maintain its
writings of catastrophe risks. The Company is also increasing its writings of
selected primary insurance lines.

Historically, the Company has made substantial use of reinsurance and
retrocessional arrangements to reduce its exposure to risks and the variability
of its earnings. The Company plans to continue to cede a portion of its
insurance risks while using its increased capital base to increase selectively
its retentions of certain property risks based on market conditions. In
addition, the Company will continue its strategy to balance the geographic
concentration of the risks of its primary insurance and reinsurance business.
While the Company's primary insurance operations are focused principally in
southeastern and southwestern states and Hawaii, its reinsurance customers are
principally regional insurance companies operating outside of these areas.

RELATIONSHIP WITH TORCHMARK

Prior to the initial public offering of its common stock in November 1993,
the Company was a wholly-owned subsidiary of Torchmark. As of the date hereof,
Torchmark beneficially owns approximately 27% of the issued and outstanding
common stock of the Company, and R.K. Richey, the Chairman and Chief Executive
Officer of Torchmark, has, since the Company's initial public offering, served
as a director and the Chairman of the Board of the Company. In August 1996,
Keith A. Tucker, Vice Chairman of Torchmark, was elected by the Board to a
newly created position on the Company's Board of Directors. Torchmark and Vesta
previously entered into a Separation and Public Offering Agreement (as amended
or supplemented, the "Separation Agreement") in which Vesta granted to
Torchmark, among other things, certain registration rights and pursuant to
which the offering of shares of Common Stock hereby is registered. Prior to its
initial public offering, the Company entered into several agreements with
Torchmark and certain of its subsidiaries regarding the future relationship of
the Company and Torchmark. Among these are a lease agreement, pursuant to which
the Company leases its headquarters building from Torchmark Development
Corporation ("TDC"), a wholly-owned subsidiary of Torchmark, and an investment
services agreement, pursuant to which Waddell & Reed Asset Management Company
("WRAMCO"), a subsidiary of Torchmark, provides the Company with investment
advice and services in connection with the management of the Company's
investment portfolio. Liberty National Life Insurance Company, a wholly-owned
subsidiary of Torchmark ("LNL"), continues to service lower value personal
dwelling insurance previously marketed through agents of LNL. This agreement
was terminated effective April 30, 1995, and these products are no longer
marketed through LNL agents, though LNL continues to service the existing
business. See "Risk Factors--Relationship with Torchmark."

6
<PAGE>

RISK FACTORS

Prospective investors should carefully consider the specific factors set
forth below as well as the other information contained in this Prospectus and
the information incorporated herein by reference.

EFFECT OF THE PEPS ON THE MARKET FOR VESTA COMMON STOCK

It is expected that the PEPS will not be listed on the NYSE or any other
national securities market. Any market that develops for the PEPS is likely to
influence, and be influenced by, the market for the Vesta Common Stock. For
example, the price of the Vesta Common Stock could become more volatile and
could be depressed by investors' anticipation of the potential distribution
into the market of substantial additional amounts of Vesta Common Stock at the
maturity of the PEPS, by possible sales of Vesta Common Stock by investors who
view the PEPS as a more attractive means of equity participation in Vesta and
by hedging or arbitrage trading activity that may develop involving the PEPS
and Vesta Common Stock. For further information concerning the risks related
to an investment in the PEPS, see the Torchmark Prospectus.

RESTRICTIONS ON OWNERSHIP

In certain circumstances, various state insurance regulatory authorities
require that persons who intend to acquire certain specified percentages of
the capital stock of an insurance company or insurance holding company receive
the prior approval of such regulatory authority prior to the acquisition of
such shares. Investors who intend to acquire directly or indirectly 5% or more
of the Company's outstanding Common Stock must obtain the prior approval of
the Alabama Insurance Commissioner and investors who intend to acquire
directly or indirectly 10% or more of the Company's outstanding Common Stock
must obtain the prior approval of the Texas and Hawaii Insurance
Commissioners. Such requirements could have the effect of decreasing the
demand for, or the liquidity of large blocks of, the Common Stock. FOR THESE
PURPOSES, PURCHASERS OF PEPS MAY BE DEEMED TO BE HOLDERS OF VESTA COMMON STOCK
AS A RESULT OF THEIR HOLDINGS OF PEPS. TORCHMARK HAS INFORMED VESTA THAT THE
ALABAMA INSURANCE COMMISSIONER HAS ADVISED TORCHMARK THAT ANY PERSON, WHO HAS
THE RIGHT TO ACQUIRE VESTA COMMON STOCK AS A RESULT OF HOLDING PEPS, AND WHO
HOLDS MORE THAN 5% OF VESTA COMMON STOCK, INCLUDING SHARES RECEIVABLE UPON
SETTLEMENT OF THE PEPS MUST AGREE IN WRITING AT THE TIME OF PURCHASE OF SUCH
PEPS THAT IT CANNOT DIRECTLY OR INDIRECTLY OWN, CONTROL, HOLD OR HAVE THE
RIGHT TO ACQUIRE IN ANY MANNER 10% OR MORE OF THE TOTAL OUTSTANDING SHARES OF
VESTA COMMON STOCK WITHOUT PRIOR REGULATORY APPROVAL BY THE ALABAMA INSURANCE
COMMISSIONER.

RELATIONSHIP WITH TORCHMARK

Until the Company's initial public offering in November 1993, the Company
was a wholly-owned subsidiary of Torchmark and Torchmark currently
beneficially owns approximately 27% of the outstanding shares of Vesta Common
Stock and is Vesta's largest single shareholder. Mr. R. K. Richey, the
Chairman and Chief Executive Officer of Torchmark, has, since the Company's
initial public offering, served as the Chairman of the Board of the Company.
In August 1996, Keith A. Tucker, Vice Chairman of Torchmark, was elected by
the Board to a newly created position on the Company's Board of Directors.
Since the Company's initial public offering, the Company has been managed and
operated separately from Torchmark, although the two companies have certain
transition and other relationships.

Conflicts of interest between the Company and Torchmark may arise from time-
to-time with respect to business dealings between them, including potential
acquisitions of businesses or properties, the issuance of additional
securities, the election of new or additional directors and the payment of
dividends by the Company.

The Company was a party to a Consolidated Tax Allocation Agreement, dated
August 29, 1990 (the "Tax Agreement"), with Torchmark and certain of its
subsidiaries covering tax years up to and including most of 1993. The Tax
Agreement was terminated as to the Company as a result of the Company's
initial public offering. Although certain tax years covered by the Tax
Agreement are still subject to Internal Revenue Service ("IRS")

7
<PAGE>

audit, Vesta's management believes it is unlikely that any material tax
contingencies will arise or have a material adverse effect on Vesta's or its
subsidiaries' financial condition. However, such tax contingencies could
adversely affect the results of operations for any period even where the
Company had a relatively low level of income. Though binding on the parties
thereto, the Tax Agreement is not binding on the IRS and does not affect the
several liability of Torchmark and its subsidiaries or the Company's
subsidiaries as former members of a consolidated tax filing group to the IRS
for all federal taxes of the consolidated group relating to periods ending
before the date of the Company's initial public offering. For a discussion of
certain other relationships between Vesta and Torchmark, see "Prospectus
Summary--Relationship with Torchmark."

FACTORS AFFECTING INDUSTRY PERFORMANCE; PROPERTY CASTASTROPHE RISKS

The results of operations of the property and casualty insurance industry
historically have been subject to significant variability due to premium rate
competition, natural disasters and other catastrophic events, judicial trends,
changes in the investment and interest rate environment, regulation, and
general economic conditions. Premium rate levels are affected by the
availability of insurance coverages, which is influenced by levels of surplus
in the industry and the regulatory environment. The level of surplus in the
industry varies with underwriting experience, returns on invested capital and
regulatory barriers to withdrawal of surplus. Increases in surplus have
generally been accompanied by increased price competition among property and
casualty insurers.

The industry's profitability can be materially adversely affected by
unpredictable developments, including disasters (such as hurricanes,
windstorms, earthquakes, fires and explosions), fluctuations in interest rates
and other changes in the investment environment which affect market prices of
insurers' investments and the income from those investments, inflationary
pressures that increase the size of losses and may affect the market prices of
insurers' investments, and legislative and judicial decisions affecting
insurers' liabilities. The demand for property and casualty insurance can also
vary significantly, generally rising as the overall level of economic activity
increases and falling as such activity decreases.

The Company markets its primary insurance principally in the southeastern
United States, an area known for hurricane risk, although the Company
historically has reduced its exposure through the use of reinsurance. Because
catastrophe loss events are by their nature unpredictable, historical results
of operations may not be indicative of future results. The occurrence of one
or more major catastrophes in any given period could have a material adverse
impact on the Company's results of operations and could result in substantial
outflows of cash as losses are paid.

COMPETITION; RATINGS

The property and casualty insurance business is highly competitive. Vesta's
insurance subsidiaries compete with domestic and foreign insurers and
reinsurers, some of which have significantly greater financial resources than
Vesta. Pricing is a primary means of competition. The industry is currently in
a period of significant price competition, due in part to excess capacity in
most lines of business, including casualty reinsurance. Competition is also
based on the availability and quality of products, quality and speed of
service (including claims service), financial strength, ratings, distribution
systems and technical expertise. Currently, A.M. Best has assigned an "A"
(Excellent) rating to the Company's insurance subsidiaries. No assurances can
be given that in the future A.M. Best will not reduce or withdraw the ratings
of Vesta's insurance subsidiaries because of factors, including material
losses, that may or may not be within the control of Vesta. See "Business--
Primary Insurer Business" and "--Competition."

REINSURANCE CONSIDERATIONS

The Company's insurance and reinsurance operations rely on the use of
reinsurance and retrocessional arrangements to limit the amount of risk
retained under the Company's policies and reinsurance treaties. The
availability and cost of reinsurance and retrocessional coverage may vary
significantly over time and are subject to prevailing market conditions. While
the Company's ability to place reinsurance and retrocessional risks has not
been affected significantly to date by changing market conditions, in the
future the Company may be required

8
<PAGE>

to increase the amount of its net exposures or reduce its premium writings if
it is unable to obtain coverage on satisfactory terms. In addition, the
Company's ability to increase its sales of property catastrophe reinsurance
will depend on the availability of retrocessional capacity. See "Business--
Reinsurance" and "--Reinsurance Ceded."

The Company seeks to evaluate the credit quality of the reinsurers and
retrocessionaires to which it cedes business. No assurance can be given
regarding the future ability of any of the Company's reinsurers to meet their
obligations. Among the insurers to which the Company cedes reinsurance are
Underwriters at Lloyd's, London, a collection of underwriters, known as
"Names," who group together annually to form syndicates. In recent years
Lloyd's has reported substantial losses which have had deleterious effects on
Lloyd's in general, and on certain syndicates in particular. In addition,
there has been a decrease in underwriting capacity of Lloyd's syndicates in
recent years and Lloyd's has been the subject of extensive litigation in the
United States. The substantial losses and other adverse developments could
affect the ability of certain syndicates to continue to trade and the ability
of insureds to continue to place business with particular syndicates. It is
not possible to predict what effects the circumstances described above may
have on Lloyd's and the Company's contractual relationship with Lloyd's
syndicates in future years.

ADEQUACY OF LOSS RESERVES

The Company's insurance subsidiaries are required to maintain reserves to
cover their estimated ultimate liability for losses and loss adjustment
expenses ("LAE") with respect to reported and unreported claims incurred. To
the extent that reserves prove to be inadequate in the future, the Company
will have to increase such reserves and incur a charge to earnings in the
period such reserves are increased, which could have a material adverse effect
on the Company's results of operations and financial condition. The
establishment of appropriate reserves is an inherently uncertain process and
there can be no assurance that ultimate losses will not materially exceed the
Company's loss reserves. Reserves are estimates involving actuarial and
statistical projections at a given time of what the Company expects to be the
cost of the ultimate settlement and administration of claims based on facts
and circumstances then known, estimates of future trends in claims severity
and other variable factors such as inflation. The inherent uncertainties of
estimating reserves generally are greater with respect to reinsurance
liabilities due to the diversity of development patterns among different types
of reinsurance contracts, the necessary reliance on ceding companies for
information regarding reported claims and differing reserving practices among
ceding companies. While no assurance can be given as to future developments,
management believes that adequate provision has been made for the Company's
reserves for losses and loss adjustment expenses. See "Business--Reserves" and
"--Regulation."

HOLDING COMPANY STRUCTURE; RELIANCE ON DIVIDENDS FROM INSURANCE SUBSIDIARIES

Because the operations of the Company are conducted through its
subsidiaries, the Company is dependent upon dividends and other payments from
its subsidiaries for funds to meet its obligations and, if authorized by the
Company's Board of Directors, to pay dividends on its capital stock. The
insurance holding company laws of Alabama regulate the distribution of
dividends and other payments to the Company by its subsidiaries. Under the
applicable Alabama statutes, an insurer may pay dividends in any year in an
amount not exceeding the greater of (i) 10% of statutory surplus as of the end
of the preceding year and (ii) statutory net income (excluding realized
capital gains and losses) for the preceding year, with larger dividends
payable only upon prior regulatory approval. Such restrictions or any
additional subsequently imposed restrictions may in the future affect Vesta's
ability to pay principal and interest on its debt, expenses and any cash
dividends to its stockholders. See "Price Range of Common Stock and Dividends"
and "Business--Regulation."

REGULATION

9
<PAGE>

involve prior approval of the acquisition of control of an insurance company
or of any company controlling an insurance company, regulation of certain
transactions entered into by an insurance company with any of its affiliates,
approval of premium rates for many lines of insurance, standards of solvency
and minimum amounts of capital and surplus which must be maintained,
limitations on types and amounts of investments, restrictions on the size of
risks which may be insured by a single company, licensing of insurers and
agents, deposits of securities for the benefit of policyholders, and reports
with respect to financial condition and other matters. In addition, state
regulatory examiners perform periodic examinations of insurance companies.
Such regulation is generally intended for the protection of policyholders
rather than security holders.

In addition to the regulatory supervision of the Company's insurance
subsidiaries, the Company is also subject to regulation under the Alabama,
Hawaii and Texas Insurance Holding Company System Regulatory Acts (the
"Holding Company Acts"). The Holding Company Acts contain certain reporting
requirements including those requiring the Company, as the ultimate parent
company, to file information relating to its capital structure, ownership, and
financial condition and general business operations of its insurance
subsidiaries. The Holding Company Acts contain special reporting and prior
approval requirements with respect to transactions among affiliates. The
Alabama Holding Company Act is generally the most significant to the Company
since it governs the Company's relationship with Vesta Fire, the Company's
principal insurance subsidiary.

Insurance companies are also affected by a variety of state and federal
legislative and regulatory measures and judicial decisions that define and
extend the risks and benefits for which insurance is sought and provided.
These include redefinitions of risk exposure in areas such as products
liability, environmental damage and employee benefits, including pensions,
workers' compensation and disability benefits. In addition, individual state
insurance departments may prevent premium rates for some classes of insureds
from reflecting the level of risk assumed by the insurer for those classes.
Such developments may adversely affect the profitability of various lines of
insurance and Vesta's ability to operate profitably in certain jurisdicitons.
In some cases, these adverse effects on profitability can be minimized through
repricing of coverages, if permitted by applicable regulations, or limitation
or cessation of the affected business. See "Business--Regulation."

CERTAIN PROVISIONS THAT MAY HAVE ANTI-TAKEOVER EFFECTS

Certain provisions of the Restated Certificate of Incorporation (the "Vesta
Certificate") and Bylaws (the "Bylaws") of the Company may be deemed to have
anti-takeover effects and may delay, defer or prevent a takeover attempt that
a Vesta stockholder might consider to be in its best interest. Such provisions
also may adversely affect prevailing market prices for the Common Stock. These
provisions, among other things, (i) classify the Board of Directors of the
Company into three classes, each of which will serve for staggered three-year
terms, (ii) provide that a director of the Company may be removed only for
cause and only by a vote of 80% of the Common Stock then outstanding, (iii)
provide that only the Board of Directors or the Chairman of the Board of
Directors of the Company may call special meetings of the stockholders, (iv)
eliminate the ability of the stockholders to take any action without a
meeting, (v) provide that the stockholders may amend or repeal the Bylaws or
any of the foregoing provisions of the Certificate only by a vote of 80% of
the Common Stock then outstanding and (vi) provide that the Vesta Board is
authorized to create and issue rights entitling the holders thereof to
purchase from Vesta shares of stock or other securities of Vesta or any other
corporation. In addition, the Bylaws establish certain advance notice
procedures for nomination of candidates for election as directors and for
stockholder proposals to be considered at stockholders' meetings. As the
Company's single largest shareholder and the holder of more than 20% of the
Company's outstanding Common Stock, Torchmark can influence the outcome of
matters submitted to Company shareholders, including defeating changes
requiring an 80% or greater vote of Vesta's shareholders. The Company also has
authorized 5,000,000 shares of Preferred Stock issuable in one or more series,
with such rights, preferences and conversion or other features as the Board of
Directors may designate, which could include terms that could have an anti-
takeover effect. No series of Preferred Stock has been designated or issued as
of the date hereof. For a description of Vesta's capital stock, see "Available
Information" and "Incorporation of Certain Information by Reference."

The Company also is subject to Section 203 of the Delaware General
Corporation Law, as amended ("Section 203"), which provides that, subject to
certain exceptions specified therein, an "interested stockholder" of a
Delaware corporation shall not engage in any business combination, including
mergers or

10
<PAGE>

consolidations or acquisitions of additional shares of the corporation, with
the corporation for a three-year period following the date that such
stockholder becomes an "interested stockholder" unless (i) prior to such date,
the board of directors of the corporation approved either the business
combination or the transaction which resulted in the stockholder becoming an
"interested stockholder," (ii) upon consummation of the transaction which
resulted in the stockholder becoming an "interested stockholder," the
interested stockholder owned at least 85% of the voting stock of the
corporation outstanding at the time the transaction commenced (excluding
certain shares) or (iii) on or subsequent to such date, the business
combination is approved by the board of directors of the corporation and
authorized at an annual or special meting of stockholders by the affirmative
vote of at least 66 2/3% of the outstanding voting stock which is not owned by
the "interested stockholder." Except as otherwise specified in Section 203, an
"interested stockholder" is defined to include (x) any person that is the
owner of 15% or more of the outstanding voting stock of the corporation, or is
an affiliate or associate of the corporation and was the owner of 15% or more
of the outstanding voting stock of the corporation at any time within three
years immediately prior to the relevant date and (y) the affiliates and
associates of any such person. Torchmark is not subject to the limitations of
Section 203 although any purchasers of Vesta Common Stock from Torchmark or
otherwise will be. Section 203 may make it more difficult for a person who
would be an "interested stockholder" to effect various business combinations
with a corporation for a three-year period, although the stockholders may
elect to exclude a corporation from the restrictions imposed thereunder. It is
possible that such provisions could make it more difficult to accomplish
transactions which stockholders may otherwise deem to be in their best
interests.

11
<PAGE>

SELECTED CONSOLIDATED FINANCIAL DATA

The following table presents certain selected consolidated historical
financial information of the Company. Such information should be read in
conjunction with the Company's Consolidated Financial Statements and related
notes incorporated herein by reference. The consolidated statement of
operations data set forth below for the five years ended December 31, 1995,
are derived from the audited Consolidated Financial Statements and related
notes incorporated herein by reference. The consolidated statement of
operations data presented below for the six months ended June 30, 1995 and
1996, and the balance sheet data at June 30, 1995 and 1996, are derived from
unaudited consolidated financial statements which include all adjustments
which management considers necessary for a fair presentation of the results of
operations and the financial position for such periods. Operating results for
the six months ended June 30, 1996, are not necessarily indicative of the
results that may be obtained for the entire year ending December 31, 1996.
Certain items have been rounded for presentation purposes. See "Available
Information" and "Incorporation of Certain Documents By Reference."

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------------------------------------- ------------------
1991 1992 1993 1994 1995 1995 1996
------------ ------------ ------------ ------------ ----------- -------- --------
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE AND PERCENTAGE DATA) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Gross Premiums
Written............... $ 121,925 $ 165,834 $ 225,428 $ 354,830 $ 586,782 $227,338 $380,027
Net Premiums Written... 67,019 110,069 158,953 259,710 459,228 188,281 318,003
Net Premiums Earned.... 60,704 98,383 143,810 259,952 381,802 154,231 312,271
Net Investment Income.. 7,860 7,389 8,949 12,999 17,972 8,242 11,003
Investment Gains
(Losses).............. 661 505 (2) (695) 276 -- --
Other.................. 595 576 368 100 216 95 85
------------ ------------ ------------ ------------ ----------- -------- --------
Total Revenues......... 69,820 106,853 153,125 272,356 400,266 162,568 323,359
------------ ------------ ------------ ------------ ----------- -------- --------
Losses and LAE
Incurred.............. 30,455 50,279 75,369 140,281 219,091 86,312 183,004
Policy Acquisition and
Other Underwriting
Expenses.............. 29,631 44,503 58,281 88,295 111,806 46,686 96,711
Amortization of
Goodwill.............. 16 -- -- -- 264 -- 254
Interest Expense....... -- -- -- 1,708 5,273 854 4,990
------------ ------------ ------------ ------------ ----------- -------- --------
Total Losses and
Expenses.............. 60,102 94,782 133,650 230,284 336,434 133,852 284,959
------------ ------------ ------------ ------------ ----------- -------- --------
Income From Operations
Before Income Tax..... 9,718 12,071 19,475 42,072 63,832 28,716 38,400
Income Tax............. 3,006 3,805 6,531 12,843 21,133 9,264 12,750
Change in Accounting
(1)................... -- -- 1,939 -- -- -- --
------------ ------------ ------------ ------------ ----------- -------- --------
Net Income............. $ 6,712 $ 8,266 $ 14,883 $ 29,229 $ 42,699 $ 19,452 $ 25,650
============ ============ ============ ============ =========== ======== ========
Earnings Per Share
before changes in
Accounting (2)......... 0.54 0.67 0.91 1.55 2.27 1.03 1.36
Earnings Per Share (2).. 0.54 0.67 1.05 1.55 2.27 1.03 1.36
Shares Used in Per Share
Calculation (2)........ 12,450 12,450 14,268 18,812 18,842 18,824 18,916
BALANCE SHEET DATA (AT
END OF PERIOD):
Total Investments and
Cash (3).............. $ 109,179 $ 101,167 $ 250,948 $ 300,186 $422,518 $326,923 $462,688
Total Assets (4)....... 151,942 169,992 405,691 510,290 817,624 600,313 865,172
Reserves For Losses and
LAE (4)............... 21,919 21,976 78,285 120,980 199,314 145,166 227,811
Short Term Debt........ -- -- -- -- 15,000 -- 15,000
Long Term Debt ........ -- -- 28,000 28,000 98,163 28,000 98,206
Total Liabilities (4).. 69,669 78,378 196,588 276,415 537,005 345,442 562,257
Stockholders' Equity
(3)................... 82,273 91,614 209,103 233,875 280,619 254,871 302,915
CERTAIN FINANCIAL RATIOS
AND OTHER DATA:
GAAP
Loss and LAE Ratio..... 50.2% 51.1% 52.4% 53.9% 57.4% 56.0% 58.6%
Underwriting Expense
Ratio................. 48.8 45.2 40.5 34.0 29.3 30.3 31.0
------------ ------------ ------------ ------------ ----------- -------- --------
Combined Ratio......... 99.0% 96.3% 92.9% 87.9% 86.7% 86.3% 89.6%
============ ============ ============ ============ =========== ======== ========
SAP (5)
Loss and LAE Ratio..... 51.4% 52.6% 51.7% 54.0% 57.2% 56.4% 58.6%
Underwriting Expense
Ratio................. 46.6 45.0 40.1 35.4 33.4 35.9 32.7
------------ ------------ ------------ ------------ ----------- -------- --------
Combined Ratio......... 98.0% 97.6% 91.8% 89.4% 90.6% 92.3% 91.3%
============ ============ ============ ============ =========== ======== ========
Net Premiums Written to
Surplus Ratio......... 1.00x 1.61x .79x 1.22x 1.44x 1.78x 1.91x
Surplus................ $ 66,798 $ 68,159 $ 201,752 $ 212,507 $ 318,997 $211,638 $332,488
STATUTORY INDUSTRY DATA
(6):
Combined Ratio for
Property and Casualty
Insurers.............. 108.8% 115.8% 106.9% 108.4% 106.3%(7)
</TABLE>

12
<PAGE>

- --------
(1) During the first quarter of 1993, Vesta adopted FASB Statement Number 109,
"Accounting for Income Taxes," which resulted in a one-time addition to
after-tax earnings of $2,321,000. Vesta also adopted FASB Statement No.
106, "Employers Accounting for Postretirement Benefits other than
Pensions," which resulted in a one-time after tax charge to earnings of
$382,000. The implementation of these standards is not expected to have a
material impact on future earnings.
(2) Restated for 3-for-2 stock split in the form of a 50% stock dividend paid
on January 22, 1996.
(3) On July 16, 1993, Torchmark contributed $50 million to the Company in
exchange for Common Stock. On November 18, 1993, the Company completed its
initial public offering of Common Stock pursuant to which the Company
received approximately $51 million.
(4) Effective as of January 1, 1993, the Company adopted FASB Statement Number
113, "Accounting and Reporting for Reinsurance of Short Duration and Long
Duration Contracts." The prior periods have not been restated.
(5) Statutory data have been derived from the financial statements of the
Company prepared in accordance with SAP and filed with insurance
regulatory authorities.
(6) The statutory industry data are taken from the A. M. Best Company,
Aggregates and Averages, 1996 Edition.
(7) 1995 estimate by A.M. Best Company.

13
<PAGE>

THE COMPANY

The Company is a holding company for a group of property and casualty
insurance subsidiaries, including Vesta Fire, which offers treaty reinsurance
and primary insurance on personal and commercial risks. In both its
reinsurance and primary insurance operations, the Company focuses primarily on
property coverages. Gross premiums written by the Company in 1995 and the six
months ended June 30, 1996, totaled $586.8 million and $380.0 million,
respectively. Net premiums written by the Company in 1995 and the six months
ended June 30, 1996, totaled $459.2 million and $318.0 million, respectively.
Net premiums earned by the Company in 1995 and the six months ended June 30,
1996, totaled $381.8 million and $312.3 million, respectively. The Company's
stockholders' equity was $280.6 million at December 31, 1995 and $302.9
million at June 30, 1996.

The Company provides treaty reinsurance, principally through reinsurance
intermediaries, to small and medium-sized regional insurance companies located
primarily in the southwestern, midwestern and northeastern United States. The
reinsurance of personal and commercial property risks accounted for
approximately 88% of the Company's gross reinsurance premiums written in 1995.
The principal lines of business reinsured by the Company include homeowner and
commercial property coverages, non-standard automobile insurance and
collateral protection insurance. With respect to the Company's reinsurance
operations, gross premiums written were $422.7 million for the year ended
December 31, 1995, compared with $242.0 million for the year ended December
31, 1994, while net premiums earned were $290.7 million and $191.7 million
during the same periods, respectively. For the six months ended June 30, 1996,
gross premiums written were $304.6 million while net premiums earned were
$260.4 million compared to $169.2 million and $116.9 million, respectively,
for the first sixt months of 1995.

In its primary insurance operations, the Company has developed insurance
products and programs to meet particular market needs. Primary insurance
products offered by the Company include a variety of homeowner and dwelling
insurance products, specialty commercial transportation products, commercial
business coverages and certain financial services products designed to protect
the interests of financial institutions in real and personal property
collateral. Primary insurance products are distributed through independent
agents and brokers, with the exception of certain financial services products,
which are distributed through specialist agents and two managing agents. With
respect to the Company's primary insurance operations, gross premiums written
were $164.1 million for the year ended December 31, 1995, compared with $112.7
million for the year ended December 31, 1994, while net premiums earned were
$91.1 million and $68.3 million during the same periods, respectively. For the
six months ended June 30, 1996, gross premiums written were $75.4 million
while net premiums earned were $51.9 million, compared to $58.1 million and
$37.3 million, respectively, for the first six months of 1995.

The combined ratio is a standard measure in the property and casualty
insurance industry of a company's performance in managing its losses and
expenses. Underwriting results are generally considered profitable when the
combined ratio under GAAP and SAP is less than 100%. A comparison of statutory
combined ratios indicates that the Company has experienced more favorable
results than the average for insurance industry over the past three years.
COMBINED RATIO (STATUTORY BASIS)

The following table sets forth statutory combined ratios for the Company and
the statutory combined ratios for the property and casualty insurance industry
as a whole for the preceding three calendar years.

<TABLE>
<CAPTION>
1993 1994 1995
----- ----- -----
<S> <C> <C> <C>
The Company(1).......................................... 91.8% 89.4% 90.6%
Property and Casualty Industry(2)....................... 106.9% 108.4% 106.3%(3)
</TABLE>
- --------
(1) Data have been derived from the financial statements of the Company
prepared in accordance with SAP and filed with insurance regulatory
authorities.
(2) The statutory industry data are taken from the A.M. Best Company,
Aggregate and Averages, 1996 Edition.
(3) 1995 estimate by A.M. Best Company.

14
<PAGE>

While the industry combined ratios are the generally accepted measure for
comparing results within the property and casualty insurance industry, these
combined ratios do not distinguish between property and casualty companies
based upon their mix of business. Unlike many property and casualty companies,
the Company focuses primarily on short-tail property coverages and writes a
very limited amount of longer tail casualty coverages. Long-tail insurance
coverages often produce higher losses relative to the premiums charged than
short-tail property insurance, which may result in lower combined ratios;
however, because ultimate claims losses for longer tail coverages are slower
to be reported and finally paid, companies writing a significant amount of
long-tail insurance coverages may be able to derive investment income from the
use of premiums paid to mitigate their higher losses.

As of June 30, 1996, the Company held cash and investments in the amount of
$462.7 million. The Company's investment portfolio at such date included
$296.3 million of investment grade fixed income securities, representing 100%
of its total bond portfolio. Investments in equity securities comprised 1.5%
of the Company's investment portfolio as of such date. As of June 30, 1996,
the Company holds no real estate in its investment portfolio. The duration of
the Company's portfolio at June 30, 1996 was 2.79 years. See "Business-
Investments."

The Company's insurance subsidiaries are currently rated "A" (Excellent) by
A.M. Best, which is A.M. Best's third highest rating category. A.M. Best
ratings are based upon factors of concern to policyholders and are not
directed toward the protection of investors including holders of securities of
Vesta, and should not be relied upon with respect to making an investment
decision regarding the Common Stock of Vesta. No assurance can be given that
in the future, A.M. Best will not reduce or withdraw the ratings of the
Company's insurance subsidiaries because of factors, including material
losses, that may or may not be within the Company's control.

The Company was incorporated in Delaware on July 9, 1993, to be the holding
company for the property and casualty insurance subsidiaries of Torchmark.
Prior to its initial public offering of Common Stock in November 1993, the
Company was a wholly-owned subsidiary of Torchmark. As of June 30, 1996,
Torchmark held approximately 27% of the outstanding Common Stock of the
Company. The Company's principal property and casualty subsidiary is Vesta
Fire.

RECENT DEVELOPMENTS

On August 1, 1996 the Company announced the election of two new directors to
two newly created positions on its Board of Directors; Keith A. Tucker, Vice
Chairman of Torchmark, and Norman L. Rosenthal, a former Managing Director
with Morgan Stanley & Co. Incorporated. Vesta also announced the appointment
of Mary Beth Heibein to the position of Principal Accounting Officer and
Controller.

USE OF PROCEEDS

The Common Stock offered hereby is beneficially owned by Torchmark.
Accordingly, Vesta will not receive any of the proceeds from the sale or
settlement at maturity of the PEPS by Torchmark.

15
<PAGE>

CAPITALIZATION

The following table sets forth the unaudited consolidated capitalization of
the Company as of June 30, 1996. This table should be read in conjunction with
the Consolidated Financial Statements, related notes thereto and other
financial information incorporated by reference in this Prospectus.

<TABLE>
<CAPTION>
JUNE 30, 1996(1)
----------------------
(DOLLARS IN THOUSANDS)
<S> <C>
Long-Term Debt:
8 3/4% Senior Debentures due 2025................. $ 98,206
Total Long-Term Debt................................ 98,206
Stockholders' Equity:
Preferred stock, 5,000,000 shares authorized, none
issued........................................... --
Common stock, $.0l par value, 32,000,000 shares
authorized, 18,919,939 shares issued............. 190
Additional Paid in Capital........................ 160,537
Unrealized Investment Gains, Net of Applicable
Tax.............................................. 2,239
Retained Earnings................................. 143,628
Receivable from Issuance of Restricted Stock...... (2,803)
Treasury Stock.................................... (875)
--------
Total Stockholders' Equity.......................... 302,915
========
Total Capitalization................................ $401,121
========
</TABLE>

- --------
(1) Vesta's capitalization will be unchanged as a result of the offering, or
the settlement at maturity of the PEPS.

16
<PAGE>

PRICE RANGE OF COMMON STOCK AND DIVIDENDS

Since November 11, 1993, the Common Stock has been listed on the NYSE under
the trading symbol "VTA." Torchmark has advised the Company that, as of the
date hereof, Torchmark owned 5,130,000 shares of the Common Stock, which
represented approximately 27 percent of the outstanding shares.

Prior to November 11, 1993, there was no established public trading market
for the Common Stock. The stock began trading on November 11, 1993, at $16.67
per share (as adjusted for the Stock Split, defined below). The following
table sets forth, for the individual calendar periods, the reported high and
low sales prices of the Vesta Common Stock on the NYSE Composite Tape and the
cash dividends per share of Vesta Common Stock. The amounts in the table below
have been adjusted for a three-for-two stock split effected in the form of a
50% stock dividend to shareholders of record on January 5, 1996 (the "Stock
Split").

<TABLE>
<CAPTION>
DIVIDENDS
PERIOD HIGH LOW PER SHARE
- ------ ----- ----- ---------
<S> <C> <C> <C>
1994:
First Quarter........................................... 16.83 13.83 .033
Second Quarter.......................................... 19.67 14.00 .033
Third Quarter........................................... 21.75 17.00 .033
Fourth Quarter.......................................... 19.00 16.33 .033
1995:
First Quarter........................................... 21.67 18.42 .033
Second Quarter.......................................... 22.92 20.00 .033
Third Quarter........................................... 26.42 22.17 .033
Fourth Quarter.......................................... 37.00 22.32 .033
1996:
First Quarter........................................... 35.50 28.25 .038
Second Quarter.......................................... 36.87 28.13 .038
Third Quarter (through August , 1996)..................
</TABLE>

As of August 26, 1996, there were approximately 92 record holders of Vesta
Common Stock, including Cede & Co., as nominee for DTC, which holds shares of
a number of beneficial owners. On , 1996, the last reported sale price of
Vesta Common Stock on the NYSE Composite Tape was $ per share.

The Company's Board of Directors has established a policy of declaring
regular quarterly cash dividends on the Company's Common Stock. The
declaration and payment of dividends will be at the discretion of the
Company's Board of Directors and will depend upon many factors, including the
Company's financial condition and earnings, the capital requirements of the
Company's operating subsidiaries, legal requirements and regulatory
constraints. Accordingly, there is no requirement or assurance that dividends
will be declared or paid. See "Risk Factors--Holding Company Structure"; "--
Reliance on Dividends from Insurance Subsidiaries" and "--Regulation."

Alabama, Hawaii and Texas impose restrictions on the payment of dividends to
the Company by the Company's insurance subsidiaries in excess of certain
amounts without prior regulatory approval. The Company does not currently
expect that regulatory constraints or other restrictions will affect its
ability to declare and pay the quarterly dividends contemplated by the
Company's dividend policy described above.

17
<PAGE>

BUSINESS

The Company is a holding company for a group of property and casualty
insurance subsidiaries, including Vesta Fire, which offers treaty reinsurance
and primary insurance on personal and commercial risks. In both its reinsurance
and primary insurance operations, the Company focuses primarily on property
coverages. Gross premiums written by the Company in 1995 and the six months
ended June 30, 1996, totaled $586.8 million and $380.0 million, respectively.
Net premiums written by the Company in 1995 and the six months ended June 30,
1996, totaled $459.2 million and $318.0 million, respectively. Net premiums
earned by the Company in 1995 and the six months ended June 30, 1996, totaled
$381.8 million and $312.3 million, respectively. The Company's stockholders'
equity was $280.6 million at December 31, 1995 and $302.9 million at June 30,
1996.

The Company provides treaty reinsurance, principally through reinsurance
intermediaries, to small and medium-sized regional insurance companies located
primarily in the southwestern, midwestern and northeastern United States. The
principal lines of business reinsured by the Company include homeowner and
commercial property coverages, non-standard automobile insurance and collateral
protection insurance.

BUSINESS STRATEGY

The Company's strategy is to focus principally on property coverages in all
of its lines of business while adjusting the mix and volume of its writings and
retentions to respond to changes in market prices and to manage its risk
exposures. The Company contributed a majority of the proceeds from the initial
public offering of its Common Stock in 1993 and the sale of $100 million of its
8.75% Senior Debentures due 2025 in July 1995 to the capital and surplus of its
insurance subsidiaries. By increasing the surplus of its insurance
subsidiaries, the Company has continued to increase its sales of insurance and
reinsurance. The Company has significantly increased its writings of pro rata
reinsurance to capitalize on the increased demand for such reinsurance in
recent years. In addition, since the end of 1992, higher prices for property
catastrophe reinsurance have enabled the Company to increase and maintain its
writings of catastrophe risks. The Company is also increasing its writings of
selected primary insurance lines.

Historically, the Company has made substantial use of reinsurance and
retrocessional arrangements to reduce its exposure to risks and the variability
of its earnings. The Company plans to continue to cede a portion of its
insurance risks while using its increased capital base to increase selectively
its retentions of certain property risks based on market conditions. In
addition, the Company will continue its strategy to balance the geographic
concentration of the risks of its primary insurance and reinsurance business.
While the Company's primary insurance operations are focused principally in
southeastern and southwestern states and, Hawaii, its reinsurance business is
principally regional insurance companies operating outside of these areas.

LINES OF BUSINESS

The following table provides selected historical information on a GAAP basis
concerning the business written by the Company and the associated underwriting
results. This data should be read in conjunction with the Company's
Consolidated Financial Statements and related notes thereto. For additional
information on the Company's business segments, see "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and the
Company's Consolidated Financial Statements and related notes incorporated
herein by reference. The historical results presented below for the six months
ended June 30, 1996, are not necessarily

18
<PAGE>

indicative of the results that may be obtained for the entire year ending
December 31, 1996. Certain items have been rounded for presentation purposes.
See "Available Information" and "Incorporation of Certain Documents By
Reference."

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
------------------------------------------------ ------------------
1991 1992 1993 1994 1995 1995 1996
-------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT RATIO DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
REINSURANCE
Gross Premiums
Written............... $ 55,490 $ 84,007 $126,332 $242,030 $422,711 $169,233 $304,637
Net Premiums Written... 27,333 61,686 96,181 193,136 358,289 151,740 262,058
Net Premiums Earned.... 23,665 54,491 89,356 191,700 290,657 116,909 260,417
Loss Ratio............. 49.6% 50.0% 50.1% 50.5% 58.9% 55.3% 60.7%
PRIMARY INSURANCE
Personal
Gross Premiums
Written............... $ 36,432 $ 51,155 $ 64,300 $ 63,658 $105,643 $ 29,983 $ 51,952
Net Premiums Written... 21,536 30,608 42,580 28,626 52,157 14,329 40,927
Net Premiums Earned.... 20,107 24,696 36,316 39,223 44,796 15,486 32,821
Commercial
Gross Premiums
Written............... 30,003 30,672 34,796 49,018 58,428 30,903 23,438
Net Premiums Written... 18,150 17,775 20,192 37,948 48,782 22,212 15,018
Net Premiums Earned.... 16,932 19,196 18,138 29,028 46,349 21,836 19,033
Total Primary
Gross Premiums
Written............... 66,435 81,827 99,096 112,676 164,071 58,105 75,390
Net Premiums Written... 39,686 48,383 62,772 66,574 100,939 36,539 55,945
Net Premiums Earned.... 37,039 43,892 54,454 68,252 91,145 36,950 51,854
Loss Ratio............. 50.6% 52.5% 56.2% 64.3% 52.6% 57.9% 48.0%
COMBINED
Gross Premiums
Written............... $121,925 $165,834 $225,428 $354,830 $586,782 $227,338 $380,027
Net Premiums Written... 67,019 110,069 158,953 259,710 459,228 188,281 318,003
Net Premiums Earned.... 60,704 98,383 143,810 259,952 381,802 154,231 312,271
Loss Ratio............. 50.2% 51.1% 52.4% 53.9% 57.4% 56.0% 58.6%
Expenses Ratio......... 48.8% 45.2% 40.5% 34.0% 29.3% 30.3% 31.0%
Combined Ratio......... 99.0% 96.3% 92.9% 87.9% 86.7% 86.3% 89.6%
</TABLE>

REINSURANCE

Reinsurance is a contractual arrangement under which one insurer (the ceding
company) transfers to another insurer (the reinsurer) all or a portion of a
risk or risks that the ceding company has assumed under the insurance policy
or policies it has issued. A ceding company may purchase reinsurance for any
number of reasons including, to obtain, through the reduction of its
liabilities, greater underwriting capacity than its own capital resources
would support, to stabilize its underwriting results, to protect against
catastrophic loss, to withdraw from a line of business, and to manage risk
when entering a line of business.

Reinsurance can be written on either a pro rata or excess of loss basis.
Under pro rata reinsurance, the reinsurers, in return for a predetermined
portion or share of the insurance premium charged by the ceding company,
indemnify the ceding company against a predetermined portion or share of the
losses and LAE of the ceding company under the covered primary policy or
policies. Under excess of loss reinsurance, the reinsurer indemnifies the
ceding company against all or a specified portion of losses and LAE on
underlying insurance policies in excess of a specified dollar amount, known as
the ceding company's retention, subject to a negotiated policy limit.
Catastrophe reinsurance is a form of excess of loss property reinsurance which
indemnifies the ceding company for losses resulting from a particular
catastrophic event. Excess of loss reinsurance is often written in layers,
with one or a group of reinsurers taking the risk from the ceding company's
retention layer up

19
<PAGE>

to a specified amount, at which point either another reinsurer or a group of
reinsurers takes the excess liability or it remains with the ceding company.
The reinsurer acquiring the risk immediately above the ceding company's
retention layer is said to write working or low layer reinsurance. A loss that
reaches just beyond the primary insurer's retention layer will create a loss
for the working layer reinsurers but not for the reinsurers on the higher
layers.

Premiums that the ceding company pays to the reinsurer for excess of loss
coverage are not directly proportional to the premiums that the ceding company
receives because the reinsurer does not assume a proportionate risk. Excess of
loss coverage is priced separately and distinctly from the pricing employed by
the ceding company in connection with its risk since the probability of loss
is different for the reinsurer than the ceding company. Accordingly, excess of
loss contracts may increase flexibility to determine premiums for reinsurance.
In contrast, in pro rata reinsurance, premiums that the ceding company pays to
the reinsurer are proportional to the premiums that the ceding company
receives, consistent with the proportional sharing of risk, and the reinsurer
generally pays the ceding company a ceding commission. Generally, the ceding
commission is based upon the ceding company's cost of obtaining the business
being reinsured (i.e., commissions, premium taxes, assessments and
miscellaneous administrative expenses).

There are two basic types of reinsurance agreements, treaties and
facultative certificates. Facultative reinsurance involves the reinsuring of
an individual risk while treaty reinsurance is automatic reinsurance (which
may be written pro rata or excess of loss), whereby the ceding company is
obligated to cede and the reinsurer is obligated to accept from the ceding
company certain risks or classes of risks. Occurrence catastrophe reinsurance
is a form of treaty reinsurance.

Substantially all of the reinsurance that the Company currently writes is on
personal and commercial property risks. Management believes there are certain
advantages in emphasizing the writing of property reinsurance over casualty
reinsurance, the most significant of which is that ultimate property claims
losses generally can be determined more quickly than ultimate casualty claims
losses. Long-tail reinsurance, such as certain casualty coverages, frequently
are slower to be reported and finally determined. However, the earnings of
property insurers are affected by unpredictable catastrophic events. See "Risk
Factors--Factors Affecting Industry Performance; Property Catastrophe Risks."
In addition, a continuing increase in the severity of catastrophic losses as
well as various other market forces could affect the Company's ability to buy
adequate retrocessional coverage and thereby necessitate a reduction of the
Company's reinsurance business to a level appropriate for the retrocessional
protection available. See "Risk Factors--Reinsurance Considerations."

The Company's mix of reinsurance business on a gross premiums written basis
is set forth in the following table for the periods indicated:

20
<PAGE>

DISTRIBUTION OF REINSURANCE PREMIUMS WRITTEN

<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT RATIO DATA)
YEARS ENDED DECEMBER 31,
-------------------------------------------------------------
TYPE OF REINSURANCE 1992 1993 1994 1995
- ------------------- ------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Property Reinsurance
Pro Rata.............. $68,566 81.6% $ 93,730 74.2% $181,777 75.1% $330,486 78.2%
Catastrophe........... 12,044 14.3 23,995 19.0 43,982 18.2 38,417 9.1
Excess Risk........... 966 1.2 2,378 1.9 4,203 1.7 2,454 0.6
------- ----- -------- ----- -------- ----- -------- -----
Total Property...... 81,576 97.1 120,103 95.1 229,962 95.0 371,357 87.9
Casualty Reinsurance
Auto Liability........ 1,498 1.8 5,001 4.0 9,450 3.9 49,118 11.6
Other Casualty(l)..... 933 1.1 1,228 0.9 2,618 1.1 2,236 0.5
------- ----- -------- ----- -------- ----- -------- -----
Total Casualty...... 2,431 2.9 6,229 4.9 12,068 5.0 51,354 12.1
------- ----- -------- ----- -------- ----- -------- -----
Total Reinsurance... $84,007 100.0% $126,332 100.0% $242,030 100.0% $422,711 100.0%
======= ===== ======== ===== ======== ===== ======== =====
</TABLE>
- --------
(1) Estimated casualty portion of total reinsurance excluding Auto Liability.

The Company seeks to adjust its reinsurance activities in response to
changing conditions in the reinsurance markets. The Company significantly
increased the writings of pro rata reinsurance during the year ended December
31, 1995, principally for smaller companies seeking to obtain additional
underwriting capacity and protection against catastrophic loss. In addition
the Company's current strategy is to maintain its property catastrophe
reinsurance to take advantage of continuing attractive pricing of occurrence
catastrophe reinsurance resulting from the unusual level of catastrophic
losses experienced between 1989 and 1995, which included major hurricanes,
earthquakes, numerous severe winter storms and several severe hail storms, and
the resulting decline in catastrophic reinsurance and retrocessional capacity.

The principal lines of business reinsured by the Company include homeowner
and commercial property coverages, non-standard automobile insurance and
collateral protection insurance. For 1995, homeowner and commercial property
insurance business comprised approximately 53% of gross reinsurance premiums
written, non-standard automobile insurance comprised approximately 40% of
gross reinsurance premiums written and collateral protection insurance
comprised approximately 7% of gross reinsurance premiums written. The Company
writes a small amount of casualty reinsurance for certain of its property
reinsurance clients. Casualty reinsurance risks assumed by the Company consist
largely of non-standard automobile liability insurance as well as liability
coverages provided under homeowner and commercial multi-peril policies. The
Company writes reinsurance solely under treaty contracts and does not
currently write any reinsurance under facultative certificates.

The Company provides reinsurance to small and medium-sized regional
insurance companies located primarily in the southwestern, midwestern and
northeastern United States. Most of the Company's reinsurance business is
produced through major reinsurance intermediaries in the United States. The
Company's reinsurance operation currently does business through approximately
30 intermediaries, five of which were responsible for approximately 78% of the
division's premium volume during 1995.

PRIMARY INSURANCE BUSINESS

In its primary insurance operations, the Company has sought to identify
market opportunities and develop insurance products to meet particular market
needs. The Company's primary insurance operations are focused primarily on
selected personal and commercial insurance lines as well as on financial
services products consisting of certain collateral protection insurance
policies for financial institutions. As in its reinsurance operations, the
Company emphasizes property coverages, although the Company generally provides
comprehensive personal

21
<PAGE>

liability coverage as part of its homeowner products and general liability
coverage as part of its business owners policies for small to medium-sized
businesses.

The Company's independent agents may bind insurance coverages only in
accordance with guidelines established by the Company. The Company promptly
reviews all coverages bound by its agents and a decision is made as to whether
to continue such coverages. Because of the broad base of the Company's
independent agency force, the contractual limitation on their authority to
bind coverage and the Company's review procedures, the Company does not
believe that the authority of its agents to bind the Company presents any
material risk to the Company and its operations.

Personal Lines

The Company's personal lines business relates primarily to the insurance of
houses and other dwellings as well as their contents. The Company offers
insurance products for a wide range of homes, but (excluding The Hawaiian
Insurance and Guaranty Company, Ltd., "HIG") emphasizes lower value dwellings
(dwellings valued up to $50,000) and standard dwellings (dwellings valued from
$50,000 to $150,000) that typically have attractive profit margins.

The Company also provides specialty products protecting collateral and
repossessed property of financial institutions. Certain of these products are
designed to protect the interests of financial institutions against physical
damage to private passenger automobiles and the other personal property in
those cases where the borrower fails to insure the collateral in accordance
with a loan agreement. The Company also has mortgage security products that
are designed to protect the interest of the mortgagee and mortgagor (borrower)
caused by the mortgagor's failure to obtain property insurance on the
mortgaged property. Coverage is also provided for properties that are in the
process of foreclosure.

On December 31, 1994, the Company purchased a 75% pro rata reinsurance
contract on its homeowners and dwelling lines of business (excluding Hawaii)
produced through independent agents and also on its homeowners and dwelling
lines of business in the financial services business. This reinsurance
contract has enabled the Company to manage more efficiently the risks and
catastrophe exposures of the homeowners and dwelling lines of business.

It has been the Company's policy generally not to underwrite personal lines
business within one hundred miles of a coastline (except for Florida, where
the minimum distance is 10 miles, and Hawaii) in order to limit its exposure
to typical coastal occurrences such as hurricanes and other types of storms.
The Company continually monitors and controls its business in order to
prudently manage its risk in areas with significant exposure to natural
disasters. See "Risk Factors--Factors Affecting Industry Performance; Property
Catastrophe Risks" and "Business--Regulation."

The Company currently markets its insurance products for personal lines
through independent agencies. The Company believes its marketing of its
personal lines products has benefited from the Company's "A" A.M. Best rating.
See "Risk Factors--Competition; Ratings."

The Company has offered homeowner and dwelling policies through independent
agencies since 1988. The Company is currently marketing such policies through
agencies in 18 states. The Company employs marketing representatives to
maintain and expand its agency relationships in its personal lines business.
In addition, the Company pays what it believes to be competitive commission
rates to its agents and has established a profit sharing plan for agencies,
which is based on volume of premiums and loss ratios of risks written.

The Company's financial services products are sold to financial
institutions. Most of the financial services products written by the Company
are marketed and serviced through Overby-Seawell Company, a managing general
agency located in Atlanta, Georgia ("Overby-Seawell"). The Company and Overby-
Seawell entered into an Agency Agreement as of July 27, 1990 (the "Agency
Agreement"), pursuant to which Overby-Seawell was appointed as a
representative for the marketing and underwriting of the Company's financial
services products. Under the Agency Agreement, Overby-Seawell has the
authority to collect premiums and is responsible for the supervision,
adjustment and payment of all claims arising under contracts governed by the
Agency Agreement. In addition, Overby-Seawell has certain limited authority to
issue and execute financial services insurance contracts on behalf of the
Company without obtaining the Company's prior approval.

22
<PAGE>

Underwriting of personal lines business is centralized and performed by the
Company's underwriting staff in accordance with specific underwriting
authority related to the acceptability of each risk for the appropriate
program profile. Management information reports are utilized to measure risk
selection and pricing in order to control underwriting performance. The
principal underwriting criteria for personal property coverages is a
financially stable owner with a well-maintained property. Rates for lower
valued properties are surcharged to reflect risk characteristics. Within
certain limited authority, the agents of the Company are authorized to write
policies without approval from the Company.

Commercial Lines

The Company provides commercial insurance products covering selected
commercial business and transportation risks. While the commercial business
and transportation products offered by the Company include a liability
component, the Company's commercial lines products are focused predominantly
on property and physical damage coverages.

The Company offers property insurance protection for shopping centers,
general retail outlets, apartment buildings and motorcycle dealerships. The
Company also provides business owners policies, primarily to small and medium-
sized businesses, which provide comprehensive coverage under one policy,
including coverage for vehicles used in business, property insurance for
buildings, equipment, inventory and contents, and general liability insurance
for risks associated with business premises.

The Company has designed a complementary group of insurance products for the
trucking industry. These products are offered to independent owner-operators
of trucks and small fleets to cover physical damage, non-trucking liability
and cargo risks. Physical damage protection is the principal product written
by the Company in this line of business. The Company offers non-trucking
liability (which insures nonbusiness use of the vehicle by owner-operators)
and cargo insurance as supplementary products to physical damage coverages.

The Company's commercial lines products are offered in 47 states. The
Company uses marketing representatives to market its commercial lines products
to agencies and brokers. These marketing representatives are employees of the
Company and are located in areas in which the Company operates and targets
business development. Transportation products are marketed through agencies
which specialize in this line of business. The Company believes that its "A"
A.M. Best rating and the commissions and profit sharing arrangements it
provides to contracted agents have been important factors in the Company's
ability to access and maintain profitable commercial property-casualty and
transportation business.

Underwriting of the Company's commercial business and transportation
products is centralized and performed by the Company's underwriting staff in
accordance with specific underwriting authority based upon the experience and
knowledge level of each underwriter. Risks that are perceived to be more
complex are underwritten by the more experienced staff and reviewed by
management.

Many underwriting factors are examined for the commercial business line,
such as quality of construction, occupancy and protection against fire and
other hazards. Additionally, a critical underwriting element is the financial
condition of the owners.

Transportation underwriting is heavily concentrated on a review of the
driver, including the driver's record and experience. However, other factors
are also considered, such as, in the case of cargo insurance, susceptability
to damage and theft exposure.

Limited binding authority is provided to contracted agents, but only for
risks which have been underwritten, priced and accepted by an authorized
underwriter of the Company or risks which qualify under specific and pre-set
guidelines and rate parameters established for a specified class of products.

23
<PAGE>

REINSURANCE CEDED

The Company seeks to manage its risk exposure through the purchase of
reinsurance, including retrocessional placements for its reinsurance business.
The Company obtains reinsurance principally to reduce its net liability on
individual risks and to provide protection for individual loss occurrences,
including catastrophic losses, and to stabilize its underwriting results. In
exchange for reinsurance, the Company pays to its reinsurers a portion of the
premiums received under the reinsured policies. While the assuming reinsurer
is liable for losses to the extent of the coverage ceded, reinsurance does not
legally discharge the Company from primary liability for the full amount of
the policies ceded.

The Company purchases reinsurance separately for its primary insurance
business lines and its reinsurance business. Gross premiums ceded for 1994
were $95.1 million, which constituted 26.8% of the gross premiums written, and
for 1995, were $127.6 million, which constituted 21.7% of the gross premiums
written. While the Company seeks to reinsure a significant portion of its
property catastrophe risks, there can be no assurance that losses experienced
by the Company will be within the coverage limits of the Company's reinsurance
and retrocessional programs.

The availability and cost of reinsurance and retrocessional coverage may
vary significantly over time and are subject to prevailing market conditions.
While the Company's ability to place reinsurance and retrocessional risks has
not been affected significantly to date by changing market conditions, the
Company may be required to increase the amount of its net exposures or reduce
its premium writings. In addition, the Company's ability to increase its sales
of property catastrophe reinsurance will depend on the availability of
retrocessional capacity. See "Risk Factors--Reinsurance Considerations."

The Company seeks to evaluate the credit quality of the reinsurers and
retrocessionaires to which it cedes business. No assurance can be given
regarding the future ability of any of the Company's reinsurers to meet their
obligations. Among the insurers to which the Company cedes reinsurance are
Underwriters at Lloyd's, London, a collection of underwriters, known as
"Names," who group together annually to form syndicates. In recent years
Lloyd's has reported substantial losses which have had deleterious effects on
Lloyd's in general, and on certain syndicates in particular. In addition,
there has been a decrease in underwriting capacity of Lloyd's syndicates in
recent years. The substantial losses and other adverse developments could
affect the ability of certain syndicates to continue to trade and the ability
of insureds to continue to place business with particular syndicates. It is
not possible to predict what effects the circumstances described above may
have on Lloyd's and the Company's contractual relationship with Lloyd's
syndicates in future years. See "Risk Factors--Reinsurance Considerations."

CLAIMS

Claims arising under the policies and treaties issued or reinsured by the
Company are managed by the Company's Claims Department. When the Company
receives notice of a loss, its claims personnel open a claim file and
establish a reserve with respect to the loss. All claims are reviewed and all
payments are made by the Company's employees, with the exception of claims on
certain collateral protection products, which are adjusted by a managing
general agency and periodically audited by the Company's claims personnel. See
"--Primary Insurance."

Most personal lines claims are adjusted and paid by staff claims adjusters.
Management believes that utilizing the Company's trained employee adjusters
permits faster, more efficient service at a lower cost.

Claims settlement authority levels are established for each adjuster or
manager based upon such employee's ability and level of experience. Upon
receipt, each claim is reviewed and assigned to an adjuster or manager based
upon the type of claim. Claims-related litigation is monitored by a home
office litigation supervisor. The Company emphasizes prompt, fair and
equitable settlement of meritorious claims, adequate reserving for claims and
controlling of claims adjustment and legal expenses.

24
<PAGE>

RESERVES

The Company's insurance subsidiaries are required to maintain reserves to
cover their estimated ultimate liability for losses and loss adjustment
expenses with respect to reported and unreported claims incurred. To the
extent that reserves prove to be inadequate in the future, the Company would
have to increase such reserves and incur a charge to earnings in the period
such reserves are increased which could have a material adverse effect on the
Company's results of operations and financial condition. The establishment of
appropriate reserves is an inherently uncertain process and there can be no
assurance that ultimate losses will not materially exceed the Company's loss
reserves. Reserves are estimates involving actuarial and statistical
projections at a given time of what the Company expects to be the cost of the
ultimate settlement and administration of claims based on facts and
circumstances then known, estimates of future trends in claims severity and
other variable factors such as inflation. The inherent uncertainties of
estimating reserves generally are greater with respect to reinsurance
liabilities due to the diversity of development patterns among different types
of reinsurance contracts, the necessary reliance on ceding companies for
information regarding reported claims and differing reserving practices among
ceding companies.

With respect to reported claims, reserves are established on a case-by-case
basis. The reserve amounts on each reported claim are determined by taking
into account the circumstances surrounding each claim and policy provision
relating to the type of loss. Loss reserves are reviewed on a regular basis,
and as new data become available, appropriate adjustments are made to
reserves.

For incurred but not reported ("IBNR") losses, a variety of methods have
been developed in the insurance industry for determining estimates of loss
reserves. One common method of actuarial evaluation, which is used by the
Company, is the loss development method. This method uses the pattern by which
losses have been reported over time and assumes that each accident year's
experience will develop in the same pattern as the historical loss
development. The Company also relies on industry data to provide the basis for
reserve analysis on newer lines of business (lines written less than 3 years).

Provisions for inflation are implicitly considered in the reserving process.
For GAAP purposes, the Company's reserves are carried at the total estimate
for ultimate expected loss without any discount to reflect the time value of
money.

Reserves are computed by the Company based upon actuarial principles and
procedures applicable to the lines of business written by the Company. These
reserve calculations are reviewed regularly by management, and, as required by
state law, the Company engages annually an independent actuary to express an
opinion as to the adequacy of statutory reserves established by management,
which opinions are filed with the various jurisdictions in which the Company
is licensed. Based upon the practice and procedures employed by the Company,
management believes that the Company's reserves are adequate. See "Risk
Factors--Adequacy of Loss Reserves."

The following table provides a reconciliation of beginning and ending
liability balances on a GAAP basis for the years indicated:

25
<PAGE>

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1993 1994 1995
------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Losses and LAE reserves at beginning of year......... $21,976 $ 78,285 $120,980
Losses and LAE incurred:
Provision for losses and LAE for claims occurring
in current year................................... 74,750 139,253 217,293
Increase (decrease) in reserves for claims
occurring in prior years.......................... 619 1,028 1,798
------- -------- --------
Total............................................ 75,369 140,281 219,091
======= ======== ========
Losses and LAE payments for claims incurred:
Current year......................................... 52,482 78,907 92,924
Prior years.......................................... 10,216 18,679 47,833
------- -------- --------
Total................................................ 62,698 97,586 140,757
------- -------- --------
Losses and LAE reserve liability..................... 34,647 120,980 199,314
Gross-up of amounts netted against reinsurance
recoverable(1).................................... 43,638 -- --
------- -------- --------
Losses and LAE reserve liability at end of year...... $78,285 $120,980 $199,314
======= ======== ========
</TABLE>
- --------
(1) As required by FASB Statement No. 113, "Accounting and Reporting for
Reinsurance of Short-Duration and Long-Duration Contracts."

The reconciliation between statutory basis and GAAP basis reserves for each
of the three years in the period ended December 31, 1995 is shown on the
following table.

RECONCILIATION OF RESERVES FOR UNPAID LOSSES AND LAE
FROM STATUTORY BASIS TO GAAP BASIS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1993 1994 1995
------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Statutory reserves............................... $36,453 $ 79,176 $150,818
Adjustments for salvage and subrogation.......... (1,806) (1,845) (1,273)
Gross-up of amounts netted against reinsurance
recoverable 43,638 43,649 49,769
------- -------- --------
Reserves on a GAAP basis......................... $78,285 $120,980 $199,314
======= ======== ========
</TABLE>

The following table shows the development of the reserves for unpaid losses
and loss adjustment expenses from 1985 through 1995 for the Company's
insurance subsidiaries on a GAAP basis excluding amounts netted against
reinsurance recoverable. The top line of the table shows the liabilities at
the balance sheet date for each of the indicated years. This reflects the
estimated amounts of losses and loss adjustment expenses for claims arising in
that year and all prior years that are unpaid at the balance sheet date,
including losses incurred but not yet reported to the Company. The upper
portion of the table shows the cumulative amounts subsequently paid as of
successive years with respect to the liability. The lower portion of the table
shows the estimated amount of the previously recorded liability based on
experience as of the end of each succeeding year. The estimates change as more
information becomes known about the frequency and severity of claims for
individual years. A redundance (deficiency) exists when the reestimated
liability at each December 31 is less (greater) than the prior liability
estimate. The "cumulative redundance (deficiency)" depicted in the table, for
any particular calendar year, represents the aggregate change in the initial
estimates over all subsequent calendar years.

26
<PAGE>

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------------------------------
1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Liability for unpaid
losses and LAE........... $27,490 $43,885 $44,597 $40,837 $32,861 $27,823 $21,919 $21,976 $34,647 $77,331 $149,545
Paid (cumulative) as of
One year later........... 10,193 16,868 7,706 19,730 19,611 11,864 11,890 10,216 18,679 48,007
Two years later.......... 15,796 22,899 22,139 28,475 24,063 16,078 13,968 13,712 24,153
Three years later........ 19,456 26,628 30,405 32,443 27,692 17,062 15,362 14,074
Four years later......... 21,299 32,181 32,783 34,549 28,699 17,829 15,671
Five years later......... 20,831 33,826 34,704 35,564 29,265 18,047
Six years later.......... 22,038 35,640 35,513 36,073 29,366
Seven years later........ 23,468 36,415 36,033 36,449
Eight years later........ 24,095 37,110 36,361
Nine years later......... 24,677 37,427
Ten years later.......... 24,919
Liability reestimated as
of
End of year.............. 27,490 43,885 44,597 40,837 32,861 27,823 21,919 21,976 34,647 77,331 149,545
One year later........... 28,114 43,757 43,721 42,097 34,078 28,779 21,853 22,595 35,714 79,128
Two years later.......... 30,293 42,782 43,869 42,702 33,304 29,431 21,273 22,495 35,310
Three years later........ 29,508 43,042 44,541 42,665 33,851 28,467 20,902 22,068
Four years later......... 29,512 43,165 44,181 42,493 33.663 28,316 20,537
Five years later......... 29,599 43,745 43,170 42,330 33,444 28,027
Six years later.......... 29,341 43,619 42,987 42,149 33,113
Seven years later........ 29,205 43,431 42,901 42,090
Eight years later........ 29,096 43,497 42,847
Nine years later......... 29,121 43,471
Ten years later.......... 29,101
Cumulative
redundance/(deficiency).. (1,611) 414 1,750 (1,253) (252) (204) 1,382 (92) (663) (1,797)
</TABLE>

As the table above indicates, due to the short tail nature of the Company's
business, its claim payout pattern closely tracks increases and decreases in
its premium volume.

The Company reinsured a number of casualty risks in the early 1980's which
could result in claims for coverage of asbestos related and other
environmental impairment liabilities to the extent that such liabilities were
not excluded from the underlying policies. The attachment points in
reinsurance treaties relating to these risks are relatively high, and the
Company's percentage participation in the layers of reinsurance in which it
participates is relatively low. In addition, the Company carries reinsurance
which would mitigate the effect of any losses under these treaties. While
there exists a possibility that the Company could suffer material loss in the
event of a high number of large losses under these treaties, this is unlikely
in management's judgment. Management's judgment is based upon, among other
things, its experience in the property insurance industry generally, the
length of time that has elapsed since these particular treaties were entered
into, and the fact that, to management's knowledge, the Company has received
no notices of any material environmental claims under these treaties.

INVESTMENTS

The Company's investment portfolio consists primarily of investment grade
fixed marketable income securities. WRAMCO, a subsidiary of Torchmark,
provides investment advisory services to the Company subject to investment
policies and guidelines established by Vesta's management. The Company's cash
and investments at June 30, 1996, totaled approximately $462.7 million and
were classified as follows:

27
<PAGE>

<TABLE>
<CAPTION>
AMOUNT AT WHICH % OF
TYPE OF INVESTMENT SHOWN ON BALANCE SHEET PORTFOLIO
------------------ ---------------------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Cash and short-term investments.......... $158,541 34.4%
United States Government securities...... 31,605 6.8
Mortgage-backed securities............... 8,517 1.8
Corporate bonds.......................... 91,598 19.8
Foreign government....................... 2,013 0.4
Municipal bonds.......................... 163,386 35.3
Equity securities........................ 7,028 1.5
-------- -----
Total.................................. $462,688 100.0%
======== =====
</TABLE>

The amortized cost and market value of the fixed maturities portfolio,
classified by category, as of June 30, 1996, was as follows:

<TABLE>
<CAPTION>
AMORTIZED COST MARKET VALUE
-------------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
United States Government securities............ $ 31,423 $ 31,605
Mortgage-backed securities..................... 8,708 8,517
Municipal bonds................................ 163,201 163,386
Foreign government............................. 2,000 2,013
Corporate bonds................................ 91,007 91,598
-------- --------
Total........................................ $296,339 $297,119
======== ========
</TABLE>

The composition of the fixed maturities portfolio, classified by Moody's
Investors Service Inc. rating as of June 30, 1996, was as follows:

<TABLE>
<CAPTION>
AMORTIZED COST % OF TOTAL
-------------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Aaa.............................................. $127,400 43.0%
Aa............................................... 27,158 9.2
A................................................ 133,500 45.0
Baa.............................................. 7,067 2.4
Nonrated......................................... 1,214 0.4
-------- -----
Total.......................................... $296,339 100.0%
======== =====
</TABLE>

The NAIC has a bond rating system that assigns securities to classes called
"NAIC designations" that are used by insurers when preparing their annual
statutory financial statements. The NAIC assigns designations to publicly-
traded as well as privately-placed securities. The designations assigned by
the NAIC range from class 1 to class 6, with a rating in class 1 being of the
highest quality. As of June 30, 1996, all of the Company's fixed maturities
portfolio, measured on a statutory carrying value basis, was invested in
securities rated in class 1 by the NAIC, which are considered investment
grade.

As of June 30, 1996, none of the Company's fixed maturities portfolio was
invested in securities that were rated below investment grade. Less than 2% of
the Company's assets were invested in equity securities, and less than 2% of
the Company's assets were invested in collateralized mortgage obligations
secured by residential mortgages. The duration of the Company's portfolio at
June 30, 1996, was 2.79 years.

28
<PAGE>

In 1994, the Company designated approximately 36% of its total investment
portfolio as available for sale. In 1995, the Financial Accounting Standards
Board permitted companies to reclassify debt securities from held to maturity
to available for sale. The Company took this opportunity to reclassify all of
its held to maturity as available for sale. Accordingly, in 1995, securities
available for sale totaled approximately $316.6 million or 100% of total
investments. The Company may sell all or a portion of these securities
depending on future liquidity needs. In 1993, the Company adopted the
provisions of Statement of Financial Accounting Standards No. 115, "Accounting
for Certain Investments in Debt and Equity Securities." Accordingly, the
securities are carried at market value with the unrealized gains and losses
included in stockholders' equity.

REGULATION

The Company's insurance companies are subject to regulation by government
agencies in the states in which they do business. The nature and extent of
such regulation vary from jurisdiction to jurisdiction, but typically involve
prior approval of the acquisition of control of an insurance company or of any
company controlling an insurance company, regulation of certain transactions
entered into by an insurance company with any of its affiliates, approval of
premium rates for many lines of insurance, standards of solvency and minimum
amounts of capital and surplus which must be maintained, limitations on types
and amounts of investments, restrictions on the size of risks which may be
insured by a single company, licensing of insurers and agents, deposits of
securities for the benefit of policyholders, and reports with respect to
financial condition and other matters. In addition, state regulatory examiners
perform periodic examinations of insurance companies. Such regulation is
generally intended for the protection of policyholders rather than the holders
of securities issued by such insurance companies or their parent holding
companies.

Insurance companies are also affected by a variety of state and federal
legislative and regulatory measures and judicial decisions that define and
extend the risks and benefits for which insurance is sought and provided.
These include redefinitions of risk exposure in areas such as products
liability, environmental damage and employee benefits, including pensions,
workers' compensation and disability benefits. In addition, individual state
insurance departments may prevent premium rates for some classes of insureds
from reflecting the level of risk assumed by the insurer for those classes.
Such developments may adversely affect the profitability of various lines of
insurance. In some cases, these adverse effects on profitability can be
minimized through repricing of coverages, if permitted by applicable
regulations, or limitation or cessation of the affected business.

Restrictions on Dividends to Stockholders. The Company's insurance
subsidiaries are subject to various state statutory and regulatory
restrictions, generally applicable to each insurance company in its state of
incorporation, which limit the amount of dividends or distributions by an
insurance company to its stockholders. The restrictions are generally based on
certain levels of surplus, investment income and operating income, as
determined under statutory accounting practices. Alabama law permits dividends
in any year which, together with other dividends or distributions made within
the preceding 12 months, do not exceed the greater of (i) 10% of statutory
surplus as of the end of the preceding year or (ii) the statutory net income
(excluding realized capital gains and losses) for the preceding year, with
larger dividends payable only after receipt of prior regulatory approval.
Certain other extraordinary transactions between an insurance company and its
affiliates, including sales, loans or investments which in any twelve-month
period aggregate more than either 3% of its admitted

29
<PAGE>

assets or 25% of its statutory surplus, whichever is less, also are subject to
prior approval by the Alabama Department of Insurance. Future dividends from
the Company's subsidiaries may be limited by business and regulatory
considerations. However, based upon restrictions presently in effect, the
maximum amount available for payment of dividends to the Company by its
insurance subsidiaries during 1996 without prior approval of regulatory
authorities is approximately $32 million.

Insurance Regulation Concerning Change or Acquisition of Control. Certain
subsidiaries of the Company are domestic property and casualty insurance
companies organized under the insurance codes of Alabama, Hawaii and Texas
(the "Insurance Codes"). The Insurance Codes contain provisions to the effect
that the acquisition or change of "control" of a domestic insurer or of any
person that controls a domestic insurer cannot be consummated without the
prior approval of the relevant insurance regulatory authority. A person
seeking to acquire control, directly or indirectly, of a domestic insurance
company or of any person controlling a domestic insurance company must
generally file with the relevant insurance regulatory authority an application
for change of control (commonly known as a "Form A") containing certain
information required by statute and published regulations and provide a copy
of such Form A to the domestic insurer. In Alabama, control is presumed to
exist if any person, directly or indirectly, owns, controls, holds with the
power to vote or holds proxies representing 5% or more of the voting
securities of any other person. In Texas and Hawaii, control is presumed to
exist if any person, directly or indirectly, or with members of the person's
immediate family, owns, controls, or holds with the power to vote, or if any
person other than a corporate officer or director of a person holds proxies
representing, 10% or more of the voting securities of any other person. For a
discussion of the treatment of holders of the PEPS under the insurance codes,
reference should be made to the Torchmark Prospectus. In the absence of
regulatory approval or receipt of an exemption, holders of a substantial
number of PEPS may be required to dispose of PEPS (or shares of Vesta Common
Stock acquired upon settlement of any Purchase Contract) prior to the
Settlement Date or any Acceleration Date. Torchmark has informed Vesta that
the Alabama Insurance Commissioner has advised Torchmark that any person who
holds more than 5% of the outstanding shares of Vesta Common Stock, including
shares receivable upon settlement of the PEPS, must agree in writing at the
time of purchase of such PEPS that it cannot directly or indirectly own,
control, hold or have the right to acquire in any manner 10% or more of the
total outstanding shares of Vesta Common Stock without the prior approval of
the Alabama Insurance Commissioner.

In addition, many state insurance regulatory laws contain provisions that
require pre-notification to state agencies of a change in control of a non-
domestic admitted insurance company in that state. While such prenotification
statutes do not authorize the state agency to disapprove the change of
control, such statutes do authorize issuance of a cease and desist order with
respect to the non-domestic admitted insurer if certain conditions exist such
as undue market concentration.

Any future transactions that would constitute a change in control of the
Company would also generally require prior approval by the Insurance
Department of Alabama, Hawaii and Texas and would require preacquisition
notification in those states which have adopted preacquisition notification
provisions and wherein the insurers are admitted to transact business. Such
requirements may deter, delay or prevent certain transactions affecting the
control of the Company or the ownership of the Common Stock, including
transactions that could be advantageous to the stockholders of the Company.

Membership in Insolvency Funds and Associations; Mandatory Pools. Most
states require property and casualty insurers to become members of insolvency
funds or associations which generally protect policyholders against the
insolvency of an insurer writing insurance in the state. Members of the fund
or association must contribute to the payment of certain claims made against
insolvent insurers. Maximum contributions required by law in any one year vary
between 1% and 2% of annual premiums written by a member in that state.
Assessments against Vesta from guarantee funds were $583,931, $749,927 and
$361,788, respectively, for 1993, 1994 and 1995. Most of these payments are
recoverable through future policy surcharges and premium tax reductions.

The Company is also required to participate in various mandatory insurance
facilities or in funding mandatory pools, which are generally designed to
provide insurance coverage for consumers who are unable to obtain insurance in
the voluntary insurance market. Among the pools in which the Company
participates are

30
<PAGE>

those established in coastal states to provide windstorm and other similar
types of property coverage. These pools typically require all companies writing
property insurance in the state for which the pool has been established to fund
deficiencies experienced by the pool based upon each company's relative premium
writings in that state, with any excess funding typically distributed to the
participating companies on the same basis. To the extent that these assessments
are not covered by the Company's reinsurance treaties, they may have an adverse
effect on the Company. Total assessments accrued (or distributions received) by
the Company from all such facilities were $55,183, $(1,618) and $636,767,
respectively, for 1993, 1994 and 1995.

Various states in which the Company is doing business have established
certain shared market facilities with respect to the coverage of windstorm and
hurricane losses in the state. The Company is subject to assessments under
these facilities up to certain prescribed limits (which are generally based on
its share of the property insurance market in the state) if funds in the state
facility are inadequate to pay such losses on insured risks. Such assessments
generally have been treated as a catastrophic loss under the Company's
catastrophe reinsurance programs.

During the past several years, various regulatory and legislative bodies have
adopted or proposed new laws or regulations to deal with the cyclical nature of
the insurance industry, catastrophic events and insurance capacity and pricing.
These regulations include (i) the creation of "market assistance plans" under
which insurers are induced to provide certain coverages, (ii) restrictions on
the ability of insurers to cancel certain policies in mid-term, (iii) advance
notice requirements or limitations imposed for certain policy nonrenewals and
(iv) limitations upon or decreases in rates permitted to be charged.

Risk-Based Capital Requirements. The NAIC adopted risk-based capital
requirements that require insurance companies to calculate and report
information under a risk-based formula which attempts to measure statutory
capital and surplus needs based on the risks in a company's mix of products and
investment portfolio. The formula is designed to allow state insurance
regulators to identify potential weakly capitalized companies. Under the
formula, a company determines its "risk-based capital" ("RBC") by taking into
account certain risks related to the insurer's assets (including risks related
to its investment portfolio and ceded reinsurance) and the insurer's
liabilities (including underwriting risks related to the nature and experience
of its insurance business). Risk-based capital rules provide for different
levels of regulatory attention depending on the ratio of a company's total
adjusted capital to its "authorized control level" ("ACL") of RBC. Based on
calculations made by the Company, the risk-based capital levels for each of the
Company's insurance subsidiaries did not trigger regulatory attention.

Effect of Federal Legislation. Although the federal government does not
directly regulate the business of insurance, federal initiatives often affect
the insurance business in a variety of ways. Current and proposed federal
measures which may significantly affect the insurance business include federal
government participation in asbestos and other product liability claims,
pension regulation (ERISA), examination of the taxation of insurers and
reinsurers, minimum levels of liability insurance and automobile safety
regulations.

NAIC-IRIS Ratios. The NAIC has developed its Insurance Regulatory Information
System ("IRIS") to assist state insurance departments in identifying
significant changes in the operations of an insurance company, such as changes
in its product mix, large reinsurance transactions, increases or decreases in
premiums received and certain other changes in operations. Such changes may not
result from any problems with an insurance company but merely indicate changes
in certain ratios outside ranges defined as normal by the NAIC. When an
insurance company has four or more ratios falling outside "normal ranges,"
state regulators may investigate to determine the reasons for the variance and
whether corrective action is warranted.

In 1995, Vesta Fire had two ratios which varied unfavorably from the "usual
value" range as follows:

<TABLE>
<CAPTION>
RATIO USUAL RANGE VESTA FIRE RATIO
----- ----------- ----------------
<S> <C> <C>
Change in Net Writings...................... 33 to (33) 81
Change in Surplus........................... (10) to 50 57
</TABLE>

31
<PAGE>

The Change in the Net Writings Ratio was impacted by Vesta Fire's increase in
net premiums written from approximately $260 million in 1994 to $470 million in
1995, resulting in a ratio outside the usual range. Additionally, Vesta Fire's
surplus increased to approximately $369 million at December 31, 1995 from
approximately $213 million at December 31, 1994 as a result of income from
operations, and a capital contribution from the Company of $90 million in 1995.

COMPETITION

The property and casualty insurance industry is highly competitive on the
basis of both price and service. The Company competes for direct business with
other stock companies, specialty insurance organizations, mutual insurance
companies and other underwriting organizations, some of which are substantially
larger and have greater financial resources than the Company. The Company also
faces competition from foreign insurance companies and from "captive" insurance
companies and "risk retention" groups (i.e., those established by insureds to
provide insurance for themselves). In the future, the industry, including the
Company, may face increasing insurance underwriting competition from banks and
other financial institutions.

The property and casualty reinsurance business is also highly competitive.
Competition in the types of reinsurance in which the Company is engaged is
based on many factors, including the perceived overall financial strength of
the reinsurers premiums charged, contract terms and conditions, services
offered, speed of claims payment, reputation and experience. Competitors
include independent reinsurance companies, subsidiaries or affiliates of
established domestic or worldwide insurance companies, reinsurance departments
of certain primary insurance companies and underwriting syndicates. See "Risk
Factors--Competition; Ratings."

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 causes of action. These lawsuits may include claims for
punitive damages in addition to 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.

SECURITY OWNERSHIP BY TORCHMARK

Prior to the initial public offering of its Common Stock in November 1993,
the Company was a wholly owned subsidiary of Torchmark. As of the date hereof,
Torchmark beneficially owned approximately 27% of the issued and outstanding
common stock of the Company. See "RISK FACTORS--Relationship with Torchmark."

SELLING STOCKHOLDER

The Common Stock offered by Torchmark pursuant to this Prospectus has been
held by Torchmark and/or its subsidiaries since prior to Vesta's initial public
offering in November 1993. For further information regarding Torchmark, see the
Torchmark Prospectus and the information incorporated therein.

The principal executive offices of Torchmark are located at 2001 Third Avenue
South, Birmingham, Alabama 35233, and its telephone number is (205) 325-4200.

PLAN OF DISTRIBUTION

The Company is advised that under the terms of the Purchase Contracts (as
defined in the Torchmark Prospectus) that are a component of the PEPS,
Torchmark is obligated to deliver to holders thereof upon settlement thereof a
number of shares of the Common Stock or other Exchange Property (as defined in
the Torchmark Prospectus) at specified rates or cash in lieu thereof or a
combination of stock and cash. For a description of the PEPS, see the Torchmark
Prospectus. The Company is not a party to such Purchase Contracts and has no
obligations thereunder or with respect to the PEPS, which are securities of
Torchmark and are not securities of the Company.

32
<PAGE>

The Company has agreed that it will not for a period of 90 days following
the sale by Torchmark of the PEPS, without the prior written consent of Morgan
Stanley & Co. Incorporated, (1) offer, pledge, sell, contract to sell, sell
any option or contract to purchase, purchase any option or contract to sell,
grant any option, right or warrant to purchase or otherwise transfer or
dispose of, directly or indirectly, any shares of Common Stock or any
securities convertible into or exercisable or exchangeable for Common Stock,
or (2) enter into any swap or other arrangement that transfers to another, in
whole or in part, any of the economic consequences of the ownership of the
Common Stock, whether any such transaction is to be settled by delivery of
Common Stock or such other securities, in cash or otherwise, other than (i)
the PEPS, (ii) offers and sales of Common Stock, less than or equal to $10
million in value, in connection with a business combination and (iii) options
to purchase and sell Common Stock, or shares of Common Stock issued or
issuable under the Company's existing stock option, stock purchase plans.

Pursuant to the terms of an agreement with the Underwriters of the PEPS and
in accordance with the terms of the Separation Agreement, as amended, Vesta
has agreed to indemnify the Underwriters against certain liabilities,
including liabilities under the Securities Act of 1933, as amended
(the"Securities Act"), with respect to the information in this Prospectus
(including the documents incorporated by reference herein) other than
information furnished to the Company in writing by the Underwriters for use
herein.

From time to time, the Underwriter has provided, and continues to provide,
investment banking services to Torchmark and Vesta.

CERTAIN LEGAL MATTERS

Certain legal matters in connection with the Common Stock offered hereby
will be passed upon for the Company by Donald W. Thornton, Esq., Senior Vice
President, General Counsel and Secretary of the Company and by Ritchie &
Rediker, L.L.C., Birmingham, Alabama. Certain legal matters will be passed
upon for the Underwriter by Davis Polk & Wardwell, New York, New York.

EXPERTS

The consolidated financial statements and schedules of Vesta as of December
31, 1995 and 1994, and for each of the years in the three-period ended
December 31, 1995, appearing in Vesta's Annual Report on form 10-K for the
year ended December 31, 1995, have been incorporated by reference herein and
in the Registration Statement in reliance upon the report of KPMG Peat Marwick
LLP, independent certified public accountants, incorporated by reference
herein and upon the authority of that firm as experts in accounting and
auditing.

The reports of KPMG Peat Marwick LLP covering the December 31, 1995 and 1994
financial statements refer to changes in accounting principles to adopt the
provisions of Statement of Financial Accounting Standards (SFAS) No. 109,
Accounting for Income Taxes, and SFAS No. 115, Accounting for Certain
Investments in Debt and Equity Securities.

33
<PAGE>

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The following table sets forth expenses in connection with the issuance and
distribution of the securities being registered. All amounts are estimated,
except the SEC Filing Fee.

<TABLE>
<S> <C>
Securities and Exchange Commission Filing Fee.................... $100.00*
NYSE Listing Fee................................................. **
Accounting Fees and Expenses..................................... **
Legal Fees and Expenses.......................................... **
Blue Sky Fees and Expenses....................................... **
Printing and Engraving Expenses.................................. **
Transfer Agent's Fees............................................ **
Miscellaneous.................................................... **
-------
Total........................................................ $
=======
</TABLE>
- --------
* In connection with the Registration Statement filed by Torchmark of even
date herewith with respect to the PEPS which are exchangeable for the
Common Stock offered hereby.
** To be provided by amendment

ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS

The Company is a Delaware corporation. Section 145 of the Delaware General
Corporation Law (the "DGCL") empowers a Delaware corporation to indemnify any
person who was or is a party to or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of such corporation) by reason of the fact that such person is or was a
director, officer, employee or agent of such corporation, or is or was serving
at the request of such corporation as a director, officer, employee or agent
of another corporation or enterprise. A corporation may indemnify such person
against expenses (including attorneys' fees), judgments, fines and amounts
paid in settlement actually and reasonably incurred by such person in
connection with such action, suit or proceeding if he acted in good faith and
in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful. A
corporation may, in advance of the final disposition of any civil, criminal,
administrative or investigative action, suit or proceeding, pay the expenses
(including attorneys' fees) incurred by any officer or director in defending
such action, provided that the director or officer undertake to repay such
amount if it shall ultimately be determined that he is not entitled to be
indemnified by the corporation.

A Delaware corporation may indemnify officers and directors in an action by
or in the right of the corporation to procure a judgment in its favor under
the same conditions, except that no indemnification is permitted without
judicial approval if the officer or director is adjudged to be liable to the
corporation. Where the officer or director is successful on the merits or
otherwise in the defense of any action referred to above, the corporation must
indemnify him against the expenses (including attorneys' fees) which he
actually and reasonably incurred in connection therewith. The indemnification
provided is not deemed to be exclusive of other rights to which an officer or
director may be entitled under any corporation's bylaws, agreement or
otherwise.

The Company's Certificate of Incorporation provides that no officer or
director of the Company will be personally liable to the Company or its
shareholders for monetary damages for breach of fiduciary duty as an officer
or director, except for liability (i) for any breach of the officer's or
director's duty of loyalty to the Company or shareholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the Delaware law, which
concerns unlawful payments of dividends, stock purchases or redemptions, or
(iv) for any transaction from which the officer or director received an
improper personal benefit.

II-1
<PAGE>

The Company's Bylaws provide that each director and officer of the Company,
and each person serving at the request of Vesta as a director, officer,
employee or agent of any other corporation or of a partnership, joint venture,
trust or other enterprise, who was or is made a party to or is threatened to
be made a party to or is otherwise involved in any action, suit or proceeding,
will be indemnified and held harmless to the fullest extent authorized by
Delaware Law against all expense, liability and loss reasonably incurred by
such indemnitee in such action, suit or proceeding. The Company's Bylaws also
provide that the Company may maintain insurance, at its expense, to protect
itself and any director, officer, employee or agent of the Company or of
another corporation, partnership, joint venture, trust or other enterprise
against any expense, liability or loss.

While the Company's Certificate of Incorporation and Bylaws provide officers
and directors with protection from awards for monetary damages for breaches of
their duty of care, they do not eliminate such duty. Accordingly, the
Certificate will have no effect on the availability of equitable remedies such
as an injunction or rescission based on an officer's or a director's breach of
his or her duty of care.

ITEM 16. EXHIBITS

(a) Exhibits (See exhibit index immediately preceding the exhibits for the
page number where each exhibit can be found).

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------- -----------------------
<C> <S>
1 --Form of Indemnification Agreement between the Registrant and Morgan
Stanley & Co. Incorporated.*
4.1 --Restated Certificate of Incorporation (included as Exhibit 3.1 to
the Registrant's Registration Statement on Form S-1 (No. 33-68114),
previously filed with the Commission and incorporated by reference
herein).
4.2 --Bylaws (included as Exhibit 3.2 to the Registrant's Registration
Statement on Form S-1 (No. 33-68114), previously filed with the
Commission and incorporated by reference herein).
4.3 --Form of certificate representing Common Stock (included as Exhibit
4.3 to the Registrant's Registration Statement on Form S-1 (No. 33-
68114), previously filed with the Commission and incorporated by
reference herein).
5 --Opinion of Donald W. Thornton, Esq.*
10* --Memorandum Agreement between Torchmark Corporation and Vesta
Insurance Group, Inc., dated as of , 1996.
23.1 --Consent of KPMG Peat Marwick LLP.
23.2 --Consent of Donald W. Thornton, Esq. (contained in Exhibit 5).
24 --Powers of Attorney (included on the signature page hereof).
</TABLE>

- --------
* To be filed by amendment.

ITEM 17. UNDERTAKINGS

The undersigned Registrant hereby undertakes:

(a) That, for the purpose of determining any liability under the
Securities Act of 1933, as amended, (the "Securities Act"), each filing of
Vesta's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") (and where
applicable, each filing of an employee benefit plan's annual report
pursuant to Section 15(d) of the Exchange Act) that is incorporated by
reference in this registration statement shall be deemed to be a new
registration statement relating to the securities offered herein and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering hereof.

(b) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the provisions referred to in Item 15
of this registration statement, or otherwise, the Registrant has been
advised that in the opinion of the

II-2
<PAGE>

Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the Registrant of expenses incurred or paid by a
director, officer or controlling person of the Registrant in the successful
defense of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities being
registered hereby, the Registrant will, unless in the opinion of counsel to
the Registrant the matter has been settled by controlling precedent, submit
to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of
such issue.

(c) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in the form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.

(d) For purposes of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities
offered herein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering hereof.

II-3
<PAGE>

SIGNATURES

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HEREBY CERTIFIED THAT IT HAS REASONABLE GROUNDS TO BELIEVE IT MEETS ALL OF THE
REQUIREMENTS FOR FILING ON FORM S-3 AND HAS DULY CAUSED THIS REGISTRATION
STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED, IN THE CITY OF BIRMINGHAM, STATE OF ALABAMA, ON AUGUST 30, 1996.

Vesta Insurance Group, Inc.

/s/ Robert Y. Huffman
By: _________________________________
NAME: ROBERT Y. HUFFMAN
TITLE: PRESIDENT AND CHIEF
EXECUTIVE OFFICER

POWER OF ATTORNEY

Each person whose signature appears below constitutes and appoints Robert Y.
Huffman and Donald W. Thornton, and either of them (with full power in each to
act alone) as his or her true and lawful attorneys-in-fact and agent, with
full power of substitution and resubstitution, for him or her and in his or
her name, place and stead, in any and all capacities, to sign any or all
amendments (including post-effective amendments) to this Registration
Statement and to file the same, with all exhibits thereto and other documents
in connection therewith, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents, and either of them (with full power in
each to act alone), with full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he or she might or could do
in person, hereby ratifying and conforming all that said attorneys-in-fact and
agents, each acting alone, or his or her substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on August 30, 1996.

SIGNATURE TITLE

Chairman of the Board
- -------------------------------------
R. K. RICHEY

/s/ Robert Y. Huffman President and Chief Executive
- ------------------------------------- Officer (principal executive
ROBERT Y. HUFFMAN officer)

/s/ Brian R. Meredith Vice President--Finance (principal
- ------------------------------------- financial officer)
BRIAN R. MEREDITH

/s/ Mary Beth Heibein Controller (principal accounting
- ------------------------------------- officer)
MARY BETH HEIBEIN

/s/ Walter M. Beale, Jr. Director
- -------------------------------------
WALTER M. BEALE, JR.

II-4
<PAGE>

/s/ Ehney A. Camp, III Director
- -------------------------------------
EHNEY A. CAMP, III

Director
- -------------------------------------
ROBERT A. HERSHBARGER

/s/ Clifford F. Palmer Director
- -------------------------------------
CLIFFORD F. PALMER

/s/ Jarvis W. Palmer Director
- -------------------------------------
JARVIS W. PALMER

/s/ Norman L. Rosenthal Director
- -------------------------------------
NORMAN L. ROSENTHAL

/s/ Keith A. Tucker Director
- -------------------------------------
KEITH A. TUCKER

II-5
<PAGE>

EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION PAGE NO.
-------------- ------------ --------
<C> <S> <C>
1 --Form of Indemnificaiton Agreement between the
Registrant and Morgan Stanley & Co. Incorporated.
4.1 --Restated Certificate of Incorporation (included as
Exhibit 3.1 to the Registrant's Registration
Statement on Form S-1 (No. 33-68114), previously
filed with the Commission and incorporated by
reference herein).
4.2 --Bylaws (included as Exhibit 3.2 to the
Registrant's Registration Statement on Form S-1
(No. 33-68114), previously filed with the
Commission and incorporated by reference herein).
4.3 --Form of certificate representing Common Stock
(included as Exhibit 4.3 to the Registrant's
Registration Statement on Form S-1 (No. 33-68114),
previously filed with the Commission and
incorporated by reference herein).
5 --Opinion of Donald W. Thornton, Esq..
10* --Memorandum Agreement between Torchmark Corporation
and Vesta Insurance Group, Inc., dated as of ,
1996.
23.1 --Consent of KPMG Peat Marwick LLP.
23.2 --Consent of Donald W. Thornton, Esq. (contained in
Exhibit 5).
24 --Powers of Attorney (included on the signature page
hereof).
</TABLE>
- --------
* To be filed by amendment.

<PAGE>

CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

The Board of Directors
Vesta Insurance Group, Inc.

We consent to the use of our report incorporated herein by reference and to the
reference to our firm under the heading "Experts" in the Prospectus.

Our report refers to changes in accounting principles to adopt the provisions of
Statement of Financial Accounting Standards (SFAS) No. 109. Accounting for
Income Taxes and SFAS No. 115, Accounting for Certain Investments in Debt and
Equity Securities.

KPMG PEAT MARWICK LLP

Birmingham, Alabama
August 30, 1996