<PAGE>
DRAFT
-----
9/10/97
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_________________
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report
June 30, 1997
(Date of earliest event reported)
VESTA INSURANCE GROUP, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation)
1-12338 63-1097283
(Commission File No.) (IRS Employer Identification No.)
3760 River Run Drive 35243
Birmingham, Alabama (Zip Code)
(Address of principal
executive offices)
(205)970-7000
(Registrant's telephone number, including area code)
================================================================================
<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements of Business Acquired.
In the current report on Form 8-K filed by Vesta Insurance Group,
Inc. (the "Company") on July 14, 1997, the Company indicated it
would file Financial Statements of the Anthem Casualty Insurance
Company ("ACIC") and the Shelby Insurance Company ("Shelby")
required by this item to be filed by amendment. The financial
statements of Anthem Casualty Insurance Group, Inc. (the "Holding
Company"), which reflect the financial positions and results of
operations of the Holding Company and its wholly owned operating
subsidiaries, ACIC and Shelby are filed herewith as Exhibit A.
The Holding Company balances which were not acquired by the
Company have been eliminated in the Pro forma financial
information filed herewith as Exhibit B.
1. Independent Auditor's report on Consolidated Financial
Statements.
2. Balance Sheet (audited) as of the end of the two most recent
fiscal years (years ended December 31, 1995 and 1996).
3. Statements of Operations (audited) for each of the
three fiscal years preceding December 31, 1996.
4. Statements of Stockholder's Equity (audited) for the years
ended December 31, 1994, 1995 and 1996.
5. Statements of Cash Flows for each of the three fiscal years
preceding December 31, 1996.
6. Notes to Financial Statements.
7. Interim Balance Sheet (unaudited) as of June 30, 1997.
8. Interim Income Statement (unaudited) for the
six months ended June 30, 1997.
9. Interim Statement of Cash Flows for the six months ended
June 30, 1997.
10. Statement of Stockholder's Equity (unaudited) for the
periods ended June 30, 1997 and 1996.
(b) Pro Forma Financial Information.
In the Form 8-K filed by the Company on July 14, 1997, the
Company indicated that it would file Pro forma financial
information required by this item to be filed by amendment. The
following Pro forma financial information is filed herewith as
Exhibit B:
1. Vesta Insurance Group, Inc. and Subsidiaries Unaudited Pro
Forma Condensed Balanced Sheet as of June 30, 1997 and
December 31, 1996.
2. Vesta Insurance Group, Inc. and Subsidiaries Unaudited Pro
Forma Condensed Statements of Income for the six months
ended June 30, 1997 and the year ended December 31, 1996.
(c) Exhibits.
2.1* Stock Purchase Agreement, dated April 23, 1997, by and
between Anthem Insurance Companies, Inc., Anthem Casualty
Insurance Group, Inc., and Vesta Insurance Group, Inc.,
(including exhibits). Disclosure schedules to the Agreement
are not included with this Exhibit. Vesta agrees to furnish
supplementally a copy of such schedules to the Commission
upon request.
* Previously filed.
2
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this amendment to be signed on its behalf by the
undersigned, thereto duly authorized.
VESTA INSURANCE GROUP, INC.
Dated as of September 12, 1997 By /s/ Donald W. Thornton
------------------ -------------------------------
Its: Senior Vice President-General
Counsel and Secretary
3
<PAGE>
Exhibit A
---------
Anthem Casualty Insurance Group, Inc. and Subsidiaries
Consolidated Financial Statements
Years ended December 31, 1996, 1995, and 1994
CONTENTS
Report of Independent Auditors............................... 1
Consolidated Financial Statements
Consolidated Balance Sheets.................................. 2
Consolidated Statements of Operations........................ 4
Consolidated Statements of Stockholder's Equity.............. 5
Consolidated Statements of Cash Flows........................ 6
Notes to Consolidated Financial Statements................... 7
<PAGE>
[LETTERHEAD OF ERNST & YOUNG LLP APPEARS HERE]
Report of Independent Auditors
Board of Directors
Anthem Casualty Insurance Group, Inc.
We have audited the accompanying consolidated balance sheets of Anthem Casualty
Insurance Group, Inc. and subsidiaries (a wholly-owned subsidiary of Anthem
Insurance Companies, Inc.) as of December 31, 1996 and 1995, and the related
consolidated statements of operations, stockholder's equity and cash flows for
each of the three years in the period ended December 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Anthem Casualty
Insurance Group, Inc. and subsidiaries at December 31, 1996 and 1995, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1996, in conformity with generally accepted
accounting principles.
As discussed in Note 1 to the consolidated financial statements, the Company
changed its method of accounting for certain investments in debt and equity
securities in 1994.
ERNST & YOUNG LLP
January 24, 1997
<PAGE>
Anthem Casualty Insurance Group, Inc. and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
DECEMBER 31
1996 1995
----------------------------------
<S> <C> <C>
ASSETS
Investments:
Securities available for sale:
Fixed maturities $403,906,898 $444,929,679
Equity securities 43,175,839 24,933,182
Real estate 345,215 517,089
Other invested assets 832,500 510,000
----------------------------------
Total investments 448,260,452 470,889,950
Cash and cash equivalents - 9,359,536
Accrued investment income 6,127,142 6,632,591
Premiums in course of collection 38,115,780 43,884,846
Prepaid reinsurance premiums and reinsurance 6,596,663 5,377,021
recoverables on paid losses
Reinsurance receivables on reserve for losses 66,248,089 64,416,768
Federal income taxes receivable 2,134,297 -
Amounts receivable from affiliates 120,653 9,208,706
Other receivables 9,880,042 9,482,847
Deferred policy acquisition costs 18,300,000 21,190,000
Property and equipment 13,905,297 15,986,695
Deferred federal income taxes 12,908,001 12,865,813
Goodwill and other intangibles 33,579,137 36,820,892
Other assets 464,255 26,746
----------------------------------
Total assets $656,639,808 $706,142,411
==================================
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31
1996 1995
----------------------------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDER'S EQUITY
Losses and loss adjustment expenses $302,898,842 $320,473,070
Unearned premiums 102,127,245 118,998,115
Cash overdraft 2,596,667 -
Accrued expenses 13,209,209 18,705,131
Other liabilities 18,795,870 22,269,500
Amounts payable to affiliates 347,145 158,606
Long-term debt 98,792,716 98,622,128
Accrued interest payable 3,093,750 3,093,750
Federal income taxes payable - 2,623,788
----------------------------------
Total liabilities 541,861,444 584,944,088
Commitments and contingencies
Stockholder's equity:
Common stock, no par value, 1,000 shares
authorized, issued and outstanding 142,000,000 142,000,000
Net unrealized gain on securities 2,489,456 8,307,918
Retained earnings - deficit (29,711,092) (29,109,595)
----------------------------------
Total stockholder's equity 114,778,364 121,198,323
----------------------------------
Total liabilities and stockholder's equity $656,639,808 $706,142,411
==================================
</TABLE>
See accompanying notes.
3
<PAGE>
Anthem Casualty Insurance Group, Inc. and Subsidiaries
Consolidated Statements of Operations
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1996 1995 1994
--------------------------------------------------
<S> <C> <C> <C>
REVENUES
Earned premiums $284,608,194 $320,709,812 $333,645,610
Net investment income 27,986,184 27,493,593 26,147,982
Net realized gains on investments 5,434,884 778,234 884,115
Other income (loss) 4,160,953 4,349,452 (4,040,904)
--------------------------------------------------
322,190,215 353,331,091 356,636,803
EXPENSES
Losses and loss adjustment expenses 224,877,899 240,597,515 259,383,610
Acquisition and operating expenses 88,088,134 98,404,254 118,196,227
Amortization expense 3,178,755 3,254,991 6,818,037
Interest expense 6,976,086 6,969,254 6,852,801
--------------------------------------------------
323,120,874 349,226,014 391,250,675
--------------------------------------------------
Net income (loss) before income taxes (930,659) 4,105,077 (34,613,872)
Income tax benefit (expense) 329,162 (1,466,548) 12,877,039
--------------------------------------------------
Net income (loss) $ (601,497) $ 2,638,529 $(21,736,833)
==================================================
</TABLE>
See accompanying notes.
4
<PAGE>
Anthem Casualty Insurance Group, Inc. and Subsidiaries
Consolidated Statements of Stockholder's Equity
<TABLE>
<CAPTION>
NET
UNREALIZED RETAINED TOTAL
COMMON COMMON GAIN (LOSS) EARNINGS - STOCKHOLDER'S
SHARES STOCK ON SECURITIES DEFICIT EQUITY
--------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balances at December 31, 1993 1,000 $65,000,000 $ 231,308 $(10,011,291) $55,220,017
Cumulative affect of change in accounting - - 5,458,957 - 5,458,957
Net loss - - - (21,736,833) (21,736,833)
Change in unrealized gains (losses) on securities - - (38,078,279) - (38,078,279)
Capital contribution from parent - 77,000,000 - - 77,000,000
--------------------------------------------------------------
Balances at December 31, 1994 1,000 142,000,000 (32,388,014) (31,748,124) 77,863,862
Net income - - - 2,638,529 2,638,529
Change in unrealized gains (losses) on securities - - 40,695,932 - 40,695,932
--------------------------------------------------------------
Balances at December 31, 1995 1,000 142,000,000 8,307,918 (29,109,595) 121,198,323
Net loss - - - (601,497) (601,497)
Change in unrealized gains (losses) on securities - - (5,818,462) - (5,818,462)
--------------------------------------------------------------
Balances at December 31, 1996 1,000 $142,000,000 $2,489,456 $(29,711,092) $114,778,364
==============================================================
</TABLE>
See accompanying notes.
5
<PAGE>
Anthem Casualty Insurance Group, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1996 1995 1994
-------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ (601,497) $ 2,638,529 $ (21,736,833)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 8,117,681 7,552,907 8,021,024
Net realized gains on investments (5,434,884) (778,234) (884,115)
Gain on sale of property and equipment (115,360) (29,245) (56,257)
Deferred federal income taxes 2,215,607 (461,000) (5,049,000)
Changes in operating assets and liabilities:
Accrued investment income and other assets 67,940 1,004,174 (198,688)
Deferred policy acquisition costs 2,890,000 118,000 3,443,000
Premiums and other receivables 14,459,924 61,187 10,122,846
Reinsurance recoverables (3,050,963) (314,188) (15,876,349)
Accrued expenses, other liabilities
and due to affiliates (8,781,013) (8,443,400) 16,119,645
Losses and loss adjustment expenses (17,574,228) 1,135,569 35,242,951
Unearned premiums (16,870,870) (5,295,503) (6,145,505)
Federal income taxes (4,758,085) 11,394,659 (5,991,526)
-------------------------------------------------------
Net cash provided by (used in) operating activities (29,435,748) 8,583,455 17,011,193
INVESTING ACTIVITIES
Purchase of investments (268,158,330) (273,322,732) (179,450,652)
Proceeds from maturities of investments 34,757,665 15,324,081 24,011,745
Proceeds from sales of investments 251,794,392 253,472,431 112,513,960
Proceeds from sale of property and equipment 303,987 3,220,287 154,568
Purchase of property and equipment (1,218,169) (2,816,219) (2,770,354)
-------------------------------------------------------
Net cash provided by (used in) investing activities 17,479,545 (4,122,152) (45,540,733)
-------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (11,956,203) 4,461,303 (28,529,540)
Cash and cash equivalents at beginning of year 9,359,536 4,898,233 33,744,406
-------------------------------------------------------
Cash and cash equivalents (cash overdraft) at end of year $ (2,596,667) $ 9,359,536 $ 5,214,866
=======================================================
SUPPLEMENTAL DISCLOSURES
Federal income taxes paid (refunded) $ 2,213,316 $ (9,319,917) $ 1,839,009
=======================================================
Interest paid $ 6,750,000 $ 6,750,000 $ 6,618,750
=======================================================
</TABLE>
See accompanying notes.
6
<PAGE>
Anthem Casualty Insurance Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 1996
1. NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
The Anthem Casualty Insurance Group, Inc. (Anthem) is the holding company for
four property and casualty insurance companies (collectively "the Company") that
provide personal and commercial insurance to policyholders, primarily in the
eastern half of the United States through an independent insurance agency
system. The Company's principal lines of business include personal and
commercial automobile, homeowners, commercial multi-peril, workers' compensation
and fire insurance. Anthem and its subsidiaries are chartered in either Ohio or
Indiana and licensed in those and various other states. As such, the Company is
subject to the regulations of the Departments of Insurance of the States of Ohio
and Indiana (the Departments) and the regulations of each state in which it
operates.
The consolidated financial statements include Anthem and its wholly-owned
subsidiaries, the Shelby Insurance Company and Anthem Casualty Insurance
Company. The Shelby Insurance Company includes its wholly-owned subsidiaries,
Affirmative Insurance Company and Insura Property and Casualty Insurance
Company. Anthem is a wholly-owned subsidiary of Anthem Insurance Companies, Inc.
(AICI). All significant intercompany balances and transactions have been
eliminated in consolidation.
The consolidated financial statements have been prepared in conformity with
generally accepted accounting principles, which require management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities as of the date of the balance sheet and revenues and expenses for
the period then ended and the accompanying notes to the consolidated financial
statements. Such estimates and assumptions could change in the future as more
information becomes known which could impact the amounts reported and disclosed
herein.
CASH EQUIVALENTS
All highly liquid debt instruments with a maturity of three months or less are
considered to be cash equivalents.
7
<PAGE>
Anthem Casualty Insurance Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PREMIUMS IN COURSE OF COLLECTION
Premiums in course of collection are stated net of an allowance for doubtful
accounts of $815,001 and $1,025,208 for 1996 and 1995, respectively.
PREMIUM REVENUES
Premiums are recognized in income over the contract period in proportion to the
amount of insurance provided. Unearned premium liabilities are established to
cover the unexpired portion of premiums written. Such liabilities are computed
using the monthly pro rata method over the contract period.
DEFERRED POLICY ACQUISITION COSTS
Acquisition costs, consisting of commissions, premium taxes, and certain
underwriting expenses related to the production of property and casualty
business, are deferred and amortized ratably over the contract period. The
method followed in computing deferred policy acquisition costs limits the amount
of such deferred costs to their estimated realizable value. In determining
estimated realizable value, the computation gives effect to the premium to be
earned, losses and loss expenses to be incurred, and certain other costs
expected to be incurred as premium is earned, without credit for anticipated
investment income. These amounts are based on estimates and accordingly, the
actual realizable value may vary from the estimated realizable value. Net
deferred policy acquisition costs are as follows:
<TABLE>
<CAPTION>
1996 1996 1994
---------------------------------------------------
<S> <C> <C> <C>
Balance, beginning of year $21,190,000 $21,308,000 $24,751,000
Acquisition costs deferred 49,490,365 57,967,000 58,909,600
Amortized to expense during the year (52,380,365) (58,085,000) (62,352,600)
---------------------------------------------------
Balance, end of year $18,300,000 $21,190,000 $21,308,000
===================================================
</TABLE>
8
<PAGE>
Anthem Casualty Insurance Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INVESTMENTS
All investments in fixed maturities and equity securities are classified as
available for sale and are carried at fair value. The unrealized holding gains
or losses, net of applicable deferred taxes, are shown as a separate component
of stockholder's equity, and are not included in the determination of net
income. Gains and losses are computed using the identified cost method.
PROPERTY AND EQUIPMENT
Property and equipment consists of land, building, data processing equipment and
furniture and fixtures which are carried at cost less accumulated depreciation
of $9,366,110 and 6,378,677 at December 31, 1996 and 1995, respectively.
Depreciation expense is computed using the straight-line method over a useful
life of three to thirty years.
GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill represents the excess of cost of acquisition over the fair value of the
net assets acquired and is being amortized using the straight-line method over
thirty years. Other intangible assets include the present value of future
profits on business acquired and are amortized over their estimated economic
lives ranging from 9 to 11 years. Accumulated amortization of goodwill and
other intangibles was $19,087,683 and $15,908,928 at December 31, 1996 and 1995,
respectively.
The carrying value of goodwill and other intangible assets is reviewed annually
to determine if the facts and circumstances indicate that they may be impaired.
If this review indicates that such amounts will not be recoverable, the carrying
value in such assets is reduced.
9
<PAGE>
Anthem Casualty Insurance Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
LOSSES AND LOSS ADJUSTMENT EXPENSES PAYABLE
Losses and loss expenses payable are based on formula and case-basis estimates
for reported claims, and on estimates, based on experience, for unreported
claims and loss expenses. The liability for unpaid losses and loss expenses,
net of estimated salvage and subrogation recoverable of $9,140,000 at December
31, 1996 and 1995, has been established to cover the estimated ultimate cost of
insured losses. The amounts are necessarily based on estimates of future rates
of inflation and other factors, and accordingly, there can be no assurance that
the ultimate liability will not vary from such estimates. The estimates are
continually reviewed and adjusted as necessary; such adjustments are included in
current operations. Salvage and subrogation recoverables are estimated using
historical experience.
REINSURANCE
Reinsurance premiums, losses and loss adjustment expenses are accounted for on
bases consistent with those used in accounting for the original policies issued
and the terms of the reinsurance contracts. Premiums, losses and loss
adjustment expenses and the reserve for losses and loss adjustment expenses and
unearned premiums are reported gross, rather than net, of reinsurance amounts.
FEDERAL INCOME TAXES
The Company files a consolidated federal income tax return with its parent,
AICI. The consolidated federal income tax liability is apportioned to each
includable member based on that member's liability as determined on a separate
return basis.
Income taxes are accounted for using the liability method. Using this method,
deferred tax assets and liabilities are determined based on differences between
financial reporting and tax bases of assets and liabilities and are measured
using the enacted tax rates and laws that will be in effect when the differences
are expected to reverse.
10
<PAGE>
Anthem Casualty Insurance Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ACCOUNTING CHANGE
Effective January 1, 1994, the Company adopted Statement of Financial Accounting
Standards No. 115 "Accounting for Certain Investments in Debt and Equity
Securities" (FAS 115). Upon adoption, the Company classified all of its
securities as available for sale. As a result, the net unrealized gain (loss)
on securities component of stockholder's equity increased by $5,458,957, net of
deferred federal income taxes of $2,939,000, to reflect the January 1, 1994, net
unrealized gains on securities classified as available for sale previously
carried at amortized cost. The adoption of FAS 115 had no effect on net income.
2. INVESTMENTS
The Company's investments in available for sale securities at December 31 are
summarized as follows.
<TABLE>
<CAPTION>
1996
------------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST OR COST GAINS LOSSES VALUE
------------------------------------------------------------------
<S> <C> <C> <C> <C>
Fixed maturity securities:
U.S. Treasury securities and
obligations of U.S. government
agencies and corporations $76,337,909 $ 480,665 $653,342 $76,165,232
Corporate securities 219,476,308 1,551,766 1,937,645 219,090,429
Mortgage-backed securities 109,160,367 442,903 952,033 108,651,237
------------------------------------------------------------------
Total fixed maturity securities 404,974,584 2,475,334 3,543,020 403,906,898
Equity securities 37,857,635 5,958,162 639,958 43,175,839
------------------------------------------------------------------
$442,832,219 $8,433,496 $4,182,978 $447,082,737
==================================================================
</TABLE>
11
<PAGE>
Anthem Casualty Insurance Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. INVESTMENTS (CONTINUED)
<TABLE>
<CAPTION>
1995
--------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST OR COST GAINS LOSSES VALUE
--------------------------------------------------------------
<S> <C> <C> <C> <C>
Fixed maturity securities:
U.S. Treasury securities and
obligations of U.S. government
agencies and corporations $ 69,156,382 $ 1,175,596 $225,549 $ 70,106,429
Corporate securities 262,082,865 7,090,969 381,753 268,792,081
Other debt securities 6,885,945 213,145 - 7,099,090
Mortgage-backed securities 97,348,439 1,660,242 76,602 98,932,079
--------------------------------------------------------------
Total fixed maturity securities 435,473,631 10,139,952 683,904 444,929,679
Equity securities 21,503,455 3,557,780 128,053 24,933,182
--------------------------------------------------------------
$456,977,086 $13,697,732 $811,957 $469,862,861
==============================================================
</TABLE>
Deferred federal income taxes on the net unrealized gain was $1,761,062 and
$4,577,857 at December 31, 1996 and 1995, respectively.
Realized gains and losses are summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1996 1995 1994
-------------------------------------------
<S> <C> <C> <C>
Realized gains:
Fixed maturities $1,940,657 $2,315,165 $1,396,342
Equity securities 5,740,473 1,259,322 356,239
-------------------------------------------
Total 7,681,130 3,574,487 1,752,581
Realized losses:
Fixed maturities 1,921,868 2,558,659 491,193
Equity securities 324,378 237,594 377,273
-------------------------------------------
Total losses 2,246,246 2,796,253 868,466
-------------------------------------------
Net realized gains on securities $5,434,884 $ 778,234 $ 884,115
===========================================
</TABLE>
12
<PAGE>
Anthem Casualty Insurance Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. INVESTMENTS (CONTINUED)
The amortized cost and fair value of fixed maturities available for sale at
December 31, 1996, by contractual maturity, are shown below. Expected
maturities may differ from contractual maturities because certain borrowers have
the right to call or prepay obligations with or without call or prepayment
penalties.
<TABLE>
<CAPTION>
AMORTIZED FAIR
COST VALUE
-------------------------------
<S> <C> <C>
Due in one year or less $ 7,038,951 $ 7,071,058
Due after one year through five years 107,765,807 107,984,028
Due after five years through ten years 151,723,903 150,573,941
Due after ten years 29,285,556 29,626,634
-------------------------------
295,814,217 295,255,661
Mortgage-backed securities 109,160,367 108,651,237
-------------------------------
$404,974,584 $403,906,898
===============================
</TABLE>
Components of net investment income are summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1996 1995 1994
---------------------------------------------
<S> <C> <C> <C>
Fixed maturities $27,657,173 $27,455,587 $26,129,687
Equity securities 928,873 439,062 472,983
Cash and cash equivalents 392,493 1,173,873 828,344
Other interest income 306,230 269,189 135,603
---------------------------------------------
Investment income 29,284,769 29,337,711 27,566,617
Less investment expenses 1,298,585 1,844,118 1,418,635
---------------------------------------------
Net investment income $27,986,184 $27,493,593 $26,147,982
=============================================
</TABLE>
Fixed maturities and certificates of deposit with carrying values of
approximately $14,129,000 and $14,205,000 were on deposit as required by law at
December 31, 1996 and 1995, respectively.
13
<PAGE>
Anthem Casualty Insurance Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
3. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INVESTMENTS
The fair value of financial instruments are as follows:
<TABLE>
<CAPTION>
DECEMBER 31
1996 1995
-------------------------------------------------------------------
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS:
Fixed maturity securities $403,906,898 $403,906,898 $444,929,679 $444,929,679
Equity securities 43,175,839 43,175,839 24,933,182 24,933,182
Other invested assets 832,500 832,500 510,000 510,000
Cash and cash equivalents (overdraft) (2,596,667) (2,596,667) 9,359,536 9,359,536
LIABILITIES:
Long-term debt 98,792,716 97,216,000 98,622,128 102,350,000
</TABLE>
The following methods and assumptions were used in estimating its fair value
disclosures for financial instruments.
CASH EQUIVALENTS
The carrying amounts reported for these instruments approximate their fair
value.
INVESTMENT SECURITIES
Fair values for investments in fixed maturities are based on quoted market
prices, where available. For fixed maturities not actively traded, fair values
are estimated using values obtained from independent pricing services. The fair
values for equity securities are based on quoted market prices.
OTHER INVESTED ASSETS
The carrying amount reported for this investment in a limited partnership
approximates its fair value.
14
<PAGE>
Anthem Casualty Insurance Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
3. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INVESTMENTS (CONTINUED)
LONG-TERM DEBT
The fair value of this obligation is established using discounted cash flow
analyses, based on the Company's current incremental borrowing rates for similar
types of borrowing arrangements.
4. LOSSES AND LOSS ADJUSTMENT EXPENSES PAYABLE
The following table provides a reconciliation of the beginning and ending
reserve balances, net of reinsurance:
<TABLE>
<CAPTION>
1996 1995 1994
----------------------------------------------
<S> <C> <C> <C>
Losses and loss adjustment expenses
payable, January 1 $320,473,070 $319,337,501 $284,094,550
Less reinsurance recoverables 64,416,768 64,006,301 50,338,852
----------------------------------------------
Net balance, January 1 256,056,302 255,331,200 233,755,698
----------------------------------------------
Incurred related to:
Current year 242,499,141 244,358,074 263,236,543
Prior years (17,621,242) (3,760,559) (3,852,933)
----------------------------------------------
Total incurred 224,877,899 240,597,515 259,383,610
----------------------------------------------
Paid related to:
Current year 148,137,616 135,127,508 146,682,300
Prior years 96,145,832 104,744,905 91,125,808
----------------------------------------------
Total paid 244,283,448 239,872,413 237,808,108
----------------------------------------------
Net balance, December 31 236,650,753 256,056,302 255,331,200
Plus reinsurance recoverables 66,248,089 64,416,768 64,006,301
----------------------------------------------
Losses and loss adjustment expenses
payable, December 31 $302,898,842 $320,473,070 $319,337,501
==============================================
</TABLE>
15
<PAGE>
Anthem Casualty Insurance Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
4. LOSSES AND LOSS ADJUSTMENT EXPENSES PAYABLE (CONTINUED)
The liability for losses and loss adjustment expenses decreased by $17,621,242
in 1996 for claims that occurred in prior years. This decrease resulted
principally from favorable development on older direct and assumed workers'
compensation loss reserves and a change in the historical inflation factors used
to determine personal automobile bodily injury loss reserves.
The liability for losses and loss adjustment expenses decreased by $3,760,559
and $3,852,933 in 1995 and 1994, respectively, for claims that occurred in prior
years. This decrease resulted principally from settling case-basis reserves
established in prior years for amounts that were slightly less than expected.
Because of the nature of the business written over the years, management
believes that the Company has limited exposure to environmental claim
liabilities.
5. REINSURANCE
The Company assumes and cedes reinsurance with other insurers or reinsurers and
is a member of various voluntary and involuntary pools and associations. The
voluntary arrangements provide greater diversification of business and limit the
maximum net loss potential on large risks and catastrophes. A large portion of
the reinsurance is effected under reinsurance contracts known as treaties and in
some instances by negotiation on individual risks.
The Company's reinsurance program includes excess of loss, quota share,
catastrophe and facultative reinsurance on all property and casualty lines of
business. The Company is contingently liable with respect to reinsurance ceded,
which would become a liability in the event that the reinsurers are unable to
meet the obligations assumed under the reinsurance agreements. Reinsurance
receivables of $26,860,741 and $27,825,000 were related to a single reinsurer at
December 31, 1996 and 1995, respectively.
16
<PAGE>
Anthem Casualty Insurance Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
5. REINSURANCE (CONTINUED)
The following table reflects amounts added for assumed and deducted for ceded
reinsurance on the indicated income and expense accounts:
<TABLE>
<CAPTION>
1996
----------------------------------------------------------
PREMIUMS PREMIUMS LOSSES AND LOSS
WRITTEN EARNED EXPENSES INCURRED
----------------------------------------------------------
<S> <C> <C> <C>
Direct $279,077,480 $295,500,589 $242,540,021
Assumed 5,104,816 5,552,577 2,276,789
Ceded (16,232,290) (16,444,972) (19,938,911)
----------------------------------------------------------
Net $267,950,006 $284,608,194 $224,877,899
==========================================================
1995
----------------------------------------------------------
PREMIUMS PREMIUMS LOSSES AND LOSS
WRITTEN EARNED EXPENSES INCURRED
----------------------------------------------------------
Direct $328,373,189 $330,245,327 $244,581,307
Assumed 6,769,492 6,746,548 6,958,552
Ceded (16,640,568) (16,282,063) (10,942,344)
----------------------------------------------------------
Net $318,502,113 $320,709,812 $240,597,515
==========================================================
1994
----------------------------------------------------------
PREMIUMS PREMIUMS LOSSES AND LOSS
WRITTEN EARNED EXPENSES INCURRED
----------------------------------------------------------
Direct $338,724,982 $344,725,210 $276,189,107
Assumed 6,519,613 6,709,968 4,507,648
Ceded (17,823,202) (17,789,568) (21,313,145)
----------------------------------------------------------
Net $327,421,393 #333,645,610 $259,383,610
==========================================================
</TABLE>
17
<PAGE>
Anthem Casualty Insurance Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
6. LONG-TERM DEBT
Long-term debt consists of $100,000,000 of 6.75% senior guaranteed notes, due
July 15, 2003. Repayment of the notes is guaranteed by AICI. Unamortized debt
issuance costs of $1,207,284 are being amortized over the life of the notes.
The Company must maintain certain financial ratios as stipulated in the fiscal
agency agreement.
7. FEDERAL INCOME TAXES
The components of the net deferred tax asset are as follows:
DECEMBER 31
1996 1995
------------------------------
Deferred tax assets:
Discounting of loss reserves $10,679,707 $12,027,819
Unearned premium reserves 6,981,400 8,147,473
Other 4,795,407 3,831,831
------------------------------
Total deferred tax assets 22,456,514 24,007,123
Deferred tax liabilities:
Deferred acquisition costs (6,405,000) (4,921,700)
Unrealized gains on securities (1,761,062) (4,577,857)
------------------------------
Total deferred tax liabilities (8,166,062) (9,499,557)
------------------------------
14,290,452 14,507,566
1,382,451 1,641,753
Less: Valuation allowance ------------------------------
Net deferred tax assets $12,908,001 $12,865,813
==============================
The components of federal income taxes are as follows:
1996 1995 1994
----------------------------------------
Current tax (benefit) expense $(2,544,769) $1,927,548 $ (7,828,039)
Deferred tax expense (benefit) 2,215,607 (461,000) (5,049,000)
----------------------------------------
Federal income tax (benefit) expense $ (329,162) $1,466,548 $(12,877,039)
========================================
18
<PAGE>
Anthem Casualty Insurance Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
7. FEDERAL INCOME TAXES (CONTINUED)
The following is a reconciliation of federal income taxes calculated at the
statutory rate to the Company's provision for income taxes (benefits):
<TABLE>
<CAPTION>
1996 1995 1994
---------------------------------------------
<S> <C> <C> <C>
Tax (benefit) at statutory rate $(325,731) $1,436,777 $(12,114,855)
Tax effect (benefit):
Tax exempt interest income (592,264) (1,268,436)
Dividends received deduction (120,480) (135,400) (465,230)
Goodwill 253,450 250,117 324,895
Valuation allowance adjustment (259,302) (294,011) 415,110
Other, net 122,901 801,329 231,477
---------------------------------------------
Provision for income taxes (benefit) $(329,162) $1,466,548 $(12,877,039)
=============================================
</TABLE>
At December 31, 1996, the Company has a net operating loss carryforward of
$6,924,000 for income tax purposes that expires in 2010.
8. EMPLOYEE BENEFIT PLANS
PENSION PLAN
The Company's employees participate in a noncontributory defined benefit plan
sponsored by AICI. The Plan covers all full-time employees who have completed
one year of continuous service and attained the age of twenty-one. The benefits
are primarily based on length of service and the employee's compensation.
The Company funds the plan as directed by AICI. As the plan is overfunded, no
contributions were required by the Company in 1996 or 1995.
Net periodic pension cost, including expected cost of benefits for newly
eligible or vested employees, interest costs, and gains and losses from
differences between actuarial assumptions and actual experience for 1996, 1995
and 1994 was $365,000 $1,000,000 and $1,135,000, respectively. Accrued pension
benefits of $4,300,000 and $4,000,000 are included in other liabilities at
December 31, 1996 and 1995, respectively.
19
<PAGE>
Anthem Casualty Insurance Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
8. EMPLOYEE BENEFIT PLANS (CONTINUED)
SAVINGS PLAN
The Company's employees participate in the Employee Savings Plan sponsored by
AICI. All full-time and part-time employees are eligible to participate in the
Plan upon their first day of employment. The savings plan allows employees to
contribute up to 16% of their base salary into various investment funds. The
Company matches 50% of all contributions up to 6% of base salary, subject to
certain limitations. AICI charged the Company $572,000, $612,000 and $699,000
in 1996, 1995 and 1994 respectively, which equaled the required matching
contribution.
9. POSTRETIREMENT BENEFITS
The Company's employees participate in a postretirement benefit plan sponsored
by AICI. The AICI plan provides certain health care and life insurance benefits
(postretirement benefits) for retired employees. Substantially all employees
could become eligible for those benefits if they reach retirement age while
working for the Company. Alternatively, retirees may elect certain health care
benefit plans. Life insurance benefits generally are set at a fixed amount.
The Company funds the plan as directed by AICI.
Net postretirement benefit cost, including the expected cost of benefits for
newly eligible or vested employees, interest costs, and gains and losses arising
from differences between actuarial assumptions and actual experience for 1996,
1995 and 1994, was $870,000, $502,000 and $1,223,000, respectively.
Postretirement benefits of $8,800,000 and $11,965,000 are included in other
liabilities at December 31, 1996 and 1995, respectively.
During 1996, the Company settled certain postretirement benefits of pre-1990
retirees of Anthem Casualty Insurance Company for $2,874,000. The Company is
relieved of all future obligations related to these retirees. A gain of
$760,000 was recognized on the settlement.
20
<PAGE>
Anthem Casualty Insurance Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
10. COMMITMENTS AND CONTINGENCIES
The Company leases computer equipment, furniture and fixtures and office space
under various operating lease agreements. Related lease expense for 1996, 1995
and 1994 was $3,674,000, $2,854,000 and $3,267,000, respectively. At
December 31, 1996, future lease payments for operating leases with initial or
remaining noncancellable terms of one year or more consisted of the following:
Year ending December 31:
1997 $ 3,843,205
1998 3,120,544
1999 2,340,949
2000 1,570,048
2001 41,460
-----------
Total minimum lease payments $10,916,206
===========
The Company is involved in pending litigation of the character incidental to the
business transacted. The conclusions of such litigation are not expected to
have a material adverse effect on the Company's financial position or results of
operations.
The estimated net present value of structured settlements for which the Company
is contingently liable is $17,670,000 at December 31, 1996.
11. RELATED PARTY TRANSACTIONS
Pursuant to an agreement with AICI, the Company will pay to or be reimbursed
from AICI or its affiliates for services received or provided. In addition,
AICI is to, at its discretion, invest and reinvest securities owned by the
Company. Amounts paid to AICI in 1996, 1995 and 1994 for insurance coverage and
investment services were $4,088,000, $4,240,000 and $3,200,000, respectively.
The Company has a grid-note agreement with AICI which governs intercompany
borrowing and lending. The Company had not borrowed any money under this
agreement as of December 31, 1996. However, the Company had loaned $16,000 and
$2,487,000 as of December 31, 1996 and 1995, respectively, to AICI and its
affiliates. The balance earns interest monthly at 5.19%, which is a floating
rate. This agreement was approved by the Ohio Department of Insurance.
21
<PAGE>
Anthem Casualty Insurance Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
12. DIVIDENDS
Ohio and Indiana (the States) law limits the payment of dividends by insurance
companies to shareholders. Any extraordinary dividend which exceeds the greater
of 10% of surplus or net income requires the prior approval of the States'
Director of Insurance. In addition, the States' law requires that all dividends
be reported within five business days of declaration and at least ten days
before payment. At December 31, 1996, Anthem's insurance subsidiaries have
$14,927,000 available for the payment of dividends in 1997 without prior
approval of the States.
13. STATUTORY FINANCIAL INFORMATION
Anthem's insurance subsidiaries prepare statutory financial statements in
accordance with accounting practices prescribed or permitted by their
domiciliary state's insurance department. Prescribed statutory accounting
practices are set forth in a variety of publications of The National
Association of Insurance Commissioners (NAIC), as well as state laws,
regulations, and general administrative rules. Permitted statutory accounting
practices encompass all accounting practices not so prescribed. Statutory
accounting differs from generally accepted accounting principles in the
reporting of acquisition costs, investments, furniture and equipment, deferred
income taxes and certain other items. The statutory-basis surplus for Anthem's
insurance subsidiaries was $149,268,000 and $143,488,000 at December 31, 1996
and 1995 and statutory-basis net income (loss) was $12,210,000, $13,330,000 and
$(1,468,000) for 1996, 1995 and 1994, respectively.
The NAIC currently has a project to codify statutory accounting practices, the
result of which is expected to constitute the only source of prescribed
statutory accounting practices. Accordingly, that project, expected to be
completed in 1998, will likely change the definitions of what comprises
prescribed versus permitted statutory accounting practices, and may result in
changes to the accounting policies that insurance companies use to prepare their
statutory financial statements.
14. RESTRUCTURING
During the fourth quarter of 1994, the Anthem Board of Directors approved a plan
to consolidate the operations of Anthem Casualty Insurance Company with its
affiliate, Shelby Insurance Company. In connection with this plan, the Company
recorded a $13,700,000 charge to net income in 1994. These costs include office
rent through 1998, severance, outplacement services and other related charges.
22
<PAGE>
Anthem Casualty Insurance Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
15. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
1996 (000'S) QUARTER QUARTER QUARTER QUARTER
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Gross premiums written $75,025 $73,289 $70,179 $65,689
Net premiums written 71,037 69,469 66,061 61,383
Net premiums earned 75,575 72,928 68,918 67,187
Net investment income
and net realized
gains on investments 8,127 11,088 6,880 7,326
Operating costs and
expenses 87,263 78,230 81,612 76,016
Net income (loss) (2,082) 4,673 (2,993) (199)
FIRST SECOND THIRD FOURTH
1995 (000'S) QUARTER QUARTER QUARTER QUARTER
- -----------------------------------------------------------------------------------------------
Gross premiums written $81,669 $86,112 $87,423 $79,939
Net premiums written 77,596 81,923 82,313 76,770
Net premiums earned 81,019 80,518 79,956 79,217
Net investment income
and net realized
gains on investments 7,025 6,784 6,639 7,824
Operating costs and
expenses 90,303 86,355 86,450 86,118
Net income (loss) (647) 1,543 707 1,036
</TABLE>
16. SUBSEQUENT EVENT
In January, 1997, Anthem was informed by AICI that it is exploring the potential
sale of Anthem. AICI is in the preliminary phase of analyzing alternatives and
no decision regarding the sale has been made.
23
<PAGE>
ANTHEM INSURANCE GROUP, INC.
CONSOLIDATED BALANCE SHEET
JUNE 30, 1997
(AMOUNTS IN THOUSANDS)
Assets:
Investments:
Fixed maturities available for sale
-- at fair value $418,798
Equity securities -- at fair value 262
Real estate and other assets 211
--------
Total investments 419,271
Cash 15,069
Accrued investment income 6,865
Premiums in course of collection 40,782
Reinsurance balances receivable 65,676
Reinsurance recoverable on paid losses 5,012
Deferred policy acquisition costs 18,076
Property and equipment 13,181
Other assets 30,821
Goodwill 33,185
--------
Total assets $647,938
========
Liabilities:
Reserves for:
Losses and loss adjustment expenses $290,315
Unearned premiums 98,378
--------
388,693
Accrued income taxes 2,484
Reinsurance balances payable
Other liabilities 39,568
Short term debt
Long term debt 98,879
--------
Total liabilities 529,624
Deferrable Capital Securities
Stockholder's equity
Preferred stock
Common stock 142,000
Unrealized investment gains,
net of applicable taxes (1,007)
Retained earnings (22,679)
Total stockholder's equity 118,314
--------
Total liabilities
and stockholder's equity $647,938
========
24
<PAGE>
ANTHEM INSURANCE GROUP, INC.
CONSOLIDATED INCOME STATEMENT
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(AMOUNTS IN THOUSANDS EXCEPT FOR PER SHARE DATA)
Revenues:
Net premiums earned $131,255
Net investment income 13,911
Realized investment gains 5,618
Other 2,823
--------
Total revenues 153,607
Expenses:
Losses and loss adjustment expenses incurred 92,548
Policy acquisition and operating expenses 46,832
Interest on debt 2,939
Goodwill amortization 1,275
--------
Total expenses 143,594
Net income before income taxes 10,013
Income taxes 2,981
--------
Net income $ 7,032
========
Net income per common share $ 7,032
========
25
<PAGE>
ANTHEM CASUALTY INSURANCE GROUP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
SIX MONTHS ENDED JUNE 30, 1997
(Dollar amounts in thousands)
[CAPTION]
<TABLE>
NET
UNREALIZED RETAINED TOTAL
COMMON COMMON GAIN (LOSSES) EARNINGS STOCKHOLDER'S
SHARES STOCK ON SECURITIES DEFICIT EQUITY
-------- ------- ------------- -------- -------------
<S> <C> <C> <C> <C> <C>
Balances at December 31, 1996 1,000 142,000 2,489 (29,711) 114,778
Net income -- -- 6,958 6,958
Change in unrealized gains on securities -- -- (3,496) -- (3,496)
-------- -------- ------------- -------- ---------
Net increase -- -- (3,496) 6,958 3,462
-------- -------- ------------- -------- ---------
Balances at June 30, 1997 1,000 $142,000 $(1,007) $(22,753) $118,240
======== ======== ============= ======== ==========
</TABLE>
26
<PAGE>
ANTHEM INSURANCE GROUP, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(AMOUNTS IN THOUSANDS)
OPERATING ACTIVITIES:
Net income $ 6,958
Adjustments to reconcile net income to net cash
provided from operations:
Change in:
Loss and LAE reserves (9,719)
Unearned premium reserve 679
Reinsurance recoverables 1,900
Accrued income taxes 3,923
Deferred policy acquisition costs (520)
Premiums and other receivables (11,908)
Other assets (1,178)
Other liabilities 27
Amortization and depreciation 3,442
Loss on disposition of property, plant, and equipment 40
Deferred federal income taxes 1,762
Investment gains (5,618)
---------
Net cash used in operating activities (10,212)
INVESTING ACTIVITIES:
Purchase of investments (145,490)
Sale or maturity of investments 174,423
Dispositions of property, plant and equipment 97
Additions to property, plant and equipment (1,152)
---------
Net cash provided by investing activities 27,878
Increase in cash 17,666
(Cash overdrafts) at beginning of period (2,597)
---------
Cash at end of period $ 15,069
=========
SUPPLEMENTAL DISCLOSURES:
Federal income taxes (refunded) $ (2,738)
=========
Interest paid $ 3,375
=========
27
<PAGE>
ANTHEM INSURANCE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands)
Basis of Presentation: The accompanying unaudited financial statements have
been prepared in conformity with generally accepted accounting principles and,
in the opinion of management, reflect all adjustments (consisting of normal
recurring accruals) necessary for a fair presentation of results for such
periods. The results of operations and cash flows for any interim period are
not necessarily indicative of results for the full year. These financial
statements should be read in conjunction with the financial statements and
related notes in the Company's 1996 audited financial statements.
Earnings Per Share: Net earnings per share is calculated by dividing net
income by weighted average number of common shares outstanding. The weighted
average number of common shares outstanding for the six month periods ended June
30, 1997 and 1996 was 1,000.
Subsequent Events: On the close of business on June 30, 1997, Vesta Insurance
Group, Inc. acquired all of the issued and outstanding stock of the operating
subsidiaries of Anthem Casualty Insurance Group, Inc., for $238.75 million.
28
<PAGE>
Exhibit B
---------
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
The following presentation sets forth the unaudited proforma consolidated
balance sheets of Vesta Insurance Group as of June 30, 1997 and December 31,
1996 and the unaudited proforma consolidated income statements of Vesta
Insurance Group for the six months ended June 30, 1997 and the year ended
December 31, 1996 giving effect to Vesta Insurance Group's acquisition of the
property and casualty insurance subsidiaries of Anthem Insurance Group. The
acquisition will be accounted for as a purchase.
The presentation below sets forth Vesta Insurance Group's historical balance
sheet as of June 30, 1997, and historical income statement for the six months
ended June 30, 1997, derived from unaudited financial statements of Vesta
Insurance Group. The presentation below also sets forth Vesta Insurance Group's
historical balance sheet as of December 31, 1996, and historical income
statement for the year ended December 31, 1996, derived from audited financial
statements. The information below further sets forth Anthem Insurance Group's
historical balance sheet as of June 30, 1997, and historical income statement
for the six months ended June 30, 1997, derived from unaudited financial
statements of Anthem Insurance Group. The presentation below also sets forth
Anthem Insurance Group's historical balance sheet as of December 31, 1996, and
historical income statement for the year ended December 31, 1996, derived from
audited financial statements.
The proforma information should be read in conjunction with the historical
financial statements of Vesta Insurance Group and Anthem Insurance Group and the
related notes thereto. The following presentation is not necessarily indicative
of the results of operations or combined financial position that would have
resulted had the merger been consummated at the periods indicated, nor is it
necessarily indicative of the results of operations of future periods or future
combined financial positions.
<PAGE>
VESTA INSURANCE GROUP, INC.
PRO FORMA CONSOLIDATED BALANCE SHEETS
JUNE 30, 1997
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
Historical Pro forma adjustments
---------------------- ---------------------------------
Balances not Purchase accounting Pro forma
Vesta Anthem acquired/3/ entries amounts
---------- ---------- ------------ ------------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Assets:
Investments:
Fixed maturities available for sale
-- at fair value $ 262,808 418,798 $ 681,606
Equity securities -- at fair value 9,108 262 9,370
Real estate and other assets 211 211
Short-term investments 247,094 0 107,767/1/ 139,327
---------- --------- ----------
Total investments 519,010 419,271 830,514
Cash 3,618 15,069 18,687
Accrued investment income 5,323 6,865 12,188
Premiums in course of collection 293,288 40,782 334,070
Reinsurance balances receivable 155,354 65,676 221,030
Reinsurance recoverable on paid losses 94,586 5,012 99,598
Deferred policy acquisition costs 71,121 18,076 5,000/2/ 94,197
Property and equipment 4,056 13,181 3,000/2/ 14,237
Other assets 51,475 30,821 (13,908) 68,388
Goodwill 14,841 33,185 29,482/1/ 2,000/2/ 75,508
---------- --------- ----------
Total assets $1,212,672 647,938 $1,768,417
========== ========= ==========
Liabilities:
Reserves for:
Losses and loss adjustment
expenses $ 270,195 290,315 560,510
Unearned premiums 243,844 98,378 342,222
---------- --------- ----------
514,039 388,693 902,732
Accrued income taxes 24,481 2,484 26,965
Reinsurance balances payable 95,527 95,527
Other liabilities 33,319 39,568 (17,000) 55,887
Short term debt 142,000/1/ 142,000
Long term debt 98,302 98,879 (98,879) 98,302
---------- --------- ----------
Total liabilities 765,668 529,624 1,321,413
Deferrable Capital Securities 100,000 100,000
Stockholders' equity
Preferred stock
Common stock 190 142,000 142,000/1/ 190
Additional paid-in capital 161,166 83,935 83,935/1/ 161,166
Unrealized investment gains,
net of applicable taxes 4,937 (1,007) 1,007/1/ 4,937
Retained earnings 193,047 (22,679) 18,036 4,643/1/ 193,047
Receivable from issuance of
restricted stock (3,120) (3,120)
Treasury stock (9,216) (9,216)
---------- --------- ----------
Total stockholders' equity 347,004 118,314 347,004
---------- --------- ----------
Total liabilities and
stockholders' equity $1,212,672 647,938 $1,768,417
========== ========= ==========
</TABLE>
1 To record the acquisition of Anthem and the additional short term borrowings,
liquidation of short-term investments and liquidation of fixed maturities to
fund the acquisition, and also the goodwill associated with the purchase.
2 To record purchase accounting entries record additional deferred policy
acquisition costs to be realized by the purchaser, additional reserves for
losses, and write-down of the property and equipment.
3 To remove Anthem's holding company balances which were not acquired by Vesta
in the acquisition.
2
<PAGE>
VESTA INSURANCE GROUP, INC.
PRO FORMA CONSOLIDATED INCOME STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
Historical Pro forma adjustments
------------------ ------------------------------------
Balances not Purchase accounting Pro forma
Vesta Anthem acquired/4/ entries amounts
-------- -------- ------------- -------------------- -----------
<S> <C> <C> <C> <C> <C>
Revenues:
Net premiums earned $259,337 131,255 $390,592
Net investment income 13,325 13,911 58 3,017/2/ 24,277
Realized investment gains (losses) (107) 5,618 5,511
Other 343 2,823 3,166
-------- ------- --------
Total revenues 272,898 153,607 423,546
Expenses:
Losses and loss adjustment expenses incurred 138,935 92,548 231,483
Policy acquisition and operating expenses 79,321 46,832 (1,313) 124,840
Premium taxes and fees 3,267 3,267
Interest on debt 4,608 2,939 (3,399) 4,083/2/ 8,231
Goodwill amortization 667 1,275 916/1/ 2,858
-------- ------- --------
Total expenses 226,798 143,594 370,679
Net income (loss) before income taxes 46,100 10,013 52,867
Income taxes 16,145 2,981 (1,639) 2,725/3/ 18,040
2,309 2,309
-------- ------ --------
Net income $ 27,646 7,032 $ 32,518
======== ====== ========
Net income per common share $ 1.49 $ 1.75
======== ========
</TABLE>
1 To reflect amortization of goodwill and other intangibles resulting from the
acquisition.
2 To record interest expense on short-term borrowings used to fund the
acquistion and to reflect reduced interest income from liquidation of
investment securities to fund the acquisition.
3 To reflect the income tax benefit of the pro forma adjustments.
4 To remove Anthem's holding company balances which were not acquired by Vesta
in the acquisition.
3
<PAGE>
VESTA INSURANCE GROUP, INC.
PRO FORMA CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
Historical Pro forma adjustments
-------------------------- ---------------------------------
Balances not Purchase accounting Pro forma
Vesta Anthem acquired/3/ entries amounts
---------- ------------- ------------ ------------------- ----------
<S> <C> <C> <C> <C> <C>
Assets:
Investments:
Fixed maturities available for sale
-- at fair value $ 308,898 403,907 2,352/1/ $ 710,453
Equity securities -- at fair value 8,326 43,176 51,502
Real estate and other assets 1,178 1,178
Short-term investments 105,415 0 105,415/1/ 0
---------- ---------- ----------
Total investments 422,639 448,261 763,133
Cash 4,637 0 4,637
Accrued investment income 5,392 6,127 11,519
Premiums in course of collection 259,275 38,116 297,391
Reinsurance balances receivable 115,768 66,248 182,016
Reinsurance recoverable on paid losses 69,698 6,597 76,295
Deferred policy acquisition costs 75,532 18,300 5,000/2/ 98,832
Property and equipment 3,920 13,905 (4) 3,000/2/ 14,821
Other assets 49,381 25,507 (16,598) 58,290
Goodwill 7,339 33,579 34,244/1/ 2,000/2/ 73,162
---------- ---------- ----------
Total assets $1,013,581 656,640 $1,580,096
========== ========== ==========
Liabilities:
Reserves for:
Losses and loss adjustment
expenses $ 247,224 302,899 $ 550,123
Unearned premiums 228,325 102,127 330,452
---------- ---------- ----------
475,549 405,026 880,575
Accrued income taxes 21,463 0 21,463
Reinsurance balances payable 51,162 51,162
Other liabilities 26,425 38,043 (18,554) 45,914
Short term debt 22,000 142,000/1/ 164,000
Long term debt 98,279 98,793 (98,793) 98,279
---------- ---------- ----------
Total liabilities 694,878 541,862 1,261,393
Stockholders' equity
Preferred stock
Common stock 190 142,000 142,000/1/ 190
Additional paid-in capital 161,037 83,935 83,935/1/ 161,037
Unrealized investment gains,
net of applicable taxes 4,442 2,489 2,489/1/ 4,442
Retained earnings 166,795 (29,711) 16,810 12,901/1/ 166,795
Receivable from issuance of
restricted stock (3,207) (3,207)
Treasury stock (10,554) (10,554)
---------- ---------- ----------
Total stockholders' equity 318,703 114,778 318,703
---------- ---------- ----------
Total liabilities and
stockholders' equity $1,013,581 656,640 $1,580,096
========== ========== ==========
</TABLE>
1 To record the acquisition of Anthem and the additional short term borrowings,
liquidation of short-term investments and liquidation of fixed maturities to
fund the acquisition, and also the goodwill associated with the purchase.
2 To record purchase accounting entries record additional deferred policy
acquisition costs to be realized by the purchaser, additional reserves for
losses, and write-down of the property and equipment.
3 To remove Anthem's holding company balances which were not acquired by Vesta
in the acquisition.
4
<PAGE>
VESTA INSURANCE GROUP, INC.
PRO FORMA CONSOLIDATED INCOME STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1996
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
Historical Pro forma adjustments
-------------------- ---------------------------------------
Balances not Purchase accounting Pro forma
Vesta Anthem acquired/4/ entries amounts
-------- -------- ------------ ------------------------ -----------
<S> <C> <C> <C> <C> <C>
Revenues:
Net premiums earned $511,912 284,608 $796,520
Net investment income 23,148 27,986 (37) 6,034/2/ 45,063
Realized investment gains (losses) 32 5,435 5,467
Other 188 4,161 4,349
-------- --------
Total revenues 535,280 322,190 851,399
Expenses:
Losses and loss adjustment expenses incurred 294,920 224,878 519,798
Policy acquisition and operating expenses 148,670 88,088 (1,326) 235,432
Premium taxes and fees 5,928 5,928
Interest on debt 10,059 6,976 (6,796) 8,165/2/ 18,406
Goodwill amortization 484 3,179 2,150/1/ 5,813
-------- --------
Total expenses 460,061 323,121 785,377
Net income (loss) before income taxes 75,219 (931) 66,022
Income taxes (expense) benefit (24,982) 329 1,946 5,559/3/ (21,040)
-------- -------- --------
Net income $ 50,237 (602) $ 44,982
======== ======== ========
Net income per common share $ 2.66 $ 2.38
======== ========
</TABLE>
1 To reflect amortization of goodwill and other intangibles resulting from the
acquisition.
2 To record interest expense on short-term borrowings used to fund the
acquistion and to reflect reduced interest income from liquidation of
investment securities to fund the acquisition.
3 To reflect the income tax benefit of the pro forma adjustments.
4 To remove Anthem's holding company balances which were not acquired by Vesta
in the acquisition.
5
