Vesta Selling Its Life Insurance Operations for $58M
The Insurance Journal
June 3, 2005
Birmingham, Ala.-based Vesta Insurance Group Inc. has entered into a definitive agreement to sell its life insurance operations, American Founders Life, for approximately $58.0 million in cash to a U.S. subsidiary of Sagicor Financial Corp., a Barbados-based financial services group. Its life insurance subsidiary, Sagicor Life Inc. is rated 'A' by A.M. Best.
The transaction is subject to regulatory approval and is expected to close in the third quarter of 2005. The closing of the sale will result in an estimated statutory gain of approximately $23.0 million for Vesta Fire Insurance Corporation, Vesta's primary property-casualty subsidiary. Sagent Advisors Inc. acted as financial advisor to Vesta in connection with this transaction.
Vesta announced that it has closed on the sale of 2.0 million of its shares of Affirmative Insurance Holdings, Inc. common stock for $14.00 per share to Affirmative Insurance Holdings Inc. and has withdrawn its demand registration notice that was announced in March 2005.
Vesta intends to use the proceeds to enhance its financial flexibility and to repay $21.0 million of its line of credit facility, reducing the total availability under the line of credit facility to $9.0 million. Vesta now owns approximately 35 percent of Affirmative.
"We are pleased to announce today's transactions which enhance Vesta's capital strength and financial flexibility," Norman W. Gayle, III, president and CEO said. "We believe that our focus on the homeowners insurance market will create long-term value for our shareholders and other constituents."
Vesta also provided a revised estimate of an accounting error that it first disclosed on November 15, 2004. Vesta previously reported that the cumulative impact of that error was a $1.8 million reduction in GAAP stockholders' equity and that it believed the error occurred prior to 2003. In the process of pinpointing the period and nature of the previously disclosed error, the company discovered additional errors. The company expects the cumulative total impact of correcting all errors discovered to date will reduce GAAP stockholders' equity by a total of $11.6 million.
The company has also revised its previously provided preliminary results for the third quarter 2004 to include an additional $11.2 million of loss development related to the four hurricanes that occurred in Florida and the southeast last year. The previously reported estimated loss was $62.8 million. Vesta also estimates that the combined ratio was 84.1 percent for its standard-property casualty business for the quarter ended December 31, 2004.
As previously disclosed, the company has identified a material weakness in the effectiveness of internal controls over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 as it relates to its consolidation process. In addition, the company has identified material weaknesses in ceded reinsurance and financial management and may identify additional material weaknesses as the internal control assessments are completed. The presence of these material weaknesses will cause management to conclude that internal controls are ineffective and the external auditors to issue an adverse opinion on the effectiveness of internal controls.