Litigation Verdict Delays Vesta Insurance Earnings Info

Vesta Insurance Group, Inc. (NYSE:VTA) announced it is delaying its earnings release and previously scheduled conference call until Nov. 16. The Birmingham, Ala.-based company will file a SEC Form 12b-25 to delay the filing of its Form 10-Q until Nov. 16.

The delay is due to a jury verdict received Tuesday afternoon in a previously disclosed litigation case, Muhl v. Vesta, in the Supreme Court of the State of New York holding that a retrocessional reinsurance agreement referred to as Pool III did exist.

Although the damages phase of the trial for both Pool I and Pool III is scheduled for December, Vesta is currently estimating the potential impact of this verdict. The charge is initially estimated to be in the range of $10 to $15 million and will impact the company’s loss from discontinued operations in the third quarter.

“We just received this disappointing verdict and believe that it is prudent to delay the filing of our 10-Q and earnings release until we have time to incorporate the impact of this ruling into the third quarter financials,” said Norman Gayle, III, president and CEO.

In addition, the Vesta board of directors resolved to not pay a quarterly cash dividend for the period ending Sept. 30. The board will re-evaluate the company’s cash dividend following its fourth quarter results.

In addition, Vesta has updated its loss estimates for the four hurricanes that impacted Florida and the southeastern United States. For the third quarter, the company currently estimates that its total loss, after reinsurance, but including reinsurance reinstatement premiums to be $60.6 million.

Vesta also announced that it has amended its $30 million revolving credit facility with First Commercial Bank of Birmingham, Ala. The amended agreement releases 2.3 million shares of Affirmative Insurance Holdings common stock owned by Vesta’s holding company, which was previously pledged as collateral, and contains new financial covenants.

“The amended credit agreement provides increased financial flexibility and we are currently evaluating the allocation of capital among our businesses,” Gayle said.

Vesta also announced that it has terminated the agreement to sell its life insurance operations, American Founders Financial Corporation to an unaffiliated investor group. Vesta terminated the agreement on Nov. 5, 2004 following the buyers’; failure to close after the transaction received regulatory approval on Oct. 11. Vesta is evaluating alternatives related to its life insurance business, including retaining and growing the business or pursuing a divestiture.

The company will announce the new details of its earnings release and teleconference at a later time.