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BIRMINGHAM, Ala. -- Adding to its recent financial problems, Vesta Insurance Group Inc. incurred a $13.9 million loss for the second quarter of 1998 and might be looking to sell the company, an analyst says.
The insurance company attributed the quarter's loss to high catastrophe claims, costs for fixing Year 2000 computer problems and expenses related to the 1997 acquisition of Shelby Casualty Insurance Co.
The company was five days late in releasing the figure, a delay that President and Chief Executive Officer Norman W. Gayle III blamed on the complexity of the company's financial situation.
But the loss might also be a more accurate reflection of the insurer's financial picture, said Grace Osborne, a director with Standard & Poor's Corp. in New York. The insurer is using a new accounting method, after Alabama regulators in June questioned its previous method.
"Most likely, they are beginning to understand the ramifications of the accounting irregularities on their operations, and perhaps the results are an indicator," she said.
Vesta also announced it has hired Morgan Stanley Dean Witter as a financial adviser "to explore strategic alternatives to enhance shareholder value."
This means a sale is a "distinct possibility," Ms. Osborne said.
The company's financial woes first came to light in June, when "accounting irregularities" were discovered during an investigation by the Alabama Insurance Department.
The company reported that the irregularities could have a sizable impact on fourth-quarter 1997 and first-quarter 1998 earnings; it also reported that CEO Robert Y. Huffman had resigned (BI, June 8). Following those announcements, the company's stock price plunged and stockholders piled on lawsuits. Several weeks later, the company restated its earnings for the past five years, reducing them by an aggregate of $72.4 million (BI, July 6).
In addition to announcing its results, Vesta last week also announced that it had elected Mr. Gayle as president and CEO and a member of the company's board. He served as acting president and CEO since Mr. Huffman's resignation.
Vesta is a holding company for several property/casualty insurance and reinsurance units, including Vesta Fire Insurance Co., Shelby Casualty Insurance Co. and Vesta County Mutual Insurance Co.