Edgar Filing: VESTA INSURANCE GROUP INC

As filed with the Securities and Exchange Commission on May 10, 2001
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549

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FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

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VESTA INSURANCE GROUP, INC.
(Exact name of registrant as specified in its charter)

Delaware 6711 63-1097283
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)

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)

John W. McCullough
Vice President and Associate 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:

Michael D. Waters Frank M. Conner III
Kelly C. Gruesbeck Jonathan H. Talcott
Balch & Bingham LLP Alston & Bird LLP
2 Dexter Avenue 601 Pennsylvania Avenue, N.W.
Montgomery, Alabama 36104 North Building, 11th Floor
(334) 834-6500 Washington, DC 20004-2601
(202) 756-3300

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 any of the 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 offered only in connection with dividend or
interest reinvestment plans, 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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Proposed
Proposed Maximum
Maximum Aggregate Amount of
Title of Shares Amount to Offering Price Offering Registration
to Be Registered Be Registered per Share (1) Price (1) Fee
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Common Stock, $0.01 par
value (including
associated preferred
stock purchase
rights)............... 6,900,000 shares $7.62 $52,578,000 $13,145
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(1) Estimated pursuant to Rule 457(c) under the Securities Act of 1933 based on
the average of the high and low sales prices of the common stock as
reported on the New York Stock Exchange on May 7, 2001, solely for the
purpose of calculating the registration fee.

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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++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY +
+NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN +
+OFFER TO SELL SECURITIES, AND WE ARE NOT SOLICITING OFFERS TO BUY THESE +
+SECURITIES, IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++

SUBJECT TO COMPLETION, DATED MAY 10, 2001

PROSPECTUS

6,000,000 SHARES
[Vesta Logo]

VESTA INSURANCE GROUP, INC.
COMMON STOCK

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This prospectus describes an offering by Vesta Insurance Group, Inc. of
6,000,000 shares of its common stock.

Vesta's common stock currently trades on the New York Stock Exchange under
the symbol "VTA." The last reported sale price of the common stock on the New
York Stock Exchange on , 2001 was $ per share.

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See "Risk Factors" beginning on page 7 for a discussion of the material risks
that you should consider before you invest in the common stock.

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Neither the U.S. Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities, or determined that
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.

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Per Share Total
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Public offering price........................................ $ $
Underwriting discount........................................ $ $
Proceeds to Vesta (before expenses).......................... $ $

The underwriters may purchase up to 900,000 additional shares of common stock
from Vesta under certain circumstances.

The underwriters are offering the shares subject to various conditions. The
underwriters expect to deliver the shares to purchasers on or about
, 2001.

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Cochran, Caronia Securities llc

, 2001

This prospectus and the documents incorporated by reference into this
prospectus contain "forward-looking statements" within the meaning of the
federal securities laws. Generally, when we use terms such as "anticipate,"
"believe," "could," "estimate," "intend," "expect," "plan," "would," and
similar expressions, we are making a forward-looking statement. Certain
statements contained in this prospectus that are not historical facts, or that
concern expected financial performance, on-going business strategies and
possible future action that we intend to pursue are also forward-looking
statements. Factors that might cause actual results to differ from the forward-
looking statements include the following:

. Catastrophic weather events;

. Our ability to achieve the earnings expectations related to the
businesses that we have recently acquired or may acquire in the future,
which in turn depends on numerous factors including the ability to
achieve in a timely manner anticipated cost savings and revenue
enhancements with respect to acquired operations and the assimilation of
acquired operations into Vesta's corporate culture;

. Our inability to reinsure or collect on existing reinsurance for losses
that occur;

. Changes in the laws or regulations affecting our operations;

. Changes in our relationship with independent agents;

. Changes in the retail marketplace, our competitors' business tactics or
strategies, or our industry ratings;

. Pending or future litigation or arbitration, including arbitration of
reinsurance treaties, against us;

. Changing market forces that necessitate, in the opinion of our
management, changes in our plans, strategies or tactics; and

. Other factors that we discuss in the section of this prospectus entitled
"Risk Factors" beginning on page 7.

A forward-looking statement expresses our expectations on the date we make
it. We will not update any forward-looking statement to reflect events or
circumstances arising after the date on which we made it. Actual results,
performance, or achievements can differ materially from results suggested by
these forward-looking statements because of a variety of factors including
those described in the section of this prospectus entitled "Risk Factors"
beginning on page 7.

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For North Carolina residents: the Commissioner of Insurance of the State of
North Carolina has not approved or disapproved this offering nor has the
Commissioner passed upon the accuracy or adequacy of this prospectus.

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The laws of various states prohibit any person or entity from directly or
indirectly acquiring 10% or more (5% or more in Alabama and Florida) of the
voting control of any domestic insurance holding company without approval of
such states' respective Commissioner of Insurance.

PROSPECTUS SUMMARY

This summary highlights some of the information contained in this
prospectus. It is not complete and may not contain all of the information that
you should consider before investing in our common stock. You should read the
entire prospectus carefully. When we refer to "Vesta," the "Company," "we," or
"our" in this prospectus, we are referring to Vesta Insurance Group, Inc., a
Delaware corporation, and all of its subsidiaries.

The Company

Vesta is an insurance holding company that offers a wide range of personal
insurance products. Our largest business segment is the underwriting and sale
of personal automobile and homeowners insurance distributed through
approximately 1,600 independent sales agencies. As of December 31, 2000, we
reported consolidated assets of approximately $1.6 billion and stockholders'
equity of approximately $215.1 million. For the year ended December 31, 2000,
we reported net written premiums of approximately $210.7 million and income
from continuing operations of approximately $8.3 million.

Business Strategy

Our strategy is to grow operating earnings and strengthen our capital
position. We do this by aggressively managing our core property and casualty
insurance business and pursuing strategic opportunities that permit us to offer
personal insurance products which complement our existing product lines and
distribution channels. The principal elements of our strategy include:

. Focus on the Profitability of the Core Standard Property and Casualty
Operations. We seek to establish disciplined underwriting programs that
will result in sustainable underwriting profits. During the past two
years, we have initiated a number of actions to improve the performance
of our standard property and casualty operations. These include
initiating rate increases in a number of key markets, reducing the
number of active agencies from 2,800 to 1,600, migrating from multiple
policy processing platforms to a primary integrated platform, and
significantly reducing personnel and other expenses by consolidating
regional offices into our principal office in Birmingham, Alabama.
Management believes that these initiatives will result in lower loss and
expense ratios as well as enhanced premium growth.

. Expansion into New Geographic Markets. We continuously seek expansion
opportunities that allow us to leverage our underwriting capabilities
and product expertise in new markets. While we are currently licensed in
48 states, ten core states accounted for over 70% of our premium volume
during 2000. We believe there are significant opportunities to expand
our homeowners programs outside the ten core states where established
carriers are at capacity due to geographic concentrations. In April
2001, we entered into a definitive agreement to acquire Florida Select
Insurance Holdings Inc. ("Florida Select"), the eighth largest insurer
of residential property in Florida. We intend to use Florida Select's
expertise in selecting and managing risk in catastrophe-prone areas to
expand our homeowners program in such states as Texas, California, and
various northeastern states.

. Expansion of New Personal Lines Products. Since June 2000, we have
acquired or made significant investments in three insurance operations
that will allow us to offer life and annuity, accident and health, and
non-standard automobile insurance products. These strategic investments
include:

-- purchase of a 71% interest in American Founders Financial Corporation
("American Founders"), a holding company for two life insurance
companies in Texas with approximately $2.1 billion of traditional
life, universal life, and annuity products and policies in force as
of December 31, 2000;

-- acquisition of Aegis Financial Corporation, a holding company for an
accident and health insurance company in Texas with approximately
$16.5 million of accident and health premiums in force as of December
31, 2000; and

-- purchase of a 52% interest in Instant Insurance Holdings, Inc.
("Instant Auto"), a holding company for a group of insurance agencies
specializing in the direct marketing and distribution of non-standard
auto insurance products written by other carriers.

. Expansion of Fee-Based Opportunities. We are positioned to generate fee
based income by acting as a fronting carrier for other insurers and
reinsurers for fees and by marketing and distributing non-standard auto
insurance products through an agency for commissions.

-- Specialty Lines. As a holding company for 14 insurers licensed in 48
states, we seek opportunities to issue policies under our name and
then reinsure substantially all of the risk back to another carrier
or reinsurance company in exchange for a fee. We are focused on
offering these "fronting" services, which we report as specialty
lines, to insurance companies rated "A" or higher by the A.M. Best
Company ("A.M. Best"). During 2000, we contracted for over
$100 million in annual premiums under fronting arrangements,
principally for auto policies. To strengthen our relationship with
reinsurers who may purchase these services, we have acquired an
approximate 9.9% interest in Chaucer Holdings PLC, the United Kingdom
based, publicly-traded holding company of Chaucer Syndicates Limited,
a managing agency at Lloyd's of London. We purchased approximately
8.3 million ordinary shares of Chaucer for approximately $8.2 million
and we will have a seat on Chaucer Holdings' Board of Directors.

-- Non-Standard Auto Insurance. Our acquisition of Instant Auto provides
us with a platform to earn commission income through the direct
marketing and sale of other carriers' non-standard auto insurance
products. This platform includes a highly-integrated call center to
field customer inquiries, facilitate policy applications, and
administer the issuance of new policies. We believe this processing
platform will enable us to execute our growth strategy of acquiring
other non-standard agencies and attracting reinsurers with seasoned
books of business.

Strategic Repositioning

During the past three years, we have completed a strategic repositioning
that will permit us to more aggressively pursue our business strategy. Our
repositioning consisted of changing our senior management, exiting certain
lines of business, and restructuring our balance sheet. Key events in this
repositioning are highlighted below:

. Management Additions: Since 1998, we have made significant changes in
our senior management. In July 1998, James E. Tait joined us as a
Director, Executive Vice President, and Chief Financial Officer and was
subsequently promoted to Chairman in 2000. Mr. Tait is a former Partner
at Coopers & Lybrand LLP, where he served as Managing Partner for the
Midstates Region, responsible for all operations in the Business
Assurance, Tax, and Financial Advisory Services segments delivered to
regional clients. He also held a number of other positions at Coopers &
Lybrand LLP, including Partner-in-Charge of its national Insurance
Industry Team and Partner-in-Charge of the Central Region Financial
Services Team.

In 1998, William P. Cronin joined us as Senior Vice President and
Controller and was subsequently named Chief Financial Officer in 2000.
Mr. Cronin is a former Senior Manager with Ernst & Young LLP where he
worked principally with insurance and healthcare clients.

In addition, Norman W. Gayle III, who served as our Executive Vice
President and Chief Operating Officer from 1995 through 1998, was named
President and elected a Director in 1998 and has occupied the Office of
the Chairman with Mr. Tait since 2000.

. Exit from the Reinsurance and Commercial Property and Casualty
Segments: During 1999 and 2000, we experienced downgrades in our A.M.
Best ratings. In light of these rating actions and the increasing
competitiveness of the reinsurance and commercial marketplaces, we
anticipated a significant loss of reinsurance premiums going forward,
and we determined that the corrective actions necessary to return the
commercial segment to profitability were not justifiable. Accordingly,
during

1999 and 2000, we entered into a series of transactions in order to exit
the reinsurance assumed and commercial property and casualty businesses.

. Debt Exchanges and Convertible Preferred Stock Repurchases: During 2000
and the first quarter of 2001, we engaged in a series of debt exchanges
and repurchases to reduce our annual interest expense obligations and
improve our debt-to-capital ratio. As a result of these transactions, we
have reduced our outstanding debt by approximately $68.7 million, our
ongoing annual interest obligations by approximately $7.5 million, and
our debt-to-total capital ratio from approximately 48.5% as of December
31, 1999 to approximately 36.7% as of December 31, 2000. Additionally,
during the first quarter of 2001, we repurchased 5.9 million shares of
our common stock issued upon conversion of 2.95 million shares of our
Series A convertible preferred stock with a face value of approximately
$25.1 million, eliminating approximately $2.3 million in annual dividend
payments.

. Improved Ratings: On February 25, 2000, we received an upgrade from A.M.
Best in our insurance subsidiaries ratings to "B+" (Very Good) from "B"
(Fair). The "B+" rating places us in the "secure" category of A.M.
Best's classifications, reflecting our improved financial condition,
including reduced debt and greater financial flexibility. Additionally,
Moody's Investor Service recently revised its outlook for the ratings of
the Company to "Positive" from "Negative."

We believe these positive developments have enabled us to overcome the
challenges that arose in the spring of 1998. At that time, we discovered that
certain reserves and premium estimates in our assumed reinsurance business may
have been inappropriately recorded during the first quarter ended March 31,
1998 and the fourth quarter ended December 31, 1997. Following a voluntary
internal investigation, we concluded that inappropriate amounts had, in fact,
been recorded, and we decided to restate our financial statements for these two
quarters. While not the subject of the investigation, we and our auditors at
that time also reexamined during this time the method of accounting that we had
historically used in computing the earned reinsurance premiums included in our
financial statements. This reexamination led us to conclude that the method of
accounting was not in accordance with generally accepted accounting principles
("GAAP"), and to correct this error we restated our financial statements for
1997 and all prior periods. The cumulative effect of these restatements
resulted in a decrease to stockholders' equity of approximately $75.2 million
through March 31, 1998.

Following the restatement of our financial statements in 1998, several
lawsuits were filed against Vesta and certain of its directors and officers,
including federal class action suits that have been consolidated in the United
States District Court for the Northern District of Alabama. We cannot predict
the ultimate outcome of this litigation and have therefore not set aside any
financial reserves. In addition, we are currently in arbitration with certain
of our reinsurers. For more detailed information, see the section of this
prospectus entitled "Risk Factors" beginning on page 7 as well as the section
entitled "Business--Litigation" beginning on page 34.

Florida Select Acquisition

As part of our strategy to seek expansion opportunities that allow us to
leverage our underwriting capabilities and grow our core property and casualty
business in new markets, on April 18, 2001, we and our wholly-owned subsidiary,
Vesta Fire Insurance Corporation, an Illinois domiciled insurer ("Vesta Fire"),
entered into a stock purchase agreement to acquire all of the issued and
outstanding capital stock of Florida Select Insurance Holdings Inc. ("Florida
Select"), the parent company of Florida Select Insurance Company, a Florida
domiciled insurer that offers residential homeowners insurance. The majority of
Florida Select Insurance Company's policyholders are former customers of the
Florida Residential Property and Casualty Joint Underwriting Association
("JUA"), a state-sponsored insurer created by the Florida Legislature following
Hurricane Andrew in 1992 to provide homeowners insurance coverage to customers
who were otherwise

unable to purchase it in the private market. By 1996, the JUA had issued almost
one million policies insuring approximately $100 billion of residential
property, and it initiated various incentive programs designed to encourage
carriers to assume these policies and return these risks to the private market.
These incentives included attractive rates and the promise of bonuses to be
paid after the assuming company had renewed, or offered to renew, the policies
for at least three years. Florida Select was originally organized for the
purpose of assuming policies from the JUA pursuant to these incentive programs.

We or Vesta Fire (at our option) will purchase all of the issued and
outstanding capital stock of Florida Select from that company's existing
stockholders for a cash payment equal to approximately $61.5 million plus
interest on this amount accumulating at a rate of 6% per annum from January 1,
2001 until the closing date. If we do not complete this offering or fail to
raise at least $30 million in net proceeds from this offering prior to the
closing of the Florida Select acquisition, we have the right to pay up to $30
million of the consideration in the form of unsecured promissory notes that
mature 60 days after issuance and bear interest at a rate of prime plus 0.25%.
As a condition precedent to closing, we agreed to make an additional cash
payment of $3 million to Centre Insurance Company, an affiliate of Centre
Solutions (Bermuda) Limited, one of the stockholders of Florida Select, in
connection with the commutation of a reinsurance agreement between Centre
Insurance Company and Florida Select Insurance Company.

As of the year ended December 31, 2000, Florida Select had consolidated
assets of approximately $106.6 million, stockholders' equity of approximately
$31.5 million, gross written premiums of approximately $63.5 million, and net
income of approximately $6.6 million. Among other things, we expect our
acquisition of Florida Select to supplement our income stream, provide
opportunities in a market where we have not previously concentrated, and add
expertise that will complement our business in other geographic markets,
especially in the northeastern United States and Hawaii. For more detailed
information, see the section of this prospectus entitled "Risk Factors"
beginning on page 7 and the section entitled "Business--Florida Select
Acquisition" beginning on page 17.

Recent Developments

We recently announced the results of operations for the quarter ended March
31, 2001. We had an approximate $3.4 million increase in net operating earnings
from continuing operations for the first quarter of 2001 compared to the same
period in 2000. Net operating earnings from continuing operations were
approximately $1.7 million, or $0.08 per diluted share, for the quarter ended
March 31, 2001 compared to a loss of approximately $1.7 million, or $0.07 per
diluted share, for the corresponding period in 2000. We announced net income
from continuing operations of approximately $2.7 million, or $0.13 per diluted
share in the first quarter of 2001, compared to an approximate $1.7 million
loss, or a $0.07 per diluted share loss in the corresponding period in 2000.

In addition, our Board of Directors declared a quarterly cash dividend for
the period ended March 31, 2001 of $0.025 per share, a 100% increase over the
prior quarter. The dividend is payable on June 15, 2001 to stockholders of
record on May 30, 2001.

Our principal offices are located at 3760 River Run Drive, Birmingham,
Alabama 35243 and our telephone number at that address is (205) 970-7000.

The Offering

Total shares of common stock
offered by this prospectus.......
6,000,000 shares (1)

Shares of common stock
outstanding as of March 31,
2001............................. 24,427,946 shares (2)

Shares of common stock to be
outstanding after the offering...
30,427,946 shares (1)(2)

Use of proceeds................... If this offering is completed prior to
our acquisition of Florida Select, we
intend to apply all of the proceeds to
the acquisition. We will finance the
balance of the acquisition with
internally-generated funds or external
borrowings. If this offering is completed
after our acquisition of Florida Select,
we intend to use the net proceeds to pay
down indebtedness incurred in connection
with the acquisition or for general
corporate purposes. See the section of
this prospectus entitled "Use of
Proceeds" beginning on page 12.

NYSE symbol....................... VTA
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(1) Excludes the issuance of 900,000 shares of common stock pursuant to the
underwriters' over-allotment option.

(2) Includes 750,000 shares of issued and outstanding common stock held by the
Vesta Agents Stock Incentive Plan Trust. Excludes (i) 2,322,061 shares of
common stock authorized for future option awards or stock grants under our
current Long Term Incentive Plan and our 2001 Incentive Compensation Plan
as of March 31, 2001, and (ii) 221,478 additional shares of common stock
reserved for issuance for stock options outstanding as of March 31, 2001.

Unless otherwise stated, all information in this prospectus assumes that the
underwriters' over-allotment option is not exercised.

Summary Financial and Operating Data

Pro Forma
Financial
Information
Year Ended as of December 31, (unaudited)
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1996 1997 1998 1999 2000(1) 2000(2)
-------- ---------- ---------- -------- ---------- -----------
(in thousands, except per share data and ratios)

Statement of Operations
Data: (3)
Net Premiums Earned..... $ 63,206 $ 132,333 $ 247,063 $248,076 $ 216,999 $ 269,044
Net Investment Income... 21,374 31,960 26,565 25,949 45,903 69,761
Policy Fees............. -- -- -- -- 2,209 4,823
Other................... 188 2,094 5,473 4,527 2,103 5,261
Realized Gains
(Losses)............... 32 3,283 3,272 12,756 (2,061) (2,061)
-------- ---------- ---------- -------- ---------- ----------
Total Revenues......... 84,800 169,670 282,373 291,308 265,153 346,828
Policyholder Benefits,
Losses and LAE (4)..... 25,631 69,645 167,413 165,014 135,042 167,802
Policyholder Acquisition
and Other Underwriting
Expenses............... 35,366 63,702 132,032 87,451 95,821 117,154
Loss on Asset
Impairment............. -- -- 65,496 -- -- --
Goodwill and Other
Intangible
Amortization........... 484 3,065 5,177 2,118 1,591 4,261
Interest on Debt........ 10,059 10,859 14,054 13,215 15,105 20,846
-------- ---------- ---------- -------- ---------- ----------
Total Operating
Expenses.............. 71,540 147,271 384,172 267,798 247,559 310,063
Income (Loss) from
Continuing Operations
Before Taxes,
Minority Interest and
Deferrable Capital
Securities............. 13,260 22,399 (101,799) 23,510 17,594 36,765
Income Taxes............ 4,307 7,973 (29,395) 7,129 5,664 13,098
Minority Interest, Net
of Tax................. -- -- -- -- 1,595 3,240
Deferrable Capital
Securities, Net of
Tax.................... -- 5,051 5,449 5,632 1,986 1,986
-------- ---------- ---------- -------- ---------- ----------
Net Income (Loss) from
Continuing Operations.. 8,953 9,375 (77,853) 10,749 8,349 18,441
Income (Loss) from
Discontinued
Operations, Net of
Tax.................... 27,860 27,485 (63,331) 12,706 (2,397) (2,397)
Extraordinary Gain on
Debt Extinguishments... -- -- -- -- 5,250 5,250
Preferred Stock
Dividend............... -- -- -- (563) (3,670) (3,670)
Gain of Redemption of
Preferred Securities... -- -- -- 9,548 9,190 9,190
-------- ---------- ---------- -------- ---------- ----------
Net Income (Loss)
Available to Common
Shareholders........... $ 36,813 $ 36,860 $ (141,184) $ 32,440 $ 16,722 $ 26,814
======== ========== ========== ======== ========== ==========
Diluted Net Income
(Loss) from Continuing
Operations Per Share... $ 0.47 $ 0.49 $ (4.20) $ 0.53 $ 0.34 $ 0.61
Diluted Net Income
(Loss) Available to
Common Shareholders Per
Share.................. 1.92 1.93 (7.61) 1.63 0.78 0.96
Net Operating Income
(Loss) (5)............. 8,932 7,241 (37,407) 2,457 9,689 19,881
Net Operating Income
(Loss) Per Diluted
Share.................. 0.47 0.38 (2.02) 0.12 0.40 0.66
Shares Used in Diluted
Per Share Calculation.. 19,157 19,053 18,549 20,202 24,255 30,255
Other Operating Data:
Standard Property and
Casualty Operations:
Net Premiums Written.... $ 70,803 $ 150,526 $ 264,839 $227,807 $ 205,461 $ 265,392
Statutory Capital &
Surplus (6)............ 352,695 317,875 213,251 271,986 275,270 275,270
Net Premiums Written to
Statutory Surplus...... 0.20x 0.47x 2.31x 0.98x 0.76x 0.97x
GAAP (7) Loss Ratio..... 40.1% 52.6% 67.8% 66.5% 58.6% 55.5%
GAAP Expense Ratio...... 56.0 48.1 48.5 30.3 37.1 35.7
-------- ---------- ---------- -------- ---------- ----------
GAAP Combined Ratio..... 96.1% 100.7% 116.3% 96.8% 95.7% 91.2%
======== ========== ========== ======== ========== ==========

Balance Sheet Data:
Total Investments and
Cash................... $427,276 $ 656,816 $ 634,668 $483,997 $1,019,266 $1,057,154
Total Assets............ 871,385 1,636,859 1,347,702 915,809 1,621,999 1,738,167
Reserves for Losses, LAE
and Future Policy
Benefits............... 173,275 596,797 504,911 354,709 923,973 943,924
Outstanding Debt........ 143,602 120,279 168,302 146,876 91,419 91,419
Federal Home Loan Bank
Advances............... -- -- -- -- 150,691 150,691
Deferrable Capital
Securities............. -- 100,000 100,000 41,225 33,225 33,225
Stockholders' Equity.... 271,919 297,336 158,027 200,065 215,111 254,611
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(1) Includes the results of American Founders for the third and fourth
quarters of 2000.
(2) Reflects the unaudited pro forma consolidated financial data of Vesta for
the year ended as of December 31, 2000, as if the Florida Select
acquisition, the American Founders acquisition and the issuance of common
stock had occurred at the beginning of this period. See Vesta's unaudited
pro forma consolidated financial statements beginning on page F-2 and
Florida Select's consolidated financial statements as of December 31, 1999
and 2000 and for each of the three years in the period ended December 31,
2000 beginning on page F-6.
(3) As a result of Vesta's decision in 2000 to discontinue its reinsurance
assumed business and its decision in 1999 to discontinue its commercial
lines segment, all periods presented have been reclassified to present
operations on a continuing and discontinued basis.
(4) Loss adjustment expenses.
(5) Represents income from continuing operations excluding net realized
investment gains or losses, net of federal income taxes.
(6) Statutory data have been derived from the financial statements of Vesta
prepared in accordance with statutory accounting principles ("SAP") and
filed with insurance regulatory authorities.
(7) Generally accepted accounting principles.

RISK FACTORS

You should carefully consider the risks described below before making an
investment decision. The risks and uncertainties described below are not the
only ones we may face. If any of the following risks actually occur, our
business, financial condition, or results of operations could be materially and
adversely affected. In such case, the trading price of our common stock could
decline, and you may lose all or part of your investment.

We Are Vulnerable to Catastrophic Property Loss

The greatest risk of loss we face in the ordinary course of our business is
property damage resulting from catastrophic events, particularly hurricanes and
tropical storms affecting Hawaii and hurricanes affecting the northeastern
United States. Our exposure to these sorts of risks will increase as a result
of our proposed acquisition of Florida Select Insurance Holdings Inc. ("Florida
Select"), whose subsidiary, Florida Select Insurance Company, specializes in
writing residential homeowners insurance in Florida, an area historically known
for hurricane risk. Because catastrophic loss events are by their nature
unpredictable, historical results of operations may not be indicative of future
results of operations. The occurrence of one or more major catastrophes in any
given period could have a material and adverse impact on our results of
operations and could result in substantial outflows of cash as losses are paid.

We May Be Unable to Consummate the Florida Select Acquisition or to Realize
Expected Benefits from the Acquisition

We cannot guarantee that we will consummate our acquisition of Florida
Select or, if we successfully consummate the transaction, that we will realize
the financial benefits that we hope to realize from the acquisition. The
consummation of the acquisition is subject to certain conditions that must be
satisfied by both us and the sellers of Florida Select. Such conditions
include, without limitation, our receipt of certain regulatory approvals, the
absence of any material adverse changes to the net value of Florida Select
and/or its subsidiaries, compliance by all parties to the stock purchase
agreement with their respective covenants and performance of their respective
obligations, the completion of certain payments by us and an affiliate of one
of the selling stockholders, and the cancellation of certain agreements to
which Florida Select or the selling stockholders are parties prior to or on the
closing date of the acquisition. Additionally, if the conditions are not
satisfied by August 1, 2001, the stock purchase agreement may be terminated by
any of the selling stockholders unless all parties to the agreement mutually
agree to extend such termination date.

We expect the acquisition of Florida Select to have a positive impact on our
operating results. Therefore, failure to consummate the acquisition of Florida
Select may have an adverse effect on our operating results. However, even if we
do consummate the acquisition of Florida Select, we might experience adverse
effects to our operating results for numerous reasons. Acquisitions typically
entail many risks and can result in difficulties in assimilating and
integrating operations, personnel, technologies, products, and information
systems and may require additional infusions of capital. Certain anticipated
costs savings may or may not be realized. As a result, the acquisition could
have an adverse impact on our financial condition and results of operation
which will likely have an adverse effect on our stock price.

We Are Currently Defending Class Action Litigation Seeking Unspecified but
Potentially Significant Damages

We are currently defending a consolidated stockholder class action lawsuit
pending in the United States District Court for the Northern District of
Alabama that alleges violations of certain provisions of the federal securities
laws and also a derivative action pending in Alabama state court. See the
section of this prospectus entitled "Business--Litigation--Securities
Litigation" beginning on page 34. The consolidated class action is in the
discovery stage with a current trial date of November 5, 2001. The damages
claimed by the stockholder class are substantial. We are vigorously defending
this litigation but there is no assurance of the outcome of the litigation or
of the range of potential adverse damage judgments if the plaintiffs are
successful. The parties have conducted settlement discussions, but have not
been successful in reaching any resolution. The derivative action has been
placed on the administrative docket.

We have several layers of directors' and officers' liability insurance
coverage ("D&O insurance"), the terms of which may cover all or a portion of
the damages or settlement costs of the class action. These policies provide up
to $100 million in D&O insurance to cover damages or settlement costs and an
additional policy provides another layer of $10 million to cover additional
damages awarded by a court in these actions. The primary policy that provides
the first $25 million of D&O insurance was issued by Cincinnati Insurance
Company ("Cincinnati"). Federal Insurance Company (The Chubb Group of Insurance
Companies) issued an excess D&O insurance policy which provides coverage for
the second $25 million in losses, if necessary. The balance of the coverage is
provided by a group of insurers and was purchased after the class actions
comprising the consolidated class action were filed. After these actions were
filed, Cincinnati, which provides the primary D&O insurance coverage, filed a
lawsuit seeking to rescind the policy and avoid the coverage. That action was
dismissed for lack of subject matter jurisdiction, and we then filed an action
in state court against Cincinnati to enforce the policy and for damages.
Cincinnati filed an answer and counterclaim in that action, seeking to rescind
the policy and avoid the coverage. This action is in the early phases of
discovery and the outcome is uncertain. There is no assurance that the primary
insurance coverage will ultimately be available for any damages or settlement
costs incurred. The outcome of this litigation may also materially affect the
availability of the excess policy issued by The Chubb Group. The damages
claimed by the stockholder plaintiffs in the consolidated class action are
substantial. If the damages or settlement costs actually incurred in connection
with the consolidated class action and derivative action are ultimately
determined not to be covered by our D&O insurance policies for any reason, we
may incur a substantial and material loss that could have a material and
adverse impact on our financial condition and results of operations.

For a more detailed discussion, see the section of this prospectus entitled
"Business--Litigation" beginning on page 34.

We Face a Risk of Non-Collection of Reinsurance Recoverables Involving
Substantial Amounts

Although we reinsure a significant portion of potential losses on the
policies that we issue, we initially must pay all claims and then seek to
recover the reinsured losses from our reinsurers. Although we report as assets
the amount of claims paid that we expect to recover from reinsurers, we can
never be certain that we will be able to ultimately collect those amounts. The
reinsurer may be unable to pay the amounts recoverable, may dispute our
calculation of the amounts recoverable, or may dispute the terms of the
reinsurance treaty.

We are in disputes with several reinsurers concerning the amounts that we
believe to be recoverable under three reinsurance treaties. These reinsurers
have sought to rescind these treaties and therefore avoid their obligations
under these treaties or, in the alternative, to dispute the terms of the
contracts. The total amount disputed among the parties under these various
treaties is substantial, and we are currently involved in arbitration
proceedings in connection with each of the treaties. These arbitrations are in
the early stages and there is no assurance as to their outcome or whether these
amounts will ultimately be collected, in whole or in part. We are also involved
in an arbitration proceeding with an insurance carrier where we assumed certain
reinsurance risks from the carrier. The insurance company believes that we owe
it funds for claims under the treaty and we are seeking recovery of all
improper payments and expense allocations under the contract. The ultimate
outcome of these various proceedings cannot be determined at this time. If the
amounts recoverable under the relevant treaties are ultimately determined to be
materially less than the amounts that we have reported as recoverable, we may
incur a significant and material loss that could have a material and adverse
impact on our financial condition and results of operations. See the section of
this prospectus entitled "Business--Litigation--Arbitration" beginning on page
35.

Our Acquisition Strategy May Require Us to Make Significant Capital Infusions,
May Be Dilutive to Our Existing Stockholders, and May Result in Difficulties in
Assimilating and Integrating the Operations, Personnel, Technologies, Products,
and Information Systems of Acquired Companies

We have implemented a strategy to maximize our returns through mergers,
acquisitions, and strategic investments. Over the last 12 months we have
completed four transactions that will serve as platforms for

growth in our life and health segment as well as our newly-established non-
standard auto segment. These transactions include our acquisition of Aegis
Financial Corporation and significant investments in American Founders Finance
Corporation, Instant Insurance Holdings, Inc., and Chaucer Holdings PLC. In
addition, we have entered into a stock purchase agreement to acquire Florida
Select, and we plan to pursue similar opportunities in the future. See the
sections of this prospectus entitled "Business--Florida Select Acquisition"
beginning on page 17 and "Business--Business Segments" beginning on page 19.
Acquisitions may require significant capital infusions, and they typically
entail many risks. These risks include difficulties in assimilating and
integrating the operations, personnel, technologies, products, and information
systems of the acquired company. We may also encounter unanticipated
expenditures, changing or loss of relationships with customers, suppliers, and
strategic partners, or contractual, intellectual property, or employment
issues. In addition, the key personnel of the acquired company may decide not
to work for us. The acquisition of another company or its products and
technologies may also require us to enter into a geographic or business market
in which we have little or no prior experience. These challenges could disrupt
our ongoing business, distract our management and employees, and increase our
expenses. In addition, acquisitions may materially and adversely affect our
results of operations because they may require large one-time write-offs,
increased debt and contingent liabilities, substantial depreciation or deferred
compensation charges, or the amortization of expenses related to goodwill and
other intangible assets. We may seek to account for acquisitions under the
pooling-of-interests accounting method, but that method may not be available.
Any of these events could cause the price of our common stock to decline.
Furthermore, if we issue equity or convertible debt securities to pay for an
acquisition, the issuance may be dilutive to our existing stockholders.
Finally, the equity or debt securities that we may issue could have rights,
preferences, or privileges senior to those of the holders of our common stock.

The Personal Lines Insurance Business is Highly Competitive, and We May Not Be
Able to Compete Effectively Against Larger, Better Capitalized Companies

We compete with dozens of property and casualty insurance companies in the
personal lines insurance business, many of which are better capitalized than us
and have higher ratings from A.M. Best than us. We also believe that the
superior capitalization of many of our competitors enables them to withstand
lower profit margins and, therefore, to offer lower rates, which enables them
to market their products more aggressively and to take advantage more quickly
of new marketing opportunities, such as the Internet. Our competition may
become increasingly better capitalized in the future as the traditional
barriers between insurance companies and banks and other financial institutions
erode and as the property and casualty industry continues to consolidate. We
believe that our ability to compete against our larger, better capitalized
competitors depends on our ability to deliver superior service and our strong
relationships with our independent agency force.

Regulatory Actions Could Impair Our Business

Our insurance subsidiaries are subject to regulation under the insurance
laws of states in which they operate. These laws provide safeguards for
policyowners and are not intended to protect the interests of stockholders.
Regulation and supervision of each insurance subsidiary is administered by a
state insurance commissioner. State insurance commissioners have broad
statutory powers to grant and revoke licenses, approve premium rates, forms of
insurance contracts, and types and amounts of business which an insurance
company may conduct in light of its statutory capital and surplus. The statutes
of most states provide for filing premium rate schedules and other information
with the insurance commissioner, either directly or through rating
organizations. Insurance commissioners generally have the authority to
disapprove filings. Insurance commissioners can also make changes to rates if
rates are found to be excessive, inadequate, or unfairly discriminatory. The
determination of rates is based on various factors, including loss and loss
adjustment expense experience. The failure to obtain, or delay in obtaining,
the required approvals from applicable departments of insurance could have a
material adverse effect on the operations of our insurance subsidiaries.

The National Association of Insurance Commissioners has adopted a number of
model laws and regulations which apply to both life and property and casualty
insurance companies. One model law attempts to ensure that all insurance
companies have acceptably low expectations of becoming financially impaired.
The

model law provides for increasing levels of regulatory intervention as the
ratio of an insurer's total adjusted capital and surplus decreases relative to
its capital which is at risk. A state department of insurance can take control
of an insurance company domiciled in that state if the ratio is too low. Based
on 2000 results, all of our insurance subsidiaries exceed the minimum
applicable risk-based capital calculations. We cannot guarantee that all of our
subsidiaries will continue to satisfy these requirements.

Our Subsidiaries May Be Unable to Pay Dividends

We are organized as a holding company. Almost all of our operations are
conducted by subsidiaries, and we cannot pay dividends to our stockholders and
meet our other obligations unless we receive dividends from our subsidiaries.

Payment of dividends by our insurance subsidiaries is regulated under state
insurance laws. The regulations in the states where each insurance company
subsidiary is domiciled limit the amount of dividends that can be paid without
prior approval from state insurance regulators. Without regulatory approval,
the maximum amount of dividends that can be paid in 2001 to us by our insurance
company subsidiaries is approximately $27.3 million. The aggregate maximum
amount of dividends permitted by law to be paid by an insurance company does
not necessarily indicate an insurance company's actual ability to pay
dividends. The actual ability to pay dividends may be further constrained by
business and regulatory considerations, such as the impact of dividends on
surplus, that could affect an insurance company's ratings, competitive
position, amount of premiums that can be written, and ability to pay future
dividends. In addition, state departments of insurance have broad discretion to
limit the payment of dividends by insurance companies. A prolonged, significant
decline in insurance subsidiary profits or regulatory action limiting dividends
could subject us to shortages of cash because our subsidiaries will not be able
to pay us dividends.

If We Cannot Maintain and Improve Our Ratings from A.M. Best, We May Not Be
Able to Maintain Premium Volume in Our Insurance Operations Sufficient to
Attain Our Financial Performance Goals

Our ability to retain our existing business or to attract new business in
our insurance operations depends largely on our ratings from A.M. Best Company
("A.M. Best"). Although A.M. Best upgraded our rating to "B+" in February,
2000, we believe we must further improve our rating in order to more
effectively compete in the highly competitive personal lines insurance market.
Although we intend to work towards a higher rating, A.M. Best has ultimate
discretion over its rating assignments. If we are unable to achieve a higher
rating from A.M. Best, we may not be able to grow our premium volume
sufficiently to attain our financial performance goals. If A.M. Best were to
downgrade our rating, we could lose significant premium volume.

We Depend on Agents Who May Discontinue Sales of Our Policies at Any Time

Our relationship with our independent agents is perhaps the most important
component of our current competitive profile. If these independent agents find
it easier to do business with our competitors, it would be difficult to renew
our existing business or attract new business in our personal lines business
segment. Although we believe we enjoy good relationships with our independent
agents and are striving to make doing business with us as easy as possible, we
cannot be sure that these agents will continue to sell our insurance to the
individuals they represent.

If Our Competitors Decided to Target Our Customer Base by Offering Lower-Priced
Insurance, We May Not Be Able to Respond Competitively

We price our insurance based on estimated profit margins, and we do not
expect to be able to significantly reduce our current estimated profit margins
in the near future. Many of our competitors, however, are better capitalized
than we are and may be able to withstand significant reductions in their
estimated profit margins. If our competitors decide to target our customer base
by offering lower-priced insurance, we may not be able to respond
competitively.

We May Be Unable to Reinsure Insurance Risks

We use reinsurance to attempt to limit the risks associated with our
insurance products. The availability and cost of reinsurance are subject to
prevailing market conditions. Poor conditions in the reinsurance market could
cause us to reduce our volume of business and impact our profitability. If any
of our reinsurers cannot pay their reinsurance obligations, we will still have
to pay losses to our insureds.

If Loss Reserves Prove to Be Inadequate, then We Would Incur a Charge to
Earnings

We maintain reserves to cover our estimated ultimate liability for losses
and related expenses with respect to reported and unreported claims incurred.
To the extent that reserves prove to be inadequate in the future, we would have
to increase our reserves and incur a charge to earnings in the period such
reserves are increased, which could have a material and adverse impact on our
financial condition and results of operations. The establishment of appropriate
reserves is an inherently uncertain process, and we cannot be sure that
ultimate losses and related expenses will not materially exceed our reserves.
Reserves are estimates involving actuarial and statistical projections at a
given time of what we expect 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. As of December 31, 2000, our aggregate loss reserves totaled
approximately $264 million.

Anti-Takeover Effects of Provisions of the Restated Certificate of
Incorporation and Bylaws

Certain provisions of our Restated Certificate of Incorporation (the
"Certificate") and Bylaws may be deemed to have anti-takeover effects and may
delay, defer, or prevent a takeover attempt that a stockholder might consider
to be in its best interest. Such provisions also may adversely affect
prevailing market prices for our common stock. These provisions, among other
things, (i) classify the Board of Directors of Vesta into three classes, each
of which serves for different three-year periods, (ii) provide that a director
of Vesta may be removed only for cause and only by a vote of 80% of the common
stock of Vesta then outstanding, (iii) provide that only the Board of Directors
or the Chairman of the Board of Directors of Vesta may call special meetings of
the stockholders, (iv) eliminate the ability of the stockholders to take any
action without a meeting, and (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 of Vesta then outstanding. 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. Finally, we recently instituted a preferred stock
purchase rights plan to permit us to better manage potential strategic
transactions which may have the effect of delaying, deferring, or preventing an
unsolicited change in control of Vesta. The effect of this plan may be to
discourage potential acquirors from attempting to acquire control of us without
the consent of our Board of Directors.

USE OF PROCEEDS

Vesta is selling 6,000,000 shares of its common stock. Vesta will receive
net proceeds of $ , (approximately $ if the
underwriters' over-allotment option is exercised in full) based on an offering
price of $ per share of common stock. The net proceeds are
calculated by deducting the underwriting discount and the estimated offering
expenses from the gross proceeds.

We and our wholly-owned subsidiary, Vesta Fire, have entered into a stock
purchase agreement to acquire all of the issued and outstanding capital stock
of Florida Select Insurance Holdings Inc. ("Florida Select") from existing
stockholders for a cash payment equal to approximately $61.5 million plus
interest on this amount accumulating at a rate of 6% per annum from January 1,
2001 until the closing date. As a condition precedent to closing the
acquisition, we have agreed to make an additional cash payment of $3 million to
Centre Insurance Company, an affiliate of Centre Solutions (Bermuda) Limited, a
stockholder of Florida Select, in connection with the commutation of a
reinsurance agreement between Centre Insurance Company and Florida Select
Insurance Company. If this offering is completed prior to the closing of the
Florida Select acquisition, we expect to apply all of the net proceeds, plus
additional internally-generated funds or external borrowings, to finance the
Florida Select acquisition. If we do not complete this offering or fail to
generate at least $30 million in net proceeds from this offering prior to the
closing of the Florida Select acquisition, we have the option to pay up to $30
million of the consideration in the form of unsecured promissory notes that
mature 60 days after issuance and bear interest at a rate of prime plus 0.25%.
We would then use the net proceeds received from this offering to repay those
promissory notes and for general corporate purposes.

PRICE RANGE OF COMMON STOCK AND DIVIDENDS

Our common stock trades on the New York Stock Exchange under the symbol
"VTA."

The following table sets forth the per share market prices of our common
stock as reported by the New York Stock Exchange and the per share dividends
paid on our common stock for the periods indicated:

Cash
High Low Dividends
----- ----- ---------

1999
First quarter........................................ $7.94 $4.00 $0.0375
Second quarter....................................... 6.00 4.00 --
Third quarter........................................ 5.38 4.19 --
Fourth quarter....................................... 4.75 3.75 --
2000
First quarter........................................ $6.81 $3.88 $0.0125
Second quarter....................................... 7.06 4.56 0.0125
Third quarter........................................ 6.75 4.56 0.0125
Fourth quarter....................................... 5.56 4.50 0.0125
2001
First quarter........................................ $8.29 $4.81 $0.0125
Second quarter (through May 7, 2001)................. 7.70 6.31 0.0250(1)

--------
(1) On May 7, 2001, our Board of Directors approved an increase of the
quarterly dividend to $0.0250 per share, payable on June 15, 2001 to
stockholders of record on May 30, 2001.

On , 2001, the last reported sale price of the common stock on
the New York Stock Exchange was $ per share.

Our Board of Directors has discretion to declare and pay dividends. The
payment of dividends depends on many factors, including our financial condition
and earnings, the capital requirements of our operating subsidiaries, legal
requirements, and regulatory constraints. See the section of this prospectus
entitled "Risk Factors--Our Subsidiaries May Be Unable to Pay Dividends"
beginning on page 10.

Illinois, Ohio, Hawaii, and Texas (and Florida, following the acquisition of
Florida Select Insurance Holdings Inc.) impose restrictions on the payment of
dividends to us by our insurance subsidiaries under their regulatory authority
in excess of certain amounts without prior regulatory approval. See the section
of this prospectus entitled "Business--Regulation--Restrictions on Dividends to
Stockholders" beginning on page 33.

CAPITALIZATION

The following table sets forth the capitalization of Vesta as of December
31, 2000 on an actual basis, on an adjusted basis to reflect the issuance of
the 6,000,000 shares of common stock to be sold by Vesta in this offering
(after deducting underwriting discounts and estimated offering expenses), and
on an adjusted basis to reflect both this stock offering and the acquisition of
Florida Select Insurance Holdings Inc. You should read this table in
conjunction with Vesta's consolidated financial statements and related notes
thereto contained in our Annual Report Form 10-K for the fiscal year ended
December 31, 2000 which is incorporated in this prospectus by reference,
Vesta's unaudited pro forma consolidated financial statements included in this
prospectus beginning on page F-2, and Florida Select's consolidated financial
statements and related notes thereto included in this prospectus beginning on
page F-6. Also, see the section of this prospectus entitled "Selected Financial
Data" beginning on page 15.

As of December 31, 2000
---------------------------------------
Pro Forma
Including
Actual Pro Forma Florida Select
-------- -------------- --------------
(unaudited) (unaudited)
(in thousands)

Short-term debt........................ $ 5,000 $ 5,000 $ 5,000
Long-term debt......................... 86,419 86,419 86,419
Capital deferrable securities.......... 33,225 33,225 33,225

Stockholders' equity:
Preferred stock, $.01 par value:
5,000,000 shares authorized;
2,950,000 shares issued and
outstanding; 2,950,000 shares issued
and outstanding as adjusted......... 30 30 30
Common stock, $.01 par value:
100,000,000 shares authorized;
18,964,322 shares issued and
outstanding; 24,964,322 shares
issued and outstanding, as adjusted
(1)................................. 190 250 250
Additional paid-in capital........... 167,382 206,822 206,822
Accumulated other comprehensive
income.............................. 2,698 2,698 2,698
Retained earnings.................... 57,643 57,643 57,643
Treasury stock, at cost.............. (5,865) (5,865) (5,865)
Unearned stock....................... (6,967) (6,967) (6,967)
-------- -------- --------
Total stockholders' equity......... 215,111 254,611 254,611
-------- -------- --------
Total capitalization............... $338,755 $379,006 $379,006
======== ======== ========

--------
(1) Includes 750,000 shares of issued and outstanding common stock held by the
Vesta Agents Stock Incentive Plan Trust. Excludes (i) the issuance of
900,000 shares of common stock pursuant to the underwriters' over-allotment
option, (ii) 2,322,061 shares of common stock authorized for future option
awards or stock grants under our current Long Term Incentive Plan and our
2001 Incentive Compensation Plan as of March 31, 2001, and (iii) 221,478
additional shares of common stock reserved for issuance for stock options
outstanding as of March 31, 2001.

SELECTED FINANCIAL DATA

The following table sets forth selected consolidated financial data of Vesta
as of and for the years ended December 31, 1996 through 2000. The financial
data for 1996 and 1997 are derived from the financial statements audited by
KPMG Peat Marwick LLP, independent certified public accountants. The financial
data from 1998, 1999, and 2000 are derived from the financial statements
audited by PricewaterhouseCoopers LLP, independent certified public
accountants. This table is a summary and should be read in conjunction with
Vesta's consolidated financial statements and related notes contained in our
Annual Report on Form 10-K for the fiscal year ended December 31, 2000, which
is incorporated in this prospectus by reference. The pro forma financial
information presented here should be read in conjunction with Vesta's unaudited
pro forma consolidated financial statements beginning on page F-2 and Florida
Select's consolidated financial statements as of December 31, 1999 and 2000 and
for each of the three years in the period ended December 31, 2000 beginning on
page F-6. The pro forma financial information is not necessarily indicative of
the results of operations that would have resulted had the relevant
transactions been consummated at the periods indicated, nor is it necessarily
indicative of the results of operations of future periods.

Pro Forma
Financial
Information
Year Ended as of December 31, (unaudited)
---------------------------------------------------- -----------
1996 1997 1998 1999 2000(1) 2000(2)
-------- ---------- ---------- -------- ---------- -----------
(in thousands, except per share data and ratios)

Statement of Operations
Data: (3)
Net Premiums Earned..... $ 63,206 $ 132,333 $ 247,063 $248,076 $ 216,999 $ 269,044
Net Investment Income... 21,374 31,960 26,565 25,949 45,903 69,761
Policy Fees............. -- -- -- -- 2,209 4,823
Other................... 188 2,094 5,473 4,527 2,103 5,261
Realized Gains
(Losses)............... 32 3,283 3,272 12,756 (2,061) (2,061)
-------- ---------- ---------- -------- ---------- ----------
Total Revenues......... 84,800 169,670 282,373 291,308 265,153 346,828
Policyholder Benefits,
Losses and LAE (4)..... 25,631 69,645 167,413 165,014 135,042 167,802
Policyholder Acquisition
and Other Underwriting
Expenses............... 35,366 63,702 132,032 87,451 95,821 117,154
Loss on Asset
Impairment............. -- -- 65,496 -- -- --
Goodwill and Other
Intangible
Amortization........... 484 3,065 5,177 2,118 1,591 4,261
Interest on Debt........ 10,059 10,859 14,054 13,215 15,105 20,846
-------- ---------- ---------- -------- ---------- ----------
Total Operating
Expenses.............. 71,540 147,271 384,172 267,798 247,559 310,063
Income (Loss) from
Continuing Operations
Before Taxes, Minority
Interest and Deferrable
Capital Securities..... 13,260 22,399 (101,799) 23,510 17,594 36,765
Income Taxes............ 4,307 7,973 (29,395) 7,129 5,664 13,098
Minority Interest, Net
of Tax................. -- -- -- -- 1,595 3,240
Deferrable Capital
Securities, Net of
Tax.................... 5,051 5,449 5,632 1,986 1,986
-------- ---------- ---------- -------- ---------- ----------
Net Income (Loss) from
Continuing Operations.. 8,953 9,375 (77,853) 10,749 8,349 18,441
Income (Loss) from
Discontinued
Operations, Net of
Tax.................... 27,860 27,485 (63,331) 12,706 (2,397) (2,397)
Extraordinary Gain on
Debt Extinguishments... 5,250 5,250
Preferred Stock
Dividend............... -- -- -- (563) (3,670) (3,670)
Gain of Redemption of
Preferred Securities... -- -- -- 9,548 9,190 9,190
-------- ---------- ---------- -------- ---------- ----------
Net income (Loss)
Available to Common
Shareholders........... $ 36,813 $ 36,860 $ (141,184) $ 32,440 $ 16,722 $ 26,814
======== ========== ========== ======== ========== ==========
Diluted Net Income
(Loss) from Continuing
Operations Per Share... $ 0.47 $ 0.49 $ (4.20) $ 0.53 $ 0.34 $ 0.61
Diluted Net Income
(Loss) Available to
Common Shareholders Per
Share.................. 1.92 1.93 (7.61) 1.63 0.78 0.96
Net Operating Income
(Loss) (5)............. 8,932 7,241 (37,407) 2,457 9,689 19,881
Net Operating Income
(Loss) Per Diluted
Share.................. 0.47 0.38 (2.02) 0.12 0.40 0.66
Shares Used in Diluted
Per Share Calculation.. 19,157 19,053 18,549 20,202 24,255 30,255

Pro Forma
Financial
Information
Year Ended as of December 31, (unaudited)
------------------------------------------------ -----------
1996 1997 1998 1999 2000(1) 2000(2)
-------- -------- -------- -------- -------- -----------
(in thousands, except per share data and ratios)

Other Operating Data:
Standard Property and
Casualty Operations:
Net Premiums Written... $ 70,803 $150,526 $264,839 $227,807 $205,461 $265,392
Statutory Capital &
Surplus (6)........... 352,695 317,875 213,251 271,986 275,270 275,270
Net Premiums Written to
Statutory Surplus..... 0.20x 0.47x 2.31x 0.98x 0.76x 0.97x
GAAP (7) Loss Ratio.... 40.1% 52.6% 67.8% 66.5% 58.6% 55.5%
GAAP Expense Ratio..... 56.0 48.1 48.5 30.3 37.1 35.7
-------- -------- -------- -------- -------- --------
GAAP Combined Ratio.... 96.1% 100.7% 116.3% 96.8% 95.7% 91.2%
======== ======== ======== ======== ======== ========

--------
(1) Includes the results of American Founders for the third and fourth quarters
of 2000.
(2) Reflects the unaudited pro forma consolidated financial data of Vesta for
the year ended as of December 31, 2000, as if the Florida Select
acquisition, the American Founders acquisition, and the issuance of the
stock had occurred at the beginning of this period.
(3) As a result of Vesta's decision in 2000 to discontinue its reinsurance
assumed business and its decision in 1999 to discontinue its commercial
lines segment, all periods presented have been reclassified to present
operations on a continuing and discontinued basis.
(4) Loss adjustment expenses.
(5) Represents income from continuing operations excluding net realized
investment gains or losses, net of federal income taxes.
(6) Statutory data have been derived from the financial statements of Vesta
prepared in accordance with statutory accounting principles ("SAP") and
filed with insurance regulatory authorities.
(7) Generally accepted accounting principles.

BUSINESS

The following information should be read together with the management's
discussion and analysis of financial conditions and results of operations,
financial statements, and other information contained in our Annual Report on
Form 10-K for the fiscal year ended December 31, 2000, which is incorporated in
this prospectus by reference, the financial information contained in Vesta's
unaudited pro forma consolidated financial statements included in this
prospectus beginning on page F-2, and Florida Select's consolidated financial
statements and related notes thereto included in this prospectus beginning on
page F-6.

Business Overview

Vesta is an insurance holding company that offers a wide range of personal
insurance products. Our largest business segment is the underwriting and sale
of personal automobile and homeowners insurance products distributed through
approximately 1,600 independent sales agencies. Since 1999, we have developed
and actively pursued a number of strategic initiatives to grow operating
earnings and strengthen our capital position.

During the past three years, we have completed a strategic repositioning
that will permit us to more aggressively pursue our business strategy. Our
repositioning included changing our senior management, exiting certain lines of
business, and restructuring our balance sheet.

Our strategy is to grow operating earnings and strengthen our capital
position by aggressively managing our core property and casualty insurance
business and pursuing strategic opportunities that permit us to offer personal
insurance products which complement our existing product lines and distribution
channels. We have taken the following steps to implement our strategy:

. In our standard property and casualty insurance segment, we have
initiated rate increases in a number of key markets, reduced the number
of active agencies from approximately 2,800 to approximately 1,600,
migrated from multiple policy processing platforms to a primary
integrated platform, and reduced the number of employees and other
expenses by consolidating regional offices into our principal office in
Birmingham, Alabama.

. We have sought and will continue to seek to expand into new geographic
markets.

. We have acquired or made significant investments in three insurance
operations: a life insurer, an accident and health insurer, and a non-
standard automobile insurance agency, which we intend to use as
platforms for long-term growth.

. We have positioned ourselves to generate fee-based income by acting as a
"fronting" carrier for other insurers and reinsurers for fees and by
marketing and distributing non-standard auto insurance products through
an agency for commissions.

Vesta was founded in 1993 as a subsidiary of Torchmark Corporation
("Torchmark") to be the holding company for Torchmark's property and casualty
subsidiaries. We completed our initial public offering in 1993, and, at that
time, Torchmark retained ownership of approximately 25% of our shares of
capital stock and was our largest stockholder. Torchmark divested its remaining
shares of our capital stock in 2000.

Florida Select Acquisition

Company Overview

On April 18, 2001, we and our wholly-owned subsidiary, Vesta Fire Insurance
Corporation ("Vesta Fire"), entered into a stock purchase agreement to acquire
all of the issued and outstanding capital stock of Florida Select Insurance
Holdings Inc. ("Florida Select") from its four stockholders, Centre Solutions
(Bermuda) Limited, Mynd Corporation, Orienta Point Group, L.L.C., and
Kamehameha Schools Bernice Pauahi Bishop Estate.

Florida Select is the parent company of Florida Select Insurance Company, a
Florida domiciled insurer that offers residential homeowners insurance. The
majority of Florida Select Insurance Company's policyholders are former
customers of the Florida Residential Property and Casualty Joint Underwriting
Association ("JUA"), a state-sponsored insurer created by the Florida
Legislature following Hurricane Andrew in 1992 to provide homeowners insurance
coverage to customers who were otherwise unable to purchase it in the private
market. By 1996, the JUA had issued almost one million policies insuring
approximately $100 billion of residential property, and it initiated various
incentive programs designed to encourage carriers to assume these policies and
return these risks to the private market. These incentives included attractive
rates and the promise of bonuses to be paid after the assuming company had
renewed, or offered to renew, the policies for at least three years.

Florida Select was originally organized for the purpose of assuming
policies from the JUA pursuant to these incentive programs. As one of the
first "take out" companies to assume policies from the JUA, Florida Select
achieved a critical mass of premiums with its first assumption of policies,
and it has operated profitably since its inception. In addition to renewals of
policies assumed from the JUA, Florida Select produces new business through
Florida Select Insurance Agency Inc., a managing general agency that markets,
solicits, produces, underwrites, and binds policies on behalf of Florida
Select Insurance Company. As of and for the year ended December 31, 2000,
Florida Select had consolidated assets of approximately $106.6 million,
stockholders' equity of approximately $31.5 million, net income of
approximately $6.6 million, and gross written premiums of approximately
$63.5 million.

Florida Select also owns all of the capital stock of Florida Select
Insurance Agency, Inc., and, indirectly through its ownership of Florida
Select Insurance Agency, Florida Select also owns Select Insurance Services
Inc. Select Insurance Services Inc. is the attorney-in-fact for Texas Select
Lloyds Insurance Company, which is a Texas unincorporated association.

Almost all of Florida Select's exposure is in Florida, an area that is
extremely vulnerable to catastrophic losses arising from hurricane events.
Florida Select has procured reinsurance coverage that its management believes
to be adequate to cover the probable maximum loss ("PML") arising from a 1-in-
250 year hurricane event, based on various modeling tools. This approach to
reinsurance is consistent with ours, and we believe that we will be able to
consolidate Florida Select's reinsurance program with ours at a significant
cost savings.

We believe that Florida Select's management team has developed an expertise
in selecting and managing risk in catastrophe-prone areas. This expertise has
contributed to Florida Select's strong historical underwriting results in
Florida, and we believe that this expertise may be applied to other
catastrophe prone areas where we do business, particularly in the northeastern
United States. We may also apply this expertise to other areas into which we
may expand in the future. We have entered into a two-year employment and non-
compete agreement with Stephen A. Korducki, President of Florida Select, to be
effective upon closing of the proposed transaction. We also expect to retain
the services of the other members of Mr. Korducki's executive management team
after the closing of the proposed transaction.

Stock Purchase Agreement

Pursuant to the terms of the stock purchase agreement, we or Vesta Fire (at
our option) will purchase all of the issued and outstanding capital stock of
Florida Select from that company's existing stockholders for a cash payment
equal to approximately $61.5 million plus interest on this amount accumulating
at a rate of 6% per annum from January 1, 2001 until the closing date. If we
do not complete this offering or fail to raise at least $30 million in net
proceeds in this offering prior to the closing of the Florida Select
acquisition, we have the right
to pay up to $30 million of the consideration in the form of unsecured
promissory notes that mature 60 days after issuance and bear interest at a
rate of prime plus 0.25%. As a condition precedent to closing, we agreed to
pay an additional $3 million commutation fee to Centre Insurance Company, an
affiliate of Centre Solutions (Bermuda) Limited, one of the stockholders of
Florida Select, in connection with the commutation of a reinsurance agreement
between Centre Insurance Company and Florida Select Insurance Company.

The closing of the acquisition is to occur three business days following the
satisfaction or waiver of all conditions to closing described in the stock
purchase agreement. However, the acquisition will not occur prior to July 15,
2001 unless this offering has been completed or we agree to consummate the
acquisition before the completion of this offering. The stock purchase
agreement may be terminated by the selling stockholders if the closing has not
occurred by August 1, 2001, unless extended by mutual agreement of the parties.

We and the stockholders of Florida Select are required to complete the
acquisition only after the satisfaction (or waiver) of various conditions
including, but not limited to, the following conditions:

. We must receive regulatory approvals of the Florida Department of
Insurance and the Texas Department of Insurance, as well as approval
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended.

. Our and Vesta Fire's representations and warranties set forth in the
stock purchase agreement must be true and accurate in all material
respects as of the closing date. The sellers' representations and
warranties set forth in the stock purchase agreement must be true and
accurate as of the closing date unless the effect of any and all
inaccuracies of their representations and warranties would not
reasonably be expected to cause us aggregate losses in excess of $5
million. The parties must perform all obligations and comply with all
covenants set forth in the stock purchase agreement, in all material
respects.

. There must be no action or proceeding, whether instituted or threatened,
against Florida Select or any of its subsidiaries or us, which would
either (i) prevent the consummation of the acquisition or
(ii) reasonably be expected to cause a material adverse change to
Florida Select or any of its subsidiaries.

. There must not be a material adverse change in Florida Select or any of
its subsidiaries' operations. A material adverse change will be deemed
to have occurred if the net diminution in value of Florida Select and
its subsidiaries exceeds, in the aggregate, $4 million prior to August
1, 2001 or $6 million thereafter, or if the net diminution in value of
an individual subsidiary or Florida Select exceeds $3 million prior to
August 1, 2001 or $4.5 million thereafter. Conversely, if we pay part of
the purchase price by promissory note, then there must be an absence of
any material adverse change in our operations, defined as a diminution
of our stockholders' equity of $28 million.

. Certain agreements to which Florida Select or the sellers are parties
shall be canceled prior to or as of the closing date of the acquisition.

. We and Centre Insurance Company, an affiliate of Centre Solutions
(Bermuda) Limited, will have performed certain obligations under a
commutation and settlement agreement, effective as of January 1, 2001,
relating to the commutation of a reinsurance agreement between Centre
Insurance Company and Florida Select Insurance Company. These
obligations include the payment by us to Centre Insurance Company of a
$3 million commutation fee and the reassumption by Florida Select
Insurance Company of all covered losses subject to that reinsurance
agreement. In addition, Centre Insurance Company will transfer to
Florida Select Insurance Company approximately $22.9 million,
representing all outstanding balances of unpaid losses and unearned
premium ceded to Centre Insurance Company under the reinsurance
agreement.

Business Segments

In 2000, we changed our segment reporting to reflect the start-up of the
specialty lines business and the entry into the life insurance markets. Each
segment is discussed in detail on the following pages.

Standard Property and Casualty

Overview. Beginning in 1999 and continuing through 2000, we pursued a more
disciplined approach to our standard property and casualty business,
accomplishing the following:

. State-by-state review of our product offering;

. Consolidation of the operations of our Shelby, Ohio office into our
Birmingham, Alabama office;

. Consolidation of information platforms resulting in a streamlined policy
processing system;

. Reduction in the number of employees; and

. Reduction of our independent agency force to approximately 1,600 core
agencies that have historically produced our most profitable business.

Through these actions, we believe we are positioned to achieve improved
operating results from our standard property and casualty segment, strengthen
our relationships with our most profitable independent agencies, and leverage
our capital and surplus to enter other lines of business that may generate
greater returns on equity.

The following table sets forth key operational ratios reflecting losses and
loss adjustment expenses ("LAE") and underwriting expenses, respectively, as a
percentage of net written premium.

Selected Operational Ratios for Standard Property and Casualty Segment

For the Year Ended December 31,
-----------------------------------
1998 1999 2000
----------- ---------- ----------

Loss and LAE ratio...... 67.8% 66.5% 58.6%
Underwriting expense
ratio.................. 48.5 30.3 37.1
----------- ---------- ----------
Combined ratio.......... 116.3% 96.8% 95.7%
=========== ========== ==========
Net premiums written to
surplus ratio.......... 2.31x 0.98x 0.76x
=========== ========== ==========

The following table sets forth the principal geographic distribution of our
gross premiums written in our standard property and casualty business for the
three years indicated. The geographic balance reflected allows for greater
profit protection and more cost effective management of the property
catastrophe exposures. The states listed below comprise the ten states with the
largest gross premiums written for the year ended December 31, 2000 and their
comparative amounts for prior years.

Standard Property and Casualty Segment
Gross Written Premiums

For the Year Ended December 31,
----------------------------------------------
1998 1999 2000
-------------- -------------- --------------
(in thousands, except percentages)

Pennsylvania.................... $ 50,185 14.5% $ 48,822 19.1% $ 40,305 18.0%
West Virginia................... 27,593 8.0 26,677 10.5 25,258 11.3
Hawaii.......................... 25,175 7.3 18,425 7.2 17,187 7.7
Ohio............................ 17,942 5.2 19,307 7.6 15,126 6.8
Tennessee....................... 24,924 7.2 20,065 7.9 14,971 6.7
Illinois........................ 20,029 5.8 15,936 6.2 11,642 5.2
North Carolina.................. 11,966 3.4 10,426 4.1 9,910 4.4
Alabama......................... 14,641 4.2 11,375 4.5 9,896 4.4
New York........................ 37 0.1 1,983 0.8 9,877 4.4
Mississippi..................... 11,398 3.3 9,883 3.9 6,164 2.8
All other....................... 143,102 41.2 72,092 28.3 63,000 28.2
-------- ----- -------- ----- -------- -----
Total......................... $346,992 100.0% $254,991 100.0% $223,337 100.0%
======== ===== ======== ===== ======== =====

Products. In our standard property and casualty segment, we write primarily
personal auto and homeowners insurance products along with other miscellaneous
products targeted for specific markets. The following table illustrates the
source of our premium revenue from our standard property and casualty lines
operations.

Standard Property and Casualty Segment
Gross Written Premiums

For the Year Ended December 31,
----------------------------------------
1998 1999 2000
------------ ------------ ------------
(in thousands, except percentages)

Personal Auto......................... $223,425 64% $141,868 56% $ 98,449 44%
Homeowners............................ 93,762 27 107,025 42 121,483 54
Other................................. 29,805 9 6,098 2 3,405 2
-------- --- -------- --- -------- ---
Total............................... $346,992 100% $254,991 100% $223,337 100%
======== === ======== === ======== ===

Personal Auto. Our standard personal auto products target drivers over age
thirty-five with above average driving records. Generally, we write policies
with liability limits up to $500,000, but personal umbrella liability coverage
is available up to $5 million. The vast majority of our personal umbrella
coverage is written with liability limits of $1 million or $2 million. We write
the majority of our standard personal auto policies in Ohio, Pennsylvania,
Tennessee, West Virginia, and Illinois through our subsidiary The Shelby
Insurance Company ("Shelby") and its affiliated companies. For the year ended
December 31, 2000, the renewal rate for our personal auto policies was
approximately 85%, and new policy applications among our active agencies
increased compared to our 1999 levels.

Homeowners. Our homeowner and dwelling insurance products cover the full
range of homes, with values ranging from $10,000 to $10 million. The majority
of our homeowners business covers properties valued between $40,000 and
$250,000. We write homeowners insurance through various insurance subsidiaries,
but we generally divide it into three books of business:

Property Plus Homeowners. We acquired this large book of homeowners
business from CIGNA Property and Casualty Insurance Company ("CIGNA") in
1997 through a reinsurance arrangement, coupled with CIGNA's commitment to
use reasonable efforts to cause policyholders to renew their coverage with
us. Our Property Plus book of business covers mid-to-high valued homes
primarily in the northeastern sections of the United States as well as a
limited amount across the entire country. In the northeastern United
States, we have attempted to minimize our exposure our exposure on the
coastal regions. Since we entered into this arrangement with CIGNA in 1997,
approximately nine out of every ten policyholders with policies coming up
for renewal have elected to renew coverage with us, for a renewal rate on
these Property Plus homeowners policies of approximately 88%. We expect the
process of conversion to our direct written policies to be completed in the
third quarter of 2001. For the year ended December 31, 2000, we wrote
approximately $45.0 million in annual premiums in this book of business.

Shelby Homeowners. We acquired this book of business in connection with
our acquisition of Shelby and its affiliates in 1997. This Shelby
homeowners business is concentrated in the midwestern and mid-Atlantic
sections of the United States, primarily covering homes from $100,000 to
$250,000 in value. For the year ended December 31, 2000, we had a renewal
rate on these Shelby homeowners policies of approximately 86%, and we wrote
approximately $94.7 million in annual premiums.

Hawaiian Homeowners. Our Hawaiian homeowners policies are primarily
written by our wholly-owned subsidiary, The Hawaiian Insurance and Guaranty
Company, Ltd., which we acquired in 1995. These policies generally cover
higher-valued dwellings against fire and other catastrophic loss. Until
recently, we did not underwrite significant wind or hurricane risk of loss
policies in Hawaii, because most policyholders procured that coverage
through a state-sponsored insurance pool. In 2000, the state insurance pool
disbanded, and many of our policyholders began purchasing wind, or
hurricane, coverage from us. Although this increases the total risk in our
Hawaiian portfolio, we have managed this risk through reinsurance coverage
procured in the capital markets as well as the traditional reinsurance

markets. For the year ended December 31, 2000, we wrote approximately $14.7
million in annual premiums in this book of business.

Other Personal Lines Products. We provide miscellaneous products to specific
target markets. The majority of these products are designed to protect the
interests of financial institutions in various instances in which the borrower
fails to insure a car or a home serving as collateral in accordance with a loan
or mortgage agreement with the financial institution, as well as coverage for
properties that are in the process of foreclosure. We also provide fire and
allied lines coverage on low-value dwelling, mobile home, and household
contents.

Marketing. We have chosen to distribute our products through independent
insurance agents. We strive to develop and maintain relationships with agencies
in rural or suburban areas and provide them with above-average compensation
when policies are issued through our companies. Our product offerings in the
standard property and casualty market fit the needs of a wide range of
consumers. We support our agency force through advertising and promotions aimed
to create top-of-mind awareness of the agencies and our companies as well as
creating business-to-business technology that has the potential to increase
agent productivity while decreasing our operating expenses.

We believe that the independent agent is best able to sell and service the
needs of consumers in our target markets because of the agent's close
relationship with customers. Consumers who use independent agents typically
keep using the services of the same independent agent. Consequently, once we
acquire a new customer, the likelihood that this particular customer will renew
his or her policy with us the following year is very high. We believe that this
will help to minimize our policy acquisition expenses over time.

Our agency force has a voice in Vesta through the Agency Advisory Council
("Council"). The Council was created to foster ideas and give the agents the
opportunity to suggest new initiatives to improve our businesses. In 2001, we
created the Vesta Agents Stock Incentive Plan so that top-performing agents
have the opportunity to acquire our common stock at a 10% discount to market
prices.

Our independent agents have limited authority to bind insurance coverages
without prior approval from us, so long as such coverages fit within our
established guidelines. However, our underwriting staff reviews all coverages
bound by these agents and ultimately decides whether to continue such
coverages. Because of the broad base of our independent agency force, the
contractual limitation on their authority to bind coverage, and our
underwriting review procedures, we do not believe that the authority of our
agents to bind us presents any material risk to our operations.

Underwriting. The goal of our underwriting operations is to manage the
quality of our book of business. Working in concert with our agency force, our
underwriting staff supports our agents on a daily basis. Our agency force
understands our underwriting philosophy and goals and, in turn, we rely on our
agents to exercise a high degree of underwriting knowledge in the field.

Our target market profile is a family with multiple insurance policies that
owns more than one automobile and that lives in a home valued between $100,000
and $250,000. Our underwriting staff is highly trained and operates in an
efficient manner in order to maintain and manage our underwriting expenses.

Claims. Claim costs represent actual payments made and changes in estimated
future payments to be made to or on behalf of policyholders, including expenses
required to settle claims and losses. These costs include a loss estimate for
future assignments and assessments. Claims arising under our policies are
managed by our claims department. When we receive notice of a loss, our 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 our employees, with the
exception of claims on certain products, which are adjusted by a managing
general agency and periodically audited by our claims personnel. Management
believes that utilizing our trained employee adjusters permits faster, more
efficient service at a lower cost. In 2000, we added a reinspection manager and
a fraud examiner to our staff to increase controls and monitor our loss
notices.

Claims settlement authority levels are established for each adjuster or
manager based upon each employee's ability and level of experience. Upon loss
notification, each claim is reviewed and assigned to an adjuster or manager
based upon the type of claim. Home office litigation supervisors monitor
claims-related litigation. We emphasize prompt, fair, and equitable settlement
of meritorious claims, adequate reserving for claims, and controlling of claims
adjustment and legal expenses.

Management of Catastrophe Risk. In our standard property and casualty
segment, the greatest risk of loss we face in the ordinary course of business
is property damage resulting from catastrophic events, particularly hurricanes
and tropical storms affecting Hawaii and Florida (following our acquisition of
Florida Select) and hurricanes affecting the northeastern United States. Our
exposure to loss from other catastrophic events, such as tornadoes and
earthquakes, is not as significant, because we do not insure significant levels
of property in areas traditionally affected by these events. While we seek to
reinsure a significant portion of our risk of catastrophic losses, there can be
no assurance that our losses will be within the coverage limits of our
reinsurance programs.

We seek to manage our risk in our standard property and casualty insurance
segment through the purchase of reinsurance. We obtain reinsurance principally
to reduce our net liability on individual risks and to provide protection for
individual loss occurrences, including catastrophic losses, in order to
stabilize our underwriting results. In exchange for reinsurance, we pay to our
reinsurers a portion of the premiums received under the reinsured policies.

In addition to our traditional catastrophe reinsurance program, we have
obtained additional catastrophe coverage for potential hurricane and tropical
storm loss in Hawaii and hurricane loss in the northeastern United States
through a securitization transaction effected through the INEX insurance
exchange. We purchase traditional excess of loss reinsurance for our standard
property and casualty business up to a 100-year PML reinsured by traditional
reinsurance. The securitization transaction placed through INEX provides us
with more conservative coverage for a 250-year PML.

Although we reinsure a significant portion of potential losses on the
policies that we issue, we initially pay all claims and seek to recover the
reinsured losses from our reinsurers. Although we report as assets the amount
of claims paid which we expect to recover from reinsurers, there is no
guarantee that we will be able to collect those amounts. The possibility exists
that the reinsurer may be unable to pay the amounts recoverable, may dispute
our calculation of the amounts recoverable, or may dispute the terms of the
reinsurance treaty. In any of these circumstances, we will not have the
anticipated liquidity to pay the claims on the reinsured policies. We believe
that our procurement of a portion of our reinsurance through the capital
markets in the manner described above mitigates these credit and collection
risks inherent in the traditional reinsurance market.

Systems. Almost all of our policy administration functions are performed on
our own information systems. In recent years, we have upgraded our core
infrastructure and expanded the scope of our capabilities. While this work has
been our chief focus for several years, it was greatly accelerated in 2000 when
we determined that we should move all of our policy management systems in-
house. The policy information that is housed with a vendor is being converted
to our in-house mainframe system. The conversion began in the second quarter of
2000 and we anticipate that the project will be completed in 2001.

During the last year, we have intensified our efforts in e-commerce and
increased the resources devoted to Internet-based technology. To assist the
marketing and servicing capabilities of our agency force, we introduced
Internet-based programs that give agents the ability to quote, enter new
business, perform endorsements, and perform inquiries on policies, billing, and
claims. This information is exchanged through Vesta Internet Access ("VIA"),
which is located on our web site--www.vesta.com--and provides our agents with
fast, convenient access to product, policy, and claims information. In
addition, we initiated a video training program designed to assist our agents
in learning to operate the VIA Internet system. We are committed to utilizing
the latest electronic technology to allow our agency force to securely conduct
transactions, access information, and communicate with our insurance
subsidiaries.

Life and Health

We expanded our product offering by entering the life and health insurance
segment through several strategic acquisitions in 2000. In June 2000, we
acquired a 71% ownership interest in American Founders Financial Corporation
("American Founders"), a holding company for two life insurance companies
domiciled in Texas. We invested approximately $25 million in convertible
preferred stock and other instruments of American Founders, and we now hold
four of the seven seats on American Founders' board of directors. American
Founders offers traditional life products, universal products, and annuity
products and had policies with an aggregate face value of approximately $2.1
billion in force as of December 31, 2000.

We have also recently acquired Aegis Financial Corporation ("Aegis"), a
holding company for an accident and health insurance company domiciled in
Texas. We acquired all of the capital stock of Aegis for approximately $7.5
million in cash and approximately 950,000 shares of Vesta common stock. See the
section of this prospectus entitled "Business--Changes in Capitalization--
Acquisition of Shares Held by Torchmark" beginning on page 30. Aegis had
approximately $16.5 million of accident and health premiums in force as of
December 31, 2000.

Similar to the property and casualty insurance industry, life and health
insurance is a mature industry experiencing consolidation. One major
difference, however, is that as the overall population ages, individuals will
focus on efficiently transferring wealth between generations. As a result, we
believe that consumers will be attracted to savings-oriented products with tax-
advantaged status, such as annuity products, to both fund their retirement
years and protect their accumulated savings.

Even though the demand for life, annuity, and health products has increased
in recent years, this business remains extremely competitive. Access and
retention of distribution channels is a key factor to success in this business,
and we utilize an independent agency force to distribute these products.

Our life and health insurance segment is expected to have a different impact
on our earnings stream as compared to our property and casualty business.
Losses in the property and casualty segment are difficult to predict due to
potential catastrophes, such as hurricanes, tornadoes, and other weather-
related events. In addition, losses in the property and casualty segment can
take years to ultimately determine due to litigation and other factors. On the
other hand, financial results from our life and health insurance segment are
easier to predict, and the ultimate results from such segment can be reported
sooner. Accordingly, we believe that our earnings from our life and health
segment should be more predictable and consistent than our property and
casualty segment.

Primary Products. The primary products of our life and health segment
consist of traditional life products, universal life products, annuity and
pension contracts, and related products. Fixed-rate and variable annuities are
a substantial portion of our offerings. We also intend to offer a critical
illness product, a relatively new product that we believe is gaining acceptance
in the marketplace. The critical illness product is designed to bridge the gap
between disability insurance and life insurance by paying the face amount of
the policy at death or earlier in the event of the occurrence of certain non-
fatal critical illnesses, such as Alzheimer's disease, organ transplants, or
loss of sight.

Strategy. We believe our life and health insurance business is well
positioned for growth. We intend to grow this business by acquisitions, joint
ventures, and internal sales. The main drivers of these strategies are an
efficient and flexible operating and administrative system and maintaining
seasoned management with industry expertise to identify potential targets and
successfully integrate blocks of policies efficiently into the current
administrative system.

Marketing. We distribute our life and health products through agents
recruited and contacted directly by our life and health insurance subsidiaries,
American Founders and Aegis. The agents that have historically served these
companies are geographically diversified without any one dominant producer.

Reinsurance Ceded. We utilize reinsurance for our life insurance products to
appropriately spread reinsurance-ceded risks among reinsurers. American
Founders maintains excess of loss reinsurance agreements for more than $50,000
on policies issued prior to October 24, 1990 and for more than $250,000 on
policies issued subsequent to that date.

Systems. One of the key criteria in our strategy to grow our life and
health segment is to acquire effective information systems to support new
products offered. We believe that both American Founders and Aegis have
efficient and flexible administrative systems that have demonstrated the
ability to quickly and efficiently assimilate and provide administration for
acquired blocks of policies. The result is ongoing low-cost administration for
our insurance and annuity policies.

Specialty Lines

As a holding company for 14 insurance subsidiaries, we hold certificates of
authority to write various types of insurance in 48 states. In many states, we
have several insurance company subsidiaries licensed to write the same types of
insurance business, and we are licensed to write business in other states where
we are not actively underwriting business. We use our authority to write
business in these circumstances, which would otherwise go unused, to write
certain lines of business and reinsure the risks in exchange for fees. This can
be a valuable asset to reinsurance companies desiring to underwrite insurance
business in these states but which do not hold certificates of authority to do
so. We may also decide to retain some underwriting risk on selected business at
our discretion, and we report the underwriting results of that retention in
this segment. We pursue opportunities to provide this "specialty" type of
insurance primarily for reinsurance companies.

During 2000, our specialty lines operations contracted for approximately
$100 million in annualized premium, primarily in the private passenger auto
insurance segment. In addition, given our certificates of authority and
infrastructure, we believe we are well positioned internally to provide
specialty insurance for certain additional coverages. Due to external market
requirements, however, we believe our opportunities to provide additional types
of specialty insurance depends, in large part, on improved ratings from our
various rating agencies, including A. M. Best Company.

Non-Standard Auto

In December 2000, we acquired a 52% interest in Instant Insurance Holdings,
Inc. ("Instant Auto"), the parent of a group of insurance agencies specializing
in the distribution of non-standard auto insurance products written by other
carriers. We invested approximately $10 million in cash in Instant Auto in
exchange for 10 million shares of a newly created series of Instant Auto's
convertible preferred stock. We also acquired an additional three million
shares of Instant Auto's convertible preferred stock from an existing
stockholder in exchange for approximately 550,000 shares of Vesta common stock.
See the section of this prospectus entitled "Business--Changes in
Capitalization--Acquisition of Shares Held by Torchmark" beginning on page 30.
In addition to its on-line policy application capabilities, Instant Auto has
developed a highly integrated call center to field customer inquiries,
facilitate policy applications, and administer the process of issuing new
policies. We intend to use the Instant Auto platform to acquire a series of
traditional non-standard auto agencies and to build an efficient and
centralized processing platform.

Unlike the business of American Founders and Aegis, Instant Auto's principal
business is not underwriting insurance. Instant Auto operates as a non-standard
auto agency, distributing the insurance products of other carriers. Thus,
Instant Auto's principal revenue stream is agents' fees and commissions. Non-
standard auto insurance covers owners and drivers seeking to purchase insurance
as required by law, drivers with accidents or violations on their driving
records, new drivers, and drivers who own high-performance vehicles. Non-
standard auto insurance customers traditionally are higher risks than standard
customers and, therefore, non-standard customers' premiums are higher.
According to a recent A.M. Best Company ("A.M. Best") report, the non-standard
segment is approximately 18% of the overall personal auto insurance industry.
In recent years, the non-standard auto segment has become extremely
concentrated, putting additional financial pressure on companies as they

compete for market share. This industry shakeout has caused high-cost operators
to seek merger partners and has created an opportunity for growth.

Although our investment in Instant Auto does not immediately diversify our
product offering, we believe that it is a necessary and important step towards
growing our existing insurance business through state of the art distribution
and processing methods. We also believe that it provides us with a platform to
develop fee income, both through traditional agency commissions and specialty
lines fees (as discussed above). Instant Auto has two fundamental assets that
we believe will enable us to accomplish these strategic goals:

. valuable technological assets which we believe can serve as a growth
engine for various types of insurance products; and

. seasoned management to build a significant non-standard auto general
agency.

We believe that having access to Instant Auto's call center is an important
step towards significant growth in our newly-acquired life and annuity
businesses. In addition, we believe this call center may ultimately be an
effective tool with which all of our independent agents may effectively cross-
market all of our personal lines products.

Corporate and Other

Our corporate and other segment primarily consists of net investment income
on capital, interest on debt, and certain overhead expenses not directly
associated with a particular segment.

Reserves

Our insurance subsidiaries maintain reserves to cover their estimated
ultimate liability for losses with respect to reported and unreported claims
incurred. To the extent that current reserves prove to be inadequate in the
future, we 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 our 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 our estimates.
Reserves are estimates involving actuarial and statistical projections at a
given point in time of what we expect 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.

Reserves for Property and Casualty Business

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 provisions relating
to the type of loss. We review loss reserves on a regular basis, and as new
data becomes available, we make appropriate adjustments to our reserves.

With respect to losses that have been incurred but not yet reported to us, a
variety of methods have been developed in the insurance industry for
determining estimates of loss reserves. One common method of actuarial
evaluation, which we use, 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. We also rely on industry data to provide the basis for
reserve analysis on newer lines of business (lines written by us for less than
three years).

Provisions for inflation are implicitly considered in the reserving process.
Our reserves are carried at the total estimate for ultimate expected loss
without any discount to reflect the time value of money.

Reserves are computed based upon actuarial principles and procedures
applicable to the lines of business written by us. These reserve calculations
are reviewed regularly by management, and, as required by state law,

we engage an independent actuary to render opinions as to the adequacy of
statutory reserves established by management. The actuarial opinions are filed
with the various jurisdictions in which we are licensed. Based on our practices
and procedures, management believes that our reserves were adequate as of the
valuation date.

The following table provides a reconciliation of beginning and ending
property and casualty liability balances based on generally accepted accounting
principles ("GAAP") for the periods indicated:

For the Year Ended December
31,
-------------------------------
1998 1999 2000
--------- --------- ---------
(in thousands)

Gross losses and LAE reserves at beginning of
year........................................ $ 596,797 $ 504,911 $ 354,709
Reinsurance receivable....................... (204,336) (206,139) (186,559)
--------- --------- ---------
Net losses and LAE reserves at beginning of
year........................................ 392,461 298,772 168,150
Increases (decreases) in provisions for
losses and LAE claims incurred:
Current year............................... 396,091 268,931 169,333
Prior year................................. (769) (22,167) (5,862)
Losses and LAE payments for claims incurred:
Current year............................... (269,369) (198,503) (120,888)
Prior year................................. (219,642) (178,883) (117,094)
--------- --------- ---------
Net losses and LAE reserves at end of year... 298,772 168,150 93,639
Reinsurance receivable....................... 206,139 186,559 170,050
--------- --------- ---------
Gross loss and LAE reserves.................. $ 504,911 $ 354,709 $ 263,689
========= ========= =========

The reconciliation between statutory basis and GAAP basis reserves for each
of the three years in the period ended December 31, 2000, is shown below:

For the Year Ended
December 31,
----------------------------
1998 1999 2000
-------- -------- --------
(in thousands)

Statutory reserves.............................. $363,139 $207,351 $142,116
Adjustments for salvage and subrogation (1)..... (11,250) -- --
Retroactive reinsurance and other amounts....... (53,117) (39,201) (48,477)
Gross-up of amounts netted against reinsurance
recoverable.................................... 206,139 186,559 170,050
-------- -------- --------
Reserves on a GAAP basis........................ $504,911 $354,709 $263,689
======== ======== ========

--------
(1) Salvage and subrogation recoverable amounts were included in the 2000 and
1999 statutory reserves in accordance with Illinois Department of Insurance
regulations. Prior to 1999, we reported our statutory reserves under
Alabama regulations which do not allow such adjustments.

The following table shows the development of the reserves for unpaid losses
and LAE from 1989 through 2000 for our insurance subsidiaries on a GAAP basis
net of reinsurance recoveries. 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 LAE 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 us. 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 reestimated 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 redundancy
(deficiency) exists when the reestimated liability as of each December 31 is
less (greater) than the prior liability estimate. The "cumulative redundancy
(deficiency)"

depicted in the table, for any particular calendar year, represents the
aggregate change in the initial estimates over all subsequent calendar years.

For the Year Ended December 31,
------------------------------------------------------------------------------------------------------
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
------- ------- -------- -------- -------- -------- -------- -------- -------- -------- -------
(in thousands)

Liability for
unpaid
losses and LAE... $27,823 $21,919 $ 21,976 $ 29,688 $ 66,648 $118,733 $112,932 $392,461 $298,772 $168,150 $93,639
Paid (cumulative)
as of
One year later.. 11,864 13,166 20,517 20,761 51,527 88,377 86,978 197,477 178,883 117,094
Two years later.. 14,949 17,054 20,272 28,766 65,360 116,388 114,704 253,109 236,301
Three years
later........... 17,096 16,810 20,281 34,776 66,490 125,299 131,342 287,385
Four years
later........... 18,093 16,622 23,272 33,139 72,273 137,081 137,926
Five years
later........... 19,206 18,140 20,994 38,222 81,156 139,485
Six years later.. 20,683 16,218 22,964 46,298 82,336
Seven years
later........... 20,391 17,922 31,006 47,185
Eight years
later........... 22,284 25,941 31,776
Nine years
later........... 30,299 26,417
Ten years later.. 30,772
Liability
reestimated as
of end of year.. 27,823 21,919 21,976 29,688 66,648 118,733 112,932 392,461 298,772 168,150 93,639
One year later... 28,779 21,853 28,530 28,930 61,033 127,790 99,708 391,692 276,605 162,289
Two years later.. 29,431 19,009 27,914 34,219 66,582 110,437 144,986 353,969 255,915
Three years
later........... 29,130 19,817 26,120 38,940 66,713 118,657 132,761 344,726
Four years
later........... 29,578 16,470 30,435 41,517 76,863 146,090 140,775
Five years
later........... 26,291 19,862 33,845 50,993 88,770 144,256
Six years later.. 29,493 23,760 40,317 53,330 86,357
Seven years
later........... 36,400 29,574 37,953 51,482
Eight years
later........... 40,568 33,388 35,850
Nine years
later........... 37,804 30,973
Ten years later.. 35,298
Cumulative redundancy/
(deficiency)..... (7,475) (9,054) (13,874) (21,794) (19,709) (25,523) (27,843) 47,7 35 42,857 5,862

We 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. Our exposure to a significant loss from an
asbestos or environmental claim is minimal due to the fact that our
participation in the reinsurance treaties relating to these risks is only at
the higher levels and our percentage participation in those layers is
relatively low. In addition, we carry reinsurance which would mitigate the
effect of any losses under these treaties. While there exists a possibility
that we could suffer a material loss in the event of a high number of large
losses under these treaties, this is unlikely in management's judgment.

Life Insurance Reserves

Reserves for traditional life insurance contracts are generally calculated
using the net level premium method, based on assumptions as to mortality,
withdrawals, dividends, and investment yields ranging from 2.5% to 6.5%. These
assumptions are generally made at the time the contract is issued or at the
purchase date. These assumptions are based on projections from past experience,
making allowance for possible unfavorable deviation.

Our reserves for investment-type contracts are based either on the contract
account balance (if future benefit payments in excess of the account balance
are not guaranteed) or on the present value of future benefit payments (if such
payments are guaranteed).

Investments

Our consolidated investment portfolio consists primarily of investment grade
fixed income securities. Our portfolio is managed subject to investment
policies and guidelines established by management and the Board of

Directors. Our cash and investments as of December 31, 2000 totaled
approximately $1.0 billion and were classified as follows:

Amount at which
Shown on % of
Type of Investment Balance Sheet Portfolio
------------------ --------------- ---------
(in thousands)

Cash and short-term investments.................... $ 35,960 3.5%
Fixed maturity portfolio........................... 798,205 78.3
Equity securities.................................. 31,285 3.1
Mortgage and collateral loans...................... 63,060 6.2
Policy loans....................................... 61,413 6.0
Other invested assets.............................. 29,343 2.9
---------- -----
Total.............................................. $1,019,266 100.0%
========== =====

The value of the fixed maturities portfolio, classified by category, as of
December 31, 2000, was as follows:

Amortized Fair
Cost Value
--------- --------
(in thousands)

United States government securities...................... $ 80,235 $ 82,689
Asset-backed securities.................................. 381,099 377,383
Corporate................................................ 312,412 315,533
Municipals............................................... 21,372 22,600
-------- --------
Total.................................................... $795,118 $798,205
======== ========

The National Association of Insurance Commissioners ("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 one to class six, with a rating in class one being of the highest
quality. We invest our fixed maturities portfolio primarily in class one or two
securities as rated by the NAIC, which are considered investment grade. The
maturity and duration of our portfolio are managed to match the maturity and
duration of the underlying life insurance and property and casualty reserves.

Changes in Capitalization

Debt Exchanges and Repurchases

During the last 18 months, we have engaged in several transactions to reduce
annual interest expense obligations and improve our debt-to-capital ratio. As
of November 30, 1999, we had outstanding approximately $100 million face amount
of our 8.75% Senior Debentures due 2025, and Vesta Capital Trust I, our single
purpose finance subsidiary, had outstanding approximately $100 million
liquidation amount of its 8.525% Deferrable Capital Securities due 2027.

On December 30, 1999, we issued approximately $44.1 million face amount of
our 12.5% Senior Notes due 2005 in exchange for approximately $58.8 million
liquidation amount of the 8.525% Deferrable Capital Securities. In connection
with this exchange, we paid all accrued and unpaid distributions then owed on
the 8.525% Deferrable Capital Securities surrendered and issued certain
warrants to purchase shares of our common stock (which subsequently terminated
pursuant to their terms). In connection with these transactions, we recorded a
one-time after-tax gain of approximately $9.5 million and we reduced our
outstanding long-term indebtedness by approximately $14.7 million.

In March and April of 2000, we redeemed all $44.1 million principal amount
of our 12.5% Senior Notes for approximately $38.2 million plus accrued
interest. We funded these cash redemptions with internally-generated sources.
As a result of these redemptions, the warrants previously issued to the holders
of the 12.5% Senior Notes terminated pursuant to their terms.

Also during the first quarter of 2000, we redeemed approximately $13.1
million face amount of our 8.75% Senior Debentures for approximately $9.8
million plus accrued interest. We funded this cash redemption with internally
generated sources. As of December 31, 2000, approximately $86.9 million of
these 8.75% Senior Debentures remained outstanding.

Following our December 30, 1999 purchase of approximately $58.8 million
liquidation amount of Vesta Capital Trust I's 8.525% Deferrable Capital
Securities discussed above, approximately $41.2 million face amount of the
8.525% Deferrable Capital Securities remained outstanding. In the fourth
quarter of 2000 and the first quarter of 2001, we exchanged approximately 1.6
million shares of our common stock for approximately $11.5 million liquidation
amount of the 8.525% Deferrable Capital Securities in six separate
transactions. At the time of each transaction, we delivered shares from our
treasury having a market value (based on the five trading days preceding the
closing date of each transaction) equal to 75% of the total liquidation amount
of the 8.525% Deferrable Capital Securities exchanged. As of March 31, 2001,
approximately $29.7 million of the 8.525% Deferrable Capital Securities were
outstanding.

As a result of the series of transactions we undertook in 2000 and the first
quarter of 2001, we reduced our outstanding debt by approximately $68.7 million
and decreased our annual ongoing interest obligations by approximately $7.5
million. These transactions also helped reduce our debt-to-total capital ratio
from 48.5% as of December 31, 1999, to 36.7% as of December 31, 2000.

Acquisition of Shares Held by Torchmark

In 2000, we acquired 5.1 million shares of our common stock from Torchmark
Corporation ("Torchmark") in two transactions for an aggregate purchase price
of approximately $32.7 million. This acquisition eliminated Torchmark's
holdings in Vesta. In one transaction, we acquired 1.38 million shares from
Torchmark, which we later reissued in privately negotiated transactions for
approximately $9 million. In another transaction, we acquired 3.75 million
shares from Torchmark, which we later reissued to three institutional investors
for $23.6 million in the end of June 2000. At that time, we entered into an
agreement that gave us the right to repurchase all 3.75 million of these shares
within six months. In December, we exercised our right to repurchase all 3.75
million shares for $23.6 million plus interest and reissued most of these
shares in four separate transactions completed in December 2000. These
transactions included:

. Approximately 1.2 million shares issued in exchange for approximately $8
million liquidation amount of our 8.525% Deferrable Capital Securities;

. Approximately 950,000 shares issued in connection with our acquisition
of Aegis;

. 750,000 shares held in trust for allocation to our independent agents
pursuant to the Vesta Agents Stock Incentive Plan; and

. Approximately 550,000 shares issued in connection with our acquisition
of Instant Auto.

Conversion of Preferred Stock and Sale of Common Stock

On January 29, 2001, the holder of all 2.95 million shares of our Series A
Convertible Preferred Stock converted the preferred stock into 5.9 million
shares of common stock, and we then repurchased those shares of common stock
for approximately $15 million cash and a note for approximately $32.2 million.
This conversion eliminated an annual preferred stock dividend obligation of
approximately $2.3 million. We subsequently resold

5.5 million of the common shares in a registered supplemental offering to new
investors. We received proceeds from this offering of approximately $33.8
million and repaid the $32.2 million note in full on March 14, 2001.

Regulation

General

Our insurance companies are subject to regulation by governmental agencies
in the states in which they do business. The nature and extent of such
regulation varies by jurisdiction, but typically involves 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 our insurance subsidiaries, we
are also subject to regulation under the Ohio, Illinois, Hawaii, Florida
(following our acquisition of Florida Select), and Texas Insurance Holding
Company System Regulatory Acts (collectively, the "Holding Company Acts").
These Holding Company Acts contain certain reporting requirements including
those requiring us to file information relating to our capital structure,
ownership, and financial condition and general business operations of our
insurance subsidiaries. These Holding Company Acts contain special reporting
and prior approval requirements with respect to transactions among affiliates.
The Illinois Holding Company Act is generally the most significant to us since
it governs our relationship with Vesta Fire, our principal insurance
subsidiary.

The federal government does not directly regulate the insurance business.
However, federal legislation and administrative policies in several areas,
including pension regulation, age and sex discrimination, financial services
regulation, and federal taxation, do affect the insurance business. Recently, a
number of state legislatures have considered or have enacted legislative
proposals that alter, and in many cases increase, the authority of state
agencies to regulate insurance companies and holding company systems. In
addition, legislation has been introduced from time to time in recent years
which, if enacted, could result in the federal government assuming a more
direct role in the regulation of the insurance industry.

The insurance laws of most states generally provide that all property and
casualty insurance companies which do business in these states must belong to a
statutory property and casualty guaranty association. The purpose of these
guaranty associations is to protect policyholders by requiring solvent property
and casualty insurance companies to pay certain insurance claims of insolvent
insurers. The rules of such guaranty associations assess insurers
proportionately to such insurer's share of voluntary premiums written in the
given state in order to pay these claims. While most guaranty associations
provide a procedure for recoupment of assessments through rate increases, rate
surcharges, or premium tax credits, there is no assurance that insurers will
recover these assessments, and the time value of money becomes a cost to the
insurer assessed. Vesta's share of these assessments is not expected to have a
material impact on the business of Vesta's insurance subsidiaries.

Many states have formed statutory residual market associations or plans to
write certain higher risk property and casualty insurance. These associations
cover such risks as wind and water in coastal areas and assigned risk for
automobile. By statute, each private insurer writing voluntary business of the
type written under the residual market plans in the state must be a member of
these associations and, depending on the plan, may be required to accept
certain of these risks and also may be required to participate in the profit or
loss of the association or plan. Exposures under these plans are higher than
voluntary writings because the plans accept

higher risk business and rates charged for this business are often lower than
actuarially required due to political influence of the governmental agency
operating these plans.

Insurers also are required by the states to provide coverage to insureds who
would not otherwise be considered eligible by the insurers. Each state dictates
the types of insurance and the level of coverage which must be provided to such
involuntary risks. The rules of the programs in each state govern how
involuntary risks are shared on a pro rata basis by the companies who
underwrite similar risks voluntarily in the applicable states.

NAIC

In 1998, the NAIC adopted the Codification of Statutory Accounting
Principles ("Codification") which, effective as of January 1, 2001, replaced
the NAIC Annual Statement Instructions and Accounting Practices and Procedures
manual as the NAIC's primary guidance on statutory accounting. The Codification
provides guidance for areas where statutory accounting has been silent and
changes current statutory accounting in other areas. Management does not
believe that the impact of the new Codification will be significant.

State insurance regulators and the NAIC periodically re-examine existing
laws and regulations and their application to insurance companies. In recent
years, the NAIC has approved and recommended to the states for adoption and
implementation several regulatory initiatives designed to decrease the risk of
insolvency of insurance companies. These initiatives include risk-based capital
requirements for determining the levels of capital and surplus an insurer must
maintain in relation to its insurance and investment risks. Other NAIC
regulatory initiatives impose restrictions on an insurance company's ability to
pay dividends to its stockholders. These initiatives may be adopted by the
various states in which our subsidiaries are licensed. The ultimate content and
timing of any statutes and regulations adopted by the states cannot be
determined at this time. It is not possible to predict the future impact of
changing state and federal regulation on our operations, and there can be no
assurance that existing insurance-related laws and regulations will not become
more restrictive in the future or that laws and regulations enacted in the
future will not be more restrictive.

Risk-Based Capital

The NAIC's risk-based capital rules require insurance companies to calculate
and report information under a risk-based formula that 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 weakly capitalized companies. Under the
formula, a company determines its "risk-based capital" 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" of risk-based capital.

The NAIC's risk-based capital requirements are intended to be used as an
early warning tool to help insurance regulators identify deteriorating or
weakly capitalized companies in order to initiate regulatory action. Such
requirements are not intended as a mechanism for ranking adequately capitalized
companies. The formula defines a minimum capital standard which supplements the
low, fixed minimum capital, and surplus requirements previously implemented on
a state-by-state basis.

As of December 31, 2000, the total adjusted risk-based capital as a
percentage of authorized control level were as follows for our principal
insurance subsidiaries:

Vesta Fire Insurance Corporation..................................... 630%
American Founders Life Insurance Company............................. 492%

Restrictions on Dividends to Stockholders

Our 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, and operating income, as determined under
statutory accounting practices. Ohio, Illinois, and Texas laws permit 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 net income for the
preceding year, with larger dividends payable only after receipt of prior
regulatory approval. Hawaii law limits dividends to the lesser of (i) and (ii)
without prior approval. Certain other extraordinary transactions between an
insurance company and its affiliates also are subject to prior approval by the
department of insurance for the applicable states. Future dividends from our
subsidiaries may be limited by business and regulatory considerations.

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 IRIS ratios falling outside "normal ranges," state regulators
may investigate to determine the reasons for the variance and whether
corrective action is warranted. In 2000, Vesta Fire had three ratios which
varied unfavorably from the "usual value" range and American Founders had four
ratios which varied unfavorably from the "usual value" range. As of May 1,
2001, neither Vesta Fire nor American Founders had received any notice of
anticipated action as a result of these variances.

A.M. Best Rating

A.M. Best, which rates insurance companies based upon factors of concern to
policyholders, raised its rating on our property and casualty insurance
subsidiaries to "B+" (Very Good, in the Secure Rating Category) from "B" (Good,
in the Vulnerable Rating Category) in February, 2000. Some of the factors noted
by A.M. Best as contributing to the upgrade include our improved financial
condition, debt restructuring, elimination of non-core business units, and our
focus on our personal lines business. We believe that our current A.M. Best
rating of "B+" will assist us in increasing the number of new policy
applications and strengthen our retention ratios on our existing policies as
they come up for renewal. American Founders is also rated "B+" by A.M. Best.

To further strengthen our ability to increase new policy applications and
retain our existing policies, and to open up other opportunities, we believe we
must continue to work towards a higher rating from A.M. Best. To accomplish
that, we will focus on:

. Expanding our core book of business;

. Continuing to lower our debt-to-capital ratio; and

. Continuing to demonstrate the ability to operate profitably.

Each of these three goals is related to our future operating performance
which is subject to a host of uncertainties and risk factors more fully
discussed in the section of this prospectus entitled "Risk Factors" beginning
on page 7.

Competition

Direct writers are making a strong push in the personal lines arena. These
companies compete almost exclusively based on price. While there is a segment
of the population that is driven exclusively by price, we believe that many
consumers desire the advice and counsel of a professional agent. We have
developed a business strategy that focuses on this segment of the market.
Accordingly, our relationship with our independent agencies is perhaps the most
important component of our current competitive profile. In order to develop and
retain the independent agencies' loyalty, we have reaffirmed our commitment to
independent agency distribution by providing innovative solutions to agencies'
daily business issues, as well as by responding to agencies' needs as quickly
as possible. As another mechanism to maintain agency loyalty, we have created a
stock incentive plan for our top-performing agencies.

The property and casualty insurance industry is highly competitive on the
basis of both price and service. We compete 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 we have. In recent years, there has
been a trend in the property and casualty industry toward consolidation which
could result in even more competitive pricing. In the future, the industry,
including us, will face increasing insurance underwriting competition from
banks and other financial institutions.

Employees

As of January 10, 2001, we employed 486 persons. Our employees are neither
represented by labor unions nor are they subject to any collective bargaining
agreements. Management knows of no current efforts to establish labor unions or
collective bargaining agreements.

Litigation

Securities Litigation

Subsequent to the filing of our quarterly report on Form 10-Q for the period
ended March 31, 1998 with the U.S. Securities and Exchange Commission ("SEC" or
"Commission"), we commenced an internal investigation to determine the exact
scope and amount of certain reductions of reserves and overstatement of premium
income in our reinsurance assumed business that had been recorded in the fourth
quarter of 1997 and the first quarter of 1998. This investigation concluded
that inappropriate amounts had, in fact, been recorded and we determined that
we should restate our previously issued 1997 financial statements and first
quarter 1998 Form 10-Q. Additionally, during our internal investigation we were
advised by our then outside auditors that there was an error in the accounting
methodology used to recognize earned premium income in our reinsurance
business. We had historically reported certain assumed reinsurance premiums as
earned in the year in which the related reinsurance contracts were entered even
though the terms of those contracts frequently bridged two years. We determined
that reinsurance premiums should be recognized as earned over the contract
period and corrected the error in our accounting methodology by restating
previously issued financial statements. On June 1, 1998 and June 29, 1998, we
issued press releases, which were filed with the Commission, regarding the
matters addressed in this section.

We restated our previously-issued financial statements for 1995, 1996, and
1997 and our first quarter 1998 Form 10-Q for the above items by issuance of a
current report on Form 8-K dated August 19, 1998. These restatements resulted
in a cumulative decrease to stockholders' equity of approximately $75.2 million
through March 31, 1998. Commencing in June 1998, we and several of our current
and former officers and directors were named as defendants in several purported
class action lawsuits filed in the United States District Court for the
Northern District of Alabama. Several of our officers and directors also have
been named in a derivative action lawsuit in the Circuit Court of Jefferson
County, Alabama, in which Vesta is a nominal defendant. In addition, we
received various inquiries and requests for information from various state
departments of insurance and other regulatory authorities, including a subpoena
issued to Vesta on August 24, 1998 by the

Commission as part of a formal, non-public order of investigation. We fully
responded to such requests in 1998, and no further requests for information
from Vesta have been made by the Commission.

In March 1999, the actions filed in the United States District Court for the
Northern District of Alabama were consolidated into a single action in that
district and certified as a class action. Torchmark Corporation and KPMG Peat
Marwick LLP, our outside auditor at the time, were added as additional
defendants in the consolidated class action. The consolidated amended complaint
alleges violations of certain federal securities laws and seeks unspecified but
potentially substantial damages. The court has denied all motions to dismiss
and the class action is presently in discovery, with a trial date set for
November 5, 2001. We are vigorously defending this litigation but there is no
assurance of its outcome. The parties have conducted settlement discussions,
but have not been successful in reaching any resolution. The derivative case
has been stayed and placed on the administrative docket.

We have several layers of directors' and officers' liability insurance
coverage ("D&O insurance"), the terms of which may cover all or a portion of
the damages or settlement costs of the class action. These policies provide up
to $100 million in D&O insurance to cover damages or settlement costs and an
additional policy provides another layer of $10 million D&O insurance to cover
any damages awarded by a court in these actions. Cincinnati Insurance Company
("Cincinnati") issued the primary policy that provides the first $25 million of
D&O insurance. Federal Insurance Company (The Chubb Group of Insurance
Companies) issued an excess D&O insurance policy which provides coverage for
the second $25 million in losses, if necessary. The balance of the coverage is
provided by a group of insurers and was purchased after the class actions
comprising the consolidated class action were filed. In September 1998, after
these actions were filed, Cincinnati, which provides the primary insurance
policy, filed a lawsuit in the United States District Court for the Northern
District of Alabama seeking to rescind the policy and avoid the coverage. That
action was dismissed for lack of subject matter jurisdiction, and we then filed
an action against Cincinnati in the Circuit Court of Jefferson County, Alabama,
to enforce the policy and to recover damages arising out of Cincinnati's
actions. Cincinnati filed an answer and counterclaim in that action, seeking to
rescind the policy and avoid the coverage. This action is in the discovery
stage and the outcome is uncertain. There is no assurance that the primary
insurance coverage will ultimately be available for any damages or settlement
costs incurred. The outcome of this litigation may also materially affect the
availability of the excess policy issued by The Chubb Group. The damages sought
by stockholder plaintiffs in the consolidated class action, either at trial or
through settlement, may be substantial. If the damages or settlement costs
incurred in connection with the consolidated class action and derivative action
are ultimately determined not to be covered by our D&O insurance policies for
any reason, we may incur a significant and material loss which could have a
material and adverse impact on our financial condition and results of
operation.

The consolidated class action is in the discovery stage and the derivative
action has been placed on the administrative docket. The ultimate outcome of
these matters is uncertain. Accordingly, we have not currently set aside any
financial reserves relating to any of the above-referenced actions.

Indemnification Agreements and Liability Insurance

Pursuant to Delaware law and our Bylaws, we are obligated to indemnify our
current and former officers and directors for certain liabilities arising from
their employment with or services to Vesta, provided that their conduct
complied with certain requirements. Pursuant to these obligations, we have
agreed to advance costs of defense and other expenses on behalf of certain
current and former officers and directors, subject to an undertaking from such
individuals to repay any amounts advanced in the event a court determines that
they are not entitled to indemnification.

Arbitration

As discussed above, we corrected our accounting for assumed reinsurance
business through restatement of our previously-issued financial statements.
Similar corrections were made on a statutory accounting basis by recording
cumulative adjustments in Vesta Fire's 1997 statutory financial statements. The
impact of this

correction has been reflected in amounts ceded under our 20% whole account
quota share treaty which was terminated on June 30, 1998 on a run-off basis. We
believe such treatment is appropriate under the terms of this treaty and have
calculated the quarterly reinsurance billings presented to the three treaty
participants accordingly. The aggregate amount included herein as recoverable
from such reinsurers totaled approximately $55.2 million as of December 31,
2000. We have collected approximately $48.5 million from the drawdown of
collateral on hand.

NRMA Insurance, Ltd. ("NRMA"), one of the participants in the 20% whole
account quota share treaty, filed a lawsuit in the United States District Court
for the Northern District of Alabama contesting our billings. NRMA sought
rescission of the treaty and a temporary restraining order preventing us from
drawing down approximately $34.5 million of collateral. We filed a demand for
arbitration as provided for in the treaty and also filed a motion to compel
arbitration which was granted in the United States District Court action. Vesta
has entered into a $25 million letter of credit in favor of NRMA to fund any
amounts NRMA may recover as a result of the arbitration. We filed for
arbitration against the other two participants in the treaty and all of these
arbitrations are in their early stages. While management believes its
interpretation of the treaty's terms and computations based thereon are
correct, these matters are in their early stages and their ultimate outcome
cannot be determined at this time.

During 1999, F&G Re (on behalf of USF&G), filed for arbitration under two
aggregate stop loss reinsurance treaties whereby F&G Re assumed certain risk
from us. F&G Re is seeking to rescind the treaties and avoid its obligation.
Under the terms of the two treaties, we believe we will be entitled to
recoveries of approximately $28.2 million as losses mature from prior accident
years. Vesta has recorded a reinsurance recoverable of approximately $28.2
million as of December 31, 2000 and 1999 related to these two treaties. This
arbitration is in its early stage and the ultimate outcome cannot be determined
at this time.

A dispute has also arisen with CIGNA Property and Casualty Insurance Company
("CIGNA") (now ACE USA) under a personal lines insurance quota share
reinsurance agreement, whereby we assumed certain risks from CIGNA. During
September 2000, CIGNA filed for arbitration under the reinsurance agreement,
seeking payment of the balances that CIGNA claims are due under the terms of
the treaty. In addition, during the fourth quarter, the treaty was terminated
on a cut-off basis. Vesta is seeking recoupment of all improper claims payments
and excessive expense allocations and charges from CIGNA. This arbitration is
in its early stages and the ultimate outcome cannot be determined at this time.

If the amounts recoverable under the relevant treaties are ultimately
determined to be materially less than the amounts that we have reported as
recoverable, we may incur a significant, material, and adverse impact on our
financial condition and results of operations.

Other Litigation

Vesta, through its subsidiaries, is routinely a party to pending or
threatened legal proceedings and arbitration relating to the regular conduct of
its insurance business. These proceedings involve alleged breaches of contract,
torts (including bad faith and fraud claims), and miscellaneous other specified
relief. Based upon information presently available, and in light of legal and
other defenses available to us and our subsidiaries, management does not
consider liability from any threatened or pending litigation regarding routine
matters to be material.

MANAGEMENT

Directors and Executive Officers

Vesta's Board of Directors is divided into three classes with the members of
each class serving three-year terms expiring at the third annual meeting of the
stockholders after their elections, upon the election and qualification of
their successors. The following table sets forth information as of the date of
this prospectus concerning Vesta's directors and executive officers.

Term as
Name Age Position Director Expires
---- --- -------- ----------------

James E. Tait............... 51 Chairman of the Board of 2002
Directors
Norman W. Gayle, III........ 47 President, Director 2002
Robert B.D. Batlivala....... 61 Director 2004
Walter M. Beale, Jr. ....... 55 Director 2003
Ehney A. Camp, III.......... 58 Director 2004
Alan S. Farrior............. 47 Director 2003
Stephen R. Windom........... 51 Director 2003
K. Gerald Barron............ 51 Senior Vice President--
Insurance Operations of
Vesta Fire Insurance
Corporation
William P. Cronin........... 41 Senior Vice President--
Chief Financial Officer
John W. McCullough.......... 35 Vice President--Associate
General Counsel
Hopson B. Nance............. 30 Vice President--
Controller
Stephen P. Russell.......... 41 Vice President--Actuarial
of Vesta Fire Insurance
Corporation
Stephen P. Solimine......... 50 Senior Vice President--
Marketing of Vesta Fire
Insurance Corporation
Donald W. Thornton.......... 53 Senior Vice President--
General Counsel and
Secretary

James E. Tait has served as a Director of Vesta since 1998. Mr. Tait is
currently the Chairman of the Board of Directors. Mr. Tait served as Executive
Vice President and Chief Financial Officer of Vesta from 1998 to 2000. Mr. Tait
is also currently President of Tait Advisory Services, LLC, a subsidiary of
Vesta. Previously, Mr. Tait served as President of Inex Insurance Exchange from
1996 to 1999, and was a Partner at Coopers & Lybrand LLP from 1980 to 1996.

Norman W. Gayle, III has served as a Director and President of Vesta since
1998 and has occupied the Office of the Chairman with Mr. Tait since 2000.
Previously, Mr. Gayle was Executive Vice President and Chief Operating Officer
of Vesta from 1995 to 1998.

Robert B.D. Batlivala, Ph.D. has served as a Director of Vesta since 1999.
Mr. Batlivala retired on October 1, 1999 from the position of Director,
Regulatory Economics and Corporate Strategic Planning for BP Amoco, where he
served in various capacities since 1964.

Walter M. Beale, Jr. has served as a Director of Vesta since 1993. Mr. Beale
is a Partner in the law firm of Balch & Bingham LLP and has been in that
position since 1976.

Ehney A. Camp, III has served as a Director of Vesta since 1993. Mr. Camp
has been a Principal of Addison Investments, L.L.C. since 1996. From 1975 to
1996, Mr. Camp was the President and Chief Executive Officer of Camp & Company,
a mortgage banking company located in Birmingham, Alabama.

Alan S. Farrior has served as a Director of Vesta since 2000. Mr. Farrior is
the President of Lowder New Homes/Colonial Homes and has been in that position
since 1978.

Stephen R. Windom has served as a Director of Vesta since 2000. Mr. Windom
is a Partner in the law firm of Sirote & Permutt, P.C. and has been in that
position since prior to 1996. Mr. Windom currently serves as Lieutenant
Governor of the State of Alabama. Prior to becoming Lieutenant Governor in
1999, Mr. Windom served as a member of the Alabama State Senate.

K. Gerald Barron has served as Senior Vice President--Insurance Operations
of Vesta Fire Insurance Corporation since 1999. From March 1997 to October
1999, Mr. Barron was Executive Vice President of Audubon Insurance Group in
Baton Rouge, Louisiana. From March of 1993 to March of 1997, Mr. Barron was
Vice President of Hanover Insurance Company in Worcester, Massachusetts.

William P. Cronin has served as Senior Vice President and Chief Financial
Officer of Vesta since 2000. Mr. Cronin has also served as Senior Vice
President--Controller of Vesta from 1998 to 2000. Mr. Cronin has served as
President of Tait Advisory Services, LLC, a subsidiary of Vesta, since March
2001. From 1997 to 2001, Mr. Cronin was Vice President, Audit and Regulatory
Affairs of Tait Advisory Services, LLC. Prior to joining Vesta, Mr. Cronin was
a Senior Manager at Ernst & Young LLP from 1993 to 1997.

John W. McCullough has served as Vice President and Associate General
Counsel of Vesta since 2000. From 1996 to 2000, Mr. McCullough was an Associate
and Partner with the law firm of Balch & Bingham LLP.

Hopson B. Nance has served as Vice President and Controller of Vesta since
2000. Prior to joining Vesta, Mr. Nance was an Audit Manager and held other
positions with PricewaterhouseCoopers LLP from 1993 to 2000.

Stephen P. Russell has served as Vice President--Actuarial of Vesta Fire
Insurance Corporation since 1998. From 1982 to 1998, Mr. Russell was a Director
and Senior Actuary of Allstate Insurance Company, Northbrook, Illinois.

Stephen P. Solimine has served as Senior Vice President--Marketing of Vesta
Fire Insurance Corporation since 2000. From 1995 to 2000, Mr. Solimine was Vice
President--Marketing of Vesta Fire Insurance Corporation.

Donald W. Thornton has served as Senior Vice President, General Counsel and
Secretary of Vesta since 1995.

There are no family relationships between any of the directors or executive
officers of Vesta.

SECURITY OWNERSHIP OF MANAGEMENT AND PRINCIPAL STOCKHOLDERS

Security Ownership of Management

The following table sets forth certain information regarding the beneficial
ownership of our common stock as of March 31, 2001 and as adjusted to reflect
the sale of our common stock offered hereby, with respect to: (i) each of our
directors and each of our named executive officers; and (ii) all our directors
and our named executive officers as a group. As of March 31, 2001, Vesta had
24,427,946 shares of common stock outstanding. Except as otherwise indicated,
each of the stockholders listed below has sole voting and investment power over
the shares beneficially owned.

Percentage of
Shares Owned
-----------------
Shares Prior to After
Name Owned Offering Offering
---- --------- -------- --------

K. Gerald Barron............................... 0 * *
Robert B.D. Batlivala.......................... 5,000(1) * *
Walter M. Beale, Jr............................ 45,499(2) * *
Ehney A. Camp, III............................. 47,830(3) * *
William P. Cronin.............................. 52,806(4) * *
Alan S. Farrior................................ 6,789(5) * *
Norman W. Gayle, III........................... 345,514(6) 1.4% 1.1%
James E. Tait.................................. 293,835(7) 1.2% *
Donald W. Thornton............................. 181,085(8) * *
Stephen R. Windom.............................. 5,000(9) * *
--------- --- ---
All Directors and Executive Officers as a Group
(14 persons).................................. 1,012,416 4.1% 3.3%
========= === ===

--------
* Less than 1%
(1) Includes 5,000 shares subject to the exercise of options exercisable on or
prior to June 30, 2001 granted pursuant to our Non-Employee Director Stock
Plan.
(2) Includes (i) 5,000 shares subject to the exercise of options exercisable on
or prior to June 30, 2001, granted pursuant to our Non-Employee Director
Stock Plan, and (ii) 30,000 shares of restricted stock.
(3) Includes (i) 5,000 shares subject to the exercise of options exercisable on
or prior to June 30, 2001 and 3,325 shares of restricted stock granted
pursuant to our Non-Employee Director Stock Plan, (ii) 5,150 shares held in
the name of Sterne, Agee & Leach, Inc., custodian for Ehney A. Camp, III
Individual Retirement Account, and (iii) 22,500 shares of restricted stock.
(4) Includes 1,556 shares allocated to Mr. Cronin's 401(k) plan account and
50,000 shares of restricted stock awarded under our Long Term Incentive
Plan.
(5) Includes 5,000 shares subject to the exercise of options exercisable on or
prior to June 30, 2001 and 1,789 shares of restricted stock granted
pursuant to our Non-Employee Director Stock Plan.
(6) Includes (i) 52,500 shares subject to the exercise of options exercisable
on or prior to June 30, 2001 granted under, and 198,032 shares of
restricted stock awarded under our Long Term Incentive Plan and (ii) 10,080
shares allocated to Mr. Gayle's 401(k) plan account.
(7) Includes (i) 52,500 shares subject to the exercise of options exercisable
on or prior to June 30, 2001 granted under, and 195,000 shares of
restricted stock awarded under, our Long Term Incentive Plan, and
(ii) 11,279 shares allocated to Mr. Tait's 401(k) plan account.
(8) Includes (i) 27,500 shares subject to the exercise of options exercisable
on or prior to June 30, 2001 granted under, and 123,479 shares of
restricted stock awarded under our Long Term Incentive Plan and (ii) 10,617
shares allocated to Mr. Thornton's 401(k) plan account.
(9) Includes 5,000 shares subject to the exercise of options exercisable on or
prior to June 30, 2001 granted pursuant to our Non-Employee Director Stock
Plan.

Business Relationships between Vesta and Management

We have used the legal services of the law firm Balch & Bingham LLP, of
which Walter M. Beale, Jr., one of our directors, is a partner, from the
beginning of 2001 to the date of this prospectus, including legal services
provided to us in preparing this registration statement. We expect that Balch &
Bingham LLP will continue to render various legal services to us for the
remainder of 2001. We have used the legal services of the law firm Sirote &
Permutt, P.C., of which Stephen R. Windom, one of our directors, is a partner,
from the beginning of 2001 to the date of this prospectus. We expect that
Sirote & Permutt, P.C. will continue to render various legal services to us for
the remainder of 2001.

Principal Stockholders

The following table lists all persons known to us to be the beneficial owner
of more than 5% of our common stock as of March 31, 2001, and as adjusted to
reflect the sale of shares offered hereby, assuming no exercise of the
underwriters' over-allotment option.

Percentage of
Shares Owned
-----------------
Shares Prior to After
Name and Address Owned Offering Offering
---------------- --------- -------- --------

Wellington Management Company, LLP.............. 2,000,000(1) 8.2% 6.6%
75 State Street
Boston, MA 02109

R.K. Carvill (International Holdings), Ltd. .... 1,380,000(2) 5.6 4.5
Peerman Holdings, Ltd.
Clarendon House
2 Church Street
Hamilton HMCX, Bermuda

Dimensional Fund Advisors, Inc. ................ 1,309,650(3) 5.4 4.3
1299 Ocean Avenue
Santa Monica, CA 90401

--------
(1) Wellington Management Company, LLP, acting as investment adviser on behalf
of several accounts, acquired these shares of our common stock directly
from us in March 2001.

(2) The information on the number of shares of our common stock beneficially
owned by R.K. Carvill (International Holdings), Ltd. and Peerman Holdings,
Ltd. set forth herein is based on Schedule 13D/A, filed January 30, 2001 by
R.K. Carvill (International Holdings), Ltd., and Peerman Holdings, Ltd.

(3) The information on the number of shares of our common stock beneficially
owned by Dimensional Fund Advisors, Inc. set forth herein is based on
Schedule 13G filed February 2, 2001 by Dimensional Fund Advisors Inc.

UNDERWRITING

Subject to the terms and conditions of the underwriting agreement, the
underwriters named below, for whom Cochran, Caronia Securities LLC is acting as
representative, have severally agreed to purchase from Vesta and Vesta has
agreed to sell to each of the underwriters, the number of shares of common
stock set forth opposite their respective names.

Underwriters Number of Shares
------------ ----------------

Cochran, Caronia Securities LLC..........................
-------------
Total..................................................
=============

The underwriting agreement provides that the obligations of the several
underwriters to purchase the shares included in this offering are subject to
approval of certain legal matters by counsel and to various other conditions.
The underwriters are obligated to purchase all the shares, other than those
covered by the over-allotment option described below, if they purchase any of
the shares. The underwriters propose to offer the shares of common stock
directly to the public at the public offering price set forth on the cover page
of this prospectus and to certain dealers at such price less a concession not
in excess of $ per share. The underwriters may allow, and such dealers may
reallow, a concession not in excess of $ per share to certain other dealers.
After the shares of common stock are released for sale to the public, the
offering price and other selling terms may be changed.

The following table summarizes the per share and total underwriting
discounts and commissions we will pay to the underwriters in connection with
this offering. Such amounts are shown assuming both no exercise and full
exercise of the underwriters' option to purchase 900,000 additional shares.

Paid by the Company
-------------------------
No Exercise Full Exercise
----------- -------------

Per Share....................................... $ $
Total........................................... $ $

The expenses associated with the offer and sale of our common stock,
excluding the underwriters' discount and commissions, are estimated to be
approximately $ and will be paid by us.

Vesta has granted to the underwriters an option, exercisable by the
representatives for 30 days after the date of this prospectus, to purchase up
to an additional 900,000 shares of common stock at the public offering price
less the underwriting discount set forth on the cover page. The underwriters
may exercise such option solely for the purpose of covering over-allotments, if
any, in connection with the offering. To the extent that the representatives
exercise such option, each of the underwriters have severally agreed, subject
to certain conditions, to purchase approximately the same percentage thereof
that the number of shares of common stock to be purchased by each of them as
shown in the table above, bears to the 6,000,000 shares of common stock offered
hereby.

In connection with the offering, Vesta and Vesta's executive officers and
directors have agreed that, during a period of 90 days from the date of this
prospectus, they will not, without the prior written consent of Cochran,
Caronia Securities LLC, directly or indirectly, issue, sell, or offer to sell,
contract to sell, solicit or offer to buy, grant any option, right or warrant
for the purchase or sale of, assign, pledge, hypothecate, distribute or
otherwise transfer, dispose of, encumber or reduce any risk of ownership (or
make any announcement with respect to any of the foregoing) any shares of
common stock or any options, rights, warrants or other securities convertible
into or exercisable or exchangeable for common stock or evidencing any right to
purchase or subscribe for shares of common stock; except that, Vesta may issue
and sell the shares of common stock to be issued in the offering and Vesta may
grant options under Vesta's stock option plans and issue shares of common stock
upon the exercise of Vesta's stock options.

Vesta has agreed to indemnify the underwriters against certain liabilities,
including liabilities under the Securities Act, or to contribute to payments
the underwriters may be required to make in respect thereof. The underwriters
do not intend to confirm sales to any accounts over which they exercise
discretionary authority.

Until the distribution of the common stock is completed, rules of the U.S.
Securities and Exchange Commission may limit the ability of the underwriters to
bid for and purchase shares of common stock. As an exception to these rules,
the representatives are permitted to and may over-allot, or engage in syndicate
transactions, stabilizing transactions and penalty bids. Over-allotment
involves syndicate sales of common stock in excess of the number of shares to
be purchased by the underwriters in the offering, which creates a syndicate
short position. Syndicate covering transactions involve purchases of common
stock in the open market after the distribution has been completed in order to
cover syndicate short positions. Stabilizing transactions consist of certain
bids or purchases of common stock made for the purpose of preventing or
retarding a decline in the market price of the common stock while the offering
is in progress. The representatives also may impose a penalty bid on certain
underwriters and selling group members. This means that if the representatives
purchase shares of common stock in the open market to reduce the underwriters'
short position or to stabilize the price of the common stock, they may reclaim
the amount of the selling concession from the underwriters and selling group
members who sold those shares as part of the offering. In general, purchases of
a security for the purpose of stabilization or to reduce a syndicate short
position could cause the price of the security to be higher than it might
otherwise be in the absence of such purchases. The imposition of a penalty bid
might have an effect on the price of a security to the extent that it were to
discourage resales of the security by purchasers in the offering.

Neither Vesta nor any of the underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the common stock. In addition, neither
Vesta nor any of the underwriters makes any representation that the
representatives will engage in such transactions or that such transactions,
once commenced, will not be discontinued without notice.

From time to time, Cochran, Caronia & Co., an affiliate of Cochran, Caronia
Securities LLC, has provided, and continues to provide, investment banking
services to Vesta for which they have received customary fees and commissions.
Cochran, Caronia & Co. has also provided certain investment banking services to
Florida Select Insurance Holdings Inc. with respect to its proposed acquisition
by us. Cochran, Caronia & Co. has received, and will receive when the proposed
acquisition is completed, customary fees from Florida Select for these
services.

LEGAL MATTERS

The validity of the issuance of the common stock offered hereby and certain
other legal matters related to the offering will be passed upon for Vesta by
Balch & Bingham, LLP, Birmingham, Alabama. Walter M. Beale, Jr., a director of
Vesta, is a partner of Balch & Bingham, LLP. As of December 31, 2000, Mr. Beale
was the beneficial owner of 45,499 shares of our common stock.

Certain legal matters related to the offering will be passed upon for the
underwriters by Alston & Bird LLP, Washington, D.C.

EXPERTS

The financial statements of Vesta Insurance Group, Inc. incorporated in this
prospectus by reference to our Annual Report on Form 10-K for the year ended
December 31, 2000, have been so incorporated in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.

The financial statements of Florida Select Insurance Holdings Inc. as of
December 31, 2000 and 1999, and for each of the three years in the period ended
December 31, 2000, appearing in this prospectus, have been audited by Ernst &
Young LLP, independent auditors, as set forth in their report thereon appearing
elsewhere

herein, and are included in reliance upon such report given on the authority of
such firm as experts in accounting and auditing.

The consolidated financial statements of Securus Financial Corporation (the
predecessor of American Founders Financial Corporation) and subsidiaries as of
December 31, 1999 and 1998 and for each of the three years in the period ended
December 31, 1999, incorporated in this prospectus by reference to our Current
Report on Form 8-K/A filed September 12, 2000, have been so incorporated in
reliance on the report of Grant Thornton LLP, independent certified public
accountants, given on the authority of said firm as experts in auditing and
accounting.

WHERE YOU CAN FIND MORE INFORMATION

We are subject to the informational requirements of the Securities Exchange
Act of 1934, as amended. Therefore, we file annual, quarterly and special
reports, proxy statements, and other information with the U.S. Securities and
Exchange Commission ("SEC"). Our SEC filings are available to the public over
the internet at the SEC's web site at http://www.sec.gov. You may also read and
copy any document we file at the SEC's public reference rooms at 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the SEC's regional offices at 500
West Madison Street, Suite 1400, Chicago, Illinois 60661 and Seven World Trade
Center, 13th Floor, New York, New York 10048. Copies of such material can also
be obtained for a fee by writing to the SEC's Public Reference Section at 450
Fifth Street, N.W., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-
0330 for further information on the public reference rooms.

The SEC allows us to "incorporate by reference" the information we file with
them. This means that we can disclose important information to you by referring
you to documents we file with the SEC. The information incorporated by
reference is an important part of this prospectus. Information that we file
later with the SEC will automatically update and supersede this information.

The following documents (File No. 1-12338) are incorporated by reference in
this prospectus:

(a) Our Annual Report on Form 10-K for the fiscal year ended December 31,
2000, filed March 29, 2001;

(b) Our Current Reports on Form 8-K filed January 11, 2001, January 31,
2001, March 5, 2001, April 10, 2001, and April 23, 2001, and our
amended Current Report on Form 8-K/A filed September 12, 2000; and

(c) The description of our common stock set forth in our registration
statement on Form 8-A, filed November 13, 1993, as supplemented by the
rights registered on Form 8-A, filed June 21, 2000, as amended on July
13, 2000 and September 1, 2000.

All documents filed by Vesta under Sections 13(a), 13(c), 14, or 15(d) of
the Securities Exchange Act of 1934 after the date of this prospectus will be
deemed incorporated by reference into this prospectus and to be a part of this
prospectus from the date of filing of the documents.

If you request by writing or telephoning us at the following address or
telephone number, we will provide you with a copy of any of these documents we
are incorporating by reference at no cost.

Charles Lambert
Director of Investor Relations
Vesta Insurance Group, Inc.
3760 River Run Drive
Birmingham, Alabama 35243
(205) 970-7000

You should rely only on the information incorporated by reference or
provided in this prospectus. We have not authorized anyone else to provide you
with any other information or any different information. We are not making an
offer of common stock in any state where the offer is not permitted. You should
not assume that the information in this prospectus is accurate as of any date
other than the date on the front of this document.

INDEX TO FINANCIAL STATEMENTS

Unaudited Pro Forma Consolidated Financial Statements of Vesta Insurance
Group, Inc. for the year ended December 31, 2000.

General Information................................................... F-2
Unaudited Pro Forma Consolidated Statements of Operations............. F-3
Unaudited Pro Forma Consolidated Balance Sheet........................ F-4
Notes to Unaudited Pro Forma Consolidated Financial Statements........ F-5

Consolidated Financial Statements of Florida Select Insurance Holdings Inc.
as of December 31, 2000 and 1999 and for each of the three years in the period
ended December 31, 2000.

Report of Independent Auditors........................................ F-6
Consolidated Balance Sheets........................................... F-7
Consolidated Statements of Income..................................... F-8
Consolidated Statements of Shareholders' Equity....................... F-9
Consolidated Statements of Cash Flows................................. F-10
Notes to Consolidated Financial Statements............................ F-11

F-1

VESTA INSURANCE GROUP, INC.

UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS

The following presentation sets forth the unaudited proforma consolidated
financial statements of Vesta for the year ended December 31, 2000, giving
effect to our proposed acquisition of Florida Select Insurance Holdings, Inc.,
("Florida Select"), our acquisition of American Founders Financial Corporation
("American Founders") on June 30, 2000, and the issuance of 6.0 million shares
of common stock pursuant to this offering as if the transactions had occurred
on January 1, 2000. The acquisitions are accounted for as purchases.

The following consummated and proposed transactions have been reflected in
the accompanying unaudited pro forma consolidated balance sheet as of December
31, 2000 and the unaudited pro forma consolidated statements of operations for
the year ended December 31, 2000 as if those transactions had occurred on
January 1, 2000:

. On January 31, 2000, American Founders acquired Securus. Prior to the
acquisition of Securus, American Founders had no material operations. As
a part of the transaction, Securus paid approximately $43.9 million to
its former parent, which included effectively repaying the $33.5 million
surplus note payable. American Founders accounted for the acquisition
under the purchase method of accounting and, accordingly, the purchase
price has been allocated to the tangible and identifiable intangible
assets acquired and liabilities assumed on the basis of their respective
fair values on the acquisition date. The purchase price of Securus and
Subsidiaries included 50,000 shares of convertible preferred stock
(Series A) with a stated value of $50 million and an estimated fair
value of approximately $39.3 million and common stock warrants with an
estimated fair value of approximately $5.7 million.

. On June 30, 2000, we acquired a controlling interest in American
Founders (approximately 71% voting control). American Founders received
$25 million in cash in exchange for $25 million of 9.5% convertible
subordinated notes (immediately convertible into common stock of
American Founders) and 25 shares of special voting preferred stock. This
preferred stock does not provide for dividends; however, it does allow
Vesta to vote the number of shares of common stock that the convertible
subordinated notes are convertible into. We accounted for the
transaction under the purchase method of accounting and, accordingly,
the purchase price has been allocated to the tangible and identifiable
intangible assets and liabilities of American Founders on the basis of
their respective fair values on the acquisition date.

. In connection with the proposed transaction, Florida Select will commute
its 50% quota share reinsurance treaty with Centre Insurance Company as
of January 1, 2001.

. On April 18, 2001, Vesta agreed to acquire, subject to regulatory
approval, Florida Select for a cash payment equal to approximately $61.5
million. Vesta also agreed to pay an additional $3 million commutation
fee to Centre Insurance Company, an affiliate of one of the stockholders
of Florida Select, in connection with the commutation of a reinsurance
agreement between Florida Select and Centre Insurance Company. Vesta
will account for the transaction under the purchase method of
accounting, and accordingly, the purchase price will be allocated to the
tangible and identifiable intangible assets and liabilities of Florida
Select on the basis of their respective fair values on the acquisition
date.

The pro forma information should be read in conjunction with the historical
financial statements of Vesta, Securus, American Founders and Florida Select
and the related notes thereto. The following presentation is not necessarily
indicative of the results of operations that would have resulted had the
relevant transactions been consummated at the periods indicated, nor is it
necessarily indicative of the results of operations of future periods.

F-2

VESTA INSURANCE GROUP, INC.

UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)

For the Year Ended December 31, 2000
-------------------------------------------------------------
Historical Pro Forma
------------------------------------- -----------------------
Florida American Pro Forma Pro Forma
Vesta Select Founders/Securus(a) Adjustments Vesta
-------- ------- ------------------- ----------- ---------

Revenues:
Net premiums earned... $216,999 $26,348 $ 1,954 $23,743 (1) $269,044
Investment product
policy fees.......... 2,209 -- 2,614 -- 4,823
Net investment
income............... 45,903 2,936 21,784 (862)(2) 69,761
Realized (losses)
gains................ (2,061) -- (1,298) 1,298 (3) (2,061)
Other................. 2,103 1,065 1,153 940 (1) 5,261
-------- ------- ------- ------- --------
Total revenues...... 265,153 30,349 26,207 25,119 346,828

Expenses:
Policyholder
benefits............. 9,610 -- 10,026 -- 19,636
Losses and loss
adjustment expenses
incurred............. 125,432 11,367 11,367 (1) 148,166
Policy acquisition
expenses............. 52,247 3,292 1,039 5,602 (1) 62,180
Operating expenses.... 43,574 4,522 4,956 1,922 (1) 54,974
Interest on debt...... 15,105 -- 6,029 (288)(2) 20,846
Goodwill and other
intangible
amortization......... 1,591 298 2,372 (4) 4,261
-------- ------- ------- ------- --------
Total expenses...... 247,559 19,479 22,050 20,975 310,063
Income from continuing
operations before
taxes, minority
interest, and
deferrable capital
securities............. 17,594 10,870 4,157 4,144 36,765
Income tax expense...... 5,664 4,281 1,781 1,372 (5) 13,098
Minority interest, net
of tax................. 1,595 -- 1,645 (6) 3,240
Deferrable capital
security distributions,
net of tax............. 1,986 -- -- 1,986
-------- ------- ------- ------- --------
Income from continuing
operations............. $ 8,349 $ 6,589 $ 2,376 $ 1,127 $ 18,441
======== ======= ======= ======= ========
Income from continuing
operations per share--
basic.................. $ 0.46 $ 0.76 (7)
Income from continuing
operations per share--
diluted................ $ 0.34 $ 0.61 (7)

--------
(a) Represents the historical results of American Founders and its predecessor
for the period January 1, 2000 thru June 30, 2000.

F-3

VESTA INSURANCE GROUP, INC.

UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)

As of December 31, 2000
----------------------------------------------------
Florida Pro Forma Pro Forma
Vesta Select Adjustments Vesta
---------- -------- ----------- ----------

Assets:
Investments:
Fixed maturities
available for sale--at
fair value (cost:
2000--$795,118; 1999--
$348,760).............. $ 798,205 $ 49,112 $ (2,100)(8) $ 845,217
Equity securities--at
fair value: (cost:
2000--$30,221; 1999--
$2,092)................ 31,285 4,250 35,535
Mortgage and collateral
loans.................. 63,060 63,060
Policy loans............ 61,413 61,413
Short-term investments.. 22,586 22,586
Other invested assets... 29,343 29,343
---------- -------- -------- ----------
Total investments...... 1,005,892 53,362 (2,100) 1,057,154
Cash.................... 13,374 10,380 23,754
Accrued investment
income................. 17,017 820 17,837
Premiums in course of
collection (net of
allowances for losses
of $3,937 in 2000 and
$2,412 in 1999)........ 23,882 3,962 27,844
Reinsurance balances
receivable............. 353,949 30,654 (22,900)(9) 361,703
Reinsurance recoverable
on paid losses......... 57,325 1,961 59,286
Deferred policy
acquisition costs...... 45,954 1,815 47,769
Property and equipment.. 14,010 333 14,343
Deferred income taxes... 22,457 1,092 23,549
Other assets............ 68,139 2,266 34,523 (10) 104,928
---------- -------- -------- ----------
Total assets........... $1,621,999 $106,645 $ 9,523 $1,738,167
========== ======== ======== ==========
Liabilities:
Policy liabilities....... $ 660,284 $ 660,284
Losses and loss
adjustment expenses..... 263,689 $ 19,951 283,640
Unearned premiums........ 104,755 36,321 141,076
Federal Home Loan Bank
advances................ 150,691 150,691
Short term debt.......... 5,000 5,000
Long term debt........... 86,419 86,419
Other liabilities........ 102,825 18,896 $ 1,500 (11) 123,221
---------- -------- -------- ----------
Total liabilities...... 1,373,663 75,168 1,500 1,450,331
Commitments and
contingencies
Deferrable capital
securities............... 33,225 33,225
Stockholders' equity:
Preferred stock, $.01 par
value, 5,000,000 shares
authorized, issued:
2000--2,950,000 and
1999--2, 950,000........ 30 30
Common stock, $.01 par
value, 100,000,000
shares authorized,
issued: 2000--18,964,322
and 1999--18,964,322.... 190 60 (12) 250
Additional paid-in
capital................. 167,382 10,606 28,834 (12)(13) 206,822
Accumulated other
comprehensive income,
net of tax (benefit)
expense of $1,453 and
$(3,346) in 2000 and
1999, respectively...... 2,698 153 (153)(13) 2,698
Retained earnings........ 57,643 20,823 (20,823)(13) 57,643
Treasury stock (166,294
shares and 138,490
shares at cost) at
December 31, 2000 and
1999, respectively...... (5,865) (105) 105 (13) (5,865)
Unearned stock........... (6,967) (6,967)
---------- -------- -------- ----------
Total stockholders'
equity................ 215,111 31,477 8,023 254,611
---------- -------- -------- ----------
Total liabilities,
deferrable capital
securities and
stockholders' equity... $1,621,999 $106,645 $ 9,523 $1,738,167
========== ======== ======== ==========

F-4

VESTA INSURANCE GROUP, INC.

NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS

(1) Eliminates the effect of the 50% quota share with Centre Insurance
Company.

(2) Eliminates investment income earned on net assets transferred to third
parties based on an assumed rate of 7% and eliminates interest expense on
the $33.5 million note repaid by American Founders on January 31, 2000.

(3) Eliminates realized losses based on marking the securities to market as
part of purchase accounting.

(4) Recognizes amortization of goodwill recorded as part of the Florida Select
and American Founders transactions over a 15-year life.

(5) Recognizes the tax effects of the adjustments as if they had occurred at
the beginning of the period using a blended tax rate of 34%.
(6) Recognizes minority interest as if it had been applicable from beginning
of period.

(7) Calculated as if this 6 million share offering had occurred at the
beginning of the period. Pro forma basic shares outstanding are
approximately 24.2 million shares and pro forma diluted shares outstanding
are approximately 30.3 million shares.

(8) Reflects net cash effect to Vesta following the completion of this
offering and the closing of the acquisition of Florida Select.

Florida Select Acquisition................................. $(64.5 million)
Less common stock offering net proceeds (see footnote 12).. $ 39.5 million
Less settlement of balances pursuant to commutation of
Centre Insurance Company and Florida Select treaty........ $ 22.9 million
--------------
Net cash impact............................................ $ (2.1 million)

(9) Reflects commutation of 50% quota share with Centre Insurance Company.

(10) Recognition of goodwill.

(11) Recognition of accrued expenses attributable to the Florida Select
transaction.

(12) Net proceeds of offering 6 million shares of common stock, less the paid
in capital attributable to Florida Select. For purposes of this net
proceeds calculation, the 6 million shares are assumed to sell for $7.00
per share, less an underwriting fee of $2.5 million.

(13) Recognition of removing historical equity accounts to reflect purchase
accounting.

F-5

REPORT OF INDEPENDENT AUDITORS

Board of Directors
Florida Select Insurance Holdings Inc.

We have audited the accompanying consolidated balance sheets of Florida
Select Insurance Holdings Inc. and subsidiaries (the "Company") as of December
31, 2000 and 1999, and the related consolidated statements of income,
shareholders' equity, and cash flows for each of the three years in the period
ended December 31, 2000. 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 auditing standards generally
accepted in the United States. 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 consolidated financial position
of the Company at December 31, 2000 and 1999, and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended December 31, 2000 in conformity with accounting principles generally
accepted in the United States.

As described in Note 1, the Company changed its method of accounting for
organizational costs.

/s/ Ernst & Young LLP

March 16, 2001
Tampa, Florida

F-6

FLORIDA SELECT INSURANCE HOLDINGS INC.

CONSOLIDATED BALANCE SHEETS

December 31,
-------------------------
2000 1999
------------ -----------

ASSETS
INVESTMENTS:
Fixed maturities, held-to-maturity................. $ 2,484,937 $ 470,064
Fixed maturities, available-for-sale............... 46,627,215 36,357,501
Preferred stock.................................... 4,250,451 133,401
------------ -----------
Total investments.................................. 53,362,603 36,960,966
Cash and cash equivalents........................... 10,379,751 17,964,448
Premiums receivable (net of allowance for doubtful
accounts of $160,391 and $152,423, respectively)... 3,961,825 3,222,580
Amounts due from FRPCJUA in accordance with take-out
agreement.......................................... 1,979,791 9,227,838
REINSURANCE RECOVERABLES:
On paid losses and loss adjustment expenses........ 1,961,275 2,532,007
On unpaid losses and loss adjustment expenses...... 9,977,986 9,293,001
Prepaid reinsurance premiums....................... 20,676,350 17,697,352
Receivable from affiliates.......................... -- 106,685
Accrued investment income........................... 820,429 515,718
Deferred policy acquisition costs................... 1,814,789 859,458
Property and equipment (net of accumulated
depreciation and amortization of $403,933 and
$211,939, respectively)............................ 333,171 305,679
Deferred taxes...................................... 1,092,362 305,479
Other assets........................................ 284,988 105,726
------------ -----------
Total assets....................................... $106,645,320 $99,096,937
============ ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Loss and loss adjustment expense reserves.......... $ 19,951,410 $18,547,264
Unearned premium reserve........................... 36,321,138 32,824,958
Other policyholders' funds......................... 3,569,868 4,033,688
Reinsurance balance payable........................ 7,639,665 10,031,315
Accounts payable and accrued expenses.............. 4,473,200 3,129,851
Payable to affiliate............................... 320,300 --
Dividends payable.................................. -- 6,000,348
Income taxes payable............................... 2,892,790 449,291
------------ -----------
Total liabilities.................................. 75,168,371 75,016,715
SHAREHOLDERS' EQUITY:
Preferred stock, $.01 par value; 2,000 shares
authorized; no shares issued and outstanding...... -- --
COMMON STOCK:
Class A, $.01 par value; 2,000 shares authorized;
784 shares issued--779 shares outstanding......... 8 8
Class B, $.01 par value; 2,000 shares authorized;
no shares issued and outstanding.................. -- --
Class C, $.01 par value; 2,000 shares authorized;
156 shares issued and outstanding................. 1 1
Class D, $.01 par value; 2,000 shares authorized;
60 shares issued and outstanding.................. 1 1
Additional paid in capital......................... 10,606,051 10,606,051
Treasury stock..................................... (105,000) (105,000)
Retained earnings (see Note 6 for dividend
preference on Common Stock Class D)............... 20,822,998 14,234,110
Accumulated other comprehensive income (deficit),
net of deferred income tax (expense) benefit of
$(94,724) and $416,042, respectively.............. 152,890 (654,949)
------------ -----------
Total shareholders' equity......................... 31,476,949 24,080,222
------------ -----------
Total liabilities and shareholders' equity......... $106,645,320 $99,096,937
============ ===========

See accompanying notes.

F-7

FLORIDA SELECT INSURANCE HOLDINGS INC.

CONSOLIDATED STATEMENTS OF INCOME

Year ended December 31,
------------------------------------
2000 1999 1998
----------- ----------- -----------

REVENUE:
Premiums earned, net................... $26,348,381 $24,042,029 $25,964,902
Net investment income.................. 2,936,095 2,251,649 2,442,223
Other income........................... 1,064,703 4,669,659 45,072
----------- ----------- -----------
Total revenue........................... 30,349,179 30,963,337 28,452,197
LOSSES AND EXPENSES:
Losses and loss adjustment expenses.... 11,367,207 11,526,371 13,504,355
Other underwriting, general and
administrative expenses............... 7,813,637 6,129,120 4,385,557
Amortization and depreciation.......... 298,556 369,639 339,887
----------- ----------- -----------
Total losses and expenses............... 19,479,400 18,025,130 18,229,799
----------- ----------- -----------
Income before income taxes and
cumulative effect of a change in
accounting principle................... 10,869,779 12,938,207 10,222,398
Income tax expense...................... 4,280,891 4,877,662 3,970,821
----------- ----------- -----------
Net income after tax and before
cumulative effect of a change in
accounting principle................... 6,588,888 8,060,545 6,251,577
Cumulative effect of change in
accounting principle (net of tax
benefit of $150,067)................... -- (238,956) --
----------- ----------- -----------
Net income.............................. $ 6,588,888 $ 7,821,589 $ 6,251,577
=========== =========== ===========

See accompanying notes.

F-8

FLORIDA SELECT INSURANCE HOLDINGS INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

Accumulated
Additional Other
Common Paid-In Treasury Retained Comprehensive
Stock Capital Stock Earnings Income (Deficit) Total
------ ----------- --------- ----------- ---------------- -----------

Balance at January 1,
1998................... $10 $10,606,051 $ -- $ 6,161,292 $ 83,606 $16,580,959
Net income............. -- -- -- 6,251,577 -- 6,251,577
Change in net
unrealized
appreciation
(depreciation) of
available for sale
investments, net of
tax of $581........... -- -- -- -- (871) (871)
-----------
Comprehensive income... 6,250,706
Purchase of treasury
stock................. -- -- (105,000) -- -- (105,000)
--- ----------- --------- ----------- --------- -----------
Balance at December 31,
1998................... 10 10,606,051 (105,000) 12,412,869 82,735 22,996,665
Net income............. -- -- -- 7,821,589 -- 7,821,589
Change in net
unrealized
appreciation
(depreciation) of
available-for-sale
investments, net of
tax of $510,766....... -- -- -- -- (737,684) (737,684)
-----------
Comprehensive income... 7,083,905
Cash dividends to
shareholders--$600 per
share................. -- -- -- (6,000,348) -- (6,000,348)
--- ----------- --------- ----------- --------- -----------
Balance at December 31,
1999................... 10 10,606,051 (105,000) 14,234,110 (654,949) 24,080,222
Net income............. -- -- -- 6,588,888 -- 6,588,888
Change in net
unrealized
appreciation of
available-for-sale
investments, net of
tax of $468,443....... -- -- 807,839 807,839
-----------
Comprehensive income... 7,396,727
--- ----------- --------- ----------- --------- -----------
Balance at December 31,
2000................... $10 $10,606,051 $(105,000) $20,822,998 $ 152,890 $31,476,949
=== =========== ========= =========== ========= ===========

See accompanying notes.

F-9

FLORIDA SELECT INSURANCE HOLDINGS INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

Year ended December 31,
-------------------------------------
2000 1999 1998
----------- ----------- -----------

OPERATING ACTIVITIES
Net income............................. $ 6,588,888 $ 7,821,589 $ 6,251,577
Adjustments to reconcile net income to
net cash provided by operating
activities:
Amortization and depreciation........ 596,469 652,265 515,507
Deferred income taxes................ (1,282,887) 1,964,304 331,785
Policy acquisition costs deferred.... (6,769,927) (4,451,711) (5,667,012)
Policy acquisition costs amortized... 5,814,596 4,700,325 5,275,929
Net loss on sale of investments...... 190,721 100,815 (272,745)
Increase in premiums receivable...... (739,245) (2,202,841) 767,647
Decrease (increase) in amounts due
from the FRPCJUA.................... 7,248,047 (9,227,838) --
(Increase) decrease in reinsurance
recoverable......................... (3,093,251) 386,243 (3,919,202)
(Increase) decrease in accrued
investment income................... (304,711) 147,525 (181,724)
Decrease (increase) in receivable
from affiliate...................... 426,985 (87,905) 3,041
(Increase) decrease in other assets.. (179,262) 327,960 33,923
Increase in loss and loss adjustment
expenses............................ 1,404,146 1,288,212 4,377,584
Increase (decrease) in unearned
premium reserve..................... 3,496,180 (2,023,444) 775,831
(Decrease) increase in other
policyholders' funds................ (463,820) (1,082,701) 1,180,545
(Decrease) increase in reinsurance
balance payable..................... (2,391,650) 4,421,366 1,367,587
Increase (decrease) in accounts
payable and accrued expenses........ 1,343,349 (845,474) (115,277)
Increase (decrease) in income tax
payable............................. 2,443,499 348,293 (307,616)
----------- ----------- -----------
Net cash provided by operating
activities............................ 14,328,127 2,236,983 10,417,380
INVESTING ACTIVITIES
Purchase of securities held-to-
maturity.............................. (2,318,946) (168,717) --
Purchase of securities available-for-
sale.................................. (31,139,646) (35,127,279) (32,556,281)
Proceeds from securities held-to-
maturity.............................. 300,000 -- --
Proceeds from sale of securities
available-for-sale.................... 17,572,164 35,422,726 16,225,632
Decrease in note receivable from
affiliate............................. -- -- 1,893,026
Proceeds from sale of property and
equipment............................. -- 2,400 11,972
Purchase of property and equipment..... (326,048) (163,749) (294,414)
----------- ----------- -----------
Net cash used in investing activities.. (15,912,476) (34,619) (14,720,065)
----------- ----------- -----------
Financing activities
Repurchase of Treasury Stock........... -- -- (105,000)
Dividends paid......................... (6,000,348) -- --
----------- ----------- -----------
Net cash used in financing activities.. (6,000,348) -- (105,000)
----------- ----------- -----------
Net (decrease) increase in cash and
cash equivalents...................... (7,584,697) 2,202,364 (4,407,685)
Beginning cash and cash equivalents.... 17,964,448 15,762,084 20,169,769
----------- ----------- -----------
Ending cash and cash equivalents....... $10,379,751 $17,964,448 $15,762,084
=========== =========== ===========

See accompanying notes.

F-10

FLORIDA SELECT INSURANCE HOLDINGS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Nature of Operations and Significant Accounting Policies

Organization

Florida Select Insurance Holdings Inc. (the "Company") is incorporated in
Delaware and has two wholly-owned subsidiaries: Florida Select Insurance
Company ("FSIC"), a Florida domiciled property and casualty insurer, and
Florida Select Insurance Agency Inc. ("FSIA"), a managing general agency. FSIA
has two wholly-owned subsidiaries: Select Insurance Services Inc. ("SIS"), and
Texas Select Lloyds Insurance Company ("TSLIC"), a Texas domiciled property and
casualty insurer.

FSIC is licensed to underwrite homeowners, fire, allied lines, earthquake,
other liability, glass, burglary and theft, and mobile home multiple peril and
physical damage business. TSLIC is licensed to write fire, allied lines, rain,
inland marine, automobile liability and physical damage, liability other than
automobile, glass, burglary and theft, boiler and machinery, and reinsurance on
all lines authorized to be written on a direct basis. Computer Science
Corporation ("CSC") formerly known as Policy Management Systems Corporation, a
shareholder of the Company, provides policy management services for FSIC and
TSLIC including policy issuance, premium billing and collection, accounting,
and various other services. Claims administration is provided by Risk
Enterprise Management Limited, an affiliate of Centre Solutions (Bermuda) Ltd.,
a shareholder of the Company. The Zurich Group, which owns Centre Solutions
(Bermuda) Ltd., provides quota share reinsurance coverage to the Company
through its affiliates Centre Insurance Company (fiscal years ended 1999 and
2000) and Zurich Reinsurance (North America), Inc. (fiscal years 1996 through
1998). The Zurich Group also provides the Company certain excess of loss
coverage through its affiliate Zurich Reinsurance (North America), Inc.

FSIA provides underwriting, production and marketing services for FSIC as
their managing general agent. SIS provides similar services for TSLIC.

Consolidation and Presentation

The accompanying consolidated financial statements include the accounts,
after intercompany eliminations, of the Company and its wholly-owned
subsidiaries and have been prepared in conformity with accounting principles
generally accepted in the United States ("GAAP"), which differ from statutory
accounting practices prescribed or permitted by the respective Departments of
Insurance.

Segment Information

The Company operates in the United States of America and in only one
reportable segment, which is the provider of personalized property and casualty
insurance coverage.

Use of Estimates and Assumptions

The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect amounts reported in
the financial statements and accompanying notes. Such estimates and assumptions
could change in the future as more information becomes known which could impact
the amounts reported and disclosed herein.

Recognition of Revenue

Premium revenue is generally recognized ratably over the life of the related
policies with a liability for unearned premiums established for the unexpired
portion of the written premiums applicable to those policies.

Reinsurance premiums ceded are recognized on a pro rata basis over the life
of the contract.

F-11

FLORIDA SELECT INSURANCE HOLDINGS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Cash and Cash Equivalents

The Company considers all highly-liquid investments with original maturities
of three months or less to be cash equivalents. At December 31, 2000 and 1999,
FSIC had a certificate of deposit of $250,000 and $500,000, respectively, which
was included in cash and cash equivalents that collateralizes a letter of
credit held by the Florida Residential Property and Casualty Joint Underwriting
Association ("FRPCJUA").

Investments

Fixed maturity investments are designated at purchase as held-to-maturity or
available-for-sale. Held-to-maturity investments are reported at amortized
cost. Investments classified as available-for-sale are reported at fair value
with unrealized appreciation and depreciation, net of deferred taxes, included
as a component of other comprehensive income. The Company has the intent and
ability to hold to maturity those investments designated as held-to-maturity.

Realized gains and losses on sales of investments are recognized in
operations on the specific identification basis.

Deferred Policy Acquisition Costs

Policy acquisition costs are expenses that vary with, and are directly
related to, the production of new or renewal business, such as commissions,
premium taxes, and other costs. These costs are deferred to the extent
recoverable and are amortized over the period during which the related premiums
are earned.

Property and Equipment

Property and equipment are stated at cost less accumulated depreciation.
Expenditures for improvements are capitalized, and expenditures for maintenance
and repairs are charged to operations as incurred. Upon sale or retirement, the
cost and related accumulated depreciation and amortization are removed from the
accounts and the resulting gain or loss, if any, is reflected in operations.
Depreciation has been provided using the straight-line method over the
estimated useful lives of the related assets of three to five years.

Organizational Costs

The Company had capitalized certain organizational costs associated with
start up and formation of the Company and was amortizing those costs over five
years. During 1998, the American Institute of Certified Public Accountants
issued Statement of Position ("SOP") 98-5, Reporting on the Costs of Start-Up
Activities. SOP 98-5 requires companies to expense start-up costs as incurred;
this includes start-up costs previously capitalized and was effective for
fiscal years beginning after December 15, 1998. The Company has adopted SOP 98-
5 as of January 1, 1999. The unamortized asset was expensed and reported as the
cumulative effect of a change in accounting principle, net of income tax, in
the 1999 consolidated statement of operations.

Loss and Loss Adjustment Expenses

Loss and loss adjustment expense reserves represent the estimated ultimate
net cost of all reported and unreported losses incurred through December 31.
The Company does not discount loss and loss adjustment expense reserves. The
reserves for unpaid losses and loss adjustment expenses are estimated using
individual case-basis valuations and industry statistical analyses. Those
estimates are subject to the effects of trends in loss severity and frequency.
Although considerable variability is inherent in such estimates, management
believes that the reserves for losses and loss adjustment expenses are
adequate. The estimates are continually reviewed and adjusted as necessary as
experience develops or new information becomes known; such adjustments are
included in current income.

F-12

FLORIDA SELECT INSURANCE HOLDINGS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Income Taxes

Income taxes have been provided using the liability method. Under the
liability method, deferred tax assets and liabilities are determined based on
the differences between financial reporting and tax bases of assets and
liabilities and are measured using enacted tax rates.

Guaranty Fund and Residual Market Pool Assessments

FSIC and TSLIC are subject to assessments by several guaranty funds and
residual market pools. The activities of these funds and pools include
collecting funds from solvent insurance companies to cover losses resulting
from the insolvency or rehabilitation of other insurance companies or deficits
generated by residual market pools. There were no guaranty fund or residual
market pool assessments levied on FSIC or TSLIC during 2000, 1999, or 1998. The
Company's policy is to recognize its obligation for guaranty fund assessments
when it writes the premiums that are subject to the guaranty fund assessments
and to recognize its obligation for residual market pool assessments when the
Company has the information available to reasonably estimate its liability.

Concentrations of Credit or Financial Risk

The Company's insurance subsidiaries are currently licensed to write
policies in the states of Florida, South Carolina and Texas. Accordingly, the
Company could be adversely affected by economic downturns, natural disasters,
and other conditions that may occur from time to time in Florida, South
Carolina and Texas which may not as significantly affect more geographically
diversified competitors.

Reclassification

Certain amounts in the financial statements as of and for the period ended
December 31, 1999 and 1998 have been reclassified to conform with the
presentation of the financial statements as of and for the year ended December
31, 2000.

2.Investments

The amortized cost and the fair value of fixed maturity investments are
summarized as follows:

Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
----------- ---------- ---------- -----------

At December 31, 2000
Available-for-sale securities:
U.S. Treasury.................. $ 5,957,106 $ 23,269 $ 79,079 $ 5,901,296
State & municipal obligations.. 1,813,479 30,814 382 1,843,911
Mortgage-backed/asset backed
securities.................... 26,398,525 121,197 135,784 26,383,938
Industrial and miscellaneous
securities.................... 12,318,360 182,866 3,156 12,498,070
----------- -------- -------- -----------
Total fixed maturity investments
available-for-sale............. $46,487,470 $358,146 $218,401 $46,627,215
=========== ======== ======== ===========
Held-to-maturity securities:
U.S. Treasury.................. $ 164,793 $ -- $ 1,654 $ 163,139
State & municipal obligations.. 1,325,655 87,996 -- 1,413,651
Mortgage-backed/asset backed
securities.................... 251,680 8,715 -- 260,395
Industrial and miscellaneous
securities.................... 742,809 25,732 -- 768,541
----------- -------- -------- -----------
Total held-to-maturity
securities:.................... $ 2,484,937 $122,443 $ 1,654 $ 2,605,726
=========== ======== ======== ===========
Preferred stocks................ $ 4,145,065 $117,966 $ 12,580 $ 4,250,451
=========== ======== ======== ===========

F-13

FLORIDA SELECT INSURANCE HOLDINGS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
----------- ---------- ---------- -----------

At December 31, 1999
Available-for-sale securities:
U.S. Treasury.................. $ 8,546,309 $-- $ 447,840 $ 8,098,469
State & municipal obligations.. 5,250,949 -- 79,805 5,171,144
Mortgage-backed/asset-backed
securities.................... 15,643,092 -- 427,423 15,215,669
Industrial and miscellaneous
securities.................... 7,967,547 -- 95,328 7,872,219
----------- ---- ---------- -----------
Total fixed maturity investments
available-for-sale............. $37,407,897 $-- $1,050,396 $36,357,501
=========== ==== ========== ===========
Held-to-maturity securities:
U.S. Treasury.................. $ 167,956 $-- $ 11,487 $ 156,469
State & municipal obligations.. 302,108 -- 773 301,335
----------- ---- ---------- -----------
Total held-to-maturity
securities..................... $ 470,064 $-- $ 12,260 $ 457,804
=========== ==== ========== ===========
Preferred stocks................ $ 149,278 $-- $ 15,877 $ 133,401
=========== ==== ========== ===========

The amortized cost and estimated fair value of fixed maturity investments at
December 31, 2000, by contractual maturity, are shown in the following table.
Actual maturities may differ from contractual maturities because certain
borrowers may have the right to call or prepay obligations with or without call
or prepayment penalties.

Amortized Fair
Cost Value
----------- -----------

Available-for-sale:
Years to maturity:
One or less....................................... $ 1,499,410 $ 1,502,200
After one through five............................ 15,980,616 16,078,135
After five through ten............................ 2,608,919 2,662,942
Mortgage-backed/asset-backed securities........... 26,398,525 26,383,938
----------- -----------
Total available-for-sale securities................. $46,487,470 $46,627,215
=========== ===========
Held-to-maturity:
Years to maturity:
After one through five............................ $ 907,602 $ 931,680
After five through ten............................ 506,091 532,582
After ten through fifteen......................... 819,564 881,069
Mortgage-backed/asset-backed securities............. 251,680 260,395
----------- -----------
Total held-to-maturity securities................... $ 2,484,937 $ 2,605,726
=========== ===========

Proceeds from the sales and maturities of available-for-sale fixed maturity
investments during the years ended December 31, 2000, 1999, and 1998 were
$17,872,164, $35,422,726, and $16,225,632, respectively. Gross gains of
$13,471, $84,595, and $278,168 and gross losses of $204,192, $184,595, and
$5,423 were realized in 2000, 1999, and 1998, respectively, on those sales and
maturities.

F-14

FLORIDA SELECT INSURANCE HOLDINGS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Major categories of the Company's investment income are summarized as
follows:

December 31,
--------------------------------
2000 1999 1998
---------- ---------- ----------

Income:
Bonds.................................... $2,266,694 $1,860,906 $1,729,046
Preferred stocks......................... 166,786 -- --
Cash and cash equivalents................ 652,178 580,109 914,295
Other.................................... 1,134 6,962 --
---------- ---------- ----------
Gross investment income................... 3,086,792 2,447,977 2,643,341
Investment expenses....................... 150,697 196,328 201,118
---------- ---------- ----------
Net investment income..................... $2,936,095 $2,251,649 $2,442,223
========== ========== ==========

At December 31, 2000, FSIC and TSLIC had investments with a carrying value
$2,786,769 held on deposit with their respective Departments of Insurance to
satisfy regulatory requirements.

3.Reinsurance

Certain premiums and losses are ceded to other insurance companies under
quota share reinsurance agreements and various excess of loss reinsurance
agreements. The ceded reinsurance agreements are intended to provide the
Company's insurance subsidiaries with the ability to maintain its exposure to
loss within its capital resources. These reinsurance agreements do not relieve
FSIC or TSLIC from their primary obligation to policyholders, as they remain
liable to their policyholders to the extent that any reinsurer does not meet
its obligations for reinsurance ceded to it under reinsurance contracts.
Therefore, the Company is subject to credit risk with respect to the
obligations of its reinsurers, and any failure on the part of these reinsurers
could have a material adverse effect on the Company's business, financial
condition, and results of operations.

The Company minimizes its exposure to catastrophe through various excess of
loss agreements in addition to FSIC's mandatory participation in the Florida
Hurricane Catastrophe Fund, ("FHCF"). The first layer of excess of loss is
composed of two contracts. The first contract provides $18 million of coverage
in excess of $2.35 million (33%), and the second contract provides $14.85
million of coverage in excess of $5.5 million (67%). The annual limit (after
reinstatement) for each contract is $36 million at 33% and $29.7 million at
67%, respectively. This layer covers up to the attachment point of the FHCF,
plus the Company's 10% retention from the FHCF layer. The FHCF provides
coverage for named hurricanes up to a maximum limit of 90% of the amount of the
ultimate losses in the layer as determined by a premium formula. Additional
layers of excess catastrophe reinsurance provide coverage up to the estimated
loss from a 250 year event. Currently, such excess coverage amounts to 100% of
$95 million per occurrence. The coverage attaches after recovery from the FHCF.
The Company also maintains a 50% quota share agreement with its affiliate,
Centre Insurance Company. All excess of loss and quota share coverage is
provided by "A" rated reinsurers or better.

All excess of loss contracts inure to the benefit of the quota share treaty,
so all amounts disclosed are shown before reductions for quota share cessions.

F-15

FLORIDA SELECT INSURANCE HOLDINGS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

The Company's catastrophe reinsurance is intended to provide the following
coverage in the event of a named hurricane:

Portion of Ceded Under Total
Layer Potential Excess of Potential
Retained Recoveries Loss Losses in
Loss Layer by Company from FHCF Treaties Layer
---------- ---------- ----------- ------------ ------------

$0-$2,350,000................. $2,350,000 $ -- $ -- $ 2,350,000
$2,350,000-$20,350,000........ 2,110,500 2,691,000 13,198,500 18,000,000
$20,350,000-$86,670,000....... 3,941,000 59,688,000 2,691,000 66,320,000
$86,670,000-$111,670,000...... -- -- 25,000,000 25,000,000
$111,670,000-$161,670,000..... -- -- 50,000,000 50,000,000
$161,670,000-$171,670,000..... -- -- 10,000,000 10,000,000
$171,670,000-$181,670,000..... -- -- 10,000,000 10,000,000
---------- ----------- ------------ ------------
Total......................... $8,401,500 $62,379,000 $110,889,500 $181,670,000
========== =========== ============ ============

Direct and assumed, ceded and net insurance premiums on a written and earned
basis, for the years ended December 31, are summarized as follows:

2000 1999 1998
------------ ------------ ------------

Gross direct and assumed premiums
written............................ $ 63,490,752 $ 53,264,029 $ 62,505,747
Reinsurance ceded................... (36,625,185) (30,059,630) (35,872,547)
------------ ------------ ------------
Net premiums written................ $ 26,865,567 $ 23,204,399 $ 26,633,200
============ ============ ============
Direct and assumed premiums earned.. $ 59,994,567 $ 55,287,481 $ 61,729,916
Reinsurance ceded................... (33,646,186) (31,245,452) (35,765,014)
------------ ------------ ------------
Net premiums earned................. $ 26,348,381 $ 24,042,029 $ 25,964,902
============ ============ ============

Losses and loss adjustment expenses incurred for the years ended December
31, are summarized as follows:

2000 1999 1998
------------ ------------ ------------

Direct losses and loss adjustment
expenses........................... $ 23,262,986 $ 23,225,197 $ 27,087,856
Reinsurance ceded................... (11,895,779) (11,698,826) (13,583,501)
------------ ------------ ------------
Net losses and loss adjustment
expenses incurred.................. $ 11,367,207 $ 11,526,371 $ 13,504,355
============ ============ ============

4.Income Taxes

The Company and its subsidiaries file a consolidated federal income tax
return. The Company will collect from, or refund to, its subsidiaries the
amount of income tax or benefit which would result if the entities filed
separate returns.

F-16

FLORIDA SELECT INSURANCE HOLDINGS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

The Company's income tax expense for the years ended December 31, is
summarized as follows:

2000 1999 1998
----------- ---------- ----------

Federal:
Current................................ $ 4,718,997 $2,341,372 $3,156,811
Deferred............................... (1,102,462) 1,593,697 236,000
State:
Current................................ 844,781 421,919 482,225
Deferred............................... (180,425) 370,607 95,785
----------- ---------- ----------
Total................................... $ 4,280,891 $4,727,595 $3,970,821
=========== ========== ==========

Income taxes paid by the Company totaled $2,183,000, $2,125,000, and
$3,946,849 in 2000, 1999, and 1998, respectively.

The reconciliation of income tax expense for the years ended December 31,
2000 and 1999 attributable to continuing operations to the amount of income tax
expense that would result from applying the U.S. Federal Statutory Tax rate is
summarized as follows:

2000 1999 1998
----------- ---------- ----------

Income tax at U.S. Federal Statutory
Tax.................................... $ 3,638,523 $4,393,213 $3,577,839
Nontaxable/deductible income............ (52,098) (63,919) (3,809)
State income taxes...................... 388,466 537,193 375,707
Other................................... 306,000 (138,892) 21,084
----------- ---------- ----------
Income tax expense...................... $ 4,280,891 $4,727,595 $3,970,821
=========== ========== ==========

Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.

F-17

FLORIDA SELECT INSURANCE HOLDINGS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Significant components of the Company's deferred tax assets and liabilities
as of December 31, are summarized as follows:

2000 1999
---------- ----------

Deferred tax assets:
Unearned premium reserve adjustment..................... $1,177,427 $1,167,095
Discount on loss and loss adjustment expense reserves... 411,771 371,886
Advance premium collected............................... 205,145 244,600
Reinsurance commission.................................. 372,774 1,846,300
Allowance for doubtful accounts......................... 60,355 58,797
Employee long-term incentives........................... 354,450 --
Unrealized loss--available-for-sale investments......... -- 416,042
Organizational costs.................................... 33,056 91,977
---------- ----------
Total deferred tax assets.............................. 2,614,978 4,196,697
Deferred tax liabilities:
Deferred acquisition expense............................ 682,895 331,579
Amounts due from FRPCJUA in accordance with take-out
agreement.............................................. 744,997 3,559,639
Unrealized gain--available-for-sale investments......... 94,724 --
---------- ----------
Total deferred tax liabilities......................... 1,522,616 3,891,218
---------- ----------
Net deferred tax assets................................. $1,092,362 $ 305,479
========== ==========

The Company's management believes that no valuation allowance on the
deferred tax assets is necessary at December 31, 2000 and 1999. The Company is
currently under examination by the Internal Revenue Service for 1996 through
1999. The ultimate determination of this examination has not been reached.

5.Losses and Loss Adjustment Expenses

The following table provides a reconciliation of the beginning and ending
reserve balances for losses and loss adjustment expenses ("LAE"):

2000 1999 1998
----------- ----------- -----------

Reserve for losses and LAE, at the
beginning of year, gross of
reinsurance recoverable on unpaid
losses and LAE........................ $18,547,264 $17,259,052 $12,881,468
Less reinsurance recoverable on unpaid
losses and LAE........................ (9,293,001) (8,664,739) (6,440,734)
----------- ----------- -----------
Reserves for losses and LAE, at
beginning of year, net of
reinsurance........................... 9,254,263 8,594,313 6,440,734
Add provision for claims occurring in:
The current year, net of reinsurance.. 14,697,560 15,644,533 15,566,043
The prior years, net of reinsurance... (3,330,353) (4,118,162) (2,061,688)
----------- ----------- -----------
Total incurred claims during year,
net of reinsurance.................. 11,367,207 11,526,371 13,504,355
----------- ----------- -----------
Deduct payments for claims occurring
in:
The current year, net of reinsurance.. 8,020,332 7,908,934 8,979,002
The prior years, net of reinsurance... 2,627,714 2,957,487 2,371,774
Total claims paid during the year,
net of reinsurance.................. 10,648,046 10,866,421 11,350,776
----------- ----------- -----------
Reserves for losses and LAE, at end of
year, net of reinsurance.............. 9,973,424 9,254,263 8,594,313
Reinsurance recoverable on unpaid
losses and LAE........................ 9,977,986 9,293,001 8,664,739
----------- ----------- -----------
Reserve for losses and LAE, gross of
reinsurance recoverable on unpaid
losses and LAE........................ $19,951,410 $18,547,264 $17,259,052
=========== =========== ===========

F-18

FLORIDA SELECT INSURANCE HOLDINGS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

The Company's estimate of required reserves for unpaid losses and LAE, net
of related reinsurance recoverables for prior years were decreased during the
years ended December 31, 2000, 1999, and 1998 by $3,330,353, $4,118,162, and
$2,061,688, respectively. This change in estimate is due to the Company's
actual loss experience emerging more favorably than expected. The Company's
reserves for losses and loss adjustment expenses are estimated using individual
case-basis valuations and statistical analyses. These estimates are subject to
the effects of trends in loss severity and frequency. Due to the Company's lack
of significant historical loss experience, the Company's reserves for losses
and LAE are subject to significant variability. However, management believes
that the reserves for losses and loss adjustment expenses are adequate. These
estimates are reviewed regularly by management, and annually by an independent
consulting actuary, and are adjusted as necessary as experience develops or new
information becomes known; such adjustments are included in current operations.

6.Shareholders' Equity

Common Stock

The Common Stock Class A and Class D have voting rights equal to one vote
for each share of stock held. The Common Stock Class B and Class C are
nonvoting.

The Common Stock Class D has a dividend preference equal to 50% of any
dividends that are paid by FSIA to the Company. The amount of the dividend
preference will accrue interest at 6% from the date the dividends are paid by
FSIA to the Company, until the dividend preference is paid to the holders of
the Common Stock Class D. At December 31, 1999, FSIA declared a dividend
payment of $3,023,805 to FSIH, which was subsequently paid in January 2000.

In addition, FSIC declared dividends to FSIH in 2000, 1999, and 1998 of
$3,010,462, $2,976,543, and $0, respectively. Payments were subsequently made
in January 2001 and 2000 respectively.

Common Stock Warrants

The Company has issued a warrant to purchase 1,000 shares of the Common
Stock Class B to Centre Solutions (Bermuda) Ltd. The warrant allows the holder
of the warrant to purchase the shares for the book value of the stock on the
date of exercise. In the event that the holder exercises the warrant, the
holder is required to reduce the affiliated quota share reinsurance agreement
accordingly.

The Company has also issued a warrant to purchase 60 shares of Common Stock
Class B to the holder of the Common Stock Class D. This warrant is exercisable
upon cancellation of the Common Stock Class D for a price equal to the book
value of the Common Stock prior to cancellation of the Common Stock Class D.

Statutory Information

Policyholders' surplus and net income for FSIC as determined in accordance
with statutory accounting practices as of and for the years ended December 31,
2000, 1999, and 1998 were $18,640,356, $15,257,192, and $14,484,621 and
$1,816,066, $3,684,943, and $3,040,681, respectively.

Policyholders' surplus and net income for TSLIC (incorporated in 2000) as
determined in accordance with statutory accounting practices as of and for the
year ended December 31, 2000 were $2,611,627 and $71,732.

In order to improve the regulation of insurer solvency, the National
Association of Insurance Commissioners ("NAIC") issued a model law to implement
risk-based capital ("RBC") requirements, which is expected to be adopted by
Florida and Texas, the Company's insurance subsidiaries' states of domicile.
These

F-19

FLORIDA SELECT INSURANCE HOLDINGS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

requirements are designed to assess capital adequacy and to raise the level of
protection that statutory equity provides for policyholder obligations. The RBC
formula for property and casualty insurance companies measures the following
major areas of risk facing property and casualty insurers: (i) underwriting,
which encompasses the risk of adverse loss development and inadequate pricing;
(ii) declines in asset values arising from credit risk; and (iii) declines in
asset values arising from investment risks. Pursuant to the RBC requirements,
insurers having less statutory equity than required by the RBC calculation will
be subject to varying degrees of regulatory action, depending on the level of
capital inadequacy. At December 31, 2000, FSIC and TSLIC exceeded the minimum
risk-based capital requirements and no corrective action was required.

The NAIC revised the Accounting Practices and Procedures Manual in a process
referred to as Codification. The revised manual will be effective January 1,
2001. The domiciliary states of the Company's insurance subsidiaries have
adopted or are anticipating adopting the provisions of the revised manual. The
revised manual has changed, to some extent, prescribed statutory accounting
practices and will result in changes to the statements. Management believes
that there will not be a negative impact from these changes to the Company and
its insurance subsidiaries' statutory-basis capital and surplus as of January
1, 2001.

7.Fair Values of Financial Instruments

The following methods and assumptions were used by the Company in estimating
its fair value disclosures for financial instruments:

. Cash and cash equivalents, short-term investments: The carrying amounts
reported in the balance sheet for these instruments approximate fair
values.

. Investment securities: Fair values for debt security investments are
based on quoted market prices.

. Reinsurance recoverable: The carrying amounts of the Company's
recoverables approximate fair values.

. Premiums receivable: The carrying amounts of the Company's receivables
approximate fair values.

The Company's fair values of its financial instruments are summarized below:

December 31,
-----------------------------------------------
2000 1999
----------------------- -----------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
----------- ----------- ----------- -----------

Cash and cash equivalents..... $10,379,751 $10,379,751 $17,964,448 $17,964,448
Investments available-for-
sale......................... 46,627,215 46,627,215 36,357,501 36,357,501
Investments held-to-maturity.. 2,484,937 2,605,726 470,064 457,804
Reinsurance recoverable....... 32,615,611 32,615,611 29,522,360 29,522,360
Premiums receivable........... 3,961,825 3,961,825 3,222,580 3,222,580

8.Related Party Transactions

As discussed in Note 3, FSIC has a 50% quota share agreement with an
affiliate of the Company and had ceded premiums of approximately $24,260,000,
$20,806,000, and $23,200,000, losses of $11,367,000, $11,526,000, and
$13,500,000 and has earned ceding commissions of $7,356,000, $6,986,000, and
$8,028,000 under this agreement during 2000, 1999, and 1998, respectively.

As discussed in Note 1, CSC, an affiliate of the Company, provides policy
management services to FSIC. Policy management fee expense incurred during
2000, 1999, and 1998 was approximately $3,104,000,

F-20

FLORIDA SELECT INSURANCE HOLDINGS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

$3,775,000, and $6,018,000 respectively. Amounts due to CSC for policy
management fees at December 31, 2000 and 1999 were approximately $1,185,000 and
$120,000, respectively. An affiliate of the Company, Risk Enterprise Management
Limited, provides claims management services for the Company. The Company
incurred approximately $1,812,000, $1,813,000, and $1,500,000 in claims
management fees related to this arrangement during 2000, 1999, and 1998,
respectively.

9.FRPCJUA Take-Out Agreement

During 1996, FSIC entered into an agreement with the FRPCJUA to assume
certain policies and associated risk pursuant to a depopulation plan. Under the
terms of the agreement, FSIC receives a specific amount for each policy removed
from the FRPCJUA. The amount is to be held by an escrow agent for three years.
The Company has recognized revenue of approximately $1,880,000, $9,228,000, and
$0 in 2000, 1999, and 1998, respectively, related to the take-out agreement.
FSIC collected approximately $9,129,000 of the amounts recorded as of December
31, 2000.

Under the terms of the 50% quota share agreement with Centre Insurance
Company, an affiliate, FSIC is required to cede 50% of the revenue recognized
from the take-out agreement. The Company ceded approximately $940,000,
$4,614,000, and $0 during 2000, 1999, and 1998, respectively.

10.Stock Appreciation Rights

The Company has implemented a long-term incentive plan in the form of an
unfunded Stock Appreciation Rights ("SARs") plan for a select group of
management or highly compensated employees of FSIH and its affiliates. This
plan provides for vesting of the SARs upon the later of (i) the Participant's
fifth anniversary of commencement of employment with the Employer or (ii) the
third anniversary of the grant of the award. The plan allows that upon exercise
of an award, the employer may deliver to the Participant a specified number of
shares of Stock or a specified amount of cash, as determined in the sole
discretion of the Employer. The Company granted 12,500 SARs in 2000 and 62,500
in 1999. Total compensation expense related to the SARs was approximately
$348,000, $594,000, and $316,000 in 2000, 1999, and 1998, respectively.

11.Commitments and Contingencies

The Company, in the normal course of business, is involved in various legal
actions arising principally from the settlement of claims made under insurance
policies and contracts. Those actions are considered by the Company in
estimating the loss and LAE reserves. The Company's management believes that
the resolution of those actions will not have a material effect on the
Company's financial position or results of operations.

F-21

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You may rely only on the information contained in this prospectus. We have not
authorized anyone to provide information different from that contained in this
prospectus. Neither the delivery of this prospectus nor the sale of common
stock means that information contained in this prospectus is correct after the
date of this prospectus. This prospectus is not an offer to sell or
solicitation of an offer to buy these shares of common stock in any
circumstances under which the offer or solicitation is unlawful.

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

TABLE OF CONTENTS

Prospectus Summary.......................................................... 1
Risk Factors................................................................ 7
Use of Proceeds............................................................. 12
Price Range of Common Stock and Dividends................................... 13
Capitalization.............................................................. 14
Selected Financial Data..................................................... 15
Business.................................................................... 17
Management.................................................................. 37
Security Ownership of Management and Principal Stockholders................. 39
Underwriting................................................................ 41
Legal Matters............................................................... 42
Experts..................................................................... 42
Where You Can Find More Information......................................... 43
Index to Financial Statements............................................... F-1

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6,000,000 Shares

[Vesta Logo]

VESTA INSURANCE GROUP, INC.

Common Stock

----------
PROSPECTUS
----------

Cochran, Caronia Securities LLC

, 2001

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PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

Item 14. Other Expenses of Issuance and Distribution

The estimated expenses of issuance and distribution, other than underwriting
discounts and commissions, to be borne by Vesta are:

Securities and Exchange Commission registration fee................... $ 13,145
NASD filing fee....................................................... 6,000
New York Stock Exchange listing fee................................... 5,000
Printing and engraving costs.......................................... 100,000
Fees and expenses of counsel.......................................... 275,000
Fees of accountants................................................... 75,000
Blue sky filing fees and expenses..................................... 3,000
Transfer Agent and Registrar fees and expenses........................ 5,000
Miscellaneous expenses................................................ 5,000
--------
TOTAL................................................................. $412,145
========

Item 15. Indemnification of Directors and Officers

Vesta is a Delaware corporation. Section 145 of the Delaware General
Corporation Law 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.

Vesta's Certificate of Incorporation provides that no officer or director of
Vesta will be personally liable to Vesta or its stockholders 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
Vesta or stockholders, (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 General Corporation 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

Vesta's Bylaws provide that each director and officer of Vesta, 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. Vesta's Bylaws also provide that Vesta may
maintain insurance, at its expense, to protect itself and any director,
officer, employee, or agent of Vesta or of another corporation, partnership,
joint venture, trust, or other enterprise against any expense, liability, or
loss.

While Vesta'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 of Incorporation 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

Exhibit
Number Description
------- -----------

*1 Form of Underwriting Agreement

2 Stock Purchase Agreement by and among Vesta Insurance Group, Inc.,
Vesta Fire Insurance Corporation, Centre Solutions (Bermuda)
Limited, Mynd Corporation, Orienta Point Group, L.L.C., Kamehameha
Schools Bernice Pauahi Bishop Estate, and Florida Select Insurance
Holdings Inc., dated April 18, 2001

4.1 Restated Certificate of Incorporation of the Company, dated
September 1, 1993, as amended as of June 16, 1998 (incorporated by
reference to the Company's Form 10-Q for the quarter ended June
30, 1998 (File No. 1-12338))

4.2 By-Laws of the Company (Amended and Restated as of October 1,
1993) (incorporated by reference to Amendment No. 1 to the
Company's Registration Statement on Form S-1 (Registration No. 33-
68114) filed on October 18, 1993 (File No. 1-12338))

4.3 Rights Agreement by and between the Company and First Chicago
Trust Company, as Rights Agent, dated as of June 15, 2000, as
amended as of August 10, 2000 (incorporated by reference to the
Company's Registration Statement on Form 8-A filed June 21, 2000,
as amended on July 13, 2000 and September 1, 2000 (File No. 1-
12338))

5 Opinion of Balch & Bingham LLP, regarding certain matters of
Delaware Law

23.1 Consent of PricewaterhouseCoopers LLP

23.2 Consent of Grant Thornton LLP

23.3 Consent of Ernst & Young LLP

23.4 Consent of Balch & Bingham LLP (contained in Exhibit 5)

24 Power of Attorney for Officers and Directors (contained in the
signature page)

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

Item 17. Undertakings

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

II-2

(b) Vesta hereby undertakes that:

(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed
as part of this registration statement in reliance upon Rule 430A
and contained in a form of prospectus filed by Vesta 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.

(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial bona
fide offering thereof.

(c) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or
otherwise, the registrant has been advised that in the opinion of the
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, the registrant will,
unless in the opinion of its counsel 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 and will be governed by the
final adjudication of such issue.

II-3

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing this registration statement 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 May 7, 2001.

VESTA INSURANCE GROUP, INC.

By: /s/ Norman W. Gayle, III
----------------------------------
Norman W. Gayle, III, President

KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned directors of
Vesta Insurance Group, Inc., a Delaware corporation, by his execution hereof or
upon an identical counterpart hereof, does hereby constitute and appoint Norman
W. Gayle, III and Donald W. Thornton as his true and lawful attorney-in-fact
and agent, for him and in his name, place and stead, to execute and sign any
and all pre-effective and post-effective amendments to this Registration
Statement, as well as any related registration statement (or amendment thereto)
filed pursuant to Rule 462(b) promulgated under the Securities Act of 1933, and
to file same, with all exhibits and schedules thereto and all other documents
in connection therewith, with the Securities and Exchange Commission and with
such state securities authorities as may be appropriate, granting unto said
attorney-in-fact and agent, and each of them, 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 of the undersigned
might or could do in person, hereby ratifying and confirming all the acts of
said attorneys-in-fact and agent or any of them which they may lawfully do in
the premises or cause to be done by virtue hereof.

In accordance with the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on May 7, 2001.

Signature Title Date
--------- ----- ----

/s/ Norman W. Gayle, III President (Principal May 7, 2001
______________________________________ Executive Officer),
Norman W. Gayle, III Director

/s/ James E. Tait Chairman of the Board of May 7, 2001
______________________________________ Directors
James E. Tait

/s/ William P. Cronin Chief Financial Officer May 7, 2001
______________________________________ (Principal Financial
William P. Cronin Officer)

/s/ Hopson B. Nance Controller (Principal May 7, 2001
______________________________________ Accounting Officer)
Hopson B. Nance

/s/ Robert B.D. Batlivala Director May 7, 2001
______________________________________
Robert B.D. Batlivala

/s/ Walter M. Beale, Jr. Director May 7, 2001
______________________________________
Walter M. Beale, Jr.

/s/ Ehney A. Camp, III Director May 7, 2001
______________________________________
Ehney A. Camp, III

II-4

/s/ Alan S. Farrier Director May 7, 2001
______________________________________
Alan S. Farrier

/s/ Stephen R. Windom Director May 7, 2001
______________________________________
Stephen R. Windom

______________________________________
* By Donald W. Thornton,
acting pursuant to power of attorney

II-5

INDEX TO EXHIBITS

Exhibit
Number Description of Exhibit
------- ----------------------

*1 Form of Underwriting Agreement

5 Opinion of Balch & Bingham LLP, regarding certain matters of
Delaware Law

23.1 Consent of PricewaterhouseCoopers LLP

23.2 Consent of Grant Thornton LLP

23.3 Consent of Ernst & Young LLP

23.4 Consent of Balch & Bingham LLP (contained in Exhibit 5)

24 Power of Attorney for Officers and Directors (contained in the
signature page)

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