A.M. Best Affirms FSR for Vesta Insurance Group

July 14, 2004

A.M. Best Co. has affirmed the financial strength rating of B (Fair) of Alabama-based Vesta Insurance Group (Vesta) and its property/casualty affiliates. Concurrently, A.M. Best has upgraded the debt ratings to “b” from “b-” of the senior debentures and to “ccc+” from “ccc” of the deferrable capital securities of Vesta Insurance Group Inc. (both of Birmingham, Ala.). All ratings have been removed from under review and assigned a stable outlook.

The ratings reflect Vesta’s weak five-year operating returns and the significant deterioration in capital, which was driven by charges associated with an unfavorable arbitration decision, along with the write down of a deferred tax asset. Accordingly, statutory surplus for the property/casualty operating companies declined dramatically in first quarter 2004.

However, Vesta’s capitalization has subsequently improved as a result of the recent sale of its non-standard auto unit through the initial public offering (IPO) of Affirmative Insurance Holdings Inc. Vesta will receive approximately $48.8 million in proceeds and will beneficially own approximately 48.1% of Affirmative after the offering and before the exercise of the underwriters’ over-allotment option.

In addition to the proceeds received from the IPO, a significant amount of premium has been removed from Vesta’s book. This has resulted in an improved leverage and risk adjusted capital position.

The ratings also recognize Vesta’s geographic risk dispersion as well as management’s efforts toward improving the group’s overall financial position. Actions taken by management include debt restructuring, reduced overhead costs and the elimination of non-core business units with an increased focus on offering standard personal lines products. While preliminary financial performance indications are generally favorable, the long-term sustainability of these results is uncertain.

The following debt ratings have been upgraded with a stable outlook: Vesta Insurance Group, Inc– — to “b” from “b-” on $100 million 8.75% of senior debentures, due 2025 Vesta Capital Trust I– — to “ccc+” from “ccc” on $100 million 8.525% of deferrable capital securities, due 2027The financial strength rating of B (Fair) has been affirmed with astable outlook for the Vesta Insurance Group and its followingsubsidiaries:– Vesta Fire Insurance Corporation– Florida Select Insurance Company– Hawaiian Insurance & Guaranty Company, Limited– Shelby Casualty Insurance Company– Shelby Insurance Company– Texas Select Lloyds Insurance Company– Vesta Insurance Corporation.

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