Best said it also assigned an issuer credit rating of "b" to Vesta Insurance Group, placing it under review with negative implications. At the same time, various debt ratings were also put under review--the senior debt ratings of "b" on $100 million 8.75 percent senior unsecured debentures, due 2025, and "triple-c-plus" on $100 million 8.525 percent deferrable capital securities, due 2027.

The rating actions, Best said, reflect Vesta's significant deterioration in capital and its ongoing uncertainty regarding management's capital enhancement initiatives.

Vesta's reduction in capital was driven primarily by a $60.6 million loss stemming from the four Florida hurricanes in August and September and a recent jury verdict received on a previously disclosed litigation case, Muhl v. Vesta.

On Nov. 9 a jury in New York Supreme Court Manhattan, a county level court, ruled against the company in a case involving a reinsurance claims dispute with Midland Insurance Company, which is in liquidation. (Editor's Note: This decision does not involve Midland Company, an active, unrelated Cincinnati-based insurer.)

Vesta has estimated that the verdict could cost it between $10 million to $15 million and will result in a loss from discontinued operations in the third quarter. This means Vesta's risk-adjusted capitalization has fallen below its current rating level, Best said.

The rating firm also noted that Vesta recently announced that it has terminated the agreement to sell its life insurance operations to an unaffiliated investor group.

Vesta terminated the agreement Nov. 5, following the buyers' failure to close after the transaction received regulatory approval on Oct. 11.

As a consequence, Best said the financial strength rating of "B" (fair) of American Founders Life Insurance Company, Texas, remains under review with negative implications. Vesta is currently evaluating its alternatives related to American Founders Life, including retaining and growing the business or pursuing a divestiture, Best said.

Best said the Vesta ratings will remain under review pending A.M. Best's meeting with management as well as completion of Vesta's capital enhancement initiatives.

While the holding company has access to additional funds for the insurance operations, execution risk remains. In the absence of improved risk-adjusted capitalization, the ratings will likely be downgraded, Best said.