A Southern insurer says it has discovered material weaknesses in the effectiveness of its internal controls.[@@]
The multiline insurer, Vesta Insurance Group Inc., Birmingham, Ala., also says it will be trying to increase its financial flexibility by taking a number of steps, including selling a life insurance unit, American Founders Life, to Sagicor Financial Group, St. Michael, Barbados, for $58 million in cash.
Vesta postponed the release of its financial reports for the third quarter of 2004 after disclosing that it had discovered an accounting error. The company estimated in November 2004 that the error would reduce shareholders’ equity by $1.8 million. Vesta said it believed the error had occurred before 2003.
“In the process of pinpointing the period and nature of the previously disclosed error, the company discovered additional errors,” Vesta now says in a statement.
The company now believes that correcting all accounting errors discovered to date will cut shareholders’ equity by $11.6 million, Vesta says.
One accounting error involves the “recording of realized gains on assets attributable to a life reinsurance agreement,” Vesta says.
Vesta says it believes the company has problems with internal controls that are important enough to be violations of Section 404 of the Sarbanes-Oxley Act of 2002.
“The presence of these material weaknesses will cause management to conclude that internal controls are ineffective and the external auditors to issue an adverse opinion on the effectiveness of internal controls,” Vesta says.
Vesta intends to restate some results reported before the third quarter of 2004, then file its financial reports for the third quarter and all of 2004, the company says.
Vesta reported $120 million in net losses on $618 million in revenue for 2003, the latest year for which it has filed a Form 10-K annual report with the U.S. Securities and Exchange Commission.
Reviewing and filing financial statements “is a complex and time-consuming process, and we are committed to completing it as soon as possible,” Vesta President Norman Gayle III says in a statement about Vesta’s accounting problems.
Vesta notes in the discussion of its accounting problems that it is taking a number of steps to improve its financial flexibility.
The company has agreed to sell its American Founders Life insurance operations to Sagicor Financial Corp., St. Michael, Barbados, for about $58 million in cash.
The company also has raised $28 million by selling shares of stock issued by Affirmative Insurance Holdings Inc., Addison, Texas, an affiliate that sells auto insurance to drivers with bad records, back to the affiliate. Vesta now owns 35% of Affirmative’s stock, Vesta says. Vesta previously owned about 43% of the company’s stock, according to Vesta’s first-quarter financial report.
In the future, Vesta will focus on selling homeowners’ insurance, Gayle says.
Additional information was provided by NU Online News Service staff reports.