`UNITED STATES SECURITIES AND EXCHANGE COMMISSION

                                                      Washington, D.C. 20549

                                                               FORM 10-Q

(Mark One)

|X|                                    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                                                    SECURITIES EXCHANGE ACT OF 1934

                                           For the quarterly period ended September 30, 2000

                                                                  OR

|_|                                    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                                                    SECURITIES EXCHANGE ACT OF 1934

                                                  For the transition period from
                                                                  to
                                                    Commission file number 1-12338

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

                            Delaware                                                         63-1097283
                 (State of other jurisdiction of                                          (I.R.S. Employer
                 incorporation or organization)                                          Identification No.)

                      3760 River Run Drive                                                      35243
                       Birmingham, Alabama                                                   (Zip Code)
            (Address of principal executive offices)

                                                            (205) 970-7000
                                         (Registrant's telephone number, including area code)

                                                            Not Applicable
                          (Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant  (1) has filed all reports  required to be filed by Section 13 or 15(d) of the Securities
Exchange  Act of 1934  during the  preceding  12 months (or for such  shorter  period  that the  registrant  was  required to file such
reports), and (2) has been subject to such filing requirements for the past 90 days.  |X|Yes |_| No

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

                                  The number of shares outstanding of the registrant's common stock,
                                                $.01 par value, as of November 13, 2000
                                                              18,825,832`

---

# VESTA INSURANCE GROUP, INC.

# INDEX

`PART I       FINANCIAL INFORMATION                                                                                 Page
       -------      ---------------------                                                                                 ----
       Item 1.      Financial Statements:
                    Consolidated Balance Sheets at September 30, 2000 and
                    December 31, 1999...................................................................................    1
                    Consolidated Statements of Income and Comprehensive Income for the
                    Three Months and Nine months ended September 30, 2000 and 1999......................................    2
                    Consolidated Statements of Cash Flows for the
                    Nine months ended September 30, 2000 and 1999.......................................................    3
                    Notes to Consolidated Financial Statements..........................................................    4
       Item 2.      Management's Discussion and Analysis of
                    Financial Condition and Results of Operations.......................................................    10

       PART II      OTHER INFORMATION
       --------     -----------------
       Item 1.      Legal Proceedings...................................................................................    15
       Item 2.      Changes in Securities...............................................................................    17
       Item 3.      Defaults Upon Senior Securities.....................................................................    17
       Item 4.      Submission of Matters to a Vote of Security Holders.................................................    18
       Item 5.      Other Information...................................................................................    18
       Item 6.      Exhibits and Reports on Form 8-K....................................................................    19`

# PART I

# Item 1. Financial Statements

# VESTA INSURANCE GROUP, INC.

# CONSOLIDATED BALANCE SHEETS

# (Amounts in thousands except share and per share
data)

`September 30,             December 31,
                                                                                                 2000                      1999
                                                                                             (Unaudited)
Assets:
    Investments
          Fixed maturities available for sale-at fair value (cost: 2000-$810,850 ;
          1999-$348,760).......................................................                     $ 812,857            $ 339,429
          Equity securities-at fair value: (cost: 2000-$8,158; 199-$2,092)                             10,694                1,865
          Mortgage and collateral loans........................................                        55,979                   --
          Policy loans.........................................................                        61,813                   --
          Short-term investments...............................................                        41,491              125,026
          Other invested assets................................................                        15,644                   --
          Total investments....................................................                       998,478              466,320
    Cash.......................................................................                         7,093               17,677
    Accrued investment income..................................................                        13,464                5,460
    Premiums in course of collection...........................................                        29,068               41,206
    Reinsurance balances receivable............................................                       342,347              193,345
    Reinsurance recoverable on paid losses.....................................                        65,841               77,925
    Value of business acquired.................................................                        33,380                   --
    Deferred policy acquisition costs..........................................                        32,320               40,357
    Deferred income taxes......................................................                        13,758               13,489
    Other assets...............................................................                        79,145               60,030
                                                                                                       ------               ------
          Total assets.........................................................                    $1,614,894             $915,809
                                                                                                   ==========             ========
Liabilities:
    Future policy benefits.....................................................                       671,315                   --
    Losses and loss adjustment expenses........................................                       272,942              354,709
    Unearned premiums..........................................................                       114,638              133,029
    Federal home loan bank notes...............................................                       148,732                   --
    Other liabilities..........................................................                        27,207               39,905
    Short term debt............................................................                         5,000                5,000
    Long term debt.............................................................                        86,007              141,876
    Minority interest..........................................................                        34,690                   --
                                                                                                       ------                   --
          Total liabilities....................................................                     1,360,531              674,519
Commitments and contingencies: See Note C
Deferrable Capital Securities..................................................                        41,225               41,225
Stockholders' equity:
    Preferred stock, $.01 par value, 5,000,000 shares authorized, issued: 2,950,000........                30                   30
    Series B Junior participating preferred stock $.01 par value, 300,000 shares authorized,
          issued: none.........................................................
   Common stock, $.01 par value, 100,000,000 shares authorized, issued: 2000 -18,964,322;
   1999-18,964,322................................................                                         190                  190
    Additional paid-in capital..................................................                       170,368              172,272
    Accumulated other comprehensive income, net of applicable tax benefit of $1,014 and
          $3,346 in 2000 and 1999, respectively................................                         (1,884)              (6,213)
    Retained earnings..........................................................                          52,510               41,862
    Treasury stock (138,490 shares at cost at September 30, 2000 and December 31, 1999)...              (6,274)              (6,274)
    Receivable from issuance of restricted stock................................                        (1,802)              (1,802)
                                                                                                        -------              -------
                            Total stockholders' equity                                                  213,138              200,065
                                                                                                        =======              =======
                            Total liabilities and stockholders' equity                               $1,614,894            $ 915,809
                                                                                                     ==========            =========`

# VESTA INSURANCE GROUP, INC.

# CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

# (Amounts in thousands except per share data)

# STATEMENTS OF INCOME

`September 30,               September 30,
                                                                                --------------              -------------
                                                                               2000         1999           2000        1999
                                                                               -----        -----          -----       ----

                                                                                  (unaudited)                 (unaudited)
Revenues:
   Net premiums written..............................................          $60,222      $72,425        $178,110      $197,077
   Decrease in unearned premiums.....................................            2,062       15,357          13,570        80,054
                                                                                 -----       ------          ------        ------
   Net premiums earned...............................................           62,284       87,782         191,680       277,131
   Net investment income.............................................           16,917        6,338          29,302        19,061
   Policy fees.......................................................            1,174           --           1,174            --
   Other, including realized gains and losses........................             (826)       8,033             825        32,239
                                                                                  ----        -----             ---        ------
        Total revenues...............................................           79,549      102,153         222,981       328,431
Expenses:
        Policyholder benefits........................................            4,302                        4,302
      Loss and loss adjustment expenses incurred.....................           35,015       52,887         115,724       172,027
      Policy acquisition expenses....................................           14,860       23,713          41,970        74,949
      Operating expenses.............................................           12,639        9,151          32,095        32,490
      Interest on debt...............................................            4,188        2,164          10,354         9,267
      Goodwill and other intangible amortization.....................              351          270           1,105           810
        Total expenses...............................................           71,355       88,185         205,550       289,543
Income from continuing operations before income taxes, minority
     interest and deferrable capital securities......................            8,194       13,968          17,431        38,888
Income tax expense...................................................            2,671        4,589           5,729        12,286
Deferrable capital securities interest, net of income tax............              571        1,402           1,713         4,126
Minority interests insubsidiary, net of income taxes.................              858           --            858             --

Income from continuing operations....................................            4,094        7,977           9,131        22,476
Loss from discontinued operations, net of tax........................             (98)       (2,947)         (642)       (4,150)
Gain on debt extinguishments, net of tax.............................              --           --           5,250           -- 
Net income...........................................................            3,996         5,030        13,739         18,326
Preferred stock dividends............................................            1,272           --          2,398            --
Income available to common shareholders..............................           $2,724       $5,030        $ 11,341       $18,326
                                                                                ======       ======        ========       =======
Basic income from continuing operations per common share.............           $  .23       $  .43          $  .50        $ 1.20
                                                                                ======       ======          ======        ======
Basic income available to common shareholders per common share.......           $  .15       $  .27          $  .62        $  .98
                                                                                ======       ======          ======        ======
Diluted income from continuing operations per common share...........           $  .17       $  .43          $  .37        $ 1.20
                                                                                ======       ======          ======        ======
Diluted income available to common shareholders per common share.....           $  .14       $  .27          $  .53        $  .98
                                                                                ======       ======          ======        ======
Dividends declared per common share..................................           $.0125       $  --           $.0375        $   --
                                                                                ======       ======          ======        ======`

`STATEMENTS OF COMPREHENSIVE INCOME
Net income .......................................................           $ 3,996        $5, 030        $ 13,739     $ 18,326
Other comprehensive income, net of tax:
         Unrealized   holding  gains   (losses)  on   available-for-sale
securities, net of applicable tax expense (benefit) of $1,280,$(161),
$2,331 and $(3,135), respectively.................................             2,400         (299)           4,671      (6,384)
         Less realized losses (gains) on available-for-sale securities,
net of applicable tax (benefit) expense of $(12), $618, $(184)
and $2,890,respectively.....................................................    (22)        1,148           (342)       5,330
                                                                               2,378       (1,447)          4,329      (11,714)
Comprehensive income .............................................            $6,374       $ 3,583        $ 18,068     $  6,612
                                                                              ======       =======        ========     ========

                                      See accompanying Notes to Consolidated Financial Statements`

# VESTA INSURANCE GROUP, INC.

# CONSOLIDATED STATEMENTS OF CASH FLOWS

# (Amounts in thousands)

`Nine months ended
                                                                                                                September 30,
                                                                                                                -------------
                                                                                                              2000        1999
                                                                                                              -----       ----

                                                                                                                 (Unaudited)
Operating Activities:
   Net income ..........................................................................................       $13,739     $ 18,326
   Adjustments to reconcile net income to cash from operating activities:
     Change in:
        Loss and LAE reserves...........................................................................      (82,382)     (118,464)
        Unearned premium reserve........................................................................      (18,392)     (140,660)
        Premiums in course of collection................................................................        12,138        77,425
        Reinsurance balances receivable.................................................................        27,242        39,171
        Reinsurance recoverable on paid losses..........................................................        12,084        48,869
        Other assets and liabilities....................................................................      (36,808)      (13,762)
     Policy acquisition costs deferred..................................................................      (19,073)      (48,063)
     Policy acquisition costs amortized.................................................................        27,110        85,691
     Amortization and depreciation......................................................................         4,496         4,811
     Investment (gains) losses..........................................................................         2,321      (12,470)
     Extraordinary gain.................................................................................       (5,250)        --
     Net cash used in operating activities..............................................................      (62,775)      (59,126)
Investing Activities:
    Investments sold or matured:
       Fixed maturities available for sale-matured, called or sold......................................        117,802      190,064
       Equity securities................................................................................            491       21,351
    Investments acquired:
        Fixed maturities available for sale.............................................................       (91,037)    (118,385)
         Equity securities..............................................................................        (2,797)      (1,072)
    Net cash paid for acquisition.......................................................................       (13,561)
    Net change in other long term investments...........................................................          5,028
    Net (increase)  decrease in short-term investments..................................................         92,462     (52,395)
    Disposition of Vesta County Mutual..................................................................             --       11,200
    Additions to property, plant and equipment..........................................................        (3,698)      (2,059)
    Dispositions of property, plant and equipment.......................................................            --          673
     Net cash provided from  investing activities.......................................................        104,690       49,377
Financing Activities:
    Repayment of long and short term debt...............................................................       (43,911)     (49,965)
     Issuance of preferred stock........................................................................                      25,075
     Net deposits and withdrawals from insurance liabilities                                                   (4,970)
   Dividends paid.......................................................................................       (1,256)        (698)
    Purchase of treasury stock..........................................................................      (33,285)
    Issuance of treasury stock..........................................................................        30,923
   Capital contributions from exercising options........................................................           --        (559)
     Net cash used in financing activities..............................................................      (52,499)     (26,147)
Decrease in cash........................................................................................      (10,584)     (35,896)
Cash at beginning of year...............................................................................        17,677       47,311
Cash at end of period...................................................................................      $  7,093    $ 11, 415
                                                                                                              ========    ---------`

# See accompanying Notes to Consolidated Financial Statements

# VESTA INSURANCE GROUP, INC.

# NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

# ( amounts in thousands except per share amounts)

## Note- A Significant Accounting Policies

Basis of
Presentation:The accompanying unaudited interim financial statements have
been prepared in conformity with generally accepted accounting principles and,
in the opinion of management, reflect all adjustments (consisting of normal
recurring accruals) necessary for a fair presentation of results for such
periods. The results of operations and cash flows for any interim period are not
necessarily indicative of results for the full year. These financial statements
should be read in conjunction with the financial statements and related notes
which have been issued by the Company and filed with the Securities and Exchange
Commission.

Certain amounts
in the financial statements presented have been reclassified from amounts
previously reported in order to be comparable between years. These
reclassifications have no effect on previously reported stockholders
equity or net income during the period involved.

New Accounting  Standards.  In September 1998, the Financial  Accounting  Standards  Board ("FASB") issued  Statement of Financial
Accounting  Standards  ("SFAS") No. 133,  "Accounting  for Derivative  Instruments and Hedging  Activities."  SFAS No. 133 requires all
derivatives  to be recorded on the balance  sheet at fair value.  In  September  1999,  the FASB issued SFAS No. 137,  "Accounting  for
Derivative  Instruments  and Hedging  Activities--Deferral  of the Effective Date of FASB Statement No. 133. This statement  defers the
effective  date of SFAS No. 133. As a result,  SFAS No. 133 will not be effective for the Company,  until the year 2001.  The impact of
the reporting  requirements  of SFAS No. 133 on the Company will depend on the nature and amount of derivative  instruments the Company
might have at date of implementation. The Company does not currently believe the impact will be material.

In December
1999, the staff of the Securities and Exchange Commission (SEC)
issued Staff Accounting Bulletin (SAB) No. 101, Revenue
Recognition in Financial Statements. SAB No. 101 summarizes the SEC
staffs views in applying generally accepted accounting principles to the
recognition of revenues. The Company has evaluated the impact of the reporting
requirements of SAB No. 101 and has determined that there will be no material
impact on its consolidated results of operations, financial position or cash
flows.

Income per
share. Basic EPS is computed by dividing income available to common
shareholders by the weighted average common shares outstanding for the period.
Diluted EPS is calculated by adding to shares outstanding the additional net
effect of potentially dilutive securities or contracts which could be exercised
or converted into common shares except when the additional shares would produce
anti-dilutive results.

Reconciliation
of income available to common shareholders and average shares outstanding for
the nine months ending September 30, 2000 and 1999 and the three months ending
September 30, 2000 and 1999 are as follows:

`Nine months ended September 30
                                                                        2000          1999
                                                                        ----          ----
Income available to common shareholders                              $11,341      $ 18,326
Preferred stock dividends on convertible preferred stock               1,689           --
Adjusted income available to common shareholders                     $13,030      $ 18,326
                                                                     =======      ========

Average shares outstanding-basic                                      18,231        18,682
Stock options and restricted stock                                       233            22
Convertible preferred stock                                            5,900            --
Average shares outstanding-diluted                                    24,364        18,704`

`Three months ended September 30
                                                                             2000        1999
                                                                             ----        ----
Income available to common shareholders                                    $2,724      $5,030
Preferred stock dividends on convertible preferred stock                      563          --
Adjusted  income available to common shareholders                          $3,287      $5,030
                                                                           ======      ======


Average shares outstanding-basic                                           17,918      18,675
Stock options and restricted stock                                            232          65
Convertible preferred stock                                                 5,900          --
Average shares outstanding-diluted                                         24,050      18,740
                                                                           ======      ======`

`Earnings per share for discontinued  operations and extraordinary  gains for the three and nine-month  periods ended September 30,
2000 and 1999 are as follows:
                                                                           2000                        1999
                                                                   3 month     9 month         3 month      9 month
                    Basic Earnings per share:
                        Discontinued Operations            $ (.01)            $ (.04)            $ (.16)             $ (.22)
                        Extraordinary Gain                     --             $   .29                --                  --
                    Diluted Earnings per share:
                        Discontinued Operations                --             $ (.03)            $ (.16)             $ (.22)
                        Extraordinary Gain                     --             $   .22                --                  --`

Change in
estimate-During the nine month period ended September 30, 2000, the Company
began a new program to enhance the timeliness and amount of collections of
salvage and subrogation. An evaluation of amounts available for collection, when
considered with other factors, resulted in a reduction to calculated reserves of
approximately $9.5 million pre-tax. This was recorded in the quarter ending June
30, 2000.

## Note B- Early extinguishments of long term debt

The Company
recorded extraordinary gains, net of tax and related debt issue costs, of $5.3
million for the nine-month period ended September 30, 2000, as a result of the
early redemption of long term debt. For the nine months ended September 30,
2000, the Company has redeemed $44.1 million of its 12.5% Senior Notes and
approximately $13.1 million of its 8.75% Senior Debentures. The redemptions were
funded with internally generated cash. The warrants attached to the 12.5% Senior
Notes have been cancelled.

## Note C-Commitments and Contingencies

## Securities Litigation

Subsequent to the filing of its quarterly report on Form 10-Q for the period ended March 31, 1998 with the Securities and
Exchange Commission, the Company became aware of certain accounting irregularities consisting of inappropriate reductions of reserves
and overstatements of premium income in the Company's reinsurance business that had been recorded in the fourth quarter of 1997 and
the first quarter of 1998. The Company promptly commenced an internal investigation to determine the exact scope and amount of such
reductions and overstatements. This investigation concluded that inappropriate amounts had, in fact, been recorded and the Company
determined it should restate its previously issued 1997 financial statements and first quarter 1998 Form 10-Q. Additionally, during
its internal investigation the Company re-evaluated the accounting methodology being utilized to recognize earned premium income in
its reinsurance business. The Company 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.  The Company
determined that reinsurance premiums should be recognized as earned over the contract period and corrected the error in its
accounting methodology by restating previously issued financial statements. The Company issued press releases, which were filed with
the Securities and Exchange Commission, on September 1, 1998 and September 29, 1998 announcing its intention to restate its
historical financial statements.

The Company restated its previously issued financial statements for 1995, 1996 and 1997 and its 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 $75.2 million through March 31, 1998.

Commencing in September 1998, Vesta and several of its current and former officers and directors were named in several
purported class action lawsuits in the United States District Court for the Northern District of Alabama and in one purported class
action lawsuit in the Circuit Court of Jefferson County, Alabama. Several of Vesta's 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.

The class action lawsuit filed in the Circuit Court of Jefferson County,Alabama has been dismissed and the derivative case has
been placed on the administrative docket. The class actions filed in the United States District Court for the Northern District of
Alabama have been consolidated into a single action in that district. The class representatives in that action have filed (a) a
consolidated amended complaint alleging that the defendants violated the federal securities laws and (b) a motion for class
certification, which was granted in 1999. The consolidated amended complaint also added as defendants
Torchmark Corporation and the Company's former auditors, KPMG Peat Marwick, LLP. The consolidated amended complaint alleges various
violations of the federal securities law and seeks unspecified but potentially significant damages.

The Company has notified its directors and officers liability insurance companies of these lawsuits and the consolidated
amended complaint. The litigation is still in the preliminary stages and there has been no discovery conducted in the securities
case. The Company intends to vigorously defend this litigation and intends to explore all available rights and remedies it may have
under the circumstances. In related litigation, in September, 1998, Cincinnati Insurance Company ("Cincinnati"), one of the Company's
directors and officers liability insurance carriers, filed a lawsuit in the United States District Court for the Northern District of
Alabama seeking to avoid coverage under its directors and officers liability and other policies. The Company filed a motion to
dismiss Cincinnati's complaint on jurisdictional grounds in federal court (which was granted), and filed a lawsuit against Cincinnati
in the Circuit Court of Jefferson County, Alabama seeking damages arising out of Cincinnati's actions. Cincinnati has filed an answer
and counterclaim in that case again seeking to avoid coverage.

Indemnification Agreements and
Liability Insurance

Pursuant to Delaware law and by-laws, the Company is obligated to indemnify its current and former officers and directors for
certain liabilities arising from their employment with or service to the Company. The Company believes that these indemnification
obligations extend to its current and former officers' and directors' costs of defense and other liabilities which may arise out of
the securities litigation described above.

The Company has purchased directors' and officers' liability insurance ("D and O insurance") for the purposes of covering among
other things the costs incurred in connection with these indemnification obligations. For the period in which most of the claims
against the Company and certain of its directors and officers were asserted, the Company had in place a primary D and O insurance policy
providing $25 million in coverage and an excess D and O insurance policy covering for an additional $25 million in coverage. The issuer
of the primary D and O insurance policy, Cincinnati, has attempted to avoid coverage as discussed above, and the Company is vigorously
resisting its efforts to do so.

Subsequent to the initiation of the class actions described above, the Company secured additional excess D and O insurance
providing coverage for losses in excess of $50 million up to $110 million, or additional excess coverage of $60 million for the class
actions. The Company  paid for this additional excess policy in full in 1998.

These matters are in their early stages and their ultimate outcome cannot be determined. Accordingly, the Company has not
currently recorded any reserves relating to any of the above-referenced actions.

## Other Litigation and Arbitration

The Company, 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 the Company and its subsidiaries, management does not consider liability from any threatened or pending
litigation regarding routine matters to be material.

As discussed above, the Company corrected its accounting for assumed reinsurance business through restatement of its previously
issued financial statements. Similar corrections were made on a statutory accounting basis through recording cumulative adjustments
in Vesta Fire's 1997 statutory financial statements. The impact of this correction has been reflected in amounts ceded under the
Company's 20 percent whole account quota share treaty which was terminated on September 30, 1998 on a run-off basis. The Company
believes such treatment is appropriate under the terms of this treaty and has calculated
the quarterly reinsurance billings presented to the three treaty participants accordingly. The aggregate amount included herein as
recoverable from such reinsurers totaled $54.4 million at September 30, 2000 exclusive of approximately $48.5 million  that the
company collected from such reinsurers via the conversion of collateral on hand.

NRMA, one of the participants in the 20 percent whole account quota share treaty,  filed a lawsuit in the United States
District Court for the Northern District of Alabama contesting the Company's claim and the validity of the treaty, and seeking return
of $34.5 million collected by the conversion of collateral on hand. The Company filed a demand for arbitration as provided for by the
treaty and  filed a motion to compel arbitration which was granted in the United States District Court action. The Company has filed
for arbitration against the other two participants on the treaty and those 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.

A dispute has arisen with F and G Re (on behalf of USF and G) under two aggregate stop loss reinsurance treaties whereby F and G assumed
certain risk from the Company.  During 1999, F and G filed for arbitration under those two treaties.

A dispute has also arisen with CIGNA Property and Casualty Insurance Company (now ACE USA) under a personal lines insurance
quota share reinsurance agreement, whereby the Company assumed certain risks from CIGNA. During September 2000, CIGNA filed for
arbitration under the reinsurance agreement.

While management believes its interpretation of the treaties' terms and computations based thereon are correct, this
arbitration is in its early stages and its ultimate outcome cannot be determined at this time.

On September 23, 1999, Torchmark Corporation, formerly the Company's largest common stockholder, filed a lawsuit in the
Circuit Court of Jefferson County, Alabama against the Company asserting breach of contract, conversion and breach of duty in
connection with the Company's preparation and filing of a registration statement covering its shares in accordance with certain
registration rights claimed by Torchmark. This claim seeks an injunction requiring a registration statement to be filed, as well as
compensatory and punitive damages. This litigation is in its early stages, and management is unable to assess the damages that may be
awarded, if any. However, management does not believe that such damages, if any, would materially and adversely affect the Company's
financial position or results of operations.

On June 23, 1999, a subsidiary of Torchmark filed suit in the Circuit Court of Jefferson County, Alabama against two
subsidiaries of the Company. The lawsuit claims that the Company's subsidiaries have failed to pay certain sums due under a marketing
and administrative services agreement between the parties. The suit also seeks payment of certain commissions and administrative
expenses. This litigation is in its discovery stages, and management is unable to assess the damages that may be awarded, if any.
However, management does not believe that such damages, if any, would materially and adversely affect the Company's financial
position or results of operations.

## Other Commitments

On June 13, 2000 Vesta purchased 3.75 million shares of its common stock held by Torchmark for $6.30 per share.   On June 29,
2000, Vesta sold the 3.75 million shares in three separate transactions to unrelated third parties.  Simultaneously with these
transactions, Vesta entered into contracts that allow it to repurchase those securities or otherwise arrange for the sale of those
securities to third parties by December 29, 2000 such that the unrelated third parties will receive $6.30 per share.

## Note E-Segment Information

In the period ending September 30, 2000, the Company changed its segment reporting to reflect a change in our reportable
segments due to the acquisition of  American Founders Financial Corporation and the start up of a specialty lines segment. A brief
description of each segment is as follows:

## Standard Property-Casualty

The standard  property-casualty  segment is primarily  engaged in the marketing and  distribution  of personal  lines products
including  Homeowners and Personal Auto  coverages.  Our products are  distributed  primarily  through 2,500  independent  agents in 42
states.

## Life Insurance

Our life insurance segment markets term insurance products, annuities and universal life through independent agents networks.

## Specialty lines

Our specialty lines segment enters into arrangements whereby we write  property-casualty  insurance and reinsure substantially
all of the risks to reinsurers in exchange for fees.

## Corporate and Other

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

The Company uses the same  accounting  policies and  procedures to measure  operating  segment income and assets as it uses to
measure its consolidated net income and assets.

`Total Revenue        Interest Expense        Pretax Income         Total Assests
                                      2000    1999          2000     1999           2000    1999           2000   1999
Standard Property-Casualty         $197,776  $290,320        --       --          $18,860  $18,544      $396,281 $561,229
Life Insurance                       13,881                $2,497     --            2,967    --          906,457    --
Specialty Lines                         141      --           --      --              210    --            1,862    --
Corporate Other                     11,183    38,111       7,857     $9,267        (4,606)  20,344        213,138   189,203
                                   $222,981   $328,431    $10,354    $9,267       $17,431  $38,888     $1,517,738  $750,432
                                   ========   ========    =======                 =======  =======     ==========  ========`

The Commercial segment, which is not included herein because it has been discontinued reported revenue of $5.8 million and
$51.6 million for the nine months ended September 30, 2000 and 1999 respectively. Pre tax income (loss) was $(1.0) million and $(7.6)
million and total assets were $97 million and $256.8 million for nine months ended September 30, 2000 and 1999 respectively.

## Note F - Acquisition of American Founders Financial Corporation

On June 30, 2000 the Company completed the acquisition of a 71% controlling interest in American Founders Financial
Corporation for $25 million.   American Founders is a life insurance holding company with approximately $1 billion (face value) of
life products in force and approximately $185 million of annuity deposits as of December 31, 1999, American Founders is currently
rated B+ by A.M. Best and operates in 40 states and the District of Columbia. The transaction has been accounted for as a purchase.
Summarized below is an allocation of assets and liabilities acquired and the consolidated results of operations for the nine-months
ended September 30, 2000 and 1999 on an unaudited pro forma basis as if the acquisition had occurred as of January 1, 1999.  The pro
forma information is based on the Company's consolidated results of operations for the nine-months ended September 30, 2000 and 1999
and on data provided by the acquired company, after giving effect to certain pro forma adjustments.  The pro forma financial
information does not purport to be indicative of results of operations that would have occurred had the transactions occurred on the
basis assumed above nor are they indicative of results of the future operations of the combined enterprises.

`Assets acquired
                                    Invested assets                    $863,094
                                    Value of business acquired           33,380
                                    Other assets                         15,632
                                                                     ----------
                                            Total assets               $912,106

                           Liabilities acquired:
                                    Future policy benefits             $690,701
                                    FHLB notes payable                  143,123
                                    Other liabilities                    53,282
                                                                     ----------
                                            Total liabilities          $887,106`

Pro forma consolidated results of operations are as follows (in thousands
except per share amount, unaudited):

`Nine months ended
                                                                       September 30

                                                                   2000            1999

Total revenues                                                     $ 249,359      $ 368,810
Income available to common shareholders                            $  12,813      $  19,119
Income available to common shareholders per share-basic            $     .70      $    1.02
Income available to common shareholders per share-diluted          $     .53      $    1.02`

---

---

# Item 2. Managements Discussion and Analysis
of Financial Condition

# and Results of Operations

## Results of Operations

The Company
writes primary property-casualty insurance on selected Personal lines risks,
balanced between risks of property damage (which is susceptible to faster
determination of ultimate loss but is highly unpredictable) and casualty
exposure (which is more predictable but takes longer to determine the ultimate
loss), annuity and life insurance products and we write property-casualty
insurance for reinsurers in exchange for a fee. In the past, we also wrote
primary insurance on a variety of Commercial Lines risks. In each of these
segments, we focused principally on property coverages, for which ultimate
losses generally can be more promptly determined than on casualty risks. In the
fourth quarter of 1999, we received final regulatory approval to discontinue our
commercial insurance operations. Accordingly, our commercial lines segment is
discussed herein as a discontinued operation.

Our revenues
from operations are derived primarily from net premiums earned on risks written
by our insurance subsidiaries, policy fees, investment income and investment
gains or losses. Our expenses consist primarily of payments for claims and
underwriting expenses, including agents commissions and operating
expenses.

## Known Trends and Uncertainties

Significant
factors influencing results of operations include the supply and demand for
property and casualty insurance as well as the number and magnitude of
catastrophic losses such as hurricanes, windstorms, fires and severely cold
weather.

The Company
seeks to manage its risk exposure by adjusting the mix and volume of business
written in response to changes in price and maintaining extensive reinsurance.

The Company has
historically followed a practice of reinsuring a portion of its primary business
to spread the risk of loss to reinsurers. The Companys loss reserve levels
historically have remained relatively stable from year to year despite changes
in premium volume. The Company is continuing to cede portions of insurance risks
while using its capital base to gradually increase, on a selective basis, its
retention of certain property risks.

Because
catastrophe loss events are by their nature unpredictable, historical results of
operations may not be indicative of expected results of future operations. The
Company markets its primary personal insurance products throughout the United
States. While the Company seeks to reduce its exposure to catastrophic events
through the purchase of reinsurance, the occurrence of one or more major
catastrophes in any given period could have a material adverse impact on the
Companys results of operations and financial condition and could result in
substantial outflows of cash as losses are paid.

Other certain
known trends and uncertainties which may affect our future results are discussed
more fully below.

Competition:
The insurance industry is highly competitive on the basis of both price and
service. In recent years there has been a trend in the industry toward
consolidation which could result in even more competitive pricing. We also face
competition from foreign insurance companies, captive insurance companies and
risk retention groups. In the future, the industry, including us, may face
increasing insurance underwriting competition from banks and other financial
institutions.

Reliance on
Performance of Reinsurers: We evaluate the credit quality of the reinsurers
to which it cedes business. No assurance can be given regarding the future
ability of any of our reinsurers to meet their obligations.

Inflation:
We do not believe our results over the last three fiscal years have been
materially affected by inflation due in part to the predominantly short-tail
nature of our business. The potential adverse impacts of inflation include: (i)
a decline in the market value of our fixed maturity investment portfolio, (ii)
an increase in the ultimate cost of settling claims which remain unsettled for a
significant period of time, and (iii) an increase in our operating expenses.
Historically, the effect of inflation on our reserves has not been material.

Income  available to common  shareholders  decreased by $2.3 million,  or 46% to $2.7 million for the quarter ended  September
30, 2000,  from $5.0  million for the quarter  ended  September  30, 1999.  On a diluted per share  basis,  income  available to common
shareholders  for the Third Quarter of 2000 was $.14 per share versus net income of $.27 per share for the Third  Quarter of 1999.  The
decrease  in income  available  to common  shareholder  is  primarily  attributable  to $3.1  million  of after  tax  investment  gains
recognized  during the Third Quarter of 1999 and the  recognition of a $1.1 million after tax loss from the proposed sale of a building
in Shelby, Ohio in the Third Quarter of 2000.

Net premiums  written for standard  property-casualty  lines  decreased by $14.1 million,  or 19.5%,  to $58.3 million for the
quarter ended  September  30, 2000,  from $72.4 million for the quarter  ended  September  30, 1999.  Net premiums  earned for standard
property-casualty  lines  decreased  $27.1  million,  or 31.0% to $60.6  million for the quarter ended  September 30, 2000,  from $87.7
million for the quarter  ended  September  30,  1999.  The  decrease in net  premiums  written and net  premiums  earned are  primarily
attributable to the decrease in new policy application that occurred when we were temporarily downgraded by A.M. Best to a B (good).

Loss and loss adjustment
expenses (LAE) for standard property-casualty lines decreased by
$17.9 million, or 33.8%, to $35.0 million for the quarter ended September 30,
2000, from $52.9 million for the quarter ended September 30, 1999. The loss and
LAE ratio for property-casualty lines for the quarter ended September 30, 2000
was 57.7% as compared to 60.2% at September 30, 1999. The decrease in loss and
LAE incurred is primarily attributable to the decline in earned premium. The
decrease in the loss and LAE ratio is primarily attributable to a decrease in
catastrophe losses in the current period versus the prior year.

Policy
acquisition expenses decreased by $9.8 million, or 41.4% to $13.9 million for
the quarter ended September 30, 2000, from $23.7 million for the quarter ended
September 30, 1999 primarily due to the decrease in earned premium.

Premiums and
policy fees were $2.9 million for the quarter ended September 30, 2000 compared
to zero for the comparable prior period due to the acquisition of American
Founders on June 30, 2000. American Founders has approximately $1.2 billion face
amount of life insurance and annuities in force at September 30, 2000.

Net premiums  written for specialty  lines were $.4 million for the quarter  ended  September  30, 2000.  Net premiums  earned
for specialty  lines were $.1 million for the quarter ended  September 30, 2000. For the quarter ended  September 30, 2000, the Company
earned approximately $114 thousand of fees.

Net investment
income increased by $10.6 million, or 168%, to $16.9 million for the quarter
ended September 30, 2000, from $6.3 million for the quarter ended September 30,
1999. The weighted average yield on invested assets (excluding realized and
unrealized gains) was 7.0% for the quarter ended September 30, 2000, compared
with 5.4% for the quarter ended September 30, 1999. The increase in investment
income is primarily attributable to an increase in average invested assets from
the American Founders acquisition and an increased investment yield resulting
from a lower percentage of tax exempt securities in the current portfolio.

Federal income
taxes decreased by $1.9 million, or 41.3%, to $2.7 million for the quarter ended
September 30, 2000. The effective rate on pre-tax income increased to 32.6% for
the quarter ended September 30, 2000 versus 32.9% for the quarter ended
September 30, 1999 due to lower tax exempt investment income.

Income available to common  shareholders  decreased by $7.0 million,  or 38.25%,  to $11.3 million for the period ended September
30,  2000,  from $18.3  million for the period ended  September  30, 1999.  On a diluted per share  basis,  income  available to common
shareholders  for the period ended  September 30, 2000 was $.53 per share versus income  available to common  shareholders  of $.98 per
share for the period ended September 30, 1999. The decrease in income  available to common  shareholders  is primarily  attributable to
a $9.8 million after tax gain from the sale of certain  reinsurance  renewal rights and a $3.1 million after tax  investment  gain from
the sale of Vesta's  interest in Vesta County Mutual in the period ended  September 30, 1999,  and a $1.1 million after tax loss on the
proposed sale of a building in Shelby,  Ohio,  partially offset by a $5.3 million  extraordinary  gain from  extinguishments of debt in
the nine months ended September 30, 2000.

Net premiums
written for standard property-casualty lines decreased by $20.9 million, or
10.6%, to $176.2 million for the period ended September 30, 2000, from $197.1
million for the period ended September 30, 1999. Net premiums earned for
standard property-casualty lines decreased $87.2 million, or 31.5% to $190
million for the period ended September 30, 2000, from $277.2 million for the
period ended September 30, 1999. The decrease in net premiums written and net
premiums earned are primarily attributable a reduction in new policy
applications in late 1999 and 2000 that occurred when we were temporarily
downgraded by A.M. Best to a B (good).

Loss and loss
adjustment expenses (LAE) for standard property-casualty lines
decreased by $56.3 million, or 32.7%, to $115.7 million for the period ended
September 30, 2000, from $172.0 million for the period ended September 30, 1999.
The loss and LAE ratio for personal lines for the period ended September 30,
2000 was 60.9% as compared to 62.1% at September 30, 1999. The decrease in loss
and LAE incurred is primarily attributable to the decline in earned premium. The
decrease in the loss and LAE ratio is primarily attributable to increased
salvage and subrogation recoverable from prior years partially offset by
increased claim severity and higher losses from multiple storms occurring during
the nine months ended September 30, 2000.

Policy
acquisition expenses decreased by $33.9 million, or 45.2% to $41.0 million for
the period ended September 30, 2000, from $74.9 million for the period ended
September 30, 1999 primarily due to the decrease in earned premium.

Premiums and
policy fees were $2.9 million for the period ended September 30, 2000 compared
to zero for the comparable prior year period, due to the acquisition of American
Founders on June 30, 2000. American Founders has approximately $1.2 billion face
amount of life insurance and annuities in force at September 30, 2000.

Net premiums  written for specialty  lines were $.4 million for the period ended  September 30, 2000. Net premiums  earned for
specialty  lines were $.1 million for the period  ended  September  30,  2000.  For the period ended  September  30, 2000,  the Company
earned approximately $114 thousand of fees for these arrangements.

Net investment
income increased by $10.2 million, or 53.4%, to $29.3 million for the period
ended September 30, 2000, from $19.1 million for the period ended September 30,
1999. The weighted average yield on invested assets (excluding realized and
unrealized gains) was 6.4% for the period ended September 30, 2000, compared
with 5.7% for the period ended September 30, 1999. The increase in investment
income is primarily attributable to an increase in average invested assets from
the acquisition of American Founders and increased investment yield resulting
from a lower percentage of tax exempt securities in the current portfolio.

Federal income
taxes decreased by $6.6 million, or 53.6%, to $5.7 million for the period ended
September 30, 2000. The effective tax on pre-tax income increased to 32.9% for
the period ended September 30, 2000 versus 31.6% for the period ended September
30, 1999 primarily due to decreased tax exempt investment income.

Vesta is a holding  company whose principal  asset is its investment in the capital stock of the companies  constituting  the
Vesta Group,  a group of wholly owned property and casualty  insurance  companies  including  Vesta Fire and a 71% interest in American
Founders  Financial  Corporation,  a life  insurance  holding  company.  The  insurance  subsidiaries  comprising  the Vesta  Group are
individually  supervised by various state  insurance  regulators.  The principal uses of funds at the holding  company level are to pay
operating  expenses,  principal  and  interest  on  outstanding  indebtedness  and  deferrable  capital  securities  and  dividends  to
shareholders if declared by the Board of Directors.

Dividends

The principal
internal source of liquidity is dividends from our insurance subsidiaries.
During the last three years, our insurance subsidiaries have produced operating
results and paid dividends sufficient to fund our needs. Except for the
regulatory restrictions described below, we are not aware of any demands or
commitments of the insurance subsidiaries that would prevent them from paying
dividends sufficient to meet our anticipated needs (including debt service) for
at least the next twelve months.

As a holding
company with no other business operations, we rely primarily upon dividend
payments from Vesta Fire to meet our cash requirements (including its debt
service) and to pay dividends to our stockholders. Transactions between Vesta
and its insurance subsidiaries, including the payment of dividends to Vesta by
such subsidiaries, are subject to certain limitations under the insurance laws
of those subsidiaries domiciliary states. The insurance laws of the state
of Illinois, where Vesta Fire is domiciled, permit the payment of dividends in
any year which, together with other dividends or distributions made within the
preceding 12 months, do not exceed the greater of 10% of statutory surplus as of
the end of the preceding year or the net income for the preceding year, with
larger dividends payable only after receipt of prior regulatory approval.

On March 3,
2000, we established a revolving credit facility with First Commercial Bank,
Birmingham, Alabama (First Commercial) which consists of the
following lines of credit:

Each of these newly established credit facilities mature on
December 31, 2002. In addition, the credit agreements related to these
facilities contain typical financial covenants which require us to maintain
certain financial standards.

Long Term Debt and Preferred
Stock

In the nine
months ended September 30, 2000, Vesta has extinguished $13.1 million of its
8.75% Senior Debentures for approximately $9.8 million plus accrued interest and
all $44.1 million of our 12.5% Senior Notes for approximately $38.2 million,
plus accrued interest.

Annual
distribution obligations for the Companys long term debt and preferred
stock outstanding at September 30, 2000 are as follows:

`Security                            Principal             Annual Interest Obligation
                                 --------                            ---------             --------------------------
                8.75%  Senior Debentures due 2025...                $86.8 million                  $7.6 million
                8.525% Deferrable Capital Securities
                        due 2027....................                $41.2 million                  $3.5 million
                Series A convertible Preferred Stock..              $25 million                    $2.25 million`

## Subsidiaries

The principal
sources of funds for our insurance subsidiaries are premiums, policy fees,
investment income and proceeds from the sale or maturity of invested assets.
Such funds are used principally for the payment of claims, operating expenses,
commissions and the purchase of investments. On a consolidated basis, net cash
used in operations for the period ended September 30, 2000 and 1999, was $62.8
million and $59.1 million, respectively. The net cash used in operations is
primarily attributable to the declines in loss reserves and unearned premium
reserves as a result of the Companys exit from the reinsurance assumed and
commercial lines business.

As of September
30, 2000, the Companys investment portfolio consisted of short-term
investments (4.8%), U.S. Government securities (6.9%), mortgage-backed
securities (46.2%), corporate bonds (30.2%), municipal bonds (3.6%) equity
securities (1.8%) and mortgage and collateral loans (6.5%). The Company expects
current cash flow to be sufficient to meet operating needs, although invested
assets have been categorized as available for sale in the event short-term cash
needs exceed available resources. The Company adjusts its holdings of cash,
short-term investments and invested assets available for sale according to its
seasonal cash flow needs.

## Market Risk of Financial Instruments

Vestas
principal assets are financial instruments, which are subject to the market risk
of potential losses from adverse changes in market rates and prices. The
Companys primary risk exposures are interest rate risk on fixed maturity
investments and equity price risk for domestic stocks. Vesta manages its
exposure to market risk by selecting investment assets with characteristics such
as duration, yield and liquidity to reflect the underlying characteristics of
the related insurance.

## Special Note Regarding Forward-Looking Statements

Any statement
contained in this report which is not a historical fact, or which might
otherwise be considered an opinion or projection concerning the Company or its
business, whether express or implied, is meant as and should be considered a
forward-looking statement as that term is defined in the Private Securities
Litigation Reform Act of 1996. Forward-looking statements are based on
assumptions and opinions concerning a variety of known and unknown risks,
including but not necessarily limited to changes in market conditions, natural
disasters and other catastrophic events, increased competition, changes in
availability and cost of reinsurance, changes in governmental regulations, and
general economic conditions, as well as other risks more completely described in
the Companys filings with the Securities and Exchange Commission,
including its most recent Annual Report on Form 10-K. If any of these
assumptions or opinions prove incorrect, any forward-looking statements made on
the basis of such assumptions or opinions may also prove materially incorrect in
one or more respects.

# PART II

# Item 1. Legal Proceedings

## Securities Litigation

Subsequent to the filing of its quarterly report on Form 10-Q for the period ended March 31, 1998 with the Securities and
Exchange Commission, the Company became aware of certain accounting irregularities consisting of inappropriate reductions of reserves
and overstatements of premium income in the Company's reinsurance business that had been recorded in the fourth quarter of 1997 and
the first quarter of 1998. The Company promptly commenced an internal investigation to determine the exact scope and amount of such
reductions and overstatements. This investigation concluded that inappropriate amounts had, in fact, been recorded and the Company
determined it should restate its previously issued 1997 financial statements and first quarter 1998 Form 10-Q. Additionally, during
its internal investigation the Company re-evaluated the accounting methodology being utilized to recognize earned premium income in
its reinsurance business. The Company 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.  The Company
determined that reinsurance premiums should be recognized as earned over the contract period and corrected the error in its
accounting methodology by restating previously issued financial statements. The Company issued press releases, which were filed with
the Securities and Exchange Commission, on September 1, 1998 and September 29, 1998 announcing its intention to restate its
historical financial statements.

The Company restated its previously issued financial statements for 1995, 1996 and 1997 and its 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 $75.2 million through March 31, 1998.

Commencing in September 1998, Vesta and several of its current and former officers and directors were named in several
purported class action lawsuits in the United States District Court for the Northern District of Alabama and in one purported class
action lawsuit in the Circuit Court of Jefferson County, Alabama. Several of Vesta's 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.

The class action lawsuit filed in the Circuit Court of Jefferson County,Alabama has been dismissed and the derivative case has
been placed on the administrative docket. The class actions filed in the United States District Court for the Northern District of
Alabama have been consolidated into a single action in that district. The class representatives in that action have filed (a) a
consolidated amended complaint alleging that the defendants violated the federal securities laws and (b) a motion for class
certification, which was granted in 1999. The consolidated amended complaint also added as defendants
Torchmark Corporation and the Company's former auditors, KPMG Peat Marwick, LLP. The consolidated amended complaint alleges various
violations of the federal securities law and seeks unspecified but potentially significant damages.

The Company has notified its directors and officers liability insurance companies of these lawsuits and the consolidated
amended complaint. The litigation is still in the preliminary stages and there has been no discovery conducted in the securities
case. The Company intends to vigorously defend this litigation and intends to explore all available rights and remedies it may have
under the circumstances. In related litigation, in September, 1998, Cincinnati Insurance Company ("Cincinnati"), one of the Company's
directors and officers liability insurance carriers, filed a lawsuit in the United States District Court for the Northern District of
Alabama seeking to avoid coverage under its directors and officers liability and other policies. The Company filed a motion to
dismiss Cincinnati's complaint on jurisdictional grounds in federal court (which was granted), and filed a lawsuit against Cincinnati
in the Circuit Court of Jefferson County, Alabama seeking damages arising out of Cincinnati's actions. Cincinnati has filed an answer
and counterclaim in that case again seeking to avoid coverage.

Indemnification Agreements and
Liability Insurance

Pursuant to Delaware law and by-laws, the Company is obligated to indemnify its current and former officers and directors for
certain liabilities arising from their employment with or service to the Company. The Company believes that these indemnification
obligations extend to its current and former officers' and directors' costs of defense and other liabilities which may arise out of
the securities litigation described above.

The Company has purchased directors' and officers' liability insurance ("D and O insurance") for the purposes of covering among
other things the costs incurred in connection with these indemnification obligations. For the period in which most of the claims
against the Company and certain of its directors and officers were asserted, the Company had in place a primary D and O insurance policy
providing $25 million in coverage and an excess D and O insurance policy covering for an
additional $25 million in coverage. The issuer of the primary D and O insurance policy, Cincinnati, has attempted to avoid coverage as
discussed above, and the Company is vigorously resisting its efforts to do so.

Subsequent to the initiation of the class actions described above, the Company secured additional excess D and O insurance
providing coverage for losses in excess of $50 million up to $110 million, or additional excess coverage of $60 million for the class
actions. The Company  paid for this additional excess policy in full in 1998.

These matters are in their early stages and their ultimate outcome cannot be determined. Accordingly, the Company has not
currently recorded any reserves relating to any of the above-referenced actions.

## Other Litigation and Arbitration

The Company, 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 the Company and its subsidiaries, management does not consider liability from any threatened or pending
litigation regarding routine matters to be material.

As discussed above, the Company corrected its accounting for assumed reinsurance business through restatement of its previously
issued financial statements. Similar corrections were made on a statutory accounting basis through recording cumulative adjustments
in Vesta Fire's 1997 statutory financial statements. The impact of this correction has been reflected in amounts ceded under the
Company's 20 percent whole account quota share treaty which was terminated on September 30, 1998 on a run-off basis. The Company
believes such treatment is appropriate under the terms of this treaty and has calculated
the quarterly reinsurance billings presented to the three treaty participants accordingly. The aggregate amount included herein as
recoverable from such reinsurers totaled $54.4 million at September 30, 2000 exclusive of approximately $48.5 million  that the
company collected from such reinsurers via the conversion of collateral on hand.

NRMA, one of the participants in the 20 percent whole account quota share treaty,  filed a lawsuit in the United States
District Court for the Northern District of Alabama contesting the Company's claim and the validity of the treaty, and seeking return
of $34.5 million collected by the conversion of collateral on hand. The Company filed a demand for arbitration as provided for by the
treaty and  filed a motion to compel arbitration which was granted in the United States District Court action. The Company has filed
for arbitration against the other two participants on the treaty and those 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.

A dispute has arisen with F and G Re (on behalf of USF and G) under two aggregate stop loss reinsurance treaties whereby Fand G assumed
certain risk from the Company.  During 1999, F and G  Re filed for arbitration under those two treaties.

A dispute has also arisen with CIGNA Property and Casualty Insurance Company (now ACE USA) under a personal lines insurance
quota share reinsurance agreement, whereby the Company assumed certain risks from CIGNA. During September 2000, CIGNA filed for
arbitration under the reinsurance agreement.

While management believes its interpretation of the treaties' terms and computations based thereon are correct, this
arbitration is in its early stages and its ultimate outcome cannot be determined at this time.

On September 23, 1999, Torchmark Corporation, formerly the Company's largest common stockholder, filed a lawsuit in the
Circuit Court of Jefferson County, Alabama against the Company asserting breach of contract, conversion and breach of duty in
connection with the Company's preparation and filing of a registration statement covering its shares in accordance with certain
registration rights claimed by Torchmark. This claim seeks an injunction requiring a registration statement to be filed, as well as
compensatory and punitive damages. This litigation is in its early stages, and management is unable to assess the damages that may be
awarded, if any. However, management does not believe that such damages, if any, would materially and adversely affect the Company's
financial position or results of operations.

On June 23, 1999, a subsidiary of Torchmark filed suit in the Circuit Court of Jefferson County, Alabama against two
subsidiaries of the Company. The lawsuit claims that the Company's subsidiaries have failed to pay certain sums due under a marketing
and administrative services agreement between the parties. The suit also seeks payment of certain commissions and administrative
expenses. This litigation is in its discovery stages, and management is unable to assess the damages that may be awarded, if any.
However, management does not believe that such damages, if any, would materially and adversely affect the Company's financial
position or results of operations.

# Item 2. Changes in Securities

# None.

# Item 3. Defaults Upon Senior Securities

# None.

# Item 4. Submission of Matters to a Vote of
Security Holders

# None

# Item 5. Other information

# None

# Item 6. Exhibits and Reports on Form 8-K

## a) EXHIBITS

__________

## b) Reports on Form 8-K.

| | Acurrent report was filed on Form 8-K/A dated September 12, 2000 reporting
the required financial statements in connection with the acquisition of American
Founders Financial Corporation.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# SIGNATURES

Pursuant to the
requirements of the Securities Act of 1933, the registrant has duly caused this
report to be signed on its behalf by the undersigned hereunto duly
authorized.

`VESTA INSURANCE GROUP, INC.

Date: November 14, 2000

                                                                                          /s/   W. Perry Cronin    
                                                                                               W. Perry Cronin
                                                                                            Senior Vice President
                                                                                         and Chief Financial Officer
                                                                                        (Principal Financial Officer)

Date: November 14, 2000

                                                                                        /s/   Hopson B. Nance      
                                                                                                 Hopson B. Nance
                                                                                               Vice President,
                                                                                                   Controller
                                                                                         (Principal Accounting Officer)`