<PAGE>

                                 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, 1999
                                      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.  [ ]  Yes   [X]  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, $.0l par value, as of
                              September 30, 1999
                                   18,675,832


<PAGE>

                         VESTA INSURANCE GROUP, INC.
                         ---------------------------

                                     Index
                                                                           Page
                                                                           ----
PART I       FINANCIAL INFORMATION

Item 1.      Financial Statements:
             Consolidated Balance Sheets at September 30, 1999 and
             December 31, 1998.............................................  1

             Consolidated Statements of Operations and Comprehensive
             Income for the Three Months and Nine Months Ended
             September 30, 1999 and 1998...................................  2

             Consolidated Statements of Cash Flows for the Nine Months
             Ended September 30, 1999 and 1998.............................  3

             Notes to Consolidated Financial Statements....................  4

Item 2.      Management's Discussion and Analysis of Financial
             Condition and Results of Operation............................  8

PART II      OTHER INFORMATION

Item 1.      Legal Proceedings............................................. 16

Item 2.      Changes in Securities......................................... 17

Item 3.      Defaults Upon Senior Securities............................... 17

Item 4.      Submission of Matters to a Vote of Security Holders........... 17

Item 5.      Other Information............................................. 17

Item 6.      Exhibits and Reports on Form 8-K.............................. 17

<PAGE>

                                     PART I
                        Item 1.   Financial Statements
                          VESTA INSURANCE GROUP, INC.
                          CONSOLIDATED BALANCE SHEETS
             (Amounts in thousands except share and per share data)
<TABLE>
<CAPTION>
                                                                                   September 30,   December  31,
                                                                                        1999            1998
                                                                                   --------------  --------------
<S>                                                                                <C>             <C>
                                                                                    (Unaudited)
Assets:
  Investments:
   Fixed maturities available for sale-at fair value (cost: 1999-$378,052;
   1998-$446,516)................................................................     $  373,468      $  457,219
   Equity securities-at fair value: (cost: 1999-$1,865; 1998-$18,127)............          2,102          21,099
   Short-term investments........................................................        161,434         109,039
                                                                                      ----------      ----------
   Total investments ............................................................        537,004         587,357
  Cash...........................................................................         11,415          47,311
  Accrued investment income......................................................          6,873           7,194
  Premiums in course of collection...............................................         44,523         121,948
  Reinsurance balances receivable................................................        226,732         265,903
  Reinsurance recoverable on paid losses.........................................         62,709         111,577
  Deferred policy acquisition costs..............................................         61,605         100,957
  Property and equipment.........................................................         16,855          18,442
  Income tax receivable..........................................................             --          17,950
  Deferred income taxes..........................................................         18,084          19,090
  Other assets...................................................................         14,499          35,681
  Goodwill.......................................................................          6,889          14,292
                                                                                      ----------      ----------
   Total assets..................................................................     $1,007,188      $1,347,702
                                                                                      ==========      ==========
Liabilities:
  Reserves for:
   Losses and loss adjustment expenses...........................................        386,447         504,911
   Unearned premiums.............................................................        168,855         309,515
                                                                                      ----------      ----------
   Total Reserves................................................................        555,302         814,426
  Deferred gain on retroactive reinsurance.......................................          2,315           9,848
  Reinsurance balances payable...................................................          1,037          49,028
  Other liabilities..............................................................         40,993          48,071
  Short term debt................................................................         20,000          70,000
  Long term debt.................................................................         98,338          98,302
                                                                                      ----------      ----------
   Total liabilities.............................................................        717,985       1,089,675
Commitments and contingencies (Note C)
  Deferrable Capital Securities..................................................        100,000         100,000
Stockholders' equity:
  Preferred stock, $.01par value, 5,000,000 shares authorized: issued-1999
   2,950,000.....................................................................             30              --
  Common stock, $.0l par value, 32,000,000 shares authorized,
   issued: 1999-18,964,322 shares; 1998-18,964,322...............................            190             190
  Additional paid-in capital.....................................................        179,046         156,465
Accumulated other comprehensive income, net of applicable taxes (benefit) of
$(1,521) and $4,786 in 1999 and 1998, respectively...............................         (2,825)          8,889
Retained earnings................................................................         27,746          10,120
Receivable from issuance of restricted stock.....................................         (1,936)         (2,045)
Treasury stock...................................................................        (13,048)        (15,592)
                                                                                      ----------      ----------
   Total stockholders' equity....................................................        189,203         158,027
                                                                                      ----------      ----------
   Total liabilities, deferrable capital securities and stockholders' equity.....      1,007,188      $1,347,702
                                                                                      ==========      ==========
</TABLE>

                 See accompanying Notes to Consolidated Financial Statements.

                                       1
<PAGE>

                          VESTA INSURANCE GROUP, INC.
                          ---------------------------
        CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
                 (Amounts in thousands except per share data)
                           STATEMENTS OF OPERATIONS
                           ------------------------

<TABLE>
<CAPTION>
                                                                     Three months ended               Nine months ended
                                                                        September 30,                   September 30,
                                                               -------------------------------  ------------------------------
                                                                    1999            1998             1999            1998
                                                               --------------  ---------------  --------------  --------------
                                                                                 (restated)                       (restated)
                                                                        (Unaudited)                     (Unaudited)
Revenues:
<S>                                                            <C>              <C>              <C>             <C>
  Net premiums written.......................................       $ 69,754         $ 52,047        $223,204        $353,224
  Decrease in unearned premium...............................         28,278           13,304         100,167          15,496
                                                                    --------         --------        --------        --------
  Net premiums earned........................................         98,032           65,351         323,371         368,720
  Net investment income......................................          7,358            8,362          23,663          26,462
  Gain on sale of assumed reinsurance renewal rights.........             --               --          15,000              --
  Other, including realized gains and losses.................          8,033            1,258          17,239           4,351
                                                                    --------         --------        --------        --------
     Total revenues..........................................        113,423           74,971         379,273         399,533
Expenses:
  Losses and loss adjustment expenses incurred................        61,498           58,950         206,707         263,241
  Policy acquisition expenses................................         27,728           25,740          85,691         121,461
  Operating expenses.........................................         12,328           17,409          44,294          51,995
  Interest on debt...........................................          2,164            3,904           9,267          10,357
  Goodwill amortization......................................            270            1,698             810           4,978
                                                                    --------         --------        --------        --------
     Total expenses..........................................        103,988          107,701         346,769         452,032
Income (loss) before income taxes and deferrable capital
 securities..................................................          9,435          (32,730)         32,504         (52,499)
Income taxes expense (benefit)...............................          3,002           (9,320)         10,051         (16,699)
Deferrable capital securities interest, net of income tax....          1,403            1,363           4,127           4,087
                                                                    --------         --------        --------        --------
     Net income (loss).......................................       $  5,030         $(24,773)       $ 18,326        $(39,887)
                                                                    ========         ========        ========        ========
  Basic net income (loss) per common share...................       $    .27         $  (1.34)       $    .98        $  (2.16)
                                                                    ========         ========        ========        ========
  Diluted net income (loss) per common share.................       $    .27         $  (1.34)       $    .98        $  (2.16)
                                                                    ========         ========        ========        ========
  Dividends declared per common share........................       $     --         $    .04        $     --        $    .11
                                                                    ========         ========        ========        ========

                                                STATEMENTS OF COMPREHENSIVE INCOME

Net income (loss)............................................       $  5,030         $(24,773)       $ 18,326        $(39,887)
Other comprehensive income, net of tax:
  Unrealized holding gains (losses) on available-for-sale
    securities net of applicable taxes of $(161), $631,
    $(3,438) and $753, respectively..........................           (299)           1,173          (6,384)          1,399
Less realized gains on available-for-sale securities net of
applicable taxes of $618, $7, $2,870, and $80, respectively..          1,148               13           5,330             148
                                                                    --------         --------        --------        --------
                                                                      (1,447)           1,160         (11,714)          1,251
Comprehensive income (loss)..................................       $  3,583         $(23,613)       $  6,612        $(38,636)
                                                                    ========         ========        ========        ========
</TABLE>

          See accompanying Notes to Consolidated Financial Statements

                                       2
<PAGE>

                          VESTA INSURANCE GROUP, INC.
                          ----------------------------
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (Amounts in thousands)

<TABLE>
<CAPTION>
                                                                                   Nine months ended
                                                                                     September 30,
                                                                               --------------------------
                                                                                   1999          1998
                                                                              ---------------------------
<S>                                                                            <C>           <C>
                                                                                             (restated)
                                                                                      (Unaudited)
Operating Activities:
  Net income (loss)..........................................................    $  18,326     $ (41,390)
  Adjustments to reconcile net income to cash from operating activities:
     Change in:
        Loss and LAE reserves................................................     (118,464)      (89,875)
        Unearned premium reserve.............................................     (140,660)       (7,555)
        Reinsurance balances payable.........................................      (47,991)        6,951
        Accrued income taxes.................................................       25,616         2,928
        Other liabilities....................................................      (12,890)      (40,153)
        Premiums in course of collection.....................................       77,425       100,292
        Reinsurance balances receivable......................................       39,171        44,425
        Reinsurance recoverable on paid losses...............................       48,869       (77,190)
        Other assets.........................................................       21,503         1,044
     Policy acquisition costs deferred.......................................      (48,063)     (111,174)
     Policy acquisition costs amortized......................................       85,691       106,338
     Amortization and depreciation...........................................        4,811         4,266
     Investment gains........................................................      (12,483)         (143)
     Gain on disposition of property, plant and equipment....................           13            --
                                                                                 ---------     ---------
        Net cash used in operating activities................................      (59,126)     (101,236)
Investing Activities:
  Investments sold or matured:
  Fixed maturities available for sale-matured, called........................      190,064       112,521
  Equity securities..........................................................       21,351            --
  Investments acquired:
  Fixed maturities available for sale........................................     (118,385)      (60,332)
  Equity securities..........................................................       (1,072)       (4,119)
Net (increase) decrease in short-term investments............................      (52,395)       11,045
Disposition of Vesta County Mutual...........................................       11,200            --
Additions to property, plant and equipment ..................................       (2,059)       (3,181)
Dispositions of property, plant and equipment................................          673           297
                                                                                 ---------     ---------
        Net cash provided from investing activities..........................       49,377        56,231
Financing Activities:
  Issuance (repayment) of long and short term debt...........................      (49,965)       24,759
  Issuance of preferred stock................................................       25,075            --
  Dividends paid.............................................................         (698)       (2,074)
  Capital contributions from exercising options..............................         (559)        4,650
                                                                                 ---------     ---------
        Net cash provided from (used in) financing activities................      (26,147)       27,335
Increase (decrease) in cash..................................................      (35,896)      (17,670)
Cash at beginning of year....................................................       47,311        40,545
                                                                                 ---------     ---------
Cash at end of period........................................................    $  11,415     $  22,875
                                                                                 =========     =========
</TABLE>

          See accompanying Notes to Consolidated Financial Statements

                                       3


<PAGE>

                          VESTA INSURANCE GROUP, INC.
                          ----------------------------
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                         (Dollar amounts in thousands)


Note A--Significant Accounting Policies

Basis of Presentation:   The accompanying unaudited 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 restated financial statements and related
notes which have been issued by Vesta Insurance Group, Inc. (the "Company" or
"Vesta") and filed with the Securities and Exchange Commission (see Note B).
Amounts in the prior financial statements presented herein have been adjusted in
order to conform to the restatement.

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.

  Income per share:   Basic weighted average common shares outstanding for the
nine month period ended September 30, 1999 and 1998 was 18,682,329 and
18,509,341, respectively. Basic weighted average common shares outstanding for
the three month period ended September 30, 1999 and 1998 was 18,675,832 and
18,616,230, respectively. Basic EPS is computed by dividing income available to
common stockholders by the weighted average common shares outstanding for the
period. Diluted EPS is calculated by adding to basic weighted 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 reduce net loss per share. As of September 30, 1999, potentially
dilutive securities consisted of the convertible preferred stock issued on
September 30, 1999. Diluted weighted average shares outstanding for the nine
month period ended September 30, 1999 and 1998 was 18,703,941 and 18,509,341,
respectively. Diluted weighted average shares outstanding for the three month
period ended September 30, 1999 and 1998 was 18,739,962 and 18,616,230,
respectively.

Recently Issued Accounting Standards:   In December 1997, the ACSEC issued
SOP 97-3, "Accounting by Insurance and Other Enterprises for Insurance Related
Assessments." SOP 97-3 provides guidance on when an insurance enterprise should
recognize a liability for guaranty fund or other assessments and how to measure
the liability. SOP 97-3 was effective January 1, 1999. The adoption of SOP 97-3
did not have a significant impact on Vesta's consolidated operating results or
financial position.

Note B--Restatement of Financial Statements

The Company determined, subsequent to the issuance of the 1997 financial
statements, that a specific reinsurance ceded contract entered  into in 1997
contains retroactive elements as defined in SFAS 113.  A contract is deemed
retroactive when an assuming enterprise agrees to reimburse a ceding enterprise
for liabilities incurred as a result of past insurable events. For such
contracts, SFAS 113 requires that any initial gain and any benefit due from a
reinsurer as a result of subsequent covered losses be deferred in the financial
statements of the ceding enterprise and recognized into income over the
settlement period of the underlying claims. The Company erroneously recorded a
gain on this contract in the fourth quarter of 1997 and has adjusted its
previously issued financial statements to appropriately defer and recognize such
gain. The deferred gain, which is included in the accompanying balance sheets,
associated with this contract at September 30, 1999 and December 31, 1998 is
$2.3 million and $9.8 million, respectively.

Analysis of this contract under the recovery method resulted in adjustments to
the nine month period September 30, 1998 financial statements and is included
herein.

  Due to the delay in reporting from its reinsurance cedants, the Company
accrues estimated unreported premium revenue, losses incurred and commission
expenses related to its assumed pro rata contracts. During the quarter ended
September 30, 1998, the Company changed its method for estimating unreported
premiums, losses and commission and made certain revisions to the assumptions
used in estimating this unreported experience based on the historical experience
of the pro rata contracts and the judgement of management. The effect of this
change was originally recorded in the line item, Other Expenses, Net. The
presentation has been restated to reflect the effect of this change on each of
the line items which were impacted. This change had no effect on net income.

<TABLE>
<CAPTION>
                                                 As Previously
                                                    Reported          Restatement         As Restated
                                                 ----------------------------------------------------
<S>                                                 <C>                 <C>                 <C>
Net premiums written............................    $420,067            $(66,843)           $353,224
Net premiums earned.............................     434,646             (65,926)            368,720
Losses incurred and loss adjustment expenses....     304,452             (41,211)            263,241
Policy acquisition expenses.....................     140,179             (18,718)            121,461
(including premium taxes)
Other Expenses, Net.............................       8,305              (8,305)                  -
Income taxes....................................     (17,504)                805             (16,699)
   Net  income (loss)...........................     (41,290)              1,403             (39,887)
Basic net income (loss) per common share........       (1.41)                .07               (1.34)
Diluted net income (loss) per common share......       (1.41)                .07               (1.34)
Deferred income taxes...........................       2,368               5,142               7,510
Deferred gain on retroactive reinsurance........          --             (14,786)            (14,786)
Retained earnings...............................     121,622              (9,644)            111,978
</TABLE>

                                       4
<PAGE>

Note C--Contingencies

Litigation

  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 June
1, 1998 and June 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 stockholder's equity of $75.2 million
through March 31, 1998.

  Commencing in June, 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 purported 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. The
consolidated amended complaint also added as defendants Torchmark Corporation
and the Company's predecessor 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 its 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&O
insurance") for the purpose 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&O insurance policy providing
$25 million in coverage and an excess D&O insurance policy providing an
additional $25 million in coverage. The issuer of the primary D&O insurance
policy, Cincinnati, has attempted to avoid coverage, 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&O insurance providing coverage for any losses in
excess of $50 million up to $110 million, or additional excess coverage of $60
million. The Company has paid this additional excess coverage in full.

  The Company has not currently set aside any financial reserves relating to any
of the above-referenced actions.

  Other Litigation

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
June 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 treaty participants accordingly. The
aggregate amount included herein as recoverable from such reinsurers totaled
$47.7 million at September 30, 1999. The Company has collected $34.5 million
from NRMA; the largest participant on the treaty through the draw down of a
letter of credit which was required to be posted since NRMA is a foreign
reinsurer.

                                       5
<PAGE>

NRMA has 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 is seeking return of the $34.5 million. The Company has filed a
demand for arbitration as provided for in the treaty and has filed a motion to
compel arbitration which is currently pending in the United States District
Court action. The Company also filed for arbitration against the other two
participants on the treaty. 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.

  General

  On September 23, 1999, Torchmark Corporation, 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 operation.

  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 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 operation.

  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 previously reported in the Company's Form 10-K for the period ended December
31, 1998, A.M. Best, which rates insurance companies based on factors of concern
to policyholders, lowered its rating on the Company's insurance subsidiaries on
February 24, 1999 to "B++" (Very Good, its fifth highest rating category) from
"A-" (Excellent, its fourth highest rating category). Some of the factors noted
by A.M. Best as contributing to the downgrade include the Company's operating
performance, which was affected in part by heavy catastrophe losses, the
Company's debt level, and the uncertainty associated with the Company's then
ongoing negotiations with its lenders to amend its credit agreement in light of
then existing covenant defaults. The Company determined that the impact of the
A.M. Best downgrade on the commercial line of business would necessitate
corrective actions in excess of what the marketplace will accept. Therefore, the
Company elected to withdraw from certain commercial lines of business in the
second quarter of 1999. The Company also determined that the impact of the
downgrade on the reinsurance segment significantly impaired the Company's
ability to compete effectively in the current reinsurance marketplace. On March
24, 1999 the Company sold substantially all of its reinsurance business and
operations to another reinsurer in exchange for $15 million as disclosed in Note
D.

On May 3, 1999, A.M. Best further lowered its rating on the Company's insurance
subsidiaries from "B++" to "B" (Fair). As a result of the further downgrade, the
Company has elected to withdraw from its remaining commercial lines. Also, the
further downgrade may negatively impact the Company's current homeowners lines,
and remaining reinsurance lines of business.


Note D--Assumed Reinsurance Business

  On March 24, 1999, the Company entered into an agreement to transfer certain
of its reinsurance assumed business to Hartford Fire Insurance Company ("Hart
Re"). The agreement calls for the Company to reinsure its North American assumed
business underwritten in the Birmingham office with a January 1, 1999 effective
date to Hart Re under a 100% quota share treaty and for the Company to use its
best efforts to novate the policies to Hart Re and encourage renewals with Hart
Re for policies not novated. The Company received $15 million in consideration
of the transaction, such payment having been conditioned on certain Company
employees entering into employment relationships with Hart Re.

The Company is exiting the reinsurance assumed business with this transaction
and continued conversion or commutation and termination of the other assumed
reinsurance business. Nine month results include recognition of

                                       6
<PAGE>

recoverables and payables under the terms of the HartRe agreement and
recognition of $15 million as gain associated with the agreement. As of
September 30, 1999, the Company had novated certain policies to Hart Re which
had written premiums of $50.3 million for the six months ended June 30, 1999.

  The Company acquired a block of personal lines business from CIGNA on December
31, 1997 via a 100% quota share reinsurance contract and entered into an
agreement whereby CIGNA would use its best efforts to renew the business on
Company paper as expeditiously as possible. The Company continues to convert
this business to its paper as state rate approvals are obtained and renewal
dates are reached. The results of this business are reported in the Reinsurance
Segment until renewals are made onto Company paper, at which time such policies
become reported in the Personal Lines Segment.

  In connection with the above acquisition, the Company agreed to compensate the
Seller with an initial ceding commission and quarterly commissions through
conversion, a portion of which represents payments for the renewal rights to the
business. Such amounts have been capitalized as deferred acquisition costs and
are amortized over the estimated retention of such business. The Company changed
its estimate of such retention in the third quarter, resulting in a $3.4 million
net income improvement as compared to results which would have been reported
under previous estimates.

Note E--Segment Information

<TABLE>
<CAPTION>
                                                                                       Nine Months Ended September 30,
                                                                                       -------------------------------
                                                                                           1999              1998
                                                                                       -------------      ------------
<S>                                                                                    <C>                   <C>
Reinsurance operations
  Net premiums earned................................................................   $   84,261        $  133,387
  Net investment income and realized gain/(loss).....................................        8,302             9,626
  Other income.......................................................................       15,000                --
  Underwriting gain (loss)...........................................................       (4,069)          (41,930)
Personal operations
  Net premiums earned................................................................      192,870           183,103
  Net investment income and realized gain/(loss).....................................       19,004            13,214
  Other income.......................................................................        8,216             3,271
  Underwriting gain (loss)...........................................................       (1,676)          (15,234)
Commercial operations
  Net premiums earned................................................................       46,240            52,230
  Net investment income and realized gain/(loss).....................................        4,556             3,769
  Other income.......................................................................          824               933
  Underwriting gain (loss)...........................................................       (7,576)          (10,813)
Other operations
  Interest expense...................................................................        9,267            10,357
  Goodwill amortization..............................................................          810             4,978
                                                                                        ----------        ----------
     Total pretax income (loss) from operations......................................   $   32,504        $  (52,499)
                                                                                        ==========        ==========

Total identifiable assets
  Reinsurance operations
     Investments and other assets....................................................   $  248,270        $  545,449
     Deferred acquisition costs......................................................       26,147            49,374
  Personal operations
     Investments and other assets....................................................      444,340           553,776
     Deferred acquisition costs......................................................       31,675            43,361
  Commercial operations
     Investments and other assets....................................................      252,973           288,685
     Deferred acquisition costs......................................................        3,783            14,224
                                                                                        ----------        ----------
       Total assets..................................................................   $1,007,188        $1,494,869
                                                                                        ==========        ==========
</TABLE>
                                       7
<PAGE>


Note F--Sale of Convertible Preferred Stock

  On September 30, 1999, the Company raised $25.1 million from placement of its
Series A Convertible Preferred Stock. 2,950,000 shares of the Company's
preferred stock were issued at $8.50 per share. Each share of the preferred
stock is convertible into two shares of the Company's common stock.  Dividends
are cumulative at a 9% rate compounded semi-annually. The preferred stock will
automatically be converted into shares of common stock of the Company at the
date the common stock achieves an average closing price of $8.00 per share for
twenty consecutive trading days.


Note G--Sale of Vesta County Mutual Insurance Company

  On September 10, 1999, the Company sold its authority and right to control and
manage the affairs of Vesta County Mutual Insurance Company ("County") for $11.2
million. The Company recognized a gain of $4.8 million, which is included in
other income, during the third quarter of 1999. In 1999, County had $44.5
million of direct written premium, of which $29.6 million was assumed by the
Company. Also in 1999, the Company received $173,000 in interest income from a
$2.5 million surplus debenture issued by County in exchange for the Company's
contribution of capital in a like amount to County. This debenture was repaid by
County in connection with the sale.

Item 2.   Management's Discussion and Analysis of Financial Condition and
Results of Operations

Results of Operations

  Vesta Insurance Group, Inc. (the "Company" or "Vesta") is a holding company
for a group of property and casualty insurance companies (the "Vesta Group").
Currently, the Company predominately writes primary insurance on selected
Personal Lines risks. In the past, the Company's Personal Lines segment
emphasized writing property coverages more than liability. With the addition of
the liability coverage inherent in the sizable book of Personal Auto business
acquired with Shelby, the Company's Personal Lines business is now more evenly
balanced between risks of property damage (which is susceptible to faster
determination of loss but is highly unpredictable) and casualty exposure (which
is more predictable but takes longer to determine).

  In the past, the Company also wrote primary insurance on a variety of
Commercial Lines risks, as well as treaty Reinsurance for small and mid-size
insurance companies and regional specific Reinsurance for large insurance
companies. In each of these segments, the Company focused principally on
property coverages, for which ultimate losses generally can be more promptly
determined than on casualty risks.

  The Company's revenues from operations are derived primarily from net
premiums earned on risks written or reinsured by the Company, investment income
and investment gains or losses while expenses consist primarily of payments for
claims losses and underwriting expenses, including agents' commissions and
operating expenses.

Known Trends and Uncertainties

  The financial position, results of operations, and cash flows of property and
casualty insurers have historically been subject to significant fluctuations due
to competition, A.M. Best ratings, and other factors. Certain known trends and
uncertainties which may affect future results of the Company are discussed more
fully below.

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

                                       8
<PAGE>

  Adverse impacts of insurance rating downgrades:   A.M. Best, which rates
insurance companies based on factors of concern to policyholders, currently
rates the Company's insurance subsidiaries "B".  See Note C  of consolidated
financial statement for further information.

  Litigation:   See Part II, Item 1 for discussion of current status of
litigation.

  Reliance on Performance of Reinsurers:   The Company evaluates the credit
quality of the reinsurers and retrocessionaires to which it cedes business. No
assurance can be given regarding the future ability of any of the Company's
reinsurers to meet their obligations.

  Leverage Impact on Operations:   The Company is highly leveraged, which may
limit the Company's ability to obtain additional financing in the future. Also,
the Company has drawn down the maximum amount available under the revolving
credit facilities.

  Reliance upon Independent Agents:   The Company relies heavily on independent
agents to renew existing business and to attract new business. Vesta cannot be
sure that these agents will continue to sell the Company's insurance to the
individuals they represent.

  Year 2000:   The failure to correct a material Year 2000 ("Y2K") problem could
result in an interruption in, or failure of, the normal business operations of
the Company including the delay in premium or claim processing and the
disruption of service to its customers.


Comparison of Third Quarter 1999 to Third Quarter 1998

Net income for the quarter ended  September 30, 1999  was $5.0 million versus a
net loss of  $(24.8) million  for the quarter ended September 30, 1998. On a
diluted per share basis, net income for the third quarter of 1999 was $.27 per
share versus a net loss of $(1.34) per share for the third quarter of 1998.


Premiums, Loss and Loss Adjustment Expense-Personal Lines

  Gross premiums written for personal lines decreased by $26 million, or 28.6%,
to $65.0 million for the quarter ended September 30, 1999, from $91.0 million
for the quarter ended September  30, 1998. The decline in personal lines gross
written premiums is primarily attributable to declines in the Financial
Services, Vesta County Mutual,  Hawaiian Insurance and Guaranty and Shelby
Insurance Companies, partially offset by the continued rollover of certain
homeowners business from the assumed reinsurance lines.

  Net premiums written for personal lines decreased by $5.4 million, or 8.4%, to
$59.0 million for the quarter ended September 30, 1999, from $64.4 million for
the quarter ended September 30, 1998. Net premiums earned for personal lines
decreased $3.8 million, or 5.9% to $60.5 million for the quarter ended September
30, 1999, from $64.3 million for the quarter ended September 30, 1998. The small
decrease in net premiums earned in relation to the decline in gross written
premiums is largely attributable to the termination on a run off basis of the
20% whole account quota share treaty effective July 1, 1998.

  Loss and loss adjustment expenses ("LAE") for personal lines increased by $.3
million, or .7%, to $40.6 million for the quarter ended September 30, 1999, from
$40.3 million for the quarter ended September 30, 1998. The loss and LAE ratio
for personal lines for the quarter ended September 30, 1999 was 67.1% as
compared to 62.7% at September 30, 1998. The increase in the loss and LAE ratio
is primarily attributable to increased losses related to Hurricane Floyd and
increased losses for Vesta County Mutual partially offset by the recognition of
the deferred gain related to the 20 percent whole account treaty.


                                       9
<PAGE>

Premiums, Loss and LAE-Commercial Lines

  Gross premiums written for commercial lines decreased by $26.0 million, or
84.7%, to $4.7 million for the quarter ended September 30, 1999, from $30.7
million for the quarter ended September 30, 1998, The decrease in gross premiums
for commercial lines is primarily attributable to declining volume as a result
of the Company's election to exit the commercial lines business.

  Net premiums written for commercial lines decreased by $20.1 million or
115.5%, to $(2.7) million for the quarter ended September 30, 1999, from $17.4
million for the quarter ended September 30, 1998. The decline in net written
premiums is primarily attributable to declining volume as a result of the
Company's election to exit commercial lines and a large unearned premium
portfolio transfer in the third quarter of 1999. Net premiums earned for
commercial lines decreased by $7.2 million, or 41.2%, to $10.3 million for the
quarter ended September 30, 1999, from $17.5 million for the quarter ended
September 30, 1998.

  Loss and LAE for commercial lines decreased by $7.2 million, or 45.6%, to $8.6
million for the quarter ended September 30, 1999, from $15.8 million for the
quarter ended September 30, 1998. The loss and LAE ratio for the quarter ended
September 30, 1999 was 83.5% as compared to 90.3% for the quarter ended
September 30, 1998. The decrease in the loss ratio is primarily attributable to
the recognition of the deferred gain related to the 20 percent whole account
quota share treaty.


Premiums, Loss and LAE-Reinsurance

  Gross premiums written for reinsurance increased by $8.6 million, or 97.7% to
$(.2) million for the quarter ended September 30, 1999 from $(8.8) million for
the quarter ended September 30, 1998. The negative gross written premiums in the
quarter ended September 30, 1999 was primarily attributable to the novation of
certain treaties to HartRe, an unearned premium portfolio transfer of one large
reinsurance treaty and the continued roll over of certain homeowners business to
personal lines. The negative reinsurance gross written, net written and earned
premiums for the quarter ended September 30, 1998 were due to the Company's
change in estimation of unreported premium revenue related to its assumed pro
rata contracts as further discussed in Note F.

  Net premiums written for reinsurance increased by $43.1 million, or 145.1% to
$13.4 million for the quarter ended September 30, 1999 from $(29.7) million for
the quarter ended September 30, 1998.  Net premiums earned increased $43.7
million, or 264.8% to $27.2 million for the quarter ended September 30, 1999,
from $(16.5) million for the quarter ended September 30, 1998.

  Loss and LAE for reinsurance increased by $9.5 million, or 339.3%, to $12.3
million for the quarter ended September 30, 1999, from $2.8 million for the
quarter ended September 30, 1998. The loss and LAE ratio for reinsurance for the
quarter ended September 30, 1999 was 45.2% as compared to (17.0)% for the
quarter ended September 30, 1998. The reinsurance loss and LAE incurred for the
quarter ended September 30, 1998 were significantly impacted by the Company's
change in estimation of unreported losses incurred related to its assumed pro
rata contracts as further discussed in Note F.

Net Investment Income

  Net investment income decreased by $1.0 million, or 11.9% to $7.4 million for
the quarter ended September 30, 1999. The weighted average yield on invested
assets (excluding realized and unrealized gains) was 5.1% for the quarter ended
September 30, 1999, compared with 6.2% for the quarter ended September 30, 1998.


Policy Acquisition Expenses and Other Expenses

  Policy acquisition expenses increased by $2.0 million, or 7.8% to $27.7
million for the quarter ended September 30, 1999, from $25.7 million for the
quarter ended September 30, 1998. Other expenses include operating expenses not
directly related to the generation of premium revenue, interest on debt and
goodwill amortization. Operating expenses decreased by $5.1 million. The
underwriting expense ratio was 40.9% in the third quarter of 1999 as compared to
66.1% in the third quarter of 1998. The decrease in the expense ratio is
primarily attributable to the consolidation of the Shelby operations to
Birmingham.


Federal Income Taxes

  Federal income taxes increased by $12.3 million to $3.0 million for the
quarter ended September 30, 1999. This increase was due primarily to the
increase in operating income.

                                      10
<PAGE>

Comparison of Nine Months Ended September 30, 1999 with Nine Months Ended
September 30, 1998

The first nine months of 1999 resulted in a net income  of $18.3 million, an
increase of $58.2 million from the net loss of  $(39.9) million reported for the
same period in 1998.


Premiums, Loss and LAE--Personal Lines

  Gross premiums written for personal lines decreased by $60.7 million, or
22.4%, to $210.3 million for the period ended September 30, 1999, from $271.0
million for the period ended September 30, 1998. The decline in personal lines
gross written premiums is primarily attributable to declines in the Financial
Services, Vesta County Mutual, Hawaiian Insurance and Guaranty and Shelby
Insurance Companies partially offset by the continued roll over of certain
homeowners business from the assumed reinsurance lines.

  Net premiums written for personal lines decreased by $2.5 million, or 1.3%, to
$188.0 million for the period ended September 30, 1999, from $190.5 million for
the period ended September 30, 1998. Net premiums earned for personal lines
increased $9.8 million, or 5.4% to $192.9 million for the period ended September
30, 1999, from $183.1 million for the period ended September 30, 1998. The
increase in premiums earned was largely attributable to the termination on a run
off basis of the 20% whole account quota share treaty effective July 1, 1998.

  Loss and loss adjustment expenses ("LAE") for personal lines increased by $6.4
million, or 5.4%, to $125.2 million for the period ended September 30, 1999,
from $118.8 million for the period ended September 30, 1998. The loss and LAE
ratio for personal lines for the period ended September 30, 1999 was 64.9% as
compared to 64.9% at September 30, 1998.


Premiums, Loss and LAE--Commercial Lines

  Gross premiums written for commercial lines decreased by $53.5 million, or
53.2%, to $47.0 million for the period ended September 30, 1999, from $100.5
million for the period ended September 30, 1998, The decrease in gross premiums
for commercial lines is primarily attributable to declining volume in the Shelby
operations as a result of the Company's election to exit the commercial lines
business.

  Net premiums written for commercial lines decreased by $23.8 million or 47.7%,
to $26.1 million for the period ended September 30, 1999, from $49.9 million for
the period ended September 30, 1998. Net premiums earned for commercial lines
decreased by $6.0 million, or 11.5 %, to $46.2 million for the period ended
September 30, 1999, from $52.2 million for the period ended September 30, 1998.

  Loss and LAE for commercial lines decreased by $7.4 million, or 17.6%, to
$34.7  million for the period ended September 30, 1999, from $42.1 million for
the period ended September 30, 1998. The loss and LAE ratio for the period ended
September 30, 1999 was 75.1% as compared to 80.7% for the period ended September
30, 1998.


Premiums, Loss and LAE--Reinsurance

  Gross premiums written for reinsurance decreased by $229.3 million, or 100.6%
to $(1.3) million for the period ended September 30, 1999 from $228.0 million
for the period ended September 30, 1998. The decrease was primarily attributable
to the commutation and unearned portfolio transfers of several large reinsurance
contracts, novations of certain reinsurance contracts related to the sale of the
reinsurance business and the continued roll over of certain homeowners business
to personal lines.

  Net premiums written for reinsurance decreased by $103.7 million, or 91.9% to
$9.1 million for the period ended September 30, 1999 from $112.8 million for the
period ended September 30, 1998. The decline in net written premiums for
reinsurance is primarily attributable to the decline in gross written premiums,
the novation of certain reinsurance contracts and the 100% reinsurance quota
share treaty entered into effective January 1, 1999. Net premiums earned
decreased $49.1 million, or 36.8% to $84.3 million for the period ended
September 30, 1998, from $133.4 million for the period ended September  30,
1998.

                                      11
<PAGE>

  Loss and LAE for reinsurance decreased by $55.5 million, or 54.3%, to $46.8
million for the period ended September 30, 1999, from $102.3 million for the
period ended September 30, 1998. The loss and LAE ratio for reinsurance for the
period ended September 30, 1999 was 55.5% as compared to 76.7% for the period
ended September 30, 1998. The decrease in the loss and LAE ratio was primarily
due to an increased percentage being ceded to the retrocessionares pursuant to
the Company's ceded reinsurance program including the 100% quota share
reinsurance treaty.

Policy Acquisition Expenses and Other Expenses

  Policy acquisition expenses decreased by $35.8 million, or 29.5% to $85.7
million for the period ended September 30, 1999, from $121.5 million for the
period ended September 30, 1998. The decrease in policy acquisition expenses is
primarily attributable to declines in assumed reinsurance premiums earned. Other
expenses include operating expenses not directly related to the generation of
premium revenue, interest on debt and goodwill amortization. Operating expenses
decreased $7.7 million. The decline in operating expenses is primarily
attributable to declines in salary and information systems expense related to
the consolidation of the Shelby operations. These factors caused the
underwriting expense ratio to decrease from 47.1% for the period ended September
30, 1998 to 40.2% for the period ended September 30, 1999. Goodwill amortization
decreased $4.2 million due to the effect of the 1998 fourth quarter write down
of $74.5 million of goodwill acquired on June 30, 1997 in connection with the
Shelby acquisition.


Net Investment Income

  Net investment income decreased by $2.8 million, or 10.6%, to $23.7 million
for the period ended September 30, 1999, from $26.5 million for the period ended
September 30, 1998. The weighted average yield on invested assets (excluding
realized gains) was 5.7% for the period ended September 30, 1999, compared with
6.1% for the period ended September 30, 1998. The decrease in net investment
income is primarily attributable to a decrease in average invested assets.


Federal Income Taxes

  Federal income taxes increased by $26.8 million, or 160.5%, to $10.1 million
for the period ended September 30, 1999. The effective rate on pre-tax income
decreased from 31.8% to 31.0% for the period ended September 30, 1999. The
decrease in the effective rate is primarily attributable to the decrease in non-
deductible goodwill amortization.


Net Income

  For the reasons discussed above, net income increased by $58.2 million, or
145.9%, to $18.3 million for the period ended September 30, 1999, from a net
loss of  $(39.9) million for the period ended September 30, 1998.


Liquidity and Capital Resources

  The Company 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
Insurance Corporation, ("Vesta Fire"). The insurance subsidiaries comprising the
Vesta Group are individually supervised by various state insurance regulators.
Vesta Fire is the principal operating subsidiary of the Company.

Sources

  As a holding company with no other business operations, the Company relies
primarily upon dividend payments from Vesta Fire to meet its cash requirements
(including its debt service) and to pay dividends to its stockholders.
Transactions between Vesta Fire and the Company, including the payment of
dividends by Vesta Fire, are subject to certain limitations under the insurance
laws of Alabama. Specifically, Alabama law permits the payment of dividends in
any year which, together with other dividends or distributions made within the
preceding 12 months,

                                      12
<PAGE>

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  September 30, 1999, the Company closed a private placement of its Series A
Convertible Preferred Stock with the Birmingham Investment Group, LLC (the
"Group"), in which the Group purchased from the Company 2,950,000 shares of the
Company's preferred stock at $8.50 per share for an aggregate of $25.1 million.
Each share of the preferred stock is convertible into two shares of the
Company's common stock and carries a cumulative dividend rate of 9%, compounded
semi-annually. The preferred stock will automatically be converted into shares
of common stock at the date at which the common stock of the Company achieves an
average closing price of $8.00 per share for twenty consecutive trading days.

  Also on September 30, 1999, the Company established secured revolving credit
facilities (the "Credit Facilities") in the aggregate amount of $20,000,000 with
The Banc Corporation and its banking subsidiary  The Bank, consisting of a
$15,000,000 loan from The Bank and a $5,000,000 loan from The Banc Corporation.
The $15,000,000 loan from The Bank is secured by a pledge of a certificate of
deposit owned by the Company having a face value at least equal to the amount of
said loan. The $5,000,000 loan from The Banc Corporation is secured by (i) an
accommodation collateral assignment by J .Gordan Gaines, Inc. ("Gaines") of
certain of the proceeds to be received under its management contract, effective
January 1, 1999, with the Company's insurance subsidiaries and (ii) an
assignment of dividends which the Company may receive from Gaines. The interest
rate on the principal amount outstanding under the $15,000,000 loan from The
Bank will not exceed 2% over the rate earned on the certificate of deposit
referenced above, provided a higher default rate may apply.  The interest rate
on principal amounts outstanding on the $5,000,000 loan from The Banc
Corporation will not exceed The Bank's prime rate. Each of the Credit Facilities
includes financial covenants which require the Company to maintain certain
minimum financial standards. The loans outstanding under the Credit Facilities
initially mature on September 30, 2001.

  As of September 30, 1999, the Company had drawn down all of the amounts
available for borrowing under the Credit Facilities.

  In June 1999, the Company entered into an agreement with Employers Reinsurance
Corporation to sell the authority and the right to control and manage the
affairs of Vesta County Mutual Insurance Company for $11.2 million. This
transaction was consummated on September 10, 1999.

Uses

  The principal uses of funds at the holding company level are to pay operating
expenses, principal and interest on outstanding indebtedness and dividends to
stockholders if declared by the Board of Directors. During the last three years,
the insurance subsidiaries of the Company have produced operating results and
paid dividends sufficient to fund these needs of the Company. Except for the
regulatory restrictions described above, the Company is not aware of any demands
or commitments of the insurance subsidiaries that would prevent the payment of
dividends to the Company sufficient to meet its anticipated needs (including
debt service) for at least the next twelve months.

  The Company is required to make semi-annual interest payments of $4.4 million
on its $100 million of 8.75% Senior Debentures due 2025 (the "Senior Notes").
The Company is also obligated to make semi-annual interest payments of $4.3
million on its $100 million of 8.525% junior Subordinated Deferrable Interest
Debentures due 2007 (the "Trust Debentures") issued to Vesta Capital Trust I in
connection with its sale of $100 million of 8.525% Capital Securities, subject
to the Company's right to elect to defer such payments. The Company exercised
its right to defer the semi-annual payment on the Trust Debentures which became
due on July 15, 1999, and it may elect to defer future payments on these Trust
Debentures as permitted by their terms. Until such time as the Company resumes
payments on these Trust Debentures (including payment of all accrued and unpaid
amounts due), the Company will not pay any dividends to its common stockholders,
nor may it pay any dividends on its preferred stock issued to the Group on
September 30, 1999.

  Upon the resumption of payments on the Trust Debentures (including payments of
all accrued and unpaid amounts due), the Company expects to declare semi-annual
dividends of approximately $1.1 million on the preferred stock issued to the
Group on September 30, 1999, together with all arrearage on such preferred stock


                                      13
<PAGE>

which accrued since September 30, 1999. A liability of $4.3 million representing
the deferred semi-annual payment on the Trust Debenture due July 15, 1999 has
been recorded in other liabilities.

  The Company must pay scheduled interest and principal payments on the amounts
borrowed under the Credit Facilities, the interest rates on which are described
above.  As of September 30, 1999, approximately $20 million principal amount was
outstanding under the Credit Facilities.

  On September 30, 1999, the Company repaid approximately $56 million owing
under its revolving credit facility with a group of lenders led by First Union
National Bank, as amended (the "Former Credit Facility"). This $56 million
payment was funded primarily from three sources (each of which is described
above): (i) the $11.2 million in proceeds received from the transaction
involving Vesta County Mutual, (ii) the $25 million in proceeds received from
the sale of the Preferred Stock and (iii) the $20 million borrowed under the
Credit Facilities.


Inflation

  The Company does not believe its results have been materially affected by
inflation due in part to the predominantly short-tail nature of its business.
The potential adverse impacts of inflation include: (i) a decline in the market
value of the Company's fixed maturity investment portfolio; (ii) an increase in
the ultimate cost of settling claims which remain unresolved for a significant
period of time; and (iii) an increase in the Company's operating expenses.
Historically, the effect of inflation on the Company's reserves has not been
material.


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.


Year 2000

  The Company and it subsidiaries are proceeding on schedule with efforts to
convert its computer systems to be Y2K compliant. The Company has implemented a
phased approach to transition computer systems to be Y2K compliant.

  The Company has completed all seven phases of the transition for its defined
mission critical systems. Extraneous systems are either being discontinued or
are in the remediation phase at this time. Implementation of Y2K compliance for
these remaining systems was completed before the end of the third quarter of
1999.

  The Company began the assessment phase in October, 1996. From that time
forward, system development and major enhancements to existing systems took Y2K
process requirements into consideration. During the Assessment Phase, a
comprehensive inventory of systems was completed and all date related fields and
code that handled these dates were identified. The Assessment Phase was
completed in December, 1996.

  Once the Company had an understanding of the lines of code and number of date
fields that must be addressed to ensure systems would be made Y2K compliant, the
second phase, Methodology Development, began. The purpose of this phase was to
develop a methodology that would ensure the Company's systems would be made Y2K
compliant and at the same time allow the Company to continue to address the day-
to-day business needs. This phase was completed in March, 1997.

  Part of the Methodology Development Phase was the selection of a business
partner (BP) to assist the Company in the Y2K Compliance effort. This BP had
proven experience in the migration of applications to becoming Y2K compliant and
would provide project management leadership and a team of programming resources
to perform the actual migration.

                                      14
<PAGE>

  The third phase of the Y2K effort was the Pilot Project Phase the purpose of
which was to test/prove the Y2K methodology developed in the prior phase. The
Company selected the reinsurance system as the application to be made Y2K
compliant as the Pilot System. This effort began in March, 1997 and was
completed in June, 1997.

  The fourth phase of the Y2K effort was the Accounting Project Phase the
purpose of which was to verify that the methodology would support the
integration of Y2K compliant systems with non-Y2K compliant systems. Since the
accounting systems interface with the core insurance processing systems in the
transfer of information, the development of interface modules to correctly
handle the translation of dates in both formats was begun and was completed in
October, 1997.

  The fifth phase of the Y2K effort was the All Systems Project Phase the
purpose of which was to convert the core insurance processing systems to Y2K
compliance. Additional personnel were added to the effort for the primary
purpose of testing and validating results. This effort, which was completed on
August 3, 1998 completed the conversion/migration of all the Company's in-house
developed systems to Y2K compliance.

  The Post-Implementation Support and Assurance Phase includes continued
monitoring of Y2K compliance and executing programs to test compliance.

  The Shelby Insurance Companies (SIC) had migrated its commercial lines,
claims, and billing applications to Policy Management Systems Corporation's
(PMSC) Y2K compliant systems prior to its acquisition in 1997. SIC's personal
lines and other miscellaneous internally developed systems remain to be
converted to their Y2K counterpart. The migration effort was completed in
October, 1998. Presently, the core insurance processing systems for SIC are Y2K
compliant while work remains with respect to miscellaneous in-house developed
systems. PMSC will continue to test all systems through 1999.

  As of September 30, 1999, the Company had spent approximately $7.5 million to
bring its systems to Y2K compliance. As of this filing,  the Company has
completed its  Y2K readiness efforts (i.e., upgrade PC hardware, servers,
routers, PC related software, etc.).

  In January, 1999, the Company began its Non-Application Y2K Compliance Phase.
This phase consists of the activities for identifying, evaluating, and
remediating/replacing non mission critical hardware and software.

  Inventories have been completed for hardware and corresponding systems.
External service providers have been identified and letters requesting the
status of their Y2K compliance level have been sent and responses are currently
being received.

  The Company as of this filing, has finished developing its Y2K contingency
plans for its business areas by developing detailed plans to allow the Company
to process its business should one or more systems, internal and/or external,
cause a disruption in the normal daily processing.

  The failure to correct a material Y2K problem could result in an interruption
in, or failure of, the normal business operations of the Company including the
disruption or delay in premium or claim processing and the disruption in service
to its customers. Also the inability to be Y2K compliant of significant third-
party providers of the Company and SIC could result in an interruption in the
normal business operations. Due to the general uncertainty inherent in the Y2K
problem, such failures could materially and adversely affect the Company's
financial position, results of operations and liquidity.

  The Y2K issue is also a concern from an underwriting standpoint regarding the
extent of liability for coverage under various general liability, property and
directors and officers liability and product policies. The Company believes that
potential commercial lines exposure specifically related to the Y2K issue is
minimal as commercial lines business has historically excluded any manufacturing
risks which produce computer and computer dependent products.

  The Insurance Services Office (ISO) recently developed policy language that
clarifies that there is no coverage for certain Y2K occurrences. The liability
exclusion has been accepted in over 40 states and a companion filing for
property has been accepted in at least 20 states at this time. Several states
have not adopted or approved the property exclusion

                                      15
<PAGE>

form citing specifically that there is no coverage under the current property
contracts and therefore, there is no reason to accept a clarifying endorsement.
The Company is currently addressing the Y2K issue by attaching the ISO
exclusionary language to all general liability policies with a rating
classification the Company believes could potentially have Y2K losses. The ISO
exclusionary language endorsement is included on all property policies. These
actions should minimize the Company's exposure to Y2K losses.


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 1995. 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

Litigation

  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 June
1, 1998 and June 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 stockholder's equity of $75.2 million through March
31, 1998.

  Commencing in June, 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 purported 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. The
consolidated amended complaint also added as defendants Torchmark Corporation
and the Company's predecessor 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
conduted 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&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&O insurance policy providing
$25 million in coverage and an excess D&O insurance policy covering for an
additional $25 million in coverage. The issuer of the primary D&O insurance
policy, Cincinnati, has attempted to avoid coverage, and the Company is
vigorously resisting its efforts to do so.

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

  The Company has not currently set aside any financial reserves relating to any
of the above-referenced actions.

  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
June 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 treaty participants accordingly. The
aggregate amount included herein as recoverable from such reinsurers totaled
$47.7 million at September 30, 1999. The Company has collected $34.5 million
from NRMA; the largest participant on the treaty through the draw down of a
letter of credit which was required to be posted since NRMA is a foreign
reinsurer.

NRMA has 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 is seeking return of the $34.5 million. The Company has filed a
demand for arbitration as provided for in the treaty and has filed a motion to
compel arbitration which is currently pending in the United States District
Court action. The Company recently filed for arbitration against the other two
participants on the treaty. 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.

  On September 23, 1999, Torchmark Corporation, 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 operation.

  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 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 operation.

                                      16
<PAGE>

Item 2.   Changes in Securities

  (b) On September 30, 1997, the Company issued 2,950,000 shares of its Series A
      Convertible Preferred Stock, the terms of which are discussed below. The
      holders of the Preferred Stock will have certain rights which are superior
      to those of the holders of the Company's common stock, as more fully
      described in the Company's Proxy Statement mailed to Stockholders on
      August 9, 1999, particularly under the heading "How Will the Issuance of
      the Preferred Stock Affect the Rights of the Existing Common Stock?"

  (c) On September 30, 1999, the Company issued 2,950,000 shares of its Series A
      Convertible Preferred Stock to the Birmingham Investment Group, LLC at a
      purchase price of $8.50 per share, or an aggregate of $25,075,000, in
      cash. This share of the Preferred Stock has a cumulative dividend rate of
      9%, compounded semi-annually, and is convertible into two shares of the
      Company's common stock, subject to adjustment. The Preferred Stock will
      automatically convert into shares of common stock at the date the
      Company's common stock achieves an average closing price of $8.00 per
      share for twenty consecutive trading days.

      This Preferred Stock was issued in reliance on Section 4(2) of the
      Securities Act of 1933, as amended, and Rule 506 promulgated thereunder.
      In relying on this exemption, the Company ensured that the Purchaser (i)
      had adequate access, through its relationships with the Company, to
      information about the Company, and (ii) represented its intention to
      acquire the securities for investment only and not with a view towards any
      distribution thereof. In addition, appropriate legends were affixed to the
      shares representing such Preferred Stock regarding applicable restrictions
      on its transferability.

Item 3.   Default Upon Senior Securities

  None


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

  At a special meeting of stockholders held August 27, 1999, the following
matters were submitted to a vote of stockholders. (Shares Eligible to Vote
18,676,335;  Shares Voted 17,891,398).

1.  Issuance and sale of 2,950,00 shares of the Company's Series A Convertible
Preferred Stock.

Stockholders authorized the issuance and sale of the Preferred Stock described
in Item 2 above.
<TABLE>
<CAPTION>

                                                    For        Against     Abstain   Non-Vote
                                                 ---------    ---------    -------  ---------
<S>                                              <C>          <C>          <C>      <C>
Issuance and sale of 2,950,000 shares of the
Company's Series A Convertible Preferred
Stock.........................................   9,998,381    2,156,197    90,669   5,646,151
</TABLE>


2.     Amendment of Long Term Incentive Plan

The Company's Long Term Incentive Plan ("Incentive Plan") was amended to delete
the limitation on the number of shares subject to awards which may be granted in
any one year. The maximum number of shares subject to awards which may be
granted under the Incentive Plan to any single participant in any one year is
135,675, and was not changed.

<TABLE>
<CAPTION>

                                                    For        Against     Abstain   Non-Vote
                                                 ---------    ---------    -------  ---------
<S>                                              <C>          <C>          <C>      <C>
2. Amendment of The Long Term Incentive Plan..   9,416,147    8,371,768    103,483       0
</TABLE>

Item 5.   Other Information

    None

Item 6.   Exhibits and Reports on Form 8-K

    a) Exhibits


                                      17
<PAGE>

                                  EXHIBITS INDEX
                                  --------------

<TABLE>
<CAPTION>
Exhibit No.                                     Description
------------  --------------------------------------------------------------------------------------------------------
<S>           <C>
   2.1        Agreement, dated March 24, 1999, by and among Hartford Fire Insurance Company, J. Gordon
              Gaines, Inc. and Vesta Fire Insurance Corporation. (filed as an exhibit to the Company's
              Form 8-K, filed on March 25, 1999, and incorporated herein by reference (File No. 112338)).


   3.1        Restated Certificate of Incorporation of the Company, dated September 1, 1993 (filed as an
              exhibit to the Company's Form 10-Q for the quarter ended June 30, 1998, filed on June 16, 1998
              and incorporated herein by reference (File No. 1-12338)).


   3.2        By-Laws of the Company (Amended and Restated as of October 1, 1993) (filed as an exhibit to
              Amendment No. 1 to the Registration Statement on Form S-1 (Registration No. 33-68114) of
              Vesta Insurance Group, Inc., filed on October 18, 1993 and incorporated herein by reference
              (File No. 1-12338)).


   3.3        Certificate of Designation, filed with the Secretary of State of the State of Delaware, establishing
              rights and preferences of the Company's Series A Convertible Preferred Stock.


   4.1        Indenture between the Company and Southtrust Bank of Alabama, National Association, dated
              as of July 19, 1995 (filed as an exhibit to the Company's Form 10-K for the year ended
              December 31, 1995, filed on March 28, 1996 and incorporated herein by reference (File
              No. 1-12338)).


   4.2        Supplemental Indenture between the Company and Southtrust Bank of Alabama, National
              Association, dated July 19, 1995 (filed as an exhibit to the Company's Form 10-K for the year
              ended December 31, 1995, filed on March 28, 1996 and incorporated herein by reference (File
              No. 1-12338)).


   4.3        Indenture dated as of January 31, 1997, between the Company and First Union National Bank
              of North Carolina, as trustee (filed as an exhibit to the Company's Form 10-Q for the quarter
              ended March 31, 1997, filed on May 13, 1997 and incorporated herein by reference (File
              No. 1-12338)).


   4.4        Amended and Restated Declaration of Trust, dated as of January 31, 1997, of Vesta Capital
              Trust I (filed as an exhibit to the Company's Form 10-Q for the quarter ended March 31, 1997,
              filed on May 13, 1997 and incorporated herein by reference (File No. 1-12338)).


   4.5        Capital Securities Guarantee Agreement, dated as of January 31, 1997, between the Company
              and First Union National Bank of North Carolina, as trustee (filed as an exhibit to the
              Company's Form 10-Q for the quarter ended March 31, 1997, filed on May 13, 1997 and
              incorporated by reference (File No. 1-12338)).
</TABLE>

                                      18

<PAGE>

<TABLE>
<CAPTION>


Exhibit No.                                      Description
------------  --------------------------------------------------------------------------------------------------------
<S>           <C>
 10.5         Management Agreement between J. Gordon Gaines, Inc., Liberty National Fire Insurance
              Company, Sheffield Insurance Corporation, Liberty National Insurance Corporation and Vesta
              Insurance Corporation dated November 15, 1994 (filed as an exhibit to the Company's
              Form 10-K for the year ended December 31, 1993, filed on March 28, 1994 and incorporated
              herein by reference (File No. 1-2338)).

 10.6         Form of Restricted Stock Agreement (filed as an exhibit to the Registration Statement on Form
              S-1 (Registration No. 33-68114) of Vesta Insurance Group, Inc., filed on August 31, 1993 and
              incorporated herein by reference (File No. 1-12338)).

 10.7*        The Company's Long Term Incentive Plan as amended effective as of August 27, 1999 (filed as an
              exhibit to the Company's Proxy Statement on Schedule 14A, filed on August 9, 1999 and incorporated herein
              by reference (File No. 1-12338)).

 10.8*        Form of Non-Qualified Stock Option Agreement entered into by and between the Company and
              certain of its executive officers and directors (filed as an exhibit to the Company's Form 10-K
              for the year ended December 31, 1995, filed on March 28, 1996 and incorporated herein by
              reference (File No. 1-12338)).

 10.9*        Cash Bonus Plan of the Company (filed as an exhibit to the Company's Form 10-K for the year
              ended December 31, 1993, filed on March 28, 1994 and incorporated herein by reference (File
              No. 1-2338)).

 10.10*       J. Gordon Gaines, Inc. Post Retirement Benefits Plan (filed as an exhibit to the Company's Form
              10-K for the year ended December 31, 1994, filed on March 29, 1995 and incorporated herein by
              reference (File No. 1-12338)).

 10.11*       J. Gordon Gaines, Inc. Retirement Savings Plan (filed as an exhibit to the Company's Form 10-K
              for the year ended December 31, 1994, filed on March 29, 1995 and incorporated herein by
              reference (File No. 1-12338)).

 10.12*       The Company's Non-Employee Director Stock Plan (filed as an exhibit to the Company's 10-Q
              for the quarter ended June 30, 1995, filed on August 14, 1995 and incorporated herein by
              reference (File No. 1-12338)).

 10.13        Employment Agreement between the registrant and Norman W. Gayle, III, dated as of September 30, 1999.
              (filed as an exhibit to the Registration statement on Form S-1 (Registration No. 333-90473 ) of Vesta
              Insurance Group, Inc., filed on November 5, 1999 and incorporated herein by reference (File No.
              1-12338))

 10.14        Employment Agreement between the registrant and James E. Tait, dated as of September 30, 1999. (filed
              as an exhibit to the Registration statement on Form S-1 (Registration No. 333-90473  ) of Vesta
              Insurance Group, Inc., filed on November 5, 1999 and incorporated herein by reference (File No.
              1-12338))

</TABLE>

                                      19

<PAGE>

<TABLE>
<CAPTION>

Exhibit No.                                 Description
------------  --------------------------------------------------------------------------------------------------------
<S>           <C>
 10.15        Employment Agreement between the registrant and Donald W. Thornton, dated as of September 30, 1999
              (filed as an exhibit to the Registration statement on Form S-1 (Registration No.33-90473) of Vesta
              Insurance Group, Inc., filed on November 5, 1999 and incorporated herein by reference (File No.
              1-12338))


 10.16        Vesta Insurance Group, Inc. Executive Officer Incentive Compensation Plan. (filed as an exhibit to the
              Registration statement on Form S-1 (Registration No. 333-90473  ) of Vesta Insurance Group, Inc., filed
              on November 5, 1999 and incorporated herein by reference (File No. 1-12338))


 10.17        Office Lease between the Company and Torchmark Development Corporation, dated as of April
              20, 1992 (filed as an exhibit to the Company's Form 10-K for the year ended December 31,
              1993, filed on March 28, 1994 and incorporated herein by reference (File No. 1-12338)).


 10.18        Agency Agreement between Liberty National Fire Insurance Company, Vesta Insurance
              Corporation, Sheffield Insurance Corporation, and Overby-Seawell Company (filed as an exhibit
              to Amendment No. 1 to the Registration Statement on Form S-1 (Registration No. 33-68114) of
              Vesta Insurance Group, Inc., filed on October 18, 1993 and incorporated herein by reference
              (File No. 1-12338)).


 10.19        Commercial/Personal Property Risk Excess Reinsurance Contracts, dated July 1, 1993,
              constituting the Company's Direct Per Risk Treaty Program, between Vesta Fire Insurance
              Corporation, and its subsidiary and affiliated companies and various reinsurers (filed as an
              exhibit to Amendment No. 1 to the Registration Statement on Form S-1 (Registration No.
              33-68114) of Vesta Insurance Group, Inc., filed on October 18, 1993 and incorporated herein by
              reference (File No. 1-12338)) renewed July 1, 1997.


 10.20        Specific Regional Catastrophe Excess Contracts, dated January 1, 1996, constituting the
              Company's Regional Property Catastrophe Program, between Vesta Fire Insurance Corporation
              and various reinsurers (filed as an exhibit to the Company's Form 10-K for the year ended
              December 31, 1995, filed on March 28, 1996 and incorporated herein by reference (File No.
              1-12338)). Renewed January 1, 1998.


 10.21        Casualty Excess of Loss Reinsurance Agreements, dated January 1, 1998, constituting the
              Company's Casualty Excess of Loss Reinsurance Program, between Vesta Fire Insurance
              Corporation, Vesta Insurance Corporation, Sheffield Insurance Corporation, Vesta Lloyds
              Insurance Company and Employers Reinsurance Corporation, (filed as an exhibit to the
              Company's Form 10-Q for the quarter ended March 31, 1998, filed on May 13, 1998 and
              incorporated herein by reference (File No. 1-12338)).


 10.22        Amendment to Catastrophe Reinsurance Contracts, dated July 1, 1995, constituting the
              Company's Direct Property Catastrophe Program, between Vesta Fire Insurance Corporation,
              Vesta Insurance Corporation, Sheffield Insurance Corporation, Vesta Lloyds Insurance Company,
              Hawaiian Insurance & Guaranty Company, Limited and various reinsurers. (Filed as an exhibit
              to the Company's Form 10-Q for the quarter ended September 30, 1995, filed on November 14,
              1995 and incorporated herein by reference (File No. 1-12338)). Renewed July 1, 1997.

</TABLE>
                                      20
<PAGE>

<TABLE>
<CAPTION>



Exhibit No.                                    Description
------------  --------------------------------------------------------------------------------------------------------
<S>           <C>
 10.23        Amendment to Catastrophe Reinsurance Contracts, dated January 1, 1996, constituting the
              Company's Direct Property Catastrophe Program, between Vesta Fire Insurance Corporation,
              Vesta Insurance Corporation, Sheffield Insurance Corporation, Vesta Lloyds Insurance Company,
              Hawaiian Insurance & Guaranty Company, Limited and various reinsurers (filed as an exhibit to
              the Company's Form 10-K for the year ended December 31, 1995, filed on March 28, 1996 and
              incorporated herein by reference (File No. 1-12338)). Renewed January 1, 1998.


 10.24        Credit Agreement dated September 30, 1999 between Vesta Insurance Group, Inc. and The Bank establishing
              a $15,000,000 revolving credit facility (filed as an exhibit to the Registration statement on Form S-1
              (Registration No. 333-90473) of Vesta Insurance Group, Inc., filed on November 5, 1999 and incorporated
              herein by reference (File No. 1-12338)).


 10.25        Credit Agreement, dated September 30, 1999, between Vesta Insurance Group, Inc. and The Banc
              Corporation establishing a $5,000,000 revolving credit facility (filed as an exhibit to the
              Registration statement on Form S-1 (Registration No. 333-90473) of Vesta Insurance Group, Inc.,
              filed on November 5, 1999 and incorporated herein by reference (File No. 1-12338)).


 10.26        Stock Purchase Agreement between Anthem Casualty Insurance Group, Inc. and Vesta Insurance
              Group, Inc., Dated April 23, 1997 (filed as an exhibit to the Company's Form 10-Q for the year
              ended September 30, 1997, filed on November 13, 1997 and incorporated herein by reference
              (File No. 1-12338)).


 10.27        Business Transfer and Management Agreement between Vesta Fire Insurance Corporation and its
              affiliated Companies and CIGNA Property and Casualty Insurance Company and its affiliated
              companies, dated January 28, 1998 (filed as an exhibit to the Company's Form 10-K for the year
              ended December 31, 1997, filed on March 27, 1998 (File No. 1-12338)).


 10.28        Agreement for Data Processing Services between Shelby Insurance Company and Policy Management Systems
              Corporation, dated January 1, 1998 (filed as an exhibit to the Company's Form 10-Q for the period from
              June 30, 1998, filed on August 20, 1998 and incorporated herein by reference (File No. 1-12338)).


 10.29        Agreement by and among Hartford Fire Insurance Company, J. Gordon Gaines, Inc. and Vesta Fire Insurance
              Corporation (filed as Exhibit 2.1 to the Company's Form 8-K filed April 12, 1999)

 10.30        Convertible Preferred Stock Purchase agreement by and between Vesta Insurance Group, Inc. and
              Birmingham Investment Group, LLC. (filed as an Exhibit 10.1 to the Company's Form 8-K filed on July 2,
              1999)

 10.31        Acquisition Agreement between Vesta Insurance Group, Inc., Vesta Management Corporation of Texas and
              Employers Reinsurance Corporation (filed as an Exhibit 10.2 to the Company's Form 8-K filed on July 2,
              1999).
</TABLE>

b) Reports on Form 8-K.

None


                                      21
<PAGE>

                                  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 15, 1999
                                             /s/   James E. Tait
                                             -------------------
                                                James E. Tait
                                           Executive Vice President
                                         and Chief Financial Officer
                                        (Principal Financial Officer)

Date: November 15, 1999


                                            /s/   W. Perry Cronin
                                            ---------------------
                                                W. Perry Cronin
                                            Senior Vice President,
                                           Controller and Treasurer
                                         (Principal Accounting Officer)




                                      22