<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 March 31, 2000

                                      OR

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

   For the transition period from _________________to_______________________

                        Commission file number 1-12338

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

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

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

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


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

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

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

      The number of shares outstanding of the registrant's common stock,
                      $.01 par value, as of May 10, 2000
                                  18,825,832

                                       1
<PAGE>

                          VESTA INSURANCE GROUP, INC.

                                     Index


                                                                           Page
                                                                           ----
PART I       FINANCIAL INFORMATION

Item 1.      Financial Statements:

             Consolidated Balance Sheets at March 31, 2000 and
             December 31, 1999  ...........................................  1

             Consolidated Statements of Income and Comprehensive
             Income for the Three Months Ended March 31, 2000 and 1999  ...  2

             Consolidated Statements of Cash Flow for the Three Months
             Ended March 31, 2000 and 1999  ...............................  3

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

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

PART II      OTHER INFORMATION

Item 1.      Legal Proceedings  ........................................... 14

Item 2.      Changes in Securities  ....................................... 15

Item 3.      Defaults Upon Senior Securities  ............................. 16

Item 4.      Submission of Matters to a Vote of Security Holders  ......... 16

Item 5.      Other Information  ........................................... 16

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

                                       2
<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>
                                                                                            March 31      December 31,
                                                                                              2000            1999
                                                                                           -----------    ------------
                                                                                           (Unaudited)
<S>                                                                                        <C>             <C>
Assets:
  Investments:
    Fixed maturities available for sale--at fair value (cost: 2000--$320,345;
     1999--$348,760......................................................................   $313,369        $339,429
    Equity securities--at fair value: (cost: 2000--$2,092; 1999--$2,092).................      1,671           1,865
    Short-term investments  .............................................................     78,258         125,026
                                                                                            --------        --------
    Total investments  ..................................................................    393,298         466,320
  Cash...................................................................................     13,580          17,677
  Accrued investment income  ............................................................      7,580           5,460
  Premiums in course of collection (net of allowances for losses of $2,469 in 2000
     and $2,412 in 1999)  ...............................................................     32,572          41,206
  Reinsurance balances receivable  ......................................................    189,078         193,345
  Reinsurance recoverable on paid losses  ...............................................     74,546          77,925
  Deferred policy acquisition costs  ....................................................     36,780          40,357
  Property and equipment  ...............................................................     14,461          15,602
  Income tax receivable  ................................................................         --              --
  Deferred income taxes  ................................................................     13,816          13,489
  Other assets  .........................................................................     21,784          19,514
  Goodwill and other intangibles.........................................................     26,167          24,914
                                                                                            --------        --------
     Total assets  ......................................................................   $823,662        $915,809
                                                                                            ========        ========
Liabilities:
  Reserves for:
    Losses and loss adjustment expenses  ................................................    331,221         354,709
    Unearned premiums  ..................................................................    118,313         133,029
                                                                                            --------        --------
                                                                                             449,534         487,738
  Deferred gain on retroactive reinsurance  .............................................      3,275           3,275
  Reinsurance balances payable  .........................................................      1,860           3,439
  Other liabilities  ....................................................................     13,193          33,191
  Short term debt  ......................................................................         --           5,000
  Long term debt  .......................................................................    107,116         141,876
                                                                                            --------        --------
    Total liabilities  ..................................................................    574,978         674,519
Commitments and contingencies (Note C)
Deferrable Capital Securities  ..........................................................     41,225          41,225
Stockholders' equity
  Preferred stock, $.01 par value, 5,000,000 shares authorized, issued: 2000 and
    1999--2,950,000 shares...............................................................         30              30
  Common stock, $.01 par value, 32,000,000 shares authorized, issued: 2000 and
    1999--18,964,322 shares   ...........................................................        190             190
  Additional paid-in capital  ...........................................................    172,272         179,046
  Accumulated other comprehensive income, net of income tax (benefit) of $(2,589)
    and $(3,346) in 2000 and 1999, respectively ........................................      (4,809)         (6,213)
  Retained earnings  ....................................................................     47,852          41,862
  Treasury stock (138,490 shares at cost at March 31, 2000 and December 31, 1999)........     (6,274)        (13,048)
  Receivable from issuance of restricted stock  .........................................     (1,802)         (1,802)
                                                                                            --------        --------
    Total stockholders' equity  .........................................................    207,459         200,065
                                                                                            --------        --------
    Total liabilities, Deferrable Capital Securities and stockholders' equity  ..........   $823,662        $915,809
                                                                                            ========        ========
</TABLE>


                                       3
<PAGE>

                          VESTA INSURANCE GROUP, INC.

          CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
                 (Amounts in thousands except per share data)

                             STATEMENTS OF INCOME

<TABLE>
<CAPTION>
                                                                                               Three months ended
                                                                                                    March 31 ,
                                                                                                2000         1999
                                                                                               -------     --------
                                                                                                  (Unaudited)
<S>                                                                                           <C>         <C>
Revenues:
  Net premiums written .....................................................................    $56,673     $ 43,641
  Decrease in unearned premiums ............................................................     11,233       61,963
                                                                                                -------     --------
  Net premiums earned ......................................................................     67,906      105,604
  Net investment income ....................................................................      7,065        6,564
  Gain on sale of assumed reinsurance renewal rights .......................................         --       15,000
  Other.....................................................................................        327        1,335
                                                                                                -------     --------
    Total revenues .........................................................................     75,298      128,503
Expenses:
  Losses and loss adjustment expenses incurred .............................................     47,061       61,710
  Policy acquisition expenses ..............................................................     10,278       35,812
  Operating expenses .......................................................................     10,250       11,675
  Interest on debt .........................................................................      3,403        3,757
  Goodwill amortization ....................................................................        151          270
                                                                                                -------     --------
    Total expenses .........................................................................     71,143      113,224
Income from continuing operations before income taxes and deferrable capital securities ....      4,155       15,279
Income taxes ...............................................................................      1,330        4,794
Deferrable capital securities interest, net of income tax ..................................        571        1,362
                                                                                                -------     --------
    Income from continuing operations ......................................................    $ 2,254     $  9,123
Income(loss) from discontinued operations, net of tax.......................................         --         (330)
                                                                                                -------     --------
Income before extraordinary item............................................................      2,254        8,793
Gain on debt extinguishments, net of tax....................................................      4,567           --
                                                                                                -------     --------
Net income..................................................................................      6,821        8,793
Preferred stock dividend....................................................................        563           --
                                                                                                -------     --------
Income available to common shareholders.....................................................    $ 6,258     $  8,793
                                                                                                =======     ========
Basic net income from continuing operations per common share................................    $   .12     $    .49
                                                                                                =======     ========
Basic net income available to common stockholders per common share..........................    $   .33     $    .47
                                                                                                =======     ========
Diluted net income from continuing operations per common share..............................    $   .09     $    .49
                                                                                                =======     ========
Diluted net income per common share.........................................................    $   .28     $    .47
                                                                                                =======     ========
Dividends declared per common share.........................................................    $ .0125     $     --
                                                                                                =======     ========
</TABLE>


                      STATEMENTS OF COMPREHENSIVE INCOME
<TABLE>
<CAPTION>

<S>                                                                                           <C>           <C>
Net income..................................................................................    $ 6,821     $  8,793
Other comprehensive income, net of tax:
  Unrealized gains (losses) on available-for-sale securities net of applicable taxes
    (benefit) of $756 and $(1,002)  in 2000 and 1999, respectively..........................      1,404       (1,861)
                                                                                                -------     --------
Comprehensive Income........................................................................    $ 8,225     $  6,932
                                                                                                =======     ========
</TABLE>

          See accompanying Notes to Consolidated Financial Statements

                                       4
<PAGE>

                          VESTA INSURANCE GROUP, INC.

                      CONSOLIDATED STATEMENTS OF CASH FLOW
                         (Dollar amounts in thousands)
<TABLE>
<CAPTION>
                                                                                               Three months ended
                                                                                                     March 31,
                                                                                              2000            1999
                                                                                           --------        --------
                                                                                                 (Unaudited)
<S>                                                                                        <C>             <C>
Operating Activities:
  Net Income  ..........................................................................   $  6,821        $  8,793
  Adjustments to reconcile net income to cash used in operations:
     Change in:
        Loss and LAE reserves  .........................................................    (23,488)        (20,969)
        Unearned premium reserve  ......................................................    (14,716)        (47,526)
        Reinsurance balances payable  ..................................................     (1,579)          8,881
        Accrued income taxes  ..........................................................      1,328          7,507
        Other liabilities  .............................................................    (20,827)        (11,928)
        Premiums in course of collection  ..............................................      8,634           4,330
        Reinsurance balances receivable  ...............................................      4,267         (17,389)
        Reinsurance recoverable on paid losses  ........................................      3,379          16,113
        Other assets  ..................................................................     (5,643)         (2,684)
     Policy acquisition costs amortized  ...............................................     10,278          39,246
     Policy acquisition costs deferred  ................................................     (6,701)        (13,198)
     Amortization and depreciation  ....................................................      1,284           1,564
     Gain on debt extinguishments.......................................................     (6,717)             --
     Gain on disposition of property, plant and equipment  .............................         --             (29)
                                                                                           --------        --------
        Net cash used in operations  ...................................................    (43,680)        (27,289)
Investing Activities:
  Investments sold or matured:
     Fixed maturities available for sale--matured, called or sold  .....................     37,926          29,778
  Investments acquired:
     Fixed maturities available for sale  ..............................................    (12,066)         (1,000)
  Net decrease (increase) in short-term investments  ...................................     46,768          (8,068)
  Additions to property, plant and equipment  ..........................................         --            (924)
  Dispositions of property, plant and equipment  .......................................         --              31
                                                                                           --------        --------
        Net cash provided from investing activities  ...................................     72,628          19,817
Financing Activities:
  Net proceeds (disposition)long and short term debt  ..................................    (33,045)             --
  Dividends paid  ......................................................................         --            (698)
  Capital contributions and change in receivable from restricted stock  ................                       (584)
                                                                                           --------        --------
        Net cash used in financing activities  .........................................    (33,045)         (1,282)
Increase (decrease) in cash  ...........................................................     (4,097)          (8,754)
Cash at beginning of period  ...........................................................     17,677          25,321
                                                                                           --------        --------
Cash at end of period  .................................................................   $ 13,580        $ 16,567
                                                                                           ========        ========
</TABLE>

          See accompanying Notes to Consolidated Financial Statements

                                       5
<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 adjustments (consisting of normal
recurring accruals) necessary for a fair presentation of results for such
periods. The results of operations and cash flows for any interim period are not
necessarily indicative of results for the full year. These financial statements
should be read in conjunction with the financial statements and related notes
thereto in the Company's audited consolidated balance sheets as of December 31,
1999 and 1998 and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1999 which were filed with the Securities and Exchange
Commission on Form 10-K dated March 30, 2000. 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
three month period ended March 31, 2000 and 1999 was 18,825,832 and 18,691,120,
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 shares outstanding the additional net
effect of potentially dilutive securities or contracts which could be exercised
or converted into common shares and adding back preferred stock dividends to net
income available to common shareholders. Diluted weighted average shares
outstanding for the three month period ended March 31, 2000 and 1999 was
24,764,974 and 18,691,120, respectively.

Earnings per share for discontinued operations and extraordinary gains are as
follows:

                                                March 31,
                                            2000       1999
                                            ----      -----
Basic Earnings per share
    Discontinued Operations                 $ --      $(.02)
    Extraordinary Gain                      $.24         --
Diluted Earnings per share
    Discontinued Operations                 $ --      $(.02)
    Extraordinary Gain                      $.19         --

Note B--Extinguishment of Long Term Debt

  The Company recorded an extraordinary gain of $4.6 million after taxes as a
result of the early redemption of approximately $21.5 million of its 12.5%
Senior Notes due December 30, 2006 and approximately $13.1 million of its 8.75%
Senior Debentures due July 15, 2025. The cash requirements for the early
redemptions was internally generated. The warrants attached to the 12.5% Senior
Notes have been cancelled.


Note C--Commitments and Contingencies

 Securities Litigation

  Subsequent to the filing of its quarterly report on Form 10-Q for the period
ended March 31, 1998 with the Securities and Exchange Commission, the Company
became aware of certain accounting irregularities consisting of inappropriate
reductions of reserves and overstatements of premium income in the Company's
reinsurance business that had been recorded in the fourth quarter of 1997 and
the first quarter of 1998. The Company promptly commenced an internal
investigation to determine the exact scope and amount of such reductions and
overstatements. This investigation concluded that inappropriate amounts had, in
fact, been recorded and the Company determined it should restate its previously
issued 1997 financial statements and first quarter 1998 Form 10-Q. Additionally,
during its internal investigation the Company re-evaluated the accounting
methodology being utilized to recognize earned premium income in its reinsurance
business. The Company had historically reported certain assumed reinsurance
premiums as earned in the year in which the related reinsurance contracts were
entered even though the terms of those contracts frequently bridged two years.
The Company determined that reinsurance

                                       6
<PAGE>

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 class representatives in that action have filed (a)
a consolidated amended complaint alleging that the defendants violated the
federal securities laws and (b) a motion for class certification, which was
granted in 1999. The consolidated amended complaint also added as defendants
Torchmark Corporation and the Company's 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 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 as discussed above, and the
Company is vigorously resisting its efforts to do so.

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

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

                                       7
<PAGE>

 Other Litigation and Arbitration

  The Company, through its subsidiaries, is routinely a party to pending or
threatened legal proceedings and arbitration relating to the regular conduct of
its insurance business. These proceedings involve alleged breaches of contract,
torts, including bad faith and fraud claims and miscellaneous other specified
relief. Based upon information presently available, and in light of legal and
other defenses available to the Company and its subsidiaries, management does
not consider liability from any threatened or pending litigation regarding
routine matters to be material.

  As discussed above, the Company corrected its accounting for assumed
reinsurance business through restatement of its previously issued financial
statements. Similar corrections were made on a statutory accounting basis
through recording cumulative adjustments in Vesta Fire's 1997 statutory
financial statements. The impact of this correction has been reflected in
amounts ceded under the Company's 20 percent whole account quota share treaty
which was terminated on 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 three treaty participants
accordingly. The aggregate amount included herein as recoverable from such
reinsurers totaled $54.4 million at March 31, 1999. The Company has collected
approximately $48.5 million from significant reinsurers via the conversion of
collateral on hand.

  NRMA, one of the participants in the 20 percent whole account quota share
treaty,  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 the treaty and has filed a motion to
compel arbitration which was recently granted in a United States District Court
action. The Company has filed for arbitration against the other two participants
on the treaty and those arbitrations are in their early stages. While management
believes its interpretation of the treaty's terms and computations based thereon
are correct, these matters are in their early stages and their ultimate outcome
cannot be determined at this time.

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

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

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

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

                                       8
<PAGE>

Note D--Subsequent Event

On April 3, 2000, the Company redeemed approximately $22.5 million of its 12.5%
Senior Notes, due December 30, 2006.  The 12.5% Senior Notes have been
completely redeemed with the closing of this transaction. The cash requirement
for the early redemption was generated by a combination of internally generated
funds and a $5 million draw down on the Company's line of credit.


Note E--Segment Information

<TABLE>
<CAPTION>
                                                                                           Period Ended March 31,
                                                                                          ------------------------
                                                                                            2000           1999
                                                                                          --------      ----------
<S>                                                                                       <C>           <C>
Reinsurance operations
  Net premiums earned  .................................................................    $ 11,341   $   33,166
  Net investment income and realized gain  .............................................       1,176        2,368
  Gain on sale of renewal rights  ......................................................          --       15,000
  Underwriting gain (loss)  ............................................................       3,701       (2,650)
                                                                                            --------   ----------
    Total Reinsurance operations........................................................       4,877       14,718
Personal operations
  Net premiums earned  .................................................................      56,565       72,438
  Net investment income and realized gain  .............................................       5,889        4,809
  Other income  ........................................................................         327        1,063
  Underwriting gain (loss)  ............................................................      (3,384)      (1,284)
                                                                                            --------   ----------
    Total Personal operations...........................................................       2,832        4,588
Commercial operations(discontinued)
  Net premiums earned  .................................................................       2,320       18,553
  Net investment income and realized gain  .............................................         241        1,232
  Other income/(expense)  ..............................................................           9          272
  Underwriting loss  ...................................................................        (250)      (2,012)
                                                                                            --------   ----------
    Total Commercial operations (discontinued)..........................................           0         (508)
Other operations
  Interest expense  ....................................................................       3,403        3,757
  Goodwill..............................................................................         151          270
                                                                                            --------   ----------
    Total pretax income from operations  ...............................................    $  4,155   $   14,771
                                                                                            ========   ==========

Total indentifiable assets
  Reinsurance operations
    Investments and other assets  ......................................................    $ 70,013   $  393,400
    Deferred acquisition costs  ........................................................       6,555       27,127
  Personal operations
    Investments and other assets  ......................................................     691,117      528,421
    Deferred acquisition costs  ........................................................      29,897       39,644
  Commercial operations
   Investments and other assets  .......................................................      99,008      285,839
   Deferred acquisition costs  .........................................................         328        8,138
                                                                                            --------   ----------
    Total assets  ......................................................................    $826,905   $1,282,569
                                                                                            ========   ==========
</TABLE>

                                       9
<PAGE>

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

Results of Operations

  The Company writes primary insurance on selected Personal lines risks only,
balanced between risks of property damage (which is susceptible to faster
determination of ultimate loss but is highly unpredictable) and casualty
exposure (which is more predictable but takes longer to determine the ultimate
loss).

  In the past, we 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, we focused principally on property coverages, for which ultimate
losses generally can be more promptly determined than on casualty risks.  In
1999, we sold the rights to a substantial portion of our reinsurance assumed
business for a pre-tax gain of $15 million (a large block of policies 100%
reinsured from CIGNA was retained and is being converted from assumed to
direct), and decided to discontinue our commercial lines segment.  The
commercial lines segment is discussed herein as a discontinued operation.

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

Known Trends and Uncertainties

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

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

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

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

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

  Competition: The 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. We also face competition from
foreign insurance companies, captive insurance companies and risk retention
groups. In the future, the industry, including us, may face increasing insurance
underwriting competition from banks and other financial institutions.

  Litigation: See "Part II Item 1--Legal Proceedings" and Note C to the
Consolidated Financial Statements for discussion of the current status of
litigation.

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

                                       10
<PAGE>

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

 Comparison of First Quarter 2000  to First Quarter 1999

  Net income decreased by $2.0 million, or 22.7%, to $6.8 million for the
quarter ended March 31, 2000, from $8.8 million for the quarter ended March 31,
1999. On a diluted per share basis, net income for the first quarter of 2000 was
$.28 per share versus net income of $.47 per share for the first quarter of
1999. The decrease in net income is primarily attributable to a $9.8 million
after tax gain from the sale of certain reinsurance renewal rights in the
reinsurance segment in the first quarter of 1999 partially offset by a $4.6
million extraordinary gain from extinguishment of debt recorded in the first
quarter of 2000.


 Premiums, Loss and LAE--Personal Lines

  Gross premiums written for personal lines decreased by $19.5 million, or
26.4%, to $54.4 million for the quarter ended March 31, 2000, from $73.9 million
for the quarter ended March 31, 1999. The decline in personal lines gross
written premiums is primarily attributable to the sale of Vesta County Mutual
which accounted for $16.9 million of gross written premium in the first quarter
of 1999. The remaining $2.6 million decrease in gross premium written was due to
declines in the homeowner's and auto lines.

  Net premiums written for personal lines decreased by $16.8 million, or 25.4%,
to $49.1 million for the quarter ended March 31, 2000, from $65.9 million for
the quarter ended March 31, 1999. Net premiums earned for personal lines
decreased $15.9 million, or 21.9% to $56.5 million for the quarter ended March
31, 2000, from $72.4 million for the quarter ended March 31, 1999. The decrease
in net premiums written and net premiums earned are primarily attributable to
the decrease in gross written premiums.

  Loss and loss adjustment expenses ("LAE") for personal lines decreased by
$6.8 million, or 14.6%, to $39.8 million for the quarter ended March 31, 2000,
from $46.6 million for the quarter ended March 31, 1999. The loss and LAE ratio
for personal lines for the quarter ended March 31, 2000 was 70.4% as compared to
64.3% at March 31, 1999. The decrease in loss and LAE incurred is primarily
attributable to the decline in earned premium. The increase in the loss and LAE
ratio is primarily attributable to higher losses from multiple storms occurring
during the quarter.


 Premiums, Loss and LAE--Reinsurance

  Gross premiums written for reinsurance increased by $23.3 million, or 163.0%
to $9.0 million for the quarter ended March 31, 2000 from $(14.3) million for
the quarter ended March 31, 1999.  The increase in gross written premiums is
primarily attributable to the novation of certain treaties to Hart Re in the
first quarter of 1999.

  Net premiums written for reinsurance increased by $29.8 million, or 133.6% to
$7.5 million for the quarter ended March 31, 2000 from $(22.3) million for the
quarter ended March 31, 1999. The increase in net written premiums for
reinsurance is primarily attributable to the large unearned portfolio transfer
in the first quarter of 1999 related to the 100% reinsurance quota share treaty
entered into effective January 1, 1999 with Hart Re. Net premiums earned
decreased $21.8 million, or 65.8% to $11.4 million for the quarter ended March
31, 2000, from $33.2 million for the quarter ended March 31, 1999. The decline
in net premiums earned was primarily attributable to the sale of a substantial
portion of our reinsurance assumed business to Hart Re.

  Loss and LAE for reinsurance decreased by $7.8 million, or 51.9%, to $7.3
million for the quarter ended March 31, 2000, from $15.1 million for the quarter
ended March 31, 1999. The loss and LAE ratio for  assumed reinsurance for the
quarter ended March 31, 2000 was 64.1% as compared to 64.3% for the quarter
ended March 31, 1999. The decrease in loss and LAE incurred for assumed
reinsurance was primarily due to a decrease in net premiums earned.

                                       11
<PAGE>

 Policy Acquisition Expenses and Other Expenses from Continuing Operations

  Policy acquisition expenses decreased by $25.5 million, or 71.3% to $10.3
million for the quarter ended March 31, 2000, from $35.8 million for the quarter
ended March 31, 1999. The decrease in policy acquisition expenses is primarily
attributable to declines in earned premium. Other expenses include operating
expenses not directly related to the generation of premium revenue, interest on
debt and goodwill amortization. Operating expenses decreased $1.4 million. These
factors caused the underwriting expense ratio to decrease from 45.0% in the
first quarter of 1999 to 30.3% in the first quarter of 2000.

 Net Investment Income from Continuing Operations

  Net investment income increased by $.5 million, or 7.6%, to $7.1 million for
the quarter ended March 31, 2000, from $6.6 million for the quarter ended March
31, 1999. The weighted average yield on invested assets (excluding realized and
unrealized gains) was 8.7% for the quarter ended March 31, 2000, compared with
6.0% for the quarter ended March 31, 1999. The increase in investment income is
primarily attributable to the increased investment yield resulting from a lower
percentage of tax exempt securities in the current portfolio.

 Federal Income Taxes

  Federal income taxes decreased by $3.5 million, or 72.9%, to $1.3 million for
the quarter ended March 31, 2000. The effective rate on pre-tax income was 32.0%
for the quarters ended March 31, 2000 and 1999.


 Income/(loss) from discontinued operations, net of tax

   Net premiums earned for commercial lines decreased by $16.2 million, or
87.5%, to $2.3 million for the quarter ended March 31, 2000, from $18.5 million
for the quarter ended March 31, 1999 as a result of the Company's exit from the
commercial lines.

  Loss and LAE for commercial lines decreased by $10.1 million, or 87.6%, to
$1.4 million for the quarter ended March 31, 2000, from $11.5 million for the
quarter ended March 31, 1999. The loss and LAE ratio for the quarter ended March
31, 2000 was 61.5% as compared to 38.0% for the quarter ended March 31, 1999.
The increase in loss and LAE ratio is primarily attributable to run off of the
commercial lines business. Policy acquisition expenses decreased $4.2 million as
a result of decreased earned premium. Operating expenses decreased $3.9 million,
from $4.4 million for the quarter ended March 31, 1999 to $.5 million for the
quarter ended March 31, 2000. The decrease was largely attributable to reduced
expenses from workforce reductions consistent with discontinuing the business.

Liquidity and Capital Resources

  Vesta is a holding company whose principal asset is its investment in the
capital stock of the companies constituting the Vesta Group, a group of wholly
owned property and casualty insurance companies including Vesta Fire. The
insurance subsidiaries comprising the Vesta Group are individually supervised by
various state insurance regulators. Vesta Fire is our principal operating
subsidiary and reinsures substantially all business from our other operating
subsidiaries.

 Dividends

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

  As a holding company with no other business operations, we rely primarily upon
dividend payments from Vesta Fire to meet our cash requirements (including its
debt service) and to pay dividends to our stockholders.

                                       12
<PAGE>

Transactions between Vesta and its insurance subsidiaries, including the payment
of dividends to Vesta by such subsidiaries, are subject to certain limitations
under the insurance laws of those subsidiaries' domiciliary states. The
insurance laws of the state of Illinois, where Vesta Fire is domiciled, permit
the payment of dividends in any year which, together with other dividends or
distributions made within the preceding 12 months, do not exceed the greater of
10% of statutory surplus as of the end of the preceding year or the net income
for the preceding year, with larger dividends payable only after receipt of
prior regulatory approval.

  Non-recurring Sources

   On September 30, 1999, we established collateralized revolving credit
facilities in the aggregate amount of $20 million with The Banc Corporation and
its banking subsidiary The Bank, consisting of a $15 million loan from The Bank
and a $5 million loan from The Banc Corporation

   On December 30, 1999, we repaid $15 million of the principal amount
outstanding under The Banc credit facilities and cancelled the related credit
agreements. In connection with the repayment of this debt, we restructured our
commercial credit facility to consist of the following lines of credit, each of
which was provided by The Bank:

   .  a $5 million unsecured line;

   .  an additional $10 million line, secured by a pledge of the management
      contract between our wholly owned management company, J. Gordon Gaines,
      Inc., and our operating insurance subsidiaries.

Each of these credit facilities bore interest at The Bank's prime rate and were
to mature on December 29, 2001. As of December 31, 1999, we had borrowed all $5
million available under the unsecured line, and we had not borrowed any amounts
under the $10 million secured line.  On February 29, 2000 we repaid the
remaining $5 million outstanding on the revolving line of credit and cancelled
the related credit agreement effective February 29, 2000.

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

   .  a $7.5 million unsecured line which bears interest at First Commercial's
      prime rate +1/4%;

   .  an additional $7.5 million line which bears interest at First Commercial's
      prime rate, secured by a pledge of the management contract between our
      wholly owned management company, J. Gordon Gaines, Inc., and our operating
      insurance subsidiaries.

Each of these newly established credit facilities mature on December 31, 2002.
In addition, the credit agreements related to these facilities contain typical
financial covenants which require us to maintain certain financial standards.
As of March 31, 2000, $15 million of the credit facility is available.
Subsequently on April 3, 2000 the Company drew $5 million from the credit
facility to partially fund a debt repurchase.


 Long Term Debt and Preferred Stock

  In 1995, we issued $100 million principal amount of our 8.75% Senior
Debentures due 2025. As of December 31, 1999, all $100 million of these senior
debentures remained outstanding. We purchased $4.5 million of these Senior
Debentures from one of the holders for approximately $3.3 million plus accrued
interest through March 14, 2000.  Also on March 27, 2000 we purchased $8.7
million of these Senior Debentures from one of the holders for approximately
$6.5 million, plus accrued interest, through the closing date of the
transaction.

  In 1997, our single purpose finance subsidiary, Vesta Capital Trust I, issued
$100 million principal amount of its 8.525% Deferrable Interest Capital
Securities. We have unconditionally guaranteed Vesta Capital Trust's obligation
to make semi-annual distributions on these capital securities, and we have
issued a debenture in a like amount to Vesta Capital Trust which requires us to
make interest payments in the same amounts and at the same time as the
distributions which are payable on these capital securities. The terms of the
capital securities and the underlying debenture permit us to defer interest
payments on the debentures, and, therefore, distributions on the capital
securities, for up to ten years. We exercised this right of deferral with
respect to the semi-annual payment originally due July 15, 1999. While we have
elected to resume payment on these capital securities effective January 15,
2000, including all accrued amounts due since July 15, 1999, we may elect to
defer payments again in the future.

                                       13
<PAGE>

In the event we elect to defer such payments again in the future, we will not be
permitted to pay any dividends on our common stock or other equity securities,
including the preferred stock held by the Birmingham Investment Group, LLC.

  On December 30, 1999, the Company exchanged $58.8 million of the Deferrable
Capital Securities for $44.1 million of 12.5% Senior Notes, due 2005. The
resulting after-tax gain of $9.5 million was recorded directly to retained
earnings. As of December 31, 1999, approximately $41.2 million of the 8.525%
Deferrable Capital Securities and $44.1 million of the 12.50% Senior Notes
remained outstanding.  On March 20, 2000, we purchased approximately $21.6
million of these Senior Notes from one of the holders for approximately $17.7
million plus accrued interest through March 14, 2000.  On April 3, 2000, we
redeemed the remaining $22.5 million 12.5% Senior Notes for approximately $20.5
million plus accrued interest through April 7, 2000.

  On September 30, 1999, we issued approximately $25 million of our Series A
Convertible Preferred Stock to the Birmingham Investment Group, LLC in which we
sold 2,950,000 shares of our preferred stock at $8.50 per share. Each share of
the preferred stock is convertible into two shares of our 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 our common stock achieves an average closing price of $8.00
per share for twenty consecutive trading days. As of March 31, 2000, all $25
million of this preferred stock remained outstanding.

  Annual distribution obligations for the Company's long term debt and preferred
stock outstanding at March 31, 2000 are as follows:


<TABLE>
<CAPTION>
              Security                           Principal                Annual Interest Obligation
-------------------------------------  ------------------------------  --------------------------------
<S>                                     <C>                             <C>
8.75% Senior Debentures due 2025               $86.8 million                     $7.6 million
8.525% Deferrable Capital Securities
due 2027                                       $41.2 million                     $3.5 million
12.5% Senior Notes due 2005                    $22.5 million                     $2.8 million
Series A convertible Preferred Stock            $25 million                     $2.25 million
</TABLE>


 Subsidiaries

  The principal sources of funds for our insurance subsidiaries are premiums,
investment income and proceeds from the sale or maturity of invested assets.
Such funds are used principally for the payment of claims, operating expenses,
commissions and the purchase of investments. On a consolidated basis, net cash
used in operations for the period ended March 31, 2000 and 1999, was $(43.7)
million and $(27.3) million, respectively. The net cash used in operations is
primarily attributable to the declines in loss reserves and unearned premium
reserves as a result of the Company's exit from the reinsurance assumed and
commercial lines business.

  As of March 31, 2000, the Company's investment portfolio consisted of short-
term investments (20.4%), U.S. Government securities (15.5%), mortgage-backed
securities (20.4%), corporate bonds (32.9%), foreign government securities
(0.9%), municipal bonds (7.1%) and equity securities (0.5%). The Company expects
current cash flow to be sufficient to meet operating needs, although invested
assets have been categorized as available for sale in the event short-term cash
needs exceed available resources. The Company adjusts its holdings of cash,
short-term investments and invested assets available for sale according to its
seasonal cash flow needs.

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

                                       14
<PAGE>

  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

  We do not believe we experienced any material operational problems as a result
of the date change to the Year 2000. However, 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. We believe that minimal coverage could exist under some
current liability and product policies. This exposure should be 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
providing that there is no coverage for certain Y2K occurrences. The liability
exclusion has been accepted in over forty states and a companion filing for
property has been accepted in at least twenty states at this time. Several
states have not adopted or approved the property exclusion form citing
specifically that, because there is no coverage under the current property
contracts, there is no reason to accept a clarifying endorsement. We addressed
the Y2K issue by attaching the ISO exclusionary language to all general
liability policies with a rating classification which we believed could
potentially have Y2K losses. The Insurance Services Office exclusionary language
endorsement is included on all property policies. We believe these actions
should minimize our exposure to Y2K losses.

  The foregoing information constitutes a Year 2000 Readiness Disclosure
pursuant to the Year 2000 Information and Readiness Disclosure Act.


Special Note Regarding Forward-Looking Statements

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


                                    PART II

                          Item 1.   Legal Proceedings

Securities Litigation

  Subsequent to the filing of its quarterly report on Form 10-Q for the period
ended March 31, 1998 with the Securities and Exchange Commission, the Company
became aware of certain accounting irregularities consisting of inappropriate
reductions of reserves and overstatements of premium income in the Company's
reinsurance business that had been recorded in the fourth quarter of 1997 and
the first quarter of 1998. The Company promptly commenced an internal
investigation to determine the exact scope and amount of such reductions and
overstatements. This investigation concluded that inappropriate amounts had, in
fact, been recorded and the Company determined it should restate its previously
issued 1997 financial statements and first quarter 1998 Form 10-Q. Additionally,
during its internal investigation the Company re-evaluated the accounting
methodology being utilized to recognize earned premium income in its reinsurance
business. The Company had historically reported certain assumed reinsurance
premiums as earned in the year in which the related reinsurance contracts were
entered

                                       15
<PAGE>

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 class representatives in that action have filed (a)
a consolidated amended complaint alleging that the defendants violated the
federal securities laws and (b) a motion for class certification, which was
granted in 1999. The consolidated amended complaint also added as defendants
Torchmark Corporation and the Company's 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 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 as discussed above, and the
Company is vigorously resisting its efforts to do so.

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

  There matters are still in their early stages and their ultimate outcome
cannot be determined.  The Company has not currently set aside any financial
reserves relating to any of the above-referenced actions.

                                       16
<PAGE>

 Other Litigation and Arbitration

  The Company, through its subsidiaries, is routinely a party to pending or
threatened legal proceedings and arbitration relating to the regular conduct of
its insurance business. These proceedings involve alleged breaches of contract,
torts, including bad faith and fraud claims and miscellaneous other specified
relief. Based upon information presently available, and in light of legal and
other defenses available to the Company and its subsidiaries, management does
not consider liability from any threatened or pending litigation regarding
routine matters to be material.

  As discussed above, the Company corrected its accounting for assumed
reinsurance business through restatement of its previously issued financial
statements. Similar corrections were made on a statutory accounting basis
through recording cumulative adjustments in Vesta Fire's 1997 statutory
financial statements. The impact of this correction has been reflected in
amounts ceded under the Company's 20 percent whole account quota share treaty
which was terminated on 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 three treaty participants
accordingly. The aggregate amount included herein as recoverable from such
reinsurers totaled $54.4 million at March 31, 2000. The Company has collected
approximately $48.5 million from significant reinsurers via the conversion of
collateral on hand.

  NRMA, one of the participants in the 20 percent whole account quota share
treaty,  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 the treaty and has filed a motion to
compel arbitration which was recently granted in a United States District Court
action. The Company has filed for arbitration against the other two participants
on the treaty and those arbitrations are in their early stages. While management
believes its interpretation of the treaty's terms and computations based thereon
are correct, these matters are in their early stages and their ultimate outcome
cannot be determined at this time.

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

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

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

  On June 23, 1999, a subsidiary of Torchmark filed suit in the Circuit Court of
Jefferson County, Alabama against two subsidiaries of the Company. The lawsuit
claims that the Company's subsidiaries have failed to pay certain sums due under
a marketing and administrative services agreement between the parties. The suit
also seeks payment of certain commissions and administrative expenses. This
litigation is in its 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.

                                       17
<PAGE>

Item 2.   Changes in Securities

  None.

Item 3.   Defaults Upon Senior Securities

  None.

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

  None.

Item 5.   Other Information
  None.

                                       18
<PAGE>

<TABLE>
<CAPTION>
                                                   EXHIBITS INDEX

 Exhibit
 No.                                                 Description
----------  ---------------------------------------------------------------------------------------------------
<S>         <C>
 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)).

10.1        Separation and Public Offering Agreement between Torchmark Corporation and the Company
            dated September 13, 1993 (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)).

10.2        Marketing and Administrative Services Agreement between Liberty National Fire Insurance
            Company, Liberty National Insurance Corporation and Liberty National Life Insurance Company
            dated September 13, 1993 (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)).
</TABLE>

                                       19
<PAGE>

<TABLE>
<CAPTION>
 Exhibit
 No.                                                 Description
----------  ---------------------------------------------------------------------------------------------------
<S>         <C>
10.3        Investment Services Agreement between Waddell & Reed Asset Management Company and the
            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)) dated September 13, 1993.

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 May 16, 1995 (filed as an
            exhibit to the Company's Form 10-Q for the quarter ended June 30, 1995, filed on August 14,
            1995 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.

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.)

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.)
</TABLE>


                                       20
<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. 333-90473)
            of Vesta Insurance Group, Inc., filed on November 5, 1999 and incorporated herein by reference.)

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.)

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>

                                       21
<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 March 3, 2000 between Vesta Insurance Group, Inc. and First Commercial Bank
            establishing a $7.5 million revolving unsecured credit facility.

10.25 +     Credit Agreement, dated March 3, 1999, between Vesta Insurance Group, Inc. and First Commercial
            Bank establishing a $7.5 million revolving secured credit facility.

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 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,
            Inc. and Employers' Reinsurance Corporation (filed as Exhibit 10.2 to the Company's Form 8-K filed
            on July 2, 1999)

27    +     Financial Data Schedule

99.1        Risk Factors (filed as an exhibit to the Company's Form 10-K for the year ended December 31, 1999,
            filed on March 30, 2000 and incorporated herein by reference (File No. 1-12338))
</TABLE>
_______
*These are the Company's compensatory plans.
 +Filed herewith.

b)   Reports on Form 8-K.
      None
Exhibit 11. Statement re computation of per share earnings

                                       22
<PAGE>

                          VESTA INSURANCE GROUP, INC.

                       COMPUTATION OF EARNINGS PER SHARE

<TABLE>
<CAPTION>
                                                                                           Period Ended March 31,
                                                                                         --------------------------
<S>                                                                                         <C>            <C>
                                                                                              2000           1999
                                                                                            -------        -------
                                                                                           (in thousands except per
                                                                                                  share data)
BASIC EARNINGS PER SHARE:
   Weighted average common shares outstanding.........................................       18,826         18,691
   Net Income available to common shareholders........................................      $ 6,258        $ 8,793
   Basic earnings per share...........................................................      $  0.33        $  0.47
DILUTED EARNINGS PER SHARE:
   Weighted average common shares outstanding.........................................       18,826         18,691
   Net effect of the assumed exercise of stock options and nonvested restricted
    stock-based on the treasury stock method using average market price for the
    year..............................................................................        5,939              0
                                                                                            -------        -------

   Total weighted average common shares and common stock equivalents outstanding .....       24,765         18,691
   Net income.........................................................................      $ 6,821        $ 8,793
   Diluted earnings per share.........................................................      $  0.28        $  0.47
                                                                                            =======        =======
</TABLE>

                                       23
<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 thereunto
duly authorized.


                                  Vesta Insurance Group, Inc.



Date: May 15, 2000

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



Date: May 15, 2000


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

                                       24