<PAGE>

                                                                    EXHIBIT 10.1
                             AMENDED AND RESTATED
                             MANAGEMENT AGREEMENT

     This Amended and Restated Management Agreement (this "Agreement") is made
effective as of the 1st day of January, 1999 ("Effective Date"), by and between
J. Gordon Gaines, Inc., a Delaware corporation (hereinafter referred to as
"Gaines") and Vesta Fire Insurance Corporation, Sheffield Insurance Corporation,
and Vesta Insurance Corporation (Alabama corporations), Vesta Lloyds Insurance
Company, a Texas Lloyds Company, The Hawaiian Insurance and Guaranty Company,
Limited (a Hawaiian corporation), The Shelby Insurance Company, Affirmative
Insurance Company, Insura Property and Casualty Insurance Company (Ohio
corporations), and Shelby Casualty Insurance Company, (an Indiana corporation)
(all hereinafter collectively referred to as the "Company" and each of which
hereby appoints Vesta Fire Insurance Corporation ("Vesta Fire") as Agent for the
purpose of this Agreement to act and sign on behalf of each of them).

                                   RECITALS

a.   Gaines and the Company (other than Shelby Casualty Insurance Company, which
     is added as a party by this Agreement) are parties to the Management
     Agreement dated November 15, 1993, as previously amended (the "Existing
     Management Agreement"), and now desire to amend and restate the Existing
     Management Agreement as set forth herein and as set forth in Article XI.

b.   Gaines and the Company are affiliated companies, each being a subsidiary of
     Vesta Insurance Group, a Delaware corporation ("Vesta"), a holding company
     for a group of property and casualty insurance companies.

c.   The Company is in the business of writing property and casualty insurance
     and reinsurance in the United States and certain other countries.

d.   Gaines is a general agency and desires to represent the Company for the
     purpose of marketing, underwriting, and providing all administrative
     services for the production and servicing of the various classes of
     property and casualty insurance and reinsurance contemplated by this
     Agreement.

e.   The Company has determined it is desirable and in its best interest to
     enter into this Agreement with Gaines, whereby the Company will take
     advantage of the experience and facilities of Gaines to provide the various
     administrative services as hereinafter set forth.  Gaines has concluded it
     is desirable and in its best interest to enter into this Agreement with the
     Company for the provision of the services and facilities.

f.   The Company is authorized to conduct the insurance and reinsurance business
     contemplated by this Agreement in the several states, territories and
     possessions of the United States and those certain other countries in which
     the parties to this Agreement propose to do business.

g.   Gaines has the required authority to represent the Company as contemplated
     by this Agreement.

                                       1

<PAGE>

     NOW THEREFORE, in CONSIDERATION of the premises and of the mutual covenants
and agreements contained herein, the parties do agree as follows:


                                   ARTICLE I
                             APPOINTMENT OF GAINES

1.01 Subject to the provisions hereof, the Company hereby appoints Gaines as
     its representative for the marketing, underwriting, and servicing of the
     insurance and reinsurance business contemplated under this Agreement.
     Gaines hereby agrees to represent the Company pursuant to the provisions of
     this Agreement.

1.02 Gaines shall represent the Company according to the provisions of this
     Agreement, and shall comply with all applicable laws and regulations of
     each state or other jurisdiction relative to Gaines' performance under this
     Agreement.


                                  ARTICLE II
                                  THE SERVICE

2.01 Gaines shall provide the following goods and services (herein "services")
     to the Company:

     (a)  Furniture and equipment for the Company as may reasonably be required;

     (b)  A computer and system sufficient to administer the insurance and
          reinsurance business, contemplated under this Agreement;

     (c)  A Personnel/Human Resources Department and staff sufficient to provide
          the services contemplated under this Agreement;

     (d)  Maintenance of properly staffed claims, accounting, underwriting,
          personnel/human resources departments and staff to provide other
          administrative services as may reasonably arise with regard to the
          services contemplated and agreed to be provided by Gaines under this
          Agreement;

     (e)  Its internal legal staff for legal advice and assistance;

     (f)  Its internal accounting staff for auditing and accounting advice and
          assistance;

     (g)  Its internal Risk Management/Corporate Insurance Department for advice
          and assistance in the placement of all insurance and other risk
          management services necessary for the operation of the business
          contemplated under this Agreement;

     (h)  Its internal employee benefit staff for advice and assistance in
          connection with employee benefits;

                                       2

<PAGE>

     (i)  Its internal Treasury Department for advice and assistance with
          banking relations, cash management and corporate finance;

     (j)  Its internal Investment Department for advice and assistance in the
          maintenance and the management of the Company's assets and liabilities
          and the assets and liabilities of current employee benefit plans and
          any successor plans operated or established in whole or part for the
          benefit of the employees of Gaines or the Company;

     (k)  Its other staff, of any nature, for advice and assistance in
          connection with such other matters that the parties may from time to
          time require;

     (l)  Billing and collection of premiums;

     (m)  Adjustment and payments of losses and loss adjustment expenses;

     (n)  Receiving and processing applications and issuance of policies of
          insurance in accordance with guidelines and standards established by
          the Company;

     (o)  Maintenance of all necessary records relating to the property and
          casualty insurance and reinsurance contemplated and written through
          the Company pursuant to this Agreement, including policies,
          endorsements, cancellation notices, and other related evidences of
          insurance for a period of time mutually agreed to but not less than
          seven (7) years from date of expiration of coverage;

     (p)  Maintenance of agency records, including licensing of Agents and
          commission accounting;

     (q)  All information which the Company shall require or consider necessary
          for reports required by regulatory authorities;

     (r)  Maintenance of records of the insurance business under its supervision
          pursuant to this Agreement in a form and manner as required by the
          laws and regulations of the various jurisdictions in which the Company
          shall do business;

     (s)  The right to use the service mark of Vesta Insurance Group, Inc.;

     (t)  Such other administrative and other services performed by Gaines under
          this Agreement and those which may arise from time to time as
          contemplated by this Agreement, and although not specifically
          enumerated herein are nevertheless included herein.

2.02 Reports and Remittances; Settlement of Accounts
     -----------------------------------------------

     (a)  Gaines shall furnish the Company as of dates and on forms acceptable
          to Gaines and the Company, reports and accounts in a bordereau format
          within 30 days after the end of each calendar month or at such other
          intervals as the parties hereto may agree.

                                       3

<PAGE>

          The reports and accounts shall reflect the business processed by
          Gaines on behalf of the Company. These reports shall include, but not
          be limited to, the following:

          (1)  Services provided to the Company;

          (2)  Premium bordereaux;

          (3)  Loss and loss adjustment expense bordereaux;

          (4)  Premium and loss reserve reports; and

          (5)  Any other report as required by the Company.

     (b)  Gaines shall remit to the Company, within sixty (60) days of the close
          of the month, all funds due the Company as specified in the premium
          bordereaux (Section 2.02(a)(2)).  The Company shall remit to Gaines,
          within sixty (60) days of the close of the month, all funds due Gaines
          as specified in the loss and loss adjustment expense bordereaux
          (Section 2.02(a)(3)).

     (c)  In lieu of all or part of the requirements of Section 2.02(b), the
          Company shall empower Gaines to establish bank account(s), in the name
          of the Company and in banks approved by the Company, for the purpose
          of depositing or withdrawing funds as specified in Section 2.02(b).

2.03 Cost of Services.
     ----------------

     (a)  The Company agrees to reimburse Gaines for the services agreed to and
          provided by Gaines according to the following schedule:

          (1)  The actual cost incurred by Gaines in providing services under
               Section 2.01 to be paid on a monthly basis; plus

          (2)  An amount equal to 10% of the total actual cost incurred by
               Gaines for services under Section 2.01 to be paid on a monthly
               basis.

     (b)  Gaines agrees to maintain books and records as are necessary and
          appropriate to substantiate the charges made to the Company for
          services performed and expenses incurred by Gaines for the benefit of
          the Company.

2.04 Claims.
     ------

     (a)  Gaines will be responsible for the supervision, adjustment and payment
          of all claims arising under contracts of insurance and reinsurance
          entered into on behalf of the Company pursuant to the terms of this
          Agreement, including, but not limited to:  assignment and supervision
          of all adjusters and investigators; retention of legal counsel;
          negotiation of settlement; acceptance of Proofs of Loss; settlement of

                                       4

<PAGE>

          subrogation and sale of salvage; the issuance of checks for claims
          settlements and payment of all allocated adjustment expenses.

     (b)  Gaines shall be responsible for providing the Company and its
          reinsurers with Notices of Loss and Proofs of Loss.  The Company shall
          be advised monthly of all claims established including reserves, paid
          losses and paid loss adjustment expenses by bordereaux.  Additionally,
          Gaines shall notify the Company and its reinsurers of each claim
          exceeding $25,000 (or lesser amounts if required by the Company).

     (c)  The power hereby granted Gaines with respect to claims handling is
          subject to the supreme authority and instruction of the Company,
          including but not limited to the designation of adjusters, the
          acceptance of declination of liability and the designation of counsel.

     (d)  All allocated loss adjustment expense shall be the responsibility of
          the Company and shall be paid by Gaines on behalf of the Company.

     (e)  Gaines shall be responsible for obtaining payment from reinsurers of
          the Company of that portion of claims and allocated loss adjustment
          expense payments made by Gaines on contracts entered into pursuant to
          this Agreement as shall be required by applicable reinsurance
          contracts of the Company.

     (f)  Gaines, on behalf of the Company, shall maintain claim files and
          records in the form or manner as are needed to supervise and adjust
          settlement of losses.  The records shall be maintained for a period
          not less than as required by the applicable period of limitations of
          the jurisdiction in which the contract of insurance was entered into,
          plus one year and in a place and in a form as is mutually agreed to by
          the parties.

     (g)  Gaines shall furnish the Company claim bordereaux accounts within
          fifteen (15) days from the close of each month showing the detail of
          new claims and reserves, reserve changes, claim and claim expense
          payments in the form as set out from time to time by the Company.
          Gaines shall provide this information monthly as long as there remains
          any liability to the Company under policies issued by Gaines under
          this Agreement.

2.05 Insurance Contracts.  Gaines shall process applications and issue policies
     -------------------
     of property and casualty insurance and reinsurance in accordance with
     guidelines established by the Company and on those classes of risks
     designated in Article VI of this Agreement.  Gaines shall continue to
     utilize current rates, application and policy forms which are presently in
     use.  The forms and rates may be modified from time to time by the Company.
     The Company shall give Gaines appropriate notice in advance of any change
     in rates or forms.  Subject to the terms of the contract of insurance and
     applicable law, the Company may at any time initiate cancellation of any
     contract of insurance issued pursuant to this Agreement.  The Company shall
     give Gaines appropriate notice of any such cancellations it wishes to
     affect.  Upon receipt of such notice, Gaines shall facilitate the
     cancellation of coverages as soon as practical subject to policy provisions
     and applicable law.

                                       5

<PAGE>

2.06 General.
     -------

     (a)  Gaines shall maintain a sufficient staff of competent and trained
          personnel, supplies and equipment to develop, supervise and service
          the business which is subject to this Agreement.

     (b)  Gaines shall use its best efforts to serve faithfully the Company and
          at all times promote and safeguard the best interest of the Company
          and perform all acts necessary to the proper conduct of the Company's
          business on behalf of the Company, including compliance with
          applicable statutes and regulations of the jurisdictions in which
          business is conducted.

     (c)  In jurisdictions in which the Company is licensed to do business,
          Gaines agrees to have properly licensed resident agents for
          countersigning purposes and to maintain Gaines non-resident agents or
          brokers license as may be required by the laws and regulations of the
          jurisdiction.

     (d)  In those jurisdictions in which the Company is operating as a non-
          admitted, foreign insurer, Gaines shall make surplus lines filings
          with the appropriate supervisory officials and pay such taxes as are
          required by the laws and regulations of each jurisdiction.


                                  ARTICLE III
                               OTHER AGREEMENTS

3.01 All expenses incurred by Gaines in the operation of the business covered
     by this Agreement shall be paid by Gaines unless otherwise set forth in
     this Agreement.  To the extent that such expenses actually incurred by
     Gaines relate directly to services performed for a particular Company, one
     hundred percent of this direct expense shall be paid by the Company for
     which the services were performed, except that so long as each of the
     entities comprising the Company in this Agreement cede 100% of their
     business to Vesta Fire, then those entities hereby appoint Vesta Fire
     Insurance Corporation as their agent to pay 100% of this direct expense.
     If expenses incurred by Gaines cannot be allocated to work performed for a
     particular Company, Gaines will be compensated for the expenses in the
     manner described above in Section 2.03 of this Agreement.

3.02 Gaines agrees not to publish or distribute any advertisements, circulars
     or other matter referring to the Company by name without first securing the
     Company's written approval.

3.03 The Company shall have the right and opportunity to inspect and audit all
     records of Gaines relating to this Agreement and all services performed
     hereunder and all charges, fees and allocations made hereunder upon
     reasonable notice to Gaines.  The Company also shall have the right to make
     copies of all such records.

3.04 Notwithstanding any other provision of this Agreement, it is understood
     that the business and affairs of the Company shall be managed by its Board
     of Directors, and to the extent

                                       6

<PAGE>

     delegated by the Board of Directors, by its appropriately designated
     officers. It is hereby specifically acknowledged and agreed by Gaines that
     the Board of Directors and officers of Gaines shall not have any management
     prerogatives or authority with respect to the business affairs and
     operations of the Company, except insofar as the directors or officers are
     acting within the scope of their authority as directors or officers of the
     Company.


                                  ARTICLE IV
                                 CONTRACT TERM

4.01 This Agreement shall continue indefinitely; provided, however, that either
     party may terminate this Agreement with ninety (90) days written notice
     given to the other by  registered mail.  Gaines will, thirty (30) days
     after receipt of notice of cancellation, cease writing any new business on
     behalf of the Company.  It is agreed that business in force pursuant to
     this Agreement will continue until its normal expiration date or next
     anniversary date, whichever comes first, which date shall not extend
     coverage for a period in excess of twelve (12) calendar months beyond the
     termination of this Agreement and Gaines agrees to continue such services,
     as required by this Agreement, applicable to such business.

4.02 It is agreed that during the existence of this Agreement and for a period
     of twelve (12) months after its termination, Gaines shall not solicit,
     accept, produce, or place business written of the type or similar type
     covered by this Agreement from or to any source other than the Company.



                                   ARTICLE V
                           TERMINATION OF AGREEMENT

5.01 In addition to the termination rights set forth in Section 4.01, either
     party shall have the right to terminate this Agreement immediately by
     giving written notice by registered mail to the other if, during the
     duration of this Agreement, either party:

     (a)  shall go into liquidation or if there be appointed for it or its
          assets a rehabilitator, receiver, liquidator, conservator, or trustee
          in bankruptcy or there be commenced against it proceedings for the
          appointment of any such officer or agent by whatever name known and
          such proceedings shall not be dismissed after a reasonable time;

     (b)  shall become insolvent or make an assignment for the benefit of
          creditors; or

     (c)  shall commit or omit any action which gives the other party a right to
          terminate for cause.  For purposes of this Agreement, "for cause"
          shall include (1) a willful violation of applicable insurance laws and
          regulations, (2) violation of any material provision of this
          Agreement, (3) dishonesty, (4) theft, (5) fraud, (6) embezzlement, (7)
          commission of a felony or a crime involving moral turpitude or
          trustworthiness, (8) conduct disloyal to the Company or (9) willful
          disregard of lawful instructions or directions of any officer or
          director of the Company relating to a material matter.

                                       7

<PAGE>

5.02 Upon termination of this Agreement:

     (a)  The Company shall be the owner of all insurance expirations and may
          make and retain copies of all records pertaining to such expirations,
          including agents' copies of dailies as those terms are used and
          understood in insurance parlance.

     (b)  All records that pertain to the business of the Company shall become
          the property of the Company and shall be returned to the Company as
          directed by the Company.

     (c)  Gaines shall supervise the runoff of the business and shall retain
          records or copies of records as may be necessary for that purpose.

     (d)  The Company shall continue to pay Gaines compensation as specified in
          this Agreement and reimburse Gaines for commissions paid to agents
          pursuant to the provisions of this Agreement hereof with regard to
          premium transactions on policies written by Gaines during the term of
          this Agreement.


                                  ARTICLE VI
                                CLASSES OF RISK

6.01 Gaines is authorized, subject to underwriting instructions, rates and
     guides provided in writing by the Company to take applications and issue
     policies of insurance and reinsurance which the Company is authorized to
     write in the various jurisdictions in which it does business.

6.02 Gaines is authorized to solicit on behalf of the Company applications for
     insurance and reinsurance as set out in Section 6.01 above, subject to
     maximum limits of liability as set out by the Company to Gaines from time
     to time.

6.03 Gaines is authorized to secure and execute facultative and other
     reinsurance on behalf of, and as directed by, the Company and in such
     amounts and in such manner as directed by the Company.


                                  ARTICLE VII
                                   INDEMNITY

7.01 Gaines shall indemnify, defend and hold the Company, its directors,
     officers and employees harmless from and against all damages, losses, and
     out-of-pocket expenses (including fees), caused by or arising out of any
     willful failure to perform any obligation or agreement of the Company
     herein.

7.02 The Company shall indemnify, defend and hold Gaines, its directors,
     officers and employees harmless from and against all damages, losses, and
     out-of-pocket expenses (including fees), caused by or arising out of any
     willful failure to perform any obligation or agreement of the Company
     herein.

                                       8

<PAGE>

                                 ARTICLE VIII
                           MISCELLANEOUS PROVISIONS

8.01 This Agreement may not be assigned by Gaines, in whole or in part, unless
     prior written consent is given by the Company.

8.02 Notices hereunder shall be in writing, and may be delivered by hand, first
     class, registered or certified mail, postage prepaid, express delivery, or
     telecopy or other telecommunication device capable of confirmation of
     receipt, addressed to Gaines or the Company, at the address set forth
     below, or at such other address as each party may furnish to the other in
     writing:

          TO GAINES:       Mr. Donald W. Thornton
                           Senior Vice-President and General Counsel
                           J. Gordon Gaines, Inc.
                           3760 River Run Drive
                           P. O. Box 43360
                           Birmingham, Alabama 35243

          TO THE COMPANY:  Mr. Norman Winn Gayle, III
                           President
                           Vesta Fire Insurance Corporation
                           3760 River Run Drive
                           P. O. Box 43360
                           Birmingham, Alabama 35243


                                  ARTICLE IX
                                  ARBITRATION

9.01 As a condition precedent to any right of action hereunder, in the event of
     any dispute or difference between Gaines and the Company hereafter arising
     with respect to this Agreement, it is hereby mutually agreed that the
     dispute or difference shall be submitted to arbitration.  One arbiter shall
     be chosen by the Company, the other by Gaines, and an umpire shall be
     chosen by the two arbiters before they enter upon arbitration, all of whom
     shall be active or retired disinterested executive officers of insurance or
     reinsurance companies.  In the event that either party should fail to
     choose an arbiter within 30 days following a written request by the other
     party to do so and 10 days following a second request, delivered to an
     officer of the party, the requesting party may choose two arbiters who
     shall in turn choose an umpire before entering upon arbitration.  If the
     two arbiters fail to agree upon the selection of an umpire within 30 days
     following their appointment, each arbiter shall nominate three candidates
     within 10 days thereafter, two of whom the other shall decline, and the
     umpire shall be chosen from the two remaining candidates by drawing lots.

9.02 The arbiters shall establish the procedures and rules under which the
     arbitration shall proceed.  The arbiters shall follow the customs and
     practices of the insurance industry and

                                       9

<PAGE>

     consider this Agreement as an honorable engagement rather than merely a
     legal obligation, are relieved of all judicial formalities, and may abstain
     from following the strict rules of law. The majority award of the umpire
     and arbiters shall be final and binding on both parties. Judgment upon the
     final award of the umpire and arbiters may be entered in any court of
     competent jurisdiction.

9.03 Each party shall bear the expenses of its own arbiter, and shall jointly
     and equally bear with the other expense of the umpire and of the
     arbitration.  In the event that the two arbiters are chosen by one party,
     as above provided, the expense of the arbiters, the umpire and the
     arbitration shall be equally divided between the two parties.

9.04 Any arbitration proceeding shall take place in Birmingham, Alabama or such
     other location as may be mutually agreed upon by the parties to this
     Agreement, but notwithstanding the location of the arbitration, all
     proceedings pursuant hereto shall be governed by the  laws of the State of
     Alabama.


                                   ARTICLE X
                                   STATE LAW

     This Agreement is entered into in accordance with the laws of the State of
Alabama and is to be construed accordingly.


                                  ARTICLE XI
                           AMENDMENT AND RESTATEMENT
                       OF EXISTING MANAGEMENT AGREEMENT

     The Existing Management Agreement is amended and restated effective on the
effective date of this Agreement.  This Agreement shall govern the relationship
of Gaines and the Company beginning on the effective date of this Agreement.
Provided, however, the effectiveness of this Amended and Restated Agreement is
subject to the approval of all appropriate regulatory authorities in all states
where approval is required.   If this Amended and Restated Agreement is not
approved by all required regulatory authorities, this Amended and Restated
Agreement shall be void and of no force and the relationship of Gaines and the
Company shall continue to be governed by the Existing Management Agreement.

                                      10

<PAGE>

     IN WITNESS WHEREOF, each of the parties hereto have caused this Agreement
to be executed by its duly authorized officers effective as of the Effective
Date recited above, but actually executed on the dates set forth below.

                              VESTA FIRE INSURANCE CORPORATION,
                              INDIVIDUALLY AND AS AGENT FOR
                              SHEFFIELD INSURANCE CORPORATION, VESTA
                              INSURANCE CORPORATION, VESTA LLOYDS
                              INSURANCE COMPANY, THE HAWAIIAN
                              INSURANCE AND GUARANTY COMPANY,
                              LIMITED, THE SHELBY INSURANCE
                              COMPANY, AFFIRMATIVE INSURANCE
                              COMPANY, INSURA PROPERTY AND
                              CASUALTY INSURANCE COMPANY,
                              AND SHELBY CASUALTY INSURANCE
WITNESS:                      COMPANY

James E. Tait                 By    /s/ Norman W. Gayle, III
---------------------------      ----------------------------------------------
                                    President of Each Company other than
                                    Vesta Lloyds Insurance Company, and
                                    as authorized underwriter for Vesta Lloyds
                                    Insurance Company

                              Date Executed:   Oct. 4, 1999
                                             ----------------------------------

WITNESS:                      J. GORDON GAINES, INC.

James E. Tait                 By    /s/ Donald W. Thornton
---------------------------      ----------------------------------------------
                                    Senior Vice President

                              Date Executed:   Oct. 4, 1999
                                             ----------------------------------

                                      11