A.M. Best Places Ratings of Mercer Insurance Group and Mercer Insurance Group, Inc. Under Review with Negative Implications

A.M. Best Co. has placed under review with negative implications the financial strength rating (FSR) of A (Excellent) and issuer credit rating (ICR) of “a” of Mercer Insurance Group (MIG) and its members. Concurrently, A.M. Best has placed under review with negative implications the ICR of “bbb” of Mercer Insurance Group, Inc. (Mercer, Inc.) (headquartered in Pennington, NJ) (NASDAQ: MIGP). (See below for a detailed listing of the companies.)

These rating actions follow the announcement that United Fire & Casualty Company (UFCS) (Cedar Rapids, IA) (NASDAQ: UFCS) has entered into a merger agreement to acquire all of the outstanding stock of Mercer, Inc. Under the terms of the agreement, UFCS will pay $28.25 per share in cash, with an aggregate transaction value of approximately $191 million, excluding transaction costs. The acquisition is expected to close during the first quarter of 2011.

The negative implications are reflective of the potential drag, which may be applied to MIG and Mercer, Inc., due to the negative rating outlook currently assigned to UF&C. The ratings will remain under review pending regulatory approval and discussions with management.

MIG’s ratings reflect its favorable capitalization, solid operating performance and conservative management philosophy. The group continues to record favorable underwriting results, which have been an important driver of strong pre-tax returns on both revenue and surplus that either meet or exceed industry peers.

These positive rating factors are partially offset by Mercer Inc.’s elevated expense structure and the risks associated with possible further adverse development on its construction defect liabilities. MIG’s East Coast operations’ are focused on writing homeowners’ and commercial lines coverages, including workers’ compensation, commercial automobile and a religious institution package policy. MIG’s western operations, principally California, largely consist of underwriting small- to medium-size contractors, manufactures, retail services and wholesale sectors.

The FSR of A (Excellent) and ICR of “a” have been placed under review with negative implications for Mercer Insurance Group and its following members:

• Mercer Insurance Company
• Mercer Insurance Company of New Jersey, Inc.
• Franklin Insurance Company
• Financial Pacific Insurance Company

The principal methodology used in determining these ratings is Best’s Credit Rating Methodology -- Global Life and Non-Life Insurance Edition, which provides a comprehensive explanation of A.M. Best’s rating process and highlights the different rating criteria employed. Additional key criteria utilized include: “Risk Management and the Rating Process for Insurance Companies”; “Understanding BCAR for Property/Casualty Insurers”; “Rating Members of Insurance Groups”; and “A.M. Best’s Ratings & the Treatment of Debt.” Methodologies can be found at www.ambest.com/ratings/methodology.

Founded in 1899, A.M. Best Company is the world's oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.

Copyright © 2010 by A.M. Best Company, Inc. ALL RIGHTS RESERVED.