A.M. Best Places Ratings of First Mercury Financial Corporation and Its Subsidiaries under Review with Positive Implications

A.M. Best Co. has placed under review with positive implications the financial strength rating (FSR) of A- (Excellent) and issuer credit ratings (ICR) of “a-” of First Mercury Group (First Mercury) (Chicago, IL) and its members. Concurrently, A.M. Best has placed under review with positive implications the ICR of “bbb-” of First Mercury’s parent holding company, First Mercury Financial Corporation (FMFC) (headquartered in Southfield, MI) (NYSE: FMR). (See below for a detailed listing of the companies.)

The rating actions follow the announcement that FMFC and Fairfax Financial Holdings Ltd. (Fairfax) (Toronto, Canada) [TSX: FFH and FFH.U] have entered into a merger agreement whereby Fairfax will acquire all of the outstanding shares of FMFC’s common stock. The under review status with positive implications reflects the perceived benefit to First Mercury of being ultimately owned by Fairfax, which offers the group greater financial flexibility and resources.

A.M. Best plans to resolve the under review status upon the completion of the transaction, which is expected in the first quarter of 2011, subject to shareholder and regulatory approval.

The FSR of A- (Excellent) and ICRs of “a-” have been placed under review with positive implications for First Mercury Group and its following members:

• First Mercury Insurance Company
• First Mercury Casualty Company
• American Underwriters 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”; and “A.M. Best Ratings and the Treatment of Debt.” Methodologies can be found at www.ambest.com/ratings/methodology.

Founded in 1899, A.M. Best Company is a global full-service credit rating organization dedicated to serving the financial and health care service industries, including insurance companies, banks, hospitals and health care system providers. For more information, visit www.ambest.com.