First Mercury Financial (FMR) 8-K First Mercury Financial Corporation Announces Second Quarter 2009 Financial Results

Exhibit 99.1

FOR FURTHER INFORMATION:

AT FIRST MERCURY FINANCIAL CORPORATION:
Edward A. LaFramboise
Vice President — Finance
(248) 213-0406
elaframboise@firstmercury.com

FOR IMMEDIATE RELEASE
MONDAY, AUGUST 3, 2009

FIRST MERCURY FINANCIAL CORPORATION ANNOUNCES
SECOND QUARTER 2009 FINANCIAL RESULTS

SOUTHFIELD, MI — August 3, 2009 — First Mercury Financial Corporation (NYSE: FMR) (“First Mercury” or the “Company”) today announced results for the second quarter and six months ended June 30, 2009.

Highlights for the second quarter 2009 include:

• Net income of $11.6 million, or $0.64 per diluted share

• Operating net income of $5.3 million, or $0.30 per diluted share

• Book value per share of $16.34, an increase of 11.4 percent from December 31, 2008

• Total assets over $1 billion

• Commission and fee income growth of 35.2 percent

• Net investment income growth of 36.7 percent

• Repurchase of 387,758 shares of common stock for $5.1 million at an average cost of $13.11 per share

• Implementation of quarterly dividend of $0.025 per share

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“During this quarter, our casualty businesses performed well and our investment results continued to be solid as reflected by our book value growth. These positive results were partially offset by significant losses in our property businesses. As a result, we determined certain segments of our property businesses were not achieving our profitability targets. Consequently, we are scaling back these segments and focusing on the segments that we believe will meet our profitability targets,” said Richard H. Smith, Chairman, President and Chief Executive Officer.

Net income for the second quarter of 2009 was $11.6 million compared to $28.7 million for the same period of 2008. Net income for the first six months of 2009 was $20.3 million compared to $38.4 million for the same period of 2008. Net income for the three and six months ended June 30, 2008 included $22.5 million and $23.6 million, respectively, of income from discontinued operations, which includes a gain on the sale of ARPCO of $21.4 million. Operating net income for the second quarter of 2009 was $5.3 million compared to $7.2 million for the same period of 2008. Operating net income for the first six months of 2009 was $12.8 million compared to $16.2 million for the same period of 2008.

For the three months ended June 30, 2009, gross written premiums were $82.5 million, a 3.3 percent increase from the gross written premiums during the same period in 2008. For the six months ended June 30, 2009, gross written premiums were $160.4 million, a 0.4 percent decrease from the gross written premiums during the same period in 2008.

Net earned premiums during the three months ended June 30, 2009 were $51.4 million, a 10.5 percent increase from the same period of 2008. For the six months ended June 30, 2009, net earned premiums were $104.0 million, a 15.4 percent increase from the same period in 2008.

Net investment income earned during the three months ended June 30, 2009 was $7.1 million, up 36.7 percent from the same period of 2008. Net investment income earned during the six months ended June 30, 2009 was $13.6 million, up 34.8 percent from the same period of 2008.

Net realized gains on investments during the three months ended June 30, 2009 were $9.6 million compared to net realized losses on investments of $1.6 million during the same period of 2008. Net realized gains on investments during the six months ended June 30, 2009 were $11.4 million compared to net realized losses on investments of $1.6 million during the same period of 2008. The net realized gains for the three and six months ended June 30, 2009 included mark-to-market adjustments of $6.2 million and $8.8 million, respectively, on the Company’s convertible securities portfolio and high yield convertible fund. Other-than-temporary impairment losses on investments during the three and six months ended June 30, 2009 were $0.1 million compared to other-than-temporary impairment losses on investments of $0.2 million during the same periods of 2008. In addition, the Company recorded $10.5 million of pretax net unrealized gains on its available for sale investment portfolio during the three months ended June 30, 2009. The Company recorded $15.9 million of pretax net unrealized gains on its available for sale investment portfolio during the six months ended June 30, 2009.

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Total operating revenues for the three months ended June 30, 2009 increased 36.2 percent to $77.7 million compared to $57.0 million for the same period of 2008. Total operating revenues for the six months ended June 30, 2009 increased 32.7 percent to $145.4 million compared to $109.5 million for the same period of 2008.

The combined ratio for the three months ended June 30, 2009 was 99.9 percent compared to 84.0 percent for the same period of 2008. The combined ratio for the three months ended June 30, 2009 includes a loss ratio of 69.0 percent and an expense ratio of 30.9 percent. These compare to a loss ratio of 55.3 percent and an expense ratio of 28.7 percent for the comparable period in 2008. The combined ratio for the six months ended June 30, 2009 was 94.0 percent compared to 79.7 percent for the same period of 2008. The combined ratio for the six months ended June 30, 2009 includes a loss ratio of 63.4 percent and an expense ratio of 30.6 percent. These compare to a loss ratio of 54.6 percent and an expense ratio of 25.1 percent for the comparable period in 2008.

The Company recorded $2.4 million, or $0.09 per diluted share, net of taxes, of storm losses for the three months ended June 30, 2009, including $2.2 million classified as catastrophes. In addition, the Company recorded $5.2 million, or $0.19 per diluted share, net of taxes, of higher than expected 2009 commercial property fire and other losses and loss adjustment expenses during the three months ended June 30, 2009. As a result of these losses, the Company has significantly tightened the underwriting criteria for all property classes and cancelled certain in-force property policies mid-term. In addition, the Company has provided notice of cancellation to the contract underwriter responsible for a portion of the Company’s property business and has significantly restricted the contract underwriter’s authority to bind business on the Company’s behalf through the termination date.

During the three months ended June 30, 2009, there was $3.6 million, or $0.13 per diluted share, net of taxes, of favorable development of prior years’ loss and loss adjustment expense reserves. For the six months ended June 30, 2009, there was $4.4 million, or $0.16 per diluted share, net of taxes, of favorable development of prior years’ loss and loss adjustment expense reserves. For the three and six months ended June 30, 2008, there was no development of prior years’ loss and loss adjustment expense reserves.

During the three and six months ended June 30, 2009, the Company repurchased 387,758 shares of common stock for $5.1 million at an average cost of $13.11 per share. As of June 30, 2009, the Company has 413,665 shares of remaining capacity under the 1.5 million share repurchase program which expires on August 18, 2009.

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Smith concluded, “While current market and economic conditions remain competitive, we believe we are positioned to benefit from improving market conditions and we continue to focus on disciplined underwriting and prudent capital management. Given the higher than expected 2009 property losses and the scaling back of certain property segments, we are reducing our guidance of operating net income per diluted share from between $1.60 to $1.75 to between $1.30 to $1.60 for all of 2009. The range has been expanded to provide for the variability embedded in the property business net unearned premium reserves.”

Conference Call Details

The Company will host a conference call on August 4, 2009 at 11:00 a.m. Eastern Time to discuss second quarter results. The call can be accessed live by dialing 888-668-1639 or by visiting the Company’s website atwww.firstmercury.com.

Investors may access a replay by dialing 888-203-1112, passcode 3534084, which will be available through August 11, 2009. The webcast replay will also be archived in the “Investor Relations” section of the Company’s website.

About First Mercury Financial Corporation

First Mercury Financial Corporation provides insurance products and services primarily to the specialty commercial insurance markets, focusing on niche and underserved segments where we believe that we have underwriting expertise and other competitive advantages.  During the Company’s 36 years of underwriting risks, First Mercury has developed the underwriting expertise and cost-efficient infrastructure which has enabled us to effectively underwrite such risks. Our risk-taking subsidiaries offer insurance products through our distribution subsidiaries: CoverX^®, FM Emerald and AMC, which are recognized brands among insurance producers.

Non-GAAP Financial Measures

Operating net income and operating net income per share are non-GAAP financial measures, and management believes that investors’ understanding of core operating performance is enhanced by First Mercury’s disclosure of these financial measures. Operating net income consists of net income adjusted to exclude the impact of net realized gains (losses) on investments, other-than-temporary impairment losses on investments, the change in fair value of derivative instruments, income from discontinued operations, and taxes related to these adjustments. Definitions of these items may not be comparable to the definitions used by other companies. Net income and net income per share are the GAAP financial measures that are most directly comparable to operating net income and operating net income per share.

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Safe Harbor Statement

This release contains forward-looking statements that relate to future periods and includes statements regarding our anticipated performance. Generally, the words “anticipates,” “believes,” “expects,” “intends,” “estimates,” “projects,” “plans” and similar expressions identify forward-looking statements. These forward-looking statements involve known and unknown risks, uncertainties and other important factors that could cause our actual results, performance or achievements or industry results to differ materially from any future results, performance or achievements expressed or implied by these forward-looking statements. These risks, uncertainties and other important factors include, among others: recent and future events and circumstances impacting financial, stock, and capital markets, and the responses to such events by governments and the financial communities; the impact of catastrophic events and the occurrence of significant severe weather conditions on our operating results; our ability to maintain or the lowering or loss of one of our financial or claims-paying ratings; our actual incurred losses exceeding our loss and loss adjustment expense reserves; the failure of reinsurers to meet their obligations; our estimates for accrued profit sharing commissions are based on loss ratio performance and could be reduced if the underlying loss ratios deteriorate; our inability to obtain reinsurance coverage at reasonable prices; the failure of any loss limitations or exclusions or changes in claims or coverage; our lack of long-term operating history in certain specialty classes of insurance; our ability to acquire and retain additional underwriting expertise and capacity; the concentration of our insurance business in relatively few specialty classes; the increasingly competitive property and casualty marketplace; fluctuations and uncertainty within the excess and surplus lines insurance industry; the extensive regulations to which our business is subject and our failure to comply with these regulations; our ability to maintain our risk-based capital at levels required by regulatory authorities; our inability to realize our investment objectives; an economic downturn or other economic conditions adversely affecting our financial position; and the risks identified in our filings with the Securities and Exchange Commission, including our Annual Report on Form 10-K. Given these uncertainties, you are cautioned not to place undue reliance on these forward-looking statements. We assume no obligation to update or revise them or provide reasons why actual results may differ.

The Company uses the Investor Relations page of its website atwww.firstmercury.com to make
information available to its investors and the public.

Financial Tables Follow...

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First Mercury Financial Corporation
Condensed Consolidated Statements of Income
(Unaudited)

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2009			2008			2009			2008
	(Dollars in thousands, except share and per share data)
Operating Revenue
Net earned premiums	$	51,432		$	46,559		$	104,027		$	90,130
Commissions and fees		9,577			7,086			16,471			11,139
Net investment income		7,132			5,216			13,566			10,064
Net realized gains (losses) on investments		9,644			(1,587	)		11,437			(1,586	)
Other-than-temporary impairment losses on investments		(97	)		(225	)		(134	)		(225	)
Total Operating Revenues		77,688			57,049			145,367			109,522
Operating Expenses
Losses and loss adjustment expenses, net		35,463			25,732			65,956			49,177
Amortization of deferred acquisition expenses		13,600			9,096			26,930			17,310
Underwriting, agency and other expenses		9,526			11,615			18,750			17,598
Amortization of intangible assets		575			515			1,149			913
Total Operating Expenses		59,164			46,958			112,785			84,998
Operating Income		18,524			10,091			32,582			24,524
Interest Expense		1,417			1,476			2,833			2,940
Change in Fair Value of Derivative Instruments		(123	)		(262	)		(230	)		174
Income from Continuing Operations Before Income Taxes		17,230			8,877			29,979			21,410
Income Taxes		5,621			2,641			9,689			6,540
Income from Continuing Operations		11,609			6,236			20,290			14,870
Income from Discontinued Operations, Net of Income Taxes		—			22,467			—			23,553
Net Income	$	11,609		$	28,703		$	20,290		$	38,423
Basic Net Income Per Share:
Income from Continuing Operations	$	0.65		$	0.34		$	1.14		$	0.82
Income from Discontinued Operations		—			1.23			—			1.29
Total	$	0.65		$	1.57		$	1.14		$	2.11
Diluted Net Income Per Share:
Income from Continuing Operations	$	0.64		$	0.33		$	1.11		$	0.79
Income from Discontinued Operations		—			1.18			—			1.25
Total	$	0.64		$	1.51		$	1.11		$	2.04
Weighted Average Shares Outstanding:
Basic		17,700,272			18,259,602			17,737,708			18,182,832
Diluted		18,042,484			18,943,262			18,075,668			18,803,719
GAAP Underwriting Ratios:
Loss ratio		69.0	%		55.3	%		63.4	%		54.6	%
Expense ratio		30.9	%		28.7	%		30.6	%		25.1	%
Combined ratio		99.9	%		84.0	%		94.0	%		79.7	%

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First Mercury Financial Corporation
Condensed Consolidated Balance Sheets
(Unaudited)

	June 30,			December 31,
	2009			2008
	(Dollars in thousands,
	except share and per share data)
ASSETS
Investments
Debt securities	$	581,235		$	495,799
Equity securities and other		27,008			15,089
Short-term		16,921			32,142
Total Investments		625,164			543,030
Cash and cash equivalents		23,574			31,833
Premiums and reinsurance balances receivable		58,504			56,398
Accrued investment income		6,327			5,400
Accrued profit sharing commissions		12,873			11,315
Reinsurance recoverable on paid and unpaid losses		150,819			135,617
Prepaid reinsurance premiums		54,207			48,921
Deferred acquisition costs		26,917			27,369
Intangible assets, net of accumulated amortization		38,201			39,351
Goodwill		25,483			25,483
Deferred federal income taxes		—			2,161
Other assets		23,625			16,775
Total Assets	$	1,045,694		$	943,653
LIABILITIES AND STOCKHOLDERS’ EQUITY
Loss and loss adjustment expense reserves	$	426,908		$	372,721
Unearned premium reserves		151,283			147,849
Long-term debt		67,013			67,013
Funds held under reinsurance treaties		61,937			49,419
Premiums payable to insurance companies		31,519			27,831
Reinsurance payable on paid losses		1,196			1,167
Deferred federal income taxes		4,741			—
Accounts payable, accrued expenses, and other liabilities		14,259			16,016
Total Liabilities		758,856			682,016
Stockholders’ Equity
Common stock, $0.01 par value; authorized 100,000,000 shares; issued and outstanding 17,558,483 and 17,836,337 shares		175			178
Paid-in-capital		158,426			161,957
Accumulated other comprehensive income (loss)		6,641			(3,027	)
Retained earnings		122,875			103,028
Treasury stock; 93,600 and 33,600 shares		(1,279	)		(499	)
Total Stockholders’ Equity		286,838			261,637
Total Liabilities and Stockholders’ Equity	$	1,045,694		$	943,653
Book Value Per Share	$	16.34		$	14.67

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First Mercury Financial Corporation
Summary Financial Data

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2009			2008			2009			2008
	(Dollars in thousands, except per share data)
Gross Written Premiums:
Security	$	13,857		$	16,960		$	28,844		$	34,859
Specialty		33,904			37,578			60,834			77,434
Contract Underwriting		17,309			15,423			33,409			31,803
FM Emerald		15,114			8,402			30,589			13,974
Professional Liability		594			—			2,397			—
AUIC		1,743			1,551			4,326			3,050
Gross written premiums	$	82,521		$	79,914		$	160,399		$	161,120
Net Written Premiums:
Security	$	9,079		$	12,002		$	18,859		$	25,580
Specialty		22,339			26,904			40,066			58,410
Contract Underwriting		12,166			9,165			23,611			19,346
FM Emerald		7,757			2,619			14,960			4,358
Professional Liability		358			—			1,445			—
AUIC		1,743			1,551			4,326			3,050
Net written premiums	$	53,442		$	52,241		$	103,267		$	110,744
Commissions and Fees:
Insurance underwriting commissions and fees	$	1,360		$	1,426		$	2,717		$	2,755
Insurance services commissions and fees		8,217			5,660			13,754			8,384
Total commissions and fees	$	9,577		$	7,086		$	16,471		$	11,139
Cash and Cash Equivalents:
Net cash provided by operating activities — continuing operations	$	32,993		$	33,483		$	59,075		$	58,622
Net cash provided by operating activities — discontinued operations		—			1,353			—			2,376
Net cash used in investing activities — continuing operations		(17,676	)		(76,791	)		(61,005	)		(100,571	)
Net cash provided by investing activities — discontinued operations		—			41,830			—			41,830
Net cash provided by (used in) financing activities		(6,328	)		79			(6,328	)		101
Net increase (decrease) in cash and cash equivalents	$	8,989		$	(46	)	$	(8,258	)	$	2,358
Operating Net Income: (1)
Net Income	$	11,609		$	28,703		$	20,290		$	38,423
Adjust for Net realized gains and losses on investments, net of tax		(6,269	)		1,032			(7,434	)		1,031
Adjust for Other-than-temporary impairment losses on investments, net of tax		63			146			87			146
Adjust for Change in fair value of derivative instruments, net of tax		(80	)		(170	)		(150	)		113
Adjust for Discontinued operations, net of tax		—			(22,467	)		—			(23,553	)
Operating net income	$	5,323		$	7,244		$	12,793		$	16,160
Operating Net Income Per Share: (1)
Diluted	$	0.30		$	0.38		$	0.71		$	0.86
Selected Property Information:
Net written premiums	$	6,874		$	2,560		$	12,350		$	4,103
Net earned premiums	$	5,247		$	1,266		$	9,326		$	2,368
Unearned premium reserves, net (2)	$	12,814			N/M		$	12,814			N/M

FOOTNOTES

(1)	See discussion of use of non-GAAP financial measures above.
(2)	As of June 30, 2009.

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