First Mercury Financial (FMR) 8-K First Mercury Financial Corporation Announces First 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
TUESDAY, MAY 5, 2009

FIRST MERCURY FINANCIAL CORPORATION ANNOUNCES
FIRST QUARTER 2009 FINANCIAL RESULTS

SOUTHFIELD, MI — May 5, 2009 — First Mercury Financial Corporation (NYSE: FMR) (“First Mercury” or the “Company”) today announced results for the first quarter ended March 31, 2009.

Highlights for the first quarter 2009 include:

• Net income of $8.7 million, or $0.48 per diluted share

• Operating net income of $7.5 million, or $0.41 per diluted share

• Book value per share of $15.30, an increase of 4.3 percent from December 31, 2008

• Net earned premium growth of 20.7 percent

• Commission and fee income growth of 70.1 percent

• Net investment income growth of 32.7 percent

• Combined ratio of 88.4 percent

“We are pleased with another quarter of excellent results given the current market conditions,” said Richard H. Smith, chairman and chief executive officer. “We continue to grow book value per share and net earned premiums through solid underwriting results, a conservative approach to investments and prudent use of reinsurance. Our underwriters are maintaining underwriting discipline and, as we have said, will not write business that does not meet our profitability targets,” added Smith.

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Net income for the first quarter of 2009 was $8.7 million compared to $9.7 million for the same period of 2008. Operating net income for the first quarter of 2009 was $7.5 million compared to $8.9 million for the same period of 2008.

For the three months ended March 31, 2009, gross written premiums were $77.9 million, a 4.1 percent decrease from the gross written premiums during the same period in 2008.

Net earned premiums during the three months ended March 31, 2009 were $52.6 million, a 20.7 percent increase from the same period of 2008.

Net investment income earned during the three months ended March 31, 2009 was $6.4 million, a 32.7 percent increase from the same period of 2008.

Net realized gains on investments during the three months ended March 31, 2009 were $1.8 million compared to net realized gains on investments of $1,000 during the same period of 2008. The net realized gains for the three months ended March 31, 2009 included mark-to-market adjustments of $2.6 million on the Company’s convertible securities portfolio and high yield convertible fund.

Total operating revenues for the three months ended March 31, 2009 increased 29.0 percent to $67.7 million compared to $52.5 million for the same period of 2008.

The combined ratio for the three months ended March 31, 2009 was 88.4 percent compared to 75.0 percent for the same period of 2008. The combined ratio for the three months ended March 31, 2009 includes a loss ratio of 58.0 percent and an expense ratio of 30.4 percent. These compare to a loss ratio of 53.8 percent and an expense ratio of 21.2 percent for the comparable period in 2008. The anticipated increase in the expense ratio for the three months ended March 31, 2009 was primarily due to the impact of purchasing less quota share reinsurance during 2008, lower profit sharing commissions and the investment in underwriting assets. For the three months ended March 31, 2009, there was $0.8 million of favorable development of prior years’ loss and loss adjustment expense reserves. For the three months ended March 31, 2008, there was no development of prior years’ loss and loss adjustment expense reserves.

During the three months ended March 31, 2009, the Company did not repurchase any shares of common stock. As of March 31, 2009, the Company has 801,423 shares of remaining capacity under the 1.5 million share repurchase program which expires on August 18, 2009.

Smith concluded, “We continue to focus on investing in underwriting assets to expand on our best-in-class specialty niche underwriting operations. The Professional Liability platform is fully operational and contributed $1.8 million of gross written premium during the quarter, and we anticipate the Hospitality and Indoor Recreational platform to be fully operational during the second quarter of 2009. We share the view with many others in the industry that the improvement in the property and casualty pricing cycle is underway. Given the lower than anticipated production in the first quarter, we are reducing our guidance of operating net income per diluted share from between $1.65 to $1.80 to between $1.60 to $1.75 for all of 2009.”

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Conference Call Details

The Company will host a conference call on May 6, 2009 at 11:00 a.m. Eastern Time to discuss first quarter results. The call can be accessed live by dialing 888-599-4877 or by visiting the Company’s website atwww.firstmercury.com.

Investors may access a replay by dialing 888-203-1112, passcode 4866502, which will be available through May 13, 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 35 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, 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.

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

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expense reserves; the failure of reinsurers to meet their obligations; 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
	March 31,
	2009			2008
	(Dollars in thousands, except
	share and per share data)
Operating Revenue
Net earned premiums	$	52,594		$	43,571
Commissions and fees		6,894			4,053
Net investment income		6,434			4,848
Net realized gains on investments		1,757			1
Total Operating Revenues		67,679			52,473
Operating Expenses
Losses and loss adjustment expenses, net		30,493			23,444
Amortization of deferred acquisition expenses		13,329			8,213
Underwriting, agency and other expenses		9,223			5,984
Amortization of intangible assets		575			399
Total Operating Expenses		53,620			38,040
Operating Income		14,059			14,433
Interest Expense		1,416			1,464
Change in Fair Value of Derivative Instruments		(106	)		435
Income from Continuing Operations Before Income Taxes		12,749			12,534
Income Taxes		4,068			3,898
Income from Continuing Operations		8,681			8,636
Income from Discontinued Operations, Net of Income Taxes		—			1,085
Net Income	$	8,681		$	9,721
Basic Net Income Per Share:
Income from Continuing Operations	$	0.49		$	0.48
Income from Discontinued Operations		—			0.06
Total	$	0.49		$	0.54
Diluted Net Income Per Share:
Income from Continuing Operations	$	0.48		$	0.46
Income from Discontinued Operations		—			0.06
Total	$	0.48		$	0.52
Weighted Average Shares Outstanding:
Basic		17,775,560			18,106,063
Diluted		18,109,331			18,793,264
GAAP Underwriting Ratios:
Loss ratio		58.0	%		53.8	%
Expense ratio		30.4	%		21.2	%
Combined ratio		88.4	%		75.0	%

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First Mercury Financial Corporation
Condensed Consolidated Balance Sheets
(Unaudited)

	March 31,			December 31,
	2009			2008
	(Dollars in thousands,
	except share and per share data)
ASSETS
Investments
Debt securities	$	528,271		$	495,799
Equity securities and other		24,714			15,089
Short-term		38,537			32,142
Total Investments		591,522			543,030
Cash and cash equivalents		14,586			31,833
Premiums and reinsurance balances receivable		56,930			56,398
Accrued investment income		5,648			5,400
Accrued profit sharing commissions		12,095			11,315
Reinsurance recoverable on paid and unpaid losses		145,023			135,617
Prepaid reinsurance premiums		51,902			48,921
Deferred acquisition costs		27,147			27,369
Intangible assets, net of accumulated amortization		38,776			39,351
Goodwill		25,483			25,483
Deferred federal income taxes		—			2,161
Other assets		16,529			16,775
Total Assets	$	985,641		$	943,653
LIABILITIES AND STOCKHOLDERS’ EQUITY
Loss and loss adjustment expense reserves	$	400,152		$	372,721
Unearned premium reserves		148,137			147,849
Long-term debt		67,013			67,013
Funds held under reinsurance treaties		55,867			49,419
Premiums payable to insurance companies		27,279			27,831
Reinsurance payable on paid losses		1,400			1,167
Deferred federal income taxes		415			—
Accounts payable, accrued expenses, and other liabilities		10,994			16,016
Total Liabilities		711,257			682,016
Stockholders’ Equity
Common stock, $0.01 par value; authorized 100,000,000 shares; issued and outstanding 17,929,837 and 17,836,337 shares		179			178
Paid-in-capital		162,569			161,957
Accumulated other comprehensive income (loss)		426			(3,027	)
Retained earnings		111,709			103,028
Treasury stock; 33,600 and 33,600 shares		(499	)		(499	)
Total Stockholders’ Equity		274,384			261,637
Total Liabilities and Stockholders’ Equity	$	985,641		$	943,653
Book Value Per Share	$	15.30		$	14.67

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First Mercury Financial Corporation
Summary Financial Data

	Three Months Ended
	March 31,
	2009			2008
	(Dollars in thousands, except per
	share data)
Gross Written Premiums:
Security	$	14,987		$	17,899
Specialty		26,930			39,856
Contract Underwriting		16,100			16,380
FM Emerald		15,475			5,572
Professional Liability		1,803			—
AUIC		2,583			1,499
Gross written premiums	$	77,878		$	81,206
Net Written Premiums:
Security	$	9,780		$	13,578
Specialty		17,727			31,506
Contract Underwriting		11,445			10,181
FM Emerald		7,203			1,739
Professional Liability		1,087			—
AUIC		2,583			1,499
Net written premiums	$	49,825		$	58,503
Commissions and Fees:
Insurance underwriting commissions and fees	$	1,357		$	1,329
Insurance services commissions and fees		5,537			2,724
Total commissions and fees	$	6,894		$	4,053
Cash and Cash Equivalents:
Net cash provided by operating activities — continuing operations	$	26,082		$	25,139
Net cash provided by operating activities — discontinued operations		—			1,023
Net cash used in investing activities		(43,329	)		(23,780	)
Net cash provided by financing activities		—			22
Net increase (decrease) in cash and cash equivalents	$	(17,247	)	$	2,404
Operating Net Income: (1)
Net Income	$	8,681		$	9,721
Adjust for Net realized gains on investments, net of tax		(1,142	)		(1	)
Adjust for Change in fair value of derivative instruments, net of tax		(69	)		283
Adjust for Discontinued operations, net of tax		—			(1,085	)
Operating net income	$	7,470		$	8,918
Operating Net Income Per Share: (1)
Diluted	$	0.41		$	0.47

FOOTNOTES

(1) See discussion of use of non-GAAP financial measures above.

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