Profile: First Mercury Financial Corporation (FMR)

First Mercury Financial Corporation (FMFC) is a provider of insurance products and services to the specialty commercial insurance markets, primarily focusing on niche and underserved segments. FMFC is a holding company for its operating subsidiaries, which include CoverX Corporation (CoverX), First Mercury Insurance Company (FMIC), First Mercury Casualty Company (FMCC), First Mercury Emerald Insurance Services, Inc. (FM Emerald), American Management Corporation (AMC) and American Underwriters Insurance Company (AUIC). The Company’s CoverX and FM Emerald subsidiaries are licensed wholesale insurance brokers that produce and underwrite the insurance policies for which the Company retains risk and receive premiums. As wholesale insurance brokers, CoverX and FM Emerald market insurance policies through a nationwide network of wholesale and retail insurance brokers who then distribute these policies through retail insurance brokers. CoverX and FM Emerald also provide underwriting services with respect to the insurance policies they market.

CoverX receives commissions from affiliated insurance companies, reinsurers and non-affiliated insurers, as well as policy fees from wholesale and retail insurance brokers. On June 27, 2008, the Company sold all of the outstanding capital stock of American Risk Pooling Consultants, Inc. (ARPCO). On February 1, 2008, FMFC acquired American Management Corporation (AMC). AMC is a managing general agency writing primarily commercial lines package policies focused primarily on the niche fuel-related marketplace. AMC underwrites these policies for third party insurance carriers and receives commission income for its services. AMC also provides claims handling and adjustment services for policies produced by AMC and directly written for third parties. In addition, AMC owns and operates American Underwriters Insurance Company (AUIC), a single state, non-standard auto insurance company, and AMC Re, Inc. (AMC Re), a captive reinsurer.

Underwriting Operations

The Company underwrites and provides several classes of general liability insurance for the security industry, including security guards and detectives, alarm installation and service businesses, and safety equipment installation and service businesses. For security classes, it focuses on underwriting small (premiums less than $10,000) and mid-sized (premiums from $10,000 to $50,000) accounts. As of December 31, 2008, the Company had approximately 9,800 policies in force for security classes. The Company provides general liability insurance for specialty classes consisting primarily of contractor classes of business, including roofing contractors, plumbing contractors, electrical contractors, energy contractors, and other artisan and service contractors.

FMFC provides liability and property insurance for the contract underwriting classes consisting primarily of legal professional liability, hospitality, employer general liability, habitational and outdoor recreation classes of business. The Company’s subsidiary, FM Emerald, underwrites excess and surplus (E&S) risks which are larger in size than those traditionally targeted by CoverX. FM Emerald targets a mix of primary casualty, excess/umbrella casualty, and property lines of business for hard to place risks and/or distressed businesses.

Insurance Services Operations

FMFC’s insurance services business provides underwriting, claims and other insurance services to third parties, including insurance carriers and customers. These insurance services operations are conducted through CoverX and AMC. CoverX and FM Emerald distribute the Company’s products through a nationwide network of licensed E&S lines wholesalers, as well as certain retail agencies with a specialty in the markets that FMFC serve. During the year ended December 31, 2008, the Company placed business with approximately 780 brokers and agents for security classes of general liability insurance, 523 brokers and agents for specialty classes and 110 brokers and agents for FM Emerald. In addition, a portion of the Company’s products are distributed by contract underwriters through producer agreements with CoverX.

The Company competes with All Risks, Ltd., Brownyard Programs, Ltd., Mechanics Group, RelMark Program Managers, American International Group, Inc. (Lexington Insurance Company), The Hartford Financial Services Group, Inc., ACE Limited, W.R. Berkley Corp. (Admiral Insurance Company), Argonaut Group (Colony Insurance Company), RLI Corp, American International Group, Inc. (Lexington Insurance Company) and International Financial Group, Inc. (Burlington Insurance Co.).