MIGP Mercer Insurance Grp., Inc. (MM)

A.M. Best Co. has commented that the financial strength rating of A (Excellent) and issuer credit ratings of “a” of United Fire & Casualty Group (UFG) and its members, led by United Fire & Casualty Company (Cedar Rapids, IA) (NASDAQ: UFCS), are unchanged following the announcement of a merger agreement under which UFCS will acquire all of the outstanding shares of Mercer Insurance Group, Inc. (Mercer, Inc.) (headquartered in Pennington, NJ) (NASDAQ: MIGP). The outlook for these ratings is negative.

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 acquisition affords UFG an opportunity to expand geographically and increase the scale of its operations. Mercer Inc.’s underwriting expense ratio is anticipated to benefit from deployment of UFG technology.

The transaction will be financed using a combination of cash available within the UFCS enterprise, use of a newly-established debt facility with the Federal Home Loan Bank of Des Moines (FHLBD) and drawing on UFCS’ established unsecured bank credit facility. The FHLBD borrowing will be secured using assets of United Life Insurance Company, a wholly-owned subsidiary of UFCS. Following the transaction, UFCS’ ratio of total unadjusted debt-to-total capital is anticipated to be 16.5%, including outstanding Mercer, Inc. obligations. This is well within A.M. Best’s guidelines for the group’s ratings, as is cash coverage of fixed obligations.

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: “Understanding BCAR for Property/Casualty Insurers”; “Equity Credit for Hybrid Securities”; “The Treatment of Terrorism Risk in the Rating Evaluation”; “Natural Catastrophe Stress Test Methodology”; “A.M. Best’s Perspective on Operating Leverage”; “Catastrophe Risk Management Incorporated Within Rating Analysis”; “Catastrophe Analysis in A.M. Best Ratings”; and “A.M. Best’s Ratings and 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.

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