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A.M. Best Comments on United Fire & Casualty Companya?s Proposed Acquisition of Mercer Insurance Group, Inc.

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^{Published in Business and Finance on Thursday, December 2nd 2010 at 12:45 GMT by Market Wire}  

OLDWICK, N.J.--([ BUSINESS WIRE ])--A.M. Best Co. has commented that the financial strength rating of A (Excellent) and issuer credit ratings of aaa 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.

"Catastrophe Risk Management Incorporated Within Rating Analysis"

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.a™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 UFCSa™ 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, UFCSa™ 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. Besta™s guidelines for the groupa™s ratings, as is cash coverage of fixed obligations.

The principal methodology used in determining these ratings is [ Besta™s Credit Rating Methodology -- Global Life and Non-Life Insurance Edition ], which provides a comprehensive explanation of A.M. Besta™s rating process and highlights the different rating criteria employed. Additional key criteria utilized include: aUnderstanding BCAR for Property/Casualty Insurersa; aEquity Credit for Hybrid Securitiesa; aThe Treatment of Terrorism Risk in the Rating Evaluationa; aNatural Catastrophe Stress Test Methodologya; aA.M. Besta™s Perspective on Operating Leveragea; aCatastrophe Risk Management Incorporated Within Rating Analysisa; aCatastrophe Analysis in A.M. Best Ratingsa; and aA.M. Besta™s Ratings and the Treatment of Debt.a 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 ].

Copyright © 2010 by A.M. Best Company, Inc.ALL RIGHTS RESERVED.