Moody's affirms First Mercury following Valiant Insurance deal; outlook revised to negative

Moody's on July 6 affirmed First Mercury Financial Corp.'s long-term issuer rating at Ba2 and the insurance financial strength rating at Baa2 of unit First Mercury Insurance Co.

The ratings action follows the company's announcement that it will acquire Valiant Insurance Group Inc. for about $55 million.

The outlook for the ratings was revised to negative from stable, reflecting increased underwriting leverage and execution risks resulting from the acquisition.

Moody's believes that First Mercury's ratings reflect its established position in providing general liability insurance for the security industry, its modest catastrophe exposure, strong profit margins in its core business and commission and fee income from certain units. These strengths are partly offset by its modest scale, risks associated with recent growth, both organic and via acquisitions, and the company's focus on medium-tail casualty business.