8-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 8-K

CURRENT REPORT
Pursuant to Section 13 OR 15(d) of The Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): October 31, 2007

FIRST MERCURY FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)

Delaware	001-33077	38-3164336
(State or other Jurisdiction of Incorporation)	(Commission File Number)	(IRS Employer Identification No.)

29110 Inkster Road Suite 100 Southfield, Michigan	48034
(Address of Principal Executive Offices)	(Zip Code)

Registrant’s telephone number, including area code: (800) 762-6837

Not Applicable

(Former name or former address if changed since last report.)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 2.02   Results of Operations and Financial Condition

On October 31, 2007, First Mercury Financial Corporation issued a press release announcing its operating results for the three and nine months ended September 30, 2007. A copy of the press release is attached as Exhibit 99.1 to this Form 8-K and incorporated herein by reference.

Item 9.01 Financial Statements and Exhibits

(d) Exhibits

      99.1     Press Release dated October 31, 2007.

SIGNATURE

Pursuant to the requirements of the Securities Exchange act of 1934, as amended, the company has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

	FIRST MERCURY FINANCIAL CORPORATION
DATE: November 2, 2007	BY: /s/ John Marazza
	John Marazza
	Executive Vice President, Chief Financial Officer, Treasurer and Corporate Secretary

EXHIBIT INDEX

Exhibit No.     Description

99.1                  Press Release dated October 31, 2007.

EX-99.1

Exhibit 99.1

FOR FURTHER INFORMATION:

AT FIRST MERCURY FINANCIAL:	AT FINANCIAL RELATIONS BOARD:
Allison J. Roelofs	Leslie Loyet
Manager — Corporate Financial Reporting	Investor Inquiries
(248) 358-4010	(312) 640-6672
aroelofs@firstmercury.com	lloyet@frbir.com

FOR IMMEDIATE RELEASE
WEDNESDAY, OCTOBER 31, 2007

FIRST MERCURY FINANCIAL CORPORATION ANNOUNCES
THIRD QUARTER 2007 FINANCIAL RESULTS

SOUTHFIELD, MI — October 31, 2007 — First Mercury Financial Corporation (NYSE: FMR) (“First Mercury” or the “Company”) today announced results for the third quarter and nine months ended September 30, 2007.

Highlights for the third quarter include:

• Premiums produced increased 24.2 percent from the third quarter of 2006 to $66.3 million

• Annualized return on average stockholders’ equity of 20.9 percent

• Total operating revenues increased 54.0 percent from the third quarter of 2006 to $51.7 million

• Operating net income of $10.8 million

• Diluted operating net income per share of $0.57

• Combined ratio of 72.5 percent

• Book value per share of $12.08, an increase of 21.0 percent year to date

• Completion of a $20.0 million Trust Preferred Securities offering

“We had another strong quarter of premiums growth, profitability and return on average stockholders’ equity,” said Richard H. Smith, chairman and chief executive officer. “It has been a successful year since our initial public offering, and we are pleased that we were able to execute our growth strategy to meet our objectives. Our strong results continue to be driven by the successful management of our pipeline of opportunities and our underwriting discipline,” added Smith.

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For the three months ended September 30, 2007, premiums produced were $66.3 million, a 24.2 percent increase from premiums produced during the same period in 2006. For the nine months ended September 30, 2007, premiums produced were $208.7 million, a 21.1 percent increase from premiums produced during the same period in 2006. Premiums produced consists of all of the premiums underwritten by CoverX^®, First Mercury’s licensed wholesale insurance broker, for which the Company takes underwriting risk. CoverX^® produces and underwrites all of the Company’s business.

Total operating revenues for the three months ended September 30, 2007 increased 54.0 percent to $51.7 million compared to $33.6 million for the same period of 2006. Total operating revenues for the nine months ended September 30, 2007 increased 53.1 percent to $157.7 million compared to $103.0 million for the same period of 2006.

Net investment income earned during the three months ended September 30, 2007 was $4.4 million, up 78.2 percent from the same period of 2006. Net investment income earned during the nine months ended September 30, 2007 was $11.5 million, up 71.5 percent from the same period of 2006.

The combined ratio for the three months ended September 30, 2007 was 72.5 percent compared to 65.3 percent for the same period of 2006. The combined ratio for the three months ended September 30, 2007 includes a loss ratio of 50.7 percent and an expense ratio of 21.8 percent. These compare to a loss ratio of 49.1 percent and an expense ratio of 16.2 percent for the comparable period in 2006. The combined ratio for the nine months ended September 30, 2007 was 73.4 percent compared to 69.7 percent for the same period of 2006. The combined ratio for the nine months ended September 30, 2007 includes a loss ratio of 51.9 percent and an expense ratio of 21.5 percent. These compare to a loss ratio of 51.5 percent and an expense ratio of 18.2 percent for the comparable period in 2006. The anticipated increase in the expense ratio for the three and nine months ended September 30, 2007 is primarily attributable to the December 31, 2006 reinsurance cutoff transaction, as previously disclosed, and to the impact of purchasing less quota share reinsurance in 2007.

Operating net income for the third quarter 2007 was $10.8 million compared to $6.6 million for the same period of 2006. Operating net income for the three months ended September 30, 2006 includes interest expense of $1.4 million and amortization of debt issuance costs of $0.1 million, net of tax, on senior notes which were issued in August 2005 and repaid in October 2006 with proceeds from First Mercury’s initial public offering. Operating net income for the nine months ended September 30, 2007 was $30.8 million compared to $18.3 million for the same period of 2006. Operating net income for the nine months ended September 30, 2006 includes interest expense of $4.1 million and amortization of debt issuance costs of $0.3 million, net of tax, on senior notes which were issued in August 2005 and repaid in October 2006 with proceeds from First Mercury’s initial public offering.

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Smith concluded, “We remain focused on executing our growth strategy and delivering strong results during this increasingly competitive environment. Our underwriting-driven culture, specialty niche focus, and 34 year track record of success position us well to continue to deliver strong results. As such for all of 2007, we expect to deliver annual premiums produced growth in excess of 20 percent and we anticipate a return on average stockholders’ equity in excess of 20 percent.”

Conference Call Details

The Company will host a conference call on Thursday, November 1, 2007 at 11:00 a.m. Eastern Time to discuss third quarter results. The call can be accessed live by dialing 800-289-0743 or by visiting the Company’s website at www.firstmercury.com.

Investors may access a replay by dialing 888-203-1112, passcode 7133714, which will be available through November 8, 2007. 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 markets and underwrites specialty commercial insurance products, focusing on niche and underserved segments where the Company has underwriting expertise and other competitive advantages. During the Company’s 34 years of underwriting risks, First Mercury has established CoverX^® as a recognized brand among insurance agents and brokers. As primarily an excess and surplus (E&S) lines underwriter, First Mercury has developed the underwriting expertise and cost-efficient infrastructure which has enabled it to effectively underwrite such risks.

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 and taxes related to net realized gains (losses). 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.

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These risks, uncertainties and other important factors include, among others: 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 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; competition risk; 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; 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.

For more information on the Company, please visit the Company’s website at
www.firstmercury.com

Financial Tables Follow...

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First Mercury Financial Corporation
Condensed Consolidated Statements of Income
(Unaudited)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2007			2006			2007			2006
	(Dollars in thousands, except share and per share data)
Operating Revenue
Net earned premiums	$	41,155		$	26,947		$	129,655		$	83,804
Commissions and fees		5,825			3,716			15,384			12,479
Net investment income		4,359			2,446			11,523			6,717
Net realized gains (losses) on investments		355			467			1,117			(15	)
Total Operating Revenues		51,694			33,576			157,679			102,985
Operating Expenses
Losses and loss adjustment expenses, net		20,886			13,224			67,328			43,186
Amortization of deferred acquisition expenses		7,570			3,546			23,866			12,638
Underwriting, agency and other expenses		4,914			2,493			14,257			9,872
Amortization of intangible assets		307			292			921			875
Total Operating Expenses		33,677			19,555			106,372			66,571
Operating Income		18,017			14,021			51,307			36,414
Interest Expense		1,054			2,840			3,022			8,235
Change in Fair Value of Derivative Instruments		295			335			275			(51	)
Income Before Income Taxes		16,668			10,846			48,010			28,230
Income Taxes		5,622			3,920			16,493			9,959
Net Income	$	11,046		$	6,926		$	31,517		$	18,271
Net Income Per Share: (1)
Basic	$	0.61		$	1.42		$	1.79		$	3.69
Diluted	$	0.59		$	0.55		$	1.71		$	1.48
Weighted Average Shares Outstanding: (1)
Basic		18,036,168			4,220,045			17,601,271			4,206,556
Diluted		18,867,107			12,621,422			18,440,128			12,315,035
GAAP Underwriting Ratios:
Loss ratio		50.7	%		49.1	%		51.9	%		51.5	%
Expense ratio		21.8	%		16.2	%		21.5	%		18.2	%
Combined ratio		72.5	%		65.3	%		73.4	%		69.7	%

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First Mercury Financial Corporation
Condensed Consolidated Balance Sheets
(Unaudited)

	September 30,			December 31,
	2007			2006
	(Unaudited)
	(Dollars in thousands,
	except share and per share data)
ASSETS
Investments
Debt securities	$	369,203		$	260,323
Equity securities and other		4,228			3,184
Short-term		55,643			34,334
Total Investments		429,074			297,841
Cash and cash equivalents		30,242			14,335
Premiums and reinsurance balances receivable		35,629			46,090
Accrued investment income		4,116			2,931
Accrued profit sharing commissions		10,803			7,735
Reinsurance recoverable on paid and unpaid losses		88,726			69,437
Prepaid reinsurance premiums		52,221			10,377
Deferred acquisition costs		12,227			18,452
Deferred federal income taxes		33			—
Intangible assets, net of accumulated amortization		36,958			37,878
Other assets		11,248			7,857
Total Assets	$	711,277		$	512,933
LIABILITIES AND STOCKHOLDERS’ EQUITY
Loss and loss adjustment expense reserves	$	256,002		$	191,013
Unearned premium reserves		120,725			91,803
Long-term debt		67,013			46,394
Funds held under reinsurance treaties		28,780			—
Reinsurance payable on paid losses		7,527			2,877
Premiums payable to insurance companies		2,055			728
Deferred federal income taxes		—			1,642
Accounts payable, accrued expenses, and other liabilities		11,268			5,738
Total Liabilities		493,370			340,195
Stockholders’ Equity (1)
Common stock, $0.01 par value; authorized 100,000,000 shares; issued and outstanding 18,036,168 and 17,330,831 shares		181			174
Paid-in-capital		166,606			153,600
Accumulated other comprehensive loss		(255	)		(761	)
Retained earnings		51,973			20,323
Treasury stock; 92,500 shares		(598	)		(598	)
Total Stockholders’ Equity		217,907			172,738
Total Liabilities and Stockholders’ Equity	$	711,277		$	512,933
Book Value Per Share	$	12.08		$	9.98

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First Mercury Financial Corporation
Summary Financial Data

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2007			2006			2007			2006
	(Dollars in thousands)						(Dollars in thousands)
Gross Written Premiums:
Direct written premiums	$	62,039		$	49,472		$	195,590		$	160,452
Assumed written premiums		4,235			1,033			8,602			3,295
Gross written premiums	$	66,274		$	50,505		$	204,192		$	163,747
Net Written Premiums:
Net written premiums	$	35,478		$	23,987		$	114,015		$	77,924
Commissions and Fees:
Insurance underwriting commissions and fees	$	2,226		$	320		$	6,161		$	3,363
Insurance services commissions and fees		3,599			3,396			9,223			9,116
Total commissions and fees	$	5,825		$	3,716		$	15,384		$	12,479
Cash and Cash Equivalents:
Net cash provided by operating activities	$	27,479		$	10,770		$	109,190		$	42,828
Net cash used in investing activities		(24,927	)		(22,983	)		(126,151	)		(43,640	)
Net cash provided by (used in) financing activities		20,619			(137	)		32,868			106
Net increase (decrease) in cash and cash equivalents	$	23,171		$	(12,350	)	$	15,907		$	(706	)
Operating Net Income: (2)
Net income	$	11,046		$	6,926		$	31,517		$	18,271
Adjust for Net realized gains and losses on investments, net of tax		(231	)		(304	)		(726	)		10
Operating net income	$	10,815		$	6,622		$	30,791		$	18,281
Operating Net Income Per Share: (1)
Diluted	$	0.57		$	0.52		$	1.67		$	1.48

FOOTNOTES

(1)	Reflects 925 to 1 stock split that occurred on October 16, 2006 for all periods presented.
(2)	See discussion of use of non-GAAP financial measures above.

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