UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q


þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended: March 31, 2006 Commission File Number: 333-84068


For the Quarterly Period Ended:		Commission File Number:
September 30, 2007		333-84068

Crum & Forster Holdings Corp.

(Exact Name of Registrant as Specified in its Charter)

Delaware		04-3611900
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification Number)
(State or Other Jurisdiction of		(I.R.S. Employer Identification Number)
Incorporation or Organization)

305 Madison Avenue, Morristown, New Jersey 07962

(Address of principal executive office) (973) 490-6600 (Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant: (~~973~~1) ~~490-6600~~has filed all reports required to be filed by Section 13 or 15(~~Registrant’s~~d) ~~telephone~~of ~~number,~~the ~~including~~Securities ~~area~~Exchange ~~code~~Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to the filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to the filing requirements for the past 90 days. Yes o No þ

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.



Large accelerated filer o	Accelerated filer o	Non-accelerated filer þ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date:

Class		Number of Shares Outstanding at ~~May~~November 21, ~~2006~~2007
Common Stock, $.01 Par Value		100

CRUM & FORSTER HOLDINGS CORP.

Form 10-Q

Index

	Page	~~Page~~
	Number	~~Number~~
	PART I
PART I FINANCIAL INFORMATION
	FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS — UNAUDITED
ITEM 1.	FINANCIAL STATEMENTS
Consolidated Balance Sheets at September 30, 2007 and December 31, 2006	3
	Consolidated Balance Sheets at March 31, 2006 and December 31, 2005	3
Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2007 and 2006	4
	Consolidated Statements of Income for the Three Months Ended March 31, 2006 and 2005	4
Consolidated Statements of Shareholder’s Equity for the Nine Months Ended September 30, 2007 and 2006	5
	Consolidated Statements of Shareholder’s Equity for the Three Months Ended March 31, 2006 and 2005	5
Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2007 and 2006	6
	Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2006 and 2005	6
Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2007 and 2006	7
	Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2006 and 2005	7
Notes to the Consolidated Financial Statements	8
	Notes to Consolidated Financial Statements	8
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	19
ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	16
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	32
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	26
ITEM 4. CONTROLS AND PROCEDURES	33
ITEM 4.	CONTROLS AND PROCEDURES	28
PART II OTHER INFORMATION
	PART II
ITEM 1. LEGAL PROCEEDINGS	34
	OTHER INFORMATION
ITEM 6. EXHIBITS	34
ITEM 1.	LEGAL PROCEEDINGS	28
SIGNATURES	35
ITEM 5.	OTHER INFORMATION	30
INDEX TO EXHIBITS	36
ITEM 6.	EXHIBITS	30
	SIGNATURES	31
	INDEX TO EXHIBITS	32

PART I
FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CRUM & FORSTER HOLDINGS CORP.

CONSOLIDATED BALANCE SHEETS

UNAUDITED

(Dollars in thousands, except per share amounts)

	March 31,			December 31,
	September 30,			December 31,
	2006			2005
	2007			2006
	(Unaudited)
ASSETS
Investments:
Fixed income securities, at fair value (amortized cost of $1,979,553 and $2,073,443 in 2006 and 2005, respectively)	$	1,838,040		$	1,991,118
Fixed income securities, at fair value (amortized cost of $1,833,714 and $2,087,065 in 2007 and 2006, respectively)	$	1,726,380		$	1,984,242
Equity securities, at fair value (cost of $553,900 and $503,942 in 2006 and 2005, respectively)		573,584			595,944
Equity securities, at fair value (cost of $646,822 and $640,880 in 2007 and 2006, respectively)		698,321			667,718
Other invested assets		~~409~~480,~~266~~914			~~391~~357,~~132~~849
Total investments		2,820,890			2,978,194
Hybrid financial instruments, at fair value		134,770			—
Cash and cash equivalents		312,794			245,441
Short-term investments at cost, which approximates fair value		63,524			14,130
Assets pledged for short-sale obligations		479,999			496,903
Total investments		3,103,909			3,023,939
Premiums receivable		272,089			245,795
Cash and cash equivalents		326,742			366,743
Reinsurance recoverable		1,767,420			1,806,082
Assets pledged for short-sale obligations		871,016			535,594
Reinsurance recoverable from affiliates		292,690			304,033
Accrued investment income		18,227			34,581
Prepaid reinsurance premiums		32,070			31,308
Premiums receivable		228,852			249,913
Deferred income taxes		232,569			175,207
Reinsurance recoverable		1,366,691			1,479,331
Deferred policy acquisition costs		78,026			70,807
Reinsurance recoverable from affiliates		240,767			254,595
Other assets		192,819			129,109
Prepaid reinsurance premiums		22,248			25,430
Total assets	$	6,481,366		$	6,482,879
Deferred income taxes		190,589			285,902
Deferred policy acquisition costs		80,618			83,964
Other assets		83,537			103,562
Total assets	$	6,533,196		$	6,443,554
LIABILITIES
Unpaid losses and loss adjustment expenses	$	3,~~640~~275,~~968~~814		$	3,~~673~~371,~~034~~549
Unearned premiums		~~548~~539,~~938~~630			~~499~~576,~~551~~182
Accounts payable and other liabilities		286,201			264,525
Funds held under reinsurance contracts		249,451			243,316
Funds held under reinsurance contracts		278,407			277,868
Accounts payable and other liabilities		234,871			298,101
Deferred income on retroactive insurance		~~181~~157,~~119~~199			~~184~~168,~~498~~018
Short-sale obligations		~~344~~654,~~050~~207			~~329~~400,~~740~~163
Long-term debt		~~292~~312,~~640~~870			~~292~~293,~~470~~170
Total liabilities		5,~~572~~424,~~323~~042			5,~~521~~350,~~686~~499
Commitments and contingencies (Note 9)
SHAREHOLDER’S EQUITY
Common stock, $0.01 par value; 1,000 shares authorized; 100 issued and outstanding		—			—
Additional paid-in capital		740,993			740,993
Accumulated other comprehensive income, net of tax		(35,070	)		53,443
Accumulated other comprehensive loss, net of tax		(4,059	)		(36,978	)
Retained earnings		~~203~~372,~~120~~220			~~166~~389,~~757~~040
Total shareholder’s equity		~~909~~1,~~043~~109,154			~~961~~1,~~193~~093,055
Total liabilities and shareholder’s equity	$	6,~~481~~533,~~366~~196		$	6,~~482~~443,~~879~~554

The accompanying notes are an integral part of the consolidated financial statements.

CRUM & FORSTER HOLDINGS CORP.

CONSOLIDATED STATEMENTS OF INCOME

UNAUDITED

(Dollars in thousands)

	Three Months
	Three Months Ended				Nine Months Ended
	Ended March 31,
	September 30,				September 30,
	2006		2005
	2007		2006		2007		2006
	(Unaudited)
REVENUES
REVENUES
Premiums earned	$	293,375	$	279,631	$	893,903	$	791,178
Premiums earned	$	246,719	$	231,554
Investment income		34,296		21,096		109,226		170,375
Investment income		56,458		34,657
Realized investment gains		70,220		45,501		73,627		177,039
Realized investment gains		121,822		14,250
Total revenues		397,891		346,228		1,076,756		1,138,592
Total revenues		424,999		280,461
EXPENSES
EXPENSES
Losses and loss adjustment expenses		192,468		190,457		587,618		541,150
Losses and loss adjustment expenses		169,012		153,633
Policy acquisition costs		45,629		42,139		131,311		110,918
Policy acquisition costs		31,233		30,414
Other underwriting expenses		40,928		39,874		122,428		120,496
Other underwriting expenses		39,025		33,395
Interest expense		6,971		8,250		22,835		24,734
Interest expense		8,241		8,224
Costs related to early retirement of debt		—		—		21,188		—
Other expense, net		21,~~664~~149		1,~~308~~815		960		6,059
Total expenses		~~250~~287,~~175~~145		~~226~~282,~~974~~535		886,340		803,357
Income before income taxes and equity in earnings of investees		~~174~~110,~~824~~746		5363,~~487~~693		190,416		335,235
Income tax expense		6037,~~320~~940		1821,~~365~~674		64,147		115,139
Income before equity in earnings of investees		~~114~~72,~~504~~806		3542,~~122~~019		126,269		220,096
Equity in earnings of investees, net of tax		110,~~859~~051		43,~~433~~846		18,146		9,915
NET INCOME	$	~~116~~82,~~363~~857	$	3945,~~555~~865	$	144,415	$	230,011

The accompanying notes are an integral part of the consolidated financial statements.

CRUM & FORSTER HOLDINGS CORP.

CONSOLIDATED STATEMENTS OF SHAREHOLDER’S EQUITY

UNAUDITED

(Dollars in thousands)

	Three Months Ended
	Nine Months Ended
	March 31,
	September 30,
	2006			2005
	2007			2006
	(Unaudited)
COMMON STOCK
Balance, beginning and end of period	$	—		$	—
ADDITIONAL PAID-IN CAPITAL
Balance, beginning and end of period		740,993			740,993
ACCUMULATED OTHER COMPREHENSIVE INCOME, NET OF TAX
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX
Balance, beginning of period		53(36,~~443~~978	)		5553,~~875~~443
Unrealized investment losses, net of transfers to realized investment gains and losses		(88,775	)		(13,471	)
Cumulative effect of adoption of Statement of Financial Accounting Standards No. 155		(10,146	)		—
Foreign currency translation		262			(1,184	)
Unrealized investment gains (losses), net of transfers to realized investment gains and losses		24,856			(87,839	)
Balance, end of period		(35,070	)		41,220
Foreign currency translation		18,209			4,666
Balance, end of period		(4,059	)		(29,730	)
RETAINED EARNINGS
Balance, beginning of period		~~166~~389,~~757~~040			84166,~~321~~757
Net income		116,363			39,555
Cumulative effect of adoption of Statement of Financial Accounting Standards No. 155 and equity method investee adoption of FASB Interpretation No. 48		9,465			—
Dividend to shareholder		(80,000	)		—
Net income		144,415			230,011
Balance, end of period		203,120			123,876
Dividends to shareholder		(170,700	)		(90,000	)
TOTAL SHAREHOLDER’S EQUITY	$	909,043		$	906,089
Balance, end of period		372,220			306,768
TOTAL SHAREHOLDER’S EQUITY	$	1,109,154		$	1,018,031

The accompanying notes are an integral part of the consolidated financial statements.

CRUM & FORSTER HOLDINGS CORP.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

UNAUDITED

(Dollars in thousands)

	Three Months Ended						Nine Months Ended
	March 31,
	September 30,						September 30,
	2006			2005
	2007			2006			2007			2006
	(Unaudited)
NET INCOME	$	82,857		$	45,865		$	144,415		$	230,011
NET INCOME	$	116,363		$	39,555
Change in components of other comprehensive income (loss) for the period, before tax:
Change in components of other comprehensive (loss) income for the period, before tax:
Unrealized investment gains (losses), net of transfers to realized investment gains and losses		75,307			107,014			38,210			(135,136	)
Unrealized investment losses, net of transfers to realized investment gains and losses		(136,578	)		(20,726	)
Foreign currency translation		12,717			(622	)		28,014			7,178
Foreign currency translation		403			(1,821	)
Other comprehensive income (loss) for the period, before tax		88,024			106,392			66,224			(127,958	)
Other comprehensive loss for the period, before tax		(136,175	)		(22,547	)
Deferred income tax (expense) benefit for the period:
Deferred income tax benefit (expense) for the period:
Deferred income tax (expense) benefit from unrealized investment gains and losses		(26,338	)		(37,455	)		(13,354	)		47,297
Deferred income tax benefit from unrealized investment losses		47,803			7,255
Deferred income tax (expense) benefit from foreign currency translation		(4,451	)		218			(9,805	)		(2,512	)
Deferred income tax (expense) benefit from foreign currency translation		(141	)		637
Total deferred income tax (expense) benefit for the period		(30,789	)		(37,237	)		(23,159	)		44,785
Total deferred income tax benefit for the period		47,662			7,892
Other comprehensive income (loss) for the period, net of tax		57,235			69,155			43,065			(83,173	)
Other comprehensive loss for the period, net of tax		(88,513	)		(14,655	)
COMPREHENSIVE INCOME	$	140,092		$	115,020		$	187,480		$	146,838
COMPREHENSIVE INCOME	$	27,850		$	24,900

The accompanying notes are an integral part of the consolidated financial statements.

CRUM & FORSTER HOLDINGS CORP.

CONSOLIDATED STATEMENTS OF CASH FLOWS

UNAUDITED

(Dollars in thousands)

	Three Months Ended
	Nine Months Ended
	March 31,
	September 30,
	2006			2005
	2007			2006
	(Unaudited)
OPERATING ACTIVITIES
Net income	$	~~116~~144,~~363~~415		$	39230,~~555~~011
Adjustments to reconcile net income to net cash from operating activities:
Net accretion of discount on fixed income securities		(27,~~141~~136	)		(187,731	)
Realized investment gains		(~~121~~73,~~822~~627	)		(14177,~~250~~039	)
Earnings of equity method investees		(26,757	)		(14,913	)
Earnings of equity method investees, net of dividends		(23,995	)		(11,414	)
Depreciation and amortization		816			865
Earnings of investment companies and similar equity method investees		(9,177	)		(81,036	)
Deferred income tax benefit		(9,701	)		(1,562	)
Depreciation and amortization		2,382			2,409
Other non-cash net income adjustments		4,199			4,080
Deferred income tax expense (benefit)		72,522			(20,826	)
Non-cash costs related to early retirement of debt		9,216			—
Other non-cash net income adjustments		6,982			11,330
Changes in:
Premiums receivable		(27,044	)		8,485
Accrued investment income		16,354			20,136
Reinsurance recoverable		43,717			(37,692	)
Premiums receivable		21,811			(1,479	)
Prepaid reinsurance premiums		(762	)		873
Reinsurance recoverable		114,050			204,985
Deferred policy acquisition costs		(7,219	)		(207	)
Prepaid reinsurance premiums		3,182			3,946
Other assets		26,509			19,073
Deferred policy acquisition costs		3,346			(14,887	)
Unpaid losses and loss adjustment expenses		(32,065	)		31,124
Other assets		207			5,496
Unearned premiums		49,387			6,973
Unpaid losses and loss adjustment expenses		(95,735	)		(161,766	)
Accounts payable and other liabilities		13,795			37,792
Unearned premiums		(36,552	)		91,734
Net cash from operating activities		27,275			80,178
Accounts payable and other liabilities		(98,313	)		(11,213	)
Net cash from operating activities		49,932			82,656
INVESTING ACTIVITIES
Purchases of fixed income securities		(85149,~~245~~314	)		(93153,~~427~~087	)
Proceeds from sales of fixed income securities		~~174~~209,~~621~~153			42393,~~703~~088
Purchases of equity securities		(134,811	)		(109,767	)
Proceeds from maturities of fixed income securities		2,025			60,005
Proceeds from sales of equity securities		197,149			75,947
Purchases of equity securities		(202,957	)		(309,577	)
Purchases of other invested assets		(546	)		(39,279	)
Proceeds from sales of equity securities		203,094			332,973
Proceeds from sales of other invested assets		3,371			664
Purchases of other invested assets		(25,862	)		(26,037	)
Proceeds from short-sale obligations		—			100,013
Proceeds from sales of other invested assets		62,155			143,314
Cash pledged for short-sale obligations		(34,252	)		(105,826	)
Proceeds from sales of hybrid financial instruments		2,259			—
Purchases of fixed assets		(209	)		(108	)
Purchases of short term investments		(138,282	)		—
Net cash from investing activities		120,078			(129,080	)
Proceeds from sales of short term investments		88,888			—
Proceeds from short-sale obligations		231,688			24,931
Cash pledged for short-sale obligations		(253,516	)		(70,702	)
Purchases of fixed assets		(804	)		(739	)
Net cash from investing activities		28,527			394,169
FINANCING ACTIVITIES
Dividend to shareholder		(80,000	)		—
Dividends to shareholder		(128,818	)		(90,000	)
Net cash from financing activities		(80,000	)		—
Issuance of 7 3/4% long-term debt		330,000			—
Net change in cash and cash equivalents		67,353			(48,902	)
Repayment of 10 3/8% long-term debt		(295,730	)		—
Cash and cash equivalents, beginning of period		245,441			429,205
New debt issuance costs		(23,912	)		—
Cash and cash equivalents, end of period	$	312,794		$	380,303
Net cash used in financing activities		(118,460	)		(90,000	)
Net change in cash and cash equivalents		(40,001	)		386,825
Cash and cash equivalents, beginning of period		366,743			245,441
Cash and cash equivalents, end of period	$	326,742		$	632,266
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid to parent for income taxes	$	23,168		$	1,957
Cash paid for interest	$	12,324		$	15,563
Cash paid to parent for income taxes	$	43,261		$	108,144
SUPPLEMENTAL NON-CASH OPERATING AND FINANCING ACTIVITIES
Note received from parent in partial settlement of the Company’s tax net operating losses	$	41,882		$	—
In-kind dividend payment to parent representing cancellation of the aforementioned note	$	41,882		$	—

The accompanying notes are an integral part of the consolidated financial statements.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited, dollars in thousands)

(Unaudited, dollars in thousands)

1.		Organization and Basis of Presentation

		Crum & Forster Holdings Corp. (the “Company” or “Crum & Forster”) is a Delaware holding company, which is 100% owned by Fairfax Inc., a Wyoming holding company. Fairfax Inc. is ultimately owned by Fairfax Financial Holdings Limited (“Fairfax”), a Canadian financial services holding company, which is publicly traded on the Toronto Stock Exchange and the New York Stock Exchange under the symbol “FFH”. The Company, through its subsidiaries, offers a full range of commercial property and casualty insurance distributed through an independent producer force located across the United States.

		These consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) and include the accounts of the Company, Crum & Forster Holding Inc. and their wholly-owned subsidiaries, including United States Fire Insurance Company (“US Fire”), The North River Insurance Company (“North River”), Crum & Forster Indemnity Company and Crum and Forster Insurance Company. US Fire owns 100% of the stock of Crum & Forster Specialty Insurance Company. North River owns 100% of the stock of Seneca Insurance Company, Inc. and its subsidiaries. All material intercompany accounts and transactions have been eliminated in consolidation.

		Effective January 1, 2006, Fairfax announced that certain of the business of the insurance companies of Fairmont Specialty Group, affiliates of Fairfax, would be conducted as Fairmont Specialty, a division of Crum & Forster (“Fairmont”), thereby giving Fairmont access to the “A-” A.M. Best rating of Crum & Forster. The Fairmont business is comprised of standard commercial and personal lines, bail bonds and accident and health coverages. In return for the opportunity to quote Fairmont Specialty Group’s renewals effective January 1, 2006 and thereafter, the Company hired substantially all Fairmont Specialty Group employees and assumed certain operating obligations. Pending regulatory approval of Crum & Forster company rate and form filings for the Fairmont business, the policies underwritten by Fairmont were issued initially by the insurance companies of Fairmont Specialty Group and assumed by the Company through a 100% quota share reinsurance agreement. As of September 30, 2007, substantially all Fairmont business is written directly by Crum & Forster.

		The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and disclosure of contingent assets and liabilities. Such estimates and assumptions may differ from actual results. Certain financial information that is normally included in annual financial statements, including certain financial statement footnotes, prepared in accordance with GAAP, is not required for interim reporting purposes and has been condensed or omitted herein. These consolidated financial statements should be read in conjunction with the Company’s consolidated financial statements and notes related thereto, included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2006, filed with the Securities and Exchange Commission (“SEC”) on March 9, 2007.

		The interim financial data at September 30, 2007 and for the three and nine months ended September 30, 2007 and 2006 is unaudited. However, in the opinion of management, the interim data includes all adjustments that are necessary for a fair presentation of the Company’s results for the interim periods. The results of operations for the interim periods are not necessarily indicative of the results to be expected for the full year. Certain amounts in the Company’s prior year consolidated financial statements have been reclassified to conform to the 2007 presentation.

1. Organization and Basis of Presentation

Crum & Forster Holdings Corp. (the “Company” or “Crum & Forster”) is a Delaware holding company, which is 100% owned by Fairfax Inc., a Wyoming holding company. Fairfax Inc. is ultimately owned by Fairfax Financial Holdings Limited (“Fairfax”), a Canadian financial services holding company, which is publicly traded on the Toronto Stock Exchange and the New York Stock Exchange under the symbols “FFH.SV” and “FFH”, respectively. The Company, through its subsidiaries, offers a full range of commercial property and casualty insurance distributed through an independent producer force located across the United States.

These consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) and include the accounts of the Company and its wholly-owned subsidiaries, including Crum & Forster Holding Inc., United States Fire Insurance Company (“US Fire”), The North River Insurance Company (“North River”), Crum & Forster Indemnity Company and Crum and Forster Insurance Company. US Fire owns 100% of the stock of Crum & Forster Specialty Insurance Company. North River owns 100% of the stock of Seneca Insurance Company, Inc. and its subsidiaries. All material intercompany accounts and transactions have been eliminated in consolidation.

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and disclosure of contingent assets and liabilities. Such estimates and assumptions may differ from actual results. Certain financial information that is normally included in annual financial statements, including certain financial statement footnotes, prepared in accordance with GAAP, is not required for interim reporting purposes and has been condensed or omitted herein. These consolidated financial statements should be read in conjunction with the Company’s consolidated financial statements, and notes related thereto, included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2005 filed with the Securities and Exchange Commission (“SEC”) on March 22, 2006.

The interim financial data at March 31, 2006 and for the three months ended March 31, 2006 and 2005 is unaudited. However, in the opinion of management, the interim data includes all adjustments, consisting of normal recurring accruals necessary for a fair statement of the Company’s results for the interim periods. The results of operations for the interim periods are not necessarily indicative of the results to be expected for the full year. Certain amounts in the Company’s prior year consolidated financial statements have been reclassified to conform to the 2006 presentation.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited, dollars in thousands)

(Unaudited, dollars in thousands)

2.		Recent Accounting Pronouncements

		In February 2007, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 159, The Fair Value Option for Financial Assets and Financial Liabilities — Including an Amendment of FASB Statement No. 115 (“SFAS 159”), which provides the option to measure many financial instruments and certain other assets and liabilities at fair value on an instrument-by-instrument basis. SFAS 159 is effective for fiscal years beginning after November 15, 2007. The Company is currently evaluating the impact of adoption of SFAS 159 on its results of operations and financial position.

		In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (“SFAS 157”). SFAS 157 defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles and expands disclosures about fair value measurements. SFAS 157 is effective for fiscal years beginning after November 15, 2007. The Company is currently evaluating the effects of SFAS 157 but does not expect its adoption to have a material impact on its results of operations or financial position.

		In June 2006, the FASB issued FASB Interpretation 48, Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109 (“FIN 48”). The interpretation clarifies the accounting for uncertainty in income taxes recognized in a company’s financial statements in accordance with SFAS 109, Accounting for Income Taxes. Specifically, the pronouncement prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The interpretation also provides guidance on the related derecognition, classification, interest and penalties, accounting for interim periods, disclosure and transition of uncertain tax positions. The interpretation is effective for fiscal years beginning after December 15, 2006. The Company adopted FIN 48 on January 1, 2007 and although its adoption did not have a direct impact on the Company’s results of operations or financial position, adoption of FIN 48 by one of the Company’s equity method investees resulted in the Company recording a cumulative adjustment of $681, net of tax, to opening retained earnings.

		In February 2006, the FASB issued SFAS No. 155, Accounting for Certain Hybrid Financial Instruments — an amendment of FASB Statements Nos. 133 and 140 (“SFAS 155”). SFAS 155 applies to certain “hybrid financial instruments” which are instruments that contain embedded derivatives. The standard establishes a requirement to evaluate beneficial interests in securitized financial assets to determine if the interests represent freestanding derivatives or are hybrid financial instruments requiring bifurcation. SFAS 155 also permits an election for fair value measurement of any hybrid financial instrument that otherwise would require bifurcation under SFAS 133. Changes in fair value are recorded as realized investment gains or losses. The fair value election can be applied to existing instruments on an instrument-by-instrument basis at the date of adoption and to new instruments on a prospective basis. The statement is effective for fiscal years beginning after September 15, 2006. The Company elected fair value measurement of its hybrid financial instruments, which are comprised of convertible bonds, effective with its adoption of SFAS 155 on January 1, 2007. Prior to January 1, 2007, the Company bifurcated its hybrid financial instruments and changes in the fair value of the host instrument were recorded as unrealized investment gains and losses while changes in the fair value of the embedded derivative were recorded as realized investment gains and losses. At December 31, 2006, the fair value of the host instruments included in fixed income securities was $136,222 and the fair value of embedded derivatives included in other invested assets was $7,372. Upon adoption of SFAS 155, the Company recorded a cumulative adjustment of $10,146, inclusive of an adjustment of $301 in respect of adoption of SFAS 155 by one of the Company’s equity method investees, net of tax, to reclassify unrealized investment gains associated with the host instruments to opening retained earnings. At September 30, 2007, the fair value of the Company’s hybrid financial instruments was $134,770.

2. Unpaid Losses and Loss Adjustment Expenses

Changes in the Company’s liability for unpaid losses and loss adjustment expenses (“LAE”) are summarized as follows:

	Three Months Ended
	March 31,
	2006			2005
Gross unpaid losses and LAE, beginning of period	$	3,673,034		$	3,370,936
Less ceded unpaid losses and LAE		1,682,768			1,360,996
Net unpaid losses and LAE, beginning of period		1,990,266			2,009,940
Losses and LAE incurred related to:
Current period		171,445			158,902
Prior years		(2,433	)		(5,269	)
Total losses and LAE incurred		169,012			153,633
Losses and LAE paid related to:
Current period		8,106			8,980
Prior years		157,176			148,918
Total losses and LAE paid		165,282			157,898
Net unpaid losses and LAE, end of period		1,993,996			2,005,675
Add ceded unpaid losses and LAE		1,646,972			1,396,385
Gross unpaid losses and LAE, end of period	$	3,640,968		$	3,402,060

A reconciliation of the ceded unpaid losses and LAE in the table above to the reinsurance recoverable reflected on the balance sheet follows:

	March 31,
	2006
Ceded unpaid losses and LAE in the table above	$	1,646,972
Reconciling items:
Reinsurance recoverable on paid losses and LAE		58,904
Unamortized retroactive reinsurance recoverable		375,744
Loss sensitive cession1		(21,510	)
Total reconciling items		413,138
Reinsurance recoverable on the consolidated balance sheet	$	2,060,110

1 Equals additional premiums due on retrospectively rated insurance policies that inure to the benefit of the reinsurer.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited, dollars in thousands)

~~(Unaudited, dollars~~3. Unpaid Losses and Loss Adjustment Expenses Changes in ~~thousands~~the Company’s liability for unpaid losses and loss adjustment expenses (“LAE”) are summarized as follows:

3. Asbestos and Environmental Losses and Loss Adjustment Expenses


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2007			2006			2007			2006
Gross unpaid losses and LAE, beginning of period	$	3,317,465		$	3,562,337		$	3,371,549		$	3,673,034
Less ceded unpaid losses and LAE		1,287,904			1,545,870			1,355,253			1,682,768

Net unpaid losses and LAE, beginning of period		2,029,561			2,016,467			2,016,296			1,990,266

Losses and LAE incurred related to:
Current period		202,331			213,594			624,280			569,029
Prior years		(9,863	)		(23,137	)		(36,662	)		(27,879	)

Total losses and LAE incurred		192,468			190,457			587,618			541,150

Losses and LAE paid related to:
Current period		75,124			58,541			139,452			95,025
Prior years		130,880			104,389			448,437			392,397

Total losses and LAE paid		206,004			162,930			587,889			487,422

Net unpaid losses and LAE, end of period		2,016,025			2,043,994			2,016,025			2,043,994
Add ceded unpaid losses and LAE		1,259,789			1,467,274			1,259,789			1,467,274

Gross unpaid losses and LAE, end of period	$	3,275,814		$	3,511,268		$	3,275,814		$	3,511,268

~~Changes~~A reconciliation of the ceded unpaid losses and LAE in the ~~Company’s~~table ~~liability~~above ~~for~~to ~~asbestos~~the ~~and~~reinsurance ~~environmental~~recoverable ~~exposures~~reflected ~~are~~on ~~summarized~~the as consolidated balance sheet follows:

	Three Months Ended
	September 30,
	March 31,
	2007
	2006			2005
Ceded unpaid losses and LAE in the table above	$	1,259,789
Asbestos
Reconciling items:
Gross unpaid losses and allocated LAE (“ALAE”), beginning of period	$	469,199		$	522,685
Reinsurance receivable on paid losses and LAE		50,748
Less ceded unpaid losses and ALAE		92,418			113,891
Unamortized retroactive reinsurance recoverable		318,431
Net unpaid losses and ALAE, beginning of period		376,781			408,794
Loss sensitive cession1		(21,510	)
Net losses and ALAE incurred		—			—
Total reconciling items		347,669
Net paid losses and ALAE		9,598			15,766
Reinsurance recoverable on the consolidated balance sheet	$	1,607,458
Net unpaid losses and ALAE, end of period		367,183			393,028
Add ceded unpaid losses and ALAE		93,895			106,492
Gross unpaid losses and ALAE, end of period	$	461,078		$	499,520

	2006		2005
Environmental
Gross unpaid losses and ALAE, beginning of period	$	111,536	$	123,353
Less ceded unpaid losses and ALAE		37,293		38,190
Net unpaid losses and ALAE, beginning of period		74,243		85,163
Net losses and ALAE incurred		—		—
Net paid losses and ALAE		1,768		6,990
Net unpaid losses and ALAE, end of period		72,475		78,173
Add ceded unpaid losses and ALAE		35,334		36,457
Gross unpaid losses and ALAE, end of period	$	107,809	$	114,630


¹		Equals additional premiums due on retrospectively rated insurance policies that inure to the benefit of the reinsurer.

The Company also maintains reserves for other latent exposures such as those associated with silica, chemicals, lead, mold and gas and vapors of $22,886 and $20,869, net of reinsurance, at March 31, 2006 and 2005, respectively.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited, dollars in thousands)

(Unaudited, dollars in thousands)

4.		Asbestos and Environmental Losses and Loss Adjustment Expenses

		The Company has exposure to asbestos and environmental claims arising from the sale of general liability, commercial multi-peril and umbrella insurance policies, the majority of which were written for accident years 1985 and prior. Estimation of ultimate liabilities for these exposures is unusually difficult due to such issues as whether or not coverage exists, definition of an occurrence, determination of ultimate damages and allocation of such damages to financially responsible parties.

		Changes in the Company’s liability for asbestos and environmental exposures are summarized as follows:

4. Reinsurance


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2007		2006		2007		2006
Asbestos
Gross unpaid losses and allocated LAE (“ALAE”), beginning of period	$	421,380	$	441,752	$	443,055	$	469,199
Less ceded unpaid losses and ALAE		92,426		84,965		94,817		92,418

Net unpaid losses and ALAE, beginning of period		328,954		356,787		348,238		376,781
Net losses and ALAE incurred		—		—		—		—
Net paid losses and ALAE		8,268		14,860		27,552		34,854

Net unpaid losses and ALAE, end of period		320,686		341,927		320,686		341,927
Add ceded unpaid losses and ALAE		89,498		80,440		89,498		80,440

Gross unpaid losses and ALAE, end of period	$	410,184	$	422,367	$	410,184	$	422,367

The components of the Company’s net premiums written and premiums earned are summarized as follows:


	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2007			2006		2007		2006
Environmental
Gross unpaid losses and ALAE, beginning of period	$	96,813		$	105,743	$	110,636	$	111,536
Less ceded unpaid losses and ALAE		32,250			35,491		37,103		37,293

Net unpaid losses and ALAE, beginning of period		64,563			70,252		73,533		74,243
Net losses and ALAE incurred		—			—		—		—
Net paid losses and ALAE		(136	)		1,177		8,834		5,168

Net unpaid losses and ALAE, end of period		64,699			69,075		64,699		69,075
Add ceded unpaid losses and ALAE		30,957			35,885		30,957		35,885

Gross unpaid losses and ALAE, end of period	$	95,656		$	104,960	$	95,656	$	104,960

	Three Months Ended
	March 31,
	2006			2005
Premiums written:
Direct	$	310,368		$	286,019
Assumed from other companies, pools, or associations		36,833			2,424
Ceded to other companies, pools or associations		(51,857	)		(49,043	)
Net premiums written	$	295,344		$	239,400
Premiums earned:
Direct	$	282,683		$	278,856
Assumed from other companies, pools, or associations		14,967			2,614
Ceded to other companies, pools or associations		(50,931	)		(49,916	)
Premiums earned	$	246,719		$	231,554

The Company also maintains reserves for other latent exposures such as those associated with silica, gas and vapors, lead, mold, chemical, welding fumes and pesticides of $18,524 and $21,758, net of reinsurance, as of September 30, 2007 and December 31, 2006, respectively.

The components of the Company’s total reinsurance recoverable are summarized as follows:

	March 31,		December 31,
	2006		2005
Reinsurance recoverable on unpaid losses and LAE	$	2,001,206	$	2,040,381
Reinsurance receivable on paid losses and LAE		58,904		69,734
Total reinsurance recoverable	$	2,060,110	$	2,110,115

Corporate aggregate reinsurance

Crum & Forster’s underwriting results are significantly affected by reinsurance. The Company purchases reinsurance to limit its exposure to loss from any one claim or occurrence (“per risk or per occurrence reinsurance”), from aggregate loss experience for an accident year that exceeds an amount the Company is willing to accept and from adverse development of prior years’ loss and LAE reserves (the latter two types of reinsurance are referred to herein as “corporate aggregate reinsurance”, as distinct from the aforementioned “per risk or per occurrence reinsurance”). The Company’s corporate aggregate reinsurance contracts are of the type commonly referred to as “finite” reinsurance and cover or covered, in varying amounts and on varying terms, accident years 2002 and prior.

In general, contracts covering past insurable events, such as adverse loss development covers, are categorized as “retroactive reinsurance”, as opposed to contracts covering future insurable events, which are referred to as “prospective reinsurance”. Amounts ceded under prospective contracts are recognized, as to premiums, as a reduction of premiums written and earned in the period in which premiums are ceded and, as to losses, as a reduction of incurred losses as the losses are ceded to the reinsurer. Under retroactive contracts, the excess of reinsurance recoverable due from reinsurers pursuant to the contract over premiums paid for coverage is deferred and amortized as a reduction of incurred losses over the expected period of recovery, generally many years, using the interest method. Under both prospective and retroactive contracts, funds held interest, if applicable, is recognized as a reduction of investment income in the period in which the interest is credited to the funds held account.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited, dollars in thousands)

~~(Unaudited, dollars~~5. inReinsurance ~~thousands)~~The components of the Company’s net premiums written and premiums earned are summarized as follows:

The effect of prospective and retroactive corporate aggregate reinsurance on components of the Company’s consolidated statements of income is summarized as follows (increase (decrease) in indicated components):


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2007			2006			2007			2006
Premiums written:
Direct	$	286,480		$	292,692		$	937,519		$	899,508
Assumed from other companies, pools or associations		10,412			43,861			31,899			125,645
Ceded to other companies, pools or associations		(30,113	)		(44,047	)		(108,885	)		(138,295	)

Net premiums written	$	266,779		$	292,506		$	860,533		$	886,858


Premiums earned:
Direct	$	309,585		$	290,940		$	939,386		$	854,154
Assumed from other companies, pools or associations		14,565			35,232			66,584			79,265
Ceded to other companies, pools or associations		(30,775	)		(46,541	)		(112,067	)		(142,241	)

Premiums earned	$	293,375		$	279,631		$	893,903		$	791,178

	Three Months Ended
	March 31,
	2006			2005
Investment income	$	(4,818	)	$	(4,887	)
Losses and LAE		(3,379	)		(3,690	)
Income before income taxes	$	(1,439	)	$	(1,197	)

The components of the Company’s total reinsurance recoverable are summarized as follows:

At March 31, 2006, reinsurance recoverable includes $415,953 and $428,808 related to prospective and retroactive corporate aggregate reinsurance contracts, respectively, of which $490,528 has been recognized as a reduction of incurred losses and LAE on the Company’s consolidated statements of income.


	September 30,		December 31,
	2007		2006
Reinsurance recoverable on unpaid losses and LAE	$	1,556,710	$	1,662,993
Reinsurance receivable on paid losses and LAE		50,748		70,933

Total reinsurance recoverable	$	1,607,458	$	1,733,926

~~Prospective~~ The reinsurance recoverable balances above are net of reserves for uncollectible reinsurance of $48,253 and $42,777 at September 30, 2007 and December 31, 2006, respectively. Corporate Aggregate Reinsurance Crum & Forster’s underwriting results are significantly affected by reinsurance. The Company currently purchases, or has in the past purchased, reinsurance to limit its exposure to loss from any one claim or occurrence (“per risk or per occurrence reinsurance”), from aggregate loss experience for an accident year that exceeds an amount the Company is willing to accept and from adverse development of prior years’ loss and LAE reserves (the latter two types of reinsurance are referred to herein as “corporate aggregate reinsurance ”, as distinct from the aforementioned “per risk or per occurrence reinsurance”). The Company’s corporate aggregate reinsurance contracts are of the type commonly referred to as “finite” reinsurance and cover or covered, in varying amounts and on varying terms, accident years 2002 and prior. In general, contracts covering past insurable events, such as adverse loss development covers, are categorized as “retroactive reinsurance”, as opposed to contracts covering future insurable events, which are referred to as “prospective reinsurance”. Amounts ceded under prospective contracts are recognized, as to premiums, as a reduction of premiums written and earned in the period in which premiums are ceded and, as to losses, as a reduction of incurred losses as the losses are ceded to the reinsurer. Under retroactive contracts, the excess of reinsurance recoverable due from reinsurers pursuant to the contract over premiums paid for coverage is deferred and amortized as a reduction of incurred losses over the expected period of recovery, generally many years, using the interest method. Under both prospective and retroactive contracts, funds held interest, if applicable, is recognized as a reduction of investment income in the period in which the interest is credited to the funds held account.

An analysis of activity in prospective corporate aggregate reinsurance contracts follows:

	Three Months Ended
	March 31,
	2006			2005
Ceded losses and LAE	$	—		$	—
Less: funds held interest charged to investment income		909			1,265
Decrease in income before income taxes	$	(909	)	$	(1,265	)

Retroactive corporate aggregate reinsurance

An analysis of activity in retroactive corporate aggregate reinsurance contracts follows:

	Three Months Ended
	March 31,
	2006			2005
Increase in reinsurance recoverable due from insurers	$	—		$	—
Less: related premiums paid		—			—
Income deferred during the period		—			—
Amortization of deferred income		(3,379	)		(3,690	)
Decrease in deferred income		(3,379	)		(3,690	)
Deferred income on retroactive reinsurance—beginning of period		184,498			223,360
Deferred income on retroactive reinsurance—end of period	$	181,119		$	219,670
Funds held interest charged to investment income	$	3,909		$	3,622

For additional information on the Company’s prospective and retroactive corporate aggregate reinsurance contracts, refer to the Company’s Annual Report on Form 10-K for the year ended December 31, 2005 filed with the SEC on March 22, 2006.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited, dollars in thousands)

The effect of prospective and retroactive corporate aggregate reinsurance on components of the Company’s consolidated statements of income is summarized as follows (~~Unaudited, dollars~~increase (decrease) in ~~thousands~~indicated component):

5. Investments and Short-Sale Obligations


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2007			2006			2007			2006
Investment income	$	(4,214	)	$	(4,818	)	$	(12,552	)	$	(14,470	)
Losses and LAE		(4,045	)		(3,435	)		(10,819	)		(10,249	)

Decrease in income before income taxes	$	(169	)	$	(1,383	)	$	(1,733	)	$	(4,221	)

InAt ~~February 2006~~September 30, ~~the~~2007, ~~Company~~reinsurance ~~sold~~recoverable ~~its~~includes ~~remaining~~$398,621 ~~shares~~and of$391,825 ~~Zenith~~related ~~National~~to ~~Insurance~~prospective ~~Corp.~~and ~~for~~retroactive ~~proceeds~~corporate aggregate reinsurance contracts, respectively, of which $~~169~~493,~~311~~525 ~~and~~has been recognized as a ~~realized~~reduction ~~gain~~of incurred losses and LAE on the Company’s consolidated statements of ~~$106,578~~income. Prospective Corporate Aggregate Reinsurance An analysis of activity in prospective corporate aggregate reinsurance contracts follows:

The Company has purchased credit default swaps on securities issued by various U.S. companies, primarily in the banking, mortgage and insurance industries. These credit default swaps serve as hedges against declines in the fair value of various financial assets owned by the Company arising from potential financial reverses associated with any or all of these issuers or the industries in which they operate. At March 31, 2006 and December 31, 2005, the fair value of the Company’s credit default swaps was $26,700 and $33,559, respectively. For the three months ended March 31, 2006 and 2005, the Company recorded net realized investment losses of $6,859 and gains of $468, respectively, as a result of changes in the fair value of the credit default swaps.


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2007			2006			2007			2006
Ceded losses and LAE	$	—		$	—		$	—		$	—
Less: funds held interest charged to investment income		572			728			1,809			2,404

Decrease in income before income taxes	$	(572	)	$	(728	)	$	(1,809	)	$	(2,404	)

As an economic hedge against a decline in the U.S. equity markets, the Company executed short-sales of Standard & Poor’s Depositary Receipts (“SPDRs”) in July 2004 and January 2005 totaling approximately $300,000. Simultaneously, the Company purchased two-year S&P Index call options (“Options”) limiting the potential loss on the future purchase of the SPDRs to $60,000. The ~~total~~above ~~cost~~activity ofarises ~~the~~from ~~Options~~one ~~was~~prospective ~~$8,217~~contract. ~~Both the obligations to purchase the SPDRs and the Options are carried at fair value on the consolidated financial statements.~~ The ~~fair~~reinsurance ~~value~~recoverable ~~of the obligations to purchase the SPDRs is included in short-sale obligations~~ and ~~the~~funds ~~fair~~held ~~value~~balances ~~of the Options is included~~ in ~~other~~respect ~~invested assets on the consolidated balance sheets. For the three months ended March 31, 2006 and 2005, the change in the fair value~~ of ~~the~~such ~~SPDRs~~contract ~~obligation~~were ~~amounted to a loss of~~ $14,310 and a gain of $4,691, respectively, and the change in the fair value of the Options amounted to a loss of $1,046 and $3,680, respectively. The net change in the fair value of the SPDRs obligation and the Options is included in realized investment gains on the consolidated statement of income. The fair values of the SPDRs obligation and the Options at March 31,121 ~~2006~~ and ~~2005 amounted to a liability of~~ $~~344~~28,~~050 and $312~~612,~~700,~~ respectively, ~~and~~at anSeptember ~~asset of $5~~30,~~312~~ ~~and~~2007 ($637,~~931, respectively.~~651 ~~The Company also incurs additional expense in an amount equal to the dividend earnings on the SPDRs sold. Dividend earnings on the SPDRs amounted to $1,377~~ and $133,~~238~~333, respectively, ~~for~~at ~~the~~December ~~three months ended March~~ 31, 2006). ~~and~~Retroactive ~~2005~~Corporate ~~and~~Aggregate ~~are~~Reinsurance ~~included~~An asanalysis ~~an investment~~of ~~expense~~activity onin ~~the~~retroactive ~~consolidated~~corporate ~~statement~~aggregate ofreinsurance ~~income.~~ contracts follows:

In connection with the SPDRs transactions described above, the Company has pledged cash and U.S. Treasury securities as collateral for the obligation to purchase the SPDRs. These assets are recorded in assets pledged for short-sale obligations on the consolidated balance sheets. At March 31, 2006, the fair value of the assets pledged for the purchase of the SPDRs totaled $479,999.


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2007			2006			2007			2006
Increase in reinsurance recoverable	$	—		$	—		$	—		$	—
Less: related premiums paid		—			—			—			—

Income deferred during the period		—			—			—			—
Amortization of deferred income		(4,045	)		(3,435	)		(10,819	)		(10,249	)

Change in deferred income		(4,045	)		(3,435	)		(10,819	)		(10,249	)
Deferred income on retroactive reinsurance—beginning of period		161,244			177,684			168,018			184,498

Deferred income on retroactive reinsurance—end of period	$	157,199		$	174,249		$	157,199		$	174,249


Funds held interest charged during the period	$	3,642		$	4,090		$	10,743		$	12,066

The ~~Company~~ ~~owns~~above 1activity arises from two retroactive contracts.2% The reinsurance recoverable and funds held balances in respect of the ~~common~~first ~~shares~~contract ofwere ~~Odyssey~~$372,577 Reand ~~Holdings~~$217,128, ~~Corp.~~ respectively, at September 30, 2007 (~~“Odyssey”~~$372,577 and $206,385, respectively, at December 31, 2006). There were no reinsurance recoverable or funds held balances in respect of the second contract at September 30, ~~for~~2007 ~~which~~and December 31, 2006 as the Company ~~uses~~has reduced the ~~equity~~funds ~~method of~~held ~~accounting.~~balance ~~The~~to ~~Company~~offset ~~has~~the ~~determined~~reinsurance ~~that~~recoverable balance pursuant to a commutation provision contained in the ~~cumulative~~contract. ~~effect on~~For ~~its~~additional ~~results~~information ofon ~~Odyssey~~the Company’s ~~restatement~~prospective ofand ~~its~~retroactive ~~financial statements~~corporate asaggregate ofreinsurance ~~and~~contracts, ~~for~~refer ~~each~~to of the ~~six~~Company’s ~~years~~Annual Report on Form 10-K for the year ended December 31, ~~2005~~2006, ~~was~~filed ~~not~~with ~~material~~the SEC on March 9, 2007.

6. Commitments and Contingencies

On September 7, 2005, Fairfax announced that it received a subpoena from the SEC requesting documents regarding any non-traditional insurance or reinsurance transactions entered into or offered by Fairfax and the entities in its consolidated group. The U.S. Attorney’s Office for the Southern District of New York is reviewing documents produced by Fairfax and the entities in its consolidated group to the SEC and is participating in the investigation of these matters. Fairfax and entities in its consolidated group are cooperating fully with these requests. Fairfax has prepared presentations and provided documents to the SEC and the U.S. Attorney’s Office, and its employees, including senior officers, have attended or have been requested to attend interviews conducted by the SEC and the U.S. Attorney’s Office.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited, dollars in thousands)

(Unaudited, dollars in thousands)

6.		Investments and Short-Sale Obligations

		*Derivative Transactions and Short-Sale Obligations*

		The Company has purchased credit default swaps on securities issued by various U.S. companies in the banking, mortgage and insurance industries. These credit default swaps serve as economic hedges against declines in the fair value of various financial assets owned by the Company arising from potential financial difficulties associated with any or all of these issuers or the industries in which they operate. During the nine months ended September 30, 2007, the Company purchased $10,012 of credit default swaps and sold a credit default swap (with a cost and fair value of $270 and $2,259, respectively), bringing the total cost of credit default swaps held at September 30, 2007 to $87,363 as compared to $77,621 at December 31, 2006. The fair value of the credit default swaps was $109,774 and $16,702, at September 30, 2007 and December 31, 2006, respectively, and is included in other invested assets on the consolidated balance sheets. The notional value of the credit default swaps was $5.2 billion and $4.2 billion at September 30, 2007 and December 31, 2006, respectively, with an average term to expiration of 3.9 years as of September 30, 2007.

		During the three months ended September 30, 2007, the Company executed additional short-sales of Standard & Poor’s Depositary Receipts (“SPDRs”) of approximately $200,000, bringing the total short positions held in SPDRs to approximately $500,000 at September 30, 2007. These short positions serve as an economic hedge against a decline in the U.S. equity markets. In connection with the SPDRs transactions, the Company has purchased S&P Index call options (the “Options”) limiting the potential loss on the future purchase of the SPDRs to approximately $189,000 at September 30, 2007 ($70,000 at December 31, 2006). Both the obligations to purchase the SPDRs and the Options are carried at fair value on the consolidated financial statements. The fair value of the obligation to purchase the SPDRs is included in short-sale obligations and the fair value of the Options is included in other invested assets on the consolidated balance sheets. The fair values of the SPDRs obligation and the Options at September 30, 2007 amounted to a liability of $610,713 and an asset of $170 at September 30, 2007 and a liability of $375,558 and an asset of $9,925 at December 31, 2006.

		As an economic hedge against rising interest rates and deteriorating conditions in the residential housing market, the Company holds short positions on securities of certain U.S. financial guarantee insurance companies, mortgage insurance companies and financial institutions totaling approximately $50,000 and $25,000 at September 30, 2007 and December 31, 2006, respectively. The obligation to purchase these securities is included, at fair value, in short-sale obligations on the consolidated balance sheets and amounted to $43,494 and $24,605, at September 30, 2007 and December 31, 2006, respectively.

		In connection with the short-sales of SPDRs and common stocks described above, the Company has pledged cash and U.S. Treasury securities as collateral for the obligation to purchase the securities sold short. These assets are recorded at fair value in assets pledged for short-sale obligations on the consolidated balance sheets. At September 30, 2007, the fair value of the assets pledged for the short-sale obligations totaled $871,016 ($535,594 at December 31, 2006).

		The Company also has investments in warrants, which are contracts that grant the holder the right to purchase an underlying financial instrument at a given price and time. The fair value of the warrants, which are included in other invested assets on the consolidated balance sheets, was $7,696 and $9,645 at September 30, 2007 and December 31, 2006, respectively.

		Changes in fair value of the transactions described above and of the Company’s hybrid financial instruments have been included in realized investment gains and losses in the consolidated statements of income as follows:

For those reinsurance contracts that the Company identified as finite or non-traditional reinsurance contracts, the Company consolidated relevant contract documentation into a single compendium, prepared memoranda regarding the rationale and economic intent of each contract and prepared analyses of reinsurer experience where contemporaneous documentation of risk transfer was not available.


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2007			2006			2007			2006
Credit default swaps	$	73,510		$	(13,322	)	$	85,319		$	(18,010	)
SPDRs sold short		(12,555	)		(17,013	)		(35,292	)		(24,115	)
Common stocks sold short		12,085			589			12,936			14
S&P Index call options		3,453			1,880			5,612			(3,592	)
Warrants and other derivatives		1,846			(323	)		(1,949	)		(732	)
Hybrid financial instruments		(8,172	)		831			(19,189	)		(4,011	)

Amount included in realized investment gains (losses)	$	70,167		$	(27,358	)	$	47,437		$	(50,446	)

It is possible that other governmental and enforcement agencies will seek to review information related to these matters, or that Fairfax and entities in its consolidated group, including the Company, or other parties with whom they interact, such as customers or shareholders, may become subject to direct requests for information or other inquiries by such agencies. These inquiries are ongoing and Fairfax and entities in its consolidated group, including the Company, continue to comply with requests for information from the SEC and the U.S. Attorney’s Office. At the present time, the Company cannot predict the outcome from these continuing inquiries, or the ultimate effect on its financial statements, which effect could be material and adverse.

The Company and US Fire, among numerous other insurance company and insurance broker defendants, have been named as defendants in a class action suit filed by policyholders alleging, among other things, that the defendants used the contingent commission structure to deprive policyholders of free competition in the market for insurance. The action is pending in the U.S. District Court for the District of New Jersey. Plaintiffs seek certification of a nationwide class consisting of all persons who between August 26, 1994 and the date of class certification engaged the services of any one of the broker defendants and who entered into or renewed a contract of insurance with one of the insurer defendants. The Company and US Fire intend to defend vigorously the action.

In the ordinary course of their business, Crum & Forster’s subsidiaries receive claims asserting alleged injuries and damages from asbestos and other hazardous waste and toxic substances and are subject to related coverage litigation. The conditions surrounding the final resolution of these claims and the related litigation continue to change. Currently, it is not possible to predict judicial and legislative changes and their impact on the future development of asbestos and environmental claims and litigation. This trend will be affected by future court decisions and interpretations, as well as changes in applicable legislation and the possible implementation of a proposed federal compensation scheme for asbestos-related injuries. As a result of these uncertainties, additional liabilities may arise for amounts in excess of current reserves for asbestos, environmental and other latent exposures. These additional amounts, or a range of these additional amounts, cannot currently be reasonably estimated. As a result of these claims, management continually reviews required reserves and reinsurance recoverable. In each of these areas of exposure, the Company litigates individual cases when appropriate and endeavors to settle other claims on favorable terms.

The Company’s subsidiaries are involved in various lawsuits and arbitration proceedings arising in the ordinary course of business. While the outcome of such matters cannot be predicted with certainty, in the opinion of management, no such matter is likely to have a material adverse effect on the Company’s consolidated net income, financial position or liquidity. However, it should be noted that the frequency of large damage awards in some jurisdictions, including punitive damage awards that bear little or no relation to actual economic damages incurred by plaintiffs, continues to create the potential for an unpredictable judgment in any given matter.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited, dollars in thousands)

(Unaudited, dollars in thousands)

		The Company also incurs an expense in an amount equal to the dividend earnings on the short-sale obligations. Dividend earnings on the short-sale obligations amounted to $2,935 and $6,171, respectively, for the three and nine months ended September 30, 2007 as compared to $1,554 and $4,403, respectively, for the three and nine months ended September 30, 2006, and are recorded as a reduction of investment income on the consolidated statements of income.

		*Other Investment Transactions*

		On March 15, 2007, the Company sold its 1.1% ownership interest in Odyssey Re Holdings Corp., an affiliated equity method investee, to TIG Insurance Company, a subsidiary of Fairfax, for proceeds of $30,160 and a realized investment gain of $8,300. The transaction was completed at fair market value.

7.		Long-Term Debt

		Long-term debt, net of unamortized discount, is comprised as follows:

7. Segment Reporting


	September 30,		December 31,
	2007		2006
7-3/4% Senior Notes due 2017	$	308,689	$	—
10-3/8% Senior Notes due 2013		4,181		293,170

Total	$	312,870	$	293,170

The Company operates in the commercial property and casualty insurance business. Premiums earned for the Company’s lines of business are summarized as follows:

		On May 7, 2007, the Company issued pursuant to a private offering (the “Offering”) $330,000 aggregate principal amount of 7-3/4% senior notes due May 1, 2017 (the “2017 Notes”) at an issue price of 100%. The 2017 Notes are redeemable at the option of the Company beginning May 1, 2012, at prices set forth in the indenture governing the 2017 Notes. Net proceeds of the Offering to the Company, after commissions and expenses, were approximately $325,100. In connection with the sale of the 2017 Notes, the Company entered into a registration rights agreement under which the Company agreed to use its reasonable best efforts to register with the SEC notes having substantially the same terms as the 2017 Notes, as part of an offer to exchange freely tradeable exchange notes for the 2017 Notes. The Company filed a registration statement on Form S-4 with the SEC, in connection with the exchange offer, on June 29, 2007, which was declared effective by the SEC on July 13, 2007. The exchange offer was completed on August 16, 2007.

		On May 21, 2007, the Company completed a cash tender offer (the “Tender Offer”) to purchase any and all of its outstanding $300,000 aggregate principal amount of 10-3/8% senior notes due June 15, 2013 (the “2013 Notes”). In conjunction with the Tender Offer, the Company entered into a supplemental indenture eliminating substantially all restrictive covenants and certain event of default provisions contained in the indenture under which the 2013 Notes were issued. Pursuant to the Tender Offer, all but $4,270 aggregate principal amount of the 2013 Notes were purchased and cancelled. The Company paid total consideration of approximately $325,700 to purchase the 2013 Notes tendered and, in addition, paid accrued interest of approximately $12,100. The purchase of the 2013 Notes was funded with proceeds from the sale of the aforementioned 2017 Notes and available cash on hand.

		For the nine months ended September 30, 2007, the Company recognized costs related to the early retirement of its 2013 Notes of $21,188, which were comprised of premium payments, related fees and expenses and write-off of unamortized deferred financing costs. For the nine months ended September 30, 2007 and 2006, total interest expense on the 2013 and 2017 Notes was $22,835 and $24,734, respectively, including amortization of related premiums and deferred financing costs.

8.		Income Taxes

		In the third quarter of 2007, the Company entered into a new tax sharing agreement with Fairfax that permits the Company and its subsidiaries to elect to file federal income tax returns on a consolidated basis for tax sharing purposes. The Company has made this election effective January 1, 2007. Accordingly, tax sharing for the third quarter 2007 reflected the utilization of holding company net operating losses (“NOLs”) in the amount of $79,697, which was paid by Fairfax in the form of cash of $37,815 and a note for $41,882. This cash and note at the holding company permitted the payment of a dividend of $79,700 to Fairfax in the third quarter of 2007. The election going forward will avoid the generation of holding company NOLs, provided the subsidiaries earn sufficient taxable income to offset holding company losses.

	Three Months Ended
	March 31,
	2006		2005
Workers’ compensation	$	74,800	$	71,336
General liability		56,852		49,307
Commercial automobile		49,996		45,091
Property		49,038		47,992
Commercial multi-peril		12,340		11,524
Surety		3,693		6,304
Total premiums earned	$	246,719	$	231,554

The losses and LAE and losses and LAE ratios of the Company’s lines of business are summarized as follows:

	Three Months Ended
	March 31,
	2006					2005
	Amount		Ratio			Amount		Ratio
Workers’ compensation	$	57,756		77.2	%	$	65,128		91.3	%
General liability		43,228		76.0	%		32,364		65.6	%
Commercial automobile		30,096		60.2	%		26,441		58.6	%
Property		29,826		60.8	%		16,242		33.8	%
Commercial multi-peril		4,792		38.8	%		6,510		56.5	%
Surety		3,314		89.7	%		6,948		110.2	%
Total losses and LAE	$	169,012		68.5	%	$	153,633		66.3	%

The first quarter 2005 results were affected by favorable development in the property line of business associated with the 2004 hurricanes and strengthening of loss and LAE reserves in the workers’ compensation line of business.

The Company does not allocate investment results or certain corporate expenses for purposes of evaluating financial performance of each line of business.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, dollars in thousands)


9.		Commitments and Contingencies

		On September 7, 2005, Fairfax announced that it had received a subpoena from the SEC requesting documents regarding any non-traditional insurance or reinsurance transactions entered into or offered by Fairfax and the entities in its consolidated group, which includes the Company. The U.S. Attorney’s Office for the Southern District of New York is reviewing documents provided to the SEC in response to the subpoena and is participating in the investigation of these matters. Fairfax and entities in its consolidated group are cooperating fully with these requests. Fairfax and certain of the entities in its consolidated group, including the Company, have prepared presentations and provided documents to the SEC and the U.S. Attorney’s Office, and employees of Fairfax and certain of the entities in its consolidated group, including senior officers, have attended or have been requested to attend interviews conducted by the SEC and the U.S. Attorney’s Office. The Company is cooperating fully in addressing its obligations under this subpoena. This inquiry is ongoing and the Company continues to comply with requests from the SEC and the U.S. Attorney’s office. At the present time, the Company cannot predict the outcome of these matters, or the ultimate effect on the Company’s consolidated financial statements, which effect could be material and adverse. No assurance can be made that the Company will not be subject to further requests or other regulatory proceedings of a similar kind.

		The Company and US Fire, among numerous other insurance company and insurance broker defendants, have been named as defendants in a class action suit filed by policyholders alleging, among other things, that the defendants used the contingent commission structure to deprive policyholders of free competition in the market for insurance. The action, which included civil RICO, federal antitrust and various state law claims, is pending in the U.S. District Court for the District of New Jersey. Plaintiffs seek certification of a nationwide class consisting of all persons who between August 26, 1994 and the date of the class certification engaged the services of any one of the broker defendants and who entered into or renewed a contract of insurance with one of the insurer defendants. In October 2006, the court partially granted defendants’ motion to dismiss the plaintiffs’ complaint, subject to plaintiffs’ filing an amended statement of their case. Plaintiffs thereafter filed their “supplemental statement of particularity” and amended case statement. In response, defendants filed a renewed motion to dismiss. On August 31, 2007, the Court dismissed the antitrust claims with prejudice. On September 28, 2007, the court dismissed the RICO case with prejudice and declined to accept supplemental jurisdiction over plaintiffs’ state law claims. The Judge gave the plaintiffs 30 days to re-plead a basis for federal jurisdiction over the state law claims, but the plaintiffs elected instead to file a notice of appeal of the dismissal orders to the U.S. Court of Appeals for the Third Circuit. Crum & Forster Holdings Corp. and US Fire continue to be named as defendants and intend to vigorously defend the action.

		Kelly-Moore Paint Company, Inc. (“Kelly-Moore”) filed litigation against the Company in the San Francisco Superior Court (California) in connection with certain general liability and umbrella liability policies issued to it. The litigation seeks coverage for bodily injury claims arising out of exposure to asbestos-containing products that Kelly-Moore and/or a subsidiary sold between 1960 and 1978. It also seeks breach of contract and bad faith damages. In May 2006, Kelly-Moore filed a second amended complaint seeking to recover from the Company defense costs it allegedly paid to defend asbestos claims. Kelly-Moore also seeks payment of sums for contribution and/or subrogation pursuant to three other excess insurers’ assigned claims based on defense payments allegedly made on Kelly-Moore’s behalf. The Company has learned through discovery and submissions to the court filed by Kelly-Moore that Kelly-Moore is seeking $53 million for the defense costs, plus interest, and an additional $33 million for the contribution/subrogation claims. Kelly-Moore also seeks to recover extra-contractual damages as part of its bad faith claim. The Company anticipates that Kelly-Moore will allege it is entitled to bad faith and punitive damages in a material amount. While the Company does not believe that any of these allegations has merit as a matter of law, we cannot predict with certainty the ultimate outcome of the claims. We do not expect the outcome to have a material adverse effect on the Company’s financial condition. The Company has been vigorously defending against the claims of Kelly-Moore, and will continue to do so. The Company filed a cross-complaint against Kelly-Moore seeking reimbursement of certain substantial loss and expense payments made to or on behalf of Kelly-Moore to date.

		In the ordinary course of their business, Crum & Forster’s subsidiaries receive claims asserting alleged injuries and damages from asbestos and other hazardous waste and toxic substances and are subject to related coverage litigation. The conditions surrounding the final resolution of these claims and the related litigation continue to change. Currently, it is not possible to predict judicial and legislative changes and their impact on the future development of asbestos and environmental claims and litigation. This trend will be affected by future court decisions and interpretations, as well as changes in applicable legislation and the possible implementation of a proposed federal compensation scheme for asbestos-related injuries. As a result of these uncertainties, additional liabilities may arise for amounts in excess of current reserves for asbestos, environmental and other latent exposures. These additional amounts, or a range of these additional amounts, cannot currently be reasonably estimated. As a result of these claims, management continually reviews required reserves and reinsurance recoverable. In each of these areas of exposure, the Company litigates individual cases when appropriate and endeavors to settle other claims on favorable terms.

		The Company’s subsidiaries are involved in various lawsuits and arbitration proceedings arising in the ordinary course of business. These lawsuits and arbitration proceedings include, in some cases, claims for extra-contractual or “bad faith” damages, or claims for imposition of statutory penalties or multipliers. While the outcome of such matters cannot be predicted with certainty, in the opinion of management, no such matter is likely to have a material adverse effect on the Company’s consolidated net income, financial position or liquidity. However, it should be noted that the frequency of large damage awards in some jurisdictions, including punitive damage awards that bear little or no relation to actual economic damages incurred by plaintiffs, continues to create the potential for an unpredictable judgment in any given matter.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, dollars in thousands)

10.		Segment Reporting

		The Company operates in the commercial property and casualty insurance business. Premiums earned for the Company’s lines of business are summarized as follows:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2007		2006		2007		2006
Workers’ compensation	$	64,076	$	72,163	$	197,218	$	212,034
General liability		55,944		59,238		177,570		171,515
Commercial automobile		52,599		51,332		159,678		151,102
Property		66,976		65,003		209,406		175,860
Commercial multi-peril		21,940		15,858		57,983		42,190
Other		31,840		16,037		92,048		38,477

Total premiums earned	$	293,375	$	279,631	$	893,903	$	791,178

The losses and LAE and loss and LAE ratios of the Company’s lines of business are summarized as follows:


	Three Months Ended												Nine Months Ended
	September 30,												September 30,
	2007						2006						2007						2006
	Amount			Ratio			Amount			Ratio			Amount			Ratio			Amount			Ratio
Accident year loss and LAE ratios:
Workers’ compensation	$	50,455			78.7	%	$	57,138			79.2	%	$	153,777			78.0	%	$	165,726			78.2	%
General liability		40,326			72.1	%		38,139			64.4	%		123,751			69.7	%		117,192			68.3	%
Commercial automobile		31,953			60.7	%		32,367			63.1	%		102,344			64.1	%		95,328			63.1	%
Property		46,270			69.1	%		66,388			102.1	%		151,149			72.2	%		140,597			79.9	%
Commercial multi-peril		12,765			58.2	%		9,260			58.4	%		35,528			61.3	%		24,880			59.0	%
Other		20,562			64.6	%		10,302			64.2	%		57,731			62.7	%		25,306			65.8	%

Total accident year losses and LAE		202,331			69.0	%		213,594			76.4	%		624,280			69.8	%		569,029			71.9	%
Prior years’ loss development		(9,863	)		(3.4	)%		(23,137	)		(8.3	)%		(36,662	)		(4.1	)%		(27,879	)		(3.5	)%

Calendar year losses and LAE	$	192,468			65.6	%	$	190,457			68.1	%	$	587,618			65.7	%	$	541,150			68.4	%

The Company does not allocate investment results or certain corporate expenses for purposes of evaluating financial performance of each line of business.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, dollars in thousands)

11.		Accounting Adjustments in Respect of Certain Investments

		During the third quarter of 2006, the Company identified and recorded two adjustments associated with its accounting for investments. The net effect of these adjustments was a decrease in investment income in the three months ended September 30, 2006 of $6,962 pre-tax ($4,525 after-tax) and an increase in investment income in the nine months ended September 30, 2006 of $2,589 pre-tax ($1,683 after-tax). The first adjustment was in respect of an overstatement of investment income of $9,551 pre-tax ($6,208 after-tax) in the second quarter of 2006, when the Company incorrectly recorded investment income based on a cash distribution received from one of its equity method investees, instead of reducing its investment balance. This error was corrected by reducing investment income in the third quarter by $9,551 pre-tax ($6,208 after-tax). There was no year to date effect on investment income from this adjustment as of September 30, 2006. The second adjustment was in respect of an error, which occurred in 2002, related to the carrying value of an investment in an affiliated equity method investee. Correction of this error in the third quarter of 2006 increased investment income by $2,589 pre-tax ($1,683 after-tax). Management evaluated the financial impact of these accounting adjustments and concluded that the effect both individually and in the aggregate was not material to the third quarter of 2006 or any prior period. Accordingly, prior period financial statements have not been restated.

		During the second quarter of 2006, the Company identified and recorded certain adjustments associated with its accounting for investments. The adjustments relate principally to three areas: (1) equity method accounting — the Company did not properly reflect adjustments to realized investment gains and losses reported by equity method investees arising from basis differences associated with initial purchases or changes in ownership percentages. These adjustments relate principally to the Company’s investments in Northbridge Financial Corporation (“Northbridge”) and HWIC Asia Fund (“HWIC”); (2) partnership accounting — several of the Company’s partnership interests were recorded on the equity method of accounting pursuant to Statement of Position 78-9, Accounting for Investments in Real Estate Ventures, even though the Company did not have the ability to exercise significant influence over the investees. In such circumstances, the Company should have retained the investment company accounting of the investees; and (3) embedded derivatives mark-to-market – the Company did not properly reflect the mark to market through earnings of derivative features embedded in convertible bonds pursuant to SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. Several of the Company’s equity investees also held the same or similar securities with embedded derivatives. The Company determined that the investees also did not properly bifurcate their investments, which required adjustments to the Company’s financial statements. Management evaluated the financial impact of these accounting adjustments and concluded that the effect both individually and in the aggregate was not material to the second quarter 2006 results or any prior period. Accordingly, prior period financial statements were not restated in 2006. Instead, the Company recorded a cumulative charge to net income in the three months ended June 30, 2006 of $5,678 pre-tax ($3,691 after- tax) for these adjustments. Of the $5,678 pre-tax charge, $4,255 was recorded as a charge to realized investment gains, $3,534 ($2,297 after-tax) was recorded as a charge to equity in earnings of investees (including $456 of previously waived immaterial adjustments) and $2,111 was recorded as an increase to investment income on the consolidated statements of income. In addition, the Company recorded a $7,369 increase to accumulated other comprehensive income, net of tax, that together with the aforementioned $3,691 charge to net income, resulted in a $3,678 increase in shareholder’s equity.

		The aggregate effect of the second and third quarter adjustments in 2006 resulted in a reduction to income for the nine months ended September 30, 2006 of $3,089 pre-tax ($2,008 after tax).

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion relates to the critical accounting policies and estimates, the consolidated results of operations, financial condition, liquidity and capital resources of the Company for the interim periods indicated. Within this discussion, the terms “Company” or “Crum & Forster” refer to Crum & Forster Holdings Corp. and its direct and indirect subsidiaries, including United States Fire Insurance Company (“US Fire”), The North River Insurance Company (“North River”), Crum & Forster Indemnity Company and Crum and Forster Insurance Company. US Fire owns 100% of the stock of Crum & Forster Specialty Insurance Company. North River owns 100% of the stock of Seneca Insurance Company, Inc. and its subsidiaries (“Seneca”). The term “Fairfax” refers to Fairfax Inc., Crum & Forster’s parent company, and Fairfax Financial Holdings Limited, which holds a 100% indirect interest in Fairfax Inc.

Certain financial information that is normally included in annual financial statements, including certain financial statement footnotes, prepared in accordance with ~~Generally~~generally accepted accounting ~~Accepted~~principles ~~Accounting~~in ~~Principles~~the United States of America (“GAAP”), is not required for interim reporting purposes and has been condensed or omitted herein. This discussion, and the related consolidated financial statements, should be read in conjunction with the Company’s consolidated financial statements, and notes related thereto, included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2005~~2006, filed with the Securities and Exchange Commission (“SEC”) on March 229, ~~2006~~2007. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year.

All dollar amounts are in thousands, unless otherwise indicated.

Statements Regarding Forward-Looking Information

This report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These are statements that relate to future periods and include statements regarding the Company’s anticipated performance. Generally, the words “anticipates”, “believes”, “expects”, “intends”, “estimates”, “projects”, “plans”, “target”, “potential”, “likely”, “may”, “could”, “should” and similar expressions identify forward-looking statements. These forward-looking statements involve known and unknown risks, uncertainties and other important factors that could cause the Company’s 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. These risks, uncertainties and other important factors include, but are not limited to, the following:

• Lowering or loss of one of the Company’s financial strength ratings; • Insufficient loss reserves, including reserves for asbestos, environmental and other latent claims; • Occurrence of natural or man-made catastrophic events; • Competitive conditions in the insurance market; • Inability to realize the Company’s investment objectives; • Inability to obtain reinsurance coverage on reasonable terms and prices;, •particularly ~~Competitive~~property ~~conditions~~catastrophe ~~in the insurance market~~reinsurance; • Changes in the business or regulatory environment in which the Company operates as a result of recent insurance industry investigations by government authorities and other parties; • SEC requests for information from the Company; • ~~Inability to realize the Company’s investment objectives; •~~ Loss of key producers; • Exposure to emerging claims and coverage issues; • Restrictions on the ability of the Company’s insurance subsidiaries to pay dividends; • Subordination of debt securities to the obligations and liabilities of the Company’s insurance subsidiaries; • Exposure to credit risk, in the event reinsurers or policyholders ~~that~~fail ~~owe~~to ~~the~~pay ~~Company premiums or reimbursement of deductibles paid by~~ the Company onamounts ~~their~~owed ~~behalf fail~~ to ~~pay~~it; • Adverse developments in the prospects or results of operations of Fairfax or its affiliates; • Loss of key employees; • Changes in governmental regulations; and • Exposure to credit risks on novated policies~~; and • Limited ability to borrow~~.

1619

Although the Company believes that its forward-looking statements are based upon reasonable assumptions, management can give no assurance that the Company’s goals will be achieved. Given these uncertainties, prospective investors are cautioned not to place undue reliance on these forward-looking statements. Any forward-looking statements made in this report are made by the Company as of the date of this report. Except as otherwise required by federal securities laws, the Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Additional information regarding these factors, and others that could cause actual results to differ materially from expectations, is included in the Company’s ~~Annual~~Prospectus, ~~Report on Form 10-K~~ filed with the SEC pursuant to rule 424(b)(3) on ~~March~~July 2213, ~~2006~~2007. The information appearing under “Risk Factors” in such ~~Annual~~ ~~Report~~Prospectus is incorporated by reference into, and made a part of, Part II of this Form 10-Q.

Critical Accounting Policies and Estimates

The Company’s consolidated financial statements and related notes thereto are prepared in accordance with GAAP. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of material contingent assets and liabilities at the balance sheet date and the revenues and expenses reported during the relevant period. In general, management’s estimates are based on historical experience, evaluation of current trends, information from third party professionals and various other assumptions that are believed to be reasonable under the known facts and circumstances.

The accounting policies and estimates discussed below are those that require management to make assumptions about highly uncertain matters. If management were to make different assumptions about those matters, or if actual results were to differ significantly from management’s estimates, the Company’s reported consolidated results of operations and financial condition could be materially affected.

The Company’s significant accounting policies are described in detail in Note 2 to the Company’s consolidated financial statements included in its Annual Report on Form 10-K for the year ended December 31, ~~2005~~2006 filed with the SEC on March 229, ~~2006~~2007.

Unpaid ~~losses~~Losses and ~~loss~~Loss ~~adjustment~~Adjustment ~~expenses~~Expenses

The most significant accounting estimates relate to the Company’s reserves for unpaid losses and loss adjustment expenses (“LAE”). Unpaid losses and LAE include reserves for both reported (case reserves) and unreported losses and LAE. When the Company is notified of insured losses, claims personnel set up case reserves for the estimated amount of settlement, if any, which excludes estimates of expenses to settle claims, such as legal and other fees and the general expenses of administering the claims adjustment process. The estimate reflects the judgment of claims personnel, or of independent claims adjusters hired by the Company, the scope of coverage available for the reported claim under each individual policy assuming application of controlling state contract law, general reserving practices, the experience and knowledge of such personnel regarding the nature of the specific claim and, where appropriate, advice of counsel, with the goal of setting the reserve at the ultimate expected loss amount as soon as sufficient information becomes available.

Losses and LAE are charged to income as they are incurred. During the loss settlement period, reserves established in prior years are adjusted as loss experience develops and new information becomes available. Adjustments to previously estimated reserves, both positive and negative, are reflected in the Company’s financial results in the periods in which they are made, and are referred to as prior period development. Due to the high level of uncertainty, revisions to these estimated reserves could have a material impact on the Company’s results of operations in the period recognized and actual payments for claims and LAE could ultimately be significantly different from estimates.

InThe ~~2005~~Company has written general liability, commercial multi-peril and ~~2004~~umbrella policies under which its policyholders continue to present asbestos, ~~based~~environmental onand ~~the~~other ~~Company’s~~latent ~~internal~~claims. ~~actuarial~~The ~~review~~vast majority of these claims, particularly with respect to asbestos and anenvironmental ~~independent~~claims, ~~actuarial~~are ~~firm’s~~presented ~~ground-up~~under ~~study~~policies ofwritten many years ago. There are significant uncertainties in estimating the ~~Company’s~~amount ~~asbestos~~of reserves required for asbestos, environmental and other latent claims. Reserves for these exposures cannot be estimated solely with the ~~Company~~traditional ~~strengthened~~loss ~~its~~reserving ~~asbestos~~techniques, which rely on historical accident year development factors. Among the uncertainties relating to asbestos, environmental and other latent reserves byare ~~$44~~a lack of historical data,~~646~~ long reporting delays and ~~$100,542,~~complex ~~respectively~~unresolved legal issues regarding policy coverage and the extent and timing of any such contractual liability. NoCourts ~~adjustment~~have ~~was~~reached different, and frequently inconsistent, ~~made~~conclusions as to ~~asbestos~~when losses occurred, ~~environmental~~what orclaims ~~other~~are ~~latent~~covered, ~~reserves~~under inwhat circumstances the insurer ~~three~~has ~~months~~an ~~ended~~obligation ~~March 31~~to defend, ~~2006~~how policy limits are determined and how policy exclusions are applied and interpreted.

17No adjustment was made to asbestos, environmental or other latent reserves in the nine months ended September 30, 2007. In 2006 and 2005, based on the Company’s internal actuarial review, the Company strengthened its asbestos, environmental and other latent reserves by $33,897 and $44,646, respectively. In 2004, the Company engaged an independent actuarial firm to conduct a ground-up study of the Company’s asbestos reserves and based on the results of such study, together with the Company’s internal actuarial review, asbestos, environmental and other latent reserves were increased by $100,542 in that year.

~~Other than temporary declines in value of investments~~20

Other than Temporary Declines in Value of Investments

The Company’s fixed income and equity securities are principally categorized as “available-for-sale” and are carried at their fair value based primarily on quoted market prices. Unrealized gains or losses on the Company’s investments, net of applicable income taxes, are included in other comprehensive income. Declines in the market value of invested assets below carrying value are evaluated for other than temporary impairment losses on a quarterly basis. Management considers an impairment as “other than temporary” if evidence indicating that an investment’s carrying amount is recoverable within a reasonable period of time, which in the case of fixed income securities may mean until maturity, is outweighed by evidence to the contrary. Management also considers the Company’s ability and intent to hold an investment until such recovery of the security’s fair value. Notwithstanding the foregoing, with respect to fixed income securities, an impairment may be considered other than temporary if it is probable that the Company will be unable to collect all amounts due under the terms of the securities.

Recognition of impairment losses for declines in the value of fixed income and equity securities attributable to issuer-specific events is based upon all relevant facts and circumstances for each investment. Factors considered by management include, but are not limited to, the impact of issuer-specific events, current and expected future market and economic conditions, the nature of the investment, the number of investment positions with losses, the severity and duration of the impairment and the volatility of the security’s market price.

NoAt ~~other~~September 30, ~~than~~2007, ~~temporary~~the ~~impairments~~Company ~~were~~had ~~recorded~~gross unrealized losses on available-for-sale ~~the~~fixed ~~three~~income and ~~months~~equity ~~ended~~securities ~~March 31,~~of ~~2006~~$154,435. For the ~~three~~nine months ended ~~March~~September 3130, ~~2005~~2007 and 2006, ~~charges~~the Company ~~for~~recorded $15,771 and $5,400, respectively, in other than temporary ~~impairments~~impairment ~~amounted to $3,889~~charges. See “Liquidity and Capital Resources – Insurance Subsidiaries” below for a further discussion of investments in an unrealized loss position.

Reinsurance ~~recoverable~~Recoverable

Amounts recoverable from reinsurers are initially estimated in conjunction with the establishment of reserves for unpaid losses and LAE. These amounts may be adjusted as actual case reserves are recorded and reinsured claims are settled. The ceding of risk to reinsurers does not relieve the operating companies of their primary obligation to policyholders as the direct insurer. Accordingly, the Company is exposed to the risk that any reinsurer may be unable, or unwilling, to meet the obligations assumed under its reinsurance agreements. Management attempts to mitigate this risk by obtaining collateral and by entering into reinsurance arrangements only with reinsurers that have credit ratings and statutory surplus above certain levels.

In certain circumstances, including the significant deterioration of a reinsurer’s financial strength rating, the Company may engage in commutation discussions with an individual reinsurer, essentially canceling and settling the contract at its estimated net present value. The outcome of such discussions may result in a lump sum settlement that is less than the recorded recoverable balance. Losses arising from commutations could have an adverse impact on the Company’s results of operations. An estimated allowance for uncollectible reinsurance recoverable is recorded on the basis of periodic evaluation of balances due from reinsurers, judgments regarding reinsurer solvency, known disputes, reporting characteristics of the underlying reinsured business, historical experience, current economic conditions and the state of insurer/reinsurer relations in general, and at the Crum & Forster companies in particular.

At ~~March~~September 3130, ~~2006~~2007 and December 31, ~~2005~~2006, reinsurance recoverable was $21,~~060~~607,~~110~~458 and $21,~~110~~733,~~115~~926, ~~net~~ net of reserves for uncollectible reinsurance of $3548,~~221~~253 and $3442,~~441~~777, respectively. The provision ~~for~~ for uncollectible reinsurance for the three and nine months ended ~~March~~September 3130, ~~2006~~2007 ~~and 2005~~ was $2,000 ~~and~~ and $16,000, respectively. While management believes the allowance for uncollectible reinsurance recoverable is adequate based on information currently available, failure of reinsurers to meet their obligations could have a material adverse impact on the Company’s financial position and results of operations.

Deferred ~~income~~Income ~~tax~~Tax ~~assets~~Assets

The Company recognizes deferred tax assets and liabilities based on differences between the financial statement carrying amounts and the tax bases of assets and liabilities. Management regularly reviews the Company’s deferred tax assets for recoverability based on history of earnings, expectations for future earnings and expected timing of reversals of temporary differences.

18Although realization is not assured, management believes the recorded deferred tax assets are fully recoverable based on estimates of the future profitability of Crum & Forster’s taxable subsidiaries and current forecasts for the periods through which losses may be carried back and/or forward. The Company has several material deferred tax assets, including loss reserve discounting, undistributed income of foreign investments, deferred gain on retroactive reinsurance and unearned premium adjustment. The realizability of these reversing deferred tax assets is considered in conjunction with similar originating deferred tax assets and other taxable income.

~~Although realization is not assured, management believes the recorded deferred tax assets are fully~~21 recoverable based on estimates of the future profitability of Crum & Forster’s taxable subsidiaries and current forecasts for the periods through which losses may be carried back and/or forward. The Company has several material deferred tax assets, including deferred gain on retroactive reinsurance, loss reserve discounting, net operating losses and unearned premium adjustment. The realizability of these reversing deferred tax assets is considered in conjunction with similar originating deferred tax assets and other taxable income. The Company’s current projections of future taxable income are based on assumptions of modest business growth and relatively stable combined ratios, with portfolio yields approximating current levels.

AtIn ~~March 31, 2006, there are no valuation allowances against~~ the ~~Company’s~~third ~~deferred~~quarter ~~tax assets~~ of ~~$266,347.~~ ~~Should the assumptions of future profitability change significantly~~2007, ~~however, or~~ the ~~taxable~~ ~~income~~Company ofentered ~~these~~into ~~entities~~a ~~fall~~new ~~far~~tax ~~below~~sharing ~~expectations,~~agreement awith ~~valuation~~Fairfax that ~~allowance,~~permits ~~which~~the ~~could~~Company ~~be significant,~~and ~~may~~its ~~have~~subsidiaries to beelect ~~established~~to iffile ~~management~~federal ~~believes~~income ~~any portion of the deferred~~ tax ~~asset~~ ~~will~~returns ~~not~~on ~~be realized. A valuation allowance may also be required if there is~~ a ~~material~~ ~~change~~consolidated inbasis ~~the~~for tax ~~laws~~sharing ~~such~~purposes. ~~that~~The ~~the~~Company ~~actual~~has ~~effective~~made ~~tax~~this ~~rate~~election oreffective ~~the time periods within which the~~January ~~underlying~~1, ~~temporary~~2007. ~~differences~~The ~~become~~election ~~taxable~~resulted orin ~~deductible~~the ~~change.~~utilization ~~Realization~~ of the ~~deferred tax~~holding ~~asset~~company ~~under~~net ~~Statement~~operating oflosses (“NOLs”) ~~Financial~~in ~~Accounting Standards No. 109 ultimately depends on~~ the ~~existence~~ ofamount ~~sufficient taxable income available under tax law, including future reversals~~ of ~~existing~~ ~~temporary differences~~$79,697 ~~future~~in ~~taxable~~the ~~income~~third ~~exclusive~~quarter of ~~reversing differences~~2007, ~~taxable income in prior carryback years~~ and ~~tax~~will ~~planning~~avoid ~~strategies.~~the ~~Future~~generation ~~profitability, as it relates~~of toholding ~~taxable~~company ~~income~~NOLs ~~expectations~~going ~~discussed above~~forward, ~~can~~provided bethe ~~negatively~~subsidiaries ~~affected~~earn bysufficient ~~substantial~~taxable ~~changes in~~income ~~premium volume, persistent underwriting losses resulting from significant events such as severe~~to ~~natural~~offset ~~disasters,~~holding ~~large~~company ~~settlements for asbestos or environmental claims or materially lower investment results. While underwriting~~ losses ~~reduced~~arising ~~taxable~~principally ~~income~~from ininterest ~~years~~on ~~2002 through~~ the ~~first~~ ~~quarter of 2006, the~~ Company’s ~~generated~~senior ~~sufficient~~notes. ~~taxable income through capital gains~~For ~~and~~further ~~other~~details ~~investment~~see — ~~income~~“Income toTaxes” ~~realize deferred tax benefits of $61~~below.~~3 million during this period.~~

At September 30, 2007, there are no valuation allowances against the Company’s gross deferred tax assets of $235,578. The Company’s current projections of future taxable income are based on assumptions of level to modestly declining business growth and relatively stable combined ratios, with portfolio yields approximating current levels. Should the assumptions of future profitability change significantly, however, or the taxable income of these entities fall far below expectations, a valuation allowance, which could be significant, may have to be established if management believes any portion of the deferred tax asset will not be realized. A valuation allowance may also be required if there is a material change in the tax laws such that the actual effective tax rate or the time periods within which the underlying temporary differences become taxable or deductible change.

Realization of the deferred tax asset under SFAS 109 ultimately depends on the existence of sufficient taxable income available under tax law, including future reversals of existing temporary differences, future taxable income exclusive of reversing differences, taxable income in prior carryback years and tax planning strategies. Future profitability, as it relates to taxable income expectations discussed above, can be negatively affected by substantial changes in premium volume, underwriting losses resulting from significant events such as severe natural disasters or large settlements for asbestos or environmental claims, or materially lower investment results.

Summary of Operations

The Company is a national commercial property and casualty insurance company with a focused underwriting strategy, targeting specialty classes of business and underserved market opportunities. Operating through its home office and regional branch network, the Company writes a broad range of commercial ~~coverage~~coverages, including workers’ compensation, general liability, ~~property,~~ commercial automobile, property, commercial multi-peril and ~~surety~~other lines of business. The Company generally conducts business on a brokerage basis through more than 1,200 producers located throughout the United States~~, including Fairmont producers as discussed below~~. The Company’s two largest producers accounted for approximately 95.8% and 75.2% of gross premiums written for the ~~three~~nine months ended ~~March~~September 3130, ~~2006~~2007.

The Company’s objective is to expand opportunistically into classes of business or market segments that are consistent with its underwriting expertise and have the potential to generate an underwriting profit. Management believes the Company’s ability to identify and react to changing market conditions provides it with a competitive advantage.

Based on the experience and underwriting expertise of management, the Company seeks to write new lines of business and expand existing classes of business based on market conditions and expected profitability. The Company offers insurance products designed to meet specific insurance needs of targeted policyholder groups and underwrites specific types of coverage for markets that are generally underserved by the industry.

The profitability of property and casualty insurance companies is primarily determined by their underwriting results and investment performance. Underwriting results are the net result of a company’s premiums earned and amounts paid, or expected to be paid, to settle insured claims and policy acquisition costs and other underwriting expenses. The insurance business is unique in that premiums charged for insurance coverage are set without certainty of the ultimate claim costs to be incurred on a given policy. This requires that liabilities be estimated and recorded in recognition of future loss and settlement obligations. Due to the inherent uncertainty in estimating these liabilities, there can be no assurance that actual liabilities will not exceed recorded amounts or premiums received. The ultimate adequacy of premium rates is affected mainly by the severity and frequency of claims, which are influenced by many factors, including natural and man-made disasters, regulatory measures and court decisions that define and expand the extent of coverage. Insurance premium rates are also influenced by available insurance capacity or the industry’s willingness to deploy capital to cover each insurable risk.

Premiums collected are invested until funds are required to pay settled claims. Insurance company investment portfolios generally must provide a balance among total return, capital preservation and liquidity in order to generate sufficient funds for payment of claims as they are settled. The Company follows a long-term, value-oriented investment philosophy, with the goal of optimizing investment returns viewed on a total return basis, without reaching for yield, while maintaining sensitivity to liquidity requirements. The Company attempts to protect its capital from loss. Management believes that investing in debt and equity securities selling at prices below intrinsic value better protects the Company’s capital.

Management monitors the contribution to earnings of underwriting operations and investment results separately. The ability to achieve underwriting profitability on a consistent basis is the core competency of a property and casualty insurance company, demonstrating discipline, individual risk selection and pricing skills, and effective risk management on a portfolio basis. The underwriting functions of the Company are managed separately from the investment operations. Accordingly, in assessing the Company’s results of operations, management evaluates underwriting results separately from investment performance.

With respect to the Company’s underwriting operations, management monitors key indicators of growth and profitability. Growth is generally measured in terms of gross premiums written. Management further monitors growth in its gross premiums written in terms of its rate of retention of existing policyholders, increases or decreases in the pricing of renewed policies and the growth in new business premiums. Underwriting profitability is measured both in dollars and by the combined ratio, a standard industry measure. Underwriting profit or loss equals premiums earned less losses and LAE, policy acquisition costs and other underwriting expenses. The combined ratio expresses underwriting results as a percentage of premiums earned and generally comprises two components: the loss ratio, which is the percentage of losses and LAE to premiums earned, and the expense ratio, which is the percentage of the sum of policy acquisition costs and other underwriting expenses to premiums earned. A combined ratio less than 100% indicates an underwriting profit; a combined ratio greater than 100% indicates an underwriting loss.

Underwriting profit or loss expressed in dollars is considered a non-GAAP financial measure. The table at the beginning of the Results of Operations section that follows presents the separate contribution of underwriting and investment operations to income before income taxes on a GAAP basis. An understanding of a property and casualty insurance company’s financial condition, results of operations and profit and growth prospects begins with an assessment of the entity’s ability to underwrite effectively. Underwriting is the core business of such companies; investment operations are a separate function. Management monitors the Company’s consolidated results on this basis and likewise reports such results to its board of directors. Rating agencies and securities analysts also focus separately on underwriting and investment results. In annual and quarterly statements to state insurance regulators prepared in accordance with ~~Statutory~~statutory ~~Accounting~~accounting ~~Practices~~practices, underwriting profit or loss is presented separately from investment results. Underwriting profit or loss, together with the related combined ratio, are widely followed measures in the property and casualty insurance industry.

Investment results are generally measured in terms of total return on assets under management. Growth in the Company’s cash and invested assets is also a key measure of investment performance.

The property and casualty insurance business is cyclical and influenced by many factors, including price competition, economic conditions, natural and man-made disasters (for example, hurricanes, earthquakes and terrorism), availability and cost of reinsurance, interest rates, state regulations, court decisions and changes in the law. ~~Commencing~~The inproperty ~~mid-2000~~ and ~~through~~casualty ~~mid-2003~~marketplace continues to be increasingly competitive. The casualty market softened throughout 2006, ~~insurers~~particularly ~~generally~~for ~~achieved~~California ~~significant~~workers’ ~~rate~~compensation ~~increases~~policies ~~and~~in ~~improved~~reaction ~~terms~~to workers’ compensation system reforms and ~~conditions~~very favorable industry accident year results. In ~~2003~~2007, pricing pressure for ~~however,~~casualty ~~market~~accounts ~~capacity~~intensified ~~expanded~~countrywide, particularly for ~~property~~larger ~~risks~~accounts, making it very challenging to acquire new accounts at adequate prices. InWhile property market conditions improved significantly in the ~~fourth~~first ~~quarter~~three quarters of ~~2003 and~~2006 ~~through~~in ~~2004~~the ~~and~~wake of the 2005 hurricane activity, ~~property~~the market ~~risks~~began ~~generally~~to ~~were~~soften ~~written~~in atthe orfourth ~~below~~quarter ~~expiring~~of ~~prices~~2006, fueled by the mild hurricane season. This ~~Price~~market ~~increases~~softening incontinued ~~casualty~~through ~~lines~~2007, ~~slowed~~becoming ~~considerably~~more pronounced in ~~2004~~the ~~while~~third ~~casualty~~quarter, ~~risks~~with several ~~were~~major ~~generally written~~competitors atoffering ormore ~~below~~capacity ~~expiring~~in ~~prices~~the coastal wind areas and greater capacity and more competitive pricing in ~~2005~~non-catastrophe exposed business. ~~For~~In the ~~first~~nine ~~quarter~~months ofended ~~2006~~September 30, 2007, renewal pricing in the Company’s casualty lines ~~continued~~declined ~~to decline~~ by ~~single~~approximately ~~digits~~7% ~~while~~and renewal pricing in the Company’s property lines ~~generally~~declined ~~increased,~~by ~~with~~approximately ~~such~~9%. ~~increases~~New ~~varying~~business ~~largely~~in ~~based~~the onfirst ~~potential~~nine ~~exposure~~months of 2007 declined by approximately 17% in casualty lines and approximately 26% in property lines as compared to ~~catastrophes~~new business written in the first nine months of 2006. The Company’s overall renewal retention rate increased by approximately four percentage points in the first nine months of 2007.

20Effective April 1, 2007, Seneca placed its property catastrophe reinsurance treaty. The expiring treaty provided coverage of $25 million in excess of $5 million per occurrence for an annual premium of $2,625. The new treaty provides coverage of $40 million in excess of $5 million per occurrence for an annual premium of $2,829. Seneca is obliged to reinstate any limits used at 100% of the original premium.

Effective ~~January~~May 1, ~~2006~~2007, ~~Fairfax~~the ~~announced~~Company ~~that~~placed ~~certain~~its ofproperty ~~the~~catastrophe ~~business~~treaty of(excluding ~~the~~Seneca). ~~insurance~~The ~~companies~~expiring oftreaty ~~Fairmont~~provided ~~Specialty~~coverage ~~Group, affiliates~~ of ~~Fairfax,~~$210 million ~~would~~in beexcess ~~carried~~of on$40 million asper ~~Fairmont~~occurrence. The ~~Specialty,~~Company’s aparticipation ~~division~~in ofthe ~~Crum~~$210 million &of ~~Forster~~coverage ~~(“Fairmont”)~~was $22,653 ~~thereby~~and ~~giving~~the ~~Fairmont~~premium ~~access~~for to the ~~“A-”~~ ~~A.M.~~coverage, ~~Best~~net ~~rating~~ of ~~Crum~~Company &participation, ~~Forster~~was approximately $60 million. ~~For~~The ~~the~~new ~~three~~treaty ~~months~~provides coverage ~~ended~~of ~~March~~$100 ~~31,~~million ~~2006,~~in ~~Fairmont~~excess ~~reported gross~~of ~~premiums~~$100 million ~~written,~~per ~~net~~occurrence ~~premiums~~for ~~written~~an ~~and~~annual ~~premiums~~premium ~~earned~~ of $~~33,718, $29,024 and $7,760,~~18 ~~respectively,~~million. ~~which~~The ~~included~~Company ~~energy~~is ~~and~~obliged ~~agricultural,~~to ~~standard~~reinstate ~~personal~~any ~~and~~limits ~~commercial~~used ~~lines, accident~~at ~~and~~100% ~~health~~of ~~and~~the ~~bail~~original ~~bond premiums~~premium. The Company ~~did~~also ~~not~~purchased ~~assume~~California ~~the~~only ~~December~~earthquake coverage of $100 ~~31,~~million ~~2005~~in excess of $200 ~~unearned~~million ~~premium~~per ~~reserves~~occurrence ~~associated~~for ~~with~~an ~~the~~estimated ~~Fairmont~~annual ~~business;~~premium ~~accordingly,~~of ~~the~~$7 million. ~~Company’s premiums~~The ~~earned~~decision ~~for~~to increase the retention ~~three~~and ~~months~~purchase ~~ended~~less ~~March 31,~~coverage ~~2006~~was ~~include~~based ~~only~~on the ~~portion~~Company’s ofreduced ~~the~~property ~~Fairmont~~exposures in ~~business~~catastrophe-prone ~~effective~~zones onand orthe ~~after~~cost ~~January 1,~~of ~~2006~~property ~~that~~catastrophe ~~was~~reinsurance ~~earned~~at inlower ~~the period~~attachment points.

~~The Company restructured its property reinsurance effective March 1, April 1 and May 1, 2006. Effective March 1, 2006, the Company restructured its $~~23 ~~million in excess of $2 million property per risk treaty as follows: (1) the Company retains the first $5 million~~ per insured; (2) the next $5 million in excess of $5 million is ceded on a per insured basis 100% to nSpire Re Limited (“nSpire”), a Fairfax affiliate; and (3) the next $15 million in excess of $10 million layer is reinsured on a per risk basis 100% by third party reinsurers. This treaty expires May 1, 2007.

Effective April 1, 2006, Seneca Insurance Company and its subsidiaries (“Seneca”) entered into a separate property catastrophe reinsurance treaty providing coverage of $25 million in excess of $5 million per occurrence for an annual premium of $2,625. Seneca was previously covered under the Company’s corporate-wide property catastrophe treaty. Odyssey America Reinsurance Corporation (“Odyssey America”), a Fairfax affiliate, has an 11.25% participation in the second layer of $10 million in excess of $10 million.

Effective May 1, 2006, the Company placed its property catastrophe treaty. The Company purchased $210 million of coverage in excess of $40 million per occurrence in three layers of $30 million, $80 million and $100 million. The Company retains approximately 57% of the first layer, 7% of the second layer and none of the third layer. NSpire has a 10% participation in the first layer. Odyssey America and nSpire participate approximately 13% in the aggregate in each of the second and third layers. The premium for the coverage, net of Company retentions, is $49,744. In the event of a covered loss equal to net and treaty limits, the Company’s net retained loss would be $62,653. The foregoing premium and net retained loss figures exclude Seneca.

Results of Operations

The components of the Company’s net income, and certain ratios based thereon, are summarized as follows:

	Three Months Ended						Nine Months Ended
	March 31,
	September 30,						September 30,
	2006			2005
	2007			2006			2007			2006
Gross premiums written	$	~~347~~296,~~201~~892		$	~~288~~336,~~443~~553		$	969,418		$	1,025,153
Net premiums written	$	~~295~~266,~~344~~779		$	~~239~~292,~~400~~506		$	860,533		$	886,858
Premiums earned	$	~~246~~293,~~719~~375		$	~~231~~279,~~554~~631		$	893,903		$	791,178
Losses and LAE		~~169~~192,~~012~~468			~~153~~190,~~633~~457			587,618			541,150
Underwriting expenses		7086,~~258~~557			6382,~~809~~013			253,739			231,414
Underwriting income		714,~~449~~350			147,~~112~~161			52,546			18,614
Investment income and realized investment gains and losses		~~178~~104,~~280~~516			4866,~~907~~597			182,853			347,414
Interest and other expense		108,~~905~~120			910,~~532~~065			23,795			30,793
Income before income taxes and equity in earnings of investees		174,824			53,487
Costs related to early retirement of debt		—			—			21,188			—
Income tax expense		60,320			18,365
Income before income taxes and equity in earnings of investees		110,746			63,693			190,416			335,235
Income before equity in earnings of investees		114,504			35,122
Income tax expense		37,940			21,674			64,147			115,139
Equity in earnings of investees, net of tax		1,859			4,433
Income before equity in earnings of investees		72,806			42,019			126,269			220,096
Net income	$	116,363		$	39,555
Equity in earnings of investees, net of tax		10,051			3,846			18,146			9,915
Loss and LAE ratio		68.5	%		66.3	%
Net income	$	82,857		$	45,865		$	144,415		$	230,011
Underwriting expense ratio		28.5			27.6
Loss and LAE ratio		65.6	%		68.1	%		65.7	%		68.4	%
Combined ratio		97.0	%		93.9	%
Underwriting expense ratio		29.5			29.3			28.4			29.2
Combined ratio		95.1	%		97.4	%		94.1	%		97.6	%

~~Net~~The ~~income~~increase ~~for~~in ~~the~~net ~~three~~income ~~months~~in ~~ended~~the ~~March 31,~~third ~~2006~~quarter ~~was~~of ~~$116,363~~2007 as compared to ~~$39,555 for~~ the ~~three~~ ~~months~~third ~~ended~~quarter ~~March 31,~~of ~~2005.~~2006 was ~~The~~due ~~increase~~to inimproved ~~net~~underwriting ~~income~~results, ~~was~~higher ~~primarily~~investment ~~due~~income toand arealized ~~$106,578~~investment ~~gain~~gains onand ~~the~~losses ~~sale~~and ofhigher ~~shares~~equity ofin ~~Zenith~~earnings ~~National~~of ~~Insurance Corp~~investees. ~~(“Zenith”),~~Investment anincome ~~increase~~and ofrealized ~~$15,476 in~~investment ~~earnings~~gains ~~from~~and ~~HWIC~~losses ~~Asia~~increased ~~Fund,~~primarily andue ~~affiliated~~to ~~equity~~significant ~~method~~mark ~~investee,~~to ~~and~~market ~~lower~~gains ~~underwriting~~on ~~income. The~~the ~~combined~~credit ~~ratio~~default swaps ~~increased~~in tothe ~~97.0%~~third inquarter ~~2006~~of ~~from 93~~2007.9% inBy ~~2005~~comparison, ~~reflecting~~the athird ~~higher~~quarter ~~loss~~of ~~ratio~~2006 ~~due~~included significant torealized ~~price~~investment ~~decreases~~gains on ~~renewal~~the ~~policies~~sale ~~combined~~of ~~with~~certain ~~inflationary~~fixed ~~trends~~income inand ~~loss~~equity ~~costs~~securities. The ~~addition~~ ~~of Fairmont’s business also contributed to the combined ratio~~ increase byin ~~adding~~equity toin ~~the~~earnings ~~Company’s~~of ~~fixed expenses~~investees ~~but~~was ~~only~~primarily ~~modestly~~attributable to ~~its~~higher ~~premiums~~earnings ~~earned~~from ~~for~~Northbridge Financial ~~the~~Corporation ~~three~~(“Northbridge”), ~~months~~an ~~ended~~affiliate ~~March 31,~~of ~~2006~~the Company.

21The decrease in net income in the nine months ended September 30, 2007, as compared to the nine months ended September 30, 2006, was principally due to lower investment income and realized investment gains and losses and debt retirement charges, partially offset by improved underwriting results and higher equity in earnings of investees. Contributing to the decline in investment income and realized investment gains and losses in the nine months ended September 30, 2007 as compared to 2006, was the significant level of realized investment gains achieved on the sale of certain fixed income and equity securities as well as higher earnings from HWIC Asia Fund (“HWIC”), an affiliated equity method investee, and higher earnings from other partnerships in 2006. Partially offsetting these effects were the significant mark to market gains on the Company’s credit default swaps in the nine months ended September 30, 2007.

~~Underwriting~~During the second quarter of 2006, the Company identified certain adjustments associated with its ~~results~~accounting for investments and recorded a cumulative charge to net income in the six months ended June 30, 2006 of $5,678 pre-tax ($3,691 after-tax) for these adjustments. Of the $5,678 pre-tax charge, $4,255 was recorded as a charge to realized investment gains, $3,534 ($2,297 after-tax) was recorded as a charge to equity in earnings of investees (including $456 of previously waived immaterial adjustments) and $2,111 was recorded as an increase to investment income on the consolidated statements of income. During the third quarter of 2006, the Company identified additional adjustments in respect of its investment accounting. The net effect of these adjustments was to decrease investment income in the three months ended September 30, 2006 by $6,962 pre-tax ($4,525 after-tax) and increase investment income in the nine months ended September 30, 2006 by $2,589 pre-tax ($1,683 after-tax). The aggregate effect of the second and third quarter adjustments was a reduction of income for the nine months ended September 30, 2006 of $3,089 pre-tax ($2,008 after tax). For further details, see Note 11 to the consolidated financial statements.

~~Gross~~24 ~~premiums written~~

Underwriting Results

Gross Premiums Written

Gross premiums written by line of business are summarized as follows:

	Three Months Ended March 31,
	Three Months Ended September 30,
					Increase/			Percent
	2006		2005		(Decrease)			Change
	2007		2006		(Decrease)			Change
Workers’ compensation	$	8269,~~594~~887	$	7572,~~031~~218	$	7(2,~~563~~331	)		10(3.12	)%
General liability		8958,~~623~~201		6968,~~996~~820		19(10,~~627~~619	)		28(15.04	)%
Commercial automobile		6652,~~366~~288		5253,~~199~~838		14(1,~~167~~550	)		27(2.19	)%
Property		8855,~~796~~010		7197,~~428~~291		17(42,~~368~~281	)		24(43.35	)%
Commercial multi-peril		1724,~~222~~159		1120,~~338~~999		53,~~884~~160			5115.90	%
Surety		2,600		8,451		(5,851	)		(69.2	)%
Other		37,347		23,387		13,960			59.7	%
Total gross premiums written	$	~~347~~296,~~201~~892	$	~~288~~336,~~443~~553	$	58(39,~~758~~661	)		20(11.48	)%

For the three months ended March 31, 2006, gross premiums written increased by $58,758, or 20.4%, as compared to the three months ended March 31, 2005. The increase includes $33,718 of Fairmont’s premiums, of which $5,528, $10,962, $7,844, $2,702, $5,686 and $996 relate to the workers’ compensation, general liability, commercial automobile, property, commercial multi-peril and surety lines of business, respectively. Excluding Fairmont, gross premiums written increased by $25,040, or 8.7%, primarily due to an increase in new business of $22,399.


	Nine Months Ended September 30,
					Increase/			Percent
	2007		2006		(Decrease)			Change
Workers’ compensation	$	204,547	$	212,119	$	(7,572	)		(3.6	)%
General liability		198,310		233,815		(35,505	)		(15.2	)%
Commercial automobile		158,941		168,778		(9,837	)		(5.8	)%
Property		235,559		292,206		(56,647	)		(19.4	)%
Commercial multi-peril		67,436		58,375		9,061			15.5	%
Other		104,625		59,860		44,765			74.8	%

Total gross premiums written	$	969,418	$	1,025,153	$	(55,735	)		(5.4	)%

Other lines of business include the following:


	Three Months Ended September 30,
					Increase/			Percent
	2007		2006		(Decrease)			Change
Accident and health	$	27,850	$	13,022	$	14,828			113.9	%
Surety		3,462		3,613		(151	)		(4.2	)%
Homeowners		1,727		1,811		(84	)		(4.6	)%
Personal automobile		4,308		4,941		(633	)		(12.8	)%

Total gross premiums written in other	$	37,347	$	23,387	$	13,960			59.7	%


	Nine Months Ended September 30,
					Increase/			Percent
	2007		2006		(Decrease)			Change
Accident and health	$	81,532	$	35,974	$	45,558			126.6	%
Surety		10,785		10,186		599			5.9	%
Homeowners		5,139		5,378		(239	)		(4.4	)%
Personal automobile		7,169		8,322		(1,153	)		(13.9	%)

Total gross premiums written in other	$	104,625	$	59,860	$	44,765			74.8	%

For the three months ended September 30, 2007, gross premiums written associated with the Company’s core commercial lines of business (excludes “other” lines of business in the tables above), declined by $53,621, or 17.1%, compared to the three months ended September 30, 2006, primarily due to a decline in new business of approximately 33% and price decreases on renewal policies of approximately 8%, partially offset by an increase in renewal retention rates of approximately seven percentage points. For the nine months ended September 30, 2007, gross premiums associated with core commercial lines declined by $100,500, or 10.4%, compared to the corresponding 2006 period, primarily due to a decline in new business of approximately 21% and price decreases on renewal policies of approximately 8%, partially offset by an increase in renewal retention rates of approximately four percentage points.

The property market in particular became significantly softer in the third quarter of 2007, as reflected by the decline in gross premiums written of approximately 44%, with several major competitors offering greater capacity and more competitive pricing in both catastrophe and non-catastrophe exposed areas. In the face of increased competition in the marketplace, the Company remains committed to maintaining adequate pricing and underwriting profitability levels.

Casualty gross premiums written

For the three and nine months ended ~~March~~September 3130, ~~2006~~2007, gross premiums written in casualty lines, which include the workers’ compensation, general liability and commercial automobile lines of business, ~~increased~~ decreased by $4114,~~357~~500, or 217.04%, and $52,914, or 8.6%, respectively, as compared to the three months and nine months ended ~~March~~September 3130, ~~2005.~~2006 ~~This~~due ~~increase~~to ~~includes $24,334~~a ofdecline ~~Fairmont’s~~in ~~premiums.~~new ~~Excluding~~business ~~Fairmont,~~and ~~gross~~price decreases ~~premiums~~on ~~written~~renewal ~~increased by $17~~policies,~~023, or~~ ~~8.6%,~~partially ~~due~~offset toby an increase in renewal retention rates. For the nine months ended September 30, 2007, new business declined by approximately 17% and aprices ~~relatively~~on renewal ~~stable~~policies declined by approximately 7% whereas renewal retention ~~rate~~rates increased by approximately four percentage points.

The casualty market experienced an acceleration of softening market conditions during 2006, particularly with respect to the California workers’ compensation business, which has been affected by declining market prices as a consequence of system reforms and very favorable industry accident year results in recent years. More recently, pricing pressure for casualty classes intensified countrywide.

Property gross premiums written

For the three and nine months ended ~~March~~September 3130, ~~2006~~2007, gross premiums written in property lines, which include the property, and commercial multi-peril ~~and surety~~ lines of business, ~~increased~~decreased by $1739,~~401~~121, or 19 33.1%, and $47,586, or 13.6%, respectively, as compared to the three and nine months ended ~~March~~ September 3130, ~~2005.~~2006, ~~This~~primarily ~~increase~~due ~~includes~~to $9a decline in new business and price decreases on renewal policies,~~384~~ partially offset by an increase in renewal retention rates. The property market experienced a significant hardening in the first three quarters of ~~Fairmont’s~~2006 in the wake of the 2005 ~~premiums~~hurricane activity, but showed signs of softening in the fourth quarter. ~~Excluding~~This ~~Fairmont~~market softening, primarily ~~gross~~driven ~~premiums~~by ~~written~~the ~~increased~~mild by2006 $8hurricane activity,~~017~~ continued through the first nine months of 2007, orwith 8several major competitors offering more capacity in the coastal wind areas and greater capacity and more competitive pricing in non-catastrophe exposed business.8% The property market became significantly softer in the third quarter of 2007, ~~primarily~~even ~~due~~in catastrophe-exposed areas, as toevidenced anby ~~increase~~the decline in new business of approximately 52%. For the nine months ended September 30, 2007, new business declined by approximately 26% and prices on renewal policies declined by approximately 9% whereas renewal retention rates increased by approximately five percentage points.

~~Net~~ Other gross premiums written

~~For~~The increase in other gross premiums written in both the three ~~months~~and ~~ended~~nine ~~March~~month periods ended September 3130, 2007 as compared to 2006, ~~net~~was ~~premiums~~primarily ~~written~~due ~~increased~~to bysignificant ~~$55,944,~~growth orin ~~23.4%,~~the asCompany’s ~~compared~~accident toand health book of business. Previously written in the ~~three~~“B++” ~~months~~rated ~~ended~~Fairmont ~~March 31~~companies, the ~~2005.~~accident ~~This~~and ~~increase~~health ~~was~~business ~~generally~~has inparticularly ~~line~~benefited ~~with~~from ~~the~~Crum & Forster’s “A-” A.M. Best rating. The growth in accident and health gross premiums written was also partially due to relatively low gross premiums written in 2006.

Net Premiums Written ~~earned~~

~~Premiums~~For ~~earned~~the ~~reflect~~three ~~the~~months ~~amount~~ended ofSeptember 30, 2007, net premiums written ~~applicable~~decreased toby ~~the~~$25,727, ~~portion~~or ~~of the policy~~8.8%, ~~term~~compared ~~that~~to ~~expires in a given period. The Company generally earns premiums on a pro-rata basis over~~ the ~~period~~three inmonths ~~which~~ended ~~the~~September 30, ~~coverage is provided~~2006. For the ~~three~~nine months ended ~~March~~September 3130, ~~2006~~ 2007, net premiums ~~earned~~ ~~increased~~written decreased by $1526,~~165~~325, or 63.50%, as compared to the ~~three~~nine months ended ~~March~~ September 3130, ~~2005~~2006. The lower ~~increase~~decline in ~~premiums earned relative to~~ net premiums written ~~was~~relative ~~principally attributable~~ to ~~the~~ ~~lag~~gross ~~in recognition of the increase in~~ premiums written ~~in the first quarter of 2006. A~~ ~~significant~~is ~~portion~~due ofto ~~the~~increased ~~increase~~retention inon ~~premiums written was attributable to~~ the ~~addition of Fairmont’s business~~property, ~~only~~umbrella aand ~~small~~accident ~~portion~~and health lines of ~~which was earned in the three months ended March 31, 2006~~business.

22Premiums Earned

~~Losses~~Premiums earned reflect the amount of net premiums written applicable to the portion of the policy term that expires in a given period. The Company generally earns premiums on a pro-rata basis over the period in which the coverage is provided. For the three and ~~loss~~nine ~~adjustment~~months ~~expenses~~ended September 30, 2007, premiums earned increased by $13,744, or 4.9%, and $102,725, or 13.0%, respectively, as compared to the three and nine months ended September 30, 2006. The increase in premiums earned relative to the decline in net premiums written is primarily attributable to the Fairmont business which the Company assumed at the start of 2006 and which therefore contributed a lower portion to premiums earned year to date through September 30, 2006 as compared to 2007. Further, accident and health premiums, which grew significantly in 2007, are earned as written.

~~For the three months ended March 31, 2006, the Company’s calendar year loss and LAE ratio increased~~26 to 68.5% from 66.3% for the three months ended March 31, 2005. Fairmont’s loss and LAE ratio was consistent with the Company’s ratio. This increase is primarily due to the combined impact of modest price decreases on renewal policies, inflationary trends in loss costs and higher prior year favorable loss development. Included in prior year favorable loss development was $3,379 and $3,690 of amortization of deferred income on retroactive reinsurance contracts in the three months ended March 31, 2006 and 2005, respectively.

~~The~~Losses ~~accident year loss~~ and ~~LAE~~Loss ~~ratio~~Adjustment ~~was 69.5% for the three months ended March 31, 2006 compared~~Expenses to 68.6% for the three months ended March 31, 2005, primarily due to the combined impact of modest price decreases on renewal policies and inflationary trends in loss costs. The full year accident year 2005 loss ratio of 76.5% was negatively affected by hurricanes Katrina, Rita and Wilma.

~~Underwriting~~For the three and nine months ended September 30, 2007, the Company’s calendar year loss and LAE ~~expenses~~ratio improved to 65.6% and 65.7%, respectively, compared to 68.1% and 68.4%, for the three and nine month periods ended September 30, 2006, respectively. The improvement in the nine months ended September 30, 2007 as compared to 2006 is due to an improved accident year loss ratio, as discussed below, and higher favorable prior year loss development. The majority of the net favorable development was in the workers’ compensation line of business in accident years 2006, 2005 and 2004, partially offset by adverse emergence of property losses in accident year 2006. Included in prior year favorable loss development was $10,819 and $10,249 of amortization of deferred income on retroactive reinsurance contracts in the nine months ended September 30, 2007 and 2006, respectively.

~~Underwriting~~The ~~expenses~~accident ~~are~~year ~~comprised~~loss ofand ~~policy~~LAE ~~acquisition~~ratio ~~costs~~improved ~~and~~to ~~other underwriting expenses~~69. ~~Policy~~8% ~~acquisition~~for ~~costs~~the ~~are~~first ~~those~~nine ~~costs~~months ~~that~~of ~~vary~~2007 ~~with~~compared to ~~and~~71.9% ~~are~~for ~~primarily~~the ~~related~~first tonine ~~the acquisition~~months of ~~new~~2006. ~~and~~The ~~renewal~~decrease ~~policies~~is ~~and~~primarily ~~are~~due ~~comprised~~to oflower ~~commissions~~catastrophe losses ~~paid~~in to2007 ~~producers~~compared ~~and premium~~to ~~taxes~~2006. ~~Other~~Results ~~underwriting~~for ~~expenses~~accident ~~consist~~year of2006 ~~all~~were ~~other~~also ~~operating~~adversely ~~expenses~~affected ~~associated with~~by ~~the~~unfavorable ~~Company’s~~loss ~~underwriting~~emergence ~~activities,~~in ~~including salaries and benefits~~property, ~~information~~reflecting ~~technology~~an ~~and rent.~~increased ~~For~~frequency ~~the~~of ~~three~~large ~~months~~fire ~~ended~~losses ~~March 31,~~over this ~~2006~~period, ~~the~~particularly ~~Company’s~~with ~~underwriting~~respect ~~expense~~to ~~ratio~~habitational ~~was 28~~business.~~5% as~~ ~~compared~~The tofull ~~27.6%~~year ~~for~~accident ~~the~~year ~~three~~2006 loss ~~months~~ratio ~~ended~~was ~~March 31, 2005~~70.3%.

~~The~~Underwriting ~~Company’s policy acquisition expense ratio decreased to 12.7% for the three months ended March~~Expenses ~~31, 2006 from 13.2% for the three months ended March 31, 2005, primarily due to lower contingent commissions and lower premium taxes.~~

~~The~~Underwriting ~~Company’s~~expenses ~~other~~are ~~underwriting~~comprised ~~expense~~of ~~ratio~~policy ~~increased~~acquisition tocosts 15and other underwriting expenses.8% Policy ~~for~~acquisition ~~the~~costs ~~three~~are ~~months~~those ~~ended~~costs ~~March 31,~~that ~~2006~~vary ~~from~~with ~~14.4%~~and ~~for~~are primarily related to the acquisition ~~three~~of ~~months~~new ~~ended~~and ~~March 31,~~renewal ~~2005,~~ policies and are comprised of ~~which~~commissions 1paid to producers and premium taxes.2 ~~percentage~~Other ~~points~~underwriting ~~was~~expenses ~~due~~consist toof ~~the~~all ~~2006~~other ~~addition~~operating expenses associated with ofthe ~~Fairmont~~Company’s ~~business~~underwriting activities, ~~which~~including ~~added~~salaries toand benefits, information technology and rent. For the three and nine months ended September 30, 2007, the Company’s ~~fixed~~underwriting ~~expenses~~expense ratio ~~beginning~~was ~~January 1~~29.5% and 28.4%, ~~2006~~respectively, ~~but only~~as ~~modestly~~compared to ~~its~~an ~~net~~underwriting ~~premiums~~expense ~~earned~~ratio of 29.3% and 29.2% for the three and nine months ended ~~March~~September 3130, 2006, respectively.

~~Investment~~The Company’s policy acquisition expense ratio increased to 15.6% and 14.7% for the three and nine ~~results~~months ended September 30, 2007, respectively, from 15.1% and 14.0% for the three months and nine months ended September 30, 2006, respectively. The increase for the three and nine month period ended September 30, 2007 as compared to 2006, was due to lower ceding commissions paid to the Company by reinsurers, attributable to higher retained limits, and higher direct commission rates.

The Company’s other underwriting expense ratio improved to 13.9% and 13.7% for the three and nine months ended September 30, 2007, respectively, compared to 14.2% and 15.2% for the three and nine months ended September 30, 2006, respectively. The improvement is primarily attributable to the growth in earned premiums.

Investment Results

Information on the Company’s investment results is summarized as follows:

	Three Months Ended						Nine Months Ended
	March 31,
	September 30,						September 30,
	2006			2005
	2007			2006			2007			2006
Average investments, at book value1	$	3,648,829		$	3,537,142
Average investments, including cash and cash equivalents, at book value1	$	4,161,348		$	3,807,875		$	4,077,203		$	3,725,919
Investment income	$	5634,~~458~~296		$	3421,~~657~~096		$	109,226		$	170,375
Realized investment gains		~~121~~70,~~822~~220			1445,~~250~~501			73,627			177,039
Pre-tax equity in earnings of investees		215,~~860~~463			65,~~820~~917			27,917			15,254
Change in unrealized investment gains and losses and foreign currency translation		(136,175	)		(22,547	)
Change in unrealized investment gains (losses) and foreign currency translation		88,024			106,392			66,224			(127,958	)
Total return on investments	$	44208,~~965~~003		$	33178,~~180~~906		$	276,994		$	234,710
Annualized total return on investments		420.90	%		318.8	%		9.1	%		8.4	%

1 Includes ~~cash~~book ~~and~~value ~~cash~~of ~~equivalents and~~ assets pledged for short-sale obligations of $883,035 at September 30, 2007 ($545,845 at September 30, 2006).

23The Company manages its investment portfolio with an emphasis on total return. Total return for the period is the sum of investment income (including pre-tax equity in earnings of investees), realized investment gains and losses and changes in the market value of the portfolio expressed as a percentage of the average book value of the portfolio during the period. Total annualized rate of return was 20.0% and 9.1% for the three and nine months ended September 30, 2007, respectively, as compared to 18.8% and 8.4% for the three and nine months ended September 30, 2006, respectively. Funds held interest related to corporate aggregate reinsurance contracts reduced the rate of return for the three and nine months ended September 30, 2007 by 0.4% and by 0.5% for the three and nine months ended September 30, 2006.

~~The Company manages its investment portfolio with an emphasis on total return. Total annualized~~27 rate of return was 4.9% and 3.8% for the three months ended March 31, 2006 and 2005, respectively. Funds held interest related to corporate aggregate reinsurance contracts reduced the annualized rate of return for the three months ended March 31, 2006 and 2005 by 0.6% and 0.5%, respectively. For the three months ended March 31, 2006, the increase in investment income of $21,801, or 62.9%, was primarily due to an increase of $15,476 in earnings from HWIC Asia Fund, an affiliated equity method investee.

~~Realized~~The ~~investment~~following ~~gains~~paragraphs ~~were~~discuss ~~$121,822 for the three months ended March 31, 2006 as compared to~~each ~~$14,250~~component ~~for~~of the ~~three~~return ~~months ended March 31, 2005. The increase in realized investment gains was primarily due to a $106,578 gain~~ on ~~the sale of Zenith common shares~~investments.

~~Pre-tax~~The ~~equity~~increase in ~~earnings~~investment income of ~~investees was~~ $213,~~860~~200, ~~and~~or $62.6%,~~820~~ ~~for~~in the ~~three~~third ~~months~~quarter ~~ended~~of ~~March 31,~~2007 as compared to the third quarter of 2006 was primarily due to higher income from other invested assets and ~~2005,~~lower investment ~~respectively~~fees. ~~The~~In ~~decrease~~the inthird quarter of 2006, investment income was adversely affected by net adjustments of approximately $6,962 pre-tax ~~equity~~ in ~~earnings~~respect of the Company’s equity method investees. For further details on accounting adjustments in respect of $3certain investments in the prior year,~~960~~ ~~was~~see ~~primarily~~Note ~~attributable~~11 to ~~reduced~~the ~~earnings~~consolidated ~~from~~financial ~~Northbridge~~statements. ~~Financial Corporation~~For ~~(“Northbridge”)~~the ~~and~~nine ~~Odyssey~~months Reended ~~Holdings~~September 30, ~~Corp~~2007, the ~~(“Odyssey”).~~decrease ~~Northbridge~~in ~~contributed~~ investment income of $361,~~893~~149, ~~and~~or $635.9%,~~102~~ compared to the ~~Company’s~~nine ~~pre-tax~~months ~~equity~~ended inSeptember 30, 2006, was primarily due to lower earnings offrom ~~investees~~HWIC, inwhich ~~the~~realized ~~three~~significant ~~months~~capital gains ~~ended~~through ~~March~~September 3130, 2006, ~~and~~as ~~2005,~~well ~~respectively~~as lower earnings from other partnerships. ~~Odyssey~~Earnings ~~contributed~~from HWIC and other partnerships were $(1,~~016)~~869 and $~~628~~8,153, torespectively, in the ~~Company’s pre-tax~~nine ~~equity~~months inended ~~earnings~~September 30, of2007 ~~investees~~and $58,750 and $22,286, respectively, in the ~~three~~nine months ended ~~March~~September 3130, 2006. ~~and~~Partially ~~2005,~~offsetting these ~~respectively~~effects were lower investment fees charged in 2007 compared to 2006.

~~Interest~~The increase in realized investment gains of $24,719, or 54.3%, in the third quarter of 2007 as compared to the third quarter of 2006 was primarily due to mark to market gains on the credit default swaps of $73,510 in the third quarter of 2007, attributable to a widening of credit spreads, compared to mark to market losses of $13,322 in the third quarter of 2006. Partially offsetting this effect was a decline in the level of net realized gains achieved on the sale of certain fixed income and equity securities to $333 in third quarter of 2007 as compared to $73,238 in the third quarter of 2006. For the nine months ended September 30, 2007, the decrease in realized investment gains of $103,412, or 58.4%, as compared to the nine months ended September 30, 2006, was primarily the result of significant net realized gains achieved on the sale of certain fixed income and equity securities in 2006, including a $106,758 gain on the sale of Zenith National Insurance Corp (“Zenith”) common stock and a $38,045 gain on the sale of a fixed income security. Additionally, realized gains in the nine months ended September 30, 2007, benefited from $85,319 of mark to market gains on the Company’s credit default swaps as compared to mark to market losses of $18,010 in the nine months ended September 30, 2006. Included in net realized investment gains discussed above are other ~~expense~~than temporary impairment charges of $15,771 for the three and nine months ended September 30, 2007, and $5,400 for the nine months ended September 30, 2006.

~~For~~Pre-tax ~~the~~equity in earnings of investees was $15,463 and $27,917, and $5,917 and $15,254, for the three and nine months ended ~~March~~September 3130, 2007 and 2006, ~~interest~~respectively. The increase in pre-tax equity in earnings of investees in both the three and ~~other~~nine ~~expenses~~month ~~were~~periods ~~$10~~ended September 30,~~905~~ ~~compared~~2007, was primarily attributable to higher earnings from Northbridge. Northbridge reported significant $9realized investment gains in the second quarter of 2007,~~532~~ attributable to the gain on the sale of its investment in Hub International Limited, which the Company accounted for in its third quarter earnings on a normal quarterly lag basis. Northbridge contributed $15,445 and $27,212, and $4,510 and $12,881, to the Company’s pre-tax equity in earnings of investees in the three ~~months~~and nine months ended ~~March~~September 3130, ~~2005~~2007 and 2006, respectively. ~~The~~Northbridge’s ~~higher~~earnings ~~expense~~in ~~was~~the ~~primarily~~nine ~~due~~month period ended September 30, 2006 were affected by equity adjustments and mark to market adjustments in ~~fluctuations~~respect of the derivative features embedded in ~~corporate~~convertible ~~expenses~~bonds. ~~incurred~~For further details on accounting adjustments in respect of certain investments in the prior year, see Note 11 to the consolidated financial statements.

In the three months ended September 30, 2007 and 2006, the change in unrealized investment gains and losses and foreign currency translation was principally due to the combined effects of a rally in the U.S. Treasury market, attributable to the collapse in the sub-prime mortgage market, and a weakening U.S. dollar which resulted in an increase in foreign currency translation gains. In the nine months ended September 30, 2007, the change in unrealized investment gains and losses and foreign currency translation was principally due to an increase in unrealized gains on the Company’s equity portfolio and other invested assets. In the nine months ended September 30, 2006, the change in unrealized investment gains and losses was primarily due to a reduction in unrealized gains on equity securities attributable to the sale of certain equity securities, including approximately $92.3 million on the aforementioned sale of Zenith common stock.

Interest and Other Expense

For the three and nine months ended September 30, 2007, interest and other expenses, excluding costs related to early retirement of debt of $21,188, were $8,120 and $23,795, respectively, as compared to $10,065 and $30,793, respectively, for the three and nine months ended September 30, 2006. The Company has benefited from lower interest expense in the three and nine months ended September 30, 2007, attributable to the restructuring of its long-term debt, described more fully in Note 7 to the consolidated financial statements. Additionally, for the nine months ended September 30, 2007, the Company benefited from lower expenses attributable to lower charitable contributions and compensation costs.

Income Taxes

In the third quarter of 2007, the Company entered into a new tax sharing agreement with Fairfax that permits the Company and its subsidiaries to elect to file federal income tax returns on a consolidated basis for tax sharing purposes. The Company has made this election effective January 1, 2007. Accordingly, tax sharing for the third quarter of 2007 reflected the utilization of holding company NOLs in the amount of $79,697, which was paid by Fairfax in the form of cash of $37,815 and a note for $41,882. This cash and note at the holding company permitted the payment of a dividend of $79,700 to Fairfax (discussed further below in Liquidity and Capital Resources) on September 11, 2007. The election going forward will avoid the generation of holding company NOLs, provided the subsidiaries earn sufficient taxable income to offset holding company losses.

Liquidity and Capital Resources

Holding Company ~~company~~

As a holding company with no direct operations, ~~the~~Crum ~~Company~~& Forster Holdings Corp.’s (referred to in this section as the Company) assets consist primarily of its investments in the capital stock of its insurance subsidiaries ~~and deferred tax assets associated with holding company net operating losses~~. The Company requires cash to meet its annual debt service obligations (approximately $~~31.1 million~~26,000 per year), to pay corporate expenses and, ultimately, to repay the $~~300~~334,~~000~~270 aggregate principal amount of senior notes, $4,270 of which is due in 2013 and $330,000 of which is due in 2017. ~~Crum~~For &further ~~Forster~~details on the Company’s long-term debt, see Note 7 to the consolidated financial statements. The Company’s ability to satisfy its corporate obligations is primarily dependent on the dividend paying capacity of its subsidiaries. State insurance laws restrict the amount of shareholder dividends that insurance companies may pay without prior approval of regulatory authorities.

The ability of the Company’s insurance subsidiaries to pay dividends depends, among other things, on such subsidiaries having positive statutory earned surplus. The Company’s principal insurance subsidiaries are US Fire and North River. At ~~March~~September 3130, ~~2006~~2007, US Fire reported statutory earned surplus of $~~197~~364,~~690~~965 and North River reported statutory earned surplus of $6070,~~863~~180. On March 29, ~~2006~~2007, US Fire paid ~~the Company~~ a ~~cash~~dividend ~~shareholder~~in ~~dividend~~the amount of $9497,~~500~~300 to the Company. OnThe ~~March 30,~~payment ~~2006,~~included ~~the~~$9,005 ~~Company~~of ~~paid~~HWIC aAsia ~~cash~~Fund ~~shareholder~~stock ~~dividend~~at ofmarket value and $8088,~~000~~295 toof ~~Fairfax~~cash. ~~North~~On ~~River~~May 14, is2007, ~~expected~~North toRiver ~~pay~~paid ~~the~~a ~~Company~~dividend ain ~~shareholder~~the ~~dividend~~amount of $~~32.5 million~~40,900 into the ~~second~~Company. ~~quarter~~After ofthe ~~2006~~aforementioned ~~based on its~~ dividend ~~capacity~~ ~~of $32.5 million at December 31~~actions, neither ~~2005. Neither~~ US Fire nor North River may pay additional dividends in ~~2006~~2007 without prior regulatory approval.

Cash used in financing activities, ~~which~~was ~~relates~~primarily ~~principally~~in respect of dividends paid to ~~holding~~Fairfax ~~company~~of ~~activities~~$128, ~~was~~818 and $8090,000 ~~and $0~~ in the ~~three~~nine months ended ~~March~~September 3130, ~~2006~~2007 and ~~2005~~2006, respectively., Inand ~~the~~refinancing ~~three~~of ~~months~~the ~~ended~~Company’s long-term debt in 2007. On March 3129, ~~2006~~2007 and May 29, 2007, the Company paid cash shareholder ~~used~~dividends inof ~~financing~~$61,000 ~~activities~~and ~~was~~$30,000, respectively, to Fairfax. On September 11, 2007, the Company ~~result~~paid an additional dividend to Fairfax of $79,700, consisting of $37,818 cash and a promissory ~~dividend~~note of $41,882. In May 2007, the Company issued pursuant to a private offering (the “Offering”) $80330,000 aggregate principal amount of 7-3/4% senior notes due May 1, 2017 (the “2017 Notes”) at an issue price of 100%. Net proceeds of the Offering to the Company, after commissions and expenses, of approximately $325,100 were used to repurchase $295,730 of the Company’s outstanding $300,000 aggregate principal amount of 10-3/8% senior notes due June 15, 2013 (the “2013 Notes”), through a tender offer which the Company completed in May 2007. The Company paid approximately $325,700 to ~~Fairfax~~purchase the 2013 Notes tendered. For further details on the Company’s long-term debt, see Note 7 to the consolidated financial statements.

Shareholder’s equity was $~~909~~1,~~043~~109,154 at ~~March~~September 3130, ~~2006~~2007, as compared to $~~961~~1,~~193~~093,055 at December 31, ~~2005~~2006. The ~~decrease~~increase was primarily the result of ~~$88,775~~current ofyear ~~unrealized~~earnings ~~investment~~and ~~losses,~~ net ~~of transfers~~unrealized ~~to realized~~ investment gains ~~and losses, and a dividend payment of $80,000 to Fairfax,~~ partially offset by ~~earnings~~cash ofand ~~$116,363~~non-cash ~~during~~dividends ~~the~~paid ~~first~~to ~~quarter of 2006~~Fairfax.

24Insurance Subsidiaries

Insurance subsidiaries

At Crum & Forster’s insurance subsidiaries, cash provided by operating activities primarily consists of premium collections, reinsurance recoveries and investment income. Cash provided from these sources is generally used for payment of losses and LAE, policy acquisition costs, operating expenses, ceded reinsurance premiums, income taxes and shareholder dividends, when permitted. Variability in cash provided by and used in operations can occur for many reasons, including changes in gross premiums written, changes in the Company’s underwriting results, natural or man-made catastrophes, settlements of large claims including asbestos and environmental claims, commutation of reinsurance contracts and the timing of recoveries from reinsurers, particularly as related to claim payments for natural or man-made catastrophes and asbestos and environmental claims.

Cash provided by operating activities for the ~~three~~nine months ended ~~March~~September 3130, ~~2006~~2007 was $2749,~~275,~~932 as compared to $8082,~~178~~656 for the ~~three~~nine months ended ~~March~~September 3130, ~~2005~~2006. The ~~unfavorable~~decrease ~~variance~~ from ~~the~~ prior year is ~~due~~ primarily attributable to ~~additional~~lower ~~net~~loss ~~paid~~recoveries ~~losses~~associated with the 2005 hurricanes, ~~partially~~higher underwriting ~~related~~expenses reflecting increased compensation and timing of technology payments, lower premium collections and costs related to ~~catastrophe~~the ~~events~~early retirement of the Company’s 2013 notes, ~~and~~which were apartially ~~$21~~offset by lower paid losses primarily associated with the 2005 hurricanes,~~211~~ ~~increase~~lower reinsurance inpayments reflecting the favorable effect of higher retentions and lower income tax payments. Cash provided by investing activities for the nine months ended September 30, 2007 was $28,527 as acompared ~~result~~to cash provided by investing activities of ~~higher~~$394,169 ~~realized~~in the nine months ended ~~investment~~September 30, ~~gains~~2006. The decrease in cash provided by investing activities in the nine months ended September 30, 2007 was primarily attributable to lower proceeds from the sales of fixed income and equity securities and other invested assets.

~~Cash provided by investing activities for the three months ended March 31, 2006 was $120,078 as~~29 compared to cash used in investing activities of $129,080 in the three months ended March 31, 2005. In the three months ended March 31, 2006, proceeds from sales of fixed income and equity securities exceeded such proceeds in the corresponding 2005 period by $253 million.

~~Investments~~Investment ~~in available-for-sale fixed income and equity securities are summarized below:~~Portfolio

	At March 31, 2006
	Cost or		Gross		Gross
	Amortized		Unrealized		Unrealized
	Cost		Gains		Losses		Fair Value
Fixed income securities:
United States government and government agencies and authorities	$	1,696,912	$	27	$	155,243	$	1,541,696
States, municipalities and political subdivisions		7,072		37		28		7,081
Other corporate fixed income securities		275,569		13,898		204		289,263
Total fixed income securities		1,979,553		13,962		155,475		1,838,040
Equity securities:
Common stocks		543,900		32,556		12,838		563,618
Preferred stocks		10,000		—		34		9,966
Total equity securities		553,900		32,556		12,872		573,584
Total available-for-sale securities	$	2,533,453	$	46,518	$	168,347	$	2,411,624

Investments in available-for-sale fixed income and equity securities, which include assets pledged for short-sale obligations, are summarized below:

Certain individual available-for-sale securities had gross unrealized losses at March 31, 2006 totaling $168,347, of which $155,475 was attributable to fixed income securities and $12,872 was attributable to equity securities. The total gross unrealized losses of $168,347 represented 8.6% of the cost or amortized cost of such securities in the aggregate.


	At September 30, 2007
	Cost or		Gross		Gross
	Amortized		Unrealized		Unrealized
	Cost		Gains		Losses		Fair Value
Fixed income securities:
United States government and government agencies and authorities¹	$	2,047,038	$	7,507	$	124,093	$	1,930,452
States, municipalities and political subdivisions		2,835		15		6		2,844
Other corporate fixed income securities		7,889		28		2,804		5,113

Total fixed income securities		2,057,762		7,550		126,903		1,938,409


Equity securities:
Common stocks		638,732		78,976		27,532		690,176
Preferred stocks		8,090		55		—		8,145

Total equity securities		646,822		79,031		27,532		698,321

Total available-for-sale securities	$	2,704,584	$	86,581	$	154,435	$	2,636,730

At1 ~~March 31,~~Includes ~~2006,~~ U.S. Treasury securities ~~accounted~~pledged for ~~substantially~~short-sale ~~all~~obligations ofat ~~the~~a ~~$155,475~~fair ~~of gross~~value ~~unrealized losses in the fixed income portfolio. These securities are backed by the full faith and credit~~ of ~~the~~$212,029 ~~United~~(amortized ~~States~~cost ~~government and the Company has the ability and intent to hold such securities for a period~~ of ~~time sufficient to allow a market recovery~~$224, ~~or to maturity, if necessary~~048).

25The total gross unrealized losses of $154,435 represent 7.8% of the cost or amortized cost of such securities in the aggregate. At September 30, 2007, U.S. Treasury securities accounted for substantially all of the $126,903 of gross unrealized losses in the fixed income portfolio. These securities are backed by the full faith and credit of the United States government and the Company has the ability and intent to hold such securities for a period of time sufficient to allow a market recovery, or to maturity, if necessary.

At ~~March~~ 31September 30, ~~2006~~2007, approximately $616,~~027~~755, or 4660.89%, of the equity portfolio gross unrealized losses was attributable to one security ~~with~~ anthat ~~unrealized~~has ~~loss~~been in ~~excess~~a ofloss ~~10%~~position offor ~~its~~approximately ~~cost at March 31,~~three ~~2006.~~months ~~The~~and ~~subject~~whose ~~Company~~loss isdid anot ~~Fairfax~~exceed ~~affiliate~~10% ~~operating~~of inits ~~the~~cost ~~property~~at ~~reinsurance~~September 30, ~~industry~~2007. ~~Management~~ ~~believes~~The ~~that~~remaining ~~the value~~ balance of ~~this security has been affected by~~ the ~~2005~~unrealized ~~catastrophe~~ losses, ~~particularly~~was ~~hurricanes~~attributable ~~Katrina,~~to ~~Rita~~seven securities, ~~and~~none ~~Wilma.~~of ~~The~~which ~~Company~~ has ~~the~~been ~~ability~~in ~~and~~a ~~intent~~loss toposition ~~hold such security~~ for agreater ~~period~~than ofthree ~~time~~consecutive ~~sufficient~~months. toFive ~~allow~~of athe ~~market~~seven ~~recovery. Two other~~ securities had unrealized losses ~~aggregating~~in ~~$44~~excess ~~that~~of ~~exceeded~~ 10% of their ~~respective costs at March 31, 2006~~cost. The ~~remaining~~Company ~~balance~~has of the ~~unrealized~~intent ~~losses~~and ~~was~~ability ~~attributable~~ to ~~equity~~hold such securities ~~whose~~for ~~unrealized~~a ~~losses~~period ~~did not exceed 10%~~ of ~~their~~time ~~cost and~~sufficient ~~which~~to ~~were~~allow ~~not in~~ a ~~loss~~market ~~position for greater than 12 consecutive months~~recovery.

The Company’s investment portfolio has exposure to credit risk primarily related to fixed income securities. Management attempts to control this exposure by emphasizing investment grade credit quality in the fixed income securities purchased. Management believes that this concentration in investment grade securities reduces the Company’s exposure to credit risk to an acceptable level. At ~~both March~~September 3130, ~~2006~~2007 and December 31, ~~2005~~2006, 93.23% and 92.0% of the Company’s fixed income securities were rated investment grade, respectively.

The Company’s investment portfolio includes investments accounted for using the equity method. These investments had a total carrying value of $~~376~~355,~~985~~882 and $~~350~~307,~~603~~818 at ~~March~~September 3130, ~~2006~~2007 and December 31, ~~2005~~2006, respectively, and are included in other invested assets on the consolidated balance sheets. ~~For the three months ended March 31, 2006 and 2005, earnings of equity method investees were $28,012 and $16,079, respectively.~~ Earnings of investment companies and similar equity method investees ~~of $25,152 and $9,259, in the three months ended March 31, 2006 and 2005, respectively,~~ are included in investment income on the consolidated statements of income., ~~Pre-tax~~and earnings of other equity method ~~investees~~ ofinvestees ~~$2,860 and $6,820 in the three months ended March 31, 2006 and 2005, respectively,~~ are included in equity in earnings of investees, net of tax, on the consolidated statements of income. ~~Dividends~~ ~~received~~For ~~from~~the ~~all~~three ~~equity~~and ~~method~~nine ~~investees~~months ~~were~~ended $1September 30,~~254~~ 2007 and $12006,~~166~~ ~~in the three months~~earnings ~~ended~~from ~~March 31,~~equity ~~2006~~method ~~and~~investees ~~2005,~~are ~~respectively.~~summarized below:


	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2007		2006			2007		2006
Earnings (losses) of investment companies and similar equity method investees	$	1,339	$	(7,574	)	$	10,022	$	81,036
Pre-tax earnings of other equity method investees		15,463		5,917			27,917		15,254

Total earnings (losses) of equity method investees	$	16,802	$	(1,657	)	$	37,939	$	96,290


Dividends received from investment companies and other equity method investees	$	1,327	$	1,292		$	4,767	$	3,840

In February 2006, the FASB issued SFAS No. 155, Accounting for Certain Hybrid Financial Instruments - an amendment of FASB Statements Nos. 133 and 140 (“SFAS 155”). SFAS 155 applies to certain “hybrid financial instruments” which are instruments that contain embedded derivatives. The standard establishes a requirement to evaluate beneficial interests in securitized financial assets to determine if the interests represent freestanding derivatives or are hybrid financial instruments requiring bifurcation. SFAS 155 also permits an election for fair value measurement of any hybrid financial instrument that otherwise would require bifurcation under SFAS 133. Changes in fair value are recorded as realized investment gains or losses. The fair value election can be applied to existing instruments on an instrument-by-instrument basis at the date of adoption and to new instruments on a prospective basis. The statement is applicable in fiscal years beginning after September 15, 2006. The Company elected fair value measurement of its hybrid financial instruments, which are comprised of convertible bonds, effective with its adoption of SFAS 155 on January 1, 2007. Prior to January 1, 2007, the Company bifurcated its hybrid financial instruments and changes in the fair value of the host instrument were recorded as unrealized investment gains and losses while changes in the fair value of the embedded derivative were recorded as realized investment gains and losses. At December 31, 2006, the fair value of the host instruments included in fixed income securities was $136,222 and the fair value of embedded derivatives included in other invested assets was $7,372. Upon adoption of SFAS 155, the Company recorded a cumulative adjustment of $10,146, inclusive of an adjustment of $301 in respect of adoption of SFAS 155 by one of the Company’s equity method investees, net of tax, to reclassify unrealized investment gains associated with the host instruments to opening retained earnings. At September 30, 2007, the fair value of the Company’s hybrid financial instruments was $134,770. For the three and nine months ended September 30, 2007, the Company recorded realized investment losses of $8,172 and $19,189, respectively, as a result of changes in the fair value of hybrid financial instruments.

Ratings

Financial strength ratings issued by third party rating agencies are used by insurance consumers and insurance intermediaries as an important means of assessing the financial strength and quality of insurers. Higher ratings generally indicate relative financial stability and a strong ability to pay claims. Ratings focus on the following factors: capital resources, financial strength, demonstrated management expertise in the insurance business, credit analysis, systems development, marketing, investment operations, minimum policyholders’ surplus requirements and capital sufficiency to meet projected growth, as well as access to such traditional capital as may be necessary to continue to meet standards for capital adequacy. Crum & Forster’s insurance subsidiaries have an “A-” financial strength rating (the fourth highest of fifteen rating categories) with a ~~stable~~positive outlook from A.M. Best, a rating agency and publisher for the insurance industry, and a “BBB” financial strength rating (the fourth highest of nine rating categories) ~~from~~with a stable outlook from Standard & Poor’s Insurance Rating Services (“S&P”), also a rating agency for the insurance industry. ~~Crum~~ & Forster’s current ratings are the lowest necessary to compete in its targeted markets. The Company may not maintain its financial strength ratings from the rating agencies. A downgrade or withdrawal of any rating could severely limit or prevent the Company from writing quality new or renewal business, securing adequate reinsurance on acceptable terms and retaining its key management and employees. The Company’s ratings by these rating agencies are based on a variety of factors, many of which are outside of its control, including the financial condition of Fairfax and its other subsidiaries and affiliates, the financial condition or actions of parties from which the Company has obtained reinsurance, factors relating to the sectors in which the Company or its reinsurers conduct business and the statutory surplus of its insurance subsidiaries, which is adversely affected by underwriting losses and dividends paid by them to Crum & Forster.

Crum & Forster’s current ratings are the lowest necessary to compete in its targeted markets. The Company may not maintain its financial strength ratings from the rating agencies. A downgrade or withdrawal of any rating could severely limit or prevent the Company from writing quality new or renewal business, securing adequate reinsurance on acceptable terms and retaining its key management and employees. The Company’s ratings by these rating agencies are based on a variety of factors, many of which are outside of its control, including the financial condition of Fairfax and Fairfax’s other subsidiaries and affiliates, the financial condition or actions of parties from which the Company has obtained reinsurance, factors relating to the sectors in which the Company or its reinsurers conduct business and the statutory surplus of its insurance subsidiaries, which is adversely affected by underwriting losses and dividends paid by them to Crum & Forster.

The financial strength ratings assigned by rating agencies to insurance companies represent independent opinions of an insurer’s financial strength and its ability to meet ongoing obligations to policyholders, and are not directed toward the protection of investors. Ratings by rating agencies of insurance companies are not ratings of securities or recommendations to buy, hold or sell any security.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company is principally exposed to three types of market risk related to its investment operations. These risks are interest rate risk, equity price risk and foreign currency exchange risk. The term “market risk” refers to the risk of loss arising from adverse changes in market rates and prices, such as interest rates, equity prices and foreign currency exchange rates. All market sensitive instruments discussed here relate to the Company’s investment portfolio, including assets pledged for short-sale obligations.

Computations of the prospective effects of hypothetical interest rate, equity price and foreign exchange rate changes shown below are based on numerous assumptions, including the maintenance of the existing level and composition of fixed income, equity and foreign securities, and should not be relied on as indicative of future results. Certain shortcomings are inherent in the methods of analyses presented in the computations of the fair value of fixed rate instruments and in the computations of the impact of potential market movements on equity securities and foreign securities.

Actual values may differ from those projections presented should market conditions vary from assumptions used in the calculation of the fair value of individual securities, including, but not limited to, non-parallel shifts in the term structure of interest rates, changing individual issuer credit spreads and non-parallel movements of foreign exchange rates or equity prices.

Interest Rate Risk

At ~~March~~September 3130, ~~2006~~2007, the fair value of Crum & Forster’s investment portfolio included $12,~~969~~073,~~435~~ 179 of fixed income securities, including $~~131~~212,~~395~~029 of assets pledged for short-sale obligations and $134,770 ~~that~~of hybrid financial instruments, which are subject to interest rate risk. Fluctuations in interest rates have a direct impact on the market values of these securities. As interest rates rise, market values of fixed income portfolios fall, and vice versa. The table below displays the potential impact of market value fluctuations on the Company’s fixed income portfolio based on parallel 200 basis point shifts in interest rates up and down, in 100 basis point increments. This analysis was performed on each security individually.

	At March 31, 2006
	At September 30, 2007
	Fair Value of
	Fixed Income		Hypothetical			Hypothetical
	Portfolio		$ Change			% Change
200 basis point decline	$	2,~~539~~624,~~954~~446	$	~~570~~551,~~519~~267			2926.06	%
100 basis point decline	$	2,~~229~~325,~~250~~912	$	~~259~~252,~~815~~733			1312.2	%
Base scenario	$	12,~~969~~073,~~435~~179	$	—			—0.0	%
100 basis point increase	$	1,~~754~~863,~~536~~360	$	(~~214~~209,~~899~~819	)		(10.91	)%
200 basis point increase	$	1,~~573~~683,~~242~~804	$	(~~396~~389,~~193~~375	)		(2018.18	)%

As an economic hedge against rising interest rates and deteriorating conditions in the residential housing market, the Company has sold short securities of certain U.S. financial guarantee insurance companies, mortgage insurance companies and financial institutions with a fair value of $43,494 and $24,605 at September 30, 2007 and December 31, 2006, respectively. A hypothetical 10% decrease in the price of these securities would result in a $4,349 decrease in the obligations to purchase the securities sold. At December 31, 2006, a hypothetical 10% decrease in the price of these securities would have resulted in a decrease of $2,461 in the obligations to purchase the securities. The increase in the Company’s obligation to purchase the securities sold short is primarily due to an additional $25,000 of security short sales executed in the nine months ended September 30, 2007. The Company expects that a decline in the short-sale obligations will offset losses in the fixed income portfolio in the event of a rise in interest rates.

Equity Price Risk

At ~~March~~September 3130, ~~2006~~2007, the Company’s ~~investment~~equity portfolio included $~~573~~698,~~584~~321 of ~~equity~~marketable equity securities. and $147,666 of equities owned by investment companies and similar equity method ~~Marketable~~investees. This equity ~~securities~~portfolio, which represented approximately 1519.97% of the Company’s ~~investment~~ investment portfolio, including cash and cash equivalents and assets pledged for short-sale obligations, ~~are~~ is exposed to equity price risk, which is defined as the potential for loss in market value owing to declines in equity prices. A hypothetical 10% decline in the price of each of these ~~marketable~~ equity securities would result in a total decline of $5784,~~358~~599 in the fair value of the equity portfolio at ~~March~~September 3130, ~~2006~~2007. At December 31, ~~2005~~2006, a hypothetical 10% decline in the price of ~~marketable~~each of these equity securities would have resulted in a total decline of $5979,~~594~~360 in the fair value of of the equity portfolio. The ~~decrease~~increase in the Company’s exposure to equity price risk is the result of of the ~~decrease~~increase in the value of the equity portfolio from ~~$595,944 at~~ December 31, ~~2005 to $573,584 at March 31,~~ 2006.

~~As an economic hedge against a decline in the U.S. equity markets, the Company has executed~~32 short-sales totaling approximately $300,000 of Standard & Poor’s Depositary Receipts (“SPDRs”). Simultaneously, the Company purchased two-year S&P Index call options, limiting the potential loss on the future purchases of the SPDRs to $60,000. A hypothetical 10% decrease in the price of the SPDRs would result in approximately a $30,000 decrease in the obligations to purchase the SPDRs. The Company expects that a decline in the SPDRs obligations will offset losses in the equity portfolio in the event of a decline in the U.S. equity markets.

27As an economic hedge against a decline in the U.S. equity markets, the Company has executed short-sales of Standard & Poor’s Depositary receipts (“SPDRs”) with a fair value of $610,713 and $375,558 at September 30, 2007 and December 31, 2006, respectively. The Company has purchased S&P Index call options, limiting the potential loss on the future purchases of the SPDRs to approximately $189,000 at September 30, 2007. A hypothetical 10% decrease in the price of the SPDRs would result in a $61,071 decrease in the fair value of the obligations to purchase the SPDRs at September 30, 2007. At December 31, 2006, a hypothetical 10% decrease in the price of the SPDRs would have resulted in a decrease of $37,556 in the fair value of the obligation to purchase the SPDRs. The increase in the Company’s obligation to purchase the SPDRs is primarily the result of an additional $200,000 of SPDRs short sales executed in the nine months ended September 30, 2007. The Company expects that a decline in the SPDRs obligations will offset losses in the equity portfolio in the event of a decline in the U.S. equity markets.

Foreign Currency Exchange Rate Risk

Through investments in foreign securities, including certain equity method investees, the Company is exposed to foreign currency exchange rate risk. Foreign currency exchange rate risk is the potential for loss in value owing to a decline in the U.S. dollar value of these investments due to a change in the exchange rate of the foreign currency in which these assets are denominated. At ~~March~~September 3130, ~~2006~~2007, the Company’s total exposure to foreign currency denominated securities in U.S. dollar terms was approximately $~~431~~460,~~990~~165, or 1210.07%, of the Company’s total investment portfolio, including cash and cash equivalents and assets pledged for short-sale obligations. The primary foreign currency exposures were in ~~Indian~~Canadian ~~rupee~~dollar denominated securities and ~~Canadian~~Hong ~~dollar~~Kong ~~denominated~~dollar denominated securities, which represented 45.39% and 4.1.4%, respectively, of the Company’s investment portfolio, including cash and cash equivalents and assets pledged for short-sale obligations. The ~~potential~~ potential impact of a hypothetical 10% decline in each of the foreign exchange rates on the valuation of investment assets denominated in those respective foreign currencies would result in a total decline in the fair value of the total investment portfolio of $4346,~~199~~017 at ~~March~~September 3130, ~~2006~~2007. At At December 31, ~~2005~~2006, a hypothetical 10% decline in foreign currency exchange rates would have resulted in a total decline of $3936,~~743~~803 in the fair value of the total investment portfolio. The increase in the Company’s exposure to foreign currency exchange rate risk is the result of the increase in foreign currency denominated securities.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

The Company’s principal executive officer and its principal financial officer have evaluated the effectiveness of the Company’s disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, as of the end of the period covered by this report. Based on that evaluation, such officers have concluded that the Company’s disclosure controls and procedures are effective as of the end of such period.

~~Changes in~~ Internal Control Over Financial Reporting

During the period covered by this report, there has been no change in the Company’s internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

The design of any system of controls and procedures is based, in part, upon certain assumptions about the likelihood of future events. There can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote.

Part II

OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

~~The~~On ~~Company~~September 7, ~~and~~2005, USFairfax ~~Fire,~~announced ~~among~~that ~~numerous~~it ~~other~~had ~~insurance~~received ~~company~~a ~~and~~subpoena ~~insurance~~from ~~broker~~the ~~defendants,~~SEC requesting ~~have~~documents ~~been~~regarding ~~named~~any asnon-traditional ~~defendants~~insurance inor areinsurance ~~class~~transactions ~~action~~entered ~~suit~~into ~~filed~~or offered by ~~policyholders~~Fairfax ~~alleging,~~and ~~among~~the ~~other things~~entities in its consolidated group, ~~that~~which includes the ~~defendants~~Company. ~~used~~The U.S. Attorney’s Office for the ~~contingent~~Southern ~~commission~~District ~~structure~~of New York is reviewing documents provided to ~~deprive~~the ~~policyholders~~SEC in response to the subpoena and is participating in the investigation of these matters. Fairfax ~~free~~and ~~competition~~entities in ~~the~~its ~~market~~consolidated ~~for~~group ~~insurance~~are cooperating fully with these requests. ~~The~~Fairfax ~~action~~and certain isof ~~pending~~the entities in its consolidated group, including the Company, have prepared presentations and provided documents to the SEC and the U.S. ~~District~~Attorney’s ~~Court~~Office, ~~for the~~and ~~District~~employees of Fairfax ~~New~~and ~~Jersey.~~certain ~~Plaintiffs~~of ~~seek~~the ~~certification~~entities ofin aits ~~nationwide~~consolidated ~~class~~group, ~~consisting~~including ofsenior ~~all~~officers, have ~~persons~~attended ~~who~~or ~~between~~have ~~August 26,~~been ~~1994~~requested ~~and~~to attend interviews conducted by the ~~date~~SEC ofand the ~~class~~U.S. ~~certification~~Attorney’s Office. ~~engaged~~The ~~the~~Company ~~services~~is ofcooperating fully in addressing its obligations under this subpoena. This ~~any~~inquiry ~~one~~is ofongoing and the ~~broker~~Company ~~defendants~~continues to comply with requests from the SEC and ~~who~~the ~~entered~~U.S. Attorney’s ~~into~~office. orAt ~~renewed~~the apresent ~~contract~~time, ofthe ~~insurance~~Company ~~with~~cannot ~~one~~ predict the outcome of these matters, or the ~~insurer~~ultimate ~~defendants.~~effect ~~The~~on the Company’s consolidated financial statements, which effect could be material and USadverse. ~~Fire~~No ~~intend~~assurance tocan ~~vigorously~~be ~~defend~~made that the ~~action~~Company will not be subject to further requests or other regulatory proceedings of a similar kind.

InThe Company and US Fire, among numerous other insurance company and insurance broker defendants, have been named as defendants in a class action suit filed by policyholders alleging, among other things, that the ~~ordinary~~defendants ~~course~~used the contingent commission structure to deprive policyholders of free ~~their~~competition ~~business~~in the market for insurance. The action, ~~Crum~~which &included ~~Forster’s~~civil ~~subsidiaries~~RICO, ~~receive~~federal antitrust and various state law claims, ~~asserting~~is pending in the U.S. District Court for the District of ~~alleged~~New ~~injuries~~Jersey. ~~and~~Plaintiffs ~~damages~~seek ~~from~~certification ~~asbestos~~of ~~and~~a ~~other~~nationwide ~~hazardous~~class ~~waste~~consisting of all persons who between August 26, 1994 and ~~toxic~~the ~~substances~~date of the class certification engaged the services of any one of the broker defendants and ~~are~~who entered into or renewed a contract of insurance with one of the insurer defendants. In October 2006, the court partially granted defendants’ motion to dismiss the plaintiffs’ complaint, subject to plaintiffs’ ~~related~~filing ~~coverage~~an ~~litigation.~~amended ~~The~~statement ~~conditions~~of ~~surrounding~~their ~~the~~case. ~~final~~Plaintiffs ~~resolution~~thereafter filed their “supplemental statement of ~~these~~particularity” and amended case statement. In response, defendants filed a renewed motion to dismiss. On August 31, 2007, the Court dismissed the antitrust claims ~~and~~with prejudice. On September 28, 2007, the ~~related~~court ~~litigation~~dismissed ~~continue~~the RICO case with prejudice and declined to ~~change~~accept supplemental jurisdiction over plaintiffs’ state law claims. ~~Currently,~~The itJudge isgave ~~not~~the ~~possible~~plaintiffs 30 days to ~~predict~~re-plead a basis for federal jurisdiction over the state law claims, but plaintiffs elected ~~judicial~~instead ~~and~~to ~~legislative~~file ~~changes~~a ~~and~~notice ~~their~~of ~~impact~~appeal onof the ~~future~~dismissal ~~development~~orders to the U.S. Court of ~~asbestos~~Appeals ~~and~~for the ~~environmental~~Third ~~claims~~Circuit. Crum & Forster Holdings Corp. and ~~litigation~~US Fire continue to be named as defendants and intend to vigorously defend the action.

28Kelly-Moore Paint Company, Inc. (“Kelly-Moore”) filed litigation against the Company in the San Francisco Superior Court (California) in connection with certain general liability and umbrella liability policies issued to it. The litigation seeks coverage for bodily injury claims arising out of exposure to asbestos-containing products that Kelly-Moore and/or a subsidiary sold between 1960 and 1978. It also seeks breach of contract and bad faith damages. In May 2006, Kelly-Moore filed a second amended complaint seeking to recover from the Company defense costs it allegedly paid to defend asbestos claims. Kelly-Moore also seeks payment of sums for contribution and/or subrogation pursuant to three other excess insurers’ assigned claims based on defense payments allegedly made on Kelly-Moore’s behalf. The Company has learned through discovery and submissions to the court filed by Kelly-Moore that Kelly-Moore is seeking $53 million for the defense costs, plus interest, and an additional $33 million for the contribution/subrogation claims. Kelly-Moore also seeks to recover extra-contractual damages as part of its bad faith claim. The Company anticipates that Kelly-Moore will allege it is entitled to bad faith and punitive damages in a material amount. While the Company does not believe that any of these allegations has merit as a matter of law, we cannot predict with certainty the ultimate outcome of the claims. We do not expect the outcome to have a material adverse effect on the Company’s financial condition. The Company has been vigorously defending against the claims of Kelly-Moore, and will continue to do so. The Company filed a cross-complaint against Kelly-Moore seeking reimbursement of certain substantial loss and expense payments made to or on behalf of Kelly-Moore to date.

The Company’s subsidiaries are involved in various lawsuits and arbitration proceedings arising in the ordinary course of business. These lawsuits and arbitration proceedings include, in some cases, claims for extra-contractual or “bad faith” damages, or claims for imposition of statutory penalties or multipliers. While the outcome of such matters cannot be predicted with certainty, in the opinion of management, no such matter is likely to have a material adverse effect on the Company’s consolidated net income, financial position, or liquidity. However, it should be ~~noted~~ noted that the frequency of large damage awards in some jurisdictions, including punitive damage awards ~~that~~ that bear little or no relation to actual economic damages incurred by plaintiffs, continues to ~~create~~ create the potential for an unpredictable judgment in any given matter.

Fairfax and its Chief Executive Officer, V. Prem Watsa, who is also the chairman of the board of directors of the Company, received subpoenas from the SEC in connection with the answer to a question on Fairfax’s February 10, 2006 investor conference call concerning the review of finite insurance contracts of Fairfax and entities in its consolidated group. In the fall of 2005, Fairfax and entities in its consolidated group, including the Company, prepared and provided to the SEC a list intended to identify certain finite contracts and contracts with other non-traditional features of all Fairfax consolidated group companies. As part of the 2005 reporting and closing process, Fairfax and entities in its consolidated group, including the Company, internally reviewed all of the contracts on the list provided to the SEC and some additional contracts as deemed appropriate. For those reinsurance contracts that the Company identified as finite or non-traditional reinsurance contracts, the Company consolidated relevant contract documentation into a single compendium, prepared memoranda regarding the rationale and economic intent of each contract and prepared analyses of reinsurer experience where contemporaneous documentation of risk transfer was not available.

Certain of the Company’s subsidiaries have received formal letters of inquiry and/or requests for information from the departments of insurance of the States of Arizona, Delaware, New Jersey, North Carolina and Ohio. These states, which sent requests to multiple insurance companies and other industry members, are requesting documents and seeking information relating to the conduct of business between insurance brokers and certain Company subsidiaries. It is reported that other governmental and regulatory authorities are conducting similar inquiries, and the Company or its subsidiaries may receive additional requests for information from these authorities. The Company and its subsidiaries intend to cooperate fully with these requests for information.

Also, New York State’s Attorney General, the SEC and certain state insurance departments have indicated that they are investigating the alleged use of finite and financial reinsurance products to “smooth” earnings or to otherwise bolster reported financial results. The NAIC and the insurance departments of Delaware and New Jersey requested that the Company provide information regarding the use of finite reinsurance agreements and side agreements. The Company’s corporate aggregate reinsurance includes both prospective and retroactive reinsurance contracts that would commonly be classified as finite reinsurance. The investigations concerning the use of finite and financial reinsurance products continue to progress and management cannot give assurance regarding its ultimate impact on the industry or the Company.

ITEM 5. OTHER INFORMATION

Mr. Robbert Hartog retired as a director of the Company and chairman of its audit committee effective March 28, 2006. Mr. Paul Murray was elected to replace him on the board of directors and Mr. Frank B. Bennett was elected chairman of the Company’s audit committee. A Form 8-K was not required to be filed in connection with these changes to the board of directors of the Company.

ITEM 6. EXHIBITS

See Index to Exhibits.

3034

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	CRUM & FORSTER HOLDINGS CORP.	~~CRUM & FORSTER HOLDINGS CORP.~~
	(Registrant)	~~(Registrant)~~
Date: May 2, 2006	By:	/s/ Nikolas Antonopoulos
Date: November 1, 2007	By:	/s/ Nikolas Antonopoulos
	Nikolas Antonopoulos	~~Nikolas Antonopoulos~~
	President and Chief Executive Officer	~~President and Chief Executive Officer~~
Date: May 2, 2006	By:	/s/ Mary Jane Robertson
Date: November 1, 2007	By:	/s/ Mary Jane Robertson
	Mary Jane Robertson	~~Mary Jane Robertson~~
	Executive Vice President, Chief Financial Officer and Treasurer	~~Executive Vice President, Chief Financial Officer and Treasurer~~

3135

INDEX TO EXHIBITS

Exhibit No.


Exhibit No.

*	10.44	Crum & Forster Holdings Corp. 2007 Long Term Incentive Plan

*	10.45	Fairfax Inc. and Crum & Forster Holdings Corp. Inter-Company Tax Allocation Agreement effective as of January 1, 2007

*	10.46	Amended and Restated Employment Agreement of Nikolas Antonopoulos effective as of June 1, 2007

*	10.47	Amended and Restated Employment Agreement of Mary Jane Robertson effective as of June 1, 2007

*	10.48	Amended and Restated Employment Agreement of Joseph Braunstein effective as of June 1, 2007

*	31.1	Certification of President and Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

*	31.2	Certification of Executive Vice President, Chief Financial Officer and Treasurer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

*	32.1	Certification of President and Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

*	32.2	Certification of Executive Vice President, Chief Financial Officer and Treasurer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

	99.1	Risk Factors (incorporated into Part II of this Form 10-Q by reference to the section entitled “Risk Factors” in the Company’s Prospectus filed with the SEC pursuant to rule 424(b)(3) on July 13, 2007).

*	31.1	Certification of President and Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
*	31.2	Certification of Executive Vice President, Chief Financial Officer and Treasurer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
*	32.1	Certification of President and Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
*	32.2	Certification of Executive Vice President, Chief Financial Officer and Treasurer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
	99.1	Risk Factors (incorporated into Part II of this Form 10-Q by reference to the section entitled “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2005 filed with the Securities and Exchange Commission on March 22, 2006).


*		Filed herewith

3236

Filing Compare · CRUM & FORSTER HOLDINGS CORP