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

Washington, D.C. 20549

Form 10-Q

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


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

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

orFor the Quarterly Period Ended: March 31, 2009 Commission File Number: 333-84068

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

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		(I.R.S. Employer Identification Number)
Incorporation or Organization)


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

305 Madison Avenue, Morristown, New Jersey 07962 (Address of principal executive office)

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

~~Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by~~ ~~Section 13 or 15~~ (d)Registrant’s oftelephone ~~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)~~number, ~~and~~including ~~(2) has~~area ~~been~~code) ~~subject to the filing requirements for the past 90 days. Yes þ No o~~

Indicate by check mark whether the registrant: is(1) has filed aall ~~large~~reports ~~accelerated~~required ~~filer,~~to anbe ~~accelerated~~filed ~~filer,~~ by Section 13 or 15(d) aof ~~non-accelerated~~the ~~filer.~~Securities ~~See~~Exchange ~~definition~~Act of ~~“accelerated~~1934 ~~filer~~during ~~and~~the preceding ~~large~~12 months ~~accelerated~~(or ~~filer”~~for insuch shorter period that the ~~Rule 12b-~~ registrant was required to file such reports), and (2) has been ofsubject to the ~~Exchange~~filing ~~Act~~requirements for the past 90 days. Yes o No þ

~~Large~~ Indicate ~~accelerated~~by ~~filer~~check omark ~~Accelerated~~whether ~~filer~~the oregistrant ~~Non~~has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-~~accelerated~~T ~~filer~~(§232-405 þof this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):


Large accelerated filer o		Accelerated filer o
Non-accelerated filer þ (Do not check if a smaller reporting company)		Smaller reporting company o

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 ~~November~~April 130, ~~2007~~2009
Common Stock, $.01 Par Value		~~100~~	100

CRUM & FORSTER HOLDINGS CORP.

Form 10-Q

Index

	~~Page~~	Page
	~~Number~~	Number
PART I 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, 2009 (Unaudited) and December 31, 2008		3
Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2007 and 2006	4
	Consolidated Statements of Operations for the Three Months Ended March 31, 2009 and 2008 (Unaudited)		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, 2009 and 2008 (Unaudited)		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, 2009 and 2008 (Unaudited)		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, 2009 and 2008 (Unaudited)		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		24
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	32
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		38
ITEM 4. CONTROLS AND PROCEDURES	33
ITEM 4T.	CONTROLS AND PROCEDURES		40
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS	34
ITEM 1.	LEGAL PROCEEDINGS		41
ITEM 6. EXHIBITS	34
ITEM 6.	EXHIBITS		41
~~SIGNATURES~~	35SIGNATURES		42
~~INDEX TO EXHIBITS~~	36INDEX TO EXHIBITS		43

PART I
FINANCIAL INFORMATION


ITEM 1.	FINANCIAL STATEMENTS

CRUM & FORSTER HOLDINGS CORP.

CONSOLIDATED BALANCE SHEETS

UNAUDITED

(Dollars in thousands, except per share amounts)

	September 30,			December 31,
	2007			2006
ASSETS
Investments:
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 $646,822 and $640,880 in 2007 and 2006, respectively)		698,321			667,718
Other invested assets		480,914			357,849
Hybrid financial instruments, at fair value		134,770			—
Short-term investments at cost, which approximates fair value		63,524			14,130
Total investments		3,103,909			3,023,939
Cash and cash equivalents		326,742			366,743
Assets pledged for short-sale obligations		871,016			535,594
Accrued investment income		18,227			34,581
Premiums receivable		228,852			249,913
Reinsurance recoverable		1,366,691			1,479,331
Reinsurance recoverable from affiliates		240,767			254,595
Prepaid reinsurance premiums		22,248			25,430
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	$	3,275,814		$	3,371,549
Unearned premiums		539,630			576,182
Funds held under reinsurance contracts		249,451			243,316
Accounts payable and other liabilities		234,871			298,101
Deferred income on retroactive insurance		157,199			168,018
Short-sale obligations		654,207			400,163
Long-term debt		312,870			293,170
Total liabilities		5,424,042			5,350,499
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 loss, net of tax		(4,059	)		(36,978	)
Retained earnings		372,220			389,040
Total shareholder’s equity		1,109,154			1,093,055
Total liabilities and shareholder’s equity	$	6,533,196		$	6,443,554

(Unaudited)


	March 31,			December 31,
	2009			2008
ASSETS
Investments:
Fixed income securities, available-for-sale, at fair value (amortized cost of $1,402,958 and $1,466,114 in 2009 and 2008, respectively)	$	1,515,997		$	1,533,334
Fixed income securities, held-for-trading, at fair value		300,084			233,998
Equity securities, at fair value (cost of $1,231,087 and $1,106,098 in 2009 and 2008, respectively)		987,660			1,020,154
Investments at equity		107,460			117,586
Derivatives and other invested assets, at fair value		264,222			412,747
Short-term investments, at fair value		56,798			549,937

Total investments		3,232,221			3,867,756
Cash and cash equivalents		306,158			159,862
Assets pledged for derivatives		—			4,416
Accrued investment income		35,836			29,378
Premiums receivable		174,360			182,158
Reinsurance recoverable		741,570			759,028
Reinsurance recoverable from affiliates		205,658			209,189
Prepaid reinsurance premiums		30,156			28,995
Deferred income taxes		340,700			239,077
Deferred policy acquisition costs		48,806			52,705
Other assets		66,892			66,316

Total assets	$	5,182,357		$	5,598,880


LIABILITIES
Unpaid losses and loss adjustment expenses	$	2,871,026		$	2,987,803
Unearned premiums		340,363			366,362
Funds held under reinsurance contracts		231,874			228,835
Accounts payable and other liabilities		252,394			417,669
Deferred income on retroactive reinsurance		117,556			121,277
Long-term debt		310,889			310,502

Total liabilities		4,124,102			4,432,448

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 loss, net of tax		(84,685	)		(7,455	)
Retained earnings		401,947			432,894

Total shareholder’s equity		1,058,255			1,166,432

Total liabilities and shareholder’s equity	$	5,182,357		$	5,598,880

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

CRUM & FORSTER HOLDINGS CORP.

CONSOLIDATED STATEMENTS OF ~~INCOME~~OPERATIONS

UNAUDITED

(Dollars in thousands)

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2007		2006		2007		2006
REVENUES
Premiums earned	$	293,375	$	279,631	$	893,903	$	791,178
Investment income		34,296		21,096		109,226		170,375
Realized investment gains		70,220		45,501		73,627		177,039
Total revenues		397,891		346,228		1,076,756		1,138,592
EXPENSES
Losses and loss adjustment expenses		192,468		190,457		587,618		541,150
Policy acquisition costs		45,629		42,139		131,311		110,918
Other underwriting expenses		40,928		39,874		122,428		120,496
Interest expense		6,971		8,250		22,835		24,734
Costs related to early retirement of debt		—		—		21,188		—
Other expense, net		1,149		1,815		960		6,059
Total expenses		287,145		282,535		886,340		803,357
Income before income taxes and equity in earnings of investees		110,746		63,693		190,416		335,235
Income tax expense		37,940		21,674		64,147		115,139
Income before equity in earnings of investees		72,806		42,019		126,269		220,096
Equity in earnings of investees, net of tax		10,051		3,846		18,146		9,915
NET INCOME	$	82,857	$	45,865	$	144,415	$	230,011

(Unaudited)


	Three Months Ended
	March 31,
	2009			2008

REVENUES
Premiums earned	$	207,430		$	271,810
Investment income		35,270			15,841
Realized investment (losses) gains		(91,071	)		155,268

Total revenues		151,629			442,919

EXPENSES
Losses and loss adjustment expenses		135,850			209,610
Policy acquisition costs		29,555			38,449
Other underwriting expenses		37,882			42,608
Interest expense		6,939			7,020
Other expense		797			2,142

Total expenses		211,023			299,829

(Loss) income before income taxes and equity in earnings of investees		(59,394	)		143,090
Income tax (benefit) expense		(28,367	)		49,226

(Loss) income before equity in earnings of investees		(31,027	)		93,864
Equity in earnings (losses) of investees, net of tax		80			(463	)

NET (LOSS) INCOME	$	(30,947	)	$	93,401

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)

	Nine Months Ended
	September 30,
	2007			2006
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 (LOSS), NET OF TAX
Balance, beginning of period		(36,978	)		53,443
Cumulative effect of adoption of Statement of Financial Accounting Standards No. 155		(10,146	)		—
Unrealized investment gains (losses), net of transfers to realized investment gains and losses		24,856			(87,839	)
Foreign currency translation		18,209			4,666
Balance, end of period		(4,059	)		(29,730	)
RETAINED EARNINGS
Balance, beginning of period		389,040			166,757
Cumulative effect of adoption of Statement of Financial Accounting Standards No. 155 and equity method investee adoption of FASB Interpretation No. 48		9,465			—
Net income		144,415			230,011
Dividends to shareholder		(170,700	)		(90,000	)
Balance, end of period		372,220			306,768
TOTAL SHAREHOLDER’S EQUITY	$	1,109,154		$	1,018,031

(Unaudited)


	Three Months Ended
	March 31,
	2009			2008

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 (LOSS) INCOME, NET OF TAX
Balance, beginning of period		(7,455	)		44,479
Cumulative effect of adoption of Statements of Financial Accounting Standards Nos. 157 and 159		—			(29,897	)

Balance, beginning of period, after cumulative effect of adjustments		(7,455	)		14,582
Unrealized investment losses, net of transfers to realized investment gains and losses		(77,310	)		(8,917	)
Foreign currency translation		137			205
Amortization of actuarial gain and transition obligation included in net periodic benefit costs		(57	)		76

Balance, end of period		(84,685	)		5,946

RETAINED EARNINGS
Balance, beginning of period		432,894			507,987
Cumulative effect of adoption of Statements of Financial Accounting Standards Nos. 157 and 159		—			86,101

Balance, beginning of period, after cumulative effect of adjustments		432,894			594,088
Net (loss) income		(30,947	)		93,401
Dividends to shareholder		—			(80,000	)

Balance, end of period		401,947			607,489

TOTAL SHAREHOLDER’S EQUITY	$	1,058,255		$	1,354,428

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

CRUM & FORSTER HOLDINGS CORP.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

UNAUDITED

(Dollars in thousands)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2007			2006			2007			2006
NET INCOME	$	82,857		$	45,865		$	144,415		$	230,011
Change in components of other comprehensive income (loss) 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	)
Foreign currency translation		12,717			(622	)		28,014			7,178
Other comprehensive income (loss) for the period, before tax		88,024			106,392			66,224			(127,958	)
Deferred income tax (expense) benefit 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 (expense) benefit from foreign currency translation		(4,451	)		218			(9,805	)		(2,512	)
Total deferred income tax (expense) benefit for the period		(30,789	)		(37,237	)		(23,159	)		44,785
Other comprehensive income (loss) for the period, net of tax		57,235			69,155			43,065			(83,173	)
COMPREHENSIVE INCOME	$	140,092		$	115,020		$	187,480		$	146,838

(Unaudited)


	Three Months Ended
	March 31,
	2009			2008

NET (LOSS) INCOME	$	(30,947	)	$	93,401

Change in components of other comprehensive loss for the period, before tax:
Unrealized investment losses, net of transfers to realized investment gains and losses		(118,938	)		(13,718	)
Foreign currency translation		211			315
Amortization of actuarial gain and transition obligation included in net periodic benefit costs		(87	)		118

Other comprehensive loss for the period, before tax		(118,814	)		(13,285	)

Deferred income tax benefit for the period:
Deferred income tax benefit from unrealized investment losses		41,628			4,801
Deferred income tax expense from foreign currency translation		(74	)		(110	)
Deferred income tax benefit (expense) from amortization of actuarial gain and transition obligation included in net periodic benefit costs		30			(42	)

Total deferred income tax benefit for the period		41,584			4,649

Other comprehensive loss for the period, net of tax		(77,230	)		(8,636	)

COMPREHENSIVE (LOSS) INCOME	$	(108,177	)	$	84,765

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)

	Nine Months Ended
	September 30,
	2007			2006
OPERATING ACTIVITIES
Net income	$	144,415		$	230,011
Adjustments to reconcile net income to net cash from operating activities:
Net accretion of discount on fixed income securities		(7,136	)		(7,731	)
Realized investment gains		(73,627	)		(177,039	)
Earnings of equity method investees, net of dividends		(23,995	)		(11,414	)
Earnings of investment companies and similar equity method investees		(9,177	)		(81,036	)
Depreciation and amortization		2,382			2,409
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:
Accrued investment income		16,354			20,136
Premiums receivable		21,811			(1,479	)
Reinsurance recoverable		114,050			204,985
Prepaid reinsurance premiums		3,182			3,946
Deferred policy acquisition costs		3,346			(14,887	)
Other assets		207			5,496
Unpaid losses and loss adjustment expenses		(95,735	)		(161,766	)
Unearned premiums		(36,552	)		91,734
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		(149,314	)		(153,087	)
Proceeds from sales of fixed income securities		209,153			393,088
Proceeds from maturities of fixed income securities		2,025			60,005
Purchases of equity securities		(202,957	)		(309,577	)
Proceeds from sales of equity securities		203,094			332,973
Purchases of other invested assets		(25,862	)		(26,037	)
Proceeds from sales of other invested assets		62,155			143,314
Proceeds from sales of hybrid financial instruments		2,259			—
Purchases of short term investments		(138,282	)		—
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
Dividends to shareholder		(128,818	)		(90,000	)
Issuance of 7 3/4% long-term debt		330,000			—
Repayment of 10 3/8% long-term debt		(295,730	)		—
New debt issuance costs		(23,912	)		—
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 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		$	—

(Unaudited)


	Three Months Ended
	March 31,
	2009			2008

OPERATING ACTIVITIES
Net (loss) income	$	(30,947	)	$	93,401
Adjustments to reconcile net income to net cash from operating activities:
(Accretion of discount) amortization of premium on fixed income securities		(2,491	)		436
Realized investment losses (gains)		91,071			(155,268	)
Losses of equity method investees, net of dividends		—			831
(Earnings) losses of investment companies and similar equity method investees		(804	)		13,680
Depreciation and amortization		1,546			864
Deferred income tax (benefit) expense		(60,037	)		4,727
Other non-cash net income adjustments		2,429			3,881
Changes in:
Accrued investment income		(7,319	)		14,887
Premiums receivable		7,423			415
Reinsurance recoverable		18,253			42,741
Prepaid reinsurance premiums		(1,161	)		(1,977	)
Deferred policy acquisition costs		3,899			3,392
Other assets		1,716			17,344
Unpaid losses and loss adjustment expenses		(116,777	)		(5,633	)
Unearned premiums		(25,999	)		(25,180	)
Accounts payable and other liabilities		(88,041	)		15,879

Net cash (used in) provided by operating activities		(207,239	)		24,420

INVESTING ACTIVITIES
Purchases of fixed income securities, available-for-sale		(182,481	)		(98,597	)
Proceeds from sales of fixed income securities, available-for-sale		151,463			194,093
Proceeds from maturities of fixed income securities, available-for-sale		48,300			550
Purchases of fixed income securities, held-for-trading		(89,731	)		—
Proceeds from sales of fixed income securities, held-for-trading		15,873			—
Purchases of equity securities		(212,687	)		(82,326	)
Proceeds from sales of equity securities		38,288			—
Net sales (purchases) of investments at equity		5,458			(40	)
Purchases of derivatives and other invested assets		(799	)		(4,548	)
Proceeds from sales of derivatives and other invested assets		106,262			139,127
Purchases of short-term investments		(104,167	)		(435,285	)
Proceeds from sales of short-term investments		574,172			352,422
Net change in obligation to return short-sale obligations		—			(1,611	)
Net change in cash and cash equivalents held as collateral		4,416			14,143
Net settlement of futures contracts		(343	)		—
Purchases of fixed assets		(489	)		(363	)

Net cash provided by investing activities		353,535			77,565

FINANCING ACTIVITIES
Dividends to shareholder		—			(80,000	)

Net cash used in financing activities		—			(80,000	)

Net change in cash and cash equivalents		146,296			21,985
Cash and cash equivalents, beginning of period		159,862			147,506

Cash and cash equivalents, end of period	$	306,158		$	169,491

SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest	$	—		$	—

Cash paid to parent for income taxes	$	108,785		$	12,557

SUPPLEMENTAL NON-CASH OPERATING AND INVESTING ACTIVITIES
Fixed income securities transferred to parent as payment for income taxes	$	54,008		$	—

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(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 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 and its wholly-owned subsidiaries, including United States Fire Insurance Company (“US Fire”), The North River Insurance Company (“North River”), Crum & Forster Indemnity Company (“CF Indemnity”) and Crum and Forster Insurance Company (“CF Insurance”). 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, 2008 filed with the Securities and Exchange Commission (“SEC”) on February 27, 2009.

The interim financial data at March 31, 2009 and for the three months ended March 31, 2009 and 2008 is unaudited. However, in the opinion of management, the interim data includes all adjustments, consisting of normal recurring items that are necessary for a fair presentation of the Company’s results for the interim periods. Certain amounts from prior periods have been reclassified to conform to the current year’s presentation. The results of operations for the interim periods are not necessarily indicative of the results to be expected for the full year.


2.	Recent Accounting Pronouncements

In April 2009, the Financial Accounting Standards Board (“FASB”) issued three Financial Staff Positions (“FSP’s) that are intended to provide additional guidance for interim fair value disclosures, fair value measurements and other than temporary impairment charges as follows:

(i) FSP FAS 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability have Significantly Decreased and Identifying Transactions That Are Not Orderly, which provides additional guidance on estimating the fair value of an asset or liability when the volume and level of activity for the asset or liability have significantly decreased and on identifying transactions that are not orderly.

(ii) FSP FAS 115-2 and FAS 124-2, Recognition and Presentation of Other Than Temporary Impairments, which amends the other than temporary impairment guidance in U.S. GAAP for debt securities to make the guidance more operational and to improve the presentation and disclosure of other than temporary impairments on debt and equity securities in the financial statements. This FSP does not amend existing recognition and measurement guidance related to other than temporary impairments for equity securities. The FSP is intended to bring greater consistency to the timing of impairment recognition, and provide greater clarity to investors about the credit and non-credit components of impaired debt securities that are not expected to be sold.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(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.

(iii) FSP FAS 107-1 and APB 28-1, Interim disclosures about Fair Value Measurement, which amends FASB Statement No. 107, Disclosures about Fair Value of Financial Instruments, and Accounting Principles Board (“APB”) Opinion No. 28, Interim Financial Reporting, to require disclosures about the fair value of financial instruments for interim reporting periods. The FSP also requires companies to disclose the methods and significant assumptions used to estimate the fair value of financial instruments in financial statements on an interim basis and to describe changes in methods and significant assumptions, if any, during the period.

All three FSP’s are effective for interim and annual reporting periods ending after June 15, 2009, with earlier adoption permitted after March 15, 2009. However, FSP FAS 157-4 and FSP FAS 115-2 and FAS 124-2 must be adopted concurrently. The Company plans to adopt these three FSP’s in the second quarter of 2009 and is currently evaluating the impact of adoption of FSP FAS 157-4 and FSP FAS 115-2 and FAS 124-2 on its results of operations and financial position. Adoption of FSP FAS 107-1 and APB 28-1 will not affect the Company’s financial position or results of operations since it requires only additional disclosures about fair values of financial instruments.

SFAS No. 161. In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities — an Amendment of FASB Statement No. 133 (“SFAS 161”), which is intended to improve financial reporting about derivative instruments and hedging activities by requiring enhanced disclosures about: (a) how and why an entity uses derivative instruments; (b) how derivative instruments and related hedged items are accounted for under FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities, and its related interpretations; and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance and cash flows. SFAS 161 is effective for fiscal years and interim periods beginning after November 15, 2008. The Company adopted SFAS 161 effective January 1, 2009, which did not affect the Company’s financial position or results of operations and did not result in any material changes to its disclosures of derivative securities and hedging activities.


3.	Investments

The aggregate carrying value of the Company’s investment portfolio was $3,538,379 and $4,032,034 at March 31, 2009 and December 31, 2008, respectively, and is comprised of available-for-sale securities, held-for-trading securities, investments at equity, derivatives and other invested assets, short-term investments, cash and cash equivalents and assets pledged for derivatives.

Available-For-Sale Securities

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


	At March 31, 2009
	Cost or		Gross		Gross
	Amortized		Unrealized		Unrealized
	Cost		Gains		Losses		Fair Value

Fixed income securities:
United States government and government agencies and authorities	$	81,479	$	21,309	$	—	$	102,788
States, municipalities and political subdivisions		1,143,013		90,424		4,531		1,228,906
Other corporate		178,466		7,452		1,615		184,303

Total fixed income securities		1,402,958		119,185		6,146		1,515,997
Equity securities — common stocks		1,231,087		12,127		255,554		987,660

Total available-for-sale securities	$	2,634,045	$	131,312	$	261,700	$	2,503,657

Included in equity securities at March 31, 2009 is a $137,749 investment in Johnson & Johnson common stock, which represents 13.0% of shareholder’s equity at that date.

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

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


	At December 31, 2008
	Cost or		Gross		Gross
	Amortized		Unrealized		Unrealized
	Cost		Gains		Losses		Fair Value

Fixed income securities:
United States government and government agencies and authorities	$	136,551	$	32,879	$	—	$	169,430
States, municipalities and political subdivisions		1,279,232		54,230		17,997		1,315,465
Other corporate		50,331		2,603		4,495		48,439

Total fixed income securities		1,466,114		89,712		22,492		1,533,334
Equity securities — common stocks		1,106,098		29,422		115,366		1,020,154

Total available-for-sale securities	$	2,572,212	$	119,134	$	137,858	$	2,553,488

	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

Included in equity securities at December 31, 2008 is a $156,642 investment in Johnson & Johnson common stock, which represents 13.4% of shareholder’s equity at that date.

A The ~~reconciliation~~global financial crisis has increased the volatility of most investments. As a result, the ~~ceded~~market ~~unpaid~~values ~~losses~~of these investments may vary dramatically either up or down in short periods, and their ~~LAE~~ultimate value will therefore only be known over the long term. Certain individual available-for-sale securities had gross unrealized losses at March 31, 2009 totaling $261,700, which represented 21.2% of the cost or amortized cost of such securities in the aggregate. The following table ~~above~~summarizes, tofor ~~the~~those ~~reinsurance~~securities ~~recoverable~~in ~~reflected~~an unrealized onloss position, the ~~consolidated~~fair ~~balance~~value ~~sheet~~and ~~follows:~~gross unrealized loss by length of time those securities have been in an unrealized loss position at March 31, 2009 and December 31, 2008.

	September 30,
	March 31, 2009							December 31, 2008
	2007
	Fair			Unrealized		Number of				Unrealized		Number of
Ceded unpaid losses and LAE in the table above	$	1,259,789
	Value			Loss		Securities		Fair Value		Loss		Securities
Reconciling items:
Fixed income securities:
Reinsurance receivable on paid losses and LAE		50,748
Investment grade:
Unamortized retroactive reinsurance recoverable		318,431
6 months or less	$	100,628		$	2,455		9	$	385,140	$	16,865		27
Loss sensitive cession1		(21,510	)
7 – 12 months		54,699			1,985		7		15,462		1,132		3
Total reconciling items		347,669
Greater than 12 months		471			91		1		—		—		—
Reinsurance recoverable on the consolidated balance sheet	$	1,607,458
Total investment grade		155,798			4,531		17		400,602		17,997		30
Non-investment grade:
6 months or less		16,234			1,615		2		36,100		4,495		1
Total fixed income securities		172,032			6,146		19		436,702		22,492		31
Equity securities:
6 months or less		678,038			156,705		23		519,602		115,366		14
7 – 12 months		123,646			98,849		3		—		—		—
Total equity securities		801,684			255,554		26		519,602		115,366		14
Total securities in an unrealized loss positions	$	973,716		$	261,700		45	$	956,304	$	137,858		45

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)

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:

The majority of the gross unrealized losses of $6,146 in the fixed income portfolio at March 31, 2009 are attributable to investment grade municipal bonds, over 90% of which are fully insured by Berkshire Hathaway Assurance Corp. for the payment of interest and principal in the event of issuer default. The Company has the ability and intent to hold these securities for a period of time sufficient to allow a market recovery, or to maturity if necessary. Of the 19 fixed income securities in a loss position at March 31, 2009, two had a loss that exceeded 10% of their cost. No fixed income security had a loss that exceeded 20% of its cost. The aggregate severity of the total unrealized losses in the fixed income portfolio at March 31, 2009 was approximately 3.4% of their amortized cost.

	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 following table summarizes the fair values and gross unrealized losses of equity securities categorized first by length of time those equity securities have been in an unrealized loss position and then further categorized by the severity of the unrealized loss position at March 31, 2009.

	Three Months Ended					Nine Months Ended
	Unrealized Loss as a Percentage of Cost
	September 30,					September 30,
																Gross
	2007			2006		2007		2006
	Fair															Unrealized
Environmental
	Value			0-10%		11-20%		21-30%		31-40%		41-50%		>50%		Losses
Gross unpaid losses and ALAE, beginning of period	$	96,813		$	105,743	$	110,636	$	111,536
6 months or less	$	678,038		$	1,553	$	70,453	$	42,390	$	25,127	$	17,106	$	76	$	156,705
Less ceded unpaid losses and ALAE		32,250			35,491		37,103		37,293
7 – 12 months		123,646			—		—		2,460		—		96,389		—		98,849
Net unpaid losses and ALAE, beginning of period		64,563			70,252		73,533		74,243
Total equity securities fair value and gross unrealized losses	$	801,684		$	1,553	$	70,453	$	44,850	$	25,127	$	113,495	$	76	$	255,554
Net losses and ALAE incurred		—			—		—		—
Number of securities					4		9		7		2		3		1		26
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

The ~~Company~~aggregate ~~also~~severity ~~maintains~~of ~~reserves~~the ~~for~~total ~~other~~unrealized ~~latent~~losses ~~exposures~~in ~~such~~the equity asportfolio ~~those~~at ~~associated~~March 31, ~~with~~2009 ~~silica~~was approximately 24.2% of their cost, ~~gas~~including ~~and~~two ~~vapors~~securities with aggregate losses totaling $96,389, ~~lead~~or 45.6% of their cost, ~~mold~~that have been in an unrealized loss position for slightly over six consecutive months. With respect to these two securities, ~~chemical~~although the severity of their unrealized losses is significant, ~~welding~~management has ~~fumes~~evaluated the financial condition and ~~pesticides~~near-term prospects of the ~~$18,524~~issuers and ~~$21,758,~~the ~~net~~price volatility of ~~reinsurance,~~the asequity ofsecurities themselves ~~September~~and ~~30,~~believes ~~2007~~they have the potential for recovery within a reasonable period of time and ~~December~~therefore ~~31,~~does ~~2006,~~not consider ~~respectively~~them to be other than temporarily impaired.

At each reporting date, and more frequently when conditions warrant, management evaluates all available-for-sale securities with unrealized losses to determine whether those losses are other than temporary and should be recognized in earnings rather than in accumulated other comprehensive income (loss). If management’s assessment indicates that the impairment in value is other than temporary, or the Company does not have the intent or ability to hold the security until its fair value recovers, the security is written down to its fair value at the balance sheet date and a loss is recognized in net realized investment gains (losses) on the consolidated statements of operations. Management reviewed currently available information regarding all securities where the estimated fair value was less than cost or amortized cost at March 31, 2009 and based thereon, recorded other than temporary impairment charges of $54,401 in the first quarter of 2009. The remaining 45 securities, after write-downs, were not considered to be other than temporarily impaired.

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

5. Fixed Income ~~Reinsurance~~Securities ~~The~~Designated ~~components of the Company’s net premiums written and premiums earned are summarized~~ as ~~follows:~~ Held-for-Trading

	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

Fixed income securities classified as held-for-trading include those purchased for short-term investment objectives and those designated as such by management pursuant to the fair value option under SFAS No. 155, Accounting for Certain Hybrid Financial Instruments — an Amendment of FASB Statements Nos. 133 and 140 (“SFAS 155”). These securities, which are recorded at fair value on the consolidated balance sheets, include convertible securities with embedded derivatives, mortgage-backed securities purchased at deep discounts to par and certain corporate fixed income securities. Changes in fair value of held-for-trading securities are recognized as realized investment gains and losses in the consolidated statements of operations in the period in which they occur and amounted to a (loss) gain of $(13,924) and $1,197 for the three months ended March 31, 2009 and 2008, respectively. The fair values of these securities were $300,084 and $233,998 at March 31, 2009 and December 31, 2008, respectively, which include convertible securities of $165,380 and $166,131 at March 31, 2009 and December 31, 2008, respectively, and mortgage-backed securities of $117,349 and $66,393 at March 31, 2009 and December 31, 2008, respectively.

~~The~~ Included ~~components~~in held-for-trading securities are two convertible securities issued by Level 3 Communications, Inc (“Level 3”) with a combined value of ~~the~~$132,072 ~~Company~~which together with an investment in Level 3 common stock of $22,438, represented 14.6% of shareholder’s ~~total~~equity ~~reinsurance~~at ~~recoverable~~March 31, ~~are~~2009 ~~summarized~~(12.8% asat December 31, ~~follows:~~2008).

	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

Investments at Equity

~~The~~ Investments ~~reinsurance~~at ~~recoverable~~equity ~~balances~~include ~~above~~investments ~~are~~in ~~net~~entities ofthat ~~reserves~~are consolidated ~~for~~subsidiaries ~~uncollectible reinsurance~~ of ~~$48~~Fairfax,~~253~~ ~~and~~but ~~$42,777 at September 30, 2007 and December 31, 2006, respectively. Corporate Aggregate Reinsurance Crum & Forster’s underwriting results~~ are ~~significantly~~less ~~affected~~than 50% owned by ~~reinsurance.~~the ~~The~~ Company, ~~currently~~as ~~purchases,~~well oras ~~has~~investments in ~~the past purchased~~certain partnerships, ~~reinsurance~~accounted ~~to limit its exposure to loss from any one claim or occurrence (“per risk or per occurrence reinsurance”), from aggregate loss experience~~ for anunder ~~accident year that exceeds an amount~~ the ~~Company~~equity ismethod ~~willing~~of accounting. toThese ~~accept~~investments ~~and~~consist ~~from adverse development~~ of ~~prior~~equity ~~years’~~interests ~~loss and LAE reserves (the latter two types~~ of between ~~reinsurance~~approximately ~~are referred to herein as “corporate aggregate reinsurance”, as distinct from the aforementioned “per risk or per occurrence reinsurance”)~~1.0% ~~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~~47.0% Inat ~~general~~March 31, ~~contracts covering past insurable events~~2009, with 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~~total ofcarrying ~~premiums~~value ~~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~~$107,460 ~~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~~$117,586 ~~generally many years~~at March 31, ~~using~~2009 ~~the interest method. Under both prospective~~ and ~~retroactive contracts~~December 31, ~~funds held interest~~2008, ~~if applicable, is recognized as a reduction of investment income in the period in which the interest is credited to the funds held account~~respectively.

Derivatives and Other Invested Assets

Derivative Securities

The Company utilizes derivative securities to mitigate financial risks arising principally from its investment holdings and receivables. Derivatives, including credit default swaps and warrants, that are not specifically designated or do not meet the requirements for hedge accounting, are carried at fair value on the consolidated balance sheets with changes in fair value recorded in realized investment gains or losses on the consolidated statements of operations.

Effective January 1, 2009, the Company adopted SFAS 161, which requires enhanced disclosures about derivatives and hedging activities. The Company’s derivative securities are principally comprised of credit default swaps, none of which are designated as hedging activities, and are included in derivatives and other invested assets on the consolidated balance sheets at fair value. Changes in fair value of derivative securities are included in realized investment gains and losses on the consolidated statements of operations in the period in which they occur. The following table summarizes the Company’s derivative securities at March 31, 2009 and December 31, 2008.


	March 31, 2009						December 31, 2008
	Notional				Fair Value		Notional				Fair Value
	Amount		Cost		Asset		Amount		Cost		Asset

Credit default swaps	$	1,464,427	$	21,624	$	61,366	$	3,044,313	$	42,477	$	138,830
Eurodollar futures contracts		—		—		—		1,013,000		—		—	¹
Warrants		101,201		10,225		1		101,201		10,225		—


¹		Eurodollar futures contracts are settled daily and therefore had no fair value at December 31, 2008.

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

~~The~~ Credit Default 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 component):Swaps

	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	)

The Company has purchased credit default swaps, referenced to various issuers in the banking, mortgage and insurance sectors of the financial services industry. The credit default swaps serve as economic hedges against declines in the fair value of the Company’s financial assets. These credit default swaps were acquired by Fairfax and assigned to the Company to facilitate administration of counterparty credit risk and collateral maintenance. The credit default swaps are recorded at fair value with changes in fair value recorded as realized investment gains or losses in the period in which they occur. The Company obtains market-derived fair values for its credit default swaps from third-party providers, principally broker-dealers. In addition, the Company assesses the reasonableness of the fair values obtained from these providers by comparing the fair values to values produced using individual issuer credit default swap yield curves, by referencing them to movements in credit spreads and by comparing them to recent market transaction prices for similar credit default swaps where available. The fair values of credit default swaps are subject to significant volatility arising from the potential differences in the perceived risk of default of the underlying issuers, movements in credit spreads and the length of time to the contracts’ maturity. The fair value of the credit default swaps may vary materially either up or down in short periods, and their ultimate value may therefore only be known upon their disposition. Counterparties to the credit default swaps expose the Company to credit risk in the event of non-performance, which Fairfax and the Company endeavor to limit through the terms of agreements negotiated with the counterparties. Pursuant to the swap agreements, the counterparties are required to pledge cash or U.S. Treasury securities as collateral, in the event that appreciation in the fair value of the credit default swaps meets certain thresholds. The fair value of this collateral, which is not reflected on the Company’s balance sheet, is held by an independent custodian in the name of Fairfax on behalf of the Company, or directly in the name of the Company, and amounted to $37,035 at March 31, 2009. The Company has the right to sell or repledge $18,172 of this collateral, which it has not exercised. The Company believes that any remaining credit risk exposure, represented by the uncollateralized fair value of the credit default swaps ($24,331 at March 31, 2009), is low given the diversification among the various counterparties.

At The ~~September 30~~cost, ~~2007,~~notional ~~reinsurance~~amount ~~recoverable~~and ~~includes~~fair ~~$398,621~~value ~~and~~of ~~$391,825~~the ~~related~~Company’s credit todefault ~~prospective~~swaps ~~and~~are ~~retroactive~~shown ~~corporate~~in ~~aggregate~~the ~~reinsurance~~preceding ~~contracts,~~table. ~~respectively,~~During the ofthree ~~which~~months ~~$493~~ended March 31,~~525~~ ~~has~~2009, ~~been~~the ~~recognized~~Company assold credit default swaps with a ~~reduction~~cost of ~~incurred~~$20,853 ~~losses~~ and ~~LAE~~notional onamount of ~~the~~$1,387,500 ~~Company’s~~for ~~consolidated~~proceeds ~~statements~~ of ~~income~~$109,660. ~~Prospective~~At ~~Corporate~~March 31, ~~Aggregate~~2009, the ~~Reinsurance~~credit Andefault ~~analysis~~swap portfolio had an average term to expiry of ~~activity~~3.0 years inand ~~prospective~~maturity ~~corporate~~dates ~~aggregate~~between ~~reinsurance~~one ~~contracts~~and ~~follows:~~five years.

	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	)

The following table summarizes the changes in fair value of the Company’s derivative securities and short positions included in net realized investment gains and losses in the consolidated statements of operations for the three months ended March 31, 2009 and 2008.

The above activity arises from one prospective contract. The reinsurance recoverable and funds held balances in respect of such contract were $31,121 and $28,612, respectively, at September 30, 2007 ($37,651 and $33,333, respectively, at December 31, 2006). Retroactive Corporate Aggregate Reinsurance An analysis of activity in retroactive corporate aggregate reinsurance contracts follows:


	Three Months Ended
	March 31,
	2009			2008

Credit default swaps	$	32,196		$	153,973
SPDRs short-sales		—			69,515
Common stock short-sales		—			4,861
S&P Index call options		—			(420	)
Other¹		(342	)		(1,230	)

Total realized investment gains	$	31,854		$	226,699

	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


	¹	Other includes warrants and Eurodollar futures contracts.

The above activity arises from two retroactive contracts. The reinsurance recoverable and funds held balances in respect of the first contract were $372,577 and $217,128, respectively, at September 30, 2007 ($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, 2007 and December 31, 2006 as the Company has reduced the funds held balance to offset the reinsurance recoverable balance pursuant to a commutation provision contained in the contract. 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, 2006, filed with the SEC on March 9, 2007.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(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:

Further analysis of the realized gains for the three months ended March 31, 2009 and 2008 is set forth in the tables below. The realized gains or losses on disposal represent inception to date gains or losses on positions closed in the periods.

	Three Months Ended						Nine Months Ended
	Three Months Ended March 31, 2009
	September 30,						September 30,
	Credit
	2007			2006			2007			2006
	Default			Other
Credit default swaps	$	73,510		$	(13,322	)	$	85,319		$	(18,010	)
	Swaps			Derivatives			Total
SPDRs sold short		(12,555	)		(17,013	)		(35,292	)		(24,115	)
Realized gains on disposal	$	88,807		$	(343	)	$	88,464
Common stocks sold short		12,085			589			12,936			14
Reversal of mark-to-market gains recognized in prior periods		(60,119	)		—			(60,119	)
S&P Index call options		3,453			1,880			5,612			(3,592	)
Mark-to-market gains recognized in 2009		3,508			1			3,509
Warrants and other derivatives		1,846			(323	)		(1,949	)		(732	)
Net realized investment gains	$	32,196		$	(342	)	$	31,854
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	)


	Three Months Ended March 31, 2008
						Common			S&P
	Credit					Stock			Index
	Default			SPDRs		Short-			Call			Other
	Swaps			Short-Sales		Sales			Options			Derivatives			Total

Realized gains (losses) on disposal	$	123,536		$	—	$	3,063		$	(1,387	)	$	—		$	125,212
Reversal of mark-to-market (gains) losses recognized in prior periods		(91,877	)		—		(400	)		1,387			—			(90,890	)
Mark-to-market gains (losses) recognized in 2008		122,314			69,515		2,198			(420	)		(1,230	)		192,377

Net realized investment gains (losses)	$	153,973		$	69,515	$	4,861		$	(420	)	$	(1,230	)	$	226,699

Other Invested Assets

Other invested assets are comprised of investments for which the Company has elected the fair value option under SFAS No. 159, The Fair Value Option for Financial Assets and Liabilities — Including an Amendment of FASB Statement No. 115 (“SFAS 159”). These investments, which include the Company’s investments in Odyssey Re Holdings Corp. (“Odyssey”) common and preferred stock and Advent Capital (Holdings) PLC (“Advent”), are recorded at fair value with changes in fair value recorded as realized investment gains or losses in the period in which they occur. At March 31, 2009 and December 31, 2008, other invested assets had a fair value of $202,855 and $273,917, respectively. For the three months ended March 31, 2009 and 2008, the change in fair value of other invested assets resulted in a realized investment loss of $71,062 and $41,084, respectively.

For the three months ended March 31, 2009, Odyssey was a significant subsidiary of the Company as defined in the SEC’s Regulation S-X. The Company’s aggregate share of Odyssey’s statement of operations which would have been reported in the Company’s results for the three months ended March 31, 2009, had Odyssey been accounted for under the equity method of accounting, is summarized as follows:


	Three Months Ended
	March 31, 2009

Total revenues	$	56,439
Total expenses	$	43,542
Income from continuing operations	$	12,897
Net income	$	8,840

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(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:

Related Party Transactions

	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

In March 2009, the Company sold several municipal securities with a fair market value of $97,112 to certain Fairfax affiliates, resulting in a pre-tax gain of $4,236. Also in March 2009, the Company transferred municipal securities with a fair market value of $54,008 to Fairfax Inc., as partial settlement of a tax liability, resulting in a pre-tax gain of $5,907.

		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.


4.	Fair Value Disclosures

Fair Value Hierarchy

In accordance with SFAS No. 157, “Fair Value Measurements” (“SFAS 157”), the Company has categorized its financial instruments into the three-level fair value hierarchy, based on priority of inputs to the valuation technique. 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 clarifies that fair value is the exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants and establishes a fair value hierarchy that prioritizes the inputs used in valuation techniques. The fair value hierarchy is designed to indicate the relative reliability of fair value measurement. The highest priority is given to quoted prices in active markets and the lowest to unobservable data. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level in the hierarchy within which the fair value measurement falls is determined based on the lowest level significant input. The hierarchy is broken down into three levels based on the reliability of inputs as follows:

Level 1 — Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities. A quoted price for an identical asset or liability in an active market provides the most reliable fair value measure and, whenever available, should be used to measure fair value, provided that (1) the market is the principal (or most advantageous) market and (2) the entity has the ability to access the principal (or most advantageous) market.

Level 2 — Valuations based on information (other than quoted prices included within Level 1) that is observable for the asset and liability, either directly or indirectly. This includes quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active and observable inputs other than quoted prices, such as interest rates and yield curves.

Level 3 — Valuations based on inputs that are unobservable and significant to the overall fair value measurement.

The Company is responsible for determining the fair value of its investment portfolio by utilizing quoted market prices in active markets for identical securities or other inputs, such as quoted market prices for similar securities that are observable, either directly or indirectly and by employing valuation techniques which make use of current market data. For determining the fair value of its Level 1 investments (approximately 37% of total investment portfolio at fair value), the Company utilizes quoted market prices. The Company’s Level 1 investments include exchange-traded equity securities in active markets.

The Company’s Level 2 investments (approximately 62% of total investment portfolio at fair value), the majority of which are in government, corporate and municipal securities, are priced using publicly traded over-the-counter prices and broker-dealer quotes. Also included in Level 2 investments are certain mortgage-backed securities, purchased at deep discounts to par, as well as credit default swaps that are priced principally using broker-dealer quotes and inactively traded convertible corporate debentures which are valued using a pricing model. All the values of the Company’s Level 2 investments are based on observable market inputs such as benchmark yields, reported trades, credit spreads, discount rates and bids. For determining the fair value of credit default swaps, the Company utilizes broker-dealer quotes which include observable credit spreads, with current market spreads being the primary observable input. In addition, the Company assesses the reasonableness of the fair values obtained from these providers by comparing the fair values to values produced using individual issuer credit default swap yield curves, by referencing them to movements in credit spreads and by comparing them to recent market transaction prices for similar credit default swaps where available. During the three months ended March 31, 2009, the Company transferred $47,611 of Level 3 investments to Level 2 investments, after determining that broker-dealer quotes would be used to determine the fair value of the instruments.

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.

The Company values its Level 3 investments, which are comprised of mortgage-backed securities purchased at deep discounts to par (approximately 1% of total investment portfolio at fair value), using an internal discounted cash flow model. The cash flow model incorporates actual cash flows on the mortgage-backed securities through the current period and projects the remaining cash flows from the underlying mortgages, using a number of assumptions and inputs that are based on the security-specific collateral. The Company assesses the reasonableness of the fair values of these securities by comparing to models validated by qualified personnel, by reference to movements in credit spreads and by comparing the fair values to recent transaction prices for similar assets where available.

The following tables present the Company’s investment assets (excluding cash and cash equivalents) measured at fair value on a recurring basis, within the fair value hierarchy, at March 31, 2009 and December 31, 2008:


	March 31, 2009
	Quoted Prices in		Significant Other		Significant
	Active Markets for		Observable		Unobservable
	Identical Assets		Inputs		Inputs
	(Level 1)		(Level 2)		(Level 3)		Total

Assets
Available-for-sale fixed income securities	$	—	$	1,515,997	$	—	$	1,515,997
Held-for-trading fixed income securities		—		270,390		29,694		300,084
Equity securities		957,384		30,276		—		987,660
Derivatives and other invested assets		193,159		71,063		—		264,222
Short-term investments		—		56,798		—		56,798

Total	$	1,150,543	$	1,944,524	$	29,694	$	3,124,761


	December 31, 2008
	Quoted Prices in		Significant Other		Significant
	Active Markets for		Observable		Unobservable
	Identical Assets		Inputs		Inputs
	(Level 1)		(Level 2)		(Level 3)		Total

Assets
Available-for-sale fixed income securities	$	—	$	1,533,334	$	—	$	1,533,334
Held-for-trading fixed income securities		—		167,605		66,393		233,998
Equity securities		998,582		21,572		—		1,020,154
Derivatives and other invested assets		262,310		164,064		—		426,374
Short-term investments		—		549,937		—		549,937

Total	$	1,260,892	$	2,436,512	$	66,393	$	3,763,797

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

~~10. Segment Reporting~~ The ~~Company~~following ~~operates~~table inprovides ~~the~~a ~~commercial~~summary ~~property~~of ~~and~~changes ~~casualty~~in ~~insurance~~fair ~~business.~~value of ~~Premiums~~Level 3 ~~earned~~financial assets for the ~~Company’s~~three ~~lines~~months ofended March 31, ~~business~~2009 ~~are~~and ~~summarized as follows~~2008:

	Three Months Ended					~~Nine Months Ended~~
	September 30,					September 30,
	March 31,
	2007			2006		2007		2006
	2009			2008
Workers’ compensation	$	64,076		$	72,163	$	197,218	$	212,034
Balance, beginning of period	$	66,393		$	2,500
General liability		55,944			59,238		177,570		171,515
Purchases, issuances and settlements		9,969			—
Commercial automobile		52,599			51,332		159,678		151,102
Transfers to Level 2		(47,611	)		—
Property		66,976			65,003		209,406		175,860
Realized gains included in net income		943			161
Commercial multi-peril		21,940			15,858		57,983		42,190
Balance, end of period	$	29,694		$	2,661
Other		31,840			16,037		92,048		38,477
Total gains for the period recognized in earnings attributable to the change in unrealized gains or losses relating to assets held at period end	$	727		$	161
Total premiums earned	$	293,375		$	279,631	$	893,903	$	791,178

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

	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	%

In accordance with the provisions of SFAS 159, the Company has elected the fair value option for certain investments that would have otherwise been accounted for under the equity method of accounting. SFAS 159 provides the option to measure many financial instruments and certain other items at fair value primarily on an instrument-by-instrument basis, that are not otherwise accounted for at fair value under other accounting standards. Changes in the fair value of assets and liabilities for which the election is made are recognized in net income as they occur.

In determining the eligible financial instruments for which to elect the fair value option, the Company considered all of its equity method investments. These investments are often carried at values that do not reflect current fair market value. The Company decided that the fair value option would be appropriate for equity method investments for which there is a publicly quoted market price. The Company ~~does~~concluded that the election would be inappropriate for those equity method investments that do not ~~allocate~~have ~~investment~~quoted ~~results~~market orprices ~~certain~~due ~~corporate~~to ~~expenses~~the degree of judgment that would be needed to measure their fair values and the additional accounting risk associated with those valuations. The Company has elected the fair value option for ~~purposes~~its investments in Advent, an affiliated company traded on the Alternative Investment Market of ~~evaluating~~the ~~financial~~London ~~performance~~Stock Exchange, and Odyssey, an affiliated company traded on the New York Stock Exchange, both of ~~each~~which ~~line~~would otherwise be subject to the equity method of accounting ~~business~~as they are subsidiaries of Fairfax. The Company’s investments in Odyssey include investments in Odyssey’s common and preferred stock.

At March 31, 2009 and December 31, 2008, the Company’s investment in Advent is recorded in derivatives and other invested assets on the consolidated balance sheets at a fair value of $9,697 and $11,607, respectively. For the three months ended March 31, 2009, the change in fair value of the Company’s investment in Advent was a loss of $1,910 which was recorded through realized investment gains and losses in the consolidated statements of operations.

At March 31, 2009 and December 31, 2008, the Company’s investments in Odyssey’s common and preferred stock are recorded in derivatives and other invested assets on the consolidated balance sheets at fair values of $187,944 and $5,214, and $256,570 and $5,740, respectively. For the three months ended March 31, 2009, the total change in fair value of the Company’s investments in Odyssey common and preferred stock was a loss of $69,152, which was recorded through realized investment gains and losses in the consolidated statements of operations. Dividends of $534 were recorded from Odyssey for the three months ended March 31, 2009 and have been recorded as investment income in the consolidated statements of operations.

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).


5.	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,
	2009			2008

Gross unpaid losses and LAE, beginning of period	$	2,987,803		$	3,178,506
Less ceded unpaid losses and LAE		684,239			1,197,496

Net unpaid losses and LAE, beginning of period		2,303,564			1,981,010

Losses and LAE incurred related to:
Current period		146,735			196,262
Prior years (favorable) adverse development		(10,885	)		13,348

Total losses and LAE incurred		135,850			209,610

Losses and LAE paid related to:
Current period		30,561			27,517
Prior years		208,064			130,037

Total losses and LAE paid		238,625			157,554

Net unpaid losses and LAE, end of period		2,200,789			2,033,066
Add ceded unpaid losses and LAE		670,237			1,139,807

Gross unpaid losses and LAE, end of period	$	2,871,026		$	3,172,873

Losses and LAE paid related to prior years in the three months ended March 31, 2009 as compared to 2008, are significantly higher primarily due to the second of three annual payments made of $18,300 associated with an asbestos lawsuit settlement in the first quarter of 2008 as well as net paid losses associated with the 2008 hurricanes, namely Hurricanes Gustav and Ike, of approximately $15,100, whereas 2008 net paid losses and LAE include net recoveries of approximately $18,100 related to the 2004 and 2005 hurricanes and commutation proceeds of $10,400 from a reinsurance treaty.

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, 2009

Ceded unpaid losses and LAE in the table above	$	670,237

Reconciling items:
Reinsurance recoverable on paid losses and LAE		15,587
Retroactive reinsurance recoverable		261,404

Total reconciling items		276,991

Reinsurance recoverable on the consolidated balance sheet	$	947,228

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


6.	Asbestos and Environmental Losses and Loss Adjustment Expenses

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


	Three Months Ended
	March 31,
	2009		2008

Asbestos
Gross unpaid losses and allocated LAE (“ALAE”), beginning of period	$	387,224	$	428,139
Less ceded unpaid losses and ALAE		85,336		94,497

Net unpaid losses and ALAE, beginning of period		301,888		333,642
Net losses and ALAE incurred		—		25,500
Net paid losses and ALAE		24,864		8,126

Net unpaid losses and ALAE, end of period		277,024		351,016
Add ceded unpaid losses and ALAE		95,432		83,178

Gross unpaid losses and ALAE, end of period	$	372,456	$	434,194


	Three Months Ended
	March 31,
	2009		2008

Environmental
Gross unpaid losses and ALAE, beginning of period	$	107,948	$	117,768
Less ceded unpaid losses and ALAE		28,969		32,725

Net unpaid losses and ALAE, beginning of period		78,979		85,043
Net losses and ALAE incurred		—		—
Net paid losses and ALAE		1,928		2,410

Net unpaid losses and ALAE, end of period		77,051		82,633
Add ceded unpaid losses and ALAE		30,466		31,754

Gross unpaid losses and ALAE, end of period	$	107,517	$	114,387

The Company also maintains reserves for other latent exposures such as those associated with silica, lead, mold, chemical, gas and vapors and welding fumes of $17,277 and $20,258, net of reinsurance, at March 31, 2009 and December 31, 2008, respectively.

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


7.	Reinsurance

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


	Three Months Ended
	March 31,
	2009			2008

Premiums written:
Direct	$	210,899		$	278,049
Assumed from other companies, pools and associations		7,326			4,544
Ceded to other companies, pools and associations		(37,955	)		(37,940	)

Net premiums written	$	180,270		$	244,653

Premiums earned:
Direct	$	236,552		$	302,887
Assumed from other companies, pools and associations		7,672			4,886
Ceded to other companies, pools and associations		(36,794	)		(35,963	)

Premiums earned	$	207,430		$	271,810

The net impact of ceded reinsurance transactions for the three months ended March 31, 2009 and March 31, 2008 is summarized as follows:


	Three Months Ended March 31,
	2009			2008

Earned premiums ceded to reinsurers	$	(36,794	)	$	(35,963	)
Commissions earned on ceded reinsurance premiums		8,254			7,606
Claims incurred ceded to reinsurers		23,575			9,255
Provision for uncollectible reinsurance		(2,000	)		(2,000	)

Net impact of ceded reinsurance transactions	$	(6,965	)	$	(21,102	)

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


	March 31,		December 31,
	2009		2008

Reinsurance recoverable on unpaid losses and LAE	$	931,641	$	949,364
Reinsurance receivable on paid losses and LAE		15,587		18,853

Total reinsurance recoverable	$	947,228	$	968,217

The reinsurance recoverable balances above are net of reserves for uncollectible reinsurance of $57,944 and $55,999 at March 31, 2009 and December 31, 2008, respectively.

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

Corporate Aggregate 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. The majority of these contracts have been commuted or had limits paid. The Company has not purchased corporate aggregate reinsurance since 2001 and does not currently have plans to purchase corporate aggregate reinsurance in the future. At March 31, 2009, only one retroactive contract with a remaining limit of $51,000 and one prospective contract with a remaining limit of $96,272 remain in effect. This prospective contract had no effect on operations for the three months ended March 31, 2009.

The effect of retroactive corporate aggregate reinsurance on components of the Company’s consolidated statements of operations follows ((decrease) increase in indicated component):


	Three Months Ended
	March 31,
	2009			2008

Funds held interest charged to investment income	$	(3,767	)	$	(3,734	)
Less: amortization of deferred income on retroactive reinsurance included in losses and LAE		(3,721	)		(3,803	)

(Decrease) increase in income before income taxes	$	(46	)	$	69

An analysis of activity in deferred income related to retroactive corporate aggregate reinsurance contracts follows:


	Three Months Ended
	March 31,
	2009			2008

Decrease in reinsurance recoverable due from reinsurers	$	—		$	—
Less: related premiums paid		—			—

Decrease in income deferred during the period		—			—
Amortization of deferred income		(3,721	)		(3,803	)

Decrease in deferred income		(3,721	)		(3,803	)
Deferred income on retroactive reinsurance — beginning of period		121,277			152,041

Deferred income on retroactive reinsurance — end of period	$	117,556		$	148,238

For the three months ended March 31, 2009, the above activity arises from the 2001 retroactive adverse development contract for $400,000, which is the only retroactive reinsurance contract that remains in effect. The reinsurance recoverable and funds held balances in respect of this contract were $349,000 and $224,610, respectively, at March 31, 2009 ($349,000 and $220,843, respectively, at December 31, 2008).

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, 2008 filed with the SEC on February 27, 2009.


8.	Income Taxes

The effective tax rate of 47.8% in the first quarter of 2009 differs from the statutory federal income tax rate of 35% due to the benefit of tax-exempt interest and dividends received deduction totaling $7,587, or 12.8%. The full year 2008 effective tax rate was 21.0%.

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 has participated 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 interviews conducted by the SEC and the U.S. Attorney’s Office. This inquiry is ongoing and the Company is cooperating fully in addressing its obligations under this subpoena. 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.

Crum & Forster Holdings Corp. 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 was filed 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. The trial court dismissed the federal antitrust claims and RICO claims with prejudice and declined to accept supplemental jurisdiction over plaintiffs’ state law claims. On October 24, 2007, plaintiffs filed an appeal with the U.S. Court of Appeal for the Third Circuit. The briefing on appeal has been completed. The court heard oral arguments on April 21, 2009 in Philadelphia, Pennsylvania. The court took the matter under submission. A final ruling is not expected from the Court of Appeals before late 2009. Crum & Forster Holdings Corp. and US Fire continue to be named as defendants and intend to vigorously defend 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.

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


10.	Segment Reporting

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


	Three Months Ended
	March 31,
	2009		2008

General liability	$	39,529	$	54,032
Workers’ compensation		47,414		57,699
Commercial automobile		35,403		53,557
Property		30,560		55,990
Commercial multi-peril		19,480		20,566
Accident and health		28,671		22,923
Other¹		6,373		7,043

Total premiums earned	$	207,430	$	271,810


¹		Other includes surety, homeowners and personal automobile lines of business.

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,
	2009						2008
	Amount			Ratio			Amount		Ratio

Accident year loss and LAE ratios:
General liability	$	27,028			68.4	%	$	40,208		74.4	%
Workers’ compensation		38,669			81.6	%		48,530		84.1	%
Commercial automobile		24,755			69.9	%		39,350		73.5	%
Property		22,543			73.8	%		36,271		64.8	%
Commercial multi-peril		11,343			58.2	%		12,778		62.1	%
Accident and health		19,732			68.8	%		15,698		68.5	%
Other		2,665			41.8	%		3,427		48.7	%

Total accident year losses and LAE		146,735			70.7	%		196,262		72.2	%
Prior years’ loss development		(10,885	)		(5.2	)		13,348		4.9

Calendar year losses and LAE	$	135,850			65.5	%	$	209,610		77.1	%

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


11.	Subsequent Event

On April 16, 2009, the Company paid a cash dividend to Fairfax of $100,000.

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 accepted accounting principles in the United States of America (“GAAP”), is not required for interim reporting ~~purposes~~ 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, ~~2006,~~2008 filed with the Securities and Exchange Commission (“SEC”) on ~~March~~ February 927, ~~2007~~2009. 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~~ Certain ~~report~~statements ~~contains~~contained herein may constitute forward-looking statements ~~within~~and are made pursuant to the “safe-harbor” ~~meaning~~provisions of the ~~Private~~United ~~Securities~~States 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 ~~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, which are described elsewhere in this report, include, but are not limited to, the following:

• ~~Lowering~~Competitive orconditions ~~loss~~in ofthe ~~one~~insurance market and the ability to attract and retain new business; • Adverse effect of continuing volatility in the ~~Company’s~~global financial ~~strength~~markets ~~ratings~~and current economic downturn; • 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 property catastrophe reinsurance; • Exposure to credit risk, in the event reinsurers or policyholders fail to pay the Company amounts owed to it; • Restrictions on the ability of the Company’s insurance subsidiaries to pay dividends; • Lowering or loss of one of the Company’s financial strength ratings; • Loss of key producers; • 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; • ~~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~~Ability toof ~~credit~~Fairfax ~~risk, in the event reinsurers or policyholders fail~~ to ~~pay~~determine the ~~Company~~outcome ~~amounts owed to it; • Adverse developments in the prospects or results~~ of ~~operations~~corporate ofaction ~~Fairfax~~requiring orstockholder ~~its affiliates~~approval; • ~~Loss of key employees; •~~ Changes in governmental regulations; and • Exposure to credit risks on novated policies.

19 24

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 ~~Prospectus~~Annual Report on Form 10-K for the year ended December 31, 2008 filed with the SEC ~~pursuant to rule 424(b)(3)~~ on ~~July~~ February 1327, ~~2007~~2009. The information appearing under “Risk Factors” in such ~~Prospectus~~Annual Report is ~~incorporated~~ 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~~ consolidated financial statements included in its Annual Report on Form 10-K for the year ended December 31, ~~2006~~2008 filed with the SEC on ~~March~~ February 927, ~~2007~~2009.

Unpaid Losses and Loss Adjustment 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.

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.

The Company’s internal actuaries conduct full reserve studies using generally accepted actuarial methods for each line of business except asbestos, environmental and other latent, every six months, and for asbestos, environmental and other latent, annually. For all lines of business other than asbestos, environmental and other latent, ultimate losses and ALAE, including incurred but not reported losses and development of reported losses, are projected by line of business by accident year using several standard actuarial methodologies. At each balance sheet date, Company management establishes its “best estimate” based on the actuarial central estimates by line of business from the most recent internal actuarial reserve review, together with the actual loss emergence since such most recent review. At March 31, 2009, the Company’s actuaries concurred with the reasonableness of management’s best estimate.

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.

The Company has written general liability, commercial multi-peril and umbrella policies under which its policyholders continue to present asbestos, environmental and other latent claims. The vast majority of these claims, particularly with respect to asbestos and environmental claims, are presented under policies written many years ago. There are significant uncertainties in estimating the amount of reserves required for asbestos, environmental and other latent claims. Reserves for these exposures cannot be estimated solely with the traditional loss reserving techniques, which rely on historical accident year development factors. Among the uncertainties relating to asbestos, environmental and other latent reserves are a lack of historical data, long reporting delays and complex unresolved legal issues regarding policy coverage and the extent and timing of any such contractual liability. Courts have reached different, and frequently inconsistent, conclusions as to when losses occurred, what claims are covered, under what circumstances the insurer has an obligation to defend, how policy limits are determined and how policy exclusions are applied and interpreted.

No adjustment was made to asbestos, environmental or other latent reserves in the ~~nine~~three months ended ~~September~~ March 3031, ~~2007~~2009. In ~~2006~~2008 and ~~2005~~2007, based on the Company’s internal actuarial ~~review~~ reviews, the Company strengthened its asbestos, environmental and other latent reserves by $3336,~~897~~215 and $4454,~~646~~547, 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.

20 Investments

~~Other~~ The ~~than~~Company ~~Temporary~~is ~~Declines~~responsible infor ~~Value~~determining the fair value of ~~Investments~~its investment portfolio by utilizing market-driven fair value measurements obtained from active markets where available, by considering observable and unobservable inputs and by employing valuation techniques that make use of current market data.

~~The~~ In ~~Company’s~~accordance ~~fixed~~with ~~income~~SFAS No. 157, ~~and~~“Fair ~~equity~~Value Measurements” ~~securities~~(“SFAS 157”), ~~are~~the ~~principally~~Company has categorized asits financial instruments, based on the priority ~~“available-for-sale”~~ of ~~and~~the ~~are~~inputs ~~carried~~to atthe ~~their~~valuation technique, into a three-level fair value ~~based~~hierarchy. ~~primarily~~The onfair ~~quoted~~value ~~market~~hierarchy ~~prices.~~gives the highest ~~Unrealized~~ priority ~~gains~~to quoted prices in active markets for identical assets or ~~losses~~liabilities on(Level 1) and the ~~Company’s~~lowest ~~investments,~~priority ~~net~~to unobservable ofinputs ~~applicable~~(Level 3). ~~income~~For ~~taxes,~~further ~~are~~details on the ~~included~~ fair invalue ~~other~~hierarchy ~~comprehensive~~refer ~~income.~~to ~~Declines~~Note 4 into the ~~market~~consolidated financial ~~value~~statements. ofThe ~~invested~~Company ~~assets~~values ~~below~~its Level 3 ~~carrying~~ investments, ~~value~~which are ~~evaluated~~comprised ~~for~~of ~~other~~mortgage-backed ~~than~~securities purchased ~~temporary~~at ~~impairment~~deep ~~losses~~discounts onto apar ~~quarterly~~(approximately ~~basis~~1.0% of total ~~Management~~ investment ~~considers~~portfolio at fair value) using an ~~impairment~~internal asdiscounted cash ~~“other~~flow ~~than~~model. ~~temporary”~~The ifcash ~~evidence~~flow ~~indicating~~model ~~that~~incorporates anactual cash ~~investment’s~~ flows ~~carrying~~on ~~amount~~the ismortgage-backed ~~recoverable~~securities ~~within~~through athe ~~reasonable~~ current period ofand ~~time~~projects the remaining cash flows from the underlying mortgages, ~~which~~using ina number of assumptions and inputs that are based on the ~~case~~security-specific collateral. The Company assesses the reasonableness of ~~fixed~~the ~~income~~fair values of these securities ~~may~~by comparing ~~mean~~to ~~until~~models ~~maturity~~validated by qualified personnel, isby reference ~~outweighed~~to movements in credit spreads and by ~~evidence~~comparing the fair values to ~~the~~recent ~~contrary~~transaction prices for similar assets where available. Certain mortgage-backed securities ~~Management~~ (approximately 3% of total investment portfolio at fair value) are also ~~considers~~included ~~the~~in ~~Company’s~~Level 2 ~~ability~~investments ~~and~~as ~~intent~~they toare ~~hold~~priced using anbroker-dealer ~~investment~~quotes. ~~until~~At ~~such~~March 31, 2009, the total ~~recovery~~ fair value of the ~~security~~Company’s ~~fair~~Level 2 ~~value~~and Level 3 mortgage-backed securities was $117,349. ~~Notwithstanding~~Gains or losses arising from changes in the ~~foregoing,~~fair ~~with~~value ~~respect~~of tothe ~~fixed~~mortgage-backed ~~income~~ securities, are anrecorded ~~impairment~~in ~~may~~realized beinvestment ~~considered~~gains ~~other~~and ~~than~~losses ~~temporary~~in ifthe consolidated itstatements isof ~~probable~~operations. ~~that~~For the ~~Company~~three months ~~will~~ ended beMarch 31, ~~unable~~2009, torealized ~~collect~~investment ~~all~~losses ~~amounts~~resulting from ~~due~~the ~~under~~net ~~the~~change ~~terms~~in fair value of the mortgage-backed securities was $11,258.

~~Recognition~~ Derivatives ofheld ~~impairment~~by ~~losses~~the ~~for~~Company ~~declines~~at inMarch 31, 2009 are principally credit default swaps. These credit default swaps are carried at estimated fair values on the consolidated balance sheets with changes in fair value ofrecorded ~~fixed~~in net income ~~and~~in ~~equity~~the period ~~securities~~in which they occur. The Company obtains market-derived ~~attributable~~ fair values for its credit default swaps from third-party providers, principally broker-dealers. In addition, the Company assesses the reasonableness of the fair values obtained from these providers by comparing the fair values to values produced using individual issuer~~-specific~~ ~~events~~credit isdefault ~~based~~swap ~~upon~~yield ~~all~~curves, ~~relevant~~by referencing ~~facts~~them to movements in credit spreads and ~~circumstances~~by comparing them to recent market transaction prices for ~~each~~similar credit ~~investment~~ default swaps where available. ~~Factors~~The ~~considered~~fair byvalues ~~management~~of ~~include,~~credit ~~but~~default swaps are ~~not~~subject ~~limited~~ to, significant volatility arising from the potential ~~impact~~differences in the perceived risk of default of the ~~issuer-specific~~ underlying ~~events~~issuers, ~~current~~movements in credit spreads and ~~expected~~the ~~future~~length of ~~market~~time to the contracts’ maturity. Due to the inherent uncertainties of these valuations as well as the volatility in interest rates and ~~economic~~stock market conditions, ~~the~~realized ~~nature~~values ofmay differ from estimates reflected in the ~~investment~~consolidated financial statements. At March 31, 2009 and December 31, 2008, the ~~number~~fair value of ~~investment~~the ~~positions~~credit ~~with~~default ~~losses~~swaps was $61,366 and $138,830, respectively. Gains or losses arising from changes in the ~~severity~~fair value of the credit default swaps are recorded in realized investment gains and ~~duration~~losses in the consolidated statements of operations. For the three months ended ~~impairment~~ March 31, 2009 and 2008, realized investment gains resulting from the ~~volatility~~net change in fair value of the ~~security’s~~credit default ~~market~~swaps ~~price~~were $32,196 and $153,973, respectively.

~~At September 30, 2007, the Company had gross unrealized losses on available-for-sale fixed income~~ ~~and equity securities of $154,435. For the nine months ended September 30, 2007 and 2006, the~~ ~~Company recorded $15,771 and $5,400, respectively, in other than temporary impairment charges. See~~ 26 ~~“Liquidity and Capital Resources – Insurance Subsidiaries” below for a further discussion of investments in an unrealized loss position.~~

The global financial crisis has increased the volatility of most investments. As a result, the market values of these investments may vary dramatically either up or down in short periods, and their ultimate value will therefore only be known over the long term. At each reporting date, and more frequently when conditions warrant, management evaluates all available-for-sale securities with unrealized losses to determine whether those unrealized losses are other than temporary and should be recognized in net earnings rather than accumulated other comprehensive income (loss). This determination is based on consideration of several factors including: (i) the length of time and extent to which the fair value has been less than its cost or amortized cost; (ii) the severity of the impairment; (iii) the cause of the impairment and the financial condition and near-term prospects of the issuer; and (iv) the company’s intent and ability to hold the investment for a period of time sufficient to allow for any anticipated recovery of fair value, which in the case of fixed income securities may mean until maturity. If management’s assessment indicates that the impairment in value is other than temporary, or the Company does not have the intent or ability to hold the security until its fair value recovers, the security is written down to its fair value at the balance sheet date, and a loss is recognized in net realized investment gains (losses) in the consolidated statements of operations.

There are risks and uncertainties associated with determining whether declines in the fair value of investments are other than temporary such as significant subsequent changes in general economic conditions, as well as specific business conditions affecting particular issuers; subjective assessments of issuer-specific factors (seniority of claims, collateral value, etc.); future financial market effects; stability of foreign governments and economies; future rating agency actions; and significant disclosures relating to accounting, fraud or corporate governance issues that may adversely affect certain investments. In addition, significant assumptions and management judgment regarding these risks and uncertainties are involved in determining if a decline is other than temporary. Given the prolonged nature of the current financial market downturn, the duration and severity of unrealized losses has exceeded historical norms making it particularly difficult for management to evaluate whether declines in the fair value of its investments are other than temporary. Management will continue to monitor these unrealized losses and will assess all available facts and circumstances for each security as they become known, which may result in changes to the conclusions reached at March 31, 2009 based on current facts and circumstances existing at that date, resulting in additional other than temporary impairments in future periods.

During the three months ended March 31, 2009 and 2008, the Company recorded other than temporary impairment charges of $54,401 and $40,913, respectively, primarily related to write-downs of equity securities.

Reinsurance 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~~ are recorded and reinsured claims are settled. The ceding of risk to reinsurers does not relieve the ~~operating~~ insurance 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~~ 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~~realizable value. The outcome of such discussions may result in a lump sum settlement that is less than the recorded recoverable balance. ~~Losses~~ 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 An ~~September 30,~~estimated ~~2007~~allowance ~~and~~for ~~December 31,~~uncollectible ~~2006,~~ reinsurance recoverable is ~~was~~recorded ~~$1,607,458~~on ~~and~~the ~~$1,733,926, net~~basis of ~~reserves~~periodic ~~for~~evaluation ~~uncollectible reinsurance~~ of ~~$48,253~~balances ~~and~~due from ~~$42~~reinsurers,~~777,~~ ~~respectively.~~judgments ~~The~~regarding ~~provision for~~reinsurer ~~uncollectible reinsurance for the three and nine months ended September 30~~solvency, ~~2007 was $2,000 and~~known $6 disputes,~~000,~~ ~~respectively.~~reporting ~~While~~characteristics ~~management~~of ~~believes~~ the ~~allowance~~underlying ~~for uncollectible reinsurance~~reinsured ~~recoverable~~ business, ishistorical ~~adequate based on information currently available~~experience, ~~failure~~current ofeconomic ~~reinsurers~~conditions ~~to meet~~and ~~their~~ the ~~obligations~~state ~~could~~of ~~have~~insurer/reinsurer arelations ~~material~~in ~~adverse~~general, ~~impact~~and onat the Crum & ~~Company’s~~Forster ~~financial~~companies ~~position~~in ~~and results of operations~~particular.

At March 31, 2009 and December 31, 2008, reinsurance recoverable was $947,228 and $968,217, net of reserves for uncollectible reinsurance of $57,944 and $55,999, respectively. Included in reinsurance recoverable is $142,391 and $142,213 at March 31, 2009 and December 31, 2008, respectively, representing the present value of amounts due from insurance companies from which the Company has purchased structured settlement annuities to settle certain claim liabilities. The provision for uncollectible reinsurance for both the three months ended March 31, 2009 and 2008 was $2,000. 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 Tax 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.

Although 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, arising ~~including~~from ~~loss~~investments ~~reserve~~(a ~~discounting,~~significant ~~undistributed income~~portion of ~~foreign~~which ~~investments~~relate to impairments), loss reserve discounting, deferred ~~gain~~income on retroactive reinsurance and unearned premium ~~adjustment~~ adjustments. The realizability of these reversing deferred tax assets is considered in conjunction with similar originating deferred tax assets and other taxable income.

21 At March 31, 2009, there are no valuation allowances against the Company’s gross deferred tax assets of $371,242. The Company has determined that a valuation allowance is not required with respect to temporary differences that would reverse as capital losses because the Company realized capital gains in 2007 and 2008 that can be offset by capital losses incurred in 2009 or 2010. In addition, the Company has the ability and intent to hold its available-for-sale securities until maturity or recovery. The Company’s current projections of future taxable income are based on assumptions of declining premium volumes 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.

In Realization ~~the third quarter~~ of ~~2007,~~ the ~~Company~~deferred ~~entered into a new~~ tax ~~sharing~~asset ~~agreement~~under ~~with Fairfax~~SFAS 109 ~~that~~ ultimately ~~permits~~depends on the ~~Company~~existence ~~and~~of ~~its~~sufficient ~~subsidiaries~~taxable ~~to elect to file federal~~ income ~~tax returns on a~~ ~~consolidated~~ available ~~basis~~under ~~for~~ tax ~~sharing~~law, ~~purposes.~~including ~~The~~future ~~Company~~reversals ~~has~~of ~~made this election effective January~~existing 1 temporary differences, ~~2007.~~future ~~The~~taxable ~~election~~income ~~resulted~~exclusive ~~in the utilization~~ of reversing ~~the~~differences, ~~holding~~taxable ~~company~~income ~~net~~in ~~operating~~prior ~~losses~~carryback years ~~(“NOLs”)~~ and intax ~~the~~planning ~~amount~~strategies. ofFuture ~~$79~~profitability,~~697~~ inas ~~the~~it ~~third~~relates to ~~quarter~~taxable ofincome ~~2007,~~expectations ~~and~~discussed ~~will~~above, ~~avoid~~can ~~the generation of~~be ~~holding~~ negatively ~~company~~affected ~~NOLs~~by ~~going~~factors ~~forward,~~including ~~provided~~substantial ~~the~~changes ~~subsidiaries~~in premium ~~earn~~volume, ~~sufficient~~underwriting ~~taxable~~losses ~~income~~resulting tofrom significant ~~offset~~ events ~~holding~~such ~~company~~as ~~losses~~severe ~~arising~~natural ~~principally~~disasters ~~from~~or ~~interest~~large onsettlements ~~the~~for asbestos ~~Company’s~~or ~~senior~~environmental ~~notes.~~claims, ~~For further~~or ~~details~~materially ~~see —~~lower ~~“Income Taxes” below~~investment results.

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~~ Overview broad range of commercial coverages, including workers’ compensation, general liability, commercial automobile, property, commercial multi-peril and other lines of business. The Company generally conducts business on a brokerage basis through more than 1,200 producers located throughout the United States. The Company’s two largest producers accounted for approximately 5.8% and 5.2% of gross premiums written for the nine months ended September 30, 2007.

The Company’s ~~objective~~ is toa ~~expand~~national ~~opportunistically~~commercial ~~into~~property and casualty insurance company with a focused underwriting strategy, targeting specialty classes of business orand ~~market~~underserved ~~segments~~market ~~that~~ opportunities. ~~are~~Operating ~~consistent~~through ~~with~~ its ~~underwriting~~home ~~expertise~~office and ~~have~~regional branch network, the ~~potential~~Company towrites ~~generate~~a ~~an underwriting~~broad ~~profit.~~range ~~Management~~of ~~believes~~commercial coverage, ~~the~~including ~~Company~~general liability, workers’s compensation, ~~ability~~commercial toautomobile, ~~identify~~property, commercial multi-peril, accident and ~~react~~health toand ~~changing~~other lines of business. ~~market~~ The ~~conditions~~Company ~~provides~~generally itconducts ~~with~~business on a ~~competitive~~brokerage ~~advantage~~basis through more than 1,400 producers located throughout the United States.

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~~ 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~~Principles, 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. both in absolute terms and relative to appropriate benchmarks. 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~~ 29 regulations, court decisions and changes in the law. The property and casualty marketplace continues to be increasingly competitive. The casualty market softened throughout 2006, particularly for California workers’ compensation policies in reaction to workers’ compensation system reforms and very favorable industry accident year results. In 2007, pricing pressure for casualty accounts intensified countrywide, particularly for larger accounts, making it very challenging to acquire new accounts at adequate prices. While property market conditions improved significantly in the first three quarters of 2006 in the wake of the 2005 hurricane activity, the market began to soften in the fourth quarter of 2006, fueled by the mild hurricane season. This market softening continued through 2007, becoming more pronounced in the third quarter, with several major competitors offering more capacity in the coastal wind areas and greater capacity and more competitive pricing in non-catastrophe exposed business. In the nine months ended September 30, 2007, renewal pricing in the Company’s casualty lines declined by approximately 7% and renewal pricing in the Company’s property lines declined by approximately 9%. New business in the first nine months of 2007 declined by approximately 17% in casualty lines and approximately 26% in property lines as compared to 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.

~~Effective 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~~ Market ~~occurrence for an annual premium of $2,829. Seneca is obliged to reinstate any limits used at 100%~~ Conditions ~~of the original premium.~~

~~Effective~~ The ~~May 1,~~property ~~2007~~and casualty insurance business is cyclical and influenced by many factors, ~~the~~including ~~Company~~price ~~placed~~competition, economic ~~its~~conditions, ~~property~~natural ~~catastrophe~~and ~~treaty~~man-made disasters (~~excluding~~for ~~Seneca~~example hurricanes, earthquakes and terrorism)., ~~The~~availability and cost of ~~expiring~~ reinsurance, ~~treaty~~credit ~~provided~~conditions ~~coverage~~and ofinterest ~~$210 million~~rates, instate regulations, ~~excess~~court ofdecisions ~~$40 million~~and ~~per~~changes ~~occurrence~~in the law. ~~The~~For the ~~Company’s~~ last ~~participation~~several inyears, the ~~$210 million~~property ofand ~~coverage~~casualty ~~was~~market ~~$22,653~~has experienced challenging market conditions characterized by intense competition and ~~the~~downward ~~premium~~pricing ~~for~~trends. ~~the~~These soft ~~coverage,~~ market ~~net~~conditions ofheightened in 2008 and the Company ~~participation,~~has continued ~~was~~to ~~approximately~~see ~~$60 million.~~soft ~~The~~market ~~new~~pricing ~~treaty~~through ~~provides coverage~~all lines of business ~~$100 million~~ in ~~excess~~the first quarter of ~~$100 million~~2009 ~~per~~with ~~occurrence~~competitors ~~for~~in ansome cases ~~annual~~writing ~~premium~~accounts ofat ~~$18~~levels below average developed losses ~~million.~~ with ~~The~~multi-year ~~Company~~rate islock ~~obliged~~deals toand ~~reinstate~~frequently ~~any~~terms ~~limits~~and conditions ~~used~~are atexpanded ~~100%~~without ofmuch price consideration. There are some hopeful signs that the ~~original~~market ~~premium.~~is ~~The~~in transition, ~~Company~~ evidenced ~~also~~by ~~purchased~~stable ~~California~~or ~~only~~slightly ~~earthquake~~increasing ~~coverage~~rates across some lines of ~~$100 million~~business insuch ~~excess~~as ofCalifornia ~~$200~~workers’ compensation, ~~million~~ where ~~per~~the ~~occurrence~~Company ~~for~~saw anslight ~~estimated~~rate ~~annual~~increases ~~premium~~in the first quarter of ~~$7 million~~2009. ~~The~~Also, ~~decision~~some toproperty ~~increase~~insurers ~~the~~are reducing available ~~retention~~ limits ~~and~~in ~~purchase~~peak ~~less~~catastrophe ~~coverage~~zones ~~was~~as ~~based~~a onresult ~~the~~of ~~Company’s~~significant catastrophe ~~reduced~~losses ~~property~~sustained ~~exposures~~by the industry in 2008, primarily ~~catastrophe-prone~~ from ~~zones~~Hurricane Ike, and ~~the~~increases ~~cost~~in of property catastrophe reinsurance atcosts, ~~lower~~resulting ~~attachment~~in property rates stabilizing or ~~points~~ even increasing in some cases.

23 In the first quarter of 2009, the Company’s renewal retention rates, renewal pricing and new business growth all declined compared to the first quarter of 2008; however, the rate of decline for retention rates and pricing appears to have moderated since the third quarter of 2008. Renewal retention rates declined by approximately 1 percentage point in the first quarter of 2009 as compared to declines of approximately 4 percentage points in each of the third and fourth quarters of 2008. Specifically, renewal retention rates for casualty lines remained stable and renewal retention rates for property lines declined by approximately 6 percentage points in the first quarter of 2009 as compared to the first quarter of 2008. Renewal pricing declined by approximately 1% in the first quarter of 2009 as compared to rate declines of approximately 5% and 4% in the third and fourth quarters of 2008, respectively. Casualty business pricing declined by approximately 1% and property business pricing declined by approximately 2% in the first quarter of 2009. New business growth continues to remain very challenging and declined by approximately 40% in the first quarter of 2009, attributable to a reduction in both casualty and property business.

Although there is some evidence of deceleration in rate decreases and an expectation that prices will further stabilize, the Company expects the market to remain competitive for the remainder of 2009. Under such conditions, the Company will continue to reject underpriced new business opportunities and to shed accounts and classes of business that appear to be unprofitable. As a consequence, it is likely that the Company’s premium volume will decline further and the expense ratio will increase as the shrinkage of premium revenues outpaces cost-cutting measures. In addition, as premium receipts decline and claim payments continue at or near historical norms or greater, the Company is likely to continue to have negative cash flow from operations for the remainder of 2009.

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~~
	September 30,						September 30,
	March 31,
	2007			2006			2007			2006
	2009			2008
Gross premiums written	$	~~296~~218,~~892~~225		$	~~336~~282,~~553~~593		$	~~969,418~~		$	~~1,025,153~~
Net premiums written	$	~~266~~180,~~779~~270		$	~~292~~244,~~506~~653		$	~~860,533~~		$	~~886,858~~
Premiums earned	$	~~293~~207,~~375~~430		$	~~279~~271,~~631~~810		$	~~893,903~~		$	~~791,178~~
Losses and LAE		~~192~~135,~~468~~850			~~190~~209,~~457~~610			~~587,618~~			~~541,150~~
Underwriting expenses		8667,~~557~~437			8281,~~013~~057			~~253,739~~			~~231,414~~
Underwriting income		14,350			7,161			52,546			18,614
Underwriting income (loss)		4,143			(18,857	)
Investment income and realized investment gains and losses		~~104~~(55,~~516~~801	)		66171,~~597~~109			~~182,853~~			~~347,414~~
Interest and other expense		87,~~120~~736			109,~~065~~162			~~23,795~~			~~30,793~~
Costs related to early retirement of debt		—			—			21,188			—
(Loss) income before income taxes and equity in earnings of investees		(59,394	)		143,090
Income before income taxes and equity in earnings of investees		110,746			63,693			190,416			335,235
Income tax (benefit) expense		(28,367	)		49,226
Income tax expense		37,940			21,674			64,147			115,139
(Loss) income before equity in earnings of investees		(31,027	)		93,864
Income before equity in earnings of investees		72,806			42,019			126,269			220,096
Equity in earnings (losses) of investees, net of tax		80			(463	)
Equity in earnings of investees, net of tax		10,051			3,846			18,146			9,915
Net (loss) income	$	(30,947	)	$	93,401
Net income	$	82,857		$	45,865		$	144,415		$	230,011
Loss and LAE ratio		65.5	%		77.1	%
Loss and LAE ratio		65.6	%		68.1	%		65.7	%		68.4	%
Underwriting expense ratio		32.5			29.8
Underwriting expense ratio		29.5			29.3			28.4			29.2
Combined ratio		98.0	%		106.9	%
Combined ratio		95.1	%		97.4	%		94.1	%		97.6	%

The ~~increase~~decrease in net income in the ~~third~~first quarter of ~~2007~~2009 as compared to the ~~third~~first quarter of ~~2006 was~~2008 ~~due~~is primarily attributable to ~~improved~~realized ~~underwriting~~investment ~~results,~~losses ~~higher~~recognized ~~investment~~in ~~income~~2009 ~~and~~as compared to significant realized investment gains ~~and~~ ~~losses~~in ~~and~~2008, ~~higher~~partially ~~equity~~offset by inimproved ~~earnings~~underwriting ~~of investees~~income. ~~Investment~~The ~~income~~2008 ~~and~~ realized investment gains ~~and~~reflect ~~losses~~significant ~~increased~~gains ~~primarily~~related ~~due~~ to ~~significant~~the ~~mark~~Company’s credit todefault ~~market~~swaps ~~gains~~and onStandard ~~the~~and ~~credit~~Poor’s ~~default~~Depositary ~~swaps~~ Receipts in(“SPDRs”) ~~the~~short-sales ~~third~~which ~~quarter~~resulted ofin ~~2007.~~net gains Byof ~~comparison~~$223,488 ~~the~~as ~~third~~compared ~~quarter~~to ofgains ~~2006~~from ~~included~~credit ~~significant~~default swaps ~~realized~~ in ~~investment~~2009 ~~gains~~totaling on$32,196. ~~the~~In ~~sale~~addition, ofcontinued ~~certain~~volatile financial ~~fixed~~market ~~income~~conditions ~~and~~resulted ~~equity~~in ~~securities.~~other ~~The~~than ~~increase~~temporary in impairment ~~equity~~charges of $54,401 in ~~earnings~~the offirst ~~investees~~quarter ~~was~~of ~~primarily~~2009 ~~attributable~~as compared to ~~higher~~$40,913 ~~earnings~~in ~~from~~the ~~Northbridge Financial~~first ~~Corporation~~quarter ~~(“Northbridge”)~~of 2008, anprimarily related ~~affiliate~~to write downs of ~~the~~equity ~~Company~~securities.

The ~~decrease~~improvement in ~~net~~underwriting 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~~corresponding ~~gains and losses and debt retirement charges, partially offset by improved underwriting~~loss ~~results~~ and ~~higher~~LAE ~~equity in earnings of investees. Contributing to the decline in investment income~~ and ~~realized~~combined ~~investment~~ratios ~~gains and losses~~ in the ~~nine~~first ~~months~~quarter ~~ended~~of ~~September 30,~~2009 ~~2007 as~~is ~~compared~~ largely due to ~~2006,~~a ~~was~~charge ~~the significant level~~ of ~~realized~~$25,500 ~~investment~~(9.4 ~~gains~~loss ~~achieved~~ratio ~~on the sale of certain fixed income and equity securities as well as higher earnings from HWIC Asia Fund (“HWIC”~~points)~~, an~~ ~~affiliated equity method investee, and higher earnings from other partnerships~~ in ~~2006.~~ ~~Partially offsetting these effects were~~ the ~~significant~~first ~~mark~~quarter toof ~~market~~2008 ~~gains~~associated onwith ~~the~~an ~~Company’s credit~~asbestos ~~default swaps in the nine months ended September 30, 2007~~lawsuit settlement.

~~During~~ The ~~the~~effective ~~second~~tax ~~quarter~~rate of ~~2006,~~47.8% ~~the Company identified certain adjustments associated with its accounting for investments and recorded a cumulative charge to net income~~ in the ~~six~~first ~~months~~quarter ~~ended June 30, 2006~~ of ~~$5,678~~2009 differs ~~pre-tax~~from ~~($3,691 after-tax) for these adjustments. Of~~ the ~~$5,678~~statutory ~~pre-tax charge,~~federal ~~$4,255~~income ~~was recorded as a charge to realized investment gains, $3,534 ($2,297 after-~~tax) ~~was recorded~~rate ~~as a charge to equity in earnings~~ of ~~investees~~35% ~~(including~~due ~~$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~~benefit ~~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)~~exempt interest and ~~increase~~dividends ~~investment income in the nine months ended September~~received ~~30,~~ deduction ~~2006~~totaling by $27,~~589 pre-tax ($1~~587,~~683~~ ~~after-tax)~~or 12.8%. The ~~aggregate~~effective ~~effect~~tax ofrate for the ~~second~~full ~~and~~year ~~third quarter~~2008 ~~adjustments~~ was ~~a reduction of income for the nine months ended September 30, 2006 of $3,089 pre-tax ($2,008 after tax)~~21. ~~For further details, see Note 11 to the consolidated financial statements~~0%.

24 31

Underwriting Results

Gross Premiums Written

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

	Three Months Ended September 30,
	Three Months Ended March 31,
					Increase/			Percent
	2007		2006		(Decrease)			Change
	2009		2008		(Decrease)			Change
Workers’ compensation	$	69,887	$	72,218	$	(2,331	)		(3.2	)%
General liability	$	52,143	$	63,835	$	(11,692	)		(18.3	)%
General liability		58,201		68,820		(10,619	)		(15.4	)%
Workers’ compensation		50,080		54,718		(4,638	)		(8.5	)%
Commercial automobile		5227,~~288~~710		5358,~~838~~234		(130,~~550~~524	)		(252.94	)%
Property		5523,~~010~~459		9748,~~291~~364		(4224,~~281~~905	)		(4351.5	)%
Commercial multi-peril		2419,~~159~~348		2019,~~999~~453		~~3,160~~(105	)		~~15.~~(0.5	)%
Other		37,347		23,387		13,960			59.7	%
Accident and health		40,730		33,210		7,520			22.6	%
Total gross premiums written	$	296,892	$	336,553	$	(39,661	)		(11.8	)%
Other1		4,755		4,779		(24	)		(0.5	)%
Total gross premiums written	$	218,225	$	282,593	$	(64,368	)		(22.8	)%

	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	)%


¹		Other includes surety, homeowners and personal automobile lines of business.

~~Other~~ For the three months ended March 31, 2009, gross premiums written associated with the Company’s commercial lines of business (excluding accident and health and “other” lines of business ~~include~~in the ~~following:~~table above), declined by $71,864, or 29.4%, as compared to the three months ended March 31, 2008, primarily due to a decline in new business of approximately 40%, while renewal prices and retention rates were relatively stable. The decline in new business is attributable to a reduction in both property and casualty writings. Although there is some evidence that rate decreases have started to moderate and may further stabilize in 2009, the prolonged soft market conditions continue to make it very challenging to write new business at acceptable rates. In addition to competitive market conditions, the decline in gross premiums written is also attributable to underwriting actions taken by the Company to reduce unprofitable classes of business, most notably a reduction in the property and commercial automobile lines of business. The Company continues to maintain its disciplined approach to underwriting in this highly competitive market, renewing business and writing new business only where it believes rates are acceptable and terms and conditions are appropriate for the exposure.

	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	%

The overall decline in gross premiums written in the commercial lines was partially offset by growth from the accident and health business.

	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	%

Casualty Gross Premiums Written

For the three months ended ~~September~~March 3031, ~~2007~~2009, gross premiums written ~~associated~~in ~~with~~casualty ~~the Company’s core commercial~~ lines, ofwhich ~~business~~include ~~(excludes~~the ~~“other”~~general ~~lines~~liability, workers’ ofcompensation ~~business~~and incommercial ~~the~~automobile ~~tables~~lines ~~above),~~of ~~declined~~ business, decreased by $5346,~~621~~854, or 1726.15%, as compared to the three months ended ~~September~~March 3031, ~~2006,~~2008. The decrease was primarily due to a ~~decline~~reduction in new business of approximately 33 45% and modest price decreases on renewal policies of approximately 81%, ~~partially~~while ~~offset by an increase in~~ renewal retention rates ofwere ~~approximately~~stable. ~~seven~~The ~~percentage~~ significant ~~points.~~reduction ~~For~~in ~~the~~commercial ~~nine~~auto ~~months ended September 30, 2007,~~ gross premiums ~~associated with~~written ~~core~~ is ~~commercial~~due ~~lines~~to ~~declined~~the byCompany ~~$100,500,~~more oraggressively ~~10.4%,~~reducing ~~compared~~its exposure to transportation ~~the~~accounts ~~corresponding~~where ~~2006~~loss ~~period, primarily~~experience ~~due~~was tounfavorable. Aside afrom ~~decline~~modest improvement in ~~new~~California ~~business~~workers’ compensation ofrates, ~~approximately~~in ~~21%~~the ~~and~~first ~~price~~quarter ~~decreases~~of on2009 ~~renewal~~casualty ~~policies~~ business ofacross ~~approximately~~the ~~8%,~~industry ~~partially~~is ~~offset~~continuing byto ansuffer ~~increase~~from inadequate ~~in renewal retention~~ rates ~~of approximately~~with ~~four~~some ~~percentage~~declines ~~points~~in pricing.

25 32

~~The property market in particular became significantly softer in the third quarter of 2007, as~~ ~~reflected~~ Property byGross ~~the~~Premiums ~~decline in gross premiums written of approximately 44%, with several major~~Written 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~~ For the three months ended March 31, 2009, gross premiums written in property lines, which include the property and commercial multi-peril lines of business, decreased by $25,010, or 36.9%, as compared to the three months ended March 31, 2008. The decrease was primarily due to a reduction in new business of approximately 25%, modest price decreases on renewal policies of approximately 2% and a reduction in renewal retention rates of approximately 6 percentage points. In addition to soft market conditions which have significantly affected the Company’s property business, the decrease in property gross premiums written is also due to a continued reduction in habitational business, where loss ratios are higher than the remainder of the book of business, as well as a reduction in accounts with larger total insured values.

~~For~~ The ~~the~~property ~~three~~market ~~and~~softened ~~nine~~throughout ~~months~~2008, ~~ended~~with ~~September 30,~~several ~~2007,~~major competitors ~~gross~~offering ~~premiums~~more ~~written~~capacity in ~~casualty lines, which include~~ the ~~workers’~~coastal ~~compensation,~~wind ~~general~~areas ~~liability~~ and ~~commercial automobile lines of~~ ~~business,~~ greater ~~decreased~~capacity byand ~~$14,500,~~more orcompetitive ~~7.4%,~~pricing ~~and~~on ~~$52,914,~~non-catastrophe exposed ~~or 8~~business.~~6%,~~ ~~respectively,~~Overall asproperty ~~compared~~rates appear to ~~the~~be ~~three months and nine months ended September 30~~ stabilizing, ~~2006~~or ~~due~~even toincreasing ~~a decline~~ in ~~new~~a ~~business~~few ~~and price decreases on renewal policies~~cases, ~~partially~~driven ~~offset~~ by reduced ancapacity ~~increase~~ in ~~renewal~~peak ~~retention~~catastrophe ~~rates.~~zones ~~For the~~as ~~nine~~a ~~months~~result ~~ended~~of significant ~~September 30,~~catastrophe ~~2007,~~losses ~~new~~sustained ~~business~~in ~~declined~~2008 byfrom ~~approximately~~Hurricane Ike ~~17%~~ and ~~prices on renewal policies declined by approximately 7% whereas renewal retention rates~~ increased ~~by approximately~~property ~~four~~catastrophe ~~percentage~~reinsurance ~~points~~costs.

~~The casualty market experienced an acceleration of softening market conditions during 2006,~~ ~~particularly~~ Other ~~with~~Gross ~~respect~~Premiums ~~to the California workers’ compensation business, which has been affected~~Written 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~~ The increase in other gross premiums written was primarily due to significant growth in the Company’s accident and health book of business. Previously written in the “B++” rated Fairmont companies, the accident and health business continues to benefit from Crum & Forster’s “A” A.M. Best rating, which has resulted in the Company acquiring several new programs since 2007 that has contributed to business growth. Additionally, in general, the accident and health business is not aligned with the traditional property and casualty market cycle which has been experiencing very soft market conditions.

For the three and nine months ended September 30, 2007, gross premiums written in property lines, which include the property and commercial multi-peril lines of business, decreased by $39,121, or 33.1%, and $47,586, or 13.6%, respectively, as compared to the three and nine months ended September 30, 2006, primarily due to a decline in new business and price decreases on renewal policies, partially offset by an increase in renewal retention rates. The property market experienced a significant hardening in the first three quarters of 2006 in the wake of the 2005 hurricane activity, but showed signs of softening in the fourth quarter. This market softening, primarily driven by the mild 2006 hurricane activity, continued through the first nine months of 2007, with several major competitors offering more capacity in the coastal wind areas and greater capacity and more competitive pricing in non-catastrophe exposed business. The property market became significantly softer in the third quarter of 2007, even in catastrophe-exposed areas, as evidenced by 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.

Other gross premiums written

The increase in other gross premiums written in both the three and nine month periods ended September 30, 2007 as compared to 2006, was primarily due to significant growth in the Company’s accident and health book of business. Previously written in the “B++” rated Fairmont companies, the accident and health business has particularly benefited from 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

For the three months ended ~~September~~March 3031, ~~2007~~2009, net premiums written decreased by $2564,~~727~~383, or 826.83%, as compared to the three months ended ~~September~~March 3031, ~~2006~~2008. ~~For~~The ~~the~~decrease ~~nine~~was ~~months~~generally ~~ended September 30,~~in ~~2007,~~ line ~~net~~with ~~premiums written decreased by $26,325, or 3.0%, compared to~~ the ~~nine~~decrease ~~months ended September 30, 2006. The lower decline~~ in ~~net premiums written relative to~~ gross premiums written ~~is due to increased retention on the property, umbrella and accident and health lines of business~~.

Premiums Earned

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 nine~~ months ended ~~September~~March 3031, ~~2007~~ 2009, premiums earned decreased ~~increased~~ by $1364,~~744~~380, or 423.97%, ~~and $102,725, or 13.0%, respectively,~~ as compared to the three ~~and nine~~ months ended ~~September~~March 3031, ~~2006~~2008. The ~~increase~~decrease inwas ~~premiums~~generally ~~earned~~comparable ~~relative~~ to the ~~decline~~decrease 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.~~

Losses and Loss Adjustment Expenses

For the three ~~and nine~~ months ended ~~September~~March 3031, ~~2007~~2009, the Company’s calendar ~~year~~period loss and LAE ratio improved to 65.65% ~~and~~from 6577.~~7%, respectively, compared to 68.~~1% ~~and 68.4%,~~ for the three ~~and nine~~months ~~month periods~~ ended ~~September~~March 3031, ~~2006~~2008, a ~~respectively~~decrease of 11.6 points. The ~~improvement~~decrease in the ~~nine~~loss ~~months ended~~ratio ~~September 30, 2007 as compared to 2006~~ is principally due to anfavorable ~~improved~~prior ~~accident~~ year loss ~~ratio,~~development asin 2009 ~~discussed~~ as ~~below,~~compared ~~and~~to ~~higher~~adverse ~~favorable~~ prior year loss development. ~~The~~in ~~majority~~2008, which ofwas primarily attributable to the ~~net~~settlement of an ~~favorable~~ asbestos ~~development~~lawsuit ~~was~~(9.4 loss ratio points) in the ~~workers’~~first ~~compensation~~quarter ~~line~~ of 2008. ~~business~~In inaddition, the current accident ~~years~~year ~~2006,~~loss ratio improved ~~2005~~ by ~~and~~approximately ~~2004,~~1.5 ~~partially~~points ~~offset~~in bythe ~~adverse~~first ~~emergence~~quarter of ~~property~~2009 ~~losses~~as compared into ~~accident~~the ~~year~~first ~~2006.~~quarter of 2008 due to lower catastrophe losses. Included in prior year ~~favorable~~ loss development was $103,~~819~~721 and $103,~~249~~803 of amortization of deferred income on retroactive reinsurance contracts in the ~~nine~~three months ended ~~September~~March 3031, ~~2007~~ 2009 and ~~2006~~2008, respectively.

The accident year loss and LAE ratio ~~improved~~was ~~to 69~~70.87% for the first quarter ~~nine months~~ of ~~2007~~2009 compared to 7172.92% for the first ~~nine~~quarter ~~months~~ of ~~2006~~2008. The ~~decrease~~full isyear ~~primarily due to lower catastrophe losses in 2007 compared to 2006. Results for~~ accident year ~~2006~~2008 ~~were also adversely affected by unfavorable~~ loss ~~emergence~~ratio inwas ~~property~~80.4%, ~~reflecting an increased frequency~~ inclusive of ~~large fire losses over this period, particularly with respect to habitational business~~7.2 ~~The~~loss ~~full~~ratio ~~year~~points ~~accident~~from ~~year~~Hurricanes ~~2006 loss~~Gustav ~~ratio~~and ~~was 70~~Ike.~~3%.~~

Underwriting Expenses

Underwriting expenses are comprised of policy acquisition costs and other underwriting expenses. Policy acquisition costs are those costs that vary with and are primarily related to the acquisition of new and renewal policies and are comprised of commissions paid to producers and premium taxes. Other underwriting expenses consist of all other operating expenses associated with the Company’s underwriting activities, including salaries and benefits, information technology and rent. For the three ~~and nine~~ months ended ~~September~~March 3031, ~~2007~~2009, the Company’s underwriting expense ratio was 2932.5% ~~and 28.4%, respectively,~~ as compared to ~~an underwriting expense ratio of~~ 29.38% ~~and 29.2%~~ for the three ~~and nine~~ months ended ~~September~~March 3031, ~~2006, respectively~~2008.

The Company’s policy acquisition expense ratio ~~increased~~remained relatively tostable ~~15.6%~~at ~~and~~ 14.72% for the three ~~and nine~~ months ended ~~September~~ March 3031, ~~2007,~~2009 ~~respectively,~~as ~~from~~compared ~~15.1%~~to ~~and~~ 14.01% for the three months ~~and nine~~ ~~months~~ ended ~~September~~March 3031, ~~2006, respectively~~2008. ~~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~~ Continued soft market conditions and a weak economy continue to adversely affect the Company’s other underwriting expense ratio ~~improved~~which increased to 1318.93% ~~and 13.7%~~ for the three ~~and nine~~ months ended ~~September~~ March 3031, ~~2007,~~2009 ~~respectively,~~from ~~compared to 14.2% and~~ 15.27% for the three ~~and nine~~ months ended ~~September~~ March 3031, ~~2006, respectively~~2008. ~~The~~Despite ~~improvement~~reduced isexpenses, primarily resulting ~~attributable~~from toreduced compensation costs, the increase in the ~~growth~~ other underwriting expense ratio is attributable to a reduction in net earned ~~premiums~~premium of approximately 24%, which exceeded the rate of expense improvement which was approximately 11%.

Investment Results

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

	Three Months Ended						~~Nine Months Ended~~
	September 30,						September 30,
	March 31,
	2007			2006			2007			2006
	2009			2008
Average investments, including cash and cash equivalents, at book value1	$	4,161,348		$	3,807,875		$	4,077,203		$	3,725,919
Average investments, at book value1	$	3,861,573		$	4,548,155
Investment income	$	3435,~~296~~270		$	2115,~~096~~841		$	~~109,226~~		$	~~170,375~~
Realized investment gains		70,220			45,501			73,627			177,039
Realized investment (losses) gains		(91,071	)		155,268
Pre-tax equity in earnings of investees		15,463			5,917			27,917			15,254
Pre-tax equity in earnings (losses) of investees		123			(712	)
Change in unrealized investment gains (losses) and foreign currency translation		88,024			106,392			66,224			(127,958	)
Change in unrealized investment gains and losses and foreign currency translation		(118,727	)		(13,403	)
Total return on investments	$	~~208~~(174,~~003~~405	)	$	~~178~~156,~~906~~994		$	~~276,994~~		$	~~234,710~~
Annualized total return on investments		20(18.01	)%		1813.8	%		~~9.1~~	%		~~8.4~~	%

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

The Company manages its investment portfolio with an emphasis on total return on assets under management. Total return for ~~the~~ 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 a percentage of the average book value of the portfolio during the period. ~~Total~~General ~~annualized~~economic ~~rate~~conditions, stock market conditions, of fluctuations ~~return~~in ~~was~~interest ~~20.0%~~rates and ~~9.1%~~many ~~for~~other factors can affect the ~~three~~returns ~~and~~on ~~nine~~investments ~~months~~and ~~ended~~the ~~September 30,~~Company’s ~~2007,~~ability ~~respectively,~~to as control ~~compared~~the totiming ~~18.8%~~of ~~and~~the 8realization of investment income.4% ~~for~~In 2008, the ~~three~~Company significantly reduced its credit default swap portfolio and ~~nine~~closed ~~months~~out ~~ended~~its ~~September 30,~~total ~~2006~~return swap positions and equity and equity index short positions, ~~respectively.~~realizing significant ~~Funds~~ gains ~~held~~and ~~interest~~reinvesting ~~related~~the proceeds to ~~corporate~~a ~~aggregate~~large ~~reinsurance~~extent ~~contracts~~in ~~reduced~~equity securities. As a result, the ~~rate~~investment ofportfolio is exposed, to ~~return~~ a ~~for~~much ~~the~~larger ~~three~~degree ~~and~~than ~~nine~~in ~~months~~previous ~~ended~~reporting ~~September 30~~periods, ~~2007~~to volatility byin ~~0.4%~~the ~~and~~equity bymarkets ~~0.5%~~which ~~for~~has caused the ~~three~~decline ~~and~~in ~~nine~~ the ~~months~~annualized ~~ended~~return ~~September 30,~~on ~~2006~~investments in the first quarter of 2009.

27 Subsequent to March 31, 2009, global equity markets and credit markets have broadly improved, and many of the Company’s investments have appreciated in value, some by significant amounts. At April 24, 2009, the market value of the Company’s investments had appreciated by approximately $230,000 from the market value at March 31, 2009, with the value of equities and equity-related securities having appreciated by approximately $152,000 and the value of debt securities having appreciated by approximately $78,000. The appreciated value excludes changes in mortgage-backed securities and investments in certain partnerships with an aggregate carrying value of $174,002 at March 31, 2009. The market values and the liquidity of the Company’s investments are volatile and may vary dramatically either up or down in short periods, and their ultimate value will therefore only be known over the long term.

~~The following paragraphs discuss each~~ ~~component of the return on investments.~~ 34

~~The increase in investment income of $13,200, or 62.6%, in the third quarter of 2007 as compared to~~ ~~the~~ Investment ~~third quarter of 2006 was primarily due to higher income from other invested assets and lower~~Income investment fees. In the third quarter of 2006, investment income was adversely affected by net adjustments of approximately $6,962 pre-tax in respect of the Company’s equity method investees. For further details on accounting adjustments in respect of certain investments in the prior year, see Note 11 to the consolidated financial statements. For the nine months ended September 30, 2007, the decrease in investment income of $61,149, or 35.9%, compared to the nine months ended September 30, 2006, was primarily due to lower earnings from HWIC, which realized significant capital gains through September 30, 2006, as well as lower earnings from other partnerships. Earnings from HWIC and other partnerships were $1,869 and $8,153, respectively, in the nine months ended September 30, 2007 and $58,750 and $22,286, respectively, in the nine months ended September 30, 2006. Partially offsetting these effects were lower investment fees charged in 2007 compared to 2006.

The ~~increase~~components inof ~~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~~for ~~equity securities to $333 in third quarter of 2007 as compared to $73,238 in~~ the ~~third~~three ~~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~~ March 3031, ~~2006,~~ ~~was~~2009 ~~primarily the result of significant net realized gains achieved on the sale of certain fixed income~~ and ~~equity~~2008 ~~securities~~are insummarized 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~~follows: losses of $18,010 in the nine months ended September 30, 2006. Included in net realized investment gains discussed above are other 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.

Pre-tax equity in earnings of investees was $15,463 and $27,917, and $5,917 and $15,254, for the three and nine months ended September 30, 2007 and 2006, respectively. The increase in pre-tax equity in earnings of investees in both the three and nine month periods ended September 30, 2007, was primarily attributable to higher earnings from Northbridge. Northbridge reported significant realized investment gains in the second quarter of 2007, 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 and nine months ended September 30, 2007 and 2006, respectively. Northbridge’s earnings in the nine month period ended September 30, 2006 were affected by equity adjustments and mark to market adjustments in respect of the derivative features embedded in convertible bonds. For further details on accounting adjustments in respect of certain investments in the prior year, see Note 11 to the consolidated financial statements.


	Three Months Ended
	March 31,
	2009			2008

Interest on fixed income securities	$	28,514		$	24,291
Dividends from equity securities		12,163			6,908
Earnings (losses) from other invested assets		804			(13,680	)
Other, primarily interest on cash and cash equivalents		497			9,953

Gross investment income		41,978			27,472
Interest on funds held under reinsurance contracts		(3,767	)		(5,309	)
Investment expenses		(2,941	)		(6,322	)

Investment income	$	35,270		$	15,841

In The increase in investment income of $19,429 in the three months ended ~~September~~March 3031, ~~2007~~2009 ~~and~~as ~~2006,~~compared to the ~~change~~three inmonths ~~unrealized investment gains~~ended ~~and~~ March 31, ~~losses~~2008, ~~and foreign currency translation~~ was ~~principally~~primarily due to the combined effects of: a(i) gains ~~rally in~~on the ~~U.S.~~Company’s ~~Treasury~~partnership ~~market,~~investments in ~~attributable~~2009 as compared to ~~the~~significant ~~collapse~~losses incurred in 2008, the majority ~~sub-prime~~of ~~mortgage~~which ~~market,~~was ~~and~~attributable ~~a weakening~~to ~~U.S.~~one ~~dollar~~partnership investment which ~~resulted~~was liquidated in anthe ~~increase~~fourth inquarter ~~foreign~~of ~~currency~~2008; (ii) higher ~~translation~~dividends ~~gains.~~from Inequity ~~the nine~~securities ~~months~~due ~~ended~~to ~~September 30,~~a significant ~~2007,~~increase in the ~~change~~Company’s holdings of equity securities in ~~unrealized~~the ~~investment~~fourth ~~gains~~quarter ~~and~~of ~~losses~~2008 and (iii) higher ~~foreign~~ income ~~currency~~from ~~translation~~fixed ~~was~~income ~~principally~~securities due to anhigher ~~increase~~yields infrom municipal ~~unrealized~~securities ~~gains~~as oncompared ~~the~~to U.S. Treasury securities, partially offset by a decrease in the Company’s ~~equity~~holdings ~~portfolio~~of fixed ~~and~~income ~~other invested assets~~securities. InOffsetting the ~~nine~~increase ~~months~~in ~~ended September 30,~~investment ~~2006,~~ income ~~the~~was ~~change~~a decline in ~~unrealized~~interest ~~investment~~on ~~gains~~cash and ~~losses~~cash ~~was primarily~~ equivalents due to alower ~~reduction~~cash collateral held in ~~unrealized~~ ~~gains~~2009 onas ~~equity~~compared ~~securities~~to ~~attributable~~2008, related to the ~~sale~~SPDRs ofshort-sales ~~certain~~which ~~equity~~were ~~securities,~~closed out in the ~~including~~ fourth ~~approximately~~quarter ~~$92.3 million~~of on2008 ~~the~~and ~~aforementioned~~a ~~sale~~decline ofin ~~Zenith~~year ~~common~~over ~~stock~~year short-term interest rates.

Realized Investment Gains and Losses

Net realized investment (losses) gains in the three months ended March 31, 2009 and 2008 are summarized as follows:


	Three Months Ended
	March 31,
	2009			2008

Fixed income securities	$	265		$	12,137
Equity securities		1,484			—
Derivatives and short-sale obligations		31,854			226,699
Investments at equity and other invested assets		(70,273	)		(42,655	)

		(36,670	)		196,181
Other than temporary impairment charges:
Equity securities		(50,894	)		(39,648	)
Fixed income securities		(3,507	)		(1,265	)

		(54,401	)		(40,913	)

Total pre-tax net realized investment (losses) gains	$	(91,071	)	$	155,268

The decrease in net realized investment gains in the first quarter of 2009 of $246,339 as compared to the first quarter of 2008 is primarily due to significant gains recognized in 2008 related to credit default swaps and SPDRs short-sales. During the first quarter of 2009, the Company recorded net gains of $32,196 on its credit default swaps as compared to net gains of $153,973 and $69,515 on its credit default swaps and SPDRs short-sales, respectively, in the first quarter of 2008. In 2008, the Company significantly reduced its credit default swap portfolio and closed out its SPDRs and equity short-sales.

Difficult investment market conditions that continued through the first quarter of 2009 resulted in other than temporary impairment charges of $54,401 in the three months ended March 31, 2009 as compared to charges of $40,913 in the three months ended March 31, 2008.

Losses on other invested assets in the three months ended March 31, 2009 are principally attributable to mark-to-market losses of $69,152 related to the Company’s investment in Odyssey Re Holdings Corp. (“Odyssey”), an affiliated company, for which the Company has elected the fair value option under SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities — Including an Amendment of FASB Statement No. 115 (“SFAS 159”). In the three months ended March 31, 2008, losses on other invested assets were principally attributable to mark-to-market losses of $41,084 related to the Company’s investment in Northbridge Financial Corporation (“Northbridge”), an affiliated company, pursuant to the fair value option elected under SFAS 159. The investment in Northbridge was sold in the fourth quarter of 2008.

Interest and Other Expense

For the three ~~and nine~~ months ended ~~September~~March 3031, ~~2007~~2009, interest and other expenses, ~~excluding costs related to early retirement of debt of $21,188,~~ were $87,~~120~~736 ~~and $23,795, respectively, as~~ compared to $109,~~065~~162 ~~and $30,793, respectively,~~ for the three ~~and nine~~ months ended ~~September~~March 3031, ~~2006~~ 2008. The ~~Company has benefited from~~ lower ~~interest~~ expense in ~~the~~2009 ~~three and nine months ended~~was ~~September 30,~~ primarily ~~2007,~~due ~~attributable~~ to ~~the~~lower ~~restructuring~~charitable ofcontributions ~~its~~resulting ~~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~~earnings.

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

As a holding company with no direct operations, Crum & 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. The ~~Company~~ Company requires cash to meet its annual debt service obligations (~~approximately~~ $2625,~~000~~575 per year), to pay corporate expenses, including income taxes, and, ultimately, to repay the $~~334~~330,~~270~~000 aggregate principal amount of senior notes, ~~$4,270 of which is~~ due in ~~2013 and $330,000 of which is due in~~ 2017. ~~For further~~ 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 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 ~~September~~March 3031, ~~2007~~ 2009, US Fire reported statutory earned surplus of $~~364~~323,~~965~~283 and North River reported statutory earned surplus of $70120,~~180~~202. On In March 29 2009, ~~2007,~~ both US Fire ~~paid~~and aNorth ~~dividend~~River inreceived approval from the ~~amount~~Delaware Department of ~~$97~~Insurance and New Jersey Department of Banking and Insurance,~~300~~ respectively, to ~~the~~pay ~~Company~~extraordinary dividends. ~~The~~Although ~~payment~~the ~~included~~amount $9of the dividend for both companies was 10% of prior year-end surplus (the amount of an ordinary dividend),~~005~~ the extraordinary dividend approvals allowed acceleration of ~~HWIC~~the ~~Asia~~dividend ~~Fund~~payments ~~stock~~from atOctober ~~market~~to ~~value~~March for US Fire and ~~$88,295~~from ofMay ~~cash~~to March for North River. On ~~May~~March 1427, ~~2007~~ 2009, North River paid a cash dividend in the amount of $4044,~~900~~ 100 to the Company. ~~After~~and ~~the~~on ~~aforementioned~~March 30, 2009, US Fire paid a cash dividend ~~actions~~in the amount of $94, ~~neither~~300 USto the Company. Neither US Fire nor North River may pay ~~additional~~any further dividends in ~~2007~~ 2009 without prior regulatory approval. On April 16, 2009, the Company paid a cash dividend to Fairfax of $100,000.

~~Cash~~ There was no cash used in financing activities ~~was primarily~~ in ~~respect of dividends paid to Fairfax of $128,818 and $90,000 in~~ the ~~nine~~ three months ended ~~September~~March 3031, ~~2007~~2009. ~~and~~Cash ~~2006,~~used ~~respectively,~~in ~~and~~financing activities ~~refinancing~~in of the ~~Company’s~~three ~~long-term~~months ~~debt~~ended ~~in 2007. On~~ March 2931, ~~2007 and May 29~~2008, ~~2007, the Company paid cash~~was ~~shareholder~~ comprised ~~dividends~~ of ~~$61,000~~dividends ~~and $30,000, respectively, to Fairfax. On September 11, 2007, the Company~~ paid ~~an additional dividend~~ to Fairfax of $7980,~~700, consisting of $37,818 cash and a promissory note of $41,882. In May 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%~~. ~~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 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 $1,~~109~~058,~~154~~255 at ~~September~~March 3031, ~~2007~~2009, as compared to $1,~~093~~166,~~055~~432 at December 31, ~~2006~~2008. The decrease ~~increase~~in shareholder’s equity was primarily the result of net unrealized investment losses of ~~current~~$77,173 and the current year ~~earnings~~net loss of $30,947. Statutory surplus was $1,174,770 at March 31, 2009 and ~~net~~$1,410,612 ~~unrealized~~at December 31, 2008. ~~investment~~ The ~~gains~~decrease ~~partially~~from ~~offset~~prior byyear ~~cash~~end was primarily due to net unrealized investment losses of $151,356 and ~~non-cash~~$138,400 of dividends ~~paid~~from the insurance companies to ~~Fairfax~~Crum & Forster Holdings Corp., partially offset by statutory net income of $32,502.

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~~ The ~~provided~~prolonged bysoft ~~operating~~market ~~activities~~conditions ~~for~~in which the ~~nine~~insurance subsidiaries ~~months~~are ~~ended~~currently ~~September 30,~~operating ~~2007~~have ~~was~~resulted ~~$49,932~~in asdouble ~~compared~~ digit topercentage ~~$82,656~~declines ~~for~~in premium volume over the ~~nine~~last ~~months~~two years. ~~ended~~In ~~September 30~~addition, ~~2006.~~the ~~The~~Company ~~decrease~~initiated ~~from~~actions ~~prior~~in ~~year~~2008 isto ~~primarily~~ eliminate ~~attributable~~unprofitable toclasses ~~lower~~of ~~loss~~business. ~~recoveries~~The ~~associated~~Company’s property ~~with~~business ~~the~~is ~~2005~~declining ~~hurricanes,~~most ~~higher underwriting~~markedly; ~~expenses~~however, ~~reflecting~~due ~~increased~~to the ~~compensation~~short ~~and~~tail ~~timing~~nature of ~~technology~~the ~~payments~~claims, ~~lower premium~~it ~~collections~~is ~~and~~expected ~~costs~~that ~~related~~claim payments towill also decline in the ~~early~~relative ~~retirement~~near ofterm as the exposures run off. The Company’s ~~2013~~casualty ~~notes, which~~business ~~were~~ (approximately ~~partially~~60% ~~offset~~of bytotal ~~lower~~gross ~~paid~~premiums ~~losses~~written ~~primarily~~year ~~associated~~to ~~with~~date in ~~the~~2009) in ~~2005~~general ~~hurricanes~~has a longer tail, ~~lower~~meaning the period ~~reinsurance~~ of ~~payments~~time ~~reflecting~~from the ~~favorable~~occurrence ~~effect~~of a claim through the settlement of a ~~higher~~liability ~~retentions~~may ~~and~~extend ~~lower~~several ~~income~~years ~~tax~~into the future and as a ~~payments.~~ result ~~Cash~~cash ~~provided~~flow may be adversely affected by ~~investing~~claims ~~activities~~from ~~for~~prior years. Additionally, the ~~nine~~lapse ~~months~~of ~~ended~~time ~~September 30~~between payments to claimants and recoveries from reinsurers, ~~2007~~if ~~was~~collections from ~~$28~~ reinsurers are not received on a timely basis,~~527~~ aswill ~~compared~~directly affect cash flows. Due to ~~cash~~this ~~provided~~uncertainty byregarding ~~investing~~the ~~activities~~amount and timing of ~~$394,169~~settlement inof ~~the~~unpaid ~~nine~~claims ~~months~~and ~~ended~~ultimate ~~September 30,~~ recoveries ~~2006.~~from ~~The~~reinsurers, ~~decrease~~the ininsurance subsidiaries’ cash ~~provided~~flow byfrom ~~investing~~operations ~~activities~~and inliquidity ~~the~~needs ~~nine~~may ~~months~~vary from ~~ended~~ period ~~September 30,~~to ~~2007~~period. ~~was~~If ~~primarily~~premium ~~attributable~~receipts continue to ~~lower~~decline ~~proceeds~~and claim ~~from~~payments ~~the~~continue ~~sales~~at ofhistorical ~~fixed~~norms or greater, the ~~income~~ Company ~~and~~is ~~equity~~likely ~~securities~~to ~~and~~have ~~other~~negative ~~invested~~cash ~~assets~~flow from operations throughout 2009.

29 Cash used in operations was $207,239 for the three months ended March 31, 2009 as compared to cash provided from operations of $24,420 for the three months ended March 31, 2008. The unfavorable variance from prior year is primarily attributable to higher income tax payments of approximately $96,000 (substantially related to fourth quarter 2008 realized investment gains), higher net paid losses (approximately $60,000) and lower premium collections (approximately $50,000), reflective of the decline in gross premiums written. The higher net paid losses are primarily related to the second of three annual payments of $18,300 associated with an asbestos lawsuit settlement in the first quarter of 2008 and net paid losses associated with 2008 hurricanes, namely Hurricanes Ike and Gustav, of approximately $15,100, whereas 2008 results include net paid loss recoveries of approximately $18,000 related to the 2004 and 2005 hurricanes and commutation proceeds of $10,400 from a reinsurance treaty.

~~Investment~~ During ~~Portfolio~~the fourth quarter of 2008 and the first quarter of 2009, the Company made a significant amount of investments in fixed income and equity securities, when the Company determined that market price levels were attractive. In doing so, it reduced its historically high levels of cash, cash equivalents and short-term investments to lower levels. During the first quarter of 2009, the Company sold several municipal securities with a fair market value of approximately $146,200 to third-parties and Fairfax affiliates to meet operating needs and restore its cash and short-term investments position to more normal levels. At March 31, 2009, the insurance subsidiaries held $220,413 in highly liquid, short-term and other marketable securities to meet their operating needs and provide available cash in the event of unanticipated large claim payments. Management believes that the insurance subsidiaries have sufficient cash and short-term investments, that together with cash generated from future investing operations, will meet their operating liquidity needs.

~~Investments~~ The inaggregate ~~available-~~carrying value of the Company’s investment portfolio, including cash and cash equivalents and assets pledged for~~-sale~~ ~~fixed~~derivatives, ~~income~~was $3,538,379 and ~~equity~~$4,032,034 ~~securities~~at March 31, 2009 and December 31, 2008, respectively, of which ~~include~~$362,956 ~~assets~~and ~~pledged~~$709,799 was held in cash, cash equivalents ~~for~~ and short-~~sale~~tem ~~obligations~~investments at March 31, ~~are~~2009 ~~summarized~~and December 31, ~~below:~~2008, respectively.

	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

1 The ~~Includes~~Company’s Uinvestment portfolio has exposure to credit risk primarily related to fixed income securities.S Management attempts to control this exposure by emphasizing investment grade credit quality in the fixed income securities purchased, although at times the Company may invest to a limited extent in non-investment grade fixed income securities if market opportunities avail. ~~Treasury~~Management believes that this concentration in investment grade securities ~~pledged~~reduces ~~for~~the ~~short~~Company’s exposure to credit risk to an acceptable level. The Company holds certain mortgage-~~sale~~backed ~~obligations~~securities (approximately 4% of the total investment portfolio of $3.5 billion), that were purchased at adeep discounts to par. In addition, the Company has purchased credit default swaps, referenced to various issuers in the banking, mortgage and insurance sectors of the financial services industry, which serve as economic hedges against declines in the fair value of the Company’s financial assets. Counterparties to the credit default swaps expose the Company to credit risk in the event of non-performance, which the Company endeavors to limit through the terms of agreements negotiated with the counterparties. Pursuant to the swap agreements, the counterparties are required to pledge cash or U.S. Treasury securities as collateral, in the event that appreciation in the fair value of the credit default swaps meets certain thresholds. The fair value of this collateral, which is not reflected on the Company’s balance sheet, is held by an independent custodian in the name of Fairfax on behalf of the Company, or directly in the name of the Company, and amounted to $~~212~~37,~~029~~035 ~~(amortized~~at ~~cost~~March 31, 2009. The Company has the right to sell or repledge $18,172 of this collateral, which it has not exercised. The Company believes that any remaining credit risk exposure, represented by the uncollateralized fair value of the credit default swaps ($~~224~~24,~~048~~331 at March 31, 2009), is low given the diversification among the various counterparties.

~~The~~ At ~~total gross unrealized losses of $154~~March 31,~~435~~ ~~represent~~2009 ~~7.8%~~and ~~of the cost or amortized cost of such securities in the aggregate. At September~~December 3031, ~~2007~~2008, U84.S.4% ~~Treasury securities accounted for~~and ~~substantially~~ 86.7% ~~all~~ of the ~~$126,903~~Company’s ~~of gross unrealized losses in the~~ fixed income ~~portfolio. These~~ securities ~~are~~were ~~backed by the full faith and credit of the United States government and the Company~~rated ~~has~~ investment ~~the ability and intent to hold such securities for a period of time sufficient to allow a market recovery~~grade, ~~or to maturity, if necessary~~respectively.

At September 30, 2007, approximately $16,755, or 60.9%, of the equity portfolio gross unrealized losses was attributable to one security that has been in a loss position for approximately three months and whose loss did not exceed 10% of its cost at September 30, 2007. The remaining balance of the unrealized losses was attributable to seven securities, none of which has been in a loss position for greater than three consecutive months. Five of the seven securities had unrealized losses in excess of 10% of their cost. The Company has the intent and ability to hold such securities for a period of time sufficient to allow a market 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 September 30, 2007 and December 31, 2006, 93.3% 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 $355,882 and $307,818 at September 30, 2007 and December 31, 2006, respectively, and are included in other invested assets on the consolidated balance sheets. Earnings of investment companies and similar equity method investees are included in investment income on the consolidated statements of income, and earnings of other equity method investees are included in equity in earnings of investees, net of tax, on the consolidated statements of income. For the three and nine months ended September 30, 2007 and 2006, earnings from equity method investees are 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~~ 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 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) 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~~insurance ~~ratings~~subsidiaries are ~~the lowest necessary to compete in its targeted markets. The~~ ~~Company~~ assigned ~~may not maintain its~~ financial strength ratings from ~~the~~major rating agencies~~. A downgrade or~~ ~~withdrawal~~ which ofinclude ~~any~~A.M. Best ~~rating could severely limit or prevent the~~ Company ~~from writing quality new or~~ ~~renewal business~~ (“A.M. Best”), ~~securing~~Standard & ~~adequate~~Poor’s (“S&P”) ~~reinsurance~~Insurance onRating ~~acceptable~~Services ~~terms~~ and Moody’s ~~retaining~~Investors ~~its~~Service ~~key~~(“Moody’s”). ~~management~~ Crum & ~~and employees. The Company~~Forster’s ~~ratings~~insurance bysubsidiaries ~~these~~have ~~rating~~an “A” ~~agencies~~financial ~~are~~strength ~~based~~rating on(the athird ~~variety~~highest of ~~factors,~~ fifteen ~~many~~rating ofcategories) ~~which~~with ~~are~~a ~~outside~~stable ofoutlook ~~its control~~from A.M. Best, ~~including~~a ~~the~~“BBB+” financial ~~condition~~strength ~~of Fairfax and~~rating ~~Fairfax’s other subsidiaries and affiliates,~~ (the ~~financial~~fourth ~~condition~~highest ~~or actions~~ of ~~parties~~nine ~~from which~~major ~~the~~rating ~~Company~~categories) ~~has~~with ~~obtained~~a stable ~~reinsurance,~~outlook ~~factors~~from ~~relating~~S&P’s toInsurance ~~the~~Rating ~~sectors~~Services and ina ~~which~~“Baa2” ~~the~~financial ~~Company~~strength orrating from ~~its~~ Moody’s ~~reinsurers conduct business and~~ (the ~~statutory~~fourth ~~surplus~~highest of ~~its~~nine ~~insurance~~major ~~subsidiaries, which is~~rating ~~adversely~~ categories) ~~affected~~with bya ~~underwriting~~stable ~~losses and dividends paid by them to Crum & Forster~~outlook.

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.~~ All ~~These~~dollar ~~risks~~amounts 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~~thousands, ~~such~~unless asotherwise ~~interest rates, equity prices and foreign currency exchange rates~~indicated. ~~All~~ ~~market sensitive instruments discussed here relate to the Company’s investment portfolio, including assets pledged for short-sale obligations.~~

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.

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 ~~September~~March 3031, ~~2007~~2009, the fair value of Crum & Forster’s investment portfolio included $21,~~073~~816,~~179~~ 081 of fixed income securities, ~~including $212,029 of assets pledged for short-sale obligations and $134,770 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 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 September 30, 2007
	At March 31, 2009								At December 31, 2008
	Fair Value of								Fair Value of
	Fixed Income		Hypothetical			Hypothetical			Fixed Income		Hypothetical			Hypothetical
	Portfolio		$ Change			% Change
(dollars in millions)	Securities		$ Change			% Change			Securities		$ Change			% Change
200 basis point decline	$	2,~~624~~099,~~446~~846	$	~~551~~283,~~267~~765			2615.6	%	$	2,106,515	$	339,183			19.2	%
100 basis point decline	$	21,~~325~~961,~~912~~124	$	~~252~~145,~~733~~043			128.20	%	$	1,958,505	$	191,173			10.8	%
Base scenario	$	21,~~073~~816,~~179~~081	$	—			~~0.0~~—	%	$	1,767,332		—			—
100 basis point increase	$	1,~~863~~641,~~360~~181	$	(~~209~~174,~~819~~900	)		(109.16	)%	$	1,584,304	$	(183,028	)		(10.4	)%
200 basis point increase	$	1,~~683~~486,~~804~~467	$	(~~389~~329,~~375~~614	)		(18.81	)%	$	1,425,703	$	(341,629	)		(19.3	)%

As The anCompany has purchased credit default swaps, referenced to various issuers in the banking, mortgage and insurance sectors of the financial services industry. The credit default swaps serve as economic ~~hedge~~hedges against ~~rising~~declines ~~interest~~in ~~rates~~the fair value of the Company’s financial assets. These credit default swaps were acquired by Fairfax and ~~deteriorating~~assigned ~~conditions~~to the Company to facilitate administration of counterparty credit risk and collateral maintenance. The credit default swaps are recorded at fair value with changes in fair value recorded as realized investment gains or losses in the ~~residential~~period in which they occur. ~~housing~~ The Company obtains market-derived fair values for its credit default swaps from third-party providers, principally broker-dealers. In addition, the Company ~~has~~assesses ~~sold~~the reasonableness ~~short~~of ~~securities~~the offair ~~certain~~values ~~U.S.~~obtained ~~financial~~from ~~guarantee~~these ~~insurance~~providers ~~companies~~ by comparing the fair values to values produced using individual issuer credit default swap yield curves, ~~mortgage~~by ~~insurance~~referencing ~~companies~~them to movements in credit spreads and ~~financial~~by ~~institutions~~comparing ~~with~~them ato recent market transaction prices for similar credit default swaps where available. The fair ~~value~~values of ~~$43,494~~credit ~~and~~default swaps are subject ~~$24,605~~ to atsignificant ~~September 30~~volatility arising from the potential differences in the perceived risk of default of the underlying issuers, movements ~~2007~~in credit spreads and ~~December 31,~~the ~~2006,~~length ~~respectively~~of time to the contracts’ maturity. AThe ~~hypothetical~~fair ~~10%~~value ~~decrease~~of the credit default swaps may vary materially either up or down in short periods, and their ultimate value may therefore only be known upon their disposition. Counterparties to the ~~price~~credit ofdefault ~~these~~swaps ~~securities~~expose the ~~would~~company ~~result~~to credit risk in athe $4event of non-performance,~~349~~ which ~~decrease~~Fairfax inand the ~~obligations~~Company endeavor to ~~purchase~~limit through the ~~securities~~ terms ~~sold~~of agreements negotiated with the counterparties. AtPursuant to ~~December 31~~the swap agreements, ~~2006~~the counterparties are required to pledge cash or U.S. Treasury securities as collateral, ain the ~~hypothetical~~event ~~10%~~that ~~decrease~~appreciation in the ~~price~~fair value of ~~these~~the credit ~~securities~~ default ~~would~~swaps ~~have~~meets ~~resulted~~certain inthresholds. aThe ~~decrease~~fair value of $2this collateral,~~461~~ inwhich ~~the~~is ~~obligations~~not toreflected ~~purchase~~on the Company’s balance ~~securities.~~ sheet, ~~The~~is ~~increase~~held by an independent custodian in the ~~Company’s~~name ~~obligation~~of Fairfax toon ~~purchase~~behalf of the ~~securities~~Company, ~~sold~~or ~~short~~directly isin the name of the ~~primarily~~ Company, ~~due~~and amounted to an$37,035 ~~additional~~at ~~$25~~March 31,~~000~~ of2009. ~~security~~The Company ~~short~~has ~~sales~~the ~~executed~~right into ~~the~~sell ~~nine~~or ~~months~~repledge ~~ended~~$18,172 of this ~~September 30~~ collateral, ~~2007~~which it has not exercised. The Company ~~expects~~ believes that aany ~~decline~~remaining incredit ~~the~~risk ~~short-sale~~exposure, ~~obligations~~represented ~~will~~by ~~offset~~the ~~losses~~ uncollateralized infair value of the ~~fixed~~credit ~~income~~default ~~portfolio~~swaps in($24,331 at ~~the~~March 31, ~~event~~2009), ofis alow ~~rise~~given inthe ~~interest~~diversification ~~rates~~among the various counterparties.

Equity Price Risk

At ~~September~~March 3031, ~~2007~~2009, the Company’s ~~equity~~investment portfolio included $~~698~~1,~~321~~286,636 of ~~marketable~~equity securities comprised of $987,660 of available-for-sale equity securities, $202,855 of equity securities for which the Company has elected the fair value option under SFAS 159 and $~~147~~96,~~666~~121 of equities owned by ~~investment companies and similar~~ its equity method investees. This equity portfolio, which represented approximately 1936.74% of the Company’s ~~investment~~ investment portfolio, including cash and cash equivalents ~~and assets pledged for short-sale obligations~~, is exposed to equity price risk, which is defined as the potential for loss in ~~market~~ market value owing to declines in equity prices. A hypothetical 10% decline in the price of each of these equity securities would result in a total decline of $84128,~~599~~664 in the fair value of the equity portfolio at ~~September~~March 3031, ~~2007~~2009. At December 31, ~~2006~~2008, a hypothetical 10% decline in the price of of each of these equity securities would have resulted in a total decline of $79139,~~360~~841 in the fair value of the equity portfolio. The ~~increase~~decrease in the Company’s exposure to equity price risk is ~~the~~principally ~~result of~~attributable to the ~~increase~~decline in ~~the~~ value of the equity portfolio ~~from~~at March 31, 2009 as compared to December 31, ~~2006~~2008.

As 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 those owned by 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 a change in the exchange rate of the foreign currency in which these assets are denominated. At ~~September~~ March 3031, ~~2007~~2009, the Company’s total exposure to foreign currency denominated securities in U.S. dollar terms was approximately $~~460~~254,~~165~~143, or ~~10.~~7.2%, 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 ~~Canadian~~Hong Kong dollar denominated ~~securities~~ and ~~Hong~~Euro ~~Kong dollar~~ denominated securities, which represented 51.98% and 1.46%, respectively, of the Company’s investment portfolio, including cash and cash equivalents ~~and assets pledged for short-sale obligations~~. The 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 $4625,~~017~~414 at ~~September~~March 3031, ~~2007.~~ 2009. At December 31, ~~2006~~2008, a hypothetical 10% decline in foreign currency exchange rates would have resulted in a total decline of $3629,~~803~~499 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 44T. 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.

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.

33 40

~~Part~~ PART II OTHER INFORMATION

OTHER INFORMATION


ITEM 1.	LEGAL PROCEEDINGS

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 ishas ~~participating~~participated in the investigation of these matters. Fairfax and entities in its consolidated group are cooperating fully with these requests. Fairfax and ~~certain~~ 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 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. This ~~The~~inquiry is ongoing and 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~~ Crum & ~~Company~~Forster Holdings Corp. 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~~was ~~included~~filed ~~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~~ 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. InThe ~~October 2006,~~trial ~~the~~ court ~~partially~~dismissed ~~granted defendants’ motion to dismiss~~ the ~~plaintiffs’ complaint, subject to~~federal ~~plaintiffs’~~ antitrust ~~filing~~claims anand ~~amended~~RICO ~~statement~~claims ofwith ~~their~~prejudice ~~case. Plaintiffs thereafter filed their “supplemental statement of particularity”~~ and ~~amended~~declined ~~case statement. In response,~~to ~~defendants~~ accept ~~filed~~supplemental ajurisdiction ~~renewed~~over ~~motion~~plaintiffs’ tostate ~~dismiss~~law claims. On ~~August~~October 3124, 2007, ~~the~~plaintiffs ~~Court~~filed ~~dismissed~~an ~~the antitrust claims~~ appeal with ~~prejudice. On~~the ~~September~~U.S. ~~28,~~Court ~~2007,~~of ~~the~~Appeal ~~court~~for ~~dismissed~~ the ~~RICO~~Third ~~case~~Circuit. ~~with prejudice and declined to accept~~The ~~supplemental~~ briefing ~~jurisdiction~~on ~~over~~appeal ~~plaintiffs’~~has ~~state~~been ~~law claims~~completed. The ~~Judge~~court ~~gave~~heard ~~the~~oral arguments ~~plaintiffs~~on 30April ~~days to~~21, ~~re-plead~~2009 ain ~~basis~~Philadelphia, ~~for~~Pennsylvania. The ~~federal~~court ~~jurisdiction~~took ~~over~~ the ~~state~~matter ~~law~~under ~~claims,~~submission. ~~but~~A ~~plaintiffs~~final ~~elected~~ruling is ~~instead~~ not toexpected ~~file~~from ~~a notice of appeal of~~ the ~~dismissal orders to the U.S.~~ Court of Appeals ~~for~~before ~~the Third~~late ~~Circuit~~2009. 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.

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.


ITEM 6.	EXHIBITS

See Index to Exhibits.

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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.
	(Registrant)
Date: November 1, 2007	By:	/s/ Nikolas Antonopoulos
	Nikolas Antonopoulos
	President and Chief Executive Officer
Date: November 1, 2007	By:	/s/ Mary Jane Robertson
	Mary Jane Robertson
	Executive Vice President, Chief Financial Officer and Treasurer

CRUM & FORSTER HOLDINGS CORP.
(Registrant)

35 Date: April 30, 2009 By: /s/ Douglas M. Libby Douglas M. Libby President and Chief Executive Officer


Date: April 30, 2009		By: /s/ Mary Jane Robertson Mary Jane Robertson Executive Vice President, Chief Financial Officer and Treasurer

INDEX TO EXHIBITS

Exhibit No.
*			10.44		Crum & Forster Holdings Corp. 2007 Long Term Incentive Plan
	* 31	.1		Certification of President and Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
*			10.45		Fairfax Inc. and Crum & Forster Holdings Corp. Inter-Company Tax Allocation Agreement effective as of January 1, 2007
	* 31	.2		Certification of Executive Vice President, Chief Financial Officer and Treasurer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
*			10.46		Amended and Restated Employment Agreement of Nikolas Antonopoulos effective as of June 1, 2007
	* 32	.1		Certification of President and Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
*			10.47		Amended and Restated Employment Agreement of Mary Jane Robertson effective as of June 1, 2007
	* 32	.2		Certification of Executive Vice President, Chief Financial Officer and Treasurer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
*			10.48		Amended and Restated Employment Agreement of Joseph Braunstein effective as of June 1, 2007
	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, 2008 filed with the Securities and Exchange Commission on February 27, 2009).
*			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).


*		Filed herewith

36 43

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