UNITED STATES SECURITIES AND EXCHANGE COMMISSION

~~SECURITIES AND EXCHANGE COMMISSION~~ Washington, D.C. 20549

Form 10-Q

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

~~For the Quarterly Period Ended: September 30, 2009 Commission File Number: 333-84068~~or


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:
March 31, 2010		333-84068

Crum & Forster Holdings Corp.

(Exact Name of Registrant as Specified in its Charter)

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


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

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

(~~973~~Address of principal executive office) ~~490-6600~~

(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) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to the filing requirements for the past 90 days. Yes o No þ

Indicate by check mark whether the registrant 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-T (§ 232.405 of 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 Smaller reporting company o (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 ~~October~~April 2930, ~~2009~~2010
Common Stock, $.01 Par Value		100	~~100~~

CRUM & FORSTER HOLDINGS CORP.

Form 10-Q

Index

	Page		~~Page~~
	Number		~~Number~~
	PART I FINANCIAL INFORMATION
PART I
ITEM 1.	FINANCIAL STATEMENTS
FINANCIAL INFORMATION
	Consolidated Balance Sheets at September 30, 2009 (Unaudited) and December 31, 2008			3
ITEM 1. FINANCIAL STATEMENTS
	Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2009 and 2008 (Unaudited)			4
Consolidated Balance Sheets at March 31, 2010 (Unaudited) and December 31, 2009		3
	Consolidated Statements of Shareholder’s Equity for the Nine Months Ended September 30, 2009 and 2008 (Unaudited)			5
Consolidated Statements of Operations for the Three Months Ended March 31, 2010 and 2009 (Unaudited)		4
	Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2009 and 2008 (Unaudited)			6
Consolidated Statements of Shareholder’s Equity for the Three Months Ended March 31, 2010 and 2009 (Unaudited)		5
	Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2009 and 2008 (Unaudited)			7
Consolidated Statements of Comprehensive Income (Loss) for the Three Months Ended March 31, 2010 and 2009 (Unaudited)		6
	Notes to Consolidated Financial Statements			8
Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2010 and 2009 (Unaudited)		7
ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS			32
Notes to Consolidated Financial Statements		8
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK			47
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		25
ITEM 4T.	CONTROLS AND PROCEDURES			53
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		36
	PART II OTHER INFORMATION
ITEM 4T. CONTROLS AND PROCEDURES		40
ITEM 1.	LEGAL PROCEEDINGS			54
PART II
ITEM 5.	OTHER INFORMATION			54
OTHER INFORMATION
ITEM 6.	EXHIBITS			54
ITEM 1. LEGAL PROCEEDINGS		41
	SIGNATURES			55
ITEM 6. EXHIBITS		41
	INDEX TO EXHIBITS			56
SIGNATURES		42
EX-31.1
INDEX TO EXHIBITS		43
EX-31.2
Exhibit 31.1
EX-32.1
Exhibit 31.2
EX-32.2
Exhibit 32.1
Exhibit 32.2

PART I
FINANCIAL INFORMATION


ITEM 1.		FINANCIAL STATEMENTS

CRUM & FORSTER HOLDINGS CORP. ~~CONSOLIDATED BALANCE SHEETS (Dollars in thousands, except per share amounts) (Unaudited)~~

	September 30,		December 31,
	2009		2008
ASSETS
Investments:
Fixed income securities, available-for-sale, at fair value (amortized cost of $1,257,546 and $1,466,114 in 2009 and 2008, respectively)	$	1,485,862	$	1,533,334
Fixed income securities, held-for-trading, at fair value		335,002		233,998
Equity securities, available-for-sale, at fair value (cost of $1,146,993 and $1,106,098 in 2009 and 2008, respectively)		1,383,777		1,020,154
Investments at equity		159,370		117,586
Derivatives and other invested assets, at fair value		382,933		412,747
Short-term investments, at fair value		30,971		549,937
Total investments		3,777,915		3,867,756
Cash and cash equivalents		330,467		159,862
Assets pledged for derivatives		29,756		4,416
Accrued investment income		32,626		29,378
Premiums receivable		167,086		182,158
Reinsurance recoverable		718,074		759,028
Reinsurance recoverable from affiliates		187,893		209,189
Prepaid reinsurance premiums		28,477		28,995
Deferred income taxes		39,986		239,077
Deferred policy acquisition costs		46,883		52,705
Other assets		96,814		66,316
Total assets	$	5,455,977	$	5,598,880
LIABILITIES
Unpaid losses and loss adjustment expenses	$	2,739,084	$	2,987,803
Unearned premiums		319,942		366,362
Funds held under reinsurance contracts		241,969		228,835
Accounts payable and other liabilities		166,467		417,669
Deferred income on retroactive reinsurance		110,115		121,277
Long-term debt		311,695		310,502
Total liabilities		3,889,272		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 income (loss), net of tax		311,752		(7,455	)
Retained earnings		513,960		432,894
Total shareholder’s equity		1,566,705		1,166,432
Total liabilities and shareholder’s equity	$	5,455,977	$	5,598,880

CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share amounts)

(Unaudited)


	March 31,		December 31,
	2010		2009
ASSETS
Investments:
Fixed income securities, available-for-sale, at fair value (amortized cost of $1,270,226 and $1,323,120 in 2010 and 2009, respectively)	$	1,434,229	$	1,490,121
Fixed income securities, held-for-trading, at fair value		363,172		321,359
Equity securities, available-for-sale, at fair value (cost of $668,208 and $1,070,577 in 2010 and 2009, respectively)		865,758		1,284,102
Investments at equity		173,836		167,331
Derivatives and other invested assets, at fair value		389,104		387,902
Short-term investments, at fair value		18,472		68,211

Total investments		3,244,571		3,719,026
Cash and cash equivalents		579,190		243,569
Assets pledged for derivatives		82,434		29,425
Accrued investment income		33,071		31,244
Premiums receivable		168,322		164,802
Reinsurance recoverable		674,626		686,277
Reinsurance recoverable from affiliates		210,025		206,420
Prepaid reinsurance premiums		23,955		25,330
Deferred income taxes		77,908		86,410
Deferred policy acquisition costs		45,755		45,740
Other assets		103,560		65,780

Total assets	$	5,243,417	$	5,304,023

LIABILITIES
Unpaid losses and loss adjustment expenses	$	2,604,162	$	2,672,605
Unearned premiums		300,680		297,821
Funds held under reinsurance contracts		250,296		246,324
Accounts payable and other liabilities		175,381		151,038
Deferred income on retroactive reinsurance		102,430		106,394
Long-term debt		312,540		312,114

Total liabilities		3,745,489		3,786,296

Commitments and contingencies (Note 9)
SHAREHOLDER’S EQUITY
Common stock, $0.01 par value; 1,000 shares authorized; 100 issued and outstanding		—		—
Additional paid-in capital		740,993		740,993
Accumulated other comprehensive income, net of tax		248,875		256,859
Retained earnings		508,060		519,875

Total shareholder’s equity		1,497,928		1,517,727

Total liabilities and shareholder’s equity	$	5,243,417	$	5,304,023

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

CRUM & FORSTER HOLDINGS CORP.

CONSOLIDATED STATEMENTS OF ~~INCOME~~OPERATIONS (Dollars in thousands)

(Dollars in thousands)

(Unaudited)

	Three Months Ended						~~Nine Months Ended~~
	September 30,						September 30,
	March 31,
	2009			2008			2009		2008
	2010			2009
REVENUES
Premiums earned	$	182,~~032~~574		$	~~232~~207,~~978~~430		$	~~589,743~~	$	~~767,670~~
Investment income		3428,~~213~~287			1435,~~706~~393			~~133,165~~		~~61,792~~
Net realized investment gains		210,394			162,369			142,325		327,346
Net realized investment gains (losses)		162,401			(91,071	)
Total revenues		~~426~~373,~~639~~262			~~410~~151,~~053~~752			~~865,233~~		~~1,156,808~~
EXPENSES
Losses and loss adjustment expenses		~~122~~126,~~950~~206			~~211~~135,~~506~~850			~~391,275~~		~~666,862~~
Policy acquisition costs		2728,~~988~~601			4129,~~669~~555			~~85,329~~		~~118,615~~
Other underwriting expenses		4136,~~809~~870			4237,~~407~~882			~~120,711~~		~~129,836~~
Interest expense		6,~~958~~977			6,~~920~~939			~~20,848~~		~~20,952~~
Costs related to early retirement of debt		—			—			—		392
Other expense		1,774			797
Other expense, net		1,709			2,527			3,289		4,179
Total expenses		200,428			211,023
Total expenses		201,414			305,029			621,452		940,836
Income (loss) before income taxes		172,834			(59,271	)
Income before income taxes and equity in earnings of investees		225,225			105,024			243,781		215,972
Income tax (expense) benefit		(54,649	)		28,324
Income tax expense		70,464			35,296			62,794		71,958
NET INCOME (LOSS)	$	118,185		$	(30,947	)
Income before equity in earnings of investees		154,761			69,728			180,987		144,014
Equity in earnings (losses) of investees, net of tax		—			—			79		(461	)
NET INCOME	$	154,761		$	69,728		$	181,066	$	143,553

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

CRUM & FORSTER HOLDINGS CORP.

CONSOLIDATED STATEMENTS OF SHAREHOLDER’S EQUITY (Dollars in thousands)

(Dollars in thousands)

(Unaudited)

	Nine Months Ended
	Three Months Ended
	September 30,
	March 31,
	2009			2008
	2010			2009
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
ACCUMULATED OTHER COMPREHENSIVE INCOME, NET OF TAX
Balance, beginning of period		(7256,~~455~~859	)		44(7,~~479~~455	)
Cumulative effect of adoption of Statements of Financial Accounting Standards Nos. 157 and 159		—			(29,897	)
Unrealized investment losses, net of transfers to realized investment gains and losses		(7,554	)		(77,310	)
Balance, beginning of period, after cumulative effect of adjustments		(7,455	)		14,582
Foreign currency translation		(354	)		137
Unrealized investment gains (losses), net of transfers to realized investment gains and losses		319,068			(52,920	)
Amortization of actuarial gain and transition obligation included in net periodic benefit costs		(76	)		(57	)
Foreign currency translation		309			(311	)
Balance, end of period		248,875			(84,685	)
Amortization of actuarial gain, prior service credit and transition obligation included in net periodic benefit costs		(170	)		204
Balance, end of period		311,752			(38,445	)
RETAINED EARNINGS
Balance, beginning of period		~~432~~519,~~894~~875			~~507~~432,~~987~~894
Cumulative effect of adoption of Statements of Financial Accounting Standards Nos. 157 and 159		—			86,101
Net income (loss)		118,185			(30,947	)
Balance, beginning of period, after cumulative effect of adjustments		432,894			594,088
Dividends to shareholder		(130,000	)		—
Net income		181,066			143,553
Balance, end of period		508,060			401,947
Dividends to shareholder		(100,000	)		(130,000	)
TOTAL SHAREHOLDER’S EQUITY	$	1,497,928		$	1,058,255
Balance, end of period		513,960			607,641
TOTAL SHAREHOLDER’S EQUITY	$	1,566,705		$	1,310,189

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

CRUM & FORSTER HOLDINGS CORP.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Dollars in thousands)

(Dollars in thousands)

(Unaudited)

	Three Months Ended						~~Nine Months Ended~~
	September 30,						September 30,
	March 31,
	2009			2008			2009			2008
	2010			2009
NET INCOME	$	154,761		$	69,728		$	181,066		$	143,553
NET INCOME (LOSS)	$	118,185		$	(30,947	)
Change in components of other comprehensive income (loss) for the period, before tax:
Change in components of other comprehensive loss for the period, before tax:
Unrealized investment gains (losses), net of transfers to realized investment gains and losses		259,405			(31,622	)		490,874			(81,414	)
Unrealized investment losses, net of transfers to realized investment gains and losses		(11,621	)		(118,938	)
Foreign currency translation		(70545	)		~~(607~~211	)		~~475~~			~~(479~~	)
Amortization of actuarial gain, prior service credit and transition obligation included in net periodic benefit costs		(87	)		105			(261	)		314
Amortization of actuarial gain and transition obligation included in net periodic benefit costs		(117	)		(87	)
Other comprehensive income (loss) for the period, before tax		259,248			(32,124	)		491,088			(81,579	)
Other comprehensive loss for the period, before tax		(12,283	)		(118,814	)
Deferred income tax (expense) benefit for the period:
Deferred income tax benefit (expense) for the period:
Deferred income tax (expense) benefit from unrealized investment gains and losses		(90,791	)		11,067			(171,806	)		28,494
Deferred income tax benefit from unrealized investment losses		4,067			41,628
Deferred income tax (expense) benefit from foreign currency translation		25			213			(166	)		168
Deferred income tax benefit (expense) from foreign currency translation		191			(74	)
Deferred income tax benefit (expense) from amortization of actuarial gain, prior service credit and transition obligation included in net periodic benefit costs		30			(37	)		91			(110	)
Deferred income tax benefit from amortization of actuarial gain and transition obligation included in net periodic benefit costs		41			30
Total deferred income tax (expense) benefit for the period		(90,736	)		11,243			(171,881	)		28,552
Total deferred income tax benefit for the period		4,299			41,584
Other comprehensive income (loss) for the period, net of tax		168,512			(20,881	)		319,207			(53,027	)
Other comprehensive loss for the period, net of tax		(7,984	)		(77,230	)
COMPREHENSIVE INCOME	$	323,273		$	48,847		$	500,273		$	90,526
COMPREHENSIVE INCOME (LOSS)	$	110,201		$	(108,177	)

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

CRUM & FORSTER HOLDINGS CORP.

CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands)

(Dollars in thousands)

(Unaudited)

	Nine Months Ended
	Three Months Ended
	September 30,
	March 31,
	2009			2008
	2010			2009
OPERATING ACTIVITIES
Net income	$	181,066		$	143,553
Net income (loss)	$	118,185		$	(30,947	)
Adjustments to reconcile net income to net cash from operating activities:
(Accretion of discount) amortization of premium on fixed income securities		(6,409	)		1,318
Accretion of discount on fixed income securities		(1,419	)		(2,491	)
Realized investment gains		(142,325	)		(327,346	)
Realized investment (gains) losses		(162,401	)		91,071
(Earnings) losses of equity method investees, net of dividends		244			1,051
Earnings of equity method investees, net of dividends		(3,725	)		(804	)
(Earnings) losses of investment companies and similar equity method investees		(44,579	)		24,924
Depreciation and amortization		1,453			1,546
Loss on commutation		—			75,470
Deferred income tax expense (benefit)		12,800			(60,037	)
Depreciation and amortization		4,816			2,631
Other non-cash net income adjustments		(44	)		2,429
Deferred income tax expense (benefit)		27,209			(22,363	)
Costs related to early retirement of debt		—			170
Other adjustments		3,483			12,195
Changes in:
Accrued investment income		(41,~~075~~827	)		11(7,~~547~~319	)
Premiums receivable		13(3,~~947~~469	)		267,~~896~~423
Reinsurance recoverable		618,~~865~~046			~~398~~18,~~710~~253
Prepaid reinsurance premiums		~~518~~1,375			(41,~~732~~161	)
Deferred policy acquisition costs		~~5,822~~(15	)		123,~~135~~899
Other assets		~~(312~~562	)		151,~~273~~716
Unpaid losses and loss adjustment expenses		(~~248~~68,~~719~~443	)		(65116,~~165~~777	)
Unearned premiums		~~(46~~2,~~420~~859	)		(7625,~~291~~999	)
Accounts payable and other liabilities		~~(115~~23,~~630~~683	)		35(88,~~803~~041	)
Net cash (used in) provided by operating activities		(309,499	)		265,779
Net cash used in operating activities		(72,380	)		(207,239	)
INVESTING ACTIVITIES
Purchases of fixed income securities		(356,602	)		(760,148	)
Purchases of fixed income securities, available-for-sale		(5,004	)		(182,481	)
Proceeds from sales of fixed income securities		402,525			519,517
Proceeds from sales of fixed income securities, available-for-sale		24,938			151,463
Proceeds from maturities of fixed income securities		48,300			1,260
Proceeds from maturities of fixed income securities, available-for-sale		—			48,300
Purchases of equity securities		(345,962	)		(147,403	)
Purchases of fixed income securities, held-for-trading		(24,043	)		(89,731	)
Proceeds from sales of equity securities		227,718			9,422
Proceeds from sales of fixed income securities, held-for-trading		16,027			15,873
Net sales (purchases) of investments at equity		6,769			(223	)
Purchases of equity securities		(26,357	)		(212,687	)
Purchases of derivatives and other invested assets		(10,050	)		(13,871	)
Proceeds from sales of equity securities		511,964			38,288
Proceeds from sales of derivatives and other invested assets		109,685			284,611
Net (purchases) sales of investments at equity		(630	)		5,458
Purchases of short-term investments		(110,308	)		(577,565	)
Purchases of derivatives and other invested assets		(11,583	)		(799	)
Proceeds from sales and maturities of short-term investments		605,660			637,910
Proceeds from sales of derivatives and other invested assets		—			106,262
Net settlement of short-sale obligations		—			(649,517	)
Purchases of short-term investments		(29,410	)		(104,167	)
Net change in cash and cash equivalents held as collateral		4,416			734,263
Proceeds from sales of short-term investments		70,898			574,172
Net settlement of total return swaps and futures contracts		(343	)		107,305
Net change in cash and cash equivalents held as collateral		—			4,416
Purchases of fixed assets		(1,704	)		(1,274	)
Net settlement of total return swaps and futures contracts		12,950			(343	)
Net cash provided by investing activities		580,104			144,287
Purchases of fixed assets		(1,749	)		(489	)
Net cash provided by investing activities		538,001			353,535
FINANCING ACTIVITIES
Dividends to shareholder		(~~100~~130,000	)		~~(130,000~~—	)
Repayment of 103/8% long-term debt		—			(4,270	)
Net cash used in financing activities		(130,000	)		—
Net cash used in financing activities		(100,000	)		(134,270	)
Net change in cash and cash equivalents		335,621			146,296
Net change in cash and cash equivalents		170,605			275,796
Cash and cash equivalents, beginning of period		243,569			159,862
Cash and cash equivalents, beginning of period		159,862			147,506
Cash and cash equivalents, end of period	$	579,190		$	306,158
Cash and cash equivalents, end of period	$	330,467		$	423,302
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest	$	12,788		$	13,009
Cash paid to parent for income taxes	$	9,525		$	108,785
Cash paid to parent for income taxes	$	124,556		$	40,262
SUPPLEMENTAL NON-CASH OPERATING AND INVESTING ACTIVITIES
Fixed income securities transferred to parent as payment for income taxes	$	~~54,008~~—		$	—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~~The 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~~ 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~~ 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~~2009 filed with the Securities and Exchange Commission (“SEC”) on February 2726, ~~2009~~2010.

The interim financial data at ~~September~~March 3031, ~~2009~~2010 and for the three ~~and nine~~ months ended ~~September~~March 3031, ~~2009~~2010 and ~~2008~~2009 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~~ not necessarily indicative of the results to be expected for the full year.

2. Recent Accounting Pronouncements

~~FASB~~ASU ~~ASC 105~~2009-1017. In ~~June~~ June 2009, the Financial Accounting Standards Board (“FASB”) issued ~~Statement of Financial~~ Accounting Standards ~~(“SFAS”)~~Update ~~No. 168~~2009-17, ~~The~~Improvements ~~FASB Accounting~~to ~~Standards~~Financial ~~Codification~~Reporting ~~and~~by ~~Hierarchy~~Enterprises ofwith ~~Generally~~Variable Interest ~~Accepted~~Entities, ~~Accounting~~(“ASU ~~Principles~~2009-17”), awhich ~~replacement~~amends ofprevious ~~FASB~~guidance ~~Statement No. 162~~under ~~(now~~the ~~known~~Accounting asStandards Codification ~~FASB~~ (“ASC ~~105-10~~”) 810, ~~Generally~~ ~~Accepted~~Consolidation ~~Accounting~~(“ASC ~~Principles~~810”). The ~~FASB~~guidance replaces the quantitative-based ~~Accounting~~risks ~~Standards~~and ~~Codification~~rewards ~~(“FASB~~calculation ~~ASC”)~~for determining which enterprise has a controlling financial interest ~~been~~in ~~established~~a asvariable ~~the~~interest ~~single~~entity ~~source~~with ofan ~~authoritative~~approach ~~GAAP~~focused ~~to be~~on ~~applied~~identifying towhich ~~nongovernmental~~enterprise ~~entities.~~has ~~The~~(i) the power ~~only~~to ~~other~~direct ~~source~~the activities of ~~authoritative~~ ~~GAAP~~a isvariable interest entity that most significantly impact the entity’s ~~rules~~economic performance and ~~interpretive~~(ii) the ~~releases~~obligation to absorb losses of the ~~SEC,~~ ~~which~~entity ~~apply~~or ~~only~~the right to ~~SEC~~receive ~~registrants.~~benefits ~~The~~from ~~FASB~~the ~~ASC~~entity. ~~is effective~~It ~~for~~also ~~interim~~requires ~~and~~an ~~annual~~additional ~~financial~~reconsideration ~~reporting~~event ~~periods~~when ~~ending~~determining ~~after~~whether ~~September 15,~~an ~~2009~~entity ~~and~~ is ~~not~~a ~~intended~~variable tointerest entity when any changes in fact and ~~change~~circumstances oroccur ~~alter~~and ~~existing~~ongoing ~~GAAP~~assessments ~~but~~of ~~just~~whether ~~change~~an enterprise is the ~~way~~primary inbeneficiary ~~which~~of ~~GAAP~~a isvariable ~~referenced~~interest inentity. ~~the~~Additional ~~Company~~disclosures about an enterprise’s ~~financial~~involvement ~~statements.~~in variable ~~The~~interest ~~Company~~entities ~~has~~are ~~adopted~~also ~~FASB~~required. ~~ASC 105~~ASU 2009-10 17 is effective ~~this~~for ~~quarter~~interim and ~~technical~~annual ~~references~~reporting periods tobeginning ~~GAAP~~after inNovember 15, ~~the report~~2009. ~~are~~The ~~provided~~Company ~~under~~adopted ~~the~~ASU ~~new~~2009-17 ~~FASB~~effective ~~ASC~~January 1, 2010 ~~structure~~and ~~with~~its ~~the prior~~adoption ~~references~~did tonot ~~original~~affect ~~standards~~the ~~included~~Company’s ~~the~~financial ~~first~~position ~~time they~~or ~~appear~~results ~~for~~of ~~clarification~~operations.

FASB ASC 855-10. In May 2009, the FASB issued the SFAS No. 165, Subsequent Events (now known as FASB ASC 855-10, Subsequent Events), which establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before the financial statements are issued or are available to be issued. The Company adopted FASB ASC 855-10 effective June 1, 2009 and has evaluated subsequent events after the balance sheet date of September 30, 2009 through October 29, 2009, the date the financial statements were issued. During this period, the Company did not have any recognizable or disclosable subsequent events.

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

FASB ASC 320-10. In April 2009, the FASB issued FASB Staff Position (“FSP”) No. 115-2 and 124-2, Recognition and Presentation of Other Than Temporary Impairments, (now known as FASB ASC 320-10, Investments — Debt and Equity Securities), 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 securities in the financial statements. The recognition provisions within FASB ASC 320-10 apply only to fixed income securities that are other than temporarily impaired. If the Company intends to sell or it is more likely than not that it will be required to sell a security in an unrealized loss position prior to recovery of its cost basis, the security is other than temporarily impaired and the full amount of the impairment is recognized as a loss through earnings. If the Company asserts that it does not intend to sell and it is more likely than not that it will not be required to sell a security that it considers to be other than temporarily impaired before recovery of its cost basis, the impairment must be separated into credit and non-credit components with the credit portion of the other than temporary impairment recognized as a loss through earnings and the non-credit portion recognized in other comprehensive income. FASB ASC 320-10 is effective for interim and annual reporting periods ending after June 15, 2009. The Company adopted FASB ASC 320-10 effective April 1, 2009 and the adoption did not affect the Company’s financial position or results of operations. FASB ASC 320-10 requires that the Company record, as of the beginning of the interim period of adoption, a cumulative effect adjustment to reclassify the non-credit component of a previously recognized other than temporary impairment on debt securities which are still held as investments at the date of adoption from retained earnings to accumulated other comprehensive income. The Company reviewed other than temporary impairments it had previously recorded through earnings on fixed income securities held at April 1, 2009, which were $10,855, and determined that all of these other than temporary impairments were related to specific credit losses as the issuers had filed for bankruptcy and were in default of interest payments, resulting in no cumulative effect adjustment to opening retained earnings or accumulated other comprehensive income as of April 1, 2009.

FASB ASC 820-10. In April 2009, the FASB issued 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 Fair Value Measurements and Disclosure (now known as FASB ASC 820-10, Fair Value Measurements and Disclosures) 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. The Company adopted FASB ASC 820-10 effective April 1, 2009 and the adoption did not have an impact on the Company’s financial position or results of operations.

FASB ASC 825-10. In April 2009, the FASB issued, FSP FAS 107-1 and APB 28-1, Interim Disclosures about Fair Value Measurement (now known as FASB ASC 825-10, Financial Instruments) which amends the previous guidance to require disclosures about the fair value of financial instruments for interim reporting periods in addition to annual reporting periods and 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 any changes during the period. The Company adopted FASB ASC 825-10 effective April 1, 2009 and the adoption did not have an impact on the Company’s financial position or results of operations, but resulted in additional disclosures which have been made in Note 4 to the consolidated financial statements.

FASB ASC 320-10-S99. In April 2009, the SEC issued Staff Accounting Bulletin (“SAB”) No. 111, (now known as FASB ASC 320-10-S99) which amends and replaces SAB Topic 5.M. in the SAB Series entitled Other Than Temporary Impairment of Certain Investments in Debt and Equity Securities. FASB ASC 320-10-S99 maintains the SEC staff’s previous views related to equity securities and amends Topic 5.M. to exclude debt securities from its scope. The SAB was effective upon issuance and did not affect the Company’s financial position or results of operations.

FASB ASC 815-10. In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities — an Amendment of FASB Statement No. 133 (now known as FASB ASC 815-10, Derivatives and Hedging) 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 ASC 815-10 and its related interpretations; and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance and cash flows. The Company adopted FASB ASC 815-10 effective January 1, 2009, which did not affect the Company’s financial position or results of operations; however, the Company has expanded its disclosures regarding the effects of hedging activities.

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

3. Investments

The aggregate carrying value of the Company’s investment portfolio was $43,~~138~~906,~~138~~195 and $43,~~032~~992,~~034~~020 at ~~September~~ March 3031, ~~2009~~ 2010 and December 31, ~~2008~~2009, respectively, and is comprised of available-for-sale securities, held-for-trading securities, investments at equity, derivatives and other ~~invested~~ 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 September 30, 2009

At March 31, 2010

Cost or

Gross

Amortized

Unrealized

Cost

Gains

Losses

Fair Value

Fixed income securities:

U.S. government and government agencies and authorities

82,673

14,616

—

97,289

United States government and government agencies and authorities

81,902

7,595

412

89,085

States, municipalities and political subdivisions1

1,~~090~~190,~~264~~759

~~189~~151,~~635~~905

261,610

1,~~279~~341,~~873~~054

Other corporate

~~108~~59,~~618~~954

2916,~~838~~817

—245

~~138~~76,~~456~~526

Total fixed income securities

1,~~281~~332,~~555~~615

~~234~~176,~~089~~317

262,267

1,~~515~~506,~~618~~665

Equity securities — common stocks

1668,~~146,993~~208

~~244~~198,~~600~~454

~~7,816~~904

1865,~~383,777~~758

Total available-for-sale securities

2,~~428~~000,~~548~~823

~~478~~374,~~689~~771

73,~~842~~171

2,~~899~~372,~~395~~423

1 Includes assets pledged for derivatives at a fair value of $2972,~~756~~436 (amortized cost of $2462,~~009~~389).

Included in equity securities at ~~September~~March 3031, ~~2009~~2010 ~~are~~is ~~a $188,320~~one ~~investment~~holding inwhich ~~Dell~~exceeds ~~Inc.~~10% ~~common~~of shareholder’s ~~stock~~equity, ~~and~~ a $~~159~~170,~~340~~ 844 investment in Johnson & Johnson common stock, which ~~represent~~ 12represents 11.04% ~~and 10.2%, respectively,~~ of shareholder’s equity at that date.

	At December 31, 2008
	At December 31, 2009
	Cost or		Gross		Gross
	Amortized		Unrealized		Unrealized
	Cost		Gains		Losses		Fair Value
Fixed income securities:
U.S. government and government agencies and authorities	$	136,551	$	32,879	$	—	$	169,430
United States government and government agencies and authorities	$	81,282	$	6,945	$	462	$	87,765
States, municipalities and political subdivisions		1,279,232		54,230		17,997		1,315,465
States, municipalities and political subdivisions1		1,185,380		151,498		7,914		1,328,964
Other corporate		5080,~~331~~483		222,~~603~~334		~~4,495~~—		48102,~~439~~817
Total fixed income securities		1,~~466~~347,~~114~~145		89180,~~712~~777		228,~~492~~376		1,~~533~~519,~~334~~546
Equity securities — common stocks		1,~~106~~070,~~098~~577		29214,~~422~~304		~~115,366~~779		1,~~020~~284,~~154~~102
Total available-for-sale securities	$	2,~~572~~417,~~212~~722	$	~~119~~395,~~134~~081	$	~~137~~9,~~858~~155	$	2,~~553~~803,~~488~~648

~~Included~~1 inIncludes ~~equity~~assets ~~securities~~pledged atfor ~~December 31,~~derivatives ~~2008~~at is a ~~$156,642~~ ~~investment~~fair invalue ~~Johnson &~~of ~~Johnson common stock~~$29, ~~which~~425 ~~represents~~(amortized ~~13.4%~~cost of ~~shareholder’s equity at that date~~$24,025).

The Company holds significant investments in equities and equity related securities. The market values and liquidity of these investments are volatile and may vary dramatically either up or or down in short periods, and their ultimate value will therefore only be known over the long term. Certain individual available-for-sale securities had gross unrealized losses at ~~September~~March 3031, ~~2009~~ 2010, totaling $73,~~842~~171, which represented 2approximately 1.68% of the cost or amortized cost of such securities in the aggregate.

9 10

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

The ~~following~~number ~~table~~of ~~summarizes,~~continuous ~~for~~months ~~those~~in which securities in an unrealized loss position, ~~the~~at ~~fair~~March 31, 2010 ~~value~~ and ~~gross~~December 31, ~~unrealized loss~~2009 bywere ~~length of time those securities have been~~ in ~~an unrealized~~such ~~loss~~a position atis ~~September 30,~~summarized ~~2009~~as ~~and December 31, 2008~~follows:

	September 30, 2009						December 31, 2008
	March 31, 2010						December 31, 2009
			Unrealized		Number of				Unrealized		Number of
					Number						Number
	Fair Value		Loss		Securities		Fair Value		Loss		Securities
	Fair		Unrealized		of		Fair		Unrealized		of
	Value		Loss		Securities		Value		Loss		Securities
Fixed income securities:
Investment grade:
U.S. government and government agencies and authorities:
6 months or less	$	—11,319	$	—412		—3	$	—11,284	$	—462		—3
States, municipalities and political subdivisions:
6 months or less		~~489~~131,361		1,610		27		~~385~~134,~~140~~841		167,~~865~~873		278
7 – 12 months		—		—		—		~~15,462~~—		~~1,132~~—		3—
Greater than 12 months		~~535~~—		25—		1—		—518		—41		—1
		1,024		26		3		400,602		17,997		30
		131,361		1,610		7		135,359		7,914		9
Non-investment grade, other corporate:
6 months or less		—8,652		—245		—1		~~36,100~~—		~~4,495~~—		1—
Total fixed income securities		1151,~~024~~332		262,267		311		~~436~~146,~~702~~643		228,~~492~~376		3112
Equity securities:
6 months or less		~~269~~5,~~892~~068		~~7,684~~772		42		~~519~~5,~~602~~678		~~115,366~~646		142
7 – 12 months		~~21,441~~—		~~132~~—		1—		—21,439		—133		—1
Total equity securities		291,333		7,816		5		519,602		115,366		14
Greater than 12 months		21,440		132		1		—		—		—
Total securities in an unrealized loss position	$	292,357	$	7,842		8	$	956,304	$	137,858		45
Total equity securities		26,508		904		3		27,117		779		3
Total securities in an unrealized loss position	$	177,840	$	3,171		14	$	173,760	$	9,155		15

~~The~~At ~~following~~each ~~table~~reporting ~~summarizes~~date ~~the~~and ~~fair~~more ~~values~~frequently ~~and~~when ~~gross~~conditions warrant, management reviews all available-for-sale securities with unrealized losses ofto ~~equity~~determine ~~securities~~whether ~~categorized~~an ~~first~~other bythan temporary ~~length~~decline ofin ~~time~~value ~~those~~exists ~~equity~~and ~~securities~~whether ~~have~~losses ~~been~~should be recognized in anearnings rather than in ~~unrealized~~accumulated other comprehensive income (loss). ~~position~~The process for determining whether a security is other than temporarily impaired requires judgment and ~~then~~involves ~~further~~analyzing ~~categorized~~many byfactors. These factors include but are not limited to (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 ~~unrealized~~impairment; ~~loss~~(iii) the ~~position~~cause of atthe ~~September~~impairment; (iv) 30the financial condition and near-term prospects of the issuer as well as specific credit issues related to the issuer such as changes in credit rating, reduction or ~~2009:~~elimination of dividends or non-payment of scheduled interest payments; and (v) for fixed income securities, the Company’s intent to sell a security or whether it is more likely than not that the Company will be required to sell the security before recovery of its amortized cost, which in some cases, may extend to maturity, and for equity securities, the Company’s intent and ability to hold the security for a period of time sufficient to allow for any anticipated recovery of fair value in the near term.

	Unrealized Loss as a Percentage of Cost
															Gross
	Fair														Unrealized
	Value		0-10%		10-20%		20-30%		30-40%		40-50%		>50%		Losses
6 months or less	$	269,892	$	1,567	$	—	$	1,507	$	—	$	4,610	$	—	$	7,684
7 – 12 months		21,441		132		—		—		—		—		—		132
Total equity securities fair value and gross unrealized losses	$	291,333	$	1,699	$	—	$	1,507	$	—	$	4,610	$	—	$	7,816
Number of securities		5		3		—		1		—		1		—		5

Management reviewed currently available information regarding all securities where the estimated fair value was less than cost or amortized cost at March 31, 2010 and based thereon, recorded other than temporary impairment charges of $549 in the three months ended March 31, 2010, attributable to one equity security. For the three months ended March 31, 2009, the Company recorded other than temporary impairment charges of $54,401 of which $3,507 was in respect of fixed income securities, all of which was credit related, and the remaining $50,894 was due to write downs of equity securities.

10 11

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

The aggregate severity of the total unrealized losses in the equity portfolio at September 30, 2009 was approximately 2.6% of their cost, including one security with losses totaling $4,610, or 40.8% of its cost, that has been in an unrealized loss position for less than six months. Management has evaluated the financial condition and near-term prospects of the issuers of equity securities in an unrealized loss position and the price volatility of the equity securities themselves, as well as recoveries or additional declines in fair value subsequent to the balance sheet date, and believes they have the potential for recovery within a reasonable period of time and therefore does not consider 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 an other than temporary decline in value exists and whether losses should be recognized in earnings rather than in accumulated other comprehensive income (loss). The process for determining whether a security is other than temporarily impaired requires judgment and involves analyzing many factors. These factors include but are not limited to (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; (iv) the financial condition and near-term prospects of the issuer as well as specific credit issues related to the issuer such as changes in credit rating, reduction or elimination of dividends or non-payment of scheduled interest payments; and (v) for fixed income securities, the Company’s intent to sell a security or whether it is more likely than not that the Company will be required to sell the security before recovery of its amortized cost, which in some cases, may extend to maturity, and for equity securities, the Company’s intent and ability to hold the security for a period of time sufficient to allow for any anticipated recovery of fair value in the near term. To the extent management determines that a security is deemed to be other than temporarily impaired, an impairment loss is recognized.

Management reviewed currently available information regarding all securities where the estimated fair value was less than cost or amortized cost at September 30, 2009 and based thereon, recorded other than temporary impairment charges of $26 and $105,980 in the three and nine months ended September 30, 2009, respectively. For the nine months ended September 30, 2009, of the $105,980 of other than temporary impairments, $3,507 was in respect of fixed income securities, all of which was credit related, and the remaining $102,473 was due to write downs of equity securities. There were no credit related losses for which a portion of the other than temporary impairment has been recognized in accumulated other comprehensive income. For the three and nine months ended September 30, 2008, the Company recorded other than temporary impairment charges of $34,698 and $75,776, respectively, primarily related to write downs of equity securities.

Fixed Income Securities Designated as Held-for-Trading

Fixed income securities classified as held-for-trading include those purchased for short-term investment objectives and those voluntarily designated as such by management pursuant to the fair value option under ~~FASB~~ ASC 815-15, ~~Embedded~~ Derivatives ~~(formerly~~and ~~SFAS No. 155~~Hedging, ~~Accounting~~ ~~for~~Embedded ~~Certain~~Derivatives. ~~Hybrid~~These ~~Financial~~securities ~~Instruments —~~include anconvertible ~~Amendment~~securities ofwith ~~FASB~~embedded ~~Statements~~derivatives ~~Nos. 133 and 140). These securities,~~ (which ~~are~~allow ~~recorded~~the atCompany ~~fair~~to ~~value on~~convert the fixed ~~consolidated~~income ~~balance sheets, include convertible~~ securities ~~with~~to ~~embedded~~equity ~~derivatives~~securities), mortgage-backed securities purchased at deep discounts to par and certain corporate fixed income securities. ~~Changes in fair value of held~~Held-for-trading securities are recorded at fair value in the consolidated balance sheets with changes in fair value recognized as realized investment gains and losses in the consolidated statements of ~~income~~operations in the period in which they occur. ~~and~~For ~~amounted to gains of $41,749 and $64,878, and losses of $(34,073) and $(32,296), for~~ the three ~~and nine~~ months ended ~~September~~March 3031, ~~2009~~2010 and ~~2008~~2009, ~~respectively.~~changes ~~The~~ in the fair ~~values~~value of held-for-trading ~~these~~ securities ~~were~~(including ~~$335,002~~gains ~~and~~or ~~$233,998~~losses ~~at September 30,~~on ~~2009 and December 31~~disposal), ~~2008, respectively,~~amounted ~~which~~to ~~include~~gains ~~convertible securities~~ (losses) of $~~191~~32,~~305~~ 398 and $~~166~~(13,~~131 at September 30~~924), ~~2009~~respectively. ~~and~~The ~~December 31, 2008,~~fair ~~respectively,~~values ~~mortgage-backed~~of these securities ofwere $~~106~~363,~~284~~172 and $66321,~~393~~359 at ~~September~~March 3031, ~~2009~~2010 and December 31, ~~2008, respectively, and other corporate bonds of $37,413 and $1,474 at September 30,~~ 2009 ~~and December 31~~, ~~2008,~~ respectively.

Included in held-for-trading securities are two convertible securities issued by Level 3 Communications, Inc. (“Level 3”) with a combined value of $~~142~~149,~~333,~~809 which together with an investment in Level 3 ~~Communications, Inc.~~ common stock of $3339,~~657~~267, represented 1112.26% of shareholder’s equity at ~~September 30~~March 31, ~~2009~~2010 (12.80% at December 31, ~~2008~~ 2009).

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

Investments at Equity

Investments at equity include investments in entities that are consolidated subsidiaries of Fairfax, but are less than 50% owned by the Company, as well as investments in certain partnerships, accounted for under the equity method of accounting. These investments consist of equity interests of between approximately 1.0% and 47.0% at ~~September~~March 3031, ~~2009~~2010, with a total carrying value of $~~159~~173,~~370~~836 and $~~117~~167,~~586~~331 at ~~September~~ March 3031, ~~2009~~2010 and December 31, ~~2008~~2009, respectively.

Derivatives and Other Invested Assets

Derivative Securities

The Company’s ~~utilizes~~ derivative securities toare ~~mitigate~~comprised ~~financial risks~~of ~~arising~~credit ~~principally~~default ~~from~~swaps, ~~its~~short ~~investment~~equity ~~holdings~~index and ~~receivables.~~long ~~Effective~~equity ~~January 1,~~total ~~2009~~return swaps, ~~the~~and ~~Company~~other ~~adopted FASB ASC 815-10~~derivatives, ~~Derivatives~~ ~~and~~none ~~Hedging,~~of which ~~requires~~are ~~enhanced disclosures~~designated ~~about~~as ~~derivatives~~hedges ~~and~~for financial ~~hedging~~reporting ~~activities~~purposes. The ~~Company’s~~ ~~derivative~~fair ~~securities~~value ~~are principally comprised~~ of ~~credit~~derivative ~~default~~assets ~~swaps~~are ~~and~~presented ~~total~~in ~~return swaps, none of which~~the ~~are~~consolidated ~~designated~~balance assheets ~~hedges, and are included~~ in derivatives and other invested assets onand the ~~consolidated~~fair ~~balance~~value ~~sheets~~of derivative atliabilities ~~fair value.~~are ~~The~~presented ~~Company~~in ~~had~~the noconsolidated ~~derivative~~balance ~~liabilities~~sheets ~~at September 30,~~in ~~2009~~accounts orpayable ~~December 31,~~and other ~~2008~~liabilities. Changes in fair value of derivative securities are included in realized investment gains and losses onin the consolidated statements of ~~income~~ operations in the period in which they occur.

The following table summarizes the Company’s derivative securities at ~~September~~March 3031, ~~2009~~2010 and December 31, ~~2008~~2009:

	September 30, 2009							December 31, 2008
	March 31, 2010							December 31, 2009
	Notional				Fair Value			Notional				Fair Value
					Fair Value							Fair Value
	Amount		Cost		Asset			Amount		Cost		Asset
	Notional				Asset/			Notional				Asset/
Credit default swaps	$	1,597,093	$	21,624	$	23,116		$	3,044,313	$	42,477	$	138,830
	Amount		Cost		(Liability)			Amount		Cost		(Liability)
Total return swaps		452,319		—		2,611			—		—		—
Credit default swaps	$	1,489,576	$	21,624	$	18,782		$	1,570,393	$	21,624	$	20,027
Other derivatives1		101,201		10,225		1,903			1,114,201		10,225		—
Total return swaps – short positions		496,855		—		(1,406	)		472,706		—		(1,917	)
Total return swaps – long positions		518,893		—		(1,412	)		—		—		—
Other		—		21,625		9,987			—		10,225		—

1 At September 30, 2009, other derivatives are comprised of warrants. At December 31, 2008, other derivatives are comprised of warrants and Eurodollar futures contracts, both of which had no fair value.

Credit Default Swaps

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~~ hedges against declines in the fair value of the Company’s financial assets. Under a credit default swap, as the buyer, the Company agrees to pay to a specific counterparty, fixed premium amounts based on an agreed notional principal amount in exchange for protection against default by the issuers of ~~specified~~ specified referenced debt securities. The credit events, as defined by the respective credit default swap contracts establishing the rights to recover amounts from the counterparties, include events such as bankruptcy, obligation acceleration, obligation default, failure to pay, repudiation/moratorium and restructuring. As of ~~September~~ March 3031, ~~2009~~2010, all credit default swap contracts ~~held~~ held by the Company have been purchased from and entered into with ~~either~~ Citibank, N.A., Deutsche Bank AG or Barclays Bank PLC as the counterparty, with positions on certain covered risks with more than one of these counterparties.

11 The credit default swaps are recorded at fair value with changes in fair value recognized as realized investment gains or losses in the period in which they occur. The Company obtains broker-dealer quotes for its credit default swaps from third-party providers. 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.

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

~~Counterparties~~The ~~to the~~ credit default swaps ~~expose~~are ~~the~~recorded ~~Company~~at ~~to credit~~fair ~~risk~~value inwith ~~the~~changes ~~event~~in offair ~~non-performance,~~value ~~which~~recognized ~~the Company~~as ~~endeavors~~realized toinvestment ~~limit~~gains ~~through~~or ~~the~~losses ~~terms~~in ofthe ~~agreements~~period ~~negotiated with~~in ~~the~~which ~~counterparties~~they occur. ~~Pursuant~~The toCompany ~~the~~obtains broker-dealer ~~swap~~quotes ~~agreements,~~which ~~the counterparties~~ are ~~required~~based toon ~~pledge~~observable ~~cash~~credit orspreads Ufor its credit default swaps.~~S. Treasury~~ The ~~securities~~Company asassesses ~~collateral,~~the inreasonableness of the ~~event~~broker-dealer ~~that~~quotes ~~appreciation~~by incomparing the fair ~~value~~values ofto values ~~the~~produced using individual issuer credit default ~~swaps~~swap ~~meets~~yield ~~certain~~curves, ~~thresholds.~~by referencing them to ~~The~~movements ~~fair~~in ~~value~~credit ofspreads ~~this~~and ~~collateral,~~by ~~which~~comparing isthem ~~not~~to ~~reflected~~recent onmarket ~~the Company’s~~transaction ~~balance~~prices ~~sheet,~~for issimilar credit ~~held~~default byswaps anwhere ~~independent custodian~~available. inThe ~~the~~fair ~~name~~values of ~~the~~credit ~~Company,~~default ~~and~~swaps ~~amounted~~are subject to significant ~~$6,872~~volatility ~~at September 30,~~arising ~~2009.~~from ~~The~~the ~~Company~~potential ~~has~~differences in the ~~right~~perceived torisk ~~sell~~of ordefault of ~~repledge~~the ~~this~~underlying ~~collateral~~issuers, ~~which~~movements itin ~~has~~credit ~~not~~spreads ~~exercised.~~and ~~The Company~~the ~~believes~~length ~~that~~of ~~any~~time ~~remaining~~to ~~credit~~the ~~risk exposure,~~contracts’ ~~represented~~maturity. byThe ~~the uncollateralized~~ fair value of the credit default swaps ~~($16,244~~may atvary ~~September 30,~~materially ~~2009),~~either isup ~~low~~or ~~given~~down in ~~the~~short ~~diversification~~periods, ~~among~~and ~~the~~their ~~various~~ultimate ~~counterparties~~value may therefore only be known upon their disposition. The Company’s ~~funds~~holdings ~~all~~of ~~its~~credit ~~obligations~~default ~~relating~~swaps toat ~~the~~March 31, ~~credit~~2010 ~~default swaps~~and ~~through~~December 31, ~~the~~2009, ~~initial~~have ~~premium~~declined significantly ~~paid~~relative atto ~~purchase~~prior ~~and~~years, largely as a result ~~there~~of ~~are~~closing notransactions ~~requirements~~and ~~for~~changes ~~the Company to provide~~in ~~collateral~~fair value. AtThe ~~September 30,~~Company ~~2009,~~may ~~the~~initiate new credit default swap ~~portfolio~~ ~~had~~contracts anas ~~average~~a ~~term~~hedging tomechanism ~~expiry~~in the offuture, ~~2.5 years.~~but ~~A maturity~~there ~~analysis~~can ofbe ~~the~~no ~~credit~~assurance ~~default~~that ~~swaps~~it ~~at September 30,~~will ~~2009~~do ~~follows:~~so.

	Notional
	Amount		Fair Value
Expiring in one year or less	$	713,918	$	2,136
Expiring after 1 year through 5 years		883,175		20,980
	$	1,597,093	$	23,116

At March 31, 2010, the credit default swap portfolio had an average term to expiry of 2.0 years. A maturity analysis of the credit default swaps follows:

The Company’s credit default swaps have declined significantly in 2009 relative to prior years, largely as a result of significant sales in 2008. In the latter part of 2008, the Company reviewed the financial objectives of its economic hedging program and decided not to replace closed credit default swaps based on: (i) the Company’s judgment that its exposure to elevated levels of credit risk had moderated and that its historical approaches to managing credit risk were satisfactory in mitigating the Company’s exposure to credit risk arising from its financial assets; (ii) the significant increase in the cost of purchasing credit protection; and (iii) the fact that the Company’s capital and liquidity had benefited from approximately $450 million in realized gains from credit default swaps since inception of the hedge program. As a result, the effects that credit default swaps as hedging instruments may be expected to have on the Company’s future financial position, liquidity and results of operations may be expected to diminish significantly relative to the effects in recent years. The Company may initiate new credit default swap contracts as an effective hedging mechanism in the future, but there can be no assurance that it will do so.


	Notional
	Amount		Fair Value
Expiring in one year or less	$	668,305	$	773
Expiring after 1 year through 5 years		821,271		18,009

	$	1,489,576	$	18,782

The following tables summarize the effect of the credit default swaps and related hedged items on the Company’s financial position and results of operations and cash flows as of and for the three 14months ended March 31, 2010 and 2009:


	As of and for the Three Months Ended March 31, 2010
					Effect on Pre-tax
	Exposure/				Other
	Notional		Carrying		Comprehensive					Net
	Value		Value		Income		Earnings			Equity
Credit risk exposures:
Fixed income securities¹	$	1,780,752	$	1,780,752	$	949	$	38,107		$	39,056
Warrants		101,201		392		—		392			392
Premiums receivable		168,322		168,322		—		51			51
Reinsurance recoverable		884,651		884,651		—		—			—

Total credit risk exposure	$	2,934,926	$	2,834,117		949		38,550			39,499

Hedging instruments:
Credit default swaps	$	1,489,576	$	18,782		—		(1,245	)		(1,245	)

Net exposure					$	949	$	37,305		$	38,254


¹		Excludes $89,085 of U.S. government securities with a gain in other comprehensive income of $700.

The net cash flow effect from disposals of the above credit risk exposures and related hedging instruments for the three months ended March 31, 2010 was $5,045.

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

The following tables summarize the effect of the credit default swaps and related hedged items on the Company’s financial position and results of operations as of and for the three and nine months ended September 30, 2009 and 2008:


	As of and for the Three Months Ended March 31, 2009
					Effect on Pre-tax
	Exposure/				Other
	Notional		Carrying		Comprehensive					Net
	Value		Value		Income		Earnings			Equity
Credit risk exposures:
Fixed income securities¹	$	1,713,293	$	1,713,293	$	57,390	$	(4,312	)	$	53,078
Warrants		101,201		1		—		1			1
Premiums receivable		174,360		174,360		—		(375	)		(375	)
Reinsurance recoverable		947,228		947,228		—		(2,000	)		(2,000	)

Total credit risk exposure	$	2,936,082	$	2,834,882		57,390		(6,686	)		50,704

Hedging instruments:
Credit default swaps	$	1,464,427	$	61,366		—		32,196			32,196
Eurodollar futures contracts		—		—		—		(343	)		(343	)

Total hedging instruments	$	1,464,427	$	61,366		—		31,853			31,853

Net exposure					$	57,390	$	25,167		$	82,557

	As of and for the Three Months Ended September 30, 2009
					Effect on Pre-tax
							Net Realized
					Other		Investment
	Exposure/		Carrying		Comprehensive		Gains
	Notional Value		Value		Income		(Losses)1			Net Equity
Credit risk exposures:
Fixed income securities	$	1,850,620	$	1,850,620	$	92,248	$	71,728		$	163,976
Warrants		1,903		1,903		—		1,901			1,901
Premiums receivable		167,086		167,086		—		(375	)		(375	)
Reinsurance recoverable		905,967		905,967		—		—			—
Total credit risk exposure	$	2,925,576	$	2,925,576		92,248		73,254			165,502
Hedging instruments:
Derivatives:
Credit default swaps	$	1,597,093	$	23,116		—		(19,504	)		(19,504	)
Total hedging instruments	$	1,597,093	$	23,116		—		(19,504	)		(19,504	)
Net exposure					$	92,248	$	53,750		$	145,998


¹		Excludes $102,788 of U.S. government securities with a loss in other comprehensive income of $11,571 and realized gain of $1,066.

1The ~~Includes~~net ~~earnings~~cash ~~charges~~flow ~~for~~effect ~~premiums~~from ~~receivable~~disposals of the above credit risk exposures and ~~reinsurance~~related ~~recoverable~~hedging instruments for the three months ended March 31, 2009 was $104,076.

	As of and for the Three Months Ended September 30, 2008
					Effect on Pre-tax
							Net Realized
					Other		Investment
	Exposure/		Carrying		Comprehensive		Gains
	Notional Value		Value		Income		(Losses)1			Net Equity
Credit risk exposures:
Fixed income securities	$	2,463,470	$	2,463,470	$	9,921	$	(26,671	)	$	(16,750	)
Warrants		3,250		3,250		—		818			818
Premiums receivable		187,166		187,166		—		(675	)		(675	)
Reinsurance recoverable		1,025,144		1,025,144		—		(2,000	)		(2,000	)
Total credit risk exposure	$	3,679,030	$	3,679,030		9,921		(28,528	)		(18,607	)
Hedging instruments:
Derivatives:
Credit default swaps	$	3,731,964	$	244,258		—		119,316			119,316
Eurodollar futures contracts		488,000		—		—		(196	)		(196	)
Total hedging instruments	$	4,219,964	$	244,258		—		119,120			119,120
Net exposure					$	9,921	$	90,592		$	100,513

In the normal course of effecting its economic hedging strategy with respect to credit risk, the Company expects that there may be periods where the notional value of the hedging instruments may exceed or be deficient relative to the exposure items being hedged. This situation may arise when management compensates for imperfect correlations between the hedging item and the hedge or due to the timing of opportunities related to the Company’s ability to exit and enter hedged or hedging items at attractive prices.

1 Includes earnings charges for premiums receivable and reinsurance recoverable.

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

	As of and for the Nine Months Ended September 30, 2009
					Effect on Pre-tax
							Net Realized
					Other		Investment
	Exposure/		Carrying		Comprehensive		Gains
	Notional Value		Value		Income		(Losses)1			Net Equity
Credit risk exposures:
Fixed income securities	$	1,850,620	$	1,850,620	$	166,843	$	141,945		$	308,788
Warrants		1,903		1,903		—		1,903			1,903
Premiums receivable		167,086		167,086		—		(1,125	)		(1,125	)
Reinsurance recoverable		905,967		905,967		—		(2,000	)		(2,000	)
Total credit risk exposure	$	2,925,576	$	2,925,576		166,843		140,723			307,566
Hedging instruments:
Derivatives:
Credit default swaps	$	1,597,093	$	23,116		—		(6,054	)		(6,054	)
Eurodollar futures contracts		—		—		—		(343	)		(343	)
Total hedging instruments	$	1,597,093	$	23,116		—		(6,397	)		(6,397	)
Net exposure					$	166,843	$	134,326		$	301,169

1 Includes earnings charges for premiums receivable and reinsurance recoverable.

	As of and for the Nine Months Ended September 30, 2008
					Effect on Pre-tax
								Net Realized
					Other			Investment
	Exposure/		Carrying		Comprehensive			Gains
	Notional Value		Value		Income			(Losses)1			Net Equity
Credit risk exposures:
Fixed income securities	$	2,463,470	$	2,463,470	$	(18,137	)	$	(13,416	)	$	(31,553	)
Warrants		3,250		3,250		—			(2,652	)		(2,652	)
Premiums receivable		187,166		187,166		—			575			575
Reinsurance recoverable		1,025,144		1,025,144		—			(6,000	)		(6,000	)
Total credit risk exposure	$	3,679,030	$	3,679,030		(18,137	)		(21,493	)		(39,630	)
Hedging instruments:
Derivatives:
Credit default swaps	$	3,731,964	$	244,258		—			275,961			275,961
Eurodollar futures contracts		488,000		—		—			(196	)		(196	)
Total hedging instruments	$	4,219,964	$	244,258		—			275,765			275,765
Net exposure					$	(18,137	)	$	254,272		$	236,135

1 Includes earnings charges for premiums receivable and reinsurance recoverable.

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

Total Return Swaps

~~During~~The ~~much~~Company ofholds ~~2008~~short ~~and~~positions ~~immediately~~in ~~preceding~~equity ~~years,~~index ~~the~~total ~~Company had~~return ~~been~~swaps ~~concerned~~primarily ~~about~~to ~~the~~provide protection ~~valuation~~against ofsignificant ~~worldwide~~declines ~~equity markets,~~in ~~uncertainty~~the ~~resulting~~value ~~from~~of ~~credit~~its ~~issues~~equity ~~in the U.S.~~ and ~~global~~equity ~~economic~~related ~~conditions~~holdings. ~~As protection against~~ aDuring ~~decline~~the infirst ~~equity~~quarter ~~markets~~of 2010, the Company ~~held~~also ~~short~~entered ~~positions~~into ~~in Standard &~~a ~~Poor’s~~limited ~~Depositary~~number ~~Receipts~~of long positions ~~(“SPDRs”)~~in ~~and~~equity ~~U.S. listed~~total ~~common~~return ~~stocks~~swaps ~~and equity~~with ~~index~~a ~~and~~notional ~~equity~~value ~~total~~of ~~return~~$518,893 ~~swaps~~at March 31, ~~referred~~2010, which are designed to inreplicate the ~~aggregate~~Company’s asinvestment ~~equity~~in ~~hedges.~~certain ~~The~~common ~~Company~~stock ~~also~~positions inthat the ~~past purchased~~Company ~~S&P~~sold ~~Index~~during ~~call~~the ~~options~~quarter. The toCompany’s ~~limit~~maximum ~~the~~ potential cash loss on its ~~equity~~long ~~index~~ total return swaps ~~and~~is ~~SPDRs~~limited ~~short~~to their notional value. ~~positions~~The ~~and~~total toreturn ~~provide~~swaps ~~general~~contain ~~protection~~contractual ~~against~~reset ~~the~~provisions ~~short~~requiring counterparties to cash-settle ~~position~~on ina ~~common~~monthly ~~stocks.~~basis Inany market value movements arising since the ~~latter~~prior ~~half~~settlement. ofAny ~~2008,~~cash ~~following~~paid to ~~significant~~settle ~~declines~~unfavorable inmarket ~~global~~value ~~equity~~changes ~~markets~~and, ~~the~~conversely, ~~Company reviewed~~any ~~the~~cash ~~financial~~received ~~objectives~~in settlement of favorable ~~its~~market ~~hedging~~value ~~program~~changes are recognized as realized investment gains and losses on the ~~determined~~consolidated ~~that~~statements ~~elevated~~of ~~risks~~operations in the ~~global~~period ~~equity~~in ~~markets~~which ~~had moderated~~they ~~and~~occur. ~~subsequently~~To ~~closed~~the ~~all~~extent ofthat ~~its~~a contractual ~~equity~~reset ~~hedge positions,~~date ~~realizing~~of ~~substantial~~a ~~gains.~~contract ~~During~~does not correspond to the ~~fourth quarter~~balance ofsheet ~~2008~~date, the Company records ~~increased~~additional ~~its~~net ~~investments~~realized ininvestment gains or losses on the consolidated statements of ~~equities~~operations asto aadjust ~~result~~the carrying value of the ~~opportunities~~derivative ~~presented~~asset byor liability associated with each ~~significant~~total ~~declines~~return inswap contract to reflect its fair value at the ~~global~~balance ~~equity~~sheet ~~markets~~date.

13 During the third quarter of 2009, as a result of the rapid increase in the valuation level of worldwide equity markets, the Company once again determined to protect a portion of its equity and equity related holdings against a decline in equity markets and entered into equity index total return swaps with a notional value of $452,319. These total return swaps contain contractual reset provisions requiring counterparties to cash-settle on a monthly basis any market value movements arising since the prior settlement. Any cash paid to settle unfavorable market value changes and, conversely, any cash received in settlement of favorable market value changes are recognized as realized investment gains and losses on the consolidated statements of income in the period in which they occur. To the extent that a contractual reset date of a contract does not correspond to the balance sheet date, the Company records additional net realized investment gains or losses on the consolidated statements of income to adjust the carrying value of the derivative asset or liability associated with each total return swap contract to reflect its fair value at the balance sheet date.

The Company is required to post collateral equivalent to 6% of the notional value of the total return swaps at the time the swap is opened. These assets are recorded at fair value in assets pledged for derivatives on the consolidated balance sheets. At September 30, 2009, the fair value of the collateral posted, in the form of municipal bonds, was $29,756.

The following tables summarize the effect of equity risk hedging instruments and related hedged items on the Company’s financial position and results of operations as of and for the three and nine months ended September 30, 2009 and 2008:

	As of and for the Three Months Ended September 30, 2009
					Effect on Pre-tax
							Net Realized
					Other		Investment
	Exposure/		Carrying		Comprehensive		Gains
	Notional Value		Value		Income		(Losses)1		Net Equity
Equity exposures:
Equity securities	$	1,383,777	$	1,383,777	$	166,508	$	22,251	$	188,759
Investments at equity		159,370		159,370		577		8,956		9,533
Other invested assets		355,303		355,303		—		131,407		131,407
Total equity exposure	$	1,898,450	$	1,898,450		167,085		162,614		329,699
Hedging instruments:
Derivatives:
Total return swaps	$	452,319	$	2,611		—		2,611		2,611
Total equity hedging instruments	$	452,319	$	2,611		—		2,611		2,611
Net equity exposure					$	167,085	$	165,225	$	332,310

1 Includes earnings from investments at equity.

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

	As of and for the Three Months Ended September 30, 2008
					Effect on Pre-tax
								Net Realized
					Other			Investment
	Exposure/		Carrying		Comprehensive			Gains
	Notional Value		Value		Income			(Losses)1			Net Equity
Equity exposures:
Equity securities	$	691,577	$	691,577	$	(41,309	)	$	(30,618	)	$	(71,927	)
Investments at equity		126,713		126,713		(841	)		(15,072	)		(15,913	)
Other invested assets		239,369		239,369		—			(41,575	)		(41,575	)
Total equity exposure	$	1,057,659	$	1,057,659		(42,150	)		(87,265	)		(129,415	)
Hedging instruments:
Derivatives:
Total return swaps	$	845,392	$	45,558		—			141,263			141,263
S&P Index call options		310,464		1		—			(45	)		(45	)
Total equity hedging instruments	$	1,155,856	$	45,559		—			141,218			141,218
Net equity exposure					$	(42,150	)	$	53,953		$	11,803

The following table summarizes the effect of equity risk hedging instruments and related hedged items on the Company’s financial position and results of operations and cash flows as of and for the three months ended March 31, 2010:

1 Includes earnings from investments at equity.


	As of and for the Three Months Ended March 31, 2010
						Effect on Pre-tax
	Exposure/					Other
	Notional		Carrying			Comprehensive
	Value		Value			Income¹			Earnings			Net Equity
Equity exposures:
Equity securities	$	865,758	$	865,758		$	(15,975	)	$	122,628		$	106,653
Total return swaps — long		518,893		(1,412	)		—			35,686			35,686
Investments at equity		173,836		173,836			2,705			3,852			6,557
Other invested assets		360,335		360,335			—			(7,724	)		(7,724	)

Total equity exposure	$	1,918,822	$	1,398,517			(13,270	)		154,442			141,172

Hedging instruments:
Total return swaps — short	$	496,855	$	(1,406	)		—			(23,637	)		(23,637	)

Net equity exposure						$	(13,270	)	$	130,805		$	117,535

	As of and for the Nine Months Ended September 30, 2009
					Effect on Pre-tax
							Net Realized
					Other		Investment
	Exposure/		Carrying		Comprehensive		Gains
	Notional Value		Value		Income		(Losses)1			Net Equity
Equity exposures:
Equity securities	$	1,383,777	$	1,383,777	$	322,728	$	(71,518	)	$	251,210
Investments at equity		159,370		159,370		1,776		44,579			46,355
Other invested assets		355,303		355,303		—		73,902			73,902
Total equity exposure	$	1,898,450	$	1,898,450		324,504		46,963			371,467
Hedging instruments:
Derivatives:
Total return swaps	$	452,319	$	2,611		—		2,611			2,611
Total equity hedging instruments	$	452,319	$	2,611		—		2,611			2,611
Net equity exposure					$	324,504	$	49,574		$	374,078


¹		Excludes foreign currency translation losses of $545.

1The ~~Includes~~net ~~earnings~~cash flow effect from ~~investments~~disposals atof the above equity exposures and related hedging instruments for the three months ended March 31, 2010 was $143,289. There were no equity risk hedging instruments in effect during the three months ended March 31, 2009.

In the normal course of effecting its economic hedging strategy with respect to equity risk, the Company expects that there may be periods where the notional value of the hedging instruments may 18exceed or be deficient relative to the exposure items being hedged. This situation may arise when management compensates for imperfect correlations between the hedging item and the hedge or due to the timing of opportunities related to the Company’s ability to exit and enter hedged or hedging items at attractive prices.

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

	As of and for the Nine Months Ended September 30, 2008
					Effect on Pre-tax
								Net Realized
					Other			Investment
	Exposure/		Carrying		Comprehensive			Gains
	Notional Value		Value		Income			(Losses)1			Net Equity
Equity exposures:
Equity securities	$	691,577	$	691,577	$	(35,130	)	$	(71,696	)	$	(106,826	)
Investments at equity		126,713		126,713		(28,626	)		(24,924	)		(53,550	)
Other invested assets		239,369		239,369		—			(83,472	)		(83,472	)
Total equity exposure	$	1,057,659	$	1,057,659		(63,756	)		(180,092	)		(243,848	)
Hedging instruments:
Derivatives:
Total return swaps	$	845,392	$	45,558		—			153,060			153,060
S&P Index call options		310,464		1		—			(498	)		(498	)
SPDRs short-sales		—		—		—			65,506			65,506
Common stock short-sales		—		—		—			4,749			4,749
Total equity hedging instruments	$	1,155,856	$	45,559		—			222,817			222,817
Net equity exposure					$	(63,756	)	$	47,275		$	(21,031	)

1 Includes earnings from investments at equity.

Other Derivatives

As an economic hedge against ~~The~~the potential adverse impact on the Company ~~has~~of ~~investments~~changes in ~~warrants~~price levels in the economy, ~~which~~the ~~are~~Company has purchased inflation-linked derivative contracts ~~that~~referenced ~~grant~~to inflation indices in the ~~holder~~geographic regions in which the ~~right~~Company tooperates. ~~purchase~~As anat March 31, ~~underlying~~2010, these derivative contracts had a carrying value in the consolidated balance ~~financial~~sheet ~~instrument~~of at$9,595 and a ~~given~~cost ~~price~~of $11,400 (carrying value and ~~time.~~cost ~~Warrants~~at ~~are~~December 31, 2009 — $0). The initial premium paid for inflation-linked derivative contracts was recorded atas a derivative asset and was subsequently adjusted for changes in the unrealized fair value ~~with~~of ~~changes~~the contracts at the balance sheet date. Changes in the unrealized fair value ~~recognized~~of the contracts were recorded as net realized investment gains (losses) in the Company’s consolidated statement of operations at the balance sheet date with a corresponding adjustment to the carrying value of the derivative asset. In the event of a sale, expiration or ~~losses~~early insettlement of one of the ~~period~~Company’s inflation-linked derivative contracts, the Company would receive the fair value of that contract on the date of the transaction. The Company’s maximum potential cash loss is limited to the premiums paid to enter into the derivative contracts. Pursuant to the agreements governing the inflation-linked derivatives, counterparties to these transactions are contractually required to periodically deposit eligible collateral for the benefit of the Company in ~~which~~support ~~they~~of the then ~~occur~~current fair value of the derivative contracts. At March 31, 2010 the fair value of this collateral was $11,513 (December 31, 2009 — $0).

The ~~following~~Company ~~table~~also ~~summarizes~~has investments ~~the~~in ~~changes~~warrants, inwhich ~~fair~~are ~~value~~contracts ofthat grant the ~~Company’s~~ ~~derivative~~holder ~~securities~~the ~~and~~right ~~short~~to ~~positions~~purchase an ~~included~~underlying infinancial ~~net~~instrument ~~realized~~at ~~investment~~a ~~gains~~given price and ~~losses~~time. inWarrants ~~the~~are recorded in ~~consolidated~~derivatives ~~statements~~and ofother ~~income~~invested ~~for~~assets ~~the~~at ~~three~~fair ~~and~~value ~~nine~~with ~~months~~changes in fair value recognized as ~~ended~~realized ~~September 30,~~investment ~~2009~~gains ~~and~~or ~~2008:~~losses in the period in which they occur.

	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2009			2008		2009			2008
Credit default swaps	$	(19,504	)	$	119,316	$	(6,054	)	$	275,961
Total return swaps		2,611			141,263		2,611			153,060
SPDRs short-sales		—			—		—			65,506
Common stock short-sales		—			—		—			4,749
Other1		1,901			577		1,560			(3,346	)
Total net realized investment (losses) gains	$	(14,992	)	$	261,156	$	(1,883	)	$	495,930

1 Other includes warrants, Eurodollar futures contracts and S&P Index call options.

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

~~Further~~Counterparty ~~analysis of the realized gains for the three and nine~~Risk months ended September 30, 2009 and 2008 is set forth in the tables below. The realized gains (losses) on disposal represent inception to date gains (losses) on positions closed in the periods. The reversal of the mark-to-market gains (losses) represents changes in fair value recognized in prior periods on securities sold and the mark-to-market gains on losses in the current period represents changes in fair value on credit default swaps still outstanding.

	Three Months Ended September 30, 2009
	Credit			Total
	Default			Return		Other
	Swaps			Swaps		Derivatives		Total
Realized gains on disposal	$	—		$	—	$	—	$	—
Reversal of mark-to-market gains recognized in prior periods		—			—		—		—
Mark-to-market (losses) gains recognized in period		(19,504	)		2,611		1,901		(14,992	)
Net realized investment (losses) gains	$	(19,504	)	$	2,611	$	1,901	$	(14,992	)

The Company is exposed to credit risk in the event of non-performance of counterparties to its credit default swap, total return swap and other derivative securities contracts and endeavors to limit this risk through the terms of agreements negotiated with the counterparties. Pursuant to these agreements, the Company and the counterparties to these transactions are contractually required to deposit eligible collateral in collateral accounts for either the benefit of the Company or the counterparty depending on the then current fair value or change in fair value of the derivative contracts. At March 31, 2010, the fair value of collateral held in the name of the Company, all of which was comprised of U.S. Treasury securities that may be sold or repledged by the Company was $18,450. There was no collateral held in the name of the Company at December 31, 2009. The Company believes that any credit risk exposure, represented by the uncollateralized fair value of the derivative securities ($14,782 and $18,110 at March 31, 2010 and December 31, 2009, respectively), is low given the diversification among the counterparties. The Company funds all its obligations relating to the credit default swaps and similar derivative securities through the initial premium paid at purchase and as a result there are no requirements for the Company to provide collateral.

	Three Months Ended September 30, 2008
	Credit			Total
	Default			Return			Other
	Swaps1			Swaps			Derivatives			Total
Realized gains (losses) on disposal	$	107,710		$	110,119		$	(362	)	$	217,467
Reversal of mark-to-market (gains) losses recognized in prior periods		(55,486	)		(14,414	)		362			(69,538	)
Mark-to-market gains recognized in period		67,092			45,558			577			113,227
Net realized investment gains	$	119,316		$	141,263		$	577		$	261,156

The Company is required to post collateral equivalent to between 6% and 10% of the notional value of the total return swaps at the time the swap is opened. These assets are recorded at fair value in assets pledged for derivatives on the consolidated balance sheets. At March 31, 2010 and December 31, 2009, the fair value of the collateral posted, in the form of U.S. Treasury bills and municipal bonds, was $82,434 and $29,425, respectively.

1The ~~During~~following ~~the~~table ~~three~~summarizes ~~months~~the ~~ended~~changes ~~September~~in ~~30,~~fair ~~2008,~~value of the Company’s ~~sold~~derivative ~~credit~~securities included ~~default~~in ~~swaps~~net ~~with~~realized ainvestment ~~cost~~gains ofand ~~$12,869~~losses ~~and~~in ~~notional~~the ~~amount~~consolidated statements of ~~$739,653~~ operations for ~~proceeds~~the ofthree ~~$120~~months ended March 31,~~579.~~ 2010 and 2009:

	Nine Months Ended September 30, 2009
	Three Months Ended
	Credit			Total
	March 31,
	Default			Return			Other
	2010			2009
	Swaps1			Swaps			Derivatives			Total
Credit default swaps	$	(1,245	)	$	32,196
Realized gains (losses) on disposal	$	88,807		$	—		$	(343	)	$	88,464
Total return swaps		12,049			—
Reversal of mark-to-market gains recognized in prior periods		(60,119	)		—			—			(60,119	)
Other		(1,413	)		(342	)
Mark-to-market (losses) gains recognized in period		(34,742	)		2,611			1,903			(30,228	)
Total realized investment gains	$	9,391		$	31,854
Net realized investment (losses) gains	$	(6,054	)	$	2,611		$	1,560		$	(1,883	)

1Further ~~During~~analysis of the ~~nine~~realized gains for the three months ended ~~September 30~~March 31, 2010 and 2009, is set forth in the ~~Company~~tables ~~sold~~below. ~~credit~~The ~~default~~realized ~~swaps~~gains ~~with~~or alosses ~~cost~~on ofdisposal ~~$20,853~~represent ~~and~~inception ~~notional~~to date ~~amount~~gains ofor ~~$1,387,500~~losses ~~for~~on ~~proceeds~~positions ofclosed ~~$109,660~~in the periods.


	Three Months Ended March 31, 2010
	Credit Default			Total Return			Other
	Swaps			Swaps			Derivatives			Total
Realized gains on disposals or settlements	$	—		$	12,950		$	—		$	12,950
Reversal of mark-to-market losses recognized in prior periods		—			1,917			—			1,917
Mark-to-market (losses) gains recognized in 2010		(1,245	)		(2,818	)		(1,413	)		(5,476	)

Net realized investment gains (losses)	$	(1,245	)	$	12,049		$	(1,413	)	$	9,391


	Three Months Ended March 31, 2009
	Credit Default			Other
	Swaps			Derivatives¹			Total
Realized gains (losses) on disposals or settlements	$	88,807		$	(343	)	$	88,464
Reversal of mark-to-market gains recognized in prior periods		(60,119	)		—			(60,119	)
Mark-to-market gains recognized in 2009		3,508			1			3,509

Net realized investment gains (losses)	$	32,196		$	(342	)	$	31,854

~~NOTES TO CONSOLIDATED~~1 ~~FINANCIAL~~Other ~~STATEMENTS (Unaudited,~~includes ~~dollars~~warrants inand ~~thousands)~~ Eurodollar futures contracts.

	Nine Months Ended September 30, 2008
									Common
	Credit			SPDRs			Total		Stock
	Default			Short-			Return		Short-			Other
	Swaps1			Sales			Swaps		Sales			Derivatives			Total
Realized gains (losses) on disposal	$	257,228		$	(22,523	)	$	107,502	$	5,116		$	(1,977	)	$	345,346
Reversal of mark-to-market (gains) losses recognized in prior periods		(125,975	)		88,029			—		(367	)		1,555			(36,758	)
Mark-to-market gains (losses) recognized in period		144,708			—			45,558		—			(2,924	)		187,342
Net realized investment gains (losses)	$	275,961		$	65,506		$	153,060	$	4,749		$	(3,346	)	$	495,930

1 During the nine months ended September 30, 2008, the Company sold credit default swaps with a cost of $33,128 and notional amount of $1,518,544 for proceeds of $290,356.

Other Invested Assets

~~Other~~At ~~invested assets are comprised of investments for which the Company has elected the fair value option under FASB ASC 825-10~~March 31, ~~Financial~~ ~~Instruments (formerly SFAS No. 159~~2010, ~~The~~ ~~Fair~~other ~~Value~~invested ~~Option~~assets ~~for Financial Assets and Liabilities). These investments, which~~ include the Company’s investments in ~~Odyssey~~Advent ~~Re Holdings Corp. (“Odyssey”) common~~ and ~~preferred stock and Advent~~Odyssey, ~~Capital~~which ~~(Holdings) PLC (“Advent”) common stock,~~ are ~~recorded~~ atequity ~~fair~~investments ~~value~~for ~~with~~which ~~changes~~the inCompany ~~fair~~has ~~value~~elected ~~recorded as realized investment gains or losses in~~ the ~~period in which they occur. At September 30, 2009 and December 31, 2008, other invested assets had a~~ fair value ~~of $355~~option,~~303~~ and ~~$273,917,~~a ~~respectively.~~convertible ~~For~~preferred ~~the~~security ~~three~~that ~~and~~has ~~nine~~been ~~months~~designated ~~ended September 30,~~as ~~2009~~held-for-trading. ~~and~~Changes ~~2008, the change~~ in fair value of of other invested assets ~~resulted~~are inrecognized as realized investment gains ~~of $130,944~~ and ~~$71,337, and realized investment~~ losses ~~of $(41,088)~~in ~~and $(81,504), respectively. For~~ the ~~three and nine~~consolidated ~~months~~statements ~~ended~~of ~~September 30,~~operations ~~2009,~~in the ~~gain~~period ~~was~~in ~~primarily attributable~~which tothey ~~the~~occur ~~change~~and inamounted ~~fair~~to ~~value~~losses of ~~the~~$7,723 ~~Company’s~~and ~~investment in Odyssey common stock~~$71,062 ~~which~~for ~~was acquired in~~ the ~~fourth~~ ~~quarter of 2008. For the~~ three ~~and nine~~ months ended ~~September~~ March 3031, ~~2008~~2010 ~~the~~and ~~loss~~2009, onrespectively. ~~other~~Other invested assets ~~was~~ ~~primarily~~had ~~due~~a tocarrying ~~the change in fair~~ value of ~~the~~$360,335 ~~Company’s investment~~and in$367,875 ~~Northbridge~~at ~~Financial~~March 31, ~~Corp.~~2010 ~~which~~and ~~was~~December 31, ~~sold in the~~2009, ~~fourth quarter of 2008~~respectively.

15 For the nine months ended September 30, 2009, Odyssey was a significant subsidiary 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 September 30, 2009, had Odyssey still been accounted for under the equity method of accounting, is summarized as follows:

	Three Months Ended
	September 30, 2009
Total revenues	$	52,812
Total expenses	$	38,320
Income from continuing operations	$	14,492
Net income	$	10,232

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

Related Party Transactions

In September 2009, Fairfax announced a formal offer to acquire all of the outstanding common shares of Odyssey, other than those shares not already owned by Fairfax and its affiliates, for $65 in cash per common share. The Company recognized a mark-to-market gain of $124,405 on its investment in Odyssey in the third quarter of 2009.

In July 2009, Fairfax announced a formal offer to acquire all of the outstanding common shares of Advent, other than those shares not already owned by Fairfax and its affiliates, for 220 U.K. pence in cash per common share. The Company recognized a mark-to-market gain of $6,539 on its investment in Advent in the third quarter of 2009. As part of the acquisition, the Company purchased additional Advent shares in September 2009 for cash consideration of $10,050. The Company’s ownership of Advent increased to 17.5% with the purchase of the additional shares (11.7% at December 31, 2008).

In May 2009, the Company sold municipal securities with a fair market value of $14,725 to nSpire Re Limited, a Fairfax affiliate, for cash consideration and a pre-tax gain of $875.

In March 2009, the Company sold municipal securities with a fair market value of $97,112 to certain Fairfax affiliates, for cash consideration and 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 its tax liability, resulting in a pre-tax gain of $5,907.

4. Fair Value Disclosures

Fair Value Hierarchy

InThe ~~accordance with FASB ASC 820-10, Fair Value Measurements and Disclosures, the~~ Company has categorized its financial instruments into ~~the~~a three-level fair value hierarchy, based on the priority of inputs to the valuation technique. ~~FASB~~The ~~ASC 820-10 defines~~ fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles and expands disclosures about fair value measurements. FASB ASC 820-10 also 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~~gives 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. InWhen ~~certain cases,~~ the inputs used to measure fair value ~~may~~ fall ~~into~~within different levels of the ~~fair value~~ hierarchy~~. In such cases~~, the level ~~in the hierarchy~~ within which the fair value measurement ~~falls~~ is ~~determined~~categorized is based on the lowest level input that is significant ~~input~~to the fair value measurement in its entirety. The hierarchy is broken down into ~~three~~ 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~~ isthat 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~~ 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 prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. These inputs reflect the Company’s own assumptions about the methodology and valuation techniques that a market participant would use in pricing the asset or liability.

The Company is responsible for determining the fair value of its investment portfolio by utilizing ~~market driven~~ fair value measurements obtained from active markets where available, by considering other observable and unobservable inputs and by employing valuation techniques which make use of current ~~market~~ market data.

For determining the fair value of its Level 1 investments (approximately 4627% of total investment portfolio at fair value), the Company utilizes quoted market prices in active markets for ~~identical~~ identical securities. ~~All~~The ~~but $2,611 of the~~ Company’s Level 1 investments are primarily exchange-traded equity securities that trade in active markets.

The Company’s Level 2 investments (approximately 62% of total investment portfolio at fair value), the majority of which are in U.S. government, municipal and corporate fixed income securities, are 22priced using publicly traded over-the-counter prices or broker-dealer quotes. Observable inputs such as benchmark yields, reported trades, broker-dealer quotes, issuer spreads and bids are available for these investments. The Company’s Level 2 investments also include mortgage-backed securities, purchased at deep discounts to par and other derivative securities that are priced using broker-dealer quotes, credit default swaps that are priced using broker-dealer quotes which are based on observable credit spreads and inactively traded convertible corporate debentures which are valued using a pricing model, the inputs of which are derived principally from, or corroborated by, observable market data such as credit spreads and discount rates. For credit default swaps, the Company assesses the reasonableness of the fair values obtained from the broker-dealers by comparing the broker-dealer quotes 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 Company uses valuation models to establish the fair value of its Level 3 securities (approximately 11% of total investment portfolio at fair value). Level 3 securities include the Company’s investments in Odyssey and Advent common stock, which are valued using internally developed valuation models based on market multiples derived from a set of publicly traded comparable companies. The models, which require a significant amount of judgment, use current and historical market prices and book values of comparable companies to derive a current fair value. Also included in Level 3 are mortgage-backed securities purchased at deep discounts to par which are valued using an internal discounted cash flow model, which includes unobservable inputs that are supported by limited market-based activity. The Company assesses the reasonableness of the fair values of these securities by comparing the fair values to industry accepted valuation models, by reference to movements in credit spreads and by comparing the fair values to recent transaction prices for similar assets where available.

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

The ~~Company’s~~following ~~Level 2~~tables ~~investments~~present ~~(approximately 53% of total investment portfolio at fair value),~~ the majority of which are in U.S. government, municipal and corporate securities, are priced using publicly traded over-the-counter prices or broker-dealer quotes. Observable inputs such as benchmark yields, reported trades, broker-dealer quotes, issuer spreads and bids are available for these investments. The Company’s ~~Level 2~~ investments ~~also~~(excluding ~~include~~cash certain mortgage-backed securities, purchased at deep discounts to par, that are priced using broker-dealer quotes, credit default swaps that are priced using broker-dealer quotes which include observable credit spreads and ~~inactively~~cash ~~traded convertible~~equivalents) ~~corporate~~measured ~~debentures~~at ~~which~~fair ~~are~~value ~~valued~~on ~~using~~ a ~~pricing~~recurring ~~model~~basis, ~~the inputs~~within ~~of which are derived principally from, or corroborated by, observable market data such as credit spreads and discount rates. For credit default swaps,~~ the ~~Company assesses the reasonableness of the~~ fair ~~values~~value ~~obtained from the broker-dealers by comparing to values produced using individual issuer credit default swap yield curves~~hierarchy, byat ~~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~~2010 ~~Company transferred $47,611 of Level 3 investments to~~and ~~Level~~December ~~2 investments~~31, ~~after determining that broker-dealer~~2009: ~~quotes would be used to determine the fair value of the instruments.~~

The Company’s Level 3 investments are comprised of mortgage-backed securities purchased at deep discounts to par (less than 1% of total investment portfolio at fair value), which are valued 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. During the nine months ended September 30, 2009, the Company purchased $19,830 of investments that are classified as Level 3.


	March 31, 2010
	Quoted Prices		Significant
	in Active		Other		Significant
	Markets for		Observable		Unobservable
	Identical Assets		Inputs		Inputs
Assets	(Level 1)		(Level 2)		(Level 3)		Total
Available-for-sale fixed income securities:
U.S. government and government agencies and authorities	$	—	$	89,085	$	—	$	89,085
States, municipalities and political subdivisions		—		1,341,054		—		1,341,054
Other corporate		—		76,526		—		76,526

Total available-for-sale fixed income securities		—		1,506,665		—		1,506,665
Fixed income securities, held-for-trading:
Residential mortgage-backed		—		109,799		17,821		127,620
Other corporate		—		235,552		—		235,552

Total held-for-trading fixed income securities		—		345,351		17,821		363,172
Equity securities		835,232		30,526		—		865,758
Derivatives and other invested assets		8,085		51,866		329,153		389,104
Short-term investments		—		28,470		—		28,470

Total	$	843,317	$	1,962,878	$	346,974	$	3,153,169

The following tables present the Company’s investment portfolio (excluding cash and cash equivalents and investments at equity) measured at fair value on a recurring basis, within the fair value hierarchy, at September 30, 2009 and December 31, 2008:


	December 31, 2009
	Quoted Prices		Significant
	in Active		Other		Significant
	Markets for		Observable		Unobservable
	Identical Assets		Inputs		Inputs
Assets	(Level 1)		(Level 2)		(Level 3)		Total
Available-for-sale fixed income securities:
U.S. government and government agencies and authorities	$	—	$	87,765	$	—	$	87,765
States, municipalities and political subdivisions		—		1,328,964		—		1,328,964
Other corporate		—		102,817		—		102,817

Total available-for-sale fixed income securities		—		1,519,546		—		1,519,546
Fixed income securities, held-for-trading:
Residential mortgage-backed		—		89,746		14,272		104,018
Other corporate		—		217,341		—		217,341

Total held-for-trading fixed income securities		—		307,087		14,272		321,359
Equity securities		1,256,081		28,021		—		1,284,102
Derivatives and other invested assets		7,964		47,516		332,422		387,902
Short-term investments		—		68,211		—		68,211

Total	$	1,264,045	$	1,970,381	$	346,694	$	3,581,120

	September 30, 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:
U.S. government and government agencies and authorities	$	—	$	97,289		$	—	$	97,289
States, municipalities and political subdivisions		—		1,279,873	1		—		1,279,873
Other corporate		—		138,456			—		138,456
Total available-for-sale fixed income securities		—		1,515,618			—		1,515,618
Fixed income securities, held-for-trading:
Residential mortgage-backed		—		89,844			16,440		106,284
Other corporate		—		228,718			—		228,718
Total held-for-trading fixed income securities		—		318,562			16,440		335,002
Equity securities		1,355,651		28,126			—		1,383,777
Derivatives and other invested assets		333,457		49,476			—		382,933
Short-term investments		—		30,971			—		30,971
Total	$	1,689,108	$	1,942,753		$	16,440	$	3,648,301

1 Includes securities pledged for derivatives at a fair value of $29,756.

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

	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:
U.S. government and government agencies and authorities	$	—	$	169,430	$	—	$	169,430
States, municipalities and political subdivisions		—		1,315,465		—		1,315,465
Other corporate		—		48,439		—		48,439
Total available-for-sale fixed income securities		—		1,533,334		—		1,533,334
Fixed income securities, held-for-trading:
Residential mortgage-backed		—		—		66,393		66,393
Other corporate		—		167,605		—		167,605
Total 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

The following table provides a summary of changes in fair value of Level 3 financial assets for the three months ended March 31, 2010 and 2009:

At September 30, 2009 and December 31, 2008, the Company did not carry any liabilities at fair value. The fair value of the Company’s long-term debt, determined from market prices, was $305,250 and $244,200 at September 30, 2009 and December 31, 2008, respectively.


	March 31, 2010									March 31, 2009
	Fixed									Fixed
	Income			Equity						Income			Equity
	Securities			Securities			Total			Securities			Securities		Total
Balance, beginning of period	$	14,272		$	332,422		$	346,694		$	66,393		$	—	$	66,393
Purchases		6,214			184			6,398			9,969			—		9,969
Settlements		(5,802	)		—			(5,802	)		—			—		—
Transfers from Level 3		—			—			—			(47,611	)		—		(47,611	)
Realized investment gains (losses) included in net income		3,137			(3,453	)		(316	)		943			—		943

Balance, end of period	$	17,821		$	329,153		$	346,974		$	29,694		$	—	$	29,694

Realized investment gains (losses) relating to assets held at period end	$	1,106		$	(3,453	)	$	(2,347	)	$	727		$	—	$	727

~~The~~Transfers ~~following~~from ~~table~~Level ~~provides~~3 ainto ~~summary~~Level of2 ~~changes~~are in ~~fair~~respect ~~value~~ of ~~Level 3~~mortgage-backed ~~financial~~securities ~~assets~~ for ~~the~~which broker-quotes, ~~three~~which ~~and~~utilize ~~nine~~observable ~~months~~inputs, are used to value those securities. There were no ~~ended~~transfers ~~September 30,~~into ~~2009~~or ~~and~~out ~~2008:~~of Level 1.

	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2009			2008		2009			2008
Balance, beginning of period	$	21,913		$	2,498	$	66,393		$	2,500
Purchases, issuances and settlements		(8,591	)		6,440		(10,026	)		6,440
Transfers to Level 2		—			—		(47,611	)		—
Realized gains (losses) included in net income		3,118			186		7,684			184
Balance, end of period	$	16,440		$	9,124	$	16,440		$	9,124
Total gains for the period recognized in earnings attributable to the change in unrealized gains or losses relating to assets held at period end	$	4,498		$	186	$	5,471		$	184

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

Fair Value Option

InThe ~~accordance with the provisions of FASB ASC 825-10, Financial Instruments, the~~ Company has elected the fair value option for certain investments that would have otherwise been accounted for under the equity method of accounting. ~~FASB ASC~~The ~~825-10 provides~~fair ~~the~~value option allows companies to irrevocably elect ~~irrevocably~~fair tovalue ~~measure~~as ~~many~~the initial and subsequent measurement attribute for certain financial ~~instruments~~assets and ~~certain~~liabilities. ~~other~~Changes ~~items~~in atthe fair value ~~primarily~~ onof ~~an instrument-by-instrument basis,~~assets ~~that~~and ~~are~~liabilities ~~not~~for ~~otherwise~~which the ~~accounted~~election ~~for~~is atmade ~~fair~~are ~~value~~recognized ~~under other~~in ~~accounting~~net ~~standards~~income as they occur. The fair value option election is permitted on an instrument-by-instrument basis at initial recognition of an asset or liability or upon occurrence of an event that gives rise to a new basis of accounting for that instrument. ~~Changes~~In determining inthe eligible financial instruments for which to elect the fair value ofoption, the ~~assets~~Company ~~and~~considered ~~liabilities~~all ~~for~~of ~~which~~its ~~the~~equity ~~election~~method isinvestments. ~~made~~These investments are often carried at ~~recognized~~values inthat ~~net~~do ~~income~~not asreflect ~~they~~current ~~occur~~fair market value. The Company decided that the fair value option would be appropriate for equity method investments for which there was a publicly quoted market price.

In ~~determining~~December 2008, the ~~eligible~~Company ~~financial~~elected ~~instruments for which to elect~~ the fair value option, ~~the~~for ~~Company~~its ~~considered~~investments ~~all~~in ofOdyssey’s ~~its~~common ~~equity~~and ~~method~~preferred ~~investments~~stock. ~~These~~At ~~investments~~the ~~are~~time, ~~often~~Odyssey ~~carried at~~was ~~values~~publicly ~~that~~traded doon ~~not~~the ~~reflect~~New ~~current~~York ~~fair~~Stock ~~market~~Exchange ~~value. The~~and ~~Company~~its ~~decided~~traded ~~that~~price ~~the~~was ~~fair~~determined ~~value~~to ~~option would~~ be ~~appropriate for~~a ~~equity~~better ~~method~~indicator ~~investments~~of ~~for~~its ~~which~~value ~~there~~than isits acarrying ~~publicly~~value under ~~quoted~~the ~~market~~equity ~~price~~method. ~~The~~During ~~Company~~the ~~concluded~~fourth ~~that~~quarter ~~the~~of ~~election would~~2009, beFairfax ~~inappropriate~~purchased ~~for~~the ~~those~~remaining ~~equity~~outstanding shares ~~method~~of ~~investments~~Odyssey’s common stock that do Fairfax did not ~~have~~already ~~quoted~~own, ~~market~~which ~~prices~~resulted ~~due~~in toOdyssey becoming ~~the~~a ~~degree~~wholly-owned subsidiary of ~~judgment that~~Fairfax ~~would~~of bewhich ~~needed~~the toCompany ~~measure~~owns ~~their~~approximately ~~fair~~8.8% ~~values~~at ~~and the~~March ~~additional~~31, ~~accounting~~2010. ~~risk~~At ~~associated~~March 31, ~~with~~2010 ~~those~~and ~~valuations.~~December 31, ~~The~~ 2009, the Company’s ~~elected~~investments ~~the~~in ~~fair~~Odyssey’s ~~value~~common and ~~option~~preferred ~~for~~stock ~~its~~are ~~investments~~recorded in ~~Advent,~~ anderivatives ~~affiliated~~and ~~company~~other ~~formerly~~invested ~~traded~~assets on the ~~Alternative~~consolidated ~~Investment~~balance ~~Market~~sheets ofat ~~the~~fair ~~London~~values ~~Stock~~of ~~Exchange (“AIM”)~~$304,436 and ~~Odyssey~~$8,085, anand ~~affiliated~~$305,818 ~~company~~and ~~traded~~$7,964, onrespectively. For the ~~New~~three ~~York~~months ~~Stock~~ended ~~Exchange~~March 31, ~~both~~2010 ofand ~~which~~2009, ~~would otherwise be subject to~~ the ~~equity~~total ~~method~~change ofin ~~accounting~~fair asvalue ~~they are subsidiaries~~ of ~~Fairfax.~~the ~~The~~ Company’s ~~investments in~~ ~~Odyssey include~~ investments in Odyssey’s common and preferred stock. ~~During~~was ~~the~~a ~~third~~loss ~~quarter~~ of ~~2009~~$1,261 ~~Fairfax~~and $69,152, respectively, ~~completed~~which ~~the~~was ~~acquisition~~recorded ofin ~~all~~net ofrealized ~~the~~investment ~~outstanding~~gains ~~shares~~and ~~of Advent~~losses ~~that~~in ~~Fairfax~~the ~~and~~consolidated ~~its~~statements ~~affiliates~~of operations. ~~did~~Dividends ~~not~~of ~~previously~~$144 ~~own~~ and as$534 awere ~~result~~received offrom ~~the~~Odyssey ~~acquisition,~~for ~~Advent~~the ~~became~~three amonths ~~private,~~ended March ~~wholly-owned~~31, ~~subsidiary~~2010 ofand ~~Fairfax. At September~~March 3031, 2009, ~~the~~ ~~Company~~respectively, ~~has~~and ~~valued~~have ~~its~~been ~~investment~~recorded inas ~~Advent~~investment ~~based~~income onin ~~its~~the ~~most~~consolidated ~~recent~~statements ~~purchase price~~ of ~~Advent shares~~operations.

During the third quarter of 2008, the Company elected the fair value option for its investment in Advent. At ~~September 30~~the time, Advent was publicly traded on a foreign stock exchange and its traded price was determined to be a better indicator of its value than its carrying value under the equity method. During the third and fourth quarters of 2009, Fairfax purchased the remaining outstanding shares of Advent which Fairfax did not already own, resulting in Advent becoming a wholly-owned subsidiary of Fairfax of which the Company owns approximately 17.5% at March 31, 2010. At March 31, 2010 and December 31, ~~2008~~2009, the Company’s investment in Advent is recorded in derivatives ~~and~~ and other invested assets on the consolidated balance sheets at a fair value of $2624,~~360~~717 and $1126,~~607~~603, respectively. For the three ~~and~~ ~~nine~~ months ended ~~September~~March 3031, 2010 and 2009, the change in fair value of the Company’s investment in Advent was a ~~gain~~loss of $62,~~539~~070 and $41,~~703~~910, respectively, which was recorded ~~through~~in net realized investment gains and losses in the consolidated statements of ~~income~~operations.

18 At September 30, 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 $321,134 and $7,810, and $256,570 and $5,740, respectively. For the three and nine months ended September 30, 2009, the total change in fair value of the Company’s investments in Odyssey common and preferred stock was a gain of $124,405 and $66,634, respectively, which was recorded through realized investment gains and losses in the consolidated statements of income. Dividends of $519 and $1,573 were recorded from Odyssey for the three and nine months ended September 30, 2009, respectively, and have been recorded as investment income in the consolidated statements of income.

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

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

~~Nine Months Ended~~

September 30,

March 31,

2009

2008

2009

2008

2010

2009

Gross unpaid losses and LAE, beginning of period

2,~~806~~672,~~683~~605

32,~~119~~987,~~544~~803

~~2,987,803~~

~~3,178,506~~

Less ceded unpaid losses and LAE

~~663~~632,~~097~~750

~~724~~684,~~587~~239

~~684,239~~

~~1,197,496~~

Net unpaid losses and LAE, beginning of period

2,~~143~~039,~~586~~855

2,~~394~~303,~~957~~564

~~2,303,564~~

~~1,981,010~~

Losses and LAE incurred related to:

Current period

~~129~~131,~~884~~113

~~246~~146,~~842~~735

~~419,984~~

~~629,824~~

Prior years

(6,934

)

(35,336

)

(28,709

)

37,038

Prior years favorable development

(4,907

)

(10,885

)

Total losses and LAE incurred

~~122~~126,~~950~~206

~~211~~135,~~506~~850

~~391,275~~

~~666,862~~

Losses and LAE paid related to:

Current period

494,~~559~~390

6930,~~761~~561

~~122,997~~

~~155,373~~

Prior years

~~118~~184,~~806~~791

~~137~~208,~~497~~064

~~473,671~~

~~93,294~~

Total losses and LAE paid

~~168~~189,~~365~~181

~~207~~238,~~258~~625

~~596,668~~

~~248,667~~

Net unpaid losses and LAE, end of period

21,~~098~~976,~~171~~880

2,~~399~~200,~~205~~789

~~2,098,171~~

~~2,399,205~~

Add ceded unpaid losses and LAE

~~640~~627,~~913~~282

~~711~~670,~~991~~237

~~640,913~~

~~711,991~~

Gross unpaid losses and LAE, end of period

2,~~739~~604,~~084~~162

32,~~111~~871,~~196~~026

~~2,739,084~~

~~3,111,196~~

There were no significant catastrophe losses incurred during the three and nine months ended September 30, 2009 as compared to the three and nine months ended September 30, 2008 which include catastrophe losses of $71,500 associated with Hurricanes Gustav and Ike. For the three months ended September 30, 2009, the Company reported lower favorable prior year loss development as compared to the three months ended September 30, 2008, primarily due to lower favorable loss experience in the general liability and workers compensation lines as well as adverse loss emergence in the commercial auto liability line, partially offset by a recovery of $13,750 associated with an asbestos lawsuit that was settled in 2008. For the nine months ended September 30, 2009, the Company reported favorable prior years’ loss development as compared to adverse loss development in the nine months ended September 30, 2008. The adverse loss development in the 2008 period was primarily attributable to a loss on commutation of a finite reinsurance contract of $75,470 in the second quarter as well as a $25,500 loss attributable to the settlement of the aforementioned asbestos lawsuit in the first quarter, partially offset by favorable prior year loss development primarily in the workers’ compensation line of business. Losses and LAE paid related to prior years for the nine months ended September 30, 2008 include proceeds from the aforementioned commutation of $302,500.

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

	September 30,
	March 31,
	2009
	2010
Ceded unpaid losses and LAE in the table above	$	~~640~~627,~~913~~282
Reconciling items:
Reinsurance receivable on paid losses and LAE		11,091
Reinsurance recoverable on paid losses and LAE		11,091
Retroactive reinsurance recoverable		253,963
Unamortized retroactive reinsurance recoverable		246,278
Reinsurance recoverable on the consolidated balance sheet	$	905,967
Total reconciling items		257,369
Reinsurance recoverable on the consolidated balance sheet	$	884,651

19 26

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

6. 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:

Three Months Ended

~~Nine Months Ended~~

September 30,

March 31,

2009

2008

2009

2008

2010

2009

Asbestos

Gross unpaid losses and allocated LAE (“ALAE”), beginning of period

~~380~~344,~~196~~126

~~421~~387,~~617~~224

~~387,224~~

~~428,139~~

Less ceded unpaid losses and ALAE

~~113~~60,~~671~~280

8268,~~349~~026

~~85,336~~

~~94,497~~

Net unpaid losses and ALAE, beginning of period

~~266~~283,~~525~~846

~~339~~319,~~268~~198

~~301,888~~

~~333,642~~

Net losses and ALAE incurred

~~(13,750~~82

)

—(1,476

)

~~(13,750~~

)

~~25,500~~

Net paid losses and ALAE

(723,~~595~~242

)

2723,~~128~~475

~~27,768~~

~~47,002~~

Net unpaid losses and ALAE, end of period

260,~~370~~686

~~312~~294,~~140~~247

~~260,370~~

~~312,140~~

Add ceded unpaid losses and ALAE

9863,~~458~~255

8378,~~488~~209

~~98,458~~

~~83,488~~

Gross unpaid losses and ALAE, end of period

~~358~~323,~~828~~941

~~395~~372,~~628~~456

~~358,828~~

~~395,628~~

For the three and nine months ended September 30, 2009, net losses and ALAE incurred and paid reflect a recovery of $13,750 associated with an asbestos lawsuit that the Company settled in 2008 and for which it incurred a charge of $25,500 in the nine months ended September 30, 2008 as reflected in the table above. In addition, for the nine months ended September 30, 2009 and the three and nine months ended September 30, 2008, net paid losses and ALAE reflect a payment of $18,333 in each period, related to the asbestos lawsuit settlement.


	Three Months Ended
	March 31,
	2010			2009
Environmental
Gross unpaid losses and ALAE, beginning of period	$	93,302		$	107,948
Less ceded unpaid losses and ALAE		20,078			26,312

Net unpaid losses and ALAE, beginning of period		73,224			81,636
Net losses and ALAE incurred		(64	)		(80	)
Net paid losses and ALAE		1,663			1,928

Net unpaid losses and ALAE, end of period		71,497			79,628
Add ceded unpaid losses and ALAE		20,488			27,889

Gross unpaid losses and ALAE, end of period	$	91,985		$	107,517

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2009		2008		2009		2008
Environmental
Gross unpaid losses ALAE, beginning of period	$	104,962	$	109,740	$	107,948	$	117,768
Less ceded unpaid losses and ALAE		29,665		30,887		28,969		32,725
Net unpaid losses and ALAE, beginning of period		75,297		78,853		78,979		85,043
Net losses and ALAE incurred		—		—		—		—
Net paid losses and ALAE		5,090		2,815		8,772		9,005
Net unpaid losses and ALAE, end of period		70,207		76,038		70,207		76,038
Add ceded unpaid losses and ALAE		23,188		28,550		23,188		28,550
Gross unpaid losses and ALAE, end of period	$	93,395	$	104,588	$	93,395	$	104,588

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 $15,560 and $16,212, net of reinsurance, at March 31, 2010 and December 31, 2009, respectively.

The ~~Company~~asbestos, ~~also~~environmental ~~maintains~~and ~~reserves for~~ other latent ~~exposures such~~net asloss ~~those~~reserves ~~associated~~above ~~with~~include ~~silica,~~a ~~lead,~~provision ~~mold,~~for uncollectible ~~chemical~~reinsurance, ~~gas and~~in ~~vapors~~the ~~and~~aggregate, ~~welding fumes~~ of $1713,~~116~~982 and $2013,~~258,~~777 ~~net of reinsurance,~~ at ~~September~~March 3031, ~~2009~~2010 and December 31, ~~2008~~ 2009, respectively. The Company has changed its presentation of latent reserves in the first quarter of 2010, to include uncollectible reinsurance in net loss reserves and prior year balances have been reclassified to conform to the current year’s presentation. This change in presentation did not affect the Company’s results of operations or financial position for any reporting period.

20 27

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						~~Nine Months Ended~~
	September 30,						September 30,
	March 31,
	2009			2008			2009			2008
	2010			2009
Premiums written:
Direct	$	~~188~~213,~~738~~764		$	~~224~~210,~~533~~899		$	~~628,593~~		$	~~777,357~~
Assumed from other companies, pools or associations		8,200			7,142			24,753			16,550
Assumed from other companies, pools and associations		7,948			7,326
Ceded to other companies, pools or associations		(31,579	)		(35,962	)		(109,505	)		(107,260	)
Ceded to other companies, pools and associations		(34,904	)		(37,955	)
Net premiums written	$	~~165~~186,~~359~~808		$	~~195~~180,~~713~~270		$	~~543,841~~		$	~~686,647~~
Premiums earned:
Direct	$	~~209~~210,~~655~~600		$	~~260~~236,~~031~~552		$	~~674,113~~		$	~~852,646~~
Assumed from other companies, pools or associations		8,372			7,444			25,653			17,552
Assumed from other companies, pools and associations		8,253			7,672
Ceded to other companies, pools or associations		(35,995	)		(34,497	)		(110,023	)		(102,528	)
Ceded to other companies, pools and associations		(36,279	)		(36,794	)
Premiums earned	$	182,~~032~~574		$	~~232~~207,~~978~~430		$	~~589,743~~		$	~~767,670~~

The net impact of ceded reinsurance transactions for the three ~~and~~ ~~nine~~ months ended ~~September~~March 3031, ~~2009~~2010 and March 31, ~~2008~~2009 is summarized as follows:

	Three Months Ended						~~Nine Months Ended~~
	September 30,						September 30,
	March 31,
	2009			2008			2009			2008
	2010			2009
Earned premiums ceded to reinsurers	$	(3536,~~995~~279	)	$	(3436,~~497~~794	)	$	~~(110,023~~	)	$	~~(102,528~~	)
Commissions earned on ceded reinsurance premiums		67,~~991~~555			8,~~163~~254			~~24,558~~			~~22,287~~
Claims incurred ceded to reinsurers		1415,~~439~~977			1323,~~555~~575			~~55,363~~			~~(45,549~~	)
Provision for uncollectible reinsurance		—			(2,000	)		~~(2,000~~	)		~~(6,000~~	)
Net impact of ceded reinsurance transactions	$	(1412,~~565~~747	)	$	(146,~~779~~965	)	$	~~(32,102~~	)	$	~~(131,790~~	)

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

	September 30,		December 31,
	March 31,		December 31,
	2009		2008
	2010		2009
Reinsurance recoverable on unpaid losses and LAE	$	~~894~~873,~~876~~560	$	~~949~~882,~~364~~992
Reinsurance receivable on paid losses and LAE		11,091		189,~~853~~705
Total reinsurance recoverable	$	~~905~~884,~~967~~651	$	~~968~~892,~~217~~697

The reinsurance recoverable balances above are net of reserves for uncollectible reinsurance of $5554,~~499~~631 and $5554,~~999~~228 at ~~September~~ March 3031, ~~2009~~2010 and December 31, ~~2008~~2009, respectively. Included in reinsurance recoverable is $~~141~~137,~~030~~ 196 and $~~142~~141,~~213~~030 at ~~September~~March 3031, ~~2009~~2010 and December 31, ~~2008~~ 2009, respectively, representing the present value of amounts due from insurance companies from which the Company has purchased annuities to settle certain claim liabilities.

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 ~~September~~March 3031, ~~2009~~2010, only one retroactive contract with a remaining limit of $51,000 and one prospective contract with a remaining limit of $96,272 ~~are~~ remain in effect. This prospective contract had no effect on ~~operations~~ operations for the three ~~and nine~~ months ended ~~September~~ March 3031, ~~2009~~2010 ~~and~~or ~~2008~~2009.

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

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2009			2008			2009			2008
Funds held interest charged to investment income	$	(3,896	)	$	(3,862	)	$	(11,495	)	$	(11,394	)
Losses and LAE		(3,720	)		(3,693	)		(11,162	)		(15,952	)1
Decrease in income before income taxes	$	(176	)	$	(169	)	$	(333	)	$	4,558

1 For the nine months ended September 30, 2008, losses and LAE is comprised of a loss on commutation of $4,123 offset by $8,778 of unamortized deferred income released on commutation as well as $11,297 of recurring deferred income amortization.

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

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2009			2008			2009			2008
Increase in reinsurance recoverable due from insurers	$	—		$	—		$	—		$	—
Less: related premiums paid		—			—			—			—
Income deferred during the period		—			—			—			—
Amortization of deferred income		(3,720	)		(3,693	)		(11,162	)		(20,075	)
Decrease in deferred income		(3,720	)		(3,693	)		(11,162	)		(20,075	)
Deferred income on retroactive reinsurance — beginning of period		113,835			135,659			121,277			152,041
Deferred income on retroactive reinsurance — end of period	$	110,115		$	131,966		$	110,115		$	131,966

For the three months ended September 30, 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 $232,338, respectively, at September 30, 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.

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

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,
	2010			2009

Investment income	$	(4,031	)	$	(3,767	)
Losses and LAE		(3,964	)		(3,721	)

Decrease in income before income taxes	$	(67	)	$	(46	)

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


	Three Months Ended
	March 31,
	2010			2009
Decrease in reinsurance recoverable due from reinsurers	$	—		$	—
Less: related premiums paid		—			—

Decrease in income deferred during the period		—			—
Amortization of deferred income		(3,964	)		(3,721	)

Decrease in deferred income		(3,964	)		(3,721	)
Deferred income on retroactive reinsurance—beginning of period		106,394			121,277

Deferred income on retroactive reinsurance—end of period	$	102,430		$	117,556

For the three months ended March 31, 2010, 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 $240,333, respectively, at March 31, 2010 ($349,000 and $236,302, respectively, at December 31, 2009).

8. Income Taxes

The effective ~~income~~ tax rate ~~was~~of 31.36% ~~and 25.8%~~ in the ~~three and~~first ~~nine~~quarter ~~months~~of ~~ended~~2010 ~~September 30, 2009, respectively. The effective rate~~ differs from the statutory federal income tax rate of 35% primarily ~~because~~due ofto the benefit of tax-exempt interest. ~~and~~The ~~dividends~~full ~~received~~year ~~deductions~~2009 effective tax rate was 24.0%.

9. Commitments and Contingencies

Crum & Forster Holdings Corp. and US Fire, among numerous other insurance company and insurance ~~broker~~ 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~~ 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~~ 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~~ 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~~ Court of ~~Appeals~~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. Aand ~~final~~has ~~ruling is~~ not ~~expected~~yet ~~from~~issued ~~the~~a ~~Court of Appeals before late 2009~~ruling. Crum & & Forster Holdings Corp. and US Fire continue to be named as defendants and intend to vigorously defend the action.

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

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

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

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. 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.

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				~~Nine Months Ended~~
	September 30,				September 30,
	March 31,
	2009		2008		2009		2008
	2010		2009
General liability	$	35,245	$	45,661	$	111,412	$	152,225
Workers’ compensation	$	45,774	$	47,414
Workers’ compensation		46,556		55,332		141,193		173,685
General liability		35,415		39,529
Commercial automobile		2722,~~053~~341		4435,~~781~~403		~~95,552~~		~~146,588~~
Property		2018,~~690~~256		3528,~~962~~202		~~75,560~~		~~136,872~~
Commercial multi-peril		1819,~~442~~419		19,~~687~~480		~~57,162~~		~~60,461~~
Accident and health		2734,~~828~~791		2428,~~608~~671		~~89,936~~		~~76,832~~
Other1		6,~~218~~578		68,~~947~~731		~~18,928~~		~~21,007~~
Total premiums earned	$	182,~~032~~574	$	~~232~~207,~~978~~430	$	~~589,743~~	$	~~767,670~~

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

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

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

	Three Months Ended												~~Nine Months Ended~~
	September 30,												September 30,
	March 31,
	2009						2008						2009						2008
	2010						2009
	Amount			Ratio			Amount			Ratio			~~Amount~~			~~Ratio~~			~~Amount~~		~~Ratio~~
Accident year loss and LAE ratios:
General liability	$	25,615			72.7	%	$	32,744			71.7	%	$	80,115			71.9	%	$	110,574		72.6	%
Workers’ compensation	$	40,100			87.6	%	$	38,669			81.6	%
Workers’ compensation		37,793			81.2	%		41,323			74.7	%		113,556			80.4	%		136,504		78.6	%
General liability		24,644			69.6	%		27,028			68.4	%
Commercial automobile		1916,~~627~~725			7274.69	%		3224,~~589~~755			7269.89	%		~~70,007~~			~~73.3~~	%		~~107,605~~		~~73.4~~	%
Property		1411,~~184~~714			6864.62	%		~~107~~21,~~991~~342			~~300~~75.37	%		~~54,140~~			~~71.7~~	%		~~175,849~~		~~128.5~~	%
Commercial multi-peril		1011,~~626~~032			5756.68	%		1211,~~420~~343			6358.12	%		~~32,737~~			~~57.3~~	%		~~37,636~~		~~62.2~~	%
Accident and health		1924,~~380~~222			69.6	%		1619,~~576~~732			6768.48	%		~~61,849~~			~~68.8~~	%		~~52,313~~		~~68.1~~	%
Other		2,659			42.8	%		3,199			46.0	%		7,580			40.0	%		9,343		44.5	%
Other 1		2,676			40.7	%		3,866			44.3	%
Total accident year losses and LAE		~~129~~131,~~884~~113			71.48	%		~~246~~146,~~842~~735			~~106~~70.07	%		~~419,984~~			~~71.2~~	%		~~629,824~~		~~82.0~~	%
Prior years’ loss development		(64,~~934~~907	)		(32.87	)		(3510,~~336~~885	)		(155.2	)		~~(28,709~~	)		~~(4.8~~	)		~~37,038~~		~~4.9~~
Calendar year losses and LAE	$	~~122~~126,~~950~~206			6769.61	%	$	~~211~~135,~~506~~850			9065.85	%	$	~~391,275~~			~~66.4~~	%	$	~~666,862~~		~~86.9~~	%


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

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 31

Subsequent to the quarter end, US Fire received approval from the Delaware Department of Insurance and North River received approval from the New Jersey Department of Banking and Insurance, to each pay a dividend of $175,000 to the Company. The Company received these dividends on April 13, 2010 and on the same date paid a cash dividend of $350,000 to Fairfax.


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, ~~2008~~2009 filed with the Securities and Exchange Commission (“SEC”) on February 2726, ~~2009~~2010. 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

Certain statements contained herein may constitute forward-looking statements and are made pursuant to the “safe-harbor” provisions of the United 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. 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 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 factors, which are described elsewhere in this report, include, but are not limited to, the following:

• Competitive conditions in the insurance market and the ability to attract and retain new business; • Adverse effect of volatility in the global financial markets including changes in interest rates, credit spreads, foreign currency exchange rates and other factors; • Current economic ~~downturn~~conditions; • Insufficient loss reserves, including reserves for asbestos, environmental and other latent claims; • Occurrence of natural or man-made catastrophic events; • 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; • 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; • 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; • Ability of Fairfax to determine the outcome of corporate action requiring stockholder approval; and • Changes in governmental regulations~~; and • Exposure to credit risks on novated policies~~.

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 32these 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, that could cause actual results to differ materially from expectations, is included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009 filed with the SEC on February 26, 2010. The information appearing under “Risk Factors” in such Annual Report is incorporated by reference into, and made a part of, Part II of this Form 10-Q.

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, that could cause actual results to differ materially from expectations, is included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2008 filed with the SEC on February 27, 2009. The information appearing under “Risk Factors” in such Annual Report is incorporated by reference into, and made a part of, Part II of this Form 10-Q.

Critical Accounting Policies and Estimates

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

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

The Company’s significant accounting policies are described in detail in Note 2 to the Company’s ~~consolidated~~ consolidated financial statements included in its Annual Report on Form 10-K for the year ended December 31, ~~2008~~2009 filed with the SEC on February 2726, ~~2009~~2010.

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.

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 allocated ~~LAE~~ ~~(“ALAE”)~~LAE, 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, the Company’s 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~~ loss emergence since such most recent review. At ~~September~~March 3031, ~~2009~~ 2010, 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~~ 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~~ significantly different from these 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 33majority 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.

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 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 three and nine months ended September 30, 2009. Gross and net incurred loss and ALAE were reduced by an unaccrued recovery of $13,750 associated with an asbestos lawsuit that was settled in 2008. In 2008 and 2007, based on the Company’s internal actuarial reviews, the Company strengthened its asbestos, environmental and other latent reserves by $36,215 and $54,547, respectively.

Investments

The Company is responsible for determining the fair value of 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 Company categorizes its financial instruments, based on the priority of the inputs to the valuation technique, into a three-level fair value hierarchy. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). For further details on the fair value hierarchy refer to Note 4 to the consolidated financial statements.

A review of fair value hierarchy classifications is conducted on a quarterly basis. Changes in the Inobservability ~~accordance~~of ~~with~~valuation ~~FASB~~inputs ~~ASC~~may result in a reclassification for certain financial assets or ~~820-10, Fair~~liabilities. ~~Value~~Reclassifications ~~Measurements~~impacting ~~and~~securities ~~Disclosures,~~in Level 3 of the ~~Company~~fair ~~has~~value hierarchy are ~~categorized~~reported ~~its~~as ~~financial~~transfers ~~instruments,~~in ~~based~~or onout of the ~~priority~~Level 3 category as of the ~~inputs~~beginning toof the quarterly period in which the reclassifications occur. The Company’s investments in Odyssey Re Holdings Corp. (“Odyssey”) and Advent Capital (Holdings) PLC (“Advent”) common stock are valued using internally developed valuation ~~technique,~~models ~~into~~based on market multiples derived from a ~~three-level~~set ~~fair~~of publicly traded ~~value~~comparable ~~hierarchy~~companies. The ~~fair~~models, ~~value~~which ~~hierarchy~~require ~~gives~~a ~~the~~significant ~~highest priority~~amount toof ~~quoted~~judgment, use current and historical market prices inand ~~active~~book ~~markets~~values ~~for~~of ~~identical~~comparable ~~assets~~companies to derive a current fair value. orBecause ~~liabilities~~of ~~(Level 1)~~ the significant judgment involved in selecting inputs and the ~~lowest~~effect ~~priority~~of ~~to unobservable~~the inputs (on the valuation model they are considered to be Level 3). ~~For~~At ~~further~~March 31, ~~details~~2010 on the Company’s investments in Odyssey and Advent common stock had fair ~~value~~values ~~hierarchy~~of ~~refer~~$304,436 toand ~~Note~~ $24,717, respectively, based on these valuation models (approximately 8.4% toof the ~~consolidated financial~~total ~~statements~~investment portfolio at that date). ~~The~~At December 31, 2009, the Company’s ~~Level 3~~ investments ~~are~~in ~~comprised~~Odyssey ofand ~~mortgage-backed~~Advent ~~securities~~common stock had fair values of ~~purchased~~$305,818 atand ~~deep~~$26,603, ~~discounts~~respectively, tobased ~~par~~on ~~(less~~these ~~than~~valuation 1models (approximately 8.3% of ~~total~~the total investment portfolio at ~~fair~~that ~~value~~date). Also included in Level 3 securities are certain mortgage-backed securities purchased at deep discounts to par, which are valued using an ~~internal~~ 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~~ 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 them 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. ~~Other~~At ~~mortgage-backed securities~~March 31, ~~purchased~~2010 atand ~~deep discounts to par (approximately 2.5% of total investment portfolio at fair value), are included in Level~~December ~~2 investments as they are priced using broker-dealer quotes. At September 30~~31, 2009, the ~~total~~ fair value of the Company’s Level 2 ~~and Level~~ 3 mortgage-backed securities was $~~106~~17,~~284~~821 and $14,272, respectively (less than 1% of the total investment portfolio at both dates). Gains or losses arising from changes in the fair value of Level ~~the~~3 ~~mortgage-backed~~ securities are recorded inas realized investment gains ~~and~~or losses in the ~~consolidated~~ consolidated statements of ~~income.~~operations ~~For the three~~ and ~~nine~~amounted ~~months ended~~to ~~September~~net (losses) ~~30,~~gains ~~2009,~~of ~~realized~~$(316) ~~investment~~and ~~gains resulting~~$943 ~~from~~for the ~~net~~three ~~change in fair value of the~~months ~~mortgage-backed~~ended ~~securities were $24~~March 31,~~176~~ 2010 and ~~$30~~2009,~~069,~~ respectively.

Derivative securities held by the Company at ~~September~~March 3031, ~~2009~~ 2010 are ~~principally~~comprised of credit default swaps., short ~~These~~equity ~~credit~~index ~~default~~ and long equity total return swaps and other derivatives, and are carried at estimated fair values on the consolidated balance sheets with changes in fair value recorded in realized ~~net~~investment ~~income~~ gains and losses in the period in which they occur. The ~~Company obtains broker-dealer quotes 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~~derivative ~~default~~securities ~~swaps~~ are subject to significant volatility arising from various factors such as 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., ~~Due~~in to the ~~inherent~~case ~~uncertainties~~ of ~~these~~credit ~~valuations~~default swaps, as well as ~~the~~ volatility in interest rates, ~~and~~ stock market conditions, and inflation. Due to the inherent uncertainties of these valuations, realized values may differ from estimates reflected in ~~the~~ the consolidated financial statements. At ~~September~~March 3031, ~~2009~~ 2010 and December 31, ~~2008~~2009, the fair value of the ~~credit~~Company’s ~~default swaps~~derivative securities was comprised of assets of $2328,~~116~~769 and $~~138~~20,~~830~~027, and liabilities of $2,818 and $1,917, respectively. Gains or losses arising from changes in the fair value of the ~~credit default~~ ~~swaps~~derivative securities are recorded in net realized investment gains and losses in the consolidated statements of ~~income.~~operations ~~For the three~~ and ~~nine months~~amounted ~~ended~~to ~~September 30, 2009 and 2008, realized investment gains and losses resulting from the~~ net ~~change in fair value of the credit default swaps were losses of $(19,504) and $(6,054) and~~ gains of $~~119~~9,~~316~~391 and $~~275~~38,~~961~~154, respectively.

At each reporting date, and more frequently when conditions warrant, management evaluates all available-for-sale securities with unrealized losses to determine whether an other than temporary 34decline in value exists and whether losses should be recognized in earnings rather than in accumulated other comprehensive income. The process for determining whether a security is other than temporarily impaired requires judgment and involves analyzing many factors. These factors include but are not limited to (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; (iv) the financial condition and near-term prospects of the issuer as well as specific credit issues related to the issuer such as changes in credit rating, reduction or elimination of dividends or non-payment of scheduled interest payments; and (v) for fixed income securities, the Company’s intent to sell a security or whether it is more likely than not that the Company will be required to sell the security before recovery of its amortized cost, which in some cases, may extend to maturity, and for equity securities, the Company’s intent and ability to hold the security for a period of time sufficient to allow for any anticipated recovery of fair value in the near term. To the extent management determines that a security is deemed to be other than temporarily impaired, an impairment loss is recognized.

~~The~~There ~~Company~~are ~~holds~~risks ~~significant investments in equities~~ and ~~equity related~~uncertainties ~~securities.~~associated ~~The~~with ~~market~~determining ~~values~~whether ofdeclines ~~these investments are volatile and may vary dramatically either up or down~~ in ~~short periods,~~the ~~and~~fair ~~their ultimate~~ value ~~will therefore only be known~~of ~~over~~investments ~~the~~are ~~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 an~~ other than temporary ~~decline~~such inas ~~value~~significant ~~exists~~subsequent ~~and~~changes ~~whether losses should be recognized~~ in ~~earnings~~general ~~rather than in accumulated other~~economic ~~comprehensive~~conditions, ~~income~~as ~~(loss).~~well ~~The~~as ~~process~~specific ~~for~~business ~~determining~~conditions ~~whether a~~affecting ~~security~~particular isissuers; ~~other than temporarily impaired requires judgment~~subjective ~~and~~assessments ~~involves~~of ~~analyzing~~issuer-specific ~~many~~ factors. ~~These factors include but are not limited to~~ (~~i) the~~seniority ~~length~~ of ~~time~~claims, ~~and~~collateral ~~extent to which the fair~~ value, ~~has been less than its cost or amortized cost; (ii~~etc.) ~~the severity of the impairment~~; ~~(iii) the~~future ~~cause~~financial ofmarket ~~the impairment~~effects; ~~(iv) the~~stability ~~financial condition and near-term prospects~~ of ~~the~~foreign ~~issuer~~governments asand ~~well~~economies; asfuture ~~specific credit issues related to the issuer such as changes in credit~~ rating~~, reduction~~ ~~or elimination of dividends or non-payment of~~agency ~~scheduled interest payments~~actions; and ~~(v) for~~significant ~~fixed~~disclosures ~~income securities,~~relating ~~the Company’s intent~~ to ~~sell~~accounting, afraud ~~security~~ or ~~whether~~ itcorporate isgovernance ~~more likely than not~~ issues that ~~the~~may ~~Company~~adversely ~~will~~affect ~~be required~~certain toinvestments. ~~sell~~For the ~~security~~three ~~before~~months ~~recovery~~ended ofMarch 31, ~~its~~2010 ~~amortized cost~~and 2009, charges ~~which~~for inother ~~some~~than ~~cases,~~temporary ~~may~~impairments ~~extend~~amounted to ~~maturity,~~$549 and ~~for equity~~$54,401 ~~securities~~respectively, ~~the Company’s intent and ability to hold~~primarily ~~the~~related ~~security for a period of time sufficient~~ to ~~allow~~write-downs ~~for any anticipated recovery~~ of ~~fair~~equity ~~value in the near term~~securities. ToFor the ~~extent~~ ~~management~~full ~~determines~~year ~~that~~ended aDecember 31, ~~security~~2009, ~~is deemed to be~~charges for other than ~~temporarily~~temporary ~~impaired,~~impairments anamounted ~~impairment~~to ~~loss is recognized~~$110,814.

~~There~~Management’s ~~are~~evaluation ~~risks and uncertainties associated with determining whether declines in the fair value~~ of ~~investments are~~ other than temporary ~~such~~losses asis ~~significant~~particularly ~~subsequent~~sensitive ~~changes~~to inassumptions ~~general~~it ~~economic~~makes ~~conditions,~~relative asto ~~well~~forecasts asof ~~specific~~an ~~business conditions affecting particular issuers; subjective assessments of~~ issuer~~-specific~~’s ~~factors (seniority of claims, collateral value, etc.); future~~ financial ~~market~~performance ~~effects; stability of foreign governments~~ and ~~economies;~~near ~~future~~term ~~rating~~prospects ~~agency~~such ~~actions; and~~as ~~significant~~earnings ~~disclosures relating to accounting~~trends, ~~fraud or corporate governance issues that may adversely affect certain investments. In addition~~dividends, ~~significant~~analysts’ ~~assumptions~~forecasts and ~~management judgment~~cash ~~regarding~~flows ~~these~~supporting ~~risks~~fixed ~~and~~income ~~uncertainties are involved in~~securities. ~~determining~~Although ifmanagement ~~a decline~~ is ~~other~~unable ~~than~~to ~~temporary.~~quantify Asthe alikelihood ~~result~~ of ~~the~~ ~~volatility~~changes into ~~the~~these ~~financial~~assumptions ~~markets~~ that ~~occurred during~~may ~~2008~~occur ~~and~~in ~~that~~the ~~has continued into 2009~~future, ~~the~~any ~~duration~~change ~~and~~in ~~severity of~~assumptions ~~unrealized~~could ~~losses~~result onin ~~many~~recognition of ~~the~~impairments ~~Company’s~~in ~~investments~~the ~~has~~future ~~exceeded~~in ~~historical~~an ~~norms~~amount ~~making~~potentially itgreater ~~particularly difficult for management to evaluate whether impairments are other~~ than ~~temporary.~~ ~~Management~~the ~~will continue to monitor these~~ unrealized losses ~~and~~on ~~will assess all available facts and circumstances for each security as they become known, which may result in changes to~~ the ~~conclusions~~securities ~~reached~~ at ~~September~~March 3031, ~~2009 based on~~ ~~current facts and circumstances existing at that date, resulting in additional other than temporary impairments in future periods~~2010.

During the three and nine months ended September 30, 2009 and 2008, the Company recorded other than temporary impairment charges of $26 and $105,980, and $34,698 and $75,776, 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 recorded and reinsured claims are settled. The ceding of risk to reinsurers does not relieve the 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 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, the Company may engage in commutation discussions with an individual reinsurer, essentially canceling and settling the contract at its net realizable value. The outcome of such discussions may result in a lump sum settlement that is less than the recorded recoverable balance. Losses arising from commutations could have an adverse impact on the Company’s results of operations. ~~An estimated allowance for~~ uncollectible reinsurance recoverable is recorded on the basis of periodic evaluation of balances due from reinsurers, judgments regarding reinsurer solvency, known disputes, reporting characteristics of the underlying reinsured business, historical experience, current economic conditions and the state of insurer/reinsurer relations in general, and at the Crum & Forster companies in particular.

AtAn ~~September 30,~~estimated ~~2009~~allowance ~~and~~for ~~December 31,~~uncollectible ~~2008,~~ reinsurance recoverable ~~was~~is ~~$905,967~~recorded ~~and~~on ~~$968,217,~~the ~~net~~basis of ~~reserves~~periodic ~~for~~evaluation ~~uncollectible reinsurance~~ of ~~$55,499~~balances ~~and~~due ~~$55,999, respectively.~~from ~~Included in reinsurance recoverable is $141~~reinsurers,~~030 and~~ ~~$142,213~~judgments atregarding ~~September 30,~~reinsurer ~~2009 and December 31~~solvency, known ~~2008~~disputes, ~~respectively,~~reporting ~~representing~~characteristics ~~the present value~~ of ~~amounts due from insurance companies from which~~ the ~~Company~~underlying ~~has purchased~~reinsured ~~annuities~~business, tohistorical ~~settle certain claim liabilities. The~~experience, ~~provision~~current ~~for~~economic ~~uncollectible~~conditions ~~reinsurance~~and ~~for~~ the ~~three~~state ~~and~~of ~~nine month~~insurer/reinsurer ~~periods~~relations ~~ended~~in ~~September 30~~general, ~~2009~~ and ~~2008~~at ~~was $0 and $2,000, and $2,000 and $6,000, respectively. While management believes~~ the ~~allowance for uncollectible reinsurance recoverable~~ isCrum ~~adequate~~& ~~based~~Forster oncompanies ~~information~~in ~~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~~particular.

At March 31, 2010 and December 31, 2009, reinsurance recoverable was $884,651 and $892,697, net of reserves for uncollectible reinsurance of $54,631 and $54,228, respectively. Included in 35reinsurance recoverable is $137,196 and $141,030 at March 31, 2010 and December 31, 2009, 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 remained unchanged for the three months ended March 31, 2010 and increased by $2,000 for the three months ended March 31, 2009. 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 operating 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 from loss reserve discounting, investments (a significant portion of which relates to impairments), ~~loss reserve discounting,~~ deferred income on on retroactive reinsurance, unearned premiums and ~~unearned~~deferred ~~premium~~acquisition ~~adjustments~~costs. The realizability of these reversing deferred tax assets is considered in conjunction with similar originating deferred ~~tax~~ tax assets and other taxable income.

At ~~September~~March 3031, ~~2009~~2010, there ~~are~~were no valuation allowances against the Company’s gross deferred tax assets of $~~146~~142,~~895~~405. 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 substantial 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 in value. The Company’s current projections of future taxable income are based on assumptions of ~~declining~~level ~~premium~~to ~~volumes~~modestly improving 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~~ tax rate or the time periods within which the underlying temporary differences become taxable or deductible change.

28 Realization of the deferred tax asset under FASB ASC 740-10, Income Taxes (formerly SFAS No. 109, Accounting for Income Taxes) 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 factors including 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.

Realization of the deferred tax asset under Accounting Standards Codification (“ASC”) 740, Income Taxes, 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

Overview

~~The~~Crum ~~Company~~& Forster is a national commercial property and casualty insurance company with a focused underwriting strategy, targeting specialty classes of business and underserved market opportunities. The ~~Operating~~Company ~~through~~writes ~~its~~numerous ~~home~~lines ~~office~~of ~~and~~business ~~regional~~including general liability, workers’ compensation, ~~branch~~commercial ~~network~~automobile, property, commercial multi-peril, accident and health, fidelity and surety, personal automobile and homeowners. In the ~~Company~~first ~~writes~~quarter aof ~~broad~~2010, ~~range~~approximately 43% of ~~commercial~~the ~~coverage,~~Company’s ~~including~~gross premiums written arose from the offering of general liability, including umbrella, workers’ compensation, commercial automobile, and property, policies to middle market commercial ~~multi-peril~~enterprises through the Company’s regional branch network. The balance of Crum & Forster’s business is comprised of a diverse portfolio of specialty businesses in which the Company has specific product, ~~accident~~geographic or customer group expertise. These include: products such as accident and health, directors’ and ~~other~~officers’ ~~lines~~liability and bail bonds; geographic specialties such as the Company’s coverage of ~~business.~~non-standard, inner-city risks not typically well served by the standard ~~The~~market ~~Company~~and ~~generally~~Crum ~~conducts~~& ~~business~~Forster’s onlongstanding apresence ~~brokerage~~in ~~basis~~the Hawaii market; and customer group ~~through~~expertise ~~more~~in ~~than~~the 1areas of propane distributors,~~400~~ ~~producers~~explosive ~~located~~contractors, ~~throughout~~agriculture ~~the~~enterprises ~~United~~and ~~States~~construction contractors.

The Company’s ~~objective~~generally isconducts ~~to expand opportunistically into classes of~~ business oron ~~market~~a ~~segments~~brokerage ~~that~~basis ~~are~~through ~~consistent with~~ its ~~underwriting~~home ~~expertise~~office and ~~have~~a ~~the~~regional branch ~~potential~~network, allowing it to ~~generate~~control an the underwriting ~~profit.~~process ~~Management~~and ~~believes~~build ~~the~~close ~~Company’s~~relationships with ~~ability~~producers ~~to identify~~ and ~~react~~policyholders. toThe ~~changing~~Company ~~market~~may ~~conditions provides~~also itconduct ~~with~~business athrough ~~competitive~~third ~~advantage.~~parties ~~Based~~such ~~on the~~as ~~experience~~managing ~~and~~general ~~underwriting~~underwriters ~~expertise~~where ofit ~~its~~is ~~underwriters,~~cost ~~the Company~~effective ~~seeks~~ to ~~write~~do ~~new~~so ~~lines~~and ofwhere ~~business~~the ~~and~~Company ~~expand~~can ~~existing~~control ~~classes~~the ofunderwriting ~~business~~process ~~based~~such onas ~~market~~in ~~conditions~~the Company’s niche accident and ~~expected profitability~~health business. The Company has ~~offers~~over ~~insurance~~1,500 ~~products~~producers ~~designed~~located ~~to meet~~throughout ~~specific~~the ~~insurance~~United ~~needs~~States ofincluding ~~targeted~~independent ~~policyholder~~regional ~~groups~~retail ~~and~~firms, ~~underwrites~~wholesale ~~specific~~brokers, ~~types~~national ofbrokers ~~coverage~~and ~~for~~managing ~~markets~~general ~~that are generally underserved by the industry~~underwriters.

The Company’s objective is to expand opportunistically into classes of business or market segments that have the potential to generate an underwriting profit. Additional growth in specialty lines is a significant element of the Company’s business strategy. Management believes the Company’s ability to identify profitable market opportunities where its underwriting expertise can be applied provides it with a competitive advantage.

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.

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

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

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

Market Conditions

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, ~~credit~~financial ~~conditions~~market ~~and interest rates~~conditions, ~~state~~ state regulations, court decisions and changes in the law. For the last several years, the property and casualty market has experienced challenging market conditions characterized by ~~intense~~ intense competition and downward pricing trends, termed a “soft market”. These soft market conditions deteriorated ~~heightened~~ in ~~2008 and~~ the ~~Company~~second ~~has continued~~half toof ~~see~~2009 ~~soft~~and ~~market~~have ~~pricing~~accelerated through ~~all lines of business in~~ the first ~~nine~~quarter ~~months~~ of ~~2009 with competitors in~~2010. ~~some~~The ~~cases~~Company ~~writing~~continues ~~accounts~~to atsee ~~levels~~soft ~~below~~market ~~average~~pricing ~~developed losses~~through ~~with~~all ~~multi-year~~lines ~~rate~~of ~~lock~~business, ~~deals~~with ~~and~~the ~~frequently~~exception of ~~terms~~California ~~and conditions~~workers’ ~~are~~compensation ~~expanded~~which ~~without~~experienced ~~much~~modest price ~~consideration. Although~~increases ~~there were some signs earlier~~ in ~~the~~2009 ~~year~~and ~~that~~which ~~the~~have ~~market~~remained ~~was~~flat in ~~transition,~~the asfirst ~~evidenced~~quarter ~~by stable or slightly increasing rates across certain lines~~ of ~~business~~2010. ~~such~~In ~~as California~~the ~~workers’~~property ~~compensation~~market, ~~overall~~the ~~market~~Company ~~conditions~~continued to ~~still~~experience ~~remain~~downward ~~competitive~~pricing ~~and~~pressure ~~have~~in ~~deteriorated during~~ the ~~third quarter~~latter half of 2009. ~~Throughout~~and the first ~~half~~quarter of ~~the year~~2010, ~~some~~ ~~property~~especially ~~insurers were reducing available limits~~ in ~~peak~~ non-catastrophe zones, asattributable ato ~~result~~the restoration of ~~significant~~capital ~~catastrophe~~throughout ~~losses~~the ~~sustained~~industry byand the ~~industry~~light incatastrophe ~~2008,~~season ~~primarily from Hurricane Ike, and increases~~ in ~~reinsurance costs~~2009, ~~resulting~~whereas in ~~property~~the ~~rates stabilizing.~~catastrophe ~~However~~zones, ~~more~~rates ~~recently, there has been an increase~~leveled inoff ~~available~~as capacity inincreased ~~these~~as ~~catastrophe~~a ~~zones,~~result ~~attributable to~~of ~~the~~surplus ~~light~~increases ~~hurricane~~on ~~season~~the tobalance ~~date~~sheets ~~and improved capital position~~ of ~~many~~ insurers and reinsurers, ~~which~~attributable ~~may~~to ~~put~~stabilization ~~downward~~in ~~pressure~~the ~~on property~~financial ~~pricing~~markets.

Market conditions for the Company’s largest accident and health segment by gross premiums written, employer stop loss, are currently intensely competitive. Competition in the Company’s other 37accident and health segments, such as student medical, travel and pet insurance, varies from product to product but generally is currently less intense.

In the first quarter of 2010, the Company’s renewal retention rates and new business growth both increased, whereas renewal pricing declined modestly compared to the first quarter of 2009. Renewal retention rates increased by approximately seven percentage points in the first quarter of 2010 as compared to the first quarter of 2009. Specifically, renewal retention rates for casualty lines increased by approximately two percentage points and renewal retention rates for property lines increased by approximately 18 percentage points in the first quarter of 2010 as compared to the first quarter of 2009. The latter increase was largely due to actions undertaken in 2009 to improve profitability and reduce catastrophe exposure of the property business which significantly depressed the property renewal retention rates in the first quarter of 2009. Renewal pricing declined by approximately 3% in the first quarter of 2010 as compared to the first quarter of 2009, with both casualty and property business pricing each declining by approximately 3%. New business growth was approximately 26% in the first quarter of 2010, largely attributable to additional new writings of workers’ compensation business in California. Overall, gross premiums written grew by 2%, which was the first quarter of year over year growth since the second quarter of 2007, due to completion in 2009 of underwriting actions in property and commercial automobile and approximately $13 million of premiums written from new ventures.

Although there is some evidence of deceleration in rate decreases, the Company expects the market to remain competitive throughout 2010. Under such conditions, the Company will continue to reject underpriced new business submissions and to shed accounts and classes of business that are unprofitable. The Company expects continued pressure on its expense ratio despite aggressive cost cutting measures and the loss ratio may deteriorate marginally as a result of renewal price declines and higher loss-cost trends. In addition, if premium receipts continue to decline and claim payments decrease gradually as expected, the Company is likely to continue to have negative cash flow from operations in the near future.

During the first nine months of 2009, the Company’s renewal retention rates, renewal pricing and new business growth all declined compared to the first nine months of 2008; however, the rates of decline for retention and pricing appear to have moderated since the latter half of 2008. Renewal retention rates declined by approximately 1 percentage point in the nine months ended September 30, 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 7 percentage points in the first nine months of 2009 as compared to 2008, with the property renewal rates continuing to be depressed by underwriting actions intended to improve profitability. Renewal pricing declined by approximately 1% in the nine months ended September 30, 2009, as compared to rate declines of approximately 5% and 4% in the third and fourth quarters of 2008, respectively. New business growth continues to be adversely impacted by the weak economy and declined by approximately 18% in the first nine months of 2009, attributable to a reduction in both casualty and property business.

Although there is some evidence of deceleration in rate decreases, the Company expects the market to remain competitive for the remainder of 2009 and well into 2010, attributable to the combined effects of the light catastrophe season to date, the restoration of capital throughout the industry, resulting from the improvement in the financial markets, and additional competitors in some lines of business placing downward pressure on price levels. Under such conditions, the Company will continue to reject underpriced new business submissions and to shed accounts and classes of business that are unprofitable. As a consequence, it is likely that the Company’s premium volume may 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, the Company is likely to continue to have negative cash flow from operations in the near future.

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,
	2009			2008			2009			2008
	2010			2009
Gross premiums written	$	~~196~~221,~~938~~712		$	~~231~~218,~~675~~225		$	~~653,346~~		$	~~793,907~~
Net premiums written	$	~~165~~186,~~359~~808		$	~~195~~180,~~713~~270		$	~~543,841~~		$	~~686,647~~
Premiums earned	$	182,~~032~~574		$	~~232~~207,~~978~~430		$	~~589,743~~		$	~~767,670~~
Losses and LAE		~~122~~126,~~950~~206			~~211~~135,~~506~~850			~~391,275~~			~~666,862~~
Underwriting expenses		6965,~~797~~471			8467,~~076~~437			~~206,040~~			~~248,451~~
Underwriting loss		(10,715	)		(62,604	)		(7,572	)		(147,643	)
Underwriting (loss) income		(9,103	)		4,143
Investment income and net realized investment gains and losses		244,607			177,075			275,490			389,138
Investment income and realized investment gains and losses		190,688			(55,678	)
Interest and other expense		8,~~667~~751			97,~~447~~736			~~24,137~~			~~25,131~~
Costs related to early retirement of debt		—			—			—			392
Income (loss) before income taxes		172,834			(59,271	)
Income before income taxes and equity in earnings of investees		225,225			105,024			243,781			215,972
Income tax (expense) benefit		(54,649	)		28,324
Income tax expense		70,464			35,296			62,794			71,958
Net income (loss)	$	118,185		$	(30,947	)
Income before equity in earnings of investees		154,761			69,728			180,987			144,014
Loss and LAE ratio		69.1	%		65.5	%
Equity in earnings (losses) of investees, net of tax		—			—			79			(461	)
Underwriting expense ratio		35.9			32.5
Net income	$	154,761		$	69,728		$	181,066		$	143,553
Combined ratio		105.0	%		98.0	%
Loss and LAE ratio		67.6	%		90.8	%		66.4	%		86.9	%
Underwriting expense ratio		38.3			36.1			34.9			32.3
Combined ratio		105.9	%		126.9	%		101.3	%		119.2	%

The increase in net income in the first quarter of 2010 as compared to the first quarter of 2009 is primarily attributable to significant realized investment gains recognized in 2010 as compared to 38realized investment losses in 2009, partially offset by a decrease in underwriting income. The decrease in underwriting income and corresponding increase in the loss and LAE ratio in the first quarter of 2010 as compared to the first quarter of 2009 is primarily due to lower favorable prior year loss development and higher catastrophe losses.

~~Table~~The increase in the underwriting expense ratio in the first quarter of ~~Contents~~2010 as compared to the first quarter of 2009 is primarily due to a reduction in net premiums earned of approximately 12%, which exceeded the 3% reduction of underwriting expenses. The reduction in underwriting expenses was achieved despite a .7 point increase in the direct commission ratio, which was up in most major lines, reflecting the competitive market.

The increase in net income in the three months ended September 30, 2009 as compared to the three months ended September 30, 2008 was primarily attributable to higher investment earnings and improved underwriting results. The increase in investment earnings was primarily due to higher income from investments at equity, including partnership investments, and higher net realized investment gains, which include a $124,405 mark-to-market gain on the Company’s investment in Odyssey Re Holdings Corp. (“Odyssey”), an affiliated company, for which the Company has elected the fair value option. The improvement in underwriting income and corresponding loss and LAE ratios was principally due to a lack of major catastrophes and a recovery of $13,750 (7.6 loss ratio points) associated with an asbestos lawsuit that was settled in 2008, partially offset by lower favorable prior year loss development. By comparison, third quarter 2008 underwriting results were adversely affected by significant catastrophe losses associated with Hurricanes Gustav and Ike of $71,500 (30.7 loss ratio points).

The increase in net income in the nine months ended September 30, 2009, as compared to the nine months ended September 30, 2008, was primarily attributable to improved underwriting results, partially offset by lower investment earnings. The increase in underwriting income and corresponding improvement in the loss and LAE and combined ratios was principally due to the effect of one-time charges recorded in the nine months ended September 30, 2008, including: (i) a charge of $75,470 arising from the commutation of a reinsurance contract (9.8 loss ratio points); (ii) catastrophe losses associated with Hurricanes Gustav and Ike of $71,500 (9.3 loss ratio points); and (iii) a charge of $25,500 associated with the settlement of an asbestos related lawsuit (3.3 loss ratio points). Excluding the effects of the reinsurance commutation, Hurricanes Gustav and Ike and the asbestos lawsuit activity, the loss ratio was 68.7% for the nine months ended September 30, 2009 as compared to 64.5% for the nine months ended September 30, 2008, the increase being primarily due to lower favorable prior year loss development and the cumulative effect of the weak economy and challenging market conditions that have persisted for the last several quarters. Investment earnings were lower in the nine months ended September 30, 2009 as compared to 2008, primarily due to lower net realized gains on derivative and short-sale securities, partially offset by higher realized gains from other invested assets and higher income from investments at equity, including partnership investments.

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
	2009		2008		(Decrease)			Change
	2010		2009		(Decrease)			Change
General liability	$	42,953	$	49,254	$	(6,301	)		(12.8)%
Workers’ compensation	$	53,762	$	50,080	$	3,682			7.4	%
Workers’ compensation		47,303		50,793		(3,490	)		(6.9)%
General liability		48,553		52,143		(3,590	)		(6.9	)%
Commercial automobile		1820,~~452~~818		3627,~~864~~710		(186,~~412~~892	)		(4924.9)%	)%
Property		1921,~~060~~775		3121,~~858~~661		~~(12,798~~114	)		~~(40~~0.~~2)%~~5	%
Commercial multi-peril		1920,~~990~~030		2119,~~411~~348		~~(1,421~~682	)		(63.~~6)%~~5	%
Accident and health		4151,~~812~~309		3340,~~077~~730		810,~~735~~579			26.4%0	%
Other1		75,~~368~~465		86,~~418~~553		(1,~~050~~088	)		(1216.~~5)%~~6	)%
Total gross premiums written	$	~~196~~221,~~938~~712	$	~~231~~218,~~675~~225	$	~~(34~~3,~~737~~487	)		~~(15~~1.~~0)%~~6	%

	Nine Months Ended September 30,
					Increase/			Percent
	2009		2008		(Decrease)			Change
General liability	$	146,312	$	172,768	$	(26,456	)		(15.3)%
Workers’ compensation		149,268		158,433		(9,165	)		(5.8)%
Commercial automobile		80,501		136,772		(56,271	)		(41.1)%
Property		68,660		138,574		(69,914	)		(50.5)%
Commercial multi-peril		61,349		63,764		(2,415	)		(3.8)%
Accident and health		129,134		103,900		25,234			24.3%
Other1		18,122		19,696		(1,574	)		(8.0)%
Total gross premiums written	$	653,346	$	793,907	$	(140,561	)		(17.7)%


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

~~1 Other includes surety, homeowners and personal automobile lines of business.~~31

For the three months ended September 30, 2009, gross premiums written associated with the Company’s commercial lines of business (excluding accident and health and “other” lines of business in the table above), declined by $42,422, or 22.3%, as compared to the three months ended September 30, 2008, primarily due to a lower renewal premium base, whereas pricing and renewal retention rates remained stable and new business increased by approximately 6%. For the nine months ended September 30, 2009, gross premiums written associated with the Company’s commercial lines of business (excluding accident and health and “other” lines of business in the table above), declined by $164,221, or 24.5%, as compared to the nine months ended September 30, 2008, primarily due to a decline in new business of approximately 18%, a decline in renewal retention rates of approximately 1 percentage point and price decreases on renewal policies of approximately 1%. The year to date decline in new business is attributable to a reduction in both property and casualty writings. The prolonged soft market conditions and weak economy continue to adversely affect premium growth and 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.

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

For the three months ended March 31, 2010, gross premiums written associated with the Company’s core commercial lines of business (excluding accident and health and “other” lines of business in the table above), declined by $6,004, or 3.5%, as compared to the three months ended March 31, 2009, primarily due to a lower renewal premium base, reduced audit premiums and modest price decreases of approximately 3%, partially offset by a seven percentage point improvement in the renewal retention ratio and a 26% increase in new business. The improvement in the renewal retention ratio was largely due to a better retention rate on the property business, where the prior year’s ratio was depressed by underwriting actions and the increased new business writings included a significant increase in California workers’ compensation business. However, aside from growth in gross premiums written from new business ventures, competitive market conditions and the weak economy continue to adversely affect gross premiums written in the Company’s core commercial 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.

The Company reported significant growth from the accident and health business from new programs and growth in existing programs.

Casualty Gross Premiums Written

For the three ~~and nine~~ months ended ~~September~~March 3031, ~~2009~~2010, gross premiums written in casualty lines, which include ~~the~~ the general liability, workers’ compensation and commercial automobile lines of business, decreased by $~~28,203, or 20.~~6%, ~~and $91~~800,~~892,~~ or 195.62%, ~~respectively,~~ as compared to the three ~~and~~ ~~nine~~ months ended ~~September~~March 3031, ~~2008~~2009. ~~For~~The ~~the three months ended September 30, 2009, the~~ decrease was ~~primarily~~ primarily due to a lower renewal premium base, ~~although~~reduced ~~renewal~~audit ~~retention rates~~premiums ~~increased~~and bymodest ~~approximately~~price ~~2 percentage~~decreases ~~points and prices~~ on renewal policies ~~remained~~of ~~stable~~approximately 3%, partially offset by an improvement in the renewal retention ratio of approximately two percentage points and an increase in new business of approximately 833%, largely due to California workers’ compensation writings as noted above. ~~For~~The ~~the~~significant ~~nine~~reduction ~~months~~in ~~ended~~commercial ~~September 30,~~auto ~~2009,~~gross ~~the~~premiums ~~decrease~~written ~~was~~is ~~primarily~~ due to aspecific ~~reduction~~underwriting inactions ~~new~~taken ~~business~~by ofthe Company ~~approximately~~to ~~17%~~reduce ~~and price~~exposure ~~decreases~~to ontransportation ~~renewal~~accounts ~~policies~~where ofloss ~~approximately~~experience ~~1%,~~was ~~while~~unfavorable. The ~~renewal~~reduction ~~retention~~in ~~rates~~general ~~remained~~liability ~~stable.~~largely ~~Aside~~reflects ~~from~~a ~~modest improvement~~decrease in ~~California~~the ~~workers’~~non-admitted ~~compensation~~casualty ~~rates~~business, ~~casualty~~primarily ~~business~~related ~~across~~to the ~~industry~~effect isof ~~continuing~~the torecession ~~suffer from~~on ~~inadequate~~the ~~rates~~Company’s construction business.

For the nine months ended September 30, 2009, the significant reduction in commercial auto gross premiums written as compared to the prior year period is due to the Company more aggressively reducing its exposure to transportation accounts where loss experience was unfavorable. The reduction in general liability largely reflects a decrease in the non-admitted casualty business, primarily related to the impact of the recession on the Company’s construction business.

Property Gross Premiums Written

For the three ~~and nine~~ months ended ~~September~~March 3031, ~~2009~~2010, gross premiums written in property lines, which include ~~the~~ the property and commercial multi-peril lines of business, ~~decreased~~ increased by $14796,~~219,~~ or 261.79%, ~~and $72,329, or 35.7%, respectively,~~ as ~~compared~~ compared to the three ~~and nine~~ months ended ~~September~~March 3031, ~~2008.~~ ~~For the three months ended September 30,~~ 2009,. ~~the decrease~~The increase was primarily due to aan ~~lower~~increase ~~renewal~~in ~~premium base,~~new ~~although~~business ~~renewal~~of ~~retention~~approximately ~~rates~~10% ~~remained stable,~~ and ~~price decreases~~an onincrease in renewal ~~policies~~retention rates of approximately ~~1%. For the nine~~18 ~~months~~percentage ~~ended September 30~~points, ~~3009,~~partially ~~the~~offset ~~decrease~~by ~~was primarily due to~~ a ~~decline~~lower ~~in new business of approximately 19%, a reduction in~~ renewal ~~retention~~premium ~~rates~~base ~~of approximately 7 percentage points~~ and price decreases on renewal ~~policies~~ policies of approximately 13%. InThe ~~addition~~improved torenewal ~~soft~~retention ~~market~~ratio ~~conditions~~was ~~which have~~largely ~~significantly~~due ~~affected~~to the ~~Company’s property~~effect ~~business,~~of ~~the~~underwriting ~~decrease~~actions inon ~~property~~the ~~gross~~first ~~premiums~~quarter ~~written~~2009 ~~is also~~ratio, ~~due~~whereas tothe anew ~~continued~~business ~~reduction~~arose ~~in habitational business,~~largely ~~where~~from ~~our loss ratios are higher than~~ the ~~remainder~~recent oflaunch ~~the book~~ of ~~business, as well as~~ a ~~reduction~~middle inmarket ~~accounts~~package ~~with larger total insured values~~product.

Earlier in the year there were some signs of property rates stabilizing, or even increasing in a few cases, driven by reduced capacity in peak catastrophe zones as a result of significant catastrophe losses sustained in 2008 from Hurricane Ike and increased property catastrophe reinsurance costs. However, the light catastrophe season to date may result in downward pricing pressure on property rates for the remainder of 2009.

Other Gross Premiums Written

For the three ~~and nine~~ months ended ~~September~~March 3031, ~~2009~~2010, ~~the increase~~gross premiums written in other ~~gross~~lines ~~premiums~~of ~~written~~business including, ofthe $7accident and health,~~685~~ surety, ~~or 18.5%~~fidelity, homeowners and personal automobile lines of business, increased by $239,~~660~~491, or 1920.1%, ~~was~~ primarily due to significant growth in the Company’s accident and health book of business. ~~Previously~~ ~~written~~The ~~in the “B++” rated Fairmont companies, the~~ accident and health business continues to benefit ~~from~~ from Crum & Forster’s “A” A.M. Best rating, which has resulted in the Company acquiring several new programs ~~since~~and ~~2007~~growth from existing programs that have contributed to business growth. ~~The~~In ~~growth~~general, other inthan ~~2009~~the ~~has~~employer ~~primarily~~stop ~~come~~loss ~~from~~ business, the ~~employer~~accident ~~stop~~and ~~loss~~health business is not aligned with the traditional property and casualty market cycle which has been experiencing prolonged soft market conditions.

Net Premiums Written

For the three ~~and nine~~ months ended ~~September~~March 3031, ~~2009~~2010, net premiums written ~~decreased~~increased by $306,~~354~~538, or 153.56%, ~~and $142,806,~~as ~~or 20.8%,~~ compared to the three ~~and nine~~ months ended ~~September~~ March 3031, ~~2008,~~2009. ~~respectively,~~The ~~reflective~~increase ofwas ~~the~~generally ~~decline~~ in ~~gross~~line ~~premiums~~with ~~written~~the increase in ~~the~~gross ~~corresponding~~premiums ~~periods~~written.

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, ~~2009~~2010, premiums earned decreased by $5024,~~946~~856, or 2112.90%, ~~and $177,927, or 23.2%,~~ as compared to the three ~~and nine~~ months ended ~~September~~ March 3031, ~~2008~~2009. The decrease ~~was~~in ~~generally~~net ~~comparable~~ premiums earned as compared to the ~~decrease~~increase in net premiums written was primarily due to the effect of declining premiums written throughout 2009.

32 41

Losses and Loss Adjustment Expenses

For the three ~~and nine~~ months ended ~~September~~March 3031, ~~2009~~2010, the Company’s calendar period loss and LAE ratio increased ~~improved~~ to ~~67.6%~~ ~~and 66~~69.41%, ~~respectively,~~ from 9065.85% ~~and 86.9%~~ for the three ~~and nine~~ months ended ~~September~~March 3031, ~~2008~~2009, ~~respectively.~~ ~~For~~an ~~the~~increase ~~three~~of ~~months~~3.6 ~~ended September 30,~~points. ~~2009,~~The ~~the~~increase ~~improvement~~ in the ~~calendar year~~ loss ~~and LAE~~ ratio ~~was~~ is principally due to ~~the~~ lower ~~catastrophe~~favorable ~~losses, partially offset by lower~~ prior year ~~favorable~~ loss development as ~~compared to three months ended September 30, 2008~~(2. ~~Catastrophes~~5 ~~contributed 1.8 and 31.7 percentage~~ points) ~~in the three months ended September 30, 2009~~ and ~~2008, respectively,~~higher ofcatastrophe ~~which~~losses 30(0.79 points) ~~were associated with Hurricanes Gustav and Ike~~ in ~~the~~2010 ~~three~~as ~~months~~compared ~~ended September 30,~~to ~~2008~~2009. ~~The~~Included ~~lower~~ in prior year ~~favorable~~ loss development iswas ~~primarily~~$3,964 ~~attributable to lower favorable loss experience in the workers’ compensation~~ and ~~general liability~~$3,721 ~~lines~~ of ~~business~~amortization asof ~~well~~deferred asincome ~~adverse~~on retroactive ~~loss~~reinsurance ~~development~~ contracts in the ~~commercial~~three ~~auto~~months ~~line~~ended ~~of business~~March 31, ~~partially~~2010 ~~offset~~and ~~by favorable development of $13~~2009,~~750~~ ~~associated with the settlement of an asbestos lawsuit in 2008~~respectively.

~~For~~The ~~the~~accident ~~nine months ended September 30, 2009, the improvement in the calendar~~ year loss and LAE ratio was ~~principally~~ due to the combined effects of one-time charges recorded in the nine months ended September 30, 2008, including: (i) a charge of $75,470 arising from the commutation of a reinsurance contract (971.8% ~~loss~~for ~~ratio points) in~~ the ~~second~~first quarter; ~~(ii) catastrophe~~of ~~losses~~2010 ~~associated~~compared ~~with Hurricanes~~to ~~Gustav and Ike of $71,500 (9~~70.37% ~~loss ratio points) in~~for the ~~third~~first quarter; ~~and (iii) a charge~~ of ~~$25~~2009,~~500~~ ~~associated with~~ the ~~aforementioned~~increase ~~asbestos~~in ~~lawsuit~~2010 ~~settlement~~primarily ~~(3.3 combined~~due ~~ratio~~to ~~points)~~higher incatastrophe ~~the first quarter~~losses. ~~Excluding the~~The ~~effects~~full ofyear ~~the~~accident ~~reinsurance~~year ~~commutation,~~2009 ~~Hurricanes Gustav and Ike and the asbestos lawsuit activity, the~~ loss ratio was 6872.74% ~~for the nine months ended September 30, 2009 as compared to 64~~.~~5% for the nine months ended September 30, 2008, the~~ increase being primarily due to lower favorable prior year loss development and the cumulative effect of the weak economy and challenging market conditions that have persisted over the past several quarters.

The accident year loss and LAE ratio was 71.2% for the first nine months of 2009 as compared to 82.0% for the first nine months of 2008. The improvement is primarily attributable to a reduction in catastrophe losses. The full year accident year 2008 loss ratio was 80.4%, inclusive of 7.2 loss ratio points from Hurricanes Gustav and Ike.

Underwriting Expenses

Underwriting expenses include policy acquisition costs (costs that vary with and are primarily related to the acquisition of new and renewal policies and are comprised of commissions paid to to producers and premium taxes) and other operating expenses associated with the Company’s underwriting activities, such as salaries and benefits, information technology costs and rent. ~~For~~ For the three ~~and nine~~ months ended ~~September~~March 3031, ~~2009~~2010, the Company’s underwriting expense ratio increased to 3835.~~3% and 34.~~9%~~, respectively,~~ from ~~36.1% and~~ 32.35% for the three ~~and nine~~ months ended ~~September~~March 3031, ~~2008~~2009, ~~respectively. Despite reduced other operating expenses,~~ primarily ~~reflecting~~due ~~the combined~~to ~~effects~~a ofreduction ~~cost saving initiatives~~ in ~~2009~~net ~~and a~~premiums ~~write-off~~earned of ~~software~~approximately ~~development costs of $3~~12%,~~185~~ inwhich ~~2008,~~exceeded the ~~increase~~ in3% ~~the~~reduction of underwriting ~~expense~~expenses. ~~ratio~~The reduction in ~~2009~~underwriting ~~relative~~expenses ~~to prior~~was ~~year,~~achieved isdespite ~~primarily attributable to~~ a ~~reduction~~.7 inpoint ~~net earned~~increase ~~premium~~ in ~~both~~ the ~~three and nine month periods ended~~direct ~~September 30~~commission ratio, ~~2009.~~which ~~Continued~~was ~~soft~~up ~~market~~in ~~conditions~~most ~~and~~major ~~a weak~~lines, ~~economy~~reflecting ~~continue to adversely affect~~ the ~~Company’s underwriting~~competitive ~~expense ratio~~market.

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,
	2009			2008			2009			2008
	2010			2009
Average investments, including cash and cash equivalents, at book value1	$	3,607,800		$	4,291,043		$	3,718,109		$	4,419,599
Average investments, at book value1	$	3,565,878		$	3,861,573
Investment income	$	3428,~~213~~287		$	1435,~~706~~393		$	~~133,165~~		$	~~61,792~~
Realized investment gains		210,394			162,369			142,325			327,346
Realized investment gains (losses)		162,401			(91,071	)
Pre-tax equity in earnings (losses) of investees		—			—			121			(709	)
Change in unrealized investment gains and losses and foreign currency translation		(12,166	)		(118,727	)
Change in unrealized investment gains (losses) and foreign currency translation		259,335			(32,229	)		491,349			(81,893	)
Total return on investments	$	178,522		$	(174,405	)
Total return on investments	$	503,942		$	144,846		$	766,960		$	306,536
Annualized total return on investments		20.0	%		(18.1	)%
Annualized total return on investments		55.9	%		13.5	%		27.5	%		9.2	%

1 Includes ~~book~~cash ~~value~~and ofcash equivalents and assets pledged for derivatives ~~of $24,009 and $243,445 at September 30, 2009 and 2008, respectively~~.

The Company manages its investment portfolio with an emphasis on total return on assets under management. Total return for the period is the sum of investment income, realized investment gains 42and losses and changes in the market value of the portfolio expressed as a percentage of the average book value of the portfolio during the period. General economic conditions, stock market conditions, fluctuations in interest rates and many other factors can affect the returns on investments and the Company’s ability to control the timing of the realization of investment gains.

The Company manages its investment portfolio with an emphasis on total return on assets under management. Total return for the period is the sum of investment income (including pre-tax equity in earnings of investees), realized investment gains and losses and changes in the market value of the portfolio expressed as a percentage of the average book value of the portfolio during the period. General economic conditions, stock market conditions, fluctuations in interest rates and many other factors can affect the returns on investments and the Company’s ability to control the timing of the realization of investment income. In 2008, the Company significantly reduced its credit default swap portfolio and closed out its total return swap positions and equity and equity index short positions, realizing significant gains and reinvesting the proceeds to a large extent in equity securities. As a result, the investment portfolio is exposed, to a much larger degree than in previous reporting periods, to volatility in the equity markets. The significant increase in the annualized total return on investments for the three and nine months ended September 30, 2009 as compared to the corresponding prior year periods, is primarily attributable to the improvement in financial market conditions in recent months, resulting in an unrealized appreciation of the investment portfolio.

The year over year decline in the average book value of investments is largely attributable to cash used in operations in the first nine months of 2009 of $309,499, as well as dividends paid to Fairfax of $100,000, both of which were funded from the proceeds of sales of fixed income securities.

Investment Income

The components of investment income for the three ~~and nine~~ months ended ~~September~~March 3031, ~~2009~~2010 and ~~2008~~2009 are summarized as follows:

	Three Months Ended						~~Nine Months Ended~~
	September 30,						September 30,
	March 31,
	2009			2008			2009			2008
	2010			2009
Interest on fixed income securities	$	2526,~~310~~426		$	28,~~092~~514		$	~~78,900~~		$	~~78,779~~
Dividends from equity securities		76,~~064~~131			511,~~693~~629			~~28,403~~			~~16,393~~
Earnings (losses) from investments at equity and other invested assets		9,477			(13,810	)		46,152			(19,896	)
Earnings from other invested assets		3,852			1,461
Other, primarily interest on cash and cash equivalents		~~184~~176			~~6,566~~497			~~1,288~~			~~22,437~~
Gross investment income		4236,~~035~~585			2642,~~541~~101			~~154,743~~			~~97,713~~
Interest on funds held under reinsurance contracts		(3,897	)		(3,862	)		(11,496	)		(12,969	)
Investment expenses		(4,267	)		(2,941	)
Investment expenses		(3,925	)		(7,973	)		(10,082	)		(22,952	)
Interest on funds held under reinsurance contracts		(4,031	)		(3,767	)
Investment income	$	3428,~~213~~287		$	1435,~~706~~393		$	~~133,165~~		$	~~61,792~~

~~For~~The ~~the~~decrease ~~three and nine months ended September 30, 2009, the increase~~ in investment income of $197,~~507~~106, or ~~132.6~~20%, ~~and $71,373,~~for orthe ~~115.5%~~three months ended March 31, as2010 as compared to the ~~corresponding~~three ~~prior~~months ~~year periods~~ended March 31, 2009, was primarily due to ~~the~~lower ~~combined effects of: (i) higher earnings from the Company’s investments at equity, attributable to the underlying improvement in the equity markets in 2009; (ii) higher~~ dividends from equity securities, ~~due~~resulting tofrom asales ~~shift~~ in ~~portfolio composition to equity securities since~~ the ~~fourth~~first quarter of ~~2008;~~2010 and ~~(iii) lower~~ higher investment expenses related ~~principally~~ to ~~the Standard &~~equity ~~Poor’s~~index ~~Depositary~~and ~~Receipts (“SPDRs”)~~equity ~~short-sales~~total ~~which~~return ~~were~~swaps ~~closed~~entered ~~out~~into in the ~~second~~ ~~quarter~~latter half of ~~2008. Offsetting these year over year increases in investment income was a decline in interest on cash and cash equivalents due to lower cash collateral held in~~ 2009 as ~~compared to 2008, related to the SPDRs short-sales~~ and a ~~decline~~first inquarter ~~year~~of ~~over year short-term interest rates~~2010.

Realized Investment Gains and Losses 43

Net realized investment gains (losses) in the three months ended March 31, 2010 and 2009 are summarized as follows:


	Three Months Ended
	March 31,
	2010			2009
Fixed income securities, available-for-sale	$	5,709		$	14,189
Fixed income securities, held-for-trading		32,398			(13,924	)
Equity securities		123,177			1,484
Investments at equity		—			1,592
Derivatives and other invested assets		1,668			(39,208	)
Other		(2	)		(803	)

		162,950			(36,670	)

Other than temporary impairment charges:
Equity securities		(549	)		(50,894	)
Fixed income securities		—			(3,507	)

		(549	)		(54,401	)

Total pre-tax net realized investment gains (losses)	$	162,401		$	(91,071	)

The increase in net realized investment gains in the first quarter of 2010 of $253,472, as compared to the first quarter of 2009, is reflective of improved worldwide financial markets and is primarily due to significant gains on sales of equity securities, mark-to-market gains on held-for-trading securities, lower mark-to-market losses on other invested assets and only marginal amounts of other than temporary impairment charges partially offset by lower gains on derivative securities.

Losses on other invested assets were $7,723 and $71,062, for the three months ended March 31, 2010 and 2009, respectively. The 2010 losses are attributable to mark-to-market losses, in the aggregate, of $3,331 on the Company’s investments in Odyssey and Advent, affiliated companies for which the Company has elected the fair value option pursuant to ASC 825, Financial Instruments and a mark-to-market loss of $4,392 on a convertible preferred security. For the three months ended March 31, 2009, losses on other invested assets were principally attributable to mark-to-market losses on the Company’s investments in Odyssey and Advent.

During the first quarter of 2010, the Company recorded net gains of $9,391 on its derivative securities (including $12,049 from total return swaps) as compared to net gains of $31,854 (including $32,196 from credit default swaps) in the first quarter of 2009.

Net Realized Investment Gains and Losses

Net realized investment gains in the three and nine months ended September 30, 2009 and 2008 are summarized as follows:

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2009			2008			2009			2008
Fixed income securities	$	71,728		$	(25,406	)	$	145,452		$	(12,151	)
Equity securities		22,277			2,815			30,955			2,815
Derivatives and short-sale obligations		(14,992	)		261,156			(1,883	)		495,930
Investments at equity and other invested assets		131,407			(41,498	)		73,781			(83,472	)
		210,420			197,067			248,305			403,122
Other than temporary impairment charges:
Fixed income securities		—			—			(3,507	)		(1,265	)
Equity securities		(26	)		(34,698	)		(102,473	)		(74,511	)
		(26	)		(34,698	)		(105,980	)		(75,776	)
Total pre-tax net realized investment gains	$	210,394		$	162,369		$	142,325		$	327,346

The increase in net realized investment gains for the three months ended September 30, 2009 of $48,025, or 29.6%, as compared to the corresponding prior year period, primarily reflects: (i) lower net gains on credit default swaps and total return swaps. During the three months ended September 30, 2009, the Company recorded net losses of $19,504 on credit default swaps and net gains of $2,611 on total return swaps as compared to net gains of $119,316 on credit default swaps and net gains of $141,263 on total return swaps in the three months ended September 30, 2008; (ii) higher mark-to-market gains on other invested assets, principally attributable to a gain of $124,405 on the Company’s investment in Odyssey, for which the Company has elected the fair value option; and (iii) an increase in net gains on fixed income and equity securities, which include $33,480 of net gains related to sales of fixed income securities and $38,248 of net mark-to-market gains on held-for-trading fixed income securities in the third quarter of 2009.

The decrease in net realized investment gains of $185,021 or 56.5% for the nine months ended September 30, 2009 as compared to the nine months ended September 30, 2008, primarily reflects: (i) lower gains on derivatives and short-sale obligations, primarily due to significant gains recognized in 2008 related to credit default swaps, SPDRs short-sales and total return swaps. For the nine months ended September 30, 2009, net losses on derivatives and short-sale obligations include net losses of $6,054 related to credit default swaps and net gains of $2,611 related to total return swaps as compared to net gains of $275,961 related to credit default swaps and net gains of $218,566 related SPDRs short-sales and total return swaps in the nine months ended September 30, 2008; (ii) higher mark-to-market gains on other invested assets, principally attributable to a gain of $64,564 on the Company’s investment in Odyssey, whereas the 2008 period included a loss on the Company’s investment in Northbridge Financial Corp., an affiliated Company, of $75,558; and (iii) higher net gains on fixed income and equity securities, which include $87,881 of net gains related to sales of fixed income securities and $57,571 of net mark-to-market gains on held-for-trading fixed income securities. During 2008, the Company significantly reduced its credit default swap portfolio and closed out its total return swaps, SPDRs and equity short-sales, removing the hedge on its investment portfolio and realizing significant gains. With the recent improvement in the equity markets, the Company has recently re-entered into total return swaps transactions as an economic hedge against a decline in the U.S. equity markets.

Interest and Other Expense

For the three ~~and nine~~ months ended ~~September~~March 3031, ~~2009~~2010, interest and other expenses, ~~excluding costs related to early retirement of debt in 2008,~~ were $8,~~667~~751 ~~and~~compared ~~$24,137, and $9,447~~to ~~and~~ $257,~~131,~~736 ~~respectively.~~for ~~The lower expense in~~ the three ~~and nine~~ months ended ~~September~~March 3031, 2009,. ~~was~~The higher expense in 2010 is primarily due to ~~lower~~higher ~~severance~~charitable ~~payments~~contributions.

Income Taxes

The effective income tax rate was 25.8% and 33.3% for the nine months ended September 30, 2009 and 2008, respectively. For 2009, the effective rate differs from the statutory federal income tax rate of 35% primarily because of the benefit of tax-exempt interest of $14,627 or 6.0% and dividends received deductions of $5,221 or 2.1%.

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 requires cash to meet its annual debt service obligations ($25,575 per year), to pay corporate expenses, including income taxes, and, ultimately, to repay the $330,000 aggregate principal amount of senior notes due in 2017.

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~~ 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, ~~2009~~ 2010, US Fire reported statutory earned surplus of $~~591~~644,~~338~~791 and North River reported statutory earned surplus of $~~208~~225,~~331~~812. ~~In March~~On ~~2009~~March 30, 2010, ~~both~~ US Fire and North River paid cash dividends of $105,000 and $55,000, respectively, to the Company and on the same date the Company paid a cash dividend to Fairfax of $130,000. Subsequent to the quarter end, US Fire received approval from the Delaware Department of Insurance and North River received approval from the New Jersey Department of Banking and Insurance, ~~respectively,~~ to each pay, ~~extraordinary~~and ~~dividends.~~paid, ~~Although~~a ~~the~~dividend ~~amount~~ of ~~the~~$175,000 ~~dividend~~to ~~for~~the ~~both companies~~Company ~~was~~and ~~10%~~on ofthe ~~prior~~same ~~year-end~~date ~~surplus (~~the ~~amount~~Company ofpaid ~~an ordinary~~a cash dividend) of $350,000 ~~the~~to ~~extraordinary~~Fairfax. ~~dividend~~After ~~approvals~~the ~~allowed acceleration~~payment of the ~~dividend~~dividends, ~~payments~~both ~~from~~US ~~October~~Fire toand ~~March~~North ~~for~~River will UScontinue ~~Fire~~to ~~and~~have ~~from~~adequate ~~May~~surplus to ~~March~~support ~~for~~their ~~North~~outstanding ~~River.~~liabilities Onand ~~March 27,~~financial needs. US ~~2009,~~Fire and North River’s ~~paid~~future ~~a cash~~ dividend inpayments to the ~~amount~~Company ofwill ~~$44,100~~require prior approval by the regulators of their respective jurisdictions to the ~~Company~~extent ~~and~~any onsuch ~~March 30~~payment, ~~2009,~~together USwith ~~Fire~~all other ~~paid~~dividends aand ~~cash dividend~~distributions made in the ~~amount~~preceding ~~of $94~~12 months,~~300~~ toexceeds the ~~Company.~~greater ~~Neither~~of US(a) 10% of US Fire’s ~~nor~~statutory ~~North~~surplus ~~River~~as ~~may~~of ~~pay~~December 31, ~~any~~preceding ~~further~~the date of dividends inor ~~2009~~(b) net income ~~without~~not ~~prior~~including ~~regulatory~~realized ~~approval.~~capital Ongains ~~April 16,~~for ~~2009,~~ the ~~Company~~ ~~paid~~calendar ayear ~~cash~~preceding ~~dividend~~the todate ~~Fairfax~~ of ~~$100,000~~dividends.

Cash used in financing activities in the ~~nine~~three months ended ~~September~~ March 3031, ~~2009~~2010, was comprised of dividends paid to Fairfax of $~~100~~130,000. Shareholder’s ~~Cash~~equity ~~used~~was in$1,497,928 ~~financing~~at ~~activities~~March 31, 2010, as compared to $1,517,727 at December 31, 2009. The decrease in shareholder’s equity was primarily the result of dividends of $130,000 paid ~~nine~~to ~~months~~Fairfax ~~ended~~and ~~September 30~~net unrealized investment losses of $7,908, ~~2008~~partially offset by current year net income of $118,185. Statutory surplus was ~~comprised~~$1,627,418 ofat March 31, 2010 and $1,628,159 at December 31, 2009. The slight decrease from prior year end results from $160,000 of dividends paid to ~~Fairfax~~Crum & Forster Holdings Corp., partially offset by statutory net income of $~~130~~113,~~000~~227 and ~~retirement~~a ofdecrease ~~the~~in ~~remaining~~non-admitted ~~outstanding~~assets of $456,~~270~~266, ~~senior~~net ~~notes~~of ~~due 2013~~tax.

Shareholder’s equity was $1,566,705 at September 30, 2009, as compared to $1,166,432 at December 31, 2008. The increase in shareholder’s equity reflects net unrealized investment gains of $319,377 and current year net income of $181,066, partially offset by dividends paid to Fairfax of $100,000. Statutory surplus was $1,592,928 at September 30, 2009 and $1,410,612 at December 31, 2008. The increase from prior year end is principally attributable to net unrealized capital gains of $199,500 and net income of $138,947 partially offset by dividends paid by the insurance companies to Crum & Forster Holdings Corp. of $138,400.

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.

The prolonged soft market conditions in which the insurance subsidiaries are currently operating have resulted in double digit percentage declines in premium volume in each of the last two 45calendar years. In addition, the Company initiated actions in 2008 and 2009 to eliminate unprofitable classes of business. The Company’s property business has declined most markedly and as expected, due to the short tail nature of the business, claim payments have also started to decline as the exposures run off. The Company’s casualty business (approximately 56% of total gross premiums written in the first quarter of 2010) in general has a longer tail, meaning the period of time from the occurrence of a claim through the settlement of a liability may extend several years into the future and as a result cash flow may be adversely affected by claims from prior years. Additionally, the lapse of time between payments to claimants and recoveries from reinsurers, if collections from reinsurers are not received on a timely basis, will directly affect cash flows. Due to this uncertainty regarding the amount and timing of settlement of unpaid claims and ultimate recoveries from reinsurers, the insurance subsidiaries’ cash flow from operations and liquidity needs may vary from period to period. If premium receipts continue to decline and claim payments decrease gradually as expected, the Company is likely to have negative cash flow from operations in the near future.

~~The~~Cash ~~prolonged~~used ~~soft market conditions~~ in ~~which~~operations ~~the~~was ~~insurance subsidiaries~~$72,380 ~~are~~and ~~currently~~$207,239 ~~operating~~for ~~have resulted in double digit percentage declines in premium volume over~~ the ~~last~~three ~~two years.~~months Inended ~~addition~~March 31, ~~the~~2010 ~~Company initiated actions in 2008 to~~and ~~eliminate unprofitable classes of business. The Company’s property business is declining most markedly; however~~March 31, ~~due to the short tail nature of the claims~~2009, ~~it is expected that claim payments will also decline in the relative near term as the exposures run off~~respectively. The Company’s ~~casualty~~operating ~~business (approximately~~cash ~~58%~~flow ofcontinues ~~total gross premiums written year~~ to ~~date in~~be ~~2009) in general has a longer tail, meaning the period~~negative ofreflecting ~~time~~declining ~~from~~premiums ~~the~~over ~~occurrence of a claim through~~ the ~~settlement~~past ~~of a liability may extend~~ several years ~~into~~and ~~the~~more ~~future~~modestly ~~and~~declining asnet apaid ~~result~~losses, ~~cash~~ceded ~~flow~~reinsurance ~~may~~costs beand ~~adversely~~fixed ~~affected~~operating byexpenses. ~~claims~~The favorable variance from prior ~~years.~~year ~~Additionally,~~is ~~the~~largely ~~lapse~~due ofto ~~time~~significant ~~between~~unusual payments ~~to claimants~~made ~~and~~in ~~recoveries~~the ~~from~~first ~~reinsurers,~~quarter ifof ~~collections~~2009 ~~from~~including ~~reinsurers~~large ~~are~~income ~~not~~tax ~~received~~payments on afourth ~~timely~~quarter ~~basis,~~2008 ~~will~~realized ~~directly affect~~investment ~~cash~~gains ~~flows. Due to this uncertainty regarding the amount and timing~~ of ~~settlement of unpaid claims and ultimate~~approximately ~~recoveries from reinsurers~~$110,000 ~~the insurance subsidiaries’ cash flow from operations~~ and ~~liquidity~~long ~~needs may vary from period to period. If premium receipts continue to decline~~ and ~~claim~~ ~~payments~~short-term ~~continue~~incentive atpayouts ~~historical~~of ~~norms,~~approximately ~~the Company is likely to have negative cash flow from operations in the near future~~$26,000.

~~Cash~~The ~~used~~aggregate incarrying ~~operations~~value ~~was~~of ~~$309,499 for~~ the ~~nine~~Company’s ~~months~~investment ~~ended September 30~~portfolio, ~~2009~~including ~~as compared to~~ cash ~~provided~~and ~~from~~cash ~~operations~~equivalents ofand ~~$265,779~~assets pledged for ~~the~~derivatives, ~~nine~~was ~~months ended September 30~~$3, ~~2008~~906,195 ~~which~~and ~~included~~ $~~302~~3,~~500~~992,020 ofat ~~proceeds from the commutation of a finite reinsurance contract. Excluding the commutation proceeds~~March 31, ~~cash~~2010 ~~out flow from operations was~~and ~~worse by $272~~December 31,~~778.~~ ~~The unfavorable variance from prior year is primarily attributable to lower premium collections (related to the decline in premiums written~~2009, ~~approximately $141~~respectively,~~400),~~ ~~higher income~~of ~~tax payments~~ which ~~are substantially related to 2008 realized investment gains (approximately~~ $84607,~~300),~~660 and ~~higher net~~$311,780 ~~paid~~was ~~losses~~held ~~(approximately~~in ~~$28~~cash,~~300).~~ ~~The~~cash ~~higher net paid~~equivalents ~~losses~~and ~~are~~short-term ~~primarily~~investments ~~related~~at ~~to net paid losses associated with the 2008~~March 31, ~~2005~~2010 and ~~2004~~December 31, ~~hurricanes~~2009, ~~whereas~~respectively. ~~results for 2008~~Management ~~included~~believes ~~loss~~that ~~recoveries~~the ofinsurance ~~$13,800~~subsidiaries ~~associated~~have ~~with~~sufficient ~~the~~cash ~~2004~~ and ~~2005~~ ~~hurricanes~~short-term ~~and proceeds of $10~~investments,~~400~~ ~~from commutation of a~~that ~~reinsurance~~together ~~treaty.~~with ~~The Company’s underwriting~~ cash ~~flows continue~~generated tofrom befuture ~~negative,~~investing ~~reflecting declining premiums as a result of the continued soft market and recent underwriting actions in the face of steady or only marginally declining paid losses~~operations, ~~ceded~~will ~~reinsurance~~meet ~~costs~~their ~~and fixed~~ operating ~~expenses~~liquidity needs.

~~During~~The ~~the~~Company’s ~~fourth~~investment ~~quarter~~portfolio ofhas ~~2008~~exposure ~~and~~to ~~the~~credit ~~first~~risk ~~quarter~~primarily ofrelated ~~2009, the~~to ~~Company made significant purchases of~~ fixed income ~~and~~ ~~equity~~ securities~~, when the Company determined that market price levels were attractive~~. InManagement ~~doing~~attempts ~~so,~~to itcontrol ~~reduced~~this ~~its~~exposure ~~historically high~~by ~~levels~~emphasizing ofinvestment ~~cash,~~grade ~~cash equivalents and short-term investments~~credit toquality ~~lower~~in ~~levels. During~~ the ~~first~~fixed ~~quarter~~income ofsecurities ~~2009~~purchased, although the Company ~~sold~~ ~~several~~invests, ~~municipal~~to ~~securities with~~ a ~~fair market value of~~limited ~~approximately $146~~extent,~~200~~ toin ~~third~~non-~~parties~~investment ~~and~~grade ~~Fairfax~~fixed ~~affiliates to~~income ~~meet~~securities ~~operating~~if ~~needs~~market ~~and~~opportunities ~~restore its cash and short-term investments position to more normal levels~~avail. AtManagement ~~September 30,~~believes ~~2009,~~that ~~the~~this ~~insurance~~concentration ~~subsidiaries held $332,921~~ in ~~highly~~investment ~~liquid,~~grade ~~short-term and other marketable~~ securities toreduces ~~meet~~the ~~their~~Company’s ~~operating~~exposure ~~needs and provide available~~to ~~cash~~credit inrisk ~~the~~to ~~event~~an ofacceptable ~~unanticipated large claim payments~~level. ~~Management~~ ~~believes~~The ~~that~~Company ~~the~~holds ~~insurance~~a ~~subsidiaries~~small ~~have sufficient~~amount ~~cash~~of ~~and short~~mortgage-~~term~~backed ~~investments,~~securities (approximately ~~that~~3% ~~together~~of ~~with cash~~the ~~generated~~total ~~from~~investment ~~future~~portfolio ~~investing~~of ~~operations~~$3.9 billion), ~~will~~purchased ~~meet~~at ~~their~~deep discounts ~~operating~~to ~~liquidity needs~~par.

~~The~~At ~~aggregate carrying value of the Company’s investment portfolio, including cash and cash equivalents and assets pledged for derivatives, was $4,138,138 and $4,032,034 at September~~March 3031, ~~2009~~2010 and December 31, ~~2008~~2009, ~~respectively,~~ of81.1% ~~which~~and ~~$361~~83.0%,~~438~~ ~~and $709~~respectively,~~799~~ ~~was~~of ~~held~~the inCompany’s ~~cash,~~fixed ~~cash~~income ~~equivalents~~securities ~~and~~were ~~short-term~~rated ~~investments~~investment ~~at September 30~~grade, ~~2009~~of which 79.4% and ~~December 31~~78.7%, ~~2008~~respectively, ~~respectively~~were rated AAA.

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, although at times the Company may invest, to a limited extent, in non-investment grade fixed income securities if market opportunities avail. Management believes that this concentration in investment grade securities reduces the Company’s exposure to credit risk to an acceptable level. The Company holds mortgage-backed securities (approximately 3% of the total investment portfolio of $4.1 billion), purchased at deep 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 the Company, and amounted to $6,872 at September 30, 2009. The Company has the right to sell or repledge 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 ($16,244 at September 30, 2009), is low given the diversification among the various counterparties. The Company funds all its obligations relating to the credit default swaps through the initial premium paid at purchase and as a result there are no requirements for the Company to provide collateral.

At September 30, 2009 and December 31, 2008, 82.8% and 86.7% of the Company’s fixed income securities were rated investment grade, respectively.

Ratings

Financial strength ratings issued by third party rating agencies are used by insurance consumers and insurance intermediaries as an important means of assessing the financial strength and quality of insurers. Higher ratings generally indicate relative financial stability and a strong ability to pay claims. Ratings focus on the following factors: capital resources, financial strength, demonstrated management expertise in the insurance business, credit analysis, systems development, marketing, investment operations, minimum policyholders’ surplus requirements and capital sufficiency to meet projected growth, as well as access to such traditional capital as may be necessary to continue to meet standards for capital adequacy.

Crum & Forster’s insurance subsidiaries are assigned financial strength ratings from major rating ~~agencies~~ agencies which include A.M. Best Company (“A.M. Best”), Standard & Poor’s (“S&P”) Insurance Rating Services and Moody’s Investors Service (“Moody’s”). Crum & Forster’s insurance subsidiaries currently have an “A” financial strength rating from A.M. Best (the third highest of fifteen rating categories) with a stable outlook ~~from A.M. Best~~, aan “~~BBB+~~A-” ~~financial~~from ~~strength~~S&P ~~rating~~ (the ~~fourth~~third highest of nine major rating categories) with a stable outlook ~~from S&P’s Insurance Rating Services~~ and a “~~Baa1~~Baa2” financial strength rating ~~from Moody’s~~ (the fourth highest of nine major rating categories) with a stable outlook from Moody’s.

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

All dollar amounts are in thousands, unless otherwise indicated.

The Company is exposed to several types of market risk related to its investment operations. These risks are principally interest rate risk, credit risk, equity price risk and foreign currency exchange risk. The term “market risk” refers to the risk of loss arising from adverse changes in the fair value of financial instruments. 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 currency 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.

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~~shifts of foreign exchange rates or equity prices.

36 ~~Interest Rate Risk~~

At September 30, 2009, the fair value of Crum & Forster’s investment portfolio included $1,850,620 of fixed income securities, the majority of which are subject to interest rate risk. Fluctuations in interest rates have a direct impact on the market values of these securities. As interest rates rise, market values of fixed income portfolios fall, and vice versa. The table below displays the potential impact of market value fluctuations on the Company’s fixed income portfolio based on parallel 200 basis point shifts in interest rates up and down, in 100 basis point increments. This analysis was performed on each security individually.

	At September 30, 2009								At December 31, 2008
	Fair Value of								Fair Value of
	Fixed Income		Hypothetical			Hypothetical			Fixed Income		Hypothetical			Hypothetical
	Securities		$ Change			% Change			Securities		$ Change			% Change
200 basis point decline	$	2,133,324	$	282,704			15.3	%	$	2,106,515	$	339,183			19.2	%
100 basis point decline	$	1,995,992	$	145,372			7.9	%	$	1,958,505	$	191,173			10.8	%
Base scenario	$	1,850,620		—			—		$	1,767,332		—			—
100 basis point increase	$	1,730,619	$	(120,001	)		(6.5	)%	$	1,584,304	$	(183,028	)		(10.4	)%
200 basis point increase	$	1,561,269	$	(289,351	)		(15.6	)%	$	1,425,703	$	(341,629	)		(19.3	)%

Interest Rate Risk

At March 31, 2010, the fair value of Crum & Forster’s investment portfolio included $1,869,837 of fixed income securities which are subject to interest rate risk. Fluctuations in interest rates have a direct impact on the market values of these securities. As interest rates rise, market values of fixed income portfolios fall, and vice versa. The table below displays the potential impact of market value fluctuations on the Company’s fixed income portfolio based on parallel 200 basis point shifts in interest rates up and down, in 100 basis point increments. This analysis was performed on each security individually.


	At March 31, 2010								At December 31, 2009
	Fair Value of								Fair Value of
	Fixed Income		Hypothetical			Hypothetical			Fixed Income		Hypothetical			Hypothetical
(dollars in millions)	Securities		$ Change			% Change			Securities		$ Change			% Change

200 basis point decline	$	2,136,106	$	266,269			14.2	%	$	2,114,909	$	274,004			14.9	%
100 basis point decline	$	1,998,342	$	128,505			6.9	%	$	1,974,991	$	134,086			7.3	%
Base scenario	$	1,869,837		—			—		$	1,840,905		—			—
100 basis point increase	$	1,712,361	$	(157,476	)		(8.4	)%	$	1,687,183	$	(153,722	)		(8.4	)%
200 basis point increase	$	1,544,972	$	(324,865	)		(17.4	)%	$	1,518,497	$	(322,408	)		(17.5	)%

Credit Risk

~~Credit~~The ~~risk~~Company ishas ~~the~~purchased ~~risk~~credit ofdefault ~~loss~~swaps, ~~resulting~~referenced ~~from~~to ~~the~~various ~~failure~~issuers ofin athe banking, ~~counterparty~~mortgage toand ~~honor~~insurance ~~its~~sectors of the financial orservices ~~contractual~~industry ~~obligations~~which serve as economic hedges toagainst declines in the fair value of the Company’s financial assets. ~~Credit~~Under ~~risk~~a ~~arises~~credit ~~predominantly~~default ~~with~~swap, as ~~respect~~the buyer, the Company agrees to pay to a specific counterparty, fixed premium amounts based on ~~investments~~an agreed notional principal amount in exchange for protection against default by the issuers of specified referenced debt ~~instruments,~~securities. ~~reinsurance~~The ~~recoverable~~credit events, as defined by the respective credit ~~premiums~~default ~~receivable~~swap ~~and~~contracts ~~balances~~establishing ~~due~~the rights to recover amounts from the counterparties, toinclude ~~derivative~~events ~~contracts~~such ~~(primarily~~as ~~credit~~bankruptcy, obligation acceleration, obligation default, ~~swaps).~~failure ~~There~~to pay, ~~were~~repudiation/moratorium noand ~~significant~~restructuring. ~~changes~~As toof March 31, 2010, all credit default swap contracts held by the Company’s ~~exposure~~have ~~to credit~~been ~~risk~~purchased atfrom ~~September 30~~and entered into with Citibank, ~~2009~~N.A., ~~compared~~Deutsche toBank AG ~~December 31~~or Barclays Bank PLC as the counterparty, ~~2008~~with positions on certain covered risks with more than one of these counterparties.

The ~~Company has purchased~~ credit default swaps, ~~referenced~~are ~~to various~~recorded ~~issuers~~at infair ~~the~~value ~~banking,~~with ~~mortgage~~changes ~~and~~in ~~insurance~~fair ~~sectors~~value recognized as ofrealized ~~the~~investment ~~financial~~gains ~~services~~or ~~industry~~losses in the period in which ~~serve~~they asoccur. ~~economic hedges~~The ~~against~~Company ~~declines~~obtains broker-dealer inquotes ~~the~~which ~~fair~~are ~~value~~based ofon ~~the~~observable ~~Company’s financial~~credit ~~assets.~~spreads ~~Under~~for aits credit default ~~swap,~~swaps. asThe Company assesses the ~~buyer,~~reasonableness of the ~~Company~~ ~~agrees~~broker-dealer toquotes ~~pay~~by tocomparing athe ~~specific~~fair ~~counterparty,~~values ~~fixed premium~~to ~~amounts~~values ~~based~~produced onusing anindividual ~~agreed~~issuer ~~notional~~credit ~~principal~~default ~~amount~~swap inyield ~~exchange for~~curves, ~~protection~~by ~~against~~referencing ~~default~~them byto movements ~~the~~in ~~issuers~~credit ofspreads ~~specified referenced~~and ~~debt~~by ~~securities.~~comparing ~~The~~them ~~credit~~to ~~events,~~recent asmarket ~~defined~~transaction byprices ~~the respective~~for similar credit default ~~swap~~swaps ~~contracts~~where ~~establishing~~available. ~~the~~The ~~rights to~~fair ~~recover~~values ~~amounts~~of ~~from~~credit ~~the~~default ~~counterparties,~~swaps ~~include~~are ~~events~~subject ~~such~~to assignificant ~~bankruptcy,~~volatility ~~obligation~~arising ~~acceleration,~~from ~~obligation~~the ~~default, failure~~potential todifferences ~~pay,~~in ~~repudiation/moratorium~~the ~~and~~perceived ~~restructuring.~~risk Asof default of ~~September 30,~~the ~~2009~~underlying issuers, ~~all~~movements in credit ~~default~~spreads ~~swap~~and ~~contracts~~the ~~held by~~length ~~the~~of ~~Company~~time ~~have~~to ~~been~~the ~~purchased~~contracts’ maturity. ~~from~~The ~~and~~fair ~~entered~~value ~~into~~of ~~with either~~the ~~Citibank,~~credit ~~N.A.,~~default ~~Deutsche~~swaps ~~Bank~~may AGvary ormaterially ~~Barclays~~either ~~Bank~~up ~~PLC~~or asdown in ~~the~~short ~~counterparty~~periods, ~~with~~and ~~positions~~their onultimate ~~certain~~value ~~covered~~may ~~risks~~therefore ~~with more~~only ~~than~~be ~~one~~known ofupon ~~these~~their ~~counterparties~~disposition.

The Company is exposed to credit ~~default~~risk ~~swaps~~in ~~are~~the ~~recorded~~event atof ~~fair~~non-performance ~~value~~of ~~with~~counterparties ~~changes~~to its incredit ~~fair~~default ~~value~~swap, ~~recorded~~total asreturn ~~realized~~swap ~~investment~~and ~~gains~~other orderivative ~~losses~~securities incontracts and endeavors to limit this risk through the ~~period~~terms inof ~~which~~agreements ~~they~~negotiated ~~occur~~with the counterparties. ~~The~~Pursuant to these agreements, the Company ~~obtains broker-dealer~~and ~~quotes~~the ~~for~~counterparties ~~its~~to ~~credit~~these ~~default~~transactions ~~swaps~~are ~~from~~contractually ~~third-party~~required ~~providers.~~to Indeposit ~~addition,~~eligible ~~the~~collateral ~~Company~~in ~~assesses~~collateral accounts for either the ~~reasonableness~~ benefit of the Company ~~fair~~or ~~values~~the ~~obtained~~counterparty ~~from~~depending ~~these~~on ~~providers by~~the ~~comparing~~then ~~the~~current fair ~~values~~value toor ~~values~~change ~~produced~~in ~~using~~fair ~~individual issuer~~value ~~credit~~of ~~default~~the derivative ~~swap~~contracts. ~~yield~~At ~~curves~~March 31, by2010, ~~referencing~~the ~~them~~fair ~~to movements~~value inof ~~credit~~collateral ~~spreads~~held ~~and~~in bythe ~~comparing~~name ~~them~~of ~~to recent~~the ~~market~~Company, ~~transaction~~all ~~prices~~of ~~for~~which ~~similar~~was ~~credit~~comprised ~~default~~of ~~swaps where available~~U.S. ~~The~~Treasury ~~fair~~securities ~~values~~that ofmay ~~credit~~be ~~default~~sold ~~swaps~~or ~~are~~repledged ~~subject~~by tothe ~~significant~~Company ~~volatility~~was ~~arising~~$18,450. ~~from~~There ~~the~~was ~~potential~~no ~~differences~~ collateral held in the ~~perceived~~name ~~risk~~ of ~~default of~~ the ~~underlying~~Company ~~issuers~~at December 31, ~~movements~~2009. inThe ~~credit~~Company ~~spreads~~believes ~~and~~that ~~the~~any ~~length~~credit ofrisk ~~time~~exposure, torepresented by the ~~contracts’~~ ~~maturity.~~uncollateralized ~~The~~ fair value of the ~~credit~~derivative ~~default swaps~~securities ~~may~~($14,872 ~~vary~~and ~~materially~~$18,110 ~~either~~at upMarch 31, or2010 ~~down~~and inDecember 31, ~~short periods~~2009, ~~and~~respectively), ~~their~~is ~~ultimate~~low ~~value~~given ~~may~~the ~~therefore~~diversification ~~only~~among bethe ~~known upon their disposition~~counterparties.

~~Counterparties~~The Company funds all its obligations relating to the credit default swaps ~~expose~~and ~~the~~similar ~~company to~~derivative ~~credit~~securities ~~risk~~through in the ~~event~~initial ofpremium ~~non-performance,~~paid ~~which~~at ~~the~~purchase ~~Company endeavors~~and toas ~~limit~~a ~~through~~result ~~the~~there ~~terms~~are ofno ~~agreements negotiated~~requirements ~~with~~for the ~~counterparties.~~Company ~~Pursuant~~ to ~~the~~provide ~~swap~~collateral. ~~agreements,~~The ~~the counterparties~~Company’s ~~are~~holdings ~~required~~of tocredit ~~pledge~~default ~~cash~~swaps orat ~~U.S.~~March ~~Treasury~~31, ~~securities~~2010 asand ~~collateral~~December 31, in2009, ~~the~~have ~~event~~declined ~~that~~significantly ~~appreciation~~relative into ~~the fair~~prior ~~value~~years, oflargely ~~the~~as ~~credit~~a result ~~default~~of ~~swaps~~closing ~~meets~~transactions ~~certain~~and ~~thresholds. The~~changes in fair value. ofThe ~~this~~Company ~~collateral,~~may ~~which~~initiate isnew ~~not reflected on the~~credit ~~Company’s~~default ~~balance~~swap ~~sheet,~~contracts isas ~~held~~a byhedging anmechanism ~~independent custodian~~ in the ~~name~~future, ofbut ~~the~~there ~~Company,~~can ~~and~~be ~~amounted~~no toassurance ~~$6,872~~that atit ~~September 30,~~will ~~2009~~do so. ~~The~~At ~~Company~~March 31, ~~has~~2010, the ~~right~~Company toowned ~~sell~~$1.5 billion ~~or repledge~~notional ~~this~~amount ~~collateral,~~of ~~which~~credit itdefault swaps ~~has~~with ~~not~~an ~~exercised.~~average ~~The Company~~term ~~believes~~to ~~that~~maturity ~~any~~of ~~remaining~~2.0 years, ~~credit~~an ~~risk~~original ~~exposure, represented~~cost byof ~~the~~$21,624 ~~uncollateralized~~and a fair value of ~~the credit default swaps (~~$1618,~~244~~782. atAt ~~September~~December 3031, 2009), ~~is low given~~ the ~~diversification~~Company ~~among~~owned ~~the various counterparties~~$1.6 billion ~~The Company~~notional ~~funds~~amount ~~all~~of ~~its obligations relating to the~~ credit default swaps ~~through~~with ~~the~~an ~~initial~~average ~~premium~~term ~~paid~~to atmaturity ~~purchase~~of ~~and~~2.3 years, asan ~~a result~~original ~~there~~cost ~~are~~of no$21,624 ~~requirements~~and ~~for~~a ~~the~~fair ~~Company to provide~~value ~~collateral~~of $20,027.

37 The Company’s credit default swaps have declined significantly in 2009 relative to prior years, largely as a result of significant sales in 2008. In the latter part of 2008, the Company reviewed the financial objectives of its economic hedging program and decided not to replace closed credit default swaps based on: (i) the Company’s judgment that its exposure to elevated levels of credit risk had moderated and that its historical approaches to managing credit risk were satisfactory in mitigating the Company’s exposure to credit risk arising from its financial assets; (ii) the significant increase in the cost of purchasing credit protection; and (iii) the fact that the Company’s capital and liquidity had benefited from approximately $450 million in realized gains from credit default swaps since inception of the hedge program. As a result, the effects that credit default swaps as hedging instruments may be expected to have on the Company’s future financial position, liquidity and results of operations may be expected to diminish significantly relative to the effects in recent years. The Company may initiate new credit default swap contracts as an effective hedging mechanism in the future, but there can be no assurance that it will do so.

	As of and for the Three Months Ended September 30, 2009
	As of and for the Three Months Ended March 31, 2010
					Effect on Pre-tax
							Net Realized
	Exposure/				Other
	Exposure/				Other		Investment
	Notional		Carrying		Comprehensive					Net
	Notional		Carrying		Comprehensive		Gains
	Value		Value		Income		Earnings			Equity
	Value		Value		Income		(Losses)1			Net Equity
Credit risk exposures:
Fixed income securities	$	1,850,620	$	1,850,620	$	92,248	$	71,728		$	163.976
Fixed income securities1	$	1,780,752	$	1,780,752	$	949	$	38,107		$	39,056
Warrants		~~1.903~~101,201		~~1,903~~392		—		~~1,901~~392			~~1,901~~392
Premiums receivable		~~167~~168,~~086~~322		~~167~~168,~~086~~322		—		~~(375~~51	)		~~(375~~51	)
Reinsurance recoverable		~~905~~884,~~967~~651		~~905~~884,~~967~~651		—		—			—
Total credit risk exposure	$	2,~~925~~934,~~576~~926	$	2,~~925~~834,~~576~~117		~~92,248~~949		7338,~~254~~550			~~165~~39,~~502~~499
Hedging instruments:
Derivatives:
Credit default swaps	$	1,489,576	$	18,782		—		(1,245	)		(1,245	)
Credit default swaps	$	1,597,093	$	23,116		—		(19,504	)		(19,504	)
Net exposure					$	949	$	37,305		$	38,254
Total hedging instruments	$	1,597,093	$	23,116		—		(19,504	)		(19,504	)
Net exposure					$	92,248	$	53,750		$	145,998

1 ~~Includes~~Excludes ~~earnings~~$89,085 ~~charges~~of ~~for~~U.S. ~~uncollectible~~government ~~premiums~~securities ~~receivable~~with ~~and~~a ~~reinsurance~~gain ~~recoverable~~in other comprehensive income of $700.

	As of and for the Three Months Ended September 30, 2008
					Effect on Pre-tax
							Net Realized
	Exposure/				Other		Investment
	Notional		Carrying		Comprehensive		Gains
	Value		Value		Income		(Losses)1			Net Equity
Credit risk exposures:
Fixed income securities	$	2,463,470	$	2,463,470	$	9,921	$	(26,671	)	$	(16,750	)
Warrants		3,250		3,250		—		818			818
Premiums receivable		187,166		187,166		—		(675	)		(675	)
Reinsurance recoverable		1,025,144		1,025,144		—		(2,000	)		(2,000	)
Total credit risk exposure	$	3,679,030	$	3,679,030		9,921		(28,528	)		(18,607	)
Hedging instruments:
Derivatives:
Credit default swaps	$	3,731,964	$	244,258		—		119,316			119,316
Eurodollar futures contracts		488,000		—		—		(196	)		(196	)
Total hedging instruments	$	4,219,964	$	244,258		—		119,120			119,120
Net exposure					$	9,921	$	90,592		$	100,513

The net cash flow effect from disposals of the above credit risk exposures and related hedging instruments for the three months ended March 31, 2010 was $5,045.

1 Includes earnings charges for uncollectible premiums receivable and reinsurance recoverable.


	As of and for the Three Months Ended March 31, 2009
					Effect on Pre-tax
	Exposure/				Other
	Notional		Carrying		Comprehensive					Net
	Value		Value		Income		Earnings			Equity
Credit risk exposures:
Fixed income securities¹	$	1,713,293	$	1,713,293	$	57,390	$	(4,312	)	$	53,078
Warrants		101,201		1		—		1			1
Premiums receivable		174,360		174,360		—		(375	)		(375	)
Reinsurance recoverable		947,228		947,228		—		(2,000	)		(2,000	)

Total credit risk exposure	$	2,936,082	$	2,834,882		57,390		(6,686	)		50,704

Hedging instruments:
Credit default swaps	$	1,464,427	$	61,366		—		32,196			32,196
Eurodollar futures contracts		—		—		—		(343	)		(343	)

Total hedging instruments	$	1,464,427	$	61,366		—		31,853			31,853

Net exposure					$	57,390	$	25,167		$	82,557

49 1 Excludes $102,787 of U.S. government securities with a loss in other comprehensive income of $11,571 and realized gain of $1,066.

The net cash flow effect from disposals of the above credit risk exposures and related hedging instruments for the three months ended March 31, 2009 was $104,141.

	As of and for the Nine Months Ended September 30, 2009
					Effect on Pre-tax
							Net Realized
	Exposure/				Other		Investment
	Notional		Carrying		Comprehensive		Gains
	Value		Value		Income		(Losses)1			Net Equity
Credit risk exposures:
Fixed income securities	$	1,850,620	$	1,850,620	$	166,843	$	141,945		$	308,788
Warrants		1,903		1,903		—		1,903			1,903
Premiums receivable		167,086		167,086		—		(1,125	)		(1,125	)
Reinsurance recoverable		905,967		905,967		—		(2,000	)		(2,000	)
Total credit risk exposure	$	2,925,576	$	2,925,576		166,843		140,723			307,566
Hedging instruments:
Derivatives:
Credit default swaps	$	1,597,093	$	23,116		—		(6,054	)		(6,054	)
Eurodollar futures contracts		—		—		—		(343	)		(343	)
Total hedging instruments	$	1,597,093	$	23,116		—		(6,397	)		(6,397	)
Net exposure					$	166,843	$	134,326		$	301,169

1 Includes earnings charges for uncollectible premiums receivable and reinsurance recoverable.

	As of and for the Nine Months Ended September 30, 2008
					Effect on Pre-tax
								Net Realized
	Exposure/				Other			Investment
	Notional		Carrying		Comprehensive			Gains
	Value		Value		Income			(Losses)1			Net Equity
Credit risk exposures:
Fixed income securities	$	2,463,470	$	2,463,470	$	(18,137	)	$	(13,416	)	$	(31,553	)
Warrants		3,250		3,250		—			(2,652	)		(2,652	)
Premiums receivable		187,166		187,166		—			575			575
Reinsurance recoverable		1,025,144		1,025,144		—			(6,000	)		(6,000	)
Total credit risk exposure	$	3,679,030	$	3,679,030		(18,137	)		(21,493	)		(39,630	)
Hedging instruments:
Derivatives:
Credit default swaps	$	3,731,964	$	244,258		—			275,961			275,961
Eurodollar futures contracts		488,000		—		—			(196	)		(196	)
Total hedging instruments	$	4,219,964	$	244,258		—			275,765			275,765
Net exposure					$	(18,137	)	$	254,272		$	236,135

1 Includes earnings charges for uncollectible premiums receivable and reinsurance recoverable.

Equity Price Risk

At ~~September~~March 3031, ~~2009~~2010, the Company’s investment portfolio included $1,~~807~~834,~~297~~967 of equity and similar securities comprised of of $1865,~~383,777~~758 of available-for-sale equity securities, $~~355~~518,~~303~~893 of long total equity ~~securities~~return ~~for~~swaps ~~which~~(designed ~~the Company~~to ~~has~~replicate ~~elected~~ the ~~fair~~Company’s ~~value~~investments ~~option~~in ~~under~~certain ~~FASB~~common ~~ASC~~stock ~~825-10~~positions), ~~Financial~~ ~~Instruments (formerly SFAS No. 159~~$360, ~~The~~335 ~~Fair~~of ~~Value~~equity ~~Option~~securities for ~~Financial~~which ~~Assets~~the ~~and Liabilities)~~Company has elected the fair value option and $6889,~~216~~981 of equities owned by its equity method investees. This equity portfolio, which ~~represented~~ represented approximately 4347.70% of the Company’s investment portfolio, including cash and cash equivalents and assets pledged for derivatives, is exposed to equity price risk, which is defined as the potential for loss in market value owing to declines in equity prices. A hypothetical 10% decline in the price of each of these equity securities would result in a total decline of $~~180~~183,~~730~~ 497 in the fair value of the equity portfolio at ~~September~~ March 3031, ~~2009~~2010. At December 31, ~~2008~~2009, a ~~hypothetical~~ hypothetical 10% decline in the price of each of these equity securities would have resulted in a total decline of $~~139~~172,~~841~~636 in the fair value of the equity portfolio. The increase in the Company’s exposure to equity price risk is principally attributable to the increase in value of the equity portfolio at March 31, 2010 as compared to December 31, 2009.

~~During~~The ~~much of 2008 and immediately preceding years, the~~ Company ~~had~~ ~~been~~has ~~concerned~~entered ~~about~~into ~~the~~short ~~valuation~~positions ofin ~~worldwide~~ equity ~~markets,~~ ~~uncertainty~~index ~~resulting~~total ~~from~~return ~~credit~~swaps ~~issues~~primarily ~~in the~~to ~~U.S. and~~provide ~~global~~partial ~~economic conditions. As~~ protection against a ~~decline~~significant declines in ~~equity markets,~~ the ~~Company~~value ~~held~~of ~~short~~its ~~positions~~equity ~~in SPDRs~~ and ~~U.S. listed common stocks and~~ equity related ~~index~~holdings. ~~and equity~~The total return swaps, ~~referred~~contain tocontractual inreset ~~the~~provisions ~~aggregate as~~requiring ~~equity~~counterparties ~~hedges.~~to ~~The~~cash-settle ~~Company~~on ~~also~~a inmonthly ~~the~~basis ~~past~~any ~~purchased~~market ~~S&P Index~~value ~~call~~movements ~~options~~arising tosince ~~limit~~ the ~~potential~~prior settlement. ~~loss~~Any oncash ~~its~~paid ~~equity index~~to ~~total~~settle ~~return~~unfavorable ~~swaps~~market ~~and~~value ~~SPDRs~~changes ~~short~~and, ~~positions~~conversely, ~~and~~any tocash ~~provide~~received ~~general~~in ~~protection~~settlement ~~against~~of ~~the~~favorable ~~short~~market ~~position~~value inchanges ~~common stocks.~~are Inrecognized ~~the~~as ~~latter~~realized ~~half of 2008, following significant~~investment ~~declines~~gains inand ~~global~~losses ~~equity~~on ~~markets,~~ the ~~Company~~consolidated ~~reviewed~~statements ~~the financial objectives~~ of ~~its~~operations ~~hedging~~in ~~program~~the ~~and~~period ~~determined~~in ~~that elevated~~which ~~risks~~they inoccur. To the ~~global~~extent ~~equity~~that ~~markets~~a ~~had~~contractual ~~moderated~~reset ~~and subsequently~~date ~~closed all~~ of ~~its~~a ~~equity~~contract ~~hedge~~does ~~positions,~~not ~~realizing substantial~~correspond ~~gains.~~to ~~During~~ the ~~fourth~~balance ~~quarter of 2008~~sheet date, the Company ~~increased~~records ~~its~~additional ~~investments~~net inrealized ~~equities~~investment asgains aor ~~result~~losses ofon the ~~opportunities~~ ~~presented by significant declines in the global~~consolidated ~~equity~~statements ~~markets. During the third quarter~~ of ~~2009,~~operations asto aadjust ~~result of~~ the ~~rapid~~carrying ~~increase~~value inof the ~~valuation~~derivative ~~level~~asset ofor ~~worldwide equity~~liability ~~markets,~~associated ~~the~~with ~~Company~~each ~~once~~total ~~again~~return ~~determined~~swap contract to ~~protect~~reflect ~~a portion of~~ its ~~equity~~fair ~~and~~value ~~equity~~at ~~related~~the ~~holdings~~balance ~~against a decline in~~sheet ~~equity markets and entered into equity index total return swaps with a notional value of $452,319~~date.

The ~~Company~~following istable ~~required~~summarizes tothe ~~post~~effect ~~collateral equivalent to 6%~~ of ~~the~~ ~~notional~~equity ~~value~~risk ofhedging ~~the~~instruments ~~total~~and ~~return~~related ~~swaps~~hedged items aton the ~~time~~Company’s ~~the swap~~financial isposition ~~opened.~~and ~~These~~results ~~assets~~of ~~are~~operations ~~recorded~~and atcash ~~fair~~flows ~~value~~as ~~in assets~~of ~~pledged~~and for ~~derivatives on~~ the ~~consolidated~~three ~~balance sheets.~~months Atended ~~September~~March 3031, ~~2009, the fair value of the~~2010: ~~collateral posted, in the form of municipal bonds, was $29,756.~~

The following tables summarize the effect of equity risk hedging instruments and related hedged items on the Company’s historical financial position and results of operations as of and for the three and nine months ended September 30, 2009 and 2008:


	As of and for the Three Months Ended March 31, 2010
						Effect on Pre-tax
	Exposure/					Other
	Notional		Carrying			Comprehensive
	Value		Value			Income¹			Earnings			Net Equity
Equity exposures:
Equity securities	$	865,758	$	865,758		$	(15,975	)	$	122,628		$	106,653
Total return swaps — long		518,893		(1,412	)		—			35,686			35,686
Investments at equity		173,836		173,836			2,705			3,852			6,557
Other invested assets		360,335		360,335			—			(7,724	)		(7,724	)

Total equity exposure	$	1,918,822	$	1,398,517			(13,270	)		154,442			141,172

Hedging instruments:
Total return swaps — short	$	496,855	$	(1,406	)		—			(23,637	)		(23,637	)

Net equity exposure						$	(13,270	)	$	130,805		$	117,535

	As of and for the Three Months Ended September 30, 2009
					Effect on Pre-tax
							Net Realized
	Exposure/				Other		Investment
	Notional		Carrying		Comprehensive		Gains
	Value		Value		Income		(Losses)1		Net Equity
Equity exposures:
Equity securities	$	1,383,777	$	1,383,777	$	166,508	$	22,251	$	188,759
Investments at equity		159,370		159,370		577		8,956		9,533
Other invested assets		355,303		355,303		—		131,407		131,407
Total equity exposure	$	1,898,450	$	1,898,450		167,085		162,614		329,699
Hedging instruments:
Derivatives:
Total return swaps	$	452,319	$	2,611		—		2,611		2,611
Total equity hedging instruments	$	452,319	$	2,611		—		2,611		2,611
Net equity exposure					$	167,085	$	165,225	$	332,310


¹		Excludes foreign currency translation losses of $545.

In the normal course of effecting its economic hedging strategy with respect to equity risk, the Company expects that there may be periods where the notional value of the hedging instruments may 51exceed or be deficient relative to the exposure items being hedged. This situation may arise when management compensates for imperfect correlations between the hedging item and the hedge or due to the timing of opportunities related to the Company’s ability to exit and enter hedged or hedging items at attractive prices.

	As of and for the Three Months Ended September 30, 2008
					Effect on Pre-tax
								Net Realized
	Exposure/				Other			Investment
	Notional		Carrying		Comprehensive			Gains
	Value		Value		Income			(Losses)1			Net Equity
Equity exposures:
Equity securities	$	691,577	$	691,577	$	(41,309	)	$	(30,618	)	$	(71,927	)
Investments at equity		126,713		126,713		(841	)		(15,072	)		(15,913	)
Other invested assets		239,369		239,369		—			(41,575	)		(41,575	)
Total equity exposure	$	1,057,659	$	1,057,659		(42,150	)		(87,265	)		(129,415	)
Hedging instruments:
Derivatives:
Total return swaps	$	845,392	$	45,558		—			141,263			141,263
S&P Index call options		310,464		1		—			(45	)		(45	)
Total equity hedging instruments	$	1,155,856	$	45,559		—			141,218			141,218
Net equity exposure					$	(42,150	)	$	53,953		$	11,803

As an economic hedge against the potential adverse impact on the Company of changes in price levels in the economy, the Company has purchased inflation-linked derivative contracts referenced to inflation indices in the geographic regions in which the Company operates. As at March 31, 2010, these derivative contracts had a carrying value in the consolidated balance sheet of $9,595 and a cost of $11,400 (carrying value and cost at December 31, 2009 — $0). The initial premium paid for inflation-linked derivative contracts was recorded as a derivative asset and was subsequently adjusted for changes in the unrealized fair value of the contracts at the balance sheet date. Changes in the unrealized fair value of the contracts were recorded as net realized investment gains (losses) in the Company’s consolidated statement of operations at the balance sheet date with a corresponding adjustment to the carrying value of the derivative asset. In the event of a sale, expiration or early settlement of one of the Company’s inflation-linked derivative contracts, the Company would receive the fair value of that contract on the date of the transaction. The Company’s maximum potential cash loss is limited to the premiums paid to enter into the derivative contracts. Pursuant to the agreements governing the inflation-linked derivatives, counterparties to these transactions are contractually required to periodically deposit eligible collateral for the benefit of the Company in support of the then current fair value of the derivative contracts. At March 31, 2010 the fair value of this collateral was $11,513 (December 31, 2009 — $0).

1 Includes earnings from investments at equity.

	As of and for the Nine Months Ended September 30, 2009
					Effect on Pre-tax
							Net Realized
	Exposure/				Other		Investment
	Notional		Carrying		Comprehensive		Gains
	Value		Value		Income		(Losses)1			Net Equity
Equity exposures:
Equity securities	$	1,383,777	$	1,383,777	$	322,728	$	(71,518	)	$	251,210
Investments at equity		159,370		159,370		1,776		44,579			46,355
Other invested assets		355,303		355,303		—		73,902			73,902
Total equity exposure	$	1,898,450	$	1,898,450		324,504		46,963			371,467
Hedging instruments:
Derivatives:
Total return swaps	$	452,319	$	2,611		—		2,611			2,611
Total equity hedging instruments	$	452,319	$	2,611		—		2,611			2,611
Net equity exposure					$	324,504	$	49,574		$	374,078

1 Includes earnings from investments at equity.

	As of and for the Nine Months Ended September 30, 2008
					Effect on Pre-tax
								Net Realized
	Exposure/				Other			Investment
	Notional		Carrying		Comprehensive			Gains
	Value		Value		Income			(Losses)1			Net Equity
Equity exposures:
Equity securities	$	691,577	$	691,577	$	(35,130	)	$	(71,696	)	$	(106,826	)
Investments at equity		126,713		126,713		(28,626	)		(24,924	)		(53,550	)
Other invested assets		239,369		239,369		—			(83,472	)		(83,472	)
Total equity exposure	$	1,057,659	$	1,057,659		(63,756	)		(180,092	)		243,848
Hedging instruments:
Derivatives:
Total return swaps	$	845,392	$	45,558		—			153,060			153,060
S&P Index call options		310,464		1		—			(498	)		(498	)
SPDRs short-sales		—		—		—			65,506			65,506
Common stock short-sales		—		—		—			4,749			4,749
Total equity hedging instruments	$	1,155,856	$	45,559		—			222,817			222,817
Net equity exposure					$	(63,756	)	$	47,275		$	(21,031	)

1 Includes earnings from investments at equity.

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~~ exchange rate risk is the potential for loss in value owing to a decline in the U.S. dollar value of these investments due to a change in the exchange rate of the foreign currency in which ~~these~~ these assets are denominated. At ~~September~~March 3031, ~~2009~~2010, the Company’s total exposure to foreign currency ~~denominated~~ denominated securities in U.S. dollar terms was approximately $~~273~~314,~~360~~978, or 68.61%, of the Company’s total investment portfolio, including cash and cash equivalents and assets pledged for derivatives. The primary foreign currency exposures were in Hong Kong dollar denominated and Canadian dollar denominated securities, which represented 2.35% and 0.9%, respectively, of the Company’s investment portfolio, including cash and cash ~~equivalents~~ ~~and assets pledged for derivatives~~equivalents. 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 $2731,~~336~~498 at ~~September~~March 3031, ~~2009~~2010. At December 31, ~~2008~~2009, a hypothetical 10% decline in foreign currency exchange rates would have resulted in a total decline of $2928,~~499~~315 in the ~~fair~~ fair value of the total investment portfolio.


ITEM 4T.		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.

40 53

~~PART~~ Part II OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS 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. The Company’s subsidiaries are involved in various lawsuits and arbitration proceedings arising in the ordinary course of business. While the outcome of such matters cannot be predicted with certainty, in the opinion of management, no such matter is likely to have a material adverse effect on the Company’s consolidated net income, financial position or liquidity. However, it should be noted that the frequency of large damage awards in some jurisdictions, including punitive damage awards that bear little or no relation to actual economic damages incurred by plaintiffs, continues to create the potential for an unpredictable judgment in any given matter. ITEM 5. OTHER INFORMATION Changes to Board of Directors and Audit Committee Effective October 7, 2009, the following changes took place to the board of directors and audit committee of the Company: Mr. Bradley P. Martin retired as a director of the Company; Mr. Brandon W. Sweitzer was elected to the board of directors of the Company and also elected as a member of its audit committee; and Mr. Douglas M. Libby, President and Chief Executive Officer of the Company and Ms. Mary Jane Robertson, Executive Vice President, Chief Financial Officer and Treasurer of the Company, were elected to the board of directors of the Company. A Form 8-K was neither filed nor required to be filed in connection with these changes. ITEM 6. EXHIBITS See Index to Exhibits. 54


ITEM 1.		LEGAL PROCEEDINGS

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 court heard oral arguments on April 21, 2009 in Philadelphia, Pennsylvania. The court took the matter under submission and has not yet issued a ruling. Crum & Forster Holdings Corp. and US Fire continue to be named as defendants and intend to vigorously defend the action.


ITEM 6.		EXHIBITS

See Index to Exhibits.

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)


	CRUM & FORSTER HOLDINGS CORP. (Registrant)
Date: April 30, 2010	By:	/s/ Douglas M. Libby
		Douglas M. Libby
		President, Chief Executive Officer and Director

Date: April 30, 2010	By:	/s/ Mary Jane Robertson
		Mary Jane Robertson
		Executive Vice President, Chief Financial Officer, Treasurer and Director

~~Date: October 29, 2009 By: /s/ Douglas M. Libby Douglas M. Libby President and Chief Executive Officer~~42

Date: October 29, 2009 By: /s/ Mary Jane Robertson Mary Jane Robertson Executive Vice President, Chief Financial Officer and Treasurer

INDEX TO EXHIBITS

Exhibit No.
	* 31	.1	Certification of President and Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	* 31.1		Certification of President, Chief Executive Officer and Director 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.
	* 31.2		Certification of Executive Vice President, Chief Financial Officer, Treasurer and Director 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.
	* 32.1		Certification of President, Chief Executive Officer and Director 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.
	* 32.2		Certification of Executive Vice President, Chief Financial Officer, Treasurer and Director pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
	99	.1	Risk Factors (incorporated into Part II of this Form 10-Q by reference to the section entitled “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2008 filed with the Securities and Exchange Commission on February 27, 2009).
	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, 2009 filed with the Securities and Exchange Commission on February 26, 2010).


*		Filed herewith

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