Company: FRFXF
Filing Date: 2025-03-26
Form Type: 424B3
Source: 0001104659-25-028272
Chunk: 96

Company: FAIRFAX FINANCIAL HOLDINGS LTD/ CAN
Filing Date: 2025-03-26
Form: 424B3
Chunk 96
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 risk characteristics specific to an insurer’s or reinsurer’s business. The BMA also has established
a target capital level (“TCL”) equal to 120% of the (re)insurer’s ECR. The TCL serves as an early warning tool
for the BMA and failure to maintain statutory capital at least equal to the TCL will likely result in increased regulatory oversight.

Liquidity

The Bermuda Insurance Act
also prescribes a minimum liquidity ratio (“MLR”) for Class 4 (re)insurers. A Class 4 (re)insurer is required
to maintain the value of its relevant assets at not less than 75% of its relevant liabilities. Relevant assets include cash and time
deposits, quoted investments, unquoted bonds and debentures, first liens on real estate, investment income due and accrued, accounts
and premiums receivable, reinsurance balances receivable, funds held by ceding reinsurers and any other assets which the BMA, on application
in any particular case made to it with reasons, accepts in that case.

There are certain categories
of assets which, unless specifically permitted by the BMA, do not automatically qualify as relevant assets, such as unquoted equity securities,
investments in and advances to affiliates and real estate, and collateral loans.

The relevant liabilities
are total general business insurance reserves and total other liabilities less deferred income taxes and letters of credit, guarantees
and other instruments.

Eligible Capital

Our material Bermuda (re)insurer
is required to disclose the makeup of its capital under a “three-tiered capital system”. Under this system, capital instruments
are classified as either “basic” or “ancillary” capital, and are further classified into one of three tiers based
on “loss absorbency” characteristics, as prescribed in the Insurance (Eligible Capital) Rules 2012, as amended (the
“Eligible Capital Rules”). Highest quality capital is classified as Tier 1 Capital; lesser quality capital is classified
as either Tier 2 Capital or Tier 3 Capital. Under this regime, up to certain specified percentages of Tier 1, Tier 2 and Tier 3 Capital
(as specified in the Eligible Capital Rules) may be used to support a Class 4 (re)insurer’s MSM, ECR and TCL.

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Restrictions on Dividends and Distributions

As a Class 4 (re)insurer