##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 Form 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934
 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:June 30, 2007
    
    333-84068
 (CRUM & FORSTER LOGO)
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)
 305 Madison Avenue, Morristown, New Jersey 07962
 Address of principal executive office   (973) 490-6600  (Registrants telephone number, including area code)
 o þ
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer þ
 o þ
  Class
    
    Number of Shares Outstanding at August 2, 2007Common Stock, $.01 Par Value
    
    100




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##### 



CRUM & FORSTER HOLDINGS CORP.
 Form 10-Q
 Index
 PageNumberPART IFINANCIAL INFORMATIONITEM 1.
    
    FINANCIAL STATEMENTSConsolidated Balance Sheets at June 30, 2007 (Unaudited) and December 31, 2006
    
    
    3Consolidated Statements of Income for the Three and Six Months Ended June 30, 2007 and 2006
(Unaudited)
    
    
    4Consolidated Statements of Shareholders Equity for the Six Months Ended June 30, 2007 and 2006
(Unaudited)
    
    
    5Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 30, 2007
and 2006 (Unaudited)
    
    
    6Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2007 and 2006 (Unaudited)
    
    
    7Notes to the Consolidated Financial Statements
    
    
    8ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
    
    
    18ITEM 3.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    29ITEM 4.
    
    CONTROLS AND PROCEDURES
    
    
    30PART IIOTHER INFORMATIONITEM 1.
    
    LEGAL PROCEEDINGS
    
    
    31ITEM 6.
    
    EXHIBITS
    
    
    31SIGNATURES
    
    
    32INDEX TO EXHIBITSEX-10.42EX-10.43EX-31.1EX-31.2EX-32.1EX-32.2
  2




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##### Table of Contents



PART I
FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 CRUM & FORSTER HOLDINGS CORP.
 
 CONSOLIDATED BALANCE SHEETS
 (Dollars in thousands, except per share amounts)
 June 30,
    
    
    December 31,2007
    
    
    2006(Unaudited)ASSETSInvestments:Fixed income securities, at fair value (amortized cost of $1,903,384 and $2,087,065 in 2007
and 2006, respectively)
    
    $
    1,725,724
    
    
    $
    1,984,242Equity securities, at fair value (cost of $668,819 and $640,880 in 2007 and 2006, respectively)
    
    
    715,678
    
    
    
    667,718Other invested assets
    
    
    394,734
    
    
    
    357,849Hybrid financial instruments, at fair value
    
    
    140,069
    
    
    
    Short-term investments at cost, which approximates fair value
    
    
    37,220
    
    
    
    14,130Total investments
    
    
    3,013,425
    
    
    
    3,023,939Cash and cash equivalents
    
    
    311,624
    
    
    
    366,743Assets pledged for short-sale obligations
    
    
    595,636
    
    
    
    535,594Accrued investment income
    
    
    35,576
    
    
    
    34,581Premiums receivable
    
    
    249,708
    
    
    
    249,913Reinsurance recoverable
    
    
    1,407,409
    
    
    
    1,479,331Reinsurance recoverable from affiliates
    
    
    253,769
    
    
    
    254,595Prepaid reinsurance premiums
    
    
    22,910
    
    
    
    25,430Deferred income taxes
    
    
    318,862
    
    
    
    285,902Deferred policy acquisition costs
    
    
    84,720
    
    
    
    83,964Other assets
    
    
    84,671
    
    
    
    103,562Total assets
    
    $
    6,378,310
    
    
    $
    6,443,554LIABILITIESUnpaid losses and loss adjustment expenses
    
    $
    3,317,465
    
    
    $
    3,371,549Unearned premiums
    
    
    566,888
    
    
    
    576,182Funds held under reinsurance contracts
    
    
    246,101
    
    
    
    243,316Accounts payable and other liabilities
    
    
    278,225
    
    
    
    298,101Deferred income on retroactive insurance
    
    
    161,244
    
    
    
    168,018Short-sale obligations
    
    
    447,061
    
    
    
    400,163Long-term debt
    
    
    312,564
    
    
    
    293,170Total liabilities
    
    
    5,329,548
    
    
    
    5,350,499Commitments and contingencies (Note 8)SHAREHOLDERS EQUITYCommon stock, $0.01 par value; 1,000 shares authorized; 100 issued and outstanding
    
    
    
    
    
    
    Additional paid-in capital
    
    
    740,993
    
    
    
    740,993Accumulated other comprehensive loss, net of tax
    
    
    (61,294
    )
    
    
    (36,978
    )Retained earnings
    
    
    369,063
    
    
    
    389,040Total shareholders equity
    
    
    1,048,762
    
    
    
    1,093,055Total liabilities and shareholders equity
    
    $
    6,378,310
    
    
    $
    6,443,554
 The accompanying notes are an integral part of the consolidated financial statements.
 3




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##### Table of Contents



CRUM & FORSTER HOLDINGS CORP.
 
 CONSOLIDATED STATEMENTS OF INCOME
 (Dollars in thousands)
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(Unaudited)REVENUESPremiums earned
    
    $
    306,821
    
    
    $
    264,828
    
    
    $
    600,528
    
    
    $
    511,547Investment income
    
    
    39,517
    
    
    
    92,821
    
    
    
    74,930
    
    
    
    149,279Realized investment gains and losses
    
    
    (11,067
    )
    
    
    9,716
    
    
    
    3,407
    
    
    
    131,538Total revenues
    
    
    335,271
    
    
    
    367,365
    
    
    
    678,865
    
    
    
    792,364EXPENSESLosses and loss adjustment expenses
    
    
    201,690
    
    
    
    181,681
    
    
    
    395,150
    
    
    
    350,693Policy acquisition costs
    
    
    42,705
    
    
    
    37,546
    
    
    
    85,682
    
    
    
    68,779Other underwriting expenses
    
    
    39,723
    
    
    
    41,597
    
    
    
    81,500
    
    
    
    80,622Interest expense
    
    
    7,604
    
    
    
    8,243
    
    
    
    15,864
    
    
    
    16,484Costs related to early retirement of debt
    
    
    21,188
    
    
    
    
    
    
    
    21,188
    
    
    
    Other expense (income), net
    
    
    586
    
    
    
    1,580
    
    
    
    (189
    )
    
    
    4,244Total expenses
    
    
    313,496
    
    
    
    270,647
    
    
    
    599,195
    
    
    
    520,822Income before income taxes and equity in earnings of investees
    
    
    21,775
    
    
    
    96,718
    
    
    
    79,670
    
    
    
    271,542Income tax expense
    
    
    6,800
    
    
    
    33,145
    
    
    
    26,207
    
    
    
    93,465Income before equity in earnings of investees
    
    
    14,975
    
    
    
    63,573
    
    
    
    53,463
    
    
    
    178,077Equity in earnings of investees, net of tax
    
    
    3,730
    
    
    
    4,210
    
    
    
    8,095
    
    
    
    6,069NET INCOME
    
    $
    18,705
    
    
    $
    67,783
    
    
    $
    61,558
    
    
    $
    184,146
 The accompanying notes are an integral part of the consolidated financial statements.
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CRUM & FORSTER HOLDINGS CORP.
 
 CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
 (Dollars in thousands)
 Six Months EndedJune 30,2007
    
    
    2006(Unaudited)COMMON STOCKBalance, beginning and end of period
    
    $
    
    
    
    $
    ADDITIONAL PAID-IN CAPITALBalance, beginning and end of period
    
    
    740,993
    
    
    
    740,993ACCUMULATED OTHER COMPREHENSIVE LOSS, NET OF TAXBalance, beginning of period
    
    
    (36,978
    )
    
    
    53,443Cumulative effect of adoption of Statement of Financial Accounting Standards No. 155
    
    
    (10,146
    )
    
    
    Unrealized investment losses, net of transfers to realized investment gains and losses
    
    
    (24,113
    )
    
    
    (157,398
    )Foreign currency translation
    
    
    9,943
    
    
    
    5,070Balance, end of period
    
    
    (61,294
    )
    
    
    (98,885
    )RETAINED EARNINGSBalance, beginning of period
    
    
    389,040
    
    
    
    166,757Cumulative effect of adoption of Statement of Financial Accounting Standards No. 155
and equity method investee adoption of FASB Interpretation No. 48
    
    
    9,465
    
    
    
    Net income
    
    
    61,558
    
    
    
    184,146Dividends to shareholder
    
    
    (91,000
    )
    
    
    (90,000
    )Balance, end of period
    
    
    369,063
    
    
    
    260,903TOTAL SHAREHOLDERS EQUITY
    
    $
    1,048,762
    
    
    $
    903,011
 The accompanying notes are an integral part of the consolidated financial statements.
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CRUM & FORSTER HOLDINGS CORP.
 
 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
 (Dollars in thousands)
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(Unaudited)NET INCOME
    
    $
    18,705
    
    
    $
    67,783
    
    
    $
    61,558
    
    
    $
    184,146Change in components of other comprehensive loss for the
period, before tax:Unrealized investment losses, net of transfers to
realized investment gains and losses
    
    
    (28,576
    )
    
    
    (105,572
    )
    
    
    (37,097
    )
    
    
    (242,150
    )Foreign currency translation
    
    
    13,791
    
    
    
    7,397
    
    
    
    15,297
    
    
    
    7,800Other comprehensive loss for the period, before tax
    
    
    (14,785
    )
    
    
    (98,175
    )
    
    
    (21,800
    )
    
    
    (234,350
    )Deferred income tax benefit (expense) for the period:Deferred income tax benefit from unrealized investment
gains and losses
    
    
    10,002
    
    
    
    36,949
    
    
    
    12,984
    
    
    
    84,752Deferred income tax expense from foreign currency
translation
    
    
    (4,827
    )
    
    
    (2,589
    )
    
    
    (5,354
    )
    
    
    (2,730
    )Total deferred income tax benefit for the period
    
    
    5,175
    
    
    
    34,360
    
    
    
    7,630
    
    
    
    82,022Other comprehensive loss for the period, net of tax
    
    
    (9,610
    )
    
    
    (63,815
    )
    
    
    (14,170
    )
    
    
    (152,328
    )COMPREHENSIVE INCOME
    
    $
    9,095
    
    
    $
    3,968
    
    
    $
    47,388
    
    
    $
    31,818
 The accompanying notes are an integral part of the consolidated financial statements.
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CRUM & FORSTER HOLDINGS CORP.
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Dollars in thousands)
 Six Months EndedJune 30,2007
    
    
    2006(Unaudited)OPERATING ACTIVITIESNet income
    
    $
    61,558
    
    
    $
    184,146Adjustments to reconcile net income to net cash from operating activities:Net accretion of discount on fixed income securities
    
    
    (4,540
    )
    
    
    (5,177
    )Realized investment gains
    
    
    (3,407
    )
    
    
    (131,538
    )Earnings of equity method investees, net of dividends
    
    
    (9,860
    )
    
    
    (6,789
    )Undistributed income of investment funds
    
    
    (8,786
    )
    
    
    (88,611
    )Depreciation and amortization
    
    
    1,577
    
    
    
    1,637Deferred income tax benefit
    
    
    (24,963
    )
    
    
    (14,057
    )Costs related to early retirement of debt
    
    
    9,216
    
    
    
    Other non-cash net income adjustments
    
    
    5,564
    
    
    
    12,877Changes in:Accrued investment income
    
    
    (995
    )
    
    
    (2,974
    )Premiums receivable
    
    
    205
    
    
    
    (15,107
    )Reinsurance recoverable
    
    
    63,195
    
    
    
    121,421Prepaid reinsurance premiums
    
    
    2,520
    
    
    
    1,452Deferred policy acquisition costs
    
    
    (756
    )
    
    
    (13,002
    )Other assets
    
    
    (821
    )
    
    
    7,338Unpaid losses and loss adjustment expenses
    
    
    (54,084
    )
    
    
    (110,697
    )Unearned premiums
    
    
    (9,294
    )
    
    
    81,353Accounts payable and other liabilities
    
    
    (13,564
    )
    
    
    (20,795
    )Net cash from operating activities
    
    
    12,765
    
    
    
    1,477INVESTING ACTIVITIESPurchases of fixed income securities
    
    
    (149,214
    )
    
    
    (134,214
    )Proceeds from sales of fixed income securities
    
    
    209,152
    
    
    
    308,240Proceeds from maturities of fixed income securities
    
    
    2,025
    
    
    
    58,945Purchases of equity securities
    
    
    (135,590
    )
    
    
    (187,392
    )Proceeds from sales of equity securities
    
    
    114,062
    
    
    
    228,581Purchases of other invested assets
    
    
    (24,040
    )
    
    
    (5,975
    )Proceeds from sales of other invested assets
    
    
    39,391
    
    
    
    140,179Proceeds from sales of hybrid financial instruments
    
    
    2,259
    
    
    
    Purchases of short term investments
    
    
    (74,758
    )
    
    
    Proceeds from sales of short term investments
    
    
    51,668
    
    
    
    Proceeds from short-sale obligations
    
    
    25,011
    
    
    
    24,931Cash pledged for short-sale obligations
    
    
    (47,289
    )
    
    
    (62,978
    )Purchases of fixed assets
    
    
    (408
    )
    
    
    (324
    )Net cash from investing activities
    
    
    12,269
    
    
    
    369,993FINANCING ACTIVITIESDividends to shareholder
    
    
    (91,000
    )
    
    
    (90,000
    )Issuance of 7 3/4% long-term debt
    
    
    330,000
    
    
    
    Repayment of 10 3/8% long-term debt
    
    
    (295,730
    )
    
    
    New debt issuance costs
    
    
    (23,423
    )
    
    
    Net cash from financing activities
    
    
    (80,153
    )
    
    
    (90,000
    )Net change in cash and cash equivalents
    
    
    (55,119
    )
    
    
    281,470Cash and cash equivalents, beginning of period
    
    
    366,743
    
    
    
    245,441Cash and cash equivalents, end of period
    
    $
    311,624
    
    
    $
    526,911SUPPLEMENTAL CASH FLOW INFORMATIONCash paid for interest
    
    $
    12,324
    
    
    $
    15,563Cash paid to parent for income taxes
    
    $
    43,261
    
    
    $
    69,746
 The accompanying notes are an integral part of the consolidated financial statements
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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, dollars in thousands)
 1.
    
    Organization and Basis of PresentationCrum & Forster Holdings Corp. (the Company or Crum & Forster) is a Delaware holding
company, which is 100% owned by Fairfax Inc., a Wyoming holding company. Fairfax Inc. is
ultimately owned by Fairfax Financial Holdings Limited (Fairfax), a Canadian financial
services holding company, which is publicly traded on the Toronto Stock Exchange and the New
York Stock Exchange under the symbol FFH. The Company, through its subsidiaries, offers a
full range of commercial property and casualty insurance distributed through an independent
producer force located across the United States.These consolidated financial statements have been prepared in conformity with accounting
principles generally accepted in the United States of America (GAAP) and include the
accounts of the Company, Crum & Forster Holding Inc. and their wholly-owned subsidiaries,
including United States Fire Insurance Company (US Fire), The North River Insurance Company
(North River), Crum & Forster Indemnity Company and Crum and Forster Insurance Company. US
Fire owns 100% of the stock of Crum & Forster Specialty Insurance Company. North River owns
100% of the stock of Seneca Insurance Company, Inc. and its subsidiaries. All material
intercompany accounts and transactions have been eliminated in consolidation.Effective January 1, 2006, Fairfax announced that certain of the business of the insurance
companies of Fairmont Specialty Group, affiliates of Fairfax, would be conducted as Fairmont
Specialty, a division of Crum & Forster (Fairmont), thereby giving Fairmont access to the
A- A.M. Best rating of Crum & Forster. The Fairmont business is comprised of standard
commercial and personal lines, bail bonds and accident and health coverages. In return for
the opportunity to quote Fairmont Specialty Groups renewals effective January 1, 2006 and
thereafter, the Company hired substantially all Fairmont Specialty Group employees and
assumed certain operating obligations. Pending regulatory approval of Crum & Forster company
rate and form filings for the Fairmont business, substantially all of the policies
underwritten by Fairmont through September 2006 were being issued by the insurance companies
of Fairmont Specialty Group and assumed by the Company through a 100% quota share reinsurance
agreement.The preparation of consolidated financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the reported amounts of assets,
liabilities, revenues and expenses and disclosure of contingent assets and liabilities. Such
estimates and assumptions may differ from actual results. Certain financial information that
is normally included in annual financial statements, including certain financial statement
footnotes, prepared in accordance with GAAP, is not required for interim reporting purposes
and has been condensed or omitted herein. These consolidated financial statements should be
read in conjunction with the Companys consolidated financial statements and notes related
thereto, included in the Companys Annual Report on Form 10-K for the year ended December 31,
2006, filed with the Securities and Exchange Commission (SEC) on March 9, 2007.The interim financial data at June 30, 2007 and for the three and six months ended June 30,
2007 and 2006 is unaudited. However, in the opinion of management, the interim data includes
all adjustments that are necessary for a fair presentation of the Companys results for the
interim periods. The results of operations for the interim periods are not necessarily
indicative of the results to be expected for the full year. Certain amounts in the Companys
prior year consolidated financial statements have been reclassified to conform to the 2007
presentation.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, dollars in thousands)
 2.
    
    Recent Accounting PronouncementsIn February 2007, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards (SFAS) No. 159, The Fair Value Option for Financial Assets
and Financial Liabilities  Including an Amendment of FASB Statement No. 115(SFAS 159),
which provides a fair value option to measure many financial instruments and certain other
assets and liabilities at fair value on an instrument-by-instrument basis. SFAS 159 is
effective for fiscal years beginning after November 15, 2007. The Company is currently
evaluating the impact of adoption of SFAS 159 on its results of operations and financial
position.In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements(SFAS 157). SFAS
157 defines fair value, establishes a framework for measuring fair value in accordance with
generally accepted accounting principles and expands disclosures about fair value
measurements. SFAS 157 is effective for fiscal years beginning after November 15, 2007. The
Company is currently evaluating the effects of SFAS 157 but does not expect its adoption to
have a material impact on its results of operations or financial position.In June 2006, the FASB issued FASB Interpretation 48, Accounting for Uncertainty in Income
Taxes  an interpretation of FASB Statement No. 109(FIN 48). The interpretation clarifies
the accounting for uncertainty in income taxes recognized in a companys financial statements
in accordance with SFAS 109, Accounting for Income Taxes. Specifically, the pronouncement
prescribes a recognition threshold and a measurement attribute for the financial statement
recognition and measurement of a tax position taken or expected to be taken in a tax return.
The interpretation also provides guidance on the related derecognition, classification,
interest and penalties, accounting for interim periods, disclosure and transition of
uncertain tax positions. The interpretation is effective for fiscal years beginning after
December 15, 2006. The Company adopted FIN 48 on January 1, 2007 and although its adoption
did not have a direct impact on the Companys results of operations or financial position,
adoption of FIN 48 by one of the Companys equity method investees resulted in the Company
recording a cumulative adjustment of $681, net of tax, to opening retained earnings.In February 2006, the FASB issued SFAS No. 155, Accounting for Certain Hybrid Financial
Instruments   an amendment of FASB Statements Nos. 133 and 140(SFAS 155). SFAS 155
applies to certain hybrid financial instruments which are instruments that contain embedded
derivatives. The standard establishes a requirement to evaluate beneficial interests in
securitized financial assets to determine if the interests represent freestanding derivatives
or are hybrid financial instruments requiring bifurcation. SFAS 155 also permits an election
for fair value measurement of any hybrid financial instrument that otherwise would require
bifurcation under SFAS 133. Changes in fair value are recorded as realized investment gains
or losses. The fair value election can be applied to existing instruments on an
instrument-by-instrument basis at the date of adoption and to new instruments on a
prospective basis. The statement is applicable in fiscal years beginning after September 15,
2006. The Company elected fair value measurement of its hybrid financial instruments, which
are comprised of convertible bonds, effective with its adoption of SFAS 155 on January 1,
2007. Prior to January 1, 2007, the Company bifurcated its hybrid financial instruments and
changes in the fair value of the host instrument were recorded as unrealized investment gains
and losses while changes in the fair value of the embedded derivative were recorded as
realized investment gains and losses. At December 31, 2006, the fair value of the host
instruments included in fixed income securities was $136,222 and the fair value of embedded
derivatives included in other invested assets was $7,372. Upon adoption of SFAS 155, the
Company recorded a cumulative adjustment of $10,146, inclusive of an adjustment of $301 in
respect of adoption of SFAS 155 by one of the Companys equity method investees, net of tax,
to reclassify unrealized investment gains associated with the host instruments to opening
retained earnings. At June 30, 2007, the fair value of the Companys hybrid financial
instruments was $140,069.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, dollars in thousands)
 3.
    
    Unpaid Losses and Loss Adjustment ExpensesChanges in the Companys liability for unpaid losses and loss adjustment expenses (LAE) are
summarized as follows:
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Gross unpaid losses and LAE, beginning of
period
    
    $
    3,364,042
    
    
    $
    3,640,968
    
    
    $
    3,371,549
    
    
    $
    3,673,034Less ceded unpaid losses and LAE
    
    
    1,335,078
    
    
    
    1,646,972
    
    
    
    1,355,253
    
    
    
    1,682,768Net unpaid losses and LAE, beginning of
period
    
    
    2,028,964
    
    
    
    1,993,996
    
    
    
    2,016,296
    
    
    
    1,990,266Losses and LAE incurred related to:Current period
    
    
    216,002
    
    
    
    183,990
    
    
    
    421,949
    
    
    
    355,435Prior years
    
    
    (14,312
    )
    
    
    (2,309
    )
    
    
    (26,799
    )
    
    
    (4,742
    )Total losses and LAE incurred
    
    
    201,690
    
    
    
    181,681
    
    
    
    395,150
    
    
    
    350,693Losses and LAE paid related to:Current period
    
    
    48,707
    
    
    
    28,378
    
    
    
    64,328
    
    
    
    36,484Prior years
    
    
    152,386
    
    
    
    130,832
    
    
    
    317,557
    
    
    
    288,008Total losses and LAE paid
    
    
    201,093
    
    
    
    159,210
    
    
    
    381,885
    
    
    
    324,492Net unpaid losses and LAE, end of period
    
    
    2,029,561
    
    
    
    2,016,467
    
    
    
    2,029,561
    
    
    
    2,016,467Add ceded unpaid losses and LAE
    
    
    1,287,904
    
    
    
    1,545,870
    
    
    
    1,287,904
    
    
    
    1,545,870Gross unpaid losses and LAE, end of period
    
    $
    3,317,465
    
    
    $
    3,562,337
    
    
    $
    3,317,465
    
    
    $
    3,562,337
  June 30,2007Ceded unpaid losses and LAE in the table above
    
    $
    1,287,904Reconciling items:Reinsurance receivable on paid losses and LAE
    
    
    72,308Unamortized retroactive reinsurance recoverable
    
    
    322,476Loss sensitive cession1
    
    
    (21,510
    )Total reconciling items
    
    
    373,274Reinsurance recoverable on the consolidated balance sheet
    
    $
    1,661,178
 1
 10




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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, dollars in thousands)
 4.
    
    Asbestos and Environmental Losses and Loss Adjustment ExpensesThe 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
    
    
    Six Months EndedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006AsbestosGross unpaid losses and allocated LAE
(ALAE), beginning of period
    
    $
    429,596
    
    
    $
    461,078
    
    
    $
    443,055
    
    
    $
    469,199Less ceded unpaid losses and ALAE
    
    
    88,565
    
    
    
    93,895
    
    
    
    94,817
    
    
    
    92,418Net unpaid losses and ALAE, beginning of period
    
    
    341,031
    
    
    
    367,183
    
    
    
    348,238
    
    
    
    376,781Net losses and ALAE incurred
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net paid losses and ALAE
    
    
    12,077
    
    
    
    10,396
    
    
    
    19,284
    
    
    
    19,994Net unpaid losses and ALAE, end of period
    
    
    328,954
    
    
    
    356,787
    
    
    
    328,954
    
    
    
    356,787Add ceded unpaid losses and ALAE
    
    
    92,426
    
    
    
    84,965
    
    
    
    92,426
    
    
    
    84,965Gross unpaid losses and ALAE, end of period
    
    $
    421,380
    
    
    $
    441,752
    
    
    $
    421,380
    
    
    $
    441,752
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006EnvironmentalGross unpaid losses ALAE, beginning of period
    
    $
    106,073
    
    
    $
    107,809
    
    
    $
    110,636
    
    
    $
    111,536Less ceded unpaid losses and ALAE
    
    
    33,476
    
    
    
    35,334
    
    
    
    37,103
    
    
    
    37,293Net unpaid losses and ALAE, beginning of period
    
    
    72,597
    
    
    
    72,475
    
    
    
    73,533
    
    
    
    74,243Net losses and ALAE incurred
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net paid losses and ALAE
    
    
    8,034
    
    
    
    2,223
    
    
    
    8,970
    
    
    
    3,991Net unpaid losses and ALAE, end of period
    
    
    64,563
    
    
    
    70,252
    
    
    
    64,563
    
    
    
    70,252Add ceded unpaid losses and ALAE
    
    
    32,250
    
    
    
    35,491
    
    
    
    32,250
    
    
    
    35,491Gross unpaid losses and ALAE, end of period
    
    $
    96,813
    
    
    $
    105,743
    
    
    $
    96,813
    
    
    $
    105,743
  11




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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, dollars in thousands)
 5.
    
    ReinsuranceThe components of the Companys net premiums written and premiums earned are summarized as
follows:
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Premiums written:Direct
    
    $
    335,239
    
    
    $
    296,448
    
    
    $
    651,039
    
    
    $
    606,816Assumed from other companies,
pools or associations
    
    
    10,356
    
    
    
    44,951
    
    
    
    21,487
    
    
    
    81,784Ceded to other companies, pools or
associations
    
    
    (34,288
    )
    
    
    (42,391
    )
    
    
    (78,772
    )
    
    
    (94,248
    )Net premiums written
    
    $
    311,307
    
    
    $
    299,008
    
    
    $
    593,754
    
    
    $
    594,352Premiums earned:Direct
    
    $
    320,356
    
    
    $
    280,531
    
    
    $
    629,801
    
    
    $
    563,214Assumed from other companies,
pools or associations
    
    
    21,689
    
    
    
    29,066
    
    
    
    52,019
    
    
    
    44,033Ceded to other companies, pools or
associations
    
    
    (35,224
    )
    
    
    (44,769
    )
    
    
    (81,292
    )
    
    
    (95,700
    )Premiums earned
    
    $
    306,821
    
    
    $
    264,828
    
    
    $
    600,528
    
    
    $
    511,547
  June 30,
    
    
    December 31,2007
    
    
    2006Reinsurance recoverable on unpaid losses and LAE
    
    $
    1,588,870
    
    
    $
    1,662,993Reinsurance receivable on paid losses and LAE
    
    
    72,308
    
    
    
    70,933Total reinsurance recoverable
    
    $
    1,661,178
    
    
    $
    1,733,926
  Corporate Aggregate Reinsurance
   12




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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, dollars in thousands)
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Investment income
    
    $
    (4,186
    )
    
    $
    (4,834
    )
    
    $
    (8,338
    )
    
    $
    (9,652
    )Losses and LAE
    
    
    (3,387
    )
    
    
    (3,435
    )
    
    
    (6,774
    )
    
    
    (6,814
    )Decrease in income before income taxes
    
    $
    (799
    )
    
    $
    (1,399
    )
    
    $
    (1,564
    )
    
    $
    (2,838
    )
  Prospective Corporate Aggregate Reinsurance
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Ceded losses and LAE
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Less: funds held interest charged to investment income
    
    
    606
    
    
    
    767
    
    
    
    1,237
    
    
    
    1,676Decrease in income before income taxes
    
    $
    (606
    )
    
    $
    (767
    )
    
    $
    (1,237
    )
    
    $
    (1,676
    )
  Retroactive Corporate Aggregate Reinsurance
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Increase in reinsurance recoverable due from
insurers
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Less: related premiums paid
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Income deferred during the period
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Amortization of deferred income
    
    
    (3,387
    )
    
    
    (3,435
    )
    
    
    (6,774
    )
    
    
    (6,814
    )Change in deferred income
    
    
    (3,387
    )
    
    
    (3,435
    )
    
    
    (6,774
    )
    
    
    (6,814
    )Deferred income on retroactive
reinsurancebeginning of period
    
    $
    164,631
    
    
    $
    181,119
    
    
    $
    168,018
    
    
    $
    184,498Deferred income on retroactive
reinsuranceend of period
    
    $
    161,244
    
    
    $
    177,684
    
    
    $
    161,244
    
    
    $
    177,684Funds held interest charged during the period
    
    $
    3,580
    
    
    $
    4,067
    
    
    $
    7,101
    
    
    $
    7,976
  13




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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, dollars in thousands)
 6.
    
    Investments and Short-Sale ObligationsDerivative Transactions and Short-Sale ObligationsIn the six months ended June 30, 2007, the Company purchased $10,012 of credit default swaps
on securities issued by various U.S. companies in the banking, mortgage and insurance
industries, bringing the total cost of credit default swaps held at June 30, 2007 to $87,633
($77,621 at December 31, 2006). The fair value of the credit default swaps was $38,523 and
$16,702, at June 30, 2007 and December 31, 2006, respectively, and is included in other
invested assets on the consolidated balance sheets. The notional
value of the credit default swaps was $5.1 billion and
$4.2 billion, at June 30, 2007 and December 31, 2006,
respectively, with an average term to expiration of 4.2 years as of
June 30, 2007. These credit default swaps serve as
economic hedges against declines in the fair value of various financial assets owned by the
Company arising from potential financial difficulties associated with any or all of these
issuers or the industries in which they operate.In June 2007, as an economic hedge against a rising interest rate environment, the Company
sold short securities of certain U.S. financial guarantee insurance companies totaling
$25,012. The Company also holds short positions of securities of certain U.S. mortgage
insurance companies as an economic hedge against rising interest rates and deteriorating
conditions in the residential housing market. The obligation to purchase these securities is
included, at fair value, in short-sale obligations on the consolidated balance sheet and
amounted to $48,766 and $24,605, at June 30, 2007 and December 31, 2006, respectively.As protection against a decline in equity markets, the Company holds short positions in
Standard & Poors Depositary Receipts (SPDRs) totaling approximately $300,000. The Company
has purchased S&P Index call options (the Options) limiting the potential loss on the
future purchase of the SPDRs to approximately $87,000 at June 30, 2007. The Options held at
December 31, 2006 expired at a market value of $8,831 during the first quarter of 2007 and
replacement options costing $11,756 were purchased. Both the obligations to purchase the
SPDRs and the Options are carried at fair value on the consolidated financial statements.
The fair value of the obligation to purchase the SPDRs is included in short-sale obligations
and the fair value of the Options is included in other invested assets on the consolidated
balance sheets. The fair values of the SPDRs obligation and the Options at June 30, 2007
amounted to a liability of $398,295 ($375,558 at December 31, 2006) and an asset of $15,009
($9,925 at December 31, 2006), respectively.In connection with the short-sale transactions described above, the Company has pledged cash
and U.S. Treasury securities as collateral for the obligation to purchase the securities sold
short. These assets are recorded at fair value in assets pledged for short-sale obligations
on the consolidated balance sheets. At June 30, 2007, the fair value of the assets pledged
for the short-sale obligations totaled $595,636 ($535,594 at December 31, 2006).The Company also has investments in warrants, which are contracts that grant the holder the
right to purchase an underlying financial instrument at a given price and time. The fair
value of the warrants at June 30, 2007 was $5,850 ($9,645 at December 31, 2006).Changes in the fair value for the transactions described above and the Companys hybrid
financial instruments have been included in realized investment gains and losses in the
consolidated statements of income as follows:
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Credit default swaps
    
    $
    1,140
    
    
    $
    2,171
    
    
    $
    11,809
    
    
    $
    (4,688
    )Short-sale transactions and related options
    
    
    (14,308
    )
    
    
    2,207
    
    
    
    (19,727
    )
    
    
    (13,149
    )Hybrid financial instruments
    
    
    (7,529
    )
    
    
    (4,842
    )
    
    
    (11,017
    )
    
    
    (4,842
    )Warrants, swaps and other derivatives
    
    
    (2,558
    )
    
    
    (67
    )
    
    
    (3,795
    )
    
    
    (409
    )Realized investment losses
    
    $
    (23,255
    )
    
    $
    (531
    )
    
    $
    (22,730
    )
    
    $
    (23,088
    )
 
 Other Investment Transactions
  14




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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, dollars in thousands)
 Equity Method Investee
  Three Months EndedJune 30, 2007Total revenues
    
    $
    42,966Total expenses
    
    $
    34,373Income from continuing operations
    
    $
    8,593Net income
    
    $
    5,655
 7.
    
    Long-Term DebtLong-term debt, net of unamortized discount, is comprised as follows:
 June 30,
    
    
    December 31,2007
    
    
    20067-3/4% Senior Notes due 2017
    
    $
    308,386
    
    
    $
    10-3/8% Senior Notes due 2013
    
    
    4,178
    
    
    
    293,170Total
    
    $
    312,564
    
    
    $
    293,170
    15




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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, dollars in thousands)
 8.
    
    Commitments and ContingenciesOn September 7, 2005, Fairfax announced that it had received a subpoena from the SEC
requesting documents regarding any
non-traditional insurance or reinsurance transactions entered into or offered by Fairfax and
the entities in its consolidated group, which includes the Company. The U.S. Attorneys
Office for the Southern District of New York is reviewing documents provided to the SEC in
response to the subpoena and is participating in the investigation of these matters. Fairfax
and entities in its consolidated group are cooperating fully with these requests. Fairfax
and certain of the entities in its consolidated group, including the Company, have prepared
presentations and provided documents to the SEC and the U.S. Attorneys Office, and employees
of Fairfax and certain of the entities in its consolidated group, including senior officers,
have attended or have been requested to attend interviews conducted by the SEC and the U.S.
Attorneys Office. The Company is cooperating fully in addressing its obligations under this
subpoena. This inquiry is ongoing and the Company continues to comply with requests from the
SEC and the U.S. Attorneys office. At the present time, the Company cannot predict the
outcome of these matters, or the ultimate effect on the Companys consolidated financial
statements, which effect could be material and adverse. No assurance can be made that the
Company will not be subject to further requests or other regulatory proceedings of a similar
kind.The Company and US Fire, among numerous other insurance company and insurance broker
defendants, have been named as defendants in a class action suit filed by policyholders
alleging, among other things, that the defendants used the contingent commission structure to
deprive policyholders of free competition in the market for insurance. The action is pending
in the U.S. District Court for the District of New Jersey. Plaintiffs seek certification of
a nationwide class consisting of all persons who between August 26, 1994 and the date of the
class certification engaged the services of any one of the broker defendants and who entered
into or renewed a contract of insurance with one of the insurer defendants. In October 2006,
the court partially granted defendants motion to dismiss the plaintiffs complaint, subject
to plaintiffs filing an amended statement of their case. Plaintiffs thereafter filed their
supplemental statement of particularity and amended case statement. In response,
defendants filed a renewed motion to dismiss. In April 2007, the plaintiffs RICO and
antitrust claims were again dismissed without prejudice. Plaintiffs filed their amended
petition on May 22, 2007. The Crum & Forster entities continue to be named as defendants.
Defendants filed their renewed motions to dismiss on June 21, 2007. Plaintiffs filed
responses to the motions by July 19, 2007 and defendants filed replies by July 31, 2007. The
Court issued a statement on July 20, 2007 indicating oral arguments likely will not be
conducted. Crum & Forster Holdings Corp. and US Fire 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.
 16




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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, dollars in thousands)
 9.
    
    Segment ReportingThe Company operates in the commercial property and casualty insurance business. Premiums
earned for the Companys lines of business are summarized as follows:
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006General liability
    
    $
    59,876
    
    
    $
    59,248
    
    
    $
    121,626
    
    
    $
    112,277Workers compensation
    
    
    69,299
    
    
    
    65,071
    
    
    
    133,142
    
    
    
    139,871Commercial automobile
    
    
    53,234
    
    
    
    49,908
    
    
    
    107,079
    
    
    
    99,770Property
    
    
    72,391
    
    
    
    62,072
    
    
    
    142,430
    
    
    
    110,857Commercial multi-peril
    
    
    19,373
    
    
    
    13,992
    
    
    
    36,043
    
    
    
    26,332Other
    
    
    32,648
    
    
    
    14,537
    
    
    
    60,208
    
    
    
    22,440Total premiums earned
    
    $
    306,821
    
    
    $
    264,828
    
    
    $
    600,528
    
    
    $
    511,547
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Amount
    
    
    Ratio
    
    
    Amount
    
    
    Ratio
    
    
    Amount
    
    
    Ratio
    
    
    Amount
    
    
    RatioAccident year loss
and LAE ratios:General liability
    
    $
    39,358
    
    
    
    65.7
    %
    
    $
    41,457
    
    
    
    70.0
    %
    
    $
    83,425
    
    
    
    68.6
    %
    
    $
    79,053
    
    
    
    70.4
    %Workers compensation
    
    
    49,376
    
    
    
    71.3
    %
    
    
    48,457
    
    
    
    74.5
    %
    
    
    103,322
    
    
    
    77.6
    %
    
    
    108,588
    
    
    
    77.6
    %Commercial automobile
    
    
    35,056
    
    
    
    65.9
    %
    
    
    32,433
    
    
    
    65.0
    %
    
    
    70,391
    
    
    
    65.7
    %
    
    
    62,961
    
    
    
    63.1
    %Property
    
    
    57,681
    
    
    
    79.7
    %
    
    
    43,372
    
    
    
    69.9
    %
    
    
    104,879
    
    
    
    73.6
    %
    
    
    74,209
    
    
    
    66.9
    %Commercial multi-peril
    
    
    12,901
    
    
    
    66.6
    %
    
    
    8,139
    
    
    
    58.2
    %
    
    
    22,763
    
    
    
    63.2
    %
    
    
    15,620
    
    
    
    59.3
    %Other
    
    
    21,630
    
    
    
    66.3
    %
    
    
    10,132
    
    
    
    69.7
    %
    
    
    37,169
    
    
    
    61.7
    %
    
    
    15,004
    
    
    
    66.9
    %Total accident
year losses and
LAE
    
    
    216,002
    
    
    
    70.4
    %
    
    
    183,990
    
    
    
    69.5
    %
    
    
    421,949
    
    
    
    70.3
    %
    
    
    355,435
    
    
    
    69.5
    %Prior years loss
development
    
    
    (14,312
    )
    
    
    (4.7
    )%
    
    
    (2,309
    )
    
    
    (0.9
    )%
    
    
    (26,799
    )
    
    
    (4.5
    )%
    
    
    (4,742
    )
    
    
    (0.9
    )%Calendar year losses
and LAE
    
    $
    201,690
    
    
    
    65.7
    %
    
    $
    181,681
    
    
    
    68.6
    %
    
    $
    395,150
    
    
    
    65.8
    %
    
    $
    350,693
    
    
    
    68.6
    %
  10.
    
    Accounting Adjustments in Respect of Certain InvestmentsDuring the second quarter of 2006, the Company identified certain adjustments associated with
its accounting for investments. The adjustments relate principally to three areas: (1)
equity method accounting  the Company did not properly reflect adjustments to realized
investment gains and losses reported by equity method investees arising from basis
differences associated with initial purchases or changes in ownership percentages. These
adjustments relate principally to the Companys investments in
Northbridge and HWIC Asia Fund (HWIC); (2)
partnership accounting  several of the Companys partnership interests were recorded on the
equity method of accounting pursuant to Statement of Position 78-9, Accounting for
Investments in Real Estate Ventures, even though the Company did not have the ability to
exercise significant influence over the investees. In such circumstances, the Company should
have retained the investment company accounting of the investees; and (3) embedded
derivatives mark-to-market  the Company did not properly reflect the mark to market through
earnings of derivative features embedded in convertible bonds pursuant to SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities. Several of the Companys
equity investees also held the same or similar securities with embedded derivatives. The
Company determined that the investees also did not properly bifurcate their investments,
which required adjustments to the Companys financial statements.Management evaluated the financial impact of the aforementioned accounting adjustments and
concluded that the effect both individually and in the aggregate was not material to the
second quarter of 2006 or any prior period. Accordingly, prior period financial statements
were not restated. Instead, the Company recorded a cumulative charge to net income in the
three months ended June 30, 2006 of $5,678 pre-tax ($3,691 after- tax) for these adjustments.
Of the $5,678 pre-tax charge, $4,255 was recorded as a charge to realized investment gains,
$3,534 ($2,297 after-tax) was recorded as a charge to equity in earnings of investees
(including $456 of previously waived immaterial adjustments) and $2,111 was recorded as an
increase to investment income on the consolidated statements of income. In addition, the
Company recorded a $7,369 increase to accumulated other comprehensive income, net of tax,
that together with the aforementioned $3,691 charge to net income, resulted in a $3,678
increase in shareholders equity as of June 30, 2006.
 17




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##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
    Statements Regarding Forward-Looking Information
  
    
    Lowering or loss of one of the Companys financial strength ratings;
    
    Insufficient loss reserves, including reserves for asbestos, environmental and other latent claims;
    
    Occurrence of natural or man-made catastrophic events;
    
    Inability to obtain reinsurance coverage on reasonable terms and prices, particularly property catastrophe reinsurance;
    
    Competitive conditions in the insurance market;
    
    Changes in the business or regulatory environment in which the Company operates as a
result of recent insurance industry investigations by government authorities and other
parties;
    
    SEC requests for information from the Company;
    
    Inability to realize the Companys investment objectives;
    
    Loss of key producers;
    
    Exposure to emerging claims and coverage issues;
    
    Restrictions on the ability of the Companys insurance subsidiaries to pay dividends;
    
    Subordination of debt securities to the obligations and liabilities of the Companys insurance subsidiaries;
    
    Exposure to credit risk, in the event reinsurers or policyholders fail to pay the Company amounts owed to it;
    
    Adverse developments in the prospects or results of operations of Fairfax or its affiliates;
    
    Loss of key employees;
    
    Changes in governmental regulations; and
    
    Exposure to credit risks on
novated policies.
 18




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Critical Accounting Policies and Estimates
    Unpaid Losses and Loss Adjustment Expenses
     19




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##### Table of Contents



Other than Temporary Declines in Value of Investments
   Insurance
Subsidiaries
 Reinsurance Recoverable
    Deferred Income Tax Assets
   20




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Summary of Operations
       21




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22




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##### Table of Contents



Results of Operations
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Gross premiums written
    
    $
    345,595
    
    
    $
    341,399
    
    
    $
    672,526
    
    
    $
    688,600Net premiums written
    
    $
    311,307
    
    
    $
    299,008
    
    
    $
    593,754
    
    
    $
    594,352Premiums earned
    
    $
    306,821
    
    
    $
    264,828
    
    
    $
    600,528
    
    
    $
    511,547Losses and LAE
    
    
    201,690
    
    
    
    181,681
    
    
    
    395,150
    
    
    
    350,693Underwriting expenses
    
    
    82,428
    
    
    
    79,143
    
    
    
    167,182
    
    
    
    149,401Underwriting income
    
    
    22,703
    
    
    
    4,004
    
    
    
    38,196
    
    
    
    11,453Investment income and realized investment gains and losses
    
    
    28,450
    
    
    
    102,537
    
    
    
    78,337
    
    
    
    280,817Interest and other expense
    
    
    8,190
    
    
    
    9,823
    
    
    
    15,675
    
    
    
    20,728Costs related to early retirement of debt
    
    
    21,188
    
    
    
    
    
    
    
    21,188
    
    
    
    Income before income taxes and equity in earnings of investees
    
    
    21,775
    
    
    
    96,718
    
    
    
    79,670
    
    
    
    271,542Income tax expense
    
    
    6,800
    
    
    
    33,145
    
    
    
    26,207
    
    
    
    93,465Income before equity in earnings of investees
    
    
    14,975
    
    
    
    63,573
    
    
    
    53,463
    
    
    
    178,077Equity in earnings of investees, net of tax
    
    
    3,730
    
    
    
    4,210
    
    
    
    8,095
    
    
    
    6,069Net income
    
    $
    18,705
    
    
    $
    67,783
    
    
    $
    61,558
    
    
    $
    184,146Loss and LAE ratio
    
    
    65.7
    %
    
    
    68.6
    %
    
    
    65.8
    %
    
    
    68.6
    %Underwriting expense ratio
    
    
    26.9
    
    
    
    29.9
    
    
    
    27.8
    
    
    
    29.2Combined ratio
    
    
    92.6
    %
    
    
    98.5
    %
    
    
    93.6
    %
    
    
    97.8
    %
   Underwriting Results
 Gross Premiums Written
  Three Months Ended June 30,Increase/
    
    
    Percent2007
    
    
    2006
    
    
    (Decrease)
    
    
    ChangeGeneral liability
    
    $
    63,126
    
    
    $
    82,271
    
    
    $
    (19,145
    )
    
    
    (23.3
    )%Workers compensation
    
    
    67,812
    
    
    
    57,307
    
    
    
    10,505
    
    
    
    18.3
    %Commercial automobile
    
    
    52,516
    
    
    
    49,471
    
    
    
    3,045
    
    
    
    6.2
    %Property
    
    
    97,569
    
    
    
    107,814
    
    
    
    (10,245
    )
    
    
    (9.5
    )%Commercial multi-peril
    
    
    28,927
    
    
    
    20,154
    
    
    
    8,773
    
    
    
    43.5
    %Other
    
    
    35,645
    
    
    
    24,382
    
    
    
    11,263
    
    
    
    46.2
    %Total gross premiums written
    
    $
    345,595
    
    
    $
    341,399
    
    
    $
    4,196
    
    
    
    1.2
    %
 23




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##### Table of Contents



Six Months Ended June 30,Increase/
    
    
    Percent2007
    
    
    2006
    
    
    (Decrease)
    
    
    ChangeGeneral liability
    
    $
    140,109
    
    
    $
    164,995
    
    
    $
    (24,886
    )
    
    
    (15.1
    )%Workers compensation
    
    
    134,660
    
    
    
    139,901
    
    
    
    (5,241
    )
    
    
    (3.7
    )%Commercial automobile
    
    
    106,653
    
    
    
    114,940
    
    
    
    (8,287
    )
    
    
    (7.2
    )%Property
    
    
    180,549
    
    
    
    194,915
    
    
    
    (14,366
    )
    
    
    (7.4
    )%Commercial multi-peril
    
    
    43,277
    
    
    
    37,376
    
    
    
    5,901
    
    
    
    15.8
    %Other
    
    
    67,278
    
    
    
    36,473
    
    
    
    30,805
    
    
    
    84.5
    %Total gross premiums written
    
    $
    672,526
    
    
    $
    688,600
    
    
    $
    (16,074
    )
    
    
    (2.3
    )%
  Three Months Ended June 30,Increase/
    
    
    Percent2007
    
    
    2006
    
    
    (Decrease)
    
    

ChangeAccident and health
    
    $
    27,413
    
    
    $
    16,053
    
    
    $
    11,360
    
    
    
    70.8
    %Surety
    
    
    3,949
    
    
    
    3,973
    
    
    
    (24
    )
    
    
    (0.6
    )%Homeowners
    
    
    1,983
    
    
    
    1,872
    
    
    
    111
    
    
    
    5.9
    %Personal automobile
    
    
    2,300
    
    
    
    2,484
    
    
    
    (184
    )
    
    
    (7.4
    )%Total gross premiums written in other
    
    $
    35,645
    
    
    $
    24,382
    
    
    $
    11,263
    
    
    
    46.2
    %
 Six Months Ended June 30,Increase/
    
    
    Percent2007
    
    
    2006
    
    
    (Decrease)
    
    
    ChangeAccident and health
    
    $
    53,682
    
    
    $
    22,952
    
    
    $
    30,730
    
    
    
    133.9
    %Surety
    
    
    7,323
    
    
    
    6,573
    
    
    
    750
    
    
    
    11.4
    %Homeowners
    
    
    3,412
    
    
    
    3,567
    
    
    
    (155
    )
    
    
    (4.3
    )%Personal automobile
    
    
    2,861
    
    
    
    3,381
    
    
    
    (520
    )
    
    
    (15.4
    )%Total gross premiums written in other
    
    $
    67,278
    
    
    $
    36,473
    
    
    $
    30,805
    
    
    
    84.5
    %
  Casualty gross premiums written
   Property gross premiums written
  24




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Other gross premiums written
  Net Premiums Written
  Premiums Earned
  Losses and Loss Adjustment Expenses
   Underwriting Expenses
    25




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##### Table of Contents



Investment Results
  Three Months Ended June 30,
    
    
    Six Months Ended June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Average investments, including cash
and cash equivalents, at book
value1
    
    $
    4,008,966
    
    
    $
    3,734,902
    
    
    $
    4,000,328
    
    
    $
    3,720,240Investment income
    
    $
    39,517
    
    
    $
    92,821
    
    
    $
    74,930
    
    
    $
    149,279Realized investment (losses) gains
    
    
    (11,067
    )
    
    
    9,716
    
    
    
    3,407
    
    
    
    131,538Pre-tax equity in earnings of investees
    
    
    5,738
    
    
    
    6,477
    
    
    
    12,454
    
    
    
    9,337Change in unrealized investment gains
(losses) and foreign currency
translation
    
    
    (14,785
    )
    
    
    (98,175
    )
    
    
    (21,800
    )
    
    
    (234,350
    )Total return on investments
    
    $
    19,403
    
    
    $
    10,839
    
    
    $
    68,991
    
    
    $
    55,804Annualized total return on investments
    
    
    1.9
    %
    
    
    1.2
    %
    
    
    3.4
    %
    
    
    3.0
    %
 1
 .
     26




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Interest and Other Expense
  Liquidity and Capital Resources
 Holding Company
     Insurance Subsidiaries
    27




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##### Table of Contents



Investment Portfolio
  At June 30, 2007Cost or
    
    
    Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    UnrealizedCost
    
    
    Gains
    
    
    Losses
    
    
    Fair ValueFixed income securities:United States government and government agencies
and authorities1
    
    $
    2,047,314
    
    
    $
    2,776
    
    
    $
    191,744
    
    
    $
    1,858,346States, municipalities and political subdivisions
    
    
    2,843
    
    
    
    9
    
    
    
    30
    
    
    
    2,822Other corporate fixed income securities
    
    
    7,782
    
    
    
    25
    
    
    
    376
    
    
    
    7,431Total fixed income securities
    
    
    2,057,939
    
    
    
    2,810
    
    
    
    192,150
    
    
    
    1,868,599Equity securities:Common stocks
    
    
    660,729
    
    
    
    64,135
    
    
    
    17,768
    
    
    
    707,096Preferred stocks
    
    
    8,090
    
    
    
    492
    
    
    
    
    
    
    
    8,582Total equity securities
    
    
    668,819
    
    
    
    64,627
    
    
    
    17,768
    
    
    
    715,678Total available-for-sale securities
    
    $
    2,726,758
    
    
    $
    67,437
    
    
    $
    209,918
    
    
    $
    2,584,277
 1
     Accounting for Certain Hybrid Financial Instruments
- an amendment of FASB Statements Nos. 133 and 140
 28




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##### Table of Contents



Ratings
    
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    Interest Rate Risk
  At June 30, 2007Fair Value ofFixed Income
    
    Hypothetical
    
    HypotheticalPortfolio
    
    $ Change
    
    % Change200 basis point decline
    
    $
    2,532,199
    
    
    $
    523,531
    
    
    
    26.1
    %100 basis point decline
    
    $
    2,248,711
    
    
    $
    240,043
    
    
    
    12.0
    %Base scenario
    
    $
    2,008,668
    
    
    $
    
    
    
    
    
    %100 basis point increase
    
    $
    1,809,847
    
    
    $
    (198,821
    )
    
    
    (9.9
    )%200 basis point increase
    
    $
    1,639,563
    
    
    $
    (369,105
    )
    
    
    (18.4
    )%
 29




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##### Table of Contents



Equity Price Risk
   Foreign Currency Exchange Rate Risk
  
 ITEM 4. CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
  Internal Control Over Financial Reporting
   30




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##### Table of Contents



Part II
OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
     
 ITEM 6. EXHIBITS
  31




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##### Table of Contents



SIGNATURES
  CRUM & FORSTER HOLDINGS CORP.
(Registrant)Date:  August 2, 2007
    By:
    /s/  Nikolas AntonopoulosNikolas AntonopoulosPresident and Chief Executive OfficerDate:  August 2, 2007
    By:
    /s/  Mary Jane RobertsonMary Jane RobertsonExecutive Vice President, Chief Financial Officer and Treasurer 32




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INDEX TO EXHIBITS
 Exhibit No.*    10.42
    
    
    Amendment Number 1 to the Investment Agreement among Hamblin Watsa, Fairfax and United
States Fire Insurance Company effective as of April 1, 2007.*    10.43
    
    
    Amendment Number 1 to the Investment Agreement among Hamblin Watsa, Fairfax and Crum &
Forster Indemnity Company effective as of April 1, 2007.*    31.1
    
    
    Certification of President and Chief Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.*    31.2
    
    
    Certification of Executive Vice President, Chief Financial Officer and Treasurer
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*    32.1
    
    
    Certification of President and Chief Executive Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.*    32.2
    
    
    Certification of Executive Vice President, Chief Financial Officer and Treasurer
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.99.1
    
    
    Risk Factors (incorporated into Part II of this Form 10-Q by reference to the section
entitled Risk Factors in the Companys Prospectus filed with the SEC pursuant to rule
424(b)(3) on July 13, 2007).
 
 *
    
    Filed herewith 33