##### Table of Contents



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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549




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Form 10-Q

QUARTERLY REPORT UNDER SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934


|                                         |  |                                      
|---------------------------------------- |  | -------------------------------------
|For the Quarter Ended:
    June 30, 2004 |  | Commission File Number:
    333-84068

(CRUM & FORSTER LOGO)

Crum & Forster Holdings Corp.

(Exact Name of Registrant as Specified in its
Charter)


|                                                                   |  |                                                              |  |                                            
|------------------------------------------------------------------ |  | ------------------------------------------------------------ |  | -------------------------------------------
|Delaware                                                           |  | 6331                                                         |  | 04-3611900                                 
|(State or Other Jurisdiction Of
    Incorporation or Organization) |  | (Primary Standard Industrial
    Classification Code Number) |  | (I.R.S. Employer
    Identification Number)

Crum & Forster Holdings Corp.

305 Madison Avenue, Morristown, New Jersey
07962


(973) 490-6600


(Address, including zip code, and telephone
number,


including area code, of registrants
principal executive offices)


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 at
least the past
90 days.     YES þ          NO o

Indicate by check mark whether the Registrant is
an accelerated filer (as defined in rule 12b-2 of the
Exchange
Act).     YES o          NO þ

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

|                             |  |                                              
|---------------------------- |  | ---------------------------------------------
|Class                        |  | Number of Shares Outstanding at July 30, 2004
|                             |  |                                              
|Common Stock, $.01 Par Value |  | 100                                          





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CRUM & FORSTER HOLDINGS CORP.

FORM 10-Q

INDEX






|                                   |  |                                                                                                                           |  |        |    | 
|---------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------- |  | ------ | -- | 
|                                   |  |                                                                                                                           |  | Page  
|                                   |  |                                                                                                                           |  | Number
|                                   |  |                                                                                                                           |  |       
|PART I
      FINANCIAL INFORMATION
|                                  
|ITEM 1.                            |  | FINANCIAL STATEMENTS
    (UNAUDITED)                                                                                      |  |        |    | 
|                                   |  | Consolidated Balance Sheets
    as of June 30, 2004 and December 31, 2003                                                 |  |        | 3  | 
|                                   |  | Consolidated Statements of
    Income for the Three and Six Months Ended  June 30,
    2004 and 2003                      |  |        | 4  | 
|                                   |  | Consolidated Statements of
    Shareholders Equity for the Six Months
    Ended  June 30, 2004 and 2003                  |  |        | 5  | 
|                                   |  | Consolidated Statements of
    Comprehensive (Loss) Income for the Three and  Six Months
    Ended June 30, 2004 and 2003 |  |        | 6  | 
|                                   |  | Consolidated Statements of
    Cash Flows for the Six Months Ended June 30, 2004
    and 2003                             |  |        | 7  | 
|                                   |  | Notes to Consolidated
    Financial Statements                                                                            |  |        | 8  | 
|ITEM 2.                            |  | MANAGEMENTS
    DISCUSSION AND ANALYSIS OF FINANCIAL  CONDITION AND RESULTS
    OF OPERATIONS                            |  |        | 14 | 
|ITEM 3.                            |  | QUANTITATIVE AND
    QUALITATIVE DISCLOSURES ABOUT  MARKET RISK                                                           |  |        | 25 | 
|ITEM 4.                            |  | CONTROLS AND
    PROCEDURES                                                                                               |  |        | 26 | 
|                                  
|PART II
      OTHER INFORMATION   
|                                  
|ITEM 1.                            |  | LEGAL
    PROCEEDINGS                                                                                                     |  |        | 27 | 
|ITEM 6.                            |  | EXHIBITS AND REPORTS ON
    FORM 8-K                                                                                      |  |        | 27 | 
|                                   |  | SIGNATURES                                                                                                                |  |        | 28 | 
|                                   |  | INDEX TO
    EXHIBITS                                                                                                     |  |        | 29 | 
|EX-31.1                           
|EX-31.2                           
|EX-32.1                           
|EX-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,
|                                                                                       |                                                                                                                       | 2004                                       |           | 2003        
|                                                                                       |                                                                                                                       |                                            |           |             
|                                                                                       |                                                                                                                       | (Unaudited)                                |           |             
|ASSETS                                                                                
|Investments:                                                                           |                                                                                                                       |                                            |           |              |           |   |           |        
|                                                                                       | Fixed income securities, at fair value (amortized
    cost of $2,199,764 and $620,700 in 2004 and 2003, respectively) |                                            | $         | 2,063,230    |           |   | $         | 636,979 |          
|                                                                                       | Equity securities, at fair value (cost of
    $403,423 and $273,457 in 2004 and 2003, respectively)                   |                                            |           | 485,676      |           |   |           | 311,324 |          
|                                                                                       | Other invested assets                                                                                                 |                                            |           | 210,086      |           |   |           | 138,208 |          
|                                                                                       |                                                                                                                       |                                            |           |              |           |   |           |        
|                                                                                       |                                                                                                                       | Total investments                          |           |              | 2,758,992 |   |           |         | 1,086,511 | 
|Cash and cash equivalents                                                              |                                                                                                                       |                                            | 282,201   |              |           |   | 2,081,878 |        
|Premiums receivable                                                                    |                                                                                                                       |                                            | 254,823   |              |           |   | 276,618   |        
|Reinsurance recoverable                                                                |                                                                                                                       |                                            | 1,470,843 |              |           |   | 1,516,112 |        
|Reinsurance recoverable from affiliates                                                |                                                                                                                       |                                            | 172,392   |              |           |   | 164,354   |        
|Prepaid reinsurance premiums                                                           |                                                                                                                       |                                            | 38,754    |              |           |   | 39,351    |        
|Deferred income taxes                                                                  |                                                                                                                       |                                            | 208,106   |              |           |   | 163,379   |        
|Deferred policy acquisition costs                                                      |                                                                                                                       |                                            | 71,721    |              |           |   | 71,644    |        
|Other assets                                                                           |                                                                                                                       |                                            | 168,282   |              |           |   | 187,551   |        
|                                                                                       |                                                                                                                       |                                            |           |              |           |   |           |        
|                                                                                       |                                                                                                                       | Total assets                               |           | $            | 5,426,114 |   |           | $       | 5,587,398 | 
|                                                                                       |                                                                                                                       |                                            |           |              |           |   |           |        
|LIABILITIES                                                                           
|Unpaid losses and loss adjustment expenses                                             |                                                                                                                       | $                                          | 3,192,419 |              |           | $ | 3,178,166 |        
|Unearned premiums                                                                      |                                                                                                                       |                                            | 511,796   |              |           |   | 522,210   |        
|Deferred income on retroactive reinsurance                                             |                                                                                                                       |                                            | 174,311   |              |           |   | 180,524   |        
|Funds held under reinsurance contracts                                                 |                                                                                                                       |                                            | 211,773   |              |           |   | 225,632   |        
|Accounts payable and other liabilities                                                 |                                                                                                                       |                                            | 221,793   |              |           |   | 283,494   |        
|Long-term debt                                                                         |                                                                                                                       |                                            | 291,550   |              |           |   | 291,257   |        
|                                                                                       |                                                                                                                       |                                            |           |              |           |   |           |        
|                                                                                       |                                                                                                                       | Total liabilities                          |           |              | 4,603,642 |   |           |         | 4,681,283 | 
|                                                                                       |                                                                                                                       |                                            |           |              |           |   |           |        
|SHAREHOLDERS EQUITY                                                                  
|Common stock, $0.01 par value; 1,000 shares
    authorized; 100 issued and outstanding |                                                                                                                       |                                            |          |              |           |   |          |        
|Additional paid-in capital                                                             |                                                                                                                       |                                            | 740,993   |              |           |   | 740,993   |        
|Accumulated other comprehensive (loss) income,
    net of tax                          |                                                                                                                       |                                            | (32,892   | )            |           |   | 43,496    |        
|Retained earnings                                                                      |                                                                                                                       |                                            | 114,371   |              |           |   | 121,626   |        
|                                                                                       |                                                                                                                       |                                            |           |              |           |   |           |        
|                                                                                       |                                                                                                                       | Total shareholders equity                 |           |              | 822,472   |   |           |         | 906,115   | 
|                                                                                       |                                                                                                                       |                                            |           |              |           |   |           |        
|                                                                                       |                                                                                                                       | Total liabilities and shareholders equity |           | $            | 5,426,114 |   |           | $       | 5,587,398 | 
|                                                                                       |                                                                                                                       |                                            |           |              |           |   |           |        

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 Ended
|           |                                     | June 30,           |        | June 30,        
|           |                                     |                    |        |                 
|           |                                     | 2004               |        | 2003             |         | 2004 |         | 2003   
|           |                                     |                    |        |                  |         |      |         |        
|           |                                     |                    |        |                  |         |     
|           |                                     |                    |        | (Unaudited)      |         |     
|REVENUES   |                                     |                    |        |                  |         |      |         |         |         |   |        |         |         |   |         |        
|           | Premiums earned                     |                    | $      | 225,763          |         |      | $       | 173,124 |         |   | $      | 453,302 |         |   | $       | 344,962 |        
|           | Investment income                   |                    |        | 28,378           |         |      |         | 17,092  |         |   |        | 52,467  |         |   |         | 39,902  |        
|           | Realized investment gains           |                    |        | 10,418           |         |      |         | 167,850 |         |   |        | 47,446  |         |   |         | 218,047 |        
|           |                                     |                    |        |                  |         |      |         |         |         |   |        |         |         |   |         |        
|           |                                     | Total revenues     |        |                  | 264,559 |      |         |         | 358,066 |   |        |         | 553,215 |   |         |         | 602,911 | 
|           |                                     |                    |        |                  |         |      |         |         |         |   |        |         |         |   |         |        
|EXPENSES   |                                     |                    |        |                  |         |      |         |         |         |   |        |         |         |   |         |        
|           | Losses and loss adjustment expenses |                    |        | 159,264          |         |      |         | 130,144 |         |   |        | 321,401 |         |   |         | 246,872 |        
|           | Policy acquisition costs            |                    |        | 31,167           |         |      |         | 23,534  |         |   |        | 61,878  |         |   |         | 45,453  |        
|           | Other underwriting expenses         |                    |        | 31,981           |         |      |         | 30,356  |         |   |        | 64,491  |         |   |         | 60,923  |        
|           | Interest expense                    |                    |        | 8,287            |         |      |         | 2,272   |         |   |        | 16,726  |         |   |         | 2,272   |        
|           | Other expense (income), net         |                    |        | 4,630            |         |      |         | (260    | )       |   |        | 5,566   |         |   |         | (535    | )      
|           |                                     |                    |        |                  |         |      |         |         |         |   |        |         |         |   |         |        
|           |                                     | Total expenses     |        |                  | 235,329 |      |         |         | 186,046 |   |        |         | 470,062 |   |         |         | 354,985 | 
|           |                                     |                    |        |                  |         |      |         |         |         |   |        |         |         |   |         |        
|           | Income before income taxes          |                    |        | 29,230           |         |      |         | 172,020 |         |   |        | 83,153  |         |   |         | 247,926 |        
|           | Income tax expense                  |                    |        | 10,139           |         |      |         | 60,626  |         |   |        | 28,908  |         |   |         | 86,700  |        
|           |                                     |                    |        |                  |         |      |         |         |         |   |        |         |         |   |         |        
|NET INCOME |                                     | $                  | 19,091 |                  |         | $    | 111,394 |         |         | $ | 54,245 |         |         | $ | 161,226 |        
|           |                                     |                    |        |                  |         |      |         |         |         |   |        |         |         |   |         |        

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

4



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##### Table of Contents






CRUM & FORSTER HOLDINGS CORP.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS
EQUITY

(Dollars in thousands)


|                                                              |                                                                                                      |                  |         |         |   |   |         |          |  
|------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------- | ---------------- | ------- | ------- | - | - | ------- | -------- | -
|                                                              |                                                                                                      |                 
|                                                              |                                                                                                      | Six Months Ended
|                                                              |                                                                                                      | June 30,        
|                                                              |                                                                                                      |                 
|                                                              |                                                                                                      | 2004             |         | 2003   
|                                                              |                                                                                                      |                  |         |        
|                                                              |                                                                                                      |                 
|                                                              |                                                                                                      | (Unaudited)     
|COMMON STOCK                                                  |                                                                                                      |                  |         |         |   |   |         |         
|Balance, beginning and end of period                          |                                                                                                      | $                |        |         |   | $ |        |         
|                                                              |                                                                                                      |                  |         |         |   |   |         |         
|ADDITIONAL PAID-IN CAPITAL                                    |                                                                                                      |                  |         |         |   |   |         |         
|Balance, beginning of period                                  |                                                                                                      |                  | 740,993 |         |   |   | 748,735 |         
|                                                              | Capital contribution                                                                                 |                  |         |        |   |   |         | 1,076    |  
|                                                              | Adjustment for acquisition of affiliates
    net assets                                             |                  |         |        |   |   |         | (8,818   | )
|                                                              |                                                                                                      |                  |         |         |   |   |         |         
|Balance, end of period                                        |                                                                                                      |                  | 740,993 |         |   |   | 740,993 |         
|                                                              |                                                                                                      |                  |         |         |   |   |         |         
|ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME,
    NET OF TAX |                                                                                                      |                  |         |         |   |   |         |         
|Balance, beginning of period                                  |                                                                                                      |                  | 43,496  |         |   |   | 26,663  |         
|                                                              | Unrealized investment gains and losses, net of
    transfers to realized investment gains and losses |                  |         | (73,412 | ) |   |         | 19,766   |  
|                                                              | Foreign currency translation                                                                         |                  |         | (2,976  | ) |   |         | 1,256    |  
|                                                              |                                                                                                      |                  |         |         |   |   |         |         
|Balance, end of period                                        |                                                                                                      |                  | (32,892 | )       |   |   | 47,685  |         
|                                                              |                                                                                                      |                  |         |         |   |   |         |         
|RETAINED EARNINGS                                             |                                                                                                      |                  |         |         |   |   |         |         
|Balance, beginning of period                                  |                                                                                                      |                  | 121,626 |         |   |   | 203,766 |         
|                                                              | Net income                                                                                           |                  |         | 54,245  |   |   |         | 161,226  |  
|                                                              | Dividends to shareholder                                                                             |                  |         | (61,500 | ) |   |         | (217,885 | )
|                                                              |                                                                                                      |                  |         |         |   |   |         |         
|Balance, end of period                                        |                                                                                                      |                  | 114,371 |         |   |   | 147,107 |         
|                                                              |                                                                                                      |                  |         |         |   |   |         |         
|TOTAL SHAREHOLDERS EQUITY                                    |                                                                                                      | $                | 822,472 |         |   | $ | 935,785 |         
|                                                              |                                                                                                      |                  |         |         |   |   |         |         

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

5



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##### Table of Contents



CRUM & FORSTER HOLDINGS CORP.



CONSOLIDATED STATEMENTS OF COMPREHENSIVE
(LOSS) INCOME


(Dollars in thousands)


|                                                                                          |                                                                                       |                                                                  |         |                  |         |      |         |         |         |   |         |          |          |   |         |         |         |  
|----------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------- | ---------------------------------------------------------------- | ------- | ---------------- | ------- | ---- | ------- | ------- | ------- | - | ------- | -------- | -------- | - | ------- | ------- | ------- | -
|                                                                                          |                                                                                       |                                                                  |         |                 
|                                                                                          |                                                                                       | Three Months Ended                                               |         | Six Months Ended
|                                                                                          |                                                                                       | June 30,                                                         |         | June 30,        
|                                                                                          |                                                                                       |                                                                  |         |                 
|                                                                                          |                                                                                       | 2004                                                             |         | 2003             |         | 2004 |         | 2003   
|                                                                                          |                                                                                       |                                                                  |         |                  |         |      |         |        
|                                                                                          |                                                                                       |                                                                  |         |                  |         |     
|                                                                                          |                                                                                       |                                                                  |         | (Unaudited)      |         |     
|NET INCOME                                                                                |                                                                                       | $                                                                | 19,091  |                  |         | $    | 111,394 |         |         | $ | 54,245  |          |          | $ | 161,226 |        
|                                                                                          |                                                                                       |                                                                  |         |                  |         |      |         |         |         |   |         |          |          |   |         |        
|Change in components of other comprehensive
    (loss) income for the period, before tax: |                                                                                       |                                                                  |         |                  |         |      |         |         |         |   |         |          |          |   |         |        
|                                                                                          | Unrealized investment gains and losses                                                |                                                                  |         | (84,043          | )       |      |         | 44,109  |         |   |         | (112,941 | )        |   |         | 30,409  |        
|                                                                                          | Foreign currency translation                                                          |                                                                  |         | (2,952           | )       |      |         | 1,996   |         |   |         | (4,579   | )        |   |         | 1,933   |        
|                                                                                          |                                                                                       |                                                                  |         |                  |         |      |         |         |         |   |         |          |          |   |         |        
|                                                                                          |                                                                                       | Other comprehensive (loss) income for the period,
    before tax |         |                  | (86,995 | )    |         |         | 46,105  |   |         |          | (117,520 | ) |         |         | 32,342  |  
|                                                                                          |                                                                                       |                                                                  |         |                  |         |      |         |         |         |   |         |          |          |   |         |        
|Deferred income tax benefit (expense) for the
    period:                                 |                                                                                       |                                                                  |         |                  |         |      |         |         |         |   |         |          |          |   |         |        
|                                                                                          | Deferred income tax benefit (expense) from
    unrealized investment gains and losses |                                                                  |         | 29,416           |         |      |         | (15,438 | )       |   |         | 39,529   |          |   |         | (10,643 | )      
|                                                                                          | Deferred income tax benefit (expense) from
    foreign currency translation           |                                                                  |         | 1,033            |         |      |         | (699    | )       |   |         | 1,603    |          |   |         | (677    | )      
|                                                                                          |                                                                                       |                                                                  |         |                  |         |      |         |         |         |   |         |          |          |   |         |        
|                                                                                          |                                                                                       | Total deferred income tax benefit (expense) for
    the period   |         |                  | 30,449  |      |         |         | (16,137 | ) |         |          | 41,132   |   |         |         | (11,320 | )
|                                                                                          |                                                                                       |                                                                  |         |                  |         |      |         |         |         |   |         |          |          |   |         |        
|Other comprehensive (loss) income for the period,
    net of tax                          |                                                                                       |                                                                  | (56,546 | )                |         |      | 29,968  |         |         |   | (76,388 | )        |          |   | 21,022  |        
|                                                                                          |                                                                                       |                                                                  |         |                  |         |      |         |         |         |   |         |          |          |   |         |        
|COMPREHENSIVE (LOSS) INCOME                                                               |                                                                                       | $                                                                | (37,455 | )                |         | $    | 141,362 |         |         | $ | (22,143 | )        |          | $ | 182,248 |        
|                                                                                          |                                                                                       |                                                                  |         |                  |         |      |         |         |         |   |         |          |          |   |         |        

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

6



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##### Table of Contents



CRUM & FORSTER HOLDINGS CORP.



CONSOLIDATED STATEMENTS OF CASH
FLOWS


(Dollars in thousands)


|                                               |                                                                                |                                                          |                                            |                                    |         |         |            |            |          |         |           |  
|---------------------------------------------- | ------------------------------------------------------------------------------ | -------------------------------------------------------- | ------------------------------------------ | ---------------------------------- | ------- | ------- | ---------- | ---------- | -------- | ------- | --------- | -
|                                               |                                                                                |                                                         
|                                               |                                                                                | Six Months Ended                                        
|                                               |                                                                                | June 30,                                                
|                                               |                                                                                |                                                         
|                                               |                                                                                | 2004                                                     |                                            | 2003                              
|                                               |                                                                                |                                                          |                                            |                                   
|                                               |                                                                                |                                                         
|                                               |                                                                                | (Unaudited)                                             
|OPERATING ACTIVITIES                           |                                                                                |                                                          |                                            |                                    |         |         |            |           
|                                               | Net income                                                                     |                                                          | $                                          | 54,245                             |         |         | $          | 161,226    |         
|                                               | Adjustments to reconcile net income to net cash
    from operating activities: |                                                          |                                            |                                    |         |         |            |            |         
|                                               |                                                                                | Net accretion of discount on fixed income
    securities |                                            |                                    | (3,553  | )       |            |            | (16,289  | )      
|                                               |                                                                                | Realized investment gains                                |                                            |                                    | (47,446 | )       |            |            | (218,047 | )      
|                                               |                                                                                | Equity in (earnings) losses of investees                 |                                            |                                    | (7,737  | )       |            |            | 2,678    |        
|                                               |                                                                                | Depreciation and amortization                            |                                            |                                    | 2,662   |         |            |            | 3,656    |        
|                                               |                                                                                | Deferred income tax (benefit) expense                    |                                            |                                    | (3,595  | )       |            |            | 70,099   |        
|                                               |                                                                                | Other non-cash net income adjustments                    |                                            |                                    | 9,042   |         |            |            | 3,872    |        
|                                               |                                                                                | Changes in:                                              |                                            |                                    |         |         |            |            |          |        
|                                               |                                                                                |                                                          | Premiums receivable                        |                                    |         | 18,045  |            |            |          | (25,930 | )        
|                                               |                                                                                |                                                          | Reinsurance recoverable                    |                                    |         | 33,731  |            |            |          | 44,134  |          
|                                               |                                                                                |                                                          | Prepaid reinsurance premiums               |                                    |         | 597     |            |            |          | 10,939  |          
|                                               |                                                                                |                                                          | Deferred policy acquisition costs          |                                    |         | (77     | )          |            |          | (5,705  | )        
|                                               |                                                                                |                                                          | Other assets                               |                                    |         | 32,298  |            |            |          | 20,915  |          
|                                               |                                                                                |                                                          | Unpaid losses and loss adjustment expenses |                                    |         | 14,253  |            |            |          | (97,215 | )        
|                                               |                                                                                |                                                          | Unearned premiums                          |                                    |         | (10,414 | )          |            |          | 38,065  |          
|                                               |                                                                                |                                                          | Funds held under reinsurance contracts     |                                    |         | (21,752 | )          |            |          | 140     |          
|                                               |                                                                                |                                                          | Accounts payable and other liabilities     |                                    |         | (19,600 | )          |            |          | 3,971   |          
|                                               |                                                                                |                                                          |                                            |                                    |         |         |            |           
|                                               |                                                                                |                                                          |                                            | Net cash from operating activities |         |         | 50,699     |            |          |         | (3,491    | )
|                                               |                                                                                |                                                          |                                            |                                    |         |         |            |           
|INVESTING ACTIVITIES                           |                                                                                |                                                          |                                            |                                    |         |         |            |           
|                                               | Purchases of fixed income securities                                           |                                                          |                                            | (2,759,163                         | )       |         |            | (2,546,608 | )       
|                                               | Proceeds from sales of fixed income securities                                 |                                                          |                                            | 1,193,686                          |         |         |            | 4,145,360  |         
|                                               | Proceeds from maturities of fixed income
    securities                        |                                                          |                                            | 100                                |         |         |            | 30,200     |         
|                                               | Purchases of equity securities                                                 |                                                          |                                            | (145,432                           | )       |         |            | (34,971    | )       
|                                               | Proceeds from sales of equity securities                                       |                                                          |                                            | 12,654                             |         |         |            | 58,075     |         
|                                               | Purchases of other invested assets                                             |                                                          |                                            | (94,378                            | )       |         |            | (12,379    | )       
|                                               | Proceeds from sales of other invested assets                                   |                                                          |                                            | 6,821                              |         |         |            | 141        |         
|                                               | Purchases of fixed assets                                                      |                                                          |                                            | (2,190                             | )       |         |            | (1,530     | )       
|                                               |                                                                                |                                                          |                                            |                                    |         |         |            |           
|                                               |                                                                                |                                                          |                                            | Net cash from investing activities |         |         | (1,787,902 | )          |          |         | 1,638,288 |  
|                                               |                                                                                |                                                          |                                            |                                    |         |         |            |           
|FINANCING ACTIVITIES                           |                                                                                |                                                          |                                            |                                    |         |         |            |           
|                                               | Dividends to shareholder                                                       |                                                          |                                            | (61,500                            | )       |         |            | (217,885   | )       
|                                               | Deferred financing costs                                                       |                                                          |                                            | (974                               | )       |         |            | (8,607     | )       
|                                               | Issuance of long-term debt, net of discount                                    |                                                          |                                            |                                   |         |         |            | 290,955    |         
|                                               | Interest escrow deposit                                                        |                                                          |                                            |                                   |         |         |            | (63,115    | )       
|                                               | Capital contribution                                                           |                                                          |                                            |                                   |         |         |            | 1,076      |         
|                                               |                                                                                |                                                          |                                            |                                    |         |         |            |           
|                                               |                                                                                |                                                          |                                            | Net cash from financing activities |         |         | (62,474    | )          |          |         | 2,424     |  
|                                               |                                                                                |                                                          |                                            |                                    |         |         |            |           
|Net change in cash and cash equivalents        |                                                                                |                                                          | (1,799,677                                 | )                                  |         |         | 1,637,221  |           
|Cash and cash equivalents, beginning of period |                                                                                |                                                          | 2,081,878                                  |                                    |         |         | 209,146    |           
|                                               |                                                                                |                                                          |                                            |                                    |         |         |            |           
|Cash and cash equivalents, end of period       |                                                                                | $                                                        | 282,201                                    |                                    |         | $       | 1,846,367  |           
|                                               |                                                                                |                                                          |                                            |                                    |         |         |            |           
|SUPPLEMENTAL CASH FLOW INFORMATION             |                                                                                |                                                          |                                            |                                    |         |         |            |           
|                                               | Cash paid for interest                                                         |                                                          | $                                          | 15,842                             |         |         | $          |           |         
|                                               |                                                                                |                                                          |                                            |                                    |         |         |            |           
|                                               | Cash paid to parent for income taxes                                           |                                                          | $                                          | 46,695                             |         |         | $          | 7,409      |         
|                                               |                                                                                |                                                          |                                            |                                    |         |         |            |           

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

7



---



##### Table of Contents






NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

(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.
    (Fairfax), a Wyoming holding company. Fairfax is
    wholly-owned by FFHL Group Ltd., a Canadian holding company,
    which is owned by Fairfax Financial Holdings Limited
    (Fairfax Financial), a Canadian financial services
    holding company which is publicly traded on the Toronto Stock
    Exchange and on the New York Stock Exchange under the symbol
    FFH. The Company, through its subsidiaries, provides
    a full range of commercial property and casualty insurance
    distributed through an independent producer force located across
    the United States.                                                                                                                                                                                                                                                                                         
|
| | Crum & Forster was established for the
    purpose of holding the capital stock of Crum & Forster
    Holding Inc. (Holding), another wholly-owned
    subsidiary of Fairfax, and had no operations prior to becoming
    the parent of Holding. On June 5, 2003, a merger of
    entities under common control occurred at historical cost,
    whereby the capital stock of Holding was contributed to Crum
    & Forster and, accordingly, Crum & Forster became the
    parent of Holding. The consolidated financial statements of
    Holding and its subsidiaries have become the Companys
    historical financial statements.                                                                                                                                                                                                                                                                                                                                                                                              
|
| | 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, Holding and their
    wholly-owned subsidiaries, including United States Fire
    Insurance Company (US Fire), The North River
    Insurance Company (North River), Crum & Forster
    Indemnity Company, Crum and Forster Insurance Company and Crum
    & Forster Underwriters Co. of Ohio (CF
    Underwriters). Effective July 1, 2004, CF
    Underwriters was merged into US Fire. 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.                                                                                                                                                                                                                               
|
| | The preparation of 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 as of
    December 31, 2003 and related notes thereto included in the
    Companys Registration Statement on Form S-4
    (Registration No. 333-107722), to which Amendment
    No. 4 was filed with the Securities and Exchange Commission
    on March 15, 2004.
|
| | The interim financial data as of June 30,
    2004 and for the three and six months ended June 30, 2004
    and 2003 is unaudited. However, in the opinion of management,
    the interim data includes all adjustments, consisting of normal
    recurring accruals, necessary for a fair statement of the
    Companys results for the interim periods. The results of
    operations for the interim periods are not necessarily
    indicative of the results to be expected for the full year. All
    significant intercompany amounts have been eliminated.                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|
| | Certain amounts in the Companys prior year
    consolidated financial statements have been reclassified to
    conform to the 2004 presentation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      



|   |                             
|-- | ----------------------------
|2. | New Accounting Pronouncement



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | In January 2003, the Financial Accounting
    Standards Board (FASB) issued Interpretation
    No. 46, Consolidation of Variable Interest Entities,
    (FIN 46) to address when it is appropriate to
    consolidate financial interests in a variable interest entity
    (VIE), a new term to define a business structure
    that either does not have equity investors with voting or other
    similar rights or has equity investors that do not provide
    sufficient financial resources to support its activities. For
    such entities, FIN 46 imposes a consolidation model that focuses
    on the relative exposures of the participants to the economic
    risks or rewards associated

8



---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


(Dollars in thousands)




| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | with a VIEs activities, including those
    conveyed by derivatives, credit enhancements and other
    arrangements, where one party is the primary
    beneficiary and, therefore, is required to consolidate the
    VIE.                                                                                                                                                                                                                                                                                                                              
|
| | The consolidation requirements of FIN 46 began to
    be phased-in during the first quarter of 2003, with immediate
    application to all new VIEs created after January 31, 2003.
    In December 2003, the FASB issued a revision to FIN 46 which,
    among other things, delayed the required implementation for VIEs
    existing prior to February 1, 2003 and held by public
    companies to the first interim period ending after
    March 15, 2004. The adoption of FIN 46 had no impact on the
    Companys consolidated financial statements.



|   |                                               
|-- | ----------------------------------------------
|3. | Unpaid Losses and Loss Adjustment
    Expenses



| |                                                                                                                             
| | ----------------------------------------------------------------------------------------------------------------------------
| | Changes in the Companys liability for
    unpaid losses and loss adjustment expenses (LAE) are
    summarized as follows:

|                                                 |                                                |                    |           |                  |         |      |           |           |         |   |           |           |         |   |           |           |         |  
|------------------------------------------------ | ---------------------------------------------- | ------------------ | --------- | ---------------- | ------- | ---- | --------- | --------- | ------- | - | --------- | --------- | ------- | - | --------- | --------- | ------- | -
|                                                 |                                                |                    |           |                 
|                                                 |                                                | Three Months Ended |           | Six Months Ended
|                                                 |                                                | June 30,           |           | June 30,        
|                                                 |                                                |                    |           |                 
|                                                 |                                                | 2004               |           | 2003             |         | 2004 |           | 2003     
|                                                 |                                                |                    |           |                  |         |      |           |          
|Gross unpaid losses and LAE, beginning of period |                                                | $                  | 3,164,997 |                  |         | $    | 3,203,495 |           |         | $ | 3,178,166 |           |         | $ | 3,235,101 |          
|                                                 | Less ceded unpaid losses and LAE               |                    |           | 1,291,004        |         |      |           | 1,725,182 |         |   |           | 1,321,004 |         |   |           | 1,756,404 |        
|                                                 |                                                |                    |           |                  |         |      |           |           |         |   |           |           |         |   |           |          
|                                                 | Net unpaid losses and LAE, beginning of period |                    |           | 1,873,993        |         |      |           | 1,478,313 |         |   |           | 1,857,162 |         |   |           | 1,478,697 |        
|                                                 |                                                |                    |           |                  |         |      |           |           |         |   |           |           |         |   |           |          
|                                                 | Losses and LAE incurred related to:            |                    |           |                  |         |      |           |           |         |   |           |           |         |   |           |           |        
|                                                 |                                                | Current period     |           |                  | 159,925 |      |           |           | 131,623 |   |           |           | 316,484 |   |           |           | 246,995 |  
|                                                 |                                                | Prior years        |           |                  | (661    | )    |           |           | (1,479  | ) |           |           | 4,917   |   |           |           | (123    | )
|                                                 |                                                |                    |           |                  |         |      |           |           |         |   |           |           |         |   |           |          
|                                                 | Total losses and LAE incurred                  |                    |           | 159,264          |         |      |           | 130,144   |         |   |           | 321,401   |         |   |           | 246,872   |        
|                                                 |                                                |                    |           |                  |         |      |           |           |         |   |           |           |         |   |           |          
|                                                 | Losses and LAE paid related to:                |                    |           |                  |         |      |           |           |         |   |           |           |         |   |           |           |        
|                                                 |                                                | Current period     |           |                  | 25,383  |      |           |           | 20,279  |   |           |           | 35,122  |   |           |           | 30,511  |  
|                                                 |                                                | Prior years        |           |                  | 116,296 |      |           |           | 122,732 |   |           |           | 251,863 |   |           |           | 229,612 |  
|                                                 |                                                |                    |           |                  |         |      |           |           |         |   |           |           |         |   |           |          
|                                                 | Total losses and LAE paid                      |                    |           | 141,679          |         |      |           | 143,011   |         |   |           | 286,985   |         |   |           | 260,123   |        
|                                                 |                                                |                    |           |                  |         |      |           |           |         |   |           |           |         |   |           |          
|                                                 | Net unpaid losses and LAE, end of period       |                    |           | 1,891,578        |         |      |           | 1,465,446 |         |   |           | 1,891,578 |         |   |           | 1,465,446 |        
|                                                 | Add ceded unpaid losses and LAE                |                    |           | 1,300,841        |         |      |           | 1,672,440 |         |   |           | 1,300,841 |         |   |           | 1,672,440 |        
|                                                 |                                                |                    |           |                  |         |      |           |           |         |   |           |           |         |   |           |          
|Gross unpaid losses and LAE, end of period       |                                                | $                  | 3,192,419 |                  |         | $    | 3,137,886 |           |         | $ | 3,192,419 |           |         | $ | 3,137,886 |          
|                                                 |                                                |                    |           |                  |         |      |           |           |         |   |           |           |         |   |           |          



|   |                                                                          
|-- | -------------------------------------------------------------------------
|4. | Asbestos and Environmental Unpaid 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 outstanding issues such
    as whether or not coverage exists, definition of an occurrence,
    determination of ultimate damages and allocation of such damages
    to financially responsible parties.

9



---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


(Dollars in thousands)




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

|                                                                        |                                                     |                    |         |                  |  |      |         |         |  |   |         |         |  |   |         |         | 
|----------------------------------------------------------------------- | --------------------------------------------------- | ------------------ | ------- | ---------------- |  | ---- | ------- | ------- |  | - | ------- | ------- |  | - | ------- | ------- | 
|                                                                        |                                                     |                    |         |                 
|                                                                        |                                                     | Three Months Ended |         | Six Months Ended
|                                                                        |                                                     | June 30,           |         | June 30,        
|                                                                        |                                                     |                    |         |                 
|                                                                        |                                                     | 2004               |         | 2003             |  | 2004 |         | 2003   
|                                                                        |                                                     |                    |         |                  |  |      |         |        
|ASBESTOS                                                                |                                                     |                    |         |                  |  |      |         |         |  |   |         |         |  |   |         |        
|Gross unpaid losses and allocated LAE
    (ALAE), beginning of period |                                                     | $                  | 469,253 |                  |  | $    | 358,944 |         |  | $ | 495,195 |         |  | $ | 370,875 |        
|                                                                        | Less ceded unpaid losses and ALAE                   |                    |         | 113,750          |  |      |         | 102,413 |  |   |         | 128,787 |  |   |         | 106,073 | 
|                                                                        |                                                     |                    |         |                  |  |      |         |         |  |   |         |         |  |   |         |        
|                                                                        | Net unpaid losses and ALAE, beginning
    of period |                    |         | 355,503          |  |      |         | 256,531 |  |   |         | 366,408 |  |   |         | 264,802 | 
|                                                                        | Net losses and ALAE incurred                        |                    |         |                 |  |      |         | 1,182   |  |   |         | 517     |  |   |         | 1,923   | 
|                                                                        | Net paid losses and ALAE                            |                    |         | 18,732           |  |      |         | 19,130  |  |   |         | 30,154  |  |   |         | 28,142  | 
|                                                                        |                                                     |                    |         |                  |  |      |         |         |  |   |         |         |  |   |         |        
|                                                                        | Net unpaid losses and ALAE, end of period           |                    |         | 336,771          |  |      |         | 238,583 |  |   |         | 336,771 |  |   |         | 238,583 | 
|                                                                        | Add ceded unpaid losses and ALAE                    |                    |         | 114,702          |  |      |         | 88,636  |  |   |         | 114,702 |  |   |         | 88,636  | 
|                                                                        |                                                     |                    |         |                  |  |      |         |         |  |   |         |         |  |   |         |        
|Gross unpaid losses and ALAE, end of period                             |                                                     | $                  | 451,473 |                  |  | $    | 327,219 |         |  | $ | 451,473 |         |  | $ | 327,219 |        
|                                                                        |                                                     |                    |         |                  |  |      |         |         |  |   |         |         |  |   |         |        

|                                                      |                                                     |                    |         |                  |  |      |         |         |  |   |         |        |  |   |         |         | 
|----------------------------------------------------- | --------------------------------------------------- | ------------------ | ------- | ---------------- |  | ---- | ------- | ------- |  | - | ------- | ------ |  | - | ------- | ------- | 
|                                                      |                                                     |                    |         |                 
|                                                      |                                                     | Three Months Ended |         | Six Months Ended
|                                                      |                                                     | June 30,           |         | June 30,        
|                                                      |                                                     |                    |         |                 
|                                                      |                                                     | 2004               |         | 2003             |  | 2004 |         | 2003   
|                                                      |                                                     |                    |         |                  |  |      |         |        
|ENVIRONMENTAL                                         |                                                     |                    |         |                  |  |      |         |         |  |   |         |        |  |   |         |        
|Gross unpaid losses and ALAE, beginning
    of period |                                                     | $                  | 138,593 |                  |  | $    | 161,144 |         |  | $ | 130,511 |        |  | $ | 163,165 |        
|                                                      | Less ceded unpaid losses and ALAE                   |                    |         | 42,418           |  |      |         | 57,712  |  |   |         | 31,675 |  |   |         | 57,373  | 
|                                                      |                                                     |                    |         |                  |  |      |         |         |  |   |         |        |  |   |         |        
|                                                      | Net unpaid losses and ALAE, beginning
    of period |                    |         | 96,175           |  |      |         | 103,432 |  |   |         | 98,836 |  |   |         | 105,792 | 
|                                                      | Net losses and ALAE incurred                        |                    |         |                 |  |      |         |        |  |   |         | 7      |  |   |         | 1       | 
|                                                      | Net paid losses and ALAE                            |                    |         | 14,526           |  |      |         | 1,722   |  |   |         | 17,194 |  |   |         | 4,083   | 
|                                                      |                                                     |                    |         |                  |  |      |         |         |  |   |         |        |  |   |         |        
|                                                      | Net unpaid losses and ALAE, end of period           |                    |         | 81,649           |  |      |         | 101,710 |  |   |         | 81,649 |  |   |         | 101,710 | 
|                                                      | Add ceded unpaid losses and ALAE                    |                    |         | 39,421           |  |      |         | 59,754  |  |   |         | 39,421 |  |   |         | 59,754  | 
|                                                      |                                                     |                    |         |                  |  |      |         |         |  |   |         |        |  |   |         |        
|Gross unpaid losses and ALAE, end of period           |                                                     | $                  | 121,070 |                  |  | $    | 161,464 |         |  | $ | 121,070 |        |  | $ | 161,464 |        
|                                                      |                                                     |                    |         |                  |  |      |         |         |  |   |         |        |  |   |         |        



| |                                                                                                                                                                                                                                                                                           
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Company also maintains reserves for other
    latent exposures such as those associated with silica, lead,
    chemicals, sick building syndrome, mold and gas and vapors of
    $23,722 and $26,701, net of reinsurance, as of June 30,
    2004 and December 31, 2003, respectively.

10



---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


(Dollars in thousands)




|   |            
|-- | -----------
|5. | Reinsurance



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

|                  |                                                         |                      |   |                  |         |      |   |         |         |  |   |          |         |  |   |          |         | 
|----------------- | ------------------------------------------------------- | -------------------- | - | ---------------- | ------- | ---- | - | ------- | ------- |  | - | -------- | ------- |  | - | -------- | ------- | 
|                  |                                                         |                      |   |                 
|                  |                                                         | Three Months Ended   |   | Six Months Ended
|                  |                                                         | June 30,             |   | June 30,        
|                  |                                                         |                      |   |                 
|                  |                                                         | 2004                 |   | 2003             |         | 2004 |   | 2003   
|                  |                                                         |                      |   |                  |         |      |   |        
|Premiums written: |                                                         |                      |   |                  |         |      |   |         |         |  |   |          |         |  |   |         
|                  | Direct                                                  |                      | $ | 254,457          |         |      | $ | 237,197 |         |  | $ | 537,068  |         |  | $ | 498,399  |        
|                  | Assumed from other companies, pools or
    associations |                      |   | 3,578            |         |      |   | 3,393   |         |  |   | 6,903    |         |  |   | 7,709    |        
|                  | Ceded to other companies, pools or associations         |                      |   | (45,435          | )       |      |   | (55,182 | )       |  |   | (100,486 | )       |  |   | (112,141 | )      
|                  |                                                         |                      |   |                  |         |      |   |         |         |  |   |          |         |  |   |         
|                  |                                                         | Net premiums written |   | $                | 212,600 |      |   | $       | 185,408 |  |   | $        | 443,485 |  |   | $        | 393,967 | 
|                  |                                                         |                      |   |                  |         |      |   |         |         |  |   |          |         |  |   |         

|                 |                                                         |                    |   |                  |         |      |   |         |         |  |   |          |         |  |   |          |         | 
|---------------- | ------------------------------------------------------- | ------------------ | - | ---------------- | ------- | ---- | - | ------- | ------- |  | - | -------- | ------- |  | - | -------- | ------- | 
|                 |                                                         |                    |   |                 
|                 |                                                         | Three Months Ended |   | Six Months Ended
|                 |                                                         | June 30,           |   | June 30,        
|                 |                                                         |                    |   |                 
|                 |                                                         | 2004               |   | 2003             |         | 2004 |   | 2003   
|                 |                                                         |                    |   |                  |         |      |   |        
|Premiums earned: |                                                         |                    |   |                  |         |      |   |         |         |  |   |          |         |  |   |         
|                 | Direct                                                  |                    | $ | 272,015          |         |      | $ | 232,963 |         |  | $ | 546,935  |         |  | $ | 457,404  |        
|                 | Assumed from other companies, pools or
    associations |                    |   | 3,999            |         |      |   | 3,387   |         |  |   | 7,450    |         |  |   | 8,417    |        
|                 | Ceded to other companies, pools or associations         |                    |   | (50,251          | )       |      |   | (63,226 | )       |  |   | (101,083 | )       |  |   | (120,859 | )      
|                 |                                                         |                    |   |                  |         |      |   |         |         |  |   |          |         |  |   |         
|                 |                                                         | Premiums earned    |   | $                | 225,763 |      |   | $       | 173,124 |  |   | $        | 453,302 |  |   | $        | 344,962 | 
|                 |                                                         |                    |   |                  |         |      |   |         |         |  |   |          |         |  |   |         



| |                                                                                             
| | --------------------------------------------------------------------------------------------
| | The components of the Companys total
    reinsurance recoverable are summarized as follows:

|                                                 |                               |          |           |              |  |   |           |           | 
|------------------------------------------------ | ----------------------------- | -------- | --------- | ------------ |  | - | --------- | --------- | 
|                                                 |                               | June 30, |           | December 31,
|                                                 |                               | 2004     |           | 2003        
|                                                 |                               |          |           |             
|Reinsurance recoverable on unpaid losses and LAE |                               | $        | 1,589,326 |              |  | $ | 1,614,022 |          
|Reinsurance receivable on paid losses and LAE    |                               |          | 53,909    |              |  |   | 66,444    |          
|                                                 |                               |          |           |              |  |   |           |          
|                                                 | Total reinsurance recoverable |          | $         | 1,643,235    |  |   | $         | 1,680,466 | 
|                                                 |                               |          |           |              |  |   |           |          



|   |               
|-- | --------------
|6. | Long-Term Debt



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | On June 5, 2003, concurrent with the merger
    of entities under common control described in Note 1 above,
    Crum & Forster Funding Corp., an unaffiliated special
    purpose entity, issued $300,000 aggregate principal amount of
    senior notes (the Notes) in a private placement,
    with the sole intent of having obligations under such Notes only
    until the Company could assume such obligations. On
    June 30, 2003, the Company assumed Crum & Forster
    Funding Corp.s obligations under the Notes. The Notes,
    which bear interest payable semi-annually at 10.375%, mature on
    June 15, 2013. The net proceeds from the offering of
    approximately $290,955 were used to fund an interest escrow
    account in the amount of approximately $63,115 to make the first
    four semi-annual interest payments on the Notes and to pay a
    dividend to Fairfax in the amount of $217,885, with the
    remainder used to pay related financing costs. The Notes contain
    certain restrictions on incurrence of additional indebtedness,
    dividend payments to Fairfax, asset sales and certain

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NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


(Dollars in thousands)




| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | transactions with affiliates. In addition, the
    Company was required by the terms of the Notes to use its best
    efforts to register the Notes, or similar instruments with
    substantially the same terms to be exchanged for the Notes, with
    the Securities and Exchange Commission. Pursuant to an exchange
    offer, which was completed on April 20, 2004, the Company
    issued $300,000 aggregate principal amount of registered notes
    with substantially the same terms as the Notes, in exchange for
    all of the outstanding Notes. As required by the terms of the
    Notes, additional interest of $279 was incurred for the period
    from December 28, 2003 through April 19, 2004, after
    which such additional interest is no longer payable on the Notes.
|
| | For the six months ended June 30, 2004,
    total interest expense on the Notes was $16,726, including
    additional interest described above, accretion of the discount
    on the Notes and amortization of related deferred financing
    costs.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|
| | Concurrent with the issuance of the Notes, the
    Company entered into a non-interest bearing standby credit
    agreement, subordinate to the Notes, whereby Fairfax Financial
    agreed, under certain conditions, to lend up to $40,000 to Crum
    & Forster in order to meet certain corporate obligations.
    Borrowings under this agreement, if any, are due in June 2018.
    Through June 30, 2004, there have been no borrowings under
    this agreement.                                                                                                                                                                                                                                                                                                                          



|   |                               
|-- | ------------------------------
|7. | Investments in Related Parties



| |                                                                                                                                                                                                                                                                                                                                                  
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | In April 2004, the Company invested $30,000 in
    shares of HWIC Asia Fund (HWIC), bringing the total
    investment in HWIC to $76,210 as of June 30, 2004. HWIC is
    an investment fund owned 100% by Fairfax Financial affiliates
    that invests in a diversified portfolio of listed equity and
    equity-related securities in Asia.



|   |                              
|-- | -----------------------------
|8. | Commitments and Contingencies



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Companys subsidiaries are involved in
    various lawsuits and arbitration proceedings arising in the
    ordinary course of business. While the ultimate 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 financial position.
    However, it should be noted that the frequency of large damage
    awards, including large punitive damage awards that bear little
    or no relation to actual economic damages incurred by plaintiffs
    in some jurisdictions, continues to create the potential for an
    unpredictable judgment in any given matter.



|   |                  
|-- | -----------------
|9. | Segment Reporting



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

|                       |       |                    |        |                  |  |      |        |         |  |   |         |         |  |   |        |         | 
|---------------------- | ----- | ------------------ | ------ | ---------------- |  | ---- | ------ | ------- |  | - | ------- | ------- |  | - | ------ | ------- | 
|                       |       |                    |        |                 
|                       |       | Three Months Ended |        | Six Months Ended
|                       |       | June 30,           |        | June 30,        
|                       |       |                    |        |                 
|                       |       | 2004               |        | 2003             |  | 2004 |        | 2003   
|                       |       |                    |        |                  |  |      |        |        
|Workers compensation  |       | $                  | 67,046 |                  |  | $    | 44,661 |         |  | $ | 134,950 |         |  | $ | 87,463 |        
|Property               |       |                    | 49,763 |                  |  |      | 47,856 |         |  |   | 101,708 |         |  |   | 98,428 |        
|General liability      |       |                    | 49,957 |                  |  |      | 38,494 |         |  |   | 100,280 |         |  |   | 74,743 |        
|Commercial automobile  |       |                    | 43,353 |                  |  |      | 29,691 |         |  |   | 85,352  |         |  |   | 59,599 |        
|Commercial multi-peril |       |                    | 10,391 |                  |  |      | 8,053  |         |  |   | 20,553  |         |  |   | 16,432 |        
|Surety                 |       |                    | 5,253  |                  |  |      | 4,369  |         |  |   | 10,459  |         |  |   | 8,297  |        
|                       |       |                    |        |                  |  |      |        |         |  |   |         |         |  |   |        |        
|                       | Total |                    | $      | 225,763          |  |      | $      | 173,124 |  |   | $       | 453,302 |  |   | $      | 344,962 | 
|                       |       |                    |        |                  |  |      |        |         |  |   |         |         |  |   |        |        

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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


(Dollars in thousands)




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

|                       |       |                    |        |                  |  |        |       |       |  |        |        |         |  |        |          |        |  |   |         |         |  |  |       |       |  |   |        |         |  |  |       |       | 
|---------------------- | ----- | ------------------ | ------ | ---------------- |  | ------ | ----- | ----- |  | ------ | ------ | ------- |  | ------ | -------- | ------ |  | - | ------- | ------- |  |  | ----- | ----- |  | - | ------ | ------- |  |  | ----- | ----- | 
|                       |       |                    |        |                 
|                       |       | Three Months Ended |        | Six Months Ended
|                       |       | June 30,           |        | June 30,        
|                       |       |                    |        |                 
|                       |       |                    |        |                  |  |        |       |      
|                       |       | 2004               |        | 2003             |  | 2004   |       | 2003 
|                       |       |                    |        |                  |  |        |       |      
|                       |       | Amount             |        | Ratio            |  | Amount |       | Ratio |  | Amount |        | Ratio   |  | Amount |          | Ratio 
|                       |       |                    |        |                  |  |        |       |       |  |        |        |         |  |        |          |       
|Workers compensation  |       | $                  | 56,872 |                  |  |        | 84.8% |       |  | $      | 50,832 |         |  |        | 113.8 %  |        |  | $ | 110,821 |         |  |  | 82.1% |       |  | $ | 68,897 |         |  |  | 78.8% |      
|Property               |       |                    | 27,391 |                  |  |        | 55.0% |       |  |        | 39,382 |         |  |        | 82.3 %   |        |  |   | 62,185  |         |  |  | 61.1% |       |  |   | 73,472 |         |  |  | 74.6% |      
|General liability      |       |                    | 34,069 |                  |  |        | 68.2% |       |  |        | 20,445 |         |  |        | 53.1 %   |        |  |   | 71,007  |         |  |  | 70.8% |       |  |   | 50,994 |         |  |  | 68.2% |      
|Commercial automobile  |       |                    | 33,285 |                  |  |        | 76.8% |       |  |        | 28,226 |         |  |        | 95.1 %   |        |  |   | 63,836  |         |  |  | 74.8% |       |  |   | 42,965 |         |  |  | 72.1% |      
|Commercial multi-peril |       |                    | 6,135  |                  |  |        | 59.0% |       |  |        | (9,428 | )       |  |        | (117.1)% |        |  |   | 10,384  |         |  |  | 50.5% |       |  |   | 8,630  |         |  |  | 52.5% |      
|Surety                 |       |                    | 1,512  |                  |  |        | 28.8% |       |  |        | 687    |         |  |        | 15.7 %   |        |  |   | 3,168   |         |  |  | 30.3% |       |  |   | 1,914  |         |  |  | 23.1% |      
|                       |       |                    |        |                  |  |        |       |       |  |        |        |         |  |        |          |        |  |   |         |         |  |  |       |       |  |   |        |         |  |  |       |      
|                       | Total |                    | $      | 159,264          |  |        |       | 70.5% |  |        | $      | 130,144 |  |        |          | 75.2 % |  |   | $       | 321,401 |  |  |       | 70.9% |  |   | $      | 246,872 |  |  |       | 71.6% | 
|                       |       |                    |        |                  |  |        |       |       |  |        |        |         |  |        |          |        |  |   |         |         |  |  |       |       |  |   |        |         |  |  |       |      



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

13



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##### Table of Contents








|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|Item 2. | Managements Discussion and Analysis of
    Financial Condition and Results of Operations

The following discussion relates to the
consolidated results of operations, financial condition,
liquidity and capital resources and critical accounting policies
and estimates of the Company for the interim periods indicated.
References within this discussion to the 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 (CF
Indemnity), Crum and Forster Insurance Company (CF
Insurance) and Crum & Forster Underwriters Co. of Ohio
(CF Underwriters). Effective July 1, 2004, CF
Underwriters was merged into US Fire. 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. References to Fairfax refer to
Fairfax Inc., Crum & Forsters parent company.
References to Fairfax Financial refer to 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 GAAP,
is not required for interim reporting purposes and has been
condensed or omitted herein. This discussion, and the related
consolidated financial statements should be read in conjunction
with the Companys consolidated financial statements as of
December 31, 2003 and related notes thereto included in the
Companys Registration Statement on Form S-4
(Registration No. 333-107722), to which Amendment
No. 4 was filed with the Securities and Exchange Commission
on March 15, 2004. 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.

Forward-looking Statements

This report contains forward-looking statements
within the meaning of Section 27A of the Securities Act of
1933, Section 21E of the Securities Exchange Act of 1934
and the Private Securities Litigation Reform Act of 1995. These
are statements that relate to future periods and include
statements regarding the Companys anticipated performance.
In addition, the outcome of pending motions or appeals, if any,
related to litigation discussed herein is unknown.

Generally, the words, anticipates,
believes, expects, intends,
estimates, projects, plans,
target, potential, likely,
may, could, should and
similar expressions identify forward-looking statements. These
forward-looking statements involve known and unknown risks,
uncertainties and other important factors that could cause the
Companys actual results, performance or achievements, or
industry results, to differ materially from any future results,
performance or achievements expressed or implied by these
forward-looking statements. These risks, uncertainties and other
important factors include, but are not limited to, the following:



| |   |                                                                                                                                                                                    
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Lowering or loss of one of the Companys
    financial strength ratings;                                                                                                           
|
| |  | Insufficient loss reserves, including reserves
    for asbestos, environmental and other latent claims;                                                                            
|
| |  | Occurrence of natural or unnatural catastrophic
    events;                                                                                                                        
|
| |  | Exposure to emerging claims and coverage issues;                                                                                                                                   
|
| |  | Competitive conditions in the insurance market;                                                                                                                                    
|
| |  | Inability to realize the Companys
    investment objectives;                                                                                                                      
|
| |  | Inability of certain of the Companys
    insurance subsidiaries to pay dividends;                                                                                                 
|
| |  | Inability to obtain reinsurance coverage on
    reasonable terms and prices;                                                                                                       
|
| |  | Exposure to credit risk, in the event reinsurers
    or insureds that owe the Company premiums or reimbursement of
    deductibles paid by the Company on their behalf fail to pay;
|
| |  | Adverse developments in the prospects or results
    of operations of Fairfax or its affiliates;                                                                                   

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##### Table of Contents





| |   |                                                  
| | - | -------------------------------------------------
| |  | Loss of key employees;                           
|
| |  | Loss of key producers;                           
|
| |  | Changes in governmental regulations;             
|
| |  | Exposure to credit risks on novated policies; and
|
| |  | Limited ability to borrow.                       

Additional information regarding these factors,
and others that could cause actual results to differ materially
from expectations, is included in the Companys
Registration Statement on Form S-4 (Registration
No. 333-107722), to which Amendment No. 4 was filed
with the SEC on March 15, 2004. The information appearing
under Risk factors in such Registration Statement is
incorporated by reference into, and made a part of, Part II
of this Form 10-Q. Any forward-looking statements made in
this quarterly report are made by the Company as of the date of
this quarterly 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.

Critical Accounting Policies and
Estimates

The Companys financial statements are
prepared in accordance with accounting principles generally
accepted in the United States of America. These principles
require management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and the
disclosure of material contingent assets and liabilities as of
the balance sheet dates and the revenues and expenses reported
during the relevant periods. 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 summarized
below are those that require Crum & Forster 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 those estimates, the
reported consolidated results of operations and financial
condition could be materially affected.

The Companys significant accounting
policies are described in full detail in Note 2 to the
Companys consolidated financial statements as of
December 31, 2003 included in its Registration Statement on
Form S-4 (Registration No. 333-107722), to which
Amendment No. 4 was filed with the SEC on March 15,
2004.

Unpaid Losses and Loss Adjustment
Expenses

Unpaid losses and loss adjustment expenses
(LAE) include reserves for unpaid reported losses
and for losses incurred but not reported (IBNR). For
reported losses, the Company establishes case reserves within
the parameters of coverage provided in the insurance policy,
which represent the estimated ultimate cost of events or
conditions that have been reported to, or specifically
identified by the Company. The estimates reflect the judgment of
claims personnel based on 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 information becomes available. For IBNR
losses, reserves are estimated using established actuarial
methods.

Because much of the coverage the Company offers
involves claims that may not ultimately be settled for many
years after they are incurred, subjective judgments as to the
ultimate exposure to losses are an integral and necessary
component of the loss reserving process. For certain
catastrophic events, there is considerable uncertainty
underlying the assumptions and associated estimated reserves for
losses and LAE. The Companys reserves are continually
reviewed using a variety of statistical and actuarial techniques
to analyze current claim costs, frequency and severity data and
prevailing economic, social and legal factors. Other variables
such as past loss experience, changes in legislative conditions,
changes in judicial interpretation of legal liability and policy
coverage, changes in claims handling practices and inflation are
also taken into consideration. Reserves are also

15



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##### Table of Contents



established to provide for the estimated expense
of settling claims, including legal and other fees, and the
general expenses of administering the claims adjustment process.


Reserves for asbestos and environmental exposures
cannot be estimated solely with the traditional loss reserving
techniques, which rely on historical accident year development
factors and take into consideration the previously mentioned
variables. Asbestos and environmental reserves are more
difficult to estimate than other loss reserves because of legal
issues, societal factors and difficulty in determining the
parties who may ultimately be held liable. Therefore, in
addition to taking into consideration the traditional variables
that are utilized to arrive at other loss reserve amounts, Crum
& Forster also looks at past and anticipated future asbestos
claim filings against each insured, past settlement values of
similar asbestos claims, an analysis of each insureds
potential liability, the jurisdictions involved, the potential
role of other insurance, the length of time necessary to clean
up polluted sites, controversies surrounding the identity of the
responsible party, the degree of remediation deemed to be
necessary, the estimated time period for litigation expenses,
judicial expansions of coverage, case law and the history of
prior claim development. Generally, case reserves are
established when sufficient information has been obtained to
indicate coverage under a specific insurance policy. End of
period reserves in relation to paid losses in a period are also
considered. Furthermore, IBNR reserves are established to cover
additional estimated exposures on both known and unasserted
claims. The reserves are continually reviewed and updated as
additional information is obtained.

Other Than Temporary Declines in Value of
Investments

Declines in the market values of invested assets
below carrying value are evaluated for other than temporary
impairment losses on a quarterly basis. Recognition of
impairment losses for declines in the value of fixed income
investments and equity securities attributable to
issuer-specific events is based upon all relevant facts and
circumstances for each investment. For fixed income investments
with unrealized losses due to market conditions or
industry-related events, management considers the Companys
intent and ability to hold the investments for a period of time
to allow a market recovery, or to maturity, in the process of
evaluating whether securities with unrealized losses have
suffered an other than temporary decline. Significant
assumptions and management judgment are involved in determining
if the decline is other than temporary. As of June 30,
2004, the Company had gross unrealized losses on
available-for-sale securities totaling $161,727. See
Results of Operations  Liquidity and Capital
Resources  Insurance Operating Subsidiaries
below for further discussion of those investments.

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 operating
companies of their primary obligation to policyholders as the
direct insurer. Accordingly, the Company is exposed to the risk
that any reinsurer may be unable, or unwilling, to meet its
obligations assumed under reinsurance agreements. The Company
attempts to mitigate this risk by entering into reinsurance
arrangements only with reinsurers that have credit ratings and
statutory surplus above certain levels and by obtaining
collateral.

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 Crum & Forsters insurance
operating companies in particular.

Overview

The Company is a national commercial property and
casualty insurance company with a focused underwriting strategy,
targeting specialty classes of business and overlooked market
opportunities. Operating through its home office and regional
branch network, the Company writes a broad range of commercial
coverage, including workers compensation, property,
general liability, commercial automobile, commercial multi-peril
and surety.

16



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##### Table of Contents



The Company generally conducts business on a
brokerage basis through approximately 1,000 producers located
throughout the United States.


The Companys objective is to expand
opportunistically into classes of business or market segments
that are consistent with its underwriting expertise and have the
potential to generate an underwriting profit. Management
believes the Companys ability to identify and react to
changing market conditions provides it with a competitive
advantage. Based on the experience and underwriting expertise of
operating company management, the Company seeks to write new
lines of business and expand existing classes of business based
on market conditions and expected profitability. The Company
offers insurance products designed to meet specific insurance
needs of targeted insured groups, underwriting specific types of
coverage for markets that are generally underserved by the
industry, while focusing on markets within its areas of
underwriting expertise.

The profitability of property and casualty
insurance companies is primarily determined by its underwriting
results and investment results. 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 other general
and administrative 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 disasters, regulatory measures and court decisions that
define and expand the extent of coverage. Insurance premium
prices 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 between total
return, capital preservation and liquidity in order to have
adequate funds available 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 a sensitivity to liquidity
requirements. The Company intends to protect its capital from
loss and invest in debt and equity securities that it believes
are selling at prices below their intrinsic value.

Management measures the results of operations by
monitoring certain measures of growth and profitability. Growth
is generally measured in terms of gross premiums written.
Management further reviews growth in its gross premiums written
in terms of its rate of retention of existing insureds,
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
yardstick. Underwriting profit or loss equals premiums earned
less losses and LAE, policy acquisition costs and other
underwriting expenses, and excludes investment results, interest
expense and other income or expense. 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.

The property and casualty insurance business is
cyclical and influenced by many factors, including price
competition, economic conditions, natural or man-made disasters
(for example, earthquakes and terrorism), interest rates, state
regulations, court decisions and changes in the law. Market
conditions in the first half of 2004 continued to be generally
favorable, characterized by modest price increases and improved
terms and conditions in the casualty lines. Renewal pricing in
the casualty lines increased in 2004 by approximately 8%, but at
reduced rates over those achieved in the first half of 2003.
Renewal pricing in the property lines declined in 2004 by
approximately 6%; however, management continues to believe that
rates remain adequate relative to the risks assumed in this
line. The Companys renewal retention ratio has improved
overall to approximately 62% from approximately 60% in the first
half of 2004 compared to the first half of 2003. New business
for the first half of

17



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##### Table of Contents



2004 was approximately 12% lower than the prior
year, principally in the property lines, due to more competitive
market conditions, including expanded availability of coverage
from higher rated companies.


Results of Operations

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

|                            |                |                    |         |                  |  |      |         |         |  |   |         |         |  |   |         |         | 
|--------------------------- | -------------- | ------------------ | ------- | ---------------- |  | ---- | ------- | ------- |  | - | ------- | ------- |  | - | ------- | ------- | 
|                            |                |                    |         |                 
|                            |                | Three Months Ended |         | Six Months Ended
|                            |                | June 30,           |         | June 30,        
|                            |                |                    |         |                 
|                            |                | 2004               |         | 2003             |  | 2004 |         | 2003   
|                            |                |                    |         |                  |  |      |         |        
|Gross premiums written      |                | $                  | 258,035 |                  |  | $    | 240,590 |         |  | $ | 543,971 |         |  | $ | 506,108 |        
|                            |                |                    |         |                  |  |      |         |         |  |   |         |         |  |   |         |        
|Net premiums written        |                | $                  | 212,600 |                  |  | $    | 185,408 |         |  | $ | 443,485 |         |  | $ | 393,967 |        
|                            |                |                    |         |                  |  |      |         |         |  |   |         |         |  |   |         |        
|Premiums earned             |                | $                  | 225,763 |                  |  | $    | 173,124 |         |  | $ | 453,302 |         |  | $ | 344,962 |        
|Investment income           |                |                    | 28,378  |                  |  |      | 17,092  |         |  |   | 52,467  |         |  |   | 39,902  |        
|Realized investment gains   |                |                    | 10,418  |                  |  |      | 167,850 |         |  |   | 47,446  |         |  |   | 218,047 |        
|                            |                |                    |         |                  |  |      |         |         |  |   |         |         |  |   |         |        
|                            | Total revenues |                    |         | 264,559          |  |      |         | 358,066 |  |   |         | 553,215 |  |   |         | 602,911 | 
|                            |                |                    |         |                  |  |      |         |         |  |   |         |         |  |   |         |        
|Losses and LAE              |                |                    | 159,264 |                  |  |      | 130,144 |         |  |   | 321,401 |         |  |   | 246,872 |        
|Policy acquisition costs    |                |                    | 31,167  |                  |  |      | 23,534  |         |  |   | 61,878  |         |  |   | 45,453  |        
|Other underwriting expenses |                |                    | 31,981  |                  |  |      | 30,356  |         |  |   | 64,491  |         |  |   | 60,923  |        
|Interest expense            |                |                    | 8,287   |                  |  |      | 2,272   |         |  |   | 16,726  |         |  |   | 2,272   |        
|Other expense (income), net |                |                    | 4,630   |                  |  |      | (260    | )       |  |   | 5,566   |         |  |   | (535    | )      
|                            |                |                    |         |                  |  |      |         |         |  |   |         |         |  |   |         |        
|                            | Total expenses |                    |         | 235,329          |  |      |         | 186,046 |  |   |         | 470,062 |  |   |         | 354,985 | 
|                            |                |                    |         |                  |  |      |         |         |  |   |         |         |  |   |         |        
|Income before income taxes  |                |                    | 29,230  |                  |  |      | 172,020 |         |  |   | 83,153  |         |  |   | 247,926 |        
|Income tax expense          |                |                    | 10,139  |                  |  |      | 60,626  |         |  |   | 28,908  |         |  |   | 86,700  |        
|                            |                |                    |         |                  |  |      |         |         |  |   |         |         |  |   |         |        
|Net income                  |                | $                  | 19,091  |                  |  | $    | 111,394 |         |  | $ | 54,245  |         |  | $ | 161,226 |        
|                            |                |                    |         |                  |  |      |         |         |  |   |         |         |  |   |         |        
|Loss and LAE ratio          |                |                    | 70.5    | %                |  |      | 75.2    | %       |  |   | 70.9    | %       |  |   | 71.6    | %      
|Underwriting expense ratio  |                |                    | 28.0    |                  |  |      | 31.1    |         |  |   | 27.9    |         |  |   | 30.8    |        
|                            |                |                    |         |                  |  |      |         |         |  |   |         |         |  |   |         |        
|Combined ratio              |                |                    | 98.5    | %                |  |      | 106.3   | %       |  |   | 98.8    | %       |  |   | 102.4   | %      
|                            |                |                    |         |                  |  |      |         |         |  |   |         |         |  |   |         |        

Net income for the three and six months ended
June 30, 2004 was $19,091 and $54,245, respectively,
compared with $111,394 and $161,226, for the three and six
months ended June 30, 2003, respectively. The lower net
income was principally the net result of lower realized
investment gains and higher interest expense, offset by improved
underwriting results for the six months ended June 30,
2004, as compared to the same period in 2003. The 2003 realized
investment gains reflect the significant rally in the fixed
income markets in the spring of 2003. Higher interest expense in
2004 arose from the issuance of $300,000 aggregate principal
amount of 10.375% senior notes (the Notes) effective
June 5, 2003. The improved combined ratio principally
reflects the adverse effect of catastrophe losses in 2003 and
favorable movement in the underwriting expense ratio in 2004.

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Underwriting Results

Gross Premiums Written

The Companys gross premiums written by line
of business are summarized as follows:

|                       |       |                             |        |         |  |          |        |         |  |   |       |        |  |  |       |      | 
|---------------------- | ----- | --------------------------- | ------ | ------- |  | -------- | ------ | ------- |  | - | ----- | ------ |  |  | ----- | ---- | 
|                       |       |                            
|                       |       | Three Months Ended June 30,
|                       |       |                            
|                       |       |                             |        | Percent
|                       |       | 2004                        |        | 2003    |  | Increase |        | Change 
|                       |       |                             |        |         |  |          |        |        
|Workers compensation  |       | $                           | 61,032 |         |  | $        | 53,949 |         |  | $ | 7,083 |        |  |  | 13.1% |     
|Property               |       |                             | 74,026 |         |  |          | 73,682 |         |  |   | 344   |        |  |  | 0.5%  |     
|General liability      |       |                             | 59,557 |         |  |          | 57,377 |         |  |   | 2,180 |        |  |  | 3.8%  |     
|Commercial automobile  |       |                             | 42,854 |         |  |          | 37,594 |         |  |   | 5,260 |        |  |  | 14.0% |     
|Commercial multi-peril |       |                             | 12,545 |         |  |          | 10,765 |         |  |   | 1,780 |        |  |  | 16.5% |     
|Surety                 |       |                             | 8,021  |         |  |          | 7,223  |         |  |   | 798   |        |  |  | 11.0% |     
|                       |       |                             |        |         |  |          |        |         |  |   |       |        |  |  |       |     
|                       | Total |                             | $      | 258,035 |  |          | $      | 240,590 |  |   | $     | 17,445 |  |  |       | 7.3% | 
|                       |       |                             |        |         |  |          |        |         |  |   |       |        |  |  |       |     

|                       |       |                           |         |           |  |            |         |         |  |   |         |        |  |  |        |       | 
|---------------------- | ----- | ------------------------- | ------- | --------- |  | ---------- | ------- | ------- |  | - | ------- | ------ |  |  | ------ | ----- | 
|                       |       |                          
|                       |       | Six Months Ended June 30,
|                       |       |                          
|                       |       |                           |         | Increase/ |  | Percent   
|                       |       | 2004                      |         | 2003      |  | (Decrease) |         | Change 
|                       |       |                           |         |           |  |            |         |        
|Workers compensation  |       | $                         | 136,604 |           |  | $          | 114,215 |         |  | $ | 22,389  |        |  |  | 19.6 % |      
|Property               |       |                           | 137,157 |           |  |            | 150,329 |         |  |   | (13,172 | )      |  |  | (8.8)% |      
|General liability      |       |                           | 129,773 |           |  |            | 122,354 |         |  |   | 7,419   |        |  |  | 6.1 %  |      
|Commercial automobile  |       |                           | 99,766  |           |  |            | 83,439  |         |  |   | 16,327  |        |  |  | 19.6 % |      
|Commercial multi-peril |       |                           | 24,891  |           |  |            | 20,742  |         |  |   | 4,149   |        |  |  | 20.0 % |      
|Surety                 |       |                           | 15,780  |           |  |            | 15,029  |         |  |   | 751     |        |  |  | 5.0 %  |      
|                       |       |                           |         |           |  |            |         |         |  |   |         |        |  |  |        |      
|                       | Total |                           | $       | 543,971   |  |            | $       | 506,108 |  |   | $       | 37,863 |  |  |        | 7.5 % | 
|                       |       |                           |         |           |  |            |         |         |  |   |         |        |  |  |        |      

For the three and six months ended June 30,
2004, gross premiums written increased over the three and six
months ended June 30, 2003, primarily due to higher renewal
premiums, including the impact of price increases on renewal
policies which were partially offset by lower amounts of new
business. Renewal retention rates increased for the three and
six months ended June 30, 2004 by approximately nine and
two percentage points, respectively. Price increases on renewal
polices were level for the three months ended June 30, 2004
but were up approximately 4% for the six months ended
June 30, 2004. New business declined for both the three and
six months ended June 30, 2004 by approximately 18% and
12%, respectively. As the market has softened, competition for
new business, particularly from higher rated companies, has
intensified.

Casualty

For the three months ended June 30, 2004,
gross premiums written in casualty lines, which include the
workers compensation, general liability and commercial
automobile lines of business, increased over the three months
ended June 30, 2003 due to increases in the renewal
retention rate and price increases on renewal policies, which
were partially offset by a reduction in new business which was
affected by increased competition in the marketplace. For the
six months ended June 30, 2004, gross premiums written
increased due to price increases on renewal policies and a
modest increase in new business, which was partially offset by a
reduction in the renewal retention rate. The reduction in the
renewal retention rate was affected by increased competition,
the discontinuance of certain business programs which accounted
for approximately $12 million of the gross premiums written
in 2003 and select large account renewals.

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Property

For the three months ended June 30, 2004,
gross premiums written in property lines, which include the
property and commercial multi-peril lines of business, increased
slightly as compared to the three months ended June 30,
2003, as a result of an increase in the renewal retention rate
which was largely offset by price decreases on renewal policies
and lower amounts of new business due to market competition. For
the six months ended June 30, 2004, property gross premiums
written decreased due to lower amounts of new business and price
decreases on renewal policies, which were partially offset by an
increase in the renewal retention rate. For both the three and
six month periods ended June 30, 2004, property production
was impacted by softening market conditions, characterized by
decreasing rates and increased limits capacity in the
marketplace.

Net Premiums Written

For the three and six months ended June 30,
2004, net premiums written increased by $27,192, or 14.7%, and
$49,518, or 12.6%, over the three and six months ended
June 30, 2003, respectively. The increase in net premiums
written was generally in line with the growth in gross premiums
written, with the exception of the effect of the discontinuation
of certain fully reinsured business in late 2003. Such business
increased gross premiums written in the first half of 2003, with
no increase to net premiums written.

Premiums Earned

For the three and six months ended June 30,
2004, premiums earned increased by $52,639, or 30.4%, and
$108,340, or 31.4%, over the three and six months ended
June 30, 2003, respectively. 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. The larger increase in premiums
earned relative to net premiums written was principally
attributable to the lag in recognition of the increased premiums
written in the latter part of 2003.

Losses and LAE

For the three and six months ended June 30,
2004, the Companys calendar year loss and LAE ratio
decreased to 70.5% and 70.9%, respectively, from 75.2% and 71.6%
for the three and six months ended June 30, 2003,
respectively. The loss and LAE ratio improvement for the three
months ended June 30, 2004 is primarily due to the impact
of lower catastrophe losses in 2004 compared to the three months
ended June 30, 2003. For the six months ended June 30,
2004, the favorable impact of lower catastrophe losses in 2004
compared to 2003 was partially offset by prior year development
in the casualty lines. The accident year loss and LAE ratio
increased slightly to 69.8% in 2004 from 69.5% in 2003 due to a
higher proportion, in 2004, of premiums from casualty lines,
which generally have higher loss ratios than property lines.

Underwriting Expenses

Underwriting expenses are comprised of policy
acquisition costs and other underwriting expenses. Policy
acquisition costs are composed principally of commissions paid
to producers and premium taxes. Other underwriting expenses
consist of other operating expenses associated with the
Companys underwriting activities and include salaries and
benefits, information technology and rent, but exclude interest
expense and other corporate income and expense items.

The Companys acquisition expense ratio
increased to 13.8% and 13.7% for the three and six months ended
June 30, 2004, respectively, from 13.6% and 13.2% for the
three and six months ended June 30, 2003, respectively,
primarily due to lower amounts of ceded premiums on which a
ceding commission is paid to the Company by reinsurers.

The Companys other underwriting expense
ratio declined to 14.2% for the three and six months ended
June 30, 2004, respectively, from 17.5% and 17.6% for the
three and six months ended June 30, 2003, respectively, due
to an increase in premiums earned, which exceeded the
corresponding increase in other underwriting expenses.

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##### Table of Contents



Investment Results

For the three and six months ended June 30,
2004, the Company reported realized investment gains of $10,418
and $47,446, respectively, compared to realized investment gains
of $167,850 and $218,047 for the three and six months ended
June 30, 2003, respectively, reflecting the significant
rally in the fixed income markets in the spring of 2003. The
components of those investment gains are summarized as follows:

|                         |                                                                      |                                 |     |                  |        |      |     |        |         |  |     |        |        |  |    |         |         | 
|------------------------ | -------------------------------------------------------------------- | ------------------------------- | --- | ---------------- | ------ | ---- | --- | ------ | ------- |  | --- | ------ | ------ |  | -- | ------- | ------- | 
|                         |                                                                      |                                 |     |                 
|                         |                                                                      | Three Months Ended              |     | Six Months Ended
|                         |                                                                      | June 30,                        |     | June 30,        
|                         |                                                                      |                                 |     |                 
|                         |                                                                      | 2004                            |     | 2003             |        | 2004 |     | 2003  
|                         |                                                                      |                                 |     |                  |        |      |     |       
|Fixed income securities: |                                                                      |                                 |     |                  |        |      |     |        |         |  |     |        |        |  |    |        
|                         | United States government and government agencies
    and authorities |                                 | $   |                 |        |      | $   | 90,301 |         |  | $   | 26,176 |        |  | $  | 112,187 |        
|                         | Foreign governments                                                  |                                 |     |                 |        |      |     | 179    |         |  |     |       |        |  |    | 179     |        
|                         | Public utilities                                                     |                                 |     |                 |        |      |     | 4,214  |         |  |     | 3,453  |        |  |    | 19,648  |        
|                         | Other corporate bonds                                                |                                 |     | 254              |        |      |     | 23,546 |         |  |     | 4,574  |        |  |    | 36,437  |        
|                         |                                                                      |                                 |     |                  |        |      |     |        |         |  |     |        |        |  |    |        
|                         |                                                                      | Total fixed income securities   |     |                  | 254    |      |     |        | 118,240 |  |     |        | 34,203 |  |    |         | 168,451 | 
|                         |                                                                      |                                 |     |                  |        |      |     |        |         |  |     |        |        |  |    |        
|Equity securities:       |                                                                      |                                 |     |                  |        |      |     |        |         |  |     |        |        |  |    |        
|                         | Common stocks of banks, trusts and
    insurance companies           |                                 |     |                 |        |      |     | 14,122 |         |  |     | 1,944  |        |  |    | 14,175  |        
|                         | Common stocks of industrial and other companies                      |                                 |     | 9,929            |        |      |     | 35,350 |         |  |     | 10,828 |        |  |    | 35,350  |        
|                         |                                                                      |                                 |     |                  |        |      |     |        |         |  |     |        |        |  |    |        
|                         |                                                                      | Total equity securities         |     |                  | 9,929  |      |     |        | 49,472  |  |     |        | 12,772 |  |    |         | 49,525  | 
|                         |                                                                      |                                 |     |                  |        |      |     |        |         |  |     |        |        |  |    |        
|Other invested assets    |                                                                      |                                 | 235 |                  |        |      | 138 |        |         |  | 471 |        |        |  | 71 |        
|                         |                                                                      |                                 |     |                  |        |      |     |        |         |  |     |        |        |  |    |        
|                         |                                                                      | Total realized investment gains |     | $                | 10,418 |      |     | $      | 167,850 |  |     | $      | 47,446 |  |    | $       | 218,047 | 
|                         |                                                                      |                                 |     |                  |        |      |     |        |         |  |     |        |        |  |    |        

The Companys investment income was $28,378
and $52,467 for the three and six months ended June 30,
2004, respectively, as compared to $17,092 and $39,902 for the
three and six months ended June 30, 2003, respectively. For
the three months ended June 30, 2004, the increase in
investment income of $11,286, or 66.0%, was primarily the result
of a change in investment mix as compared to the three months
ended June 30, 2003 and earnings on equity investments that
were not acquired until late in 2003. The change in investment
mix was the result of realized investment gains in 2003,
reflecting the significant rally in the fixed income markets in
the spring of 2003. For the six months ended June 30, 2004,
the increase in investment income of $12,565, or 31.5%, was
primarily the result of earnings on equity investments that were
not acquired until late in 2003. Investment mix had minimal
impact on the increase in investment income for the six-month
period.

Other Income and Expense

For the three and six months ended June 30,
2004, other expense, net was $4,630 and $5,566, respectively, as
compared to other income, net of $260 and $535 for the three and
six months ended June 30, 2003, respectively. The increased
expense was primarily the net result of corporate expenses in
2004, including approximately $3,500 related to a retirement
benefits agreement with the former Chairman of the
Companys insurance operating subsidiaries entered into in
the second quarter of 2004.

Liquidity and Capital Resources

Holding Company

As a holding company with no direct operations,
Crum & Forster Holding Corp.s assets consist
primarily of its investments in the capital stock of its
insurance subsidiaries and $31,504 of restricted cash and
investments held in an interest escrow account for the payment
of the next two interest payments on the Notes. Crum &
Forsters

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ability to satisfy corporate obligations,
principally interest on the Notes, is primarily dependent on the
dividend paying capacity of such subsidiaries. State insurance
laws restrict the amount of shareholder dividends that insurance
companies may pay without prior approval of regulatory
authorities.


The ability of the Companys insurance
subsidiaries to pay dividends depends, among other things, on
such subsidiaries having positive statutory earned surplus. The
Companys principal insurance subsidiaries are US Fire and
North River. On March 29, 2004, US Fire paid a cash
shareholder dividend of $80,000. On March 30, 2004 and
June 25, 2004, Crum & Forster paid cash
shareholder dividends to Fairfax in the amounts of $42,500 and
$19,000, respectively. The remaining amount was used, or will be
used, to pay corporate expenses. US Fire may not pay further
shareholder dividends in 2004 without prior regulatory approval.
North River is not permitted to pay dividends in 2004 as it did
not have positive statutory earned surplus at December 31,
2003. As of June 30, 2004, US Fire and North River reported
statutory earned surplus of $186,098 and $4,595, respectively.

The Notes, which bear interest payable
semi-annually at 10.375%, mature on June 15, 2013. The net
proceeds from the offering of $290,955 were used to fund an
interest escrow account of approximately $63,115 to make the
first four semi-annual interest payments and to pay a dividend
to Fairfax in the amount of $217,885 with the remainder used to
pay related financing costs. In June 2004, the Company made its
second interest payment on the Notes in the amount of $15,842.

Under the terms of the Notes, the Company has
significant restrictions on the amount of new debt that may be
incurred. Pursuant to a non-interest bearing standby credit
agreement between Fairfax Financial and the Company, under
certain circumstances, the Company has the ability to borrow up
to $40,000 from Fairfax Financial to meet certain corporate
obligations. Borrowings under this agreement, if any, bear no
interest and are due in June 2018. Through June 30, 2004,
there have been no borrowings under this agreement.

Insurance Operating
Subsidiaries

At Crum & Forsters insurance operating
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. Management believes that,
for the foreseeable future, cash flows from operations at the
Companys operating subsidiaries will be sufficient to pay
their operating expenses.

Cash provided by operating activities for the six
months ended June 30, 2004 was $50,699, as compared to cash
used of $3,491 for the six months ended June 30, 2003. The
principal reasons for improved cash flows from operations in
2004 were growth in premiums written and lower paid losses,
partially offset by increased income tax payments and lower cash
received from investments. Income tax payments were higher by
$39,286 for the six months ended June 30, 2004, as compared
to the same period in 2003, as the majority of the
Companys subsidiary net operating losses were utilized in
late 2003.

Purchases of available-for-sale securities
comprised the majority of cash used in investing activities for
the six months ended June 30, 2004. Cash used in investing
activities was $1,787,902 for the six months ended June 30,
2004, reflecting primarily purchases of US Treasury
securities in the first quarter of 2004, as compared to cash
provided by investing activities of $1,638,288 for the six
months ended June 30, 2003, primarily reflecting
significant sales of investments in the second quarter of 2003.

Certain operating subsidiaries have entered into
securities repurchase agreements that allow these companies to
sell securities to, and repurchase such securities from, Fairfax
Financial. Under these agreements, US Fire and North River
may sell a maximum of $100,000 of securities to Fairfax
Financial at any one time and CF Indemnity,
CF Insurance and CF Underwriters are limited to sales
of $5,000 each. These arrangements have not been utilized since
2000. Effective July 1, 2004, CF Underwriters was merged
into US Fire and CF Underwriters securities
repurchase agreement was no longer in effect.

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Shareholders equity was $822,472 at
June 30, 2004 as compared to $906,115 at December 31,
2003. The decrease was primarily the result of dividends paid to
Fairfax and unrealized losses on fixed income investments during
2004. The Companys combined statutory policyholders
surplus was approximately $1,155,903 at June 30, 2004, as
compared to $1,107,435 at December 31, 2003. Effective
March 30, 2004, the State of Delaware enacted legislation
to adopt certain insurance accounting standards promulgated by
the National Association of Insurance Commissioners. The
adoption of such standards resulted in an increase in the
Companys combined statutory policyholders surplus of
$28,138, principally relating to the recognition of goodwill.

The aggregate carrying value of the
Companys investment portfolio, including cash and cash
equivalents, was $3,041,193 at June 30, 2004. Investments
in available-for-sale fixed income and equity securities are
summarized as follows:

|                                     |                                                                      |                               |           |            |           |            |         |            |        |   |         |         |         |   |           |           |           | 
|------------------------------------ | -------------------------------------------------------------------- | ----------------------------- | --------- | ---------- | --------- | ---------- | ------- | ---------- | ------ | - | ------- | ------- | ------- | - | --------- | --------- | --------- | 
|                                     |                                                                      |                              
|                                     |                                                                      | At June 30, 2004             
|                                     |                                                                      |                              
|                                     |                                                                      | Cost or                       |           | Gross      |           | Gross      |         |           
|                                     |                                                                      | Amortized                     |           | Unrealized |           | Unrealized |         |           
|                                     |                                                                      | Cost                          |           | Gains      |           | Losses     |         | Fair Value
|                                     |                                                                      |                               |           |            |           |            |         |           
|Fixed income securities:             |                                                                      |                               |           |            |           |            |         |            |        |   |         |         |         |   |           |          
|                                     | United States government and government agencies
    and authorities |                               | $         | 1,829,926  |           |            | $       | 119        |        |   | $       | 130,661 |         |   | $         | 1,699,384 |          
|                                     | States, municipalities and political subdivisions                    |                               |           | 9,013      |           |            |         | 267        |        |   |         |        |         |   |           | 9,280     |          
|                                     | Public utilities                                                     |                               |           | 110,703    |           |            |         | 8,139      |        |   |         | 634     |         |   |           | 118,208   |          
|                                     | Other corporate bonds                                                |                               |           | 250,122    |           |            |         | 8,198      |        |   |         | 21,962  |         |   |           | 236,358   |          
|                                     |                                                                      |                               |           |            |           |            |         |            |        |   |         |         |         |   |           |          
|                                     |                                                                      | Total fixed income securities |           |            | 2,199,764 |            |         |            | 16,723 |   |         |         | 153,257 |   |           |           | 2,063,230 | 
|                                     |                                                                      |                               |           |            |           |            |         |            |        |   |         |         |         |   |           |          
|Equity securities:                   |                                                                      |                               |           |            |           |            |         |            |        |   |         |         |         |   |           |          
|                                     | Common stocks of banks, trusts and insurance
    companies           |                               |           | 188,273    |           |            |         | 69,223     |        |   |         | 6,483   |         |   |           | 251,013   |          
|                                     | Common stocks of industrial and
    other companies                  |                               |           | 215,150    |           |            |         | 21,500     |        |   |         | 1,987   |         |   |           | 234,663   |          
|                                     |                                                                      |                               |           |            |           |            |         |            |        |   |         |         |         |   |           |          
|                                     |                                                                      | Total equity securities       |           |            | 403,423   |            |         |            | 90,723 |   |         |         | 8,470   |   |           |           | 485,676   | 
|                                     |                                                                      |                               |           |            |           |            |         |            |        |   |         |         |         |   |           |          
|Total investments available for sale |                                                                      | $                             | 2,603,187 |            |           | $          | 107,446 |            |        | $ | 161,727 |         |         | $ | 2,548,906 |          
|                                     |                                                                      |                               |           |            |           |            |         |            |        |   |         |         |         |   |           |          

Certain individual investments within the
Companys available-for-sale securities portfolio had gross
unrealized losses as of June 30, 2004 totaling $161,727, of
which $153,257 was attributed to fixed income securities, and
$8,470 was attributed to equity securities. United States
Treasury securities, the majority of which mature in 2018 or
beyond, accounted for $130,661 of the gross unrealized losses in
the fixed income portfolio. Gross unrealized

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losses of $161,727 represented 7.4% of the cost
of such securities in the aggregate. An aging of
available-for-sale securities in a loss position follows:


|                                     |                                                                      |                               |         |         |         |         |       |            |       |   |       |       |       |   |         |         |         | 
|------------------------------------ | -------------------------------------------------------------------- | ----------------------------- | ------- | ------- | ------- | ------- | ----- | ---------- | ----- | - | ----- | ----- | ----- | - | ------- | ------- | ------- | 
|                                     |                                                                      |                              
|                                     |                                                                      | At June 30, 2004             
|                                     |                                                                      |                              
|                                     |                                                                      |                               |         | Total  
|                                     |                                                                      |                               |         | Greater |         | Gross  
|                                     |                                                                      | 0 to 6                        |         | 7 to 12 |         | Than 12 |       | Unrealized
|                                     |                                                                      | Months                        |         | Months  |         | Months  |       | Losses    
|                                     |                                                                      |                               |         |         |         |         |       |           
|Fixed income securities:             |                                                                      |                               |         |         |         |         |       |            |       |   |       |       |       |   |         |        
|                                     | United States government and government agencies
    and authorities |                               | $       | 126,995 |         |         | $     | 2,658      |       |   | $     | 1,008 |       |   | $       | 130,661 |        
|                                     | Public utilities                                                     |                               |         | 634     |         |         |       |           |       |   |       |      |       |   |         | 634     |        
|                                     | Other corporate bonds                                                |                               |         | 21,962  |         |         |       |           |       |   |       |      |       |   |         | 21,962  |        
|                                     |                                                                      |                               |         |         |         |         |       |            |       |   |       |       |       |   |         |        
|                                     |                                                                      | Total fixed income securities |         |         | 149,591 |         |       |            | 2,658 |   |       |       | 1,008 |   |         |         | 153,257 | 
|                                     |                                                                      |                               |         |         |         |         |       |            |       |   |       |       |       |   |         |        
|Equity securities:                   |                                                                      |                               |         |         |         |         |       |            |       |   |       |       |       |   |         |        
|                                     | Common stocks of banks, trusts and
    insurance companies           |                               |         | 6,421   |         |         |       |           |       |   |       | 62    |       |   |         | 6,483   |        
|                                     | Common stocks of industrial and
    other companies                  |                               |         | 1,987   |         |         |       |           |       |   |       |      |       |   |         | 1,987   |        
|                                     |                                                                      |                               |         |         |         |         |       |            |       |   |       |       |       |   |         |        
|                                     |                                                                      | Total equity securities       |         |         | 8,408   |         |       |            |      |   |       |       | 62    |   |         |         | 8,470   | 
|                                     |                                                                      |                               |         |         |         |         |       |            |       |   |       |       |       |   |         |        
|Total investments available for sale |                                                                      | $                             | 157,999 |         |         | $       | 2,658 |            |       | $ | 1,070 |       |       | $ | 161,727 |        
|                                     |                                                                      |                               |         |         |         |         |       |            |       |   |       |       |       |   |         |        

The amortized cost and fair value of fixed income
securities by contractual maturity are shown below. Actual
maturities may differ from maturities shown below due to the
existence of call or put features. At June 30, 2004,
securities containing call and put features represented 2.0% and
2.3%, respectively, of total fair value of the fixed income
portfolio.

|                                         |                                |                |           |            |  |   |           |           | 
|---------------------------------------- | ------------------------------ | -------------- | --------- | ---------- |  | - | --------- | --------- | 
|                                         |                                | Amortized Cost |           | Fair Value
|                                         |                                |                |           |           
|Due in one year or less                  |                                | $              | 170,411   |            |  | $ | 170,339   |          
|Due after one year through five years    |                                |                | 98,310    |            |  |   | 99,898    |          
|Due after five years through ten years   |                                |                | 9,676     |            |  |   | 8,469     |          
|Due after ten years through twenty years |                                |                | 1,182,920 |            |  |   | 1,090,108 |          
|Due after twenty years                   |                                |                | 738,447   |            |  |   | 694,416   |          
|                                         |                                |                |           |            |  |   |           |          
|                                         | Total fixed income investments |                | $         | 2,199,764  |  |   | $         | 2,063,230 | 
|                                         |                                |                |           |            |  |   |           |          

The Companys investment portfolio has
exposure to credit risk primarily related to fixed income
securities. The Company seeks to control this exposure by
emphasizing investment grade credit quality in the fixed income
securities purchased. Management believes that this
concentration in investment grade securities reduces, to an
acceptable level, its exposure to credit risk on these fixed
income investments. As of June 30, 2004, the Companys
fixed income securities had a weighted average credit rating of
AA.

As of June 30, 2004 and December 31,
2003, 91.3% and 74.9%, respectively, of the Companys fixed
income portfolio consisted of securities rated investment grade.
The higher proportion of investment grade securities at
June 30, 2004 was due primarily to the reinvestment of more
than $1.0 billion of cash and cash equivalents principally
in United States Treasury securities in March of 2004.

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##### Table of Contents



Ratings

Insurance companies are rated by ratings agencies
to provide both industry participants and insurance consumers
with meaningful information on specific insurance companies.
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. The Companys
insurance operating subsidiaries have an A-
financial strength rating, with a negative outlook, from A.M.
Best and a BBB financial strength rating from
Standard & Poors. A.M. Best has advised the Company
that although it is encouraged by improved underlying trends
exhibited in the Companys recent underwriting performance,
the ratings outlook is negative, and contingent upon
managements ability to ultimately achieve overall earnings
stability, specifically with regard to adequacy of asbestos
reserves, and improved financial flexibility of the
Companys ultimate parent, Fairfax Financial.

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, such as the
Notes.

Regulatory Matter

In 2004, the State of California adopted certain
Workers Compensation reform legislation, which would take
effect over the course of several months, with the greatest
impact in January 2005. The legislation requires, among other
things, for carriers to file a loss cost reduction. The total
rate impact of the changes in loss costs and other expense items
filed by the Company in 2004 amounts to a reduction of 5.2%;
however, the full impact of these regulatory changes is still
being reviewed.






|        |                                                               
|------- | --------------------------------------------------------------
|Item 3. | Quantitative and Qualitative Disclosures About
    Market Risk

The Company is principally exposed to three types
of market risk related to its investment operations. These risks
include interest rate risk, equity price risk and foreign
currency exchange risk. The term market risk
refers to the risk of loss arising from adverse changes in
market rates and prices, such as interest rates, equity prices
and foreign currency exchange rates. All market sensitive
instruments discussed here relate to the Companys
investment assets, which are classified as available-for-sale.

Interest Rate Risk

The Companys fixed income portfolio is
exposed 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
investments fall, and vice versa.

The table below displays the potential impact of
market value fluctuations on the Companys fixed income
portfolio as of June 30, 2004 based on parallel 200 basis
point shifts in interest rates up and down, in 100 basis points
increments. This analysis was performed on each security
individually.

|                                 |  |                  |           |              |  |              |          |   |  |  |        |  
|-------------------------------- |  | ---------------- | --------- | ------------ |  | ------------ | -------- | - |  |  | ------ | -
|                                 |  |                 
|                                 |  | At June 30, 2004
|                                 |  |                 
|                                 |  | Fair Value       |           |             
|                                 |  | of Fixed         |           | Hypothetical |  | Hypothetical
|Percent Change in Interest Rates |  | Income Portfolio |           | $ Change     |  | % Change    
|                                 |  |                  |           |              |  |             
|200 basis point decline          |  | $                | 2,545,655 |              |  | $            | 482,425  |   |  |  | 23.4   | %
|100 basis point decline          |  | $                | 2,285,556 |              |  | $            | 222,326  |   |  |  | 10.8   | %
|Base scenario                    |  | $                | 2,063,230 |              |  | $            |         |   |  |  |       | %
|100 basis point rise             |  | $                | 1,876,368 |              |  | $            | (186,862 | ) |  |  | (9.1)  | %
|200 basis point rise             |  | $                | 1,716,430 |              |  | $            | (346,800 | ) |  |  | (16.8) | %

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Computations of prospective effects of
hypothetical interest rate changes are based on numerous
assumptions, including the maintenance of the existing level and
composition of fixed income security assets, and should not be
relied on as indicative of future results. Certain shortcomings
are inherent in the method of analysis presented in the
computation of the fair value of fixed rate instruments. 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 non-parallel
shifts in the term structure of interest rates and changing
individual issuer credit spreads.

Equity Price Risk

As of June 30, 2004, 16.0% of the
Companys total investment portfolio, including cash and
cash equivalents, was in equity securities (unaffiliated and
affiliated). Marketable equity securities, which represented
approximately 15.6% of the total investment portfolio, are
exposed to equity price risk, defined as the potential for loss
in market value owing to a decline in equity prices. A
hypothetical 10.0% decline in the price of each of these
marketable equity securities would result in a total decline of
approximately $47,456 at June 30, 2004, in the fair value
of the total investment portfolio.

Foreign Currency Exchange Rate Risk

Through investments in foreign securities, the
Company is exposed to foreign currency exchange rate risk.
Foreign currency exchange rate risk is the potential for loss in
market value owing to a decline in the U.S. dollar value of
these investments due to a decline in the exchange rate of the
foreign currency in which these assets are denominated. As of
June 30, 2004, the Companys total exposure to foreign
denominated securities in U.S. dollar terms was
approximately $383,655, or 12.6%, of the total investment
portfolio, including cash and cash equivalents. The primary
foreign currency exposures were in Canadian dollar denominated
securities and British pound denominated securities, which
represented 4.7% and 3.3% of the total investment portfolio,
including cash and cash equivalents, respectively, as of
June 30, 2004. The potential impact of a hypothetical 10.0%
decline in each of the foreign exchange rates on the valuation
of investment assets denominated in those respective foreign
currencies would result in a decline in the fair value of the
total investment portfolio of approximately $38,366 at
June 30, 2004.




Item 4.     Controls
and Procedures

Evaluation of disclosure controls and
procedures.

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

Changes in internal control over financial
reporting.

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

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

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##### Table of Contents






PART II

OTHER INFORMATION





Item 1.     Legal
Proceedings

The Companys subsidiaries are involved in
various lawsuits and arbitration proceedings arising in the
ordinary course of business. While the ultimate 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 financial position.
However, it should be noted that the frequency of large damage
awards, including large punitive damage awards that bear little
or no relation to actual economic damages incurred by plaintiffs
in some jurisdictions, continues to create the potential for an
unpredictable judgment in any given matter.




Item 6.     Exhibits
and Reports on Form 8-K

(a)  Exhibits:



| |                       
| | ----------------------
| | See Index to Exhibits.

(b)  Reports on Form 8-K:



| |                                                                                                                                                                                                                                                                                
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | On June 23, 2004, the Company furnished a
    current report to the SEC on Form 8-K, pursuant to
    Item 9 thereof, relating to a press release, dated
    June 23, 2004, announcing certain senior management
    succession changes at the Companys operating subsidiaries.

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##### Table of Contents






SIGNATURES

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



| |                              
| | -----------------------------
| | CRUM & FORSTER HOLDINGS CORP.
| | (Registrant)                 

Date:  July 30,
2004

| |                             
| | ----------------------------
| | By: /s/ Nikolas Antonopoulos

| |  | 
| |  | 
| |  | 

| |                                      
| | -------------------------------------
| | Nikolas Antonopoulos                 
| | Chief Executive Officer and President

Date:  July 30,
2004

| |                            
| | ---------------------------
| | By: /s/ Mary Jane Robertson

| |  | 
| |  | 
| |  | 

| |                                      
| | -------------------------------------
| | Mary Jane Robertson                  
| | Senior Executive Vice President,     
| | Chief Financial Officer and Treasurer

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##### Table of Contents






INDEX TO EXHIBITS

|            |       |  |  |                                                                                                                                                                                                                                                                                                                        
|----------- | ----- |  |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |       | 
|            |       | 
|            | *31.1 |  |  | Certification of Chief Executive Officer and
    President pursuant to Section 302 of the Sarbanes-Oxley Act
    of 2002.                                                                                                                                                                                              
|           
|            | *31.2 |  |  | Certification of Senior Executive Vice President,
    Chief Financial Officer and Treasurer pursuant to
    Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                             
|           
|            | *32.1 |  |  | Certification of Chief Executive Officer and
    President pursuant to Section 906 of the Sarbanes-Oxley Act
    of 2002.                                                                                                                                                                                              
|           
|            | *32.2 |  |  | Certification of Senior 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 Registration
    Statement on Form S-4 (Registration No. 333-107722),
    to which Amendment No. 4 was filed with the Securities and
    Exchange Commission on March 15, 2004).



---



|  |               
|- | --------------
|* | Filed herewith

29