##### 



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
  
  Form 10-Q
 
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 or
  o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the Quarterly Period Ended:
    
    Commission File Number:September 30, 2005
    
    333-84068
 
 Crum & Forster Holdings Corp.
 (Exact Name of Registrant as Specified in its Charter)
 Delaware
    
    04-3611900(State or Other Jurisdiction of
    
    (I.R.S. Employer Identification Number)Incorporation or Organization)
 305 Madison Avenue, Morristown, New Jersey 07962  (Address of principal executive office)  (973) 490-6600  (Registrants telephone number, including area code)
 þ o
 o þ
 o þ
  Class
    
    Number of Shares Outstanding at October 28, 2005Common Stock, $.01 Par Value
    
    100




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##### 



CRUM & FORSTER HOLDINGS CORP.
 Form 10-Q
 Index
 PageNumberPART IFINANCIAL INFORMATIONITEM 1.
    
    FINANCIAL STATEMENTSConsolidated Balance Sheets as of September 30, 2005 and December 31, 2004
    
    
    3Consolidated Statements of Operations for the Three and Nine Months Ended September 30,
2005 and 2004
    
    
    4Consolidated Statements of Shareholders Equity for the Nine Months Ended September 30,
2005 and 2004
    
    
    5Consolidated Statements of Comprehensive (Loss) Income for the Three and Nine Months Ended
September 30, 2005 and 2004
    
    
    6Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2005 and 2004
    
    
    7Notes to Consolidated Financial Statements
    
    
    8ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
    
    
    16ITEM 3.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    25ITEM 4.
    
    CONTROLS AND PROCEDURES
    
    
    26PART IIOTHER INFORMATIONITEM 1.
    
    LEGAL PROCEEDINGS
    
    
    26ITEM 6.
    
    EXHIBITS
    
    
    26SIGNATURES
    
    
    27INDEX TO EXHIBITS
    
    
    28
 2




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##### 



PART I
FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 
 CRUM & FORSTER HOLDINGS CORP.
 CONSOLIDATED BALANCE SHEETS
 (Dollars in thousands, except per share amounts)
 September 30,
    
    
    December 31,2005
    
    
    2004(Unaudited)ASSETSInvestments:Fixed income securities, at fair value (amortized cost of $2,060,100 and
$2,062,246 in 2005 and 2004, respectively)
    
    $
    1,968,323
    
    
    $
    2,039,846Equity securities, at fair value (cost of $406,520 and $378,598 in 2005 and
2004, respectively)
    
    
    458,617
    
    
    
    455,153Other invested assets
    
    
    422,431
    
    
    
    293,406Total investments
    
    
    2,849,371
    
    
    
    2,788,405Cash and cash equivalents
    
    
    391,819
    
    
    
    429,205Assets pledged for short-sale obligations
    
    
    492,359
    
    
    
    277,899Premiums receivable
    
    
    233,890
    
    
    
    263,420Reinsurance recoverable
    
    
    1,809,221
    
    
    
    1,609,013Reinsurance recoverable from affiliates
    
    
    292,412
    
    
    
    195,799Prepaid reinsurance premiums
    
    
    32,108
    
    
    
    35,142Deferred income taxes
    
    
    198,015
    
    
    
    173,957Deferred policy acquisition costs
    
    
    71,478
    
    
    
    75,006Other assets
    
    
    116,334
    
    
    
    183,795Total assets
    
    $
    6,487,007
    
    
    $
    6,031,641LIABILITIESUnpaid losses and loss adjustment expenses
    
    $
    3,705,994
    
    
    $
    3,370,936Unearned premiums
    
    
    506,275
    
    
    
    528,592Accounts payable and other liabilities
    
    
    266,787
    
    
    
    241,049Funds held under reinsurance contracts
    
    
    275,401
    
    
    
    277,296Deferred income on retroactive reinsurance
    
    
    217,018
    
    
    
    223,360Short-sale obligations
    
    
    325,632
    
    
    
    217,378Long-term debt
    
    
    292,308
    
    
    
    291,841Total liabilities
    
    
    5,589,415
    
    
    
    5,150,452SHAREHOLDERS EQUITYCommon stock, $0.01 par value; 1,000 shares authorized; 100 issued and outstanding
    
    
    
    
    
    
    Additional paid-in capital
    
    
    740,993
    
    
    
    740,993Accumulated other comprehensive income, net of tax
    
    
    26,923
    
    
    
    55,875Retained earnings
    
    
    129,676
    
    
    
    84,321Total shareholders equity
    
    
    897,592
    
    
    
    881,189Total liabilities and shareholders equity
    
    $
    6,487,007
    
    
    $
    6,031,641
 The accompanying notes are an integral part of the consolidated financial statements.
 3




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##### 



CRUM & FORSTER HOLDINGS CORP.
 CONSOLIDATED STATEMENTS OF OPERATIONS
 (Dollars in thousands)
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004(Unaudited)REVENUESPremiums earned
    
    $
    191,898
    
    
    $
    212,037
    
    
    $
    665,432
    
    
    $
    665,339Investment income
    
    
    28,177
    
    
    
    21,108
    
    
    
    96,555
    
    
    
    64,389Realized investment gains (losses)
    
    
    22,641
    
    
    
    (1,841
    )
    
    
    94,885
    
    
    
    45,493Total revenues
    
    
    242,716
    
    
    
    231,304
    
    
    
    856,872
    
    
    
    775,221EXPENSESLosses and loss adjustment expenses
    
    
    169,632
    
    
    
    233,132
    
    
    
    485,802
    
    
    
    554,533Policy acquisition costs
    
    
    33,344
    
    
    
    31,204
    
    
    
    98,100
    
    
    
    93,082Other underwriting expenses
    
    
    31,781
    
    
    
    32,164
    
    
    
    97,408
    
    
    
    96,655Interest expense
    
    
    8,233
    
    
    
    8,216
    
    
    
    24,682
    
    
    
    24,942Other expense, net
    
    
    323
    
    
    
    1,554
    
    
    
    3,519
    
    
    
    7,120Total expenses
    
    
    243,313
    
    
    
    306,270
    
    
    
    709,511
    
    
    
    776,332(Loss) income before income taxes and equity in
earnings of investees
    
    
    (597
    )
    
    
    (74,966
    )
    
    
    147,361
    
    
    
    (1,111
    )Income tax (benefit) expense
    
    
    (1,024
    )
    
    
    (26,645
    )
    
    
    48,934
    
    
    
    (991
    )Income (loss) before equity in earnings of investees
    
    
    427
    
    
    
    (48,321
    )
    
    
    98,427
    
    
    
    (120
    )Equity in earnings of investees, net of tax
    
    
    5,674
    
    
    
    3,544
    
    
    
    14,428
    
    
    
    9,588NET INCOME (LOSS)
    
    $
    6,101
    
    
    $
    (44,777
    )
    
    $
    112,855
    
    
    $
    9,468
 The accompanying notes are an integral part of the consolidated financial statements.
 4




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##### 



CRUM & FORSTER HOLDINGS CORP.
 CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
 (Dollars in thousands)
 Nine Months EndedSeptember 30,2005
    
    
    2004(Unaudited)COMMON STOCKBalance, beginning and end of period
    
    $
    
    
    
    $
    ADDITIONAL PAID-IN CAPITALBalance, beginning and end of period
    
    
    740,993
    
    
    
    740,993ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAXBalance, beginning of period
    
    
    55,875
    
    
    
    43,496Unrealized investment losses, net of transfers to realized investment gains (losses)
    
    
    (30,632
    )
    
    
    (53,692
    )Foreign currency translation
    
    
    1,680
    
    
    
    408Balance, end of period
    
    
    26,923
    
    
    
    (9,788
    )RETAINED EARNINGSBalance, beginning of period
    
    
    84,321
    
    
    
    121,626Net income
    
    
    112,855
    
    
    
    9,468Dividends to shareholder
    
    
    (67,500
    )
    
    
    (61,500
    )Balance, end of period
    
    
    129,676
    
    
    
    69,594TOTAL SHAREHOLDERS EQUITY
    
    $
    897,592
    
    
    $
    800,799
 The accompanying notes are an integral part of the consolidated financial statements.
 5




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##### 



CRUM & FORSTER HOLDINGS CORP.
 CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
 (Dollars in thousands)
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004(Unaudited)NET INCOME (LOSS)
    
    $
    6,101
    
    
    $
    (44,777
    )
    
    $
    112,855
    
    
    $
    9,468Change in
components of other comprehensive (loss) income for the
period, before tax:Unrealized investment (losses) gains
    
    
    (120,670
    )
    
    
    30,338
    
    
    
    (47,124
    )
    
    
    (82,603
    )Foreign currency translation
    
    
    6,796
    
    
    
    5,207
    
    
    
    2,584
    
    
    
    628Other comprehensive (loss) income for the period, before
tax
    
    
    (113,874
    )
    
    
    35,545
    
    
    
    (44,540
    )
    
    
    (81,975
    )Deferred income tax benefit (expense) for the period:Deferred income tax benefit (expense) from unrealized
investment (losses) gains
    
    
    42,234
    
    
    
    (10,618
    )
    
    
    16,492
    
    
    
    28,911Deferred income tax expense from foreign currency translation
    
    
    (2,378
    )
    
    
    (1,823
    )
    
    
    (904
    )
    
    
    (220
    )Total deferred income tax benefit (expense) for the period
    
    
    39,856
    
    
    
    (12,441
    )
    
    
    15,588
    
    
    
    28,691Other comprehensive (loss) income for the period, net of tax
    
    
    (74,018
    )
    
    
    23,104
    
    
    
    (28,952
    )
    
    
    (53,284
    )COMPREHENSIVE (LOSS) INCOME
    
    $
    (67,917
    )
    
    $
    (21,673
    )
    
    $
    83,903
    
    
    $
    (43,816
    )
 The accompanying notes are an integral part of the consolidated financial statements.
 6




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##### 



CRUM & FORSTER HOLDINGS CORP.
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Dollars in thousands)
 Nine Months EndedSeptember 30,2005
    
    
    2004(Unaudited)OPERATING ACTIVITIESNet income
    
    $
    112,855
    
    
    $
    9,468Adjustments to reconcile net income to net cash from operating activities:Net accretion of discount on fixed income securities
    
    
    (2,667
    )
    
    
    (4,330
    )Realized investment gains
    
    
    (94,885
    )
    
    
    (45,493
    )Earnings of equity method investees
    
    
    (30,907
    )
    
    
    (15,388
    )Depreciation and amortization
    
    
    2,642
    
    
    
    3,695Deferred income tax benefit
    
    
    (8,468
    )
    
    
    (584
    )Other non-cash net income adjustments
    
    
    17,758
    
    
    
    18,719Changes in:Premiums receivable
    
    
    23,905
    
    
    
    16,844Reinsurance recoverable
    
    
    (317,191
    )
    
    
    (41,128
    )Prepaid reinsurance premiums
    
    
    3,034
    
    
    
    2,347Deferred policy acquisition costs
    
    
    3,528
    
    
    
    (3,389
    )Other assets
    
    
    35,616
    
    
    
    6,155Unpaid losses and loss adjustment expenses
    
    
    335,058
    
    
    
    160,389Unearned premiums
    
    
    (22,317
    )
    
    
    7,032Accounts payable and other liabilities
    
    
    32,111
    
    
    
    3,231Net cash from operating activities
    
    
    90,072
    
    
    
    117,568INVESTING ACTIVITIESPurchases of fixed income securities
    
    
    (1,533,287
    )
    
    
    (3,028,598
    )Proceeds from sales of fixed income securities
    
    
    1,513,604
    
    
    
    1,281,799Proceeds from maturities of fixed income securities
    
    
    1,255
    
    
    
    171,650Purchases of equity securities
    
    
    (152,099
    )
    
    
    (154,672
    )Proceeds from sales of equity securities
    
    
    190,999
    
    
    
    31,114Purchases of other invested assets
    
    
    (78,923
    )
    
    
    (110,583
    )Proceeds from sales of other invested assets
    
    
    7,206
    
    
    
    11,560Proceeds from short-sale obligations
    
    
    100,013
    
    
    
    199,746Cash pledged for short-sale obligations
    
    
    (108,373
    )
    
    
    (201,879
    )Purchases of fixed assets
    
    
    (353
    )
    
    
    (2,490
    )Net cash from investing activities
    
    
    (59,958
    )
    
    
    (1,802,353
    )FINANCING ACTIVITIESDividends to shareholder
    
    
    (67,500
    )
    
    
    (61,500
    )Deferred financing costs
    
    
    
    
    
    
    (974
    )Net cash from financing activities
    
    
    (67,500
    )
    
    
    (62,474
    )Net change in cash and cash equivalents
    
    
    (37,386
    )
    
    
    (1,747,259
    )Cash and cash equivalents, beginning of period
    
    
    429,205
    
    
    
    2,081,878Cash and cash equivalents, end of period
    
    $
    391,819
    
    
    $
    334,619SUPPLEMENTAL CASH FLOW INFORMATIONCash paid for interest
    
    $
    15,563
    
    
    $
    15,842Cash paid for income taxes
    
    $
    63,971
    
    
    $
    63,296
 The accompanying notes are an integral part of the consolidated financial statements
 7




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##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, dollars in thousands)
 1.
    
    Organization and Basis of PresentationCrum & Forster Holdings Corp. (the Company or Crum & Forster) is a Delaware holding
company, which is 100% owned by Fairfax Inc., a Wyoming holding company. Fairfax Inc. is
wholly owned by FFHL Group Ltd., a Canadian holding company, which is owned by Fairfax
Financial Holdings Limited (Fairfax), a Canadian financial services holding company, which
is publicly traded on the Toronto Stock Exchange and the New York Stock Exchange under the
symbols FFH.SV and FFH, respectively. 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.These consolidated financial statements have been prepared in conformity with accounting
principles generally accepted in the United States of America (GAAP) and include the
accounts of the Company and its wholly-owned subsidiaries, including Crum & Forster Holding
Inc., United States Fire Insurance Company (US Fire), The North River Insurance Company
(North River), Crum & Forster Indemnity Company and Crum and Forster Insurance Company.
Effective July 1, 2004, Crum & Forster Underwriters Co. of Ohio 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. All material
intercompany accounts and transactions have been eliminated in consolidation.The preparation of consolidated financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the reported amounts of assets,
liabilities, revenues and expenses and disclosure of contingent assets and liabilities. Such
estimates and assumptions may differ from actual results. Certain financial information that
is normally included in annual financial statements, including certain financial statement
footnotes, prepared in accordance with GAAP, is not required for interim reporting purposes
and has been condensed or omitted herein. These consolidated financial statements should be
read in conjunction with the Companys consolidated financial statements, and notes related
thereto, included in the Companys Annual Report on Form 10-K for the year ended December 31,
2004 filed with the Securities and Exchange Commission on March 7, 2005, as amended by Form
10-K/A filed with the Securities and Exchange Commission on June 28, 2005.The interim financial data as of September 30, 2005 and for the three and nine months ended
September 30, 2005 and 2004 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. Certain amounts in the Companys prior year consolidated financial statements have
been reclassified to conform to the 2005 presentation.
 8




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##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, dollars in thousands)
 2.
    
    Unpaid Losses and Loss Adjustment ExpensesChanges in the Companys liability for unpaid losses and loss adjustment expenses (LAE) are
summarized as follows:
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Gross unpaid losses and LAE, beginning of
period
    
    $
    3,409,578
    
    
    $
    3,208,942
    
    
    $
    3,370,936
    
    
    $
    3,193,920Less ceded unpaid losses and LAE
    
    
    1,400,903
    
    
    
    1,300,841
    
    
    
    1,360,996
    
    
    
    1,321,004Net unpaid losses and LAE, beginning of
period
    
    
    2,008,675
    
    
    
    1,908,101
    
    
    
    2,009,940
    
    
    
    1,872,916Losses and LAE incurred related to:Current period
    
    
    178,254
    
    
    
    251,569
    
    
    
    506,758
    
    
    
    568,053Prior years
    
    
    (8,622
    )
    
    
    (18,437
    )
    
    
    (20,956
    )
    
    
    (13,520
    )Total losses and LAE incurred
    
    
    169,632
    
    
    
    233,132
    
    
    
    485,802
    
    
    
    554,533Losses and LAE paid related to:Current period
    
    
    42,586
    
    
    
    43,888
    
    
    
    82,609
    
    
    
    78,241Prior years
    
    
    87,196
    
    
    
    99,731
    
    
    
    364,608
    
    
    
    351,594Total losses and LAE paid
    
    
    129,782
    
    
    
    143,619
    
    
    
    447,217
    
    
    
    429,835Net unpaid losses and LAE, end of period
    
    
    2,048,525
    
    
    
    1,997,614
    
    
    
    2,048,525
    
    
    
    1,997,614Add ceded unpaid losses and LAE
    
    
    1,657,469
    
    
    
    1,356,695
    
    
    
    1,657,469
    
    
    
    1,356,695Gross unpaid losses and LAE, end of period
    
    $
    3,705,994
    
    
    $
    3,354,309
    
    
    $
    3,705,994
    
    
    $
    3,354,309
 During the third quarter of 2005, the Company incurred losses and LAE of approximately
$22,000 (excluding reinsurance reinstatement premiums of approximately $38,000) associated
with hurricanes Katrina and Rita. During the third quarter of 2004, the Company incurred
losses and LAE of approximately $89,700 (excluding reinsurance reinstatement premiums of
approximately $10,300) principally associated with four hurricanes in Florida.A reconciliation of the ceded unpaid losses and LAE in the table above to the reinsurance
recoverable reflected on the consolidated balance sheet follows:
 September 30,2005Ceded unpaid losses and LAE in the table above
    
    $
    1,657,469Reconciling items:Reinsurance receivable on paid losses and LAE
    
    
    58,137Premiums paid for retroactive reinsurance
    
    
    190,519Deferred income on retroactive reinsurance
    
    
    217,018Loss sensitive cession1
    
    
    (21,510
    )Total reconciling items
    
    
    444,164Reinsurance recoverable on the consolidated balance sheet
    
    $
    2,101,633
 
 1
    
    Equals additional premiums due on retrospectively rated insurance
policies that inure to the benefit of the reinsurer. 9




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##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, dollars in thousands)
 3.
    
    Asbestos and Environmental Losses and Loss Adjustment ExpensesThe Company has exposure to asbestos and environmental claims arising from the sale of
general liability, commercial multi-peril and umbrella insurance policies, the majority of
which were written for accident years 1985 and prior. Estimation of ultimate liabilities for
these exposures is unusually difficult due to such issues as whether or not coverage exists,
definition of an occurrence, determination of ultimate damages and allocation of such damages
to financially responsible parties.Changes in the Companys liability for asbestos and environmental exposures are summarized as
follows:
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004AsbestosGross unpaid losses and allocated LAE
(ALAE), beginning of period
    
    $
    480,529
    
    
    $
    451,473
    
    
    $
    522,685
    
    
    $
    495,195Less ceded unpaid losses and ALAE
    
    
    104,798
    
    
    
    114,702
    
    
    
    113,891
    
    
    
    128,787Net unpaid losses and ALAE, beginning of period
    
    
    375,731
    
    
    
    336,771
    
    
    
    408,794
    
    
    
    366,408Net losses and ALAE incurred
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    517Net paid losses and ALAE
    
    
    16,040
    
    
    
    9,788
    
    
    
    49,103
    
    
    
    39,942Net unpaid losses and ALAE, end of period
    
    
    359,691
    
    
    
    326,983
    
    
    
    359,691
    
    
    
    326,983Add ceded unpaid losses and ALAE
    
    
    102,645
    
    
    
    114,260
    
    
    
    102,645
    
    
    
    114,260Gross unpaid losses and ALAE, end of period
    
    $
    462,336
    
    
    $
    441,243
    
    
    $
    462,336
    
    
    $
    441,243
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004EnvironmentalGross unpaid
losses and ALAE, beginning of period
    
    $
    113,453
    
    
    $
    121,070
    
    
    $
    123,353
    
    
    $
    130,511Less ceded unpaid losses and ALAE
    
    
    38,349
    
    
    
    39,421
    
    
    
    38,190
    
    
    
    31,675Net unpaid losses and ALAE, beginning of period
    
    
    75,104
    
    
    
    81,649
    
    
    
    85,163
    
    
    
    98,836Net losses and ALAE incurred
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7Net paid losses and ALAE
    
    
    2,365
    
    
    
    2,324
    
    
    
    12,424
    
    
    
    19,518Net unpaid losses and ALAE, end of period
    
    
    72,739
    
    
    
    79,325
    
    
    
    72,739
    
    
    
    79,325Add ceded unpaid losses and ALAE
    
    
    38,693
    
    
    
    39,628
    
    
    
    38,693
    
    
    
    39,628Gross unpaid losses and ALAE, end of period
    
    $
    111,432
    
    
    $
    118,953
    
    
    $
    111,432
    
    
    $
    118,953
 The Company also maintains reserves for other latent exposures such as those associated with
silica, chemicals, lead, sick building syndrome, gas and vapors, repetitive stress and mold
of $18,999 and $22,024, net of reinsurance, as of September 30, 2005 and December 31, 2004,
respectively.
 10




---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, dollars in thousands)
 4.
    
    ReinsuranceThe components of the Companys net premiums written and premiums earned are summarized as
follows:
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Premiums written:Direct
    
    $
    268,950
    
    
    $
    295,489
    
    
    $
    812,048
    
    
    $
    832,557Assumed from
other companies, pools or associations
    
    
    4,258
    
    
    
    3,929
    
    
    
    13,733
    
    
    
    10,832Ceded to other companies, pools or
associations
    
    
    (84,083
    )
    
    
    (68,185
    )
    
    
    (179,632
    )
    
    
    (168,671
    )Net premiums written
    
    $
    189,125
    
    
    $
    231,233
    
    
    $
    646,149
    
    
    $
    674,718Premiums earned:Direct
    
    $
    272,652
    
    
    $
    278,782
    
    
    $
    835,042
    
    
    $
    825,717Assumed from other companies,
pools or associations
    
    
    4,709
    
    
    
    3,190
    
    
    
    13,056
    
    
    
    10,640Ceded to other companies, pools or
associations
    
    
    (85,463
    )
    
    
    (69,935
    )
    
    
    (182,666
    )
    
    
    (171,018
    )Premiums earned
    
    $
    191,898
    
    
    $
    212,037
    
    
    $
    665,432
    
    
    $
    665,339
  September 30,
    
    
    December 31,2005
    
    
    2004Reinsurance recoverable on unpaid losses and LAE
    
    $
    2,043,496
    
    
    $
    1,753,366Reinsurance receivable on paid losses and LAE
    
    
    58,137
    
    
    
    51,446Total reinsurance recoverable
    
    $
    2,101,633
    
    
    $
    1,804,812
 The increase in reinsurance recoverable as of September 30, 2005 as compared to December 31,
2004, is principally due to approximately $268,000 of ceded losses in the third quarter of
2005 in respect of hurricanes Katrina and Rita.Corporate Aggregate ReinsuranceThe Company purchases reinsurance to limit its exposure to loss from any one claim or
occurrence (per risk reinsurance). The Company also purchases reinsurance to limit its
exposure from aggregate loss experience for an accident year that exceeds an amount the
Company is willing to accept and from adverse development of prior years loss and LAE
reserves (corporate aggregate reinsurance). The Companys corporate aggregate reinsurance
contracts cover or covered, in varying amounts and on varying terms, accident years 2002 and
prior and provide either current accident year protection or adverse development protection
related to prior accident years. In general, contracts covering past insurable events, such
as adverse loss development coverage, are categorized as retroactive reinsurance, as
opposed to contracts covering future insurable events, which are referred to as prospective
reinsurance. Coverage under retroactive and prospective reinsurance contracts is generally
triggered when the loss ratio for the subject period exceeds a specified level, or when
reserves related to all periods prior to a certain date exceed a stated amount. The Company
will recover ceded losses and LAE from its reinsurers as it settles the related claims, which
may occur over many years. Retroactive and prospective corporate aggregate reinsurance
contracts may provide for future payments to be made by the Company when it cedes losses
under such policies and generally provide that interest is charged to the Company, for the
benefit of the reinsurers, on any premiums withheld.Amounts ceded under prospective contracts are recognized, as to premiums, as a reduction of
premiums written and earned in the period in which premiums are ceded and, as to losses, as a
reduction of incurred losses as the losses are ceded to the reinsurer. Under retroactive
contracts, the excess of reinsurance recoverable from reinsurers pursuant to the contract
over premiums paid for coverage is deferred and amortized as a reduction of incurred losses
over the expected period of recovery, generally many years, using the interest method. Under
both prospective and retroactive contracts, funds held interest, if applicable, is recognized
as a reduction of investment income in the period in which the interest is credited to the
funds held account.
 11




---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, dollars in thousands)
 The effect of prospective and retroactive corporate aggregate reinsurance on components of
the Companys consolidated statements of operations is summarized as follows:
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Premiums earned
    
    $
    
    
    
    $
    (7,595
    )
    
    $
    
    
    
    $
    (7,595
    )Investment income
    
    
    (4,830
    )
    
    
    (12,194
    )
    
    
    (13,753
    )
    
    
    (18,410
    )Losses and LAE
    
    
    1,039
    
    
    
    (12,626
    )
    
    
    (6,342
    )
    
    
    (17,162
    )Increase (decrease) in income before income taxes
    
    $
    (5,869
    )
    
    $
    (7,163
    )
    
    $
    (7,411
    )
    
    $
    (8,843
    )
 As of September 30, 2005, reinsurance recoverable includes $428,421 and $455,508 related to
prospective and retroactive corporate aggregate reinsurance contracts, respectively. Of the
$883,929 in reinsurance recoverable related to corporate aggregate reinsurance, $497,902 has
been recognized to date as a reduction of incurred losses and LAE on the Companys
consolidated statements of operations.Prospective Corporate Aggregate ReinsuranceAn analysis of activity in the Companys prospective corporate aggregate reinsurance
contracts follows:
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Ceded losses
    
    $
    
    
    
    $
    9,994
    
    
    $
    
    
    
    $
    9,994Less ceded premiums
    
    
    
    
    
    
    7,595
    
    
    
    
    
    
    
    7,595Less funds held interest
    
    
    1,097
    
    
    
    4,537
    
    
    
    3,521
    
    
    
    7,765Increase (decrease) in income before income taxes
    
    $
    (1,097
    )
    
    $
    (2,138
    )
    
    $
    (3,521
    )
    
    $
    (5,366
    )
 The Company entered into an aggregate stop loss agreement with unaffiliated reinsurers
covering accident year 2000, which provided coverage of $118,493 and has been fully utilized
by the Company. There were no premiums or losses ceded pursuant to the contract during the
three and nine months ended September 30, 2005. Premiums and losses ceded in the three and
nine months ended September 30, 2004 were $7,595 and $9,994, respectively. As of September
30, 2005 and December 31, 2004, the Company had reinsurance recoverable balances of $60,921
and $76,547, respectively, related to this agreement.
 Retroactive Corporate Aggregate ReinsuranceAn analysis of activity in the Companys retroactive corporate aggregate reinsurance
contracts follows:
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Increase in reinsurance recoverable due from insurers
    
    $
    
    
    
    $
    39,000
    
    
    $
    
    
    
    $
    39,000Less related premiums paid
    
    
    
    
    
    
    22,685
    
    
    
    
    
    
    
    24,362Income deferred during the period
    
    
    
    
    
    
    16,315
    
    
    
    
    
    
    
    14,638Amortization of deferred income
    
    
    1,039
    
    
    
    (12,626
    )
    
    
    (6,342
    )
    
    
    (17,162
    )Increase
(decrease) in deferred income
    
    
    1,039
    
    
    
    3,689
    
    
    
    (6,342
    )
    
    
    (2,524
    )Deferred income on retroactive
reinsurance, beginning of period
    
    
    215,979
    
    
    
    174,311
    
    
    
    223,360
    
    
    
    180,524Deferred
income on retroactive reinsurance, end of
period
    
    $
    217,018
    
    
    $
    178,000
    
    
    $
    217,018
    
    
    $
    178,000Funds held interest charged during the period
    
    $
    3,733
    
    
    $
    7,657
    
    
    $
    10,232
    
    
    $
    10,645
 During the third quarter of 2005, the Company reestimated the timing of recoveries on its
retroactive reinsurance contracts, which reduced amortization of deferred income by
approximately $4,730.For additional information on the Companys retroactive corporate aggregate reinsurance
contracts, refer to the Companys Annual Report on Form 10-K for the year ended December 31,
2004 filed with the Securities and Exchange Commission on March 7, 2005, as amended by Form
10-K/A filed with the Securities and Exchange Commission on June 28, 2005.
 12




---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, dollars in thousands)
 5.
    
    Investments and Short-Sale ObligationsDuring the three months ended September 30, 2005, Crum & Forster purchased $7,523 of credit
default swaps on securities issued by various U.S. companies in the banking, mortgage and
insurance industries, bringing the total amount of credit default swaps purchased in the nine
months ended September 30, 2005 to approximately $59,500. These credit default swaps serve
as hedges against declines in the fair value of financial assets owned by the Company arising
from potential financial difficulties associated with any or all of these issuers or the
industries in which they operate. As of September 30, 2005 and December 31, 2004, the fair
value of the Companys credit default swaps was $48,500 and $4,224, respectively. For the
three and nine months ended September 30, 2005, the Company recorded net realized investment
losses of $18,754 and $15,304, respectively, as a result of changes in the fair value of the
credit default swaps. For the three and nine months ended September 30, 2004, the Company
recorded net realized investment losses of $2,189 and $2,222, respectively, as a result of
changes in the fair value of the credit default swaps.On September 28, 2005,
the Company completed the sale of 271,000 shares of common stock of
a publicly traded
pharmaceutical company to Fairfax affiliates at the prevailing market price of $27.50 per
share. The Company received net proceeds of $7,439 from the transaction, resulting in a
pre-tax realized loss of $2,561.On August 2, 2005, the Company completed the sale of one million shares of Zenith National
Insurance Corp. (NYSE: ZNT) (Zenith) common stock at a price of $66 per share. The Company
received net proceeds of $65,997 from the transaction, resulting in a pre-tax realized gain
of $37,997. Following completion of this sale, the Company continues to hold approximately
2,240,000 shares of Zenith common stock, which, on a fully diluted basis, represents a 9.7%
interest in Zenith.On June 3, 2005, Advent Capital (Holdings) PLC (Advent), an affiliate of the Company,
completed a public offering of its common stock. The Company purchased its pro-rata share
equal to $8,321 in the offering and, accordingly, suffered no
dilution of its 11.4% ownership interest. Concurrent with the offering, Advents common
stock was listed for trading on the Alternative Investment Market of the London Stock
Exchange. The Companys investment in Advent is carried at fair value and included in equity
securities on the consolidated balance sheets. As of
September 30, 2005, the Companys
investment in Advent has a fair value of $12,866 and an unrealized loss of $6,428 as compared
to a fair value of $14,036 and an unrealized gain of $3,063 as of December 31, 2004.In January 2005, the Company invested an additional $10,000 in Pacific Century Fund I
(Pacific), a fund wholly owned by Fairfax affiliates, bringing the total investment in
Pacific to $20,000. The Company owned approximately 40% of Pacific as of September 30, 2005
and its carrying value was $21,491. The investment in Pacific is included in other invested
assets on the consolidated balance sheets.As an economic hedge against a decline in the U.S. equity markets, the Company executed short
sales of Standard & Poors Depositary Receipts (SPDRs) in July 2004 and January 2005
totaling approximately $300,000. Simultaneously, the Company purchased two-year S&P Index
call options (Options) limiting the potential loss on the future purchase of the SPDRs to
$60,000. The total cost of the Options was $8,217. Both the obligations to purchase the
SPDRs and the Options are carried at fair value in the consolidated financial statements.
The fair value of the obligations to purchase the SPDRs is included in short-sale obligations
and the fair value of the Options is included in other invested assets on the consolidated
balance sheets. For the three and nine months ended September 30, 2005, the change in the
fair value of the SPDRs obligation amounted to a loss of $9,964 and $8,241, respectively, as
compared to a loss of $1,235 for the three and nine months ended September 30, 2004. For the
three and nine months ended September 30, 2005, the change in the fair value of the Options
amounted to a gain of $795 and a loss of $4,334, respectively, as compared to a loss of
$1,498 for the three and nine months ended September 30, 2004. The net change in the fair
value of the SPDRs obligation and the Options is included in realized investment gains on the
consolidated statements of operations. The fair values of the SPDRs obligation and the
Options at September 30, 2005 amounted to a liability of $325,632 and an asset of $6,278,
respectively. The Company also incurs additional expense in an amount equal to the dividend
earnings on the SPDRs sold. Dividend earnings on the SPDRs amounted to $1,382 and $3,912,
respectively, for the three and nine months ended September 30, 2005 as compared to $844 for
the three and nine months ended September 30, 2004, and are included as an investment expense
on the consolidated statements of operations. In connection with these SPDRs transactions,
the Company has pledged cash and U. S. Treasury securities as collateral for the obligation
to purchase the SPDRs. As of September 30, 2005, the fair value of the assets pledged for
the future purchase of the SPDRs totaled $492,359. These assets are recorded in assets
pledged for short-sale obligations on the consolidated balance sheetsIn December 2004, the Company entered into a four-month swap transaction whereby the Company
received the total equity return on a publicly traded security in exchange for payment of a
stated return tied to LIBOR. In March 2005, the Company terminated this swap transaction and
recorded a net loss of $2,614, which is included in realized investment gains on the
consolidated statement of income, for the nine months ended September 30, 2005.
 13




---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, dollars in thousands)
 6.
    
    Commitments and ContingenciesThe Company and U.S. Fire, among numerous other insurance company and insurance broker
defendants, have been named as defendants in a class action suit filed by policyholders
alleging, among other things, that the defendants used the contingent commission structure to
deprive policyholders of free competition in the market for insurance. The action is pending
in the U.S. District Court for the District of New Jersey. Plaintiffs seek certification of
a nationwide class consisting of all persons who between August 26, 1994 and the date of
class certification engaged the services of any one of the broker defendants and who entered
into or renewed a contract of insurance with one of the insurer defendants. The Company
intends to vigorously defend the action.In the ordinary course of their business, the Companys subsidiaries receive claims asserting
alleged injuries and damages from asbestos, environmental and other latent exposures and are
subject to related coverage litigation. The conditions surrounding the final resolution of
these claims and the related litigation continue to change. Currently, it is not possible to
predict judicial and legislative changes and their impact on the future development of
asbestos and environmental claims and litigation. This
trend will be affected by future court decisions and interpretations, as well as changes in
applicable legislation and the possible implementation of a proposed federal compensation
scheme for asbestos-related injuries. As a result of these uncertainties, additional
liabilities may arise for amounts in excess of current reserves for asbestos, environmental
and other latent exposures. These additional amounts, or a range of these additional
amounts, cannot currently be reasonably estimated. As a result of these claims, management
continually reviews required reserves and related reinsurance recoverable. In each of these
areas of exposure, the Company litigates individual cases when appropriate and endeavors to
settle other claims on favorable terms.In addition, the Companys subsidiaries are involved in various lawsuits and arbitration
proceedings arising in the ordinary course of business. While the outcome of such matters
cannot be predicted with certainty, in the opinion of management, no such matter is likely to
have a material adverse effect on the Companys consolidated financial condition or
liquidity. However, it should be noted that the frequency of large damage awards in some
jurisdictions, including punitive damage awards that bear little or no relation to actual
economic damages incurred by plaintiffs, continues to create the potential for an
unpredictable judgment in any given matter.
 7.
    
    Segment ReportingThe Company operates in the commercial property and casualty insurance business. Premiums
earned for the Companys lines of business are summarized as follows:
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Workers compensation
    
    $
    69,735
    
    
    $
    67,990
    
    
    $
    218,010
    
    
    $
    202,940General liability
    
    
    49,595
    
    
    
    46,940
    
    
    
    151,214
    
    
    
    147,220Commercial automobile
    
    
    47,022
    
    
    
    42,508
    
    
    
    138,072
    
    
    
    127,860Property
    
    
    9,019
    
    
    
    38,059
    
    
    
    106,177
    
    
    
    139,767Commercial multi-peril
    
    
    11,665
    
    
    
    11,116
    
    
    
    34,693
    
    
    
    31,669Surety
    
    
    4,862
    
    
    
    5,424
    
    
    
    17,266
    
    
    
    15,883Total premiums earned
    
    $
    191,898
    
    
    $
    212,037
    
    
    $
    665,432
    
    
    $
    665,339
 The losses and LAE and losses and LAE ratios of the Companys lines of business are
summarized as follows:
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Amount
    
    
    Ratio
    
    
    Amount
    
    
    Ratio
    
    
    Amount
    
    
    Ratio
    
    
    Amount
    
    
    RatioWorkers compensation
    
    $
    61,154
    
    
    
    87.7
    %
    
    $
    63,529
    
    
    
    93.4
    %
    
    $
    183,925
    
    
    
    84.4
    %
    
    $
    174,350
    
    
    
    85.9
    %General liability
    
    
    35,148
    
    
    
    70.9
    %
    
    
    48,787
    
    
    
    103.9
    %
    
    
    104,107
    
    
    
    68.8
    %
    
    
    119,794
    
    
    
    81.4
    %Commercial automobile
    
    
    30,902
    
    
    
    65.7
    %
    
    
    24,170
    
    
    
    56.9
    %
    
    
    77,266
    
    
    
    56.0
    %
    
    
    88,006
    
    
    
    68.8
    %Property
    
    
    35,099
    
    
    
    389.2
    %
    
    
    89,725
    
    
    
    235.8
    %
    
    
    81,976
    
    
    
    77.2
    %
    
    
    151,910
    
    
    
    108.7
    %Commercial multi-peril
    
    
    2,183
    
    
    
    18.7
    %
    
    
    3,227
    
    
    
    29.0
    %
    
    
    9,644
    
    
    
    27.8
    %
    
    
    13,611
    
    
    
    43.0
    %Surety
    
    
    5,146
    
    
    
    105.8
    %
    
    
    3,694
    
    
    
    68.1
    %
    
    
    28,884
    
    
    
    167.3
    %
    
    
    6,862
    
    
    
    43.2
    %Total
    
    $
    169,632
    
    
    
    88.4
    %
    
    $
    233,132
    
    
    
    109.9
    %
    
    $
    485,802
    
    
    
    73.0
    %
    
    $
    554,533
    
    
    
    83.3
    %
 14




---



##### 



In the three months ended September 30, 2005, the Company incurred losses and LAE of
approximately $22,000 (excluding reinsurance reinstatement premiums of approximately $38,000)
in respect of hurricanes Katrina and Rita. In the three months ended September 30, 2004, the
Company incurred losses and LAE of approximately $89,700 (excluding reinsurance reinstatement
premiums of approximately $10,300) principally associated with four hurricanes in Florida.
Such losses primarily affected the property line of business. In addition, in the normal
course of periodic re-estimation of loss and LAE
reserves, the Company increased its surety reserves by approximately $18,000 during the nine
months ended September 30, 2005, in response to a greater than expected emergence of surety
claims in 2005. As a result of this emergence, a decision was made by management to restrict
writings of contract surety business.The Company does not allocate investment results or certain corporate expenses for purposes
of evaluating financial performance of each line of business.8.
    
    Subsequent EventOn October 20, 2005, the Company acquired, in
connection with a public offering, 530,000 shares of 8.125%
Series A preferred stock of Odyssey Re Holdings Corp., an
affiliate of the Company, for $13,250, and 70,000 shares of its
Floating Rate Series B preferred stock for $1,750. 15




---



##### 



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    Statements Regarding Forward-Looking Information
  
    
    Lowering or loss of one of the Companys financial strength ratings;
    
    Insufficient loss reserves, including reserves for asbestos, environmental and other latent claims;
    
    Occurrence of natural or man-made catastrophic events;
    
    Competitive conditions in the insurance market;
    
    Changes in the business or regulatory environment in which the Company operates
either as a result of recent insurance industry investigations by government
authorities and other parties or otherwise;
    
    Inability to realize the Companys investment objectives;
    
    Loss of key producers;
    
    Exposure to emerging claims and coverage issues;
    
    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;
    
    Loss of key employees;
    
    Changes in governmental regulations;
    
    Exposure to credit risks on novated policies; and
    
    Limited ability to borrow.
 16




---



##### 



Critical Accounting Policies and Estimates
    Unpaid Losses and Loss Adjustment Expenses
     Other Than Temporary Declines In Value of Investments
  17




---



##### 



Reinsurance Recoverable
    Deferred Income Tax Assets
    Summary
of Operations
   18




---



##### 



19




---



##### 



Results of Operations
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Gross premiums written
    
    $
    273,208
    
    
    $
    299,418
    
    
    $
    825,781
    
    
    $
    843,389Net premiums written
    
    $
    189,125
    
    
    $
    231,233
    
    
    $
    646,149
    
    
    $
    674,718Premiums earned
    
    $
    191,898
    
    
    $
    212,037
    
    
    $
    665,432
    
    
    $
    665,339Losses and LAE
    
    
    169,632
    
    
    
    233,132
    
    
    
    485,802
    
    
    
    554,533Underwriting expenses
    
    
    65,125
    
    
    
    63,368
    
    
    
    195,508
    
    
    
    189,737Underwriting results
    
    
    (42,859
    )
    
    
    (84,463
    )
    
    
    (15,878
    )
    
    
    (78,931
    )Investment income and realized investment gains
    
    
    50,818
    
    
    
    19,267
    
    
    
    191,440
    
    
    
    109,882Interest and other expense
    
    
    8,556
    
    
    
    9,770
    
    
    
    28,201
    
    
    
    32,062(Loss) income before income taxes and equity in
earnings of investees
    
    
    (597
    )
    
    
    (74,966
    )
    
    
    147,361
    
    
    
    (1,111
    )Income tax (benefit) expense
    
    
    (1,024
    )
    
    
    (26,645
    )
    
    
    48,934
    
    
    
    (991
    )Income (loss) before equity in earnings of investees
    
    
    427
    
    
    
    (48,321
    )
    
    
    98,427
    
    
    
    (120
    )Equity in earnings of investees
    
    
    5,674
    
    
    
    3,544
    
    
    
    14,428
    
    
    
    9,588Net income (loss)
    
    $
    6,101
    
    
    $
    (44,777
    )
    
    $
    112,855
    
    
    $
    9,468Loss and LAE ratio
    
    
    88.4
    %
    
    
    109.9
    %
    
    
    73.0
    %
    
    
    83.3
    %Underwriting expense ratio
    
    
    33.9
    %
    
    
    29.9
    %
    
    
    29.4
    %
    
    
    28.5
    %Combined ratio
    
    
    122.3
    %
    
    
    139.8
    %
    
    
    102.4
    %
    
    
    111.8
    %
  Underwriting Results
 Gross Premiums Written
  Three Months Ended September 30,Increase/
    
    
    Percent2005
    
    
    2004
    
    
    (Decrease)
    
    
    ChangeWorkers compensation
    
    $
    75,811
    
    
    $
    89,974
    
    
    $
    (14,163
    )
    
    
    (15.7
    )%General liability
    
    
    60,499
    
    
    
    61,935
    
    
    
    (1,436
    )
    
    
    (2.3
    )%Commercial automobile
    
    
    48,632
    
    
    
    44,709
    
    
    
    3,923
    
    
    
    8.8
    %Property
    
    
    73,027
    
    
    
    80,813
    
    
    
    (7,786
    )
    
    
    (9.6
    )%Commercial multi-peril
    
    
    13,193
    
    
    
    13,861
    
    
    
    (668
    )
    
    
    (4.8
    )%Surety
    
    
    2,046
    
    
    
    8,126
    
    
    
    (6,080
    )
    
    
    (74.8
    )%Total gross premiums written
    
    $
    273,208
    
    
    $
    299,418
    
    
    $
    (26,210
    )
    
    
    (8.8
    )%
 Nine Months Ended September 30,Increase/
    
    
    Percent2005
    
    
    2004
    
    
    (Decrease)
    
    
    ChangeWorkers compensation
    
    $
    208,394
    
    
    $
    226,578
    
    
    $
    (18,184
    )
    
    
    (8.0
    )%General liability
    
    
    198,102
    
    
    
    191,708
    
    
    
    6,394
    
    
    
    3.3
    %Commercial automobile
    
    
    146,926
    
    
    
    144,475
    
    
    
    2,451
    
    
    
    1.7
    %Property
    
    
    217,490
    
    
    
    217,970
    
    
    
    (480
    )
    
    
    (0.2
    )%Commercial multi-peril
    
    
    37,519
    
    
    
    38,752
    
    
    
    (1,233
    )
    
    
    (3.2
    )%Surety
    
    
    17,350
    
    
    
    23,906
    
    
    
    (6,556
    )
    
    
    (27.4
    )%Total gross premiums written
    
    $
    825,781
    
    
    $
    843,389
    
    
    $
    (17,608
    )
    
    
    (2.1
    )%
 20




---



##### 



Casualty Gross Premiums Written
  Property Gross Premiums Written
  Net Premiums Written
  Premiums Earned
  Losses and Loss Adjustment Expenses
   Underwriting Expenses
    21




---



##### 



Investment Results
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Average investments, including cash
and cash equivalents, at book value
    
    $
    3,193,321
    
    
    $
    3,092,476
    
    
    $
    3,174,257
    
    
    $
    3,093,930Investment income
    
    $
    28,177
    
    
    $
    21,108
    
    
    $
    96,555
    
    
    $
    64,389Realized investment gains
    
    
    22,641
    
    
    
    (1,841
    )
    
    
    94,885
    
    
    
    45,493Pre-tax equity in earnings of investees
    
    
    8,729
    
    
    
    5,452
    
    
    
    22,197
    
    
    
    14,750Change in unrealized investment gains
(losses) and foreign currency
translation
    
    
    (113,874
    )
    
    
    35,545
    
    
    
    (44,540
    )
    
    
    (81,975
    )Total return on investments
    
    $
    (54,327
    )
    
    $
    60,264
    
    
    $
    169,097
    
    
    $
    42,657Total return for the period
    
    
    (1.7
    )%
    
    
    1.9
    %
    
    
    5.3
    %
    
    
    1.4
    %
      Interest and Other Expense
  22




---



##### 



Liquidity and Capital Resources
 Holding Company
       Insurance Subsidiaries
    23




---



##### 



At September 30, 2005Cost or
    
    
    Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    UnrealizedCost
    
    
    Gains
    
    
    Losses
    
    
    Fair ValueFixed income securities:United States government and government agencies
and authorities
    
    $
    1,757,532
    
    
    $
    455
    
    
    $
    66,106
    
    
    $
    1,691,881States, municipalities and political subdivisions
    
    
    6,879
    
    
    
    47
    
    
    
    
    
    
    
    6,926Public utilities
    
    
    5,078
    
    
    
    246
    
    
    
    
    
    
    
    5,324Other corporate bonds
    
    
    290,611
    
    
    
    5,527
    
    
    
    31,946
    
    
    
    264,192Total fixed income securities
    
    
    2,060,100
    
    
    
    6,275
    
    
    
    98,052
    
    
    
    1,968,323Equity securities:Common stocks of banks, trusts and insurance
companies
    
    
    139,949
    
    
    
    78,650
    
    
    
    2,206
    
    
    
    216,393Common stocks of industrial and other companies
    
    
    266,571
    
    
    
    15,051
    
    
    
    39,398
    
    
    
    242,224Total equity securities
    
    
    406,520
    
    
    
    93,701
    
    
    
    41,604
    
    
    
    458,617Total available-for-sale securities
    
    $
    2,466,620
    
    
    $
    99,976
    
    
    $
    139,656
    
    
    $
    2,426,940
        24




---



##### 



Ratings
    
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
   Interest Rate Risk
  At September 30, 2005Fair Value ofFixed Income
    
    
    Hypothetical
    
    
    HypotheticalPortfolio
    
    
    $ Change
    
    
    % Change200 basis point decline
    
    $
    2,572,189
    
    
    $
    603,866
    
    
    
    30.7
    %100 basis point decline
    
    $
    2,241,611
    
    
    $
    273,288
    
    
    
    13.9
    %Base scenario
    
    $
    1,968,323
    
    
    
    
    
    
    
    
    %100 basis point increase
    
    $
    1,741,676
    
    
    $
    (226,647
    )
    
    
    (11.5
    )%200 basis point increase
    
    $
    1,552,715
    
    
    $
    (415,608
    )
    
    
    (21.1
    )%
 Equity Price Risk
   25




---



##### 



Foreign Currency Exchange Rate Risk
  
 Item 4. Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
  Changes in Internal Control Over Financial Reporting
   
 Part II
OTHER INFORMATION
 
 Item 1. Legal Proceedings
     
 Item 6. Exhibits
  26




---



##### 



SIGNATURES
  CRUM & FORSTER HOLDINGS CORP.(Registrant)Date:  October 28, 2005
    By:
    /s/    Nikolas AntonopoulosNikolas AntonopoulosPresident and Chief Executive Officer Date:  October 28, 2005
    By:
    /s/    Mary Jane RobertsonMary Jane RobertsonExecutive Vice President, Chief Financial Officer
and Treasurer
 27




---



##### 



INDEX TO EXHIBITS
 Exhibit No.
 *10.17
    
    

Addendum
to the Tax Sharing Agreement between Fairfax Inc. and Crum & Forster Holding Inc., effective as of January 1, 2005.*10.36
    
    

Addendum
to the Tax Sharing Agreement between Fairfax Inc. and Crum & Forster
Holdings Corp., effective as of January 1, 2005.*10.37
    
    
    Amendment Number 1 to the Investment Agreement among Hamblin
Watsa Investment Counsel Ltd., Fairfax Financial Holdings Limited
and Crum & Forster Specialty Insurance Company, effective as of January 1, 2005.*10.38
    
    
    Amendment Number 1 to the Investment Agreement among Hamblin
Watsa Investment Counsel Ltd, Fairfax Financial Holdings Limited
and Seneca Specialty Insurance Company, effective as of January
1, 2005.*31.1
    
    
    Certification of President and Chief Executive Officer pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002.*31.2
    
    
    Certification of Executive Vice President, Chief Financial
Officer and Treasurer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.*32.1
    
    
    Certification of President and Chief Executive Officer pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.*32.2
    
    
    Certification of Executive Vice President, Chief Financial
Officer and Treasurer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.99.1
    
    
    Risk Factors (incorporated into Part II of this Form 10-Q by
reference to the section entitled Risk factors in the Companys
Annual Report on Form 10-K for the year ended December 31, 2004
filed with the Securities and Exchange Commission on March 7,
2005, as amended by Form 10-K/A filed with the Securities and
Exchange Commission on June 28, 2005).
 
 *
    
    Filed herewith 28