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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:March 31, 2010
    
    333-84068
 
 Crum & Forster Holdings Corp.
 (Exact Name of Registrant as Specified in its Charter)
 Delaware(State or Other Jurisdiction of
    
    04-3611900Incorporation or Organization)
    
    (I.R.S. Employer Identification Number)
 305 Madison Avenue, Morristown, New Jersey 07962
 (Address of principal executive office)
 (973) 490-6600
(Registrants telephone number, including area code)
 Yes o No þ
 Yes o No o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer þ
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 Yes o No þ
  Class
    

Number
of Shares Outstanding at April 30, 2010Common Stock, $.01 Par Value
    
    100




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##### 



CRUM & FORSTER HOLDINGS CORP.
 Form 10-Q
 Index
 PageNumberPART IFINANCIAL INFORMATIONITEM 1. FINANCIAL STATEMENTSConsolidated Balance Sheets at March 31, 2010 (Unaudited) and December 31, 2009
    
    
    3Consolidated Statements of Operations for the Three Months Ended March 31,
2010 and 2009 (Unaudited)
    
    
    4Consolidated Statements of Shareholders Equity for the Three Months Ended
March 31, 2010 and 2009 (Unaudited)
    
    
    5Consolidated Statements
of Comprehensive Income (Loss) for the Three Months Ended
March 31, 2010 and 2009 (Unaudited)
    
    
    6Consolidated Statements of
Cash Flows for the Three Months Ended March 31,
2010 and 2009 (Unaudited)
    
    
    7Notes to Consolidated
Financial Statements
    
    
    8ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
    
    
    25ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    36ITEM 4T. CONTROLS AND PROCEDURES
    
    
    40PART IIOTHER INFORMATIONITEM 1. LEGAL PROCEEDINGS
    
    
    41ITEM 6. EXHIBITS
    
    
    41SIGNATURES
    
    
    42INDEX TO EXHIBITS
    
    
    43Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2
   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)
 (Unaudited)
 March 31,
    
    
    December 31,2010
    
    
    2009ASSETSInvestments:Fixed income securities, available-for-sale, at fair value (amortized cost of
$1,270,226 and $1,323,120 in 2010 and 2009, respectively)
    
    $
    1,434,229
    
    
    $
    1,490,121Fixed income securities, held-for-trading, at fair value
    
    
    363,172
    
    
    
    321,359Equity securities, available-for-sale, at fair value (cost of $668,208 and
$1,070,577 in 2010 and 2009, respectively)
    
    
    865,758
    
    
    
    1,284,102Investments at equity
    
    
    173,836
    
    
    
    167,331Derivatives and other invested assets, at fair value
    
    
    389,104
    
    
    
    387,902Short-term investments, at fair value
    
    
    18,472
    
    
    
    68,211Total investments
    
    
    3,244,571
    
    
    
    3,719,026Cash and cash equivalents
    
    
    579,190
    
    
    
    243,569Assets pledged for derivatives
    
    
    82,434
    
    
    
    29,425Accrued investment income
    
    
    33,071
    
    
    
    31,244Premiums receivable
    
    
    168,322
    
    
    
    164,802Reinsurance recoverable
    
    
    674,626
    
    
    
    686,277Reinsurance recoverable from affiliates
    
    
    210,025
    
    
    
    206,420Prepaid reinsurance premiums
    
    
    23,955
    
    
    
    25,330Deferred income taxes
    
    
    77,908
    
    
    
    86,410Deferred policy acquisition costs
    
    
    45,755
    
    
    
    45,740Other assets
    
    
    103,560
    
    
    
    65,780Total assets
    
    $
    5,243,417
    
    
    $
    5,304,023LIABILITIESUnpaid losses and loss adjustment expenses
    
    $
    2,604,162
    
    
    $
    2,672,605Unearned premiums
    
    
    300,680
    
    
    
    297,821Funds held under reinsurance contracts
    
    
    250,296
    
    
    
    246,324Accounts payable and other liabilities
    
    
    175,381
    
    
    
    151,038Deferred income on retroactive reinsurance
    
    
    102,430
    
    
    
    106,394Long-term debt
    
    
    312,540
    
    
    
    312,114Total liabilities
    
    
    3,745,489
    
    
    
    3,786,296Commitments and contingencies (Note 9)SHAREHOLDERS EQUITYCommon stock, $0.01 par value; 1,000 shares authorized; 100 issued and outstanding
    
    
    
    
    
    
    Additional paid-in capital
    
    
    740,993
    
    
    
    740,993Accumulated other comprehensive income, net of tax
    
    
    248,875
    
    
    
    256,859Retained earnings
    
    
    508,060
    
    
    
    519,875Total shareholders equity
    
    
    1,497,928
    
    
    
    1,517,727Total liabilities and shareholders equity
    
    $
    5,243,417
    
    
    $
    5,304,023
 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)
 (Unaudited)
 Three Months EndedMarch 31,2010
    
    
    2009REVENUESPremiums earned
    
    $
    182,574
    
    
    $
    207,430Investment income
    
    
    28,287
    
    
    
    35,393Net realized investment gains (losses)
    
    
    162,401
    
    
    
    (91,071
    )Total revenues
    
    
    373,262
    
    
    
    151,752EXPENSESLosses and loss adjustment expenses
    
    
    126,206
    
    
    
    135,850Policy acquisition costs
    
    
    28,601
    
    
    
    29,555Other underwriting expenses
    
    
    36,870
    
    
    
    37,882Interest expense
    
    
    6,977
    
    
    
    6,939Other expense
    
    
    1,774
    
    
    
    797Total expenses
    
    
    200,428
    
    
    
    211,023Income (loss) before income taxes
    
    
    172,834
    
    
    
    (59,271
    )Income tax (expense) benefit
    
    
    (54,649
    )
    
    
    28,324NET INCOME (LOSS)
    
    $
    118,185
    
    
    $
    (30,947
    )
 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)
 (Unaudited)
 Three Months EndedMarch 31,2010
    
    
    2009COMMON STOCKBalance, beginning and end of period
    
    $
    
    
    
    $
    ADDITIONAL PAID-IN CAPITALBalance, beginning and end of period
    
    
    740,993
    
    
    
    740,993ACCUMULATED OTHER COMPREHENSIVE INCOME, NET OF TAXBalance, beginning of period
    
    
    256,859
    
    
    
    (7,455
    )Unrealized investment losses, net of transfers to realized investment gains and losses
    
    
    (7,554
    )
    
    
    (77,310
    )Foreign currency translation
    
    
    (354
    )
    
    
    137Amortization of actuarial gain and transition obligation included in net periodic
benefit costs
    
    
    (76
    )
    
    
    (57
    )Balance, end of period
    
    
    248,875
    
    
    
    (84,685
    )RETAINED EARNINGSBalance, beginning of period
    
    
    519,875
    
    
    
    432,894Net income (loss)
    
    
    118,185
    
    
    
    (30,947
    )Dividends to shareholder
    
    
    (130,000
    )
    
    
    Balance, end of period
    
    
    508,060
    
    
    
    401,947TOTAL SHAREHOLDERS EQUITY
    
    $
    1,497,928
    
    
    $
    1,058,255
 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 INCOME (LOSS)
(Dollars in thousands)
 (Unaudited)
 Three Months EndedMarch 31,2010
    
    
    2009NET INCOME (LOSS)
    
    $
    118,185
    
    
    $
    (30,947
    )Change in components of other comprehensive loss for the period, before tax:Unrealized investment losses, net of transfers to realized investment gains and losses
    
    
    (11,621
    )
    
    
    (118,938
    )Foreign currency translation
    
    
    (545
    )
    
    
    211Amortization of actuarial gain and transition obligation included in net periodic
benefit costs
    
    
    (117
    )
    
    
    (87
    )Other comprehensive loss for the period, before tax
    
    
    (12,283
    )
    
    
    (118,814
    )Deferred
income tax benefit (expense) for the period:Deferred income tax benefit from unrealized investment losses
    
    
    4,067
    
    
    
    41,628Deferred income tax benefit (expense) from foreign currency translation
    
    
    191
    
    
    
    (74
    )Deferred income tax benefit from amortization of actuarial gain and transition
obligation included in net periodic benefit costs
    
    
    41
    
    
    
    30Total deferred income tax benefit for the period
    
    
    4,299
    
    
    
    41,584Other comprehensive loss for the period, net of tax
    
    
    (7,984
    )
    
    
    (77,230
    )COMPREHENSIVE INCOME (LOSS)
    
    $
    110,201
    
    
    $
    (108,177
    )
 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)
 (Unaudited)
 Three Months EndedMarch 31,2010
    
    
    2009OPERATING ACTIVITIESNet income (loss)
    
    $
    118,185
    
    
    $
    (30,947
    )Adjustments to reconcile net income to net cash from operating activities:Accretion of discount on fixed income securities
    
    
    (1,419
    )
    
    
    (2,491
    )Realized investment (gains) losses
    
    
    (162,401
    )
    
    
    91,071Earnings of equity method investees, net of dividends
    
    
    (3,725
    )
    
    
    (804
    )Depreciation and amortization
    
    
    1,453
    
    
    
    1,546Deferred income tax expense (benefit)
    
    
    12,800
    
    
    
    (60,037
    )Other non-cash net income adjustments
    
    
    (44
    )
    
    
    2,429Changes in:Accrued investment income
    
    
    (1,827
    )
    
    
    (7,319
    )Premiums receivable
    
    
    (3,469
    )
    
    
    7,423Reinsurance recoverable
    
    
    8,046
    
    
    
    18,253Prepaid reinsurance premiums
    
    
    1,375
    
    
    
    (1,161
    )Deferred policy acquisition costs
    
    
    (15
    )
    
    
    3,899Other assets
    
    
    562
    
    
    
    1,716Unpaid losses and loss adjustment expenses
    
    
    (68,443
    )
    
    
    (116,777
    )Unearned premiums
    
    
    2,859
    
    
    
    (25,999
    )Accounts payable and other liabilities
    
    
    23,683
    
    
    
    (88,041
    )Net cash used in operating activities
    
    
    (72,380
    )
    
    
    (207,239
    )INVESTING ACTIVITIESPurchases of fixed income securities, available-for-sale
    
    
    (5,004
    )
    
    
    (182,481
    )Proceeds from sales of fixed income securities, available-for-sale
    
    
    24,938
    
    
    
    151,463Proceeds from maturities of fixed income securities, available-for-sale
    
    
    
    
    
    
    48,300Purchases of fixed income securities, held-for-trading
    
    
    (24,043
    )
    
    
    (89,731
    )Proceeds from sales of fixed income securities, held-for-trading
    
    
    16,027
    
    
    
    15,873Purchases of equity securities
    
    
    (26,357
    )
    
    
    (212,687
    )Proceeds from sales of equity securities
    
    
    511,964
    
    
    
    38,288Net (purchases) sales of investments at equity
    
    
    (630
    )
    
    
    5,458Purchases of derivatives and other invested assets
    
    
    (11,583
    )
    
    
    (799
    )Proceeds from sales of derivatives and other invested assets
    
    
    
    
    
    
    106,262Purchases of short-term investments
    
    
    (29,410
    )
    
    
    (104,167
    )Proceeds from sales of short-term investments
    
    
    70,898
    
    
    
    574,172Net change in cash and cash equivalents held as collateral
    
    
    
    
    
    
    4,416Net settlement of total return swaps and futures contracts
    
    
    12,950
    
    
    
    (343
    )Purchases of fixed assets
    
    
    (1,749
    )
    
    
    (489
    )Net cash provided by investing activities
    
    
    538,001
    
    
    
    353,535FINANCING ACTIVITIESDividends to shareholder
    
    
    (130,000
    )
    
    
    Net cash used in financing activities
    
    
    (130,000
    )
    
    
    Net change in cash and cash equivalents
    
    
    335,621
    
    
    
    146,296Cash and cash equivalents, beginning of period
    
    
    243,569
    
    
    
    159,862Cash and cash equivalents, end of period
    
    $
    579,190
    
    
    $
    306,158SUPPLEMENTAL CASH FLOW INFORMATIONCash paid to parent for income taxes
    
    $
    9,525
    
    
    $
    108,785SUPPLEMENTAL NON-CASH OPERATING AND INVESTING ACTIVITIESFixed income securities transferred to parent as payment for income taxes
    
    $
    
    
    
    $
    54,008
 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 Presentation
     2. Recent Accounting Pronouncements
 ASU 2009-17. Improvements to Financial Reporting by Enterprises with Variable Interest
Entities, Consolidation
  8




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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, dollars in thousands)
 3. Investments
  Available-For-Sale Securities
  At March 31, 2010Cost or
    
    
    Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    UnrealizedCost
    
    
    Gains
    
    
    Losses
    
    
    Fair ValueFixed income securities:United States government and government agencies and
authorities
    
    $
    81,902
    
    
    $
    7,595
    
    
    $
    412
    
    
    $
    89,085States, municipalities and political subdivisions1
    
    
    1,190,759
    
    
    
    151,905
    
    
    
    1,610
    
    
    
    1,341,054Other corporate
    
    
    59,954
    
    
    
    16,817
    
    
    
    245
    
    
    
    76,526Total fixed income securities
    
    
    1,332,615
    
    
    
    176,317
    
    
    
    2,267
    
    
    
    1,506,665Equity securities  common stocks
    
    
    668,208
    
    
    
    198,454
    
    
    
    904
    
    
    
    865,758Total available-for-sale securities
    
    $
    2,000,823
    
    
    $
    374,771
    
    
    $
    3,171
    
    
    $
    2,372,423
 1
    
    Includes assets pledged for derivatives at a fair value of $72,436 (amortized cost
of $62,389).  At December 31, 2009Cost or
    
    
    Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    UnrealizedCost
    
    
    Gains
    
    
    Losses
    
    
    Fair ValueFixed income securities:United States government and government agencies and
authorities
    
    $
    81,282
    
    
    $
    6,945
    
    
    $
    462
    
    
    $
    87,765States, municipalities and political subdivisions1
    
    
    1,185,380
    
    
    
    151,498
    
    
    
    7,914
    
    
    
    1,328,964Other corporate
    
    
    80,483
    
    
    
    22,334
    
    
    
    
    
    
    
    102,817Total fixed income securities
    
    
    1,347,145
    
    
    
    180,777
    
    
    
    8,376
    
    
    
    1,519,546Equity securities  common stocks
    
    
    1,070,577
    
    
    
    214,304
    
    
    
    779
    
    
    
    1,284,102Total available-for-sale securities
    
    $
    2,417,722
    
    
    $
    395,081
    
    
    $
    9,155
    
    
    $
    2,803,648
 1
    
    Includes assets pledged for derivatives at a fair value of $29,425 (amortized cost
of $24,025).   9




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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, dollars in thousands)
  March 31, 2010
    
    
    December 31, 2009Number
    
    
    
    
    
    
    
    
    
    
    NumberFair
    
    
    Unrealized
    
    
    of
    
    
    Fair
    
    
    Unrealized
    
    
    ofValue
    
    
    Loss
    
    
    Securities
    
    
    Value
    
    
    Loss
    
    
    SecuritiesFixed income securities:Investment grade:U.S. government and
government agencies and
authorities:6 months or less
    
    $
    11,319
    
    
    $
    412
    
    
    
    3
    
    
    $
    11,284
    
    
    $
    462
    
    
    
    3States, municipalities
and political
subdivisions:6 months or less
    
    
    131,361
    
    
    
    1,610
    
    
    
    7
    
    
    
    134,841
    
    
    
    7,873
    
    
    
    87  12 months
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Greater than 12 months
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    518
    
    
    
    41
    
    
    
    1131,361
    
    
    
    1,610
    
    
    
    7
    
    
    
    135,359
    
    
    
    7,914
    
    
    
    9Non-investment grade,
other corporate:6 months or less
    
    
    8,652
    
    
    
    245
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    Total fixed income securities
    
    
    151,332
    
    
    
    2,267
    
    
    
    11
    
    
    
    146,643
    
    
    
    8,376
    
    
    
    12Equity securities:6 months or less
    
    
    5,068
    
    
    
    772
    
    
    
    2
    
    
    
    5,678
    
    
    
    646
    
    
    
    27  12 months
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    21,439
    
    
    
    133
    
    
    
    1Greater than 12 months
    
    
    21,440
    
    
    
    132
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    Total equity securities
    
    
    26,508
    
    
    
    904
    
    
    
    3
    
    
    
    27,117
    
    
    
    779
    
    
    
    3Total securities in an
unrealized loss position
    
    $
    177,840
    
    
    $
    3,171
    
    
    
    14
    
    
    $
    173,760
    
    
    $
    9,155
    
    
    
    15
    10




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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, dollars in thousands)
 Fixed Income Securities Designated as Held-for-Trading
 Derivatives and Hedging, Embedded Derivatives
  Investments at Equity
  Derivatives and Other Invested Assets
 Derivative Securities
   March 31, 2010
    
    
    December 31, 2009Fair Value
    
    
    
    
    
    
    
    
    
    
    Fair ValueNotional
    
    
    
    
    
    
    Asset/
    
    
    Notional
    
    
    
    
    
    
    Asset/Amount
    
    
    Cost
    
    
    (Liability)
    
    
    Amount
    
    
    Cost
    
    
    (Liability)Credit default swaps
    
    $
    1,489,576
    
    
    $
    21,624
    
    
    $
    18,782
    
    
    $
    1,570,393
    
    
    $
    21,624
    
    
    $
    20,027Total return swaps
 short positions
    
    
    496,855
    
    
    
    
    
    
    
    (1,406
    )
    
    
    472,706
    
    
    
    
    
    
    
    (1,917
    )Total return swaps
 long positions
    
    
    518,893
    
    
    
    
    
    
    
    (1,412
    )
    
    
    
    
    
    
    
    
    
    
    Other
    
    
    
    
    
    
    21,625
    
    
    
    9,987
    
    
    
    
    
    
    
    10,225
    
    
    
    
 Credit Default Swaps
   11




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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, dollars in thousands)
   NotionalAmount
    
    
    Fair ValueExpiring in one year or less
    
    $
    668,305
    
    
    $
    773Expiring after 1 year through 5 years
    
    
    821,271
    
    
    
    18,009$
    1,489,576
    
    
    $
    18,782
  As of and for the Three Months Ended March 31, 2010Effect on Pre-taxExposure/
    
    
    
    
    
    
    OtherNotional
    
    
    Carrying
    
    
    Comprehensive
    
    
    
    
    
    
    NetValue
    
    
    Value
    
    
    Income
    
    
    Earnings
    
    
    EquityCredit risk exposures:Fixed income securities1
    
    $
    1,780,752
    
    
    $
    1,780,752
    
    
    $
    949
    
    
    $
    38,107
    
    
    $
    39,056Warrants
    
    
    101,201
    
    
    
    392
    
    
    
    
    
    
    
    392
    
    
    
    392Premiums receivable
    
    
    168,322
    
    
    
    168,322
    
    
    
    
    
    
    
    51
    
    
    
    51Reinsurance recoverable
    
    
    884,651
    
    
    
    884,651
    
    
    
    
    
    
    
    
    
    
    
    Total credit risk exposure
    
    $
    2,934,926
    
    
    $
    2,834,117
    
    
    
    949
    
    
    
    38,550
    
    
    
    39,499Hedging instruments:Credit default swaps
    
    $
    1,489,576
    
    
    $
    18,782
    
    
    
    
    
    
    
    (1,245
    )
    
    
    (1,245
    )Net exposure
    
    
    
    
    
    
    
    
    
    $
    949
    
    
    $
    37,305
    
    
    $
    38,254
 1
    
    Excludes $89,085 of U.S. government securities with a gain in other comprehensive
income of $700.   12




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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, dollars in thousands)
 As of and for the Three Months Ended March 31, 2009Effect on Pre-taxExposure/
    
    
    
    
    
    
    OtherNotional
    
    
    Carrying
    
    
    Comprehensive
    
    
    
    
    
    
    NetValue
    
    
    Value
    
    
    Income
    
    
    Earnings
    
    
    EquityCredit risk exposures:Fixed income securities1
    
    $
    1,713,293
    
    
    $
    1,713,293
    
    
    $
    57,390
    
    
    $
    (4,312
    )
    
    $
    53,078Warrants
    
    
    101,201
    
    
    
    1
    
    
    
    
    
    
    
    1
    
    
    
    1Premiums receivable
    
    
    174,360
    
    
    
    174,360
    
    
    
    
    
    
    
    (375
    )
    
    
    (375
    )Reinsurance recoverable
    
    
    947,228
    
    
    
    947,228
    
    
    
    
    
    
    
    (2,000
    )
    
    
    (2,000
    )Total credit risk exposure
    
    $
    2,936,082
    
    
    $
    2,834,882
    
    
    
    57,390
    
    
    
    (6,686
    )
    
    
    50,704Hedging instruments:Credit default swaps
    
    $
    1,464,427
    
    
    $
    61,366
    
    
    
    
    
    
    
    32,196
    
    
    
    32,196Eurodollar futures contracts
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (343
    )
    
    
    (343
    )Total hedging instruments
    
    $
    1,464,427
    
    
    $
    61,366
    
    
    
    
    
    
    
    31,853
    
    
    
    31,853Net exposure
    
    
    
    
    
    
    
    
    
    $
    57,390
    
    
    $
    25,167
    
    
    $
    82,557
 1
    
    Excludes $102,788 of U.S. government securities with a loss in other comprehensive
income of $11,571 and realized gain of $1,066.   Total Return Swaps
   13




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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, dollars in thousands)
  As of and for the Three Months Ended March 31, 2010Effect on Pre-taxExposure/
    
    
    
    
    
    
    OtherNotional
    
    
    Carrying
    
    
    ComprehensiveValue
    
    
    Value
    
    
    Income1
    
    
    Earnings
    
    
    Net EquityEquity exposures:Equity securities
    
    $
    865,758
    
    
    $
    865,758
    
    
    $
    (15,975
    )
    
    $
    122,628
    
    
    $
    106,653Total return swaps  long
    
    
    518,893
    
    
    
    (1,412
    )
    
    
    
    
    
    
    35,686
    
    
    
    35,686Investments at equity
    
    
    173,836
    
    
    
    173,836
    
    
    
    2,705
    
    
    
    3,852
    
    
    
    6,557Other invested assets
    
    
    360,335
    
    
    
    360,335
    
    
    
    
    
    
    
    (7,724
    )
    
    
    (7,724
    )Total equity exposure
    
    $
    1,918,822
    
    
    $
    1,398,517
    
    
    
    (13,270
    )
    
    
    154,442
    
    
    
    141,172Hedging instruments:Total return swaps  short
    
    $
    496,855
    
    
    $
    (1,406
    )
    
    
    
    
    
    
    (23,637
    )
    
    
    (23,637
    )Net equity exposure
    
    
    
    
    
    
    
    
    
    $
    (13,270
    )
    
    $
    130,805
    
    
    $
    117,535
 1
    
    Excludes foreign currency translation losses of $545.   Other Derivatives
    14




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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, dollars in thousands)
 Counterparty Risk
    Three Months EndedMarch 31,2010
    
    
    2009Credit default swaps
    
    $
    (1,245
    )
    
    $
    32,196Total return swaps
    
    
    12,049
    
    
    
    Other
    
    
    (1,413
    )
    
    
    (342
    )Total realized investment gains
    
    $
    9,391
    
    
    $
    31,854
  Three Months Ended March 31, 2010Credit Default
    
    
    Total Return
    
    
    OtherSwaps
    
    
    Swaps
    
    
    Derivatives
    
    
    TotalRealized gains on disposals or settlements
    
    $
    
    
    
    $
    12,950
    
    
    $
    
    
    
    $
    12,950Reversal of mark-to-market losses recognized in prior periods
    
    
    
    
    
    
    1,917
    
    
    
    
    
    
    
    1,917Mark-to-market (losses) gains recognized in 2010
    
    
    (1,245
    )
    
    
    (2,818
    )
    
    
    (1,413
    )
    
    
    (5,476
    )Net realized investment gains (losses)
    
    $
    (1,245
    )
    
    $
    12,049
    
    
    $
    (1,413
    )
    
    $
    9,391
 Three Months Ended March 31, 2009Credit Default
    
    
    OtherSwaps
    
    
    Derivatives1
    
    
    TotalRealized gains (losses) on disposals or settlements
    
    $
    88,807
    
    
    $
    (343
    )
    
    $
    88,464Reversal of mark-to-market gains recognized in prior periods
    
    
    (60,119
    )
    
    
    
    
    
    
    (60,119
    )Mark-to-market gains recognized in 2009
    
    
    3,508
    
    
    
    1
    
    
    
    3,509Net realized investment gains (losses)
    
    $
    32,196
    
    
    $
    (342
    )
    
    $
    31,854
 1
    
    Other includes warrants and Eurodollar futures contracts. Other Invested Assets
  15




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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, dollars in thousands)
 4. Fair Value Disclosures
 Fair Value Hierarchy
          16




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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, dollars in thousands)
  March 31, 2010Quoted Prices
    
    
    Significantin Active
    
    
    Other
    
    
    SignificantMarkets for
    
    
    Observable
    
    
    UnobservableIdentical Assets
    
    
    Inputs
    
    
    InputsAssets
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)
    
    
    TotalAvailable-for-sale fixed income securities:U.S. government and government agencies and authorities
    
    $
    
    
    
    $
    89,085
    
    
    $
    
    
    
    $
    89,085States, municipalities and political subdivisions
    
    
    
    
    
    
    1,341,054
    
    
    
    
    
    
    
    1,341,054Other corporate
    
    
    
    
    
    
    76,526
    
    
    
    
    
    
    
    76,526Total available-for-sale fixed income securities
    
    
    
    
    
    
    1,506,665
    
    
    
    
    
    
    
    1,506,665Fixed income securities, held-for-trading:Residential mortgage-backed
    
    
    
    
    
    
    109,799
    
    
    
    17,821
    
    
    
    127,620Other corporate
    
    
    
    
    
    
    235,552
    
    
    
    
    
    
    
    235,552Total held-for-trading fixed income securities
    
    
    
    
    
    
    345,351
    
    
    
    17,821
    
    
    
    363,172Equity securities
    
    
    835,232
    
    
    
    30,526
    
    
    
    
    
    
    
    865,758Derivatives and other invested assets
    
    
    8,085
    
    
    
    51,866
    
    
    
    329,153
    
    
    
    389,104Short-term investments
    
    
    
    
    
    
    28,470
    
    
    
    
    
    
    
    28,470Total
    
    $
    843,317
    
    
    $
    1,962,878
    
    
    $
    346,974
    
    
    $
    3,153,169
 December 31, 2009Quoted Prices
    
    
    Significantin Active
    
    
    Other
    
    
    SignificantMarkets for
    
    
    Observable
    
    
    UnobservableIdentical Assets
    
    
    Inputs
    
    
    InputsAssets
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)
    
    
    TotalAvailable-for-sale fixed income securities:U.S. government and government agencies and authorities
    
    $
    
    
    
    $
    87,765
    
    
    $
    
    
    
    $
    87,765States, municipalities and political subdivisions
    
    
    
    
    
    
    1,328,964
    
    
    
    
    
    
    
    1,328,964Other corporate
    
    
    
    
    
    
    102,817
    
    
    
    
    
    
    
    102,817Total available-for-sale fixed income securities
    
    
    
    
    
    
    1,519,546
    
    
    
    
    
    
    
    1,519,546Fixed income securities, held-for-trading:Residential mortgage-backed
    
    
    
    
    
    
    89,746
    
    
    
    14,272
    
    
    
    104,018Other corporate
    
    
    
    
    
    
    217,341
    
    
    
    
    
    
    
    217,341Total held-for-trading fixed income securities
    
    
    
    
    
    
    307,087
    
    
    
    14,272
    
    
    
    321,359Equity securities
    
    
    1,256,081
    
    
    
    28,021
    
    
    
    
    
    
    
    1,284,102Derivatives and other invested assets
    
    
    7,964
    
    
    
    47,516
    
    
    
    332,422
    
    
    
    387,902Short-term investments
    
    
    
    
    
    
    68,211
    
    
    
    
    
    
    
    68,211Total
    
    $
    1,264,045
    
    
    $
    1,970,381
    
    
    $
    346,694
    
    
    $
    3,581,120
  17




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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, dollars in thousands)
  March 31, 2010
    
    
    March 31, 2009Fixed
    
    
    
    
    
    
    
    
    
    
    FixedIncome
    
    
    Equity
    
    
    
    
    
    
    Income
    
    
    EquitySecurities
    
    
    Securities
    
    
    Total
    
    
    Securities
    
    
    Securities
    
    
    TotalBalance, beginning of period
    
    $
    14,272
    
    
    $
    332,422
    
    
    $
    346,694
    
    
    $
    66,393
    
    
    $
    
    
    
    $
    66,393Purchases
    
    
    6,214
    
    
    
    184
    
    
    
    6,398
    
    
    
    9,969
    
    
    
    
    
    
    
    9,969Settlements
    
    
    (5,802
    )
    
    
    
    
    
    
    (5,802
    )
    
    
    
    
    
    
    
    
    
    
    Transfers from Level 3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (47,611
    )
    
    
    
    
    
    
    (47,611
    )Realized investment gains
(losses) included in net
income
    
    
    3,137
    
    
    
    (3,453
    )
    
    
    (316
    )
    
    
    943
    
    
    
    
    
    
    
    943Balance, end of period
    
    $
    17,821
    
    
    $
    329,153
    
    
    $
    346,974
    
    
    $
    29,694
    
    
    $
    
    
    
    $
    29,694Realized investment gains
(losses) relating to assets
held at period end
    
    $
    1,106
    
    
    $
    (3,453
    )
    
    $
    (2,347
    )
    
    $
    727
    
    
    $
    
    
    
    $
    727
  Fair Value Option
     18




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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, dollars in thousands)
 5. Unpaid Losses and Loss Adjustment Expenses
  Three Months EndedMarch 31,2010
    
    
    2009Gross unpaid losses and LAE, beginning of period
    
    $
    2,672,605
    
    
    $
    2,987,803Less ceded unpaid losses and LAE
    
    
    632,750
    
    
    
    684,239Net unpaid losses and LAE, beginning of period
    
    
    2,039,855
    
    
    
    2,303,564Losses and LAE incurred related to:Current period
    
    
    131,113
    
    
    
    146,735Prior years favorable development
    
    
    (4,907
    )
    
    
    (10,885
    )Total losses and LAE incurred
    
    
    126,206
    
    
    
    135,850Losses and LAE paid related to:Current period
    
    
    4,390
    
    
    
    30,561Prior years
    
    
    184,791
    
    
    
    208,064Total losses and LAE paid
    
    
    189,181
    
    
    
    238,625Net unpaid losses and LAE, end of period
    
    
    1,976,880
    
    
    
    2,200,789Add ceded unpaid losses and LAE
    
    
    627,282
    
    
    
    670,237Gross unpaid losses and LAE, end of period
    
    $
    2,604,162
    
    
    $
    2,871,026
  March 31,2010Ceded unpaid losses and LAE in the table above
    
    $
    627,282Reconciling items:Reinsurance recoverable on paid losses and LAE
    
    
    11,091Unamortized retroactive reinsurance recoverable
    
    
    246,278Total reconciling items
    
    
    257,369Reinsurance recoverable on the consolidated balance sheet
    
    $
    884,651
  19




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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, dollars in thousands)
 6. Asbestos and Environmental Losses and Loss Adjustment Expenses
  Three Months EndedMarch 31,2010
    
    
    2009AsbestosGross unpaid losses and allocated LAE (ALAE), beginning of period
    
    $
    344,126
    
    
    $
    387,224Less ceded unpaid losses and ALAE
    
    
    60,280
    
    
    
    68,026Net unpaid losses and ALAE, beginning of period
    
    
    283,846
    
    
    
    319,198Net losses and ALAE incurred
    
    
    82
    
    
    
    (1,476
    )Net paid losses and ALAE
    
    
    23,242
    
    
    
    23,475Net unpaid losses and ALAE, end of period
    
    
    260,686
    
    
    
    294,247Add ceded unpaid losses and ALAE
    
    
    63,255
    
    
    
    78,209Gross unpaid losses and ALAE, end of period
    
    $
    323,941
    
    
    $
    372,456
 Three Months EndedMarch 31,2010
    
    
    2009EnvironmentalGross unpaid losses and ALAE, beginning of period
    
    $
    93,302
    
    
    $
    107,948Less ceded unpaid losses and ALAE
    
    
    20,078
    
    
    
    26,312Net unpaid losses and ALAE, beginning of period
    
    
    73,224
    
    
    
    81,636Net losses and ALAE incurred
    
    
    (64
    )
    
    
    (80
    )Net paid losses and ALAE
    
    
    1,663
    
    
    
    1,928Net unpaid losses and ALAE, end of period
    
    
    71,497
    
    
    
    79,628Add ceded unpaid losses and ALAE
    
    
    20,488
    
    
    
    27,889Gross unpaid losses and ALAE, end of period
    
    $
    91,985
    
    
    $
    107,517
    20




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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, dollars in thousands)
 7. Reinsurance
  Three Months EndedMarch 31,2010
    
    
    2009Premiums written:Direct
    
    $
    213,764
    
    
    $
    210,899Assumed from other companies, pools and associations
    
    
    7,948
    
    
    
    7,326Ceded to other companies, pools and associations
    
    
    (34,904
    )
    
    
    (37,955
    )Net premiums written
    
    $
    186,808
    
    
    $
    180,270Premiums earned:Direct
    
    $
    210,600
    
    
    $
    236,552Assumed from other companies, pools and associations
    
    
    8,253
    
    
    
    7,672Ceded to other companies, pools and associations
    
    
    (36,279
    )
    
    
    (36,794
    )Premiums earned
    
    $
    182,574
    
    
    $
    207,430
  Three Months EndedMarch 31,2010
    
    
    2009Earned premiums ceded to reinsurers
    
    $
    (36,279
    )
    
    $
    (36,794
    )Commissions earned on ceded reinsurance premiums
    
    
    7,555
    
    
    
    8,254Claims incurred ceded to reinsurers
    
    
    15,977
    
    
    
    23,575Provision for uncollectible reinsurance
    
    
    
    
    
    
    (2,000
    )Net impact of ceded reinsurance transactions
    
    $
    (12,747
    )
    
    $
    (6,965
    )
  March 31,
    
    
    December 31,2010
    
    
    2009Reinsurance recoverable on unpaid losses and LAE
    
    $
    873,560
    
    
    $
    882,992Reinsurance receivable on paid losses and LAE
    
    
    11,091
    
    
    
    9,705Total reinsurance recoverable
    
    $
    884,651
    
    
    $
    892,697
  Corporate Aggregate Reinsurance
   21




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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, dollars in thousands)
  Three Months EndedMarch 31,2010
    
    
    2009Investment income
    
    $
    (4,031
    )
    
    $
    (3,767
    )Losses and LAE
    
    
    (3,964
    )
    
    
    (3,721
    )Decrease in income before income taxes
    
    $
    (67
    )
    
    $
    (46
    )
  Three Months EndedMarch 31,2010
    
    
    2009Decrease in reinsurance recoverable due from reinsurers
    
    $
    
    
    
    $
    Less: related premiums paid
    
    
    
    
    
    
    Decrease in income deferred during the period
    
    
    
    
    
    
    Amortization of deferred income
    
    
    (3,964
    )
    
    
    (3,721
    )Decrease in deferred income
    
    
    (3,964
    )
    
    
    (3,721
    )Deferred income on retroactive reinsurancebeginning of period
    
    
    106,394
    
    
    
    121,277Deferred income on retroactive reinsuranceend of period
    
    $
    102,430
    
    
    $
    117,556
   8. Income Taxes
  9. Commitments and Contingencies
   22




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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, dollars in thousands)
   10. Segment Reporting
  Three Months EndedMarch 31,2010
    
    
    2009Workers compensation
    
    $
    45,774
    
    
    $
    47,414General liability
    
    
    35,415
    
    
    
    39,529Commercial automobile
    
    
    22,341
    
    
    
    35,403Property
    
    
    18,256
    
    
    
    28,202Commercial multi-peril
    
    
    19,419
    
    
    
    19,480Accident and health
    
    
    34,791
    
    
    
    28,671Other1
    
    
    6,578
    
    
    
    8,731Total premiums earned
    
    $
    182,574
    
    
    $
    207,430
 1
    
    Other includes surety, fidelity, homeowners and personal automobile lines of
business.  23




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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, dollars in thousands)
  Three Months EndedMarch 31,2010
    
    
    2009Amount
    
    
    Ratio
    
    
    Amount
    
    
    RatioAccident year loss and LAE ratios:Workers compensation
    
    $
    40,100
    
    
    
    87.6
    %
    
    $
    38,669
    
    
    
    81.6
    %General liability
    
    
    24,644
    
    
    
    69.6
    %
    
    
    27,028
    
    
    
    68.4
    %Commercial automobile
    
    
    16,725
    
    
    
    74.9
    %
    
    
    24,755
    
    
    
    69.9
    %Property
    
    
    11,714
    
    
    
    64.2
    %
    
    
    21,342
    
    
    
    75.7
    %Commercial multi-peril
    
    
    11,032
    
    
    
    56.8
    %
    
    
    11,343
    
    
    
    58.2
    %Accident and health
    
    
    24,222
    
    
    
    69.6
    %
    
    
    19,732
    
    
    
    68.8
    %Other
1
    
    
    2,676
    
    
    
    40.7
    %
    
    
    3,866
    
    
    
    44.3
    %Total accident year losses and LAE
    
    
    131,113
    
    
    
    71.8
    %
    
    
    146,735
    
    
    
    70.7
    %Prior years loss development
    
    
    (4,907
    )
    
    
    (2.7
    )
    
    
    (10,885
    )
    
    
    (5.2
    )Calendar year losses and LAE
    
    $
    126,206
    
    
    
    69.1
    %
    
    $
    135,850
    
    
    
    65.5
    %
 1
    
    Other includes surety, fidelity, homeowners and personal automobile lines of
business.  11. Subsequent Event
   24




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##### Table of Contents



ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
    Statements Regarding Forward-Looking Information
  
    
    Competitive conditions in the insurance market and the ability to attract and retain new
business;
    
    Adverse effect of volatility in the global financial markets including changes in
interest rates, credit spreads, foreign currency exchange rates and other factors;
    
    Current economic conditions;
    
    Insufficient loss reserves, including reserves for asbestos, environmental and other
latent claims;
    
    Occurrence of natural or man-made catastrophic events;
    
    Inability to realize the Companys investment objectives;
    
    Inability to obtain reinsurance coverage on reasonable terms and prices, particularly
property catastrophe reinsurance;
    
    Exposure to credit risk, in the event reinsurers or policyholders fail to pay the
Company amounts owed to it;
    
    Lowering or loss of one of the Companys financial strength ratings;
    
    Loss of key producers;
    
    Changes in the business or regulatory environment in which the Company operates as a
result of recent insurance industry investigations by government authorities and other
parties;
    
    Exposure to emerging claims and coverage issues;
    
    Restrictions on the ability of the Companys insurance subsidiaries to pay dividends;
    
    Subordination of debt securities to the obligations and liabilities of the Companys
insurance subsidiaries;
    
    Ability of Fairfax to determine the outcome of corporate action requiring stockholder
approval; and
    
    Changes in governmental regulations.
  25




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##### Table of Contents



Critical Accounting Policies and Estimates
    Unpaid Losses and Loss Adjustment Expenses
       26




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##### Table of Contents



Investments
      27




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##### Table of Contents



Reinsurance Recoverable
     Deferred Income Tax Assets
    28




---



##### Table of Contents



Income
Taxes
 Summary of Operations
 Overview
        29




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##### Table of Contents



Market Conditions
     30




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##### Table of Contents



Results of Operations
  Three Months EndedMarch 31,2010
    
    
    2009Gross premiums written
    
    $
    221,712
    
    
    $
    218,225Net premiums written
    
    $
    186,808
    
    
    $
    180,270Premiums earned
    
    $
    182,574
    
    
    $
    207,430Losses and LAE
    
    
    126,206
    
    
    
    135,850Underwriting expenses
    
    
    65,471
    
    
    
    67,437Underwriting (loss) income
    
    
    (9,103
    )
    
    
    4,143Investment income and realized investment gains and losses
    
    
    190,688
    
    
    
    (55,678
    )Interest and other expense
    
    
    8,751
    
    
    
    7,736Income (loss) before income taxes
    
    
    172,834
    
    
    
    (59,271
    )Income tax (expense) benefit
    
    
    (54,649
    )
    
    
    28,324Net income (loss)
    
    $
    118,185
    
    
    $
    (30,947
    )Loss and LAE ratio
    
    
    69.1
    %
    
    
    65.5
    %Underwriting expense ratio
    
    
    35.9
    
    
    
    32.5Combined ratio
    
    
    105.0
    %
    
    
    98.0
    %
   Underwriting Results
 Gross Premiums Written
  Three Months Ended March 31,Increase/
    
    
    Percent2010
    
    
    2009
    
    
    (Decrease)
    
    
    ChangeWorkers compensation
    
    $
    53,762
    
    
    $
    50,080
    
    
    $
    3,682
    
    
    
    7.4
    %General liability
    
    
    48,553
    
    
    
    52,143
    
    
    
    (3,590
    )
    
    
    (6.9
    )%Commercial automobile
    
    
    20,818
    
    
    
    27,710
    
    
    
    (6,892
    )
    
    
    (24.9
    )%Property
    
    
    21,775
    
    
    
    21,661
    
    
    
    114
    
    
    
    0.5
    %Commercial multi-peril
    
    
    20,030
    
    
    
    19,348
    
    
    
    682
    
    
    
    3.5
    %Accident and health
    
    
    51,309
    
    
    
    40,730
    
    
    
    10,579
    
    
    
    26.0
    %Other1
    
    
    5,465
    
    
    
    6,553
    
    
    
    (1,088
    )
    
    
    (16.6
    )%Total gross premiums written
    
    $
    221,712
    
    
    $
    218,225
    
    
    $
    3,487
    
    
    
    1.6
    %
 1
    
    Other includes surety, fidelity, homeowners and personal automobile lines of business.  31




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##### Table of Contents



Casualty Gross Premiums Written
  Property Gross Premiums Written
  Other Gross Premiums Written
  Net Premiums Written
  Premiums Earned
   32




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##### Table of Contents



Losses and Loss Adjustment Expenses
   Underwriting Expenses
  Investment Results
  Three Months EndedMarch 31,2010
    
    
    2009Average investments, at book value1
    
    $
    3,565,878
    
    
    $
    3,861,573Investment income
    
    $
    28,287
    
    
    $
    35,393Realized investment gains (losses)
    
    
    162,401
    
    
    
    (91,071
    )Change in unrealized investment gains and losses and foreign currency translation
    
    
    (12,166
    )
    
    
    (118,727
    )Total return on investments
    
    $
    178,522
    
    
    $
    (174,405
    )Annualized total return on investments
    
    
    20.0
    %
    
    
    (18.1
    )%
 1
    
    Includes cash and cash equivalents and assets pledged for derivatives.   33




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##### Table of Contents



Investment Income
  Three Months EndedMarch 31,2010
    
    
    2009Interest on fixed income securities
    
    $
    26,426
    
    
    $
    28,514Dividends from equity securities
    
    
    6,131
    
    
    
    11,629Earnings from other invested assets
    
    
    3,852
    
    
    
    1,461Other, primarily interest on cash and cash equivalents
    
    
    176
    
    
    
    497Gross investment income
    
    
    36,585
    
    
    
    42,101Investment expenses
    
    
    (4,267
    )
    
    
    (2,941
    )Interest on funds held under reinsurance contracts
    
    
    (4,031
    )
    
    
    (3,767
    )Investment income
    
    $
    28,287
    
    
    $
    35,393
  Realized Investment Gains and Losses
  Three Months EndedMarch 31,2010
    
    
    2009Fixed income securities, available-for-sale
    
    $
    5,709
    
    
    $
    14,189Fixed income securities, held-for-trading
    
    
    32,398
    
    
    
    (13,924
    )Equity securities
    
    
    123,177
    
    
    
    1,484Investments at equity
    
    
    
    
    
    
    1,592Derivatives and other invested assets
    
    
    1,668
    
    
    
    (39,208
    )Other
    
    
    (2
    )
    
    
    (803
    )162,950
    
    
    
    (36,670
    )Other than temporary impairment charges:Equity securities
    
    
    (549
    )
    
    
    (50,894
    )Fixed income securities
    
    
    
    
    
    
    (3,507
    )(549
    )
    
    
    (54,401
    )Total pre-tax net realized investment gains (losses)
    
    $
    162,401
    
    
    $
    (91,071
    )
  Financial Instruments
   34




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##### Table of Contents



Interest and Other Expense
  Liquidity and Capital Resources
 Holding Company
    Insurance Subsidiaries
    35




---



##### Table of Contents



Ratings
    
 ITEM 3.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
     36




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##### Table of Contents



Interest Rate Risk
  At March 31, 2010
    
    
    At December 31, 2009Fair Value of
    
    
    
    
    
    
    
    
    
    
    Fair Value ofFixed Income
    
    
    Hypothetical
    
    
    Hypothetical
    
    
    Fixed Income
    
    
    Hypothetical
    
    
    Hypothetical(dollars in millions)
    
    Securities
    
    
    $ Change
    
    
    % Change
    
    
    Securities
    
    
    $ Change
    
    
    % Change200 basis point decline
    
    $
    2,136,106
    
    
    $
    266,269
    
    
    
    14.2
    %
    
    $
    2,114,909
    
    
    $
    274,004
    
    
    
    14.9
    %100 basis point decline
    
    $
    1,998,342
    
    
    $
    128,505
    
    
    
    6.9
    %
    
    $
    1,974,991
    
    
    $
    134,086
    
    
    
    7.3
    %Base scenario
    
    $
    1,869,837
    
    
    
    
    
    
    
    
    
    
    $
    1,840,905
    
    
    
    
    
    
    
    100 basis point increase
    
    $
    1,712,361
    
    
    $
    (157,476
    )
    
    
    (8.4
    )%
    
    $
    1,687,183
    
    
    $
    (153,722
    )
    
    
    (8.4
    )%200 basis point increase
    
    $
    1,544,972
    
    
    $
    (324,865
    )
    
    
    (17.4
    )%
    
    $
    1,518,497
    
    
    $
    (322,408
    )
    
    
    (17.5
    )%
 Credit Risk
      37




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##### Table of Contents



As of and for the Three Months Ended March 31, 2010Effect on Pre-taxExposure/
    
    
    
    
    
    
    OtherNotional
    
    
    Carrying
    
    
    Comprehensive
    
    
    
    
    
    
    NetValue
    
    
    Value
    
    
    Income
    
    
    Earnings
    
    
    EquityCredit risk exposures:Fixed income securities1
    
    $
    1,780,752
    
    
    $
    1,780,752
    
    
    $
    949
    
    
    $
    38,107
    
    
    $
    39,056Warrants
    
    
    101,201
    
    
    
    392
    
    
    
    
    
    
    
    392
    
    
    
    392Premiums receivable
    
    
    168,322
    
    
    
    168,322
    
    
    
    
    
    
    
    51
    
    
    
    51Reinsurance recoverable
    
    
    884,651
    
    
    
    884,651
    
    
    
    
    
    
    
    
    
    
    
    Total credit risk exposure
    
    $
    2,934,926
    
    
    $
    2,834,117
    
    
    
    949
    
    
    
    38,550
    
    
    
    39,499Hedging instruments:Credit default swaps
    
    $
    1,489,576
    
    
    $
    18,782
    
    
    
    
    
    
    
    (1,245
    )
    
    
    (1,245
    )Net exposure
    
    
    
    
    
    
    
    
    
    $
    949
    
    
    $
    37,305
    
    
    $
    38,254
 1
    
    Excludes $89,085 of U.S. government securities with a gain in other comprehensive
income of $700.  As of and for the Three Months Ended March 31, 2009Effect on Pre-taxExposure/
    
    
    
    
    
    
    OtherNotional
    
    
    Carrying
    
    
    Comprehensive
    
    
    
    
    
    
    NetValue
    
    
    Value
    
    
    Income
    
    
    Earnings
    
    
    EquityCredit risk exposures:Fixed income securities1
    
    $
    1,713,293
    
    
    $
    1,713,293
    
    
    $
    57,390
    
    
    $
    (4,312
    )
    
    $
    53,078Warrants
    
    
    101,201
    
    
    
    1
    
    
    
    
    
    
    
    1
    
    
    
    1Premiums receivable
    
    
    174,360
    
    
    
    174,360
    
    
    
    
    
    
    
    (375
    )
    
    
    (375
    )Reinsurance recoverable
    
    
    947,228
    
    
    
    947,228
    
    
    
    
    
    
    
    (2,000
    )
    
    
    (2,000
    )Total credit risk exposure
    
    $
    2,936,082
    
    
    $
    2,834,882
    
    
    
    57,390
    
    
    
    (6,686
    )
    
    
    50,704Hedging instruments:Credit default swaps
    
    $
    1,464,427
    
    
    $
    61,366
    
    
    
    
    
    
    
    32,196
    
    
    
    32,196Eurodollar futures contracts
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (343
    )
    
    
    (343
    )Total hedging instruments
    
    $
    1,464,427
    
    
    $
    61,366
    
    
    
    
    
    
    
    31,853
    
    
    
    31,853Net exposure
    
    
    
    
    
    
    
    
    
    $
    57,390
    
    
    $
    25,167
    
    
    $
    82,557
 1
    
    Excludes $102,787 of U.S. government securities with a loss in other comprehensive
income of $11,571 and realized gain of $1,066.    38




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##### Table of Contents



Equity Price Risk
    As of and for the Three Months Ended March 31, 2010Effect on Pre-taxExposure/
    
    
    
    
    
    
    OtherNotional
    
    
    Carrying
    
    
    ComprehensiveValue
    
    
    Value
    
    
    Income1
    
    
    Earnings
    
    
    Net EquityEquity exposures:Equity securities
    
    $
    865,758
    
    
    $
    865,758
    
    
    $
    (15,975
    )
    
    $
    122,628
    
    
    $
    106,653Total return swaps  long
    
    
    518,893
    
    
    
    (1,412
    )
    
    
    
    
    
    
    35,686
    
    
    
    35,686Investments at equity
    
    
    173,836
    
    
    
    173,836
    
    
    
    2,705
    
    
    
    3,852
    
    
    
    6,557Other invested assets
    
    
    360,335
    
    
    
    360,335
    
    
    
    
    
    
    
    (7,724
    )
    
    
    (7,724
    )Total equity exposure
    
    $
    1,918,822
    
    
    $
    1,398,517
    
    
    
    (13,270
    )
    
    
    154,442
    
    
    
    141,172Hedging instruments:Total return swaps  short
    
    $
    496,855
    
    
    $
    (1,406
    )
    
    
    
    
    
    
    (23,637
    )
    
    
    (23,637
    )Net equity exposure
    
    
    
    
    
    
    
    
    
    $
    (13,270
    )
    
    $
    130,805
    
    
    $
    117,535
 1
    
    Excludes foreign currency translation losses of $545.    39




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##### Table of Contents



Foreign Currency Exchange Rate Risk
  
 ITEM 4T.
    
    CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
  Internal Control Over Financial Reporting
    40




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##### Table of Contents



Part II
OTHER INFORMATION
 
 ITEM 1.
    
    LEGAL PROCEEDINGS
    
 ITEM 6.
    
    EXHIBITS
   41




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##### Table of Contents



SIGNATURES
  CRUM & FORSTER HOLDINGS CORP.
(Registrant)Date:  April 30, 2010
    By:
    /s/ Douglas M. LibbyDouglas M. LibbyPresident, Chief Executive Officer and DirectorDate:  April 30, 2010
    By:
    /s/ Mary Jane RobertsonMary Jane RobertsonExecutive Vice President, Chief Financial Officer,
Treasurer and Director  42




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##### Table of Contents



INDEX TO EXHIBITS
 Exhibit No.*    31.1
    
    
    Certification of President, Chief Executive Officer and Director pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.*    31.2
    
    
    Certification of Executive Vice President, Chief Financial Officer, Treasurer and
Director pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*    32.1
    
    
    Certification of President, Chief Executive Officer and Director pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.*    32.2
    
    
    Certification of Executive Vice President, Chief Financial Officer, Treasurer and
Director pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.99.1
    
    
    Risk Factors (incorporated into Part II of this Form 10-Q by reference to the section
entitled Risk Factors in the Companys Annual Report on Form 10-K for the year ended
December 31, 2009 filed with the Securities and Exchange Commission on February 26, 2010).
  *
    
    Filed herewith  43