##### Table of Contents



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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549




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Form 10-Q

QUARTERLY REPORT UNDER SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934


|                                          |  |                        
|----------------------------------------- |  | -----------------------
|For the Quarter Ended:
    March 31, 2004 |  | Commission File Number:

(CRUM & FORSTER LOGO)

Crum & Forster Holdings Corp.

(Exact Name of Registrant as Specified in its
Charter)


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

Crum & Forster Holdings Corp.

305 Madison Avenue, Morristown, New Jersey
07962


(973) 490-6600


(Address, including zip code, and telephone
number,


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


Indicate by check mark whether the Registrant
(1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period
that the Registrant was required to file such reports), and
(2) has been subject to the filing requirements for at
least the past
90 days.     YES o          NO þ

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

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

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





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CRUM & FORSTER HOLDINGS CORP.

FORM 10-Q

INDEX






|                                  |  |                                                                                                             |  |        |    | 
|--------------------------------- |  | ----------------------------------------------------------------------------------------------------------- |  | ------ | -- | 
|                                  |  |                                                                                                             |  | Page  
|                                  |  |                                                                                                             |  | Number
|                                  |  |                                                                                                             |  |       
|PART I.
    FINANCIAL INFORMATION
|                                 
|ITEM 1.                           |  | FINANCIAL STATEMENTS (UNAUDITED)                                                                            |  |        |    | 
|                                  |  | Consolidated Balance Sheets
    as of March 31, 2004 and December 31, 2003                                  |  |        | 3  | 
|                                  |  | Consolidated Statements of
    Income for the Three Months Ended March 31,  2004 and
    2003               |  |        | 4  | 
|                                  |  | Consolidated Statements of
    Shareholders Equity for the Three Months
    Ended  March 31, 2004 and 2003 |  |        | 5  | 
|                                  |  | Consolidated Statements of
    Comprehensive Income for the Three Months  Ended
    March 31, 2004 and 2003 |  |        | 6  | 
|                                  |  | Consolidated Statements of
    Cash Flows for the Three Months Ended  March 31, 2004
    and 2003           |  |        | 7  | 
|                                  |  | Notes to Consolidated
    Financial Statements                                                              |  |        | 8  | 
|ITEM 2.                           |  | MANAGEMENTS
    DISCUSSION AND ANALYSIS OF FINANCIAL  CONDITION AND RESULTS
    OF OPERATIONS              |  |        | 15 | 
|ITEM 3.                           |  | QUANTITATIVE AND
    QUALITATIVE DISCLOSURES ABOUT  MARKET RISK                                             |  |        | 23 | 
|ITEM 4.                           |  | CONTROLS AND
    PROCEDURES                                                                                 |  |        | 25 | 
|                                 
|PART II.
      OTHER INFORMATION 
|                                 
|ITEM 1.                           |  | LEGAL
    PROCEEDINGS                                                                                       |  |        | 25 | 
|ITEM 5.                           |  | OTHER
    INFORMATION                                                                                       |  |        | 25 | 
|ITEM 6.                           |  | EXHIBITS AND REPORTS ON
    FORM 8-K                                                                        |  |        | 25 | 
|                                  |  | INDEX TO
    EXHIBITS                                                                                       |  |        | 27 | 
|EX-31.1                          
|EX-31.2                          
|EX-32.1                          
|EX-32.2                          
|EX-99.1                          



2



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##### Table of Contents



CRUM & FORSTER HOLDINGS CORP.




CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except per share
amounts)


|                                                                                       |                                                                                                                       |                                            |           |              |           |   |           |         |           | 
|-------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | --------- | ------------ | --------- | - | --------- | ------- | --------- | 
|                                                                                       |                                                                                                                       | March 31,                                  |           | December 31,
|                                                                                       |                                                                                                                       | 2004                                       |           | 2003        
|                                                                                       |                                                                                                                       |                                            |           |             
|                                                                                       |                                                                                                                       | (Unaudited)                                |           |             
|ASSETS                                                                                
|Investments:                                                                           |                                                                                                                       |                                            |           |              |           |   |           |        
|                                                                                       | Fixed income securities, at fair value (amortized
    cost of $2,185,466 and $620,700 in 2004 and 2003, respectively) |                                            | $         | 2,164,066    |           |   | $         | 636,979 |          
|                                                                                       | Equity securities, at fair value (cost of
    $382,301 and $273,457 in 2004 and 2003, respectively)                   |                                            |           | 429,354      |           |   |           | 311,324 |          
|                                                                                       | Other invested assets                                                                                                 |                                            |           | 187,380      |           |   |           | 138,208 |          
|                                                                                       |                                                                                                                       |                                            |           |              |           |   |           |        
|                                                                                       |                                                                                                                       | Total investments                          |           |              | 2,780,800 |   |           |         | 1,086,511 | 
|Cash and cash equivalents                                                              |                                                                                                                       |                                            | 346,401   |              |           |   | 2,081,878 |        
|Premiums receivable                                                                    |                                                                                                                       |                                            | 265,732   |              |           |   | 276,618   |        
|Reinsurance recoverable                                                                |                                                                                                                       |                                            | 1,492,631 |              |           |   | 1,516,112 |        
|Reinsurance recoverable from affiliates                                                |                                                                                                                       |                                            | 167,240   |              |           |   | 164,354   |        
|Prepaid reinsurance premiums                                                           |                                                                                                                       |                                            | 43,570    |              |           |   | 39,351    |        
|Deferred income taxes                                                                  |                                                                                                                       |                                            | 173,686   |              |           |   | 163,379   |        
|Deferred policy acquisition costs                                                      |                                                                                                                       |                                            | 72,900    |              |           |   | 71,644    |        
|Other assets                                                                           |                                                                                                                       |                                            | 154,263   |              |           |   | 187,551   |        
|                                                                                       |                                                                                                                       |                                            |           |              |           |   |           |        
|                                                                                       |                                                                                                                       | Total assets                               |           | $            | 5,497,223 |   |           | $       | 5,587,398 | 
|                                                                                       |                                                                                                                       |                                            |           |              |           |   |           |        
|LIABILITIES                                                                           
|Unpaid losses and loss adjustment expenses                                             |                                                                                                                       | $                                          | 3,164,997 |              |           | $ | 3,178,166 |        
|Unearned premiums                                                                      |                                                                                                                       |                                            | 529,775   |              |           |   | 522,210   |        
|Deferred income on retroactive reinsurance                                             |                                                                                                                       |                                            | 177,106   |              |           |   | 180,524   |        
|Funds held under reinsurance contracts                                                 |                                                                                                                       |                                            | 220,307   |              |           |   | 225,632   |        
|Accounts payable and other liabilities                                                 |                                                                                                                       |                                            | 234,699   |              |           |   | 283,494   |        
|Long-term debt                                                                         |                                                                                                                       |                                            | 291,412   |              |           |   | 291,257   |        
|                                                                                       |                                                                                                                       |                                            |           |              |           |   |           |        
|                                                                                       |                                                                                                                       | Total liabilities                          |           |              | 4,618,296 |   |           |         | 4,681,283 | 
|                                                                                       |                                                                                                                       |                                            |           |              |           |   |           |        
|SHAREHOLDERS EQUITY                                                                  
|Common stock, $0.01 par value; 1,000 shares
    authorized; 100 issued and outstanding |                                                                                                                       |                                            |          |              |           |   |          |        
|Additional paid-in capital                                                             |                                                                                                                       |                                            | 740,993   |              |           |   | 740,993   |        
|Accumulated other comprehensive income, net of tax                                     |                                                                                                                       |                                            | 23,654    |              |           |   | 43,496    |        
|Retained earnings                                                                      |                                                                                                                       |                                            | 114,280   |              |           |   | 121,626   |        
|                                                                                       |                                                                                                                       |                                            |           |              |           |   |           |        
|                                                                                       |                                                                                                                       | Total shareholders equity                 |           |              | 878,927   |   |           |         | 906,115   | 
|                                                                                       |                                                                                                                       |                                            |           |              |           |   |           |        
|                                                                                       |                                                                                                                       | Total liabilities and shareholders equity |           | $            | 5,497,223 |   |           | $       | 5,587,398 | 
|                                                                                       |                                                                                                                       |                                            |           |              |           |   |           |        

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

3



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##### Table of Contents



CRUM & FORSTER HOLDINGS CORP.



CONSOLIDATED STATEMENTS OF INCOME


(Dollars in thousands)


|           |                                     |                 |        |         |         |   |        |         |         | 
|---------- | ----------------------------------- | --------------- | ------ | ------- | ------- | - | ------ | ------- | ------- | 
|           |                                     |                
|           |                                     | Three Months   
|           |                                     | Ended March 31,
|           |                                     | (Unaudited)    
|           |                                     |                
|           |                                     | 2004            |        | 2003   
|           |                                     |                 |        |        
|REVENUES   |                                     |                 |        |         |         |   |        |        
|           | Premiums earned                     |                 | $      | 227,539 |         |   | $      | 171,838 |        
|           | Investment income                   |                 |        | 24,089  |         |   |        | 22,810  |        
|           | Realized investment gains           |                 |        | 37,028  |         |   |        | 50,197  |        
|           |                                     |                 |        |         |         |   |        |        
|           |                                     | Total revenues  |        |         | 288,656 |   |        |         | 244,845 | 
|           |                                     |                 |        |         |         |   |        |        
|EXPENSES   |                                     |                 |        |         |         |   |        |        
|           | Losses and loss adjustment expenses |                 |        | 162,137 |         |   |        | 116,728 |        
|           | Policy acquisition costs            |                 |        | 30,711  |         |   |        | 21,919  |        
|           | Other underwriting expenses         |                 |        | 32,510  |         |   |        | 30,567  |        
|           | Interest expense                    |                 |        | 8,439   |         |   |        |        |        
|           | Other expense (income), net         |                 |        | 936     |         |   |        | (275    | )      
|           |                                     |                 |        |         |         |   |        |        
|           |                                     | Total expenses  |        |         | 234,733 |   |        |         | 168,939 | 
|           |                                     |                 |        |         |         |   |        |        
|           | Income before income taxes          |                 |        | 53,923  |         |   |        | 75,906  |        
|           | Income tax expense                  |                 |        | 18,769  |         |   |        | 26,074  |        
|           |                                     |                 |        |         |         |   |        |        
|NET INCOME |                                     | $               | 35,154 |         |         | $ | 49,832 |        
|           |                                     |                 |        |         |         |   |        |        

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

4



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##### Table of Contents






CRUM & FORSTER HOLDINGS CORP.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS
EQUITY

(Dollars in thousands)


|                                                       |                                                                                                      |                 |         |         |   |   |           |        |  
|------------------------------------------------------ | ---------------------------------------------------------------------------------------------------- | --------------- | ------- | ------- | - | - | --------- | ------ | -
|                                                       |                                                                                                      |                
|                                                       |                                                                                                      | Three Months   
|                                                       |                                                                                                      | Ended March 31,
|                                                       |                                                                                                      | (Unaudited)    
|                                                       |                                                                                                      |                
|                                                       |                                                                                                      | 2004            |         | 2003   
|                                                       |                                                                                                      |                 |         |        
|COMMON STOCK                                           |                                                                                                      |                 |         |         |   |   |           |       
|Balance, beginning and end of period                   |                                                                                                      | $               |        |         |   | $ |          |       
|                                                       |                                                                                                      |                 |         |         |   |   |           |       
|ADDITIONAL PAID-IN CAPITAL                             |                                                                                                      |                 |         |         |   |   |           |       
|Balance, beginning and end of period                   |                                                                                                      |                 | 740,993 |         |   |   | 748,735   |       
|                                                       |                                                                                                      |                 |         |         |   |   |           |       
|ACCUMULATED OTHER COMPREHENSIVE INCOME, NET OF
    TAX |                                                                                                      |                 |         |         |   |   |           |       
|Balance, beginning of period                           |                                                                                                      |                 | 43,496  |         |   |   | 26,663    |       
|                                                       | Unrealized investment gains and losses, net of
    transfers to realized investment gains and losses |                 |         | (18,785 | ) |   |           | (8,905 | )
|                                                       | Foreign currency translation                                                                         |                 |         | (1,057  | ) |   |           | (41    | )
|                                                       |                                                                                                      |                 |         |         |   |   |           |       
|Balance, end of period                                 |                                                                                                      |                 | 23,654  |         |   |   | 17,717    |       
|                                                       |                                                                                                      |                 |         |         |   |   |           |       
|RETAINED EARNINGS                                      |                                                                                                      |                 |         |         |   |   |           |       
|Balance, beginning of period                           |                                                                                                      |                 | 121,626 |         |   |   | 203,766   |       
|                                                       | Net income                                                                                           |                 |         | 35,154  |   |   |           | 49,832 |  
|                                                       | Dividend to shareholder                                                                              |                 |         | (42,500 | ) |   |           |       |  
|                                                       |                                                                                                      |                 |         |         |   |   |           |       
|Balance, end of period                                 |                                                                                                      |                 | 114,280 |         |   |   | 253,598   |       
|                                                       |                                                                                                      |                 |         |         |   |   |           |       
|TOTAL SHAREHOLDERS EQUITY                             |                                                                                                      | $               | 878,927 |         |   | $ | 1,020,050 |       
|                                                       |                                                                                                      |                 |         |         |   |   |           |       

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

5



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##### Table of Contents



CRUM & FORSTER HOLDINGS CORP.



CONSOLIDATED STATEMENTS OF COMPREHENSIVE
INCOME


(Dollars in thousands)


|                                                                                   |                                                                             |                                                         |         |         |         |   |        |         |         |  
|---------------------------------------------------------------------------------- | --------------------------------------------------------------------------- | ------------------------------------------------------- | ------- | ------- | ------- | - | ------ | ------- | ------- | -
|                                                                                   |                                                                             |                                                        
|                                                                                   |                                                                             | Three Months                                           
|                                                                                   |                                                                             | Ended March 31,                                        
|                                                                                   |                                                                             | (Unaudited)                                            
|                                                                                   |                                                                             |                                                        
|                                                                                   |                                                                             | 2004                                                    |         | 2003   
|                                                                                   |                                                                             |                                                         |         |        
|NET INCOME                                                                         |                                                                             | $                                                       | 35,154  |         |         | $ | 49,832 |        
|                                                                                   |                                                                             |                                                         |         |         |         |   |        |        
|Change in components of other comprehensive
    income for the period, before tax: |                                                                             |                                                         |         |         |         |   |        |        
|                                                                                   | Unrealized investment gains and losses                                      |                                                         |         | (28,898 | )       |   |        | (13,700 | )      
|                                                                                   | Foreign currency translation                                                |                                                         |         | (1,627  | )       |   |        | (63     | )      
|                                                                                   |                                                                             |                                                         |         |         |         |   |        |        
|                                                                                   |                                                                             | Other comprehensive loss for the period, before
    tax |         |         | (30,525 | ) |        |         | (13,763 | )
|                                                                                   |                                                                             |                                                         |         |         |         |   |        |        
|Deferred income tax benefit for the period:                                        |                                                                             |                                                         |         |         |         |   |        |        
|                                                                                   | Deferred income tax benefit from unrealized
    investment gains and losses |                                                         |         | 10,113  |         |   |        | 4,795   |        
|                                                                                   | Deferred income tax benefit from foreign currency
    translation           |                                                         |         | 570     |         |   |        | 22      |        
|                                                                                   |                                                                             |                                                         |         |         |         |   |        |        
|                                                                                   |                                                                             | Total deferred income tax benefit for the period        |         |         | 10,683  |   |        |         | 4,817   |  
|                                                                                   |                                                                             |                                                         |         |         |         |   |        |        
|Other comprehensive loss for the period, net of
    tax                            |                                                                             |                                                         | (19,842 | )       |         |   | (8,946 | )      
|                                                                                   |                                                                             |                                                         |         |         |         |   |        |        
|COMPREHENSIVE INCOME                                                               |                                                                             | $                                                       | 15,312  |         |         | $ | 40,886 |        
|                                                                                   |                                                                             |                                                         |         |         |         |   |        |        

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

6



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##### Table of Contents



CRUM & FORSTER HOLDINGS CORP.



CONSOLIDATED STATEMENTS OF CASH
FLOWS


(Dollars in thousands)


|                                               |                                                                                |                                                          |                                            |                                    |         |         |            |           |         |         |         | 
|---------------------------------------------- | ------------------------------------------------------------------------------ | -------------------------------------------------------- | ------------------------------------------ | ---------------------------------- | ------- | ------- | ---------- | --------- | ------- | ------- | ------- | 
|                                               |                                                                                |                                                         
|                                               |                                                                                | Three Months                                            
|                                               |                                                                                | Ended March 31,                                         
|                                               |                                                                                | (Unaudited)                                             
|                                               |                                                                                |                                                         
|                                               |                                                                                | 2004                                                     |                                            | 2003                              
|                                               |                                                                                |                                                          |                                            |                                   
|OPERATING ACTIVITIES                           |                                                                                |                                                          |                                            |                                    |         |         |            |          
|                                               | Net income                                                                     |                                                          | $                                          | 35,154                             |         |         | $          | 49,832    |        
|                                               | Adjustments to reconcile net income to net cash
    from operating activities: |                                                          |                                            |                                    |         |         |            |           |        
|                                               |                                                                                | Net accretion of discount on fixed income
    securities |                                            |                                    | (2,763  | )       |            |           | (9,601  | )      
|                                               |                                                                                | Realized investment gains                                |                                            |                                    | (37,028 | )       |            |           | (50,197 | )      
|                                               |                                                                                | Equity in (earnings) losses of investees                 |                                            |                                    | (5,394  | )       |            |           | 1,835   |        
|                                               |                                                                                | Depreciation and amortization                            |                                            |                                    | 1,366   |         |            |           | 1,747   |        
|                                               |                                                                                | Deferred income tax expense                              |                                            |                                    | 376     |         |            |           | 22,023  |        
|                                               |                                                                                | Other non-cash net income adjustments                    |                                            |                                    | (8      | )       |            |           | 1,870   |        
|                                               |                                                                                | Changes in:                                              |                                            |                                    |         |         |            |           |         |        
|                                               |                                                                                |                                                          | Premiums receivable                        |                                    |         | 9,011   |            |           |         | (11,085 | )      
|                                               |                                                                                |                                                          | Reinsurance recoverable                    |                                    |         | 18,348  |            |           |         | 29,128  |        
|                                               |                                                                                |                                                          | Prepaid reinsurance premiums               |                                    |         | (4,219  | )          |           |         | 674     |        
|                                               |                                                                                |                                                          | Deferred policy acquisition costs          |                                    |         | (1,256  | )          |           |         | (4,588  | )      
|                                               |                                                                                |                                                          | Other assets                               |                                    |         | 30,686  |            |           |         | 9,638   |        
|                                               |                                                                                |                                                          | Unpaid losses and loss adjustment expenses |                                    |         | (13,169 | )          |           |         | (31,606 | )      
|                                               |                                                                                |                                                          | Unearned premiums                          |                                    |         | 7,565   |            |           |         | 36,047  |        
|                                               |                                                                                |                                                          | Funds held under reinsurance contracts     |                                    |         | (5,325  | )          |           |         | 3,749   |        
|                                               |                                                                                |                                                          | Accounts payable and other liabilities     |                                    |         | (10,565 | )          |           |         | (12,237 | )      
|                                               |                                                                                |                                                          |                                            |                                    |         |         |            |          
|                                               |                                                                                |                                                          |                                            | Net cash from operating activities |         |         | 22,779     |           |         |         | 37,229  | 
|                                               |                                                                                |                                                          |                                            |                                    |         |         |            |          
|INVESTING ACTIVITIES                           |                                                                                |                                                          |                                            |                                    |         |         |            |          
|                                               | Purchases of fixed income securities                                           |                                                          |                                            | (2,729,637                         | )       |         |            | (868,764  | )      
|                                               | Proceeds from sales of fixed income securities                                 |                                                          |                                            | 1,180,351                          |         |         |            | 1,148,806 |        
|                                               | Proceeds from maturities of fixed income
    securities                        |                                                          |                                            | 100                                |         |         |            | 30,000    |        
|                                               | Purchases of equity securities                                                 |                                                          |                                            | (117,778                           | )       |         |            | (24,886   | )      
|                                               | Proceeds from sales of equity securities                                       |                                                          |                                            | 12,653                             |         |         |            | 111       |        
|                                               | Purchases of other invested assets                                             |                                                          |                                            | (63,067                            | )       |         |            | (3,688    | )      
|                                               | Proceeds from sales of other invested assets                                   |                                                          |                                            | 3,304                              |         |         |            | 151       |        
|                                               | Purchases of fixed assets                                                      |                                                          |                                            | (1,123                             | )       |         |            | (452      | )      
|                                               |                                                                                |                                                          |                                            |                                    |         |         |            |          
|                                               |                                                                                |                                                          |                                            | Net cash from investing activities |         |         | (1,715,197 | )         |         |         | 281,278 | 
|                                               |                                                                                |                                                          |                                            |                                    |         |         |            |          
|FINANCING ACTIVITIES                           |                                                                                |                                                          |                                            |                                    |         |         |            |          
|                                               | Dividend to shareholder                                                        |                                                          |                                            | (42,500                            | )       |         |            |          |        
|                                               | Deferred financing costs                                                       |                                                          |                                            | (559                               | )       |         |            |          |        
|                                               |                                                                                |                                                          |                                            |                                    |         |         |            |          
|                                               |                                                                                |                                                          |                                            | Net cash from financing activities |         |         | (43,059    | )         |         |         |        | 
|                                               |                                                                                |                                                          |                                            |                                    |         |         |            |          
|Net change in cash and cash equivalents        |                                                                                |                                                          | (1,735,477                                 | )                                  |         |         | 318,507    |          
|Cash and cash equivalents, beginning of period |                                                                                |                                                          | 2,081,878                                  |                                    |         |         | 209,146    |          
|                                               |                                                                                |                                                          |                                            |                                    |         |         |            |          
|Cash and cash equivalents, end of period       |                                                                                | $                                                        | 346,401                                    |                                    |         | $       | 527,653    |          
|                                               |                                                                                |                                                          |                                            |                                    |         |         |            |          
|SUPPLEMENTAL CASH FLOW INFORMATION             |                                                                                |                                                          |                                            |                                    |         |         |            |          
|                                               | Cash paid to parent for income taxes                                           |                                                          | $                                          | 33,495                             |         |         | $          | 1,484     |        
|                                               |                                                                                |                                                          |                                            |                                    |         |         |            |          

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

7



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##### Table of Contents






NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

(Dollars in thousands)


1.   Organization and Basis of
Presentation



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Crum & Forster Holdings Corp. (the
    Company or Crum & Forster) is a
    Delaware holding company which is 100% owned by Fairfax Inc.
    (Fairfax), a Wyoming holding company. Fairfax is
    wholly-owned by FFHL Group Ltd., a Canadian holding company,
    which is, in turn, owned by Fairfax Financial Holdings Limited
    (Fairfax Financial), a Canadian financial services
    holding company which is publicly traded on the Toronto Stock
    Exchange and on the New York Stock Exchange under the symbol
    FFH. The Company, through its subsidiaries, provides
    a full range of commercial property and casualty insurance
    distributed through an independent producer force located across
    the United States.                                                                                                                                                                                         
|
| | Crum & Forster Holdings Corp. was established
    for the purpose of holding the capital stock of Crum &
    Forster Holding Inc. (Holding), another wholly-owned
    subsidiary of Fairfax, and had no operations prior to becoming
    the parent of Holding. On June 5, 2003, a merger of
    entities under common control occurred at historical cost,
    whereby the capital stock of Holding was contributed to Crum
    & Forster Holdings Corp. and, accordingly, Crum &
    Forster Holdings Corp. became the parent of Holding. The
    consolidated financial statements of Holding and its
    subsidiaries have become the Companys historical financial
    statements.                                                                                                                                                                                                                                                       
|
| | These consolidated financial statements are
    prepared in accordance with accounting principles generally
    accepted in the United States of America (GAAP) and
    include the accounts of the Company, Holding and their
    wholly-owned subsidiaries, including United States Fire
    Insurance Company (US Fire), The North River
    Insurance Company (North River), Crum & Forster
    Indemnity Company, Crum and Forster Insurance Company and Crum
    & Forster Underwriters Co. of Ohio. 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 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|
| | These consolidated financial statements should be
    read in conjunction with the Companys consolidated
    financial statements as of December 31, 2003 and related
    notes thereto included in the Companys Registration
    Statement on Form S-4 (Registration No. 333-107722),
    to which Amendment No. 4 was filed with the Securities and
    Exchange Commission on March 15, 2004. Certain financial
    information that is included in annual financial statements
    prepared in accordance with GAAP is not required for interim
    reporting and has been condensed or omitted herein. The
    accompanying consolidated financial statements reflect, in the
    opinion of management, all necessary adjustments for their fair
    statement. All such adjustments were of a normal and recurring
    nature. The financial results for interim periods may not be
    indicative of financial results for a full year.
|
| | Certain amounts in the Companys prior year
    consolidated financial statements have been reclassified to
    conform to the 2004 presentation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

2.   Summary of Significant
Accounting Policy



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

8



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


(Dollars in thousands)




| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The consolidation requirements of FIN 46 began to
    be phased-in during the first quarter of 2003, with immediate
    application to all new VIEs created after January 31, 2003.
    In December 2003, the FASB issued a revision to FIN 46 which,
    among other things, delayed the required implementation for VIEs
    existing prior to February 1, 2003 and held by public
    companies to the first interim period ending after
    March 15, 2004. The adoption of FIN 46 had no impact on the
    Companys consolidated financial statements.

3.   Investments



| |                                                                                                                             
| | ----------------------------------------------------------------------------------------------------------------------------
| | Investments in available-for-sale fixed income
    and equity securities as of March 31, 2004 are summarized
    as follows:

|                         |                                                                    |                                                                      |                               |                                     |           |            |           |        |       |        |        |       |        |        |        |         |           |           |           | 
|------------------------ | ------------------------------------------------------------------ | -------------------------------------------------------------------- | ----------------------------- | ----------------------------------- | --------- | ---------- | --------- | ------ | ----- | ------ | ------ | ----- | ------ | ------ | ------ | ------- | --------- | --------- | --------- | 
|                         |                                                                    | Cost or                                                              |                               | Gross                               |           | Gross      |           |       
|                         |                                                                    | Amortized                                                            |                               | Unrealized                          |           | Unrealized |           | Fair  
|                         |                                                                    | Cost                                                                 |                               | Gains                               |           | Losses     |           | Value 
|                         |                                                                    |                                                                      |                               |                                     |           |            |           |       
|Fixed income securities: |                                                                    |                                                                      |                               |                                     |           |            |           |        |       |        |        |       |        |        |        |        
|                         | Bonds:                                                             |                                                                      |                               |                                     |           |            |           |        |       |        |        |       |        |        |        |         |          
|                         |                                                                    | United States government and government agencies
    and authorities |                               | $                                   | 1,844,493 |            |           | $      | 5,589 |        |        | $     | 25,463 |        |        | $       | 1,824,619 |          
|                         |                                                                    | States, municipalities and political subdivisions                    |                               |                                     | 9,027     |            |           |        | 445   |        |        |       |       |        |        |         | 9,472     |          
|                         |                                                                    | Public utilities                                                     |                               |                                     | 82,101    |            |           |        | 8,986 |        |        |       | 473    |        |        |         | 90,614    |          
|                         |                                                                    | Other corporate bonds                                                |                               |                                     | 249,845   |            |           |        | 2,059 |        |        |       | 12,543 |        |        |         | 239,361   |          
|                         |                                                                    |                                                                      |                               |                                     |           |            |           |        |       |        |        |       |        |        |        |        
|                         |                                                                    |                                                                      | Total fixed income securities |                                     |           | 2,185,466  |           |        |       | 17,079 |        |       |        | 38,479 |        |         |           | 2,164,066 |          
|                         |                                                                    |                                                                      |                               |                                     |           |            |           |        |       |        |        |       |        |        |        |        
|Equity securities:       |                                                                    |                                                                      |                               |                                     |           |            |           |        |       |        |        |       |        |        |        |        
|                         | Common stocks of banks, trusts and insurance
    companies         |                                                                      |                               | 161,757                             |           |            |           | 38,200 |       |        |        | 4,483 |        |        |        | 195,474 |          
|                         | Common stocks of industrial, miscellaneous and
    other companies |                                                                      |                               | 220,544                             |           |            |           | 16,664 |       |        |        | 3,328 |        |        |        | 233,880 |          
|                         |                                                                    |                                                                      |                               |                                     |           |            |           |        |       |        |        |       |        |        |        |        
|                         |                                                                    |                                                                      | Total equity securities       |                                     |           | 382,301    |           |        |       | 54,864 |        |       |        | 7,811  |        |         |           | 429,354   |          
|                         |                                                                    |                                                                      |                               |                                     |           |            |           |        |       |        |        |       |        |        |        |        
|                         |                                                                    |                                                                      |                               | Total available-for-sale securities |           | $          | 2,567,767 |        |       | $      | 71,943 |       |        | $      | 46,290 |         |           | $         | 2,593,420 | 
|                         |                                                                    |                                                                      |                               |                                     |           |            |           |        |       |        |        |       |        |        |        |        



| |                                                                                                                                                                                                                                                                                                                                                                                                                       
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | All securities with unrealized losses as of
    March 31, 2004 have been in a loss position for less than
    twelve months.                                                                                                                                                                                                                                                                                          
|
| | The amortized cost and fair value of fixed income
    securities as of March 31, 2004, by contractual maturity,
    are shown below. Actual maturities may differ from maturities
    shown below due to the existence of call or put features. At
    March 31, 2004, securities containing call and put features
    represented 1.7% and 2.3%, respectively, of total fair value of
    the fixed income portfolio.

|                                         |                               |           |           |           |  |   |           |           | 
|---------------------------------------- | ----------------------------- | --------- | --------- | --------- |  | - | --------- | --------- | 
|                                         |                               | Amortized |           | Fair     
|                                         |                               | Cost      |           | Value    
|                                         |                               |           |           |          
|Due in one year or less                  |                               | $         | 180,135   |           |  | $ | 180,119   |          
|Due after one year through five years    |                               |           | 76,355    |           |  |   | 72,903    |          
|Due after five years through ten years   |                               |           | 34,840    |           |  |   | 35,219    |          
|Due after ten years through twenty years |                               |           | 1,185,434 |           |  |   | 1,166,329 |          
|Due after twenty years                   |                               |           | 708,702   |           |  |   | 709,496   |          
|                                         |                               |           |           |           |  |   |           |          
|                                         | Total fixed income securities |           | $         | 2,185,466 |  |   | $         | 2,164,066 | 
|                                         |                               |           |           |           |  |   |           |          

9



---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


(Dollars in thousands)




| |                                                                                                                                                                                                                                                                                                                                                                                                                     
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | In January, March and April 2004, the Company
    invested $25,000, $20,000 and $30,000, respectively, in shares
    of HWIC Asia Fund Limited (HWIC) bringing the total
    investment in HWIC to $76,210 as of April 30, 2004. HWIC is
    an investment fund owned 100% by Fairfax Financial affiliates
    that invests in a diversified portfolio of listed equity and
    equity-related securities in Asia.

4.   Unpaid Losses and Loss
Adjustment Expenses



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

|                                                 |                                                |                 |           |           |         |   |           |           |         | 
|------------------------------------------------ | ---------------------------------------------- | --------------- | --------- | --------- | ------- | - | --------- | --------- | ------- | 
|                                                 |                                                |                
|                                                 |                                                | Three Months   
|                                                 |                                                | Ended March 31,
|                                                 |                                                |                
|                                                 |                                                | 2004            |           | 2003     
|                                                 |                                                |                 |           |          
|Gross unpaid losses and LAE, beginning of period |                                                | $               | 3,178,166 |           |         | $ | 3,235,101 |          
|                                                 | Less ceded unpaid losses and LAE               |                 |           | 1,321,004 |         |   |           | 1,756,404 |        
|                                                 |                                                |                 |           |           |         |   |           |          
|                                                 | Net unpaid losses and LAE, beginning of period |                 |           | 1,857,162 |         |   |           | 1,478,697 |        
|                                                 |                                                |                 |           |           |         |   |           |          
|                                                 | Losses and LAE incurred related to:            |                 |           |           |         |   |           |           |        
|                                                 |                                                | Current period  |           |           | 156,559 |   |           |           | 115,372 | 
|                                                 |                                                | Prior years     |           |           | 5,578   |   |           |           | 1,356   | 
|                                                 |                                                |                 |           |           |         |   |           |          
|                                                 | Total losses and LAE incurred                  |                 |           | 162,137   |         |   |           | 116,728   |        
|                                                 |                                                |                 |           |           |         |   |           |          
|                                                 | Losses and LAE paid related to:                |                 |           |           |         |   |           |           |        
|                                                 |                                                | Current period  |           |           | 9,739   |   |           |           | 10,232  | 
|                                                 |                                                | Prior years     |           |           | 135,567 |   |           |           | 106,880 | 
|                                                 |                                                |                 |           |           |         |   |           |          
|                                                 | Total losses and LAE paid                      |                 |           | 145,306   |         |   |           | 117,112   |        
|                                                 |                                                |                 |           |           |         |   |           |          
|                                                 | Net unpaid losses and LAE, end of period       |                 |           | 1,873,993 |         |   |           | 1,478,313 |        
|                                                 | Add ceded unpaid losses and LAE                |                 |           | 1,291,004 |         |   |           | 1,725,182 |        
|                                                 |                                                |                 |           |           |         |   |           |          
|Gross unpaid losses and LAE, end of period       |                                                | $               | 3,164,997 |           |         | $ | 3,203,495 |          
|                                                 |                                                |                 |           |           |         |   |           |          



|   |                                                                          
|-- | -------------------------------------------------------------------------
|5. | Asbestos and Environmental Unpaid Losses and
    Loss Adjustment Expenses



| |                                                                                                                                                                                                                                                                                                  
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Company has exposure to asbestos and
    environmental claims arising from the sale of general liability,
    commercial multi-peril and umbrella insurance policies, the
    majority of which were written for accident years 1985 and prior.                                              
|
| | Estimation of ultimate liabilities for these
    exposures is unusually difficult due to outstanding issues such
    as whether or not coverage exists, definition of an occurrence,
    determination of ultimate damages and allocation of such damages
    to financially responsible parties.

10



---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


(Dollars in thousands)




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

|                                                                        |                                                 |                 |         |         |  |   |         |         | 
|----------------------------------------------------------------------- | ----------------------------------------------- | --------------- | ------- | ------- |  | - | ------- | ------- | 
|                                                                        |                                                 |                
|                                                                        |                                                 | Three Months   
|                                                                        |                                                 | Ended March 31,
|                                                                        |                                                 |                
|                                                                        |                                                 | 2004            |         | 2003   
|                                                                        |                                                 |                 |         |        
|ASBESTOS                                                                |                                                 |                 |         |         |  |   |         |        
|Gross unpaid losses and allocated LAE
    (ALAE), beginning of period |                                                 | $               | 495,195 |         |  | $ | 370,875 |        
|                                                                        | Less ceded unpaid losses and ALAE               |                 |         | 128,787 |  |   |         | 106,073 | 
|                                                                        |                                                 |                 |         |         |  |   |         |        
|                                                                        | Net unpaid losses and ALAE, beginning of period |                 |         | 366,408 |  |   |         | 264,802 | 
|                                                                        | Net losses and ALAE incurred                    |                 |         | 517     |  |   |         | 741     | 
|                                                                        | Net paid losses and ALAE                        |                 |         | 11,422  |  |   |         | 9,012   | 
|                                                                        |                                                 |                 |         |         |  |   |         |        
|                                                                        | Net unpaid losses and ALAE, end of period       |                 |         | 355,503 |  |   |         | 256,531 | 
|                                                                        | Add ceded unpaid losses and ALAE                |                 |         | 113,750 |  |   |         | 102,413 | 
|                                                                        |                                                 |                 |         |         |  |   |         |        
|Gross unpaid losses and ALAE, end of period                             |                                                 | $               | 469,253 |         |  | $ | 358,944 |        
|                                                                        |                                                 |                 |         |         |  |   |         |        

|                                                  |                                                 |                 |         |        |  |   |         |         | 
|------------------------------------------------- | ----------------------------------------------- | --------------- | ------- | ------ |  | - | ------- | ------- | 
|                                                  |                                                 |                
|                                                  |                                                 | Three Months   
|                                                  |                                                 | Ended March 31,
|                                                  |                                                 |                
|                                                  |                                                 | 2004            |         | 2003  
|                                                  |                                                 |                 |         |       
|ENVIRONMENTAL                                     |                                                 |                 |         |        |  |   |         |        
|Gross unpaid losses and ALAE, beginning of period |                                                 | $               | 130,511 |        |  | $ | 163,165 |        
|                                                  | Less ceded unpaid losses and ALAE               |                 |         | 31,675 |  |   |         | 57,373  | 
|                                                  |                                                 |                 |         |        |  |   |         |        
|                                                  | Net unpaid losses and ALAE, beginning of period |                 |         | 98,836 |  |   |         | 105,792 | 
|                                                  | Net losses and ALAE incurred                    |                 |         | 7      |  |   |         | 1       | 
|                                                  | Net paid losses and ALAE                        |                 |         | 2,668  |  |   |         | 2,361   | 
|                                                  |                                                 |                 |         |        |  |   |         |        
|                                                  | Net unpaid losses and ALAE, end of period       |                 |         | 96,175 |  |   |         | 103,432 | 
|                                                  | Add ceded unpaid losses and ALAE                |                 |         | 42,418 |  |   |         | 57,712  | 
|                                                  |                                                 |                 |         |        |  |   |         |        
|Gross unpaid losses and ALAE, end of period       |                                                 | $               | 138,593 |        |  | $ | 161,144 |        
|                                                  |                                                 |                 |         |        |  |   |         |        



| |                                                                                                                                                                                                                                                                                                       
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Company also maintains reserves for other
    latent exposures such as those associated with chemicals, sick
    building syndrome, lead, gas and vapors and pharmaceutical
    products of $24,831 and $26,701, net of reinsurance, as of
    March 31, 2004 and December 31, 2003, respectively.

11



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


(Dollars in thousands)


6.   Reinsurance



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

|                  |                                                         |                      |   |         |         |  |   |         |         | 
|----------------- | ------------------------------------------------------- | -------------------- | - | ------- | ------- |  | - | ------- | ------- | 
|                  |                                                         |                     
|                  |                                                         | Three Months        
|                  |                                                         | Ended March 31,     
|                  |                                                         |                     
|                  |                                                         | 2004                 |   | 2003   
|                  |                                                         |                      |   |        
|Premiums written: |                                                         |                      |   |         |         |  |   |        
|                  | Direct                                                  |                      | $ | 282,611 |         |  | $ | 261,202 |        
|                  | Assumed from other companies, pools or
    associations |                      |   | 3,325   |         |  |   | 4,316   |        
|                  | Ceded to other companies, pools or associations         |                      |   | (55,051 | )       |  |   | (56,959 | )      
|                  |                                                         |                      |   |         |         |  |   |        
|                  |                                                         | Net premiums written |   | $       | 230,885 |  |   | $       | 208,559 | 
|                  |                                                         |                      |   |         |         |  |   |        
|Premiums earned:  |                                                         |                      |   |         |         |  |   |        
|                  | Direct                                                  |                      | $ | 274,920 |         |  | $ | 224,441 |        
|                  | Assumed from other companies, pools or
    associations |                      |   | 3,451   |         |  |   | 5,030   |        
|                  | Ceded to other companies, pools or associations         |                      |   | (50,832 | )       |  |   | (57,633 | )      
|                  |                                                         |                      |   |         |         |  |   |        
|                  |                                                         | Premiums earned      |   | $       | 227,539 |  |   | $       | 171,838 | 
|                  |                                                         |                      |   |         |         |  |   |        



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

|                                                 |                               |           |           |              |  |   |           |           | 
|------------------------------------------------ | ----------------------------- | --------- | --------- | ------------ |  | - | --------- | --------- | 
|                                                 |                               | March 31, |           | December 31,
|                                                 |                               | 2004      |           | 2003        
|                                                 |                               |           |           |             
|Reinsurance recoverable on unpaid losses and LAE |                               | $         | 1,582,281 |              |  | $ | 1,614,022 |          
|Reinsurance receivable on paid losses and LAE    |                               |           | 77,590    |              |  |   | 66,444    |          
|                                                 |                               |           |           |              |  |   |           |          
|                                                 | Total reinsurance recoverable |           | $         | 1,659,871    |  |   | $         | 1,680,466 | 
|                                                 |                               |           |           |              |  |   |           |          

7.   Long-Term Debt



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | On June 5, 2003, concurrent with the merger
    of entities under common control described in Note 1 above, Crum
    & Forster Funding Corp., an unaffiliated special purpose
    entity, issued $300,000 aggregate principal amount of senior
    notes (the Notes) in a private placement, with the
    sole intent of having obligations under such Notes only until
    the Company could assume such obligations. On June 30,
    2003, the Company assumed Crum & Forster Funding
    Corp.s obligations under the Notes. The Notes, which bear
    interest payable semi-annually at 10.375%, mature on
    June 15, 2013. The net proceeds from the offering of
    approximately $290,955 were used to fund an interest escrow
    account in the amount of approximately $63,115 to make the first
    four semi-annual interest payments on the Notes and to pay a
    dividend to Fairfax in the amount of $217,885, with the
    remainder used to pay related financing costs. The Notes contain
    certain restrictions on incurrence of additional indebtedness,
    dividend payments to Fairfax, asset sales and certain
    transactions with affiliates. In addition, the Company was
    required by the terms of the Notes to use its best efforts to
    register the Notes, or similar instruments with substantially
    the same terms to be exchanged for the Notes, with the
    Securities and Exchange Commission. Pursuant to an exchange
    offer, which was completed on April 20, 2004, the Company
    issued $300,000 aggregate principal amount of registered notes
    with substantially the same terms as the Notes, in exchange for
    all of the outstanding Notes. As required under the terms of the
    Notes, additional interest of $208 was incurred for the period
    from December 28, 2003 through March 31, 2004.
    Additional interest of $83 was also incurred for the period from
    April 1, 2004 through April 20, 2004, after which such
    additional interest is no longer payable on the Notes.

12



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


(Dollars in thousands)




| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | For the three months ended March 31, 2004,
    total interest expense on the Notes was $8,439, including
    additional interest described above, accretion of the discount
    on the Notes and amortization of related deferred financing
    costs.                                                                                                                                                                                                                               
|
| | Concurrent with the issuance of the Notes, the
    Company entered into a non-interest bearing standby credit
    agreement, subordinate to the Notes, whereby Fairfax Financial
    agreed, under certain conditions, to lend up to $40,000 to Crum
    & Forster in order to meet certain corporate obligations.
    Borrowings under this agreement, if any, are due and payable in
    June 2018. Through March 31, 2004, there have been no
    borrowings under this agreement.

8.   Commitments and
Contingencies



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Companys subsidiaries are involved in
    various lawsuits and arbitration proceedings arising in the
    ordinary course of business. While the ultimate outcome of such
    matters cannot be predicted with certainty, in the opinion of
    management, no such matter is likely to have a material adverse
    effect on the Companys consolidated financial position.
    However, it should be noted that the frequency of large damage
    awards, including large punitive damage awards that bear little
    or no relation to actual economic damages incurred by plaintiffs
    in some jurisdictions, continues to create the potential for an
    unpredictable judgment in any given matter.

9.   Segment
Reporting



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

|                       |       |                 |        |         |  |   |        |         | 
|---------------------- | ----- | --------------- | ------ | ------- |  | - | ------ | ------- | 
|                       |       |                
|                       |       | Three Months   
|                       |       | Ended March 31,
|                       |       |                
|                       |       | 2004            |        | 2003   
|                       |       |                 |        |        
|Workers compensation  |       | $               | 67,904 |         |  | $ | 42,802 |        
|Property               |       |                 | 51,945 |         |  |   | 50,572 |        
|General liability      |       |                 | 50,323 |         |  |   | 36,249 |        
|Commercial automobile  |       |                 | 41,999 |         |  |   | 29,908 |        
|Commercial multi-peril |       |                 | 10,162 |         |  |   | 8,379  |        
|Surety                 |       |                 | 5,206  |         |  |   | 3,928  |        
|                       |       |                 |        |         |  |   |        |        
|                       | Total |                 | $      | 227,539 |  |   | $      | 171,838 | 
|                       |       |                 |        |         |  |   |        |        

13



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


(Dollars in thousands)




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

|                       |       |                              |        |         |  |        |      |       |   |   |        |         |  |  |       |      |  
|---------------------- | ----- | ---------------------------- | ------ | ------- |  | ------ | ---- | ----- | - | - | ------ | ------- |  |  | ----- | ---- | -
|                       |       |                             
|                       |       | Three Months Ended March 31,
|                       |       |                             
|                       |       |                              |        |        
|                       |       | 2004                         |        | 2003   
|                       |       |                              |        |        
|                       |       | Amount                       |        | Ratio   |  | Amount |      | Ratio
|                       |       |                              |        |         |  |        |      |      
|Workers compensation  |       | $                            | 53,949 |         |  |        | 79.4 | %     |   | $ | 18,065 |         |  |  | 42.2  | %   
|Property               |       |                              | 34,794 |         |  |        | 67.0 | %     |   |   | 34,090 |         |  |  | 67.4  | %   
|General liability      |       |                              | 36,938 |         |  |        | 73.4 | %     |   |   | 30,549 |         |  |  | 84.3  | %   
|Commercial automobile  |       |                              | 30,551 |         |  |        | 72.7 | %     |   |   | 14,739 |         |  |  | 49.3  | %   
|Commercial multi-peril |       |                              | 4,249  |         |  |        | 41.8 | %     |   |   | 18,058 |         |  |  | 215.5 | %   
|Surety                 |       |                              | 1,656  |         |  |        | 31.8 | %     |   |   | 1,227  |         |  |  | 31.2  | %   
|                       |       |                              |        |         |  |        |      |       |   |   |        |         |  |  |       |     
|                       | Total |                              | $      | 162,137 |  |        |      | 71.2  | % |   | $      | 116,728 |  |  |       | 68.0 | %
|                       |       |                              |        |         |  |        |      |       |   |   |        |         |  |  |       |     



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

14



---



##### Table of Contents








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

The following discussion relates to the
consolidated results of operations, financial condition,
liquidity and capital resources and critical accounting policies
and estimates of the Company for the interim period indicated.
References within this discussion to the Company or
Crum & Forster refer to Crum &
Forster Holdings Corp. and its direct and indirect subsidiaries,
including United States Fire Insurance Company
(US Fire), The North River Insurance Company
(North River), Crum & Forster Indemnity
Company (CF Indemnity), Crum and Forster
Insurance Company (CF Insurance) and
Crum & Forster Underwriters Co. of Ohio
(CF Underwriters). US Fire owns 100% of
the stock of Crum & Forster Specialty Insurance
Company. North River owns 100% of the stock of Seneca Insurance
Company, Inc. and its subsidiaries. References to
Fairfax refer to Fairfax Inc., Crum &
Forsters parent company. References to Fairfax
Financial refer to Fairfax Financial Holdings Limited,
which holds 100% indirect ownership of Fairfax Inc.

This discussion, and the related consolidated
financial statements, should be read in conjunction with the
Companys Registration Statement on Form S-4
(Registration No. 333-107722), to which Amendment
No. 4 was filed with the Securities and Exchange Commission
(SEC) on March 15, 2004, and the consolidated
financial statements as of December 31, 2003 and related
notes contained therein. Certain financial information that is
included in annual financial statements prepared in accordance
with accounting principles generally accepted in the United
States of America (GAAP) is not required for interim
reporting and has been condensed or omitted herein. The
financial results for interim periods may not be indicative of
financial results for a full year. All dollar amounts are in
thousands, unless otherwise indicated.

Forward-looking Statements

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

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



| |   |                                                                                                                                                                                    
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Lowering or loss of one of the Companys
    financial strength ratings;                                                                                                           
|
| |  | Insufficient loss reserves, including reserves
    for asbestos, environmental and other latent claims;                                                                            
|
| |  | Occurrence of natural or unnatural catastrophic
    events;                                                                                                                        
|
| |  | Exposure to emerging claims and coverage issues;                                                                                                                                   
|
| |  | Competitive conditions in the insurance market;                                                                                                                                    
|
| |  | Inability 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;
|
| |  | Inability to realize the Companys
    investment objectives;                                                                                                                      
|
| |  | Adverse developments in the prospects or results
    of operations of Fairfax or its affiliates;                                                                                   
|
| |  | Loss of key employees;                                                                                                                                                             

15



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##### Table of Contents





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

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

Overview

The Company is a national commercial property and
casualty insurance company with a focused underwriting strategy,
targeting specialty classes of business and overlooked market
opportunities. Operating through its home office and regional
branch network, the Company writes a broad range of commercial
coverage, including workers compensation, property,
general liability, commercial automobile, commercial multi-peril
and surety. The Company generally conducts business on a
brokerage basis through approximately 1,000 producers located
throughout the United States.

The Companys management believes that the
key drivers to sustained profitability at Crum &
Forster include, but are not limited to, strict adherence to
focused underwriting guidelines and pricing policies, continued
cost containment and loss reserve adequacy. To that end,
management continues to implement many changes in these and
other operational areas. Specific progress includes improving
pricing in each of the last three years, increasing premiums per
policy, increasing the Companys distribution network
through national and wholesale brokers and reducing headcount,
payroll and information technology expenses, while increasing
annual premiums per employee. Management has also instituted
changes to the Companys claims and actuarial processes to
improve the timeliness and accuracy of the recording of its case
reserves and the adequacy of its total loss and loss adjustment
expense (LAE) reserves.

Market conditions in the first quarter of 2004
continued to be generally favorable, characterized by price
increases and improved terms and conditions in the casualty
lines. Renewal pricing in the casualty lines increased in 2004
by approximately 13%, but at reduced rates over those achieved
in 2003. Renewal pricing in the property lines declined in 2004
by approximately 13%; however, management believes rates remain
adequate relative to the risks assumed in this line. The
Companys renewal retention ratio has declined overall in
the first quarter of 2004 compared to the first quarter of 2003,
primarily as a result of more competitive conditions affecting
the casualty lines. New business for the first quarter of 2004
was approximately 3% lower than the prior year, principally in
the property lines due to market conditions, including expanded
availability of coverage from higher rated companies.

As the market softens, the Company will likely
face more competition in the classes of business it writes. In
the past, this competition often has resulted in less attractive
pricing, terms and conditions. The Companys underwriting
strategy under such conditions is to identify and capitalize on
profitable classes of business while exiting those classes and
lines that no longer offer a reasonable prospect of underwriting
profits, even at the expense of revenue loss. The ability to
discern when to participate in and when to withdraw from the
marketplace is fundamental for sustained profitability in the
industry. The Companys results in each of the last three
years have been adversely affected by development of prior
years loss and LAE reserves, particularly for asbestos
liabilities. Management performs exhaustive and continuous
analyses of the Companys loss emergence and loss reserve
levels and believes the Companys reserves are adequate.
However, because it takes many years for losses to be ultimately
reported and paid, there is inherent uncertainty in the
estimation process, particularly for asbestos exposures.

16



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##### Table of Contents



Results of Operations

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

|                            |                |                        |         |         |  |   |         |         | 
|--------------------------- | -------------- | ---------------------- | ------- | ------- |  | - | ------- | ------- | 
|                            |                |                       
|                            |                | Three Months          
|                            |                | Ended March 31,       
|                            |                |                       
|                            |                | 2004                   |         | 2003   
|                            |                |                        |         |        
|                            |                |                       
|                            |                | (dollars in thousands)
|Gross premiums written      |                | $                      | 285,936 |         |  | $ | 265,518 |        
|                            |                |                        |         |         |  |   |         |        
|Net premiums written        |                | $                      | 230,885 |         |  | $ | 208,559 |        
|                            |                |                        |         |         |  |   |         |        
|Premiums earned             |                | $                      | 227,539 |         |  | $ | 171,838 |        
|Investment income           |                |                        | 24,089  |         |  |   | 22,810  |        
|Realized investment gains   |                |                        | 37,028  |         |  |   | 50,197  |        
|                            |                |                        |         |         |  |   |         |        
|                            | Total revenues |                        |         | 288,656 |  |   |         | 244,845 | 
|                            |                |                        |         |         |  |   |         |        
|Losses and LAE              |                |                        | 162,137 |         |  |   | 116,728 |        
|Policy acquisition costs    |                |                        | 30,711  |         |  |   | 21,919  |        
|Other underwriting expenses |                |                        | 32,510  |         |  |   | 30,567  |        
|Interest expense            |                |                        | 8,439   |         |  |   |        |        
|Other expense (income), net |                |                        | 936     |         |  |   | (275    | )      
|                            |                |                        |         |         |  |   |         |        
|                            | Total expenses |                        |         | 234,733 |  |   |         | 168,939 | 
|                            |                |                        |         |         |  |   |         |        
|Income before income taxes  |                |                        | 53,923  |         |  |   | 75,906  |        
|Income tax expense          |                |                        | 18,769  |         |  |   | 26,074  |        
|                            |                |                        |         |         |  |   |         |        
|Net income                  |                | $                      | 35,154  |         |  | $ | 49,832  |        
|                            |                |                        |         |         |  |   |         |        
|Loss and LAE ratio          |                |                        | 71.2    | %       |  |   | 68.0    | %      
|Underwriting expense ratio  |                |                        | 27.8    |         |  |   | 30.5    |        
|                            |                |                        |         |         |  |   |         |        
|Combined ratio              |                |                        | 99.0    | %       |  |   | 98.5    | %      
|                            |                |                        |         |         |  |   |         |        

Net income for the three months ended
March 31, 2004 was $35,154, compared with $49,832 for the
three months ended March 31, 2003. The lower net income was
principally the net result of lower realized investment gains
and interest expense for the three months ended March 31,
2004, as compared to the same period in 2003. Interest expense
of $8,439 was incurred for the three months ended March 31,
2004 as a result of the Companys $300,000 aggregate
principal amount of 10.375% notes issued in June 2003.
Underwriting results for the three months ended March 31,
2004 were approximately level with the corresponding 2003 period
as increases in premiums earned were offset by an increased
combined ratio.

17



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##### Table of Contents



Underwriting Results



| |                       
| | ----------------------
| | Gross Premiums Written

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

|                       |       |                              |        |           |  |            |        |         |  |   |         |        |  |  |       |     |  
|---------------------- | ----- | ---------------------------- | ------ | --------- |  | ---------- | ------ | ------- |  | - | ------- | ------ |  |  | ----- | --- | -
|                       |       |                             
|                       |       | Three Months Ended March 31,
|                       |       |                             
|                       |       |                              |        | Increase/ |  | Percent   
|                       |       | 2004                         |        | 2003      |  | (Decrease) |        | Change 
|                       |       |                              |        |           |  |            |        |        
|Workers compensation  |       | $                            | 75,572 |           |  | $          | 60,266 |         |  | $ | 15,306  |        |  |  | 25.4  | %  
|Property               |       |                              | 63,131 |           |  |            | 76,647 |         |  |   | (13,516 | )      |  |  | (17.6 | )% 
|General liability      |       |                              | 70,216 |           |  |            | 64,977 |         |  |   | 5,239   |        |  |  | 8.1   | %  
|Commercial automobile  |       |                              | 56,912 |           |  |            | 45,845 |         |  |   | 11,067  |        |  |  | 24.1  | %  
|Commercial multi-peril |       |                              | 12,346 |           |  |            | 9,977  |         |  |   | 2,369   |        |  |  | 23.7  | %  
|Surety                 |       |                              | 7,759  |           |  |            | 7,806  |         |  |   | (47     | )      |  |  | (0.6  | )% 
|                       |       |                              |        |           |  |            |        |         |  |   |         |        |  |  |       |    
|                       | Total |                              | $      | 285,936   |  |            | $      | 265,518 |  |   | $       | 20,418 |  |  |       | 7.7 | %
|                       |       |                              |        |           |  |            |        |         |  |   |         |        |  |  |       |    

For the three months ended March 31, 2004,
gross premiums written increased over the three months ended
March 31, 2003, primarily due to the impact of price
increases on renewal policies of approximately 7%, partially
offset by a reduction in new business of approximately 3% and a
reduction in the renewal retention level of approximately
4 percentage points for the three months ended
March 31, 2004. The growth in 2004 gross premiums written
was also favorably affected by a higher premium base available
for renewal, the result of double-digit premium growth
experienced in 2003.

For the three months ended March 31, 2004,
workers compensation gross premiums written increased over
the three months ended March 31, 2003, primarily as a
result of increases in pricing and new business. The premium
growth for the three months ended March 31, 2004 in states
other than California outpaced California growth, which had
grown significantly throughout 2003.

For the three months ended March 31, 2004,
property gross premiums written decreased as compared to the
three months ended March 31, 2003, primarily as a result of
reductions in new business and price decreases on renewal
policies, reflecting a more competitive market for this business
as evidenced by both rate reductions and increased capacity.
Partially offsetting these reductions was an increase in the
renewal retention rate.

For the three months ended March 31, 2004,
general liability gross premiums written increased over the
three months ended March 31, 2003, primarily due to
increases in pricing.

For the three months ended March 31, 2004,
gross premiums written in the commercial automobile line
increased over the three months ended March 31, 2003,
primarily due to continued increases in new business and pricing.



| |                     
| | --------------------
| | Net Premiums Written

For the three months ended March 31, 2004,
net premiums written increased by $22,326, or 10.7%, over the
three months ended March 31, 2003. The increase in net
premiums written was generally in line with the growth in gross
premiums written, with the exception of the effect of the
discontinuation of certain fully reinsured business in late
2003. Such business increased gross premiums written in the
first quarter of 2003, with no increase to net premiums written.



| |                
| | ---------------
| | Premiums Earned

For the three months ended March 31, 2004,
premiums earned increased by $55,701, or 32.4%, over the three
months ended March 31, 2003. Premiums earned reflect the
amount of net premiums written applicable to the portion of the
policy term that expires in a given period. The Company
generally earns premiums on a pro rata basis over the period in
which the coverage is provided. The larger increase in premiums
earned relative to net premiums written was principally
attributable to the lag in recognition of the increased premiums
written in the latter part of 2003.

18



---



##### Table of Contents





| |               
| | --------------
| | Losses and LAE

For the three months ended March 31, 2004,
the Companys calendar year loss and LAE ratio increased to
71.2% from 68.0% for the three months ended March 31, 2003.
This increase primarily reflects a benefit of
1.8 percentage points in 2003 related to favorable
development on loss-sensitive business and increased prior year
development in the casualty lines for the three months ended
March 31, 2004. The accident year loss and LAE ratio improved to
68.8% for the first quarter of 2004 from 69.5% for accident year
2003.



| |                      
| | ---------------------
| | Underwriting Expenses

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

The Companys acquisition expense ratio
increased to 13.5% for the three months ended March 31,
2004 from 12.7% for the three months ended March 31, 2003,
primarily due to lower amounts of ceded premiums on which a
ceding commission is paid to the Company by reinsurers.

The Companys other underwriting expense
ratio declined to 14.3% for the three months ended
March 31, 2004 from 17.8% for the three months ended
March 31, 2003, due to an increase in premiums earned,
which exceeded the corresponding increase in other underwriting
expenses.

Investment Results

For the three months ended March 31, 2004,
the Company reported realized investment gains of $37,028,
compared to realized investment gains of $50,197 for the three
months ended March 31, 2003. The components of those
investment gains are summarized as follows:

|                         |                                                                      |                                 |     |        |        |  |     |        |        | 
|------------------------ | -------------------------------------------------------------------- | ------------------------------- | --- | ------ | ------ |  | --- | ------ | ------ | 
|                         |                                                                      |                                
|                         |                                                                      | Three Months                   
|                         |                                                                      | Ended March 31,                
|                         |                                                                      |                                
|                         |                                                                      | 2004                            |     | 2003  
|                         |                                                                      |                                 |     |       
|Fixed income securities: |                                                                      |                                 |     |        |        |  |     |       
|                         | United States government and government agencies
    and authorities |                                 | $   | 26,176 |        |  | $   | 21,886 |       
|                         | Public utilities                                                     |                                 |     | 3,453  |        |  |     | 15,434 |       
|                         | Other corporate bonds                                                |                                 |     | 4,320  |        |  |     | 12,891 |       
|                         |                                                                      |                                 |     |        |        |  |     |       
|                         |                                                                      | Total fixed income securities   |     |        | 33,949 |  |     |        | 50,211 | 
|                         |                                                                      |                                 |     |        |        |  |     |       
|Equity securities:       |                                                                      |                                 |     |        |        |  |     |       
|                         | Common stocks of banks, trusts and insurance
    companies           |                                 |     | 1,944  |        |  |     | 53     |       
|                         | Common stocks of industrial, miscellaneous and
    other companies   |                                 |     | 899    |        |  |     |       |       
|                         |                                                                      |                                 |     |        |        |  |     |       
|                         |                                                                      | Total equity securities         |     |        | 2,843  |  |     |        | 53     | 
|                         |                                                                      |                                 |     |        |        |  |     |       
|Other invested assets    |                                                                      |                                 | 236 |        |        |  | (67 | )     
|                         |                                                                      |                                 |     |        |        |  |     |       
|                         |                                                                      | Total realized investment gains |     | $      | 37,028 |  |     | $      | 50,197 | 
|                         |                                                                      |                                 |     |        |        |  |     |       

The Companys investment income was $24,089
for the three months ended March 31, 2004, as compared to
$22,810 for the three months ended March 31, 2003. The
increase in investment income of $1,279, or 5.6%, was primarily
the result of earnings on equity investments that were not
acquired until late in 2003, partially offset by lower portfolio
yields due to a concentration in cash and cash equivalents for
the majority of the three months ended March 31, 2004.

19



---



##### Table of Contents



Other Income and Expense

For the three months ended March 31, 2004,
other expense, net was $936, as compared to other income, net of
$275 for the three months ended March 31, 2003. The
increased expense was primarily the net result of corporate
expenses in 2004.

Liquidity and Capital Resources



| |                
| | ---------------
| | Holding Company

As a holding company with no direct operations,
Crum & Forster Holdings Corp.s assets consist
primarily of its investments in the capital stock of its
insurance subsidiaries, $46,808 of restricted cash and
investments held in an interest escrow account for the next
three interest payments on the Notes and $29,835 of unrestricted
cash and cash equivalents generated from subsidiary dividends.
Crum & Forsters ability to satisfy corporate
obligations, principally interest on the Notes, is primarily
dependent on the dividend paying capacity of such subsidiaries.
State insurance laws restrict the amount of shareholder
dividends that insurance companies may pay without prior
approval of regulatory authorities.

The ability of the Companys insurance
subsidiaries to pay dividends depends, among other things, on
such subsidiaries having positive statutory earned surplus. The
Companys principal insurance subsidiaries are US Fire and
North River. On March 29, 2004, US Fire paid a cash
dividend of $80,000 and on March 30, 2004, Crum & Forster
paid a cash dividend to Fairfax in the amount of $42,500. The
remainder, exclusive of $7,942 used to reimburse Fairfax for its
payment of certain corporate expenses on behalf of the Company,
was invested in cash equivalents. Subject to certain covenants
contained in the indenture governing the Notes and the
availability of cash after payment of corporate expenses, the
Company expects to pay additional shareholder dividends to
Fairfax in 2004. US Fire may not pay further shareholder
dividends in 2004. North River is not permitted to pay dividends
in 2004 since it had negative statutory earned surplus at
December 31, 2003. As of March 31, 2004, US Fire and
North River reported statutory earned surplus of $131,890 and
$919, respectively.

Pursuant to the terms of the Notes issued in June
2003, the Company has significant restrictions on the amount of
new debt which may be incurred. The Notes, which bear interest
payable semi-annually at 10.375%, mature on June 15, 2013.
The net proceeds from the offering of approximately $290,955
were used to fund an interest escrow account of approximately
$63,115 to make the first four semi-annual interest payments and
to pay a dividend to Fairfax in the amount of $217,885 with the
remainder used to pay related financing costs. In December 2003,
the Company made its first interest payment on the Notes in the
amount of $16,427.

Pursuant to an agreement between Fairfax
Financial and the Company, under certain circumstances, the
Company has the ability to borrow up to $40,000 from Fairfax
Financial to meet certain corporate obligations. Borrowings
under this agreement, if any, bear no interest and are due and
payable in June 2018. Through March 31, 2004, there have
been no borrowings under this agreement.



| |                                     
| | ------------------------------------
| | Insurance Operating
    Subsidiaries

At Crum & Forsters insurance operating
subsidiaries, cash provided by operating activities primarily
consists of premium collections, reinsurance recoveries and
investment income. Cash provided from these sources is generally
used for payment of losses and LAE, policy acquisition costs,
operating expenses, ceded reinsurance premiums, income taxes and
dividends, when permitted. Management believes that, for the
foreseeable future, cash flows from operations at its operating
subsidiaries will be sufficient to pay their operating expenses.

Cash provided by operating activities for the
three months ended March 31, 2004 was $22,779, as compared
to $37,229 for the three months ended March 31, 2003. The
principal reasons for the lower cash flows from operations in
2004 were increased income tax payments, higher paid losses and
lower cash received from investments, partially offset by growth
in premiums written. Income tax payments were higher by $32,011
for the three months ended March 31, 2004 as compared to
the same period in 2003 as the majority of the Companys
subsidiary net operating losses were utilized in late 2003. The
Companys cash received from interest was

20



---



##### Table of Contents



affected by lower average fixed income securities
investments and higher cash and cash equivalents during the
first quarter of 2004 as compared to the same period in 2003.


Purchases of available-for-sale securities
comprised the majority of cash used in investing activities for
the three months ended March 31, 2004. Cash used in
investing activities was $1,715,197 for the three months ended
March 31, 2004, reflecting primarily purchases of US
Treasury securities in the first quarter of 2004, as compared to
cash provided by investing activities of $281,278 for the three
months ended March 31, 2003.

The Companys insurance operating
subsidiaries generally are restricted by insurance regulations
from borrowing funds. However, certain operating subsidiaries
have entered into securities repurchase agreements, which allow
these companies to raise funds through repurchase arrangements
with Fairfax Financial. Under these agreements, US Fire and
North River may raise a maximum of $100,000 at any one time and
CF Indemnity, CF Insurance and CF Underwriters are limited to
$5,000 each. No amounts have been borrowed under these
arrangements since 2000.

Shareholders equity was $878,927 at
March 31, 2004. The Companys combined statutory
policyholders surplus was approximately $1,097,671 at
March 31, 2004, as compared to $1,107,435 at
December 31, 2003. Effective March 30, 2004, the state
of Delaware enacted legislation to adopt certain insurance
accounting standards promulgated by the National Association of
Insurance Commissioners. The adoption of such standards resulted
in an increase in the Companys combined statutory
policyholders surplus of $28,138, principally relating to
the recognition of goodwill, subject to certain limitations.

The aggregate carrying value of the
Companys investment portfolio, including cash and cash
equivalents, was $3,127,201 at March 31, 2004. Certain
individual investments within the Companys
available-for-sale securities portfolio had gross unrealized
losses as of March 31, 2004 totaling $46,290, of which
$38,479 was attributed to fixed income securities, and $7,811
was attributed to equity securities. None of these investments
has been in a loss position for greater than twelve months.
Unrealized losses represented only 2.2% of the original cost of
such securities in the aggregate.

The Companys investment portfolio has
exposure to credit risk primarily related to fixed income
securities. The Company seeks to control this exposure by
emphasizing investment grade credit quality in the fixed income
securities purchased. Management believes that this
concentration in investment grade securities reduces, to an
acceptable level, its exposure to credit risk on these fixed
income investments. As of March 31, 2004, the
Companys fixed income securities had a weighted average
credit rating of AA.

As of March 31, 2004 and December 31,
2003, 93.3% and 74.9%, respectively, of the Companys fixed
income portfolio consisted of securities rated investment grade.
The higher proportion of investment grade securities at
March 31, 2004 was due primarily to the reinvestment of
more than $1.0 billion of cash and cash equivalents
principally in US Treasury securities in March of 2004.

Ratings

Insurance companies are rated by ratings agencies
to provide both industry participants and insurance consumers
with meaningful information on specific insurance companies.
Higher ratings generally indicate relative financial stability
and a strong ability to pay claims. Ratings focus on the
following factors: capital resources, financial strength,
demonstrated management expertise in the insurance business,
credit analysis, systems development, marketing, investment
operations, minimum policyholders surplus requirements and
capital sufficiency to meet projected growth, as well as access
to such traditional capital as may be necessary to continue to
meet standards for capital adequacy. The Companys
insurance operating subsidiaries have an A-
financial strength rating, with a negative outlook, from A.M.
Best and a BBB financial strength rating from
Standard & Poors. A.M. Best has advised us that
although it is encouraged by improved underlying trends
exhibited in the Companys recent underwriting performance,
the ratings outlook is negative, and contingent upon
managements ability to ultimately achieve its near-term
calendar year combined ratio targets and improved financial
flexibility of the Companys ultimate parent, Fairfax
Financial.

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The financial strength ratings assigned by rating
agencies to insurance companies represent independent opinions
of an insurers financial strength and its ability to meet
ongoing obligations to policyholders, and are not directed
toward the protection of investors. Ratings by rating agencies
of insurance companies are not ratings of securities or
recommendations to buy, hold or sell any security, such as the
Notes.

Critical Accounting Policies and
Estimates

The Companys financial statements are
prepared in accordance with accounting principles generally
accepted in the United States of America. These principles
require management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and the
disclosure of material contingent assets and liabilities as of
the balance sheet dates and the revenues and expenses reported
during the relevant periods. In general, managements
estimates are based on historical experience, evaluation of
current trends, information from third party professionals and
various other assumptions that are believed to be reasonable
under the known facts and circumstances.

The accounting policies and estimates summarized
below are those that require Crum & Forster to make
assumptions about highly uncertain matters. If management were
to make different assumptions about those matters, or if actual
results were to differ significantly from those estimates, the
reported consolidated results of operations and financial
condition could be materially affected.

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

Unpaid Losses and Loss Adjustment
Expenses

Unpaid losses and LAE include reserves for unpaid
reported losses and for losses incurred but not reported
(IBNR). For reported losses, the Company establishes
case reserves, which represent the estimated ultimate cost of
events or conditions that have been reported to, or specifically
identified by the Company. The estimates reflect the judgment of
claims personnel based on general reserving practices, the
experience and knowledge of such personnel regarding the nature
of the specific claim and, where appropriate, advice of counsel,
with the goal of setting the reserve at the ultimate expected
loss amount as soon as information becomes available. For IBNR
losses, reserves are estimated using established actuarial
methods.

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

Reserves for asbestos and environmental exposures
cannot be estimated solely with the traditional loss reserving
techniques, which rely on historical accident year development
factors and take into consideration the previously mentioned
variables. Asbestos and environmental reserves are more
difficult to estimate than other loss reserves because of legal
issues, societal factors and difficulty in determining the
parties who may ultimately be held liable. Therefore, in
addition to taking into consideration the traditional variables
that are utilized to arrive at other loss reserve amounts, Crum
& Forster also looks at past and anticipated future asbestos
claim filings against each insured, past settlement values of
similar asbestos claims, an analysis of each insureds
potential liability, the jurisdictions involved, the potential
role of other insurance, the length of time necessary to clean
up polluted sites, controversies surrounding the identity of the
responsible party, the degree of remediation deemed to be
necessary, the estimated time period for litigation expenses,
judicial expansions of coverage, case law and the

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history of prior claim development. Generally,
case reserves are established when sufficient information has
been obtained to indicate coverage under a specific insurance
policy. End of period reserves in relation to paid losses in a
period are also considered. Furthermore, IBNR reserves are
established to cover additional estimated exposures on both
known and unasserted claims. The reserves are continually
reviewed and updated as additional information is obtained.


Reinsurance Recoverable

Amounts recoverable from reinsurers are initially
estimated in conjunction with the establishment of reserves for
unpaid losses and LAE. These amounts may be adjusted as actual
case reserves are recorded and reinsured claims are settled. The
ceding of risk to reinsurers does not relieve the operating
companies of their primary obligation to policyholders as the
direct insurer. Accordingly, the Company is exposed to the risk
that any reinsurer may be unable, or unwilling, to meet its
obligations assumed under reinsurance agreements. The Company
attempts to mitigate this risk by entering into reinsurance
arrangements only with reinsurers that have credit ratings and
statutory surplus above certain levels and by obtaining
collateral.

An estimated allowance for uncollectible
reinsurance recoverable is recorded on the basis of periodic
evaluation of balances due from reinsurers, judgments regarding
reinsurer solvency, known disputes, reporting characteristics of
the underlying reinsured business, historical experience,
current economic conditions and the state of insurer/reinsurer
relations in general, and at Crum & Forsters insurance
operating companies in particular.

Deferred Income Tax Assets

The Company recognizes deferred tax assets and
liabilities based on differences between the financial statement
carrying amounts and the tax bases of assets and liabilities. As
of March 31, 2004, the Company had a net deferred income
tax asset of $173,686, including approximately $19,703 related
to net operating loss carryforwards. Deferred taxes are
regularly reviewed for recoverability based on history of
earnings, expectations of future earnings and expected timing of
reversals of temporary differences. Although realization is not
assured, management believes it is more likely than not that the
Company will be able to realize the net benefit of its deferred
tax assets recorded on the balance sheet.

Other Than Temporary Declines in Value of
Investments

Declines in the market values of invested assets
below carrying value are evaluated for other than temporary
impairment losses on a quarterly basis. Recognition of
impairment losses for declines in the value of fixed income
investments and equity securities attributable to
issuer-specific events is based upon all relevant facts and
circumstances for each investment. For fixed income investments
with unrealized losses due to market conditions or
industry-related events, management considers the Companys
intent and ability to hold the investments for a period of time
to allow a market recovery, or to maturity, in the process of
evaluating whether securities with unrealized losses have
suffered an other than temporary decline. Significant
assumptions and management judgment are involved in determining
if the decline is other than temporary. As of March 31,
2004, the Company had gross unrealized losses on
available-for-sale securities totaling $46,290. See
Results of Operations  Liquidity and Capital
Resources  Insurance Operating Subsidiaries
above for further discussion of those investments.




Item 3.     Quantitative
and Qualitative Disclosures About Market Risk

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

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Interest Rate Risk

The Companys fixed income portfolio is
exposed to interest rate risk. Fluctuations in interest rates
have a direct impact on the market values of these securities.
As interest rates rise, market values of fixed income
investments fall, and vice versa.

The table below displays the potential impact of
market value fluctuations on the Companys fixed income
portfolio as of March 31, 2004 based on parallel 200 basis
point shifts in interest rates up and down, in 100 basis points
increments. This analysis was performed on each security
individually.

|                                 |  |                   |           |              |  |              |          |   |  |  |       |   
|-------------------------------- |  | ----------------- | --------- | ------------ |  | ------------ | -------- | - |  |  | ----- | --
|                                 |  |                  
|                                 |  | At March 31, 2004
|                                 |  |                  
|                                 |  | Fair Value of     |           |             
|                                 |  | Fixed Income      |           | Hypothetical |  | Hypothetical
|Percent Change in Interest Rates |  | Portfolio         |           | $ Change     |  | % Change    
|                                 |  |                   |           |              |  |             
|200 basis point rise             |  | $                 | 1,780,126 |              |  | $            | (383,940 | ) |  |  | (17.7 | )%
|100 basis point rise             |  | $                 | 1,956,031 |              |  | $            | (208,035 | ) |  |  | (9.6  | )%
|Base scenario                    |  | $                 | 2,164,066 |              |  | $            |         |   |  |  |      | % 
|100 basis point decline          |  | $                 | 2,411,820 |              |  | $            | 247,754  |   |  |  | 11.4  | % 
|200 basis point decline          |  | $                 | 2,702,183 |              |  | $            | 538,117  |   |  |  | 24.9  | % 

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

Equity Price Risk

As of March 31, 2004, 13.7% of the
Companys total investment portfolio, including cash and
cash equivalents, was in equity securities (unaffiliated and
affiliated). Marketable equity securities, which represented
approximately 13.4% of the total investment portfolio, are
exposed to equity price risk, defined as the potential for loss
in market value owing to a decline in equity prices. A
hypothetical 10.0% decline in the price of each of these
marketable equity securities would result in a total decline of
approximately $41,868 at March 31, 2004, in the fair value
of the total investment portfolio.

Foreign Currency Exchange Rate Risk

Through investments in foreign securities, the
Company is exposed to foreign currency exchange rate risk.
Foreign currency exchange rate risk is the potential for loss in
market value owing to a decline in the U.S. dollar value of
these investments due to a decline in the exchange rate of the
foreign currency in which these assets are denominated. As of
March 31, 2004, the Companys total exposure to
foreign denominated securities in U.S. dollar terms was
approximately $371,019, or 11.9%, of the total investment
portfolio, including cash and cash equivalents. The primary
foreign currency exposures were in Canadian dollar denominated
securities and British pound denominated securities, which
represented 4.8% and 3.0% of the total investment portfolio,
including cash and cash equivalents, respectively, as of
March 31, 2004. The potential impact of a hypothetical
10.0% decline in each of the foreign exchange rates on the
valuation of investment assets denominated in those respective
foreign currencies would result in a decline in the fair value
of the total investment portfolio of approximately $37,102 at
March 31, 2004.

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Item 4.     Controls
and Procedures

Evaluation of disclosure controls and
procedures.

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

Changes in internal control over financial
reporting.

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




PART II. OTHER INFORMATION




Item 1.     Legal
Proceedings

The Companys subsidiaries are involved in
various lawsuits and arbitration proceedings arising in the
ordinary course of business. While the ultimate outcome of such
matters cannot be predicted with certainty, in the opinion of
management, no such matter is likely to have a material adverse
effect on the Companys consolidated financial position.
However, it should be noted that the frequency of large damage
awards, including large punitive damage awards that bear little
or no relation to actual economic damages incurred by plaintiffs
in some jurisdictions, continues to create the potential for an
unpredictable judgment in any given matter.




Item 5.     Other
Information

Filed herewith as exhibit 99.1 is a Ten Year
Analysis of Consolidated Loss and LAE Development as of
December 31, 2003, which revises certain inaccurate
historical data, resulting from a data input error, in the table
as presented in the Companys Registration Statement on
Form S-4 (Registration No. 333-107722), occurring only
in Amendments No. 3 and 4 thereto, which were filed with
the SEC on February 24, 2004 and March 15, 2004,
respectively.




Item 6.     Exhibits
and Reports on Form 8-K

(a)  Exhibits:



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

(b)  Reports on Form 8-K:



| |                                                                                                                                                                                                                                        
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | On April 5, 2004, the Company furnished a
    current report to the SEC on Form 8-K, pursuant to
    Item 9 thereof, relating to a press release, dated
    April 2, 2004, announcing certain senior management
    succession changes.

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SIGNATURES

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



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

Date:  May 7,
2004

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

| |  | 
| |  | 
| |  | 

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

Date:  May 7,
2004

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

| |  | 
| |  | 
| |  | 

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

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INDEX TO EXHIBITS

|            |       |  |  |                                                                                                                                                                                                                                                                                                                        
|----------- | ----- |  |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |       | 
|            |       | 
|            | *31.1 |  |  | Certification of Chief Executive Officer and
    President pursuant to Section 302 of the Sarbanes-Oxley Act
    of 2002.                                                                                                                                                                                              
|           
|            | *31.2 |  |  | Certification of Senior Executive Vice President,
    Chief Financial Officer and Treasurer pursuant to
    Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                             
|           
|            | *32.1 |  |  | Certification of Chief Executive Officer and
    President pursuant to Section 906 of the Sarbanes-Oxley Act
    of 2002.                                                                                                                                                                                              
|           
|            | *32.2 |  |  | Certification of Senior Executive Vice President,
    Chief Financial Officer and Treasurer pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                             
|           
|            | *99.1 |  |  | Ten Year Analysis of Consolidated Loss and LAE
    Development as of December 31, 2003                                                                                                                                                                                                                                 
|           
|            | 99.2  |  |  | Risk factors (incorporated into Part II of this
    Form 10-Q by reference to the section entitled Risk
    factors in the Companys Registration Statement on
    Form S-4 (Registration No. 333-107722), to which
    Amendment No. 4 was filed with the Securities and Exchange
    Commission on March 15, 2004).



---



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

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