##### Table of Contents



UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 ____________________________
 Form 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 For the Quarterly Period
Ended: June 30, 2006
    Commission File Number: 333-84068
 
 Crum & Forster Holdings Corp.
 (Exact Name of Registrant as Specified in its Charter)
 Delaware(State or Other Jurisdiction of
Incorporation or Organization)
    
    04-3611900(I.R.S. Employer Identification Number)
 305
Madison Avenue, Morristown, New Jersey 07962  Address of principal executive office
 (973) 490-6600  (Registrants telephone number, including area code)
 o þ
  o o þ
 o þ
  Class
    
    Number of Shares Outstanding at August 21, 2006Common Stock, $.01 Par Value
    
    100




---



##### 



CRUM & FORSTER HOLDINGS CORP.
 Form 10-Q
 Index
 PageNumberPART IFINANCIAL INFORMATIONITEM 1.
    
    FINANCIAL STATEMENTSConsolidated Balance
Sheets at June 30, 2006 (Unaudited) and December 31, 2005
    
    3Consolidated
Statements of Income for the Three and Six Months Ended June 30, 2006 and 2005 (Unaudited)
    
    4Consolidated
Statements of Shareholders Equity for the Six Months Ended June 30, 2006 and 2005 (Unaudited)
    
    5Consolidated
Statements of Comprehensive Income for the Three and Six Months Ended June 30, 2006 and 2005 (Unaudited)
    
    6Consolidated
Statements of Cash Flows for the Six Months Ended June 30, 2006 and 2005 (Unaudited)
    
    7Notes to the Consolidated Financial Statements
    
    8ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
    
    18ITEM 3.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    29ITEM 4.
    
    CONTROLS AND PROCEDURES
    
    30PART IIOTHER INFORMATIONITEM 1.
    
    LEGAL PROCEEDINGS
    
    31ITEM 6.
    
    EXHIBITS
    
    31SIGNATURES
    
    32INDEX TO EXHIBITS
    
    33Exhibit 10.39Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2
   
 2




---



##### Table of Contents



PART I
FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 CRUM & FORSTER HOLDINGS CORP.
 
 CONSOLIDATED BALANCE SHEETS
 (Dollars in thousands, except per share amounts)
 June 30,
    
    
    December 31,2006
    
    
    2005(Unaudited)ASSETSInvestments:Fixed income securities, at fair value (amortized cost of $1,906,987 and
$2,073,443 in 2006 and 2005, respectively)
    
    $
    1,719,345
    
    
    $
    1,991,118Equity securities, at fair value (cost of $569,831 and $503,942 in 2006 and
2005, respectively)
    
    
    581,869
    
    
    
    595,944Other invested assets
    
    
    311,610
    
    
    
    391,132Total investments
    
    
    2,612,824
    
    
    
    2,978,194Cash and cash equivalents
    
    
    526,911
    
    
    
    245,441Assets pledged for short-sale obligations
    
    
    525,656
    
    
    
    496,903Premiums receivable
    
    
    256,402
    
    
    
    245,795Reinsurance recoverable
    
    
    1,691,457
    
    
    
    1,806,082Reinsurance recoverable from affiliates
    
    
    281,986
    
    
    
    304,033Prepaid reinsurance premiums
    
    
    29,856
    
    
    
    31,308Deferred income taxes
    
    
    271,286
    
    
    
    175,207Deferred policy acquisition costs
    
    
    83,809
    
    
    
    70,807Other assets
    
    
    126,512
    
    
    
    129,109Total assets
    
    $
    6,406,699
    
    
    $
    6,482,879LIABILITIESUnpaid losses and loss adjustment expenses
    
    $
    3,562,337
    
    
    $
    3,673,034Unearned premiums
    
    
    580,904
    
    
    
    499,551Accounts payable and other liabilities
    
    
    249,797
    
    
    
    264,525Funds held under reinsurance contracts
    
    
    277,807
    
    
    
    277,868Deferred income on retroactive insurance
    
    
    177,684
    
    
    
    184,498Short-sale obligations
    
    
    362,348
    
    
    
    329,740Long-term debt
    
    
    292,811
    
    
    
    292,470Total liabilities
    
    
    5,503,688
    
    
    
    5,521,686SHAREHOLDERS EQUITYCommon stock, $0.01 par value; 1,000 shares authorized; 100 issued and outstanding
    
    
    
    
    
    
    Additional paid-in capital
    
    
    740,993
    
    
    
    740,993Accumulated other comprehensive (loss) income, net of tax
    
    
    (98,885
    )
    
    
    53,443Retained earnings
    
    
    260,903
    
    
    
    166,757Total shareholders equity
    
    
    903,011
    
    
    
    961,193Total liabilities and shareholders equity
    
    $
    6,406,699
    
    
    $
    6,482,879
 The accompanying notes are an integral part of the consolidated financial statements.
 3




---



##### Table of Contents



CRUM & FORSTER HOLDINGS CORP.
 
 CONSOLIDATED STATEMENTS OF INCOME
 (Dollars in thousands)
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005(Unaudited)REVENUESPremiums earned
    
    $
    264,828
    
    
    $
    241,980
    
    
    $
    511,547
    
    
    $
    473,534Investment income
    
    
    92,821
    
    
    
    33,721
    
    
    
    149,279
    
    
    
    68,378Realized investment gains
    
    
    9,716
    
    
    
    57,994
    
    
    
    131,538
    
    
    
    72,244Total revenues
    
    
    367,365
    
    
    
    333,695
    
    
    
    792,364
    
    
    
    614,156EXPENSESLosses and loss adjustment expenses
    
    
    181,681
    
    
    
    162,537
    
    
    
    350,693
    
    
    
    316,170Policy acquisition costs
    
    
    37,546
    
    
    
    34,342
    
    
    
    68,779
    
    
    
    64,756Other underwriting expenses
    
    
    41,597
    
    
    
    32,232
    
    
    
    80,622
    
    
    
    65,627Interest expense
    
    
    8,243
    
    
    
    8,225
    
    
    
    16,484
    
    
    
    16,449Other expense, net
    
    
    1,580
    
    
    
    1,888
    
    
    
    4,244
    
    
    
    3,196Total expenses
    
    
    270,647
    
    
    
    239,224
    
    
    
    520,822
    
    
    
    466,198Income before income taxes and equity in earnings of investees
    
    
    96,718
    
    
    
    94,471
    
    
    
    271,542
    
    
    
    147,958Income tax expense
    
    
    33,145
    
    
    
    31,593
    
    
    
    93,465
    
    
    
    49,958Income before equity in earnings of investees
    
    
    63,573
    
    
    
    62,878
    
    
    
    178,077
    
    
    
    98,000Equity in earnings of investees, net of tax
    
    
    4,210
    
    
    
    4,321
    
    
    
    6,069
    
    
    
    8,754NET INCOME
    
    $
    67,783
    
    
    $
    67,199
    
    
    $
    184,146
    
    
    $
    106,754
 The accompanying notes are an integral part of the consolidated financial statements.
 4




---



##### Table of Contents



CRUM & FORSTER HOLDINGS CORP.
 
 CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
 (Dollars in thousands)
 Six Months EndedJune 30,2006
    
    
    2005(Unaudited)COMMON STOCKBalance, beginning and end of period
    
    $
    
    
    
    $
    ADDITIONAL PAID-IN CAPITALBalance, beginning and end of period
    
    
    740,993
    
    
    
    740,993ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME, NET OF TAXBalance, beginning of period
    
    
    53,443
    
    
    
    55,875Unrealized investment (losses) gains, net of
transfers to realized investment gains and losses
    
    
    (157,398
    )
    
    
    47,804Foreign currency translation
    
    
    5,070
    
    
    
    (2,738
    )Balance, end of period
    
    
    (98,885
    )
    
    
    100,941RETAINED EARNINGSBalance, beginning of period
    
    
    166,757
    
    
    
    84,321Net income
    
    
    184,146
    
    
    
    106,754Dividends to shareholder
    
    
    (90,000
    )
    
    
    (27,500
    )Balance, end of period
    
    
    260,903
    
    
    
    163,575TOTAL SHAREHOLDERS EQUITY
    
    $
    903,011
    
    
    $
    1,005,509
 The accompanying notes are an integral part of the consolidated financial statements.
 5




---



##### Table of Contents



CRUM & FORSTER HOLDINGS CORP.
 
 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
 (Dollars in thousands)
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005(Unaudited)NET INCOME
    
    $
    67,783
    
    
    $
    67,199
    
    
    $
    184,146
    
    
    $
    106,754Change in components of other comprehensive (loss) income for
the period, before tax:Unrealized investment (losses) gains
    
    
    (105,572
    )
    
    
    94,272
    
    
    
    (242,150
    )
    
    
    73,546Foreign currency translation
    
    
    7,397
    
    
    
    (2,391
    )
    
    
    7,800
    
    
    
    (4,212
    )Other comprehensive (loss) income for the period, before
tax
    
    
    (98,175
    )
    
    
    91,881
    
    
    
    (234,350
    )
    
    
    69,334Deferred income tax benefit (expense) for the period:Deferred income tax benefit (expense) from unrealized
investment gains and losses
    
    
    36,949
    
    
    
    (32,997
    )
    
    
    84,752
    
    
    
    (25,742
    )Deferred income tax (expense) benefit from foreign currency
translation
    
    
    (2,589
    )
    
    
    837
    
    
    
    (2,730
    )
    
    
    1,474Total deferred income tax benefit (expense) for the period
    
    
    34,360
    
    
    
    (32,160
    )
    
    
    82,022
    
    
    
    (24,268
    )Other comprehensive (loss) income for the period, net of tax
    
    
    (63,815
    )
    
    
    59,721
    
    
    
    (152,328
    )
    
    
    45,066COMPREHENSIVE INCOME
    
    $
    3,968
    
    
    $
    126,920
    
    
    $
    31,818
    
    
    $
    151,820
 The accompanying notes are an integral part of the consolidated financial statements
 6




---



##### Table of Contents



CRUM & FORSTER HOLDINGS CORP.
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Dollars in thousands)
 Six Months EndedJune 30,2006
    
    
    2005(Unaudited)OPERATING ACTIVITIESNet income
    
    $
    184,146
    
    
    $
    106,754Adjustments to reconcile net income to net cash from operating activities:Net accretion of discount on fixed income securities
    
    
    (5,177
    )
    
    
    (853
    )Realized investment gains
    
    
    (131,538
    )
    
    
    (72,244
    )Earnings of equity method investees
    
    
    (95,400
    )
    
    
    (21,532
    )Depreciation and amortization
    
    
    1,637
    
    
    
    1,717Deferred income tax (benefit) expense
    
    
    (14,057
    )
    
    
    4,456Other non-cash net income adjustments
    
    
    12,877
    
    
    
    7,300Changes in:Premiums receivable
    
    
    (15,107
    )
    
    
    17,092Reinsurance recoverable
    
    
    121,421
    
    
    
    (46,590
    )Prepaid reinsurance premiums
    
    
    1,452
    
    
    
    1,654Deferred policy acquisition costs
    
    
    (13,002
    )
    
    
    3,138Other assets
    
    
    4,364
    
    
    
    20,655Unpaid losses and loss adjustment expenses
    
    
    (110,697
    )
    
    
    53,365Unearned premiums
    
    
    81,353
    
    
    
    (18,164
    )Accounts payable and other liabilities
    
    
    (20,795
    )
    
    
    10,673Net cash from operating activities
    
    
    1,477
    
    
    
    67,421INVESTING ACTIVITIESPurchases of fixed income securities
    
    
    (134,214
    )
    
    
    (1,507,868
    )Proceeds from sales of fixed income securities
    
    
    367,185
    
    
    
    1,445,643Proceeds from maturities of fixed income securities
    
    
    
    
    
    
    1,245Purchases of equity securities
    
    
    (187,392
    )
    
    
    (127,213
    )Proceeds from sales of equity securities
    
    
    228,581
    
    
    
    94,658Purchases of other invested assets
    
    
    (5,975
    )
    
    
    (71,294
    )Proceeds from sales of other invested assets
    
    
    140,179
    
    
    
    1,303Proceeds from short-sale obligations
    
    
    24,931
    
    
    
    100,013Cash pledged for short-sale obligations
    
    
    (62,978
    )
    
    
    (104,722
    )Purchases of fixed assets
    
    
    (324
    )
    
    
    (235
    )Net cash from investing activities
    
    
    369,993
    
    
    
    (168,470
    )FINANCING ACTIVITIESDividends to shareholder
    
    
    (90,000
    )
    
    
    (27,500
    )Net cash from financing activities
    
    
    (90,000
    )
    
    
    (27,500
    )Net change in cash and cash equivalents
    
    
    281,470
    
    
    
    (128,549
    )Cash and cash equivalents, beginning of period
    
    
    245,441
    
    
    
    429,205Cash and cash equivalents, end of period
    
    $
    526,911
    
    
    $
    300,656SUPPLEMENTAL CASH FLOW INFORMATIONCash paid for interest
    
    $
    15,563
    
    
    $
    15,563Cash paid to parent for income taxes
    
    $
    69,746
    
    
    $
    25,568
 The accompanying notes are an integral part of the consolidated financial statements
 7




---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited, dollars in thousands)
 1.      Organization and Basis of Presentation
      8




---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited, dollars in thousands)
 2.      Recent Accounting Pronouncements
 Accounting for Uncertainty in Income Taxes  an interpretation of
FASB Statement No. 109 Accounting for Income Taxes
 Accounting for Certain Hybrid Financial
Instruments   an amendment of FASB Statements No. 133 and 140 Accounting for Derivative Instruments and Hedging Activities, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities Application of SFAS No.
133 to Beneficial Interests in Securitized Financial Assets
 The Meaning of Other-Than-Temporary Impairment and
Its Application to Certain Investments The Meaning of Other-Than-Temporary Impairment and Its Application to Certain
Investments
 Accounting by Insurance Enterprises for Deferred Acquisition Costs in
Connection with Modifications or Exchanges of Insurance Contracts Accounting and
Reporting by Insurance Enterprises for Certain Long-Duration Contracts and For Realized Gains
and Losses from the Sale of Investments
 Accounting Changes and Error Corrections Accounting
Changes, Reporting Changes in Interim Financial Statements.
 9




---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited, dollars in thousands)
 3.      Unpaid Losses and Loss Adjustment Expenses
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Gross unpaid losses and LAE, beginning of
period
    
    $
    3,640,968
    
    
    $
    3,402,060
    
    
    $
    3,673,034
    
    
    $
    3,370,936Less ceded unpaid losses and LAE
    
    
    1,646,972
    
    
    
    1,396,385
    
    
    
    1,682,768
    
    
    
    1,360,996Net unpaid losses and LAE, beginning of
period
    
    
    1,993,996
    
    
    
    2,005,675
    
    
    
    1,990,266
    
    
    
    2,009,940Losses and LAE incurred related to:Current period
    
    
    183,990
    
    
    
    169,602
    
    
    
    355,435
    
    
    
    328,504Prior years
    
    
    (2,309
    )
    
    
    (7,065
    )
    
    
    (4,742
    )
    
    
    (12,334
    )Total losses and LAE incurred
    
    
    181,681
    
    
    
    162,537
    
    
    
    350,693
    
    
    
    316,170Losses and LAE paid related to:Current period
    
    
    28,378
    
    
    
    30,351
    
    
    
    36,484
    
    
    
    39,331Prior years
    
    
    130,832
    
    
    
    129,186
    
    
    
    288,008
    
    
    
    278,104Total losses and LAE paid
    
    
    159,210
    
    
    
    159,537
    
    
    
    324,492
    
    
    
    317,435Net unpaid losses and LAE, end of period
    
    
    2,016,467
    
    
    
    2,008,675
    
    
    
    2,016,467
    
    
    
    2,008,675Add ceded unpaid losses and LAE
    
    
    1,545,870
    
    
    
    1,400,903
    
    
    
    1,545,870
    
    
    
    1,400,903Gross unpaid losses and LAE, end of period
    
    $
    3,562,337
    
    
    $
    3,409,578
    
    
    $
    3,562,337
    
    
    $
    3,409,578
  June 30,2006Ceded unpaid losses and LAE in the table above
    
    $
    1,545,870Reconciling items:Reinsurance receivable on paid losses and LAE
    
    
    76,775Unamortized retroactive reinsurance recoverable
    
    
    372,308Loss sensitive cession1
    
    
    (21,510
    )Total reconciling items
    
    
    427,573Reinsurance recoverable on the consolidated balance sheet
    
    $
    1,973,443
 1
 10




---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited, dollars in thousands)
 4.      Asbestos and Environmental Losses and Loss Adjustment Expenses
   Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005AsbestosGross unpaid losses and allocated LAE
(ALAE), beginning of period
    
    $
    461,078
    
    
    $
    499,520
    
    
    $
    469,199
    
    
    $
    522,685Less ceded unpaid losses and ALAE
    
    
    93,895
    
    
    
    106,492
    
    
    
    92,418
    
    
    
    113,891Net unpaid losses and ALAE, beginning of period
    
    
    367,183
    
    
    
    393,028
    
    
    
    376,781
    
    
    
    408,794Net losses and ALAE incurred
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net paid losses and ALAE
    
    
    10,396
    
    
    
    17,297
    
    
    
    19,994
    
    
    
    33,063Net unpaid losses and ALAE, end of period
    
    
    356,787
    
    
    
    375,731
    
    
    
    356,787
    
    
    
    375,731Add ceded unpaid losses and ALAE
    
    
    84,965
    
    
    
    104,798
    
    
    
    84,965
    
    
    
    104,798Gross unpaid losses and ALAE, end of period
    
    $
    441,752
    
    
    $
    480,529
    
    
    $
    441,752
    
    
    $
    480,529EnvironmentalGross unpaid losses ALAE, beginning of period
    
    $
    107,809
    
    
    $
    114,630
    
    
    $
    111,536
    
    
    $
    123,353Less ceded unpaid losses and ALAE
    
    
    35,334
    
    
    
    36,457
    
    
    
    37,293
    
    
    
    38,190Net unpaid losses and ALAE, beginning of period
    
    
    72,475
    
    
    
    78,173
    
    
    
    74,243
    
    
    
    85,163Net losses and ALAE incurred
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net paid losses and ALAE
    
    
    2,223
    
    
    
    3,069
    
    
    
    3,991
    
    
    
    10,059Net unpaid losses and ALAE, end of period
    
    
    70,252
    
    
    
    75,104
    
    
    
    70,252
    
    
    
    75,104Add ceded unpaid losses and ALAE
    
    
    35,491
    
    
    
    38,349
    
    
    
    35,491
    
    
    
    38,349Gross unpaid losses and ALAE, end of period
    
    $
    105,743
    
    
    $
    113,453
    
    
    $
    105,743
    
    
    $
    113,453
  11




---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited, dollars in thousands)
 5.      Reinsurance
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Premiums written:Direct
    
    $
    296,448
    
    
    $
    257,079
    
    
    $
    606,816
    
    
    $
    543,098Assumed from other companies,
pools or associations
    
    
    44,951
    
    
    
    7,051
    
    
    
    81,784
    
    
    
    9,475Ceded to other companies, pools or
associations
    
    
    (42,391
    )
    
    
    (46,506
    )
    
    
    (94,248
    )
    
    
    (95,549
    )Net premiums written
    
    $
    299,008
    
    
    $
    217,624
    
    
    $
    594,352
    
    
    $
    457,024Premiums earned:Direct
    
    $
    280,531
    
    
    $
    283,534
    
    
    $
    563,214
    
    
    $
    562,390Assumed from other companies,
pools or associations
    
    
    29,066
    
    
    
    5,733
    
    
    
    44,033
    
    
    
    8,347Ceded to other companies, pools or
associations
    
    
    (44,769
    )
    
    
    (47,287
    )
    
    
    (95,700
    )
    
    
    (97,203
    )Premiums earned
    
    $
    264,828
    
    
    $
    241,980
    
    
    $
    511,547
    
    
    $
    473,534
   June 30,
    
    
    December 31,2006
    
    
    2005Reinsurance recoverable on unpaid losses and LAE
    
    $
    1,896,668
    
    
    $
    2,040,381Reinsurance receivable on paid losses and LAE
    
    
    76,775
    
    
    
    69,734Total reinsurance recoverable
    
    $
    1,973,443
    
    
    $
    2,110,115
  Corporate aggregate reinsurance
   12




---



##### Table of Contents



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited, dollars in thousands)
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Investment income
    
    $
    (4,834
    )
    
    $
    (4,036
    )
    
    $
    (9,652
    )
    
    $
    (8,923
    )Losses and LAE
    
    
    (3,435
    )
    
    
    (3,691
    )
    
    
    (6,814
    )
    
    
    (7,381
    )Decrease in income before income taxes
    
    $
    (1,399
    )
    
    $
    (345
    )
    
    $
    (2,838
    )
    
    $
    (1,542
    )
  Prospective corporate aggregate reinsurance
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Ceded losses and LAE
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Less: funds held interest charged to investment income
    
    
    767
    
    
    
    1,159
    
    
    
    1,676
    
    
    
    2,424Decrease in income before income taxes
    
    $
    (767
    )
    
    $
    (1,159
    )
    
    $
    (1,676
    )
    
    $
    (2,424
    )
  Retroactive corporate aggregate reinsurance
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Increase in reinsurance recoverable due from insurers
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Less: related premiums paid
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Income deferred during the period
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Amortization of deferred income
    
    
    (3,435
    )
    
    
    (3,691
    )
    
    
    (6,814
    )
    
    
    (7,381
    )Change in deferred income
    
    
    (3,435
    )
    
    
    (3,691
    )
    
    
    (6,814
    )
    
    
    (7,381
    )Deferred income on retroactive
reinsurancebeginning of period
    
    
    181,119
    
    
    
    219,670
    
    
    
    184,498
    
    
    
    223,360Deferred income on retroactive reinsuranceend of
period
    
    $
    177,684
    
    
    $
    215,979
    
    
    $
    177,684
    
    
    $
    215,979Funds held interest charged during the period
    
    $
    4,067
    
    
    $
    2,877
    
    
    $
    7,976
    
    
    $
    6,499
  13




---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited, dollars in thousands)
 6.      Investments and Short-Sale Obligations
          14




---



##### Table of Contents



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited, dollars in thousands)
 7.      Commitments and Contingencies
       15




---



##### Table of Contents



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited, dollars in thousands)
 8.       Segment Reporting
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Workers compensation
    
    $
    65,071
    
    
    $
    76,939
    
    
    $
    139,871
    
    
    $
    148,275General liability
    
    
    68,800
    
    
    
    52,312
    
    
    
    125,652
    
    
    
    101,619Property
    
    
    62,706
    
    
    
    49,166
    
    
    
    111,744
    
    
    
    97,158Commercial automobile
    
    
    50,354
    
    
    
    45,959
    
    
    
    100,350
    
    
    
    91,050Commercial multi-peril
    
    
    13,992
    
    
    
    11,504
    
    
    
    26,332
    
    
    
    23,028Surety
    
    
    3,905
    
    
    
    6,100
    
    
    
    7,598
    
    
    
    12,404Total premiums earned
    
    $
    264,828
    
    
    $
    241,980
    
    
    $
    511,547
    
    
    $
    473,534
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Amount
    
    
    Ratio
    
    
    Amount
    
    
    Ratio
    
    
    Amount
    
    
    Ratio
    
    
    Amount
    
    
    RatioWorkers compensation
    
    $
    40,695
    
    
    
    62.5
    %
    
    $
    57,643
    
    
    
    74.9
    %
    
    $
    98,451
    
    
    
    70.4
    %
    
    $
    122,771
    
    
    
    82.8
    %General liability
    
    
    56,669
    
    
    
    82.4
    %
    
    
    36,595
    
    
    
    70.0
    %
    
    
    99,897
    
    
    
    79.5
    %
    
    
    68,959
    
    
    
    67.9
    %Property
    
    
    47,058
    
    
    
    75.0
    %
    
    
    30,635
    
    
    
    62.3
    %
    
    
    76,884
    
    
    
    68.8
    %
    
    
    46,877
    
    
    
    48.2
    %Commercial automobile
    
    
    31,588
    
    
    
    62.7
    %
    
    
    19,923
    
    
    
    43.3
    %
    
    
    61,684
    
    
    
    61.5
    %
    
    
    46,364
    
    
    
    50.9
    %Commercial multi-peril
    
    
    (1,564
    )
    
    
    (11.2
    )%
    
    
    951
    
    
    
    8.3
    %
    
    
    3,228
    
    
    
    12.3
    %
    
    
    7,461
    
    
    
    32.4
    %Surety
    
    
    7,235
    
    
    
    185.3
    %
    
    
    16,790
    
    
    
    275.2
    %
    
    
    10,549
    
    
    
    138.8
    %
    
    
    23,738
    
    
    
    191.4
    %aTotal
    
    $
    181,681
    
    
    
    68.6
    %
    
    $
    162,537
    
    
    
    67.2
    %
    
    $
    350,693
    
    
    
    68.6
    %
    
    $
    316,170
    
    
    
    66.8
    %
    16




---



##### Table of Contents



9.      Accounting Adjustments in Respect of Certain Investments
 Accounting for Investments in Real Estate Ventures Accounting
for Derivative Instruments and Hedging Activities
  17




---



##### Table of Contents



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




---



##### Table of Contents



Critical Accounting Policies and Estimates
    Unpaid losses and loss adjustment expenses
     19




---



##### Table of Contents



Other than temporary declines in value of investments
   Insurance Subsidiaries
 Reinsurance recoverable
    Deferred income tax assets
   20




---



##### Table of Contents



 Accounting for Income
Taxes
 Summary of Operations
        21




---



##### Table of Contents



22




---



##### Table of Contents



Results of Operations
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Gross premiums written
    
    $
    341,399
    
    
    $
    264,130
    
    
    $
    688,600
    
    
    $
    552,573Net premiums written
    
    $
    299,008
    
    
    $
    217,624
    
    
    $
    594,352
    
    
    $
    457,024Premiums earned
    
    $
    264,828
    
    
    $
    241,980
    
    
    $
    511,547
    
    
    $
    473,534Losses and LAE
    
    
    181,681
    
    
    
    162,537
    
    
    
    350,693
    
    
    
    316,170Underwriting expenses
    
    
    79,143
    
    
    
    66,574
    
    
    
    149,401
    
    
    
    130,383Underwriting income
    
    
    4,004
    
    
    
    12,869
    
    
    
    11,453
    
    
    
    26,981Investment income and realized investment gains and losses
    
    
    102,537
    
    
    
    91,715
    
    
    
    280,817
    
    
    
    140,622Interest and other expense
    
    
    9,823
    
    
    
    10,113
    
    
    
    20,728
    
    
    
    19,645Income before income taxes and equity in earnings of investees
    
    
    96,718
    
    
    
    94,471
    
    
    
    271,542
    
    
    
    147,958Income tax expense
    
    
    33,145
    
    
    
    31,593
    
    
    
    93,465
    
    
    
    49,958Income before equity in earnings of investees
    
    
    63,573
    
    
    
    62,878
    
    
    
    178,077
    
    
    
    98,000Equity in earnings of investees, net of tax
    
    
    4,210
    
    
    
    4,321
    
    
    
    6,069
    
    
    
    8,754Net income
    
    $
    67,783
    
    
    $
    67,199
    
    
    $
    184,146
    
    
    $
    106,754Loss and LAE ratio
    
    
    68.6
    %
    
    
    67.2
    %
    
    
    68.6
    %
    
    
    66.8
    %Underwriting expense ratio
    
    
    29.9
    
    
    
    27.5
    
    
    
    29.2
    
    
    
    27.5Combined ratio
    
    
    98.5
    %
    
    
    94.7
    %
    
    
    97.8
    %
    
    
    94.3
    %
   23




---



##### Table of Contents



Underwriting results
 Gross premiums written
  Three Months Ended June 30,Increase/
    
    
    Percent2006
    
    
    2005
    
    
    (Decrease)
    
    
    ChangeWorkers compensation
    
    $
    57,307
    
    
    $
    57,552
    
    
    $
    (245
    )
    
    
    (0.4
    )%General liability
    
    
    98,324
    
    
    
    67,607
    
    
    
    30,717
    
    
    
    45.4
    %Property
    
    
    109,686
    
    
    
    73,035
    
    
    
    36,651
    
    
    
    50.2
    %Commercial automobile
    
    
    51,955
    
    
    
    46,095
    
    
    
    5,860
    
    
    
    12.7
    %Commercial multi-peril
    
    
    20,154
    
    
    
    12,988
    
    
    
    7,166
    
    
    
    55.2
    %Surety
    
    
    3,973
    
    
    
    6,853
    
    
    
    (2,880
    )
    
    
    (42.0
    )%Total gross premiums written
    
    $
    341,399
    
    
    $
    264,130
    
    
    $
    77,269
    
    
    
    29.3
    %
 Six Months Ended June 30,Increase/
    
    
    Percent2006
    
    
    2005
    
    
    (Decrease)
    
    
    ChangeWorkers compensation
    
    $
    139,901
    
    
    $
    132,583
    
    
    $
    7,318
    
    
    
    5.5
    %General liability
    
    
    187,947
    
    
    
    137,603
    
    
    
    50,344
    
    
    
    36.6
    %Property
    
    
    198,482
    
    
    
    144,463
    
    
    
    54,019
    
    
    
    37.4
    %Commercial automobile
    
    
    118,321
    
    
    
    98,294
    
    
    
    20,027
    
    
    
    20.4
    %Commercial multi-peril
    
    
    37,376
    
    
    
    24,326
    
    
    
    13,050
    
    
    
    53.6
    %Surety
    
    
    6,573
    
    
    
    15,304
    
    
    
    (8,731
    )
    
    
    (57.1
    )%Total gross premiums written
    
    $
    688,600
    
    
    $
    552,573
    
    
    $
    136,027
    
    
    
    24.6
    %
  Casualty gross premiums written
   24




---



##### Table of Contents



Property gross premiums written
  Net premiums written
  Premiums earned
  Losses and loss adjustment expenses
     Underwriting expenses
    25




---



##### Table of Contents



Investment results
  Three Months Ended June 30,
    
    
    Six Months Ended June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Average investments, including cash
and cash equivalents, at book
value1
    
    $
    3,734,902
    
    
    $
    3,675,048
    
    
    $
    3,720,240
    
    
    $
    3,543,602Investment income
    
    
    92,821
    
    
    
    33,721
    
    
    
    149,279
    
    
    $
    68,378Realized investment gains
    
    
    9,716
    
    
    
    57,994
    
    
    
    131,538
    
    
    
    72,244Pre-tax equity in earnings of investees
    
    
    6,477
    
    
    
    6,648
    
    
    
    9,337
    
    
    
    13,468Change in unrealized investment gains
(losses) and foreign currency translation
    
    
    (98,175
    )
    
    
    91,881
    
    
    
    (234,350
    )
    
    
    69,334Total return on investments
    
    $
    10,839
    
    
    $
    190,244
    
    
    $
    55,804
    
    
    $
    223,424Annualized total return on investments
    
    
    1.2
    %
    
    
    20.7
    %
    
    
    3.0
    %
    
    
    12.6
    %
 1
 .
     26




---



##### Table of Contents



Interest and other expense
  Liquidity and Capital Resources
 Holding company
    Insurance subsidiaries
   .
  At June 30, 2006Cost or
    
    
    Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    UnrealizedCost
    
    
    Gains
    
    
    Losses
    
    
    Fair ValueFixed income securities:United States government and government agencies
and authorities1
    
    $
    1,778,042
    
    
    $
    4
    
    
    $
    211,724
    
    
    $
    1,566,322States, municipalities and political subdivisions
    
    
    4,882
    
    
    
    22
    
    
    
    42
    
    
    
    4,862Other corporate fixed income securities
    
    
    285,287
    
    
    
    11,286
    
    
    
    86
    
    
    
    296,487Total fixed income securities
    
    
    2,068,211
    
    
    
    11,312
    
    
    
    211,852
    
    
    
    1,867,671Equity securities:Common stocks
    
    
    559,831
    
    
    
    28,637
    
    
    
    16,736
    
    
    
    571,732Preferred stocks
    
    
    10,000
    
    
    
    165
    
    
    
    28
    
    
    
    10,137Total equity securities
    
    
    569,831
    
    
    
    28,802
    
    
    
    16,764
    
    
    
    581,869Total available-for-sale securities
    
    $
    2,638,042
    
    
    $
    40,114
    
    
    $
    228,616
    
    
    $
    2,449,540
 1
 27




---



##### Table of Contents



Ratings
    28




---



##### Table of Contents



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    Interest Rate Risk
  At June 30, 2006Fair Value ofFixed Income
    
    
    Hypothetical
    
    
    HypotheticalPortfolio
    
    
    $ Change
    
    
    % Change200 basis point decline
    
    $
    2,409,993
    
    
    $
    542,322
    
    
    
    29.0
    %100 basis point decline
    
    $
    2,115,012
    
    
    $
    247,341
    
    
    
    13.2
    %Base scenario
    
    $
    1,867,671
    
    
    $
    
    
    
    
    100 basis point increase
    
    $
    1,659,716
    
    
    $
    (207,955
    )
    
    
    (11.1
    %)200 basis point increase
    
    $
    1,491,223
    
    
    $
    (376,448
    )
    
    
    (20.2
    %)
  Equity Price Risk
   29




---



##### Table of Contents



Foreign Currency Exchange Rate Risk
  
 ITEM 4. CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
  Changes in Internal Control Over Financial Reporting
  Identification of Material Weakness in Internal Control Over Financial Reporting
  Managements Remediation Initiatives
   30




---



##### Table of Contents



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




---



##### Table of Contents



SIGNATURES
  CRUM & FORSTER HOLDINGS CORP.(Registrant)Date: August 21, 2006
    
    By:
    
    /s/ Nikolas AntonopoulosNikolas AntonopoulosPresident and Chief Executive OfficerDate: August 21, 2006
    
    By:
    
    /s/ Mary Jane RobertsonMary Jane RobertsonExecutive Vice President, Chief Financial Officer and Treasurer
 32




---



##### Table of Contents



INDEX TO EXHIBITS
 Exhibit No.
 *
    
    10.39
    
    
    Amendment
Number 1 to Employment Agreement of Joseph Braunstein effective as of April 14, 2006.*
    
    31.1
    
    
    Certification of
President and Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
    
    31.2
    
    
    Certification of
Executive Vice President, Chief Financial Officer and Treasurer
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
    
    32.1
    
    
    Certification of
President and Chief Executive Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.*
    
    32.2
    
    
    Certification of
Executive Vice President, Chief Financial Officer and Treasurer
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.99.1
    
    
    Risk Factors
(incorporated into Part II of this Form 10-Q by reference to the section
entitled Risk Factors in the Companys Annual Report on Form 10-K for the year ended
December 31, 2005 filed with the Securities and Exchange Commission on March 22, 2006).
 
 *
    
    Filed herewith 
 33