##### Table of Contents



UNITED STATES
  SECURITIES AND EXCHANGE
    COMMISSIONWashington, D.C.
    20549
      Form 10-Q
  þ

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
      OF THE SECURITIES EXCHANGE ACT OF 1934oro

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
      OF THE SECURITIES EXCHANGE ACT OF 1934
   For the Quarterly Period Ended:
    September 30, 2009

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
  Regulation S-T o o
  Rule 12b-2
  Large accelerated
    filer  o

Accelerated
    filer  oNon-accelerated
    filer  þ (Do
    not check if a smaller reporting company)

Smaller reporting company  o
   Rule 12b-2 o þ
    Class

Number of Shares Outstanding at
    October 29, 2009Common Stock, $.01 Par Value


100




---



##### 



CRUM &
    FORSTER HOLDINGS CORP.
  Form 10-Q
  Index
   
 PageNumberPART IFINANCIAL INFORMATIONITEM 1.

FINANCIAL STATEMENTSConsolidated Balance Sheets at September 30,
    2009 (Unaudited) and December 31, 2008


3Consolidated Statements of Income for the Three
    and Nine Months Ended September 30, 2009 and 2008
    (Unaudited)


4Consolidated Statements of Shareholders
    Equity for the Nine Months Ended September 30, 2009 and
    2008 (Unaudited)


5Consolidated Statements of Comprehensive Income
    for the Three and Nine Months Ended September 30, 2009 and
    2008 (Unaudited)


6Consolidated Statements of Cash Flows for the
    Nine Months Ended September 30, 2009 and 2008
    (Unaudited)


7Notes to Consolidated Financial Statements


8ITEM 2.

MANAGEMENTS DISCUSSION AND ANALYSIS OF
    FINANCIAL CONDITION AND RESULTS OF OPERATIONS


32ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
    MARKET RISK


47ITEM 4T.

CONTROLS AND PROCEDURES


53PART IIOTHER INFORMATIONITEM 1.

LEGAL PROCEEDINGS


54ITEM 5.

OTHER INFORMATION


54ITEM 6.

EXHIBITS


54SIGNATURES


55INDEX TO EXHIBITS


56EX-31.1EX-31.2EX-32.1EX-32.2   2




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##### Table of Contents



PART I
    FINANCIAL INFORMATION ITEM 1.  FINANCIAL
    STATEMENTS  CRUM &
    FORSTER HOLDINGS CORP.CONSOLIDATED BALANCE SHEETS
    (Dollars in thousands, except per share amounts)
    (Unaudited)
  September 30,


December 31,2009


2008ASSETSInvestments:Fixed income securities,
    available-for-sale,
    at fair value (amortized cost of $1,257,546 and $1,466,114 in
    2009 and 2008, respectively)

$
1,485,862


$
1,533,334Fixed income securities,
    held-for-trading,
    at fair value


335,002



233,998Equity securities,
    available-for-sale,
    at fair value (cost of $1,146,993 and $1,106,098 in 2009 and
    2008, respectively)


1,383,777



1,020,154Investments at equity


159,370



117,586Derivatives and other invested assets, at fair value


382,933



412,747Short-term investments, at fair value


30,971



549,937Total investments


3,777,915



3,867,756Cash and cash equivalents


330,467



159,862Assets pledged for derivatives


29,756



4,416Accrued investment income


32,626



29,378Premiums receivable


167,086



182,158Reinsurance recoverable


718,074



759,028Reinsurance recoverable from affiliates


187,893



209,189Prepaid reinsurance premiums


28,477



28,995Deferred income taxes


39,986



239,077Deferred policy acquisition costs


46,883



52,705Other assets


96,814



66,316Total assets

$
5,455,977


$
5,598,880LIABILITIESUnpaid losses and loss adjustment expenses

$
2,739,084


$
2,987,803Unearned premiums


319,942



366,362Funds held under reinsurance contracts


241,969



228,835Accounts payable and other liabilities


166,467



417,669Deferred income on retroactive reinsurance


110,115



121,277Long-term debt


311,695



310,502Total liabilities


3,889,272



4,432,448Commitments and contingencies (Note 9)SHAREHOLDERS EQUITYCommon stock, $0.01 par value; 1,000 shares
    authorized; 100 issued and outstanding






Additional paid-in capital


740,993



740,993Accumulated other comprehensive income (loss), net of tax


311,752



(7,455
)Retained earnings


513,960



432,894Total shareholders equity


1,566,705



1,166,432Total liabilities and shareholders equity

$
5,455,977


$
5,598,880   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)
  (Unaudited)
  Three Months Ended


Nine Months EndedSeptember 30,


September 30,2009


2008


2009


2008REVENUESPremiums earned

$
182,032


$
232,978


$
589,743


$
767,670Investment income


34,213



14,706



133,165



61,792Net realized investment gains


210,394



162,369



142,325



327,346Total revenues


426,639



410,053



865,233



1,156,808EXPENSESLosses and loss adjustment expenses


122,950



211,506



391,275



666,862Policy acquisition costs


27,988



41,669



85,329



118,615Other underwriting expenses


41,809



42,407



120,711



129,836Interest expense


6,958



6,920



20,848



20,952Costs related to early retirement of debt














392Other expense, net


1,709



2,527



3,289



4,179Total expenses


201,414



305,029



621,452



940,836Income before income taxes and equity in earnings of investees


225,225



105,024



243,781



215,972Income tax expense


70,464



35,296



62,794



71,958Income before equity in earnings of investees


154,761



69,728



180,987



144,014Equity in earnings (losses) of investees, net of tax










79



(461
)NET INCOME

$
154,761


$
69,728


$
181,066


$
143,553   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)
  (Unaudited)
  Nine Months EndedSeptember 30,2009


2008COMMON STOCKBalance, beginning and end of period

$



$
ADDITIONAL PAID-IN CAPITALBalance, beginning and end of period


740,993



740,993ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAXBalance, beginning of period


(7,455
)


44,479Cumulative effect of adoption of Statements of Financial
    Accounting Standards Nos. 157 and 159






(29,897
)Balance, beginning of period, after cumulative effect of
    adjustments


(7,455
)


14,582Unrealized investment gains (losses), net of transfers to
    realized investment gains and losses


319,068



(52,920
)Foreign currency translation


309



(311
)Amortization of actuarial gain, prior service credit and
    transition obligation included in net periodic benefit costs


(170
)


204Balance, end of period


311,752



(38,445
)RETAINED EARNINGSBalance, beginning of period


432,894



507,987Cumulative effect of adoption of Statements of Financial
    Accounting Standards Nos. 157 and 159






86,101Balance, beginning of period, after cumulative effect of
    adjustments


432,894



594,088Net income


181,066



143,553Dividends to shareholder


(100,000
)


(130,000
)Balance, end of period


513,960



607,641TOTAL SHAREHOLDERS EQUITY

$
1,566,705


$
1,310,189   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)
  (Unaudited)
  Three Months Ended


Nine Months EndedSeptember 30,


September 30,2009


2008


2009


2008NET INCOME

$
154,761


$
69,728


$
181,066


$
143,553Change in components of other comprehensive income (loss) for
    the period, before tax:Unrealized investment gains (losses), net of transfers to
    realized investment gains and losses


259,405



(31,622
)


490,874



(81,414
)Foreign currency translation


(70
)


(607
)


475



(479
)Amortization of actuarial gain, prior service credit and
    transition obligation included in net periodic benefit costs


(87
)


105



(261
)


314Other comprehensive income (loss) for the period, before tax


259,248



(32,124
)


491,088



(81,579
)Deferred income tax (expense) benefit for the period:Deferred income tax (expense) benefit from unrealized investment
    gains and losses


(90,791
)


11,067



(171,806
)


28,494Deferred income tax (expense) benefit from foreign currency
    translation


25



213



(166
)


168Deferred income tax benefit (expense) from amortization of
    actuarial gain, prior service credit and transition obligation
    included in net periodic benefit costs


30



(37
)


91



(110
)Total deferred income tax (expense) benefit for the period


(90,736
)


11,243



(171,881
)


28,552Other comprehensive income (loss) for the period, net of tax


168,512



(20,881
)


319,207



(53,027
)COMPREHENSIVE INCOME

$
323,273


$
48,847


$
500,273


$
90,526   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)
  (Unaudited)
 Nine Months EndedSeptember 30,2009


2008OPERATING ACTIVITIESNet income

$
181,066


$
143,553Adjustments to reconcile net income to net cash from operating
    activities:(Accretion of discount) amortization of premium on fixed income
    securities


(6,409
)


1,318Realized investment gains


(142,325
)


(327,346
)(Earnings) losses of equity method investees, net of dividends


244



1,051(Earnings) losses of investment companies and similar equity
    method investees


(44,579
)


24,924Loss on commutation






75,470Depreciation and amortization


4,816



2,631Deferred income tax expense (benefit)


27,209



(22,363
)Costs related to early retirement of debt






170Other adjustments


3,483



12,195Changes in:Accrued investment income


(4,075
)


11,547Premiums receivable


13,947



26,896Reinsurance recoverable


61,865



398,710Prepaid reinsurance premiums


518



(4,732
)Deferred policy acquisition costs


5,822



12,135Other assets


(312
)


15,273Unpaid losses and loss adjustment expenses


(248,719
)


(65,165
)Unearned premiums


(46,420
)


(76,291
)Accounts payable and other liabilities


(115,630
)


35,803Net cash (used in) provided by operating activities


(309,499
)


265,779INVESTING ACTIVITIESPurchases of fixed income securities


(356,602
)


(760,148
)Proceeds from sales of fixed income securities


402,525



519,517Proceeds from maturities of fixed income securities


48,300



1,260Purchases of equity securities


(345,962
)


(147,403
)Proceeds from sales of equity securities


227,718



9,422Net sales (purchases) of investments at equity


6,769



(223
)Purchases of derivatives and other invested assets


(10,050
)


(13,871
)Proceeds from sales of derivatives and other invested assets


109,685



284,611Purchases of short-term investments


(110,308
)


(577,565
)Proceeds from sales and maturities of short-term investments


605,660



637,910Net settlement of short-sale obligations






(649,517
)Net change in cash and cash equivalents held as collateral


4,416



734,263Net settlement of total return swaps and futures contracts


(343
)


107,305Purchases of fixed assets


(1,704
)


(1,274
)Net cash provided by investing activities


580,104



144,287FINANCING ACTIVITIESDividends to shareholder


(100,000
)


(130,000
)Repayment of
    103/8%
    long-term debt






(4,270
)Net cash used in financing activities


(100,000
)


(134,270
)Net change in cash and cash equivalents


170,605



275,796Cash and cash equivalents, beginning of period


159,862



147,506Cash and cash equivalents, end of period

$
330,467


$
423,302SUPPLEMENTAL CASH FLOW INFORMATIONCash paid for interest

$
12,788


$
13,009Cash paid to parent for income taxes

$
124,556


$
40,262SUPPLEMENTAL NON-CASH OPERATING AND INVESTING ACTIVITIESFixed income securities transferred to parent as payment for
    income taxes

$
54,008


$
   The accompanying notes are an integral part of the
    consolidated financial statements.
 7




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##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
    (Unaudited, dollars in thousands)
  1.
    Organization
    and Basis of Presentation      Form 10-K
    2.
    Recent
    Accounting Pronouncements  FASB ASC
    105-10. The FASB
    Accounting Standards Codification and Hierarchy of Generally
    Accepted Accounting Principles, a replacement of FASB Statement
    No. 162 105-10, Generally Accepted Accounting Principles 105-10
  FASB ASC
    855-10. Subsequent Events 855-10, Subsequent Events 855-10
 8




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##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
    (Unaudited, dollars in thousands)
  FASB ASC
    320-10. No. 115-2 124-2, Recognition and Presentation of Other Than Temporary
    Impairments, 320-10, Investments  Debt and Equity Securities , 320-10 320-10 320-10 320-10
  FASB ASC
    820-10. FAS 157-4, Determining Fair Value When the Volume and Level of Activity
    for the Asset or Liability have Significantly Decreased and
    Identifying Transactions That Are Not Orderly Fair Value
    Measurements and Disclosure 820-10, Fair Value Measurements and Disclosures) 820-10
  FASB ASC
    825-10. FAS 107-1 28-1, Interim Disclosures about Fair Value Measurement 825-10, Financial Instruments 825-10
  FASB ASC
    320-10-S99. 320-10-S99) 320-10-S99
  FASB ASC
    815-10. Disclosures about Derivative Instruments and Hedging
    Activities  an Amendment of FASB Statement
    No. 133 815-10, Derivatives and Hedging 815-10 815-10
 9




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##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
    (Unaudited, dollars in thousands)
  3.
    Investments  available-for-sale held-for-trading
  Available-For-Sale
    Securities
  available-for-sale
  At September 30, 2009Cost or


Gross


GrossAmortized


Unrealized


UnrealizedCost


Gains


Losses


Fair ValueFixed income securities:U.S. government and government agencies and authorities

$
82,673


$
14,616


$



$
97,289States, municipalities and political
    subdivisions1


1,090,264



189,635



26



1,279,873Other corporate


108,618



29,838







138,456Total fixed income securities


1,281,555



234,089



26



1,515,618Equity securities  common stocks


1,146,993



244,600



7,816



1,383,777Total
    available-for-sale
    securities

$
2,428,548


$
478,689


$
7,842


$
2,899,395
     1
    
    Includes assets pledged for
    derivatives at a fair value of $29,756 (amortized cost of
    $24,009).    At December 31, 2008Cost or


Gross


GrossAmortized


Unrealized


UnrealizedCost


Gains


Losses


Fair ValueFixed income securities:U.S. government and government agencies and authorities

$
136,551


$
32,879


$



$
169,430States, municipalities and political subdivisions


1,279,232



54,230



17,997



1,315,465Other corporate


50,331



2,603



4,495



48,439Total fixed income securities


1,466,114



89,712



22,492



1,533,334Equity securities  common stocks


1,106,098



29,422



115,366



1,020,154Total
    available-for-sale
    securities

$
2,572,212


$
119,134


$
137,858


$
2,553,488
     available-for-sale
 10




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##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
    (Unaudited, dollars in thousands)
     September 30, 2009


December 31, 2008Unrealized


Number of





Unrealized


Number ofFair Value


Loss


Securities


Fair Value


Loss


SecuritiesFixed income securities:Investment grade:U.S. government and government agencies and authorities:6 months or less

$



$







$



$




States, municipalities and political subdivisions:6 months or less


489



1



2



385,140



16,865



277  12 months














15,462



1,132



3Greater than 12 months


535



25



1











1,024



26



3



400,602



17,997



30Non-investment grade, other corporate:6 months or less














36,100



4,495



1Total fixed income securities


1,024



26



3



436,702



22,492



31Equity securities:6 months or less


269,892



7,684



4



519,602



115,366



147  12 months


21,441



132



1











Total equity securities


291,333



7,816



5



519,602



115,366



14Total securities in an unrealized loss position

$
292,357


$
7,842



8


$
956,304


$
137,858



45
     Unrealized Loss as a Percentage of CostGrossFair




















UnrealizedValue


0-10%


10-20%


20-30%


30-40%


40-50%


>50%


Losses6 months or less

$
269,892


$
1,567


$



$
1,507


$



$
4,610


$



$
7,6847  12 months


21,441



132























132Total equity securities fair value and gross unrealized losses

$
291,333


$
1,699


$



$
1,507


$



$
4,610


$



$
7,816Number of securities


5



3







1







1







5
  11




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##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
    (Unaudited, dollars in thousands)
    available-for-sale
    Fixed
    Income Securities Designated as
    Held-for-Trading
  held-for-trading 815-15, Embedded Derivatives Accounting for Certain Hybrid Financial
    Instruments  an Amendment of FASB Statements Nos. 133
    and 140 held-for-trading
  held-for-trading
 12




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##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
    (Unaudited, dollars in thousands)
  Investments
    at Equity
    Derivatives
    and Other Invested Assets
  Derivative
    Securities
  815-10, Derivatives and Hedging,
    September 30, 2009


December 31, 2008Notional





Fair Value


Notional





Fair ValueAmount


Cost


Asset


Amount


Cost


AssetCredit default swaps

$
1,597,093


$
21,624


$
23,116


$
3,044,313


$
42,477


$
138,830Total return swaps


452,319







2,611











Other
    derivatives1


101,201



10,225



1,903



1,114,201



10,225




     1
    
    At September 30, 2009, other
    derivatives are comprised of warrants. At December 31,
    2008, other derivatives are comprised of warrants and Eurodollar
    futures contracts, both of which had no fair value.  Credit
    Default Swaps
     13




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##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
    (Unaudited, dollars in thousands)
    NotionalAmount


Fair ValueExpiring in one year or less

$
713,918


$
2,136Expiring after 1 year through 5 years


883,175



20,980$
1,597,093


$
23,116
    14




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##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
    (Unaudited, dollars in thousands)
    As of and for the Three Months Ended September 30,
    2009Effect on Pre-taxNet RealizedOther


InvestmentExposure/


Carrying


Comprehensive


GainsNotional Value


Value


Income


(Losses)1


Net EquityCredit risk exposures:Fixed income securities

$
1,850,620


$
1,850,620


$
92,248


$
71,728


$
163,976Warrants


1,903



1,903







1,901



1,901Premiums receivable


167,086



167,086







(375
)


(375
)Reinsurance recoverable


905,967



905,967











Total credit risk exposure

$
2,925,576


$
2,925,576



92,248



73,254



165,502Hedging instruments:Derivatives:Credit default swaps

$
1,597,093


$
23,116







(19,504
)


(19,504
)Total hedging instruments

$
1,597,093


$
23,116







(19,504
)


(19,504
)Net exposure









$
92,248


$
53,750


$
145,998
     1
    
    Includes earnings charges for
    premiums receivable and reinsurance recoverable.  As of and for the Three Months Ended September 30,
    2008Effect on Pre-taxNet RealizedOther


InvestmentExposure/


Carrying


Comprehensive


GainsNotional  Value


Value


Income


(Losses)1


Net EquityCredit risk exposures:Fixed income securities

$
2,463,470


$
2,463,470


$
9,921


$
(26,671
)

$
(16,750
)Warrants


3,250



3,250







818



818Premiums receivable


187,166



187,166







(675
)


(675
)Reinsurance recoverable


1,025,144



1,025,144







(2,000
)


(2,000
)Total credit risk exposure

$
3,679,030


$
3,679,030



9,921



(28,528
)


(18,607
)Hedging instruments:Derivatives:Credit default swaps

$
3,731,964


$
244,258







119,316



119,316Eurodollar futures contracts


488,000











(196
)


(196
)Total hedging instruments

$
4,219,964


$
244,258







119,120



119,120Net exposure









$
9,921


$
90,592


$
100,513
     1
    
    Includes earnings charges for
    premiums receivable and reinsurance recoverable. 15




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##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
    (Unaudited, dollars in thousands)
   As of and for the Nine Months Ended September 30,
    2009Effect on Pre-taxNet RealizedOther


InvestmentExposure/


Carrying


Comprehensive


GainsNotional Value


Value


Income


(Losses)1


Net EquityCredit risk exposures:Fixed income securities

$
1,850,620


$
1,850,620


$
166,843


$
141,945


$
308,788Warrants


1,903



1,903







1,903



1,903Premiums receivable


167,086



167,086







(1,125
)


(1,125
)Reinsurance recoverable


905,967



905,967







(2,000
)


(2,000
)Total credit risk exposure

$
2,925,576


$
2,925,576



166,843



140,723



307,566Hedging instruments:Derivatives:Credit default swaps

$
1,597,093


$
23,116







(6,054
)


(6,054
)Eurodollar futures contracts














(343
)


(343
)Total hedging instruments

$
1,597,093


$
23,116







(6,397
)


(6,397
)Net exposure









$
166,843


$
134,326


$
301,169
     1
    
    Includes earnings charges for
    premiums receivable and reinsurance recoverable.  As of and for the Nine Months Ended September 30,
    2008Effect on Pre-taxNet RealizedOther


InvestmentExposure/


Carrying


Comprehensive


GainsNotional  Value


Value


Income


(Losses)1


Net EquityCredit risk exposures:Fixed income securities

$
2,463,470


$
2,463,470


$
(18,137
)

$
(13,416
)

$
(31,553
)Warrants


3,250



3,250







(2,652
)


(2,652
)Premiums receivable


187,166



187,166







575



575Reinsurance recoverable


1,025,144



1,025,144







(6,000
)


(6,000
)Total credit risk exposure

$
3,679,030


$
3,679,030



(18,137
)


(21,493
)


(39,630
)Hedging instruments:Derivatives:Credit default swaps

$
3,731,964


$
244,258







275,961



275,961Eurodollar futures contracts


488,000











(196
)


(196
)Total hedging instruments

$
4,219,964


$
244,258







275,765



275,765Net exposure









$
(18,137
)

$
254,272


$
236,135
     1
    
    Includes earnings charges for
    premiums receivable and reinsurance recoverable. 16




---



##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
    (Unaudited, dollars in thousands)
   Total
    Return Swaps
          As of and for the Three Months Ended September 30,
    2009Effect on Pre-taxNet RealizedOther


InvestmentExposure/


Carrying


Comprehensive


GainsNotional Value


Value


Income


(Losses)1


Net EquityEquity exposures:Equity securities

$
1,383,777


$
1,383,777


$
166,508


$
22,251


$
188,759Investments at equity


159,370



159,370



577



8,956



9,533Other invested assets


355,303



355,303







131,407



131,407Total equity exposure

$
1,898,450


$
1,898,450



167,085



162,614



329,699Hedging instruments:Derivatives:Total return swaps

$
452,319


$
2,611







2,611



2,611Total equity hedging instruments

$
452,319


$
2,611







2,611



2,611Net equity exposure









$
167,085


$
165,225


$
332,310
     1
    
    Includes earnings from investments
    at equity. 17




---



##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
    (Unaudited, dollars in thousands)
   As of and for the Three Months Ended September 30,
    2008Effect on Pre-taxNet RealizedOther


InvestmentExposure/


Carrying


Comprehensive


GainsNotional Value


Value


Income


(Losses)1


Net EquityEquity exposures:Equity securities

$
691,577


$
691,577


$
(41,309
)

$
(30,618
)

$
(71,927
)Investments at equity


126,713



126,713



(841
)


(15,072
)


(15,913
)Other invested assets


239,369



239,369







(41,575
)


(41,575
)Total equity exposure

$
1,057,659


$
1,057,659



(42,150
)


(87,265
)


(129,415
)Hedging instruments:Derivatives:Total return swaps

$
845,392


$
45,558







141,263



141,263S&P Index call options


310,464



1







(45
)


(45
)Total equity hedging instruments

$
1,155,856


$
45,559







141,218



141,218Net equity exposure









$
(42,150
)

$
53,953


$
11,803
     1
    
    Includes earnings from investments
    at equity.  As of and for the Nine Months Ended September 30,
    2009Effect on Pre-taxNet RealizedOther


InvestmentExposure/


Carrying


Comprehensive


GainsNotional Value


Value


Income


(Losses)1


Net EquityEquity exposures:Equity securities

$
1,383,777


$
1,383,777


$
322,728


$
(71,518
)

$
251,210Investments at equity


159,370



159,370



1,776



44,579



46,355Other invested assets


355,303



355,303







73,902



73,902Total equity exposure

$
1,898,450


$
1,898,450



324,504



46,963



371,467Hedging instruments:Derivatives:Total return swaps

$
452,319


$
2,611







2,611



2,611Total equity hedging instruments

$
452,319


$
2,611







2,611



2,611Net equity exposure









$
324,504


$
49,574


$
374,078
     1
    
    Includes earnings from investments
    at equity. 18




---



##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
    (Unaudited, dollars in thousands)
   As of and for the Nine Months Ended September 30,
    2008Effect on Pre-taxNet RealizedOther


InvestmentExposure/


Carrying


Comprehensive


GainsNotional Value


Value


Income


(Losses)1


Net EquityEquity exposures:Equity securities

$
691,577


$
691,577


$
(35,130
)

$
(71,696
)

$
(106,826
)Investments at equity


126,713



126,713



(28,626
)


(24,924
)


(53,550
)Other invested assets


239,369



239,369







(83,472
)


(83,472
)Total equity exposure

$
1,057,659


$
1,057,659



(63,756
)


(180,092
)


(243,848
)Hedging instruments:Derivatives:Total return swaps

$
845,392


$
45,558







153,060



153,060S&P Index call options


310,464



1







(498
)


(498
)SPDRs short-sales














65,506



65,506Common stock short-sales














4,749



4,749Total equity hedging instruments

$
1,155,856


$
45,559







222,817



222,817Net equity exposure









$
(63,756
)

$
47,275


$
(21,031
)
     1
    
    Includes earnings from investments
    at equity.  Other
    Derivatives
      Three Months Ended


Nine Months EndedSeptember 30,


September 30,2009


2008


2009


2008Credit default swaps

$
(19,504
)

$
119,316


$
(6,054
)

$
275,961Total return swaps


2,611



141,263



2,611



153,060SPDRs short-sales














65,506Common stock short-sales














4,749Other1


1,901



577



1,560



(3,346
)Total net realized investment (losses) gains

$
(14,992
)

$
261,156


$
(1,883
)

$
495,930
     1
    
    Other includes warrants, Eurodollar
    futures contracts and S&P Index call options. 19




---



##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
    (Unaudited, dollars in thousands)
   mark-to-market mark-to-market
  Three Months Ended September 30, 2009Credit


TotalDefault


Return


OtherSwaps


Swaps


Derivatives


TotalRealized gains on disposal

$



$



$



$
Reversal of
    mark-to-market
    gains recognized in prior periods














Mark-to-market
    (losses) gains recognized in period


(19,504
)


2,611



1,901



(14,992
)Net realized investment (losses) gains

$
(19,504
)

$
2,611


$
1,901


$
(14,992
)
   Three Months Ended September 30, 2008Credit


TotalDefault


Return


OtherSwaps1


Swaps


Derivatives


TotalRealized gains (losses) on disposal

$
107,710


$
110,119


$
(362
)

$
217,467Reversal of
    mark-to-market
    (gains) losses recognized in prior periods


(55,486
)


(14,414
)


362



(69,538
)Mark-to-market
    gains recognized in period


67,092



45,558



577



113,227Net realized investment gains

$
119,316


$
141,263


$
577


$
261,156
     1
    
    During the three months ended
    September 30, 2008, the Company sold credit default swaps
    with a cost of $12,869 and notional amount of $739,653 for
    proceeds of $120,579.  Nine Months Ended September 30, 2009Credit


TotalDefault


Return


OtherSwaps1


Swaps


Derivatives


TotalRealized gains (losses) on disposal

$
88,807


$



$
(343
)

$
88,464Reversal of
    mark-to-market
    gains recognized in prior periods


(60,119
)










(60,119
)Mark-to-market
    (losses) gains recognized in period


(34,742
)


2,611



1,903



(30,228
)Net realized investment (losses) gains

$
(6,054
)

$
2,611


$
1,560


$
(1,883
)
     1
    
    During the nine months ended
    September 30, 2009, the Company sold credit default swaps
    with a cost of $20,853 and notional amount of $1,387,500 for
    proceeds of $109,660. 20




---



##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
    (Unaudited, dollars in thousands)
   Nine Months Ended September 30, 2008CommonCredit


SPDRs


Total


StockDefault


Short-


Return


Short-


OtherSwaps1


Sales


Swaps


Sales


Derivatives


TotalRealized gains (losses) on disposal

$
257,228


$
(22,523
)

$
107,502


$
5,116


$
(1,977
)

$
345,346Reversal of
    mark-to-market
    (gains) losses recognized in prior periods


(125,975
)


88,029







(367
)


1,555



(36,758
)Mark-to-market
    gains (losses) recognized in period


144,708







45,558







(2,924
)


187,342Net realized investment gains (losses)

$
275,961


$
65,506


$
153,060


$
4,749


$
(3,346
)

$
495,930
     1
    
    During the nine months ended
    September 30, 2008, the Company sold credit default swaps
    with a cost of $33,128 and notional amount of $1,518,544 for
    proceeds of $290,356.  Other
    Invested Assets
  825-10, Financial Instruments The Fair Value Option for Financial Assets and
    Liabilities
  Regulation S-X.
  Three Months EndedSeptember 30,
    2009Total revenues

$
52,812Total expenses

$
38,320Income from continuing operations

$
14,492Net income

$
10,232
  21




---



##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
    (Unaudited, dollars in thousands)
  Related
    Party Transactions
          4.
    Fair
    Value Disclosures  Fair
    Value Hierarchy
  820-10, Fair Value Measurements and Disclosures, 820-10 820-10
           22




---



##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
    (Unaudited, dollars in thousands)
  over-the-counter
      September 30, 2009Quoted Prices in


Significant Other


SignificantActive Markets for


Observable


UnobservableIdentical Assets


Inputs


Inputs(Level 1)


(Level 2)


(Level 3)


TotalAssetsAvailable-for-sale
    fixed income securities:U.S. government and government agencies and authorities

$



$
97,289


$



$
97,289States, municipalities and political subdivisions






1,279,873
1






1,279,873Other corporate






138,456







138,456Total
    available-for-sale
    fixed income securities






1,515,618







1,515,618Fixed income securities,
    held-for-trading:Residential mortgage-backed






89,844



16,440



106,284Other corporate






228,718







228,718Total
    held-for-trading
    fixed income securities






318,562



16,440



335,002Equity securities


1,355,651



28,126







1,383,777Derivatives and other invested assets


333,457



49,476







382,933Short-term investments






30,971







30,971Total

$
1,689,108


$
1,942,753


$
16,440


$
3,648,301
     1
    
    Includes securities pledged for
    derivatives at a fair value of $29,756. 23




---



##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
    (Unaudited, dollars in thousands)
   December 31, 2008Quoted Prices in


Significant Other


SignificantActive Markets for


Observable


UnobservableIdentical Assets


Inputs


Inputs(Level 1)


(Level 2)


(Level 3)


TotalAssetsAvailable-for-sale
    fixed income securities:U.S. government and government agencies and authorities

$



$
169,430


$



$
169,430States, municipalities and political subdivisions






1,315,465







1,315,465Other corporate






48,439







48,439Total
    available-for-sale
    fixed income securities






1,533,334







1,533,334Fixed income securities,
    held-for-trading:Residential mortgage-backed










66,393



66,393Other corporate






167,605







167,605Total
    held-for-trading
    fixed income securities






167,605



66,393



233,998Equity securities


998,582



21,572







1,020,154Derivatives and other invested assets


262,310



164,064







426,374Short-term investments






549,937







549,937Total

$
1,260,892


$
2,436,512


$
66,393


$
3,763,797
       Three Months Ended


Nine Months EndedSeptember 30,


September 30,2009


2008


2009


2008Balance, beginning of period

$
21,913


$
2,498


$
66,393


$
2,500Purchases, issuances and settlements


(8,591
)


6,440



(10,026
)


6,440Transfers to Level 2










(47,611
)


Realized gains (losses) included in net income


3,118



186



7,684



184Balance, end of period

$
16,440


$
9,124


$
16,440


$
9,124Total gains for the period recognized in earnings attributable
    to the change in unrealized gains or losses relating to assets
    held at period end

$
4,498


$
186


$
5,471


$
184
  24




---



##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
    (Unaudited, dollars in thousands)
  Fair
    Value Option
  825-10, Financial Instruments 825-10 instrument-by-instrument
       25




---



##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
    (Unaudited, dollars in thousands)
   5.
    Unpaid
    Losses and Loss Adjustment Expenses    Three Months Ended


Nine Months EndedSeptember 30,


September 30,2009


2008


2009


2008Gross unpaid losses and LAE, beginning of period

$
2,806,683


$
3,119,544


$
2,987,803


$
3,178,506Less ceded unpaid losses and LAE


663,097



724,587



684,239



1,197,496Net unpaid losses and LAE, beginning of period


2,143,586



2,394,957



2,303,564



1,981,010Losses and LAE incurred related to:Current period


129,884



246,842



419,984



629,824Prior years


(6,934
)


(35,336
)


(28,709
)


37,038Total losses and LAE incurred


122,950



211,506



391,275



666,862Losses and LAE paid related to:Current period


49,559



69,761



122,997



155,373Prior years


118,806



137,497



473,671



93,294Total losses and LAE paid


168,365



207,258



596,668



248,667Net unpaid losses and LAE, end of period


2,098,171



2,399,205



2,098,171



2,399,205Add ceded unpaid losses and LAE


640,913



711,991



640,913



711,991Gross unpaid losses and LAE, end of period

$
2,739,084


$
3,111,196


$
2,739,084


$
3,111,196
       September 30,2009Ceded unpaid losses and LAE in the table above

$
640,913Reconciling items:Reinsurance receivable on paid losses and LAE


11,091Retroactive reinsurance recoverable


253,963Reinsurance recoverable on the consolidated balance sheet

$
905,967
  26




---



##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
    (Unaudited, dollars in thousands)
   6.
    Asbestos
    and Environmental Losses and Loss Adjustment Expenses      Three Months Ended


Nine Months EndedSeptember 30,


September 30,2009


2008


2009


2008AsbestosGross unpaid losses and allocated LAE (ALAE),
    beginning of period

$
380,196


$
421,617


$
387,224


$
428,139Less ceded unpaid losses and ALAE


113,671



82,349



85,336



94,497Net unpaid losses and ALAE, beginning of period


266,525



339,268



301,888



333,642Net losses and ALAE incurred


(13,750
)






(13,750
)


25,500Net paid losses and ALAE


(7,595
)


27,128



27,768



47,002Net unpaid losses and ALAE, end of period


260,370



312,140



260,370



312,140Add ceded unpaid losses and ALAE


98,458



83,488



98,458



83,488Gross unpaid losses and ALAE, end of period

$
358,828


$
395,628


$
358,828


$
395,628
     Three Months Ended


Nine Months EndedSeptember 30,


September 30,2009


2008


2009


2008EnvironmentalGross unpaid losses ALAE, beginning of period

$
104,962


$
109,740


$
107,948


$
117,768Less ceded unpaid losses and ALAE


29,665



30,887



28,969



32,725Net unpaid losses and ALAE, beginning of period


75,297



78,853



78,979



85,043Net losses and ALAE incurred














Net paid losses and ALAE


5,090



2,815



8,772



9,005Net unpaid losses and ALAE, end of period


70,207



76,038



70,207



76,038Add ceded unpaid losses and ALAE


23,188



28,550



23,188



28,550Gross unpaid losses and ALAE, end of period

$
93,395


$
104,588


$
93,395


$
104,588
    27




---



##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
    (Unaudited, dollars in thousands)
   7.
    Reinsurance    Three Months Ended


Nine Months EndedSeptember 30,


September 30,2009


2008


2009


2008Premiums written:Direct

$
188,738


$
224,533


$
628,593


$
777,357Assumed from other companies, pools or associations


8,200



7,142



24,753



16,550Ceded to other companies, pools or associations


(31,579
)


(35,962
)


(109,505
)


(107,260
)Net premiums written

$
165,359


$
195,713


$
543,841


$
686,647Premiums earned:Direct

$
209,655


$
260,031


$
674,113


$
852,646Assumed from other companies, pools or associations


8,372



7,444



25,653



17,552Ceded to other companies, pools or associations


(35,995
)


(34,497
)


(110,023
)


(102,528
)Premiums earned

$
182,032


$
232,978


$
589,743


$
767,670
     Three Months Ended


Nine Months EndedSeptember 30,


September 30,2009


2008


2009


2008Earned premiums ceded to reinsurers

$
(35,995
)

$
(34,497
)

$
(110,023
)

$
(102,528
)Commissions earned on ceded reinsurance premiums


6,991



8,163



24,558



22,287Claims incurred ceded to reinsurers


14,439



13,555



55,363



(45,549
)Provision for uncollectible reinsurance






(2,000
)


(2,000
)


(6,000
)Net impact of ceded reinsurance transactions

$
(14,565
)

$
(14,779
)

$
(32,102
)

$
(131,790
)
     September 30,


December 31,2009


2008Reinsurance recoverable on unpaid losses and LAE

$
894,876


$
949,364Reinsurance receivable on paid losses and LAE


11,091



18,853Total reinsurance recoverable

$
905,967


$
968,217
    28




---



##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
    (Unaudited, dollars in thousands)
  Corporate
    Aggregate Reinsurance
      Three Months Ended


Nine Months EndedSeptember 30,


September 30,2009


2008


2009


2008Funds held interest charged to investment income

$
(3,896
)

$
(3,862
)

$
(11,495
)

$
(11,394
)Losses and LAE


(3,720
)


(3,693
)


(11,162
)


(15,952
)1Decrease in income before income taxes

$
(176
)

$
(169
)

$
(333
)

$
4,558
     1
    
    For the nine months ended
    September 30, 2008, losses and LAE is comprised of a loss
    on commutation of $4,123 offset by $8,778 of unamortized
    deferred income released on commutation as well as $11,297 of
    recurring deferred income amortization.    Three Months Ended


Nine Months EndedSeptember 30,


September 30,2009


2008


2009


2008Increase in reinsurance recoverable due from insurers

$



$



$



$
Less: related premiums paid














Income deferred during the period














Amortization of deferred income


(3,720
)


(3,693
)


(11,162
)


(20,075
)Decrease in deferred income


(3,720
)


(3,693
)


(11,162
)


(20,075
)Deferred income on retroactive reinsurance  beginning
    of period


113,835



135,659



121,277



152,041Deferred income on retroactive reinsurance  end of
    period

$
110,115


$
131,966


$
110,115


$
131,966
     Form 10-K
 29




---



##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
    (Unaudited, dollars in thousands)
   8.
    Income
    Taxes    9.
    Commitments
    and Contingencies       30




---



##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
    (Unaudited, dollars in thousands)
   10.
    Segment
    Reporting    Three Months Ended


Nine Months EndedSeptember 30,


September 30,2009


2008


2009


2008General liability

$
35,245


$
45,661


$
111,412


$
152,225Workers compensation


46,556



55,332



141,193



173,685Commercial automobile


27,053



44,781



95,552



146,588Property


20,690



35,962



75,560



136,872Commercial multi-peril


18,442



19,687



57,162



60,461Accident and health


27,828



24,608



89,936



76,832Other1


6,218



6,947



18,928



21,007Total premiums earned

$
182,032


$
232,978


$
589,743


$
767,670
     1
    
    Other includes surety, homeowners
    and personal automobile lines of business.    Three Months Ended


Nine Months EndedSeptember 30,


September 30,2009


2008


2009


2008Amount


Ratio


Amount


Ratio


Amount


Ratio


Amount


RatioAccident year loss and LAE ratios:General liability

$
25,615



72.7
%

$
32,744



71.7
%

$
80,115



71.9
%

$
110,574



72.6
%Workers compensation


37,793



81.2
%


41,323



74.7
%


113,556



80.4
%


136,504



78.6
%Commercial automobile


19,627



72.6
%


32,589



72.8
%


70,007



73.3
%


107,605



73.4
%Property


14,184



68.6
%


107,991



300.3
%


54,140



71.7
%


175,849



128.5
%Commercial multi-peril


10,626



57.6
%


12,420



63.1
%


32,737



57.3
%


37,636



62.2
%Accident and health


19,380



69.6
%


16,576



67.4
%


61,849



68.8
%


52,313



68.1
%Other


2,659



42.8
%


3,199



46.0
%


7,580



40.0
%


9,343



44.5
%Total accident year losses and LAE


129,884



71.4
%


246,842



106.0
%


419,984



71.2
%


629,824



82.0
%Prior years loss development


(6,934
)


(3.8
)


(35,336
)


(15.2
)


(28,709
)


(4.8
)


37,038



4.9Calendar year losses and LAE

$
122,950



67.6
%

$
211,506



90.8
%

$
391,275



66.4
%

$
666,862



86.9
%
    31




---



##### Table of Contents



ITEM 2.  MANAGEMENTS
    DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
    OPERATIONS    Form 10-K
    Statements
    Regarding Forward-Looking Information
    
    Competitive conditions in the insurance market and the ability
    to attract and retain new business;
    Adverse effect of volatility in the global financial markets
    including changes in interest rates, credit spreads, foreign
    currency exchange rates and other factors;
    Current economic downturn;
    Insufficient loss reserves, including reserves for asbestos,
    environmental and other latent claims;
    Occurrence of natural or man-made catastrophic events;
    Inability to realize the Companys investment objectives;
    Inability to obtain reinsurance coverage on reasonable terms and
    prices, particularly property catastrophe reinsurance;
    Exposure to credit risk, in the event reinsurers or
    policyholders fail to pay the Company amounts owed to it;
    Lowering or loss of one of the Companys financial strength
    ratings;
    Loss of key producers;
    Changes in the business or regulatory environment in which the
    Company operates as a result of recent insurance industry
    investigations by government authorities and other parties;
    Exposure to emerging claims and coverage issues;
    Restrictions on the ability of the Companys insurance
    subsidiaries to pay dividends;
    Subordination of debt securities to the obligations and
    liabilities of the Companys insurance subsidiaries;
    Ability of Fairfax to determine the outcome of corporate action
    requiring stockholder approval;
    Changes in governmental regulations; and
    Exposure to credit risks on novated policies. 32




---



##### Table of Contents



Form 10-K Form 10-Q.
  Critical
    Accounting Policies and Estimates
      Form 10-K
  Unpaid
    Losses and Loss Adjustment Expenses
         33




---



##### Table of Contents



Investments
    820-10 ,
    Fair Value Measurements and Disclosures,
   34




---



##### Table of Contents



available-for-sale
      Reinsurance
    Recoverable
       35




---



##### Table of Contents



Deferred
    Income Tax Assets
    and/or
  available-for-sale
  740-10, Income Taxes Accounting for Income Taxes
  Summary
    of Operations
  Overview
       36




---



##### Table of Contents



Market
    Conditions
   37




---



##### Table of Contents



Results
    of Operations
    Three Months Ended


Nine Months EndedSeptember 30,


September 30,2009


2008


2009


2008Gross premiums written

$
196,938


$
231,675


$
653,346


$
793,907Net premiums written

$
165,359


$
195,713


$
543,841


$
686,647Premiums earned

$
182,032


$
232,978


$
589,743


$
767,670Losses and LAE


122,950



211,506



391,275



666,862Underwriting expenses


69,797



84,076



206,040



248,451Underwriting loss


(10,715
)


(62,604
)


(7,572
)


(147,643
)Investment income and net realized investment gains and losses


244,607



177,075



275,490



389,138Interest and other expense


8,667



9,447



24,137



25,131Costs related to early retirement of debt














392Income before income taxes and equity in earnings of investees


225,225



105,024



243,781



215,972Income tax expense


70,464



35,296



62,794



71,958Income before equity in earnings of investees


154,761



69,728



180,987



144,014Equity in earnings (losses) of investees, net of tax










79



(461
)Net income

$
154,761


$
69,728


$
181,066


$
143,553Loss and LAE ratio


67.6
%


90.8
%


66.4
%


86.9
%Underwriting expense ratio


38.3



36.1



34.9



32.3Combined ratio


105.9
%


126.9
%


101.3
%


119.2
%  38




---



##### Table of Contents



mark-to-market
   39




---



##### Table of Contents



Underwriting
    Results
  Gross
    Premiums Written
    Three Months Ended September 30,Increase/


Percent2009


2008


(Decrease)


ChangeGeneral liability

$
42,953


$
49,254


$
(6,301
)


(12.8)%Workers compensation


47,303



50,793



(3,490
)


(6.9)%Commercial automobile


18,452



36,864



(18,412
)


(49.9)%Property


19,060



31,858



(12,798
)


(40.2)%Commercial multi-peril


19,990



21,411



(1,421
)


(6.6)%Accident and health


41,812



33,077



8,735



26.4%Other1


7,368



8,418



(1,050
)


(12.5)%Total gross premiums written

$
196,938


$
231,675


$
(34,737
)


(15.0)%   Nine Months Ended September 30,Increase/


Percent2009


2008


(Decrease)


ChangeGeneral liability

$
146,312


$
172,768


$
(26,456
)


(15.3)%Workers compensation


149,268



158,433



(9,165
)


(5.8)%Commercial automobile


80,501



136,772



(56,271
)


(41.1)%Property


68,660



138,574



(69,914
)


(50.5)%Commercial multi-peril


61,349



63,764



(2,415
)


(3.8)%Accident and health


129,134



103,900



25,234



24.3%Other1


18,122



19,696



(1,574
)


(8.0)%Total gross premiums written

$
653,346


$
793,907


$
(140,561
)


(17.7)%     1
    
    Other includes surety, homeowners
    and personal automobile lines of business.     40




---



##### Table of Contents



Casualty
    Gross Premiums Written
      Property
    Gross Premiums Written
      Other
    Gross Premiums Written
    Net
    Premiums Written
    Premiums
    Earned
   41




---



##### Table of Contents



Losses
    and Loss Adjustment Expenses
        Underwriting
    Expenses
    Investment
    Results
    Three Months Ended


Nine Months EndedSeptember 30,


September 30,2009


2008


2009


2008Average investments, including cash and cash equivalents, at
    book
    value1

$
3,607,800


$
4,291,043


$
3,718,109


$
4,419,599Investment income

$
34,213


$
14,706


$
133,165


$
61,792Realized investment gains


210,394



162,369



142,325



327,346Pre-tax equity in earnings (losses) of investees










121



(709
)Change in unrealized investment gains (losses) and foreign
    currency translation


259,335



(32,229
)


491,349



(81,893
)Total return on investments

$
503,942


$
144,846


$
766,960


$
306,536Annualized total return on investments


55.9
%


13.5
%


27.5
%


9.2
%     1
    
    Includes book value of assets
    pledged for derivatives of $24,009 and $243,445 at
    September 30, 2009 and 2008, respectively. 42




---



##### Table of Contents



Investment
    Income
    Three Months Ended


Nine Months EndedSeptember 30,


September 30,2009


2008


2009


2008Interest on fixed income securities

$
25,310


$
28,092


$
78,900


$
78,779Dividends from equity securities


7,064



5,693



28,403



16,393Earnings (losses) from investments at equity and other invested
    assets


9,477



(13,810
)


46,152



(19,896
)Other, primarily interest on cash and cash equivalents


184



6,566



1,288



22,437Gross investment income


42,035



26,541



154,743



97,713Interest on funds held under reinsurance contracts


(3,897
)


(3,862
)


(11,496
)


(12,969
)Investment expenses


(3,925
)


(7,973
)


(10,082
)


(22,952
)Investment income

$
34,213


$
14,706


$
133,165


$
61,792    43




---



##### Table of Contents



Net
    Realized Investment Gains and Losses
    Three Months Ended


Nine Months EndedSeptember 30,


September 30,2009


2008


2009


2008Fixed income securities

$
71,728


$
(25,406
)

$
145,452


$
(12,151
)Equity securities


22,277



2,815



30,955



2,815Derivatives and short-sale obligations


(14,992
)


261,156



(1,883
)


495,930Investments at equity and other invested assets


131,407



(41,498
)


73,781



(83,472
)210,420



197,067



248,305



403,122Other than temporary impairment charges:Fixed income securities










(3,507
)


(1,265
)Equity securities


(26
)


(34,698
)


(102,473
)


(74,511
)(26
)


(34,698
)


(105,980
)


(75,776
)Total pre-tax net realized investment gains

$
210,394


$
162,369


$
142,325


$
327,346   mark-to-market mark-to-market held-for-trading
  mark-to-market mark-to-market held-for-trading
  Interest
    and Other Expense
   44




---



##### Table of Contents



Income
    Taxes
    Liquidity
    and Capital Resources
  Holding
    Company
          Insurance
    Subsidiaries
   45




---



##### Table of Contents



46




---



##### Table of Contents



Ratings
        ITEM 3.
    QUANTITATIVE
    AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK          Interest
    Rate Risk
    At September 30, 2009

At December 31, 2008Fair Value of





Fair Value ofFixed Income

Hypothetical

Hypothetical

Fixed Income

Hypothetical

HypotheticalSecurities

$ Change

% Change

Securities

$ Change

% Change200 basis point decline

$
2,133,324


$
282,704



15.3
%

$
2,106,515


$
339,183



19.2
%100 basis point decline

$
1,995,992


$
145,372



7.9
%

$
1,958,505


$
191,173



10.8
%Base scenario

$
1,850,620










$
1,767,332







100 basis point increase

$
1,730,619


$
(120,001
)


(6.5
)%

$
1,584,304


$
(183,028
)


(10.4
)%200 basis point increase

$
1,561,269


$
(289,351
)


(15.6
)%

$
1,425,703


$
(341,629
)


(19.3
)%  47




---



##### Table of Contents



Credit
    Risk
           48




---



##### Table of Contents



As of and for the Three Months Ended September 30,
    2009Effect on Pre-taxNet RealizedExposure/





Other


InvestmentNotional


Carrying


Comprehensive


GainsValue


Value


Income


(Losses)1


Net EquityCredit risk exposures:Fixed income securities

$
1,850,620


$
1,850,620


$
92,248


$
71,728


$
163.976Warrants


1.903



1,903







1,901



1,901Premiums receivable


167,086



167,086







(375
)


(375
)Reinsurance recoverable


905,967



905,967











Total credit risk exposure

$
2,925,576


$
2,925,576



92,248



73,254



165,502Hedging instruments:Derivatives:Credit default swaps

$
1,597,093


$
23,116







(19,504
)


(19,504
)Total hedging instruments

$
1,597,093


$
23,116







(19,504
)


(19,504
)Net exposure









$
92,248


$
53,750


$
145,998     1
    
    Includes earnings charges for
    uncollectible premiums receivable and reinsurance recoverable.  As of and for the Three Months Ended September 30,
    2008Effect on Pre-taxNet RealizedExposure/





Other


InvestmentNotional


Carrying


Comprehensive


GainsValue


Value


Income


(Losses)1


Net EquityCredit risk exposures:Fixed income securities

$
2,463,470


$
2,463,470


$
9,921


$
(26,671
)

$
(16,750
)Warrants


3,250



3,250







818



818Premiums receivable


187,166



187,166







(675
)


(675
)Reinsurance recoverable


1,025,144



1,025,144







(2,000
)


(2,000
)Total credit risk exposure

$
3,679,030


$
3,679,030



9,921



(28,528
)


(18,607
)Hedging instruments:Derivatives:Credit default swaps

$
3,731,964


$
244,258







119,316



119,316Eurodollar futures contracts


488,000











(196
)


(196
)Total hedging instruments

$
4,219,964


$
244,258







119,120



119,120Net exposure









$
9,921


$
90,592


$
100,513     1
    
    Includes earnings charges for
    uncollectible premiums receivable and reinsurance recoverable. 49




---



##### Table of Contents



As of and for the Nine Months Ended September 30,
    2009Effect on Pre-taxNet RealizedExposure/





Other


InvestmentNotional


Carrying


Comprehensive


GainsValue


Value


Income


(Losses)1


Net EquityCredit risk exposures:Fixed income securities

$
1,850,620


$
1,850,620


$
166,843


$
141,945


$
308,788Warrants


1,903



1,903







1,903



1,903Premiums receivable


167,086



167,086







(1,125
)


(1,125
)Reinsurance recoverable


905,967



905,967







(2,000
)


(2,000
)Total credit risk exposure

$
2,925,576


$
2,925,576



166,843



140,723



307,566Hedging instruments:Derivatives:Credit default swaps

$
1,597,093


$
23,116







(6,054
)


(6,054
)Eurodollar futures contracts














(343
)


(343
)Total hedging instruments

$
1,597,093


$
23,116







(6,397
)


(6,397
)Net exposure









$
166,843


$
134,326


$
301,169     1
    
    Includes earnings charges for
    uncollectible premiums receivable and reinsurance recoverable.  As of and for the Nine Months Ended September 30,
    2008Effect on Pre-taxNet RealizedExposure/





Other


InvestmentNotional


Carrying


Comprehensive


GainsValue


Value


Income


(Losses)1


Net EquityCredit risk exposures:Fixed income securities

$
2,463,470


$
2,463,470


$
(18,137
)

$
(13,416
)

$
(31,553
)Warrants


3,250



3,250







(2,652
)


(2,652
)Premiums receivable


187,166



187,166







575



575Reinsurance recoverable


1,025,144



1,025,144







(6,000
)


(6,000
)Total credit risk exposure

$
3,679,030


$
3,679,030



(18,137
)


(21,493
)


(39,630
)Hedging instruments:Derivatives:Credit default swaps

$
3,731,964


$
244,258







275,961



275,961Eurodollar futures contracts


488,000











(196
)


(196
)Total hedging instruments

$
4,219,964


$
244,258







275,765



275,765Net exposure









$
(18,137
)

$
254,272


$
236,135     1
    
    Includes earnings charges for
    uncollectible premiums receivable and reinsurance recoverable. 50




---



##### Table of Contents



Equity
    Price Risk
  available-for-sale 825-10, Financial Instruments The Fair Value Option for Financial Assets and
    Liabilities
        As of and for the Three Months Ended September 30,
    2009Effect on Pre-taxNet RealizedExposure/





Other


InvestmentNotional


Carrying


Comprehensive


GainsValue


Value


Income


(Losses)1


Net EquityEquity exposures:Equity securities

$
1,383,777


$
1,383,777


$
166,508


$
22,251


$
188,759Investments at equity


159,370



159,370



577



8,956



9,533Other invested assets


355,303



355,303







131,407



131,407Total equity exposure

$
1,898,450


$
1,898,450



167,085



162,614



329,699Hedging instruments:Derivatives:Total return swaps

$
452,319


$
2,611







2,611



2,611Total equity hedging instruments

$
452,319


$
2,611







2,611



2,611Net equity exposure









$
167,085


$
165,225


$
332,310     1
    
    Includes earnings from investments
    at equity. 51




---



##### Table of Contents



As of and for the Three Months Ended September 30,
    2008Effect on Pre-taxNet RealizedExposure/





Other


InvestmentNotional


Carrying


Comprehensive


GainsValue


Value


Income


(Losses)1


Net EquityEquity exposures:Equity securities

$
691,577


$
691,577


$
(41,309
)

$
(30,618
)

$
(71,927
)Investments at equity


126,713



126,713



(841
)


(15,072
)


(15,913
)Other invested assets


239,369



239,369







(41,575
)


(41,575
)Total equity exposure

$
1,057,659


$
1,057,659



(42,150
)


(87,265
)


(129,415
)Hedging instruments:Derivatives:Total return swaps

$
845,392


$
45,558







141,263



141,263S&P Index call options


310,464



1







(45
)


(45
)Total equity hedging instruments

$
1,155,856


$
45,559







141,218



141,218Net equity exposure









$
(42,150
)

$
53,953


$
11,803     1
    
    Includes earnings from investments
    at equity.  As of and for the Nine Months Ended September 30,
    2009Effect on Pre-taxNet RealizedExposure/





Other


InvestmentNotional


Carrying


Comprehensive


GainsValue


Value


Income


(Losses)1


Net EquityEquity exposures:Equity securities

$
1,383,777


$
1,383,777


$
322,728


$
(71,518
)

$
251,210Investments at equity


159,370



159,370



1,776



44,579



46,355Other invested assets


355,303



355,303







73,902



73,902Total equity exposure

$
1,898,450


$
1,898,450



324,504



46,963



371,467Hedging instruments:Derivatives:Total return swaps

$
452,319


$
2,611







2,611



2,611Total equity hedging instruments

$
452,319


$
2,611







2,611



2,611Net equity exposure









$
324,504


$
49,574


$
374,078     1
    
    Includes earnings from investments
    at equity. 52




---



##### Table of Contents



As of and for the Nine Months Ended September 30,
    2008Effect on Pre-taxNet RealizedExposure/





Other


InvestmentNotional


Carrying


Comprehensive


GainsValue


Value


Income


(Losses)1


Net EquityEquity exposures:Equity securities

$
691,577


$
691,577


$
(35,130
)

$
(71,696
)

$
(106,826
)Investments at equity


126,713



126,713



(28,626
)


(24,924
)


(53,550
)Other invested assets


239,369



239,369







(83,472
)


(83,472
)Total equity exposure

$
1,057,659


$
1,057,659



(63,756
)


(180,092
)


243,848Hedging instruments:Derivatives:Total return swaps

$
845,392


$
45,558







153,060



153,060S&P Index call options


310,464



1







(498
)


(498
)SPDRs short-sales














65,506



65,506Common stock short-sales














4,749



4,749Total equity hedging instruments

$
1,155,856


$
45,559







222,817



222,817Net equity exposure









$
(63,756
)

$
47,275


$
(21,031
)     1
    
    Includes earnings from investments
    at equity.  Foreign
    Currency Exchange Rate Risk
    ITEM 4T.
    CONTROLS
    AND PROCEDURES  Evaluation
    of Disclosure Controls and Procedures
  Rules 13a-15(e) 15d-15(e)
  Internal
    Control Over Financial Reporting
     53




---



##### Table of Contents



PART II
    OTHER INFORMATION ITEM 1.
    LEGAL
    PROCEEDINGS        ITEM 5.
    OTHER
    INFORMATION  Changes
    to Board of Directors and Audit Committee
  Form 8-K
  ITEM 6.
    EXHIBITS   54




---



##### Table of Contents



SIGNATURES    CRUM & FORSTER HOLDINGS CORP.
    (Registrant)
  Date: October 29, 2009

By:  /s/  Douglas
    M. LibbyDouglas
    M. Libby
    President and Chief Executive Officer   Date: October 29, 2009

By:  /s/  Mary
    Jane RobertsonMary
    Jane Robertson
    Executive Vice President, Chief
    Financial Officer and Treasurer  55




---



##### Table of Contents



INDEX TO
    EXHIBITS  Exhibit No.*  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, 2008 filed with the
    Securities and Exchange Commission on February 27, 2009).     *
    
    Filed herewith 56