##### 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: March 31, 2007
 Commission File Number: 333-84068
 
 Crum & Forster Holdings Corp.
 (Exact Name of Registrant as Specified in its Charter)
 Delaware
    
    04-3611900(State or Other Jurisdiction of
    
    (I.R.S. Employer Identification Number)Incorporation or Organization)
 305 Madison Avenue, Morristown, New Jersey 07962
 Address of principal executive office
 (973) 490-6600  (Registrants telephone number, including area code)
 o þ
  o o þ
 o þ
  Class
    
    Number of Shares Outstanding at May 3, 2007Common Stock, $.01 Par Value
    
    100




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##### 



CRUM & FORSTER HOLDINGS CORP.
 Form 10-Q
 Index
 PageNumberPART I 
FINANCIAL INFORMATIONITEM 1.
    
    FINANCIAL STATEMENTSConsolidated Balance Sheets at March 31, 2007 and December 31, 2006 (Unaudited)
    
    
    3Consolidated Statements of Income for the Three Months Ended March 31, 2007 and 2006 (Unaudited)
    
    
    4Consolidated Statements of Shareholders Equity for the Three Months Ended March 31, 2007 and 2006 (Unaudited)
    
    
    5Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2007 and 2006 (Unaudited)
    
    
    6Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2007 and 2006 (Unaudited)
    
    
    7Notes to Consolidated Financial Statements
    
    
    8ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
    
    
    17ITEM 3.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    27ITEM 4.
    
    CONTROLS AND PROCEDURES
    
    
    28PART IIOTHER INFORMATIONITEM 1.
    
    LEGAL PROCEEDINGS
    
    
    28ITEM 5.
    
    OTHER INFORMATION
    
    
    29ITEM 6.
    
    EXHIBITS
    
    
    29SIGNATURES
    
    
    30INDEX TO EXHIBITSEX-10.40EX-10.41EX-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)
 March 31,
    
    
    December 31,2007
    
    
    2006ASSETSInvestments:Fixed income securities, at fair value (amortized cost of $2,050,114 and $2,087,065 in 2007
and 2006, respectively)
    
    $
    1,926,729
    
    
    $
    1,984,242Equity securities, at fair value (cost of $668,479 and $640,880 in 2007 and 2006, respectively)
    
    
    693,341
    
    
    
    667,718Other invested assets
    
    
    356,304
    
    
    
    357,849Hybrid financial instruments, at fair value
    
    
    144,763
    
    
    
    Short-term investments at cost, which approximates fair value
    
    
    51,143
    
    
    
    14,130Total investments
    
    
    3,172,280
    
    
    
    3,023,939Cash and cash equivalents
    
    
    217,929
    
    
    
    366,743Assets pledged for short-sale obligations
    
    
    532,990
    
    
    
    535,594Accrued investment income
    
    
    19,750
    
    
    
    34,581Premiums receivable
    
    
    240,235
    
    
    
    249,913Reinsurance recoverable
    
    
    1,437,911
    
    
    
    1,479,331Reinsurance recoverable from affiliates
    
    
    256,896
    
    
    
    254,595Prepaid reinsurance premiums
    
    
    23,846
    
    
    
    25,430Deferred income taxes
    
    
    283,509
    
    
    
    285,902Deferred policy acquisition costs
    
    
    82,730
    
    
    
    83,964Other assets
    
    
    84,595
    
    
    
    103,562Total assets
    
    $
    6,352,671
    
    
    $
    6,443,554LIABILITIESUnpaid losses and loss adjustment expenses
    
    $
    3,364,042
    
    
    $
    3,371,549Unearned premiums
    
    
    563,338
    
    
    
    576,182Funds held under reinsurance contracts
    
    
    244,124
    
    
    
    243,316Accounts payable and other liabilities
    
    
    252,144
    
    
    
    298,101Deferred income on retroactive insurance
    
    
    164,631
    
    
    
    168,018Short-sale obligations
    
    
    400,685
    
    
    
    400,163Long-term debt
    
    
    293,359
    
    
    
    293,170Total liabilities
    
    
    5,282,323
    
    
    
    5,350,499Commitments and contingencies (Note 7)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 loss, net of tax
    
    
    (51,985
    )
    
    
    (36,978
    )Retained earnings
    
    
    381,340
    
    
    
    389,040Total shareholders equity
    
    
    1,070,348
    
    
    
    1,093,055Total liabilities and shareholders equity
    
    $
    6,352,671
    
    
    $
    6,443,554
 The accompanying notes are an integral part of the consolidated financial statements.
 3




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CRUM & FORSTER HOLDINGS CORP.
 
 CONSOLIDATED STATEMENTS OF INCOME
 (Dollars in thousands)
 (Unaudited)
 Three MonthsEnded March 31,2007
    
    
    2006REVENUESPremiums earned
    
    $
    293,707
    
    
    $
    246,719Investment income
    
    
    35,413
    
    
    
    56,458Realized investment gains
    
    
    14,474
    
    
    
    121,822Total revenues
    
    
    343,594
    
    
    
    424,999EXPENSESLosses and loss adjustment expenses
    
    
    193,460
    
    
    
    169,012Policy acquisition costs
    
    
    42,977
    
    
    
    31,233Other underwriting expenses
    
    
    41,777
    
    
    
    39,025Interest expense
    
    
    8,260
    
    
    
    8,241Other (income) expense
    
    
    (775
    )
    
    
    2,664Total expenses
    
    
    285,699
    
    
    
    250,175Income before income taxes and equity in earnings of investees
    
    
    57,895
    
    
    
    174,824Income tax expense
    
    
    19,407
    
    
    
    60,320Income before equity in earnings of investees
    
    
    38,488
    
    
    
    114,504Equity in earnings of investees, net of tax
    
    
    4,365
    
    
    
    1,859NET INCOME
    
    $
    42,853
    
    
    $
    116,363
 The accompanying notes are an integral part of the consolidated financial statements.
 4




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CRUM & FORSTER HOLDINGS CORP.
 
 CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
 (Dollars in thousands)
 (Unaudited)
 Three Months EndedMarch 31,2007
    
    
    2006COMMON STOCKBalance, beginning and end of period
    
    $
    
    
    
    $
    ADDITIONAL PAID-IN CAPITALBalance, beginning and end of period
    
    
    740,993
    
    
    
    740,993ACCUMULATED OTHER COMPREHENSIVE LOSS, NET OF TAXBalance, beginning of period
    
    
    (36,978
    )
    
    
    53,443Cumulative effect of adoption of Statement of Financial Accounting Standards No. 155
    
    
    (10,447
    )
    
    
    Unrealized investment losses, net of transfers to realized investment gains and losses
    
    
    (5,539
    )
    
    
    (88,775
    )Foreign currency translation
    
    
    979
    
    
    
    262Balance, end of period
    
    
    (51,985
    )
    
    
    (35,070
    )RETAINED EARNINGSBalance, beginning of period
    
    
    389,040
    
    
    
    166,757Cumulative effect of adoption of Statement of Financial Accounting Standards No. 155
    
    
    10,447
    
    
    
    Net income
    
    
    42,853
    
    
    
    116,363Dividend to shareholder
    
    
    (61,000
    )
    
    
    (80,000
    )Balance, end of period
    
    
    381,340
    
    
    
    203,120TOTAL SHAREHOLDERS EQUITY
    
    $
    1,070,348
    
    
    $
    909,043
 The accompanying notes are an integral part of the consolidated financial statements.
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CRUM & FORSTER HOLDINGS CORP.
 
 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
 (Dollars in thousands)
 (Unaudited)
 Three Months EndedMarch 31,2007
    
    
    2006NET INCOME
    
    $
    42,853
    
    
    $
    116,363Change in components of other comprehensive loss for the period, before tax:Unrealized investment losses, net of transfers to realized investment gains and losses
    
    
    (8,521
    )
    
    
    (136,578
    )Foreign currency translation
    
    
    1,506
    
    
    
    403Other comprehensive loss for the period, before tax
    
    
    (7,015
    )
    
    
    (136,175
    )Deferred income tax benefit (expense) for the period:Deferred income tax benefit from unrealized investment losses
    
    
    2,982
    
    
    
    47,803Deferred income tax expense from foreign currency translation
    
    
    (527
    )
    
    
    (141
    )Total deferred income tax benefit for the period
    
    
    2,455
    
    
    
    47,662Other comprehensive loss for the period, net of tax
    
    
    (4,560
    )
    
    
    (88,513
    )COMPREHENSIVE INCOME
    
    $
    38,293
    
    
    $
    27,850
 The accompanying notes are an integral part of the consolidated financial statements
 6




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CRUM & FORSTER HOLDINGS CORP.
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Dollars in thousands)
 (Unaudited)
 Three Months EndedMarch 31,2007
    
    
    2006OPERATING ACTIVITIESNet income
    
    $
    42,853
    
    
    $
    116,363Adjustments to reconcile net income to net cash from operating activities:Net accretion of discount on fixed income securities
    
    
    (1,895
    )
    
    
    (2,141
    )Realized investment gains
    
    
    (14,474
    )
    
    
    (121,822
    )Earnings of equity method investees, net of dividends
    
    
    (5,438
    )
    
    
    (1,605
    )Undistributed income of investment funds
    
    
    (3,125
    )
    
    
    (25,152
    )Depreciation and amortization
    
    
    88
    
    
    
    816Deferred income tax expense (benefit)
    
    
    4,849
    
    
    
    (9,701
    )Other non-cash net income adjustments
    
    
    3,515
    
    
    
    4,199Changes in:Accrued investment income
    
    
    14,831
    
    
    
    19,090Premiums receivable
    
    
    8,928
    
    
    
    (27,044
    )Reinsurance recoverable
    
    
    33,775
    
    
    
    43,717Prepaid reinsurance premiums
    
    
    1,584
    
    
    
    (762
    )Deferred policy acquisition costs
    
    
    1,234
    
    
    
    (7,219
    )Other assets
    
    
    (53
    )
    
    
    7,419Unpaid losses and loss adjustment expenses
    
    
    (7,507
    )
    
    
    (32,065
    )Unearned premiums
    
    
    (12,844
    )
    
    
    49,387Accounts payable and other liabilities
    
    
    (39,099
    )
    
    
    13,795Net cash from operating activities
    
    
    27,222
    
    
    
    27,275INVESTING ACTIVITIESPurchases of fixed income securities
    
    
    (142,979
    )
    
    
    (85,245
    )Proceeds from sales of fixed income securities
    
    
    82,017
    
    
    
    174,621Purchases of equity securities
    
    
    (35,146
    )
    
    
    (134,811
    )Proceeds from sales of equity securities
    
    
    1,294
    
    
    
    197,149Purchases of other invested assets
    
    
    (24,038
    )
    
    
    (546
    )Proceeds from sales of other invested assets
    
    
    39,145
    
    
    
    3,371Purchases of short term investments
    
    
    (56,135
    )
    
    
    Proceeds from sales of short term investments
    
    
    19,122
    
    
    
    Cash pledged for short-sale obligations
    
    
    1,632
    
    
    
    (34,252
    )Proceeds from/(purchases of) fixed assets
    
    
    52
    
    
    
    (209
    )Net cash from investing activities
    
    
    (115,036
    )
    
    
    120,078FINANCING ACTIVITIESDividend to shareholder
    
    
    (61,000
    )
    
    
    (80,000
    )Net cash from financing activities
    
    
    (61,000
    )
    
    
    (80,000
    )Net change in cash and cash equivalents
    
    
    (148,814
    )
    
    
    67,353Cash and cash equivalents, beginning of period
    
    
    366,743
    
    
    
    245,441Cash and cash equivalents, end of period
    
    $
    217,929
    
    
    $
    312,794SUPPLEMENTAL CASH FLOW INFORMATIONCash paid for interest
    
    $
    
    
    
    $
    Cash paid to parent for income taxes
    
    $
    32,804
    
    
    $
    23,168
 The accompanying notes are an integral part of the consolidated financial statements
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited, dollars in thousands)
 1. Organization and Basis of Presentation
      8




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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited, dollars in thousands)
 2.
Recent Accounting Pronouncements
 The Fair Value Option for Financial Assets
and Financial Liabilities  Including an Amendment of FASB Statement No. 115
 Fair Value Measurements
 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 Nos. 133 and 140
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited, dollars in thousands)
 3. Unpaid Losses and Loss Adjustment Expenses
  Three Months EndedMarch 31,2007
    
    
    2006Gross unpaid losses and LAE, beginning of period
    
    $
    3,371,549
    
    
    $
    3,673,034Less ceded unpaid losses and LAE
    
    
    1,355,253
    
    
    
    1,682,768Net unpaid losses and LAE, beginning of period
    
    
    2,016,296
    
    
    
    1,990,266Losses and LAE incurred related to:Current period
    
    
    205,947
    
    
    
    171,445Prior years
    
    
    (12,487
    )
    
    
    (2,433
    )Total losses and LAE incurred
    
    
    193,460
    
    
    
    169,012Losses and LAE paid related to:Current period
    
    
    15,621
    
    
    
    8,106Prior years
    
    
    165,171
    
    
    
    157,176Total losses and LAE paid
    
    
    180,792
    
    
    
    165,282Net unpaid losses and LAE, end of period
    
    
    2,028,964
    
    
    
    1,993,996Add ceded unpaid losses and LAE
    
    
    1,335,078
    
    
    
    1,646,972Gross unpaid losses and LAE, end of period
    
    $
    3,364,042
    
    
    $
    3,640,968
  March 31,2007Ceded unpaid losses and LAE in the table above
    
    $
    1,335,078Reconciling items:Reinsurance recoverable on paid losses and LAE
    
    
    55,376Unamortized retroactive reinsurance recoverable
    
    
    325,863Loss sensitive cession1
    
    
    (21,510
    )Total reconciling items
    
    
    359,729Reinsurance recoverable on the consolidated balance sheet
    
    $
    1,694,807
 1
    
    Equals additional premiums due on retrospectively rated insurance
policies that inure to the benefit of the reinsurer.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited, dollars in thousands)
 4. Asbestos and Environmental Losses and Loss Adjustment Expenses
  Three Months EndedMarch 31,2007
    
    
    2006AsbestosGross unpaid losses and allocated LAE (ALAE), beginning of period
    
    $
    443,055
    
    
    $
    469,199Less ceded unpaid losses and ALAE
    
    
    94,817
    
    
    
    92,418Net unpaid losses and ALAE, beginning of period
    
    
    348,238
    
    
    
    376,781Net losses and ALAE incurred
    
    
    
    
    
    
    Net paid losses and ALAE
    
    
    7,207
    
    
    
    9,598Net unpaid losses and ALAE, end of period
    
    
    341,031
    
    
    
    367,183Add ceded unpaid losses and ALAE
    
    
    88,565
    
    
    
    93,895Gross unpaid losses and ALAE, end of period
    
    $
    429,596
    
    
    $
    461,078
 2007
    
    
    2006EnvironmentalGross unpaid losses and ALAE, beginning of period
    
    $
    110,636
    
    
    $
    111,536Less ceded unpaid losses and ALAE
    
    
    37,103
    
    
    
    37,293Net unpaid losses and ALAE, beginning of period
    
    
    73,533
    
    
    
    74,243Net losses and ALAE incurred
    
    
    
    
    
    
    Net paid losses and ALAE
    
    
    936
    
    
    
    1,768Net unpaid losses and ALAE, end of period
    
    
    72,597
    
    
    
    72,475Add ceded unpaid losses and ALAE
    
    
    33,476
    
    
    
    35,334Gross unpaid losses and ALAE, end of period
    
    $
    106,073
    
    
    $
    107,809
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited, dollars in thousands)
 5. Reinsurance
  Three Months EndedMarch 31,2007
    
    
    2006Premiums written:Direct
    
    $
    315,800
    
    
    $
    310,368Assumed from other companies, pools and associations
    
    
    11,131
    
    
    
    36,833Ceded to other companies, pools and associations
    
    
    (44,484
    )
    
    
    (51,857
    )Net premiums written
    
    $
    282,447
    
    
    $
    295,344Premiums earned:Direct
    
    $
    309,445
    
    
    $
    282,683Assumed from other companies, pools and associations
    
    
    30,330
    
    
    
    14,967Ceded to other companies, pools and associations
    
    
    (46,068
    )
    
    
    (50,931
    )Premiums earned
    
    $
    293,707
    
    
    $
    246,719
  March 31,
    
    
    December 31,2007
    
    
    2006Reinsurance recoverable on unpaid losses and LAE
    
    $
    1,639,431
    
    
    $
    1,662,993Reinsurance receivable on paid losses and LAE
    
    
    55,376
    
    
    
    70,933Total reinsurance recoverable
    
    $
    1,694,807
    
    
    $
    1,733,926
  Corporate aggregate reinsurance
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited, dollars in thousands)
  Three Months EndedMarch 31,2007
    
    
    2006Investment income
    
    $
    (4,152
    )
    
    $
    (4,818
    )Losses and LAE
    
    
    (3,387
    )
    
    
    (3,379
    )Income before income taxes
    
    $
    (765
    )
    
    $
    (1,439
    )
  Prospective corporate aggregate reinsurance
  Three Months EndedMarch 31,2007
    
    
    2006Ceded losses and LAE
    
    $
    
    
    
    $
    Less: funds held interest charged to investment income
    
    
    631
    
    
    
    909Decrease in income before income taxes
    
    $
    (631
    )
    
    $
    (909
    )
  Retroactive corporate aggregate reinsurance
  Three Months EndedMarch 31,2007
    
    
    2006Increase in reinsurance recoverable due from insurers
    
    $
    
    
    
    $
    Less: related premiums paid
    
    
    
    
    
    
    Income deferred during the period
    
    
    
    
    
    
    Amortization of deferred income
    
    
    (3,387
    )
    
    
    (3,379
    )Decrease in deferred income
    
    
    (3,387
    )
    
    
    (3,379
    )Deferred income on retroactive reinsurancebeginning of period
    
    
    168,018
    
    
    
    184,498Deferred income on retroactive reinsuranceend of period
    
    $
    164,631
    
    
    $
    181,119Funds held interest charged to investment income
    
    $
    3,521
    
    
    $
    3,909
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited, dollars in thousands)
 6. Investments
 Derivative transactions and short-sale obligations
      Three Months EndedMarch 31,2007
    
    
    2006Credit default swaps
    
    $
    10,669
    
    
    $
    (6,859
    )Short-sale transactions and related options
    
    
    (4,325
    )
    
    
    (15,356
    )Hybrid financial instruments
    
    
    (3,488
    )
    
    
    Warrants, swaps and other derivatives
    
    
    (1,236
    )
    
    
    (342
    )Realized investment gains (losses)
    
    $
    1,620
    
    
    $
    (22,557
    )
  Other investment transactions
  14




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




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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited, dollars in thousands)
 8. Segment Reporting
  Three Months EndedMarch 31,2007
    
    
    2006Property
    
    $
    70,039
    
    
    $
    48,785Workers compensation
    
    
    63,843
    
    
    
    74,800General liability
    
    
    61,750
    
    
    
    53,029Commercial automobile
    
    
    53,845
    
    
    
    49,862Commercial multi-peril
    
    
    16,670
    
    
    
    12,340Other
    
    
    27,560
    
    
    
    7,903Total premiums earned
    
    $
    293,707
    
    
    $
    246,719
  Three Months EndedMarch 31,2007
    
    
    2006Amount
    
    
    Ratio
    
    
    Amount
    
    
    RatioAccident
year losses and LAE:Property
    
    $
    47,198
    
    
    
    67.4
    %
    
    $
    30,837
    
    
    
    63.2
    %Workers compensation
    
    
    53,946
    
    
    
    84.5
    %
    
    
    60,131
    
    
    
    80.4
    %General liability
    
    
    44,067
    
    
    
    71.4
    %
    
    
    40,082
    
    
    
    75.6
    %Commercial automobile
    
    
    35,335
    
    
    
    65.6
    %
    
    
    30,528
    
    
    
    61.2
    %Commercial multi-peril
    
    
    9,862
    
    
    
    59.2
    %
    
    
    7,481
    
    
    
    60.6
    %Other
    
    
    15,539
    
    
    
    56.4
    %
    
    
    2,386
    
    
    
    30.2
    %Total accident year losses and LAE
    
    
    205,947
    
    
    
    70.1
    %
    
    
    171,445
    
    
    
    69.5
    %Prior years loss development
    
    
    (12,487
    )
    
    
    (4.2
    )
    
    
    (2,433
    )
    
    
    (1.0
    )Calendar year losses and LAE
    
    $
    193,460
    
    
    
    65.9
    %
    
    $
    169,012
    
    
    
    68.5
    %
  9. Subsequent Event
    16




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##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
    Statements Regarding Forward-Looking Information
  
    
    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, particularly
property catastrophe reinsurance;
    
    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 fail to pay the Company amounts owed to it ;
    
    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.
 17




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##### Table of Contents



Critical Accounting Policies and Estimates
    Unpaid losses and loss adjustment expenses
     18




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##### Table of Contents



Other than temporary declines in value of investments
   Insurance Subsidiaries
 Reinsurance recoverable
    Deferred income tax assets
   19




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##### Table of Contents



Summary of Operations
       20




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##### Table of Contents



21




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##### Table of Contents



Results of Operations
  Three Months EndedMarch 31,2007
    
    
    2006Gross premiums written
    
    $
    326,931
    
    
    $
    347,201Net premiums written
    
    $
    282,447
    
    
    $
    295,344Premiums earned
    
    $
    293,707
    
    
    $
    246,719Losses and LAE
    
    
    193,460
    
    
    
    169,012Underwriting expenses
    
    
    84,754
    
    
    
    70,258Underwriting income
    
    
    15,493
    
    
    
    7,449Investment income and realized investment gains and losses
    
    
    49,887
    
    
    
    178,280Interest and other expense
    
    
    7,485
    
    
    
    10,905Income before income taxes and equity in earnings of investees
    
    
    57,895
    
    
    
    174,824Income tax expense
    
    
    19,407
    
    
    
    60,320Income before equity in earnings of investees
    
    
    38,488
    
    
    
    114,504Equity in earnings of investees, net of tax
    
    
    4,365
    
    
    
    1,859Net income
    
    $
    42,853
    
    
    $
    116,363Loss and LAE ratio
    
    
    65.9
    %
    
    
    68.5
    %Underwriting expense ratio
    
    
    28.8
    
    
    
    28.5Combined ratio
    
    
    94.7
    %
    
    
    97.0
    %
  Underwriting results
 Gross premiums written
  Three Months Ended March 31,Increase/
    
    
    Percent2007
    
    
    2006
    
    
    (Decrease)
    
    
    ChangeProperty
    
    $
    82,980
    
    
    $
    87,101
    
    
    $
    (4,121
    )
    
    
    (4.7
    )%Workers compensation
    
    
    66,848
    
    
    
    82,594
    
    
    
    (15,746
    )
    
    
    (19.1
    )%General liability
    
    
    76,983
    
    
    
    82,724
    
    
    
    (5,741
    )
    
    
    (6.9
    )%Commercial automobile
    
    
    54,137
    
    
    
    65,469
    
    
    
    (11,332
    )
    
    
    (17.3
    )%Commercial multi-peril
    
    
    14,350
    
    
    
    17,222
    
    
    
    (2,872
    )
    
    
    (16.7
    )%Other
    
    
    31,633
    
    
    
    12,091
    
    
    
    19,542
    
    
    
    161.6
    %Total gross premiums written
    
    $
    326,931
    
    
    $
    347,201
    
    
    $
    (20,270
    )
    
    
    (5.8
    )%
  Three Months Ended March 31,Increase/
    
    
    Percent2007
    
    
    2006
    
    
    (Decrease)
    
    
    ChangeAccident and health
    
    $
    26,269
    
    
    $
    6,899
    
    
    $
    19,370
    
    
    
    280.8
    %Personal automobile
    
    
    561
    
    
    
    897
    
    
    
    (336
    )
    
    
    (37.5
    )%Homeowners
    
    
    1,429
    
    
    
    1,695
    
    
    
    (266
    )
    
    
    (15.7
    )%Surety
    
    
    3,374
    
    
    
    2,600
    
    
    
    774
    
    
    
    29.8
    %Total gross premiums written in other
    
    $
    31,633
    
    
    $
    12,091
    
    
    $
    19,542
    
    
    
    161.6
    %
 22




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##### Table of Contents



Casualty gross premiums written
 
 Property gross premiums written
  Other gross premiums written
  Net premiums written
  Premiums earned
  Losses and loss adjustment expenses
   23




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##### Table of Contents



Underwriting expenses
    Investment results
  Three Months EndedMarch 31,2007
    
    
    2006Average investments, at book value1
    
    $
    3,993,057
    
    
    $
    3,652,945Investment income
    
    $
    35,413
    
    
    $
    56,458Realized investment gains
    
    
    14,474
    
    
    
    121,822Pre-tax equity in earnings of investees
    
    
    6,716
    
    
    
    2,860Change in unrealized investment gains and losses and foreign currency translation
    
    
    (7,015
    )
    
    
    (136,175
    )Total return on investments
    
    $
    49,588
    
    
    $
    44,965Annualized total return on investments
    
    
    5.0
    %
    
    
    4.9
    %
 
 1
    
    Includes cash and cash equivalents and assets pledged for short-sale obligations.      Interest and other expense
  24




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##### Table of Contents



Liquidity and Capital Resources
 Holding company
    Insurance subsidiaries
   
  At March 31, 2007Cost or
    
    
    Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    UnrealizedCost
    
    
    Gains
    
    
    Losses
    
    
    Fair ValueFixed income securities:United States government and government agencies
and authorities1
    
    $
    2,168,049
    
    
    $
    5,312
    
    
    $
    133,887
    
    
    $
    2,039,474States, municipalities and political subdivisions
    
    
    4,879
    
    
    
    17
    
    
    
    4
    
    
    
    4,892Other corporate fixed income securities
    
    
    11,701
    
    
    
    324
    
    
    
    511
    
    
    
    11,514Total fixed income securities
    
    
    2,184,629
    
    
    
    5,653
    
    
    
    134,402
    
    
    
    2,055,880Equity securities:Common stocks
    
    
    660,389
    
    
    
    42,005
    
    
    
    17,666
    
    
    
    684,728Preferred stocks
    
    
    8,090
    
    
    
    523
    
    
    
    
    
    
    
    8,613Total equity securities
    
    
    668,479
    
    
    
    42,528
    
    
    
    17,666
    
    
    
    693,341Total available-for-sale securities
    
    $
    2,853,108
    
    
    $
    48,181
    
    
    $
    152,068
    
    
    $
    2,749,221
 
 1
    
    Includes U.S. Treasuries pledged for short-sale obligations at a fair value of
$129,151 (cost of $134,515). 25




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##### Table of Contents



Accounting for Certain Hybrid Financial Instruments
- an amendment of FASB Statements Nos. 133 and 140
 Ratings
  26




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##### Table of Contents



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
     Interest Rate Risk
  At March 31, 2007Fair Value ofFixed Income
    
    Hypothetical
    
    HypotheticalPortfolio
    
    $ Change
    
    % Change200 basis point decline
    
    $
    2,769,225
    
    
    $
    568,582
    
    
    
    25.8
    %100 basis point decline
    
    $
    2,461,145
    
    
    $
    260,502
    
    
    
    11.8
    %Base scenario
    
    $
    2,200,643
    
    
    $
    
    
    
    
    100 basis point increase
    
    $
    1,984,279
    
    
    $
    (216,364
    )
    
    
    (9.8
    )%200 basis point increase
    
    $
    1,799,123
    
    
    $
    (401,520
    )
    
    
    (18.2
    )%
  Equity Price Risk
   27




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##### Table of Contents



Foreign Currency Exchange Rate Risk
  
 ITEM 4. CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
  Internal Control Over Financial Reporting
   
 Part II
OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
   28




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##### Table of Contents



ITEM 5. OTHER INFORMATION
 Tender Offer, Consent Solicitation and New Senior Notes
   
 Changes to Board of Directors
  
 ITEM 6. EXHIBITS
 See Index to Exhibits.
 29




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##### Table of Contents



SIGNATURES
  CRUM & FORSTER HOLDINGS CORP.
(Registrant)Date:  May 3, 2007
    By:
    /s/  Nikolas AntonopoulosNikolas AntonopoulosPresident and Chief Executive OfficerDate:  May 3, 2007
    By:
    /s/  Mary Jane RobertsonMary Jane RobertsonExecutive Vice President, Chief Financial Officer and Treasurer 30




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##### Table of Contents



INDEX TO EXHIBITS
 Exhibit No.*  10.40
    
    
    Amendment Number 1 to the Investment Agreement among Hamblin Watsa, Fairfax and The
North River Insurance Company effective as of January 1, 2005.*  10.41
    
    
    Amendment Number 1 to the Investment Agreement among Hamblin Watsa, Fairfax and Crum &
Forster Insurance Company effective as of January 1, 2005.*  31.1
    
    
    Certification of President and Chief Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.*  31.2
    
    
    Certification of Executive Vice President, Chief Financial Officer and Treasurer
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*  32.1
    
    
    Certification of President and Chief Executive Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.*  32.2
    
    
    Certification of Executive Vice President, Chief Financial Officer and Treasurer
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.99.1
    
    
    Risk Factors (incorporated into Part II of this Form 10-Q by reference to the section
entitled Risk Factors in the Companys Annual Report on Form 10-K for the year ended
December 31, 2006 filed with the Securities and Exchange Commission on March 9, 2007).
 
 *
    
    Filed herewith 31